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


                                   FORM 10-Q




[X]  QUARTERLY  REPORT  PURSUANT  TO  SECTION  13 OR  15(d)  OF THE  SECURITIES
     EXCHANGE ACT OF 1934

     For the quarterly period ended September 30, 1996

     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 incorporation           (I.R.S. Employer
               or organization)                        Identification No.)


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


                                     05401
                                   (Zip Code)

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


         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 [ ]

7,826,648 shares of common stock, $l.00 par, outstanding on September 30, 1996.



INDEX TO FORM 10-Q

PART I                                                                    Page
--------------------------------------------------------------------------------

         Third Quarter 1996 Financial Highlights (Unaudited)                  1

Item l   Financial Statements
           Consolidated Statements of Income For the Three Months and 
            Nine Months Ended September 30, 1996 and 1995 (All unaudited)     2

           Consolidated Balance Sheets at September 30, 1996 (Unaudited),
            December 31, 1995 and September 30, 1995 (Unaudited)              3

           Statements of Changes in Shareholders' Equity For the Year
            Ended December 31, 1995 and January 1, 1996 to
            September 30, 1996 (Unaudited)                                    4

           Consolidated Statements of Cash Flows for the Nine Months 
            ended September 30, 1996 and 1995 (Both unaudited)                5

           Notes to Unaudited Consolidated Interim Financial Statements       6

           Independent Auditors' Report                                       8


Item 2   Management's Discussion and Analysis of Financial Condition
          and Results of Operations                                           9


PART II
--------------------------------------------------------------------------------

Item 1   Legal Proceedings                                                  N/A

Item 2   Changes in Securities                                              N/A

Item 3   Defaults Upon Senior Securities                                    N/A

Item 4   Submission of Matters to a Vote of Security Holders                N/A

Item 5   Other Information                                                  N/A

Item 6   Exhibits and Reports on Form 8-K                                   N/A

         Signatures                                                          27

         Glossary                                                            28



3RD QUARTER 1996 FINANCIAL HIGHLIGHTS (UNAUDITED)
(Dollars in thousands, except per share data)


<TABLE>
<CAPTION>
                                                             Three Months Ended            Nine Months Ended
                                                                September 30,                September 30,
                                                       -----------------------------------------------------------
                                                            1996           1995           1996           1995
                                                       -----------------------------------------------------------

<S>                                                    <C>              <C>            <C>            <C> 
INCOME DATA
   Net interest income, taxable equivalent             $     28,391     $   21,640     $    80,747    $   64,025
   Net interest margin                                         4.83%          4.76%           4.88%         4.81%

   Net income                                          $      6,813     $    5,826     $    18,357    $   16,542

PERIOD END BALANCES
   Assets                                              $  2,511,700     $1,919,585     $ 2,511,700    $1,919,585
   Earning assets                                         2,339,554      1,801,413       2,339,554     1,801,413
   Goodwill                                                  37,448          8,711          37,448         8,711
   Loans                                                  1,820,094      1,351,338       1,820,094     1,351,338
   Deposits                                               2,058,673      1,489,610       2,058,673     1,489,610
   Short-term borrowings                                    190,644        164,225         190,644       164,225
   Long-term debt                                            43,143         91,296          43,143        91,296
   Shareholders' equity                                     199,800        151,924         199,800       151,924

AVERAGE BALANCES
   Assets                                              $  2,494,376     $1,902,050     $ 2,361,620    $1,871,555
   Earning assets, net of fair value adjustment           2,336,619      1,804,224       2,210,923     1,779,937
   Goodwill                                                  38,266          8,898          33,803         9,131
   Loans                                                  1,797,510      1,343,177       1,694,663     1,321,375
   Deposits                                               2,060,730      1,465,432       1,962,312     1,434,115
   Short-term borrowings                                    172,217        176,809         142,295       175,563
   Long-term debt                                            44,713         94,169          48,132       101,377
   Shareholders' equity                                     195,290        147,945         187,558       143,121

SHARE AND PER SHARE DATA
   Shares outstanding                                     7,826,648      6,804,425       7,826,648     6,804,425
   Weighted average shares outstanding                    7,826,648      6,804,425       7,662,495     6,804,425

   Net income                                          $       0.87     $     0.86     $      2.40    $     2.43
   Cash dividends declared                                     0.25           0.23            0.75          0.69
   Market price:
      High                                                    37.50          35.00           38.50         35.00
      Low                                                     31.50          26.25           31.50         21.75
      Close                                                   37.38          33.25           37.38         33.25
   Share volume                                             661,529        812,154       2,904,788     1,641,798
   Average monthly share volume                             220,510        270,718         322,754       182,422

   Book value                                                 25.53          22.33           25.53         22.33
   Tangible book value                                        20.74          21.05           20.74         21.05

KEY RATIOS
   Return on average assets                                    1.09%          1.22%           1.04%         1.18  %
   Return on average shareholders' equity                     13.88          15.62           13.07         15.45
   Efficiency ratio                                           61.33          65.73           62.01         65.91

   Net loan charge-offs to average loans                       0.42           0.19            0.28          0.33
   Provision for loan losses to average loans                  0.33           0.34            0.32          0.33
   Allowance for loan losses to loans, p.e.                    1.33           1.58            1.33          1.58
   Allowance for loan losses coverage of non-performing
    loans, p.e.                                              108.99         125.78          108.99        125.78
   Non-performing assets to total assets, p.e.                 0.93           0.94            0.93          0.94

   Total capital to risk-adjusted assets, p.e.                10.45          12.14           10.45         12.14
   Tier 1 capital to risk-adjusted assets, p.e.                9.19          10.89            9.19         10.89
   Tier 1 capital to quarterly average total assets
    (Leverage)                                                 6.78           7.74            6.78          7.74
</TABLE>


CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)


<TABLE>
<CAPTION>
                                                                 Three Months Ended          Nine Months Ended
                                                                    September 30,              September 30,
                                                             ---------------------------------------------------
(In thousands, except for per share amounts)                    1996          1995          1996         1995
                                                             ---------------------------------------------------

<S>                                                          <C>            <C>         <C>             <C>
Interest income:
   Interest and fees on loans                                $   41,109     $ 32,296    $   116,714     $ 93,211
   Interest on money market investments                             132          225            778          407
   Interest on securities available for sale                      7,227        2,042         19,903        5,982
   Interest on investment securities                                707        4,651          2,367       14,381
                                                             ---------------------------------------------------
      Total interest income                                      49,175       39,214        139,762      113,981

Interest expense:
   Deposits                                                      18,113       13,889         52,141       38,424
   Short-term borrowed funds                                      2,127        2,405          5,220        7,298
   Long-term debt                                                   659        1,469          2,113        4,750
                                                             ---------------------------------------------------
      Total interest expense                                     20,899       17,763         59,474       50,472
                                                             ---------------------------------------------------

Net interest income                                              28,276       21,451         80,288       63,509
Less: provision for loan losses                                   1,500        1,125          4,100        3,250
                                                             ---------------------------------------------------

Net interest income after provision for loan losses              26,776       20,326         76,188       60,259
                                                             ---------------------------------------------------

Other operating income:
   Income from fiduciary activities                               2,084        1,879          6,085        5,591
   Service charges on depositor accounts                          1,692        1,298          4,824        3,855
   Credit card income                                               764          684          2,091        1,947
   Loan servicing income                                            795          649          2,144        2,022
   Net loan transactions                                            257          165          1,216          351
   Net securities transactions                                       21         (471)            24         (418)
   Other income                                                     844          949          2,415        2,143
                                                             ---------------------------------------------------
      Total other operating income                                6,457        5,153         18,799       15,491

Other operating expenses:
   Salaries                                                       9,278        7,104         26,706       20,655
   Employee benefits                                              2,057        1,589          6,374        5,032
   Net occupancy expenses                                         1,669        1,343          5,222        4,099
   Equipment and software expenses                                1,569        1,400          4,703        4,119
   Data processing fees                                           1,111        1,125          3,428        3,387
   FDIC deposit insurance and other regulatory expenses             134            9            332        1,828
   Other real estate owned and repossession expenses                267          347            375          615
   Legal and professional fees                                      924          636          2,614        2,054
   Printing and supplies expenses                                   603          489          2,601        1,390
   Advertising and marketing expenses                               701          571          2,455        1,576
   Amortization of goodwill                                       1,297          157          3,347          476
   Other expenses                                                 3,566        2,617          9,682        7,356
                                                             ---------------------------------------------------
      Total other operating expenses                             23,176       17,387         67,839       52,587
                                                             ---------------------------------------------------

Income before income taxes                                       10,057        8,092         27,148       23,163
Income tax expense                                                3,244        2,266          8,791        6,621
                                                             ---------------------------------------------------
Net income                                                   $    6,813     $  5,826    $    18,357     $ 16,542
                                                             ===================================================
Net income per share                                         $     0.87     $   0.86    $      2.40     $   2.43
                                                             ===================================================
</TABLE>


See accompanying notes to unaudited interim consolidated financial statements.



CONSOLIDATED BALANCE SHEETS


<TABLE>
<CAPTION>
                                                                          September 30,  December 31, September 30,
                                                                              1996           1995         1995
                                                                         ------------------------------------------
(In thousands except share and per share data)                             (Unaudited)                 (Unaudited)

<S>                                                                      <C>            <C>           <C>
ASSETS
Cash and due from banks                                                  $     91,706   $    89,111   $    63,177
Money market investments                                                           50           650         9,150
                                                                         ----------------------------------------
   Cash and cash equivalents                                                   91,756        89,761        72,327
                                                                         ----------------------------------------
Securities available for sale, at fair value                                  468,154       359,085       134,193
Loans held for sale                                                            12,935        19,125        15,438
Investment securities                                                          38,321        49,680       291,294

Loans                                                                       1,820,094     1,351,053     1,351,338
   Less: Allowance for loan losses                                             24,284        22,095        21,410
                                                                         ----------------------------------------
       Net loans                                                            1,795,810     1,328,958     1,329,928
                                                                         ----------------------------------------
Accrued interest receivable                                                    15,243        11,505        13,757
Premises, equipment and software, net                                          29,256        24,917        24,617
Other real estate owned and repossessed assets                                  1,049         1,169           932
Goodwill                                                                       37,448         8,553         8,711
Capitalized mortgage servicing rights                                           3,875         3,530         3,663
Other assets                                                                   17,853        13,891        24,725
                                                                         ----------------------------------------
Total assets                                                             $  2,511,700   $ 1,910,174   $ 1,919,585
                                                                         ========================================

LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
   Demand deposits                                                       $    288,317   $   228,334   $   207,130
   NOW accounts                                                               229,172       200,085       176,308
   Money market savings                                                       526,062       363,107       348,126
   Regular savings                                                            225,123       173,565       182,703
   Time deposits $100 thousand and greater                                     83,255        59,233        54,092
   Time deposits under $100 thousand                                          706,744       536,445       521,251
                                                                         ----------------------------------------
      Total deposits                                                        2,058,673     1,560,769     1,489,610
                                                                         ----------------------------------------
Short-term borrowed funds:
   Federal funds purchased                                                      8,400            --         3,000
   Securities sold under agreements to repurchase                             111,713        95,472        98,948
   Borrowings from U.S. Treasury                                               22,531         8,241        14,777
   Borrowings from Federal Home Loan Bank of Boston                            48,000        12,500        47,500
                                                                         ----------------------------------------
      Total short-term borrowed funds                                         190,644       116,213       164,225
                                                                         ----------------------------------------
Long-term debt:
   Federal Home Loan Bank of Boston term notes                                 29,493        39,197        73,446
   Bank term loan                                                              13,650        16,800        17,850
                                                                         ----------------------------------------
      Total long-term debt                                                     43,143        55,997        91,296
                                                                         ----------------------------------------
Accrued interest payable                                                        4,267         3,914         4,539
Other liabilities                                                              15,173        13,345        17,991
                                                                         ----------------------------------------
Total liabilities                                                           2,311,900     1,750,238     1,767,661
                                                                         ----------------------------------------
Shareholders' equity:
   Common stock, $1.00 par value; authorized 20,000,000 shares;
    issued and outstanding 7,826,648 shares at September 30, 1996
    and 6,804,425 at December 31, 1995 and September 30, 1995                   7,827         6,804         6,804
   Surplus                                                                     87,227        56,023        55,821
   Retained earnings                                                          110,339        97,978        93,799
   Unamortized employee restricted stock                                       (1,037)         (898)         (848)
   Net unrealized gains (losses) on securities available for sale,
    net of tax                                                                 (4,556)           29          (498)
   Net unrealized losses on securities available for sale
    transferred to the investment portfolio, net of tax                            --            --        (3,154)
                                                                         ----------------------------------------
Total shareholders' equity                                                    199,800       159,936       151,924
                                                                         ----------------------------------------
Total liabilities and shareholders' equity                               $  2,511,700   $ 1,910,174   $ 1,919,585
                                                                         ========================================
</TABLE>


See accompanying notes to unaudited interim consolidated financial statements.



CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY

<TABLE>
<CAPTION>
                                                                                        Unearned            Net
                                                                                       Portion of       Unrealized
                                                                                        Employee      Gains (Losses)
                                                    Common                Retained     Restricted      On Securites,
                                                    Stock     Surplus     Earnings        Stock         Net of Tax        Total
                                                  -------------------------------------------------------------------------------
(In thousands, except for per share data)

<S>                                                <C>       <C>         <C>           <C>              <C>            <C>
Balance, December 31, 1994                         $ 6,804   $  55,473   $    82,176   $   (394)        $  (8,495)     $  135,564
Net income                                              --          --        22,373         --                --          22,373
Decrease in net unrealized losses on
  securities available for sale, net of tax             --          --            --         --             4,620           4,620
Decrease in net unrealized losses on
  securities available for sale transferred
  to the investment portfolio, net of tax               --          --            --         --             3,904           3,904
Cash dividends $.92 per share                           --          --        (6,260)        --                --          (6,260)
Issuance of employee restricted stock                   --          --            --       (361)               --            (361)
Amortization of employee restricted stock               --         550            --       (143)               --             407
Exercise of employee stock options                      --          --          (311)        --                --            (311)
                                                   ------------------------------------------------------------------------------
Balance, December 31, 1995                           6,804      56,023        97,978       (898)               29         159,936
                                                   ------------------------------------------------------------------------------
Net income                                              --          --         4,750         --                --           4,750
Issuance of common stock, net of expenses            1,023      31,193            --         --                --          32,216
Decrease in net unrealized gains on
  securities available for sale, net of tax             --          --            --         --            (3,182)         (3,182)
Cash dividends $.25 per share                           --          --        (1,957)        --                --          (1,957)
Amortization of employee restricted stock               --        (125)           --        153                --              28
Exercise of employee stock options                      --          --           (70)        --                --             (70)
                                                   ------------------------------------------------------------------------------
Balance, March 31, 1996                              7,827      87,091       100,701       (745)           (3,153)        191,721
                                                   ------------------------------------------------------------------------------
Net income                                              --          --         6,794         --                --           6,794
Increase in net unrealized losses on
  securities available for sale, net of tax             --          --            --         --            (2,167)         (2,167)
Cash dividends $.25 per share                           --          --        (1,957)        --                --          (1,957)
Amortization of employee restricted stock               --         (39)           --         96                --              57
Exercise of employee stock options                      --          --           (18)        --                --             (18)
                                                   ------------------------------------------------------------------------------
Balance, June 30, 1996                               7,827      87,052       105,520       (649)           (5,320)        194,430
                                                   ------------------------------------------------------------------------------
Net income                                              --          --         6,813         --                --           6,813
Decrease in net unrealized losses on
  securities available for sale, net of tax             --          --            --         --               764             764
Cash dividends $.25 per share                           --          --        (1,957)        --                --          (1,957)
Amortization of employee restricted stock               --         175            --        (17)               --             158
Issuance of employee restricted stock                   --          --            --       (371)               --            (371)
Exercise of employee stock options                      --          --           (37)        --                --             (37)
                                                   ------------------------------------------------------------------------------
Balance, September 30, 1996                        $ 7,827   $  87,227   $   110,339   $ (1,037)        $  (4,556)     $  199,800
                                                   ==============================================================================
</TABLE>


See accompanying notes to unaudited interim consolidated financial statements.



CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                                      Nine Months Ended September 30,
                                                                                     ---------------------------------
                                                                                           1996             1995
                                                                                     ---------------------------------
<S>                                                                                   <C>                <C>
(In thousands) (Unaudited) Increase (decrease) in cash and cash equivalents:
Cash flows from operating activities:
   Net income                                                                         $   18,357         $ 16,542
Adjustments to reconcile net income to net cash used in operating activities:
   Depreciation and amortization of premises, equipment and software                       3,159            3,168
   Amortization of goodwill                                                                3,347              476
   Provision for loan losses                                                               4,100            3,250
   Adjustment of other real estate owned to estimated fair value                             174              157
   Provision for deferred tax expense (benefit)                                              890           (1,680)
   Amortization of employee restricted stock                                                 243              255
   Exercise of employee stock options                                                       (125)            (224)
   Net securities transactions                                                               (24)             418
   Net gain on sale of other real estate owned                                              (378)            (544)
   Proceeds from sale of loans held for sale                                             133,082           92,138
   Originations and purchases of loans held for resale                                  (158,818)        (113,811)
   Net gain on sale of loans held for sale                                                  (547)            (351)
   Net gain on capitalization of mortgage servicing rights                                  (669)              --
   Increase in interest receivable                                                        (3,738)          (2,372)
   Increase (decrease) in interest payable                                                   353              (39)
   Decrease (increase) in other assets and other intangibles                              (2,202)             220
   Increase (decrease) in other liabilities                                                1,828           (1,338)
                                                                                      ---------------------------
      Total adjustments                                                                  (19,325)         (20,277)
                                                                                      ---------------------------
      Net cash used in operating activities                                                 (968)          (3,735)
                                                                                      ---------------------------
Cash flows from investing activities:
   Proceeds from maturity and call of securities available for sale                      170,023            9,863
   Proceeds from maturity and call of investment securities                               11,402           27,479
   Proceeds from sale of securities available for sale                                    20,235           15,283
   Purchase of securities available for sale                                            (306,401)         (41,856)
   Purchase of investment securities                                                          --             (533)
   Proceeds from sale of OREO and repossessed assets                                       1,964            1,811
   Payments received on OREO and repossessed assets                                           32              222
   Branches purchased-Loans acquired                                                    (396,942)              --
   Net loans purchased                                                                   (38,189)              --
   Net increase in loans                                                                  (5,020)         (39,981)
   Capital expenditures                                                                   (7,509)          (2,705)
   Proceeds from sale of fixed assets and other assets                                        21              274
                                                                                      ---------------------------
      Net cash used in investing activities                                             (550,384)         (30,143)
                                                                                      ---------------------------
Cash flows from financing activities:
   Branches purchased-Deposits acquired                                                  558,514                --
      Less: purchase premium and capitalized costs                                       (32,108)               --
                                                                                      ---------------------------
   Deposits acquired (net of premium and capitalized costs)                              526,406               --
   Net increase (decrease) in deposits                                                   (60,610)          46,143
   Net increase in short-term borrowings                                                  74,431            9,079
   Issuance of common stock, net of expenses                                              32,216               --
   Payments on long term debt                                                            (12,854)         (30,293)
   Issuance of restricted stock awards                                                      (371)            (361)
   Dividends paid                                                                         (5,871)          (4,695)
                                                                                      ---------------------------
      Net cash provided by financing activities                                          553,347           19,873
                                                                                      ---------------------------
Net increase (decrease) in cash and cash equivalents                                       1,995          (14,005)
                                                                                      ---------------------------
Cash and cash equivalents at beginning of period                                          89,761           86,332
                                                                                      ---------------------------
Cash and cash equivalents at end of period                                            $   91,756         $ 72,327
                                                                                      ===========================
Additional disclosure relative to statement of cash flows:
   Interest paid                                                                      $   59,121         $ 50,511
                                                                                      ===========================
   Taxes paid                                                                         $   10,602         $  5,285
                                                                                      ===========================
Supplemental schedule of non-cash investing and financing activities:
   Net transfer of loans to OREO and repossessed assets                               $    1,672         $  1,152
   Net transfer of loans held for sale to loan status                                     32,473           35,652
   Amounts payable for securities available for sale purchased                                --            5,785
   Amounts receivable for securities available for sale sold                                  --           12,629
   Decrease (increase) in net unrealized losses on securities available for
    sale, net of tax                                                                      (4,585)           4,093
   Decrease in net unrealized losses on securities available for sale,
    transferred to held to maturity, net of tax                                               --              750
</TABLE>


See accompanying notes to the unaudited interim consolidated financial 
statements.



NOTES TO UNAUDITED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

1.   The  accompanying  unaudited  consolidated  interim  financial  statements
include  the  accounts of  Banknorth  Group,  Inc.  and its  subsidiaries  (the
"Company"), First Massachusetts Bank, N.A., North American Bank Corporation and
its wholly owned subsidiary,  Farmington  National Bank, The Howard Bank, N.A.,
First Vermont Bank and Trust Company and its wholly owned subsidiary, Banknorth
Mortgage  Company,  Franklin  Lamoille  Bank,  Granite  Savings  Bank and Trust
Company,  Woodstock  National Bank, The Stratevest Group, N. A. and North Group
Realty,  Inc. It is the opinion of management that the  accompanying  unaudited
consolidated interim financial statements have been prepared in accordance with
the instructions to Form 10-Q and reflect all adjustments  which are considered
necessary to report fairly the financial position as of September 30, 1996, the
Consolidated Statements of Income for the three and nine months ended September
30, 1996 and 1995,  the  Consolidated  Statements  of Changes in  Shareholders'
Equity for the three months ended March 31, 1996,  June 30, 1996 and  September
30, 1996,  and the  Consolidated  Statements  of Cash Flows for the nine months
ended  September 30, 1996 and 1995.  The  accompanying  unaudited  consolidated
interim  financial  statements  should be read in  conjunction  with  Banknorth
Group,  Inc.'s  consolidated  year end financial  statements,  including  notes
thereto,  which are included in Banknorth  Group,  Inc.'s 1995 annual report to
shareholders on Form 10-K.

2.   Earnings  per share  were  calculated  based on  7,662,495  and  6,804,425
weighted  average shares issued and  outstanding  during the nine month periods
ended September 30, 1996 and 1995, respectively.  The effect of the outstanding
stock option awards is not material to the calculation of earnings per share.

3.   In May 1995, the Financial  Accounting Standards Board issued Statement of
Financial  Accounting  Standard No. 122,  "Accounting  for  Mortgage  Servicing
Rights"  (SFAS No.  122),  which  amends SFAS No. 65,  "Accounting  for Certain
Mortgage Banking  Activities." SFAS No. 122 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. 122 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  adopted SFAS No. 122 in the first
quarter of 1996.  The result of adoption  was to  capitalize  $669  thousand in
mortgage  servicing rights and increase the gains or decrease the losses on the
sale of these loans originated in the first nine months of 1996.

     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.  Generally,  purchased
mortgage servicing rights are capitalized at the cost to acquire the rights and
are  carried at the lower of cost,  net of  accumulated  amortization,  or fair
value.  Originated  mortgage  servicing  rights  are  capitalized  based on the
allocated  cost of the  servicing  rights,  derived from a relative  fair value
calculation,  and are recorded at the lower of the capitalized  amount,  net of
accumulated  amortization or fair value.  The mortgage loans being serviced are
not included in the Company's consolidated financial statements as they are not
assets of the Company.  Mortgage  servicing rights are amortized into servicing
fee income in  proportion  to, and over the period of,  estimated net servicing
income.  The Company uses a cash flow model to calculate  the  amortization  of
mortgage servicing rights.

     SFAS No. 122 requires that a portion of the cost of originating a mortgage
loan be allocated to the mortgage  servicing  rights based on its relative fair
value. 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 they  believe  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. 122 requires  enterprises  to measure the impairment of 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,  including those capitalized
prior to adoption of SFAS No. 122, and stratifies them based on the predominant
risk  characteristics of interest rate and loan type. A valuation  allowance is
established  for any excess of amortized  cost over the current fair value,  by
risk stratification, by a charge to income.

     The following table is a summary of activity for mortgage servicing rights
purchased  ("Purchased"),  originated  ("Originated") and excess servicing fees
receivable  ("Excess")  for the  nine  months  ended  September  30,  1996  (in
thousands):

<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------

                                                              Purchased    Originated       Excess        Total
                                                              --------------------------------------------------

            <S>                                               <C>            <C>           <C>          <C>
            Balance at January 1, 1996                        $ 3,311        $  --         $  169       $  3,480
               Additions                                          430          669              9          1,108
               Amortization                                      (637)         (50)           (26)          (713)
                                                              --------------------------------------------------
            Balance as of September 30, 1996                  $ 3,104        $ 619         $  152       $  3,875
                                                              ==================================================

----------------------------------------------------------------------------------------------------------------
</TABLE>

     SFAS No. 122 requires  enterprises  to measure the impairment of servicing
rights based on the  difference  between the carrying  amount of the  servicing
rights and their  current fair value.  At September  30, 1996, no allowance for
impairment  in the  Company's  mortgage  servicing  rights was  necessary.  The
estimated  fair value of all  mortgage  servicing  rights  was $4.7  million at
September 30, 1996.

     Gains on  mortgage  loans  sold on a  servicing  retained  basis  are also
adjusted to include  "excess  servicing  fees." The net  present  value of such
excess  servicing is  capitalized  and amortized in proportion to, and over the
estimated period of net servicing income. Excess servicing fees are adjusted to
reflect significant prepayments and payoffs of the underlying serviced loans.

     The above mortgage servicing rights relate to approximately $524.4 million
of mortgage loans serviced for third parties. In addition, the Company services
approximately  $459.2  million of  mortgage  loans for third  parties for which
there is no capitalized servicing asset on the Company's consolidated financial
statements.



INDEPENDENT AUDITORS' REPORT


The Board of Directors
Banknorth Group, Inc.

     We have reviewed the consolidated  balance sheets of Banknorth Group, Inc.
and  subsidiaries  (the  "Company") as of September 30, 1996 and 1995,  and the
related consolidated  statements of income for the three and nine month periods
ended  September  30, 1996 and 1995,  and the  consolidated  statements of cash
flows for the nine month periods ended September 30, 1996 and 1995, and changes
in shareholders'  equity for the three month periods ended March 31, 1996, June
30, 1996 and September 30, 1996. These  consolidated  financial  statements are
the responsibility of the Company's management.

     We conducted our review in accordance  with  standards  established by the
American  Institute  of  Certified  Public  Accountants.  A review  of  interim
financial information consists principally of applying analytical procedures to
financial data and making  inquiries of persons  responsible  for financial and
accounting  matters.  It is substantially less in scope than an audit conducted
in accordance  with generally  accepted  auditing  standards,  the objective of
which is the expression of an opinion regarding the financial  statements taken
as a whole. Accordingly, we do not express such an opinion.

     Based on our review, we are not aware of any material  modifications  that
should be made to the consolidated  financial  statements referred to above for
them to be in conformity with generally accepted accounting principles.

     We have previously audited, in accordance with generally accepted auditing
standards,  the  consolidated  balance sheet of Banknorth  Group,  Inc. and the
subsidiaries as of December 31, 1995, and the related  consolidated  statements
of  income,  changes in  shareholders'  equity and cash flows for the year then
ended (not  presented  herein);  and in our report dated  January 26, 1996,  we
expressed an unqualified opinion on those consolidated financial statements. In
our opinion, the information set forth in the accompanying consolidated balance
sheet as of  December  31,  1995,  and  consolidated  statement  of  changes in
shareholders' equity for the year ended December 31, 1995, is fairly stated, in
all  material  respects,  in relation  to the  consolidated  balance  sheet and
statement of changes in shareholders' equity from which it has been derived.

     As discussed in note 3 to the consolidated  interim financial  statements,
effective  January  1,  1996,  the  Company  adopted  provisions  of  Financial
Accounting  Standards Board's Statement of Financial  Accounting  Standards No.
122,  "Accounting for Mortgage  Servicing  Rights," which changed its method of
recognizing and accounting for mortgage servicing rights.


                                     /s/ KMPG PEAT MARWICK LLP


October 25, 1996



MANAGEMENT'S  DISCUSSION  AND  ANALYSIS OF FINANCIAL  CONDITION  AND RESULTS OF
 OPERATIONS


     The review that follows  focuses on the factors  affecting  the  financial
condition and results of operations of Banknorth  Group,  Inc.  ("Banknorth" or
"Company")  during the three and nine months ended  September  30,  1996,  with
comparisons to 1995 as applicable.  Net interest income and net interest margin
are presented on a fully taxable equivalent basis in this discussion.  Balances
discussed are daily  averages  unless  otherwise  described.  The  consolidated
interim   financial   statements,   as  well  as  the  1995  annual  report  to
shareholders' should be read in conjunction with this review.  Amounts in prior
period financial  statements are reclassified  whenever necessary to conform to
the current periods' presentation.

     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
          out-of-state  banking  organizations as well as nonbank  providers of
          various financial services;
     *    uncertainties  due to a lack of  operating  history of the  Company's
          Massachusetts subsidiary;
     *    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.

OVERVIEW

     Banknorth  recorded net income of $6.8 million,  or $.87 per share for the
three months ended September 30, 1996, as compared to $5.8 million, or $.86 per
share  recorded in the same period in 1995.  For the year to date period  ended
September  30,  1996,  net income  was $18.4  million,  or $2.40 per share,  as
compared to $16.5 million and $2.43 per share in 1995.

     During the third quarter of 1996:

     *    The Company earned a return on average shareholders' equity of 13.88%

     *    The return on average  assets  was 1.09% * The  efficiency  ratio was
          61.33%

MERGER AND ACQUISITION ACTIVITY

     On February 16, 1996 Banknorth  completed the purchase of thirteen banking
offices  of  Shawmut  Bank,  N.A.   ("Shawmut").   A  new   subsidiary,   First
Massachusetts  Bank,  N.A.  ("FMB" or "First  Massachusetts"),  with  principal
offices in  Worcester,  Massachusetts,  was  organized  to own and  operate the
acquired offices.

     Under the terms of the Purchase and  Assumption  Agreement  with  Shawmut,
Banknorth  paid a  premium  of $29.2  million,  representing  5.23% of  deposit
liabilities assumed, including accrued interest payable,  calculated based upon
the average amount of deposits outstanding (including accrued interest payable)
over the thirty day period ended February 13, 1996.

     At the closing,  the Company assumed total  liabilities  with an estimated
fair value of $560.3  million  and  acquired  total  assets,  including  loans,
accrued interest  receivable on such loans,  certain real property,  furniture,
fixtures,  equipment and other assets,  with an estimated  fair value of $405.7
million.  No loans  acquired  were past due 90 days or more.  In addition,  the
Company received  approximately $127.0 million in cash as consideration for the
net liabilities assumed.

     The transaction is being 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  $32.1  million  and is being  amortized  over  seven  years on a
straight-line  basis.  The results of operations  for First  Massachusetts  are
included in  Banknorth's  consolidated  financial  statements  from the date of
acquisition forward.

ASSET LIABILITY MANAGEMENT

     In managing its asset portfolios,  Banknorth  utilizes funding and capital
sources within sound credit, interest rate and liquidity risk guidelines. Loans
and securities are the Company's primary interest earning asset portfolios with
additional capacity invested in money market instruments.

     Banknorth,  through its management of  liabilities,  attempts to provide a
stable and flexible source 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 manage 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.

Earning Assets

     Earning  assets of $2.3  billion  during the third  quarter of 1996,  were
$532.4  million,  or  29.5%,  higher  than  during  the third  quarter  of 1995
primarily due to the addition of First  Massachusetts.  Table A, Mix of Average
Earning Assets,  shows how the mix of earning assets has changed as compared to
the same period in 1995.

     Loans.  Total loans were $1.8 billion  during the three month period ended
September  30, 1996,  an increase of $454.3  million,  or 33.8%,  over the same
period in 1995. Of the increase, approximately $423.2 million resulted from the
addition of First Massachusetts and growth in its loan portfolio  subsequent to
opening.  In-market  loan demand has  continued to increase  during  1996.  The
Company's markets also continue to experience  significant  competition between
lenders for  quality  credits.  In an effort to  increase  the level of earning
assets   during  the  first  nine  months  of  1996,   the  Company   purchased
approximately  $38.2 million in residential  mortgage loans located outstanding
of the Company's market areas.

     Table B, Loan  Portfolio,  provides  the detailed  components  of the loan
portfolio  as of  September  30,  1996 and 1995 as well as December  31,  1995.
Primarily  from the addition of FMB,  total loans as of  September  30, 1996 of
$1.8 billion,  were $468.8 million, or 34.7% higher than at September 30, 1995.
Commercial,  financial and agricultural loans increased $63.9 million, or 27.1%
while  commercial real estate loans increased by $119.0 million,  or 30.3%. The
largest  increase in loan balances  occurred in  residential  real estate which
increased $256.7 million, or 52.6%. A substantial portion of the loans acquired
through the branch purchase were residential real estate mortgages.

     Following an initial period of runoff in the FMB loan portfolio subsequent
to its  opening,  credit  activity  at First  Massachusetts  has  been  vibrant
resulting in growth in that bank's loan  portfolio  during the third quarter of
1996.  Continued  growth is expected during the fourth quarter of 1996.  During
the period in which runoff was occurring at First Massachusetts, loan growth at
the Company's Vermont and New Hampshire banking  subsidiaries offset the runoff
and resulted in net increases in loan receivables.

     Given  current  economic  indicators,   both  nationally  as  well  as  in
Banknorth's local markets, and given the opportunities afforded by entering the
Massachusetts  market,  management believes that the Company will see increased
levels of loan activity during the remainder of 1996.

     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  while  simultaneously  producing  earnings.  In
November  1995, the Financial  Accounting  Standards  Board  ("FASB")  issued a
"Special  Report"  which  granted  all  entities  a  one-time   opportunity  to
reconsider  their  ability and intent to hold  securities  accounted  for under
Statement of Financial  Accounting  Standards No. 115,  "Accounting For Certain
Investments  in Debt and Equity  Securities"  (SFAS No. 115) to maturity.  This
decision  allowed  entities to transfer  securities  from the  held-to-maturity
category without  "tainting" their remaining  held-to-maturity  securities.  On
November 30, 1995, in response to the FASB's action,  the Company  reclassified
certain  securities having an aggregate  unamortized cost of $197.1 million and
an aggregate fair value of $195.3 million from "held-to-maturity" to "available
for sale."

     Period end  balances  in  securities  available  for sale  totaled  $468.2
million,  $359.1 million and $134.2 million at September 30, 1996, December 31,
1995 and September 30, 1995, respectively.  The increase of $109.1 million from
December 31, 1995 to September 30, 1996 reflects  purchases  made for the newly
established  portfolio at First Massachusetts as well as purchases in excess of
the  reinvestment  of  proceeds  from  sale,  maturity  and call of  securities
available for sale.  The purchases in excess of the  reinvestment  of portfolio
generated  cashflows  were made in an effort to  increase  the level of earning
assets. Average balances for the three months ended September 30, 1996 and 1995
were $474.6 million and $128.8 million, respectively.

     Investment securities.  The management of this portfolio focuses primarily
on yield and earnings generation, liquidity through cash flow and interest rate
risk  characteristics  within the framework of the entire  balance  sheet.  The
balance of  securities  in this  category was $38.3 million as of September 30,
1996 as  compared  to $49.7  million  and $291.3  million as of December 31 and
September 30, 1995, respectively. The decrease from September 30, 1995 reflects
the fourth quarter 1995 transfer to the available for sale portfolio  while the
decrease from year end 1995 is the result of maturities and principal  payments
received on mortgage-backed  securities.  The cash proceeds from maturities and
principal  payments  were  generally  reinvested  in the  "available  for sale"
portfolio and management expects this trend to continue.

     Table C, Securities Available for Sale and Investment Securities, provides
details of securities available for sale and investment securities at September
30, 1996 and 1995, as well as December 31, 1995.

     Money market  investments.  Money market  investments,  primarily  Federal
funds sold,  averaged $9.8 million during the third quarter of 1996,  down $5.8
million  from the third  quarter  of 1995.  The third  quarter  average is $8.7
million lower than during the second  quarter of 1996.  The reduced  average in
money market  investments  is the result of increases in the Company's loan and
securities available for sale portfolios.

     Income from earning  assets.  Income from earning assets was $49.3 million
for the three month  period  ended  September  30,  1996,  as compared to $39.4
million for the same period in 1995.  The increase of $9.9  million,  or 25.1%,
resulted from increases in earning  assets  through  normal growth,  the branch
acquisition  which gave rise to First  Massachusetts  and  purchases of earning
assets during the third quarter of 1996.  Total earning assets during the third
quarter 1996 of $2.3 billion  yielded  8.39%,  while in 1995 earning  assets of
$1.8 billion yielded 8.66%.  The increase in earning assets  contributed  $10.7
million towards the increase in interest  income over 1995,  while the 27 basis
point  decline in yield  caused a decrease of $861  thousand.  Table D, Average
Balances,  Yields  and Net  Interest  Margins  and  Table F,  Volume  and Yield
Analysis,  contain  details of changes by  category  of  interest  income  from
earning assets.

     For the nine month periods ended September 30, 1996 and 1995,  income from
earning  assets was $140.2  million  and $114.5  million,  respectively.  Total
earning assets of $2.2 million,  increased  $431.0  million,  or 24.2% over the
nine month  average in 1995.  The yield on earning  assets was 8.47% during the
first nine months of 1996 as compared to 8.60% during the same period in 1995.

Funding Sources

     The Company utilizes various  traditional  sources of funds to support its
earning asset  portfolios.  Table E, Average  Sources of Funding,  presents the
various categories of funds used and the corresponding average balances for the
third  quarter  of 1996 and 1995,  and  changes,  by  category,  from the third
quarter of 1995.

     Core deposits.  Total core deposits averaged $2.0 billion during the three
month period ended  September 30, 1996,  $558.7 million above the third quarter
average in 1995. Of the increase, approximately $499.2 million relates to First
Massachusetts,  while  approximately  $59.5 million  reflects deposit growth at
other operating subsidiaries. It is management's expectation that core deposits
will  continue  to increase  during the balance of 1996 as First  Massachusetts
continues  to  establishes  itself in its  central  and  western  Massachusetts
markets.

     Purchased  liabilities.  Total purchased  liabilities decreased on average
from $295.8  million  during the third quarter of 1995 to $282.5 million during
the third quarter of 1996. The decreases in both short and long-term borrowings
were the result of increased  core  deposit  volumes and the decision to reduce
Federal  Home Loan Bank  advances in  anticipation  of the branch  acquisition.
Offsetting  the decreases in short and long-term  borrowings  were increases of
$36.6 million in time deposits over $100,000 which resulted  primarily from the
addition of First  Massachusetts.  As  Banknorth  constantly  seeks to fund its
earning assets in the most efficient and profitable manner,  management expects
prudent  levels of short-term  borrowings  and long-term debt to continue to be
important sources of funding.

     Expense of interest-bearing liabilities.  Banknorth's interest expense for
the three months ended September 30, 1996, was $20.9 million,  $3.1 million, or
17.7%,  above  1995.  Higher  levels of  interest  bearing  liabilities  caused
interest expense to increase $4.6 million, while a lower cost of funds resulted
in a decrease of $1.5 million,  together  causing the increase of $3.1 million.
Total interest bearing  liabilities of $2.0 billion during the third quarter of
1996,  were $467.9 million higher than in 1995, and with a total cost of 4.15%,
43 basis points less expensive than in the prior year.

     Total interest bearing  liabilities  averaged $1.9 billion during the nine
month period ended September 30, 1996, $376.0 million, or 24.7%, higher than in
1995. The cost of funds was 4.19% in 1996 as compared to 4.44% in 1995.

     Table D, Average  Balances,  Yields and Net Interest  Margins and Table F,
Volume and Yield  Analysis,  contain details of changes by category of interest
bearing liabilities and interest expense.

Net Interest Income

     Net interest  income totaled $28.4 million and $21.6 million for the three
month periods ended September 30, 1996 and 1995, respectively. The net interest
margin was 4.83%  during the third  quarter of 1996 as compared to 4.76% during
the third quarter of 1995.  The yield on earning  assets of 8.39% for the third
quarter of 1996,  was 27 basis points  below the prior year,  while the cost of
interest bearing  liabilities,  4.15% in 1996,  decreased 43 basis points.  Net
interest  income for the nine months ended  September 30, 1996 and 1995 totaled
$80.7  million and $64.0  million,  respectively.  The net interest  margin was
4.88%  during the first nine  months of 1996 as compared to 4.81% for the first
nine months of 1995.

     Included  in net  interest  income  is the  effect of  interest  rate swap
transactions and interest rate floors.  Banknorth utilizes these instruments to
correct imbalances  between the re-pricing  characteristics of interest earning
assets and interest bearing liabilities. A significant portion 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 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 through the branch  acquisitions  exacerbated
the potential for reduced interest income under these circumstances. To protect
the Company from this  occurrence,  interest rate floors in the notional amount
of $295 million and interest  rate swaps in the notional  amount of $50 million
were used to mitigate the  potential  reduction  in interest  income on certain
adjustable  and variable rate loans.  The aggregate  fair value of the interest
rate floors at the time of purchase 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.  The unamortized balance of interest rate floors as of
September 30, 1996 was $2.2 million.  The estimated  fair value of these floors
was $1.3 million as of  September  30, 1996.  The  estimated  fair value of the
interest rate swap contracts was ($68) thousand as of September 30, 1996.

Non-Performing Assets

     As categorized by Banknorth,  non-performing assets include non-performing
loans  which are those  loans in a  non-accrual  status,  loans which have been
treated as troubled  debt  restructurings  and loans past due 90 days and still
accruing  interest.  Also  included in the total of  non-performing  assets are
foreclosed and in-substance  foreclosed real estate  properties and repossessed
non-real estate assets.  Table G,  Non-Performing  Assets,  contains details of
non-performing assets.

     On January 1, 1995,  Banknorth adopted  Statement of Financial  Accounting
Standards No. 114,  "Accounting  by Creditors for  Impairment of a Loan," (SFAS
No. 114) as amended by  Statement of Financial  Accounting  Standards  No. 118,
"Accounting  by Creditors  for  Impairment  of a  Loan-Income  Recognition  and
Disclosure,"  (SFAS No. 118). At that time,  all of the Company's  in-substance
foreclosed  assets were  reclassified  into impaired loan status as required by
SFAS No. 114. For all prior periods  presented,  amounts related to insubstance
foreclosures   have  also  been   reclassified.   These  Statements   prescribe
recognition criteria for loan impairment,  generally related to commercial type
loans and measurement methods for impaired loans.

     Non-performing loans.  Non-performing loans totaled $22.3 million, up $5.3
million,  or 30.9% from  September  30, 1995,  and $8.3 million  higher than at
December  31,  1995,  respectively.  The  increase in  non-performing  loans is
primarily  in loans on a  nonaccrual  basis  and is  primarily  the  result  of
weakening in certain large  commercial and commercial real estate  credits,  as
well  as  increased  delinquency  in the  residential  real  estate  portfolio.
Delinquency  rates  and  recognition  of a  non-accrual  status of loans in the
residential  portfolio  are lagging the regional  and  national  levels but are
consistent with these trends.

     Other real estate owned. Total other real estate owned was $1.0 million at
September 30, 1996,  as compared to $932  thousand at September  30, 1995,  and
$1.2  million at year end 1995.  Management  does not  expect  any  significant
increase in this balance during the fourth quarter of 1996.

     Allowance for loan losses and provision.  The balance of the allowance for
loan losses  ("allowance")  is maintained  at a level that is, in  management's
judgment,  representative of the amount of risk inherent in the loan portfolio,
given past,  present and  expected  conditions.  Table H,  Summary of Loan Loss
Experience,  provides  information  regarding  types of loans  charged  off and
associated recoveries.

     Loans  charged  off,  net  of  recoveries,  equaled  $3.6  million,  or an
annualized  .28% of average  total loans for the first nine months of 1996,  an
increase of $284 thousand from the same period in 1995. Year to date recoveries
of $3.3 million in 1996,  were $560 thousand  lower than during the same period
in 1995. Given the growth in the loan portfolio and the level of non-performing
assets,  management  expects an increased level of loan  charge-offs in 1996 as
compared to that experienced in 1995.

     The provision for loan losses  ("provision") for the third quarter of 1996
was $1.5  million,  or an  annualized  .33% of average  total loans.  Provision
expense was $4.1 million during the nine month period in 1996,  .32% of average
total  loans  on  an  annualized  basis.  Provisions  of  $3.3  million,  or an
annualized  .33% of average total loans,  and $4.4 million,  or .33% of average
total loans were  experienced  during the nine months ended  September 30, 1995
and the full year of 1995, respectively.  The quarterly provision was increased
during  the third  quarter  of 1996  over that  reflected  in  earnings  during
previous  quarters in 1996,  primarily due to increases in delinquency  factors
and the growth of the loan portfolio.

     Provisions  recorded are those  necessary  to maintain the  allowance at a
level adequate enough to absorb  reasonably  predictable loan  charge-offs.  At
September  30,  1996,  the  allowance  was deemed  adequate by  management  and
provided a coverage of  non-performing  loans of 108.99% as compared to 125.78%
and 158.15% at September  30, 1995 and December  31,  1995,  respectively.  The
allowance coverage of non-performing loans was 112.40% as of June 30, 1996.

Liquidity and Interest Rate Sensitivity

     Banknorth  seeks to obtain  favorable  sources of funding  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.  Banknorth's  earnings  performance  and  strong  capital
position  enable the Company to raise funds  easily in the  marketplace  and to
secure new sources of funding.

     The Company utilized a financial  institution borrowing pursuant to a five
year credit  facility to finance its 1994  acquisition  of North  American Bank
Corporation,  parent company of Farmington National Bank. The Company's primary
source of funds to pay  principal  and interest  under this facility is current
dividends  from its subsidiary  banks.  Accordingly,  the Company's  ability to
service the debt 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. The Company  expects that the future  earnings stream of its
subsidiary banks will be sufficient to support dividend payments well in excess
of the required debt service.

     Banknorth  actively  manages its liquidity  position through target ratios
established under its liquidity policy.  Continual  monitoring of these ratios,
both historically and through forecasts,  allows Banknorth to employ strategies
necessary to maintain adequate  liquidity.  Management has also defined various
degrees of adverse  liquidity  situations which could potentially occur and has
prepared appropriate contingency plans should such situations arise.

     Management  of interest  rate risk  involves  continual  monitoring of the
relative  sensitivity of asset and liability  portfolios to changes in rate due
to maturities,  re-pricing  opportunities and embedded  options.  Sophisticated
forecasting  models are  utilized to quantify the impact of changes in rates on
the Company's net interest  income.  Specific  guidelines  relating to interest
rate  sensitivity  have been  established by the Company and are monitored on a
regular basis.


OTHER OPERATING INCOME AND EXPENSES

Other Operating Income

     Other  operating  income  totaled  $6.5  million  for  the  quarter  ended
September 30, 1996, $1.3 million, or 25.3% higher than that recorded during the
third quarter of 1995.  For the nine months ended  September 30, 1996 and 1995,
other operating income was $18.8 million and $15.5 million,  respectively.  The
addition of First  Massachusetts  accounted for approximately  $665 thousand of
the  increase  in the three  month  period  ended  September  30, 1996 and $1.6
million in the nine month period then ended.

     Income from fiduciary  activities,  $5.6 million for the nine months ended
September 30, 1995,  increased to $6.1 million in 1996.  For the quarters ended
September 30, 1996 and 1995, income from fiduciary  activities was $2.1 million
and $1.9 million,  respectively.  On February 1, 1996, the Company consolidated
its subsidiary  banks' trust  departments  into a newly formed limited  charter
bank, The Stratevest  Group,  N.A. Under this  structure,  the Company  expects
higher levels of income to result from improved marketing and sales initiatives
and  enhanced  product  offerings.   Accordingly,   management  believes  gross
fiduciary  income  during the fourth  quarter in 1996 will be improved over the
same period in 1995.

     Service  charges on depositor  accounts were $1.7 million during the third
quarter of 1996, $394 thousand, or 30.4% higher than during the same quarter of
1995. On a year to date basis,  service  charge  income was $4.8 million,  $969
thousand,  or 25.1% higher than in the same period in 1995. The  aforementioned
increases  are due  primarily  to the  addition of FMB which  contributed  $437
thousand  and $1.1  million  during  the three  and nine  month  periods  ended
September 30, 1996, respectively.

     On January 1, 1996, the Company adopted Statement of Financial  Accounting
Standard No. 122,  "Accounting for Mortgage  Servicing  Rights" (SFAS No. 122),
which amends SFAS No. 65, "Accounting for Certain Mortgage Banking Activities."
SFAS No. 122 requires that entities recognize as separate assets, the rights to
service mortgage loans for others, regardless of how those rights are acquired.
Additionally,  SFAS No. 122 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.  Adoption
of SFAS No. 122 was expected to result in  increased  gains  recognized  on the
sale of the mortgage  loans when servicing  rights are retained,  offset by the
amortization  of  the  capitalized   mortgage   servicing   rights.   Net  loan
transactions,  $257  thousand for the three months  ended  September  30, 1996,
increased  significantly  from $165 thousand  during the third quarter of 1995.
This increase in income is directly  related to an increase in mortgage lending
activity brought on by a lower level mortgage interest rates, and the impact of
accounting for mortgage  servicing  rights under SFAS No. 122. Of the total net
loan transactions, $168 thousand resulted from recognition of income under SFAS
No.  122.  For the  nine  month  period  ended  September  30,  1996,  net loan
transactions were $1.2 million,  up $865 thousand from the comparable period in
1995. Of the increase,  $669 thousand resulted from recognition of income under
SFAS No. 122.

     Net securities  transactions  in the third quarter of 1995 resulted in net
losses of $471 thousand.  Sales of securities  available for sale in the amount
of approximately  $12.6 million during the third quarter of 1995 were initiated
due to yield  deterioration  resulting  from  acceleration  of  prepayments  on
certain mortgage backed  securities  which  accelerated  premium  amortization.
Reinvestment  of the sale  proceeds  were at yields  higher  than the yields on
those securities sold. Net securities transactions during the first nine months
of 1996 were nominal and resulted primarily from the call of securities.

     Other income, $844 thousand for the three months ended September 30, 1996,
decreased $105 thousand from the same period in 1995.  During the third quarter
of 1995,  the Company sold a property  which had been held for possible  future
expansion at a net gain of  approximately  $225  thousand.  For the nine months
ended September 30, 1996,  other income was $2.4 million,  $272 thousand higher
than in 1995.

Other Operating Expenses

     Other operating expenses for the third quarter of 1996 were $23.2 million,
$5.8 million,  or 33.3% above the same three months in 1995. For the nine month
period ended September 30, 1996,  other operating  expenses were $67.8 million,
including   start-up  expenses  for  First   Massachusetts  and  Stratevest  of
approximately  $1.8  million.   Other  one-time  expenses  related  to  a  data
processing conversion and the transition to a new incentive-based  compensation
system  included in the nine month numbers were  approximately  $366  thousand.
Further,  a loss of $250  thousand  was  recorded in the third  quarter of 1996
related to a burglary  at one of the  subsidiary  banking  branches.  Recurring
operating  expenses for First  Massachusetts  were  approximately  $5.6 million
during the third  quarter of 1996 and $14.9  million for the nine month  period
ended September 30, 1996. The Company's  efficiency  ratio which is adjusted to
exclude  net  securities  transactions,  OREO  expenses  and  certain  one-time
expenses  as well as the  amortization  of  goodwill,  was 61.33% for the third
quarter of 1996,  down from 65.73%  during the same period in 1995.  During the
nine month periods ended September 30, 1996, the Company's efficiency ratio was
62.01% and 65.91% in 1996 and 1995, respectively.

     Salary expense,  the largest  component of other operating  expenses,  was
$9.3 million  during the third  quarter of 1996,  up $2.2 million or 30.6% from
1995. A significant  portion of the increase over 1995 is attributable to First
Massachusetts  and increased  staffing levels necessary to provide  operational
and other support  functions to FMB.  Salary  expense for the nine months ended
September 30, 1996,  was $26.7 million as compared to $20.7 million  during the
same  period of 1995.  The above  noted  factors  also  caused the  increase in
employee  benefits  expense  during  both  the  three  and nine  month  periods
discussed.

     The  acquisition  of thirteen  branch  offices and the  increase in leased
office space for  necessary  support  functions  were the primary  cause of the
increase of $326 thousand in occupancy expense during the third quarter of 1996
as compared to the same quarter of 1995.  Third quarter  equipment and software
expenses  increased by $169 thousand,  or 12.1% over 1995,  with  approximately
half of the increase related to First Massachusetts.

     FDIC  deposit  insurance  and other  regulatory  expense  during the third
quarter of 1996,  increased  $125  thousand  from the same period in 1995.  The
third  quarter  of 1995 was the  first  in which  the  reduced  FDIC  insurance
premiums  resulting from the Bank Insurance Fund reaching a 1.2% reserve ratio,
impacted  comparable  quarters.  During the third quarter of 1995,  the Company
received  a  refund  of  premiums  paid in the  second  quarter  of  1995  thus
significantly  reducing this expense  category and  accounting for the increase
between the third  quarter of 1995 and 1996.  For the nine month  periods ended
September 30, 1996 and 1995,  deposit  insurance and other regulatory  expenses
were $332 thousand and $1.8 million, respectively.

     Legal and professional expenses during the third quarter of 1996 increased
by $288 thousand over the same quarter in 1995 due primarily to consulting fees
associated with the Company's  strategic planning effort and accruals for legal
costs.

     Printing and supplies  expense was $603 thousand  during the third quarter
of 1996, $114 thousand higher than during the same period in 1995 while for the
nine month period ended September 30, 1996, printing and supplies expenses were
$2.6 million as compared to $1.4 million during 1995. The year to date increase
reflects first quarter 1996 expenses relating to the initial issuance of checks
to First Massachusetts customers and the issuance of new ATM and debit cards to
the Company's customer base.

     Advertising  and marketing  expenses  were $701 thousand  during the three
months ended  September 30, 1996, an increase of $130  thousand,  or 22.8% over
the same  period  in 1995.  Marketing  expenditures  for FMB  amounted  to $246
thousand  during the third  quarter  of 1996.  Expenditures  were $2.5  million
during the nine months ended  September 30, 1996 which  included  non-recurring
items of approximately $543 thousand related to FMB and advertising  associated
with the issuance of ATM and debit cards. Advertising and marketing expenses in
the comparable period of 1995 were $1.6 million.

     Amortization of goodwill  increased  significantly  to $1.3 million during
the third quarter of 1996 in comparison to $157 thousand for the same period of
1995, resulting from the FMB acquisition.

     Other  expenses,  $3.6 million during the three months ended September 30,
1996, increased $949 thousand, or 36.3% from 1995 primarily due to the addition
of recurring expenses for First  Massachusetts and a loss of approximately $250
thousand  resulting  from a burglary at one of the  subsidiary  bank  branches.
One-time  expenses coupled with recurring  expenses of FMB account for the most
of the increase on a year to date basis.

Core Tangible Performance

     After  removing  the impact of the  balance of  goodwill  and the  related
period amortization, as well as the impact of the significant one-time expenses
discussed  previously,  "core tangible"  return on average  tangible equity was
19.08% for the nine months ended September 30, 1996, up 2.10 percentage  points
from the same period a year  earlier.  The  following  table  represents  "core
tangible" performance for the first nine months of 1996, compared to 1995:


<TABLE>
<CAPTION>
                                                                 Nine Months Ended September 30,
            ($ in thousands)                                         1996               1995
                                                               ---------------------------------

            <S>                                                <C>                 <C>
            Net income, as reported                            $      18,357       $    16,542
            Adjustments, net of tax effect:
               Significant one-time expenses                           1,443                --
               Amortization of goodwill                                2,158               476
                                                               -------------------------------
            "Core tangible" income                             $      21,958       $    17,018
                                                               ===============================

            Average tangible assets                            $   2,327,817       $ 1,862,424
            Average tangible equity                            $     153,755       $   133,990

            "Core tangible" return on average tangible assets           1.26%             1.22%

            "Core tangible" return on average tangible equity          19.08%            16.98%
</TABLE>


Income Taxes

     In the third quarter of 1996, the Company recognized income tax expense of
$3.2 million, or 32.3% of the income before taxes. Tax expense on the Company's
income  was  lower  than tax  expense  at the  Federal  statutory  rate of 35%,
primarily due to tax-exempt interest income and low income housing credits.

     Activity within the committee  structure of the Vermont State  Legislature
has the potential to result in legislation that would impose a state income tax
on  banks  rather  than  the  current  deposit  based  franchise  tax.  If such
legislation was to be enacted,  the change in tax  methodology  could result in
significantly higher tax expense in future reporting periods.

Capital Resources

     Consistent  with its  long-term  goal of operating a sound and  profitable
financial  organization,  Banknorth  strives to maintain strong capital ratios.
Prior to 1996,  new issues of equity  securities  had not been  required  since
traditionally  most of its  capital  requirements  had  been  provided  through
retained   earnings.   However,   to  continue  the  Company's  growth  through
acquisition,  Banknorth  chose to raise  approximately  $32.2 million in equity
capital through the issuance of 1,022,223 shares of its common stock.

     During  the third  quarter  of 1996,  the board of  directors  declared  a
dividend of $.25 per share, representing a payout of 28.7% of third quarter net
income. The board of directors of the Company presently intends to continue the
payment of regular  quarterly cash dividends subject to adjustment from time to
time, based upon the Company's earnings outlook and other relevant factors. The
Company's  principal  source of funds to pay cash  dividends  is  derived  from
dividends from its subsidiary banks.  Various laws and regulations restrict the
ability of banks to pay dividends to their shareholders.

     At September 30, 1996,  Banknorth's Tier I capital was $166.9 million,  or
9.19% of total risk adjusted  assets,  compared to $146.9 million and 10.89% as
of September 30, 1995. The leverage ratio was 6.78%,  and 7.74% as of September
30, 1996 and 1995, respectively.  Banknorth, and its subsidiaries individually,
are  "well   capitalized"   at  September  30,  1996  according  to  regulatory
definition,  and thereby,  exceed all minimum regulatory capital requirements .
Table I, Capital Ratios, reveals the components of capital as of various dates.

------------------------------------------------------------------------------
TABLE A.--Mix of Average Earning Assets

<TABLE>
<CAPTION>
                                                    Three Months                                  Components of
                                                 Ended September 30,                    % of  Total Earning Assets
                                                -------------------------------------------------------------------
                                                                                        Total
(Dollars in thousands)                           1996           1995       Change      Change     1996      1995
                                                -------------------------------------------------------------------

<S>                                             <C>          <C>          <C>           <C>        <C>      <C>
Loans, net of unearned income
 and unamortized loan fees                      $1,797,510   $1,343,177   $454,333      85.3%      76.9%    74.4%
Securities available for sale:
   U.S. Treasuries and agencies                     98,370       39,019     59,351      11.2        4.2      2.2
   Mortgage-backed securities                      272,333       64,729    207,604      39.0       11.7      3.6
   Other securities                                103,923       25,074     78,849      14.8        4.5      1.4
                                                ----------------------------------------------------------------
      Total securities available for sale          474,626      128,822    345,804      65.0       20.4      7.2
Investment securities:
   U.S. Treasuries and agencies                     17,264       70,775    (53,511)    (10.0)       0.7      3.9
   Mortgage-backed securities                       21,210      225,752   (204,542)    (38.4)       0.9     12.5
   States and political subdivisions                 1,290        2,126       (836)     (0.2)       0.1      0.1
   Other securities                                    387        2,370     (1,983)     (0.4)       0.0      0.1
                                                ----------------------------------------------------------------
      Total investment securities                   40,151      301,023   (260,872)    (49.0)       1.7     16.6
Loans held for sale                                 14,497       15,607     (1,110)     (0.2)       0.6      0.9
Money market investments                             9,835       15,595     (5,760)     (1.1)       0.4      0.9
                                                ----------------------------------------------------------------
      Total earning assets                      $2,336,619   $1,804,224   $532,395     100.0%     100.0%   100.0%
                                                ================================================================
</TABLE>

-------------------------------------------------------------------------------
TABLE B.--Loan Portfolio

<TABLE>
<CAPTION>
                                          At September 30,             At December 31,
                              ---------------------------------------------------------  % Change    % Change
                                      1996               1995                1995        09/30/96    09/30/96
                              ---------------------------------------------------------     vs.         vs.
(Dollars in thousands)         Amount     Percent  Amount    Percent   Amount   Percent  09/30/95    12/31/95
                              --------------------------------------------------------------------------------

<S>                           <C>          <C>    <C>         <C>    <C>         <C>       <C>        <C>
Commercial, financial, and
 agricultural                 $  299,583   16.5%  $ 235,731   17.4%  $ 228,877   16.9%     27.1%      30.9%
Real Estate:
   Construction and land
     development                  23,533    1.3      18,311    1.4      20,587    1.5      28.5       14.3
   Commercial                    511,796   28.1     392,784   29.1     398,586   29.5      30.3       28.4
   Residential                   744,578   40.9     487,836   36.1     477,458   35.4      52.6       55.9
                              -------------------------------------------------------

      Total real estate        1,279,907   70.3     898,931   66.6     896,631   66.4      42.4       42.7
                              -------------------------------------------------------

Credit card receivables           21,907    1.2      25,377    1.9      26,867    2.0     (13.7)     (18.5)
Lease receivables                 62,278    3.4      40,945    3.0      47,055    3.5      52.1       32.4
Other installment                156,419    8.6     150,354   11.1     151,623   11.2       4.0        3.2
                              -------------------------------------------------------

      Total installment          240,604   13.2     216,676   16.0     225,545   16.7      11.0        6.7
                              -------------------------------------------------------

Total loans                    1,820,094  100.0   1,351,338  100.0   1,351,053  100.0      34.7       34.7
Less: Allowance for loan
 losses                           24,284    1.3      21,410    1.6      22,095    1.6      13.4        9.9
                              -------------------------------------------------------
Net loans                     $1,795,810   98.7% $1,329,928   98.4% $1,328,958   98.4%     35.0%      35.1%
                              =======================================================
</TABLE>


-------------------------------------------------------------------------------
TABLE C.--Securities available for sale and investment securities

<TABLE>
<CAPTION>
                                                                             At September 30,       At December 31,
                                                                         --------------------------------------------
                                                                            1996           1995           1995
                                                                         --------------------------------------------
(Dollars in thousands)

<S>                                                                      <C>             <C>            <C>
Securities available for sale:

U.S. Treasuries and agencies                                             $ 102,325       $ 39,975       $ 76,401
States and political subdivisions                                              652             --             --
Mortgage-backed securities                                                 268,799         59,182        249,549
Other securities                                                           103,387         35,802         33,090
Valuation reserve                                                           (7,009)          (766)            45
                                                                         ---------------------------------------
Recorded value of securities available for sale                          $ 468,154       $134,193       $359,085
                                                                         =======================================

Investment securities:

U.S. Treasuries and agencies                                             $  16,156       $ 69,244       $ 23,837
States and political subdivisions                                            1,135          2,114          1,630
Mortgage-backed securities                                                  20,865        217,727         23,146
Other securities                                                               165          2,209          1,067
                                                                         ---------------------------------------
Recorded value of investment securities                                  $  38,321       $291,294       $ 49,680
                                                                         =======================================
Fair value of investment securities                                      $  38,599       $293,032       $ 51,087
                                                                         =======================================

Excess of fair value versus recorded value                                   $ 278        $ 1,738        $ 1,407
Fair value as a % of recorded value                                          100.7  %       100.6%         102.8%
</TABLE>


-------------------------------------------------------------------------------
TABLE D.--Average Balances, Yields, and Net Interest Margins

<TABLE>
<CAPTION>
                                                                          Three Months Ended September 30,
                                                          ------------------------------------------------------------------------
                                                                          1996                               1995
                                                          ------------------------------------------------------------------------
                                                                        Interest    Average                 Interest    Average
                                                            Average      Income/    Yield/       Average     Income/    Yield/
                                                            Balance      Expense     Rate        Balance     Expense     Rate
                                                          ------------------------------------------------------------------------
(Dollars in thousands)

<S>                                                       <C>           <C>          <C>       <C>           <C>         <C>
Earning assets:
   Money market investments                               $     9,835   $    132     5.34%     $    15,595   $    225    5.72%
   Securities available for sale, at amortized cost           474,626      7,227     6.06          128,822      2,042    6.29
   Loans held for sale                                         14,497        289     7.93           15,607        303    7.70
   Investment securities, at amortized cost:
      Taxable                                                  38,861        692     7.08          298,897      4,630    6.15
      Tax-exempt (Note 1)                                       1,290         22     6.78            2,126         30    5.60
                                                          -------------------------------------------------------------------
      Total investment securities                              40,151        714     7.07          301,023      4,660    6.14
                                                          -------------------------------------------------------------------

Loans, net of unearned income and
 unamortized loan fees (Notes 1,2,3)                        1,797,510     40,928     9.06        1,343,177     32,173    9.50
                                                          -------------------------------------------------------------------
      Total earning assets                                  2,336,619     49,290     8.39        1,804,224     39,403    8.66
                                                                        -----------------------------------------------------
Cash and due from banks                                        85,448                               62,513
Allowance for loan losses                                     (24,370)                             (21,222)
Valuation reserve for securities available for sale            (9,035)                              (6,779)
 and investment securities
Other assets                                                  105,714                               63,314
                                                          ------------------------------------------------
Total assets                                              $ 2,494,376                          $ 1,902,050
                                                          ================================================

Interest-bearing liabilities:
   NOW accounts                                           $   238,107        810     1.35      $   177,742        773     1.73
   Money market savings                                       534,750      5,707     4.25          342,626      4,055     4.70
   Regular savings                                            228,414      1,366     2.38          186,093      1,214     2.59
   Time deposits $100 thousand and greater                     80,266      1,108     5.49           43,655        631     5.73
   Time deposits under $100 thousand                          706,701      9,122     5.14          516,194      7,216     5.55
                                                          -------------------------------------------------------------------
      Total interest-bearing deposits                       1,788,238     18,113     4.03        1,266,310     13,889     4.35
   Long-term debt                                              44,713        659     5.86           94,169      1,469     6.19
Short-term borrowings                                         172,217      2,127     4.91          176,809      2,405     5.40
                                                          -------------------------------------------------------------------
      Total interest-bearing liabilities                    2,005,168     20,899     4.15        1,537,288     17,763     4.58
                                                          -------------------------------------------------------------------
Demand deposits
Other liabilities                                             272,492                              199,122
Shareholders' equity                                           21,426                               17,695
                                                              195,290                              147,945
                                                          ------------------------------------------------
Total liabilities and shareholders' equity                $ 2,494,376                          $ 1,902,050
                                                          ================================================

Net interest income                                                     $ 28,391                             $ 21,640
                                                                        =============================================

Interest rate differential                                                           4.24%                                4.08%
                                                                                     ==========================================

Net interest margin                                                                  4.83%                                4.76%
                                                                                     ==========================================

<FN>
Notes:
<F1>  Tax  exempt  income has been  adjusted  to a tax  equivalent  basis by tax
      effecting such income at the Federal tax rate.
<F2>  Includes principal balances of non-accrual loans.
<F3>  Includes industrial revenue bonds.
</FN>
</TABLE>


-------------------------------------------------------------------------------
TABLE D.--Average Balances, Yields, and Net Interest Margins

<TABLE>
<CAPTION>
                                                                            Nine Months Ended September 30,
                                                          ------------------------------------------------------------------------
                                                                           1996                             1995
                                                          ------------------------------------------------------------------------
                                                                        Interest    Average                 Interest     Average
                                                            Average      Income/    Yield/       Average     Income/     Yield/
                                                            Balance      Expense     Rate        Balance     Expense      Rate
                                                          ------------------------------------------------------------------------
(Dollars in thousands)

<S>                                                       <C>           <C>          <C>       <C>           <C>          <C>
Earning assets:
   Money market investments                               $    18,825   $    778     5.52%     $     9,382   $     407    5.80%
   Securities available for sale, at amortized cost           436,928     19,903     6.08          128,272       5,982    6.24
   Loans held for sale                                         15,782        892     7.55           11,879         707    7.96
   Investment securities, at amortized cost:
      Taxable                                                  43,315      2,320     7.15          306,981      14,322    6.24
      Tax-exempt (Note 1)                                       1,410         70     6.63            2,048          85    5.55
                                                          --------------------------------------------------------------------
      Total investment securities                              44,725      2,390     7.14          309,029      14,407    6.23
                                                          --------------------------------------------------------------------

Loans, net of unearned income and
 unamortized loan fees (Notes 1,2,3)                        1,694,663    116,258     9.16        1,321,375      92,994    9.41
                                                          --------------------------------------------------------------------
      Total earning assets                                  2,210,923    140,221     8.47        1,779,937     114,497    8.60
                                                                        ------------------------------------------------------
Cash and due from banks                                        82,440                               59,236
Allowance for loan losses                                     (24,031)                             (21,459)
Valuation reserve for securities available for sale            (5,657)                              (8,886)
 and investment securities
Other assets                                                   97,945                               62,727
                                                          ------------------------------------------------
Total assets                                              $ 2,361,620                          $ 1,871,555
                                                          ================================================

Interest-bearing liabilities:
   NOW accounts                                           $   228,895      2,330     1.36      $   178,024       2,205    1.66
   Money market savings                                       501,995     15,882     4.23          324,808      11,102    4.57
   Regular savings                                            225,107      4,032     2.39          194,003       3,774    2.60
   Time deposits $100 thousand and greater                     73,731      3,109     5.63           42,805       1,674    5.23
   Time deposits under $100 thousand                          675,641     26,788     5.30          503,264      19,669    5.23
                                                          --------------------------------------------------------------------
      Total interest-bearing deposits                       1,705,369     52,141     4.08        1,242,904      38,424    4.13
   Long-term debt                                              48,132      2,113     5.86          101,377       4,750    6.26
   Short-term borrowings                                      142,295      5,220     4.90          175,563       7,298    5.56
                                                          --------------------------------------------------------------------
      Total interest-bearing liabilities                    1,895,796     59,474     4.19        1,519,844      50,472    4.44
                                                          --------------------------------------------------------------------
Demand deposits
Other liabilities                                             256,943                              191,211
Shareholders' equity                                           21,323                               17,379
                                                              187,558                              143,121
                                                          ------------------------------------------------
Total liabilities and shareholders' equity                $ 2,361,620                          $ 1,871,555
                                                          ================================================

Net interest income                                                     $ 80,747                             $  64,025
                                                                        ==============================================

Interest rate differential                                                           4.28%                                4.16%
                                                                                     ==========================================

Net interest margin                                                                  4.88%                                4.81%
                                                                                     ==========================================

<FN>
Notes:
<F1>  Tax  exempt  income has been  adjusted  to a tax  equivalent  basis by tax
      effecting such income at the Federal tax rate.
<F2>  Includes principal balances of non-accrual loans.
<F3>  Includes industrial revenue bonds.
</FN>
</TABLE>

-------------------------------------------------------------------------------
TABLE E.--Average Sources of Funding


<TABLE>
<CAPTION>
                                                                                                          As a % of
                                               Three Months Ended September 30,         Change        Total Net Funding
                                               ------------------------------------------------------------------------
                                                     1996           1995             $           %      1996     1995
                                               ------------------------------------------------------------------------
(Dollars in thousands)

<S>                                               <C>           <C>              <C>           <C>      <C>      <C>
Demand deposits                                   $   272,492   $   199,122      $  73,370     36.8%    12.4%    11.9%
Retail deposits:
   Regular savings                                    228,414       186,093         42,321     22.7     10.4     11.1
   Time deposits under $100 thousand                  706,701       516,194        190,507     36.9     32.2     30.8
   NOW accounts                                       238,107       177,742         60,365     34.0     10.9     10.6
   Money market savings                               534,750       342,626        192,124     56.1     24.4     20.5
                                                  -------------------------------------------------------------------

   Total retail deposits                            1,707,972     1,222,655        485,317     39.7     77.9     73.0
                                                  -------------------------------------------------------------------

Total core deposits                                 1,980,464     1,421,777        558,687     39.3     90.3     84.9
Less: Cash and due from banks                          85,448        62,513         22,935     36.7      3.9      3.7
                                                  -------------------------------------------------------------------

   Net core deposits                                1,895,016     1,359,264        535,752     39.4     86.4     81.2
                                                  -------------------------------------------------------------------

Time deposits $100 thousand and greater                80,266        43,655         36,611     83.9      3.7      2.6
Federal funds purchased                                 6,432           898          5,534    616.3      0.3      0.1
Securities sold under agreements to repurchase        107,804        96,992         10,812     11.1      4.9      5.8
Borrowings from U.S. Treasury                           9,144        11,430         (2,286)   (20.0)     0.4      0.7
Other short-term borrowings                            48,837        67,489        (18,652)   (27.6)     2.2      4.0
Long-term note from FHLB                               30,024        75,292        (45,268)   (60.1)     1.4      4.5
                                                  -------------------------------------------------------------------

   Total purchased liabilities                        282,507       295,756        (13,249)    (4.5)    12.9     17.7

Long-term bank debt                                    14,689        18,877         (4,188)   (22.2)     0.7      1.1
                                                  -------------------------------------------------------------------

   Total capital market funds                          14,689        18,877         (4,188)   (22.2)     0.7      1.1
                                                  -------------------------------------------------------------------

Total net funding                                 $ 2,192,212   $ 1,673,897      $ 518,315     31.0%   100.0%   100.0%
                                                  ===================================================================
</TABLE>


-------------------------------------------------------------------------------
TABLE F.--Volume and Yield Analysis

<TABLE>
<CAPTION>
                                                                              1996 vs. 1995
                                                    ---------------------------------------------------------------
                                                      Three Months Ended
                                                         September 30,          Increase            Due to
                                                    ---------------------------------------------------------------
(In thousands)                                         1996         1995       (Decrease)     Volume        Rate
                                                    ---------------------------------------------------------------

<S>                                                 <C>          <C>            <C>          <C>          <C>
Interest income (FTE):
   Money market investments                         $     132    $     225      $   (93)     $   (78)     $  (15)
   Securities available for sale                        7,227        2,042        5,185        5,259         (74)
   Loans held for sale                                    289          303          (14)         (23)          9
Investment securities:
   Taxable                                                692        4,630       (3,938)      (4,637)        699
   Tax-exempt                                              22           30           (8)         (14)          6
                                                    ------------------------------------------------------------
      Total investments                                   714        4,660       (3,946)      (4,651)        705
                                                    ------------------------------------------------------------
Loans                                                  40,928       32,173        8,755       10,241      (1,486)
                                                    ------------------------------------------------------------
      Total interest income                            49,290       39,403        9,887       10,748        (861)
                                                    ------------------------------------------------------------
Interest expense:
   NOW accounts                                           810          773           37          207        (170)
   Money market savings                                 5,707        4,055        1,652        2,040        (388)
   Regular savings                                      1,366        1,214          152          238         (86)
   Time deposits $100 thousand and greater              1,108          631          477          503         (26)
   Time deposits under $100 thousand                    9,122        7,216        1,906        2,438        (532)
   Long-term debt                                         659        1,469         (810)        (732)        (78)
   Short-term borrowings                                2,127        2,405         (278)         (60)       (218)
                                                    ------------------------------------------------------------
      Total interest expense                           20,899       17,763        3,136        4,634      (1,498)
                                                    ------------------------------------------------------------
Net interest income (FTE)                           $  28,391    $  21,640      $ 6,751      $ 6,114      $  637
                                                    ============================================================
</TABLE>


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


<TABLE>
<CAPTION>
                                                                              1996 vs. 1995
                                                    ---------------------------------------------------------------
                                                       Nine Months Ended
                                                         September 30,          Increase            Due to
                                                    ---------------------------------------------------------------
(In thousands)                                         1996         1995       (Decrease)     Volume        Rate
                                                    ---------------------------------------------------------------

<S>                                                 <C>          <C>            <C>          <C>          <C>
Interest income (FTE):
   Money market investments                         $     778    $     407      $   371      $   391      $  (20)
   Securities available for sale                       19,903        5,982       13,921       14,075        (154)
   Loans held for sale                                    892          707          185          221         (36)
Investment securities:
   Taxable                                              2,320       14,322      (12,002)     (14,093)      2,091
   Tax-exempt                                              70           85          (15)         (32)         17
                                                    ------------------------------------------------------------
      Total investments                                 2,390       14,407      (12,017)     (14,125)      2,108
                                                    ------------------------------------------------------------
Loans                                                 116,258       92,994       23,264       25,737      (2,473)
                                                    ------------------------------------------------------------
      Total interest income                           140,221      114,497       25,724       26,299        (575)
                                                    ------------------------------------------------------------
Interest expense:
   NOW accounts                                         2,330        2,205          125          525        (400)
   Money market savings                                15,882       11,102        4,780        5,607        (827)
   Regular savings                                      4,032        3,774          258          551        (293)
   Time deposits $100 thousand and greater              3,109        1,674        1,435        1,307         128
   Time deposits under $100 thousand                   26,788       19,669        7,119        6,855         264
   Long-term debt                                       2,113        4,750       (2,637)      (2,332)       (304)
   Short-term borrowings                                5,220        7,298       (2,078)      (1,211)       (867)
                                                    ------------------------------------------------------------
      Total interest expense                           59,474       50,472        9,002       11,302      (2,299)
                                                    ------------------------------------------------------------
Net interest income (FTE)                           $  80,747    $  64,025      $16,722      $14,997      $1,724
                                                    ============================================================
</TABLE>


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


-------------------------------------------------------------------------------
TABLE G.--Non-Performing Assets

<TABLE>
<CAPTION>
                                                                              At             At             At
                                                                         September 30,  December 31,   September 30,
(Dollars in thousands)                                                       1996           1995           1995
                                                                         -------------------------------------------

<S>                                                                       <C>            <C>            <C>
Loans on a non-accrual basis:
   Commercial, financial and agricultural                                 $  3,839       $    648       $    901
   Real estate:
      Construction and land development                                         70            103            204
      Commercial                                                             6,343          3,993          6,653
      Residential                                                           10,049          7,625          7,131
   Other installment                                                            --             --             49
                                                                          --------------------------------------
         Total non-accrual                                                  20,301         12,369         14,938
                                                                          --------------------------------------

Restructured loans:
   Real estate:
      Commercial                                                               822            288            288
      Residential                                                               40             85             89
   Other installment                                                             6             55             93
                                                                          --------------------------------------
         Total restructured                                                    868            428            470
                                                                          --------------------------------------

Past-due 90 days or more and still accruing:
   Commercial, financial and agricultural                                      123             87            185
   Real estate:
      Commercial                                                                40             64            529
      Residential                                                               46            396            409
   Credit card                                                                 138            105             72
   Lease receivables                                                            48             28             --
   Other installment                                                           717            494            419
                                                                          --------------------------------------
         Total past-due 90 days or more and still accruing                   1,112          1,174          1,614
                                                                          --------------------------------------

Total non-performing loans                                                  22,281         13,971         17,022
                                                                          --------------------------------------

Foreclosed real estate                                                       1,038          1,169            884
                                                                          --------------------------------------

         Total other real estate owned (OREO)                                1,038          1,169            884
         Non-real estate and repossessed assets                                 11             --             48
                                                                          --------------------------------------
         Total foreclosed and repossessed assets (F/RA)                      1,049          1,169            932
                                                                          --------------------------------------

Total non-performing assets (NPA)                                         $ 23,330       $ 15,140       $ 17,954
                                                                          ======================================

Allowance for loan losses (ALL)                                           $ 24,284       $ 22,095       $ 21,410
Coverage of non-performing loans                                            108.99  %      158.15%        125.78%
Non-performing assets as a % of (loans & F/RA)                                1.28  %        1.12%          1.33%
Non-performing assets to total assets                                         0.93  %        0.79%          0.94%
</TABLE>


-------------------------------------------------------------------------------
TABLE H.--Summary of Loan Loss Experience

<TABLE>
<CAPTION>
                                                                   Nine Months          Year          Nine Months
                                                                      Ended             Ended            Ended
                                                                  September 30,     December 31,     September 30,
(Dollars in thousands)                                                1996              1995             1995
                                                                ---------------------------------------------------

<S>                                                             <C>                <C>               <C>
Allowance for loan losses at beginning of period                $      22,095      $    21,437       $    21,437
                                                                ------------------------------------------------

Allowance of bank acquired on February 16, 1996                         1,650               --                --
Loans charged off:
   Commercial, financial and agricultural                                (367)          (1,283)             (988)
   Real estate:
      Construction and land development                                   (73)            (357)             (354)
      Commercial                                                       (1,574)          (2,287)           (2,116)
      Residential                                                      (1,129)          (1,833)           (1,230)
                                                                ------------------------------------------------

         Total real estate                                             (2,776)          (4,477)           (3,700)

   Credit card                                                           (576)            (576)             (462)
   Lease receivables                                                     (721)            (410)             (325)
   Other installment                                                   (2,393)          (2,415)           (1,634)
                                                                ------------------------------------------------

         Total consumer                                                (3,690)          (3,401)           (2,421)

         Total loans charged off                                       (6,833)          (9,161)           (7,109)
                                                                ------------------------------------------------

Recoveries on loans:
   Commercial, financial and agricultural                                 469            1,597             1,103
   Real estate:
      Construction and land development                                    46              540               354
      Commercial                                                          862            1,430               822
      Residential                                                         272              302               255
                                                                ------------------------------------------------

         Total real estate                                              1,180            2,272             1,431
                                                                ------------------------------------------------

   Credit card                                                            114              162               123
   Lease receivables                                                      566              277               226
   Other installment                                                      943            1,136               949
                                                                ------------------------------------------------

         Total consumer                                                 1,623            1,575             1,298

         Total recoveries on loans                                      3,272            5,444             3,832
                                                                ------------------------------------------------

      Loans charged off, net of recoveries                             (3,561)          (3,717)           (3,277)
                                                                ------------------------------------------------

Provision for loan losses                                               4,100            4,375             3,250
                                                                ------------------------------------------------

Allowance for loan losses at end of period                      $      24,284      $    22,095       $    21,410
                                                                ================================================


Loans outstanding-end of period                                 $   1,820,094      $ 1,351,053       $ 1,351,338
Average loans outstanding-period to date                            1,694,663        1,329,188         1,321,375

Loans charged off, net (annualized), as a % of average
  total loans                                                            0.28%            0.28%             0.33%
Provision for loan losses (annualized), as a % of 
 average total loans                                                     0.32%            0.33%             0.33%
Allowance for loan losses as a % of period-end total loans               1.33%            1.64%             1.58%
</TABLE>


-------------------------------------------------------------------------------
TABLE I.--Capital Ratios

<TABLE>
<CAPTION>
                                                   9/30/96      6/30/96       3/31/96     12/31/95      9/30/95
                                               ----------------------------------------------------------------
(Dollars in thousands)

<S>                                            <C>            <C>          <C>          <C>          <C>
Total risk-adjusted on-balance-sheet assets    $ 1,709,036    $1,659,773   $1,610,790   $1,272,079   $1,282,863
Total risk-adjusted off-balance-sheet items        106,281       106,200       95,512       76,432       66,160
                                               ----------------------------------------------------------------

Total risk-adjusted assets                     $ 1,815,317    $1,765,973   $1,706,302   $1,348,511   $1,349,023
                                               ================================================================

Total risk-adjusted assets/average total 
 assets, net of fair value adjustment 
 and goodwill (1)                                    73.75%       73.71%        80.38%       71.77%       71.11%

Total shareholders' equity                     $   199,800    $ 194,430    $  191,721   $  159,936   $  151,924
Fair value adjustment (1)                            4,556        5,320         3,153         (29)        3,652
Other adjustments to Tier I capital                (37,448)     (38,744)      (40,063)      (8,553)      (8,711)
                                               ----------------------------------------------------------------

Total Tier I capital                               166,908      161,006       154,811      151,354      146,865
Maximum allowance for loan losses (2)               22,711       22,107        21,364       16,921       16,919
                                               ----------------------------------------------------------------

Total capital                                  $   189,619    $ 183,113    $  176,175   $  168,275   $  163,784
                                               ================================================================

Quarterly average total assets, net of fair
  value adjustment and goodwill (1)            $ 2,461,484    $2,395,825   $2,122,778   $1,879,047   $1,896,991
Allowance for loan losses                           24,284       24,669        24,183       22,095       21,410


Total capital to total risk-adjusted assets          10.45%       10.37%        10.32%       12.48%       12.14%
Tier I capital to total risk-adjusted assets          9.19         9.12          9.07        11.22        10.89
Tier I capital to total quarterly average
 adjusted assets (Leverage)                           6.78         6.72          7.29         8.05         7.74

<FN>
Notes:
<F1>  Banknorth  Group  adopted  SFAS No. 115 as of January 1, 1994.  Risk Based
      Capital  guidelines have been amended to exclude SFAS No. 115 adjustments,
      therefore, the market valuation included in shareholders' equity and total
      assets on the  Consolidated  Balance Sheets has been excluded in the above
      ratios.
<F2>  The maximum allowance for loan losses used in calculating 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.
</FN>
</TABLE>


SUMMARY OF UNAUDITED QUARTERLY FINANCIAL INFORMATION


<TABLE>
<CAPTION>
                                                                   1996                             1995
                                               --------------------------------------------------------------------
(In thousands, except for share data)               Q3            Q2            Q1            Q4            Q3
                                               --------------------------------------------------------------------

<S>                                            <C>           <C>           <C>           <C>           <C>
STATEMENT OF INCOME:
Interest income                                $    49,175   $    47,454   $    43,133   $    38,643   $    39,214
Interest expense                                    20,899        20,058        18,517        17,508        17,763
                                               -------------------------------------------------------------------
   Net interest income                              28,276        27,396        24,616        21,135        21,451
Provision for loan losses                            1,500         1,300         1,300         1,125         1,125
                                               -------------------------------------------------------------------
   Net interest income after provision for
    loan losses                                     26,776        26,096        23,316        20,010        20,326
                                               -------------------------------------------------------------------
Other income:
   Income from trust activities                      2,084         2,005         1,996         1,835         1,879
   Service charges on depositor accounts             1,692         1,792         1,340         1,226         1,298
   Loan servicing                                      795           670           679           679           649
   Credit card                                         764           728           599           842           684
   Net loan transactions                               257           358           601           217           165
   Net securities transactions                          21            --             3             9          (471)
   All other                                           844           903           668           611           949
                                               -------------------------------------------------------------------
         Total other income                          6,457         6,456         5,886         5,419         5,153
Other expenses:
   Salaries                                          9,278         9,053         8,375         7,661         7,104
   Employee benefits                                 2,057         2,146         2,171         1,457         1,589
   Net occupancy expenses                            1,669         1,767         1,786         1,388         1,343
   Equipment and software expenses                   1,569         1,701         1,433         1,400         1,400
   Data processing fees                              1,111         1,209         1,108         1,242         1,125
   FDIC deposit insurance and other regulatory
    expenses                                           134            99            99           234             9
   OREO and repossession expenses                      267            78            30           (95)          347
   Amortization of goodwill                          1,297         1,319           731           157           157
   All other                                         5,794         5,138         6,420         4,558         4,313
                                               -------------------------------------------------------------------
         Total other expenses                       23,176        22,510        22,153        18,002        17,387
                                               -------------------------------------------------------------------
Income before income taxes                          10,057        10,042         7,049         7,427         8,092
Income tax expense                                   3,244         3,248         2,299         1,596         2,266
                                               -------------------------------------------------------------------
Net income                                     $     6,813   $     6,794   $     4,750   $     5,831   $     5,826
                                               ===================================================================
AVERAGE BALANCES:
   Loans                                       $ 1,797,510   $ 1,746,552   $ 1,538,784   $ 1,352,356   $ 1,343,177
   Loans held for sale                              14,497        15,668        17,196        16,309        15,607
   Securities available for sale                   474,626       446,227       389,515       191,408       128,822
   Investment securities                            40,151        45,703        48,371       216,701       301,023
   Money market investments                          9,835        18,522        28,216        10,717        15,595
                                               -------------------------------------------------------------------
         Total earning assets                    2,336,619     2,272,672     2,022,082     1,787,491     1,804,264
   Other assets                                    157,757       156,577       137,606       100,138        97,786
                                               -------------------------------------------------------------------
         Total assets                          $ 2,494,376   $ 2,429,249   $ 2,159,688   $ 1,887,629   $ 1,902,050
                                               ===================================================================
   Demand deposits                             $   272,492   $   261,437   $   227,571   $   205,354   $   199,122
   Interest-bearing deposits                     1,788,238     1,768,600     1,558,369     1,307,950     1,266,310
                                               -------------------------------------------------------------------
         Total deposits                          2,060,730     2,030,037     1,785,940     1,513,304     1,465,432
   Short-term borrowings                           172,217       138,632       124,853       129,836       176,809
   Long-term debt                                   44,713        47,311        52,411        72,534        94,169
   Other liabilities                                21,426        21,574        20,966        17,678        17,695
   Shareholders' equity                            195,290       191,695       175,518       154,277       147,945
                                               -------------------------------------------------------------------
         Total liabilities and shareholders'
          equity                               $ 2,494,376   $ 2,429,249   $ 2,159,688   $ 1,887,629   $ 1,902,050
                                               ===================================================================
Loans charged off, net of recoveries           $     1,885   $       814   $       862   $       440   $       622
Non-performing assets, p.e.                         23,330        23,248        15,909        15,140        17,954
SHARE DATA:
   Shares outstanding, p.e.                      7,826,648     7,826,648     7,826,648     6,804,425     6,804,425
   Weighted average shares outstanding           7,826,648     7,826,648     7,332,386     6,804,425     6,804,425
   Tangible book value, p.e.                   $     20.74   $     19.89   $     19.38   $     22.25   $     21.05
   Cash dividends declared                            0.25          0.25          0.25          0.23          0.23
   Net income                                         0.87          0.87          0.65          0.86          0.86
   Closing price at quarter end                      37.38         34.25         35.25         38.50         33.25
   Cash dividends declared as a % of net
    income                                           28.74%        28.74%        38.46%        26.74%        26.74%
RATIOS:
   Return on average assets                           1.09%         1.12%         0.88%         1.23%         1.22%
   Return on average shareholders' equity            13.88         14.25         10.88         15.00         15.62
   Net interest margin, fte                           4.83          4.88          4.93          4.73          4.76
   Efficiency ratio                                  61.33         62.07         62.73         66.94         65.73
   Expense ratio                                      2.54          2.59          2.66          2.76          2.72
   As a % of risk-adjusted assets:
         Total capital                               10.45         10.37         10.32         12.48         12.14
         Tier 1 capital                               9.19          9.12          9.07         11.22         10.89
   As a % of total assets:
         Tier 1 capital (regulatory leverage)         6.78          6.72          7.29          8.05          7.74
   Tangible shareholders equity, p.e. to
    tangible assets, p.e                              6.56          6.44          6.39          7.96          7.49
   Price earnings ratio (last twelve months)          11.5          10.6          11.1          11.7          10.1
</TABLE>


SIGNATURES

     Pursuant to the  requirements 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.
                                                      Registrant




Date: 11/12/96                                 /s/ WILLIAM H. CHADWICK
                                          -------------------------------------
                                                  William H. Chadwick
                                          President and Chief Executive Officer



Date: 11/12/96                                   /s/ THOMAS J. PRUITT
                                          -------------------------------------
                                                    Thomas J. Pruitt
                                           Executive Vice President and Chief
                                                    Financial Officer


A GLOSSARY OF TERMS

Book value per share
     Total shareholders' equity divided by shares outstanding 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,  loans (net of unearned income), federal funds sold
     and securities purchased under agreements to resell.

Earnings per share
     Net income  divided  by  average  shares  outstanding  during the  period,
     including the effect of stock options.

Efficiency ratio
     Total  other   operating   expense,   excluding   goodwill   amortization,
     OREO/repossession   expense  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.

Expense ratio
     Total  other   operating   expense,   excluding   goodwill   amortization,
     OREO/repossession  expense 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.

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.

Intangible assets
     Intangible assets include goodwill,  purchased  mortgage servicing rights,
     servicing release premiums, and purchased credit card rights.

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

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) 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.

Parent company
     A company  that owns or controls  subsidiaries  through the  ownership  of
     voting stock.

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  result  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.  A key ratio which
     indicates how effectively a bank holding company uses its total resources.

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.