Sovereign Bancorp, Inc.
2007 Annual Meeting of
Shareholders
Thursday, May 3, 2007
Philadelphia, Pennsylvania
Forward-Looking Statements
 This presentation contains statements of Sovereign Bancorp, Inc.’s
(the “Company”) strategies, plans and objectives, estimates of
future operating results for Sovereign Bancorp, Inc. as well as
estimates of financial condition, operating efficiencies, revenue
creation and shareholder value
 These statements and estimates constitute forward-looking
statements (within the meaning of the Private Securities Litigation
Reform Act of 1995) which involve significant risks and
uncertainties. Actual results may differ materially from the results
discussed in these forward-looking statements
 Factors that might cause such a difference include, but are not
limited to: general economic conditions, changes in interest rates,
deposit flows, loan demand, real estate values, and competition;
changes in accounting principles, policies, or guidelines; changes in
legislation or regulation; and other economic, competitive,
governmental, regulatory, and other technological factors affecting
the Company’s operations, pricing, products and services
2
Overview of Sovereign
Joe Campanelli
President and
Chief Executive Officer
An Exceptional Franchise Serving the
Northeastern United States
 18
largest bank in
U.S. with $82 billion in
assets at March 31st,
2007
th
785 offices
& over 2,000 ATM’s
 Approx. 11,350 team
members
5 Largest MSA’s in Northeast U.S.
No. of SOV Mkt SOV
Offices
Share
Rank
Source: SNL DataSource
4
New York
226
1.98%
10
Philadelphia
86
4.30%
7
Boston
173
6.65%
3
Providence
55
10.58%
3
Hartford
29
4.78%
6
Sovereign’s Vision and Strategy
Vision
To be recognized by customers and prospects as a
customer-centric local community bank with large bank
capabilities
Strategy
To acquire and retain customers by:
 Demonstrating convenience through our locations,
technology and business approach
 Offering innovative and easy-to-use products and services
 Providing high-quality customer service that is both
responsive and flexible
5
America’s Neighborhood Bank
6
sm
Summary of Sovereign’s Business Model

Increased emphasis on core commercial and consumer,
franchise based businesses; Sovereign does not have any
lending units whose principal focus is on sub-prime lending
Core Commercial:
 Commercial Real Estate
 Mini Perm
 Conduit
 C&I Lending
 Business Banking
Core Consumer (within footprint):
 Home Equity Lending
 Residential Mortgage
 Retail Banking
• Branch Business Banking
• SBA

Centralized strategy with a de-centralized delivery structure
 Community Banking delivery model, each with a Market CEO
 Local decision making by experienced commercial/retail bankers
7
Specialty Businesses – Regional and National

Auto Finance
 Dealer Floor Plan
 Indirect Auto

Aviation Finance

Multi-Family/CRE

Health Care/Not-For-Profit

Asset Based Lending
 Business Alliance Capital
Corp.

Franchise Finance
8

Capital Markets

Cash Management

Equipment Finance/Leasing

Trade Finance

Retail Finance

Sports Lending
Strategic Alliances

CVS/Cardtronics
 Over 1,000 ATMs installed to date

First Data Corp.
 Sovereign Merchant Services
 Dedicated sales force in excess of 100

ADP
 Sovereign Payroll Services
 Dedicated sales force of approximately 225

American Express – OPEN
 Customer Rewards Program
 Official card issuer
9
Re-energize Emphasis on Convenience and
Customer Service

Consumer banking emphasizes convenience and customer
service
 Many markets offer 7-day banking
 Appointment banking
 24/7/365 domestic call centers and internet availability
 Developing comprehensive strategy to serve a variety of ethnic
markets including Hispanic/Latino markets
 Custom Switching Services
10
Experienced Leadership Team
Quality and Depth
Years of
Experience
Prior
Institutions
Name
Business Unit
Joe Campanelli
President & CEO
25+
Shawmut, Fleet
Brendan Dugan
Metro New York/New Jersey
30+
EAB Bank, CitiBank
Steve Issa
New England South & Precious Metals
25+
Bank of Rhode Island,
Shawmut
Jim Lynch
Chairman & CEO, Mid-Atlantic
Division
30+
Continental, Prime,
Summit, Fleet
Larry McAlee
Internal Audit
Mark McCollom, CPA
Chief Financial Officer
20+
Meridian Bank
Thomas Nadeau
Auto Finance/Consumer Lending
20+
Bay Bank
Salvatore Rinaldi
Operations & Administration
30+
Fleet, Shawmut
M. Robert Rose
Risk Management
Marshall Soura
Global Solutions Group and Marketing
Patrick Sullivan
New England North & Specialty
Businesses
20
30
11
Arthur Anderson,
Sovereign
Shawmut Bank,
BankBoston, Fleet
40+
BankBoston, Bank
One, Bank of America
25
Shawmut, BankNorth,
Bank of Ireland
Objectives for 2007
 Execute on four key initiatives to deliver improved
quality of earnings, provide greater transparency and
understanding of Sovereign’s businesses and strategy,
and better position Sovereign for sustainable growth
 The four initiatives are to:
1. Improve productivity and expense management
2. Improve the capital position and quality of earnings
3. Improve the customer experience
4. Improve communications with all stakeholders
12
Improving Productivity and
Expense Management
Expense Reduction Initiative Announced in
December 2006
 Primary focus on:
 Functional redundancies and operating inefficiencies
 Products/business lines not meeting profit or
strategic goals
 Leverage economies of scale with vendor supply and
service contracts
 Consolidations of departments
 Optimization of retail delivery channels
 While minimizing impact on customer facing activities
and organic revenue generation
Identified ~$100 million of expense reductions
14
Progress To Date

Over 200 cost savings initiatives identified for implementation
– all on plan to meet projected savings

Targeted reduction in force in excess of 800 FTE positions or
7% reduction in staff
 379 team member positions eliminated to date
 145 positions open due to turnover have been closed
 Approximately 400 positions to be eliminated primarily through
attrition by Q3 2007

40 non-strategic community banking offices to be closed or
consolidated in the 2nd and 3rd quarter

Initiatives have company-wide involvement
 Approved 135 of 339 team member suggestions, resulting in
$5.0 million of run-rate savings
15
Expense Reduction Initiative Implementation
 Anticipate 100% of cost reductions to be realized, on a
run rate basis, by the end of 2007:
 75% realized by the end of the second quarter of 2007
 100% realized by the end of 2007
 Over $80 million of expense reductions will be reflected
in 2007 financial statements
 Expense savings are a key component to achieving
positive operating leverage in 2007
16
Capital Re-investment in Core Businesses
to Continue

Sovereign will continue to invest in core commercial and
consumer businesses as well as targeted specialty businesses

Sovereign will continue to make investments to improve the
customer experience
 Comprehensive review of all bank information systems currently
underway
 Reduction of account opening time
 More incentives focused on sales and service
 Revitalization of Community Banking Offices

Sovereign intends to direct greater marketing resources
toward deposit products in 2007

Sovereign plans to open/relocate up to 40 new community
banking offices over the next 2 years – up to 18 in 2007 and
22 in 2008
17
Improving Capital Position
and Quality of Earnings
Balance Sheet Restructuring – Reduced
Reliance on Wholesale Assets and Wholesale
Funding
Sold about $7.6 billion of assets during the fourth quarter of
2006 and first quarter of 2007:




$3.3 billion of correspondent home equity loans
$2.5 billion of purchased residential mortgages
$1.5 billion of investment securities sold and reinvested
$300 million of FHLB stock sold
Reduced wholesale funding $9.1 billion during the first quarter
of 2007:
 Reduced higher cost wholesale deposits $1.2 billion
 Repaid $7.9 billion of short-term borrowings
19
Improved Loan Mix – Result of Balance
Sheet Restructuring
December 31, 2006
Home Equity
15%
Residential
Mortgages
28%
March 31, 2007
Other
Consumer Commercial
Auto
Real Estate
1%
8%
18%
Home
Equity
11%
C&I
20%
Multi-family
Other
9%
Commercial
Commercial
Real Estate
21%
Residential
Mortgages
Other Multi-family
25%
Commercial 9%
1%
1%
Total Commercial Loans 48.7%
Total Consumer Loans 51.3%
Period-end balances
Auto
10%
Other
Consumer
1%
C&I
22%
Total Commercial Loans 53.2%
Total Consumer Loans 46.8%
1Q07 Loan Sales:
$3.3 billion correspondent home equity loans
$2.5 billion purchased residential mortgages
$1.3 billion multi-family loans
20
Benefits of Restructuring
 Repositions Sovereign for sustainable growth in core
earnings long-term
 Improves risk profile of balance sheet
 Improves capital levels
 Provides investment capital to support organic growth
 Reduces reliance on purchased assets and wholesale
funding, improving quality of balance sheet and income
statement
 Enables management to fully focus attention on
building core competencies
21
Improvement In Core Operating Metrics
 Net interest margin – pro forma annualized benefit of
approximately 20 to 25 basis points
 Net interest margin expanded 10 basis points during the first
quarter of 2007
 Because of timing of sales, benefit is expected to be fully
reflected in 2Q07, partial benefit in 1Q07
 Loan to deposit ratio improved to 107% in March 2007
from 119% in December 2006
 Improved capital ratios
 Sovereign Bancorp’s Tier 1 Leverage ratio increased
approximately 50 basis points at March 31, 2007
 Sovereign Bank’s Total Risk-Based Capital ratio increased
approximately 40 basis points at March 31, 2007
22
Improving The Customer
Experience
Tactical Plans To Improving Customer
Experience

Improve quality of service
 Migrated back to domestically based customer service functions
 Refresher service training for all customer service personnel is
underway and will be completed during the second quarter

Realign consumer and commercial infrastructure
 Consolidation of commercial and retail on-line banking
• Economies of development
• Better customer experience - easier to use, more functionality

Rationalize product set
 Franchise wide roll-out of customer switching services

Optimize sales process


Increase online usage
Expand ATM network
 Developed partnership with CVS to provide ATM banking services
at over 1,000 locations

Align advertising and promotion with market needs
24
Core Deposit Growth Strategy

Strategy to improve core deposit growth goals:
 Marketing/Sales
• Focus sales force on core deposit acquisition
• Implement coordinated, aggressive balance-building campaigns
• Align advertising, incentives and communication in support of the core
deposit growth goals
• Optimize effectiveness of the advertising spend by re-allocating across
geographies
• Integrate Small Business into marketing plan
 Products
• During the first quarter we streamlined our retail product set by half –
10 checking products to 5
• Increase balance retention by addressing grandfather accounts
• Establish standard “everyday good rate” pricing for money market
accounts
 Capabilities
• Develop and introduce Partnership Banking Program
• Upgrade online account marketing and acquisition capabilities
• Seek to leverage “Switch” program
25
Improving Communications
with all Stakeholders
Improving Communication

Management’s responsibility is to share with all key
constituents information that is timely, accurate, consistent
and concise

Key constituents include:





Team Members
Shareholders
Analysts
Customers




Community leaders
Advisory groups
Regulators
Rating agencies
Changes to date – Financial Disclosures:




Operating earnings definition
Capital ratios streamlined
More credit quality detail (C&I, CRE)
More deposit detail (wholesale vs. core)
27
What to Expect in 2007
 Disciplined and focused approach to increasing the
value of our core franchise
 Increase the rate of household and enterprise acquisition
 Increase the rate of cross selling and share of wallet
 Continued formation of a solid capital position
 Company-wide program to improve our sales culture
 Continued focus on operational excellence
 Better, faster and cheaper
 Continue to increase communications and transparency
 Both internally and externally
28
Financial Review
Mark McCollom
Chief Financial Officer
2006 Financial Highlights

Net income of $137 million or $.30 per share as compared to
$676 million or $1.69 per diluted share in 2005

Operating/cash earnings for EPS purposes of $692 million or
$1.48 per share as compared to $716 million or $1.72 per
diluted share in 2005

Deposit growth of 40%, including acquisitions; organic
deposit growth of 7%

Loan growth of 47%, including acquisitions; organic loan
growth of 16%

Annualized net loan charge-offs of .25%, which excludes
.71% of net charge-offs related to the fourth quarter balance
sheet restructuring, as compared to .20% in 2005

Announced balance sheet restructuring and expense
management initiatives during the fourth quarter of 2006
30
Total Revenue Growth
Revenue Growth
12% Annual Growth
$2,223
$1,873
$1,539
$379
$1,661
$591
$2,420
$598
$468
$456
$1,160
$1,205
2002
2003
$1,405
2004
Total revenue is defined as net interest income
other income before securities transactions
31
$1,632
2005
$1,822
2006
plus total fees and
Total Expense Growth
Total Expense Growth
12% Annual Growth
$1,123
$1,172
$146
$163
$162
$158
$1,792
$189
$1,306
$127
$236
$814
$852
$943
2002
2003
2004
$1,342
$314
$90
$163
$1,089
2005
$1,290
2006
Total expenses includes provision for credit losses
, G&A expense
and
other expense
. 2006 provision excludes $296 million related to the
fourth quarter balance sheet restructuring.
32
First Quarter of 2007 Highlights

Net income of $48 million or $.09 per share, including
charges, as compared to $141 million or $.36 per diluted
share a year ago

Operating/cash earnings for EPS purposes of $180 million or
$.35 per share as compared to $155 million or $.38 per
diluted share a year ago

Balance sheet restructuring completed during first quarter of
2007

Strong loan growth in core commercial and consumer
portfolios offset by loan sales as part of balance sheet
restructuring

Average deposits declined $988 million during the quarter; of
this $734 million was planned runoff in higher cost wholesale
deposits as we reduced our reliance on these wholesale
deposit sources
33
First Quarter of 2007 Highlights

Net interest margin expanded 10 basis points from fourth
quarter levels to 2.70%

G&A expenses declined $25 million or 7% from fourth quarter
levels

Credit quality continues to meet our expectations

Capital ratios expanded within expectations, with most of the
ratios expanding in excess of 40 basis points
 Tier 1 Leverage was 6.25% vs. 5.73% at year-end
 Tangible equity was 4.2%, up from 3.73% at year-end

Received credit rating upgrade from Moody’s to A3 from Baa1
34
Operating Metrics
Net Interest Margin
3.00%
2.86%
1Q06
2Q06
2.64%
2.60%
3Q06
4Q06
G&A Expense to
Average Assets
2.70%
1Q07
Operating Return on
Average Assets
1.8%
1.7%
0.98%
1Q06
0.89%
0.91%
2Q06
3Q06
0.73%
4Q06
0.83%
1Q07
35
1Q06
2Q06
1.6%
1.6%
3Q06
4Q06
1.5%
1Q07
What To Expect In 2007

Upper-single digit year-over-year growth in core commercial
and consumer loan categories

Reductions in correspondent home equity and residential
mortgage lending

Mid-single digit year-over-year growth from in-market
deposits, offset by declines in wholesale deposits

$80 million decline in G&A expenses from fourth quarter
levels offset by investment in core franchise

Improvement in net charge-offs over last year as result of
correspondent home equity portfolio sale, partially offset by
anticipated weakening of credit
36
Sovereign Bancorp, Inc.
2007 Annual Meeting of
Shareholders
Thursday, May 3, 2007
Philadelphia, Pennsylvania
Appendix
Operating Earnings Per Share
 This presentation contains financial information determined by
methods other than in accordance with U.S. Generally Accepted
Accounting Principles (“GAAP”)
 Sovereign’s management uses the non-GAAP measures of Operating
Earnings in its analysis of the company’s performance. These
measures typically adjust net income determined in accordance with
GAAP to exclude the effects of special items, including significant
gains or losses that are unusual in nature or are associated with
acquiring and integrating businesses, and certain non-cash charges
 Since certain of these items and their impact on Sovereign’s
performance are difficult to predict, management believes
presentations of financial measures excluding the impact of these
items provide useful supplemental information in evaluating the
operating results of Sovereign’s core businesses
 These disclosures should not be viewed as a substitute for net income
determined in accordance with GAAP, nor are they necessarily
comparable to non-GAAP performance measures, which may be
presented by other companies
39
One Non-GAAP Financial Measure

Sovereign’s management used the non-GAAP measure of
Operating Earnings, and that related per share amounts on
their analysis of the company:
 Provides greater financial transparency
 Provides useful supplemental information when evaluating
Sovereign’s core businesses

Operating Earnings represent net income adjusted for aftertax effects of merger-related and integration charges and any
other non-recurring charges
40
Reconciliation of Operating Earnings to
Reported GAAP Earnings
Year Ended December 31,
($ in thousands)
Net Income as reported
Dividends on preferred stock
Net Income available to common shareholders
$
$
Net Income available to common shareholders
Contingently convertible trust preferred interest
expense, net of tax
Net Income for EPS purposes
Net income for Operating earnings EPS
purposes
Merger-related and integration costs
Provision for loan loss
Loss on economic hedge
Restructuring of balance sheet
Restructuring charges
Impairment charge for FNMA and FHLMC
preferred stock
Proxy and professional fees
Non-solicitation expense
Operating earnings for EPS purposes
Weighted average diluted shares for GAAP EPS
Add back of diluted shares for Operating EPS
not factored into GAAP diluted shares due to
antidilution
Adjusted weighted average diluted shares for
Operating EPS
2006
136,911
(7,908)
129,003
$
$
2005
676,160
676,160
2004
$ 453,552
$ 453,552
2003
$ 401,851
$ 401,851
2002
$ 341,985
$ 341,985
129,003
25,360
25,427
21,212
$
154,363 $ 0.30
$
701,587 $ 1.69
$ 474,764
1.29
$ 401,851
1.32
$ 341,985
1.17
$
154,363 $ 0.33
27,574
0.06
200,499
0.43
7,402
0.02
197,799
0.42
51,134
0.11
$
701,587 $ 1.69
8,284
0.02
$ 453,552
30,134
3,900
1.31
0.09
0.01
$ 401,851
1.32
$ 341,985
10,316
3,900
1.17
0.04
0.01
42,605
0.12
18,838
0.06
20,891
0.06
43,875
9,319
$
0.09
0.02
691,965 $ 1.48
433,908
$
0.01
3,788
0.01
716,248 $ 1.72
415,996
33,840
467,748
2,589
415,996
41
$ 551,082 $ 1.59
367,811
(22,823)
344,988
$ 420,689 $ 1.38
305,001
305,001
$ 356,201 $ 1.22
292,991
292,991
Reconciliation of Operating Earnings to
Quarter Ended
Reported GAAP Earnings
Mar. 31
2007
($ in thousands)
Net income/ (loss) as reported
$
Dividends on preferred stock
48,059
$
Mar. 31
2006
141,398
(3,650)
Net income available to common shareholders
44,409
Contingently convertible trust preferred interest expense, net of tax
Net income/ (loss) for EPS purposes
$
44,409
$
44,409
141,398
$
0.09
$
6,327
147,725
$
$
0.10
$
147,725
$
0.36
Non GAAP adjustments to adjust antidilutive EPS
Net income available to common shareholders
Trust IV expense, net of tax
6,412
Antidilutive net income/ (loss) for operating EPS calculation
$
50,821
$
50,821
Reconciliation to Operating earnings EPS
Net income/ (loss) for Operating earnings EPS purposes
Merger related and integration costs
0.00
Loss on restructuring, other employee severance and debt repurchase charges 12,771
0.02
-
-
ESOP expense related to freezing of plan
0.09
-
-
(3,860)
(0.01)
-
-
(953)
(0.00)
-
-
0.15
-
-
43,385
Hedge loss on sale of multifamily loans
Gain on redemption of FNMA and FHLMC preferred stock
Writedown on correspondent home equity loans
76,394
Proxy and related professional fees
(249)
Operating earnings for EPS purposes
$
Weighted average diluted shares for GAAP EPS
Add back of diluted shares for operating EPS not factored into GAAP
diluted shares due to antidilution (1)
Adjusted weighted average diluted shares for Operating EPS
179,632
(1,819)
0.36
1,323
(0.00)
$
0.35
(0.00)
9,319
$
155,225
475,115
410,366
34,353
509,468
410,366
0.02
$
0.38
(1) The conversion of warrants and equity awards and the after-tax add back of Sovereign's contingently convertible trust p referred interest exp ense was
excluded from Sovereign's GAAP diluted earnings p er share calculation for the first quarter of 2007 since the result would have been anti-dilutive.
However, for op erating earning p urp oses these items are dilutive and as a result they have been added back for op erating earnings and op erating earnings
42
Sovereign Bancorp, Inc.