UNITED STATES
                     SECURITIES AND EXCHANGE COMMISSION
                           WASHINGTON, D.C.  20549

                                  FORM 10-K

      x  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
         0F THE SECURITIES EXCHANGE ACT OF 1934

      For the fiscal year ended December 31, 1998

      Commission file number (0-18173)


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

              DELAWARE                               03-0321189
   (State or other jurisdiction of                (I.R.S. Employer
   incorporation or organization)                Identification No.)

         300 FINANCIAL PLAZA                            05401
            P.O. BOX 5420                            (Zip Code)
         BURLINGTON, VERMONT
(Address of principal executive offices)

                               (802) 658-9959
            (Registrant's telephone number, including area code)

         Securities registered pursuant to Section 12(g) of the Act:
                  Common Stock (Par Value $1.00 per share)
                   Associated Common Share Purchase Rights

      Indicate by check mark whether the Registrant (l) has filed all 
reports required to be filed by Section l3 or l5(d) of the Securities 
Exchange Act of l934 during the preceding l2 months (or for such shorter 
period that the registrant was required to file such reports), and (2) has 
been subject to such filing requirements for the past 90 days.
Yes  [x]    No  [ ]

      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 the 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.

      The aggregate market value of the voting stock held by non-affiliates 
of the registrant, based on the closing price on March 15, 1999 was 
$646,737,241.

As of March 15, 1999, 23,201,336 shares of the registrant's  common stock 
were issued and outstanding.

                     DOCUMENTS INCORPORATED BY REFERENCE

The following documents, in whole or in part, are specifically incorporated 
by reference in the indicated Part of this Annual Report on Form 10-K:

<TABLE>
<CAPTION>
      Document                                                               Part
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      <S>                                                                    <C>
      Annual Report to Shareholders For the Year Ended December 31, 1998     I,II
      Proxy Statement for the 1999 Annual Meeting of Shareholders            III
</TABLE>


Table of Contents

<TABLE>
<CAPTION>
                                                                                         Page
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<S>                                                                                       <C>
Management's Discussion and Analysis of Financial Condition and Results of Operations      3

Five Year Selected Financial Data                                                         29

Summary of Unaudited Quarterly Financial Information                                      30

Management's Statement of Responsibility                                                  31

Independent Auditors' Report                                                              32

Consolidated Statements of Income                                                         33

Consolidated Balance Sheets                                                               34

Consolidated Statements of Changes in Shareholders' Equity                                35

Consolidated Statements of Cash Flows                                                     36

Notes to Consolidated Financial Statements                                                37

Form 10-K                                                                                 64

Signatures                                                                                70

Glossary of Terms                                                                         71

</TABLE>

Management's Discussion and Analysis of Financial Condition
 and Results of Operations

      The financial review which follows focuses on the factors affecting 
the consolidated financial condition and results of operations of Banknorth 
Group, Inc. ("Banknorth" or "Company") during 1998 and, in summary form, the 
preceding two years. Net interest income and net interest margin are 
presented in this discussion on a fully taxable equivalent basis (f.t.e.). 
Balances discussed are daily averages unless otherwise described. The 
consolidated financial statements and related notes and the quarterly 
reports to shareholders for 1998 should be read in conjunction with this 
review. Amounts in prior period consolidated financial statements are 
reclassified whenever necessary to conform to the 1998 presentation. On 
December 31, 1998, the shareholders of Banknorth Group, Inc. and Evergreen 
Bancorp, Inc. ("Evergreen") of Glens Falls, New York approved a merger 
between the two organizations. Evergreen was merged with and into Banknorth 
on that date with each issued and outstanding share of Evergreen common 
stock converted into 0.9 shares of Banknorth common stock. This resulted in 
approximately 7.9 million in additional shares of Banknorth common stock 
issued. All of the historical financial information in this annual report 
has been restated for the effect of this transaction, which was accounted 
for as a pooling-of-interests.
      Except for historical information contained herein, the matters 
contained in this review are "forward-looking statements" that involve risk 
and uncertainties, including statements concerning future events or 
performance and assumptions and other statements which are other than 
statements of historical facts. The Company wishes to caution readers that 
the following important factors, among others, could in the future affect 
the Company's actual results and could cause the Company's actual results 
for subsequent periods to differ materially from those expressed in any 
forward-looking statement made by or on behalf of the Company herein:

      *     the effect of changes in laws and regulations, including federal 
            and state banking laws and regulations, with which the Company 
            and its banking subsidiaries must comply, the cost of such 
            compliance and the potentially material adverse effects if the 
            Company or any of its banking subsidiaries were not in 
            substantial compliance either currently or in the future as
            applicable; 
      *     the effect of changes in accounting policies and practices, as 
            may be adopted by the regulatory agencies as well as by the 
            Financial Accounting Standards Board, or changes in the 
            Company's organization, compensation and benefit plans;
      *     the effect on the Company's competitive position within its 
            market area of increasing consolidation within the banking 
            industry and increasing competition from larger "super regional" 
            and other banking organizations as well as non-bank providers of 
            various financial services;
      *     the effect of certain customers and vendors of critical systems 
            or services failing to adequately address issues relating to 
            becoming year 2000 compliant;
      *     the effect of unforeseen changes in interest rates; 
      *     the effects of changes in the business cycle and downturns in 
            the local, regional or national economies;
      *     the effect of lower than expected revenues or cost savings from 
            the recently completed merger with Evergreen Bancorp, Inc. and 
            acquisition of the Berkshire branches;
      *     the effect of higher than expected costs and unanticipated 
            difficulties related to the cost of integration of acquired 
            businesses and operations;
      *     the effect of other risks and uncertainties discussed throughout 
            this report as well as those discussed in the Company's Annual 
            Report on Form 10-K for the year ended December 31, 1997 and its 
            Current Report on Form 8-K dated July 31, 1998.

      The Company wishes to caution readers not to place undue reliance on 
any forward-looking statements, which speak only as of the date made, and to 
advise readers that various factors, including those described above, could 
cause the Company's actual results or circumstances for future periods to 
differ materially from those anticipated or projected. 
      The Company does not undertake, and specifically disclaims any 
obligation, to publicly release the result of any revisions, which may be 
made to any forward-looking statements to reflect the occurrence of 
anticipated or unanticipated events or circumstances after the date of such 
statements.

OVERVIEW
      Banknorth's net income, after $16.3 million of after-tax merger and 
acquisition expenses relating to two transactions in the fourth quarter of 
1998, was $28.9 million, compared to $41.8 million for the year ended 
December 31, 1997. Basic earnings per share ("EPS") was $1.24, and diluted 
EPS was $1.22 for the year ended December 31, 1998, compared to $1.76 basic 
EPS, and $1.74 diluted EPS for the year ended December 31, 1997. Operating 
earnings, without the 1998 merger and acquisition expenses or the 1997 gain 
on sale of merchant processing, were $45.2 million or $1.91 per diluted 
share, and $40.2 million or $1.67 per diluted share for the years ended 
December 31, 1998 and 1997, respectively. The 1998 operating results do not 
include any of the cost savings to be realized from the Evergreen merger as 
the merger was completed December 31, 1998. Management expects the savings 
to be realized by the second half of 1999.
      During the year 1998, Banknorth completed two merger and acquisition 
transactions:
      *     In November 1998, Banknorth purchased eleven branches, 
            representing $291.5 million in deposits, in the Berkshires 
            region of Massachusetts from BankBoston, N.A. These branches 
            became part of First Massachusetts Bank, N.A. ("FMB"), a 
            subsidiary bank of Banknorth. 
      *     On December 31, 1998, Banknorth completed its merger with 
            Evergreen. Evergreen has $1.1 billion in assets, $971.9 million 
            in deposits and 280 employees and will continue to operate as 
            Evergreen Bank, N.A., a banking subsidiary of Banknorth.
      *     As a result of these two transactions, the Company also acquired 
            approximately $1.5 billion in investment assets to be managed by 
            The Stratevest Group, N.A., ("Stratevest") Banknorth's 
            investment and financial management subsidiary.

MERGER AND ACQUISITION ACTIVITY
Evergreen Bancorp, Inc.
      On December 31, 1998, the shareholders of Banknorth and Evergreen 
approved a merger between the two organizations. Evergreen was merged with 
and into Banknorth with each issued and outstanding share of Evergreen 
common stock, together with associated preferred purchase rights, converted 
into 0.9 shares of Banknorth common stock, plus cash in lieu of any 
fractional share interest. This resulted in approximately 7.9 million in 
additional shares of Banknorth common stock issued, bringing Banknorth's 
outstanding shares to approximately 23.2 million immediately following the 
merger.
      Evergreen Bank, N.A. ("Evergreen Bank"), a national bank and formerly 
Evergreen's sole banking subsidiary, will continue to operate its banking 
business, as a wholly owned subsidiary of Banknorth. Evergreen Bank operates 
28 offices in 8 counties in eastern upstate New York, throughout an area 
extending from the Massachusetts border fifty miles south of Albany, north 
to the Canadian border. Evergreen Bank serves commercial, individual, 
institutional and municipal customers with a wide range of deposit and loan 
products. As of December 31, 1998, Evergreen Bank had total assets of $1.1 
billion and deposits of $971.9 million.
      In order to effect the merger, one-time merger related expenses of 
$20.1 million, ($15.1 million after-tax impact), were incurred in the fourth 
quarter of 1998. The majority of these expenses were employment-related 
costs and data processing conversion and termination costs. Further, 
approximately $700 thousand of after-tax conversion related expenses are 
expected to be realized in the first quarter of 1999 as the systems 
conversions are completed. For additional information on merger and 
acquisition expenses, see note 2 to the Company's consolidated financial 
statements.
      The merger qualified as a tax-free reorganization and was accounted 
for as a pooling-of-interests. At the time the merger was announced, both 
companies announced the recision of their previously announced stock 
repurchase programs. 
      All historical financial information in this annual report has been 
restated for the combination of the two companies.

First Massachusetts Bank-Berkshires Region
      On November 13, 1998, Banknorth completed the purchase from 
BankBoston, N.A. of ten full-service branches, one limited service branch 
and nine remote ATM locations, as well as private banking relationships 
associated with the branches in the Berkshire region of Massachusetts. 
      In connection with the Berkshire acquisition, Banknorth paid 
BankBoston, N.A. a fixed premium of $52.5 million. At the closing, the 
deposits of the Berkshire branches were approximately $290.1 million, 
including accrued interest. Banknorth also purchased in the transaction 
commercial loans associated with the branches with a net book balance as of 
November 13, 1998 of approximately $73.6 million and a portfolio of consumer 
loans originated in the branches with a net book balance of $35.8 million. 
In addition, the Company received approximately $122.5 million in cash as 
consideration for the net liabilities assumed. The Berkshire acquisition 
(other than the private banking relationships) was made through First 
Massachusetts Bank, N.A. (a Banknorth subsidiary) headquartered in 
Worcester, Massachusetts, and has extended that bank's central Massachusetts 
territory westward to the border of New York State and contiguous to the 
southern reach of Evergreen's New York market area. The formation of First 
Massachusetts Bank in 1996 is discussed below under the caption "First 
Massachusetts Bank-Worcester Region".
      The private banking relationships associated with these branches, 
which as of closing represented approximately $1.0 billion of trust and 
investment assets under management, including approximately $750 million in 
discretionary trust assets under management, were acquired by Stratevest.
      The transaction was accounted for under purchase accounting rules. As 
such, both the assets acquired and liabilities assumed have been recorded on 
the consolidated balance sheet of the Company at estimated fair value as of 
the date of acquisition. Goodwill, representing the excess of cost over net 
assets acquired, was $54.8 million, substantially all of which is deductible 
for income tax purposes, and is being amortized over fifteen years on a 
straight-line basis. The one-time acquisition-related expenses of $1.8 
million pre-tax, or $1.2 million after-tax, were recorded in the fourth 
quarter of 1998. To complete the transaction, Banknorth reallocated capital 
resources through payment of a special dividend to Banknorth by its 
subsidiary banks, except FMB, of approximately $21.5 million.
      The results of operations for the branches and private banking 
relationships acquired are included in Banknorth's consolidated financial 
statements from the date of acquisition forward, which represented six weeks 
in 1998.

First Massachusetts Bank-Worcester Region
      On February 13, 1996, Banknorth completed the purchase of thirteen 
banking offices of Shawmut Bank, N.A. in central and western Massachusetts. 
A new subsidiary, First Massachusetts Bank, N.A., ("FMB"), with principal 
offices in Worcester, Massachusetts was organized to own and operate the 
acquired offices. The transaction was accounted for under purchase 
accounting rules and resulted in the assumption of $560.3 million in 
deposits, the acquisiton of $405.7 million in loans and fixed assets, and 
$32.1 million in goodwill. In addition, the Company received approximately 
$122.4 million in cash as consideration for the net liabilities assumed. To 
complete this transaction, Banknorth issued 2,044,446 shares of common stock 
in February, 1996. The net proceeds of $32.2 million were used to provide a 
portion of the initial capital of FMB and to help offset the reduction in 
the Company's regulatory capital ratios resulting from the acquisition.
      An important aspect of Banknorth's strategic direction is controlled, 
profitable growth through acquisition. The Company continues to focus its 
attention on possible acquisition candidates in New England and upstate New 
York. Minimal book value dilution coupled with future accretion to the 
earnings base, are the primary criteria, which must be met.

ASSET/LIABILITY MANAGEMENT
      In managing its asset portfolios, Banknorth utilizes funding and 
capital sources within sound credit, investment, interest rate and liquidity 
risk guidelines. Loans and securities are the Company's primary earning 
assets with additional capacity invested in money market instruments. 
Earning assets were 91.61% and 93.73% of total assets at December 31, 1998 
and 1997, respectively.
      Banknorth, through its management of liabilities, attempts to provide 
stable and flexible sources of funding within established liquidity and 
interest rate risk guidelines. This is accomplished through core deposit 
products offered within the markets served by the Company as well as through 
the prudent use of purchased liabilities. 
      Banknorth's objectives in managing its balance sheet are to limit the 
sensitivity of net interest income to actual or potential changes in 
interest rates, and to enhance profitability through strategies that promise 
sufficient reward for understood and controlled risk. The Company is 
deliberate in its efforts to maintain adequate liquidity, under prevailing 
and forecasted economic conditions, and to maintain an efficient and 
appropriate mix of core deposits, purchased liabilities and long-term debt.

Guaranteed Preferred Beneficial Interests in 
 Corporation's Junior Subordinated Debentures
      On May 1, 1997, Banknorth established Banknorth Capital Trust I (the 
"Trust"), which is a statutory business trust formed under Delaware law upon 
filing a certificate of trust with the Delaware Secretary of State. The 
Trust exists for the exclusive purposes of (i) issuing and selling 30 year 
guaranteed preferred beneficial interests in Corporation's junior 
subordinated debentures ("capital securities") in the aggregate amount of 
$30.0 million at 10.52%, (ii) using the proceeds from the sale of the 
capital securities to acquire the junior subordinated debentures issued by 
the Company and (iii) engaging in only those other activities necessary, 
advisable or incidental thereto. The junior subordinated debentures are the 
sole assets of the Trust and, accordingly, payments under the junior 
subordinated debentures are the sole revenue of the Trust. Banknorth owns 
all of the common securities of the Trust. The Company has used the net 
proceeds from the sale of the capital securities for general corporate 
purposes. The capital securities, with associated expense that is tax 
deductible, qualify as Tier I capital under regulatory definitions. The 
Company's primary source of funds to pay interest on the debentures are 
current dividends from subsidiary banks. Accordingly, the Company's ability 
to service the debentures is dependent upon the continued ability of the 
subsidiary banks to pay dividends.

Earning Assets
      Earning assets were $3.8 billion during 1998, an increase of $273.5 
million, or 7.7%, from 1997. Table A, Mix of Average Earning Assets, 
presents information relating to the mix of earning assets during the last 
three years.
      Loans. Total loans of $2.8 billion at December 31, 1998, were $195.0 
million, or 7.4%, above year-end 1997. The increase in total loans from 1997 
levels is attributable to the $109.4 million in loans received in the 
Berkshire branch acquisition, the strong commercial loan demand in the 
Massachusetts market and improved lending activity in Vermont and New 
Hampshire. The strong commercial loan demand offset a decline in the real 
estate mortgage portfolio as a result of refinancing activity. During 1997, 
management supplemented its in-market loan originations with the purchase of 
residential real estate loans originated by other financial institutions in 
an effort to replace loans maturing or prepaying, thus supporting the level 
of earning assets. No such purchases were made in 1998.  Table B, Loan 
Portfolio, provides the detailed components of the loan portfolio as of 
year-end, for each of the last five years.
      Commercial, financial and agricultural loans at December 31, 1998 were 
$690.2 million representing 24.3% of total loans. The 1998 balance, $123.9 
million higher than at December 31, 1997, reflects approximately $73.6 
million of loans acquired in the Berkshire acquisition and increased lending 
activity in the markets served by the Company. Banknorth offers a wide range 
of commercial credit products and services to its customers. These include 
secured and unsecured loan products specifically tailored to the credit 
needs of the customer, underwritten with terms and conditions reflective of 
portfolio risk objectives and corporate earnings requirements. 
      Commercial real estate loans increased $51.9 million, or 9.2%, during 
1998 to reach $615.5 million at December 31, 1998. This category is 
comprised primarily of mortgages on owner-occupied income producing 
properties or businesses. In most cases, the Company maintains banking 
relationships with these customers. 
      Residential real estate loans, $1.0 billion at December 31, 1998, were 
$40.6 million lower than at year-end 1997 as a result of high refinancing 
activity. Banknorth Mortgage Company, Inc. ("BMC") acts as a supplier of 
residential real estate mortgage loan assets for the banking subsidiaries, 
thereby allowing the banks to place assets on their balance sheet, which 
meet desired rate and repricing characteristics. Loans made by BMC are the 
primary means by which the Company replaces runoff in its portfolio, which 
occurs through scheduled principal payments as well as loan pre-payments.
      Installment loans, including credit card and lease receivables, were 
$444.1 million at December 31, 1998, $51.8 million, or 13.2% higher than at 
December 31, 1997. The majority of the increase was the result of the 
Berkshire acquisition, which contributed $35.8 million in installment loans. 
Further, lease receivables, made up primarily of automobile leases, 
increased $2.7 million, or 3.5% over 1997. The increase in lease volume is 
indicative of increased consumer preference towards automobile leasing over 
traditional financing. In 1997, Banknorth began offering its lease and 
indirect financing products under the name Northgroup Financial Services.
      Loans held for sale. Loans designated as held for sale are primarily 
single-family mortgages, originated by the Company's mortgage banking 
subsidiary or purchased through its wholesale lending operation, awaiting 
sale into the secondary market or to other Banknorth subsidiaries. Loans 
held for sale were $43.0 million at December 31, 1998 and $25.0 million at 
December 31, 1997. The increase in the balance outstanding was primarily the 
result of the significant refinancing activity in 1998 given the low 
interest rate environment. The production level experienced in 1998, as well 
as loans sold to the secondary market, was at record high levels for BMC. 
New loan originations and refinancing activity is expected to remain strong 
into the first quarter of 1999 as the number of applications pending and 
loans in various stages of production are at high levels as of December 31, 
1998. Subsequent to the first quarter of 1999, management expects the level 
of mortgage originations to return to more normal levels.
      The majority of loans originated by BMC are sold to the secondary 
market. Certain production, primarily adjustable rate, is retained by the 
Company to be held in its mortgage portfolio. This is accomplished by the 
sale of originated loans to the banking subsidiaries. At the time of sale, 
the assets are moved from the held for sale category at the lower of cost or 
market value, and reflected as mortgage loans on the Company's consolidated 
financial statements. During 1998 and 1997, $91.5 million and $97.7 million, 
respectively, of mortgage originations were retained in such a manner by the 
Company's subsidiary banks.
      Securities available for sale. The portfolio is managed on a total 
return basis with the objective of exceeding the return that would be 
experienced if investing solely in U.S. Treasury instruments. This category 
of investments is used primarily for liquidity purposes while simultaneously 
producing earnings. The portfolio is managed according to prudent policy 
limits established for average duration, average convexity and average 
portfolio life. 
      The designation of "available for sale" is made at the time of 
purchase, based upon management's intent to hold the securities for an 
indefinite period of time; however, these securities are available for sale 
in response to changes in market interest rates, related changes in the 
securities prepayment risk, needs for liquidity, or changes in the 
availability of, and yield on alternative investments. These securities are 
purchased under assumptions relating to liquidity and performance 
characteristics, and may be sold or transferred to securities held to 
maturity, when circumstances warrant. Sales may also occur when liquidity or 
other funding needs arise. On a regular basis, horizon analyses are 
performed for a 6-12 month time horizon to evaluate the need for re-
balancing the portfolio.
      Securities available for sale totaled $1.1 billion at December 31, 
1998 as compared to $958.6 million at December 31, 1997. The 1998 balance is 
stated net of a fair value adjustment reflecting net unrealized gains of 
$5.9 million, whereas the December 1997 balance is net of a fair value 
adjustment reflecting net unrealized gains of $5.3 million. During 1998, 
cash flow generated by the investment securities held to maturity portfolio 
was re-invested in the available for sale portfolio resulting in 
approximately $38.1 million of additional investments in the available for 
sale category. The remaining increase in the available for sale portfolio 
was primarily due to investing excess liquidity as a result of deposit 
growth.
      In January 1998, Banknorth sold approximately $85.5 million of balloon 
mortgage-backed securities. While the sales resulted in a net loss of $504 
thousand, the enhanced yield received through re-investment resulted in 
recovery of the loss within six months. In addition to recovering the $504 
thousand loss incurred from the sale, Banknorth received additional interest 
income of approximately $523 thousand during 1998 and anticipates 
approximately $994 thousand in improved interest income in 1999 as a result 
of this sale. The new securities purchased, as well as the characteristics 
of the total portfolio after the transaction, meet all established corporate 
guidelines.
      In the fourth quarter of 1997, Banknorth purchased $40.0 million of 
bank-owned life insurance ("BOLI"). Further discussion of BOLI is provided 
later in this document.  Securities available for sale were allowed to 
mature or were sold in order to provide the funding necessary to implement 
the bank-owned life insurance program.
      Investment securities held to maturity. The designation "investment 
securities held to maturity" is made at the time of purchase or transfer 
based upon the intent and ability to hold these securities until maturity. 
The management of this portfolio focuses on yield and earnings generation, 
liquidity through cash flow and interest rate risk characteristics within 
the framework of the entire balance sheet. Cash flow guidelines and average 
duration targets have been established for management of this portfolio. As 
of December 31, 1998, the balance of securities in this category was $20.5 
million, $38.1 million below the balance at December 31, 1997. The primary 
cause of the reduced portfolio size was the continued reinvestment of 
maturities throughout 1998 into the available for sale portfolio. 
      Table D, Securities Available for Sale and Investment Securities Held 
to Maturity contains details of investment securities at December 31, 1998, 
1997, and 1996.
      Money market investments. Money market investments, primarily Federal 
funds sold, averaged $26.0 million during 1998, $30.1 million in 1997 and 
$29.7 million in 1996. As of December 31, 1998, money market investments 
were $4.9 million as compared to $71 thousand at December 31, 1997. 
Subsidiary banks with excess overnight cash positions invest such funds with 
other subsidiary banks that may have short-term funding needs. This internal 
settlement, performed prior to purchasing funds in the market, reduces 
funding costs and improves overall liquidity.
      Income on earning assets. The Company's income from earning assets, 
total interest income, was $310.3 million in 1998 on a fully tax equivalent 
basis, an increase of $14.3 million, or 4.8%, from the 1997 total of $295.9 
million, and $48.4 million higher than in 1996. Of the increase in interest 
income from 1997 to 1998, $21.4 million was the result of increases in 
earning assets. Decreases in the yields on earning assets resulted in a 
decline in interest income of $7.1 million. In 1998, the average yield on 
total earning assets was 8.14% as compared to 8.34% in 1997 and 8.46% in 
1996. 
      Table F, Average Balances, Yields and Net Interest Margins and Table 
H, Volume and Yield Analysis, contain details of changes by category of 
interest income from earning assets for each of the last three years.

Funding Sources 
      Banknorth utilizes various traditional sources of funding to support 
its earning asset portfolios. Average total funding in 1998 increased by 
$283.8 million, or 8.4%, over the average for 1997. Table G, Average Sources 
of Funding, presents the various categories of funds used and the 
corresponding average balances for each of the last two years as well as the 
changes by category for 1998, 1997 and 1996.
      Deposits. Total core deposits increased $228.1 million, or 8.3%, over 
1997.  NOW and money market accounts increased by $212.0 million and non-
interest bearing deposits increased $43.7 million, while regular savings 
declined $25.5 million. Approximately $35.9 million of the increase on 
average in 1998 was the result of the Berkshire acquisition.
      Purchased liabilities. Total purchased liabilities increased on 
average from $608.3 million during 1997 to $666.8 million during 1998. As of 
December 31, 1998, total short-term borrowed funds were $281.6 million as 
compared to $449.9 million at December 31, 1997. Short-term borrowed funds 
from the FHLB decreased significantly from $263.0 million at December 31, 
1997 to $30.0 million at December 31, 1998. The decrease in short-term 
borrowed funds was the result of paydowns made after receipt of cash in the 
acquisition of the Berkshire branches and a refinancing of approximately 
$30.0 million to longer-term debt at more favorable rates. Banknorth had no 
brokered deposits during 1998 or 1997. Long-term advances from the Federal 
Home Loan Bank increased on average from $34.5 million during 1997 to $53.9 
million in 1998. Scheduled maturities of short-term advances were replaced 
with long-term advances in response to movements in interest rates while 
maintaining the Company's interest rate risk profile within established 
guidelines.
      Bank Debt. Average bank debt of $9.9 million during 1998 primarily 
represents the 1994 funding of the acquisition of North American Bank 
Corporation ("NAB"). As previously disclosed, Banknorth financed the 
transaction with a bank credit facility whose original terms were re-
negotiated in December 1996. The re-negotiated  terms provide improved 
pricing and an extension of the repayment period. The balance of $7.8 
million at December 31, 1998 will be repaid in three years. Additionally, 
there was $463 thousand in bank debt at December 31, 1998 related to the 
funding of the Employee Stock Ownership Plan of Evergreen Bank. This loan is 
an adjustable rate loan that will mature in 2000. 
      Interest expense summary. Total interest expense was $144.7 million in 
1998, an increase of $11.3 million, or 8.5%, as compared to 1997. Increased 
levels of interest-bearing liabilities contributed $10.7 million to the 
increase while the increase in rates paid increased interest expense by $600 
thousand. The cost of interest bearing liabilities was 4.47% in 1998, an 
increase of 2 basis points from 1997. 
      Tables F, Average Balances, Yields and Net Interest Margins and Table 
H, Volume and Yield Analysis, contain details of changes by category of 
interest expense for each of the last three years.
      Time deposits, in denominations of $100 thousand and greater, at 
December 31, 1998 were scheduled to mature as follows:

<TABLE>

<S>                     <C>
3 months or less        $112,738
Over 3 to 6 months        48,792
Over 6 to 12 months       59,302
Over 12 months            18,239
                        --------
      Total             $239,071
                        ========
</TABLE>

Net Interest Income
      Net interest income for 1998 of $165.6 million was $3.0 million, or 
1.9% higher than that recognized in 1997. The yield on earning assets 
declined by 20 basis points in 1998 to 8.14%, while the cost of interest 
bearing liabilities increased 2 basis points. Of the change in net interest 
income of $3.0 million, $10.7 million was due to increased volume offset by 
a $7.7 million decline due to changes in interest rates. The net interest 
margin was 4.34% in 1998, 4.58% in 1997 and 4.89% in 1996.
      Interest rates generally decreased during 1998, the result of which 
was a decrease in the yield on earning assets. During the fourth quarter of 
1998, the net interest margin was 4.31%, 3 basis points below the margin for 
the full year of 1998. The net interest margin narrowed during 1998 as 
competition for quality credits and retail deposits resulted in a tighter 
spread between asset yields and deposit costs. A changing mix of deposits 
where higher cost deposits, such as money market accounts, are increasing 
faster than lower cost deposits also contributed to the narrowing margin.  
      Also impacting the net interest margin during 1997 and 1998 was the 
issuance of $30.0 million in capital securities in May 1997.  During 1997, 
in an effort to increase interest income sufficient to offset the carrying 
cost of the capital securities, the Company purchased approximately $120.0 
million in earning assets. This leveraging strategy was intended to be 
short-term in nature, until an appropriate long-term use was found. With the 
Berkshire branch purchase in November 1998 and the subsequent restructuring 
of the subsidiary banks' balance sheets, the leverage was effectively 
removed by year-end 1998.  
      Further, the purchase of $40.0 million of BOLI in the fourth quarter 
of 1997 adversely impacted the net interest margin as securities available 
for sale were allowed to mature or were sold in order to provide the funding 
necessary to implement the bank-owned life insurance program. The earnings 
from BOLI are recorded as other non-interest income.

RISK MANAGEMENT
Credit Risk
      Credit risk is managed through a network of loan officer authorities, 
credit committees, loan policies and oversight from the corporate senior 
credit officer and subsidiary boards of directors. Management follows a 
policy of continually identifying, analyzing and grading credit risk 
inherent in each loan portfolio. An ongoing independent review, subsequent 
to management's review, of individual credits is performed on each 
subsidiary bank's commercial loan portfolios by the independent Loan Review 
function. 
      As a result of management's ongoing review of the loan portfolio, 
loans are placed in non-accrual status, either due to the delinquent status 
of principal and/or interest payments, or a judgment by management that, 
although payments of principal and/or interest are current, such action is 
prudent. Loans are generally placed in non-accrual status when principal 
and/or interest is 90 days overdue, except in the case of consumer loans, 
which are generally charged off when loan principal and/or interest payments 
are 120 days overdue.
      Non-performing assets ("NPAs"). Non-performing assets include non-
performing loans, which are those loans in a non-accrual status, loans which 
have been classified as troubled debt restructurings and loans past due 90 
days or more which are still accruing interest. Also included in the total 
non-performing assets are foreclosed and repossessed non-real estate assets.
      NPAs were $24.3 million at December 31, 1998, an increase of $1.1 
million, or 4.5%, from December 31, 1997. The increase in NPAs was caused by 
the designation of one $5.9 million commercial credit as a troubled debt 
restructured loan ("TDR") in the third quarter of 1998. The principal and 
interest payments on the loan were current throughout 1998 and the 
classification of TDR was removed in early 1999 as the result of the 
rewritten loan being at market interest rate. At that time, NPAs fell to 
approximately $19.0 million. NPAs at December 31, 1996 were $26.9 million. 
The ratio of NPAs to loans plus other real estate owned and repossessed 
assets at December 31, 1998, was .86% compared to .88% at year end 1997. 
Table I, Non-Performing Assets, contains the details of NPAs for the last 
five years.
      Non-performing loans ("NPLs") at December 31, 1998 were $21.0 million, 
a net increase of $514 thousand, or 2.5%, from December 31, 1997.
      The recorded investment in loans considered to be impaired totaled 
$13.7 million as of December 31, 1998 and $10.8 million as of December 31, 
1997. The related allowances for loan losses on these impaired loans were 
$2.0 million and $1.3 million as of December 31, 1998 and 1997, 
respectively. At December 31, 1998 and 1997, there were no impaired loans 
which did not have an allowance for loan losses determined in accordance 
with SFAS 114.
      Although NPLs showed a slight increase year to year due to the one 
$5.9 million commercial loan designated as restructured, non-accrual loans 
decreased $5.6 million or 31.1% reflecting relative improvement in the 
overall credit quality of the loan portfolio. Delinquency rates experienced 
in the residential portfolio are consistent with trends seen regionally and 
nationally. Given the possibility of increases in interest rates, management 
expects that certain credits may encounter difficulty in continuing to 
perform under the contractual terms of their loans should rates actually 
increase. While this occurrence might result in increases in NPLs and 
subsequent charge-offs, management does not expect it to materially affect 
the Company's performance in 1999.
      As of December 31, 1998, management is not aware of any credits that 
pose significant adverse risk to eventual full collection.
      Total other real estate owned and repossessed assets were $3.3 million 
at the end of 1998, up $540 thousand from one year earlier.
      Allowance for loan losses and provision. The allowance for loan losses 
is maintained at a level estimated by management to provide adequately for 
risk of loss inherent in the current loan portfolio. The adequacy of the 
allowance for loan losses is monitored monthly. It is assessed for adequacy 
using a methodology designed to ensure the level of the allowance reasonably 
reflects the loan portfolio's risk profile. It is also evaluated to ensure 
that it is sufficient to absorb probable credit losses inherent in the 
current loan portfolio. 
      For purposes of evaluating the adequacy of the allowance, the Company 
considers a number of significant factors that affect the collectibility of 
the portfolio. For individually analyzed loans, these include estimates of 
loss exposure, which reflect the facts and circumstances that affect the 
likelihood of repayment of such loans as of the evaluation date. For 
homogenous pools of loans, estimates of the Company's exposure to credit 
loss reflect a thorough assessment of a number of factors, which could 
affect loan collectibility. These factors include: the size, trend, 
composition, and nature; changes in lending policies and procedures, 
including underwriting standards and collection, charge-off and recovery 
practices; trends experienced in non-performing and delinquent loans; past 
loss experience; economic trends in the Company's market; portfolio 
concentrations that may affect loss experienced across one or more 
components of the portfolio; the effect of external factors such as 
competition, legal and regulatory requirements; and the experience, ability, 
and depth of lending management and staff. In addition, various regulatory 
agencies, as an integral component of their examination process, 
periodically review the Company's allowance for loan losses.
      After a thorough consideration and validation of the factors discussed 
above, required additions to the allowance for loan losses are made 
periodically by charges to the provision for loan losses. These charges are 
necessary to maintain the allowance at a level which management believes is 
reasonably reflective of overall inherent risk of loss in the portfolio. 
While management uses available information to recognize losses on loans, 
additions to the allowance may fluctuate from one reporting period to 
another. These fluctuations are reflective of changes in risk associated 
with portfolio content and/or changes in management's assessment of any or 
all of the determining factors discussed above.
      Table J, Summary of Loan Loss Experience, includes an analysis of the 
changes to the allowance for the past five years. Loans charged off in 1998 
were $11.7 million, or .44% of average loans. This represents an improvement 
over the prior year when charge-offs totaled $12.4 million, or .48% of 
average loans. Recoveries in 1998 on loans previously charged off were $6.2 
million as compared to $5.6 million in 1997.
      The provision for loan losses ("provision") in 1998 was $9.3 million, 
or .35% of average loans. In 1997, the provision was $9.4 million, or .36% 
of average loans while in 1996, the provision was $7.0 million, or .30% of 
average loans. The Company has experienced significant growth in higher 
credit risk loan portfolios during 1998, as well as continued loan growth in 
the Massachusetts market area through FMB, which was formed in 1996. 
Commercial loans have increased by $123.9 million, or 21.9%, to $690.2 
million at December 31, 1998, while installment loans have increased by 
$51.8 million, or 13.2%, to $444.1 million at December 31, 1998. FMB's loan 
portfolio increased by $131.1 million, or 27.5%, from $477.2 million at 
December 31, 1997 to $608.3 million at December 31, 1998. The growth in 
these loan portfolios was somewhat offset by the improved credit performance 
in 1998 versus 1997, as discussed above, and accordingly the 1998 provision 
is consistent with 1997.
      The increase in the provision from 1996 to 1997 relates to the 
Company's increased experience in working in the Massachusetts market, which 
the Company entered in 1996 with the formation of a new banking subsidiary, 
FMB. As discussed previously, the Company acquired approximately $396.9 
million of loans from Shawmut. The balance in this portfolio grew to $477.2 
million at December 31, 1997. These loans are primarily in the Massachusetts 
market area, an area that the Company had not done business in prior to 
1996. As the Company worked with these acquired loans and became more 
familiar with the Massachusetts market area, and as this portfolio grew and 
matured, the Company determined that an increased allowance for loan losses 
was necessary. Accordingly, the provision in 1997 was increased from 1996. 
The Company has found that delinquency and charge-off rates in the 
Massachusetts market are higher than the market areas the Company's other 
subsidiary banks operate in. As a result, an increase in the provision from 
1996 to 1997 was necessary.
      No portion of the allowance is restricted to any loan or group of 
loans, and the entire allowance is available to absorb realized losses. The 
amount and timing of realized losses and future allowance allocations may 
vary from current estimates. Table K. Allocation of the Allowance for Loan 
Losses presents the breakdown of the allowance for loan losses by loan type 
for the latest five year ends.

Market Risk
      Interest rate risk is the most significant market risk affecting the 
Company. Other types of market risk, such as foreign currency exchange rate 
risk and commodity price risk, do not arise in the normal course of the 
Company's business activities. 
      The responsibility for balance sheet risk management oversight is the 
function of the Asset/Liability Committee ("ALCO"). The corporate ALCO, 
chaired by the chief financial officer and composed of various subsidiary 
presidents and other members of corporate senior management, meets on a 
monthly basis to review balance sheet structure, formulate strategy in light 
of expected economic conditions, and review performance against guidelines 
established to control exposure to the various types of inherent risk. Bank 
subsidiary ALCOs meet on a more frequent basis to adjust product prices as 
necessary.
      Interest rate risk can be defined as an exposure to a movement in 
interest rates that could have an adverse effect on the Company's net 
interest income. Interest rate risk arises naturally from the imbalance in 
the repricing, maturity and/or cash flow characteristics of assets and 
liabilities. Management's objectives are to measure, monitor and develop 
strategies in response to the interest rate risk profile inherent in the 
Company's consolidated balance sheet and off-balance sheet financial 
instruments.
      Interest rate risk is managed by the Corporate ALCO. Interest rate 
risk measurement and management techniques incorporate the repricing and 
cash flow attributes of balance sheet and off-balance sheet instruments as 
they relate to potential changes in interest rates. The level of interest 
rate risk, measured in terms of the potential future effect on net interest 
income, is determined through the use of modeling and other analytical 
techniques under multiple interest rate scenarios. Interest rate risk is 
evaluated on a quarterly basis and reviewed by the Corporate ALCO with 
subsidiary risk profiles presented to the respective boards of directors. 
      The Company's Asset Liability Management Policy, approved annually by 
the boards of directors, establishes interest rate risk limits in terms of 
variability of net interest income under rising, flat and decreasing rate 
scenarios. It is the role of the ALCO to evaluate the overall risk profile 
and to determine actions to maintain and achieve a posture consistent with 
policy guidelines.
      Certain imbalances causing interest rate risk to exceed policy limits 
are correctable through management of asset and liability product offerings. 
Depending upon the specific nature of the imbalance, it may be more 
efficient and less costly to utilize off-balance sheet instruments such as 
interest rate swaps, interest rate corridors, and interest rate cap or floor 
agreements, among other things, to correct the imbalance. Banknorth has 
utilized swaps, corridors and floors to address certain interest rate risk 
exposures. 
      Significant portions of the Company's loans are adjustable or variable 
rate resulting in reduced levels of interest income during periods of 
falling rates. Certain categories of deposits reach a point in this instance 
where market forces prevent further reduction in the rate paid on those 
instruments. The net effect of these circumstances is reduced interest 
income offset only by a nominal decrease in interest expense, thereby 
narrowing the net interest margin. Additionally, the interest rate risk 
characteristics of the loans and deposits purchased with the Shawmut 
branches in 1996 exacerbated the potential for reduced interest income under 
those circumstances. To protect the Company from this occurrence, interest 
rate floors in the notional amount of $295.0 million were used to mitigate 
the potential reduction in interest income on certain adjustable and 
variable rate loans.  Further, in May 1998, the Company sold interest rate 
swaps in the notional amount of $50.0 million previously in use for a net 
gain of $254 thousand. This gain is being amortized into interest income 
over the original remaining term of the initial swap contracts of 
approximately one year. The swaps were sold in order to reduce interest rate 
risk sensitivity of the Company. In late 1998, interest rate corridors in 
the notional amount of $50 million and interest rate swaps in the notional 
amount of $50 million were entered into in order to mitigate the reduction 
in interest income in a period of rising rates. In a period of quickly 
rising interest rates, certain deposit products will reprice more rapidly 
than certain assets potentially causing a reduction in interest income. 
These contracts were designed to make a portion of the Corporation's fixed 
rate loans sensitive to rising rates.
      The aggregate cost of the interest rate floors was $2.8 million, which 
is being amortized, as an adjustment to the related loan yield on a 
straight-line basis over the terms of the agreements. At December 31, 1998, 
the unamortized balance of these interest rate floors was $920 thousand. The 
estimated fair value of these floors was $3.1 million as of December 31, 
1998. The estimated fair value of the interest rate swap contracts and 
interest rate corridor contracts were $292 thousand and $440 thousand, 
respectively, as of December 31, 1998.
      Banknorth utilizes an interest rate risk model widely recognized in 
the financial industry to monitor and measure interest rate risk. The model 
simulates the behavior of interest income and expense of all on and off 
balance sheet financial instruments under different interest rate scenarios 
together with a dynamic future balance sheet. Banknorth measures its 
interest rate risk in terms of potential changes in net interest income.
      The model requires that assets and liabilities be broken into 
components as to fixed, variable, and adjustable interest rates as well as 
other homogeneous groupings which are segregated as to maturity and type of 
instrument. Cash flows and maturities are then determined, and for certain 
assets, prepayment assumptions are estimated under different rate scenarios. 
Repricing margins, caps, and ceilings are also determined for adjustable 
rate assets. 
      Interest income and interest expense are then simulated under three 
rate conditions. First, a flat rate scenario is created in which today's 
prevailing rates are locked in and the only balance sheet fluctuations that 
occur are due to cash flows, maturities, new volumes, and repricing volumes 
consistent with this flat rate assumption. The second condition is a 200 
basis point rise in rates over a twelve (12) month horizon together with a 
dynamic balance sheet. Finally, there is a 200 basis point decline in rates 
over a 12 month period together with a dynamic balance sheet. Next, the 
simulation is extended to twenty-four (24) months to determine the interest 
rate risk with the level of interest rates stabilizing in months 13 through 
24 at a plus or minus 200 basis points from today's levels. Even though 
rates remain stable during this 13 to 24 month time period, the balance 
sheet has growth similar to the first twelve months as well as repricing 
opportunities driven by maturities, cash flow, and adjustable rate products 
which will continue to change the risk profile. Changes in net interest 
income are then measured against the flat rate interest scenario. In 
addition to the parallel simulation, interest rate risk is regularly 
measured under various non-parallel yield curve shifts, pricing, and balance 
sheet assumptions. 
      Table L. Interest Rate Risk summarizes the percentage change in 
interest income and expense by significant earning asset and interest 
bearing liability categories, as well as net interest income from the 
forecasted net interest income expected in the flat rate scenario, described 
above, to the expected net interest income in the rising rate and falling 
rate scenarios also described above during the next 12 months, the 13 to 24 
month time frame, as well as the 1 to 24 month time frame. As of December 
31, 1998, based on various assumptions through the use of the Company's 
interest rate risk simulation model described above, any reduction in net 
interest income from the Company's flat-rate (given no changes in the 
December 31, 1998 interest rate levels) forecasted change in net interest 
income, would not exceed 5% from the flat rate scenario in months 1 through 
12 under any of the parallel interest rate scenario used in the analysis 
during the 12 month horizon. This level of variability places the Company's 
interest rate risk profile within acceptable policy guidelines. 
      A tool used by some in the banking industry for measuring interest 
rate risk is interest rate sensitivity gap ("gap") analysis. This approach 
attempts to measure the difference between assets and liabilities repricing 
or maturing within specified time periods.
      A gap analysis has several significant limitations, which renders it 
less meaningful to Banknorth than the above-discussed analysis. These 
limitations include the fact that it is a static measurement, it does not 
capture basis risk, and it does not capture risk that varies non-
proportionally with rate movements. The selection of the beginning and 
ending dates of the time intervals used as gap buckets as well as the size 
of the time interval can mask interest rate risk. Assets and liabilities do 
not always have clear repricing dates and many loans and deposits reprice 
earlier than their contractual maturities indicate. Gap analysis is also 
unable to properly reflect the impact on net interest income of certain 
interest rate floors. Such complexities are better addressed by the 
Company's simulation model which, over the 24 month horizon, shows future 
levels of net interest income to be relatively neutral to changes in the 
interest rate environment as a result of the Company's active asset 
liability management practices.

Liquidity Risk
      Banknorth seeks to obtain favorable sources of liabilities and to 
maintain prudent levels of liquid assets in order to satisfy varied 
liquidity demands. Besides serving as a funding source for maturing 
obligations, liquidity provides flexibility in responding to customer 
initiated needs. Many factors affect the Company's ability to meet liquidity 
needs, including variations in the markets served by its network of offices, 
its mix of assets and liabilities, reputation and credit standing in the 
marketplace, and general economic conditions.
      The Company actively manages its liquidity position through target 
ratios established under its liquidity policy. Continual monitoring of these 
ratios, both historically and through forecasts under multiple interest rate 
scenarios, allows Banknorth to employ strategies necessary to maintain 
adequate liquidity. Management has also defined various degrees of adverse 
liquidity situations that could potentially occur and has prepared 
appropriate contingency plans should such situations arise.
      The Company achieves its liability-based liquidity objectives in a 
variety of ways. Net liabilities can be classified into three basic 
categories for the purpose of managing liability-based liquidity: core 
deposits, purchased liabilities and long-term or capital market funds. Core 
deposits consist of non-interest bearing demand deposits and retail 
deposits. These deposits result from relatively dependable customers and 
commercial banking relationships and are therefore viewed as a stable 
component of total required funding. Average core deposits increased from 
1997 to 1998 by $228.1 million, or 8.3%. The Berkshire acquisition added 
significantly to the deposit balances. Core deposits represented 81.5% of 
total funding in 1998 and 81.7% in 1997. Banknorth will continue to seek 
funding in the most efficient and cost effective manner as is possible. 
Table G. reflects the components of funding over the last three years.
      Among the traditional funding instruments comprising the category of 
purchased liabilities are time deposits $100 thousand and greater, Federal 
funds purchased, securities sold under agreement to repurchase, borrowings 
from the United States Treasury Department (Treasury Tax and Loan accounts), 
and short and long-term borrowings from the FHLB. The average balance of 
purchased liabilities in 1998, as reflected in Table G, was $666.8 million, 
$58.5 million or 9.6% higher than in 1997. Purchased liabilities represented 
18.2% of total net funding in 1998 as compared to 17.9% in 1997.
      One of the principal components of short-term borrowed funds is 
securities sold under agreement to repurchase. These borrowings generally 
represent short-term uninsured customer investments, which are secured by 
Company securities. During 1998, the average securities sold under agreement 
to repurchase were $164.9 million, as compared to $142.5 million in 1997. 
      Long-term funding, primarily through the FHLB, increased during 1998 
by $19.4 million as short-term notes from the FHLB were replaced with 
longer-term more favorable rate FHLB debt .
      As previously discussed, the Company utilized financial institution 
borrowings pursuant to a five year credit facility to finance the NAB 
acquisition. The Company's primary source of funds to pay principal and 
interest under this credit facility is dependent upon the continued ability 
of the subsidiary banks to pay dividends in an amount sufficient to service 
such debt. 
      A secondary source of liquidity is represented by asset-based 
liquidity. Asset-based liquidity consists of holdings of securities 
available for sale and short-term money market investments that can be 
readily converted to cash, as well as single-family mortgage loans held for 
sale in the secondary market. Alternatively, these assets may be pledged to 
secure short-term borrowed funds.
      The Company also uses the capital markets as a source of liquidity. In 
May 1997, the Company established a trust to issue and sell $30.0 million in 
capital securities. The net proceeds were used for general corporate 
purposes. In February 1996, the Company issued 2,044,446 shares of common 
stock resulting in $32.2 million in net proceeds which were used to provide 
a portion of the initial capital of FMB and to help offset the reduction in 
the Company's regulatory capital ratios resulting from the acquisition. 

Off-Balance Sheet Risk
      Commitments to extend credit. Banknorth makes contractual commitments 
to extend credit and extends lines of credit which are subject to the 
Company's credit approval and monitoring procedures. At December 31, 1998 
and 1997, commitments to extend credit in the form of loans, including 
unused lines of credit, amounted to $903.1 million and $618.8 million, 
respectively. In the opinion of management, there are no material 
commitments to extend credit that represent unusual risks.
      Letters of credit and stand-by letters of credit. Banknorth guarantees 
the obligations or performance of customers by issuing letters of credit and 
stand-by letters of credit to third parties. These letters of credit are 
frequently issued in support of third party debt, such as corporate debt 
issuances, industrial revenue bonds and municipal securities. The risk 
involved in issuing letters of credit and stand-by letters of credit is 
essentially the same as the credit risk involved in extending loan 
facilities to customers, and they are subject to the same credit 
origination, portfolio maintenance and management procedures in effect to 
monitor other credit and off-balance sheet products. At December 31, 1998 
and 1997, outstanding letters of credit and stand-by letters of credit were 
approximately $76.6 million and $67.5 million, respectively. An increase in 
the amount of institutional business, primarily hospitals, caused the 
majority of the increase year to year.
      Counterparty risk. Banknorth enters into interest rate swap, corridor 
and floor agreements under which the Company and the  counterparty are 
obligated to exchange interest payments on notional principal amounts. The 
contract or notional amount does not represent exposure to credit loss. The 
Company is exposed to risk should the counterparty default in its 
responsibility to pay interest under the terms of the agreement. Banknorth 
controls counterparty risk through credit approvals, limits and monitoring 
procedures.

OTHER OPERATING INCOME AND EXPENSES
      Other operating income is a significant source of revenue for 
Banknorth and an important factor in the Company's results of operations. 
Other operating income totaled $41.5 million in 1998, $3.6 million or 9.6% 
higher than in 1997 and $9.8 million or 30.9% higher than in 1996. The 1997 
amount includes a $2.4 million gain on the sale of merchant processing.
      Investment management income. The Stratevest Group, N.A., the 
Company's investment and financial management subsidiary, contributes the 
largest recurring portion of other operating income through fees generated 
from the performance of trust and investment management services. Income 
from trust and investment management services totaled $12.8 million in 1998, 
an increase of $1.6 million, or 14.4%, over 1997 and $2.6 million, or 25.7%, 
over 1996. The increase was the result of strong sales and market conditions 
as well as the increase in the portfolio as a result of the Berkshire branch 
acquisition. The Company's acquisition of approximately $1.0 billion in 
investment assets as a result of the Berkshire branches purchase in November 
1998 was added to the Stratevest portfolio of managed assets. This portion 
of the portfolio generated approximately $797 thousand in fees during the 
last two months of 1998 and is expected to have a significant impact on 
earnings in 1999. Total assets under management totaled $4.1 billion, 
including $2.6 billion under discretionary management, as of December 31, 
1998, compared to total assets under management of $2.7 billion, including 
$1.5 billion under discretionary management, as of December 31, 1997. Total 
assets under management were $2.3 billion as of December 31, 1996, including 
$1.3 billion under discretionary management. Continued opportunities for 
increases in the generation of Stratevest's income lie in increased sales in 
the Massachusetts, New York and New Hampshire markets. The Company is 
experiencing increased sales in these areas and, accordingly, management 
expects continued increased levels of trust and investment management income 
for 1999.
      Service charges on deposit accounts. Service charges on deposit 
accounts, $11.7 million in 1998, were $932 thousand, or 8.7% above 1997 and 
24.4% higher than in 1996. The increased service charges over the past two 
years were primarily the result of improved charge policies implemented in 
late 1997 and the Berkshire branch acquisition, which added approximately 
$291.5 million in deposits in 1998. During 1997, Banknorth reviewed and 
enhanced its policies and practices regarding service charges and service 
charge waivers. Accordingly, the level of fee income increased in late 1997 
and continued to improve in 1998. Further increases are expected in 1999 as 
the effect of the Berkshire branch acquisition is fully realized. 
      Mortgage banking income. Mortgage banking income, which is comprised 
of loan servicing income, net loan transactions and gains on the sale of 
mortgage servicing rights, amounted to $5.5 million for the year ended 
December 31, 1998. This category of income was up $825 thousand, or 17.7%, 
from the year ended December 31, 1997 and up $931 thousand, or 20.4%, from 
the year ended December 31, 1996. First, loan servicing income, primarily 
mortgage servicing at BMC, in 1998 was $1.6 million, a decrease of $950 
thousand, or 37.8%, from 1997 and a decrease of $1.3 million, or 45.0%, from 
1996. Although the balance of mortgage loans serviced for unrelated third 
parties increased slightly from $901.4 million at December 31, 1997 to 
$935.1 million at December 31, 1998, amortization of mortgage servicing 
rights and impairment valuation reserves increased causing a decline in loan 
servicing income. The amortization of mortgage servicing rights was $1.4 
million for 1998 compared to $1.1 million in 1997. This increase in 
amortization expense is primarily related to the growth in the capitalized 
mortgage servicing rights (MSRs) reflecting the continued application of new 
accounting rules adopted in 1996. Additionally, the Company established a 
valuation reserve of $500 thousand for impairment of MSRs in 1998 as a 
result of the high refinancing activity. No impairment valuation reserve was 
deemed necessary in 1997. The decline in loan servicing income from 1996 to 
1997 was primarily due to increased amortization as noted above and the 
decline in the portfolio of loans serviced. The amortization of MSRs was 
$962 thousand for the year ended December 31, 1996.
      The Company adopted SFAS No. 122, "Accounting for Mortgage Servicing 
Rights," in 1996, which was superseded by SFAS No. 125, "Accounting for 
Transfers and Servicing of Financial Assets and Extinguishments of 
Liabilities," as of January 1, 1997. These standards require that entities 
recognize as separate assets, the rights to service loans for others, 
regardless of how those servicing rights are acquired. Recognition of the 
MSRs results in an increased gain on sale or a decrease in the loss on sale 
of loans. MSRs are amortized into servicing fee income in proportion to, and 
over the period of, estimated net servicing income. Entities must measure 
the impairment of MSRs based on the difference between the carrying amount 
and the current estimated fair value of the MSRs.
      Given the growth in MSRs, which at December 31, 1998 had a net 
carrying value of $5.4 million as compared to $4.7 million at December 31, 
1997, management expects that MSR amortization expense will continue to 
increase. In addition, the current level of market interest rates is 
resulting in high levels of refinancing activity. During periods of high 
refinancing, the value of capitalized mortgage servicing rights declines and 
results in reduced levels of servicing income. Should interest rates remain 
at their relatively low levels throughout 1999, management expects a reduced 
level of servicing income. This reduction may, however, be offset to some 
degree by income resulting from increased levels of loan origination and 
sales.
      Additionally, the Company generates income through the sale of loans, 
primarily fixed rate loans, to the secondary market. A portion of the 
mortgage loans originated each year are generated through correspondent 
relationships with other institutions. Under these correspondent 
arrangements, the Company retains the servicing on these loans and the loans 
are normally sold to the secondary market. At various times, when sufficient 
correspondent loan servicing rights are accumulated, the correspondent 
servicing rights may be sold and the gain recorded. In September 1998, the 
Company executed a contract to sell $86 million of correspondent mortgage 
loans and the related servicing rights resulting in a net gain of $392 
thousand. In August 1997, the Company sold $130 million in correspondent 
mortgage loan and the related servicing rights resulting in a net gain of 
$896 thousand. These sales of the correspondent portfolio will occur 
periodically given favorable market conditions. In total, the gains on sale 
of mortgage servicing rights were $386 thousand, $921 thousand and $93 
thousand in 1998, 1997 and 1996, respectively. The servicing rights were 
comprised primarily of residential mortgages and second home mortgages of 
customers outside Banknorth's normal market area. 
      Thirdly, net loan transaction income is generated through the 
origination and subsequent sale of mortgage products into the secondary 
mortgage market. Net loan transaction income in 1998 of $3.4 million was 
significantly higher than 1997 and 1996 due to the strong loan production 
and sales throughout 1998 given the high level of refinancing activity in 
the current low rate environment. New loan originations and refinancing 
activity was high throughout the year and is expected to remain strong into 
the first quarter of 1999 as the number of applications pending and loans in 
various stages of production are at high levels as of December 31, 1998. 
Subsequent to the first quarter of 1999, management expects the level of 
mortgage originations to return to more normal levels. The volume of loan 
sales was lower in 1997 compared to 1996 resulting in a $394 thousand 
decline in net loan transaction revenue between these years.
      Card product income. Card product income decreased 29.7% in 1998 
compared to 1997 as a result of the sale of the Company's merchant 
processing business in December 1997. The gross merchant processing income 
in 1997 was approximately $1.4 million and, therefore, other sources of card 
product income were greater in 1998 than 1997 as the volume of debit card 
transactions increased given broader consumer acceptance and usage of the 
product. Card product income increased 4.5% from 1996 to 1997 given the 
increase in transactional volume experienced.
      Net securities transactions. Net gains or losses from securities 
transactions are also included in other operating income. In 1998, the 
Company realized $519 thousand in net securities gains as compared to 1997 
when it realized $266 thousand in gains and 1996 when it realized net gains 
in the amount of $25 thousand.  As previously disclosed in this discussion, 
in January 1998, given the market conditions, the investment securities 
portfolio was restructured within Banknorth guidelines.
      ATM income. ATM income represents the income generated from the ATM 
network operated by Banknorth. ATM income amounted to $2.3 million for the 
year ended December 31, 1998 compared to $1.4 million and $1.0 million for 
the years ended December 31, 1997 and 1996, respectively. The increase in 
ATM income over the last year is the result of a new initiative. In October 
1997, the Company commenced charging a terminal convenience fee for ATM 
transactions by non-customers. This fee allows the Company to recover a 
portion of the expense of operating the ATM network for the benefit of its 
customers and generated $1.1 million in fee income in 1998. The majority of 
increase in 1997 over 1996 was due to an increase in the number of ATMs in 
the network, primarily as a result of the establishment of FMB. Further, the 
Company recorded $234 thousand of the above noted convenience fees in 1997.
      Bank-owned life insurance. In the fourth quarter of 1997, Banknorth 
purchased $40.0 million of bank-owned life insurance ("BOLI").  The BOLI was 
purchased as a financing tool for employee benefits. The primary advantages 
of life insurance financing are the tax preferred status of life insurance 
cash values and death benefits and the cash flow generated at the death of 
the insured. The purchase of the life insurance policy results in an 
interest sensitive asset on the Company's consolidated balance sheet that 
provides monthly tax-free income to the Company. The largest risk to the 
BOLI program is credit risk of the insurance carriers. To mitigate this 
risk, annual financial condition reviews are completed on all carriers. In 
1998, the Company recorded $2.2 million in BOLI income compared to $77 
thousand in 1997. Securities available for sale were allowed to mature or 
were sold in order to provide the funding necessary to implement the bank-
owned life insurance program. As a result of this transaction, the Company 
benefits prospectively from the tax-free nature of income generated from the 
life insurance policies. In general, the yield received from the bank-owned 
life insurance is comparable to the yield previously received on the 
securities available for sale, thereby causing the Company's earnings stream 
to benefit from the tax characteristics of the bank-owned life insurance.
      Other income. Other income for 1998 exceeded 1997 levels by 
approximately $322 thousand, or 8.2% and 1996 levels by $796 thousand, or 
23.0%. The increase was primarily the result of the new official check 
process implemented in February 1998. This process generated $439 thousand 
during 1998.

Other Operating Expenses
      Other operating expenses were $152.7 million in 1998, including 
approximately $22.0 million in one-time merger and acquisition related 
expenses of the two transactions noted earlier. Excluding one-time expenses, 
other operating expenses were $130.8 million in 1998, $2.8 million, or 2.2% 
above expense levels in 1997, and $11.0 million, or 9.2% higher than in 
1996. The Company's efficiency ratio was 59.78% in 1998, down from 61.65% in 
1997 and 62.21% in 1996.  
      Compensation. Compensation expense increased by $2.4 million, or 4.8%, 
over 1997. The increase was primarily associated with the Company's various 
incentive compensation programs which are directly related to the overall 
performance of the Company as well as the obtainment of individual sales and 
performance objectives. Such incentive-based expenses were up $3.0 million 
in 1998 compared to 1997. 
      Offsetting these increases were declines in base salary expense and 
severance costs. Base salary expense and full-time equivalent staff numbers 
for the Company were actually down approximately $300 thousand and 75 full-
time equivalent staff, respectively, from the year ended December 31, 1997 
to December 31, 1998, despite the addition of the Berkshire branches. The 
Berkshire branches added approximately 85 full-time equivalent staff to the 
organization with salary expense of $360 thousand for the six weeks of 
operation in 1998.  Excluding the Berkshire branch addition, staffing levels 
were down approximately 160 full-time equivalent staff primarily due to cost 
saving initiatives implemented in late 1997.
      Additionally, the 1997 salaries expense included approximately $373 
thousand in severance compensation relating to the work force reduction 
noted above. This level of severance expense recorded as compensation was 
approximately $300 thousand higher than that experienced in 1998.  In 1998, 
severance expenses were incurred related to the Evergreen merger, however, 
these expenses were classified as one-time expenses for reporting purposes. 
Additional reductions to compensation expense are expected to be realized in 
the first six months of 1999 as duplicate positions created as a result of 
the Evergreen merger are eliminated. Also, in connection with the merger of 
the Banknorth and Evergreen defined benefit plans and related curtailment of 
the Evergreen Plan, the Company expects to realize a curtailment gain during 
1999.
       Net occupancy. Net occupancy expense during 1998 was $9.8 million, a 
decrease of $433 thousand, or 4.2% from 1997. Expenses in 1996 were $9.2 
million. The decrease in the net occupancy expenses from 1998 to 1997 was 
primarily the result of lower fuel and utilities expenses (approximately 
$200 thousand less in 1998) given weather and current market conditions and 
building maintenance costs (approximately $100 thousand less in 1998), 
coupled with increased rental income of $118 thousand. The increase in the 
costs from 1996 to 1997 was related to the full year of operation of FMB in 
1997, the new headquarters of FMB and new branches in New Hampshire at 
Farmington National Bank. 
      Equipment and software. Equipment and software expense was $9.4 
million, $9.4 million and $8.5 million in 1998, 1997 and 1996, respectively. 
Banknorth continuously invests in upgraded technology in order to offer 
enhanced products and services or to create operating efficiencies.  The 
increase from 1996 to 1997 was primarily the result of a full year of 
expense related to FMB and image-based item processing. During 1996, the 
Company implemented an image-based item processing and statement rendering 
system using electronic images of checks for filing and distribution to 
customers. Management expects equipment and software expenses to increase in 
1999 as a result of continued investment of additional technology, including 
a new automated platform system for the branch network.
      Data processing. Data processing fees include payments to Banknorth's 
vendors of mainframe systems and site management, credit card processing, 
ATM transaction processing and shareholder accounting services. Data 
processing fees totaled $6.9 million in 1998, $7.2 million in 1997 and $7.0 
million in 1996. The decline in this expense from 1997 to 1998 was the 
result of the aforementioned termination of the merchant processing 
contract. Generally, increases in these expenses are governed by contract 
terms relating to either volume of activity and/or changes in the consumer 
price index. 
      FDIC deposit insurance and other regulatory. FDIC deposit insurance 
and other regulatory expense in 1998 increased $55 thousand or 5.1% from 
1997 reflecting the growth in the deposit base. A large increase of 66.8% 
was experienced from 1996 to 1997 due to the increase in insurance premiums. 
The Federal Deposit Insurance Corporation Improvement Act mandated a 
reduction in insurance rates when the Bank Insurance Fund achieved a 1.25% 
reserve ratio. That target was reached in May 1995, resulting in reduced 
premiums for the third and fourth quarters of 1995. The reduced premium 
level continued through 1996. As of January 1, 1997, the Financing 
Corporation (FICO) debt service assessment became applicable to all insured 
institutions.
      Other real estate owned. Expenses relating to other real estate owned 
and repossessed assets decreased in 1998 by $380 thousand, to $1.1 million 
as compared to 1997. These expenses were $1.4 million in 1997 and $385 
thousand in 1996. Included in this expense category in 1998 are adjustments 
of other real estate to estimated fair value in the amount of $445 thousand 
and net gains on the sale of other real estate owned and repossessed assets 
in the amount of $288 thousand. Fair value adjustments in 1997 and 1996 were 
$438 thousand and $455 thousand, respectively, while net gains on sale in 
those years were $223 thousand and $891 thousand, respectively. Net expenses 
for maintenance, real estate taxes and property insurance relating to these 
properties amounted to $911 thousand, $1.2 million and $821 thousand in 
1998, 1997 and 1996, respectively. Management anticipates a level of other 
real estate owned and repossession expenses in 1999 similar to that 
experienced in 1998.
      Advertising and Marketing. Advertising and marketing expenses were 
$3.9 million in 1998, $442 thousand, or 12.9% higher than in 1997 and $332 
thousand or 9.4% higher than in 1996. In 1998, Banknorth introduced a market 
branding campaign and increased its marketing efforts in target markets. The 
marketing expenses in 1996 were higher due to the introduction of First 
Massachusetts Bank in Worcester.
      Communications. Communications expenses totaled $3.0 million in 1998, 
$2.9 million in 1997 and $2.8 million in 1996. The increase in communication 
expenses was primarily due to the expansion of the voice/data communications 
network to accommodate the Berkshire and Evergreen transactions.
      Amortization of goodwill. Amortization of goodwill was $5.7 million in 
1998 as compared to $5.3 million in 1997. The increased goodwill 
amortization is the result of the Berkshire acquisition which generated an 
additional $54.5 million in goodwill, or $3.6 million in amortization per 
year, as this goodwill will be amortized over 15 years. The increase in 1998 
represents 1.5 months of this increased amortization level. Goodwill expense 
was $4.7 million in 1996 as there was only 10.5 months of the FMB 
acquisition goodwill amortization in 1996. Based on existing goodwill, the 
1999 goodwill amortization expense is expected to be $8.9 million. Further, 
the goodwill related to the formation of FMB in 1996 is expected to be fully 
amortized by February 2003, thereby reducing this expense category at that 
point. 
      Capital securities. The capital securities issued in May 1997, which 
created additional Tier I capital, gave rise to expense of $3.2 million in 
1998 (full year) and $2.1 million in 1997 (partial year). As mentioned 
previously, incremental investment purchases were made in an effort to 
offset the cost of the capital securities through increased net interest 
income. Funding for the investments was primarily in the form of borrowings 
from the FHLB.
      Merger and acquisition related expenses.   The expenses incurred in 
the merger with Evergreen and the acquisition of the Berkshire branches 
amounted to approximately $22.0 million, or $16.3 million, after income tax 
effect. The expenses were primarily investment banking fees, legal and 
professional services, employment-related costs, data processing conversion 
and termination fees and checking reissuance costs. An additional $700 
thousand in after-tax expenses are expected to be incurred in the first 
quarter of 1999 as the systems conversion of Evergreen was completed on 
January 15, 1999.
      In 1996, the Company incurred $1.6 million in one-time expenses in the 
establishment of FMB. The majority of these expenses were check reissuance, 
professional services and printing costs for forms and legal notifications.
      For additional information on merger and acquisition expenses, see 
note 2 to the Company's consolidated financial statements.
      Other expenses. Other expenses totaled $13.0 million in 1998 and have 
declined since the 1996 level of $15.2 million. Expenses for directors' 
costs, insurance and postage have all declined over the last year. The 
directors' costs declined due the change in the deferred compensation plan 
for directors. Prior to July 1, 1997, the directors' deferred compensation 
plan was a cash based plan tied to the performance of Banknorth stock and, 
therefore, its expense was effected by the change in the stock price of 
Banknorth. The plan was amended as of July 1, 1997 such that the ultimate 
distribution of director deferred compensation will be made in Banknorth 
common stock based on the stock price at the time the fees are earned. This 
resulted in $362 thousand more in directors' expense in 1997 compared to 
1998. Insurance costs were also down in 1998 compared to 1997 and 1996. The 
only significant increase in other expenses was the $599 thousand increase 
in State of Vermont franchise tax mandated under the statewide education 
reform act. 

Subsidiary Bank Merger
      On July 30, 1998, the Company announced that it plans to merge one of 
its subsidiary banks, Woodstock National Bank, into another subsidiary bank, 
First Vermont Bank. The combination of the two banks is subject to 
regulatory approval and is expected to take place in the second quarter of 
1999 with Woodstock National Bank's three offices becoming branch offices of 
First Vermont Bank.

Year 2000 Compliance
      Historically, some computer software and hardware and firmware 
systems, and equipment or machinery with embedded processors or processing 
instructions (sometimes referred to as "embedded processors"), were written 
to recognize and process dates with the year written with two digits. For 
dates on or after January 1, 2000 (when four digits will be necessary to 
identify dates accurately), or for periods beginning before, and ending on 
or after January 1, 2000, such software, hardware and firmware systems and 
embedded processors may not be able to recognize or properly process dates 
or information including dates or time periods. Among other things, this may 
cause computers to produce incorrect information, to shut down, to cause 
other systems or equipment to shut down or malfunction, or to malfunction in 
other ways, and may cause equipment or machinery with embedded processors to 
malfunction or to shut down. This is often referred to as, among other 
things, the "Year 2000 problem."
      In order to assure to the extent possible that the Year 2000 problem 
does not impair their ability to do business or subject them to liability, 
companies are advised to determine whether and to what extent their 
information technology or physical resources may be affected by Year 2000 
problems, to repair, replace or retire the affected systems or assets, and 
to test the new systems or assets to assure that they will not be affected 
by the Year 2000 problem (which is often referred to as being "year 2000 
compliant"). Some new hardware, software or equipment, and some revisions or 
upgrades of hardware, software or equipment, may have so-called "bugs" or 
may prove to be incompatible with existing or other new or upgraded systems 
or components. As a result, the testing of the changed components, and of 
systems and subsystems as a whole, is critical and experience has shown that 
the process is time consuming.
      In order to protect the integrity of the banking system, the Federal 
Reserve Board and other federal banking regulatory agencies (collectively 
known as the "Federal Financial Institutions Examination Council," or 
"FFIEC") have issued guidelines to financial institutions for addressing the 
Year 2000 problem and set milestones that financial institutions are 
expected to meet in becoming Year 2000 compliant and testing to assure 
compliance. In broad outline, those guidelines provide that (i) by September 
30, 1997, financial institutions should have identified, assessed and begun 
remediation of mission critical systems; (ii) by June 30, 1998, institutions 
should be continuing remediation of mission critical systems and have 
completed development of testing strategies and plans; (iii) by September 1, 
1998, institutions should be continuing system remediation and should have 
begun testing of internal mission critical systems; (iv) by December 31, 
1998, institutions should have substantially completed testing of internal 
mission critical systems; (v) by March 31, 1999, institutions relying on 
service providers should have substantially completed system testing and all 
institutions should have begun external testing with third parties (such as 
other financial institutions, business partners and payment system 
providers); and (vi) by June 30, 1999, institutions should have completed 
testing of mission critical systems and substantially completed all 
implementation of those systems.
      Banknorth's Year 2000 remediation and compliance program (the "Year 
2000 Project") is managed by a Project Group consisting of representatives 
from more than 25 business units and functional departments within Banknorth 
and its subsidiaries. The Project is directed by a Banknorth Vice President 
who directly reports on the Project to Banknorth's Executive Vice President 
- Chief Information Officer. The Project is overseen by the Banknorth Board 
and the board of directors of each subsidiary.
      Banknorth has completed a preliminary assessment of all its computer 
software, hardware and firmware systems, and equipment and machinery with 
embedded processors (including vaults and other security systems, elevators 
and HVAC systems). Banknorth believes that it has identified all components, 
systems, equipment and databases that might not be able to function properly 
as a result of the Year 2000 problems and has formulated a plan to replace, 
upgrade or revise affected software, to upgrade or replace affected hardware 
and equipment, and to remediate affected data and databases. Banknorth 
substantially completed the replacements, upgrades and revisions of the 
affected software, hardware and equipment by December 31, 1998. Banknorth 
began compliance testing of components and systems in July 1998 and 
substantially completed its compliance testing of vital banking systems by 
the end of 1998. Testing will continue on an ongoing and industry-wide basis 
thereafter.
      Substantially all of Banknorth's mission critical systems are 
outsourced or are purchased software packages. As a result, much of the 
remediation and testing process is dependent on the accuracy of work 
performed by, and the Year 2000 compliance of software, hardware and 
firmware and equipment provided by, vendors. Banknorth has initiated 
discussions with its vendors and monitored their Year 2000 compliance 
programs and the compliance of their products or services with required 
standards. Where possible, Banknorth is also considering and where 
appropriate is arranging, alternate service or software providers in cases 
where it appears that vendors may not timely provide adequate solutions.
      The economic cost of the Year 2000 Project includes not just direct 
incremental amounts expended by Banknorth for repairing, upgrading or 
replacing hardware, software and facilities, but also the use of internal 
resources devoted to the Year 2000 Project that would otherwise have been 
devoted to other business opportunities. It is difficult to quantify the 
economic cost of internal resources of the Project. However, Banknorth 
estimates that over the life of this Project, between 1996 and 2000, it will 
utilize approximately $5.5 million to $7.5 million of internal resources on 
this effort. These are internal resources that would have been utilized for 
other business opportunities and do not necessarily represent additional 
operating expenditures or costs. As of December 31, 1998, approximately $4.0 
million of these amounts have been expended. Further, Banknorth's direct 
incremental expenditures for the Year 2000 Project are estimated at 
approximately $3.5 million over this five year period. The largest of these 
costs relates to the purchase and installation of the new branch platform. 
Although this estimate includes hardware and equipment expenditures, which 
would have been made even absent the Year 2000 problem as part of normal 
operations, they are included in the above estimates as the timing of these 
purchases and upgrades was accelerated due to the Year 2000 Project. As of 
December 31, 1998, approximately $850 thousand of the direct incremental 
expenditures have been made.
      Banknorth has commenced a customer awareness program to inform its 
customers (both depositors and borrowers) of the Year 2000 problem, 
Banknorth's responses to the problem and the potential impact of the problem 
on the customers and their business. Banknorth and its subsidiaries have had 
awareness sessions with their customers and are taking into account 
customers' Year 2000 compliance in evaluating and rating loans. Banknorth 
Group, Inc. is aware that if borrowers suffer losses or illiquidity because 
of their own Year 2000 problems (or the Year 2000 problems of others with 
whom they do business or on whom they are dependent) Banknorth's subsidiary 
banks may suffer credit losses or experience illiquidity. The standard loan 
documentation of Banknorth's subsidiary banks has been revised to include 
representations that the borrower is Year 2000 compliant and to give the 
bank the right to examine the borrower's systems and procedures in order to 
determine Year 2000 compliance.
      Banknorth believes that the key risk factors associated with the Year 
2000 are those it cannot directly control, primarily the readiness of key 
suppliers and service providers, the readiness of the public infrastructure, 
and as noted above, the readiness of its credit customers. However, 
Banknorth and its subsidiaries have developed contingency plans and 
strategies and so-called "work arounds" for each non-compliant system and 
the possible failure of systems and resources that have been tested as 
compliant. The contingency plans vary with the affected systems. Among other 
things, Banknorth has designated certain of its local banks as "key 
branches" and will equip them properly, so that the Banknorth banks can 
continue banking operations even if there are electrical outages because 
local utilities are not Year 2000 compliant. Banknorth is also arranging to 
have temporary help available so that, in event of the failure of a mission 
critical system, the functions affected by the system failure can be 
performed manually.
      The determination of the effect of Banknorth's own non-compliance with 
Year 2000 requirements or the non-compliance of its vendors or customers is 
complex and depends on numerous variables and unknowns. Without remediation, 
the failure of critical software systems at any of the Banknorth banks or at 
other banks could impair the ability of the banks to do business, the 
failure of large or numerous borrowers to timely pay their loans could 
impair the capital of one or more banks, and the failure of embedded 
processors would adversely affect the physical security of the banks. 
However, Banknorth believes that, as a result of its remediation and testing 
efforts and its contingency plans, that worst case scenario is not likely.

Core Tangible Performance
      After removing the impact of the balance of goodwill and the related 
period amortization, and merger and acquisition costs, "core tangible" 
performance for 1998, 1997 and 1996 was as follows:

<TABLE>
<CAPTION>
(Dollars in thousands, except share and per share data)        1998            1997            1996
                                                            -------------------------------------------

<S>                                                         <C>             <C>             <C>
Net income, as reported                                     $    28,920     $    41,816     $    35,703
Add:  Merger and acquisition costs, net of tax                   16,258               -           1,029
Add:  Amortization of goodwill, net of tax                        3,618           3,342           2,990
                                                            -------------------------------------------
"Core tangible income"                                      $    48,796     $    45,158     $    39,722
                                                            ===========================================

Average tangible assets                                     $ 4,026,822     $ 3,709,286     $ 3,260,084
Average tangible equity                                     $   287,324     $   269,474     $   240,643
Diluted weighted average shares                              23,669,540      24,042,800      23,860,882

"Core tangible" return on average tangible assets                  1.21%           1.22%           1.22%
"Core tangible" return on average tangible equity                 16.98%          16.76%          16.51%
"Core tangible" diluted earnings per share                  $      2.06     $      1.88     $      1.66
</TABLE>

All share and per share data has been restated to give retroactive effect to 
stock splits.

INCOME TAXES 
      In 1998, Banknorth recognized income tax expense of $14.5 million, as 
compared to $20.2 million in 1997 and $17.7 million in 1996. The decrease in 
1998 tax expense is primarily reflective of the one-time merger and 
acquisition expenses which reduced the 1998 pre-tax income level. The one-
time expenses consisted of $15.6 million of tax deductible expenses 
resulting in a $5.7 million tax benefit. Without the one-time expenses, tax 
expense in 1998 would have been $20.2 million or 30.9% of pre-tax earnings. 
The tax expense on the Company's income was lower than tax expense at the 
statutory rate of 35%, due primarily to tax-exempt income, including loans, 
securities and BOLI, as well as tax credits received on low-income housing 
projects.

REGULATORY ENVIRONMENT
      The banking industry in general is subject to various monetary and 
fiscal policies and regulations, which include those determined by the 
Federal Reserve Board, the Office of the Comptroller of the Currency, 
Federal Deposit Insurance Corporation and state banking regulators, which 
could affect the Company's results. Other factors that may cause actual 
results to differ from the forward-looking statements include competition 
with other local and regional banks, savings and loan associations, credit 
unions and other non-bank financial institutions, such as investment banking 
firms, investment advisory firms and brokerage firms, mutual funds and 
insurance companies, as well as other entities which offer financial 
services; changes in federal and state laws governing financial services; 
interest rate, market and monetary fluctuations; inflation; general economic 
conditions and economic conditions in the geographic regions and industries 
in which the Company operates; introduction and acceptance of new banking-
related products, services and enhancements, fee pricing strategies, mergers 
and acquisitions and their integration into the Company, and management's 
ability to manage these and other risks.

CAPITAL RESOURCES
      Consistent with its long-term goal of operating a sound and profitable 
financial organization, Banknorth strives to maintain a "well capitalized" 
company according to regulatory standards. Historically most of the 
Company's capital requirements have been provided through retained earnings, 
as indicated in Table M, Rate of Internal Capital Generation. 
      In October 1997, Banknorth announced a stock buyback plan. The Company 
planned to buy back up to 5%, or 782,665 shares of its outstanding common 
stock. As part of the merger with Evergreen, however, the stock buyback 
program was rescinded in July 1998. As of December 31, 1998, the Company 
held 369,300 treasury shares, all of which were purchased under the October 
1997 stock buy back plan. 
      The Company (including, prior to 1989, its corporate predecessors) has 
historically paid regular quarterly cash dividends on its common stock. This 
pattern was temporarily interrupted during 1991 and 1992 when the board of 
directors of the Company suspended payment of the regular cash dividend to 
better preserve the Company's capital in the face of increasing levels of 
non-performing loans requiring higher provisions for loan losses. As the 
Company's performance recovered, payment of regular quarterly cash dividends 
was resumed during the first quarter of 1993 at a level of $.05 per share. 
The quarterly dividend was increased in 1994 to a level of $.075 per share, 
to $.115 per share in 1995, to $.125 per share in 1996, $.145 per share in 
1997, $.16 per share in 1998 and most recently to $.18 per share in January 
1999. The Board makes decisions regarding payments of dividends based upon 
the Company's earnings outlook and other relevant factors.
      On February 24, 1998, the Board of Directors approved a 2-for-1 split 
of the Company's common stock effected in the form of a 100% stock dividend. 
The new shares were issued April 6, 1998, to shareholders of record on March 
20, 1998. The stock split was recorded as of December 31, 1997 by a transfer 
of $7.8 million from capital surplus to common stock, representing the $1.00 
par value for each additional share issued. Further, on August 15, 1996, the 
Board of Directors of the Evergreen Bancorp, Inc. approved a 2-for-1 split 
effected in the form of a 100% stock dividend and was recorded by a transfer 
of $4.3 million from capital surplus to common stock. All share and per 
share data has been restated to reflect the stock splits.
      The Company's principal source of funds to pay cash dividends and the 
cost of capital securities and to service long-term debt requirements is 
dividends from its subsidiary banks.  Various laws and regulations restrict 
the ability of banks to pay dividends to their shareholders. During 1998, as 
part of its plan to adequately capitalize FMB for regulatory purposes after 
the Berkshire acquisition and to allow Stratevest to purchase the private 
banking relationships associated with the Berkshire branches, the Company 
re-deployed accumulated capital of certain of its subsidiary banks through 
the payment of a special dividend. Because the special dividend paid by the 
subsidiary banks to effect the re-deployment exceeded applicable regulatory 
limitations, the subsidiary banks obtained approval from the applicable 
regulatory agencies for the payment of that portion of the dividend which 
exceeded such regulatory limitations.
      Additionally, in connection with the Evergreen merger, Evergreen Bank 
paid a special dividend to the parent company. As the special dividend 
exceeded applicable regulatory limitations, Evergreen Bank obtained approval 
from the OCC for the payment of that portion of the dividend which exceeded 
such regulatory limitations.
      As a result of these capital redeployments, the payment of dividends 
by the Company in the future will require the generation of sufficient 
future earnings by the subsidiary banks. For further disclosures relative to 
dividend restrictions and regulatory requirements, refer to the notes to the 
consolidated financial statements.
      At December 31, 1998, 1997 and 1996, the Company was well capitalized 
according to the regulatory definitions. Table N, Capital Ratios, reveals 
the components of capital and the changes from 1996 through 1998. In 
connection with the formation of FMB in 1996 and to maintain the Company's 
regulatory capital ratios as "well capitalized" following the acquisition of 
the Shawmut branches, Banknorth, on February 14, 1996, issued 2,044,446 
shares of common stock, generating $32.2 million of new capital. 
Additionally, in May 1997, the Company established a trust to issue and sell 
$30.0 million in capital securities which represented Tier I capital to the 
Company.
TABLE A.  Mix of Average Earning Assets

<TABLE>
<CAPTION>
                                                                                                     Percentage of
                                                    Years Ended December 31,         % of         Total Earning Assets
                                              ------------------------------------   Total     --------------------------
(Dollars in thousands)                           1998          1997        Change    Change     1998      1997      1996
                                              ---------------------------------------------------------------------------

<S>                                           <C>           <C>           <C>        <C>       <C>       <C>       <C>
Loans, net of unearned income
 and unamortized loan fees and costs:
  Commercial, financial and agricultural      $  591,601    $  554,467    $ 37,134    13.6%     15.5%     15.6%     16.3%
  Construction and land development               39,519        34,119       5,400     2.0       1.0       1.0       0.7
  Commercial real estate                         584,610       551,074      33,536    12.3      15.3      15.5      16.0
  Residential real estate                      1,059,073     1,054,980       4,093     1.5      27.7      29.8      31.3
  Credit card receivables                         28,859        22,455       6,404     2.3       0.8       0.6       0.7
  Lease receivables                               76,132        74,631       1,501     0.6       2.0       2.1       1.9
  Other installment                              304,375       287,020      17,355     6.3       8.0       8.1       9.5
                                              --------------------------------------------------------------------------

      Total loans, net of unearned  
       income and unamortized loan 
       fees and costs                          2,684,169     2,578,746     105,423    38.6      70.3      72.7      76.4

Securities available for sale:
  U.S. Treasuries and Agencies                   207,852       199,473       8,379     3.1       5.5       5.6       3.8
  States and political subdivisions                7,094         3,760       3,334     1.2       0.2       0.1         -
  Mortgage-backed securities                     555,405       449,790     105,615    38.6      14.5      12.7      13.4
  Corporate debt securities                      214,149       166,518      47,631    17.4       5.6       4.7       2.1
  Equities and other securities                   45,305        41,805       3,500     1.3       1.2       1.2       0.9
  Net unrealized gain (loss)                       8,272        (1,672)      9,944     3.6       0.2      (0.1)     (0.2)
                                              --------------------------------------------------------------------------

      Total securities available for sale, 
       at fair value                           1,038,077       859,674     178,403    65.2      27.2      24.2      20.0

Investment securities, held to maturity:
  U.S. Treasuries and Agencies                    12,628        30,018     (17,390)   (6.3)      0.3       0.8       0.9
  States and political subdivisions               12,573        13,545        (972)   (0.4)      0.3       0.4       0.5
  Mortgage-backed securities                      10,805        17,935      (7,130)   (2.6)      0.3       0.5       0.7
  Corporate debt securities                           10            10           -       -         -         -         -
                                              --------------------------------------------------------------------------

      Total investment securities, held  
       to maturity, at amortized cost             36,016        61,508     (25,492)   (9.3)      0.9       1.7       2.1

Loans held for sale                               35,708        16,481      19,227     7.0       0.9       0.5       0.5

Money market investments                          26,027        30,132      (4,105)   (1.5)      0.7       0.9       1.0
                                              --------------------------------------------------------------------------

Total earning assets                          $3,819,997    $3,546,541    $273,456   100.0%    100.0%    100.0%    100.0%
                                              ==========================================================================
</TABLE>


TABLE B.  Loan Portfolio

<TABLE>
<CAPTION>
                                                                    At December 31,
                          -----------------------------------------------------------------------------------------------------
                               1998                 1997                 1996                 1995                 1994
                          -----------------------------------------------------------------------------------------------------
(Dollars in thousands)    Amount    Percent    Amount    Percent    Amount    Percent    Amount    Percent    Amount    Percent
                          -----------------------------------------------------------------------------------------------------

<S>                     <C>         <C>      <C>         <C>      <C>         <C>      <C>         <C>      <C>         <C>
Commercial, financial,
 and agricultural       $  690,170   24.3%   $  566,300   21.4%   $  525,685   21.0%   $  459,250   23.6%   $  458,583   24.5%

Real estate:
  Construction and 
   land development         45,704    1.6        37,778    1.4        31,629    1.3        22,579    1.2        25,616    1.4
  Commercial               615,503   21.7       563,566   21.3       531,364   21.2       398,586   20.5       386,663   20.6
  Residential            1,041,667   36.7     1,082,235   41.0     1,018,964   40.6       723,483   37.1       715,526   38.1
                        -----------------------------------------------------------------------------------------------------

      Total real estate  1,702,874   60.0     1,683,579   63.7     1,581,957   63.1     1,144,648   58.8     1,127,805   60.1

Credit card receivables     33,205    1.2        25,669    1.0        24,563    1.0        26,867    1.4        26,174    1.4
Lease receivables           79,001    2.8        76,302    2.9        70,396    2.8        47,055    2.4        33,291    1.8
Other installment          331,856   11.7       290,244   11.0       303,166   12.1       268,011   13.8       229,377   12.2
                        -----------------------------------------------------------------------------------------------------

      Total installment    444,062   15.7       392,215   14.9       398,125   15.9       341,933   17.6       288,842   15.4
                        -----------------------------------------------------------------------------------------------------

Total loans              2,837,106  100.0     2,642,094  100.0     2,505,767  100.0     1,945,831  100.0     1,875,230  100.0

Less: Allowance for 
 loan losses                44,537    1.6        38,551    1.5        35,913    1.4        34,210    1.8        40,189    2.1
                        -----------------------------------------------------------------------------------------------------

Net loans               $2,792,569   98.4%   $2,603,543   98.5%   $2,469,854   98.6%   $1,911,621   98.2%   $1,835,041   97.9%
                        =====================================================================================================
</TABLE>


TABLE C.  Maturities and Sensitivities of Loans to Changes in Interest Rates

<TABLE>
<CAPTION>
                                                     At December 31, 1998, Maturing:
                                           ----------------------------------------------------
                                                         After 1 year
                                           In 1 year      but within       After
(In thousands)                              or less        5 years        5 years       Total
                                           ----------------------------------------------------

<S>                                        <C>             <C>            <C>          <C>
Commercial, financial and agricultural     $232,815        $247,830       $209,525     $690,170
Construction and land development            20,148          25,556              -       45,704
                                           ----------------------------------------------------

      Total                                $252,963        $273,386       $209,525     $735,874
                                           ====================================================

Predetermined interest rates               $107,057        $116,402       $114,528     $337,987
Floating interest rates                     145,906         156,984         94,997      397,887
                                           ----------------------------------------------------

      Total                                $252,963        $273,386       $209,525     $735,874
                                           ====================================================
</TABLE>


TABLE D.  Securities Available for Sale and Investment Securities Held to 
           Maturity

<TABLE>
<CAPTION>
                                                                        At December 31,
                                                              ------------------------------------
(Dollars in thousands)                                           1998         1997          1996
                                                              ------------------------------------

<S>                                                           <C>            <C>          <C>
Securities available for sale:
U.S. Treasuries and Agencies                                  $  165,683     $239,524     $140,671
States and political subdivisions                                  7,806        5,251        2,361
Mortgage-backed securities                                       711,540      464,405      416,641
Corporate debt securities                                        188,154      200,710      121,384
Equities and other securities                                     48,791       43,400       31,122
Net unrealized gain (loss)                                         5,891        5,263       (3,770)
                                                              ------------------------------------

Fair value of securities available for sale                   $1,127,865     $958,553     $708,409
                                                              ====================================

Investment securities, held to maturity:
U.S. Treasuries and Agencies                                  $    3,582     $ 29,385     $ 22,227
States and political subdivisions                                 11,443       13,555       12,117
Mortgage-backed securities                                         5,510       15,676       19,868
Corporate debt securities                                             10           10           10
                                                              ------------------------------------

Amortized cost of investment securities, held to maturity     $   20,545     $ 58,626     $ 54,222
                                                              ====================================

Fair value of investment securities, held to maturity         $   21,606     $ 59,832     $ 55,660
                                                              ====================================

Excess of fair value over recorded value                      $    1,061     $  1,206     $  1,438

Fair value as a % of amortized cost                                105.2%       102.1%       102.7%

<FN>
Note:  There were no holdings when taken in aggregate of any issuer(s) that 
       exceeded 10% of shareholders' equity at December 31, 1998.
</FN>
</TABLE>

TABLE E.  Investment Portfolio Maturity Distribution and Yields

<TABLE>
<CAPTION>
                                                     As of December 31, 1998
                                      ------------------------------------------------------
                                         Securities Available         Investment Securities
                                               For Sale                 Held to Maturity
                                      ------------------------------------------------------
(Dollars in thousands)                  Amount       Yield (FTE)     Amount      Yield (FTE)
                                      ------------------------------------------------------

<S>                                   <C>               <C>          <C>            <C>
U.S.Treasuries and Agencies:
  Within 1 year                       $   28,745        6.15%        $     -           -%
  1 to 5 years                            79,697        6.02           1,569        6.74
  6 to 10 years                           52,233        6.79               -           -
  Over 10 years                            5,008        6.18           2,013        7.52
                                      --------------------------------------------------
                                      $  165,683        6.29%        $ 3,582        7.18%
                                      ==================================================

State and political subdivisions:
  Within 1 year                       $      221        6.77%        $ 1,642        8.75%
  1 to 5 years                             3,827        6.72           5,420        8.81
  6 to 10 years                            3,758        7.12           3,347        8.51
  Over 10 years                                -          -            1,034        8.38
                                      --------------------------------------------------
                                      $    7,806       6.91%         $11,443        8.67%
                                      ==================================================

Mortgage-backed securities:
  Within 1 year                       $   46,398       6.23%         $    23        7.21%
  1 to 5 years                           213,604       6.18            4,461        7.47
  6 to 10 years                          115,682       6.52            1,001        9.82
  Over 10 years                          335,856       6.56               25        8.59
                                      --------------------------------------------------
                                      $  711,540       6.42%         $ 5,510        7.90%
                                      ==================================================

Other securities:
  Within 1 year                       $    6,508       5.97%         $     -           -%
  1 to 5 years                            40,799       6.36                -           -
  6 to 10 years                           32,095       6.55               10        7.00
  Over 10 years                          108,752       6.68                -           -
  No fixed maturity                       48,791       5.87                -           -
                                      --------------------------------------------------
                                      $  236,945       6.42%         $    10        7.00%
                                      ==================================================

Total securities:
  Within 1 year                       $   81,872       6.18%         $ 1,665        8.73%
  1 to 5 years                           337,927       6.17           11,450        8.00
  6 to 10 years                          203,768       6.61            4,358        8.81
  Over 10 years                          449,616       6.59            3,072        7.82
  No fixed maturity                       48,791       5.87                -           -
  Net unrealized gain                      5,891          -                -           -
                                      --------------------------------------------------
                                      $1,127,865       6.37%         $20,545        8.21%
                                      ==================================================

<FN>
Note:  Actual maturities may differ from contractual maturities because, in 
       certain cases, borrowers may have the right to call or prepay 
       obligations with or without call or prepayment penalties.
</FN>
</TABLE>

TABLE F.  Average Balances, Yields, and Net Interest Margins

<TABLE>
<CAPTION>
                                              1998                           1997                           1996
                                  -----------------------------  -----------------------------  -----------------------------
                                              Interest  Average              Interest  Average              Interest  Average
                                   Average    Income/   Yield/    Average    Income/   Yield/    Average    Income/   Yield/
(Dollars in thousands)             Balance    Expense    Rate     Balance    Expense    Rate     Balance    Expense    Rate
                                  -------------------------------------------------------------------------------------------


<S>                               <C>         <C>        <C>     <C>         <C>        <C>     <C>         <C>        <C>
Earning assets:
  Money market investments        $   26,027  $  1,438   5.53%   $   30,132  $  1,680   5.58%   $   29,663  $  1,622   5.47%
  Securities available for sale,
   at fair value (1 and 2)         1,038,077    65,898   6.40       859,674    55,292   6.42       619,390    38,810   6.22
  Loans held for sale                 35,708     2,565   7.18        16,481     1,281   7.77        14,834     1,150   7.75
  Investment securities, held
   to maturity (2)                    36,016     2,832   7.86        61,508     4,735   7.70        63,967     4,978   7.78
  Loans, net of unearned 
   income and unamortized 
   loan fees and costs 
   (2 and 3)                       2,684,169   237,530   8.85     2,578,746   232,931   9.03     2,362,251   215,261   9.11
                                  -----------------------------------------------------------------------------------------

      Total earning assets         3,819,997   310,263   8.14     3,546,541   295,919   8.34     3,090,105   261,821   8.46

Cash and due from banks              105,642                        101,023                        113,641
Allowance for loan losses            (41,144)                       (37,282)                       (36,650)
Other assets                         178,124                        132,887                        127,570
                                  ----------                     ----------                     ----------

      Total assets                $4,062,619                     $3,743,169                     $3,294,666
                                  ==========                     ==========                     ==========

Interest-bearing liabilities:
  NOW accounts & money 
   market savings                 $1,241,029    44,676   3.60    $1,028,987    35,323   3.43    $  945,578    30,115   3.18
  Regular savings                    309,341     7,968   2.58       334,796     8,805   2.63       360,660     9,560   2.65
  Time deposits $100 
   thousand and greater              222,277    12,375   5.57       184,273    10,249   5.56       143,671     7,979   5.55
  Time deposits under $100
   thousand                        1,012,054    55,462   5.48     1,014,224    55,066   5.43       946,513    50,528   5.34
                                  -----------------------------------------------------------------------------------------

      Total interest-bearing
       deposits                    2,784,701   120,481   4.33     2,562,280   109,443   4.27     2,396,422    98,182   4.10
  Short-term borrowed funds          390,641    20,138   5.16       389,586    20,827   5.35       163,208     8,094   4.96
  Long-term debt                      63,776     4,039   6.33        47,139     3,065   6.50        67,206     4,213   6.27
                                  -----------------------------------------------------------------------------------------

      Total interest-bearing
       liabilities                 3,239,118   144,658   4.47     2,999,005   133,335   4.45     2,626,836   110,489   4.21
                                  -----------------------------------------------------------------------------------------

Non-interest bearing deposits        429,272                        385,540                        359,058
Other liabilities                     41,108                         35,130                         33,547
Capital securities                    30,000                         20,137                              -
Shareholders' equity                 323,121                        303,357                        275,225
                                  ----------                     ----------                     ----------
Total liabilities, capital 
 securities and shareholders' 
 equity                           $4,062,619                     $3,743,169                     $3,294,666
                                  ==========                     ==========                     ==========
Net interest income                           $165,605                       $162,584                       $151,332
                                              ======================================================================

Interest rate differential                               3.67%                          3.89%                          4.25%
                                                         ==================================================================

Net interest margin                                      4.34%                          4.58%                          4.89%
                                                         ==================================================================

<FN>
Notes:
<F1>  For the purpose of these computations, unrealized gains/(losses) are 
      excluded from the average rate calculation.
<F2>  Tax exempt income has been adjusted to a tax equivalent basis by tax 
      effecting such interest at the Federal (35%) rate.
<F3>  Includes principal balances of non-accrual loans and industrial 
      revenue bonds.
</FN>
</TABLE>

TABLE G.  Average Sources of Funding

<TABLE>
<CAPTION>
                                                                                                    Percentage of
                                      Years Ended December 31,             Change                 Total Net Funding
                                      -------------------------     --------------------     ----------------------------
(Dollars in thousands)                   1998           1997         Amount      Percent      1998       1997       1996
                                      -----------------------------------------------------------------------------------

<S>                                   <C>            <C>            <C>          <C>         <C>        <C>        <C>
Non-interest bearing deposits         $  429,272     $  385,540     $ 43,732      11.3%       11.7%      11.4%      12.0%
Retail deposits:
  Regular savings                        309,341        334,796      (25,455)     (7.6)        8.4        9.9       12.1
  Time deposits under $100
   thousand                            1,012,054      1,014,224       (2,170)     (0.2)       27.6       30.0       31.7
  NOW accounts & money 
    market savings                     1,241,029      1,028,987      212,042      20.6        33.8       30.4       31.7
                                      ----------------------------------------------------------------------------------
      Total retail deposits            2,562,424      2,378,007      184,417       7.8        69.8       70.3       75.5
                                      ----------------------------------------------------------------------------------
      Total core deposits              2,991,696      2,763,547      228,149       8.3        81.5       81.7       87.5
Time deposits $100 thousand
 and greater                             222,277        184,273       38,004      20.6         6.1        5.4        4.8
Federal funds purchased                    9,292          7,769        1,523      19.6         0.3        0.2        0.2
Securities sold under agreements
 to repurchase                           164,880        142,527       22,353      15.7         4.5        4.2        3.6
Borrowings from U.S. Treasury             14,987         12,570        2,417      19.2         0.4        0.4        0.3
Short-term notes from FHLB               201,482        226,720      (25,238)    (11.1)        5.4        6.7        1.3
Long-term notes from FHLB                 53,900         34,473       19,427      56.4         1.5        1.0        1.7
                                      ----------------------------------------------------------------------------------
      Total purchased liabilities        666,818        608,332       58,486       9.6        18.2       17.9       11.9
Bank term loan                             9,876         12,666       (2,790)    (22.0)        0.3        0.4        0.6
                                      ----------------------------------------------------------------------------------
      Total  funding                  $3,668,390     $3,384,545     $283,845       8.4%      100.0%     100.0%     100.0%
                                      ==================================================================================
</TABLE>


TABLE H.  Volume and Yield Analysis

<TABLE>
<CAPTION>
                                              1998 vs. 1997                                        1997 vs. 1996
                            -------------------------------------------------   -------------------------------------------------
                                                Increase          Due to                             Increase        Due to
(In thousands)                1998      1997    (Decrease)   Volume     Rate      1997      1996    (Decrease)  Volume     Rate
                            -----------------------------------------------------------------------------------------------------

<S>                         <C>       <C>        <C>        <C>       <C>       <C>       <C>        <C>        <C>      <C>
Interest income (FTE):
  Money market investments  $  1,438  $  1,680   $  (242)   $  (227)  $   (15)  $  1,680  $  1,622   $    58    $    25  $     33
  Securities available for 
   sale, at fair value        65,898    55,292    10,606     10,778      (172)    55,292    38,810    16,482     15,233     1,249
  Loans held for sale          2,565     1,281     1,284      1,381       (97)     1,281     1,150       131        128         3
  Investment securities,
   held to maturity            2,832     4,735    (1,903)    (2,001)       98      4,735     4,978      (243)      (192)      (51)
   Loans                     237,530   232,931     4,599      9,241    (4,642)   232,931   215,261    17,670     19,560    (1,890)
                            ----------------------------                        ----------------------------

      Total interest income  310,263   295,919    14,344     21,440    (7,096)   295,919   261,821    34,098     37,812    (3,714)
                            ----------------------------                        ----------------------------

Interest expense:
  NOW accounts & money
   market savings             44,676    35,323     9,353      7,604     1,749     35,323    30,115     5,208      2,844     2,364
  Regular savings              7,968     8,805      (837)      (670)     (167)     8,805     9,560      (755)      (683)      (72)
  Time deposits $100
    thousand and greater      12,375    10,249     2,126      2,108        18     10,249     7,979     2,270      2,256        14
  Time deposits under 
   $100 thousand              55,462    55,066       396       (111)      507     55,066    50,528     4,538      3,686       852
  Short-term borrowed funds   20,138    20,827      (689)        51      (740)    20,827     8,094    12,733     12,096       637
  Long-term debt               4,039     3,065       974      1,054       (80)     3,065     4,213    (1,148)    (1,303)      155
                            ----------------------------                        ----------------------------

      Total interest 
       expense               144,658   133,335    11,323     10,723       600    133,335   110,489    22,846     16,542     6,304
                            -----------------------------------------------------------------------------------------------------

Net interest income (FTE)   $165,605  $162,584   $ 3,021    $10,717   $(7,696)  $162,584  $151,332   $11,252    $21,270  $(10,018)
                            =====================================================================================================

<FN>
Increases and decreases in interest income and interest expense due to both 
rate and volume have been allocated to volume on a consistent basis.
</FN>
</TABLE>


TABLE I.  Non-Performing Assets

<TABLE>
<CAPTION>
                                                                     As of December 31,
                                                   -------------------------------------------------------
(Dollars in thousands)                              1998        1997        1996        1995        1994
                                                   -------------------------------------------------------

<S>                                                <C>         <C>         <C>         <C>         <C>
Loans on non-accrual status:
  Commercial, financial and agricultural           $ 3,816     $ 6,636     $ 6,646     $ 4,839     $16,024
  Real estate:
    Construction and land development                   19           -          39         103         730
    Commercial                                       2,518       2,645       4,443       3,993       8,873
    Residential                                      6,153       8,719       9,470       7,959       6,280
  Other installment                                     23         176         187          46           -
                                                   -------------------------------------------------------

      Total non-accrual                             12,529      18,176      20,785      16,940      31,907

Restructured loans:
  Real estate:
    Commercial                                       5,940           -         849         426       2,916
    Residential                                         32          36          39          85          69
  Other installment                                      5           6          10          55         141
                                                   -------------------------------------------------------

      Total restructured                             5,977          42         898         566       3,126

Past-due 90 days or more and still accruing:
  Commercial, financial and agricultural             1,216         494         214         474       1,107
  Real estate:
    Commercial                                          62         125           -          64         270
    Residential                                         36         721       1,034         887       1,638
  Credit card receivables                              185         119         111         105         118
  Lease receivables                                    177         151          48          28           -
  Other installment                                    812         652       1,217         819         648
                                                   -------------------------------------------------------

      Total past-due 90 days or more and still 
       accruing                                      2,488       2,262       2,624       2,377       3,781
                                                   -------------------------------------------------------

Total non-performing loans                          20,994      20,480      24,307      19,883      38,814
                                                   -------------------------------------------------------

Other real estate owned                              3,324       2,141       2,397       4,953      10,894
Non-real estate and repossessed assets                  11         654         218          76         178
                                                   -------------------------------------------------------

Total foreclosed and repossessed assets (F/RA)       3,335       2,795       2,615       5,029      11,072
                                                   -------------------------------------------------------

Total non-performing assets                        $24,329     $23,275     $26,922     $24,912     $49,886
                                                   =======================================================

Allowance for loan losses                          $44,537     $38,551     $35,913     $34,210     $40,189
ALL coverage of non-performing loans                212.14%     188.24%     147.75%     172.06%     103.54%
Non-performing assets as a % of (loans & F/RA)        0.86        0.88        1.07        1.28        2.64
Non-performing assets to total assets                 0.55        0.59        0.76        0.90        1.84

<FN>
Note: Installment loans are generally charged off at 120 days past due.
</FN>
</TABLE>


TABLE J.  Summary of Loan Loss Experience

<TABLE>
<CAPTION>
                                                                              Years Ended December 31,
                                                       ----------------------------------------------------------------------
(Dollars in thousands)                                    1998           1997           1996           1995           1994
                                                       ----------------------------------------------------------------------

<S>                                                    <C>            <C>            <C>            <C>            <C>
Loans outstanding-end of year                          $2,837,106     $2,642,094     $2,505,767     $1,945,831     $1,875,230
Average loans outstanding                               2,684,169      2,578,746      2,362,251      1,910,737      1,770,178

Allowance for loan losses at beginning of year             38,551         35,913         34,210         40,189         40,117

Allowance related to purchase acquisitions                  2,200              -          1,650              -          1,608

Loans charged off:
  Commercial, financial and agricultural                   (2,318)        (1,803)        (1,654)        (9,852)        (4,816)
  Real estate:
    Construction and land development                           -              -            (73)          (357)           (97)
    Commercial                                               (209)          (669)        (2,122)        (2,287)        (4,239)
    Residential                                            (1,916)        (2,238)        (1,961)        (2,060)        (1,724)
                                                       ----------------------------------------------------------------------

      Total real estate                                    (2,125)        (2,907)        (4,156)        (4,704)        (6,060)

  Credit card receivables                                    (878)          (691)          (788)          (576)          (479)
  Lease receivables                                        (1,646)        (1,510)          (867)          (410)          (255)
  Other installment                                        (4,763)        (5,453)        (4,575)        (3,157)        (2,891)
                                                       ----------------------------------------------------------------------
      Total installment                                    (7,287)        (7,654)        (6,230)        (4,143)        (3,625)

      Total loans charged off                             (11,730)       (12,364)       (12,040)       (18,699)       (14,501)

Recoveries on loans previously charged off:
  Commercial, financial and agricultural                    1,673          1,325          1,008          2,478          3,734
  Real estate:
    Construction and land development                          15             87             60            540            227
    Commercial                                                542            638          1,039          1,430          1,419
    Residential                                               829            636            681            318            393
                                                       ----------------------------------------------------------------------

      Total real estate                                     1,386          1,361          1,780          2,288          2,039

  Credit card receivables                                     111            125            144            162            123
  Lease receivables                                         1,190            970            695            277            155
  Other installment                                         1,811          1,849          1,426          1,340          1,493
                                                       ----------------------------------------------------------------------
      Total installment                                     3,112          2,944          2,265          1,779          1,771

      Total recoveries on loans                             6,171          5,630          5,053          6,545          7,544
                                                       ----------------------------------------------------------------------

      Loans charged off, net of recoveries                 (5,559)        (6,734)        (6,987)       (12,154)        (6,957)
                                                       ----------------------------------------------------------------------

Provision for loan losses                                   9,345          9,372          7,040          6,175          5,421
                                                       ----------------------------------------------------------------------

Allowance for loan losses at end of year               $   44,537     $   38,551     $   35,913     $   34,210     $   40,189
                                                       ======================================================================

Loans charged off, net, as a % of average total 
 loans                                                       0.21%          0.26%          0.30%          0.64%          0.39%
Provision for loan losses as a % of average total 
 loans                                                       0.35           0.36           0.30           0.32           0.31
Allowance for loan losses as a % of year-end total 
 loans                                                       1.57           1.46           1.43           1.76           2.14
</TABLE>


TABLE K.  Allocation of the Allowance for Loan Losses

<TABLE>
<CAPTION>
                                                                        At December 31,
                              ----------------------------------------------------------------------------------------------------
                                    1998                 1997                 1996                 1995                 1994
                              ----------------------------------------------------------------------------------------------------
                                         % of                 % of                 % of                 % of                 % of
(Dollars in thousands)        Amount     Loans     Amount     Loans     Amount     Loans     Amount     Loans     Amount     Loans
                              ----------------------------------------------------------------------------------------------------

<S>                           <C>        <C>       <C>        <C>       <C>        <C>       <C>        <C>       <C>        <C>
Commercial and commercial 
 real estate                  $28,491    2.1%      $23,636    2.0%      $23,455    2.2%      $22,426    2.5%      $26,123    3.0%
Residential real estate         7,413    0.7         6,984    0.6         6,868    0.7         6,859    0.9         8,038    1.1
Installment                     8,633    1.9         7,931    2.0         5,590    1.4         4,925    1.4         6,028    2.1
                              --------------------------------------------------------------------------------------------------
      Total allowance for 
       loan losses            $44,537    1.6%      $38,551    1.5%      $35,913    1.4%      $34,210    1.8%      $40,189    2.1%
                              ==================================================================================================
</TABLE>


TABLE L. Interest Rate Risk

<TABLE>
<CAPTION>
                                                       Percentage Change in Net Interest Income from Flat Rate Scenario
                                             ------------------------------------------------------------------------------------
                                                       Year 1                       Year 2                  Total 24 Months
                                             ------------------------------------------------------------------------------------
                                             Rising Rate   Falling Rate   Rising Rate   Falling Rate   Rising Rate   Falling Rate
                                              Scenario       Scenario      Scenario       Scenario      Scenario       Scenario
                                             ------------------------------------------------------------------------------------

<S>                                            <C>           <C>            <C>           <C>            <C>           <C>
Investment securities held to maturity, 
 securities available for sale, and money 
 market investments                             1.84%         -2.21%         8.00%        -10.53%         4.94%         -6.40%
Total loans *                                   4.44%         -4.23%        13.85%        -13.00%         9.23%         -8.70%

      Total interest income                     3.84%         -3.77%        12.52%        -12.44%         8.25%         -8.17%

Interest-bearing transaction accounts          18.54%        -12.13%        37.66%        -22.70%        28.30%        -17.53%
Time deposits                                   5.50%         -4.50%        24.55%        -13.85%        14.97%         -9.15%

      Total interest-bearing deposits          11.46%         -7.99%        30.72%        -18.01%        21.15%        -13.03%

Short-term borrowed funds                      21.57%        -21.24%        46.52%        -45.44%        34.48%        -33.76%
Long-term debt                                  0.02%         -0.02%         0.38%         -0.38%         0.20%         -0.20%
      Total borrowings                         16.49%        -16.24%        36.40%        -35.53%        26.69%        -26.12%

      Total interest expense                   12.13%         -9.08%        31.50%        -20.41%        21.90%        -14.80%

    Net interest income                        -2.96%          0.60%        -2.66%         -6.06%        -2.81%         -2.80%

<FN>
<F*>  Includes the effect of the interst rate swaps, corridors and floors, 
      which have notional amounts of $50.0 million, $50.0 million and $295.0 
      million, respectively, at December 31, 1998.

Note:   Flat rate scenario:     A flat rate scenario in which today's 
                                prevailing rates are locked in and the 
                                only balance sheet fluctuations that occur 
                                are due to cash flows, maturities, new 
                                volumes, and repricing volumes consistent 
                                with this flat rate scenario.
        Rising rate scenario:   This scenario is a 200 basis point rise in 
                                rates over a twelve month horizon together 
                                with a dynamic balance sheet.
        Falling rate scenario:  This scenario is a 200 basis point decline 
                                in rates over a twelve month period together 
                                with a dynamic balance sheet.
</FN>
</TABLE>


TABLE M.  Rate of Internal Capital Generation

<TABLE>
<CAPTION>
                                            1998       1997       1996       1995       1994
                                           --------------------------------------------------

<S>                                        <C>        <C>        <C>        <C>        <C>
Return on average total assets              0.71%      1.12%      1.08%      1.13%      0.91%
Return on average shareholders' equity      8.95      13.78      12.97      13.67      11.47
Average equity to average assets            7.95       8.10       8.35       8.25       7.96
Dividend payout                            52.12      33.33      33.07      27.27      18.53
Earnings retention rate                    47.88      66.67      66.93      72.73      81.47
Internal capital generation rate            4.29       9.19       8.68       9.94       9.34

<FN>
Note:  All average equity and average asset amounts include the effect of the 
       fair market value adjustment on securities available for sale.
</FN>
</TABLE>


TABLE N.  Consolidated Capital Ratios

<TABLE>
<CAPTION>
                                                                                      At December 31,
                                                                          ----------------------------------------
(Dollars in thousands)                                                       1998           1997           1996
                                                                          ----------------------------------------

<S>                                                                       <C>            <C>            <C>
Total risk-adjusted on-balance sheet assets(1)(3)                         $2,880,854     $2,636,170     $2,387,504
Total risk-adjusted off-balance sheet items                                  174,890        140,813        135,688
                                                                          ----------------------------------------

Total risk-adjusted assets                                                $3,055,744     $2,776,983     $2,523,192
                                                                          ========================================

Total risk-adjusted assets / average total  assets, net of fair value 
 adjustments and goodwill(1)(3)                                                73.49%         72.41%         73.81%
Total shareholders' equity                                                $  321,262     $  318,128     $  292,176
Fair value adjustments(1)                                                     (3,759)        (3,318)         2,453
Guaranteed preferred benefical interests in Corporation's junior 
 subordinated debentures                                                      30,000         30,000              -
Minority interest                                                                144            144            144
Goodwill                                                                     (80,224)       (31,119)       (36,405)
Other intangibles(3)                                                             (74)             -              -
                                                                          ----------------------------------------

Total Tier I capital                                                         267,349        313,835        258,368
Maximum allowance for loan losses(2)                                          38,197         34,712         31,540
                                                                          ----------------------------------------

Total capital                                                             $  305,546     $  348,547     $  289,908
                                                                          ========================================

Quarterly average total assets, net of fair value adjustments 
 and goodwill(1)(3)                                                       $4,158,082     $3,835,310     $3,418,364
Allowance for loan losses                                                     44,537         38,551         35,913

Total capital to total risk-adjusted assets                                    10.00%         12.55%         11.49%
Tier I capital to total risk-adjusted assets                                    8.75          11.30          10.24
Tier I capital to total quarterly average adjusted assets (Leverage)            6.43           8.18           7.56

<FN>
Notes:
<F1>  The market valuation relating to securities available for sale included 
      in shareholders' equity and total assets on consolidated balance sheets 
      has been excluded from the above ratios.
<F2>  The maximum allowance for loan losses that may be included in total 
      capital is the period-end allowance for loan losses or 1.25% of 
      risk-adjusted assets prior to the allowance limitation, whichever is 
      lower.
<F3>  Mortgage servicing assets, included in total assets on the consolidated 
      balance sheet, that exceed 90% of fair market value of these assets, if 
      any, have been excluded from the above ratios.
</FN>
</TABLE>

Five Year Selected Financial Data

<TABLE>
<CAPTION>
                                                                                 Years Ended December 31,
                                                              ---------------------------------------------------------------
(Dollars in thousands, except share and per share data)          1998         1997         1996         1995         1994
                                                              ---------------------------------------------------------------
<S>                                                           <C>          <C>          <C>          <C>          <C>
Statement of Income:
  Interest and dividend income                                $   308,701  $   294,757  $   260,541  $   219,795  $   185,390
  Interest expense                                                144,658      133,335      110,489       95,552       71,282
                                                              ---------------------------------------------------------------
    Net interest income                                           164,043      161,422      150,052      124,243      114,108
  Provision for loan losses                                         9,345        9,372        7,040        6,175        5,421
                                                              ---------------------------------------------------------------
    Net interest income after provision for loan losses           154,698      152,050      143,012      118,068      108,687
                                                              ---------------------------------------------------------------
  Other operating income:
    Income from trust and investment management fees               12,838       11,223       10,217        9,639        9,617
    Service charges on deposit accounts                            11,657       10,725        9,370        7,872        7,684
    Mortgage banking income                                         5,492        4,667        4,561        3,375        4,482
    Card product income                                             2,227        3,166        3,029        2,789        3,497
    ATM income                                                      2,258        1,369        1,031          959          919
    Net securities transactions                                       519          266           25         (546)      (2,327)
    Bank-owned life insurance                                       2,229           77            -            -            -
    Gain on sale of merchant processing                                 -        2,432            -            -            -
    Other income                                                    4,253        3,931        3,457        3,046        3,615
                                                              ---------------------------------------------------------------
      Total other operating income                                 41,473       37,856       31,690       27,134       27,487
  Other operating expenses:
    Compensation & employee benefits                               65,545       62,994       59,830       50,614       47,764
    Net occupancy, equipment & software                            19,218       19,657       17,677       14,875       14,452
    Data processing                                                 6,889        7,232        7,005        6,721        7,119
    FDIC deposit insurance and other regulatory                     1,139        1,084          650        3,307        5,576
    OREO and repossession                                           1,068        1,448          385        1,301        2,592
    Amortization of goodwill                                        5,743        5,286        4,715          695          199
    Capital securities                                              3,156        2,104            -            -            -
    Merger and acquisition related expenses                        21,968            -        1,583            -            -
    Other income                                                   28,010       28,124       29,498       25,676       25,754
                                                              ---------------------------------------------------------------
      Total other operating expenses                              152,736      127,929      121,343      103,189      103,456
                                                              ---------------------------------------------------------------
  Income before income tax expense and cumulative effect 
   of change in accounting                                         43,435       61,977       53,359       42,013       32,718
  Income tax expense                                               14,515       20,161       17,656       11,260        9,550
                                                              ---------------------------------------------------------------
  Income before cumulative effect of change in accounting          28,920       41,816       35,703       30,753       23,168
  Cumulative effect of change in accounting                             -            -            -            -          138
                                                              ---------------------------------------------------------------
  Net income                                                  $    28,920  $    41,816  $    35,703  $    30,753  $    23,306
                                                              ===============================================================
Average Balances:
  Loans                                                       $ 2,684,169  $ 2,578,746  $ 2,362,251  $ 1,910,737  $ 1,770,178
  Loans held for sale                                              35,708       16,481       14,834       12,985       15,432
  Securities available for sale                                 1,038,077      859,674      619,390      311,972      391,930
  Investment securities, held to maturity                          36,016       61,508       63,967      307,740      207,624
  Money market investments                                         26,027       30,132       29,663       32,955       19,259
                                                              ---------------------------------------------------------------
      Total earning assets                                      3,819,997    3,546,541    3,090,105    2,576,389    2,404,423
  Other assets                                                    242,622      196,628      204,561      150,106      148,966
                                                              ---------------------------------------------------------------
      Total assets                                            $ 4,062,619  $ 3,743,169  $ 3,294,666  $ 2,726,495  $ 2,553,389
                                                              ===============================================================
  Non interest-bearing deposits                               $   429,272  $   385,540  $   359,058  $   287,556  $   282,511
  Interest-bearing deposits                                     2,784,701    2,562,280    2,396,422    1,905,576    1,764,414
                                                              ---------------------------------------------------------------
      Total deposits                                            3,213,973    2,947,820    2,755,480    2,193,132    2,046,925
  Short-term borrowed funds                                       390,641      389,586      163,208      172,230      151,471
  Long-term debt                                                   63,776       47,139       67,206      107,077      124,393
  Other liabilities                                                41,108       35,130       33,547       29,119       27,357
  Guaranteed preferred beneficial interests in Corporation's 
   junior subordinated debentures                                  30,000       20,137            -            -            -
  Shareholders' equity                                            323,121      303,357      275,225      224,937      203,243
                                                              ---------------------------------------------------------------
      Total liabilities, guaranteed preferred beneficial 
       interests in Corporation's subordinated debentures 
       and shareholders' equity                               $ 4,062,619  $ 3,743,169  $ 3,294,666  $ 2,726,495  $ 2,553,389
                                                              ===============================================================
Credit Quality Information:
  Loans charged off, net of recoveries                        $     5,559  $     6,734  $     6,987  $    12,154  $     6,957
  Non-performing assets, p.e.                                      24,329       23,275       26,922       24,912       49,886
Share and Per Share Data:
  Basic wtd. avg. number of shares outstanding                 23,277,560   23,705,320   23,626,266   22,033,130   22,072,038
  Basic earnings per share (Basic EPS)                        $      1.24  $      1.76  $      1.51  $      1.40  $      1.06
  Diluted wtd. avg. number of shares outstanding               23,669,540   24,042,800   23,860,882   22,177,558   22,152,288
  Diluted earnings per share (Diluted EPS)                    $      1.22  $      1.74  $      1.50  $      1.39  $      1.05
  Tangible book value                                               10.40        12.21        10.72        10.62         9.00
Key Ratios:
  Return on average assets                                           0.71%        1.12%        1.08%        1.13%        0.91%
  Return on average shareholders' equity                             8.95        13.78        12.97        13.67        11.47
  Net interest margin, fte                                           4.34         4.58         4.89         4.87         4.80
  Efficiency ratio                                                  59.78        61.65        62.21        65.85        69.07
  As a % of risk-adjusted assets, p.e.:
    Total capital                                                   10.00        12.55        11.49        13.31        12.75
    Tier 1 capital                                                   8.75        11.30        10.24        12.05        11.49
  As a % of quarterly average total assets:  
    Tier 1 capital (regulatory leverage)                             6.43         8.18         7.56         8.51         7.72
  Tangible shareholders' equity, to tangible assets, p.e.            5.58         7.36         7.32         8.44         7.39

<FN>
Note:  All share and per share data has been restated to give retroactive 
       effect to stock splits.
</FN>
</TABLE>


Summary of Quarterly Financial Information

<TABLE>
<CAPTION>
                                                                                 1998
(In thousands, except share                     ----------------------------------------------------------------------
 and per share data)                               Year            Q4             Q3             Q2             Q1

<S>                                             <C>            <C>            <C>            <C>            <C>
Statement of Income:
  Interest and dividend income                  $  308,701     $   78,656     $   77,216     $   77,075     $   75,754
  Interest expense                                 144,658         36,106         36,695         36,368         35,489
                                                ----------------------------------------------------------------------
      Net interest income                          164,043         42,550         40,521         40,707         40,265
  Provision for loan losses                          9,345          2,335          2,335          2,335          2,340
                                                ----------------------------------------------------------------------
      Net interest income after
       provision for loan losses                   154,698         40,215         38,186         38,372         37,925
                                                ----------------------------------------------------------------------
  Other operating income:
    Income from trust and invest-
     ment management fees                           12,838          3,791          2,946          3,139          2,962
    Service charges on deposit accounts             11,657          2,969          2,861          2,948          2,879
    Mortgage banking income                          5,492          1,391          1,812          1,195          1,094
    Card product income                              2,227            686            569            542            430
    ATM income                                       2,258            635            618            523            482
    Net securities transactions                        519            526            319            103           (429)
    Bank-owned life insurance                        2,229            569            567            553            540
    Gain on sale of merchant processing                  -              -              -              -              -
    All other                                        4,253          1,079          1,149          1,105            920
                                                ----------------------------------------------------------------------
      Total other operating income                  41,473         11,646         10,841         10,108          8,878
  Other operating expenses:
    Compensation & employee benefits                65,545         17,554         15,705         16,073         16,213
    Net occupancy, equipment & 
     software                                       19,218          4,852          4,697          4,732          4,937
    Data processing                                  6,889          1,472          1,756          1,926          1,735
    FDIC deposit insurance and other 
     regulatory                                      1,139            292            284            283            280
    OREO and repossession                            1,068            331            239            142            356
    Amortization of goodwill                         5,743          1,779          1,321          1,321          1,322
    Capital securities                               3,156            789            789            789            789
    Merger and acquisition related 
     expenses                                       21,968         21,968              -              -              -
    All other                                       28,010          7,507          6,702          6,931          6,870
                                                ----------------------------------------------------------------------
      Total other operating expenses               152,736         56,544         31,493         32,197         32,502
                                                ----------------------------------------------------------------------
Income before income tax expense (benefit)          43,435         (4,683)        17,534         16,283         14,301
Income tax expense (benefit)                        14,515           (321)         5,416          5,019          4,401
                                                ----------------------------------------------------------------------
Net income (loss)                               $   28,920     $   (4,362)    $   12,118     $   11,264     $    9,900
                                                ======================================================================

Average Balances:
  Loans                                         $2,684,169     $2,755,824     $2,675,888     $2,661,474     $2,642,333
  Loans held for sale                               35,708         36,490         34,435         41,921         29,926
  Securities available for sale                  1,038,077      1,123,294      1,041,605      1,016,664        969,011
  Investment securities held to maturity            36,016         22,965         26,046         38,580         56,958
  Money market investments                          26,027         22,376         40,415         26,110         14,968
                                                ----------------------------------------------------------------------
      Total earning assets                       3,819,997      3,960,949      3,818,389      3,784,749      3,713,196
  Other assets                                     242,622        281,190        233,103        231,505        223,890
                                                ----------------------------------------------------------------------
      Total assets                              $4,062,619     $4,242,139     $4,051,492     $4,016,254     $3,937,086
                                                ======================================================================
  Non interest-bearing deposits                 $  429,272     $  477,977     $  431,872     $  410,469     $  394,254
  Interest-bearing deposits                      2,784,701      2,957,813      2,767,727      2,736,741      2,673,588
                                                ----------------------------------------------------------------------
      Total deposits                             3,213,973      3,435,790      3,199,599      3,147,210      3,067,842
  Short-term borrowed funds                        390,641        320,459        382,313        424,048        438,700
  Long-term debt                                    63,776         74,634         74,534         59,459         46,044
  Other liabilities                                 41,108         43,466         41,825         40,374         38,710
  Guaranteed preferred beneficial interests 
   in Corporation's junior subordinated 
   debentures                                       30,000         30,000         30,000         30,000         30,000
  Shareholders' equity                             323,121        337,790        323,221        315,163        315,790
                                                ----------------------------------------------------------------------
      Total liabilities, guaranteed 
       preferred beneficial interests in 
       Corporation's junior 
       subordinated debentures and 
       shareholders' equity                     $4,062,619     $4,242,139     $4,051,492     $4,016,254     $3,937,086
                                                ======================================================================
Loans charged off, net of recoveries            $    5,559     $    1,743     $    1,160     $    1,654     $    1,002
Non-performing assets, p.e.                         24,329         24,329         25,694         20,110         22,773

Share and Per Share Data:
  Basic wtd. avg. number of shares 
   outstanding                                  23,277,560     23,203,566     23,226,319     23,258,549     23,430,477
  Basic earnings per share (Basic EPS)          $     1.24     $    (0.19)    $     0.52     $     0.48     $     0.42
  Diluted wtd. avg. number of shares 
   outstanding                                  23,669,540     23,552,615     23,613,000     23,685,137     23,835,238
  Diluted earnings per share 
  (Diluted EPS)                                 $     1.22     $    (0.19)    $     0.51     $     0.48     $     0.42
  Tangible book value                                10.40          10.40          13.26          12.61          12.30
  Cash dividends declared                             0.64          0.160          0.160          0.160          0.160
  Closing price at period end                        37.63          37.63          29.25          37.00          36.50
Key Ratios:
  Return on average assets                            0.71%         (0.41)%         1.19%          1.12%          1.02%
  Return on average shareholders' equity              8.95          (5.12)         14.87          14.34          12.71
  Net interest margin, fte                            4.34           4.31           4.26           4.36           4.44
  Efficiency ratio                                   59.78          59.71          57.83          59.81          61.37
  Expense ratio                                       2.07           2.03           1.90           2.08           2.23
  As a % of risk-adjusted assets, p.e.
    Total capital                                    10.00          10.00          12.67          12.39          12.33
    Tier 1 capital                                    8.75           8.75          11.42          11.14          11.08
  As a % of quarterly average total assets:
    Tier 1 capital (regulatory leverage)              6.43           6.43           8.13           7.97           8.00
  Tangible shareholders' equity, to 
   tangible assets, p.e.                              5.58           5.58           7.60           7.24           7.20


<CAPTION>
                                                                                 1997
(In thousands, except share                     ----------------------------------------------------------------------
 and per share data)                               Year            Q4             Q3             Q2             Q1

<S>                                             <C>            <C>            <C>            <C>            <C>
Statement of Income:
  Interest and dividend income                  $  294,757     $   76,444     $   75,762     $   73,307     $   69,244
  Interest expense                                 133,335         35,200         34,789         33,005         30,341
                                                ----------------------------------------------------------------------
      Net interest income                          161,422         41,244         40,973         40,302         38,903
  Provision for loan losses                          9,372          2,486          2,390          2,386          2,110
                                                ----------------------------------------------------------------------
      Net interest income after
       provision for loan losses                   152,050         38,758         38,583         37,916         36,793
                                                ----------------------------------------------------------------------
  Other operating income:
    Income from trust and invest-
     ment management fees                           11,223          2,890          2,933          2,721          2,679
    Service charges on deposit accounts             10,725          2,904          2,667          2,666          2,488
    Mortgage banking income                          4,667          1,010          1,902            824            931
    Card product income                              3,166            837            788            821            720
    ATM income                                       1,369            460            370            281            258
    Net securities transactions                        266             71            163             14             18
    Bank-owned life insurance                           77             77              -              -              -
    Gain on sale of merchant processing              2,432          2,432              -              -              -
    All other                                        3,931          1,106            861            805          1,159
                                                ----------------------------------------------------------------------
      Total other operating income                  37,856         11,787          9,684          8,132          8,253
  Other operating expenses:
    Compensation & employee benefits                62,994         16,061         16,174         15,425         15,334
    Net occupancy, equipment & 
     software                                       19,657          5,067          4,932          4,789          4,869
    Data processing                                  7,232          1,878          1,804          1,788          1,762
    FDIC deposit insurance and other 
     regulatory                                      1,084            290            269            266            259
    OREO and repossession                            1,448            441            333            443            231
    Amortization of goodwill                         5,286          1,322          1,322          1,321          1,321
    Capital securities                               2,104            789            789            526              -
    Merger and acquisition related 
     expenses                                            -              -              -              -              -
    All other                                       28,124          7,075          7,151          7,080          6,818
                                                ----------------------------------------------------------------------
      Total other operating expenses               127,929         32,923         32,774         31,638         30,594
                                                ----------------------------------------------------------------------
  Income before income tax expense (benefit)        61,977         17,622         15,493         14,410         14,452
  Income tax expense (benefit)                      20,161          5,774          5,018          4,649          4,720
                                                ----------------------------------------------------------------------
  Net income (loss)                             $   41,816     $   11,848     $   10,475     $    9,761     $    9,732
                                                ======================================================================

Average Balances:
  Loans                                         $2,578,746     $2,621,516     $2,598,368     $2,571,322     $2,522,407
  Loans held for sale                               16,481         19,707         20,957         12,730         12,400
  Securities available for sale                    859,674        951,598        930,643        835,424        717,682
  Investment securities held to maturity            61,508         61,505         66,828         63,895         53,661
  Money market investments                          30,132         20,785         24,359         40,290         35,305
                                                ----------------------------------------------------------------------
      Total earning assets                       3,546,541      3,675,111      3,641,155      3,523,661      3,341,455
  Other assets                                     196,628        194,636        191,801        192,985        206,894
                                                ----------------------------------------------------------------------
      Total assets                              $3,743,169     $3,869,747     $3,832,956     $3,716,646     $3,548,349
                                                ======================================================================
  Non interest-bearing deposits                 $  385,540     $  404,834     $  397,471     $  373,497     $  365,104
  Interest-bearing deposits                      2,562,280      2,619,986      2,579,460      2,546,910      2,501,271
                                                ----------------------------------------------------------------------
      Total deposits                             2,947,820      3,024,820      2,976,931      2,920,407      2,866,375
  Short-term borrowed funds                        389,586        421,396        436,679        396,009        303,129
  Long-term debt                                    47,139         43,310         45,996         48,473         50,872
  Other liabilities                                 35,130         34,956         33,991         35,956         35,639
  Guaranteed preferred beneficial interests 
   in Corporation's junior subordinated 
   debentures                                       20,137         30,000         30,000         20,110              -
  Shareholders' equity                             303,357        315,265        309,359        295,691        292,334
                                                ----------------------------------------------------------------------
      Total liabilities, guaranteed 
       preferred beneficial interests in 
       Corporation's junior 
       subordinated debentures and 
       shareholders' equity                     $3,743,169     $3,869,747     $3,832,956     $3,716,646     $3,548,349
                                                ======================================================================
Loans charged off, net of recoveries            $    6,734     $    1,760     $    1,338     $    2,024     $    1,612
Non-performing assets, p.e.                         23,275         23,275         26,932         24,078         27,937

Share and Per Share Data:
  Basic wtd. avg. number of shares 
   outstanding                                  23,705,320     23,677,296     23,754,913     23,662,846     23,728,390
  Basic earnings per share (Basic EPS)          $     1.76     $     0.50     $     0.44     $     0.41     $     0.41
  Diluted wtd. avg. number of shares 
   outstanding                                  24,042,800     24,079,118     24,101,642     23,961,171     24,027,135
  Diluted earnings per share 
  (Diluted EPS)                                 $     1.74     $     0.49     $     0.42     $     0.41     $     0.42
  Tangible book value                                12.21          12.21          11.96          11.35          10.84
  Cash dividends declared                             0.58          0.145          0.145          0.145          0.145
  Closing price at period end                        32.13          32.13          27.32          23.13          20.25
Key Ratios:
  Return on average assets                            1.12%          1.21%          1.08%          1.05%          1.11%
  Return on average shareholders' equity             13.78          14.91          13.43          13.24          13.50
  Net interest margin, fte                            4.58           4.49           4.49           4.60           4.74
  Efficiency ratio                                   61.65          61.93          62.35          61.34          61.44
  Expense ratio                                       2.39           2.30           2.36           2.41           2.54
  As a % of risk-adjusted assets, p.e.
    Total capital                                    12.55          12.55          12.76          12.53          11.55
    Tier 1 capital                                   11.30          11.30          11.51          11.28          10.30
  As a % of quarterly average total assets:
    Tier 1 capital (regulatory leverage)              8.18           8.18           8.19           8.18           7.52
  Tangible shareholders' equity, to 
   tangible assets, p.e.                              7.36           7.36           7.40           7.09           7.22

<FN>
Note:  All share and per share data has been restated to give retroactive 
       effect to stock splits.
</FN>
</TABLE>

Management's Statement of Responsibility

      The consolidated financial statements and related information in the 
1998 Annual Report were prepared in conformity with generally accepted 
accounting principles. Management is responsible for the integrity and 
objectivity of the consolidated financial statements and related 
information. Accordingly, it maintains an extensive system of internal 
controls and accounting policies and procedures to provide reasonable 
assurance of the accountability and safeguarding of Company assets and of 
the accuracy of financial information. These procedures include management 
evaluations of asset quality and the impact of economic events, 
organizational arrangements that provide an appropriate division of 
responsibility, and a program of internal audits to evaluate independently 
the adequacy and application of financial and operating controls and 
compliance with Company policies and procedures.

      The responsibility of the Company's independent public accountants, 
KPMG LLP, is limited to an expression of their opinion as to the fairness 
of the consolidated financial statements presented in all material 
respects. Their opinion is based on an audit conducted in accordance with 
generally accepted auditing standards as described in the second paragraph 
of their report. 

      The board of directors, through its Examining and Audit Committee, is 
responsible for ensuring that both management and the independent public 
accountants fulfill their respective responsibilities with regard to the 
consolidated financial statements. The Examining and Audit Committee, which 
is comprised entirely of directors who are not officers or employees of the 
Company, meets periodically with both management and the independent public 
accountants to assure that each is carrying out its responsibilities. The 
independent public accountants have full and free access to the Examining 
and Audit Committee and meet with it, with and without management being 
present, to discuss auditing and financial reporting matters.

William H. Chadwick
President & Chief Executive Officer

Thomas J. Pruitt
Executive Vice President & Chief Financial Officer

Neal E. Robinson
Senior Vice President & Treasurer


Independent Auditors' Report

The Shareholders Banknorth Group, Inc.

      We have audited the accompanying consolidated balance sheets of 
Banknorth Group, Inc. and subsidiaries as of December 31, 1998 and 1997, 
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, 1998. These consolidated financial statements are the 
responsibility of the Company's management. Our responsibility is to 
express an opinion on these consolidated financial statements based on our 
audits. 

      We conducted our audits in accordance with generally accepted 
auditing standards. 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, 1998 and 1997, 
and the results of their operations and their cash flows for each of the 
years in the three-year period ended December 31, 1998 in conformity with 
generally accepted accounting principles. 

                                       /s/ KPMG LLP

Albany, New York
January 22, 1999

Consolidated Statements of Income

<TABLE>
<CAPTION>

                                                               Years Ended December 31,
                                                           --------------------------------
(Dollars in thousands, except per share data)                1998        1997        1996
                                                           --------------------------------

<S>                                                        <C>         <C>         <C>
Interest and dividend income:
  Interest and fees on loans                               $238,953    $233,414    $215,528
  Interest on money market investments                        1,438       1,680       1,622
  Interest on securities available for sale                  65,755      55,216      38,796
  Interest on investment securities held to maturity          2,555       4,447       4,595
                                                           --------------------------------
      Total interest and dividend income                    308,701     294,757     260,541

Interest expense:
  Deposits                                                  120,481     109,443      98,182
  Short-term borrowed funds                                  20,138      20,827       8,094
  Long-term debt                                              4,039       3,065       4,213
                                                           --------------------------------
      Total interest expense                                144,658     133,335     110,489
                                                           --------------------------------

Net interest income                                         164,043     161,422     150,052
  Less: provision for loan losses                             9,345       9,372       7,040
                                                           --------------------------------

Net interest income after provision for loan losses         154,698     152,050     143,012
                                                           --------------------------------

Other operating income:
  Income from trust and investment management fees           12,838      11,223      10,217
  Service charges on deposit accounts                        11,657      10,725       9,370
  Mortgage banking income                                     5,492       4,667       4,561
  Card product income                                         2,227       3,166       3,029
  ATM income                                                  2,258       1,369       1,031
  Net securities transactions                                   519         266          25
  Bank-owned life insurance                                   2,229          77           -
  Gain on sale of merchant processing                             -       2,432           -
  Other income                                                4,253       3,931       3,457
                                                           --------------------------------
      Total other operating income                           41,473      37,856      31,690

Other operating expenses:
  Compensation                                               53,068      50,642      47,144
  Employee benefits                                          12,477      12,352      12,686
  Net occupancy                                               9,826      10,259       9,176
  Equipment and software                                      9,392       9,398       8,501
  Data processing                                             6,889       7,232       7,005
  FDIC deposit insurance and other regulatory                 1,139       1,084         650
  Other real estate owned and repossession                    1,068       1,448         385
  Legal and professional                                      5,145       4,937       4,409
  Printing and supplies                                       3,071       3,223       3,513
  Advertising and marketing                                   3,870       3,428       3,538
  Communications                                              2,963       2,905       2,792
  Amortization of goodwill                                    5,743       5,286       4,715
  Capital securities                                          3,156       2,104           -
  Merger and acquisition related expenses                    21,968           -       1,583
  Other expenses                                             12,961      13,631      15,246
                                                           --------------------------------
      Total other operating expenses                        152,736     127,929     121,343
                                                           --------------------------------

Income before income tax expense                             43,435      61,977      53,359
Income tax expense                                           14,515      20,161      17,656
                                                           --------------------------------

Net income                                                 $ 28,920    $ 41,816    $ 35,703
                                                           ================================

Basic earnings per share                                   $   1.24    $   1.76    $   1.51
                                                           ================================
Basic wtd. avg. number of shares                             23,278      23,705      23,626
                                                           ================================

Diluted earnings per share                                 $   1.22    $   1.74    $   1.50
                                                           ================================
Diluted wtd. avg. number of shares                           23,670      24,043      23,861
                                                           ================================

</TABLE>

All share and per share data has been restated to give retroactive effect 
to stock splits.

See accompanying notes to consolidated financial statements.


<TABLE>
<CAPTION>

Consolidated Balance Sheets

                                                                At December 31,
                                                           ------------------------
(In thousands, except share and per share data)               1998          1997
                                                           ------------------------

<S>                                                        <C>           <C>
Assets
  Cash and due from banks                                  $  164,826    $  112,297
  Money market investments                                      4,900            71
                                                           ------------------------
    Cash and cash equivalents                                 169,726       112,368
                                                           ------------------------

  Securities available for sale, at fair value              1,127,865       958,553
  Loans held for sale                                          42,996        24,958
  Investment securities, held to maturity                      20,545        58,626
  (Fair value of $21,606 at December 31, 1998
   and $59,832 at December 31, 1997)
  Loans                                                     2,837,106     2,642,094
  Less: allowance for loan losses                              44,537        38,551
                                                           ------------------------
    Net loans                                               2,792,569     2,603,543
                                                           ------------------------
  Accrued interest receivable                                  21,244        23,277
  Premises, equipment and software, net                        50,936        45,754
  Other real estate owned and repossessed assets                3,335         2,795
  Goodwill, net                                                80,224        31,119
  Capitalized mortgage servicing rights                         5,351         4,650
  Bank-owned life insurance                                    42,306        40,077
  Other assets                                                 45,784        25,241
                                                           ------------------------
      Total assets                                         $4,402,881    $3,930,961
                                                           ========================

Liabilities, Guaranteed Preferred Beneficial
 Interests in Corporation's Junior Subordinated
 Debentures and Shareholders' Equity
  Deposits:
    Non-interest bearing                                   $  546,192    $  430,373
    NOW accounts & money market savings                     1,490,944     1,108,669
    Regular savings                                           328,986       311,938
    Time deposits $100 thousand and greater                   239,071       214,187
    Time deposits under $100 thousand                       1,034,304       988,467
                                                           ------------------------
      Total deposits                                        3,639,497     3,053,634
                                                           ------------------------
  Short-term borrowed funds:
    Federal funds purchased                                    30,445        19,800
    Securities sold under agreements to repurchase            208,511       144,924
    Borrowings from U.S. Treasury                              12,678        22,211
    Borrowings from Federal Home Loan Bank                     30,000       263,000
                                                           ------------------------
      Total short-term borrowed funds                         281,634       449,935
                                                           ------------------------
  Long-term debt:
    Federal Home Loan Bank term notes                          66,062        31,209
    Bank term loan                                              8,263        11,040
                                                           ------------------------
      Total long-term debt                                     74,325        42,249
                                                           ------------------------
  Accrued interest payable                                      7,101         7,530
  Other liabilities                                            49,062        29,485
                                                           ------------------------
      Total liabilities                                     4,051,619     3,582,833
                                                           ------------------------

  Guaranteed preferred beneficial interests in
   Corporation's junior subordinated debentures                30,000        30,000
                                                           ------------------------
  Shareholders' equity:
    Preferred stock, $.01 par value; authorized
     500,000 shares and none issued as of 
     December 31, 1998, and no shares authorized
     as of December 31, 1997                                        -             -
    Common stock, $1.00 par value; authorized
     70,000,000 shares and issued 23,548,392 shares
     as of December 31, 1998, and authorized
     38,000,000 shares and issued 23,669,335 shares
     as of December 31, 1997                                   23,548        23,669
    Capital surplus                                            86,033        88,363
    Retained earnings                                         221,919       209,766
    Unamortized employee restricted stock                      (1,266)       (1,550)
    Accumulated other comprehensive income                      3,509         3,318
    Common stock subscribed by ESOP                              (463)         (640)
    Less: Common stock in treasury, at cost; 
     369,300 shares as of December 31, 1998,
     and 154,000 shares as of December 31, 1997               (12,018)       (4,798)
                                                           ------------------------
      Total shareholders' equity                              321,262       318,128
                                                           ------------------------
      Total liabilities, guaranteed preferred
       beneficial interests in Corporation's junior
       subordinated debentures and shareholders' equity    $4,402,881    $3,930,961
                                                           ========================

</TABLE>

See accompanying notes to consolidated financial statements.

Consolidated Statements of Changes in Shareholders' Equity

<TABLE>
<CAPTION>

                                                                                                 Unamortized     Common
                                                                                                  Employee        Stock
(Dollars and shares in thousands,             Number of Shares    Common    Capital   Retained   Restricted    Subscribed
except per share data)                        Issued   Treasury    Stock    Surplus   Earnings      Stock        by ESOP
                                              ---------------------------------------------------------------------------

<S>                                           <C>        <C>      <C>       <C>       <C>          <C>           <C>
Balance, January 1, 1996                      11,134      244     $11,134   $74,409   $161,043     $  (898)      $(967)
Comprehensive income:
  Net income                                                            -         -     35,703           -           -
  Other comprehensive income, net of tax:
    Unrealized net holding losses arising 
     during the year (pre-tax $4,580)                                   -         -          -           -           -
    Reclassification adjustment for net 
     gains realized in net income
     during the year (pre-tax $25)                                      -         -          -           -           -
Other comprehensive income                                              -         -          -           -           -
Comprehensive income

Issuance of common stock, net of costs         1,023                1,023    31,193          -           -           -
Cash dividends ($ .50 per share)                                        -         -    (11,806)          -           -
Issuance of employee restricted stock              6      (23)          6       122          -        (371)          -
Amortization of employee restricted stock                               -       194          -         116           -
Exercise of employee stock options                        (69)          -         -       (411)          -           -
Purchase of treasury stock                                 92           -         -          -           -           -
Stock vested in ESOP                                                    -         -          -           -         159
2 for 1 stock split                            4,336                4,336    (4,336)         -           -           -
Pooled company transactions
  Purchase and retirement of treasury stock     (464)    (169)       (464)   (5,362)         -           -           -
  Treasury stock reissued for stock 
   awards and options exercised                           (75)          -         -       (194)          -           -
                                              ------------------------------------------------------------------------
Balance, December 31, 1996                    16,035        -     $16,035   $96,220   $184,335     $(1,153)      $(808)
                                              ========================================================================
Comprehensive income:

  Net income                                                            -         -   $ 41,816           -           -
  Other comprehensive income, net of tax:
    Unrealized net holding gains arising 
     during the year (pre-tax $9,299)                                   -         -          -           -           -
    Reclassification adjustment for net 
     gains realized in net income during 
     the year (pre-tax $266)                                            -         -          -           -          -
Other comprehensive income                                              -         -          -           -          -
Comprehensive income
Cash dividends ($ .58 per share)                                        -         -    (13,939)          -          -
Issuance of employee restricted stock                     (13)          -         -          -        (315)         -
Amortization of employee restricted stock                               -       851          -         (82)         -
Issuance of restricted stock units under 
 directors' deferred compensation plan, net                             -     3,335         (4)          -          -
Exercise of employee stock options                       (170)          -         -     (2,060)          -          -
Purchase of treasury stock                                337           -         -          -           -          -
Stock vested in ESOP                                                    -         -          -           -        168
2 for 1 stock split                            7,826                7,826    (7,826)         -           -          -
Pooled company transactions
  Purchase and retirement of treasury stock     (192)     115        (192)   (4,217)         -           -          -
  Treasury stock reissued for stock 
   awards and options exercised                          (115)          -         -       (382)          -          -
                                              ------------------------------------------------------------------------
Balance, December 31, 1997                    23,669      154     $23,669   $88,363   $209,766     $(1,550)      $(640)
                                              ========================================================================
Comprehensive income:
  Net income                                                            -         -   $ 28,920           -           -
  Other comprehensive income, net of tax:
    Unrealized net holding gains arising 
     during the year (pre-tax $1,147)                                   -         -          -           -           -
    Reclassification adjustment for net 
     gains realized in net income during 
     the year (pre-tax $519)                                            -         -          -           -           -
    Minimum pension liability adjustments                               -         -          -           -           -
Other comprehensive income                                              -         -          -           -           -
Comprehensive income
Cash dividends ($ .64 per share)                                        -         -    (15,072)          -           -
Issuance of employee restricted stock                      (7)          -        41          -        (254)          -
Amortization of employee restricted stock                               -       259          -         538           -
Issuance of restricted stock units under 
 directors' deferred compensation plan, net                             -       385        (37)          -           -
Exercise of employee stock options                       (144)          -         -     (1,920)          -           -
Purchase of treasury stock                                366           -         -          -           -           -
Fractional shares repurchased                     (1)                  (1)      (16)         -           -           -
Stock vested in ESOP                                                    -         -          -           -         177
Pooled company transactions
  Purchase and retirement of treasury stock     (120)     122        (120)   (2,999)         -           -           -
  Treasury stock reissued for stock 
   awards and options exercised                          (122)          -         -        262           -           -
                                              ------------------------------------------------------------------------
Balance, December 31, 1998                    23,548      369     $23,548   $86,033   $221,919     $(1,266)      $(463)
                                              ========================================================================

<CAPTION>
                                              Accumulated
                                              Other Com-                    Com-           Total
(Dollars and shares in thousands,             prehensive     Treasury    prehensive    Shareholders'
except per share data)                          Income        Stock        Income         Equity
                                              ------------------------------------------------------

<S>                                             <C>          <C>          <C>             <C>
Balance, January 1, 1996                        $   503      $ (2,243)                    $242,981
Comprehensive income:
  Net income                                          -             -     $35,703           35,703
                                                                          -------
  Other comprehensive income, net of tax:
    Unrealized net holding losses arising 
     during the year (pre-tax $4,580)                 -             -      (2,940)
    Reclassification adjustment for net 
     gains realized in net income
     during the year (pre-tax $25)                    -             -         (16)
                                                                          -------
Other comprehensive income                       (2,956)            -      (2,956)          (2,956)
                                                                          -------
Comprehensive income                                                      $32,747
                                                                          =======

Issuance of common stock, net of costs                -             -                       32,216
Cash dividends ($ .50 per share)                      -             -                      (11,806)
Issuance of employee restricted stock                 -           371                          128
Amortization of employee restricted stock             -             -                          310
Exercise of employee stock options                    -         1,235                          824
Purchase of treasury stock                            -        (1,606)                      (1,606)
Stock vested in ESOP                                  -             -                          159
2 for 1 stock split                                   -             -                            -
Pooled company transactions
  Purchase and retirement of treasury stock           -         1,440                       (4,386)
  Treasury stock reissued for stock 
   awards and options exercised                       -           803                          609
                                                --------------------------------------------------
Balance, December 31, 1996                      $(2,453)     $      -                     $292,176
                                                ==================================================
Comprehensive income:
  Net income                                          -             -     $41,816         $ 41,816
                                                                          -------
  Other comprehensive income, net of tax:
    Unrealized net holding gains arising 
     during the year (pre-tax $9,299)                 -             -       5,941
    Reclassification adjustment for net 
     gains realized in net income during 
     the year (pre-tax $266)                          -             -        (170)
                                                                          -------
Other comprehensive income                        5,771             -       5,771            5,771
                                                                          -------
Comprehensive income                                                      $47,587
                                                                          =======
Cash dividends ($ .58 per share)                      -             -                      (13,939)
Issuance of employee restricted stock                 -           315                            -
Amortization of employee restricted stock             -             -                          769
Issuance of restricted stock units under 
 directors' deferred compensation plan, net           -             -                        3,331
Exercise of employee stock options                    -         4,882                        2,822
Purchase of treasury stock                            -        (9,995)                      (9,995)
Stock vested in ESOP                                  -             -                          168
2 for 1 stock split                                   -             -                            -
Pooled company transactions
  Purchase and retirement of treasury stock           -        (1,467)                      (5,876)
  Treasury stock reissued for stock 
   awards and options exercised                       -         1,467                        1,085
                                                --------------------------------------------------
Balance, December 31, 1997                      $ 3,318      $ (4,798)                    $318,128
                                                ==================================================
Comprehensive income:
  Net income                                          -             -     $28,920         $ 28,920
                                                                          -------
  Other comprehensive income, net of tax:
    Unrealized net holding gains arising 
     during the year (pre-tax $1,147)                 -             -         805
    Reclassification adjustment for net 
     gains realized in net income during 
     the year (pre-tax $519)                          -             -        (364)
    Minimum pension liability adjustments             -             -        (250)
                                                                          -------
Other comprehensive income                          191             -         191              191
                                                                          -------
Comprehensive income                                                      $29,111
                                                                          =======
Cash dividends ($ .64 per share)                      -             -                      (15,072)
Issuance of employee restricted stock                 -           213                            -
Amortization of employee restricted stock             -             -                          797
Issuance of restricted stock units under 
 directors' deferred compensation plan, net           -             -                          348
Exercise of employee stock options                    -         4,864                        2,944
Purchase of treasury stock                            -       (12,297)                     (12,297)
Fractional shares repurchased                         -             -                          (17)
Stock vested in ESOP                                  -             -                          177
Pooled company transactions
  Purchase and retirement of treasury stock           -        (1,921)                      (5,040)
  Treasury stock reissued for stock 
   awards and options exercised                       -         1,921                        2,183
                                                --------------------------------------------------
Balance, December 31, 1998                      $ 3,509      $(12,018)                    $321,262
                                                ==================================================

</TABLE>

Note:  Cash dividends per share represent the historical dividends of 
Banknorth Group, Inc.  All per share data has been restated to give 
retroactive effect to stock splits.

See accompanying notes to consolidated financial statements.  

<TABLE>
<CAPTION>

Consolidated Statements of Cash Flows

                                                                                 Years Ended December 31,
                                                                           -----------------------------------
(In thousands)                                                                1998         1997         1996
                                                                           -----------------------------------

<S>                                                                        <C>          <C>          <C>
Increase (decrease) in cash and cash equivalents:
Cash flows from operating activities:
  Net income                                                               $  28,920    $  41,816    $  35,703
Adjustments to reconcile net income to net cash 
 provided by operating activities:
  Depreciation and amortization of premises, equipment and software            6,743        6,623        5,819
  Amortization of goodwill                                                     5,743        5,286        4,715
  Net amortization of securities available for sale                            5,429        3,924        3,380
  Net accretion of investment securities, held to maturity                      (192)        (292)        (360)
  Provision for loan losses                                                    9,345        9,372        7,040
  Adjustment of other real estate owned to estimated fair value                  445          438          455
  Provision for deferred tax expense (benefit)                                (2,757)      (1,255)         488
  Amortization of employee restricted stock                                      797          769          438
  Issuance of restricted stock units under directors'
   deferred compensation plan, net                                               348          100            -
  Net securities transactions                                                   (519)        (266)         (25)
  Net gain on sale of other real estate owned and repossessed assets            (288)        (223)        (891)
  Proceeds from sale of loans held for sale                                  335,350      124,352      171,897
  Originations and purchases of loans held for resale                       (350,018)    (135,969)    (163,249)
  Net gain on sale of loans held for sale                                     (3,370)      (1,235)      (1,629)
  Gain on sale of mortgage servicing rights                                     (386)        (921)         (93)
  Earnings from bank-owned life insurance                                     (2,229)         (77)           -
  Decrease (increase) in interest receivable                                   2,033       (2,293)      (3,517)
  Increase (decrease) in interest payable                                       (429)       1,241          376
  Increase in other assets and other intangibles                             (16,885)       3,252         (929)
  Increase in other liabilities                                               19,269        3,308        4,730
  ESOP compensation expense                                                      177          168          159
                                                                           -----------------------------------
      Total adjustments                                                        8,606       16,302       28,804
                                                                           -----------------------------------
      Net cash provided by operating activities                               37,526       58,118       64,507
                                                                           -----------------------------------

Cash flows from investing activities:
  Net cash provided by acquisition                                           122,526            -      122,358
  Proceeds from maturity and call of securities available for sale           334,484      163,895      237,121
  Proceeds from maturity and call of investment securities,
   held to maturity                                                           38,298       17,828       24,016
  Proceeds from sale of securities available for sale                        155,131        5,970       29,478
  Purchase of securities available for sale                                 (663,234)    (414,671)    (433,162)
  Purchase of investment securities, held to maturity                              -      (21,903)      (5,006)
  Proceeds from sale of OREO and repossessed assets                            3,301        4,266        6,335
  Payments received on OREO and repossessed assets                               136           63           33
  Loans purchased                                                                  -      (37,456)     (38,189)
  Net increase in originated loans                                           (93,157)    (110,547)    (133,518)
  Capital expenditures                                                        (9,981)      (7,824)      (8,214)
  Purchase of bank-owned life insurance                                            -      (40,000)           -
                                                                           -----------------------------------
      Net cash used in  investing activities                                (112,496)    (440,379)    (198,748)
                                                                           -----------------------------------

Cash flows from financing activities:
  Net increase (decrease) in deposits                                        295,852      186,714       (4,413)
  Net increase (decrease) in short-term borrowed funds                      (168,301)     165,628      164,834
  Issuance of common stock, net of expenses                                        -            -       32,216
  Purchase of treasury stock                                                 (17,337)     (15,871)      (5,992)
  Issuance of guaranteed preferred beneficial interests in
   Corporation's junior subordinated debentures                                    -       30,000            -
  Issuance of long-term debt                                                  38,895          350       10,000
  Payments on long-term debt                                                  (6,819)     (10,262)     (37,311)
  Exercise of employee stock options, net                                      5,127        3,907        1,433
  Fractional shares repurchased                                                  (17)           -            -
  Dividends paid                                                             (15,072)     (13,939)     (11,806)
                                                                           -----------------------------------
      Net cash provided by  financing activities                             132,328      346,527      148,961
                                                                           -----------------------------------
Net increase  (decrease) in cash and cash equivalents                         57,358      (35,734)      14,720
                                                                           -----------------------------------
Cash and cash equivalents at beginning of year                               112,368      148,102      133,382
                                                                           -----------------------------------
Cash and cash equivalents at end of year                                   $ 169,726    $ 112,368    $ 148,102
                                                                           ===================================
Additional disclosure relative to statement of cash flows:
  Interest paid                                                            $ 145,048    $ 132,168    $ 110,113
                                                                           ===================================
  Taxes paid                                                               $  21,722    $  15,721    $  22,217
                                                                           ===================================

Supplemental schedule of non-cash investing and financing activities:
  Net transfer of loans to OREO and repossessed assets                     $   4,134    $   4,942    $   3,376
  Adjustment to securities available for sale to fair value, net of tax          441        5,771       (2,956)
  Minimum pension liability adjustments                                         (250)           -            -
  Issuance of restricted stock units under directors' 
   deferred compensation plan, net                                                 -        3,231            -
  Fair value of assets acquired in acquisition                               112,696            -      405,741
  Fair value of liabilities assumed                                          290,070            -      560,340

</TABLE>

See accompanying notes to consolidated financial statements.


Notes to Consolidated Financial Statements

1.  Summary of Significant Accounting Policies

      The accounting and reporting policies of Banknorth Group, Inc., a 
Delaware Corporation, (the "Parent Company"), and its subsidiaries conform, 
in all material respects, to generally accepted accounting principles and 
to general practices within the banking industry. Collectively, the Parent 
Company and its subsidiaries are referred to herein as "Banknorth", 
"Company" or "Corporation".

      The preparation of the consolidated financial statements in 
conformity with generally accepted accounting principles requires 
management to make estimates and assumptions that affect the reported 
amounts of assets and liabilities and disclosure of contingent assets and 
liabilities at the date of the consolidated financial statements and the 
reported amounts of revenues and expenses during the reporting period. 
Actual results could differ from those estimates.

Banknorth-Evergreen Merger

      On December 31, 1998, Evergreen Bancorp, Inc. ("Evergreen") and its 
wholly owned subsidiary Evergreen Bank, N.A. ("Evergreen Bank") was merged 
with and into Banknorth. The merger was accounted for as a pooling of 
interests and, accordingly, the financial information for all prior periods 
has been restated to present the combined financial condition and results 
of operations of both companies as if the merger had been in effect for all 
periods presented. Further details pertaining to the merger are presented 
in Note 2.

Principles of Consolidation

      The accompanying consolidated financial statements include the 
accounts of Banknorth and its subsidiaries. All material intercompany 
accounts and transactions have been eliminated. Amounts in the prior years' 
consolidated financial statements are reclassified whenever necessary to 
conform with the current year's presentation. 

Cash and Cash Equivalents

      Banknorth includes cash, due from banks, and money market investments 
as Cash and Cash Equivalents for the consolidated statements of cash flows.

Securities

      Management determines the appropriate classification of securities at 
the time of purchase. If management has the positive intent and ability to 
hold debt securities to maturity, they are classified as investment 
securities held to maturity and are stated at amortized cost. If securities 
are purchased for the purpose of selling them in the near term, they are 
classified as trading securities and are reported at fair value with 
unrealized gains and losses reflected in current earnings. All other debt 
and marketable equity securities are classified as securities available for 
sale and are reported at fair value, with the net unrealized gains or 
losses reported, net of income taxes, in shareholders' equity as a 
component of accumulated other comprehensive income. Non-marketable equity 
securities are carried at cost. Gains or losses on disposition of all 
securities are based on the adjusted cost of the specific security sold. 
The cost of securities is adjusted for amortization of premium and 
accretion of discount, which is calculated on the effective interest 
method.

      Unrealized losses on securities which reflect a decline in value 
which is other than temporary, if any, are charged to income and reported 
under the caption "Net securities transactions" in the consolidated 
financial statements.

Loans

      Loans are carried at the principal amount outstanding net of unearned 
income and unamortized loan fees and expenses, which are amortized under 
the effective interest method over the estimated lives of the loans.

      Non-performing loans include non-accrual loans, loans restructured in 
troubled debt restructurings (restructured loans) and loans which are 90 
days or more past due and still accruing interest. Generally, loans are 
placed on non-accrual status, either due to the delinquency status of 
principal and/or interest payments, or a judgment by management that, 
although payments of principal and/or interest are current, such action is 
prudent. Except in the case of installment loans, which are generally 
charged off when loan principal and/or interest payments are 120 days 
overdue, loans are generally placed on non-accrual status when principal 
and/or interest is 90 days overdue. When a loan is placed on non-accrual 
status, all interest previously accrued in the current year but not 
collected is reversed against current year interest income. Interest 
accrued in the prior year and not collected is charged off against the 
allowance for loan losses. When the principal is contractually current, 
interest and fee income is recognized on a cash basis. If ultimate 
repayment of principal is not expected or management judges it to be 
prudent, any payment received on a non-accrual loan is applied to principal 
until ultimate repayment becomes expected. Loans are removed from non-
accrual status when they become current as to principal and interest or 
demonstrate a period of performance under the contractual terms and, in the 
opinion of management, are fully collectible as to principal and interest.

      The Company identifies impaired loans and measures the impairment in 
accordance with Statement of Financial Accounting Standards (SFAS) No. 114, 
"Accounting by Creditors for Impairment of a Loan," as amended by SFAS No. 
118, "Accounting by Creditors for Impairment of a Loan - Income Recognition 
and Disclosures." A loan is considered impaired when it is probable that 
the borrower will not repay the loan according to the original contractual 
terms of the loan agreement, or the loan is restructured in a troubled debt 
restructuring subsequent to January 1, 1995. These Statements prescribe 
recognition criteria for loan impairment, generally related to commercial 
type loans and measurement methods for impaired loans. Impaired loans are 
included in non-performing loans, generally as non-accrual commercial type 
loans, commercial type loans past due 90 days or more and still accruing 
interest, and all loans restructured in a troubled debt restructuring 
subsequent to January 1, 1995. 

      The allowance for loan losses related to impaired loans is based on 
discounted cash flows using the loan's initial effective rate or the fair 
value of the collateral for certain loans where repayment of the loan is 
expected to be provided solely by the underlying collateral (collateral 
dependent loans). The Company's impaired loans are generally collateral 
dependent. The Company considers estimated cost to sell, on a discounted 
basis, when determining the fair value of collateral in the measurement of 
impairment if those costs are expected to reduce the cash flows available 
to repay or otherwise satisfy the loans.   

Allowance for Loan Losses

      The allowance for loan losses is maintained at a level estimated by 
management to provide adequately for probable losses inherent in the loan 
portfolio. The quality and collectibility of the loans are reviewed monthly 
and graded by the applicable subsidiary loan officers. A continuous review 
of loan quality and accuracy of grading is conducted independently by the 
Company's loan review function. The adequacy of the allowance is monitored 
monthly and is based on the grading and continuing review of individual 
loans, the present and expected level of non-performing loans, delinquency 
levels, past loss experience and economic conditions which may affect the 
borrowers' ability to repay their loans. As a result of the test of 
adequacy, required additions to the allowance for loan losses are made 
periodically by charges to the provision for loan losses.

      Management believes that the allowance for loan losses is adequate. 
While management uses available information to recognize losses on loans, 
future additions to the allowance for loan losses may be necessary based on 
changes in economic conditions or changes in the value of properties 
securing loans in the process of foreclosure. In addition, various 
regulatory agencies, as an integral part of their examination process, 
periodically review the Company's allowance for loan losses. Such agencies 
may require the Company to recognize additions to the allowance for loan 
losses based on their judgments about information available to them at the 
time of their examination which may not be currently available to 
management.

Mortgage Banking

      Loan servicing revenues and expenses are recognized when service fees 
are earned and expenses are incurred. Gains or losses on sales of mortgage 
loans are recognized based upon the difference between the selling price 
and the carrying value of the related mortgage loans sold. Such gains or 
losses are increased or decreased by the amount of capitalized mortgage 
servicing rights. Net deferred origination fees and costs are recognized at 
the time of sale in the gain or loss determination. The mortgage loans 
being serviced for others are not included in these consolidated financial 
statements as they are not assets of the Company. Mortgage loans held for 
sale are stated at the lower of aggregate cost or aggregate fair value as 
determined by outstanding commitments from investors or current market 
prices for loans with no sale commitments.

      The Company adopted SFAS No. 122, "Accounting for Mortgage Servicing 
Rights" in 1996. Effective January 1, 1997, SFAS No. 125, "Accounting for 
Transfers and Servicing of Financial Assets and Extinguishments of 
Liabilities", superseded SFAS No. 122 and was adopted by the Company. SFAS 
No. 125 requires that entities recognize as separate assets, the rights to 
service mortgage loans for others, regardless of how those servicing rights 
are acquired. Additionally, SFAS No. 125 requires that the capitalized 
mortgage servicing rights be assessed for impairment based on the fair 
value of those rights, and that impairment, if any, be recognized through a 
valuation allowance. 

      The Company purchases mortgage servicing rights separately or it may 
acquire mortgage servicing rights by purchasing or originating mortgage 
loans and selling those loans with servicing rights retained. Purchased 
mortgage servicing rights are capitalized at the cost to acquire the 
rights. Originated mortgage servicing rights are capitalized based on the 
allocated cost of the servicing rights, derived from a relative fair value 
calculation, described below. Originated and purchased mortgage servicing 
rights are carried at the lower of the capitalized amount, net of 
accumulated amortization or fair value. Capitalized mortgage servicing 
rights are amortized into servicing fee income in proportion to, and over 
the period of, estimated net servicing income. 

      SFAS No. 125 requires that a portion of the cost of originating a 
mortgage loan be allocated to the mortgage servicing rights based on 
relative fair values. To determine the fair value of mortgage servicing 
rights, the Company uses a valuation model that calculates the present 
value of future net servicing income. In using this valuation method, the 
Company incorporates assumptions that it believes market participants would 
use in estimating future net servicing income, which include estimates of 
the cost of servicing, the discount rate, mortgage escrow earnings rate, an 
inflation rate, ancillary income, prepayment speeds and default rates and 
losses.

      SFAS No. 125 requires enterprises to measure the impairment of 
capitalized servicing rights based on the difference between the carrying 
amount and current estimated fair value of the servicing rights. In 
determining impairment, the Company aggregates all mortgage servicing 
rights, and stratifies them based on the predominant risk characteristics 
of loan type and interest rate. A valuation allowance is established for 
any excess of amortized cost over the current fair value, by risk 
stratification, by a charge to income. At December 31, 1998, a valuation 
allowance  of $500 thousand was established for impairment. There was no 
allowance for impairment in the Company's capitalized mortgage servicing 
rights as of December 31, 1997.

Premises, Equipment and Software

      Premises, equipment and software are stated at cost less accumulated 
depreciation and amortization. Depreciation and amortization are computed 
on straight-line and various accelerated methods over the estimated useful 
lives of the assets ranging from 3 years to 40 years. Leasehold 
improvements are amortized over the shorter of the terms of the related 
leases or the useful lives of the assets.

Other Real Estate Owned and Repossessed Assets

      Other real estate owned includes both formally foreclosed and in-
substance foreclosed real properties. In-substance foreclosed properties 
are those properties which the Company has taken possession of collateral 
regardless of whether formal foreclosure proceedings have taken place.

      Other real estate owned is recorded at the lower of the fair value of 
the asset acquired less estimated costs to sell or "cost" (defined as the 
fair value at initial foreclosure). At the time of foreclosure, or when 
foreclosure occurs in-substance, the excess, if any, of the loan over the 
fair market value of the asset received, less estimated cost to sell, is 
charged to the allowance for loan losses. Subsequent declines in the value 
of such assets and net operating expenses of such assets are charged 
directly to other operating expenses.

Goodwill

      Goodwill represents the excess of purchase price over the fair value 
of net assets acquired in transactions accounted for using purchase 
accounting. The goodwill is being amortized using the straight-line method 
over the estimated period of benefit, not to exceed fifteen years. 
Accumulated amortization on goodwill amounted to $16.4 million and $10.7 
million as December 31, 1998 and December 31, 1997, respectively. 
Intangible assets are periodically reviewed by management to assess 
recoverability, and impairment is recognized as a charge to income if a 
permanent loss in value is indicated.

Trust Assets

      Assets held in fiduciary or agency capacities for customers of 
Banknorth's trust subsidiary are not included in the accompanying 
consolidated balance sheets since such assets are not assets of the 
subsidiaries. 

Pension Costs

      The Company maintains a noncontributory, defined benefit retirement 
and pension plan covering substantially all employees. Pension costs, based 
on actuarial computations of current and future benefits for employees, are 
charged to current operating expenses.

      On December 31, 1998, the Company adopted the provisions of SFAS No. 
132, "Employers' Disclosures about Pensions and Other Postretirement 
Benefits," which amends existing disclosure requirements applicable to such 
benefits. The Statement standardizes disclosure requirements to the extent 
practicable and recommends a parallel format for presenting information 
about pensions and other postretirement benefits. SFAS No. 132, which does 
not change the measurement or recognition of these benefits, is effective 
for fiscal years beginning after December 15, 1997. 

Stock-Based Compensation

      The Company accounts for its stock-based compensation plans in 
accordance with the provisions of Accounting Principles Board (APB) Opinion 
No. 25, "Accounting for Stock Issued to Employees," and related 
interpretations. On January 1, 1996, the Company adopted SFAS No. 123, 
"Accounting for Stock-Based Compensation," which permits entities to 
recognize as expense over the vesting period the fair value of all stock-
based awards measured on the date of grant. Alternatively, SFAS No. 123 
allows entities to continue to apply the provisions of APB Opinion No. 25 
and provide pro forma net income and pro forma net income per share 
disclosures for employee stock-based grants made in 1995 and future years 
as if the fair value based method defined in SFAS No. 123 had been applied. 
The Company has elected to continue to apply the provisions of APB Opinion 
No. 25 and provide the pro forma disclosures of SFAS No. 123.

Bank-Owned Life Insurance

      In the fourth quarter of 1997, Banknorth purchased $40.0 million of 
bank-owned life insurance ("BOLI"). The BOLI was purchased as a financing 
tool for employee benefits. The value of life insurance financing is the 
tax preferred status of increases in life insurance cash values and death 
benefits and the cash flow generated at the death of the insured. The 
purchase of the life insurance policy results in an interest sensitive 
asset on the Company's consolidated balance sheet that provides monthly 
tax-free income to the Company. The largest risk to the BOLI program is 
credit risk of the insurance carriers. To mitigate this risk, annual 
financial condition reviews are completed on all carriers. As a result of 
this transaction, the Company benefits prospectively from the tax-free 
nature of income generated from the life insurance policies. BOLI is stated 
on the Company's consolidated balance sheets as its current cash surrender 
value. Increases in BOLI's cash surrender value are reported as other 
operating income in the Company's consolidated income statements.  

Income Taxes

      Deferred tax assets and liabilities are recognized for the future tax 
consequences attributable to temporary differences between the financial 
statement carrying amounts of existing assets and liabilities and their 
respective tax bases. Deferred tax assets and liabilities are measured 
using enacted tax rates for the periods in which the 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 tax 
expense in the period that includes the enactment date.

      The Company's policy is that deferred tax assets are reduced by a 
valuation allowance if, based on the weight of available evidence, it is 
more likely than not that some or all of the deferred tax assets will not 
be realized. In considering if it is more likely than not that some or all 
of the deferred tax assets will not be realized, the Company considers 
taxable temporary differences, historical taxes paid and estimates of 
future taxable income.

Per Share Amounts

      On December 31, 1997, the Company adopted the provisions of SFAS No. 
128, "Earnings Per Share". SFAS No. 128 establishes standards for computing 
and presenting earnings per share (EPS). SFAS No. 128 requires dual 
presentation of basic and diluted EPS on the face of the income statement 
for all entities with complex capital structures and specifies additional 
disclosure requirements.

      Basic EPS excludes dilution and is computed by dividing income 
available to common stockholders by the weighted average number of common 
shares outstanding for the period. Issuable shares (such as those related 
to the directors' restricted stock units), and returnable shares (such as 
restricted stock awards) are considered outstanding common shares and 
included in the computation of basic EPS as of the date that all necessary 
conditions have been satisfied. Diluted EPS reflects the potential dilution 
that could occur if securities or other contracts to issue common stock 
were exercised or converted into common stock or resulted in the issuance 
of common stock that then shared in the earnings of the entity (such as the 
Company's stock options). 

      All share and per share data has been restated to give retroactive 
effect to stock splits.

Interest-Related Contracts

      Banknorth uses a variety of off-balance sheet derivatives as part of 
its interest rate risk management strategy. The instruments most frequently 
used are interest rate swap, floor and corridor contracts. These contracts 
are designated and are effective as hedges of existing risk positions. 
These instruments are used to modify the repricing or maturity 
characteristics of specified assets or liabilities, and are linked to the 
related assets or liabilities being managed. Changes in the fair value of 
the derivative are not included in the consolidated financial statements. 
The net interest income or expense associated with such derivatives is 
accrued and recognized as an adjustment to the interest income or interest 
expense of the asset or liability being managed. The related interest 
receivable or payable from such contracts is recorded in accrued interest 
receivable or payable on the consolidated balance sheet. Premiums paid are 
amortized as an adjustment to the interest income or interest expense of 
the asset or liability being managed. Realized gains and losses, if any, 
resulting from early termination of derivatives are deferred as an 
adjustment to the carrying value of the hedged item and recognized as an 
adjustment to the yield or interest cost of the hedged item over the 
remaining term of the original swap, corridor, and floor contract.

Other Financial Instruments

      The Company is a party to certain other financial instruments with 
off-balance-sheet risk such as commitments to extend credit, unused lines 
of credit, letters of credit and standby letters of credit, as well as 
certain mortgage loans sold to investors with recourse. The Company's 
policy is to record such instruments when funded.

Transfers and Servicing of Financial Assets 
 and Extinguishments of Liabilities

      In June 1996, the Financial Accounting Standards Board issued SFAS 
No. 125, "Accounting for Transfers and Servicing of Financial Assets and 
Extinguishments of Liabilities". SFAS No. 125 provides accounting and 
reporting standards for transfers and servicing of financial assets and 
extinguishments of liabilities based on consistent application of a 
financial-components approach that focuses on control. It distinguishes 
transfers of financial assets that are sales from transfers that are 
secured borrowings. SFAS No. 125 is effective for transfers and servicing 
of financial assets and extinguishments of liabilities occurring after 
December 31, 1996 and superseded SFAS No. 122, which is discussed above. 
The adoption of SFAS No. 125 did not have a material impact on the 
Company's consolidated financial statements.

Segment Reporting

      During 1998, the Company adopted SFAS No. 131, "Disclosure about 
Segments of an Enterprise and Related Information." This Statement requires 
the Company to report certain financial and other information about 
significant revenue-producing segments of the business for which such 
information is available, is utilized by the chief operating decision 
makers and meets certain quantitative  requirements as defined by this 
Statement.

      The Company's operations are solely in the financial services 
industry and include the provision of traditional banking services. The 
Company operates solely in the geographical regions of Vermont, New 
Hampshire, Massachusetts and upstate New York. Management makes operating 
decisions and assesses performance  based on an ongoing review of its 
traditional banking operations, which constitute the Company's only 
reportable segment under SFAS No. 131.

Comprehensive Income

      On January 1, 1998, the Company adopted the provisions of SFAS No. 
130, "Reporting Comprehensive Income." This Statement establishes standards 
for reporting and display of comprehensive income and its components. 
Comprehensive income includes the reported net income of a company adjusted 
for items that are currently accounted for as direct entries to 
shareholders' equity, such as the mark to market adjustment on securities 
available for sale, foreign currency items and minimum pension liability 
adjustments. At the Company, comprehensive income represents net income 
plus other comprehensive income, which consists of the net change in 
unrealized gains or losses on securities available for sale for the period 
and minimum pension liability adjustments. Accumulated other comprehensive 
income represents the net unrealized gains or losses on securities 
available for sale and minimum pension liability adjustments as of the 
balance sheet dates. All required disclosures under this Statement are 
included in the Company's consolidated statements of changes in 
shareholders' equity.

Recent Accounting Pronouncements

      In June 1998, the FASB issued SFAS No. 133, "Accounting for 
Derivative Instruments and Hedging Activities," which establishes 
accounting and reporting standards for derivative instruments, including 
certain derivative instruments embedded in other contracts, and for hedging 
activities. This Statement is effective for all fiscal quarters of fiscal 
years beginning after June 15, 1999. Management is currently evaluating the 
impact of this Statement on the Company's consolidated financial 
statements.

2.  Mergers and Acquisitions 

     Evergreen Bancorp, Inc.

      On December 31, 1998, the shareholders of Banknorth and Evergreen, 
headquartered in Glens Falls, New York, approved a merger between the two 
organizations. As of such date, Evergreen was merged with and into 
Banknorth with each issued and outstanding share of Evergreen common stock, 
together with associated preferred purchase rights, converted into 0.9 
shares of Banknorth common stock, plus cash in lieu of any fractional share 
interest. This resulted in approximately 7.9 million in additional shares 
of Banknorth common stock issued, bringing Banknorth's outstanding shares 
to approximately 23.2 million immediately following the merger.

      Evergreen's subsidiary bank, Evergreen Bank will continue to operate 
its banking business, as a wholly-owned subsidiary of Banknorth. Evergreen 
Bank operates 28 offices in 8 counties in eastern upstate New York, 
throughout an area extending from the Massachusetts border fifty miles 
south of Albany, north to the Canadian border. Evergreen Bank serves 
commercial, individual, institutional and municipal customers with a wide 
range of deposit and loan products. As of December 31, 1998, Evergreen Bank 
had total assets of $1.1 billion and deposits of $971.9 million. 
Additionally, Evergreen's assets under trust management amounted to 
approximately $500 million.

      In order to effect the merger, one-time merger related expenses of 
$20.1 million ($15.1 million after-tax impact) were incurred in the fourth 
quarter of 1998. The majority of these expenses were employment-related 
costs and data processing conversion and termination costs. Further, 
approximately $700 thousand of after-tax conversion related expenses are 
expected to be realized in the first quarter of 1999 as the systems 
conversions are completed. At December 31, 1998, after payments of certain 
one time merger related expenses, the Company had a remaining accrued 
liability of approximately $15.4 million related to: compensation costs 
related to severance, employment contracts and accelerated employee 
benefits ($5.6 million); data processing contract termination costs ($3.9 
million); investment banking fees ($3.5 million); and legal, accounting, 
and other costs incidental to the merger ($2.4 million). With the exception 
of certain vested employee benefits, the entire accrued liability of $15.4 
million at December 31, 1998 is expected to be paid during the first 
quarter of 1999.

      The merger qualified as a tax-free reorganization and was accounted 
for as a pooling-of-interests. At the time the merger was announced, both 
companies announced the recision of their previously announced stock 
repurchase programs. All financial information in this annual report has 
been restated historically for the combination of the two companies.

      The following table presents net interest income, net income and 
earnings per share reported by each of the companies and on a combined 
basis:

<TABLE>
<CAPTION>

                                    Years Ended December 31,
                               ----------------------------------
                                 1998         1997         1996
                               ----------------------------------

<S>                            <C>          <C>          <C>
Net interest income
  Banknorth                    $121,939     $119,182     $108,868
  Evergreen                      42,104       42,240       41,184
                               ----------------------------------
      Combined                 $164,043     $161,422     $150,052
                               ==================================

Net income
  Banknorth                    $ 28,250     $ 30,489     $ 25,390
  Evergreen                         670       11,327       10,313
                               ----------------------------------
      Combined                 $ 28,920     $ 41,816     $ 35,703
                               ==================================

Basic earnings per share
  Banknorth                    $   1.84     $   1.95     $   1.66
  Evergreen                         .76         1.26         1.12
  Combined                         1.24         1.76         1.51

Diluted earnings per share
  Banknorth                    $   1.81     $   1.93     $   1.64
  Evergreen                         .75         1.24         1.11
  Combined                         1.22         1.74         1.50

</TABLE>

      First Massachusetts Bank-Berkshires Region

      On November 13, 1998, Banknorth completed the purchase from 
BankBoston, N.A. of ten full-service branches, one limited service branch 
and nine remote ATM locations, as well as private banking relationships 
associated with the branches in the Berkshires region of Massachusetts. 

      In connection with the Berkshire acquisition, Banknorth paid 
BankBoston, N.A. a fixed premium of $52.5 million. At the closing, the 
deposits of the Berkshire branches were approximately $290.1 million, 
including accrued interest. Banknorth also purchased in the transaction 
commercial loans associated with the branches with a net book balance as of 
November 13, 1998 of approximately $73.6 million and a portfolio of 
consumer loans originated in the branches with a net book balance of $35.8 
million. In addition, the Company received approximately $122.5 million in 
cash as consideration for the net liabilities assumed. The Berkshire 
acquisition (other than the private banking relationships) was made through 
First Massachusetts Bank, N.A., a Banknorth subsidiary, headquartered in 
Worcester, Massachusetts, and has extended that bank's central 
Massachusetts territory westward to the border of New York State and 
contiguous to the southern reach of Evergreen Bank's New York market area. 

      The private banking relationships associated with these branches, 
which as of closing represented approximately $1.0 billion of trust and 
investment assets under management, including approximately $750 million in 
discretionary trust assets under management, were acquired by Banknorth's 
trust and investment subsidiary, Stratevest, headquartered in Burlington, 
Vermont.

      The acquisition was accounted for using purchase accounting in 
accordance with Accounting Principles Board Opinion No. 16, "Business 
Combinations" (APB No. 16). As such, both the assets acquired and 
liabilities assumed have been recorded on the consolidated balance sheet of 
the Company at estimated fair value as of the date of acquisition. 
Goodwill, representing the excess of cost over net assets acquired, was 
$54.5 million, substantially all of which is deductible for income tax 
purposes, and is being amortized over fifteen years on a straight-line 
basis. The one-time acquisition-related expenses of $1.8 million pre-tax, 
or $1.2 million after-tax, were recorded in the fourth quarter of 1998. To 
complete the transaction, Banknorth reallocated capital resources through 
payment of a special dividend to Banknorth by its subsidiary banks, except 
First Massachusetts, of approximately $21.5 million. 

      The results of operations for the branches and private banking 
relationships acquired are included in Banknorth's consolidated financial 
statements from the date of acquisition forward.

      First Massachusetts Bank-Worcester Region

      On February 13, 1996, Banknorth completed the purchase of thirteen 
banking offices of Shawmut Bank, N.A. in central and western Massachusetts. 
A new subsidiary, First Massachusetts Bank, N.A., ("FMB"), with principal 
offices in Worcester, Massachusetts was organized to own and operate the 
acquired offices. The transaction was accounted for under purchase 
accounting rules and resulted in the assumption of $560.3 million in 
deposits, the acquisition of $405.7 million in loans and fixed assets, and 
$32.1 million in goodwill. In addition, the Company received approximately 
$122.4 million in cash as consideration for the net liabilities assumed. To 
complete this transaction, Banknorth issued 2,044,446 shares of common 
stock in February, 1996. The net proceeds of $32.2 million were used to 
provide a portion of the initial capital of FMB and to help offset the 
reduction in the Company's regulatory capital ratios resulting from the 
acquisition.

      The results of operations for FMB are included in Banknorth's 
consolidated financial statements from the date of acquisition forward.

3.  Securities Available for Sale

      The amortized cost and estimated fair values of securities available 
for sale are as follows: 

<TABLE>
<CAPTION>

                                                             At December 31, 1998
                                             ----------------------------------------------------
                                                              Gross         Gross      Estimated
                                             Amortized     Unrealized    Unrealized       Fair
(In thousands)                                  Cost          Gains         Losses       Value
                                             ----------------------------------------------------

<S>                                          <C>             <C>           <C>         <C>
U.S. Treasuries and Agencies                 $  165,683      $1,682        $   98      $  167,267
States and political subdivisions                 7,806         237             -         8,043
Mortgage-backed securities                      711,540       4,196         2,474       713,262
Corporate debt securities                       188,154       2,483           144       190,493
                                             --------------------------------------------------
      Total debt securities                   1,073,183       8,598         2,716     1,079,065
Equities and other securities                    48,791          10             1        48,800
                                             --------------------------------------------------
      Total securities available for sale    $1,121,974      $8,608        $2,717    $1,127,865
                                             ==================================================

<CAPTION>

                                                             At December 31, 1997
                                             ----------------------------------------------------
                                                              Gross         Gross      Estimated
                                             Amortized     Unrealized    Unrealized       Fair
(In thousands)                                  Cost          Gains         Losses       Value
                                             ----------------------------------------------------

<S>                                          <C>             <C>           <C>         <C>
U.S. Treasuries and Agencies                 $  239,524      $1,902        $  279    $  241,147
States and political subdivisions                 5,251         112             -         5,363
Mortgage-backed securities                      464,405       3,988         2,147       466,246
Corporate debt securities                       200,710       1,852           176       202,386
                                             --------------------------------------------------
      Total debt securities                     909,890       7,854         2,602       915,142
Equities and other securities                    43,400          11             -        43,411
                                             --------------------------------------------------
      Total securities available for sale    $  953,290      $7,865        $2,602    $  958,553
                                             ==================================================

</TABLE>

      Included in equity securities are certain non-marketable equity 
securities amounting to $44.3 million and $43.4 million at December 31, 
1998 and 1997, respectively, consisting of Federal Home Loan Bank and 
Federal Reserve Bank equity securities. Both investments are required for 
membership. Non-marketable equity securities are carried at cost. 

      The following table sets forth information with regard to contractual 
maturities of debt securities available for sale as of December 31, 1998:

<TABLE>
<CAPTION>

                                               Estimated
                                Amortized        Fair
Total Debt Securities             Cost           Value
--------------------------------------------------------
(In thousands)

<S>                             <C>            <C>
Within one year                 $   81,872     $   81,986
From one to five years             337,927        338,908
From five to ten years             203,768        206,014
After ten years                    449,616        452,157
                                -------------------------
      Total debt securities 
       available for sale       $1,073,183     $1,079,065
                                =========================

</TABLE>

      Actual maturities may differ from contractual maturities because, in 
certain cases, borrowers have the right to call or prepay obligations with 
or without call or prepayment penalties. 

      The following table sets forth information with regard to sales 
transactions of securities available for sale: 

<TABLE>
<CAPTION>

                                           For the years ended
                                              December 31,
                                     -------------------------------
(In thousands)                         1998        1997       1996
                                     -------------------------------

<S>                                  <C>          <C>        <C>
Proceeds from sales                  $155,131     $5,970     $29,478
Gross realized gains from sales      $  1,076     $  262     $    43
Gross realized losses from sales     $    673     $   32     $    82

</TABLE>

      Securities available for sale with an amortized cost of approximately 
$539.0 million and $442.2 million at December 31, 1998, and 1997, 
respectively, were pledged to secure public deposits, securities sold under 
agreements to repurchase, and for other purposes as required by law. 

      There were no holdings when taken in aggregate of any issuer(s) that 
exceeded 10% of shareholders' equity at December 31, 1998.

4.  Investment Securities Held to Maturity

      The amortized cost and estimated fair values of investment securities 
held to maturity are as follows:

<TABLE>
<CAPTION>
                                                    At December 31, 1998
                                     --------------------------------------------------
                                                     Gross        Gross       Estimated
                                     Amortized    Unrealized    Unrealized       Fair
(In thousands)                          Cost         Gains        Losses        Value
                                     --------------------------------------------------

<S>                                   <C>           <C>            <C>         <C>
U.S. Treasuries and Agencies          $ 3,582       $   87         $  -        $ 3,669
States and political subdivisions      11,443          785            -         12,228
Mortgage-backed securities              5,510          189            -          5,699
Corporate debt securities                  10            -            -             10
                                      ------------------------------------------------
      Total investment securities
       held to maturity               $20,545       $1,061         $  -        $21,606
                                      ================================================

<CAPTION>

                                                    At December 31, 1997
                                     --------------------------------------------------
                                                     Gross        Gross       Estimated
                                     Amortized    Unrealized    Unrealized       Fair
(In thousands)                          Cost         Gains        Losses        Value
                                     --------------------------------------------------

<S>                                   <C>           <C>            <C>         <C>
U.S. Treasuries and Agencies          $29,385       $  225         $  5        $29,605
States and political subdivisions      13,555          826            -         14,381
Mortgage-backed securities             15,676          198           38         15,836
Corporate debt securities                  10            -            -             10
                                      ------------------------------------------------
      Total investment securities
       held to maturity               $58,626       $1,249         $ 43        $59,832
                                      ================================================
</TABLE>

The following table sets forth information with regard to contractual 
maturities of debt securities held to maturity as of December 31, 1998:

<TABLE>
<CAPTION>
                                              Estimated
                                Amortized       Fair
Total Debt Securities             Cost          Value
-------------------------------------------------------
(In thousands)

<S>                              <C>           <C>
Within one year                  $ 1,665       $ 1,689
From one to five years            11,450        11,937
From five to ten years             4,358         4,771
After ten years                    3,072         3,209
                                 ---------------------
      Total debt securities      $20,545       $21,606
                                 =====================
</TABLE>


      Actual maturities may differ from contractual maturities because, in 
certain cases, borrowers have the right to call or prepay obligations with 
or without call or prepayment penalties.

      There were no sales of securities held to maturity in 1998, 1997 or 
1996. During 1998 and 1997, certain investment securities were called 
resulting in gains of $25 thousand and $37 thousand, respectively. 
Investment securities with an amortized cost of approximately $10.7 million 
and $38.7 million at December 31, 1998 and December 31, 1997, respectively, 
were pledged to secure public deposits, securities sold under agreements to 
repurchase, and for other purposes as required by law. 

5.  Loans and Allowance for Loan Losses

      A summary of loans by category is as follows: 

<TABLE>
<CAPTION>
                                                                                                         At December 31,
                                                                                                    -------------------------
(In thousands)                                                                                         1998           1997
                                                                                                    -------------------------

<S>                                                                                                 <C>            <C>
Commercial, financial and agricultural, net of unamortized loan fees of $718 thousand in 1998 
 and $1.1 million in 1997                                                                           $  690,170     $  566,300
Real estate, net of unamortized loan costs of $1.3 million in 1998 and unamortized loan fees of 
 $80 thousand in 1997:
  Residential (1-4 family)                                                                           1,041,667      1,082,235
  Commercial                                                                                           615,503        563,566
  Construction and land development                                                                     45,704         37,778
                                                                                                    -------------------------
      Total real estate                                                                              1,702,874      1,683,579

Credit card receivables                                                                                 33,205         25,669
Lease receivables, net of unearned discount of $10.9 million in 1998 and $10.7 million in 1997          79,001         76,302
Other installment, including deferred costs of $1.2 million in 1998 and $668 thousand in 1997          331,856        290,244
                                                                                                    -------------------------
  Total installment                                                                                    444,062        392,215
                                                                                                    -------------------------
      Total loans                                                                                    2,837,106      2,642,094
  Less: allowance for loan losses                                                                       44,537         38,551
                                                                                                    -------------------------
Net loans                                                                                           $2,792,569     $2,603,543
                                                                                                    =========================
</TABLE>


      At December 31, 1998 and 1997, loans to executive officers, directors 
and to associates of such persons aggregated to $29.1 million and $44.1 
million, respectively. During 1998, new loans of $23.5 million were made, 
and repayment of loans totaled $37.9 million. In the opinion of management, 
such loans were made in the ordinary course of business on substantially 
the same terms, including interest rates and collateral, as those 
prevailing at the time for comparable transactions. These loans do not 
involve more than the normal risk of collectibility or present other 
unfavorable features.

      Banknorth primarily grants loans throughout the States of Vermont, 
Massachusetts, New Hampshire and New York. Although the loan portfolio is 
diversified, a substantial portion of its debtors' ability to repay is 
dependent upon the economic conditions existing in these States. Adverse 
trends in the real estate market in these States could also negatively 
affect the Company's collateral position.

      As of December 31, 1998 and 1997, one to four family first mortgage 
loans with an approximate book value of $128.1 million and $392.3 million, 
respectively, were pledged to secure borrowings from the Federal Home Loan 
Bank.

Non-Performing Loans:

      The following table sets forth information with regard to non-
performing loans:


<TABLE>
<CAPTION>
                                        At December 31,
                                -------------------------------
(In thousands)                   1998        1997        1996
                                -------------------------------

<S>                             <C>         <C>         <C>
Loans in non-accrual status     $12,529     $18,176     $20,785
Loans contractually past
 due 90 days or more and
 still accruing interest          2,488       2,262       2,624
Restructured loans                5,977          42         898
                                -------------------------------
      Total non-perform-
       ing loans                $20,994     $20,480     $24,307
                                ===============================
</TABLE>


      Accumulated interest on the above non-performing loans of $921 
thousand, $1.6 million, and $1.2 million, was not recognized as income in 
1998, 1997, and 1996, respectively. Approximately $532 thousand, $1.1 
million, and $1.1 million of interest on the above non-performing loans was 
collected and recognized as income in 1998, 1997, and 1996, respectively.

      Transactions in the allowance for loan losses are summarized as 
follows:

<TABLE>
<CAPTION>
                                        For the Years Ended
                                            December 31,
                                 ----------------------------------
(In thousands)                     1998         1997         1996
                                 ----------------------------------

<S>                              <C>          <C>          <C>
Balance at beginning of year     $ 38,551     $ 35,913     $ 34,210
Allowance related to 
 purchase acquisitions              2,200            -        1,650
Provision for loan losses           9,345        9,372        7,040
Loans charged-off                 (11,730)     (12,364)     (12,040)
Recoveries on loans 
 previously charged-off             6,171        5,630        5,053
                                 ----------------------------------
Balance at end of year           $ 44,537     $ 38,551     $ 35,913
                                 ==================================
</TABLE>


      Impaired loans are included in non-performing loans, generally as 
non-accrual commercial type loans, commercial type loans past due 90 days 
or more and still accruing interest and all loans restructured in troubled 
debt restructurings subsequent to the adoption of SFAS No. 114. As of 
December 31, 1998 and 1997, $6.0 million and $42 thousand, respectively, of 
restructured loans were considered to be impaired.

      At December 31, 1998 and 1997, the recorded investment in loans that 
are considered to be impaired under SFAS No. 114 totaled $13.7 million and 
$10.8 million, respectively, for which the related allowance for loan 
losses is $2.0 million and $1.3 million, respectively. As of December 31, 
1998 and 1997, there were no impaired loans which did not have an allowance 
for loan losses determined in accordance with SFAS No. 114. The average 
recorded investment in impaired loans during the years ended December 31, 
1998, 1997 and 1996, was approximately $10.6 million, $11.9 million, and 
$12.9 million, respectively. During 1998, the Company recognized interest 
income on those impaired loans of $468 thousand, which included $400 
thousand of interest income recognized using the cash basis method of 
income recognition. During 1997, the Company recognized interest income on 
those impaired loans of $895 thousand, which included $872 thousand of 
interest income recognized using the cash basis method of income 
recognition. During 1996, the Company recognized interest income on those 
impaired loans of $834 thousand, which included $830 thousand of interest 
income recognized using the cash basis method of income recognition.

6.  Capitalized Mortgage Servicing Rights

      The following table is a summary of activity for mortgage servicing 
rights purchased and originated for the years ended December 31, 1998, 1997 
and 1996: 

<TABLE>
<CAPTION>
(In thousands)                   Purchased     Originated       Total
                                 ------------------------------------

<S>                               <C>            <C>          <C>
Balance at January 1, 1996        $3,311         $  169       $ 3,480
  Additions                          520            883         1,403
  Amortization                      (848)          (114)         (962)
                                  -----------------------------------
Balance at January 1, 1997        $2,983         $  938       $ 3,921
  Additions                        1,837            653         2,490
  Amortization                      (885)          (181)       (1,066)
  Sale of servicing                 (681)           (14)         (695)
                                  -----------------------------------
Balance at December 31, 1997      $3,254         $1,396       $ 4,650
  Additions                        1,244          1,981         3,225
  Amortization                      (985)          (376)       (1,361)
  Impairment reserve                (245)          (255)         (500)
  Sale of servicing                 (662)            (1)         (663)
                                  -----------------------------------
Balance at December 31, 1998      $2,606         $2,745       $ 5,351
                                  ===================================
</TABLE>


      The estimated fair value of the Company's capitalized mortgage 
servicing rights approximates the carrying value at December 31, 1998 and 
was approximately $5.6 million at December 31, 1997.

      The mortgage servicing rights as of December 31, 1998 and 1997 relate 
to approximately $625.1 million and $572.7 million, respectively, of 
mortgage loans serviced for third parties. In addition, as of December 31, 
1998 and 1997, the Company services approximately $310.0 million and $328.7 
million, respectively, of mortgage loans sold to third parties prior to the 
adoption of SFAS No. 122 and 125, for which there is no capitalized 
servicing asset on the Company's consolidated financial statements. 

7.  Premises, Equipment and Software

      A summary of premises, equipment and software is as follows:


<TABLE>
<CAPTION>
                                              At December 31,
                                           ---------------------
(In thousands)                               1998         1997
                                           ---------------------

<S>                                        <C>          <C>
Land and land improvements                 $  5,770     $  5,796
Buildings and improvements                   54,088       48,678
Equipment, fixtures, and software            50,974       46,618
                                           ---------------------
      Total                                 110,832      101,092
Less: accumulated depreciation and 
 amortization                                59,896       55,338
                                           ---------------------
Premises, equipment, and software, net     $ 50,936     $ 45,754
                                           =====================
</TABLE>


      Depreciation and amortization expense was approximately $6.7 million, 
$6.7 million, and $5.8 million for the years ended December 31, 1998, 1997, 
and 1996, respectively.

      Certain premises, equipment and software are leased under non-
cancelable operating leases expiring periodically through the year 2027. 
Some of these leases contain one or more renewal options. Current non-
cancelable operating leases generally require payment of real estate taxes 
and/or property maintenance costs in excess of specified minimum rental 
payments.

      Rental expense for premises, equipment and software was approximately 
$3.8 million, $3.5 million, and $3.0 million in 1998, 1997 and 1996, 
respectively. Required minimum annual rental payments on non-cancelable 
operating leases with original terms of one year or more consisted of the 
following at December 31, 1998:

<TABLE>
<CAPTION>
      (In thousands)

      <C>                <C>
      1999               $ 3,868
      2000                 3,276
      2001                 2,257
      2002                 1,959
      2003                 1,675
      Thereafter           7,541
                         -------
            Total        $20,576
                         =======
</TABLE>


8.  Other Real Estate Owned and Repossessed Assets

      Other real estate owned and repossessed assets consist of the 
following:

<TABLE>
<CAPTION>
                                          At December 31,
                                         -----------------
(In thousands)                            1998       1997
                                         -----------------

<S>                                      <C>        <C>
Other real estate owned
  Commercial                             $2,472     $1,007
  Single family residential                 591        722
  Multi-family                              179        182
  Land                                        5        230
                                         -----------------
      Total other real estate owned       3,247      2,141
                                         -----------------

In substance foreclosure
  Multi-family                               77          -
                                         -----------------
      Total in substance foreclosure         77          -
                                         -----------------

Non real estate repossessed assets           11        654
                                         -----------------

      Total                              $3,335     $2,795
                                         =================
</TABLE>


9.  Time Deposits

      The approximate amount of contractual maturities of time deposits for 
the years subsequent to December 31, 1998, is as follows:

<TABLE>
<CAPTION>
      (In thousands)

      <C>                       <C>
      1999                      $1,013,855
      2000                         194,393
      2001                          31,914
      2002                          18,273
      2003                          14,333
      Thereafter                       607
                                ----------
        Total time deposits     $1,273,375
                                ==========
</TABLE>


10.  Short-Term Borrowed Funds

      As of December 31, 1998 and 1997, the Company had unused lines of 
credit amounting to approximately $146.3 million and $149.3 million, 
respectively, which are available primarily for overnight purchases of 
Federal funds from correspondent banks primarily on an as-available basis. 
Interest rates on Federal funds borrowings are determined by the federal 
funds market. In addition, as of December 31, 1998 and 1997, the Company 
had unused lines of credit with the Federal Home Loan Bank amounting to 
$600.6 million and $408.2 million, respectively. 

      The Company enters into sales of securities under short term, usually 
overnight, fixed coupon, repurchase agreements. Such agreements are treated 
as financings, and the obligations to repurchase securities sold are 
reflected as liabilities on the Company's consolidated balance sheets. 
During the period of such agreements, the underlying securities are 
transferred to a third party custodian's account that explicitly recognizes 
the Company's interest in the securities.

      The following table presents the detail of Banknorth's short-term  
borrowed funds and weighted average interest rates thereon for each of the 
last three years:

<TABLE>
<CAPTION>
                                                               Securities
                                                 Federal       Sold under        Borrowings
                                                  Funds       Agreements to         from          Borrowings
(Dollars in thousands)                          Purchased      Repurchase       U.S. Treasury     from FHLB
                                                ------------------------------------------------------------

<S>                                              <C>            <C>                <C>             <C>
1998:
Ending balance                                   $30,445        $208,511           $12,678         $ 30,000
Average amount outstanding                         9,292         164,880            14,987          201,482
Maximum amount outstanding at any month end       30,445         208,511            31,046          307,000
Weighted average interest rate:
  During year                                       5.64%           4.49%             5.18%            5.59%
  End of year                                       5.48            3.55              4.12             5.54

1997:
Ending balance                                   $19,800        $144,924           $22,211         $263,000
Average amount outstanding                         7,769         142,527            12,570          226,720
Maximum amount outstanding at any month end       33,000         182,046            26,329          305,000
Weighted average interest rate:
  During year                                       5.89%           4.65%             5.20%            5.69%
  End of year                                       6.80            4.24              5.27             5.80

1996:
Ending balance                                   $23,305        $117,500           $14,502         $129,000
Average amount outstanding                         5,877         107,588            10,087           39,656
Maximum amount outstanding at any month end       39,200         117,711            25,531          129,000
Weighted average interest rate:
  During year                                       5.76%           4.66%             5.11%            5.61%
  End of year                                       7.74            4.83              5.16             5.47
</TABLE>


11.  Long-Term Debt

      Long-term debt consists of secured term loans from the Federal Home 
Loan Bank in the amounts of $66.1 million and $31.2 million at December 31, 
1998 and 1997, respectively, and $8.3 million and $11.0 million of 
unsecured debt from third party financial institutions at December 31, 1998 
and 1997, respectively.

      The following table sets forth the final maturities, outstanding 
balances and weighted average interest rates of the long-term debt at 
December 31, 1998:

<TABLE>
<CAPTION>
                                           Fixed                     Variable
                              Fixed       Weighted     Variable      Weighted
                              Rate        Average        Rate        Average
Maturity                   Outstanding    Interest    Outstanding    Interest
Date                         Balance        Rate        Balance        Rate
-----------------------------------------------------------------------------

<S>                          <C>           <C>          <C>           <C>
(Dollars in thousands)
1999                         $   342       6.81%        $    -           -%
2000                           6,000       5.94            463        7.75
2001                          40,176       5.95          7,800        5.63
2002                              10       7.79              -           -
2003                           8,907       5.71              -           -
2004-2013                     10,627       6.83              -           -
                             ---------------------------------------------
      Total                  $66,062       6.06%        $8,263        5.74%
                             =============================================
</TABLE>


      The interest rate on the variable rate long-term note maturing in the 
year 2001 is tied to LIBOR. The borrowings from Federal Home Loan Bank are 
secured by mortgage loans held in the Company's loan portfolios and certain 
securities not pledged elsewhere. 

12.  Income Taxes

      The components of the income tax expense are as follows:

<TABLE>
<CAPTION>
                                 For the years ended
                           -------------------------------
(In thousands)              1998        1997        1996
                           -------------------------------

<S>                        <C>         <C>         <C>
Current tax expense        $17,272     $21,416     $17,168
Deferred tax expense 
 (benefit)                  (2,757)     (1,255)        488
                           -------------------------------
      Total income tax 
       expense             $14,515     $20,161     $17,656
                           ===============================
</TABLE>


      Applicable income tax expense for financial reporting purposes 
differs from the amount computed by applying the statutory federal income 
tax rate to pre-tax income for the reasons noted in the table below:

<TABLE>
<CAPTION>
(In thousands)                    1998        1997        1996
                                 -------------------------------

<S>                              <C>         <C>         <C>
Expense at statutory
 federal tax rate                $15,202     $21,692     $18,676
Increases (decreases) in tax
 Expense resulting from:
  Tax exempt income, net          (1,780)       (673)       (853)
  Acquisition costs                2,217           -           -
  Reduction in valuation
   allowance                        (424)       (487)       (243)
    State income tax                 (46)        219       1,097
    Tax credits                   (1,158)       (933)       (698)
    Other, net                       504         343        (323)
                                 -------------------------------
    Income tax expense           $14,515     $20,161     $17,656
                                 ===============================
</TABLE>


      The tax effects of temporary differences that give rise to 
significant portions of the deferred tax assets and liabilities at December 
31, 1998 and 1997 are presented below:

<TABLE>
<CAPTION>
(In thousands)                               1998        1997
                                            -------------------

<S>                                         <C>         <C>
Temporary deductible items:
Differences in reporting the provision 
 for loan losses and loan charge offs       $15,933     $13,909
Pension and deferred remuneration             9,618       8,144
Purchase accounting                           1,530       1,205
Deferred net loan origination fees              410         515
Accrued medical benefits                        241         227
Other                                           743         446
                                            -------------------
  Total gross deferred tax assets            28,475      24,446
  Less valuation allowance                     (400)       (824)
                                            -------------------
  Deferred tax assets, net of valuation 
   allowance                                 28,075      23,622

Temporary taxable items:
Lease financing                               9,291       8,741
Depreciation                                    763       1,145
Mark-to-market for investments and 
 loans                                          386         213
Prepaid expenses                              1,043         744
Mortgage servicing rights                       982         510
Other                                         1,190         606
                                            -------------------
  Total gross deferred tax liabilities       13,655      11,959
                                            -------------------
  Net deferred tax asset at end of year      14,420      11,663
  Net deferred tax assets at beginning
   of year                                   11,663      10,408
                                            -------------------
Deferred tax benefit for the years
 ended December 31, 1998 and 1997           $ 2,757     $ 1,255
                                            ===================
</TABLE>


      Deferred tax assets are recognized subject to management's judgment 
that realization is more likely than not. Based on the sufficiency of 
temporary taxable items, historical taxable income, as well as estimates of 
future taxable income, management believes it is more likely than not that 
the entire net deferred tax asset at December 31, 1998 will be realized.

13.  Employee Benefit Plans

      The Corporation maintains a non-contributory defined benefit 
retirement and pension plan covering substantially all employees. Benefit 
payments to retired employees are based upon years of service, a percentage 
of qualifying compensation during the final years of employment and an 
average of social security maximum taxable earnings. The amounts 
contributed to the plan are determined annually by applicable regulations. 
Assets of the plan are primarily invested in listed stocks, common trust 
funds maintained by the Company's trust subsidiary, The Stratevest Group, 
N.A., corporate obligations and U.S. Government and Agency obligations. 
Prior to December 31, 1998 the Company maintained two non-contributory 
defined benefit retirement plans, the Evergreen Bancorp, Inc. Retirement 
Plan and the Banknorth Group, Inc. Retirement Plan. Effective January 1, 
1999, the Company merged these two plans.

      The following table sets forth the plan's funded status and amounts 
recognized in the consolidated balance sheets:

<TABLE>
<CAPTION>
                                               At December 31,
                                             -------------------
(In thousands)                                1998        1997
                                             -------------------

<S>                                          <C>         <C>
Reconciliation of benefit obligation
  Obligation at January 1                    $43,049     $37,332
  Service cost                                 2,502       1,940
  Interest cost                                3,241       2,928
  Actuarial gain/loss                          6,839       2,700
  Benefits paid                               (2,157)     (1,851)
                                             -------------------
  Obligation at December 31                   53,474      43,049
                                             -------------------

Reconciliation of fair value of plan 
 assets
  Fair value of plan assets at January 1      47,029      39,928
  Actual return on plan assets                 8,078       8,096
  Employer contribution                          897         856
  Benefits paid                               (2,157)     (1,851)
                                             -------------------
  Fair value of plan assets at 
   December 31                                53,847      47,029
                                             -------------------

Funded status at December 31                     373       3,980
Unrecognized net actuarial loss               (4,636)     (7,619)
Unrecognized prior service cost                  448         497
Unrecognized net transition asset               (291)       (416)
                                             -------------------
Accrued benefit cost                         $(4,106)    $(3,558)
                                             ===================
</TABLE>


      Net pension costs recognized in the consolidated statements of income 
for the years ended December 31, 1998, 1997, and 1996 are summarized as 
follows:

<TABLE>
<CAPTION>
(In thousands)                        1998        1997        1996
                                     -------------------------------

<S>                                  <C>         <C>         <C>
Components of net periodic 
 benefit cost
  Service cost                       $ 2,502     $ 1,940     $ 1,644
  Interest cost                        3,241       2,928       2,636
  Expected return on plan assets      (4,147)     (3,528)     (4,014)
  Amortization of transition 
   obligation                           (125)       (124)       (124)
  Amortization of prior service 
   cost                                   49          49          49
  Amortization of net 
   (gain) / loss                         (75)       (135)      1,007
                                     -------------------------------
  Net periodic benefit cost          $ 1,445     $ 1,130     $ 1,198
                                     ===============================
</TABLE>


      The actuarial assumptions used in determining the actuarial present 
value of projected benefit obligations as of December 31 were as follows:

<TABLE>
<CAPTION>
                                     1998      1997      1996
                                     -------------------------

<S>                                  <C>       <C>       <C>
Weighted-average assumptions
  Discount rate                      6.75%     7.00%     7.50%
  Expected return on plan assets     9.00%     9.00%     9.00%
  Rate of compensation increase      4.50%     4.50%     5.50%
</TABLE>


      In addition, the Company provides a defined benefit plan which 
provides post-retirement medical benefits to substantially all employees, 
as well as life insurance benefits to a closed group of retirees. Active 
employees are only eligible for medical coverage from early retirement 
until age 65. Post-age 65 medical coverage and life insurance benefits are 
offered to a closed group of retirees. The post-retirement health care 
portion of the plan is contributory, with participant contributions 
adjusted annually and contains other cost-sharing features, such as 
deductibles and co-insurance. The funding policy of the plan is to pay 
claims and/or insurance premiums as they come due. The 1998 and 1997 
accounting for the plan is based on the level of cost sharing as of January 
1, 1998 and 1997, respectively. Prior to December 31, 1998, the Company 
maintained two defined benefit plans which provide post-retirement medical 
benefits. Effective January 1, 1999, the Company merged these plans.
      The following table presents the amounts recognized in the Company's 
consolidated balance sheets:

<TABLE>
<CAPTION>
                                           At December 31,
                                         -------------------
(In thousands)                            1998        1997
                                         -------------------

<S>                                      <C>         <C>
Accumulated post-retirement benefit 
 obligation
  Obligation January 1                   $ 4,695     $ 4,825
  Service cost                               174         155
  Interest cost                              308         323
  Actuarial (gain) / loss                     25        (220)
  Benefits paid                             (354)       (388)
                                         -------------------
  Obligation at December 31                4,848       4,695
                                         -------------------

Unfunded accumulated benefit 
 obligation in excess of plan assets
 at December 31                           (4,848)     (4,695)
Unrecognized net (gain) / loss             1,149       1,432
Unrecognized prior service cost               47          45
Unrecognized transition obligation         1,906       1,834
                                         -------------------
Accrued post-retirement medical 
 and life benefit cost                   $(1,746)    $(1,384)
                                         ===================
</TABLE>


      Net periodic post-retirement benefit cost recognized in the 
consolidated statements of income for the years ended December 31, 1998, 
1997, and 1996 are summarized as follows:

<TABLE>
<CAPTION>
(In thousands)                           1998     1997     1996
                                         ----------------------

<S>                                      <C>      <C>      <C>
Service cost (benefits attributed to 
 service during the period)              $174     $155     $159
Interest costs                            308      323      341
Recognition of transition obligation      244      243      243
Net amortization and deferral             (11)     (17)      (6)
                                         ----------------------
Net periodic post retirement benefit 
 cost                                    $715     $704     $737
                                         ======================
</TABLE>


      The discount rate used in determining the accumulated post-retirement 
benefit obligation was 6.75%, 7.0% and 7.5% at December 31, 1998, 1997 and 
1996, respectively. For measurement purposes, an 8.3 percent annual rate of 
increase in the per capita cost of covered health care benefits was assumed 
for fiscal 1998; the rate was assumed to decrease gradually down to 5.5% 
for fiscal 2004 and remain at the level thereafter. The health care cost 
trend rate assumption has a significant effect on the amounts reported. To 
illustrate, increasing the assumed health care cost trend rate one 
percentage point in each year would increase the accumulated post 
retirement benefit obligation as of December 31, 1998 by $399 thousand (or 
by 8.4%) and the aggregate of the service and interest cost components of 
the net periodic post-retirement benefit cost for fiscal 1998 by $53 
thousand (or by 11.0%). Decreasing the assumed health care cost trend rate 
one percentage point in each year would decrease the accumulated post-
retirement benefit obligation as of December 31, 1998 by $358 thousand (or 
by 7.5%) and the aggregate of the service and interest cost components of 
net periodic post-retirement benefit cost for fiscal 1998 by $46 thousand 
(or by 9.6%).

      The Company provides certain post-employment medical benefits to 
inactive employees and accounts for these benefits in accordance with SFAS 
No. 112, "Employers' Accounting for Postemployment Benefits." The charges 
to expense with respect to short-term disability for the years ended 
December 31, 1998, 1997, and 1996 were $170 thousand, $171 thousand, and 
$157 thousand, respectively.

      In addition to the Company's non-contributory defined benefit 
retirement and pension plan, the Company provides supplemental employees 
retirement plans to certain executives. The amount of liability recognized 
in the Company's consolidated balance sheets was $6.6 million and $4.7 
million at December 31, 1998 and 1997, respectively. The charges to expense 
with respect to this plan amounted to $2.3 million, $1.1 million, and $751 
thousand for the years ended December 31, 1998, 1997, and 1996, 
respectively. Of the $2.3 million expense for 1998, $1.1 million is 
included in the one time merger and acquisition expense related to the 
acceleration of vesting of the Evergreen supplemental executive retirement 
plan.

      The Company and its subsidiaries have other benefit plans including 
401(k) savings and profit sharing plans. The charges to expense with 
respect to these plans amounted to $2.1 million in 1998, $1.8 million in 
1997, and $1.2 million in 1996. Evergreen provided an employee stock 
ownership plan (ESOP). The ESOP owns approximately 287,460 shares of 
Banknorth stock. Funds for the purchase of these shares were obtained 
through a borrowing from an unrelated financial institution. There was 
approximately $463 thousand of unpaid principal related to this borrowing 
at December 31, 1998, which is reflected as long-term debt on the Company's 
consolidated balance sheet. During 1998, $270 thousand of the borrowing was 
paid off by the Company releasing approximately 30 thousand shares, which 
were allocated to participating employees' accounts. As of January 1, 1999, 
the ESOP was merged with and into the Company's 401(k) Savings Plan.

      Evergreen also had an employee stock purchase plan (ESPP), which 
provided that Evergreen contribute an amount equal to 33% of each 
participant's contribution up to a maximum of $100 biweekly. Contribution 
under this plan amounted to $87 thousand, $81 thousand and $101 thousand 
for 1998, 1997 and 1996, respectively. This plan was terminated January 1, 
1999.

14.  Dividend Restrictions and Regulatory Requirements

Cash and Due From Banks

      Bank subsidiaries of Banknorth are required to maintain certain 
reserves of vault cash and/or deposits with the Federal Reserve Bank. The 
amount of this reserve requirement, included in Cash and Due from Banks, 
was approximately $24.3 million and $18.5 million at December 31, 1998 and 
1997, respectively.

Dividend Restrictions

      The Company's ability to pay dividends to its shareholders is largely 
dependent on the ability of its subsidiaries to pay dividends to the 
Company. Payment of dividends by Vermont-chartered banks is subject to 
applicable state and federal laws. Similarly, payment of dividends by 
national banks is subject to applicable federal law. National banks must 
obtain the approval of the Office of the Comptroller of the Currency for 
the payment of dividends if the total of all dividends declared in any 
calendar year would exceed the total of the bank's net profits, as defined 
by applicable regulations, for that year, combined with its retained net 
profits for the preceding two years. Furthermore, a national bank may not 
pay a dividend in an amount greater than its undivided profits then on hand 
after deducting its losses and bad debts, as defined by applicable 
regulations.

      Dividends paid by subsidiaries are the primary source of funds 
available to Banknorth for payment of dividends to its shareholders, for 
debt service, for expense related to capital securities, and other working 
capital needs. Various laws and regulations restrict the ability of banks 
to pay dividends to their shareholders. As of December 31, 1998, banking 
subsidiaries were able to declare dividends to Banknorth in 1999, without 
regulatory approval, of approximately $10.2 million plus an additional 
amount equal to the net profits, as defined in the applicable regulations, 
for 1999 through the date of any such dividend declarations, less any 
required transfer to surplus. 

      In November 1998, in order to purchase the Berkshire branches from 
BankBoston, the Company redeployed accumulated capital of $21.5 million 
from certain of its subsidiary banks. Because the special dividend exceeded 
applicable regulatory limitations, the Company obtained approval from the 
applicable regulatory agencies for the payment of that portion of the 
dividend which exceeded such regulatory limitations.

      Additionally, in connection with the Evergreen merger, Evergreen Bank 
paid a special dividend to the parent company. As the special dividend 
exceeded applicable regulatory limitations, Evergreen Bank obtained 
approval from the OCC for the payment of that portion of the dividend which 
exceeded such regulatory limitations.

      Payment of these dividends significantly restricts the dividend 
paying capacity of the subsidiary banks. The payment of dividends by the 
Company in the future will require the generation of sufficient future 
earnings by the subsidiary banks. 

      In connection with the funding of the acquisition of North American 
Bank Corporation, the Company has a credit agreement with a third party 
institution. The credit agreement was revised December 19, 1996 and 
restricts the Company's ability to pay dividends on its capital stock or 
redeem, repurchase or otherwise acquire or retire any of its capital stock 
during the period from September 30, 1996 to the date of calculation in an 
amount not to exceed the sum of (a) $9,580,000 plus (b) 40% of the 
Company's consolidated net income with certain adjustments, for such 
period, computed on a cumulative basis for such period. As of December 31, 
1998, the Company had authority to pay dividends of up to $3.9 million 
under the terms of this restriction, after taking into account dividends 
already paid and repurchases of the Company's stock during the calculation 
period (September 30, 1996 through December 31, 1998). 

Regulatory Capital Requirements

      Regulations require banks to maintain minimum levels of regulatory 
capital. Under the regulations in effect at December 31, 1998, the 
Company's subsidiary banks were required to maintain a minimum leverage 
ratio of Tier I capital to total adjusted quarterly average assets of 
4.00%; and minimum ratios of Tier I capital and total capital to risk 
weighted assets of 4.00% and 8.00%, respectively. The Federal Reserve Board 
("FRB") has adopted similar requirements for the consolidated capital of 
bank holding companies.

      Under their prompt corrective action regulations, regulatory 
authorities are required to take certain supervisory actions (and may take 
additional discretionary actions) with respect to an undercapitalized 
institution. Such actions could have a direct material effect on an 
institution's financial statements. The regulations establish a framework 
for the classification of banks into five categories: well capitalized, 
adequately capitalized, under capitalized, significantly under capitalized, 
and critically under capitalized. Generally, an institution is considered 
well capitalized if it has a Tier I (leverage) capital ratio of at least 
5.0% (based on total adjusted quarterly average assets), a Tier I risk 
based capital ratio of at least 6.0%, and a total risked based capital 
ratio of at least 10.0%.

      The foregoing capital ratios are based in part on specific 
quantitative measures of assets, liabilities and certain off-balance-sheet 
items as calculated under regulatory accounting practices. Capital amounts 
and classifications are also subject to qualitative judgments by the 
regulatory authorities about capital components, risk weighting and other 
factors.

      As of December 31, 1998, the Company, on a consolidated basis, met 
all capital adequacy requirements to which it is subject. Further, all of 
the Company's subsidiary banks, with the exception of First Massachusetts 
Bank, met all adequacy requirements which categorize each as well-
capitalized institutions. Due to the acquisition of Berkshire branch 
offices by First Massachusetts Bank in the fourth quarter of 1998, this 
subsidiary has temporarily been placed in the adequately-capitalized 
classification. 

      The following is a summary of the Company's significant subsidiary 
banks' and the Company's (on a consolidated basis) actual capital amounts 
and ratios as of December 31, 1998 and 1997 compared to the regulatory 
minimum capital adequacy requirements and the regulatory requirements for 
classification as a well-capitalized institution:

<TABLE>
<CAPTION>
At December 31, 1998
                                                            Regulatory
                                                        Ratio Requirements
                                                    --------------------------
                                                                     For
                                    Actual          Minimum     Classification
                               -----------------    Capital        as Well
(Dollars in thousands)          Amount     Ratio    Adequacy     Capitalized
                               -----------------------------------------------

<S>                            <C>         <C>       <C>            <C>
Tier I (leverage) Capital:
  Evergreen Bank, N.A.         $ 66,062     5.92%    4.00%           5.00%
  The Howard Bank, N.A.          54,952     7.39     4.00            5.00
  First Massachusetts 
   Bank, N.A.                    48,366     5.49     4.00            5.00
  First Vermont Bank and 
   Trust Co.                     48,062     7.28     4.00            5.00
  Banknorth Group, Inc. 
   (consolidated)               267,349     6.43     4.00

Tier I Risk Based Capital:
  Evergreen Bank, N.A.         $ 66,062     9.81%    4.00%           6.00%
  The Howard Bank, N.A.          54,952     8.80     4.00            6.00
  First Massachusetts 
   Bank, N.A.                    48,366     7.18     4.00            6.00
  First Vermont Bank and 
   Trust Co.                     48,062     8.98     4.00            6.00
  Banknorth Group, Inc. 
   (consolidated)               267,349     8.75     4.00

Total Risk Based Capital:
  Evergreen Bank, N.A.         $ 74,527    11.07%    8.00%          10.00%
  The Howard Bank, N.A.          62,781    10.05     8.00           10.00
  First Massachusetts  
   Bank, N.A.                    56,791     8.43     8.00           10.00
  First Vermont Bank and 
   Trust Co.                     54,762    10.23     8.00           10.00
  Banknorth Group, Inc. 
   (consolidated)               305,546    10.00     8.00

<CAPTION>
At December 31, 1997
                                                            Regulatory
                                                        Ratio Requirements
                                                    --------------------------
                                                                     For
                                    Actual          Minimum     Classification
                               -----------------    Capital        as Well
(Dollars in thousands)          Amount     Ratio    Adequacy     Capitalized
                               -----------------------------------------------

<S>                            <C>         <C>       <C>            <C>
Tier I (leverage) Capital:
  Evergreen Bank, N.A.         $ 82,176     8.20%    4.00%           5.00%
  The Howard Bank, N.A.          55,562     8.01     4.00            5.00
  First Massachusetts 
   Bank, N.A.                    53,266     7.12     4.00            5.00
  First Vermont Bank and 
   Trust Co.                     49,431     8.05     4.00            5.00
  Banknorth Group, Inc. 
   (consolidated)               313,835     8.18     4.00

Tier I Risk Based Capital:
  Evergreen Bank, N.A.         $ 82,176    12.90%    4.00%           6.00%
  The Howard Bank, N.A.          55,562     9.75     4.00            6.00
  First Massachusetts 
   Bank, N.A.                    53,266    10.12     4.00            6.00
  First Vermont Bank and 
   Trust Co.                     49,431     9.75     4.00            6.00
  Banknorth Group, Inc. 
   (consolidated)               313,835    11.30     4.00

Total Risk Based Capital:
  Evergreen Bank, N.A.         $ 90,186    14.20%    8.00%          10.00%
  The Howard Bank, N.A.          65,690    11.00     8.00           10.00
  First Massachusetts  
   Bank, N.A.                    58,606    11.14     8.00           10.00
  First Vermont Bank and 
   Trust Co.                     55,772    11.00     8.00           10.00
  Banknorth Group, Inc. 
   (consolidated)               348,547    12.55     8.00
</TABLE>


15.  Shareholders' Equity

Stock Split

      On February 24, 1998, the Board of Directors of Banknorth declared a 
2-for-1 split of its common stock effected in the form of a 100% stock 
dividend. The stock split was recorded as of December 31, 1997 by a 
transfer of $7.8 million from capital surplus to common stock, representing 
the $1.00 par value for each additional share issued.

      On August 15, 1996, the Board of Directors of the Evergreen Bancorp, 
Inc. approved a 2-for-1 split effected in the form of a 100% stock dividend 
and was recorded by a transfer of $4.3 million from capital surplus to 
common stock. All per share data has been restated to reflect the splits.

Common Share Purchase Rights

      On November 27, 1990, the Board of Directors adopted a Rights 
Agreement and declared a dividend distribution of one Common Share Purchase 
Right ("Right") on each outstanding share of common stock, payable December 
7, 1990, to shareholders of record on that date. The Rights Agreement also 
provides that shares of common stock issued after December 7, 1990 will 
have Common Share Purchase Rights associated with them to the same extent 
as the shares outstanding on December 7, 1990. The Rights expire on 
December 7, 2000. 

      Rights become exercisable 10 days after a person or group acquires 
20% or more of the Corporation's common stock, or ten business days (or 
such later date as may be determined by the Board of Directors prior to a 
person or group acquiring 20% or more of the Corporation's common stock) 
after a person or group announces an offer, the consummation of which, 
would result in such person or group owning 20% or more of the common stock 
(even if no purchases actually occur).

      When the Rights first become exercisable, unless a person or group 
has acquired 20% or more of the Corporation's common stock, a holder will 
be entitled to buy from the Corporation one share of common stock at the 
exercise price of $17.50. If any person or group acquires 20% or more of 
the Corporation's common stock the Rights will entitle a holder (other than 
such person or any member of such group) to buy a number of additional 
shares of common stock of the Corporation having a market value of twice 
the exercise price of each Right.

      Following the acquisition by any person or group of 20% or more of 
the Corporation's common stock, but only prior to the acquisition by a 
person or group of a 50% stake, the Board of Directors will also have the 
ability to exchange the Rights (other than Rights held by such person or 
group), in whole or in part, for one share of common stock per right.

      If the Corporation is involved in a merger or other business 
combination at any time after a person or group has acquired 20% or more of 
the Corporation's common stock, the Rights will entitle the holder to buy a 
number of shares of common stock of the acquiring company having a market 
value of twice the exercise price of each right.

      Prior to the acquisition by a person or group of 20% or more of the 
Corporation's common stock, at the option of the Board of Directors the 
Rights are redeemable for one cent per Right. The Board of Directors is 
also authorized to reduce the 20% threshold to not less than 10%.

16.  Earnings Per Share

      The following table provides calculations of basic and diluted 
earnings per share:

<TABLE>
<CAPTION>
                                                                For the years ended December 31,
                               ---------------------------------------------------------------------------------------------------
                                             1998                             1997                              1996
                               ---------------------------------------------------------------------------------------------------
                                         Weighted                          Weighted                          Weighted
                                Net      Average     Per Share   Net       Average     Per Share   Net       Average     Per Share
                               Income     Shares      Amount    Income      Shares      Amount    Income      Shares      Amount
                               ---------------------------------------------------------------------------------------------------
(Dollars in thousands, except for share and per share data) 

<S>                            <C>      <C>            <C>      <C>       <C>            <C>      <C>       <C>            <C>
Basic earnings per share       $28,920  23,277,560     $1.24    $41,816   23,705,320     $1.76    $35,703   23,626,266     $1.51
                               -------------------------------------------------------------------------------------------------

Effect of dilutive securities
Stock options                              363,645                           312,470                           226,494
Restricted stock awards                     28,335                            25,010                             8,122
                               -------------------------------------------------------------------------------------------------

Diluted earnings per share     $28,920  23,669,540     $1.22    $41,816   24,042,800     $1.74    $35,703   23,860,882     $1.50
                               =================================================================================================
</TABLE>


17.  Guaranteed Preferred Beneficial Interests in
      Corporation's Junior Subordinated Debentures

      On May 1, 1997, Banknorth established Banknorth Capital Trust I (the 
"Trust") which is a statutory business trust formed under Delaware law upon 
filing a certificate of trust with the Delaware Secretary of State. The 
Trust exists for the exclusive purposes of (i) issuing and selling 30 year 
guaranteed preferred beneficial interests in Corporation junior subodinated 
debentures ("capital securities") in the aggregate amount of $30.0 million 
at 10.52%, (ii) using the proceeds from the sale of the capital securities 
to acquire the junior subordinated debentures issued by the Parent Company 
and (iii) engaging in only those other activities necessary, advisable or 
incidental thereto. The junior subordinated debentures are the sole assets 
of the Trust and, accordingly, payments under the corporation obligated 
junior debentures are the sole revenue of the Trust. All of the common 
securities of the Trust are owned by the Parent Company. The Parent Company 
has used the net proceeds from the sale of the capital securities for 
general corporate purposes. The capital securities, with associated expense 
that is tax deductible, qualify as Tier I capital under regulatory 
definitions. The Company's primary source of funds to pay interest on the 
debentures owed to the trust are current dividends from subsidiary banks 
and interest income on loans made by the Parent Company to certain of its 
subsidiary banks. Accordingly, the Parent Company's ability to service the 
debentures is dependent upon the continued ability of the subsidiary banks 
to pay dividends and service their debt obligations to the Parent Company. 
Since the capital securities are not classified as debt for financial 
statement purposes, the expense associated with the capital securities is 
recorded as non-interest expense on the consolidated statements of income, 
consistent with practice generally followed by issuers of this type of 
security.

18.  Long-Term Incentive Plan

      In May 1997, the shareholders of Banknorth approved the 1997 Equity 
Compensation Plan (the "Plan") which replaced the Banknorth Group, Inc. 
Comprehensive Long-Term Executive Incentive Plan approved by the 
shareholders of Banknorth in May 1990. No additional awards will be made 
under the 1990 plan. The Plan authorizes the granting of stock option 
awards, stock appreciation rights, restricted stock awards and restricted 
stock units to employees and directors of the Corporation and/or 
subsidiaries.  The Plan is administered by the Corporation's Board of 
Directors. Persons eligible to participate are chosen by the Board of 
Directors. Subject to adjustments described in the Plan, the total number 
of shares of Banknorth common stock that may be issued pursuant to the Plan 
may not exceed 1,050,000. Such shares may be either newly-issued shares or 
previously issued shares that have been reacquired by the Corporation. 

Stock Options

      The exercise price of each option equals the market price of the 
Company's stock on the date of grant, and an option's maximum term is ten 
years. Options vest over a two year period from the date the options are 
granted. The Company applies APB Opinion No. 25, "Accounting for Stock 
Issued to Employees," in accounting for its stock option awards and, 
accordingly, no compensation cost has been recognized for its stock-based 
compensation awards ("awards") in the consolidated statements of income. 

      A summary of the status of the Company's fixed stock options as of 
December 31, 1998, 1997, and 1996, and changes during the years ended on 
those dates is presented below:

<TABLE>
<CAPTION>
                                                 1998                   1997                   1996
                                         ------------------------------------------------------------------
                                                     Weighted               Weighted               Weighted
                                                     Average                Average                Average
                                                     Exercise               Exercise               Exercise
Fixed Options                             Shares      Price      Shares      Price      Shares      Price
-----------------------------------------------------------------------------------------------------------

<S>                                      <C>          <C>       <C>          <C>       <C>          <C>
Outstanding at beginning of year         1,191,289    $15.37    1,182,089    $12.42      837,970    $ 9.89
Granted                                    289,650     32.13      328,727     21.94      487,039     15.73
Exercised                                 (255,457)    12.76     (272,304)    10.14     (132,920)     8.40
Forfeited                                  (13,000)    19.91      (47,223)    17.34      (10,000)    14.75
                                         -----------------------------------------------------------------
Outstanding at end of year               1,212,482     19.88    1,191,289     15.37    1,182,089     12.42
                                         =================================================================

Options exercisable at end of year         617,730                608,712                542,050
                                         =================================================================

Weighted-average fair value of options 
      granted during the year            $    7.69              $    5.09              $    3.93
                                         =================================================================
</TABLE>


      The following table summarizes information about fixed stock options 
outstanding at December 31, 1998:

<TABLE>
<CAPTION>
                                  Options Outstanding              Options Exercisable
                         --------------------------------------   ----------------------
                                       Weighted Avg.   Weighted                 Weighted
                           Number        Remaining     Average      Number      Average
         Range of        Outstanding   Contractual     Exercise   Exercisable   Exercise
      Exercise Prices    at 12/31/98       Life         Price     at 12/31/98    Price
      ----------------------------------------------------------------------------------

        <S>               <C>            <C>            <C>         <C>          <C>
        $ 4.50 to 8          54,818      4.8 Years      $ 7.50       54,818      $ 7.50
            8 to 12         155,955      5.7              9.71      155,955        9.71
           12 to 17         414,237      7.5             14.95      396,957       14.87
           17 to 27         367,837      8.7             22.13       10,000       19.00
           27 to 37         219,635      9.5             35.47            -           -
                          -------------------------------------------------------------
        $4.50 to 37       1,212,482      7.8            $19.88      617,730      $13.07
                          =============================================================
</TABLE>


      Had the Company recorded compensation cost based on the fair value at 
the grant date for its stock options under SFAS No. 123, "Accounting for 
Stock-Based Compensation," the Company's consolidated net income and basic 
and diluted earnings per share would have been reduced to the pro forma 
amounts indicated below:

<TABLE>
<CAPTION>
      (In thousands, except per share data)           1998        1997        1996
                                                     -------------------------------

      <S>                            <S>             <C>         <C>         <C>
      Net income                     As reported     $28,920     $41,816     $35,703
                                     Pro forma        28,172      41,211      34,716

      Basic earnings per share       As reported     $  1.24     $  1.76     $  1.51
        Pro forma                                       1.21        1.74        1.48
      Diluted earnings per share     As reported        1.22        1.74        1.50
                                     Pro forma          1.19        1.71        1.46
</TABLE>


      Pro forma net income reflects only awards granted in 1998, 1997 and 
1996. Therefore, the full impact of calculating compensation cost for 
awards under SFAS No. 123 is not reflected in the pro forma net income 
amounts presented above because compensation cost is reflected over the 
awards' vesting period and compensation cost for awards granted prior to 
January 1, 1996 is not considered. 

      The fair value of each award grant is estimated on the date of grant 
using the Black-Scholes option-pricing model with the following weighted-
average assumptions used for grants in 1998, 1997 and 1996: 

<TABLE>
<CAPTION>
                           July       December     July       July
                           1998         1997       1997       1996
                           ---------------------------------------

<S>                        <C>        <C>        <C>        <C>
Dividend yield              2.35%      2.26%      2.61%      3.13%

Expected volatility        25.95%     18.28%     20.55%     24.02%

Risk-free interest rate     4.50%      6.00%      5.50%      6.14%

Expected life               5 years    5 years    5 years    5 years

</TABLE>

Restricted Stock Awards

      Additionally, variable restricted stock awards were granted in each 
year since 1992, along with restricted stock units worth 50% of the value 
of the underlying shares, to executive officers chosen by the Corporation's 
board of directors. At December 31, 1998, restricted stock outstanding 
amounted to 85,800 shares. The following are the terms of the restricted 
stock awards granted:

July 28, 1998:  Variable restricted stock awards of 7,000 shares were 
                granted and are outstanding as of December 31, 1998. 
                Vesting for the 1998 shares and the units requires 
                continuous service through July 28, 2003. In addition, 
                vesting of 25% of both the shares and the units occurs for 
                the 1998 awards each year between 1998 and 2002 in which the 
                return on average equity is equal to or greater than 13% and 
                return on average assets is equal to or greater than 1.1% to 
                a maximum vesting of 100%.

July 22, 1997:  Variable restricted stock awards of 13,000 shares were 
                granted and are outstanding as of December 31, 1998. 
                Vesting for the 1997 shares and the units requires 
                continuous service through July 22, 2002. In addition, 
                vesting of 25% of both the shares and the units occurs for 
                the 1997 awards each year between 1997 and 2001 in which 
                the return on average equity is equal to or greater than 
                13% and return on average assets is equal to or greater 
                than 1.1% to a maximum vesting of 100%.

July 23, 1996:  Variable restricted stock awards of 22,800 shares were 
                granted and are outstanding as of December 31, 1998. 
                Vesting for the 1996 shares and the units requires 
                continuous service through July 23, 2001. In addition, 
                vesting of 25% of both the shares and the units occurs for 
                the 1996 awards each year between 1996 and 2000 in which 
                the return on average equity is equal to or greater than 
                13% and return on average assets is equal to or greater 
                than 1.1% to a maximum vesting of 100%.

July 25, 1995:  Variable restricted stock awards of 25,000 shares were 
                granted and are outstanding as of December 31, 1998. 
                Vesting for the 1995 shares and the units requires 
                continuous service through July 25, 2000. In addition, 
                vesting of 25% of both the shares and the units occurs for 
                the 1995 awards each year between 1995 and 1999 in which 
                the return on average equity is equal to or greater than 
                13% and return on average assets is equal to or greater 
                than 1.1% to a maximum vesting of 100%.

July 26, 1994:  Variable restricted stock awards of 21,000 shares were 
                granted, 3,000 shares were forfeited during 1994, and 
                18,000 shares were outstanding as of December 31, 1998. 
                Vesting for the 1994 shares and the units requires 
                continuous service through July 26, 1999. In addition, 
                vesting of 25% of both the shares and the units occurs for 
                the 1994 awards each year between 1994 and 1998 in which 
                the return on average equity is equal to or greater than 
                12% and return on average assets is equal to or greater 
                than 1.0% to a maximum vesting of 100%.

July 27, 1993:  Variable restricted stock awards of 21,000 shares were 
                granted, 3,000 shares were forfeited during 1994, and the 
                remaining 18,000 shares were fully vested on July 27, 1998.

      Restrictions are generally not removed on any of the above noted 
stock awards until the end of the required continuous service period. If 
participants are not employees at the end of the continuous service period, 
all awards are generally forfeited. For the years ended December 31, 1998, 
1997, and 1996, compensation expense related to these restricted stock 
awards and units amounted to $1.1million, $1.3 million, and $475 thousand, 
respectively. 

19.  Commitments, Off-Balance Sheet Risk and 
      Contingent Liabilities

Commitments and Off-Balance-Sheet Risk

      Banknorth and its subsidiaries are parties to financial instruments 
with off-balance-sheet risk in the normal course of business to meet the 
financing needs of its customers and to facilitate asset/liability 
management. These financial instruments include interest rate swaps, floors 
and corridors, commitments to extend credit, unused lines of credit, 
letters of credit, standby letters of credit, and loans sold with recourse. 
These instruments involve, to varying degrees, elements of credit and 
interest rate risk in excess of the amount recognized on the balance sheet. 
The contract or notional amount of these instruments reflect the extent of 
involvement the Corporation has in particular instruments.

      The maximum exposure to credit loss in the event of complete non-
performance by the other party to the financial instruments, and any 
collateral or guarantees which prove to be of no value, for commitments to 
extend credit, unused lines of credit, letters of credit, standby letters 
of credit and loans sold with recourse is represented by the contractual or 
notional amount of these instruments. The Corporation uses the same credit 
policies in making commitments and conditional obligations as it does for 
on-balance-sheet instruments.

      Unless otherwise noted, the Corporation does not require collateral 
or other security to support off-balance-sheet financial instruments with 
credit risk.

      Commitments to extend credit and unused lines of credit are 
agreements to lend to a customer as long as there is no violation of any 
condition established in the contract. Commitments and lines of credit 
generally have fixed expiration dates or other termination clauses and may 
require payment of a fee. Since certain of the commitments and lines of 
credit are expected to expire without being drawn upon, the total 
commitment amounts do not necessarily represent future cash requirements. 
The Corporation evaluates each customer's creditworthiness on a case by 
case basis. The amount and type of collateral deemed necessary upon 
extension of credit is based upon management's credit evaluation and is 
consistent with existing credit policies for collateral of on-balance-sheet 
instruments. Collateral varies but may include accounts receivable, 
inventory, property, plant and equipment, income producing commercial 
properties, and residential real estate.

      The Company may enter into rate lock agreements which fix the 
interest rate at which the loan, if ultimately made, will be originated. 
Such agreements may be made with borrowers with whom commitments to extend 
credit have been made, as well as with individuals who have applied for 
mortgage loans and have not yet received a commitment. These rate lock 
agreements expose the Company to interest rate risk given the possibility 
that rates may change between the date of the rate lock agreements and the 
date that the related loans, if ultimately originated, are sold. In 
addition, the portfolio of mortgage loans held for sale expose the Company 
to interest rate risk. At December 31, 1998 and 1997, the Company had rate 
lock agreements (certain of which relate to loan applications for which no 
formal commitment has been made) and mortgage loans held for sale amounting 
to approximately $57.0 million, and $27.0 million, respectively. In order 
to limit the interest rate risk associated with rate lock agreements as 
well as the interest rate risk associated with mortgage loans held for 
sale, the Company enters into various agreements to sell loans in the 
secondary mortgage market at fixed interest rates. Banknorth and its 
subsidiaries have outstanding various commitments to sell real estate 
mortgages amounting to approximately $49.1 million at December 31, 1998, 
and $21.0 million at December 31, 1997.

      Letters of credit and standby letters of credit are conditional 
commitments issued by the Corporation to guarantee payment on behalf of a 
customer and guarantee the performance of a customer to a third party. The 
credit risk involved in issuing these instruments is essentially the same 
as that involved in extending loans to customers. Since a portion of these 
instruments will likely expire unused, the total amounts do not necessarily 
represent future cash requirements. Each customer is evaluated individually 
for creditworthiness under the same underwriting standards used for 
commitments to extend credit and on-balance-sheet instruments. Corporate 
policies governing loan collateral apply to letters of credit and standby 
letters of credit at time of credit extension.

      The Corporation has sold mortgage loans where the investor has 
limited recourse to the Corporation as issuer. These loans represent normal 
exposure to credit loss exhibited by residential mortgage loans. Generally, 
the mortgage notes are secured by liens on the real estate and by private 
mortgage insurance where the loan to value ratio exceeds 80% at the time of 
extension of credit.

      Certain mortgage loans are written on an adjustable basis and include 
interest rate caps which limit annual and lifetime increases in the 
interest rates on such loans. Generally, adjustable rate mortgages have an 
annual rate increase cap of 2% and a lifetime rate increase cap of 5% to 
6%. Interest rates charged on home equity lines of credit are also capped. 
The home equity interest rate cap is 18% for the Company. In addition, all 
other consumer loans are subject to statutory interest rate ceilings as 
imposed by the State of Vermont and State of New York. No statutory 
interest rate ceilings on consumer loans are imposed by the States of New 
Hampshire or Massachusetts. At December 31, 1998, the State of Vermont 
imposed ceilings ranged from 18% to 24% depending on the loan amount and 
underlying collateral on consumer loans. The State of New York imposes 
ceilings of 16% to 25% depending on the type of consumer loan. These caps 
expose the Corporation to interest rate risk should market rates increase 
above these limits. As of December 31, 1998 and 1997, respectively, $504.3 
million and $564.2 million of loans had interest rate caps. 

      Financial instruments with off-balance-sheet credit risk are as 
follows:

<TABLE>
<CAPTION>
                                                                            As of December 31, 1998
                                                                      -----------------------------------
(In thousands)                                                         Fixed      Variable       Total
                                                                      -----------------------------------

<S>                                                                   <C>         <C>          <C>
Financial instruments whose contract amounts represent maximum
 credit risk-non-trading instruments:
  Commitments to extend credit for mortgage loans held for sale       $30,307     $  5,007     $   35,314
  Commitments to extend credit                                         36,009      115,634        151,643
  Unused lines of credit                                                    -      751,428        751,428
  Letters of credit and standby letters of credit                           -       76,568         76,568
  Mortgage loans sold with recourse                                     1,096          520          1,616
                                                                      -----------------------------------
      Total non-trading instruments                                   $67,412     $949,157     $1,016,569
                                                                      ===================================
Financial instruments whose notional amounts exceed the amount of 
 credit risk:
  Interest rate swap agreements (pay fixed)                           $50,000     $      -     $   50,000
                                                                      ===================================
  Interest rate floor agreements (pay variable)                       $     -     $295,000     $  295,000
                                                                      ===================================
  Interest rate corridor agreements (pay fixed)                       $50,000     $      -     $   50,000
                                                                      ===================================

<CAPTION>
                                                                            As of December 31, 1997
                                                                      -----------------------------------
(In thousands)                                                         Fixed      Variable       Total
                                                                      -----------------------------------

<S>                                                                   <C>         <C>          <C>
Financial instruments whose contract amounts represent maximum
 credit risk-non-trading instruments:
  Commitments to extend credit for mortgage loans held for sale       $13,442     $  4,415     $   17,857
  Commitments to extend credit                                         10,450       81,666         92,116
  Unused lines of credit                                                    -      526,731        526,731
  Letters of credit and standby letters of credit                           -       67,469         67,469
  Mortgage loans sold with recourse                                     1,259           82          1,341
                                                                      -----------------------------------
      Total non-trading instruments                                   $25,151     $680,363     $  705,514
                                                                      ===================================

Financial instruments whose notional amounts exceed the amount of 
 credit risk:
  Interest rate swap agreements (pay variable)                        $     -     $ 50,000     $   50,000
                                                                      ===================================
  Interest rate floor agreements (pay variable)                       $     -     $295,000     $  295,000
                                                                      ===================================
</TABLE>


Interest Rate Hedging Contracts

      Interest rate hedging transactions generally involve the exchange of 
fixed and variable rate interest payment obligations without the exchange 
of the underlying principal (or notional) amounts. The Corporation's swaps, 
corridors and floors are used as an interest rate risk management tool to 
correct imbalances between the re-pricing characteristics of certain 
interest earning assets and certain interest-bearing liabilities, thus 
protecting the net interest income from adverse changes in interest rates. 

      The Corporation is exposed to risk should the counterparty default in 
its responsibility to pay interest under the terms of the agreement. 
However, Banknorth minimizes this risk by performing normal credit reviews 
on the counterparties and by limiting its exposure to any one counterparty. 
Notional principal amounts are a measure of the volume of agreements 
transacted, but the level of credit risk is significantly less. As of 
December 31, 1998, the Company does not expect any counterparties to fail 
to meet their obligations.

      The following provides information related to interest rate hedging 
instruments as of December 31, 1998 and 1997 and for the years then ended:

<TABLE>
<CAPTION>

(In thousands)                                       1998        1997
                                                   --------------------

<S>                                                <C>         <C>
Interest Rate Swap Contracts:
  Notional amount at end of period                 $ 50,000    $ 50,000
  Average notional amount during the year            20,274      50,000
  Fair value at year-end                                292         328
  Weighted average rate paid at end of year            4.99%       5.84%
  Weighted average rate received at end of year        5.18%       6.37%

Interest Rate Floor Contracts:
  Notional amount at end of period                 $295,000    $295,000
  Average notional amount during the year           295,000     295,000
  Carrying value at year-end                            920       1,486
  Fair value at year-end                              3,057       2,516
  Weighted average rate paid at end of year            5.29%       5.84%
  Weighted average rate received at end of year        5.99%       5.69%

Interest Rate Corridor Contracts:
  Notional amount at end of period                 $ 50,000    $      -
  Average notional amount during the year             1,370           -
  Carrying value at year end                            393           -
  Fair value at year-end                                440           -

</TABLE>

      As of December 31, 1998, the maturity dates of the interest rate swap 
agreements ranged from December 21, 2001 to February 21, 2002. The maturity 
dates of the interest rate corridor agreements were December 21, 2003. The 
maturity dates of the interest rate floor agreements ranged from January 
31, 2000 to June 4, 2001.

Data Processing Contract

      Effective June 24, 1998, the Company entered into a facilities 
management contract with a third-party data processing company. Under terms 
of the facilities management contract, the Company will pay a minimum of 
$6.6 million for the remainder of the contract, which expires in December, 
2000. In addition, fees will be adjusted annually for inflation, based upon 
the Consumer Price Index for all Urban Consumers-All Items, and based upon 
actual increases of certain expenditures made on behalf of the Company by 
the third-party data processing company, with no increase to exceed eight 
percent, or be less than two percent.

      Required minimum annual payments under these contracts were as 
follows at December 31, 1998:

<TABLE>
<CAPTION>

(In thousands)

      <S>     <C>
      1999    $3,320
      2000     3,276
              ------
              $6,596
              ======

</TABLE>

Contingent Liabilities

      The Corporation has a self-insurance plan which covers both medical 
and dental benefits for employees. Under the terms of the plan, the Company 
pays up to a maximum of $125 thousand per employee on medical and dental 
claims.

      In the ordinary course of business there are various legal 
proceedings pending against Banknorth. After consultation with outside 
counsel, management considers that the aggregate exposure, if any, arising 
from such litigation would not have a material adverse effect on 
Banknorth's consolidated financial position.

20.  Disclosures About the Fair Value of 
      Financial Instruments

Disclosure About Fair Value of Financial Instruments

      SFAS No. 107, "Disclosures about Fair Value of Financial Instruments" 
requires that the Company disclose estimated fair values for financial 
instruments. Fair value estimates, methods, and assumptions are set forth 
below.

      Fair value estimates are made at a specific point in time, based on 
relevant market information and information about the financial instrument. 
These estimates do not reflect any premium or discount that could result 
from offering for sale at one time the Company's entire holdings of a 
particular financial instrument. Because no market exists for a significant 
portion of the Company's financial instruments, fair value estimates are 
based on judgments regarding future expected loss experience, current 
economic conditions, risk characteristics of various financial instruments, 
and other factors. These estimates are subjective in nature and involve 
uncertainties and matters of significant judgment and therefore cannot be 
determined with precision. Changes in assumptions could significantly 
affect the estimates.

      Fair value estimates are based on existing on and off-balance-sheet 
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. For example, the Company has a 
substantial trust operation that contributes net fee income annually. The 
trust operation is not considered a financial instrument, and its value has 
not been incorporated into the fair value estimates. Other significant 
assets and liabilities include the mortgage banking operation, benefits 
resulting from the low-cost funding of deposit liabilities as compared to 
the cost of borrowing funds in the market, and premises and equipment and 
software. In addition, the tax ramifications related to the realization of 
the unrealized gains and losses can have a significant effect on fair value 
estimates and have not been considered in the estimate of fair value under 
SFAS No. 107.

Short-Term Financial Instruments

      The fair value of certain financial instruments is estimated to 
approximate their carrying value because the remaining term to maturity of 
the financial instrument is less than 90 days or the financial instrument 
reprices in 90 days or less. Such financial instruments include cash and 
due from banks, money market investments, accrued interest receivable, 
accrued interest payable and short-term borrowed funds. 

Securities Available for Sale and Investment Securities
 Held to Maturity

      The securities portfolios are financial instruments which are usually 
traded in broad markets. Fair values are based upon market prices and 
dealer quotations. If a quoted market price is not available for a 
particular security, the fair value is determined by reference to quoted 
market prices for securities with similar characteristics. 

Loans Held For Sale

      Estimated fair value of loans held for sale is determined based upon 
outstanding commitments from investors or current market prices for amounts 
with no sales commitments. 

Loans

      Fair values are estimated for portfolios of loans with similar 
financial characteristics. Loans are segregated by type including 
commercial, financial and agricultural, commercial real estate, 
construction and land development, residential real estate, credit card and 
lease receivables and other installment loans. Each loan category is 
further segmented into fixed and variable interest rate terms and 
performing and non-performing categories.

      The estimated fair value of performing loans, except the portfolio of 
residential mortgage loans and credit card receivables, is calculated by 
discounting scheduled cash flows through the estimated maturity using 
estimated market discount rates that reflect the credit and interest rate 
risk inherent in the respective loan portfolio. The estimate of maturity is 
based on the Company's historical experience with repayments for each loan 
classification, modified, as required, by an estimate of the effect of 
current economic and lending conditions. For residential mortgage loans, 
fair value is estimated by discounting contractual cash flows adjusted for 
prepayment estimates using discount rates based on secondary market sources 
adjusted to reflect differences in servicing and credit costs.

      Estimated fair value for non-performing loans is based on recent 
external appraisals of the collateral or estimated cash flows discounted 
using a rate commensurate with the risk associated with the estimated cash 
flows. Assumptions regarding credit risk, cash flows, and discount rates 
are judgmentally determined using available market information and specific 
borrower information.

      The fair value estimate for credit card receivables is based on the 
carrying value of existing loans. Given the repricing frequency of this 
portfolio, the estimated fair value is expected to approximate the carrying 
value. This estimate does not include the value that relates to estimated 
cash flows from new loans generated from existing cardholders over the 
remaining life of the portfolio.

      Management has made estimates of fair value discount rates that it 
believes to be reasonable. However, because there is no market for many of 
these financial instruments, management has no basis to determine whether 
the estimated fair value would be indicative of the value negotiated in an 
actual sale.

Interest Rate Floor and Corridor Agreements

      The estimated fair value of interest rate floor and corridor 
agreements are obtained from dealer quotes. These values represent the 
estimated amount the Company would receive or pay to terminate the 
agreements, taking into account current interest rates and, when 
appropriate, the current creditworthiness of the counterparties. 

Deposit Liabilities

      The estimated fair value of deposits with no stated maturity, such as 
non-interest bearing demand deposits, savings, NOW and money market 
accounts, is regarded to be the amount payable on demand as of December 31, 
1998 and 1997. The estimated fair value of time deposits is based on the 
discounted value of contractual cash flows. The discount rate is estimated 
using the rates currently offered for deposits of similar remaining 
maturities. The fair value estimates for deposits do not include the 
benefit that results from the low-cost funding provided by the deposit 
liabilities as compared to the cost of borrowing funds in the market.

Long-Term Debt

      The fair value for the Company's long-term debt is estimated based on 
the quoted market prices for the same or similar issues.

Guaranteed Preferred Beneficial Interests in
 Corporation's Junior Subordinated Debentures

      The estimated fair value of the capital securities are obtained from 
dealer quotes.

Table of On-Balance-Sheet Financial Instruments

      The carrying value and estimated fair values of financial instruments 
were as follows:

<TABLE>
<CAPTION>
                                                                       December 31, 1998             December 31, 1997
                                                                   ------------------------------------------------------
                                                                                  Estimated                     Estimated
                                                                    Carrying         Fair         Carrying         Fair
(In thousands)                                                       Amount         Value          Amount         Value
                                                                   ------------------------------------------------------

<S>                                                                <C>            <C>            <C>            <C>
Financial Assets:
  Cash and due from banks                                          $  164,826     $  164,826     $  112,297     $  112,297
  Money market investments                                              4,900          4,900             71             71
  Securities available for sale                                     1,127,865      1,127,865        958,553        958,553
  Loans held for sale                                                  42,996         43,321         24,958         25,055
  Investment securities, held to maturity                              20,545         21,606         58,626         59,832
  Loans                                                             2,837,106      2,842,959      2,642,094      2,638,335
    Less: Allowance for loan losses                                    44,537              -         38,551              -
                                                                   -------------------------------------------------------
  Net loans                                                         2,792,569      2,842,959      2,603,543      2,638,335
  Accrued interest receivable                                          21,244         21,244         23,277         23,277
  Interest rate floor and corridor agreements                           1,313          3,497          1,486          2,516

Financial Liabilities:
  Deposits:
    Demand, NOW, savings and money market accounts                 $2,366,122     $2,366,122     $1,850,980     $1,850,980
    Time deposits                                                   1,273,375      1,277,906      1,202,654      1,208,633
    Short-term borrowed funds                                         281,634        281,634        449,935        449,935
    Long-term debt                                                     74,325         76,158         42,249         42,926
    Accrued interest payable                                            7,101          7,101          7,530          7,530
    Guaranteed preferred beneficial interests in Corporation's
     junior subordinated debentures                                    30,000         34,284         30,000         33,638
</TABLE>


Commitments to Extend Credit, Unused Lines of Credit,
 Letters of Credit, Standby Letters of Credit and 
 Financial Guarantees

      These financial instruments generally are not sold or traded, and 
estimated fair values are not readily available. However, the fair value of 
commitments to extend credit and unused lines of credit is estimated using 
the fees currently charged to enter into similar agreements, taking into 
account the remaining terms of the agreements and the present 
creditworthiness of the counterparties. For loan commitments and unused 
lines of credit for which the Company has locked in an interest rate, 
estimated fair value also considers the difference between current levels 
of interest rates and the committed rates. As of December 31, 1998 and 
1997, the fair value was estimated at $93 thousand and $12 thousand for 
commitments to extend credit and $87 thousand and $147 thousand for unused 
lines of credit, respectively. The estimated fair value of financial 
guarantees, such as mortgage loans sold with recourse, letters of credit 
and standby letters of credit is based on fees currently charged for 
similar agreements or on the estimated cost to terminate them or otherwise 
settle the obligations with the counterparties. The estimated fair value of 
such financial guarantees as of December 31, 1998 and 1997 were $1.7 
million in both years.

Interest Rate Swap Agreements

      The estimated fair value of interest rate swap agreements are 
obtained from dealer quotes. These values represent the estimated amount 
the Company would receive or pay to terminate the contracts or agreements, 
taking into account current interest rates and, when appropriate, the 
current creditworthiness of the counterparties. The fair value of interest 
rate swap agreements at December 31, 1998 and 1997 was $292 thousand and 
$328 thousand, respectively.

21.  Parent Company Only Financial Statements

      The following information presents the financial position of 
Banknorth Group, Inc. (Parent Company) at December 31, 1998 and 1997 and 
the results of its operations and cash flows for each of the years in the 
three-year period ended December 31, 1998:

BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                               December 31,
                                                                           ---------------------
(In thousands)                                                               1998         1997
                                                                           ---------------------

<S>                                                                        <C>          <C>
Assets
  Cash and due from subsidiary banks                                       $     76     $     50
  Securities purchased under agreements to resell to a subsidiary bank       18,317        4,737
                                                                           ---------------------
      Cash and cash equivalents                                              18,393        4,787
  Investment in equity of bank subsidiaries                                 333,860      322,911
  Investment in equity of non-bank subsidiaries                               1,268        1,257
  Securities available for sale, at fair value                                6,039       15,126
  Loans to bank subsidiaries                                                      -       10,438
  Premises, equipment and software, net                                      11,601       11,480
  Other assets                                                               10,270        9,137
                                                                           ---------------------
      Total assets                                                         $381,431     $375,136
                                                                           =====================

Liabilities & Shareholders' Equity
  Long-term debt                                                           $  8,263     $ 11,040
  Other liabilities                                                          20,978       15,040
  Liability to trust subsidiary related to capital securities                30,928       30,928
  Total shareholders' equity                                                321,262      318,128
                                                                           ---------------------
      Total liabilities & shareholders' equity                             $381,431     $375,136
                                                                           =====================
</TABLE>


STATEMENTS OF INCOME

<TABLE>
<CAPTION>
                                                                                          Years Ended December 31,
                                                                                      ---------------------------------
(In Thousands)                                                                         1998         1997         1996
                                                                                      ---------------------------------

<S>                                                                                   <C>          <C>         <C>
Income:
  Dividends from bank subsidiaries                                                    $ 62,559     $25,848     $ 67,965
  Service fees paid by subsidiaries                                                     33,875      32,685       28,791
  Interest income on loans from bank subsidiaries                                          397       1,025            -
  Other interest income                                                                  1,259       1,047          310
  Net securities transactions                                                              164         220            -
  Other income                                                                           2,133       2,069        1,313
                                                                                      ---------------------------------
      Total income                                                                     100,387      62,894       98,379

Expenses:
  Compensation                                                                          16,067      15,459       14,015
  Employee benefits                                                                      3,616       4,192        3,178
  Net occupancy                                                                          2,161       2,005        1,510
  Equipment and software                                                                 4,004       4,002        3,651
  Printing and supplies                                                                  1,003       1,123        1,261
  Legal and other professional                                                           1,703       1,609        1,635
  Data processing                                                                        4,541       4,895        4,545
  Directors' fees and expenses                                                             857         895          531
  Communications                                                                           545         521          465
  Training and education                                                                   617         591          592
  Postage                                                                                  745         899          888
  Interest                                                                                 714         922        1,372
  Interest on liability to trust subsidiary related to capital securities                3,254       2,169            -
  Merger and acquisition related expenses                                                7,293           -            -
  Other expenses                                                                         2,294       2,193        2,518
                                                                                      ---------------------------------
      Total expenses                                                                    49,414      41,475       36,161
  Income before income tax benefit and equity in undistributed (distributions in 
   excess of) income of subsidiaries                                                    50,973      21,419       62,218
Income tax benefit                                                                      (2,070)     (1,707)      (2,501)
                                                                                      ---------------------------------
Income before equity in undistributed (distributions in excess of) income of bank 
 subsidiaries                                                                           53,043      23,126       64,719
Equity in undistributed (distributions in excess of) income of bank subsidiaries       (24,135)     18,630      (29,058)
Equity in undistributed income of non-bank subsidiaries                                     12          60           42
                                                                                      ---------------------------------
Net income                                                                            $ 28,920     $41,816     $ 35,703
                                                                                      =================================
</TABLE>


STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                                                Years Ended December 31,
                                                                                           ----------------------------------
(In thousands)                                                                               1998         1997         1996
                                                                                           ----------------------------------

<S>                                                                                        <C>          <C>          <C>
Increase in cash and cash equivalents:
Cash flows from operating activities:
  Net income                                                                               $ 28,920     $ 41,816     $ 35,703
  Adjustments to reconcile net income to net cash provided by operating activities:
  Depreciation and amortization of premise, equipment and software                            1,826        1,711        1,492
  Amortization of employee restricted stock, net                                                797          769          438
  Issuance of restricted stock units under directors' deferred compensation 
   plan, net                                                                                    348          100            -
  Net securities transactions                                                                  (164)        (220)           -
  Decrease in interest payable                                                                  (25)         (10)         (27)
  Decrease (increase) in other assets                                                        (1,031)      (7,933)         472
  Increase in accrued expense and other liabilities                                           5,688        4,731        3,083
  ESOP compensation expense                                                                     177          168          159
  Equity in undistributed distribution in excess of (income of subsidiaries)                 24,123      (18,690)      29,016
                                                                                           ----------------------------------
      Total adjustments                                                                      31,739      (19,374)      34,633
                                                                                           ----------------------------------
      Net cash provided by operating activities                                              60,659       22,442       70,336
                                                                                           ----------------------------------
Cash flows from investing activities:
  Proceeds from maturity of securities available for sale                                     4,556        1,346          250
  Proceeds from sale of securities available for sale                                         4,478          325            -
  Purchase of securities available for sale                                                       -      (15,963)           -
  Decrease (increase) in loans to subsidiaries                                               10,438      (11,705)        (883)
  Decrease (increase) in investment in equity of subsidiaries                               (34,498)       3,794      (75,471)
  Capital expenditures                                                                       (1,952)      (2,211)      (2,466)
                                                                                           ----------------------------------
      Net cash used in investment activities                                                (16,978)     (24,414)     (78,570)
                                                                                           ----------------------------------
Cash flows from financing activities:
  Purchase of treasury stock                                                                (17,337)     (15,871)      (5,992)
  Fractional shares repurchased                                                                 (17)           -            -
  Issuance of liability to trust subsidiary related to capital securities                         -       30,000            -
  Issuance of common stock, net of expenses                                                       -            -       32,216
  Payments on long-term debt                                                                 (2,776)      (2,696)      (5,632)
  Exercise of employee stock options, net                                                     5,127        3,907        1,433
  Dividends paid                                                                            (15,072)     (13,939)     (11,806)
  Transfer from subsidiaries of restricted stock units under directors' deferred 
   compensation plan, net                                                                         -        1,431            -
                                                                                           ----------------------------------
      Net cash provided by (used in) financing activities                                   (30,075)       2,832       10,219
                                                                                           ----------------------------------
  Net increase in cash and cash equivalents                                                  13,606          860        1,985
                                                                                           ----------------------------------
  Cash and cash equivalents at beginning of year                                              4,787        3,927        1,942
                                                                                           ----------------------------------
  Cash and cash equivalents at end of year                                                 $ 18,393     $  4,787     $  3,927
                                                                                           ==================================
Additional disclosure relative to cash flows:
  Interest paid                                                                            $    714     $    979     $  1,379
                                                                                           ==================================
  Taxes paid                                                                               $    748     $    440     $     25
                                                                                           ==================================
Supplemental schedule of non-cash investing and financing activities:
  Adjustment of securities available for sale to fair value, net of tax                    $   (145)    $     48     $     52
  Adjustment of securities available for sale and securities available for sale 
   transferred to investment securities to fair value, net of tax, at the subsidiaries          585        4,740        2,559
  Minimum pension liability adjustments                                                        (250)           -            -
  Issuance of restricted stock units under directors' deferred compensation 
   plan, net                                                                                      -        1,739            -
</TABLE>

Form 10-K

      The following is a copy, except for the cover page, cross-reference 
sheet, certain portions of Part IV, signature pages, exhibit index and 
exhibits, of the Annual Report of Banknorth Group, Inc. (the "Company") on 
Form 10-K for the year ended December 31, 1998 filed with the Securities 
and Exchange Commission (the "Commission").

      Certain information included herein is incorporated by reference from 
the Company's 1998 Annual Report to Shareholders ("Annual Report") as 
indicated below. Except for those portions of the Annual Report which are 
expressly incorporated herein by reference, the Annual Report is not to be 
deemed filed with the Commission. The Annual Report and Form 10-K have not 
been approved or disapproved by the Commission, nor has the Commission 
passed upon the accuracy or adequacy of the same.

<TABLE>

<S>         <S>                                         <C>
Part I                                                  Pages
Item 1.     Business                                    3-30, 64
Item 2.     Properties                                  45-46, 66
Item 3.     Legal Proceedings                           58, 66
Item 4.     Submission of Matters to a Vote of 
             Security Holders                           N/A

Part II
Item 5.     Market for Registrant's Common 
             Equity and Related Shareholder 
             Matters                                    cover, 66, 68
Item 6.     Selected Financial Data                     29
Item 7.     Management's Discussion and 
             Analysis of Financial Condition 
             and Results of Operations                  3-30
Item 7a.    Quantitative and Qualitative 
             Disclosures about Market Risk              9-11
Item 8.     Financial Statements and 
             Supplementary Data                         33-63
Item 9.     Changes in and Disagreements with
             Accountants on Accounting and 
             Financial Disclosure                       66

Part III*
Item 10.    Directors and Executive Officers of  
             the Registrant                             4-5, 15
Item 11.    Executive Compensation                      8-14, 16-23
Item 12.    Security Ownership of Certain 
             Beneficial Owners and 
             Management                                 2-4
Item 13.    Certain Relationships and Related 
             Transactions                               8-9

Part IV**
Item 14.    Exhibits, Financial Statement Schedules, 
             and Reports on Form 8-K

<FN>
<F*>  The information required by Part III is incorporated herein by 
      reference from the Company's Proxy Statement for the Annual Meeting 
      of Shareholders to be held on May 11, 1999.

<F**> A list of exhibits in the Form 10-K is set forth on the Exhibit Index 
      included in the Form 10-K filed with the Commission and incorporated 
      herein by reference. Copies of any exhibit to the Form 10-K may be 
      obtained from the Company by contacting Corporate Communications, 
      Banknorth Group, Inc., P.O. Box 5420, Burlington, Vt., 05402-5420. 
      All financial statement schedules are omitted since the required 
      information is either not applicable, is immaterial or is included in 
      the consolidated financial statements of the Company and notes 
      thereto in the Annual Report.
</FN>
</TABLE>

Business

      Banknorth Group, Inc. is the sole owner of five Vermont based banks; 
namely, First Vermont Bank and Trust Company and its sole subsidiary, 
Banknorth Mortgage Company, Franklin Lamoille Bank, The Howard Bank, N.A., 
Granite Savings Bank and Trust Company and Woodstock National Bank; one 
Vermont limited charter bank, The Stratevest Group, N.A., a trust company; 
one interim New Hampshire bank holding company, namely North American Bank 
Corporation and its sole subsidiary, Farmington National Bank; one 
Massachusetts based bank; First Massachusetts Bank, NA.; and one New York 
based bank, Evergreen Bank, N.A. and its sole subsidiary. Banknorth also 
established Banknorth Capital Trust 1 in May 1997. The trust exists for the 
exclusive purpose of issuing and selling 30-year guaranteed preferred 
beneficial interests in Corporation's junior subordinated debentures. 
Banknorth is also the sole owner of North Group Realty, Inc., which owns 
real estate utilized in the operation of Banknorth.

      On December 31, 1998, the shareholders of Banknorth and Evergreen 
approved a merger between the two organizations. Evergreen was merged with 
and into Banknorth. As of December 31, 1998, Evergreen Bank had total 
assets of $1.1 billion and deposits of $971.9 million.

      On November 13, 1998, Banknorth completed the purchase from 
BankBoston, N.A. of ten full-service branches, one limited service branch 
and nine remote ATM locations in the Berkshire region of Massachusetts, as 
well as private banking relationships associated with the branches.  These 
branches were consolidated into Banknorth's Massachusetts subsidiary, First 
Massachusetts Bank, N.A. The transaction was accounted for under purchase 
accounting rules. First Massachusetts, N.A. was organized by Banknorth in 
1996 in connection with the purchase of thirteen banking offices of Shawmut 
Bank, N.A. in central and western Massachusetts. The transaction was 
accounted for under purchase accounting rules.

      The subsidiary banks offer a full range of loan, deposit, investment 
products and trust services designed to meet the financial needs of 
individual consumers, businesses and municipalities. Mortgage banking 
services are also offered through Banknorth Mortgage Company, a wholly-
owned subsidiary of First Vermont Bank and Trust Company. These services 
are currently offered in the states of Vermont, Massachusetts, New York and 
New Hampshire through a network of 99 banking offices.

      Based on total assets of $4.4 billion as of December 31, 1998, 
Banknorth is the largest bank holding company based in Vermont. In December 
1998, Banknorth and its subsidiaries employed 1,500 on a full-time 
equivalent basis.

Competition

      Competition within New England and upstate New York for banking and 
related business is strong. Banknorth, through its subsidiaries, competes 
with both state and nationally-charted commercial banks for deposits, loans 
and trust accounts, and with savings and loan associations, savings banks 
and credit unions for deposits and loans. In addition, there is significant 
competition with other financial institutions including personal loan 
companies, mortgage banking companies, finance companies, insurance 
companies, securities firms, mutual funds and certain government agencies 
as well as major retailers all actively engaged in providing various types 
of loans and other financial services.

Supervision and Regulation

      As a registered bank holding company, Banknorth is subject to 
regulation and examination by the Federal Reserve Board ("FRB"). Certain of 
Banknorth's subsidiaries are organized as national banking associations, 
which are subject to regulation, supervision and examination by the Office 
of the Comptroller of the Currency, or organized as state-chartered, FDIC-
insured non-Federal Reserve member banks, which are subject to regulation, 
supervision and examination by the applicable state banking regulators and 
the FDIC. The following discussion summarizes certain aspects of applicable 
banking laws and regulations.

      The activities of Banknorth and those of companies which it controls 
or in which it holds more than 5% of the voting stock are limited to 
banking, managing or controlling banks, furnishing services to or 
performing services for its subsidiaries or any other activity which the 
FRB determines to be so closely related to banking and managing or 
controlling banks as to be a proper incident thereto. In making such 
determinations, the FRB is required to consider whether the performance of 
such activities by a bank holding company or its subsidiaries can 
reasonably be expected to produce benefits to the public such as greater 
convenience, increased competition or gains in efficiency that outweigh 
possible adverse effects, such as undue concentration of resources, 
decreased or unfair competition, conflicts of interest or unsound banking 
practices. Generally, bank holding companies, such as Banknorth, are 
required to obtain prior approval of the FRB to engage in any new activity 
or to acquire more than 5% of any class of voting stock of any company.

      Bank holding companies are also required to obtain prior approval of 
the FRB before acquiring more than 5% of any class of voting stock of any 
bank, which is not already majority-owned by the bank holding company. With 
the passage of the Riegle-Neal Interstate Banking and Branching Efficiency 
Act of 1994 ("the Interstate Banking and Branching Act"), bank holding 
companies became able to acquire banks based outside their home states 
beginning September 29, 1995, without regard to the permissibility of such 
acquisitions under state law, but subject to any state requirement that the 
bank be organized and have been operating for a minimum period of time, not 
to exceed five years, and the requirement that the bank holding company 
control no more than 10% of the total amount of insured deposits nationwide 
and no more than 30% of insured deposits in that state (or such lesser or 
greater amount set by state law).

      The Interstate Banking and Branching Act also authorized banks to 
merge across state lines, thereby creating interstate branches. This 
provision, which was effective June 1, 1997, allowed each state, prior to 
the effective date, the opportunity to "opt out" of this provision, thereby 
prohibiting interstate branching within that state. None of the states in 
which the banking subsidiaries of Banknorth are located have "opted out" of 
interstate branching. In addition, under the Interstate Banking and 
Branching Act, a bank is now able to open new branches in a state in which 
it does not already have banking operations if such state enacts a law 
permitting such de novo branching. None of the four states in which 
Banknorth currently operates (Massachusetts, New Hampshire, New York and 
Vermont) has adopted legislation permitting de novo interstate branching, 
but all of such states except New Hampshire permit the acquisition of 
existing branches by an out-of-state bank or bank holding company. 
Banknorth regularly evaluates merger and acquisition opportunities, and it 
anticipates that it will continue to evaluate such opportunities in light 
of this legislation.

      Bank holding companies and their affiliates are subject to certain 
restrictions under the Federal Reserve Act regarding, among other things, 
extensions of credit, transfers of assets and purchases of services among 
affiliated parties. Further, under the Federal Reserve Act and FRB 
regulations, a bank holding company and its subsidiaries are prohibited 
from engaging in certain tie-in arrangements in connection with extensions 
of credit or furnishing of property or services to third parties.

      Various laws and regulations administered by the OCC, the FDIC and 
the state banking regulators affect the corporate practices of Banknorth's 
subsidiary banks, such as payment of dividends, incurring of debt and 
acquisition of financial institutions and other companies, and affect their 
business practices such as payment of interest on deposits, the charging of 
interest on loans, the types of business conducted and the location of 
offices. There are no regulatory orders resulting from regulatory 
examinations of any of the subsidiary banks of Banknorth.

      The ability of Banknorth to pay dividends to its shareholders is 
largely dependent on the ability of its subsidiaries to pay dividends to 
it. Payment of dividends by Vermont-chartered banks is subject to 
applicable state and federal laws; payment of dividends by national banks 
is subject to applicable federal law. National banks must obtain the 
approval of the OCC for the payment of dividends if the total of all 
dividends declared in any calendar year would exceed the total of the 
bank's net profits (as defined by applicable law) for that year, combined 
with its retained net profits for the preceding two years. Furthermore, a 
national bank may not pay a dividend in an amount greater than its 
undivided profits then on hand after deducting its losses and bad debts, as 
defined by applicable law.

      In addition, the FRB, the OCC, the FDIC and state banking regulators 
are authorized under applicable federal and state law to determine under 
certain circumstances that the payment of dividends would be an unsafe or 
unsound practice and to prohibit payment of such dividends. The payment of 
dividends that deplete a bank's or bank holding company's capital base, or 
render it illiquid, could be deemed to constitute such an unsafe or unsound 
practice. The FRB, the FDIC and the OCC have each indicated that banking 
organizations should generally pay dividends only out of current operating 
earnings.

      The FRB, the FDIC, and the OCC have issued substantially similar 
risk-based and leverage capital guidelines for United States banking 
organizations. 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 FRB's risk-based capital guidelines define a two-tier capital 
framework and specify three relevant capital ratios: Tier I Capital Ratio, 
a Total Capital Ratio and a "Leverage Ratio". "Tier I Capital" consists of 
common and qualifying preferred shareholders' equity, less certain 
intangibles and other adjustments. "Tier 2 Capital" consists of 
subordinated and other qualifying debt, and the allowance for loan losses 
up to 1.25% of risk-weighted assets.  The sum of Tier I Capital and Tier 2 
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 or risk weights, 
based primarily on relative credit risk. The minimum Tier 1 Capital is 4% 
and the minimum Total Capital Ratio is 8%. The Leverage Ratio is determined 
by dividing Tier 1 Capital by adjusted average total assets. Although the 
stated minimum Leverage Ratio is 3%, most banking organizations are 
required to maintain Leverage Ratios of at least 1 to 2 percentage points 
above 3%.

      Under applicable federal laws and regulations, deposit insurance 
premium assessments to the Bank Insurance Fund ("BIF") and the Savings 
Association Insurance Fund ("SAIF") are based on a supervisory risk rating 
system, with the most favorably rated institutions paying no premiums. The 
deposits of each of Banknorth's subsidiary banks are insured under the BIF 
and each such bank, except First Massachusetts Bank is presently in the 
most favorable deposit insurance assessment category, and pays no deposit 
premium assessment. Following the Berkshire acquisition, the premium 
assessment rates of First Massachusetts bank was based on those for 
"adequately capitalized" institutions and are expected to remain in that 
category for the remainder of 1999. Payment of deposit premiums will not 
have a material impact on First Massachusetts Bank or Banknorth.

      Proposals to change the laws and regulations governing the banking 
industry are frequently introduced in Congress, in state legislatures and 
before the various bank regulatory agencies. A significant financial 
modernization bill (H.R. 10) was introduced during the last session of 
Congress but failed to pass and has been reintroduced, with certain 
modifications during the current session. The likelihood or timing of 
passage, the terms any legislation may ultimately contain, or its potential 
impact on Banknorth or its subsidiaries, cannot be predicted with any 
certainty.

Properties

      As of December 31, 1998, Banknorth subsidiaries operated 99 community 
banking offices and 143 automated banking machines in the states of 
Vermont, Massachusetts, New York and New Hampshire. The Company's 
headquarters are located at 300 Financial Plaza, Burlington, Vt.

      The Company leases certain premises from third parties under terms 
and conditions considered by management to be favorable to the Company.

      Additional information relating to the Company's properties is set 
forth in note 7 to the consolidated financial statements on pages 45-46 of 
the Annual Report and incorporated herein by reference.

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 opinion of counsel, any such liability will not have a material 
effect on the consolidated financial position of Banknorth and its 
subsidiaries.

Market for Registrant's Common Equity and Related 
 Shareholder Matters

      Banknorth's common stock, $1.00 par value per share ("Common Stock"), 
is in the over-the-counter market, quoted on the NASDAQ National Market 
System ("NASDAQ"). As of December 31, 1998, there were 5,642 holders of 
record of the Common Stock.

      Holders of the Common Stock are entitled to receive such dividends as 
may be legally declared by the board of directors and, in the event of 
dissolution and liquidation, to receive the net assets of Banknorth 
remaining after payment of all liabilities, in proportion to their 
respective holdings. Additional information concerning certain limitations 
on the payment of dividends by the Company and its bank subsidiaries is set 
forth under "Business - Supervision and Regulation" and in note 14 to the 
consolidated financial statements on pages 51 in the Annual Report and 
incorporated herein by reference.

Changes in and Disagreements with Accountants on 
 Accounting and Financial Disclosure

      There were no changes in accountants, nor were there any 
disagreements with the accountants on accounting and financial disclosure.

Part IV.
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.


(a)  Documents Filed as Part of this Report
a.1.  List of financial statements:
      Consolidated Statements of Income for the years ended December 31, 
       1998, 1997 and 1996 Consolidated Balance Sheets at December 31, 1998 
       and December 31, 1997 
      Consolidated Statements of Changes in Shareholders' Equity for the 
       years ended December 31, 1998, 1997, and 1996
      Consolidated Statements of Cash Flow for the years ended December 31, 
       1998, 1997, and 1996

a.2.  List of financial schedules
      N/A

a.3.  Exhibits
      Item No.
      3(i)          Certificate of Incorporation of the Company, previously 
                    filed with the Commission as Exhibit 3.1 to the 
                    Company's Registration Statement on Form S-4 
                    (Registration No. 333-68237) and incorporated herein by 
                    reference.

      3(ii)         Amendment dated June 2, 1998 to the Company's 
                    Certificate of Incorporation, previously filed with the 
                    Commission as Exhibit 3(i) to the Company's Quarterly 
                    Report on Form 10-Q for the quarter ended June 30, 
                    1998, and incorporated herein by reference.

      3(iii)        By-laws of the Company, as amended and restated through 
                    June 23, 1998, previously filed with the Commission as 
                    Exhibit 3(ii) to the Company's Quarterly Report on Form 
                    10-Q for the quarter ended June 30, 1998, and 
                    incorporated herein by reference.

      3(iv)         Text of amendment to Article III, Section 3.1 of the 
                    Company's By-laws, as adopted on December 31, 1998. 

      (4)(i)        Common Stock Certificate of the Company, previously 
                    filed with the Commission as Exhibit 4 to the Company's 
                    Current Report on Form 8-K dated November 30, 1989, as 
                    amended on Form 8-K/A dated December 7, 1995, and 
                    incorporated herein by reference. 

      (4)(ii)       Rights Agreement, as amended, dated as of November 27, 
                    1990, by and between the Company and Registrar & 
                    Transfer Company, previously filed with the Commission 
                    as Exhibit 1 to the Company's Registration Statement on 
                    Form 8-A/A, dated September 4, 1998.

      (10)          Material contracts

      (10)(i)       Supplemental Retirement Agreement dated November 1, 
                    1987, between the Company and William H. Chadwick, 
                    previously filed with the Commission as Exhibit 10(xiv) 
                    to the Company's Annual Report on Form 10-K for the 
                    year ended December 31, 1994, and incorporated herein 
                    by reference. *

      (10)(ii)      Change-of-Control Agreement, dated as of July 17, 1998, 
                    between the Company and William H. Chadwick.*

      (10)(iii)     Form of Change-in-Control Agreement, dated July 9, 
                    1998, between the Company and certain executive 
                    officers.* (1)

      (10)(iv)      Employment Agreement, dated July 31, 1998, between the 
                    Company and George W. Dougan.*

      (10)(v)       Change-in-Control Agreement, dated as of December 31, 
                    1998, between the Company and George W. Dougan.* 

      (10)(vi)      Banknorth Group, Inc. Comprehensive Long-term Executive 
                    Incentive Compensation Plan, as amended, previously 
                    filed with the Commission as Exhibit 10(4) to the 
                    Company's Registration Statement on Form S-3 (Reg. No. 
                    33-80273), and incorporated herein by reference.*

      (10)(vii)     Banknorth Group, Inc. Supplemental Employee Retirement 
                    Plan, dated January 1, 1995, previously filed with the 
                    Commission as Exhibit 10(xvi) to the Company's Annual 
                    Report on Form 10-K for the year ended December 31, 
                    1997, and incorporated herein by reference.*

      (10)(viii)    Banknorth Group, Inc. 1997 Management Incentive 
                    Compensation Plan, previously filed as Exhibit 10(vii) 
                    to the Company's Annual Report on Form 10-K for the 
                    year ended December 31, 1997, and incorporated herein 
                    by reference.*

      (10)(ix)      Banknorth Group, Inc. 1998 Management Incentive 
                    Compensation Plan.*

      (10)(x)       Banknorth Group, Inc. 1999 Management Incentive 
                    Compensation Plan.*

      (10)(xi)      1994 Deferred Compensation Plan for Directors and 
                    Selected Executive Officers of Banknorth Group, Inc. 
                    and Participating Affiliates, amended and restated as 
                    of July 1, 1997, previously filed as Exhibit 4 to the 
                    Company's Registration Statement on Form S-8 (Reg. No. 
                    333-38353), and incorporated herein by reference.*

      (10)(xii)     1997 Equity Compensation Plan for Banknorth Group, 
                    Inc., previously filed as Exhibit 4 to the Company's 
                    Registration Statement on Form S-8 (Reg. No. 333-
                    38349), and incorporated herein by reference.*

      (10)(xiii)    Amended and restated 1995 Stock Incentive Plan of 
                    Evergreen Bancorp, Inc., previously filed with the 
                    Commission as Exhibit 10(e) to the Evergreen Bancorp, 
                    Inc. Annual Report on Form 10-K for the year ended 
                    December 31, 1997, and incorporated herein by 
                    reference.*

      (10)(xiv)     1995 Directors Stock Option Plan of Evergreen Bancorp, 
                    Inc., previously filed with the Commission as Exhibit 
                    4.1 to Evergreen Bancorp, Inc.'s Registration Statement 
                    on Form S-8 (Registration No. 333-50225), and 
                    incorporated herein by reference.*

      (10)(xv)      Amendment No. 1 to Directors Stock Option Plan of 
                    Evergreen Bancorp, Inc., previously filed with the 
                    Commission as Exhibit 10(g) to Evergreen Bancorp, 
                    Inc.'s Annual Report on Form 10-K for the year ended 
                    December 31, 1997, and incorporated herein by 
                    reference.*

      (10)(xvi)     Supplemental Executive Retirement Plan of Evergreen 
                    Bancorp, Inc., previously filed with the Commission as 
                    Exhibit 10(I) Evergreen Bancorp, Inc.'s Annual Report 
                    on Form 10-K for the year ended December 31, 1996, and 
                    incorporated herein by reference.*

      (10)(xvii)    Senior Officer Supplement Retirement Plan of Evergreen 
                    Bancorp, Inc., previously filed with the Commission as 
                    Exhibit 10(i) to Evergreen Bancorp, Inc.'s Annual 
                    Report on Form 10-K for year ended December 31, 1995, 
                    and incorporated herein by reference.*

      10(xviii)     Credit Agreements, dated December 16, 1996, among 
                    Banknorth Group, Inc., the lenders named therein, and 
                    The First National Bank of Chicago, as Agent, 
                    previously filed with the Commission as Exhibit 10(xii) 
                    to the Company's Annual Report on Form 10-K for the 
                    year ended December 31, 1997, and incorporated herein 
                    by reference.*

      10(xix)       Affiliation Agreement and Plan of Reorganization, dated 
                    July 31, 1998 between Banknorth Group, Inc. and 
                    Evergreen Bancorp, Inc., previously filed with the 
                    Commission as Exhibit 2.1 to the Company's Registration 
                    Statement on Form S-4 (Registration No. 333-68237), and 
                    incorporated herein by reference.*

      (11)          Statement re Computation of Per Share Earnings

                    Basic earnings per share computations are based on the 
                    weighted average number of shares outstanding after 
                    giving retroactive effect to stock splits. The effect 
                    of the outstanding stock option and restricted stock 
                    awards, which are described in the note 18 to the 1998 
                    Banknorth Group, Inc. consolidated financial 
                    statements, is reflected in diluted earnings per share. 
                    See note 16 to the consolidated financial statements 
                    for details on earnings per share computations 
                    for 1998, 1997, and 1996.

      (13)          The Corporation's 1998 Annual Report to Shareholders, 
                    specifically designated portions of which have been 
                    incorporated by reference in this Report on Form 10-K, 
                    is filed herewith.

      (21)          Subsidiaries of Banknorth Group, Inc.

                    Evergreen Bank, N.A. and its wholly owned subsidiary, 
                    Evergreen Realty Funding Corp.
                    - New York

                    The Howard Bank, N.A.
                    - Vermont

                    First Vermont Bank and Trust Company and its wholly 
                    owned subsidiary, Banknorth Mortgage Company
                    - Vermont

                    Franklin Lamoille Bank
                    - Vermont

                    Granite Savings Bank and Trust Company
                    - Vermont

                    Woodstock National Bank
                    - Vermont

                    North American Bank Corporation and its wholly owned 
                    subsidiary, Farmington National Bank
                    - New Hampshire

                    The Stratevest Group, N.A.
                    - Vermont

                    First Massachusetts Bank, N.A., and its wholly owned 
                    subsidiaries, First Massachusetts Security Corporation, 
                    and Northgroup Investment and Insurance Services, Inc. 
                    - Massachusetts

                    Banknorth Capital Trust I
                    -Vermont

                    North Group Realty   
                    - Vermont

      (23)          Independent Auditors' Report

                    Consent of Independent Public Accountants

(b)  Reports on Form 8-K

      There were no reports on Form 8-K filed during the fourth quarter of 
      1998.

[FN]
<F*>  denotes management contract or compensatory plan
<F1>  The form of Change-in-Control Agreement for Messrs. Thomas J. Pruitt, 
      Richard J. Fitzpatrick, John M. Keel and Owen H. Becker is 
      substantially the same.
</FN>

Signatures

      Pursuant to the requirements of Section 13 or 15(d) of the Securities 
exchange Act of 1934, the registrant has duly caused this report to be 
signed on its behalf by the undersigned, thereunto duly authorized.

Banknorth Group, Inc.
By:  /s/ William H. Chadwick           By:  /s/ Thomas J. Pruit
   ----------------------------------------------------------------------------
        William H. Chadwick                    Thomas J. Pruitt
President and Chief Executive          Executive Vice President and Chief 
Officer                                Financial Officer 

Date:  March 24, 1999

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

<TABLE>
<CAPTION>
             Name                                      Title                               Date
             ----------------------------------------------------------------------------------

<S>                               <S>                                                 <C>
/s/ Angelo P. Pizzagalli          Director, Chairman of the Board                     March 24, 1999
--------------------------------
    Angelo P. Pizzagalli

/s/ William H. Chadwick           Director, President and Chief Executive Officer     March 24, 1999
--------------------------------  (Principal Executive Officer)
    William H. Chadwick

/s/ Thomas J. Pruitt              Executive Vice President and Chief Financial        March 24, 1999
--------------------------------  Officer (Principal Financial Officer)
    Thomas J. Pruitt

/s/ Neal E. Robinson              Treasurer and Principal Accounting Officer          March 24, 1999
--------------------------------
    Neal E. Robinson

/s/ Thomas J. Amidon              Director                                            March 24, 1999
--------------------------------
    Thomas J. Amidon

/s/ Jacqueline D. Arthur          Director                                            March 24, 1999
--------------------------------
    Jacqueline D. Arthur

/s/ Robert A. Carrara             Director                                            March 24, 1999
--------------------------------
    Robert A. Carrara

/s/ Susan C. Crampton             Director                                            March 24, 1999
--------------------------------
    Susan C. Crampton

/s/ George W. Dougan              Director                                            March 24, 1999
--------------------------------
    George W. Dougan

/s/ Robert F. Flacke              Director                                            March 24, 1999
--------------------------------
    Robert F. Flacke

/s/ Luther F. Hackett             Director                                            March 24, 1999
--------------------------------
    Luther F. Hackett

/s/ Kathleen Hoisington           Director                                            March 24, 1999
--------------------------------
    Kathleen Hoisington

/s/ Douglas G. Hyde               Director                                            March 24, 1999
--------------------------------
    Douglas G. Hyde

/s/ Anthony J. Mashuta            Director                                            March 24, 1999
--------------------------------
    Anthony J. Mashuta

/s/ Richard M. Narkewicz, M.D.    Director                                            March 24, 1999
--------------------------------
    Richard M. Narkewicz, M.D.

/s/ John B. Packard               Director                                            March 24, 1999
--------------------------------
    John B. Packard

/s/ R. Allan Paul                 Director                                            March 24, 1999
--------------------------------
    R. Allan Paul

/s/ Thomas P. Salmon              Director                                            March 24, 1999
--------------------------------
    Thomas P. Salmon

/s/ Patrick E. Welch              Director                                            March 24, 1999
--------------------------------
    Patrick E. Welch
</TABLE>


A Glossary of Terms

Basis risk

  Basis risk is the risk of adverse consequences resulting from unequal 
  changes in the spread between two or more rates for different instruments 
  with the same maturity.

Book value per share

  Total shareholders' equity divided by shares out-standing on the same 
  date.

Cash dividends per share

  Total cash dividends declared divided by average shares outstanding for 
  the period.

Cumulative effect of an accounting change

  Although the presumption is that once an accounting principle has been 
  adopted it should not be changed, when a change is necessary it generally 
  is recognized by including the cumulative effect of the change in net 
  income of the period of change. The cumulative effect of a change in 
  accounting principle is the total direct effects, net of the related tax 
  effect, that the change has on prior periods.

Earning assets

  Interest-bearing deposits with banks, securities available for sale, 
  investment securities held to maturity, loans (net of unearned income), 
  federal funds sold and securities purchased under agreements to resell.

Efficiency ratio

  Total other operating expense, excluding OREO/ repossession expense, 
  goodwill amortization, merger and acquisition related expenses and other 
  non-recurring expenses, as a percentage of net interest income, on a 
  fully taxable equivalent basis, and total other operating income, 
  excluding securities gains/losses and non-recurring items. All items on a 
  fully taxable equivalent basis.

Expense ratio

  Total other operating expense, excluding OREO/ repossession expense, 
  goodwill amortization, capital securities expense, merger and acquisition 
  related expenses and other non-recurring expenses, less other operating 
  income, excluding securities gains or losses and non-recurring items, as 
  a percentage of average earning assets. All items on a fully taxable 
  equivalent basis.

Fully taxable-equivalent (fte) income

  Tax-exempt income which has been converted to place tax-exempt and 
  taxable income on a comparable basis before application of income taxes.

Impaired loans

  Loans, usually commercial type loans, where it is probable that the 
  borrower will not repay the loan according to the original contractual 
  terms of the loan agreement and all loans restructured in troubled debt 
  restructurings subsequent to January 1, 1995.

Interest-bearing liabilities

  Interest-bearing deposits, federal funds purchased, securities sold under 
  agreements to repurchase, other short-term borrowed funds and long-term 
  debt.

Internal capital generation rate

  Earnings retention rate multiplied by the return on average shareholders' 
  equity.

Liquidity

  The ability to meet both loan commitments and deposit withdrawals as they 
  come due.

Net loans charged off

  Reductions to the allowance for loan losses for loans written off, net of 
  the recovery of loans previously written off.

Net interest income

  The difference between income on earning assets and interest expense on 
  interest-bearing liabilities.

Net interest margin

  Fully taxable-equivalent basis net interest income as a percentage of 
  average earning assets.

Net loan transactions

  Gains and losses resulting from sales of loans, primarily by the mortgage 
  banking operation.

Net securities transactions

  Gains and losses resulting from sales of securities available for sale at 
  prices above or below the amortized cost of the securities sold and gains 
  realized on the call of certain securities.

Non-accrual loans

  Loans for which no periodic accrual of interest income is realized.

Non-performing assets

  When other real estate owned (OREO and repossessed assets) is added to 
  non-performing loans, the result is defined as non-performing assets.

Non-performing loans

  Non-performing loans are defined as all non-accrual and restructured 
  loans, and all loans which are 90 days or more past-due but still 
  accruing interest.

Other operating expenses

  All expenses other than interest expense and the provision for loan 
  losses.

Other operating income

  All income other than interest income and dividend income.

Other real estate owned (OREO)

  Real estate acquired through foreclosure or in-substance foreclosure.

Pooling of interests

  An accounting method used for a combination in which the shareholders of 
  the combining entities become shareholders in a combined company. The 
  operating results of the two entities are "pooled" together historically 
  as if they were always one company.

Purchase accounting

  An accounting method which, following an acquisition, the acquired entity 
  is recorded at fair value. The operating results of the acquired entity 
  are included in the acquiring entity's results from the date of the 
  acquisition forward.

Restructured loans

  A refinanced loan in which the bank allows the borrower certain 
  concessions that would not normally be considered. The concessions are 
  always made in light of the borrower's financial difficulties, and the 
  objective of the bank is to maximize recovery of the investment.

Return on average assets (ROA)

  Net income as a percentage of average total assets.

Return on average shareholders' equity (ROE)

  Net income as a percentage of average shareholders' equity. A key ratio 
  which provides a measure of how efficiently equity has been employed.

Significant non-recurring income or expense items

  A significant non-recurring income or expense item represents income or 
  expense which is reported in the quarter in which it occurs, and is not 
  expected to recur in future periods.

Tangible book value

  Tangible shareholders' equity divided by shares outstanding on the same 
  date.

Tangible shareholders' equity

  Shareholders' equity less goodwill.

Tangible total assets

  Total assets less goodwill.