BANKNORTH GROUP INC/ME - 10-Q Quarterly Report

Back to GetFilings.com

FORM 10-Q

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

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

For the Quarterly Period Ended June 30, 2003

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

Commission File Number: 001-31251

BANKNORTH GROUP, INC.

(Exact name of Registrant as specified in its charter)


Maine		01-0437984

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


Two Portland Square, Portland, Maine			04112

(Address of principal executive offices)			(Zip Code)

(207) 761-8500

(Registrant’s telephone number, including area code)

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

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

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


Common stock, par value $.01 per share			161,179,800

(Class)			(Outstanding)

Available on the Web @ www.banknorth.com

TABLE OF CONTENTS


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

INDEX
BANKNORTH GROUP, INC. AND SUBSIDIARIES


			PAGE

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

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


				June 30, 2003			December 31, 2002

Assets
Cash and due from banks				$	661,103		$	690,250
Federal funds sold and other short term investments					2,968			79,753
Securities available for sale, at market value					6,992,917			6,731,467
Securities held to maturity (fair value of $172,339 and $221,571 at June 30, 2003 and December 31, 2002, respectively)					166,239			216,409
Loans held for sale					92,795			128,622
Loans and leases:
	Residential real estate mortgages				2,852,991			2,382,197
	Commercial real estate mortgages				5,140,130			4,792,049
	Commercial business loans and leases				3,229,718			2,968,474
	Consumer loans and leases				4,510,473			3,913,288

		Total loans and leases			15,733,312			14,056,008
	Less: Allowance for loan and lease losses				227,240			208,273

			Net loans and leases		15,506,072			13,847,735

Premises and equipment, net					271,124			271,677
Goodwill					1,092,345			660,684
Identifiable intangible assets					38,986			34,474
Mortgage servicing rights					2,973			3,598
Bank-owned life insurance					476,470			380,405
Other assets					446,118			373,867

	Total assets			$	25,750,110		$	23,418,941

Liabilities and Shareholders’ Equity
Deposits:
	Savings accounts			$	2,472,816		$	1,940,195
	Money market access and NOW accounts				6,759,000			6,091,429
	Certificates of deposit				5,122,392			4,658,778
	Demand deposits				3,340,408			2,974,199

		Total deposits			17,694,616			15,664,601
Short-term borrowings					1,111,500			1,276,467
Long-term debt					3,505,200			3,861,058
Company obligated, mandatorily redeemable securities of subsidiary trusts holding solely parent junior subordinated debentures					295,056			295,056
Other liabilities					679,987			258,274

	Total liabilities				23,286,359			21,355,456

Shareholders’ Equity:
Preferred stock (par value $0.01 per share, 5,000,000 shares authorized, none issued)					—			—
Common stock (par value $0.01 per share, 400,000,000 shares authorized, Issued 2003 - 182,292,973; Issued 2002 - 168,892,284)					1,823			1,689
Paid-in capital					1,436,016			1,059,778
Retained earnings					1,388,048			1,269,422
Treasury stock, at cost (21,450,050 shares in 2003 and 18,313,517 shares in 2002)					(459,061	)		(382,350	)
Accumulated other comprehensive income					96,925			114,946

	Total shareholders’ equity				2,463,751			2,063,485

		Total liabilities and shareholders’ equity		$	25,750,110		$	23,418,941

See accompanying Notes to unaudited Consolidated Financial Statements.

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


			Three Months Ended				Six Months Ended
			June 30,				June 30,

			2003		2002		2003		2002

Interest and dividend income:
	Interest and fees on loans and leases		$	225,809	$	218,981	$	446,094	$	440,764
	Interest and dividends on securities			76,669		90,406		165,711		174,629

		Total interest and dividend income		302,478		309,387		611,805		615,393

Interest expense:
	Interest on deposits			50,734		61,466		102,126		126,307
	Interest on borrowed funds			40,170		48,448		91,969		93,127

		Total interest expense		90,904		109,914		194,095		219,434

		Net interest income		211,574		199,473		417,710		395,959
Provision for loan and lease losses				10,500		10,829		21,401		22,656

		Net interest income after provision for loan and lease losses		201,074		188,644		396,309		373,303

Noninterest income:
	Deposit services			23,747		19,936		46,273		38,896
	Insurance brokerage commissions			10,948		10,060		23,305		20,215
	Merchant and electronic banking income, net			11,210		9,660		20,328		17,410
	Trust and investment management services			7,957		8,519		15,309		16,796
	Bank-owned life insurance			5,826		4,994		11,168		9,371
	Investment planning services			3,911		2,964		7,167		5,681
	Net securities gains			33,423		350		36,206		369
	Other noninterest income			18,806		6,503		34,311		15,824

				115,828		62,986		194,067		124,562

Noninterest expenses:
	Compensation and employee benefits			82,248		75,747		162,941		151,044
	Data processing			10,415		9,843		20,593		20,425
	Occupancy			15,154		12,785		30,063		25,284
	Equipment			12,425		9,908		23,676		19,638
	Advertising and marketing			5,957		4,237		11,017		8,215
	Amortization of identifiable intangible assets			2,306		1,143		4,302		2,727
	Merger and consolidation costs			1,530		1,061		5,981		9,265
	Prepayment penalties on borrowings			30,490		—		30,490		—
	Other noninterest expenses			23,514		22,067		44,883		43,090

				184,039		136,791		333,946		279,688

Income before income tax expense				132,863		114,839		256,430		218,177
Applicable income tax expense				45,338		38,680		87,511		73,539

		Net income	$	87,525	$	76,159	$	168,919	$	144,638

Basic earnings per share			$	0.54	$	0.52	$	1.06	$	0.98
Diluted earnings per share			$	0.53	$	0.51	$	1.04	$	0.96
Weighted average shares outstanding:
		Basic		162,312		147,233		159,980		148,258
		Diluted		164,559		149,064		161,898		150,068

See accompanying Notes to unaudited Consolidated Financial Statements.

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


																			Accumulated
		Common											Unearned						Other
		Shares			Common		Paid-in			Retained			Compen-			Treasury			Comprehensive
		Outstanding			Stock		Capital			Earnings			sation			Stock			Income (Loss)			Total

Balances at December 31, 2002			150,579		$	1,689	$	1,059,778		$	1,269,422		$	—			($382,350	)	$	114,946		$	2,063,485
Net income			—			—		—			168,919			—			—			—			168,919
Unrealized loss on available for sale securities, net of tax and reclassification adjustment			—			—		—			—			—			—			(19,176	)		(19,176	)
Unrealized gain on cash flow hedges, net of tax and reclassification adjustment			—			—		—			—			—			—			1,155			1,155

	Comprehensive income																						150,898
Issuance of stock and options exchanged for acquisitions			13,401			134		382,669			—			—			—			—			382,803
Treasury stock issued for employee benefit plans			1,279			—		(5,508	)		—			—			25,634			—			20,126
Treasury stock purchased			(4,416	)		—		—			—			—			(103,663	)		—			(103,663	)
Distribution of restricted stock			—			—		(923	)		—			—			1,318			—			395
Cash dividends declared			—			—		—			(50,293	)		—			—			—			(50,293	)

Balances at June 30, 2003			160,843		$	1,823	$	1,436,016		$	1,388,048		$	—			($459,061	)	$	96,925		$	2,463,751

Balances at December 31, 2001			151,221		$	1,651	$	958,764		$	1,056,678			($1,017	)		($267,529	)	$	40,568		$	1,789,115
Net income			—			—		—			144,638			—			—			—			144,638
Unrealized gain on available for sales securities, net of tax and reclassification adjustment						—		—			—			—			—			36,110			36,110
Unrealized loss on cash flow hedges, net of tax and reclassification adjustment			—			—		—			—			—			—			(775	)		(775	)

	Comprehensive income																						179,973
Treasury stock issued for employee benefit plans			1,689			—		(6,580	)		—			—			32,609			—			26,029
Treasury stock purchased			(5,815	)		—		—			—			—			(141,026	)		—			(141,026	)
Distribution of restricted stock			—			—		(899	)		—			—			1,529			—			630
Decrease in unearned compensation-ESOP			—			—		3,930			—			646			—			—			4,576
Cash dividends declared			—			—		—			(41,561	)		—			—			—			(41,561	)

Balances at June 30, 2002			147,095		$	1,651	$	955,215		$	1,159,755			($371	)		($374,417	)	$	75,903		$	1,817,736

See accompanying Notes to unaudited Consolidated Financial Statements.

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


			Six Months Ended
			June 30,

			2003			2002

Cash flows from operating activities:
	Net income		$	168,919		$	144,638
	Adjustments to reconcile net income to net cash provided by operating activities:
		Provision for loan and lease losses		21,401			22,657
		Depreciation and amortization		21,729			17,304
		Amortization of other intangibles		4,302			2,727
		Provision for deferred tax expense		3,700			7,959
		ESOP expense		—			4,576
		Distribution of restricted stock units		395			630
		Net (gains) realized from sales of securities		(36,206	)		(369	)
		Prepayment penalties on borrowings		30,490			—
		Net (gains) realized from sales of loans held for sale		(7,355	)		(3,640	)
		Increase in cash surrender value of bank owned life insurance		(11,168	)		(9,371	)
		Net decrease in mortgage servicing rights		1,097			906
		Proceeds from sales of loans held for sale		483,272			361,989
		Residential loans originated and purchased for sale		(438,313	)		(293,906	)
		Net decrease (increase) in other assets		22,283			(9,593	)
		Net (decrease) increase in other liabilities		(56,364	)		12,257

Net cash provided by operating activities				208,182			258,764

Cash flows from investing activities:
	Proceeds from sales of securities available for sale			2,266,179			412,082
	Proceeds from maturities and principal repayments of securities available for sale			1,763,764			1,067,613
	Purchases of securities available for sale			(3,201,527	)		(1,947,973	)
	Proceeds from maturities and principal repayments of securities held to maturity			50,170			57,955
	Net (increase) in loans and leases			(242,459	)		(356,846	)
	Net additions to premises and equipment			(9,412	)		(17,870	)
	Purchases of bank owned life insurance			—			(40,000	)
	Cash paid for acquisitions, net of cash acquired			48,354			—

Net cash provided (used) by investing activities				675,069			(825,039	)

Cash flows from financing activities:
	Net increase in deposits			110,171			182,529
	Net increase in securities sold under repurchase agreements			37,416			221,640
	Proceeds from Federal Home Loan Bank borrowings			1,205			3,555
	Payments on Federal Home Loan Bank borrowings			(1,203,168	)		(180,282	)
	Net increase in other borrowings			330			27,586
	Issuance of senior notes, net			148,693			—
	Issuance of securities of subsidiary trusts, net			—			193,150
	Issuance of common stock			20,126			26,029
	Purchase of treasury stock			(103,663	)		(141,026	)
	Cash dividends paid to shareholders			(50,293	)		(41,561	)

Net cash (used) provided by financing activities				(1,039,183	)		291,620

Increase (decrease) in cash and cash equivalents				(155,932	)		(274,655	)
	Cash and cash equivalents at beginning of period			717,003			871,211

	Cash and cash equivalents at end of period		$	561,071		$	596,556

For the six months ended June 30, 2003 and 2002, interest of $199,373 and $217,021 and income taxes of $45,053 and $32,773 were paid, respectively

See accompanying Notes to unaudited Consolidated Financial Statements.

BANKNORTH GROUP, INC. AND SUBSIDIARIES

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

Note 1 - Basis of Presentation

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

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

Note 2 – Acquisitions

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


							Transaction Related Items
			Balance at
			Acquisition Date						Other						Total
	Acquisition								Identifiable		Cash		Shares		Purchase
(Dollars and shares in millions)	Date		Assets		Equity		Goodwill		Intangibles		Paid		Issued		Price

American Financial Holdings, Inc.		2/14/2003	$	2,690.3	$	408.2	$	427.0	$	9.2	$	328.5		13.4	$	711.3
Warren Bancorp, Inc.		12/31/2002		466.1		45.3		91.8		2.7		59.8		2.7		136.6
Bancorp Connecticut, Inc.		8/31/2002		661.7		61.4		97.4		8.7		161.2		—		154.2
Ipswich Bancshares, Inc.		7/26/2002		318.0		13.9		23.5		4.8		19.9		0.9		40.1
Insurance agency acquisition		7/2/2002		2.5		—		5.6		2.2		—		0.2		7.4

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


Assets:
Investments		$	608,291
Loans and leases, net			1,437,279
Premises and equipment			11,764
Mortgage servicing rights			472
Goodwill			426,975
Other intangibles			9,241
Other assets			542,850

	Total assets acquired		3,036,872

Liabilities:
Deposits			1,923,154
Borrowings			399,960
Other liabilities			2,412

	Total liabilities assumed		2,325,526

	Net assets acquired	$	711,346

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

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

Note 3 – Stock Compensation Plans

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


				Three Months Ended June 30,						Six Months Ended June 30,

				2003			2002			2003			2002

Net income, as reported				$	87,525		$	76,159		$	168,919		$	144,638
Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards					(4,652	)		(3,756	)		(8,428	)		(6,266	)
		Less tax effect			1,628			1,315			2,950			2,193

	Net of related tax effects				(3,024	)		(2,441	)		(5,478	)		(4,073	)

Proforma net income				$	84,501		$	73,718		$	163,441		$	140,565

Earnings per share
	Basic - As reported			$	0.54		$	0.52		$	1.06		$	0.98
			Proforma	$	0.52		$	0.50		$	1.02		$	0.95
	Diluted - As reported			$	0.53		$	0.51		$	1.04		$	0.96
			Proforma	$	0.51		$	0.49		$	1.01		$	0.94

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

Note 4 – Goodwill and Other Intangible Assets

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


						Indentifiable Intangible Assets

						Core Deposit			Other			Total
						Intangibles			Identifiable			Identifiable
			Goodwill			(“CDI”)			Intangibles			Intangibles

Balance, December 31, 2002			$	660,684		$	28,438		$	6,036		$	34,474
Recorded during the year				426,975			6,443			4,708			11,151
Adjust Warren’s estimated CDI to actual				2,244			(2,244	)		—			(2,244	)
Amortization expense				—			(2,308	)		(1,994	)		(4,302	)
Massachusetts REIT adjustment (see Note 11)				2,852			—			—			—
Other adjustments of purchase accounting estimates				(410	)		—			(93	)		(93	)

Balance, June 30, 2003			$	1,092,345		$	30,329		$	8,657		$	38,986

Estimated amortization expense for the year ending:
	Remaining 2003					$	2,267		$	2,344		$	4,611
		2004					3,841			2,174			6,015
		2005					3,550			1,017			4,567
		2006					3,364			269			3,633
		2007					3,245			269			3,514
		thereafter					14,062			673			14,735

The components of identifiable intangible assets are as follows:


		June 30, 2003

		Gross Carrying		Accumulated		Net Carrying
		Amount		Amortization		Amount

Identifiable intangible assets:
Core deposit intangibles		$	54,781	$	24,452	$	30,329
Other identifiable intangibles			11,731		3,074		8,657

	Total	$	66,512	$	27,526	$	38,986

Note 5 – Short-term Borrowings

A summary of short-term borrowings follows:


	June 30, 2003		December 31, 2002

Securities sold under agreements to repurchase - retail	$	1,007,493	$	1,222,466
Federal funds purchased		103,000		53,000
Treasury, tax and loan notes		1,007		1,001

	$	1,111,500	$	1,276,467

Note 6 – Long-term Debt

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


	June 30, 2003		December 31, 2002

Federal Home Loan Bank advances	$	1,634,507	$	2,482,582
Securities sold under agreements to repurchase - wholesale		1,500,000		1,171,049
Subordinated long-term debt 7.625%, due 2011		200,000		200,000
Senior notes 3.75%, due 2008		149,725		—
Fair value adjustments on fair value hedges		13,217		—
Other long-term debt		7,751		7,427

Total	$	3,505,200	$	3,861,058

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

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

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

Note 7 – Share Repurchases

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

Note 8 - Comprehensive Income

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


	Three Months Ended									Three Months Ended
	June 30, 2003									June 30, 2002

	Pre-tax			Tax			Net of			Pre-tax			Tax			Net of
	Amount			Effect			Tax			Amount			Effect			Tax

Unrealized gain (loss) on securities available for sale	$	3,590		($	1,256	)	$	2,334		$	99,586		($	34,855	)	$	64,731
Unrealized gain (loss) on cash flow hedges		(3,710	)		1,299			(2,411	)		(1,335	)		467			(868	)
Reclassification adjustment for gains (losses) realized in net income		(29,363	)		10,277			(19,086	)		(186	)		65			(121	)

Net change in unrealized gains (losses)	($	29,483	)	$	10,320		($	19,163	)	$	98,065		($	34,323	)	$	63,742


	Six Months Ended									Six Months Ended
	June 30, 2003									June 30, 2002

	Pre-tax			Tax			Net of			Pre-tax			Tax			Net of
	Amount			Effect			Tax			Amount			Effect			Tax

Unrealized gain (loss) on securities available for sale	$	6,954		($	2,596	)	$	4,358		$	55,923		($	19,573	)	$	36,350
Unrealized gain (loss) on cash flow hedges		(7,391	)		2,587			(4,804	)		(1,685	)		590			(1,095	)
Reclassification adjustment for gains (losses) realized in net income		(27,038	)		9,463			(17,575	)		123			(43	)		80

Net change in unrealized gains (losses)	($	27,475	)	$	9,454		($	18,021	)	$	54,361		($	19,026	)	$	35,335

Note 9 – Earnings Per Share

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


	Three Months Ended				Six Months Ended
	June 30,				June 30,

	2003		2002		2003		2002

Net income	$	87,525	$	76,159	$	168,919	$	144,638

Weighted average basic common shares outstanding		162,312		147,233		159,980		148,258
Effect of dilutive stock options		2,247		1,831		1,918		1,810

Weighted average diluted common shares outstanding		164,559		149,064		161,898		150,068

Basic earnings per share	$	0.54	$	0.52	$	1.06	$	0.98

Diluted earnings per share	$	0.53	$	0.51	$	1.04	$	0.96

Note 10 - New Accounting Standards

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

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

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

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

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

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

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

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

Note 11 – State Tax Assessment

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

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

Note 12 – Subsequent Events

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

BANKNORTH GROUP, INC. AND SUBSIDIARIES

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

OVERVIEW

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

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

SUMMARY

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

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

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

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

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

TABLE 1 - Selected Quarterly Data


			2003						2002

			Second			First			Fourth			Third			Second			First

Net interest income		A	$	211,574		$	206,137		$	199,563		$	200,996		$	199,473		$	196,486
Provision for loan and lease losses				10,500			10,901			10,829			10,829			10,829			11,828

Net interest income after loan and lease loss provision				201,074			195,236			188,734			190,167			188,644			184,658
Noninterest income		B		115,828			78,238			84,441			65,504			62,986			61,576
Noninterest expenses		C		184,039			149,908			158,126			141,577			136,791			142,897

Income before income taxes				132,863			123,566			115,049			114,094			114,839			103,337
Income tax expense				45,338			42,173			37,911			37,232			38,680			34,859

Net income			$	87,525		$	81,393		$	77,138		$	76,862		$	76,159		$	68,478

Weighted average shares outstanding:
	Basic			162,312			157,667			148,226			148,099			147,233			149,347
	Diluted			164,559			159,328			149,389			149,662			149,064			151,116
Basic earnings per share:			$	0.54		$	0.52		$	0.52		$	0.52		$	0.52		$	0.46
Diluted earnings per share:			$	0.53		$	0.51		$	0.52		$	0.51		$	0.51		$	0.45
Return on average assets (1)				1.38	%		1.32	%		1.35	%		1.40	%		1.46	%		1.36	%
Return on average equity (1)				14.24	%		14.26	%		15.75	%		16.25	%		17.45	%		15.73	%
Net interest margin (fully-taxable equivalent) (1)				3.71	%		3.66	%		3.86	%		4.03	%		4.18	%		4.23	%
Noninterest income as a percent of total income (2)				35.38	%		27.51	%		29.73	%		24.58	%		24.00	%		23.86	%
Efficiency ratio (3)				56.21	%		52.71	%		55.68	%		53.12	%		52.12	%		55.37	%

(1)		Annualized.

(2)		Represents noninterest income as a percentage of net interest income and noninterest income. Noninterest income as a percent of total income is calculated as (B) divided by (A+B).

(3)		Represents noninterest expenses as a percentage of net interest income and noninterest income. Efficiency ratio is calculated as (C) divided by (A+B).

RESULTS OF OPERATIONS

Net Interest Income

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

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

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

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

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

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

TABLE 2 - Average Balances, Yields and Rates


				2003 Second Quarter								2003 First Quarter

									Yield/								Yield/
				Average Balance		Interest			Rate (1)			Average Balance		Interest			Rate (1)

Loans and leases (2):
	Residential real estate mortgages			$	2,996,485	$	43,147			5.76	%	$	2,792,615	$	41,652			5.97	%
	Commercial real estate mortgages				5,074,540		78,342			6.19			4,913,188		77,810			6.42
	Commercial business loans and leases				3,154,085		41,105			5.23			3,006,370		39,475			5.32
	Consumer loans and leases				4,463,057		64,145			5.76			4,186,917		62,178			6.02

			Total loans and leases		15,688,167		226,739			5.79			14,899,090		221,115			6.00
Investment securities (3)					7,280,880		77,177			4.24			7,879,925		89,449			4.54
Federal funds sold and other short-term investments					18,077		54			1.20			4,535		25			2.21

		Total earning assets			22,987,124		303,970			5.30			22,783,550		310,589			5.50

Noninterest-earning assets					2,513,556								2,283,927

		Total assets		$	25,500,680							$	25,067,477

Interest-bearing deposits:
	Regular savings			$	2,468,244		3,089			0.50		$	2,173,771		3,075			0.57
	NOW and money market accounts				6,582,004		15,908			0.97			6,217,880		15,707			1.02
	Certificates of deposit				5,243,908		31,737			2.43			5,012,351		32,609			2.64
	Brokered deposits				—		—			0.00			—		—			0.00

			Total interest-bearing deposits		14,294,156		50,734			1.42			13,404,002		51,391			1.55
Borrowed funds					5,459,725		40,170			2.95			6,272,657		51,799			3.34

		Total interest-bearing liabilities			19,753,881		90,904			1.85			19,676,659		103,190			2.13

Non-interest bearing deposits					3,099,420								2,905,737
Other liabilities					181,765								170,732
Shareholders’ equity					2,465,614								2,314,349

		Total liabilities and shareholders’ equity		$	25,500,680							$	25,067,477

Net earning assets				$	3,233,243							$	3,106,891

Net interest income (fully-taxable equivalent)							213,066								207,399
Less: fully-taxable equivalent adjustments							(1,492	)							(1,262	)

		Net interest income				$	211,574							$	206,137

Net interest rate spread (fully-taxable equivalent)										3.45	%							3.37	%
Net interest margin (fully-taxable equivalent)										3.71	%							3.66	%

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

TABLE 2 - Average Balances, Yields and Rates


				2002 Fourth Quarter								2002 Third Quarter

									Yield/								Yield/
				Average Balance		Interest			Rate (1)			Average Balance		Interest			Rate (1)

Loans and leases (2):
	Residential real estate mortgages			$	2,641,957	$	42,420			6.42	%	$	2,657,333	$	44,205			6.65	%
	Commercial real estate mortgages				4,504,625		76,131			6.71			4,347,508		75,210			6.86
	Commercial business loans and leases				2,844,994		39,940			5.57			2,754,430		40,327			5.81
	Consumer loans and leases				3,830,542		62,237			6.45			3,662,187		62,624			6.78

			Total loans and leases		13,822,118		220,728			6.35			13,421,458		222,366			6.58
Investment securities (3)					6,896,813		86,959			5.04			6,487,448		91,518			5.64
Federal funds sold and other short-term investments					22,576		88			1.54			118,281		510			1.71

		Total earning assets			20,741,507		307,775			5.91			20,027,187		314,394			6.25

Noninterest-earning assets					1,904,181								1,770,564

		Total assets		$	22,645,688							$	21,797,751

Interest-bearing deposits:
	Regular savings			$	1,835,068		3,213			0.69		$	1,773,402		4,207			0.94
	NOW and money market accounts				5,889,603		18,944			1.28			5,608,231		21,649			1.53
	Certificates of deposit				4,624,776		33,753			2.90			4,736,817		36,307			3.04
	Brokered deposits				22,431		96			1.70			37,000		173			1.85

			Total interest-bearing deposits		12,371,878		56,006			1.80			12,155,450		62,336			2.03
Borrowed funds					5,296,244		51,000			3.83			4,885,461		49,825			4.05

		Total interest-bearing liabilities			17,668,122		107,006			2.41			17,040,911		112,161			2.61

Non-interest bearing deposits					2,837,369								2,684,263
Other liabilities					196,567								196,573
Shareholders’ equity					1,943,630								1,876,004

		Total liabilities and shareholders’ equity		$	22,645,688							$	21,797,751

Net earning assets				$	3,073,385							$	2,986,276

Net interest income (fully-taxable equivalent)							200,769								202,233
Less: fully-taxable equivalent adjustments							(1,206	)							(1,237	)

		Net interest income				$	199,563							$	200,996

Net interest rate spread (fully-taxable equivalent)										3.50	%							3.64	%
Net interest margin (fully-taxable equivalent)										3.86	%							4.03	%

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

TABLE 2 - Average Balances, Yields and Rates


				2002 Second Quarter								2002 First Quarter

									Yield/								Yield/
				Average Balance		Interest			Rate (1)			Average Balance		Interest			Rate (1)

Loans and leases (2):
	Residential real estate mortgages			$	2,569,964	$	43,946			6.84	%	$	2,675,415	$	47,265			7.07	%
	Commercial real estate mortgages				4,216,766		74,347			7.07			4,101,873		72,724			7.19
	Commercial business loans and leases				2,595,548		39,333			6.08			2,464,378		38,661			6.36
	Consumer loans and leases				3,530,040		62,158			7.06			3,539,213		63,952			7.33

			Total loans and leases		12,912,318		219,784			6.82			12,780,879		222,602			7.04
Investment securities (3)					6,276,523		90,804			5.79			5,943,057		84,296			5.68
Federal funds sold and other short-term investments					25,856		52			0.81			72,107		415			2.33

		Total earning assets			19,214,697		310,640			6.48			18,796,043		307,313			6.59

Noninterest-earning assets					1,676,185								1,671,783

		Total assets		$	20,890,882							$	20,467,826

Interest-bearing deposits:
	Regular savings			$	1,716,942		4,061			0.95		$	1,646,822		3,964			0.98
	NOW and money market accounts				5,246,053		19,897			1.52			5,099,310		18,895			1.50
	Certificates of deposit				4,652,499		37,273			3.21			4,762,399		41,694			3.55
	Brokered deposits				50,741		235			1.86			63,594		288			1.84

			Total interest-bearing deposits		11,666,235		61,466			2.11			11,572,125		64,841			2.27
Borrowed funds					4,784,197		48,448			4.06			4,511,945		44,679			4.01

		Total interest-bearing liabilities			16,450,432		109,914			2.68			16,084,070		109,520			2.76

Non-interest bearing deposits					2,520,968								2,446,539
Other liabilities					168,403								171,449
Shareholders’ equity					1,751,079								1,765,768

		Total liabilities and shareholders’ equity		$	20,890,882							$	20,467,826

Net earning assets				$	2,764,265							$	2,711,973

Net interest income (fully-taxable equivalent)							200,726								197,793
Less: fully-taxable equivalent adjustments							(1,253	)							(1,307	)

		Net interest income				$	199,473							$	196,486

Net interest rate spread (fully-taxable equivalent)										3.80	%							3.83	%
Net interest margin (fully-taxable equivalent)										4.18	%							4.23	%

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

TABLE 2 - Average Balances, Yields and Rates


				Six Months Ended								Six Months Ended
				June 30, 2003								June 30, 2002

									Yield/								Yield/
				Average Balance		Interest			Rate (1)			Average Balance		Interest			Rate (1)

Loans and leases (2):
	Residential real estate mortgages			$	2,895,113	$	84,798			5.86	%	$	2,622,398	$	91,211			6.96	%
	Commercial real estate mortgages				4,994,310		156,153			6.31			4,159,637		147,071			7.13
	Commercial business loans and leases				3,080,635		80,579			5.27			2,530,326		77,994			6.21
	Consumer loans and leases				4,325,750		126,323			5.89			3,534,601		126,110			7.19

			Total loans and leases		15,295,808		447,853			5.89			12,846,962		442,386			6.93
Investment securities (3)					7,578,748		166,627			4.40			6,110,711		175,100			5.73
Federal funds sold and other short-term investments					11,346		79			1.40			48,854		467			1.93

		Total earning assets			22,885,902		614,559			5.40			19,006,527		617,953			6.53

Noninterest earning assets					2,398,143								1,673,796

		Total assets		$	25,284,045							$	20,680,323

Interest-bearing deposits:
	Regular savings			$	2,321,821		6,165			0.54		$	1,682,076		8,025			0.96
	NOW and money market accounts				6,400,948		31,615			1.00			5,173,087		38,792			1.51
	Certificates of deposit				5,128,769		64,346			2.53			4,707,146		78,967			3.38
	Brokered deposits				—		—			0.00			57,131		523			1.85

			Total interest-bearing deposits		13,851,538		102,126			1.49			11,619,440		126,307			2.19
Borrowed funds					5,863,321		91,969			3.16			4,648,327		93,127			4.03

		Total interest-bearing liabilities			19,714,859		194,095			1.99			16,267,767		219,434			2.72

Non-interest bearing deposits					3,003,113								2,483,959
Other liabilities					175,298								169,654
Shareholders’ equity					2,390,775								1,758,943

		Total liabilities and shareholders’ equity		$	25,284,045							$	20,680,323

Net earning assets				$	3,171,043							$	2,738,760

Net interest income (fully-taxable equivalent)							420,464								398,519
Less: fully-taxable equivalent adjustments							(2,754	)							(2,560	)

		Net interest income				$	417,710							$	395,959

Net interest rate spread (fully-taxable equivalent)										3.41	%							3.81	%
Net interest margin (fully-taxable equivalent)										3.69	%							4.21	%

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

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

TABLE 3 - Rate /Volume Analysis


		Three Months Ended												Six Months Ended
		June 30, 2003 vs. June 30, 2002												June 30, 2003 vs. June 30, 2002
		Increase (decrease) due to												Increase (decrease) due to

								Rate and			Total									Rate and			Total
		Volume (1)			Rate			Volume (2)			Change			Volume (1)			Rate			Volume (2)			Change

Interest income:
Loans and leases		$	47,199		($	33,158	)	($	7,086	)	$	6,955		$	84,155		($	66,255	)	($	12,433	)	$	5,467
Investment securities			14,498			(24,255	)		(3,870	)		(13,627	)		41,714			(40,302	)		(9,885	)		(8,473	)
Federal funds sold and other short-term investements			(16	)		25			(7	)		2			(359	)		(128	)		99			(388	)

Total interest income			61,681			(57,388	)		(10,963	)		(6,670	)		125,510			(106,685	)		(22,219	)		(3,394	)

Interest expense:
Interest-bearing deposits:
	Regular savings		1,779			(1,926	)		(825	)		(972	)		3,046			(3,503	)		(1,403	)		(1,860	)
	NOW and money market accounts		5,063			(7,194	)		(1,858	)		(3,989	)		9,194			(13,083	)		(3,288	)		(7,177	)
	Certificates of deposit		4,733			(9,048	)		(1,221	)		(5,536	)		7,067			(19,841	)		(1,847	)		(14,621	)
	Brokered deposits		(235	)		(235	)		235			(235	)		(524	)		(524	)		525			(523	)

Total interest-bearing deposits			11,340			(18,403	)		(3,669	)		(10,732	)		18,783			(36,951	)		(6,013	)		(24,181	)
Borrowed funds			6,838			(13,240	)		(1,876	)		(8,278	)		24,281			(20,054	)		(5,385	)		(1,158	)

Total interest expense			18,178			(31,643	)		(5,545	)		(19,010	)		43,064			(57,005	)		(11,398	)		(25,339	)

Net interest income (fully taxable equivalent)		$	43,503		($	25,745	)	($	5,418	)	$	12,340		$	82,446		($	49,680	)	($	10,821	)	$	21,945

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

Provision and Allowance for Loan and Lease Losses

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

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

TABLE 4 - Allowance for Loan and Lease Losses


			2003 Second			2003 First			2002 Fourth			2002 Third			2002 Second			2002 First
			Quarter			Quarter			Quarter			Quarter			Quarter			Quarter

Allowance at beginning of period			$	226,677		$	208,273		$	201,689		$	193,444		$	190,890		$	189,837
Additions due to acquisitions				—			16,346			4,972			7,822			—			—
Charge-offs:
Residential real estate mortgages				53			55			(263	)		56			201			(134	)
Commercial real estate mortgages				202			262			459			(76	)		273			635
Commercial business loans and leases				5,754			3,205			5,060			8,703			5,319			5,374
Consumer loans and leases				6,959			7,609			7,597			5,922			5,834			7,042

	Total loans and leases charged off			12,968			11,131			12,853			14,605			11,627			12,917

Recoveries:
Residential real estate mortgages				22			22			12			65			21			23
Commercial real estate mortgages				676			534			70			(7	)		27			27
Commercial business loans and leases				1,286			689			2,628			3,108			2,136			1,101
Consumer loans and leases				1,047			1,043			927			1,033			1,168			991

	Total loans and leases recovered			3,031			2,288			3,637			4,199			3,352			2,142

Net charge-offs				9,937			8,843			9,216			10,406			8,275			10,775
Provision for loan and lease losses				10,500			10,901			10,828			10,829			10,829			11,828

Allowance at end of period			$	227,240		$	226,677		$	208,273		$	201,689		$	193,444		$	190,890

Average loans and leases outstanding during the period (1)			$	15,634,071		$	14,829,108		$	13,750,316		$	13,375,980		$	12,871,386		$	12,723,083

Ratio of net charge-offs to average loans and leases outstanding during the period, annualized (1)				0.25	%		0.24	%		0.27	%		0.31	%		0.26	%		0.34	%
Ratio of allowance to total loans and leases at end of period (1)				1.44	%		1.46	%		1.48	%		1.47	%		1.48	%		1.50	%
Ratio of allowance to nonperforming loans and leases at end of period				374	%		288	%		319	%		311	%		289	%		268	%
Ratio of net charge-offs (recoveries) as a percent of average outstanding loans and leases, annualized (1):
		Residential real estate mortgages		0.004	%		0.005	%		(0.042	%)		(0.001	%)		0.029	%		(0.024	%)
		Commercial real estate mortgages		(0.037	%)		(0.022	%)		0.034	%		(0.006	%)		0.023	%		0.060	%
		Commercial business loans and leases		0.568	%		0.339	%		0.339	%		0.806	%		0.492	%		0.703	%
		Consumer loans and leases		0.531	%		0.636	%		0.691	%		0.530	%		0.530	%		0.693	%

(1)

Excludes residential real estate loans held for sale.

Noninterest Income

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

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

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

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

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

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

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

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

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

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

Table 5 - Other Noninterest Income


	Three Months Ended						Six Months Ended
	June 30,						June 30,

	2003			2002			2003			2002

Covered call premiums	$	7,199		$	1,410		$	14,238		$	3,979
Loan fee income		6,978			5,086			12,080			10,522
Mortgage banking services		3,069			489			6,241			2,165
Losses on small business investments		(98	)		(744	)		(615	)		(1,702	)
Miscellaneous other		1,658			262			2,367			860

Total	$	18,806		$	6,503		$	34,311		$	15,824

Noninterest Expense

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

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

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

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

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

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

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

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

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

Table 6 - Merger and Consolidation Costs


	Three Months Ended						Six Months Ended
	June 30,						June 30,

	2003			2002			2003			2002

American Merger Charges
Personnel costs	$	129			—		$	1,044			—
Systems conversion and integration/customer communications		684			—			1,905			—
Other costs		283			—			1,397			—

		1,096			—			4,346			—

Warren Merger Charges
Personnel costs		214			—			837			—
Systems conversion and integration/customer communications		365			—			871			—
Other costs		247			—			347			—

		826			—			2,055			—

Andover/MetroWest Merger Charges
Personnel costs		—			(423	)		1			635
Systems conversion and integration/customer communications		—			336			—			3,052
Other costs		14			(174	)		(10	)		1,858

		14			(261	)		(9	)		5,545

Charter Consolidation Costs
Personnel costs		—			770			—			770
Branch signage		—			—			—			729
Customer notices		—			—			—			567
Forms and documents		—			192			—			576
Other costs		—			131			—			780

		—			1,093			—			3,422

Other Costs
Bancorp and Ipswich merger charges		209			711			247			714
Branch decommissioning costs		—			(33	)		—			33
Reverse auto lease reserves (Banknorth - Vermont)		(615	)		—			(615	)		—
Other costs		—			(449	)		(43	)		(449	)

		(406	)		229			(411	)		298

Total Merger and Consolidation Costs	$	1,530		$	1,061		$	5,981		$	9,265

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

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


											Non-cash Write
	Balance		Accrued					Cash			Downs and Other			Balance
	12/31/02		at Acquisition		Charges			Payments			Adjustments			6/30/03

American Merger	$	—	$	13,600	$	4,346		($	15,702	)	($	625	)	$	1,619
Warren Merger		2,052		—		2,055			(3,660	)		221			668
Andover / MetroWest Mergers		321		—		(9	)		(33	)		(189	)		90
Other Merger and Consolidation Costs		3,181		—		(411	)		(793	)		(1,183	)		794

Total	$	5,554	$	13,600	$	5,981		($	20,188	)	($	1,776	)	$	3,171

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

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

TABLE 8 - Other Noninterest Expenses

2003 2002

Second First Fourth Third Second First

Quarter Quarter Quarter Quarter Quarter Quarter

Telephone
$ 2,595 $ 3,468 $ 3,600 $ 3,276 $ 3,332 $ 3,189

Office supplies
2,523 2,794 2,594 2,726 2,597 2,819

Postage and freight
3,223 3,074 2,490 2,402 2,206 2,609

Miscellaneous loan costs
1,563 948 1,178 239 1,706 1,167

Deposits and other assessments
974 899 871 969 901 799

Collection and carrying costs
of non-performing assets
947 308 595 662 807 649

Other
11,689 9,880 13,698 10,968 10,518 9,791

Total
$ 23,514 $ 21,371 $ 25,026 $ 21,242 $ 22,067 $ 21,023

Six Months Ended

6/30/2003 6/30/2002

Telephone
$ 6,063 $ 6,521

Office supplies
5,317 5,416

Postage and freight
6,297 4,815

Miscellaneous loan costs
2,511 2,873

Deposits and other assessments
1,873 1,700

Collection and carrying costs
of non-performing assets
1,255 1,456

Other
21,567 20,309

Total
$ 44,883 $ 43,090

Taxes

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

Comprehensive Income

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

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

FINANCIAL CONDITION

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

Securities

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

Loans and Leases

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

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

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

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

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

Deposits

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

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

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

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

Other Funding Sources

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

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

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

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

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

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

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

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

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

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

CONTRACTUAL OBLIGATIONS

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

TABLE 9 - Contractual Obligations


Contractual Obligations (1)				Payments Due By Period

				Less than		1 - 3		4 -5		After 5
		Total		1 Year		Years		Years		Years

Long-term debt		$	1,999,146	$	150,522	$	764,212	$	239,768	$	844,644
Capital lease obligations			6,054		44		168		642		5,200
Repurchase agreements - wholesale			1,500,000		200,000		1,200,000		—		100,000

	Total long-term debt		3,505,200		350,566		1,964,380		240,410		949,844
Capital trust securities			295,056		—		—		—		295,056
Operating lease obligations			126,045		21,060		36,347		26,947		41,691

Total contractual obligations		$	3,926,301	$	371,626	$	2,000,727	$	267,357	$	1,286,591

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


Other Commitments			Amount of Commitment Expiration - Per Period
	Total
	Amounts		Less than		1 - 3		4 -5		After 5
	Committed		1 Year		Years		Years		Years

Unused portions on lines of credit	$	3,940,174	$	287,355	$	144,765	$	65,639	$	3,442,415
Standby letters of credit		374,429		117,674		83,209		86,196		87,350
Commitments to originate loans		1,841,231		1,397,196		214,838		42,384		186,813
Other commitments		46,493		9,745		9,024		2,165		25,559

Total commitments	$	6,202,327	$	1,811,970	$	451,836	$	196,384	$	3,742,137


Derivative Financial Instruments					Amount of Commitment Expiration - Per Period
			Total
			Amounts		Less than		1 - 3		4 -5		After 5
			Committed		1 Year		Years		Years		Years

Interest rate swaps (notional amount):
	Commercial loan swap program:
		Interest rate swaps with commercial borrowers (1)	$	201,057	$	7,800	$	8,338	$	31,467	$	153,452
		Interest rate swaps with dealers (2)		201,057		7,800		8,338		31,467		153,452
	Interest rate swaps on borrowings (3)			350,000		—		—		150,000		200,000
Forward commitments to sell loans				213,877		213,877		—		—		—
Foreign currency forward contracts				18,486		16,153		2,333		—		—

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

RISK MANAGEMENT

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

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

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

CREDIT RISK MANAGEMENT

General

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

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

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

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

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

Table 10 - Commercial Loans and Leases by State


		Commercial				Commercial Business				Total Commercial
		Real Estate Loans				Loans and Leases				Loans and Leases

		June 30,		December 31,		June 30,		December 31,		June 30,		December 31,
		2003		2002		2003		2002		2003		2002

Massachusetts		$	2,296,435	$	2,174,534	$	1,100,532	$	982,078	$	3,396,967	$	3,156,612
Maine			872,229		868,091		689,256		640,258		1,561,485		1,508,349
New Hampshire			708,764		703,743		495,212		461,079		1,203,976		1,164,822
Vermont			613,927		594,849		402,526		419,291		1,016,453		1,014,140
Connecticut			472,157		286,658		342,025		265,503		814,182		552,161
New York			176,618		164,174		200,167		200,265		376,785		364,439

	Total	$	5,140,130	$	4,792,049	$	3,229,718	$	2,968,474	$	8,369,848	$	7,760,523

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

Table 11 - Composition of Consumer Loans


	June 30,					December 31,
	2003					2002

			% of					% of
	Amount		Total			Amount		Total

Home equity lines	$	2,016,148		44.70	%	$	1,554,264		39.72	%
Automobile and other vehicle loans and leases		1,557,520		34.53	%		1,478,228		37.77	%
Mobile home loans		157,216		3.49	%		171,715		4.39	%
Vision, dental, and orthodontia fee plan loans		153,995		3.41	%		172,861		4.42	%
Education loans		80,954		1.79	%		135,386		3.46	%
Other		544,640		12.08	%		400,834		10.24	%

Total	$	4,510,473		100.00	%	$	3,913,288		100.00	%

Nonperforming Assets

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

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

TABLE 12 - Nonperforming Assets


		2003						2002

		June 30			March 31			December 31			September 30			June 30			March 31

Nonaccrual loans and leases:
Residential real estate loans		$	9,827		$	9,828		$	5,781		$	6,733		$	7,075		$	7,689
Commercial real estate loans			19,139			22,990			17,649			16,762			20,254			20,812
Commercial business loans and leases			24,577			38,562			32,693			33,014			33,573			34,481
Consumer loans and leases			7,192			7,457			9,194			8,364			6,008			8,183

	Total nonaccrual loans and leases		60,735			78,837			65,317			64,873			66,910			71,165
Other nonperforming assets:
Other real estate owned, net of related reserves			814			541			100			92			1,212			1,262
Repossessions, net of related reserves			2,911			3,276			3,536			3,807			1,964			2,251
Securities available for sale			—			—			—			—			2,104			2,104

	Total other nonperforming assets		3,725			3,817			3,636			3,899			5,280			5,617

Total nonperforming assets		$	64,460		$	82,654		$	68,953		$	68,772		$	72,190		$	76,782

Accruing loans and leases which are 90 days or more overdue		$	2,995		$	3,349		$	3,373		$	2,407		$	2,680		$	5,430

Total nonperforming loans as a percentage of total loans and leases(1)			0.39	%		0.51	%		0.46	%		0.47	%		0.51	%		0.56	%
Total nonperforming assets as a percentage of total assets			0.25	%		0.31	%		0.29	%		0.31	%		0.34	%		0.37	%
Total nonperforming assets as a percentage of total loans and leases (1) and total other nonperforming assets			0.41	%		0.53	%		0.49	%		0.50	%		0.55	%		0.60	%

(1)

Total loans and leases exclude residential real estate loans held for sale.

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

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

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

TABLE 13 - Nonperforming Assets from Acquisitions


	American		Warren		Bancorp		Ipswich

Acquisition date	2/14/2003		12/31/2002		8/31/2002		7/26/2002
Nonaccrual loans and leases:
Residential real estate loans	$	6,044	$	—	$	125	$	—
Commercial real estate loans		—		738		—		—
Commercial business loans and leases		—		84		580		167
Consumer loans and leases		—		—		108		—

Total nonperforming loans and leases		6,044		822		813		167

Other nonperforming assets:
Other real estate owned		202		—		—		—

Total other nonperforming assets		202		—		—		—

Total nonperforming assets	$	6,246	$	822	$	813	$	167

Net Charge-offs

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

Potential Problem Loans

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

ASSET-LIABILITY MANAGEMENT

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

Market Risk

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

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

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

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

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

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

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

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

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

TABLE 14 - Mortgage Loans Held for Sale and Related Hedges


	Three Months Ended
	June 30,

	2003		2002

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

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

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

TABLE 15 - Interest Rate Sensitivity


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

June 30, 2003		(3.98	)%		(1.11	)%		0.79	%		1.18	%
December 31, 2002		(6.22	)%		(2.64	)%		2.15	%		3.40	%

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

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

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

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

LIQUIDITY

Parent Company

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

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

Banking Subsidiary

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

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

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

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

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

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

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

CAPITAL

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

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

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

Table 16 - Capital Ratios


		Actual					Capital Requirements					Excess

		Amount		Ratio			Amount		Ratio			Amount		Ratio

As of June 30, 2003

Banknorth Group, Inc.
	Total capital (to risk weighted assets)	$	1,969,653		10.98	%	$	1,434,698		8.00	%	$	534,955		2.98	%
	Tier 1 capital (to risk weighted assets)		1,545,443		8.62	%		717,349		4.00	%		828,094		4.62	%
	Tier 1 leverage capital ratio (to average assets)		1,545,443		6.36	%		971,324		4.00	%		574,119		2.36	%
Banknorth, NA
	Total capital (to risk weighted assets)	$	1,951,689		10.91	%	$	1,431,327		8.00	%	$	520,362		2.91	%
	Tier 1 capital (to risk weighted assets)		1,530,783		8.56	%		715,664		4.00	%		815,119		4.56	%
	Tier 1 leverage capital ratio (to average assets)		1,530,783		6.32	%		969,495		4.00	%		561,288		2.32	%

As of December 31, 2002

Banknorth Group, Inc.
	Total capital (to risk weighted assets)	$	1,960,869		12.15	%	$	1,291,616		8.00	%	$	669,253		4.15	%
	Tier 1 capital (to risk weighted assets)		1,558,974		9.66	%		645,808		4.00	%		913,166		5.66	%
	Tier 1 leverage capital ratio (to average assets)		1,558,974		7.13	%		874,180		4.00	%		684,794		3.13	%
Banknorth, NA
	Total capital (to risk weighted assets)	$	1,822,307		11.31	%	$	1,288,562		8.00	%	$	533,745		3.31	%
	Tier 1 capital (to risk weighted assets)		1,421,995		8.83	%		644,281		4.00	%		777,714		4.83	%
	Tier 1 leverage capital ratio (to average assets)		1,421,995		6.52	%		871,830		4.00	%		550,165		2.52	%

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

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

TABLE 17 - Capital Trust Securities


	Issuance				Stated			Maturity
Name	Date		Amount		Rate			Date

Peoples Heritage Capital Trust I		1/31/1997	$	61,556		9.06	%		2/1/2027
Banknorth Capital Trust I		5/1/1997		30,000		10.52	%		5/1/2027
Ipswich Statutory Trust I		2/22/2001		3,500		10.20	%		2/22/2031
Banknorth Capital Trust II		2/22/2002		200,000		8.00	%		4/1/2032

			$	295,056

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

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

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

CRITICAL ACCOUNTING POLICIES

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

IMPACT OF NEW ACCOUNTING STANDARDS

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

FORWARD LOOKING STATEMENTS

Certain statements contained herein are not based on historical facts and are “forward-looking statements” within the meaning of Section 21A of the Securities Exchange Act of 1934. Forward-looking statements, which are based on various assumptions (some of which are beyond our control), may be identified by reference to a future period or periods, or by the use of forward-looking terminology, such as “may,” “will,” “believe,” “expect,” “estimate,” “anticipate,” “continue” or similar terms or variations on those terms or the negative of those terms. Forward-looking statements are subject to various factors which could cause actual results to differ materially from these estimates. These factors include, but are not limited to, changes in general economic conditions, interest rates, deposit flows, loan demand, competition, legislation or regulation and accounting principles, policies or guidelines, as well as other economic, competitive, governmental, regulatory and technological factors affecting our operations. In addition, acquisitions may result in large one-time charges to income, may not produce revenue enhancements or cost savings at levels or within time frames originally anticipated and may result in unforeseen integration difficulties. We do not undertake, and specifically disclaim any obligation, to publicly release the result of any revisions which may be made to any forward-looking statements to reflect the occurrence of events or circumstances after the date of such statements.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

The information contained in the section captioned “Management’s Discussion and Analysis – Asset-Liability Management” is incorporated herein by reference.

Item 4. Controls and Procedures

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

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

Part II - Other Information

Item 1. Legal Proceedings

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

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

Item 3. Defaults Upon Senior Securities - not applicable.

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

(a) An annual meeting of shareholders of Banknorth was held on April 22, 2003 (“Annual Meeting”).

(b) Not applicable.

(c) There were 164,186,259 shares of Common Stock eligible to be voted at the Annual Meeting and 138,143,217 shares were represented at the meeting by the holders thereof, which constituted a quorum. The items voted upon at the Annual Meeting and vote for each proposal were as follows:

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

Director Nominees Elected for Three-Year Terms:


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

Director Nominee Elected for One-Year Term:


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

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


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

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


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

Item 5. Other Information - not applicable.

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

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

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

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

Exhibit 32.1 Certification of Chief Executive Officer Under 18 U.S.C. § 1350.

Exhibit 32.2 Certification of Chief Financial Officer Under 18 U.S.C. § 1350.

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

SIGNATURES

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


	BANKNORTH GROUP, INC.

Date: August 12, 2003	By:	/s/ William J. Ryan

		William J. Ryan
		Chairman, President and
		Chief Executive Officer

Date: August 12, 2003	By:	/s/ Stephen J. Boyle

		Stephen J. Boyle
		Executive Vice President,
		Chief Financial Officer
		(principal financial and accounting officer)

EXHIBIT INDEX

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

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

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

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


	Six Months Ended

	6/30/2003		6/30/2002

Telephone	$	6,063	$	6,521
Office supplies		5,317		5,416
Postage and freight		6,297		4,815
Miscellaneous loan costs		2,511		2,873
Deposits and other assessments		1,873		1,700
Collection and carrying costs of non-performing assets		1,255		1,456
Other		21,567		20,309

Total	$	44,883	$	43,090

	(a)		An annual meeting of shareholders of Banknorth was held on April 22, 2003 (“Annual Meeting”).

	(b)		Not applicable.

	(c)		There were 164,186,259 shares of Common Stock eligible to be voted at the Annual Meeting and 138,143,217 shares were represented at the meeting by the holders thereof, which constituted a quorum. The items voted upon at the Annual Meeting and vote for each proposal were as follows:

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

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

			Exhibit 32.1 Certification of Chief Executive Officer Under 18 U.S.C. § 1350.

			Exhibit 32.2 Certification of Chief Financial Officer Under 18 U.S.C. § 1350.