PORTLAND (AP) – Banknorth Group, which is selling a controlling 51 percent stake to Canada’s TD Bank Financial Group, reported a sharp drop in fourth quarter earnings Wednesday, citing merger costs and a previously announced deleveraging strategy.

The banking company posted net income of $20.7 million, or 12 cents per share, for the three months ended Dec. 31, compared to $91.6 million, or 55 cents a share, in the same quarter in 2003.

For all of last year, Banknorth earned $304.6 million, or $1.75 per share, comnpared to $350.8 million, or $2.15 per share, the year before.

The company said its earnings for the fourth quarter would have totaled $104.6 million were it not for the after-tax impact of merger and consolidation costs and of its balance sheet deleveraging, which included prepayment penalties.

Banknorth, with $28.7 billion in assets and more than 350 branches, became the largest bank with headquarters in New England following Bank of America’s acquisition of FleetBoston Financial Corp.

Banknorth acquired 24 banks since 1989, including 10 since 2000 in Massachusetts and Connecticut, and was long regarded as a takeover target itself.

The Federal Reserve this week approved TD Bank’s $3.8 billion deal with Banknorth, which is expected to be completed early this year.