TD Banknorth Inc. has entered into a definitive agreement to acquire Interchange Financial Services Corp, the parent company of Interchange Bank, for US$480.6 million in an all cash transaction.

The deal, which was announced Thursday, is subject to approval by shareholders of Interchange and regulators.

New Jersey-based Interchange had US$1.6 billion in assets and US$1.3 billion in deposits at Dec. 31, 2005.

“We are pleased to continue our expansion in the wealthy and dynamic market of northern New Jersey,” said William Ryan, TD Banknorth chairman, president and CEO. “This is an excellent complement to our recent acquisition of Hudson United.”

“This transaction is a perfect fit for TD Banknorth and TD Bank Financial Group is pleased to support another transaction that moves us closer to our shared vision of a U.S. growth franchise,” said Ed Clark, president and CEO of TD Bank Financial Group.

Dominion Bond Rating Service said that TD’s latest acquisition should have a modest impact on the bank’s earnings and credit quality.

To finance the Interchange acquisition, Banknorth will issue 13 million treasury shares (valued at approximately US$405 million), which TD will purchase. As a result, TD’s ownership of Banknorth will increase to 58.6% following the close of the transaction, expected in TD’s fiscal Q1 2007.

Due to its modest size, DBRS said it does not expect this acquisition to present any material impact to TD. It considers this acquisition to be consistent with TD’s strategy to participate in bank consolidations in the U.S. through TD Banknorth.

“The impact on earnings and credit quality are modest given the size of Interchange,” DBRS said, adding that it estimates TD’s Tier 1 Capital ratio and tangible common equity ratio will decline somewhat. “The decline is predominantly due to goodwill and intangibles,” DBRS explained.

“DBRS believes the substantial minority ownership in TD Banknorth is a challenge for TD, despite TD being the largest shareholder,” it added.