Tuesday, January 10, 2006

TD Banknorth Hurt by Yield Curve

  
TD Banknorth, 10 January 2006

Portland, Maine--(Business Wire)-TD Banknorth Inc. announced today that its board of directors has approved a balance sheet restructuring program which is to be implemented in connection with its pending acquisition of Hudson United Bancorp. The program consists of the sale of approximately $2.6 billion of mortgage-backed securities with the proceeds to be reinvested in shorter duration assets. The asset sales will reduce the earnings volatility inherent in these interest-earning assets as a result of prepayments and call features. TD Banknorth will incur a pre-tax loss of approximately $45 million ($29.3 million on an after-tax basis) in connection with this balance sheet restructuring. In light of the decision to sell these investment securities, the securities will be reflected as impaired at December 31, 2005 and the related loss will be recorded in TD Banknorth's results in the fourth quarter of 2005.

It is anticipated that an additional approximately $2.7 billion of investment securities to be acquired from Hudson United will be sold soon after completion of the acquisition with the proceeds used to repay an equal amount of borrowings.

The Company anticipates that these actions will not have a material impact on earnings per share on a going-forward basis. "In the current interest rate environment, these actions mitigate our interest rate risk going forward," said William J. Ryan, TD Banknorth Chairman, President and Chief Executive Officer.

TD Banknorth also announced that exclusive of the effects of the balance sheet restructuring, merger and consolidation costs, and the amortization of identifiable intangible assets, its diluted earnings per share for the fourth quarter of 2005 will be $0.62, or two cents less than the current Thomson First Call consensus analysts' estimate (on a GAAP basis, diluted earnings per share for the fourth quarter of 2005 will be $0.32). The primary reason for this is the pressure on net interest margin currently being experienced by TD Banknorth, like many other financial institutions. TD Banknorth's net interest margin, on a fully taxable-equivalent basis, decreased from 4.09% during the third quarter of 2005 to 3.96% during the fourth quarter of 2005. Details concerning the Company's earnings for the quarter and year ended December 31, 2005 will be released by the Company on January 23, 2006, as previously announced.

Finally, TD Banknorth announced that its board of directors has approved its planned repurchase of up to 8.5 million shares of its common stock in the open market in connection with the acquisition of Hudson United. It is anticipated that share repurchases will commence on or about the acquisition date and occur at such times and at such prices as management deems appropriate. The acquisition of Hudson United is subject to the receipt of the approval of the shareholders of Hudson United and TD Banknorth, which will consider the transaction at meetings to be held on January 11, 2006, as well as the receipt of all required regulatory approvals and is expected to close later in the first quarter of 2006.
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