TD Banknorth 10-Q 2006 Q2 Quarterly report

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 June 30, 2006

or

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.
Yesþ Noo

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act.

Large accelerated filerþ Accelerated filero Non-accelerated filero

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yeso Noþ

The number of shares outstanding for each class of the Registrant’s common stock as of July 31, 2006 is:

Common stock, par value $.01 per share	228,179,975
(Class)	(Outstanding)
Class B Common stock, par value $.01 per share	1
(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		22
	Item 3.	Quantitative and Qualitative Disclosures about Market Risk		52
	Item 4.	Controls and Procedures		53
PART II.	OTHER INFORMATION
	Item 1.	Legal Proceedings		53
	Item 1A.	Risk Factors		53
	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		53
	Item 3.	Defaults Upon Senior Securities		54
	Item 4.	Submission of Matters to a Vote of Security Holders		54
	Item 5.	Other Information		55
	Item 6.	Exhibits		55
	Signatures			56
	Exhibits			57
Ex-12 Calculation of Ratios of Earnings to Fixed Charges
Ex-31.1 Section 302 Certification of CEO
Ex-31.2 Section 302 Certification of CFO
Ex-32.1 Section 906 Certification of CEO
Ex-32.2 Section 906 Certification of CFO

2

TD BANKNORTH INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(In thousands, except share data) (Unaudited)

	Successor			Successor
	June 30, 2006			December 31, 2005
Assets
Cash and due from banks	$	1,060,587		$	758,751
Federal funds sold and other short-term investments		20,586			10,507
Securities purchased under agreements to resell		1,998,758			—
Securities available for sale, at market value		2,353,506			4,419,877
Securities held to maturity (fair value of $56,756 and $64,487 at June 30, 2006 and December 31, 2005, respectively)		55,804			64,126
Loans held for sale		32,493			31,398
Loans and leases:
Residential real estate mortgages		2,862,331			2,878,323
Commercial real estate mortgages		8,752,137			6,776,837
Commercial business loans and leases		6,593,276			4,278,048
Consumer loans and leases		7,186,526			6,186,519
Credit card receivables		428,517			—
Total loans and leases		25,822,787			20,119,727
Less: Allowance for loan and lease losses		276,361			223,030
Net loans and leases		25,546,426			19,896,697
Premises and equipment, net		466,555			331,912
Goodwill		6,019,817			4,547,604
Identifiable intangible assets		808,373			668,365
Bank-owned life insurance		774,881			572,847
Other assets		1,147,786			793,269
Total assets	$	40,285,572		$	32,095,353
Liabilities and Shareholders’ Equity
Deposits:
Savings accounts	$	4,261,150		$	2,653,233
Money market and NOW accounts		9,508,171			7,819,812
Certificates of deposit		6,611,010			5,132,117
Brokered deposits		238,166			63,953
Deposits in foreign office-interest bearing		20,541			—
Noninterest-bearing deposits		5,960,781			4,603,533
Total deposits		26,599,819			20,272,648
Short-term borrowings		3,279,768			3,685,540
Long-term debt		1,490,686			1,238,430
Deferred tax liability on identifiable intangible assets		325,300			261,932
Other liabilities		395,337			152,930
Total liabilities		32,090,910			25,611,480
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: 250,910,577 in 2006 and 188,426,630 in 2005)		2,509			1,884
Common stock, Class B (par value $0.01 per share, authorized and issued 1 share in 2006 and 2005)		—			—
Paid-in capital		8,740,404			6,833,677
Retained earnings		221,079			152,494
Unearned compensation		(381	)		(1,131	)
Treasury stock, at cost (22,818,324 shares in 2006 and 14,761,415 shares in 2005)		(710,595	)		(469,010	)
Accumulated other comprehensive loss		(58,354	)		(34,041	)
Total shareholders’ equity		8,194,662			6,483,873
Total liabilities and shareholders’ equity	$	40,285,572		$	32,095,353

See accompanying notes to unaudited Consolidated Financial Statements.

3

TD BANKNORTH INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

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

	Successor			Successor		Successor			Successor			Predecessor
	Three Months Ended			Three Months Ended		Six Months Ended			March 1, 2005 to			January 1, 2005 to
	June 30, 2006			June 30, 2005		June 30, 2006			June 30, 2005			February 28, 2005
Interest and dividend income:
Interest and fees on loans and leases	$	432,862		$	288,817	$	811,560		$	384,482		$	176,949
Interest and dividends on securities		59,961			53,630		137,761			73,481			51,183
Total interest and dividend income		492,823			342,447		949,321			457,963			228,132
Interest expense:
Interest on deposits		134,790			48,127		241,471			62,875			30,694
Interest on borrowed funds		51,200			41,692		118,573			54,506			32,654
Total interest expense		185,990			89,819		360,044			117,381			63,348
Net interest income		306,833			252,628		589,277			340,582			164,784
Provision for loan and lease losses		8,719			3,597		15,619			4,597			1,069
Net interest income after provision for loan and lease losses		298,114			249,031		573,658			335,985			163,715
Noninterest income:
Deposit services		42,626			31,751		81,105			41,576			18,359
Insurance agency commissions		14,551			13,604		30,390			19,244			8,252
Merchant and electronic banking income, net		18,155			14,727		33,792			20,090			7,751
Wealth management services		11,735			10,395		23,083			13,940			6,959
Bank-owned life insurance		8,103			6,107		15,391			8,034			4,169
Investment planning services		5,359			5,462		10,501			7,335			2,815
Net securities losses		81			1,439		(10	)		(2,488	)		(46,548	)
Loans held for sale — Lower of cost or market adjustment		—			386		—			386			(7,500	)
Change in unrealized loss on derivatives		—			14,840		—			6,664			—
Other noninterest income		26,458			18,561		50,656			24,749			9,104
		127,068			117,272		244,908			139,530			3,361
Noninterest expense:
Compensation and employee benefits		127,722			105,096		252,933			137,987			67,977
Occupancy		26,748			18,066		51,044			24,557			11,411
Equipment		16,532			12,982		31,416			17,379			8,440
Data processing		15,787			11,618		31,021			15,419			7,233
Advertising and marketing		10,006			8,087		18,197			10,408			4,373
Amortization of identifiable intangible assets		39,508			31,656		77,174			41,591			1,561
Merger and restructuring costs		14,583			5,368		34,401			9,295			27,264
Prepayment penalties on borrowings		—			—		—			3			6,300
Other noninterest expense		35,182			27,460		66,918			36,357			15,887
		286,068			220,333		563,104			292,996			150,446
Income before income tax expense		139,114			145,970		255,462			182,519			16,630
Provision for income taxes		44,405			50,375		83,203			63,296			6,182
Income from continuing operations		94,709			95,595		172,259			119,223			10,448
Discontinued operations
Loss from discontinued operations		(2,208	)		—		(4,807	)		—			—
Income tax benefit		885			—		2,141			—			—
Loss from discontinued operations, net of tax		(1,323	)		—		(2,666	)		—			—
Net income	$	93,386		$	95,595	$	169,593		$	119,223		$	10,448
Basic earnings per share:
Income from continuing operations	$	0.42		$	0.55	$	0.79		$	0.68		$	0.06
Loss from discontinued operations, net of tax		(0.01	)		—		(0.02	)		—			—
Net income	$	0.41		$	0.55	$	0.77		$	0.68		$	0.06
Diluted earnings per share:
Income from continuing operations	$	0.41		$	0.55	$	0.78		$	0.68		$	0.06
Loss from discontinued operations, net of tax		—			—		(0.01	)		—			—
Net income	$	0.41		$	0.55	$	0.77		$	0.68		$	0.06
Weighted average shares outstanding:
Basic		228,130			173,428		218,960			175,181			184,964
Dilutive effect of stock options		647			833		701			858			1,783
Diluted		228,777			174,261		219,661			176,039			186,747

See accompanying notes to unaudited Consolidated Financial Statements.

4

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, 2005 (Successor)		173,665		$	1,884	$	6,833,677			$ 152,494		($	1,131	)	($	469,010	)	($	34,041	)	$	6,483,873
Net income		—			—		—			169,593			—			—			—			169,593
Change in unrealized losses on securities, net of reclassification adjustment net of tax		—			—		—			—			—			—			(28,374	)		(28,374	)
Change in unrealized gains on cash flow hedges, net of reclassification adjustment net of tax		—			—		—			—			—			—			4,061			4,061
Comprehensive income																						145,280
Common stock issued for acquisitions		32,859			329		965,065			—			—			—			—			965,394
Common stock issued to The Toronto-Dominion Bank
for acquisitions		29,625			296		941,494			—			—			—			—			941,790
Treasury stock issued for employee benefit
plans, including tax benefit of $0.7 million		443			—		(3,656	)		—			—			13,885			—			10,229
Stock option compensation expense		—			—		3,824			—			—			—			—			3,824
Treasury stock purchased		(8,500	)		—		—			—			—			(255,470	)		—			(255,470	)
Decrease in unearned compensation		—			—		—			—			750			—			—			750
Cash dividends declared ($0.44 per share)		—			—		—			(101,008	)		—			—			—			(101,008	)
Balances at June 30, 2006 (Successor)		228,092		$	2,509	$	8,740,404		$	221,079		($	381	)	($	710,595	)	($	58,354	)	$	8,194,662
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
Change in unrealized gains on securities, net of reclassification adjustment net of tax		—			—		—			—			—			—			2,463			2,463
Change in unrealized losses on cash flow hedges, net of reclassification adjustment 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		—			—		—			119,223			—			—			—			119,223
Change in unrealized losses on securities, net of reclassification adjustment net of tax		—			—		—			—			—			—			16,974			16,974
Change in unrealized losses on cash flow hedges, net of reclassification adjustment net of tax		—			—		—			—			—			—			14,096			14,096
Comprehensive income (loss)																						150,293
Treasury stock issued for employee benefit plans, including tax benefit of $0.5 million		278			—		(1,377	)		—			—			9,157			—			7,780
Treasury stock purchased		(15,300	)		—		—			—			—			(486,408	)		—			(486,408	)
Decrease in unearned compensation		—			—		—			—			375			—			—			375
Cash dividends declared ($0.20 per share)		—			—		—			(34,659	)		—			—			—			(34,659	)
Balances at June 30, 2005 (Successor)		173,406		$	1,884	$	6,835,110			$84,564		($	1,881	)	($	477,251	)	$	31,070		$	6,473,496

See accompanying notes to unaudited Consolidated Financial Statements.

5

TD BANKNORTH INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands) (Unaudited)

	Successor			Successor			Predecessor
	Six Months Ended			March 1, 2005 to			January 1, 2005 to
	June 30, 2006			June 30, 2005			February 28, 2005
Cash flows from operating activities:
Net income	$	169,593		$	119,223		$	10,448
Loss from discontinued operations, net of tax		(2,666	)		—			—
Income from continuing operations		172,259			119,223			10,448
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan and lease losses		15,619			4,597			1,069
Depreciation of banking premises and equipment		30,030			16,260			7,807
Net amortization of premium and discounts		(3,104	)		3,533			3,703
Amortization of intangible assets		77,174			41,591			1,561
Deferred tax (benefit) provision		(8,500	)		9,500			2,000
Unearned compensation		750			375			—
Stock-based compensation expense		3,824			—			—
Net losses (gains) realized from sales of securities and loans		(17	)		1,814			46,548
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	)
Increase in cash surrender value of bank owned life insurance		(15,391	)		(6,292	)		(4,169	)
Proceeds from sales of loans held for sale		185,455			655,489			72,258
Residential loans originated and purchased for sale		(186,361	)		(161,999	)		(58,800	)
Change in fair value on derivatives		(93	)		(4,788	)		—
Change in net deferred tax liability		(4,916	)		(24,348	)		6,846
Net (increase) decrease  in other assets		(59,446	)		43,202			40,597
Net increase (decrease) in other liabilities		63,646			51,542			(42,559	)
Net cash provided by operating activities		270,929			756,812			100,493
Cash flows from investing activities:
Proceeds from sales of securities available for sale		2,942,400			397,059			83,271
Proceeds from sales of securities as part of deleveraging program		2,528,541			374,488			2,461,701
Proceeds from maturities and principal repayments of securities available for sale		422,044			354,540			190,117
Purchases of securities available for sale		(1,169,747	)		(500,556	)		(969,979	)
Net (increase) in securities purchased under reverse repurchase agreements		(2,000,000	)		—			—
Proceeds from maturities and principal repayments of securities held to maturity		8,322			7,487			4,670
Net (increase) in loans and leases		(527,925	)		(505,743	)		(222,430	)
Proceeds from sales of portfolio loans		925			60,157			—
Net (additions) decrease to premises and equipment		(43,241	)		(14,010	)		798
Proceeds from policy coverage on bank-owned life insurance		284			—			141
Proceeds from the sale of the bond administration business		2,000			—			—
Proceeds from the sale of OREO		12,031			—			—
Cash used in business acquisitions		(941,874	)		—			—
Cash acquired from acquisitions		238,562			—			130,685
Net cash provided by investing activities		1,472,322			173,422			1,678,974
Cash flows from financing activities:
Net (decrease) in deposits		(560,586	)		(187,188	)		(160,662	)
Net (decrease) increase in short-term borrowings		(997,089	)		251,621			2,102,739
Payments on short-term borrowings as part of deleveraging program		—			(374,491	)		(1,461,701	)
Proceeds from long-term debt		—			446			8,467
Payments for long-term debt		(464,395	)		(55,234	)		(474,664	)
Payments for long-term debt as part of deleveraging program		—			—			(1,006,300	)
Excess tax benefits from stock-based compensation		735			541			16,049
Treasury stock issued for employee benefit plans		9,494			7,239			55,319
Issuance of stock to The Toronto-Dominion Bank		941,790			—			—
Purchase of treasury stock		(255,470	)		(486,408	)		—
Cash dividends paid to shareholders		(101,008	)		(34,659	)		(37,383	)
Net cash (used in) financing activities		(1,426,529	)		(878,133	)		(958,136	)
Cash flows from discontinued operations
Operating activities		(4,807	)		—			—
Net cash (used in) discontinued operations		(4,807	)		—			—
Increase (decrease) in cash and cash equivalents		311,915			52,101			821,331
Cash and cash equivalents at beginning of period		769,258			747,637			(73,694	)
Cash and cash equivalents at end of period	$	1,081,173		$	799,738		$	747,637
In conjunction with the purchase acquisitions detailed in Note 3 to the unaudited Consolidated Financial Statements, assets were acquired and liabilities were assumed as follows:
Fair value of assets acquired	$	10,301,998		$	32,462,141		$	1,618,940
Fair value of liabilities assumed		8,394,729			25,626,026			1,422,658
Supplemental cash flow disclosures
Cash paid for interest	$	344,949		$	117,559		$	68,238
Cash paid (received) for income taxes		92,782			(5,572	)		(779	)

See accompanying notes to unaudited Consolidated Financial Statements.

6

TD BANKNORTH INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

June 30, 2006

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

Note 1 — Basis of Presentation

We, TD Banknorth Inc. (“TD Banknorth”), 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” or the “Bank”) and various nonbanking subsidiaries. We are a majority-owned subsidiary of The Toronto-Dominion Bank and successor to Banknorth Group, Inc. The Toronto-Dominion Bank acquired a majority interest in us effective March 1, 2005. The purchase price and related purchase accounting adjustments have been recorded in the financial statements at and for the periods commencing March 1, 2005. This resulted in a new basis of accounting reflecting the fair value of assets and liabilities at March 1, 2005 and for the “successor” periods beginning on or after March 1, 2005. Information for all dates and “predecessor” periods prior to the acquisition on March 1, 2005 is presented using the historical basis of accounting.

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. We have not changed our significant accounting and reporting policies from those disclosed in our Annual Report on Form 10-K for the year ended December 31, 2005, except for the adoption of Statement of Financial Accounting Standards (“SFAS”) 123(R), “Share-Based Payment.” See Note 2 below. 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 adjustments) necessary for a fair statement of the unaudited consolidated financial statements have been included herein. The results of operations for the interim periods of 2006 presented herein are not necessarily indicative of the results that may be expected for any other interim period or the year ending December 31, 2006. 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 Changes

The following is a discussion of new or proposed accounting pronouncements.

Accounting for Share-Based Payment Transactions

Effective January 1, 2006, we adopted the fair value recognition provisions of Statement of Financial Accounting Standards (“SFAS”) No. 123(R), “Share-Based Payment,” which addresses the accounting for share-based payment transactions in which an enterprise receives employee services in exchange for (a) equity instruments of the enterprise or (b) liabilities that are based on the fair value of the enterprise’s equity instruments or that may be settled by the issuance of such equity instruments. We implemented SFAS No. 123(R) using the modified prospective method of transition. Under this transition method, compensation cost recognized in the three and six months ended June 30, 2006 includes compensation costs for all share-based payments granted prior to but not yet vested as of January 1, 2006, based on the grant date fair value estimated in accordance with the original provisions of Statement 123. Prior to January 1, 2006, we measured compensation cost for those plans using the intrinsic value based method of accounting prescribed by APB Opinion No. 25, “Accounting for Stock Issued to Employees”. As a result of implementing SFAS No. 123(R), we recorded $1.9 million and $3.8 million of additional compensation expense during the three and six months ended June 30, 2006, respectively. We calculated the common stock equivalents for purposes of diluted earnings per share using the transition method. Prior to the

7

adoption of SFAS No. 123(R), we presented all tax benefits of deductions resulting from the exercise of stock options as operating cash flows in the Statement of Cash Flows. SFAS No. 123(R) requires the cash flows resulting from the tax benefits from tax deductions in excess of the compensation cost recognized for those options (excess tax benefits) to be classified as financing cash flows. See Note 5 for more information.

Accounting for Servicing of Financial Assets

In March 2006, the Financial Accounting Standards Board (“FASB”) issued FASB Statement No. 156, “Accounting for Servicing of Financial Assets” (“FAS 156”). FAS 156 was issued to simplify the accounting for servicing assets and servicing liabilities and reduce the volatility that results from the use of different measurement attributes for servicing rights and the related financial instruments used to hedge risks associated with those servicing rights. FAS 156 clarifies when to separately account for servicing rights, requires separately recognized servicing rights to be initially measured at fair value, and provides the option to subsequently account for those servicing rights at either fair value or under the amortization method previously required under FASB Statement No. 140, “Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities.” The effective date of FAS 156 is for fiscal years beginning after September 15, 2006. Early adoption is permitted in a period if financial statements have not yet been issued. The implementation of FAS 156 is not expected to have a material impact on our financial condition or results of operations.

Accounting for Certain Hybrid Financial Instruments

In February 2006, the FASB issued FASB Statement No. 155, “Accounting for Certain Hybrid Financial Instruments” (“FAS 155”). FAS 155 resolves issues addressed in FAS 133 Implementation Issue No. D1, “Application of Statement 133 to Beneficial Interests in Securitized Financial Assets.” The effective date of FAS 155 is for fiscal years beginning after September 15, 2006. Provisions of FAS 155 may be applied to instruments that an entity holds at the date of adoption on an instrument-by-instrument basis. The implementation of FAS 155 is not expected to have a material impact on our financial condition or results of operations.

Accounting for Uncertainty in Income Taxes

In June 2006, the FASB issued FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes – an interpretation of FASB Statement No. 109” (“FIN 48”). FIN 48 clarifies the accounting for uncertainty in income taxes and provides greater consistency in criteria used to recognize, derecognize and measure benefits related to income taxes. FIN 48 prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. FIN 48 also provides guidance on classification, interest and penalties, accounting in interim periods, disclosure and transition. The effective date of FIN 48 is for fiscal years beginning after December 15, 2006. We have not yet assessed the impact of the implementation of FIN 48 on our financial condition or results of operations.

Note 3 — Acquisitions

Acquisitions are an important part of our strategic plan. The following table summarizes bank acquisitions completed by us since January 1, 2005. The acquisitions were accounted for as purchases and, as a result, were included in our results of operations from the date of acquisition.

8

							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
Hudson United Bancorp		1/31/2006	$	8,771.0	$	518.3	$	1,467.9	$	222.5	$	941.8		32.9	(1)	$	1,907.3
BostonFed Bancorp, Inc.		1/21/2005	$	1,467.8	$	102.7	$	138.2	$	13.2	$	0.3		6.2		$	200.2

(1) Shares issued does not include the 29.6 million shares of common stock sold by us to The Toronto-Dominion Bank to fund the cash paid by us in connection with the acquisition of Hudson United Bancorp.

The following table presents the estimated fair values of the assets acquired and liabilities assumed from Hudson United Bancorp (“Hudson”) at the date of acquisition.

Assets:
Investments	$	2,699,382
Loans and leases, net		5,155,148
Premises and equipment		121,794
Goodwill		1,467,949
Other intangible assets		222,466
Cash and due from banks		235,997
Bank-owned life insurance		156,476
Other assets		242,786
Total assets acquired		10,301,998
Liabilities:
Deposits		6,897,621
Borrowings		1,311,362
Other liabilities		185,746
Total liabilities assumed		8,394,729
Net assets acquired	$	1,907,269

Some adjustments of the estimated fair values assigned to the assets acquired and liabilities assumed have been made and may continue to be made after the date of acquisition, although such adjustments have not and are not expected to be significant. It is estimated that none of the goodwill will be deductible for income tax purposes.

The following table presents pro forma results of operations for the three months ended June 30, 2006 and 2005, six months ended June 30, 2006, and the periods January 1, 2005 to February 28, 2005 and March 1, 2005 to June 30, 2005 as though the acquisition of Hudson had been completed as of January 1, 2006 and January 1, 2005, respectively.

9

	Successor			Successor		Successor			Successor		Predecessor
	Three Months Ended			Three Months Ended		Six Months Ended			March 1, 2005 to		January 1, 2005 to
	June 30, 2006			June 30, 2005		June 30, 2006			June 30, 2005		February 28, 2005
Net interest income	$	306,833		$	336,041	$	616,002		$	452,401	$	220,725
Provision for loan and lease losses		8,719			9,347		17,619			11,847		4,069
Net interest income after provision for loan and lease losses		298,114			326,694		598,383			440,554		216,656
Noninterest income		127,068			152,475		253,994			184,973		24,672
Noninterest expense (1)		286,068			308,250		602,203			407,767		199,202
Income before income tax expense		139,114			170,919		250,174			217,760		42,126
Provision for income taxes		44,405			43,362		85,590			58,384		12,720
Income from continuing operations		94,709			127,557		164,584			159,376		29,406
Loss from discontinued operations, net of tax		(1,323	)		—		(2,666	)		—		—
Net income	$	93,386		$	127,557	$	161,918		$	159,376	$	29,406
Basic earnings per share
Income from continuing operations	$	0.42		$	0.56	$	0.72		$	0.70	$	0.12
Loss from discontinued operations, net of tax	($	0.01	)	$	0.00	($	0.01	)	$	0.00	$	0.00
Net income	$	0.41		$	0.56	$	0.71		$	0.70	$	0.12
Diluted earnings per share
Income from continuing operations	$	0.41		$	0.56	$	0.72		$	0.69	$	0.12
Loss from discontinued operations, net of tax	$	0.00		$	0.00	($	0.01	)	$	0.00	$	0.00
Net income	$	0.41		$	0.56	$	0.71		$	0.69	$	0.12
Weighted average shares outstanding
Basic		228,130			227,412		227,957			229,165		238,948
Diluted		228,777			228,245		228,658			230,023		240,731

(1) Includes $9.0 million of merger costs recorded by Hudson in January 2006.

Note 4 — Discontinued Operations

As a result of the Hudson acquisition on January 31, 2006, we acquired a 100% interest in United Gasco LLC, a 50% interest in Minnesota Methane and a 100% interest in United Cogen Fuel LLC. The 50% interest in Minnesota Methane is held by a 100% owned subsidiary, UC Investments, Inc., which was established by Hudson solely for that purpose. United Gasco, LLC and UC Investments, Inc. and their subsidiaries are engaged in the extraction and conversion of landfill gas into electricity, which is sold to utilities. United Cogen Fuel LLC owns an alternative energy facility located in North Carolina. We have decided to divest our interests in these subsidiaries, and as a result reflect the businesses of these subsidiaries as discontinued operations. In May 2006, we divested our interest in United Cogen Fuel LLC. The excess of the sale price over the book value was recorded as an adjustment to goodwill associated with the Hudson acquisition. In accordance with FAS 144, “Accounting for the Impairment or Disposal of Long-Lived Assets,” our remaining investments have been classified as “held for sale” and recorded at estimated fair value less costs to sell.

The following table presents gross revenues and net loss from discontinued operations for the periods indicated.

	Successor		Successor
	Three Months Ended		Six months ended
	June 30, 2006		June 30, 2006
Gross revenues from discontinued operations	$	2,986	$	4,881
Net loss from discontinued operations	$	1,323	$	2,666

At June 30, 2006, the aggregate total assets and total liabilities of these investments amounted to $30.3 million and $18.3 million, respectively, and were recorded in other assets and other liabilities, respectively.

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Note 5 — Stock Compensation Plans

General

Effective January 1, 2006, we adopted the fair value recognition provisions of Statement of Financial Accounting Standards (“SFAS”) No. 123(R), “Share-Based Payment” using the modified prospective method of transition. As a result of implementing SFAS No. 123(R), we recorded $1.9 million and $3.8 million of additional compensation expense covering stock options during the three and six months ended June 30, 2006, respectively. Including restricted stock and restricted stock units, total stock-based compensation expense recorded for the three and six months ended June 30, 2006 was $5.9 million and $13.4 million, respectively. The total income tax benefit recognized on stock-based compensation was $2.3 million and $5.2 million for the three and six months ended June 30, 2006, respectively. At June 30, 2006 there was $50.2 million of unrecognized compensation cost related to nonvested stock-based awards. That cost is expected to be recognized over a weighted average period of 2.1 years.

The following table sets forth pro forma net income and earnings per share for the three months ended June 30, 2005 and for the indicated periods, assuming the adoption of SFAS No. 123(R) as of January 1, 2005, during which the fair value based method was not used to account for stock-based compensation.

	Successor			Successor			Predecessor
	Three Months Ended			March 1, 2005 to			January 1, 2005 to
	June 30, 2005			June 30, 2005			February 28, 2005
Net Income, as reported	$	95,595		$	119,223		$	10,448
Add: Stock-based employee compensation expense included in reported net income, net of related tax effects		2,925			3,434			—
Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects:
Effect of accelerated vesting of stock options in connection with The Toronto-Dominion Bank transaction					—			(9,293	)
Other		(5,152	)		(5,807	)		(2,159	)
Pro forma net income	$	93,368		$	116,850		($	1,004	)
Earnings per share
Basic — As reported		$0.55			$0.68			$0.06
Pro forma		$0.54			$0.67			($0.01	)
Diluted — As reported		$0.55			$0.68			$0.06
Pro forma		$0.54			$0.66			($0.01	)

Stock Options

The 2003 Equity Incentive Plan and the 1996 Equity Incentive Plan, which have been approved by our shareholders, authorize grants of options and other stock-based awards to our directors, officers and employees for up to 25 million shares of TD Banknorth common stock in the aggregate. At June 30, 2006, there were 4.7 million shares available for grant under these plans.

Options are granted under the plans at an exercise price equal to the fair market value of the common stock at the date of grant. The options granted generally vest ratably over three years, expire ten years from the date of the grant and are subject to forfeiture if certain vesting requirements are not met.

The following table presents the weighted average fair value and related assumptions using the Black Scholes option-pricing model for all stock options granted during the periods indicated.

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	Successor			Successor			Successor			Successor			Predecessor
	Three Months Ended			Three Months Ended			Six Months Ended			March 1, 2005 to			January 1 2005, to
	June 30, 2006			June 30, 2005			June 30, 2006			June 30, 2005			February 28, 2005
Weighted average fair value	$	5.03		$	4.64		$	5.03		$	5.45			—
Expected dividend yield		2.96	%		2.57	%		2.96	%		2.32	%		—
Risk-free interest rate		5.01	%		3.77	%		5.01	%		4.17	%		—
Expected life	6.0 years			7.5 years			6.0 years			7.5 years				—
Volatility		15.18	%		13.09	%		15.18	%		13.09	%		—

Expected dividend yield is based on our annualized expected dividends per share divided by the average common stock price. Risk-free interest rate is based on the U.S. Treasury constant maturity yield at grant date, the term of which equals the expected life of the options. Expected life is estimated based on our analysis of historical exercise patterns for multiple classes of participants. Expected volatility is based on historical volatility trends since March 15, 2005, a date shortly after the sale of a majority interest in us to The Toronto-Dominion Bank which we believe to be the most representative estimate of expected volatility over the expected life of the options.

The following table summarizes all activity with respect to stock options granted under our stock compensation plans during the six months ended June 30, 2006.

						Weighted
				Weighted		Average	Aggregate
	Number of			Average		Remaining	Intrinsic
	Shares			Exercise Price		Term	Value (000’s)
Outstanding at January 1, 2006		10,228,728		$	26.75
Granted		30,000			29.39
Granted in acquisitions		259,270			19.78
Exercised		(314,465	)		23.47
Cancelled and forfeited		(192,880	)		29.81
Outstanding at June 30, 2006		10,010,653		$	26.63	7.03 years	$	31,880	(1)
Options exercisable at June 30, 2006		6,415,937		$	24.92	5.93 years	$	30,457	(1)

(1) Based on the closing stock price on June 30, 2006 of $29.45.

The total intrinsic value of options exercised during the three and six months ended June 30, 2006 was $699 thousand and $2.0 million, respectively, and $1.0 million during the three months ended June 30, 2005, $1.7 million during the period March 1, 2005 to June 30, 2005 and $45.9 million during the period January 1, 2005 to February 28, 2005. The actual tax benefit realized for the tax deduction from option exercises totaled $287 thousand and $735 thousand for the three and six months ended June 30, 2006. The tax benefit is reflected in financing activities in the Consolidated Statement of Cash Flows.

The total fair value of options vested during the three and six months ended June 30, 2006 was $1.7 million and $5.2 million, respectively, and $733 thousand during the three months ended June 30, 2005, $20.2 million during the period March 1, 2005 to June 30, 2005 and $209 thousand during the period January 1, 2005 to February 28, 2005.

Cash received from option exercises during the three and six months ended June 30, 2006 was $2.3 million and $7.4 million, respectively.

The following table summarizes the activity in our nonvested options during the six months ended June 30, 2006.

12

				Weighted
				Average
				Grant-Date
Nonvested Options	Options			Fair Value
Nonvested at January 1, 2006		4,705,537		$	5.44
Granted		—			—
Vested		(940,119	)		5.57
Forfeited		(170,702	)		5.28
Nonvested at June 30, 2006		3,594,716			5.41

Restricted Stock and Restricted Stock Units

Effective March 1, 2005, we adopted the 2005 Performance Based Restricted Share Unit Plan for certain executives. This plan provides for the grant of restricted stock units tied to the market value of a common share of The Toronto-Dominion Bank. The cash amount payable in respect of the restricted stock units will be adjusted up or down, but not by more than 20%, to reflect the performance of TD Banknorth against an annual operating earnings per share growth target.

Under the 2003 Equity Incentive Plan, we may grant restricted stock units to our directors, officers, and eligible employees. At the grant date we determine whether the restricted stock units will be settled in cash or TD Banknorth common stock and the applicable vesting period, which is generally at the end of three years.

The following table summarizes the activity in our nonvested restricted stock and restricted stock units awards during the six months ended June 30, 2006.

				Weighted
	Restricted Stock			Average
	and Resticted			Grant-Date
Restricted Stock and Restricted Stock Units	Stock Units			Fair Value
Nonvested at January 1, 2006		1,306,155		$	30.05
Granted		277,824			29.93
Vested		(16,932	)		30.41
Forfeited		(128,893	)		29.97
Nonvested at June 30, 2006		1,438,154			29.41
Exercisable at June 30, 2006		30,355			30.48

The total fair value of restricted stock and restricted stock units vested was $492 thousand for each of the three and six months ended June 30, 2006 and $872 for the three months ended June 30, 2005 and for the period March 1, 2005 to June 30, 2005. No restricted stock units vested during the period January 1, 2005 to February 28, 2005.

Employee Stock Purchase Plan

We have an Employee Stock Purchase Plan that is available to employees with one year of service, which has been approved by our shareholders. Under the plan, shares of TD Banknorth common stock may be purchased at a discount to fair market value, subject to limitations set forth in the plan. Effective January 1, 2006, the discount rate was decreased to 5% from 15%. Employees have the right to authorize payroll deductions up to 10% of their salary, subject to limitations set forth in the plan.

The following table summarizes the activity under our employee stock purchase plan during the periods indicated.

13

	Employee Stock Purchase Plan (1)
	Shares		Shares		Average
	Purchased		Available		Price		Expense
January 1, 2006 to June 30, 2006 (Successor)		56,163		815,884	$	29.45	$	52
March 1, 2005 to June 30, 2005 (Successor)		52,943		955,308	$	29.80	$	227	(2)
January 1, 2005 to February 28, 2005 (Predecessor)		43,674		1,008,251	$	26.55	$	205	(2)

(1)	The maximum number of shares which may be issued under the Employee Stock Purchase Plan, as amended, is 2,852,000.
(2)	Pro forma expense.

Note 6 — Securities Purchased under Agreements to Resell

Securities purchased under agreements to resell consist of the purchase of a security with the commitment by us to resell the security to the original seller at a specified price. The difference between the purchase price and the predetermined sales price on a resale agreement is recorded as interest income. Our policy is to take possession of the securities purchased. We pledge certain of these securities to collateralize public deposits and borrowings. At June 30, 2006, we had $2.0 billion of securities purchased under agreements to resell which mature in 2006 and 2007. There were no securities purchased under agreements to resell at December 31, 2005.

Note 7 — Securities Available for Sale

The following table presents the fair value of our investments with continuous unrealized losses for less than one year and more than one year at June 30, 2006.

	Less than 1 year						More than 1 year						Total
	Number of		Fair		Unrealized		Number of		Fair		Unrealized		Number of		Fair		Unrealized
Available for Sale:	Investments		Value		Losses		Investments		Value		Losses		Investments		Value		Losses
U. S. Government obligations and obligations of U.S. Government agencies and corporations		4	$	447,842	$	5,577		1	$	998	$	1		5	$	448,840	$	5,578
Tax-exempt bonds and notes		34		20,768		417		82		42,519		1,001		116		63,287		1,418
Other bonds and notes		57		101,802		1,824		33		42,104		749		90		143,906		2,573
Mortgage-backed securities		545		1,083,856		43,263		407		237,960		9,807		952		1,321,816		53,070
Collateralized mortgage obligations		4		73,669		2,268		10		1,825		20		14		75,494		2,288
Equity securities		1		148		2		1		119		22		2		267		24
		645	$	1,728,085	$	53,351		534	$	325,525	$	11,600		1,179	$	2,053,610	$	64,951

The temporary impairment in the investment securities portfolio is predominantly the result of increases in market interest rates after the investment securities were purchased/acquired and not from deterioration in the creditworthiness of the issuers. 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 government sponsored agencies or by private issuers with security ratings of at least AA.

14

At June 30, 2006, U.S. Government obligations and obligations of U.S. Government agencies and corporations included five securities which had unrealized losses, consisting of four U.S. Treasury notes and one U.S. Government agency security. Market value declines were due to changes in interest rates since the date of purchase.

Note 8 — Goodwill and Other Intangible Assets

The following table summarizes activity in our goodwill and identifiable intangible asset accounts during the periods indicated and the amortization expense of identifiable intangible assets during the periods indicated.

						Other			Total
			Core Deposit			Identifiable			Identifiable
	Goodwill		Intangibles			Intangibles (1)			Intangibles
Balance, December 31, 2005	$	4,547,604	$	476,840		$	191,525		$	668,365
Recorded during the year		1,467,949		176,549			45,917			222,466
Amortization expense		—		(68,058	)		(9,116	)		(77,174	)
Adjustment of purchase accounting estimates		4,264		—			(5,284	)		(5,284	)
Balance, June 30, 2006	$	6,019,817	$	585,331		$	223,042		$	808,373
Estimated Annual Amortization Expense:
Remaining 2006		—	$	69,673		$	9,281		$	78,954
2007		—		110,029			17,845			127,874
2008		—		86,670			16,806			103,476
2009		—		70,220			16,182			86,402
2010		—		56,725			15,435			72,160
Thereafter		—		192,014			145,136			337,150

(1) Other identifiable intangible assets include $2,357 related to the minimum pension liability that is not amortized.

The following table sets forth the components of our identifiable intangible assets at June 30, 2006.

	June 30, 2006
	Gross Carrying		Accumulated		Net Carrying
	Amount		Amortization		Amount
Identifiable intangible assets:
Core deposit intangibles	$	742,548	$	157,217	$	585,331
Other identifiable intangibles:
Loan relationship intangibles		133,535		8,212		125,323
Other identifiable intangibles		112,989		15,270		97,719
		246,524		23,482		223,042
Total	$	989,072	$	180,699	$	808,373

Note 9 — Deposits

Certificates of deposits of $100,000 or more amounted to $2,478,773 and $1,623,476 at June 30, 2006 and December 31, 2005, respectively.

15

Note 10 — Short-term Borrowings

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

	June 30, 2006		December 31, 2005
Securities sold under agreements to repurchase — retail	$	1,437,290	$	1,668,139
Federal funds purchased		1,817,478		1,563,000
Treasury, tax and loan notes		25,000		54,401
Federal Home Loan Bank advances		—		400,000
	$	3,279,768	$	3,685,540

Note 11 — Long-term Debt

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

	June 30, 2006		December 31, 2005
Federal Home Loan Bank advances	$	90,615	$	151,609
Securities sold under agreements to repurchase — retail		15,136		107,952
Junior subordinated debentures issued to affiliated trusts		524,081		366,237
Subordinated debt due 2006		24,708		—
Subordinated debt due 2011		222,750		225,188
Subordinated debt due 2012		216,191		—
Subordinated debt due 2022		241,892		232,158
Senior notes 3.75%, due 2008		149,162		148,914
Other long-term debt		6,151		6,372
Total	$	1,490,686	$	1,238,430

Borrowings callable by the lender amounted to $40.0 million and $90.0 million at June 30, 2006 and December 31, 2005, respectively.

Note 12 — Changes in Accumulated Other Comprehensive Income

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

16

	Successor									Successor
	Three Months Ended									Three Months Ended
	June 30, 2006									June 30, 2005
	Pre-tax			Tax			Net of			Pre-tax			Tax			Net of
	Amount			Effect			Tax			Amount			Effect			Tax
Change in:
Change in unrealized gain (loss) on securities available for sale	($	20,577	)	$	7,202		($	13,375	)	$	68,932		($	24,120	)	$	44,812
Change in unrealized gain (loss) on cash flow hedges		7,207			(2,523	)		4,684			37,997			(14,594	)		23,403
Reclassification adjustment for losses (gains) realized in net income		(7,614	)		2,665			(4,949	)		(15,314	)		5,360			(9,954	)
Net change in unrealized gains (losses)	($	20,984	)	$	7,344		($	13,640	)	$	91,615		($	33,354	)	$	58,261

	Successor									Successor									Predecessor
	Six Months Ended									March 1, 2005 to									January 1, 2005 to
	June 30, 2006									June 30, 2005									February 28, 2005
	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:
Change in unrealized gain (loss) on securities available for sale	($	43,662	)	$	15,282		($	28,380	)	$	23,626		($	8,269	)	$	15,357		($	42,769	)	$	14,975		($	27,794	)
Change in unrealized gain (loss) on cash flow hedges		10,076			(3,527	)	$	6,549			37,554			(14,439	)		23,115			(7,851	)		(48	)		(7,899	)
Reclassification adjustment for losses (gains) realized in net income		(3,818	)		1,336			(2,482	)		(11,387	)		3,985			(7,402	)		46,834			(16,392	)		30,442
Net change in unrealized gains (losses)	($	37,404	)	$	13,091		($	24,313	)	$	49,793		($	18,723	)	$	31,070		($	3,786	)	($	1,465	)	($	5,251	)

Note 13 — Acquired Impaired Loans

In connection with our acquisition of Hudson on January 31, 2006, we acquired commercial business loans for which there was, at acquisition, deterioration of credit quality since origination and for which it was probable, at acquisition, that all contractually required payments would not be collected. In addition, we had impaired loans at the time The Toronto-Dominion Bank acquired a majority interest in us on March 1, 2005. These acquired loans are not accounted for using the income recognition model because the timing of cash flows expected to be collected cannot be reasonably estimated. Therefore, no accretable yield was recorded at the date of acquisition. Income on impaired loans is recognized on the cost recovery method in connection with these loans.

The following table summarizes acquired impaired loans at June 30, 2006.

	Impaired loans associated with:
	The Toronto-
	Dominion Bank		Hudson
	Transaction		Acquisition		Total
Contractually required principal payments receivable at acquisition	$	84,078	$	14,526	$	98,604
Cash flows expected to be collected at acquisition		42,925		11,897		54,822
Basis in acquired loans at acquisition		42,925		11,897		54,822
Carrying value of loans at June 30, 2006		6,493		7,426		13,919

In connection with The Toronto-Dominion Bank’s acquisition of a majority interest in us 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 our impaired loans.

Note 14 — Other Noninterest Income

The following table sets forth the primary categories of our other noninterest income during the periods indicated.

17

	Successor		Successor		Successor		Successor			Predecessor
	Three Months Ended		Three Months Ended		Six Months Ended		March 1, 2005 to			January 1, 2005 to
	June 30, 2006		June 30, 2005		June 30, 2006		June 30, 2005			February 28, 2005
Loan fee income	$	15,524	$	8,891	$	27,917	$	11,263		$	4,549
Income on restricted stock		3,339		2,202		7,921		3,111			1,487
Mortgage banking services income		1,326		2,330		2,560		2,734			923
Venture capital income (loss)		434		10		942		(96	)		(297	)
Covered call option premiums		—		1,058		922		2,716			1,412
Miscellaneous income		5,835		4,070		10,394		5,021			1,030
Total	$	26,458	$	18,561	$	50,656	$	24,749		$	9,104

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

	Successor			Successor		Successor		Successor			Predecessor
	Three Months Ended			Three Months Ended		Six Months Ended		March 1, 2005 to			January 1, 2005 to
	June 30, 2006			June 30, 2005		June 30, 2006		June 30, 2005			February 28, 2005
Mortgage banking services income
Gains on sales and fee income	$	766		$	1,741	$	1,409	$	2,193		$	460
Net effect of derivatives		(26	)		82		36		(165	)		159
		740			1,823		1,445		2,028			619
Residential mortgage servicing income		586			507		1,115		706			304
	$	1,326		$	2,330	$	2,560	$	2,734		$	923

Note 15 – Pension and Other Postretirement Plans

The following table presents the amount of net periodic benefit cost recognized by us during the periods indicated.

	Successor			Successor			Successor			Successor			Predecessor
	Three Months Ended			Three Months Ended			Six Months Ended			March 1, 2005 to			January 1, 2005 to
Components of net periodic benefit cost:	June 30, 2006			June 30, 2005			June 30, 2006			June 30, 2005			February 28, 2005
Qualified Pension
Service cost	$	4,716		$	3,552		$	9,191		$	4,736		$	2,369
Interest cost		4,553			3,378			8,823			4,504			2,253
Expected return on plan assets		(7,652	)		(5,508	)		(14,837	)		(7,344	)		(3,672	)
Recognized actuarial loss		—			—			—			—			809
Net amortization and deferral		—			—			—			—			(38	)
Net periodic benefit cost	$	1,617		$	1,422		$	3,177		$	1,896		$	1,721
Nonqualified Pension
Service cost	$	236		$	215		$	472		$	287		$	106
Interest cost		728			563			1,397			751			305
Amortization of prior service costs		312			298			624			430			—
Recognized actuarial loss		—			—			—			—			84
Net amortization and deferral		—			—			—			—			41
Net periodic benefit cost	$	1,276		$	1,076		$	2,493		$	1,468		$	536
Other Postretirement Benefits
Service cost	$	50		$	57		$	100		$	76		$	37
Interest cost		339			321			678			428			214
Recognized actuarial loss		(64	)		—			(128	)		—			36
Net amortization and deferral		—			—			—			—			89
Net periodic benefit cost	$	325		$	378		$	650		$	504		$	376

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We expect to contribute approximately $30.3 million to our pension plans in 2006, 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 2006 pension obligation and, as in prior years, is expected to be paid entirely in cash.

Note 16 – Merger and Restructuring Costs

The following table summarizes our merger and restructuring costs during the periods indicated.

	Successor			Successor		Successor			Successor		Predecessor
	Three Months Ended			Three Months Ended		Six Months Ended			March 1, 2005 to		January 1, 2005 to
	June 30, 2006			June 30, 2005		June 30, 2006			June 30, 2005		February 28, 2005
Restructuring Costs
Personnel costs	$	88		$	—	$	10,711		$	—	$	—
Branch closings		374			—		374			—		—
		462			—		11,085			—		—
Interchange Financial Services Corporation Merger Charges
Personnel costs		5			—		5			—		—
Other costs		72			—		72			—		—
		77					77
Hudson United Bancorp Merger Charges
Personnel costs		3,868			—		3,936			—		—
Systems conversion and integration/customer communications		6,354			—		11,795			—		—
Other costs		3,242			—		5,028			—		—
		13,464			—		20,759			—		—
The Toronto-Dominion Bank Merger Charges
Transaction costs		(374	)		—		(339	)		1,503		18,148
Personnel costs		663			1,764		2,088			2,654		2,285
Name change		256			2,177		549			2,201		2,061
Other costs		—			18		—			59		2,941
		545			3,959		2,298			6,417		25,435
BostonFed Bancorp, Inc. Merger Charges
Personnel costs		7			284		19			735		673
Systems conversion and integration/customer communications		—			273		—			631		987
Other costs		4			584		16			958		211
		11			1,141		35			2,324		1,871
Other Merger Charges
American Financial Holdings, Inc. Merger Charges		—			27		7			189		117
First & Ocean Bancorp Merger Charges		—			18		—			19		1
Foxborough Savings Bank Merger Charges		—			—		—			9		11
CCBT Financial Companies, Inc. Merger Charges		24			198		140			312		(171	)
Other Costs		—			25		—			25		—
		24			268		147			554		(42	)
Total Merger and Restructuring Costs	$	14,583		$	5,368	$	34,401		$	9,295	$	27,264

Personnel costs for Hudson and BostonFed include costs for 395 and 250 released employees, respectively.

The following table summarizes activity in the accruals for merger and restructuring costs during the periods indicated.

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			Purchase							Non-cash
			Accounting		Merger and					Write Downs
	Balance		Adjustments		Restructuring		Cash			and Other			Balance
	12/31/05		at Acquisition		Costs		Payments			Adjustments			6/30/06
Restructuring costs	$	—	$	—	$	11,085		($11,085	)	$	—		$	—
Interchange Merger		—		—		77		(77	)		—			—
Hudson United Bancorp Merger		—		46,324		20,759		(53,058	)		—			14,025
The Toronto-Dominion Bank Merger		459		—		2,298		(2,381	)		(376	)		—
BostonFed Bancorp, Inc. Merger		1,935		—		35		(212	)		(70	)		1,688
CCBT Financial Companies, Inc. Merger		—		—		140		(140	)		—			—
American Financial Holdings, Inc. Merger		—		—		7		(7	)		—			—
Total	$	2,394	$	46,324	$	34,401		($66,960	)	($	446	)	$	15,713

Note 17 – Earnings Per Share

The computations of diluted earnings per share and diluted weighted average shares outstanding exclude the following outstanding options to purchase shares of common stock because they were antidilutive.

	Successor		Successor		Successor		Successor		Predecessor
	Three Months Ended		Three Months Ended		Six Months Ended		March 1, 2005 to		January 1, 2005 to
(in actual shares)	June 30, 2006		June 30, 2005		June 30, 2006		June 30, 2005		February 28,2005
Antidilutive effect of options outstanding		2,046,151		2,139,362		2,016,151		1,624,205		—

Note 18 – Related Party Transactions

We and our subsidiaries participate in various transactions with The Toronto-Dominion Bank and its affiliates. Transactions involving our banking subsidiary, TD Banknorth, NA and its nonbanking affiliates (including TD Banknorth and The Toronto-Dominion Bank) are subject to review by regulatory authorities and are required to be on terms at least as favorable to TD Banknorth, NA as those prevailing at the time for similar non-affiliate transactions. Transactions between The Toronto-Dominion Bank and TD Banknorth and their respective affiliates have included interest rate swap agreements, foreign exchange activities, international services, cost reimbursements, referral fees, intercompany deposits and borrowings and TD Banknorth’s sale of 29.6 million shares of common stock to The Toronto-Dominion Bank for $941.8 million in connection with the Hudson acquisition on January 31, 2006.

The following table sets forth the amounts due to and from The Toronto-Dominion Bank and off-balance sheet transactions with The Toronto-Dominion Bank at June 30, 2006.

	June 30, 2006			December 31, 2005
Cash and due from banks	$	6,052		$	1,694
Other assets:
Positive fair value marks on derivatives		31,763			8,090
Accounts receivable		—			1,396
Deferred tax asset		2,722			2,868
Deferred debt issuance costs		1,062			1,110
Interest-bearing deposits from The Toronto-Dominion Bank		32,364			15,013
Other liabilities:
Negative fair value marks on derivatives		2,956			2,856
Accounts payable		100			—
Shareholders’ Equity
Accumulated other comprehensive income		(5,056	)		(8,865	)
Broker commissions paid to TD Securities for common stock repurchases		(476	)		(306	)
Off-balance sheet transactions (notional amounts):
Interest rate swaps and caps		881,258			606,256
Foreign exchange contracts		125,859			39,557

20

The effect on pre-tax income of transactions with The Toronto-Dominion Bank was an increase of $13.9 million and $1.9 million during the three months ended June 30, 2006 and 2005, respectively, and $16.2 million and $9.8 million during the six months ended June 30, 2006 and the period March 1, 2005 to June 30, 2005, respectively. Included in the 2006 amounts are pretax income of $10.7 million and $9.7 million from changes in foreign currency translation rates on our cross currency swap hedge for the three and six months ended June 30, 2006. The cross currency swap hedge originated in 2006; therefore there were no translation amounts in 2005.

We and The Toronto-Dominion Bank have entered into a Stewardship Agreement under which TD Banknorth is reimbursed for the cost of certain services provided for the benefit of The Toronto-Dominion Bank. Services covered by the Stewardship Agreement include participation in The Toronto-Dominion Bank senior management meetings, participation in The Toronto-Dominion Bank strategic planning sessions, monthly financial reporting in The Toronto-Dominion Bank formats, corporate rebranding, Basel II planning, monitoring of compliance of intercompany activities and assistance in various corporate initiatives with The Toronto-Dominion Bank. We bill The Toronto-Dominion Bank monthly under the Stewardship Agreement. Monthly billings under this agreement averaged $0.6 million during the quarter ended June 30, 2006.

In September 2005, TD Banknorth, NA issued subordinated notes denominated in Canadian currency totaling $270 million (or approximately $229 million in U.S. dollars). The Canada Trust Company, a wholly-owned subsidiary of The Toronto-Dominion Bank, is the issuing and paying agent, note registrar and calculation agent for the notes.

Note 19 – Subsequent Events

On April 13, 2006, we entered into an agreement to acquire Interchange Financial Services Corporation (“Interchange”) for $480.6 million in an all-cash transaction. Interchange, which is headquartered in Saddle Brook, New Jersey, had $1.6 billion in assets and $1.3 billion in deposits at March 31, 2006. Subject to the terms and conditions of the agreement, each outstanding share of Interchange common stock will be converted into the right to receive $23.00 in cash per share. The agreement has been approved by our Board of Directors and Interchange’s Board of Directors.

The cash to be paid in the transaction will be financed at the time of the merger primarily through the sale of 13 million shares of our common stock to our majority shareholder, The Toronto-Dominion Bank, at a price of $31.17 per share for a total of $405.2 million.

The proposed acquisition of Interchange is subject to the approval of the shareholders of Interchange, as well as the receipt of all required regulatory approvals and the satisfaction of other customary conditions, and is expected to close early in the first quarter of 2007 with a systems conversion shortly thereafter.

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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)

General

We, TD Banknorth Inc., are a Delaware corporation and a registered bank/financial holding company under the Bank Holding Company Act of 1956, as amended. We are a majority-owned subsidiary of The Toronto-Dominion Bank and successor to Banknorth Group, Inc. At June 30, 2006, we had consolidated assets of $40.3 billion and consolidated shareholders’ equity of $8.2 billion.

Our principal asset is all of the capital stock of TD Banknorth, NA, a national bank which was initially formed as a Maine-chartered savings bank in the mid-19^th century. At June 30, 2006, TD Banknorth, NA had 587 banking offices in Connecticut, Maine, Massachusetts, New Hampshire, New Jersey, New York, Pennsylvania and Vermont and served approximately 1.5 million households and commercial customers. Through TD Banknorth, NA and its subsidiaries, we offer a full range of banking services and products to individuals, businesses and governments throughout our market areas, including commercial banking, consumer banking, investment management, investment planning, private label credit cards for certain retailers and other businesses, insurance premium financing and insurance agency services.

Executive Overview

• Diluted earnings per share were $0.41 per share for the three months ended June 30, 2006 as compared to $0.55 per share for the comparable period in 2005. This decrease was primarily attributable to non-recurring gains on certain derivatives in June 2005 ($0.06 per diluted share), increased merger and restructuring charges ($0.04 per diluted share), a five basis point decline in net interest margin, and increased provisions for loan and lease losses.

• For the six month periods ended June 30^th, diluted earnings per share amounted to $0.77 per share in 2006 as compared to $0.72 per share in 2005. This increase was primarily due to losses recorded on a balance sheet deleveraging program in 2005 ($0.23 per diluted share), non-recurring gains on certain derivatives in 2005 ($0.02 per diluted share), increased amortization of identifiable assets related to the TD transaction and the acquisition of Hudson ($0.07 per diluted share), a nine basis point decline in net interest margin, and increased provisions for loan and lease losses.

• We completed the acquisition of Hudson on January 31, 2006 and successfully completed the systems conversion in May 2006.

• Although the net interest margin increased to 4.07% in the second quarter of 2006 from 3.83% in the first quarter of 2006, we continue to see intense competition for high quality loans and deposits. This 24 basis point increase in margin was due largely to the benefits of balance sheet deleveraging and restructuring programs completed in the first quarter of 2006 under which we sold $2.5 billion of our mortgage-backed securities and used the proceeds to purchase shorter-duration investments, and sold an additional $2.5 billion of securities acquired in the Hudson merger and used the proceeds to repay a similar amount of borrowings. These transactions will not have a material effect on our net income in 2006, but will reduce our interest rate sensitivity.

• Our total risk-based capital ratio was 11.15% at June 30, 2006 compared to 11.73% at December 31, 2005. Our tangible equity to tangible assets ratio was 5.06% at June 30, 2006 compared to

22

	5.69% at December 31, 2005. These ratios declined due to share repurchases made after the completion of the Hudson acquisition.
•	In April 2006, Standard & Poor’s Services raised its counterparty credit rating on us to “A-1” from “BBB” and the counterparty credit ratings on related entities, including TD Banknorth, NA to “A/A-1” from “BBB+/A-2.”

Acquisition by The Toronto-Dominion Bank

The Toronto-Dominion Bank 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 The Toronto-Dominion Bank acquired its majority interest in us by means of the merger of a newly-formed, wholly-owned subsidiary of The Toronto-Dominion Bank 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.

The purchase price and related purchase accounting adjustments resulted in a new basis of accounting reflecting the fair value of our assets and liabilities at March 1, 2005. The most significant 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.

Financial information presented herein for all dates and periods prior to completion of The Toronto-Dominion Bank transaction on March 1, 2005 reflects our historical basis of accounting, and financial information presented herein for all dates and periods from and after March 1, 2005 reflect the adjusted values of our assets and liabilities resulting from the application of purchase accounting on that date. 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 for 2005 combines the “predecessor period” (January 1, 2005 to February 28, 2005) with the “successor period” (March 1, 2005 to March 31, 2005) to present “combined” results for quarter ended March 31, 2005. Because of the effects of accounting for The Toronto-Dominion Bank transaction under the purchase method effective March 1, 2005, information on a combined basis for the six months ended June 30, 2005 may not be comparable to information for the six months ended June 30, 2006.

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 June 30, 2005 and on a combined basis for the six months ended June 30, 2005 and on a successor basis for the six months ended June 30, 2006.

23

Table 1 — Selected Income Data

	Successor			Combined			Successor			Predecessor
	Six Months Ended			Six Months Ended			March 1, 2005 to			January 1, 2005 to
	June 30, 2006			June 30, 2005			June 30, 2005			February 28, 2005
Interest and dividend income:
Interest and fees on loans and leases	$	811,560		$	561,431		$	384,482		$	176,949
Interest and dividends on securities		137,761			124,664			73,481			51,183
Total interest and dividend income		949,321			686,095			457,963			228,132
Interest expense:
Interest on deposits		241,471			93,569			62,875			30,694
Interest on borrowed funds		118,573			87,160			54,506			32,654
Total interest expense		360,044			180,729			117,381			63,348
Net interest income		589,277			505,366			340,582			164,784
Provision for loan and lease losses		15,619			5,666			4,597			1,069
Net interest income after provision for loan and lease losses		573,658			499,700			335,985			163,715
Noninterest income:
Deposit services		81,105			59,935			41,576			18,359
Insurance agency commissions		30,390			27,496			19,244			8,252
Merchant and electronic banking income, net		33,792			27,841			20,090			7,751
Wealth management services		23,083			20,899			13,940			6,959
Bank-owned life insurance		15,391			12,203			8,034			4,169
Investment planning services		10,501			10,150			7,335			2,815
Net securities losses		(10	)		(49,036	)		(2,488	)		(46,548	)
Loans held for sale — Lower of cost or market adjustment		—			(7,114	)		386			(7,500	)
Change in unrealized loss on derivatives		—			6,664			6,664			—
Other noninterest income		50,656			33,853			24,749			9,104
		244,908			142,891			139,530			3,361
Noninterest expense:
Compensation and employee benefits		252,933			205,964			137,987			67,977
Occupancy		51,044			35,968			24,557			11,411
Equipment		31,416			25,819			17,379			8,440
Data processing		31,021			22,652			15,419			7,233
Advertising and marketing		18,197			14,781			10,408			4,373
Amortization of identifiable intangible assets		77,174			43,152			41,591			1,561
Merger and restructuring costs		34,401			36,559			9,295			27,264
Prepayment penalties on borrowings		—			6,303			3			6,300
Other noninterest expense		66,918			52,244			36,357			15,887
		563,104			443,442			292,996			150,446
Income before income tax expense		255,462			199,149			182,519			16,630
Provision for income taxes		83,203			69,478			63,296			6,182
Income from continuing operations		172,259			129,671			119,223			10,448
Discontinued operations
Loss from discontinued operations		(4,807	)		—			—			—
Income tax benefit		2,141			—			—			—
Loss from discontinued operations, net of tax		(2,666	)		—			—			—
Net income	$	169,593		$	129,671		$	119,223		$	10,448
Basic earnings per share
Income from continuing operations	$	0.79		$	0.73
Loss from discontinued operations, net of tax	($	0.02	)		—
Net Income	$	0.77		$	0.73
Diluted earnings per share
Income from continuing operations	$	0.78		$	0.72
Loss from discontinued operations, net of tax	($	0.01	)		—
Net Income	$	0.77		$	0.72

Acquisitions

Our profitability and market share have been enhanced in recent years through acquisitions. Acquisitions typically involve the payment of a premium over book and market values, and therefore, some dilution of our book value and net income per common share may occur in connection with these transactions. Moreover, acquisitions commonly result in significant one-time charges against earnings, although cost-savings, especially incident to in-market acquisitions, frequently are anticipated, as are revenue enhancements.

24

During 2005 and 2006, we acquired the two financial institutions listed below. Our financial statements include the results of these bank acquisitions since the date of acquisition.

Table 2 — Acquisitions

	Date
Acquisition	Acquired		Loans		Deposits
			(in millions)		(in millions)
Hudson United Bancorp		1/31/2006	$	5,220	$	6,892
BostonFed Bancorp, Inc.		1/21/2005	$	1,227	$	1,047

For additional information, see Note 3 to the Consolidated Financial Statements.

Table 3 — Selected Quarterly Data

The following table sets forth selected quarterly data, ratios and per share data during the periods indicated.

			2006						2005
			Second			First			Fourth			Third			Second
Condensed Income Statement
Interest income			$	492,823		$	456,499		$	363,917		$	350,679		$	342,447
Interest expense				185,990			174,055			120,477			101,682			89,819
Net interest income	(A	)		306,833			282,444			243,440			248,997			252,628
Provision for loan and lease losses				8,719			6,900			6,000			5,500			3,597
Net interest income after provision for loan and lease losses				298,114			275,544			237,440			243,497			249,031
Noninterest income (1)	(B	)		127,068			117,839			60,097			103,607			117,272
Noninterest expense, excluding merger and restructuring costs	(C	)		271,485			257,218			210,700			210,566			214,965
Merger and restructuring costs	(D	)		14,583			19,818			4,957			1,163			5,368
Income before income taxes				139,114			116,347			81,880			135,375			145,970
Income tax expense				44,405			38,799			26,315			46,634			50,375
Loss from discontinued operations, net of tax				(1,323	)		(1,342	)		—			—			—
Net income			$	93,386		$	76,206		$	55,565		$	88,741		$	95,595
Weighted average shares outstanding:
Basic				228,130			209,690			173,745			173,661			173,428
Diluted				228,777			210,444			174,427			174,398			174,261
Basic earnings per share
Income from continuing operations			$	0.42		$	0.37		$	0.32		$	0.51		$	0.55
Loss from discontinued operations, net			($	0.01	)	($	0.01	)	$	0.00		$	0.00		$	0.00
Net income			$	0.41		$	0.36		$	0.32		$	0.51		$	0.55
Diluted earnings per share
Income from continuing operations			$	0.41		$	0.37		$	0.32		$	0.51		$	0.55
Loss from discontinued operations, net			$	0.00		($	0.01	)	$	0.00		$	0.00		$	0.00
Net income			$	0.41		$	0.36		$	0.32		$	0.51		$	0.55
Financial Ratios
Return on average assets (2)				0.93	%		0.79	%		0.69	%		1.11	%		1.20	%
Return on average equity (2)				4.58	%		4.07	%		3.42	%		5.44	%		5.98	%
Net interest margin (fully-taxable equivalent) (2)				4.07	%		3.83	%		3.96	%		4.09	%		4.12	%
Noninterest income as a percent of total income (3)				29.29	%		29.44	%		19.80	%		29.38	%		31.70	%
Efficiency ratio (4)				65.93	%		69.21	%		71.05	%		60.05	%		59.57	%
Per Share Data
Book value per share			$	35.93		$	35.80		$	37.34		$	37.23		$	37.33
Dividends per share			$	0.22		$	0.22		$	0.22		$	0.22		$	0.20

(1)	Noninterest income included net securities losses of $45 million in the fourth quarter of 2005 as part of the balance sheet restructuring/deleveraging program.
(2)	Annualized.
(3)	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).
(4)	Represents noninterest expense as a percentage of net interest income and noninterest income. Efficiency ratio is calculated as (C+D) divided by (A+B).

25

Net Interest Income and Margin

Fully-taxable equivalent net interest income for the second quarter of 2006 increased $55.0 million, or 22%, compared to the second quarter of 2005 due primarily to the acquisition of Hudson on January 31, 2006. The acquisition of Hudson increased net earning assets by approximately 30%. The increase in net interest income related to Hudson was offset in part by lower spreads from the impact of a flattening yield curve.

Net interest margin was 4.07% in the second quarter of 2006 compared to 4.12% in the second quarter of 2005. The five basis point decline was due primarily to the rates paid on interest-bearing liabilities increasing more than the yield on loans, reflecting both rising short-term interest rate and the competitive environment for loans and deposits. The Federal Reserve Board raised its overnight federal funds rate four times during 2006 to date and eight times during 2005; each time the rate increased by 25 basis points (or¹/4 of 1%). The weighted average cost of deposits increased by 132 basis points and the weighted average cost of borrowings increased by 119 basis points for the quarter ended June 30, 2006 compared to the same period last year, while the weighted average yield on loans increased by 101 basis points and the weighted average yield on total earning assets increased by 94 basis points during this same period.

The effect of rising short-term rates and the flattening of the yield curve on our net interest margin was mitigated by balance sheet deleveraging and restructuring programs in 2005 and early 2006, as well as an increase in non-interest bearing deposits as a percentage of earning assets. The balance sheet deleveraging and restructuring programs in 2005 and early 2006 resulted in:

• Loans representing a higher percentage of average earning assets (loans comprised 84% of average earning assets during the second quarter of 2006 compared to 81% during the second quarter of 2005); and

• a reduction in borrowings as a percent of total interest-bearing liabilities (borrowings comprised 18% of average interest-bearing liabilities during the second quarter of 2006 compared to 25% during the first quarter of 2005).

For the six months ended June 30, 2006 compared to the six months ended June 30, 2005, fully taxable equivalent net interest income increased by $85 million and the net interest margin declined by nine basis points, for the same reasons as discussed above (i.e. the acquisition of Hudson, rising short-term rates and balance sheet deleveraging/restructuring programs). For more information on our balance sheet restructuring and deleveraging programs, see Note 14 to the Consolidated Financial Statements.

Table 4 sets forth, for the three and six months ended June 30, 2006 and 2005, 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.

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Table 4 — Average Balances, Yields and Rates

	Successor								Successor
	2006 Second Quarter								2005 Second Quarter
						Yield/								Yield/
	Average Balance		Interest			Rate (1)			Average Balance		Interest			Rate (1)
Loans and leases (2):
Residential real estate mortgages	$	2,901,974	$	40,247			5.55	%	$	3,665,306	$	49,737			5.43	%
Commercial real estate mortgages		8,791,585		151,573			6.92	%		6,658,257		97,389			5.87	%
Commercial business loans and leases		6,456,262		114,963			7.18	%		4,162,669		59,336			5.72	%
Consumer loans and leases		7,170,723		115,074			6.44	%		5,686,240		83,620			5.90	%
Credit card receivables		403,101		12,562			12.50	%		—		—			—
Total loans and leases		25,723,645		434,419			6.78	%		20,172,472		290,082			5.77	%
Investment securities (3)		2,339,284		30,606			5.23	%		4,578,749		54,060			4.72	%
Securities purchased under agreements to resell		2,426,434		30,249			4.93	%		—		—			—
Federal funds sold and other short-term investments		11,349		98			3.48	%		12,574		77			2.44	%
Total earning assets		30,500,712		495,372			6.51	%		24,763,795		344,219			5.57	%
Bank-owned life insurance		769,784								557,665
Goodwill		6,016,959								4,536,952
Indentifiable intangible assets		833,508								746,331
Other noninterest-earning assets		2,136,123								1,403,735
Total assets	$	40,257,086							$	32,008,478
Interest-bearing deposits:
Regular savings	$	4,336,225		14,042			1.30	%	$	2,696,236		1,973			0.29	%
NOW and money market accounts		9,837,884		62,086			2.53	%		8,031,408		24,425			1.22	%
Certificates of deposit		6,649,366		55,480			3.35	%		4,786,696		20,998			1.76	%
Brokered deposits		256,872		3,174			4.96	%		76,441		731			3.84	%
Deposits in foreign office		783		8			3.85	%		—		—			—
Total interest-bearing deposits		21,081,130		134,790			2.56	%		15,590,781		48,127			1.24	%
Borrowed funds		4,622,370		51,200			4.44	%		5,140,876		41,692			3.25	%
Total interest-bearing liabilities		25,703,500		185,990			2.90	%		20,731,657		89,819			1.74	%
Non-interest bearing deposits		5,682,032								4,351,905
Deferred tax liability related to identifiable intangible assets		333,871								264,676
Other liabilities		353,817								244,650
Shareholders’ equity		8,183,866								6,415,590
Total liabilities and shareholders’ equity	$	40,257,086							$	32,008,478
Net earning assets	$	4,797,212							$	4,032,138
Net interest income (fully-taxable equivalent)				309,382								254,400
Less: fully-taxable equivalent adjustments				(2,549	)							(1,772	)
Net interest income			$	306,833							$	252,628
Net interest rate spread (fully-taxable equivalent)							3.61	%							3.83	%
Net interest margin (fully-taxable equivalent)							4.07	%							4.12	%

(1)	Annualized.
(2)	Loans and leases include loans held for sale.
(3)	Includes securities available for sale and held to maturity.

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Table 4 — Average Balances, Yields and Rates

	Successor								Combined
	Six Months Ended								Six Months Ended
	June 30, 2006								June 30, 2005
						Yield/								Yield/
	Average Balance		Interest			Rate (1)			Average Balance		Interest			Rate (1)
Loans and leases (2):
Residential real estate mortgages	$	2,909,401	$	80,517			5.53	%	$	3,735,498	$	98,533			5.28	%
Commercial real estate mortgages		8,396,305		283,776			6.82	%		6,553,657		192,167			5.91	%
Commercial business loans and leases		6,110,198		209,322			6.94	%		4,091,063		115,335			5.68	%
Consumer loans and leases		7,040,377		220,542			6.32	%		5,594,277		157,858			5.69	%
Credit card receivables		323,636		20,406			12.71	%		—		—			—
Total loans and leases		24,779,917		814,563			6.63	%		19,974,495		563,893			5.68	%
Investment securities (3)		3,977,890		101,913			5.12	%		5,338,825		125,556			4.70	%
Securities purchased under agreements to resell		1,511,080		37,444			4.93	%		—		—			—
Federal funds sold and other short-term investments		13,255		238			3.63	%		12,003		160			2.69	%
Total earning assets		30,282,142		954,158			6.35	%		25,325,323		689,609			5.48	%
Bank-owned life insurance		733,925								551,842
Goodwill		5,764,814								3,532,889
Indentifiable intangible assets		817,615								524,947
Other noninterest-earning assets		2,040,514								1,424,746
Total assets	$	39,639,010							$	31,359,747
Interest-bearing deposits:
Regular savings	$	4,023,863		23,308			1.17	%	$	2,669,867		3,854			0.29	%
NOW and money market accounts		9,507,085		110,698			2.35	%		8,059,616		45,387			1.14	%
Certificates of deposit		6,438,869		101,936			3.19	%		4,742,817		42,963			1.83	%
Brokered deposits		234,405		5,521			4.75	%		71,179		1,365			3.87	%
Deposits in foreign office		394		8			3.85	%		—		—			—
Total interest-bearing deposits		20,204,616		241,471			2.41	%		15,543,479		93,569			1.21	%
Borrowed funds		5,448,586		118,573			4.38	%		5,644,617		87,160			3.11	%
Total interest-bearing liabilities		25,653,202		360,044			2.83	%		21,188,096		180,729			1.72	%
Non-interest bearing deposits		5,425,567								4,287,179
Deferred tax liability related to identifiable intangible assets		324,735								134,551
Other liabilities		342,037								297,194
Shareholders’ equity		7,893,469								5,452,727
Total liabilities and shareholders’ equity	$	39,639,010							$	31,359,747
Net earning assets	$	4,628,940							$	4,137,227
Net interest income (fully-taxable equivalent)				594,114								508,880
Less: fully-taxable equivalent adjustments				(4,837	)							(5,314	)
Net interest income			$	589,277							$	503,566
Net interest rate spread (fully-taxable equivalent)							3.52	%							3.76	%
Net interest margin (fully-taxable equivalent)							3.95	%							4.04	%

(1)	Annualized.
(2)	Loans and leases include loans held for sale.
(3)	Includes securities available for sale and held to maturity.

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The following table 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) and (ii) changes in rate (change in rate multiplied by old volume). Changes in rate/volume (change in rate multiplied by change in volume) were prorated between the changes in volume and rate.

Table 5 — Rate /Volume Analysis

	Three Months Ended									Six Months Ended
	June 30, 2006 (Successor) vs. Three Months Ended									June 30, 2006 (Successor) vs. Six Months Ended
	June 30, 2005 (Successor)									June 30, 2005 (Combined)
	Increase (decrease) due to									Increase (decrease) due to
							Total									Total
	Volume (1)			Rate			Change			Volume (1)			Rate			Change
Interest income:
Loans and leases	$	87,823		$	56,514		$	144,337		$	147,869		$	102,801		$	250,670
Investment securities		(30,105	)		6,651			(23,454	)		(36,404	)		12,761			(23,643	)
Securities purchased under agreements to resell		30,249			—			30,249			37,444			—			37,444
Federal funds sold and other short-term investements		(2	)		23			21			9			69			78
Total interest income		87,965			63,188			151,153			148,918			115,631			264,549
Interest expense:
Interest-bearing deposits:
Regular savings		1,795			10,274			12,069			2,785			16,669			19,454
NOW and money market accounts		6,523			31,138			37,661			9,452			55,859			65,311
Certificates of deposit		10,381			24,101			34,482			19,158			39,815			58,973
Brokered deposits		2,175			268			2,443			3,781			375			4,156
Deposits in foreign office		8			—			8			8			—			8
Total interest-bearing deposits		20,882			65,781			86,663			35,184			112,718			147,902
Borrowed funds		(3,614	)		13,122			9,508			(2,920	)		34,333			31,413
Total interest expense		17,268			78,903			96,171			32,264			147,051			179,315
Net interest income (fully taxable equivalent)	$	70,697			($15,715	)	$	54,982		$	116,654			($31,420	)	$	85,234

(1) Volume increases include the effects of the acquisition of Hudson United Bancorp on January 31, 2006 and BostonFed Bancorp, Inc. on January 21, 2005.

The following table 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.

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Table 6 — Analysis of Net Interest Income

	Successor			Successor						Successor			Combined
	Three Months Ended			Three Months Ended						Six Months Ended			Six Months Ended
	June 30, 2006			June 30, 2005			Change			June 30, 2006			June 30, 2005			Change
Components of net interest income
Income on earning assets (fully-taxable equivalent)	$	495,372		$	344,219		$	151,153		$	954,158		$	689,609		$	264,549
Expense on interest-bearing liabilities		185,990			89,819			96,171			360,044			180,729			179,315
Net interest income (fully-taxable equivalent)		309,382			254,400			54,982			594,114			508,880			85,234
Less: fully-taxable equivalent adjustments		(2,549	)		(1,772	)		(777	)		(4,837	)		(3,514	)		(1,323	)
Net interest income, as reported	$	306,833		$	252,628		$	54,205		$	589,277		$	505,366		$	83,911
Average balances
Loans and leases	$	25,723,645		$	20,172,472		$	5,551,173		$	24,779,917		$	19,974,495		$	4,805,422
Investment securities		2,339,284			4,578,749			(2,239,465	)		3,977,890			5,338,825			(1,360,935	)
Securities purchased under agreements to resell		2,426,434			—			2,426,434			1,511,080			—			1,511,080
Federal funds sold and other short-term investments		11,349			12,574			(1,225	)		13,255			12,003			1,252
Total earning assets		30,500,712			24,763,795			5,736,917			30,282,142			25,325,323			4,956,819
Total interest-bearing liabilities		25,703,500			20,731,657			4,971,843			25,653,202			21,188,096			4,465,106
Net earning assets	$	4,797,212		$	4,032,138		$	765,074		$	4,628,940		$	4,137,227		$	491,713
Average yields and rates paid
Earning assets yield (fully-taxable equivalent)		6.51	%		5.57	%		0.94	%		6.35	%		5.48	%		0.87	%
Rate paid on interest-bearing liabilities		2.90	%		1.74	%		1.16	%		2.83	%		1.72	%		1.11	%
Net interest rate spread (fully-taxable equivalent)		3.61	%		3.83	%		(0.22	%)		3.52	%		3.76	%		(0.24	%)
Net interest margin (fully-taxable equivalent)		4.07	%		4.12	%		(0.05	%)		3.95	%		4.04	%		(0.09	%)

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 below. Although we use our best judgment in providing for losses, for the 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, which would adversely affect our results of operations.

We provided $8.7 million and $3.6 million for loan and lease losses in the quarters ended June 30, 2006 and 2005, respectively. In addition to the provisions made for on-balance sheet loans and leases, we provided $300 thousand and $100 thousand for loss reserves related to off-balance sheet loan commitments in the quarters ended June 30, 2006 and 2005, respectively. This provision for off-balance sheet loan commitments is included with other noninterest expense. The increase in the provision for loan and lease losses in the second quarter of 2006 reflects the impact of the acquisition of $5.2 billion in loans from Hudson and increased net charge-offs. The ratio of net charge-offs to average loans and leases was 0.14% (annualized) in the second quarter of 2006 and 0.07% (annualized) in the second quarter of 2005. The coverage ratio (ratio of the allowance for credit losses to nonperforming loans) was 320% at June 30, 2006, as compared to 381% at December 31, 2005 and 335% at June 30, 2005. See “Risk Management” below for further information on the provision for loan and lease losses, net charge-offs, nonperforming assets, allowance for credit losses 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

Noninterest income increased by $9.8 million or 8% during the three months ended June 30, 2006, as compared to the same period in 2005, primarily due to increases in deposit services income and other noninterest income, which were partially offset by a reduction in income from the change in unrealized loss on derivatives.

For the six months ended June 30, 2006, noninterest income increased by $102.0 million or 71% as compared to the same period in the prior year. The primary reasons for this increase were (i) a $49.4 million aggregate reduction in net securities losses, loans held for sale- lower of cost or market adjustments and change in unrealized loss on derivatives

30

in the six months ended June 30, 2006, as compared to the same period in the prior year, and (ii) increases in deposit services income of $21.2 million and other noninterest income of $16.8 million.

The following table presents noninterest income during the periods indicated.

Table 7 — Noninterest Income

	Successor		Successor								Successor			Combined
	Three Months Ended		Three Months Ended		Change						Six Months Ended			Six Months Ended			Change
	June 30, 2006		June 30, 2005		Amount			Percent			June 30, 2006			June 30, 2005			Amount			Percent
Noninterest income:
Deposit services	$	42,626	$	31,751	$	10,875			34	%	$	81,105		$	59,935		$	21,170			35	%
Insurance agency commissions		14,551		13,604		947			7	%		30,390			27,496			2,894			11	%
Merchant and electronic banking income, net		18,155		14,727		3,428			23	%		33,792			27,841			5,951			21	%
Wealth management services		11,735		10,395		1,340			13	%		23,083			20,899			2,184			10	%
Bank-owned life insurance		8,103		6,107		1,996			33	%		15,391			12,203			3,188			26	%
Investment planning services		5,359		5,462		(103	)		(2	%)		10,501			10,150			351			3	%
Net securities gains (losses)		81		1,439		(1,358	)		(94	%)		(10	)		(49,036	)		49,026			(100	%)
Loans held for sale — lower of cost or market adjustment		—		386		(386	)		(100	%)		—			(7,114	)		7,114			(100	%)
Change in unrealized loss on derivatives		—		14,840		(14,840	)		(100	%)		—			6,664			(6,664	)		(100	%)
Other noninterest income:
Loan fee income		15,524		8,891		6,633			75	%		27,917			15,812			12,105			77	%
Income on restricted stock		3,339		2,202		1,137			52	%		7,921			4,598			3,323			72	%
Mortgage banking services income		1,326		2,330		(1,004	)		(43	%)		2,560			3,657			(1,097	)		(30	%)
Venture capital income (loss)		434		10		424			N/M			942			(393	)		1,335			(340	%)
Covered call option premiums		—		1,058		(1,058	)		(100	%)		922			4,128			(3,206	)		(78	%)
Miscellaneous income		5,835		4,070		1,765			43	%		10,394			6,051			4,343			72	%
Total other noninterest income		26,458		18,561		7,897			43	%		50,656			33,853			16,803			50	%
Total noninterest income	$	127,068	$	117,272	$	9,796			8	%	$	244,908		$	142,891		$	102,017			71	%

N/M - not meaningful

Deposit services income for the three months ended June 30, 2006 increased $10.9 million, or 34%, compared to the same period last year, primarily due to volume increases from the Hudson acquisition and increases in overdraft fee income resulting from increases in the number of accounts and transactions per account. For the six months ended June 30, 2006, deposit services income increased $21.2 million, or 35%, compared to the same period last year primarily due to volume increases.

Insurance agency commissions for the three months ended June 30, 2006 increased $947 thousand, or 7%, when compared to the same period last year. Commissions from an insurance agency acquired by us in December 2005 and increases in performance-based income were offset in part by lower renewal commissions and new business volume due to a competitive marketplace. In the six months ended June 30, 2006, insurance agency commissions increased by $2.9 million, or 11%, compared to the same period last year due to revenue from acquisitions and increased performance-based income.

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 June 30, 2006 increased $3.4 million, or 23%, compared to the same period last year and increased $6.0 million, or 21% in the six months ended June 30, 2006. These increases were primarily due to increases in the volume of transactions processed.

Wealth management services income for the three months ended June 30, 2006 increased $1.3 million, or 13%, and increased $2.2 million, or 10%, in the six months ended June 30, 2006 compared to the same respective periods last year. These increases were primarily due to an increase in assets under management, which increased to $12.0 billion at June 30, 2006 from $10.5 billion at June 30, 2005, an increase of $1.5 billion or 14%. Assets under

31

management increased primarily as a result of trust assets acquired from Hudson on January 31, 2006 and new business sales.

Income from bank-owned life insurance (“BOLI”) for the three months ended June 30, 2006 increased $2.0 million, or 33%, compared to the same period last year, and increased $3.2 million, or 26%, in the six months ended June 30, 2006 compared to that same period last year. The cash surrender value of our BOLI was $774.9 million at June 30, 2006 compared to $572.8 million at December 31, 2005. The $202.0 million increase was primarily comprised of amounts acquired in the Hudson transaction and investment earnings. Investment in BOLI provides a tax-advantaged means to mitigate increasing employee benefit costs.

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 decreased $103 thousand, or 2%, when compared to the same period last year, and increased $351 thousand, or 3%, in the six months ended June 30, 2006, when compared to the same period last year. Revenues were impacted by lower referral volume from the retail branch network in 2006 and reduced demand for fixed annuities.

Net securities gains amounted to $81 thousand during the second quarter of 2006 and $1.4 million during the second quarter of 2005. In the six months ended June 30, 2006 net securities losses amounted to $10 thousand, as compared to a loss of $49 million for the same period in 2005, which included a $50.2 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. Gains and losses from the sale of securities are subject to market and economic conditions.

Loans held for sale–lower of cost or market adjustment amounted to a $7.1 million charge in the six months ended June 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 these loans was completed in the second quarter of 2005 on a servicing-retained basis.

The change in unrealized losses on certain derivatives of $6.7 million in the six months ended June 30, 2005 was due to required changes in accounting for certain interest rate swap agreements in connection with the accounting for The Toronto-Dominion Bank transaction under the purchase method.

Other noninterest income increased $7.9 million, or 43%, in the three months ended June 30, 2006 as compared to the same period last year and $16.8 million, or 50%, in the six months ended June 30, 2006 compared to the same period last year. For the quarter, the increase was primarily due to a $6.7 million increase in loan fee income, which was primarily due to $3.3 million of fees on credit card receivables acquired from Hudson, an increase of $818 thousand in commercial loan fees (primarily fees on insurance premium financing loans acquired in the Hudson merger) and an increase of $506 thousand in standby letter of credit fees. Venture capital results reflected improved performance of our investments in venture capital funds. Income on restricted stock increased primarily due to additional required investments in Federal Reserve Bank stock. Miscellaneous other noninterest income includes the proceeds from the sale of our bond administration business, fees and commissions on our official check program and other miscellaneous items.

Noninterest Expense

Noninterest expense increased by $65.7 million, or 30%, in the three months ended June 30, 2006 compared to the same period in the prior year, and by $119.7 million, or 27%, in the six months ended June 30, 2006 compared to the same period in the prior year. These increases were primarily due to increased operating expenses related to Hudson and increases in the amortization of identifiable assets and merger and restructuring costs.

The following table presents noninterest expense during the periods indicated.

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Table 8 — Noninterest Expense

	Successor		Successor							Successor		Combined
	Three Months Ended		Three Months Ended		Change					Six Months Ended		Six Months Ended		Change
	June 30, 2006		June 30, 2005		Amount		Percent			June 30, 2006		June 30, 2005		Amount			Percent
Noninterest expense:
Compensation and employee benefits	$	127,722	$	105,096	$	22,626		22	%	$	252,933	$	205,964	$	46,969			23	%
Occupancy		26,748		18,066		8,682		48	%		51,044		35,968		15,076			42	%
Equipment		16,532		12,982		3,550		27	%		31,416		25,819		5,597			22	%
Data processing		15,787		11,618		4,169		36	%		31,021		22,652		8,369			37	%
Advertising and marketing		10,006		8,087		1,919		24	%		18,197		14,781		3,416			23	%
Amortization of identifiable intangible assets		39,508		31,656		7,852		25	%		77,174		43,152		34,022			79	%
Merger and restructuring costs		14,583		5,368		9,215		172	%		34,401		36,559		(2,158	)		(6	%)
Prepayment penalties on borrowings		—		—		—		N/M			—		6,303		(6,303	)		(100	%)
Other noninterest expense:															—
Professional fees		6,282		5,702		580		10	%		11,791		10,886		905			8	%
Telephone		4,809		3,287		1,522		46	%		8,741		6,984		1,757			25	%
Office supplies		4,086		3,042		1,044		34	%		7,147		5,620		1,527			27	%
Postage and freight		4,092		2,880		1,212		42	%		7,763		5,754		2,009			35	%
Courier		2,893		1,675		1,218		73	%		5,297		3,202		2,095			65	%
Miscellaneous loan costs		1,508		1,359		149		11	%		2,713		2,644		69			3	%
Deposits and other assessments		1,326		1,070		256		24	%		2,567		2,146		421			20	%
Miscellaneous		10,186		8,445		1,741		21	%		20,899		15,008		5,891			39	%
Total other noninterest expense		35,182		27,460		7,722		28	%		66,918		52,244		14,674			28	%
Total noninterest expense	$	286,068	$	220,333	$	65,735		30	%	$	563,104	$	443,442	$	119,662			27	%

N/M - not meaningful

Compensation and employee benefits expense increased $22.6 million, or 22% in the second quarter of 2006, and $47.0 million, or 23% in the six months ended June 30, 2006 compared to the same respective periods last year. These increases were primarily due to higher salaries and benefit costs resulting from acquisitions, costs related to management retention agreements, expenses associated with restricted stock unit awards granted in 2005 that will be settled in cash and expenses for stock options accounted for under SFAS No. 123R which we adopted on January 1, 2006. We recorded a total of $5.9 million and $13.4 million of compensation expense in the second quarter and six months ended June 30, 2006 related to stock-based compensation plans. See Note 5 to the Consolidated Financial Statements for more information on stock-based compensation. The total number of full-time equivalent employees approximated 9,100 at June 30, 2006 compared to 7,300 at June 30, 2005.

Occupancy expense increased $8.7 million, or 48%, in the second quarter of 2006, and $15.1 million, or 42%, in the six months ended June 30, 2006 compared to the same respective periods last year. These increases were primarily due to expenses associated with additional facilities from acquisitions, including depreciation and higher electricity expense due to rate increases.

Equipment expense increased $3.6 million, or 27%, in the first quarter of 2006, and $5.6 million, or 22%, in the six months ended June 30, 2006 compared to the same respective periods last year. These increases were primarily due to increased costs from acquisitions, depreciation on new equipment purchases and higher equipment maintenance expenses.

Data processing expense increased $4.2 million, or 36%, in the second quarter of 2006, and $8.4 million, or 37%, in the six months ended June 30, 2006 compared to the same periods last year. These increases were primarily due to additional volumes from acquisitions. Data processing expenses also increased due to the operation of Hudson applications until systems integration, higher data line charges to support technology upgrades and increased software licensing expense due to higher rates upon renewal.

Advertising and marketing expense increased $1.9 million, or 24%, in the first quarter of 2006 and $3.4 million, or 23%, in the six months ended June 30, 2006 compared to the same respective periods last year. These increases were primarily due to increases in corporate sponsorships, including amortization of the

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costs of the naming rights to the TD Banknorth Garden, which began on July 1, 2005, and related promotional campaigns.

Amortization expense on identifiable intangible assets increased by $7.9 million, or 25%, and $34.0 million, or 79%, in the six months ended June 30, 2006 compared to the same respective periods last year. These increases were primarily due to $20.0 million of additional amortization expense during the six months ended June 30, 2006 as a result of the acquisition of Hudson on January 31, 2006. See Note 8 to the unaudited Consolidated Financial Statements for more information and scheduled amortization.

Merger and restructuring costs increased $9.2 million, or 172%, in the second quarter of 2006 compared to the same period last year. The increase was primarily attributable to $13.5 million of costs incurred in connection with the acquisition of Hudson, which was partially offset by decreases in costs incurred in connection with the TD transaction. For a tabular analysis of our merger and restructuring costs, see Note 17 to the unaudited Consolidated Financial Statements.

Other noninterest expense increased $7.7 million, or 28%, in the second quarter of 2006, and $14.7 million, or 28%, in the six months ended June 30, 2006 compared to the same periods last year. These increases were largely due to increased courier costs, postage and freight and telephone costs as well as miscellaneous costs, which include travel and entertainment expenses and crime losses.

Discontinued Operations

Discontinued operations reflect losses from subsidiaries engaged in energy operations which were acquired in the Hudson merger, which we have decided to sell. In May 2006, we divested our interest in United Cogen Fuel LLC. Consequently, we expect losses from discontinued operations to be lower in the future. See Note 4 to the unaudited Consolidated Financial Statements.

Taxes

The effective tax rate from continuing operations was 31.9% for the three months ended June 30, 2006 and 32.6% for the six months ended June 30, 2006 compared to 34.5% for the three months ended June 30, 2005 and 34.9% for the six months ended June 30, 2005. The decrease in the effective tax rate related primarily to reduced state income taxes for the three months ended June 30, 2006 compared to 2005 and to reduced nondeductible merger charges for the six months ended June 30, 2006 compared to 2005. The effective tax rate for the remainder of 2006 is expected to be approximately 33% for continuing operations.

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 $145.3 million for the six months ended June 30, 2006 as compared to $155.5 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 and Note 12 to the unaudited Consolidated Financial Statements.

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Our available for sale investment portfolio had a net unrealized loss of $64.0 million, a net unrealized loss of $20.2 million and a net unrealized gain of $26.1 million at June 30, 2006, December 31, 2005 and June 30, 2005, respectively. Net of applicable income tax effects, these amounts were $41.6 million, $13.2 million and $17.0 million at June 30, 2006, December 31, 2005 and June 30, 2005, 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 $8.2 billion, or 26%, from $32.1 billion at December 31, 2005 to $40.3 billion at June 30, 2006 as a result of our acquisition of Hudson on January 31, 2006, which increased assets by $10.3 billion. A balance sheet deleveraging program implemented coincident with the Hudson acquisition reduced assets by $2.5 billion.

Total average assets were $40.3 billion and $32.0 billion for the three months ended June 30, 2006 and 2005, respectively. The $8.3 billion increase was primarily due to the Hudson acquisition.

Securities Purchased under Agreements to Resell

Securities purchased under agreements to resell amounted to $2.0 billion at June 30, 2006. These investments, which mature in 2006 and 2007, provide collateral to secure public deposits and borrowings. These investments were largely purchased with proceeds received from the sale of investment securities pursuant to our balance sheet restructuring program. There were no securities purchased under agreements to resell at December 31, 2005.

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 $2.3 billion during the second quarter of 2006, as compared to $4.6 billion in the second quarter of 2005. The $2.3 million decrease was primarily due to the restructuring program whereby $2.5 billion of securities were sold. 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 include U.S. Government and agency securities, collateralized mortgage obligations (which include securitized residential real estate loans held in a REMIC), asset-backed securities and corporate bonds. The majority of securities available for sale were rated AAA or equivalently rated at June 30, 2006. The average yield on securities was 5.23% for the quarter ended June 30, 2006 compared to 4.72% for the quarter ended June 30, 2005. Substantially 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 $41.6 million and $17.0 million at June 30, 2006 and December 31, 2005, respectively. These unrealized 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.

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Loans and Leases

Total loans and leases (including loans held for sale) averaged $25.7 billion during the second quarter of 2006, an increase of $5.6 billion, or 28%, from the second quarter of 2005. Excluding acquisitions and the effects of purchase accounting adjustments, average loans and leases for the quarter ended June 30, 2006 were $1.0 billion, or 4%, higher than the same period in 2005. Average loans and leases as a percent of average earning assets was 84% during the quarter ended June 30, 2006 compared to 81% during the quarter ended June 30, 2005.

Average residential real estate loans (which include mortgage loans held for sale) of $2.9 billion during the second quarter of 2006 decreased $763 million from the average amount of such loans during the second quarter of last year. The decrease in residential real estate loans was primarily due to the sale of $772 million of residential portfolio loans from May 2005 through December 2005. The weighted average yield on residential real estate loans increased from 5.43% to 5.55% during the quarters ended June 30, 2005 and 2006, respectively, primarily due to the repricing of variable rate loans and the origination of new loans at higher rates.

Commercial real estate loans averaged $8.8 billion during the second quarter of 2006, an increase of $2.1 billion, or 32%, from the second quarter of last year. Excluding acquisitions and the effects of purchase accounting adjustments, average commercial real estate loans increased $1.0 billion, or 13%. The weighted average yield on commercial real estate loans during the second quarter of 2006 was 6.92%, as compared to 5.87% in the second quarter of 2005, an increase of 105 basis points. The higher yield reflects the impact of higher prevailing rates mitigated by the competitive pricing environment for new loans and the benefit of amortizing the fair value discount recorded on Hudson loans.

Commercial business loans and leases averaged $6.5 billion during the second quarter of 2006, an increase of $2.3 billion, or 55%, over the second quarter of 2005. This increase was primarily due to the Hudson acquisition, including the insurance premium financing of Flatiron Credit Company, Inc. (“Flatiron”), a Hudson subsidiary company. The weighted average yield on commercial loans and leases increased to 7.18% in the second quarter of 2006 from 5.72% in the second quarter of 2005. The increase in the yield was primarily due to higher rates on new loans, the upward repricing of variable-rate loans due to increases in short-term interest rates and the benefit of amortizing the fair value discount recorded on Hudson loans.

Consumer loans and leases averaged $7.2 billion during the second quarter of 2006, an increase of $1.5 billion, or 26%, from the second quarter of 2005. Excluding acquisitions and the effects of purchase accounting adjustments, average consumer loans and leases increased $465 million or 7%. 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 6.44% in the second quarter of 2005 from 5.90% in the second quarter of 2005, resulting from the upward repricing of variable rate loans due to increase in short-term interest rates. 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 Management.”

Credit card receivables averaged $403 million during the second quarter of 2006. We acquired $394 million of credit card receivables as a result of the Hudson acquisition on January 31, 2006. Credit card receivables represent receivables originating from the use of private label credit cards issued on behalf of retailers which offer unsecured sales financing to their customers. The weighted average yield on credit card receivables was 12.50% during the three months ended June 30, 2006, which reflects the higher risk associated with these unsecured loans.

Deposits

Total deposits averaged $26.8 billion during the second quarter of 2006, an increase of $6.8 billion, or 34%, from the second quarter of 2005. Excluding acquisitions and the effects of purchase accounting adjustments, average total deposits increased $500 million or 2%, with certificates of deposit reflecting the largest increase by deposit category. The ratio of loans to deposits was 97% at June 30, 2006 and 99% at December 31, 2005.

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Average interest-bearing deposits increased $5.5 billion, or 35%, to $21.1 billion during the second quarter of 2006 as compared to the second quarter of 2005 due primarily to the acquisition of Hudson. Excluding acquisitions and the effects of purchase accounting adjustments, average certificates of deposit increased by 9%, and average savings accounts and money market/NOW accounts increased by 2% in the aggregate. Certificates of deposit increased due to higher rates and savings accounts increased due to special product offerings. The average rates paid on all interest-bearing deposits increased by 132 basis points from 1.24% in the second quarter of 2005 to 2.56% in the second quarter of 2006, reflecting the increase in prevailing interest rates and competitive pricing to attract new deposits in certain market areas.

Average noninterest-bearing deposits totaled $5.7 billion during the second quarter of 2006, an increase of $1.3 billion, or 31%, from the second quarter of 2005, primarily due to acquisitions.

From time to time we supplement deposits obtained through internal sources with deposits obtained through national investment banking firms, which, pursuant to agreements with us, solicit funds from their customers for deposit with us. These “brokered deposits” increased from $64.0 million at December 31, 2005 to $238.2 million at June 30, 2006 due to brokered deposits acquired in the Hudson transaction.

In June 2006, we began offering an interest-bearing deposit product primarily to large commercial customers from a newly-opened office based in the Cayman Islands. These deposits offer a slightly higher rate than customer repurchase agreements but are not collateralized and are not insured by the FDIC.

Included within the deposit categories above are government banking deposits, which averaged $3.5 billion in the second quarter of 2006 and $1.7 billion in the second quarter of 2005. We added $1.2 billion of government deposits from the Hudson acquisition on January 31, 2006. 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 fund earning asset growth that exceeds deposit 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 $3.3 billion and $3.7 billion at June 30, 2006 and December 31, 2005, respectively, a decrease of $405.8 million. See Note 10 to the unaudited Consolidated Financial Statements.

At June 30, 2006, we had a $110 million unsecured line of credit with The Toronto-Dominion Bank. 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 2006. We have additional borrowing capacity as more fully described under “Liquidity” below.

Long-term debt includes FHLB advances, senior notes, subordinated notes, junior subordinated debentures, capital lease obligations and other debt with original maturities greater than one year. Long-term debt amounted to $1.5 billion at June 30, 2006 and $1.2 billion at December 31, 2005. The increase of $252.3 million related to the debt assumed with the acquisition of Hudson in the first quarter of 2006, which was partially offset by payments on borrowings which were called in the second quarter. See Note 11 to the unaudited Consolidated Financial Statements.

At June 30, 2006 and December 31, 2005, long-term FHLB borrowings amounted to $91 million and $152 million, respectively, and were collateralized primarily with first mortgage loans secured by single-family properties. The $61 million reduction resulted primarily from payment on borrowings that were called during the second quarter of 2006. Long-term FHLB borrowings had an average cost of 3.90% during the three months ended June 30, 2006 as

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compared to 4.56% during the three months ended June 30, 2005; the lower rate resulted from unamortized discounts on the called borrowings which were recognized as reductions of interest expense.

At June 30, 2006 and December 31, 2005, we had outstanding $524 million and $366 million, respectively, of junior subordinated debentures issued by us to affiliated trusts. This increase was attributable to the acquisition of Hudson. For additional information on our junior subordinated debentures, see “Capital” below.

At June 30, 2006, our consolidated borrowings included $705.5 million of subordinated debt as compared to $457 million of subordinated debt at December 31, 2005. This increase was attributable to the acquisition of Hudson. At June 30, 2006, $637.7 million of our subordinated debt qualified as Tier 2 Capital for regulatory purposes. The following table presents information on our subordinated debt at June 30, 2006.

Table 9 — Subordinated Debt

Issuance	Balance at			Interest			Maturity
Date	6/30/2006			Rate			Date
September 20, 2005	$	241,892	(1)		5.05	%	9/20/2022
May 6, 2002		216,191			7.00	%	5/6/2012
June 22, 2001		222,750			7.63	%	6/15/2011
September 1, 1996		24,708			8.20	%	9/1/2006
	$	705,541

(1) Represents Can$270 million of TD Banknorth notes which are unconditionally guaranteed by The Toronto-Dominion Bank.

At June 30, 2006 and December 31, 2005, we had outstanding $149 million of 5-year senior notes carrying a fixed coupon of 3.75%. These securities, which were issued in April 2003, are rated A3 by Moody’s Investor Services.

Off-Balance Sheet Arrangements

We are party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of our customers and to reduce our own exposure to fluctuations in interest rates. These financial instruments include commitments to originate loans, commitments to invest in real estate limited partnerships, standby letters of credit, recourse arrangements on serviced loans, forward commitments to sell loans, foreign currency forward contracts, interest rate swaps and other derivative contracts. The instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in our Consolidated Balance Sheets. The contract or notional amounts of those instruments reflect the extent of involvement we have in particular classes of financial instruments.

Our exposure to credit loss in the event of nonperformance by the other party to the financial instrument for loan commitments, standby letters of credit and recourse arrangements generally is represented by the contractual amount of those instruments. We use the same credit policies in making these commitments and conditional obligations as we do for on-balance sheet instruments. For forward commitments to sell loans, the contract or notional amounts do not represent exposure to credit loss.

The following tables summarize our contractual cash obligations, other commitments and derivative financial instruments at June 30, 2006.

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Table 10 — 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	$	1,484,536	$	122,096	$	236,806	$	51,308	$	1,074,326
Capital lease obligations		6,150		161		1,179		1,508		3,302
Total long-term debt		1,490,686		122,257		237,985		52,816		1,077,628
Operating lease obligations		202,939		40,085		65,565		42,387		54,902
Pension plan contribution — estimated (2)		30,311		30,311		—		—		—
Other benefit plan payments — estimated		61,289		4,581		11,130		19,099		26,479
Other vendor obligations (3)		76,298		12,567		6,405		6,696		50,630
Total contractual obligations	$	1,861,523	$	209,801	$	321,085	$	120,998	$	1,209,639

(1)	Other liabilities which are short term in nature are not included in this table.
(2)	Funding requirements for pension benefits after 2006 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.

	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	$	7,841,119	$	3,084,583	$	753,338	$	343,647	$	3,659,551
Standby letters of credit		595,217		172,192		119,290		84,733		219,002
Commercial letters of credit		10,559		5,096		377		57		5,029
Commitments to originate loans		2,670,649		1,531,913		616,449		183,473		338,814
Other commitments		238,441		11,130		11,136		5,571		210,604
Total commitments	$	11,355,985	$	4,804,914	$	1,500,590	$	617,481	$	4,433,000

	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)	$	1,538,986	$	8,159	$	157,101	$	254,975	$	1,118,751
Interest rate swaps with dealers (2)		1,538,986		8,159		157,101		254,975		1,118,751
Interest rate caps with commercial borrowers		49,415				24,830		4,526		20,059
Interest rate caps with dealers		49,415				24,830		4,526		20,059
Cross currency swap (USD) (3)		228,620								228,620
Total return swap		26,425				26,425
Interest rate swaps		1,120,000		700,000		75,000				345,000
Forward commitments to sell loans		38,389		38,389
Foreign currency rate contracts: (4)
Forward contracts with customers		123,262		70,154		50,664		2,444
Forward contracts with dealers		123,262		70,154		50,664		2,444
Foreign Exchange Options
Options with customers		1,800		1,800
Options with dealers		1,800		1,800
Rate-locked loan commitments		66,573		66,573

(1)	Swaps with commercial loan customers (TD Banknorth receives fixed, pays variable).
(2)	Swaps with dealers (TD Banknorth pays fixed, receives variable), which offset the interest rate swaps with commercial borrowers.
(3)	Swap on subordinated debt issued in Canadian dollars in September 2005. See “Derivatives Insturments” below.
(4)	Forward contracts for customer accommodations.

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Shareholders’ Equity

Shareholders’ equity amounted to $8.2 billion at June 30, 2006, an increase of $1.7 billion from our $6.5 billion of shareholders’ equity at December 31, 2005. This increase was primarily attributable to the $965 million issuance of common stock for the acquisition of Hudson on January 31, 2006 and the related $942 million sale of common stock to our majority shareholder, The Toronto-Dominion Bank. Comprehensive income of $145.3 million also contributed to the increase. These increases were offset in part by our repurchase of 8.5 million shares of our common stock for $255 million in the aggregate (at an average cost of $30.06 per share) and the payment of $101 million of cash dividends declared on our common stock during the six months ended June 30, 2006.

Dividends declared in the second quarter of 2006 were $0.22 per share compared to $0.20 per share for the same period last year. On July 25, 2006 we declared a $0.22 per share cash dividend payable on August 14, 2006 to shareholders of record on August 4, 2006.

Book value per share amounted to $35.93 and $37.34 at June 30, 2006 and December 31, 2005, respectively, and tangible book value per share amounted to $7.42 and $8.81 at the same dates, respectively. The decrease in tangible book value per share was due to the Hudson acquisition.

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 establishes the overall strategic direction for TD Banknorth. It 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, which identifies and monitors key operational risks. The Operational Risk Committee reports on a regular basis to the Board Risk Committee.

CREDIT RISK MANAGEMENT

General

The 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 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

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problem loans early, take any necessary charge-offs promptly and maintain adequate reserve levels for potential losses.

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

Table 11 — Composition of Loans and Leases

	June 30, 2006								December 31, 2005
						Percent nonperforming								Percent nonperforming
			Percent			and accruing 90 days or more					Percent			and accruing 90 days or more
	Amount		of Loans			overdue			Amount		of Loans			overdue
Residential real estate mortgages	$	2,862,331		11	%		0.48	%	$	2,878,323		14	%		0.40	%
Commercial real estate mortgages		8,752,137		34	%		0.40	%		6,776,837		34	%		0.37	%
Commercial business loans and leases		6,593,276		25	%		0.54	%		4,278,048		21	%		0.48	%
Consumer loans and leases		7,186,526		28	%		0.13	%		6,186,519		31	%		0.16	%
Credit card receivables		428,517		2	%		1.38	%		—		—			—
	$	25,822,787		100	%		0.39	%	$	20,119,727		100	%		0.34	%

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 mortgage 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, Pennsylvania, New Jersey and New York.

Our commercial business loans and leases, which include term loans and lines of credit, are generally made to small to medium sized businesses located within our market areas. These loans are not concentrated in any particular industry, but reflect the broad-based economy of New England, New Jersey, Pennsylvania and New York. Commercial loans are primarily secured by various equipment, machinery and other corporate assets including real estate, as well as loans to provide working capital to businesses in the form of lines of credit. At June 30, 2006, commercial loans also included $370.9 million of loans to finance insurance premiums acquired in the Hudson acquisition through its Flatiron subsidiary. Through a subsidiary, we also offer direct equipment leases, which amounted to $99.9 million at June 30, 2006. We do not emphasize the purchase of participations in shared national credits. At June 30, 2006, we had $651.6 million of outstanding participations in shared national credits and had an additional $556.3 million of unfunded commitments related to these participations.

Consumer loans and leases consist primarily of home equity lines and loans and indirect automobile loans.

The following table presents our consumer loans and leases by type at the dates indicated.

Table 12 — Composition of Consumer Loans and Leases

	June 30,					December 31,
	2006					2005					Change
			% of					% of
	Amount		Total			Amount		Total			Amount			Percent
Home equity loans and lines	$	4,237,881		58.97	%	$	3,648,033		58.96	%	$	589,848			16.17	%
Automobile		2,558,206		35.60	%		2,020,774		32.66	%		537,432			26.60	%
Education		71,301		0.99	%		202,044		3.27	%		(130,743	)		(64.71	%)
Mobile home		92,583		1.29	%		88,519		1.43	%		4,064			4.59	%
Other		226,555		3.15	%		227,149		3.68	%		(594	)		(0.26	%)
Total	$	7,186,526		100.00	%	$	6,186,519		100.00	%	$	1,000,007			16.16	%

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The $130.7 million decrease in student loans during the six months ended June 30, 2006 was primarily due to the sale of $178 million of student loans.

Credit card receivables represent receivables originating from the use of private label credit cards issued on behalf of approximately 100 retailers with locations throughout the United States which offer unsecured sales financing to their customers. Our relationships with the merchants are generally multi-year relationships. The relationships are developed through marketing efforts or are purchased from other financial institutions. We receive a fee from the merchants when funding a purchase. In addition, we receive interest and late fees from the individual customers that maintain balances on their private label accounts.

Nonperforming Assets

Nonperforming assets consist of nonperforming loans (which do not include accruing loans 90 days or more overdue), other real estate owned and repossessed assets. Total nonperforming assets as a percentage of total assets amounted to 0.23% at June 30, 2006, 0.19% at December 31, 2005 and 0.23% at June 30, 2005. Total nonperforming assets as a percentage of total loans and total other nonperforming assets amounted to 0.35% at June 30, 2006, 0.31% at December 31, 2005 and 0.37% at June 30, 2005. See Table 13 for a summary of nonperforming assets for the last five quarters. On a dollar basis, our nonperforming assets increased to $91.2 million at June 30, 2006 from $61.5 million at December 31, 2005 and $73.9 million at June 30, 2005. The increase at June 30, 2006 compared to December 31, 2005 was primarily due to nonperforming assets from Hudson.

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 and workout 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 net loan charge-offs, higher nonperforming asset levels in the future and negatively impact our operations through higher provisions for loan losses, 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, all of which would adversely affect our results of operations.

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

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Table 13 — Nonperforming Assets

	2006						2005
	June 30			March 31			December 31			September 30			June 30
Nonaccrual loans and leases:
Residential real estate loans	$	10,714		$	9,827			$  7,970			$  6,531		$	6,165
Commercial real estate loans		35,439			31,192			25,219			29,224			30,353
Commercial business loans and leases		35,768			31,460			20,211			21,306			26,776
Consumer loans and leases		7,123			6,090			7,165			6,899			6,816
Total nonaccrual loans and leases		89,044			78,569			60,565			63,960			70,110
Other nonperforming assets:
Other real estate owned, net of related reserves		1,076			10,928			234			1,554			2,101
Repossessions, net of related reserves		1,083			1,173			736			1,375			1,695
Total other nonperforming assets		2,159			12,101			970			2,929			3,796
Total nonperforming assets	$	91,203		$	90,670		$	61,535		$	66,889		$	73,906
Accruing loans and leases 90 days or more overdue:
Credit card receivables	$	5,900		$	6,351			$      —			$      —		$	—
Other loans		5,646			6,583			6,887			6,489			6,122
Total accruing loans and leases 90 days or more overdue	$	11,546		$	12,934			$6,887			$6,489		$	6,122
Total nonperforming loans as a percentage of total loans and leases(1)		0.34	%		0.31	%		0.30	%		0.32	%		0.35	%
Total nonperforming assets as a percentage of total assets		0.23	%		0.22	%		0.19	%		0.21	%		0.23	%
Total nonperforming assets as a percentage of total loans and leases and total other nonperforming assets (1)		0.35	%		0.35	%		0.31	%		0.33	%		0.37	%

(1) 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. Credit card receivables are charged-off upon reaching 180 days past due. 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 June 30, 2006, we had $11.5 million of accruing loans which were 90 days or more delinquent, as compared to $6.9 million at December 31, 2005 and $6.1 million at June 30, 2005. The $4.6 million increase from December 31, 2005 was primarily attributable to credit card receivables acquired from Hudson. 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 $8.7 million during the three months ended June 30, 2006, as compared to $3.6 million during the three months ended June 30, 2005. The increase was largely due to $3.4 million of net charge-offs on credit card receivables and a $2.1 million increase in net charge-offs on commercial business loans and leases compared to the second quarter of 2005. Credit card receivables were acquired from Hudson in the first quarter of 2006. On an annualized basis, net charge-offs represented 0.14% of average loans and leases outstanding for the quarter ended June 30, 2006 and 0.07% for the quarter ended June 30, 2005.

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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

	2006 Second			2006 First			2005 Fourth			2005 Third			2005 Second
	Quarter			Quarter			Quarter			Quarter			Quarter
Allowance for loan and lease losses at beginning of period	$	276,342		$	223,030		$	228,334		$	228,168		$	228,165
Additions due to acquisitions		—			52,563			—			—			—
Charge-offs:
Residential real estate mortgages		42			128			89			17			93
Commercial real estate mortgages		447			95			315			2,194			271
Commercial business loans and leases		3,328			1,583			5,092			2,828			1,366
Consumer loans and leases		5,647			7,081			8,479			6,716			5,313
Credit card receivables		4,386			3,305			—			—			—
Total loans and leases charged off		13,850			12,192			13,975			11,755			7,043
Recoveries:
Residential real estate mortgages		105			17			102			142			4
Commercial real estate mortgages		564			101			345			477			663
Commercial business loans and leases		1,227			3,167			738			2,825			1,595
Consumer loans and leases		2,243			2,096			1,486			1,977			1,187
Credit card receivables		1,011			660			—			—			—
Total loans and leases recovered		5,150			6,041			2,671			5,421			3,449
Net charge-offs		8,700			6,151			11,304			6,334			3,594
Provision for loan and lease losses		8,719			6,900			6,000			5,500			3,597
Specific reserves applied to reduce impaired loan carrying values		—			—			—			1,000			—
Allowance for loan and lease losses at end of period	$	276,361		$	276,342		$	223,030		$	228,334		$	228,168
Total Allowance for Credit Losses:
Allowance for loan and lease losses	$	276,361		$	276,342		$	223,030		$	228,334		$	228,168
Liability for unfunded credit commitments		8,507			8,207			7,907			7,607			6,807
Total allowance for credit losses	$	284,868		$	284,549		$	230,937		$	235,941		$	234,975
Ratio of net charge-offs to average loans and leases outstanding during the period, annualized (1)		0.14	%		0.10	%		0.22	%		0.13	%		0.07	%
Ratio of allowance for credit losses to total loans and leases at end of period (1)		1.10	%		1.11	%		1.15	%		1.18	%		1.17	%
Ratio of allowance for credit losses to nonperforming loans and leases at end of period		320	%		362	%		381	%		369	%		335	%
Ratio of net charge-offs (recoveries) as a percent of average outstanding loans and leases, annualized (1):
Residential real estate mortgages		(0.009	%)		0.016	%		(0.002	%)		(0.015	%)		0.011	%
Commercial real estate mortgages		(0.005	%)		0.000	%		(0.002	%)		0.101	%		(0.024	%)
Commercial business loans and leases		0.131	%		(0.112	%)		0.413	%		0.000	%		(0.022	%)
Consumer loans and leases		0.190	%		0.293	%		0.453	%		0.318	%		0.291	%
Credit card receivables		3.358	%		4.409	%		0.000	%		0.000	%		0.000	%
Total portfolio loans and leases at end of period (1)	$	25,822,787		$	25,620,512		$	20,119,727		$	19,971,184		$	20,028,662
Total nonperforming loans and leases at end of period		89,044			78,569			60,565			63,960			70,110
Average loans and leases outstanding during the period (1)		25,702,904			23,770,023			20,140,514			20,021,651			19,803,681

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

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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 $246 million at June 30, 2006 and $153 million at December 31, 2005. 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 us to absorb future charge-offs of loans and leases deemed uncollectible. This allowance is increased by provisions charged to income and by recoveries on loans previously charged off. For purposes of determining our allowance for loan and lease losses, we specifically evaluate each commercial business and commercial real estate loan which is rated substandard and has a balance in excess of $300 thousand. We evaluate all other loans by loan type on a pooled basis.

Arriving at an appropriate level of allowance for loan and lease losses necessarily involves a high degree of judgment and is determined based on our 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 utilize 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 $276.4 million at June 30, 2006 and $223.0 million at December 31, 2005. The $53.3 million increase was attributable to $52.6 million of general reserves from Hudson and the provision of $15.6 million for loan and lease losses in the six months ended June 30, 2006. Net charge-offs represented 0.14% of average loans and leases outstanding for the quarter ended June 30, 2006 and 0.07% for the same period in 2005. The ratio of the allowance for credit losses to nonperforming loans and leases was 320% at June 30, 2006 and 381% at December 31, 2005. The ratio of the allowance for credit losses to total portfolio loans and leases was 1.10% at June 30, 2006 compared to 1.15% at December 31, 2005.

ASSET-LIABILITY MANAGEMENT

The goal of asset-liability management is the prudent control of market risk, liquidity and capital. The Board 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. Asset-liability management is governed by policies, goals and objectives that are adopted and reviewed at least annually by our board of directors and monitored periodically by the Board Risk Committee.

Managing Interest Rate Risk

Interest rate risk (the risk that changes in market interest rates will adversely impact our net interest income) is the most significant component of our market risk. We control our estimated exposure to interest rate risk within limits and guidelines established by the ALCO that reflect our tolerance for interest rate risk over a wide range of both short-term and long-term measurements.

During the second quarter, we changed the model and metrics for managing interest rate risk to more closely align with the approach used by our majority shareholder, The Toronto-Dominion Bank. This new approach involved changing from modeling the sensitivity of net interest income (“NII”) to measuring both Economic Value at Risk (“EVaR”) and Earnings at Risk (“EaR”). EVaR is defined as the combined difference in the change in the present value of our asset portfolio and liability portfolio, including off-balance-sheet instruments, resulting from a specified

45

change in interest rates, or interest-rate shock. EaR is defined as the change in our annual net interest income from an unfavorable interest-rate shock due to the difference between the terms and repricing characteristics of our assets and liabilities.

Key aspects of this approach are:

• Evaluating and managing the impact of rising or falling interest rates on net interest income and economic value.

• Measuring the contribution of each banking product on a risk-adjusted, fully hedged basis, including the impact of financial options, such as mortgage commitments, that are granted to customers.

• Developing and implementing strategies to reduce the volatility of net income from all personal and commercial banking products.

Valuations of all asset and liability positions, as well as off balance-sheet exposures, are performed monthly. Our objectives are to protect the interest rate spread between fixed-rate assets and liabilities at the time of origination, and to reduce the volatility of net interest income over time. NII simulation modeling is regularly employed to assess the level and changes in NII under various interest rate scenarios. The balance sheet positions in the model are static, therefore, possible future actions that management could take to manage our risk are not considered.

Assessment and Measurement of Economic Value at Risk (EVaR)

Our asset-liability management policy on EVaR specifies that if market interest rates were to experience an immediate and sustained unfavorable parallel interest rate shock up or down of 100 basis points, the after-tax impact will not decrease our base tangible equity which is defined as 7.50% of risk-weighted assets, by more than 3%.

The following table represents the impact of a parallel 100 basis point change in market rates at June 30, 2006 and December 31, 2005 and the related policy limits at the same dates.

Table 15 — Economic Value at Risk

	June 30, 2006						December 31, 2005 (1)
	$ Change			% Change			$ Change			% Change
100 basis point rate increase	$	10,095			0.47	%	$	20,150			1.21	%
100 basis point rate decrease		(18,824	)		(0.88	%)		(50,700	)		(3.05	%)
Policy limit		(64,000	)		(3.00	%)		(50,000	)		(3.00	%)

(1) Provided for comparison only. New method adopted in 2006.

Assessment and Measurement of Earnings at Risk (EaR)

The policy on EaR states that if market interest rates were to experience an immediate and sustained unfavorable parallel shift up or down of 100 basis points, pre-tax NII will not decrease by more than 1.5% of our annualized base NII, which is defined as the lower of the last four quarters’ actual NII or the next four quarters’ forecasted NII.

All EVaR and EaR measures were within compliance guidelines at June 30, 2006.

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Derivative Instruments

     Purpose and Benefits

Derivative financial instruments are important tools that we use to manage interest rate risk and, to a lesser degree, currency risk and price risk.

Included in our derivative financial instruments is a cross-currency swap agreement with TD Securities utilized to synthetically convert the Can$270 million subordinated debt into U.S. dollars with a fixed rate of 5.05% for the initial 12-year period.

The following table shows our derivative positions at June 30, 2006 scheduled by maturity, which are described in the following section.

Table 16 — Derivative Positions

Asset-Liability Management Positions

	Notional Amount Maturing												Fair
Successor - June 30, 2006	2006		2007		2008		2009		Thereafter		Total		Value
Cross currency swap agreement	$	—	$	—	$	—	$	—	$	228,620	$	228,620	$	15,507
Total return swap		—		—		26,425		—		—		26,425		(542	)
Interest rate swaps		—		700,000		45,000		30,000		345,000		1,120,000		(9,395	)
Forward commitments to sell loans		38,389		—		—		—		—		38,389		212

Customer-related Positions

	Notional Amount Maturing												Fair
Successor - June 30, 2006	2006		2007		2008		2009		Thereafter		Total		Value
Interest rate contracts
Receive fixed, pay variable	$	2,000	$	17,380	$	99,401	$	101,862	$	1,367,758	$	1,588,401	$	40,817
Pay fixed, receive variable		2,000		17,380		99,401		101,862		1,367,758		1,588,401		(40,817	)
Foreign currency rate contracts
Forward contracts with customers		48,100		36,152		30,221		6,938		1,851		123,262		(142	)
Forward contracts with dealers		48,100		36,152		30,221		6,938		1,851		123,262		142
Foreign Exchange Options
Options with customers		1,800		—		—		—		—		1,800		8
Options with dealers		1,800		—		—		—		—		1,800		(8	)
Rate-locked loan commitments (1)		66,573		—		—		—		—		66,573		48

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

We entered into asset-liability management swaps with a total notional amount of $900 million during the six months ended June 30, 2006.

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.

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

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	Successor		Successor		Successor		Combined
	2006		2005		2006		2005
Residential mortgage loans held for sale	$	20,328	$	48,559	$	20,326	$	44,368
Rate-locked loan commitments		19,581		56,584		18,784		50,019
Forward sales contracts		29,652		86,670		31,165		78,301

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 quarter ended June 30, 2006, we recorded a total notional amount of $197.3 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

Our earnings are not directly nor materially impacted by movements in foreign currency rates or commodity prices. Virtually all transactions are denominated in the U.S. dollar. 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.

We enter into foreign currency forward and option contracts as an accommodation for customers involved in international trade for the future delivery or purchase of foreign currency at a specified price. For these creditworthy customers, we set aside a percentage of the customer’s available line of credit until the foreign currency contract is settled. Foreign exchange 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, limiting our exposure to the replacement value of the contracts rather than the notional principal or contract amounts.

LIQUIDITY

Our Board Risk 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.

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Parent Company

On a parent-only basis at June 30, 2006, our debt service requirements consisted primarily of $524.1 million junior subordinated debentures issued by us or acquired entities to affiliated trusts and $150 million of 3.75% senior notes due May 1, 2008 issued by us. The junior subordinated debentures were issued by us or acquired entities to twelve 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 6.45% to 11.30% at June 30, 2006. At the same date, annual debt service payments on these borrowings amounted to approximately $47.9 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 The Toronto-Dominion Bank which is renewable every 364 days and, if used, carries interest at LIBOR plus a maximum of 0.60%. At June 30, 2006, our subsidiary bank had $129.3 million available for dividends that could be paid without prior regulatory approval. In addition, the parent company had $98.4 million in cash or cash equivalents at June 30, 2006.

In 2005, the SEC adopted amendments to its rules with respect to the registration, communications and offering processes under the Securities Act of 1933. The rules, which became effective December 1, 2005, facilitate access to the capital markets by well-established public companies, modernize the existing restrictions on corporate communications during a securities offering and further integrate disclosure under the Securities Act of 1933 and the Securities Exchange Act of 1934. The amended rules provide the most flexibility to a “well-known seasoned issuer,” as defined, including the option of automatic effectiveness upon filing of a shelf registration statements and relief under certain communications rules. We are a “well-known seasoned issuer” and filed an automatic shelf registration statement in 2006 under the new rules. We have not offered or sold any securities under this registration statement.

Banking Subsidiary

For TD Banknorth, NA, liquidity represents the ability to fund asset growth, accommodate deposit withdrawals and meet other contractual obligations and commercial commitments. See “Table 9– Contractual Obligations and Commitments” above. Liquidity is measured by the ability to raise cash when needed at a reasonable cost. Many factors affect a bank’s ability to meet its 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 used by us 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 contingent funding plans.

At June 30, 2006, TD Banknorth, NA had in the aggregate $6.5 billion of currently accessible liquidity through collateralized borrowings or security sales. This represented 25% of retail deposits, as compared to a policy minimum of 10% of deposits.

Also at June 30, 2006, TD Banknorth, NA had in the aggregate potentially volatile funds of $5.9 billion. These are funds that might flow out of TD Banknorth, NA 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.

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At June 30, 2006, the ratio of currently accessible liquidity to potentially volatile funds was 111%, compared to a 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 current level of liquidity is sufficient to meet current and anticipated funding requirements.

CAPITAL

At June 30, 2006, shareholders’ equity amounted to $8.2 billion, or 20.3% of total assets, compared to $6.5 billion, or 20.2% of total assets at December 31, 2005. This $1.7 billion increase was primarily attributable to $965.4 million of equity resulting from our issuance of common stock in connection with the acquisition of Hudson on January 31, 2006 and the related sale of our common stock to our majority shareholder, The Toronto-Dominion Bank, for $941.8 million, and to a lesser extent to the $145.2 million of comprehensive income during the six months ended June 30, 2006. These increases were offset in part by $255.5 million of stock repurchases and $101.0 million in dividends to our shareholders during 2006.

We paid a cash dividend of $0.22 per share on our common stock during the second quarter of 2006 compared to $0.20 per share in the second quarter last year.

We repurchased 8.5 million shares of our common stock at an aggregate cost of $255.5 million, or an average of $30.06 per share, during February 2006. We have 2 million shares remaining authorized for repurchase under our 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 June 30, 2006, 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
June 30, 2006
TD Banknorth Inc.
Total capital (to risk-weighted assets)	$	3,179,889		11.15	%	$	2,280,866		8.00	%	$	899,023		3.15	%
Tier 1 capital (to risk-weighted assets)		2,257,219		7.92	%		1,140,433		4.00	%		1,116,786		3.92	%
Tier 1 leverage capital ratio (to average assets)		2,257,219		6.70	%		1,346,717		4.00	%		910,502		2.70	%
TD Banknorth, NA
Total capital (to risk-weighted assets)		3,237,992		11.37	%		2,278,641		8.00	%		959,351		3.37	%
Tier 1 capital (to risk-weighted assets)		2,320,886		8.15	%		1,139,320		4.00	%		1,181,566		4.15	%
Tier 1 leverage capital ratio (to average assets)		2,320,886		6.91	%		1,343,792		4.00	%		977,094		2.91	%
December 31, 2005
TD Banknorth Inc.
Total capital (to risk-weighted assets)	$	2,606,274		11.73	%	$	1,777,440		8.00	%	$	828,834		3.73	%
Tier 1 capital (to risk-weighted assets)		1,917,905		8.63	%		888,720		4.00	%		1,029,185		4.63	%
Tier 1 leverage capital ratio (to average assets)		1,917,905		7.07	%		1,084,901		4.00	%		833,004		3.07	%
TD Banknorth, NA
Total capital (to risk-weighted assets)		2,563,539		11.56	%		1,773,987		8.00	%		789,552		3.56	%
Tier 1 capital (to risk-weighted assets)		1,878,364		8.47	%		886,994		4.00	%		991,370		4.47	%
Tier 1 leverage capital ratio (to average assets)		1,878,364		6.94	%		1,082,490		4.00	%		795,874		2.94	%

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Net risk-weighted assets were $28.5 billion for each of TD Banknorth Inc. and TD Banknorth, NA at June 30, 2006 and $22.2 billion for each of TD Banknorth Inc. and TD Banknorth, NA at December 31, 2005, respectively.

At June 30, 2006, we had twelve 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 June 30, 2006.

Table 19 — Capital Securities

							Junior
	Issuance		Capital		Common		Subordinated		Stated			Maturity		Call
Name	Date		Securities		Securities		Debentures (1)		Rate			Date		Date
Peoples Heritage Capital Trust I		1/31/1997	$	63,775		$3,093		$66,868		9.06	%		2/1/2027		2/1/2007
Banknorth Capital Trust I		5/1/1997		28,000		928		28,928		10.52	%		5/1/2027		5/1/2007
Ipswich Statutory Trust I		2/22/2001		3,500		109		3,609		10.20	%		2/22/2031		2/22/2011
CCBT Statutory Trust I		7/31/2001		5,000		155		5,155		8.73	%		7/31/2031		7/31/2006
Banknorth Capital Trust II		2/22/2002		200,000		6,186		206,186		8.00	%		4/1/2032		4/1/2007
BFD Preferred Capital Trust I		7/12/2000		10,000		309		10,309		11.30	%		7/19/2030		7/9/2010
BFD Preferred Capital Trust II		9/19/2000		22,000		681		22,681		10.88	%		10/1/2030		10/1/2010
Hudson United Statutory Trust I		3/17/2004		20,000		619		20,619		8.19	%		3/17/2034		3/17/2009
Hudson United Capital Trust I		3/31/2003		20,000		619		20,619		6.85	%		4/15/2033		4/15/2008
Hudson United Capital Trust II		3/28/2003		15,000		464		15,464		6.45	%		4/10/2033		4/24/2008
HUBCO Capital Trust I		1/31/1997		45,000		1,547		46,547		8.98	%		2/1/2027		2/1/2007
HUBCO Capital Trust II		6/19/1998		50,000		1,547		51,547		7.65	%		6/15/2028		6/15/2008
			$	482,275		$16,257		498,532
Unamortized fair value adjustment								25,549
								$524,081

(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 are equal to capital securities plus common securities.

At June 30, 2006, trust preferred securities amounted to 23.2% 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 June 30, 2006, our consolidated borrowings included $705.5 million of subordinated notes due in 2006 through 2022, of which $637.7 million qualify as Tier 2 capital for regulatory purposes. See Table 9 for more information.

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 increased to 30.48% at June 30, 2006 as compared to 26.68% at December 31, 2005, due to $186.9 million of BOLI from Hudson.

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Basel II was published in 2004 with the intent of closely aligning regulatory capital requirements with underlying risks. The goal is to also improve the consistency of capital requirements internationally and addresses credit risk, market risk and operational risk. In the U.S., Basel II will not be implemented until January 1, 2008. We are currently working with our majority shareholder, The Toronto-Dominion Bank, to become compliant with these new requirements.

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 2005 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, accrued income taxes and accounting for derivatives and hedging activities. 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.

IMPACT OF NEW ACCOUNTING STANDARDS

For information on the impact of new accounting standards, see Note 2 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 of Part I, Item 2 captioned “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Asset-Liability Management” is incorporated herein by reference.

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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 15(d)-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 1A. Risk Factors

In addition to the other information set forth in this report, you should carefully consider the risk factors discussed in Item 1A of Part I in our Annual Report on Form 10-K for the year ended December 31, 2005, which could materially affect our business, financial condition or results of operations. As of June 30, 2006, there have been no material changes to the risk factors set forth in our Annual Report on Form 10-K for the year ended December 31, 2005.

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

          (a) – (b) Not applicable.

          (c) The following table sets forth information with respect to any purchase made by TD Banknorth or any “affiliated purchaser,” as defined in §240.10b-18(a)(3) under the Securities Exchange Act of 1934, other than The Toronto-Dominion Bank, of shares of TD Banknorth common stock during the three months ended June 30, 2006.

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					Total Number of
					Shares Purchased as		Maximum Number of
	Total Number		Average		Part of Publicly		Shares that May Yet Be
	of Shares		Price Paid		Announced Plans or		Purchased Under the
Period	Purchased		Per Share		Programs		Plans or Programs
April 1–30, 2006		—	$	0.00		—		—
May 1–31, 2006		—	$	0.00		—		—
June 1–30, 2006		—	$	0.00		—		—

The following table presents the number of shares of TD Banknorth common stock purchased by our majority shareholder, The Toronto-Dominion Bank, during the three months ended June 30, 2006, pursuant to our dividend reinvestment program.

					Total Number of
					Shares Purchased as		Maximum Number of
	Total Number		Average		Part of Publicly		Shares that May Yet Be
	of Shares		Price Paid		Announced Plans or		Purchased Under the
Period	Purchased		Per Share		Programs		Plans or Programs
April 1–30, 2006		—	$	0.00		—		—
May 1–31, 2006		923,585	$	28.97		—		—
June 1–30, 2006		—	$	0.00		—		—

Item 3. Defaults Upon Senior Securities — not applicable.

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

(a) An annual meeting of shareholders of TD Banknorth was held on May 9, 2006 (“Annual Meeting”)

(b) Not applicable.

(c) There were 227,928,774 shares of common stock eligible to be voted at the Annual Meeting and 211,550,896 shares were represented at the meeting, which constituted a quorum. The items voted upon at the Annual Meeting and the result of the votes taken for each proposal were as follows:

1. Election of Class A directors each for a one-year term and in each case until their successors are elected and qualified

	For		Against
Robert G. Clarke		210,798,362		752,535
P. Kevin Condron		206,000,541		5,550,355
John O. Drew		208,039,994		3,510,902
Brian M. Flynn		210,827,502		723,394
Joanna T. Lau		210,798,090		752,806
Dana S. Levenson		210,816,370		734,526
Steven T. Martin		206,011,771		5,539,125
John M. Naughton		205,999,536		5,551,360
Irving Rogers, III		206,026,860		5,524,036
William J. Ryan		210,229,157		1,321,739
David A. Rosow		210,846,996		703,900
Curtis M. Scribner		210,661,557		889,339
Peter G. Vigue		210,814,364		736,532
Gerry S. Weidema		210,834,706		716,190

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2. Proposal to ratify the appointment of Ernst & Young LLP as independent registered public accounting firm for 2006.

For	Against		Abstain		Broker Non-votes
210,874,203		340,960		335,733	None

The following Class B directors were elected in connection with the annual meeting by the written consent of the holder of the sole outstanding share of Class B common stock, The Toronto-Dominion Bank, for a one-year term and until their successors are duly elected and qualified:

William E. Bennett
W. Edmund Clark
Bharat B. Masrani
Wilbur J. Prezzano

Item 5. Other Information — not applicable.

Item 6. Exhibits.

The following exhibits are filed as part of this report.

Exhibit 12     Calculation of Ratios of Earnings to Fixed Charges
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.

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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: August 4, 2006	By:	/s/ William J. Ryan
		William J. Ryan
		Chairman, President and Chief Executive Officer (principal executive officer)
Date: August 4, 2006	By:	/s/ Stephen J. Boyle	��
		Stephen J. Boyle
		Executive Vice President and Chief Financial Officer (principal financial and accounting officer)

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EXHIBIT INDEX

Exhibit 12     Calculation of Ratios of Earnings to Fixed Charges

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.

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