Edgar Filing: TD BANKNORTH INC.

TD BANKNORTH INC. FORM 10-Q

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q


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

For the Quarterly Period Ended September 30, 2005


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

Commission File Number: 000-51179

TD BANKNORTH INC.

(Exact name of Registrant as specified in its charter)


Delaware		01-0437984

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

Two Portland Square, Portland, Maine		04112

(Address of principal executive offices)		(Zip Code)

(207) 761-8500

(Registrant’s telephone number, including area code)

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

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

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes o No þ

The number of shares outstanding of the Registrant’s common stock as of October 31, 2005 is:


Common stock, par value $.01 per share		173,625,374
(Class)		(Outstanding)

Available on the Web @ www.tdbanknorth.com

INDEX
TD BANKNORTH INC. AND SUBSIDIARIES


			PAGE
PART I.	FINANCIAL INFORMATION

	Item 1.	Financial Statements

		Consolidated Balance Sheets		3

		Consolidated Statements of Income		4

		Consolidated Statements of Changes in Shareholders’ Equity		5

		Consolidated Statements of Cash Flows		6

		Notes to Consolidated Financial Statements		7

	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		20

	Item 3.	Quantitative and Qualitative Disclosures about Market Risk		53

	Item 4.	Controls and Procedures		54

PART II.	OTHER INFORMATION

	Item 1.	Legal Proceedings		54

	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		54

	Item 3.	Defaults Upon Senior Securities		54

	Item 4.	Submission of Matters to a Vote of Security Holders		54

	Item 5.	Other Information		54

	Item 6.	Exhibits		55

	Signatures			55

	Exhibits			56
EX-31.1 SECTION 302 CERTIFICATION OF C.E.O.
EX-31.2 SECTION 302 CERTIFICATION OF C.F.O.
EX-32.1 SECTION 906 CERTIFICATION OF C.E.O.
EX-32.2 SECTION 906 CERTIFICATION OF C.F.O.

TD BANKNORTH INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(In thousands, except share data) (Unaudited)


	Successor			Predecessor
	September 30, 2005			December 31, 2004
Assets
Cash and due from banks	$	741,983		$	541,994
Federal funds sold and other short-term investments		7,576			2,312
Securities available for sale		4,410,425			6,728,523
Securities held to maturity (fair value of $69,358 and $87,507 at September 30, 2005 and December 31, 2004, respectively)		69,021			87,013
Loans held for sale		45,989			51,693
Loans and leases:
Residential real estate mortgages		3,048,411			3,081,217
Commercial real estate mortgages		6,716,035			6,249,513
Commercial business loans and leases		4,178,327			3,928,594
Consumer loans and leases		6,028,411			5,333,670

Total loans and leases		19,971,184			18,592,994
Less: Allowance for loan and lease losses		228,334			243,152

Net loans and leases		19,742,850			18,349,842

Premises and equipment, net		313,151			300,120
Goodwill		4,549,355			1,365,780
Identifiable intangible assets		696,401			50,376
Bank-owned life insurance		566,836			523,129
Other assets		671,659			687,028

Total assets	$	31,815,246		$	28,687,810


Liabilities and Shareholders’ Equity
Deposits:
Savings accounts	$	2,630,947		$	2,546,018
Money market and NOW accounts		8,398,406			7,907,513
Certificates of deposit		4,863,471			4,484,370
Brokered deposits		61,576			576
Noninterest-bearing deposits		4,668,178			4,289,104

Total deposits		20,622,578			19,227,581
Short-term borrowings		2,953,151			3,729,252
Long-term debt		1,273,197			2,261,453
Deferred tax liability on identifiable intangible assets		258,017			17,632
Other liabilities		244,680			275,778

Total liabilities		25,351,623			25,511,696


Commitments and contingencies

Shareholders’ Equity:
Preferred stock (par value $0.01 per share, 5,000,000 shares authorized, none issued)		—			—
Common stock (par value $0.01 per share, 400,000,000 shares authorized, Issued - 188,426,630 in 2005 and 191,672,502 in 2004)		1,884			1,917
Common stock, Class B (par value $0.01 per share, authorized and issued 1 share in 2005)		—			—
Paid-in capital		6,833,956			1,763,572
Retained earnings		135,128			1,677,802
Unearned compensation		(1,506	)		—
Treasury stock, at cost (14,811,269 shares in 2005 and 12,374,515 shares in 2004)		(470,592	)		(265,020	)
Accumulated other comprehensive loss		(35,247	)		(2,157	)

Total shareholders’ equity		6,463,623			3,176,114

Total liabilities and shareholders’ equity	$	31,815,246		$	28,687,810

See accompanying notes to unaudited Consolidated Financial Statements.

TD BANKNORTH INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

(In thousands, except per share data) (Unaudited)


	Successor			Predecessor		Successor			Predecessor			Predecessor
	Three Months Ended			Three Months Ended		March 1, 2005 to			January 1, 2005 to			Nine Months Ended
	September 30, 2005			September 30, 2004		September 30, 2005			February 28, 2005			September 30, 2004

Interest and dividend income:
Interest and fees on loans and leases	$	299,148		$	240,776	$	683,631		$	176,949		$	682,085
Interest and dividends on securities		51,531			82,902		125,012			51,183			240,863

Total interest and dividend income		350,679			323,678		808,643			228,132			922,948


Interest expense:
Interest on deposits		61,453			40,122		124,328			30,694			118,454
Interest on borrowed funds		40,229			45,579		94,736			32,654			121,386

Total interest expense		101,682			85,701		219,064			63,348			239,840


Net interest income		248,997			237,977		589,579			164,784			683,108
Provision for loan and lease losses		5,500			10,670		10,097			1,069			29,670

Net interest income after provision for loan and lease losses		243,497			227,307		579,482			163,715			653,438


Noninterest income:
Deposit services		34,558			27,583		76,134			18,359			80,995
Insurance agency commissions		12,216			12,417		31,460			8,252			38,431
Merchant and electronic banking income, net		15,824			13,723		35,914			7,751			37,196
Wealth management services		10,662			10,280		24,602			6,959			29,300
Bank-owned life insurance		5,994			5,732		14,029			4,169			17,503
Investment planning services		4,708			4,634		12,044			2,815			14,619
Net securities gains (losses)		1,014			3,124		(1,474	)		(46,548	)		10,060
Loans held for sale — Lower of cost or market adjustment		—			—		386			(7,500	)		—
Change in unrealized loss on derivatives		(711	)		—		5,954			—			—

Other noninterest income		19,342			15,703		44,091			9,104			45,314

		103,607			93,196		243,140			3,361			273,418


Noninterest expense:
Compensation and employee benefits		102,059			91,935		240,046			67,977			266,473
Occupancy		17,114			15,866		41,670			11,411			47,274
Equipment		12,831			12,074		30,210			8,440			35,777
Data processing		11,675			11,118		27,094			7,233			31,573
Advertising and marketing		7,503			6,278		17,911			4,373			20,105
Amortization of identifiable intangible assets		31,041			2,379		72,632			1,561			6,367
Merger and consolidation costs		1,163			5,603		10,458			27,264			11,351
Prepayment penalties on borrowings		—			—		3			6,300			—
Other noninterest expense		28,343			28,945		64,701			15,887			78,822

		211,729			174,198		504,725			150,446			497,742


Income before income tax expense		135,375			146,305		317,897			16,630			429,114
Provision for income taxes		46,634			48,534		109,931			6,182			145,169

Net income	$	88,741		$	97,771	$	207,966		$	10,448		$	283,945


Basic earnings per share	$	0.51		$	0.56	$	1.18		$	0.06		$	1.68

Diluted earnings per share	$	0.51		$	0.55	$	1.17		$	0.06		$	1.65

Weighted average shares outstanding:
Basic		173,661			173,271		176,822			184,964			168,646
Dilutive effect of stock options		737			3,485		1,036			1,783			3,555

Diluted		174,398			176,756		177,858			186,747			172,201

See accompanying notes to unaudited Consolidated Financial Statements.

TD BANKNORTH INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
(In thousands) (Unaudited)


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

Balances at December 31, 2004 (Predecessor)		179,298		$	1,917	$	1,763,572		$	1,677,802		$	—		$	(265,020	)	$	(2,157	)	$	3,176,114

Net income		—			—		—			10,448			—			—			—			10,448
Unrealized gains (losses) on securities, net of reclassification adjustment and net of tax		—			—		—			—			—			—			2,463			2,463
Unrealized gains (losses) on cash flow hedges, net of reclassification adjustment and net of tax		—			—		—			—			—			—			(7,714	)		(7,714	)

Comprehensive income																						5,197

Common stock issued for acquisitions		6,152			61		199,764			—			—			—			—			199,825

Treasury stock issued for employee benefit plans, including tax benefit of $16.0 million		2,978			—		7,489			—			—			63,879			—			71,368

Cash dividends declared ($0.20 per share)		—			—		—			(37,383	)		—			—			—			(37,383	)


Balances at February 28, 2005 (Predecessor)		188,428		$	1,978	$	1,970,825		$	1,650,867		$	—		$	(201,141	)	$	(7,408	)	$	3,415,121


Balances at March 1, 2005 (Successor)		188,428		$	1,884	$	6,836,487		$	—		$	(2,256	)	$	—		$	—		$	6,836,115

Net income		—			—		—			207,966			—			—			—			207,966
Unrealized gains (losses) on securities, net of reclassification adjustment and net of tax		—			—		—			—			—			—			(25,680	)		(25,680	)
Unrealized gains (losses)on cash flow hedges, net of reclassification adjustment and net of tax		—			—		—			—			—			—			(9,567	)		(9,567	)

Comprehensive income (loss)																						172,719

Treasury stock issued for employee benefit plans, including tax benefit of $0.9 million		487			—		(2,531	)		—			—			15,816			—			13,285

Treasury stock purchased		(15,300	)		—		—			—			—			(486,408	)		—			(486,408	)

Decrease in unearned compensation		—			—		—			—			750			—			—			750

Cash dividends declared ($0.42 per share)		—			—		—			(72,838	)		—			—			—			(72,838	)


Balances at September 30, 2005 (Successor)		173,615		$	1,884	$	6,833,956		$	135,128		$	(1,506	)	$	(470,592	)	$	(35,247	)	$	6,463,623


Balances at December 31, 2003 (Predecessor)		162,188		$	1,823	$	1,435,005		$	1,508,292		$	—		$	(430,608	)	$	6,007		$	2,520,519

Net income		—			—		—			283,945			—			—			—			283,945
Unrealized gains (losses) on securities, net of reclassification adjustment and net of tax		—			—		—			—			—			—			(18,030	)		(18,030	)
Unrealized gains on cash flow hedges, net of reclassification adjustment and net of tax		—			—		—			—			—			—			(72	)		(72	)

Comprehensive income																						265,843

Common stock issued for acquisitions		9,381			94		304,156			—			—			—			—			304,250

Treasury stock issued for employee benefit plans, including tax benefit of $11.7 million		2,454			—		2,924			—			—			52,599			—			55,523

Cash dividends declared ($0.59 per share)		—			—		—			(99,893	)		—			—			—			(99,893	)


Balances at September 30, 2004 (Predecessor)		174,023		$	1,917	$	1,742,085		$	1,692,344		$	—		$	(378,009	)	$	(12,095	)	$	3,046,242

See accompanying notes to unaudited Consolidated Financial Statements.

TD BANKNORTH INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands) (Unaudited)


	Successor			Predecessor			Predecessor
	March 1, 2005 to			January 1, 2005 to			Nine Months Ended
	September 30, 2005			February 28, 2005			September 30, 2004
Cash flows from operating activities:
Net income	$	207,966		$	10,448		$	283,945
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan and lease losses		10,097			1,069			29,670
Depreciation of banking premises and equipment		28,284			7,807			32,845
Net amortization of premium and discounts		6,835			3,703			19,027
Amortization of intangible assets		72,632			1,561			6,367
(Benefit from) provision for deferred tax expense		(10,500	)		2,000			9,600
Unearned compensation		750			—			—
Net losses (gains) realized from sales of securities and loans		44			46,548			(11,576	)
Lower of cost or market adjustment on loans held for sale		—			7,500			—
Prepayment penalties on borrowings		—			6,300			—
Net losses (gains) realized from sales of loans held for sale		7,113			(616	)		(2,682	)
Increase in cash surrender value of bank owned life insurance		(12,186	)		(4,169	)		(17,503	)
Proceeds from sales of loans held for sale		805,649			72,258			373,211
Residential loans originated and purchased for sale		(304,297	)		(58,800	)		(368,672	)
Change in fair value on derivatives		(4,788	)		—			—
Net decrease (increase) in other assets		31,092			47,443			(25,393	)
Net increase (decrease) in other liabilities		23,133			(42,559	)		37,004

Net cash provided by operating activities		861,824			100,493			365,843


Cash flows from investing activities:
Proceeds from sales of securities available for sale		662,100			83,271			2,164,935
Proceeds from sales of securities as part of deleveraging program		377,907			2,461,701			—
Proceeds from maturities and principal repayments of securities available for sale		602,520			190,117			1,025,960
Purchases of securities available for sale		(1,301,788	)		(969,979	)		(3,133,987	)
Proceeds from maturities and principal repayments of securities held to maturity		13,322			4,670			30,214
Net increase in loans and leases		(570,931	)		(222,430	)		(1,103,017	)
Proceeds from sales of portfolio loans		167,297			—			37,097
Net (additions) decrease to premises and equipment		(31,167	)		798			(22,271	)
Proceeds from policy coverage on bank-owned life insurance		—			141			—
Cash paid for acquisitions, net of cash acquired		—			130,685			49,061

Net cash (used in) provided by investing activities		(80,740	)		1,678,974			(952,008	)


Cash flows from financing activities:
Net increase (decrease) in deposits		477,639			(160,662	)		289,186
Net (decrease) increase in short-term borrowings		(360,889	)		2,102,739			904,380
Payments on short-term borrowings as part of deleveraging program		(374,491	)		(1,461,701	)		—
Proceeds from long-term debt		230,637			8,467			1,692
Payments on long-term debt		(206,097	)		(474,664	)		(301,183	)
Payments on long-term debt as part of deleveraging program		—			(1,006,300	)		—
Treasury stock issued for employee benefit plans		13,285			71,368			55,523
Purchase of treasury stock		(486,408	)		—			—
Cash dividends paid to shareholders		(72,838	)		(37,383	)		(99,893	)


Net cash (used in) provided by financing activities		(779,162	)		(958,136	)		849,705


Increase in cash and cash equivalents		1,922			821,331			263,540
Cash and cash equivalents at beginning of period		747,637			(73,694	)		316,331

Cash and cash equivalents at end of period	$	749,559		$	747,637		$	579,871


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	$	27,924,518		$	1,469,630		$	1,804,566
Fair value of liabilities assumed		25,626,026			1,422,658			1,417,562

Interest paid	$	213,372		$	68,238		$	233,017
Income taxes paid (received)		62,767			(779	)		102,118

See accompanying notes to unaudited Consolidated Financial Statements.

TD BANKNORTH INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

September 30, 2005

(In thousands, except per share data and as noted) (Unaudited)

Note 1 — Basis of Presentation

We, TD Banknorth Inc., are a bank/financial holding company under the Bank Holding Company Act of 1956, as amended, which conducts business through TD Banknorth, National Association (“TD Banknorth, NA”) and various nonbanking subsidiaries. We are a majority-owned subsidiary of The Toronto-Dominion Bank (“TD”) and successor to Banknorth Group, Inc. TD acquired its majority interest in us effective March 1, 2005 in a two-step transaction in which Banknorth Group, Inc. first reincorporated from Maine to Delaware by means of a migratory merger into a newly-formed, wholly-owned Delaware subsidiary of Banknorth Group, Inc., and then TD acquired its majority interest in us by means of the merger of a newly-formed, wholly-owned subsidiary of TD with and into this reincorporated entity, which changed its name to “TD Banknorth Inc.” upon completion of the transaction. In accordance with the guidelines for accounting for business combinations, the transaction met the technical definition of a business combination, and therefore, was accounted for as a purchase business combination with the purchase price being comprised of all the consideration received by the shareholders of Banknorth Group, Inc., namely:

	•		cash paid by TD,

	•		the value of TD common shares issued and

	•		the value of TD Banknorth Inc. shares issued.

The purchase price and related purchase accounting adjustments have been recorded in our financial statements at and for the periods commencing March 1, 2005. This resulted in a new basis of accounting reflecting the fair value of our assets and liabilities at March 1, 2005 and for the “successor” periods beginning on March 1, 2005. Information for all dates and “predecessor” periods prior to the acquisition on March 1, 2005 is presented using our historical basis of accounting. Although the TD transaction was consummated as of the close of business on March 1, 2005, for practical considerations all purchase accounting and fair value adjustments were calculated based on February 28, 2005 month-end balances and the results of operations for March 1, 2005 are included in the successor period. Had the purchase accounting and fair value adjustments been calculated based on March 1, 2005 end of day balances, the adjustments would have been substantially the same as those calculated based on February 28, 2005 month- end balances.

The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America and predominant practices within the banking industry. In prior filings, we have included federal funds purchased as part of cash and cash equivalents. We no longer include these funds as cash and cash equivalents for cash flow reporting purposes. Except as noted above, we have not changed our significant accounting and reporting policies from those disclosed in our 2004 Annual Report on Form 10-K. There have been no significant changes in the methods or assumptions used in the accounting policies requiring material estimates and assumptions.

In the opinion of management, all adjustments (consisting of normal recurring accruals) necessary for a fair statement of the unaudited consolidated financial statements have been included herein. The results of operations for the interim periods of 2005 presented herein are not necessarily indicative of the results that may be expected for any other interim period or the year ending December 31, 2005. Certain amounts in the prior periods have been reclassified to conform to the current presentation. All significant intercompany balances and transactions have been eliminated in the accompanying unaudited consolidated financial statements.

Note 2 — Accounting for the Transaction with The Toronto-Dominion Bank

As discussed in Note 1, the transaction with TD was accounted for as a purchase business combination and, as a result, the assets and liabilities of the predecessor company were adjusted to fair value as of the date of completion of the transaction. The following table sets forth how the purchase price was allocated to the assets and liabilities assumed based on their estimated fair values at the March 1, 2005 transaction date.


Implied Purchase Price
Value of TD common shares exchanged (1)	$	1,806,535
Cash consideration (including cash in lieu of fractional shares)		2,306,947
Value of 49% of TD Banknorth shares exchanged (2)		2,686,802
Fair value of TD Banknorth stock options		35,831

Total implied purchase price		6,836,115


Allocation of the Implied Purchase Price
Predecessor stockholders’ equity as of March 1, 2005		3,415,121
Predecessor goodwill and intangible assets		(1,565,293	)
Adjustments to reflect assets acquired and liabilities assumed at fair value:
Loans		109,630
Loan relationship intangibles		95,826
Core deposit intangibles		566,000
Other identifiable intangibles		105,612
Deferred income taxes on identifiable intangible assets		(272,056	)
Other assets		12,172
Fixed maturity deposits		(46,790	)
Borrowings		(59,731	)
Pension and post-employment benefit plans		(93,546	)
Other liabilities		31,547

Fair value of net assets acquired		2,298,492


Estimated goodwill from the transaction at March 1, 2005		4,537,623
Adjustments recorded subsequent to March 1, 2005.		11,732

Goodwill at September 30, 2005	$	4,549,355


(1)		Based on 188,428,501 Banknorth shares times exchange ratio of 0.2351 times $40.78, the closing price of the TD common shares on March 1, 2005.

(2)		Based on 188,428,501 Banknorth shares times 49% times $29.10, the opening price of the TD Banknorth common stock on March 2, 2005.

The primary adjustments since March 1, 2005 related to a higher tax rate used to estimate the deferred tax liability on purchase accounting adjustments. TD Banknorth expects that additional adjustments of the estimated fair values assigned to the assets acquired and liabilities assumed may be recorded in future periods, although such adjustments are not expected to be significant. It is expected that none of the goodwill will be deductible for income tax purposes.

Note 3 — Acquisitions

Acquisitions are an important part of our strategic plan. The following table summarizes bank acquisitions completed since January 1, 2004. The acquisitions were accounted for as purchases and, as such, were included in our results of operations from the date of acquisition.


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

BostonFed Bancorp, Inc.		1/21/2005	$	1,467.8	$	102.7	$	138.2	$	13.2	$	0.3		6.2	$	200.2
CCBT Financial Companies, Inc.		4/30/2004		1,292.9		108.5		175.5		19.4		—		9.2		298.1
Foxborough Savings Bank		4/30/2004		241.8		22.8		61.6		2.2		88.9		—		88.9

On January 21, 2005, we acquired BostonFed Bancorp, Inc. (“BostonFed”) for a total purchase price of $200.2 million. The purchase price was comprised of 6,154,155 shares of our common stock and $0.3 million in cash. The total value of the shares issued was $199.9 million, calculated based on the average closing price of our common stock for the period commencing two trading days before, and ending two trading days after, June 21, 2004, the date of the merger agreement. The purchase price was allocated to the fair value of the assets acquired ($1.5 billion), liabilities assumed ($1.4 billion), identifiable intangible assets ($13.2 million) and goodwill ($138.2 million).

Purchase accounting adjustments on all acquisitions prior to March 1, 2005 have been superseded by the purchase accounting adjustments recorded in connection with the March 1, 2005 transaction with TD.

Note 4 — Stock Compensation Plans

Statement of Financial Accounting Standards (“SFAS”) No. 123, “Accounting for Stock-Based Compensation,” encourages all entities to adopt a fair value based method of accounting for employee stock compensation plans, whereby compensation cost is measured at the grant date based on the fair value of the award and is recognized over the service period, which is usually the vesting period. However, it also allows an entity to continue to measure compensation cost for stock option plans using the intrinsic value based method of accounting prescribed by APB Opinion No. 25, “Accounting for Stock Issued to Employees,” whereby compensation cost is the excess, if any, of the quoted market price of the underlying stock at the grant date (or other measurement date) over the amount an employee must pay to acquire the stock upon exercise of the stock option. We have elected to continue using the intrinsic value method in APB Opinion No. 25 and, as a result, must make proforma disclosures of net income and earnings per share as if the fair value based method of accounting had been applied. The proforma disclosures include the effects of accelerated vesting of stock options in connection with the TD transaction and all other awards granted and the effects of our employee stock purchase plan. Had we determined compensation cost based on the fair value at the grant date for all stock options and recorded expense related to our employee stock purchase plan under SFAS No. 123, our net income and earnings per share would have been reduced to the proforma amounts indicated in the table below.


	Successor			Predecessor			Successor			Predecessor			Predecessor
	Three Months Ended			Three Months Ended			March 1, 2005 to			January 1, 2005 to			Nine Months Ended
	September 30, 2005			September 30, 2004			September 30, 2005			February 28, 2005			September 30, 2004
Net income, as reported	$	88,741		$	97,771		$	207,966		$	10,448		$	283,945
Deduct total stock-based employee compensation expense determined under fair value based method, net of related tax effects:
Effect of accelerated vesting of stock options in connection with the TD transaction		—			—			—			(9,293	)		—
All other		(815	)		(4,141	)		(1,847	)		(2,159	)		(12,670	)

Proforma net income (loss)	$	87,926		$	93,630		$	206,119		$	(1,004	)	$	271,275

Earnings per share
Basic — As reported	$	0.51		$	0.56		$	1.18		$	0.06		$	1.68
Proforma	$	0.51		$	0.54		$	1.17		$	(0.01	)	$	1.61
Diluted — As reported	$	0.51		$	0.55		$	1.17		$	0.06		$	1.65
Proforma	$	0.50		$	0.53		$	1.16		$	(0.01	)	$	1.57

Stock option awards granted after March 1, 2005 were valued using an expected volatility of 13% and life of 7.5 years, as compared to a weighted average expected volatility of 32% and life of 5.0 years used in valuing stock option awards granted in 2004. The 13% volatility was determined based on actual stock price volatility since March 15, 2005, a date shortly after the sale of a majority interest in the Company to TD, and represents our best estimate of expected volatility over the expected life of the options. The 7.5-year life was determined based on historical exercise patterns and current expectations on stock price volatility.

In addition to stock options, TD Banknorth has several restricted stock and restricted stock unit plans. Most restricted stock unit plans will be settled in cash and will vest three years from the date of grant. TD Banknorth recorded $3.7 million of compensation expense related to these grants during the three months ended September 30, 2005 and $9.2 million of expense, of which $857 thousand was merger-related, for the period March 1, 2005 to September 30, 2005.

Note 5 — Securities Available for Sale

The following table presents the fair value of investments with continuous unrealized losses for less than one year and more than one year at September 30, 2005.


	Successor
	Less than one year							More than one year						Total
	Number of		Fair		Unrealized			Number of		Fair		Unrealized		Number of		Fair		Unrealized
	Investments		Value		Losses			Investments		Value		Losses		Investments		Value		Losses

U. S. Government obligations and obligations of U.S.Government agencies and corporations		5	$	2,222	$	(15	)		—	$	—	$	—		5	$	2,222	$	(15	)
Tax exempt bonds and notes		161		129,588		(697	)		—		—		—		161		129,588		(697	)
Other bonds and notes		75		120,297		(914	)		—		—		—		75		120,297		(914	)
Mortgage-backed securities		851		3,650,562		(37,444	)		—		—		—		851		3,650,562		(37,444	)
Collateralized mortgage obligations		27		256,487		(1,836	)		—		—		—		27		256,487		(1,836	)
Equity securities		12		347		(51	)		—		—		—		12		347		(51	)

		1,131	$	4,159,503	$	(40,957	)		—	$	—	$	—		1,131	$	4,159,503	$	(40,957	)

As a result of the TD transaction and related purchase accounting adjustments recorded on March 1, 2005, all unrealized gains and/or losses on investment securities were reclassified as basis adjustments of the individual securities at March 1, 2005. Accordingly, at September 30, 2005 there were no unrealized losses in a continuous unrealized loss position for more than seven months.

For securities with unrealized losses, the following information was considered in determining that the impairments are not other-than-temporary. U.S. Government securities are backed by the full faith and credit of the United States and therefore bear nominal credit risk. U.S. Government agencies securities are believed by management to have minimal credit risk as they play a vital role in the nation’s financial markets. Other bonds and notes are generally comprised of corporate securities having a credit rating of at least investment grade by one of the nationally recognized rating agencies. Mortgage-backed securities or collateralized mortgage obligations are either issued by federal government agencies or by private issuers with security ratings of at least AA.

At September 30, 2005, U.S. Government obligations and obligations of U.S. Government agencies and corporations included five securities which had unrealized losses; three of which were U.S. Treasury notes and two of which were Small Business Administration debentures. Market value declines were due to changes in interest rates since the date of purchase.

In June 2005, $171.2 million of investments in the restricted stock of the Federal Home Loan Bank and the Federal Reserve Bank were reclassified from securities available for sale to other assets. The classification of these investments as other assets is consistent with the reporting requirements of our principal banking regulators. All prior periods presented have been adjusted to conform to the current presentation.

Note 6 — Goodwill and Other Intangible Assets

The following table sets forth the carrying amount of goodwill and identifiable intangible assets during the periods indicated.


				Identifiable Intangibles
				Core Deposit
	Goodwill			Intangibles			Other			Total
Balance, December 31, 2004 (Predecessor)	$	1,365,780		$	43,723		$	6,653		$	50,376
Recorded during the period		140,006			13,172			—			13,172
Amortization expense		—			(1,237	)		(324	)		(1,561	)
Adjustments of purchase accounting estimates		(2,479	)		—			—			—

Balance, February 28, 2005 (Predecessor)		1,503,307			55,658			6,329			61,987
Reversal of prior intangibles in connection with the TD transaction		(1,503,307	)		(55,658	)		(6,329	)		(61,987	)
Recorded in connection with the TD transaction		4,537,623			566,000			201,438			767,438

Balance, March 1, 2005 (Successor)		4,537,623			566,000			201,438			767,438
Amortization expense		—			(62,412	)		(10,220	)		(72,632	)
Change in deferred tax rate on intangible assets		11,859			—			—			—
Adjustments of purchase accounting estimates		(127	)		—			1,595			1,595

Balance, September 30, 2005 (Successor)	$	4,549,355		$	503,588		$	192,813		$	696,401


Estimated Annual Amortization Expense:
Remaining 2005		—		$	26,745		$	4,144		$	30,889
2006		—			96,167			16,134			112,301
2007		—			74,833			15,403			90,236
2008		—			61,833			14,354			76,187
2009		—			51,667			13,723			65,390
thereafter		—			192,343			129,055			321,398

The following table sets forth the components of identifiable intangible assets at September 30, 2005.


	Successor
	September 30, 2005
	Gross Carrying		Accumulated		Net Carrying
	Amount		Amortization		Amount
Identifiable intangible assets:
Core deposit intangibles	$	566,000	$	62,412	$	503,588
Loan relationship intangibles		95,826		3,192		92,634
Other identifiable intangibles		107,207		7,028		100,179

Total	$	769,033	$	72,632	$	696,401

At September 30, 2005, there was a total of $258 million of deferred tax liabilities related to identifiable intangible assets. Both the identifiable intangible assets and related deferred tax liabilities increased significantly on March 1, 2005 due to the purchase accounting adjustments recorded in connection with the TD transaction.

Note 7 — Short-term Borrowings

Short-term borrowings are all borrowings with an original maturity of one year or less. The following table sets forth short-term borrowings at the dates indicated.


	Successor		Predecessor
	September 30, 2005		December 31, 2004
Securities sold under agreements to repurchase — retail	$	1,454,087	$	1,165,905
Federal funds purchased		1,064,920		618,000
Treasury, tax and loan notes		34,144		375,347
Federal Home Loan Bank advances		400,000		1,570,000

	$	2,953,151	$	3,729,252

Note 8 — Long-term Debt

The following table sets forth long-term debt (debt with original maturities of more than one year) at the dates indicated.


	Successor		Predecessor
	September 30, 2005		December 31, 2004
Federal Home Loan Bank advances	$	158,112	$	428,825
Securities sold under agreements to repurchase — wholesale		—		1,100,000
Securities sold under agreements to repurchase — retail		132,331		68,571
Junior subordinated debentures issued to affiliated trusts		368,796		310,746
Subordinated debt due 2011		226,406		200,000
Subordinated debt due 2022		232,218		—
Senior notes 3.75%, due 2008		148,790		149,810
Hedge-related basis adjustments on long-term debt		—		(4,420	)
Other long-term debt		6,544		7,921

Total	$	1,273,197	$	2,261,453

Borrowings callable by the lender amounted to $95.0 million and $105.0 million at September 30, 2005 and December 31, 2004, respectively.

In September 2005, TD Banknorth, NA, a wholly-owned subsidiary of TD Banknorth, Inc., issued subordinated notes denominated in Canadian currency totaling $270 million, bearing a fixed rate of 4.644% until 2017 and maturing in 2022. Simultaneous with this issuance, TD Banknorth, NA entered into a cross currency swap agreement with TD to synthetically convert the notes into $228.6 million U.S. with a fixed rate of 5.05% for the initial 12-year period . Thereafter, interest will be payable quarterly at the Canadian Bankers Acceptance Rate plus 100 basis points.

Note 9 — Comprehensive Income

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


	Successor								Predecessor
	Three Months Ended								Three Months Ended
	September 30, 2005								September 30, 2004
	Pre-tax			Tax		Net of			Pre-tax			Tax			Net of
	Amount			Effect		Tax			Amount			Effect			Tax

Change in:
Unrealized gain (loss) on securities available for sale		($64,609	)	$	22,613		($41,996	)	$	126,350			($44,224	)	$	82,126
Unrealized gain (loss) on cash flow hedges		(3,801	)		2,626		(1,175	)		(1,391	)		487			(904	)
Reclassification adjustment for losses (gains) realized in net income		(35,609	)		12,463		(23,146	)		(1,949	)		682			(1,267	)

Net change in unrealized gains (losses)		($104,019	)	$	37,702		($66,317	)	$	123,010			($43,055	)	$	79,955


	Successor									Predecessor									Predecessor
	March 1, 2005 to									January 1, 2005 to									Nine Months Ended
	September 30, 2005									February 28, 2005									September 30, 2004
	Pre-tax			Tax			Net of			Pre-tax			Tax			Net of			Pre-tax			Tax		Net of
	Amount			Effect			Tax			Amount			Effect			Tax			Amount			Effect		Tax

Change in:
Unrealized gain (loss) on securities available for sale		($40,983	)	$	14,344			($26,639	)		($42,769	)	$	14,975			($27,794	)		($17,681	)	$	6,189		($11,492	)
Unrealized gain (loss) on cash flow hedges		49,378			(17,282	)		32,096			(7,851	)		(48	)		(7,899	)		(1,243	)		435		(808	)
Reclassification adjustment for losses (gains) realized in net income		(62,621	)		21,917			(40,704	)		46,834			(16,392	)		30,442			(8,926	)		3,124		(5,802	)

Net change in unrealized gains (losses)		($54,226	)	$	18,979			($35,247	)		($3,786	)		($1,465	)		($5,251	)		($27,850	)	$	9,748		($18,102	)

Note 10 — Allowance for Loan and Lease Losses

In connection with the TD transaction, and in accordance with American Institute of Certified Public Accountants Statement of Position (“SOP”) 03-3, “Accounting for Certain Loans or Debt Securities Acquired in a Transfer,” on March 1, 2005 $21.4 million of the allowance for loan and lease losses related to impaired commercial real estate and commercial business loans was transferred out of the allowance for loan and lease losses and applied to reduce the carrying value of the impaired loans.

The loans acquired by TD Banknorth that are within the scope of SOP 03-3 are not accounted for using the income recognition model of the SOP because the timing of cash flows expected to be collected can not be reasonably estimated. Therefore, no accretable yield was recorded at the date of acquisition. Income is recognized on the cost recovery method in connection with these loans.

The following table summarizes acquired impaired loans at September 30, 2005:


Contractually required principal payments receivable at March 1, 2005	$	84,078
Cash flows expected to be collected at March 1, 2005		42,925
Basis in acquired loans at March 1, 2005		42,925
Carrying value of loans at September 30, 2005		15,829

Note 11 — Balance Sheet Deleveraging

Coincident with the TD transaction, TD Banknorth implemented a balance sheet deleveraging program under which $2.9 billion of investment securities were sold and the proceeds from these sales were used to prepay borrowings. In addition, single-family residential mortgage loans with a carrying value of $519 million were reclassified to Loans Held for Sale in February 2005 and were sold in the second quarter of 2005, with the servicing being retained by TD Banknorth. These deleveraging transactions resulted in a $50.2 million pre-tax loss on sale of securities, a $7.1 million pre-tax loss to record the single-family residential mortgage loans at the lower of cost or market value and a $6.3 million pre-tax charge for prepayment penalties on borrowings.

In connection with the deleveraging program, TD Banknorth entered into interest rate swap agreements with an aggregate notional amount of $2.2 billion. These agreements were designed to synthetically convert variable rate loans to fixed-rate assets. At March 31, 2005, a total of $1.0 billion of these agreements were designated to hedge the cash flows associated with prime-based home equity lines of credit and accounted for as cash flow hedges, while $1.2 billion of these agreements were undesignated and accounted for as trading derivatives. On April 21, 2005, these $1.2 billion undesignated interest rate swap agreements were designated to hedge the cash flows associated with LIBOR-based commercial loans, and are being accounted for using cash flow hedge accounting beginning on that date.

Note 12 — Other Noninterest Income

The following table sets forth other noninterest income during the periods indicated.


	Successor			Predecessor			Successor			Predecessor			Predecessor
	Three Months Ended			Three Months Ended			March 1, 2005 to			January 1, 2005 to			Nine Months Ended
	September 30, 2005			September 30, 2004			September 30, 2005			February 28, 2005			September 30, 2004

Loan fee income	$	8,031		$	5,841		$	19,294		$	4,549		$	19,529
Covered call premiums		1,951			5,661			4,668			1,412			14,039
Mortgage banking services income		2,910			1,913			5,644			923			5,249
Venture capital gains (write-downs)		(840	)		(1,664	)		(936	)		(297	)		(2,189	)
Miscellaneous income		7,290			3,952			15,421			2,517			8,686

Total	$	19,342		$	15,703		$	44,091		$	9,104		$	45,314

The following table presents the significant components of mortgage banking services income during the periods indicated.


	Successor			Predecessor		Successor			Predecessor		Predecessor
	Three Months Ended			Three Months Ended		March 1, 2005 to			January 1, 2005 to		Nine Months Ended
	September 30, 2005			September 30, 2004		September 30, 2005			February 28, 2005		September 30, 2004

Mortgage banking services income
Gains on sales and fee income	$	3,105		$	1,034	$	5,298		$	460	$	4,098
Net effect of derivatives		52			491		(113	)		159		286

		3,157			1,525		5,185			619		4,384
Residential mortgage servicing income(loss)		(247	)(1)		388		459	(1)		304		865

	$	2,910		$	1,913	$	5,644		$	923	$	5,249

(1) Includes an impairment charge of $601 thousand on mortgage servicing rights in September 2005.

Note 13 — Pension and Other Postretirement Plans

The following table presents the amount of net periodic benefit cost recognized for the periods indicated.


Components of net periodic	Successor			Predecessor			Successor			Predecessor			Predecessor
benefit cost	Three Months Ended			Three Months Ended			March 1, 2005 to			January 1, 2005 to			Nine Months Ended
	September 30, 2005			September 30, 2004			September 30, 2005			February 28, 2005			September 30, 2004
Qualified Pension
Service cost	$	3,643		$	3,379		$	8,379		$	2,369		$	8,947
Interest cost		3,500			2,988			8,004			2,253			9,650
Expected return on plan assets		(5,527	)		(5,083	)		(12,871	)		(3,671	)		(14,739	)
Amortization of prior service cost		—			2			—			1			6
Amortization of transition obligation		—			(65	)		—			(39	)		(193	)
Amortization of net loss		—			686			—			809			2,818

Net periodic benefit cost		1,616			1,907			3,512			1,722			6,489


Nonqualified Pension
Service cost		227			189			514			106			387
Interest cost		539			504			1,290			305			1,314
Amortization of prior service cost		282			76			712			39			162
Amortization of transition obligation		—			3			—			2			9
Amortization of net loss		—			179			—			84			279

Net periodic benefit cost		1,048			951			2,516			536			2,151

Total net periodic benefit cost — pensions plans	$	2,664		$	2,858		$	6,028		$	2,258		$	8,640


Other Postretirement Benefits
Service cost	$	57		$	40		$	133		$	37		$	120
Interest cost		321			353			749			215			1,059
Amortization of prior service cost		—			35			—			23			105
Amortization of transition obligation		—			98			—			65			294
Amortization of net loss		—			99			—			35			297

Net periodic benefit cost — other postretirement benefit plans	$	378		$	625		$	882		$	375		$	1,875

As a result of purchase accounting adjustments recorded as of March 1, 2005, unrecognized actuarial gains/losses, unamortized prior service cost and unrecognized transition obligations on pension and other benefit plans as of February 28, 2005 were written off. Accordingly, there is no amortization on these items after March 1, 2005. For nonqualified pension plans, enhancements were made to the benefit of existing participants on March 1, 2005, the cost of which is being amortized as prior service cost over the estimated remaining service years of the participants.

We expect to contribute approximately $27.6 million to our pension plans in 2005, none of which is required to satisfy minimum funding requirements. The discretionary contribution is anticipated to be paid in December after final review of the 2005 pension obligation and, as in prior years, is expected to be paid entirely in cash.

The Medicare Prescription Drugs, Improvement and Modernization Act (“the Act”) was signed into law in December 2003 and introduced a prescription drug benefit under Medicare as well as a federal subsidy to sponsors of retiree health care plans that provide a benefit that is at least actuarially equivalent to Medicare Part D. In accordance with FASB Staff Position 106-2, “Accounting and Disclosure Requirements Related to the Medicare Prescription Drug, Improvement and Modernization Act of 2003” (“FSP 106-2”) we have determined that the benefits we provide are at least actuarially equivalent to Medicare Part D. The effects of the federal subsidy resulted in an actuarial gain, which was fully recognized in the purchase accounting for the transaction with TD.

Note 14 — Merger and Consolidation Costs

The following table summarizes merger and consolidation costs for the periods indicated.


	Successor			Predecessor		Successor		Predecessor			Predecessor
	Three Months Ended			Three Months Ended		March 1, 2005 to		January 1, 2005 to			Nine Months Ended
	September 30, 2005			September 30, 2004		September 30, 2005		February 28, 2005			September 30, 2004
The Toronto-Dominion Bank Merger Charges
Transaction costs	$	(1,500	)	$	3,190	$	3	$	18,148		$	3,190
Personnel costs		398			—		3,052		2,285			—
Name change		1,013			—		3,214		2,061			—
Other costs		35			—		94		2,941			—

		(54	)		3,190		6,363		25,435			3,190

BostonFed Bancorp, Inc. Merger Charges
Personnel costs		39			—		774		673			—
Systems conversion and integration/customer communications		11			169		642		987			169
Other costs		70			44		1,028		211			46

		120			213		2,444		1,871			215

Hudson United Bancorp
Personnel costs		2			—		2		—			—
Systems conversion and integration/customer communications		580			—		580		—			—
Other costs		112			—		112		—			—

		694			—		694		—			—

Foxborough Savings Bank Merger Charges
Personnel costs		—			275		1		1			492
Systems conversion and integration/customer communications		—			688		—		—			1,227
Other costs		—			223		8		10			301

		—			1,186		9		11			2,020

CCBT Financial Companies, Inc. Merger Charges
Personnel costs		1			393		3		(219	)		1,296
Systems conversion and integration/customer communications		—			247		—		12			2,426
Other costs		95			271		405		36			1,233

		96			911		408		(171	)		4,955

Other Costs
American Financial Holdings, Inc. Merger Charges		306			70		495		117			257
First & Ocean Bancorp Merger Charges		—			30		19		1			1,142
Warren Bancorp, Inc. Merger Charges		—			—		—		—			29
Reverse auto lease reserves (Banknorth-Vermont)		—			—		—		—			(470	)
Other costs		1			3		26		—			13

		307			103		540		118			971

Total merger and consolidation costs	$	1,163		$	5,603	$	10,458	$	27,264		$	11,351

The following tables summarize activity in the accrual account for merger and consolidation costs from December 31, 2004 through September 30, 2005.


			Purchase								Non-cash
			Accounting		Merger and						Write Downs
	Balance		Adjustments		Consolidation			Cash			and Other			Balance
	12/31/04		at Acquisition		Costs			Payments			Adjustments			2/28/05
The Toronto-Dominion Bank Merger	$	432	$	—	$	25,435		$	(2,976	)	$	—		$	22,891
BostonFed Bancorp, Inc. Merger		—		25,764		1,871			(18,855	)		27			8,807
Foxborough Savings Bank Merger		461		—		11			(14	)		—			458
CCBT Financial Companies, Inc. Merger		1,966		—		(171	)		(124	)		—			1,671
First & Ocean Bancorp Merger		206		—		1			(3	)		—			204
American Financial Holdings, Inc. Merger		—		—		117			(117	)		—			—
Andover / MetroWest Mergers		78		—		—			—			(78	)		—

Total	$	3,143	$	25,764	$	27,264		$	(22,089	)	$	(51	)	$	34,031


			Purchase							Non-cash
			Accounting		Merger and					Write Downs
	Balance		Adjustments		Consolidation		Cash			and Other			Balance
	02/28/05		at Acquisition		Costs		Payments			Adjustments			9/30/05
The Toronto-Dominion Bank Merger	$	22,891	$	—	$	6,363	$	(26,501	)	$	—		$	2,753
BostonFed Bancorp, Inc. Merger		8,807		—		2,444		(6,829	)		(2,229	)		2,193
Foxborough Savings Bank Merger		458		—		9		(10	)		(457	)		—
CCBT Financial Companies, Inc. Merger		1,671		—		408		(645	)		(769	)		665
Hudson United Bancorp		—		—		694		(694	)		—			—
First & Ocean Bancorp Merger		204		—		19		(19	)		(204	)		—
American Financial Holdings, Inc. Merger		—		—		495		(495	)		—			—
Other merger and consolidation costs		—		—		26		(45	)		19			—

Total	$	34,031	$	—	$	10,458	$	(35,238	)	$	(3,640	)	$	5,611

Note 15 — Earnings Per Share

The computations of diluted earnings per share and diluted weighted average shares outstanding exclude the following options to purchase shares. These options were outstanding but were not included in the computation of diluted earnings per share because they were antidilutive.

Successor

Predecessor

Successor

Predecessor

Three Months Ended

March 1, 2005 to

January 1, 2005 to

Nine Months Ended

September 30, 2005

September 30, 2004

September 30, 2005

February 28, 2005

September 30, 2004

Antidilutive effect of options outstanding

2,132

—

1,831

—

Note 16 — Related Party Transactions

TD Banknorth and its affiliates participate in various transactions with TD and its affiliates. Transactions involving our banking subsidiary, TD Banknorth, NA and its nonbanking affiliates (including TD Banknorth and TD) are subject to review by regulatory authorities and are required to be on terms at least as favorable to TD Banknorth as those prevailing at the time for similar non-affiliate transactions. Transactions between TD and TD Banknorth and their respective affiliates have included interest rate swap agreements, foreign exchange activities, international services, cost reimbursements, referral fees and intercompany deposits and borrowings. Amounts due to and from TD and off-balance sheet transactions with TD at September 30, 2005 were as follows:


	September 30, 2005
Cash and due from banks	$	2,581
Other assets:
Positive fair value marks on derivatives		6,558
Accounts receivable		1,295
Deferred tax asset		2,058
Deferred issuance costs		1,079
Other liabilities:
Negative fair value marks on derivatives		6,236
Accumulated other comprehensive income		(2,718	)
Off-balance sheet transactions (notional amounts):
Interest rate swaps		1,553,480
Foreign exchange forward contracts		39,852

The effect on pre-tax income as a result of transactions with TD was an increase of $9.4 million for the three months ended September 30, 2005 and $19.3 million for the period March 1, 2005 to September 30, 2005. These increases were largely due to the income recorded on interest rate swap agreements which are accounted for as cash flow hedges.

TD Banknorth and TD have entered into a Stewardship Agreement under which TD Banknorth is reimbursed for the cost of certain services provided for the benefit of TD. Services covered by the Stewardship Agreement include participation in TD senior management meetings, participation in TD strategic planning sessions, monthly financial reporting in TD formats, corporate rebranding, BASEL II planning, monitoring of compliance of intercompany activities and assistance in various TD corporate initiatives. TD Banknorth bills TD monthly under the Stewardship Agreement. Monthly billings under this agreement have averaged approximately $0.6 million since March 2005.

an initial fee of $1.1 million and an annual fee of $5.9 million and committed to spend $1.5 million (each to be adjusted annually for inflation) each year in marketing and promoting the arena. TD is a formal party to this agreement and has agreed to pay the owner 50% of each of the initial fee and annual fee. This future commitment has not been recorded on our balance sheet because it is being accounted for in a manner consistent with the accounting for operating leases under Statement of Financial Accounting Standards No. 13, “Accounting for Leases.”

In September 2005, TD Banknorth, NA issued subordinated notes denominated in Canadian currency totaling $270 million (or approximately $229 million in U.S. Dollars). TD Securities, a wholly-owned subsidiary of TD, served as placement agent for the offering of the notes, receiving a fee of 0.45% of the aggregate principal amount. The notes were purchased by several unaffiliated institutional investors in Canada. The Canada Trust Company, another wholly-owned subsidiary of TD, is the issuing and paying agent, note registrar and calculation agent with respect to the notes.

Note 17 — Accounting Changes

The following information addresses new or proposed accounting pronouncements.

Accounting for Share-Based Payments

In December 2004, the FASB issued FASB Statement No. 123 (Revised 2004), “Share-Based Payment” (“FAS 123R”), which requires companies to recognize in the income statement the grant-date fair value of stock options and other equity-based compensation issued to employees, including employee stock purchase plans over the service period. Current disclosure provisions under FAS 123 are still applicable. In addition to stock option awards granted after July 1, 2005, compensation expense on unvested equity-based awards that were granted prior to the effective date must be recognized in the income statement. FAS 123R is effective for interim or annual periods beginning after June 15, 2005. FAS 123R was scheduled to be effective for us starting July 1, 2005. The U. S. Securities and Exchange Commission (“SEC”) announced on April 14, 2005 the adoption of a new rule that amends the required compliance dates allowing companies to implement FAS 123R at the beginning of their next fiscal year instead of the next reporting period that begins after June 15, 2005. On March 29, 2005, the SEC released Staff Accounting Bulletin No. 107, “Share-based Payment” (“SAB 107”). SAB 107 expresses views of the SEC staff regarding the application of FAS 123(R) and the valuation of share-based payment arrangements for public companies. We expect to adopt FAS 123R on January 1, 2006. Assuming employee share-based compensation awards which are anticipated to be made in October 2005 and October 2006 are granted at the same level as the awards granted in March 2005, the adoption of FAS 123R effective January 1, 2006 is expected to decrease diluted earnings per share by approximately $.03 to $.04 in 2006. FAS 123R will not have a material effect on our financial condition or cash flows.

Accounting for Certain Loan or Debt Securities Acquired in a Transfer

In December 2003, the American Institute of Certified Public Accountants issued Statement of Position (“SOP”) 03-3. SOP 03-3 requires loans acquired through a transfer, such as a business combination, where there are differences in expected cash flows and contractual cash flows due in part to credit quality, be recognized at their fair value. This SOP requires that, at the date of acquisition or business combination, the excess of contractual cash flows over expected cash flows expected to be collected may not be recognized as an adjustment of yield, loss accrual or valuation allowance. Any future excess of cash flows over the original expected cash flows is to be recognized as an adjustment of future yield. Future decreases in actual cash flow compared to the original expected cash flow are recognized as a valuation allowance and expensed immediately. Valuation allowances cannot be created or “carried over” in the initial accounting for impaired loans acquired. This SOP is effective for impaired loans acquired in a business combination in fiscal years beginning after December 15, 2004. The adoption of this SOP on January 1, 2005 did not have a material impact on our financial condition, results of operations, earnings per share or cash flows. Also see Note 10 for information regarding the effects of SOP 03-3 related to the TD transaction and purchase accounting adjustments recorded on March 1, 2005.

Accounting Changes and Error Corrections

In June 2005, the FASB issued FASB Statement No. 154, “Accounting Changes and Error Corrections” (“FAS 154”), which will require entities that voluntarily make a change in accounting principle to apply that change retrospectively to prior periods’ financial statements, unless this would be impracticable. FAS 154 supersedes Accounting Principles Board Opinion No. 20, “Accounting Changes”, which previously required that most voluntary changes in accounting principle be recognized by including in the current period’s net income the cumulative effect of changing to the new accounting principle. FAS 154 also makes a distinction between “retrospective application” of a change in accounting principle and the “restatement” of financial statements to reflect the correction of an error. FAS 154 applies to accounting changes and error corrections that are made in fiscal years beginning after December 15, 2005.

Other-Than-Temporary Impairments of Certain Investments

On November 3, 2005, the FASB issued FASB Staff Position (FSP) Nos. FAS 115-1 and FAS 124-1 “The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments”. This FSP addresses the determination as to when an investment is considered impaired, whether that impairment is other than temporary, and the measurement of an impairment loss. The FSP also includes accounting considerations subsequent to the recognition of an other-than-temporary impairment and requires certain disclosure about unrealized losses that have not been recognized as other-than-temporary impairments. The guidance in this FSP must be applied to reporting periods beginning after December 15, 2005. The implementation of this FSP is not expected to have a material impact on our financial condition or results of operations.

Note 18 — Subsequent Event

On July 11, 2005, Hudson United Bancorp (“Hudson”), TD Banknorth and, solely with respect to Article X thereof, TD entered into a definitive agreement and plan of merger which sets forth the terms and conditions under which Hudson will merge with and into TD Banknorth for a combination of cash and TD Banknorth common stock and TD Banknorth will concurrently sell shares of TD Banknorth common stock to TD to fund payment of the aggregate cash merger consideration. Under the terms of the merger agreement, each outstanding share of Hudson will be converted into the right to receive cash and/or TD Banknorth common stock, in either case having a value equal to $21.07 plus the product of 0.7247 times the average closing price of the TD Banknorth common stock during a ten-trading day period ending on the fifth trading day prior to the closing date for the merger. Hudson United shareholders will be entitled to elect to receive the merger consideration in the form of TD Banknorth common stock, cash, or a combination of TD Banknorth common stock and cash, subject to proration because the total amount of cash consideration payable in the merger is fixed at $941.8 million. The definitive agreement has been approved by the boards of directors of TD Banknorth and Hudson. The transaction is subject to all required regulatory approvals, approval of the shareholders of Hudson and TD Banknorth and other customary conditions. The transaction is expected to close in the first quarter of 2006 with operational integration to follow soon thereafter.

The cash portion of the transaction will be financed through TD Banknorth’s sale of 29.6 million shares of TD Banknorth common stock to TD at a price of $31.79 per share. On a proforma basis, based on the number of TD Banknorth shares outstanding as of June 30, 2005, TD’s percentage ownership of TD Banknorth will decrease slightly after giving effect to the transaction.

Hudson had $9.1 billion of assets and $520.5 million of shareholders’ equity at September 30, 2005.

Item 2.

TD BANKNORTH INC. AND SUBSIDIARIES

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

EXECUTIVE OVERVIEW

Method of Accounting

	•		cash paid by TD,

	•		the value of TD common shares issued and

	•		the value of TD Banknorth Inc. shares issued.

The purchase price and related purchase accounting adjustments have been recorded in our financial statements at and for the periods commencing on March 1, 2005. This resulted in a new basis of accounting reflecting the fair value of our assets and liabilities at March 1, 2005 and used for the “successor” periods beginning on March 1, 2005. Information for all dates and “predecessor” periods prior to the acquisition on March 1, 2005 is presented using our historical basis of accounting.

To assist in the comparability of our financial results and to make it easier to discuss and understand our results of operations, the financial information presented herein combines the “predecessor period” (January 1, 2005 to February 28, 2005) with the “successor period” (March 1, 2005 to September 30, 2005) to present “combined” results for the nine months ended September 30, 2005. A summary of the purchase accounting and fair value adjustments recorded as of March 1, 2005 in connection with the TD transaction is included in Note 2 to the unaudited consolidated financial statements. The most significant effects of the adjustments were to increase goodwill by $3.0 billion, identifiable intangible assets by $705 million and shareholders’ equity by $3.4 billion as of March 1, 2005. As a result, the amortization of identifiable intangible assets for the three months ended September 30, 2005 and the period from March 1, 2005 to September 30, 2005 were higher than they otherwise would have been under historical cost accounting by $28.6 million and $66.7 million, respectively. Estimated amortization expense for identifiable intangible assets for the remainder of 2005 and future years is included in Note 6 to the unaudited consolidated financial statements.

For comparative purposes, the following table sets forth selected income data on a historical basis for the period January 1, 2005 to February 28, 2005, on a fair value basis for the period March 1, 2005 to September 30, 2005, on a combined basis for the nine months ended September 30, 2005 and on a historical basis for the nine months ended September 30, 2004.

Table 1 — Selected Income Data


	Predecessor			Successor			Combined			Predecessor
	January 1, 2005 to			March 1, 2005 to			Nine Months Ended			Nine Months Ended
	February 28, 2005			September 30, 2005			September 30, 2005			September 30, 2004

Interest and dividend income:
Interest and fees on loans and leases	$	176,949		$	683,631		$	860,580		$	682,085
Interest and dividends on securities		51,183			125,012			176,195			240,863

Total interest and dividend income		228,132			808,643			1,036,775			922,948


Interest expense:
Interest on deposits		30,694			124,328			155,022			118,454
Interest on borrowed funds		32,654			94,736			127,390			121,386

Total interest expense		63,348			219,064			282,412			239,840


Net interest income		164,784			589,579			754,363			683,108
Provision for loan and lease losses		1,069			10,097			11,166			29,670

Net interest income after provision for loan and lease losses		163,715			579,482			743,197			653,438


Noninterest income:
Deposit services		18,359			76,134			94,493			80,995
Insurance agency commissions		8,252			31,460			39,712			38,431
Merchant and electronic banking income, net		7,751			35,914			43,665			37,196
Wealth management services		6,959			24,602			31,561			29,300
Bank-owned life insurance		4,169			14,029			18,198			17,503
Investment planning services		2,815			12,044			14,859			14,619
Net securities (losses) gains		(46,548	)		(1,474	)		(48,022	)		10,060
Loans held for sale — Lower of cost or market adjustment		(7,500	)		386			(7,114	)		—
Change in unrealized loss on derivatives		—			5,954			5,954			—
Other noninterest income		9,104			44,091			53,195			45,314

		3,361			243,140			246,501			273,418


Noninterest expense:
Compensation and employee benefits		67,977			240,046			308,023			266,473
Occupancy		11,411			41,670			53,081			47,274
Equipment		8,440			30,210			38,650			35,777
Data processing		7,233			27,094			34,327			31,573
Advertising and marketing		4,373			17,911			22,284			20,105
Amortization of identifiable intangible assets		1,561			72,632			74,193			6,367
Merger and consolidation costs		27,264			10,458			37,722			11,351
Prepayment penalties on borrowings		6,300			3			6,303			—
Other noninterest expense		15,887			64,701			80,588			78,822

		150,446			504,725			655,171			497,742


Income before income tax expense		16,630			317,897			334,527			429,114
Provision for income taxes		6,182			109,931			116,113			145,169

Net income	$	10,448		$	207,966		$	218,414		$	283,945


Basic earnings per share							$	1.24		$	1.68

Diluted earnings per share							$	1.23		$	1.65

Weighted average shares outstanding:
Basic								176,822			168,646
Dilutive effect of stock options								1,036			3,555

Diluted								177,858			172,201

Because of the effects of accounting for the TD transaction under the purchase method effective March 1, 2005, information on a combined basis for the nine months ended September 30, 2005 may not be comparable to information presented for the nine months ended September 30, 2004 on a historical basis, and information presented on a historical basis at December 31, 2004 may not be comparable to information presented at September 30, 2005.

In connection with our accounting for the TD transaction, we have applied “push down” accounting to our wholly-owned banking subsidiary, TD Banknorth, NA. Under this approach, the majority of the purchase price for the TD transaction was “pushed down” to TD Banknorth, NA and used to establish a new accounting basis in the separate, stand-alone financial statements of TD Banknorth, NA based on the fair values of its assets and liabilities on March 1, 2005.

Acquisitions

During 2004 and the nine months ended September 30, 2005, we acquired the three financial institutions listed below. Our financial statements include the results of these bank acquisitions since acquisition date.

Table 2 — Acquisitions

Date

Acquisition

Acquired

Loans

Deposits

(in millions)

BostonFed Bancorp, Inc.

1/21/2005

1,227.4

1,046.7

CCBT Financial Companies, Inc.

4/30/2004

854.8

975.5

Foxborough Savings Bank

4/30/2004

170.0

211.8

Operations

Diluted earnings per share were $0.51 per share in the three-month period ended September 30, 2005 as compared to $0.55 per share for the comparable period in 2004. This decline of $0.04 per diluted share was due to higher amortization expense of identifiable intangible assets related to our new basis of accounting effective March 1, 2005, which accounted for a decline of $0.10 in diluted earnings per share; all other items added a net $0.06 to diluted earnings per share. Results for the third quarter of 2005 as compared to the third quarter of 2004 can be summarized as follows:

	•		Net interest income increased by $11.0 million, because a 31 basis point increase in net interest rate spread more than offset the effects of a $1.5 billion reduction in earning assets related to the balance sheet deleveraging programs. Despite a continued flattening of the yield curve, the net interest margin increased 41 basis points, in large part due to balance sheet deleveraging programs in the fourth quarter of 2004 and the first quarter of 2005.

	•		The provision for loan losses was $5.2 million lower, reflecting continued strong asset quality and lower charge-offs.

	•		Noninterest income increased by $10.4 million due largely to increased transaction volumes in deposits and merchant and electronic banking.

	•		Amortization of identifiable intangible assets increased by $28.7 million as a result of the new basis of accounting.

	•		Noninterest expense excluding the amortization of intangible assets increased by $8.9 million as a result of the on-going operating expenses of BostonFed acquired on January 21, 2005, as well as higher expenses related to medical benefit programs and cash-settled restricted stock awards.

The following were significant factors related to the results for the third quarter of 2005 compared to the third quarter of 2004.

•

In February 2005, we implemented a deleveraging program under which we sold approximately $2.9 billion of securities with a weighted average yield of 4.03% and prepaid a similar amount of short-term borrowings, consisting of repurchase agreements and FHLB advances. In addition, $519 million of single-family residential loans were reclassified to loans held for sale prior to their sale, and marked down by $7.5 million in the first quarter to the estimated selling price. A $41.6

million after-tax loss was incurred in connection with this deleveraging program in the first quarter of 2005. This deleveraging program helped to increase our net interest margin.

	•		During February and March 2005, a total of $2.2 billion notional amount of interest rate swap agreements were entered into to convert $2.2 billion of variable-rate loans into fixed-rate assets. These swap agreements mature ratably over 96 months.

	•		During March 2005, we repurchased 15.3 million shares of our common stock at an average cost of $31.79 per share.

	•		We completed the acquisition of BostonFed Bancorp Inc. on January 21, 2005. Acquisitions continue to be an important part of our long-term strategy for growth.

	•		We applied purchase accounting for the transaction with TD, resulting in a new basis of accounting for our assets and liabilities as of March 1, 2005.

	•		Total average loans and leases for the third quarter of 2005 increased 9.6% compared to the third quarter of 2004 due to acquisitions and internal growth, which more than offset the sale of $519 million of residential mortgages in connection with the balance sheet deleveraging program implemented in the first quarter of 2005.

	•		Total average deposits for the third quarter of 2005 increased by 4.4% compared to the third quarter of 2004 as increases from acquisitions more than offset declining certificates of deposit. Excluding the effects of acquisitions and purchase accounting adjustments, total average deposits declined by 1.7%, as increases in checking deposits were more than offset by lower savings and certificate of deposit balances. Excluding the effects of acquisitions, noninterest-bearing accounts increased 5.0% during the third quarter of 2005 compared to the third quarter of 2004. The average cost of interest-bearing deposits has increased 50 basis points since the third quarter of 2004.

	•		Our total risk-based capital ratio improved to 11.72% at September 30, 2005 from 10.43% at June 30, 2005 due in large part to the issuance of approximately $229 million in subordinated debt during the third quarter of 2005 which qualifies as Tier 2 capital under regulatory guidelines.

Selected quarterly data, ratios and per share data are provided in Table 3

Table 3 — Selected Quarterly Data


			Successor			Successor			Combined			Predecessor			Predecessor
			2005			2005			2005			2004			2004
			Third			Second			First			Fourth			Third
*Condensed Income Statement*
Interest income			$	350,679		$	342,447		$	343,645		$	327,900		$	323,678
Interest expense				101,682			89,819			90,912			83,783			85,701

Net interest income	(A	)		248,997			252,628			252,733			244,117			237,977
Provision for loan and lease losses				5,500			3,597			2,069			10,670			10,670

Net interest income after provision for loan and lease losses				243,497			249,031			250,664			233,447			227,307
Noninterest income (1)	(B	)		103,607			117,272			25,621			72,537			93,196
Noninterest expense, excluding merger and consolidation costs (2)	(C	)		210,566			214,965			191,918			229,073			168,595
Merger and consolidation costs	(D	)		1,163			5,368			31,191			38,286			5,603

Income before income taxes				135,375			145,970			53,176			38,625			146,305
Income tax expense				46,634			50,375			19,101			17,927			48,534

Net income (1) (2)			$	88,741		$	95,595		$	34,075		$	20,698		$	97,771


Weighted average shares outstanding:
Basic				173,661			173,428			183,393			177,071			173,271
Diluted				174,398			174,261			184,890			179,953			176,756

Basic earnings per share			$	0.51		$	0.55		$	0.19		$	0.12		$	0.56
Diluted earnings per share			$	0.51		$	0.55		$	0.18		$	0.12		$	0.55

*Financial Ratios*
Return on average assets (1) (2) (3)				1.11	%		1.20	%		0.45	%		0.29	%		1.33	%
Return on average equity (1) (2) (3)				5.44	%		5.98	%		3.09	%		2.66	%		13.24	%
Net interest margin (fully-taxable equivalent) (3)				4.09	%		4.12	%		3.96	%		3.87	%		3.68	%
Noninterest income as a percent of total income (4)				29.38	%		31.70	%		9.20	%		22.91	%		28.14	%
Efficiency ratio (1) (2) (5)				60.05	%		59.57	%		80.15	%		84.43	%		52.60	%

*Per Share Data*
Book value per share			$	37.23		$	37.33		$	36.65		$	17.71		$	17.50
Dividends per share			$	0.22		$	0.20		$	0.20		$	0.20		$	0.20


(1)		Noninterest income included net securities losses of $50.0 million and $17.8 million in the first quarter of 2005 and fourth quarter of 2004, respectively, and lower of cost or market adjustments of $7.5 million in the first quarter of 2005 relating to the reclassification of $519 million of residential loans from held in portfolio to held for sale. These items were incurred as part of balance sheet deleveraging programs implemented during these periods. Noninterest income also included a change in unrealized loss on derivatives of $8.2 million in March 2005.

(2)		Noninterest expense included prepayment penalties on borrowings of $6.3 million and $61.5 million in the first quarter of 2005 and fourth quarter of 2004, respectively, which were incurred as part of balance sheet deleveraging programs implemented during these periods.

(3)		Annualized.

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

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

Net Interest Income

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

Fully-taxable equivalent net interest income for the third quarter of 2005 increased $11.4 million, or 4.8%, compared to the third quarter of 2004. This increase was attributable to the following items:

	•		a 41 basis point increase in net interest margin;

	•		the acquisition of BostonFed in January 2005;

	•		changes in the composition of earning assets resulting from deleveraging programs (loans comprised 82% of earning assets during the third quarter of 2005 compared to 71% during the third quarter of 2004);

	•		changes in the composition of interest-bearing liabilities resulting from deleveraging programs (deposits comprised 78% of interest-bearing liabilities during the third quarter of 2005 compared to 70% during the third quarter of 2004);

	•		the benefit of interest rate swap agreements with a notional amount of $2.2 billion which hedge the cash flows on certain variable rate loans, which increased net interest income by $4.1 million; and

	•		a 7.3% increase in noninterest-bearing deposits.

Net interest margin, which represents fully-taxable equivalent net interest income as a percentage of average interest-earning assets, increased to 4.09% in the third quarter of 2005 from 3.68% in the third quarter of 2004. Our net interest margin in 2005 benefited from the deleveraging programs completed in October 2004 and March 2005. Our net interest margin declined slightly from the second quarter of 2005 (4.09% vs. 4.12%) due in part to a continued flattening of the yield curve.

Table 4 sets forth, for the three and nine months ended September 30, 2005 and 2004, information regarding (i) the total dollar amount of interest income from interest-earning assets and the resultant average yields; (ii) the total dollar amount of interest expense on interest-bearing liabilities and the resultant average cost; (iii) net interest income; (iv) interest rate spread; and (v) net interest margin. For purposes of the tables and the above discussion, (i) income from interest-earning assets and net interest income is presented on a fully-taxable equivalent basis primarily by adjusting income and yields earned on tax-exempt interest received on loans to qualifying borrowers and on certain of our securities to make them equivalent to income and yields earned on fully-taxable investments, assuming a federal income tax rate of 35%, and (ii) nonaccrual loans have been included in the appropriate average balance loan category, but unpaid interest on nonaccrual loans has not been included for purposes of determining interest income. Average balances are based on average daily balances during the indicated periods.

Table 4 — Average Balances, Yields and Rates


	Successor								Predecessor
	2005 Third Quarter								2004 Third Quarter
	Average					Yield/			Average					Yeild/
	Balance		Interest			Rate(1)			Balance		Interest			Rate(1)
Loans and leases (2):
Residential real estate mortgages	$	3,246,891	$	44,806			5.52	%	$	3,135,400	$	38,768			4.95	%
Commercial real estate mortgages		6,719,570		103,508			6.11	%		6,158,271		89,116			5.76	%
Commercial business loans and leases		4,180,982		63,419			6.04	%		3,827,919		47,550			4.93	%
Consumer loans and leases		5,918,342		88,669			5.94	%		5,185,483		66,458			5.10	%

Total loans and leases		20,065,785		300,402			5.95	%		18,307,073		241,892			5.26	%
Investment securities (3)		4,341,490		52,086			4.80	%		7,651,673		83,442			4.36	%
Federal funds sold and other short-term investments		15,611		65			1.66	%		5,609		22			1.55	%

Total earning assets		24,422,886		352,553			5.74	%		25,964,355		325,356			4.98	%

Bank-owned life insurance		563,040								508,425
Goodwill		4,549,680								1,369,166
Indentifiable intangible assets		715,078								53,568
Noninterest-earning assets		1,484,288								1,280,594

Total assets	$	31,734,972							$	29,176,108


Interest-bearing deposits:
Regular savings	$	2,605,428		2,138			0.33	%	$	2,603,474		1,887			0.29	%
NOW and money market accounts		8,187,345		31,708			1.54	%		7,884,927		15,758			0.80	%
Certificates of deposit		4,841,020		27,005			2.21	%		4,672,879		22,475			1.91	%
Brokered deposits		62,505		602			3.82	%		506		2			1.63	%

Total interest-bearing deposits		15,696,298		61,453			1.55	%		15,161,786		40,122			1.05	%
Borrowed funds		4,411,042		40,229			3.62	%		6,652,815		45,579			2.73	%

Total interest-bearing liabilities		20,107,340		101,682			2.01	%		21,814,601		85,701			1.56	%

Non-interest bearing deposits		4,546,766								4,236,569
Deferred tax liability related to identifiable intangible assets		265,588								18,749
Other liabilities		338,178								167,454
Shareholders’ equity		6,477,100								2,938,735

Total liabilities and shareholders’ equity	$	31,734,972							$	29,176,108


Net earning assets	$	4,315,546							$	4,149,754


Net interest income (fully-taxable equivalent)				250,871								239,655
Less: fully-taxable equivalent adjustments				(1,874	)							(1,678	)

Net interest income			$	248,997							$	237,977

Net interest rate spread (fully-taxable equivalent)							3.73	%							3.42	%
Net interest margin (fully-taxable equivalent)							4.09	%							3.68	%


(1)		Annualized.

(2)		Loans and leases include loans held for sale.

(3)		Includes securities available for sale and held to maturity.

Table 4 — Average Balances, Yields and Rates


	Combined								Predecessor
	Nine Months Ended								Nine Months Ended
	September 30, 2005								September 30, 2004
	Average					Yield/			Average					Yield/
	Balance		Interest			Rate (1)			Balance		Interest			Rate (1)
Loans and leases (2):
Residential real estate mortgages	$	3,570,839	$	143,339			5.35	%	$	2,950,094	$	111,512			5.04	%
Commercial real estate mortgages		6,609,568		295,675			5.98	%		5,861,892		251,689			5.74	%
Commercial business loans and leases		4,121,366		178,754			5.82	%		3,630,870		131,143			4.82	%
Consumer loans and leases		5,703,486		246,528			5.78	%		5,017,428		190,886			5.08	%

Total loans and leases		20,005,259		864,296			5.78	%		17,460,284		685,230			5.24	%
Investment securities (3)		5,002,727		177,642			4.73	%		7,523,082		242,379			4.30	%
Federal funds sold and other short-term investments		14,434		225			2.09	%		5,562		53			1.27	%

Total earning assets		25,022,420		1,042,163			5.57	%		24,988,928		927,662			4.95	%

Bank-owned life insurance		555,616								498,736
Goodwill		3,875,544								1,267,703
Indentifiable intangible assets		588,958								44,905
Noninterest-earning assets		1,444,605								1,237,075

Total assets	$	31,487,143							$	28,037,347


Interest-bearing deposits:
Regular savings	$	2,648,151		5,992			0.30	%	$	2,562,340		5,655			0.29	%
NOW and money market accounts		8,102,660		77,094			1.27	%		7,551,311		44,878			0.79	%
Certificates of deposit		4,775,911		69,969			1.96	%		4,684,097		67,919			1.94	%
Brokered deposits		68,256		1,967			3.85	%		170		2			1.63	%

Total interest-bearing deposits		15,594,978		155,022			1.33	%		14,797,918		118,454			1.07	%
Borrowed funds		5,228,368		127,390			3.25	%		6,394,319		121,386			2.53	%

Total interest-bearing liabilities		20,823,346		282,412			1.81	%		21,192,237		239,840			1.51	%

Non-interest bearing deposits		4,374,659								3,875,740
Deferred tax liability related to identifiable intangible assets		178,710								15,717
Other liabilities		311,701								166,492
Shareholders’ equity		5,798,727								2,787,161

Total liabilities and shareholders’ equity	$	31,487,143							$	28,037,347

Net earning assets	$	4,199,074							$	3,796,691


Net interest income (fully-taxable equivalent)				759,751								687,822
Less: fully-taxable equivalent adjustments				(5,388	)							(4,714	)

Net interest income			$	754,363							$	683,108

Net interest rate spread (fully-taxable equivalent)							3.76	%							3.44	%
Net interest margin (fully-taxable equivalent)							4.06	%							3.67	%


(1)		Annualized.

(2)		Loans and leases include loans held for sale.

(3)		Includes securities available for sale and held to maturity.

Table 5 presents certain information on a fully-taxable equivalent basis regarding changes in our interest income and interest expense for the periods indicated. For each category of interest-earning assets and interest-bearing liabilities, information is provided with respect to changes attributable to (i) changes in volume (change in volume multiplied by old rate), (ii) changes in rate (change in rate multiplied by old volume) and (iii) changes in rate/volume (change in rate multiplied by change in volume).

Table 5 — Rate /Volume Analysis


	Three Months Ended											Nine Months Ended
	September 30, 2005 (Successor) vs. Three Months Ended											September 30, 2005 (Combined) vs. Nine Months Ended
	September 30, 2004 (Predecessor)											September 30, 2004 (Predecessor)
	Increase (decrease) due to											Increase (decrease) due to
						Rate and			Total								Rate and			Total
	Volume (1)			Rate		Volume (2)			Change			Volume (1)			Rate		Volume (2)			Change

Interest income:
Loans and leases	$	23,317		$	31,839	$	3,354		$	58,510		$	99,743		$	70,520	$	8,803		$	179,066
Investment securities		(36,378	)		8,486		(3,464	)		(31,356	)		(81,059	)		24,195		(7,873	)		(64,737	)
Federal funds sold and other short-term investements		39			2		2			43			84			34		54			172

Total interest income		(13,022	)		40,327		(108	)		27,197			18,768			94,749		984			114,501


Interest expense:
Interest-bearing deposits:
Regular savings		1			262		(12	)		251			186			192		(41	)		337
NOW and money market accounts		610			14,707		633			15,950			3,258			27,110		1,848			32,216
Certificates of deposit		809			3,533		188			4,530			1,332			701		17			2,050
Brokered deposits		255			3		342			600			830			3		1,132			1,965

Total interest-bearing deposits		1,675			18,505		1,151			21,331			5,606			28,006		2,956			36,568
Borrowed funds		(15,426	)		14,924		(4,848	)		(5,350	)		(22,063	)		34,435		(6,368	)		6,004

Total interest expense		(13,751	)		33,429		(3,697	)		15,981			(16,457	)		62,441		(3,412	)		42,572


Net interest income (fully taxable equivalent)	$	729		$	6,898	$	3,589		$	11,216		$	35,225		$	32,308	$	4,396		$	71,929


(1)		Volume increases include the effects of the acquisition of BostonFed Bancorp, Inc. on January 21, 2005 and Foxborough Savings Bank and CCBT Financial Companies, Inc. on April 30, 2004.
(2)		Includes changes in interest income and expense not due solely to volume or rate changes.

Tabe 6 summarizes the changes in the components of net interest income, average yields and rates paid, net interest margin and average balances during the periods indicated.

Table 6 — Analysis of Net Interest Income


	Successor			Predecessor						Combined			Predecessor
	Three Months Ended			Three Months Ended						Nine Months Ended			Nine Months Ended
	September 30, 2005			September 30, 2004			Change			September 30, 2005			September 30, 2004			Change
Components of net interest income
Income on earning assets (fully-taxable equivalent)	$	352,553		$	325,356		$	27,197		$	1,042,163		$	927,662		$	114,501
Expense on interest-bearing liabilities		101,682			85,701			15,981			282,412			239,840			42,572

Net interest income (fully-taxable equivalent)		250,871			239,655			11,216			759,751			687,822			71,929
Less: fully-taxable equivalent adjustments		(1,874	)		(1,678	)		(196	)		(5,388	)		(4,714	)		(674	)

Net interest income, as reported	$	248,997		$	237,977		$	11,020		$	754,363		$	683,108		$	71,255


Average yields and rates paid
Earning assets yield (fully-taxable equivalent)		5.74	%		4.98	%		0.76	%		5.57	%		4.95	%		0.62	%
Rate paid on interest-bearing liabilities		2.01	%		1.56	%		0.45	%		1.81	%		1.51	%		0.30	%

Net interest rate spread (fully-taxable equivalent)		3.73	%		3.42	%		0.31	%		3.76	%		3.44	%		0.32	%


Net interest margin (fully-taxable equivalent)		4.09	%		3.68	%		0.41	%		4.06	%		3.67	%		0.39	%


Average balances
Loans and leases	$	20,065,785		$	18,307,073		$	1,758,712		$	20,005,259		$	17,460,284		$	2,544,975
Investment securities		4,341,490			7,651,673			(3,310,183	)		5,002,727			7,523,082			(2,520,355	)
Federal funds sold and other short-term investments		15,611			5,609			10,002			14,434			5,562			8,872

Total earning assets		24,422,886			25,964,355			(1,541,469	)		25,022,420			24,988,928			33,492
Total interest-bearing liabilities		20,107,340			21,814,601			(1,707,261	)		20,823,346			21,192,237			(368,891	)

Net earning assets	$	4,315,546		$	4,149,754		$	165,792		$	4,199,074		$	3,796,691		$	402,383

Provision and Allowance for Loan and Lease Losses

The provision for loan and lease losses is recorded to bring the allowance for loan and lease losses to a level deemed appropriate by management based on factors discussed under “Analysis and Determination of the Allowance for Loan and Lease Losses” in the “Risk Management” section. Because we utilize judgment in providing for estimated losses and the other reasons discussed under the “Risk Management” section, there can be no assurance that we will not have to increase the amount of our provision for loan and lease losses in future periods.

We provided $5.5 million and $10.7 million for loan and lease losses in the quarters ended September 30, 2005 and 2004, respectively. In addition to the provisions made for on-balance sheet loans and leases, we provided $0.8 million for loss reserves related to off-balance sheet loan commitments. This $0.8 million provision is included with other noninterest expense. The reduction in the provision for loan and lease losses in the third quarter of 2005 reflected our consistently strong asset quality, loss experience and migration analysis. Specifically, net charge-offs were lower and our recent favorable loss factors replaced higher historical factors, resulting in a lower required allowance level and related provision for loan and lease losses. The ratio of net charge-offs to average loans and leases was 0.13% (annualized) in the third quarter of 2005 and 0.19% (annualized) for the third quarter 2004. The coverage ratio (ratio of the allowance for credit losses to nonperforming loans) was 369% at September 30, 2005, as compared to 322% at December 31, 2004 and 378% at September 30, 2004. See “Risk Management” below for further information on the provision for loan and lease losses, net charge-offs, nonperforming assets and other factors we consider in assessing the credit quality of our loan and lease portfolio and establishing the allowance for loan and lease losses.

Noninterest Income

The following table presents noninterest income for the periods indicated.

Table 7 - Noninterest Income


	Successor			Predecessor									Combined			Predecessor
	Three Months Ended			Three Months Ended			Change						Nine Months Ended			Nine Months Ended			Change
	September 30, 2005			September 30, 2004			Amount			Percent			September 30, 2005			September 30, 2004			Amount			Percent
Noninterest income:
Deposit services	$	34,558		$	27,583		$	6,975			25	%	$	94,493		$	80,995		$	13,498			17	%
Insurance agency commissions		12,216			12,417			(201	)		(2	%)		39,712			38,431			1,281			3	%
Merchant and electronic banking income, net		15,824			13,723			2,101			15	%		43,665			37,196			6,469			17	%
Wealth management services		10,662			10,280			382			4	%		31,561			29,300			2,261			8	%
Bank-owned life insurance		5,994			5,732			262			5	%		18,198			17,503			695			4	%
Investment planning services		4,708			4,634			74			2	%		14,859			14,619			240			2	%
Net securities gains (losses)		1,014			3,124			(2,110	)		(68	%)		(48,022	)		10,060			(58,082	)		N/M
Loans held for sale — lower of cost or market adjustment		—			—			—			N/M			(7,114	)		—			(7,114	)		N/M
Change in unrealized loss on derivatives		(711	)		—			(711	)		N/M			5,954			—			5,954			N/M

Other noninterest income:
Loan fee income		8,031			5,841			2,190			37	%		23,843			19,527			4,316			22	%
Covered call option premiums		1,951			5,661			(3,710	)		(66	%)		6,080			14,039			(7,959	)		(57	%)
Mortgage banking services income		2,910			1,913			997			N/M			6,567			5,249			1,318			25	%
Venture capital write-downs		(840	)		(1,664	)		824			N/M			(1,233	)		(2,189	)		956			44	%
Miscellaneous income		7,290			3,952			3,338			N/M			17,938			8,688			9,250			N/M

Total other noninterest income		19,342			15,703			3,639			23	%		53,195			45,314			7,881			17	%


Total noninterest income	$	103,607		$	93,196		$	10,411			11	%	$	246,501		$	273,418		$	(26,917	)		(10	%)

N/M — not meaningful

Deposit services income for the three months ended September 30, 2005 increased $7 million, or 25%, compared to the same period last year, primarily due to an increase in overdraft fees resulting from increases in transaction volume and accounts. This increase in overdraft fees was partially offset by a decline in service charge income on business accounts resulting from the introduction of “Free Business Checking” in 2004. For the nine months ended September 30, 2005, deposit services income increased $13.5 million or 17%, compared to the same period last

year. Acquisitions accounted for a portion of the increased number of deposit accounts, increased overdraft fees and increased service charges.

Insurance agency commissions in the three months ended September 30, 2005 decreased $201 thousand, or 2%, when compared to the same period last year. In the nine months ended September 30, 2005 insurance agency commissions increased by $1.3 million, or 3%, compared to the same period last year due primarily to revenue from acquisitions.

Merchant and electronic banking income represents fees and interchange income generated by the use of our ATMs and debit cards issued by us, along with charges to merchants for credit card transactions processed, net of third-party costs directly attributable to handling these transactions. Merchant and electronic banking income in the three months ended September 30, 2005 increased $2.1 million, or 15%, compared to the same period last year, and increased $6.5 million, or 17%, in the nine months ended September 30, 2005 compared to the same period last year. These increases were primarily due to increases in the volume of transactions processed and increased market share from acquisitions.

Wealth management services income increased $382 thousand, or 4%, during the three months ended September 30, 2005, and increased $2.3 million, or 8%, in the nine months ended September 30, 2005 compared to the same respective periods last year. These increases were primarily due to an increase in assets under management, which increased to $11.1 billion at September 30, 2005 from $9.9 billion at September 30, 2004, an increase of $1.2 billion or 12%. The increase in assets under management was primarily due to the acquisition of CCBT in April 2004.

Income from bank-owned life insurance (“BOLI”) for the three months ended September 30, 2005 increased by $262 thousand, or 5%, compared to the same period last year, and increased $695 thousand, or 4%, in the nine months ended September 30, 2005 compared to the same period last year. Income from BOLI represents the increase in the cash surrender value of life insurance policies on the lives of certain officers naming TD Banknorth, NA, to be the beneficiary of such policies. The cash surrender value of our BOLI was $566.8 million at September 30, 2005 compared to $523.1 million at December 31, 2004. The $43.7 million increase was primarily comprised of amounts from acquisitions and increases in the cash surrender value of policies. Investment in BOLI provides us a means to mitigate increasing employee benefit costs. For the third quarter of 2005, the average carrying value of BOLI was $563 million compared to $508 million for the third quarter of 2004.

Investment planning services income consists primarily of commissions earned from sales of third party fixed annuities, variable annuities and mutual funds. Investment planning services income remained flat when compared to the same period last year. The pipeline of new business has slowed due to lower referral volume from the retail branch network in 2005.

Net securities gains amounted to $1.0 million during the third quarter of 2005. In the nine months ended September 30, 2005 net securities losses amounted to $48.0 million and included a $50.4 million loss recorded in connection with the sale of $2.9 billion of securities pursuant to the deleveraging program implemented by us in the first quarter of 2005. Net securities gains amounted to $3.1 million and $10.1 million during the three and nine months ended September 30, 2004 respectively. Gains and losses 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.

Loans held for sale–lower of cost or market adjustment amounted to a $7.1 million charge in the nine months ended September 30, 2005. This amount was recorded in connection with the reclassification of $519 million of residential real estate loans in portfolio to loans held for sale as part of the deleveraging program implemented by us in the first quarter of 2005. The sale of the $519 million of loans was completed in the second quarter of 2005. We retained the servicing on these loans.

The change in unrealized losses on certain derivatives of $0.7 million in the third quarter of 2005 was due to the termination of a $165 million, 10-year U.S. Treasury rate lock agreement that was originated in June 2005 to hedge

the forecasted issuance of $150 million of subordinated debt. In September 2005 a decision was made to issue the subordinated debt in Canada rather than proceed with the originally forecasted U.S. transaction and the $165 million rate lock was terminated, resulting in a loss of $0.7 million. We decided that a Canadian subordinated debt issuance was preferable to a U.S. subordinated debt issuance for several reasons, including, lower funding costs, lower issuance costs via a private placement and a longer fixed term. We estimate the annual cost savings to be approximately $0.4 million per year. The remaining $6.7 million change in unrealized loss on derivatives in the nine months ended September 30, 2005 resulted from required changes in accounting for certain interest rate swap agreements in connection with the accounting for the TD transaction under the purchase method. Through February 28, 2005, interest rate swap agreements with a notional amount of $541.5 million were accounted for as fair value hedges of certain fixed rate FHLB borrowings, subordinated debt and senior notes. In addition, interest rate swap agreements with a notional amount of $1.2 billion were entered into in February 2005 and were accounted for as cash flow hedges of certain variable rate commercial loans through February 28, 2005. Under hedge accounting rules, the fair value of these interest rate swap agreements was recorded on our balance sheet with the offset recorded as an adjustment of borrowings (in the case of the fair value hedges) or shareholders’ equity - accumulated other comprehensive income (in the case of cash flow hedges). On March 1, 2005, the date of completion of the TD transaction and resultant purchase accounting adjustments, these interest rate swap agreements were not redesignated as hedges because it was not determined that the TD transaction should be accounted for under the purchase method until several weeks later. As a result, hedge accounting for these interest rate swap agreements was no longer permitted. In March 2005, a loss of $8.2 million was recorded to reflect the change in the fair value of these swap agreements from March 1, 2005 to March 31, 2005. On April 21, 2005, the interest rate swap agreements related to variable rate commercial loans were redesignated as cash flow hedges, and a gain of $10.1 million was recorded to reflect the change in fair value of these agreements from March 31, 2005 to April 21, 2005; these interest rate swaps were able to be redesignated as cash flow hedges because all applicable requirements of SFAS No. 133 paragraphs 28 and 29 were met at the new inception date. The interest rate swap agreements related to fixed rate borrowings could not be redesignated as hedges because they did not meet the requirements to be considered highly effective. These interest rate swap agreements were terminated on May 13, 2005. From March 31, 2005 to May 13, 2005 these interest rate swap agreements increased in value and a gain of $4.8 million was recorded.

Other noninterest income increased $3.6 million, or 23%, in the three months ended September 30, 2005 and $7.9 million, or 17%, in the nine months ended September 30, 2005 compared to the respective periods last year. Loan fee income was up $2.2 million as compared to the third quarter of 2004 and was up $4.3 million for the nine months ended September 30, 2005 as compared to the prior period in 2004; these increases were largely due to higher volumes of interest rate swap agreements sold by us to commercial loan customers to synthetically fix the interest rate on their variable rate loans (we simultaneously enter into offsetting interest rate swap agreements with third party dealers). Covered call option premiums declined by $3.7 million from the third quarter of 2004 and by $7.9 million for the nine months ended September 30, 2005 as compared to the prior period in 2004; these declines were related to lower volatility in interest rates and lower purchases of investment securities. The covered call option program is managed in conjunction with the fixed-income securities portfolio to provide revenue opportunities in addition to the interest income earned on the securities. Covered call option activity varies from quarter to quarter as interest rates, levels of market volatility and our strategic objectives for the fixed-income securities portfolio change. Mortgage banking services income was up $1.0 million over the third quarter of 2004 and up $1.3 million for the nine months ended September 30, 2005 as compared to the prior period in 2004; these increases were largely due to a $1.7 million gain on the sale of $106 million of portfolio loans in September 2005 and higher margins on sales of current production, offset in part by a $601 thousand impairment charge on mortgage servicing rights tied to adjustable-rate loans serviced for others recorded in September 2005. Venture capital write-downs were lower than prior year amounts , reflecting improved performance of our investments in venture capital funds. Miscellaneous other noninterest income includes income earned on investments in the restricted stock of the Federal Home Loan Bank and the Federal Reserve Bank, fees and commissions on our official check program, cash receipts in excess of estimated cash flows on certain impaired loans which were written down to estimated fair value in connection with the TD transaction and fees earned from business referrals to The Toronto-Dominion Bank since March 1, 2005; each of these items increased over the amounts recorded in the comparable prior year periods.

Noninterest Expense

The following table presents noninterest expense during the periods indicated.

Table 8 — Noninterest Expense


	Successor		Predecessor								Combined		Predecessor
	Three Months Ended		Three Months Ended		Change						Nine Months Ended		Nine Months Ended		Change
	September 30, 2005		September 30, 2004		Amount			Percent			September 30, 2005		September 30, 2004		Amount			Percent
Noninterest expense:
Compensation and employee benefits	$	102,059	$	91,935	$	10,124			11	%	$	308,023	$	266,473	$	41,550			16	%
Occupancy		17,114		15,866		1,248			8	%		53,081		47,274		5,807			12	%
Equipment		12,831		12,074		757			6	%		38,650		35,777		2,873			8	%
Data processing		11,675		11,118		557			5	%		34,327		31,573		2,754			9	%
Advertising and marketing		7,503		6,278		1,225			20	%		22,284		20,105		2,179			11	%
Amortization of identifiable intangible assets		31,041		2,379		28,662			N/M			74,193		6,367		67,826			N/M
Merger and consolidation costs		1,163		5,603		(4,440	)		(79	%)		37,722		11,351		26,371			N/M
Prepayment penalties on borrowings		—		—		—			—			6,303		—		6,303			N/M
Other noninterest expense:
Telephone		3,078		3,829		(751	)		(20	%)		10,062		10,893		(831	)		(8	%)
Office supplies		3,626		2,829		797			28	%		9,246		7,823		1,423			18	%
Postage and freight		2,893		2,742		151			6	%		8,647		7,887		760			10	%
Miscellaneous loan costs		1,215		1,405		(190	)		(14	%)		3,858		3,190		668			21	%
Deposits and other assessments		993		963		30			3	%		3,139		2,811		328			12	%
Collection and carrying costs of non-performing assets		608		628		(20	)		(3	%)		1,747		1,944		(197	)		(10	%)
Miscellaneous		15,930		16,549		(619	)		(4	%)		43,889		44,274		(385	)		(1	%)

Total other noninterest expense		28,343		28,945		(602	)		(2	%)		80,588		78,822		1,766			2	%



Total noninterest expense	$	211,729	$	174,198	$	37,531			22	%	$	655,171	$	497,742	$	157,429			32	%

N/M — not meaningful

Noninterest expense decreased $602 thousand, or 2%, in the third quarter of 2005, and increased $1.8 million, or 2%, in the nine months ended September 30, 2005 compared to the same respective periods last year. The increase in the nine months ended September 30, 2005 was primarily due to a $67.8 million increase in amortization of intangible assets recorded in connection with the transaction with TD on March 1, 2005, and a $26.4 million increase in merger and consolidation costs, which also was primarily related to the transaction with TD, as well as increases in operating costs attributable to acquired banks (staff and facilities costs) and $6.3 million of prepayment penalties on borrowings related to a deleveraging program implemented in the first quarter of 2005. Variances in specific noninterest expense components are discussed in the following paragraphs.

Compensation and employee benefits expense increased $10.1 million, or 11%, in the third quarter of 2005 and $41.6 million, or 16% in the nine months ended September 30, 2005 compared to the same respective periods last year. These increases were due primarily to higher salaries and benefit costs, resulting from acquisitions and normal merit increases, expenses associated with restricted stock unit awards granted in March 2005 that are settled in cash and a $2.8 million reduction of benefit expense recorded in the second quarter of 2004 related to favorable claims experience in our self-insured medical plan from July 2003 (plan inception) through March 2004.

Occupancy expense increased $1.2 million, or 8%, in the third quarter of 2005 and $5.8 million, or 12%, in the nine months ended September 30, 2005 compared to the same respective periods last year. This increase was primarily due to the expense associated with facilities from acquisitions and increased grounds maintenance and, for the nine months ended September 30, 2005, higher electricity expense as a result of winter weather conditions.

Equipment expense increased $757 thousand, or 6%, in the third quarter of 2005 and $2.9 million, or 8%, in the nine months ended September 30, 2005 compared to the same respective periods last year. These

increases were primarily due to increased costs from acquisitions, depreciation on new equipment purchases and equipment maintenance expenses.

Data processing expense increased $557 thousand, or 5%, in the third quarter of 2005 and $2.8 million, or 9%, in the nine months ended September 30, 2005 compared to the same respective periods last year. These increases were primarily due to data line charges from system upgrades and increased software licensing expense.

Advertising and marketing expense increased $1.2 million, or 20%, in the third quarter of 2005 and $2.2 million, or 11%, in the nine months ended September 30, 2005 compared to the same respective periods last year. These increases were primarily due to additional brand advertising and promotional campaigns to enhance brand recognition in certain of our markets. We began amortizing the costs of the naming rights agreement for the TD Banknorth Garden in Boston, Massachusetts on July 1, 2005. Our 50% share of these costs is expected to be approximately $3.6 million per year (TD bears the other 50%). In the third quarter (and year to date) of the current year, the naming rights amortization amounted to $0.9 million.

Merger and consolidation costs decreased $4.4 million in the third quarter of 2005 but increased $26.4 million in the nine months ended September 30, 2005 compared to the same respective periods last year. The increase was due primarily to costs incurred in connection with our transaction with TD and, to a lesser extent, our acquisition of BostonFed in January 2005. For a tabular analysis of our merger and consolidation costs, see Note 14 to the unaudited consolidated financial statements.

Other noninterest expense declined slightly for the third quarter of 2005 compared to the third quarter of 2004, and increased $1.8 million, or 2%, for the nine month period ended September 30, 2005, compared to the same period last year. The decline for the three month period was largely due to lower legal settlement costs and lower telephone charges. The increase for the nine month period was largely due to increased office supply costs related to acquisitions and increased volumes of office supply purchases (including the supplies cost for restocking stationary and forms related to our name change), as well as increased provisions for losses related to off-balance sheet loan commitments.

Taxes

The effective tax rate was 34.4% for the three months ended September 30, 2005 and 34.7% for the nine months ended September 30, 2005 compared to 33.2% and 33.8% for three and nine months ended September 30, 2004, respectively. The increased effective tax rate for the three-month period related primarily to state income taxes. The increased effective tax rate for the nine-month period related primarily to non-deductible transaction expenses related to the transaction with TD and to state income taxes. The effective tax rate for the remainder of 2005 is expected to be approximately 34% to 35%.

We are subject to examinations by various federal and state governmental tax authorities from time to time regarding tax returns we have filed. Certain state income tax returns filed by us in recent years have recently been examined and assessments have been made by state tax authorities with respect to certain of these returns. We believe that we have substantial defenses to these assessments and intend to appeal them in accordance with administrative procedures. Although we believe that our reserves for existing and potential state tax assessments are appropriate, we estimate that the range of reasonably possible exposure over established reserves for existing and potential state tax assessments is from $0 to $11 million, after federal tax benefits. To the extent we settle these assessments for an amount greater than or less than the related reserves, the excess or deficiency will be recorded as an adjustment to goodwill.

Comprehensive Income

Our comprehensive income amounted to $177.9 million for the nine months ended September 30, 2005 as compared to $265.8 million for the same period last year. Comprehensive income differed from our net income as a result of changes in the amount of unrealized gains and losses on our portfolio of securities available for sale and on our derivative contracts that are accounted for as cash flow hedges. For additional information, see the Consolidated Statements of Changes in Shareholders’ Equity.

Our available for sale investment portfolio had net unrealized gains (losses) of ($39.6) million, $669 thousand and ($15.8) million at September 30, 2005, December 31, 2004 and September 30, 2004, respectively. Net of applicable income tax effects, these amounts were ($25.8) million, $435 thousand and ($10.3) million at September 30, 2005, December 31, 2004 and September 30, 2004, respectively. The changes from period to period were primarily due to changes in prevailing interest rates and to the composition of the available for sale investment securities portfolio. The change in fair value of our interest-bearing liabilities, which tends to offset the change in fair value of available for sale securities, is not included in other comprehensive income.

FINANCIAL CONDITION

Our consolidated total assets increased by $3.1 billion, or 11%, from $28.7 billion at December 31, 2004 to $31.8 billion at September 30, 2005, primarily as a result of three factors. The purchase accounting adjustments recorded on March 1, 2005 in connection with the TD transaction resulted in the recognition of an additional $3.0 billion of goodwill and an additional $705 million of identifiable intangible assets. The acquisition of BostonFed Bancorp, Inc. on January 21, 2005 increased assets by approximately $1.5 billion. A deleveraging program implemented coincident with the TD transaction reduced assets by $2.9 billion.

Total average assets were $31.7 billion and $29.2 billion for the three months ended September 30, 2005 and 2004, respectively, and $31.5 billion and $28.0 billion for the nine months ended September 30, 2005 and 2004, respectively. The increases in total average assets were largely due to acquisitions, which increased average assets by approximately $1.7 billion and $2.2 billion for the three months and nine months ended September 30, 2005, respectively, as compared to the same respective periods in 2004, as well as internal growth. The increases were notwithstanding the effects of the deleveraging programs in the fourth quarter of 2004 and the first quarter of 2005, which reduced average assets by approximately $2.3 billion.

Shareholders’ equity totaled $6.5 billion at September 30, 2005 and $3.2 billion at December 31, 2004, an increase of $3.3 billion. The increase was due primarily to the effects of accounting for the transaction with TD under the purchase method. See Note 2 to the unaudited Consolidated Financial Statements.

Securities

The securities portfolio is utilized for several purposes. It serves as a vehicle to manage interest rate and prepayment risk, generates interest and dividend income from the investment of excess funds, provides liquidity and is used as collateral for public deposits and wholesale funding sources.

The securities portfolio (including securities classified as held to maturity) averaged $4.3 billion during the third quarter of 2005, as compared to $7.7 billion in the third quarter of 2004. The decrease in the average securities portfolio resulted primarily from the deleveraging programs in the fourth quarter of 2004 and the first quarter of 2005, which were partially offset by the effects of the acquisitions in 2004 and 2005. The securities portfolio is held in and managed by Northgroup Asset Management Company, a wholly-owned subsidiary of TD Banknorth, NA, and consists primarily of mortgage-backed securities. Other securities in the portfolio are collateralized mortgage obligations, which include securitized residential real estate loans held in a REMIC, asset-backed securities and corporate bonds. Substantially all securities available for sale were rated AAA or equivalently rated at September

30, 2005. The average yield on securities was 4.80% for the quarter ended September 30, 2005 compared to 4.36% for the quarter ended September 30, 2004. With the exception of securitized residential real estate loans held in a REMIC that were classified as held to maturity and carried at cost, all of our securities are classified as available for sale and carried at fair value. Securities available for sale had an after-tax unrealized loss of $25.8 million and an after-tax unrealized gain of $0.4 million at September 30, 2005 and December 31, 2004, respectively. These unrealized gains (losses) do not impact net income or regulatory capital but are recorded as adjustments to shareholders’ equity, net of related deferred income taxes. Unrealized gains (losses), net of related deferred income taxes, are a component of “Accumulated Other Comprehensive Income (Loss)” contained in the unaudited Consolidated Statement of Changes in Shareholders’ Equity.

Loans and Leases

Total loans and leases (including loans held for sale) averaged $20.1 billion during the third quarter of 2005, an increase of $1.8 billion, or 10%, from the third quarter of 2004. Excluding acquisitions and the effects of purchase accounting adjustments, average loans and leases for the quarter ended September 30, 2005 were $388 million, or 2%, higher than the comparable period in 2004. Average loans and leases as a percent of average earning assets was 82% during the quarter ended September 30, 2005 compared to 71% during the quarter ended September 30, 2004.

Average residential real estate loans (which include mortgage loans held for sale) of $3.2 billion during the third quarter of 2005 increased $111 million from the average amount of such loans during the third quarter of last year. Excluding acquisitions and the effects of purchase accounting adjustments, average residential loans decreased approximately $773 million, or 19%. The weighted average yield on residential real estate loans increased from 4.95% to 5.52% during the quarters ended September 30, 2004 and 2005, respectively, primarily due to the sale of such loans in connection with the deleveraging program in the first quarter of 2005, which included $519 million of lower-yielding loans, and the repricing of adjustable-rate loans.

Mortgage loans held for sale amounted to $46 million and $52 million at September 30, 2005 and December 31, 2004, respectively. In May 2005, we sold $519 million residential mortgage loans as part of the deleveraging program implemented in the first quarter of 2005. We also sold portfolio mortgage loans in the amount of $60 million and $106 million in June 2005 and September 2005, respectively. In addition, we continue to sell substantially all of the conforming fixed-rate loans we originate.

Commercial real estate loans averaged $6.7 billion during the third quarter of 2005, an increase of $561 million, or 9%, from the third quarter of last year. Excluding acquisitions and the effects of purchase accounting adjustments, average commercial real estate loans increased $274 million, or 4%, during this period. Most of our markets posted increases, with the largest increases in Massachusetts, Maine and Connecticut. The weighted average yield on commercial real estate loans during the third quarter of 2005 was 6.11%, as compared to 5.76% in the third quarter of 2004, an increase of 35 basis points. The higher yield reflects the effects of higher prevailing rates as a result of the increase in prime rates in 2004 and 2005.

Commercial business loans and leases averaged $4.2 billion during the third quarter of 2005, an increase of $353 million, or 9%, over the third quarter of 2004. Excluding acquisitions and the effects of purchase accounting adjustments, average commercial business loans and leases increased $317 million, or 8%. Most of our markets posted increases, with Massachusetts, Maine, Connecticut, and New Hampshire showing the strongest growth. The weighted average yield on commercial loans and leases increased to 6.04% in the third quarter of 2005 from 4.93% in the third quarter of 2004. The increase in the yield was primarily due to higher rates on new loans, the upward repricing of variable-rate loans and the benefit of a $1.2 billion notional amount cash flow hedge (interest rate swap agreement) entered into February 2005.

Consumer loans and leases averaged $5.9 billion during the third quarter of 2005, an increase of $733 million, or 14%, from the third quarter of 2004. Excluding acquisitions and the effects of purchase accounting adjustments, average consumer loans and leases increased $570 million or 11%. The growth in consumer loans was primarily in

home equity loans and indirect auto loans. The weighted average yield on consumer loans and leases increased to 5.94% in the third quarter of 2005 from 5.10% in the third quarter of 2004, resulting from the upward repricing of variable rate loans and, to a lesser degree, the benefit of a $1 billion notional amount cash flow hedge (interest rate swap agreement) entered into in March 2005. For a description of the types of loans and leases in our consumer portfolio and a breakdown of our consumer loans and leases, see “Credit Risk.”

Deposits

Total deposits averaged $20.2 billion during the third quarter of 2005, an increase of $845 million, or 4%, from the third quarter of 2004. This increase was primarily due to acquisitions. Noninterest-bearing accounts and money market and NOW accounts reflected the largest increases. The ratio of loans to deposits was 97% at September 30, 2005 and at December 31, 2004.

Average noninterest-bearing deposits totaled $4.5 billion during the third quarter of 2005, an increase of $310 million, or 7%, from the third quarter of 2004. Excluding acquisitions, average noninterest-bearing deposits increased $219 million, or 5%.

Average interest-bearing deposits of $15.7 billion during the third quarter of 2005 increased $535 million, or 4%, from the third quarter of 2004. Excluding acquisitions, average savings, money market and NOW accounts decreased $245 million, or 2%, and certificates of deposits declined by 8%. The decline in certificates of deposit resulted from our decision to allow certain deposits priced above alternate funding costs to run off. The average rates paid on all interest-bearing deposits increased by 50 basis points from 1.05% in the third quarter of 2004 to 1.55% in the third quarter of 2005, reflecting the increase in prevailing interest rates.

Included within the deposit categories above are government banking deposits, which averaged $2.0 billion in the third quarter of 2005 and $1.7 billion in the third quarter of 2004. Government banking deposits include deposits received from state and local governments, school districts, colleges/universities, utility districts, public housing authorities and court systems in our market area. Many of these deposits exceed the FDIC insurance coverage amounts and require us to pledge specific collateral or maintain private insurance.

Other Funding Sources

We use both short-term and long-term borrowings to balance earning asset growth. Short-term borrowings include FHLB advances, federal funds purchased, securities sold under agreements to repurchase and borrowings from the U. S. Treasury. Short-term borrowings amounted to $3.0 billion and $3.7 billion at September 30, 2005 and December 31, 2004, respectively, a decrease of $776 million.

Long-term debt includes FHLB advances, senior notes, subordinated notes, junior subordinated debentures, wholesale securities sold under agreements to repurchase, capital lease obligations and other debt with original maturities greater than one year. Long-term debt amounted to $1.3 billion at September 30, 2005 and $2.3 billion at December 31, 2004. The decrease of $988 million related to the repayment of wholesale securities sold under repurchase agreements as part of the deleveraging program in the first quarter of 2005.

At September 30, 2005 and December 31, 2004, long-term FHLB borrowings amounted to $158 million and $429 million, respectively, and were collateralized primarily with first mortgage loans secured by single-family properties. These borrowings had an average cost of 4.54% during the nine months ended September 30, 2005 as compared to 4.22% during the nine months ended September 30, 2004.

At September 30, 2005 and December 31, 2004, long-term wholesale securities sold under repurchase agreements amounted to $0 and $1.1 billion, respectively, and were collateralized by mortgage-backed securities and U.S. Government obligations. Wholesale securities sold under repurchase agreements were repaid as part of the deleveraging program in the first quarter of 2005.

At September 30, 2005 and December 31, 2004, we had outstanding $368.8 million and $310.7 million, respectively, of junior subordinated debentures issued by us to affiliated trusts. At September 30, 2005, these junior subordinated debentures had a fair value adjustment of $25.1 million. See “Capital” below.

At September 30, 2005 and December 31, 2004, our consolidated borrowings included $226 million of 7.625% subordinated notes due 2011 issued by our banking subsidiary in 2001. These notes had a carrying value of $226 million at September 30, 2005, inclusive of a $26.4 million remaining fair value adjustment recorded under the purchase method of accounting. The notes qualify as Tier 2 capital for regulatory purposes.

In September 2005, TD Banknorth, NA issued Can$270 million of subordinated notes (USD $229 million). These notes are unconditionally guaranteed by TD. These notes pay a fixed rate of interest semi-annually until September 20, 2017 and a floating rate equal to the Canadian Bankers’ Acceptance Rate plus 1.00% quarterly thereafter until maturity on September 20, 2022. On or after September 20, 2017, TD Banknorth, NA may, at its option, redeem the notes at 100% of the principal amount together with accrued and unpaid interest. Prior to September 20, 2017, TD Banknorth, NA may, at its option, redeem the notes at a redemption price which is equal to the higher of 100% of the principal amount and the Canada yield price (as defined), together in each case with accrued and unpaid interest. TD Banknorth, NA may not redeem the notes without the required approval of the Office of the Comptroller of the Currency of the United States (“OCC”) and the written approval of the Office of the Superintendent of Financial Institutions (Canada). The notes qualify as Tier 2 regulatory capital of TD Banknorth and TD Banknorth, NA. In connection with this issuance, we entered into a $229 million notional amount cross currency swap agreement which matures on September 20, 2017; this cross currency swap agreement synthetically fixes the interest rate at 5.05% on USD$229 million.

At September 30, 2005 and December 31, 2004, we had outstanding $149 million of 5-year senior notes carrying a fixed rate of 3.75%. These notes had a carrying value of $150 million at September 30, 2005, inclusive of a $1 million remaining fair value adjustment recorded under the purchase method of accounting. These securities, which were issued in April 2003, are rated A3 by Moody’s Investor Services.

At September 30, 2005, we had a $110 million unsecured line of credit with TD. The line is renewable every 364 days and, if used, carries interest at LIBOR plus a maximum of 0.60%. There were no drawdowns on this line during the nine months ended September 30, 2005. We have additional borrowing capacity as more fully described under “Liquidity” below.

Shareholders’ Equity

Shareholders’ equity amounted to $6.5 billion at September 30, 2005, an increase of $3.3 billion from our $3.2 billion of shareholders’ equity at December 31, 2004. This increase was primarily attributable to the $3.4 billion increase resulting from accounting for the TD transaction under the purchase method. This increase more than offset the repurchase of 15.3 million shares of our common stock for $486 million in the aggregate (at an average cost of $31.79 per share) and the payment of $72.8 million of cash dividends declared on our common stock during the nine months ended September 30, 2005. Shareholders’ equity also was impacted by $177.9 million of comprehensive income during the nine months ended September 30, 2005.

Our retained earnings at September 30, 2005 amounted to $135.1 million, as compared to $1.7 billion at December 31, 2004. The use of the purchase method to account for the transaction with TD resulted in the elimination of our retained earnings as of March 1, 2005. We do not believe that this decrease in retained earnings will adversely affect our ability to maintain our quarterly dividend policy in the future. Dividends declared in the third quarter of 2005 were $.22 per share compared to $.20 per share for the same period last year. On October 25, 2005, we declared a $0.22 per share cash dividend payable on November 14, 2005 to shareholders of record on November 4, 2005.

Book value per share amounted to $37.23 and $17.71 at September 30, 2005 and December 31, 2004, respectively, and tangible book value per share amounted to $8.50 and $9.82 at the same dates, respectively.

For information regarding our compliance with applicable capital requirements, see “Capital” below.

CONTRACTUAL OBLIGATIONS

In March 2005, TD Banknorth entered into an agreement for the exclusive naming rights to the Boston Garden, the home of the Boston Celtics and the Boston Bruins. Under the agreement, the official name of the arena became “TD Banknorth Garden” on July 1, 2005 for a 20-year term ending on June 30, 2025. In exchange for the naming, advertising and other benefits under the agreement, TD Banknorth agreed to pay an initial fee of $1.1 million and an annual fee of $5.9 million and committed to spend $1.5 million (each to be adjusted annually for inflation) each year in marketing and promoting the arena. TD is a formal party to this agreement and has agreed to pay the owner 50% of each of the initial fee and annual fee. This future commitment has not been recorded on our balance sheet because it is being accounted for in a manner consistent with the accounting for operating leases under Statement of Financial Accounting Standards No. 13, “Accounting for Leases.”

The following tables summarize our contractual cash obligations, other commitments and derivative financial instruments at September 30, 2005.

Table 9 — Contractual Obligations and Other Commitments — Successor


			Payments Due By Period
			Less than		1 — 3		4 — 5		After 5
Contractual Obligations (1)	Total		1 Year		Years		Years		Years
Long-term debt	$	1,266,725	$	176,281	$	33,744	$	167,625	$	889,075
Capital lease obligations		6,472		132		816		1,391		4,133

Total long-term debt		1,273,197		176,413		34,560		169,016		893,208
Operating lease obligations		135,143		26,946		40,536		28,259		39,402
Pension plan contribution (2)		27,600		27,600		—		—		—
Other benefit plan payments — estimated		46,875		4,318		9,055		12,602		20,900
Other vendor obligations (3)		87,509		13,111		13,822		6,565		54,011

Total contractual obligations	$	1,570,324	$	248,388	$	97,973	$	216,442	$	1,007,521


(1)		Other liabilities which are short term in nature are not included in this table.

(2)		Funding requirements for pension benefits after 2005 are excluded due to the significant variability in the assumptions required to project the timing of future cash contributions.

(3)		Includes our commitment for the naming rights for the TD Banknorth Garden effective July 1, 2005 net of TD’s 50% share.


	Total		Amount of Commitment Expiration — Per Period
	Amounts		Less than		1 — 3		4 — 5		After 5
Other commitments	Committed		1 Year		Years		Years		Years
Unused portions on lines of credit	$	5,521,806	$	1,386,990	$	253,814	$	149,451	$	3,731,551
Standby letters of credit		553,960		94,489		95,600		94,315		269,556
Commercial letters of credit		16,618		11,851		513		1,440		2,814
Commitments to originate loans		2,364,505		1,467,328		416,424		135,745		345,008
Other commitments		247,871		4,850		12,448		2,367		228,206

Total commitments	$	8,704,760	$	2,965,508	$	778,799	$	383,318	$	4,577,135


	Total		Amount of Commitment Expiration — Per Period
	Amounts		Less than		1 — 3		4 — 5		After 5
Derivative Financial Instruments	Committed		1 Year		Years		Years		Years
Interest rate swaps (notional amount):
Commercial loan swap program:
Interest rate swaps with commercial borrowers (1)	$	1,092,411	$	9,500	$	86,301	$	185,017	$	811,593
Interest rate swaps with dealers (2)		1,092,411		9,500		86,301		185,017		811,593
Interest rate caps with commercial borrowers		10,888		—		—		9,435		1,453
Interest rate caps with dealers		10,888		—		—		9,435		1,453
Interest rate swaps on loans (3)		2,200,000		275,000		550,000		550,000		825,000
Cross currency swap (USD) (4)		228,620		—		—		—		228,620
Forward commitments to sell loans		85,328		85,328		—		—		—
Foreign currency rate contracts: (5)
Forward contracts with customers		28,312		27,706		606		—		—
Forward contracts with dealers		28,312		27,706		606		—		—
Foreign exchange options to purchase		11,156		11,156		—		—		—
Foreign exchange options to sell		11,156		11,156		—		—		—
Rate-locked loan commitments		59,986		59,986		—		—		—


(1)		Swaps with commercial loan customers (TD Banknorth receives fixed, pays variable).

(2)		Offsetting swaps with dealers (TD Banknorth pays fixed, receives variable), which offset the interest rate swaps with commercial borrowers.

(3)		Swaps on loans (TD Banknorth pays fixed, receives variable).

(4)		Swap on borrowings.

(5)		Forward contracts for customer accommodations.

RISK MANAGEMENT

The primary goal of our risk management program is to determine how certain existing or emerging issues in the financial services industry affect the nature and extent of the risks faced by us. Based on a periodic self-evaluation, we determine key issues and develop plans and/or objectives to address risk. Our board of directors and management believe that there are seven applicable “risk categories,” consisting of credit, interest rate, liquidity, transaction, compliance, strategic and reputation risk. Each risk category is viewed from a quantity of risk perspective (high, medium or low) coupled with a quality of risk management perspective. In addition, an aggregate level of risk is assigned as a whole as well as the direction of risk (stable, increasing or decreasing). Each risk category and the overall risk level is compared to regulatory views on a regular basis and then reported to the board with an accompanying explanation as to the existence of any differences. The risk program includes risk identification, measurement, control and monitoring.

Our board of directors has established our overall strategic direction and approves our overall risk policies and oversees our overall risk management process. The board has established the Audit Committee and, through TD Banknorth, NA , the Board Risk Committee to oversee key risks. In addition, there is a management Operational Risk Committee, which is comprised of senior officers in key business lines and identifies and monitors key operational risks.

CREDIT RISK MANAGEMENT

General

TD Banknorth NA’s Board Risk Committee monitors our credit risk management. Our strategy for credit risk management includes centralized policies and uniform underwriting criteria for all loans. The strategy also includes diversification on a geographic, industry and customer level, regular credit examinations and quarterly management review of large loans and loans with a deterioration of credit quality. We maintain an internal rating system that provides a mechanism to regularly monitor the credit quality of our loan and lease portfolio. The rating system is

intended to identify and measure the credit quality of lending relationships. For consumer loans, we utilize standard credit scoring systems to assess consumer credit risks and to price consumer products accordingly. We strive to identify potential problem loans early, take any necessary charge-offs promptly and maintain adequate reserve levels. See “Results of Operations — Provision and Allowance for Loan and Lease Losses.”

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

Table 10 — Composition of Loans and Leases


	Successor								Predecessor
	September 30, 2005								December 31, 2004
			Percent			Percent					Percent			Percent
	Amount		of Loans			Nonperforming			Amount		of Loans			Nonperforming
Residential real estate mortgages	$	3,048,411		15	%		0.21	%	$	3,081,217		16	%		0.25	%
Commercial real estate mortgages		6,716,035		34	%		0.43	%		6,249,513		34	%		0.48	%
Commercial business loan and leases		4,178,327		21	%		0.50	%		3,928,594		21	%		0.83	%
Consumer loan and leases		6,028,411		30	%		0.11	%		5,333,670		29	%		0.14	%

	$	19,971,184		100	%		0.32	%	$	18,592,994		100	%		0.42	%

Our residential loans are generally secured by single-family homes (one-to-four units) and have a maximum loan-to-value ratio of 80%, unless the excess is protected by mortgage insurance.

Our commercial real estate loan 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. These loans generally are secured by properties located in the New England states and upstate New York.

Our commercial business loans and leases are generally made to small to medium size businesses located within our market areas. These loans are not concentrated in any particular industry, but reflect the broad-based economy of New England and upstate New York. Commercial loans consist primarily of loans secured by various equipment, machinery and other corporate assets, as well as loans to provide working capital to businesses in the form of lines of credit. Through a subsidiary, we also offer direct equipment leases, which amounted to $92.0 million at September 30, 2005. We do not emphasize the purchase of participations in syndicated commercial loans. At September 30, 2005, we had $498.7 million of outstanding participations in syndicated commercial loans and had an additional $495.6 million of unfunded commitments related to these participations.

The following table presents the geographic distribution of our commercial loans and leases at September 30, 2005 and December 31, 2004.

Table 11 — Commercial Loans and Leases by State


	Commercial Real Estate Loans										Commercial Business Loans and Leases
	Successor		Predecessor		Change						Successor		Predecessor		Change
	September 30,		December 31,								September 30,		December 31,
	2005		2004		Amount			Percent			2005		2004		Amount		Percent
Massachusetts	$	3,352,922	$	3,085,278	$	267,644			8.67	%	$	1,666,161	$	1,569,911	$	96,250		6.13	%
Maine		1,005,014		933,677		71,337			7.64	%		828,772		787,822		40,950		5.20	%
New Hampshire		853,780		767,590		86,190			11.23	%		564,628		564,604		24		0.00	%
Vermont		639,038		664,063		(25,025	)		(3.77	%)		441,771		433,055		8,716		2.01	%
Connecticut		636,450		583,907		52,543			9.00	%		505,354		412,601		92,753		22.48	%
New York		228,831		214,998		13,833			6.43	%		171,641		160,601		11,040		6.87	%

Total	$	6,716,035	$	6,249,513	$	466,522			7.46	%	$	4,178,327	$	3,928,594	$	249,733		6.36	%

Consumer loans and leases consist primarily of home equity lines and loans and direct/indirect automobile loans. Vision, dental and orthodontia fee plan loans and mobile home loans continue to decline since we ceased originating such loans in the fourth quarter of 2003.

The following table presents our consumer loans and leases by type at September 30, 2005 and December 31, 2004.

Table 12 — Composition of Consumer Loans and Leases


	Successor					Predecessor
	September 30,					December 31,
	2005					2004					Change
			% of					% of
	Amount		Total			Amount		Total			Amount			Percent
Home equity	$	3,513,918		58.29	%	$	3,123,525		58.55	%	$	390,393			12.50	%
Automobile		1,990,194		33.01	%		1,678,817		31.48	%		311,377			18.55	%
Mobile home		94,352		1.57	%		111,874		2.10	%		(17,522	)		(15.66	%)
Vision, dental and orthodontia fee plan		23,394		0.39	%		49,934		0.94	%		(26,540	)		(53.15	%)
Education		185,642		3.08	%		159,314		2.99	%		26,328			16.53	%
Other		220,911		3.66	%		210,206		3.94	%		10,705			5.09	%

Total	$	6,028,411		100.00	%	$	5,333,670		100.00	%	$	694,741			13.03	%

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 amounted to 0.21% at September 30, 2005, 0.28% at December 31, 2004 and 0.23% at September 30, 2004. Total nonperforming assets as a percentage of total loans and total other nonperforming assets amounted to 0.33% at September 30, 2005, 0.44% at December 31, 2004 and 0.37% at September 30, 2004. See Table 13 for a summary of nonperforming assets for the last five quarters. On a dollar basis, our nonperforming assets decreased to $66.9 million at September 30, 2005 from $81.1 million at December 31, 2004 and amounted to $68.0 million at September 30, 2004. The decrease at September 30, 2005 compared to December 31, 2004 was primarily due to the application of $21.4 million of specific reserves to the carrying value of certain nonperforming commercial loans in accordance with the purchase method of accounting.

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, there can be no assurance that adverse changes in the real estate markets and economic conditions in our primary market areas will not result in higher nonperforming asset levels in the future and negatively impact our operations through higher provisions for loan losses, net loan charge-offs, decreased accrual of interest income and increased noninterest expenses as a result of the allocation of resources to the collection and workout of nonperforming assets.

The following table presents information regarding our nonperforming assets for the last five quarters.

Table 13 — Nonperforming Assets


	Successor									Predecessor
	2004									2005
	September 30			June 30			March 31			December 31			September 30
Nonaccrual loans and leases:
Residential real estate loans	$	6,531		$	6,165		$	8,614		$	7,846		$	7,274
Commercial real estate loans (1)		29,224			30,353			23,553			29,948			33,249
Commercial business loans and leases (2)		21,306			26,776			24,520			32,421			18,573
Consumer loans and leases		6,899			6,816			6,229			7,344			6,827

Total nonaccrual loans and leases		63,960			70,110			62,916			77,559			65,923


Other nonperforming assets:
Other real estate owned, net of related reserves		1,554			2,101			3,925			1,878			698
Repossessions, net of related reserves		1,375			1,695			2,087			1,666			1,358

Total other nonperforming assets		2,929			3,796			6,012			3,544			2,056


Total nonperforming assets	$	66,889		$	73,906		$	68,928		$	81,103		$	67,979


Accruing loans and leases 90 days or more overdue	$	6,489		$	6,122		$	5,041		$	5,254		$	5,018


Total nonperforming loans as a percentage of total loans and leases(3)		0.32	%		0.35	%		0.32	%		0.42	%		0.36	%
Total nonperforming assets as a percentage of total assets		0.21	%		0.23	%		0.21	%		0.28	%		0.23	%
Total nonperforming assets as a percentage of total loans and leases (3) and total other nonperforming assets		0.33	%		0.37	%		0.35	%		0.44	%		0.37	%


(1)		In connection with the accounting for the TD tranaction, as of March 1, 2005, specific reserves of $6.9 million were applied to reduce the individual loan balances on impaired commercial business loans and leases.

(2)		In connection with the accounting for the TD transaction, as of March 1, 2005, specific reserves of $14.5 million were applied to reduce the individual loan balances on impaired commercial real estate loans.

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

Residential real estate loans are generally placed on nonaccrual when they become 120 days past due or are in the process of foreclosure. All closed-end consumer loans 90 days or more past due, unless well secured and in the process of collection, and any equity lines of credit in the process of foreclosure are placed on nonaccrual status. Consumer loans are charged-off upon reaching 120 or 180 days past due depending on the type of loan. We generally place all commercial real estate loans and commercial business loans and leases which are 90 days or more past due on nonaccrual status, unless secured by sufficient cash or other assets immediately convertible to cash. At September 30, 2005, we had $6.5 million of accruing loans which were 90 days or more delinquent, as compared to $5.3 million at December 31, 2004 and $5.0 million at September 30, 2004. We may also place loans which are less than 90 days past due on nonaccrual (and, therefore, nonperforming) status when in our judgment these loans are likely to present future principal and/or interest repayment problems and ultimately would be classified as nonperforming.

Net Charge-offs

Net charge-offs amounted to $6.3 million during the three months ended Sept 30, 2005, as compared to $8.8 million during the three months ended September 30, 2004. The decrease was largely due to increased recoveries in the third quarter of 2005. Net charge-offs represented 0.13% of average loans and leases outstanding for the quarter ended September 30, 2005 and 0.19% for the quarter ended September 30, 2004.

The following table presents net charge-offs by loan type and the activity in the allowance for credit losses during the periods indicated.

Table 14 — Allowance for Credit Losses


	Successor			Successor			Combined			Predecessor
	2005 Third			2005 Second			2005 First			2004 Fourth			2004 Third
	Quarter			Quarter			Quarter			Quarter			Quarter
Allowance for loan and lease losses at beginning of period	$	228,168		$	228,165		$	243,152		$	242,885		$	247,620
Additions due to acquisitions		—			—			14,494			—			—

Charge-offs:
Residential real estate mortgages (1)		17			93			65			(4	)		101
Commercial real estate mortgages		2,194			271			5,551			216			4
Commercial business loans and leases		2,828			1,366			2,069			7,531			4,458
Consumer loans and leases		6,716			5,313			6,738			6,494			7,566

Total loans and leases charged off		11,755			7,043			14,423			14,237			12,129


Recoveries:
Residential real estate mortgages		142			4			8			5			15
Commercial real estate mortgages		477			663			1,519			703			534
Commercial business loans and leases		2,825			1,595			1,524			1,937			1,519
Consumer loans and leases		1,977			1,187			1,257			1,189			1,256

Total loans and leases recovered		5,421			3,449			4,308			3,834			3,324

Net charge-offs		6,334			3,594			10,115			10,403			8,805

Transfer for off-balance sheet loan commitments (2)		—			—			—			—			(6,600	)
Provision for loan and lease losses		5,500			3,597			2,069			10,670			10,670
Specific reserves applied to reduce impaired loan carrying values (3)		1,000			—			(21,435	)		—			—

Allowance for loan and lease losses at end of period (2)	$	228,334		$	228,168		$	228,165		$	243,152		$	242,885


Total Allowance for Credit Losses:
Allowance for loan and lease losses	$	228,334		$	228,168		$	228,165		$	243,152		$	242,885
Liability for unfunded credit commitments (2)		7,607			6,807			6,707			6,600			6,600

Total allowance for credit losses	$	235,941		$	234,975		$	234,872		$	249,752		$	249,485


Ratio of net charge-offs to average loans and leases outstanding during the period, annualized (4)		0.13	%		0.07	%		0.21	%		0.22	%		0.19	%
Ratio of allowance for credit losses to total loans and leases at end of period (2)		1.18	%		1.17	%		1.20	%		1.34	%		1.36	%
Ratio of allowance for credit losses to nonperforming loans and leases at end of period		369	%		335	%		373	%		322	%		378	%
Ratio of net charge-offs (recoveries) as a percent of average outstanding loans and leases, annualized (4):
Residential real estate mortgages		(0.015	%)		0.011	%		0.006	%		(0.001	%)		0.011	%
Commercial real estate mortgages		0.101	%		(0.024	%)		0.254	%		(0.031	%)		(0.034	%)
Commercial business loans and leases		(0.000	%)		(0.022	%)		0.055	%		0.576	%		0.305	%
Consumer loans and leases		0.318	%		0.291	%		0.404	%		0.396	%		0.483	%

Total portfolio loans and leases at end of period (4)	$	19,971,184		$	20,028,662		$	19,649,943		$	18,592,994		$	18,410,791
Total nonperforming loans and leases at end of period		63,960			70,110			62,916			77,559			65,923
Average loans and leases outstanding during the period (4)		20,021,651			19,803,681			19,561,761			18,515,595			18,263,613


(1)		Residential real estate charge-offs include estimates of charge-offs and reversals of prior period estimates, which may result in negative charge-offs.

(2)		During the third quarter of 2004, we reclassified the portion of our allowance for credit losses related to unfunded credit commitments from the allowance for loan and lease losses to a separate liability account.

(3)		In connection with the TD transaction, $21.4 million of the allowance for loan and lease losses related to impaired commercial loans was transferred in accordance with the implementation of American Institute of Certified Public Accountants Statement of Position 03-3, “Accounting for Certain Loans or Debt Securities Acquired in a Transfer” to reduce the carrying value of impaired commercial loans. In the third quarter of 2005, a $1 million reduction was made to the original amount recorded in the first quarter.

(4)		Excludes residential real estate loans held for sale.

Potential Problem Loans

In addition to the nonperforming loans discussed under “Credit Risk Management” above, we also have loans that are 30 to 89 days delinquent and still accruing. These loans amounted to $147 million at September 30, 2005 and $138 million at December 31, 2004. These loans and related delinquency trends are considered in the evaluation of the allowance for loan and lease losses and the determination of the provision for loan and lease losses.

Analysis and Determination of the 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 probable losses inherent in the loan and lease portfolio. 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. As discussed under “Critical Accounting Policies,” we believe that the methods used by us in determining the allowance for loan and lease losses constitute a critical accounting policy. Although we exercise judgment in providing for losses, for the reasons discussed under “Critical Accounting Policies” and “Credit Risk Management — Nonperforming Assets,” there can be no assurance that we will not have to increase the amount of our provision for loan and lease losses in future periods.

The allowance for loan and lease losses amounted to $228.3 million at September 30, 2005 and $243.2 million at December 31, 2004. The $14.8 million decrease was attributable to (i) the transfer of $21.4 million of specific reserves on impaired loans from the allowance for loan and lease losses to reduce the carrying amount of impaired commercial loans (in accordance with SOP 03-3, “Accounting for Certain Loans or Debt Securities Acquired in a Transfer”) and as a result of the TD transaction and related purchase accounting adjustments and (ii) net charge-offs of $20.0 million during the nine months ended September 30, 2005. These items were partially offset by $14.5 million of general reserves which were acquired in connection with the acquisition of BostonFed and the provision of $11.2 million for loan and lease losses in the nine months ended September 30, 2005. Net charge-offs represented 0.13% of average loans and leases outstanding for the quarter ended September 30, 2005 and 0.19% for the same period in 2004. The ratio of the allowance for credit losses to nonperforming loans and leases was 369% at September 30, 2005 and 378% at September 30, 2004. The ratio of the allowance for credit losses to total portfolio loans and leases was 1.18% at September 30, 2005 compared to 1.36% at September 30, 2004.

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, goals and objectives that are adopted and reviewed by our board of directors and monitored periodically by the Board Risk Committee. The board of directors delegates responsibility for asset-liability management strategies to achieve these goals and objectives to the Asset Liability Management Committee (“ALCO”), which is comprised of members of senior management. Senior management determines the strategic directives that guide the day-to-day management of our activities and interest rate risk exposure. The ALCO also reviews and approves all major risk, liquidity and capital management programs, except for product pricing. Product pricing is reviewed and approved by the Pricing Committee, which is comprised of a subset of ALCO members and the state presidents of our banking subsidiary.

Interest Rate Risk

Interest rate risk is the risk of loss to future earnings or long-term value resulting from changes in interest rates and is by far the most significant non-credit risk to which we are exposed. This risk arises directly from our core lending and deposit gathering activities and is predominantly concentrated in our mortgage-related assets, as well as in our non-maturity deposits. Residential mortgage-related assets typically give borrowers the option to prepay at any time

without penalty. Principal cash flows that come from these assets are highly interest rate sensitive. As interest rates fall, borrowers are more likely to pay off their existing mortgages, which results in higher cash flows that we must in turn reinvest. Replacing these higher-rate mortgage assets with lower-rate mortgage assets has the potential to reduce our net interest income unless we can also reduce either our wholesale or retail funding costs. In the low interest rate environment, bank deposits can increase, especially if the market risk premium is not sufficient to adequately compensate investors. Consequently, under such circumstances, we can have even more cash to reinvest in low-yielding assets. Conversely, rising rates tend to have the opposite effect on both mortgage assets and non-maturity deposits. Higher rates make borrowers less likely to refinance existing debt, resulting in lower cash flows for us to reinvest. And if the market risk premium is sufficiently high, depositors could be enticed to take additional investment risk and move deposits from banks into riskier assets, such as equity securities. This in turn could result in less cash to invest or even require us to use wholesale funding market sources more actively. In the case of higher interest rates, our funding sources could reprice faster than our assets, thereby reducing our interest rate spread and net interest margin. The degree to which future earnings or long-term value is subject to interest rate risk depends on how closely the characteristics of our interest-earning assets match those of our interest-bearing liabilities.

In addition to directly impacting mortgage asset and deposit cash flows, interest rate changes could affect (i) the amount of loans originated and sold by us, (ii) the level and composition of deposits, (iii) the ability of borrowers to repay adjustable or variable rate loans, (iv) the average maturity of loans and investments, (v) the rate of amortization of premiums paid on securities, capitalized mortgage servicing rights, deferred fees and purchase accounting adjustments, (vi) the fair value of our saleable assets, the amount of unrealized gains and losses on securities available for sale per SFAS No. 115 and the resultant ability to realize gains on the sale of such securities and (vii) per SFAS Nos. 133 and 138, the fair value of derivatives carried on our balance sheet, derivative hedge effectiveness testing and the amount of ineffectiveness recognized in earnings.

Assessment and Measurement

The overall objective of interest rate risk management is to deliver consistent net interest income growth and returns on equity over a wide range of possible interest rate environments. To that end, management focuses on (i) key interest rate risk metrics and assessment of our exposure to this risk, (ii) a careful review and consideration of modeling assumptions and (iii) asset and liability management strategies that help attain the corporate goals and objectives adopted by our board of directors.

The primary objective of interest rate risk management is to control our estimated exposure to interest rate risk within limits and guidelines established by the ALCO and approved by our board of directors. These limits and guidelines reflect our tolerance for interest rate risk over a wide range of both short-term and long-term measurements. In addition, we evaluate interest rate risk based on ongoing business risk measures, liquidation or run-off measures of assets and liabilities on our balance sheet and stress test measures. Ongoing measurements and runoff analysis provide management with information concerning day-to-day operations. Stress testing shows the impact of very extreme but lower probability events. The combination of these measures gives management a comprehensive view of possible risks to future earnings and long-term equity value. We attempt to control interest rate risk by identifying, quantifying and, where appropriate, hedging our exposure to these risks.

Net Interest Income Sensitivity

Net interest income is our largest source of revenue. Net interest income sensitivity is our primary short-term measurement used to assess the interest rate risk of our ongoing business. Management believes that net interest income sensitivity gives us the best perspective on how day-to-day decisions affect our interest rate risk profile. We subject estimated net interest income over a 12-month period to various rate movements using a simulation model for various specified interest rate scenarios. Simulations are run monthly and include scenarios where market rates are “shocked” up and down, scenarios where market rates gradually change or “ramp” up and down and scenarios where the slope of the market yield curve changes. Our base simulation assumes that rates do not change for the next 12 months. The sensitivity measurement is calculated as the percentage variance of the net interest income

simulations to the base simulation results. Results for the gradual “ramps” are compared to policy guidelines and are disclosed in the interest rate risk results below.

Table 15 — Sensitivity of Net Interest Income


	200 Basis Point			100 Basis Point			100 Basis Point			200 Basis Point
	Rate Increase			Rate Increase			Rate Decrease			Rate Decrease
September 30, 2005		(2.53	%)		(1.20	%)		0.96	%		1.42	%


December 31, 2004		(2.13	%)		(0.68	%)		0.20	%		(1.51	%)

As indicated in Table 15, assuming a gradual 100 and 200 basis point increase in interest rates starting on September 30, 2005, we estimate that our net interest income in the following 12 months would decrease by 1.20% and 2.53%, respectively. This is because in the event of an upward shift in rates, the simulated increase in interest income would be less than the simulated increase in interest expense because total adjustable rate interest-earning assets generally will reprice less quickly than will total interest-bearing liabilities. Also as indicated in Table 15, assuming a gradual 100 and 200 basis point decrease in interest rates starting on the same date, we estimate that our net interest income in the following 12 months would increase by 0.96% and 1.42%, respectively. These results are dependent on material assumptions such as interest rate movements, product pricing and customer behavior. Since the year end 2004 interest sensitivity simulation, we have revised our assumption that the re-pricing of customer repurchase agreements would lag market interest rates and now assume that customer repurchase agreements will reprice in step with market interest rates. At September 30, 2005, there were $1.5 billion of short-term customer repurchase agreements on our balance sheet.

Our asset-liability management policy on interest rate risk simulation specifies that if market interest rates were to shift gradually up or down 2%, estimated net interest income for the subsequent 12 months should change by less than 5%. All interest rate risk measures were within compliance guidelines at September 30, 2005 and December 31, 2004.

2005 Asset-Liability Management Actions

The most significant factors affecting market risk exposure of net interest income during the nine months ended September 30, 2005 were as follows:

	•		changes in the shape of the U.S. Government securities and interest rate swap yield curves,

	•		changes in the prepayment speeds of mortgage assets,

	•		the addition of $2.2 billion of interest rate swap agreements fixing the cash flows of certain variable-rate loans tied to LIBOR or a designated prime rate,

	•		the approximately $3.4 billion deleveraging program implemented by us in the first quarter of 2005, which included the sale of $519 million of single-family residential loans, $2.4 billion of mortgage-backed securities and $500 million of securities of U.S. federal agencies,

	•		the repurchase of 15.3 million shares of our common stock through March 31, 2005,

	•		the issuance in September 2005 of Can$270 million subordinated debt which has a fixed rate of 4.644% for the first 12 years, and a rate which adjusts every three months in accordance with changes in the Canadian Bankers Acceptance Rate plus 100 basis points thereafter, and, subject to any required regulatory approvals, is callable prior to September 17, 2017 at a redemption price which is equal to the higher of 100% of the principal amount and the Canada yield price (as defined) and thereafter at 100% of the principal amount, together in each case with accrued and unpaid interest. The subordinated debt is guaranteed by TD. Simultaneous with this issuance, we synthetically converted the underlying subordinated debt into U.S. dollars with a cross currency swap described under “Derivative Instruments” below; and

•

the sale of $165 million of primarily fixed-rate one-to-four family residential loans.

The Federal Reserve Board continued to raise short-term interest rates by increasing the federal funds target from 3.25% to 3.75% by the end of the third quarter. Year-end federal funds surveys range from 3.75% to 4.25% with a median of 4.25%. The 10-year U. S. Treasury yield was up approximately 41 basis points for the quarter ended September 30, 2005, as compared to the quarter ended June 30, 2005, and up approximately 11 basis points from December 31, 2004. Mortgage rates rose with the 10-year U.S. Treasury yield, with our 30-year conforming single-family residential mortgage rate up about 0.36% from June 30, 2005. As a result, the yield curve has flattened considerably with the spread between the 90-day U.S.Treasury Bill and five year U.S. Treasury Note at only 65 basis points at September 30, 2005 compared to 138 basis points at December 31, 2004. Table 15 incorporates the estimated net impact of these changes, as well as planned 2005 activity, assuming various changes in interest rates. We periodically model the impact of non-parallel changes in interest rates on net interest income. One scenario shows the impact of an immediate 50 basis point rise in short-term market rates. If that scenario were to occur as modeled, net interest income would decline by 1.43% over a 12-month period.

Derivative Instruments

Purpose and Benefits

Derivative financial instruments are important tools that we use to manage our interest rate risk and help our customers manage theirs. When appropriate, we use derivatives such as interest-rate swaps, interest rate floors, interest rate caps, interest rate corridor agreements and forward security sales, among other instruments.

The following table summarizes our derivative positions at September 30, 2005.

Table 16 — Derivative Positions

Asset-Liability Management Positions


	Notional Amount Maturing												Fair
Successor - September 30, 2005	2005		2006		2007		2008		Thereafter		Total		Value
Cross Currency Swap Agreement	$	—	$	—	$	—	$	—	$	228,620	$	228,620	$	4,797
Interest Rate Swap Agreement
Pay variable, receive fixed — loans		68,750		275,000		275,000		275,000		1,306,250		2,200,000		(17,837	)
Forward commitments to sell loans		85,328		—		—		—		—		85,328		275

Customer-related Positions


	Notional Amount Maturing												Fair
Successor - September 30, 2005	2005		2006		2007		2008		Thereafter		Total		Value
Interest rate contracts
Receive fixed, pay variable	$	2,000	$	9,500	$	22,478	$	82,862	$	986,459	$	1,103,299	$	10,442
Pay fixed, receive variable		2,000		9,500		22,478		82,862		986,459		1,103,299		(10,442	)

Foreign currency forward contracts
Forward contracts purchased		12,584		15,728		—		—		—		28,312		(235	)
Forward contracts sold		12,584		15,728		—		—		—		28,312		235

Foreign Exchange Options
Options purchased		6,700		4,456		—		—		—		11,156		530
Options to sell		6,700		4,456		—		—		—		11,156		(530	)

Rate-locked loan commitments (1)		59,986		—		—		—		—		59,986		(6	)


(1)		No value has been assigned to potential mortagage servicing rights related to rate-locked loan commitments.

Designated Hedges

Through February 28, 2005, certain interest-rate swap contracts were designated as fair value hedges of fixed-rate borrowings, consisting of $200 million of subordinated debt (7.625% due 2011), $150.0 million of senior notes (3.75% due 2008) and $191.5 million of FHLB advances (weighted average rate of 5.26% maturing through September 2005). Effective March 1, 2005, and as a result of the TD transaction and related purchase accounting adjustments, these swaps no longer qualified for fair value hedge accounting. All of these interest rate swaps designated as fair value hedges prior to February 28, 2005 were terminated on May 15, 2005.

At September 30, 2005, a total current notional amount of $2.2 billion of interest-rate swap contracts were designated to hedge the cash flows of certain variable-rate loans. The effect of these interest rate-swap contracts is to synthetically convert variable-rate loans to fixed rates over the life of the interest-rate swap contract. Interest income on loans increased by $4.1 million during the three months ended September 30, 2005 as a result of these interest-rate swap contracts. Through February 28, 2005, a total current notional of $1.2 billion of interest-rate swap contracts were designated to hedge the cash flows of commercial loans tied to one-month LIBOR. Effective March 1, 2005, and as a result of the TD transaction and related purchase accounting adjustments, these $1.2 billion of swaps were not redesignated and no longer qualified for cash flow hedge accounting. ALCO met on April 21, 2005 and redesignated these $1.2 billion of swaps as cash flow hedges. In March 2005, we entered into $1.0 billion notional amount of interest rate swap contracts related to prime-based home equity lines of credit. There were no interest-rate swap agreements related to variable rate loans accounted for as cash flow hedges in the prior year.

In June 2005, ALCO approved a hedge of the interest rate risk on the future interest payments on a forecasted issuance of subordinated debt in the third quarter of 2005. The subordinated debt issue was expected to be priced based on a spread to the 10-year U.S. Treasury Note and the hedge was expected to be highly effective. In June 2005, we entered into a $165 million 10-year U.S. Treasury rate lock agreement expiring in July 2005. The rate lock was extended and eventually terminated in September 2005, when a decision was made to issue the subordinated debt in Canada using a TD guarantee rather than in the U.S. Consequently, the U.S. rate lock hedge was no longer a qualifying hedge under FAS 133, although it was still viable as an economic hedge. The rate lock was terminated and a loss of $0.7 million was recognized in income. We decided that a Canadian subordinated debt issuance was preferable to a U.S. subordinated debt issuance for several reasons, including, lower funding costs, lower issuance costs via a private placement and a longer fixed term. We estimate the annual cost savings to be approximately $0.4 million per year. TD Banknorth, NA issued Can$270 million subordinated debt in September 2005. This debt is guaranteed by TD and is described above under “2005 Asset-Liability Management Actions.” Simultaneously, we synthetically converted the underlying subordinated debt into U.S. dollars with a fixed rate of 5.05% for the initial 12-year period with a cross-currency swap agreement executed with TD Securities.

We manage the interest rate risk inherent in our mortgage banking operations by entering into forward sales contracts. 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 generally will have the effect of reducing the gain (or increasing the loss) we record on the sale. We attempt to mitigate this risk by entering into forward sales commitments in amounts sufficient to cover 70% to 90% of loans held for sale which are currently closed or are anticipated to close.

The following table summarizes the average balances of residential mortgage loans held for sale and related hedge positions during the periods indicated.

Table 17 — Average Balances of Loans Held for Sale and Related Hedges


	Successor		Predecessor		Combined		Predecessor
	Three Months Ended		Three Months Ended		Nine Months Ended		Nine Months Ended
	September 30, 2005		September 30, 2004		September 30, 2005		September 30, 2004
Residential mortgage loans held for sale	$	54,564	$	41,913	$	47,767	$	47,081
Rate-locked loan commitments		58,588		50,421		52,875		52,363
Forward sales contracts		95,197		77,839		83,933		86,020

Customer-related Positions

Interest rate derivatives, primarily interest-rate swaps, offered to commercial borrowers through our hedging program are designated as speculative under SFAS No. 133. However, we believe that our exposure to commercial customer derivatives is limited because these contracts are simultaneously matched at inception with an identical dealer transaction. The commercial customer hedging program allows us to retain variable-rate commercial loans while allowing the customer to synthetically fix the loan rate by entering into a variable-to-fixed interest rate swap. For the three months ended September 30, 2005, we recorded a total notional amount of $167 million of interest rate swap agreements with commercial borrowers and an equal notional amount of dealer transactions. It is anticipated that over time, customer interest rate derivatives will reduce the interest rate risk inherent in our longer-term, fixed-rate commercial business and real estate loans. The customer-related positions summarized in Table 16 include both the customer and offsetting dealer transactions.

Foreign Exchange or Market Risk

Virtually all transactions by us are denominated in the U.S. dollar, with the exception of the subordinated debt issuance in Canada mentioned above under “2005 Asset-Liability Management Actions.” The debt was synthetically converted into U.S. dollars using a cross currency swap, as mentioned above under “Derivative Instruments.” Consequently, our earnings are not directly and materially impacted by movements in foreign currency rates or commodity prices. 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.

Foreign currency forward contracts are contracts that we enter into as an accommodation for customers involved in international trade for the future delivery or purchase of foreign currency at a specified price. For these credit-worthy customers, we set aside a percentage of the customer’s available line of credit until the foreign currency contract is settled. Foreign exchange and trade services are provided under a private label arrangement with a correspondent bank. Risks arise from the possible inability of the seller and/or our customer to perform and from any resultant exposure to movement in foreign currency exchange rates, which limits our exposure to the replacement value of the contracts rather than the notional principal or contract amounts.

LIQUIDITY

Our Board Risk Management Committee establishes policies and analyzes and manages liquidity to ensure that adequate funds are available to meet normal operating requirements in addition to unexpected customer demands for funds, such as high levels of deposit withdrawals or loan demand, in a timely and cost-effective manner. The most important factor in the preservation of liquidity is maintaining public confidence that facilitates the retention and growth of a large, stable supply of core deposits and wholesale funds. Ultimately, public confidence is generated through profitable operations, sound credit quality and a strong capital position. Liquidity management is viewed from a long-term and a short-term perspective, as well as from an asset and liability perspective. We monitor liquidity through a regular review of loan and deposit maturities, yield and rate scenarios and loan and deposit forecasts to minimize funding risk. Other factors affecting our ability to meet liquidity needs include variations in the markets served and general economic conditions. We have various funding sources available to us on a parent-only basis as well as through our banking subsidiary, as outlined below.

Parent Company

On a parent-only basis at September 30, 2005, our debt service requirements consisted primarily of $368.8 million junior subordinated debentures issued by us to affiliated trusts and $150 million of 3.75% senior notes due May 1, 2008. The junior subordinated debentures were issued by us or acquired entities to seven affiliated trusts in connection with their issuance of capital securities to unaffiliated parties. These obligations mature starting in 2027 and had coupon interest rates ranging from 7.27% to 11.30% at September 30, 2005. At the same date, annual debt service payments on these borrowings amounted to approximately $35.6 million.

The principal sources of funds for us to meet parent-only obligations are dividends from our banking subsidiary, which are subject to regulatory limitations, income from investment securities and borrowings, including draws on a $110 million unsecured line of credit with TD which is renewable every 364 days and, if used, carries interest at LIBOR plus a maximum of 0.60%. At September 30, 2005, our subsidiary bank had $158.4 million available for dividends that could be paid without prior regulatory approval. In addition, the parent company had $103.3 million in cash or cash equivalents at September 30, 2005.

Banking Subsidiary

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

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

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

At September 30, 2005, TD Banknorth, NA had in the aggregate $6.2 billion of currently accessible liquidity through collateralized borrowings or sales of securities. This represented 30% of retail deposits, as compared to a current policy minimum of 10% of deposits.

Also at September 30, 2005, TD Banknorth, NA had in the aggregate potentially volatile funds of $3.8 billion. These are funds that might flow out of the bank over a 90-day period in an adverse environment. Management estimates this figure by applying adverse probabilities to its various credit-sensitive and economically-sensitive funding sources.

At September 30, 2005, the ratio of “currently accessible liquidity” to potentially volatile funds was 162%, which exceeded our policy minimum of 100%.

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

CAPITAL

At September 30, 2005, shareholders’ equity amounted to $6.5 billion, or 20.3% of total assets, compared to $3.2 billion, or 11.1% of total assets at December 31, 2004. This $3.3 billion increase was primarily attributable to the purchase accounting adjustments recorded in connection with the TD transaction, which resulted in a $3.4 billion increase to shareholders’ equity on March 1, 2005, the date of the transaction, as well as a $3.0 billion increase to goodwill, a $696 million increase to identifiable intangible assets and a $246 million increase in deferred tax liabilities related to identifiable intangible assets, which more than offset a $70 million decrease in other net assets. The goodwill and identifiable intangible assets (net of related deferred taxes) are not includable in capital for the

calculation of regulatory capital ratios. Other changes in capital during the nine months ended September 30, 2005 were due to the share repurchase program concluded in the first quarter of 2005, unrealized losses on securities available-for-sale, earnings and proceeds from the exercise of stock options.

We paid a cash dividend of $0.22 per share on our common stock during the third quarter of 2005 compared to $0.20 per share in the third quarter last year.

We repurchased 15.3 million shares of our common stock at an aggregate cost of $486.4 million, or an average of
$31.79 per share, during March 2005. This completed our share repurchase program.

Capital guidelines issued by the Federal Reserve Board and the OCC respectively require us and our banking subsidiary to maintain certain capital ratios, set forth below. At September 30, 2005, TD Banknorth Inc. and TD Banknorth, NA were deemed to be “well capitalized” under the regulations of the Federal Reserve Board and the OCC, respectively, and in compliance with applicable capital requirements.

Table 18 — Capital Ratios


	Actual					Capital Requirements					Excess
	Amount		Ratio			Amount		Ratio			Amount		Ratio
September 30, 2005
TD Banknorth Inc. — Successor
Total capital (to risk-weighted assets)	$	2,560,174		11.72	%	$	1,748,263		8.00	%	$	811,911		3.72	%
Tier 1 capital (to risk-weighted assets)		1,865,609		8.54	%		874,132		4.00	%		991,477		4.54	%
Tier 1 leverage capital ratio (to average assets)		1,865,609		6.99	%		1,067,383		4.00	%		798,226		2.99	%
TD Banknorth, NA
Total capital (to risk-weighted assets)	$	2,615,168		11.99	%	$	1,744,664		8.00	%	$	870,504		3.99	%
Tier 1 capital (to risk-weighted assets)		1,926,286		8.83	%		872,332		4.00	%		1,053,954		4.83	%
Tier 1 leverage capital ratio (to average assets)		1,926,286		7.24	%		1,064,719		4.00	%		861,567		3.24	%

December 31, 2004
Banknorth Group, Inc. — Predecessor
Total capital (to risk-weighted assets)	$	2,510,570		12.13	%	$	1,655,428		8.00	%	$	855,142		4.13	%
Tier 1 capital (to risk-weighted assets)		2,060,335		9.96	%		827,714		4.00	%		1,232,621		5.96	%
Tier 1 leverage capital ratio (to average assets)		2,060,335		7.58	%		1,087,190		4.00	%		973,145		3.58	%
Banknorth, NA
Total capital (to risk-weighted assets)	$	2,387,678		11.57	%	$	1,650,894		8.00	%	$	736,784		3.57	%
Tier 1 capital (to risk-weighted assets)		1,941,151		9.41	%		825,447		4.00	%		1,115,704		5.41	%
Tier 1 leverage capital ratio (to average assets)		1,941,151		7.16	%		1,084,507		4.00	%		856,644		3.16	%

Net risk-weighted assets were $21.9 billion for TD Banknorth Inc. and $21.8 billion for TD Banknorth, NA at September 30, 2005 and $21.3 billion and $20.6 billion for TD Banknorth Inc. and TD Banknorth, NA at December 31, 2004, respectively.

At September 30, 2005, we operated seven affiliated trusts which have sold capital securities to unaffiliated parties and invested the proceeds from the sale thereof in junior subordinated debentures issued by us or a company acquired by us. All of the proceeds from the issuance of the capital securities and the common securities issued by the trusts are invested in our junior subordinated debentures, which represent the sole assets of the trusts. The capital securities pay cumulative cash distributions quarterly at the same rate as the junior subordinated debentures held by the trusts. We own all of the outstanding common securities of the trusts and effectively are the guarantor of the obligations of the trusts.

The following table provides information on each of our affiliated trusts and the outstanding capital securities of such trusts and the related junior subordinated debentures issued by us at September 30, 2005.

Table 19 — Affiliated Trusts


							Junior
	Issuance		Capital		Common		Subordinated		Stated			Maturity		Call		Call
Name	Date		Securities		Securities		Debentures (1)		Rate			Date		Date		Price

Peoples Heritage Capital Trust I		1/31/1997	$	61,775	$	3,093	$	64,868		9.06	%		2/1/2027		2/1/2007		104.53	%
Banknorth Capital Trust I		5/1/1997		30,000		928		30,928		10.52	%		5/1/2027		5/1/2007		105.26	%
Ipswich Statutory Trust I		2/22/2001		3,500		109		3,609		10.20	%		2/22/2031		2/22/2011		105.10	%
CCBT Statutory Trust I		7/31/2001		5,000		155		5,155		7.27	%		7/31/2031		7/31/2006		107.50	%
Banknorth Capital Trust II		2/22/2002		200,000		6,186		206,186		8.00	%		4/1/2032		4/1/2007		100.00	%
BFD Preferred Capital Trust I		7/12/2000		10,000		309		10,309		11.30	%		7/19/2030		7/19/2010		105.65	%
BFD Preferred Capital Trust II		9/19/2000		22,000		681		22,681		10.88	%		10/1/2030		10/1/2010		100.00	%

								343,736
Remaining fair value adjustment								25,060

			$	332,275	$	11,461	$	368,796


(1)		Amounts include junior subordinated debentures acquired by affiliated trusts from us with the capital contributed by us in exchange for the common securities of such trusts. Junior subordinated debentures prior to fair value adjustment are equal to capital securities plus common securities.

At September 30, 2005, trust preferred securities amounted to 18.5% of TD Banknorth Inc.’s Tier 1 capital. Effective April 11, 2005, the Federal Reserve Board adopted a final regulation which permits bank holding companies to continue to include trust preferred securities in Tier 1 capital, subject to stricter quantitative and qualitative standards. Although this final regulation becomes effective on March 31, 2007, TD Banknorth Inc. is currently in compliance with the stricter quantitative and qualitative standards.

At September 30, 2005 and December 31, 2004, our consolidated borrowings included $226.4 million of 7.625% subordinated notes due in 2011 and $232.2 million of 4.644% of subordinated notes due in 2022 issued by our banking subsidiary, both of which qualify as Tier 2 capital for regulatory purposes.

Banking regulators have also established guidelines as to the level of investments in BOLI. These guidelines are expressed in terms of a percentage of Tier 1 capital plus loan loss reserves. Our guideline (which is consistent with regulatory guidelines) is that BOLI should not exceed 25% of our Tier 1 capital plus loan loss reserves, which we monitor monthly. The ratio of BOLI to Tier 1 capital plus loan loss reserves was 26.97% at September 30, 2005 compared to 22.6% at December 31, 2004 and 23.68% at September 30, 2004. The increase from December 31, 2004 was largely due to the effects of the share buyback program in 2005.

CRITICAL ACCOUNTING POLICIES

Our accounting and reporting policies comply with accounting principles generally accepted in the United States of America and conform to general practices within the banking industry. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions. The financial position and results of operations can be affected by these estimates and assumptions, which are integral to understanding, reported results. Management has discussed the development and the selection of critical accounting policies with the Audit Committee of our board of directors. As discussed in our 2004 Annual Report on Form 10-K, we have identified the following critical accounting policies: allowance for loan and lease losses, accounting for acquisitions and review of related goodwill and other intangible assets, accounting for pension plans and accrued income taxes. We consider these policies as our critical accounting policies due to the potential impact on our results of operations and the carrying value of certain of our assets based on any changes in judgments and assumptions required to be made by us in the application of these policies. During the quarter ended March 31, 2005, we entered into interest rate swaps with a notional amount of $2.2 billion. Due to the increased levels of

derivatives we have entered into and the complex nature of derivative financial instruments, in March 2005, we identified accounting for derivatives and hedging activities as a critical accounting policy, as described below.

Accounting for Derivatives and Hedging Activities

We use various derivative financial instruments to assist in managing our interest-rate risk and help our customers manage their interest rate risk. These derivative financial instruments are accounted for at fair value in accordance with SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities,” as amended. We formally document relationships between hedging instruments and hedged items, as well as our risk management objective and strategy for undertaking hedge transactions. We also assess, both at the hedge’s inception and on an ongoing basis, whether the derivatives used in hedging transactions are highly effective in offsetting the changes in cash flows or fair value of hedged items. For both fair value and cash flow hedges, certain assumptions and forecasts related to the impact of changes in interest rates on the fair value of the derivative and the item being hedged must be documented at the inception of the hedging relationship to demonstrate that the derivative instrument will be effective in hedging the designated risk. If these assumptions or forecasts do not accurately reflect subsequent changes in the fair value of the derivative instrument or the designated item being hedged, we might be required to discontinue the use of hedge accounting for that derivative instrument. Once hedge accounting is terminated, all subsequent changes in the fair value of the derivative instrument must flow through the consolidated statements of income in other noninterest income, which would result in greater volatility in our earnings.

IMPACT OF NEW ACCOUNTING STANDARDS

For information on the impact of new accounting standards, see Note 17 to the unaudited Consolidated Financial Statements.

FORWARD LOOKING STATEMENTS

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

Item 3. Quantitative and Qualitative Disclosures about Market Risk

The information contained in the section captioned “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Asset-Liability Management” is incorporated herein by reference.

Item 4. Controls and Procedures

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

In the ordinary course of business, we routinely enhance our internal controls and procedures for financial reporting by either upgrading our current systems or implementing new systems. Changes have been made and will be made to our internal controls and procedures for financial reporting as a result of these efforts. No change in our internal controls over financial reporting (as defined in Rules 13a-15(f) and 15(d)-15(f) under the Securities Exchange Act of 1934) occurred during the most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Part II — Other Information

Item 1. Legal Proceedings

In the ordinary course of business, TD Banknorth and its subsidiaries are routinely defendants in or parties to a number of pending and threatened legal actions, including actions brought on behalf of various putative classes of claimants. Certain of these actions assert claims for substantial monetary damages against TD Banknorth and its subsidiaries. Based on currently available information, advice of counsel, available insurance coverage and established reserves, management does not believe that the eventual outcome of pending litigation against TD Banknorth and its subsidiaries will have a material adverse effect on the consolidated financial position, liquidity or results of operations of TD Banknorth. In view of the inherent difficulty of predicting such matters, however, there can be no assurance that the outcome of any such action will not have a material adverse effect on TD Banknorth’s consolidated results of operations in any future reporting period.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

(a) — (b) Not applicable.

(c) No purchases of shares of TD Banknorth common stock were made by or on behalf of TD Banknorth or any “affiliated purchaser,” as defined in §240.10b-18(a)(3) under the Securities Exchange Act of 1934, during the three months ended September 30, 2005, and no repurchase plan is currently authorized..

Item 3. Defaults Upon Senior Securities — not applicable.

Item 4. Submission of Matters to a Vote of Security Holders — not applicable.

Item 5. Other Information — not applicable.

Item 6. Exhibits.

The following exhibits are filed as part of this report.


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

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

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

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

SIGNATURES

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


	TD BANKNORTH INC.
Date: November 9, 2005	By:	/s/ William J. Ryan
		William J. Ryan
		Chairman, President and Chief Executive Officer (principal executive officer)


Date: November 9, 2005	By:	/s/ Stephen J. Boyle
		Stephen J. Boyle
		Executive Vice President and Chief Financial Officer (principal financial and accounting officer)

EXHIBIT INDEX


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

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

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

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