Sovereign Bancorp, Inc. KBW 2005 Regional Bank Conference March 2, 2005

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Sovereign Bancorp, Inc.KBW 2005 Regional
BankConferenceMarch 2, 2005
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Forward Looking Statement

• This presentation contains statements of
  Sovereigns vision, mission, strategies, goals,
  beliefs, plans, objectives, expectations,
  anticipations, estimates, intentions, financial
  condition, results of operation, 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 inflation
  deposit flows loan demand real estate values
  competition changes in accounting principles,
  policies, or guidelines integration of acquired
  assets, liabilities, customers, systems and
  management personnel into Sovereigns operations
  and the ability to realize the related revenue
  synergies and cost savings within expected time
  frames possibility that expected merger-related
  charges are materially greater than forecasted or
  that final purchase price allocations based on
  fair value of the acquired assets and liabilities
  at acquisition date and related adjustments to
  yield and/or amortization of the acquired assets
  and liabilities are materially different from
  those forecasted deposit attrition, customer
  loss, revenue loss and business disruption
  following Sovereigns acquisitions, including
  adverse effects on relationships with employees
  may be greater than expected anticipated
  acquisitions may not close on the expected
  closing date or it may not close the conditions
  to closing anticipated acquisitions, including
  stockholder and regulatory approvals, may not be
  satisfied Sovereigns timely development of
  competitive new products and services in a
  changing environment and the acceptance of such
  products and services by customers the
  willingness of customers to substitute
  competitors products and services and vice
  versa the ability of Sovereign and its third
  party processing and related systems on a timely
  and acceptable basis and within projected cost
  estimates the impact of changes in financial
  services policies, laws and regulations,
  including laws, regulations, policies and
  practices concerning taxes, banking, capital,
  liquidity, proper accounting treatment,
  securities and insurance, and the application
  thereof by regulatory bodies and the impact of
  changes in and interpretation of generally
  accepted accounting principles technological
  changes changes in consumer spending and saving
  habits unanticipated regulatory or judicial
  proceedings changes in asset quality employee
  retention reserve adequacy changes in
  legislation or regulation or policy or the
  application thereof and other economic,
  competitive, governmental, regulatory, and
  technological factors affecting the Companys
  operations, pricing, products and services.

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Non-GAAP Financial Measures

• This report contains Financial information
  determined by methods other than in accordance
  with U.S. Generally Accepted Accounting
  Principles (GAAP). Sovereigns management uses
  the non-GAAP measures of Operating Earnings, and
  the related per share amounts, in their analysis
  of the company's performance. These measures, as
  used by Sovereign, 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 or integrating
  businesses, and certain non-cash charges.
  Operating Earnings represent net income adjusted
  for after-tax effects of merger-related and
  integration charges, other various non-recurring
  charges and the amortization of intangible
  assets. Since certain of these items and their
  impact on Sovereigns 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 Sovereigns
  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 that
  may be presented by other companies.

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Reconciliation of Operating Earnings to GAAP
Earnings
( in thousands, all numbers shown net of tax)
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Reconciliation of Operating Earnings to GAAP
Earnings
(Per Share)
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Overview of Sovereign
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An Exceptional Franchise Serving from South of
Philadelphia to Boston and Beyond

• 58 billion bank
• pro forma for Waypoint
• 665 branches
• 1,000 ATMs
• 19th largest bank in the U.S. pro forma all
  deals
• Top 20 Small Business Lenders in the U.S.

Market Share Massachusetts 3 Rhode
Island 3 New Hampshire 5
Pennsylvania 5 New Jersey
7 Connecticut 11
Maryland 38
Key Sovereign Branches

Source SNL DataSource
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Sovereigns Footprint
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Sovereigns Footprint

• We have the second most affluent footprint among
  all large banks

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Sovereigns Footprint

• We have strong market share in the more
  consolidated states, and are able to grow in the
  more fragmented states

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Northeastern US Banking Climate

• Aside from New York money center banks, the
  Northeastern US market is controlled by 3 large
  out-of-market consolidators (Bank of America,
  Wachovia and Royal Bank of Scotland), and a
  handful of regional banks competing for market
  share

1) Excludes New York City headquartered
institutions and data as of 09/30/2004.
Excludes all pending deals.
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Total US Banking Climate

• Conclusion The northeastern United States has
  created an opportunity for a super-regional to
  emerge, similar to Fifth Third Bancorp in the
  Midwest and BBT in the South

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A High Growth Company
Estimated 2005 Assets 63 billion Analyst Mean
Net Income 771 million
1990 Assets 1.3 billion Net Operating Income
5.5 million
Mean net income estimate for covering analysts
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Sovereigns Business Strategy
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Sovereigns Business Strategy

• Combining the best of a large bank with the best
  of a smaller community bank.

• Best of a Large Bank
• Products
• Services
• Technology
• Brand
• Delivery channels / distribution system
• Talent
• Diversification
• Sophistication of risk management

• Best of a Small Bank
• Flatter structure
• Divided into 10 geographic markets
• Local decision making
• Active community involvement culture
• Cross functional lines to deliver bank to
  customer
• Treat customers as individuals

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Sovereigns 10 Local Markets
Mid-Atlantic Division Jim Lynch, Chairman and CEO
New England Division Joe Campanelli, Chairman
and CEO

• New Jersey Market
• Central PA / Northern MD Market
• Philadelphia, Delaware and Chester counties /
  Southern NJ Market
• Northern PA Market
• Bucks / Montgomery counties Market

• Massachusetts Market
• New Hampshire Market
• Rhode Island Market
• Connecticut / Western MA Market
• Islands Nantucket / Marthas Vineyard Market

10 Local Markets, each with a CEO responsible for
meeting profitability and revenue goals
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Sovereigns Banking Structure
Market CEO
Commercial Real Estate Lenders
Commercial Lenders
Small Business Lenders
Cash Management Representatives
Financial Consultants
Retail Branches
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Absolute Clarity Regarding Target Markets

• Consumer ? Middle Income Households
• We target mass market with average household
  income of about 75,000
• We differentiate on the basis of relationship
  selling and service delivered with high-touch and
  supported by convenience of technology
• Goal to become dominant in all micro markets
• Goal to cross-sell 6 services to every household
  to entrench relationship and dramatically improve
  Bank profits

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Absolute Clarity Regarding Target Markets

• Commercial/Business ? Small to Middle Market
• We target in-market businesses with revenues of
  1 - 100 million
• We differentiate on the basis of quality of
  relationship managers, localized quick decision
  making, supported by superior products and
  technology
• Goal to cross-sell 6 services to entrench
  relationship and dramatically improve Bank profits

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Strategy. With Clear Purpose and Direction.

• There is nothing complicated about our strategy
  for moving forward
• We are clear about our strategy, as well as our
  values, mission and goals
• As we execute, we will remain committed to our
  critical success factors of
• Superior asset quality
• Superior risk management
• Strong sales and service culture that aligns team
  member performance with a recognition and rewards
  system
• High level of productivity through revenue growth
  and efficient expense control

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Strong Operating Earnings Growth
5 year Operating Earnings CAGR of 21
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A Consistent Performer
( in millions) 2000 2001 2002 2003 2004 2004 Growth
Total Revenue 1,084 1,465 1,541 1,661 1,872 12.7
Commercial Loans 8,150 8,564 10,327 11,064 13,864 25.3
Consumer Loans 5,783 6,831 8,519 10,010 14,269 42.5
Core Deposits 15,229 16,075 19,831 21,334 25,441 19.3
Non-Interest Expense 726 777 820 865 942 8.9
Operating Earnings 306 376 410 470 602 28.1
Operating EPS 1.47 1.46 1.47 1.62 1.84 13.6
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1-Year Stock Price Performance
1/12/05 closing price of 22.26
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3-Year Stock Price Performance
1/12/05 closing price of 22.26
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5-Year Stock Price Performance
1/12/05 closing price of 22.26
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Critical Success Factor Superior Asset Quality
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Superior Asset Quality
At December 31st non-performing assets and net
charge-offs levels were the lowest levels in more
than four years
( in millions) 12/31/02 12/31/03
12/31/04 Non-Performing Loans (NPLs) 231
198 142 NPLs of Loans 1.00
.76 .39 NPAs 257 220
160 NPAs of Assets .65 .51
.29 Annualized Net Charge-offs
.58 .55 .36 Allowance /
NPLs 129 164 285 Allowance
/ Total Loans 1.29 1.25
1.12
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Credit Quality

• All asset quality measures are pointing toward
  improved net charge-offs, continuing in 2005
• Recent Acquisitions of Seacoast and Waypoint both
  improve our credit risk profile
• Lower NCOs forecasted and lower credit risk
  profile will reduce our need for annual loan loss
  provisioning in coming periods
• NCOs anticipated to remain in the 25 to 35 basis
  point range for 2005 and beyond
• Allowance as a of loans will be dictated by
  credit quality and loan mix

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Critical Success Factor Superior Risk Management
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Net Interest Income Sensitivity at 12/31/04
Superior Risk Management
Sovereign continues to be well positioned for
rising interest rates
4.7
4.2
3.0
-4.0
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Why Are We Asset Sensitive? At December 31st

• 14.9 billion of assets tied to Prime,LIBOR, or
  CMT resets within 1 month following an increase
  or decrease in rates
• Only 9.3 billion of liabilities tied to
  short-term indices

Other .04b
Treasuries 3.2b 37 Investments 63 Residential
Prime 7.0b 55 Commercial 45 Consumer
Libor 4.7b 100 Commercial
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Why Are We Asset Sensitive? Core Deposit Base

• 5.1 billion, or 16 of deposits at zero cost
• 17.9 billion, or 55 of total deposits at
  administered rates
• Growing equity base helps maintain asset
  sensitive bias

CDs 22 or 7.1 bn
Interest Bearing DDA 27 or 8.7 bn
Non-Interest Bearing DDA 16 or 5.1 bn
Money Market 24 or 7.9 bn
Savings 11 or 3.8 bn
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Critical Success Factor Strong Sales and Service
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Strong Sales and Service Culture
Retail Accounts and Services per Household
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Red Carpet Service Guarantees

• Red Carpet Service was unveiled in January 2002
  as a unique program that differentiates Sovereign
  from the competition
• Six customer service guarantees were introduced
  at that time, and backed by 5 if Sovereign
  failed to uphold those guarantees
• Red Carpet Service Guarantees were recently
  expanded to include other business lines within
  the bank, over 24 guarantees now exist
• Guarantees exist within the following business
  units
• Community Banking
• Consumer Lending
• Mortgage Banking
• ATMs
• Research/Records
• Netbanking

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Critical Success Factor Productivity
andExpense Control
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Productivity and Expense Control
Continue to grow revenues at a faster pace than
operating expenses (positive operating leverage)
Efficiency Ratio
Efficiency ratio equals GA expenses as a
percentage of total revenue, excluding securities
gains
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Sovereigns Historical Performance
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Operating Earnings

• Effective in the fourth quarter of 2004,
  Sovereign moved to one non-GAAP financial measure
• Provides greater financial transparency
• Provides useful supplemental information when
  evaluating Sovereigns core businesses
• Operating earnings represent net income adjusted
  for after-tax effects of merger-related and
  integration charges, other various non-recurring
  charges, and the amortization of intangible
  assets
• For 2005, current analyst mean estimate is 1.89
  which excludes .04 to .06 of merger integration
  charges amortization of intangibles is expected
  to be .12 this implies operating earnings per
  share of 2.01

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Fourth Quarter 2004 Financial Highlights

• Net Interest Margin expanded 12 basis points to
  3.29 during the quarter
• Core bank spread (loan yield less deposit cost)
  expanded 16 basis points to 4.17 during the
  quarter
• Reduced the investment portfolio 2.6 billion
• Strong capital growth
• Annualized net charge-offs of .28
• Sovereign continues to be positioned to benefit
  from higher interest rates
• Operating return on average assets of 1.22

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Full Year 2004 Financial Highlights

• Operating earnings growth of 28 operating
  earnings per share growth of 14
• Organic Consumer and Commercial loans growth of
  28 and 10, respectively
• Consumer and Commercial fee revenue growth of 16
  and 15, respectively
• Core deposit growth of 19 organic core deposit
  growth of 4
• Dramatic improvement in credit quality
• Significant growth in capital ratios
• 100 basis point improvement in efficiency ratio
• Removed most of the high-cost debt incurred in
  the Fleet branch acquisition
• Operating return on average assets of 1.19

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Our Earnings Goals for 2005 through 2007
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What to Expect in 2005

• Net income of 1.84 - 1.94 per fully diluted
  share
• Implied operating earnings of 2.01 per diluted
  share implies double digit growth (excludes
  .04-.06 of merger integration charges in 1Q05
  and .12 of non-cash charges)
• Net interest margin will expand modestly as rates
  increase in 2005
• Expect commercial loan and core deposit growth
  during 2005, even after considering acquisition
  effects
• Efficiency Ratio improvement to below 50
• Generation of excess capital

Analyst mean estimate of 1.89 plus .12
anticipated non-cash charges
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Assumed Earnings Drivers 2005 through 2007

• Excess Capital Generation,
• Stable to Improved Credit Quality,
• Balanced Asset/Liability Profile with long-term
  asset sensitive bias,
• Continued Operating Efficiency,
• Continued Tax Efficiency,
• Manageable levels of Balance Sheet growth for
  loans, deposits and fee revenue,
• Potential for sustained, strong double-digit
  earnings growth

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Strong Balance Sheet 4 Core Margin
Loan Mix
23
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• 12/04 Balance - 36.6 billion
• 12/04 Yield 5.29

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Deposit Mix
22
12/04 Balance - 32.6 billion 12/04 Cost of Funds
1.12
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36
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Strengthened Balance Sheet

• All high-cost debt now removed from structure
• 500 million secured senior note at approximately
  8.00 all-in redeemed in September 2004
• Replaced with 300 million unsecured senior note
  at 3-month LIBOR 33 bps
• Reduced the investment portfolio 2.6 billion
  during the fourth quarter 04, and removed 2
  billion of borrowings
• Improved the quality of the balance sheet
• Improved capital ratios
• Improved net interest margin
• Reduced interest rate risk and mark-to-market
  risk
• Investments to Total Assets now 21 as compared
  to 29 at December 31, 2003
• In a rising rate environment, the core bank
  margin (loan yields less deposit costs) continues
  to expand, while the wholesale banks
  (investments and borrowings) contribution will
  decline

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Excess Capital Generation

• Sovereign produces strong organic capital growth
  in 2005 and beyond
• While a wide range of uses for this excess
  capital may emerge, multiple scenarios produce
  EPS accretion of .03 - .05 for 2006 and .06 -
  .10 for 2007
• Current dividend rate is assumed for illustrative
  purposes only
• Assumed 4.0 billion of balance sheet growth in
  2005 on starting balance sheet of 60 billion, or
  7 growth

( in millions)
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Earnings Goals 2005 through 2007
Managements Operating Goal
Actual/Analyst Mean Estimate
Operating EPS Growth

• 2004 1.85 - 1.90 1.84
  A 14
• 2005 2.05 or higher
  2.01 E 11
• 2006 2.25 or higher N/A
  10
• 2007 2.47 or higher N/A
  10
• Management is comfortable with 2005 analyst mean
  estimate of 1.89 EPS managements goal remains
  to strive for about 2.05 or higher operating EPS
  in 2005
• Managements goal is 10 or higher growth in
  operating earnings for 2006 and 2007

Analyst mean estimate of 1.89 plus .12
anticipated non-cash charges
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Sovereign Is Committed to the Following

1. We will stick with our discipline of blocking
   tackling, as there are tremendous opportunities
   within our market for organic growth. We have a
   strong management team in place and our structure
   and strategy is organized as such to seize those
   opportunities.
2. We will continue with our capital and MA
   discipline. As always, any acquisition that we
   do must be accretive to earnings within the first
   year, not take us away materially from our
   capital goals, and must not be dilutive to our
   future growth prospects. Any acquisition
   opportunity, which requires capital allocation,
   will be analyzed against share repurchases or
   other uses of capital.
3. We are committed to improving our operating
   fundamentals including net interest margin,
   return on assets, return on equity, and dividends

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In Closing

• Sovereign has consistently delivered on its
  promises
• On earnings 18 compound annual growth rate in
  operating earnings since 2000
• On capital 2.2 billion in TCE growth 364
  basis points of ratio improvement since 3Q00
• On its underlying business metrics- loan,
  deposit, fee income growth and efficiency ratio
  improvements
• The stage is set to deliver strong financial
  results for the next several years
• Sovereigns franchise is very unique and cannot
  be duplicated
• Significant insider ownership
• SOV is currently trading at 11.9x 2005 mean
  analyst estimate, and 156 of current book value
  as of February 23, 2004