10-K405

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

FORM 10-K

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

For the fiscal year ended December 31, 2001

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

For the transition period from                                      to                                     

Commission file number 0-16947

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

Maine (State or other jurisdiction of incorporation or organization)	01-0437984 (I.R.S. Employer Identification Number)
P.O. Box 9540 Two Portland Square Portland, Maine (Address of principal executive offices)	04112-9540 (Zip Code)

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

Securities registered pursuant to Section 12(b) of the Act: Not Applicable

Securities registered pursuant to Section 12(g) of the Act:

Common Stock, $.01 par value
Title of Class Preferred Stock Purchase Rights
Title of Class

        Indicate by check mark whether the Registrant (1) has filed all reports required by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months and (2) has been subject to such filing requirements for the past 90 days. Yes ý    No o

        Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ý

        As of March 11, 2002, the aggregate market value of the 147,368,998 shares of Common Stock of the Registrant issued and outstanding on such date, excluding the 891,640 shares held by all directors and executive officers of the Registrant as a group (which does not include unexercised stock options), was $3.8 billion. This figure is based on the last sale price of $25.90 per share of the Registrant's Common Stock on March 11, 2002, as reported in The Wall Street Journal on March 12, 2002. Although directors of the Registrant and executive officers of the Registrant and its subsidiaries were assumed to be "affiliates" of the Registrant for purposes of this calculation, the classification is not to be interpreted as an admission of such status.

        Number of shares of Common Stock outstanding as of March 11, 2002: 147,368,998

DOCUMENTS INCORPORATED BY REFERENCE

        List hereunder the following documents if incorporated by reference and the part of the Form 10-K into which the document is incorporated:

        Portions of the definitive Proxy Statement for the Annual Meeting of Stockholders to be held on April 23, 2002 are incorporated by reference into Part III, Items 10-13 of this Form 10-K.

BANKNORTH GROUP, INC.
2001 FORM 10-K ANNUAL REPORT

TABLE OF CONTENTS

		Page
PART I
Item 1.	BUSINESS	1
	General	1
	Business	1
	Acquisitions	2
	Subsidiaries and Other Equity Investments	2
	Competition	3
	Employees	3
	Supervision and Regulation	3
	Taxation	7
	Statistical Disclosure by Bank Holding Companies	7
Item 2.	PROPERTIES	8
Item 3.	LEGAL PROCEEDINGS	9
Item 4.	SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS	9
PART II
Item 5.	MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS	9
Item 6.	SELECTED CONSOLIDATED FINANCIAL DATA	10
Item 7.	MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	11
Item 7A.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	37
Item 8.	FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA	38
Item 9.	CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURES	83
PART III
Item 10.	DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT	83
Item 11.	EXECUTIVE COMPENSATION	83
Item 12.	SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT	83
Item 13.	CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS	83
PART IV
Item 14.	EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K	84
	SIGNATURES	87

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FORWARD-LOOKING STATEMENTS

        IN THE NORMAL COURSE OF BUSINESS, WE, IN AN EFFORT TO HELP KEEP OUR SHAREHOLDERS AND THE PUBLIC INFORMED ABOUT OUR OPERATIONS, MAY FROM TIME TO TIME ISSUE OR MAKE CERTAIN STATEMENTS, EITHER IN WRITING OR ORALLY, THAT ARE OR CONTAIN FORWARD-LOOKING STATEMENTS, AS THAT TERM IS DEFINED IN THE U.S. FEDERAL SECURITIES LAWS. GENERALLY, THESE STATEMENTS RELATE TO BUSINESS PLANS OR STRATEGIES, PROJECTED OR ANTICIPATED BENEFITS FROM ACQUISITIONS MADE BY OR TO BE MADE BY US, PROJECTIONS INVOLVING ANTICIPATED REVENUES, EARNINGS, PROFITABILITY OR OTHER ASPECTS OF OPERATING RESULTS OR OTHER FUTURE DEVELOPMENTS IN OUR AFFAIRS OR THE INDUSTRY IN WHICH WE CONDUCT BUSINESS. FORWARD-LOOKING STATEMENTS MAY BE IDENTIFIED BY REFERENCE TO A FUTURE PERIOD OR PERIODS OR BY THE USE OF FORWARD-LOOKING TERMINOLOGY SUCH AS "ANTICIPATE," "BELIEVE," "EXPECT," "INTEND," "PLAN," "ESTIMATE" OR SIMILAR EXPRESSIONS.

        ALTHOUGH WE BELIEVE THAT THE ANTICIPATED RESULTS OR OTHER EXPECTATIONS REFLECTED IN OUR FORWARD-LOOKING STATEMENTS ARE BASED ON REASONABLE ASSUMPTIONS, WE CAN GIVE NO ASSURANCE THAT THOSE RESULTS OR EXPECTATIONS WILL BE ATTAINED. FORWARD-LOOKING STATEMENTS INVOLVE RISKS, UNCERTAINTIES AND ASSUMPTIONS (SOME OF WHICH ARE BEYOND OUR CONTROL), AND AS A RESULT ACTUAL RESULTS MAY DIFFER MATERIALLY FROM THOSE EXPRESSED IN FORWARD-LOOKING STATEMENTS. FACTORS THAT COULD CAUSE ACTUAL RESULTS TO DIFFER FROM FORWARD-LOOKING STATEMENTS INCLUDE, BUT ARE NOT LIMITED TO, THE FOLLOWING, AS WELL AS THOSE DISCUSSED ELSEWHERE HEREIN:

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OUR INVESTMENTS IN OUR BUSINESSES AND IN RELATED TECHNOLOGY COULD REQUIRE ADDITIONAL INCREMENTAL SPENDING, AND MIGHT NOT PRODUCE EXPECTED DEPOSIT AND LOAN GROWTH AND ANTICIPATED CONTRIBUTIONS TO OUR EARNINGS;



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GENERAL ECONOMIC OR INDUSTRY CONDITIONS COULD BE LESS FAVORABLE THAN EXPECTED, RESULTING IN A DETERIORATION IN CREDIT QUALITY, A CHANGE IN THE ALLOWANCE FOR LOAN AND LEASE LOSSES OR A REDUCED DEMAND FOR CREDIT OR FEE-BASED PRODUCTS AND SERVICES;



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CHANGES IN THE DOMESTIC INTEREST RATE ENVIRONMENT COULD REDUCE NET INTEREST INCOME AND COULD INCREASE CREDIT LOSSES;



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THE CONDITIONS OF THE SECURITIES MARKETS COULD CHANGE, WHICH COULD ADVERSELY AFFECT, AMONG OTHER THINGS, THE VALUE OR CREDIT QUALITY OF OUR ASSETS, THE AVAILABILITY AND TERMS OF FUNDING NECESSARY TO MEET OUR LIQUIDITY NEEDS AND OUR ABILITY TO ORIGINATE LOANS AND LEASES;



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CHANGES IN THE EXTENSIVE LAWS, REGULATIONS AND POLICIES GOVERNING FINANCIAL HOLDING COMPANIES AND THEIR SUBSIDIARIES COULD ALTER OUR BUSINESS ENVIRONMENT OR AFFECT OUR OPERATIONS;



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THE POTENTIAL NEED TO ADAPT TO INDUSTRY CHANGES IN INFORMATION TECHNOLOGY SYSTEMS, ON WHICH WE ARE HIGHLY DEPENDENT, COULD PRESENT OPERATIONAL ISSUES OR REQUIRE SIGNIFICANT CAPITAL SPENDING;

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•

COMPETITIVE PRESSURES COULD INTENSIFY AND AFFECT OUR PROFITABILITY, INCLUDING AS A RESULT OF CONTINUED INDUSTRY CONSOLIDATION, THE INCREASED AVAILABILITY OF FINANCIAL SERVICES FROM NON-BANKS, TECHNOLOGICAL DEVELOPMENTS SUCH AS THE INTERNET OR BANK REGULATORY REFORM; AND



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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.

        YOU SHOULD NOT PUT UNDUE RELIANCE ON ANY FORWARD-LOOKING STATEMENTS. FORWARD-LOOKING STATEMENTS SPEAK ONLY AS OF THE DATE THEY ARE MADE, AND WE UNDERTAKE NO OBLIGATION TO UPDATE THEM IN LIGHT OF NEW INFORMATION OR FUTURE EVENTS EXCEPT TO THE EXTENT REQUIRED BY FEDERAL SECURITIES LAWS.

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PART I.

ITEM 1.  BUSINESS

General

        We, Banknorth Group, Inc., are a Maine corporation and a registered bank holding company and financial holding company under the Bank Holding Company Act of 1956, as amended. We conduct business from our headquarters in Portland, Maine and, as of December 31, 2001, 308 banking offices located in Maine, New Hampshire, Massachusetts, Vermont, New York and Connecticut. At December 31, 2001, we had consolidated assets of $21.1 billion and consolidated shareholders' equity of $1.8 billion. Based on total assets at that date, we are one of the 35 largest commercial banking organizations in the United States.

        Our principal asset is all of the capital stock of Banknorth, NA, a national bank which was initially formed as a Maine-chartered savings bank in the mid-19^th century. Effective January 1, 2002, we consolidated all eight of our other banking subsidiaries and our trust company subsidiary into Banknorth, NA, which was known as "Peoples Heritage Bank" prior to these consolidations. Banknorth, NA operates under the trade name "Peoples Heritage Bank" in Maine, "Bank of New Hampshire" in New Hampshire and "Evergreen Bank" in New York to take advantage of the goodwill associated with the names of these predecessor banks. Banknorth, NA operates under its name elsewhere in our market areas. Through Banknorth, NA we offer a full range of banking services and products to individuals, businesses and governments throughout our market areas, including commercial, consumer and trust and investment services.

        Unless the context otherwise requires, the words "Banknorth," "we," "our" and "us" herein refer to Banknorth Group, Inc. and its subsidiaries.

Business

        Our principal business consists of attracting deposits from the general public through our offices and using these deposits to originate loans secured by first mortgage liens on existing single-family (one-to-four units) residential real estate and existing multi-family (over four units) residential and commercial real estate, construction loans, commercial business loans and leases and consumer loans. We also provide various mortgage banking services and investment management services, as well as, through subsidiaries of Banknorth, NA, engage in equipment leasing, investment planning, securities brokerage and insurance brokerage activities. We also invest in investment securities and other permitted investments.

        We derive our income principally from interest charged on loans and leases and, to a lesser extent, from interest and dividends earned on investments. We also increasingly derive income from non-interest sources such as fees received in connection with various lending services, deposit services, trust and investment management services, investment planning services and merchant and electronic banking services, as well as insurance brokerage commissions and, from time to time, gains on the sale of assets. Our principal expenses are interest expense on deposits and borrowings, operating expenses, provisions for loan and lease losses and income tax expense. Funds for activities are provided principally by deposits, advances from the Federal Home Loan Bank, securities sold under repurchase agreements, amortization and prepayments of outstanding loans, maturities and sales of investment securities and other sources.

        Through Banknorth, NA we provide extensive trust and investment management services to our customers. We offer employee benefit trust services in which we act as trustee, custodian, administrator and/or investment advisor, among other things, for employee benefit plans and for corporate, self-employed, municipal and not-for-profit employers located throughout our market areas. In addition, we serve as trustee of both living trusts and trusts under wills and in this capacity hold, account for and manage financial assets, real estate and special assets. Custody, estate settlement and fiduciary tax services, among others, also are offered by us. Assets held in a fiduciary capacity by us are not included in our consolidated balance sheet for financial reporting purposes.

        We and our subsidiaries are subject to extensive regulation and supervision under federal and state banking laws. For additional information in this regard, see "Supervision and Regulation" below.

Acquisitions

        Our profitability and market share have been enhanced in recent years through internal growth and acquisitions of both financial and nonfinancial institutions. We continually evaluate acquisition opportunities and frequently conduct due diligence in connection with possible acquisitions. As a result, acquisition discussions and, in some cases, negotiations frequently take place and future acquisitions involving cash, debt or equity securities can be expected. Acquisitions typically involve the payment of a premium over book and market values, and therefore, some dilution of our book value and net income per common share may occur in connection with any future transactions. Moreover, acquisitions commonly result in significant one-time charges against earnings, although cost-savings, especially incident to in-market acquisitions, frequently are anticipated.

Subsidiaries and Other Equity Investments

        Taking into account the consolidation of our banking subsidiaries effective January 1, 2002, our only direct subsidiaries at December 31, 2001 were Banknorth, NA, Northgroup Realty, Inc., an acquired subsidiary which holds certain commercial real estate located in Burlington, Vermont, and the financing vehicles Peoples Heritage Capital Trust I and Banknorth Capital Trust I. For additional information on these trusts, see Note 15 to the Consolidated Financial Statements included in Item 8 hereof.

        Set forth below is a brief description of certain of our indirect non-banking subsidiaries and certain other equity investments.

        Insurance Brokerage Activities.    We conduct insurance brokerage activities through Banknorth Insurance Group, Inc., which holds all of the outstanding stock of Morse, Payson & Noyes Insurance, one of the largest insurance brokerage firms in Maine. Morse Payson & Noyes Insurance also conducts business in (i) New Hampshire under the trade name A.D. Davis Insurance, (ii) Massachusetts through Catalano Insurance Agency Inc., a wholly-owned subsidiary of Morse, Payson & Noyes Insurance, and Palmer Goodell Financial Group, a wholly-owned subsidiary of Catalano, and (iii) Connecticut through Arthur A. Watson & Co., Inc., a wholly-owned subsidiary of Morse Payson & Noyes Insurance.

        Investment Planning and Securities Brokerage Activities.    We conduct investment planning and securities brokerage activities through Bancnorth Investment Planning Group, Inc. We also offer through Bancnorth Investment Planning Group investments in mutual funds and annuities throughout our market areas. Bancnorth Investment Planning Group offers its services to individuals and small businesses from its office located in Portland, Maine and from certain of our other locations in Maine, Massachusetts, New Hampshire, Vermont, New York and Connecticut. Sales professionals at Bancnorth Investment Planning Group are registered representatives of Primevest Financial Services, Inc., a registered broker/dealer, and all securities brokerage activities are conducted through Primevest Financial Services, Inc. The sales professionals receive referrals from our branch offices throughout our market areas.

        In addition to the foregoing, Bancnorth Investment Planning Group conducts insurance sales activities through its wholly-owned insurance agency, Bancnorth Investment and Insurance Agency, Inc., and through certain agencies of Banknorth Insurance Group, Inc. in Maine, Massachusetts, New Hampshire, Connecticut, Vermont and New York. Bancnorth Investment Planning Group, either directly or through other agencies, offers life insurance and long-term care insurance products in conjunction with the sales of investments and annuities.

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        Equipment Leasing Activities.    We conduct equipment leasing activities through Banknorth Leasing Corp. This company is headquartered in Portland, Maine and engages in direct equipment leasing activities, primarily involving office equipment, in the States of Maine, New Hampshire, Massachusetts, Vermont, New York and Connecticut. At December 31, 2001, Banknorth Leasing Corp. had $108.5 million of leases outstanding.

        Other Equity Investments.    We hold certain other equity investments, primarily through Banknorth, NA. At December 31, 2001, these investments consisted of (i) $39.9 million of interests in limited partnerships formed for the purpose of investing in real estate for lower-income families, elderly housing projects and/or the preservation or restoration of historically or architecturally significant buildings or structures and (ii) an aggregate of $13.3 million of interests in limited partnerships which invest in small business investment companies and equity investments in entities which generally are intended to promote community welfare. For additional information about these investments see Note 17 to the Consolidated Financial Statements included in Item 8 hereof.

Competition

        We are subject to vigorous competition in all aspects and areas of our business from banks and other financial institutions, including savings and loan associations, savings banks, finance companies, credit unions and other providers of financial services, such as money market mutual funds, brokerage firms, consumer finance companies and insurance companies. We also compete with non-financial institutions, including retail stores that maintain their own credit programs and governmental agencies that make available low-cost or guaranteed loans to certain borrowers. Certain of these competitors are larger financial institutions with substantially greater resources, lending limits, larger branch systems and a wider array of commercial banking services than us. Competition from both bank and non-bank organizations will continue.

        The banking industry is experiencing rapid changes in technology. In addition to improving customer services, effective use of technology increases efficiency and enables financial institutions to reduce costs. Technological advances also likely will enhance competition by enabling more companies to provide financial resources. As a result, our future success will depend in part on our ability to address our customers' needs by using technology. We cannot assure you that we will be able to effectively develop new technology-driven products and services or be successful in marketing these products to our customers. Many of our competitors have far greater resources than we have to invest in technology.

Employees

        We had approximately 6,000 full-time equivalent employees as of December 31, 2001. None of these employees is represented by a collective bargaining agent, and we believe that we enjoy good relations with our personnel.

Supervision and Regulation

        The following discussion sets forth certain of the material elements of the regulatory framework applicable to bank holding companies and their subsidiaries and provides certain specific information relevant to Banknorth. The regulatory framework is intended primarily for the protection of depositors and the insurance funds administered by the FDIC and not for the protection of security holders. To the extent that the following information describes statutory and regulatory provisions, it is qualified in its entirety by reference to the particular statutory and regulatory provisions. A change in applicable statutes, regulations or regulatory policy may have a material effect on our business.

        General.    Banknorth currently is registered as a bank holding company and a financial holding company under the Bank Holding Company Act of 1956, as amended. As such, we are subject to

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regulation, supervision and examination by the Federal Reserve Board. We also are registered as a Maine financial institution holding company under Maine law and as such are subject to regulation and examination by the Superintendent of Banking of the State of Maine. Banknorth, NA is a national bank subject to regulation, supervision and examination by the Office of the Comptroller of the Currency ("OCC"), its chartering authority, and by the Federal Deposit Insurance Corporation ("FDIC"), which insures Banknorth, NA's deposits to the maximum extent permitted by law.

        Financial Modernization.    Effective March 11, 2000, the Gramm-Leach-Bliley Act permits bank holding companies to become financial holding companies and thereby affiliate with securities firms and insurance companies and engage in other activities that are financial in nature and which are not authorized for bank holding companies. A bank holding company may become a financial holding company if each of its subsidiary banks is "well capitalized" under the prompt corrective action provisions of the Federal Deposit Insurance Improvement Act of 1991 ("FDICIA") and the applicable regulations thereunder, is "well managed" and has at least a satisfactory rating under the Community Reinvestment Act by filing a declaration with the Federal Reserve Board that the bank holding company seeks to become a financial holding company. Banknorth became a financial holding company effective January 25, 2002.

        No regulatory approval is required for a financial holding company to acquire a company, other than a bank or savings association, engaged in activities that are financial in nature or incidental to activities that are financial in nature, as determined by the Federal Reserve Board. The Gramm-Leach-Bliley Act defines "financial in nature" to include securities underwriting, dealing and market making; sponsoring mutual funds and investment companies; insurance underwriting and agency; merchant banking activities; and activities that the Federal Reserve Board has determined to be closely related to banking. A national bank also may engage, subject to limitations on investment, in activities that are financial in nature, other than insurance underwriting, insurance company portfolio investment, real estate development and real estate investment, through a financial subsidiary of the bank, if the bank is well capitalized, well managed and has at least a "satisfactory" Community Reinvestment Act rating. Subsidiary banks of a financial holding company or national banks with financial subsidiaries must continue to be well capitalized and well managed in order to continue to engage in activities that are financial in nature without regulatory actions or restrictions, which could include divestiture of the financial in nature subsidiary or subsidiaries. In addition, a financial holding company or a bank may not acquire a company that is engaged in activities that are financial in nature unless each of the subsidiary banks of the financial holding company or the bank has a Community Reinvestment Act rating of "satisfactory" or better.

        Bank Acquisitions.    Pursuant to the Bank Holding Company Act, we are required to obtain the prior approval of the Federal Reserve Board before acquiring more than 5% of any class of voting stock of any bank that is not already majority owned by us. Pursuant to the Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 (the "Interstate Banking and Branching Act"), a bank holding company became able to acquire banks in states other than its home state beginning September 29, 1995, without regard to the permissibility of such acquisitions under state law, but subject to any state requirement that the bank has been organized and operating for a minimum period of time, not to exceed five years, and the requirement that the bank holding company, prior to or following the proposed acquisition, controls no more than 10% of the total amount of deposits of insured depository institutions in the United States and less than 30% of such deposits in that state (or such lesser or greater amount set by state law).

        The Interstate Banking and Branching Act also authorizes banks to merge across state lines, subject to certain restrictions, thereby creating interstate branches. Pursuant to the Interstate Banking and Branching Act, a bank also may open new branches in a state in which it does not already have banking operations if the state enacts a law permitting such de novo branching.

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        Capital and Operational Requirements.    The Federal Reserve Board, the OCC and the FDIC have issued substantially similar risk-based and leverage capital guidelines applicable to U.S. banking organizations such as Banknorth and Banknorth, NA. In addition, those regulatory agencies may from time to time require that a banking organization maintain capital above the minimum levels, whether because of its financial condition or actual or anticipated growth. The Federal Reserve Board risk-based guidelines define a three-tier capital framework. "Tier 1 capital" generally consists of common and qualifying preferred stockholders' equity, less certain intangibles and other adjustments. "Tier 2 capital" and "Tier 3 capital" generally consist of subordinated and other qualifying debt, preferred stock that does not qualify as Tier 1 capital and the allowance for credit losses up to 1.25% of risk-weighted assets.

        The sum of Tier 1, Tier 2 and Tier 3 capital, less investments in unconsolidated subsidiaries, represents qualifying "total capital," at least 50% of which must consist of Tier 1 capital. Risk-based capital ratios are calculated by dividing Tier 1 capital and total capital by risk-weighted assets. Assets and off-balance sheet exposures are assigned to one of four categories of risk weights, based primarily on relative credit risk. The minimum Tier 1 risk-based capital ratio is 4% and the minimum total risk-based capital ratio is 8%. At December 31, 2001, our Tier 1 risk-based capital and total risk-based capital ratios under these guidelines were 9.59% and 12.23%, respectively.

        The "leverage ratio" requirement is determined by dividing Tier 1 capital by adjusted average total assets. Although the stated minimum ratio is 3%, most banking organizations are required to maintain ratios of at least 100 to 200 basis points above 3%. At December 31, 2001, our leverage ratio was 7.14%.

        Federal bank regulatory agencies require banking organizations that engage in significant trading activity to calculate a capital charge for market risk. Significant trading activity means trading activity of at least 10% of total assets or $1 billion, whichever is smaller, calculated on a consolidated basis for bank holding companies. Federal bank regulators may apply the market risk measure to other banks and bank holding companies as the agency deems necessary or appropriate for safe and sound banking practices. Each agency may exclude organizations that it supervises that otherwise meet the criteria under certain circumstances. The market risk charge will be included in the calculation of an organization's risk-based capital ratios.

        FDICIA identifies five capital categories for insured depository institutions ("well capitalized," "adequately capitalized," "undercapitalized," "significantly undercapitalized" and "critically undercapitalized") and requires the respective U.S. federal regulatory agencies to implement systems for "prompt corrective action" for insured depository institutions that do not meet minimum capital requirements within such categories. FDICIA imposes progressively more restrictive constraints on operations, management and capital distributions, depending on the category in which an institution is classified. Failure to meet the capital guidelines could also subject a banking institution to capital raising requirements. An "undercapitalized" bank must develop a capital restoration plan and its parent holding company must guarantee that bank's compliance with the plan. The liability of the parent holding company under any such guarantee is limited to the lesser of 5% of the bank's assets at the time it became undercapitalized or the amount needed to comply with the plan. Furthermore, in the event of the bankruptcy of the parent holding company, such guarantee would take priority over the parent's general unsecured creditors. In addition, FDICIA requires the various regulatory agencies to prescribe certain non-capital standards for safety and soundness related generally to operations and management, asset quality and executive compensation and permits regulatory action against a financial institution that does not meet such standards.

        The various federal bank regulatory agencies have adopted substantially similar regulations that define the five capital categories identified by FDICIA, using the total risk-based capital, Tier 1 risk-based capital and leverage capital ratios as the relevant capital measures. Such regulations establish

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various degrees of corrective action to be taken when an institution is considered undercapitalized. Under the regulations, a "well capitalized" institution must have a Tier 1 capital ratio of at least 6%, a total capital ratio of at least 10% and a leverage ratio of at least 5% and not be subject to a capital directive order. An "adequately capitalized" institution must have a Tier 1 capital ratio of at least 4%, a total capital ratio of at least 8% and a leverage ratio of at least 4%, or 3% in some cases. Under these guidelines, Banknorth, NA is considered "well capitalized."

        The Federal bank regulatory agencies also have adopted regulations which mandate that regulators take into consideration concentrations of credit risk and risks from non-traditional activities, as well as an institution's ability to manage those risks, when determining the adequacy of an institution's capital. That evaluation will be made as part of the institution's regular safety and soundness examination. Banking agencies also have adopted final regulations requiring regulators to consider interest rate risk (when the interest rate sensitivity of an institution's assets does not match the sensitivity of its liabilities or its off-balance sheet position) in the determination of a bank's capital adequacy. Concurrently, banking agencies have proposed a methodology for evaluating interest rate risk. The banking agencies do not intend to establish an explicit risk-based capital charge for interest rate risk but will continue to assess capital adequacy for interest rate risk under a risk assessment approach based on a combination of quantitative and qualitative factors and have provided guidance on prudent interest rate risk management practices.

        Distributions.    We derive funds for cash distributions to our stockholders primarily from dividends received from our banking subsidiary. Banknorth, NA is subject to various regulatory policies and requirements relating to the payment of dividends, including requirements to maintain capital above regulatory minimums. The appropriate U.S. federal regulatory authority is authorized to determine under certain circumstances relating to the financial condition of the bank or bank/financial holding company that the payment of dividends would be an unsafe or unsound practice and to prohibit payment thereof.

        In addition to the foregoing, the ability of us and Banknorth, NA to pay dividends may be affected by the various minimum capital requirements and the capital and non-capital standards established under FDICIA, as described above. The right of us and our stockholders and creditors to participate in any distribution of the assets or earnings of our subsidiaries is further subject to the prior claims of creditors of such subsidiaries.

        "Source of Strength" Policy.    According to Federal Reserve Board policy, bank/financial holding companies are expected to act as a source of financial strength to each subsidiary bank and to commit resources to support each such subsidiary. This support may be required at times when a bank/financial holding company may not be able to provide such support. Similarly, under the cross-guarantee provisions of the Federal Deposit Insurance Act, in the event of a loss suffered or anticipated by the FDIC—either as a result of default of a banking or thrift subsidiary of a bank/financial holding company such as Banknorth or related to FDIC assistance provided to a subsidiary in danger of default—the other banking subsidiaries of such bank/financial holding company may be assessed for the FDIC's loss, subject to certain exceptions.

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        Community Investment and Consumer Protection Laws.    In connection with its lending activities, Banknorth, NA is subject to a variety of federal laws designed to protect borrowers and promote lending to various sectors of the economy and population. Included among these are the federal Home Mortgage Disclosure Act, Real Estate Settlement Procedures Act, Truth-in-Lending Act, Equal Credit Opportunity Act, Fair Credit Reporting Act and Community Reinvestment Act.

        The Community Reinvestment Act requires insured institutions to define the communities that they serve, identify the credit needs of those communities and adopt and implement a "Community Reinvestment Act Statement" pursuant to which they offer credit products and take other actions that respond to the credit needs of the community. The responsible federal banking regulator must conduct regular Community Reinvestment Act examinations of insured financial institutions and assign to them a Community Reinvestment Act rating of "outstanding," "satisfactory," "needs improvement" or "unsatisfactory." In 2000, the Community Reinvestment Act rating of our banking subsidiaries was either "outstanding" or "satisfactory."

        Miscellaneous.    Banknorth, NA is subject to certain restrictions on loans to Banknorth or its non-bank subsidiaries, on investments in the stock or securities thereof, on the taking of such stock or securities as collateral for loans to any borrower, and on the issuance of a guarantee or letter of credit on behalf of Banknorth or its non-bank subsidiaries. Banknorth, NA also is subject to certain restrictions on most types of transactions with Banknorth or its non-bank subsidiaries, requiring that the terms of such transactions be substantially equivalent to terms of similar transactions with non-affiliated firms.

        Regulatory Enforcement Authority.    The enforcement powers available to federal banking regulators is substantial and includes, among other things, the ability to assess civil money penalties, to issue cease-and-desist or removal orders and to initiate injunctive actions against banking organizations and institution-affiliated parties, as defined. In general, these enforcement actions may be initiated for violations of laws and regulations and unsafe or unsound practices. Other actions or inactions may provide the basis for enforcement action, including misleading or untimely reports filed with regulatory authorities.

Taxation

        We are subject to those rules of federal income taxation generally applicable to corporations under the Internal Revenue Code. Banknorth and its subsidiaries, as members of an affiliated group of corporations within the meaning of Section 1504 of the Internal Revenue Code, file a consolidated federal income tax return, which has the effect of eliminating or deferring the tax consequences of inter-company distributions, including dividends, in the computation of consolidated taxable income.

        We also are subject to various forms of state taxation under the laws of Maine, New Hampshire, Massachusetts, Vermont, New York and Connecticut as a result of the business which we conduct in these states.

Statistical Disclosure by Bank Holding Companies

        The following information, included under Items 6, 7 and 8 of this report, is incorporated by reference herein.

        Table 1—Three-Year Average Balance Sheets, which presents average balance sheet amounts, related taxable equivalent interest earned or paid and related average yields earned and rates paid and is included in Item 7;

        Table 2—Changes in Net Interest Income, which presents changes in taxable equivalent interest income and expense for each major category of interest-earning assets and interest-bearing liabilities and is included in Item 7;

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        Table 4—Securities Available for Sale and Held to Maturity, which presents information regarding carrying values of investment securities by category of security and is included in Item 7;

        Table 5—Maturities of Securities, which presents information regarding the maturities and weighted average yield of investment securities by category of security and is included in Item 7;

        Table 6—Composition of Loan Portfolio, which presents the composition of loans and leases by category of loan and lease and is included in Item 7;

        Table 7—Scheduled Contractual Amortization of Certain Loans and Leases at December 31, 2001, which presents maturities and sensitivities of loans and leases to changes in interest rates and is included in Item 7;

        Table 11—Five Year Schedule of Nonperforming Assets, which presents information concerning non-performing assets and accruing loans 90 days or more overdue and is included in Item 7;

        "Asset Quality" and Note 1 to the Consolidated Financial Statements, which discuss our policies for placing loans on non-accrual status, as well as in the case of the former potential problem loans, which are included in Items 7 and 8, respectively;

        Table 8—Five-Year Table of Activity in the Allowance for Loan and Lease Losses, included in Item 7;

        Table 9—Allocation of the Allowance for Loan and Lease Losses—Five Year Schedule, included in Item 7;

        Table 10—Net Charge-offs as a Percent of Average Loans and Leases Outstanding, included in Item 7;

        Table 1—Three-Year Average Balance Sheets, which includes average balances of deposits by category of deposit and is included in Item 7;

        Table 13—Maturity of Certificates of Deposit of $100,000 or more at December 31, 2001, included in Item 7;

        "Selected Financial Data," which presents return on assets, return on equity, dividend payout and equity to assets ratios and is included in Item 6; and

        Note 12 to the Consolidated Financial Statements, which includes information regarding short-term borrowings and is included in Item 8.

        For additional information regarding our business and operations, see "Selected Financial Data" in Item 6 hereof, "Management's Discussion and Analysis of Financial Condition and Results of Operations" in Item 7 hereof and the Consolidated Financial Statements in Item 8 hereof.

ITEM 2.  PROPERTIES

        At December 31, 2001, we conducted business from our executive offices at Two Portland Square, Portland, Maine and 308 offices located in Maine, New Hampshire, Massachusetts, Vermont, New York and Connecticut.

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        The following table sets forth certain information with respect to our offices as of December 31, 2001.

State		Number of Banking Offices	Deposits
			(Dollars in Thousands)
Maine		61	$	2,643,161
New Hampshire		76		3,672,009
Massachusetts		101		4,957,979
Vermont		37		1,669,138
New York		27		1,009,046
Connecticut		6		269,716
	Total	308	$	14,221,049

        For additional information regarding our premises and equipment and lease obligations, see Notes 7 and 17 respectively, to the Consolidated Financial Statements included in Item 8 hereof.

ITEM 3.  LEGAL PROCEEDINGS

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

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

        There were no matters submitted to a vote of our security holders in the fourth quarter of 2001.

PART II.

ITEM 5.  MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS

        Our common stock is traded on the Nasdaq National Market. The following table sets forth the high and low prices of the common stock as reported on the Nasdaq National Market and the dividends declared per share of common stock for the periods indicated.

	Market Price
					Dividends Declared Per Share
	High		Low
2001
First Quarter	$	21.06	$	18.13	$	0.130
Second Quarter		22.93		19.38		0.130
Third Quarter		24.39		18.93		0.130
Fourth Quarter		22.92		19.78		0.135
2000
First Quarter		16.13		10.38		0.125
Second Quarter		18.00		11.94		0.125
Third Quarter		18.50		14.88		0.125
Fourth Quarter		21.13		15.56		0.125

        As of December 31, 2001, there were 151,220,600 shares of common stock outstanding which were held by approximately 15,000 holders of record. Such number of record holders does not reflect the number of persons or entities holding stock in nominee name through banks, brokerage firms and other nominees.

        We have historically paid quarterly dividends on our common stock and currently intend to continue to do so in the foreseeable future. Our ability to pay dividends depends on a number of factors, however, including restrictions on the ability of Banknorth, NA to pay dividends under federal laws and regulations, and as a result there can be no assurance that dividends will be paid in the future.

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ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA

		2001		2000		1999		1998		1997
(In Thousands, Except Per Share Data)
Results for the Year
Net interest income(1)		$679,964		$603,624		$614,395		$578,300		$555,891
Provision for loan and lease losses		41,889		23,819		23,575		23,775		15,763
Noninterest income (excluding securities transactions)		239,176		226,644		191,140		161,124		134,144
Securities gains (losses)		1,329		(15,456	)	655		6,423		2,837
Noninterest expenses (excluding special charges)(1)		501,782		459,459		460,306		446,110		429,874
Special charges(2)		7,614		43,007		28,002		61,140		23,559
Net income(3)		238,795		191,734		196,958		141,744		145,488
Operating income (net income excluding special items)(2)		247,927		234,686		217,774		186,946		161,035
Share Data
Earnings per share:
	Basic(3)	$1.70		$1.33		$1.35		$0.97		$1.00
	Diluted(3)	1.68		1.32		1.34		0.95		0.98
	Operating diluted(4)	1.75		1.62		1.48		1.25		1.08
	Operating diluted cash(4)(5)	1.88		1.74		1.59		1.35		1.16
Dividends per share		0.53		0.50		0.47		0.44		0.38
Book value per share at year end		11.83		9.42		8.22		8.37		7.97
Tangible book value per share at year end		8.75		8.11		6.95		6.97		6.88
Stock price:
	High	24.39		21.13		20.25		26.75		23.81
	Low	18.13		10.38		14.31		12.81		12.94
	Close	22.52		19.94		15.06		20.00		23.00
Weighted average shares outstanding—Diluted		141,802		145,194		147,428		148,965		148,600
Key Performance Ratios
Return on average assets		1.29	%	1.05	%	1.12	%	0.90	%	1.05	%
Return on average equity		16.48		15.69		16.42		11.96		13.01
Operating return on average assets(4)		1.34		1.28		1.24		1.19		1.16
Operating return on average equity(4)		17.11		19.20		18.16		15.78		14.40
Operating cash return on average assets(4)(5)		1.45		1.39		1.35		1.30		1.14
Operating cash return on average equity(4)(5)		21.73		24.22		23.33		19.71		16.60
Net interest margin(1)(6)		3.99		3.60		3.80		4.02		4.33
Average equity to average assets		7.82		6.66		6.81		7.55		8.07
Efficiency ratio(1)(7)		54.59		55.34		57.14		60.33		62.30
Noninterest income as a percent of total income(8)		26.02		26.99		23.44		21.44		19.15
Tier 1 leverage capital ratio		7.14		7.02		6.75		7.22		7.65
Dividend payout ratio(9)		30.27		36.91		33.19		40.38		39.60
Average Balances
Assets		$18,545,709		$18,343,226		$17,607,344		$15,696,234		$13,857,897
Loans and leases		11,246,007		10,485,289		9,908,177		10,679,544		9,328,963
Earning assets		17,204,628		16,954,605		16,315,233		14,503,172		12,906,106
Deposits		12,529,630		11,891,481		11,784,103		11,435,942		10,341,582
Shareholders' equity		1,449,353		1,222,378		1,199,496		1,184,770		1,117,953
At Year End
Assets		$21,076,586		$18,233,810		$18,508,264		$16,453,120		$15,332,821
Loans and leases, gross		12,715,330		10,845,662		9,854,656		9,925,137		10,012,718
Securities		6,156,861		5,880,658		6,873,182		4,379,774		3,617,236
Deposits		14,221,049		12,107,256		11,710,501		12,016,212		11,088,410
Borrowings(1)		4,602,388		4,659,390		5,466,253		3,040,173		2,904,286
Shareholders' equity		1,789,115		1,330,857		1,192,274		1,222,390		1,164,383
Common shares outstanding		151,221		141,245		144,974		146,105		146,133
Nonperforming assets(10)		81,227		67,132		69,192		89,021		98,125
Nonperforming assets as a percentage of total assets(10)		0.39	%	0.37	%	0.37	%	0.54	%	0.64	%

(1)

In the fourth quarter of 2001, the trust preferred securities were reclassified as an interest-bearing liability. The related expense was reclassified to interest expense from noninterest expense. Prior period amounts have been reclassified.

(2)

Special items consist of (i) special charges, (ii) extraordinary item of ($3,897) after-tax and cumulative effect of change in accounting principle of ($290) after-tax in 2001 and (iii) losses on restructuring the investment portfolio of $10,332 million on an after-tax basis in 2000. Special charges consist of merger charges, costs to discontinue the correspondent mortgage business, asset write-downs, charter consolidation costs and branch closing costs and on an after-tax basis amounted to $4,945, $32,591, $20,816, $45,202 and $15,547 during 2001, 2000, 1999, 1998 and 1997, respectively. See Note 11 to the Consolidated Financial Statements.

(3)

In 2001, net income represents net income after the impact of extraordinary item and the cumulative effect of change in accounting principle, which amounted to ($3,897) and ($290) after-tax, respectively, and earnings per share for 2001 are based on such net income.

(4)

Excludes the effect of special items.

(5)

Earnings before amortization of goodwill and core deposit premiums.

(6)

Net interest income divided by average interest-earning assets, calculated on a fully-taxable equivalent basis.

(7)

Excludes special items and securities transactions.

(8)

Excludes gains and losses on securities sales.

(9)

Cash dividends paid divided by net income.

(10)

Nonperforming assets consist of nonperforming loans, other real estate owned, repossessed assets and investment securities placed on non-accrual status.

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ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

        The discussion and analysis which follows focuses on the factors affecting the results of operations of Banknorth Group, Inc. during 2001, 2000, and 1999 and financial condition at December 31, 2001 and 2000. The Consolidated Financial Statements and related notes should be read in conjunction with this review. Certain amounts in years prior to 2001 have been reclassified to conform to the 2001 presentation.

GENERAL

        Banknorth Group, Inc. is a Maine corporation and a registered bank holding company and financial holding company under the Bank Holding Company Act of 1956, as amended. We conduct business from our headquarters in Portland, Maine and, as of December 31, 2001, 308 banking offices located in Maine, New Hampshire, Massachusetts, Vermont, New York and Connecticut. At December 31, 2001, we had consolidated assets of $21.1 billion and consolidated shareholders' equity of $1.8 billion. Based on total assets at that date, we are one of the 35 largest commercial banking organizations in the United States.

        Our principal asset is all of the capital stock of Banknorth, NA, a national bank which was initially formed as a Maine-chartered savings bank in the mid-19^th century. Effective January 1, 2002, we consolidated all eight of our other banking subsidiaries and our trust company into Banknorth, NA, which was known as "Peoples Heritage Bank" prior to these consolidations. Banknorth, NA operates under the trade name "Peoples Heritage Bank" in Maine, "Bank of New Hampshire" in New Hampshire and "Evergreen Bank" in New York to take advantage of the goodwill associated with the names of these predecessor banks. Banknorth, NA operates under its name elsewhere in our market areas. Through Banknorth, NA we offer a full range of banking services and products to individuals, businesses and governments throughout our market areas, including commercial, consumer, trust and investment management and investment planning services.

        We are subject to extensive regulation and supervision under federal and state banking laws. See "Regulation and Supervision" under Item 1.

Business Strategy

        Our principal business consists of attracting deposits from the general public and using such deposits and other sources of funds to originate commercial business loans and leases, commercial real estate loans, residential mortgage loans and a variety of consumer loans. In addition to keeping loans for our own portfolio, we sell residential mortgage loans into the secondary market. We also invest in mortgage-backed securities and securities issued by the United States Government and agencies thereof, as well as other securities. In addition, we emphasize the growth of noninterest sources of income from trust and investment management, investment planning, insurance brokerage and other financial services.

        Our goal is to sustain profitable, controlled growth by focusing on increasing our loan and deposit market share in New England and upstate New York; developing new financial products, services and delivery channels; closely managing yields on earning assets and rates on interest-bearing liabilities; increasing noninterest income through, among other things, expanded trust and investment management, investment planning and insurance brokerage services and controlling the growth of noninterest expenses. It is also part of our business strategy to supplement internal growth with targeted acquisitions of other financial institutions and insurance agencies in our current or contiguous market areas. During the period covered by this discussion, we engaged in numerous merger and acquisition related activities. For further information, see Note 3 to the Consolidated Financial Statements and "Acquisitions" below. We regularly evaluate potential acquisitions and, as a general rule, announce acquisitions only after a definitive agreement has been reached.

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Economic Conditions

        We believe that our market area generally has witnessed steady economic growth since 1992; however, economic growth generally declined in our market area in the second half of 2001. Although these developments have not materially adversely affected us to date, they did contribute to an increase in our provisions for loan and lease losses, net charge-offs and nonperforming assets during 2001, as discussed herein. The economies and real estate markets in our primary market areas will continue to be significant determinants of the quality of our assets in future periods and, thus, our results of operations, liquidity and financial condition. We believe future economic activity will significantly depend on consumer confidence, personal consumption expenditures and business expenditures for new capital equipment, each of which is tied to strong employment.

Acquisitions

        On October 31, 2001, we completed the acquisition of Andover Bancorp, Inc. ("Andover"), a multi-bank holding company headquartered in Andover, Massachusetts, and MetroWest Bank ("MetroWest"), a Massachusetts-chartered savings bank headquartered in Framingham, Massachusetts. Andover had total assets of $1.8 billion and total shareholders' equity of $162 million at October 31, 2001. A total of 16.5 million shares of our common stock (including 1.0 million shares issuable upon exercise of Banknorth stock options issued in exchange for Andover stock options) were issued in connection with the acquisition of Andover. MetroWest had total assets of $907 million and total shareholders' equity of $62 million at October 31, 2001. MetroWest shares, including vested stock options, were purchased for $11.50 per share for a total cost of $164.8 million. The acquisitions were accounted for as purchases in accordance with Financial Accounting Standards Board ("FASB") Statement of Financial Accounting Standards ("SFAS") No. 141, "Business Combinations." We recorded $286 million of goodwill and other intangibles and $16.8 million of core deposit intangibles (both subject to final purchase accounting adjustments) in connection with these acquisitions.

        During the third quarter of 2000, we completed the acquisition of Palmer Goodell Insurance Agency, Inc. (based in Springfield, Massachusetts) and Arthur A. Watson & Co., Inc. (an insurance agency based in Wethersfield, Connecticut). These agencies, which were acquired for a combination of cash and stock, had combined annual revenues of approximately $18 million in 1999. The acquisitions resulted in the recording of goodwill of $22.7 million, which is being amortized over 20 years. These insurance agency acquisitions are an important part of our strategy to offer our customers a full range of financial services in all the markets we serve.

        On May 10, 2000, we completed the acquisition of Banknorth Group, Inc. ("former Banknorth"), which was effected by the merger of former Banknorth with and into Peoples Heritage Financial Group, Inc., which changed our name to "Banknorth Group, Inc." as a result of the merger. Approximately 42.9 million shares of our common stock were issued in connection with this transaction. As of December 31, 1999, former Banknorth had total assets of $4.6 billion and total shareholders' equity of $341 million. The acquisition was accounted for using the pooling-of-interests method and, accordingly, financial information for all periods presented prior to the date of acquisition has been restated to present the combined financial condition and results of operations as if the acquisition had been in effect for all such periods.

        On January 1, 1999, we completed the acquisition of SIS Bancorp, Inc. ("SIS"). Approximately 16.3 million shares of our common stock were issued in connection with this acquisition. SIS had total assets of $2.0 billion and shareholders' equity of $139 million at December 31, 1998. The acquisition of SIS was accounted for as a pooling-of-interests and, accordingly, financial information for all periods presented prior to the date of acquisition has been restated to present the combined financial condition and results of operations as if the acquisition had been in effect for all such periods.

        We incurred various merger-related and restructuring charges in connection with the foregoing acquisitions and in connection with acquisitions effected by Andover, former Banknorth and SIS prior

12

to their acquisition by us (collectively, "special charges"). For additional information, see "Results of Operations—Special Charges" and Note 11 to the Consolidated Financial Statements.

Accounting Policies that Involve Estimates and Judgment

        When preparing financial statements we are required to make estimates and assumptions that affect the reported amount of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and revenues and expenses during the reporting periods. Material estimates and assumptions that are particularly susceptible to change relate to the determination of the carrying values of the following:

        —allowance for loan and lease losses;

        —deferred tax assets and related valuation allowance;

        —capitalized costs of software developed for internal use;

        —mortgage servicing rights; and

        —long-lived assets, including goodwill and intangible assets.

        The estimates and assumptions used in each of these areas are reviewed quarterly for continuing applicability and revised based on current facts and circumstances. However, actual results (which are based on future events) could differ materially from these estimates and assumptions. Although each of the above areas involves the use of estimates and judgments, as of December 31, 2001 the allowance for loan and lease losses is the only area that would have a significant impact on financial condition or results of operations if actual results differed materially from the estimates and assumptions used.

RESULTS OF OPERATIONS

Comparison of 2001 and 2000

Overview

        We reported net income of $238.8 million or $1.68 per diluted share in 2001, compared to $191.7 million or $1.32 per diluted share in 2000. Excluding special items, we earned $247.9 million or $1.75 per diluted share in 2001 compared to $234.7 million or $1.62 per diluted share during 2000, an increase of 8%. The improved results were attributable to increased net interest income and noninterest income, which were partially offset by increased provisions for loan and lease losses. Cash return on average equity excluding special items was 21.73% in 2001 compared to 24.22% in 2000. The decline in the operating cash return on average equity was primarily due to improvement in the fair value of securities available for sale, which resulted in higher levels of equity. Cash return on average assets excluding special items was 1.45% in 2001 compared to 1.39% in 2000.

        Net interest income and noninterest income increased 13% and 14% during 2001, respectively. The increase in net interest income was attributable to an increase in the net interest margin due to decreased short-term interest rates resulting from the Federal Reserve Board rate cuts during the year. The increase in net interest margin reflected a decline in the average rates paid on interest-bearing liabilities and declines in the average balance of interest-bearing liabilities, offset by a decline in the yield on earning assets as well as a change in the mix of earning assets.

        The provision for loan and lease losses increased by $18.1 million in 2001 compared to 2000 due to increased charge-offs and higher levels of classified loans resulting from the slowing economy. The increase in noninterest income, excluding securities transactions, was 6% during 2001. This increase was primarily a result of increases in income from merchant and electronic banking and insurance brokerage commissions. Noninterest expenses, excluding special charges, increased 9% in 2001 due primarily to increases in salaries and benefits and occupancy expenses.

13

Net Interest Income

        Net interest income on a fully taxable-equivalent basis increased by $76.6 million, or 13%, during 2001 due primarily to an 87 basis point decrease in average rates paid on interest-bearing liabilities, which more than offset a 50 basis point decrease in the average yield earned on interest-earning assets. The net interest margin correspondingly increased to 3.99% in 2001 from 3.60% during 2000. Average loans and leases increased by $760.7 million, or 7%, in 2001 compared to 2000. The increase was primarily attributable to growth in commercial and consumer loans. Average securities decreased $481.4 million, or 8%, in 2001 due primarily to the runoff of mortgage-backed securities in conjunction with a balance sheet deleveraging program achieved through a reduction in borrowings. Average deposits increased $638.1 million, or 5% during 2001. Average borrowed funds decreased $698.0 million, or 14%, in 2001 compared to 2000, primarily as a result of a deleveraging program as well as prepayment of $174.6 million of advances from Federal Home Loan Banks. Information on average balances, yields and rates for the past three years can be found in Table 1. Table 2 shows the changes from 2000 to 2001 in tax equivalent net interest income by category due to changes in rate and volume. Information on interest rate sensitivity can be found in the Asset-Liability Management section below.

Provision and Allowance for Loan and Lease Losses

        We recorded a provision for loan and lease losses in 2001 of $41.9 million, as compared to a $23.8 million provision in 2000, which reflected an increase in classified loans. Net charge-offs to average loans outstanding was 0.33% in 2001, as compared to 0.24% in 2000. Net charge-offs were $36.9 million in 2001 compared to $25.3 million in 2000. This $11.6 million increase was primarily due to increased levels of gross charge-offs, including those related to a leasing portfolio acquired in the Andover acquisition in 2001 and shared national credits acquired in the acquisition of former Banknorth in 2000.

        The allowance for loan and lease losses amounted to $189.8 million at December 31, 2001, as compared to $153.6 million at December 31, 2000. The increase was due to acquisitions and the above-discussed provision. The allowance to total portfolio loans and leases at December 31, 2001 and 2000 was 1.49% and 1.42%, respectively. The ratio of the allowance for loan and lease losses to nonperforming loans was 252% at December 31, 2001 and 249% at December 31, 2000, reflecting improved coverage of nonperforming loans. Nonperforming assets were 0.39% of total assets at December 31, 2001 as compared to 0.37% at December 31, 2000. The $14.1 million increase in nonperforming assets from December 31, 2000 to $81.2 million was primarily attributable to nonaccruing commercial loans and leases acquired in acquisitions. Accruing loans 90 days or more past due were $6.2 million at December 31, 2001, up 4% from the prior year.

        The allowance for loan and leases 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. The ongoing evaluation process includes a formal analysis of the allowance each quarter, which considers, among other factors, the character and size of the loan portfolio, current economic and market conditions, loan growth, delinquency trends, nonperforming loan trends, charge-off experience, portfolio migration data and other asset quality factors. We evaluate specific loan status reports on certain commercial business and commercial real estate loans rated "substandard" or worse in excess of a specified dollar amount. Estimated reserves for each of these credits is determined by reviewing current collateral value, financial information, cash flow, payment history and trends and other relevant facts surrounding the particular credit. Provisions for loan losses on the remaining commercial business and commercial real estate loans are based on pools of similar loans using a combination of historical loss experience and

14

migration analysis, which considers the probability of a loan moving from one risk rating category to another over the passage of time. For the residential real estate and consumer loan portfolios, the range of reserves is calculated by applying historical charge-off and recovery experience to the current outstanding balance in each type of loan category, with consideration given to loan growth over the preceding twelve months. Although we use a rational approach and careful analysis in determining the provision for loan and lease losses, we must also make estimates and use assumptions that involve a good deal of judgement. For this reason and for the reasons discussed under "Asset Quality—Nonperforming Assets," there can be no assurance that we will not have to change the amount of our provision for loan and lease losses in future periods.

Noninterest Income

        Noninterest income was $240.5 million in 2001 compared to $211.2 million in 2000. Excluding securities transactions, noninterest income increased $12.5 million or 6% in 2001. This increase was primarily due to increases of $5.6 million in deposit services income and $13.6 million in insurance brokerage commissions, which more than offset a $10.8 million decrease in mortgage banking services income.

        Deposit services income of $72.6 million increased 8% from 2000 and was attributable to volume driven increases in checking account income, ATM fee income and overdraft fees.

        Mortgage banking services income of $11.1 million decreased $10.8 million or 49% during 2001. The decrease in 2001 was primarily due to servicing income which declined by $7.1 million as a result of the sale of virtually all mortgage servicing rights in the fourth quarter of 2000 and the first quarter of 2001. Results for 2000 also included a $2.9 million reduction in the impairment reserve for mortgage servicing rights. See the discussion below on capitalized mortgage servicing rights. The decrease was offset by a $6.3 million increase in residential mortgage sales income. Strong originations and refinancings in 2001, prompted by lower interest rates, led to profitable pricing, delivery and sale of conforming fixed rate loans. Our portfolio of residential mortgages serviced for investors was $964.0 million at December 31, 2001 compared to $1.6 billion and $4.5 billion at December 31, 2000 and 1999, respectively. Mortgage loans serviced for others decreased primarily as a result of the sale of mortgage servicing rights, as discussed below.

        Capitalized mortgage servicing rights decreased from $23.2 million at December 31, 2000 to $8.5 million at December 31, 2001. The decrease was due to the sale of mortgage servicing rights with a carrying value of $22.6 million in the first quarter of 2001. In the fourth quarter of 2000, after a comprehensive review of our mortgage banking operations, we decided to sell virtually all of our existing mortgage servicing rights and to sell mortgage servicing rights on new loan originations on a flow basis shortly after the loans are sold. We sold this asset after we determined that we could no longer meet our internal investment targets because of the relatively small size of our loans serviced for others portfolio and the volatility due to changes in interest rates inherent in the mortgage servicing rights asset. In the fourth quarter of 2000, we recorded a $5.2 million gain on sale of $1.8 billion of loans serviced for others, which was reduced by a $1.5 million loss on the sale of certain principal only securities and interest rate floor contracts which were used to hedge the prepayment risk related to the mortgage servicing rights asset. The remaining portfolio at December 31, 2001 resulted from the acquisitions of Andover and MetroWest and likely will be sold in 2002.

        Trust and investment management income of $34.1 million decreased 4% during 2001 primarily due to broad-based declines in the stock market, which adversely impacted fees which are dependent upon the market value of assets. Assets under management were $8.5 billion and $8.8 billion at December 31, 2001 and 2000, respectively, a decrease of 4%. This decrease was primarily due to adverse market conditions which resulted in declines in the valuation of assets under management.

15

        Investment planning services income of $8.3 million increased 18% during 2001 primarily due to strong sales of fixed annuities. Investment planning services income is primarily comprised of commissions earned from the sale of third party mutual funds, annuities, stocks and bonds.

        Insurance brokerage commissions income was $39.4 million and $25.7 million in 2001 and 2000, respectively, an increase of 53%. Our acquisitions of insurance agencies in Massachusetts and Connecticut at the end of the third quarter of 2000 contributed to this increase.

        Income from bank owned life insurance ("BOLI") was $18.4 million and $17.7 million in 2001 and 2000, respectively. BOLI represents life insurance on the lives of certain employees. There were two policy benefits recorded in 2001 for a total of $1.0 million, compared to a $1.2 million policy benefit recorded in 2000. The 4% increase in income reflects investment appreciation which resulted in higher cash surrender value. The cash surrender value of BOLI was $321.1 million at December 31, 2001 compared to $306.4 million at December 31, 2000. Most of our BOLI is invested in the "general account" of quality insurance companies. All such companies were rated AA- or better by Standard and Poors at December 31, 2001. BOLI represented 20.41% of capital and reserves at December 31, 2001.

        Merchant and electronic banking income of $32.4 million in 2001 increased 11% from 2000 due to increases in transaction volume. This income represents fees and interchange income generated by the use of debit cards issued by us and charges to merchants for credit card transactions processed, net of third-party costs directly attributable to handling these transactions.

        Loan fee income amounted to $14.5 million and $8.3 million during 2001 and 2000, respectively. Loan fee income includes prepayment fees, letter of credit fees, late charges and other loan related fees. The $6.2 million increase in fee income in 2001 was primarily due to increased loan activity and prepayment penalties resulting from declining interest rates.

        Net securities gains amounted to $1.3 million and $439 thousand during 2001 and 2000, respectively. The results in 2001 are net of a $2 million writedown reflecting an other than temporary decline in the value of a trust preferred security. 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.

        In 2000, we incurred a $15.9 million ($10.4 million after-tax) loss on restructuring parts of our securities portfolio by selling $104 million of securities available for sale coincident with the acquisition of former Banknorth. The securities, which had a weighted average yield of 5.73%, were primarily perpetual preferred stocks acquired in prior acquisitions, treasury bonds (with a remaining maturity greater than 10 years) and below investment grade debt securities. As a result of the restructuring, we no longer hold any of these types of securities.

        Other noninterest income amounted to $8.4 million and $14.1 million during 2001 and 2000, respectively, and consisted primarily of gains on sales of certain assets, premium income on covered call options and commissions on official checks. In 2001, other noninterest income included $3.3 million of premium income recognized on covered call options related to mortgage-backed securities and a $929 thousand gain on the sale of an equity interest in an ATM network. In 2000, other noninterest income included a $4.7 million gain on the sale of $29 million of credit card loans in the second quarter of 2000, a $1.2 million gain on sale of eight branches during the fourth quarter of 2000 and realized gains on limited partnership investments.

Noninterest Expense

        Noninterest expense was $509.4 million in 2001 compared to $502.5 million in 2000. Excluding special charges, noninterest expense in 2001 was $501.8 million compared to $459.5 million in 2000, an increase of $42.3 million or 9%. The increase in 2001 was primarily in salaries and benefits and occupancy expenses. The efficiency ratio, which excludes special items and securities transactions,

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improved to 54.59% during 2001 from 55.34% in 2000 primarily as a result of the efficiencies created by the assimilation of recent acquisitions, as well as operating improvements.

        Salaries and benefits expense of $261.3 million increased by $31.1 million or 14% during 2001. The increase was due to higher levels of incentive compensation and additional employees from two insurance agency purchase acquisitions late in the third quarter of 2000 and from two banking acquisitions on October 31, 2001.

        Data processing expense increased 3% to $38.7 million in 2001 from $37.6 million during 2000. The increase was primarily attributable to recent upgrades for information technology.

        Occupancy expense in 2001 increased 17% to $45.9 million in 2001. The $6.7 million increase was primarily due to the cost of new facilities and higher utility and snow removal expenses. Equipment expense increased $2.8 million or 9% in 2001 compared to 2000 due to increased depreciation on new equipment and software and expenses from the recent acquisitions.

        Amortization of goodwill and other intangible assets increased $1.1 million or 5% in 2001 compared to 2000. This increase resulted from the amortization of goodwill recorded on two insurance agencies acquired in the third quarter of 2000 and the amortization of core deposit intangibles recorded upon the acquisition of Andover and MetroWest in October 2001. Under recently announced accounting rules, goodwill recorded in connection with acquisitions completed after June 30, 2001 is not to be amortized, and effective January 1, 2002 all goodwill amortization is to be discontinued. Rather, goodwill will be subject to annual reviews for impairment. Accordingly, no amortization expense was recorded on the Andover and MetroWest goodwill recorded in October 2001. The approximate effect of not amortizing goodwill on the Andover and MetroWest acquisitions for the months of November and December 2001 was to reduce noninterest expense by $3.2 million, pre-tax. For additional information regarding the effects of recent accounting pronouncements on goodwill and the amortization of intangible assets, see "Impact of New Accounting Standards" below.

        Other noninterest expense, which is comprised primarily of general and administrative expenses, decreased $496 thousand in 2001.

Special Charges

        Special charges amounted to $7.6 million, $43.0 million and $28.0 million during 2001, 2000 and 1999, respectively. For additional information, including a tabular analysis of our special charges and for an analysis of the transaction activity in 2001 and 2000, see Note 11 to the Consolidated Financial Statements.

Taxes

        Our effective tax rate was 34% in 2001 and 2000.

Extraordinary Item

        During the fourth quarter of 2001, we prepaid $174.6 million of FHLB borrowings and incurred a prepayment penalty of $6.0 million ($3.9 million net of tax), which was recorded as an extraordinary item. The FHLB borrowings, which had relatively high rates, were prepaid to improve our interest rate position and net interest margin in future periods. These FHLB borrowings had a weighted average cost of 5.62% and a weighted average maturity of two years.

Cumulative Effect of Accounting Change

        In June 1998, FASB issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities," which sets accounting and reporting standards for derivative instruments and hedging activities. The Statement, as amended by SFAS No. 138, required us to recognize all derivatives on the balance sheet at fair value. We adopted the Statement effective January 1, 2001 and recognized an

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after-tax loss from the cumulative effect of adoption of $290 thousand for previously unrealized losses on forward sale commitments at December 31, 2000 which hedged residential mortgage loans held for sale.

Comprehensive Income

        Our comprehensive income amounted to $313.9 million and $282.6 million during 2001 and 2000, respectively. Comprehensive income differed from our net income in 2001 because of a $74.8 million net unrealized gain on securities and a $274 thousand net hedging gain on cash flow hedges. Our comprehensive income differed from our net income in 2000 because of a $90.7 million net unrealized gain on securities and a $250 thousand adjustment to the minimum pension liability. For additional information, see the Consolidated Statements of Changes in Shareholders' Equity in the Consolidated Financial Statements.

        Our available for sale investment portfolio had unrealized gains (losses), net of applicable income tax effects, of $40.3 million, ($34.5) million and ($125.1) million at December 31, 2001, 2000 and 1999, respectively. The improvement related to lower prevailing interest rates. At December 31, 2001, the net unrealized gains of $62.0 million, before related tax effect, represented 1% of securities available for sale. We attempt to balance the interest rate risk of our assets with our liabilities (see "Interest Rate Risk and Asset Liability Management"). However, the change in value of our liabilities, which tend to fall in rising interest rate environments and rise in falling interest rate environments, is not included in "other comprehensive income."

Segment Reporting

        Our primary business segments (not as defined under SFAS No. 133) are Community Banking, Insurance Brokerage, Investment Planning and Trust and Investment Management. The Community Banking segment represents over 90% of the combined revenues and income of the consolidated group. Insurance Brokerage primarily reflects commissions on insurance brokerage activities, Investment Planning primarily reflects commissions from the sale of third party mutual funds, annuities, stocks and bonds, and Trust and Investment Management reflects fees from trust and investment management operations. Selected operating data for these segments is provided in Table 14.

COMPARISON OF 2000 AND 1999

        We reported net income of $191.7 million for 2000, or $1.32 per diluted share, compared with net income of $197.0 million, or $1.34 per diluted share, reported for 1999. Excluding the impact of special items, net income and diluted earnings per share were $234.7 million and $1.62, respectively, for 2000 and $217.8 million and $1.48, respectively, for 1999 (a per share increase of 9%). Excluding special items, return on average assets and return on average equity were 1.28% and 19.20%, respectively, for 2000 and 1.24% and 18.16%, respectively, for 1999.

        Net interest income on a fully taxable-equivalent basis totaled $609.7 million during 2000, as compared with $619.5 million in 1999. The $9.8 million, or 2%, decrease in 2000 was primarily attributable to increases in the rate and, to a lesser extent, the volume of interest-bearing liabilities, which more than offset increases in the rate and volume of interest-earning assets.

        The provision for loan and lease losses was $23.8 million in 2000 compared to a $23.6 million provision in 1999. The ratio of the allowance to nonperforming loans at December 31, 2000 was 249% compared to 267% at December 31, 1999. The allowance for loan and lease losses represented 1.42% of total loans at December 31, 2000 compared to 1.57% at December 31, 1999. Nonperforming assets were down $2 million from December 31, 1999 to $67.1 million, or 0.37% of total assets. Classified assets also declined during the year. Accruing loans 90 days past due were $6.0 million at December 31, 2000, down 51% from the prior year.

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        Noninterest income was $211.2 million and $191.8 million for the years ended December 31, 2000 and 1999, respectively. Increases of $10.9 million in deposit services income, $7.9 million in other noninterest income, $3.1 million in aggregate trust and investment management and investment planning services income and $5.5 million in insurance brokerage commissions contributed to the $35.3 million, or 18%, increase excluding losses on securities restructuring in 2000. Deposit services income of $67.1 million reflected 19% growth from 1999. The 8% increase in aggregate trust and investment management and investment planning services income was primarily due to sales of investment products. The $7.9 million increase in other noninterest income in 2000 consisted primarily of a $4.7 million gain on the sale of $29 million of credit card loans, a $1.2 million gain on sale of eight branches and realized gains on limited partnership investments. The 27% increase in insurance brokerage commissions reflected our acquisitions of insurance agencies in Massachusetts and Connecticut late in the third quarter of 2000, which were accounted for as purchases.

        Noninterest expense was $502.5 million for 2000 compared with $488.3 million for 1999, a 3% increase. The 2000 increase was primarily attributable to an increase in special charges of $15.0 million. Excluding special charges noninterest expenses in 2000 were essentially unchanged from 1999. The efficiency ratio, which excludes special items and securities transactions, improved from 57.14% in 1999 to 55.34% in 2000.

        Average earning assets increased $639.4 million, or 4%, in 2000 primarily due to growth in loans, particularly commercial and consumer loans. Average interest-bearing liabilities increased $564.9 million, or 4%, in 2000 primarily due to increased borrowings in order to fund the growth in assets.

        Our comprehensive income amounted to $282.6 million and $69.7 million during 2000 and 1999, respectively. Comprehensive income differed from our net income in 2000 because of a $90.7 million net unrealized gain on securities and a $250 thousand adjustment to the minimum pension liability. Comprehensive income differed from our net income in 1999 because of a $127.3 million net unrealized loss on securities. For additional information, see the Consolidated Statements of Shareholders' Equity in the Consolidated Financial Statements.

FINANCIAL CONDITION

        Our consolidated total assets increased by $2.8 billion, or 16%, from $18.2 billion at December 31, 2000 to $21.1 billion at December 31, 2001. This increase was primarily attributable to the purchase of Andover and MetroWest in the fourth quarter of 2001. Shareholders' equity totaled $1.8 billion and $1.3 billion at December 31, 2001 and 2000, respectively. The increase of $458.3 million in shareholders' equity was attributable to earnings for 2001 of $238.8 million, the issuance of $340 million of our common stock in connection with the acquisition of Andover and an increase in the net unrealized gains on available for sale securities of $74.8 million. These increases were partially offset by the effects of cash dividends of $72.3 million and share repurchases of $151.5 million.

Investment Securities and Other Earning Assets

        The average balance of the securities portfolio, which consists of securities available for sale and securities held to maturity, was $5.9 billion in 2001 and $6.4 billion in 2000, a decrease of $481 million. The portfolio is comprised primarily of U.S. Government and agency securities and mortgage-backed securities, most of which are seasoned 15-year federal agency securities. Other bonds and notes consist of asset-backed securities, corporate bonds and trust preferred securities. Other equity securities in 1999 consisted primarily of preferred securities which were sold in 2000 as part of the securities restructuring. See Table 4 for a detail of securities available for sale and held to maturity.

        Securities available for sale are carried at fair value and had a net unrealized gain of $62.0 million and a net unrealized loss of $53.1 million at December 31, 2001 and 2000, respectively. See Note 4 to the Consolidated Financial Statements. These unrealized gains and losses do not impact net income or

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regulatory capital but are recorded as adjustments to shareholders' equity, net of related deferred income taxes. Unrealized gains and losses, net of related deferred income taxes, are a component of our "Comprehensive Income" contained in the Consolidated Statement of Changes in Shareholders' Equity.

Loans

        Residential real estate loans (including loans held for sale) averaged $2.3 billion in 2001 and 2000. Excluding the Andover and MetroWest acquisitions, average residential loans decreased by $177 million. Residential loans were impacted by increased refinancing activity and prepayments in a lower interest rate environment as well as our policy to sell most of the residential real estate loans we originate into the secondary market. Mortgage loans held for sale amounted to $117.7 million and $51.1 million at December 31, 2001 and 2000, respectively. The increase in loans held for sale compared to last year was due primarily to higher origination volumes resulting from declining interest rates.

        Commercial real estate loans averaged $3.2 billion in 2001 and $2.9 billion in 2000, a 12% increase, including the effects of the acquisitions in the fourth quarter of 2001. We continue to focus primarily on lending to small and medium size businesses within our market areas. These loans consist of loans secured primarily by income-producing commercial real estate, service industry real estate, multi-family residential real estate and retail trade real estate, as well as loans for the acquisition, development and construction of such commercial real estate.

        Commercial loans and leases averaged $2.3 billion in 2001 and $2.1 billion in 2000, an increase of 10% including the effects of the acquisitions in the fourth quarter of 2001. The increase in 2001 was largely attributable to additional opportunities in certain market areas due to broadening our franchise. Included in these amounts are commercial business leases originated through an indirect subsidiary. These leases are direct equipment leases, primarily office equipment, and amounted to $108.5 million at December 31, 2001.

        Consumer loans and leases averaged $3.4 billion in 2001 and $3.2 billion in 2000, an increase of 7%, including the effects of the acquisitions in the fourth quarter of 2001. The growth in consumer loans was primarily in indirect automobile loans and home equity loans. Mobile home loans, which amounted to $161.5 million at December 31, 2001, continue to decline, reflecting our strategy to emphasize other types of consumer loans. Automobile lease receivables totaled $36.5 million at December 31, 2001 compared to $81.6 million at December 31, 2000. All of our auto leases were obtained as a result of acquiring other banks and will continue to run-off. See Tables 6 and 7 for additional information on the composition of the loan portfolio.

Deposits

        Average demand deposit accounts increased 12% in 2001 to $2.2 billion from $1.9 billion in 2000. Excluding the fourth quarter acquisitions of Andover and MetroWest, average demand deposits increased $177 million, which is consistent with our marketing focus on these accounts.

        Average interest-bearing deposits increased by $411.9 million during 2001 to $10.4 billion, including $284.1 million from Andover and MetroWest. Average retail certificates of deposit decreased $8.9 million during 2001 to $4.5 billion. The average rate paid on certificates of deposit decreased from 5.42% in 2000 to 5.02% in 2001. See Table 13 for the scheduled maturities of certificates of deposits of $100,000 or more. As part of our overall funding strategy, we may use deposits obtained through investment banking firms which obtain funds from their customers for deposit with us ("brokered deposits"). These brokered deposits (which include short-term certificates of deposit and money market accounts) averaged $152.0 million and $119.0 million in 2001 and 2000, respectively. The average rate paid on brokered deposits was 5.67% in 2001 compared to 6.40% in 2000.

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        Other interest-bearing deposits (savings, NOW and money market accounts) increased 7% in 2001 to $5.7 billion from $5.3 billion in 2000, including deposits of $152.5 million from Andover and MetroWest. The average rate paid on these deposits decreased from 2.99% in 2000 to 2.26% in 2001.

        Included within the deposit categories above are government banking deposits which averaged $1.2 billion in 2001 and $934 million in 2000. Government banking deposits includes 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

        Our primary sources of funding, other than deposits, are FHLB advances and securities sold under repurchase agreements. From time to time we also borrow funds under the U.S. Treasury's Note Option Treasury, Tax and Loan program and by overnight borrowing from other banks as needed. Average borrowed funds for 2001 were $4.4 billion, compared with $5.1 billion in 2000. The decrease in borrowed funds was a result of the early extinguishment of $174.6 million of FHLB borrowings in addition to increased average deposit levels and a reduction in the securities portfolio. We prepaid selected FHLB borrowings which had relatively high rates in order to improve our interest rate position and net interest margin in future periods.

        Average FHLB borrowings were $2.7 billion in 2001 compared to $3.9 billion in 2000, a decrease of $1.2 billion. Collateral for FHLB borrowings 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 5.30% during 2001 as compared to 6.36% during 2000. The 106 basis point decrease was due to the Federal Reserve Board rate cuts during 2001. At December 31, 2001 and 2000, FHLB borrowings amounted to $2.6 billion and $3.3 billion, respectively. Our additional borrowing capacity with the FHLB at December 31, 2001 was approximately $1.6 billion. See Note 13 to the Consolidated Financial Statements.

        At December 31, 2001 and 2000, securities sold under repurchase agreements amounted to $1.6 billion and $986.6 million, respectively, and were collaterallized by mortgage-backed securities and U.S. Government obligations. See Note 12 to the Consolidated Financial Statements.

        On June 22, 2001, one of our banking subsidiaries, First Massachusetts Bank, NA, issued $200 million of 7.625% subordinated notes due 2011. The proceeds were used to reduce other short-term indebtedness. The notes qualify as Tier 2 capital.

        During 2001, we also had a $40 million unsecured line of credit. The line is renewable every 364 days and, if used, carries interest at LIBOR plus 0.75%. The average balance outstanding under this line of credit during 2001 was $3.1 million. In January 2002, we renewed the line of credit and increased the amount covered thereby to $80 million at the rate of LIBOR plus 0.625%.

ASSET QUALITY

General

        We monitor our asset quality with lending and credit policies which require the regular review of our loan portfolio. We maintain an internal rating system which provides a mechanism to regularly monitor the credit quality of our loan portfolio.

        Our total loan portfolio increased in 2001 due primarily to the acquisitions of Andover and MetroWest in the fourth quarter of 2001.

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        Our residential loan portfolio accounted for 21% of the total loan portfolio at December 31, 2001 and 2000. Our residential loans are generally secured by single-family homes (one-to-four units) and have a maximum loan to value ratio of 80% at origination, unless they are protected by mortgage insurance. At December 31, 2001, 0.32% of our residential loans were nonperforming, as compared to 0.44% at December 31, 2000, as nonperforming residential real estate loans decreased by $1.6 million while the total residential loan portfolio increased by $378.4 million, mostly due to the acquisitions of Andover and MetroWest.

        Our commercial real estate loan portfolio accounted for 32% of the total loan portfolio at December 31, 2001 and 27% at December 31, 2000. The portfolio increased $1.1 billion in 2001 compared to 2000. 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 New York, particularly Maine, Massachusetts, New Hampshire and Vermont. At December 31, 2001, 0.42% of our commercial real estate loans were nonperforming, as compared to 0.43% at December 31, 2000.

        Our commercial business loan and lease portfolio accounted for 19% of the total loan portfolio at December 31, 2001 compared to 21% at December 31, 2000. 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. We do not emphasize the purchase of participations in syndicated commercial loans. At December 31, 2001, we had $180 million of participations in syndicated commercial loans and commitments to purchase an additional $172 million of such participations. At December 31, 2001, 1.64% of our commercial business loans were nonperforming, as compared to 1.41% at December 31, 2000.

        Consumer loans and leases accounted for 28% of our total loan portfolio at December 31, 2001 compared to 31% at December 31, 2000. At December 31, 2001, our diversified consumer loan portfolio included $1.3 billion of automobile and other vehicle loans and leases, $1.3 billion of home equity loans, $162 million of mobile home loans, $149 million of education loans and $153 million of loans to finance certain medical/dental procedures (vision, dental and orthodontia fee plan loans). The increase in consumer loans over the prior year was due primarily to growth in fee plan and home equity loans. At December 31, 2001, 0.27% of our consumer loans were nonperforming, as compared to 0.19% at December 31, 2000.

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 0.39% at December 31, 2001 and 0.37% at December 31, 2000. Total nonperforming assets as a percentage of total loans and other nonperforming assets was 0.64% and 0.62% at December 31, 2001 and 2000, respectively. See Table 11 for a summary of nonperforming assets for the last five years.

        We continue to focus on asset quality issues 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

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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.

        Residential real estate loans are generally placed on nonaccrual when reaching 120 days past due or in 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. Secured consumer loans are written down to realizable value and 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, unless secured by sufficient cash or other assets immediately convertible to cash, on nonaccrual status. At December 31, 2001, we had $6.2 million of accruing loans which were 90 days or more delinquent, as compared to $6.0 million and $12.1 million of such loans at December 31, 2000 and 1999, respectively.

        We also may place on nonaccrual and therefore nonperforming status loans currently less than 90 days past due or performing in accordance with their terms but which in our judgment are likely to present future principal and/or interest repayment problems and which thus ultimately would be classified as nonperforming.

Net Charge-offs

        Net charge-offs were $36.9 million during 2001, as compared to $25.3 million in 2000. Net charge-offs represented 0.33% and 0.24% of average loans and leases outstanding in 2001 and 2000, respectively. Net charge-offs in 2001 increased over 2000 primarily due to higher gross charge-offs on commercial business loans and leases primarily resulting from the impact of a slowing economy on the shared national credits portfolio and the Andover lease portfolio. See Table 8 for more information concerning charge-offs and recoveries during each of the past five years.

Potential Problem Loans

        Commercial real estate mortgages and commercial business loans and leases are evaluated by us under a ten point risk rating system. The loan ratings are meant to serve as guidelines in assessing the risk level of a particular loan. At December 31, 2001, we had classified a total of $216.9 million of commercial real estate mortgages and commercial business loans and leases as substandard or lower on our risk-rating system. Included in this amount at December 31, 2001 are $57.5 million of nonperforming commercial business and commercial real estate loans. In our opinion, the remaining $159.4 million of commercial real estate mortgages and commercial business loans and leases classified as substandard at December 31, 2001 evidence one or more weaknesses or potential weakness and, depending on the regional economy and other factors, may become nonperforming assets in future periods. These loans are net of previously established specific reserves which have resulted in charge-offs, but not general reserves which have been established based on our internal rating of such loans and evaluation of the adequacy of our allowance for loan and lease losses.

RISK MANAGEMENT

        The primary goal of our risk management program is to determine how certain existing or emerging issues facing us or 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 (the "Board") and management believe that there are seven applicable "risk categories," consisting of credit risk, interest rate risk, liquidity risk, transaction risk, compliance risk, strategic risk 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

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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.

        The Board has established the overall strategic direction. It approves our overall risk policies and oversees our overall risk management process. The Board has delegated authority to 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 Committee on a regular basis.

ASSET-LIABILITY MANAGEMENT

        The goal of asset-liability management is the prudent control of market risk, liquidity and capital. Asset-liability management is governed by policies reviewed and approved annually by the Board and monitored periodically by a committee of the Board. 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.

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 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, deposit gathering and loan servicing. In addition to directly impacting net interest income, changes in the level of interest rates can also affect (i) the amount of loans originated and sold by the institution, (ii) the ability of borrowers to repay adjustable or variable rate loans, (iii) the average maturity of loans, (iv) the rate of amortization of capitalized mortgage servicing rights and premiums paid on securities, (v) the amount of unrealized gains and losses on securities available for sale and (vi) the fair value of our saleable assets and derivatives and the resultant ability to realize gains.

        The primary objective of interest-rate risk management is to control our exposure to interest-rate risk both within limits approved by the 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 its 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 assumption relates to the prepayment of mortgage assets (including mortgage loans, mortgage-backed securities and mortgage servicing rights). The risk of prepayment tends to increase when interest rates fall. Since future prepayment behavior of loan customers is uncertain, the resultant interest rate sensitivity of loan

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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 mitigate 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, assumptions are derived from published dealer median prepayment estimates for comparable mortgage loans or 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 primarily using on-balance sheet instruments, which sometimes contain embedded options, mainly fixed-rate portfolio securities and borrowed funds. When appropriate, we will utilize interest rate instruments such as interest-rate swaps, interest rate floors and interest rate corridor agreements, among other instruments. As of December 31, 2001, there were no such agreements in effect.

        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 all closed loans and a certain percentage of loan commitments on rate-locked loans. Purchased mortgage-backed security options are used to hedge a percentage of rate-locked loans.

        The average balances during 2001 of residential mortgage loans held for sale and related average hedge positions are summarized below (in millions):

	Average Balance 2001
Residential mortgage loans held for sale	$	110.2
Rate-locked loan commitments		88.2
Forward sales contracts		143.6
Purchased mortgage-backed security/treasury options		24.2

        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%. Our gradual 2% rising rate scenario was within compliance guidelines at December 31, 2001. However, the gradual 2% falling rate scenario was slightly outside guidelines. Given the slight exception to the guidelines, historically low rates and the steep yield curve, which is thought to imply that further significant rate reductions are unlikely, we have not taken immediate corrective action to bring the falling rate exposure within guidelines. Rather, we continue to focus on strategies that prove beneficial to income should rates rise or the yield curve flatten without worsening exposure to falling rates.

        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.

	200 Basis Point Rate Increase		100 Basis Point Rate Increase		100 Basis Point Rate Decrease		200 Basis Point Rate Decrease
December 31, 2001	2.73%		1.71%		(2.45%	)	(5.37%	)
December 31, 2000	(3.18%	)	(1.46%	)	0.51%		0.70%

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        The results implied in the above table indicate estimated changes in simulated net interest income for the subsequent 12 months assuming a gradual shift up or down in market rates of 100 and 200 basis points across the entire yield curve. Assuming a downward shift in rates, savings, money market and NOW accounts have implied interest rate floors and it is assumed that the related interest expense on these accounts will not decrease in proportion to the downward shift in rates. Assuming an upward shift in rates of 200 basis points, the simulated increase in interest income would be more than the simulated increase in interest expense because our fixed-cost liabilities exceed our fixed-rate earning assets. 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.

        In connection with the Andover and MetroWest acquisitions, we recorded $8.8 million of mortgage servicing rights at market value at the date of acquisition. These mortgage servicing rights are expected to be sold in 2002. 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.

        The most significant factors affecting market risk exposure of our net interest income during 2001 were (i) the change in levels of rates resulting from eleven rate cuts by the Federal Reserve Board, (ii) the shape of the U.S. Government securities and interest rate swap yield curve, (iii) changes in the composition and prepayment speeds of mortgage assets, (iv) changes in the wholesale borrowings portfolio structure, (v) reduction of deposit interest expense and (vi) extension of the assumed lives of core non-maturity deposits.

        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

        On a parent-only basis, our commitments and debt service requirements at December 31, 2001 consisted primarily of junior subordinated debentures (including accrued interest) issued to two subsidiaries, $103 million to Peoples Heritage Capital Trust I and $31 million to Banknorth Capital Trust I, in connection with the issuance of 9.06% Capital Securities due 2027 and 10.52% Capital Securities due 2027, respectively. See Notes 15 and 21 to the Consolidated Financial Statements. The principal sources of funds for us to meet parent-only obligations are dividends from our banking subsidiary, which are subject to regulatory limitations, and borrowings from public and private sources. See "Financial Condition—Other Funding Sources" above. For information on restrictions on the payment of dividends by our banking subsidiary, see Note 16 to the Consolidated Financial Statements.

Banking Subsidiaries

        For banking subsidiaries, liquidity represents the ability to fund asset growth, accommodate deposit withdrawals and meet other contractual obligations and commercial commitments. See "Contractual Obligations and Commitments" below. Liquidity risk is the danger that a bank cannot meet anticipated or unexpected funding requirements or can meet them only at excessive cost. Liquidity is measured by the ability to raise cash when needed at a reasonable cost. Many factors affect a bank's ability to meet liquidity needs, including variations in the markets served, its asset-liability mix, its reputation and credit standing in the market and general economic conditions.

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

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

        As of December 31, 2001, our banking subsidiaries (which were consolidated into one entity subsequent to year-end) had in the aggregate $2.7 billion of "immediately accessible liquidity," defined as cash that could be raised within 1-3 days through collateralized borrowings or security sales. This represented 19% of deposits, as compared to a policy minimum of 10% of deposits.

        Also as of December 31, 2001, our banking subsidiaries had in the aggregate "potentially volatile funds" of $1.5 billion. These are funds that might flow out of the banks over a 90-day period in an adverse environment. Management estimates this figure by applying adverse probabilities to its various credit-sensitive and economically-sensitive funding sources.

        As of December 31, 2001, the ratio of "immediately accessible liquidity" to "potentially volatile funds" was 178%, compared to 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 liquidity is sufficient to meet current and future funding requirements. For additional information regarding off-balance sheet risks and commitments, see Note 17 to the Consolidated Financial Statements.

        On February 11, 2002, we filed a shelf registration statement with the SEC 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.

        On February 22, 2002, our subsidiary, Banknorth Capital Trust II, issued $200 million of 8% trust preferred securities ("Securities") to the public under the shelf registration. The proceeds from the offering will be used for general corporate purposes, including working capital, capital expenditures, investments in or advances to subisidiaries, repayment of maturing obligations, replacement of outstanding indebtedness and repurchase of outstanding stock. The Securities will pay interest quarterly, are mandatorily redeemable on April 1, 2032 and may be redeemed by the Trust at par any time on or after April 1, 2007.

CAPITAL

        At December 31, 2001 and 2000, our shareholders' equity totaled $1.8 billion and $1.3 billion, respectively, or 8.49% and 7.30% of total assets, respectively. In addition, through subsidiary trusts, we had outstanding at such dates $93.8 million and $98.8 million of capital securities which mature in 2027 and qualify as Tier 1 Capital and are included in total liabilities on the balance sheet. See Note 15 to the Consolidated Financial Statements. The changes in shareholders' equity included net income for the year ended December 31, 2001 of $238.8 million and a $74.8 million net unrealized gain on securities available for sale, which were partially offset by $151.5 million of stock repurchases (7,335,800 shares) and $72.3 million in dividends to shareholders. In addition, we issued shares of our common stock (and options thereon) with a market value of $340 million to acquire Andover in the fourth quarter of 2001.

        On January 23, 2001, our board of directors authorized the repurchase of up to 8 million shares, or approximately 6%, of our issued and outstanding common stock. In October 2001, our board of directors approved an increase in the share repurchase program of 5 million shares, bringing the total repurchase program to 13 million shares. A total of 5.7 million shares remained under this

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authorization at December 31, 2001. In February 2002, our board of directors increased this amount by authorizing the repurchase of another 8 million shares.

        Capital guidelines issued by the Federal Reserve Board require us to maintain certain ratios. Our Tier 1 Capital, as defined by the Federal Reserve Board, was $1.4 billion or 7.14% of average assets at December 31, 2001, compared to $1.3 billion or 7.02% of average assets at December 31, 2000. We also are required to maintain capital ratios based on the level of our assets, as adjusted to reflect their perceived level of risk. Our regulatory capital ratios currently exceed all applicable requirements. See Note 16 to the Consolidated Financial Statements.

        Banking subsidiaries also are subject to federal regulatory capital requirements. At December 31, 2001, each of our depository institution subsidiaries was deemed to be "well capitalized" under OCC regulations and all of our banking subsidiaries were in compliance with applicable regulatory capital requirements.

CONTRACTUAL OBLIGATIONS AND COMMITMENTS

        We have entered into numerous contractual obligations and commitments. The following tables summarize our contractual cash obligations and other commitments at December 31, 2001.

Contractual Cash Obligations			Payments Due—By Period
	Total		Less than 1 Year		1–3 Years		4–5 Years		After 5 Years
(Dollars in thousands)
Long-term debt	$	2,940,120	$	879,502	$	1,121,665	$	552,203	$	386,750
Operating lease obligations		133,004		18,310		29,855		22,977		61,862
Other long-term obligations		580,970		186,835		243,145		100,990		50,000
Total contractual cash obligations	$	3,654,094	$	1,084,647	$	1,394,665	$	676,170	$	498,612

Other Commitments			Amount of Commitment Expiration—Per Period
	Total Amounts Committed		Less than 1 Year		1–3 Years		4–5 Years		After 5 Years
(Dollars in thousands)
Lines of credit	$	3,058,570	$	476,226	$	160,544	$	74,820	$	2,346,980
Standby letter of credit		215,192		113,156		48,210		41,574		12,252
Other commitments		1,179,288		784,513		186,643		57,142		150,990
Forward commitments to sell loans		172,504		172,504		—		—		—
Total commitments	$	4,625,554	$	1,546,399	$	395,397	$	173,536	$	2,510,222

        We also have entered into a commitment to occupy 140,000 square feet of office space in the Portland, Maine area. We expect to occupy this space in the first quarter of 2003 when the building is completed and retrofitted. The lease has a fifteen-year term and the base rent is $2.1 million per year.

IMPACT OF NEW ACCOUNTING STANDARDS

        In August, 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-lived Assets." SFAS No. 144 provides additional implementation guidance and supersedes SFAS No. 121, "Accounting for the Impairment of Long-lived Assets and for Long-lived Assets to be Disposed Of." It is effective for financial statements issued for fiscal years beginning after December 15, 2001. We adopted SFAS No. 144 on January 1, 2002 with no material impact on our financial condition or results of operations.

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        In June 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement Obligations." SFAS 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. We expect that the provisions of SFAS No. 143 will not have a material impact on our financial condition or results of operations.

        In June 2001, the FASB issued SFAS No. 141, "Business Combinations" and SFAS No. 142, "Goodwill and Other Intangible Assets." SFAS No. 141 requires the use of purchase method of accounting for all business combinations initiated after June 30, 2001, thereby eliminating the use of the pooling-of-interests method. It also provides new criteria that determine whether an acquired intangible asset should be recognized separately from goodwill. Under SFAS No. 142, goodwill is no longer amortized, but instead is tested for impairment on a regular basis and upon the occurrence of certain triggering events.

        We adopted SFAS No. 141 as of July 1, 2001. Also as of July 1, 2001, we adopted the required transition provisions of SFAS No. 142 related to amortization of goodwill and other acquired intangible assets for which the acquisition date was after June 30, 2001. The remaining provisions of SFAS No. 142 were adopted on January 1, 2002. Accordingly, goodwill and intangible assets determined to have an indefinite useful life acquired in a purchase business combination completed after June 30, 2001 were not amortized. Goodwill and intangible assets acquired in business combinations completed before July 1, 2001 continued to be amortized until December 31, 2001. We have not completed our calculations under the impairment testing provisions of SFAS 142; however, based on evaluation results to date, impairment losses, if any, are not expected to be material.

        The approximate effect of not amortizing goodwill recorded in connection with the Andover and MetroWest acquisitions for the months of November and December 2001 was to reduce noninterest expense by $3.2 million, pre-tax. The estimated amortization expense for goodwill and intangible assets for 2002 is expected to decline to $13.6 million from $22.1 million in 2001 as a direct result of discontinuing all goodwill amortization, subject to the results of the required testing for goodwill impairment. The FASB has also agreed to reconsider the amortization provisions of SFAS No. 72, "Accounting for Certain Acquisitions of Banking or Thrift Institutions," which specifies that unidentified intangibles from acquisitions in which the fair value of the liabilities assumed exceeds the fair value of the tangible and intangible assets acquired are to be amortized over a period not to exceed the remaining life of the long term interest-bearing assets acquired or in the absence of significant assets, the estimated life of the existing customer deposit base acquired. This unidentified intangible asset is often referred to as "SFAS 72 Goodwill". As of December 31, 2001, we had $34.7 million of "SFAS 72 Goodwill" remaining with scheduled amortization of $7.0 million in 2002, $3.2 million in 2003 and approximately $2.5 million annually from 2004 through 2013. For additional information, see Note 8 to the 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 federal securities laws. See "Forward Looking Statements" at the beginning of this report.

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Financial Tables

Table 1—Three-Year Average Balance Sheets

        The following table sets forth, for the periods indicated, information regarding (i) the total dollar amount of interest income on 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. For purposes of the table 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) unpaid interest on nonaccrual loans has not been included for purposes of determining interest income. Information is based on average daily balances during the indicated periods.

	Year Ended December 31,
	2001							2000							1999
	Average Balance		Interest			Yield/ Rate		Average Balance		Interest			Yield/ Rate		Average Balance		Interest			Yield/ Rate
(Dollars in thousands)
Loans and leases(1)	$	11,246,007	$	896,127		7.97	%	$	10,485,289	$	898,447		8.57	%	$	9,908,177	$	829,883		8.38	%
Investment securities		5,924,001		372,788		6.29	%		6,405,415		434,225		6.78	%		6,259,436		395,616		6.32	%
Federal funds sold and other short-term investments		34,620		1,168		3.37	%		63,901		3,677		5.75	%		147,620		7,154		4.85	%
Total earning assets		17,204,628		1,270,083		7.38	%		16,954,605		1,336,349		7.88	%		16,315,233		1,232,653		7.56	%
Noninterest earning assets		1,341,081							1,388,621							1,292,111
Total assets	$	18,545,709						$	18,343,226						$	17,607,344
Interest-bearing deposits:
Certificates of deposit	$	4,512,284		226,437		5.02	%	$	4,521,217		244,985		5.42	%	$	4,617,521		231,755		5.02	%
Brokered deposits		151,980		8,618		5.67	%		118,791		7,604		6.40	%		179,760		9,653		5.37	%
Other interest-bearing deposits		5,696,979		128,919		2.26	%		5,309,325		158,661		2.99	%		5,179,164		132,118		2.55	%
Total interest-bearing deposits		10,361,243		363,974		3.51	%		9,949,333		411,250		4.13	%		9,976,445		373,526		3.74	%
Borrowed funds		4,406,017		219,851		4.99	%		5,104,043		315,413		6.18	%		4,512,022		239,598		5.31	%
Total interest-bearing liabilities		14,767,260		583,825		3.96	%		15,053,376		726,663		4.83	%		14,488,467		613,124		4.23	%
Non-interest bearing deposits		2,168,387							1,942,148							1,807,658
Other liabilities		160,709							125,324							111,723
Shareholders' equity		1,449,353							1,222,378							1,199,496
Total liabilities and shareholders' equity	$	18,545,709						$	18,343,226						$	17,607,344
Net earning assets	$	2,437,368						$	1,901,229						$	1,826,766
Net interest income (fully-taxable equivalent)				686,258							609,686							619,529
Less: fully-taxable equivalent adjustments				(6,294	)						(6,062	)						(5,134	)
Net interest income			$	679,964						$	603,624						$	614,395
Net interest rate spread (fully-taxable equivalent)						3.42	%						3.05	%						3.33	%
Net interest margin (fully-taxable equivalent)						3.99	%						3.60	%						3.80	%

(1)

Loans and leases include portfolio loans and leases, loans held for sale and nonperforming loans, but unpaid interest on nonperforming loans has not been included for purposes of determining interest income.

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Table 2—Changes in Net Interest Income

        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 (1) changes in rate (change in rate multiplied by prior year volume), (2) changes in volume (change in volume multiplied by prior year rate) and (3) changes in rate/volume (change in rate multiplied by change in volume).

		Year Ended December 31, 2001 vs 2000 Increase (Decrease) Due to												Year Ended December 31, 2000 vs 1999 Increase (Decrease) Due to
		Rate			Volume			Rate/ Volume			Total			Rate			Volume			Rate/ Volume			Total
(In thousands)
Interest-earning assets:
	Loans and leases(1)	$	(62,912	)	$	65,194		$	(4,602	)	$	(2,320	)	$	18,826		$	48,362		$	1,376		$	68,564
	Investment securities		(31,387	)		(32,640	)		2,590			(61,437	)		28,793			9,226			590			38,609
	Federal funds sold and other short-term investments		(1,521	)		(1,684	)		696			(2,509	)		1,329			(4,060	)		(746	)		(3,477	)
Total earning assets			(95,820	)		30,870			(1,316	)		(66,266	)		48,948			53,528			1,220			103,696
Interest-bearing liabilities:
	Deposits:
	Certificates of deposit		(18,085	)		(484	)		21			(18,548	)		18,470			(4,834	)		(406	)		13,230
	Brokered deposits		(867	)		2,124			(243	)		1,014			1,852			(3,274	)		(627	)		(2,049	)
	Other interest-bearing deposits		(38,758	)		11,591			(2,575	)		(29,742	)		22,788			3,319			436			26,543
	Total interest-bearing deposits		(57,710	)		13,231			(2,797	)		(47,276	)		43,110			(4,789	)		(597	)		37,724
	Borrowed funds		(60,738	)		(43,138	)		8,314			(95,562	)		39,255			31,436			5,124			75,815
Total interest-bearing liabilities			(118,448	)		(29,907	)		5,517			(142,838	)		82,365			26,647			4,527			113,539
Net interest income (fully taxable equivalent)		$	22,628		$	60,777		$	(6,833	)	$	76,572		$	(33,417	)	$	26,881		$	(3,307	)	$	(9,843	)

(1)

Loans and leases include portfolio loans and leases, loans held for sale and nonperforming loans, but unpaid interest on nonperforming loans has not been included for purposes of determining interest income.

Table 3—Mortgage Banking Services Income

        The following table sets forth certain information relating to our mortgage banking activities at the dates and for the periods indicated.

	At or For the Year Ended December 31,
	2001			2000			1999
(In thousands)
Residential mortgages serviced for investors	$	964,027		$	1,618,610		$	4,540,948
Residential mortgage sales income	$	9,122		$	2,811		$	8,617
Residential mortgage servicing income, net		1,364			8,414			8,322
Change in impairment reserve for mortgage servicing rights		—			2,895			4,800
Valuation adjustment—interest rate floor		(62	)		(197	)		(3,950	)
Gain on sale of mortgage servicing rights		706			8,040			2,634
Mortgage banking services income	$	11,130		$	21,963		$	20,423

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Table 4—Securities Available for Sale and Held to Maturity

        The following table sets forth our investment securities at the dates indicated.

			December 31,
			2001			2000			1999
(Dollars in thousands)
Securities available for sale:
	U.S. Government and federal agencies		$	531,256		$	544,392		$	709,497
	Tax-exempt bonds and notes			112,845			83,133			56,903
	Other bonds and notes			560,090			426,199			455,435
	Mortgage-backed securities			3,577,405			3,591,923			4,264,364
	Collateralized mortgage obligations			681,366			575,091			723,290
		Total debt securities		5,462,962			5,220,738			6,209,489
Federal Home Loan Bank stock				264,943			242,632			261,391
Federal Reserve Bank stock				23,159			13,312			5,062
Other equity securities				4,183			1,488			33,360
Total equity securities				292,285			257,432			299,813
Net unrealized gain (loss)				61,991			(53,059	)		(193,271	)
Fair value of securities available for sale			$	5,817,238		$	5,425,111		$	6,316,031
Securities held to maturity:
	U.S. Government and federal agencies		$	—		$	—		$	2,797
	Tax-exempt bonds and notes			—			—			7,753
	Other bonds and notes			—			—			1,480
	Mortgage-backed securities			—			—			3,789
	Collateralized mortgage obligations			339,623			455,547			541,332
Amortized cost of securities held to maturity			$	339,623		$	455,547		$	557,151
Fair value of securities held to maturity			$	340,737		$	457,110		$	535,605
Excess of fair value over recorded value			$	1,114		$	1,563		($	21,546	)
Fair value as a % of amortized cost				100.3	%		100.3	%		96.1	%

Table 5—Maturities of Securities

        The following table sets forth the contractual maturities and fully-taxable equivalent weighted average yields of our debt securities at December 31, 2001.

		Amortized Cost Maturing in
		Less Than 1 Year				1 to 5 Years				More than 5 to 10 Years				More than 10 Years				Total
		Amount		Yield		Amount		Yield		Amount		Yield		Amount		Yield		Amount		Yield
(Dollars in thousands)
Available for Sale:
	U.S. Government and federal agencies	$	47,040	2.83	%	$	332,616	4.80	%	$	151,600	6.16	%	$	—	—		$	531,256	5.02	%
	Tax-exempt bonds and notes		84,877	4.70	%		10,503	4.53	%		7,486	4.52	%		9,979	5.52	%		112,845	4.74	%
	Other bonds and notes		30,036	3.79	%		202,293	6.18	%		77,719	6.91	%		250,042	6.96	%		560,090	6.50	%
	Mortgage-backed securities		1,549	3.56	%		29,181	5.75	%		408,230	6.00	%		3,138,445	6.07	%		3,577,405	6.06	%
	Collateralized mortgage obligations		107	6.37	%		9,799	6.27	%		73,528	6.08	%		597,932	6.29	%		681,366	6.27	%
Total		$	163,609	3.99	%	$	584,392	5.34	%	$	718,563	6.12	%	$	3,996,398	6.16	%	$	5,462,962	6.00	%
Held to Maturity:
	Collateralized mortgage obligations		—	—			—	—			—	—		$	339,623	7.63	%	$	339,623	7.63	%

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Table 6—Composition of Loan and Lease Portfolio

        The following table sets forth the composition of our loan and lease portfolio at the dates indicated.

		December 31,
		2001				2000				1999				1998				1997
		Amount		% of Loans		Amount		% of Loans		Amount		% of Loans		Amount		% of Loans		Amount		% of Loans
(Dollars in thousands)
Residential real estate loans		$	2,627,125	20.66	%	$	2,248,714	20.73	%	$	2,270,417	23.04	%	$	3,088,864	31.13	%	$	3,798,423	37.94	%
Commercial real estate loans:
	Permanent first mortgage loans		3,509,311	27.60	%		2,663,775	24.56	%		2,493,492	25.30	%		2,078,725	20.94	%		2,022,896	20.20	%
	Construction and development loans		584,728	4.60	%		291,388	2.69	%		202,825	2.06	%		204,372	2.06	%		169,053	1.69	%
Total			4,094,039	32.20	%		2,955,163	27.25	%		2,696,317	27.36	%		2,283,097	23.00	%		2,191,949	21.89	%
Commercial business loans and leases			2,462,653	19.37	%		2,308,904	21.29	%		1,924,201	19.53	%		1,836,412	18.50	%		1,569,429	15.67	%
Consumer loans and leases			3,531,513	27.77	%		3,332,881	30.73	%		2,963,721	30.07	%		2,716,764	27.37	%		2,452,917	24.50	%
Total loans and leases		$	12,715,330	100.00	%	$	10,845,662	100.00	%	$	9,854,656	100.00	%	$	9,925,137	100.00	%	$	10,012,718	100.00	%

Table 7—Scheduled Contractual Amortization of Certain Loans and Leases at December 31, 2001

        The following table sets forth the scheduled contractual amortization of our construction and development loans and commercial business loans and leases at December 31, 2001, as well as the amount of loans which are scheduled to mature after one year which have fixed or adjustable interest rates.

		Real Estate Construction and Development Loans		Commercial Business Loans and Leases		Total
(In thousands)
Amounts due:
	Within one year	$	222,761	$	1,134,657	$	1,357,418
	After one year through five years		205,692		941,175		1,146,867
	Beyond five years		156,275		386,821		543,096
Total		$	584,728	$	2,462,653	$	3,047,381
Interest rate terms on amounts due after one year:
	Fixed	$	108,741	$	706,874	$	815,615
	Adjustable		253,226		621,122		874,348

33

Table 8—Five Year Table of Activity in the Allowance for Loan and Lease Losses

        The following sets forth information concerning the activity in our allowance for loan and lease losses during the periods indicated.

			Year Ended December 31,
			2001			2000			1999			1998			1997
(Dollars in thousands)
Average loans and leases outstanding (excluding loans held for sale)			$	11,173,723		$	10,449,753		$	9,616,914		$	10,183,379		$	9,116,220
Allowance at the beginning of period			$	153,550		$	155,048		$	155,098		$	150,615		$	142,682
Additions due to acquisitions				31,277			—			—			2,200			7,361
Charge-offs:
	Real estate loans			2,893			5,394			8,698			10,233			6,991
	Commercial business loans and leases			20,899			7,790			5,125			7,718			9,052
	Consumer loans and leases			21,860			21,508			22,211			20,459			19,169
		Total loans and leases charged off		45,652			34,692			36,034			38,410			35,212
Recoveries:
	Real estate loans			463			2,478			3,153			6,912			9,676
	Commercial business loans and leases			4,800			2,334			3,188			4,040			5,126
	Consumer loans and leases			3,510			4,563			6,068			5,966			5,219
		Total loans and leases recovered		8,773			9,375			12,409			16,918			20,021
		Net charge-offs		36,879			25,317			23,625			21,492			15,191
Provision for loan and lease losses				41,889			23,819			23,575			23,775			15,763
Allowance at the end of the period			$	189,837		$	153,550		$	155,048		$	155,098		$	150,615
Ratio of net charge-offs to average loans and leases outstanding				0.33	%		0.24	%		0.25	%		0.21	%		0.17	%
Ratio of allowance to total portfolio loans and leases at end of period				1.49	%		1.42	%		1.57	%		1.56	%		1.50	%
Ratio of allowance to nonperforming loans and leases at end of period				252.29	%		249.13	%		266.74	%		206.71	%		179.85	%

34

Table 9—Allocation of the Allowance for Loan and Lease Losses—Five Year Schedule

        The allowance for loan and lease losses is available for offsetting credit losses in connection with any loan, but is internally allocated to various loan categories as part of our process for evaluating the adequacy of the allowance for loan and lease losses. The following table sets forth information concerning the allocation of our allowance for loan and lease losses by loan categories at the dates indicated.

	December 31,
	2001				2000				1999				1998				1997
	Amount		Percent of Loans in Each Category to Total Loans		Amount		Percent of Loans in Each Category to Total Loans		Amount		Percent of Loans in Each Category to Total Loans		Amount		Percent of Loans in Each Category to Total Loans		Amount		Percent of Loans in Each Category to Total Loans
(Dollars in thousands)
Real estate loans	$	103,271	52.86	%	$	81,026	47.98	%	$	79,147	50.40	%	$	77,516	54.13	%	$	79,958	59.83	%
Commercial business loans and leases		58,090	19.37	%		50,486	21.29	%		49,316	19.53	%		46,753	18.50	%		36,161	15.67	%
Consumer loans and leases		28,476	27.77	%		22,038	30.73	%		26,585	30.07	%		30,829	27.37	%		27,254	24.50	%
Unallocated allowance		—	—			—	—			—	—			—	—			7,242	—
	$	189,837	100.00	%	$	153,550	100.00	%	$	155,048	100.00	%	$	155,098	100.00	%	$	150,615	100.00	%

        The unallocated component in the preceding table relate to reserves acquired in connection with the acquisition of CFX. These reserves were allocated during 1998 in accordance with our analysis of the CFX loan portfolio.

Table 10—Net Charge-offs as a Percent of Average Loans and Leases Outstanding

        The following table sets forth net charge-offs to average loans and leases outstanding by type of loan during the periods indicated.

		Net Charge-offs to Average Loans and Leases Outstanding
		2001		2000		1999
Real estate loans		0.04	%	0.06	%	0.10	%
Commercial business loans and leases		0.69	%	0.26	%	0.11	%
Consumer loans and leases		0.54	%	0.54	%	0.58	%
	Total	0.33	%	0.24	%	0.25	%

35

Table 11—Five Year Schedule of Nonperforming Assets

        The following table sets forth information regarding our nonperforming assets at the dates indicated.

			December 31,
			2001			2000			1999			1998			1997
(Dollars in thousands)
Nonaccrual loans and leases
	Residential real estate loans		$	8,311		$	9,894		$	17,283		$	15,503		$	24,344
	Commercial real estate loans			17,124			12,155			16,754			22,481			23,769
	Commercial business loans and leases			40,341			32,583			17,027			18,736			22,305
	Consumer loans and leases			9,470			6,329			5,951			11,455			9,743
		Total nonaccrual loans and leases		75,246			60,961			57,015			68,175			80,161
	Troubled debt restructurings			—			673			1,112			6,857			3,584
		Total nonperforming loans and leases		75,246			61,634			58,127			75,032			83,745
Other nonperforming assets:
	Other real estate owned, net of related reserves			1,861			4,074			8,154			10,354			10,508
	Repossessions, net of related reserves			2,016			1,424			2,911			3,635			3,872
	Securities available for sale			2,104			—			—			—			—
		Total		5,981			5,498			11,065			13,989			14,380
Total nonperforming assets			$	81,227		$	67,132		$	69,192		$	89,021		$	98,125
Accruing loans and leases 90 days or more overdue			$	6,227		$	5,973		$	12,131		$	24,450		$	11,048
Total nonperforming loans and leases as a percentage of total loans and leases				0.59	%		0.57	%		0.59	%		0.76	%		0.84	%
Total nonperforming assets as a percentage of total assets				0.39	%		0.37	%		0.37	%		0.54	%		0.64	%
Total nonperforming assets as a percentage of total loans and leases and other nonperforming assets				0.64	%		0.62	%		0.70	%		0.90	%		0.98	%

Table 12—Change in Deposit Balances by Category of Deposits

        The following table presents the changes in the balances of deposits outstanding at the dates indicated.

	December 31,						2001-2000 Change
	2001		2000		1999		Amount			Percent
(Dollars in thousands)
Demand deposits	$	2,603,339	$	2,114,600	$	1,821,764	$	488,739		23.11	%
Money market access/NOW accounts		5,129,626		3,975,318		3,698,934		1,154,308		29.04	%
Savings accounts		1,604,556		1,386,286		1,567,776		218,270		15.74	%
Certificates of deposit		4,811,357		4,461,983		4,448,229		349,374		7.83	%
Brokered deposits		72,171		169,069		173,798		(96,898	)	(57.31	%)
Total deposits	$	14,221,049	$	12,107,256	$	11,710,501	$	2,113,793		17.46	%

36

Table 13—Maturity of Certificates of Deposit of $100,000 or more at December 31, 2001

        The following table sets forth the scheduled maturity of certificates of deposit of $100,000 or more at December 31, 2001.

	Balance		Percent
(Dollars in thousands)
3 months or less	$	400,280	35	%
Over 3 to 6 months		282,588	25	%
Over 6 to 12 months		261,598	23	%
More than 12 months		189,233	17	%
	$	1,133,699	100	%

Table 14—Business Segment Reporting

        The following table presents selected operating data for our business segments for the year ended December 31, 2001.

	Community Banking		Insurance Brokerage			Investment Planning		Trust and Investment Management			Total
(Dollars in thousands)
Net interest income (expense)	$	681,878	$	(630	)	$	22	$	(1,306	)	$	679,964
Provision for loan and lease losses		41,889		—			—		—			41,889
Net interest income (expense) after provision for loan and lease losses		639,989		(630	)		22		(1,306	)		638,075
Noninterest income		157,301		40,004			8,286		34,914			240,505
Salaries and benefits		218,317		23,408			5,831		13,761			261,317
Occupancy and equipment		74,721		3,162			608		2,002			80,493
Data processing/affiliate charges		34,428		625			692		2,925			38,670
Special charges		7,614		—			—		—			7,614
Other		91,099		4,450			733		2,936			99,218
Total noninterest expense		426,179		31,645			7,864		21,624			487,312
Income before taxes and amortization of intangibles		371,111		7,729			444		11,984			391,268
Amortization of intangibles		16,654		2,379			—		3,051			22,084
Pre-tax income	$	354,457	$	5,350		$	444	$	8,933		$	369,184

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

        The information contained in the section captioned "Management's Discussion and Analysis of Financial Condition and Results of Operations—Asset Liability Management" in Item 7 hereof is incorporated herein by reference.

37

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

BANKNORTH GROUP, INC.
CONSOLIDATED BALANCE SHEETS

			December 31,
			2001			2000
(In thousands, except number of shares and per share data)
Assets
Cash and due from banks			$	650,588		$	515,934
Federal funds sold and other short-term investments				270,623			29,058
Securities available for sale, at market value				5,817,238			5,425,111
Securities held to maturity, market value $340,737 in 2001 and $457,110 in 2000				339,623			455,547
Loans held for sale, market value $117,674 in 2001 and $51,823 in 2000				117,674			51,131
Loans and leases				12,715,330			10,845,662
	Less: Allowance for loan and lease losses			189,837			153,550
	Net loans and leases			12,525,493			10,692,112
Premises and equipment				237,440			201,192
Goodwill and other intangibles				466,633			185,520
Mortgage servicing rights				8,484			23,225
Bank owned life insurance				321,113			306,411
Other assets				321,677			348,569
	Total assets		$	21,076,586		$	18,233,810
Liabilities and Shareholders' Equity
Deposits:
	Savings accounts		$	1,604,556		$	1,386,286
	Money market access and NOW accounts			5,129,626			3,975,318
	Certificates of deposit (including certificates of $100 or more of $1,133,699 in 2001 and $1,169,717 in 2000)			4,811,357			4,461,983
	Brokered deposits			72,171			169,069
	Demand deposits			2,603,339			2,114,600
		Total deposits		14,221,049			12,107,256
Federal funds purchased and securities sold under repurchase agreements				1,620,555			1,138,629
Borrowings from the Federal Home Loan Bank				2,644,105			3,348,242
Other borrowings				43,972			73,744
Subordinated long-term debt				200,000			—
Company obligated, mandatorily redeemable securities of subsidiary trusts holding solely parent junior subordinated debentures				93,756			98,775
Other liabilities				464,034			136,307
	Total liabilities			19,287,471			16,902,953
Shareholders' equity:
	Preferred stock, par value $0.01; 5,000,000 shares authorized, none issued			—			—
	Common stock, par value $0.01; 400,000,000 and 200,000,000 shares authorized, 165,123,674 issued in 2001 and 149,584,159 issued in 2000			1,651			1,496
	Paid-in capital			958,764			617,234
	Retained earnings			1,056,678			897,214
	Unearned compensation			(1,017	)		(1,354	)
	Treasury stock at cost (13,903,074 shares in 2001 and 8,339,556 shares in 2000)			(267,529	)		(149,246	)
	Accumulated other comprehensive income			40,568			(34,487	)
	Total shareholders' equity			1,789,115			1,330,857
Total liabilites and shareholders' equity			$	21,076,586		$	18,233,810

See accompanying notes to Consolidated Financial Statements.

38

BANKNORTH GROUP, INC.
CONSOLIDATED STATEMENTS OF INCOME

			Year ended December 31,
			2001			2000			1999
(In thousands, except per share data)
Interest and dividend income:
	Interest and fees on loans and leases		$	892,197		$	894,449		$	826,565
	Interest and dividends on securities			371,592			435,838			400,954
		Total interest and dividend income		1,263,789			1,330,287			1,227,519
Interest expense:
	Interest on deposits			363,974			411,250			373,526
	Interest on borrowed funds			219,851			315,413			239,598
		Total interest expense		583,825			726,663			613,124
Net interest income				679,964			603,624			614,395
Provision for loan and lease losses				41,889			23,819			23,575
Net interest income after provision for loan and lease losses				638,075			579,805			590,820
Noninterest income:
	Deposit services			72,634			67,053			56,201
	Mortgage banking services			11,130			21,963			20,423
	Trust and investment management services			34,060			35,436			34,060
	Investment planning services			8,286			6,998			5,318
	Insurance brokerage commissions			39,360			25,748			20,289
	Bank owned life insurance			18,392			17,701			15,522
	Merchant and electronic banking income, net			32,411			29,318			26,122
	Loan fee income			14,501			8,316			6,984
	Net securities gains (losses)			1,329			439			655
	Losses on securities restructuring			—			(15,895	)		—
	Other noninterest income			8,402			14,111			6,221
				240,505			211,188			191,795
Noninterest expenses:
	Salaries and employee benefits			261,317			230,184			231,500
	Data processing			38,670			37,607			38,806
	Occupancy			45,921			39,198			39,326
	Equipment			34,572			31,740			30,205
	Amortization of goodwill and other intangibles			22,084			21,016			20,642
	Special charges			7,614			43,007			28,002
	Other noninterest expenses			99,218			99,714			99,827
				509,396			502,466			488,308
Income before income tax expense				369,184			288,527			294,307
Applicable income tax expense				126,202			96,793			97,349
Net income before extraordinary item and cumulative effect of change in accounting principle				242,982			191,734			196,958
Extraordinary item—early extinguishment of debt, net of tax				(3,897	)		—			—
Cumlative effect of change in accounting priciple, net of tax				(290	)		—			—
Net income			$	238,795		$	191,734		$	196,958
Basic earnings per share:
	Net income before extraordinary item and cumulative effect of accounting change		$	1.73		$	1.33		$	1.35
	Extraordinary item—early extinguishment of debt, net of tax			(0.03	)		—			—
	Cumulative effect of change in accounting principle, net of tax			—			—			—
	Net income		$	1.70		$	1.33		$	1.35
Diluted earnings per share:
	Net income before extraordinary item and cumulative effect of accounting change		$	1.71		$	1.32		$	1.34
	Extraordinary item—early extinguishment of debt, net of tax			(0.03	)		—			—
	Cumulative effect of change in accounting principle, net of tax			—			—			—
	Net income		$	1.68		$	1.32		$	1.34
Weighted average shares outstanding:
	Basic			140,473			144,270			145,758
	Diluted			141,802			145,194			147,428

See accompanying notes to Consolidated Financial Statements.

39

BANKNORTH GROUP, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY

		Par Value			Paid-in Capital			Retained Earnings			Unearned Compensation			Treasury Stock			Accumulated Other Comprehensive Income (Loss)			Total
(In thousands)
Balances at December 31, 1998		$	1,496		$	618,624		$	669,357		$	(3,756	)	$	(65,189	)	$	1,858		$	1,222,390
Net income			—			—			196,958			—			—			—			196,958
Unrealized losses on securities, net of reclassification adjustment(1)			—			—			—			—			—			(127,252	)		(127,252	)
	Comprehensive income																				69,706
Premium on repurchase of trust preferred securities			—			(1,801	)		—			—			—			—			(1,801	)
Treasury stock issued for employee benefit plans			—			(4	)		(13,396	)		—			31,752			—			18,352
Treasury stock purchased			—			—			—			—			(53,745	)		—			(53,745	)
Issuance of restricted stock			—			176			(313	)		(655	)		1,344			—			552
Amortization of employee restricted stock			—			(813	)		—			929			—			—			116
Decrease in unearned compensation—ESOP			—			1,341			—			731			—			—			2,072
Cash dividends paid			—			—			(65,368	)		—			—			—			(65,368	)
Balances at December 31, 1999			1,496			617,523			787,238			(2,751	)		(85,838	)		(125,394	)		1,192,274
Net income			—			—			191,734			—			—			—			191,734
Unrealized gains on securities, net of reclassification adjustment(1)			—			—			—			—			—			90,657			90,657
Minimum pension liability			—			—			—			—			—			250			250
	Comprehensive income																				282,641
Cancellation of treasury shares at acquisition			(1	)		(2,206	)		—			—			2,207			—			—
Treasury stock issued for employee benefit plans			—			—			(10,790	)		—			30,486			—			19,696
Treasury stock purchased			—			—			—			—			(96,585	)		—			(96,585	)
Issuance and distribution of restricted stock			—			(119	)		(195	)		—			484			—			170
Amortization of employee restricted stock			—			(390	)		—			992			—			—			602
Common stock issued for acquisitions			1			1,324			—			—			—			—			1,325
Decrease in unearned compensation—ESOP			—			1,122			—			405			—			—			1,527
Payment of fractional shares			—			(20	)		—			—			—			—			(20	)
Cash dividends paid			—			—			(70,773	)		—			—			—			(70,773	)
Balances at December 31, 2000			1,496			617,234			897,214			(1,354	)		(149,246	)		(34,487	)		1,330,857
Net income			—			—			238,795			—			—			—			238,795
Unrealized gains on securities, net of reclassification adjustment(1)			—			—			—			—			—			74,781			74,781
Unrealized gains on cash flow hedges, net of reclassification adjustment(1)			—			—			—			—			—			274			274
	Comprehensive income																				313,850
Premium on repurchase of trust preferred securities			—			(71	)		—			—			—			—			(71	)
Treasury stock issued for employee benefit plans			—			297			(6,811	)		—			32,662			—			26,148
Treasury stock purchased			—			—			—			—			(151,546	)		—			(151,546	)
Issuance and distribution of restricted stock			—			(161	)		(243	)		—			601			—			197
Common stock issued for acquisitions			155			339,804			—			—			—			—			339,959
Decrease in unearned compensation—ESOP			—			1,668			—			337			—			—			2,005
Payment of fractional shares			—			(7	)		—			—			—			—			(7	)
Cash dividends paid			—			—			(72,277	)		—			—			—			(72,277	)
Balances at December 31, 2001		$	1,651		$	958,764		$	1,056,678		($	1,017	)	($	267,529	)	$	40,568		$	1,789,115

(1)

Disclosure of reclassification amount (all amounts net of tax):

	December 31,
	2001			2000			1999
Unrealized holding gains (losses) arising during the period on available for sale securities, net of tax	$	75,645		$	80,611		($	126,842	)
Less: reclassification adjustment for net gains (losses) included in net income		864			(10,046	)		410
		74,781			90,657			(127,252	)
Unrealized holding losses arising during the period on cash flow hedges, net of tax		(887	)		—			—
Less: reclassification adjustment for losses included in net income		(1,161	)		—			—
		274			—			—
Net unrealized gains (losses)	$	75,055		$	90,657		($	127,252	)

See accompanying notes to Consolidated Financial Statements

40

BANKNORTH GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS

		Year Ended December 31,
		2001			2000			1999
(In thousands)
Cash flows from operating activities:
Net income		$	238,795		$	191,734		$	196,958
Adjustments to reconcile net income to net cash provided by operating activities:
	Provision for loan and lease losses		41,889			23,819			23,575
	Provision for depreciation		30,248			20,466			26,975
	Amortization of goodwill and other intangibles		22,084			21,016			20,642
	Net decrease (increase) in deferred tax assets		6,940			(3,445	)		(920	)
	ESOP and restricted stock expense		2,005			1,527			2,072
	Amortization of employee restricted stock		—			602			116
	Issuance of restricted stock units		197			170			552
	Net (gains) losses realized from sales of securities and consumer loans		(1,325	)		10,726			(655	)
	Net (gains) losses realized from sales of loans held for sale		(11,066	)		915			415
	Earnings from bank owned life insurance		(18,392	)		(17,701	)		(15,522	)
	Net decrease (increase) in mortgage servicing rights		23,451			29,499			(7,285	)
	Proceeds from sales of loans held for sale		911,347			308,191			1,118,166
	Residential loans originated and purchased for sale		(966,824	)		(277,919	)		(640,149	)
	Net decrease (increase) in interest and dividends receivable and other assets		21,924			(26,003	)		(11,300	)
	Net (decrease) increase in other liabilities		(22,278	)		(10,396	)		13,957
Net cash provided by operating activities			278,995			273,201			727,597
Cash flows from investing activities:
	Proceeds from maturities and principal repayments of securities held to maturity		115,924			98,510			96,226
	Purchase of securities held to maturity		—			—			—
	Proceeds from sales of securities available for sale		717,514			278,984			44,330
	Proceeds from maturities and principal repayments of securities available for sale		1,799,022			971,099			1,754,826
	Purchases of securities available for sale		(1,905,296	)		(231,383	)		(3,958,537	)
	Net (increase) decrease in loans and leases		(22,466	)		(1,045,822	)		(586,876	)
	Proceeds from sales of loans		39,303			34,234			—
	Net additions to premises and equipment		(41,759	)		(32,235	)		(24,006	)
	Purchase of bank owned life insurance		—			—			(165,400	)
	Proceeds from policy coverage on bank owned life insurance		3,690			1,213			1,389
	Payment for acquisitions, net of cash acquired		14,877			(22,274	)		—
Net cash provided (used) by investing activities			720,809			52,326			(2,838,048	)
Cash flows from financing activities:
	Net increase (decrease) in deposits		113,271			396,755			(305,711	)
	Net increase (decrease) in securities sold under repurchase agreements		583,929			(316,195	)		502,340
	Proceeds from Federal Home Loan Bank borrowings		5,737,151			12,799,452			5,003,333
	Payments on Federal Home Loan Bank borrowings		(6,921,371	)		(13,449,029	)		(3,038,162	)
	Proceeds from repurchase of securities of subsidiary trusts		(5,090	)		—			(33,026	)
	Net (decrease) increase in other borrowings		(29,772	)		6,441			20,238
	Issuance of subordinated debt		197,982			—			—
	Issuance of common stock		26,141			21,001			18,353
	Purchase of treasury stock		(151,546	)		(96,585	)		(53,745	)
	Cash dividends paid to shareholders		(72,277	)		(70,773	)		(65,368	)
Net cash (used) provided by financing activities			(521,582	)		(708,933	)		2,048,252
Increase(decrease) in cash and cash equivalents			478,222			(383,406	)		(62,199	)
Cash and cash equivalents at beginning of period			392,989			776,395			838,594
Cash and cash equivalents at end of period		$	871,211		$	392,989		$	776,395

In conjunction with the purchase acquisitions detailed in Note 3 to the Consolidated Financial Statements, assets were acquired and liabilities were assumed as follows:

Fair value of assets acquired	$	3,025,847	$	13,534	$	—
Less liabilities assumed		2,521,054		12,263		—

For the years ended December 31, 2001, 2000 and 1999, interest of $596,315, $712,843 and $599,981 and income taxes of $121,592, $92,970 and $77,436 were paid, respectively. During 2000 and 1999, $3,094 and $245,233 of investment securities were transferred to securities available for sale.

During

1999, $632,735 of portfolio loans were transferred to investments held to maturity.

See accompanying notes to Consolidated Financial Statements.

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BANKNORTH GROUP INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(All dollar amounts expressed in thousands, except per share data)

1. Summary of Significant Accounting Policies

        The accounting and reporting policies of Banknorth Group, Inc. (the "Company") and its subsidiaries conform to accounting principles generally accepted in the United States of America and to general practice within the banking industry. The Company's principal business activities are retail and commercial banking as well as trust and investment management, investment planning and insurance brokerage services, and are conducted through the Company's direct and indirect subsidiaries located in Maine, New Hampshire, Massachusetts, Connecticut, Vermont and New York. The Company and its subsidiaries are subject to regulation of, and periodic examination by, the Office of the Comptroller of Currency and the Federal Reserve Board, among other agencies. The following is a description of the more significant accounting policies.

Financial Statement Presentation.

        The Consolidated Financial Statements include the accounts of Banknorth Group, Inc. and its subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation. Certain amounts in prior periods have been reclassified to conform to the current presentation.

        Assets held in a fiduciary capacity are not assets of the Company and, accordingly, are not included in the Consolidated Balance Sheets.

        In preparing financial statements in conformity with accounting principles generally accepted in the United States of America, management is required to make estimates and assumptions that affect the reported amount of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and revenues and expenses during the reporting period. Actual results could differ from those estimates. Material estimates that are particularly susceptible to change relate to the determination of the allowance for loan and lease losses, deferred tax assets, capitalized costs of software developed for internal use, valuation of mortgage servicing rights and long-lived assets, including goodwill and intangible assets.

Cash and Cash Equivalents.

        The Company is required to comply with various laws and regulations of the Federal Reserve Board which require that the Company maintain certain amounts of cash on deposit and is restricted from investing those amounts.

        For purposes of reporting cash flows, cash and cash equivalents include cash and due from banks, federal funds sold and other short-term investments with maturities less than 90 days minus federal funds purchased. Generally, federal funds are sold or purchased for one-day periods.

Securities.

        Investments in debt securities that management has the positive intent and ability to hold to maturity are classified as "held to maturity" and reflected at amortized cost.

        Investments not classified as "held to maturity" are classified as "available for sale." Securities available for sale consist of debt and equity securities that are available for sale in order to respond to changes in market interest rates, liquidity needs, changes in funding sources and other similar factors.

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These assets are specifically identified and are carried at market value. Changes in market value of available for sale securities, net of applicable income taxes, are reported as a separate component of shareholders' equity and comprehensive income. When a decline in market value of a security is considered other than temporary, generally six months or longer, the cost basis of the individual security is written down to market value as the new cost basis and the loss is charged to net securities gains (losses) in the consolidated statements of income as a writedown.

        Premiums and discounts are amortized and accreted over the term of the securities on a level yield method adjusted for prepayments. Gains and losses on the sale of securities are recognized at the time of the sale using the specific identification method.

Loans and Leases.

        Loans are carried at the principal amounts outstanding adjusted by partial charge-offs and net deferred loan costs or fees. Residential real estate loans are generally placed on nonaccrual when reaching 120 days past due or in 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. Secured consumer loans are written down to realizable value and unsecured consumer loans are charged-off upon reaching 120 or 180 days past due depending on the type of loan. Commercial real estate loans and commercial business loans and leases which are 90 days or more past due are generally placed on nonaccrual status, unless secured by sufficient cash or other assets immediately convertible to cash. When a loan has been placed on nonaccrual status, previously accrued and uncollected interest is reversed against interest on loans. A loan can be returned to accrual status when collectibility of principal is reasonably assured and the loan has performed for a period of time, generally six months. Commercial real estate loans and commercial business loans are classified as impaired when it is probable that the Company will not be able to collect all amounts due according to the contractual terms of the loan agreement. Factors considered by management in determining impairment include payment status and collateral value.

        Loan origination and commitment fees and certain direct origination costs are deferred, and the net amount is amortized as an adjustment of the related loan's yield using methods that approximate the level yield method over the estimated lives of the related loans.

        Consumer lease financing loans are carried at the amount of minimum lease payments plus residual values, less unearned income which is amortized into interest income using the interest method.

Allowance for Loan and Lease Losses.

        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 operating expense and by recoveries on loans previously charged off, and reduced by charge-offs on loans and leases.

        Arriving at an appropriate level of allowance for loan and lease losses necessarily involves a high degree of judgment. The ongoing evaluation process includes a formal analysis of the allowance each quarter, which considers, among other factors, the character and size of the loan portfolio, business and

43

economic conditions, loan growth, delinquency trends, nonperforming loans trends, charge-off experience, portfolio migration data and other asset quality factors. The Company evaluates specific loan status reports on certain commercial and commercial real estate loans rated "substandard" or worse in excess of a specified dollar amount. Estimated reserves for each of these credits is determined by reviewing current collateral value, financial information, cash flow, payment history and trends and other relevant facts surrounding the particular credit. Provisions for losses on the remaining commercial and commercial real estate loans are based on pools of similar loans using a combination of historical loss experience and migration analysis, which considers the probability of a loan moving from one risk rating category to another over the passage of time, transition matrix and qualitative adjustments. For the residential real estate and consumer loan portfolios, the range of reserves is calculated by applying historical charge-off and recovery experience to the current outstanding balance in each loan category, with consideration given to loan growth over the preceding twelve months. Although management uses available information to establish the appropriate level of the allowance for loan and lease losses, future additions to the allowance may be necessary based on estimates that are susceptible to change as a result of changes in economic conditions and other factors. In addition, various regulatory agencies, as an integral part of their examination process, periodically review the Company's allowance for loan and lease losses. Such agencies may require the Company to recognize adjustments to the allowance based on their judgments about information available to them at the time of their examination.

Bank Owned Life Insurance.

        Bank owned life insurance ("BOLI") represents life insurance on the lives of certain employees. The Company is the beneficiary of the insurance policies. Increases in the cash value of the policies, as well as insurance proceeds received, are recorded in other income, and are not subject to income taxes. The cash value is included in assets. The Company reviews the financial strength of the insurance carrier prior to the purchase of BOLI and annually thereafter and BOLI with any individual carrier is limited to 10% of capital plus reserves.

Premises and Equipment.

        Premises and equipment are stated at cost less accumulated depreciation and amortization. Depreciation and amortization are computed on the straight-line method over the estimated useful lives of related assets.

        Internally developed software costs, such as those related to software licenses, programming, testing, configuration and integration, are capitalized and included in furniture, fixtures and equipment. Included in the capitalized costs are those costs related to both Company personnel and third party consultants involved in the development and installation. Once placed in service, the capitalized asset is amortized on a straight-line basis over its estimated useful life, not to exceed seven years.

Goodwill and Other Intangibles.

        Historically, goodwill has been amortized on a straight-line basis over various periods not exceeding twenty years; core deposit intangibles are amortized on a level-yield basis over the estimated life of the associated deposits but not longer that 10 years. Goodwill and other intangible assets are reviewed for possible impairment when it is determined that events or changed circumstances may

44

affect the underlying basis of the asset. New accounting rules were recently issued for goodwill and intangibles resulting from business combinations consummated after June 30, 2001. See Note 2—New Accounting Pronouncements.

Impairment of Long-Lived Assets.

        The Company reviews long-lived assets, including premises and equipment, goodwill and other intangible assets, for impairment whenever events or changes in business circumstances indicate that the remaining useful life may warrant revision or that the carrying amount of the long-lived asset may not be fully recoverable. The Company performs undiscounted cash flow analyses to determine if impairment exists. If impairment is determined to exist, any related impairment loss is calculated based on fair value. Impairment losses on assets to be disposed of, if any, are based on the estimated proceeds to be received, less costs of disposal.

Mortgage Banking and Loans Held for Sale.

        Residential mortgage loans originated for sale are classified as held for sale. These loans are specifically identified and carried at the lower of aggregate cost or estimated market value. Market value is estimated based on outstanding investor commitments or, in the absence of such commitments, current investor yield requirements. Forward commitments to sell residential real estate mortgages are contracts that the Company enters into for the purpose of reducing the market risk associated with originating loans for sale should interest rates change. Forward commitments are recorded at fair value and are included with loans held for sale.

        Gains and losses on sales of mortgage loans are determined using the specific identification method and recorded as mortgage sales income, a component of mortgage banking services income. The gains and losses resulting from the sales of loans with servicing retained are adjusted to recognize the present value of future servicing fee income over the estimated lives of the related loans. Since the fourth quarter of 2000, the Company has generally sold residential loans and the related servicing rights on a flow basis.

        Mortgage servicing rights are amortized on an accelerated method over the estimated weighted average life of the loans. Amortization is recorded as a charge against mortgage service fee income, a component of mortgage banking services income. The Company's assumptions with respect to prepayments, which affect the estimated average life of the loans, are adjusted periodically to reflect current circumstances. In evaluating the realizability of the carrying values of mortgage servicing rights, the Company assesses the estimated life of its servicing portfolio based on data which is disaggregated to reflect note rate, type and term on the underlying loans.

        Mortgage servicing fees received from investors for servicing their loan portfolios are recorded as mortgage servicing fee income when received. Loan servicing costs are charged to noninterest expenses when incurred.

Derivative Financial Instruments.

        Effective January 1, 2001, the Company adopted Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative Instruments and Hedging Activities." SFAS 133 sets

45

accounting and reporting standards for derivative instruments and hedging activities and requires that all derivatives be recognized on the balance sheet at fair value. The Company recognized an after-tax loss of $290 thousand from the cumulative effect of adoption of this accounting standard.

        Starting January 1, 2001, the Company recognizes all derivatives on the balance sheet at fair value. On the date the derivative is entered into, the Company designates whether the derivative is part of a hedging relationship (cash flow or fair value hedge). The Company formally documents relationships between hedging instruments and hedged items, as well as its risk management objective and strategy for undertaking hedge transactions. The Company also assesses, both at the hedge's inception and on an ongoing basis, whether the derivatives used in hedging transactions are highly effective in offsetting changes in cash flows or fair values of hedged items.

        Changes in fair value of a derivative that is highly effective and that qualifies as a cash flow hedge are recorded in other comprehensive income and are reclassified into earnings when the forecasted transaction affects earnings, generally within 60 to 90 days. The Company discontinues hedge accounting when it is determined that the derivative is no longer effective in offsetting changes in the cash flows of the hedge item, because it is unlikely that the forecasted transaction will occur, or management determines that the designation of the derivative as a hedging instrument is no longer appropriate. When a cash flow hedge is discontinued, the remaining gain is deferred and amortized into earnings based upon the life of the forecasted transaction and losses are recognized immediately.

        From time to time the Company may use certain hedging strategies which include the use of derivative financial instruments. The primary objective of the Company's hedging strategies is to reduce net interest rate exposure arising from the Company's asset and liability structure and mortgage banking activities. The Company uses forward delivery contracts to reduce interest rate risk on closed residential mortgage loans held for sale and rate-locked loans expected to be closed and held for sale. The Company also purchases Treasury and mortgage-backed security options to modify its forward mortgage commitments. Changes in fair value of the options are included in the calculation of the carrying value of loans held for sale.

        The Company has previously used interest rate contracts (swaps, floors and corridors) to modify the repricing or maturity characteristics of specified interest bearing assets or liabilities. There were no interest rate contracts outstanding as of December 31, 2001. The Company has previously used interest rate floors tied to the CMT index to mitigate the prepayment risk associated with mortgage servicing rights. There were no such interest rate floors outstanding as of December 31, 2001.

Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities.

        In September 2000, the Financial Accounting Standards Board ("FASB") issued SFAS No. 140, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities" ("SFAS No. 140"), which replaced SFAS No. 125. SFAS No. 140, which has subsequently been amended by FASB Technical Bulletin No. 01-1, "Effective Date for Certain Financial Institutions of Certain Provisions of Statement 140 related to Isolation of Transferred Financial Assets", provides accounting and reporting standards for transfers and servicing of financial assets and extinguishments of liabilities. This Statement provides consistent standards for distinguishing transfers of financial assets that are sales from transfers that are secured borrowings. This Statement, as amended, is effective for transfers

46

and servicing of financial assets and extinguishments of liabilities occurring after March 31, 2001, and is effective for recognition and reclassification of collateral and for disclosures relating to securitization transactions and collateral for fiscal years ending after December 15, 2000. The Company does not expect that the provisions of SFAS No. 140 will have a material impact on its financial condition or results of operations.

Pension, 401(k), and Other Employee Benefit Plans.

        The Company and its subsidiaries have non-contributory defined benefit pension plans which cover most employees. The benefits are based on years of service and the employee's career average earnings. The Company has historically made cash contributions to the defined benefit pension plan for the maximum amount that can be deducted for federal income tax purposes. Contributions are intended to provide not only for benefits attributed to service to date, but also for those expected to be earned in the future.

        The Company maintains Section 401(k) savings plans for substantially all employees of the Company and its subsidiaries. Under the plans, the Company makes a matching contribution of a portion of the amount contributed by each participating employee, up to a percentage of the employee's annual salary. The plans allow for supplementary profit sharing contributions by the Company, at its discretion, for the benefit of participating employees.

        The Company previously sponsored a Profit Sharing Employee Stock Ownership Plan (the "ESOP") which was designed to invest primarily in Company common stock. The ESOP was merged into the 401(k) Plan effective January 1, 2001. Employees are eligible to participate in the 401(k) Plan on the first day of the month following their date of hire. The Company previously sponsored a leveraged employee stock ownership plan which was merged with and into the ESOP. The Company is required to make annual contributions to the ESOP equal to the ESOP's debt service and the unallocated shares are pledged as collateral for the debt. As the debt is repaid, shares are released from collateral and allocated to eligible employees. The Company accounts for this ESOP in accordance with AICPA SOP 93-6, "Employers' Accounting for Employee Stock Ownership Plans." Accordingly, the debt of the ESOP is recorded as long-term debt and the shares pledged as collateral are reported as unearned compensation on the balance sheet. As shares are released from collateral, the Company records compensation expense equal to the current market price of the shares, and the shares are treated as outstanding for purposes of calculating earnings per share.

Stock Compensation Plans.

        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 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 stock at the grant date (or other measurement date) over the amount an employee must pay to acquire the stock. The Company has elected to continue with the accounting methodology in Opinion No. 25 and, as a result, must make pro forma disclosures

47

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 on or after January 1, 1995. See Note 18—Stock Based Compensation Plans.

Investments in Limited Partnerships.

        The Company has investments in both tax advantaged and small business investment limited partnerships. The tax advantaged limited partnerships are primarily involved in approved low income housing investment tax credit projects in the Company's market area while the small business investment limited partnerships are primarily providing seed money to small businesses also in the Company's market area. These investments are included in other assets. Investments in the tax advantaged limited partnerships are amortized over the same period the tax benefits are expected to be received. The investments in small business investment limited partnerships, for which the Company has the ability to exercise significant influence (generally, a 3% or greater ownership interest), are reviewed and adjusted quarterly based on the equity method. If the Company does not exercise significant influence, the Company's investment is accounted for under the cost method and the carrying value is periodically evaluated. Other than fixed capital or loan commitments agreed to in advance, the partnerships have no recourse to the Company.

Income Taxes.

        The Company uses the asset and liability method of accounting for income taxes. Under this method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. If current available information raises doubt as to the realization of the deferred tax assets, a valuation allowance is established. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Income taxes are allocated to each entity in the consolidated group based on its share of taxable income.

        Tax credits generated from limited partnerships are reflected in earnings when realized for federal income tax purposes.

Earnings Per Share.

        Earnings per share have been computed in accordance with SFAS No. 128, "Earnings Per Share." Basic earnings per share have been calculated by dividing net income by weighted average shares outstanding before any dilution and adjusted to exclude the weighted average number of unallocated shares held by the ESOP. Diluted earnings per share have been calculated by dividing net income by weighted average shares outstanding after giving effect to the potential dilution that could occur if the potential common shares (i.e. stock options) were converted into common stock using the treasury stock method.

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Segment Reporting.

        An operating segment is defined as a component of a business for which separate financial information is available that is evaluated regularly by the chief operating decision-maker in deciding how to allocate resources and evaluate performance. The Company's primary business is community banking, which provides over 90% of its revenues and profits. Accordingly, disaggregated segment information is not presented in the notes to the financial statements.

2. New Accounting Pronouncements

        In June 2001, the FASB issued SFAS No. 141, "Business Combinations" ("SFAS No. 141") and SFAS No. 142, "Goodwill and Other Intangible Assets" ("SFAS No. 142"). SFAS No. 141 requires that the purchase method of accounting be used for all business combinations and specifies recognition criteria that acquired identifiable intangible assets must meet to be recognized and reported separately from goodwill. SFAS No. 142 requires goodwill and intangible assets with indefinite useful lives no longer be amortized, but instead are to be tested for impairment at least annually in accordance with the provisions of SFAS No. 142. SFAS No. 142 requires that intangible assets with estimable useful lives be amortized over their respective estimated useful lives to their estimated residual values, and reviewed for impairment in accordance with SFAS No. 121 and subsequently, SFAS No. 144 (discussed below) after its adoption.

        The Company adopted SFAS No. 141 as of July 1, 2001. Also as of July 1, 2001, the Company adopted the required transition provisions of SFAS No. 142 related to amortization of goodwill and other acquired intangible assets for which the acquisition date was after June 30, 2001. The remaining provisions of SFAS No. 142 were adopted on January 1, 2002. Accordingly, goodwill and intangible assets determined to have an indefinite useful life acquired in a purchase business combination completed after June 30, 2001 are not amortized. Goodwill and intangible assets acquired in business combinations completed before July 1, 2001 continued to be amortized until December 31, 2001.

        Upon full adoption of SFAS No. 142, the Company must evaluate its existing intangible assets and goodwill that were acquired in purchase business combinations, and make any necessary reclassifications in order to conform with the criteria in SFAS No. 141 for recognition of identifiable intangible assets separate from goodwill. The Company must also reassess the useful lives and residual values of all identifiable intangible assets acquired and make any necessary amortization period adjustments by March 31, 2002. Goodwill impairment must be measured for each reporting unit in a two-step process. First, the carrying amount of the net assets (including goodwill) must be compared to the fair value of a reporting unit (as defined) by June 30, 2002. Second, if the carrying value of a reporting unit is greater than its fair value, the Company must determine by December 31, 2002 the amount of impairment based on the fair value of a reporting unit compared to the fair values assigned to all of the recognized and unrecognized assets and liabilities of that unit. Impairment loss must be measured as of the date of adoption and recognized as the cumulative effect of a change in accounting principle in the first interim period.

        On December 31, 2001, the Company had goodwill in the amount of $409.3 million, core deposit intangibles of $21.3 million and other intangibles of $36.0 million, all of which will be subject to the transition provisions of SFAS No. 142. The Company has not completed its calculations under the

49

impairment testing provisions of SFAS 142; however, based on evaluation results to date, impairment losses, if any, are not expected to be material.

        SFAS No. 142 does not materially change the provisions of SFAS No. 72, "Accounting for Certain Acquisitions of Banking or Thrift Institutions," which specifies that intangibles from acquisitions in which the fair value of the liabilities assumed exceeds the fair value of the tangible and intangible assets acquired are to be amortized over a period not to exceed the remaining life of the long term interest bearing assets acquired. This unidentified intangible asset is often referred to as "SFAS 72 Goodwill". As of December 31, 2001 the Company had $34.7 million of "SFAS 72 Goodwill" remaining, which is classified as "Other Intangibles" and has scheduled amortization of $7.0 million in 2002, $3.2 million in 2003 and approximately $2.5 million annually from 2004 through 2013. (See also Note 8—Goodwill and Other Intangibles).

        The approximate effect of not amortizing goodwill recorded in connection with the Andover and MetroWest acquisitions for the months of November and December 2001 was to reduce noninterest expense by $3.2 million, pre-tax. The estimated amortization expense for goodwill and intangible assets for 2002 is expected to decline to $13.6 million from $22.1 million in 2001 as a direct result of discontinuing all goodwill amortization, subject to the results of the required testing for goodwill impairment. The FASB has also agreed to reconsider the amortization provisions for "SFAS 72 Goodwill".

        In June 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement Obligations (SFAS No. 143). SFAS No.143 requires companies to record the fair value of an asset retirement obligation as a liability in the period in which it incurs a legal obligation associated with the retirement of tangible long-lived assets that result from the acquisition, construction, development and/or normal use of the assets. A corresponding asset is also recorded which is depreciated over the life of the asset. Subsequent to the initial measurement of the asset retirement obligation, the obligation will be adjusted at the end of each period to reflect the passage of time and changes in the estimated future cash flows underlying the obligation. The Company is required to adopt SFAS No. 143 on January 1, 2003. The Company does not expect that the provisions of SFAS No. 143 will have a material impact on its financial condition or results of operations.

        In August 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-lived Assets" (SFAS No. 144). SFAS No. 144 addresses financial accounting and reporting for the impairment or disposal of long-lived assets. This Statement requires that long-lived assets be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future net cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated future cash flows, an impairment charge is recognized by the amount by which the carrying amount of the asset exceeds the fair value of the asset. SFAS No. 144 requires companies to separately report discontinued operations and extend that reporting to a component of an entity that either has been disposed of (by sale, abandonment or in a distribution to owners) or is classified as held for sale. Assets to be disposed of are reported at the lower of the carrying amount or fair value less cost to sell. The Company adopted SFAS No. 144 on January 1, 2002 with no material impact on its financial condition or results of operations.

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3. Acquisitions

        On October 31, 2001, the Company completed the acquisitions of Andover Bancorp, Inc. ("Andover"), a multi-bank holding company headquartered in Andover, Massachusetts, and MetroWest Bank ("MetroWest"), a Massachusetts-chartered savings bank headquartered in Framingham, Massachusetts. The acquisitions were accounted for as purchases in accordance with SFAS No. 141, "Business Combinations." The results of Andover and MetroWest operations have been included in the consolidated financial statements since October 31, 2001.

        A total of 16.5 million shares of Company common stock (including 1.0 million shares issuable upon exercise of Banknorth stock options issued in exchange for Andover stock options) were issued in connection with the acquisition of Andover. The total purchase price of Andover Bancorp, including the value of options, was $340.0 million. The value of the common stock issued was determined based on the average market price of the Company common stock over the five-day period before and the five-day period after the terms of the acquisition were announced.

        MetroWest shares and vested stock options were purchased for $11.50 per share for a total cost of $164.8 million.

        The following table summarizes the estimated fair value of the assets acquired and liabilities assumed for Andover and MetroWest at the date of acquisition. The Company expects that some adjustments of the estimated fair values assigned to the assets acquired and liabilities assumed at October 31, 2001 will be recorded in 2002, although such adjustments are not expected to be material.

		October 31, 2001
Assets:
Investments		$	574,257
Loans held for sale			12,195
Loans and leases, net			1,879,910
Premises and equipment			24,738
Mortgage servicing rights			8,804
Goodwill and other intangibles			303,020
Other assets			222,923
	Total assets acquired		3,025,847
Deposits			2,000,522
Borrowings			480,083
Other Liabilities			40,449
	Total liabilities assumed		2,521,054
	Net assets acquired	$	504,793

        The goodwill and other intangibles included goodwill of $286.2 million and core deposit intangibles of $16.8 million with an average useful life of 10 years. It is estimated that none of the goodwill will be deductible for income tax purposes.

        The following table summarizes on a proforma basis the results of operations of the Company assuming that the acquisitions of Andover and MetroWest had been completed as of the beginning of

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the periods presented. The proforma data gives effect to actual operating results prior to the acquisitions and the amortization of the purchase accounting adjustments which affected net interest income and noninterest expense. Special charges related to the Andover/Metro West merger recorded by Andover and Metro West totaling $19.0 million ($12.8 million after-tax) and by Banknorth totaling $3.8 million ($2.5 million after-tax) have been excluded from the 2001 proforma results. The special charges recorded by Andover and Metro West served to increase the goodwill recorded in connection with the transaction. In addition, an assumed interest charge related to the funding of the cash purchase of Metro West was deducted from the operating results in both 2001 and 2000. No effect has been given to cost reductions or operating synergies in this presentation. These proforma amounts do not purport to be indicative of the results that would have actually been obtained if the acquisitions had occurred as of the beginning of the periods presented or that may be obtained in the future.

		Year Ended December 31,
		2001 Proforma Combined			2000 Proforma Combined
Net interest income		$	751,573		$	685,381
Provision for loan and lease losses			49,277			26,319
Net interest income after provision for loan and lease losses			702,296			659,062
Noninterest income			251,179			218,511
Noninterest expense			552,960			563,759
Income before income taxes			400,515			313,814
Income tax expense			140,180			103,838
Net income before extraordinary item and cumulative effect of change in accounting principle			260,335			209,976
Extraordinary item, net of tax			(3,897	)		—
Cumulative effect of change in accounting principle, net of tax			(290	)		—
Net income		$	256,148		$	209,976
Earnings per share:
	Basic	$	1.67		$	1.31
	Diluted	$	1.65		$	1.30
Weighted average shares outstanding:
	Basic		153,423			159,810
	Diluted		154,944			160,958

        During the third quarter of 2000, the Company completed the acquisition of two insurance agencies based in Massachusetts and Connecticut for a combination of cash and stock. These acquisitions were accounted for under the purchase method and, as a result, the acquired assets and liabilities assumed were added to those of the Company at their respective fair values and the excess of the purchase price paid over the fair value of net assets acquired, which aggregated $22.7 million, was recorded as goodwill and is being amortized to expense over 20 years. In addition, under this method

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of accounting the results of operations of the acquired agencies are included in the Company's results of operations only from their respective dates of acquisition.

        On May 10, 2000, the Company completed the acquisition of Banknorth Group, Inc. ("Banknorth"). Banknorth was headquartered in Burlington, Vermont and had 100 offices located throughout Vermont, Massachusetts, New Hampshire and upstate New York. Approximately 42.9 million shares of Company common stock were issued in connection with this acquisition, which was accounted for as a pooling-of-interests. As of December 31, 1999, Banknorth had total assets of $4.6 billion and total shareholders' equity of $341 million.

        On January 1, 1999, the Company completed the acquisition of SIS Bancorp, Inc. ("SIS"). Approximately 16.3 million shares of Company common stock were issued in connection with this acquisition, which was accounted for as a pooling-of-interests. SIS had total assets of $2.0 billion and shareholders' equity of $139 million at December 31, 1998.

        The Company incurred various merger related and restructuring charges in connection with the foregoing acquisitions and certain other matters (collectively, "special charges"). On a pre-tax basis special charges amounted to $7.6 million, $43.0 million and $28.0 million in 2001, 2000 and 1999, respectively. For additional information, see Note 11 "Special Charges."

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4. Securities Available for Sale and Held to Maturity

        A summary of the amortized cost and market values of securities available for sale and held to maturity follows:

			Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Market Value
Available for Sale
	December 31, 2001:
	U.S. Government obligations and obligations of U.S. Government agencies and corporations		$	531,256	$	6,592	$	(364	)	$	537,484
	Tax-exempt bonds and notes			112,845		1,443		(115	)		114,173
	Other bonds and notes			560,090		8,461		(10,628	)		557,923
	Mortgage-backed securities			3,577,405		50,935		(1,321	)		3,627,019
	Collateralized mortgage obligations			681,366		7,788		(1,313	)		687,841
		Total debt securities		5,462,962		75,219		(13,741	)		5,524,440
	Federal Home Loan Bank stock			264,943		—		—			264,943
	Federal Reserve Bank stock			23,159		—		—			23,159
	Other equity securities			4,183		569		(56	)		4,696
		Total equity securities		292,285		569		(56	)		292,798
		Total securities available for sale	$	5,755,247	$	75,788	$	(13,797	)	$	5,817,238
	December 31, 2000:
	U.S. Government obligations and obligations of U.S. Government agencies and corporations		$	544,392	$	2,872	$	(7,873	)	$	539,391
	Tax-exempt bonds and notes			83,133		760		(659	)		83,234
	Other bonds and notes			426,199		2,260		(17,191	)		411,268
	Mortgage-backed securities			3,591,923		10,940		(33,544	)		3,569,319
	Collateralized mortgage obligations			575,091		207		(10,820	)		564,478
		Total debt securities		5,220,738		17,039		(70,087	)		5,167,690
	Federal Home Loan Bank stock			242,632		—		(11	)		242,621
	Federal Reserve Bank stock			13,312		—		—			13,312
	Other equity securities			1,488		—		—			1,488
		Total equity securities		257,432		—		(11	)		257,421
		Total securities available for sale	$	5,478,170	$	17,039	$	(70,098	)	$	5,425,111
Held to Maturity:
	December 31, 2001:
	Collateralized mortgage obligations		$	339,623	$	1,114	$	—		$	340,737
		Total securities held to maturity	$	339,623	$	1,114	$	—		$	340,737
	December 31, 2000:
	Collateralized mortgage obligations		$	455,547	$	1,563	$	—		$	457,110
		Total securities held to maturity	$	455,547	$	1,563	$	—		$	457,110

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        The amortized cost and market values of debt securities at December 31, 2001 by contractual maturities are shown below. Actual maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties. At December 31, 2001, the Company had $402.0 million of securities available for sale with call provisions.

							Held to Maturity
			Available for Sale
							Amortized Cost
			Amortized Cost		Market Value				Market Value
December 31, 2001:
	Due in one year or less		$	163,609	$	164,498	$	—	$	—
	Due after one year through five years			584,392		589,572		—		—
	Due after five years through ten years			718,563		730,363		—		—
	Due after ten years			3,996,398		4,040,007		339,623		340,737
		Total debt securities	$	5,462,962	$	5,524,440	$	339,623	$	340,737

        A summary of realized gains and losses on securities available for sale for 2001, 2000 and 1999 follows:

	Gross Realized
	Gains		Losses
2001	$	4,291	$	2,962
2000		443		15,899
1999		885		361

        Included in realized losses for 2001 was a $2.1 million other than temporary impairment loss on a trust preferred security.

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5. Loans and Leases

        The Company's lending activities are conducted principally in New England and upstate New York. The principal categories of loans in the Company's portfolio are residential real estate loans, which are secured by single-family (one to four units) residences; commercial real estate loans, which are secured by multi-family (five or more units) residential and commercial real estate; commercial business loans and leases; and consumer loans and leases. A summary of loans and leases follows:

		December 31,
		2001		2000
Residential real estate loans		$	2,627,125	$	2,248,714
Commercial real estate loans:
	Permanent first mortgage loans		3,509,311		2,663,775
	Construction and development loans		584,728		291,388
			4,094,039		2,955,163
Commercial business loans and leases			2,462,653		2,308,904
Consumer loans and leases			3,531,513		3,332,881
	Total loans and leases	$	12,715,330	$	10,845,662

        Loans and leases include net deferred charges of $7.5 million at December 31, 2001 and $4.3 million at December 31, 2000. Deferred charges included deferred loan origination costs, net of deferred loan origination fees, and unearned income on leases.

Non-performing Loans and Leases

        The following table sets forth information regarding nonperforming loans and leases and accruing loans and leases 90 days or more overdue at the dates indicated:

		December 31,
		2001		2000
Nonaccrual loans and leases
	Residential real estate loans	$	8,311	$	9,894
	Commercial real estate loans		17,124		12,155
	Commercial business loans and leases		40,341		32,583
	Consumer loans and leases		9,470		6,329
	Nonaccrual loans and leases		75,246		60,961
Troubled debt restructurings			—		673
Total nonperforming loans and leases		$	75,246	$	61,634
Accruing loans and leases which are 90 days or more overdue		$	6,227	$	5,973

        The ability and willingness of borrowers to repay loans is generally dependent on current economic conditions and real estate values within the borrowers' geographic areas.

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        Interest income that would have been recognized for 2001 and 2000 if nonperforming loans at December 31, 2001 and 2000 had been performing in accordance with their original terms approximated $3.1 million in 2001 and $5.6 million in 2000.

        Impaired loans are commercial and commercial real estate loans which the Company believes probably will not result in the collection of all amounts due according to the contractual terms of the loan agreement. The definition of "impaired loans" is not the same as the definition of "nonaccrual loans," although the two categories overlap. All commercial and commercial real estate nonaccrual loans are impaired, but not all such impaired loans are on nonaccrual. Accrual of interest on commercial and commercial real estate loans is generally discontinued when collectibility of principal or interest is uncertain or on which payments of principal or interest have become contractually past due 90 days. The Company may choose to place a loan on nonaccrual status due to payment delinquency or uncertain collectibility. The amount of reserves for impaired loans is determined by the difference between the present value of the expected cash flows related to the loan, using the original contractual interest rate, and its recorded value, or, as a practical expedient in the case of collateralized loans, the difference between the fair value of the collateral and the recorded amount of the loans. When foreclosure is probable, impairment is measured based on the fair value of the collateral.

        At December 31, 2001 and 2000, total impaired loans were $57.5 million and $46.5 million, of which $53.6 million and $29.7 million had related allowances of $14.7 million and $7.8 million, respectively. During the years ended December 31, 2001 and 2000, the income recognized related to impaired loans was $2.6 million and $373 thousand, respectively, and the average balance of outstanding impaired loans was $54.2 million and $39.4 million, respectively. The Company generally applies cash received on impaired loans to the principal balance of the loan.

6. Allowance for Loan and Lease Losses

        A summary of changes in the allowance for loan and lease losses follows:

	Year Ended December 31,
	2001			2000			1999
Balance at beginning of period	$	153,550		$	155,048		$	155,098
Allowance on acquired loans		31,277			—			—
Provisions charged to operations		41,889			23,819			23,575
Loans and leases charged off		(45,652	)		(34,692	)		(36,034	)
Recoveries		8,773			9,375			12,409
Balance at end of period	$	189,837		$	153,550		$	155,048

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7. Premises and Equipment

        A summary of premises and equipment follows:

	December 31,
	2001			2000
Land	$	22,075		$	20,458
Buildings and leasehold improvements		230,273			196,014
Furniture, fixtures and equipment		343,030			203,764
		595,378			420,236
Accumulated depreciation and amortization		(357,938	)		(219,044	)
Net book value	$	237,440		$	201,192

        Included in furniture, fixtures and equipment above are internally developed software systems (comprised of software and dedicated hardware) consisting of $16.7 million of software systems in use and $8.1 million of software systems in development. Internally developed software systems had a remaining net book value of $21.3 million at December 31, 2001.

8. Goodwill and Other Intangibles

        The changes in the carrying amount of goodwill and other intangibles for the years ended December 31, 2000 and 2001 are as follows:

		Goodwill			Core Deposit Intangibles			Other Intangibles			Total
Balance, December 31, 1999		$	122,590		$	13,058		$	48,733		$	184,381
Recorded during the year			22,653			—			—			22,653
Amortization expense			(10,368	)		(3,616	)		(7,032	)		(21,016	)
Reduction due to sale of branches			—			(498	)		—			(498	)
Balance, December 31, 2000			134,875			8,944			41,701			185,520
Recorded during the year			285,526			16,846			1,350			303,722
Amortization expense			(11,061	)		(3,944	)		(7,079	)		(22,084	)
Reduction due to sale of branch			—			(525	)		—			(525	)
Balance, December 31, 2001		$	409,340		$	21,321		$	35,972		$	466,633
Estimated Amortization Expense:
	2002		—		$	6,033		$	7,455		$	13,488
	2003		—			2,691			3,690			6,380
	2004		—			2,063			2,861			4,924
	2005		—			1,548			2,486			4,034
	2006		—			1,548			2,486			4,034

        In accordance with the provisions of SFAS No. 142, "Goodwill and Other Intangible Assets," goodwill acquired in business combinations after June 30, 2001 has not been amortized. Of the $285.5 million of goodwill recorded during 2001, $284.8 million arose from business combinations completed after June 30, 2001. All goodwill recognized prior to June 30, 2001 continued to be

58

amortized through December 31, 2001. As of January 1, 2002, amortization of goodwill will be discontinued, and all goodwill will be tested for impairment at least annually.

        SFAS No. 142 did not materially change the provisions of SFAS No. 72, "Accounting for Certain Acquisitions of Banking or Thrift Institutions," which specifies that intangibles from acquisitions in which the fair value of the liabilities assumed exceeds the fair value of the tangible and intangible assets acquired are to be amortized over a period not to exceed the remaining life of the long term interest bearing assets acquired. As of December 31, 2001 the Company had $34.7 million of "SFAS 72 Goodwill" remaining; this is included in the table above under the heading "Other Intangibles".

9. Mortgage Servicing Rights

        An analysis of mortgage servicing rights for the years ended December 31, 2001, 2000 and 1999 follows:

	Mortgage Servicing Rights			Valuation Allowance			Total			Balance of Loans Serviced for Others
Balance as of December 31, 1998	$	57,025		$	(11,586	)	$	45,439		$	5,178,281
Mortgage servicing rights capitalized		16,149			—			16,149
Amortization charged against mortgage servicing fee income		(12,498	)		—			(12,498	)
Reduction of impairment reserve (credit to mortgage servicing fee income)		—			5,300			5,300
Mortgage servicing rights sold		(1,666	)		—			(1,666	)
Balance as of December 31, 1999		59,010			(6,286	)		52,724		$	4,540,948
Mortgage servicing rights capitalized		3,977			—			3,977
Amortization charged against mortgage servicing fee income		(8,306	)		—			(8,306	)
Reduction of impairment reserve (credit to mortgage servicing fee income)		—			2,895			2,895
Mortgage servicing rights sold		(28,065	)		—			(28,065	)
Balance as of December 31, 2000		26,616			(3,391	)		23,225		$	1,618,610
Mortgage servicing rights capitalized		559			—			559
Mortgage servicing rights acquired through purchase acquisitions		8,804			—			8,804
Amortization charged against mortgage servicing fee income		(1,140	)		—			(1,140	)
Mortgage servicing rights sold		(26,355	)		3,391			(22,964	)
Balance as of December 31, 2001	$	8,484		$	—		$	8,484		$	964,027

        In the fourth quarter of 2000, the Company reached an agreement to sell the servicing rights on substantially all residential mortgage loans which it services for others. The sale was completed by

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March 31, 2001. The Company sold the servicing rights on $1.8 billion of loans serviced for others in the fourth quarter of 2000 and $1.6 billion of loans serviced for others in the first quarter of 2001. The Company continues to sell mortgage servicing rights on new loan originations on a flow basis. The mortgage servicing rights acquired as a result of the acquisitions of Andover and MetroWest in October 2001 are expected to be sold in 2002.

10. Income Taxes

        The current and deferred components of income tax expense follow:

		Year Ended December 31,
		2001			2000			1999
Current
	Federal	$	125,570		$	95,015		$	90,930
	State		7,572			5,223			7,339
Deferred
	Federal		(6,620	)		(4,733	)		(572	)
	State		(320	)		1,288			(348	)
		$	126,202		$	96,793		$	97,349

        The following table reconciles the expected federal income tax expense (computed by applying the federal statutory tax rate to income before taxes) to recorded income tax expense:

	Year Ended December 31,
	2001			2000			1999
Computed federal tax expense	$	129,214		$	100,984		$	103,007
State income tax, net of federal benefits		4,714			4,232			4,544
Benefit of tax-exempt income		(4,319	)		(4,553	)		(3,211	)
Nondeductible merger expenses		—			3,043			1,740
Amortization of goodwill and other intangibles		3,271			3,369			3,519
Low income/rehabilitation credits		(1,530	)		(4,362	)		(4,913	)
Increase in cash surrender value of life insurance		(6,437	)		(6,195	)		(5,433	)
Other, net		1,289			275			(1,904	)
Recorded income tax expense	$	126,202		$	96,793		$	97,349

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        The tax effects of temporary differences that give rise to deferred tax assets and deferred tax liabilities, which are included in other assets and other liabilities, respectively, at December 31, 2001 and 2000 follow:

			December 31,
			2001		2000
Deferred tax assets
	Allowance for loan and lease losses		$	69,092	$	55,053
	Reserve for mobile home dealers			408		574
	Difference of tax and book basis of other real estate owned			133		133
	Interest accrued and payments received on non-performing loans for tax purposes			757		809
	Compensation and employee benefits			14,603		12,955
	Book reserves not yet realized for tax purposes			4,497		1,499
	Unrealized depreciation on securities			—		18,659
	Intangible asset			4,778		5,163
	Other			358		6
		Total gross deferred tax assets		94,626		94,851
Deferred tax liabilities
	Leases			12,935		12,838
	Premises and equipment			19,313		12,466
	Partnership investments			6,046		7,333
	Loans			17,123		7,825
	Mortgage servicing rights			—		4,779
	Deferred Income			3,595		3,287
	Tax bad debt reserve			3,375		5,996
	Unrealized appreciation on securities			22,810		—
	Unrealized appreciation on hedging			148		—
	Other			1,825		1,182
		Total gross deferred tax liabilities		87,170		55,706
Net deferred tax asset			$	7,456	$	39,145

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11. Special Charges

        Special charges include merger-related, restructuring and other special charges which are non-routine in nature and classified on a separate line on the income statement.

Andover/MetroWest Merger

        In 2001, $3.8 million of merger related charges were charged to expense in connection with the Andover and MetroWest mergers (which were accounted for under the purchase method). In addition, $13.5 million was accrued upon consummation of the transactions (for transaction costs, employee severance costs, contract termination fees and asset impairments) and served to increase goodwill. Included in the initial accrual was $10.4 million for employee severance costs covering approximately 224 employees. The balance of the accrual for the Andover/MetroWest mergers as of December 31, 2001 is expected to be largely paid out after systems conversion in early 2002.

Banknorth Merger

        In 2000, $35.2 million of merger-related charges was charged to expense for the Banknorth merger (which was accounted for as a pooling-of-interests). A total of $13.1 million was accrued for employee severance covering severance payments, benefits and outplacement services for approximately 100 employees. In 2001, additional positions within the former Banknorth company were eliminated and additional severance payments totaling $2.3 million were made. As of December 31, 2001, all severance payments related to the Banknorth merger had been paid. Also in 2001, the Company closed on the sale of a branch resulting in a gain of $2.9 million; this sale was a regulatory-mandated sale related to the merger approval and the gain is included as a reduction of the special charges related to the Banknorth merger.

Charter Consolidation

        In 2001, the Company incurred $1.0 million of costs related to consolidating the charters of its eight national bank subsidiaries to a single national bank charter. The Company expects to have additional expenses related to charter consolidation in 2002.

Branch Closings

        The Company accrued $2.0 million and $1.4 million related to the closing of branches in 2001 and 2000, respectively. These accruals covered lease termination fees, asset impairments and branch decommissioning expenses. As of December 31, 2001, $0.3 million remained in the accrual primarily for monthly rental payments on non-cancelable operating leases for closed branches.

Other Special Charges

        In 2001 and 2000, the Company recorded write-downs of $0.9 million and $3.7 million, respectively, on the residual values assigned to auto leases which were acquired in previous mergers. The Company ceased making auto leases in 1997. In 2000, the Company incurred a $3.1 million charge in connection with the termination of a contract with a sales and marketing organization that helped sign-up new merchants in merchant card processing.

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        The following table summarizes special charges recorded in 2001 and 2000 by type of expense.

	2001			2000
Andover/MetroWest Charges
Severance costs	$	1,710		$	—
Data processing/systems integration		680			—
Other costs		1,383			—
		3,773			—
Banknorth Merger Charges
Severance costs		2,329			13,050
Data processing/systems integration		—			4,667
Asset write-downs/facility costs		—			12,336
Gain on regulatory-mandated branch sales		(2,906	)		—
Other costs		595			5,176
		18			35,229
Charter Consolidation Costs
Branch signage		42			—
Customer notices		244			—
Forms and documents		385			—
Other costs		303			—
		974			—
Branch closings
Severance costs		48			68
Asset write-downs/lease terminations		1,585			1,063
Branch decommissioning costs		755			—
Other costs		—			256
Reversal of prior accruals		(431	)		—
		1,957			1,387
Other Special Charges
Write-down of auto lease residuals		892			3,700
Contract termination— merchant processing		—			3,091
Reversal of accrual remaining from CFX/SIS mergers		—			(400	)
		892			6,391
Total Special Charges	$	7,614		$	43,007

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        The following table presents activity in the accrual account for special charges for the years ended December 31, 2001 and 2000, respectively.

	Andover/ MetroWest Mergers			Banknorth Merger			Charter Consolidation			Branch Closings			Other			Total
Balance, December 31, 1999	$	—		$	—		$	—		$	—		$	1,628		$	1,628
Special charges		—			35,229			—			1,387			6,391			43,007
Cash payments		—			(33,664	)		—			(464	)		(4,319	)		(38,447	)
Gain on curtailment of benefit plans		—			8,500			—			—			—			8,500
Non-cash write-downs and other adjustments		—			(5,697	)		—			(753	)		(4,953	)		(11,403	)
Balance, December 31, 2000		—			4,368			—			170			(1,253	)		3,285
Amount accrued at acquisition		13,465			—			—			—			—			13,465
Special charges		3,773			18			974			1,957			892			7,614
Cash payments		(6,031	)		(2,158	)		(974	)		(753	)		—			(9,916	)
Non-cash write-downs and other adjustments		—			(645	)		—			(1,078	)		(892	)		(2,615	)
Balance, December 31, 2001	$	11,207		$	1,583		$	—		$	296		($	1,253	)	$	11,833

12. Federal Funds Purchased and Securities Sold Under Repurchase Agreements

        A summary of federal funds purchased and securities sold under repurchase agreements follows:

	December 31,
	2001		2000
Federal funds purchased	$	50,000	$	152,003
Securities sold under repurchase agreements		1,570,555		986,626
	$	1,620,555	$	1,138,629

        A summary of securities sold under short term repurchase agreements follows:

	At or for the Year Ended December 31,
	2001			2000			1999
Balance outstanding at end of period	$	1,570,555		$	986,626		$	1,302,821
Market value of collateral at end of period		1,675,503			1,194,365			1,536,101
Amortized cost of collateral at end of period		1,650,065			1,194,606			1,579,486
Average balance outstanding during the year		1,239,402			995,193			768,500
Maximum outstanding at any month end during the year		1,570,555			1,261,442			1,302,821
Average interest rate during the year		3.81	%		5.24	%		4.34	%
Average interest rate at end of year		3.18	%		4.99	%		4.58	%

        Securities sold under repurchase agreements have a weighted average remaining maturity of 1.4 years and are collateralized by mortgage-backed securities and U.S. Government obligations.

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13. Borrowings from the Federal Home Loan Bank

        A summary of the borrowings from the Federal Home Loan Bank follows:

December 31, 2001					December 31, 2000
Maturity Dates	Principal Amounts		Interest Rates		Maturity Dates	Principal Amounts		Interest Rates
2002	$	878,859	3.99-7.79	%	2001	$	2,423,001	4.95-6.63	%
2003		364,967	3.03-6.52	%	2002		210,118	6.63-7.79	%
2004		755,412	1.76-6.45	%	2003		171,246	4.98-6.43	%
2005		309,779	3.08-7.15	%	2004		239,163	5.28-7.72	%
2006		242,094	4.38-6.39	%	2005		161,466	6.14-7.15	%
2007-2021		92,994	3.23-8.14	%	2006-2020		143,248	3.60-8.14	%
	$	2,644,105				$	3,348,242

        At December 31, 2001 callable borrowings of $1.0 billion are shown in their respective periods assuming that the callable debt is redeemed at the initial call date while all other borrowings are shown in the periods corresponding to their scheduled maturity date.

        Short and long-term borrowings from the Federal Home Loan Bank, which consist of both fixed and adjustable rate borrowings, are secured by a blanket lien on qualified collateral, consisting primarily of loans with first mortgages secured by one to four family properties, certain unencumbered investment securities and other qualified assets. During the fourth quarter of 2001, the Company prepaid $174.6 million of FHLB borrowings and incurred a prepayment penalty of $6.0 million ($3.9 million net of tax) which was recorded as an extraordinary item. The FHLB borrowings which were prepaid had a weighted average cost of 5.62% and a weighted average maturity of 2 years.

14. Subordinated Long-term Debt

        In June 2001, the Company's wholly-owned subsidiary, First Massachussetts Bank, NA, issued $200 million of 7.625% subordinated notes due in 2011. The Company incurred $2.0 million of debt issuance costs, which is being amortized over the ten year term. Interest is payable semi-annually in June and December. The notes qualify as Tier 2 capital.

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15. Trust Preferred Securities

        The Company has two subsidiary business trusts—Peoples Heritage Capital Trust I and Banknorth Capital Trust I—of which the Company owns all of the common securities. These trusts have no independent assets or operations and exist for the sole purpose of issuing trust preferred securities and investing the proceeds thereof in an equivalent amount of junior subordinated debentures issued by the Company. The junior subordinated debentures, which are the sole assets of the trusts, are unsecured obligations of the Company and generally are subordinate and junior in right of payment to all present and future senior and subordinated indebtedness and certain other financial obligations of the Company. The principal amount of subordinated debentures held by each trust equals the aggregate liquidation amount of its trust preferred securities and its common securities. See Note 21 for the aggregate amount of junior subordinated debentures currently outstanding. The subordinated debentures bear interest at the same rate, and will mature on the same date, as the corresponding trust preferred securities. The effect of various contractual obligations of the Company undertaken in connection with the issuance of trust preferred securities is that the Company fully and unconditionally guarantees each trust's obligations under the trust securities. For information concerning the ability of the Company to obtain funds from banking subsidiaries, see Note 16. The trust preferred securities may be prepaid at par at the option of the trusts, in whole or in part, on or after their respective prepayment dates.

        At December 31, 2001, excluding trust preferred securities repurchased by the Company, Peoples Heritage Capital Trust I had $63.8 million of 9.06% trust preferred securities outstanding and Banknorth Capital Trust I had $30.0 million of 10.52% trust preferred securities outstanding. The Company repurchased in the open market $5.0 million in 2001 and $31.2 million in 1999 of trust preferred securities originally issued by Peoples Heritage Capital Trust I in 1997.

        The trust preferred securities qualify as Tier 1 capital for regulatory purposes.

16. Shareholders' Equity

        In late 2001, the Company issued 16.5 million shares in connection with the acquisition of Andover (including 1.0 million shares issuable upon exercise of Banknorth stock options issued in exchange for Andover stock options). In January 2001, the Company's Board of Directors authorized the repurchase of up to 8 million shares, or approximately 6% of the outstanding Company common stock. In October 2001, the Board authorized the repurchase of an additional 5 million shares, bringing the total repurchase program to 13 million shares. As of December 31, 2001, the Company had repurchased 7.3 million shares at a total cost of $151.5 million. A total of 5.7 million shares remained under this authorization at December 31, 2001.

Regulatory Capital Requirements.

        Bank regulatory agencies have established capital adequacy standards which are used extensively in their monitoring and control of the industry. Certain of these standards relate capital to level of risk by assigning different weightings to assets and certain off-balance sheet activity. The Company must

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maintain minimum total risk-based, Tier 1 risk-based and Tier 1 leverage ratios as set forth in the table below.

	Actual				Capital Requirements				Excess
As of December 31, 2001
	Amount		Ratio		Amount		Ratio		Amount		Ratio
Total capital (to risk weighted assets)	$	1,763,236	12.23	%	$	1,153,369	8.00	%	$	609,867	4.23	%
Tier 1 capital (to risk weighted assets)		1,382,903	9.59	%		576,685	4.00	%		806,218	5.59	%
Tier 1 leverage capital ratio (to average assets)		1,382,903	7.14	%		775,163	4.00	%		607,740	3.14	%
As of December 31, 2000
Total capital (to risk weighted assets)	$	1,428,814	11.81	%	$	967,752	8.00	%	$	461,062	3.81	%
Tier 1 capital (to risk weighted assets)		1,277,574	10.56	%		483,876	4.00	%		793,698	6.56	%
Tier 1 leverage capital ratio (to average assets)		1,277,574	7.02	%		727,852	4.00	%		549,722	3.02	%

        At December 31, 2001 and 2000, the Company and each of its depository subsidiaries were "well-capitalized", as defined, and in compliance with all applicable regulatory capital requirements.

Dividend Limitations.

        Dividends paid by subsidiaries are the primary source of funds available to the Company for payment of dividends to its shareholders. The Company's banking subsidiaries are subject to certain requirements imposed by federal banking laws and regulations. These requirements, among other things, establish minimum levels of capital and restrict the amount of dividends that may be distributed by the banking subsidiaries to the Company.

Stockholder Rights Plan.

        In 1989, the Company's Board of Directors adopted a Stockholder Rights Plan declaring a dividend of one preferred Stock Purchase Right for each outstanding share of Company common stock. The rights will remain attached to the Common Stock and are not exercisable except under limited circumstances relating to the acquisition of, the right to acquire beneficial ownership of, or tender offer for 20% or more of the outstanding shares of Company common stock. The rights have no voting or dividend privileges and, until they become exercisable, have no dilutive effect on the earnings of the Company. On July 27, 1999, the Board of Directors amended and restated the Stockholder Rights Plan to, among other things, extend the expiration date of the rights to September 25, 2009. On July 25, 2000, the Company again amended and restated the Stockholder Rights Plan to reflect its acquisition of Banknorth.

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Earnings per share

        The following table presents a computation of earnings per share as of the dates indicated.

			Year Ended December 31,
			2001		2000		1999
Net income			$	238,795	$	191,734	$	196,958
Weighted average shares outstanding
	Basic			140,473		144,270		145,758
		Dilutive effect of stock options		1,329		924		1,670
	Diluted			141,802		145,194		147,428
Net income per share:
	Basic		$	1.70	$	1.33	$	1.35
	Diluted			1.68		1.32		1.34

        Weighted average shares outstanding exclude 283 thousand, 378 thousand, and 473 thousand shares of unallocated ESOP shares at December 31, 2001, 2000 and 1999, respectively.

17. Commitments, Contingent Liabilities and Other Off-Balance Sheet Risks

        The Company is party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers and to reduce its own exposure to fluctuations in interest rates. These financial instruments include commitments to originate loans, standby letters of credit, recourse arrangements on serviced loans and forward commitments to sell loans. The instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the Consolidated Balance Sheets. The contract or notional amounts of those instruments reflect the extent of involvement the Company has in particular classes of financial instruments.

        The Company's exposure to credit loss in the event of nonperformance by the other party to the financial instrument for loan commitments, standby letters of credit and recourse arrangements is represented by the contractual amount of those instruments. The Company uses the same credit policies in making commitments and conditional obligations as it does for on-balance sheet instruments. For forward commitments to sell loans, the contract or notional amounts do not represent exposure to credit loss. The Company controls the credit risk of its forward commitments to sell loans through credit approvals, limits and monitoring procedures.

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17. Commitments, Contingent Liabilities and Other Off-Balance Sheet Risks (Continued)

        Financial instruments with off-balance sheet risk at December 31, 2001 and 2000 follow:

			Contract or Notional Amount at December 31,
			2001		2000
Financial instruments with notional or contract amounts which represent credit risk:
	Commitments to originate loans, unused lines, standby letters of credit and unadvanced portions of construction loans		$	4,398,307	$	3,388,399
	Commitments to invest in real estate limited partnerships			21,520		27,866
	Commitments to invest in small business investments limited partnerships			15,997		6,712
	Loans serviced with recourse			17,226		155,179
	Loans sold with credit enhancements			—		28
Financial instruments with notional or contract amounts which exceed the amount of credit risk:
	Forward commitments to sell loans			172,504		92,363
	Interest rate floors:
		—notional amount		—		145,000
		—fair value		—		10

        Commitments to originate loans, unused lines of credit and unadvanced portions of construction loans are agreements to lend to a customer provided there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Because many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The Company evaluates each customer's creditworthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by the Company upon extension of credit, is based on management's credit evaluation of the borrower.

        Standby letters of credit are conditional commitments issued by the Company to guarantee the performance by a customer to a third party. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers.

        Forward commitments to sell residential mortgage loans are contracts which the Company enters into for the purpose of reducing the market risk associated with originating loans for sale. Risks may arise from the possible inability of the Company to originate loans to fulfill the contracts, in which case the Company would normally purchase loans from correspondent banks or in the open market to deliver against the contract.

        At December 31, 2001, the Company had $39.9 million of investments in tax advantaged limited partnerships primarily involved in approved low-income housing investment tax credit projects in the Company's market area and commitments to invest up to an additional $21.5 million in such partnerships. At December 31, 2001, the Company had $13.3 million invested in small business limited partnerships which primarily provide seed money to businesses in the Company's market area and

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commitments to invest up to an additional $16.0 million in such partnerships. Investments in both of the foregoing categories of assets are included under other assets.

Legal Proceedings.

        The Company and certain of its subsidiaries have been named as defendants in various legal proceedings arising from their normal business activities. Although the amount of any ultimate liability with respect to such proceedings cannot be determined, in the opinion of management, based upon the opinions of counsel, any such liability will not have a material effect on the consolidated financial position, results of operations or liquidity of the Company and its subsidiaries.

Lease Obligations.

        The Company leases certain properties used in operations under terms of operating leases which include renewal options. Rental expense under these leases approximated $19.9 million, $18.1 million and $16.5 million for the years ended 2001, 2000 and 1999, respectively.

        The following table sets forth the approximate future minimum lease payments over the remaining terms of the leases as of December 31, 2001.

2002	$	18,310
2003		15,649
2004		14,206
2005		12,029
2006		10,948
2007 and after		61,862
	$	133,004

        The Company has also committed to occupy 140,000 square feet of office space in the greater Portland area. The Company is expected to occupy this space in the first quarter of 2003 when the building is completed and retrofitted. The lease has a fifteen year term and the base rent is $2.1 million per year.

18. Stock-Based Compensation Plans

Stock Option Plans.

        In 1995, the Company adopted a stock option plan for non-employee directors, which was amended and restated in 2000 to authorize the issuance of up to an additional 530,000 shares. The maximum number of shares which may be issued under the amended plan is 1,060,000 shares, of which 82,600 shares had been issued upon exercise of the stock options granted pursuant to this plan through December 31, 2001. Options to purchase 109,750 shares were granted in 2001 at an exercise price of $19.80 per share, options to purchase 100,000 shares were granted in 2000 at an exercise price of $14.13 per share and options to purchase 114,000 shares were granted in 1999 at an exercise price of $18.06 per share. At December 31, 2001, there were 563,500 shares available for future options under the plan.

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        The Company has adopted various stock option plans for key employees. These plans include a stock option plan adopted in 1996 (the "1996 Option Plan"). The 1996 Option Plan, as amended, authorizes grants of options and other stock awards covering up to 13,000,000 shares of Common Stock. Stock options are granted with an exercise price equal to the stock's fair market value at the date of the grant and expire 10 years from the date of the grant. At December 31, 2001, there were 5,610,868 additional shares available for grant under the 1996 Option Plan.

        The per share weighted-average fair value of all stock options granted by the Company during 2001, 2000 and 1999 was $6.10, $5.23 and $5.72 on the date of the grants using the Black Scholes option-pricing model with the following average assumptions:

	2001		2000		1999
Expected dividend yield	2.48	%	3.24	%	2.74	%
Risk-free interest rate	4.50		6.14		5.53
Expected life	5.00 years		5.00 years		5.00 years
Volatility	33.91	%	38.27	%	35.90	%

        The Company applies APB Opinion No. 25 in accounting for its stock option plans and, due to the exercise price of options granted being equal to the then fair market value of the underlying stock, no cost has been recognized for its stock options in the financial statements. Had the Company determined cost based on the fair value at the grant date for its stock options under SFAS No. 123, the Company's net income would have been reduced to the pro forma amounts indicated as follows:

		Year ended December 31,
		2001		2000		1999
Net Income
	As reported	$	238,795	$	191,734	$	196,958
	Pro forma	$	233,710	$	188,146	$	191,396
Basic Earnings per share
	As reported	$	1.70	$	1.33	$	1.35
	Pro forma	$	1.66	$	1.30	$	1.31
Diluted Earnings per share
	As reported:	$	1.68	$	1.32	$	1.34
	Pro forma	$	1.65	$	1.30	$	1.30

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        Activity for all stock option plans during the three-year period ended December 31, 2001 is summarized as follows:

	Number of Shares	Weighted Average Exercise Price
Balance at December 31, 1998	8,005,383	$	11.83
Granted	1,680,656		17.83
Exercised	1,713,368		8.26
Forfeited	281,540		16.72
Balance at December 31, 1999	7,691,131	$	13.72
Granted	1,632,212		16.17
Exercised	1,530,041		8.60
Forfeited	597,363		18.66
Balance at December 31, 2000	7,195,939	$	15.00
Granted	3,193,168		20.81
Granted for purchase acquisitions	1,018,863		10.01
Exercised	1,589,917		11.46
Forfeited	162,822		18.76
Balance at December 31, 2001	9,655,231	$	16.90

        The range of per share exercise prices for outstanding and exercisable stock options at December 31, 2001 was as follows:

	Options Outstanding				Options Exercisable
Range of Exercise Prices	Number Outstanding at 12/31/2001	Weighted Average Remaining Contractual Life	Weighted Average Exercise Price		Number Outstanding at 12/31/2001	Weighted Average Exercise Price
up to $5.00	157,091	1.6 years	$	4.11	152,091	$	4.25
$5.01 – $10.00	781,327	3.4		7.42	781,327		7.42
$10.01 – $15.00	1,186,824	4.7		11.83	1,185,074		11.83
$15.01 – $20.00	4,301,721	7.4		17.39	3,583,418		17.55
Over $20.00	3,228,268	9.5		21.04	251,700		23.13
	9,655,231				5,953,610

401(k) Plan and Employee Stock Ownership Plans (ESOP).

        The Company and its subsidiaries have contributory 401(k) Plans covering substantially all permanent employees. The Company matches employee contributions based on a predetermined formula and may make additional discretionary contributions.

        Effective January 1, 2001, the Company merged the Profit Sharing Employee Stock Ownership Plan (the "ESOP"), which was designed to invest primarily in Company common stock, into the 401(k)

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Plan. The Company previously sponsored a leveraged employee stock ownership plan which was merged with and into the ESOP. The Company is required to make annual contributions to the ESOP equal to the ESOP's debt service and the unallocated shares are pledged as collateral for the debt. As the debt is repaid, shares are released from collateral and allocated to eligible employees. The total expense for these plans in 2001, 2000 and 1999 was $5.2 million, $5.0 million and $5.0 million, respectively.

Employee Stock Purchase Plan.

        The Company has an Employee Stock Purchase Plan that is available to employees with one year of service. The maximum number of shares which may be issued under the Employee Stock Purchase Plan is 1,352,000 shares. Employees have the right to authorize payroll deductions up to 10% of their salary. As of December 31, 2001, 1,246,049 shares had been purchased under this plan.

Restricted Stock Plan.

        In 1990, the Company adopted a Restricted Stock Plan under which up to $10,000 of the annual fee payable to each non-employee Director of the Company and participating subsidiaries is payable solely in shares of Company common stock. Shares issued under this plan totaled 6,358, 12,066 and 7,376 in 2001, 2000 and 1999, respectively.

19. Retirement and Other Benefit Plans

Pension Plan.

        The Company has a noncontributory defined benefit plan covering most permanent employees who have completed more than 1,000 hours of service per year. Benefits are based on career average earnings and length of service. The Company has historically made cash contributions to the defined benefit pension plan for the maximum amount that can be deducted for federal income tax purposes. Contributions are intended to provide not only for benefits attributed to service to date, but also for those expected to be earned in the future.

        The Company has adopted supplemental retirement plans for certain key officers. These plans were designed to offset the impact of changes in the pension plans which limit the benefits for highly-paid employees under qualified pension plans. The Company also has entered into deferred compensation agreements with certain key officers. The cost of these agreements is accrued but not funded. The Company holds corporate-owned life insurance policies on the lives of certain executives. The death benefits are payable to the Company and will assist in the funding of the deferred compensation liability. The Company will recover the costs of premium payments from the cash value of these policies.

Post Retirement Benefits Other Than Pensions.

        The Company and its subsidiaries sponsor post-retirement benefit programs which provide medical coverage and life insurance benefits to a closed group of employees and directors who meet minimum age and service requirements.

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19. Retirement and Other Benefit Plans (Continued)

        The Company and its subsidiaries recognize costs related to post retirement benefits under the accrual method, which recognizes costs over the employee's period of active employment. The impact of adopting SFAS No. 106 is being amortized over a twenty year period beginning January 1, 1993.

        The following tables set forth the funded status and amounts recognized in the Company's Consolidated Balance Sheets at December 31, 2001 and 2000 for the pension plans and other post retirement benefit plans:

	Pension Plans						Other Post- Retirement Benefits
	2001			2000			2001			2000
Change in benefit obligation
Benefit obligation at beginning of year	$	119,866		$	119,209		$	11,954		$	12,104
Service cost		5,063			5,636			87			312
Interest cost		9,273			9,296			883			1,019
Assumption changes		8,651			—			441			—
Actuarial (gain) loss		(1,777	)		900			20			1,349
Acquisitions		5,467			—			370			—
Benefits paid		(7,721	)		(9,300	)		(1,339	)		(1,230	)
Curtailment gain		—			(5,875	)		—			(1,600	)
Benefit obligation at end of year	$	138,822		$	119,866		$	12,416		$	11,954
Change in plan assets
Fair value of plan assets at beginning of year	$	121,019		$	131,589		$	—		$	—
Actual return on plan assets		(6,893	)		(3,315	)		—			—
Employer contribution		27,252			2,046			1,339			1,230
Benefits paid		(7,721	)		(9,301	)		(1,339	)		(1,230	)
Acquisitions		7,314			—			—			—
Fair value of plan assets at end of year	$	140,971		$	121,019		$	—		$	—
Funded status	$	2,149		$	1,153		($	12,416	)	($	11,954	)
Unrecognized net actuarial (gain) loss		12,193			(12,679	)		1,608			1,216
Unrecognized prior service cost		1,130			1,236			1,354			1,493
Unrecognized net transition obligation		(1,062	)		(1,378	)		4,471			4,864
Prepaid (accrued) benefit cost	$	14,410		($	11,668	)	($	4,983	)	($	4,381	)
Weighted-average assumptions as of December 31
Discount rate		7.25	%		7.75	%		7.25	%		7.75	%
Expected return on plan assets		9.00	%		8.50	%		—			—
Rate of compensation increase		4.50	%		4.50	%		—			—

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	Year Ended December 31,									Year Ended December 31,
	2001			2000			1999			2001		2000		1999
Components of net periodic benefit cost
Service cost	$	5,063		$	5,636		$	7,537		$	87	$	312	$	336
Interest cost		9,273			9,296			8,945			883		1,019		852
Expected return on plan assets		(10,670	)		(11,018	)		(10,464	)		—		—		—
Net amortization and deferral		(644	)		(1,842	)		(207	)		534		571		545
Net periodic benefit cost	$	3,022		$	2,072		$	5,811		$	1,504	$	1,902	$	1,733

        Curtailment gains of $7.5 million and $8.0 million in 2000 and 1999, respectively, were recorded as a reduction of special charges relating to acquisitions.

20. Fair Value of Financial Instruments

        The Company discloses fair value information about financial instruments, whether or not recognized in the balance sheet, for which it is practicable to estimate fair value. Fair value estimates are made as of a specific point in time based on the characteristics of the financial instruments and relevant market information. Where available, quoted market prices are used. In other cases, fair values are based on estimates using present value or other valuation techniques. These techniques involve uncertainties and are significantly affected by the assumptions used and judgments made regarding risk characteristics of various financial instruments, discount rates, estimates of future cash flows, future expected loss experience and other factors. Changes in assumptions could significantly affect these estimates. Derived fair value estimates cannot be substantiated by comparison to independent markets and, in certain cases, could not be realized in an immediate sale of the instrument. Also, because of differences in methodologies and assumptions used to estimate fair values, the Company's fair values should not be compared to those of other banks.

        Fair value estimates are based on existing financial instruments without attempting to estimate the value of anticipated future business and the value of assets and liabilities that are not considered financial instruments. Accordingly, the aggregate fair value amounts presented do not purport to represent the underlying market value of the Company. For certain assets and liabilities, the information required under SFAS No. 107 is supplemented with additional information relevant to an understanding of the fair value. Also, fair values are presented for certain assets that are not financial instruments under the definition in SFAS No. 107.

        The following describes the methods and assumptions used by the Company in estimating the fair values of financial instruments and certain non-financial instruments:

Cash and cash equivalents, including cash and due from banks, short-term investments and federal funds sold. For these cash and cash equivalents, which have maturities of 90 days or less, the carrying amounts reported in the balance sheet approximate fair values.

        Securities and loans held for sale.    Fair values are based on quoted bid market prices, where available. Where quoted market prices for an instrument are not available, fair values are based on quoted market prices of similar instruments, adjusted for differences between the quoted instruments

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and the instrument being valued. Fair values are calculated based on the value of one unit without regard to premiums or discounts that might result from selling all of the Company's holdings of a particular security in one transaction.

        Loans and leases.    The fair values of commercial, commercial real estate, residential real estate, and certain consumer loans and leases are estimated by discounting the contractual cash flows using interest rates currently being offered for loans with similar terms to borrowers of similar quality.

        For certain adjustable/variable-rate loans, including home equity lines of credit the carrying value approximates fair value.

        For nonperforming loans and certain loans where the credit quality of the borrower has deteriorated significantly, fair values are estimated by discounting cash flows at a rate commensurate with the risk associated with those cash flows.

        Mortgage Servicing Rights.    The fair value of the Company's mortgage servicing rights at December 31, 2001 was based on the expected present value of future mortgage servicing income, net of estimated servicing costs, considering market consensus loan prepayment predictions at that date. The fair value of the Company's mortgage servicing rights at December 31, 2000 was largely based on the terms of a contract to sell substantially all remaining mortgage servicing rights during the first quarter of 2001.

        Deposits.    The fair value of deposits with no stated maturity is equal to the carrying amount. The fair value of time deposits is based on the discounted value of contractual cash flows, applying interest rates currently being offered on the deposit products of similar maturities.

        The fair value estimates for deposits do not include the benefit that results from the low-cost funding provided by the deposit liabilities compared to the cost of alternative forms of funding ("deposit base intangibles")

Borrowings, including federal funds purchased, securities sold under repurchase agreements, borrowings from the Federal Home Loan Bank and other borrowings. The fair value of the Company's long-term borrowings is estimated by discounting cash flows based on current rates available to the Company for similar types of borrowing arrangements. For short-term borrowings that mature or reprice in 90 days or less, carrying value approximates fair value.

Off-balance sheet instruments:

Commitments to originate loans and commitments to extend credit and standby letters of credit. In the course of originating loans and extending credit and standby letters of credit, the Company will charge fees in exchange for its lending commitment. While these commitment fees have value, the Company has not estimated their value due to the short-term nature of the underlying commitments. Residential mortgage loan commitments with rate-lock agreements were valued based on investor yield requirements at the respective dates and are included in the recorded value of loans held for sale.

        Forward commitments to sell loans.    The fair value of the Company's forward commitments to sell loans reflects the value of origination fees and servicing rights recognizable upon sale of loans net of any cost to the Company if it fails to meet its sale obligation. Of the $172.5 million of forward sales

76

commitments at December 31, 2001, the Company had $117.7 million in loans available to sell at that date as well as sufficient loan originations subsequent to December 31, 2001 to fulfill the commitments. Forward commitments to sell loans are valued based on investor yield requirements at the respective dates and are included in the recorded value of loans held for sale.

        Loans serviced with recourse.    Under certain of the Company's servicing arrangements with investors, the Company has recourse obligation to those serviced loan portfolios. In the event of foreclosure on a serviced loan, the Company is obligated to repay the investor to the extent of the investor's remaining balance after application of proceeds from the sale of the underlying collateral. To date, losses related to these recourse arrangements have been insignificant and while the Company cannot project future losses, the fair value of this recourse obligation is deemed to be likewise insignificant.

        A summary of the carrying values and estimated fair values of the Company's significant financial instruments at December 31, 2001 and 2000 follows:

		2001				2000
		Carrying Value		Fair Value		Carrying Value		Fair Value
Assets:
	Cash and cash equivalents	$	921,211	$	921,211	$	544,992	$	544,992
	Securities available for sale		5,817,238		5,817,238		5,425,111		5,425,111
	Securities held to maturity		339,623		340,737		455,547		457,110
	Loans held for sale		117,674		117,674		51,131		51,823
	Loans and leases, net		12,525,493		12,861,157		10,692,112		10,930,029
	Mortgage servicing rights		8,484		8,603		23,225		24,926
	Interest rate swaps, floor and corridor contracts		—		—		—		10
Liabilities:
	Deposits (with no stated maturity)		9,408,702		9,408,702		7,540,655		7,540,655
	Time deposits		4,812,347		4,842,734		4,566,601		4,584,201
	Borrowings		4,602,388		4,651,406		4,659,390		4,666,620

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21. Condensed Financial Information—Parent Company Only

			December 31,
			2001		2000
Balance Sheets
Assets:
	Cash and due from banks		$	12,356	$	4,134
	Interest bearing deposits with subsidiaries			18,355		67,894
	Securities available for sale			39,311		34,038
	Investment in subsidiaries			1,796,728		1,315,385
	Goodwill and other intangibles			9,209		11,057
	Amounts receivable from subsidiaries			23,701		3,832
	Other assets			70,609		56,854
		Total assets	$	1,970,269	$	1,493,194
Liabilities and shareholders' equity
	Amounts payable to subsidiaries		$	1,029	$	6,949
	Subordinated debentures supporting mandatory redeemable trust securities			134,021		134,021
	Other liabilities			46,104		21,367
	Shareholders' equity			1,789,115		1,330,857
		Total liabilities and shareholders' equity	$	1,970,269	$	1,493,194

			Year Ended December 31,
			2001			2000			1999
Statements of Income
Operating income:
	Dividends from subsidiaries		$	175,793		$	140,480		$	203,983
	Other operating income			4,989			7,909			6,931
		Total operating income		180,782			148,389			210,914
Operating expenses:
	Interest on borrowings			12,900			12,712			13,222
	Amortization of goodwill and other intangibles			1,847			1,853			1,847
	Special charges			4,277			7,758			14,710
	Other operating expenses			224			336			6,595
	Total operating expenses			19,248			22,659			36,374
Income before income taxes and equity in undistributed net income of subsidiaries				161,534			125,730			174,540
Income tax expense (benefit)				(4,485	)		(2,319	)		(10,733	)
Income before equity in undistributed net income of subsidiaries				166,019			128,049			185,273
Equity in undistributed net income of subsidiaries				72,776			63,685			11,685
Net income			$	238,795		$	191,734		$	196,958

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		Year Ended December 31,
		2001			2000			1999
Statements of Cash Flows
Cash flows from operating activities:
	Net income	$	238,795		$	191,734		$	196,958
	Adjustments to reconcile net income to net cash (used) provided by operating activities:
	Undistributed net income from subsidiaries		(72,776	)		(63,685	)		(11,685	)
	Amortization of goodwill and other intangibles		1,847			1,853			1,847
	Decrease in unearned compensation		2,005			1,527			2,072
	(Increase) decrease in amounts receivable from subsidiaries		(19,869	)		57,705			(47,177	)
	(Increase) decrease in other assets		(13,705	)		(15,525	)		(11,661	)
	(Decrease) increase in amounts payable to subsidiaries		(5,920	)		(21,771	)		19,767
	Increase (decrease) in other liabilities		24,931			(18,785	)		17,466
	Other, net		68			(42	)		668
Net cash provided by operating activities			155,376			133,011			168,255
Cash flows from investing activities:
	Net decrease (increase) in interest bearing deposits with subsidiaries		49,539			(2,009	)		(37,961	)
	Sales of available for sale securities		—			—			1,432
	Purchase of available for sale securities		(4,990	)		—			(34,119	)
	Sales of held to maturity securities		—			2,854			—
	Maturity of securities purchased under agreements to resell		—			12,250			—
	Capital contribution from (to) subsidiary		—			—			11,890
	Cash acquired in acquisition		6,328			—			—
Net cash provided (used) by investing activities			50,877			13,095			(58,758	)
Cash flows from financing activities:
	Proceeds from line of credit		35,000			—			—
	Payment of line of credit		(35,000	)		—			—
	Payment of notes payable		(356	)		(1,227	)		(10,805	)
	Dividends paid to shareholders		(72,277	)		(70,773	)		(65,368	)
	Treasury stock acquired		(151,546	)		(96,585	)		(53,745	)
	Common stock issued		26,148			21,001			18,352
Net cash (used) provided by financing activities			(198,031	)		(147,584	)		(111,566	)
Net increase (decrease) in cash due from banks			8,222			(1,478	)		(2,069	)
Cash and due from banks at beginning of year			4,134			5,612			7,681
Cash and due from banks at end of year		$	12,356		$	4,134		$	5,612
Supplemental disclosure information:
	Interest paid on borrowings	$	12,900		$	12,712		$	13,210

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22. Subsequent Events (unaudited)

        Effective January 1, 2002, the company completed the consolidation of eight of its banking subsidiaries and its subsidiary trust company into its Maine-based banking subsidiary, Peoples Heritage Bank, which was renamed Bankorth, NA in connection with these transactions.

        On February 11, 2002, the Company filed a shelf registration statement with the SEC which allows the Company to sell $1.0 billion of debt securities, preferred stock, depository shares, common stock and warrants and which also allows subsidiary trusts to sell capital securities.

        On February 22, 2002, a subsidiary of the Company, Banknorth Capital Trust II, issued $200 million of 8% trust preferred securities ("Securities") to the public under the shelf registration. The proceeds from the offering will be used for general corporate purposes, including working capital, capital expenditures, investments in or advances to existing or future indebtedness, repayment of maturing obligations, replacement of outstanding indebtedness and repurchase of outstanding stock. The Securities will pay interest quarterly, are mandatorily redeemable on April 1, 2032 and may be redeemed by the Trust at par any time on or after April 1, 2007.

        On February 26, 2002, the Company announced that it had entered into an agreement to acquire Massachusetts-based Ipswich Bancshares, Inc. ("Ipswich"). Ipswich had $321 million in assets and $15.1 million in shareholders' equity at December 31, 2001. Under terms of the agreement, each outstanding share of common stock of Ipswich will be converted into the right to receive $20.50 in cash or a number of whole shares of Company common stock determined by dividing $20.50 by the average closing prices of the Company common stock during a specified period preceding the merger, plus cash in lieu of any fractional share interest, subject to election and reallocation procedures which are intended to ensure that 51% of the outstanding shares of Ipswich common stock will be converted into the right to receive Company common stock and 49% of the outstanding Ipswich common stock will be converted into cash. The agreement has been approved by the Company and Ipswich Boards of Directors. The consummation of the merger is subject to the receipt of the approval of the shareholders of Ipswich and all required regulatory approvals and other customary closing conditions. The acquisition is expected to be completed in mid-2002.

        In addition, on February 26, 2002, the Company announced that the Board of Directors had authorized the repurchase of up to 8 million shares, or approximately 5% of its outstanding Company common stock, from time to time in the open market.

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23. Selected Quarterly Data (unaudited)

		2001										2000
		Fourth Quarter			Third Quarter		Second Quarter		First Quarter			Fourth Quarter			Third Quarter		Second Quarter			First Quarter
Interest income		$	314,484		$	306,125	$	316,635	$	326,545		$	337,281		$	336,559	$	331,054		$	325,393
Interest expense			126,008			136,323		150,917		170,578			185,668			188,192		180,236			172,567
Net interest income			188,476			169,802		165,718		155,967			151,613			148,367		150,818			152,826
Provision for loan and lease losses			13,378			12,061		9,311		7,138			6,651			6,250		5,849			5,068
Net interest income after provision for loan and lease losses			175,098			157,741		156,407		148,829			144,962			142,117		144,969			147,758
Noninterest income			63,599			60,551		57,597		58,756			64,067			56,067		56,782			50,168
Losses on securities restructuring			—			—		—		—			—			—		(15,895	)		—
Special charges			2,007			—		—		5,608			(15	)		414		37,271			5,337
Noninterest expenses			136,034			124,650		121,845		119,251			117,126			109,289		115,383			117,663
Income before income taxes			100,656			93,642		92,159		82,726			91,918			88,481		33,202			74,926
Income tax expense			35,152			31,440		32,266		27,343			29,554			27,890		14,323			25,026
Net income before extraordinary item and cumulative effect of change in accounting principle			65,504			62,202		59,893		55,383			62,364			60,591		18,879			49,900
Extraordinary item, net of tax			(3,897	)		—		—		—			—			—		—			—
Net income before cumulative effect of change in accounting principle			61,607			62,202		59,893		55,383			62,364			60,591		18,879			49,900
Cumulative effect of change in accounting principle, net of tax			—			—		—		(290	)		—			—		—			—
Net income		$	61,607		$	62,202	$	59,893	$	55,093		$	62,364		$	60,591	$	18,879		$	49,900
Basic earnings per share:
	Net income before extraordinary item and cumulative effect of change in accounting principle	$	0.45		$	0.45	$	0.44	$	0.39		$	0.43		$	0.42	$	0.13		$	0.35
	Extraordinary item, net of tax		(0.03	)		—		—		—			—			—		—			—
	Cumulative effect of change in accounting principle, net of tax		—			—		—		—			—			—		—			—
Basic		$	0.42		$	0.45	$	0.44	$	0.39		$	0.43		$	0.42	$	0.13		$	0.35
Diluted earnings per share:
	Net income before extraordinary item and cumulative effect of change in accounting principle	$	0.44		$	0.45	$	0.43	$	0.39		$	0.43		$	0.42	$	0.13		$	0.34
	Extraordinary item, net of tax		(0.03	)		—		—		—			—			—		—			—
	Cumulative effect of change in accounting principle, net of tax		—			—		—		—			—			—		—			—
		$	0.41		$	0.45	$	0.43	$	0.39		$	0.43		$	0.42	$	0.13		$	0.34
Operating earnings per share(1):
	Basic	$	0.46		$	0.45	$	0.44	$	0.42		$	0.43		$	0.42	$	0.40		$	0.37
	Diluted	$	0.45		$	0.45	$	0.43	$	0.42		$	0.43		$	0.42	$	0.40		$	0.37

(1)

Earnings before special charges, losses on securities restructuring, extraordinary item and cumulative effect of change in accounting principle.

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INDEPENDENT AUDITORS' REPORT

The Board of Directors
Banknorth Group, Inc.:

        We have audited the accompanying consolidated balance sheets of Banknorth Group, Inc. and subsidiaries as of December 31, 2001 and 2000, and the related consolidated statements of income, changes in shareholders' equity, and cash flows for each of the years in the three-year period ended December 31, 2001. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

        We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

        In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Banknorth Group, Inc. and subsidiaries as of December 31, 2001 and 2000, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2001, in conformity with accounting principles generally accepted in the United States of America.

Boston, Massachusetts
January 11, 2002

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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURES

        None.

PART III.

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

        Incorporated by reference to "Election of Directors" on pages 2 through 7 and "Executive Officers who are not Directors" on pages 11 and 12 of the definitive Proxy Statement of the Company, dated March 22, 2002 (the "Proxy Statement").

ITEM 11. EXECUTIVE COMPENSATION

        Incorporated by reference to "Compensation of Executive Officers and Transactions with Management" on pages 16 through 23 of the Proxy Statement.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

        Incorporated by reference to "Beneficial Ownership of Common Stock by Certain Beneficial Owners and Management" on pages 13 through 15 of the Proxy Statement.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

        Incorporated by reference to "Indebtedness of Management" and "Certain Transactions" on page 24 of the Proxy Statement.

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PART IV.

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

        (a)(1)    The following financial statements are incorporated by reference from Item 8 hereof:

Consolidated balance sheets at December 31, 2001 and 2000

Consolidated statements of income for each of the years in the three-year period ended December 31, 2001

Consolidated statements of changes in shareholders' equity for each of the years in the three-year period ended December 31, 2001

Consolidated statements of cash flows for each of the years in the three-year period ended December 31, 2001

Notes to Consolidated Financial Statements

Independent Auditors' Report

        (a)(2)    All other schedules for which provision is made in the applicable accounting regulations of the Securities and Exchange Commission are omitted because of the absence of conditions under which they are required or because the required information is included in the financial statements and related notes thereto.

        (a)(3)    The following exhibits are included as part of this Form 10-K. Where applicable, references to Banknorth include Peoples Heritage Financial Group, Inc., its name prior to May 10, 2000.

Exhibit No.	Exhibit	Location
3(a)(1)	Amended and Restated Articles of Incorporation of Banknorth	(1)
3(a)(2)	Amendments to the Articles of Incorporation of Banknorth	(2)
3(b)	Bylaws of Banknorth	(4)
4(a)	Specimen Common Stock certificate	(3)
4(b)	Stockholder Rights Agreement, dated as of September 12, 1989 and amended and restated as of July 27, 1999 and as of July 25, 2000, between Banknorth and American Stock Transfer & Trust Company, as Rights Agent	(8)
4(c)	Instruments defining the rights of security holders, including indentures	(6)
10(a)	Form of Severance Agreement between Banknorth and each executive officer of Banknorth identified in the Proxy Statement	(4)
10(b)	Form of First Amendment to Severance Agreement between Banknorth and each executive officer identified in the Proxy Statement	(7)
10(c)	Amended and Restated Supplemental Retirement Agreement among Banknorth, its subsidiaries and William J. Ryan
10(d)(1)	Supplemental Retirement Agreement among Banknorth, its subsidiaries and Peter J. Verrill	(9)
10(d)(2)	Amendment to the Supplemental Retirement Agreement among Banknorth, its subsidiaries and Peter J. Verrill	(4)

84

10(e)	Supplemental Retirement Agreement among Banknorth, its subsidiaries and John W. Fridlington	(10)
10(f)(1)	Form of Supplemental Retirement Agreement among Banknorth, its subsidiaries and each executive officer of Banknorth named in the Proxy Statement (other than Messrs. Ryan, Verrill and Fridlington)	(11)
10(f)(2)	Form of Amendment to Supplemental Retirement Agreement among Banknorth, its subsidiaries and each executive officer of Banknorth named in the Proxy Statement (other than Messrs. Ryan, Verrill and Fridlington)	(4)
10(g)	Amended and Restated 2000 Deferred Compensation Plan for Non-Employee Directors and Key Employees
10(h)	1986 Stock Option and Stock Appreciation Rights Plan, as amended	(12)
10(i)	Amended and Restated Employee Stock Purchase Plan	(5)
10(j)	Amended and Restated Restricted Stock Plan for Non- Employee Directors	(13)
10(k)	Amended and Restated 1995 Stock Option Plan for Non- Employee Directors
10(l)	Amended and Restated 401(k) Plan
10(m)	1996 Equity Incentive Plan, as amended	(14)
10(n)	Executive Incentive Plan	(5)
10(o)	Bank of New Hampshire Corporation Executive Excess Benefit Plan for Paul R. Shea	(15)
10(p)	Supplemental Executive Retirement Plan of Evergreen Bancorp, Inc. (which covers only Director Dougan)	(16)
21	Subsidiaries of Banknorth
23	Consent of KPMG LLP

(1)

Incorporated by reference to Exhibit A to the Agreement and Plan of Merger, dated as of October 27, 1997, between Banknorth and CFX Corporation, which agreement is included as Exhibit A to the Prospectus/Proxy Statement included in the Form S-4 Registration Statement (No. 333-23991) filed by Banknorth with the SEC on December 31, 1997.

(2)

Exhibits are incorporated by reference to (i) the proxy statement filed by Banknorth with the SEC on March 23, 1998, (ii) the proxy statement filed by Banknorth with the SEC on March 22, 2000 and (iii) the Form S-4 Registration Statement (No. 333-95587) filed by Banknorth with the SEC on January 28, 2000, which describes an amendment which changed the name of the registrant to "Banknorth Group, Inc."

(3)

Exhibit is incorporated by reference to the Form S-4 Registration Statement (No. 333-95587) filed by Banknorth with the SEC on January 28, 2000.

(4)

Exhibit is incorporated by reference to the Form 10-K report filed by Banknorth for the year ended December 31, 2000.

(5)

Exhibit is incorporated by reference to the proxy statement filed by Banknorth with the SEC on March 22, 2002.

85

(6)

Banknorth has no instruments defining the rights of holders of its long-term debt where the amount of securities authorized under any such instrument exceeds 10% of the total assets of Banknorth and its subsidiaries on a consolidated basis. Banknorth hereby agrees to furnish a copy of any such instrument to the SEC upon request.

(7)

Exhibit is incorporated by reference to Banknorth's Form 10-Q report for the three months ended June 30, 2001.

(8)

Exhibit is incorporated by reference to the Form 8-A/A report filed by Banknorth with the SEC on July 28, 2000.

(9)

Exhibit is incorporated by reference to Banknorth's Form 10-K report for the year ended December 31, 1990.

(10)

Exhibit is incorporated by reference to Banknorth's Form 10-K report for the year ended December 31, 1994.

(11)

Exhibit is incorporated by reference to Banknorth's Form 10-K report for the year ended December 31, 1997.

(12)

Exhibit is incorporated by reference to the Form S-4 Registration Statement (No. 33-20243) filed by Banknorth with the SEC on February 22, 1988. An amendment to the 1986 Stock Option and Stock Appreciation Rights Plan is incorporated by reference to the proxy statement filed by Banknorth with the SEC on March 24, 1994.

(13)

Exhibit is incorporated by reference to the Form 10-K report filed by Banknorth for the year ended December 31, 1996.

(14)

Exhibit is incorporated by reference to the proxy statement filed by Banknorth with the SEC on March 21, 2001.

(15)

Exhibit is incorporated by reference to the Form 10-K report filed by Bank of New Hampshire Corporation (File No. 0-9517) for the year ended December 31, 1994.

(16)

Exhibit is incorporated by reference to the Form 10-K report filed by Evergreen Bancorp, Inc. for the year ended December 31, 1996.

        Banknorth's management contracts or compensatory plans or arrangements consist of Exhibit Nos. 10(a)-(p).

(b)

Banknorth filed a Current Report on Form 8-K on November 1, 2001.



(c)

See (a)(3) above for all exhibits filed herewith and the Exhibit Index.



(d)

There are no other financial statements and financial statement schedules which were excluded from this report which are required to be included herein.

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SIGNATURES

        Pursuant to the requirements of Section 13 of the Securities Exchange Act of 1934, Banknorth has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	BANKNORTH GROUP, INC.
Date: March 5, 2002	By:	/s/  WILLIAM J. RYAN William J. Ryan Chairman, President and Chief Executive Officer

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

Name	Title	Date
Gary G. Bahre	Director
/s/  P. KEVIN CONDRON P. Kevin Condron	Director	March 13, 2002
/s/  GEORGE W. DOUGAN George W. Dougan	Director	March 13, 2002
/s/  ALLEN M. GLICK Allen M. Glick	Director	March 11, 2002
/s/  LUTHER F. HACKETT Luther F. Hackett	Director	March 7, 2002
/s/  DANA S. LEVENSON Dana S. Levenson	Director	March 13, 2002
John M. Naughton	Director
/s/  MALCOLM W. PHILBROOK, JR. Malcolm W. Philbrook, Jr.	Director	March 13, 2002

87

/s/  ANGELO PIZZAGALI Angelo Pizzagali	Director	March 8, 2002
/s/  PAMELA P. PLUMB Pamela P. Plumb	Director	March 7, 2002
/s/  IRVING E. ROGERS, III Irving E. Rogers, III	Director	March 11, 2002
/s/  WILLIAM J. RYAN William J. Ryan	Chairman, President and Chief Executive Officer (principal executive officer)	March 5, 2002
/s/  CURTIS M. SCRIBNER Curtis M. Scribner	Director	March 7, 2002
Paul R. Shea	Director
/s/  JOHN E. VEASEY John E. Veasey	Director	March 11, 2002
/s/  PATRICK E. WELCH Patrick E. Welch	Director	March 13, 2002
/s/  PETER J. VERRILL Peter J. Verrill	Senior Executive Vice President, Chief Operating Officer, Chief Financial Officer and Treasurer (principal financial officer)	March 13, 2002
/s/  STEVEN J. BOYLE Steven J. Boyle	Executive Vice President and Controller (principal accounting officer)	March 13, 2002

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QuickLinks

BANKNORTH GROUP, INC. 2001 FORM 10-K ANNUAL REPORT TABLE OF CONTENTS
FORWARD-LOOKING STATEMENTS
Financial Tables
BANKNORTH GROUP, INC. CONSOLIDATED BALANCE SHEETS
BANKNORTH GROUP, INC. CONSOLIDATED STATEMENTS OF INCOME
BANKNORTH GROUP, INC. CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
BANKNORTH GROUP, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS
BANKNORTH GROUP INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (All dollar amounts expressed in thousands, except per share data)
INDEPENDENT AUDITORS' REPORT
SIGNATURES

EX-10.C

                                                                   Exhibit 10(c)


                              AMENDED AND RESTATED
                             SUPPLEMENTAL RETIREMENT
                                    AGREEMENT

     THIS AMENDED AND RESTATED SUPPLEMENTAL RETIREMENT AGREEMENT (this
"Agreement") is made and entered into as of this 1st day of January 2002 by and
between Banknorth Group, Inc. (formerly known as Peoples Heritage Financial
Group, Inc.), its subsidiaries and affiliates (collectively, the "Corporation"),
and William J. Ryan (the "Executive").

                                  WITNESSETH:

     WHEREAS, the Corporation and the Executive are parties to a certain
Supplemental Retirement Agreement dated as of January 1, 1996, as amended by a
First Amendment to Supplemental Retirement Agreement dated March 27, 2001 (as so
amended, the "Prior Agreement");

     WHEREAS, the Corporation and the Executive wish to amend and restate the
Prior Agreement in its entirety as hereinafter set forth;

     NOW, THEREFORE, in consideration of the foregoing, the mutual covenants and
agreements herein contained, and other good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, the Corporation and the
Executive hereby agree, and amend and restate the Prior Agreement in its
entirety, as follows:

                                   ARTICLE ONE

SECTION 1. EMPLOYMENT. This Agreement is not an agreement of employment and
nothing herein shall be deemed to confer on the Executive any right to continued
employment with the Corporation or limit in any way the right of the Corporation
to terminate such employment. The benefits provided under this Agreement are not
part of any salary reduction plan or an arrangement deferring a bonus or a
salary increase.

                                   ARTICLE TWO

SECTION 2.1. NORMAL RETIREMENT BENEFITS. If the Executive continues in
employment with the Corporation until his sixty-fifth (65th) birthday (the
"Normal Retirement Date"), he shall be entitled to a retirement benefit (the
"Normal Retirement Benefit") commencing on the first day of the month next
following his actual retirement (the "Commencement Date") and continuing for
fifteen (15) years certain (the "Payment Period"), payable monthly in the annual
amount of sixty-five percent (65%) of his Benefit Computation Base (defined in
Section 2.2), multiplied by a fraction, not to exceed one (1), the numerator of
which is the actual number of months of the Executive's employment with the
Corporation (including partial months for month of hire and month of
termination) plus sixty-six (66) and the denominator of which is three hundred
(300) months, and reduced by:

     (1) fifty percent (50%) of the Executive's Primary Social Security
     retirement benefit estimated as of the Normal Retirement Date based on the
     Social Security retirement





     benefit formula assuming level future earnings based on his Benefit
     Computation Base in effect on the date of termination of the Executive's
     employment with the Corporation;

     (2) the annual amount of benefits payable to the Executive, stated as a
     life annuity commencing at the Normal Retirement Date, from the
     tax-qualified defined benefit pension plan maintained by the Corporation
     (such plan, as it may hereafter be amended, restated, otherwise modified or
     replaced, is hereinafter referred to as the "Pension Plan");

     (3) the annual amount of benefits payable to the Executive, stated as a
     life annuity commencing at the Normal Retirement Date, which is the
     actuarial equivalent (determined as described below) at the date of
     determination of the Normal Retirement Benefit, of that portion of the
     Executive's account balances attributable to contributions by the
     Corporation to any and all qualified defined contribution plans maintained
     by the Corporation; and

     (4) the annual amount of benefits payable to the Executive, stated as a
     life annuity commencing at the Normal Retirement Date, attributable to
     contributions by the Corporation (but not any amounts attributable to
     deferrals or contributions by the Executive) from any other qualified or
     non-qualified retirement plan or agreement maintained or entered into by
     the Corporation.

Whenever an "actuarial equivalent" is required to be determined under this
Agreement, such actuarial equivalent shall be determined in the manner provided
for determining actuarial equivalents under the Pension Plan; provided however
that such manner of determination shall be no less favorable to the Executive
than that prescribed for determining actuarial equivalents under the Pension
Plan as in effect on the date of this Agreement.

SECTION 2.2 BENEFIT COMPUTATION BASE. The Executive's Benefit Computation Base
for purposes of Section 2.1 shall be the average of the Executive's compensation
from the Corporation for the five (5) consecutive calendar years during the ten
(10) years preceding the Executive's termination of employment with the
Corporation in which such compensation is the highest (excluding all years of
the Executive's employment by the Corporation after the year in which the Normal
Retirement Date occurs). For the purposes of this Agreement, compensation shall
mean the amount actually paid or made available to the Executive during a
calendar year as remuneration of a kind or nature reported by the Corporation on
the Executive's W-2. Compensation shall also include annual bonuses, any
contributions made on behalf of the Executive by the Corporation pursuant to a
salary reduction agreement under Internal Revenue Code Sections 125, 129 and/or
401(k), and any and all other amounts that would have been reportable by the
Corporation on the Executive's W-2 but for deferral of payment of such amounts
under any agreement or plan or program (other than the Pension Plan), including
any voluntary deferrals and any deferrals required or mandated by the terms of
any agreement or plan or program of the Corporation or action of its Board of
Directors. Compensation shall not include any amounts available to the Executive
pursuant to any Stock Option, Stock Appreciation Right, or Senior Management
Long Term Incentive Plans of the Corporation.



                                       2



SECTION 2.3 ACCRUED BENEFIT. The term "Accrued Benefit" shall mean the Normal
Retirement Benefit (before applying the offsets in clauses (1), (2), (3), and
(4) of Section 2.1 above) to which the Executive would be entitled under Section
2.1 commencing at the Normal Retirement Date assuming continuation of the
Executive's employment with the Corporation until the Normal Retirement Date
based on the Benefit Computation Base on the date the Accrued Benefit is
determined, multiplied by a fraction not to exceed one (1), the numerator of
which is the actual number of months of the Executive's employment with the
Corporation (including partial months for month of hire and month of
termination) plus sixty-six (66) and the denominator of which is three hundred
(300) months, and reduced by:

     (1) fifty percent (50%) of the Executive's Primary Social Security
     retirement benefit estimated as of the Normal Retirement Date based on the
     Social Security retirement benefit formulas assuming level future earnings
     based on his Benefit Computation Base in effect on the date of termination
     of the Executive;

     (2) the annual amount of benefits payable to the Executive, stated as a
     life annuity commencing at the Normal Retirement Date, from the Pension
     Plan;

     (3) the annual amount of benefits payable to the Executive, stated as a
     life annuity commencing at the Normal Retirement Date, which is the
     actuarial equivalent, at the date of determination of the Accrued Benefit,
     of that portion of the Executive's account balances attributable to
     contributions by the Corporation to any and all qualified defined
     contribution plans maintained by the Corporation; and

     (4) the annual amount of benefits payable to the Executive, stated as a
     life annuity commencing at the Normal Retirement Date, attributable to
     contributions by the Corporation (but not any amounts attributable to
     deferrals or contributions by the Executive) from any other qualified or
     non-qualified retirement plan or agreement maintained or entered into by
     the Corporation.

SECTION 2.4 OPTIONAL FORMS OF PAYMENT. In lieu of the fifteen-year certain
payments described in Section 2.1 above (payments made over a fifteen-year
period as described in Section 2.1 above are hereinafter referred to as payments
made in the "Normal Form"), or whenever an Accrued Benefit is payable under this
Agreement, the Executive may elect, at any time prior to the calendar year in
which payments are to begin, an optional form of payment which shall be the
actuarial equivalent of payments that would otherwise be made in the Normal
Form, and which shall be (x) any optional form which is made available to the
Executive under the terms of the Pension Plan or (y) a single lump sum payment.

SECTION 2.5 VESTING. The Executive, having completed more than five (5) years of
employment with the Corporation, has a vested interest in the Accrued Benefit
payable under this Agreement.

                                  ARTICLE THREE

SECTION 3.1 BENEFICIARY. In the event of the death of the Executive, any
payments to be made hereunder after the date of his death ("Remaining Payments")
shall be made to the Executive's



                                       3




Beneficiary, as defined below, and in such case all references to "Executive"
herein shall, where applicable, apply to the Beneficiary. The Executive may name
one or more beneficiaries (each, a "Beneficiary") in writing to the Corporation.
If no Beneficiary is so named or if no named Beneficiary is living at the time a
payment is due, that payment and all subsequent payments shall be made, when
otherwise due, to the Executive's estate, which shall be the "Beneficiary" for
purposes of this Agreement.

                                  ARTICLE FOUR

SECTION 4.1 DISABILITY PRIOR TO RETIREMENT. No disability benefits will be paid
under this Agreement. If the Executive's employment is terminated or suspended
by reason of mental or physical disability, disability benefits may be paid to
the Executive pursuant to insurance provided by the Corporation pursuant to a
separate policy, plan or agreement. Upon the later of (x) termination of any
such other disability benefits or (y) the Normal Retirement Date, payment to the
Executive of his Accrued Benefit (determined as of the date of disability) shall
commence and such payment shall be made in the form provided in Section 2.4. If,
following termination or suspension of the Executive's employment by reason of
disability, the Executive resumes employment with the Corporation in the
position he held immediately prior to the onset of disability, this Agreement
shall continue in full force and effect as if no such disability or termination
or suspension of employment had occurred. For the purposes of the numerator of
the fractions in Sections 2.1 and 2.3, the Executive's period of disability
shall be treated as a period of employment with the Corporation.

                                  ARTICLE FIVE

SECTION 5.1 TERMINATION OF EMPLOYMENT PRIOR TO NORMAL RETIREMENT DATE. If the
Executive's employment with the Corporation is terminated prior to the Normal
Retirement Date for any reason, the Executive shall be entitled to benefits in
the amount of the Accrued Benefit determined as of the date of termination of
his employment ("Early Retirement Benefits") payable (x) in the Normal Form
commencing at the Normal Retirement Date or (y) to the extent so elected by the
Executive, in any other form permitted under Section 2.4 and commencing at such
other time as may be permitted under Section 5.2 below, subject to such
adjustment as may be provided under Section 5.2 below.

SECTION 5.2 EARLY PAYMENT. By written notice to the Company, the Executive may
elect to have the Corporation commence payment of Early Retirement Benefits at
any time after the Executive has both attained age fifty-five (55) and
terminated employment with the Corporation or at any earlier time for
commencement as the Corporation, in its discretion, may approve. Early
Retirement Benefits shall be in the amount(s) determined in accordance with
Section 5.1, but further reduced (1) by one-quarter of one percent (.25%) per
month for each month or partial month (up to sixty (60)) between the date of
commencement of Early Retirement Benefits and the Executive's sixty-fifth (65th)
birthday and (2) by one-half of one percent (.50%) per month for each month or
partial month between the date of commencement of Early Retirement Benefits and
the date of the Executive's sixtieth (60th) birthday.

SECTION 5.3 PAYMENT. Benefits payable under this Article Five shall be paid in
the Normal Form or in any other manner elected by the Executive and permitted
under Section 2.4.



                                       4




SECTION 5.4 FORFEITURE. Notwithstanding anything to the contrary herein,
benefits under this Agreement shall be forfeited and all rights of the Executive
and his Beneficiary shall become null and void if the Executive's employment is
terminated for Cause. For the purposes of this Section 5.4, the term "Cause"
shall have the meaning given such term in the William J. Ryan Severance
Agreement dated January 1, 2000.

                                   ARTICLE SIX

SECTION 6.1 ASSIGNMENT. No right to payment of any amount under this Agreement
may be assigned, pledged, or encumbered, nor shall any such right or other
interest in amounts payable under this Agreement be subject to any attachment,
garnishment, execution or other legal process.

                                  ARTICLE SEVEN

SECTION 7.1 PARTICIPATION IN OTHER PLANS. Nothing contained in this Agreement
shall be construed to alter, abridge, or in any manner affect the rights and
privileges of the Executive to participate in and be covered by any pension,
profit-sharing, group insurance, bonus or any other employee plan or plans which
the Corporation may have or hereafter have.

SECTION 7.2 ALTERNATIVE BENEFIT UNDER THE SERP PLAN. Without limiting the
foregoing, and notwithstanding anything to the contrary in the Banknorth Group,
Inc. Supplemental Retirement Plan (as the same may be amended, restated,
otherwise modified or replaced, the "SERP Plan"), including, without limitation,
Article Three thereof, if on the date that benefits become payable under this
Agreement, the actuarial equivalent of the aggregate amount of the benefits
payable to the Executive under the terms of this Agreement is less than the
actuarial equivalent of the aggregate amount of the benefits to which the
Executive would be entitled under the SERP Plan if he were a "Participant" (as
defined in the SERP Plan) in the SERP Plan (such amount, the "Alternative
Benefit"), the Executive shall be entitled to benefits payable in accordance
with the terms of this Agreement but in an aggregate amount equal to the
actuarial equivalent of the Alternative Benefit instead of in an aggregate
benefit amount determined under this Agreement.

                                  ARTICLE EIGHT

SECTION 8.1 FUNDING. The Corporation shall have the right, in its discretion, at
any time and from time to time to insure or otherwise provide for the
obligations of the Corporation under this Agreement or to refrain from same, and
to determine the extent, nature and method thereof, including the establishment
of one or more trusts. Should the Corporation elect to insure this Agreement, in
whole or in part, through the medium of insurance or annuities, or both, the
Corporation shall be the owner and beneficiary of the policy. At no time shall
the Executive be deemed to have any right, title or interest in or to any
specified asset or assets of any such trust or escrow arrangement, including,
without limitation, any insurance or annuity or other contracts or proceeds
therefrom. No such policy, contract or other asset shall in any way be
considered to be security for the performance of the Corporation's obligations
under this Agreement. The Executive agrees that, if the Corporation purchases a
life insurance or annuity policy on his life, he will sign any papers that may
be required for that purpose and undergo any medical


                                       5



examination or tests which may be necessary, and otherwise reasonably cooperate
with the Corporation in its efforts to secure any such policy.

SECTION 8.2. NO TRUST. Nothing herein and no action taken pursuant hereto shall
create or be deemed to create any trust or fiduciary relationship between the
Corporation and the Executive, his Beneficiary, or any other person.

                                  ARTICLE NINE

SECTION 9.1 REORGANIZATION. The Corporation shall not merge with or consolidate
into or with another corporation or other entity, or reorganize, or sell
substantially all of its assets to another corporation, firm, or person unless
and until such succeeding or continuing corporation, firm or person agrees to
assume and discharge the obligations of the Corporation under this Agreement.
Upon the occurrence of any such merger, consolidation, reorganization, or sale,
the term "Corporation" as used in this Agreement shall be deemed to refer to
such successor, assignee, or survivor or successor Corporation, firm or person.

                                   ARTICLE TEN

SECTION 10.1 BINDING EFFECT. This Agreement shall be binding upon and inure to
the benefit of the Executive and his Beneficiary and the Corporation and any
successor organization which shall succeed to substantially all of its assets
and business without regard to the form of such succession.

SECTION 10.2 CORPORATION. As used in this Agreement, the term "Corporation"
shall mean Banknorth Group, Inc., and any entity that from time to time is
aggregated with Banknorth Group, Inc., its successors and assigns, under
Sections 414(b), 414(c), 414(m), 414(n) or 414(o) of the Internal Revenue Code
of 1986, as amended. For the purpose of determining the Executive's period of
employment with the Corporation as required hereunder, the term "Corporation"
shall also include any predecessor of the Corporation.

                                 ARTICLE ELEVEN

SECTION 11.1. COMMUNICATIONS. Any notice or other communication required or
permitted to be given under this Agreement shall be in writing and shall be
deemed given (i) when delivered or refused if sent by hand during regular
business hours, (ii) three (3) business days after being sent by United States
Postal Service, registered or certified mail, postage prepaid, return receipt
requested, (iii) on the next business day when sent by reputable overnight
express mail service that provides tracing and proof of receipt or refusal of
items mailed, or (iv) when received by the addressee if by telecopier
transmission addressed to the Corporation or Executive, as the case may be, at
the address or addresses set forth below or such other addresses as the parties
may designate in a notice given in accordance with this Section.

To the Corporation:

      Banknorth Group, Inc.
      Two Portland Square
      Portland, ME 04112



                                       6



To the Executive:

      William J. Ryan
      6 Hemlock Drive
      Cumberland Center, ME 04021


                                 ARTICLE TWELVE

12.1 CLAIMS PROCEDURE GENERALLY. Any claim for benefits under this Agreement
("Claim") shall be made by written notice (x) describing the basis for the Claim
and (y) submitted to the Corporation within six months after the date on which
such benefit is claimed to have been due. Within sixty (60) days after its
receipt of a Claim, the Corporation shall respond to the Executive (or, if
applicable, Beneficiary) by written notice of its determination to approve or
deny the same, which notice, in the case of any denial, shall further set forth
in reasonable detail the basis for denial, specific reference to the Plan
provisions on which the denial is based, steps to be taken to have the denial
reviewed and, if applicable, a description of any additional material needed to
be provided by the Executive. The Executive may, in his discretion, elect to
treat any failure of the Corporation to respond to a Claim within the time
period set forth above as denial.

SECTION 12.2 REVIEW. If a Claim is denied, the Executive may obtain a review of
the denial by written request for review (x) describing the basis for his
determination that denial was erroneous and (y) submitted to the Corporation
within sixty (60) days after the date of denial or deemed denial of the Claim
pursuant to Section 12.1 above, as applicable. Within sixty days (60) following
the Corporation's receipt of a request for review, the Corporation shall review
the Claim (together with any supporting documents or other written materials
reasonably related to the request and submitted therewith) and give the
Executive written notice of its determination to approve or deny the same, which
notice, in the case of any denial, shall further set forth in reasonable detail
the basis for denial. No determination of the Corporation shall be deemed to
preclude further action by the Executive (or, if applicable, Beneficiary) with
respect to the Claim.

                                ARTICLE THIRTEEN

SECTION 13.1 WITHHOLDING. The Corporation shall be entitled to withhold from
payment of benefits hereunder any federal, state or local withholding or other
taxes, or charge from time to time required to be withheld.

                                ARTICLE FOURTEEN

SECTION 14.1 ENTIRE AGREEMENT; AMENDMENT. This Agreement constitutes the entire
agreement between the parties with respect to the subject matter hereof and
supercedes all prior agreements written or oral with respect to its subject
matter. This Agreement may be amended only by a written agreement signed by the
parties hereto.



                                       7



SECTION 14.2 GOVERNING LAW. This Agreement shall be governed by and construed
and enforced in accordance with the laws of the State of Maine.

SECTION 14.3 SEVERABILITY. Each provision of this Agreement is intended to be
severable and the invalidity, illegality, or unenforceability of any portion of
this Agreement shall not affect the validity, legality, and enforceability of
the remainder.



                                       8



     IN WITNESS WHEREOF, the Corporation and the Executive have caused this
Agreement to be executed as an instrument under Seal as of the date and year
first above written.

                                            BANKNORTH GROUP, INC.,
                                            f/k/a PEOPLES HERITAGE FINANCIAL
                                            GROUP, INC.



- ------------------------------------        By:--------------------------------
Witness                                        Cynthia H. Hamilton, EVP


- ------------------------------------           ---------------------------------
Witness                                        William J. Ryan


























                                       9

EX-10.G

                                                                   Exhibit 10(g)


                              AMENDED AND RESTATED
              BANKNORTH GROUP, INC. 2000 DEFERRED COMPENSATION PLAN
                  FOR NON-EMPLOYEE DIRECTORS AND KEY EMPLOYEES

                             ARTICLE ONE - GENERAL

     The name of the Plan was originally the Peoples Heritage Financial Group,
Inc. 1998 Deferred Compensation Plan for Non-Employee Directors and Key
Employees (the "Plan"). Pursuant to this Amendment and Restatement, the name of
the Plan is the Banknorth Group, Inc. 2000 Deferred Compensation Plan for
Non-Employee Directors and Key Employees. The purpose of the Plan is to provide
a deferred compensation program for Non-Employee Directors of Banknorth Group,
Inc. ("Banknorth") and affiliates of Banknorth whose inclusion in this Plan has
been approved by Banknorth's Board of Directors (the "Designated Affiliates"),
and certain Key Employees. (Banknorth and the Designated Affiliates are
hereinafter collectively referred to as the "Companies" or individually as the
"Company".)

                          ARTICLE TWO - ADMINISTRATION

2.01 ADMINISTRATOR.

     Subject to Section 6.05, the Plan shall be administered by Banknorth's
Board of Directors (the "Board") or a committee thereof (the Board or committee
is hereinafter referred to as the "Administrator"). The Administrator shall
interpret the Plan, shall prescribe, amend and rescind rules relating to it from
time to time as it deems proper and in the best interests of the Company, and
shall take any other action necessary for the administration of the Plan. Any
decision or interpretation adopted by the Administrator shall be final and
conclusive, and shall be binding upon all Participants.






                          ARTICLE THREE - PARTICIPATION

3.01 PARTICIPATION.

     Any individual who, as of the Effective Date, is (a) a Non-Employee
Director, as defined in Section 3.02(b) below, or (b) a Key Employee, as defined
in Section 3.02(c) below, shall be eligible to become a Participant on the
Effective Date. Any individual who, after the Effective Date, becomes a
Non-Employee Director or a Key Employee shall become eligible on the date
determined by guidelines established by the Administrator. Eligible individuals
who elect to defer Compensation shall be referred to as "Participants".

3.02 KEY DEFINITIONS.

     For purposes of the Plan:

     (a) "COMPENSATION" (i) when applied to Non-Employee Directors shall mean
annual retainer and meeting fees, if any, for each regular or special meeting
and for any committee meetings attended, and (ii) when applied to Key Employees
shall mean annual base salary and bonus.

     (b) "NON-EMPLOYEE DIRECTOR" means a person who is a member of the Board of
Directors of:

          (i) Banknorth, or

          (ii) a Designated Affiliate

provided such person is not otherwise employed by any of the Companies.

     If a Participant who is a Non-Employee Director ceases to be a Non-Employee
Director, but continues to provide advisory or other services to the Company for
a fee or other


                                       2




remuneration, the Administrator may determine that such individual shall remain
an active Participant during the period he or she provides such advisory or
other services, or for such shorter period as the Administrator shall determine
(the "Special Service Period"). In such case, (i) the selected Participant shall
be treated, solely for purposes of the Plan, as if he or she continued to be a
"Non-Employee Director," during the Special Service Period, (ii) the
Administrator shall determine the portion of the former Director's ongoing fees
or other remuneration that shall be treated as Compensation hereunder, and (iii)
any reference, either in the Plan or any applicable election under the Plan, to
the cessation of such individual's duties as a Director shall refer instead to
the last day of the Special Service Period.

     (c) "KEY EMPLOYEE" means an employee of any of the Companies (i) whose
position is designated at Level 20 or above, or (ii) who deferred compensation
according to the terms and conditions of the Peoples Heritage Financial Group,
Inc. Senior Management Deferred Compensation Plan, as Amended and Restated as of
June 1, 1990.

                             ARTICLE FOUR - DEFERRAL

4.01 ELECTION.

     Subject to the limitations stated below, each Participant shall be given
the opportunity to elect to defer a portion of his or her Compensation to be
earned in a given calendar year (a "Year"). Any such election shall be on a form
provided by the Administrator and, except as provided below, shall be filed in
the Year prior to the Year in which the Compensation is earned. (An election to
defer Compensation as provided herein shall be referred to as a "Deferral
Election" or an "Election".) A Deferral Election shall be effective to defer
compensation for only the single Year to which it relates.



                                       3



4.02 LIMIT.

     A Non-Employee Director may elect to defer up to one hundred percent (100%)
of his or her Compensation for a Year. A Key Employee may elect to defer up to,
but no more than, twenty-five percent (25%) of his or her base salary for a
Year, and up to one hundred percent (100%) of his or her bonus for a Year.

4.03 IRREVOCABILITY.

     Any Deferral Election under this Plan shall be irrevocable.

4.04 SPECIAL RULE.

     The Administrator, in its sole discretion, may establish guidelines
enabling Participants to file Deferral Elections with respect to bonus earned in
the same Year as the Election, provided the Election is filed prior to the time
when, in the determination of the Administrator, the amount of such bonus is
determinable.

4.05 MANDATORY BONUS DEFERRALS

     From time to time the Company may require the deferral of all or a portion
of bonuses paid to certain members of senior management of Banknorth in order to
comply with provisions of Federal income tax law. If payment of all or a portion
of any bonus earned by a Key Employee is thus deferred by the Company under an
applicable bonus plan, such deferral shall be referred to herein as a "Mandatory
Deferral". A Mandatory Deferral shall be invested and paid according to the
terms of the Deferral Election made with respect to it. Should a Key Employee
who is then a Participant fail to make such an election, the Mandatory Deferral
shall be according to the terms and conditions of his or her most recent
Deferral Election. In all other cases, the Mandatory Deferral shall be treated
as prescribed in ARTICLE FIVE for Deferral Elections that


                                       4


fail to state a Payment Commencement Date, a Payment Election or an Investment
Election, as applicable."

                      ARTICLE FIVE - DEFERRED COMPENSATION

5.01 DEFERRAL PERIOD.

     (a) If a Participant makes a Deferral Election, the amount of Compensation
deferred shall be reflected in a Deferral Account, as defined in Section 5.02
below, until the date provided in this Section 5.01 (the "Payment Commencement
Date"). The Payment Commencement Date for a Participant means the date elected
by such Participant, provided that the date elected must be:

          (i) the tenth (10th) business day after the date on which such
     Participant ceases to be a Non-Employee Director or Key Employee, as
     applicable,

          (ii) the first business day on or after the fifth anniversary of the
     date on which such Participant ceases to be a Non-Employee Director or Key
     Employee, as applicable, or

          (iii) the first business day on or after such Participant's
     sixty-fifth (65th) birthday.

     (b) A Participant must make such election (the "Payment Commencement Date
Election") on a form and in the manner prescribed by the Administrator, which
may be the same as the form described in Section 4.01 above. In the absence of a
timely Payment Commencement Date Election, the Payment Commencement Date for
such Participant shall be the date described in Section 5.01(a)(i) above. Once a
Participant's Payment Commencement Date has been established, it shall apply to
all deferred amounts, except as provided in Section 5.01(c) or Section 5.05
below. If a Participant selects a different Payment Commencement Date


                                       5



in a subsequent Deferral Election, such change shall be treated as an amendment,
and shall only take effect as provided in Section 5.01(c) below.

     (c) A Participant may amend his or her Payment Commencement Date Election
only as permitted by the Administrator, provided: (i) such amendment or Election
shall relate to the Participant's entire Deferral Account; and (ii) unless
otherwise permitted by the Administrator in its discretion, (taking into
consideration the purposes of the Plan) no such amendment or Election shall take
effect until the first anniversary of the date such amendment or Election is
filed.

     (d) The Company shall pay to the Participant (or the Participant's
beneficiary in the case of the Participant's death) an amount as described in
Section 5.01(f) below, commencing on the Payment Commencement Date, in
accordance with an election (a "Payment Election") which shall indicate which of
the following payment options the Participant selects: (i) one lump sum payment
within ten (10) business days following the Payment Commencement Date; or (ii)
one hundred twenty (120) monthly installments as described in Section 5.01(f)
below, commencing on the first day of the month next following the month in
which the Payment Commencement Date falls.

     (e) A Payment Election shall be made at the same time and shall be subject
to the same provisions as applicable to the Payment Commencement Date Election
under Section 5.01(a), (b) and (c) above. In the absence of a timely Payment
Election, the Administrator shall pay the entire balance of such Participant's
Deferral Account within ten (10) business days following the Payment
Commencement Date.

     (f) The amount of any payments to be made under Section 5.01(d) shall be
determined as follows:



                                       6





          (i) If a Participant's Deferral Account is to be paid in a lump sum,
     the amount of such lump sum shall equal the full value of the Participant's
     Deferral Account on the last day of the calendar month immediately
     preceding the month in which the Payment Commencement Date occurs.

          (ii) If a Participant's Deferral Account is to be paid in
     installments, the amount of each installment shall be determined as
     follows:

               (A) With respect to the Participant's Company Stock Account, each
          installment shall reflect a pro-rata portion of the Participant's
          "Stock Units", as defined in Section 5.03(a) below, credited to the
          Participant at the Payment Commencement Date, the value of each
          installment being determined by reference to the value of shares of
          "Common Stock", as defined in Section 5.03(b) below. Specifically,
          each installment shall be in an amount equal to the Price Per Share on
          the applicable installment payment date multiplied by a fraction, the
          numerator of which is the total number of Stock Units in such Account
          on the Participant's Payment Commencement Date, and the denominator of
          which is the total number of installments;

               (B) With respect to the Participant's Diversified Account, all
          installments shall be in substantially equal amounts based on the
          value of the Diversified Account on the Payment Commencement Date,
          adjusted for interim income, gains and losses as described in Section
          5.04 below through the date of each installment payment.

     (g) At the sole discretion of the Administrator, payments allocable to the
Participant's Company Stock Account may be paid in shares of Common Stock or
cash. If the Administrator elects to pay in shares of Common Stock, the number
of shares of Common Stock to be paid



                                       7



shall be determined by dividing the cash value of the Participant's Company
Stock Account as of the relevant payment date by the Price Per Share, as defined
in Section 5.03(b) below, on that date. Payments allocable to the Diversified
Account shall be made in cash.

5.02 DEFERRAL ACCOUNT.

     (a) The Administrator shall cause Banknorth, or other Company, as
applicable, to establish a ledger account (the "Deferral Account") for each
Participant for the purpose of recording the Company's obligation to pay the
Compensation deferred hereunder.

     (b) Each Deferral Account shall be composed of up to two sub-accounts, a
Company Stock Account and a Diversified Account. The value of a Participant's
Deferral Account shall equal the sum of the value of the Company Stock Account
plus the value of the Diversified Account. The value of the Company Stock
Account and the value of the Diversified Account shall be determined according
to the provisions of Sections 5.03 and 5.04 hereof respectively.

     (c) With the Deferral Election, a Participant shall allocate the amount of
such deferred Compensation to be credited to the Company Stock Account and the
amount to be credited to the Diversified Account (the "Investment Election").
The Investment Election shall be made in the manner and form prescribed by the
Administrator.

     (d) If a Participant fails to make an Investment Election with a Deferral
Election, all Compensation deferred pursuant to the Deferral Election will be
credited to the Diversified Account.

     (e) A Participant may elect to transfer some or all of the value of the
Participant's Diversified Account to the Participant's Company Stock Account at
such times and in such manner as shall be prescribed by the Administrator. Any
such election shall be on a form


                                       8


provided by the Administrator (the "Transfer Notice"). Once received by the
Administrator, the Transfer Notice shall be irrevocable.

     (f) Amounts credited to a Participant's Company Stock Account may not be
transferred to the Participant's Diversified Account.

5.03 COMPANY STOCK ACCOUNT.

     (a) A Participant's Company Stock Account shall be credited with any amount
allocated thereto as follows: on any date on which deferred amounts would
otherwise have been paid to the Participant (an "Allocation Date") the
Participant's Company Stock Account shall be credited with a number of units
("Stock Units") equal to (i) the amount allocated the Company Stock Account,
divided by (ii) the "Price per Share", as defined below, on the Allocation Date.
Fractional Stock Units shall be rounded to the nearest 1/10 (one-tenth) of a
Stock Unit. On any given day, the value of the Company Stock Account shall equal
the number of Stock Units then credited to the Company Stock Account multiplied
by the Price per Share on such date. Stock Units do not constitute shares of
Common Stock, interests in Common Stock or any other security of the Company.
They merely reflect an unfunded promise to pay deferred Compensation in the
future.

     (b) The "Price per Share" shall equal the closing sale price per share at
which shares of the common stock of Banknorth, par value $.01 per share ("Common
Stock"), are sold on the National Association of Securities Dealers Automated
Quotations system ("NASDAQ") on such date or, if no Common Stock was traded on
the NASDAQ on such date, the closing sale price at which the Common Stock is
sold on the next preceding date the Common Stock was so traded.



                                       9




     (c) A Participant's Company Stock Account shall be credited with additional
Stock Units on every date Banknorth issues a dividend with respect to its Common
Stock. The number of Stock Units so credited will equal (i) the product of (A)
the dividend per share of Common Stock times (B) the number of Stock Units in
the Participant's Company Stock Account immediately before the dividend is
issued, divided by (ii) the Price per Share on the dividend date. A
Participant's Company Stock Account shall be reduced by the amount of any
distribution to the Participant from such account.

     (d) In the event of any recapitalization, stock split, stock dividend,
exchange of shares, merger, reorganization, change in corporate structure or
change in shares of Banknorth or similar event, the Board, upon recommendation
of the Administrator, may make appropriate adjustments to the number of Stock
Units credited to each Participant's Company Stock Account.

5.04 DIVERSIFIED ACCOUNT.

     (a) If a Participant has elected to have all or a portion of his or her
deferred amount allocated to the Diversified Account, then, on the applicable
Allocation Date, the Participant's Diversified Account shall be credited with
the amount so allocated. A Participant's Diversified Account shall thereafter be
increased by hypothetical earnings and gains, and reduced by hypothetical
losses, on such investments as shall be designated by the Administrator from
time to time. The method for determining and applying such earnings, gains and
losses shall be set by the Administrator in advance.



                                       10




5.05 ACCELERATION OF PAYMENT.

     (a) The Administrator, in its discretion, may accelerate the payment of the
unpaid balance of a Participant's Deferral Account in the event of the
Participant's death or Permanent Disability, as defined in Section 6.03 below,
or upon its determination that the Participant, or his or her beneficiary, as
described in Section 6.02 below, in the case of his or her death, has incurred a
severe financial hardship. The Administrator in making its determination may
consider such factors and require such information as it deems appropriate.

     (b) Notwithstanding any contrary provision of this Article Five, in the
event of a Change in Control, as defined below, the entire value of each
Participant's Deferral Account, determined as of (and taking into account) the
Change in Control shall be paid to the Participant in a lump sum within ten (10)
days after the date of the Change in Control, provided that at any time prior to
a Change in Control, any Participant may elect, on a form provided by the
Administrator, that the provisions of Sections 5.01 through 5.04 shall continue
to apply in lieu of the lump sum payment described herein (a "Post-Change
Deferral Election"). If a Participant makes a Post-Change Deferral Election, the
Participant may further elect that if he or she ceases to be a Non-Employee
Director or Key Employee, as applicable, involuntarily within one year following
a Change in Control, the Payment Commencement Date shall be the fifth
Anniversary of the Change in Control. Elections under this Section 5.05 (b) may
be changed in accordance with procedures established by the Administrator. No
change may be made in any election after the election period ends as provided
above. Notice shall be deemed given when (i) delivered by hand, (ii) sent by
overnight courier, (iii) or received by certified or registered mail. The
address for courier or mail shall be the address on the Company's payroll or
other applicable records at



                                       11




the time. For purposes of this Plan a "Change in Control" shall have the meaning
provided in the Peoples Heritage Financial Group, Inc. Change-in-Control
Protection Plan.

     (c) If, on the date a Participant ceases to be a Key Employee or, if later,
the date the Participant ceases to be a Director (the "Separation Date"), the
aggregate value of a Participant's accounts hereunder is no greater than Five
Thousand Dollars ($5,000), the Administrator may, in its discretion, accelerate
the payment of the entire balance in such Accounts into a single lump sum
payment to be made on or promptly following such Separation Date.

                        ARTICLE SIX - GENERAL PROVISIONS

6.01 UNFUNDED OBLIGATION.

     Any deferred amount to be paid to Participants pursuant to the Plan is an
unfunded obligation of the Companies. No Company is required to segregate any
monies from its general funds, to create any trusts, or to make any special
deposits with respect to its obligation. Any investments and the creation or
maintenance of any trust or memorandum accounts shall not create or constitute a
trust or a fiduciary relationship between the Administrator or the Company and a
Participant, or otherwise create any vested or beneficial interest as to any
Participant or the Participant's beneficiary or the Participant's creditors. The
Participants shall have no claim against the Company for any changes in the
value of any assets that may be invested or reinvested by the Company with
respect to the Plan. Neither the Company nor any member of the Board shall be
liable to any person for any action taken or omitted in connection with the
interpretation and administration of the Plan unless attributable to the
Company's or that Board member's own willful misconduct or lack of good faith.



                                       12




6.02 BENEFICIARY.

     In the event of a Participant's death, payment of amounts otherwise due
hereunder shall be made to the Participant's beneficiary, and in such case all
references to a Participant shall, where applicable, apply to the beneficiary.
The designation of a beneficiary shall be on a form provided by the
Administrator. A Participant may change his or her beneficiary designation at
any time. If no beneficiary is designated, if the designation is ineffective, or
if the beneficiary dies before the balance of the Deferral Account is paid, the
balance shall be paid to the Participant's estate.

6.03 PERMANENT DISABILITY.

     A Participant shall be deemed to have become disabled for purposes of the
Plan if the Administrator finds, upon the basis of medical evidence satisfactory
to it, that the Participant is totally disabled, whether due to physical or
mental condition, so as to be prevented from engaging in further service to the
Company or any of its subsidiaries and that such disability will be permanent
and continuous during the remainder of the Participant's life.

6.04 NONASSIGNMENT.

     The right of a Participant or beneficiary to the payment of any amounts
under the Plan may not be assigned, transferred, pledged or encumbered, nor
shall such right or other interest be subject to attachment, garnishment,
execution or other legal process.

6.05 TERMINATION AND AMENDMENT.

     The Board may from time to time amend, suspend or terminate the Plan, or
any Participant's participation in the Plan, in whole or in part, and if the
Plan is suspended or terminated, the Board may reinstate any or all of its
provisions. No amendment, suspension or



                                       13



termination may impair the right of a Participant or the Participant's
designated beneficiary to receive benefits accrued prior to the effective date
of such amendment, suspension or termination, provided that on termination of
the Plan, or any Participant's termination therein, the entire unpaid balance of
the affected Participant's Deferral Accounts may be forthwith paid in a single
lump sum. The Administrator may amend the Plan, without Board approval, to
ensure that the Company may obtain any regulatory approval or to accomplish any
other reasonable purpose, provided that the Administrator may not effect a
change that would materially increase the cost of the Plan to the Company.
Notwithstanding the foregoing, the Board and the Administrator may not amend the
Plan without the approval of the stockholders of the Company to materially
modify the eligibility for participation in the Plan, or otherwise materially
increase the benefits accruing to the Participants under the Plan.

6.06 EFFECT ON PRIOR PLANS

     As of the date this Plan becomes effective or, at the discretion of the
Committee, such later date as the Administrator secures written consent from all
affected participants in Peoples Heritage Financial Group. Inc. Senior
Management Deferred Compensation Plan (amended and Restated as of June 1, 1990)
or the Peoples Heritage Financial Group. Inc. Directors Deferred Compensation
Plan (Amended and Restated as of June 1, 1990)( the "Prior Plans"), all amounts
deferred under the Prior Plans shall be treated as amounts deferred under this
Plan and shall be allocated to either or both of a Company Stock Account or
Diversified Account as elected by each participant pursuant to forms and
procedures established by the Administrator. Thereafter, such amounts shall be
governed by all terms and conditions of this Plan, participants in the Prior
Plans shall become Participants in this Plan and the Prior Plans shall
terminate.



                                       14




6.07 APPLICABLE LAW.

     The Plan shall be construed and governed in accordance with the laws of the
State of Maine.

     IN WITNESS WHEREOF, the Company has caused the Plan to be executed
effective on __________________, 2000.


                                      PEOPLES HERITAGE FINANCIAL GROUP, INC.


                                 By:
                                     ------------------------------------
                              Title: Executive Vice President

ATTEST:










                                       15

EX-10.K

                                                                   Exhibit 10(k)



                              AMENDED AND RESTATED
                              BANKNORTH GROUP, INC.
                1995 STOCK OPTION PLAN FOR NON-EMPLOYEE DIRECTORS

                              ARTICLE I - PURPOSES

     The purposes of this Amended and Restated Banknorth Group, Inc. 1995 Stock
Option Plan for Non-Employee Directors (the "Plan") are to attract and retain
the services of experienced and knowledgeable non-employee Directors and
advisory Directors of Banknorth Group, Inc. (the "Company") and each subsidiary
of the Company as may be designated by the Board of Directors of the Company
(the "Board") or a duly authorized committee thereof to participate in the Plan
(each a "Subsidiary" and collectively, the "Subsidiaries") and to provide an
incentive for such non-employee directors of the Company and any such
participating Subsidiaries to increase their proprietary interests in the
Company's long-term success and progress.

                     ARTICLE II - SHARES SUBJECT TO THE PLAN

     Subject to adjustment in accordance with Article VI hereof, the total
number of shares of the Company's Common Stock, $.01 par value per share (the
"Common Stock"), which may be issued upon exercise of options which may be
granted hereunder is 1,060,000 (the "Shares"). The Shares issued upon exercise
of options granted hereunder (each on "Option" and collectively, "Options") may,
at the discretion of the Board, be shares presently authorized but unissued
and/or shares subsequently acquired by the Company in public or private
transactions. If any Option granted under this Plan expires or terminates
without being exercised in full, the Shares subject to the unexercised portion
shall be available for reissuance under the Plan.

                    ARTICLE III - ADMINISTRATION OF THE PLAN

     The administrator of this Plan (the "Plan Administrator") shall be the
Board or a duly authorized committee thereof consisting solely of two or more
Non-Employee Directors, as defined in Rule 16b-3 under the Securities Exchange
Act of 1934, as amended (the "Exchange Act"). The Plan Administrator shall have
the power to make determinations regarding awards to non-employee Directors and
advisory Directors of the Company and participating Subsidiaries under this
Plan, to determine participating Subsidiaries under this Plan, to construe the
provisions of this Plan, to determine all questions arising under this Plan and
to adopt and amend such rules and regulations for the administration of this
Plan as it may deem desirable, subject to Article IX of this Plan.

                           ARTICLE IV - OPTION GRANTS

         Each Director of the Company and each Director of a participating
Subsidiary who in each case is not an employee of the Company or any parent or
Subsidiary of the Company, as well as each non-employee advisory Director of the
Company or a participating Subsidiary of the





Company, shall be eligible to receive an option to purchase Shares under this
Plan. Options may be granted to such persons under this Plan at such times and
in such amounts as may be determined by the Plan Administrator. Options granted
to Directors or advisory directors of the Company or a participating Subsidiary
("Optionees") shall be vested and exercisable according to the terms of Article
V below.

                            ARTICLE V - OPTION TERMS

     5.1 OPTION AGREEMENT. The Plan Administrator shall promptly notify each
Optionee of each Option granted to the Optionee. Each Option granted under this
Plan shall be evidenced by an option agreement (an "Agreement") duly executed on
behalf of the Company and by the Optionee. Each Agreement shall comply with and
be subject to the terms and conditions of this Plan and may contain such other
terms, provisions and conditions not inconsistent with this Plan as may be
determined by the Plan Administrator.

     5.2 OPTION EXERCISE PRICE. The exercise price per share for an Option shall
be the fair market value per share of Common Stock on the date of grant. For
purposes of the Plan, "fair market value" shall be the per share closing sale
price of the Common Stock on the date in question on the principal United States
securities exchange registered under the Exchange Act on which the Common Stock
is listed or, if the Common Stock is not listed on any such exchange, the per
share closing sale price of a share of Common Stock on the Nasdaq Stock Market's
National Market or any other such system then in use, or if no quotations are
available, the most recent average of the closing bid and asked prices per share
for the Common Stock in the over-the-counter market.

     5.3 TERM OF OPTIONS. Each Option shall have a term which extends from the
date of grant through the tenth anniversary of the date of grant (the
"Termination Date"), provided that in the event that an Optionee ceases to be a
Director or an advisory Director of the Company or a participating Subsidiary
for any reason, the unexercised portion of any Option held by such Optionee
shall expire as of the earlier of the Termination Date of the Option or the
first anniversary of the day the Optionee ceases to be a Director or an advisory
Director of the Company or a participating Subsidiary.

     5.4 EXERCISABILITY OF OPTION. An Option shall be exercisable on the date of
grant and thereafter shall remain exercisable throughout its term, subject to
earlier termination as provided in Section 5.3 hereof. During the period it is
exercisable, as described immediately above, an Option may be exercised in whole
or in part on any business day or days chosen by the Optionee, provided,
however, that only whole Shares shall be issued pursuant to the exercise of an
Option.

     5.5 MANNER OF EXERCISE. An Option shall be exercised by giving written
notice, signed by the person exercising the Option, to the Company stating the
number of Shares with respect to which the Option is being exercised,
accompanied by payment in full for such Shares, which payment may be in whole or
in part (i) in cash or by check or (ii) by delivery of a properly executed
exercise notice, together with irrevocable instructions to a broker directing
the broker to



                                       2




sell the Shares and then to properly deliver to the Company the amount of sale
or loan proceeds to pay the exercise price, all in accordance with applicable
laws and regulations.

     5.6 TRANSFERABILITY. Except as may be approved by the Plan Administrator,
an Option shall not be sold, transferred, assigned, pledged, hypothecated,
attached, executed upon or otherwise disposed of in whole or in part in any way
other than by will or the laws of descent and distribution or as specifically
provided herein. The transfer by an Optionee to a trust created by the Optionee
for the benefit of the Optionee or the Optionee's family which is revocable at
any and all times during the Optionee's lifetime by the Optionee and as to which
the Optionee is the sole trustee during his or her lifetime will not be deemed
to be a transfer for purposes of the Plan. Under such rules and regulations as
the Plan Administrator may establish pursuant to the terms of the Plan, a
beneficiary may be designated with respect to an Option in the event of the
death of an Optionee. If the estate of the Optionee is the beneficiary with
respect to an Option, any rights with respect to such Option may be transferred
to the person or persons or entity (including a trust) entitled thereto under
the will of such Optionee or pursuant to the laws of descent and distribution.

     5.7 NO SPECIAL RIGHTS. The Optionee or the Optionee's successor-in-interest
shall have no rights as a stockholder with respect to any Shares which may be
purchased by exercise of an Option unless and until a certificate representing
such Shares is duly issued and delivered to the Optionee. No adjustment shall be
made for dividends or other rights for which the record date is prior to the
date such stock certificate is issued.

     5.8 LIMITATION AS TO DIRECTORSHIP. Neither this Plan, the granting of an
Option hereunder nor any other action taken pursuant hereto shall constitute or
be evidence of any agreement or understanding, express or implied, that an
Optionee has a right to continue as a Director or an advisory Director of the
Company or a Subsidiary of the Company for any period of time.

     5.9 COMPLIANCE WITH LAWS AND REGULATIONS. All Options granted hereunder
shall be subject to all applicable federal and state laws, rules and regulations
and to such approvals by any government or regulatory agency as may be required.
The Company shall not be required to issue any certificates for any Shares upon
the exercise of an Option granted under this Plan, or record as a holder of
record of Shares the name of the individual exercising an Option under this
Plan, prior to completion of any registration or qualification or obtaining of
consents or approvals with respect to such shares under any federal or state law
or any rule or regulation of any governmental or regulatory body, which the
Company shall, in its sole discretion, determine to be necessary or advisable.
Moreover, no Option may be exercised if such exercise or issuance would be
contrary to applicable laws and regulations.

     5.10 WITHHOLDING OF TAXES. The Company may make such provisions as it deems
appropriate for the withholding by the Company pursuant to federal or state
income tax laws of such amounts as the Company determines it is required to
withhold in connection with any Option. The Company may require an Optionee to
satisfy any relevant tax requirements before authorizing any issuance of Shares
to such Optionee or payment of any other benefit hereunder



                                       3




to such Optionee. Any such settlement shall be made in the form of cash, check
or such other form of consideration as is satisfactory to the Board of
Directors, including without limitation Shares acquired upon exercise of an
Option.

                        ARTICLE VI - CAPITAL ADJUSTMENTS

     In the event that the Plan Administrator determines that any dividend or
other distribution (whether in the form of cash, Shares, other securities or
other property), recapitalization, stock split, reverse stock split,
reorganization, merger, consolidation, split-up, spin-off, combination,
repurchase, exchange of Shares or other securities of the Company, issuance of
warrants or other rights to purchase Shares or other securities of the Company,
or other similar corporate transaction or event affects the Shares such that an
adjustment is determined by the Plan Administrator to be appropriate in order to
prevent dilution or enlargement of the benefits or potential benefits intended
to be made available under this Plan, then the Plan Administrator shall, in such
manner as it may deem equitable, adjust any or all of the aggregate number and
class of Shares for which Options may be granted under this Plan, the number and
class of Shares covered by each outstanding Option under this Plan and the
exercise price per Share of each such outstanding Option. In the event of any
adjustment in the number of Shares covered by any Option, any fractional Shares
resulting from such adjustment shall be disregarded and each such Option shall
cover only the number of full Shares resulting from such adjustment.

                       ARTICLE VII - EXPENSES OF THE PLAN

     All costs and expenses related to the adoption and administration of this
Plan shall be borne by the Company and none of such expenses shall be charged to
any Optionee.

             ARTICLE VIII - EFFECTIVE DATE AND DURATION OF THE PLAN

     This Plan initially became effective upon adoption by the Board and
stockholders of the Company in 1995. Amendments to this Plan increasing the
total number of shares of Common Stock which may be issued upon exercise of
Options granted hereunder became effective upon adoption by the Board on January
28, 1997 and on February 22, 2000, and were thereafter ratified by the
stockholders of the Company. Amendments to this Plan to authorize the grant of
options to advisory Directors and to reflect the change in the name of the
Company to "Banknorth Group, Inc." became effective upon adoption by the Board
on September 19, 2001. This Plan shall continue in effect until it is terminated
by action of the Board.

               ARTICLE IX - TERMINATION AND AMENDMENT OF THE PLAN

     Subject to any approval of the Company's stockholders required under
applicable law, the Board may amend, terminate or suspend this Plan at any time,
in its sole and absolute discretion, provided that no such action shall
adversely affect any then-outstanding Options.


                                       4



                            ARTICLE X - MISCELLANEOUS

     10.1 OTHER PLANS. Nothing in this Plan is intended to be a substitute for,
or shall preclude or limit the establishment or continuation of, any other plan,
practice or arrangement for the payment of compensation or benefits to directors
generally, which the Company or a Subsidiary now has or may hereafter lawfully
put into effect, including, without limitation, any retirement, pension,
insurance, stock purchase, incentive compensation or bonus plan.

     10.2 SINGULAR, PLURAL; GENDER. Whenever used herein, nouns in the singular
shall include the plural, and the masculine pronoun shall include the feminine
gender, as the context may require.

     10.3 APPLICABLE LAW. This Plan shall be governed by, interpreted under, and
construed and enforced in accordance with the internal laws of the State of
Maine.

     10.4 SUCCESSORS AND ASSIGNS. This Plan and any Agreement with respect to an
Option shall be binding upon the successors and assigns of the Company and upon
each Optionee and such Optionee's heirs, executors, administrators, personal
representatives, permitted assignees and successors in interest.

     Adopted by the Board of Directors of the Company on January 24, 1995 and
amended and restated by such Board of Directors on January 28, 1997, February
22, 2000 and September 19, 2001.


                                       5

EX-10.L

                                                                   Exhibit 10(l)



                        BANKNORTH GROUP, INC. 401(K) PLAN

           AS AMENDED AND RESTATED GENERALLY EFFECTIVE JANUARY 1, 2001






                                TABLE OF CONTENTS



                                                                                                    PAGE
                                                                                             
ARTICLE I.     DEFINITIONS............................................................................1

ARTICLE II.    PARTICIPATION.........................................................................13

  2.01         ELIGIBILITY...........................................................................13
  2.02         TERMINATION OF PARTICIPATION..........................................................13
  2.03         SPECIAL RULE FOR INSIDERS.............................................................13
  2.04         SPECIAL PARTICIPATION RULE............................................................14

ARTICLE III.   PARTICIPANT CONTRIBUTIONS.............................................................14

  3.01         SALARY DEFERRALS......................................................................14
  3.02         ANNUAL LIMITATION ON SALARY DEFERRALS.................................................15
  3.03         TIME AND FORM OF SALARY DEFERRAL CONTRIBUTIONS........................................15
  3.04         LIMITATIONS ON ACTUAL DEFERRAL PERCENTAGE.............................................15
  3.05         RESTRICTIONS AND ADJUSTMENTS..........................................................17
  3.06         ROLLOVER CONTRIBUTIONS................................................................18

ARTICLE IV.    COMPANY CONTRIBUTIONS.................................................................19

  4.01         COMPANY CONTRIBUTIONS.................................................................19
  4.02         TIME AND FORM OF COMPANY CONTRIBUTIONS................................................19
  4.03         SPECIAL RULES FOR MATCHING CONTRIBUTIONS..............................................20
  4.04         RETURN OF CONTRIBUTIONS TO THE COMPANY................................................22
  4.05         MAXIMUM CONTRIBUTIONS.................................................................22

ARTICLE V.     ALLOCATIONS...........................................................................22

  5.01         SUSPENSE ACCOUNTS.....................................................................22
  5.02         ALLOCATION OF CONTRIBUTIONS...........................................................23
  5.03         ALLOCATION OF NET INCOME OR LOSS......................................................23
  5.04         LIMITATION ON ALLOCATIONS.............................................................24

ARTICLE VI.    INVESTMENT OF CONTRIBUTIONS IN GENERAL................................................26

  6.01         INVESTMENT FUNDS......................................................................26
  6.02         INVESTMENT OF CONTRIBUTIONS...........................................................27
  6.03         VALUATION OF INVESTMENT FUNDS.........................................................27

ARTICLE VII.   EMPLOYEE STOCK OWNERSHIP; ACQUISITION LOANS...........................................28

  7.01         ESOP ASSETS...........................................................................28
  7.02         ACQUISITION LOANS.....................................................................28








                                                                                             
  7.03         PURCHASE OF STOCK.....................................................................29
  7.04         CUSTODY AND VOTING OF STOCK...........................................................30
  7.05         DIVIDENDS ON STOCK....................................................................30
  7.06         FORFEITURES OF STOCK..................................................................31
  7.07         STOCK SPLITS AND OTHER CAPITAL REORGANIZATIONS........................................31
  7.08         TENDER OF STOCK.......................................................................31
  7.09         SPECIAL RESTRICTIONS ON INSIDERS......................................................32
  7.10         OPTION TO REQUIRE EMPLOYER TO PURCHASE STOCK..........................................32
  7.11         NO OTHER RIGHTS TO PUT OR CALL STOCK..................................................33

ARTICLE VIII.  WITHDRAWALS AND LOANS.................................................................34

  8.01         IN-SERVICE WITHDRAWALS................................................................34
  8.02         HARDSHIP WITHDRAWALS..................................................................34
  8.03         LOANS.................................................................................35

ARTICLE IX.    VESTING...............................................................................38

  9.01         ACTIVE PARTICIPANTS ON AND AFTER JANUARY 1, 2002......................................38
  9.02         TERMINATED PARTICIPANTS...............................................................38
  9.03         FORFEITURES...........................................................................39

ARTICLE X.     BENEFITS AND DISTRIBUTIONS............................................................40

 10.01         NORMAL RETIREMENT BENEFIT.............................................................40
 10.02         DISABILITY BENEFIT....................................................................40
 10.03         BENEFIT ON TERMINATION OF EMPLOYMENT..................................................40
 10.04         DEATH BENEFIT.........................................................................40
 10.05         DISTRIBUTION OF BENEFITS TO A PARTICIPANT.............................................40
 10.06         DISTRIBUTION OF BENEFITS UPON DEATH...................................................43
 10.07         COMMENCEMENT OF BENEFITS..............................................................44
 10.08         PAYMENT UPON INCAPACITY...............................................................44
 10.09         PAYMENT UNDER QUALIFIED DOMESTIC RELATIONS ORDER......................................44
 10.10         DIRECT ROLLOVERS......................................................................44
 10.11         ANNUITIES.............................................................................46
 10.12         DISTRIBUTIONS TO QUALIFIED PARTICIPANTS...............................................47

ARTICLE XI.    ADMINISTRATION OF THE PLAN............................................................48

 11.01         PLAN ADMINISTRATOR....................................................................48
 11.02         POWERS AND DUTIES.....................................................................48
 11.03         DELEGATION OF MINISTERIAL DUTIES......................................................49
 11.04         INVESTMENT MANAGER....................................................................49
 11.05         BENEFIT CLAIM PROCEDURE...............................................................50
 11.06         CONCLUSIVENESS OF RECORDS.............................................................51
 11.07         CONCLUSIVENESS OF ACTIONS.............................................................51





                                       ii




                                                                                             
ARTICLE XII.   ADMINISTRATION OF THE FUND............................................................51

 12.01         PAYMENT OF EXPENSES...................................................................51
 12.02         TRUST FUND PROPERTY...................................................................52
 12.03         DISBURSEMENTS AND DISTRIBUTIONS.......................................................52
 12.04         TRUST ACCOUNTING......................................................................52

ARTICLE XIII.  TRUSTEES..............................................................................52

 13.01         APPOINTMENT AND SUCCESSION............................................................53
 13.02         RESIGNATION AND REMOVAL...............................................................53
 13.03         TRUSTEE POWERS........................................................................53

ARTICLE XIV.   AMENDMENT AND TERMINATION.............................................................53

 14.01         AMENDMENTS............................................................................53
 14.02         DISCONTINUANCE OF CONTRIBUTIONS.......................................................54
 14.03         MERGER, CONSOLIDATION OR TRANSFER OF ASSETS...........................................55
 14.04         MANNER OF AMENDMENT OR TERMINATION....................................................55

ARTICLE XV.    PARTICIPATING EMPLOYERS...............................................................55

 15.01         ADOPTION BY PARTICIPATING EMPLOYERS...................................................55
 15.02         SINGLE PLAN...........................................................................55

ARTICLE XVI.   PREDECESSOR PLANS AND ACCOUNTS........................................................56

 16.01         ARTICLE CONTROLS......................................................................56
 16.02         PREDECESSOR PLANS.....................................................................56
 16.03         MERGER PROVISIONS.....................................................................56
 16.04         PREDECESSOR PLAN ACCOUNTS.............................................................56
 16.05         DISTRIBUTION OF PREDECESSOR PLAN ACCOUNTS.............................................56
 16.06         PREDECESSOR PLAN ACCOUNTS SUBJECT TO SURVIVOR ANNUITY REQUIREMENTS....................57
 16.07         PREDECESSOR PLAN ESOP ACCOUNTS........................................................58

ARTICLE XVII.  TOP HEAVY PROVISIONS..................................................................58

 17.01         ARTICLE CONTROLS......................................................................58
 17.02         DEFINITIONS...........................................................................58
 17.03         TOP-HEAVY STATUS......................................................................59
 17.04         TERMINATION OF TOP-HEAVY STATUS.......................................................60
 17.05         EFFECT OF ARTICLE.....................................................................61




                                      iii





                                                                                             
ARTICLE XVIII. MISCELLANEOUS.........................................................................61

 18.01         NOT CONTRACT OF EMPLOYMENT............................................................61
 18.02         NON-ASSIGNABILITY OF THE RIGHT TO RECEIVE BENEFITS....................................61
 18.03         PAYMENTS SOLELY FROM TRUST FUND.......................................................62
 18.04         NO BENEFITS TO THE COMPANY............................................................62
 18.05         SEVERABILITY..........................................................................62
 18.06         GOVERNING LAW; INTERPRETATION.........................................................62
 18.07         HEADINGS OF SECTIONS..................................................................62
 18.08         EFFECT OF MISTAKE.....................................................................62
 18.09         BONDING...............................................................................62
 18.10         USERRA REQUIREMENTS...................................................................63
 18.11         EPCRS, ETC. ADJUSTMENTS...............................................................63





                                       iv




                        BANKNORTH GROUP, INC. 401(K) PLAN

     The Banknorth Group, Inc. 401(k) Plan (the "Plan") set forth herein is
effective generally January 1, 2001 ("Effective Date"). The Plan is a
continuation of the Banknorth Group, Inc. Thrift Incentive Plan, which was last
amended and restated effective generally January 1, 1996, and the Banknorth
Group, Inc. Profit Sharing and Employee Stock Ownership Plan, which was last
amended and restated effective generally January 1, 1997, and reflects the
merger of such plans as of the Effective Date. The provisions of the Plan shall
apply to eligible employees who terminate employment with Banknorth Group, Inc.
and all affiliated companies on or after January 1, 2001, except as is otherwise
indicated herein or may be required in accordance with applicable law.

     The Plan is intended to qualify as a profit-sharing plan with a cash or
deferred arrangement under Section 401(a) and (k) of the Internal Revenue Code
of 1986, as amended ("Code"), as a stock bonus plan under Section 401(a) of the
Code, and as an employee stock ownership plan under Section 4975(e)(7) of the
Code. The related Trust is intended to be exempt from federal income tax under
Section 501(a) of the Code. The Plan and Trust are further intended to comply
with all applicable requirements of the Employee Retirement Income Security Act
of 1974, as amended ("ERISA"). The Plan and trust agreement shall be construed,
wherever possible, so as to maintain such qualified and tax-exempt status and to
satisfy the applicable requirements of ERISA.

ARTICLE I. DEFINITIONS

     When the following words and phrases appear in the Plan, they shall have
the respective meanings set forth below, unless their context clearly indicates
to the contrary. Additional words and phrases are defined in the text of the
Plan. Words in the masculine gender shall be construed to include the feminine
gender, and words in the singular shall be construed to included the plural and
vice versa, unless the context clearly indicates otherwise.

     1.01 "Acquisition Loan" means a loan (or other extension of credit) made to
the Trustee for the purpose of financing the acquisition of Stock or repaying a
prior Acquisition Loan pursuant to Article VII, which loan may constitute an
extension of credit to the Trustee and the Trust Fund from a Party in Interest
and is intended to fall within the scope of the exemptions set forth in ERISA
Section 408(b)(3) and Code Section 4975(d)(3).

     1.02 "Actual Deferral Percentage" means, for any Plan Year, the average of
the ratios, calculated separately for each Participant in a specified group of
Participants, of (a) the amount of the Salary Deferrals actually paid to the
Trust on behalf of each such Participant for such Plan Year, over (b) the total
Section 415 Compensation paid to each such Participant during such Plan Year.
Prior to computing such average, the ratio of each Participant shall be
expressed as a percentage that is rounded to the nearest one hundredth of one
percent (0.01%). If a Participant does not make any Salary Deferrals for the
Plan Year, such Participant's ratio for such year shall be zero. At the election
of the Plan Administrator, Matching Contributions and Qualified Nonelective
Contributions may be treated as Salary Deferrals in accordance with the
provisions of Treas. Reg. Sections 1.401(k)-l(b)(5), which is incorporated by
reference herein. Notwithstanding the foregoing, any Salary Deferrals or
Qualified Nonelective Contributions that are taken into







account in determining the Average Contribution Percentage for a Plan Year shall
be disregarded in determining the Actual Deferral Percentage for such year.

     1.03 "Affiliate" means an organization that is a member of a "controlled
group" (as defined in Section 414(b) or (c) of the Code) or an "affiliated
service group" (as defined in Section 414(m) of the Code) with Banknorth Group,
Inc., and any other entity required to be aggregated with Banknorth Group, Inc.
under regulations promulgated under Section 414(o) of the Code; provided,
however, that for purposes of Section 5.04, the definitions prescribed by
Section 414(b) and (c) of the Code are to be modified as provided by Code
Section 415(h).

     1.04 "Aggregate Account" means the account established and maintained by
the Trustee for each Participant that reflects the Participant's share of the
Trust Fund and separately reflects the balance of the following sub-accounts:
Salary Deferral Contribution Account, Matching Contribution Account, ESOP
Account, Discretionary Contribution Account, Rollover Contribution Account, and
Predecessor Plan Account(s) (to the extent not included in the foregoing).

     1.05 "Annuity Starting Date" means the first day of the first period for
which an amount is paid as a benefit under the Plan.

     1.06 "Average Contribution Percentage" means, for any Plan Year, the
average of the ratios, calculated separately for each Participant in a specified
group of Participants, of (a) the amount of the Matching Contributions paid on
behalf of each such Participant for such Plan Year, over (b) the total Section
415 Compensation paid to each such Participant during such Plan Year. Prior to
computing such average, the ratio of each Participant shall be expressed as a
percentage that is rounded to the nearest one hundredth of one percent (0.01%).
At the election of the Plan Administrator, Salary Deferrals and Discretionary
Contributions shall be treated as Matching Contributions in accordance with the
provisions of Treas. Reg. sections 1.401(m)-l(b)(5), which is incorporated by
reference herein. Notwithstanding the foregoing, any Matching Contributions or
Discretionary Contributions that are taken into account in determining the
Actual Deferral Percentage for a Plan Year shall be disregarded in determining
the Average Contribution Percentage for such year.

     1.07 "Beneficiary" means the person, trust, estate or other entity last
designated by a Participant to receive benefits which may be payable on account
of the death of the Participant; provided, however, that in the case of a
married Participant, the Participant's spouse shall be the Beneficiary unless
the Participant's spouse waives his or her rights as the Beneficiary, the
Participant is legally separated or has been abandoned and the Participant has a
court order to such effect, or the Participant's current spouse cannot be
located. A Participant may at any time during his or her lifetime change or
revoke a Beneficiary designation, provided that such action may not be taken
without subsequent spousal consent unless the original consent expressly permits
designation by the Participant without any requirement of further spousal
consent. Any consent by the Participant's spouse to waive rights to death
benefits must be in writing, must acknowledge the effect of such waiver and must
be witnessed by a notary public. The Participant's spouse may not revoke consent
to a specific waiver of a joint and survivor form of benefit.



                                       2




     1.08 "Board" means the Board of Directors of Banknorth Group, Inc. (or,
before May 10, 2000, Peoples Heritage Financial Group, Inc.), as constituted
from time to time.

     1.09 "Break in Service" means a vesting computation period beginning on or
after January 1, 1976, during which an Employee is credited with no more than
five hundred (500) Hours of Service.

     (a) In determining whether an Employee has completed at least five hundred
(500) Hours of Service during a vesting computation period, an individual who is
absent from work for maternity or paternity reasons shall receive credit for the
Hours of Service which would otherwise have been credited to such individual but
for such absence, or in any case in which such hours cannot be determined, eight
(8) Hours of Service per day of such absence. An absence from work for maternity
or paternity reasons shall mean an absence by reason of the individual's
pregnancy, the birth of the individual's child, a child's placement with the
individual in connection with the individual's adoption of such child, or the
individual's caring for such child for a period beginning immediately following
such birth or placement. Hours of Service hereunder shall be credited to the
computation period in which the absence begins if such crediting is necessary to
prevent a Break in Service in that period, or in all other cases, in the
following computation period.

     (b) Notwithstanding anything to the contrary in this Section, employment
with the Company and its Affiliates shall not be deemed to have been interrupted
by a Break in Service solely by reason of a leave of absence granted by the
Company or an Affiliate on a uniform and nondiscriminatory basis for sickness,
military service, accident or other cause, provided that an Employee granted a
leave of absence who fails to return to active employment at or before the
expiration of such leave (other than on account of death, disability or
retirement) shall, for purposes of this Plan, be deemed to have terminated
employment as of the beginning of such Employee's leave of absence.

     1.10 "Calendar Quarter" means, for any Plan Year, the three-month period
beginning on January 1, April 1, July 1, and October 1.

     1.11 "Code" means the Internal Revenue Code of 1986, as amended from time
to time.

     1.12 "Company" means Banknorth Group, Inc., known before May 10, 2000, as
Peoples Heritage Financial Group, Inc.

     1.13 "Company Contributions" means Fixed Contributions, Discretionary
Contributions and Qualified Nonelective Contributions.

     1.14 "Direct Rollover" means the direct transfer of all or a portion of an
Eligible Rollover Distribution from the Plan, as elected by an eligible
distributee, to an eligible retirement plan in accordance with the requirements
under Section 401(a)(31) of the Code and Section 10.10.

     1.15 "Disability" means that an injury or illness prevents a Participant
from engaging in any substantial gainful activity by reason of an illness or
injury that can be expected to result in death, or which has lasted (or can be
expected to last) a continuous period of not less than



                                       3





twelve (12) months. Notwithstanding the foregoing, a Participant shall be deemed
disabled upon becoming eligible to receive disability benefits under the terms
of a long-term disability plan maintained by Company or an Affiliate.

     1.16 "Discretionary Contributions" means contributions made to the Plan by
the Company under Section 4.01(b).

     1.17 "Discretionary Contribution Account" means a bookkeeping entry
maintained by the Plan Administrator for each Participant that records the
Discretionary Contributions allocated to the Participant under Article IV,
adjustments for allocations of income or loss, distributions and all other
information affecting the value of such account.

     1.18 "Earnings" means the total compensation paid by the Company to the
Employee for services rendered while a Participant that constitutes wages as
defined in Section 3401(a) of the Code and all other payments made by the
Company to an Employee for services rendered while a Participant for which the
Company is required to furnish the Employee a written statement under Sections
6041(d), 6051(a)(3) and 6052 of the Code without regard to any rules under
Section 3401(a) of the Code that limit the remuneration included in wages based
on the nature or location of the employment or service performed.
Notwithstanding the forgoing to the contrary, Earnings shall include (a)
effective January 1, 1998, elective contributions made by the Company on behalf
of an Employee that are not includable in income under Section 125, Section
402(e)(3), or Section 402(h) of the Code; and (b) effective January 1, 2001,
elective amounts that are not includable in the gross income of the Employee by
reason of Code Section 132(f). In all cases, Earnings shall be reduced by
reimbursements or other expense allowances, fringe benefits (cash and non-cash),
moving expenses, deferred compensation and welfare benefits.

     Notwithstanding the foregoing to the contrary, effective January 1, 1994,
the annual Earnings of any Employee in excess of one hundred fifty thousand
dollars ($150,000) (or such higher amount as may be prescribed by statute or
applicable guidance) shall not be taken into account under the Plan. In the
event Earnings are determined based on a period of time which contains fewer
than twelve (12) calendar months, the annual Earnings limit shall be an amount
equal to the annual Earnings limit for the calendar year in which the period
begins multiplied by a fraction, the numerator of which is the number of full
calendar months and the denominator of which is twelve (12).

     For purposes of the annual Earnings limit for any Plan Year beginning
before January 1, 1997, any Earnings paid to an Employee who is the spouse or a
lineal descendant (who has not attained age nineteen (19) by the close of the
Plan Year) of an Employee who is a 5-percent owner (within the meaning of Code
Section 416(i)(1)) or one of the ten (10) highly compensated employees (within
the meaning of Code Section 414(q) as in effect for such year) paid the highest
Section 415 Compensation for the Plan Year shall be treated as paid to or on
behalf of such 5-percent owner or highly compensated employee. If the annual
Earnings limit is exceeded as a result of the application of the preceding
sentence, then the limit shall be prorated among the affected Employees'
Earnings as determined prior to the application of the annual Earnings limit.

     1.19 "Effective Date" means January 1, 2001, as to this amendment and
restatement of the Plan, except as otherwise specifically provided herein or
required by applicable law.



                                       4




     1.20 "Eligible Employee" means each Employee of a Participating Employer.

     1.21 "Eligible Rollover Distribution" means any distribution to a
Participant or Beneficiary from the Plan in the amount of two hundred dollars
($200) or more, or any distribution to an Employee of all or any portion of his
or her benefit from another qualified trust, but excluding the following:

     (a) a distribution that is one of a series of substantially equal periodic
payments (not less frequently than annually) made for a specified period of ten
(10) years or longer, for the distributee's life expectancy (or the joint life
expectancy of the distributee and his or her designated Beneficiary), or for the
distributee's life (or the joint lives of the distributee and his or her
designated Beneficiary);

     (b) a required distribution pursuant to Section 401(a)(9) of the Code;

     (c) a return of Salary Deferrals pursuant to Section 5.04;

     (d) a corrective distribution pursuant to Section 3.02, 3.04, or 4.03;

     (e) the portion of any distribution that is not includable in gross income
(determined without regard to the exclusion for net unrealized appreciation
described in Section 402(e)(4) of the Code);

     (f) a loan pursuant to Section 8.03 that is treated as a deemed
distribution pursuant to Section 72(p) of the Code;

     (g) effective for distributions made after December 31, 1998, a hardship
withdrawal pursuant to Section 8.02;

     (h) any similar item designated by the Commissioner of Internal Revenue as
set forth in a Treasury regulation, revenue ruling, notice, or other document of
general applicability.

     1.22 "Employee" means any individual regularly employed, whether on a
full-time or part-time basis, by the Company or any Affiliate, excluding the
following: (a) any person serving solely as a director of the Company or any
Affiliate, (b) any person who is an independent contractor for whom neither the
Company nor any Affiliate is required to make FICA contributions, and (c) any
person who is a "leased employee" of the Company or an Affiliate within the
meaning of Section 414(n)(2) of the Code. The determination whether an
individual is a director or independent contractor under clauses (a) and (b)
shall be based upon the classification by the Employer (without regard to the
classification of such individual by a third party).

     1.23 "ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time.

     1.24 "ESOP Account" means the bookkeeping entry maintained by the Plan
Administrator for each Participant that records the Participant's interest in
the Trust Fund attributable to the Separate ESOP for Plan Years ending before
the Effective Date and to



                                       5



allocations of Stock or cash on and after the Effective Date resulting from
payments of principal and interest on any Acquisition Loan under Article VII,
plus adjustments for allocations of income or loss, distributions and all other
information affecting the value of such account. Each Participant's ESOP Account
shall be divided into sub-accounts reflecting the part of the ESOP Account
consisting of Stock at any date of determination and the part of the ESOP
Account consisting of investments other than Stock at any date of determination.

     1.25 "Excess Aggregate Contributions" means, for any Plan Year, the excess
of (a) the aggregate amount of contributions actually taken into account in
computing the Average Contribution Percentage of the group of Participants who
are Highly Compensated Employees, over (b) the maximum amount of such
contributions permitted under Section 4.03.

     1.26 "Excess Salary Deferrals" means, for any Plan Year, the excess of (a)
the aggregate amount of Salary Deferrals actually taken into account in
computing the Actual Deferral Percentage of the group of Participants who are
Highly Compensated Employees, over (b) the maximum amount of such deferrals
permitted under Section 3.04.

     1.27 "Fair Market Value" means, with respect to shares of Stock, the sale
price at the time in question of such shares on the principal United States
securities exchange registered under the Securities Exchange of 1934, as
amended, on which such Stock is listed or, if such Stock is not listed on any
such exchange, the sale price with respect to a share of such Stock on the
NASDAQ National Market System or any system then in use; or if no quotations are
available, the Fair Market Value at the time in question of a share of Stock
shall be determined by independent appraisal in compliance with applicable
provisions of ERISA.

     1.28 "Financed Shares" means shares of Stock acquired by the Trust Fund
with the proceeds of an Acquisition Loan, whether or not pledged as collateral
to secure the repayment of that Acquisition Loan.

     1.29 "Fixed Contributions" means contributions made to the Plan by the
Company under Section 4.01(a).

     1.30 "Highly Compensated Employee" means effective January 1, 1997 (and, on
and after such date, for purposes of determining whether an employee was a
Highly Compensated Employee for the Plan Year beginning January 1, 1996), any
employee of the Company or any Affiliate who (a) at any time during the Plan
Year or the preceding Plan Year is a 5-percent owner (as defined in Section
416(i)(1) of the Code), or (b) for the preceding Plan Year received Section 415
Compensation from the Company or any Affiliate in excess of eighty thousand
dollars ($80,000) (or such higher amount as the Secretary of the Treasury may
prescribe) and, if the Company elects, was in the group consisting of the top
twenty percent (20%) of the employees of the Company and all Affiliates when
ranked on the basis of such compensation paid during the Plan Year. A former
employee of the Company or an Affiliate shall be treated as a Highly Compensated
Employee if that employee was a Highly Compensated Employee when he or she
separated from service or at any time after attaining age fifty-five (55). The
determination of who is a Highly Compensated Employee, including the number and
identity of employees in the group consisting of the top twenty percent (20%) of
employees described



                                       6




above, shall be made in accordance with Section 414(q) of the Code and the
regulations thereunder.

     1.31 "Hour of Service" means:

     (a) each hour during which an Employee is directly or indirectly paid, or
entitled to payment, for the performance of duties,

     (b) each hour during which an Employee is directly or indirectly paid, or
entitled to payment, on account of a period of time during which no duties are
performed due to vacation, holiday, illness, incapacity (including disability,
pregnancy and any other similar condition which prevents an employee from
performing duties), layoff, jury duty, military duty or leave of absence, and

     (c) each hour for which back pay, irrespective of mitigation of damages, is
either awarded or agreed to by the Company or an Affiliate and for which credit
is not otherwise counted.

     Notwithstanding the foregoing, no Hours of Service shall be recognized for
any payment made due to severance of employment or in compliance with worker's
compensation, unemployment compensation or disability insurance laws, or any
payments made solely to reimburse an Employee for medical or medically-related
expenses.

     (d) In the case of a payment described in Paragraph (b) above, during which
no duties are performed, the number of Hours of Service counted shall be
determined as follows:

          (i) If the payment for a period in which no duties are performed is
     calculated on the basis of a unit of time, the number of Hours of Service
     counted for such period shall be the number of hours regularly scheduled
     for performance of duties during such period.

          (ii) If the payment for a period in which no duties are performed is
     not calculated on the basis of a unit of time, the number of hours counted
     for such period shall be determined by dividing the total of such payments
     by the Employee's most recent hourly rate of compensation as determined
     under the provisions of Department of Labor Regulation Section
     2530.200b-2(b)(2)(ii), but shall not exceed the number of hours scheduled
     for performance of duties during such period.

     (e) Hours of service shall be credited to the computation period determined
under the provisions of paragraph (c) of Department of Labor Regulation Section
2530.200b-2, which is hereby incorporated by reference into this Plan.

     (f) Solely for determining whether a Break in Service has occurred, an
Employee who is absent from employment for maternity or paternity reasons shall
receive credit for the Hours of Service which would otherwise have been credited
but for such absence, or in any case in which such hours cannot be determined,
eight (8) Hours of Service per day of such absence; provided, however, that the
credit given under this Paragraph (d) for any such reason shall not exceed five
hundred one (501) hours. For purposes of this Paragraph (f), absence for
maternity



                                       7




or paternity reasons hereunder shall mean the Employee's absence on account of
pregnancy of the Employee, the birth of a child of the Employee, the placement
of a child with the Employee in connection with the adoption of such child by
such Employee, or for purposes of caring for such child for a period immediately
following such birth or placement. The Hours of Service to be credited under
this Paragraph (d) shall be credited in the Plan Year in which the absence
begins if the crediting is necessary to prevent a Break in Service in that
period, or in all other cases, in the following Plan Year.

     (g) Nothing in this Plan shall be construed to deny any employee credit for
an hour of service if such credit is otherwise required by federal law.

     1.32 "Insider" means a Participant who is subject to the provisions of
Section 16 of the Securities and Exchange Act of 1934 with respect to
transactions involving shares of Stock.

     1.33 "Matching Contributions" means Fixed Contributions made to the Plan by
the Company under Section 4.01(a) for the purpose of matching Salary Deferrals
in cash or stock at the rate specified in such subsection.

     1.34 "Matching Contribution Account" means a bookkeeping entry maintained
by the Plan Administrator for each Participant that records the Matching
Contributions allocated to the Participant under Article V, adjustments for
allocations of income or loss, distributions and all other information affecting
the value of such account.

     1.35 "Normal Retirement Age" means the first day of the month coincident
with or next following the date the Participant attains age sixty-five (65).

     1.36 "Participant" means any Eligible Employee who has met the requirements
of Article II and is participating in the Plan, or who is a former Eligible
Employee who has not received a distribution of his or her entire Vested
Interest. Notwithstanding the above, an Eligible Employee who would be a
Participant but for the failure to make Salary Deferrals shall be treated as a
Participant for purposes of Sections 3.04 and 4.03.

     1.37 "Participating Employer" means the Company and any Affiliate that
adopts this Plan in accordance with the provisions of Article XV.

     1.38 "Participation Agreement" means an election by the Participant that
(a) authorizes the Company to withhold a portion of such Participant's current
Earnings as a Salary Deferral under Section 3.01, (b) specifies the investment
funds under Article V in which the Participant's allocable share of the Trust
Fund shall be invested, and (c) designates the Beneficiary or Beneficiaries to
receive the death benefits provided under Article X, or any permitted
modification thereof. A Participation Agreement shall be made by such written,
electronic or telephonic means and at such time as the Plan Administrator shall
specify.

     1.39 "Plan" means the Banknorth Group, Inc. 401(k) Plan, as set forth
herein and as it may be amended from time to time.

     1.40 "Plan Administrator" means a committee of not less than four (4)
individuals appointed by the Board.



                                       8





     1.41 "Plan Affiliation Date" means the date on which a Predecessor Plan was
merged into or consolidated with the Plan. The Plan Affiliation Date for each
Predecessor Plan shall be separately set forth in Appendix A attached to the
Plan and made a part hereof.

     1.42 "Plan Year" means the calendar year.

     1.43 "Predecessor Plan" means each plan listed in Appendix A attached to
the Plan and made a part hereof. Any defined contribution plan, maintained by a
corporation or other organization that becomes a Participating Employer after
the Effective Date, or of which some or all of the business and assets are
acquired by, merged with or consolidated with the Company or an Affiliate after
the Effective Date, shall be a Predecessor Plan if the Board of Directors
authorizes such plan to be merged with this Plan.

     1.44 "Predecessor Plan Account" means the aggregate value of a Predecessor
Plan Participant's interest in his or her account or accounts under a
Predecessor Plan, determined as of the Plan Affiliation Date.

     1.45 "Predecessor Plan Participant" means an individual who was a
participant in a Predecessor Plan on the day immediately preceding such plan's
Plan Affiliation Date.

     1.46 "Qualified Domestic Relations Order" means any judgment, decree, or
order (including approval of a property settlement agreement) relating to the
provision of child support, alimony payment, or marital property rights to a
spouse, former spouse, child, or other dependent of a Participant which (a) is
made pursuant to a State domestic relations law (including a community property
law), (b) creates or recognizes the existence of an alternate payee's right to,
or assigns to an alternate payee the right to, receive all or a portion of the
benefits or funds payable with respect to a Participant under the Plan, and (c)
satisfies the requirements of Section 414(p)(2) and (3) of the Code.

     1.47 "Qualified Nonelective Contributions" means a contribution, other than
a Salary Deferral Contribution, Fixed Contribution or Discretionary
Contribution, made to the Plan under Section 4.01(c) which (a) is treated as a
Salary Deferral Contribution, (b) is nonforfeitable when made, (c) is
distributable only in accordance with the provisions of Article X that apply to
Salary Deferral Contributions, and (d) satisfies the requirements of Section
401(a)(4) of the Code.

     1.48 "Rollover Contribution Account" means a bookkeeping entry maintained
by the Plan Administrator for each Participant who makes a rollover contribution
in accordance with Section 3.06, in which shall be recorded the amount of his or
her rollover contributions, adjustments for allocations of income or loss,
distributions and all other information affecting the value of such account.

     1.49 "Salary Deferrals" means amounts that a Participant elects to defer by
payroll withholding from current Earnings under a Participation Agreement, which
amounts are contributed to the Plan by the Company and allocated to such
Participant's Salary Deferral Contribution Account as described in Section 3.01.

     1.50 "Salary Deferral Contribution Account" means a bookkeeping entry
maintained by the Plan Administrator for each Participant who has elected to
make Salary Deferrals in



                                       9




which shall be recorded the Salary Deferrals and Qualified Nonelective
Contributions to be allocated on the Participant's behalf under Articles III and
IV, adjustments for allocations of income or loss, distributions and all other
information affecting the value of such account.

     1.51 "Section 415 Compensation" means, with respect to a Plan Year, the
total compensation paid by the Company to an Employee for services rendered
while an Employee that constitutes wages as defined in Section 3401(a) of the
Code and all other payments by the Company to an Employee for services rendered
while an Employee for which the Company is required to furnish the Employee a
written statement under Sections 6041(d), 6051(a)(3) and 6052 of the Code
without regard to any rules under Section 3401(a) of the Code that limit the
remuneration included in wages based on the nature or location of the employment
or services performed.

     (a) For Limitation Years beginning after December 31, 1991, for purposes of
applying the limitations of Section 5.04, Section 415 Compensation for a
Limitation Year shall mean the compensation actually paid or includable in gross
income during such Limitation Year. Notwithstanding the preceding sentence,
Section 415 Compensation with respect to a Participant who is permanently and
totally disabled (within the meaning of Section 22(e)(3) of the Code) shall mean
the compensation such Participant would have received for the Limitation Year if
he or she had been paid at the rate of earnings paid immediately before becoming
permanently and totally disabled; provided such imputed earnings may be taken
into account only if the Participant is not a Highly Compensated Employee and
contributions made on behalf of such Participant are not forfeitable when made.

     (b) For purposes of applying the limitations of Section 5.04, computing the
Actual Deferral Percentage and/or computing the Average Contribution Percentage:

          (i) For Limitation Years beginning after December 31, 1997, Section
     415 Compensation for a year shall also include any elective deferrals
     within the meaning of Section 402(g)(3) of the Code and any amount that is
     contributed or deferred by the Employer or an Affiliate at the election of
     an Employee and which is not includable in the gross income of the Employee
     by reason of Section 125 of the Code, unless the Plan Administrator elects
     not to include such amounts; and

          (ii) For Limitation Years beginning after December 31, 2000, Section
     415 Compensation for a year shall also include any elective amounts that
     are not includable in gross income of the Employee by reason of Code
     Section 132(f).

     1.52 "Separate ESOP" means the Banknorth Group, Inc. Profit Sharing and
Employee Stock Ownership Plan as in effect on December 31, 2000.

     1.53 "Stock" means common stock, $.01 par value per share, of Banknorth
Group, Inc. (or, before May 10, 2000, Peoples Heritage Financial Group, Inc.),
that is readily tradable on an established securities market or that otherwise
constitutes "employer securities" within the meaning of Section 409(l) of the
Code and "qualifying employer securities" within the meaning of Section
4975(e)(8) of the Code and Section 407(d)(5) of ERISA.



                                       10




     1.54 "Thrift Incentive Plan" means the Banknorth Group, Inc. Thrift
Incentive Plan, as in effect on December 31, 2000.

     1.55 "Trust" means the legal entity created under the Trust Agreement to
hold the Trust Fund.

     1.56 "Trust Agreement" means the separate agreement entered into by
Banknorth Group, Inc. and the Trustee for the purpose of holding the Trust Fund.

     1.57 "Trust Fund" means all monies, securities and assets held by the
Trustee for the benefit of Participants and Beneficiaries.

     1.58 "Trustee" means the trustee appointed by the Board under the Trust
Agreement.

     1.59 "Valuation Date" means, for any Plan Year, the last day of each
Calendar Quarter and such additional dates as the Plan Administrator may
designate.

     1.60 "Vested Interest" means the fair market value of the Participant's
nonforfeitable interest in his or her Aggregate Account determined as of the
next following Valuation Date.

     1.61 "Year of Service" means a computation period of twelve (12)
consecutive months during which an Employee is credited with at least one
thousand (1,000) Hours of Service.

     (a) For participation purposes, the initial computation period shall begin
with the date that the Employee first performs one Hour of Service upon
commencing employment or re-employment, as the case may be, with the Company or
an Affiliate. Upon completion of the initial computation period, the computation
period for participation shall shift to the Plan Year and shall include the Plan
Year in which the initial computation period is completed.

     (b) For vesting purposes, the computation period shall begin with the date
that the Employee first performs one Hour of Service upon commencing employment,
and each anniversary thereafter; provided, however, that if the Employee
terminates employment and is re-employed by the Company or an Affiliate, the
computation period for future service shall begin with the date that the
Employee first performs one Hour of Service upon re-commencing employment, and
each anniversary thereafter. Notwithstanding the foregoing to the contrary, in
the case of a Employee who commences participation in the Plan on or after
January 1, 1998, the computation period for vesting purposes shall be the Plan
Year.

     (c) All Years of Service prior to and following the Effective Date, with
the Company and any Affiliate, shall be recognized for participation and vesting
purposes under the Plan. In the case of any Participant who was a participant in
any Predecessor Plan, his or her years of service credited under the Predecessor
Plan shall be credited for participation and vesting purposes under this Plan.
In addition, in the case of any other Participant who was an employee of any of
the following banks or other organizations (including any affiliated
organizations the stock or assets of which were acquired by or merged or
consolidated with the Company) on the acquisition date identified below, years
of service with such bank or other organization shall be credited for
participation and vesting purposes under this Plan as of the effective date
stated below, provided that no year of service shall be counted more than once
under this Section:



                                       11







ORGANIZATION                          ACQUISITION DATE         EFFECTIVE DATE
- ------------                          ----------------         --------------
                                                        
Mid Maine Savings Bank/Hampton        July 31, 1994            August 1, 1994
Co-operative Savings Bank

North Conway Bank                     July 1, 1995             July 1, 1995

Bank of New Hampshire                 July 1, 1996             July 1, 1996 (except for purposes
                                                               of the allocation made under the
                                                               Separate ESOP for the plan year
                                                               ending December 31, 1996)

Family Bank, FSB                      December 6, 1996         January 1, 1997

Atlantic Bank                         October 1, 1997          October 1, 1997 (for purposes of
                                                               the Thrift Incentive Plan);
                                                               January 1, 1998 (for purposes of
                                                               the Separate ESOP)

CFX Corporation                       April 10, 1998           May 22, 1998 (for employees of
                                                               Safety Fund National Bank making
                                                               deferrals to the CFX 401(k) plan
                                                               on such date); July 1, 1998 (all
                                                               other CFX employees)

Concord Savings Bank                  April 10, 1998           July 1, 1998

Springfield Institution for Savings   January 1, 1999          September 30, 1999 (for purposes
                                                               of the Separate ESOP); December
                                                               31, 1999 (for purposes of the
                                                               Thrift Incentive Plan)

Pre-Merger Banknorth Group, Inc.      May 10, 2000             October 1, 2000

Morse, Payson & Noyes                 October 10, 1997         Later of May 1, 2001 and
                                                               commencement of employment for a
                                                               Participating Employer

Andover Savings Bank                  October 31, 2001         January 1, 2002

MetroWest Bank                        October 31, 2001         January 1, 2002



     (d) For any other Eligible Employee who was an employee of any corporation
or other organization that becomes a Participating Employer after the Effective
Date, or some or all of the business and assets of which are acquired by or
merged or consolidated with the Participating Employer after such date, Years of
Service for purposes of eligibility for participation and vesting shall include
all years of service with such corporation or other organization prior to the
time it became a Participating Employer, or prior to the effective date of the
acquisition of its business and assets by or its merger or consolidation with
the Participating Employer, to the same extent as if employees of such
corporation or other organization had been employed by the Participating
Employer instead of by such corporation or other organization, if the Board of
Directors shall so provide by resolution or otherwise.



                                       12



ARTICLE II. PARTICIPATION

     2.01 ELIGIBILITY. Each participant in the Thrift Incentive Plan or the
Separate ESOP immediately prior to the Effective Date who is an Eligible
Employee on the Effective Date shall be an active Participant in this Plan as of
the Effective Date. In the case of any other Eligible Employee on or after the
Effective Date:

     (a) SALARY DEFERRAL CONTRIBUTIONS. Effective October 1, 2000, each Eligible
Employee may commence participation with respect to Salary Reduction
Contributions on the first day of the month coincident with or next following
his or her completion of one month of service (measured from the date on which
he or she first performs an Hour of Service to the corresponding date in the
following month) ("initial entry date"), provided that a timely Participation
Agreement has been filed with the Plan Administrator. If the Eligible Employee
does not commence participation on his or her initial entry date, then he or she
may commence participation on the first day of any month thereafter by filing a
timely Participation Agreement. For purposes of the Plan, a Participation
Agreement is timely if it is filed with the Plan Administrator not later than
the fifteenth (15th) day of the month immediately preceding the date
participation is to begin.

     NOTWITHSTANDING THE FOREGOING TO THE CONTRARY, EFFECTIVE JANUARY 1, 2002,
THE INITIAL ENTRY DATE OF AN ELIGIBLE EMPLOYEE WHO IS CLASSIFIED ON THE PAYROLL
RECORDS OF THE EMPLOYER AS A TEMPORARY EMPLOYEE SHALL BE THE FIRST DAY OF THE
MONTH COINCIDENT OR NEXT FOLLOWING HIS OR HER COMPLETION OF ONE YEAR OF
SERVICE.(1)

     (b) COMPANY CONTRIBUTIONS. Each Eligible Employee shall become a
Participant with respect to Company Contributions on the first day of the
Calendar Quarter coincident with or next following his or her completion of one
Year of Service.

     2.02 TERMINATION OF PARTICIPATION. A Participant who fails to qualify as an
Eligible Employee for any reason shall be ineligible thereafter to make Salary
Deferrals for any succeeding payroll periods or to share in the allocation of
any future Company Contributions. Such individual again shall become a
Participant as of the first day of the Calendar Quarter immediately following
the date on which he or she again becomes an Eligible Employee, provided that a
Participation Agreement has been filed with the Plan Administrator by the
fifteenth (15th) day of the month immediately preceding such Calendar Quarter.

     2.03 SPECIAL RULE FOR INSIDERS. Notwithstanding any other provision of this
Article II, an Insider may not recommence participation in the Plan for at least
six (6) months after he or she ceases to participate in the Plan for any
reason.(2)


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

(1) This provision will be included if you decide to go ahead with this rule
for temps.

(2) Do you want to retain this rule in the Plan, or simply leave all
decisions involving Insiders and the Act to the Committee, as set forth in
Section 7.09?

                                       13




     2.04 SPECIAL PARTICIPATION RULE. Each Employee who was previously employed
by CFX Corporation or any of its subsidiaries (collectively, "CFX") immediately
prior to the date on which CFX was acquired by the Company and -

     (a) is both employed by any former CFX subsidiary except Safety Fund
National Bank on June 30, 1998, and a participant receiving elective deferrals
under the CFX Corporation 401(k) Plan ("CFX Plan") or the Concord Savings Bank
401(k) Plan on such date, then his or her deferral election in effect under the
applicable plan on such date shall constitute his or her initial Participation
Agreement under this Plan, provided that any terms of such deferral election
that are not consistent with the provisions of this Plan shall be of no effect
hereunder, and provided further that the Employee may file a new Participation
Agreement by June 15, 1998.

     (b) is both employed by Safety Fund National Bank on May 22, 1998, and a
participant receiving elective deferrals under the CFX Plan on such date, then
such Employee shall be eligible to participate in this Plan as of May 22, 1998,
and his or her deferral election in effect under the CFX Plan on such date shall
constitute his or her initial Participation Agreement under this Plan, provided
that any terms of such deferral election that are not consistent with the
provisions of this Plan shall be of no effect hereunder.

ARTICLE III. PARTICIPANT CONTRIBUTIONS

     3.01 SALARY DEFERRALS. A Participant may elect, subject to the right of the
Plan Administrator to establish uniform and nondiscriminatory rules and, from
time to time, to modify or change such rules governing the manner and methods by
which Salary Deferrals shall be made, to reduce his or her current Earnings by a
deferral percentage, which amount the Company shall then contribute to the Trust
for allocation to the Participant's Salary Deferral Contribution Account in
accordance with the following provisions:

     (a) A Participant may elect to defer between one percent (1%) and fifteen
percent (15%) of his or her Earnings, in increments of one percent (1%).

     (b) A Participant may direct the Plan Administrator to cease Salary
Deferrals as soon as practicable after written notice to such effect has been
delivered by such Participant to the Plan Administrator. If a Participant ceases
to make Salary Deferrals, such Participant shall not be entitled to again make
Salary Deferrals until the first payroll period of the following Calendar
Quarter.

     (c) A Participant may increase or decrease the amount of his or her Salary
Deferrals during the Plan Year. Changes in the deferral percentage shall be
effective as of the first day of any Calendar Quarter coincident with or next
following the end of the thirty-day period beginning on the date that the Plan
Administrator receives such change.

     (d) The Plan Administrator may reduce or discontinue, as necessary, future
Salary Deferrals to some or all of the Participants who are Highly Compensated
Employees for the Plan Year in order to maintain the qualified status of the
Plan or to avoid subjecting the Highly Compensated Employees to Federal income
tax currently with respect to such Salary Deferrals. The amount by which a
Participant's Salary Deferrals are reduced or discontinued shall be paid to such
Participant in cash.



                                       14




     3.02 ANNUAL LIMITATION ON SALARY DEFERRALS.

     (a) Effective January 1, 1997, the Salary Deferrals that may be allocated
to a Participant's Salary Deferral Contribution Account for any calendar year
shall not exceed nine thousand five hundred dollars ($9,500), reduced by the
amount of any employer contributions for such year on behalf of the Participant
pursuant to an election to defer compensation under any qualified cash or
deferred arrangement within the meaning of Section 401(k) of the Code, any
simplified employee pension cash or deferred arrangement within the meaning of
Section 402(h)(1)(B) of the Code, any eligible deferred compensation plan under
Section 457 of the Code, any plan within the meaning of Section 501(c)(18) of
the Code and a salary reduction agreement for the purchase of an annuity
contract under Section 403(b) of the Code. For purposes of this Section, any
Salary Deferrals returned to a Participant pursuant to Section 5.04 shall be
disregarded. The dollar limitation of this Section shall be automatically
adjusted to reflect any cost of living or other adjustment made under Section
402(g)(5) of the Code.

     (b) In the event that the limitation of Paragraph (a) is exceeded with
respect to any Participant, not later than April 15 of the following calendar
year, the Plan Administrator shall distribute the excess deferral (plus any
income and minus any loss allocable thereto), provided that the Plan
Administrator has received the notice prescribed in Paragraph (c). Excess
deferrals shall be adjusted for any income or loss up to the date of
distribution. The income or loss allocable to excess deferrals shall be
determined in the same manner in which income or loss is allocated to the
Participants' Aggregate Accounts under Article V of the Plan.

     The amount of excess deferral with respect to a Participant for any
calendar year shall be reduced by the amount of any contributions previously
distributed to such Participant under this Article for the Plan Year beginning
with or within the calendar year.

     (c) It shall be the responsibility of the Participant to notify the Plan
Administrator of any excess deferral for a calendar year. Such notice shall be
in writing; shall specify the amount of the excess deferral; shall state that if
the excess deferral is not distributed, such excess shall be includable in the
Participant's gross income under Section 402(g) of the Code; and shall be
submitted to the Plan Administrator not later than March 1 of the following
calendar year. A Participant shall be deemed to have notified the Plan
Administrator of an excess deferral to the extent such Participant has an excess
deferral for a calendar year, taking into account only Salary Deferrals under
the Plan and any other plans of the Company or its Affiliates subject to Section
402(g) of the Code.

     3.03 TIME AND FORM OF SALARY DEFERRAL CONTRIBUTIONS. The Company shall
contribute Salary Deferrals to the Trust as of the earliest date on which said
contributions can reasonably be segregated from the general assets of the
Participant's Employer; provided in no event shall the date determined pursuant
to this provision occur later than the fifteenth (15th) business day of the
month following the month in which such contributions would otherwise have been
payable to the Participant in cash (the "maximum time period"), unless the
Employer extends the maximum time period as provided in 29 C.F.R. Section
2510.3-102(d).

     3.04 LIMITATIONS ON ACTUAL DEFERRAL PERCENTAGE. In the event a Participant
who is a Highly Compensated Employee ("Highly Compensated Participant")
participates in two or more



                                       15




cash or deferred arrangements (under Section 401(k) of the Code) that have
different plan years, for purposes of this Section, all such arrangements ending
with or within the same calendar year shall be treated as a single arrangement.
For purposes of this Section, this Plan and any other Code Section 401(k) plan
maintained by the Company or any of its Affiliates shall be treated as a single
plan if such plans are treated as one plan for purposes of Section 401(a)(4) or
Section 410(b) of the Code or if a Highly Compensated Employee participates in
such other plan. Plans may be aggregated to satisfy Section 401(k) of the Code
only if such plans have the same Plan Year.

     For purposes of this Section and Code Sections 401(a)(4) and 410(b), the
Salary Deferral Contribution portion of the Plan benefiting Participants who
have satisfied the greatest permissible age and service conditions may, at the
election of the Plan Administrator, be disaggregated from the Salary Deferral
Contribution portion of the Plan benefiting Participants who have not satisfied
such conditions ("early participants"). Effective January 1, 1999, for any Plan
Year for which the Plan Administrator elects to disregard early participants in
determining whether the Salary Deferral Contribution portion of the Plan
satisfies Code Section 401(k)(3)(A)(i), the Plan Administrator may elect to
disregard non-Highly Compensated early participants for purposes of this
Section.

     (a) The Actual Deferral Percentage for Highly Compensated Participants for
any Plan Year commencing after December 31, 1996, shall not exceed the greater
of:

          (i) the Actual Deferral Percentage for all other Participants for the
     preceding Plan Year multiplied by 1.25; or

          (ii) the lesser of the Actual Deferral Percentage for all other
     Participants for the preceding Plan Year multiplied by two (2), or the
     Actual Deferral Percentage for such Participants for the preceding Plan
     Year plus two percent (2%).

     (b) The sum of the Actual Deferral Percentage and the Average Contribution
Percentage for Highly Compensated Participants for any Plan Year commencing
after December 31, 1996, shall not exceed the greater of:

          (i) the sum of (A) the greater of the Actual Deferral Percentage for
     all other Participants for the preceding Plan Year multiplied by 1.25 or
     the Average Contribution Percentage for all other Participants for the
     preceding Plan Year multiplied by 1.25, and (2) the lesser of the Actual
     Deferral Percentage for all other Participants for the preceding Plan Year
     plus two (2) or the Average Contribution Percentage for all other
     Participants for the preceding Plan Year plus two (2), provided that in no
     event shall such percentage plus two (2) exceed such percentage multiplied
     by two (2).

          (ii) the sum of (1) the lesser of the Actual Deferral Percentage for
     all other Participants for the preceding Plan Year multiplied by 1.25 or
     the Average Contribution Percentage for all other Participants for the
     preceding Plan Year multiplied by 1.25, and (2) the greater of the Actual
     Deferral Percentage for all other Participants for the preceding Plan Year
     plus two (2) or the Average Contribution Percentage for all other




                                       16



     Participants for the preceding Plan Year plus two (2), provided that in no
     event shall such percentage plus two (2) exceed such percentage multiplied
     by two (2).

     Paragraph (b) of this Section shall not apply if the respective Actual
Deferral Percentage and Average Contribution Percentage of the Highly
Compensated Participants for any Plan Year commencing after December 31, 1996,
does not exceed the respective Actual Deferral Percentage and Average
Contribution Percentage of all other Participants for the preceding Plan Year
multiplied by 1.25.

     Notwithstanding the foregoing provisions of this Section to the contrary,
with respect to the Plan Year commencing January 1, 1997, the Company may elect,
pursuant to IRS Notice 97-2, to apply Paragraphs (a) and (b) of this Section by
substituting the phrase "such Plan Year" for the phrase "the preceding Plan
Year" in said Paragraphs and in the sentence immediately following Paragraph
(b).

     For purposes of this Section, Salary Deferrals and Matching Contributions
must be made before the last day of the twelve (12) month period immediately
following the Plan Year to which such contributions relate. For purposes of this
Section, any Salary Deferrals returned to a Participant pursuant to Section 5.04
shall be disregarded.

     The Company shall maintain records sufficient to demonstrate compliance
with this Section and the amount of any Matching Contributions used to satisfy
this Section. The determination and treatment of the contributions on behalf of
any Participant that are taken into account for purposes of this Section shall
satisfy such other requirements as may be prescribed by the Secretary of the
Treasury.

     3.05 RESTRICTIONS AND ADJUSTMENTS. The Plan Administrator may restrict the
deferral percentages elected by Participants if the Plan Administrator
determines such restriction is necessary to comply with Section 3.02,
Section 3.04, Section 4.03 or Section 5.04.

     In the event that the Actual Deferral Percentage of the Highly Compensated
Participants for any Plan Year exceeds the limitations prescribed in Paragraph
3.6(a), the Plan Administrator shall, within two and one half (2 1/2) months
after the end of such year, distribute the Excess Salary Deferrals (plus any
income and minus any loss allocable thereto) to such Participants on the basis
of the respective portions of the Excess Salary Deferrals attributable to each
such Participant and shall designate such distribution as a distribution of
Excess Salary Deferrals (plus any income and minus any loss allocable thereto).
For Plan Years beginning before January 1, 1997, Excess Salary Deferrals shall
be allocated to Participants who are subject to the family aggregation rules of
Section 414(q)(6) of the Code in the manner prescribed by regulations.

     The amount of any Excess Salary Deferrals of a Highly Compensated
Participant shall be determined by reducing contributions on behalf of all such
Participants in the order of their respective amounts of Salary Deferrals,
beginning with the highest such amount. The amount of Excess Salary Deferrals
with respect to a Highly Compensated Participant for any Plan Year shall be
reduced by the amount of excess deferrals previously distributed to such
Participant under Section 3.02 for the calendar year ending with or within the
Plan Year; provided, however, that notwithstanding the distribution of an excess
deferral in accordance with Section 3.02 to a



                                       17



Highly Compensated Participant, such distributed amount shall be taken into
account under Section 4.03.

     Excess Salary Deferrals shall be adjusted for any income or loss up to the
date of distribution. The income or loss allocable to Excess Salary Deferrals
shall be determined by the same manner in which income or loss is allocated to
Participants' Aggregate Accounts under Article V of the Plan.

     In the event that the sum of the Actual Deferral Percentage for Highly
Compensated Participants and the Average Contribution Percentage for Highly
Compensated Participants for any Plan Year exceeds the limitations prescribed in
Paragraph 3.04(b), the Plan Administrator shall, within two and one half (2 1/2)
months after the end of such year, reduce the Average Contribution Percentage
for Highly Compensated Participants in the manner prescribed in subsections (g)
through (j) of Section 4.03.

     Notwithstanding the foregoing provisions of this Section to the contrary,
in lieu of distributing Excess Salary Deferrals (plus any income and minus any
loss allocable thereto) or reducing the Average Contribution Percentage for
Highly Compensated Participants in the manner prescribed in subsections (g)
through (j) of Section 4.03 in order to comply with Paragraph 3.04(b) for any
Plan Year, the Company may make Qualified Nonelective Contributions to the Plan.

     3.06 ROLLOVER CONTRIBUTIONS. An Eligible Employee who has received an
Eligible Rollover Distribution may transfer all or any portion of such
distribution to the Trust, provided the transfer is made to the Trust not later
than the sixtieth (60th) day following the day on which he or she received such
distribution. In addition, an Employee who receives a distribution from an
individual retirement account (within the meaning of Section 408(a) of the Code)
that is attributable solely to an Eligible Rollover Distribution may transfer
the entire amount distributed to the Trust, provided the transfer is made to the
Trust not later than the sixtieth (60th) day following the day on which he or
she received such distribution. Notwithstanding the foregoing to the contrary,
an Employee who has received an Eligible Rollover Distribution solely by reason
of the death of his or her spouse, or a distribution from an individual
retirement account (as hereinabove defined) of amounts received by reason of the
death of his or her spouse, may not transfer any portion of such distribution to
the Trust. Before January 1, 1997, the amount transferred to the Trust under
this Section must be one thousand dollars ($1,000) or more.

     A rollover contribution shall be credited to a Rollover Contributions
Account on behalf of the contributing Employee, and such Employee shall have a
fully vested and nonforfeitable interest in his or her Rollover Contributions
Account.

     An Eligible Employee who has made a rollover contribution in accordance
with this Section who has not otherwise become a Participant shall become a
Participant coincident with such rollover contribution, provided that such
Participant shall not have a right to defer Earnings or to share in any Matching
Contributions until he or she has otherwise satisfied the eligibility
requirements imposed by Article II.



                                       18




     Effective October 31, 2001, with respect to an Eligible Employee who was
employed on such date by MetroWest Bank or Andover Savings Bank, if the Employee
elects a direct rollover to this Plan of his or her vested interest in the SBERA
401(k) Plan as Adopted by MetroWest Bank or the SBERA 401(k) Plan as Adopted by
Andover Savings Bank, and his or her vested interested in the applicable plan
includes any outstanding loans that are not in default, then he or she may
transfer such unpaid loans to this Plan. The promissory note(s) evidencing such
loan(s) shall be assigned to this Plan, and the Participant's obligation
thereunder shall be as set forth in Section 8.03.

ARTICLE IV. COMPANY CONTRIBUTIONS

     4.01 COMPANY CONTRIBUTIONS. For each Plan Year, in addition to Salary
Deferral Contributions under Section 3.01, the Company shall contribute to the
Plan:

     (a) Fixed Contributions, in the amount required to allocate Matching
Contributions to each Participant entitled to receive such contributions for the
Plan Year at the rate of:

          (i) For pay periods ending before October 1, 2001, fifty percent (50%)
     of such Participant's Salary Deferrals under Section 3.01 not in excess of
     six percent (6%) of Earnings; and

          (ii) For pay periods ending on or after October 1, 2001, one dollar
     ($1.00) for each one dollar ($1.00) of Salary Deferrals made on behalf of
     the Participant up to three percent (3%) of his or her Earnings; plus fifty
     cents ($0.50) for each one dollar ($1.00) of Salary Deferrals made on his
     or her behalf in excess of three percent (3%) and not exceeding six percent
     (6%) of such Earnings;

provided, however, that no Matching Contribution shall be allocated with respect
to any excess deferral under Section 3.02, any Excess Salary Deferral under
Section 3.04, or any Salary Deferral that is returned to the Participant
pursuant to Section 5.04; and provided further that the Fixed Contributions for
a Plan Year shall not be less than the sum of any required principal and
interest payments on all Acquisition Loans.

     (b) Discretionary Contributions, if any, in such amount as may be
determined by the Board; and

     (c) the Qualified Nonelective Contributions, if any, to be made on behalf
of non-Highly Compensated Employees in an amount that enables the Plan to
satisfy the requirements set forth in Section 3.04 or 4.03.

     4.02 TIME AND FORM OF COMPANY CONTRIBUTIONS.

     (a) Fixed Contributions and Discretionary Contributions, if any, with
respect to any Plan Year shall be paid to the Trust at such time or times as may
be determined by the Company, but not later than the date prescribed by law for
filing the Company's federal income tax return for its taxable year which ends
with or within such Plan Year, including extensions which have been granted for
filing such return; provided that amounts contributed to allocate Matching
Contributions with respect to Salary Deferrals made during a Plan Year quarter
shall be paid to



                                       19



the Trust no later than the last day of the following Plan Year
quarter. Qualified Nonelective Contributions, if any, with respect to any Plan
Year shall be paid to the Trust within twelve (12) months after the end of such
Plan Year.

     (b) Contributions shall be made in cash or in shares of Stock (including
Treasury shares or authorized by unissued shares) to the extent that
contributions are to be invested in the Company Stock Fund, as determined by the
Company in its sole discretion, provided that Fixed Contributions are paid in
cash in such amounts (and at such times, notwithstanding Paragraph (b)) as may
be needed to provide the Trust Fund with cash sufficient to pay any currently
maturing debt service obligation, including interest as well as principal, of
the Trust Fund with respect to any Acquisition Loan. If and to the extent that a
contribution is made in shares of Stock, the value of the shares of Stock for
purposes of determining the amount of the contribution shall be the Fair Market
Value of such shares on the trading day next following the day on which such
contributions are delivered to the Trustee.

     4.03 SPECIAL RULES FOR MATCHING CONTRIBUTIONS.

     (a) The Contribution Percentage for Highly Compensated Participants for any
Plan Year commencing after December 31, 1996, shall not exceed the greater of:

          (i) the Contribution Percentage for all other Participants for the
     preceding Plan Year multiplied by 1.25; or

          (ii) the lesser of the Contribution Percentage for all other
     Participants for the preceding Plan Year multiplied by 2, or the
     Contribution Percentage for such Participants for the preceding Plan Year
     plus two percent (2%).

Notwithstanding the foregoing provisions to the contrary, with respect to the
Plan Year beginning January 1, 1997, the Company may elect, pursuant to IRS
Notice 97-2, to apply this Paragraph (a) by substituting the phrase "such Plan
Year" for the phrase "the preceding Plan Year."

     (b) For purposes of this Section, if two or more qualified plans maintained
by the Company or any of its Affiliates are treated as one plan to meet the
requirements of Section 401(a)(4), Section 410(b) or Section 401(m) of the Code,
such plans shall be treated as a single plan. If a Highly Compensated
Participant participates in any other qualified plan maintained by the Company
to which Matching Contributions or Employee contributions are made, all such
contributions for Plan Years ending with or within the same calendar year shall
be aggregated for purposes of this Section. If a Highly Compensated Participant
participates in two or more cash or deferred arrangements that have different
plan years, all cash or deferred arrangements ending with or within the same
calendar year shall be treated as a single arrangement. For Plan Years beginning
after December 31, 1989, plans may be aggregated in order to satisfy Section
401(m) of the Code only if they have the same plan year.

     For purposes of this Section and Code Sections 401(a)(4) and 410(b), the
Matching Contributions portion of the Plan benefiting Participants who have
satisfied the greatest permissible age and service conditions may, at the
election of the Plan Administrator, be disaggregated from the Matching
Contributions portion of the Plan benefiting Participants who



                                       20




have not satisfied such conditions ("early participants"). Effective January 1,
1999, for any Plan Year for which the Plan Administrator elects to disregard
early participants in determining whether the Matching Contribution portion of
the Plan satisfies Code Section 410(b), the Plan Administrator may elect to
disregard non-Highly Compensated early participants for purposes of this
Section.

     (c) To the extent Salary Deferrals are taken into account under this
Section, any Salary Deferrals returned to a Participant pursuant to Section 5.04
shall be disregarded for purposes of Paragraph (a).

     (d) Notwithstanding Article IX to the contrary, any Matching Contribution
that is attributable to an excess deferral under Section 3.02 or an Excess
Salary Deferral shall be forfeited and shall be disregarded for purposes of
Paragraph (a). Such forfeitures shall be used to reduce future Matching
Contributions.

     (e) For purposes of this Section, Matching Contributions shall be treated
as made for a Plan Year if such contributions are made no later than the end of
the twelve (12) month period beginning on the day after the close of the Plan
Year. The Company shall maintain records sufficient to demonstrate satisfaction
of this Section and the amount of any Salary Deferrals taken into account under
this Section. The determination and treatment of the individual contribution
percentage of any Participant shall satisfy such other requirements as may be
prescribed by the Secretary of the Treasury.

     (f) In the event that the Average Contribution Percentage of the Highly
Compensated Participants for any Plan Year on or after the Effective Date
exceeds the limitation of Paragraph (a) above, the Plan Administrator shall,
within two and one half (2 1/2) months after the end of such year, distribute
the Excess Aggregate Contributions (plus any income and minus any loss allocable
thereto) to such Participants on the basis of the respective portions of the
Excess Aggregate Contributions attributable to each such Participant and shall
designate such distribution as a distribution of Excess Aggregate Contributions
(plus any income and minus any loss allocable thereto).

     (g) Excess Aggregate Contributions shall be adjusted for any income or loss
up to the date of distribution. The income or loss allocable to Excess Aggregate
Contributions shall be determined in the same manner in which income or loss is
allocated to Participants' Aggregate Accounts under Article V.

     (h) The amount of Excess Aggregate Contributions of any Highly Compensated
Participant shall be determined by reducing contributions on behalf of all such
Participants in the order of their respective amounts, beginning with the
highest such amount. The determination of the amount of Excess Aggregate
Contributions with respect to the Plan shall be made after first determining the
amount of excess deferrals under Section 3.02 and second determining the amount
of Excess Salary Deferrals under Section 3.04.

     (i) Notwithstanding the foregoing provisions of this Section to the
contrary, in lieu of distributing Excess Aggregate Contributions (plus any
income and minus any loss allocable thereto) to Highly Compensated Participants
in order to comply with Paragraph (a) above for any Plan Year, the Company may
make Qualified Nonelective Contributions as provided in Section 4.01(c).



                                       21





     4.04 RETURN OF CONTRIBUTIONS TO THE COMPANY. Notwithstanding any other
provisions of the Plan to the contrary:

     (a) Contributions to the Plan by the Company are contingent upon their
deductibility under Section 404 of the Code. To the extent that a deduction for
any contribution hereunder is disallowed, such contribution shall, upon the
written demand of the Company, be returned to the Company by the Trustee within
one year after the date of disallowance, reduced by any net losses of the Trust
Fund attributable thereto but not increased by any net earnings of the Trust
Fund attributable thereto.

     (b) If any contribution to the Plan is made as a result of a mistake of
fact, such contribution shall, upon the written demand of the Company, be
returned to the Company by the Trustee no later than one (1) year after the
payment thereof, reduced by any net losses of the Trust Fund attributable
thereto but not increased by any net earnings of the Trust Fund attributable
thereto. The portion of any contribution returned to the Company in accordance
with this Section that represents Salary Deferrals shall be paid promptly to the
Participants on whose behalf such deferrals were made.

     4.05 MAXIMUM CONTRIBUTIONS. In no event shall the contributions made by the
Company for any Plan Year exceed the maximum amount that the Company is
permitted to deduct for federal income tax purposes or cause the Annual Addition
(as defined in Section 5.04) for any Participant to exceed the amount permitted
under the Plan.

ARTICLE V. ALLOCATIONS

     5.01 SUSPENSE ACCOUNTS.

     (a) All contributions and net income (or net loss) of the Trust Fund shall
be held in a suspense account until allocated to Participants' Aggregate
Accounts under this Article or applied by the Trustee (as directed by the Plan
Administrator) to make payments of principal or interest on any Acquisition
Loan.

     (b) Any Financed Shares acquired with the proceeds of an Acquisition Loan
or a prior Acquisition Loan refinanced with a new Acquisition Loan, whether or
not pledged to secure repayment of an Acquisition Loan, must be credited to a
separate account (the "Acquisition Loan Suspense Account") and not to any
Participant's account. A number of shares of Stock equal to the number of
Financed Shares released from the pledge securing the repayment of an
Acquisition Loan (or, in the case of Financed Shares credited to the Acquisition
Loan Suspense Account that are not pledged to secure repayment of an Acquisition
Loan, that would have been so released had those Financed Shares been so
pledged), must be withdrawn from the Acquisition Loan Suspense Account as of the
Valuation Date next following the date on which the release occurs (or would
have occurred) and must be allocated to the ESOP Accounts of the Participants as
of that Valuation Date in the manner provided for in Section 5.02(b).



                                       22





     5.02 ALLOCATION OF CONTRIBUTIONS.

     (a) Salary Deferral Contributions shall be allocated to each Participant's
Salary Deferral Contribution Account in an amount equal to each such
Participant's designated percentage of deferred Earnings effective no later than
the last day of the Calendar Quarter in which such contributions were paid to
the Trustee.

     (b) Fixed Contributions shall be allocated to each Participant's Matching
Contribution Account in the amount determined under Section 4.03(a) effective no
later than the last day of the Calendar Quarter in which such contributions were
paid to the Trustee. Notwithstanding the preceding sentence, in the event that
Fixed Contributions are applied by the Trustee to make payments of principal or
interest on any Acquisition Loan, a number of shares of Stock equal to the
number of Financed Shares released from the pledge securing repayment of the
Acquisition Loan by such application of Fixed Contributions shall be allocated
to each Participant's ESOP Account as such Matching Contributions, and the
remainder of such contributions, if any, shall be allocated in accordance with
Paragraph (c). The value of the shares of Stock for purposes of determining the
allocation of Matching Contributions and Discretionary Contributions, if any,
shall be the Fair Market Value of such shares on the trading day [NEED TO
SUPPLY].(3)

     (c) Discretionary Contributions shall be allocated to the Discretionary
Contributions Account of each Eligible Employee in the same proportion that his
or her Earnings for the applicable Plan Year bear to the total Earnings of all
Eligible Employees who are eligible to participate in allocations of
Discretionary Contributions under Section 2.01(b) for such Plan Year effective
no later than the last day of the Calendar Quarter in which such contributions
were paid to the Trustee.

     (d) Qualified Nonelective Contributions shall be allocated to the Salary
Deferral Contribution Account of each Participant who is a non-Highly
Compensated Employee in the same proportion that his or her Earnings for the
applicable Plan Year bear to the total Earnings of all Participants who are
non-Highly Compensated Employees for such Plan Year effective no later than the
last day of the Calendar Quarter in which such contributions were paid to the
Trustee.

     (e) Rollover Contributions made by a Participant under Section 3.06 shall
be allocated to his or her Rollover Contribution Account as of the Valuation
Date next following the receipt of such contribution by the Trustee.

     5.03 ALLOCATION OF NET INCOME OR LOSS.

     (a) As of each Valuation Date, the Trustee shall determine the fair market
value of the Trust Fund assets and the net income (or net loss) of the Trust
Fund. The net income (or net loss) of each investment fund within the Trust Fund
since the next preceding Valuation Date shall be ascertained by the Trustee and
shall be determined on the accrual basis of accounting;



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

(3) I would like to identify the day in a payroll period (if at all possible)
as of which shares are valued for purposes of matching contribution
allocations. In addition, if a rounding rule is applied for purposes of
allocations, it should be stated here.

                                       23


provided, however, that such net income (or net loss) shall include any net
increase or net decrease in the value of the assets of each such Fund since the
next preceding Valuation Date to the extent not otherwise accrued. As soon as is
practicable after each Valuation Date, the Trustee shall deliver to the Plan
Administrator a written statement of such determination.

     (b) For purposes of allocations of net income (or net loss) of the Trust
Fund, a Participant's accounts shall be divided into subaccounts to reflect the
investment of such accounts under Article VI. As of each Valuation Date, the
Plan Administrator shall adjust such accounts of each Participant as follows:

          (i) The net income (or net loss) of each investment fund, separately
     and respectively, shall be allocated among the corresponding subaccounts of
     the Participants who had such corresponding subaccounts on the next
     preceding Valuation Date and each such corresponding subaccounts on such
     date; provided, however, that the value of such subaccounts as of the next
     preceding Valuation Date shall be reduced by the amount of any withdrawals
     or distributions made therefrom since the next preceding Valuation Date.

          (ii) The net appreciation (or net depreciation) in the value of the
     ESOP Assets (as defined in Section 7.01) shall be determined by taking into
     account expenses of the Plan with respect to such assets and excluding cash
     dividends with respect to shares of Stock allocated to the ESOP Accounts of
     the Participants as of the record date for which such dividends are
     declared, cash dividends with respect to shares of Stock allocated to the
     Acquisition Loan Suspense Account as of the record date for which such
     dividends are declared to the extent that such dividends are applied to pay
     principal and/or interest on an Acquisition Loan, and any other amount
     applied to pay principal and/or interest on an Acquisition Loan.

          (iii) Each Participant's accounts shall continue to receive
     allocations under this Section so long as there is a balance in such
     accounts; provided, however, that the value of such accounts as of the next
     preceding Valuation Date shall be reduced by the amount of any payments
     made therefrom since the next preceding Valuation Date.

     5.04 LIMITATION ON ALLOCATIONS.

     (a) For purposes of this Section, the following terms and phrases shall
have the meanings specified below:

          (i) "Annual Addition" means, with respect to each Participant for any
     Limitation Year, the sum of (A) the Salary Deferral Contributions allocated
     to the Participant's Aggregate Account for the year; (B) the Company
     Contributions allocated to the Participant's Aggregate Account for the
     year; provided that, to the extent permitted by Section 415(c)(6) of the
     Code, the portion, if any, of a Fixed Contribution applied to pay interest
     on one or more Acquisition Loans not later than the time prescribed by law
     (including permitted extensions of time) for filing the Company's federal
     income tax return for the fiscal year for which the contribution is made
     will not be taken into account for purposes of this clause (B); (C) any
     forfeitures allocated to the Participant's


                                       24



     Aggregate Account for the year; provided that, to the extent permitted by
     Section 415(c)(6) of the Code, forfeitures will not be taken into account
     for purposes of this clause (C) to the extent that the forfeitures consist
     of shares of Stock purchased with the proceeds of one or more Acquisition
     Loans; and (D) any other amounts treated as an "annual addition" in
     accordance with Section 415(c)(2) of the Code.

          (ii) "Limitation Year" means the Plan Year.

          (iii) "Maximum Annual Additions" means, for any Participant for any
     Limitation Year, the lesser of (A) thirty thousand dollars ($30,000); or
     (B) twenty-five percent (25%) of such Participant's Section 415
     Compensation during such year, except the limitation in this Clause (B)
     shall not apply to any contribution for medical benefits (within the
     meaning of Section 419A(f)(2) of the Code) after a Participant's
     termination of employment with the Company or an Affiliate which is
     otherwise treated as an Annual Addition or to any amount otherwise treated
     as an Annual Addition under Section 415(l)(1) of the Code.

     (b) Notwithstanding any other provision in the Plan regarding the
allocation of contributions, under no circumstances shall the Annual Additions
credited to a Participant's Aggregate Account for any Limitation Year exceed the
Maximum Annual Additions for such Participant for such year. If, as a result of
a reasonable error in estimating a Participant's Earnings or because of other
limited facts and circumstances, the Annual Additions which would be credited to
a Participant's Aggregate Account for a Limitation Year would nonetheless exceed
the Maximum Annual Additions for such Participant for such year, the excess
Annual Additions which, but for this Section, would have been allocated to such
Participant's Aggregate Account shall be disposed of as follows:

          (i) Any such excess Annual Additions in the form of Salary Deferrals,
     shall, to the extent such amounts would have otherwise been allocated to
     such Participant's Salary Deferral Contribution Account, be returned to the
     Participant;

          (ii) Any such excess Annual Additions in the form of Fixed
     Contributions remaining in the Plan after the application of Paragraph
     (b)(i) above, shall, to the extent such amounts would have otherwise been
     allocated to such Participant as Matching Contributions, be allocated
     instead to a suspense account and shall be held therein until used to
     reduce future contributions in the same manner as a forfeiture;

          (iii) Any such excess Annual Additions in the form of Discretionary
     Contributions remaining in the Plan after the application of Paragraphs
     (b)(i) and (ii) above, shall, to the extent such amounts would have
     otherwise been allocated to such Participant's Discretionary Contribution
     Account, be allocated instead to a suspense account and shall be held
     therein until used to reduce future contributions in the same manner as a
     forfeiture; and

          (iv) Any such excess Annual Additions in the form of Qualified
     Nonelective Contributions remaining in the Plan after the application of
     Paragraphs (b)(i), (ii) and (iii) above, shall be allocated instead to a
     suspense account and shall be held therein until



                                       25



     allocated to such Participant's Salary Deferral Contribution Account in
     future Limitation Years before any Salary Deferral Contributions or
     Qualified Nonelective Contributions are made to the Plan on behalf of such
     Participant.

     (c) If a suspense account is in existence at any time during a Limitation
Year pursuant to this Section, it will not participate in allocations of the net
income (or net loss) of the Trust Fund.

     (d) For purposes of determining whether the Annual Additions under this
Plan exceed the limitations herein provided, all defined contribution plans of
the Company and its Affiliates shall be treated as one defined contribution
plan. If the Annual Additions credited to a Participant's Aggregate Account for
any Limitation Year under this Plan plus the additions credited on his or her
behalf under other defined contribution plans required to be aggregated pursuant
to this Paragraph would exceed the Maximum Annual Additions for such Participant
for such Limitation Year, the Annual Additions under this Plan and the additions
under such other plans shall be reduced first, in this Plan, from Salary
Deferrals above six percent (6%) of Earnings and then, as necessary, on a pro
rata basis and allocated, reallocated or returned in accordance with applicable
plan provisions regarding Annual Additions in excess of Maximum Annual
Additions.

     (e) Effective for Limitation Years beginning before January 1, 2000, in the
case of a Participant who also participates in a defined benefit plan of the
Company or an Affiliate, the Annual Additions credited to the Aggregate Account
of such Participant shall be reduced to the extent necessary to prevent the
limitations set forth in Section 415(e) of the Code from being exceeded;
provided, however, that this Paragraph (e) shall not be operative to the extent
that such defined benefit plan provides for a reduction of benefits thereunder
to ensure that the limitation set forth in Section 415(e) of the Code is not
exceeded.

ARTICLE VI. INVESTMENT OF CONTRIBUTIONS IN GENERAL

     6.01 INVESTMENT FUNDS. The Trustee shall establish a Company Stock Fund and
one or more other Investment Funds, as the Plan Administrator shall from time to
time direct. Each Investment Fund, other than the Company Stock Fund, shall be
invested, as the Plan Administrator shall direct:

     (a) at the discretion of the Trustee in accordance with such investment
guidelines and objectives as may be established by the Plan Administrator for
such Investment Fund;

     (b) at the discretion of a duly appointed Investment Manager in accordance
with such investment guidelines and objectives as may be established by the Plan
Administrator; or

     (c) in such investments as the Plan Administrator may specify for such
Investment Fund.

     The Plan Administrator may from time to time change its direction with
respect to any Investment Fund and may, at any time, eliminate any Investment
Fund. Whenever an Investment Fund is eliminated, the Trustee shall promptly
liquidate the assets of such Investment



                                       26



Fund and reinvest the proceeds thereof in accordance with the direction of the
Plan Administrator.

     The Trustee shall transfer to each Investment Fund such portion of the
assets of the Trust as the Plan Administrator may from time to time direct in
accordance with the terms of the Plan. All interest, dividends and other income
received with respect to, and any proceeds realized from the sale or other
disposition of, assets held in any Investment Fund shall be credited to and
reinvested in such Investment Fund, and all expenses properly attributable to
any Investment Fund shall be paid therefrom unless paid by the Company.

     6.02 INVESTMENT OF CONTRIBUTIONS.

     (a) On and after the Effective Date, each Participant may direct that
contributions made on his or her behalf shall be invested in any one or more of
the Investment Funds. An investment direction shall be made by such written,
telephonic or electronic means as shall be prescribed by the Plan Administrator.

     A Participant's investment direction, if received by the Plan Administrator
prior to the date he or she commences participation, shall be effective as of
said date. If a Participant does not make an investment direction or an
investment direction is not received by the Plan Administrator before the
Participant commences participation, contributions on behalf of such Participant
to his or her ESOP Account shall remain invested in Stock and all other
contributions shall be invested in the fund which presents the least risk of
loss as determined by the Plan Administrator. An investment direction received
by the Plan Administrator after the date a Participant commences participation
shall be effective as soon as practicable following receipt by the Plan
Administrator (or by the person or persons specified by the Plan Administrator).

     (b) A Participant may modify an investment direction to have future
contributions on his or her behalf invested in the Investment Funds in
proportions other than those previously elected, by such written, telephonic or
electronic means as shall be prescribed by the Plan Administrator. A
modification shall be effective as soon as practicable following receipt by the
Plan Administrator (or by the person or persons specified by the Plan
Administrator).

     (c) A Participant may elect to reinvest all or a portion of the balance
credited to one or more of his or her accounts in any one or more of the
Investment Funds; provided that he or she may not reinvest any portion of the
balance credited his or her ESOP Account that is attributable to periods before
the Effective Date; and provided further that no Participant shall be permitted
to reinvest any portion of such account if the Trustee determines that
reinvestment would cause the ESOP Assets (as defined in Section 7.01) to fail to
be invested primarily in Stock. An election to reinvest shall be made by such
written, telephonic or electronic means as shall be prescribed by the Plan
Administrator, and shall be effective as soon as practicable after receipt by
the Plan Administrator (or by the person or persons specified by the Plan
Administrator).

     6.03 VALUATION OF INVESTMENT FUNDS. As of each Valuation Date, the Trust
Fund, and each of the investment funds comprising the Trust Fund, shall be
valued on the basis of its current fair market value. For purposes of allocating
accruals pursuant to Section 5.03, the Trust


                                       27




Fund and each of the investment funds of the Trust Fund shall be valued as of a
Valuation Date as if each contribution to, reallocation to, reallocation out of,
or benefit payment out of the Trust Fund made after the last preceding Valuation
Date had been made immediately following the valuation of the Trust Fund then
being made.

ARTICLE VII. EMPLOYEE STOCK OWNERSHIP; ACQUISITION LOANS

     7.01 ESOP ASSETS. The Trustee shall invest the assets of the Plan
attributable to Participants' ESOP Accounts and any Acquisition Loan Suspense
Account (collectively, "ESOP Assets") in accordance with the Plan and Trust
Agreement and the applicable provisions of the Code, ERISA, and any other laws
affecting tax qualified pension benefit plans designed to qualify as employee
stock ownership plans; provided that, in aggregate, the ESOP Assets shall be
invested primarily in Stock.

     7.02 ACQUISITION LOANS. The Company may direct the Trustee to incur
Acquisition Loans from time to time to finance the acquisition by the Trust Fund
of shares of Stock or to repay a prior Acquisition Loan. An Acquisition Loan may
be made by a Party in Interest and may be guaranteed by the Company or one or
more Affiliates. Any Acquisition Loan must be primarily for the benefit of the
Participants and their Beneficiaries. In furtherance of the foregoing:

     (a) The interest rate payable with respect to any Acquisition Loan and the
price of any Stock to be acquired with the proceeds thereof must not be such
that the Trust Fund might be "drained off" (as such term is used in the
applicable regulations under Section 4975 of the Code), and the terms of any
Acquisition Loan, whether or not the lender is a Party in Interest, must at the
time such Acquisition Loan is made be at least as favorable to the Trust Fund as
the terms of a comparable loan resulting from arm's length negotiations between
independent parties would be. An Acquisition Loan must be for a specific term,
must bear a reasonable rate of interest, and must not be payable upon demand
except in the event of a default; however, if the lender of the Acquisition Loan
is a "disqualified person" within the meaning of Section 4975(e)(2) of the Code,
the Acquisition Loan must be payable upon demand in the event of a default only
to the extent of any default in any required payments due and payable under that
Acquisition Loan (without regard to any rights of acceleration on the part of
the lender).

     (b) An Acquisition Loan may be secured by a collateral pledge of the
Financed Shares acquired with the proceeds of that Acquisition Loan (or any
prior Acquisition Loan repaid with the proceeds from the Acquisition Loan);
however, no lender or guarantor of an Acquisition Loan that is a Participating
Employer or an Affiliate may have any rights or recourse with respect to the
Financed Shares, if any, pledged as collateral to secure the repayment of that
Acquisition Loan. No other assets of the Trust Fund (including any other shares
of Stock held as part of the Trust Fund) may be pledged as collateral for an
Acquisition Loan, and no Acquisition Loan lender shall have recourse against the
Plan, the Trustee, or any assets of the Trust Fund, other than any Financed
Shares pledged to secure that Acquisition Loan and not released from that pledge
as provided for in the second sentence immediately after this sentence. Any
pledge of Financed Shares as collateral for an Acquisition Loan shall provide
that the value of the Financed Shares that are subject to that pledge and are
transferred in satisfaction of the Acquisition Loan upon a default on that
Acquisition Loan must not exceed the amount of that default.



                                       28



     (c) Any pledge of Financed Shares as collateral for an Acquisition Loan
must also provide for the release of the Financed Shares so pledged on a
pro-rata basis as principal and interest on such Acquisition Loan is paid by the
Trustee. Unless the Trustee elects to apply the special rule for releasing
Financed Shares under Treasury Regulation Section 54.4975-7(b)(8)(ii), the
number of Financed Shares to be released from any such pledge in any Plan Year
is to be determined by multiplying (i) the total number of Financed Shares
subject to that pledge immediately prior to the release for such Plan Year by
(ii) a fraction, the numerator of which is the amount of principal and interest
paid on that Acquisition Loan for the Plan Year and the denominator of which is
the sum of the numerator plus all principal and interest to be paid with respect
to that Acquisition Loan for all future years of the term of that Acquisition
Loan (without regard to any possible extensions or renewal periods). In the
event that the interest rate payable with respect to such Acquisition Loan is
variable, the interest to be paid in future years must be determined for
purposes of the preceding sentence as if the interest rate that is applicable
for that Acquisition Loan at the end of such Plan Year were to remain in effect
over the remaining term of that Acquisition Loan. If the Trustee elects to apply
the special rule for releasing Financed Shares, the number of Financed Shares to
be released from encumbrance is determined solely with reference to principal
payments. If the Trustee elects to apply the special rule, however, three
additional rules apply: the Acquisition Loan must provide for annual payments of
principal and interest at a cumulative rate that is not less rapid at any time
than level annual payments of the amount for ten (10) years; the interest
included in any payment is disregarded only to the extent that it would be
determined to be interest under standard loan amortization tables; and the
special rule is inapplicable from the time that by reason of a renewal,
extension, or refinancing the sum of the expired duration of the Acquisition
Loan, the renewal period, the extension period, and the duration of a new
Acquisition Loan exceeds ten (10) years.

     (d) Payments of principal or interest on any Acquisition Loan must be made
by the Trustee (as directed by the Plan Administrator) only from Company
Contributions paid in cash to enable the Trustee to repay the Acquisition Loan,
any earnings of the Trust Fund attributable to such contributions, and any
earnings received by the Trust Fund on Financed Shares pledged to secure the
repayment of the Acquisition Loan. Payments of principal or interest for any
Acquisition Loan during any Plan Year must not exceed (i) the sum of the
following for that Plan Year and all prior Plan Years: the aggregate Company
Contributions paid in cash to enable the Trustee to repay one or more
Acquisition Loans; any earnings of the Trust Fund attributable to such
contributions; and any earnings attributable to Financed Shares pledged to
secure one or more Acquisition Loans; (ii) less all payments of principal or
interest made with respect to Acquisition Loans in earlier Plan Years.

7.03 PURCHASE OF STOCK.

     (a) Whenever required by the terms of the Plan or the Participants'
investment directions under Article VI, the Trustee shall purchase shares of
Stock from such source and in such manner as the Trustee may determine. If the
Trustee and the Company agree, any such shares may be purchased from the Company
and may either be treasury shares or authorized but unissued shares; provided,
however, that no shares of Stock purchased with the proceeds of an


                                       29



Acquisition Loan shall be purchased from a Participating Employer (other than
the Company) or any Affiliate. If shares of Stock are acquired by the Plan other
than on an exchange or other national market system, such shares shall be
purchased at prices that do not exceed Fair Market Value.

     (b) For purposes of crediting cash contributions invested in the Company
Stock Fund, the credit shall be based on the average cost per share (including
brokerage fees and transfer fees) of Stock purchased by the Trustee for all
Participants for the month in which the contributions were made, and for this
purpose contributions of shares of Stock shall be valued at the closing price of
such stock for the date of contributions, or, if no sale occurred on such date,
for the next preceding day on which a sale occurred.

     (c) Notwithstanding any other provision of this Section, the Trustee shall
not purchase shares of Stock during any period in which such purchase is, in the
opinion of counsel for the Company or the Plan Administrator, restricted by any
law or regulation applicable thereto. During such period, amounts that would
otherwise be invested in shares of Stock shall be invested in such other assets
as the Trustee may in its discretion determine, or the Trustee may hold such
amounts uninvested for a reasonable period pending the designated investment.

     7.04 CUSTODY AND VOTING OF STOCK.

     (a) All shares of Stock acquired by the Trustee shall be held in the
possession of the Trustee or its designee until disposed of pursuant to
provisions of the Plan. Such shares may be registered in the name of the Trustee
or its nominee.

     (b) Each Participant (or, in the event of a Participant's death, the
Participant's Beneficiary) shall have the right, to the extent of shares of
Stock allocated to the Participant's Aggregate Account, to direct the Trustee in
writing as to the manner in which to vote with respect to such shares of Stock.
Before each annual or special meeting of the shareholders of the Company, the
Plan Administrator shall cause to be sent to each Participant a copy of the
proxy solicitation material for the meeting, together with a form requesting
confidential instructions to the Trustee as to the voting of the shares of Stock
allocated to each Participant's Aggregate Account, whether or not vested. The
Trustee, itself or by proxy, shall vote the shares of Stock in such Aggregate
Account in accordance with the instructions of the Participant; provided, that
if the Trustee determines (in its sole discretion) that adherence to any such
instructions is inconsistent with the discharge of its fiduciary duties under
ERISA, the Trustee shall vote the affected shares of Stock in a manner
consistent with the proper exercise of its fiduciary duties. If the Trustee
shall not have received instructions as to the manner in which to vote any
shares of Stock held in the Trust Fund (whether because instructions have not
been timely received or because the shares of Stock are not allocated to any
Participant's Aggregate Account), the Trustee, itself or by proxy, shall vote
all such shares in a manner consistent with the proper exercise of its fiduciary
duties under ERISA, as determined in its sole discretion.

     7.05 DIVIDENDS ON STOCK.

     (a) Any stock dividends received with respect to Stock must be credited pro
rata to the Participant accounts (or, in the case of Financed Shares securing
the repayment of an



                                       30




Acquisition Loan, to the Acquisition Loan Suspense Account) to which the
corresponding shares of Stock on which the stock dividends are received are
allocated as of the record date for which the stock dividends are declared.

     (b) Any cash dividends received on shares of Stock allocated to Participant
accounts as of the record date on which the dividends are declared shall be
allocated to the accounts of the Participants to whose accounts those shares of
Stock are allocated as of the record date for which such cash dividends are
declared. Any cash dividends received on shares of Stock allocated to an
Acquisition Loan Suspense Account shall be allocated to such account; provided
that such cash dividends may be applied by the Trustee to pay principal or
interest on an Acquisition Loan as described in Code Section 404(k)(2)(c) Any
cash dividends received on shares of Stock either not allocated to Participant
accounts or not allocated to the Acquisition Loan Suspense Account as of the
record date for which the dividends are declared shall be included in the
computation of net income (or loss) of the Trust Fund and allocated as set forth
in Section 5.03.

     7.06 FORFEITURES OF STOCK. Notwithstanding any other provision of the Plan
to the contrary, any Stock that was acquired with the proceeds of an Acquisition
Loan and was forfeited during a Plan Year shall be allocated to the ESOP
Accounts, as of the last day of the Plan Year, as follows: first, an amount
sufficient to restore forfeitures as provided in Section 9.03 and second, the
remainder of such forfeitures among the ESOP Accounts in the same proportion
that each Participant's Compensation for the Plan Year bears to the total
Compensation of all Participants who either (a) are credited with one Year of
Service for the Plan Year and are employed by the Employer or an Affiliate on
the last day of the Plan Year or (b) terminated employment during the Plan Year
on account of death, retirement or Disability.

     7.07 STOCK SPLITS AND OTHER CAPITAL REORGANIZATIONS. Except to the extent
necessary to restore forfeitures, any shares of Stock received as a result of a
Stock split, reorganization or other recapitalization of the Company shall be
allocated in the same manner as the shares of Stock to which any proceeds in
such transaction are attributable.

     7.08 TENDER OF STOCK.

     (a) Each Participant (or, in the event of a Participant's death, the
Participant's Beneficiary) shall have the right, to the extent of shares of
Stock allocated to the Participant's Aggregate Account, to direct the Trustee in
writing as to the manner in which to respond to a tender or exchange offer with
respect to Stock. The Plan Administrator shall utilize its best efforts to
timely distribute or cause to be distributed to each Participant such
information as will be distributed to shareholders of the Company in connection
with any such tender or exchange offer. The Trustee shall respond to the tender
or exchange offer with respect to the shares of Stock in each Participant's
Aggregate Account in accordance with the instructions of the Participant;
provided, that if the Trustee determines (in its sole discretion) that adherence
to any such instructions is inconsistent with the discharge of its fiduciary
duties under ERISA, the Trustee shall respond to the tender or exchange offer
with respect to the affected shares of Stock in a manner consistent with the
proper exercise of its fiduciary duties. If the Trustee shall not have received
instructions as to the manner in which to respond to a tender or exchange offer
with respect to any shares of Stock held in the Trust Fund (whether because
instructions have not been timely received or because the shares of Stock are
not allocated to any Participant's



                                       31





Aggregate Account), the Trustee, itself or by proxy, shall vote all such shares
in a manner consistent with the proper exercise of its fiduciary duties under
ERISA, as determined in its sole discretion.

     (b) Cash proceeds received by the Trustee from the sale or exchange of any
shares of Stock under this Section shall be invested by the Trustee in one or
more other Investment Funds in ten percent (10%) increments, in accordance with
directions obtained from Participants at the time of the receipt of such
proceeds, which directions shall be independent of the investment directions
made by the Participants pursuant to Section 6.02 hereof. If timely investment
direction is not received from a Participant, such Participant's interest in
such cash proceeds shall be invested in the fund that presents the least risk of
loss as determined by the Plan Administrator.

     (c) Any decision by a Participant to tender (or not tender) or to exchange
(or not exchange) under Paragraph (a) of this Section and any direction made by
a Participant under Paragraph (b) of this Section shall constitute an exercise
of control by the Participant over the assets credited to his or her Aggregate
Account within the meaning of Section 404(c) of ERISA. Each Participant who so
exercises such control shall, by such exercise, release and agree, on the
Participant's own behalf and on behalf of the Participant's Beneficiary, to
indemnify and hold harmless the Trustee, the Company and the Plan Administrator
from and against any claim, demand, loss, liability, cost or expense (including
reasonable attorney's fees) caused by or arising out of such exercise, including
without limitation any diminution in value or losses incurred from such
exercise.

     7.09 SPECIAL RESTRICTIONS ON INSIDERS. Notwithstanding any other provision
of the Plan to the contrary, each transaction involving shares of Stock
allocated to the Aggregate Account of an Insider (including any investment or
reinvestment election under the Plan) shall comply with all applicable
requirements of Section 16(b) of the Securities Exchange Act of 1934, as
amended, the regulations thereunder, and any successor thereto. The Committee
shall be responsible for developing administrative rules to carry out this
provision.

     7.10 OPTION TO REQUIRE EMPLOYER TO PURCHASE STOCK.

     (a) If any Stock distributed pursuant to this Plan is not "readily tradable
on an established securities market" at the time distributed, then the recipient
of those shares of Stock received pursuant to the distribution has the right
during the Put Option Period to require the Employer, by notice in writing to
the Employer within the applicable Put Option Period, to purchase the shares of
Stock at a price equal to the Fair Market Value of those shares, determined as
of the Valuation Date coinciding with or immediately preceding the date of the
purchase. In addition, the Plan shall have the option, but shall not be
required, to purchase the Stock from a Participant exercising his or her put
right.

     (b) For purposes of this Section:

          (i) The term "Put Option Period" means (A) the 60-day period beginning
     on the date following the date of the distribution of the shares of Stock,
     and (B) sixty (60) days during the following Plan Year, which second 60-day
     period is to be designated by



                                       32



     the Employer in accordance with Section 409(h)(4) of the Code and the
     regulations thereunder, provided, however, that such second 60-day period
     must not begin before (X) the first Valuation Date following termination of
     the initial 60-day period set forth in (A) above and (Y) written notice to
     the Participant of the value of the shares of Stock determined as of the
     Valuation Date. The "Put Option Period" does not include any time during
     which the Employers are prohibited by applicable federal or state law from
     honoring their obligations under this Section.

          (ii) Shares of Stock will be considered not "readily tradable on an
     established securities market" if the shares either are not traded on a
     national securities exchange or quoted on a system sponsored by a national
     securities association, or are subject to a restriction under any federal
     or state securities law, any regulation thereunder, or any agreement
     affecting the shares that renders such shares less freely tradable than
     would be the case if the restriction did not exist.

     (c) The put option right provided for in this Section is exercisable only
by a Participant, the Participant's Beneficiary, the donee of a Participant or
Beneficiary (but only with respect to shares of Stock received as a gift by such
donee), or the person (including an estate or a distributee thereof) to whom
shares of Stock pass as the result of the death of the Participant or the
Participant's Beneficiary. The Plan has a first right of refusal (but no
obligation) to purchase any shares of Stock tendered to the Employer or the
Sponsor, pursuant to this Section. The Employer or the Sponsor (or the Plan, in
the event that the Plan exercises its right described in the immediately
preceding sentence) shall have the right, in its sole and absolute discretion,
to elect to pay the purchase price for any shares of Stock that were distributed
as part of a total distribution (within the meaning of Section 409(h)(5) of the
Code) and are purchased pursuant to this Section, in a single lump sum or in
substantially equal annual installments over a period beginning not later than
thirty (30) days after the exercise of the put option right provided for in this
Section and not exceeding five (5) years, with interest payable at a reasonable
rate (as determined by the Employer, or in the event the Plan elects to purchase
such shares, the Plan Administrator) on any unpaid installment balance. If a
Participating Employer or the Company (or the Plan, in the event that the Plan
exercises its right described in the second preceding sentence) is required to
purchase Stock pursuant to this Section that was distributed as part of an
installment distribution, the payment of the purchase price for the Stock must
occur in a single lump sum not later than thirty (30) days after the exercise of
the put option right provided for in this Section.

     7.11 NO OTHER RIGHTS TO PUT OR CALL STOCK. Except as set forth in Section
7.10, and except as otherwise required by applicable federal or state law, no
shares of Stock acquired with the proceeds of an Acquisition Loan are subject to
any put, call, or other option, or any buy-sell or similar agreement, either
while held by the Plan or when distributed by the Plan, irrespective of whether
or not the Plan then qualifies as an "employee stock ownership plan" under
Section 4975(e)(7) of the Code. Notwithstanding anything to the contrary
contained in this Plan, this Section 7.11 and the rights and protections
afforded Participants and Beneficiaries under Section 7.10 are not subject to
termination, amendment, or modification insofar as those provisions apply to
shares of Stock acquired with the proceeds of one or more Acquisition Loans.



                                       33




ARTICLE VIII. WITHDRAWALS AND LOANS

     8.01 IN-SERVICE WITHDRAWALS. A Participant may withdraw all or a part of
his or her Vested Interest prior to his or her termination of employment with
the Company and all Affiliates as follows:

     (a) The Participant may withdraw all or any part his or Vested Interest
attributable to Salary Deferrals and Rollover Contributions after attaining
fifty-nine and one half (59 1/2) years of age.

     (b) Effective January 1, 1998, the Participant may withdraw all or any part
of his or her Vested Interest in his or her Aggregate Account after attaining
Normal Retirement Age.

     (c) Effective January 1, 2000, the Participant may withdraw all (but not
less than all) of his or her Vested Interest attributable to Rollover
Contributions at any time before attaining fifty-nine and one half (59 1/2)
years of age.

The Plan Administrator shall establish reasonable procedures for handling
withdrawal requests under this Section.

     8.02 HARDSHIP WITHDRAWALS. The Plan Administrator may direct the Trustee to
make a hardship withdrawal distribution to a Participant from the accounts
designated by the Participant, excluding the Participant's ESOP Account and
investment earnings allocated to the Participant's Salary Deferral Account after
December 31, 1988, subject to the following:

     (a) Each request for a hardship withdrawal shall be made by such written,
telephonic or electronic means as may be prescribed by the Plan Administrator.
The request shall specify the reason for such withdrawal and shall include such
other information and documentation as the Plan Administrator may request.

     (b) A hardship withdrawal may be made only in cash and may not exceed the
Participant's Vested Interest in his or her accounts, excluding the
Participant's ESOP Account and investment earnings allocated to the
Participant's Salary Deferral Account (or to the comparable portion of his or
her Predecessor Plan Account, as determined under the applicable Schedule) after
December 31, 1988.

     (c) A hardship withdrawal shall be permitted only if the distribution is on
account of an immediate and heavy financial need of the Participant and is
necessary to satisfy such financial need.

          (i) A financial need may qualify as immediate and heavy without regard
     to whether such need was foreseeable or voluntarily incurred by the
     Participant. The following shall be deemed immediate and heavy financial
     needs:

               (A) Payment of medical expenses described in Section 213(d) of
          the Code previously incurred by the Participant, his or her spouse or
          dependent (within the meaning of Section 152 of the Code) or payment
          necessary for such persons to obtain medical care as described in
          Section 213(d) of the Code;


                                       34



               (B) Costs directly related to the purchase (excluding mortgage
          payments) of a principal residence of the Participant;

               (C) Payment of tuition, related educational fees and room and
          board expenses for the next twelve (12) months of post-secondary
          education for the Participant, his or her spouse or dependent (within
          the meaning of Section 152 of the Code);

               (D) Payment to prevent eviction of the Participant from his or
          her principal residence or foreclosure on the mortgage of the
          Participant's principal residence; and

               (E) Any other financial need deemed to be immediate and heavy by
          the Commissioner of Internal Revenue as set forth in a Treasury
          regulation, revenue ruling, notice, or other document of general
          applicability.

     The above list of deemed immediate and heavy financial needs shall not be
     exclusive, and other needs may qualify as immediate and heavy financial
     needs.

          (ii) A distribution shall be treated as necessary to satisfy an
     immediate and heavy financial need of the Participant only to the extent
     (A) the amount of such distribution does not exceed the amount required to
     relieve the financial need (including the amount of any federal, state or
     local income taxes or penalties reasonably anticipated to result from the
     distribution) and (B) the amount of such distribution is not reasonably
     available to the Participant from other resources. The Plan Administrator
     may reasonably rely (unless the Plan Administrator has actual knowledge to
     the contrary) on the Participant's written representations that the need
     cannot be relieved through reimbursement or compensation by insurance or
     otherwise; by reasonable liquidation of the Participant's assets; by
     cessation of Salary Deferral Contributions under the Plan; or by other
     distributions or nontaxable (at the time of the loan) loans from plans
     maintained by any present or former employer of the Participant or from
     commercial lenders. A Participant's resources shall be deemed to include
     those assets of his or her spouse and minor children that are reasonably
     available to the Participant.

          (iii) The amount of an immediate and heavy financial need may include
     any amounts necessary to pay any federal, state or local income taxes or
     penalties reasonably anticipated to result from the distribution.

     (d) A request for a hardship distribution shall be treated as a claim for
benefits under the Plan. A hardship withdrawal shall be made as soon as
practicable following approval of the request by the Plan Administrator.

     (e) The Plan Administrator may from time to time establish rules governing
withdrawals. Such rules shall be applied on a uniform and nondiscriminatory
basis.

     8.03 LOANS. The Plan Administrator may, upon the request of a Participant
or Beneficiary who is a "party in interest" as defined in Section 3(14) of
ERISA, direct the Trustee to make a loan to such Participant or Beneficiary from
the Participant's Salary Deferral


                                       35




Contribution Account, Matching Contribution Account [(EXCLUDING AMOUNTS
ATTRIBUTABLE TO FINANCED SHARES)],(4) and Rollover Contribution Account, if
any, subject to the following:

     (a) The amount of each loan shall be determined with reference to the fair
market value of the Participant's Aggregate Account as of the most recent
Valuation Date for which valuation data has been received by the Plan
Administrator.

     (b) Any loan made on or after January 1, 1987, when added to the balance of
all other outstanding loans with respect to a Participant's Aggregate Account,
shall not exceed the lesser of:

          (i) Fifty thousand dollars ($50,000), reduced by the excess, if any,
     of the Participant's highest outstanding loan balance under the Plan for
     the one (1) year period ending on the day before such loan is made, over
     the Participant's loan balance under the Plan on the day such loan is made,
     or

          (ii) Fifty percent (50%) of the sum of the Participant's Salary
     Deferral Contribution Account, the nonforfeitable portion of his or her
     Matching Contribution Account, and his or her Rollover Contribution
     Account.

The total unpaid balance of all loans (including accrued but unpaid interest)
made with respect to a Participant's Aggregate Account under the Plan and all
other qualified plans maintained by his or her Employer shall not exceed the
maximum amount permitted under Section 72(p) of the Code.

     (c) Effective January 1, 1998, no loan shall be made in an amount less than
one thousand dollars ($1,000), nor shall a loan be made if a Participant has any
other loan outstanding with respect to his or her Aggregate Account under the
Plan. Notwithstanding the preceding sentence to the contrary, a loan may be made
in an amount less than one thousand dollars ($1,000) if the Participant is also
a participant or beneficiary who is a "party in interest" as defined in Section
3(14) of ERISA with respect to the SIS Bank Employees' Savings Incentive Plan
("SIS Plan"); his or her Aggregate Account balance under this Plan is not
sufficient to permit a loan to be made in the amount of at least one thousand
dollars ($1,000); and each of the following requirements is satisfied:

          (i) the sum of the Participant's account balance under the SIS Plan
     plus the Participant's Aggregate Account balance under this Plan would be
     sufficient to permit a loan to be made in the amount of at least one
     thousand dollars ($1,000) if the separate accounts were treated as a single
     account;

          (ii) the Participant does not have any other loan outstanding with
     respect to either his or her Aggregate Account under this Plan or his or
     her account under the SIS Plan;


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

(4) Please confirm that this restriction is correct.


                                       36






          (iii) the loan is made during the period beginning July 15, 1999, and
     ending on the SIS Plan Affiliation Date; and

          (iv) the loan is made in compliance with all provisions of this
     Section except for the one thousand dollar ($1,000) minimum amount
     requirement.

     Each loan shall be evidenced by a promissory note bearing a reasonable rate
of interest as determined by the Plan Administrator, taking into consideration
interest rates currently being charged by commercial lenders for loans made
under similar circumstances, and shall be adequately secured in such manner as
the Plan Administrator may determine. Collateral for a loan may consist of an
assignment of not more than fifty percent (50%) of a Participant's Vested
Interest in his or her Aggregate Account, provided such collateral adequately
secures repayment of the loan. In the event of a default on a loan, the Plan
Administrator shall, after giving the Participant or Beneficiary written notice
of the default and an opportunity to cure the default, in accordance with the
terms and conditions of such loan, foreclose upon the collateral to the extent
necessary to satisfy the Participant's obligation. If the collateral for such
loan is the Participant's interest in his or her Aggregate Account, such
foreclosure may not occur prior to the Participant's termination of employment.

     (d) Each loan shall be made for such term and, subject to the foregoing,
upon such terms and conditions as the Plan Administrator shall determine;
provided that substantially level amortization, with payments not less
frequently than quarterly, shall be required over the term of any loan; and
further provided that the term shall not exceed five (5) years unless the loan
is used to acquire a principal residence for the Participant, in which case the
term shall not exceed fifteen (15) years.

     (e) Each loan to a Participant or Beneficiary shall be treated and
accounted for as an investment of such Participant's Aggregate Account, and
loans shall be charged against the Investment Funds in which the Participant's
Aggregate Account is invested as of the date such loan is made. Amounts of
principal and interest paid on any loan shall be transferred to the Investment
Funds in accordance with the Participant's investment direction in effect at the
time of payment.

     (f) No loan shall be made to any owner-employee or shareholder-employee.
For purposes of this subsection (g), an "owner-employee" means a self-employed
individual who is a sole proprietor or who is a partner in an Employer who owns
more than ten percent (10%) of either the capital or profits interest in such
Employer, and a "shareholder-employee" means an employee or officer of an
electing small business corporation (S corporation) who owns (or is considered
as owning within the meaning of Section 318(a)(1) of the Code), on any day
during the taxable year of such corporation, more than five percent (5%) of the
outstanding stock of the corporation.

     (g) No distribution (other than a deemed distribution under Section 72(p)
of the Code) shall be made to any Participant or Former Participant or to a
Beneficiary of any Participant until all unpaid loans with respect to the
Participant's Aggregate Account, including accrued interest thereon, have been
paid in full. In the event a Participant or Beneficiary becomes entitled to a
distribution of his or her Aggregate Account under the Plan, and at the


                                       37


time of such distribution there remain outstanding any unpaid loans with respect
to his or her Aggregate Account, then

          (i) such unpaid loan shall be treated as due and payable immediately
     as of the date distribution is made or commences;

          (ii) the Aggregate Account of the Participant or Beneficiary shall be
     reduced prior to any such distribution by the amount of the principal and
     accrued interest outstanding on such loan;

          (iii) the loan shall be deemed to be paid in full as of the date the
     distribution is made or commences; and

          (iv) such Participant or Beneficiary shall be treated as receiving or
     commencing to receive a distribution of his or her entire Aggregate
     Account.

     (h) The Plan Administrator shall suspend the obligation to repay any loan
made to a Participant pursuant to this Section for any period during which such
Participant is performing service in the uniformed services (within the meaning
of the Uniformed Services Employment and Reemployment Rights Act), and such
suspension shall not be taken into account for purposes of Sections 72(p),
401(a), or 4975(d)(1) of the Code.

     (i) The Plan Administrator shall follow a uniform and nondiscriminatory
policy in making loans to assure that loans are available to all Participants
and Beneficiaries who are "parties in interest" on a reasonably equivalent basis
as required under 29 C.F.R. Section 2550.408b-1 and to further assure that the
Plan meets the requirements of Section 401(a)(4) of the Code.

     (j) The Plan Administrator shall establish, in writing, administrative
procedures to carry out the provisions of this Section. A request for a loan
shall be made by such written, telephonic or electronic means as may be
prescribed by the Plan Administrator.

     (k) The provisions of this Section shall be applicable to loans granted or
renewed under the Plan on or after January 1, 1998, and loans granted or renewed
prior to such date shall be governed by the provisions of the Plan as in effect
on the date of such grant or renewal; provided that, with respect to a
Predecessor Plan Account, the provisions of this Section shall be applicable to
loans granted or renewed after the Plan Affiliation Date, if later.

ARTICLE IX. VESTING

     9.01 ACTIVE PARTICIPANTS ON AND AFTER JANUARY 1, 2002. Each Participant who
is an Eligible Employee on or after the Effective Date shall have a fully vested
and nonforfeitable interest in all amounts credited to his or her Aggregate
Account.

     9.02 TERMINATED PARTICIPANTS. Each Participant who terminated employment
with the Company and all Affiliates before the Effective Date and is not an
Employee at any time after December 31, 2000, shall have a fully vested and
nonforfeitable interest in all amounts credited to his or her Salary Deferral
Contribution Account and Rollover Contribution Account. If the



                                       38





Participant terminated employment on or after attainment of Normal Retirement
Age, or an account of Disability, or death, then all amounts credited to his or
her Aggregate Account shall be nonforfeitable. If the Participant terminated
employment for any other reason, the vested percentage of his or her Company
Contribution accounts shall be determined as follows:

YEARS OF SERVICE                              NONFORFEITABLE INTEREST
- ----------------                              -----------------------
Less than 1                                   0%
1                                             20%
2                                             40%
3                                             60%
4                                             80%
5                                             100%

If the Participant is subsequently reemployed by the Company on or after the
Effective Date, then the Participant's nonforfeitable interest in his or her
Aggregate Account on or after the reemployment date shall be determined in
accordance with Section 9.01.

     9.03 FORFEITURES. If a Participant terminated employment before the
Effective Date, the nonvested portion of a Participant's Company Contribution
accounts prior to such termination shall be forfeited as of the last day of the
Plan Year in which the Participant incurs a one-year Break in Service, or, if
earlier, upon a complete distribution of the nonforfeitable portion of such
accounts under Article X. If the Participant is reemployed by a Participating
Employer before incurring five (5) consecutive Breaks in Service:

     (a) If the Participant was not vested in any portion of his or her Company
Contribution accounts at the time he or she ceased to be employed, the
Participant shall be entitled to restoration of the amount previously forfeited,
unadjusted by any subsequent gains or losses, as of the Valuation Date
coincident with or next following the date of reemployment.

     (b) If the Participant was vested in any portion of his or her Company
Contribution accounts at the time he or she ceased to be employed, the
Participant shall be entitled to restoration of the amount previously forfeited
(unadjusted by any subsequent gains or losses) if he or she repays the full
amount of the vested portion of such accounts distributed to him or her in
accordance with Article X before the earlier of (i) five (5) years from the date
of reemployment, or (ii) the close of the first period of five (5) consecutive
Breaks in Service commencing after the date of distribution. Such restoration
shall be made as of the Valuation Date coincident with or next following the
date of repayment.(5)

     Any forfeiture under this Section shall be applied first to make
restorations hereunder and then, subject to Section 7.06, to reduce Fixed
Contributions. If forfeitures are insufficient to


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

(5) As drafted, if someone term'd before 1/1/2001, and subsequently returns
before a 5-year break, he or she is entitled to immediate 100% vesting and
restoration to the extent described. If he or she returns after 5 or more
years, there is no opportunity for restoration of any forfeited amounts but
he or she would immediately be 100% vested in any amounts still in the Plan
from the prior period of employment. Please confirm that this is correct.

                                       39




restore the Participant's Company Contribution accounts, the Company shall
contribute such additional amounts as are required to make restoration.

ARTICLE X. BENEFITS AND DISTRIBUTIONS

     10.01 NORMAL RETIREMENT BENEFIT. A Participant shall be entitled to receive
his or her Vested Interest in one or more of the forms of payment provided under
Section 10.05(a) upon attaining Normal Retirement Age. If the Participant
remains employed with the Company past Normal Retirement Age, he or she shall be
entitled to continue active participation in the Plan, and no distribution shall
be made hereunder prior to a request for retirement benefits by such Participant
unless a distribution is required under Section 10.05(d).

     10.02 DISABILITY BENEFIT. A Participant shall be entitled to receive his or
her Vested Interest in or more of the forms of payment provided under Section
10.05(a) upon suffering a Disability prior to attaining Normal Retirement Age.

     10.03 BENEFIT ON TERMINATION OF EMPLOYMENT. A Participant shall be entitled
to receive his or her Vested Interest in one or more of the forms of payment
provided under Section 10.05(a) upon his or her termination of employment prior
to Normal Retirement Age for any reason other than Disability or death.

     10.04 DEATH BENEFIT. In the event of a Participant's death, the remaining
Vested Interest of such Participant, reduced by any security interest held by
the Plan by reason of a loan outstanding to such Participant, shall be paid to
the Participant's Beneficiary as provided under Section 10.06. If there is no
such Beneficiary, such Vested Interest shall be payable to the Participant's
estate. The Plan Administrator may require such proof of death and such evidence
of the right of any person to receive payment of the deceased Participant's
remaining Vested Interest as it deems necessary and appropriate.

     10.05 DISTRIBUTION OF BENEFITS TO A PARTICIPANT.

     (a) A Participant shall have the right to receive all or a portion of his
or her Vested Interest as a Retirement Benefit, Disability Benefit or Benefit on
Termination of Employment, as the case may be, as a single lump sum payment in
cash. Notwithstanding the preceding sentence:

          (i) a Participant may elect to receive payment of the Vested Interest
     in his or her ESOP Account in substantially equal annual installments over
     a specified period, which period may not exceed five (5) years; provided
     that the maximum period over which such distribution may be made is
     extended by one year (up to five (5) additional years) for each one hundred
     thousand dollars ($100,000) or fraction thereof by which the balance of the
     accounts exceeds five hundred thousand dollars ($500,000) (or such higher
     amount as the Secretary of the Treasury may prescribe);

          (ii) a Participant may elect to receive distribution in Stock of all
     or a portion of the Vested Interest in (A) his or her ESOP Account and (B)
     his or her Salary Deferral Contribution Account, Matching Contribution
     Account, Discretionary Contribution Account, Rollover Contribution Account,
     and/or Predecessor Plan Account(s), to the



                                       40




     extent invested in Stock on the Annuity Starting Date. If a Participant
     elects to receive a distribution in Stock, cash must be distributed in lieu
     of any fractional shares of Stock allocated to the Participant's accounts
     that are to be distributed in Stock. The Participant may direct the
     Committee to issue shares of Stock in the sole name of the distributee or
     in the joint names of the distributee and his or her spouse, child, or
     other dependent; and

          (iii) a Participant may elect to receive all or a portion of the
     Vested Interest in his or her Salary Deferral Contribution Account,
     Matching Contribution Account, Discretionary Contribution Account and
     Rollover Contribution Account as an Annuity if the distribution is made or
     commences before January 1, 2002.

     (b) Notwithstanding Paragraph (a) to the contrary, if a Participant's
Vested Interest does not exceed the applicable cash-out amount as of the date
distribution is to commence, his or her Vested Interest shall be distributed in
a single lump sum as soon as administratively feasible after his or her
termination of employment for any reason. If the value of the Participant's
vested interest in his or her Company Contribution accounts upon terminating
employment is zero dollars ($0), such Participant shall be deemed to have
received an immediate distribution of such interest.

     For purposes of this Paragraph, the "applicable cash-out amount" means
three thousand five hundred dollars ($3,500) before January 1, 1998, and five
thousand dollars ($5,000) (or such higher amount as may be permitted by Code
Section 417(e)(1)) on or after January 1, 1998.

     For periods before March 22, 1999, this Paragraph shall not apply if the
Participant's Vested Interest exceeded the applicable cash-out amount at the
time of any prior distribution.

     (c) Any distribution to a Participant except a cash-out distribution under
Paragraph (b) shall require such Participant's written consent if such
distribution commences prior to Normal Retirement Age. With regard to such
consent:

          (i) The Participant shall receive the written notice described in
     Treas. Reg. Section 1.411(a)-11(c)(2)(i), including notice of his or her
     right to defer payment of benefits under this Article, no less than thirty
     days (30) and no more than ninety (90) days before the date on which such
     distribution is paid or commences to be paid. If a Participant declines or
     fails to consent, it shall be deemed to be an election to defer payment of
     such benefits. However, any election to defer payment shall not apply with
     respect to distributions that are required under Paragraph (d).

          (ii) Notwithstanding the foregoing to the contrary, if a Participant,
     after receiving written notice under Paragraph (c)(i), affirmatively elects
     a distribution, then the distribution may be paid or may commence to be
     paid less than thirty (30) days after the date such written explanation was
     given, provided the Plan Administrator has informed such Participant, in
     writing, of his or her right to a period of at least thirty (30) days to
     consider whether to consent to the distribution.

     (d) Notwithstanding any other provision of the Plan to the contrary, a
Participant's Vested Interest shall be distributed commencing not later than the
required beginning date or shall be distributed, beginning not later than the
required beginning date, over a period not



                                       41




extending beyond the life expectancy of such Participant or the life expectancy
of the Participant and the joint annuitant of the Participant. For purposes of
this Paragraph, the "required beginning date" means the following, effective
January 1, 1998:

          (i) For a Participant who attains age seventy and one half (70 1/2)
     before January 1, 1999, April 1 of the calendar year following the calendar
     year in which the Participant attains age seventy and one half (70 1/2).

          (ii) For a Participant who attains age seventy and one half (70 1/2)
     after December 31, 1998, April 1 of the calendar year following the later
     of (A) the calendar year in which the Participant attains age seventy and
     one half (70 1/2), or (B) the calendar year in which the Participant
     retires; provided that this clause (B) shall not apply in the case of a
     Participant who is a five percent (5%) owner (within the meaning of Section
     416(i) of the Code) with respect to the Plan Year ending in the calendar
     year in which the Participant attains age seventy and one half (70 1/2);
     and provided further that in the case of a Participant to whom this clause
     (B) applies and who retires in a calendar year after the calendar year in
     which he or she attains age seventy and one half (70 1/2), the
     Participant's Accrued Benefit shall be actuarially increased, in the manner
     prescribed by the Secretary of the Treasury, to take into account the
     period after age seventy and one half (70 1/2) in which the Participant was
     not receiving any benefits under the Plan.

     (e) Notwithstanding any other provision of the Plan to the contrary,
distributions shall be made in accordance with the regulations under Section
401(a)(9) of the Code, including the minimum distribution incidental death
benefit requirements of Section 1.401(a)(9)-2, and shall be distributed over the
life of such Participant (or over the lives of such Participant and his or her
Beneficiary) or over a period not extending beyond the life expectancy of such
Participant (or the life expectancy of such Participant and his or her
Beneficiary). The provisions of Section 401(a)(9) of the Code and the
regulations thereunder shall override any distribution options inconsistent
therewith.

     For purposes of this Paragraph, before January 1, 2002 [2001], the life
expectancy of a Participant and a Participant's spouse shall be determined in
accordance with applicable Treasury Regulations without annual recalculation.
Life expectancies and joint and last survivor expectancy shall be determined
using the return multiples in Tables V and VI of Treas. Reg. Section 1.72-9.

     WITH RESPECT TO DISTRIBUTIONS UNDER THE PLAN MADE FOR CALENDAR YEARS
BEGINNING ON OR AFTER JANUARY 1, 2001 [2002] (INCLUDING DISTRIBUTIONS UNDER THIS
SECTION AND SECTION 10.06), THE PLAN WILL APPLY THE MINIMUM DISTRIBUTION
REQUIREMENTS OF SECTION 401(a)(9) OF THE INTERNAL REVENUE CODE IN ACCORDANCE
WITH THE REGULATIONS UNDER SECTION 401(a)(9) THAT WERE PROPOSED ON JANUARY 17,
2001, NOTWITHSTANDING ANY PROVISION OF THE PLAN TO THE CONTRARY. THIS AMENDMENT
SHALL CONTINUE IN EFFECT UNTIL THE END OF THE LAST CALENDAR YEAR BEGINNING
BEFORE THE EFFECTIVE DATE OF FINAL REGULATIONS UNDER SECTION 401(a)(9) OR SUCH
OTHER DATE AS MAY BE SPECIFIED IN GUIDANCE PUBLISHED BY THE INTERNAL REVENUE
SERVICE.



                                       42





10.06 DISTRIBUTION OF BENEFITS UPON DEATH.

     (a) Subject to Paragraph (c) below, the death benefits payable under
Section 10.04 shall be paid to the Participant's Beneficiary within a reasonable
time after the Participant's death as a single lump sum payment in cash.
Notwithstanding the preceding sentence:

          (i) the Beneficiary may elect to receive payment of the Vested
     Interest in the Participant's ESOP Account in substantially equal annual
     installments over a specified period, which period may not exceed five (5)
     years; provided that the maximum period over which such distribution may be
     made is extended by one year (up to five (5) additional years) for each one
     hundred thousand dollars ($100,000) or fraction thereof by which the
     balance of the accounts exceeds five hundred thousand dollars ($500,000)
     (or such higher amount as the Secretary of the Treasury may prescribe);

          (ii) a Beneficiary may elect to receive distribution in Stock of all
     or a portion of the Vested Interest in (A) the Participant's ESOP Account
     and (B) the Participant's Salary Deferral Contribution Account, Matching
     Contribution Account, Discretionary Contribution Account, Rollover
     Contribution Account, and/or Predecessor Plan Account(s), to the extent
     invested in Stock on the Annuity Starting Date. If the Beneficiary elects
     to receive a distribution in Stock, cash must be distributed in lieu of any
     fractional shares of Stock allocated to the accounts that are to be
     distributed in Stock. The Beneficiary may direct the Committee to issue
     shares of Stock in the sole name of the distributee or in the joint names
     of the distributee and his or her spouse, child, or other dependent; and

          (iii) a Beneficiary may elect to receive all or a portion of the
     Vested Interest the Participant's Salary Deferral Contribution Account,
     Matching Contribution Account, Discretionary Contribution Account and
     Rollover Contribution Account as an Annuity if the distribution is made or
     commences before January 1, 2002.

     (b) Notwithstanding Paragraph (a) to the contrary, if a Participant's
Vested Interest does not exceed the applicable cash-out amount as of the date
distribution is to commence, his or her Vested Interest shall be distributed to
the Beneficiary in a single lump sum as soon as administratively feasible after
the Participant's death.

     For purposes of this Paragraph, the "applicable cash-out amount" means
three thousand five hundred dollars ($3,500) before January 1, 1998, and five
thousand dollars ($5,000) (or such higher amount as may be permitted by Code
Section 417(e)(1)) on or after January 1, 1998.

     For periods before March 22, 1999, this Paragraph shall not apply if the
Participant's Vested Interest exceeded the applicable cash-out amount at the
time of any prior distribution.

     (c) Notwithstanding any provision in the Plan to the contrary,
distributions upon the death of a Participant shall be made in accordance with
the following requirements and shall otherwise comply with Section 401(a)(9) and
the regulations thereunder, which are hereby incorporated by reference into this
Plan:

          (i) If the Participant dies after the distribution of his or her
     Vested Interest has begun and the Participant dies before his or her entire
     interest has been distributed to him,



                                       43





     the remaining portion of such interest shall be distributed at least as
     rapidly as under the method of distribution selected under Section 10.05 as
     of his or her date of death.

          (ii) Subject to clause (iii) below, if a Participant dies before the
     distribution of his or her Vested Interest has begun, then the death
     benefits payable hereunder shall be distributed to such Participant's
     Beneficiary by the end of the calendar year in which the fifth (5th)
     anniversary of the Participant's date of death occurs.

          (iii) If the Participant's spouse (determined as of the Participant's
     date of death) is the Beneficiary, distributions must be made over a period
     not extending beyond the life expectancy of the spouse and must commence on
     or before the later of the end of the calendar year immediately following
     the calendar year in which the Participant died or would have attained
     seventy and one half (70 1/2) years of age. If the surviving spouse dies
     before distribution to such spouse has begun, then the five-year
     distribution requirement of clause (ii) shall apply as if the spouse was
     the Participant.

     10.07 COMMENCEMENT OF BENEFITS. Any payment of benefits from the Plan will
be made as soon as administratively feasible following the Valuation Date on
which the Participant's Vested Interest is to be determined. Notwithstanding the
foregoing, unless the Participant elects to defer the payment of benefits, the
payment of benefits will commence no later than the sixtieth (60th) day
following the close of the Plan Year in which the latest of the following events
occurs: (a) the date on which the Participant attains Normal Retirement Age, (b)
the tenth (10th) anniversary of the year in which the Participant commenced
participation in the Plan, and (c) the date the Participant terminates
employment with the Company.

     10.08 PAYMENT UPON INCAPACITY. The Plan Administrator may suspend the
payment of benefits under the Plan to any person if it determines in its sole
discretion that such person is incapacitated so as to be unable to manage his or
her financial affairs. In such case, the Plan Administrator shall direct the
Trustee to resume the payment of benefits under the Plan to the conservator or
other legal representative appointed for such incapacitated person.

     10.09 PAYMENT UNDER QUALIFIED DOMESTIC RELATIONS ORDER. All rights and
benefits provided to a Participant under this Plan shall be subject to the
rights of any alternate payee under a Qualified Domestic Relations Order. If
authorized by a Qualified Domestic Relations Order, an alternate payee may elect
to receive an immediate distribution of all or a portion of the Participant's
Vested Interest even if the affected Participant has not reached his or her
earliest retirement age. For purposes of this Section, "alternate payee" and
"earliest retirement age" shall have the meaning set forth in Section 414(p) of
the Code.

     10.10 DIRECT ROLLOVERS.

     (a) A Participant who is entitled to receive an Eligible Rollover
Distribution may elect to have such distribution (or a portion thereof not less
than five hundred dollars ($500)) made directly to an eligible retirement plan
("direct rollover election").

     An alternate payee who is entitled to receive an Eligible Rollover
Distribution pursuant to a Qualified Domestic Relations Order and who is the
spouse or a former spouse of a Participant may make a direct rollover election
as if such alternate payee were the Participant.


                                       44






     A surviving spouse who is entitled to receive an Eligible Rollover
Distribution by reason of the Participant's death may make a direct rollover
election; provided that such election is restricted to an eligible retirement
plan that is an individual retirement account described in Section 408(a) of the
Code or an individual retirement annuity described in Section 408(b) of the
Code.

     (b) No earlier than ninety (90) days and no later than thirty (30) days
before an Eligible Rollover Distribution is to be made, the Plan Administrator
shall provide the Participant, alternate payee, or surviving spouse, as the case
may be, with a written explanation of:

          (i) the rules under which he or she may make a direct rollover
     election;

          (ii) the legal requirement that federal income tax be withheld from
     the distribution if he or she does not elect a direct rollover;

          (iii) the rules under which the amount that he or she actually
     receives will not be subject to federal income tax if such amount is
     transferred ("rolled over") within sixty (60) days after being received
     pursuant to Section 402(c) of the Code;

          (iv) the rules, if applicable, for receiving special income tax
     averaging, or capital gain treatment, under Section 402(d) of the Code; and

          (v) the Plan provisions under which a direct rollover election with
     respect to one payment in a series of periodic payments will apply to all
     subsequent payments until such election is changed.

     Notwithstanding the foregoing to the contrary, if an Eligible Rollover
Distribution is one of a series of periodic payments, the explanation required
by this Paragraph (b) shall be provided annually as long as such payments
continue.

     (c) A direct rollover election shall be made in such manner and at such
time as the Plan Administrator shall prescribe, and shall include:

          (i) the name of the eligible retirement plan;

          (ii) a statement that such plan is an eligible retirement plan; and

          (iii) any other information necessary to permit a direct rollover by
     the means selected by the Plan Administrator.

     An election to make a direct rollover with respect to one payment in a
series of periodic payments shall apply to all subsequent payments in the series
until such election is changed; such change with respect to subsequent payments
may be made at any time.

     (d) Notwithstanding Paragraph (b) to the contrary, if an individual, after
receiving the written explanation required by subsection (b) affirmatively
elects to make or not make a direct rollover, an eligible rollover distribution
may be made less than thirty (30) days after the date such written explanation
was given, provided the Plan Administrator has informed such



                                       45



individual, in writing, of his or her right to a period of at least thirty (30)
days to make such election.

     (e) As used in this Section, the term "eligible retirement plan" means an
individual retirement account described in Section 408(a) of the Code; an
individual retirement annuity described in Section 408(b) of the Code (other
than an endowment contract); a trust described in Section 401(a) of the Code
which is exempt from tax under Section 501(a) of the Code and which is part of a
defined contribution plan described in Section 414(i) of the Code that permits
rollover contributions; or an annuity plan described in Section 403(a) of the
Code.

     (f) A direct rollover shall be made in cash; provided, however, with
respect to a Participant who ceases to be employed by the Company (and is no
longer employed by the Company or an Affiliate) as a result of the sale of
certain branches of Peoples Heritage Bank to Katahdin Trust Company on November
17, 2000, and who elects a direct rollover of his or her Vested Interest to the
Katahdin Trust Company 401(k) Plan ("Katahdin Plan"), and at the time of such
distribution there remain any outstanding loans with respect to his or her
Aggregate Account that are not in default, then, notwithstanding Section 8.03(g)
to the contrary, such unpaid loans shall not be treated as due and payable
immediately as of the date such distribution is made and instead shall be
transferred to the Katahdin Plan. The promissory note(s) evidencing such loan(s)
shall be assigned to the Katahdin Plan, and the Participant's obligation to this
Plan shall be deemed to be paid in full as of the date distribution is made.
Such a Participant shall be treated as receiving a distribution of his or her
entire Aggregate Account.

     10.11 ANNUITIES. A Participant who is entitled to and elects to receive all
or a portion of his or her Vested Interest as an Annuity shall receive an
annuity contract purchased from an insurance company, bank, or other similar
financial institution, subject to the following requirements:

     (a) Except for surrender to the issuer, the contract shall be
nontransferable, and no benefit thereunder may be sold, assigned, discounted, or
pledged.

     (b) The normal form of the annuity contract for a Participant who is
married on the Annuity Starting Date shall be a 50% joint and survivor annuity
with the Participant's spouse as joint annuitant. Any other Participant shall be
entitled to elect an annuity contract in the form of a single life annuity, a
ten (10) year certain and continuous annuity, or a 50% joint and survivor
annuity.

     (c) In lieu of a 50% joint and survivor annuity with the spouse as joint
annuitant, a married Participant may elect to receive a single life annuity, a
ten (10) year certain and continuous annuity or a 50% joint and survivor annuity
with another individual as joint annuitant, if the Participant's spouse consents
to such election. Such election may be made, with spousal consent, during the
ninety-day period ending on the Annuity Starting Date, provided, however, that
(1) if the written explanation required by Section 417(a)(3) of the Code has not
been furnished to the Participant at least thirty (30) days before the Annuity
Starting Date, the election period will be extended, if necessary, to include
the thirty-day period following the date on which such information is furnished
to the Participant, and (2) if the Participant requests additional information
described in Treas. Reg. Section 1.401(a)-11(c)(3)(iii), the election period
shall



                                       46




be extended, if necessary, to include the thirty-day period following the day on
which such additional information is personally delivered or mailed to the
Participant.

     Notwithstanding the foregoing to the contrary, if a Participant, after
receiving the written explanation required by Section 417(a)(3) of the Code,
affirmatively elects a form of distribution, with spousal consent, an Annuity
may commence no less than seven (7) days after the date such written explanation
was given, provided the Plan Administrator has informed such Participant, in
writing, of his or her right to a period of at least thirty (30) days to make
such election.

     Any consent by the Participant's spouse to waive rights to survivor
benefits under a joint and survivor annuity must be in writing, must acknowledge
the effect of such waiver and must be witnessed by a notary public. Subject to
the spousal consent requirement above, the Participant may change an election
under this Paragraph (c) at any time and any number of times before the Annuity
Starting Date, in the form and the manner required by the Plan Administrator
from time to time. The Participant's spouse may not revoke consent to a specific
waiver of a joint and survivor form of benefit.

     10.12 DISTRIBUTIONS TO QUALIFIED PARTICIPANTS.

     (a) Each Qualified Participant may elect annually within ninety (90) days
after the close of each Plan Year in the Qualified Election Period withdraw not
more than twenty-five percent (25%) of the amounts credited to his or her ESOP
Account as of the last day of the Plan Year (taking into account in applying the
twenty-five percent (25%) limitation any amounts previously withdrawn pursuant
to this Section); provided, however, that in the case of the Plan Year with
respect to which the Qualified Participant can make his or her last withdrawal
election pursuant to this Section, this sentence shall be applied by
substituting "fifty percent (50%)" for "twenty-five percent (25%)." Any election
pursuant to this Section must be in writing, on a form or forms supplied by the
Committee, and must be received by the Employer not later than ninety (90) days
after the close of the Plan Year to which the election relates.

     (b) Unless otherwise elected by the Qualified Participant in accordance
with the following sentence, distributions of amounts withdrawn from the ESOP
Account of a Qualified Participant pursuant to this Section shall be made in
cash. A Qualified Participant may elect in writing on the election form
described in Paragraph (a) to receive all or a portion of the amounts withdrawn
from the Qualified Participant's ESOP Account pursuant to this Section in whole
shares of Stock, with cash distributed in lieu of any fractional shares.
Distributions of amounts withdrawn pursuant to this Section, whether in shares
of Stock or cash, shall be made no later than ninety (90) days after the close
of the period during which the withdrawal election may be made.

     (c) For purposes of this Section, the term "Qualified Participant" means
any Participant who has completed at least ten (10) years of participation under
the Plan and has attained age fifty-five (55), and the term "Qualified Election
Period" means the six (6) Plan Year period beginning with the first Plan Year in
which the Participant first became a Qualified Participant.



                                       47





     (d) Notwithstanding the foregoing to the contrary, if the Fair Market Value
(determined as of the Valuation Date immediately preceding the first day on
which a Qualified Participant is otherwise eligible to make an election under
Paragraph (a) of the shares of Stock acquired by or contributed to the Plan and
allocated to the Qualified Participant's ESOP Account is five hundred dollars
($500) or less, then the Qualified Participant shall not be eligible to make an
election to receive a distribution under this Section; provided that, if the
Fair Market Value of the shares of Stock acquired by or contributed to the Plan
and allocated to the Qualified Participant's ESOP Account should thereafter
exceed five hundred dollars ($500) on a Valuation Date that falls within the
Qualified Election Period, then all shares of Stock allocated to such account
shall be subject to the election provided in this Section for the remainder of
the Qualified Election Period.

     (e) Notwithstanding the foregoing to the contrary, a Predecessor Plan
Participant shall be a Qualified Participant with respect to his or Predecessor
Plan Account attributable to the Separate ESOP if he or she has completed at
least ten (10) years of participation under the Plan and the Predecessor Plan
and has attained age fifty-five (55) (or such lesser number of years of
participation or lower age as is provided under the Predecessor Plan on its Plan
Affiliation Date).

ARTICLE XI. ADMINISTRATION OF THE PLAN

     11.01 PLAN ADMINISTRATOR. The general administration of the Plan shall be
vested in the Plan Administrator, who shall be a named fiduciary for purposes of
Section 402(a)(2) of ERISA. In performing its duties hereunder, the Plan
Administrator shall have the fullest discretion permitted by law and shall have
all powers granted by the provisions of the Plan except those specifically
granted or allocated to the Board, the Trustee and any investment manager.

     11.02 POWERS AND DUTIES. The Plan Administrator shall supervise the
administration and enforcement of the Plan according to the terms and provisions
hereof and shall have all powers necessary to accomplish these purposes,
including, but not by way of limitation, the right, power, authority and duty:

     (a) to make rules, regulations and bylaws for the administration of the
Plan which are not inconsistent with the terms and provisions hereof;

     (b) to construe all terms, provisions, conditions and limitations of the
Plan;

     (c) to correct any defect or supply any omission or reconcile any
inconsistency that may appear in the Plan, in such manner and to such extent as
it shall deem expedient to carry the Plan into effect for the greatest benefit
of all interested parties;

     (d) to employ and compensate such accountants, attorneys, investment
advisors and other agents and employees as the Plan Administrator may deem
necessary or advisable in the proper and efficient administration of the Plan;

     (e) to determine all factual and interpretation questions relating to
benefits under the Plan;



                                       48





     (f) to prescribe procedures to be followed by Participants, Beneficiaries
and alternate payees when requesting benefits hereunder;

     (g) to prepare, file and distribute, in such manner as the Plan
Administrator determines to be appropriate, such information and material as is
required by the reporting and disclosure requirements of ERISA;

     (h) to make a determination as to the right of any person to a benefit
under the Plan;

     (i) to select any investment managers;

     (j) to receive and review reports from the Trustee and any investment
managers as to the financial condition of the Trust Fund, including its receipts
and disbursements;

     (k) to instruct the Trustee to grant loans as provided under Section 8.03,
above;

     (l) to determine and instruct the Trustee and any investment manager on the
funding and investment policies, methods and objectives of the Trust;

     (m) to designate those Trust assets over which the Trustee and each
investment manager shall have control; and

     (n) to prepare and submit all reports, notices, insurance premiums and
applications with respect to the Plan and the Trust required by law and for the
continued qualification of the Plan and Trust under Sections 401 and 501 of the
Code.

     11.03 DELEGATION OF MINISTERIAL DUTIES. The Plan Administrator may delegate
to any of its members or to any Employee or Employees, severally or jointly, the
authority to perform any ministerial act in connection with the administration
of the Plan.

     11.04 INVESTMENT MANAGER. The Plan Administrator may, in its sole
discretion, appoint an investment manager, with power to manage, acquire or
dispose of all or any portion of the Trust Fund who (a) is registered as an
investment adviser under the Investment Advisers Act of 1940; is not so
registered by reason of paragraph (1) of Section 203(A)(a) of such Act, is
registered as an investment adviser under the laws of the state (referred to in
such paragraph (1)) in which it maintains its principal office and place of
business, and at the time the fiduciary last filed the registration form most
recently filed by the fiduciary with such state in order to maintain the
fiduciary's registration under the laws of such state, also filed a copy of such
form with the Secretary; is a bank, as defined in said Act; or is an insurance
company qualified to manage, acquire, or dispose of all or any portion of the
Trust Fund under the laws of more than one state; and (b) has acknowledged, in
writing, that it is a fiduciary with respect to the Plan and Trust. Upon such
appointment, the Plan Administrator shall not be liable for the acts of the
investment manager. The Trustee shall follow the directions of such investment
manager and shall not be liable for the acts or omissions of such investment
manager. The investment manager may be removed by the Plan Administrator at any
time and within its sole discretion.



                                       49




     11.05 BENEFIT CLAIM PROCEDURE.

     (a) A claim for a benefit under the Plan shall be submitted to the Plan
Administrator by the claimant or his or her authorized representative.
Submissions shall be made by such written, telephonic or electronic means as are
prescribed by the Plan Administrator and within the time period specified by the
Plan Administrator, provided, however that a claim for a Disability Benefit
shall be made within six (6) months from the date the Participant suffered a
Total and Permanent Disability, or his or her last full day of active
employment, whichever is later. Satisfactory proof of eligibility and
information necessary to determine the amount of such payments, including, where
appropriate, proof of age, Social Security status, death of an Employee or a
prior beneficiary, appointment as executor, administrator or guardian and such
other information as is reasonably required in the circumstances must be
submitted.

     (b) If a claim is wholly or partially denied, the Plan Administrator shall
furnish the claimant with written or electronic notification of the adverse
benefit determination. Any electronic notification shall comply with the
standards imposed by 29 C.F.R. sections 2520.104(b)-1(c)(i), (iii) and (iv). The
notification shall set forth in a manner calculated to be understood by the
claimant:

          (i) The specific reason or reasons for the adverse benefit
     determination;

          (ii) Reference to the specific Plan provisions on which the
     determination is based;

          (iii) A description of any additional material or information
     necessary for the claimant to perfect his or her claim and an explanation
     why such material or information is necessary; and

          (iv) A description of the Plan's procedures for review of an adverse
     benefit determination and the time limits applicable to such procedures,
     including, effective January 1, 2002, a statement of the claimant's right
     to bring a civil action under Section 502(a) of ERISA following an adverse
     benefit determination on review.

Such notification shall be furnished to the claimant within ninety (90) days
after receipt of his or her claim, unless special circumstances require an
extension of time for processing his or her claim. If an extension of time for
processing is required, the Plan Administrator shall, prior to the termination
of the initial ninety (90) day period, furnish the claimant with written notice
indicating the special circumstances requiring an extension and the date by
which the Plan Administrator expects to render the benefit determination. In no
event shall an extension exceed a period of ninety (90) days from the end of the
initial ninety (90) day period.

     (c) A claimant or his or her authorized representative may appeal an
adverse benefit determination by filing a written request for review with the
Plan Administrator. Such request must be delivered to the Plan Administrator
within sixty (60) days after receipt by the claimant of notification of the
adverse benefit determination. A claimant or his or her duly authorized
representative may review pertinent documents and submit issues and comments in
writing. In particular, effective January 1, 2002, a claimant and his or her
duly authorized representative:



                                       50





          (i) May submit to the Plan Administrator written comments, documents,
     records, and other information relating to the claim for benefits; and

          (ii) Shall be provided, upon request and free of charge, reasonable
     access to, and copies of, all documents, records and other information
     relevant to the claimant's claim for benefits.

Effective January 1, 2002, the Plan Administrator's review of any adverse
benefit determination shall take into account all comments, documents, records
and other information submitted by the claimant or his or her authorized
representative relating to the claim, without regard to whether such information
was submitted or considered in the initial benefit determination.

     (d) The Plan Administrator shall provide the claimant with written or
electronic notification of the benefit determination on review not later than
sixty (60) days after receipt of a request for review, unless special
circumstances require an extension of time for processing. Any electronic
notification shall comply with the standards imposed by 29 C.F.R. sections
2520.104(b)-1(c)(i), (iii) and (iv). If an extension of time for processing is
required, the Plan Administrator shall, prior to the termination of the initial
60-day period, furnish the claimant with written notice indicating the special
circumstances requiring an extension of time and the date by which the Plan
Administrator expects to render the determination on review. In no event shall
such extension exceed a period of sixty (60) days from the end of the initial
60-day period.

     In the case of an adverse benefit determination on review, the notification
shall set forth in a manner calculated to be understood by the claimant:

          (i) The specific reason or reasons for the adverse determination;

          (ii) Reference to the specific Plan provisions on which the
     determination is based; and

          (iii) Effective January 1, 2002, (A) a statement that the claimant is
     entitled to receive, upon request and free of charge, reasonable access to,
     and copies of, all documents, records and other information relevant to the
     claimant's claim for benefits; and (B) a statement of the claimant's right
     to bring a civil action under Section 502(a) of ERISA.

     11.06 CONCLUSIVENESS OF RECORDS. In administering the Plan, the Plan
Administrator may conclusively rely upon the Company's payroll and personnel
records maintained in the ordinary course of business.

     11.07 CONCLUSIVENESS OF ACTIONS. Any action or determination taken or made
by the Plan Administrator in its discretion shall be conclusive and binding upon
all individuals.

ARTICLE XII. ADMINISTRATION OF THE FUND

     12.01 PAYMENT OF EXPENSES. All expenses incident to the administration of
the Plan and Trust, including but not limited to, legal, accounting, Trustee
fees, expenses of the Plan Administrator and the cost of furnishing any bond or
security required of the Plan Administrator



                                       51




shall be paid by the Company; provided, however, that the Board in its
discretion may elect at any time to require the Trust Fund to pay part or all
thereof (excluding Trustee fees), and, until paid, shall constitute a claim
against the Trust Fund which is paramount to the claims of Participants and
Beneficiaries. Any election for payment of expenses from the Trust Fund by the
Board shall not bind the Board as to its right to elect, with respect to the
same or other expenses, to have such expenses paid directly by the Company.

     12.02 TRUST FUND PROPERTY. All income, profits, recoveries, contributions,
forfeitures and any and all moneys, securities and properties of any kind at any
time received or held by the Trustee hereunder shall be held for investment
purposes as a commingled Trust Fund. The Plan Administrator shall maintain a
Salary Deferral Contribution Account, Matching Contribution Account, ESOP
Account, Rollover Contribution Account, Predecessor Plan Account, and Aggregate
Account in the name of each Participant, but the maintenance of such accounts
shall not mean that such Participant shall have a greater or lesser interest
than that due him or her by operation of the Plan and shall not be considered as
segregating any funds or property from any other funds or property contained in
the commingled fund. No Participant shall have any title to any specific asset
in the Trust Fund.

     12.03 DISBURSEMENTS AND DISTRIBUTIONS. The Trustee shall make disbursements
for the purposes of investment as the Trustee in its sole discretion deems
advisable and proper. The Trustee shall make disbursements for the payment of
expenses upon approval by the Plan Administrator, and the Trustee shall have no
other responsibility with respect to such disbursements. The Trustee shall make
distributions to Participants and Beneficiaries in accordance with the
instructions of the Plan Administrator, observing the amounts, frequency of
payment, names, addresses and other similar instructions given by the Plan
Administrator, and the Trustee shall have no other responsibility with respect
to such distributions.

     12.04 TRUST ACCOUNTING. The Trustee shall keep full accounts of all its
receipts, disbursements, and investments in the Trust Fund. Within a reasonable
period following the close of each Plan Year or the termination of the Trust,
the Trustee shall render to the Plan Administrator an accounting of its
administration of the Trust during the preceding year or interim period. Said
accounting shall be made available at all reasonable times for inspection or
audit by any person designated by the Plan Administrator and by any other person
or entity to the extent required by law. The written approval of any accounting
by the Plan Administrator (or failure to except or object in writing to the
Trustee as to any matter or transaction stated therein within sixty (60) days
after receipt of any account) shall be final and binding upon them and upon all
persons who may be or become interested in this Trust as to all matters and
transactions stated in such account.

ARTICLE XIII. TRUSTEES

     13.01 APPOINTMENT AND SUCCESSION. The Company may appoint one or more
additional Trustees at any time. In the event of a vacancy in the office of
Trustee, whether by reason of the death, legal incapacity, resignation, or
removal of a Trustee, the Company may designate and appoint a successor Trustee,
but should there be no Trustee, then the Company shall designate one or more
successor Trustees. In the event that the Company shall go out of existence or
shall fail to appoint a required Trustee within a reasonable period of time,
then the remaining Trustee


                                       52




or Trustees shall appoint a successor Trustee. The successor Trustee shall have
all the powers conferred herein upon an original Trustee, but shall not be
responsible for the acts, omissions, or accounts of his or her predecessor
Trustee. Any successor Trustee shall immediately and automatically vest in the
title to any property in the Trust Fund.

     13.02 RESIGNATION AND REMOVAL. Any Trustee may resign from this Trust by
sending written notice to the Company. The Company may remove a Trustee at any
time by sending written notice to the Trustee. Thereupon, the Trustee shall
render to the Company an accounting of his or her administration of this Trust
from the Trustee's last annual accounting to the date of resignation or removal
and shall perform all acts necessary to transfer the assets of this Trust to his
or her successor.

     13.03 TRUSTEE POWERS. The Trustee shall have the power to do all such acts,
take all such proceedings, and exercise all such rights and privileges as the
Trustee may deem necessary to administer the funds and to carry out the purposes
of the Plan and Trust.

ARTICLE XIV. AMENDMENT AND TERMINATION

     14.01 AMENDMENTS.

     (a) No amendment may be made which would vary the Plan's exclusive purpose
of providing benefits to Participants, and their beneficiaries, and defraying
reasonable expenses of administering the Plan or which would permit the
diversion of any part of the Trust Fund from that exclusive purpose. No
amendment shall, except to the extent permitted under Section 412(c)(8) of the
Code, decrease a Participant's Aggregate Account balance or, except to the
extent permitted by regulations, eliminate an optional form of benefit. In
addition, no amendment shall have the effect of decreasing a Participant's
Vested Interest determined without regard to such amendment as of the later of
the date such amendment is adopted or the date it becomes effective.

     (b) Subject to the limitations in Paragraph (a) of this Section and any
other limitations contained in ERISA or the Code, the Board may make any
amendment to the Plan including, but not limited to, an increase or decrease of
contributions, a change or modification of the method of allocation of
contributions or forfeitures, or a change of the provisions relating to the
administration of the Plan.

     (c) Nothing herein shall be construed as prohibiting any amendment or
modification of the Plan which is required in order to comply with provisions of
any law or regulation relating to the establishment or maintenance of the Plan,
including but not limited to the establishment and maintenance of the Plan as a
qualified retirement plan or trust under applicable provisions of the Code and
to comply with ERISA, even though such amendment or modification is made
retroactively or adversely affects the rights or interests of a Participant of
the Plan. Any such modifications or amendment shall be approved by the Plan
Administrator without further authorization from the Board.

     (d) If the vesting schedule in effect under the Plan is amended, each
Participant who has completed at least three (3) Years of Service may elect to
have the vested percentage of such portion of his or her Aggregate Account
determined without regard to such amendment. The



                                       53




Plan Administrator shall promptly give each such Participant written notice of
the adoption of any such amendment and the availability of the election to have
the vested percentage of such portion of his or her Aggregate Account determined
without regard to such amendment. An election by a Participant shall be in
writing and shall be effective if filed with the Plan Administrator at any time
during the period beginning with the date such amendment is adopted and ending
on the later of (i) the date which is sixty (60) days after the day such
amendment is adopted, (ii) the date which is sixty (60) days after the day such
amendment becomes effective, or (iii) the date which is sixty (60) days after
the day the Participant receives written notice of such amendment. An election
once made shall be irrevocable. For purposes of this Section, a Participant
shall be considered to have completed three (3) Years of Service if the
Participant has completed three (3) Years of Service prior to the expiration of
the period in which an election could be made.

     14.02 DISCONTINUANCE OF CONTRIBUTIONS.

     (a) The Company has established the Plan with the bona fide intention and
expectation that from year to year it will be able to, and will deem it
advisable to, make its contributions as herein provided. However, the Company
realizes that circumstances not now foreseen, or circumstances beyond its
control, may make it either impossible or inadvisable to continue to make its
contributions to the Trust. Therefore, the Company shall have the power to
discontinue contributions to the Plan, terminate the Plan or partially terminate
the Plan at any time.

     (b) If the Plan is amended so as to permanently discontinue Company
contributions, or if Company contributions are in fact permanently discontinued,
each affected Participant shall have a fully Vested Interest in his or her
Aggregate Account effective as of the date of discontinuance. In case of
discontinuance, the Plan Administrator shall continue to administer the Plan and
all other provisions of the Plan which are necessary, in the opinion of the Plan
Administrator, for equitable operation of the Plan shall remain in force.

     (c) If the Plan is terminated or partially terminated, each affected
Participant shall have a fully Vested Interest effective as of the termination
date. Unless the Plan is otherwise amended prior to dissolution of the Company,
the Plan shall terminate as of the date of dissolution of the Company.

     (d) Upon discontinuance or termination, any previously unallocated
contributions, forfeitures and net income (or net loss) shall be allocated to
the accounts of Participants on such date of discontinuance or termination as if
such date of discontinuance or termination were a Valuation Date. Thereafter,
net income (or net loss) shall continue to be allocated to Participants'
accounts until the balances thereunder are distributed. In the event of
termination, the date of the final distribution shall be treated as a Valuation
Date.

     (e) In the case of a total or partial termination of the Plan, and in the
absence of a Plan amendment to the contrary, the Trustee shall be entitled in
its sole discretion to pay the balance of an affected Participant's Aggregate
Account in a single lump sum payment.



                                       54




     14.03 MERGER, CONSOLIDATION OR TRANSFER OF ASSETS. In the event of any
merger or consolidation of the Plan with, or transfer in whole or in part of the
assets and liabilities of the Trust Fund to another trust fund held under any
other retirement or pension plan maintained or to be established for the benefit
of some or all of the Participants in this Plan, the assets of the Trust Fund
applicable to such Participants shall be transferred to the other trust fund
only if:

     (a) each Participant would (if either this Plan or the other plan
terminated) receive a benefit immediately after the merger, consolidation, or
transfer which is equal to or greater than the benefit he or she would have been
entitled to receive immediately before the merger, consolidation, or transfer
(if this Plan had been terminated);

     (b) the Board shall have authorized such merger, consolidation, or transfer
of assets, and the board of directors of any new or successor employer of the
affected Participants shall have agreed to an assumption of liabilities with
respect to such Participants' inclusion in the new or successor employer's plan;
and

     (c) such other plan and trust are qualified under Sections 401(a) and
501(a) of the Code.

     14.04 MANNER OF AMENDMENT OR TERMINATION. Except as otherwise provided in
the Plan, any amendment, modification, suspension, or termination of the Plan
shall be formally adopted or approved by the Board by resolution, unanimous
written consent, or any other method authorized under the by-laws of the
Company, and shall be effective on the date of its adoption or approval or such
other date as is specified therein; provided, however, the Board may delegate to
the Plan Administrator or other party (by formally-adopted or approved
resolution, unanimous written consent, or any other method authorized under the
by-laws of the Company) the authority to amend or modify the Plan.

ARTICLE XV. PARTICIPATING EMPLOYERS

     15.01 ADOPTION BY PARTICIPATING EMPLOYERS. The Board or its delegate, which
may be the Plan Administrator, may cause any Affiliate, whether or not presently
existing, to become a Participating Employer hereunder. The provisions of the
Plan shall apply separately and equally to each Participating Employer and its
employees in the same manner as is expressly provided for the Company and its
Employees, except to the extent specifically provided otherwise in the Plan and
except that provisions granting powers, rights and duties under the Plan to the
Board shall apply exclusively to the board of directors of Banknorth Group, Inc.
The Board may, in its discretion, terminate a Participating Employer's
participation in this Plan at any time. If such discontinuance of participation
is due to the establishment of a separate plan, the Trustee shall take whatever
action is necessary to effect a transfer of the applicable assets to such
separate plan. Otherwise, such assets shall continue to be held under this Plan
and the provisions hereof shall govern.

     15.02 SINGLE PLAN. For purposes of the Code and ERISA, the Plan as adopted
by the Participating Employers shall constitute a single plan rather than a
separate plan of each Participating Employer. All assets in the Trust Fund shall
be available to pay benefits to all Participants and their Beneficiaries.



                                       55




ARTICLE XVI. PREDECESSOR PLANS AND ACCOUNTS

     16.01 ARTICLE CONTROLS. The provisions of this Article shall take
precedence over any conflicting provisions of any other Article of the Plan with
respect to the benefits, rights, and features of a Predecessor Plan remaining in
effect with respect to a Participant's Predecessor Plan Account.

     16.02 PREDECESSOR PLANS. The plans identified on Appendix A to the Plan
shall be Predecessor Plans as of their respective Plan Affiliation Dates stated
therein.

     16.03 MERGER PROVISIONS. The following provisions shall be applicable to
the merger of each Predecessor Plan with this Plan as of the applicable Plan
Affiliation Date:

     (a) All participant accounts, employer contributions accounts, suspense
accounts, outstanding forfeitures, and loans under the Predecessor Plan shall be
transferred to this Plan;

     (b) All of the Predecessor Plan's assets shall be transferred to this Plan;

     (c) All of the Predecessor Plan's benefit obligations shall be transferred
to this Plan and become the responsibility of the Plan;

     (d) On and after the Plan Affiliation Date, the rights of participants and
beneficiaries of participants under the Predecessor Plan shall be determined
strictly in accordance with the terms of this Plan; provided that, in accordance
with Paragraph (g), each such participant's Predecessor Plan Account shall be
invested and reinvested in accordance with the applicable provisions of the
Predecessor Plan until the date on which the Predecessor Plan's assets are
transferred to the trust under this Plan ("transfer date");

     (e) On the Plan Affiliation Date, the vested interest in the Plan of each
Participant whose account is transferred from the Predecessor Plan shall be no
less than his or her vested employer contributions account and his or her
participant contributions account under the Predecessor Plan on the date
preceding the merger;

     (f) The Trustee shall accept the Predecessor Plan's assets when transferred
and shall have all the rights, duties, powers and responsibilities with respect
to such assets as prescribed under Article XIII of the Plan; and

     (g) Pursuant to Article VI of the Plan, each Participant who has an account
transferred from the Predecessor Plan shall make an investment election with
respect to such Predecessor Plan Account which shall be applicable as of the
transfer date, and shall invest and reinvest his or her Predecessor Plan Account
in accordance with the provisions thereof.

     16.04 PREDECESSOR PLAN ACCOUNTS. Each Predecessor Plan Account shall
separately reflect the balance of each sub-account thereunder as of the Plan
Affiliation Date.

     16.05 DISTRIBUTION OF PREDECESSOR PLAN ACCOUNTS. Notwithstanding any other
provision of the Plan to the contrary, with respect to his or her Predecessor
Plan Account only, a Predecessor Plan Participant may elect an optional form of
payment made available under the



                                       56



applicable Predecessor Plan as in effect immediately prior to the Plan
Affiliation Date if the distribution is made or commences before January 1, 2002
(or, if later, the earlier of: (i) the ninetieth (90th) day after the date such
Participant has been furnished a summary of material modifications (or summary
plan description) that reflects this provision, or (ii) the first day of Plan
Year following the Plan Year in which occurs the applicable Predecessor Plan
Affiliation Date). For purposes of this Section, an "optional form of payment"
is a distribution form with respect to a Predecessor Plan Account, including all
features relating to such form that are protected under Section 411(d)(6) of the
Code and Treasury Regulation Section 1.411(d)-4. Effective January 1, 1998, the
"required beginning date" for any distribution under this Section shall be
determined under Section 10.05(d)(i).

     16.06 PREDECESSOR PLAN ACCOUNTS SUBJECT TO SURVIVOR ANNUITY REQUIREMENTS.
The Plan shall be a "transferee plan" (within the meaning of Treasury Regulation
Section 1.401(a)-20) with respect to each Predecessor Plan Account attributable
to the SBERA 401(k) Plan As Adopted by Family Mutual Savings Bank, and each
other Predecessor Plan Account that may be held under this Plan as a result of a
merger, spinoff, or other transaction having the effect of a transfer that is
subject to the survivor annuity requirements of Sections 401(a)(11) and 417 of
the Code. Notwithstanding any other provision of the Plan to the contrary, if
the Plan is a transferee plan with respect to any portion of a Participant's
Aggregate Account, then his or her entire Aggregate Account (excluding his or
her ESOP Account) shall be subject to such survivor annuity requirements. With
respect to such requirements:

     (a) The Participant's Aggregate Account (excluding his or her ESOP Account)
shall be administered in accordance with the applicable Predecessor Plan as in
effect on the date immediately preceding the Plan Affiliation Date.

     (b) The Participant may elect an optional form of payment made available
under the applicable Predecessor Plan as in effect immediately prior to the Plan
Affiliation Date if the distribution is made or commences before January 1, 2002
(or, if later, the earlier of: (i) the ninetieth (90th) day after the date such
Participant has been furnished a summary of material modifications (or summary
plan description) that reflects this provision, or (ii) the first day of Plan
Year following the Plan Year in which occurs the applicable Predecessor Plan
Affiliation Date).

     (c) Effective for any distribution that is made or commences on or after
January 1, 2002 (or, if later, the earlier of: (i) the ninetieth (90th) day
after the date such Participant has been furnished a summary of material
modifications (or summary plan description) that reflects this provision, or
(ii) the first day of Plan Year following the Plan Year in which occurs the
applicable Predecessor Plan Affiliation Date), the normal form of payment shall
be determined in accordance with the applicable Predecessor Plan and the
survivor annuity requirements of Sections 401(a)(11) and 417 of the Code. The
Participant may elect, in the manner described in Section 10.11, to receive
payment of his or her Aggregate Account (excluding his or her ESOP Account) as a
single lump sum payment in cash that is otherwise identical (within the meaning
of subsection (e) of Q&A-2 of Treasury Regulation sections 1.411(d)-4) to the
optional forms of benefit that would have been available to the Participant
under the Predecessor Plan immediately prior to such date.



                                       57




Each Aggregate Account (excluding the Predecessor Plan Participant's ESOP
Account) that is subject to survivor annuity requirements hereunder shall be
accounted for in the manner described in Treasury Regulation Section
1.401(a)-20, Q&A-5(b).

     16.07 PREDECESSOR PLAN ESOP ACCOUNTS. For periods before the Effective
Date, each Predecessor Plan Account or portion thereof that is an ESOP account
under the Banknorth Group, Inc. Employee Savings Plan (the "KSOP") immediately
prior to the Plan Affiliation Date of the KSOP, including a matching
contribution account under the KSOP that is attributable to any period beginning
on or after January 1, 1999, shall, notwithstanding any other provision of this
Plan to the contrary, be subject to all applicable provisions of Article XVII of
the KSOP and shall be administered in accordance with such Article XVII as in
effect on the date immediately preceding the Plan Affiliation Date.

ARTICLE XVII. TOP HEAVY PROVISIONS

     17.01 ARTICLE CONTROLS. Any Plan provisions to the contrary
notwithstanding, the provisions of this Article shall control to the extent
required to cause the Plan to comply with the requirements imposed under Section
416 of the Code.

     17.02 DEFINITIONS. For purposes of this Article, the following terms and
phrases shall have the respective meanings set forth below:

     (a) "Account Balance" means, as of any Valuation Date, the aggregate amount
credited to an individual's account or accounts under a qualified defined
contribution plan maintained by the Company or an Affiliate (excluding employee
contributions which were deductible within the meaning of Section 219 of the
Code and rollover or transfer contributions made after December 31, 1983, by or
on behalf of such individual to such plan from another qualified plan sponsored
by an entity other than the Company or an Affiliate), increased by (1) the
aggregate distributions made to such individual from such plan during a
five-year period ending on the Determination Date and (2) the amount of any
contributions due as of the Determination Date immediately following such
Valuation Date.

     (b) "Accrued Benefit" means, as of any Valuation Date, the present value
(computed on the basis of the Assumptions) of the cumulative accrued benefit
(excluding the portion thereof which is attributable to employee contributions
which were deductible pursuant to Section 219 of the Code, to rollover or
transfer contributions made after December 31, 1983, by or on behalf of such
individual to such plan from another qualified plan sponsored by an entity other
than the Company or an Affiliate, to proportional subsidies or to ancillary
benefits) of an individual under a qualified defined benefit plan maintained by
the Company or an Affiliate increased by (1) the aggregate distributions made to
such individual from such plan during a five-year period ending on the
Determination Date and (2) the estimated benefit accrued by such individual
between such Valuation Date and the Determination Date immediately following
such Valuation Date. Solely for the purpose of determining top-heavy status, the
Accrued Benefit of an individual shall be determined under (1) the method, if
any, that uniformly applies for accrual purposes under all qualified defined
benefit plans maintained by the Company and the Controlled Entities or (2) if
there is no such method, as if such benefit accrued not more rapidly than under
the slowest accrual rate permitted under Section 411(b)(1)(C) of the Code.



                                       58



     (c) "Aggregation Group" means the group of qualified plans maintained by
the Company and each Affiliate consisting of (1) each plan in which a Key
Employee participates and each other plan which enables a plan in which a Key
Employee participates to meet the requirements of Sections 401(a)(4) or 410 of
the Code and any other plan which the Company elects to include as a part of
such group; provided, however, that the Company may not elect to include a plan
in such group if its inclusion would cause the group to fail to meet the
requirements of Sections 401(a)(4) or 410 of the Code.

     (d) "Assumptions" means the interest rate and mortality assumptions
specified for top-heavy status determination purposes in any defined benefit
plan included in the Aggregation Group including the Plan.

     (e) "Determination Date" means, for the first Plan Year of any plan, the
last day of such Plan Year and for each subsequent Plan Year of such plan, the
last day of the preceding Plan Year.

     (f) "Key Employee" means a "key employee" as defined in Section 416(i) of
the Code and the Treasury Regulations thereunder.

     (g) "Remuneration" means compensation within the meaning of Section
415(c)(3) of the Code, as limited by Section 401(a)(17) of the Code.

     (h) "Valuation Date" means, with respect to any Plan Year of any defined
contribution plan, the most recent date within the twelve-month period ending on
a Determination Date as of which the Trust Fund established under such plan was
valued and the net income (or loss) thereof allocated to participants' accounts.
With respect to any Plan Year of any defined benefit plan, the most recent date
within a twelve-month period ending on a Determination Date as of which the plan
assets were valued for purposes of computing plan costs for purposes of the
requirements imposed under Section 412 of the Code.

17.03 TOP-HEAVY STATUS.

     (a) The Plan shall be deemed to be top-heavy for a Plan Year, if, as of the
Determination Date for such Plan Year, (1) the sum of Account Balances of
Participants who are Key Employees exceeds sixty percent (60%) of the sum of
Account Balances of all Participants unless an Aggregation Group including the
Plan is not top-heavy or (2) an Aggregation Group including the Plan is
top-heavy. An Aggregation Group shall be deemed to be top-heavy as of a
Determination Date if the sum (computed in accordance with Section 416(g)(2)(B)
of the Code and the Treasury Regulations promulgated thereunder) of (1) the
Account Balances of Key Employees under all defined contribution plans included
in the Aggregation Group and (2) the Accrued Benefits of Key Employees under all
defined benefit plans included in the Aggregation Group exceeds sixty percent
(60%) of the sum of the Account Balances and the Accrued Benefits of all
individuals under such plans. Notwithstanding the foregoing, the Account
Balances and Accrued Benefits of individuals who are not Key Employees in any
Plan Year but who were Key Employees in any prior Plan Year shall not be
considered in determining the top-heavy status of the Plan for such Plan Year.
Further, notwithstanding the foregoing, the Account Balances and Accrued
Benefits of individuals who have not performed services for the Company



                                       59



at any time during the five-year period ending on the applicable Determination
Date shall not be considered.

     (b) If the Plan is determined to be top-heavy for a Plan Year, the Company
shall contribute to the Plan for such Plan Year on behalf of each Participant
who is not a Key Employee and who has not terminated his or her employment as of
the last day of such Plan Year an amount equal to the lesser of (1) three
percent (3%) of such Participant's Remuneration for such Plan Year or (2) a
percent of such Participant's Remuneration for such Plan Year equal to the
greatest percent determined by dividing for each Key Employee the amounts
allocated to such Key Employee's Salary Deferral Contribution Account and
Company Contribution accounts for such Plan Year by such Key Employee's
Remuneration. The minimum contribution required to be made for a Plan Year
pursuant to this Paragraph for a Participant employed on the last day of such
Plan Year shall be made regardless of whether such Participant is otherwise
ineligible to receive an allocation of the Company's contributions for such Plan
Year. The minimum contribution required to be made pursuant to this Paragraph
shall also be made for an Employee who is not a Key Employee and who is excluded
from participation in the Plan for failing to make Salary Deferral
Contributions.

     Notwithstanding the foregoing, if the Plan is deemed to be top-heavy for a
Plan Year beginning before January 1, 2000, the Company's contribution for such
Plan Year pursuant to this Paragraph shall be increased by substituting "four
percent" in lieu of "three percent" in Clause (1) hereof to the extent that the
Board determines to so increase such contribution to comply with the provisions
of Section 416(h)(2) of the Code.

     Notwithstanding the foregoing, no contribution shall be made pursuant to
this Paragraph for a Plan Year with respect to a Participant who is a
participant in another defined contribution plan sponsored by the Company or an
Affiliate if such Participant receives under such other defined contribution
plan (for the Plan Year of such plan ending with or within the Plan Year of this
Plan) a contribution which is equal to or greater than the minimum contribution
required by Section 416(c)(2) of the Code. Notwithstanding the foregoing, no
contribution shall be made pursuant to this Paragraph for a Plan Year with
respect to a Participant who is a participant in a defined benefit plan
sponsored by the Company or an Affiliate if such Participant accrues under such
defined benefit plan (for the Plan Year of such plan ending with or within the
Plan Year of this Plan) a benefit which is at least equal to the benefit
described in Section 416(c)(1) of the Code. If the preceding sentence is not
applicable, the requirements of this Paragraph shall be met by providing a
minimum benefit under such defined benefit plan which, when considered with the
benefit provided under the Plan as an offset, is at least equal to the benefit
described in Section 416(c)(1) of the Code.

     17.04 TERMINATION OF TOP-HEAVY STATUS. If the Plan has been deemed to be
top-heavy for one or more Plan Years and thereafter ceases to be top-heavy, the
provisions of this Article shall cease to apply to the Plan effective as of the
Determination Date on which it is determined to no longer be top-heavy.
Notwithstanding the foregoing, the nonforfeitable interest of each Participant's
Aggregate Account as of such Determination Date shall not be reduced.



                                       60





     17.05 EFFECT OF ARTICLE. Notwithstanding anything contained herein to the
contrary, the provisions of this Article shall automatically become inoperative
and of no effect to the extent not required by the Code or ERISA.

ARTICLE XVIII. MISCELLANEOUS

     18.01 NOT CONTRACT OF EMPLOYMENT. The adoption and maintenance of this Plan
shall not be deemed to be a contract between the Company and any person or to be
consideration for the employment of any person. Nothing herein contained shall
be deemed to give any person the right to be retained in the employ of the
Company or to restrict the right of the Company to discharge any person at any
time, nor shall the Plan be deemed to give the Company the right to require any
person to remain in the employ of the Company or to restrict any person's right
to terminate his or her employment at any time.

     18.02 NON-ASSIGNABILITY OF THE RIGHT TO RECEIVE BENEFITS.

     (a) Except with respect to the creation, assignment, or recognition of a
right to a benefit payable with respect to a Participant pursuant to a Qualified
Domestic Relations Order, and subject to Paragraph (b), no benefit payable under
the Plan to any person shall be subject in any manner to anticipation,
alienation, sale, transfer, assignment, pledge, encumbrance, or charge, and any
attempt to anticipate, alienate, sell, transfer, assign, pledge, encumber, or
charge the same shall be void. No such benefit shall be in any manner liable
for, or subject to, the debts, contracts, liabilities, engagements, or torts of
any person nor shall it be subject to attachment or legal process for or against
any person, and the same shall not be recognized under the Plan, except to the
extent as may be provided pursuant to a Qualified Domestic Relations Order or an
order or requirement to pay described in Paragraph (b), or otherwise required by
law.

     (b) Effective August 5, 1997, Paragraph (a) shall not apply to any offset
of a Participant's Aggregate Account balance against an amount that the
Participant is ordered or required to pay to the Plan, and the Plan shall not be
treated as failing to meet the requirements of Code Sections 401(a)(13) or
409(d) solely by reason of such an offset, provided:

          (i) the order or requirement to pay arises (A) under a judgment of
     conviction for a crime involving the Plan; (B) under a civil judgment
     (including a consent order or decree) entered by a court in an action
     brought in connection with a violation (or alleged violation) of Part 4 of
     Subtitle B of Title I of ERISA; or (C) pursuant to a settlement agreement
     between the Secretary of Labor and the Participant, or a settlement
     agreement between the Pension Benefit Guaranty Corporation and the
     Participant, in connection with a violation (or alleged violation) of Part
     4 of Subtitle B of Title I of ERISA by a fiduciary or any other person;

          (ii) the judgment, order, decree or settlement agreement expressly
     provides for the offset of all or a part of the amount ordered or required
     to be paid to the Plan against the Participant's Aggregate Account balance;
     and

          (iii) in the event that the survivor annuity requirements of Code
     Section 401(a)(11) apply with respect to distribution of the Participant's
     Aggregate Account, if


                                       61


     the Participant has a spouse at the time at which the offset is to be made,
     the requirements of Code Section 401(a)(13)(C)(iii) are satisfied.

     18.03 PAYMENTS SOLELY FROM TRUST FUND. All benefits payable under the Plan
shall be paid or provided for solely from the Trust Fund and neither the Company
nor the Trustee assumes any liability or responsibility for the adequacy
thereof. Each person entitled at any time to any payment hereunder shall look
solely for such payment to the Trust Fund. The Plan Administrator or the Trustee
may require execution and delivery of such instruments as are deemed necessary
to assure proper payment of any benefits.

     18.04 NO BENEFITS TO THE COMPANY. No part of the corpus or income of the
Trust Fund shall be used for any purpose other than the exclusive purpose of
providing benefits for the Participants and their beneficiaries and defraying
reasonable expenses of administering the Plan. Anything to the contrary herein
notwithstanding, the Plan shall never be construed to vest any rights in the
Company other than those specifically given herein.

     18.05 SEVERABILITY. If any provision of this Plan shall be held illegal or
invalid for any reason, said illegality or invalidity shall not affect the
remaining provisions hereof. Instead, each provision shall be fully severable
and the Plan shall be construed and enforced as if said illegal or invalid
provision had never been included herein.

     18.06 GOVERNING LAW; INTERPRETATION. The provisions of this Plan shall be
construed and enforced according to the laws of the State of Maine, to the
extent that such laws are not preempted by the laws of the United States of
America, and in such manner as will tend to carry out the purposes of the Plan.
Should this Plan be found or be held to contain contradictory clauses or should
there appear to be a conflict between different provisions hereof, the
interpretation that favors this Plan as a qualified plan under Section 401 of
the Code shall govern over any other interpretation; provided, however, that
neither the Trustee nor the Plan Administrator shall be under any liability or
responsibility for failure of this Plan or the Trust to qualify at any time or
for any period as a tax-exempt Plan and Trust under the provisions of the Code
or for any tax or increase in tax upon any Participant or Beneficiary by reason
of any benefits payable or contributions made hereunder.

     18.07 HEADINGS OF SECTIONS. The headings of sections and articles are
included solely for convenience of reference, and if there is any conflict
between such headings and the text of the Plan, the text shall control.

     18.08 EFFECT OF MISTAKE. In the event of a mistake or misstatement as to
age or eligibility of any individual, or the amount of accrued benefits
applicable to a Participant, or distributions made or to be made to a
Participant or other individual pursuant the Plan, the Plan Administrator shall,
to the extent it deems possible, make such adjustment in its sole discretion as
will in its judgment accord to such Participant or other individual the accrued
benefits or distributions to which he or she is properly entitled.

     18.09 BONDING. Unless exempted by ERISA, every fiduciary (as defined under
Section 3(21)(A) of ERISA) shall be bonded in an amount not less than ten
percent (10%) of the amount of the funds such fiduciary handles; provided,
however, that the minimum bond shall be



                                       62




     one thousand dollars ($1,000) and the maximum bond five hundred thousand
     dollars ($500,000). The amount of funds handled shall be determined at the
     beginning of each Plan Year by the amount of funds handled by such persons,
     group, or class to be covered and their predecessors, if any, during the
     preceding Plan Year, or if there is no preceding Plan Year, then by the
     amount of the funds to be handled during the then current year. The bond
     shall provide protection to the Plan against any loss by reason of acts of
     fraud or dishonesty by the fiduciary alone or with others. The surety shall
     be a corporate surety company (as such term is used in Section 412(a)(2) of
     ERISA), and the bond shall be in a form approved by the Secretary of Labor.
     Notwithstanding anything in this Plan to the contrary, the cost of such
     bonds shall be paid from the Trust Fund, unless otherwise directed by the
     Plan Administrator.

     18.10 USERRA REQUIREMENTS. Notwithstanding any provision of this Plan to
the contrary, contributions, benefits and service credit with respect to
qualified military service will be provided in accordance with Section 414(u) of
the Code.

     18.11 EPCRS, ETC. ADJUSTMENTS. The Company, a Participating Employer, the
Plan Administrator, the Trustee, any Investment Manager and any other person
providing services to the Plan, acting jointly or singly, as the situation may
require, shall take such action, pursuant to the Employee Plans Compliance
Resolution System or any successor system, policy or program established by the
Internal Revenue Service as may be necessary or appropriate to correct any
operational failure occurring in the administration of the Plan.

     IN WITNESS WHEREOF, to record the adoption of the Plan, as amended and
restated herein, Banknorth Group, Inc. has caused this instrument to be executed
by its duly authorized officer to become effective as of January 1, 2001.

                                          BANKNORTH GROUP, INC.

                                          By
                                            ------------------------------------
                                          Its

Dated:                      , 2001
      ----------------------



                                       63




     APPENDIX A PREDECESSOR PLANS

     Each of the following tables identifies Predecessor Plans that were merged
into either the Banknorth Group, Inc. Thrift Incentive Plan or the Banknorth
Group, Inc. Profit Sharing and Employee Stock Ownership Plan prior to the merger
of the two Banknorth Group, Inc. plans as of the Effective Date. The provisions
of each Predecessor Plan remaining in effect solely with respect to a
Participant's Predecessor Plan Account in accordance with Article XIV hereof
shall be the provisions of each such plan as of the Plan Affiliation Date set
forth below, as modified through the Effective Date, except as is otherwise
specifically provided in this Plan to the contrary.

PREDECESSOR PLANS MERGED INTO THE
BANKNORTH GROUP, INC. THRIFT INCENTIVE PLAN



PREDECESSOR PLAN                                                                          PLAN AFFILIATION DATE
- ----------------                                                                          ---------------------
                                                                                      
Mid Maine Savings Bank, FSB 401(k) Savings Plan                                           January 1, 1996

Bank of New Hampshire Corporation Tax Deferred Savings & Investment Plan                  July 1, 1996

SBERA 401(k) Plan As Adopted By Family Mutual Savings Bank                                April 1, 1997

Atlantic Bank 401(k) Profit Sharing Plan                                                  December 1, 1997

Concord Savings Bank 401(k) Plan                                                          November 1, 1998

CFX Corporation 401(k) Plan                                                               December 15, 1998

SIS Bank Employees' Savings Incentive Plan                                                December 31, 1999

Individual Account Portion of the Peoples Heritage Financial Group, Inc. Retirement       March 1, 2000
Plan

Banknorth Group, Inc. Employee Savings Plan                                               October 1, 2000





PREDECESSOR PLANS MERGED INTO THE BANKNORTH GROUP, INC.
PROFIT SHARING AND EMPLOYEE STOCK OWNERSHIP PLAN



PREDECESSOR PLAN                                                                          PLAN AFFILIATION DATE
- ----------------                                                                          ---------------------
                                                                                     
Family Mutual Savings Bank Employee Stock Ownership Plan                                  October 31, 1997

Mid Maine Savings Bank, FSB Employee Stock Ownership Plan                                 December 1, 1997

Springfield Institution for Savings Employee Stock Ownership Plan                         September 30, 1999





                                       64

EX-21

                                                                      EXHIBIT 21

         Information relating to certain of the subsidiaries of Banknorth Group,
Inc. as of February 28, 2001 is set forth below. All of the indicated
subsidiaries are directly or indirectly wholly-owned by Banknorth Group, Inc.



    Direct Subsidiaries:

    Name                                                       Jurisdiction of Incorporation
    ----                                                       -----------------------------
                                                                 

    Banknorth, NA                                                   United States
    Peoples Heritage Capital Trust I                                Delaware
    Banknorth Capital Trust I                                       Delaware
    Banknorth Capital Trust II                                      Delaware
    Northgroup Realty, Inc.                                         Vermont

    Indirect Subsidiaries:


    Name                                                       Jurisdiction of Incorporation
    ----                                                       -----------------------------
                                                                 

    Bancnorth Investment Planning Group, Inc. (1)(2)                Maine
    Banknorth Leasing Corp. (1)                                     Maine
    Banknorth Insurance Group, Inc. (1)(3)                          Maine




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

     (1)  Subsidiary of Banknorth, NA.

     (2)  Holds as a subsidiary Bancnorth Investment and Insurance Agency, Inc.,
          a Massachusetts corporation.

     (3)  Holds as subsidiaries Morse, Payson & Noyes Insurance, Catalano
          Insurance Agency, Inc. and Arthur A. Watson & Co., Inc., a Maine,
          Massachusetts and Connecticut corporation, respectively.

EX-23

                                                                      EXHIBIT 23



                        INDEPENDENT AUDITORS' CONSENT

The Board of Directors
Banknorth Group, Inc.:


We consent to the incorporation by reference in the Registration Statements
on Form S-8 (Nos. 33-22205, 33-22206, 33-80310, 333-17467, 333-46367,
333-49999, 333-70095, 333-72909, 333-36834, 333-61436 and 333-72692), on Form
S-3 (Nos. 333-34931, 333-64845, 333-67961 and 333-81980) and on Form S-4 (No.
333-61757) of Banknorth Group, Inc. of our report, dated January 11, 2002,
with respect to the consolidated balance sheets of Banknorth Group, Inc. as
of December 31, 2001 and 2000, and the related consolidated statements of
income, changes in shareholders' equity and cash flows for each of the years
in the three-year period ended December 31, 2001 which report appears in the
December 31, 2001 annual report on Form 10-K of Banknorth Group, Inc.


                                                          /s/ KPMG LLP


Boston, Massachusetts
March 19, 2002