Banknorth Reports Record Earnings; Net Income Up 10%

Banknorth Group, Inc. (NYSE: BNK) today announced net income of $95.8 million for the second quarter ended June 30, 2004, a 10% increase over net income of $87.5 million for the second quarter of 2003. On a per diluted share basis, net income was 55 cents for the second quarter, up 4% over the same quarter a year ago.

Exclusive of merger and consolidation costs, net income was $98.5 million for the quarter ended June 30, 2004, up 11% from $88.5 million for the second quarter of 2003. On a per share basis, net income exclusive of merger and consolidation costs was 57 cents per diluted share for the quarter ended June 30, 2004 up 6% from 54 cents per diluted share for the quarter ended June 30, 2003.

Banknorth’s net income for the six months ended June 30, 2004 amounted to $186.2 million, a 10% increase over net income of $168.9 million for the six months ended June 30, 2003. On a per diluted share basis, net income for the first half of 2004 was $1.10, which represented a 6% increase over the $1.04 net income per diluted share for the first half of 2003.

“It was a solid quarter all the way around marked by strong loan and deposit growth, successful acquisition integration and tight expense control.” said William J. Ryan, Banknorth Chairman, President and Chief Executive Officer.

Net interest income was $230.1 million in the second quarter of 2004, a 9% increase as compared to $211.6 million of net interest income in the second quarter of 2003.

Noninterest income, excluding gains on sales of securities, increased 5% in the second quarter of 2004 as compared to the second quarter of 2003. Investment planning services income increased 32%, trust and investment management services income increased 24%, merchant and electronic banking income increased 18%, deposit services fees rose 15%, and insurance brokerage commissions were up 12%. These increases were partially offset by a decrease in mortgage banking revenue of $2.7 million during the quarter ended June 30, 2004 as compared to the quarter ended June 30, 2003, and by a decrease in option income of $4.9 million for the same period.

Noninterest expense, excluding prepayment penalties on borrowings in the second quarter of 2003 and merger and consolidation expenses, increased by 5% in the second quarter of 2004 as compared to the second quarter of 2003. Salaries and employee benefits and advertising and marketing expenses both increased by 6% for the quarter ended June 30, 2004 as compared to the quarter ended June 30, 2003. When compared to the first quarter of 2004, noninterest expense, excluding merger and consolidation expenses, increased by just $1.6 million or 1.0%.

Total assets increased by 14% to $29.3 billion at June 30, 2004 up from $25.8 billion at June 30, 2003. Total assets increased by $2.4 billion at June 30, 2004 compared to March 31, 2004, of which $1.8 billion was due to the acquisitions of CCBT Financial Companies, Inc. and Foxborough Savings Bank on April 30, 2004.

Total loans and leases increased by 15% to $18.1 billion at June 30, 2004 from $15.7 billion at June 30, 2003, with commercial real estate loans and commercial business loans and leases both up 18% and consumer loans up 13%. Total loans and leases at June 30, 2004 were 9% higher than the $16.6 billion of total loans and leases at March 31, 2004.

Total deposits at June 30, 2004 were $19.3 billion, 9% higher than at June 30, 2003. Noninterest bearing deposits, principally checking accounts, increased by 24% and money market and NOW accounts increased by 16% while regular savings accounts increased by 6%. Retail certificates of deposit declined by 8%, reflecting the Company’s strategy to allow these higher rate CDs to run off. Total deposits at June 30, 2004 were 8% higher than the $18.0 billion of total deposits at March 31, 2004.

The Company’s net interest margin for the quarter ended June 30, 2004 was 3.66% as compared to 3.71% for the quarter ended June 30, 2003 and 3.68% for the quarter ended March 31, 2004.

Asset quality remained strong and continued positive trends. Non-performing loans decreased by $2.7 million or 4% in the second quarter of 2004 as compared to the first quarter of 2004. As a percentage of total loans, non-performing loans declined to .36% at June 30, 2004, down from .39% at June 30, 2003 and down from .41% at March 31, 2004. As a percentage of total assets, non-performing assets declined to .23% at June 30, 2004 as compared to .25% at June 30, 2003 and .26% at March 31, 2004.

At June 30, 2004, the Company’s Tier 1 leverage capital was 6.75% as compared to 6.36% at June 30, 2003 and 6.84% at March 31, 2004. The Company’s total risk based capital ratio was 10.98% at June 30, 2004 as compared to 10.99% at June 30, 2003 and 11.47% at March 31, 2004.

At June 30, 2004, the Company’s book value per share was $16.61 while tangible book value per share was $8.39. Shareholders’ equity was $2.87 billion at June 30, 2004.

Banknorth also announced today that it has completed the previously-announced acquisition of Drake, Swan & Crocker Insurance Agency of Orleans, Massachusetts.

At June 30, 2004, Banknorth Group, headquartered in Portland, Maine and one of the 30 largest commercial banks in the country, had $29.3 billion in assets. The pending acquisition of BostonFed Bancorp, Inc., expected to close in the first quarter of 2005, is projected to increase Banknorth’s assets by more than $1.5 billion. Banknorth’s banking subsidiary, Banknorth, N.A., operates banking divisions in Connecticut (Banknorth Connecticut); Maine (Peoples Heritage Bank); Massachusetts (Banknorth Massachusetts); New Hampshire (Bank of New Hampshire); New York (Evergreen Bank); and Vermont (Banknorth Vermont). The Company and Banknorth, N.A. also operate subsidiaries and divisions in insurance, money management, merchant services, mortgage banking, government banking and other financial services and offer investment products in association with PrimeVest Financial Services, Inc. The Company’s website is at www.banknorth.com.


Note: This news release contains financial information determined by methods other than in accordance with accounting principles generally accepted in the United States of America (“GAAP”). The Company’s management uses these non-GAAP measures in its analysis of the Company’s performance. These measures typically adjust GAAP performance measures to exclude the effects of charges and expenses related to the consummation of mergers and acquisitions and costs related to the integration of merged entities, as well as the amortization of intangible assets in the case of “cash basis” performance measures. These non-GAAP measures also may exclude other significant gains or losses that are unusual in nature, such as security gains and prepayment penalties. Because these items and their impact on the Company’s performance are difficult to predict, management believes that presentations of financial measures excluding the impact of these items provide useful supplemental information that is essential to a proper understanding of the operating results of the Company’s core businesses. These disclosures should not be viewed as a substitute for operating results determined in accordance with GAAP, nor are they necessarily comparable to non-GAAP performance measures which may be presented by other companies.

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, including information which could affect Banknorth’s forward-looking statements.

# # #