1. S ove reign B a n c o rp, I nc.
2 0 0 0 A n n u a l R e p o r t
Striving to Increase Shareholder Value 300%
Within the Next 5 Ye a rs

2. Company Profile
Vision Sovereign Bancorp, Inc. is a $33 billion
When consumers and
financial services holding company
businesses think of a
World Class financial
whose principal subsidiary is Sovereign
services provider, they
choose Sovereign Bank.
Bank. Sovereign Bank’s franchise includes
556 community banking offices reaching
from north of Boston to south of
Mission
Philadelphia. Sovereign Bank is among
Sovereign Bank is a
World Class financial
the 30 largest financial institutions
services provider,
committed to helping
in the country, the third largest bank
our customers succeed
by understanding
headquartered in Pennsylvania and
and anticipating their
individual financial
one of the largest lenders to small
needs and providing
customized solutions,
and medium sized businesses in the
resulting in an average
customer having four
Northeastern United States.
plus services with
the Bank.
TA BL E O F C O N T E N T S
FORWARD-LOOKING
STATEMENTS
Financial Highlights 1
The following discussion and
Sovereign Bank Market Area 2
other portions of this Annual
Letter to Fellow Shareholders 4
Report contain various
forward-looking statements. Building a Solid Foundation for the Future 6
Please refer to page 12 for a
Five-Year Financial Summary 11
discussion of the various
Management’s Discussion and Analysis 12
factors that could adversely
affect the actual results--
Financial Statements and Supplementary Data 40
causing them to differ
Officers and Boards of Directors 76
materially from those
expressed herein. Corporate Information Inside Back Cover

3. Financial Highlights
CASH EARNINGS
2000 1999 %Change
(dollars in millions, except per share data)
(in millions of dollars)
FOR THE YEAR
Cash Earnings (1) $ 308.6 $ 231.5 33%
(1)
Operating Earnings 239.9 202.3 19%
Net Income/(Loss)
(includes special charges) (30.2) 179.3 (117%)
Net Interest Income 854.8 614.7 39%
Net Interest Margin (2) 3.19% 2.88% 11%
PER SHARE
Cash Earnings Per Share(1) $ 1.48 $ 1.34 10%
Core Revenue Per Diluted Share(3) 5.26 4.31 22%
Operating Earnings Per Share(1) 1.15 1.18 (3%) OPERATING EARNINGS
(in millions of dollars)
Net Income/(Loss) Per Share
(includes special charges) (0.13) 1.01 (113%)
(4)
Book Valueat End of Period 8.60 8.08 6%
Common Stock Price at End of Period 8.13 7.45 9%
AT YEAR-END
Total Assets $ 33,458 $ 26,607 26%
Demand Deposits 7,723 2,961 161%
Total Deposits 24,499 12,013 104%
Total Loans 21,912 14,288 53%
Stockholders’ Equity 1,949 1,821 7%
FINANCIAL RAT I O S ASSETS
(in billions of dollars)
Cash Return on Average Assets(1) 0.99% 0.97% 2%
Operating Return on Average Assets(1) 0.77% 0.85% (9%)
(1)
Cash Return on Average Equity 18.32% 17.73% 4%
Operating Return on Average Equity(1) 14.24% 15.51% (8%)
Efficiency Ratio(5) 54.31% 48.64% 12%
Non-Performing Assets
to Total Assets 0.56% 0.32% 75%
Allowance for Loan Losses to
Total Loans 1.17% 0.93% 26%
(1) Cash earnings are operating earnings excluding amortization of intangible assets and ESOP-related expense. Operating earnings include certain
one-time tax benefits and exclude the following special charges for 2000: merger-related, restructuring and integration charges related to recent
acquisitions, as well as the impact on net interest income and shares outstanding from the early issuance of certain debt and equity instruments
issued to finance Sovereign’s New England retail banking and middle market lending acquisition.
(2) Net interest margin is on an operating basis and excludes negative carry from escrowed financing proceeds and reduced reinvestment income
from net proceeds of equity offerings.
(3) Core Revenue is net interest income after provision for loan losses plus non-interest income, excluding securities transactions.
(4) Book value equals equity divided by common shares outstanding.
(5) Efficiency Ratio equals operating expenses e xcluding merger-related and other integration charges as a percentage of total revenue,
defined as the sum of net interest income excluding the negative carry from escrowed financing proceeds plus non-interest income
excluding securities transactions.
1

4. Geographic Market Area
Sovereign
Bank
Among the 30
largest financial
institutions in US
Among the largest
Lenders to Small
Businesses in the
Northeast
3rd largest bank
headquartered in PA
3rd largest
banking franchise
in New England
Dominant
Market Share:
New England
#3 Massachusetts
#3 Rhode Island
#3 Hartford, Connecticut
#5 New Hampshire
Mid Atlantic
#3 Southeastern
Pennsylvania
#4 Central
and Northern
New Jersey
2

5. One Bank Multiple Markets
S ove reign Bank Locations (1)
BankingOffices ATMs
Pennsylvania(1) 135 259
•
New Jersey(1) 136 169
•
“A large Delaware(1) 6 15
•
New York 0 9
•
MID ATLANTIC TOTAL 277 452
Regional Bank Connecticut 37 75
•
Massachusetts 180 369
•
with a small New Hampshire 13 21
•
Rhode Island 49 90
•
Community Vermont 0 20
•
NEW ENGLAND TOTAL 279 575
GRAND TOTAL 556 1,027
Bank touch” (1) Includes one office in Pennsylvania, eleven offices in New Jersey and
six offices in Delaware expected to be sold in 2001.
3

6. L et te r to Fellow Sh areholders
Two thousand was another monumental year for Sovereign.
Cash earnings per share increased 10%, while cash return
on average equity was 18.3% and cash return on average
assets was .99%. We more than doubled our deposit
franchise, increased our net interest margin and completely
transformed our balance sheet into a diversified commercial
bank model. We are proud to highlight just a few of our team’s
main accomplishments during 2000, which have created new
opportunities for our customers and shareholders, as well as
Jay S. Sidhu,
President and Chief Executive Officer,
exciting challenges for our team members.
Sovereign Bancorp, Inc.
and Sovereign Bank
We are Financial Results
committed Sovereign achieved cash earnings per share Non-interest income excluding securities
to achieving of $1.48, an increase of 10% over 1999. transactions for the year was $229.7 million,
above average Our 2000 core revenue (operating net interest an 82% increase from $126.1 million in 1999,
annual increases income plus non-interest income, excluding and Sovereign Bank’s deposit fees were
securities transactions) was $1.1 billion, an $91.3 million, an increase of 86% for 2000 as
in shareholder
increase of 48.0% over 1999. compared to $49.2 million reported in 1999.
value
Core revenue was $5.26 per diluted share, Business Line Gains
up 22.0% from $4.31 per diluted share in Sovereign Bank’s commercial loan
1999. Sovereign’s operating net interest originations for the year were $2.3 billion
margin improved 31 basis points to 3.19%. with commercial loans totaling $7.8
Our balance sheet repositioning continued billion, representing 36% of the loan
with overall borrowing levels reduced by $6.1 portfolio, compared to $4.1 billion and
CASH EPS
billion or a reduction of 50% for the year. 29% of the loan portfolio at year end 1999.
Consumer loans originated during
On an operating basis, our earnings for 2000 2000 totaled $2.1 billion with the consumer
were $239.9 million, up from $202.3 million loan portfolio increasing to $6.1 billion
for the same period last year. Operating from $4.5 billion in 1999. Consumer loans
earnings per share was $1.15 versus $1.18 comprised 28% of Sovereign Bank’s loan
in 1999. The net impact of tax benefits plus portfolio in 2000 compared to 31% in 1999.
merger related and restructuring of balance
sheet special charges for the year were $243.8 Sovereign Bank’s retail-banking group
million after-tax. Sovereign’s 2000 net loss, finished the year posting solid sales results.
which includes the special charges noted As a result of Sovereign Bank’s Customer
above, was $30.2 million, or $.13 per share.
4

7. Acquisition Strategy intitatives, checking and personal touch of a small community bank
money market deposit growth for the year, with the sophistication of a large commercial
excluding the New England acquisition bank.
and branch sales, was a net increase of $684
million, a growth rate of 16.4% over 1999. Building a Solid Foundation
The deposit generation initiatives coupled for the Future
with the successful deposit retention efforts
During 2000, Sovereign successfully integrated
in New England, resulted in an increase of a large, very strategic acquisition that has
$12.5 billion in total deposit balances for the dramatically improved the quality of our
year. Core deposits, which include checking,
franchise and balance sheet. We believe we
savings, and money market accounts, have built a solid foundation and a strong
increased $8.8 billion for the year.
management team that can deliver, on
Richard E. Mohn,
average, a double-digit growth rate in cash Chairman of the Board,
Sovereign Bank exceeded its own internal Sovereign Bancorp, Inc.
and operating earnings. We believe our game
and Sovereign Bank
goals by successfully integrating the largest
plan will result in above average growth in
branch divestiture in U.S. banking history revenues. We expect to increase our tangible
with virtually no net deposit or loan run off.
Over the past 10
equity base by over $500 million by year end
At the outset of the New England acquisition, 2002, without any new capital offerings. We
years, operating
we recognized the importance of customer are very clear about consistently focusing on
earnings have
retention, and team member efforts in this
our critical success factors, as we look toward
increased an
area have been tremendous—contributing achieving a 300% increase in shareholder
to a 99.8% net deposit retention rate through
average of 19%
value within the next five years.
year-end—well ahead of our expectations.
a year and the
There is a lot of optimism and excitement
total return
Highly Focused Growth Strategy at Sovereign as we look to build upon our
to shareholders
Sovereign’s goal remains to achieve, over the stronger foundation. We are greatly indebted
has averaged
long-term, above average financial results and to the dedication of our team members, and
25% a year
shareholder returns by implementing our the support from our customers and share-
clearly defined corporate strategy. Over the holders as we continue to build a world class
past ten years, operating earnings have financial services company in the Northeast
increased an average of 19% a year and the United States.
CORE REVENUE
total return to shareholders has averaged 25%
PER DILUTED SHARE
a year. Our corporate strategy has been to
achieve a dominant market position in high
growth markets and differentiate ourselves on
Richard E. Mohn
the basis of quality of service provided, while
Chairman of the Board
closely monitoring asset quality, interest rate
risk, efficiency ratios plus retaining and
developing a highly motivated, well trained
team. We are focusing on the middle income
consumer market and businesses with less Jay S. Sidhu
than $100 million in sales, and combining the President and Chief Executive Officer
5

8. Building a Solid Foun
We believe the transformation Sovereign has undergone
in recent years has been instrumental in building a solid
Sovereign’s CEO, foundation for the future. We believe Sovereign is now
positioned to achieve its vision of “when consumers and
businesses think of a World Class financial services provider,
Jay Sidhu,
they choose Sovereign”. We believe this vision will result in
above average returns to our shareholders. Our goal is to
answers some increase shareholder value 300% within five years.
of the most
Q. What should shareholders expect from risk, which resulted in a significantly lower
P/E and, hence, a lower stock price. Now that
Sovereign over the next few years?
we have proven to the marketplace that our
A. Sovereign continually strives to
frequently asked team has successfully completed the entire
outperform the market in terms of quality
integration, that capital levels are being
of earnings, growth in cash and GAAP
restored very quickly, and a solid foundation
earnings, return on equity and, hence, above
has been built, we believe Sovereign is
average returns for shareholders. Although
questions from poised to achieve higher average returns
growth in operating earnings has been
for shareholders.
consistent over the years, we have had bumps
in share price increases at certain times.
Q. How does tangible capital build so fast
However, the total return to shareholders has
shareholders after October 2001?
averaged 25% a year over the past ten years.
A. Sovereign negotiated with FleetBoston to
And now, Sovereign has set a goal to increase
defer about $340 million of the purchase price
shareholder value 300% or an average of over
for the acquisition through October 2001.
50% a year over the next five years.
When the U.S. Government had ordered
Q. Why did Sovereign do the FleetBoston deal? FleetBoston to divest this franchise, they were
prohibited from directly soliciting customers or
A. In 1997, we had articulated our goal of employees of the acquirer for two years. If
becoming a high performing commercial bank
FleetBoston violates this agreement, Sovereign
that has a diversified loan portfolio, a low-cost
can withhold payments. This negotiated
deposit base, higher margins and a dominant
agreement with FleetBoston decreased the
market position. The FleetBoston acquisition
goodwill recorded by approximately $340
accelerated this transformation at a very
million, and gave Sovereign the ability to pay
reasonable price of under seven times
for the acquisition from current profits rather
earnings. We acquired 100% of the Fleet Bank
than additional borrowings or equity
franchise in eastern Massachusetts, 100% of
issuances. This payment is expected to be
the Bank Boston franchise in Rhode Island,
completed by October 2001. After that date,
and parts of the Bank Boston franchise in
we expect generation of internal tangible
western Massachusetts and Connecticut. This
equity to increase to approximately $40
franchise included the entire small business
million a month or over $430 million in 2002,
and middle market lending groups and no
after making dividend payments. Therefore,
non-performing assets. In the short run, we
going forward, we believe capital should not
took on a significant integration and capital
be a problem for Sovereign.
6

9. dation the Future
Q. What do you see as the company’s top business plans. In consumer banking, we are
three weaknesses? implementing our strategies to increase non-
interest revenues by over 50% within two
A. Our top three weaknesses are a below OPERATING EARNINGS
years through superior sales efforts, and to PER SHARE
average holding company tangible capital
increase our lower cost core deposits by 10%
ratio, facing a probable slowdown in the
a year, which will result in an improved
economy which could put short term pressures
efficiency ratio. In the corporate banking area,
on asset quality, and a need to continue to
our primary focus is on maintaining superior
build the infrastructure for a solid commercial
asset quality during these uncertain times
bank which may result in a higher than
and on increasing our market share among
desired efficiency ratio.
small to medium sized businesses with less
than $100 million in sales. In addition, we
Our holding company Tier 1 capital ratio is
expect to build in excess of $500 million in
about 3.50%, which is expected to increase to
internally generated tangible common equity
about 5% by year-end 2002. At the bank level,
by year end 2002, that will allow us to
we have a goal of keeping a minimum Tier 1
strengthen our equity capital while we pay
leverage ratio of 6.75% and risk based capital
off our holding company debt.
ratio of 10.25%. This gives our bank significant
strength, especially during these uncertain e= projected estimate
As a result of this focused and differentiated
economic times. Asset quality continues to
strategy of combining the best of a smaller
receive high priority among top management.
community-oriented commercial bank with the
Over the long haul, we expect our efficiency
best of a large bank, while paying attention to
ratios to be in the low 50’s or high 40’s.
our four critical success factors, we will be
striving to achieve $2.00 per share in earnings
Q. What is Sovereign’s strategy to
by 2005, hopefully resulting in a stock price
achieve above average financial results and
between $24 and $30. Our management
shareholder value over the next few years?
short-term and long-term bonus plans are
Striving
A. Now that we have built a strong aligned with these financial goals.
foundation for the future, we are totally
focused on executing our financial and
to increase
Our Beliefs and Principles
We achieve our mission and practice our values in an ethical, moral and legal
shareholder
atmosphere, where mutual trust and understanding are practiced. We keep our
promises, admit our mistakes and abide by these basic principles in decision
making and the way we do business:
• We encourage all team members to have a Business Plan and a Personal Development
value 300%
Plan, suggesting and supporting stretch goals.
• We give individuals the authority to use their capabilities to the fullest to provide
solutions for our customers’ needs.
within the
• We communicate frequently with candor, listening to each other, regardless of level
or position or tenure.
• We focus on situation, issue or behavior, not on the person.
next 5 years
• We acknowledge problems openly and honestly and deal with conflicts as they arise.
• We believe in maintaining the self-confidence and self-esteem of others.
• We always strive to make things better, while maintaining constructive relationships
and leading by example.
7

10. Building for the Future
FOCUS ON CLEARLY DEFINED CRITICAL SUCCESS FA C T O R S
In 1987, Sovereign defined its four critical success
factors as superior asset quality, low interest rate risk,
low overhead, and a strong sales and service culture
supported through growth and development of team
members. We will always strive to achieve our critical
success factors and adhere to these enduring themes.
S o v e re i g n ’ s G r o w t h
Dennis S. Marlo, CPA,
Chief Financial Officer and Treasurer,
1986(1)
Sovereign Bancorp, Inc.
2000
and Sovereign Bank
Assets . . . . . . . . . . . . . . . . . . . . $660 million $33 billion
Branches . . . . . . . . . . . . . . . . . . 19 556
Asset quality overall Market Position . . . . . . . . . . . . . . 20th in PA 30th largest
remains solid and in US
(1) As originally reported.
in-line with regional
bank peers
Superior Asset Quality
Superior asset quality remains a high service and to ensure Sovereign Bank to
priority at Sovereign Bank. Sovereign Bank better understand the customer’s business
has quality control procedures to ensure and financial needs which, in turn, helps to
that commercial credits are approved and maintain strong, healthy loan relationships.
ALLOWANCE FOR
LOAN LOSSES independently reviewed by teams of credit
(in millions of dollars)
and loan review officers. Sovereign Bank’s As Sovereign continues with the
team of commercial and consumer relationship transformation of its balance sheet,
officers and credit risk officers work closely Sovereign will continue to actively
with our customers to ensure personalized manage the quality of its loan portfolios.
As set Qual it y Ratios
1996 1999 2000
Non-Performing Assets to Total Assets . . . . . .78% .32% .56%
Non-Performing Loans to Total Loans . . . . . 1.05% .55% .82%
Allowance for Loan Losses to Total Loans . . . .76% .93% 1.17%
Net Charge-Offs to Average Loans . . . . . . . . .19% .29% .35%
Allowance to Non-Performing Loans . . . . . . 73% 168% 143%
8

11. Low Interest Rate Risk
Interest rate risk management will always in interest rates. To this end, Sovereign’s
be an important focus at Sovereign. primary strategy is to maintain a neutral
Sovereign believes in consistency of gap position and minimize interest
earnings and that the stability of earnings rate risk through active management of
must not be materially affected by changes its earning assets and funding sources.
Tra n s formed to a Higher Pe r f o r m ing Dive rsified Loan Mix
December 2000
December 1997
John P. Hamill,
Chairman and Chief Executive Officer
Commercial
of the Sovereign Bank New England
27% 28% Division, Sovereign Bank
36%
Residential
61%
12%
36%
As a result of the New
Consumer
England acquisition
7.8% 8.3%
Yield
completed in 2000,
$11.6 billion $21.9 billion
Size
Sovereign Bank truly
Transformed to a Stable Low Cost Deposit Mix
became one bank
December 2000
December 1997
in multiple markets
Checking
30%
38%
31%
56%
Time Deposits
14%
31%
Other Core
4.2% 3.8%
Cost
$9.5 billion $24.5 billion
Size
Loan to
122% 89%
Deposit Ratio
Low Overhead Joseph P. Campanelli,
President, Sovereign Bank New England
Division and President, Business Banking
Providing quality service in a low-cost of net interest income and recurring
Division, Sovereign Bank
and efficient manner continues to be a non-interest income) was 54.3%. Sovereign
cornerstone of Sovereign Bank’s success, believes long-term performance belongs
Our personalized
with all team members being acutely to growth companies that have a clear
service allows
aware of the importance of having a highly cut, highly focused, disciplined strategy
productive company. For the year ended providing efficiency ratios in the low 50’s Sovereign Bank
December 31, 2000, Sovereign’s efficiency or high 40’s. to better understand
ratio (all operating expenses as a percentage the customer’s business
9

12. Strong Sales and Service Culture
The Sovereign Way is our company culture The Team Involvement Program, known
and is the foundation from which Sovereign to team members as quot;TIPquot;, adds to the
Bank grows. We understand the way we corporate culture by encouraging every
perform our jobs has a direct correlation team member to become an active
with the view a customer has of Sovereign participant in the business of the Company.
Bank. We believe that team member The Team Involvement Program is an
performance is a major determining force on-going process at Sovereign Bank that
to the success of Sovereign Bank. Our goal provides a set of values which supports
is to stand out among our competitors and team members to ask critical questions
to become the bank with whom people about their jobs and investigate and
want to do business. When consumers implement continuous process improvements.
Lawrence M. Thompson, Jr., Esq.,
and businesses think of a World Class
Chief Administrative Officer and Secretary,
Sovereign Bancorp, Inc.
financial services provider, we want This program encourages and empowers
Chief Operating Officer and Division
them to think of Sovereign Bank first. every team member to analyze current
President of Consumer Banking Division,
Sovereign Bank
workflow, identify redundancies and
quot;The Sovereign Wayquot; process is helping us inefficiencies and actively pursue process
Sovereign Bank believes to build upon our corporate culture. It’s not improvements. Therefore, the Team
that continued success a way to deliver customer service, but a Involvement Program is part of our corporate
way of life. The program is comprised of culture that promotes productivity and bashes
is dependent upon
five modules with each module building bureaucracy. This program is a catalyst for
World Class team
upon the other, layering skills and strategies change, not an end in itself. The main focus
members providing
for providing World Class service. These of the Team Involvement Program is on the
World Class service
modules include Customer Relationship, process not the program.
Listening and Communication Skills,
Accuracy and Productivity, Customized The Sovereign Way and the Team Involvement
DEPOSIT FEES
Solutions, and Customer Satisfaction. Program incorporate bank wide strategic
(in millions of dollars)
Each module is studied for a minimum initiatives to enhance Sovereign Bank’s
of four weeks during which time the corporate culture. These programs bring
team members are observed by leaders Sovereign Bank’s mission and corporate
to ensure that the concepts are absorbed values to life and we believe these values are
and implemented. Upon completion of ultimately responsible for producing growth
each module, certification is given. in shareholder wealth. With Sovereign Bank
expanding into new regions, these values are
The Sovereign Way is all about layering more important than ever before. Sovereign
skills and strategies for providing World Bank believes that continued success is
Class Service. The next phase, which builds dependent upon World Class team members
upon the foundation of the Sovereign Way providing World Class service.
is Sovereign’s Team Involvement Program.
10

13. F i v e – Y e a r F i n a n c i a l S u m m a r y (1)
BALANCE SHEET DATA At December 31,
(dollars in millions)
2000 1999 1998 1997 1996
___________ ___________ ___________ ___________ ___________
Total assets $ 33,458 $ 26,607 $ 21,914 $ 17,655 $ 15,299
Loans 21,912 14,288 11,583 11,635 9,734
Deposits 24,499 12,013 12,460 9,537 8,661
Stockholders’ equity 1,949 1,821 1,204 1,048 890
STOCK STATISTICS(2) At or For the Year Ended December 31,
(shares in millions, except per share data)
2000 1999 1998 1997 1996
___________ ___________ ___________ ___________ ___________
Common shares outstanding 226.5 225.5 159.7 141.2 134.0
Common share price $ 8.13 $ 7.45 $ 14.25 $ 17.31 $ 9.13
Book value per share(3) 8.60 8.08 7.54 7.42 6.64
Dividends declared per common share(4) 0.10 0.10 0.08 0.11 0.14
SUMMARY STATEMENT
OF OPERATIONS Year Ended December 31,
(dollars in millions, except per share data)
2000 1999 1998 1997 1996
___________ ___________ ___________ ___________ ___________
Total interest income $ 2,270 $ 1,607 $ 1,355 $ 1,179 $ 1,017
Total interest expense 1,415 992 862 747 630
___________ ___________ ___________ ___________ ___________
Net interest income 855 615 493 432 387
Provision for loan losses 57 30 28 41 23
___________ ___________ ___________ ___________ ___________
Net interest income after provision
for loan losses 798 585 465 391 364
___________ ___________ ___________ ___________ ___________
Other income 109 130 105 49 63
General and administrative expense(5) 731 393 327 244 228
Other expenses 282 54 32 26 61
___________ ___________ ___________ ___________ ___________
Income/(loss) before taxes (106) 268 211 170 138
Income tax provision/(benefit) (65) 89 75 67 48
Gain on sale of FHLB advances(6) 11 - - - -
___________ ___________ ___________ ___________ ___________
Net income/(loss)(7) $ (30) $ 179 $ 136 $ 103 $ 90
___________ ___________ ___________ ___________ ___________
Operating earnings(8) $ 240 $ 202 $ 170 $ 139 $ 115
___________ ___________ ___________ ___________ ___________
Diluted earnings/(loss) per share $ (0.13) $ 1.01 $ 0.85 $ 0.66 $ 0.59
Operating earnings per share 1.15 1.18 1.06 0.89 0.76
Cash earnings per share(9) 1.48 1.34 1.17 0.99 0.87
(1) All financial highlights have been restated to reflect all acquisitions which have been accounted for under the pooling-of-interests method of accounting.
(2) All per share data have been adjusted to reflect all stock dividends and stock splits.
(3) Book value is calculated using equity divided by common shares outstanding at end of period.
(4) The higher dividend rate in prior periods is the result of acquisitions which were accounted for as a pooling-of-interests.
(5) General and Administrative expenses for the year ended December 31, 2000 and 1999 include special charges of $149 million and $50 million, respectively, related to merger and other integration expenses,
restucturing charges, and non-solicitation expense. See Reconciliation of Net Income to Operating Earnings in “Management’s Discussion and Analysis” hereof.
(6) Net of tax of $5.2 million.
(7) The results for the years ended 2000, 1999, 1998 and 1997 include merger related and other integration charges of $270 million, $23 million, $34 million, and $37 million, after tax, respectively.
(8) See a “Reconciliation of Net Income to Operating Earnings” in Management’s Discussion and Analysis for explanation of special charges excluded from operating earnings.
(9) Cash earnings are operating earnings e xcluding amortization of intangible assets and ESOP–related expense.
11

14. Management’s Discussion and Analysis
trade, monetary and fiscal policies and laws, including interest rate
FORWARD-LOOKING STATEMENTS
policies of the Board of Governors of the Federal Reserve System; (3)
inflation, interest rate, market and monetary fluctuations; (4) the
Sovereign Bancorp, Inc. (quot;Sovereignquot; or “the Company”) may from
ability of Sovereign and Sovereign Bank to successfully integrate the
time to time make quot;forward-looking statements,quot; including statements
assets, liabilities, customers, systems and management we acquire
contained in Sovereign's filings with the Securities and Exchange
into our operations; (5) the timely development of competitive new
Commission (including its Annual Report on Form 10-K and the
products and services by Sovereign Bank and the acceptance of such
Exhibits thereto), in its reports to shareholders (including this 2000
products and services by customers; (6) the willingness of customers
Annual Report) and in other communications by Sovereign, which
to substitute competitors’ products and services and vice versa;
are made in good faith by Sovereign, pursuant to the quot;safe harborquot;
(7) the success of Sovereign and Sovereign Bank in meeting the
provisions of the Private Securities Litigation Reform Act of 1995.
post-closing regulatory requirements with respect to the FleetBoston
acquisition, and the ability to pay installments on a timely
These forward-looking statements include statements with respect to
basis related to the non-solicitation agreement in connection with the
Sovereign's vision, mission, strategies, goals, beliefs, plans, objectives,
acquisition; (8) the impact of changes in financial services’ laws and
expectations, anticipations, estimates, intentions, financial condition,
regulations and the application of such laws and regulations (including
results of operations, future performance and business of Sovereign,
laws concerning taxes, capital, liquidity, proper accounting treatment,
including: (i) statements relating to Sovereign’s expectations and goals
securities and insurance) and the impact of changes in generally
with respect to (a) growth in cash earnings, operating earnings, net
accepted accounting principles; (9) technological changes; (10)
income, shareholder value and internal tangible equity generation;
changes in consumer spending and savings habits; (11) unanticipated
(b) growth in earnings per share; (c) return on equity; (d) return
regulatory or judicial proceedings; (12) changes in asset quality;
on assets; (e) efficiency ratio; (f) tier 1 leverage ratio; (g) annualized
and (13) the success of Sovereign at managing the risks involved
net charge-offs and other asset quality measures; (h) fee income as
in the foregoing.
a percentage of total revenue; (i) tangible equity to assets; (j) book
value and tangible book value per share; (k) loan and deposit portfolio
Operating earnings, cash earnings, and core revenue, as defined,
compositions, employee retention, deposit retention, asset quality,
and the related ratios using these measures are not a substitute for
reserve adequacy; and (ii) statements preceded by, followed by
other financial measures determined in accordance with generally
or that include the words “may,” “could,” “should,” “pro forma,”
accepted accounting principles (“GAAP”). Because all companies
“looking forward,” “would,” “believe,” “expect,” “anticipate,”
do not calculate these non-GAAP measures in the same fashion,
“estimate,” “intend,” “plan,” “strive,” “hopefully,” “try,” or similar
these measures as presented may not be comparable to other
expressions. Although we believe that the expectations reflected in
similarly titled measures of other companies.
our forward-looking statements are reasonable, these forward-looking
statements involve risks and uncertainties which are subject to change
Sovereign cautions that the foregoing list of important factors is
based on various important factors (some of which, in whole or in part,
not exclusive, and neither such list nor any such forward-looking
are beyond Sovereign’s control). The following factors, among others,
statement takes into account the impact that any future acquisition
could cause Sovereign’s financial performance to differ materially from
may have on Sovereign and any such forward-looking statement.
the goals, plans, objectives, intentions and expectations, forecasts and
Sovereign does not undertake to update any forward-looking statement,
projections (and underlying assumptions) expressed in such forward-
whether written or oral, that may be made from time to time by or
looking statements: (1) the strength of the United States economy in
on behalf of Sovereign.
general and the strength of the regional and local economies in which
Sovereign conducts operations, (2) the effects of, and changes in,
12

15. MANAGEMENT'S DISCUSSION AND ANALYSIS Summary of Operations. Sovereign reported cash earnings for 2000
OF RESULTS OF OPERATIONS AND of $309 million, or $1.48 per share, up from $231 million and $1.34
FINANCIAL CONDITION per share in 1999. This represents an increase in cash earnings of
33% and a 10% increase in cash earnings per share. Cash earnings
are operating earnings excluding amortization of intangible assets and
General. Sovereign Bancorp, Inc., (“Sovereign” or “the Company”),
ESOP-related expense. Operating earnings for 2000 were $240 million,
with assets of $33.5 billion at December 31, 2000, was the 30th largest
an increase of 19% from 1999 operating earnings of $202 million.
banking company in the United States, with over 550 offices covering
Operating earnings per share for 2000 was $1.15, as compared to
a geographic region stretching from north of Boston to south of
operating earnings per share of $1.18 in 1999 (for more information
Philadelphia. The growth of Sovereign in 2000 was mainly due to the
related to operating and cash earnings, see the Reconciliation of
acquisition of $12.3 billion of deposits, $8.0 billion of loans, and over
Net Income to Operating Earnings on page 14). Net loss for 2000 was
280 community banking offices from FleetBoston Financial (the “SBNE
$30 million or $.13 per share. Net income for 1999 was $179 million
acquisition”). Sovereign successfully completed the SBNE acquisition in
or $1.01 per share. This represents a decrease in net income of $209
three phases on March 24, June 16, and July 21, 2000. The acquisition, which
million, which is due to increased merger-related and other unusual
became Sovereign Bank New England (SBNE), amounted to the largest
charges recorded in 2000, primarily directly or indirectly related to
branch acquisition in banking history as detailed below. (For more details
the SBNE acquisition, and certain securities transactions. On an
on the SBNE acquisition, and other acquisitions, see Note 2– Business
operating basis, return on average equity and return on average
Combinations in the quot;Notes to Consolidated Financial Statementsquot;)
assets were 14.24% and .77%, respectively, for 2000 compared
to 15.51% and .85%, respectively, for 1999.
SUMMARY OF COMPLETED SBNE ACQUISITION
(Dollars in billions)
Sovereign analyzes its performance on a net income basis determined
in accordance with generally accepted accounting principles, as well
DATE DIVESTED UNITS DEPOSITS LOANS BRANCHES
as on an operating and a cash operating basis before special charges
referred to in this analysis as “operating earnings” and “cash earnings”.
March 24, 2000 . . Rhode Island,
Operating and cash earnings and related discussions are presented
Connecticut (BankBoston) $ 4.2 $ 2.5 90
as supplementary information in this analysis to enhance the readers’
June 16, 2000 . . . Eastern Mass (Fleet) 3.8 3.5 86
understanding of, and highlight trends in, its core financial results
July 21, 2000 . . . Central Mass,
New Hampshire (Fleet) _____4.3 2.0 105 excluding the nonrecurring effects of discreet business acquisitions
___ _____ _______
$ 12.3 $ 8.0 281 and other transactions. The Company has included these additional
disclosures of operations before special charges because this information
is both relevant and useful in understanding performance of the
Company. Operating and cash earnings should not be viewed as
As a result of the SBNE acquisition, 2000 was a year of repositioning
a substitute for net income and earnings per share as determined
Sovereign for the future—more than doubling our deposit base,
in accordance with generally accepted accounting principles. Merger-
changing the mix of loans to be more similar to that of a commercial
related charges and other items excluded from net income used to
bank, adding experienced banking professionals to senior management
derive operating and cash earnings and the effect of certain
and over 3,000 staff to the organization. Sovereign successfully
non-recurring tax benefits included in operating earnings may be
integrated over 280 community banking branches, accounting and
significant and may not be comparable to other companies. Special
computer systems and achieved net retention equal to 99.8% of
charges were $270.1 million after-tax for the year ended December 31,
the $12.3 billion deposits acquired in the SBNE acquisition at
2000 and $23.0 million after-tax for the year ended 1999.
December 31, 2000.
Restructuring Charges. In November 2000, the Company announced
Sovereign’s financial results for 2000 reflect the SBNE acquisition
the results of a restructuring initiative called “Shaping Sovereign’s
from the dates noted above. Additionally, the results reflect merger-
Future” (SSF). In addition to realigning the Office of the Chief Executive
related and integration charges related to all of Sovereign’s recent
Officer and the Company around customer segments, Sovereign
acquisitions, restructuring charges, and non-solicitation expenses
analyzed front and back office operations and computer operating
(for more information related to these expenses see the Reconciliation
platforms and eliminated approximately 500 positions. In total,
of Net Income to Operating Earnings on page 14).
Sovereign recorded $18.5 million in restructuring costs, which was
comprised of $14 million of severance and outplacement costs, and
All per share amounts presented in Management’s Discussion and
a $4.5 million write-off of a redundant computer-operating platform.
Analysis of Financial Condition and Results of Operations have been
adjusted to reflect all stock dividends and stock splits.
13

16. Management’s Discussion and Analysis
Operating earnings include certain tax benefits related to the sale of minority interests and exclude special charges related to restructuring and
merger-related costs as more fully described in the footnotes below. The net impact of the tax benefits and special charges for the year ended
December 31, 2000 were $243.8 million after-tax.
A reconciliation of net income to operating earnings is presented below:
RECONCILIATION OF NET INCOME TO OPERATING EARNINGS
(Dollars in thousands, except per share data – all amounts are after-tax)
____________________YEAR_ENDED ____________31,___________________
_____ _______ DECEMBER __
TOTAL _______________SHARE_________
PER ______
_______________________________
_____20______
__00 1999 _ 2000 ____19______
__99
____________ ____________
Net income/(loss) as reported . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (30,242) $ 179,299 $ (0.13) $ 1.01
Net negative carry on escrowed bond proceeds(1). . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18,589 3,123 0.08 0.02
Merger-related and integration costs related to recent acquisitions(2) . . . . . . . . . . . . . . . 97,063 20,576 0.43 0.12
Expense on convertible trust preferred securities (quot;PIERSquot;)(1) . . . . . . . . . . . . . . . . . . . . 6,502 2,125 0.03 0.01
Loss on securities due to restructuring of the balance sheet(3) . . . . . . . . . . . . . . . . . . . . 66,956 – 0.29 –
Restructuring(4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,025 – 0.05 –
Non-solicitation expense(5) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78,039 – 0.35 –
Assumed income from reinvestment of net proceeds of
common equity and PIERS(1). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (9,051) (2,827) (0.04) (0.02)
Impact of additional shares outstanding for 2000 common and
PIERS securities offerings(6). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ____________– ___________– __________09
0.__ 0.04
_ _ ____________
Operating earnings(6)(7) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $____________
239,881 _________29_
$ 202,__6 $ 1.15 $ 1.18
_ ____________
____________
Cash earnings(6)(7) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ _____3___564
_08, ___ ___________7
$ 231,46_ __________48
$ 1.__ __________34
$ 1.__
_
(1) In connection with the SBNE acquisition, Sovereign raised $1.8 billion of debt and equity capital in November and December 1999 of which $1.3 billion of debt proceeds were in escrow with limited ability to reinvest
the proceeds until the acquisition was completed on July 21, 2000. Consequently, the excess of negative carry and trust preferred expense over interest expense reduction realized on the raised capital resulted in a net
reduction in pretax income of $24.7 million ($16.0 million after-tax) and $3.7 million ($2.4 million after-tax) comprised of the following components for the years ended December 31, 2000 and 1999: a) a reduction of
net interest income of $28.6 million ($18.6 million after-tax) and $4.7 million ($3.1 million after-tax); b) expense of $10.0 million ($6.5 million after-tax) and $3.1 million ($2.1 million after-tax) associated with PIERS
issued in November 1999; c) an assumed $13.9 million ($9.1 million after-tax) and $4.4 million ($2.8 million after-tax) of interest expense reduction from the assumed paydown of other borrowings with the proceeds
of the Trust Preferred Securities and common stock offerings.
(2) Merger-related and integration charges related to recent acquisitions include direct costs associated with the SBNE acquisition, including investment banking and debt commitment fees, indirect costs incurred to
integrate recent acquisitions into Sovereign’s back-office systems, costs of training, relocation and associated travel, and management’s estimate of the carrying costs of certain facilities and personnel acquired in the
first closing on March 24, 2000 that were not fully operational until July 21, 2000, the date of the final closing. Also included in merger-related and integration costs are expenses paid related to a structured real-estate
transaction involving certain real estate related to SBNE.
(3) In June and September 2000, Sovereign sold $2.1 billion of investment securities as part of a balance sheet deleveraging strategy and incurred a $103 million loss ($67.0 million after-tax). Sovereign used the proceeds
from such sales primarily to repay short-term borrowings.
(4) As more fully discussed in “Restructuring Charges”, Sovereign recorded $18.5 million ($12.0 million after-tax) primarily related to severance and outplacement related expenses.
(5) As more fully discussed in Note 2 to the Financial Statements, Sovereign is required to pay to FleetBoston, subject to FleetBoston’s compliance with a non-solicitation agreement, $333 million over a 19 month
period. Sovereign is expensing such payments ratably from the completion of the acquisition to the completion of the payment period.
(6) Operating earnings per share and cash earnings per share are calculated using a weighted average number of shares which include for the years ended December 31, 2000 and 1999, a pro rata portion of the shares
issued in November, 1999 in proportion to deposits acquired on March 24, 2000, June 16, 2000, and July 21, 2000 over total estimated SBNE deposits acquired in each phase of the SBNE acquisition.
( 7 )O p e rating earnings and cash earnings represent alternative measures of performance and do not represent earnings available to stockholders.
14

17. The escrow funds were invested in commercial paper which matured
RESULTS OF OPERATIONS FOR THE YEARS
in conjunction with the escrow break on the final closing of the
ENDED DECEMBER 31, 2000 AND 1999
acquisition on July 21, 2000.
Net Interest Income. Net interest income for 2000 was $855
Interest and fees on loans were $1.6 billion for 2000 compared to
million compared to $615 million for 1999, or an increase of 39%.
$959 million for 1999. The average balance of net loans was $19.4
The increase in net interest income in 2000 was due primarily to
billion with an average yield of 8.40% for 2000 compared to an
the increases in interest-earning assets from the SBNE acquisition
average balance of $12.4 billion with an average yield of 7.77% for
and internal asset growth, offset slightly by the deleveraging of the
1999. The increase in average loan volume was primarily the result
balance sheet in the second and third quarters of 2000. The SBNE
of the SBNE acquisition and internal loan growth. The acquisition
acquisition added $8.0 billion to average loans and $6.9 billion to
added $8.0 billion to average loans. The increase in the rate was
average deposits (replacing higher cost FHLB borrowings) in 2000.
due to a higher mix of higher yielding commercial and consumer
Net interest margin – operating basis (net interest income adjusted
loans, and rate increases reflected in the adjustable rate loans.
to eliminate the negative impact from escrowed financing proceeds
related to the SBNE acquisition, divided by average interest-earning
Interest on total deposits was $735 million for 2000 compared to
assets) was 3.19% for 2000 compared to 2.88% for 1999.
$441 million for 1999. The average balance of total deposits was
$19.2 billion with an average cost of 3.83% for 2000 compared to
Interest on interest-earning deposits was $22.2 million for 2000
an average balance of $12.2 billion with an average cost of 3.61%
compared to $4.7 million for 1999. The average balance of interest-
for 1999. The increase in the average balance was due primarily
earning deposits was $138 million with an average yield of 16.08%
to the acquisition of deposits in the SBNE acquisition, which added
for 2000 compared to an average balance of $15.2 million with an
over $6.9 billion to average deposits during 2000. The increase in
average yield of 31.12% for 1999. The increase in average interest-
rates in 2000 mainly reflects the increase in time deposit and money
earning deposits was due to $200 million placed on deposit with
market account rates due to market conditions.
FleetBoston in March 2000 until the acquisition was completed in
July 2000. The high yields were the result of an outsourced accounts
Interest on borrowings and long-term debt was $680 million for 2000
payable process whereby a third-party vendor performs check processing
compared to $552 million for 1999. The average balance of total
and reconcilement functions for Sovereign's disbursement accounts
borrowings was $10.3 billion with an average cost of 6.54% for 2000
and pays Sovereign interest on disbursed funds during the two-to-
compared to an average balance of $10.1 billion with an average cost
three day float period, effectively producing interest income with no
of 5.46% for 1999. Although the average balance was consistent
corresponding asset balance. The decrease in rates was due primarily
between 2000 and 1999, borrowings and debt decreased approximately
to the lower relative interest rate earned on the $200 million deposit
$6 billion on an absolute basis.
mentioned above as compared to the implied rate earned on the
accounts payable process.
Average non-interest earning assets were $3.6 billion for 2000, as
compared to $2.0 billion for 1999, an increase of $1.6 billion. The
Interest on investment securities available-for-sale was $487 million
increase was due primarily to additions of non-earning assets during
for 2000 compared to $544 million for 1999. The decrease in interest
2000 including $1.1 billion in goodwill from the SBNE acquisition,
income was due to the decrease in average investment securities
an additional investment in bank owned life insurance (BOLI) of
available for sale from $8.1 billion in 1999 to $6.8 billion in 2000,
$200 million, and the addition of the precious metals business and
which resulted from the sale of approximately $2.1 billion in investment
equipment of $171 million, also related to the SBNE acquisition.
securities in June and September.
Interest on investment securities held-to-maturity was $132 million
for 2000 compared to $99.8 million for 1999. The average balance of
investment securities held-to-maturity was $2.0 billion with an average
yield of 6.80% for 2000 compared to an average balance of $1.4 billion
with an average yield of 6.94% for 1999. The increase in the average
balance was primarily due to the creation of a $1.3 billion escrow fund
in the fourth quarter 1999, which was used to fund the SBNE transaction.
15