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FORM 10-Q

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION


Washington, D.C. 20549


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

For the Quarterly Period Ended June 30, 2003

OR

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

Commission File Number: 001-31251

BANKNORTH GROUP, INC.

(Exact name of Registrant as specified in its charter)


|                                |  |                    
|------------------------------- |  | -------------------
|Maine                           |  | 01-0437984         
|                                |  |                    
|(State or other jurisdiction of |  | (I.R.S. Employer   
|incorporation or organization)  |  | Identification No.)

|                                         |  |  |            | 
|---------------------------------------- |  |  | ---------- | 
|Two Portland Square, Portland, Maine     |  |  | 04112      | 
|                                         |  |  |            | 
|(Address of principal executive offices) |  |  | (Zip Code) | 

(207) 761-8500

(Registrants telephone number, including area code)


Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports); and (2) has been subject to such
filing requirements for the past 90 days.
Yes [ x ] No [  ]

Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).
Yes [ x ] No [  ]

The number of shares outstanding of the Registrants common stock and related
stock purchase rights as of July 31, 2003 is:

|                                       |  |  |               | 
|-------------------------------------- |  |  | ------------- | 
|Common stock, par value $.01 per share |  |  | 161,179,800   | 
|                                       |  |  |               | 
|(Class)                                |  |  | (Outstanding) | 

Available on the Web @ www.banknorth.com





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TABLE OF CONTENTS



|                                                                                      |  |  |  |  |  |  |  | 
|------------------------------------------------------------------------------------- |  |  |  |  |  |  |  | 
|CONSOLIDATED BALANCE SHEETS                                                          
|CONSOLIDATED STATEMENTS OF INCOME                                                    
|CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS EQUITY                           
|CONSOLIDATED STATEMENTS OF CASH FLOWS                                                
|Notes to Consolidated Financial Statements                                           
|MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|Item 3. Quantitative and Qualitative Disclosures about Market Risk                   
|Item 4. Controls and Procedures                                                      
|Part II - Other Information                                                          
|Item 1. Legal Proceedings                                                            
|Item 2. Changes in Securities and Use of Proceeds - not applicable                   
|Item 3. Defaults Upon Senior Securities - not applicable                             
|Item 4. Submission of Matters to a Vote of Security Holders                          
|Item 5. Other Information - not applicable                                           
|Item 6. Exhibits and Reports on Form 8-K                                             
|SIGNATURES                                                                           
|EXHIBIT INDEX                                                                        
|EX-31.1 CERTIFICATION OF CHIEF EXECUTIVE OFFICER                                     
|EX-31.2 CERTIFICATION OF CHIEF FINANCIAL OFFICER                                     
|EX-32.1 CERTIFICATION OF CHIEF EXECUTIVE OFFICER                                     
|EX-32.2 CERTIFICATION OF CHIEF FINANCIAL OFFICER                                     



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##### Table of Contents



INDEX
BANKNORTH GROUP, INC. AND SUBSIDIARIES

|         |  |                       |  |                                                                                               |                                                            |  |      |   | 
|-------- |  | --------------------- |  | --------------------------------------------------------------------------------------------- | ---------------------------------------------------------- |  | ---- | - | 
|         |  |                       |  |                                                                                               |                                                            |  | PAGE
|         |  |                       |  |                                                                                               |                                                            |  |     
|PART I.  |  | FINANCIAL INFORMATION |  |                                                                                               |                                                            | 
|         |  |                       |  | Item 1. Financial Statements                                                                  |                                                            |  |      |  
|         |  |                       |  |                                                                                               | Consolidated Balance Sheets                                |  |      | 3 | 
|         |  |                       |  |                                                                                               | Consolidated Statements of Income                          |  |      | 4 | 
|         |  |                       |  |                                                                                               | Consolidated Statements of Changes in Shareholders Equity |  |      | 5 | 
|         |  |                       |  |                                                                                               | Consolidated Statements of Cash Flows                      |  |      | 6 | 
|         |  |                       |  |                                                                                               | Notes to Consolidated Financial Statements                 |  |      | 7 | 
|         |  |                       |  | Item 2. Managements Discussion and Analysis of Financial
Condition and Results of Operations |                                                            |  | 14   |  
|         |  |                       |  | Item 3. Quantitative and Qualitative Disclosures about Market Risk                            |                                                            |  | 41   |  
|         |  |                       |  | Item 4. Controls and Procedures                                                               |                                                            |  | 41   |  
|PART II. |  | OTHER INFORMATION     |  |                                                                                               |                                                            | 
|         |  |                       |  | Item 1. Legal proceedings                                                                     |                                                            |  | 41   |  
|         |  |                       |  | Item 2. Changes in securities and use of proceeds                                             |                                                            |  | 41   |  
|         |  |                       |  | Item 3. Defaults upon senior securities                                                       |                                                            |  | 41   |  
|         |  |                       |  | Item 4. Submission of matters to a vote of security holders                                   |                                                            |  | 41   |  
|         |  |                       |  | Item 5. Other information                                                                     |                                                            |  | 42   |  
|         |  |                       |  | Item 6. Exhibits and reports on Form 8-K                                                      |                                                            |  | 42   |  
|         |  |                       |  | Signatures                                                                                    |                                                            |  | 43   |  
|         |  |                       |  | Exhibits                                                                                      |                                                            |  | 44   |  

2



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##### Table of Contents






BANKNORTH GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data) (Unaudited)

|                                                                                                                               |                                           |                                            |                      |            |               |            |                   |            |            |            | 
|------------------------------------------------------------------------------------------------------------------------------ | ----------------------------------------- | ------------------------------------------ | -------------------- | ---------- | ------------- | ---------- | ----------------- | ---------- | ---------- | ---------- | 
|                                                                                                                               |                                           |                                            |                      |            | June 30, 2003 |            | December 31, 2002
|                                                                                                                               |                                           |                                            |                      |            |               |            |                  
|Assets                                                                                                                         |                                           |                                            |                      |            |               |            |                   |           
|Cash and due from banks                                                                                                        |                                           | $                                          | 661,103              |            |               | $          | 690,250           |           
|Federal funds sold and other short term investments                                                                            |                                           |                                            | 2,968                |            |               |            | 79,753            |           
|Securities available for sale, at market value                                                                                 |                                           |                                            | 6,992,917            |            |               |            | 6,731,467         |           
|Securities held to maturity (fair value of $172,339 and $221,571 at June 30, 2003
and December 31, 2002, respectively)         |                                           |                                            | 166,239              |            |               |            | 216,409           |           
|Loans held for sale                                                                                                            |                                           |                                            | 92,795               |            |               |            | 128,622           |           
|Loans and leases:                                                                                                              |                                           |                                            |                      |            |               |            |                   |           
|                                                                                                                               | Residential real estate mortgages         |                                            |                      | 2,852,991  |               |            |                   | 2,382,197  |           
|                                                                                                                               | Commercial real estate mortgages          |                                            |                      | 5,140,130  |               |            |                   | 4,792,049  |           
|                                                                                                                               | Commercial business loans and leases      |                                            |                      | 3,229,718  |               |            |                   | 2,968,474  |           
|                                                                                                                               | Consumer loans and leases                 |                                            |                      | 4,510,473  |               |            |                   | 3,913,288  |           
|                                                                                                                               |                                           |                                            |                      |            |               |            |                   |           
|                                                                                                                               |                                           | Total loans and leases                     |                      |            | 15,733,312    |            |                   |            | 14,056,008 |           
|                                                                                                                               | Less: Allowance for loan and lease losses |                                            |                      | 227,240    |               |            |                   | 208,273    |           
|                                                                                                                               |                                           |                                            |                      |            |               |            |                   |           
|                                                                                                                               |                                           |                                            | Net loans and leases |            |               | 15,506,072 |                   |            |            | 13,847,735 | 
|                                                                                                                               |                                           |                                            |                      |            |               |            |                   |           
|Premises and equipment, net                                                                                                    |                                           |                                            | 271,124              |            |               |            | 271,677           |           
|Goodwill                                                                                                                       |                                           |                                            | 1,092,345            |            |               |            | 660,684           |           
|Identifiable intangible assets                                                                                                 |                                           |                                            | 38,986               |            |               |            | 34,474            |           
|Mortgage servicing rights                                                                                                      |                                           |                                            | 2,973                |            |               |            | 3,598             |           
|Bank-owned life insurance                                                                                                      |                                           |                                            | 476,470              |            |               |            | 380,405           |           
|Other assets                                                                                                                   |                                           |                                            | 446,118              |            |               |            | 373,867           |           
|                                                                                                                               |                                           |                                            |                      |            |               |            |                   |           
|                                                                                                                               | Total assets                              |                                            | $                    | 25,750,110 |               |            | $                 | 23,418,941 |           
|                                                                                                                               |                                           |                                            |                      |            |               |            |                   |           
|Liabilities and Shareholders Equity                                                                                           |                                           |                                            |                      |            |               |            |                   |           
|Deposits:                                                                                                                      |                                           |                                            |                      |            |               |            |                   |           
|                                                                                                                               | Savings accounts                          |                                            | $                    | 2,472,816  |               |            | $                 | 1,940,195  |           
|                                                                                                                               | Money market access and NOW accounts      |                                            |                      | 6,759,000  |               |            |                   | 6,091,429  |           
|                                                                                                                               | Certificates of deposit                   |                                            |                      | 5,122,392  |               |            |                   | 4,658,778  |           
|                                                                                                                               | Demand deposits                           |                                            |                      | 3,340,408  |               |            |                   | 2,974,199  |           
|                                                                                                                               |                                           |                                            |                      |            |               |            |                   |           
|                                                                                                                               |                                           | Total deposits                             |                      |            | 17,694,616    |            |                   |            | 15,664,601 |           
|Short-term borrowings                                                                                                          |                                           |                                            | 1,111,500            |            |               |            | 1,276,467         |           
|Long-term debt                                                                                                                 |                                           |                                            | 3,505,200            |            |               |            | 3,861,058         |           
|Company obligated, mandatorily redeemable securities of subsidiary trusts
holding solely parent junior subordinated debentures |                                           |                                            | 295,056              |            |               |            | 295,056           |           
|Other liabilities                                                                                                              |                                           |                                            | 679,987              |            |               |            | 258,274           |           
|                                                                                                                               |                                           |                                            |                      |            |               |            |                   |           
|                                                                                                                               | Total liabilities                         |                                            |                      | 23,286,359 |               |            |                   | 21,355,456 |           
|                                                                                                                               |                                           |                                            |                      |            |               |            |                   |           
|Shareholders Equity:                                                                                                          |                                           |                                            |                      |            |               |            |                   |           
|Preferred stock (par value $0.01 per share, 5,000,000 shares authorized,
none issued)                                          |                                           |                                            |                     |            |               |            |                  |           
|Common stock (par value $0.01 per share, 400,000,000 shares authorized,
Issued 2003 - 182,292,973; Issued 2002 - 168,892,284)  |                                           |                                            | 1,823                |            |               |            | 1,689             |           
|Paid-in capital                                                                                                                |                                           |                                            | 1,436,016            |            |               |            | 1,059,778         |           
|Retained earnings                                                                                                              |                                           |                                            | 1,388,048            |            |               |            | 1,269,422         |           
|Treasury stock, at cost (21,450,050 shares in 2003 and 18,313,517 shares in 2002)                                              |                                           |                                            | (459,061             | )          |               |            | (382,350          | )         
|Accumulated other comprehensive income                                                                                         |                                           |                                            | 96,925               |            |               |            | 114,946           |           
|                                                                                                                               |                                           |                                            |                      |            |               |            |                   |           
|                                                                                                                               | Total shareholders equity                |                                            |                      | 2,463,751  |               |            |                   | 2,063,485  |           
|                                                                                                                               |                                           |                                            |                      |            |               |            |                   |           
|                                                                                                                               |                                           | Total liabilities and shareholders equity |                      | $          | 25,750,110    |            |                   | $          | 23,418,941 |           
|                                                                                                                               |                                           |                                            |                      |            |               |            |                   |           

See accompanying Notes to unaudited Consolidated Financial Statements.

3



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BANKNORTH GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data) (Unaudited)

|                                     |                                                |                                                               |         |                    |         |                  |         |         |         |      |         |         |         |   |         |         |         | 
|------------------------------------ | ---------------------------------------------- | ------------------------------------------------------------- | ------- | ------------------ | ------- | ---------------- | ------- | ------- | ------- | ---- | ------- | ------- | ------- | - | ------- | ------- | ------- | 
|                                     |                                                |                                                               |         | Three Months Ended |         | Six Months Ended
|                                     |                                                |                                                               |         | June 30,           |         | June 30,        
|                                     |                                                |                                                               |         |                    |         |                 
|                                     |                                                |                                                               |         | 2003               |         | 2002             |         | 2003    |         | 2002
|                                     |                                                |                                                               |         |                    |         |                  |         |         |         |     
|Interest and dividend income:        |                                                |                                                               |         |                    |         |                  |         |         |         |      |         |         |         |   |         |        
|                                     | Interest and fees on loans and leases          |                                                               | $       | 225,809            |         |                  | $       | 218,981 |         |      | $       | 446,094 |         |   | $       | 440,764 |        
|                                     | Interest and dividends on securities           |                                                               |         | 76,669             |         |                  |         | 90,406  |         |      |         | 165,711 |         |   |         | 174,629 |        
|                                     |                                                |                                                               |         |                    |         |                  |         |         |         |      |         |         |         |   |         |        
|                                     |                                                | Total interest and dividend income                            |         |                    | 302,478 |                  |         |         | 309,387 |      |         |         | 611,805 |   |         |         | 615,393 | 
|                                     |                                                |                                                               |         |                    |         |                  |         |         |         |      |         |         |         |   |         |        
|Interest expense:                    |                                                |                                                               |         |                    |         |                  |         |         |         |      |         |         |         |   |         |        
|                                     | Interest on deposits                           |                                                               |         | 50,734             |         |                  |         | 61,466  |         |      |         | 102,126 |         |   |         | 126,307 |        
|                                     | Interest on borrowed funds                     |                                                               |         | 40,170             |         |                  |         | 48,448  |         |      |         | 91,969  |         |   |         | 93,127  |        
|                                     |                                                |                                                               |         |                    |         |                  |         |         |         |      |         |         |         |   |         |        
|                                     |                                                | Total interest expense                                        |         |                    | 90,904  |                  |         |         | 109,914 |      |         |         | 194,095 |   |         |         | 219,434 | 
|                                     |                                                |                                                               |         |                    |         |                  |         |         |         |      |         |         |         |   |         |        
|                                     |                                                | Net interest income                                           |         |                    | 211,574 |                  |         |         | 199,473 |      |         |         | 417,710 |   |         |         | 395,959 | 
|Provision for loan and lease losses  |                                                |                                                               | 10,500  |                    |         |                  | 10,829  |         |         |      | 21,401  |         |         |   | 22,656  |        
|                                     |                                                |                                                               |         |                    |         |                  |         |         |         |      |         |         |         |   |         |        
|                                     |                                                | Net interest income after provision
for loan and lease losses |         |                    | 201,074 |                  |         |         | 188,644 |      |         |         | 396,309 |   |         |         | 373,303 | 
|                                     |                                                |                                                               |         |                    |         |                  |         |         |         |      |         |         |         |   |         |        
|Noninterest income:                  |                                                |                                                               |         |                    |         |                  |         |         |         |      |         |         |         |   |         |        
|                                     | Deposit services                               |                                                               |         | 23,747             |         |                  |         | 19,936  |         |      |         | 46,273  |         |   |         | 38,896  |        
|                                     | Insurance brokerage commissions                |                                                               |         | 10,948             |         |                  |         | 10,060  |         |      |         | 23,305  |         |   |         | 20,215  |        
|                                     | Merchant and electronic banking income, net    |                                                               |         | 11,210             |         |                  |         | 9,660   |         |      |         | 20,328  |         |   |         | 17,410  |        
|                                     | Trust and investment management services       |                                                               |         | 7,957              |         |                  |         | 8,519   |         |      |         | 15,309  |         |   |         | 16,796  |        
|                                     | Bank-owned life insurance                      |                                                               |         | 5,826              |         |                  |         | 4,994   |         |      |         | 11,168  |         |   |         | 9,371   |        
|                                     | Investment planning services                   |                                                               |         | 3,911              |         |                  |         | 2,964   |         |      |         | 7,167   |         |   |         | 5,681   |        
|                                     | Net securities gains                           |                                                               |         | 33,423             |         |                  |         | 350     |         |      |         | 36,206  |         |   |         | 369     |        
|                                     | Other noninterest income                       |                                                               |         | 18,806             |         |                  |         | 6,503   |         |      |         | 34,311  |         |   |         | 15,824  |        
|                                     |                                                |                                                               |         |                    |         |                  |         |         |         |      |         |         |         |   |         |        
|                                     |                                                |                                                               | 115,828 |                    |         |                  | 62,986  |         |         |      | 194,067 |         |         |   | 124,562 |        
|                                     |                                                |                                                               |         |                    |         |                  |         |         |         |      |         |         |         |   |         |        
|Noninterest expenses:                |                                                |                                                               |         |                    |         |                  |         |         |         |      |         |         |         |   |         |        
|                                     | Compensation and employee benefits             |                                                               |         | 82,248             |         |                  |         | 75,747  |         |      |         | 162,941 |         |   |         | 151,044 |        
|                                     | Data processing                                |                                                               |         | 10,415             |         |                  |         | 9,843   |         |      |         | 20,593  |         |   |         | 20,425  |        
|                                     | Occupancy                                      |                                                               |         | 15,154             |         |                  |         | 12,785  |         |      |         | 30,063  |         |   |         | 25,284  |        
|                                     | Equipment                                      |                                                               |         | 12,425             |         |                  |         | 9,908   |         |      |         | 23,676  |         |   |         | 19,638  |        
|                                     | Advertising and marketing                      |                                                               |         | 5,957              |         |                  |         | 4,237   |         |      |         | 11,017  |         |   |         | 8,215   |        
|                                     | Amortization of identifiable intangible assets |                                                               |         | 2,306              |         |                  |         | 1,143   |         |      |         | 4,302   |         |   |         | 2,727   |        
|                                     | Merger and consolidation costs                 |                                                               |         | 1,530              |         |                  |         | 1,061   |         |      |         | 5,981   |         |   |         | 9,265   |        
|                                     | Prepayment penalties on borrowings             |                                                               |         | 30,490             |         |                  |         |        |         |      |         | 30,490  |         |   |         |        |        
|                                     | Other noninterest expenses                     |                                                               |         | 23,514             |         |                  |         | 22,067  |         |      |         | 44,883  |         |   |         | 43,090  |        
|                                     |                                                |                                                               |         |                    |         |                  |         |         |         |      |         |         |         |   |         |        
|                                     |                                                |                                                               | 184,039 |                    |         |                  | 136,791 |         |         |      | 333,946 |         |         |   | 279,688 |        
|                                     |                                                |                                                               |         |                    |         |                  |         |         |         |      |         |         |         |   |         |        
|Income before income tax expense     |                                                |                                                               | 132,863 |                    |         |                  | 114,839 |         |         |      | 256,430 |         |         |   | 218,177 |        
|Applicable income tax expense        |                                                |                                                               | 45,338  |                    |         |                  | 38,680  |         |         |      | 87,511  |         |         |   | 73,539  |        
|                                     |                                                |                                                               |         |                    |         |                  |         |         |         |      |         |         |         |   |         |        
|                                     |                                                | Net income                                                    |         | $                  | 87,525  |                  |         | $       | 76,159  |      |         | $       | 168,919 |   |         | $       | 144,638 | 
|                                     |                                                |                                                               |         |                    |         |                  |         |         |         |      |         |         |         |   |         |        
|Basic earnings per share             |                                                | $                                                             | 0.54    |                    |         | $                | 0.52    |         |         | $    | 1.06    |         |         | $ | 0.98    |        
|Diluted earnings per share           |                                                | $                                                             | 0.53    |                    |         | $                | 0.51    |         |         | $    | 1.04    |         |         | $ | 0.96    |        
|Weighted average shares outstanding: |                                                |                                                               |         |                    |         |                  |         |         |         |      |         |         |         |   |         |        
|                                     |                                                | Basic                                                         |         |                    | 162,312 |                  |         |         | 147,233 |      |         |         | 159,980 |   |         |         | 148,258 | 
|                                     |                                                | Diluted                                                       |         |                    | 164,559 |                  |         |         | 149,064 |      |         |         | 161,898 |   |         |         | 150,068 | 

See accompanying Notes to unaudited Consolidated Financial Statements.

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##### Table of Contents






BANKNORTH GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS EQUITY
(In thousands) (Unaudited)

|                                                                                              |                      |  |             |   |        |   |         |  |          |   |           |   |          |   |               |   |          |   |         |   |  |  |           |   |  |   |             |   |  |   |           |         | 
|--------------------------------------------------------------------------------------------- | -------------------- |  | ----------- | - | ------ | - | ------- |  | -------- | - | --------- | - | -------- | - | ------------- | - | -------- | - | ------- | - |  |  | --------- | - |  | - | ----------- | - |  | - | --------- | ------- | 
|                                                                                              |                      |  |             |   |        |   |         |  |          |   |           |   |          |   |               |   |          |   |         |   |  |  |           |   |  |   | Accumulated |   |  |   |          
|                                                                                              |                      |  | Common      |   |        |   |         |  |          |   |           |   |          |   |               |   | Unearned |   |         |   |  |  | Other     |   |  |   |            
|                                                                                              |                      |  | Shares      |   | Common |   | Paid-in |  | Retained |   | Compen-   |   | Treasury |   | Comprehensive |   |          |   |        
|                                                                                              |                      |  | Outstanding |   | Stock  |   | Capital |  | Earnings |   | sation    |   | Stock    |   | Income (Loss) |   | Total   
|                                                                                              |                      |  |             |   |        |   |         |  |          |   |           |   |          |   |               |   |         
|Balances at December 31, 2002                                                                 |                      |  | 150,579     |   |        | $ | 1,689   |  |          | $ | 1,059,778 |   |          | $ | 1,269,422     |   |          | $ |        |   |  |  | ($382,350 | ) |  | $ | 114,946     |   |  | $ | 2,063,485 |        
|Net income                                                                                    |                      |  |            |   |        |   |        |  |          |   |          |   |          |   | 168,919       |   |          |   |        |   |  |  |          |   |  |   |            |   |  |   | 168,919   |        
|Unrealized loss on available for sale securities, net of
tax and reclassification adjustment  |                      |  |            |   |        |   |        |  |          |   |          |   |          |   |              |   |          |   |        |   |  |  |          |   |  |   | (19,176     | ) |  |   | (19,176   | )      
|Unrealized gain on cash flow hedges,
net of tax and reclassification adjustment               |                      |  |            |   |        |   |        |  |          |   |          |   |          |   |              |   |          |   |        |   |  |  |          |   |  |   | 1,155       |   |  |   | 1,155     |        
|                                                                                              |                      |  |             |   |        |   |         |  |          |   |           |   |          |   |               |   |          |   |         |   |  |  |           |   |  |   |             |   |  |   |           |        
|                                                                                              | Comprehensive income |  |             |   |        |   |         |  |          |   |           |   |          |   |               |   |          |   |         |   |  |  |           |   |  |   |             |   |  |   |           | 150,898 | 
|Issuance of stock and options exchanged
for acquisitions                                      |                      |  | 13,401      |   |        |   | 134     |  |          |   | 382,669   |   |          |   |              |   |          |   |        |   |  |  |          |   |  |   |            |   |  |   | 382,803   |        
|Treasury stock issued for employee benefit plans                                              |                      |  | 1,279       |   |        |   |        |  |          |   | (5,508    | ) |          |   |              |   |          |   |        |   |  |  | 25,634    |   |  |   |            |   |  |   | 20,126    |        
|Treasury stock purchased                                                                      |                      |  | (4,416      | ) |        |   |        |  |          |   |          |   |          |   |              |   |          |   |        |   |  |  | (103,663  | ) |  |   |            |   |  |   | (103,663  | )      
|Distribution of restricted stock                                                              |                      |  |            |   |        |   |        |  |          |   | (923      | ) |          |   |              |   |          |   |        |   |  |  | 1,318     |   |  |   |            |   |  |   | 395       |        
|Cash dividends declared                                                                       |                      |  |            |   |        |   |        |  |          |   |          |   |          |   | (50,293       | ) |          |   |        |   |  |  |          |   |  |   |            |   |  |   | (50,293   | )      
|                                                                                              |                      |  |             |   |        |   |         |  |          |   |           |   |          |   |               |   |          |   |         |   |  |  |           |   |  |   |             |   |  |   |           |        
|Balances at June 30, 2003                                                                     |                      |  | 160,843     |   |        | $ | 1,823   |  |          | $ | 1,436,016 |   |          | $ | 1,388,048     |   |          | $ |        |   |  |  | ($459,061 | ) |  | $ | 96,925      |   |  | $ | 2,463,751 |        
|                                                                                              |                      |  |             |   |        |   |         |  |          |   |           |   |          |   |               |   |          |   |         |   |  |  |           |   |  |   |             |   |  |   |           |        
|Balances at December 31, 2001                                                                 |                      |  | 151,221     |   |        | $ | 1,651   |  |          | $ | 958,764   |   |          | $ | 1,056,678     |   |          |   | ($1,017 | ) |  |  | ($267,529 | ) |  | $ | 40,568      |   |  | $ | 1,789,115 |        
|Net income                                                                                    |                      |  |            |   |        |   |        |  |          |   |          |   |          |   | 144,638       |   |          |   |        |   |  |  |          |   |  |   |            |   |  |   | 144,638   |        
|Unrealized gain on available for sales securities, net of
tax and reclassification adjustment |                      |  |             |   |        |   |        |  |          |   |          |   |          |   |              |   |          |   |        |   |  |  |          |   |  |   | 36,110      |   |  |   | 36,110    |        
|Unrealized loss on cash flow hedges,
net of tax and reclassification adjustment               |                      |  |            |   |        |   |        |  |          |   |          |   |          |   |              |   |          |   |        |   |  |  |          |   |  |   | (775        | ) |  |   | (775      | )      
|                                                                                              |                      |  |             |   |        |   |         |  |          |   |           |   |          |   |               |   |          |   |         |   |  |  |           |   |  |   |             |   |  |   |           |        
|                                                                                              | Comprehensive income |  |             |   |        |   |         |  |          |   |           |   |          |   |               |   |          |   |         |   |  |  |           |   |  |   |             |   |  |   |           | 179,973 | 
|Treasury stock issued for employee benefit plans                                              |                      |  | 1,689       |   |        |   |        |  |          |   | (6,580    | ) |          |   |              |   |          |   |        |   |  |  | 32,609    |   |  |   |            |   |  |   | 26,029    |        
|Treasury stock purchased                                                                      |                      |  | (5,815      | ) |        |   |        |  |          |   |          |   |          |   |              |   |          |   |        |   |  |  | (141,026  | ) |  |   |            |   |  |   | (141,026  | )      
|Distribution of restricted stock                                                              |                      |  |            |   |        |   |        |  |          |   | (899      | ) |          |   |              |   |          |   |        |   |  |  | 1,529     |   |  |   |            |   |  |   | 630       |        
|Decrease in unearned compensation-ESOP                                                        |                      |  |            |   |        |   |        |  |          |   | 3,930     |   |          |   |              |   |          |   | 646     |   |  |  |          |   |  |   |            |   |  |   | 4,576     |        
|Cash dividends declared                                                                       |                      |  |            |   |        |   |        |  |          |   |          |   |          |   | (41,561       | ) |          |   |        |   |  |  |          |   |  |   |            |   |  |   | (41,561   | )      
|                                                                                              |                      |  |             |   |        |   |         |  |          |   |           |   |          |   |               |   |          |   |         |   |  |  |           |   |  |   |             |   |  |   |           |        
|Balances at June 30, 2002                                                                     |                      |  | 147,095     |   |        | $ | 1,651   |  |          | $ | 955,215   |   |          | $ | 1,159,755     |   |          |   | ($371   | ) |  |  | ($374,417 | ) |  | $ | 75,903      |   |  | $ | 1,817,736 |        
|                                                                                              |                      |  |             |   |        |   |         |  |          |   |           |   |          |   |               |   |          |   |         |   |  |  |           |   |  |   |             |   |  |   |           |        

See accompanying Notes to unaudited Consolidated Financial Statements.

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BANKNORTH GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands) (Unaudited)

|                                                                                                                                                   |                                                                                    |                                                               |            |                  |          |      |          |            |          |  
|-------------------------------------------------------------------------------------------------------------------------------------------------- | ---------------------------------------------------------------------------------- | ------------------------------------------------------------- | ---------- | ---------------- | -------- | ---- | -------- | ---------- | -------- | -
|                                                                                                                                                   |                                                                                    |                                                               |            | Six Months Ended
|                                                                                                                                                   |                                                                                    |                                                               |            | June 30,        
|                                                                                                                                                   |                                                                                    |                                                               |            |                 
|                                                                                                                                                   |                                                                                    |                                                               |            | 2003             |          | 2002
|                                                                                                                                                   |                                                                                    |                                                               |            |                  |          |     
|Cash flows from operating activities:                                                                                                              |                                                                                    |                                                               |            |                  |          |      |          |           
|                                                                                                                                                   | Net income                                                                         |                                                               | $          | 168,919          |          |      | $        | 144,638    |         
|                                                                                                                                                   | Adjustments to reconcile net income to net cash provided by operating activities:  |                                                               |            |                  |          |      |          |            |         
|                                                                                                                                                   |                                                                                    | Provision for loan and lease losses                           |            |                  | 21,401   |      |          |            | 22,657   |  
|                                                                                                                                                   |                                                                                    | Depreciation and amortization                                 |            |                  | 21,729   |      |          |            | 17,304   |  
|                                                                                                                                                   |                                                                                    | Amortization of other intangibles                             |            |                  | 4,302    |      |          |            | 2,727    |  
|                                                                                                                                                   |                                                                                    | Provision for deferred tax expense                            |            |                  | 3,700    |      |          |            | 7,959    |  
|                                                                                                                                                   |                                                                                    | ESOP expense                                                  |            |                  |         |      |          |            | 4,576    |  
|                                                                                                                                                   |                                                                                    | Distribution of restricted stock units                        |            |                  | 395      |      |          |            | 630      |  
|                                                                                                                                                   |                                                                                    | Net (gains) realized from sales of securities                 |            |                  | (36,206  | )    |          |            | (369     | )
|                                                                                                                                                   |                                                                                    | Prepayment penalties on borrowings                            |            |                  | 30,490   |      |          |            |         |  
|                                                                                                                                                   |                                                                                    | Net (gains) realized from sales of loans held for sale        |            |                  | (7,355   | )    |          |            | (3,640   | )
|                                                                                                                                                   |                                                                                    | Increase in cash surrender value of bank owned life insurance |            |                  | (11,168  | )    |          |            | (9,371   | )
|                                                                                                                                                   |                                                                                    | Net decrease in mortgage servicing rights                     |            |                  | 1,097    |      |          |            | 906      |  
|                                                                                                                                                   |                                                                                    | Proceeds from sales of loans held for sale                    |            |                  | 483,272  |      |          |            | 361,989  |  
|                                                                                                                                                   |                                                                                    | Residential loans originated and purchased for sale           |            |                  | (438,313 | )    |          |            | (293,906 | )
|                                                                                                                                                   |                                                                                    | Net decrease (increase) in other assets                       |            |                  | 22,283   |      |          |            | (9,593   | )
|                                                                                                                                                   |                                                                                    | Net (decrease) increase in other liabilities                  |            |                  | (56,364  | )    |          |            | 12,257   |  
|                                                                                                                                                   |                                                                                    |                                                               |            |                  |          |      |          |           
|Net cash provided by operating activities                                                                                                          |                                                                                    |                                                               | 208,182    |                  |          |      | 258,764  |           
|                                                                                                                                                   |                                                                                    |                                                               |            |                  |          |      |          |           
|Cash flows from investing activities:                                                                                                              |                                                                                    |                                                               |            |                  |          |      |          |           
|                                                                                                                                                   | Proceeds from sales of securities available for sale                               |                                                               |            | 2,266,179        |          |      |          | 412,082    |         
|                                                                                                                                                   | Proceeds from maturities and principal repayments of securities available for sale |                                                               |            | 1,763,764        |          |      |          | 1,067,613  |         
|                                                                                                                                                   | Purchases of securities available for sale                                         |                                                               |            | (3,201,527       | )        |      |          | (1,947,973 | )       
|                                                                                                                                                   | Proceeds from maturities and principal repayments of securities held to maturity   |                                                               |            | 50,170           |          |      |          | 57,955     |         
|                                                                                                                                                   | Net (increase) in loans and leases                                                 |                                                               |            | (242,459         | )        |      |          | (356,846   | )       
|                                                                                                                                                   | Net additions to premises and equipment                                            |                                                               |            | (9,412           | )        |      |          | (17,870    | )       
|                                                                                                                                                   | Purchases of bank owned life insurance                                             |                                                               |            |                 |          |      |          | (40,000    | )       
|                                                                                                                                                   | Cash paid for acquisitions, net of cash acquired                                   |                                                               |            | 48,354           |          |      |          |           |         
|                                                                                                                                                   |                                                                                    |                                                               |            |                  |          |      |          |           
|Net cash provided (used) by investing activities                                                                                                   |                                                                                    |                                                               | 675,069    |                  |          |      | (825,039 | )         
|                                                                                                                                                   |                                                                                    |                                                               |            |                  |          |      |          |           
|Cash flows from financing activities:                                                                                                              |                                                                                    |                                                               |            |                  |          |      |          |           
|                                                                                                                                                   | Net increase in deposits                                                           |                                                               |            | 110,171          |          |      |          | 182,529    |         
|                                                                                                                                                   | Net increase in securities sold under repurchase agreements                        |                                                               |            | 37,416           |          |      |          | 221,640    |         
|                                                                                                                                                   | Proceeds from Federal Home Loan Bank borrowings                                    |                                                               |            | 1,205            |          |      |          | 3,555      |         
|                                                                                                                                                   | Payments on Federal Home Loan Bank borrowings                                      |                                                               |            | (1,203,168       | )        |      |          | (180,282   | )       
|                                                                                                                                                   | Net increase in other borrowings                                                   |                                                               |            | 330              |          |      |          | 27,586     |         
|                                                                                                                                                   | Issuance of senior notes, net                                                      |                                                               |            | 148,693          |          |      |          |           |         
|                                                                                                                                                   | Issuance of securities of subsidiary trusts, net                                   |                                                               |            |                 |          |      |          | 193,150    |         
|                                                                                                                                                   | Issuance of common stock                                                           |                                                               |            | 20,126           |          |      |          | 26,029     |         
|                                                                                                                                                   | Purchase of treasury stock                                                         |                                                               |            | (103,663         | )        |      |          | (141,026   | )       
|                                                                                                                                                   | Cash dividends paid to shareholders                                                |                                                               |            | (50,293          | )        |      |          | (41,561    | )       
|                                                                                                                                                   |                                                                                    |                                                               |            |                  |          |      |          |           
|Net cash (used) provided by financing activities                                                                                                   |                                                                                    |                                                               | (1,039,183 | )                |          |      | 291,620  |           
|                                                                                                                                                   |                                                                                    |                                                               |            |                  |          |      |          |           
|Increase (decrease) in cash and cash equivalents                                                                                                   |                                                                                    |                                                               | (155,932   | )                |          |      | (274,655 | )         
|                                                                                                                                                   | Cash and cash equivalents at beginning of period                                   |                                                               |            | 717,003          |          |      |          | 871,211    |         
|                                                                                                                                                   |                                                                                    |                                                               |            |                  |          |      |          |           
|                                                                                                                                                   | Cash and cash equivalents at end of period                                         |                                                               | $          | 561,071          |          |      | $        | 596,556    |         
|                                                                                                                                                   |                                                                                    |                                                               |            |                  |          |      |          |           
|For the six months ended June 30, 2003 and 2002, interest of $199,373 and
$217,021 and income taxes of $45,053 and $32,773 were paid, respectively |                                                                                    |                                                               |            |                  |          |      |          |           

See accompanying Notes to unaudited Consolidated Financial Statements.

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BANKNORTH GROUP, INC. AND SUBSIDIARIES




Notes to Consolidated Financial Statements
June 30, 2003
(In thousands, except per share data and as noted) (Unaudited)


Note 1 - Basis of Presentation

The accompanying unaudited consolidated financial statements have been prepared
in accordance with accounting principles generally accepted in the United
States of America and predominant practices within the banking industry.
Banknorth Group, Inc. (Banknorth) has not changed its significant accounting
and reporting policies from those disclosed in its 2002 Annual Report. There
have been no significant changes in the methods or assumptions used in the
accounting policies which require material estimates and assumptions.

In the opinion of management, all adjustments (consisting of normal recurring
accruals) necessary for a fair presentation of the unaudited consolidated
financial statements have been included herein. The results of operations for
the three and six months ended June 30, 2003 are not necessarily indicative of
the results that may be expected for any other interim period or the entire
year ending December 31, 2003. Certain amounts in the prior periods have been
reclassified to conform to the current presentation. All significant
intercompany balances and transactions have been eliminated in the accompanying
unaudited consolidated financial statements.

Note 2  Acquisitions

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

|                                  |  |             |            |        |  |                  |         |          |  |              |       |       |  |                           |       |          |  |   |     |  |  |       |       |  |  |  |      |  |  |   |       | 
|--------------------------------- |  | ----------- | ---------- | ------ |  | ---------------- | ------- | -------- |  | ------------ | ----- | ----- |  | ------------------------- | ----- | -------- |  | - | --- |  |  | ----- | ----- |  |  |  | ---- |  |  | - | ----- | 
|                                  |  |             |            |        |  |                  |         |          |  |              |       |       |  | Transaction Related Items
|                                  |  |             |            |        |  | Balance at       |         |         
|                                  |  |             |            |        |  | Acquisition Date |         |          |  |              |       | Other |  |                           |       |          |  |   |     |  |  | Total
|                                  |  | Acquisition |            |        |  |                  |         |          |  | Identifiable |       | Cash  |  | Shares                    |       | Purchase
|(Dollars and shares in millions)  |  | Date        |            | Assets |  | Equity           |         | Goodwill |  | Intangibles  |       | Paid  |  | Issued                    |       | Price   
|                                  |  |             |            |        |  |                  |         |          |  |              |       |       |  |                           |       |         
|American Financial Holdings, Inc. |  |             | 2/14/2003  |        |  | $                | 2,690.3 |          |  | $            | 408.2 |       |  | $                         | 427.0 |          |  | $ | 9.2 |  |  | $     | 328.5 |  |  |  | 13.4 |  |  | $ | 711.3 | 
|Warren Bancorp, Inc.              |  |             | 12/31/2002 |        |  |                  | 466.1   |          |  |              | 45.3  |       |  |                           | 91.8  |          |  |   | 2.7 |  |  |       | 59.8  |  |  |  | 2.7  |  |  |   | 136.6 | 
|Bancorp Connecticut, Inc.         |  |             | 8/31/2002  |        |  |                  | 661.7   |          |  |              | 61.4  |       |  |                           | 97.4  |          |  |   | 8.7 |  |  |       | 161.2 |  |  |  |     |  |  |   | 154.2 | 
|Ipswich Bancshares, Inc.          |  |             | 7/26/2002  |        |  |                  | 318.0   |          |  |              | 13.9  |       |  |                           | 23.5  |          |  |   | 4.8 |  |  |       | 19.9  |  |  |  | 0.9  |  |  |   | 40.1  | 
|Insurance agency acquisition      |  |             | 7/2/2002   |        |  |                  | 2.5     |          |  |              |      |       |  |                           | 5.6   |          |  |   | 2.2 |  |  |       |      |  |  |  | 0.2  |  |  |   | 7.4   | 

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The following table summarizes the estimated fair value of the assets acquired
and liabilities assumed for American Financial Holdings, Inc. (American) at
the date of acquisition.

|                          |                           |   |           |           | 
|------------------------- | ------------------------- | - | --------- | --------- | 
|Assets:                   |                           |   |           |          
|Investments               |                           | $ | 608,291   |          
|Loans and leases, net     |                           |   | 1,437,279 |          
|Premises and equipment    |                           |   | 11,764    |          
|Mortgage servicing rights |                           |   | 472       |          
|Goodwill                  |                           |   | 426,975   |          
|Other intangibles         |                           |   | 9,241     |          
|Other assets              |                           |   | 542,850   |          
|                          |                           |   |           |          
|                          | Total assets acquired     |   |           | 3,036,872 | 
|                          |                           |   |           |          
|Liabilities:              |                           |   |           |          
|Deposits                  |                           |   | 1,923,154 |          
|Borrowings                |                           |   | 399,960   |          
|Other liabilities         |                           |   | 2,412     |          
|                          |                           |   |           |          
|                          | Total liabilities assumed |   |           | 2,325,526 | 
|                          |                           |   |           |          
|                          | Net assets acquired       |   | $         | 711,346   | 
|                          |                           |   |           |          

Banknorth expects that some adjustments of the estimated fair values assigned
to the assets acquired and liabilities assumed at the acquisition date will be
recorded after June 30, 2003, although such adjustments are not expected to be
significant.

On February 14, 2003, the date of acquisition of American, Banknorth accrued
$13.0 million ($8.5 million after-tax) of merger-related costs for severance,
contract terminations, and asset write-downs with an offsetting charge to
goodwill. Total merger charges related to the American acquisition recorded as
an expense by Banknorth totaled $5.2 million ($3.4 million after-tax), of which
$4.3 million ($2.8 million after-tax) was recorded in 2003.

Note 3  Stock Compensation Plans

Statement of Financial Accounting Standards (SFAS) No. 123, Accounting for
Stock-Based Compensation encourages all entities to adopt a fair value based
method of accounting for employee stock compensation plans, whereby
compensation cost is measured at the grant date based on the fair value of the
award and is recognized over the service period, which is usually the vesting
period. However, it also allows an entity to continue to measure compensation
cost for those plans using the intrinsic value based method of accounting
prescribed by APB Opinion No. 25, Accounting for Stock Issued to Employees,
whereby compensation cost is the excess, if any, of the quoted market price of
the underlying stock at the grant date (or other measurement date) over the
amount an employee must pay to acquire the stock upon exercise of the stock
option. Banknorth has elected to continue using the intrinsic value method in
Opinion No. 25 and, as a result, must make pro forma disclosures of net income
and earnings per share as if the fair value based method of accounting had been
applied. The pro forma disclosures include the effects of all awards granted
and the effects of the employee stock purchase plan. There were 287,700 and
214,425 stock options granted under stock option plans during the six months
ended June 30, 2003 and 2002, respectively. Had Banknorth determined
compensation cost based on the fair value at the grant date for all stock
options and recorded expense related to its employee stock purchase plan under
SFAS No. 123, its net income and earnings per share would have been reduced to
the pro forma amounts indicated as follows:

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|                                                                                                                |                            |                 |          |        |                             |      |                           |        |       |      |         |        |       |      |         |        |       |      | 
|--------------------------------------------------------------------------------------------------------------- | -------------------------- | --------------- | -------- | ------ | --------------------------- | ---- | ------------------------- | ------ | ----- | ---- | ------- | ------ | ----- | ---- | ------- | ------ | ----- | ---- | 
|                                                                                                                |                            |                 |          |        | Three Months Ended June 30, |      | Six Months Ended June 30,
|                                                                                                                |                            |                 |          |        |                             |      |                          
|                                                                                                                |                            |                 |          |        | 2003                        |      | 2002                      |        | 2003  |      | 2002   
|                                                                                                                |                            |                 |          |        |                             |      |                           |        |       |      |        
|Net income, as reported                                                                                         |                            | $               | 87,525   |        |                             | $    | 76,159                    |        |       | $    | 168,919 |        |       | $    | 144,638 |       
|Deduct: Total stock-based employee
compensation expense determined under
fair value based method for all awards |                            |                 | (4,652   | )      |                             |      | (3,756                    | )      |       |      | (8,428  | )      |       |      | (6,266  | )     
|                                                                                                                |                            | Less tax effect |          |        | 1,628                       |      |                           |        | 1,315 |      |         |        | 2,950 |      |         |        | 2,193 |     
|                                                                                                                |                            |                 |          |        |                             |      |                           |        |       |      |         |        |       |      |         |       
|                                                                                                                | Net of related tax effects |                 |          | (3,024 | )                           |      |                           | (2,441 | )     |      |         | (5,478 | )     |      |         | (4,073 | )    
|                                                                                                                |                            |                 |          |        |                             |      |                           |        |       |      |         |        |       |      |         |       
|Proforma net income                                                                                             |                            | $               | 84,501   |        |                             | $    | 73,718                    |        |       | $    | 163,441 |        |       | $    | 140,565 |       
|                                                                                                                |                            |                 |          |        |                             |      |                           |        |       |      |         |        |       |      |         |       
|Earnings per share                                                                                              |                            |                 |          |        |                             |      |                           |        |       |      |         |        |       |      |         |       
|                                                                                                                | Basic - As reported        |                 | $        | 0.54   |                             |      | $                         | 0.52   |       |      | $       | 1.06   |       |      | $       | 0.98   |      
|                                                                                                                |                            |                 | Proforma |        | $                           | 0.52 |                           |        | $     | 0.50 |         |        | $     | 1.02 |         |        | $     | 0.95 | 
|                                                                                                                | Diluted - As reported      |                 | $        | 0.53   |                             |      | $                         | 0.51   |       |      | $       | 1.04   |       |      | $       | 0.96   |      
|                                                                                                                |                            |                 | Proforma |        | $                           | 0.51 |                           |        | $     | 0.49 |         |        | $     | 1.01 |         |        | $     | 0.94 | 

On April 22, 2003, the Financial Accounting Standards Board (FASB) concluded
that all companies should expense the fair value of employee stock options. On
May 7, 2003, the FASB concluded that stock-based compensation should be
accounted for using the modified grant-date measurement approach as defined in
SFAS 123; as a result, compensation cost would be adjusted to reflect actual
forfeitures and outcomes of performance conditions. The FASB plans to issue an
exposure draft later this year, which could become effective in 2004. Until a
new Statement is issued, the provisions of SFAS No. 123 remain in effect.

Note 4  Goodwill and Other Intangible Assets

The changes in the carrying amount of goodwill and identifiable intangible
assets for the six months ended June 30, 2003 are summarized as follows:

|                                                    |                |   |            |   |          |   |         |       |                                 |        |              |       |              |       |        |       |  |        | 
|--------------------------------------------------- | -------------- | - | ---------- | - | -------- | - | ------- | ----- | ------------------------------- | ------ | ------------ | ----- | ------------ | ----- | ------ | ----- |  | ------ | 
|                                                    |                |   |            |   |          |   |         |       | Indentifiable Intangible Assets
|                                                    |                |   |            |   |          |   |         |       |                                
|                                                    |                |   |            |   |          |   |         |       | Core Deposit                    |        | Other        |       | Total       
|                                                    |                |   |            |   |          |   |         |       | Intangibles                     |        | Identifiable |       | Identifiable
|                                                    |                |   |            |   | Goodwill |   | (CDI) |       | Intangibles                     |        | Intangibles 
|                                                    |                |   |            |   |          |   |         |       |                                 |        |             
|Balance, December 31, 2002                          |                | $ | 660,684    |   |          | $ | 28,438  |       |                                 | $      | 6,036        |       |              | $     | 34,474 |      
|Recorded during the year                            |                |   | 426,975    |   |          |   | 6,443   |       |                                 |        | 4,708        |       |              |       | 11,151 |      
|Adjust Warrens estimated CDI to actual             |                |   | 2,244      |   |          |   | (2,244  | )     |                                 |        |             |       |              |       | (2,244 | )    
|Amortization expense                                |                |   |           |   |          |   | (2,308  | )     |                                 |        | (1,994       | )     |              |       | (4,302 | )    
|Massachusetts REIT adjustment (see Note 11)         |                |   | 2,852      |   |          |   |        |       |                                 |        |             |       |              |       |       |      
|Other adjustments of purchase accounting estimates  |                |   | (410       | ) |          |   |        |       |                                 |        | (93          | )     |              |       | (93    | )    
|                                                    |                |   |            |   |          |   |         |       |                                 |        |              |       |              |       |        |      
|Balance, June 30, 2003                              |                | $ | 1,092,345  |   |          | $ | 30,329  |       |                                 | $      | 8,657        |       |              | $     | 38,986 |      
|                                                    |                |   |            |   |          |   |         |       |                                 |        |              |       |              |       |        |      
|Estimated amortization expense for the year ending: |                |   |            |   |          |   |         |       |                                 |        |              |       |              |       |        |      
|                                                    | Remaining 2003 |   |            |   |          |   | $       | 2,267 |                                 |        | $            | 2,344 |              |       | $      | 4,611 | 
|                                                    |                |   | 2004       |   |          |   |         |       |                                 | 3,841  |              |       |              | 2,174 |        |       |  | 6,015  | 
|                                                    |                |   | 2005       |   |          |   |         |       |                                 | 3,550  |              |       |              | 1,017 |        |       |  | 4,567  | 
|                                                    |                |   | 2006       |   |          |   |         |       |                                 | 3,364  |              |       |              | 269   |        |       |  | 3,633  | 
|                                                    |                |   | 2007       |   |          |   |         |       |                                 | 3,245  |              |       |              | 269   |        |       |  | 3,514  | 
|                                                    |                |   | thereafter |   |          |   |         |       |                                 | 14,062 |              |       |              | 673   |        |       |  | 14,735 | 

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The components of identifiable intangible assets are as follows:

|                                |       |   |                |        |              |   |              |        |  |   |        |        | 
|------------------------------- | ----- | - | -------------- | ------ | ------------ | - | ------------ | ------ |  | - | ------ | ------ | 
|                                |       |   | June 30, 2003 
|                                |       |   |               
|                                |       |   | Gross Carrying |        | Accumulated  |   | Net Carrying
|                                |       |   | Amount         |        | Amortization |   | Amount      
|                                |       |   |                |        |              |   |             
|Identifiable intangible assets: |       |   |                |        |              |   |              |        |  |   |        |       
|Core deposit intangibles        |       | $ | 54,781         |        |              | $ | 24,452       |        |  | $ | 30,329 |       
|Other identifiable intangibles  |       |   | 11,731         |        |              |   | 3,074        |        |  |   | 8,657  |       
|                                |       |   |                |        |              |   |              |        |  |   |        |       
|                                | Total |   | $              | 66,512 |              |   | $            | 27,526 |  |   | $      | 38,986 | 
|                                |       |   |                |        |              |   |              |        |  |   |        |       

Note 5  Short-term Borrowings

A summary of short-term borrowings follows:

|                                                        |  |               |           |                   |  |   |           | 
|------------------------------------------------------- |  | ------------- | --------- | ----------------- |  | - | --------- | 
|                                                        |  | June 30, 2003 |           | December 31, 2002
|                                                        |  |               |           |                  
|Securities
sold under agreements to repurchase - retail |  | $             | 1,007,493 |                   |  | $ | 1,222,466 | 
|Federal funds purchased                                 |  |               | 103,000   |                   |  |   | 53,000    | 
|Treasury, tax and loan notes                            |  |               | 1,007     |                   |  |   | 1,001     | 
|                                                        |  |               |           |                   |  |   |           | 
|                                                        |  | $             | 1,111,500 |                   |  | $ | 1,276,467 | 
|                                                        |  |               |           |                   |  |   |           | 

Note 6  Long-term Debt

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

|                                                           |  |               |           |                   |  |   |           | 
|---------------------------------------------------------- |  | ------------- | --------- | ----------------- |  | - | --------- | 
|                                                           |  | June 30, 2003 |           | December 31, 2002
|                                                           |  |               |           |                  
|Federal Home Loan Bank advances                            |  | $             | 1,634,507 |                   |  | $ | 2,482,582 | 
|Securities sold under agreements to repurchase - wholesale |  |               | 1,500,000 |                   |  |   | 1,171,049 | 
|Subordinated long-term debt 7.625%, due 2011               |  |               | 200,000   |                   |  |   | 200,000   | 
|Senior notes 3.75%, due 2008                               |  |               | 149,725   |                   |  |   |          | 
|Fair value adjustments on fair value hedges                |  |               | 13,217    |                   |  |   |          | 
|Other long-term debt                                       |  |               | 7,751     |                   |  |   | 7,427     | 
|                                                           |  |               |           |                   |  |   |           | 
|Total                                                      |  | $             | 3,505,200 |                   |  | $ | 3,861,058 | 
|                                                           |  |               |           |                   |  |   |           | 

Callable borrowings amounted to $1.9 billion and $1.0 billion at June 30, 2003
and December 31, 2002, respectively, the majority of which are long-term in
nature.

In the first quarter of 2003, Banknorth entered into an interest rate swap
agreement for $200 million to hedge the fair value of the $200 million
subordinated debt (fixed rate of 7.625% due in 2011). The effect of the hedge,
which is accounted for as a fair value hedge, was to synthetically convert this
fixed rate debt to a variable rate set at 3-month LIBOR plus 3.47%.

On April 30, 2003, Banknorth issued $150 million in 3.75% senior notes due May
1, 2008. Interest on the notes is scheduled to be paid semi-annually on May 1
and November 1 of each year and the notes are not redeemable prior to their
maturity. There are no sinking fund provisions for the notes. Also on April
30, 2003, Banknorth entered into an interest rate swap agreement of $150
million to hedge the fair value of the $150 million senior notes (fixed rate of
3.75% due in 2008). The effect of the hedge, which is accounted for as a fair
value hedge, was to synthetically convert this fixed rate debt to a variable
rate set at 3-month LIBOR plus 0.41%.

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Note 7  Share Repurchases

During the six months ended June 30, 2003, Banknorth repurchased 4.4 million
shares of its outstanding common stock at an average price of $23.47. At June
30, 2003, there were a total of 2.9 million shares remaining under existing
repurchase authorizations.

Note 8 - Comprehensive Income

The following table presents the reconciliation of transactions affecting
accumulated other comprehensive income included in shareholders equity for the
periods indicated.

|                                                                      |  |                    |         |                    |  |        |        |         |  |        |         |        |  |   |        |   |  |    |        |   |  |   |        |  
|--------------------------------------------------------------------- |  | ------------------ | ------- | ------------------ |  | ------ | ------ | ------- |  | ------ | ------- | ------ |  | - | ------ | - |  | -- | ------ | - |  | - | ------ | -
|                                                                      |  | Three Months Ended |         | Three Months Ended
|                                                                      |  | June 30, 2003      |         | June 30, 2002     
|                                                                      |  |                    |         |                   
|                                                                      |  | Pre-tax            |         | Tax                |  | Net of |        | Pre-tax |  | Tax    |         | Net of
|                                                                      |  | Amount             |         | Effect             |  | Tax    |        | Amount  |  | Effect |         | Tax   
|                                                                      |  |                    |         |                    |  |        |        |         |  |        |         |       
|Unrealized gain (loss) on securities available for sale               |  | $                  | 3,590   |                    |  | ($     | 1,256  | )       |  | $      | 2,334   |        |  | $ | 99,586 |   |  | ($ | 34,855 | ) |  | $ | 64,731 |  
|Unrealized gain (loss) on cash flow hedges                            |  |                    | (3,710  | )                  |  |        | 1,299  |         |  |        | (2,411  | )      |  |   | (1,335 | ) |  |    | 467    |   |  |   | (868   | )
|Reclassification adjustment for gains (losses) realized
in net income |  |                    | (29,363 | )                  |  |        | 10,277 |         |  |        | (19,086 | )      |  |   | (186   | ) |  |    | 65     |   |  |   | (121   | )
|                                                                      |  |                    |         |                    |  |        |        |         |  |        |         |        |  |   |        |   |  |    |        |   |  |   |        |  
|Net change in unrealized gains (losses)                               |  | ($                 | 29,483  | )                  |  | $      | 10,320 |         |  | ($     | 19,163  | )      |  | $ | 98,065 |   |  | ($ | 34,323 | ) |  | $ | 63,742 |  
|                                                                      |  |                    |         |                    |  |        |        |         |  |        |         |        |  |   |        |   |  |    |        |   |  |   |        |  

|                                                                      |  |                  |         |                  |  |        |       |         |  |        |         |        |  |   |        |   |  |    |        |   |  |   |        |  
|--------------------------------------------------------------------- |  | ---------------- | ------- | ---------------- |  | ------ | ----- | ------- |  | ------ | ------- | ------ |  | - | ------ | - |  | -- | ------ | - |  | - | ------ | -
|                                                                      |  | Six Months Ended |         | Six Months Ended
|                                                                      |  | June 30, 2003    |         | June 30, 2002   
|                                                                      |  |                  |         |                 
|                                                                      |  | Pre-tax          |         | Tax              |  | Net of |       | Pre-tax |  | Tax    |         | Net of
|                                                                      |  | Amount           |         | Effect           |  | Tax    |       | Amount  |  | Effect |         | Tax   
|                                                                      |  |                  |         |                  |  |        |       |         |  |        |         |       
|Unrealized gain (loss) on securities available for sale               |  | $                | 6,954   |                  |  | ($     | 2,596 | )       |  | $      | 4,358   |        |  | $ | 55,923 |   |  | ($ | 19,573 | ) |  | $ | 36,350 |  
|Unrealized gain (loss) on cash flow hedges                            |  |                  | (7,391  | )                |  |        | 2,587 |         |  |        | (4,804  | )      |  |   | (1,685 | ) |  |    | 590    |   |  |   | (1,095 | )
|Reclassification adjustment for gains (losses) realized
in net income |  |                  | (27,038 | )                |  |        | 9,463 |         |  |        | (17,575 | )      |  |   | 123    |   |  |    | (43    | ) |  |   | 80     |  
|                                                                      |  |                  |         |                  |  |        |       |         |  |        |         |        |  |   |        |   |  |    |        |   |  |   |        |  
|Net change in unrealized gains (losses)                               |  | ($               | 27,475  | )                |  | $      | 9,454 |         |  | ($     | 18,021  | )      |  | $ | 54,361 |   |  | ($ | 19,026 | ) |  | $ | 35,335 |  
|                                                                      |  |                  |         |                  |  |        |       |         |  |        |         |        |  |   |        |   |  |    |        |   |  |   |        |  

Note 9  Earnings Per Share

The computations of basic and diluted earnings per share and weighted average
shares outstanding are as follows:

|                                                   |  |                    |         |                  |  |      |         |      |  |   |         |  |  |   |         | 
|-------------------------------------------------- |  | ------------------ | ------- | ---------------- |  | ---- | ------- | ---- |  | - | ------- |  |  | - | ------- | 
|                                                   |  | Three Months Ended |         | Six Months Ended
|                                                   |  | June 30,           |         | June 30,        
|                                                   |  |                    |         |                 
|                                                   |  | 2003               |         | 2002             |  | 2003 |         | 2002
|                                                   |  |                    |         |                  |  |      |         |     
|Net income                                         |  | $                  | 87,525  |                  |  | $    | 76,159  |      |  | $ | 168,919 |  |  | $ | 144,638 | 
|                                                   |  |                    |         |                  |  |      |         |      |  |   |         |  |  |   |         | 
|Weighted average basic common shares outstanding   |  |                    | 162,312 |                  |  |      | 147,233 |      |  |   | 159,980 |  |  |   | 148,258 | 
|Effect of dilutive stock options                   |  |                    | 2,247   |                  |  |      | 1,831   |      |  |   | 1,918   |  |  |   | 1,810   | 
|                                                   |  |                    |         |                  |  |      |         |      |  |   |         |  |  |   |         | 
|Weighted average diluted common shares outstanding |  |                    | 164,559 |                  |  |      | 149,064 |      |  |   | 161,898 |  |  |   | 150,068 | 
|                                                   |  |                    |         |                  |  |      |         |      |  |   |         |  |  |   |         | 
|Basic earnings per share                           |  | $                  | 0.54    |                  |  | $    | 0.52    |      |  | $ | 1.06    |  |  | $ | 0.98    | 
|                                                   |  |                    |         |                  |  |      |         |      |  |   |         |  |  |   |         | 
|Diluted earnings per share                         |  | $                  | 0.53    |                  |  | $    | 0.51    |      |  | $ | 1.04    |  |  | $ | 0.96    | 
|                                                   |  |                    |         |                  |  |      |         |      |  |   |         |  |  |   |         | 

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Note 10 - New Accounting Standards

In May 2003, the FASB issued SFAS No. 150, Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equity. This
Statement applies generally to freestanding financial instruments that embody
obligations of the issuing entity to redeem the instrument or to settle the
obligation by repurchasing its equity shares through the transfer of assets or
through issuance of its own shares. Such freestanding instruments must be
classified as liabilities or, in some cases, assets. SFAS No. 150 requires that
financial instruments containing obligations to repurchase the issuing entitys
equity shares and, under certain circumstances, obligations that are settled by
delivery of the issuers shares, be classified as liabilities. This statement
is effective for financial instruments entered into or modified after May 31,
2003 and for contracts in existence at the start of the first interim period
beginning after June 15, 2003. The adoption of this standard did not and is
not expected to have a material impact on our financial condition, results of
operations, earnings per share or cash flows.

In April 2003, the FASB issued SFAS No. 149, Amendment of Statement 133 on
Derivative Instruments and Hedging Activities. SFAS No. 149 amends and
clarifies financial accounting and reporting for derivative instruments,
including certain derivative instruments embedded in other contracts and for
hedging activities under SFAS No. 133, Accounting for Derivative Instruments
and Hedging Activities, resulting in more consistent reporting of contracts as
either derivatives or hybrid instruments. SFAS No. 149 is effective for
contracts entered into or modified after June 30, 2003, and should be applied
prospectively. Implementation issues that have been effective for fiscal
quarters that began prior to June 15, 2003 should continue to be applied in
accordance with their respective effective dates. The adoption of this standard
is not expected to have a material impact on our financial condition, results
of operations, earnings per share or cash flows.

In January 2003, the FASB issued FASB Interpretation No. 46, Consolidation of
Variable Interest Entities, an interpretation of ARB
No. 51. (FIN 46). FIN 46 provides a
new framework for identifying variable interest entities
(VIEs) and determining when a company should include the
assets, liabilities, noncontrolling interests and results of
activities of a VIE in its consolidated financial statements.
FIN 46 is effective immediately for VIEs created after
January 31, 2003 and is effective beginning July 1, 2003 for VIEs created prior to the issuance of the
interpretation. We, as well as other bank holding companies, are
currently evaluating whether trusts established prior to the adoption
of FIN 46 to issue preferred securities which are included in Tier 1
capital for regulatory purposes may continue to be treated as
consolidated subsidiaries under FIN 46 after July 1, 2003. For information regarding an ongoing evaluation of the effects of
FIN 46 on the treatment of capital securities issued by
consolidated subsidiary trusts for regulatory purposes, see
Managements Discussion and Analysis of Financial
Condition and Results of Operations - Capital.

In December 2002, the FASB issued SFAS No. 148, Accounting for Stock-Based
Compensation Transition and Disclosure. SFAS No. 148 amends SFAS No. 123,
Accounting for Stock-Based Compensation to provide alternative methods of
transition when companies elect to change from the intrinsic method to the fair
value method of accounting for stock-based employee compensation, including
stock options. In addition, the Statement amends the disclosure requirement of
SFAS No. 123 to require prominent disclosures in both annual and interim
financial statements about the fair value based method of accounting for
stock-based employee compensation and the effect of the method used on reported
results. Banknorth adopted the disclosure provisions of SFAS No. 148 as of
December 31, 2002 and currently uses the intrinsic method of accounting for
stock options.

In November 2002, the FASB issued FASB Interpretation No. 45, Guarantors
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others. This Interpretation requires the
recording at fair value of the issuance of guarantees which would include the
issuance of standby letters of credit. Banknorth adopted the provisions of
FASB Interpretation No. 45 beginning January 1, 2003. At June 30, 2003, the
approximate fair value of standby letters of credit was $1.2 million. Adoption
of the Interpretation did not materially affect our financial condition,
results of operations, earnings per share or cash flows.

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

In April 2002, the FASB issued SFAS No. 145 which rescinds SFAS No. 4, which
required all gains and losses from extinguishment of debt to be aggregated and,
if material, classified as an extraordinary item, net of related income tax
effect. Additionally, SFAS No. 145 amends SFAS No. 13 to require that certain
lease modifications that have economic effects similar to sale-leaseback
transactions be accounted for in the same manner as sale-leaseback
transactions. We adopted SFAS 145 on January 1, 2003. Upon adoption, we
reclassified to other expense an extraordinary item from the early
extinguishment of debt of $3.9 million after-tax, or $.03 per diluted share in
the fourth quarter of 2001.

In June 2001, the FASB issued SFAS No. 143, Accounting for Asset Retirement
Obligations. SFAS No. 143 applies to legal obligations associated with the
retirement of long-lived assets that result from the acquisition, construction,
development and (or) the normal operation of a long-lived asset. It is
effective for financial statements issued for fiscal years beginning after June
15, 2002. The adoption of this standard effective January 1, 2003 did not have
a material impact on our financial condition, results of operations, earnings
per share or cash flows.

Note 11  State Tax Assessment

During the second quarter of 2003, Banknorth entered into a settlement with the
Massachusetts Department of Revenue (DOR) concerning the dividends received
deduction relating to certain banks that Banknorth had acquired prior to 2003.
Legislation was enacted on March 5, 2003, which disallowed the
dividends-received deduction for dividends received from a REIT retroactive to
1999. Banknorth and other banks challenged the retroactive nature of the
statute.

The aggregate assessment of $5.9 million (net of Federal income tax benefit)
was recorded in the first quarter of 2003 as an increase to goodwill related to
the acquired banks. During the second quarter of 2003, Banknorth entered into
(and paid) a settlement of $2.9 million, net of Federal income
tax benefit, (negotiated by
approximately 50 similarly-situated financial institutions doing business in
Massachusetts) with the DOR. Goodwill was reduced to reflect the final
settlement.

Note 12  Subsequent Events

Subsequent to June 30, 2003, the Company entered into agreements to purchase
two insurance agencies in Maine and Connecticut for a combined purchase price
of approximately $3.1 million. The agencies will be merged into Morse, Payson
& Noyes, a subsidiary of Banknorth NA, in the third quarter of 2003.

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##### Table of Contents



BANKNORTH GROUP, INC. AND SUBSIDIARIES




MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(In thousands, except per share data and as noted)

OVERVIEW

Our financial statements for the three and six months ended June 30, 2003
reflect the acquisition of American Financial Holdings, Inc. (American) from
the date of acquisition on February 14, 2003. American had total assets of
$2.7 billion at the date of acquisition. In addition, the financial statements
reflect the acquisitions of Community Insurance Agencies, Inc. (Community),
which closed on July 2, 2002, Ipswich Bancshares, Inc. (Ipswich), which
closed on July 26, 2002, Bancorp Connecticut, Inc. (Bancorp), which closed on
August 31, 2002, and Warren Bancorp (Warren), which closed on December 31,
2002. These 2002 acquisitions increased total assets (including intangible
assets) by $1.7 billion. All of these mergers were accounted for under the
purchase method of accounting, and as a result, the assets and liabilities of
these companies and their results of operations have been included in our
financial statements since the date of acquisition.

In April and early May 2003, we implemented a deleveraging strategy which
benefited our net interest margin, mitigated interest rate risk and reduced the
level of assets subject to prepayment risk. During the second quarter of 2003,
we sold $901 million of investment securities (which had a weighted average
yield of 5.05%) and used the proceeds to prepay $853 million of borrowings
(which had a weighted average rate of 4.49%). The gain on sale of the
securities totaled $29.2 million, while the prepayment charges on the
borrowings which were repaid pursuant to the deleveraging program totaled $28.5
million. The reduction in assets freed up approximately $54 million of Tier 1 leverage
capital, which was used to repurchase shares of our common stock in the open
market. These stock repurchases had the effect of making the reduction in net
interest income resulting from the deleveraging program neutral in terms of our
earnings per share.

SUMMARY

We reported consolidated net income of $87.5 million, or $0.53 per diluted
share, for the second quarter of 2003 as compared with $76.2 million, or $0.51
per diluted share, for the second quarter of 2002, a per share increase of 4%.
Our growth in net income for the quarter ended June 30, 2003 over the same
quarter last year was due in part to acquisitions completed in 2003 and 2002.
Results were diminished by the effect of merger and consolidation costs of $1.5
million ($1.0 million after-tax) for the three months ended June 30, 2003 and
$1.1 million ($690 thousand after-tax) for the three months ended June 30,
2002.

Annualized return on average equity (ROE) and return on average assets
(ROA) were 14.24% and 1.38%, respectively, for the quarter ended June 30,
2003 and were 17.45% and 1.46%, respectively, for the comparable quarter last
year.

Results for the second quarter of 2003 improved over the second quarter of 2002
due primarily to strong fee income and expense control. Net interest income
increased by $12.1 million (or 6%) over the second quarter of last year as
increased volume more than offset a 47 basis point decline in net interest
margin. Noninterest income was $115.8 million and $63.0 million for the
quarters ended June 30, 2003 and 2002, respectively, an 84% increase. This
increase was largely due to $29.2 million of gains from the sale
of securities related to our
deleveraging program. Noninterest expenses totaled $184.0 million and $136.8
million for the quarters ended June 30, 2003 and 2002, respectively, an
increase of 35%. The added expenses resulted primarily from the $28.5 million
of prepayment penalties on borrowings related to our deleveraging
program. In addition, noninterest expense increased as a result of
acquisitions, particularly compensation and employee benefits and occupancy
expense, which were partially offset by lower incentive expense. The efficiency
ratio was 56.21% in the second quarter of 2003 compared to 52.12% in the
comparable period last year. The prepayment penalties and securities gains
related to the deleveraging program increased the efficiency ratio by 4.05%.
For a description of the methodology we use to calculate the efficiency ratio,
see Note 3 to Table 1.

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##### Table of Contents



For the six months ended June 30, 2003, we reported consolidated net income of
$168.9 million, or $1.04 per diluted share, as compared with $144.6 million, or
$0.96 per diluted share, for the same period in the prior year. Results in
each period were diminished by the effect of merger and consolidation costs,
which totaled $6.0 million ($3.9 million after-tax), or $0.02 per diluted share,
for the six months ended June 30, 2003 and $9.3 million ($6.0 million
after-tax), or $0.04 per diluted share, for the six months ended June 30, 2002.
(See Table 6 for special charge detail for the six months ended June 30, 2003
and 2002). Net interest income for the six months ended June 30, 2003
increased by $21.8 million or 5% from the same period last year. The increase
was primarily attributable to increases in the volume of interest-earning
assets, primarily due to acquisitions, which more than offset the effects of
decreases in interest rates. The provision for loan and lease losses for the
six months ended June 30, 2003 decreased $1.3 million over the same period last
year primarily due to lower nonperforming assets and a higher coverage ratio of
the allowance to non-performing loans and leases (see Table 4). Noninterest
income was $194.1 million and $124.6 million for the six months ended June 30,
2003 and 2002, respectively, a 56% increase. The increase in noninterest
income for the six months ended June 30, 2003 was primarily attributable to
$29.2 million of gains from the sale of securities related to our deleveraging program, an
increase of $10.3 million in income from covered call premiums and additional
income from acquisitions. Noninterest expenses totaled $333.9 million and
$279.7 million for the six months ended June 30, 2003 and 2002, respectively,
an increase of 19%. The increase in noninterest expense was primarily due to
$28.5 million of prepayment penalties on borrowings related to our deleveraging
program and compensation and employee benefits and occupancy expenses related
to acquisitions, which were mitigated by lower merger and consolidations costs
and incentive expense.

Selected quarterly data, ratios and per share data are provided in Table 1.

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##### Table of Contents



TABLE 1 - Selected Quarterly Data

|                                                        |         |  |   |  |  |   |         |         |       |   |         |         |       |   |         |         |       |   |         |         |  |   |         |         |  |   |         |         | 
|------------------------------------------------------- | ------- |  | - |  |  | - | ------- | ------- | ----- | - | ------- | ------- | ----- | - | ------- | ------- | ----- | - | ------- | ------- |  | - | ------- | ------- |  | - | ------- | ------- | 
|                                                        |         |  |   |  |  |   | 2003    |         | 2002 
|                                                        |         |  |   |  |  |   |         |         |      
|                                                        |         |  |   |  |  |   | Second  |         | First |   | Fourth  |         | Third |   | Second  |         | First
|                                                        |         |  |   |  |  |   |         |         |       |   |         |         |       |   |         |         |      
|Net interest income                                     |         |  | A |  |  | $ | 211,574 |         |       | $ | 206,137 |         |       | $ | 199,563 |         |       | $ | 200,996 |         |  | $ | 199,473 |         |  | $ | 196,486 |        
|Provision for loan and lease losses                     |         |  |   |  |  |   | 10,500  |         |       |   | 10,901  |         |       |   | 10,829  |         |       |   | 10,829  |         |  |   | 10,829  |         |  |   | 11,828  |        
|                                                        |         |  |   |  |  |   |         |         |       |   |         |         |       |   |         |         |       |   |         |         |  |   |         |         |  |   |         |        
|Net interest income after loan and lease loss provision |         |  |   |  |  |   | 201,074 |         |       |   | 195,236 |         |       |   | 188,734 |         |       |   | 190,167 |         |  |   | 188,644 |         |  |   | 184,658 |        
|Noninterest income                                      |         |  | B |  |  |   | 115,828 |         |       |   | 78,238  |         |       |   | 84,441  |         |       |   | 65,504  |         |  |   | 62,986  |         |  |   | 61,576  |        
|Noninterest
expenses                                    |         |  | C |  |  |   | 184,039 |         |       |   | 149,908 |         |       |   | 158,126 |         |       |   | 141,577 |         |  |   | 136,791 |         |  |   | 142,897 |        
|                                                        |         |  |   |  |  |   |         |         |       |   |         |         |       |   |         |         |       |   |         |         |  |   |         |         |  |   |         |        
|Income before income taxes                              |         |  |   |  |  |   | 132,863 |         |       |   | 123,566 |         |       |   | 115,049 |         |       |   | 114,094 |         |  |   | 114,839 |         |  |   | 103,337 |        
|Income tax expense                                      |         |  |   |  |  |   | 45,338  |         |       |   | 42,173  |         |       |   | 37,911  |         |       |   | 37,232  |         |  |   | 38,680  |         |  |   | 34,859  |        
|                                                        |         |  |   |  |  |   |         |         |       |   |         |         |       |   |         |         |       |   |         |         |  |   |         |         |  |   |         |        
|Net income                                              |         |  |   |  |  | $ | 87,525  |         |       | $ | 81,393  |         |       | $ | 77,138  |         |       | $ | 76,862  |         |  | $ | 76,159  |         |  | $ | 68,478  |        
|                                                        |         |  |   |  |  |   |         |         |       |   |         |         |       |   |         |         |       |   |         |         |  |   |         |         |  |   |         |        
|Weighted average shares outstanding:                    |         |  |   |  |  |   |         |         |       |   |         |         |       |   |         |         |       |   |         |         |  |   |         |         |  |   |         |        
|                                                        | Basic   |  |   |  |  |   |         | 162,312 |       |   |         | 157,667 |       |   |         | 148,226 |       |   |         | 148,099 |  |   |         | 147,233 |  |   |         | 149,347 | 
|                                                        | Diluted |  |   |  |  |   |         | 164,559 |       |   |         | 159,328 |       |   |         | 149,389 |       |   |         | 149,662 |  |   |         | 149,064 |  |   |         | 151,116 | 
|Basic earnings per share:                               |         |  |   |  |  | $ | 0.54    |         |       | $ | 0.52    |         |       | $ | 0.52    |         |       | $ | 0.52    |         |  | $ | 0.52    |         |  | $ | 0.46    |        
|Diluted earnings per share:                             |         |  |   |  |  | $ | 0.53    |         |       | $ | 0.51    |         |       | $ | 0.52    |         |       | $ | 0.51    |         |  | $ | 0.51    |         |  | $ | 0.45    |        
|Return on average assets (1)                            |         |  |   |  |  |   | 1.38    | %       |       |   | 1.32    | %       |       |   | 1.35    | %       |       |   | 1.40    | %       |  |   | 1.46    | %       |  |   | 1.36    | %      
|Return on average equity (1)                            |         |  |   |  |  |   | 14.24   | %       |       |   | 14.26   | %       |       |   | 15.75   | %       |       |   | 16.25   | %       |  |   | 17.45   | %       |  |   | 15.73   | %      
|Net interest margin (fully-taxable equivalent) (1)      |         |  |   |  |  |   | 3.71    | %       |       |   | 3.66    | %       |       |   | 3.86    | %       |       |   | 4.03    | %       |  |   | 4.18    | %       |  |   | 4.23    | %      
|Noninterest income as a percent of total income (2)     |         |  |   |  |  |   | 35.38   | %       |       |   | 27.51   | %       |       |   | 29.73   | %       |       |   | 24.58   | %       |  |   | 24.00   | %       |  |   | 23.86   | %      
|Efficiency ratio (3)                                    |         |  |   |  |  |   | 56.21   | %       |       |   | 52.71   | %       |       |   | 55.68   | %       |       |   | 53.12   | %       |  |   | 52.12   | %       |  |   | 55.37   | %      



---

|(1) |  | Annualized.                                                                                                                                                                        
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(2) |  | Represents noninterest income as a
percentage of net interest income and noninterest income. Noninterest income as a percent of total income is
calculated as (B) divided by (A+B).
|   
|(3) |  | Represents noninterest expenses as
a percentage of net interest income and noninterest income.
Efficiency ratio is calculated as (C) divided by (A+B).                             

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##### Table of Contents



RESULTS OF OPERATIONS

Net Interest Income

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

Fully-taxable equivalent net interest income for the second quarter of 2003
increased $12.3 million, or 6%, compared to the second quarter of 2002. This
increase was primarily attributable to increases in the volume of
interest-earning assets and interest-bearing liabilities. Average earning
assets increased $3.8 billion, or 20%, for the three months ended June 30, 2003
compared to the same period in the prior year, primarily as a result of
acquisitions. Average loans and leases increased by $2.8 billion, or 22%,
compared to the second quarter of 2002 due primarily to acquisitions and, to a
lesser extent, internal loan growth. Average loans as a percent of average
earning assets was 68% and 67% for the quarters ended June 30, 2003 and 2002,
respectively. Net interest margin, which represents fully-taxable equivalent
net interest income as a percentage of average interest-earning assets,
decreased from 4.18% to 3.71% during the three months ended June 30, 2002 and
2003, respectively, a decline of 11% (or 47 basis points). The primary reasons
for this margin compression were the effects of acquisitions (15 basis points,
including cash paid and lower margins at acquired banks), a heavier weighting
of U. S. agency securities in our investment portfolio versus mortgage-backed
securities (8 basis points) and the impact of prepayments and repricing on
loans, securities, deposits and borrowings in a declining rate environment.
The margin compression was mitigated somewhat by the positive impact
of the deleveraging strategy implemented in the second quarter of 2003, which resulted
in a benefit of approximately 7 basis points in the quarter. Had the
deleveraging been completed as of April 1, 2003, the benefit to the net
interest margin in the second quarter would have been approximately 11 basis
points. See additional discussion below. Interest rate spread, which
represents the difference between the yield earned on our interest-earning
assets and the rate paid on our interest-bearing liabilities, decreased from
3.80% to 3.45% on a fully-taxable equivalent basis during the three months
ended June 30, 2002 and 2003, respectively, primarily due to a 83 basis point
decrease in rates paid on interest-bearing liabilities compared to a 118 basis
point decrease in interest rates earned on interest-earning assets.

In March 2003, we entered into an interest rate swap agreement to hedge the
fair value of our banking subsidiarys $200 million subordinated debt (fixed
rate of 7.625% maturing in 2011). The effect of this hedge was to
synthetically convert this fixed rate debt to a variable rate set at 3-month
LIBOR (1.12% at June 30, 2003) plus 3.47%. In addition, in April 2003, we
entered into a 5-year interest rate swap agreement to hedge the fair value of
our $150 million senior notes (fixed rate of 3.75% maturing in 2008). The
effect of this hedge was to synthetically convert this fixed rate to a variable
rate set at 3-month LIBOR plus 0.41%. The combined effect of these interest
rate swaps was to lower interest expense by $1.4 million in the second quarter
of 2003.

Our fully-taxable equivalent net interest income for the six months ended June
30, 2003 increased $21.9 million compared to the six months ended June 30,
2002. The net interest margin decreased from 4.21% for the six months ended
June 30, 2002 to 3.69% for the six months ended June 30, 2003, and the
fully-taxable equivalent interest rate spread decreased from 3.81% to 3.41%
during the same period, respectively, primarily due to a 73 basis point
decrease in rates paid on interest-bearing liabilities compared to a 113 basis
point decrease in interest rates earned on interest-earning assets. Average
net earning assets increased $432.3 million from the six months ended June 30,
2002 compared to the six months ended June 30, 2003, primarily as a result of
acquisitions. Table 2 shows average balances, net interest income by category
and rates for each of the quarters in 2003 and 2002 and for the six months
ended June 30, 2003 and 2002. Table 3 shows the changes in fully-taxable
equivalent net interest income by category due to changes in rate and volume.
See also Asset-Liability Management below.

The following table sets forth, for the periods indicated, information
regarding (i) the total dollar amount of interest income from interest-earning
assets and the resultant average yields; (ii) the total dollar amount of
interest expense on interest-bearing liabilities and the resultant average
cost; (iii) net interest income; (iv) interest rate spread; and (v) net
interest margin (net interest income divided by average interest-earning
assets). For purposes of the tables and the following discussion, (i) income
from interest-earning assets and net interest income is presented on a
fully-taxable equivalent basis primarily by adjusting income and yields earned
on tax-exempt interest received on loans to

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qualifying borrowers and on certain
of our securities to make them equivalent to income and yields earned on
fully-taxable investments, assuming a federal income tax rate of 35%, and (ii)
nonaccrual loans have been included in the appropriate average balance loan
category, but unpaid interest on nonaccrual loans has not been included for
purposes of determining interest income. Average balances are based on average
daily balances during the indicated periods.

TABLE 2 - Average Balances, Yields and Rates

|                                                    |                                      |                                            |           |                                 |            |                     |            |                    |         |          |         |                 |      |          |           |           |            |  |            |        |         |  |         |        |      |  |      | 
|--------------------------------------------------- | ------------------------------------ | ------------------------------------------ | --------- | ------------------------------- | ---------- | ------------------- | ---------- | ------------------ | ------- | -------- | ------- | --------------- | ---- | -------- | --------- | --------- | ---------- |  | ---------- | ------ | ------- |  | ------- | ------ | ---- |  | ---- | 
|                                                    |                                      |                                            |           |                                 |            | 2003 Second Quarter |            | 2003 First Quarter
|                                                    |                                      |                                            |           |                                 |            |                     |            |                   
|                                                    |                                      |                                            |           |                                 |            |                     |            |                    |         |          |         |                 |      | Yield/   |           |           |            |  |            |        |         |  |         | Yield/
|                                                    |                                      |                                            |           |                                 |            | Average Balance     |            | Interest           |         | Rate (1) |         | Average Balance |      | Interest |           | Rate (1) 
|                                                    |                                      |                                            |           |                                 |            |                     |            |                    |         |          |         |                 |      |          |           |          
|Loans and leases (2):                               |                                      |                                            |           |                                 |            |                     |            |                    |         |          |         |                 |      |          |           |           |            |  |            |        |         |  |         |       
|                                                    | Residential real estate mortgages    |                                            | $         | 2,996,485                       |            |                     | $          | 43,147             |         |          |         | 5.76            | %    |          | $         | 2,792,615 |            |  | $          | 41,652 |         |  |         | 5.97   | %   
|                                                    | Commercial real estate mortgages     |                                            |           | 5,074,540                       |            |                     |            | 78,342             |         |          |         | 6.19            |      |          |           | 4,913,188 |            |  |            | 77,810 |         |  |         | 6.42   |     
|                                                    | Commercial business loans and leases |                                            |           | 3,154,085                       |            |                     |            | 41,105             |         |          |         | 5.23            |      |          |           | 3,006,370 |            |  |            | 39,475 |         |  |         | 5.32   |     
|                                                    | Consumer loans and leases            |                                            |           | 4,463,057                       |            |                     |            | 64,145             |         |          |         | 5.76            |      |          |           | 4,186,917 |            |  |            | 62,178 |         |  |         | 6.02   |     
|                                                    |                                      |                                            |           |                                 |            |                     |            |                    |         |          |         |                 |      |          |           |           |            |  |            |        |         |  |         |       
|                                                    |                                      |                                            |           | Total loans and leases          |            |                     | 15,688,167 |                    |         |          | 226,739 |                 |      |          | 5.79      |           |            |  | 14,899,090 |        |         |  | 221,115 |        |      |  | 6.00 | 
|Investment securities (3)                           |                                      |                                            | 7,280,880 |                                 |            |                     | 77,177     |                    |         |          | 4.24    |                 |      |          | 7,879,925 |           |            |  | 89,449     |        |         |  | 4.54    |       
|Federal funds sold and other short-term investments |                                      |                                            | 18,077    |                                 |            |                     | 54         |                    |         |          | 1.20    |                 |      |          | 4,535     |           |            |  | 25         |        |         |  | 2.21    |       
|                                                    |                                      |                                            |           |                                 |            |                     |            |                    |         |          |         |                 |      |          |           |           |            |  |            |        |         |  |         |       
|                                                    |                                      | Total earning assets                       |           |                                 | 22,987,124 |                     |            |                    | 303,970 |          |         |                 | 5.30 |          |           |           | 22,783,550 |  |            |        | 310,589 |  |         |        | 5.50 | 
|                                                    |                                      |                                            |           |                                 |            |                     |            |                    |         |          |         |                 |      |          |           |           |            |  |            |        |         |  |         |       
|Noninterest-earning assets                          |                                      |                                            | 2,513,556 |                                 |            |                     |            |                    |         |          |         |                 |      |          | 2,283,927 |           |            |  |            |        |         |  |         |       
|                                                    |                                      |                                            |           |                                 |            |                     |            |                    |         |          |         |                 |      |          |           |           |            |  |            |        |         |  |         |       
|                                                    |                                      | Total assets                               |           | $                               | 25,500,680 |                     |            |                    |         |          |         |                 |      |          |           | $         | 25,067,477 |  |            |        |         |  |         |        |      | 
|                                                    |                                      |                                            |           |                                 |            |                     |            |                    |         |          |         |                 |      |          |           |           |            |  |            |        |         |  |         |       
|Interest-bearing deposits:                          |                                      |                                            |           |                                 |            |                     |            |                    |         |          |         |                 |      |          |           |           |            |  |            |        |         |  |         |       
|                                                    | Regular savings                      |                                            | $         | 2,468,244                       |            |                     |            | 3,089              |         |          |         | 0.50            |      |          | $         | 2,173,771 |            |  |            | 3,075  |         |  |         | 0.57   |     
|                                                    | NOW and money market accounts        |                                            |           | 6,582,004                       |            |                     |            | 15,908             |         |          |         | 0.97            |      |          |           | 6,217,880 |            |  |            | 15,707 |         |  |         | 1.02   |     
|                                                    | Certificates of deposit              |                                            |           | 5,243,908                       |            |                     |            | 31,737             |         |          |         | 2.43            |      |          |           | 5,012,351 |            |  |            | 32,609 |         |  |         | 2.64   |     
|                                                    | Brokered deposits                    |                                            |           |                                |            |                     |            |                   |         |          |         | 0.00            |      |          |           |          |            |  |            |       |         |  |         | 0.00   |     
|                                                    |                                      |                                            |           |                                 |            |                     |            |                    |         |          |         |                 |      |          |           |           |            |  |            |        |         |  |         |       
|                                                    |                                      |                                            |           | Total interest-bearing deposits |            |                     | 14,294,156 |                    |         |          | 50,734  |                 |      |          | 1.42      |           |            |  | 13,404,002 |        |         |  | 51,391  |        |      |  | 1.55 | 
|Borrowed funds                                      |                                      |                                            | 5,459,725 |                                 |            |                     | 40,170     |                    |         |          | 2.95    |                 |      |          | 6,272,657 |           |            |  | 51,799     |        |         |  | 3.34    |       
|                                                    |                                      |                                            |           |                                 |            |                     |            |                    |         |          |         |                 |      |          |           |           |            |  |            |        |         |  |         |       
|                                                    |                                      | Total interest-bearing liabilities         |           |                                 | 19,753,881 |                     |            |                    | 90,904  |          |         |                 | 1.85 |          |           |           | 19,676,659 |  |            |        | 103,190 |  |         |        | 2.13 | 
|                                                    |                                      |                                            |           |                                 |            |                     |            |                    |         |          |         |                 |      |          |           |           |            |  |            |        |         |  |         |       
|Non-interest bearing deposits                       |                                      |                                            | 3,099,420 |                                 |            |                     |            |                    |         |          |         |                 |      |          | 2,905,737 |           |            |  |            |        |         |  |         |       
|Other liabilities                                   |                                      |                                            | 181,765   |                                 |            |                     |            |                    |         |          |         |                 |      |          | 170,732   |           |            |  |            |        |         |  |         |       
|Shareholders equity                                |                                      |                                            | 2,465,614 |                                 |            |                     |            |                    |         |          |         |                 |      |          | 2,314,349 |           |            |  |            |        |         |  |         |       
|                                                    |                                      |                                            |           |                                 |            |                     |            |                    |         |          |         |                 |      |          |           |           |            |  |            |        |         |  |         |       
|                                                    |                                      | Total liabilities and shareholders equity |           | $                               | 25,500,680 |                     |            |                    |         |          |         |                 |      |          |           | $         | 25,067,477 |  |            |        |         |  |         |        |      | 
|                                                    |                                      |                                            |           |                                 |            |                     |            |                    |         |          |         |                 |      |          |           |           |            |  |            |        |         |  |         |       
|Net earning assets                                  |                                      | $                                          | 3,233,243 |                                 |            |                     |            |                    |         |          |         |                 |      | $        | 3,106,891 |           |            |  |            |        |         |  |         |       
|                                                    |                                      |                                            |           |                                 |            |                     |            |                    |         |          |         |                 |      |          |           |           |            |  |            |        |         |  |         |       
|Net interest income (fully-taxable equivalent)      |                                      |                                            |           |                                 |            |                     | 213,066    |                    |         |          |         |                 |      |          |           |           |            |  | 207,399    |        |         |  |         |       
|Less: fully-taxable equivalent adjustments          |                                      |                                            |           |                                 |            |                     | (1,492     | )                  |         |          |         |                 |      |          |           |           |            |  | (1,262     | )      |         |  |         |       
|                                                    |                                      |                                            |           |                                 |            |                     |            |                    |         |          |         |                 |      |          |           |           |            |  |            |        |         |  |         |       
|                                                    |                                      | Net interest income                        |           |                                 |            |                     |            | $                  | 211,574 |          |         |                 |      |          |           |           |            |  |            | $      | 206,137 |  |         |        |      | 
|                                                    |                                      |                                            |           |                                 |            |                     |            |                    |         |          |         |                 |      |          |           |           |            |  |            |        |         |  |         |       
|Net interest rate spread (fully-taxable equivalent) |                                      |                                            |           |                                 |            |                     |            |                    |         |          | 3.45    | %               |      |          |           |           |            |  |            |        |         |  | 3.37    | %     
|Net interest margin (fully-taxable equivalent)      |                                      |                                            |           |                                 |            |                     |            |                    |         |          | 3.71    | %               |      |          |           |           |            |  |            |        |         |  | 3.66    | %     



---

|(1) |  | Annualized.                                                
|--- |  | -----------------------------------------------------------
|(2) |  | Loans and leases include loans held for sale.              
|(3) |  | Includes securities available for sale and held to maturity

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TABLE 2 - Average Balances, Yields and Rates

|                                                    |                                      |                                            |           |                                 |            |                     |            |                    |         |          |         |                 |      |          |           |           |            |  |            |        |         |  |         |        |      |  |      | 
|--------------------------------------------------- | ------------------------------------ | ------------------------------------------ | --------- | ------------------------------- | ---------- | ------------------- | ---------- | ------------------ | ------- | -------- | ------- | --------------- | ---- | -------- | --------- | --------- | ---------- |  | ---------- | ------ | ------- |  | ------- | ------ | ---- |  | ---- | 
|                                                    |                                      |                                            |           |                                 |            | 2002 Fourth Quarter |            | 2002 Third Quarter
|                                                    |                                      |                                            |           |                                 |            |                     |            |                   
|                                                    |                                      |                                            |           |                                 |            |                     |            |                    |         |          |         |                 |      | Yield/   |           |           |            |  |            |        |         |  |         | Yield/
|                                                    |                                      |                                            |           |                                 |            | Average Balance     |            | Interest           |         | Rate (1) |         | Average Balance |      | Interest |           | Rate (1) 
|                                                    |                                      |                                            |           |                                 |            |                     |            |                    |         |          |         |                 |      |          |           |          
|Loans and leases (2):                               |                                      |                                            |           |                                 |            |                     |            |                    |         |          |         |                 |      |          |           |           |            |  |            |        |         |  |         |       
|                                                    | Residential real estate mortgages    |                                            | $         | 2,641,957                       |            |                     | $          | 42,420             |         |          |         | 6.42            | %    |          | $         | 2,657,333 |            |  | $          | 44,205 |         |  |         | 6.65   | %   
|                                                    | Commercial real estate mortgages     |                                            |           | 4,504,625                       |            |                     |            | 76,131             |         |          |         | 6.71            |      |          |           | 4,347,508 |            |  |            | 75,210 |         |  |         | 6.86   |     
|                                                    | Commercial business loans and leases |                                            |           | 2,844,994                       |            |                     |            | 39,940             |         |          |         | 5.57            |      |          |           | 2,754,430 |            |  |            | 40,327 |         |  |         | 5.81   |     
|                                                    | Consumer loans and leases            |                                            |           | 3,830,542                       |            |                     |            | 62,237             |         |          |         | 6.45            |      |          |           | 3,662,187 |            |  |            | 62,624 |         |  |         | 6.78   |     
|                                                    |                                      |                                            |           |                                 |            |                     |            |                    |         |          |         |                 |      |          |           |           |            |  |            |        |         |  |         |       
|                                                    |                                      |                                            |           | Total loans and leases          |            |                     | 13,822,118 |                    |         |          | 220,728 |                 |      |          | 6.35      |           |            |  | 13,421,458 |        |         |  | 222,366 |        |      |  | 6.58 | 
|Investment securities (3)                           |                                      |                                            | 6,896,813 |                                 |            |                     | 86,959     |                    |         |          | 5.04    |                 |      |          | 6,487,448 |           |            |  | 91,518     |        |         |  | 5.64    |       
|Federal funds sold and other short-term investments |                                      |                                            | 22,576    |                                 |            |                     | 88         |                    |         |          | 1.54    |                 |      |          | 118,281   |           |            |  | 510        |        |         |  | 1.71    |       
|                                                    |                                      |                                            |           |                                 |            |                     |            |                    |         |          |         |                 |      |          |           |           |            |  |            |        |         |  |         |       
|                                                    |                                      | Total earning assets                       |           |                                 | 20,741,507 |                     |            |                    | 307,775 |          |         |                 | 5.91 |          |           |           | 20,027,187 |  |            |        | 314,394 |  |         |        | 6.25 | 
|                                                    |                                      |                                            |           |                                 |            |                     |            |                    |         |          |         |                 |      |          |           |           |            |  |            |        |         |  |         |       
|Noninterest-earning assets                          |                                      |                                            | 1,904,181 |                                 |            |                     |            |                    |         |          |         |                 |      |          | 1,770,564 |           |            |  |            |        |         |  |         |       
|                                                    |                                      |                                            |           |                                 |            |                     |            |                    |         |          |         |                 |      |          |           |           |            |  |            |        |         |  |         |       
|                                                    |                                      | Total assets                               |           | $                               | 22,645,688 |                     |            |                    |         |          |         |                 |      |          |           | $         | 21,797,751 |  |            |        |         |  |         |        |      | 
|                                                    |                                      |                                            |           |                                 |            |                     |            |                    |         |          |         |                 |      |          |           |           |            |  |            |        |         |  |         |       
|Interest-bearing deposits:                          |                                      |                                            |           |                                 |            |                     |            |                    |         |          |         |                 |      |          |           |           |            |  |            |        |         |  |         |       
|                                                    | Regular savings                      |                                            | $         | 1,835,068                       |            |                     |            | 3,213              |         |          |         | 0.69            |      |          | $         | 1,773,402 |            |  |            | 4,207  |         |  |         | 0.94   |     
|                                                    | NOW and money market accounts        |                                            |           | 5,889,603                       |            |                     |            | 18,944             |         |          |         | 1.28            |      |          |           | 5,608,231 |            |  |            | 21,649 |         |  |         | 1.53   |     
|                                                    | Certificates of deposit              |                                            |           | 4,624,776                       |            |                     |            | 33,753             |         |          |         | 2.90            |      |          |           | 4,736,817 |            |  |            | 36,307 |         |  |         | 3.04   |     
|                                                    | Brokered deposits                    |                                            |           | 22,431                          |            |                     |            | 96                 |         |          |         | 1.70            |      |          |           | 37,000    |            |  |            | 173    |         |  |         | 1.85   |     
|                                                    |                                      |                                            |           |                                 |            |                     |            |                    |         |          |         |                 |      |          |           |           |            |  |            |        |         |  |         |       
|                                                    |                                      |                                            |           | Total interest-bearing deposits |            |                     | 12,371,878 |                    |         |          | 56,006  |                 |      |          | 1.80      |           |            |  | 12,155,450 |        |         |  | 62,336  |        |      |  | 2.03 | 
|Borrowed funds                                      |                                      |                                            | 5,296,244 |                                 |            |                     | 51,000     |                    |         |          | 3.83    |                 |      |          | 4,885,461 |           |            |  | 49,825     |        |         |  | 4.05    |       
|                                                    |                                      |                                            |           |                                 |            |                     |            |                    |         |          |         |                 |      |          |           |           |            |  |            |        |         |  |         |       
|                                                    |                                      | Total interest-bearing liabilities         |           |                                 | 17,668,122 |                     |            |                    | 107,006 |          |         |                 | 2.41 |          |           |           | 17,040,911 |  |            |        | 112,161 |  |         |        | 2.61 | 
|                                                    |                                      |                                            |           |                                 |            |                     |            |                    |         |          |         |                 |      |          |           |           |            |  |            |        |         |  |         |       
|Non-interest bearing deposits                       |                                      |                                            | 2,837,369 |                                 |            |                     |            |                    |         |          |         |                 |      |          | 2,684,263 |           |            |  |            |        |         |  |         |       
|Other liabilities                                   |                                      |                                            | 196,567   |                                 |            |                     |            |                    |         |          |         |                 |      |          | 196,573   |           |            |  |            |        |         |  |         |       
|Shareholders equity                                |                                      |                                            | 1,943,630 |                                 |            |                     |            |                    |         |          |         |                 |      |          | 1,876,004 |           |            |  |            |        |         |  |         |       
|                                                    |                                      |                                            |           |                                 |            |                     |            |                    |         |          |         |                 |      |          |           |           |            |  |            |        |         |  |         |       
|                                                    |                                      | Total liabilities and shareholders equity |           | $                               | 22,645,688 |                     |            |                    |         |          |         |                 |      |          |           | $         | 21,797,751 |  |            |        |         |  |         |        |      | 
|                                                    |                                      |                                            |           |                                 |            |                     |            |                    |         |          |         |                 |      |          |           |           |            |  |            |        |         |  |         |       
|Net earning assets                                  |                                      | $                                          | 3,073,385 |                                 |            |                     |            |                    |         |          |         |                 |      | $        | 2,986,276 |           |            |  |            |        |         |  |         |       
|                                                    |                                      |                                            |           |                                 |            |                     |            |                    |         |          |         |                 |      |          |           |           |            |  |            |        |         |  |         |       
|Net interest income (fully-taxable equivalent)      |                                      |                                            |           |                                 |            |                     | 200,769    |                    |         |          |         |                 |      |          |           |           |            |  | 202,233    |        |         |  |         |       
|Less: fully-taxable equivalent adjustments          |                                      |                                            |           |                                 |            |                     | (1,206     | )                  |         |          |         |                 |      |          |           |           |            |  | (1,237     | )      |         |  |         |       
|                                                    |                                      |                                            |           |                                 |            |                     |            |                    |         |          |         |                 |      |          |           |           |            |  |            |        |         |  |         |       
|                                                    |                                      | Net interest income                        |           |                                 |            |                     |            | $                  | 199,563 |          |         |                 |      |          |           |           |            |  |            | $      | 200,996 |  |         |        |      | 
|                                                    |                                      |                                            |           |                                 |            |                     |            |                    |         |          |         |                 |      |          |           |           |            |  |            |        |         |  |         |       
|Net interest rate spread (fully-taxable equivalent) |                                      |                                            |           |                                 |            |                     |            |                    |         |          | 3.50    | %               |      |          |           |           |            |  |            |        |         |  | 3.64    | %     
|Net interest margin (fully-taxable equivalent)      |                                      |                                            |           |                                 |            |                     |            |                    |         |          | 3.86    | %               |      |          |           |           |            |  |            |        |         |  | 4.03    | %     



---

|(1) |  | Annualized.                                                
|--- |  | -----------------------------------------------------------
|(2) |  | Loans and leases include loans held for sale.              
|(3) |  | Includes securities available for sale and held to maturity

19



---



##### Table of Contents



TABLE 2 - Average Balances, Yields and Rates

|                                                    |                                      |                                            |           |                                 |            |                     |            |                    |         |          |         |                 |      |          |           |           |            |  |            |        |         |  |         |        |      |  |      | 
|--------------------------------------------------- | ------------------------------------ | ------------------------------------------ | --------- | ------------------------------- | ---------- | ------------------- | ---------- | ------------------ | ------- | -------- | ------- | --------------- | ---- | -------- | --------- | --------- | ---------- |  | ---------- | ------ | ------- |  | ------- | ------ | ---- |  | ---- | 
|                                                    |                                      |                                            |           |                                 |            | 2002 Second Quarter |            | 2002 First Quarter
|                                                    |                                      |                                            |           |                                 |            |                     |            |                   
|                                                    |                                      |                                            |           |                                 |            |                     |            |                    |         |          |         |                 |      | Yield/   |           |           |            |  |            |        |         |  |         | Yield/
|                                                    |                                      |                                            |           |                                 |            | Average Balance     |            | Interest           |         | Rate (1) |         | Average Balance |      | Interest |           | Rate (1) 
|                                                    |                                      |                                            |           |                                 |            |                     |            |                    |         |          |         |                 |      |          |           |          
|Loans and leases (2):                               |                                      |                                            |           |                                 |            |                     |            |                    |         |          |         |                 |      |          |           |           |            |  |            |        |         |  |         |       
|                                                    | Residential real estate mortgages    |                                            | $         | 2,569,964                       |            |                     | $          | 43,946             |         |          |         | 6.84            | %    |          | $         | 2,675,415 |            |  | $          | 47,265 |         |  |         | 7.07   | %   
|                                                    | Commercial real estate mortgages     |                                            |           | 4,216,766                       |            |                     |            | 74,347             |         |          |         | 7.07            |      |          |           | 4,101,873 |            |  |            | 72,724 |         |  |         | 7.19   |     
|                                                    | Commercial business loans and leases |                                            |           | 2,595,548                       |            |                     |            | 39,333             |         |          |         | 6.08            |      |          |           | 2,464,378 |            |  |            | 38,661 |         |  |         | 6.36   |     
|                                                    | Consumer loans and leases            |                                            |           | 3,530,040                       |            |                     |            | 62,158             |         |          |         | 7.06            |      |          |           | 3,539,213 |            |  |            | 63,952 |         |  |         | 7.33   |     
|                                                    |                                      |                                            |           |                                 |            |                     |            |                    |         |          |         |                 |      |          |           |           |            |  |            |        |         |  |         |       
|                                                    |                                      |                                            |           | Total loans and leases          |            |                     | 12,912,318 |                    |         |          | 219,784 |                 |      |          | 6.82      |           |            |  | 12,780,879 |        |         |  | 222,602 |        |      |  | 7.04 | 
|Investment securities (3)                           |                                      |                                            | 6,276,523 |                                 |            |                     | 90,804     |                    |         |          | 5.79    |                 |      |          | 5,943,057 |           |            |  | 84,296     |        |         |  | 5.68    |       
|Federal funds sold and other short-term investments |                                      |                                            | 25,856    |                                 |            |                     | 52         |                    |         |          | 0.81    |                 |      |          | 72,107    |           |            |  | 415        |        |         |  | 2.33    |       
|                                                    |                                      |                                            |           |                                 |            |                     |            |                    |         |          |         |                 |      |          |           |           |            |  |            |        |         |  |         |       
|                                                    |                                      | Total earning assets                       |           |                                 | 19,214,697 |                     |            |                    | 310,640 |          |         |                 | 6.48 |          |           |           | 18,796,043 |  |            |        | 307,313 |  |         |        | 6.59 | 
|                                                    |                                      |                                            |           |                                 |            |                     |            |                    |         |          |         |                 |      |          |           |           |            |  |            |        |         |  |         |       
|Noninterest-earning assets                          |                                      |                                            | 1,676,185 |                                 |            |                     |            |                    |         |          |         |                 |      |          | 1,671,783 |           |            |  |            |        |         |  |         |       
|                                                    |                                      |                                            |           |                                 |            |                     |            |                    |         |          |         |                 |      |          |           |           |            |  |            |        |         |  |         |       
|                                                    |                                      | Total assets                               |           | $                               | 20,890,882 |                     |            |                    |         |          |         |                 |      |          |           | $         | 20,467,826 |  |            |        |         |  |         |        |      | 
|                                                    |                                      |                                            |           |                                 |            |                     |            |                    |         |          |         |                 |      |          |           |           |            |  |            |        |         |  |         |       
|Interest-bearing deposits:                          |                                      |                                            |           |                                 |            |                     |            |                    |         |          |         |                 |      |          |           |           |            |  |            |        |         |  |         |       
|                                                    | Regular savings                      |                                            | $         | 1,716,942                       |            |                     |            | 4,061              |         |          |         | 0.95            |      |          | $         | 1,646,822 |            |  |            | 3,964  |         |  |         | 0.98   |     
|                                                    | NOW and money market accounts        |                                            |           | 5,246,053                       |            |                     |            | 19,897             |         |          |         | 1.52            |      |          |           | 5,099,310 |            |  |            | 18,895 |         |  |         | 1.50   |     
|                                                    | Certificates of deposit              |                                            |           | 4,652,499                       |            |                     |            | 37,273             |         |          |         | 3.21            |      |          |           | 4,762,399 |            |  |            | 41,694 |         |  |         | 3.55   |     
|                                                    | Brokered deposits                    |                                            |           | 50,741                          |            |                     |            | 235                |         |          |         | 1.86            |      |          |           | 63,594    |            |  |            | 288    |         |  |         | 1.84   |     
|                                                    |                                      |                                            |           |                                 |            |                     |            |                    |         |          |         |                 |      |          |           |           |            |  |            |        |         |  |         |       
|                                                    |                                      |                                            |           | Total interest-bearing deposits |            |                     | 11,666,235 |                    |         |          | 61,466  |                 |      |          | 2.11      |           |            |  | 11,572,125 |        |         |  | 64,841  |        |      |  | 2.27 | 
|Borrowed funds                                      |                                      |                                            | 4,784,197 |                                 |            |                     | 48,448     |                    |         |          | 4.06    |                 |      |          | 4,511,945 |           |            |  | 44,679     |        |         |  | 4.01    |       
|                                                    |                                      |                                            |           |                                 |            |                     |            |                    |         |          |         |                 |      |          |           |           |            |  |            |        |         |  |         |       
|                                                    |                                      | Total interest-bearing liabilities         |           |                                 | 16,450,432 |                     |            |                    | 109,914 |          |         |                 | 2.68 |          |           |           | 16,084,070 |  |            |        | 109,520 |  |         |        | 2.76 | 
|                                                    |                                      |                                            |           |                                 |            |                     |            |                    |         |          |         |                 |      |          |           |           |            |  |            |        |         |  |         |       
|Non-interest bearing deposits                       |                                      |                                            | 2,520,968 |                                 |            |                     |            |                    |         |          |         |                 |      |          | 2,446,539 |           |            |  |            |        |         |  |         |       
|Other liabilities                                   |                                      |                                            | 168,403   |                                 |            |                     |            |                    |         |          |         |                 |      |          | 171,449   |           |            |  |            |        |         |  |         |       
|Shareholders equity                                |                                      |                                            | 1,751,079 |                                 |            |                     |            |                    |         |          |         |                 |      |          | 1,765,768 |           |            |  |            |        |         |  |         |       
|                                                    |                                      |                                            |           |                                 |            |                     |            |                    |         |          |         |                 |      |          |           |           |            |  |            |        |         |  |         |       
|                                                    |                                      | Total liabilities and shareholders equity |           | $                               | 20,890,882 |                     |            |                    |         |          |         |                 |      |          |           | $         | 20,467,826 |  |            |        |         |  |         |        |      | 
|                                                    |                                      |                                            |           |                                 |            |                     |            |                    |         |          |         |                 |      |          |           |           |            |  |            |        |         |  |         |       
|Net earning assets                                  |                                      | $                                          | 2,764,265 |                                 |            |                     |            |                    |         |          |         |                 |      | $        | 2,711,973 |           |            |  |            |        |         |  |         |       
|                                                    |                                      |                                            |           |                                 |            |                     |            |                    |         |          |         |                 |      |          |           |           |            |  |            |        |         |  |         |       
|Net interest income (fully-taxable equivalent)      |                                      |                                            |           |                                 |            |                     | 200,726    |                    |         |          |         |                 |      |          |           |           |            |  | 197,793    |        |         |  |         |       
|Less: fully-taxable equivalent adjustments          |                                      |                                            |           |                                 |            |                     | (1,253     | )                  |         |          |         |                 |      |          |           |           |            |  | (1,307     | )      |         |  |         |       
|                                                    |                                      |                                            |           |                                 |            |                     |            |                    |         |          |         |                 |      |          |           |           |            |  |            |        |         |  |         |       
|                                                    |                                      | Net interest income                        |           |                                 |            |                     |            | $                  | 199,473 |          |         |                 |      |          |           |           |            |  |            | $      | 196,486 |  |         |        |      | 
|                                                    |                                      |                                            |           |                                 |            |                     |            |                    |         |          |         |                 |      |          |           |           |            |  |            |        |         |  |         |       
|Net interest rate spread (fully-taxable equivalent) |                                      |                                            |           |                                 |            |                     |            |                    |         |          | 3.80    | %               |      |          |           |           |            |  |            |        |         |  | 3.83    | %     
|Net interest margin (fully-taxable equivalent)      |                                      |                                            |           |                                 |            |                     |            |                    |         |          | 4.18    | %               |      |          |           |           |            |  |            |        |         |  | 4.23    | %     



---

|(1) |  | Annualized.                                                
|--- |  | -----------------------------------------------------------
|(2) |  | Loans and leases include loans held for sale.              
|(3) |  | Includes securities available for sale and held to maturity

20



---



##### Table of Contents



TABLE 2 - Average Balances, Yields and Rates

|                                                    |                                      |                                            |           |                                 |            |                  |            |                  |         |          |         |                 |      |          |           |           |            |  |            |         |         |  |         |        |      |  |      | 
|--------------------------------------------------- | ------------------------------------ | ------------------------------------------ | --------- | ------------------------------- | ---------- | ---------------- | ---------- | ---------------- | ------- | -------- | ------- | --------------- | ---- | -------- | --------- | --------- | ---------- |  | ---------- | ------- | ------- |  | ------- | ------ | ---- |  | ---- | 
|                                                    |                                      |                                            |           |                                 |            | Six Months Ended |            | Six Months Ended
|                                                    |                                      |                                            |           |                                 |            | June 30, 2003    |            | June 30, 2002   
|                                                    |                                      |                                            |           |                                 |            |                  |            |                 
|                                                    |                                      |                                            |           |                                 |            |                  |            |                  |         |          |         |                 |      | Yield/   |           |           |            |  |            |         |         |  |         | Yield/
|                                                    |                                      |                                            |           |                                 |            | Average Balance  |            | Interest         |         | Rate (1) |         | Average Balance |      | Interest |           | Rate (1) 
|                                                    |                                      |                                            |           |                                 |            |                  |            |                  |         |          |         |                 |      |          |           |          
|Loans and leases (2):                               |                                      |                                            |           |                                 |            |                  |            |                  |         |          |         |                 |      |          |           |           |            |  |            |         |         |  |         |       
|                                                    | Residential real estate mortgages    |                                            | $         | 2,895,113                       |            |                  | $          | 84,798           |         |          |         | 5.86            | %    |          | $         | 2,622,398 |            |  | $          | 91,211  |         |  |         | 6.96   | %   
|                                                    | Commercial real estate mortgages     |                                            |           | 4,994,310                       |            |                  |            | 156,153          |         |          |         | 6.31            |      |          |           | 4,159,637 |            |  |            | 147,071 |         |  |         | 7.13   |     
|                                                    | Commercial business loans and leases |                                            |           | 3,080,635                       |            |                  |            | 80,579           |         |          |         | 5.27            |      |          |           | 2,530,326 |            |  |            | 77,994  |         |  |         | 6.21   |     
|                                                    | Consumer loans and leases            |                                            |           | 4,325,750                       |            |                  |            | 126,323          |         |          |         | 5.89            |      |          |           | 3,534,601 |            |  |            | 126,110 |         |  |         | 7.19   |     
|                                                    |                                      |                                            |           |                                 |            |                  |            |                  |         |          |         |                 |      |          |           |           |            |  |            |         |         |  |         |       
|                                                    |                                      |                                            |           | Total loans and leases          |            |                  | 15,295,808 |                  |         |          | 447,853 |                 |      |          | 5.89      |           |            |  | 12,846,962 |         |         |  | 442,386 |        |      |  | 6.93 | 
|Investment securities (3)                           |                                      |                                            | 7,578,748 |                                 |            |                  | 166,627    |                  |         |          | 4.40    |                 |      |          | 6,110,711 |           |            |  | 175,100    |         |         |  | 5.73    |       
|Federal funds sold and other short-term investments |                                      |                                            | 11,346    |                                 |            |                  | 79         |                  |         |          | 1.40    |                 |      |          | 48,854    |           |            |  | 467        |         |         |  | 1.93    |       
|                                                    |                                      |                                            |           |                                 |            |                  |            |                  |         |          |         |                 |      |          |           |           |            |  |            |         |         |  |         |       
|                                                    |                                      | Total earning assets                       |           |                                 | 22,885,902 |                  |            |                  | 614,559 |          |         |                 | 5.40 |          |           |           | 19,006,527 |  |            |         | 617,953 |  |         |        | 6.53 | 
|                                                    |                                      |                                            |           |                                 |            |                  |            |                  |         |          |         |                 |      |          |           |           |            |  |            |         |         |  |         |       
|Noninterest earning assets                          |                                      |                                            | 2,398,143 |                                 |            |                  |            |                  |         |          |         |                 |      |          | 1,673,796 |           |            |  |            |         |         |  |         |       
|                                                    |                                      |                                            |           |                                 |            |                  |            |                  |         |          |         |                 |      |          |           |           |            |  |            |         |         |  |         |       
|                                                    |                                      | Total assets                               |           | $                               | 25,284,045 |                  |            |                  |         |          |         |                 |      |          |           | $         | 20,680,323 |  |            |         |         |  |         |        |      | 
|                                                    |                                      |                                            |           |                                 |            |                  |            |                  |         |          |         |                 |      |          |           |           |            |  |            |         |         |  |         |       
|Interest-bearing deposits:                          |                                      |                                            |           |                                 |            |                  |            |                  |         |          |         |                 |      |          |           |           |            |  |            |         |         |  |         |       
|                                                    | Regular savings                      |                                            | $         | 2,321,821                       |            |                  |            | 6,165            |         |          |         | 0.54            |      |          | $         | 1,682,076 |            |  |            | 8,025   |         |  |         | 0.96   |     
|                                                    | NOW and money market accounts        |                                            |           | 6,400,948                       |            |                  |            | 31,615           |         |          |         | 1.00            |      |          |           | 5,173,087 |            |  |            | 38,792  |         |  |         | 1.51   |     
|                                                    | Certificates of deposit              |                                            |           | 5,128,769                       |            |                  |            | 64,346           |         |          |         | 2.53            |      |          |           | 4,707,146 |            |  |            | 78,967  |         |  |         | 3.38   |     
|                                                    | Brokered deposits                    |                                            |           |                                |            |                  |            |                 |         |          |         | 0.00            |      |          |           | 57,131    |            |  |            | 523     |         |  |         | 1.85   |     
|                                                    |                                      |                                            |           |                                 |            |                  |            |                  |         |          |         |                 |      |          |           |           |            |  |            |         |         |  |         |       
|                                                    |                                      |                                            |           | Total interest-bearing deposits |            |                  | 13,851,538 |                  |         |          | 102,126 |                 |      |          | 1.49      |           |            |  | 11,619,440 |         |         |  | 126,307 |        |      |  | 2.19 | 
|Borrowed funds                                      |                                      |                                            | 5,863,321 |                                 |            |                  | 91,969     |                  |         |          | 3.16    |                 |      |          | 4,648,327 |           |            |  | 93,127     |         |         |  | 4.03    |       
|                                                    |                                      |                                            |           |                                 |            |                  |            |                  |         |          |         |                 |      |          |           |           |            |  |            |         |         |  |         |       
|                                                    |                                      | Total interest-bearing liabilities         |           |                                 | 19,714,859 |                  |            |                  | 194,095 |          |         |                 | 1.99 |          |           |           | 16,267,767 |  |            |         | 219,434 |  |         |        | 2.72 | 
|                                                    |                                      |                                            |           |                                 |            |                  |            |                  |         |          |         |                 |      |          |           |           |            |  |            |         |         |  |         |       
|Non-interest bearing deposits                       |                                      |                                            | 3,003,113 |                                 |            |                  |            |                  |         |          |         |                 |      |          | 2,483,959 |           |            |  |            |         |         |  |         |       
|Other liabilities                                   |                                      |                                            | 175,298   |                                 |            |                  |            |                  |         |          |         |                 |      |          | 169,654   |           |            |  |            |         |         |  |         |       
|Shareholders equity                                |                                      |                                            | 2,390,775 |                                 |            |                  |            |                  |         |          |         |                 |      |          | 1,758,943 |           |            |  |            |         |         |  |         |       
|                                                    |                                      |                                            |           |                                 |            |                  |            |                  |         |          |         |                 |      |          |           |           |            |  |            |         |         |  |         |       
|                                                    |                                      | Total liabilities and shareholders equity |           | $                               | 25,284,045 |                  |            |                  |         |          |         |                 |      |          |           | $         | 20,680,323 |  |            |         |         |  |         |        |      | 
|                                                    |                                      |                                            |           |                                 |            |                  |            |                  |         |          |         |                 |      |          |           |           |            |  |            |         |         |  |         |       
|Net earning assets                                  |                                      | $                                          | 3,171,043 |                                 |            |                  |            |                  |         |          |         |                 |      | $        | 2,738,760 |           |            |  |            |         |         |  |         |       
|                                                    |                                      |                                            |           |                                 |            |                  |            |                  |         |          |         |                 |      |          |           |           |            |  |            |         |         |  |         |       
|Net interest income (fully-taxable equivalent)      |                                      |                                            |           |                                 |            |                  | 420,464    |                  |         |          |         |                 |      |          |           |           |            |  | 398,519    |         |         |  |         |       
|Less: fully-taxable equivalent adjustments          |                                      |                                            |           |                                 |            |                  | (2,754     | )                |         |          |         |                 |      |          |           |           |            |  | (2,560     | )       |         |  |         |       
|                                                    |                                      |                                            |           |                                 |            |                  |            |                  |         |          |         |                 |      |          |           |           |            |  |            |         |         |  |         |       
|                                                    |                                      | Net interest income                        |           |                                 |            |                  |            | $                | 417,710 |          |         |                 |      |          |           |           |            |  |            | $       | 395,959 |  |         |        |      | 
|                                                    |                                      |                                            |           |                                 |            |                  |            |                  |         |          |         |                 |      |          |           |           |            |  |            |         |         |  |         |       
|Net interest rate spread (fully-taxable equivalent) |                                      |                                            |           |                                 |            |                  |            |                  |         |          | 3.41    | %               |      |          |           |           |            |  |            |         |         |  | 3.81    | %     
|Net interest margin (fully-taxable equivalent)      |                                      |                                            |           |                                 |            |                  |            |                  |         |          | 3.69    | %               |      |          |           |           |            |  |            |         |         |  | 4.21    | %     



---

|(1) |  | Annualized.                                                
|--- |  | -----------------------------------------------------------
|(2) |  | Loans and leases include loans held for sale.              
|(3) |  | Includes securities available for sale and held to maturity

21



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##### Table of Contents



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

TABLE 3 - Rate /Volume Analysis

|                                                     |                               |   |                                 |       |                                 |    |            |        |        |    |            |        |       |   |            |        |        |   |         |       |   |    |          |         |       |    |         |        |   |   |         |         |  
|---------------------------------------------------- | ----------------------------- | - | ------------------------------- | ----- | ------------------------------- | -- | ---------- | ------ | ------ | -- | ---------- | ------ | ----- | - | ---------- | ------ | ------ | - | ------- | ----- | - | -- | -------- | ------- | ----- | -- | ------- | ------ | - | - | ------- | ------- | -
|                                                     |                               |   | Three Months Ended              |       | Six Months Ended               
|                                                     |                               |   | June 30, 2003 vs. June 30, 2002 |       | June 30, 2003 vs. June 30, 2002
|                                                     |                               |   | Increase (decrease) due to      |       | Increase (decrease) due to     
|                                                     |                               |   |                                 |       |                                
|                                                     |                               |   |                                 |       |                                 |    |            |        |        |    | Rate and   |        | Total |   |            |        |        |   |         |       |   |    | Rate and |         | Total
|                                                     |                               |   | Volume (1)                      |       | Rate                            |    | Volume (2) |        | Change |    | Volume (1) |        | Rate  |   | Volume (2) |        | Change
|                                                     |                               |   |                                 |       |                                 |    |            |        |        |    |            |        |       |   |            |        |       
|Interest income:                                     |                               |   |                                 |       |                                 |    |            |        |        |    |            |        |       |   |            |        |        |   |         |       |   |    |          |         |       |    |         |        |   |   |         |        
|Loans and leases                                     |                               | $ | 47,199                          |       |                                 | ($ | 33,158     | )      |        | ($ | 7,086      | )      |       | $ | 6,955      |        |        | $ | 84,155  |       |   | ($ | 66,255   | )       |       | ($ | 12,433  | )      |   | $ | 5,467   |        
|Investment securities                                |                               |   | 14,498                          |       |                                 |    | (24,255    | )      |        |    | (3,870     | )      |       |   | (13,627    | )      |        |   | 41,714  |       |   |    | (40,302  | )       |       |    | (9,885  | )      |   |   | (8,473  | )      
|Federal funds sold and other short-term
investements |                               |   | (16                             | )     |                                 |    | 25         |        |        |    | (7         | )      |       |   | 2          |        |        |   | (359    | )     |   |    | (128     | )       |       |    | 99      |        |   |   | (388    | )      
|                                                     |                               |   |                                 |       |                                 |    |            |        |        |    |            |        |       |   |            |        |        |   |         |       |   |    |          |         |       |    |         |        |   |   |         |        
|Total interest income                                |                               |   | 61,681                          |       |                                 |    | (57,388    | )      |        |    | (10,963    | )      |       |   | (6,670     | )      |        |   | 125,510 |       |   |    | (106,685 | )       |       |    | (22,219 | )      |   |   | (3,394  | )      
|                                                     |                               |   |                                 |       |                                 |    |            |        |        |    |            |        |       |   |            |        |        |   |         |       |   |    |          |         |       |    |         |        |   |   |         |        
|Interest expense:                                    |                               |   |                                 |       |                                 |    |            |        |        |    |            |        |       |   |            |        |        |   |         |       |   |    |          |         |       |    |         |        |   |   |         |        
|Interest-bearing deposits:                           |                               |   |                                 |       |                                 |    |            |        |        |    |            |        |       |   |            |        |        |   |         |       |   |    |          |         |       |    |         |        |   |   |         |        
|                                                     | Regular savings               |   |                                 | 1,779 |                                 |    |            | (1,926 | )      |    |            | (825   | )     |   |            | (972   | )      |   |         | 3,046 |   |    |          | (3,503  | )     |    |         | (1,403 | ) |   |         | (1,860  | )
|                                                     | NOW and money market accounts |   |                                 | 5,063 |                                 |    |            | (7,194 | )      |    |            | (1,858 | )     |   |            | (3,989 | )      |   |         | 9,194 |   |    |          | (13,083 | )     |    |         | (3,288 | ) |   |         | (7,177  | )
|                                                     | Certificates of deposit       |   |                                 | 4,733 |                                 |    |            | (9,048 | )      |    |            | (1,221 | )     |   |            | (5,536 | )      |   |         | 7,067 |   |    |          | (19,841 | )     |    |         | (1,847 | ) |   |         | (14,621 | )
|                                                     | Brokered deposits             |   |                                 | (235  | )                               |    |            | (235   | )      |    |            | 235    |       |   |            | (235   | )      |   |         | (524  | ) |    |          | (524    | )     |    |         | 525    |   |   |         | (523    | )
|                                                     |                               |   |                                 |       |                                 |    |            |        |        |    |            |        |       |   |            |        |        |   |         |       |   |    |          |         |       |    |         |        |   |   |         |        
|Total interest-bearing deposits                      |                               |   | 11,340                          |       |                                 |    | (18,403    | )      |        |    | (3,669     | )      |       |   | (10,732    | )      |        |   | 18,783  |       |   |    | (36,951  | )       |       |    | (6,013  | )      |   |   | (24,181 | )      
|Borrowed funds                                       |                               |   | 6,838                           |       |                                 |    | (13,240    | )      |        |    | (1,876     | )      |       |   | (8,278     | )      |        |   | 24,281  |       |   |    | (20,054  | )       |       |    | (5,385  | )      |   |   | (1,158  | )      
|                                                     |                               |   |                                 |       |                                 |    |            |        |        |    |            |        |       |   |            |        |        |   |         |       |   |    |          |         |       |    |         |        |   |   |         |        
|Total interest expense                               |                               |   | 18,178                          |       |                                 |    | (31,643    | )      |        |    | (5,545     | )      |       |   | (19,010    | )      |        |   | 43,064  |       |   |    | (57,005  | )       |       |    | (11,398 | )      |   |   | (25,339 | )      
|                                                     |                               |   |                                 |       |                                 |    |            |        |        |    |            |        |       |   |            |        |        |   |         |       |   |    |          |         |       |    |         |        |   |   |         |        
|Net interest income (fully taxable equivalent)       |                               | $ | 43,503                          |       |                                 | ($ | 25,745     | )      |        | ($ | 5,418      | )      |       | $ | 12,340     |        |        | $ | 82,446  |       |   | ($ | 49,680   | )       |       | ($ | 10,821  | )      |   | $ | 21,945  |        
|                                                     |                               |   |                                 |       |                                 |    |            |        |        |    |            |        |       |   |            |        |        |   |         |       |   |    |          |         |       |    |         |        |   |   |         |        



---

|(1) |  | Volume increases include the effects of acquisitions, including the acquisition of Ipswich on July 26, 2002, Bancorp on August 31, 2002,
Warren on December 31, 2002 and American on February 14, 2003.
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(2) |  | Includes changes in interest income and expense not due solely to volume or rate changes.                                                                                                              

Provision and Allowance for Loan and Lease Losses

We provided $10.5 million and $10.8 million for loan and lease losses in the
quarters ended June 30, 2003 and 2002, respectively. For the six months ended
June 30, 2003 and 2002, we provided $21.4 million and $22.7 million for loan
and lease losses, respectively. The lower provisions were due to lower
nonperforming assets, a higher coverage ratio of the allowance to
non-performing loans and leases and lower delinquency ratios. As shown in
Table 12, nonperforming assets amounted to $64.5 million at June 30, 2003
compared to $72.2 million at June 30, 2002. At June 30, 2003, the allowance
for loan and lease losses amounted to $227.2 million, or 1.44% of total
portfolio loans and leases, as compared to $208.3 million, or 1.48%, at
December 31, 2002. The ratio of the allowance for loan and lease losses to
nonperforming loans was 374% at June 30, 2003, as compared to 319% at December
31, 2002 and 289% at June 30, 2002. In addition, the allowance increased by
$16.3 million as a result of carrying over the allowance of American which was
acquired on February 14, 2003.

The allowance for loan and lease losses is maintained at a level determined to
be adequate by management to absorb future charge-offs of loans and leases
deemed uncollectable. This allowance is increased by provisions charged to
income and by recoveries on loans previously charged off. Arriving at an
appropriate level of allowance for loan and lease losses necessarily involves a
high degree of judgment and is determined based on managements ongoing
evaluation. We believe that the methods used by us in determining the
allowance for loan and lease losses constitute a critical accounting policy.
Although we utilize judgment in providing
for losses, for the reasons discussed under Credit Risk Management -
Nonperforming Assets, there can be no assurance that we will not have to
increase the amount of our provision for loan and lease losses in future
periods especially in light of current economic conditions.

22



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##### Table of Contents



TABLE 4 - Allowance for Loan and Lease Losses

|                                                                                                            |                                    |                                      |            |             |        |            |            |             |        |            |            |             |        |            |            |        |        |    |            |        |       |   |            |        |        |   
|----------------------------------------------------------------------------------------------------------- | ---------------------------------- | ------------------------------------ | ---------- | ----------- | ------ | ---------- | ---------- | ----------- | ------ | ---------- | ---------- | ----------- | ------ | ---------- | ---------- | ------ | ------ | -- | ---------- | ------ | ----- | - | ---------- | ------ | ------ | --
|                                                                                                            |                                    |                                      |            | 2003 Second |        | 2003 First |            | 2002 Fourth |        | 2002 Third |            | 2002 Second |        | 2002 First
|                                                                                                            |                                    |                                      |            | Quarter     |        | Quarter    |            | Quarter     |        | Quarter    |            | Quarter     |        | Quarter   
|                                                                                                            |                                    |                                      |            |             |        |            |            |             |        |            |            |             |        |           
|Allowance at beginning of period                                                                            |                                    | $                                    | 226,677    |             |        | $          | 208,273    |             |        | $          | 201,689    |             |        | $          | 193,444    |        |        | $  | 190,890    |        |       | $ | 189,837    |       
|Additions due to acquisitions                                                                               |                                    |                                      |           |             |        |            | 16,346     |             |        |            | 4,972      |             |        |            | 7,822      |        |        |    |           |        |       |   |           |       
|Charge-offs:                                                                                                |                                    |                                      |            |             |        |            |            |             |        |            |            |             |        |            |            |        |        |    |            |        |       |   |            |       
|Residential real estate mortgages                                                                           |                                    |                                      | 53         |             |        |            | 55         |             |        |            | (263       | )           |        |            | 56         |        |        |    | 201        |        |       |   | (134       | )     
|Commercial real estate mortgages                                                                            |                                    |                                      | 202        |             |        |            | 262        |             |        |            | 459        |             |        |            | (76        | )      |        |    | 273        |        |       |   | 635        |       
|Commercial business loans and leases                                                                        |                                    |                                      | 5,754      |             |        |            | 3,205      |             |        |            | 5,060      |             |        |            | 8,703      |        |        |    | 5,319      |        |       |   | 5,374      |       
|Consumer loans and leases                                                                                   |                                    |                                      | 6,959      |             |        |            | 7,609      |             |        |            | 7,597      |             |        |            | 5,922      |        |        |    | 5,834      |        |       |   | 7,042      |       
|                                                                                                            |                                    |                                      |            |             |        |            |            |             |        |            |            |             |        |            |            |        |        |    |            |        |       |   |            |       
|                                                                                                            | Total loans and leases charged off |                                      |            | 12,968      |        |            |            | 11,131      |        |            |            | 12,853      |        |            |            | 14,605 |        |    |            | 11,627 |       |   |            | 12,917 |       
|                                                                                                            |                                    |                                      |            |             |        |            |            |             |        |            |            |             |        |            |            |        |        |    |            |        |       |   |            |       
|Recoveries:                                                                                                 |                                    |                                      |            |             |        |            |            |             |        |            |            |             |        |            |            |        |        |    |            |        |       |   |            |       
|Residential real estate mortgages                                                                           |                                    |                                      | 22         |             |        |            | 22         |             |        |            | 12         |             |        |            | 65         |        |        |    | 21         |        |       |   | 23         |       
|Commercial real estate mortgages                                                                            |                                    |                                      | 676        |             |        |            | 534        |             |        |            | 70         |             |        |            | (7         | )      |        |    | 27         |        |       |   | 27         |       
|Commercial business loans and leases                                                                        |                                    |                                      | 1,286      |             |        |            | 689        |             |        |            | 2,628      |             |        |            | 3,108      |        |        |    | 2,136      |        |       |   | 1,101      |       
|Consumer loans and leases                                                                                   |                                    |                                      | 1,047      |             |        |            | 1,043      |             |        |            | 927        |             |        |            | 1,033      |        |        |    | 1,168      |        |       |   | 991        |       
|                                                                                                            |                                    |                                      |            |             |        |            |            |             |        |            |            |             |        |            |            |        |        |    |            |        |       |   |            |       
|                                                                                                            | Total loans and leases recovered   |                                      |            | 3,031       |        |            |            | 2,288       |        |            |            | 3,637       |        |            |            | 4,199  |        |    |            | 3,352  |       |   |            | 2,142  |       
|                                                                                                            |                                    |                                      |            |             |        |            |            |             |        |            |            |             |        |            |            |        |        |    |            |        |       |   |            |       
|Net charge-offs                                                                                             |                                    |                                      | 9,937      |             |        |            | 8,843      |             |        |            | 9,216      |             |        |            | 10,406     |        |        |    | 8,275      |        |       |   | 10,775     |       
|Provision for loan and lease losses                                                                         |                                    |                                      | 10,500     |             |        |            | 10,901     |             |        |            | 10,828     |             |        |            | 10,829     |        |        |    | 10,829     |        |       |   | 11,828     |       
|                                                                                                            |                                    |                                      |            |             |        |            |            |             |        |            |            |             |        |            |            |        |        |    |            |        |       |   |            |       
|Allowance at end of period                                                                                  |                                    | $                                    | 227,240    |             |        | $          | 226,677    |             |        | $          | 208,273    |             |        | $          | 201,689    |        |        | $  | 193,444    |        |       | $ | 190,890    |       
|                                                                                                            |                                    |                                      |            |             |        |            |            |             |        |            |            |             |        |            |            |        |        |    |            |        |       |   |            |       
|Average loans and leases outstanding
during the period (1)                                                  |                                    | $                                    | 15,634,071 |             |        | $          | 14,829,108 |             |        | $          | 13,750,316 |             |        | $          | 13,375,980 |        |        | $  | 12,871,386 |        |       | $ | 12,723,083 |       
|                                                                                                            |                                    |                                      |            |             |        |            |            |             |        |            |            |             |        |            |            |        |        |    |            |        |       |   |            |       
|Ratio of net charge-offs to average loans and
leases outstanding during the period, annualized (1)          |                                    |                                      | 0.25       | %           |        |            | 0.24       | %           |        |            | 0.27       | %           |        |            | 0.31       | %      |        |    | 0.26       | %      |       |   | 0.34       | %     
|Ratio of allowance to total loans and leases
at end of period (1)                                           |                                    |                                      | 1.44       | %           |        |            | 1.46       | %           |        |            | 1.48       | %           |        |            | 1.47       | %      |        |    | 1.48       | %      |       |   | 1.50       | %     
|Ratio of allowance to nonperforming loans
and leases at end of period                                       |                                    |                                      | 374        | %           |        |            | 288        | %           |        |            | 319        | %           |        |            | 311        | %      |        |    | 289        | %      |       |   | 268        | %     
|Ratio of net charge-offs (recoveries) as a percent of
average outstanding loans and leases, annualized (1): |                                    |                                      |            |             |        |            |            |             |        |            |            |             |        |            |            |        |        |    |            |        |       |   |            |       
|                                                                                                            |                                    | Residential real estate mortgages    |            |             | 0.004  | %          |            |             | 0.005  | %          |            |             | (0.042 | %)         |            |        | (0.001 | %) |            |        | 0.029 | % |            |        | (0.024 | %)
|                                                                                                            |                                    | Commercial real estate mortgages     |            |             | (0.037 | %)         |            |             | (0.022 | %)         |            |             | 0.034  | %          |            |        | (0.006 | %) |            |        | 0.023 | % |            |        | 0.060  | % 
|                                                                                                            |                                    | Commercial business loans and leases |            |             | 0.568  | %          |            |             | 0.339  | %          |            |             | 0.339  | %          |            |        | 0.806  | %  |            |        | 0.492 | % |            |        | 0.703  | % 
|                                                                                                            |                                    | Consumer loans and leases            |            |             | 0.531  | %          |            |             | 0.636  | %          |            |             | 0.691  | %          |            |        | 0.530  | %  |            |        | 0.530 | % |            |        | 0.693  | % 



---

|(1) |  | Excludes residential real estate loans held for
sale.
|--- |  | -----------------------------------------------------

Noninterest Income

Noninterest income for the second quarter ended June 30, 2003 totaled $115.8
million, an increase of $52.8 million, or 84%, from the second quarter of 2002.
Included in this increase was $29.2 million of gains from the
sale of securities related to the
aforementioned deleveraging program. This amount represented 55% of the total
increase. The remaining increase was primarily due to increases in deposit
services income, other noninterest income (primarily covered call premium
income), merchant and electronic banking income and investment planning
services income. These increases were partially offset by lower income from
trust and investment management services. Noninterest income, including
net securities gains, as a percent of total income was 35% and 24% for
the quarters ended June 30, 2003 and 2002, respectively. Net securities gains represented 29% and 1% of noninterest income for the quarters ended June
30, 2003 and 2002, respectively.

Deposit services income amounted to $23.7 million for the second quarter of
2003 compared to $19.9 million for the same period in 2002, an increase of $3.8
million, or 19%. For the six months ended June 30, 2003 and 2002, deposit
services income amounted to $46.3 million and $38.9 million, respectively, an
increase of 19%. These increases were primarily attributable to volume and fee
increases on deposit accounts and overdraft fees, which were due in part to the
acquisitions in 2003 and 2002.

Insurance brokerage commissions income amounted to $10.9 million for the second
quarter of 2003 compared to $10.1 million for the same period in 2002, an
increase of 9%. For the six months ended June 30, 2003 and 2002, insurance
brokerage commissions amounted to $23.3 million and $20.2 million,
respectively, an increase of 15%.

23



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##### Table of Contents



These increases were mostly attributable to
the acquisition of Community Insurance Agency in the third quarter of 2002 and
higher annual bonus and profit sharing commissions received from the carriers
in the first quarter of 2003, which is not expected to continue during the
remainder of 2003.

Merchant and electronic banking income was $11.2 million for the second quarter
of 2003 compared to $9.7 million for the second quarter of 2002, an increase of
16%. For the six months ended June 30, 2003 and 2002, merchant and electronic
banking income amounted to $20.3 million and $17.4 million, respectively, an
increase of 17%. This income represents fees and interchange income generated
by the use of our ATMs and debit cards issued by us along with charges to
merchants for credit card transactions processed, net of third-party costs
directly attributable to handling these transactions. The increases were due
primarily to increases in the volume of transactions processed and increased
market share from acquisitions.

Trust and investment management services income amounted to $8.0 million for
the quarter ended June 30, 2003 compared to $8.5 million for the second quarter
of 2002, a decrease of 7%. For the six months ended June 30, 2003 and 2002,
trust and investment management services income amounted to $15.3 million and
$16.8 million, respectively, a decrease of 9%. Assets under management
increased to $8.1 billion at June 30, 2003 from $8.0 billion at June 30, 2002.
Income based on the market value of assets under management decreased modestly
as the market performance in the first quarter of the year continued to
negatively impact the second quarter revenue.

Bank-owned life insurance (BOLI) income was $5.8 million for the second
quarter of 2003, compared to $5.0 million for the same period in 2002, an
increase of 17%. For the six months ended June 30, 2003 and 2002, BOLI income
amounted to $11.2 million and $9.4 million, respectively, an increase of 19%.
The increase related to BOLI purchased in 2002 and $85.6 million of BOLI
acquired in the American merger in the first quarter of 2003. Income from BOLI
represents life insurance on the lives of certain employees who have provided a
consent allowing the Bank to be the beneficiary of such policies. Most of the
BOLI is invested in the general account of quality insurance companies.
Standard and Poors rated all such companies AA- or better at June 30, 2003.
The BOLI investment provides a means to mitigate increasing employee benefit
costs. For the second quarter of 2003, the average carrying value of BOLI was
$473 million compared to $366 million for the second quarter of 2002.

Investment planning services income in the second quarter of 2003 amounted to
$3.9 million compared to $3.0 million in the second quarter of 2002, an
increase of $947 thousand, or 32%. For the six months ended June 30, 2003 and
2002, investment planning services income amounted to $7.2 million and $5.7
million, respectively, an increase of 26%. These increases were primarily
attributable to commissions earned from increased sales of third party mutual
funds and annuities.

Net securities gains amounted to $33.4 million and $350 thousand during the
quarters ended June 30, 2003 and 2002, respectively. During the second quarter
of 2003, we sold $901 million in securities as part of the deleveraging program
discussed above. The gains on sales of these securities amounted to $29.2
million, which were substantially offset by prepayment penalties of $28.5
million related to borrowings which were prepaid in connection with
the deleveraging program. Other asset liability management strategies resulted in $4.2 million
of net securities gains during the three months ended June 30, 2003. For the
six months ended June 30, 2003 and 2002, net securities gains were $36.2 million
and $369 thousand, respectively. Gains from the sale of securities are subject
to market and economic conditions and, as a result, there can be no assurance
that gains reported in prior periods will be achieved in the future.

Other noninterest income amounted to $18.8 million and $6.5 million for the
quarters ended June 30, 2003 and 2002. For the six months ended June 30, 2003
and 2002, other noninterest income amounted to $34.3 million and $15.8 million,
respectively. These increases were mostly due to increases in covered call
premium income resulting from call options written on both securities we own
and securities we had committed to buy as well as increases in mortgage banking
income and gains on the sales of bank premises which are included in other
income ($686 thousand for both the three and six months ended June 30, 2003).
The following table presents the detail of other noninterest income for the
periods indicated:

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Table 5 - Other Noninterest Income

|                                     |  |                    |        |                  |  |      |       |      |  |   |        |   |  |   |        |  
|------------------------------------ |  | ------------------ | ------ | ---------------- |  | ---- | ----- | ---- |  | - | ------ | - |  | - | ------ | -
|                                     |  | Three Months Ended |        | Six Months Ended
|                                     |  | June 30,           |        | June 30,        
|                                     |  |                    |        |                 
|                                     |  | 2003               |        | 2002             |  | 2003 |       | 2002
|                                     |  |                    |        |                  |  |      |       |     
|Covered call premiums                |  | $                  | 7,199  |                  |  | $    | 1,410 |      |  | $ | 14,238 |   |  | $ | 3,979  |  
|Loan fee income                      |  |                    | 6,978  |                  |  |      | 5,086 |      |  |   | 12,080 |   |  |   | 10,522 |  
|Mortgage banking services            |  |                    | 3,069  |                  |  |      | 489   |      |  |   | 6,241  |   |  |   | 2,165  |  
|Losses on small business investments |  |                    | (98    | )                |  |      | (744  | )    |  |   | (615   | ) |  |   | (1,702 | )
|Miscellaneous other                  |  |                    | 1,658  |                  |  |      | 262   |      |  |   | 2,367  |   |  |   | 860    |  
|                                     |  |                    |        |                  |  |      |       |      |  |   |        |   |  |   |        |  
|Total                                |  | $                  | 18,806 |                  |  | $    | 6,503 |      |  | $ | 34,311 |   |  | $ | 15,824 |  
|                                     |  |                    |        |                  |  |      |       |      |  |   |        |   |  |   |        |  

Noninterest Expense

Noninterest expense was $184.0 million and $136.8 million for the quarters
ended June 30, 2003 and 2002, respectively, which represented an increase of
$47.2 million, or 35%. Included in this increase was $28.5 million of
prepayment penalties on borrowings related to the aforementioned deleveraging
program. This amount represented 60% of the total increase. The remaining
expense categories that increased included compensation and employee benefits
expense ($6.5 million), equipment expense ($2.5 million) and occupancy expense
($2.4 million). For the six months ended June 30, 2003 and 2002, noninterest
expenses amounted to $333.9 million and $279.7 million, respectively. Included
in this increase was $28.5 million of prepayment penalties on borrowings
related to the aforementioned deleveraging program. This amount
represented 53%
of the total increase of $54.2 million. The remaining increases in noninterest
expense for the quarter and six months ended June 30, 2003 over the comparable
periods last year were primarily attributable to acquisitions.

Compensation and employee benefits expense of $82.2 million for the quarter
ended June 30, 2003 increased $6.5 million, or 9%, from the same quarter of
last year. For the six months ended June 30, 2003 and 2002, compensation and
employee benefits expense amounted to $162.9 million and $151.0 million,
respectively. These increases were primarily due to additional employees from
acquisitions and increased benefit costs, which were partially offset by lower
incentive expense. The total number of full-time equivalent employees was
approximately 6,600 at June 30, 2003 compared to 6,100 at June 30, 2002.
Pension expense under the defined benefit pension plan (which is included in
compensation and employee benefits expense) was $2.5 million and $873 thousand
for the three months ended June 30, 2003 and 2002, respectively, and increased
primarily due to a lower discount rate and a lower expected rate of return on
plan assets. The fair value of plan assets as of June 30, 2003 was $177.6
million as compared to $154.9 million at December 31, 2002.

Data processing expense amounted to $10.4 million and $9.8 million for the
quarters ended June 30, 2003 and 2002, respectively, an increase of $572
thousand, or 6%. The increase was primarily due to increased transaction
volume (core processing and data lines) and software licensing costs. The
increase was partially offset by lower bank card expenses due to lower fees
charged by a new third-party processor. In addition, beginning in July 2002,
check processing was insourced and the primary costs are now recorded in
compensation and employee benefits. Previously, a third-party vendor handled
check processing and its charges were recorded as data processing costs. For
the six months ended June 30, 2003 and 2002, data processing expense amounted
to $20.6 million and $20.4 million, respectively.

Occupancy expense of $15.2 million during the three months ended June 30, 2003
increased $2.4 million, or 19%, from the same quarter in 2002, primarily due to
the cost of our new facility in West Falmouth, Maine and the cost of facilities
assumed in acquisitions. For the six months ended June 30, 2003 and 2002,
occupancy expense amounted to $30.1 million and $25.3 million, an increase of
19 %.

Equipment expense of $12.4 million during the three months ended June 30, 2003
increased $2.5 million, or 25%, from the second quarter of last year. For the
six months ended June 30, 2003 and 2002, equipment expense amounted to $23.7
million and $19.6 million, respectively. These increases were primarily due to
depreciation

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expense on new technology equipment and software (e.g.,
e-commerce) and depreciation/maintenance of equipment obtained through
acquisitions.

Advertising and marketing expense amounted to $6.0 million and $4.2 million for
the three months ended June 30, 2003 and 2002, respectively. The $1.7 million,
or 41%, increase was largely due to the timing of advertising campaigns, new
advertising promotions and corporate sponsorships and additional expenses for
the introduction of our products in new market areas. For the six months ended
June 30, 2003 and 2002, advertising and marketing expense amounted to $11.0
million and $8.2 million, respectively, an increase of 34% primarily for the
same reasons described above.

Amortization of identifiable intangible assets of $2.3 million during the three
months ended June 30, 2003 increased $1.2 million from the second quarter of
last year. This increase was primarily due to amortization of core deposit
intangibles and other identifiable intangibles recorded in connection with
acquisitions. For the six months ended June 30, 2003 and 2002, amortization of
identifiable intangible assets amounted to $4.3 million and $2.7 million,
respectively. For additional information, see Note 4 to the unaudited Consolidated
Financial Statements included herein.

Merger and consolidation costs amounted to $1.5 million ($1.0 million
after-tax) and $1.1 million ($690 thousand after-tax) for the three months
ended June 30, 2003 and 2002, respectively. For the six months ended June 30,
2003 and 2002, merger and consolidation costs amounted to $6.0 million ($3.9
million after-tax) and $9.3 million ($6.0 million after-tax), respectively.
The following table summarizes merger and consolidation costs for the three and
six months ended June 30, 2003 and 2002.

Table 6 - Merger and Consolidation Costs

|                                                           |  |                    |       |                  |  |      |       |      |  |   |       |   |  |   |       |  
|---------------------------------------------------------- |  | ------------------ | ----- | ---------------- |  | ---- | ----- | ---- |  | - | ----- | - |  | - | ----- | -
|                                                           |  | Three Months Ended |       | Six Months Ended
|                                                           |  | June 30,           |       | June 30,        
|                                                           |  |                    |       |                 
|                                                           |  | 2003               |       | 2002             |  | 2003 |       | 2002
|                                                           |  |                    |       |                  |  |      |       |     
|American Merger Charges                                    |  |                    |       |                  |  |      |       |      |  |   |       |   |  |   |       |  
|Personnel costs                                            |  | $                  | 129   |                  |  |      |      |      |  | $ | 1,044 |   |  |   |      |  
|Systems conversion and integration/customer communications |  |                    | 684   |                  |  |      |      |      |  |   | 1,905 |   |  |   |      |  
|Other costs                                                |  |                    | 283   |                  |  |      |      |      |  |   | 1,397 |   |  |   |      |  
|                                                           |  |                    |       |                  |  |      |       |      |  |   |       |   |  |   |       |  
|                                                           |  |                    | 1,096 |                  |  |      |      |      |  |   | 4,346 |   |  |   |      |  
|                                                           |  |                    |       |                  |  |      |       |      |  |   |       |   |  |   |       |  
|Warren Merger Charges                                      |  |                    |       |                  |  |      |       |      |  |   |       |   |  |   |       |  
|Personnel costs                                            |  |                    | 214   |                  |  |      |      |      |  |   | 837   |   |  |   |      |  
|Systems conversion and integration/customer communications |  |                    | 365   |                  |  |      |      |      |  |   | 871   |   |  |   |      |  
|Other costs                                                |  |                    | 247   |                  |  |      |      |      |  |   | 347   |   |  |   |      |  
|                                                           |  |                    |       |                  |  |      |       |      |  |   |       |   |  |   |       |  
|                                                           |  |                    | 826   |                  |  |      |      |      |  |   | 2,055 |   |  |   |      |  
|                                                           |  |                    |       |                  |  |      |       |      |  |   |       |   |  |   |       |  
|Andover/MetroWest Merger Charges                           |  |                    |       |                  |  |      |       |      |  |   |       |   |  |   |       |  
|Personnel costs                                            |  |                    |      |                  |  |      | (423  | )    |  |   | 1     |   |  |   | 635   |  
|Systems conversion and integration/customer communications |  |                    |      |                  |  |      | 336   |      |  |   |      |   |  |   | 3,052 |  
|Other costs                                                |  |                    | 14    |                  |  |      | (174  | )    |  |   | (10   | ) |  |   | 1,858 |  
|                                                           |  |                    |       |                  |  |      |       |      |  |   |       |   |  |   |       |  
|                                                           |  |                    | 14    |                  |  |      | (261  | )    |  |   | (9    | ) |  |   | 5,545 |  
|                                                           |  |                    |       |                  |  |      |       |      |  |   |       |   |  |   |       |  
|Charter Consolidation Costs                                |  |                    |       |                  |  |      |       |      |  |   |       |   |  |   |       |  
|Personnel costs                                            |  |                    |      |                  |  |      | 770   |      |  |   |      |   |  |   | 770   |  
|Branch signage                                             |  |                    |      |                  |  |      |      |      |  |   |      |   |  |   | 729   |  
|Customer notices                                           |  |                    |      |                  |  |      |      |      |  |   |      |   |  |   | 567   |  
|Forms and documents                                        |  |                    |      |                  |  |      | 192   |      |  |   |      |   |  |   | 576   |  
|Other costs                                                |  |                    |      |                  |  |      | 131   |      |  |   |      |   |  |   | 780   |  
|                                                           |  |                    |       |                  |  |      |       |      |  |   |       |   |  |   |       |  
|                                                           |  |                    |      |                  |  |      | 1,093 |      |  |   |      |   |  |   | 3,422 |  
|                                                           |  |                    |       |                  |  |      |       |      |  |   |       |   |  |   |       |  
|Other Costs                                                |  |                    |       |                  |  |      |       |      |  |   |       |   |  |   |       |  
|Bancorp and Ipswich merger charges                         |  |                    | 209   |                  |  |      | 711   |      |  |   | 247   |   |  |   | 714   |  
|Branch decommissioning costs                               |  |                    |      |                  |  |      | (33   | )    |  |   |      |   |  |   | 33    |  
|Reverse auto lease reserves (Banknorth - Vermont)          |  |                    | (615  | )                |  |      |      |      |  |   | (615  | ) |  |   |      |  
|Other costs                                                |  |                    |      |                  |  |      | (449  | )    |  |   | (43   | ) |  |   | (449  | )
|                                                           |  |                    |       |                  |  |      |       |      |  |   |       |   |  |   |       |  
|                                                           |  |                    | (406  | )                |  |      | 229   |      |  |   | (411  | ) |  |   | 298   |  
|                                                           |  |                    |       |                  |  |      |       |      |  |   |       |   |  |   |       |  
|Total Merger and Consolidation Costs                       |  | $                  | 1,530 |                  |  | $    | 1,061 |      |  | $ | 5,981 |   |  | $ | 9,265 |  
|                                                           |  |                    |       |                  |  |      |       |      |  |   |       |   |  |   |       |  

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The following table summarizes activity in the accrual account for merger and
consolidation costs from December 31, 2002 through June 30, 2003.

TABLE 7 - Merger and Consolidation Costs - Activity in the Accrual Account

|                                     |  |          |       |                |  |         |        |          |  |             |       |                 |  |         |        |   |  |                |        |   |  |   |       | 
|------------------------------------ |  | -------- | ----- | -------------- |  | ------- | ------ | -------- |  | ----------- | ----- | --------------- |  | ------- | ------ | - |  | -------------- | ------ | - |  | - | ----- | 
|                                     |  |          |       |                |  |         |        |          |  |             |       |                 |  |         |        |   |  | Non-cash Write |        |   |  |  
|                                     |  | Balance  |       | Accrued        |  |         |        |          |  | Cash        |       | Downs and Other |  | Balance
|                                     |  | 12/31/02 |       | at Acquisition |  | Charges |        | Payments |  | Adjustments |       | 6/30/03        
|                                     |  |          |       |                |  |         |        |          |  |             |       |                
|American Merger                      |  | $        |      |                |  | $       | 13,600 |          |  | $           | 4,346 |                 |  | ($      | 15,702 | ) |  | ($             | 625    | ) |  | $ | 1,619 | 
|Warren Merger                        |  |          | 2,052 |                |  |         |       |          |  |             | 2,055 |                 |  |         | (3,660 | ) |  |                | 221    |   |  |   | 668   | 
|Andover / MetroWest Mergers          |  |          | 321   |                |  |         |       |          |  |             | (9    | )               |  |         | (33    | ) |  |                | (189   | ) |  |   | 90    | 
|Other Merger and Consolidation Costs |  |          | 3,181 |                |  |         |       |          |  |             | (411  | )               |  |         | (793   | ) |  |                | (1,183 | ) |  |   | 794   | 
|                                     |  |          |       |                |  |         |        |          |  |             |       |                 |  |         |        |   |  |                |        |   |  |   |       | 
|Total                                |  | $        | 5,554 |                |  | $       | 13,600 |          |  | $           | 5,981 |                 |  | ($      | 20,188 | ) |  | ($             | 1,776  | ) |  | $ | 3,171 | 
|                                     |  |          |       |                |  |         |        |          |  |             |       |                 |  |         |        |   |  |                |        |   |  |   |       | 

Prepayment penalties on borrowings
amounted to $30.5 million during the second
quarter ended June 30, 2003, $28.5 million of which was incurred in connection
with the above-discussed deleveraging program, and $2.0 million of which was
incurred in connection with the early payoff of other borrowings. There were
no prepayment penalties in the second quarter last year.

Other noninterest expenses amounted to $23.5 million and $22.1 million during
the three months ended June 30, 2003 and 2002, respectively. For the six
months ended June 30, 2003 and 2002, other noninterest expenses amounted to
$44.9 million and $43.1 million, respectively. The following table summarizes
the principal components of other noninterest expenses for the periods
indicated.

TABLE 8 - Other Noninterest Expenses

|                                                       |  |         |        |         |  |         |        |         |  |         |        |         |  |   |        |  |  |   |        |  |  |   |        | 
|------------------------------------------------------ |  | ------- | ------ | ------- |  | ------- | ------ | ------- |  | ------- | ------ | ------- |  | - | ------ |  |  | - | ------ |  |  | - | ------ | 
|                                                       |  | 2003    |        | 2002   
|                                                       |  |         |        |        
|                                                       |  | Second  |        | First   |  | Fourth  |        | Third   |  | Second  |        | First  
|                                                       |  | Quarter |        | Quarter |  | Quarter |        | Quarter |  | Quarter |        | Quarter
|                                                       |  |         |        |         |  |         |        |         |  |         |        |        
|Telephone                                              |  | $       | 2,595  |         |  | $       | 3,468  |         |  | $       | 3,600  |         |  | $ | 3,276  |  |  | $ | 3,332  |  |  | $ | 3,189  | 
|Office supplies                                        |  |         | 2,523  |         |  |         | 2,794  |         |  |         | 2,594  |         |  |   | 2,726  |  |  |   | 2,597  |  |  |   | 2,819  | 
|Postage and freight                                    |  |         | 3,223  |         |  |         | 3,074  |         |  |         | 2,490  |         |  |   | 2,402  |  |  |   | 2,206  |  |  |   | 2,609  | 
|Miscellaneous loan costs                               |  |         | 1,563  |         |  |         | 948    |         |  |         | 1,178  |         |  |   | 239    |  |  |   | 1,706  |  |  |   | 1,167  | 
|Deposits and other assessments                         |  |         | 974    |         |  |         | 899    |         |  |         | 871    |         |  |   | 969    |  |  |   | 901    |  |  |   | 799    | 
|Collection
and carrying costs
of non-performing assets |  |         | 947    |         |  |         | 308    |         |  |         | 595    |         |  |   | 662    |  |  |   | 807    |  |  |   | 649    | 
|Other                                                  |  |         | 11,689 |         |  |         | 9,880  |         |  |         | 13,698 |         |  |   | 10,968 |  |  |   | 10,518 |  |  |   | 9,791  | 
|                                                       |  |         |        |         |  |         |        |         |  |         |        |         |  |   |        |  |  |   |        |  |  |   |        | 
|Total                                                  |  | $       | 23,514 |         |  | $       | 21,371 |         |  | $       | 25,026 |         |  | $ | 21,242 |  |  | $ | 22,067 |  |  | $ | 21,023 | 
|                                                       |  |         |        |         |  |         |        |         |  |         |        |         |  |   |        |  |  |   |        |  |  |   |        | 

|                                                       |  |                  |        |           |  |   |        | 
|------------------------------------------------------ |  | ---------------- | ------ | --------- |  | - | ------ | 
|                                                       |  | Six Months Ended
|                                                       |  |                 
|                                                       |  | 6/30/2003        |        | 6/30/2002
|                                                       |  |                  |        |          
|Telephone                                              |  | $                | 6,063  |           |  | $ | 6,521  | 
|Office supplies                                        |  |                  | 5,317  |           |  |   | 5,416  | 
|Postage and freight                                    |  |                  | 6,297  |           |  |   | 4,815  | 
|Miscellaneous loan costs                               |  |                  | 2,511  |           |  |   | 2,873  | 
|Deposits and other assessments                         |  |                  | 1,873  |           |  |   | 1,700  | 
|Collection
and carrying costs
of non-performing assets |  |                  | 1,255  |           |  |   | 1,456  | 
|Other                                                  |  |                  | 21,567 |           |  |   | 20,309 | 
|                                                       |  |                  |        |           |  |   |        | 
|Total                                                  |  | $                | 44,883 |           |  | $ | 43,090 | 
|                                                       |  |                  |        |           |  |   |        | 

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Taxes

The effective tax rate was 34% for the three and six months ended June 30, 2003
and 2002, respectively.

Comprehensive Income

Comprehensive income amounted to $68.4 million and $139.9 million during the
three months ended June 30, 2003 and 2002, respectively and $150.9 million and
$180.0 million for the six months ended June 30, 2003 and 2002, respectively.
Comprehensive income was different from our net income during the respective
periods as a result of changes in the amount of unrealized gains and losses on
our portfolio of securities available for sale and on our derivative contracts
(primarily forward sales commitments related to loans held for sale) that are
accounted for as cash flow hedges. For additional information, see Note 8 to
the unaudited Consolidated Financial Statements.

Our available for sale investment portfolio had unrealized gains, net of
applicable income tax effects, of $98.6 million, $118.0 million and $76.4
million at June 30, 2003, December 31, 2002 and June 30, 2002, respectively.
At June 30, 2003, the net unrealized gains of $151.7 million, before related
tax effect, represented 2% of securities available for sale. We attempt to
balance the interest rate risk of assets with liabilities (see Interest Rate
Risk and Asset Liability Management). However, the change in value of our
liabilities, which tends to fall in rising interest rate environments and rise
in falling interest rate environments, is not included in other comprehensive
income.

FINANCIAL CONDITION

Our consolidated total assets amounted to $25.8 billion and $23.4 billion at
June 30, 2003 and December 31, 2002, respectively. Total average assets were
$25.5 billion and $20.9 billion for the three months ended June 30, 2003 and
2002, respectively. These increases were largely due to the acquisitions in
2003 and 2002, which added $4.7 billion in assets. Shareholders equity
totaled $2.5 billion at June 30, 2003 and $2.1 billion at December 31, 2002.

Securities

The securities portfolio (including securities classified as held to maturity)
averaged $7.3 billion during the second quarter of 2003, as compared to $6.3
billion in the second quarter of 2002. The net increase in the securities
portfolio resulted from the acquisitions in 2003 and 2002, offset in part by
the sale of $901 million of securities as part of our deleveraging strategy
implemented in the second quarter of 2003. The securities portfolio consists
primarily of mortgage-backed securities and U.S. Government and agency
securities. Other securities in the portfolio are collateralized mortgage
obligations, which included securitized residential real estate loans held in a
REMIC, and asset-backed securities. The majority of securities available for
sale were rated AAA or equivalently rated at June 30, 2003. At June 30, 2003
and December 31, 2002, we had $967.6 million and $830.1 million of securities
available for sale with call provisions. The average yield on securities was
4.24% for the quarter ended June 30, 2003 and 5.79% for the quarter ended June
30, 2002. With the exception of securitized residential real estate loans held
in a REMIC that were classified as held to maturity and carried at cost, all of
our securities are classified as available for sale and carried at market
value. Securities available for sale had an after-tax unrealized gain of $98.6
million and $118.0 million at June 30, 2003 and December 31, 2002,
respectively. These unrealized gains do not impact net income or regulatory
capital but are recorded as adjustments to shareholders equity, net of related
deferred income taxes. Unrealized gains, net of related deferred income taxes,
are a component of Comprehensive Income contained in the unaudited
Consolidated Statement of Changes in Shareholders Equity.

Loans and Leases

Total loans and leases (including loans held for sale) averaged $15.7 billion
during the second quarter of 2003, an increase of $2.8 billion, or 22%, from
the second quarter of 2002. This increase was primarily attributable to
approximately $2.5 billion of loans and leases obtained as a result of
acquisitions. Average loans as a percent of average earning assets was 68%
during the quarter ended June 30, 2003 compared to 67% during the quarter ended
June 30, 2002.

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##### Table of Contents



Average residential real estate loans (which include mortgage loans held for
sale) of $3.0 billion during the second quarter of 2003 increased $426 million
from the average amount of such loans during the second quarter of last year.
Excluding acquisitions, average residential loans decreased approximately $941
million (or 24%) as a result of increased refinancing activity and prepayments
in a lower interest rate environment. Mortgage loans held for sale amounted to
$92.8 million and $128.6 million at June 30, 2003 and December 31, 2002,
respectively. We are currently selling substantially all of the conforming
30-year fixed-rate loans we originate.

Average commercial real estate loans of $5.1 billion increased $858 million, or
20%, from the second quarter of last year. Excluding acquisitions, average
commercial real estate loans increased $499 million or 11%. While most of our
markets reflected increases, the largest increases were in Massachusetts and
Connecticut. The average yield on commercial real estate loans during the
second quarter of 2003 was 6.19%, as compared to 7.07% in the second quarter of
2002, a decrease of 88 basis points. The lower yield reflects the effect of the
downward repricing of variable-rate loans, the refinancing of fixed-rate loans
at lower rates and the origination of new loans at the lower prevailing rates.

Commercial business loans and leases averaged $3.2 billion during the second
quarter of 2003, an increase of $559 million, or 22%, over the second quarter
of 2002. Excluding acquisitions, average commercial business loans and leases
increased $316 million or 11%. Massachusetts and Connecticut reflected the
greatest amount of growth. The yield on commercial business loans and leases
decreased to 5.23% in the second quarter of 2003 from 6.08% in the second
quarter of 2002. The decrease in the yield was primarily due to lower rates on
new loans and the repricing of variable-rate loans.

Consumer loans and leases averaged $4.5 billion during the second quarter of
2003, an increase of $933 million, or 26%, from the second quarter of 2002.
Acquisitions accounted for approximately $603 million of the
increase, while
internal loan growth accounted for approximately $330 million of the increase.
Internal growth was primarily in home equity loans and indirect auto loans.
The average yield on consumer loans and leases decreased to 5.76% in the second
quarter of 2003 from 7.06% in the second quarter of 2002. For a description of
the types of loans and leases in our loan and lease portfolio and a breakdown
of our consumer loans, see Credit Risk.

Deposits

Total deposits averaged $17.4 billion during the second quarter of 2003, an
increase of $3.2 billion from the second quarter of 2002. Excluding
acquisitions, average core deposits (deposits excluding certificates of deposit
and brokered deposits) increased $1.0 billion from the second quarter of last
year, or 9%. The average balances of certificates of deposit and brokered
deposits (which tend to pay higher rates) as a percent of total deposits
declined from 33% in the second quarter of 2002 to 30% in the second quarter of
2003. The ratio of loans to deposits was 89% and 90% at June 30, 2003 and
December 31, 2002, respectively.

Average noninterest-bearing deposits totaled $3.1 billion during the second
quarter of 2003, an increase of $578 million, or 23%, from the second quarter
of 2002. This increase was largely due to $228 million of average
noninterest-bearing deposits acquired in acquisitions as well as strong growth
in existing market areas.

Average interest-bearing deposits of $14.3 billion during the second quarter of
2003 increased $2.6 billion from the second quarter of 2002. Excluding
acquisitions, average money market and NOW deposits increased by $480 million
and average regular savings deposits increased $128 million, while average
certificates of deposit declined by $715 million. The decline in certificates
of deposits resulted from our decision to allow deposits priced above alternate
funding costs to run off. The average rates paid on NOW and money market
accounts decreased 55 basis points from 1.52% in the second quarter of 2002 to
0.97% in the second quarter of 2003 due largely to lower prevailing interest
rates. The average rates paid on all deposit types decreased by 69 basis
points from 2.11% in the second quarter of 2002 to 1.42% in the second quarter
of 2003, reflecting the decline in prevailing interest rates.

Included within the deposit categories above are government banking deposits,
which averaged $1.2 billion in the second quarter of 2003 and $1.1 billion in
the second quarter of 2002. Government banking deposits include deposits
received from state and local governments, school districts, public
colleges/universities, utility districts, public housing authorities and court
systems in our market area. Many of these deposits exceed the FDIC insurance
coverage amounts and require us to pledge specific collateral or maintain
private insurance.

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Other Funding Sources

We use both short-term and long-term borrowings to fund the growth of earning
assets in excess of deposit growth. Short-term borrowings, which include
federal funds purchased, retail securities sold under agreements to repurchase
and other short-term borrowings, amounted to $1.1 billion and $1.3 billion at
June 30, 2003 and December 31, 2002, respectively, a decrease of $165 million,
or 13%.

At June 30, 2003, we also had a $110 million unsecured line of credit. The
line is renewable every 364 days and, if used, carries interest at LIBOR plus
0.625%. There were no drawdowns on this line in 2003.

Long-term debt includes FHLB advances, senior notes, subordinated notes,
wholesale securities sold under agreements to repurchase, capital lease
obligations and other debt with terms greater than one year. Long-term debt
amounted to $3.5 billion and $3.9 billion at June 30, 2003 and December 31,
2002, respectively. The decrease in long-term debt was primarily due to the
prepayment of $853 million of borrowings in connection with our deleveraging
program, which was partially offset by the issuance of $150 million of senior
notes in the second quarter of 2003 and $400 million of borrowings assumed in
acquisitions.

At June 30, 2003 and December 31, 2002, FHLB borrowings amounted to $1.6
billion. FHLB collateral consists primarily of first mortgage loans secured by
single-family properties, certain unencumbered securities and other qualified
assets. These borrowings had an average cost of 4.37% during the three months
ended June 30, 2003 as compared to 4.50% during the three months ended June 30,
2002. Our additional borrowing capacity with the FHLB at June 30, 2003 was
approximately $2.7 billion.

In April 2003, we issued $150 million of 5-year senior notes carrying a fixed
rate of 3.75%. We simultaneously entered into a $150 million interest rate
swap agreement pursuant to which we receive a fixed rate of 3.75% and pay a
variable rate based on 3-month LIBOR plus 0.41%. This swap is accounted for as
a fair value hedge of the notes. The proceeds from the notes offering were
used for general corporate purposes.

At June 30, 2003 and December 31, 2002, subordinated debt consisted of $200
million of 7.625% subordinated notes due 2011 issued by our banking subsidiary
in 2001. The notes qualify as Tier 2 capital for regulatory purposes. In the
first quarter of 2003, Banknorth entered into an interest rate swap for $200
million to hedge the fair value of the $200 million of subordinated debt. The
effect of the hedge, which is accounted for as a fair value hedge, was to
synthetically convert this fixed rate debt to a variable rate set at 3-month
LIBOR plus 3.47%.

At June 30, 2003 and December 31, 2002, wholesale securities sold under
repurchase agreements amounted to $1.5 billion and $1.2 billion, respectively,
and were collateralized by mortgage-backed securities and U.S. Government
obligations.

At June 30, 2003 and December 31, 2002, through subsidiary trusts, we had
outstanding $295.1 million of capital securities which currently qualify as Tier 1
capital for regulatory purposes. See the Capital section below.

We have a shelf registration on file with the Securities and Exchange
Commission which allows us to sell up to $1.0 billion of debt securities,
preferred stock, depository shares, common stock and warrants and which allows
subsidiary trusts to sell capital securities. We had $650 million remaining on
this shelf registration statement as of June 30, 2003.

At June 30, 2003 and December 31, 2002 other liabilities totaled $680.0 million
and $258.3 million, respectively. The increase in other liabilities was
primarily attributable to $475 million of commitments to purchase when-issued
securities that settled in July.

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CONTRACTUAL OBLIGATIONS

We have entered into numerous contractual obligations and commitments. The
following tables summarize our contractual cash obligations, other commitments
and derivative financial instruments at June 30, 2003.

TABLE 9 - Contractual Obligations

|                                  |                      |   |           |           |        |                        |           |         |       |   |           |           |         |   |         |         |  |   |           |         | 
|--------------------------------- | -------------------- | - | --------- | --------- | ------ | ---------------------- | --------- | ------- | ----- | - | --------- | --------- | ------- | - | ------- | ------- |  | - | --------- | ------- | 
|Contractual Obligations (1)       |                      |   |           |           |        | Payments Due By Period
|                                  |                      |   |           |           |        |                       
|                                  |                      |   |           |           |        |                        | Less than |         | 1 - 3 |   | 4 -5      |           | After 5
|                                  |                      |   | Total     |           | 1 Year |                        | Years     |         | Years |   | Years    
|                                  |                      |   |           |           |        |                        |           |         |       |   |          
|Long-term debt                    |                      | $ | 1,999,146 |           |        | $                      | 150,522   |         |       | $ | 764,212   |           |         | $ | 239,768 |         |  | $ | 844,644   |        
|Capital lease obligations         |                      |   | 6,054     |           |        |                        | 44        |         |       |   | 168       |           |         |   | 642     |         |  |   | 5,200     |        
|Repurchase agreements - wholesale |                      |   | 1,500,000 |           |        |                        | 200,000   |         |       |   | 1,200,000 |           |         |   |        |         |  |   | 100,000   |        
|                                  |                      |   |           |           |        |                        |           |         |       |   |           |           |         |   |         |         |  |   |           |        
|                                  | Total long-term debt |   |           | 3,505,200 |        |                        |           | 350,566 |       |   |           | 1,964,380 |         |   |         | 240,410 |  |   |           | 949,844 | 
|Capital trust securities          |                      |   | 295,056   |           |        |                        |          |         |       |   |          |           |         |   |        |         |  |   | 295,056   |        
|Operating lease obligations       |                      |   | 126,045   |           |        |                        | 21,060    |         |       |   | 36,347    |           |         |   | 26,947  |         |  |   | 41,691    |        
|                                  |                      |   |           |           |        |                        |           |         |       |   |           |           |         |   |         |         |  |   |           |        
|Total contractual obligations     |                      | $ | 3,926,301 |           |        | $                      | 371,626   |         |       | $ | 2,000,727 |           |         | $ | 267,357 |         |  | $ | 1,286,591 |        
|                                  |                      |   |           |           |        |                        |           |         |       |   |           |           |         |   |         |         |  |   |           |        



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

|                                   |  |           |           |           |  |                                              |           |       |  |         |         |  |  |   |         |  |  |   |           | 
|---------------------------------- |  | --------- | --------- | --------- |  | -------------------------------------------- | --------- | ----- |  | ------- | ------- |  |  | - | ------- |  |  | - | --------- | 
|Other Commitments                  |  |           |           |           |  | Amount of Commitment Expiration - Per Period
|                                   |  | Total     |           |          
|                                   |  | Amounts   |           | Less than |  | 1 - 3                                        |           | 4 -5  |  | After 5
|                                   |  | Committed |           | 1 Year    |  | Years                                        |           | Years |  | Years  
|                                   |  |           |           |           |  |                                              |           |       |  |        
|Unused portions on lines of credit |  | $         | 3,940,174 |           |  | $                                            | 287,355   |       |  | $       | 144,765 |  |  | $ | 65,639  |  |  | $ | 3,442,415 | 
|Standby letters of credit          |  |           | 374,429   |           |  |                                              | 117,674   |       |  |         | 83,209  |  |  |   | 86,196  |  |  |   | 87,350    | 
|Commitments to originate loans     |  |           | 1,841,231 |           |  |                                              | 1,397,196 |       |  |         | 214,838 |  |  |   | 42,384  |  |  |   | 186,813   | 
|Other commitments                  |  |           | 46,493    |           |  |                                              | 9,745     |       |  |         | 9,024   |  |  |   | 2,165   |  |  |   | 25,559    | 
|                                   |  |           |           |           |  |                                              |           |       |  |         |         |  |  |   |         |  |  |   |           | 
|Total commitments                  |  | $         | 6,202,327 |           |  | $                                            | 1,811,970 |       |  | $       | 451,836 |  |  | $ | 196,384 |  |  | $ | 3,742,137 | 
|                                   |  |           |           |           |  |                                              |           |       |  |         |         |  |  |   |         |  |  |   |           | 

|                                       |                                       |                                                   |         |           |         |                                              |         |       |       |       |       |         |       |  |   |         |        |  |   |         |         | 
|-------------------------------------- | ------------------------------------- | ------------------------------------------------- | ------- | --------- | ------- | -------------------------------------------- | ------- | ----- | ----- | ----- | ----- | ------- | ----- |  | - | ------- | ------ |  | - | ------- | ------- | 
|Derivative Financial Instruments       |                                       |                                                   |         |           |         | Amount of Commitment Expiration - Per Period
|                                       |                                       | Total                                             |         |          
|                                       |                                       |                                                   |         | Amounts   |         | Less than                                    |         | 1 - 3 |       | 4 -5  |       | After 5
|                                       |                                       |                                                   |         | Committed |         | 1 Year                                       |         | Years |       | Years |       | Years  
|                                       |                                       |                                                   |         |           |         |                                              |         |       |       |       |       |        
|Interest rate swaps (notional amount): |                                       |                                                   |         |           |         |                                              |         |       |       |       |       |         |       |  |   |         |        |  |   |        
|                                       | Commercial loan swap program:         |                                                   |         |           |         |                                              |         |       |       |       |       |         |       |  |   |         |        |  |   |         |        
|                                       |                                       | Interest rate swaps with commercial borrowers (1) |         | $         | 201,057 |                                              |         | $     | 7,800 |       |       | $       | 8,338 |  |   | $       | 31,467 |  |   | $       | 153,452 | 
|                                       |                                       | Interest rate swaps with dealers (2)              |         |           | 201,057 |                                              |         |       | 7,800 |       |       |         | 8,338 |  |   |         | 31,467 |  |   |         | 153,452 | 
|                                       | Interest rate swaps on borrowings (3) |                                                   |         | 350,000   |         |                                              |         |      |       |       |       |        |       |  |   | 150,000 |        |  |   | 200,000 |        
|Forward commitments to sell loans      |                                       |                                                   | 213,877 |           |         |                                              | 213,877 |       |       |       |      |         |       |  |  |         |        |  |  |        
|Foreign currency forward contracts     |                                       |                                                   | 18,486  |           |         |                                              | 16,153  |       |       |       | 2,333 |         |       |  |  |         |        |  |  |        



---

|(1) |  | Swaps with commercial loan customers (Banknorth receives fixed, pays variable)                                                        
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------
|(2) |  | Offsetting swaps with dealers (Banknorth pays fixed, receives variable)
which offset the interest rate swaps with commercial borrowers
|(3) |  | Swaps on borrowings (Banknorth pays variable, receives fixed)                                                                         

RISK MANAGEMENT

The primary goal of our risk management program is to determine how certain
existing or emerging issues in the financial services industry affect the
nature and extent of the risks faced by us. Based on a periodic
self-evaluation, we determine key issues and develop plans and/or objectives to
address risk. Our board of directors and management believe that there are
seven applicable risk categories, consisting of credit, interest rate,
liquidity, transaction, compliance, strategic and reputation risk. Each risk
category is viewed from a quantity of risk perspective (high, medium or low)
coupled with a quality of risk perspective. In addition, an aggregate level of
risk

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is assigned as a whole as well as the direction of risk (stable,
increasing or decreasing). Each risk category and the overall risk level is
compared to regulatory views on a regular basis and then reported to the board
with an accompanying explanation as to the existence of any differences. The
risk program includes risk identification, measurement, control and monitoring.

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

CREDIT RISK MANAGEMENT

General

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

Our residential loan portfolio accounted for 18% of the total loan portfolio at
June 30, 2003 and 17% at December 31, 2002. This increase was due to the
composition of the loan portfolio of American acquired in February 2003. Our
residential loans are generally secured by single-family homes (one-to-four
units) and have a maximum loan to value ratio of 80%, unless the excess is
protected by mortgage insurance. At June 30, 2003, 0.34% of our residential
loans were
nonperforming, as compared to 0.24% at December 31, 2002 and 0.28% at June 30,
2002. Net charge-offs to average residential loans outstanding for the three
months ended June 30, 2003 was not significant.

Our commercial real estate loan portfolio accounted for 33% of the total loan
portfolio at June 30, 2003 and 34% at December 31, 2002. This portfolio
consists primarily of loans secured by income-producing commercial real estate
(including office and industrial buildings), service industry real estate
(including hotels and health care facilities), multi-family (over four units)
residential properties and retail trade real estate (food stores). These loans
generally are secured by properties located in the New England states and
upstate New York. At June 30, 2003, 0.37% of our commercial real estate loans
were nonperforming, as compared to 0.37% at December 31, 2002 and 0.47% at June
30, 2002. Net charge-offs (recoveries) to average commercial real estate loans
outstanding for the three months ended June 30, 2003 was (0.04%).

Our commercial business loan and lease portfolio accounted for 21% of the total
loan portfolio at June 30, 2003 and December 31, 2002. Commercial business
loans and leases are generally made to small to medium size businesses located
within our market areas. These loans are not concentrated in any particular
industry, but reflect the broad-based economy of New England and upstate New
York. Commercial loans consist primarily of loans secured by various
equipment, machinery and other corporate assets, as well as loans to provide
working capital to businesses in the form of lines of credit. Through a
subsidiary, we also offer direct equipment leases, which amounted to $100.0
million at June 30, 2003. We do not emphasize the purchase of participations
in syndicated commercial loans. At June 30, 2003, we had $357 million of
outstanding participations in syndicated commercial loans and had an additional
$241 million of unfunded commitments related to these participations. At June
30, 2003, 0.76% of our commercial business loans were nonperforming, as
compared to 1.10% at December 31, 2002 and 1.25% at June 30, 2002. Net
charge-offs to average commercial business loans and leases outstanding for the
three months ended June 30, 2003 was 0.57%.

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The following table presents the geographic distribution of our commercial
loans and leases at June 30, 2003 and December 31, 2002.

Table 10 - Commercial Loans and Leases by State

|              |       |   |                   |           |                     |   |                  |           |              |   |           |           |              |   |         |           |  |   |           |           |  |   |           |           | 
|------------- | ----- | - | ----------------- | --------- | ------------------- | - | ---------------- | --------- | ------------ | - | --------- | --------- | ------------ | - | ------- | --------- |  | - | --------- | --------- |  | - | --------- | --------- | 
|              |       |   | Commercial        |           | Commercial Business |   | Total Commercial
|              |       |   | Real Estate Loans |           | Loans and Leases    |   | Loans and Leases
|              |       |   |                   |           |                     |   |                 
|              |       |   | June 30,          |           | December 31,        |   | June 30,         |           | December 31, |   | June 30,  |           | December 31,
|              |       |   | 2003              |           | 2002                |   | 2003             |           | 2002         |   | 2003      |           | 2002        
|              |       |   |                   |           |                     |   |                  |           |              |   |           |           |             
|Massachusetts |       | $ | 2,296,435         |           |                     | $ | 2,174,534        |           |              | $ | 1,100,532 |           |              | $ | 982,078 |           |  | $ | 3,396,967 |           |  | $ | 3,156,612 |          
|Maine         |       |   | 872,229           |           |                     |   | 868,091          |           |              |   | 689,256   |           |              |   | 640,258 |           |  |   | 1,561,485 |           |  |   | 1,508,349 |          
|New Hampshire |       |   | 708,764           |           |                     |   | 703,743          |           |              |   | 495,212   |           |              |   | 461,079 |           |  |   | 1,203,976 |           |  |   | 1,164,822 |          
|Vermont       |       |   | 613,927           |           |                     |   | 594,849          |           |              |   | 402,526   |           |              |   | 419,291 |           |  |   | 1,016,453 |           |  |   | 1,014,140 |          
|Connecticut   |       |   | 472,157           |           |                     |   | 286,658          |           |              |   | 342,025   |           |              |   | 265,503 |           |  |   | 814,182   |           |  |   | 552,161   |          
|New York      |       |   | 176,618           |           |                     |   | 164,174          |           |              |   | 200,167   |           |              |   | 200,265 |           |  |   | 376,785   |           |  |   | 364,439   |          
|              |       |   |                   |           |                     |   |                  |           |              |   |           |           |              |   |         |           |  |   |           |           |  |   |           |          
|              | Total |   | $                 | 5,140,130 |                     |   | $                | 4,792,049 |              |   | $         | 3,229,718 |              |   | $       | 2,968,474 |  |   | $         | 8,369,848 |  |   | $         | 7,760,523 | 
|              |       |   |                   |           |                     |   |                  |           |              |   |           |           |              |   |         |           |  |   |           |           |  |   |           |          

Consumer loans and leases accounted for 29% of our total loan portfolio at June
30, 2003 and 28% at December 31, 2002. At June 30, 2003, 0.16% of our consumer
loans were nonperforming, as compared to 0.23% at December 31, 2002 and 0.17%
at June 30, 2002. Net charge-offs to average consumer loans outstanding for
the three months ended June 30, 2003 was 0.53%. The following table lists our
consumer loans by type as of June 30, 2003 and December 31, 2002:

Table 11 - Composition of Consumer Loans

|                                               |  |          |           |              |  |        |        |       |  |   |           |      |  |  |        |  
|---------------------------------------------- |  | -------- | --------- | ------------ |  | ------ | ------ | ----- |  | - | --------- | ---- |  |  | ------ | -
|                                               |  | June 30, |           | December 31,
|                                               |  | 2003     |           | 2002        
|                                               |  |          |           |             
|                                               |  |          |           |              |  | % of   |        |       |  |   |           | % of
|                                               |  | Amount   |           | Total        |  | Amount |        | Total
|                                               |  |          |           |              |  |        |        |      
|Home equity lines                              |  | $        | 2,016,148 |              |  |        | 44.70  | %     |  | $ | 1,554,264 |      |  |  | 39.72  | %
|Automobile and other vehicle loans and leases  |  |          | 1,557,520 |              |  |        | 34.53  | %     |  |   | 1,478,228 |      |  |  | 37.77  | %
|Mobile home loans                              |  |          | 157,216   |              |  |        | 3.49   | %     |  |   | 171,715   |      |  |  | 4.39   | %
|Vision, dental, and orthodontia fee plan loans |  |          | 153,995   |              |  |        | 3.41   | %     |  |   | 172,861   |      |  |  | 4.42   | %
|Education loans                                |  |          | 80,954    |              |  |        | 1.79   | %     |  |   | 135,386   |      |  |  | 3.46   | %
|Other                                          |  |          | 544,640   |              |  |        | 12.08  | %     |  |   | 400,834   |      |  |  | 10.24  | %
|                                               |  |          |           |              |  |        |        |       |  |   |           |      |  |  |        |  
|Total                                          |  | $        | 4,510,473 |              |  |        | 100.00 | %     |  | $ | 3,913,288 |      |  |  | 100.00 | %
|                                               |  |          |           |              |  |        |        |       |  |   |           |      |  |  |        |  

Nonperforming Assets

Nonperforming assets consist of nonperforming loans (which do not include
accruing loans 90 days or more overdue), other real estate owned, repossessed
assets and certain securities available for sale. Total nonperforming assets
as a percentage of total assets were 0.25% at June 30, 2003, 0.29% at December
31, 2002 and 0.34% at June 30, 2002. Total nonperforming assets as a
percentage of total loans and total other nonperforming assets was 0.41% at
June 30, 2003, 0.49% at December 31, 2002 and 0.55% at June 30, 2002. See
Table 12 for a summary of nonperforming assets for the last six quarters. On a
dollar basis, our nonperforming assets increased from $72.2 million at June 30,
2002 to $82.7 million at March 31, 2003, and decreased to $64.5 million at June
30, 2003. The increase in nonperforming assets from June 30, 2002 to March 31,
2003 was primarily due to the acquisitions in 2003 and 2002, as shown in Table
13. The decrease in nonperforming assets from March 31, 2003 to June 30, 2003
was primarily due to several commercial loans returning to performing status
during the second quarter of 2003.

We continue to focus on asset quality and to allocate significant resources to
the key asset quality control functions of credit policy and administration and
loan review. The collection, workout and asset management functions focus on
the reduction of nonperforming assets. Despite the ongoing focus on asset
quality and reductions of nonperforming asset levels, there can be no assurance
that adverse changes in the real estate markets and economic conditions in our
primary market areas will not result in higher nonperforming asset levels in
the future and negatively impact our operations through higher provisions for
loan losses, net loan charge-offs, decreased accrual of interest income and
increased noninterest expenses as a result of the allocation of resources to
the collection and workout of nonperforming assets.

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TABLE 12 - Nonperforming Assets

|                                                                                                              |                                   |   |         |        |          |   |             |        |              |   |         |        |          |   |        |        |  |   |        |        |  |   |        |        | 
|------------------------------------------------------------------------------------------------------------- | --------------------------------- | - | ------- | ------ | -------- | - | ----------- | ------ | ------------ | - | ------- | ------ | -------- | - | ------ | ------ |  | - | ------ | ------ |  | - | ------ | ------ | 
|                                                                                                              |                                   |   | 2003    |        | 2002    
|                                                                                                              |                                   |   |         |        |         
|                                                                                                              |                                   |   | June 30 |        | March 31 |   | December 31 |        | September 30 |   | June 30 |        | March 31
|                                                                                                              |                                   |   |         |        |          |   |             |        |              |   |         |        |         
|Nonaccrual loans and leases:                                                                                  |                                   |   |         |        |          |   |             |        |              |   |         |        |          |   |        |        |  |   |        |        |  |   |        |       
|Residential real estate loans                                                                                 |                                   | $ | 9,827   |        |          | $ | 9,828       |        |              | $ | 5,781   |        |          | $ | 6,733  |        |  | $ | 7,075  |        |  | $ | 7,689  |       
|Commercial real estate loans                                                                                  |                                   |   | 19,139  |        |          |   | 22,990      |        |              |   | 17,649  |        |          |   | 16,762 |        |  |   | 20,254 |        |  |   | 20,812 |       
|Commercial business loans and leases                                                                          |                                   |   | 24,577  |        |          |   | 38,562      |        |              |   | 32,693  |        |          |   | 33,014 |        |  |   | 33,573 |        |  |   | 34,481 |       
|Consumer loans and leases                                                                                     |                                   |   | 7,192   |        |          |   | 7,457       |        |              |   | 9,194   |        |          |   | 8,364  |        |  |   | 6,008  |        |  |   | 8,183  |       
|                                                                                                              |                                   |   |         |        |          |   |             |        |              |   |         |        |          |   |        |        |  |   |        |        |  |   |        |       
|                                                                                                              | Total nonaccrual loans and leases |   |         | 60,735 |          |   |             | 78,837 |              |   |         | 65,317 |          |   |        | 64,873 |  |   |        | 66,910 |  |   |        | 71,165 | 
|Other nonperforming assets:                                                                                   |                                   |   |         |        |          |   |             |        |              |   |         |        |          |   |        |        |  |   |        |        |  |   |        |       
|Other real estate owned, net of related reserves                                                              |                                   |   | 814     |        |          |   | 541         |        |              |   | 100     |        |          |   | 92     |        |  |   | 1,212  |        |  |   | 1,262  |       
|Repossessions, net of related reserves                                                                        |                                   |   | 2,911   |        |          |   | 3,276       |        |              |   | 3,536   |        |          |   | 3,807  |        |  |   | 1,964  |        |  |   | 2,251  |       
|Securities available for sale                                                                                 |                                   |   |        |        |          |   |            |        |              |   |        |        |          |   |       |        |  |   | 2,104  |        |  |   | 2,104  |       
|                                                                                                              |                                   |   |         |        |          |   |             |        |              |   |         |        |          |   |        |        |  |   |        |        |  |   |        |       
|                                                                                                              | Total other nonperforming assets  |   |         | 3,725  |          |   |             | 3,817  |              |   |         | 3,636  |          |   |        | 3,899  |  |   |        | 5,280  |  |   |        | 5,617  | 
|                                                                                                              |                                   |   |         |        |          |   |             |        |              |   |         |        |          |   |        |        |  |   |        |        |  |   |        |       
|Total nonperforming assets                                                                                    |                                   | $ | 64,460  |        |          | $ | 82,654      |        |              | $ | 68,953  |        |          | $ | 68,772 |        |  | $ | 72,190 |        |  | $ | 76,782 |       
|                                                                                                              |                                   |   |         |        |          |   |             |        |              |   |         |        |          |   |        |        |  |   |        |        |  |   |        |       
|Accruing loans and leases which are 90 days or more
overdue                                                   |                                   | $ | 2,995   |        |          | $ | 3,349       |        |              | $ | 3,373   |        |          | $ | 2,407  |        |  | $ | 2,680  |        |  | $ | 5,430  |       
|                                                                                                              |                                   |   |         |        |          |   |             |        |              |   |         |        |          |   |        |        |  |   |        |        |  |   |        |       
|Total nonperforming loans as a percentage of total
loans and
leases(1)                                        |                                   |   | 0.39    | %      |          |   | 0.51        | %      |              |   | 0.46    | %      |          |   | 0.47   | %      |  |   | 0.51   | %      |  |   | 0.56   | %     
|Total nonperforming assets as a percentage of total assets                                                    |                                   |   | 0.25    | %      |          |   | 0.31        | %      |              |   | 0.29    | %      |          |   | 0.31   | %      |  |   | 0.34   | %      |  |   | 0.37   | %     
|Total nonperforming assets as a percentage of total loans
and leases (1) and total other nonperforming assets |                                   |   | 0.41    | %      |          |   | 0.53        | %      |              |   | 0.49    | %      |          |   | 0.50   | %      |  |   | 0.55   | %      |  |   | 0.60   | %     



---

|(1) |  | Total loans and leases exclude residential real estate loans held for sale.
|--- |  | ---------------------------------------------------------------------------

Residential real estate loans are generally placed on nonaccrual when they
become 120 days past due or are in the process of foreclosure. All closed-end
consumer loans 90 days or more past due and any equity line in the process of
foreclosure are placed on nonaccrual status. Unsecured consumer loans are
charged-off upon reaching 120 or 180 days past due depending on the type of
loan. We generally place all commercial real estate loans and commercial
business loans and leases which are 90 days or more past due on nonaccrual
status, unless secured by sufficient cash or other assets immediately
convertible to cash. At June 30, 2003, we had $3.0 million of accruing loans
which were 90 days or more delinquent, as compared to $3.4 million at December
31, 2002 and $2.7 million at June 30, 2002.

We may also place loans which are less than 90 days past due on nonaccrual
(and, therefore, nonperforming) status when in our judgment these loans are
likely to present future principal and/or interest repayment problems and
ultimately would be classified as nonperforming.

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The following table presents certain information regarding the nonperforming
assets acquired by us in connection with the indicated acquisitions.

TABLE 13 - Nonperforming Assets from Acquisitions

|                                     |  |           |       |            |  |           |     |           |  |   |     |  |  |   |     | 
|------------------------------------ |  | --------- | ----- | ---------- |  | --------- | --- | --------- |  | - | --- |  |  | - | --- | 
|                                     |  | American  |       | Warren     |  | Bancorp   |     | Ipswich  
|                                     |  |           |       |            |  |           |     |          
|Acquisition date                     |  | 2/14/2003 |       | 12/31/2002 |  | 8/31/2002 |     | 7/26/2002
|Nonaccrual loans and leases:         |  |           |       |            |  |           |     |           |  |   |     |  |  |   |     | 
|Residential real estate loans        |  | $         | 6,044 |            |  | $         |    |           |  | $ | 125 |  |  | $ |    | 
|Commercial real estate loans         |  |           |      |            |  |           | 738 |           |  |   |    |  |  |   |    | 
|Commercial business loans and leases |  |           |      |            |  |           | 84  |           |  |   | 580 |  |  |   | 167 | 
|Consumer loans and leases            |  |           |      |            |  |           |    |           |  |   | 108 |  |  |   |    | 
|                                     |  |           |       |            |  |           |     |           |  |   |     |  |  |   |     | 
|Total nonperforming loans and leases |  |           | 6,044 |            |  |           | 822 |           |  |   | 813 |  |  |   | 167 | 
|                                     |  |           |       |            |  |           |     |           |  |   |     |  |  |   |     | 
|Other nonperforming assets:          |  |           |       |            |  |           |     |           |  |   |     |  |  |   |     | 
|Other real estate owned              |  |           | 202   |            |  |           |    |           |  |   |    |  |  |   |    | 
|                                     |  |           |       |            |  |           |     |           |  |   |     |  |  |   |     | 
|Total other nonperforming assets     |  |           | 202   |            |  |           |    |           |  |   |    |  |  |   |    | 
|                                     |  |           |       |            |  |           |     |           |  |   |     |  |  |   |     | 
|Total nonperforming assets           |  | $         | 6,246 |            |  | $         | 822 |           |  | $ | 813 |  |  | $ | 167 | 
|                                     |  |           |       |            |  |           |     |           |  |   |     |  |  |   |     | 

Net Charge-offs

Net charge-offs were $9.9 million for the three months ended June 30, 2003, as
compared to $8.3 million for the three months ended June 30, 2002. Net
charge-offs represented 0.25% and 0.26% of average loans and leases outstanding
for the quarters ended June 30, 2003 and 2002, respectively. For the six
months ended June 30, 2003 and 2002, net charge-offs were $18.8 million and
$19.1 million, respectively. Net charge-offs represented 0.25% and 0.30% of
average loans and leases outstanding for the six months ended June 30, 2003 and
2002, respectively.

Potential Problem Loans

In addition to the nonperforming loans discussed above, we also have loans that
are 30 to 89 days delinquent and still accruing. These loans amounted to $135
million at June 30, 2003 compared to $139 million at December 31, 2002. These
loans and related delinquency trends are considered in the evaluation of the
allowance for loan and lease losses and the determination of the provision for
loan and lease losses.

ASSET-LIABILITY MANAGEMENT

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

Market Risk

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

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Interest-rate risk, including mortgage prepayment risk, is by far the most
significant non-credit risk to which we are exposed. Interest-rate risk is the
sensitivity of income to changes in interest rates. Changes in interest rates,
as well as fluctuations in the level and duration of assets and liabilities,
affect net interest income, our primary source of revenue. This risk arises
directly from our core banking activities - lending and deposit gathering. In
addition to directly impacting net interest income, changes in the level of
interest rates can also affect (i) the amount of loans originated and sold by
us, (ii) the ability of borrowers to repay adjustable or variable rate loans,
(iii) the average maturity of loans, (iv) the rate of amortization of premiums
paid on securities and capitalized mortgage servicing rights, (v) the fair
value of our saleable assets, the amount of unrealized gains and losses on
securities available for sale per SFAS No. 115, and the resultant ability to
realize gains and (vi) per SFAS Nos. 133 and 138, the fair value of derivatives
carried on our balance sheet, derivative hedge effectiveness testing, and the
amount of ineffectiveness recognized in earnings.

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

We quantify and measure interest-rate exposure using a model to dynamically
simulate net interest income under various interest rate scenarios over a
12-month period. Simulated scenarios include deliberately extreme interest
rate shocks and more gradual interest rate ramps. Key assumptions in these
simulation analyses relate to behavior of interest rates and spreads, increases
or decreases of product balances and the behavior of our deposit and loan
customers. The most material assumptions relate to the prepayment of mortgage
assets (including mortgage loans, mortgage-backed securities and mortgage
servicing rights). The risk of prepayment tends to increase when interest
rates fall. Since future prepayment behavior of loan customers is uncertain,
the resultant interest rate sensitivity of loan assets cannot be determined
exactly. Complicating our efforts to measure interest rate risk is the
uncertainty of the maturity, repricing and/or runoff of some of our assets and
liabilities.

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

We manage the interest-rate risk inherent in our core banking operations using
non-derivative and derivative instruments. Some non-derivative instruments
sometimes contain embedded options, mainly fixed-rate investment securities and
borrowed funds that can be prepaid or called away. When appropriate, we use
derivative instruments such as interest-rate swaps, interest rate floors,
interest rate caps and interest rate corridor agreements, among other
instruments. Derivatives used for hedging are designated at inception. At
June 30, 2003, our designated hedging activities were limited to forward
commitments related to hedging our mortgage banking operations, a $150 million
interest rate swap at 3 month LIBOR plus 0.41% that hedged $150 million of
3.75% fixed rate senior notes issued on April 30, 2003 and a $200 million
interest rate swap at 3 month LIBOR plus 3.47% that hedged $200 million of
7.625% fixed rate subordinated debt issued by our banking subsidiary in 2001.

Swaps and caps are offered to commercial borrowers through our commercial
borrower derivative hedging program. While these derivatives are designated as
speculative per SFAS No. 133, we believe that our exposure to commercial
customer derivatives is limited because these contracts are matched with a
mirrored fixed-rate swap transaction at inception. The program allows us to
retain variable-rate commercial loans while allowing the commercial borrowers
to synthetically fix the loan rate by entering into a variable-to-fixed
interest rate swap. We had $201 million of interest rate swaps with commercial
borrowers at June 30, 2003. In the quarter ended June 30, 2003, we recorded a
notional amount of approximately $92 million in derivative contracts with
commercial borrowers and an equal amount of mirrored transactions with swap
dealers. It is anticipated that, over time, customer interest rate derivatives
will reduce the interest rate risk inherent in our longer-term, fixed-rate
commercial business and commercial real estate loans.

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We manage the interest-rate risk inherent in our mortgage banking operations by
entering into forward sales contracts and, to a lesser extent, by using
purchased mortgage-backed security options. An increase in market interest
rates between the time we commit to terms on a loan and the time we ultimately
sell the loan in the secondary market will have the effect of reducing the gain
(or increasing the loss) we record on the sale. We attempt to mitigate this
risk by entering into forward sales commitments in amounts sufficient to cover
70 to 90% of all loans which are currently closed or are anticipated to close.
Purchased mortgage-backed security options are also used to hedge rate-locked
loans.

The average balances for the three months ended June 30, 2003 and 2002 of
residential mortgage loans held for sale and related hedge positions are
summarized in the table below:

TABLE 14 - Mortgage Loans Held for Sale and Related Hedges

|                                           |  |                    |         |      |  |   |        | 
|------------------------------------------ |  | ------------------ | ------- | ---- |  | - | ------ | 
|                                           |  | Three Months Ended
|                                           |  | June 30,          
|                                           |  |                   
|                                           |  | 2003               |         | 2002
|                                           |  |                    |         |     
|Residential mortgage loans held for sale   |  | $                  | 71,597  |      |  | $ | 53,033 | 
|Rate-locked loan commitments               |  |                    | 133,833 |      |  |   | 51,967 | 
|Forward sales contracts                    |  |                    | 196,781 |      |  |   | 94,270 | 
|Purchased mortgage-backed security options |  |                    | 6,667   |      |  |   | 1,667  | 

Our policy on interest-rate risk simulation specifies that if interest rates
were to shift gradually up or down 2%, estimated net interest income for the
subsequent 12 months should decline by less than 5%. The gradual 2% falling
rate scenario was slightly outside guidelines at December 31, 2002. The ALCO
voted to approve the December 31, 2002 guidelines exception because a gradual
2% decreasing rate scenario was deemed unlikely based on the current level of
interest rates. However, all interest rate risk measures were within compliance
guidelines as of June 30, 2003. The ALCO currently is more focused on the
gradual decreasing 1% rate scenario than on the gradual decreasing 2% scenario
and on strategies that prove beneficial to income should rates decline or the
yield curve flatten.

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

TABLE
15 - Interest Rate Sensitivity

|                  |  |                 |       |                 |  |                 |       |                 |  |  |      |   |  |  |      |  
|----------------- |  | --------------- | ----- | --------------- |  | --------------- | ----- | --------------- |  |  | ---- | - |  |  | ---- | -
|                  |  | 200 Basis Point |       | 100 Basis Point |  | 100 Basis Point |       | 200 Basis Point
|                  |  | Rate Decrease   |       | Rate Decrease   |  | Rate Increase   |       | Rate Increase  
|                  |  |                 |       |                 |  |                 |       |                
|June 30, 2003     |  |                 | (3.98 | )%              |  |                 | (1.11 | )%              |  |  | 0.79 | % |  |  | 1.18 | %
|December 31, 2002 |  |                 | (6.22 | )%              |  |                 | (2.64 | )%              |  |  | 2.15 | % |  |  | 3.40 | %

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

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The most significant factors affecting market risk exposure of net interest
income during the six months ended June 30, 2003 were (i) changes in the shape
of the U.S. Government securities and interest rate swap yield curve, (ii)
changes in the composition of the investment portfolio, (iii) changes in the
composition of mortgage assets and prepayment speeds of mortgage assets, (iv)
reduction of deposit interest expense, and (v) changes in the wholesale
borrowings portfolio structure. Interest rates were about 30 basis points
lower across the Treasury curve at June 30, 2003 compared to interest rates at
December 31, 2002. However, mortgage rate changes during the six-month period
ended June 30, 2003 resulted in significant mortgage loan activity. As a
result, projected mortgage loans are forecasted to prepay at a 45% constant
prepayment rate (CPR) in July 2003. Because of historically low rates and
increased loan cash inflows, effective duration estimates for loans and
mortgage-backed securities are shorter than normal, thus increasing asset
sensitivity. Asset and liability management actions were implemented during
2003 to reduce asset sensitivity. These actions included the purchase of
securities less susceptible to prepayments, replacing approximately $700
million of existing borrowings, some of which were callable, hedging $200
million of fixed rate subordinated debt and $150 million of fixed rate senior
notes with interest rate swaps, and the deleveraging strategy discussed above.
The above table reflects the net impact of these changes. We remain asset
sensitive and project net interest income to increase if short and long
interest rates move symmetrically higher.

Mortgage servicing rights as of June 30, 2003 had a fair value of approximately
$3.1 million versus a book value of $3.0 million. The book value of mortgage
servicing rights represented 0.51% of the underlying balance of loans serviced
for others at June 30, 2003. New mortgage servicing rights from originations
are sold on a flow basis shortly after the mortgages are sold. As a result,
future earnings exposure to changes in the value of mortgage servicing rights
is not expected to be material.

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

LIQUIDITY

Parent Company

On a parent-only basis at June 30, 2003, our debt service requirements
consisted primarily of $295 million junior subordinated debentures and $150
million of 3.75% senior notes due May 1, 2008. The junior subordinated
debentures were issued to four subsidiaries in connection with their issuance
of capital securities. These obligations mature starting in 2027, have
interest rates ranging from 8% to 10.52% and annual debt service payments of
$25.1 million. The senior notes have annual debt service payments of $5.6
million.

The principal sources of funds for us to meet parent-only obligations are
dividends from our banking subsidiary, which are subject to regulatory
limitations, income from investment securities and borrowings, including draws
on a $110 million unsecured line of credit which is renewable every 364 days
and, if used, carries interest at LIBOR plus 0.625%. At June 30, 2003, our
subsidiary bank had $449.1 million available for dividends that could be paid
without prior regulatory approval. In addition, the parent company had $151.8
million in cash or cash equivalents at June 30, 2003.

Banking Subsidiary

For our banking subsidiary, Banknorth, NA, liquidity represents the ability to
fund asset growth and accommodate deposit withdrawals and meet other funding
requirements. Liquidity risk is the danger that Banknorth, NA cannot meet
anticipated or unexpected funding requirements or can meet them only at
excessive cost. Liquidity is measured by the ability to raise cash when needed
at a reasonable cost. Many factors affect a banks ability to meet liquidity
needs, including variations in the markets served, its asset-liability mix, its
reputation and credit standing in the market and general economic conditions.

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

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

As of June 30, 2003, Banknorth, NA had in the aggregate $4.3 billion of
immediately accessible liquidity, defined as cash that could be raised within
1-3 days through collateralized borrowings or sales of securities. This
represented 25% of retail deposits, as compared to a current policy minimum of
10% of deposits.

Also as of June 30, 2003, Banknorth, NA had in the aggregate potentially
volatile funds of $2.0 billion. These are funds that might flow out of the
bank over a 90-day period in an adverse environment. Management estimates this
figure by applying adverse probabilities to its various credit-sensitive and
economically-sensitive funding sources.

As of June 30, 2003, the ratio of immediately accessible liquidity to
potentially volatile funds was 210%, versus a policy minimum of 100%.

In addition to the liquidity sources discussed above, we believe that our
residential and consumer loan portfolios provide a significant amount of
contingent liquidity that could be accessed in a reasonable time period through
sales or securitizations. We believe we also have significant untapped access
to the national brokered deposit market. These sources are contemplated as
secondary liquidity in our contingent funding plan. We believe that the level
of our liquidity is sufficient to meet current and future funding requirements.

CAPITAL

At June 30, 2003,
shareholders equity amounted to $2.5 billion, or 9.57% of
total assets. Tangible equity amounted to $1.3 billion or 5% of
tangible assets.

We paid a $0.16 per share dividend on
our common stock during the second quarter of 2003 compared to a
$0.145 per share dividend in the second quarter of 2002. In July
2003, the Board authorized a $0.19 per share dividend on our common
stock. In February 2002, the Board authorized 8 million shares
to be repurchased in the open market. During the second quarter of
2003, we repurchased 3.7 million shares at an average price of
$23.72. As of June 30, 2003, a total of 2.9 million shares
were available for repurchase under these authorizations.

Capital guidelines issued by the
Federal Reserve Board and the Office of the Comptroller of Currency
of the United States (OCC) respectively require us and
our banking subsidiary to maintain certain ratios, set forth in
Table 16. At June 30, 2003, Banknorth Group, Inc. and
Banknorth, NA were deemed to be well capitalized under
the regulations of the Federal Reserve Board and the OCC,
respectively, and in compliance with applicable capital requirements.

Table 16 - Capital Ratios

|                        |                                                   |  |        |           |                      |  |        |       |       |  |        |           |       |  |  |      |   |  |   |         |  |  |  |      |  
|----------------------- | ------------------------------------------------- |  | ------ | --------- | -------------------- |  | ------ | ----- | ----- |  | ------ | --------- | ----- |  |  | ---- | - |  | - | ------- |  |  |  | ---- | -
|                        |                                                   |  | Actual |           | Capital Requirements |  | Excess
|                        |                                                   |  |        |           |                      |  |       
|                        |                                                   |  | Amount |           | Ratio                |  | Amount |       | Ratio |  | Amount |           | Ratio
|                        |                                                   |  |        |           |                      |  |        |       |       |  |        |           |      
|As of June 30, 2003     |                                                   |  |        |           |                      |  |        |       |       |  |        |           |       |  |  |      |   |  |   |         |  |  |  |     
|                       
|Banknorth Group, Inc.   |                                                   |  |        |           |                      |  |        |       |       |  |        |           |       |  |  |      |   |  |   |         |  |  |  |     
|                        | Total capital (to risk weighted assets)           |  | $      | 1,969,653 |                      |  |        | 10.98 | %     |  | $      | 1,434,698 |       |  |  | 8.00 | % |  | $ | 534,955 |  |  |  | 2.98 | %
|                        | Tier 1 capital (to risk weighted assets)          |  |        | 1,545,443 |                      |  |        | 8.62  | %     |  |        | 717,349   |       |  |  | 4.00 | % |  |   | 828,094 |  |  |  | 4.62 | %
|                        | Tier 1 leverage capital ratio (to
average assets) |  |        | 1,545,443 |                      |  |        | 6.36  | %     |  |        | 971,324   |       |  |  | 4.00 | % |  |   | 574,119 |  |  |  | 2.36 | %
|Banknorth, NA           |                                                   |  |        |           |                      |  |        |       |       |  |        |           |       |  |  |      |   |  |   |         |  |  |  |     
|                        | Total capital (to risk weighted assets)           |  | $      | 1,951,689 |                      |  |        | 10.91 | %     |  | $      | 1,431,327 |       |  |  | 8.00 | % |  | $ | 520,362 |  |  |  | 2.91 | %
|                        | Tier 1 capital (to risk weighted assets)          |  |        | 1,530,783 |                      |  |        | 8.56  | %     |  |        | 715,664   |       |  |  | 4.00 | % |  |   | 815,119 |  |  |  | 4.56 | %
|                        | Tier 1 leverage capital ratio (to
average assets) |  |        | 1,530,783 |                      |  |        | 6.32  | %     |  |        | 969,495   |       |  |  | 4.00 | % |  |   | 561,288 |  |  |  | 2.32 | %
|                       
|As of December 31, 2002 |                                                   |  |        |           |                      |  |        |       |       |  |        |           |       |  |  |      |   |  |   |         |  |  |  |     
|                       
|Banknorth Group, Inc.   |                                                   |  |        |           |                      |  |        |       |       |  |        |           |       |  |  |      |   |  |   |         |  |  |  |     
|                        | Total capital (to risk weighted assets)           |  | $      | 1,960,869 |                      |  |        | 12.15 | %     |  | $      | 1,291,616 |       |  |  | 8.00 | % |  | $ | 669,253 |  |  |  | 4.15 | %
|                        | Tier 1 capital (to risk weighted assets)          |  |        | 1,558,974 |                      |  |        | 9.66  | %     |  |        | 645,808   |       |  |  | 4.00 | % |  |   | 913,166 |  |  |  | 5.66 | %
|                        | Tier 1 leverage capital ratio (to
average assets) |  |        | 1,558,974 |                      |  |        | 7.13  | %     |  |        | 874,180   |       |  |  | 4.00 | % |  |   | 684,794 |  |  |  | 3.13 | %
|Banknorth, NA           |                                                   |  |        |           |                      |  |        |       |       |  |        |           |       |  |  |      |   |  |   |         |  |  |  |     
|                        | Total capital (to risk weighted assets)           |  | $      | 1,822,307 |                      |  |        | 11.31 | %     |  | $      | 1,288,562 |       |  |  | 8.00 | % |  | $ | 533,745 |  |  |  | 3.31 | %
|                        | Tier 1 capital (to risk weighted assets)          |  |        | 1,421,995 |                      |  |        | 8.83  | %     |  |        | 644,281   |       |  |  | 4.00 | % |  |   | 777,714 |  |  |  | 4.83 | %
|                        | Tier 1 leverage capital ratio (to
average assets) |  |        | 1,421,995 |                      |  |        | 6.52  | %     |  |        | 871,830   |       |  |  | 4.00 | % |  |   | 550,165 |  |  |  | 2.52 | %

Net risk weighted assets were
$17.9 billion and $16.1 billion at June 30, 2003 and
December 31, 2002, respectively, for Banknorth Group, Inc. and
Banknorth, NA.

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At June 30, 2003 and
December 31, 2002, we had outstanding $295.1 million of
capital securities issued by consolidated subsidiary trusts, as set
forth in the following table.

TABLE 17 - Capital Trust Securities

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

The accounting treatment of capital
securities issued by subsidiary trusts of bank holding companies is
currently under review with respect to FIN 46. The capital
securities are currently included in the Tier 1 capital of
Banknorth and, at June 30, 2003, amounted to 19.1% of its
Tier 1 capital. Depending on the accounting resolution, capital
securities issued by certain subsidiary trusts may no longer qualify
for Tier 1 capital treatment, but instead may qualify for
Tier 2 capital treatment. Outstanding capital securities may or
may not be grandfathered by the Federal Reserve Board for treatment
as Tier 1 capital for regulatory purposes. On July 2, 2003,
the Federal Reserve Board issued a Supervision and Regulation Letter
requiring that bank holding companies continue to follow the current
instructions for reporting capital securities in their regulatory
reports. The effect of the letter is that we will continue to report
our capital securities in Tier 1 capital until further notice
from the Federal Reserve Board. As noted above, at June 30,
2003, Banknorth was classified as well capitalized for
regulatory purposes, the highest classification. We believe that Banknorths
classification would have remained well-capitalized were
the capital securities issued by subsidiary trusts included in its
Tier 2 capital and not in Tier 1. If our trust capital
securities were no longer allowed to be included in Tier 1
capital, as a result of accounting and regulatory developments, we
would be permitted to redeem the capital
securities, which bear interest from 8.00% to 10.52%, without
penalty. If capital securities issued by subsidiary trusts were not
granted Tier 2 status, we believe that Banknorth would remain in compliance with
existing minimum capital requirements.

At June 30, 2003 and
December 31, 2002, we also had $200 million of 7.625%
subordinated notes due in 2011 issued by our banking subsidiary,
which qualify as Tier 2 capital for regulatory purposes.

Banking regulators have also
established guidelines as to the level of investments in bank owned
life insurance (BOLI). These guidelines are expressed in terms of a
percentage of Tier 1 capital plus loan loss reserves. Our
guideline (which is consistent with regulatory guidelines) is that
BOLI may not exceed 25% of our Tier 1 capital plus loan loss
reserves, which we monitor monthly. The ratio of BOLI to Tier 1
capital plus loan loss reserves was 26.9% at June 30, 2003 and
21.5% at December 31, 2002. This increase was the result of the
$85.6 million of BOLI acquired in the merger with American on
February 14, 2003. We currently do not anticipate any additional
purchases or sales of BOLI.

CRITICAL ACCOUNTING POLICIES

Our accounting and reporting policies comply with accounting principles
generally accepted in the United States of America and conform to general
practices within the banking industry. The preparation of financials
statements in conformity with generally accepted accounting principles requires
management to make estimates and assumptions. The financial position and
results of operations can be affected by these estimates and assumptions, which
are integral to understanding reported results. Management has discussed the
development and the selection of critical accounting policies with the Audit
Committee of our board of directors. As discussed in our 2002 Annual Report on
Form 10-K, we have identified the following critical accounting policies:
allowance for loan and lease losses, accounting for acquisitions and review of
goodwill and other intangible assets, and accounting for pension plans. We
consider these policies as our critical accounting policies due to the
potential impact on our results of operations and the carrying value of certain
of our assets based on any changes in judgments and assumptions required to be
made by us in the application of these policies. Our policies have not changed
since December 31, 2002.

IMPACT OF NEW ACCOUNTING STANDARDS

For information on the impact of new accounting standards, see Note 10 to the
unaudited Consolidated Financial Statements.

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FORWARD LOOKING STATEMENTS

Certain statements contained herein are not based on historical facts and are
forward-looking statements within the meaning of Section 21A of the
Securities Exchange Act of 1934. Forward-looking statements, which are based
on various assumptions (some of which are beyond our control), may be

identified by reference to a future period or periods, or by the use of
forward-looking terminology, such as may, will, believe, expect,
estimate, anticipate, continue or similar terms or variations on those
terms or the negative of those terms. Forward-looking statements are subject to
various factors which could cause actual results to differ materially from
these estimates. These factors include, but are not limited to, changes in
general economic conditions, interest rates, deposit flows, loan demand,
competition, legislation or regulation and accounting principles, policies or
guidelines, as well as other economic, competitive,
governmental, regulatory and technological factors affecting our operations.
In addition, acquisitions may result in large one-time charges to income, may
not produce revenue enhancements or cost savings at levels or within time
frames originally anticipated and may result in unforeseen integration
difficulties. We do not undertake, and specifically disclaim any obligation, to
publicly release the result of any revisions which may be made to any
forward-looking statements to reflect the occurrence of events or circumstances
after the date of such statements.




Item 3. Quantitative and Qualitative Disclosures about Market Risk

The information contained in the section captioned Managements Discussion and
Analysis    Asset-Liability Management is incorporated herein by reference.




Item 4. Controls and Procedures

Our management evaluated, with the participation of our Chief Executive Officer
and Chief Financial Officer, the effectiveness of our disclosure controls and
procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities
Exchange Act of 1934) as of the end of the period covered by this report.
Based on such evaluation, our Chief Executive Officer and Chief Financial
Officer have concluded that our disclosure controls and procedures are designed
to ensure that information required to be disclosed by us in the reports that
we file or submit under the Securities Exchange Act of 1934 is recorded,
processed, summarized and reported within the time periods specified in the
SECs rules and regulations and are operating in an effective manner.

No change in our internal control over financial reporting (as defined in Rules
13a-15(f) and 15(d)-15(f) under the Securities Exchange Act of 1934) occurred
during the most recent fiscal quarter that has materially affected, or is
reasonably likely to materially affect, our internal control over financial
reporting.




Part II - Other Information




Item 1. Legal Proceedings

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




Item 2. Changes in Securities and Use of Proceeds - not applicable.




Item 3. Defaults Upon Senior Securities - not applicable.




Item 4. Submission of Matters to a Vote of Security Holders.



| | (a) |  | An annual meeting of shareholders of Banknorth was held on
April 22, 2003 (Annual Meeting).                                                                                                                                                                                             
| | --- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | (b) |  | Not applicable.                                                                                                                                                                                                                                                                           
|
| | (c) |  | There were 164,186,259 shares of Common Stock eligible to be
voted at the Annual Meeting and 138,143,217 shares were represented
at the meeting by the holders thereof, which constituted a quorum.
The items voted upon at the Annual Meeting and vote for each proposal
were as follows:



| | 1. |  | Election of directors for Three-Year Terms and one for One
Year Term.
| | -- |  | ---------------------------------------------------------------------

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Director Nominees Elected for Three-Year Terms:

|                     |  |     |             |         |  |  |            | 
|-------------------- |  | --- | ----------- | ------- |  |  | ---------- | 
|                     |  | FOR |             | AGAINST
|Gary G. Bahre        |  |     | 133,878,494 |         |  |  | 4,264,717  | 
|Robert G. Clarke     |  |     | 136,120,359 |         |  |  | 2,022,854  | 
|Steven T. Martin     |  |     | 136,565,904 |         |  |  | 1,577,306  | 
|Malcolm W. Philbrook |  |     | 113,045,042 |         |  |  | 25,098,168 | 
|Gerry S. Weidema     |  |     | 135,456,700 |         |  |  | 2,686,509  | 

Director Nominee Elected for One-Year Term:

|             |  |  |             |  |  |  |            | 
|------------ |  |  | ----------- |  |  |  | ---------- | 
|Paul R. Shea |  |  | 115,245,354 |  |  |  | 22,898,913 | 



| | 2. |  | Proposal to approve the Banknorth Group, Inc. 2003 Equity
Incentive Plan.
| | -- |  | -------------------------------------------------------------------------

| |  |     |             |         |  |         |            |  |  |  |           | 
| |  | --- | ----------- | ------- |  | ------- | ---------- |  |  |  | --------- | 
| |  | FOR |             | AGAINST |  | ABSTAIN
| |  |     | 119,778,146 |         |  |         | 17,309,822 |  |  |  | 1,056,293 | 



| | 3. |  | Proposal to ratify the appointment of KPMG LLP as our
independent auditor for the year ending
December 31, 2003.
| | -- |  | ----------------------------------------------------------------------------------------------------------------

| |  |     |             |         |  |         |           |  |  |  |         | 
| |  | --- | ----------- | ------- |  | ------- | --------- |  |  |  | ------- | 
| |  | FOR |             | AGAINST |  | ABSTAIN
| |  |     | 134,449,826 |         |  |         | 3,209,946 |  |  |  | 483,282 | 




Item 5. Other Information - not applicable.




Item 6. Exhibits and Reports on Form 8-K.



| | (a) |  | The following exhibits are filed as part of this report.
| | --- |  | --------------------------------------------------------



| |  |  | Exhibit 31.1 Certification of Chief Executive Officer under Rules
13a-14 and 15d-14.
| |  |  | ------------------------------------------------------------------------------------
|
| |  |  | Exhibit 31.2 Certfication of Chief Financial Officer under Rules
13a-14 and 15d-14. 
|
| |  |  | Exhibit 32.1 Certification of Chief Executive Officer Under 18 U.S.C. §
1350.       
|
| |  |  | Exhibit 32.2 Certification of Chief Financial Officer Under 18 U.S.C. §
1350.       



| | (b) |  | We filed a Current Report on Form 8-K or 8-K/A on April 17,
2003, April 22, 2003, April 30, 2003 and May 13, 2003.
| | --- |  | ------------------------------------------------------------------------------------------------------------------

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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.
|                      |  |                       |  |                                             
|Date: August 12, 2003 |  | By:                   |  | /s/ William J. Ryan                         
|                      |  |                       |  |                                             
|                      |  |                       |  | William J. Ryan                             
|                      |  |                       |  | Chairman, President and                     
|                      |  |                       |  | Chief Executive Officer                     
|                      |  |                       |  |                                             
|Date: August 12, 2003 |  | By:                   |  | /s/ Stephen J. Boyle                        
|                      |  |                       |  |                                             
|                      |  |                       |  | Stephen J. Boyle                            
|                      |  |                       |  | Executive Vice President,                   
|                      |  |                       |  | Chief Financial Officer                     
|                      |  |                       |  | (principal financial and accounting officer)

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EXHIBIT INDEX

Exhibit 31.1 Certification of Chief Executive Officer under Rules 13a-14 and
15d-14

Exhibit 31.2 Certification of Chief Financial Officer under Rules 13a-14 and
15d-14

Exhibit 32.1 Certification of Chief Executive Officer, dated August 12, 2003.

Exhibit 32.2 Certification of Chief Financial Officer, dated August 12, 2003.

44