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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-K/A
 Amendment No. 1
 þ
    
    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934,
 for the fiscal year ended December 31, 2005, or
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934,
 for the transition period from N/A to.
 Commission File Number 001-16581
 SOVEREIGN BANCORP, INC.
  Pennsylvania
    
    23-2453088(State or other Jurisdiction
    
    (I.R.S. Employer Identification No.)of Incorporation or Organization)
 1500 Market Street, Philadelphia, Pennsylvania
    
    19102(Address of Principal Executive Offices)
    
    (Zip Code)
 (215) 557-4630
 Securities registered pursuant to Section 12(b) of the Act:
 Title
    
    Name of Exchange on Which RegisteredCommon stock, no par value
    
    NYSE8.75% Preferred Capital Securities
    
    NYSE(Sovereign Capital Trust III)Seacoast Capital Trust I
    
    Nasdaq
 Securities registered pursuant to Section 12(g) of the Act:
 þ o
 o þ
 þ o
 þ
 þ o o
 o þ




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Table of Contents
 PageEXPLANATORY NOTE
    
    
    3DIRECTORS OF THE REGISTRANT
    
    
    4Current Directors
    
    
    4Planned Additions to the Board
    
    
    9COMPENSATION OF DIRECTORS
    
    
    11General
    
    
    11Compensation Plan
    
    
    11Stock Ownership Requirement
    
    
    14Freezing of Directors Retirement Plan
    
    
    14Termination of Bonus Award Program
    
    
    16BACKGROUND INFORMATION ON THE BOARD AND BOARD COMMITTEES
    
    
    16Independence
of Directors and Certain Relationships
    
    
    17Committees
    
    
    21Nominating Committee Process for the Selection of Nominee Candidates
    
    
    26Sovereigns Corporate Governance Guidelines
    
    
    29SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
    
    
    31Section
16(a) Beneficial Ownership Reporting Compliance
    
    
    35EXECUTIVE COMPENSATION
    
    
    36Compensation Paid to Executive Officers
    
    
    36Summary Compensation Table
    
    
    36Option Grants in Last Fiscal Year
    
    
    42Aggregated
Option Exercises in Last Fiscal Year And Fiscal Year-End Option Values
    
    
    44Equity
Compensation Plan Information  Shares Outstanding and Available for
Grant or Award
    
    
    44REPORT OF THE COMPENSATION COMMITTEE ON EXECUTIVE COMPENSATION
    
    
    46Compensation Philosophy
    
    
    47Components of Compensation
    
    
    48Base Salaries
    
    
    49Short-Term Incentive Compensation
    
    
    49Long-Term Incentive Compensation
    
    
    52Stock Ownership Requirement
    
    
    59EMPLOYMENT AGREEMENTS
    
    
    60ADDITIONAL INFORMATION REGARDING DIRECTORS AND OFFICERS
    
    
    68Indemnification
    
    
    68Code of Ethics
    
    
    69Loans
to Directors and Executive Officers
    
    
    69
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Table of Contents
 PageCORPORATE
STOCK PERFORMANCE GRAPHS
    
    
    72PRINCIPAL ACCOUNTANT FEES AND SERVICES
    
    
    76Audit
Committee Pre-Approval of Audit and Permissible Non-Audit Services by
Independent Auditors
    
    
    78SIGNATURES
    
    
    79APPENDIX
A  SOVEREIGN BANCORP, INC. CATEGORICAL STANDARDS FOR INDEPENDENCE
    
    
    A-1EXHIBIT INDEX
    
    
    E-1CertificationCertificationCertificationCertification
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EXPLANATORY NOTE
  Form 10-K
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DIRECTORS OF THE REGISTRANT
  
 Current Directors
  P. MICHAEL EHLERMAN.
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BRIAN HARD.
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MARIAN L. HEARD.
  ANDREW C. HOVE, JR.
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DANIEL K. ROTHERMEL.
  7




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JAY S. SIDHU.
 CAMERON C. TROILO, SR.
  RALPH
V. WHITWORTH.
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Planned Additions to the Board
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Class I
    
    Class II
    
    Class III(to serve until 2006)
    
    (to serve until 2007)
    
    (to serve until 2008)Hard
    
    Ehlerman
    
    BotinHeard
    
    Hove
    
    SidhuTroilo
    
    Inciarte
    
    New Independent DesigneeWhitworth
    
    Rothermel
    
    Independence Community
Bank Corp. Designee
  
 COMPENSATION OF DIRECTORS
 
 General
  
 Compensation Plan
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January 1, 2005 
    
    October 1, 2005 September 30, 2005
    
    December 31, 2005Cash
    
    Equity
    
    Cash
    
    Equity
    
    TotalEhlerman
    
    $
    14,200
    
    
    $124,763 (5,625 shares)
    
    $
    21,500
    
    
    $17,750 (821 shares)
    
    $
    178,213Hard
    
    $
    14,200
    
    
    $141,398 (6,375 shares)
    
    $
    24,000
    
    
    $17,750 (821 shares)
    
    $
    197,348Heard
    
    $
    9,200
    
    
    $80,428 (3,625 shares)
    
    $
    17,750
    
    
    $17,750 (821 shares)
    
    $
    125,128Hove
    
    $
    15,800
    
    
    $124,763 (5,625 shares)
    
    $
    21,500
    
    
    $17,750 (821 shares)
    
    $
    179,813Rothermel
    
    $
    16,800
    
    
    $158,033 (7,125 shares)
    
    $
    24,000
    
    
    $17,750 (821 shares)
    
    $
    216,583Troilo
    
    $
    16,800
    
    
    $124,763 (5,625 shares)
    
    $
    21,500
    
    
    $17,750 (821 shares)
    
    $
    180,813
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Stock Ownership Requirement
  
 Freezing of Directors Retirement Plan
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Benefit Accruedas of September 30, 2005Ehlerman
    
    $
    169,030Hard
    
    $
    495,623Heard
    
    $
    3,027Hove
    
    $
    155,035Rothermel
    
    $
    1,022,478Troilo
    
    $
    894,432
 
 Termination of Bonus Award Program
  
 BACKGROUND INFORMATION ON THE BOARD AND BOARD COMMITTEES
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Independence of Directors and Certain Relationships
   
    
    loan relationships with directors which are in compliance with Federal Regulation O
do not constitute material relationships;
    
    directors accounts that are maintained in accordance with established Bank policies
and are on the same terms as those available to similar customers do not constitute
material relationships;
    
    direct compensation paid to a director or member of his or her immediate family in
any twelve month period over the last three years from Sovereign or Sovereign Bank
amounting to less than $50,000 does not constitute a material relationship;
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
    
    payments for property or services to or from Sovereign Bank and an entity that is
affiliated with a director that do not exceed the greater of $1 million or two percent
of such entitys revenue do not constitute material relationships;
    
    indebtedness of an entity affiliated with a director to Sovereign Bank that is below
certain asset-based thresholds with interest and fees not exceeding $1 million or two
percent of such entitys revenue does not constitute a material relationship; and
    
    donations to and the indebtedness of charitable, educational and governmental
entities that are affiliated with a Sovereign director or a member of his or her
immediate family that are below certain amounts do not constitute a material
relationship.
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Landscape Maintenance Relationship: Mr. Daniel K. Rothermel.
  Lease Rental Relationships: Mr. Cameron C. Troilo.
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
    
    the rental payments did not represent a material portion of Mr. Troilos income;
    
    the rental payments were at prevailing market rates or better; and
    
    the leases contain rates and terms which would enable Mr. Troilo, who is in the
business of developing and leasing properties, to replace Sovereign and its rental
stream at any time without loss, so that such leases were not important to Mr. Troilo.
 Civic
Relationship: Mr. P. Michael Ehlerman.
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
    
    Mr. Ehlerman has no direct or indirect material
financial interest in BCCCA and is not an executive officer of BCCCA;
    
    the $12.2 million loan was made as a result of a
competitive process and the remaining banking relationship with BCCCA
is on market rates and terms and create no direct or indirect
financial benefit to Mr. Ehlerman; and
    
    the loans and deposits are not non-accrual, past-due,
restructured or potential problem loans and are well collateralized.
 
 Committees
  
    
    Sovereigns Audit Committeeconsists of five directors, each of whom has been
determined to be independentby the Board consistent with the listing standards of the
NYSE. The members of the Audit Committee are Messrs. Hard (Chairperson), Rothermel
(Vice Chairperson), Ehlerman, Hove and, in accordance with the terms of the Settlement
Agreement, Whitworth. The Board, in the exercise of its business judgment, has
determined that each member of the Audit Committee is financially literate as
required under the NYSEs listing standards and has designated Mr. Ehlerman as the
Committees Audit Committee Financial Expert.The Audit Committee is responsible for the appointment, compensation, oversight and
termination of Sovereigns independent auditors. The Audit Committee is required to
pre-approve audit and permissible non-audit services performed by the independent
auditors. The Audit Committee also assists the Board in providing oversight over the
integrity of Sovereigns financial statements, Sovereigns
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compliance with applicable
legal and regulatory requirements and the performance of Sovereigns internal audit
function. The Audit Committee is also responsible for, among other things, reporting to
the Board on the results of the annual audit and reviewing the financial statements and
related financial and non-financial disclosures included in Sovereigns Annual Reports
on Form 10-K and Quarterly Reports on Form 10-Q. Importantly, from a corporate
governance perspective, the Audit Committee also regularly evaluates the independent
auditors independence from Sovereign and Sovereigns management, including approving
consulting and other legally permitted non-audit services provided by Sovereigns
auditors and the potential impact of the services on the auditors independence. The
Audit Committee also meets periodically with Sovereigns independent auditors and
Sovereigns internal auditors outside of the presence of Sovereigns management, and
possess the authority to retain professionals to assist it with meeting its
responsibilities without consulting with management. The Audit Committee also reviews
and discusses with management earnings releases, including the use of pro forma
information, and
financial information provided to analysts and rating agencies. The Audit Committee
also discusses with management and the independent auditors the effect of critical
accounting policies, accounting initiatives and off-balance sheet transactions. The
Audit Committee is also responsible for receiving and retaining complaints and concerns
relating to accounting and auditing matters. Sovereigns Audit Committee met nine times
in 2005.The Audit Committee is governed by a written charter, which complies with the
requirements of the NYSEs listing standards. A copy of the Audit Committees charter
is posted, in full text, on Sovereigns website under Investor Relations at
www.sovereignbank.com.
    
    Sovereigns Nominating Committeeconsists of four directors, each of whom has been
determined to be independentby the Board. Sovereigns Bylaws provide for both
shareholder and Board nomination of director candidates. The Nominating Committee is
required to develop and recommend criteria for the selection of new
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directors to the
Board, including but not limited to, diversity, age, skills, experience, time
availability (including the number of other boards a director candidate sits on), NYSE
listing standards, applicable federal and state laws and regulations, in the context of
the needs of the Board and Sovereign and such other criteria as the Nominating
Committee shall determine to be relevant. The Nominating Committee is authorized to
identify and recommend to the Board, consistent with Sovereigns Corporate Governance
Guidelines and Board-determined criteria, potential nominees for submission to
Sovereigns shareholders for election as directors of Sovereign or for election to fill
vacancies on the Board. The Nominating Committee strives to identify, review and
recommend only those nominees who appear to possess the characteristics, skills,
experience, education and background described more specifically below under
Nominating Committee Process for the Selection of Nominee Candidates. The Nominating
Committees review of candidates is performed without regard to gender, race or
religious affiliation. One of the objectives of this review is to have a Board which
consists of members with a mix of diverse backgrounds, skills, experiences and
personalities which will foster, not only
good decision making, but also the chemistry to create an environment encouraging
active, constructive, and informed participation among Board members. The Nominating
Committee is required to recommend to the Board nominees for appointment to the
committees of the Board annually. The Nominating Committee is also responsible for the
oversight of an annual evaluation of the Board. The Nominating Committee met eleven
times in 2005.
    
    Sovereigns Ethics and Corporate Governance Committee,which Sovereign has
continuously maintained since 1995, consists of four directors, each of whom has been
determined to be independentby the Board. The Ethics and Corporate Governance
Committee monitors, oversees and reviews compliance, by Sovereigns directors, officers
and team members with Sovereigns Code of Conduct and Ethics, as well as certain other
corporate governance related policies. Sovereigns Code of Conduct and Ethics
regulates potential conflicts of interest and transactions between Sovereign and its
affiliates, the possible misuse or abuse of confidential information
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by Sovereign
affiliates, and trading in Sovereign stock by Sovereign affiliates. When exercising
its authority, the Ethics and Corporate Governance Committee is required to consider
Sovereigns mission, vision and values. The Ethics and Corporate Governance Committee
also is required to annually review Sovereigns Code of Conduct and Ethics and to make
recommendations to the Board with respect to modification. The Ethics and Corporate
Governance Committee also recommended to the Board the Corporate Governance Guidelines
adopted by the Board in September 2002 and updated in 2003, 2004 and 2005. The Ethics
and Corporate Governance Committee met three times in 2005.
    
    Sovereigns Compensation Committeeconsists of five directors, each of whom has been
determined to be independentby the Board. The Compensation Committee reviews and
approves corporate goals and objectives regarding Chief Executive Officer compensation,
evaluates the Chief Executive Officers performance in light of those goals and
objectives, and determines the Chief Executive Officers compensation levels based on
this evaluation, and with respect to determining the long-term incentive component of
Chief Executive Officer compensation, considers
Sovereigns performance and relative shareholder return, the value of similar incentive
awards to chief executive officers at comparable companies, the awards given to the
Chief Executive Officer in past years, and other factors the Compensation Committee
deems appropriate. The Compensation Committee also reviews and determines director
compensation. In addition, the Compensation Committee makes recommendations to the
Board regarding compensation for certain senior executives and reviews Sovereigns
executive compensation structure in an effort to ensure that executive compensation (i)
is competitive, and (ii) is closely linked to Sovereigns goals and objectives. The
Compensation Committee also attempts to assure that such goals and objectives are
clearly defined for Sovereigns management team and that the interests of executive
management are aligned, to the extent practicable, with the interests of Sovereigns
shareholders. The Compensation Committee met eleven times in 2005.
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Sovereigns Mergers and Acquisition Committee, Sovereigns Retirement Savings Plan Committee, Sovereigns Executive Committee ,
  Sovereigns non-employee members of the Board met seven times in 2005 without Mr. Sidhu present
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Nominating Committee Process for the Selection of Nominee Candidates
  
    
    excellent character and integrity (mandatory);
    
    no real or apparent material conflicts of interest and a willingness to acknowledge
that he or she represents all shareholders (mandatory);
    
    experience in the financial services business and hands on familiarity with the
regulatory relationship between banks and bank holding companies evidenced by prior
service on the Board of Directors of Sovereign Bank, or service on a board of a bank or
bank holding company acquired by Sovereign (mandatory). Persons who the Nominating
Committee determines to be otherwise qualified but do not meet this prior experience
requirement may be invited to serve on the Board of Directors of Sovereign Bank before
becoming eligible to be a nominee for election as a director of Sovereign;
    
    willingness to agree to observe Sovereigns corporate governance policies, including
Sovereigns Code of Conduct and Ethics, and the principles underlying applicable
federal and state banking laws (mandatory);
    
    leadership in his or her field;
    
    a history of achievements that reflect high standards for himself or herself and
others;
    
    broad experience and the ability to exercise sound business judgment;
    
    experience as either a CEO, CFO, or COO of a significant business;
    
    the ability to work in a collegial board environment (mandatory);
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
    
    the ability to approach others assertively, responsibly and supportively, and a
willingness to ask tough questions in a manner that encourages open discussion;
    
    service on no more than one other for-profit public company board and such service
does not prevent the individual from devoting adequate time to Sovereign;
    
    the director is financially literate;
    
    significant executive, professional, educational or regulatory experience in
financial, auditing, accounting, or banking matters;
    
    experience as an audit committee member preferably at a financial services company;
    
    understands and stays current on corporate governance and management best
practices and their application in complex, rapidly evolving business environments;
    
    the ability and time to perform during periods of both short-term and prolonged
crises;
    
    understands and possesses empowerment skills and has a history of motivating
high-performing talent;
    
    possesses skills and the capacity to provide strategic insight and direction;
    
    diversity of experience, skills, qualifications, occupations, education and
backgrounds;
    
    availability to attend Board meetings;
    
    availability to participate in additional committee meetings which may or may not be
held on the date of Board meetings;
    
    availability (by telephone or in person) to participate in special meetings of the
Board on an as needed basis;
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
    
    availability to rigorously prepare prior to a Board and committee meeting
(especially by critically reading all materials provided);
    
    capacity to give undivided attention at each Board and committee meeting; and
    
    availability to participate in ongoing director education.
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Sovereigns Corporate Governance Guidelines
  
    
    the Board will consist of at least a majority of independent directors who, in the
business judgment of the Board, meet the criteria for independence required by the NYSE
and all other applicable legal requirements;
    
    directors are not entitled to tenure rights;
    
    directors who materially change non-Sovereign responsibilities they held when they
were elected to the Board should volunteer to resign from the Board, and the Board
through the Ethics and Corporate Governance Committee should review the continued
appropriateness of Board membership under the circumstances;
    
    no director may serve on any other public company boards unless such service is
approved by the Board;
    
    directors are expected to attend annual meetings of shareholders, Board meetings and
meetings of committees on which they serve, and to spend the time needed and meet as
frequently as necessary to properly discharge their responsibilities;
    
    Board members are expected to review in advance of any meeting the information and
data distributed in writing to members before the meeting;
    
    Sovereigns non-employee directors meet in executive sessions, and the non-employee
director, or Lead Director, who presides at these meetings is chosen by a majority of
the non-employee directors;
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
    
    the Board meets at least once each calendar year, in addition to regular board
meetings, with Sovereigns executive management team to review Sovereigns business
plans, discuss corporate strategy and evaluate Sovereigns strengths, weaknesses,
opportunities and threats, as well as to review Sovereigns progress against
Sovereigns vision, mission, values and critical success factors;
    
    the Board studies Sovereigns strategic alternatives including sale, continuing its
current strategy, or engaging in a merger of equals at least once each calendar year;
    
    committee members are recommended by the Nominating Committee and appointed by the
Board;
    
    directors have full and free access to inside and outside counsel, officers and
employees of Sovereign;
    
    the Board, and, pursuant to their charters, the Audit Committee, the Ethics and
Corporate Governance Committee, the Nominating Committee and the Compensation Committee
each has the power to hire independent legal, accounting, financial or other advisors,
as applicable, at Sovereigns expense, without the approval of management;
    
    all directors participate in continuing education programs sponsored by Sovereign
throughout the year, including programs addressing legal, financial, regulatory and
industry specific topics;
    
    the Board, the Audit Committee, the Compensation Committee, the Nominating Committee
and the Ethics and Corporate Governance Committee are required to conduct an annual
self-evaluation;
    
    the Nominating Committee is required to make an annual report to the Board on
succession planning; and
    
    the Nominating Committee is required to receive comments from all directors and
report annually to the Board with an assessment of the Boards performance.
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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
  Amount andNature of
    
    PercentageDirector
    
    Beneficial
    
    of CommonAge
    
    Since
    
    Ownership (#)(1)
    
    StockDIRECTORSP. Michael Ehlerman
    
    
    67
    
    
    
    2001
    
    
    
    36,130
    
    
    
    Brian Hard
    
    
    59
    
    
    
    1996
    
    
    
    117,897
    (2)
    
    
    Marian L. Heard
    
    
    65
    
    
    
    2004
    
    
    
    5,545
    
    
    
    Andrew C. Hove, Jr.
    
    
    71
    
    
    
    2001
    
    
    
    36,324
    
    
    
    Daniel K. Rothermel
    
    
    68
    
    
    
    1976
    
    
    
    273,877
    (3)
    
    
    Jay S. Sidhu
    
    
    54
    
    
    
    1987
    
    
    
    4,264,551
    (4)
    
    
    1.17
    %Cameron C. Troilo, Sr.
    
    
    67
    
    
    
    1974
    
    
    
    812,220
    (5)
    
    
    Ralph V. Whitworth
    
    
    50
    
    
    
    2006
    
    
    
    29,976,294
    (6)
    
    
    8.29
    %EXECUTIVE OFFICERSJoseph P. Campanelli (7)
    
    
    49
    
    
    
    N/A
    
    
    
    533,160
    (8)
    
    
    James J. Lynch (9)
    
    
    56
    
    
    
    N/A
    
    
    
    190,035
    (10)
    
    
    Mark R. McCollom (11)
    
    
    42
    
    
    
    N/A
    
    
    
    212,224
    (12)
    
    
    Lawrence M. Thompson, Jr. (13)
    
    
    54
    
    
    
    N/A
    
    
    
    930,465
    (14)
    
    
    All Sovereign directors and executive officers as a group (11 persons)
    
    
    N/A
    
    
    
    N/A
    
    
    
    37,388,722
    (15)
    
    
    10.25
    %All Sovereign Bank directors (excluding Sovereign directors and the executive
officers listed above) and team members of Sovereign Bank as a group
    
    
    N/A
    
    
    
    N/A
    
    
    
    25,429,245
    (16)
    
    
    6.81
    %Total aggregate stock ownership of the above persons
    
    
    N/A
    
    
    
    N/A
    
    
    
    62,817,967
    (17)
    
    
    16.65
    %
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(1)
    
    The table reflects data supplied by each director and executive officer as of March
31, 2006. The table also reflects shares of Sovereign common stock held by the trustee of the
Sovereign Retirement Plan which have been allocated to the accounts of the executive officers
identified in the table, and as a group.(2)
    
    The number and percentage of shares beneficially owned by Mr. Hard include 72,000 shares
subject to vested options.(3)
    
    Mr. Rothermel holds shared voting and investment power over 11,697 shares. The number and
percentage of shares includes 3,557 shares held by Mr. Rothermels spouse with respect to which
Mr. Rothermel disclaims beneficial ownership. The number and percentage of shares beneficially
owned by Mr. Rothermel also include 120,000 shares subject to vested options.(4)
    
    Mr. Sidhu holds shared voting or investment power over 706,847 shares. The number and
percentage of shares beneficially owned by Mr. Sidhu include 1,175,698 shares subject to vested
options and 57,303 shares held by the Sovereign Retirement Plan that are allocated to Mr.
Sidhus account and over which he exercises voting power. The number and percentage of shares
beneficially owned by Mr. Sidhu also include 122,891 shares of Sovereign common stock awarded
as restricted stock under one or more of Sovereigns stock incentive plans. The number and
percentage of shares beneficially owned by Mr. Sidhu also include 474,346 shares under the
Sovereign Bancorp, Inc. Bonus Recognition and Retention Program (the Bonus Deferral Program),
which is more fully described beginning on page 55.(5)
    
    Mr. Troilo holds shared voting or investment power over 496,054 shares. The number and
percentage of shares beneficially owned by Mr. Troilo include 120,000 shares subject to vested
options.(6)
    
    Mr. Whitworth is a Principal of Relational. Relational is the sole general partner of
Relational Investors, L.P., which holds 4,907,609 shares, Relational Partners, L.P., which
holds 115,358 shares, Relational Fund Partners, L.P., which holds 115,305 shares, Relational
Coast Partners, L.P., which holds 267,710 shares, RH Fund 1, L.P., which holds 3,313,143
shares, RH Fund 2, L.P., which holds 2,449,541 shares, RH Fund 4, L.P., which
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holds 821,525
shares, RH Fund 6, L.P., which holds 628,591 shares, RH Fund 7, L.P., which holds 293,513
shares, RI VIII, L.P., which holds 4,720,856 shares, RI IX, L.P., which holds 1,925,255 shares,
RI XI, L.P., which holds 1,519,107 shares, RI XII, L.P., which holds 241,885, RI XIV, L.P.,
which holds 867,949 shares, and RI XV, L.P., which holds 586,081 shares. Relational is also
the sole managing member of the general partners of RI III, L.P., which holds 266,129 shares,
and RI X, L.P., which holds 2,810,675 shares. An additional 4,126,062 shares are held by and
in accounts managed by Relational. Mr. Whitworth disclaims
beneficial ownership of these securities except to the extent of his
pecuniary interest therein.(7)
    
    Mr. Campanelli was named President and Chief Executive Officer of the Sovereign Bank New
England Division effective January 1, 2005. Mr. Campanelli has served as President and Chief
Operating Officer of the Sovereign Bank New England Division since January 2000 and a Vice Chairman
of Sovereign since September 2002.(8)
    
    The number and percentage of shares beneficially owned by Mr. Campanelli include 353,500
shares subject to vested options and 16,064 shares held by the Sovereign Retirement Plan which
are allocated to Mr. Campanellis account and over which he exercises voting power. The number
and percentage of shares beneficially owned by Mr. Campanelli also include 34,921 shares of
Sovereign common stock awarded as restricted stock under one or more of Sovereigns stock
incentive plans. The number and percentage of shares beneficially owned by Mr. Campanelli also
include 52,997 shares of Sovereign common stock under the Bonus Deferral Program.(9)
    
    Mr. Lynch has served as Chairman and Chief Executive Officer of the Sovereign Bank
Mid-Atlantic Division since September 2002, and a Vice Chairman of Sovereign since February
2006. Before joining Sovereign Bank in September 2002, he served as Chairman and CEO Fleet
Bank, PA from March 2001 to September 2002, Chairman and CEO of Summit Bank, PA from August
1999 to March 2001, Senior Executive Vice President of Summit Bancorp from August 1999 to March
2001, and Chairman, President and CEO of Prime Bancorp and Prime Bank from January 1996 to
August 1999.(10)
    
    The number and percentage of shares beneficially owned by Mr. Lynch include 60,000 shares
subject to vested options and 43,605 shares of Sovereign common stock
 33




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##### Table of Contents



awarded as restricted
stock under one or more of Sovereigns stock incentive plans.
The number and percentage of shares beneficially owned by Mr. Lynch also include 4,334 shares held by the Sovereign
Retirement Plan that are allocated to Mr. Lynchs account and over which he exercises voting
power. The number and percentage of shares beneficially owned by Mr. Lynch also includes
44,941 shares under the Bonus Deferral Program.(11)
    
    Mr. McCollom is Sovereigns Chief Financial Officer and Executive Vice President. Mr.
McCollom succeeded James D. Hogan, who elected to retire effective May 13, 2005. Prior to
that, Mr. McCollom served as Chief Accounting Officer of Sovereign and Sovereign Bank.(12)
    
    The number and percentage of shares beneficially owned by Mr. McCollom include 153,346
shares subject to vested options and 17,015 shares of Sovereign common stock awarded as
restricted stock under one or more of Sovereigns stock incentive plans. The number and
percentage of shares beneficially owned by Mr. McCollom also include 17,666 shares held by the
Sovereign Retirement Plan which are allocated to Mr. McColloms account and over which he
exercises voting power. The number and percentage of shares beneficially owned by Mr. McCollom
include 9,488 shares of Sovereign common stock under the Bonus Deferral Program.(13)
    
    Mr. Thompson became a Vice Chairman and Chief Administrative Officer of Sovereign in
September 2002. Mr. Thompson has served as Chief Administrative Officer of Sovereign Bank
since April 2006, and as Chief Operating Officer of Sovereign Bank since 1997. He has been
employed by Sovereign in various capacities since 1987.(14)
    
    Mr. Thompson holds shared voting or investment power over 145,561 shares. The number and
percentage of shares beneficially owned by Mr. Thompson include 537,985 shares subject to
vested options and 29,064 shares held by the Sovereign Retirement Plan which are allocated to
Mr. Thompsons account and over which he exercises voting
power. The number and percentage of shares beneficially owned by Mr. Thompson also include 49,286 shares of Sovereign common stock
awarded as restricted stock under one or more of Sovereigns stock incentive plans. The number
and percentage of shares beneficially owned by Mr. Thompson include 35,870 shares of Sovereign
common stock under the Bonus Deferral Program.
 34




---



##### Table of Contents



(15)
    
    In the aggregate, these persons hold shared voting or
investment power over 1,360,159 shares. The number and percentage of shares beneficially owned by them include 2,592,529
shares subject to vested options and 124,431 shares held by the Sovereign Retirement Plan
allocated to the executive officers accounts and over which they exercise voting power. The
number and percentage of shares beneficially owned by them also include 267,718 shares of
Sovereign common stock awarded as restricted stock under one or more of Sovereigns stock
incentive plans. The number and percentage of shares beneficially owned by them also include
617,642 shares under the Bonus Deferral Program.(16)
    
    Shares include 7,716,548 shares allocated under the Sovereign Retirement Plan and acquired
plans plus 2,957,285 unallocated shares held in the ESOP component of the Sovereign Retirement
Plan (which are voted in proportion to the allocated shares), 244,658 shares under the Bonus
Deferral Program, and approximately 10,438,865 shares subject to the exercise of both vested
and nonvested options granted under one or more of Sovereigns stock incentive plans and
1,425,847 shares of restricted stock awarded under such plans, representing approximately 6.81%
in the aggregate of Sovereigns outstanding shares, after giving effect to the applicable
vesting of plan shares and the exercise of options and the lapse of restrictions with respect
to restricted stock awards.(17)
    
    Shares include 7,840,979 shares allocated under the Sovereign Retirement Plan and acquired
plans plus 2,957,285 unallocated shares held in the ESOP component of the Sovereign Retirement
Plan (which are voted in proportion to the allocated shares), 862,300 shares under the Bonus
Deferral Program, and approximately 13,728,828 shares subject to the exercise of both vested
and non-vested options granted under one or more of Sovereigns stock incentive plans and
1,693,565 shares of restricted stock awarded under such plans, representing approximately
16.65% in the aggregate of Sovereigns outstanding shares, after giving effect to the
applicable vesting of plan shares and the exercise of options and the lapse of restrictions
with respect to restricted stock awards.
 
 Section 16(a) Beneficial Ownership Reporting Compliance
  35




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##### Table of Contents



EXECUTIVE COMPENSATION
 
 Compensation Paid to Executive Officers
  
 SUMMARY COMPENSATION TABLE
 Annual Compensation
    
    Long-Term Compensation
    
Other CompensationSecuritiesRestricted
    
    UnderlyingStock
    
    Options/
    
    All OtherSalary
    
    Bonus
    
    Awards
    
    SARs
    
    CompensationName
    
    Year
    
    ($)(1)
    
    ($)(2)
    
    ($)(3)
    
    (#)(4)
    
    ($)(5)(6)(7)Jay S. Sidhu
    
    
    2005
    
    
    
    800,000
    
    
    
    0
    
    
    
    1,831,574
    
    
    
    87,463
    
    
    
    13,654Chairman, President and
    
    
    2004
    
    
    
    800,000
    
    
    
    975,500
    
    
    
    638,740
    
    
    
    46,911
    
    
    
    13,928Chief Executive Officer
    
    
    2003
    
    
    
    800,000
    
    
    
    750,000
    
    
    
    432,861
    
    
    
    68,800
    
    
    
    14,650Joseph P. Campanelli (8)
    
    
    2005
    
    
    
    500,000
    
    
    
    0
    
    
    
    363,856
    
    
    
    32,069
    
    
    
    13,654Vice Chairman, Sovereign, and
    
    
    2004
    
    
    
    400,000
    
    
    
    358,833
    
    
    
    346,490
    
    
    
    0
    
    
    
    13,928President
and Chief Executive Officer of
    
    
    2003
    
    
    
    400,000
    
    
    
    133,333
    
    
    
    193,324
    
    
    
    23,358
    
    
    
    14,650Sovereign Bank  New
England DivisionJames J. Lynch
    
    
    2005
    
    
    
    500,000
    
    
    
    0
    
    
    
    363,856
    
    
    
    32,069
    
    
    
    13,654Vice Chairman, Sovereign, and
    
    
    2004
    
    
    
    468,230
    
    
    
    358,833
    
    
    
    346,490
    
    
    
    0
    
    
    
    13,928Chairman
of Sovereign Bank  Mid-
    
    
    2003
    
    
    
    400,000
    
    
    
    133,333
    
    
    
    390,625
    
    
    
    0
    
    
    
    8,000Atlantic Division (9)Mark R. McCollom
    
    
    2005
    
    
    
    350,000
    
    
    
    0
    
    
    
    254,718
    
    
    
    32,069
    
    
    
    13,654Chief Financial Officer and
    
    
    2004
    
    
    
    225,530
    
    
    
    50,000
    
    
    
    51,966
    
    
    
    18,018
    
    
    
    13,928Executive Vice President (10)
    
    
    2003
    
    
    
    203,269
    
    
    
    22,000
    
    
    
    98,196
    
    
    
    6,677
    
    
    
    14,650Lawrence M. Thompson, Jr.
    
    
    2005
    
    
    
    500,000
    
    
    
    0
    
    
    
    456,042
    
    
    
    0
    
    
    
    13,654Vice Chairman and
    
    
    2004
    
    
    
    400,000
    
    
    
    492,167
    
    
    
    346,490
    
    
    
    0
    
    
    
    13,928Chief Administrative Officer (11)
    
    
    2003
    
    
    
    400,000
    
    
    
    300,000
    
    
    
    430,499
    
    
    
    0
    
    
    
    14,650
 
 (1)
    
    Effective April 1, 2006, each of Mr. Campanellis, Mr. Lynchs, Mr. McColloms and Mr.
Thompsons salary was increased to $525,000. Mr. Sidhus salary remained at $800,000. See
page 60 for a detailed description of Sovereigns employment agreements with each of these
executive officers as well as a description of short and long-term incentive compensation
opportunities. 36




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##### Table of Contents



(2)
    
    No cash bonuses were paid to executive officers for 2005. The amounts shown for each of
Messrs. Sidhu, Campanelli, Lynch and McCollom for 2004 and 2003 reflect a percentage of cash
bonuses actually awarded because Mr. Sidhu was required to defer 50% of his cash bonus for each
of 2004 and 2003 ($750,000 and $750,000, respectively) under the Bonus Deferral Program. The
Bonus Deferral Program, which is described more fully on page 55 hereof, permits eligible
executive officers of Sovereign to defer receipt of 25% to 50% of his or her cash bonus for a
given year. The deferred amount is placed in a grantor trust and invested in Sovereign common
stock. A 100% matching contribution is made to the trust by Sovereign on behalf of the
participant and is likewise invested in Sovereign common stock. Earnings on the deferral and
match are reinvested in Sovereign common stock as well. A participant becomes 100% vested in
the aggregate of each years deferral, match and earnings thereon five years after the initial
funding of such years contributions to the trust. Mr. Campanelli was eligible to and elected
to defer, subject to substantial risk of forfeiture, receipt of 50% of his cash bonus for each
of 2004 and 2003 ($133,333 and $133,333, respectively) under the Bonus Deferral Program. Mr.
Lynch was eligible to and elected to defer, subject to substantial risk of forfeiture, receipt
of 50% of his cash bonus for each of 2004 and 2003 ($133,333 and $133,333, respectively) under
the Bonus Deferral Program. Mr. McCollom was eligible to and elected to defer, subject to
substantial risk of forfeiture, receipt of 50% of his cash bonus for each of 2004 and 2003
($50,000 and $50,000, respectively under the Bonus Deferral Program). Mr. Thompson elected not
to participate in the Bonus Deferral program in 2004 and 2003. Each year, amounts deferred, as
well as Sovereigns matching contribution with respect to such deferrals, are subject to a
substantial risk of forfeiture for five years. The amounts shown for each of Messrs. Sidhu,
Campanelli, Lynch and Thompson for 2004 also include a $225,500 cash payment pursuant to the
terms of the Sovereign Bancorp, Inc. Senior Officers Bonus Award Program (the Senior Officers
Bonus Award Program). Mr. McCollom became eligible to participate in the Senior Officers
Bonus Award Program effective May 14, 2005.(3)
    
    Amounts shown for 2005 are the value of restricted stock awards made in 2006 for 2005
performance and consist of the following, in shares of Sovereign common stock: 37




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##### Table of Contents



Name
    
    Sidhu *
    
    Campanelli
    
    Lynch
    
    McCollom
    
    Thompson2005 CEO and
Leaders Incentive
Plan Awards **
    
    
    26,017
    
    
    
    5,781
    
    
    
    5,781
    
    
    
    4,047
    
    
    
    5,7812005 CEO and
long-term Leaders
Incentive Plan
Awards ***
    
    
    52,034
    
    
    
    11,562
    
    
    
    11,562
    
    
    
    8,094
    
    
    
    5,7812006 Long-term
incentive
restricted stock
award ****
    
    
    9,250
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    10,175
  
 *
    
    The shares of restricted stock awarded to Mr. Sidhu do not include the 150,000 performance
units awarded to him on March 15, 2006, because such units do not relate to 2005 performance
but were awarded as part of Mr. Sidhus long-term compensation for a five-year performance
period beginning in 2006. See the description of this award on
page 50.**
    
    Awarded on February 15, 2006, and vests ratably over a three-year period from the date of
the award. For more information on these awards and the Sovereign Bancorp, Inc. Leaders
Incentive Plan (the LIP), see pages 49 and 51.***
    
    Awarded on February 15, 2006, and vests after five years have elapsed from such date. For
more information on these awards and the LIP, see pages 49 and 51.****
    
    Awarded on February 15, 2006. The grant to Mr. Sidhu vests after five years have elapsed
from the date of the award if, and only if, Sovereigns operating/cash earnings per share
equal or exceed $2.84 or Sovereign common stock closes at or above $40 per share for twenty
consecutive trading days and Sovereign Bank is well capitalized and has a Tier 1 leverage
ratio of six percent or higher (as those terms are defined under applicable Office of Thrift
Supervision Regulations on February 15, 2006). The grant to Mr. Thompson vests after five
years have elapsed from the date of award provided that Sovereign Bank is well capitalized
and has a Tier 1 leverage ratio of six percent or higher (as those terms are defined under
applicable Office of Thrift Supervision regulations on February 15, 2006). 38




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##### Table of Contents



As of December 31, 2005, the named executive officers held the following number of shares of
restricted stock with the following values (based on the closing price of $21.62 per share on
December 31, 2005): Mr. Sidhu  49,157 shares valued at $1,062,774; Mr. Campanelli  23,793
shares valued at $514,405; Mr. Lynch  30,104 shares valued at $650,848; Mr. McCollom  6,788
shares valued at $146,757; and Mr. Thompson  33,998 shares valued at $735,037.The amounts shown for 2004 and 2003 are the value of the restricted shares awarded to the
named executive officers for those years and was determined by
multiplying the number of shares by the closing price of Sovereign common stock on the date the shares were awarded on
February 16, 2005 for 2004 performance ($23.44) and February 18, 2004 for 2003 performance
($22.72). The shares of restricted stock awarded to Mr. Sidhu for 2004 and 2003 as his Tier
II bonus vest ratably over a three-year period from the date of the
award. The restricted shares awarded to each of
Messrs. Campanelli, Lynch, McCollom and Thompson with respect to
their 2004 and 2003 bonuses awarded under the LIP vest ratably over a three-year period from
the date of the award. The restricted shares awarded to each of Messrs. Sidhu, Campanelli,
Lynch and Thompson as part of long-term incentive compensation for 2004 and 2003, as
applicable, do not vest unless and until the price of a share of Sovereign common stock trades
at or above $30 per share for at least twenty consecutive trading days. In addition, the
restricted shares do not vest unless and until, at the end of the fiscal quarter coincident
with or immediately preceding the later of the attainment of the $30 per share price
requirement or five years having elapsed from the date of grant, Sovereign Bank is well
capitalized under regulations of the Office of Thrift Supervision in effect as of the date of
grant. Restricted shares are not eligible to receive cash dividends until the restrictions
lapse. The restricted shares awarded to Mr. McCollom as part of his
long-term incentive compensation for 2004 and 2003 vest five years
from the date of the awards.(4)
    
    The 87,463 options granted to Mr. Sidhu on February 15, 2006, vest after five years have
elapsed from the date of the grant, if, and only if, Sovereigns operating/cash earnings per
share equal $2.84 or Sovereign common stock closes at or above $40 per share for twenty
 39




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##### Table of Contents



consecutive trading days and Sovereign Bank is well capitalized and has a Tier 1 leverage
ratio of six percent or higher (as those terms are defined under applicable Office of Thrift
Supervision regulations on February 15, 2006). The 32,069 options granted to each of Messrs.
Campanelli, Lynch and McCollom on February 15, 2006, vest after five years has elapsed from the
date of the grant and then only if Sovereign Bank is well capitalized and has a Tier 1
leverage of six percent or higher (as those terms are defined under applicable Office of Thrift
Supervision regulations on February 15, 2006). Mr. Thompson did not receive a grant of stock
options on February 15, 2006. The options granted to Mr. Sidhu in 2005 and the options granted
to Messrs. Sidhu, Campanelli and Thompson in 2004, as part of long-term incentive compensation
are not exercisable unless and until the price of a share of Sovereign common stock trades at
or above $30 per share for at least twenty consecutive trading days. In addition, the options
are not exercisable unless and until, at the end of the fiscal quarter coincident with or
immediately preceding the later of the attainment of the aforementioned price requirement or
five years having elapsed from the date of grant, Sovereign Bank is well capitalized under
regulations of the Office of Thrift Supervision in effect as of the
date of grant. The options granted to Mr. McCollom in 2005 and
2004 vest after five years has elapsed from the date of grant.(5)
    
    Amounts appearing in this column include Sovereigns matching contributions on behalf of
each named person to the 401(k) component of the Sovereign Retirement Plan for 2005, 2004 and
2003 and also includes the value of 243 and 254 shares of Sovereign common stock allocated to
each of the accounts of Messrs. Sidhu, Campanelli, Lynch, McCollom and Thompson under the terms
of the ESOP component of the Sovereign Retirement Plan for 2005 and 2004, respectively. This
amount also includes the value of 280 shares of Sovereign common stock allocated to each of the
accounts of Messrs. Sidhu, Campanelli, McCollom and Thompson under the terms of the ESOP
component of the Sovereign Retirement Plan for 2003.(6)
    
    Sovereign provides, subject to certain limitations,  the named executive officers with the following perquisites:
 
    
    reimbursement for financial counseling and tax consultation;
 40




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##### Table of Contents




    
    use of Sovereign-provided aircraft for business purposes, and with the approval of
the CEO, limited personal use;
    
    security services which are required to safeguard the named
executive officers;
    
    use of Sovereign-provided vehicles;
    
    use of Sovereign-maintained memberships at several clubs and professional
organizations, and reimbursement for costs associated with business use of other clubs
or facilities; and
    
    an annual physical examination.
 The aggregate value of these perquisites to each named executive officer were less than $50,000
in 2005. This determination was made in accordance with Internal Revenue Service regulations based on the amount
of taxable income required to be included in the
named executives gross income.(7)
    
    The amounts in the Summary Compensation Table do not include amounts that may have been
earned or accrued for the benefit of a named executive officer under one or more of Sovereigns long-term incentive
programs, including deferred compensation programs and qualified and nonqualified benefit
programs described beginning on page 56.(8)
    
    Mr. Campanelli was named President and Chief Executive Officer of the Sovereign Bank New
England Division effective January 1, 2005. Mr. Campanelli has served as President and Chief
Operating Officer of the Sovereign Bank New England Division since January 2000 and a Vice Chairman
of Sovereign since September 2002.(9)
    
    Mr. Lynch has served as Chairman and Chief Executive Officer of the Sovereign Bank
Mid-Atlantic Division since September 2002, and a Vice Chairman of Sovereign since February
2006. Before joining Sovereign Bank in September 2002, he served as Chairman
 41




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##### Table of Contents



and CEO, Fleet
Bank, PA from March 2001 to September 2002, Chairman and CEO of Summit Bank, PA from August
1999 to March 2001, Senior Executive Vice President of Summit Bancorp from August 1999 to March
2001, and Chairman, President and CEO of Prime Bancorp and Prime Bank from January 1996 to
August 1999.(10)
    
    Mr. McCollom is Sovereigns Chief Financial Officer and Executive Vice President. Mr.
McCollom succeeded James D. Hogan, who elected to retire effective May 13, 2005. Prior to
that, Mr. McCollom served as Chief Accounting Officer of Sovereign and Sovereign Bank.(11)
    
    Mr. Thompson became a Vice Chairman and Chief Administrative Officer of Sovereign in
September 2002. Mr. Thompson has served as Chief Administrative Officer of Sovereign Bank
since April 2006, and as Chief Operating Officer of Sovereign Bank since 1997. He has been
employed by Sovereign in various capacities since 1987.
  
 OPTION GRANTS IN LAST FISCAL YEAR
 Individual GrantsNumber of
    
    Percent ofSecurities
    
    Total Options
    
    
    
    
    
    
    
    
    
    Potential Realizable ValueUnderlying
    
    Granted to
    
    
    
    
    
    
    
    
    
    at Assumed Annual RatesOptions
    
    Employees in
    
    Exercise or
    
    
    
    
    
    of Price Appreciation ForGranted
    
    Fiscal Year
    
    Base Price
    
    Expiration
    
    Option Term (5)Name
    
    (#)(1)
    
    (2)
    
    ($/sh)(3)(4)
    
    Date
    
    5% ($)
    
    10% ($)Jay S. Sidhu
    
    
    46,911
    
    
    
    6.3
    %
    
    
    23.44
    
    
    
    03/16/2015
    
    
    
    54,980
    
    
    
    109,959Joseph P. Campanelli
    
    
    0
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    James J. Lynch
    
    
    0
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Mark R. McCollom
    
    
    18,018
    
    
    
    2.4
    %
    
    
    23.44
    
    
    
    03/16/2015
    
    
    
    21,117
    
    
    
    42,234Lawrence M. Thompson, Jr.
    
    
    0
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
 
 (1)
    
    Terms of these nonqualified stock options are for a period of ten years and one month
from the date the option is granted and were granted under the Sovereign Bancorp, Inc. 2001
Stock Incentive Plan (the 2001 Plan). 42




---



##### Table of Contents



(2)
    
    Based on 745,368 options granted to Sovereign team members in 2005.(3)
    
    The options granted to Mr. Sidhu in 2005 vest after five years have elapsed from the date
of the award if, and only if, the price of Sovereign common stock closes at or above $30 per
share for twenty consecutive trading days and Sovereign Bank is well capitalized (as that
term is defined under applicable Office of Thrift Supervision Regulations on February 16,
2005). The options granted to Mr. McCollom in 2005 vest after five years have elapsed from the
date of award. Options are not exercisable following an optionees voluntary termination of
employment other than by reason of retirement or disability.(4)
    
    Under the terms of the 2001 Plan, the exercise price per share must equal the fair market
value on the date the option is granted. The exercise price may be paid in cash, in shares of
Sovereign common stock valued at fair market value on the date of exercise or pursuant to a
cashless exercise procedure under which the optionee provides irrevocable instructions to a
brokerage firm to sell the purchased shares and to remit to Sovereign, out of the sale
proceeds, an amount equal to the exercise price plus all applicable withholding taxes.(5)
    
    The dollar amounts set forth under these columns are the result of calculations made at the
five percent and ten percent appreciation rates set forth in SEC regulations and are not
intended to indicate future price appreciation, if any, of Sovereign common stock.
 43




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##### Table of Contents



AGGREGATED
OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
 Shares
    
    
    
    
    
    Number of SecuritiesAcquired
    
    
    
    
    
    Underlying Unexercised
    
    Value of Unexercised In-the-on
    
    Value
    
    Options as of
    
    Money Options as ofExercise
    
    Realized
    
    December 31, 2005 (#)
    
    December 31, 2005 ($)Name
    
    (#)
    
    ($)
    
    Exercisable/Unexercisable
    
    Exercisable/Unexercisable(1)Jay S. Sidhu
    
    
    
    
    
    
    
    
    
    
    1,206,348/265,711
    
    
    $
    13,176,302/$1,278,000Joseph P. Campanelli
    
    
    
    
    
    
    
    
    
    
    353,500/73,358
    
    
    $
    4,168,185/$426,000James J. Lynch
    
    
    
    
    
    
    
    
    
    
    60,000/50,000
    
    
    $
    493,200/$426,000Mark R. McCollom
    
    
    
    
    
    
    
    
    
    
    153,346/49,695
    
    
    $
    1,809,259/$209,156Lawrence M. Thompson, Jr.
    
    
    6,400
    
    
    $
    105,728
    
    
    
    541,705/75,000
    
    
    $
    5,816,486/$639,000
 
 (1)
    
    Determined based on the $21.62 closing price of Sovereign common stock on December 31,
2005. 
 Equity
Compensation Plan Information  Shares Outstanding and Available
for Grant or Award
  Number ofNumber of
    
    
    
    
    
    securitiessecurities to be
    
    
    
    
    
    remainingissued upon
    
    Weighted-average
    
    available for futureexercise of
    
    exercise price of
    
    issuance underoutstanding
    
    outstanding
    
    plans (excludingoptions, warrants
    
    options, warrants
    
    securities reflectedPlan Category
    
    and rights (1)
    
    and rights ($)(1)
    
    in the first column)Equity compensation plans approved by shareholders
    
    
    10,570,224
    (2)(3)
    
    
    12.92
    
    
    
    18,729,294
    (4)(5)Equity compensation plans not approved by shareholders
    
    
    35,000
    (6)
    
    
    8.40
    
    
    
    0Total
    
    
    10,605,224
    
    
    
    12.91
    
    
    
    18,729,294
 
 (1)
    
    The information relates exclusively to shares issuable pursuant to the exercise of
options as of December 31, 2005; no warrants or rights were granted under any Sovereign equity
compensation plan. 44




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(2)
    
    Consists of shares issuable pursuant to the exercise of options under the following
shareholder-approved plans: the Sovereign Bancorp, Inc. 2004 Broad-Based Stock Incentive Plan
(the 2004 Plan), the 2001 Plan and the Sovereign Bancorp, Inc. 1996 Stock Option Plan (the
1996 Plan); and the following shareholder-approved plans that have been discontinued: the
Sovereign Bancorp, Inc. 1997 Non-Employee Directors Stock Option Plan, the Sovereign Bancorp,
Inc. 1993 Stock Option Plan, and the Sovereign Bancorp, Inc. 1986 Stock Option Plan.(3)
    
    Excludes shares issuable under the Sovereign Bancorp, Inc. Employee Stock Purchase Plan
(the Purchase Plan), under which 3,000,000 shares were initially reserved to be issued,
subject to automatic increase by a number of shares equal to one percent of Sovereigns total
outstanding shares each year to a maximum of 20,000,000 shares.(4)
    
    Includes 2,605,920 and 91,382 shares available for future issuance under the Purchase Plan
and the Non-Employee Director Compensation Plan (which expired, by its terms, on April 18,
2006), respectively. The number of shares available for issuance under the Purchase Plan
reflects the number of shares remaining for issuance on December 31, 2005. Also includes
4,952,308 and 272,945 shares that were issuable as restricted stock under the 2004 Plan and the
2001 Plan, respectively, as of December 31, 2005. Also includes 9,000,000, 1,388,735 and
418,004 shares that were issuable pursuant to the exercise of options under the 2004 Plan, the
2001 Plan and the 1996 Plan, respectively, as of December 31, 2005.(5)
    
    By its terms, the number of shares issuable under the shareholder-approved Bonus Deferral
Program depends on the amount of any cash bonus deferred by a participant and the price per
share of Sovereign common stock on the date both the participants deferral and Sovereigns
matching contribution are deposited in the grantor trust. Therefore, the number of securities
remaining available for future issuance under the Bonus Deferral Program cannot be determined.(6)
    
    Consists of the remaining shares issuable pursuant to the exercise of the total 50,000
options granted to James D. Hogan on April 17, 2001, which was prior to his employment with
 45




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Sovereign. Mr. Hogan began employment with Sovereign approximately two weeks later, at which
time, when the Board approved the options, Sovereigns stock price had increased by $1.81 per
share. Since no shareholder-approved plans permit the issuance of shares pursuant to the
exercise of stock options whose exercise price is less than the fair market value as of the
date of grant, these options were granted outside of the plans approved by shareholders.
  
 REPORT OF THE COMPENSATION COMMITTEE
ON EXECUTIVE COMPENSATION
   46




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Compensation Philosophy
  
    
    continually improve Sovereigns performance and growth potential;
    
    enhance each executives individual contributions and achievements;
    
    recognize increases and differences in responsibility and job scope; and
    
    provide a competitive level of retirement income.
  
    
    simplicity in design for maximum understanding;
    
    clarity of purpose for maximum impact;
    
    balance to drive both corporate and business unit success;
    
    competitive to ensure effective executive attraction and retention; and
    
    performance-based to drive differentiation and equity in pay.
 47




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Components of Compensation
  48




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Base Salaries
  
 Short-Term Incentive Compensation
   49




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50




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51




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Long-Term Incentive Compensation
 Senior Officers Bonus Award Program.
 52




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53




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The 2004 Plan
  The 2001 Plan.
 54




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The 1996 Plan.
 The Bonus Deferral Program.
  55




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Other Plans.
  56




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57




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58




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Stock Ownership Requirement
  59




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EMPLOYMENT AGREEMENTS
 Jay S. Sidhu.
   60




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61




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Joseph P. Campanelli.
   62




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James J. Lynch
   63




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64




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Mark R. McCollom
   65




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Lawrence M. Thompson, Jr.
 66




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67




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ADDITIONAL INFORMATION REGARDING DIRECTORS AND OFFICERS
 
 Indemnification
    68




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Code of Ethics
 www.sovereignbank.com
 
 Loans to Directors and Executive Officers
  69




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1
 
 1
    
    Regulation O deals with loans by federally regulated
banks to Insiders. For
purposes of Regulation O, an insider (Insider)
means an executive officer, director or 10% controlling shareholder of the
applicable bank or bank holding company, or an entity controlled by such
executive officer, director or controlling shareholder.Regulation O prohibits Sovereign Bank from
making loans to an Insider unless the loan (i) is made on substantially the
same terms (including interest rates and collateral) as, and following credit
underwriting procedures that are not less stringent than, those prevailing at
the time for comparable transactions by Sovereign Bank with other persons who
are not subject to Regulation O and who are not employed by Sovereign Bank; and
(ii) does not involve more than the normal risk of repayment or present other
unfavorable features. Regulation O does not prohibit Sovereign Bank from
making loans to Insiders pursuant to a benefit or compensation program (i) that
is widely available to employees of Sovereign Bank and, in the case of
extensions of credit to an Insider of its affiliates, is widely available to
employees of the affiliates at which that person is an Insider; and (ii) that
does not give preference to any Insider of Sovereign Bank over other employees
of Sovereign Bank and, in the case of extension of credit to an Insider of its
affiliates, does not give preference to any Insider of its affiliates over
other employees of the affiliates at which that person is an
Insider.The Bank is examined
periodically by the Office of Thrift Supervision for compliance with Regulation
O and internal controls exist within Sovereign Bank to ensure that compliance
with Regulation O is maintained on an ongoing basis after such loans are made. 70




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71




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CORPORATE STOCK PERFORMANCE GRAPHS
   72




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*
 
 Period EndedIndex
    
    12/31/95
    
    12/31/96
    
    12/31/97
    
    12/31/98
    
    12/31/99
    
    12/31/00
    
    12/31/01
    
    12/31/02
    
    12/31/03
    
    12/31/04
    
    12/31/05Sovereign Bancorp, Inc.
    
    $
    100.00
    
    
    $
    136.11
    
    
    $
    258.22
    
    
    $
    212.80
    
    
    $
    111.30
    
    
    $
    121.33
    
    
    $
    182.78
    
    
    $
    209.81
    
    
    $
    354.67
    
    
    $
    336.75
    
    
    $
    322.86S&P 500
    
    
    100.00
    
    
    
    120.26
    
    
    
    157.56
    
    
    
    199.57
    
    
    
    238.54
    
    
    
    214.36
    
    
    
    186.40
    
    
    
    142.84
    
    
    
    180.53
    
    
    
    196.76
    
    
    
    202.67S&P Bank Index
    
    
    100.00
    
    
    
    136.67
    
    
    
    193.86
    
    
    
    201.04
    
    
    
    168.86
    
    
    
    194.66
    
    
    
    189.15
    
    
    
    181.80
    
    
    
    223.17
    
    
    
    247.44
    
    
    
    235.67
 
 *
    
    Source: SNL Financial L.C. 73




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*
 
 Period EndedIndex
    
    12/31/00
    
    12/31/01
    
    12/31/02
    
    12/31/03
    
    12/31/04
    
    12/31/05Sovereign Bancorp, Inc.
    
    $
    100.00
    
    
    $
    150.65
    
    
    $
    172.92
    
    
    $
    292.31
    
    
    $
    277.54
    
    
    $
    266.09S&P500
    
    
    100.00
    
    
    
    86.96
    
    
    
    66.64
    
    
    
    84.22
    
    
    
    91.79
    
    
    
    94.55S&P Bank Index
    
    
    100.00
    
    
    
    97.17
    
    
    
    93.39
    
    
    
    114.64
    
    
    
    127.11
    
    
    
    121.07
 74




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*
 
 Period EndedIndex
    
    12/31/02
    
    12/31/03
    
    12/31/04
    
    12/31/05Sovereign Bancorp, Inc.
    
    $
    100.00
    
    
    $
    169.04
    
    
    $
    160.50
    
    
    $
    153.88S&P500
    
    
    100.00
    
    
    
    126.38
    
    
    
    137.75
    
    
    
    141.88S&P Bank Index
    
    
    100.00
    
    
    
    122.76
    
    
    
    136.11
    
    
    
    129.63
 
 *
    
    Source: SNL Financial L.C. 75




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PRINCIPAL ACCOUNTANT FEES AND SERVICES
 Fees of Independent Auditors
  December 31, 2005Audit Fees
    
    $
    4,408,687Audit-Related Fees
    
    
    489,800Tax Fees
    
    
    216,169All Other Fees
    
    
    Total Fees
    
    $
    5,114,656
    76




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December 31, 2004Audit Fees
    
    $
    3,472,527Audit-Related Fees
    
    
    442,900Tax Fees
    
    
    615,617All Other Fees
    
    
    15,000Total Fees
    
    $
    4,546,044
       77




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Audit Committee Pre-Approval of Audit and Permissible Non-Audit Services by Independent Auditors
  78




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SIGNATURES
  SOVEREIGN BANCORP, INC.By
    
    /s/ Jay S. SidhuJay S. SidhuPresident and Chief Executive Officer
 
 79




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Appendix A
 Sovereign Bancorp, Inc.
 Categorical Standards for Independence
   (i)
    
    any loan made by Sovereign or Sovereign Bank in accordance with Regulation O1;(ii)
    
    any deposit, savings, checking, cash management, trust, or similar account or any other
fee-based service which a non-management director (or an immediate family member), or any
organization or entity of which the non-management director (or an immediate family
 
 1
    
    For a loan to be in compliance with
Regulation O, the loan (i) must be made in the ordinary course of business,
(ii) must be made on substantially the same terms, including interest rates and
collateral, as those prevailing at the time for comparable transactions by
Sovereign Bank with non affiliated parties, except as permitted by applicable
federal banking law, and (iii) must not involve more than the normal risk of
repayment or present other unfavorable features. Compliance with Regulation O
is monitored by the Office of Thrift Supervision, Sovereign Banks
primary federal regulator, as well as by Sovereign Bank staff. A-1




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member) is a director, executive officer, partner, or controlling shareholder2,
maintains with or receives from Sovereign Bank in accordance with Sovereign Banks policies and
on the same or similar terms as those which are available to other similar customers of
Sovereign Bank;(iii)
    
    a non-management director who receives (or whose immediate family member receives) less
than $50,000 during any twelve month period in the last three years in direct compensation from
Sovereign or any Sovereign affiliate, excluding the director and committee fees and pension or
other forms of deferred compensation for prior service (provided such compensation is not
contingent in any way on continued service);(iv)
    
    a non-management director (or an immediate family member) is a director, executive officer,
controlling shareholder2, partner, member or employee of a private or public
for-profit entity which has made payments to, or received payments from, Sovereign or any
Sovereign affiliate for property or services in an amount which at any time during the current
or preceding three fiscal years does not exceed the greater of $1 million or two percent of the
other entitys gross consolidated revenues;(v)
    
    if a non-management director (or an immediate family member) is a director, executive
officer, controlling shareholder2, partner, member or employee of a private or
public for-profit entity (excluding any entity covered in paragraph (vi) below) which is or was
indebted to Sovereign Bank and at any time during the current or preceding three fiscal years
(a) the total amount of indebtedness of such other entity to Sovereign Bank does not exceed one
percent of the total consolidated assets of Sovereign, (b) the total amount of indebtedness of
such other entity to Sovereign Bank does not exceed five percent of the total consolidated
assets of such other entity, and (c) the aggregate amount of interest and fees paid to
Sovereign and any of its affiliates by such other entity does not exceed the greater of $1
million or two percent of the consolidated gross revenues of such other entity;
 
 2
    
    A controlling shareholder, for
the purposes of these categorical standards, means a shareholder holding 10% or
more of the voting power in any for-profit entity. A-2




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(vi)
    
    if a charitable, educational or governmental entity which is or was indebted to Sovereign
Bank and either:
   (vii)
    
    if a non-management director (or an immediate family member) is a director, trustee, or
other fiduciary of a charitable, educational or governmental entity, and Sovereigns and its
affiliates aggregate discretionary contributions to the entity at any time during the current
or preceding three fiscal years does not exceed the greater of $1 million or two percent of the
total consolidated gross revenues of that entity (Sovereigns automatic matching of charitable
contributions will not be included in the amount of charitable contributions for this purpose).
 A-3




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EXHIBIT INDEX
     E-1