Company News

October 13, 2008

Download the 2008 Q3 Financial Data

Sovereign Bancorp, Inc. ("Sovereign" or "the Company") (NYSE: SOV), parent company of Sovereign Bank ("Bank"), today pre-announced its financial results for the third quarter of 2008. For the quarter ended September 30, 2008, Sovereign recorded a net loss of $982 million or a loss of $1.48 per share. Included in this loss was the previously announced impairment charge on Sovereign's Fannie Mae and Freddie Mac perpetual preferred stock of $575 million and a loss of $602 million related to the sale of its entire portfolio of collateralized debt obligations (CDOs). Excluding the after-tax impact of the aforementioned investment losses, Sovereign still generated net income of $41.3 million even after recording a provision for credit losses of $304 million, an increase of $141.5 million from the same period a year ago. This compares to net income of $58.2 million or $.11 per diluted share in the third quarter of 2007.

Highlights for the third quarter of 2008 were as follows:

• Sovereign Bank remains well capitalized by all regulatory measures. Sovereign Bank’s Tier 1 leverage ratio was 6.77% compared to 6. 63% at September 30, 2007. The Bank’s total risk-based capital ratio was 10.87% at September 30, 2008 compared to 10.37% a year ago.
• Sovereign has $11.8 billion of unused borrowing capacity at the Federal Reserve and FHLB.
• Stable net interest margin of 3.02%, an increase of 28 basis points from the similar quarter in 2007 and a slight decrease of 4 basis points from the second quarter of 2008.
• Loan balances at September 30, 2008 declined by 1% on a linked-quarter basis primarily due to a 7.2% decline in higher risk auto loans.
• Deposit mix continued to shift away from higher cost wholesale sources as retail and commercial deposits now comprise 83.4% of total deposits up from 75.5% a year ago.
• Sovereign's period end deposit balances have declined $4.2 billion or 8.8% from June 30, 2008, primarily in money market and government accounts. The majority of the decline in deposits occurred early in the quarter driven by intense deposit competition as well as general safety and soundness concerns following the failure of IndyMac. With the recent passage of the Rescue Plan and the increase in FDIC deposit insurance limits, October deposit trends have stabilized.
• Sovereign increased its allowance for credit losses to $1.0 billion, a $175 million increase from June 30, 2008, primarily as a result of deterioration in the commercial loan portfolio as well as increases in Sovereign’s reserve levels to reflect the higher risk from the current economic environment. Sovereign's allowance for credit losses to total loans at September 30, 2008 was 1.79% up from 1.47% at June 30, 2008 and 1.14% at September 30, 2007.

About Sovereign
Sovereign Bancorp, Inc., ("Sovereign") (NYSE: SOV), is the parent company of Sovereign Bank, a financial institution with principal markets in the Northeastern United States. Sovereign Bank has 750 community banking offices, over 2,300 ATMs and approximately 12,000 team members. Sovereign offers a broad array of financial services and products including retail banking, business and corporate banking, cash management, capital markets, wealth management and insurance. For more information on Sovereign Bank, call 1-877-SOV-BANK.

Financial Contacts
Kirk Walters
Office: 617-346-7346
kwalter1@sovereignbank.com

Stacey Weikel
Office: 610-320-8428
sweikel@sovereignbank.com

Media Contacts
Andrew Gully
Office: 617-757-5513
agully@sovereignbank.com

Ellen Molle
Office: 617-757-5573
emolle@sovereignbank.com