TD Banknorth Reports Fourth Quarter and 2005 Year End Results

(Fourth Quarter Earnings Conference Call at 10:30 a.m. Eastern Time today, January 23, 2006. Dial-in number for USA and Canada is 800-561-2718. International dial-in number is 617-614-3525. Passcode for both numbers is 42132230. Replay number for USA and Canada is 888-286-8010. International replay dial-in number is 617-801-6888. Replay passcode for both is 13680731. Live webcast and webcast replay available at www.tdbanknorth.com, Investor Relations.)

Highlights for the quarter and year include:

• On a per diluted share basis, earnings, excluding the amortization of identifiable intangible assets, merger and consolidation costs and costs associated with the Company’s balance sheet restructuring program, were up 5% in the fourth quarter of 2005 as compared to the fourth quarter of 2004.
  
• Average loans and leases increased by 9% during the fourth quarter of 2005 as compared to the fourth quarter of 2004.
  
• Net interest income was up 8% for the year.
  
• Asset quality remained strong – the percentage of nonperforming loans to total loans was 0.30% at December 31, 2005.

PORTLAND, Maine – TD Banknorth Inc. (“TD Banknorth” or the “Company”) (NYSE: BNK) today announced net income of $55.6 million for the fourth quarter ended December 31, 2005 as compared to net income of $20.7 million for the fourth quarter ended December 31, 2004. On a per diluted share basis, net income was 32 cents for the fourth quarter of 2005 as compared to 12 cents for the same quarter a year ago.

Net income for the year ended December 31, 2005 was $274.0 million as compared to $304.7 million for the year ended December 31, 2004. On a per diluted share basis, earnings for the year ended December 31, 2005 were $1.55 as compared to $1.75 for the same period a year ago.

GAAP earnings were impacted by several items in the fourth quarter of 2005. First, the after-tax impact of the amortization of identifiable intangible assets amounted to $20.0 million for the quarter or 11 cents per diluted share. Second, the after-tax impact of the Company’s previously-announced balance sheet restructuring program amounted to $29.3 million for the quarter or 17 cents per diluted share. Third, the after-tax effects of merger and consolidation costs for the quarter of $3.4 million amounted to 2 cents per diluted share.

Excluding the above items, earnings for the quarter ended December 31, 2005 were $108.1 million, as compared to $106.0 million for the fourth quarter of 2004. On a per diluted share basis excluding the above items, earnings for the fourth quarter of 2005 were 62 cents, up 5% from 59 cents for the same quarter a year ago.

For the year ended December 31, 2005, earnings excluding the after-tax impact of the amortization of identifiable intangible assets, the after-tax effects of merger and consolidation costs, the after-tax effect of the change in unrealized loss on derivatives and charges related to the Company’s deleveraging and balance sheet restructuring strategies were $438.5 million, up 9% from $402.2 million for 2004. On a per diluted share basis excluding the above items earnings for the year ended December 31, 2005 were $2.48, up 7% from $2.31 for the prior year.

“It was a challenging quarter given the continued flattening of the yield curve,” said William J. Ryan, TD Banknorth Chairman, President and Chief Executive Officer. “I believe, however, that we are well positioned for the future and look forward to closing on the Hudson United transaction and expanding our reach into the mid-Atlantic region.”

Average loans and leases increased 9% during the quarter ended December 31, 2005 compared to the same quarter a year ago, including increases of 9% for average commercial real estate mortgages, 8% for average commercial business loans and leases and 15% for average consumer loans and leases, which more than offset a 3% decline in average residential real estate mortgages. Total average loans and leases increased 13% during the year ended December 31, 2005 as compared to 2004. Excluding the impact of acquisitions and purchase accounting, average commercial real estate mortgages, commercial business loans and consumer loans increased 8% for the year ended December 31, 2005 as compared to the prior year.

Securities available for sale at December 31, 2005 of $4.4 billion were 34% lower than at December 31, 2004. As announced on January 10, 2006, the Company implemented a balance sheet restructuring program in the first quarter of 2006 involving the sale of $2.6 billion of mortgage-backed securities with an average effective duration of 4 years and an average yield of 4.70%. The Company intends to use the proceeds to purchase investable assets with shorter durations to help to mitigate the interest rate risk associated with its investment portfolio. The Company recorded a pre-tax loss of approximately $45 million ($29.3 million on an after-tax basis) in the fourth quarter of 2005 in connection with this balance sheet restructuring. Also, it is anticipated that an additional approximately $2.7 billion of securities to be acquired from Hudson United will be sold soon after the completion of the acquisition. The deleveraging will primarily consist of mortgage-backed securities with an effective duration of 3.5 – 4 years and the proceeds will be used to pre-pay certain short-term borrowings.

Average deposits increased 5% during the quarter ended December 31, 2005 as compared to the quarter ended December 31, 2004. During the quarter ended December 31, 2005 average retail certificates of deposit increased 11%, average noninterest bearing deposits increased 6%, average regular savings accounts increased 3%, and average retail money market and NOW accounts increased 1% as compared to the quarter ended December 31, 2004. Total average deposits increased 6% for the year ended December 31, 2005 as compared to 2004, with average noninterest bearing deposits increasing 11%. Excluding acquisitions and the impact of purchase accounting, for the quarter ended December 31, 2005, total average deposits were essentially unchanged as compared to the quarter ended December 31, 2004.

Net interest income was $243 million for the fourth quarter of 2005, essentially flat as compared to the fourth quarter of 2004. For the year ended December 31, 2005, the Company’s net interest income was $997.8 million, up 8% from $927.2 million for the year ended December 31, 2004, due in part to the impact of acquisitions.

The Company’s net interest margin for the quarter ended December 31, 2005 was 3.96% as compared to 3.87% for the quarter ended December 31, 2004 and 4.09% for the quarter ended September 30, 2005. The Company’s net interest margin was negatively impacted as compared to the third quarter of 2005 due primarily to the continued flattening of the yield curve in the fourth quarter of 2005.

The Company’s provision for loan and lease losses amounted to $6.0 million for the quarter ended December 31, 2005, as compared to $10.7 million for the quarter ended December 31, 2004 and $5.5 million for the quarter ended September 30, 2005. The allowance for credit losses to nonperforming loans increased to 381% at December 31, 2005 from 322% for the quarter ended December 31, 2004 and from 369% at September 30, 2005.

Asset quality remained strong during the fourth quarter. As a percentage of total loans and leases, nonperforming loans amounted to 0.30% at December 31, 2005, as compared to 0.42% at December 31, 2004 and 0.32% at September 30, 2005. Total net chargeoffs for the quarter ended December 31, 2005 amounted to $11.3 million as compared to $10.4 million for the same period a year ago and $6.3 million for the quarter ended September 30, 2005. The increase in net chargeoffs in the fourth quarter of 2005 was due, in large part, to increased personal bankruptcies associated with the recent changes to federal bankruptcy laws and to an approximately $3.0 million chargeoff associated with one commercial borrower.

Noninterest income amounted to $60.1 million in the fourth quarter of 2005 as compared to $72.5 million in the fourth quarter of 2004, primarily attributable to the previously-announced pre-tax charge of $45.0 million associated with the Company’s balance sheet restructuring program. For the quarter ended December 31, 2005, excluding net securities gains/losses, adjustments on loans held for sale and changes in unrealized losses on derivatives, noninterest income increased 16% as compared to the same period in 2004 led by increases in noninterest income from deposit services of 24%, merchant and electronic banking income of 14%, and loan fee income of 10%. These increases for the quarter ended December 31, 2005 more than offset declines in insurance brokerage commissions of 9% and investment planning services of 8% as compared to the same period a year ago. For the year ended December 31, 2005, excluding net securities gains/losses, adjustments on loans held for sale and changes in unrealized losses on derivatives, noninterest income increased 13% as compared to the same period in 2004.

Noninterest expense decreased $51.7 million in the fourth quarter of 2005 versus the same period a year ago, largely due to a $61.5 million expense associated with prepayment penalties on borrowings incurred in the fourth quarter of 2004. Excluding the amortization of identifiable intangible assets, merger and consolidation costs and prepayment penalties on borrowings associated with the Company’s deleveraging strategies, noninterest expense increased 9% in the fourth quarter of 2005 as compared to the same period in 2004. For the year ended December 31, 2005, excluding the same items, noninterest expense increased 11% as compared to 2004 due, in large part, to increased operating expenses associated with the acquisition of BostonFed Bancorp in January 2005 and Cape Cod Bank and Trust in April 2004, as well as to increased marketing expenses incurred in 2005.

The Company’s capital ratios remain strong. At December 31, 2005, the Company’s tier 1 leverage capital ratio was 7.06% and its total risk-based capital ratio was 11.72%. At the same date, the Company’s ratio of tangible equity to tangible assets was 5.69%.

As detailed in the accompanying financial information, the Company’s cash return on average tangible assets for the quarter ended December 31, 2005 was 1.60% as compared to 1.55% for the same period a year ago and the Company’s cash return on average tangible equity for the fourth quarter of 2005 was 29.36% as compared to 24.89% for the same period a year ago. For the year ended December 31, 2005, the Company’s cash return on average tangible assets was 1.63% as compared to 1.50% for 2004 while the Company’s cash return on average tangible equity for the year ended December 31, 2005 was 29.32% as compared to 26.08% for the prior year.

On July 12, 2005, the Company announced it had entered into a definitive agreement to acquire Hudson United Bancorp (NYSE: HU) for approximately $1.9 billion in stock and cash. On January 11, 2006, the shareholders of both Hudson United and TD Banknorth approved the acquisition and on January 17, 2006, the Company announced that all regulatory approvals for the acquisition had been received. The transaction is expected to close on January 31, 2006.

As previously announced, the Company’s board of directors has approved the Company’s planned repurchase of up to 8.5 million shares of its common stock in the open market in connection with the acquisition of Hudson United. It is anticipated that share repurchases will commence after the closing of the Hudson United acquisition and occur at such times and at such prices as management deems appropriate.

About TD Banknorth Inc.
TD Banknorth Inc. is a leading banking and financial services company headquartered in Portland, Maine and a majority-owned subsidiary of TD Bank Financial Group. At December 31, 2005, TD Banknorth had $32.1 billion of total consolidated assets and provided financial services to approximately 1.4 million households in the Northeast. TD Banknorth's banking subsidiary, TD Banknorth, N.A., operates banking divisions in Maine, New Hampshire, Massachusetts, Connecticut, Vermont and upstate New York. TD Banknorth and TD Banknorth, N.A. also operate subsidiaries and divisions in insurance, wealth management, merchant services, mortgage banking, government banking and other financial services and offer investment products in association with PrimeVest Financial Services, Inc. The TD Banknorth common stock trades on the New York Stock Exchange under the symbol "BNK". For more information, visit www.tdbanknorth.com.

Notes: 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 securities gains and losses and prepayment penalties incurred in connection with deleveraging strategies. 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 TD Banknorth. Words such as “expect”, “feel”, “believe”, “will”, “may”, “anticipate”, “plan”, “estimate”, “intend”, “should” and similar expressions are intended to identify forward-looking statements. 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 TD 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 TD Banknorth’s periodic reports filed with the Securities and Exchange Commission for financial and business information regarding TD Banknorth, including information which could affect TD Banknorth’s forward-looking statements. TD Banknorth does not undertake any obligation to update these forward-looking statements to reflect events or circumstances that occur after the date on which such statements were made.

On May 16, 2005, the Company announced that it had adopted purchase accounting to account for TD Bank Financial Group’s acquisition of a majority interest in the Company on March 1, 2005. To most accurately reflect the application of purchase accounting, the accompanying financial statements use the term “predecessor” to refer to the results of Banknorth Group, Inc., the predecessor entity to TD Banknorth Inc., at the dates and for the periods ending on or prior to February 28, 2005, which are based on historical accounting, and the term “successor” to refer to the results of TD Banknorth Inc. at the dates and for the periods beginning on or after March 1, 2005, which are based on the application of purchase accounting. To assist in the comparability of the Company’s financial results and to make it easier to discuss and understand these results, the financial information discussed herein and presented in the accompanying financial statements combine the “predecessor period” January 1, 2005 to February 28, 2005 with the applicable “successor period” thereafter. Due to the application of purchase accounting as of March 1, 2005, results for the combined periods may not be comparable to the results for the respective predecessor periods. For a detailed discussion of the impact of purchase accounting on the Company’s balance sheet and income statement, reference is made to the Company’s first quarter 2005 earnings release dated May 16, 2005.

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