Banknorth Earnings Up 25% in 2002 and Fourth Quarter

(A replay of the fourth quarter conference call is available by dialing 800-642-1687 in USA and Canada, and 706-645-9291 international. Enter Conference ID 741/927. Webcast replay at www.banknorth.com, Investor Relations.)

January 16, 2003, Portland, Maine -- Banknorth Group, Inc. (NYSE: BNK) today reported record net income for 2002 of $298.6 million, or $1.99 per diluted share, up 25% from its previous record year of 2001 when net income was $238.8 million, or $1.68 per diluted share. Exclusive of special charges and extraordinary item, 2002 earnings were $308.2 million, or $2.06 per diluted share, up 24% from $247.9 million, or $1.75 per diluted share, in 2001.

For the fourth quarter ended December 31, 2002, net income was a record $77.1 million, or 52 cents per diluted share, up 25% from net income of $61.6 million, or 42 cents per diluted share, for the fourth quarter of 2001. Exclusive of special charges and extraordinary item, earnings were $79.3 million, or 53 cents per diluted share, for the quarter ended December 31, 2002, up 19% from $66.8 million, or 45 cents per diluted share, for the same quarter a year ago.

The Company indicated that strong loan growth in 2002 helped offset net interest margin compression in a lowered interest rate environment. The fourth quarter also saw strong fee income gains in nonbanking financial services such as insurance commissions as well as in mortgage banking services, deposit services and merchant and electronic banking income.

The Company completed three bank acquisitions in 2002 including Ipswich Bancshares, parent company of IpswichBank in Massachusetts, and Bancorp Connecticut, Inc., parent company of Southington Savings Bank in Connecticut. At year-end 2002, Banknorth completed the acquisition of another Massachusetts bank, Warren Bancorp, Inc., parent company of Warren Five Cents Savings Bank. In February of this year, the Company will complete the acquisition of American Financial Holdings, Inc., parent company of American Savings Bank in Connecticut, which will increase Banknorth's total assets to over $26 billion.

"The strengths in 2002 were our ability to compete for consumer and commercial loans in our traditional and new markets and our continuing development of fee income sources," said William J. Ryan, Banknorth Chairman, President and Chief Executive Officer.

"Our challenges were declining interest rates and their effects on our net interest margin and a weak stock market that had a negative impact on trust and investment services income. Our success in the face of these challenges bears out our strategy of expanding profitably and providing our customers a full range of financial services."

Mr. Ryan said that during 2003 "we will continue to consolidate recent acquisitions and focus on the tremendous opportunities we have to bring commercial and consumer lending, as well as our insurance, investment and other products to our expanded markets in southern New England." Mr. Ryan also stated that "the Company will continue to evaluate acquisition opportunities," but noted that "price expectations for bank acquisitions have in many cases moved beyond ranges we find sensible."

Total loans and leases at December 31, 2002 were 11% higher than at December 31, 2001, led by a 21% increase in commercial business loans and leases, a 17% increase in commercial real estate mortgages and an 11% increase in consumer loans and leases.

Total deposits at December 31, 2002 were 10% higher than at December 31, 2001, led by increases in the 20% range in regular savings, money market and NOW accounts and a 14% increase in noninterest bearing deposits, principally checking accounts.

Asset quality at Banknorth improved over already historically strong levels:

• Nonperforming loans to total loans and leases at December 31, 2002 were 0.46% as compared to 0.59% at December 31, 2001 and 0.47% at September 30, 2002.

• Nonperforming assets to total assets at December 31, 2002 were 0.29% as compared to 0.39% at December 31, 2001 and 0.31% at September 30, 2002.

• Net charge-offs to average loans and leases for the quarter ended December 31, 2002 were 0.27% as compared to 0.44% for the quarter ended December 31, 2001 and 0.31% for the quarter ended September 30, 2002.

• The allowance for loan and lease losses to nonperforming loans at December 31, 2002 was 319% as compared to 252% at December 31, 2001 and 311% at September 30, 2002.

On the fee income side, insurance commissions for the quarter ended December 31, 2002 were 26% higher than for the same quarter a year ago. Mortgage banking income in the fourth quarter of 2002 was 73% higher than in the fourth quarter of 2001, reflecting extensive refinancing activity and favorable pricing for mortgages sold into the secondary market. Deposit services income was up 15% in the quarter ended December 31, 2002 as compared to the same quarter a year ago. And merchant and electronic banking income rose 20% in the fourth quarter of 2002 as compared to the same quarter in 2001.

Investment planning services for the year ended December 31, 2002 were 40% higher than in 2001.

Results for 2002 included the benefit of the adoption of two new accounting standards related to goodwill amortization which resulted in no goodwill amortization charges for 2002 as compared to $8.3 million and $2.0 million for the year and quarter ended December 31, 2001, respectively.

The Company's return on average assets (ROA) was 1.39% and 1.35% for the year and quarter ended December 31, 2002, respectively, as compared to 1.29% and 1.23% for the year and quarter ended December 31, 2001, respectively. Cash ROA was 1.50% and 1.46% for the year and quarter ended December 31, 2002, respectively, as compared to 1.45% and 1.46% for the year and quarter ended December 31, 2001, respectively.

The Company's return on average equity (ROE) was 16.25% and 15.75% for the year and quarter ended December 31, 2002, respectively, as compared to 16.48% and 14.45% for the year and quarter ended December 31, 2001, respectively. Cash ROE was 23.80% and 24.03% for the year and quarter ended December 31, 2002, respectively, as compared to 21.73% and 21.35% for the year and quarter ended December 31, 2001. (Cash ratios exclude the after-tax effects of special charges, amortization of intangible assets, and, in 2001, an extraordinary item (early extinguishment of debt.)

The Company's net interest margin for 2002 was 4.07% as compared to 3.99% in 2001. The net interest margin for the quarter ended December 31, 2002 was 3.86% as compared to 4.13% for the quarter ended December 31, 2001 and 4.03% for the quarter ended September 30, 2002, which reflects the pressure on the margin resulting from decreases in interest rates in 2002.

Book value per share was $13.71 at December 31, 2002, up from $11.83 at December 31, 2001. Shareholders' equity at December 31, 2002 was $2.1 billion, up from $1.8 billion at December 31, 2001.

Banknorth Group, Inc., headquartered in Portland, Maine, is one of the country's 35 largest commercial banking companies with $23.4 billion in assets. The Company's banking subsidiary, Banknorth, N.A. operates banking divisions in Maine (Peoples Heritage Bank), New Hampshire (Bank of New Hampshire), Massachusetts (Banknorth Massachusetts), Connecticut (Banknorth Connecticut), Vermont (Banknorth Vermont), and Upstate New York (Evergreen Bank). The Company also operates subsidiaries and divisions in insurance, investment planning, money management, leasing, merchant services, mortgage banking, government banking and other financial services.

Note: This news release contains certain forward-looking statements with respect to the financial condition, results of operations and business of Banknorth. Forward-looking statements are subject to various factors which could cause actual results to differ materially from these estimates. These factors include, but are not limited to, changes in general economic conditions, interest rates, deposit flows, loan demand, competition, legislation or regulation and accounting principles, policies or guidelines, as well as other economic, competitive, governmental, regulatory and accounting and technological factors affecting Banknorth's operations. In addition, acquisitions may result in large one-time charges to income, may not produce revenue enhancements or cost savings at levels or within time frames originally anticipated and may result in unforeseen integration difficulties. Investors are encouraged to access Banknorth's periodic reports filed with the Securities and Exchange Commission for financial and business information regarding Banknorth.