<PAGE>   1

                                    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 March 31, 2000

                                       OR

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

                         Commission File Number: 0-16947

     BANKNORTH GROUP, INC. (formerly Peoples Heritage Financial Group, Inc.)
     -----------------------------------------------------------------------
             (Exact name of Registrant as specified in its charter)

<TABLE>
<CAPTION>
<S>                                                      <C>
                Maine                                     01-0437984
    -------------------------------                     -----------------
    (State or other jurisdiction of                      (I.R.S. Employer
     incorporation or organization)                     Identification No.)

  One Portland Square, Portland, Maine                        04112
----------------------------------------                    ----------
(Address of principal executive offices)                    (Zip Code)
</TABLE>


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

                     Peoples Heritage Financial Group, Inc.
         ---------------------------------------------------------------
         (Former name, former address and former fiscal year, if changed
                               from last report)

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  [ ]

The number of shares outstanding of the Registrant's common stock as of May 1,
2000 is:

Common stock, par value $.01 per share                       101,511,514
--------------------------------------                      -------------
            (Class)                                         (Outstanding)


<PAGE>   2


                                      INDEX

                     BANKNORTH GROUP, INC. AND SUBSIDIARIES

<TABLE>
<CAPTION>
<S>       <C>                                                                                 <C>
PART I.   FINANCIAL INFORMATION                                                               PAGE
          ---------------------                                                               ----

          Item 1.     Financial Statements (unaudited)

                      Consolidated Balance Sheets
                      March 31, 2000 and December 31, 1999                                       3

                      Consolidated Statements of Income -
                      Three months ended March 31, 2000 and 1999                                 4

                      Consolidated Statements of Changes in Shareholders' Equity -
                      Three months ended March 31, 2000 and 1999                                 5

                      Consolidated Statements of Cash Flows -
                      Three months ended March 31, 2000 and 1999                                 6

                      Notes to Consolidated Financial Statements                                 7

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

          Item 3.     Quantitative and Qualitative Disclosures about Market Risk                30

PART II.  OTHER INFORMATION

          Item 1.     Legal proceedings                                                         30

          Item 2.     Changes in securities                                                     30

          Item 3.     Defaults upon senior securities                                           30

          Item 4.     Submission of matters to a vote of security holders                       30

          Item 5      Other information                                                         30

          Item 6      Exhibits and reports on Form 8-K                                          31

          Signatures                                                                            31
</TABLE>
                                       2

<PAGE>   3

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

<TABLE>
<CAPTION>

                                                                 March 31, 2000  December 31,1999
                                                                 --------------  ----------------
ASSETS                                                             (Unaudited)
<S>                                                               <C>             <C>
Cash and due from banks                                           $    318,989    $    398,759
Federal funds sold and other short term investments                     76,566         203,789
Securities available for sale, at market value                       4,999,905       5,161,009
Securities held to maturity (fair value of $510,308 and
   $519,725 at March 31, 2000 and December 31, 1999,
   respectively)                                                       522,632         541,332
Loans held for sale                                                     15,367          67,220
Loans and leases:
   Residential real estate mortgages                                 1,453,688       1,410,494
   Commercial real estate mortgages                                  1,828,637       1,795,763
   Commercial business loans and leases                              1,391,825       1,291,371
   Consumer loans and leases                                         2,483,879       2,347,031
                                                                  ------------    ------------
                                                                     7,158,029       6,844,659
   Less:  Allowance for loan and lease losses                          107,214         107,871
                                                                  ------------    ------------
              Net loans and leases                                   7,050,815       6,736,788
                                                                  ------------    ------------
Premises and equipment                                                 144,018         141,739
Goodwill and other intangibles                                         110,298         113,264
Mortgage servicing rights                                               39,284          46,829
Bank-owned life insurance                                              232,722         228,423
Other assets                                                           292,984         280,376
                                                                  ------------    ------------
                                                                  $ 13,803,580    $ 13,919,528
                                                                  ============    ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
   Regular savings                                                $  1,244,740    $  1,237,092
   Money market and NOW accounts                                     2,264,863       2,232,891
   Certificates of deposit                                           3,250,695       3,159,864
   Brokered deposits                                                   124,169         173,798
   Demand deposits                                                   1,366,269       1,311,112
                                                                  ------------    ------------
         Total deposits                                              8,250,736       8,114,757
                                                                  ------------    ------------
Federal funds purchased and securities sold under
  repurchase agreements                                                924,896       1,089,316
Borrowings from the Federal Home Loan Bank of Boston                 3,596,968       3,667,399
Other borrowings                                                        17,466          31,849
Other liabilities                                                       91,443          96,455
                                                                  ------------    ------------
        Total liabilities                                           12,881,509      12,999,776
                                                                  ------------    ------------

Company obligated, mandatory redeemable securities of
 subsidiary trust holding solely parent junior subordinated
   debentures                                                           68,775          68,775

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, 200,000,000 shares
   authorized, 106,647,386 and 106,647,585 shares issued)                1,066           1,066
Paid-in capital                                                        509,234         509,009
Retained earnings                                                      554,583         530,002
Unearned compensation                                                   (1,606)         (1,690)
Accumulated other comprehensive income (loss):
   Net unrealized loss on securities available for sale               (119,402)       (105,149)
Treasury stock, at cost (5,157,692 shares and 4,465,600 shares)        (90,579)        (82,261)
                                                                  ------------    ------------
Total shareholders' equity                                             853,296         850,977
                                                                  ------------    ------------
                                                                  $ 13,803,580    $ 13,919,528
                                                                  ============    ============
</TABLE>

          See accompanying Notes to Consolidated Financial Statements.


                                       3


<PAGE>   4


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

<TABLE>
<CAPTION>

                                                            Three Months
                                                           Ended March 31,
                                                    ----------------------------
                                                        2000           1999
                                                    ------------   -------------
<S>                                                 <C>            <C>
Interest and dividend income:
   Interest on loans and leases                     $    145,812   $    154,471
   Interest and dividends on securities                   95,257         55,777
                                                    ------------   ------------
      Total interest and dividend income                 241,069        210,248

Interest expense:
   Interest on deposits                                   62,862         64,976
   Interest on borrowed funds                             67,873         37,334
                                                    ------------   ------------
      Total interest expense                             130,735        102,310

      Net interest income                                110,334        107,938
Provision for loan and lease losses                        2,815          3,565
                                                    ------------   ------------
      Net interest income after provision
              for loan and lease losses                  107,519        104,373

Noninterest income:
   Customer services                                      14,505         10,812
   Mortgage banking services                               2,998          4,205
   Insurance commissions                                   5,279          5,282
   Trust services                                          3,701          3,467
   Investment advisory services                            1,589            978
   Bank-owned life insurance income                        4,299          2,308
   Net securities gains                                        9             18
   Other noninterest income                                3,166          2,364
                                                    ------------   ------------
                                                          35,546         29,434
Noninterest expenses:
   Salaries and employee benefits                         43,232         40,170
   Data processing                                         6,440          7,006
   Occupancy                                               7,764          6,949
   Equipment                                               5,295          4,807
   Distributions on securities of subsidiary trust         1,558          1,986
   Amortization of goodwill and other intangibles          2,966          2,968
   Special charges                                         1,583         33,235
   Other noninterest expenses                             15,558         13,883
                                                    ------------   ------------
                                                          84,396        111,004
Income before income tax expense                          58,669         22,803
Applicable income tax expense                             19,364          9,309
                                                    ------------   ------------
      Net income                                    $     39,305   $     13,494
                                                    ============   ============

Weighted average shares outstanding:
      Basic                                          101,287,535    103,429,129
      Diluted                                        101,811,677    104,851,511
Earnings per share:
      Basic                                         $       0.39   $       0.13
      Diluted                                               0.39           0.13
</TABLE>



          See accompanying Notes to Consolidated Financial Statements.



                                       4


<PAGE>   5


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

<TABLE>
<CAPTION>

                                                                                 Accumulated
                                                                         Compen-    Other
                                           Par    Paid-in    Retained    sation  Comprehensive  Treasury
                                          Value   Capital    Earnings     ESOP    Income (Loss)   Stock       Total
                                          ---------------------------------------------------------------------------
<S>                                       <C>      <C>        <C>        <C>       <C>         <C>          <C>
Balances at December 31, 1999             $1,066   $509,009   $530,002   ($1,690)  ($105,149)  ($82,261)     $850,977

Net income                                    --         --     39,305        --          --         --        39,305
Unrealized losses on securities, net of
   reclassification adjustment                --         --         --        --     (14,253)         --      (14,253)
                                                                                                             --------
        Comprehensive income                                                                                   25,052
                                                                                                             --------

Common stock issued for employee
   benefit plans                              --         --     (2,113)       --          --       4,025        1,912

Treasury stock purchased                      --         --         --        --          --     (12,343)     (12,343)

Decrease in unearned compensation             --        225         --        84          --          --          309

Cash dividends                                --         --    (12,611)       --          --          --      (12,611)
                                         -------   --------   --------   -------   ---------    --------     --------
Balances at March 31, 2000                $1,066   $509,234   $554,583   ($1,606)  ($119,402)   ($90,579)    $853,296
                                         =======   ========   ========   =======   =========    ========     ========

Balances at December 31, 1998             $1,066   $509,473   $447,438   ($2,027)    ($1,651)   ($53,171)    $901,128

Net income                                    --         --     13,494        --          --          --       13,494

Unrealized losses on securities net of
   reclassification adjustment                --         --         --        --       1,601          --        1,601
                                                                                                             --------
          Comprehensive income                                                                                 15,095
                                                                                                             --------

Premium on repurchase of trust
   preferred securities                       --     (2,761)        --        --          --          --       (2,761)

Common stock issued for employee
   benefit plans                              --         --     (2,009)       --          --        5,442       3,433

Decrease in unearned compensation             --        244         --        57          --           --         301

Payment of fractional shares                  --         (2)        --        --          --           --          (2)

Cash dividends                                --         --    (12,016)       --          --           --     (12,016)
                                         -------   --------    -------   -------   ---------     --------    ---------
Balances at March 31, 1999                $1,066   $506,954    $446,907  ($1,970)       ($50)    ($47,729)   $905,178
                                         =======   ========    ========  =======   =========     ========    ========
</TABLE>


          See accompanying Notes to Consolidated Financial Statements.


                                       5
<PAGE>   6


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

<TABLE>
<CAPTION>
                                                                                      Three Months Ended March 31,
                                                                                      ----------------------------
                                                                                         2000               1999
                                                                                      --------             -------
<S>                                                                                   <C>                  <C>
Cash flows from operating activities:
   Net income                                                                          $39,305             $13,494
   Adjustments to reconcile net income to net cash provided by operating
     activities:
           Provision for loan and lease losses                                           2,815               3,565
           Depreciation                                                                  4,938               4,600
           Amortization of goodwill and other intangibles                                2,966               2,968
           Provision for deferred tax expense                                           10,399                (702)
           ESOP expense                                                                    309                 301
           Net gains realized from sales of securities and consumer loans                   (9)                (18)
           Net losses realized from sales of loans held for sale
            (a component of  mortgage banking services)                                    134                  74
           Earnings from bank owned life insurance                                      (4,299)             (2,308)
           Net (increase) decrease in mortgage servicing rights                          7,545              (5,178)
           Proceeds from sales of loans held for sale                                   52,537              491,963
           Residential loans originated and purchased for sale                            (818)           (271,084)
           Net decrease (increase) in interest and dividends receivable and
             other assets                                                              (15,325)             (8,488)
           Net increase (decrease) in other liabilities                                 (5,012)            (13,745)
                                                                                     ---------         -----------
Net cash provided (used) by operating activities                                       $95,485            $215,442
                                                                                     ---------         -----------
Cash flows from investing activities:
   Proceeds from sales of securities available for sale                                $24,507             $20,635
   Proceeds from maturities and principal repayments of securities available
     for sale                                                                          189,597             417,523
   Purchases of securities available for sale                                          (74,926)         (1,338,240)
   Proceeds from maturities and principal repayments of securities held to
     maturity                                                                           18,700                  --
   Net (increase) decrease in loans and leases                                        (316,842)             17,011
   Purchase of bank owned life insurance                                                    --            (150,000)
   Net additions to premises and equipment                                              (7,217)             (4,133)
                                                                                     ---------         -----------
Net cash provided (used) by investing activities                                     ($166,181)        ($1,037,204)
                                                                                     ---------         -----------
Cash flows from financing activities:
   Net (decrease) increase in deposits                                                $135,979           ($159,561)
   Net increase (decrease) in securities sold under repurchase agreements             (164,420)            (72,169)
   Proceeds from Federal Home Loan Bank of Boston borrowings                         2,839,300           1,020,000
   Payments on Federal Home Loan Bank of Boston borrowings                          (2,909,731)           (146,720)
   Net increase (decrease) in other borrowings                                         (14,383)             (1,319)
   Repurchase of trust preferred securities                                                 --             (32,761)
   Issuance of stock                                                                     1,912               3,431
   Purchase of treasury stock                                                          (12,343)                 --
   Dividends paid                                                                      (12,611)            (12,016)
                                                                                     ---------         -----------
Net cash provided by financing activities                                            ($136,297)           $598,885
                                                                                     ---------         -----------
Increase (decrease) in cash and cash equivalents                                     ($206,993)          ($222,877)
   Cash and cash equivalents at beginning of period                                    602,548             699,313
                                                                                     ---------         -----------
   Cash and cash equivalents at end of period                                         $395,555            $476,436
                                                                                     =========         ===========
For the three months ended March 31, 2000 and 1999, interest of $179,815 and
     $101,484 and income taxes of $3,494 and $910 were paid, respectively.
</TABLE>

          See accompanying Notes to Consolidated Financial Statements.


                                       6

<PAGE>   7


                     BANKNORTH GROUP, INC. AND SUBSIDIARIES
                (FORMERLY PEOPLES HERITAGE FINANCIAL GROUP, INC.)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                 MARCH 31, 2000
                                 (IN THOUSANDS)
                                   (UNAUDITED)

NOTE 1 - BASIS OF PRESENTATION

The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles and predominant
practices within the banking industry. The Company has not changed its
accounting and reporting policies from those disclosed in its 1999 Annual Report
on Form 10-K.

In the opinion of management, all adjustments (consisting of normal recurring
accruals) necessary for a fair presentation of the consolidated financial
statements have been included. The results of operations and other data for the
three months ended March 31, 2000 are not necessarily indicative of the results
that may be expected for any other interim period or the entire year ending
December 31, 2000. Certain amounts in the prior periods have been reclassified
to conform to the current presentation.

NOTE 2 - OTHER COMPREHENSIVE INCOME (LOSS)

The components of total comprehensive income for the Company are net income and
unrealized gains (losses) on securities available for sale, net of tax. The
following is a reconciliation of comprehensive income for the three months ended
March 31, 2000 and 1999.

<TABLE>
<CAPTION>

                                                                                     Three Months
                                                                                        Ended
                                                                                       March 31,
                                                                              -----------------------
                                                                                 2000          1999
                                                                              ---------      --------
<S>                                                                             <C>           <C>
Net income                                                                      $39,305       $13,494
Other comprehensive income (loss), net of tax:
Unrealized gains (losses) on available for
  sale securities:
     Unrealized holding gains (losses) arising during the period                (14,247)        1,613
Less:  reclassification adjustment for gains included in net income                   6            12
                                                                              ---------       -------
Other comprehensive income (loss), net                                          (14,253)        1,601
                                                                              ---------       -------
Comprehensive income                                                            $25,052       $15,095
                                                                              =========       =======
</TABLE>



                                       7
<PAGE>   8

NOTE 3 - EARNINGS PER SHARE

The computations of basic and diluted net income per share and weighted average
shares outstanding follow (dollars in thousands, except per share amounts):

<TABLE>
<CAPTION>

                                                    Three Months Ended
                                                         March 31,
                                              ----------------------------
                                                  2000            1999
                                              -----------      -----------
<S>                                           <C>              <C>
Net income                                        $39,305          $13,494
                                              ===========      ===========

Weighted average shares outstanding
  Basic:                                      101,287,535      103,429,129
    Effect of dilutive securities:
       Stock options                              524,142        1,422,382
                                              -----------      -----------
  Diluted                                     101,811,677      104,851,511
                                              ===========      ===========
Net income per share:
  Basic                                             $0.39            $0.13
  Diluted                                            0.39             0.13
</TABLE>





NOTE 4 - COMPLETED ACQUISITION

On May 10, 2000, the Company completed the acquisition of Banknorth Group, Inc.,
which was effected by means of the merger of Banknorth Group, Inc. with and into
the Company. The Company changed its name to "Banknorth Group, Inc." as a result
of the merger. As a result of the merger and the change in the name of the
Company, the Company's symbol on the Nasdaq stock market is now BKNG. Upon
consummation of the merger, each share of Banknorth common stock outstanding was
automatically converted into the right to receive 1.825 shares of Company common
stock, including each attached right issued pursuant to an Amended and Restated
Rights Agreement, dated as of September 12, 1989 and amended and restated as of
July 27, 1999, with cash in lieu of fractional share interests. The financial
statements included herein reflect the historical financial statements of the
Company prior to the acquisition.

                                       8
<PAGE>   9


BANKNORTH GROUP, INC. AND SUBSIDIARIES
(FORMERLY PEOPLES HERITAGE FINANCIAL GROUP, INC.)

MANAGEMENT'S DISCUSSION AND ANALYSIS

SUMMARY

Banknorth Group, Inc. (the "Company"), formerly Peoples Heritage Financial
Group, Inc., reported consolidated net income of $39.3 million, or $0.39 per
diluted share, for the first quarter of 2000. This compares with $13.5 million,
or $0.13 per diluted share, for the first quarter of 1999. Special charges
recorded in the first quarter of 2000 consisted of $1.6 million ($1.1 million
net of tax) of restructuring costs related to branch closings. Special charges
of $33.2 million ($24.1 million net of tax) were recorded in the first quarter
of 1999 and consisted of $25.9 million of merger related charges and $7.4
million of costs to discontinue the Company's correspondent mortgage business.
(See Table 5 for more information related to special charges.)

Excluding the impact of special charges, the Company's operating income for the
first quarter of 2000 was $40.4 million, or $0.40 per diluted share, and return
on average equity ("ROE") and return on average assets (" ROA") were 19.40% and
1.18%, respectively. Operating income for the first quarter of 1999 was $37.6
million, or $0.36 per diluted share, and ROE and ROA were 17.23% and 1.25%,
respectively. Operating results for the first quarter of 2000 represent an 11%
increase in diluted earnings per share from the comparable period last year.

The improved operating results for the first quarter of 2000 over the first
quarter of 1999 were largely due to growth in earning assets levels and strong
fee income. Noninterest income increased 21% compared to the first quarter of
1999. The growth in noninterest income was primarily due to a $3.7 million
increase in customer service income, a $2.0 million increase in income on bank
owned life insurance and an increase in investment advisory services income of
$611 thousand. The efficiency ratio (noninterest expense excluding distributions
on securities of subsidiary trust and special charges, as a percentage of net
interest income and noninterest income, excluding net securities gains) was
55.70% in the first quarter of 2000 compared to 55.17% in the comparable period
last year. Selected quarterly data, ratios and per share data, both as reported
and on an operating basis, are provided in Table 1.


                                       9

<PAGE>   10



TABLE 1 - SELECTED QUARTERLY DATA
(Dollars in thousands, except per share data)

<TABLE>
<CAPTION>

                                                           2000         1999        1999         1999         1999
                                                           First        Fourth       Third       Second       First
                                                          --------     --------    --------     --------     --------
<S>                                                       <C>          <C>         <C>          <C>          <C>
Net interest income                                       $110,334     $114,380    $114,803     $109,126     $107,938
Provision for loan and lease losses                          2,815        3,405       3,565        3,565        3,565
                                                          --------     --------    --------     --------     --------
Net interest income after loan and lease
 loss provision                                            107,519      110,975     111,238      105,561      104,373

Noninterest income (excluding securities
  transactions)                                             35,537       33,854      32,117       33,520       29,416
Net securities gains                                             9           --           3          260           18
Noninterest expenses (excluding special
  charges)                                                  82,813       80,945      79,502       79,312       77,769
Special charges (1)                                          1,583       (3,889)         --           --       33,235
                                                          --------      -------    --------     --------     --------
Income before income taxes                                  58,669       67,773      63,856       60,029       22,803
Income tax expense                                          19,364       22,192      21,275       19,263        9,309
                                                          --------     --------    --------     --------     --------
Net income                                                 $39,305      $45,581     $42,581      $40,766      $13,494
                                                          ========     ========    ========     ========     ========

Earnings per share:
Basic                                                        $0.39        $0.45       $0.41        $0.39        $0.13
Diluted                                                       0.39         0.44        0.41         0.39         0.13

Operating earnings per share (excluding
 special charges):
Basic                                                         0.40         0.42        0.41         0.39         0.36
Diluted                                                       0.40         0.42        0.41         0.39         0.36

Return on average assets (2)                                 1.15%        1.31%       1.23%        1.25%        0.45%
Return on average equity (2)                                18.88%       21.28%      19.62%       18.08%        6.19%

Operating ratios:
Return on average assets (excluding special
  charges)(2)                                                1.18%        1.24%       1.23%        1.25%        1.25%

Return on average equity (excluding special
 charges)(2)                                                19.40%       20.16%      19.62%       18.08%       17.23%

Efficiency ratio (3)                                        55.70%       53.56%      53.05%       54.49%       55.17%
</TABLE>

------------------
(1) Special charges consists of merger-related expenses, one-time charges
    related to the discontinuance of the Company's correspondent mortgage
    business and one-time charges related to branch closings.
(2) Annualized.
(3) Represents operating expenses, excluding distributions on securities of
    subsidiary trust and special charges, as a percentage of net interest
    income and noninterest income, excluding net securities gains.

                                       10
<PAGE>   11


RESULTS OF OPERATIONS

NET INTEREST INCOME

The Company's fully taxable equivalent net interest income in the first quarter
of 2000 increased $2.5 million compared to the first quarter of 1999. The
increase was primarily attributable to increased levels of average earning
assets, which were offset in part by lower net interest margins. Commercial real
estate, commercial business and consumer loan product lines all experienced
significant growth while residential real estate loans declined. Residential
real estate loans declined largely due to the Company's discontinuance of the
correspondent mortgage business and the securitization of $633 million of
residential loans into a real estate investment conduit ("REMIC"), which are
now classified as securities held to maturity. Securities increased due
primarily to this securitization and additional investments in agency
mortgage-backed securities. The Company's net interest margin was 3.49% for the
first quarter of 2000 compared to 3.86% for the comparable quarter of 1999. The
lower margin was due largely to increased levels of securities as a percent of
total assets (41% in the first quarter of 2000 compared to 29% in the first
quarter of 1999), purchases of Bank Owned Life Insurance (the earnings from
which are recorded as noninterest income) and an increase in average borrowings
as a percent of total average interest-bearing liabilities (41% in the first
quarter of 2000 compared to 30% in the first quarter of 1999). Table 2 shows
quarterly average balances, net interest income by category and rates for the
first quarter of 2000 and for each quarter in 1999. Table 3 shows the changes in
fully taxable equivalent net interest income by category due to changes in rate
and volume. See also "Interest Rate Risk and 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 qualifying borrowers and on certain of the Company's 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.


                                       11



<PAGE>   12


TABLE 2 - AVERAGE BALANCES, YIELDS AND RATES
(Dollars in thousands)
<TABLE>
<CAPTION>
                                                               2000 First Quarter                      1999 Fourth Quarter
                                                        ---------------------------------       ---------------------------------
                                                          Average                 Yield/          Average                Yield/
                                                          Balance       Interest  Rate(1)         Balance     Interest   Rate (1)
                                                        -----------     --------  -------       -----------   --------   --------
<S>                                                      <C>             <C>       <C>           <C>          <C>        <C>
Loans and leases (2):
  Residential real estate mortgages                      $1,462,814      $26,745   7.31%         $1,480,113    $26,400   7.13%
  Commercial real estate mortgages                        1,820,345       40,202   8.88           1,803,266     40,531    8.92
  Commercial loans and leases                             1,302,395       28,628   8.84           1,268,226     27,615    8.64
  Consumer loans and leases                               2,425,053       50,621   8.40           2,294,114     49,116    8.49
                                                        -----------     --------                 ----------   --------
     Total loans and leases                               7,010,607      146,196   8.38           6,845,719    143,662    8.34
Securities                                                5,619,683       94,510   6.73           5,862,306     96,417    6.57
Federal funds sold and other short term investments          66,454          898   5.43              73,230      1,103    5.39
                                                        -----------     --------                -----------   --------
 Total earning assets                                    12,696,744      241,604   7.63          12,781,255    241,182    7.51
                                                                        --------                              --------
Nonearning assets                                         1,020,030                               1,004,764
                                                        -----------                             -----------
   Total assets                                         $13,716,774                             $13,786,019
                                                        ===========                             ===========

Interest-bearing deposits:
  Regular savings                                        $1,233,945        6,311   2.06          $1,264,795      6,431    2.01
  NOW and money market accounts                           2,174,872       14,396   2.66           2,176,690     13,552    2.47
  Certificates of deposit                                 3,211,625       40,142   5.03           3,220,391     39,561    4.88
  Brokered deposits                                         131,563        2,013   6.15             143,328      2,062    5.71
                                                        -----------     --------                -----------   --------
    Total interest-bearing deposits                       6,752,005       62,862   3.74           6,805,204     61,606    3.59
Borrowed funds                                            4,678,559       67,873   5.83           4,676,190     64,610    5.48
                                                        -----------     --------                -----------   --------
     Total interest-bearing liabilities                  11,430,564      130,735   4.60          11,481,394    126,216    4.36
                                                                        --------                              --------
Non-interest bearing deposits                             1,298,604                               1,325,467
Other liabilities                                            81,734                                  60,579
Securities of subsidiary trust                               68,775                                  68,775
Shareholders' equity                                        837,097                                 849,804
                                                        -----------                             -----------
   Total liabilities and shareholder's equity           $13,716,774                             $13,786,019
                                                        ===========                             ===========
Net earning assets                                       $1,266,180                              $1,299,861
                                                        ===========                             ===========

Net interest income (fully-taxable equivalent)                           110,869                               114,966
Less: fully-taxable equivalent adjustments                                  (535)                                 (586)
                                                                        --------                              --------
   Net interest income                                                  $110,334                              $114,380
                                                                        ========                              ========
Net interest rate spread (fully-taxable equivalent)                               3.03%                                  3.15%
Net interest margin (fully-taxable equivalent)                                    3.49%                                  3.60%
</TABLE>
----------------------------------------------------
(1) Annualized.
(2) Loans and leases include loans held for sale.

                                       12
<PAGE>   13


TABLE 2 - Average Balances, Yields and Rates
(Dollars in thousands)

<TABLE>
<CAPTION>
                                                               2000 First Quarter                      1999 Fourth Quarter
                                                        ---------------------------------       ---------------------------------
                                                          Average                 Yield/          Average                Yield/
                                                          Balance       Interest  Rate(1)         Balance     Interest   Rate (1)
                                                        -----------     --------  -------       -----------   --------   --------
<S>                                                      <C>             <C>       <C>           <C>          <C>        <C>
Loans and leases (2):
  Residential real estate mortgages                      $1,653,642      $30,059  7.27%          $1,801,616    $32,589   7.24%
  Commercial real estate mortgages                        1,762,761       38,599   8.69           1,689,588     36,952    8.77
  Commercial loans and leases                             1,267,025       27,045   8.47           1,232,071     26,029    8.47
  Consumer loans and leases                               2,150,425       46,370   8.55           2,081,520     44,796    8.63
                                                        -----------     --------                -----------   --------
     Total loans and leases                               6,833,853      142,073   8.26           6,804,795    140,366    8.27
Securities                                                5,846,490       94,115   6.43           5,103,801     78,130    6.12
Federal funds sold and other short term investments          77,451        1,052   5.39             189,798      2,331    4.93
                                                        -----------     --------                -----------   --------
    Total earning assets                                 12,757,794      237,240   7.40          12,098,394    220,827    7.31
Nonearning assets                                           966,829     --------                    950,405   --------
                                                        -----------                             -----------
   Total assets                                         $13,724,623                             $13,048,799
                                                        ===========                             ===========

Interest-bearing deposits:
  Regular savings                                        $1,289,605        6,548   2.01          $1,268,159      6,428    2.03
  NOW and money market accounts                           2,141,901       13,175   2.44           2,078,200     12,464    2.41
  Certificates of deposit                                 3,298,215       40,186   4.83           3,391,976     41,725    4.93
  Brokered deposits                                         163,886        2,275   5.51             201,244      2,811    5.60
                                                        -----------     --------                -----------   --------
    Total interest-bearing deposits                       6,893,607       62,184   3.58           6,939,579     63,428    3.67
Borrowed funds                                            4,558,071       59,754   5.20           3,769,847     47,796    5.09
                                                        -----------     --------                -----------   --------
    Total interest-bearing liabilities                   11,451,678      121,938   4.22          10,709,426    111,224    4.17
                                                                        --------                              --------
Non-interest bearing deposits                             1,285,903                               1,284,420
Other liabilities                                            57,185                                  80,378
Securities of subsidiary trust                               68,775                                  69,987
Shareholders' equity                                        861,082                                 904,588
                                                        -----------                             -----------
   Total liabilities and shareholders' equity           $13,724,623                             $13,048,799
                                                        ===========                             ===========
Net earning assets                                       $1,306,116                              $1,388,968
                                                        ===========                             ===========

Net interest income (fully-taxable equivalent)                           115,302                               109,603
Less: fully-taxable equivalent adjustments                                  (499)                                 (477)
                                                                        --------                              --------
   Net interest income                                                  $114,803                              $109,126
                                                                        ========                              ========
Net interest rate spread (fully-taxable equivalent)                               3.18%                                  3.14%
Net interest margin (fully-taxable equivalent)                                    3.61%                                  3.62%
</TABLE>

----------------------------------------------------
(1) Annualized.
(2) Loans and leases include loans held for sale.

                                       13
<PAGE>   14

 TABLE 2 - AVERAGE BALANCES, YIELDS AND RATES
(Dollars in thousands)
<TABLE>
<CAPTION>
                                                      1999 First Quarter
                                                     ------------------------------------
                                                                                  Yield/
                                                      Average Balance  Interest  Rate (1)
                                                     ----------------  -------   --------
<S>                                                     <C>             <C>       <C>
Loans and leases (2):
  Residential real estate mortgages                      $2,556,325      $47,050  7.36%
  Commercial real estate mortgages                        1,653,097       36,880   9.05
  Commercial loans and leases                             1,139,847       25,784   9.17
  Consumer loans and leases                               2,127,014       45,073   8.59
                                                        -----------     --------
    Total loans and leases                                7,476,283      154,787   8.36
Securities                                                3,583,507       54,105   6.05
Federal funds sold and other short term investments         186,465        1,820   3.96
                                                        -----------     --------
    Total earning assets                                 11,246,255      210,712   7.55
                                                                        --------
Nonearning assets                                           912,961
                                                        -----------
   Total assets                                         $12,159,216
                                                        ===========

Interest-bearing deposits:
   Regular savings                                       $1,283,505        6,445   2.04
   NOW and money market accounts                          2,036,837       12,006   2.39
   Certificates of deposit                                3,449,865       43,893   5.16
   Brokered deposits                                        211,412        2,632   5.05
                                                        -----------     --------
     Total interest-bearing deposits                      6,981,619       64,976   3.77
Borrowed funds                                            2,923,476       37,334   5.18
                                                        -----------     --------
     Total interest-bearing liabilities                   9,905,095      102,310   4.19
                                                                        --------
Non-interest bearing deposits                             1,235,688
Other liabilities                                            46,166
Securities of subsidiary trust                               88,000
Shareholders' equity                                        884,267
                                                        -----------
Total liabilities and shareholders' equity              $12,159,216
                                                        ===========

Net earning assets                                       $1,341,160
                                                         ==========

Net interest income (fully-taxable equivalent)                           108,402
Less: fully-taxable equivalent adjustments                                  (464)
                                                                        --------
   Net interest income                                                  $107,938
                                                                        ========
Net interest rate spread (fully-taxable equivalent)                               3.36%
Net interest margin (fully-taxable equivalent)                                    3.86%
</TABLE>

----------------------------------------------------
(1) Annualized.
(2) Loans and leases include loans held for sale.


                                       14
<PAGE>   15

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



TABLE 3 -  RATE /VOLUME ANALYSIS
(Dollars in thousands)
<TABLE>
<CAPTION>

                                                        Three Months Ended March 31, 2000 vs. 1999
                                                               Increase (decrease) due to
                                                       --------------------------------------------
                                                                                Rate &       Total
                                                         Volume      Rate      Volume (1)    Change
                                                       --------   ---------    ---------   --------
<S>                                                    <C>         <C>         <C>         <C>
Interest income:
Loans and leases                                       ($ 9,679)   $    372    $    716    ($ 8,591)
Securities                                               30,629       6,059       3,717      40,405
Federal funds sold and other short term investments      (1,182)        682        (422)       (922)
                                                       --------    --------    --------    --------
Total interest income                                    19,768       7,113       4,011      30,892
                                                       --------    --------    --------    --------

Interest expense:
Interest-bearing deposits
   Regular savings                                         (251)         64          53        (134)
   NOW and money market accounts                            820       1,367         203       2,390
   Certificates of deposit                               (3,057)     (1,115)        421      (3,751)
   Brokered deposits                                     (1,003)        578        (194)       (619)
                                                       --------    --------    --------    --------
Total interest-bearing deposits                          (3,491)        894         483      (2,114)
Borrowed funds                                           22,604       4,725       3,210      30,539
                                                       --------    --------    --------    --------
Total interest expense                                   19,113       5,619       3,693      28,425

Net interest income (fully taxable equivalent)         $    655    $  1,494    $    318    $  2,467
                                                       ========    ========    ========    ========
</TABLE>

--------------

(1) Includes changes in interest income and expense not due solely to
    volume or rate changes.

                                       15
<PAGE>   16

NONINTEREST INCOME

First quarter noninterest income of $35.5 million increased 21% from the first
quarter of 1999. This increase was due to customer service income (up $3.7
million or 34%), investment advisory income (up $611 thousand or 62%) and bank
owned life insurance income (up $2.0 million or 86%.) These increases were
partially offset by a $1.2 million decline in mortgage banking income due
primarily to lower levels of originations as a result of increased interest
rates. Noninterest income for the quarter ended March 31, 2000 was 24.4% of
total revenue compared to 21.4% for the quarter ended March 31, 1999.

Customer services income in the first quarter of 2000 increased 34% from the
first quarter of 1999. The increase was primarily attributable to volume driven
increases in checking account fees and ATM fees and the conversion of customers
of SIS branches to the Company's deposit products.

Investment advisory income increased 62% from the first quarter of 1999 due to
higher sales of retail investment products during the quarter. Trust income
increased 7% over the first quarter of last year reflecting the continued growth
in trust assets under management. Assets under management were $3.2 billion and
$3.1 billion at March 31, 2000 and 1999, respectively.

Bank-owned life insurance ("BOLI") income was $4.3 million for the first quarter
of 2000, compared to $2.3 million for the same period in 1999. The increase
includes a $1.2 million death benefit receipt in February 2000 and higher
average levels of BOLI in 2000. For the first quarter of 2000, the average cash
surrender value of BOLI was $232 million compared to $173 million for the first
quarter of 1999. BOLI covers certain employees of the Company's bank
subsidiaries. Most of the Company's BOLI is invested in the "general account" of
quality insurance companies. The majority of such companies were rated AA or
better by Standard and Poors at March 31, 2000.

Mortgage banking services income of $3.0 million and $4.2 million provided 8%
and 14% of non-interest income for the quarters ended March 31, 2000 and 1999,
respectively. The 29% decrease from the same quarter of last year was due to a
$3.2 million decrease in mortgage sales income resulting primarily from the
discontinuance of the correspondent mortgage lending business in January 1999,
which was partially offset by a $2.0 million increase in net servicing income.
This improvement was due to a $1.4 million gain on the sale of mortgage
servicing rights and a lower valuation adjustment on the mortgage servicing
rights and interest rate floors that hedge them. The amount of loans serviced
for others was $3.1 billion and $4.3 billion at March 31, 2000 and 1999,
respectively. See "Special Charges" in Table 5 for a discussion of the costs to
discontinue the correspondent mortgage lending business. See Table 4 for a
summary of mortgage banking services income by quarter for 2000 and 1999.

Capitalized mortgage servicing rights amounted to $39.3 million at March 31,
2000, compared to $46.8 million at December 31,1999. The decrease was due
largely to the sale of mortgage servicing rights totaling $6.2 million in the
first quarter of 2000. See Table 4 for details. Because mortgage servicing
rights are an interest-rate sensitive asset, the value of the Company's mortgage
servicing rights and the related mortgage banking income may be adversely
impacted if mortgage interest rates decline and actual or expected loan
prepayments increase. To mitigate the prepayment risk associated with adverse
changes in interest rates and the resultant impairment to capitalized mortgage
servicing rights and effects on mortgage banking income, the Company has
established a hedge program against a portion of its capitalized mortgage
servicing rights to help protect its value and mortgage banking income.
Notwithstanding the foregoing, there can be no assurance that significant
declines in interest rates will not have a material impact on the Company's
mortgage servicing rights and mortgage banking income or that the hedge program
will be successful in mitigating the effects of such a decline.


                                       16
<PAGE>   17

TABLE 4 - MORTGAGE BANKING SERVICES
(Dollars in thousands)

<TABLE>
<CAPTION>

                                                                       At or for the Three Months Ended
                                                   -----------------------------------------------------------------------
                                                      3/31/00      12/31/99        9/30/99        6/30/99       3/31/99
                                                   -----------    -----------    -----------    -----------    -----------
<S>                                                <C>            <C>            <C>            <C>            <C>
RESIDENTIAL MORTGAGES SERVICED FOR INVESTORS       $ 3,078,580    $ 3,621,848    $ 3,759,247    $ 3,913,525    $ 4,328,668

MORTGAGE BANKING SERVICES INCOME:
     Sales income:
     Residential mortgage sales income             $        72    ($      672)   $     1,252    $     2,799    $     3,313

     Lower of cost or market adjustment -
              loans held for sale                           30          1,028            731         (1,934)            --
                                                   -----------    -----------    -----------    -----------    -----------
              Total sales income                           102            356          1,983            865          3,313
                                                   -----------    -----------    -----------    -----------    -----------

     Servicing income:
     Residential mortgage servicing income, net          1,011          1,353          1,189          1,880          1,559

     Decrease in impairment reserve on mortgage
               servicing rights                          1,005            485          1,343          2,382            950

     Valuation adjustments - interest rate floor          (545)            78           (953)        (1,475)        (1,600)

     Gain (loss) on sale of capitalized mortgage
              servicing rights                           1,425           (207)           (66)         2,924            (17)
                                                   -----------    -----------    -----------    -----------    -----------
              Total servicing income                     2,896          1,709          1,513          5,711            892
                                                   -----------    -----------    -----------    -----------    -----------
     Total                                         $     2,998    $     2,065    $     3,496    $     6,576    $     4,205
                                                   ===========    ===========    ===========    ===========    ===========
MORTGAGE SERVICING RIGHTS:

     Balance at beginning of period                $    46,829    $    48,103    $    47,314    $    45,266    $    40,088

     Mortgage servicing rights capitalized
        and purchased                                      323          1,001          2,985          2,747          7,535

     Amortization charged against
        mortgage servicing fee income                   (2,655)        (2,760)        (2,697)        (2,736)        (2,828)

     Change in impairment reserve                        1,005            485          1,343          2,382            950

     Mortgage servicing rights sold                     (6,218)            --           (842)          (345)          (479)
                                                   -----------    -----------    -----------    -----------    -----------
     Balance at end of period                      $    39,284    $    46,829    $    48,103    $    47,314    $    45,266
                                                   ===========    ===========    ===========    ===========    ===========
</TABLE>

                                       17
<PAGE>   18


NON-INTEREST EXPENSE

Excluding special charges, amortization of intangibles and distribution on
securities of subsidiary trust, non-interest expense was $78.3 million and $72.8
million for the quarters ended March 31, 2000 and 1999, respectively, an
increase of 7.5%. The efficiency ratio was 55.70% and 55.17% for the quarters
ended March 31, 2000 and 1999, respectively, excluding special charges,
distributions on securities of subsidiary trust and net securities gains.

Salaries and benefits expense of $43.2 million for the quarter ended March 31,
2000 increased $3.1 million or 7.6% from the same quarter of last year. The
increase was due to normal salary increases as well as increased cost of
benefits.

Data processing expense of $6.4 million for the quarter ended March 31, 2000
decreased $566 thousand or 8% from the same quarter a year ago, mostly due to
Year 2000 costs incurred in 1999.

Occupancy expense of $7.8 million increased $815 thousand from the first quarter
of 1999 due primarily to a $370 thousand increase in rent expense in the first
quarter of 2000 and a $300 thousand gain on sale of property recorded in the
first quarter of 1999.

Equipment expense increased $488 thousand from the first quarter of last year
due to depreciation on new equipment. Advertising and marketing expense
decreased $564 thousand from the first quarter of 1999 due to the timing of
campaigns and efficiencies from the acquisition of SIS Bancorp, Inc. ("SIS") on
January 1, 1999.

Amortization of goodwill and other intangibles was $3.0 million for the quarters
ended March 31, 2000 and 1999.

Restructuring charges of $1.6 million pre-tax were incurred in the first quarter
of 2000 related to the closing of 11 branches. Special charges of $33.2 million
in the first quarter of 1999 included merger-related expenses of $25.9 million
incurred in connection with the acquisition of SIS and $7.4 million related to
the discontinuance of the Company's correspondent mortgage lending business. On
an after-tax basis, special charges amounted to $1.1 million and $24.1 million
for the three months ended March 31, 2000 and 1999, respectively.

                                       18

<PAGE>   19



The following table summarizes activity related to special charges recorded from
December 31, 1999 through March 31, 2000.

TABLE 5 - SPECIAL CHARGES
(Dollars in Thousands)

BRANCH CLOSINGS

<TABLE>
<CAPTION>
                                                                                   Non-Cash
                                                      Amount                      Reductions
                                        Balance     Included in        Cash       Applied to    Balance at
                                       12/31/99       Expense        Payments      Reserve       3/31/2000
                                      -----------   -----------     ----------    -----------   -----------
<S>                                    <C>            <C>            <C>            <C>           <C>
Severance and salary costs             $       --    $       68      $      --     $       --    $       68
Asset write-downs/lease termination            --         1,259             --             --         1,259
Other costs                                    --           256             --             --           256
                                      ------------  ------------    -----------  -------------  ------------
                                       $       --    $    1,583      $      --     $       --    $    1,583
                                      ============  ============    ===========  =============  ============
</TABLE>

<TABLE>
<CAPTION>

MERGER CHARGES(1)                                                                  Non-Cash
                                                      Amount                      Reductions
                                        Balance     Included in        Cash       Applied to    Balance at
                                       12/31/99       Expense        Payments      Reserve       3/31/2000
                                       ---------     ----------      --------     ----------    ----------
<S>                                     <C>           <C>            <C>            <C>           <C>
Asset write-downs / lease terminations $     766       $     --       $    281    $       --     $     485
Other costs                                  862             --            266            --           596
                                      ------------  ------------    -----------  -------------  ------------
                                       $   1,628       $     --       $    547     $      --     $   1,081
                                      ============  ============    ===========  =============  ============
</TABLE>


(1) The acquisitions of SIS and CFX Corporation were consummated on January 1,
    1999 and April 10, 1998, respectively.

                                       19
<PAGE>   20


Other non-interest expenses for the first quarter of 2000 increased $1.7 million
from the first quarter of 1999. The following table summarizes the principal
components of other non-interest expenses by quarter.

TABLE 6 - OTHER NON-INTEREST EXPENSES
(Dollars in thousands)
<TABLE>
<CAPTION>

                                       2000        1999       1999       1999      1999
                                       First      Fourth      Third     Second     First
                                      Quarter    Quarter     Quarter    Quarter   Quarter
                                      -------    --------    -------    -------  --------
<S>                                    <C>          <C>       <C>       <C>       <C>
Miscellaneous loan costs               $2,037       $835      $2,149    $1,952    $1,934
Telephone                               2,296      2,375       2,888     2,566     2,561
Postage and freight                     1,965      1,813       1,737     1,771     2,103
Advertising and marketing               1,769      2,644       2,158     2,320     2,333
Office supplies                         1,472      1,467       1,546     1,805     1,471
Deposits and other assessments            711        840         862       727       668
Collection and carrying costs
    of non-performing assets              555         57         359       313       701
Other                                   4,753      3,965       3,316     4,714     2,112
                                      -------    -------     -------   -------   -------
Total                                 $15,558    $13,996     $15,015   $16,168   $13,883
                                      ========   =======     =======   =======   =======
</TABLE>


TAXES

The effective tax rate, excluding the effect of special charges, was 33% for
each of the quarters ended March 31, 2000 and 1999.

OTHER COMPREHENSIVE INCOME

FASB Statement No. 130 requires disclosure of "Other comprehensive income."
Unlike net income, "other comprehensive income" includes the after-tax change in
unrealized gains and losses on securities. As a result of an increase in
interest rates during the first quarter of 2000, the unrealized loss on the
Company's securities portfolio increased $14.3 million, net of taxes and gains
and losses realized on sales of securities. At March 31, 2000, the net
unrealized loss of $183.7 million, before related tax effect, represented 3.5%
of securities available for sale. The Company attempts to balance the interest
rate risk of its assets with its liabilities (see "Interest Rate Risk and Asset
Liability Management"). However, the change in value of its liabilities, which
tends to improve in rising interest rate environments, is not included in "other
comprehensive income."


FINANCIAL CONDITION

LOANS AND LEASES

Total loans and leases (including loans held for sale) averaged $7.0 billion
during the first quarter of 2000, a decrease of $466 million or 6.3% from the
first quarter of 1999. The decrease was primarily in residential real estate
mortgages. Loans as a percent of average earning assets were 55% at March 31,
2000 compared to 66% at March 31, 1999.

Average residential real estate loans (which includes mortgage loans held for
sale) of $1.5 billion during the first quarter of 2000 declined $1.1 billion
from the first quarter of last year. The decline was primarily attributable to
the $633 million securitization of single-family residential real estate loans
into a REMIC in April, 1999 which is classified as securities held to maturity,
as well as to decreased originations resulting from the discontinuance of the
Company's correspondent mortgage business. Mortgage loans held for sale amounted
to $15 million and $297 million at March 31, 2000 and 1999, respectively, and
$67 million at December 31, 1999. The decline in loans held for sale was due
primarily to the discontinuance of the correspondent mortgage business in the
first quarter of 1999 and the retention of a portion of residential real estate
loan originations in portfolio.


Average commercial real estate loans of $1.8 billion increased 10% from the
first quarter of last year. The average yield on commercial real estate loans
during the first quarter of 2000 was 8.88%, as compared to 9.05% in the first
quarter of 1999.

                                       20
<PAGE>   21

Commercial loans and leases averaged $1.3 billion during the first quarter of
2000, an increase of 14% over the first quarter of 1999. The yield on commercial
loans and leases decreased to 8.84% in the first quarter of 2000 from 9.17% in
the first quarter of 1999.

Average consumer loans and leases of $2.4 billion during the first quarter of
2000 increased 14% from the first quarter of 1999. The increase was primarily in
indirect automobile, student and home equity loans. The average yield on
consumer loans and leases declined from 8.59% in the first quarter of 1999 to
8.40% in the first quarter of 2000.

SECURITIES AND OTHER EARNING ASSETS

The Company's securities portfolio averaged $5.6 billion during the first
quarter of 2000, as compared to $3.6 billion in the first quarter of 1999, and
consisted primarily of mortgage-backed securities, most of which are seasoned 15
year federal agency securities and U.S. Treasury securities. Other securities
consisted of collateralized mortgage obligations, asset-backed securities and
securitized residential real estate loans held in a REMIC. With the exception of
such securitized loans, which are classified as held to maturity and carried at
cost, all of the Company's securities are classified as available for sale and
carried at market value. The majority of securities available for sale are rated
AAA or equivalently rated. A significant portion of the increase in securities
was to replace the decline in residential real estate loans. The average yield
on securities was 6.73% and 6.05% for the quarters ended March 31, 2000 and
1999, respectively. The increased yield was due in part to the addition of the
REMIC securities which had a weighted average yield of 7.60%. Securities
available for sale are carried at fair value and had an after-tax unrealized
loss of $119.4 million and $105.1 million at March 31, 2000 and December 31,
1999, respectively. The unrealized loss was 3.5% of total securities available
for sale at March 31, 2000.

ASSET QUALITY

As shown in Table 7, nonperforming assets were $55.3 million at March 31, 2000,
or 0.40% of total assets, compared to $60.1 million at March 31, 1999. The
decline was attributable to declines in nonperforming residential and commercial
real estate loans as well as consumer loans. The Company continues to monitor
asset quality with regular reviews of its portfolio in accordance with its
lending and credit policies.

The Company's residential loan portfolio accounted for 20% of the total loan
portfolio at March 31, 2000, as compared with 21% at December 31, 1999. The
Company's residential loans are generally secured by single-family homes (one to
four units) and have a maximum loan to value ratio of 80%, unless they are
protected by mortgage insurance. At March 31, 2000, 0.62% of the Company's
residential loans were nonperforming, as compared with 0.78% at December 31,
1999 and .48% at March 31, 1999.

The Company's commercial real estate loan portfolio accounted for 25% of the
total loan portfolio at March 31, 2000 compared to 26% at December 31, 1999. At
March 31, 2000, 0.71% of the Company's commercial real estate loans were
nonperforming, as compared with 0.82% at December 31, 1999 and 1.08% at March
31, 1999.

The Company's commercial business loan and lease portfolio accounted for 19% of
the total loan portfolio at March 31, 2000 and December 31, 1999. Commercial
business loans and leases are not concentrated in any particular industry, but
reflect the broad-based economies of Maine, New Hampshire, Massachusetts and, to
a lesser extent, Connecticut. The Company's commercial business loans and leases
are generally to small and medium size businesses located within its geographic
market area. At March 31, 2000, 1.29% of the Company's commercial business loans
and leases were non-performing, as compared with 1.16% at December 31, 1999 and
1.06% at March 31, 1999.

The Company's consumer loan and lease portfolio accounted for 35% of the total
loan portfolio at March 31, 2000 and 34% at December 31, 1999. The Company has a
diversified consumer loan and lease portfolio consisting of home equity,
automobile, mobile home, boat and recreational vehicles and education loans. At
March 31, 2000, 0.17% of the Company's consumer loans and leases were
nonperforming, as compared with 0.22% at December 31, 1999 and .36% at March 31,
1999.

                                       21
<PAGE>   22


At March 31, 2000, the Company had $6.7 million of accruing loans which were 90
days or more delinquent, as compared to $10.5 million of such loans at December
31, 1999. The decrease was primarily attributable to a decrease in residential
real estate loans over 90 days delinquent, which the Company believes are well
secured and in the process of collection.

TABLE 7 - NONPERFORMING ASSETS
(Dollars in thousands)
<TABLE>
<CAPTION>

                                                                3/31/00   12/31/99    9/30/99   6/30/99    3/31/99
                                                                -------    -------    -------    ------    --------
<S>                                                             <C>        <C>        <C>         <C>       <C>
Residential real estate loans:
Nonaccrual loans                                                $ 9,047    $11,046    $10,855    $11,643    $10,124
                                                                -------    -------    -------    -------    -------
Commercial real estate loans:
Nonaccrual loans                                                 12,110     13,699     13,211     14,494     16,657
Troubled debt restructurings                                        961      1,002      1,282      1,391      1,110
                                                                -------    -------    -------    -------    -------
    Total                                                        13,071     14,701     14,493     15,885     17,767
                                                                -------    -------    -------    -------    -------
Commercial business loans and leases:
Nonaccrual loans                                                 17,874     14,944     17,712     18,600     12,694
Troubled debt restructurings                                         39         82         83         80         40
                                                                -------    -------    -------    -------    -------
   Total                                                         17,913     15,026     17,795     18,680     12,734
                                                                -------    -------    -------    -------    -------
Consumer loans and leases:
Nonaccrual loans                                                  4,151      5,115      5,639      5,531      7,566
                                                                -------    -------    -------    -------    -------
Total nonperforming loans:
Nonaccrual loans                                                 43,182     44,804     47,417     50,268     47,041
Troubled debt restructurings                                      1,000      1,084      1,365      1,471      1,150
                                                                -------    -------    -------    -------    -------
   Total                                                         44,182     45,888     48,782     51,739     48,191
                                                                -------    -------    -------    -------    -------
Other nonperforming assets:
Other real estate owned, net of related reserves                  8,393      7,642      7,764      7,170      7,468
Repossessions, net of related reserves                            2,712      2,826      2,773      3,411      4,446
                                                                -------    -------    -------    -------    -------
Total other nonperforming assets                                 11,105     10,468     10,537     10,581     11,914
                                                                -------    -------    -------    -------    -------

Total nonperforming assets                                      $55,287    $56,356    $59,319    $62,320    $60,105
                                                                =======    =======    =======    =======    =======
Accruing loans which are 90 days overdue                        $ 6,674    $10,484    $13,764    $17,990    $24,967
                                                                =======    =======    =======    =======    =======

Total nonperforming loans as a percentage of total loans           0.62%      0.67%      0.73%      0.78%      0.68%
Total nonperforming assets as a percentage of total assets         0.40%      0.40%      0.43%      0.46%      0.48%
Total nonperforming assets as a percentage of total loans
   and leases (1) and total other nonperforming assets             0.77%      0.82%      0.89%      0.94%      0.85%
</TABLE>

--------------
(1) Total loans and leases are exclusive of loans held for sale.

                                       22
<PAGE>   23



PROVISION/ALLOWANCE FOR LOAN LOSSES

The Company provided $2.8 million for loan and lease losses in the first quarter
of 2000, compared to $3.6 million in the first quarter of 1999. As shown in
Table 8, net charge-offs for the first quarter of 2000 were $3.5 million, or
 .20% of average loans outstanding, compared to $3.6 million, or .19% of average
loans outstanding, for the first quarter of 1999. With the exception of the
fourth quarter of 1999, net quarterly charge-offs have remained relatively flat
since the first quarter of 1999. The provisions for loan and lease losses during
the first quarter of 2000 and the fourth quarter of 1999 were less than the net
charge-offs during these periods because of management's overall evaluation of
the adequacy of the total allowance for loan and lease losses, as discussed
below.

At March 31, 2000, the allowance for loan and lease losses amounted to $107.2
million or 1.50% of total portfolio loans and leases, as compared to $110.6
million or 1.56% at March 31, 1999. The ratio of the allowance for loan and
lease losses to nonperforming loans was 243% at March 31, 2000 and 229% at March
31, 1999. Management considers the allowance appropriate and adequate to cover
potential losses inherent in the loan portfolio based on the current economic
environment.

Provisions for loan losses are attributable to management's ongoing evaluation
of the adequacy of the allowance for loan and lease losses, which includes,
among other procedures, consideration of the character and size of the loan
portfolio, such as internal risk ratings and credit concentrations, trends in
nonperforming loans, delinquent loans and net charge-offs, the volume of new
loan originations and other asset quality factors. Although management utilizes
its best judgment in providing for possible losses, there can be no assurance
that the Company will not have to change its provisions for loan and lease
losses in subsequent periods. Changing economic and business conditions in
northern New England, fluctuations in local markets for real estate, future
changes in nonperforming asset trends, large movements in market-based interest
rates or other reasons could affect the Company's future provisions for loans
losses.

                                       23

<PAGE>   24

TABLE 8 - ALLOWANCE FOR LOAN AND LEASE LOSSES
(Dollars in thousands)
<TABLE>
<CAPTION>

                                                2000 First    1999 Fourth    1999 Third     1999 Second     1999 First
                                                  Quarter       Quarter        Quarter        Quarter         Quarter
                                                ----------    -----------    -----------    -----------     -----------
<S>                                             <C>           <C>            <C>            <C>             <C>
Average loans and leases outstanding
   during the period (1)                       $ 7,010,607    $ 6,845,718    $ 6,833,853    $ 6,804,795     $ 7,476,283
                                               ===========    ===========    ===========    ===========     ===========

Allowance at beginning of period               $   107,871    $   110,788    $   110,639    $   110,573     $   110,561

Charge-offs:
Real estate mortgages                                  887          2,175            790          1,982             530
Commercial business loans and leases                   708          1,627          1,043            346           1,137
Consumer loans and leases                            3,854          3,565          3,260          3,904           3,550

                                               -----------    -----------    -----------    -----------     -----------
  Total loans charged off                            5,449          7,367          5,093          6,232           5,217
                                               -----------    -----------    -----------    -----------     -----------

Recoveries:
Real estate mortgages                                  864             62            452          1,402             550
Commercial business loans and leases                   533            487            694            688             627
Consumer loans and leases                              580            496            531            643             487

                                               -----------    -----------    -----------    -----------     -----------
  Total loans recovered                              1,977          1,045          1,677          2,733           1,664
                                               -----------    -----------    -----------    -----------     -----------
Net charge-offs                                      3,472          6,322          3,416          3,499           3,553

Additions charged to operating expenses              2,815          3,405          3,565          3,565           3,565
                                               -----------    -----------    -----------    -----------     -----------
Allowance at end of period                     $   107,214    $   107,871    $   110,788    $   110,639     $   110,573
                                               ===========    ===========    ===========    ===========     ===========

Ratio of net charge-offs to average loans
   and leases outstanding during the period,
    annualized                                        0.20%          0.37%          0.20%          0.21%           0.19%
Ratio of allowance to total loans and leases
   at end of period (2)                               1.50%          1.58%          1.66%          1.67%           1.56%
Ratio of allowance to nonperforming loans
   at end of period                                    243%           235%           227%           214%            229%
Ratio of net charge-offs (recoveries) as a
   percent of average outstanding loans,
    annualized (1):
             Real estate mortgages                   0.003%         0.255%         0.039%         0.067%         (0.002%)
             Commercial business loans and
               leases                                0.054%         0.357%         0.109%        (0.111%)         0.181%
             Consumer loans and leases               0.543%         0.960%         0.503%         0.628%          0.584%
</TABLE>

----------------------------------
(1) Average loans and leases include portfolio loans and loans held for sale.
(2) Total loans and leases are exclusive of loans held for sale.

                                       24

<PAGE>   25


DEPOSITS

Average deposits of $8.1 billion during the first quarter of 2000 decreased $167
million from the first quarter of 1999. Excluding brokered deposits, average
total deposits decreased $87 million compared to the first quarter of 1999. The
ratio of portfolio loans to retail deposits was 88% and 86% at March 31, 2000
and December 31, 1999, respectively.

Average non-interest bearing deposit accounts of $1.3 billion during the first
quarter of 2000 increased $62.9 million or 5% from the first quarter of 1999.
The increase in these non-interest bearing deposits is consistent with the
Company's marketing of these lower-cost accounts.

Average interest-bearing deposit accounts, excluding brokered deposits, of $6.6
billion during the first quarter of 2000 decreased $150 million from the first
quarter of 1999 primarily due to declines in certificates of deposit. The
average rates paid on all deposit types decreased from 3.77% in the first
quarter of 1999 to 3.74% in the first quarter of 2000.

OTHER FUNDING SOURCES

The Company's primary source of funding, other than deposits, are securities
sold under repurchase agreements and advances from the Federal Home Loan Bank of
Boston ("FHLB"). Average borrowed funds for the first quarter of 2000 were $4.7
billion, an increase of $1.8 billion from the first quarter of 1999. The
increase in borrowings was utilized to fund asset growth.

Average FHLB borrowings for the first quarter of 2000 were $3.6 billion, which
increased $1.3 billion or 54% from the first quarter of 1999 in order to fund
the growth in earning assets. FHLB collateral consists primarily of first
mortgage loans secured by 1 - 4 family properties, certain unencumbered
securities and other qualified assets. At March 31, 2000, the Company's FHLB
borrowings amounted to $3.6 billion and its additional borrowing capacity from
the FHLB was $809 million.

Average balances for securities sold under repurchase agreements were $1.0
billion and $574 million for the quarters ended March 31, 2000 and 1999,
respectively, an increase of $448 million. These borrowings, with a cost of
5.30% for the quarter ended March 31, 2000, are secured by mortgage-backed
securities and U.S. Government obligations.

ASSET-LIABILITY MANAGEMENT

The goal of asset-liability management is the prudent control of market risk,
liquidity and capital. Asset-liability management is governed by policies
reviewed and approved annually by the Company's Board of Directors (the "Board")
and monitored periodically by a committee of the Board. The Board delegates
responsibility for asset-liability management to the Liquidity and Funds
Management Committee ("LFMC"), which is comprised of members of senior
management who set strategic directives that guide the day-to-day
asset-liability management activities of the Company. The LFMC also reviews and
approves all major risk, liquidity and capital management programs.

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. The
Company has no trading operations and thus is only exposed to non-trading market
risk.

Interest-rate risk, including mortgage prepayment risk, is by far the most
significant non-credit risk to which the Company in 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, affect net
interest income, the Company's primary source of revenue. This risk arises
directly from the Company's core banking activities - lending, deposit gathering
and loan servicing. In addition to directly impacting net interest income,
changes in the level of interest rates can also affect (i) the amount of loans
originated and sold by the institution, (ii) the ability of borrowers to repay
adjustable or variable rate loans, (iii) the average maturity of loans, (iv) the
rate of amortization of capitalized mortgage servicing rights and premiums paid
on securities, (v) the amount of unrealized gains and losses on securities
available for sale and (vi) the value of an institution's investment securities
and mortgage loans and the resultant ability to realize gains on the sale of
such assets.

                                       25
<PAGE>   26


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

The Company quantifies and measures interest-rate exposures using a model to
dynamically simulate net interest income under various interest rate scenarios
over 12 months. 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, the growth
or shrinkage of product balances and the behavior of the Company's deposit and
loan customers. The most material assumption relates to the prepayment of
mortgage assets (including mortgage loans, mortgage-backed securities and
mortgage servicing rights). The risk of prepayment tends to increase when
interest rates fall. Since future prepayment behavior of loan customers is
uncertain, the resultant interest rate sensitivity of loan assets cannot be
determined exactly. Complicating management's efforts to measure interest rate
risk is the uncertainty of the maturity, repricing and/or runoff of some of the
Company's assets and liabilities.

To cope with these uncertainties, management gives careful attention to its
assumptions. For example, many of the Company's 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 management believes it has
some control with respect to the extent and timing of rates paid on non-maturity
deposits, certain assumptions regarding rate changes are built into the model.
In the case of prepayment of mortgage assets, assumptions are derived from
published dealer median prepayment estimates for comparable mortgage loans.

The Company manages the interest-rate risk inherent in its core banking
operations primarily using on-balance sheet instruments that sometimes contain
embedded options, mainly fixed-rate portfolio securities and borrowed fund
maturities. When appropriate, the Company will utilize off-balance sheet
interest rate instruments such as interest-rate swaps, forward-rate agreements,
options, options on swaps and exchange traded futures and options.

The Company's policy on interest-rate risk simulation specifies that if interest
rates were to immediately shift up or down 200 basis points, estimated net
interest income for the subsequent 12 months should decline by less than 10%.
The Company was in compliance with this limit at March 31, 2000. The Company
also monitors gradual changes in market interest rates which it believes better
represents its exposure to net interest income. The following table reflects the
estimated percentage exposure of the Company's net interest income for the 12
months following the date indicated assuming a gradual shift in market interest
rates of 100 and 200 basis points, respectively.

<TABLE>
<CAPTION>

                   200 Basis Point   100 Basis Point   100 Basis Point      200 Basis Point
                    Rate Decrease     Rate Decrease     Rate Increase        Rate Increase
                   ----------------  ---------------   ----------------    -----------------

<S>   <C> <C>           <C>             <C>              <C>                  <C>
March 31, 2000          1.26%           1.84%            (2.30%)              (3.11%)
                       ======           ====             ======               ======
March 31, 1999         (2.37%)          0.37%            (0.98%)              (2.42%)
                       ======           ====             ======               ======
</TABLE>




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

The Company uses interest rate floors, U.S. Treasury debt instruments and
principal only strips to mitigate the prepayment risk associated with mortgage
servicing rights (see "Non-Interest Income" for further details). At March 31,
2000, the Company had $200 million notional amount in interest rate floors, $20
million in U.S. Treasury bonds and $20 million in principal only strips. The
U.S. Treasury Bonds, noted in the carrying value of mortgage servicing rights
table below, were sold in April 2000 as the amount of the hedge was decreased.
For mortgage servicing rights, the adverse impact of current movements in
interest rates on expected future cash flows must be recognized immediately
through an adjustment to their


                                       26

<PAGE>   27

carrying value. If interest rates decline, estimated future fee income from
mortgage servicing rights is reduced because of an expected increase in mortgage
prepayments.

The following table sets forth the net exposure at March 31, 2000 of the
economic value of mortgage servicing rights and identified hedging instruments,
assuming an immediate shift by the indicated amount in market interest rates.


<TABLE>
<CAPTION>

                             200 Basis Point  100 Basis Point  100 Basis Point  200 Basis Point
                              Rate Decrease    Rate Decrease    Rate Increase    Rate Increase
                             ---------------  ---------------  ---------------  ----------------
                                                (Dollars in thousands)
<S>                            <C>               <C>               <C>              <C>
   Mortgage servicing rights   ($18,585)         ($8,000)          $5,900          $10,620
   Interest rate floors           5,800            1,600             (400)            (600)
   U.S. Treasury bonds            6,055            2,647           (2,145)          (3,979)
   Principal only strips          5,049            2,000           (1,600)          (1,989)
                               --------          -------           ------           ------
   Net exposure                 ($1,681)         ($1,753)          $1,755           $4,052
                               ========          =======           ======           ======
</TABLE>



The foregoing estimates of the effects of specified changes in interest rates on
the Company's net interest income and the carrying value of its mortgage
servicing rights are based on various assumptions, as discussed above, which
approximate actual experience and which management of the Company considers to
be reasonable. The effects of changes in interest rates on the Company could
vary substantially if different assumptions were used or actual experience
differs from the historical experience on which the assumptions are based.

The most significant factors affecting market risk exposure of net interest
income in the past 12 months has been (i) the increase in interest rates, (ii)
changes in the yield curve for U.S. Government securities, (iii) changes in the
composition of mortgage assets (iv) increases in adjustable rate borrowings with
embedded interest rate caps and (v) the increase and diversification of assets
and off-balance sheet interest-rate instruments used to hedge mortgage servicing
rights.

The Company's 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, the Company does not have substantial commitments or
debt service requirements. At March 31, 2000, such commitments consisted
primarily of junior subordinated debentures issued to a subsidiary, Peoples
Heritage Capital Trust I, in connection with that subsidiary's issuance of 9.06%
Capital Securities due 2027. The principal sources of funds for the Company to
meet parent-only obligations are dividends from its banking subsidiaries, which
are subject to regulatory limitations. Other potential sources include public
and private borrowings.

Banking Subsidiaries

For banking subsidiaries of the Company, liquidity represents the ability to
fund asset growth and accommodate deposits withdrawals. Liquidity risk is the
danger that the banks 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, the banks have 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

                                       27

<PAGE>   28


The Company continually monitors and forecasts its liquidity position. There are
several interdependent methods including daily review of fed funds positions,
monthly review of balance sheet changes, monthly review of liquidity ratios,
periodic liquidity forecasts and periodic review of contingent funding plans.

As of March 31, 2000 the banks had $1.3 billion of "immediately accessible
liquidity" defined as cash that could be raised within 1-3 days through
collateralized borrowings or security sales. This represents 15% of deposits or
9% of assets. The Company's current policy minimum is 10% of deposits.

Also as of March 31, 2000 the banks had "potentially volatile funds" of $894
million. These are funds that might flow out of the banks over a 90-day period
in an adverse environment. Management estimates this figure by applying adverse
probabilities to its various credit-sensitive and economically-sensitive funding
sources.

As of March 31, 2000 the ratio of "immediately accessible liquidity" to
"potentially volatile funds" was 144%, versus a policy minimum of 100%.

In addition to the liquidity sources discussed above, management believes that
its consumer loan portfolios provide a significant amount of contingent
liquidity that could be accessed in a reasonable time period through sale or
securitization. The banks also have significant untapped access to the national
brokered deposit market. Both of these sources are contemplated as secondary
liquidity in the Company's contingent funding plan. Management believes that the
level of liquidity is sufficient to meet current and future funding
requirements.


CAPITAL

At March 31, 2000, shareholders' equity amounted to $853.3 million. In addition,
through a subsidiary trust, the Company had outstanding $68.8 million of Capital
Securities which mature in 2027 and qualify as Tier 1 Capital. The Company paid
a $0.125 per share dividend on its common stock during the first quarter of
2000. In July 1999, the Company authorized a 4,000,000 share repurchase program.
As of March 31, 2000, the Company completed this repurchase program at a total
cost of $66.1 million, having repurchased 912,500 shares for $12.3 million, or
an average price of $13.53 per share, in the first quarter of 2000.

Capital guidelines issued by the Federal Reserve Board require the Company to
maintain certain ratios, set forth in Table 9. As indicated in such table, the
Company's regulatory capital currently substantially exceeds all applicable
requirements.



    TABLE 9 - REGULATORY CAPITAL REQUIREMENTS
    (Dollars in thousands)
<TABLE>
<CAPTION>

                                                                                For Capital Adequacy
                                                              Actual                    Purposes              Excess
                                                      ---------------------       -----------------      ------------------
                                                       Amount       Ratio         Amount     Ratio       Amount       Ratio
                                                      ----------    -------       -------     -----      ---------    -----
<S>                                                   <C>            <C>          <C>         <C>         <C>         <C>

    As of March 31, 2000:

    Total capital (to risk weighted assets)           $1,031,438     12.23%       337.304     8.00%      $ 694,134     4.23%
    Tier 1 capital (to risk weighted assets)             926,031     10.98%       337,304     4.00%        588,727     6.98%
    Tier 1 leverage capital ratio (to average assets)    926,031      6.75%       546,525     4.00%        379,506     2.75%

    As of December 31, 1999:

    Total capital (to risk weighted assets)            1,015,125     12.38%       656,097     8.00%        359,028     4.38%
    Tier 1 capital (to risk weighted assets)             912,544     11.13%       328,048     4.00%        584,496     7.13%
    Tier 1 leverage capital  (to average assets)         912,544      6.60%       552,173     4.00%        360,371     2.60%

</TABLE>


Net risk weighted assets were $8.4 billion and $8.2 billion at March 31, 2000
and December 31, 1999, respectively.

The Company's banking subsidiaries are also subject to federal, and in certain
cases state, regulatory capital requirements. At March 31, 2000, each of the
Company's banking subsidiaries was deemed to be "well capitalized" under the
regulations of the applicable federal banking agency and in compliance with
applicable state capital requirements.

                                       28
<PAGE>   29

IMPACT OF THE YEAR 2000

The Company has not experienced any significant disruptions to its financial or
operating activities caused by a failure of its computerized systems resulting
from Year 2000 issues. Year 2000 expenses incurred in 1999 were funded out of
the Company's operating cash flow.

COMPLETED ACQUISITION

On May 10, 2000, the Company completed the acquisition of Banknorth Group, Inc.,
which was effected by means of the merger of Banknorth Group, Inc. with and into
the Company. The Company changed its name to "Banknorth Group, Inc." as a result
of the merger. As a result of the merger and the change in the name of the
Company, the Company's symbol on the Nasdaq stock market is now BKNG. Upon
consummation of the merger, each share of Banknorth common stock outstanding was
automatically converted into the right to receive 1.825 shares of Company common
stock including each attached right issued pursuant to an Amended and Restated
Rights Agreement, dated as of September 12, 1989 and amended and restated as of
July 27, 1999, with cash in lieu of fractional share interests. The financial
statements included herein reflect the historical financial statements of the
Company prior to the acquisition.


IMPACT OF NEW ACCOUNTING STANDARDS

In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities," which sets accounting and reporting
standards for derivative instruments and hedging activities. It requires that an
entity recognize all derivatives as either assets or liabilities in the balance
sheet and measure those instruments at fair value. This Statement currently is
scheduled to be effective for the Company for years beginning January 1, 2001,
and is not expected to have a significant impact on the Company's financial
condition or results of operations.


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 the Company's 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. Actual results could differ materially from those set
forth in forward-looking statements due to a variety of factors, including, but
not limited to, those related to the economic environment, particularly in the
market areas in which the Company operates, competitive products and pricing,
fiscal and monetary policies of the U.S. Government, changes in government
regulations affecting financial institutions, including regulatory fees and
capital requirements, changes in prevailing interest rates, acquisitions and the
integration of acquired businesses, credit risk management, asset/liability
management, the financial and securities markets and the availability of and
costs associated with sources of liquidity.

The Company does not undertake, and specifically disclaims any obligation, to
publicly release the result of any revisions which may be made to any
forward-looking statements to reflect the occurrence of events or circumstances
after the date of such statements.

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<PAGE>   30



ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The information contained in the section captioned "Management's Discussion and
Analysis of Financial Condition and Results of Operations - Interest Rate Risk
and Asset - Liability Management" is incorporated herein by reference.

PART II - OTHER INFORMATION

Item 1.    Legal Proceedings
           The Company is involved in routine legal proceedings occurring in the
           ordinary course of business which in the aggregate are believed by
           management to be immaterial to the financial condition and results of
           operations of the Company.

Item 2.    Changes in securities - not applicable.

Item 3.    Defaults upon senior securities - not applicable.

Item 4.    Submission of matters to a vote of security holders.

           (a)    A special meeting of shareholders was held on March 7, 2000.

           (b)    Not applicable.

           (c)    The item voted on at the meeting was the adoption of the
                  agreement and plan of merger, dated June 1, 1999, between the
                  Peoples Heritage Financial Group, Inc. and Banknorth Group,
                  Inc., as amended, which provided, among other things, for (i)
                  the merger of Banknorth with and into Peoples Heritage
                  Financial Group, Inc. under the name "Banknorth Group, Inc."
                  and (ii) the conversion of each share of Banknorth common
                  stock outstanding into the right to receive 1.825 shares of
                  Peoples Heritage Financial Group, Inc., plus cash in lieu of
                  fractional share interests. The result was as follows:

         FOR            AGAINST          ABSTAIN         BROKER NON-VOTES
         ---            -------          -------         ----------------
     69,053,408         1,684,317        632,543           1,354,539

ITEM 5.  OTHER INFORMATION.

         The Company recently entered into revised severance agreements with
William J. Ryan, Peter J. Verrill, R. Scott Bacon, David J. Ott and other
executive officers of the Company. Pursuant to these agreements, each of these
officers would receive specified benefits in the event that his employment was
terminated by the Company other than for cause, disability, retirement or death
following a "change in control" of the Company, as defined, or the officer
terminated his employment under such circumstances for "good reason," as
defined. The benefits payable under such circumstances to each officer include a
lump sum payment equal to three times (in the case of the above-named executive
officers) and three or two times (in the case of other executive officers) the
sum of (i) the officer's annual salary at the rate in effect at the specified
time and (ii) the greatest of the bonuses paid to such officer or accrued on his
behalf in either the year in which the change in control occurred or the
immediately preceding year. The agreements also generally provide each officer
with an additional three years (in the case of the above-named executive
officers) and three or two years (in the case of other executive officers) of
benefits under the Company's various employee benefit plans under such
circumstances, as well as accelerated vesting of an officer's rights under any
equity or long-term incentive plan of the Company. The agreements also provide
that in the event that any of the payments to be made thereunder or otherwise
upon termination of employment are deemed to constitute "excess parachute
payments" within the meaning of Section 280G of the Internal Revenue Code, and
payments will cause the executive officer to incur an excise tax under the
Internal Revenue Code, the Company shall pay the executive officer an amount
such that after payment of all federal, state and local income tax and any
additional excise tax, the executive officer will be fully reimbursed for the
amount of such excise tax. Excess parachute payments generally are payments in
excess of three times the recipient's average annual compensation from the
employer includable in the recipient's gross income during the most recent five
taxable years ending before the date of a change in control of the employer
("base amount"). Recipients of excess parachute payments are subject to a 20%
federal excise tax on the amount by which such payments exceed the base amount,
in addition to regular income taxes, and

                                       30

<PAGE>   31
payments in excess of the base amount are not deductible by the employer as
compensation expense for federal income tax purposes.

         The form of the severance agreement between the Company and the
above-named executive officers is included as an exhibit to this report.


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

           (a)    Exhibit 10 - Form of severance agreement between the Company
                  and each of William J. Ryan, Peter J. Verrill, R. Scott
                  Bacon and David J. Ott.

                  Exhibit 27 - Financial Data Schedule.

           (b)    The Company filed a Current Report on Form 8-K on January 19,
                  2000.



                                   SIGNATURES



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



                                                   BANKNORTH GROUP, INC.



Date:    May 15, 2000                   By:      /s/ William J. Ryan
                                                 -------------------------------
                                                 William J. Ryan
                                                 Chairman, President and
                                                 Chief Executive Officer



Date:    May 15, 2000                   By:      /s/ Peter J. Verrill
                                                 -------------------------------
                                                 Peter J. Verrill
                                                 Executive Vice President,
                                                 Operating Officer and
                                                 Chief Financial Officer




Date:    May 15, 2000                   By:      /s/ Stephen J. Boyle
                                                 -------------------------------
                                                 Stephen J. Boyle
                                                 Executive Vice President and
                                                 Controller
                                                 (principal accounting officer)

                                       31