Q4 2006 TD Banknorth Inc. Earnings Conference Call - Final.

Original Source: FD (FAIR DISCLOSURE) WIRE

OPERATOR: Good day, ladies and gentlemen, and welcome to the quarter four, 2006, TD Banknorth Incorporated earnings conference call. My name is Michelle and I will be your coordinator for today. [OPERATOR INSTRUCTIONS] I would now like to turn will call over to your host for today, Mr. Jeff Nathanson, Director of Investor Relations. Please proceed.

JEFF NATHANSON, DIRECTOR OF INVESTOR RELATIONS, TD BANKNORTH INC.: Thank you, Michelle, good morning and welcome, everyone. As you know, the purpose of today's call is to discuss our results for the fourth quarter of 2006. Our earnings press release is available under the investor's relation portion of our website located at www.tdbanknorth.com and will be filed with the SEC. The following discussion may include forward-looking statements. Actual results could differ materially from those projected in the statements.

For a detailed discussion of certain of the factors that could cause actual results to vary from those forward-looking statements, references made to the notes in our earnings release and our most recent annual report on form 10K. With those formalities out of the way, let me turn the call over to TD Banknorth President, Bharat Masrani. Bharat.

BHARAT MASRANI, PRESIDENT, TD BANKNORTH INC.: Thank you, Jeff, and good morning, everyone. I am pleased to present TD Banknorth's earnings for the quarter for the first time, and look forward to your questions at the end of the call.

The fourth quarter continued to be a difficult banking environment for banks of our size. The inverted yield curve is pressuring our net interest income and the difficult real estate markets are impacting credit quality and loan growth. While competition in the retail banking space continues to increase. Considering this, I am happy to report that we were able to report stable operating earnings of $0.51 per share, which equaled consensus, and that we have begun to take steps that will position us for future growth and improved efficiency.

I also want to share with you that we completed a very successful systems conversion at Interchange over the past weekend, and we look forward to welcoming the Interchange customers into the TD Banknorth family and to growing our market share in the important Bergen county.

Let me walk through you some of the details from the fourth quarter. The tough banking environment was evident in our lack of top-line growth. Net interest income was down 2% linked quarter due to margin compression and stagnant organic growth. Margin compression was driven primarily by unfavorable deposit mix. Although deposits grew at a 5% annualized rate during the quarter, we experienced some runoff in our core deposits, which were more than offset by increases in our CDs.

Core loan growth was essentially flat during the quarter, due to a high level of payoff and intense competition in business banking, and the slow real estate and auto markets and inverted yield curve on the customer's side. Although fee income was unchanged on a linked quarter basis, we were very pleased with the improved quality. As a $3 million increase in recurring deposit services income offset a decline in other income, which was due largely to timing items. Although we can't change the external environment there, there are a number of factors that we can control that will improve organic growth and we are making progress in several fronts.

The first is our focus. While we continue to review potential acquisitions, deal pricing remains high and earnings prospects of targets remain …