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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-K
 þ
    
    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934,
 for the fiscal year ended December 31, 2007, 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)
  
  Securities registered pursuant to Section 12(b) of the Act:
 Title
    
    Name of Exchange on Which RegisteredCommon stock, no par value
    
    NYSEDepository Shares for Series C non-cumulative preferred stock
    
    NYSE7.75% Capital Securities (Sovereign Capital Trust V)
    
    NYSE8.50% Cumulative Trust Preferred Securities (Seacoast Capital Trust I)
    
    NASDAQ
 Securities registered pursuant to Section 12(g) of the Act:
  þ o
 o þ
 þ o
 o
  þ o o o
 o þ




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##### 



Form 10-K Cross Reference Index
 PageForward-Looking Statements
    
    
    3PART IItem 1   Business
    
    
    4-7Item 1A   Risk Factors
    
    
    8-9Item 1B   Unresolved Staff Comments
    
    
    9Item 2   Properties
    
    
    9Item 3   Legal Proceedings
    
    
    10Item 4   Submission of Matters to a Vote of Security Holders
    
    
    10Item 4A   Executive Officers of the Registrant
    
    
    10PART IIItem 5   Market for the Registrants Common Equity, Related Stockholder Matters and Issuer Purchases
of Equity Securities
    
    
    11Item 6   Selected Financial Data
    
    
    12Item 7   Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    13-52Item 7A   Quantitative and Qualitative Disclosures About Market Risk
    
    
    52Item 8   Financial Statements and Supplementary Data
    
    
    52-110Item 9   Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
    
    
    111Item 9A   Controls and Procedures
    
    
    111Item 9B   Other Information
    
    
    111PART IIIItem 10   Directors, Executive Officers and Corporate Governance
    
    
    111Item 11   Executive Compensation
    
    
    111Item 12   Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
    
    
    111-115Item 13   Certain Relationships and Related Transactions, and Director Independence
    
    
    115Item 14   Principal Accounting Fees and Services
    
    
    116PART IVItem 15   Exhibits and Financial Statement Schedules
    
    
    116-119Signatures
    
    
    120-121SUBSIDIARIES OF REGISTRANTCONSENT OF ERNST & YOUNG LLPCEO CERTIFICATION PURSUANT TO RULE 13A-14(A) AND RULE 15D-14(A)CFO CERTIFICATION PURSUANT TO RULE 13A-14(A) AND RULE 15D-14(A)CEO CERTIFICATION PURSUANT SECTION 1350CFO CERTIFICATION PURSUANT SECTION 1350
  2




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Forward-Looking Statements
   
    
    the strength of the United States economy in general and the strength of the regional and local economies in which Sovereign conducts operations;
    
    the effects of, and changes in, trade, monetary and fiscal policies and laws, including interest rate policies of the Board of Governors of the
Federal Reserve System;
    
    Inflation, interest rate, market and monetary fluctuations;
    
    adverse changes in the securities markets, including those related to the financial condition of significant issuers in our investment portfolio;
    
    revenue enhancement initiatives may not be successful in the marketplace or may result in unintended costs;
    
    changing market conditions may force us to alter the implementation or continuation of cost savings or revenue enhancement strategies;
    
    Sovereigns 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 vendors to convert and maintain Sovereigns data 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
and policies 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 in the United States;
    
    technological changes;
    
    competitors of Sovereign may have greater financial resources and develop products and technology that
enable those competitors to compete more successfully than Sovereign;
    
    changes in consumer spending and savings habits;
    
    acts of terrorism or domestic or foreign military conflicts; and acts of God, including natural disasters;
    
    regulatory or judicial proceedings;
    
    changes in asset quality;
    
    the outcome of ongoing tax audits by federal, state and local income tax authorities may require
additional taxes be paid by Sovereign as compared to what has been accrued or paid as of period end.
    
    Sovereigns success in managing the risks involved in the foregoing.
   3




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PART I
 
 Item 1  Business
 General
    Business Strategy
  Subsidiaries
  Employees
  Competition
  4




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Environmental Laws
  Supervision and Regulation
 General.
   Holding Company Regulation.
   Control of Sovereign.
   Regulatory Capital Requirements.
 5




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Standards for Safety and Soundness.
 Insurance of Accounts and Regulation by the FDIC.
    Federal Restrictions on Transactions with Affiliates and Insiders.
 Restrictions on Subsidiary Savings Institution Capital Distributions.
 Qualified Thrift Lender.
 6




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Other Loan Limitations.
   Federal Reserve Regulation.
  Federal Home Loan Bank System.
 Community Reinvestment Act.
 Other Legislation.
  Corporate Information. www.sec.gov
 7




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##### Table of Contents



Item 1A  Risk Factors
  
    An Economic Downturn May Lead to a Deterioration in Our Asset Quality and Adversely Affect Our Earnings and Cash Flow.
  
    The Preparation of Sovereigns Financial Statements Requires the Use of Estimates That May Vary From Actual Results.
  
    The Preparation of Sovereigns Tax Returns Requires the Use of
Estimates & Interpretations of Complex Tax Laws and Regulations and
Are Subject to Review By Taxing Authorities.
  
    Changing Interest Rates May Adversely Affect Our Profits.
  
    We Experience Intense Competition for Loans and Deposits.
  
    We Are Subject to Substantial Regulation Which Could Adversely Affect Our Business and Operations.
    8




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    Changes in Accounting Standards Could Impact Reported Earnings.
      We Rely on Third Parties for Important Products and Services.
      Our Framework for Managing Risks May Not be Effective in Mitigating Risk and Loss to Our Company.
      Our Disclosure Controls and Procedures May Not Prevent or Detect All Errors or Acts of Fraud.
   
 Item 1B  Unresolved Staff Comments
  
 Item 2  Properties
           9




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Item 3  Legal Proceedings
   
 Item 4  Submission of Matters to a Vote of Security Holders
  
 Item 4A  Executive Officers of the Registrant
         10




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PART II
 
 Item 5  Market for the Registrants Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities
     Average
    
    Total Number of
    
    Maximum Number ofTotal
    
    Price
    
    Shares Purchased as
    
    Shares that may beNumber of
    
    Paid
    
    Part of Publicly
    
    Purchased UnderShares
    
    Per
    
    Announced Plans or
    
    the Plans orPeriod
    
    Purchased
    
    Share
    
    Programs (1)
    
    Programs (1)10/1/07 through 10/31/07
    
    
    390
    
    
    $
    18.48
    
    
    Not Applicable
    
    
    19,500,00011/1/07 through 11/30/07
    
    
    22
    
    
    $
    14.53
    
    
    Not Applicable
    
    
    19,500,00012/1/07 through 12/31/07
    
    
    1,545
    
    
    $
    12.28
    
    
    Not Applicable
    
    
    19,500,000
 
 (1)
    
    Sovereign has three stock repurchase programs in effect that would allow the Company to
repurchase up to 40.5 million shares of common stock as of December 31, 2007. Twenty one million
shares have been purchased under these repurchase programs as of December 31, 2007. All of
Sovereigns stock repurchase programs have no prescribed time limit in which to fill the authorized
repurchase amount.  11




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Item 6  Selected Financial Data
 SELECTED FINANCIAL DATAAT OR FOR THE YEAR ENDED DECEMBER 31,2007
    
    
    2006
    
    
    2005
    
    
    2004
    
    
    2003(Dollars in thousands, except per share data)Balance Sheet DataTotal assets
    
    $
    84,746,396
    
    
    $
    89,641,849
    
    
    $
    63,678,726
    
    
    $
    54,489,026
    
    
    $
    43,517,433Loans held for investment, net of allowance
    
    
    56,522,575
    
    
    
    54,505,645
    
    
    
    43,072,670
    
    
    
    36,102,598
    
    
    
    25,695,715Loans held for sale(1)
    
    
    547,760
    
    
    
    7,611,921
    
    
    
    311,578
    
    
    
    137,478
    
    
    
    137,154Investment securities
    
    
    15,142,392
    
    
    
    14,877,640
    
    
    
    12,557,328
    
    
    
    11,546,877
    
    
    
    12,618,971Deposits and other customer accounts
    
    
    49,915,905
    
    
    
    52,384,554
    
    
    
    37,977,706
    
    
    
    32,555,518
    
    
    
    27,344,008Borrowings and other debt obligations
    
    
    26,126,082
    
    
    
    26,849,717
    
    
    
    18,720,897
    
    
    
    16,140,128
    
    
    
    12,197,603Stockholders equity
    
    $
    6,992,325
    
    
    $
    8,644,399
    
    
    $
    5,810,699
    
    
    $
    4,988,372
    
    
    $
    3,260,406Summary Statement of OperationsTotal interest income
    
    $
    4,656,256
    
    
    $
    4,326,404
    
    
    $
    2,962,587
    
    
    $
    2,255,917
    
    
    $
    1,951,888Total interest expense
    
    
    2,792,234
    
    
    
    2,504,856
    
    
    
    1,330,498
    
    
    
    819,327
    
    
    
    724,123Net interest income
    
    
    1,864,022
    
    
    
    1,821,548
    
    
    
    1,632,089
    
    
    
    1,436,590
    
    
    
    1,227,765Provision for credit losses(1)
    
    
    407,692
    
    
    
    484,461
    
    
    
    90,000
    
    
    
    127,000
    
    
    
    161,957Net interest income after provision for credit losses(5)
    
    
    1,456,330
    
    
    
    1,337,087
    
    
    
    1,542,089
    
    
    
    1,309,590
    
    
    
    1,065,808Total non-interest income(1)
    
    
    354,396
    
    
    
    285,574
    
    
    
    602,664
    
    
    
    450,525
    
    
    
    499,439General and administrative expenses
    
    
    1,345,838
    
    
    
    1,289,989
    
    
    
    1,089,204
    
    
    
    942,661
    
    
    
    852,364Other expenses(1) (2)
    
    
    1,874,600
    
    
    
    313,541
    
    
    
    163,429
    
    
    
    236,232
    
    
    
    157,984(Loss)/Income before income taxes
    
    
    (1,409,712
    )
    
    
    19,131
    
    
    
    892,120
    
    
    
    581,222
    
    
    
    554,899Income tax provision (benefit)
    
    
    (60,450
    )
    
    
    (117,780
    )
    
    
    215,960
    
    
    
    127,670
    
    
    
    153,048Net (Loss)/Income(3)
    
    $
    (1,349,262
    )
    
    $
    136,911
    
    
    $
    676,160
    
    
    $
    453,552
    
    
    $
    401,851Share DataCommon shares outstanding at end of period (in thousands)(3)
    
    
    481,404
    
    
    
    473,755
    
    
    
    358,018
    
    
    
    345,775
    
    
    
    293,111Basic (loss)/earnings per share(3)
    
    $
    (2.85
    )
    
    $
    0.30
    
    
    $
    1.77
    
    
    $
    1.34
    
    
    $
    1.38Diluted (loss)/earnings per share(3)
    
    $
    (2.85
    )
    
    $
    0.30
    
    
    $
    1.69
    
    
    $
    1.29
    
    
    $
    1.32Common share price at end of period
    
    $
    11.40
    
    
    $
    25.39
    
    
    $
    20.59
    
    
    $
    21.48
    
    
    $
    22.62Dividends declared per common share
    
    $
    .320
    
    
    $
    .300
    
    
    $
    .170
    
    
    $
    .115
    
    
    $
    .100Selected Financial RatiosBook value per common share(4)
    
    $
    14.12
    
    
    $
    17.83
    
    
    $
    15.46
    
    
    $
    13.74
    
    
    $
    10.59Common dividend payout ratio(5)
    
    
    N/A
    
    
    
    92.11
    %
    
    
    9.02
    %
    
    
    8.21
    %
    
    
    6.99
    %Return on average assets(6)
    
    
    (1.62)
    %
    
    
    0.17
    %
    
    
    1.11
    %
    
    
    .90
    %
    
    
    .97
    %Return on average equity(7)
    
    
    (15.40)
    %
    
    
    1.82
    %
    
    
    11.92
    %
    
    
    10.74
    %
    
    
    13.41
    %Average equity to average assets(8)
    
    
    10.52
    %
    
    
    9.46
    %
    
    
    9.34
    %
    
    
    8.36
    %
    
    
    7.24
    %
 
 (1)
    
    Our provision for credit losses in 2007 was negatively impacted by the deterioration in the credit quality of our loan portfolios (particularly auto loans, commercial
loans and our remaining correspondent home equity portfolios) which was impacted by the weakening of the United States economy as well as declines in residential real
estate prices. See additional discussion in Managements Discussion and Analysis. Non-interest income for 2007 includes a pretax other-than-temporary impairment
charge of $180.5 million on FNMA and FHLMC preferred stock. Non-interest income also included charges of $46.9 million within capital markets revenue related to
losses on repurchase agreements and other financing agreements that Sovereign provided to a number of mortgage companies who declared bankruptcy and/or defaulted on
their agreements.
In connection with a strategic decision made in the fourth quarter of 2006, management decided to take several steps to improve the profitability and capital position
of the Company. The Company decided to sell certain loans including $2.9 billion of low yielding residential real estate and $4.3 billion of correspondent home equity
loans whose credit quality had deteriorated significantly in 2006. The proceeds from these sales were utilized to reduce FHLB borrowings and brokered certificate of
deposits. In 2006, we recorded charges of $296 million through the provision for credit losses related to the correspondent home equity loan sale and recorded a $28.2
million reduction in mortgage banking revenues as a result of re-classifying these loans to held for sale at December 31, 2006 and carrying the loans at their market
value which was less than cost. In the first quarter of 2007, Sovereign recorded and additional charge of $119.9 million on our correspondent home equity loan
portfolio. See additional discussion in Managements Discussion and Analysis. Also in the fourth quarter of 2006, several members of executive management resigned
from the Company and approximately 360 employees were notified that their positions were being eliminated. In 2006, Sovereign recorded severance charges of $63.9
million related to these events which was recorded in other expenses. Finally, Sovereign sold approximately $1.5 billion of low yielding investment securities in
connection with the restructuring plan. The proceeds from this sale were reinvested in higher yielding securities as they were needed for collateral on certain of our
debt and deposit obligations. However, in 2006, we recorded a pre-tax loss of $43 million in connection with this sale which was recorded in non-interest income.
Sovereign also recorded investment securities charges of $305.8 million during the second quarter of 2006 which was recorded in non-interest income. See Managements
Discussion and Analysis and Footnotes 6, 7 and 28 to the Consolidated Financial Statements for further discussion.(2)
    
    2007 results include a $1.58 billion goodwill impairment charge related to the Companys Metro New York and Shared Services Consumer reporting units. See Managements
Discussion and Analysis and Footnote 4 to the Consolidated Financial Statements for further discussion.(3)
    
    Net income includes after-tax goodwill and investment security impairment charges, merger-related charges, restructuring charges, debt extinguishment charges or other
charges of $1.9 billion ($3.92 per share) in 2007, $538 million ($1.24 per share) in 2006, $15 million ($0.04 per diluted share) in 2005, $98 million ($0.27 per
diluted share) in 2004 and $19 million ($0.06 per diluted share) in 2003.(4)
    
    Book value per share is calculated using stockholders equity divided by common shares outstanding at end of such period.(5)
    
    Common dividend payout ratio is calculated by dividing total common dividends paid by net income for the period. The ratio for 2007 is not applicable due to the net
loss recorded during this time period.(6)
    
    Return on average assets is calculated by dividing net income by the average balance of total assets for the year.(7)
    
    Return on average equity is calculated by dividing net income by the average balance of stockholders equity for the year.(8)
    
    Average equity to average assets is calculated by dividing the average balance of stockholders equity for the year by the average balance of total assets for the year. 12




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Managements Discussion and Analysis
 
 Item 7  Managements Discussion and Analysis of Financial Condition and Results of Operations (MD&A)
 EXECUTIVE SUMMARY
  Balance Sheet Restructuring and Expense Savings Initiatives
  1.
    
    Improve productivity and expense management2.
    
    Improve the capital position and quality of earnings3.
    
    Improve the customer experience
        13




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Market Conditions and Credit
         Goodwill Impairment
   14




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Profitability
   RECENT INDUSTRY CONSOLIDATION IN OUR GEOGRAPHIC FOOTPRINT
  CURRENT INTEREST RATE ENVIRONMENT
  CREDIT RISK ENVIRONMENT
  15




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RESULTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 2007 AND 2006
 YEAR ENDED DECEMBER 31,(Dollars in thousands, except per share data)
    
    2007
    
    2006Net interest income
    
    $
    1,864,022
    
    
    $
    1,821,548Provision for credit losses
    
    
    407,692
    
    
    
    484,461Total non-interest income
    
    
    354,396
    
    
    
    285,574General and administrative expenses
    
    
    1,345,838
    
    
    
    1,289,989Other expenses
    
    
    1,874,600
    
    
    
    313,541Net (loss)/income
    
    $
    (1,349,262
    )
    
    $
    136,911Basic (loss)/earnings per share
    
    $
    (2.85
    )
    
    $
    0.30Diluted (loss)/earnings per share
    
    $
    (2.85
    )
    
    $
    0.30
  
    
    Net interest income increased 2% during
2007 due to the full year impact of the
Independence acquisition as well as
organic balance sheet growth, which was
offset by the impact of our balance
sheet restructuring in the first
quarter of 2007.
    
    Included in non-interest income:
 (1)
    
    Net losses on investment securities of $176.4 million and
$312.0 million in 2007 and 2006, respectively. Our 2007 and
2006 results included other-than-temporary impairment charges
of $180.5 million and $67.5 million, respectively, on FNMA
and FHLMC preferred stock. Net losses on investment
securities in 2006 also included losses of $238.3 million on
the sale of investment securities in the second quarter of
2006 and a $43.0 million loss on the sale of $1.5 billion of
available for sale investments as part of the balance sheet
restructuring in the fourth quarter of 2006. See Note 6 for
additional details.(2)
    
    An increase in consumer and commercial fee income in 2007
of $43.1 million. The continued growth in fee income in
consumer and commercial banking is due to loan and deposit
growth as a result of the full year impact of the
Independence acquisition as well as strong growth in
commercial loans.(3)
    
    A decrease in capital markets revenues of $36.8 million
due to charges of $46.9 million related to customers who
defaulted on repurchase agreements and other financing
obligations during 2007.(4)
    
    A decrease in mortgage banking revenues in 2007 of
$92.0 million due to a $119.9 million lower of cost or market
adjustment related to the previously mentioned correspondent
home equity loan transactions in the first quarter of 2007.
In 2006, Sovereign also sold $2.9 billion of residential real
estate loans and recorded a lower of cost or market
adjustment of $28.2 million.
 
    
    Other expenses have increased due primarily to non-deductible
goodwill impairment charges of $943 million in our Metro New
York reporting unit and $634 million in our Shared Services
Consumer reporting unit. See Note 4 for additional details
on this charge. Sovereign also recorded restructuring and
ESOP termination charges of $102.1 million in 2007 compared
to $78.7 million in 2006. Additionally, merger-related
charges of $2.2 million were incurred in 2007 compared to
$42.4 million in 2006.
    
    The decrease in provision for credit
losses in 2007 is related to the
previously mentioned $296 million lower
of cost or market adjustment for the
correspondent home equity portfolio in
the fourth quarter of 2006. This
decline was partially offset by
incremental provision for credit losses
in 2007 for our indirect auto,
correspondent home equity loans and
commercial lending portfolios.
    
    Sovereign recorded an income tax benefit of $60.5 million in
2007 compared to a benefit of $117.8 million in 2006. Both
2007 and 2006 taxes were significantly impacted by the
aforementioned restructuring and other significant charges
which have magnified the impact of our favorable permanent
tax-free items. See a later section of the MD&A for further
discussion
    
    Increases in general and administrative
expenses were due primarily to the full
year impact of the Independence
acquisition which closed on June 1,
2006, partially offset by cost savings
from our expense reduction initiatives
that were implemented in 2007.
 17




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Net Interest Income.
     18




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Table 1: Net Interest Margin
 YEAR ENDED DECEMBER 31,2007
    
    
    2006
    
    
    2005Average
    
    
    
    
    
    
    Yield/
    
    
    Average
    
    
    
    
    
    
    Yield/
    
    
    Average
    
    
    
    
    
    
    Yield/Balance
    
    
    Interest
    
    
    Rate
    
    
    Balance
    
    
    Interest
    
    
    Rate
    
    
    Balance
    
    
    Interest
    
    
    RateInterest-earning assets:Interest-earning deposits
    
    $
    307,596
    
    
    $
    16,562
    
    
    
    5.38
    %
    
    $
    285,382
    
    
    $
    13,897
    
    
    
    4.87
    %
    
    $
    155,672
    
    
    $
    5,717
    
    
    
    3.67
    %Investment securities(1)Available for sale
    
    
    12,971,273
    
    
    
    804,025
    
    
    
    6.20
    
    
    
    11,217,296
    
    
    
    658,966
    
    
    
    5.87
    
    
    
    7,404,848
    
    
    
    385,158
    
    
    
    5.20Held to maturity
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,248,565
    
    
    
    125,886
    
    
    
    5.60
    
    
    
    4,062,700
    
    
    
    217,889
    
    
    
    5.36Other
    
    
    901,197
    
    
    
    51,645
    
    
    
    5.73
    
    
    
    849,040
    
    
    
    51,414
    
    
    
    6.06
    
    
    
    623,005
    
    
    
    18,058
    
    
    
    2.90Total investments
    
    
    14,180,066
    
    
    
    872,232
    
    
    
    6.15
    
    
    
    14,600,283
    
    
    
    850,163
    
    
    
    5.82
    
    
    
    12,246,225
    
    
    
    626,822
    
    
    
    5.12Loans:Commercial loan
    
    
    25,422,607
    
    
    
    1,823,144
    
    
    
    7.17
    
    
    
    20,833,022
    
    
    
    1,489,484
    
    
    
    7.15
    
    
    
    15,904,425
    
    
    
    983,461
    
    
    
    6.18Multifamily
    
    
    4,657,978
    
    
    
    296,126
    
    
    
    6.36
    
    
    
    3,612,737
    
    
    
    224,290
    
    
    
    6.21
    
    
    
    
    
    
    
    
    
    
    
    Consumer:Residential mortgage
    
    
    14,525,467
    
    
    
    825,685
    
    
    
    5.68
    
    
    
    15,770,676
    
    
    
    888,546
    
    
    
    5.63
    
    
    
    10,588,935
    
    
    
    568,831
    
    
    
    5.37Home equity loans and lines of
credit
    
    
    6,868,727
    
    
    
    469,760
    
    
    
    6.84
    
    
    
    10,119,375
    
    
    
    654,760
    
    
    
    6.47
    
    
    
    10,157,824
    
    
    
    567,548
    
    
    
    5.59Total consumer loans secured by
real estate
    
    
    21,394,194
    
    
    
    1,295,445
    
    
    
    6.06
    
    
    
    25,890,051
    
    
    
    1,543,306
    
    
    
    5.96
    
    
    
    20,746,759
    
    
    
    1,136,379
    
    
    
    5.48Auto loans
    
    
    6,187,487
    
    
    
    433,172
    
    
    
    7.00
    
    
    
    4,457,932
    
    
    
    266,806
    
    
    
    5.98
    
    
    
    4,356,121
    
    
    
    233,283
    
    
    
    5.36Other
    
    
    360,486
    
    
    
    31,248
    
    
    
    8.67
    
    
    
    452,029
    
    
    
    37,201
    
    
    
    8.23
    
    
    
    535,616
    
    
    
    40,468
    
    
    
    7.56Total Consumer
    
    
    27,942,167
    
    
    
    1,759,865
    
    
    
    6.30
    
    
    
    30,800,012
    
    
    
    1,847,313
    
    
    
    6.00
    
    
    
    25,638,496
    
    
    
    1,410,130
    
    
    
    5.50Total loans
    
    
    58,022,752
    
    
    
    3,879,135
    
    
    
    6.69
    
    
    
    55,245,771
    
    
    
    3,561,087
    
    
    
    6.45
    
    
    
    41,542,921
    
    
    
    2,393,591
    
    
    
    5.76Allowance for loan losses
    
    
    (533,263
    )
    
    
    
    
    
    
    
    
    
    
    (489,775
    )
    
    
    
    
    
    
    
    
    
    
    (420,879
    )
    
    
    
    
    
    
    Net loans(1)(2)
    
    
    57,489,489
    
    
    
    3,879,135
    
    
    
    6.75
    
    
    
    54,755,996
    
    
    
    3,561,087
    
    
    
    6.50
    
    
    
    41,122,042
    
    
    
    2,393,591
    
    
    
    5.82Total interest-earning assets
    
    
    71,669,555
    
    
    
    4,751,367
    
    
    
    6.63
    
    
    
    69,356,279
    
    
    
    4,411,250
    
    
    
    6.36
    
    
    
    53,368,267
    
    
    
    3,020,413
    
    
    
    5.66Non-interest-earning assets
    
    
    11,646,477
    
    
    
    
    
    
    
    
    
    
    
    10,139,116
    
    
    
    
    
    
    
    
    
    
    
    7,363,707
    
    
    
    
    
    
    
    Total assets
    
    $
    83,316,032
    
    
    $
    4,751,367
    
    
    
    5.70
    %
    
    $
    79,495,395
    
    
    $
    4,411,250
    
    
    
    5.55
    %
    
    $
    60,731,974
    
    
    $
    3,020,413
    
    
    
    4.97
    %Interest-bearing liabilities:Deposits:NOW accounts
    
    $
    5,682,868
    
    
    $
    61,599
    
    
    
    1.08
    %
    
    $
    5,580,571
    
    
    $
    50,991
    
    
    
    0.91
    %
    
    $
    5,224,350
    
    
    $
    30,896
    
    
    
    0.59
    %NOW accounts  government and
wholesale
    
    
    4,022,516
    
    
    
    203,411
    
    
    
    5.06
    
    
    
    4,293,111
    
    
    
    215,557
    
    
    
    5.02
    
    
    
    3,435,963
    
    
    
    120,045
    
    
    
    3.49Customer repurchase agreements
    
    
    2,545,304
    
    
    
    108,137
    
    
    
    4.25
    
    
    
    1,639,453
    
    
    
    74,470
    
    
    
    4.54
    
    
    
    960,092
    
    
    
    26,566
    
    
    
    2.77Savings accounts
    
    
    4,258,897
    
    
    
    27,839
    
    
    
    0.65
    
    
    
    4,286,355
    
    
    
    29,660
    
    
    
    0.69
    
    
    
    3,779,333
    
    
    
    25,347
    
    
    
    0.67Money market accounts
    
    
    9,902,914
    
    
    
    347,077
    
    
    
    3.50
    
    
    
    8,346,033
    
    
    
    225,167
    
    
    
    2.70
    
    
    
    7,900,301
    
    
    
    119,341
    
    
    
    1.51Money market accounts- wholesale
    
    
    2,443,111
    
    
    
    130,807
    
    
    
    5.35
    
    
    
    2,558,549
    
    
    
    137,802
    
    
    
    5.39
    
    
    
    344,105
    
    
    
    12,013
    
    
    
    3.49Certificates of deposits
    
    
    11,383,634
    
    
    
    531,994
    
    
    
    4.67
    
    
    
    9,870,673
    
    
    
    405,215
    
    
    
    4.11
    
    
    
    6,662,657
    
    
    
    176,136
    
    
    
    2.64Certificates of deposits  wholesale
    
    
    4,112,903
    
    
    
    216,451
    
    
    
    5.26
    
    
    
    4,590,768
    
    
    
    233,335
    
    
    
    5.08
    
    
    
    2,918,679
    
    
    
    114,246
    
    
    
    3.91Total deposits
    
    
    44,352,147
    
    
    
    1,627,315
    
    
    
    3.67
    
    
    
    41,165,513
    
    
    
    1,372,197
    
    
    
    3.33
    
    
    
    31,225,480
    
    
    
    624,590
    
    
    
    2.00Total borrowings and other debt
obligations
    
    
    22,247,100
    
    
    
    1,164,919
    
    
    
    5.24
    
    
    
    23,377,692
    
    
    
    1,132,659
    
    
    
    4.85
    
    
    
    17,707,167
    
    
    
    705,908
    
    
    
    3.99Total interest bearing liabilities
    
    
    66,599,247
    
    
    
    2,792,234
    
    
    
    4.19
    
    
    
    64,543,205
    
    
    
    2,504,856
    
    
    
    3.88
    
    
    
    48,932,647
    
    
    
    1,330,498
    
    
    
    2.72Non-interest-bearing DDA
    
    
    6,386,359
    
    
    
    
    
    
    
    
    
    
    
    6,020,184
    
    
    
    
    
    
    
    
    
    
    
    5,294,135
    
    
    
    
    
    
    
    Non-interest-bearing liabilities
    
    
    1,568,869
    
    
    
    
    
    
    
    
    
    
    
    1,412,368
    
    
    
    
    
    
    
    
    
    
    
    831,296
    
    
    
    
    
    
    
    Total liabilities
    
    
    74,554,475
    
    
    
    2,792,234
    
    
    
    3.75
    
    
    
    71,975,757
    
    
    
    2,504,856
    
    
    
    3.48
    
    
    
    55,058,078
    
    
    
    1,330,498
    
    
    
    2.42Stockholders equity
    
    
    8,761,557
    
    
    
    
    
    
    
    
    
    
    
    7,519,638
    
    
    
    
    
    
    
    
    
    
    
    5,673,896
    
    
    
    
    
    
    
    Total liabilities and stockholders
equity
    
    $
    83,316,032
    
    
    $
    2,792,234
    
    
    
    3.35
    %
    
    $
    79,495,395
    
    
    $
    2,504,856
    
    
    
    3.15
    %
    
    $
    60,731,974
    
    
    $
    1,330,498
    
    
    
    2.19
    %Net interest spread(3)
    
    
    
    
    
    
    
    
    
    
    2.44
    %
    
    
    
    
    
    
    
    
    
    
    2.48
    %
    
    
    
    
    
    
    
    
    
    
    2.94
    %Taxable equivalent interest
income/net interest margin
    
    
    
    
    
    
    1,959,133
    
    
    
    2.73
    %
    
    
    
    
    
    
    1,906,394
    
    
    
    2.75
    %
    
    
    
    
    
    
    1,689,915
    
    
    
    3.17
    %Tax equivalent basis adjustment
    
    
    
    
    
    
    (95,111
    )
    
    
    
    
    
    
    
    
    
    
    (84,846
    )
    
    
    
    
    
    
    
    
    
    
    (57,826
    )Net interest income
    
    
    
    
    
    $
    1,864,022
    
    
    
    
    
    
    
    
    
    
    $
    1,821,548
    
    
    
    
    
    
    
    
    
    
    $
    1,632,089Ratio of interest-earning assets to
interest-bearing liabilities
    
    
    
    
    
    
    
    
    
    
    1.08
    x
    
    
    
    
    
    
    
    
    
    
    1.07
    x
    
    
    
    
    
    
    
    
    
    
    1.09
    x
 
 (1)
    
    The average balance of our non-taxable investment securities for the year-ended December 31, 2007, 2006, and
2005 were $3.1 billion, $2.9 billion and $1.9 billion, respectively. Tax equivalent adjustments to interest
on investment securities available for sale for the years ended December 31, 2007, 2006 and 2005 were $80.5
million, $75.4 million and $51.3 million, respectively. Tax equivalent adjustments to loans for the years
ended December 31, 2007, 2006 and 2005, were $14.7 million, $9.5 million and $6.6 million, respectively. Tax
equivalent interest income is based upon an effective tax rate of 35%.(2)
    
    Amortization of premiums and discounts on purchased loans and amortization of deferred loan fees, net of
origination costs, of $14.1 million, $97.6 million and $136.3 million for the years ended December 31, 2007,
2006 and 2005, respectively, are included in interest income. Average loan balances include non-accrual loans
and loans held for sale.(3)
    
    Represents the difference between the yield on total earning assets and the cost of total funding liabilities. 19




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Table 2: Volume/Rate Analysis
 YEAR ENDED DECEMBER 31,2007 VS. 2006
    
    
    2006 VS. 2005INCREASE/(DECREASE)
    
    
    INCREASE/(DECREASE)Volume
    
    
    Rate
    
    
    Total
    
    
    Volume
    
    
    Rate
    
    
    TotalInterest-earning assets:Interest-earning deposits
    
    $
    1,130
    
    
    $
    1,535
    
    
    $
    2,665
    
    
    $
    5,879
    
    
    $
    2,301
    
    
    $
    8,180Investment securities available for sale
    
    
    107,239
    
    
    
    37,820
    
    
    
    145,059
    
    
    
    218,809
    
    
    
    54,999
    
    
    
    273,808Investment securities held to maturity
    
    
    (62,943
    )
    
    
    (62,943
    )
    
    
    (125,886
    )
    
    
    (101,182
    )
    
    
    9,179
    
    
    
    (92,003
    )Investment securities other
    
    
    3,068
    
    
    
    (2,837
    )
    
    
    231
    
    
    
    8,335
    
    
    
    25,021
    
    
    
    33,356Net loans(1)
    
    
    182,149
    
    
    
    135,899
    
    
    
    318,048
    
    
    
    862,362
    
    
    
    305,134
    
    
    
    1,167,496Total interest-earning assets
    
    
    
    
    
    
    
    
    
    
    340,117
    
    
    
    
    
    
    
    
    
    
    
    1,390,837Interest-bearing liabilities:Deposits
    
    
    110,871
    
    
    
    144,246
    
    
    
    255,117
    
    
    
    241,660
    
    
    
    505,948
    
    
    
    747,608Borrowings
    
    
    (56,435
    )
    
    
    88,696
    
    
    
    32,261
    
    
    
    255,166
    
    
    
    171,584
    
    
    
    426,750Total interest-bearing liabilities
    
    
    
    
    
    
    
    
    
    
    287,378
    
    
    
    
    
    
    
    
    
    
    
    1,174,358Net change in net interest income
    
    $
    176,207
    
    
    $
    (123,468
    )
    
    $
    52,739
    
    
    $
    497,377
    
    
    $
    (280,898
    )
    
    $
    216,479
 
 (1)
    
    Includes non-accrual loans and loans held for sale. Provision for Credit Losses.
    20




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Table 3: Reconciliation of the Allowance for Credit Losses
 2007
    
    
    2006
    
    
    2005
    
    
    2004
    
    
    2003Allowance for loan losses, beginning
of period
    
    $
    471,030
    
    
    $
    419,599
    
    
    $
    391,003
    
    
    $
    315,790
    
    
    $
    288,018Allowance acquired in acquisitions
    
    
    
    
    
    
    97,824
    
    
    
    28,778
    
    
    
    64,105
    
    
    
    Provision for loan losses (2)
    
    
    394,646
    
    
    
    487,418
    
    
    
    89,501
    
    
    
    121,391
    
    
    
    160,585Allowance released in connection
with loan sales or securitizations
    
    
    (12,409
    )
    
    
    (4,728
    )
    
    
    (8,010
    )
    
    
    
    
    
    
    Charge-offs:Commercial
    
    
    65,670
    
    
    
    56,916
    
    
    
    40,935
    
    
    
    77,499
    
    
    
    101,597Consumer secured by real estate
    
    
    26,809
    
    
    
    463,902
    
    
    
    24,125
    
    
    
    12,219
    
    
    
    16,685Consumer not secured by real estate
    
    
    126,385
    
    
    
    73,958
    
    
    
    71,906
    
    
    
    63,530
    
    
    
    47,106Total charge-offs (1)
    
    
    218,864
    
    
    
    594,776
    
    
    
    136,966
    
    
    
    153,248
    
    
    
    165,388Recoveries:Commercial
    
    
    15,187
    
    
    
    14,097
    
    
    
    13,100
    
    
    
    12,825
    
    
    
    7,531Consumer secured by real estate
    
    
    11,193
    
    
    
    9,933
    
    
    
    7,085
    
    
    
    5,395
    
    
    
    6,405Consumer not secured by real estate
    
    
    48,661
    
    
    
    41,663
    
    
    
    35,108
    
    
    
    24,745
    
    
    
    18,639Total recoveries
    
    
    75,041
    
    
    
    65,693
    
    
    
    55,293
    
    
    
    42,965
    
    
    
    32,575Charge-offs, net of recoveries
    
    
    143,823
    
    
    
    529,083
    
    
    
    81,673
    
    
    
    110,283
    
    
    
    132,813Allowance for loan losses, end of
period
    
    $
    709,444
    
    
    $
    471,030
    
    
    $
    419,599
    
    
    $
    391,003
    
    
    $
    315,790Reserve for unfunded lending
commitments, beginning of period
    
    
    15,255
    
    
    
    18,212
    
    
    
    17,713
    
    
    
    12,104
    
    
    
    10,732Provision for unfunded lending
commitments (2)
    
    
    13,046
    
    
    
    (2,957
    )
    
    
    499
    
    
    
    5,609
    
    
    
    1,372Reserve for unfunded lending
commitments, end of period (3)
    
    
    28,301
    
    
    
    15,255
    
    
    
    18,212
    
    
    
    17,713
    
    
    
    12,104Total Allowance for credit losses
    
    $
    737,745
    
    
    $
    486,285
    
    
    $
    437,811
    
    
    $
    408,716
    
    
    $
    327,894Net charge-offs to average loans (1)
    
    
    .25
    %
    
    
    .96
    %
    
    
    .20
    %
    
    
    .36
    %
    
    
    .55
    %
 
 (1)
    
    The 2006 consumer secured by real estate charge-offs included $389.6 million of
charge-offs or 71 basis points related to the lower of cost or market valuation adjustment
recorded for the correspondent home equity loans ($382.5 million) and purchased residential
mortgage loans ($7.1 million) that were classified as held for sale at December 31, 2006.(2)
    
    The provision for credit losses on the consolidated statement of operations consists of
the sum of the provision for loan losses and the provision for unfunded lending
commitments.(3)
    
    The reserve for unfunded commitments is classified in other liabilities on the
consolidated balance sheet.  21




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Non-interest Income.
    Twelve-months ended December 31,2007
    
    
    2006Impairments to mortgage servicing rights
    
    $
    (1,415
    )
    
    $
    (7,123
    )Mortgage servicing fees
    
    
    42,197
    
    
    
    30,799Amortization of mortgage servicing rights
    
    
    (36,806
    )
    
    
    (19,987
    )Net gains under SFAS 133
    
    
    51
    
    
    
    825Net gain recorded on commercial mortgage backed securitization
    
    
    4,475
    
    
    
    Gain on sales of mortgages
    
    
    18,295
    
    
    
    1,965Gain on sales of multifamily loans
    
    
    26,203
    
    
    
    17,760Loss related to correspondent home equity portfolio
    
    
    (120,792
    )
    
    
    Total
    
    $
    (67,792
    )
    
    $
    24,239
     December 31, 2007
    
    December 31, 2006
    
    December 31, 2005CPR speed
    
    
    14.70
    %
    
    
    14.23
    %
    
    
    12.42
    %Escrow credit spread
    
    
    5.12
    %
    
    
    4.85
    %
    
    
    4.16
    %
  22




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General and Administrative Expenses.
 Other Expenses.
 23




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Income Tax Benefit.
   24




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Line of Business Results.
      25




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26




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RESULTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 2006 AND 2005
 YEAR ENDED DECEMBER 31,(Dollars in thousands, except per share data)
    
    2006
    
    2005Net interest income
    
    $
    1,821,548
    
    
    $
    1,632,089Provision for credit losses
    
    
    484,461
    
    
    
    90,000Total non-interest income
    
    
    285,574
    
    
    
    602,664General and administrative expenses
    
    
    1,289,989
    
    
    
    1,089,204Other expenses
    
    
    313,541
    
    
    
    163,429Net income
    
    $
    136,911
    
    
    $
    676,160Basic earnings per share
    
    $
    0.30
    
    
    $
    1.77Diluted earnings per share
    
    $
    0.30
    
    
    $
    1.69
  
    
    The growth in net interest income was driven by the increase in the balance of earning assets, as a
result of the Independence acquisition as well as organic balance sheet growth, partially offset by
a decline in net interest margin to 2.75% in 2006 from 3.17% in 2005. The decline in margin was
due to the flattening yield curve, which contracted the spread between our longer-term assets and
shorterterm liabilities and lower than expected low cost core deposit growth which forced the
Company to fund asset growth with higher cost borrowings and wholesale deposit obligations.
    
    Included in non-interest income:
 (1)
    
    Net losses on investment securities of $238.3 million on the sale of investment securities and an
other-than-temporary impairment charge of $67.5 million on FNMA and FHLMC preferred stock in the second quarter of 2006
and a $43.0 million loss on the sale of $1.5 billion of available for sale investments as part of the balance sheet
restructuring in the fourth quarter of 2006. See Note 6 for additional details.(2)
    
    An increase in consumer and commercial fee income in 2006 of $49.1 million. The continued growth in fee income in
consumer and commercial banking is due to loan and deposit growth as a result of Independence acquisition as well as
strong growth in commercial loans.(3)
    
    A decrease in mortgage banking revenues in 2006 of $63.9 million is due to a $28.2 million lower of cost or market
adjustment related to the previously mentioned $2.9 billion residential real estate portfolio that is classified as held
for sale. In 2005, Sovereign also sold $1.4 billion of home equity loans and recognized a gain of $32.1 million.
Sovereign did not recognize any gains associated with sales of home equity loans in 2006.
 
    
    Other expenses increased due primarily to employee severance and restructuring charges of $78.7 million in 2006 compared
to only $4.0 million in 2005. Additionally, merger-related charges of $42.4 million were incurred in 2006 compared to
charges of $12.7 million in 2005.
    
    The increase in provision for credit losses in 2006 is primarily related to the previously
mentioned lower of cost or market adjustment for the correspondent home equity portfolio in the
fourth quarter. Since the loss was determined to be solely related to credit deterioration,
Sovereign recorded an additional provision of $296 million.
    
    Sovereign recorded an income tax benefit of $117.8 million in 2006 compared to an income tax
provision of $216.0 million in 2005. The reason for the variance was due to the low level of
pre-tax earnings in 2006 due to the aforementioned restructuring and other significant charges in
2006 which have magnified the impact of our favorable permanent tax-free items.
    
    Increases in general and administrative expenses were due primarily to the Independence acquisition.
 Net Interest Income.
   27




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Provision for Credit Losses.
   Non-interest Income.
    Twelve-months ended December 31,2006
    
    
    2005Impairments to mortgage servicing rights
    
    $
    (7,123
    )
    
    $
    5,944Mortgage servicing fees
    
    
    30,799
    
    
    
    20,376Amortization of mortgage servicing rights
    
    
    (19,987
    )
    
    
    (17,578
    )Net (losses) gains under SFAS 133
    
    
    825
    
    
    
    645Sales of mortgage loans and mortgage backed securities
    
    
    19,725
    
    
    
    78,730Total
    
    $
    24,239
    
    
    $
    88,117
 28




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##### Table of Contents



General and Administrative Expenses.
 Other Expenses.
    Income Tax Provision/(Benefit).
 Line of Business Results.
 29




---



##### Table of Contents



30




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##### Table of Contents



Critical Accounting Policies
   Allowance for Loan Losses and Reserve for Unfunded Lending Commitments.
 Securitizations.
    Goodwill.
   31




---



##### Table of Contents



Derivatives and Hedging Activities
   Income Taxes.
   32




---



##### Table of Contents



Recent Acquisitions
   33




---



##### Table of Contents



Financial Condition
 Loan Portfolio.
      Table 4: Composition of Loan Portfolio
 AT DECEMBER 31,2007
    
    
    2006
    
    
    2005
    
    
    2004
    
    
    2003BALANCE
    
    
    PERCENT
    
    
    BALANCE
    
    
    PERCENT
    
    
    BALANCE
    
    
    PERCENT
    
    
    BALANCE
    
    
    PERCENT
    
    
    BALANCE
    
    
    PERCENTCommercial real estate loans
    
    $
    12,306,914
    
    
    
    21.3
    %
    
    $
    11,514,983
    
    
    
    18.4
    %
    
    $
    7,209,180
    
    
    
    16.5
    %
    
    $
    5,824,133
    
    
    
    15.9
    %
    
    $
    4,702,046
    
    
    
    18.0
    %Commercial and industrial loans
    
    
    14,359,688
    
    
    
    24.9
    
    
    
    13,188,909
    
    
    
    21.1
    
    
    
    9,426,466
    
    
    
    21.5
    
    
    
    8,040,107
    
    
    
    21.9
    
    
    
    6,361,640
    
    
    
    24.3Multifamily (1)
    
    
    4,246,370
    
    
    
    7.3
    
    
    
    5,768,451
    
    
    
    9.2
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total Commercial Loans
    
    
    30,912,972
    
    
    
    53.5
    
    
    
    30,472,343
    
    
    
    48.7
    
    
    
    16,635,646
    
    
    
    38.0
    
    
    
    13,864,240
    
    
    
    37.8
    
    
    
    11,063,686
    
    
    
    42.3Residential mortgages
    
    
    13,341,193
    
    
    
    23.1
    
    
    
    17,404,730
    
    
    
    27.8
    
    
    
    12,462,802
    
    
    
    28.4
    
    
    
    8,497,496
    
    
    
    23.2
    
    
    
    5,074,684
    
    
    
    19.4Home equity loans and lines of credit
    
    
    6,197,148
    
    
    
    10.7
    
    
    
    9,443,560
    
    
    
    15.1
    
    
    
    9,793,124
    
    
    
    22.4
    
    
    
    9,577,656
    
    
    
    26.2
    
    
    
    6,457,682
    
    
    
    24.7Total Consumer Loans secured by real estate
    
    
    19,538,341
    
    
    
    33.8
    
    
    
    26,848,290
    
    
    
    42.9
    
    
    
    22,255,926
    
    
    
    50.8
    
    
    
    18,075,152
    
    
    
    49.4
    
    
    
    11,532,366
    
    
    
    44.1Auto loans
    
    
    7,028,894
    
    
    
    12.2
    
    
    
    4,848,204
    
    
    
    7.7
    
    
    
    4,434,021
    
    
    
    10.1
    
    
    
    4,205,547
    
    
    
    11.5
    
    
    
    3,240,383
    
    
    
    12.4Other
    
    
    299,572
    
    
    
    0.5
    
    
    
    419,759
    
    
    
    0.7
    
    
    
    478,254
    
    
    
    1.1
    
    
    
    486,140
    
    
    
    1.3
    
    
    
    312,224
    
    
    
    1.2Total Consumer Loans
    
    
    26,866,807
    
    
    
    46.5
    
    
    
    32,116,253
    
    
    
    51.3
    
    
    
    27,168,201
    
    
    
    62.0
    
    
    
    22,766,839
    
    
    
    62.2
    
    
    
    15,084,973
    
    
    
    57.7Total Loans
    
    $
    57,779,779
    
    
    
    100.0
    %
    
    $
    62,588,596
    
    
    
    100.0
    %
    
    $
    43,803,847
    
    
    
    100.0
    %
    
    $
    36,631,079
    
    
    
    100.0
    %
    
    $
    26,148,659
    
    
    
    100.0
    %Total Loans with:Fixed rates
    
    $
    33,450,767
    
    
    
    57.9
    %
    
    $
    39,716,958
    
    
    
    63.5
    %
    
    $
    26,141,411
    
    
    
    59.7
    %
    
    $
    21,145,915
    
    
    
    57.7
    %
    
    $
    15,171,129
    
    
    
    58.0
    %Variable rates
    
    
    24,329,012
    
    
    
    42.1
    
    
    
    22,871,638
    
    
    
    36.5
    
    
    
    17,662,436
    
    
    
    40.3
    
    
    
    15,485,164
    
    
    
    42.3
    
    
    
    10,977,530
    
    
    
    42.0Total Loans
    
    $
    57,779,779
    
    
    
    100.0
    %
    
    $
    62,588,596
    
    
    
    100.0
    %
    
    $
    43,803,847
    
    
    
    100.0
    %
    
    $
    36,631,079
    
    
    
    100.0
    %
    
    $
    26,148,659
    
    
    
    100.0
    %
 
 (1)
    
    Effective with the acquisition of Independence on June 1, 2006,
Sovereign acquired $5.6 billion of multifamily loans. As this was
primarily a new asset class for Sovereign we have disclosed these
loans separately in the table above. At December 31, 2005, 2004, and
2003, Sovereigns multifamily loan portfolio totaled approximately
$475 million, $463 million, and $349 million, respectively, which were
classified as commercial real estate loans. 34




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##### Table of Contents



Table 5: Commercial Loan Maturity Schedule
 AT DECEMBER 31, 2007, MATURINGIn One Year
    
    
    One To
    
    
    AfterOr Less
    
    
    Five Years
    
    
    Five Years
    
    
    TotalCommercial real estate loans
    
    $
    1,784,981
    
    
    $
    5,276,889
    
    
    $
    5,245,044
    
    
    $
    12,306,914Commercial and industrial loans
    
    
    4,124,428
    
    
    
    7,002,449
    
    
    
    3,232,811
    
    
    
    14,359,688Multi-family loans
    
    
    151,643
    
    
    
    2,274,761
    
    
    
    1,819,966
    
    
    
    4,246,370Total
    
    $
    6,061,052
    
    
    $
    14,554,099
    
    
    $
    10,297,821
    
    
    $
    30,912,972Loans with:Fixed rates
    
    $
    673,853
    
    
    $
    6,741,146
    
    
    $
    5,468,941
    
    
    $
    12,883,940Variable rates
    
    
    5,387,199
    
    
    
    7,812,953
    
    
    
    4,828,880
    
    
    
    18,029,032Total
    
    $
    6,061,052
    
    
    $
    14,554,099
    
    
    $
    10,297,821
    
    
    $
    30,912,972
 Investment Securities.
      35




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##### Table of Contents



Investment Securities Available for Sale.
  Table 6: Investment Securities by Obligor
 AT DECEMBER 31,2007
    
    
    2006
    
    
    2005Investment securities available for sale:U.S. Treasury and government agencies
    
    $
    2,341,770
    
    
    $
    1,606,905
    
    
    $
    1,170,613FNMA, FHLMC, and FHLB securities
    
    
    4,959,380
    
    
    
    4,791,355
    
    
    
    3,173,878State and municipal securities
    
    
    2,502,424
    
    
    
    2,554,806
    
    
    
    4,468Other securities
    
    
    4,138,273
    
    
    
    4,921,562
    
    
    
    2,909,443Total investment securities available for sale
    
    $
    13,941,847
    
    
    $
    13,874,628
    
    
    $
    7,258,402Investment securities held to maturity:U.S. Treasury and government agencies
    
    $
    
    
    
    $
    
    
    
    $
    106,881FNMA, FHLMC, and FHLB securities
    
    
    
    
    
    
    
    
    
    
    1,940,582State and municipal securities
    
    
    
    
    
    
    
    
    
    
    1,752,739Other securities
    
    
    
    
    
    
    
    
    
    
    847,425Total investment securities held to maturity
    
    $
    
    
    
    $
    
    
    
    $
    4,647,627FHLB stock
    
    
    942,651
    
    
    
    1,003,012
    
    
    
    651,299Other investments
    
    
    257,894
    
    
    
    
    
    
    
    Total investment portfolio
    
    $
    15,142,392
    
    
    $
    14,877,640
    
    
    $
    12,557,328
 Table 7: Investment Securities of Single Issuers
 AT DECEMBER 31, 2007Amortized
    
    
    FairCost
    
    
    ValueFNMA
    
    $
    2,890,131
    
    
    $
    2,921,594FHLMC
    
    
    1,920,360
    
    
    
    1,935,487FHLB
    
    
    1,040,736
    
    
    
    1,044,950Merrill Lynch (1)
    
    
    2,000,000
    
    
    
    2,000,000Total
    
    $
    7,851,227
    
    
    $
    7,902,031
 
 (1)
    
    Amount represents a short-term reverse repurchase obligation with Merrill Lynch which matured in January 2008. 36




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##### Table of Contents



Goodwill and Intangible Assets.
  Other Assets.
 Deposits and Other Customer Accounts.
 Borrowings and Other Debt Obligations.
 37




---



##### Table of Contents



Table 8: Details of Borrowings
 DECEMBER 31,2007
    
    2006
    
    2005Securities sold under repurchase agreements:Balance
    
    $
    76,526
    
    
    $
    199,671
    
    
    $
    189,112Weighted average interest rate at year-end
    
    
    4.12
    %
    
    
    3.85
    %
    
    
    4.19
    %Maximum amount outstanding at any month-end during the year
    
    $
    200,775
    
    
    $
    1,740,824
    
    
    $
    942,799Average amount outstanding during the year
    
    $
    122,801
    
    
    $
    596,583
    
    
    $
    395,940Weighted average interest rate during the year
    
    
    5.56
    %
    
    
    5.21
    %
    
    
    3.31
    %Federal Funds Purchased:Balance
    
    $
    2,720,000
    
    
    $
    1,700,000
    
    
    $
    819,000Weighted average interest rate at year-end
    
    
    4.22
    %
    
    
    5.22
    %
    
    
    4.18
    %Maximum amount outstanding at any month-end during the year
    
    $
    2,720,000
    
    
    $
    1,915,000
    
    
    $
    1,215,593Average amount outstanding during the year
    
    $
    1,074,294
    
    
    $
    998,867
    
    
    $
    940,100Weighted average interest rate during the year
    
    
    5.19
    %
    
    
    5.17
    %
    
    
    3.33
    %FHLB advances:Balance
    
    $
    19,705,438
    
    
    $
    19,563,985
    
    
    $
    13,295,493Weighted average interest rate at year-end
    
    
    4.64
    %
    
    
    4.81
    %
    
    
    4.46
    %Maximum amount outstanding at any month-end during the year
    
    $
    21,074,719
    
    
    $
    20,409,561
    
    
    $
    14,023,128Average amount outstanding during the year
    
    $
    16,557,692
    
    
    $
    16,727,311
    
    
    $
    12,123,306Weighted average interest rate during the year
    
    
    4.99
    %
    
    
    4.61
    %
    
    
    4.09
    %Senior Credit Facility:Balance
    
    $
    180,000
    
    
    $
    
    
    
    $
    Weighted average interest rate at year-end
    
    
    5.55
    %
    
    
    0.00
    %
    
    
    0.00
    %Maximum amount outstanding at any month-end during the year
    
    $
    180,000
    
    
    $
    100,000
    
    
    $
    300,000Average amount outstanding during the year
    
    $
    128,274
    
    
    $
    12,466
    
    
    $
    151,164Weighted average interest rate during the year
    
    
    6.27
    %
    
    
    11.71
    %
    
    
    4.41
    %Asset-Backed Floating Rate Notes:Balance
    
    $
    
    
    
    $
    1,971,000
    
    
    $
    1,971,000Weighted average interest rate at year-end
    
    
    0.00
    %
    
    
    3.58
    %
    
    
    2.50
    %Maximum amount outstanding at any month-end during the year
    
    $
    1,971,000
    
    
    $
    1,971,000
    
    
    $
    1,971,000Average amount outstanding during the year
    
    $
    904,537
    
    
    $
    1,971,000
    
    
    $
    1,971,000Weighted average interest rate during the year
    
    
    5.19
    %
    
    
    3.87
    %
    
    
    1.91
    %Senior Notes:Balance
    
    $
    1,042,527
    
    
    $
    740,334
    
    
    $
    797,916Weighted average interest rate at year-end
    
    
    5.14
    %
    
    
    5.13
    %
    
    
    4.76
    %Maximum amount outstanding at any month-end during the year
    
    $
    1,042,527
    
    
    $
    1,039,210
    
    
    $
    797,916Average amount outstanding during the year
    
    $
    974,605
    
    
    $
    833,577
    
    
    $
    466,088Weighted average interest rate during the year
    
    
    5.61
    %
    
    
    5.62
    %
    
    
    4.30
    %Subordinated Notes:Balance
    
    $
    1,148,813
    
    
    $
    1,139,511
    
    
    $
    772,063Weighted average interest rate at year-end
    
    
    4.65
    %
    
    
    4.68
    %
    
    
    5.27
    %Maximum amount outstanding at any month-end during the year
    
    $
    1,148,813
    
    
    $
    1,139,511
    
    
    $
    798,535Average amount outstanding during the year
    
    $
    1,143,874
    
    
    $
    981,397
    
    
    $
    781,627Weighted average interest rate during the year
    
    
    5.49
    %
    
    
    5.60
    %
    
    
    4.72
    %Junior Subordinated Debentures to Capital Trusts:Balance
    
    $
    1,252,778
    
    
    $
    1,535,216
    
    
    $
    876,313Weighted average interest rate at year-end
    
    
    7.30
    %
    
    
    7.65
    %
    
    
    8.09
    %Maximum amount outstanding at any month-end during the year
    
    $
    1,433,534
    
    
    $
    1,535,216
    
    
    $
    886,434Average amount outstanding during the year
    
    $
    1,340,564
    
    
    $
    1,256,491
    
    
    $
    877,730Weighted average interest rate during the year
    
    
    7.68
    %
    
    
    7.88
    %
    
    
    7.38
    %
    38




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##### Table of Contents




    
    A junior subordinated debentures issued by Sovereign, each of which
will have a principal amount at maturity of $50, and which have a
stated maturity of March 1, 2034; and
    
    Warrants to purchase shares of common stock from Sovereign at any time
prior to the close of business on March 1, 2034, by delivering junior
subordinated debentures (or, in the case of warrant exercises before
March 5, 2007, cash equal to the accreted principal amount of a junior
subordinated debenture).
     39




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##### Table of Contents



Off-Balance Sheet Arrangements.
  Minority Interests.
 Preferred Stock.
  Credit Risk Management
    40




---



##### Table of Contents



Commercial Loans.
   Consumer Loans Secured by Real Estate.
 Consumer Loans Not Secured by Real Estate.
 Collections.
 Non-performing Assets.
  41




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##### Table of Contents



Table 9: Non-Performing Assets
 AT DECEMBER 31,2007
    
    
    2006
    
    
    2005
    
    
    2004
    
    
    2003Non-accrual loans:ConsumerResidential
    
    $
    90,881
    
    
    $
    47,687
    
    
    $
    30,393
    
    
    $
    33,656
    
    
    $
    38,195Home equity loans and lines of credit
    
    
    56,099
    
    
    
    10,312
    
    
    
    55,543
    
    
    
    26,801
    
    
    
    29,370Auto loans and other consumer loans
    
    
    3,446
    
    
    
    2,955
    
    
    
    2,389
    
    
    
    1,220
    
    
    
    1,551Total consumer loans
    
    
    150,426
    
    
    
    60,954
    
    
    
    88,325
    
    
    
    61,677
    
    
    
    69,116Commercial
    
    
    85,406
    
    
    
    69,207
    
    
    
    68,572
    
    
    
    54,042
    
    
    
    83,976Commercial real estate
    
    
    61,750
    
    
    
    75,710
    
    
    
    31,800
    
    
    
    26,757
    
    
    
    45,053Multifamily
    
    
    6,336
    
    
    
    1,486
    
    
    
    
    
    
    
    
    
    
    
    Total non-accrual loans
    
    
    303,918
    
    
    
    207,357
    
    
    
    188,697
    
    
    
    142,476
    
    
    
    198,145Restructured loans
    
    
    370
    
    
    
    557
    
    
    
    777
    
    
    
    1,097
    
    
    
    1,235Total non-performing loans (1)
    
    
    304,288
    
    
    
    207,914
    
    
    
    189,474
    
    
    
    143,573
    
    
    
    199,380Real estate owned
    
    
    43,226
    
    
    
    22,562
    
    
    
    11,411
    
    
    
    12,276
    
    
    
    17,016Other repossessed assets
    
    
    14,062
    
    
    
    5,126
    
    
    
    4,678
    
    
    
    4,247
    
    
    
    4,051Total other real estate owned and other repossessed assets
    
    
    57,288
    
    
    
    27,688
    
    
    
    16,089
    
    
    
    16,523
    
    
    
    21,067Total non-performing assets
    
    $
    361,576
    
    
    $
    235,602
    
    
    $
    205,563
    
    
    $
    160,096
    
    
    $
    220,447Past due 90 days or more as to interest or principal and
accruing interest
    
    $
    68,770
    
    
    $
    40,103
    
    
    $
    54,794
    
    
    $
    38,914
    
    
    $
    36,925Net loan charge-off rate to average loans (3)
    
    
    .25
    %
    
    
    .96
    %
    
    
    .20
    %
    
    
    .36
    %
    
    
    .55
    %Non-performing assets as a percentage of total assets,
excluding loans held for sale
    
    
    .43
    
    
    
    .29
    
    
    
    .32
    
    
    
    .29
    
    
    
    .51Non-performing loans as a percentage of total loans held
for investment
    
    
    .53
    
    
    
    .38
    
    
    
    .44
    
    
    
    .39
    
    
    
    .77Non-performing assets as a percentage of total loans held
for investment, real estate owned and repossessed assets
    
    
    .63
    
    
    
    .43
    
    
    
    .47
    
    
    
    .44
    
    
    
    .85Allowance for credit losses as a percentage of total
non-performing assets (2)
    
    
    204.0
    
    
    
    206.4
    
    
    
    213.0
    
    
    
    255.3
    
    
    
    148.7Allowance for credit losses as a percentage of total
non-performing loans (2)
    
    
    242.4
    
    
    
    233.9
    
    
    
    231.1
    
    
    
    284.7
    
    
    
    164.5
 
 (1)
    
    Non-performing loans at December 31, 2006 exclude $21.5 million of residential non-accrual
loans and $66.0 million of home equity non-accrual loans that are classified as held for sale.
These loans were excluded at that time since they were all anticipated to be sold. Non-performing
loans at December 31, 2007 include $39.4 million of loans related to our correspondent home equity
loan portfolio we were unable to sell in 2007 that had been classified as held for sale at December
31, 2006.(2)
    
    Allowance for credit losses is comprised of the allowance for loan losses and the reserve for
unfunded commitments, which is included in other liabilities.(3)
    
    2006 includes lower of cost of market adjustments resulting in a charge-off of $382.5 million
on the correspondent home equity loans and a charge-off of approximately $7.1 million on the
purchased residential mortgage portfolio both of which were classified as held for sale at December
31, 2006. These charge-offs accounted for 71 basis points of the total 96 basis points above.  Potential Problem Loans
 42




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##### Table of Contents



Delinquencies.
 Allowance for Credit Losses
 Allowance for Loan Losses.
        Reserve for Unfunded Lending Commitments
  43




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##### Table of Contents



Table 10: Allocation of the Allowance for Credit Losses by Product Type
 AT DECEMBER 31,2007
    
    
    2006
    
    
    2005
    
    
    2004
    
    
    2003% of
    
    
    
    
    
    
    % of
    
    
    
    
    
    
    % of
    
    
    
    
    
    
    % of
    
    
    
    
    
    
    % ofLoans to
    
    
    
    
    
    
    Loans to
    
    
    
    
    
    
    Loans to
    
    
    
    
    
    
    Loans to
    
    
    
    
    
    
    Loans toTotal
    
    
    
    
    
    
    Total
    
    
    
    
    
    
    Total
    
    
    
    
    
    
    Total
    
    
    
    
    
    
    TotalAmount
    
    
    Loans
    
    
    Amount
    
    
    Loans
    
    
    Amount
    
    
    Loans
    
    
    Amount
    
    
    Loans
    
    
    Amount
    
    
    LoansAllocatedallowances:Commercial loans
    
    $
    433,951
    
    
    
    54
    %
    
    $
    375,014
    
    
    
    49
    %
    
    $
    220,314
    
    
    
    38
    %
    
    $
    209,587
    
    
    
    38
    %
    
    $
    192,454
    
    
    
    42
    %Consumer loans
secured by real estate
    
    
    117,380
    
    
    
    34
    
    
    
    45,521
    
    
    
    43
    
    
    
    142,728
    
    
    
    51
    
    
    
    121,311
    
    
    
    49
    
    
    
    79,968
    
    
    
    44Consumer loans not
secured by real
estate
    
    
    149,768
    
    
    
    12
    
    
    
    45,730
    
    
    
    8
    
    
    
    50,557
    
    
    
    11
    
    
    
    50,167
    
    
    
    13
    
    
    
    29,774
    
    
    
    14Unallocated
allowance
    
    
    8,345
    
    
    
    n/a
    
    
    
    4,765
    
    
    
    n/a
    
    
    
    6,000
    
    
    
    n/a
    
    
    
    9,938
    
    
    
    n/a
    
    
    
    13,594
    
    
    
    n/aTotal allowance for
loan losses
    
    $
    709,444
    
    
    
    100
    %
    
    $
    471,030
    
    
    
    100
    %
    
    $
    419,599
    
    
    
    100
    %
    
    $
    391,003
    
    
    
    100
    %
    
    $
    315,790
    
    
    
    100
    %Reserve for
unfunded lending
commitments
    
    
    28,301
    
    
    
    
    
    
    
    15,255
    
    
    
    
    
    
    
    18,212
    
    
    
    
    
    
    
    17,713
    
    
    
    
    
    
    
    12,104Total allowance for
credit losses
    
    $
    737,745
    
    
    
    
    
    
    $
    486,285
    
    
    
    
    
    
    $
    437,811
    
    
    
    
    
    
    $
    408,716
    
    
    
    
    
    
    $
    327,894
 Commercial Portfolio.
 44




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##### Table of Contents



Consumer Loans Secured by Real Estate Portfolio.
 Consumer Loans Not Secured by Real Estate Portfolio.
 Unallocated Allowance.
 Bank Regulatory Capital
   Table 11: Regulatory Capital Ratios
 OTS - REGULATIONSSovereignBank
    
    
    
    
    
    WellDecember 31,
    
    Minimum
    
    Capitalized2007
    
    Requirement
    
    RequirementTangible equity to tangible assets
    
    
    6.54
    %
    
    
    2.00
    %
    
    NoneTier 1 leverage capital to tangible assets
    
    
    6.54
    
    
    
    3.00
    
    
    
    5.00
    %Tier 1 risk-based capital to risk adjusted assets
    
    
    7.54
    
    
    
    4.00
    
    
    
    6.00Total risk-based capital to risk adjusted assets
    
    
    10.40
    
    
    
    8.00
    
    
    
    10.00
 Sovereign Bancorp
    
    Sovereign BancorpDecember 31, 2007(1)
    
    December 31, 2006(1)Tier 1 leverage capital ratio
    
    
    5.89
    %
    
    
    5.73
    %Tangible common equity to tangible assets, including AOCI(2)
    
    
    3.70
    %
    
    
    3.50
    %
 
 (1)
    
    OTS capital regulations do not apply to savings and loan holding companies. These ratios are
computed as if those regulations did apply to Sovereign Bancorp.(2)
    
    Accumulated other comprehensive income 45




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Liquidity and Capital Resources
       46




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##### Table of Contents



Contractual Obligations and Other Commitments
  Contractual Obligations
 PAYMENTS DUE BY PERIODLess Than
    
    
    
    
    
    
    
    
    
    
    After(Dollars in thousands)
    
    Total
    
    
    1 Year
    
    
    1-3 Years
    
    
    4-5 Years
    
    
    5 YearsBorrowings and other debt obligations:Securities sold under repurchase agreements(1)
    
    $
    78,877
    
    
    $
    78,877
    
    
    $
    
    
    
    $
    
    
    
    $
    FHLB advances(1)
    
    
    21,771,085
    
    
    
    13,971,753
    
    
    
    2,006,856
    
    
    
    1,025,405
    
    
    
    4,767,071Fed Funds(1)
    
    
    2,720,321
    
    
    
    2,720,321
    
    
    
    
    
    
    
    
    
    
    
    Other debt obligations(1)(2)
    
    
    2,867,948
    
    
    
    109,991
    
    
    
    1,408,582
    
    
    
    106,750
    
    
    
    1,242,625Junior subordinated debentures to Capital
Trusts(1)(2)
    
    
    4,050,779
    
    
    
    90,468
    
    
    
    176,665
    
    
    
    180,706
    
    
    
    3,602,940Certificates of deposit(1)
    
    
    15,478,735
    
    
    
    13,459,714
    
    
    
    1,345,415
    
    
    
    385,640
    
    
    
    287,966Investment partnership commitments(3)
    
    
    33,316
    
    
    
    26,973
    
    
    
    6,215
    
    
    
    32
    
    
    
    96Operating leases
    
    
    815,704
    
    
    
    98,767
    
    
    
    176,105
    
    
    
    157,157
    
    
    
    383,675Total contractual cash obligations
    
    $
    47,816,765
    
    
    $
    30,556,864
    
    
    $
    5,119,838
    
    
    $
    1,855,690
    
    
    $
    10,284,373
 
 (1)
    
    Includes interest on both fixed and variable rate obligations. The interest associated with
variable rate obligations is based upon interest rates in effect at December 31, 2007. The
contractual amounts to be paid on variable rate obligations are affected by changes in market
interest rates. Future changes in market interest rates could materially affect the contractual
amounts to be paid.(2)
    
    Includes all carrying value adjustments, such as unamortized premiums or discounts and hedge
basis adjustments.(3)
    
    The commitments to fund investment partnerships represent future cash outlays for the
construction and development of properties for low-income housing and historic tax credit projects.
The timing and amounts of these commitments are projected based upon the financing arrangements
provided in each projects partnership or operating agreement and could change due to variances in
the construction schedule, project revisions, or the cancellation of the project.     47




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##### Table of Contents



OTHER COMMERCIAL COMMITMENTS
 AMOUNT OF COMMITMENT EXPIRATION PER PERIODTotalAmounts
    
    
    Less Than
    
    
    
    
    
    
    
    
    
    
    Over(Dollars in thousands)
    
    Committed
    
    
    1 Year
    
    
    1-3 Years
    
    
    4-5 Years
    
    
    5 YearsCommitments to extend credit
    
    $
    20,998,851
    
    
    $
    9,614,786
    
    
    $
    3,562,062
    
    
    $
    3,199,023
    
    
    $
    4,622,980
    (1)Standby letters of credit
    
    
    2,980,472
    
    
    
    500,099
    
    
    
    791,016
    
    
    
    1,244,567
    
    
    
    444,790Loans sold with recourse
    
    
    269,396
    
    
    
    5,859
    
    
    
    27,933
    
    
    
    47,141
    
    
    
    188,463Forward buy commitments
    
    
    762,499
    
    
    
    662,508
    
    
    
    99,991
    
    
    
    
    
    
    
    Total commercial commitments
    
    $
    25,011,218
    
    
    $
    10,783,252
    
    
    $
    4,481,002
    
    
    $
    4,490,731
    
    
    $
    5,256,233
 
 (1)
    
    Of this amount, $4.0 billion represents the unused portion of home equity lines of
credit.  Asset and Liability Management
     The following estimated percentageIf interest rates changed in parallel by the
    
    increase/(decrease) to net interestamounts below at December 31, 2007
    
    income over the subsequent twelve months would resultUp 200 basis points
    
    
    (9.51
    )%Up 100 basis points
    
    
    (2.71
    )%Down 100 basis points
    
    
    5.14
    %Down 200 basis points
    
    
    7.64
    %
  48




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##### Table of Contents



If interest rates changed in parallel by the
    
    Estimated NPV Ratioamounts below at December 31, 2007
    
    December 31, 2007Base
    
    
    9.60
    %Up 200 basis points
    
    
    8.90
    %Up 100 basis points
    
    
    9.30
    %Down 100 basis points
    
    
    9.69
    %Down 200 basis points
    
    
    9.39
    %
       49




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##### Table of Contents



Table 12: Gap Analysis
 AT DECEMBER 31, 2007 REPRICINGYear One
    
    
    Year Two
    
    
    Year Three
    
    
    Year Four
    
    
    Year Five
    
    
    Thereafter
    
    
    TotalInterest earning assets:Investment securities(1)(2)
    
    $
    4,864,021
    
    
    $
    473,913
    
    
    $
    541,468
    
    
    $
    597,493
    
    
    $
    740,060
    
    
    $
    8,019,259
    
    
    $
    15,236,214Loans
    
    
    28,452,856
    
    
    
    7,005,159
    
    
    
    5,636,906
    
    
    
    4,066,244
    
    
    
    2,888,826
    
    
    
    9,729,788
    
    
    
    57,779,779Total interest earning assets
    
    $
    33,316,877
    
    
    $
    7,479,072
    
    
    $
    6,178,374
    
    
    $
    4,663,737
    
    
    $
    3,628,886
    
    
    $
    17,749,047
    
    
    $
    73,015,993Non-interest earning assets
    
    
    5,658,601
    
    
    
    671,000
    
    
    
    671,000
    
    
    
    671,000
    
    
    
    671,000
    
    
    
    3,387,802
    
    
    
    11,730,403Total assets
    
    $
    38,975,478
    
    
    $
    8,150,072
    
    
    $
    6,849,374
    
    
    $
    5,334,737
    
    
    $
    4,299,886
    
    
    $
    21,136,849
    
    
    $
    84,746,396Interest bearing liabilities:Deposits
    
    $
    26,325,980
    
    
    $
    3,889,981
    
    
    $
    3,085,813
    
    
    $
    2,789,166
    
    
    $
    2,839,553
    
    
    $
    10,985,412
    
    
    $
    49,915,905Borrowings
    
    
    19,898,597
    
    
    
    740,626
    
    
    
    1,485,577
    
    
    
    209,970
    
    
    
    (286,906
    )
    
    
    4,078,218
    
    
    
    26,126,082Total interest bearing liabilities
    
    $
    46,224,577
    
    
    $
    4,630,607
    
    
    $
    4,571,390
    
    
    $
    2,999,136
    
    
    $
    2,552,647
    
    
    $
    15,063,630
    
    
    $
    76,041,987Non-interest bearing liabilities
    
    
    1,565,654
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,565,654Minority Interest
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    146,430
    
    
    
    146,430Stockholders equity
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,992,325
    
    
    
    6,992,325Total liabilities and stockholders
equity
    
    $
    47,790,231
    
    
    $
    4,630,607
    
    
    $
    4,571,390
    
    
    $
    2,999,136
    
    
    $
    2,552,647
    
    
    $
    22,202,385
    
    
    $
    84,746,396Excess assets (liabilities) before
effect of hedging transactions
    
    $
    (8,814,753
    )
    
    $
    3,519,465
    
    
    $
    2,277,984
    
    
    $
    2,335,601
    
    
    $
    1,747,239
    
    
    $
    (1,065,536
    )To total assets
    
    
    (10.40
    )%
    
    
    4.15
    %
    
    
    2.69
    %
    
    
    2.76
    %
    
    
    2.06
    %
    
    
    (1.26)
    %Cumulative excess assets
(liabilities) before effect of
hedging transactions
    
    $
    (8,814,753
    )
    
    $
    (5,295,288
    )
    
    $
    (3,017,304
    )
    
    $
    (681,703
    )
    
    $
    1,065,536
    
    
    $
    To total assets
    
    
    (10.40
    )%
    
    
    (6.25
    )%
    
    
    (3.56
    )%
    
    
    (0.80)
    %
    
    
    1.26
    %
    
    
    0.00
    %Effect of hedging transactions on
assets and liabilities
    
    $
    7,472,889
    
    
    $
    (3,103,803
    )
    
    $
    (2,224,820
    )
    
    $
    (1,489,860
    )
    
    $
    (469,406
    )
    
    $
    (185,000
    )Excess assets (liabilities) after
effect of hedging transactions
    
    $
    (1,341,864
    )
    
    $
    415,662
    
    
    $
    53,164
    
    
    $
    845,741
    
    
    $
    1,277,833
    
    
    $
    (1,250,536
    )To total assets
    
    
    (1.58
    )%
    
    
    0.49
    %
    
    
    0.06
    %
    
    
    1.00
    %
    
    
    1.51
    %
    
    
    (1.48)
    %Cumulative excess assets
(liabilities) after effect of hedging
transactions
    
    $
    (1,341,864
    )
    
    $
    (926,202
    )
    
    $
    (873,038
    )
    
    $
    (27,297
    )
    
    $
    1,250,536
    
    
    
    To total assets
    
    
    (1.58
    )%
    
    
    (1.09
    )%
    
    
    (1.03
    )%
    
    
    (0.03)
    %
    
    
    1.48
    %
    
    
    0.00
    %
 
 (1)
    
    Includes interest-earning deposits.(2)
    
    Investment securities include market rate payment and repayment assumptions. 50




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##### Table of Contents



Table 13: Selected Quarterly Consolidated Financial Data
 THREE MONTHS ENDEDDec. 31,
    
    
    Sept. 30,
    
    
    June 30,
    
    
    Mar. 31,
    
    
    Dec. 31,
    
    
    Sept. 30,
    
    
    June 30,
    
    
    Mar. 31,2007
    
    
    2007
    
    
    2007
    
    
    2007
    
    
    2006
    
    
    2006
    
    
    2006
    
    
    2006Total interest income
    
    $
    1,139,340
    
    
    $
    1,150,142
    
    
    $
    1,139,435
    
    
    $
    1,227,339
    
    
    $
    1,254,002
    
    
    $
    1,240,851
    
    
    $
    992,018
    
    
    $
    839,533Total interest expense
    
    
    673,316
    
    
    
    693,381
    
    
    
    686,051
    
    
    
    739,486
    
    
    
    766,970
    
    
    
    749,064
    
    
    
    553,247
    
    
    
    435,575Net interest income
    
    
    466,024
    
    
    
    456,761
    
    
    
    453,384
    
    
    
    487,853
    
    
    
    487,032
    
    
    
    491,787
    
    
    
    438,771
    
    
    
    403,958Provision for credit losses
    
    
    148,192
    
    
    
    162,500
    
    
    
    51,000
    
    
    
    46,000
    
    
    
    365,961
    
    
    
    45,000
    
    
    
    44,500
    
    
    
    29,000Net interest income after
provision for credit loss
    
    
    317,832
    
    
    
    294,261
    
    
    
    402,384
    
    
    
    441,853
    
    
    
    121,071
    
    
    
    446,787
    
    
    
    394,271
    
    
    
    374,958(Loss)/gain on investment
securities, net
    
    
    (179,209
    )
    
    
    1,884
    
    
    
    
    
    
    
    970
    
    
    
    (36,089
    )
    
    
    29,154
    
    
    
    (305,027
    )
    
    
    Total fees and other income
    
    
    153,183
    
    
    
    141,389
    
    
    
    190,297
    
    
    
    45,882
    
    
    
    149,369
    
    
    
    171,851
    
    
    
    141,975
    
    
    
    134,341General and administrative
and other expenses
    
    
    1,971,969
    
    
    
    385,654
    
    
    
    416,049
    
    
    
    446,766
    
    
    
    489,401
    
    
    
    427,163
    
    
    
    362,195
    
    
    
    324,771Income before income taxes
    
    
    (1,680,163
    )
    
    
    51,880
    
    
    
    176,632
    
    
    
    41,939
    
    
    
    (255,050
    )
    
    
    220,629
    
    
    
    (130,976
    )
    
    
    184,528Income tax provision
    
    
    (77,180
    )
    
    
    (6,330
    )
    
    
    29,180
    
    
    
    (6,120
    )
    
    
    (125,610
    )
    
    
    36,620
    
    
    
    (71,920
    )
    
    
    43,130Net income
    
    $
    (1,602,983
    )
    
    $
    58,210
    
    
    $
    147,452
    
    
    $
    48,059
    
    
    $
    (129,440
    )
    
    $
    184,009
    
    
    $
    (59,056
    )
    
    $
    141,398Dividends on preferred stock
    
    
    (3,650
    )
    
    
    (3,650
    )
    
    
    (3,650
    )
    
    
    (3,650
    )
    
    
    (3,650
    )
    
    
    (1,825
    )
    
    
    (2,433
    )
    
    
    Contingently convertible
debt expense, net of tax
    
    
    
    
    
    
    
    
    
    
    6,413
    
    
    
    
    
    
    
    
    
    
    
    6,344
    
    
    
    
    
    
    
    6,327Net Income for EPS purposes
    
    $
    (1,606,633
    )
    
    $
    54,560
    
    
    $
    150,215
    
    
    $
    44,409
    
    
    $
    (133,090
    )
    
    $
    188,528
    
    
    $
    (61,489
    )
    
    $
    147,725Earnings per share:Basic(1)
    
    $
    (3.34
    )
    
    $
    0.11
    
    
    $
    0.30
    
    
    $
    0.09
    
    
    $
    (0.28
    )
    
    $
    0.39
    
    
    $
    (0.15
    )
    
    $
    0.38Diluted(1)
    
    $
    (3.34
    )
    
    $
    0.11
    
    
    $
    0.29
    
    
    $
    0.09
    
    
    $
    (0.28
    )
    
    $
    0.37
    
    
    $
    (0.15
    )
    
    $
    0.36Market prices:High
    
    $
    17.73
    
    
    $
    21.94
    
    
    $
    25.16
    
    
    $
    26.42
    
    
    $
    25.90
    
    
    $
    21.60
    
    
    $
    21.76
    
    
    $
    21.53Low
    
    
    10.08
    
    
    
    16.58
    
    
    
    21.14
    
    
    
    24.07
    
    
    
    21.27
    
    
    
    20.07
    
    
    
    20.19
    
    
    
    19.57Dividends declared per
common share
    
    
    0.080
    
    
    
    0.080
    
    
    
    0.080
    
    
    
    0.080
    
    
    
    0.080
    
    
    
    0.080
    
    
    
    0.080
    
    
    
    0.060
 
 (1)
    
    Prior period earnings per share have been restated to reflect the 5% stock dividend paid to shareholders of record on June 15, 2006. 51




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##### Table of Contents



2007 Fourth Quarter Results
     RECENT ACCOUNTING PRONOUNCEMENT
  
 ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
  
 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
 Index to Financial Statements and Supplementary Data
    
    PageReport of Management
    
    
    53Reports of Independent Registered Public Accounting Firm
    
    
    54-55Consolidated Balance Sheet
    
    
    56Consolidated Statements of Operations
    
    
    57Consolidated Statements of Stockholders Equity
    
    
    58-59Consolidated Statements of Cash Flow
    
    
    60-61Notes to Consolidated Financial Statements
    
    
    62-110
 52




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##### Table of Contents



Report of Managements Assessment of
Internal Control Over Financial Reporting
    /s/ Joseph P. Campanelli
    
    /s/ Mark R. McCollomJoseph P. Campanelli
    
    Mark R. McCollomPresident and
    
    Chief Financial Officer andChief Executive Officer
    
    Executive Vice President/s/ Larry K. Davis
    
    /s/ Thomas D. CestareLarry K. Davis
    
    Thomas D. CestareCorporate Controller
    
    Chief Accounting Officer andand Senior Vice President
    
    Executive Vice PresidentFebruary 29, 2008
 53




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##### Table of Contents



Report of Independent Registered Public Accounting Firm
 THE
BOARD OF DIRECTORS AND STOCKHOLDERS OF
SOVEREIGN BANCORP, INC.
     /s/ Ernst & Young LLPPhiladelphia, PennsylvaniaFebruary 29, 2008 54




---



##### Table of Contents



THE BOARD OF DIRECTORS AND SHAREHOLDERS OF
SOVEREIGN BANCORP, INC.
     .
  /s/ Ernst & Young LLPPhiladelphia, PennsylvaniaFebruary 29, 2008 55




---



##### Table of Contents



Consolidated Balance Sheets
 AT DECEMBER 31,(IN THOUSANDS, EXCEPT SHARE DATA)
    
    2007
    
    
    2006AssetsCash and amounts due from depository institutions
    
    $
    3,130,770
    
    
    $
    1,804,117Investment securities available for sale
    
    
    13,941,847
    
    
    
    13,874,628Other investments
    
    
    1,200,545
    
    
    
    1,003,012Loans held for investment
    
    
    57,232,019
    
    
    
    54,976,675Allowance for loan losses
    
    
    (709,444
    )
    
    
    (471,030
    )Net loans held for investment
    
    
    56,522,575
    
    
    
    54,505,645Loans held for sale
    
    
    547,760
    
    
    
    7,611,921Premises and equipment
    
    
    562,332
    
    
    
    605,707Accrued interest receivable
    
    
    350,534
    
    
    
    422,901Goodwill
    
    
    3,426,246
    
    
    
    5,005,185Core deposit and other intangibles, net of accumulated amortization of
$754,935 in 2007 and $629,218 in 2006
    
    
    372,116
    
    
    
    498,420Bank owned life insurance
    
    
    1,794,099
    
    
    
    1,725,222Other assets
    
    
    2,897,572
    
    
    
    2,585,091Total Assets
    
    $
    84,746,396
    
    
    $
    89,641,849LiabilitiesDeposits and other customer accounts
    
    $
    49,915,905
    
    
    $
    52,384,554Borrowings and other debt obligations
    
    
    26,126,082
    
    
    
    26,849,717Advance payments by borrowers for taxes and insurance
    
    
    83,091
    
    
    
    98,041Other liabilities
    
    
    1,482,563
    
    
    
    1,508,753Total Liabilities
    
    
    77,607,641
    
    
    
    80,841,065Minority interest-preferred securities of subsidiaries
    
    
    146,430
    
    
    
    156,385Stockholders EquityPreferred stock; no par value; $50 liquidation preference; 7,500,000 shares
authorized; 8,000 shares outstanding in 2007 and 8,000 shares
issued and outstanding in 2006
    
    
    195,445
    
    
    
    195,445Common stock; no par value; 800,000,000 shares authorized; 482,773,610 issued
in 2007 and 479,228,330 issued in 2006
    
    
    6,295,572
    
    
    
    6,183,281Warrants and employee stock options issued
    
    
    348,365
    
    
    
    343,391Unallocated common stock held by the Employee Stock Ownership Plan (0 shares
in 2007 and 2,760,133 shares in 2006, at cost)
    
    
    
    
    
    
    (19,019
    )Treasury stock (1,369,453 shares in 2007 and 2,713,086 shares in 2006, at cost)
    
    
    (19,853
    )
    
    
    (49,028
    )Accumulated other comprehensive loss
    
    
    (326,133
    )
    
    
    (24,746
    )Retained earnings
    
    
    498,929
    
    
    
    2,015,075Total Stockholders Equity
    
    
    6,992,325
    
    
    
    8,644,399Total Liabilities and Stockholders Equity
    
    $
    84,746,396
    
    
    $
    89,641,849
  56




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##### Table of Contents



Consolidated Statements of Operations
 FOR THE YEAR ENDED DECEMBER 31,(IN THOUSANDS, EXCEPT PER SHARE DATA)
    
    2007
    
    
    2006
    
    
    2005Interest Income:Interest-earning deposits
    
    $
    19,112
    
    
    $
    16,752
    
    
    $
    8,756Investment securities:Available for sale
    
    
    721,015
    
    
    
    602,575
    
    
    
    359,692Held to maturity
    
    
    
    
    
    
    104,026
    
    
    
    189,059Other
    
    
    51,645
    
    
    
    51,414
    
    
    
    18,058Interest on loans
    
    
    3,864,484
    
    
    
    3,551,637
    
    
    
    2,387,022Total interest income
    
    
    4,656,256
    
    
    
    4,326,404
    
    
    
    2,962,587Interest Expense:Deposits and other customer accounts
    
    
    1,627,315
    
    
    
    1,372,197
    
    
    
    624,590Borrowings and other debt obligations
    
    
    1,164,919
    
    
    
    1,132,659
    
    
    
    705,908Total interest expense
    
    
    2,792,234
    
    
    
    2,504,856
    
    
    
    1,330,498Net interest income
    
    
    1,864,022
    
    
    
    1,821,548
    
    
    
    1,632,089Provision for credit losses
    
    
    407,692
    
    
    
    484,461
    
    
    
    90,000Net interest income after provision for credit losses
    
    
    1,456,330
    
    
    
    1,337,087
    
    
    
    1,542,089Non-interest Income:Consumer banking fees
    
    
    295,815
    
    
    
    275,952
    
    
    
    256,617Commercial banking fees
    
    
    202,304
    
    
    
    179,060
    
    
    
    149,274Mortgage banking revenue
    
    
    (67,792
    )
    
    
    24,239
    
    
    
    88,117Capital markets revenue
    
    
    (19,266
    )
    
    
    17,569
    
    
    
    17,821Bank-owned life insurance
    
    
    85,855
    
    
    
    67,039
    
    
    
    47,285Miscellaneous income
    
    
    33,835
    
    
    
    33,677
    
    
    
    31,837Total fees and other income
    
    
    530,751
    
    
    
    597,536
    
    
    
    590,951Net (loss)/gain on investment securities
    
    
    (176,355
    )
    
    
    (311,962
    )
    
    
    11,713Total non-interest income
    
    
    354,396
    
    
    
    285,574
    
    
    
    602,664General and administrative expenses:Compensation and benefits
    
    
    673,528
    
    
    
    652,703
    
    
    
    538,912Occupancy and equipment
    
    
    308,698
    
    
    
    290,163
    
    
    
    246,993Technology expense
    
    
    96,265
    
    
    
    95,488
    
    
    
    84,185Outside services
    
    
    67,509
    
    
    
    69,195
    
    
    
    60,989Marketing expense
    
    
    56,101
    
    
    
    55,053
    
    
    
    52,362Other administrative
    
    
    143,737
    
    
    
    127,387
    
    
    
    105,763Total general and administrative expenses
    
    
    1,345,838
    
    
    
    1,289,989
    
    
    
    1,089,204Other Expenses:Amortization of intangibles
    
    
    126,717
    
    
    
    109,838
    
    
    
    73,821Goodwill impairment
    
    
    1,576,776
    
    
    
    
    
    
    
    Minority interest expense and equity method investments
    
    
    67,263
    
    
    
    56,891
    
    
    
    66,868Loss on economic hedges
    
    
    
    
    
    
    11,387
    
    
    
    Merger related and integration charges, net
    
    
    2,242
    
    
    
    42,420
    
    
    
    12,744Employee severance charges, loss on debt extinguishment and other restructuring costs
    
    
    61,999
    
    
    
    78,668
    
    
    
    4,169ESOP expense related to freezing of plan
    
    
    40,119
    
    
    
    
    
    
    
    Proxy and related professional fees
    
    
    (516
    )
    
    
    14,337
    
    
    
    5,827Total other expenses
    
    
    1,874,600
    
    
    
    313,541
    
    
    
    163,429Income before income taxes
    
    
    (1,409,712
    )
    
    
    19,131
    
    
    
    892,120Income tax (benefit)/provision
    
    
    (60,450
    )
    
    
    (117,780
    )
    
    
    215,960NET INCOME
    
    $
    (1,349,262
    )
    
    $
    136,911
    
    
    $
    676,160Earnings per share:Basic
    
    $
    (2.85
    )
    
    $
    0.30
    
    
    $
    1.77Diluted
    
    $
    (2.85
    )
    
    $
    0.30
    
    
    $
    1.69Dividends Declared Per Common Share
    
    $
    .32
    
    
    $
    .30
    
    
    $
    .17
  57




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##### Table of Contents



Consolidated Statements of Stockholders Equity
 Common
    
    
    
    
    
    
    
    
    
    
    Warrants
    
    
    UnallocatedShares
    
    
    Preferred
    
    
    Common
    
    
    and Stock
    
    
    Stock Held by(IN THOUSANDS)
    
    Outstanding
    
    
    Stock
    
    
    Stock
    
    
    Options
    
    
    ESOPBalance, January 1, 2005
    
    
    345,775
    
    
    $
    
    
    
    $
    2,949,870
    
    
    $
    317,842
    
    
    $
    (23,707
    )Comprehensive income:Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Change in unrealized gain/(loss), net of tax:Investments available for sale
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Cash flow hedge derivative financial instruments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Stock and stock options issued in connection with
business acquisitions
    
    
    29,813
    
    
    
    
    
    
    
    645,940
    
    
    
    35,636
    
    
    
    Stock issued in connection with employee benefit and
incentive compensation plans
    
    
    3,758
    
    
    
    
    
    
    
    61,733
    
    
    
    (20,748
    )
    
    
    2,311Employee stock options issued
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,616
    
    
    
    Dividends paid on common stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Stock repurchased
    
    
    (21,328
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Balance, December 31, 2005
    
    
    358,018
    
    
    $
    
    
    
    $
    3,657,543
    
    
    $
    337,346
    
    
    $
    (21,396
    )Comprehensive income:Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Change in unrealized gain/(loss), net of tax:Investments available for sale
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Cash flow hedge derivative financial instruments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Adjustment to initially apply SFAS 158, net of tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Issuance of common stock
    
    
    90,182
    
    
    
    
    
    
    
    2,031,857
    
    
    
    
    
    
    
    Issuance of preferred stock
    
    
    
    
    
    
    195,445
    
    
    
    
    
    
    
    
    
    
    
    Stock issued in connection with employee benefit and
incentive compensation plans
    
    
    3,197
    
    
    
    
    
    
    
    19,319
    
    
    
    (3,923
    )
    
    
    2,377Employee stock options issued
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    9,968
    
    
    
    Stock dividend
    
    
    22,607
    
    
    
    
    
    
    
    474,562
    
    
    
    
    
    
    
    Dividends paid on common stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Dividends paid on preferred stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Stock repurchased
    
    
    (249
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Balance, December 31, 2006
    
    
    473,755
    
    
    $
    195,445
    
    
    $
    6,183,281
    
    
    $
    343,391
    
    
    $
    (19,019
    )Comprehensive loss:Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Change in unrealized gain/(loss), net of tax:Investments available for sale
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Pension liabilitiesCash flow hedge derivative financial instruments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Cumulative transition adjustment related to the
adoption of FIN 48
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Issuance of common stock
    
    
    980
    
    
    
    
    
    
    
    21,885
    
    
    
    
    
    
    
    Stock issued in connection with employee benefit and
incentive compensation plans
    
    
    5,874
    
    
    
    
    
    
    
    71,426
    
    
    
    (1,614
    )
    
    
    11,425Employee stock options issued
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,588
    
    
    
    ESOP shares sold in conjunction with plan termination
    
    
    1,102
    
    
    
    
    
    
    
    18,980
    
    
    
    
    
    
    
    7,594Dividends paid on common stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Dividends paid on preferred stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Stock repurchased
    
    
    (307
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Balance, December 31, 2007
    
    
    481,404
    
    
    $
    195,445
    
    
    $
    6,295,572
    
    
    $
    348,365
    
    
    $
    
  58




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##### Table of Contents



Consolidated Statements of Stockholders Equity (continued)
 AccumulatedOther
    
    
    
    
    
    
    TotalTreasury
    
    
    Comprehensive
    
    
    Retained
    
    
    StockholdersStock
    
    
    Income/(Loss)
    
    
    Earnings
    
    
    EquityBalance, January 1, 2005
    
    $
    (19,136
    )
    
    $
    (108,092
    )
    
    $
    1,871,595
    
    
    $
    4,988,372Comprehensive income:Net income
    
    
    
    
    
    
    
    
    
    
    676,160
    
    
    
    676,160Change in unrealized gain/(loss), net of tax:Investments available for sale
    
    
    
    
    
    
    (86,861
    )
    
    
    
    
    
    
    (86,861
    )Cash flow hedge derivative financial instruments
    
    
    
    
    
    
    24,155
    
    
    
    
    
    
    
    24,155Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    613,454Stock and stock options issued in connection with business acquisitions
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    681,576Stock issued in connection with employee benefit and incentive
compensation plans
    
    
    23,114
    
    
    
    
    
    
    
    
    
    
    
    66,410Employee stock option issued
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,616Dividends paid on common stock
    
    
    
    
    
    
    
    
    
    
    (61,017
    )
    
    
    (61,017
    )Stock repurchased
    
    
    (482,712
    )
    
    
    
    
    
    
    
    
    
    
    (482,712
    )Balance, December 31, 2005
    
    $
    (478,734
    )
    
    $
    (170,798
    )
    
    $
    2,486,738
    
    
    $
    5,810,699Comprehensive income:Net income
    
    
    
    
    
    
    
    
    
    
    136,911
    
    
    
    136,911Change in unrealized gain/(loss), net of tax:Investments available for sale
    
    
    
    
    
    
    169,518
    
    
    
    
    
    
    
    169,518Cash flow hedge derivative financial instruments
    
    
    
    
    
    
    (17,355
    )
    
    
    
    
    
    
    (17,355
    )Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    289,074Adjustment to initially apply SFAS 158, net of tax
    
    
    
    
    
    
    (6,111
    )
    
    
    
    
    
    
    (6,111
    )Total
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    282,963Issuance of common stock
    
    
    389,956
    
    
    
    
    
    
    
    
    
    
    
    2,421,813Issuance of preferred stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    195,445Stock issued in connection with employee benefit and incentive
compensation plans
    
    
    45,038
    
    
    
    
    
    
    
    
    
    
    
    62,811Employee stock option issued
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    9,968Stock dividend
    
    
    
    
    
    
    
    
    
    
    (474,562
    )
    
    
    Dividends paid on common stock
    
    
    
    
    
    
    
    
    
    
    (126,104
    )
    
    
    (126,104
    )Dividends paid on preferred stock
    
    
    
    
    
    
    
    
    
    
    (7,908
    )
    
    
    (7,908
    )Stock repurchased
    
    
    (5,288
    )
    
    
    
    
    
    
    
    
    
    
    (5,288
    )Balance, December 31, 2006
    
    $
    (49,028
    )
    
    $
    (24,746
    )
    
    $
    2,015,075
    
    
    $
    8,644,399Comprehensive loss:Net loss
    
    
    
    
    
    
    
    
    
    
    (1,349,262
    )
    
    
    (1,349,262
    )Change in unrealized gain/(loss), net of tax:Investments available for sale
    
    
    
    
    
    
    (191,795
    )
    
    
    
    
    
    
    (191,795
    )Pension liabilities
    
    
    
    
    
    
    1,908
    
    
    
    
    
    
    
    1,908Cash flow hedge derivative financial instruments
    
    
    
    
    
    
    (111,500
    )
    
    
    
    
    
    
    (111,500
    )Total comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,650,649
    )Cumulative transition adjustment related to the adoption of FIN 48
    
    
    
    
    
    
    
    
    
    
    952
    
    
    
    952Issuance of common stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    21,885Stock issued in connection with employee benefit and incentive
compensation plans
    
    
    36,743
    
    
    
    
    
    
    
    
    
    
    
    117,980Employee stock option issued
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,588ESOP shares sold in conjunction with plan termination
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    26,574Dividends paid on common stock
    
    
    
    
    
    
    
    
    
    
    (153,236
    )
    
    
    (153,236
    )Dividends paid on preferred stock
    
    
    
    
    
    
    
    
    
    
    (14,600
    )
    
    
    (14,600
    )Stock repurchased
    
    
    (7,568
    )
    
    
    
    
    
    
    
    
    
    
    (7,568
    )Balance, December 31, 2007
    
    $
    (19,853
    )
    
    $
    (326,133
    )
    
    $
    498,929
    
    
    $
    6,992,325
  59




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##### Table of Contents



Consolidated Statements of Cash Flow
 FOR THE YEAR ENDED DECEMBER 31,(IN THOUSANDS)
    
    2007
    
    
    2006
    
    
    2005Cash Flows From Operating Activities:Net (loss)/ income
    
    $
    (1,349,262
    )
    
    $
    136,911
    
    
    $
    676,160Adjustments to reconcile net income to net cash provided by (used in) operating activities:Provision for credit losses
    
    
    407,692
    
    
    
    484,461
    
    
    
    90,000Deferred taxes
    
    
    (171,565
    )
    
    
    (226,432
    )
    
    
    69,013Depreciation and amortization
    
    
    266,715
    
    
    
    220,959
    
    
    
    167,262Impairment on goodwill
    
    
    1,576,776
    
    
    
    
    
    
    
    Net amortization/accretion of investment securities and loan premiums and discounts
    
    
    48,019
    
    
    
    126,417
    
    
    
    127,880Net (gain)/loss on the sale of loans
    
    
    (16,178
    )
    
    
    (30,078
    )
    
    
    (98,797
    )Net (gain)/loss on investment securities
    
    
    176,355
    
    
    
    311,962
    
    
    
    (11,713
    )Net loss on real estate owned and premises and equipment
    
    
    6,132
    
    
    
    2,049
    
    
    
    367Loss on debt extinguishments
    
    
    14,714
    
    
    
    
    
    
    
    187Loss on economic hedges
    
    
    
    
    
    
    11,387
    
    
    
    Stock based compensation
    
    
    28,011
    
    
    
    35,475
    
    
    
    30,404Allocation of Employee Stock Ownership Plan
    
    
    40,119
    
    
    
    2,377
    
    
    
    2,311Origination and purchase of loans held for sale, net of repayments
    
    
    (5,113,911
    )
    
    
    (2,980,514
    )
    
    
    (1,602,710
    )Proceeds from the sale of loans held for sale
    
    
    4,966,782
    
    
    
    3,421,425
    
    
    
    1,438,972Net change in:Accrued interest receivable
    
    
    72,367
    
    
    
    (57,765
    )
    
    
    (60,288
    )Other assets and bank owned life insurance
    
    
    (286,585
    )
    
    
    (585,389
    )
    
    
    (64,015
    )Other liabilities
    
    
    (34,712
    )
    
    
    114,240
    
    
    
    310,744Net cash provided by operating activities
    
    
    631,469
    
    
    
    987,485
    
    
    
    1,075,777Cash Flows From Investing Activities:Proceeds from sales investment securities:Available for sale
    
    
    669,053
    
    
    
    12,052,450
    
    
    
    1,601,754Held to maturity
    
    
    
    
    
    
    1,774,475
    
    
    
    Proceeds from repayments and maturities of investment securities:Available for sale
    
    
    4,203,214
    
    
    
    1,847,294
    
    
    
    2,412,834Held to maturity
    
    
    
    
    
    
    186,845
    
    
    
    580,928Net change in other investments
    
    
    (197,533
    )
    
    
    (351,713
    )
    
    
    (74,119
    )Net change
in securities available for sale
    
    
    (1,800,620
    )
    
    
    371,695
    
    
    
    (334,717
    )Purchases of investment securities:Available for sale
    
    
    (3,593,836
    )
    
    
    (14,591,166
    )
    
    
    (3,576,405
    )Held to maturity
    
    
    
    
    
    
    (557,704
    )
    
    
    (1,306,087
    )Proceeds from sales of loans
    
    
    9,461,279
    
    
    
    4,848,438
    
    
    
    7,470,127Purchase of loans
    
    
    (290,720
    )
    
    
    (6,828,628
    )
    
    
    (6,070,671
    )Net change in loans other than purchases and sales
    
    
    (4,384,354
    )
    
    
    (4,616,040
    )
    
    
    (5,886,247
    )Proceeds from sales of premises and equipment and real estate owned
    
    
    47,691
    
    
    
    21,155
    
    
    
    23,577Purchases of premises and equipment
    
    
    (70,254
    )
    
    
    (115,162
    )
    
    
    (98,193
    )Net cash (paid) received from business combinations
    
    
    
    
    
    
    (2,713,208
    )
    
    
    280,210Net cash provided by/(used in) investing activities
    
    
    4,043,920
    
    
    
    (8,671,269
    )
    
    
    (4,977,009
    )Cash Flows From Financing Activities:Net change in deposits and other customer accounts
    
    
    (2,478,869
    )
    
    
    3,368,642
    
    
    
    2,541,527Net increase in borrowings and other debt obligations
    
    
    1,024,006
    
    
    
    2,271,801
    
    
    
    1,364,210Proceeds from senior credit facility and senior notes, net of issuance costs
    
    
    580,000
    
    
    
    875,000
    
    
    
    797,805Repayments of borrowings and other debt obligations
    
    
    (2,347,090
    )
    
    
    (550,000
    )
    
    
    (350,000
    )Net increase (decrease) in advance payments by borrowers for taxes and insurance
    
    
    (14,950
    )
    
    
    (60,532
    )
    
    
    16,553Maturity of minority interest
    
    
    (11,822
    )
    
    
    (54,000
    )
    
    
    Proceeds from issuance of preferred stock, net of issuance costs
    
    
    
    
    
    
    195,445
    
    
    
    Proceeds from issuance of common stock, net of issuance costs
    
    
    35,627
    
    
    
    2,043,009
    
    
    
    33,383Sale of unallocated ESOP shares
    
    
    26,574
    
    
    
    
    
    
    
    Treasury stock repurchases, net of proceeds
    
    
    5,624
    
    
    
    400,612
    
    
    
    (470,215
    )Cash dividends paid to preferred stockholders
    
    
    (14,600
    )
    
    
    (7,908
    )
    
    
    Cash dividends paid to common stockholders
    
    
    (153,236
    )
    
    
    (126,104
    )
    
    
    (61,017
    )Net cash (used in)/provided by financing activities
    
    
    (3,348,736
    )
    
    
    8,355,965
    
    
    
    3,872,246Net change in cash and cash equivalents
    
    
    1,326,653
    
    
    
    672,181
    
    
    
    (28,986
    )Cash and cash equivalents at beginning of year
    
    
    1,804,117
    
    
    
    1,131,936
    
    
    
    1,160,922Cash and cash equivalents at end of year
    
    $
    3,130,770
    
    
    $
    1,804,117
    
    
    $
    1,131,936
  60




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##### Table of Contents



Supplemental Disclosures:
 AT DECEMBER 31,(IN THOUSANDS)
    
    2007
    
    2006
    
    2005Income taxes paid
    
    $
    204,090
    
    
    $
    155,963
    
    
    $
    77,479Interest paid
    
    
    2,984,896
    
    
    
    2,327,659
    
    
    
    1,235,694
      61




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##### Table of Contents



Notes to Consolidated Financial Statements
 Note 1  Summary of Significant Accounting Policies
   a. Principles of Consolidation 
 b. Use of Estimates 
 c. Per Share Information 
 d. Revenue Recognition 
 e. Investment Securities and Other Investments 
  f. Loans Held for Sale 
 g. Mortgage Servicing Rights 
  62




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##### Table of Contents



Notes to Consolidated Financial Statements
 Note 1  Summary of Significant Accounting Policies (Continued)
  h. Allowance for Loan Losses and Reserve for Unfunded Lending Commitments 
         63




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##### Table of Contents



Notes to Consolidated Financial Statements
 Note 1  Summary of Significant Accounting Policies (Continued)
 i. Loans 
    j. Premises and Equipment 
 Office buildings
    
    10 to 30 yearsLeasehold improvements
    
    Remaining lease termFurniture, fixtures and equipment
    
    3 to 10 yearsAutomobiles
    
    5 years
  k. Other Real Estate Owned 
 l. Bank Owned Life Insurance
 m. Income Taxes 
   64




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##### Table of Contents



Notes to Consolidated Financial Statements
 Note 1  Summary of Significant Accounting Policies (Continued)
 n. Derivative Instruments and Hedging Activity 
      o. Forward Exchange 
 p. Consolidated Statement of Cash Flows 
 q. Goodwill and Core Deposit Intangibles 
  65




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##### Table of Contents



Notes to Consolidated Financial Statements
 Note 1  Summary of Significant Accounting Policies (Continued)
 r. Asset Securitizations 
   s. Marketing expense 
 t. Stock Based Compensation 
  GRANT DATE YEAR2007
    
    2006
    
    2005Expected volatility
    
    
    .214 - .235
    
    
    
    .262 - .278
    
    
    
    .280 - .293Expected life in years
    
    
    6.00
    
    
    
    6.00
    
    
    
    6.00Stock price on date of grant
    
    $
    17.62 - 25.76
    
    
    $
    19.98 - 25.77
    
    
    $
    19.40 - 22.95Exercise price
    
    $
    17.62 - 25.76
    
    
    $
    19.98 - 25.77
    
    
    $
    19.40 - 22.95Weighted average exercise price
    
    $
    22.74
    
    
    $
    20.30
    
    
    $
    22.11Weighted average fair value
    
    $
    6.24
    
    
    $
    6.42
    
    
    $
    7.52Expected dividend yield
    
    
    1.24% - 1.82
    %
    
    
    1.11% - 1.50
    %
    
    
    0.53% - 1.11
    %Risk-free interest rate
    
    
    4.07% - 5.04
    %
    
    
    4.28% - 5.13
    %
    
    
    3.91% - 4.45
    %Vesting period in years
    
    
    3-5
    
    
    
    2-5
    
    
    
    5
   u. Equity Method Investments 
 66




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Notes to Consolidated Financial Statements
 Note 2  Recent Accounting Pronouncements
        67




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##### Table of Contents



Notes to Consolidated Financial Statements
 Note 2  Recent Accounting Pronouncements (continued)
    -
    
    Acquisition costs will be generally expensed as incurred;-
    
    Non-controlling interests (formerly known as minority interests) will be valued at fair value
at the acquisition date;-
    
    Acquired contingent liabilities will be recorded at fair value at the acquisition date and
subsequently measured at the higher of such amount
determined under existing guidance for non-acquired contingencies. Changes in the value of these
contingent liabilities will be recorded through earnings;-
    
    In process research and development will be recorded at fair value as an indefinite-lived
intangible asset at the acquisition date;-
    
    Restructuring costs associated with a business combination will be generally expensed subsequent
to the acquisition date; and-
    
    Changes in deferred tax asset valuation allowances and income tax uncertainties after the
acquisition date generally will affect income tax expense.
  68




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Notes to Consolidated Financial Statements
 Note 3  Business Combinations
   AssetsInvestments
    
    $
    3,126.5Loans:Multifamily
    
    
    5,571.2Commercial
    
    
    5,313.3Consumer
    
    
    517.2Residential
    
    
    1,829.0Total loans
    
    
    13,230.7Less allowance for loan losses
    
    
    (97.8
    )Total loans, net
    
    
    13,132.9Cash acquired, net of cash paid
    
    
    (2,713.2
    )Premises and equipment, net
    
    
    167.9Bank Owned Life Insurance
    
    
    343.3Other assets
    
    
    370.5Core deposit and other intangibles
    
    
    394.2Goodwill
    
    
    2,280.6Total assets
    
    $
    17,102.7LiabilitiesDeposits:Core
    
    $
    6,960.8Time
    
    
    4,070.1Total deposits
    
    
    11,030.9Borrowings and other debt obligations
    
    
    5,488.8Other liabilities (1)
    
    
    583.0Total liabilities
    
    $
    17,102.7
 
 (1)
    
    Includes liabilities of $26.2 million directly associated with the
transaction which were recorded as part of the purchase price which is
primarily comprised of $14.4 million of termination penalties for
canceling certain long-term Independence contracts related to
redundant services and $2.8 million related to branch consolidation.   2007
    
    
    2006Branch and office consolidations
    
    $
    
    
    
    $
    2,330System conversions
    
    
    985
    
    
    
    9,414Retail banking conversion costs
    
    
    
    
    
    
    10,059Marketing
    
    
    577
    
    
    
    12,504Retention bonuses and other employee-related costs
    
    
    
    
    
    
    5,663Other
    
    
    680
    
    
    
    2,781Total
    
    $
    2,242
    
    
    $
    42,751
   69




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##### Table of Contents



Notes to Consolidated Financial Statements
 Note 3  Business Combinations (continued)
 
 AssetsInvestments
    
    $
    379.2Total loans, net of allowance for loan loss
    
    
    2,577.6Cash acquired, net of cash paid
    
    
    324.2Premises and equipment, net
    
    
    33.0Bank Owned Life Insurance
    
    
    97.0Prepaid expenses and other assets
    
    
    262.8Core deposit intangible
    
    
    31.1Goodwill
    
    
    601.8Total assets
    
    $
    4,306.7LiabilitiesDeposits:Core
    
    $
    1,503.7Time
    
    
    1,384.6Total deposits
    
    
    2,888.3Borrowings and other debt obligations
    
    
    668.2Other liabilities (1)
    
    
    67.6Total liabilities
    
    $
    3,624.1
 
 (1)
    
    Includes liabilities of $11.6 million directly associated with the
transaction which were recorded as part of the purchase price. The
major components of this liability consisted of $2.9 million related
to branch consolidation, $4.1 million related to accruals established
for contractual disputes, and $2.1 million representing amounts to be
paid to Waypoint senior executives for severance and acceleration of
certain retirement benefits earned by employees at the date of the
acquisition.   Branch and office consolidations
    
    $
    2,396System conversions
    
    
    5,831Retail banking conversion costs and other
    
    
    8,511Total
    
    $
    16,738
   70




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##### Table of Contents



Notes to Consolidated Financial Statements
 Note 3  Business Combinations (continued)
  Other
    
    
    Independenceacquisitions
    
    
    acquisition
    
    
    TotalReserve balance at December 31, 2006
    
    $
    22,358
    
    
    $
    22,432
    
    
    $
    44,790Charge recorded in earnings
    
    
    
    
    
    
    2,242
    
    
    
    2,242Payments
    
    
    (9,397
    )
    
    
    (14,601
    )
    
    
    (23,998
    )Reserve balance as of December 31, 2007
    
    $
    12,961
    
    
    $
    10,073
    
    
    $
    23,034
 Note 4  Goodwill and Other Intangible Assets
  Mid-Atlantic
    
    New England
    
    Metro NewBanking
    
    Banking
    
    York Banking
    
    Shared Services
    
    Shared ServicesDivision
    
    Division
    
    Division
    
    Consumer
    
    Commercial
    
    TotalBalance as of January 1, 2007
    
    $
    688,079
    
    
    $
    658,006
    
    
    $
    2,683,487
    
    
    $
    634,012
    
    
    $
    341,601
    
    
    $
    5,005,185Goodwill added during the year
    
    
    109
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    109Goodwill adjustments during the year
    
    
    
    
    
    
    
    
    
    
    (2,272
    )
    
    
    
    
    
    
    
    
    
    
    (2,272
    )Impairment losses
    
    
    
    
    
    
    
    
    
    
    (942,764
    )
    
    
    (634,012
    )
    
    
    
    
    
    
    (1,576,776
    )Balance as of December 31, 2007
    
    $
    688,188
    
    
    $
    658,006
    
    
    $
    1,738,451
    
    
    $
    
    
    
    $
    341,601
    
    
    $
    3,426,246




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##### Table of Contents



Notes to Consolidated Financial Statements
 Note 4  Goodwill and Other Intangible Assets (continued)
  YEAR
    
    AMOUNT2008
    
    $
    100,4672009
    
    
    71,3412010
    
    
    56,6172011
    
    
    44,9632012
    
    
    33,108
  Note 5  Restrictions on Cash and Amounts Due From Depository Institutions




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##### Table of Contents



Notes to Consolidated Financial Statements
 Note 6  Investment Securities
  AT DECEMBER 31,2007
    
    
    2006Amortized
    
    
    Unrealized
    
    
    Unrealized
    
    
    Fair
    
    
    Amortized
    
    
    Unrealized
    
    
    Unrealized
    
    
    FairCost
    
    
    Appreciation
    
    
    Depreciation
    
    
    Value
    
    
    Cost
    
    
    Appreciation
    
    
    Depreciation
    
    
    ValueInvestment SecuritiesAvailable for sale:U.S. Treasury and
government agency
securities
    
    $
    85,948
    
    
    $
    480
    
    
    $
    
    
    
    $
    86,428
    
    
    $
    1,561,685
    
    
    $
    38
    
    
    $
    878
    
    
    $
    1,560,845Debentures of FHLB,
FNMA and FHLMC
    
    
    186,482
    
    
    
    5,918
    
    
    
    1
    
    
    
    192,399
    
    
    
    242,248
    
    
    
    3,001
    
    
    
    1,149
    
    
    
    244,100Corporate debt and
asset-backed securities
    
    
    947,992
    
    
    
    10
    
    
    
    194,239
    
    
    
    753,763
    
    
    
    953,374
    
    
    
    3,443
    
    
    
    6,315
    
    
    
    950,502Equity securities(1)
    
    
    638,881
    
    
    
    4,282
    
    
    
    1
    
    
    
    643,162
    
    
    
    893,627
    
    
    
    48,491
    
    
    
    
    
    
    
    942,118State and municipal
securities
    
    
    2,505,772
    
    
    
    23,055
    
    
    
    26,403
    
    
    
    2,502,424
    
    
    
    2,510,975
    
    
    
    45,325
    
    
    
    1,494
    
    
    
    2,554,806Mortgage-backed
Securities:U.S. government agencies
    
    
    2,251,022
    
    
    
    4,376
    
    
    
    56
    
    
    
    2,255,342
    
    
    
    45,400
    
    
    
    765
    
    
    
    105
    
    
    
    46,060FHLMC and FNMA
securities
    
    
    4,099,515
    
    
    
    46,484
    
    
    
    1,597
    
    
    
    4,144,402
    
    
    
    3,598,731
    
    
    
    12,088
    
    
    
    5,185
    
    
    
    3,605,634Non-agencies
    
    
    3,459,284
    
    
    
    2,797
    
    
    
    98,154
    
    
    
    3,363,927
    
    
    
    4,009,789
    
    
    
    13,139
    
    
    
    52,365
    
    
    
    3,970,563Total investment
securities available
for sale
    
    $
    14,174,896
    
    
    $
    87,402
    
    
    $
    320,451
    
    
    $
    13,941,847
    
    
    $
    13,815,829
    
    
    $
    126,290
    
    
    $
    67,491
    
    
    $
    13,874,628
 
 (1)
    
    Equity securities are primarily composed of preferred stock of FNMA and FHLMC.




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##### Table of Contents



Notes to Consolidated Financial Statements
 Note 6  Investment Securities (Continued)
  AT DECEMBER 31, 2007Less than 12 months
    
    
    12 months or longer
    
    
    TotalUnrealized
    
    
    
    
    
    
    Unrealized
    
    
    
    
    
    
    UnrealizedFair Value
    
    
    Losses
    
    
    Fair Value
    
    
    Losses
    
    
    Fair Value
    
    
    LossesInvestment SecuritiesAvailable for sale investment securities:Debentures of FHLB, FNMA and FHLMC
    
    $
    
    
    
    $
    
    
    
    $
    1,009
    
    
    $
    (1
    )
    
    $
    1,009
    
    
    $
    (1
    )Corporate debt and asset-backed securities
    
    
    223,813
    
    
    
    (81,066
    )
    
    
    398,924
    
    
    
    (113,173
    )
    
    
    622,737
    
    
    
    (194,239
    )Equity Securities
    
    
    253
    
    
    
    (1
    )
    
    
    
    
    
    
    
    
    
    
    253
    
    
    
    (1
    )State and municipal securities
    
    
    1,510,114
    
    
    
    (25,880
    )
    
    
    18,697
    
    
    
    (523
    )
    
    
    1,528,811
    
    
    
    (26,403
    )Mortgage-backed Securities:U.S. government agencies
    
    
    26
    
    
    
    
    
    
    
    1,392
    
    
    
    (56
    )
    
    
    1,418
    
    
    
    (56
    )FHLMC and FNMA securities
    
    
    11,020
    
    
    
    (46
    )
    
    
    91,600
    
    
    
    (1,551
    )
    
    
    102,620
    
    
    
    (1,597
    )Non-agencies
    
    
    1,511,132
    
    
    
    (41,875
    )
    
    
    1,475,522
    
    
    
    (56,279
    )
    
    
    2,986,654
    
    
    
    (98,154
    )Total investment securities available for sale
    
    $
    3,256,358
    
    
    $
    (148,868
    )
    
    $
    1,987,144
    
    
    $
    (171,583
    )
    
    $
    5,243,502
    
    
    $
    (320,451
    )
 AT DECEMBER 31, 2006Less than 12 months
    
    
    12 months or longer
    
    
    TotalUnrealized
    
    
    
    
    
    
    Unrealized
    
    
    
    
    
    
    UnrealizedFair Value
    
    
    Losses
    
    
    Fair Value
    
    
    Losses
    
    
    Fair Value
    
    
    LossesInvestment SecuritiesAvailable for sale investment securities:U.S. Treasury and government agency securities
    
    $
    1,495,712
    
    
    $
    (733
    )
    
    $
    15,995
    
    
    $
    (145
    )
    
    $
    1,511,707
    
    
    $
    (878
    )Debentures of FHLB, FNMA and FHLMC
    
    
    
    
    
    
    
    
    
    
    101,341
    
    
    
    (1,149
    )
    
    
    101,341
    
    
    
    (1,149
    )Corporate debt and asset-backed securities
    
    
    446,261
    
    
    
    (4,014
    )
    
    
    61,820
    
    
    
    (2,301
    )
    
    
    508,081
    
    
    
    (6,315
    )State and municipal securities
    
    
    247,409
    
    
    
    (1,312
    )
    
    
    21,239
    
    
    
    (182
    )
    
    
    268,648
    
    
    
    (1,494
    )Mortgage-backed Securities:U.S. government agencies
    
    
    219
    
    
    
    (8
    )
    
    
    2,258
    
    
    
    (97
    )
    
    
    2,477
    
    
    
    (105
    )FHLMC and FNMA securities
    
    
    641,851
    
    
    
    (1,009
    )
    
    
    126,193
    
    
    
    (4,176
    )
    
    
    768,044
    
    
    
    (5,185
    )Non-agencies
    
    
    456,897
    
    
    
    (1,703
    )
    
    
    1,962,694
    
    
    
    (50,662
    )
    
    
    2,419,591
    
    
    
    (52,365
    )Total investment securities available for sale
    
    $
    3,288,349
    
    
    $
    (8,779
    )
    
    $
    2,291,540
    
    
    $
    (58,712
    )
    
    $
    5,579,889
    
    
    $
    (67,491
    )
 74




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##### Table of Contents



Notes to Consolidated Financial Statements
 Note 6  Investment Securities (Continued)
     YEAR ENDED DECEMBER 31,2007
    
    
    2006
    
    
    2005Proceeds from sales
    
    $
    669,053
    
    
    $
    13,826,925
    
    
    $
    1,601,754Gross realized gains
    
    
    4,821
    
    
    
    37,668
    
    
    
    20,260Gross realized losses
    
    
    (627
    )
    
    
    (282,842
    )
    
    
    (5,852
    )Net realized (losses)/gains
    
    $
    4,194
    
    
    $
    (245,174
    )
    
    $
    14,408




---



##### Table of Contents



Notes to Consolidated Financial Statements
 Note 6  Investment Securities (Continued)
  INVESTMENT SECURITIES AVAILABLE FOR SALE AT DECEMBER 31, 2007(1)Due After
    
    
    
    
    
    
    WeightedDue Within
    
    
    Due After 1
    
    
    Due After 5
    
    
    10 Years/No
    
    
    
    
    
    
    AverageOne Year
    
    
    Within 5 Yrs
    
    
    Within 10 Yrs
    
    
    Maturity
    
    
    Total
    
    
    Yield (2)U.S. Treasury and government
agency
    
    $
    80,884
    
    
    $
    5,544
    
    
    $
    
    
    
    $
    
    
    
    $
    86,428
    
    
    
    3.24
    %Debentures of FHLB, FNMA and
FHLMC
    
    
    141,167
    
    
    
    30,667
    
    
    
    20,565
    
    
    
    
    
    
    
    192,399
    
    
    
    4.01
    %Corporate debt and asset
backed securities
    
    
    11,021
    
    
    
    
    
    
    
    647,272
    
    
    
    95,470
    
    
    
    753,763
    
    
    
    9.55
    %Equity securities (4)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    643,162
    
    
    
    643,162
    
    
    
    7.60
    %State and Municipal securities
    
    
    
    
    
    
    156,399
    
    
    
    2,249,580
    
    
    
    96,445
    
    
    
    2,502,424
    
    
    
    6.51
    %Mortgage-backed Securities(2):U.S. government agencies
    
    
    2,053,339
    
    
    
    120,393
    
    
    
    44,298
    
    
    
    37,312
    
    
    
    2,255,342
    
    
    
    5.28
    %FHLMC and FNMA securities
    
    
    1,150,075
    
    
    
    1,893,538
    
    
    
    596,469
    
    
    
    504,320
    
    
    
    4,144,402
    
    
    
    5.52
    %Non-agencies
    
    
    1,221,067
    
    
    
    1,649,067
    
    
    
    347,503
    
    
    
    146,290
    
    
    
    3,363,927
    
    
    
    6.71
    %Total Fair Value
    
    $
    4,657,553
    
    
    $
    3,855,608
    
    
    $
    3,905,687
    
    
    $
    1,522,999
    
    
    $
    13,941,847
    
    
    
    6.23
    %Weighted average yield
    
    
    5.64
    %
    
    
    5.97
    %
    
    
    7.03
    %
    
    
    6.59
    %
    
    
    6.23
    %Total Amortized Cost
    
    $
    4,686,946
    
    
    $
    3,933,244
    
    
    $
    4,030,731
    
    
    $
    1,523,975
    
    
    $
    14,174,896
 
 (1)
    
    The maturities above do not represent the effective duration of Sovereigns portfolio since the amounts above are based on
contractual maturities and do not contemplate anticipated prepayments, with the exception of the securities identified in
Note 2 below.(2)
    
    Mortgage-backed and state and municipal securities are assigned to maturity categories based on their estimated average lives.(3)
    
    Weighted-average yields are based on amortized cost. Yields on tax-exempt securities are calculated on a tax equivalent basis
and are based on an effective tax rate of 35%.(4)
    
    Equity securities are primarily composed of FNMA and FHLMC preferred stock.




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##### Table of Contents



Notes to Consolidated Financial Statements
 Note 7  Loans
  AT DECEMBER 31,2007
    
    
    2006Commercial real estate loans(1)
    
    $
    12,306,914
    
    
    $
    11,514,983Commercial and industrial loans
    
    
    12,594,652
    
    
    
    11,561,183Multifamily loans
    
    
    4,088,992
    
    
    
    5,621,429Other
    
    
    1,765,036
    
    
    
    1,518,603Total Commercial Loans Held for Investment
    
    
    30,755,594
    
    
    
    30,216,198Residential mortgages
    
    
    12,950,811
    
    
    
    14,316,168Home equity loans and lines of credit
    
    
    6,197,148
    
    
    
    5,176,346Total consumer loans secured by real estate
    
    
    19,147,959
    
    
    
    19,492,514Auto loans
    
    
    7,028,894
    
    
    
    4,848,204Other
    
    
    299,572
    
    
    
    419,759Total Consumer Loans Held for Investment
    
    
    26,476,425
    
    
    
    24,760,477Total Loans Held for Investment(2)
    
    $
    57,232,019
    
    
    $
    54,976,675Total Loans Held for Investment with:Fixed rate
    
    $
    32,903,007
    
    
    $
    32,321,464Variable rate
    
    
    24,329,012
    
    
    
    22,655,211Total Loans Held for Investment(2)
    
    $
    57,232,019
    
    
    $
    54,976,675
 
 (1)
    
    Includes residential and commercial construction loans of $2.3 billion and $1.9 billion at December 31, 2007 and 2006, respectively.(2)
    
    Loan totals include deferred loan origination costs, net of deferred loan fees and unamortized purchase premiums, net of discounts.
These items resulted in a net increase in loans of $263.4 million and $258.4 million at December 31, 2007 and 2006, respectively.
Loans pledged as collateral for borrowings totaled $15.6 billion and $17.7 billion at December 31, 2007 and 2006, respectively.   AT DECEMBER 31,2007
    
    
    2006Commercial
    
    $
    
    
    
    $
    109,123Multifamily
    
    
    157,378
    
    
    
    147,022Residential mortgages
    
    
    390,382
    
    
    
    3,088,562Home equity loans and lines of credit
    
    
    
    
    
    
    4,267,214Total Loans Held for Sale
    
    $
    547,760
    
    
    $
    7,611,921Total Loans Held for Sale with:Fixed rate
    
    $
    547,760
    
    
    $
    7,395,494Variable rate
    
    
    
    
    
    
    216,427Total Loans Held for Sale
    
    $
    547,760
    
    
    $
    7,611,921




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##### Table of Contents



Notes to Consolidated Financial Statements
 Note 7  Loans (Continued)
   YEAR ENDED DECEMBER 31,2007
    
    
    2006
    
    
    2005Allowance for loan losses balance, beginning of period
    
    $
    471,030
    
    
    $
    419,599
    
    
    $
    391,003Allowance acquired from acquisitions
    
    
    
    
    
    
    97,824
    
    
    
    28,778Provision for loan losses(1)
    
    
    394,646
    
    
    
    487,418
    
    
    
    89,501Allowance released in connection with loan sales or
securitizations
    
    
    (12,409
    )
    
    
    (4,728
    )
    
    
    (8,010
    )Charge-offs:Commercial
    
    
    65,670
    
    
    
    56,916
    
    
    
    40,935Consumer secured by real estate (1)
    
    
    26,809
    
    
    
    463,902
    
    
    
    24,125Consumer not secured by real estate
    
    
    126,385
    
    
    
    73,958
    
    
    
    71,906Total charge-offs
    
    
    218,864
    
    
    
    594,776
    
    
    
    136,966Recoveries:Commercial
    
    
    15,187
    
    
    
    14,097
    
    
    
    13,100Consumer secured by real estate
    
    
    11,193
    
    
    
    9,933
    
    
    
    7,085Consumer not secured by real estate
    
    
    48,661
    
    
    
    41,663
    
    
    
    35,108Total recoveries
    
    
    75,041
    
    
    
    65,693
    
    
    
    55,293Charge-offs, net of recoveries
    
    
    143,823
    
    
    
    529,083
    
    
    
    81,673Allowance for loan losses balance, end of period
    
    $
    709,444
    
    
    $
    471,030
    
    
    $
    419,599Reserve for unfunded lending commitments, beginning of
period
    
    
    15,255
    
    
    
    18,212
    
    
    
    17,713Provision for unfunded lending commitments
    
    
    13,046
    
    
    
    (2,957
    )
    
    
    499Reserve for unfunded lending commitments, end of period
    
    
    28,301
    
    
    
    15,255
    
    
    
    18,212Total allowance for credit losses
    
    $
    737,745
    
    
    $
    486,285
    
    
    $
    437,811
 
 (1)
    
    Our 2006 provision for loan loss and charge-offs included $296.0
million and $382.5 million, respectively, related to the previously
discussed loss on the correspondent home equity loans that were
classified as held for sale as of December 31, 2006. Additionally,
Sovereign recorded an additional $12.5 million of provisions to cover
the inherent losses in the multifamily loan portfolio acquired from
Independence in the second quarter of 2006. Finally, as previously
discussed, we recorded a charge-off of $7.1 million on $2.9 billion of
residential mortgage loans that were classified as held for sale as of
December 31, 2006.




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##### Table of Contents



Notes to Consolidated Financial Statements
 Note 7  Loans (Continued)
  AT DECEMBER 31,2007
    
    2006Impaired loans with a related allowance
    
    $ 471,212
    
    $ 321,138Impaired loans without a related allowance
    
    
    
    Total impaired loans
    
    $ 471,212
    
    $ 321,138Allowance for impaired loans
    
    $   83,426
    
    $   53,366Total non-accrual loans
    
    $ 304,289
    
    $ 207,357Total loans past due 90 days as to
interest or principal and accruing
interest
    
    $   68,770
    
    $   40,103
 Note 8  Mortgage Servicing Rights
  YEAR ENDED DECEMBER 31,2007
    
    
    2006
    
    
    2005Gross balance, beginning of year
    
    $
    118,637
    
    
    $
    91,073
    
    
    $
    81,040Residential mortgage servicing assets recognized
    
    
    51,139
    
    
    
    41,626
    
    
    
    25,715Servicing rights acquired
    
    
    
    
    
    
    7,640
    
    
    
    3,019Amortization of residential mortgage servicing
rights
    
    
    (26,063
    )
    
    
    (15,785
    )
    
    
    (17,578
    )Write-off of servicing assets
    
    
    (1,164
    )
    
    
    (5,917
    )
    
    
    (1,123
    )Gross balance, end of year
    
    
    142,549
    
    
    
    118,637
    
    
    
    91,073Valuation allowance
    
    
    (1,473
    )
    
    
    (1,222
    )
    
    
    (16
    )Balance, end of year
    
    $
    141,076
    
    
    $
    117,415
    
    
    $
    91,057
   December 31, 2007
    
    December 31, 2006
    
    December 31, 2005CPR speed
    
    
    14.70
    %
    
    
    14.23
    %
    
    
    12.42
    %Escrow credit spread
    
    
    5.12
    %
    
    
    4.85
    %
    
    
    4.16
    %
 79




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##### Table of Contents



Notes to Consolidated Financial Statements
 Note 8  Mortgage Servicing Rights (Continued)
  YEAR ENDED DECEMBER 31,2007
    
    
    2006
    
    
    2005Balance, beginning of period
    
    $
    1,222
    
    
    $
    16
    
    
    $
    7,083Write-offs of reserves
    
    
    (1,164
    )
    
    
    (5,917
    )
    
    
    (1,123
    )Increase/(decrease) in
valuation allowance for
residential mortgage
servicing rights
    
    
    1,415
    
    
    
    7,123
    
    
    
    (5,944
    )Balance, end of year
    
    $
    1,473
    
    
    $
    1,222
    
    
    $
    16
       80




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##### Table of Contents



Notes to Consolidated Financial Statements
 Note 9  Premises and Equipment
  AT DECEMBER 31,2007
    
    
    2006Land
    
    $
    63,268
    
    
    $
    72,571Office buildings
    
    
    228,583
    
    
    
    237,773Furniture, fixtures, and
equipment
    
    
    376,782
    
    
    
    369,265Leasehold improvements
    
    
    267,753
    
    
    
    235,302Automobiles and other
    
    
    13,502
    
    
    
    13,677949,888
    
    
    
    928,588Less accumulated depreciation
    
    
    (387,556
    )
    
    
    (322,881
    )Total premises and equipment
    
    $
    562,332
    
    
    $
    605,707
  Note 10  Accrued Interest Receivable
  AT DECEMBER 31,2007
    
    
    2006Accrued interest receivable on:Investment securities
    
    $
    88,803
    
    
    $
    108,657Loans
    
    
    261,731
    
    
    
    314,244Total interest receivable
    
    $
    350,534
    
    
    $
    422,901
 81




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##### Table of Contents



Notes to Consolidated Financial Statements
 Note 11  Deposits
  AT DECEMBER 31,2007
    
    
    2006Balance
    
    
    Percent
    
    
    Rate
    
    
    Balance
    
    
    Percent
    
    
    RateDemand deposit accounts
    
    $
    6,444,338
    
    
    
    13
    %
    
    
    
    %
    
    $
    6,577,585
    
    
    
    12
    %
    
    
    
    %NOW accounts
    
    
    5,546,280
    
    
    
    11
    
    
    
    1.02
    
    
    
    6,333,667
    
    
    
    12
    
    
    
    1.24Wholesale NOW accounts
    
    
    4,014,284
    
    
    
    8
    
    
    
    4.37
    
    
    
    3,573,861
    
    
    
    7
    
    
    
    4.97Customer repurchase agreements
    
    
    2,754,680
    
    
    
    6
    
    
    
    3.27
    
    
    
    2,206,445
    
    
    
    4
    
    
    
    4.74Savings accounts
    
    
    3,831,636
    
    
    
    8
    
    
    
    0.68
    
    
    
    4,637,346
    
    
    
    9
    
    
    
    0.65Money market accounts
    
    
    10,655,978
    
    
    
    21
    
    
    
    3.39
    
    
    
    8,875,353
    
    
    
    17
    
    
    
    3.17Wholesale money market accounts
    
    
    1,765,715
    
    
    
    3
    
    
    
    4.50
    
    
    
    4,116,417
    
    
    
    8
    
    
    
    5.51Certificates of deposit
    
    
    11,872,400
    
    
    
    24
    
    
    
    4.59
    
    
    
    11,336,147
    
    
    
    22
    
    
    
    4.45Wholesale certificates of deposit
    
    
    3,030,594
    
    
    
    6
    
    
    
    4.85
    
    
    
    4,727,733
    
    
    
    9
    
    
    
    5.14Total deposits (1)
    
    $
    49,915,905
    
    
    
    100
    %
    
    
    2.97
    %
    
    $
    52,384,554
    
    
    
    100
    %
    
    
    3.14
    %
 
 (1)
    
    Includes foreign deposits of $1.8 billion and $1.1 billion at December 31, 2007 and December 31, 2006, respectively.  YEAR ENDED DECEMBER 31,2007
    
    
    2006
    
    
    2005NOW accounts
    
    $
    61,599
    
    
    $
    50,991
    
    
    $
    30,896Wholesale NOW accounts
    
    
    203,411
    
    
    
    215,557
    
    
    
    120,046Customer repurchase agreements
    
    
    108,137
    
    
    
    74,470
    
    
    
    26,565Savings accounts
    
    
    27,839
    
    
    
    29,660
    
    
    
    25,347Money market accounts
    
    
    347,077
    
    
    
    225,166
    
    
    
    119,341Wholesale money market accounts
    
    
    130,808
    
    
    
    137,802
    
    
    
    12,013Certificates of deposit
    
    
    531,993
    
    
    
    405,216
    
    
    
    176,135Wholesale certificates of deposit
    
    
    216,451
    
    
    
    233,335
    
    
    
    114,247Total interest expense on deposits
    
    $
    1,627,315
    
    
    $
    1,372,197
    
    
    $
    624,590
  Three months or less
    
    $
    2,959,680Over three through six months
    
    
    1,565,436Over six through twelve months
    
    
    607,056Over twelve months
    
    
    917,791Total
    
    $
    6,049,963
  2008
    
    $
    13,120,7352009
    
    
    927,9512010
    
    
    285,3012011
    
    
    123,5972012
    
    
    173,119Thereafter
    
    
    272,291Total
    
    $
    14,902,994
  82




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##### Table of Contents



Notes to Consolidated Financial Statements
 Note 12  Borrowings and Other Debt Obligations
  AT DECEMBER 31,2007
    
    
    2006EFFECTIVE
    
    
    
    
    
    
    EFFECTIVEBALANCE
    
    
    RATE
    
    
    BALANCE
    
    
    RATESovereign Bank borrowings and other debt obligationsSecurities sold under repurchase agreements
    
    $
    76,526
    
    
    
    4.12
    %
    
    $
    199,671
    
    
    
    3.85
    %Overnight federal funds purchased
    
    
    2,720,000
    
    
    
    4.22
    
    
    
    1,700,000
    
    
    
    5.22Federal Home Loan Bank (FHLB) advances, maturing through
February 2016
    
    
    19,705,438
    
    
    
    4.64
    
    
    
    19,563,985
    
    
    
    4.81Asset-backed floating rate notes, due April 2013
    
    
    
    
    
    
    0.00
    
    
    
    821,000
    
    
    
    5.73Asset-backed secured financing, due November 2008
    
    
    
    
    
    
    0.00
    
    
    
    1,150,000
    
    
    
    2.053.500% subordinated debentures, due June 2013
    
    
    150,000
    
    
    
    3.50
    
    
    
    143,300
    
    
    
    3.663.750% subordinated debentures, due April 2014
    
    
    233,501
    
    
    
    4.01
    
    
    
    237,456
    
    
    
    3.955.125% subordinated debentures, due March 2013
    
    
    468,302
    
    
    
    5.47
    
    
    
    462,230
    
    
    
    5.544.375% subordinated debentures, due August 2013
    
    
    297,010
    
    
    
    4.42
    
    
    
    296,525
    
    
    
    4.43Holding company borrowings and other debt obligationsSenior revolving credit facility, due August 2008
    
    
    180,000
    
    
    
    5.55
    
    
    
    
    
    
    
    0.004.80% senior notes, due September 2010
    
    
    299,152
    
    
    
    4.81
    
    
    
    298,834
    
    
    
    4.82Floating rate senior notes, due March 2009
    
    
    199,850
    
    
    
    5.42
    
    
    
    199,721
    
    
    
    5.65Floating rate senior notes, due March 2010
    
    
    299,549
    
    
    
    5.37
    
    
    
    
    
    
    
    0.004.900% senior notes, due September 2010
    
    
    243,976
    
    
    
    5.02
    
    
    
    241,779
    
    
    
    5.07Junior subordinated debentures due to Capital Trust Entities
    
    
    1,252,778
    
    
    
    7.30
    
    
    
    1,535,216
    
    
    
    7.65Total borrowings and other debt obligations
    
    $
    26,126,082
    
    
    
    4.75
    %
    
    $
    26,849,717
    
    
    
    4.90
    %
       83




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##### Table of Contents



Notes to Consolidated Financial Statements
 Note 12  Borrowings and Other Debt Obligations (Continued)
      
    
    Junior subordinated debentures issued by Sovereign with a distribution rate of 4.375% per
annum on the $50.00 issue price, and each of which will have a principal amount at maturity of
$50 and a stated maturity of March 1, 2034; and
 
    
    Warrants to purchase shares of Sovereign common stock from Sovereign at any time prior to
the close of business on March 1, 2034, by delivering junior subordinated debentures (or, in
the case of warrant exercises before March 5, 2007, cash equal to the accreted principal
amount of a junior subordinated debenture).
   84




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Notes to Consolidated Financial Statements
 Note 12  Borrowings and Other Debt Obligations (Continued)
       2008
    
    $
    16,544,7992009
    
    
    656,8502010
    
    
    1,782,6772011
    
    
    45,0002012
    
    
    500,165Thereafter
    
    
    6,596,591Total
    
    $
    26,126,082
 Note 13  Minority Interests
   85




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##### Table of Contents



Notes to Consolidated Financial Statements
 Note 14  Stockholders Equity
           Note 15  Regulatory Matters
     86




---



##### Table of Contents



Notes to Consolidated Financial Statements
 Note 15  Regulatory Matters (Continued)
  REGULATORY CAPITAL (IN THOUSANDS)Tier 1
    
    
    Tier 1
    
    
    TotalTangible
    
    
    Leverage
    
    
    Risk-Based
    
    
    Risk-BasedCapital To
    
    
    Capital To
    
    
    Capital To
    
    
    Capital ToTangible
    
    
    Tangible
    
    
    Risk Adjusted
    
    
    Risk AdjustedAssets
    
    
    Assets
    
    
    Assets
    
    
    AssetsSovereign Bank at December 31, 2007:Regulatory capital
    
    $
    5,289,889
    
    
    $
    5,289,889
    
    
    $
    5,030,620
    
    
    $
    6,939,602Minimum capital requirement(1)
    
    
    1,618,593
    
    
    
    3,237,187
    
    
    
    2,668,712
    
    
    
    5,337,424Excess
    
    $
    3,671,296
    
    
    $
    2,052,702
    
    
    $
    2,361,908
    
    
    $
    1,602,178Capital ratio
    
    
    6.54
    %
    
    
    6.54
    %
    
    
    7.54
    %
    
    
    10.40
    %Sovereign Bank at December 31, 2006:Regulatory capital
    
    $
    5,224,710
    
    
    $
    5,224,710
    
    
    $
    5,023,535
    
    
    $
    6,726,462Minimum capital requirement(1)
    
    
    1,679,397
    
    
    
    3,358,794
    
    
    
    2,671,247
    
    
    
    5,342,494Excess
    
    $
    3,545,313
    
    
    $
    1,865,916
    
    
    $
    2,352,288
    
    
    $
    1,383,968Capital ratio
    
    
    6.22
    %
    
    
    6.22
    %
    
    
    7.52
    %
    
    
    10.07
    %
 
 (1)
    
    As defined by OTS Regulations.  87




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##### Table of Contents



Notes to Consolidated Financial Statements
 Note 16  Stock-Based Compensation
   Shares
    
    Price per shareOptions outstanding December 31, 2004 (9,224,607 exercisable)
    
    
    13,833,308
    
    
    $
    2.95-21.88Acquired in conjunction with business acquisitions
    
    
    3,214,440
    
    
    $
    4.62-18.98Granted
    
    
    782,636
    
    
    $
    19.40-22.95Exercised
    
    
    (2,682,698
    )
    
    $
    2.95-19.29Forfeited
    
    
    (280,761
    )
    
    $
    5.34-22.32Expired
    
    
    (26,116
    )
    
    $
    5.39-21.64Options outstanding December 31, 2005 (10,249,285 exercisable)
    
    
    14,840,809
    
    
    $
    2.95-22.95Granted
    
    
    1,878,225
    
    
    $
    19.98-25.77Exercised
    
    
    (1,615,277
    )
    
    $
    2.95-17.05Forfeited
    
    
    (319,754
    )
    
    $
    6.67-22.95Expired
    
    
    (16,293
    )
    
    $
    6.39-17.05Options outstanding December 31, 2006 (9,111,666 exercisable)
    
    
    14,767,710
    
    
    $
    2.95-25.77Granted
    
    
    115,077
    
    
    $
    17.62-25.76Exercised
    
    
    (2,466,307
    )
    
    $
    2.95-22.32Forfeited
    
    
    (356,235
    )
    
    $
    6.67-25.77Expired
    
    
    (143,847
    )
    
    $
    6.40-22.32Options outstanding December 31, 2007 (7,075,060 exercisable)
    
    
    11,916,398
    
    
    $
    2.95-25.77
   OPTIONS OUTSTANDING
    
    
    OPTIONS EXERCISABLEWeightedWeighted
    
    
    Average
    
    
    
    
    
    
    WeightedAverage
    
    
    Remaining
    
    
    
    
    
    
    AverageExercise
    
    
    Contractual
    
    
    
    
    
    
    ExerciseExercise Prices
    
    
    
    
    Shares
    
    
    Price
    
    
    Life
    
    
    Shares
    
    
    Price$
    2.95 - 4.34
    
    
    
    
    
    29,604
    
    
    $
    3.57
    
    
    
    2.16
    
    
    
    29,604
    
    
    $
    3.57$
    5.29 - 7.36
    
    
    
    
    
    1,011,580
    
    
    
    6.60
    
    
    
    2.10
    
    
    
    1,011,580
    
    
    
    6.60$
    7.44 - 10.30
    
    
    
    
    
    2,182,039
    
    
    
    8.73
    
    
    
    3.20
    
    
    
    2,182,039
    
    
    
    8.73$
    10.78 - 14.76
    
    
    
    
    
    5,542,531
    
    
    
    12.20
    
    
    
    4.01
    
    
    
    3,290,896
    
    
    
    12.01$
    15.10 - 21.10
    
    
    
    
    
    1,844,309
    
    
    
    19.58
    
    
    
    7.25
    
    
    
    394,737
    
    
    
    17.91$
    21.21 - 25.77
    
    
    
    
    
    1,306,335
    
    
    
    22.14
    
    
    
    6.98
    
    
    
    166,204
    
    
    
    21.94Total
    
    
    
    
    11,916,398
    
    
    $
    13.30
    
    
    
    4.52
    
    
    
    7,075,060
    
    
    $
    10.75
  88




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##### Table of Contents



Notes to Consolidated Financial Statements
 Note 16  Stock-Based Compensation (Continued)
   Shares
    
    Weighted average(in thousands)
    
    grant date fair valueTotal non-vested restricted stock at
December 31, 2006
    
    
    2,460,575
    
    
    $
    21.26Restricted stock granted in 2007
    
    
    1,528,130
    
    
    
    25.14Vested restricted stock in 2007
    
    
    (471,248
    )
    
    
    21.34Non-vested shares forfeited during 2007
    
    
    (250,080
    )
    
    
    22.20Total non-vested restricted stock at
December 31, 2007
    
    
    3,267,377
    
    
    $
    22.99
  Note 17  Employee Benefit Plans
      89




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##### Table of Contents



Notes to Consolidated Financial Statements
 Note 17  Employee Benefit Plans (Continued)
  Year ended December 31,2007
    
    
    2006Change in benefit obligation:Benefit obligation at beginning of year
    
    $
    84,067
    
    
    $
    82,822Service cost
    
    
    830
    
    
    
    1,557Interest cost
    
    
    4,569
    
    
    
    4,573Actuarial gain
    
    
    (2,035
    )
    
    
    (919
    )Annuity payments
    
    
    (4,154
    )
    
    
    (3,567
    )Settlements
    
    
    (45
    )
    
    
    (400
    )Curtailments
    
    
    (2,238
    )
    
    
    Projected benefit obligation at year end
    
    $
    80,994
    
    
    $
    84,066Change in plan assets:Fair value at beginning of year
    
    $
    88,190
    
    
    $
    81,815Actual return on plan assets
    
    
    5,894
    
    
    
    10,342Employer contributions
    
    
    
    
    
    
    Annuity payments
    
    
    (4,154
    )
    
    
    (3,567
    )Settlements
    
    
    (45
    )
    
    
    (400
    )Fair value at year end
    
    $
    89,885
    
    
    $
    88,190Components of net periodic pension expense:Service cost
    
    $
    830
    
    
    $
    1,557Interest cost
    
    
    4,569
    
    
    
    4,573Expected Return on plan assets
    
    
    (7,889
    )
    
    
    (7,287
    )Amortization of prior period service benefit
    
    
    
    
    
    
    (345
    )Amortization of unrecognized actuarial loss
    
    
    
    
    
    
    527Net periodic pension expense
    
    $
    (2,490
    )
    
    $
    (975
    )
  2007
    
    2006Discount rate
    
    
    5.75
    %
    
    
    5.50
    %Expected long-term return on plan assets
    
    
    9.00
    %
    
    
    9.00
    %Salary increase rate
    
    
    3.00
    %
    
    
    3.00
    %
  2008
    
    $
    4,3532009
    
    
    4,3802010
    
    
    4,4292011
    
    
    4,5452012
    
    
    4,7332013 to 2017
    
    
    26,098Total
    
    $
    48,538
  90




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##### Table of Contents



Notes to Consolidated Financial Statements
 Note 17  Employee Benefit Plans (Continued)
   At December 31, 2006Prior to adopting
    
    Effect of adopting
    
    As reported atStatement 158
    
    Statement 158
    
    December 31, 2006Other liabilities
    
    $
    1,499.4
    
    
    $
    9.4
    
    
    $
    1,508.8Deferred income taxes
    
    $
    367.5
    
    
    $
    3.3
    
    
    $
    370.8Total Liabilities
    
    $
    80,831.7
    
    
    $
    9.4
    
    
    $
    80,841.1Accumulated other comprehensive loss
    
    $
    (18.6
    )
    
    $
    (6.1
    )
    
    $
    (24.7
    )Total stockholders equity
    
    $
    8,650.5
    
    
    $
    (6.1
    )
    
    $
    8,644.4
  91




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##### Table of Contents



Notes to Consolidated Financial Statements
 Note 18  Income Taxes
  YEAR ENDED DECEMBER 31,2007
    
    
    2006
    
    
    2005Current:Foreign (1)
    
    $
    22,929
    
    
    $
    87,593
    
    
    $
    79,812Federal
    
    
    83,194
    
    
    
    16,844
    
    
    
    58,379State
    
    
    4,992
    
    
    
    4,195
    
    
    
    8,756111,115
    
    
    
    108,632
    
    
    
    146,947Deferred:Federal
    
    
    (171,565
    )
    
    
    (226,432
    )
    
    
    69,013State
    
    
    
    
    
    
    
    
    
    
    Total income tax (benefit)/expense
    
    $
    (60,450
    )
    
    $
    (117,800
    )
    
    $
    215,960
 
 (1)
    
    Current foreign income tax expense in 2007, 2006 and 2005 relates to interest income on assets
that Sovereign transferred to a consolidated foreign special purpose entity to support a borrowing
arrangement that Sovereign has with an international bank. Foreign taxes paid on this income are
credited against United States income taxes for federal income tax purposes. See Note 12 for
further discussion.  YEAR ENDED DECEMBER 31,2007
    
    2006
    
    2005Federal income tax at statutory rate
    
    
    (35.0
    )%
    
    
    35.0
    %
    
    
    35.0
    %Increase/(decrease) in taxes resulting from:Tax-exempt income
    
    
    (4.2
    )
    
    
    (293.4
    )
    
    
    (4.1
    )Bank owned life insurance
    
    
    (2.1
    )
    
    
    (122.6
    )
    
    
    (1.8
    )State income taxes, net of federal tax benefit
    
    
    0.2
    
    
    
    16.5
    
    
    
    0.7Credit for synthetic fuels
    
    
    (1.2
    )
    
    
    (94.1
    )
    
    
    (3.2
    )Low income housing credits
    
    
    (2.8
    )
    
    
    (189.5
    )
    
    
    (3.2
    )Goodwill impairment charge
    
    
    39.1
    
    
    
    
    
    
    
    Other
    
    
    1.7
    
    
    
    32.3
    
    
    
    0.8Effective tax rate
    
    
    (4.3
    )%
    
    
    (615.8
    )%
    
    
    24.2
    %
 92




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##### Table of Contents



Notes to Consolidated Financial Statements
 Note 18  Income Taxes (Continued)
  AT DECEMBER 31,2007
    
    
    2006Deferred tax assets:Allowance for loan losses
    
    $
    256,369
    
    
    $
    167,502Unrealized loss on available for sale portfolio
    
    
    82,517
    
    
    
    Unrealized loss on derivatives
    
    
    73,196
    
    
    
    7,677Net operating loss carry forwards
    
    
    592
    
    
    
    708Non-solicitation payments
    
    
    58,206
    
    
    
    65,967Employee benefits
    
    
    51,831
    
    
    
    53,010General Business credit carry forwards
    
    
    92,727
    
    
    
    77,228Foreign tax credit carry forwards
    
    
    50,417
    
    
    
    39,131Broker commissions paid on originated mortgage loans
    
    
    34,653
    
    
    
    37,026Loss on loans held for sale
    
    
    
    
    
    
    91,688Capital loss on loans sold
    
    
    129,123
    
    
    
    Deferred interest expense
    
    
    50,483
    
    
    
    35,700Other
    
    
    201,835
    
    
    
    162,466Total gross deferred tax assets
    
    
    1,081,949
    
    
    
    738,103Deferred tax liabilities:Purchase accounting adjustments
    
    
    62,443
    
    
    
    113,977Deferred income
    
    
    25,397
    
    
    
    44,046Originated mortgage servicing rights
    
    
    55,277
    
    
    
    38,959Unrealized gain on available for sale portfolio
    
    
    
    
    
    
    20,756Depreciation and amortization
    
    
    101,812
    
    
    
    65,849Other
    
    
    120,136
    
    
    
    83,672Total gross deferred tax liabilities
    
    
    365,065
    
    
    
    367,259Net deferred tax asset
    
    $
    716,884
    
    
    $
    370,844
   (in thousands)Gross unrecognized tax benefits at January 1, 2007
    
    $
    81,542Additions based on tax positions related to the current year
    
    
    9,196Adjustments related to unrecognized tax benefits associated with business combinations
    
    
    (140
    )Reductions to unrecognized tax benefits as a result of a lapse of the applicable statute of limitations
    
    
    (3,137
    )Gross unrecognized tax benefits at December 31, 2007
    
    
    87,461Less: Federal, state and local income tax benefits
    
    
    (13,609
    )Net unrecognized tax benefits at December 31, 2007
    
    
    73,852Less: Unrecognized tax benefits included above that relate to acquired entities that would impact
goodwill if recognized
    
    
    (10,568
    )Total unrecognized tax benefits that, if recognized, would impact the effective income tax rate as of
December 31, 2007
    
    $
    63,284
  93




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##### Table of Contents



Notes to Consolidated Financial Statements
 Note 18  Income Taxes (Continued)
    Note 19  Commitments and Contingencies
 Financial Instruments.
  CONTRACT OR NOTIONALAMOUNT AT DECEMBER 31,2007
    
    2006Financial instruments whose contract amounts represent credit risk:Commitments to extend credit
    
    $
    20,998,851
    
    
    $
    18,042,931Standby letters of credit
    
    
    2,980,472
    
    
    
    3,788,018Loans sold with recourse
    
    
    269,396
    
    
    
    220,724Forward buy commitments
    
    
    762,499
    
    
    
    597,202
    94




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##### Table of Contents



Notes to Consolidated Financial Statements
 Note 19  Commitments and Contingencies (Continued)
   Litigation.
 Leases.
 AT DECEMBER 31, 2007Future MinimumLease
    
    
    Sublease
    
    
    NetPayments
    
    
    Income
    
    
    Payments2008
    
    $
    98,767
    
    
    $
    (12,224
    )
    
    $
    86,5432009
    
    
    91,785
    
    
    
    (9,627
    )
    
    
    82,1582010
    
    
    84,320
    
    
    
    (8,529
    )
    
    
    75,7912011
    
    
    78,390
    
    
    
    (7,830
    )
    
    
    70,5602012
    
    
    78,767
    
    
    
    (6,571
    )
    
    
    72,196Thereafter
    
    
    383,675
    
    
    
    (10,150
    )
    
    
    373,525Total
    
    $
    815,704
    
    
    $
    (54,931
    )
    
    $
    760,773
  95




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##### Table of Contents



Notes to Consolidated Financial Statements
 Note 20  Fair Value of Financial Instruments
   AT DECEMBER 31,2007
    
    2006Carrying
    
    
    
    
    
    CarryingValue
    
    Fair Value
    
    Value
    
    Fair ValueFinancial Assets:Cash and amounts due from depository institutions
    
    $
    3,130,770
    
    
    $
    3,130,770
    
    
    $
    1,804,117
    
    
    $
    1,804,117Investment securities:Available for sale
    
    
    13,941,847
    
    
    
    13,941,847
    
    
    
    13,874,628
    
    
    
    13,874,628Other investments
    
    
    1,200,545
    
    
    
    1,200,545
    
    
    
    1,003,012
    
    
    
    1,003,012Loans held for investment, net
    
    
    56,522,575
    
    
    
    57,215,194
    
    
    
    54,505,645
    
    
    
    54,364,599Loans held for sale
    
    
    547,760
    
    
    
    547,760
    
    
    
    7,611,921
    
    
    
    7,611,921Mortgage servicing rights
    
    
    162,623
    
    
    
    172,917
    
    
    
    139,669
    
    
    
    145,339Mortgage banking forward commitments
    
    
    (4,711
    )
    
    
    (4,711
    )
    
    
    304
    
    
    
    304Mortgage interest rate lock commitments
    
    
    2,085
    
    
    
    2,085
    
    
    
    (11
    )
    
    
    (11
    )Financial Liabilities:Deposits
    
    
    49,915,905
    
    
    
    48,779,402
    
    
    
    52,384,554
    
    
    
    50,288,880Borrowings and other debt obligations
    
    
    26,126,082
    
    
    
    26,508,385
    
    
    
    26,849,717
    
    
    
    27,410,954Interest rate derivative instruments
    
    
    179,658
    
    
    
    179,658
    
    
    
    19,173
    
    
    
    19,173Precious metal forward settlement arrangements
    
    
    (34,234
    )
    
    
    (34,234
    )
    
    
    12,039
    
    
    
    12,039Precious metal forward sale agreements
    
    
    35,247
    
    
    
    35,247
    
    
    
    (11,763
    )
    
    
    (11,763
    )Unrecognized Financial Instruments:(1)Commitments to extend credit
    
    
    166,226
    
    
    
    166,093
    
    
    
    149,645
    
    
    
    149,525
 
 (1)
    
    The amounts shown under carrying value represent accruals or deferred income arising from those unrecognized financial instruments.  Cash and amounts due from depository institutions and interest-earning deposits.
 Investment securities available for sale.
 Loans.
 Mortgage servicing rights.
 Mortgage interest rate lock commitments.
 Deposits.
 Borrowings and other debt obligations.
 96




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##### Table of Contents



Notes to Consolidated Financial Statements
 Note 20  Fair Value of Financial Instruments (Continued)
 Commitments to extend credit.
 Precious metals customer forward settlement arrangements and precious metals forward sale
agreements.
 Interest rate derivative instruments.
 Note 21  Derivative Instruments and Hedging Activities
    Fair Value Hedges.
   Cash Flow Hedges.
 Other Derivative Activities.
 97




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##### Table of Contents



Notes to Consolidated Financial Statements
 Note 21  Derivative Instruments and Hedging Activities (Continued)
   Weighted AverageNotional
    
    
    
    
    
    
    
    
    
    
    Receive
    
    
    Pay
    
    
    LifeAmount
    
    
    Asset
    
    
    Liability
    
    
    Rate
    
    
    Rate
    
    
    (Years)December 31, 2007Fair value hedges:Receive fixed  pay variable interest rate swaps
    
    $
    925,000
    
    
    $
    413
    
    
    $
    2,220
    
    
    
    4.29
    %
    
    
    4.87
    %
    
    
    0.9Cash flow hedges:Pay fixed  receive floating interest rate swaps
    
    
    8,100,000
    
    
    
    
    
    
    
    214,548
    
    
    
    5.02
    %
    
    
    5.15
    %
    
    
    2.2Total derivatives used in SFAS 133 hedging
relationships
    
    $
    9,025,000
    
    
    $
    413
    
    
    $
    216,768
    
    
    
    4.94
    %
    
    
    5.12
    %
    
    
    2.1December 31, 2006Fair value hedges:Receive fixed  pay variable interest rate swaps
    
    $
    1,344,000
    
    
    $
    
    
    
    $
    22,806
    
    
    
    4.16
    %
    
    
    5.25
    %
    
    
    1.8Cash flow hedges:Pay fixed  receive floating interest rate swaps
    
    
    8,500,000
    
    
    
    19,174
    
    
    
    45,842
    
    
    
    5.37
    %
    
    
    5.09
    %
    
    
    2.4Total derivatives used in SFAS 133 hedging
relationships
    
    $
    9,844,000
    
    
    $
    19,174
    
    
    $
    68,648
    
    
    
    5.20
    %
    
    
    5.11
    %
    
    
    2.3
 98




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##### Table of Contents



Notes to Consolidated Financial Statements
 Note 21  Derivative Instruments and Hedging Activities (Continued)
  AT DECEMBER 31,2007
    
    
    2006Net Asset
    
    Net Asset(Liability)
    
    (Liability)Mortgage banking derivatives:Forward commitmentsTo sell loans
    
    $
    (4,711
    )
    
    $
    304Interest rate lock commitments
    
    
    2,085
    
    
    
    (11
    )Total mortgage banking risk
management
    
    
    (2,626
    )
    
    
    293Swaps receive fixed
    
    
    134,764
    
    
    
    2,380Swaps pay fixed
    
    
    (100,713
    )
    
    
    26,431Market value hedge
    
    
    740
    
    
    
    1,490Net Customer related swaps
    
    
    34,791
    
    
    
    30,301Precious metals forward sale
agreements
    
    
    (35,247
    )
    
    
    (11,763
    )Precious metals forward arrangements
    
    
    34,234
    
    
    
    12,039Foreign exchange
    
    
    1,906
    
    
    
    (89
    )Total activity
    
    $
    33,058
    
    
    $
    30,781
 99




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##### Table of Contents



Notes to Consolidated Financial Statements
 Note 21  Derivative Instruments and Hedging Activities (Continued)
  Balance Sheet Effect
    
    Income Statement Effect Forat
    
    The Twelve Months EndedDerivative Activity
    
    December 31, 2007
    
    December 31, 2007Fair value hedges:Receive fixed-pay variable 
interest rate swaps
    
    Decrease to CDs of $1.8 million and an
increase to other assets and other
liabilities of $0.4 million and $2.2 million,
respectively.
    
    Resulted in a
decrease of net
interest income of
$10.5 million.Cash flow hedges:Pay fixed-receive floating 
interest rate swaps
    
    Increase to other liabilities and deferred
taxes of $214.5 million and $75.1 million,
respectively and a decrease to stockholders
equity of $139.5 million.
    
    Resulted in an
increase in net
interest income of
$19.0 million.Forward commitments to sell loans
    
    Increase to other liabilities of $4.7 million.
    
    Decrease to
mortgage banking
revenues of $5.0
million.Interest rate lock commitments
    
    Increase to mortgage loans of $2.1 million.
    
    Increase to
mortgage banking
revenues of $2.1
million.Net customer related hedges
    
    Increase to other assets of $34.8 million.
    
    Decrease in capital
markets revenue of
$7.3 million.Forward commitments to sell
precious metals inventory
    
    Increase to other liabilities of $1.0 million.
    
    Decrease to
commercial banking
revenues of $1.3
million.Foreign Exchange
    
    Increase to other assets of $1.9 million.
    
    Increase in
commercial banking
revenue of $1.7
million.
  Balance Sheet Effect
    
    Income Statement Effect Forat
    
    The Twelve Months EndedDerivative Activity
    
    December 31, 2006
    
    December 31, 2006Fair value hedges:Receive fixed-pay variable 
interest rate swaps
    
    Decrease to CDs of $22.8 million and an increase to other liabilities of $22.8 million.
    
    Resulted in a
decrease of net
interest income of
$18.2 million.Cash flow hedges:Pay fixed-receive floating 
interest rate swaps
    
    Increase to other assets, other liabilities, and a decrease to deferred taxes of $19.2
million, $45.8 million, and $9.3 million, respectively, and a decrease to
stockholders equity of $17.3 million.
    
    Resulted in an
increase in net
interest income of
$29.6 million.Forward commitments to sell loans
    
    Increase to other assets of $0.3 million.
    
    Increase to
mortgage banking
revenues of $0.8
million.Interest rate lock commitments
    
    Decrease to mortgage loans of $11 thousand.
    
    Decrease to
mortgage banking
revenues of $0.5
million.Net customer related hedges
    
    Increase to other assets of $30.3 million.
    
    Increase in capital
markets revenue of
$7.9 million.Forward commitments to sell
precious metals inventory
    
    Increase to other assets of $0.3 million.
    
    Increase to
commercial banking
revenues of $1.8
million.Foreign Exchange
    
    Increase to other liabilities of $90 thousand.
    
    Decrease in
commercial banking
revenue of
$0.8 million.
  100




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##### Table of Contents



Notes to Consolidated Financial Statements
 Note 22  Interests that Continue to be Held by Sovereign in Asset Securitizations
     2007PrincipalTotal
    
    
    90 Days
    
    
    Net CreditPrincipal
    
    
    Past Due
    
    
    LossesMortgage Loans
    
    $
    13,397,822
    
    
    $
    130,101
    
    
    $
    7,498Home Equity Loans and Lines of Credit
    
    
    6,300,558
    
    
    
    88,848
    
    
    
    11,063Commercial Real Estate and Multi-family Loans
    
    
    17,526,885
    
    
    
    57,623
    
    
    
    15,540Automotive Floor Plan Loans
    
    
    1,255,729
    
    
    
    
    
    
    
    335Total Owned and Securitized
    
    $
    38,480,994
    
    
    $
    276,572
    
    
    $
    34,436Less:Securitized Mortgage Loans
    
    
    56,629
    
    
    
    638
    
    
    
    30Securitized Home Equity Loans
    
    
    103,410
    
    
    
    15,764
    
    
    
    2,915Securitized Commercial Real Estate and
Multi-family Loans
    
    
    973,601
    
    
    
    
    
    
    
    Securitized Automotive Floor Plan Loans
    
    
    855,000
    
    
    
    
    
    
    
    335Total Securitized Loans
    
    
    1,988,640
    
    
    
    16,402
    
    
    
    3,280Net Loans
    
    $
    36,492,354
    
    
    $
    260,170
    
    
    $
    31,156
 2006PrincipalTotal
    
    
    90 Days
    
    
    Net CreditPrincipal
    
    
    Past Due
    
    
    LossesMortgage Loans
    
    $
    17,480,841
    
    
    $
    101,448
    
    
    $
    8,782Home Equity Loans and Lines of Credit
    
    
    9,574,735
    
    
    
    125,253
    
    
    
    448,526
    (1)Automotive Floor Plan Loans
    
    
    1,389,164
    
    
    
    
    
    
    
    Total Owned and Securitized
    
    $
    28,444,740
    
    
    $
    226,701
    
    
    $
    457,308Less:Securitized Mortgage Loans
    
    
    76,111
    
    
    
    383
    
    
    
    17Securitized Home Equity Loans
    
    
    131,175
    
    
    
    14,907
    
    
    
    3,322Securitized Automotive Floor Plan Loans
    
    
    855,000
    
    
    
    
    
    
    
    Total Securitized Loans
    
    
    1,062,286
    
    
    
    15,290
    
    
    
    3,339Net Loans
    
    $
    27,382,454
    
    
    $
    211,411
    
    
    $
    453,969
 
 (1)
    
    Includes previously mentioned charge of $382.5 million related to correspondent home equity
loans classified as held for sale at December 31, 2006. 101




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##### Table of Contents



Notes to Consolidated Financial Statements
 Note 22  Interests that Continue to be Held by Sovereign in Asset Securitizations (Continued)
  AT DECEMBER 31, 2007Commercial Real Estate
    
    
    Automotiveand Multi-family Loans
    
    
    Floor PlanComponents of Retained Interest and
Servicing Rights:Accrued interest receivable
    
    $
    
    
    
    $
    6,369Subordinated interest retained
    
    
    11,238
    
    
    
    43,996Interest only strips
    
    
    
    
    
    
    1,010Cash reserve
    
    
    
    
    
    
    4,381Total Retained Interests and Servicing Rights
    
    $
    11,238
    
    
    $
    55,756Key Economic Assumptions:Weighted average life (in years)
    
    
    9.47
    
    
    
    0.33Expected credit losses
    
    
    .05
    %
    
    
    0.25
    %Residual cash flows discount rate
    
    
    17.00
    %
    
    
    8.00
    %
  FOR THE YEAR ENDEDDECEMBER 31,2007
    
    
    2006Proceeds from collections reinvested in
revolving-period securitizations
    
    $
    5,443,600
    
    
    $
    5,803,535Servicing fees received
    
    
    9,844
    
    
    
    11,320Other cash flows received on retained interests
    
    
    17,863
    
    
    
    27,410Purchases of delinquent or foreclosed assets
    
    
    
    
    
    
    
 102




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##### Table of Contents



Notes to Consolidated Financial Statements
 Note 22  Interests that Continue to be Held by Sovereign in Asset Securitizations (Continued)
  Home Equity
    
    
    
    
    
    
    CommercialLoans &
    
    
    Auto
    
    
    LoansMortgage
    
    
    Lines of
    
    
    Floor
    
    
    Secured byLoans
    
    
    Credit
    
    
    Plan Loans
    
    
    Real Estate
    
    
    TotalInterests that continue to be held by Sovereign:Accrued interest receivable
    
    $
    
    
    
    $
    
    
    
    $
    6,369
    
    
    $
    
    
    
    $
    6,369Subordinated interest retained
    
    
    14,376
    
    
    
    
    
    
    
    43,996
    
    
    
    11,238
    
    
    
    69,610Servicing rights
    
    
    532
    
    
    
    203
    
    
    
    
    
    
    
    
    
    
    
    735Interest only strips
    
    
    
    
    
    
    6,690
    
    
    
    1,010
    
    
    
    
    
    
    
    7,700Cash reserve
    
    
    
    
    
    
    
    
    
    
    4,381
    
    
    
    
    
    
    
    4,381Total Interests that continue to be held by
Sovereign
    
    $
    14,908
    
    
    $
    6,893
    
    
    $
    55,756
    
    
    $
    11,238
    
    
    $
    88,795As of December 31, 2007Weighted-average life (in yrs)
    
    
    0.20
    
    
    
    1.54
    
    
    
    0.33
    
    
    
    9.47Prepayment speed assumption (annual rate)As of December 31, 2007
    
    
    40
    %
    
    
    17
    %
    
    
    49
    %
    
    
    10
    %As of December 31, 2006
    
    
    40
    %
    
    
    19
    %
    
    
    46
    %
    
    
    N/AAs of the date of the securitization
    
    
    40
    %
    
    
    22
    %
    
    
    50
    %
    
    
    10
    %Impact on fair value of 10% adverse change
    
    $
    
    
    
    $
    (175
    )
    
    $
    (5
    )
    
    $
    Impact on fair value of 20% adverse change
    
    $
    
    
    
    $
    (265
    )
    
    $
    (38
    )
    
    $
    Expected credit losses (Cumulative rate for all
except for Auto Floor Plan Loans which is an
annual rate)As of December 31, 2007
    
    
    .12
    %
    
    
    5.25
    %
    
    
    .25
    %
    
    
    .50
    %As of December 31, 2006
    
    
    .12
    %
    
    
    1.95
    %
    
    
    .25
    %
    
    
    N/AAs of the date of the securitization
    
    
    .12
    %
    
    
    0.75
    %
    
    
    .25
    %
    
    
    .50
    %Impact on fair value of 10% adverse change
    
    $
    (1
    )
    
    $
    (355
    )
    
    $
    (37
    )
    
    $
    (118
    )Impact on fair value of 20% adverse change
    
    $
    (2
    )
    
    $
    (364
    )
    
    $
    (75
    )
    
    $
    (235
    )Residual cash flows discount rate (annual)As of December 31, 2007
    
    
    9
    %
    
    
    12
    %
    
    
    8
    %
    
    
    17
    %As of December 31, 2006
    
    
    9
    %
    
    
    12
    %
    
    
    8
    %
    
    
    N/AAs of the date of the securitization
    
    
    9
    %
    
    
    12
    %
    
    
    8
    %
    
    
    12
    %Impact on fair value of 10% adverse change
    
    $
    (1
    )
    
    $
    (210
    )
    
    $
    (94
    )
    
    $
    (200
    )Impact on fair value of 20% adverse change
    
    $
    (3
    )
    
    $
    (254
    )
    
    $
    (188
    )
    
    $
    (394
    )
   103




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##### Table of Contents



Notes to Consolidated Financial Statements
 Note 23  (Loss)/Earnings Per Share
  YEAR ENDED DECEMBER 31,2007
    
    
    2006
    
    
    2005Calculation of (loss)/income for EPS:Net (Loss)/Income as reported and for basic EPS
    
    $
    (1,349,262
    )
    
    $
    136,911
    
    
    $
    676,160Less preferred dividend
    
    
    14,600
    
    
    
    7,908
    
    
    
    Net (loss)/income available to common stockholders
    
    
    (1,363,862
    )
    
    
    129,003
    
    
    
    676,160Contingently convertible trust preferred interest expense, net of tax
    
    
    
    
    
    
    
    
    
    
    25,427Net (loss)/income for diluted EPS available to common stockholders
    
    $
    (1,363,862
    )
    
    $
    129,003
    
    
    $
    701,587Calculation of shares:Weighted average basic shares
    
    
    478,726
    
    
    
    433,908
    
    
    
    381,838Dilutive effect of:Warrants
    
    
    
    
    
    
    
    
    
    
    Stock-based compensation
    
    
    
    
    
    
    
    
    
    
    6,761Warrants on contingently convertible debt
    
    
    
    
    
    
    
    
    
    
    27,397Weighted average fully diluted shares
    
    
    478,726
    
    
    
    433,908
    
    
    
    415,996(Loss)/Earnings per share(1):Basic
    
    $
    (2.85
    )
    
    $
    0.30
    
    
    $
    1.77Diluted
    
    $
    (2.85
    )
    
    $
    0.30
    
    
    $
    1.69
  
 (1)
    
    Prior period earnings per share have been restated to reflect the 5% stock dividend paid to
shareholders of record on June 15, 2006. Note 24  Comprehensive (Loss)/Income
  YEAR ENDED DECEMBER 31,2007
    
    
    2006
    
    
    2005Net (loss)/income
    
    $
    (1,349,262
    )
    
    $
    136,911
    
    
    $
    676,160Net unrealized gain/(loss) on derivative instruments for the period
    
    
    (121,056
    )
    
    
    (29,403
    )
    
    
    12,105Net unrealized gain/(loss) on investment securities available-for-sale for the period
    
    
    (306,413
    )
    
    
    (7,633
    )
    
    
    (79,249
    )Add unrealized loss resulting from HTM to AFS reclass, net of tax
    
    
    
    
    
    
    (25,625
    )
    
    
    Less reclassification adjustments:Derivative instruments
    
    
    (9,556
    )
    
    
    (12,049
    )
    
    
    (12,051
    )Pension plans
    
    
    (1,908
    )
    
    
    
    
    
    
    Investments available for sale
    
    
    (114,618
    )
    
    
    (202,775
    )
    
    
    7,613Net unrealized gain/(loss) recognized in other comprehensive income
    
    
    (301,387
    )
    
    
    152,163
    
    
    
    (62,706
    )Comprehensive (loss)/income
    
    $
    (1,650,649
    )
    
    $
    289,074
    
    
    $
    613,454
  104




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##### Table of Contents



Notes to Consolidated Financial Statements
 Note 25  Parent Company Financial Information
  BALANCE SHEET
 AT DECEMBER 31,2007
    
    
    2006AssetsCash and due from banks
    
    $
    11,504
    
    
    $
    16,526Available for sale investment securities
    
    
    46,998
    
    
    
    55,426Loans to non-bank subsidiaries
    
    
    276,963
    
    
    
    Investment in subsidiaries:Bank subsidiary
    
    
    5,316,751
    
    
    
    6,833,626Non-bank subsidiaries
    
    
    3,473,494
    
    
    
    3,707,705Other assets
    
    
    292,074
    
    
    
    304,711Total Assets
    
    $
    9,417,784
    
    
    $
    10,917,994Liabilities and Stockholders EquityBorrowings:Borrowings and other debt obligations
    
    $
    2,231,152
    
    
    $
    2,033,664Borrowings from non-bank subsidiaries
    
    
    91,669
    
    
    
    118,034Other liabilities
    
    
    102,638
    
    
    
    121,897Total liabilities
    
    
    2,425,459
    
    
    
    2,273,595Stockholders Equity
    
    
    6,992,325
    
    
    
    8,644,399Total Liabilities and Stockholders Equity
    
    $
    9,417,784
    
    
    $
    10,917,994
 STATEMENT OF OPERATIONS
 YEAR ENDED DECEMBER 31,2007
    
    
    2006
    
    
    2005Dividends from Bank subsidiary
    
    $
    194,018
    
    
    $
    600,000
    
    
    $
    750,000Dividends from non-bank subsidiaries
    
    
    7,664
    
    
    
    57,896
    
    
    
    Interest income
    
    
    18,874
    
    
    
    12,240
    
    
    
    6,375Other income
    
    
    567
    
    
    
    259
    
    
    
    139Total income
    
    
    221,123
    
    
    
    670,395
    
    
    
    756,514Interest expense
    
    
    158,366
    
    
    
    145,264
    
    
    
    99,675Other expense
    
    
    50,637
    
    
    
    92,010
    
    
    
    50,205Total expense
    
    
    209,003
    
    
    
    237,274
    
    
    
    149,880Income/(loss) before income taxes and equity in earnings of subsidiaries
    
    
    12,120
    
    
    
    433,121
    
    
    
    606,634Income tax benefit
    
    
    (89,247
    )
    
    
    (98,073
    )
    
    
    (83,674
    )Income before equity in earnings of subsidiaries
    
    
    101,367
    
    
    
    531,194
    
    
    
    690,308Dividends in excess of current year earnings:Bank subsidiary
    
    
    (1,434,026
    )
    
    
    (363,473
    )
    
    
    (22,647
    )Non-bank subsidiaries
    
    
    (16,603
    )
    
    
    (30,810
    )
    
    
    Equity in undistributed earnings/(loss) of:Bank subsidiary
    
    
    
    
    
    
    
    
    
    
    Non-bank subsidiaries
    
    
    
    
    
    
    
    
    
    
    8,499Net (loss)/income
    
    $
    (1,349,262
    )
    
    $
    136,911
    
    
    $
    676,160
 105




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##### Table of Contents



Notes to Consolidated Financial Statements
 Note 25  Parent Company Financial Information (Continued)
 STATEMENT OF CASH FLOWS
 YEAR ENDED DECEMBER 31,2007
    
    
    2006
    
    
    2005Cash Flows from Operating Activities:Net income/(loss)
    
    $
    (1,349,262
    )
    
    $
    136,911
    
    
    $
    676,160Adjustments to reconcile net income to net cash provided by operating activities:Undistributed (earnings)/loss of:Bank subsidiary
    
    
    
    
    
    
    
    
    
    
    Non-bank subsidiaries
    
    
    
    
    
    
    
    
    
    
    (8,499
    )Dividends in excess of current year earnings:Bank subsidiary
    
    
    1,434,026
    
    
    
    363,473
    
    
    
    22,647Non-bank subsidiaries
    
    
    16,603
    
    
    
    30,810
    
    
    
    Loss on retirement borrowings and other debt obligations
    
    
    7,561
    
    
    
    
    
    
    
    Loss on economic hedges
    
    
    
    
    
    
    11,387
    
    
    
    Stock based compensation expense
    
    
    28,011
    
    
    
    35,475
    
    
    
    30,404Allocation of Employee Stock Ownership Plan
    
    
    40,119
    
    
    
    2,377
    
    
    
    2,311Other, net
    
    
    19,826
    
    
    
    (28,454
    )
    
    
    (42,251
    )Net cash provided by operating activities
    
    
    196,884
    
    
    
    551,979
    
    
    
    680,772Cash Flows from Investing Activities:Net capital returned from/ (contributed to) subsidiaries
    
    
    (930
    )
    
    
    212,545
    
    
    
    (965,808
    )Net increase in loans to subsidiaries
    
    
    (276,963
    )
    
    
    
    
    
    
    Net cash (paid) received from acquisitions
    
    
    
    
    
    
    (3,595,673
    )
    
    
    280,210Net purchases and sales of investment securities
    
    
    
    
    
    
    
    
    
    
    1,096Net cash used in investing activities
    
    
    (277,893
    )
    
    
    (3,383,128
    )
    
    
    (684,502
    )Cash Flows from Financing Activities:Net change in borrowings:Repayment of other debt obligations
    
    
    (377,637
    )
    
    
    (400,000
    )
    
    
    (350,000
    )Net proceeds received from senior notes and senior credit facility
    
    
    580,000
    
    
    
    725,000
    
    
    
    797,805Net change in borrowings from non-bank subsidiaries
    
    
    (26,365
    )
    
    
    (131
    )
    
    
    3,196Sale (acquisition) of treasury stock
    
    
    5,624
    
    
    
    400,612
    
    
    
    (470,215
    )Cash dividends paid to preferred stockholders
    
    
    (14,600
    )
    
    
    (7,908
    )
    
    
    Cash dividends paid to common stockholders
    
    
    (153,236
    )
    
    
    (126,105
    )
    
    
    (61,017
    )Sale of unallocated ESOP shares
    
    
    26,574
    
    
    
    
    
    
    
    Net proceeds from the issuance of preferred stock
    
    
    
    
    
    
    195,445
    
    
    
    Net proceeds from issuance of common stock
    
    
    35,627
    
    
    
    2,043,009
    
    
    
    33,383Net cash provided by/(used in) financing activities
    
    
    75,987
    
    
    
    2,829,922
    
    
    
    (46,848
    )Decrease in cash and cash equivalents
    
    
    (5,022
    )
    
    
    (1,227
    )
    
    
    (50,578
    )Cash and cash equivalents at beginning of period
    
    
    16,526
    
    
    
    17,753
    
    
    
    68,331Cash and cash equivalents at end of period
    
    $
    11,504
    
    
    $
    16,526
    
    
    $
    17,753
 106




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##### Table of Contents



Notes to Consolidated Financial Statements
 Note 26  Business Segment Information
    DECEMBER 31, 2007Metro NewMid-Atlantic
    
    New England
    
    York
    
    Shared
    
    SharedBanking
    
    Banking
    
    Banking
    
    Services
    
    ServicesDivision
    
    Division
    
    Division
    
    Consumer
    
    Commercial
    
    Other (2)
    
    TotalNet interest income (expense)
    
    $
    305,771
    
    
    $
    630,419
    
    
    $
    568,570
    
    
    $
    317,019
    
    
    $
    263,189
    
    
    $
    (220,946
    )
    
    $
    1,864,022Fees and other income
    
    
    83,704
    
    
    
    169,718
    
    
    
    139,622
    
    
    
    (79,274
    )
    
    
    119,318
    
    
    
    97,663
    
    
    
    530,751Provision for credit losses
    
    
    31,650
    
    
    
    30,162
    
    
    
    37,650
    
    
    
    233,449
    
    
    
    74,781
    
    
    
    
    
    
    
    407,692General and administrative expenses
    
    
    283,146
    
    
    
    477,489
    
    
    
    435,278
    
    
    
    111,569
    
    
    
    149,384
    
    
    
    (111,028
    )
    
    
    1,345,838Depreciation/Amortization
    
    
    10,319
    
    
    
    15,924
    
    
    
    28,656
    
    
    
    41,576
    
    
    
    8,616
    
    
    
    161,624
    
    
    
    266,715Income (loss) before income taxes
    
    
    74,680
    
    
    
    292,486
    
    
    
    (707,500
    )
    
    
    (761,774
    )
    
    
    158,000
    
    
    
    (465,604
    )
    
    
    (1,409,712
    )Intersegment revenues (expense) (1)
    
    
    188,528
    
    
    
    680,092
    
    
    
    275,957
    
    
    
    (1,081,178
    )
    
    
    (594,834
    )
    
    
    531,435
    
    
    
    Total Average Assets
    
    $
    5,031,970
    
    
    $
    6,612,664
    
    
    $
    11,889,562
    
    
    $
    23,661,740
    
    
    $
    13,111,773
    
    
    $
    23,008,323
    
    
    $
    83,316,032
 DECEMBER 31, 2006Metro NewMid-Atlantic
    
    New England
    
    York
    
    Shared
    
    SharedBanking
    
    Banking
    
    Banking
    
    Services
    
    ServicesDivision
    
    Division
    
    Division
    
    Consumer
    
    Commercial
    
    Other (2)
    
    TotalNet interest income (expense)
    
    $
    318,565
    
    
    $
    656,493
    
    
    $
    454,083
    
    
    $
    323,801
    
    
    $
    237,447
    
    
    $
    (168,841
    )
    
    $
    1,821,548Fees and other income
    
    
    82,595
    
    
    
    168,054
    
    
    
    107,905
    
    
    
    16,782
    
    
    
    148,926
    
    
    
    73,274
    
    
    
    597,536Provision for credit losses
    
    
    11,055
    
    
    
    12,659
    
    
    
    22,138
    
    
    
    411,872
    
    
    
    26,737
    
    
    
    
    
    
    
    484,461General and administrative expenses
    
    
    284,844
    
    
    
    490,896
    
    
    
    314,175
    
    
    
    119,769
    
    
    
    138,744
    
    
    
    (58,439
    )
    
    
    1,289,989Depreciation/Amortization
    
    
    10,923
    
    
    
    17,115
    
    
    
    16,228
    
    
    
    27,585
    
    
    
    6,878
    
    
    
    142,230
    
    
    
    220,959Income (loss) before income taxes
    
    
    105,261
    
    
    
    320,992
    
    
    
    200,247
    
    
    
    (207,247
    )
    
    
    220,796
    
    
    
    (620,918
    )
    
    
    19,131Intersegment revenues (expense) (1)
    
    
    205,583
    
    
    
    667,238
    
    
    
    251,403
    
    
    
    (1,174,514
    )
    
    
    (537,137
    )
    
    
    587,427
    
    
    
    Total Average Assets
    
    $
    4,657,882
    
    
    $
    5,899,065
    
    
    $
    10,719,221
    
    
    $
    26,144,890
    
    
    $
    11,797,996
    
    
    $
    20,276,341
    
    
    $
    79,495,395
 107




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Notes to Consolidated Financial Statements
 Note 26  Business Segment Information (Continued)
 DECEMBER 31, 2005Metro NewMid-Atlantic
    
    New England
    
    York
    
    Shared
    
    SharedBanking
    
    Banking
    
    Banking
    
    Services
    
    ServicesDivision
    
    Division
    
    Division
    
    Consumer
    
    Commercial
    
    Other (2)
    
    TotalNet interest income (expense)
    
    $
    329,978
    
    
    $
    664,356
    
    
    $
    252,606
    
    
    $
    337,124
    
    
    $
    236,099
    
    
    $
    (188,074
    )
    
    $
    1,632,089Fees and other income
    
    
    78,792
    
    
    
    160,780
    
    
    
    50,163
    
    
    
    103,105
    
    
    
    138,481
    
    
    
    59,270
    
    
    
    590,591Provision for credit losses
    
    
    17,571
    
    
    
    8,422
    
    
    
    4,717
    
    
    
    52,685
    
    
    
    6,605
    
    
    
    
    
    
    
    90,000General and administrative expenses
    
    
    261,770
    
    
    
    467,754
    
    
    
    144,646
    
    
    
    129,920
    
    
    
    135,868
    
    
    
    (50,754
    )
    
    
    1,089,204Depreciation/Amortization
    
    
    10,162
    
    
    
    16,264
    
    
    
    4,909
    
    
    
    31,270
    
    
    
    5,840
    
    
    
    98,817
    
    
    
    167,262Income (loss) before income taxes
    
    
    129,533
    
    
    
    348,959
    
    
    
    153,406
    
    
    
    237,220
    
    
    
    232,105
    
    
    
    (209,103
    )
    
    
    892,120Intersegment revenues (expense) (1)
    
    
    200,319
    
    
    
    589,440
    
    
    
    248,934
    
    
    
    (809,135
    )
    
    
    (318,424
    )
    
    
    88,866
    
    
    
    Total Average Assets
    
    $
    4,612,140
    
    
    $
    5,623,854
    
    
    $
    1,716,073
    
    
    $
    21,636,368
    
    
    $
    9,929,938
    
    
    $
    17,213,601
    
    
    $
    60,731,974
 
 (1)
    
    Intersegment revenues (expense) represent charges or credits for funds
used or provided by each of the segments and are included in net
interest income (expense).(2)
    
    Included in Other in 2007, 2006 and 2005 were net merger and
integration charges of $2.2 million, $42.4 million and $12.7 million,
respectively. The 2007, 2006 and 2005 results also include $62.0
million, $78.7 million and $4.0 million of restructuring and other
employee severance charges and $(0.5) million, $14.3 million and $5.8
million for proxy and professional costs. The 2007 results also
include a non-deductible, non-cash ESOP termination charge of $40.1
million based on the value of its common stock on the date that the
ESOP was repaid. See Note 28 for further details. Goodwill assigned to our reporting units which are equivalent to our reportable segments as of
December 31, 2007, 2006 and 2005 were as follows:
 Mid-AtlanticBanking
    
    New England
    
    Shared Services
    
    Shared ServicesDivision
    
    Banking Division
    
    Consumer
    
    Commercial
    
    Metro New York
    
    TotalGoodwill at December 31,2007
    
    $
    688,188
    
    
    $
    658,006
    
    
    $
    
    
    
    $
    341,601
    
    
    $
    1,738,451
    
    
    $
    3,426,2462006
    
    $
    688,079
    
    
    $
    658,006
    
    
    $
    634,012
    
    
    $
    341,601
    
    
    $
    2,683,487
    
    
    $
    5,005,1852005
    
    $
    1,156,736
    
    
    $
    657,944
    
    
    $
    559,498
    
    
    $
    342,648
    
    
    $
    
    
    
    $
    2,716,826
  Note 27  Merger Related and Integration Charges, Net
  2007
    
    2006
    
    2005Merger related and integration charges
    
    $
    2,242
    
    
    $
    42,420
    
    
    $
    12,744
     108




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Notes to Consolidated Financial Statements
 Note 28  Employee Severance Charges and Other Restructuring Costs
   Contracttermination
    
    
    Severance
    
    
    Other
    
    
    TotalAccrued at December 31, 2005
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    Payments
    
    
    (752
    )
    
    
    (18,017
    )
    
    
    (1,020
    )
    
    
    (19,789
    )Charges recorded in earnings
    
    
    7,795
    
    
    
    63,947
    
    
    
    6,926
    
    
    
    78,668Accrued at December 31, 2006
    
    $
    7,043
    
    
    $
    45,930
    
    
    $
    5,906
    
    
    $
    58,879Payments
    
    
    (13,877
    )
    
    
    (48,472
    )
    
    
    (9,999
    )
    
    
    (72,348
    )Charges recorded in earnings
    
    
    16,007
    
    
    
    13,668
    
    
    
    6,093
    
    
    
    35,768Accrued at December 31, 2007
    
    $
    9,173
    
    
    $
    11,126
    
    
    $
    2,000
    
    
    $
    22,299
  Note 29  Related Party Transactions
  Related party loans at December 31, 2006
    
    $
    59,777Loan fundings
    
    
    9,405Resignation of executive officers
    
    
    (1,250
    )Reduction of Sovereign Bank directors
    
    
    (52,078
    )Loan repayments
    
    
    (1,891
    )Related party loans at December 31, 2007
    
    $
    13,963
     109




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Notes to Consolidated Financial Statements
 Note 29  Related Party Transactions (Continued)
   110




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Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
  
 Item 9A. Controls and Procedures.
  Internal Control  Integrated Framework Internal Control  Integrated Framework,
 
 Item 9B. Other Information
  
 PART III
 
 Item 10. Directors, Executive Officers and Corporate Governance.
   
 Item 11. Executive Compensation.
  
 Item 12. Security Ownership of Certain Beneficial Owners and Management.
   Description of the Investment Agreement with Banco Santander Central Hispano, S.A.
   111




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Obligations and Rights During the Term of the Agreement (to May 31, 2011)
  Restrictions on Transfers of Shares by Santander
 
    
    pursuant to a business combination transaction approved by a majority of Unaffiliated
Directors, or a self-tender offer made by Sovereign;
    
    to an Affiliate of Santander that agrees to be bound by the Investment Agreement; or
    
    pursuant to a bona fide pledge to a financial institution.
  
    
    in a sale to the public (either registered under the Securities Act or pursuant to
Rule 144 under the Securities Act) that would not be expected to cause any material
disruption in the market for the common stock and minimizes the possibility that any
purchaser will become a 5% holder; or
    
    in a sale to a third party other than (x) a deposit-taking institution that holds
more than 50% of its aggregate U.S. deposits in states in which Sovereign was operating
at the time of the Investment Agreement or (y) a person listed on the prohibited
purchaser list (subject to our right of first offer and right of last look (each as
described below).
 Standstill Restrictions:
 
    
    acquire additional Voting Securities, except as specifically permitted by the
Agreement;
    
    make an Acquisition Proposal, except as specifically permitted by the Agreement; or
    
    participate in a Proxy Solicitation.
   Notification, First Look and Match Rights:
 112




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Board Representation:
    113




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Approval Rights:
 Certain Actions:
 Voting Arrangements:
 Public announcements:
 Exchange of Management:
 Public Subsidiary Stock:
 Obligations During the First Standstill Period (through May 31, 2008)
  Obligations During the Second Standstill Period (June 1, 2008 to May 31, 2009)
    114




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##### Table of Contents



Obligations During the Third Standstill Period (June 1, 2009 to May 31, 2011)
    Post Acquisition Obligations of Santander
  Sovereign Headquarters:
 Exclusive Acquisition Vehicle:
 Sovereigns Right of First Offer and Right of Last Look
   
 Item 13. Certain Relationships and Related Transactions, and Director Independence.
  115




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Item 14. Principal Accounting Fees and Services
  
 PART IV
 
 Item 15. Exhibits and Financial Statement Schedules.
 (a) 1. Financial Statements.
  
    
    Consolidated Balance Sheets
    
    Consolidated Statements of Operations
    
    Consolidated Statements of Stockholders Equity
    
    Consolidated Statements of Cash Flows
    
    Notes to Consolidated Financial Statements
 2. Financial Statement Schedules.
  (b) Exhibits.
          116




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117




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119




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Signatures
  Sovereign Bancorp, Inc.
  By:
    
    /s/ Joseph P. CampanelliJoseph P. Campanelli, Presidentand Chief Executive Officer
   Title
    
    Date/s/ Brian Hard
    
    Director
    
    February 27, 2008Brian Hard/s/ Marian L. Heard
    
    Director
    
    February 27, 2008Marian L. Heard/s/ Gonzalo de Las Heras
    
    Director
    
    February 27, 2008Gonzalo de Las Heras/s/ Andrew C. Hove, Jr.
    
    Director
    
    February 27, 2008Andrew C. Hove, Jr./s/ William J. Moran
    
    Director
    
    February 27, 2008William J. Moran/s/ Maria F. Ramirez
    
    Director
    
    February 27, 2008Maria F. Ramirez
 120




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##### Table of Contents



Title
    
    Date/s/ Alberto Sanchez
    
    Director
    
    February 27, 2008Alberto Sanchez/s/ Ralph V Whitworth
    
    Director
    
    February 27, 2008Ralph V. Whitworth/s/ Joseph P. Campanelli
    
    President and
    
    February 27, 2008Joseph P. Campanelli
    
    Chief
Executive Officer
(Principal Executive Officer)/s/ Mark R. McCollom
    
    Chief Financial Officer
    
    February 27, 2008Mark R. McCollom
    
    and
Executive Vice President
(Principal Financial Officer)/s/ Thomas D. Cestare
    
    Chief Accounting Officer
    
    February 27, 2008Thomas D. Cestare
    
    and
Executive Vice President
(Principal Accounting Officer)
 121