OPERATOR: Good morning. My name is Tameka, and I will be your operator today. (OPERATOR INSTRUCTIONS) Thank you. Mr. Walters, you may begin your conference.

KIRK WALTERS, EXECUTIVE VP/CFO, SOVEREIGN BANCORP: Thank you, Tameka. Good morning, everyone. I'd like to thank you for participating in Sovereign's call for 2008. As a reminder, during this call, we'll make statements or forward-looking statements. Within the meeting the Safe Harbor provisions of the United States Private Security Reform Act of 1995. These statements include, but are not limited to statements about strategy, plans and objectives as well as estimates of future operating performances. These forward-looking statements include matters involving significant known and unknown risk, uncertainties and other factors that may cause results to differ materially from results in expressed or implied in these statements. Factors that might result in such differences are outlined in our SEC reports, including annual report and Form 10(k), and we refer you to these documents. These factors include, but not limited to, general economic conditions, changes in interest rates, deposit flows and loan demands, changes in accounting principles, changes in competitive environment, market factors in the industry and geographic areas in which we operate and other factors. You are cautioned not to place undue reliance on these forward-looking statements that we speak only as of today. Sovereign undertakes no obligation and does not intend to update these forward-looking statements that reflect events and circumstances occuring after the date of this call

During today's call, you will hear remarks from Joe Campanelli, our President and CEO, as well as myself. We will then follow with a question and answer period. At which time Bob Rose, our Chief Risk Officer, and Tom Cestare, our Chief Accounting Officer, will be available for questions as well.

With that, I'd like to turn the call over to Joe.

JOE CAMPANELLI, PRESIDENT/CEO, SOVEREIGN BANCORP: Thanks. Thank you, Kirk, and good morning everyone. I, too, would like to welcome you to our earnings call. Solid results for first quarter of 2008 demonstrate that we're continuing to make progress in reducing our risk profile and proving the quality of our earning stream. Our efforts are far from over, but I'm confident that our new organizational structure, coupled with the finalization of the executive management team will continue to transform Sovereign into a strong financial institution while decreasing the risk profile of the company. We're focused on our core consumer and commercial customers in our geographical footprint , and believe there are significant opportunities to continue to grow revenues for our existing customers and increase the rate acquisition of new clients. We have positioned the company to address current economic conditions and the impact this may have on our customers and the company's financial results.

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Our entire executive team is experienced in managing major credit cycles, including the challenges and experience in the '80s and '90s. We're very focused in taking proactive steps to minimize the company's risks. While we're seeing a higher level of non-performing loans, we're working diligently with our customers to restructure their loans when possible and where appropriate. In addition, we are building both the allowance and loan losses and capital levels to properly reflect the current environment. Our net interest margin has expanded for the fifth consecutive quarter while we have improved the mix of our funding to decrease reliance on wholesale sources. We are pleased with the initial results of our Customer First program, which was rolled out franchise-wide this quarter. This program is focused on knowing our customers better than we've ever known them before and using this knowledge to build deeper, more profitable relationships. Over 85% of our customer deposits are portfolio managed, which we believe will greatly improve customer retention and improve our opportunities.

As I mentioned last quarter, we recently recruited Roy Lee with the head retail and reinvorgate our retail banking program. Roy brings over 30 years retail banking experience to Sovereign and is a proven leader who has been instrumental in executing the Customer First program. We look forward to discussing this very important initiative providing more details on our progress at our annual in Brooklyn, NY, on May 8th and on future earnings call. Before I turn it over to Kirk, we announced back in February, Mark McCollom will be leaving the company in May. I'd like to thank Mark for his committment and acknowledge his contribution to Sovereign over the past 12 years. At the beginning of Marc , Kirk Walters joins Sovereign as our new Chief Financial Officer. Many of you may know him from his days at Chittendon or his previous employers. We are pleased to have him at Sovereign, and we will look forward to the opportunity for you to meet the entire new executive management team. I'm proud of the team we put together, and I'm confident that we have the right people and right places to operate the company to the current economic environment as well as focus on unleashing the value franchise. With that, I'd he like to turn things over to Kirkwho will go through the financial details on our first quarter

KIRK WALTERS: Thanks. Let me start off by saying that I am excited to be here at Sovereign and looking forward to continuing the transformation process with Joe and the executive management team has started. Sovereign has a solid franchise, relatively stable markets. They have excellent density and are deep in small to mid-sized businesses. We recognize that our capital ratios have been a concern to the community and are committed to improving these ratios to be more in line to our peers. We obviously are facing a difficult operating and economic environment, but are working on reinvesting in our core franchise and evaluating opportunities to further reduce non-core sets in order to use our capital resources more efficiently. Now, let me get into some of the details on the numbers for this quarter. For the first quarter, our net income was $100.1 million or $0.20 per share, compared to $48.1 million or $0.09 per share. Should be noted in the first quarter of 2007 results included charges related to expense reduction initiative and balance sheet restructuring of $128.7 million after tax or $0.25 s per share. For the current quarter, our net interest margin expanded 11 bases point to 2.88% to 2.77% last quarter and 2.70% in the first quarter of last year. The current steepening of the yield curve and overall reduction in short-term rates have benefited our margin. In addition, the growth of our commercial loans coupled with the runoff of indirect auto lobes and the improvement of the retail/wholesale mix of our deposits have been important contributors to the margin increase. Average deposits decreased $1.4 billion on a quarter basis to $48.8 billion. The decline was entirely attributable to run-off in higher cost wholesale deposits. Average deposits, excluding wholesale, increased $163 million. Breaking it down a bit further, we had a strong retail deposit growth of $459 million for an annualized growth rate of 5.8%, which is partially off-set by seasonal declines of commercial deposits of $160 million and government deposits of $136 million. As Joe mentioned earlier, we believe this retail deposit growth is a result of our increased focus on improving the retail deposit franchise and the early impact of the Customer First initiative. Based on the first quarter average costs to deposits, we've lowered our total deposit costs 54 bases points during the quarter, passing along some of short-term market rate cuts while still seeing growth in almost all of our retail deposit categories. We anticipate further reductions in our average costs of deposits as the impact of the recent multiple Federal Reserve interest rate reductions are priced into our deposit base. Average commercial loan balances increased $935 million from the fourth quarter as a result of higher originations of both commercial real estate and CNI loans within our core markets. CNI loans and other commercial loans grew $481 million to $14.5 billion on a link quarter basis. In addition, CRE loans grew $455 millions to $12.6 billion, and multi-family loans grew $162 million to $4.3 billion. Yields on the commercial portfolio decreased 74 basis points into the first quarter, primarily due to the aforementioned multiple actions by the Federal Reserves to lower interest rates. The majority of our CNI loans are variable rate, and the portfolio yield reflected these decreases in market interest rates.

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The company continues to carefully monitor its commercial customers and considering the current environment expects that it will remain prudent and disciplined in future commercial loan growth throughout 2008. Average consumer loans decreased $398 million during the quarter to $26.8 billion. On a spot balance basis, consumer loans decreased $177 million from the fourth quarter of 2007. Within the consumer loan category, residential mortgages continued to decrease as we executed our strategy of selling the majority of our production in the secondary markets. Average balances are down $472 million, and period-end balances are down $63 million from the fourth quarter levels. The company's average direct home equity loan portfolio increased $136 million during the quarter or about 9.7% annualized, and spot balances grew about $106 million to $5.8 billion. Yields in this portfolio decreased 31 bases points to 6.21% as a result of lower short-term market interest rates. Direct home loans are generated through our branch network and have led to numerous cross-sell opportunities. The banks direct home -- the banks direct home equity loans are of high credit quality in the current level of non-performing loans within the direct home equity category are 30 basis points and have been relatively flat for the post two quarters. Current quarter originations were $920 million with a weighted average combined LTV of 63% and a weighted average FICO of 791. Past-due levels and losses for this portfolio continue to be stable with past-due loans equal to 51 basis points on March 31st, 2008, compared to 60 basis points December 31st of '07 and losses of $5.3 million for the first quarter compared to $3.8 million in the fourth quarter of 2007. Auto loan average balances declined $29 million to $7.0 billion. On a spot basis, auto loans declined $213 million to $6.8 billion as a result of the decision to stop originating auto loans in out-of-footprint markets. The yield on this portfolio declined 14 basis points to 7% as we are focusing on originating higher quality credits within our footprint. Current quarter originations total $503 million compared to $549 million last quarter with average FICO score improving to 749 from 708 a year ago.

As you will recall, we ceased originations in the Southeast and Southwest markets effective January 31st of 2008. While we saw 11 basis points of margin expansion this quarter, our outlook on the margin is relatively stable plus or minus five basis points as both our variable rate loans and deposits full repriced given the recent reductions in market interest rates. Fee income before investment gain was $158 million for the first quarter of 2008 as compared to $153 million in the fourth quarter of '07 and $486 million in a similar period a year ago. Year-over-year consumer banking fees grew $5.2 million or 8%, primarily as a result of increased deposit fees and investment services revenues. Consumer banking fees are down $4.2 million on a link quarter basis to $73.2 million as a result of normal seasonality of deposit fees in the first quarter of each year. Commercial banking fees are $54.4 million in the first quarter of '08 compared to $56 million '07. Included in the first quarter '08 was a $2.7 million securitization loss. Year-over-year commercial banking fees grew 10% to $54.4 million due to increased deposit fees. Mortgage banking revenues experience a loss of $5.1 million the first quarter as compared to revenues of $9.2 million on the link quarter basis and a loss of $107.2 million in a similar quarter a year ago. The primary driver of this quarter's loss were servicing rights, impairment charges on our residential and multi-family servicing portfolios of $23.6 million, which resulted from changes in interest rates and higher market pre-payment speed assumptions during this quarter. Excluding this impairment charge, mortgage banking revenues were relatively robust at $18.4 million due to increased refinance activity and stronger margins on multi-family and residential loan sales.

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Capital markets revenues for the quarter were $10.4 million as compared to a loss of $18.3 million last quarter and revenue up to $5.7 million a year ago. The fourth quarter of 2007 included $27.4 million of losses and repurchase agreements to mortgage companies. The current quarter results were benefited by the recent interest rate environment, which has allowed us to sell more interest rate derivative products to our customers. During the quarter we had investment gains on the partial redemption of our Visa, IPO shares of $14.1 million. We still have 415,000 restricted shares in Visa that are valued at zero on our books for the FCC guidance and accounting for this asset. G&A expenses for the quarter were $359 million compared to $338 million on a link quarter basis and $330 million for the similar quarter in 2007. The fourth quarter of 2007 included an $18.7 million reversal of incentive compensation accruals as a result of corporate objectives not being achieved. Included in the first quarter of 2008 were the normal seasonally higher payroll taxes of $6.5 million. Higher deposit insurance premiums of $4.7 million and increased marketing expense of $2.4 million, which was offset by $6.4 million reversal in legal costs, the accrual related to the Visa IPO. Adjusting for these items, G&A expense as well as the company's head count was relatively flat in the fourth quarter -- to the fourth quarter of 2007.

The increase in general administrative expenses from the first quarter of 2007 of $29 million was primarily due to increased compensation expense of $13.7 million, which included $5 million of reversals of incentive accruals for the first quarter of 2007. Higher deposit insurance premiums of $7.6 million, increased marketing expense of $7.4 million offset by the aforementioned reduction and legal expense of $6.4 million in the first quarter of '08. Terms of asset quality, the company added a new table, which is table G to the press release financials. Last quarter, which highlights by type, trend of loan composition, net charge-offs, both in dollars and a percentage of average loans, and total past-due loans, excluding non-performers. This quarter we've broken down the CRE category between commercial real estate and multi-family and also segregated the out-of-market auto and correspondent home equity loan for your analysis. Our provision this quarter was $135 million compared to $148 million last quarter and $46 million a year ago. We increased our allowance for credit losses by $60.7 million to $798 million. On March 31st, the allowance for total loans was 1.36% up from 1.28% a year-end and 0.90% a year ago. Increase in reserves are due primarily to growth in commercial loans and deterioration in our commercial construction portfolio. We increased reserves for these portfolios by $57.7 million during the quarter due to the current environment and the resulting impact on residential construction activity. Net charge-offs are $74.3 million or 51 basis point of average loans compared to $60.5 million or 42 basis points of average loans in the fourth quarter of 2007.

Sovereign ceased originating correspondent home equity loans early in the first quarter of 2006. And, in January of this year, ceased originating indirect auto loans out of the company's footprint. Approximately 43% of the net charge-offs this quarter related to the out-of-footprint indirect auto portfolio of $28.3 million and losses on correspondent home equity loans of $4 million. Of the $13.8 million increase net charge-offs, $8.9 million related to auto loans originated out of the footprint - out of the foot print. The remaining balance in this out-of-footprint portfolio is $2.4 billion out of the reserves of $91.4 million on March 31st of '08. In addition, $4 million of net charge-offs were related to the correspondent home equity portfolio as a remaining low COM reserve was exhausted. Therefore, net charge-offs started to be recorded and deducted against our allowance for loan losses this quarter. The remaining balance of the correspondent home equity portfolio is $439 million, which consists of $321.5 a million of first lien loans, and $117.6 million of second-lien loans with reserves of $11.6 million and $47.8 million respectively at March 31st of '08.

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Total non-performing loans increased $113.5 million from the fourth quarter to $417.8 million. The increase was driven by higher non-performing commercial loans, a significant portion of which related to the housing market. As I mentioned earlier, we have added to our reserves for these portfolios during this quarter and in prior quarters to cover the risk associated with these loans. That being said, continued deterioration in these asset classes and future periods could require additional reserves considering the current environment. Tangible equity to tangible assets, excluding other comprehensible income, was 4.97% on March 31st of '08 compared to 4.67% last quarter and 4.59% a year ago. Tangible common equity and tangible assets, excluding OCI, was 4.72% compared to 4.43% last quarter and 4.34% a year ago. Including OCI, tangible equity/tangible assets is 4.06%, and tangible common equity and tangible assets was 3.81% March 31st of '08. Sovereign's tier one leverage ratio was 6.21% March 31st '08 as compared to 5.89% at December 31st of '07. The company's other comprehensive income losses increased $423 million after tax from December 31st of '07, primarily due to the impact, the reduction in interest rates had on our derivatives portfolio of $122 million after tax as well as certain categories of the investment portfolio. In addition, the continued widening of credit spreads also impacted the investment portfolio. Unrealized losses related to the investment portfolio increased $301.5 million after tax and year-end. I'd like to spend a minute explaining each of these categories to you. Our non-agency, mortgage-backed securities are AAA-rated. They're not backed by any subprime mortgage-related loans. The increase in unrealized losses in this portfolio of $111.2 million after tax since year-end is due solely to the widening of credit spreads. The average remaining maturity in this portfolio is 3.22 years. Our municipal bonds security portfolio consists of 100% general obligation bonds, states, city, counties and school districts. The portfolio has a weighted average underlying credit risk rating of AA minus. The majority of the bonds are insured to AAA as extra credit protection. The unrealized losses of the portfolio are increased $67.4 million after tax due to a widening of credit speeds in the marketplace and concerns with respect to third-party insurers. However, even if we were to assume the insurers could not honor the obligations, our underlining portfolio is still investment grade, and we expect all principal and interest will be realized.

The estimated remaining life of these securities is 10 years. The increased unrealized loss in our CDO portfolio was due primarily to the continued widening of credit spreads. Our CDO portfolio is backed entirely by corporate names. With do not have have any exposure to subprime or residential mortgages in our CDO portfolio. Our CDOs have not experienced any losses to date and maintain AAA credit ratings. All of our CDO investments have subordinated investor classes with first lost responsibility. Based on the current subordination within the CDOs,Sovereign would not have any loss exposure to cumulative losses on the corporate names in the CDOs exceeded 5.15%, which is three times the historical average loss rate. The average remaining maturity on this portfolio is 8.61 years. As you may recall, at December 31st of '07, we had to temporarily increase the amount of assets at year-end to maintain compliance with certain OTS regulatory requirement. We were able to significantly reduce the amount of leverage at March 31st of '08 to $850 million down from $4 billion at year-end. This decrease in leverage of approximate $3.1 billion increased our holding company tier one ratio by 25 basis points and our tangible ratios by 15 basis points. We're striving to fully resolve this issue in future periods. Effective January 1st, we modified our tangible equity ratios to include deferred tax liabilities related to intangibles. This is consistent with industry practice, and the inclusion of a deferred tax liabilities in this calculation increased tangible capital ratios by approximately 35 basis points. Prior periods have been restated to reflect that modification. The bank's tier one is leverage of 6.84%, and total risk base capital of 10.22% continue to exceed the levels defined as well capitalized by our regulators. Total risk capital was negatively impacted during the quarter by 15 basis points due to qualifying sub-debt being phased out. In addition, changes in loan mix negatively impacted total risk base capital by approximately 23 basis points, partially offset by 18 basis points of growth from retained earnings. As I indicated earlier, we understand that our capital ratios have been a concern to the investment community, and that one of the primary responsibility of the Board of Directors and management are to be good stewards of the existing shareholders capital. The company regularly evaluates its capital relationship to the current environment as well as a variety of other internal and external factors. We are committed to focusing on the core franchise and reducing wholesale and non-core businesses. This process of aligning the balance sheet with our core franchise is expected to result in a smaller institution, that's very focused on our most profitable customers. T These strategies should improve our capital position in future periods.

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In addition to discipline management, the balance sheet, the company expects to continue to build its capital ratios through increase in retained earnings and reducing its risk profile. As I previously discussed, in the first quarter of '08 the company increased its tangible equity /tangible asset ratios by 30 basis points to 4.97% and its tier one leverage ratio by 32 basis points to 6.21% on a length quarter basis. The underlying drivers of these increases were net income of $100.1 million, which is added to retained earnings, he suspension of the common stock dividend and the reduction in total assets of $2.8 billion. Although we believe that we do not have an immediate need for capital, dependent on our success and reducing the bank's risk profile, internally generating additional capital and the severity of the current economic downturn, we could decide we will need to augment our capital base in future periods. I'll now turn the call over to Joe for some closing comments before we open it up for Q&A.

JOE CAMPANELLI: Thanks, Kirk. Excuse me. Looking ahead into the balance of 2008, we'll continue to reduce risks throughout the company, including credit, interest rate, liquidity and operational risk. In addition, we continue to improve the quality and transparency of our financial results. With that, I'd like Tameka to open up the lines for our 2008 first quarter results.

OPERATOR: (OPERATOR INSTRUCTIONS) And your first question comes from the line of Matthew O'Connor with UBS.com.

KIRK WALTERS: Hi, Matt

MATTHEW O'CONNOR, ANALYST, UBS: I can appreciate the capital getting boosted over time form shrinking the balance a little bit and generating positive earnings. I'm just wondering thoughts on raising the capital quicker. If we look at the tangible comment, including the OCI, which I think is one way to look at it, it does show up as quite low in declined this quarter. And, just wondering with stability of the franchise, it seems like it could be a lot easier to raise capital now as then say a quarter ago from your perspective.

KIRK WALTERS: Well, once again, I think as we look at the variety of capital ratios that one can look at in managing the business, clearly one of the items is that the OCI that does flow through our GAAP stockholders' equity is added back for both the regulatory capital and by the rating agencies in looking at our capital ratios I don't say. So, as we look at our overall tangible equity, capital, we think at this point the levels are sufficient. As we indicated in our commentary, we certainly are looking at a variety of factors, not only within the company, but also within the environment to make sure that we are acting prudently on a go-forward basis.

MATTHEW O'CONNOR: Okay. And then just separately the deposit trends did stabilize and actually increased by lower seasonality in one cue. Maybe just give a little more color on what's driving that stabilization in core deposit franchise.

JOE CAMPANELLI: We believe, Matt, it's Joe Campanelli. We believe it's directly tied to our new retail strategy on the Customer First initiative, which we talked about in the past. It's a real consistent focus on customer acquisition. We're seeing much higher levels of new account openings and much lower attrition rate through a combination of the whole customer-first strategy focusing on being a much better retail experience for our clients in the Northeast.

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MATTHEW O'CONNOR: Okay. Thank you very much.

OPERATOR: Your next question comes from line of James Abbot with FBR Capital Markets.

KIRK WALTERS: Good morning.

JAMES ABBOTT, ANALYST, FBR CAPITAL MARKETS: I'll move on. Housekeeping item. Was there any pre-payment penalty income that was affecting margins positively? One of your competitors had that issue this quarter. I was just trying to see if that's the case for you guys.

KIRK WALTERS: We did have some level of pre-payment income that was flowing through. I think if you look at that time on a quarter-over-quarter basis, fourth to first, the difference was only about $100,000. And that prepayment fees that flowed through -- the biggest piece of that is on the multi-family business that occurs in predominantly in new York.

JAMES ABBOTT: Okay. So no material change linked quarter to the margin. Okay.

KIRK WALTERS: No.

JOE CAMPANELLI: No, it was flat.

JAMES ABBOTT: And then one other housekeeping, and I'll move on to the more substantive question, on the Visa -- on the legal expense, the press release talks about it being a reduction in legal expense. Was that a contra expense as in a credit, or is it just a lowering from the fourth quarter level?

KIRK WALTERS: Well, in the fourth quarter, we booked the total reserve of little over $8 million for the Visa, the Visa, whatever. I feel the situation that was occurring there. And what we've done at this point is we reversed $6.4 million of that. So we still are sitting with some reserves on the books, and, on the other side, we're still sitting with the restricted stock that we ended up with.

JAMES ABBOTT: Okay. So it was a credit then in the first quarter.

KIRK WALTERS: That's correct.

JAMES ABBOTT: All right. On the substantive question, it looks like the CDO portfolio is -- wanted to get into a discussion on that -- it looks like it's the right down is about $316 million -- I could be off by a $1 million or $2 million there -- about $316 million on the $750 million portfolio.

At what point -- I understand the conceptually usually you can actually hold this to maturity, I suppose. There's been no impairment in the underlying collateral at this point. But at what point do you say this really is an impaired asset? We really need to take it other than temporary impairment?

KIRK WALTERS: Well, every quarter we obviously go through a detailed analysis, particularly considering the size of it. Within our own staff here at the company, but obviously our outside auditors and others look through it. And the real test, of course, is your ability to intent to hold and ability to hold until you can recover the losses. Certainly one of the factors that underlies it and in our analysis is that the underlying bonds, our corporate bonds, investment-grade corporate bonds, we've had no defaults on those. Certainly the credit spread widened significantly in the corporate market. And that is one of the, certainly the benchmarks, we will continue to look at is the health of the corporate credit market. And I think that will probably drive the ultimate question whether there's any permanent impairment within those bonds.

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JAMES ABBOTT: And now in your own portfolio this quarter, you mentioned in the press release that there was some deterioration in the commercial, I assume that to be Commercial and Industrial loan category. Is that -- are they at some point related cousins? I know they're not the exact same credits.

KIRK WALTERS: No, no, they're not related cousins. But certainly as you come to asset quality question, I can ask have Bob Rose address what deterioration we saw in the C&I portfolios and what categories that fell into.

JAMES ABBOTT: I'll let somebody else ask that question because I'm sure it will. I'll just finish with the CDO portfolio, and I'll jump off. The subordination level fell to 515. That's, I assume because you were replacing asset, corporate bonds in the --

KIRK WALTERS: That's right, the ability under this structure to continue to restructure depending on downgrades, concentration, et cetera, to retain the AAA rating.

JAMES ABBOTT: Okay. And, so there are downgrades occurring, but you've been able to maintain -- okay. And the yield on the portfolio, it was 661 in the December quarter?

KIRK WALTERS: You're looking at the base yield or you looking at the yield with the markdown?

JAMES ABBOTT: I guess it would be the face yield. There was slide in the PowerPoint presentation in the fourth quarter that gave the yield. As I understand when you replace these assets as they're downgraded by the rating agencies, the underlying collateral, you can take a reduction in subordination or you can take a reduction yield. And I'm not an expert or guru in structured finance, but -- anyway, so I would imagine maybe the yield has moved down, and I would assume the face - the coupon yield.

KIRK WALTERS: I think the overall, if you're looking into the similar slides that we would have had in the investor presentation, which will be filed the end of the week, the overall, the yield at 331 would be live or plus 169 basis points.

JAMES ABBOTT: Okay, okay. Thank you very much.

KIRK WALTERS: You bet.

OPERATOR: Your next question comes comes from line of Heather Wolf with Merrill Lynch.

KIRK WALTERS: Good morning, Heather.

HEATHER WOLF, ANALYST, MERRILL LYNCH: Hi, there. I'll go ahead and ask the C&I question. Can you give us more color in terms of what types of credit drove the increase in non-performing?

KIRK WALTERS: Certainly. Let me turn you over to Bob Rose, our Chief Risk Officer.

BOB ROSE, CHIEF CREDIT RISK MANAGEMENT OFFICER, SOVEREIGN BANCORP: Sure. Hi, Heather. When - We actually had a $92 million increase in the NPAs of which about $55 million came out of C&I. If we were to just kind of scale down this largest C&I name was actually a mortgage company, which has been an old problem for us. It was approximately $18 million. And, the way that workout is progressing, it was just prudent for us to add it to non-accrual. It is related to the -- is related to housing in that sense. And, the second largest was a precious metals customer that had been in our work-up group for seven or eight months. And it has been in bankruptcy and not been going favorably as of late. And despite collateral coverage that's been ample, we placed it on non-accrual. And looking down some of the other names here, there were two borrowers for $5 million each that went on non-accrual in the C&I book that have since been paid. One of those were taken out by another financial institution, and another was able to restructure his arrangement in a very favorable way with us. So I would clearly characterize the two larger names that I mentioned as old sort of historical problems in the vicinity of around $30 million and $10 million of that has since exited the building. So that would be the C&I flavor.

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HEATHER WOLF: Okay. And can you give us a little bit more color on the increase in the past dues in the multi-family category.

BOB ROSE: One credit, Heather. One single name. 12 two-story buildings. Bad operator. And we are coming down very hard on that borrower to replace the management. And we don't expect any loss on that.

HEATHER WOLF: Was it -- I assume it was New York. Was it Manhattan or Brooklyn?

BOB ROSE: It was not new York. The multi-family group has a portfolio out of area. Often they follow their New York customers to other places. And it was in Florida. It is in Florida, but it is not in Miami.

HEATHER WOLF: Okay. Great. Thanks so much.

OPERATOR: Your next question comes from line of Collyn Gilbert with Stifel Nicolaus .

COLLYN GILBERT, ANALYST, STIFEL NICOLAUS: Good morning, guys. My question has to do with sort of the reserve strategy behind the out-of market auto loans. Can you just talk about that a little bit? I mean you got $90 Kirk, you said $91.4 million in reserves. Yet, assuming losses escalate from here, that's already eating into a third of the reserve level. So just kind of give some guidance as to where that reserve is going, and how you're going to build it?

KIRK WALTERS: Sure. Bob, go ahead.

BOB ROSE: Yes. We actually -- what we're seeing in the auto book in the auto area, auto loans has been a rising level of delinquencies and a rising level of charge-offs. And, we're starting to see that turn in the other direction to our favor.

You may recall back July, August of last year, the bank put in place some very concrete, strengthening procedures for better credit, more equity in the cars and things like that. We've gone over those with you in past calls. But, we are now seeing delinquencies falling and delinquencies fell in the total auto book by a very large number. It was over 23%, more than you would expect in a seasonal drop. And we have every expectation that the charge-offs are going to begin to plateau and begin to slowly taper down during the rest of the year. So they have been front-loaded in 2008. And we expect to see them slow down.

HEATHER WOLF: Okay. Because I think at one point Mark had given us a run-rate on charge-offs in the portfolio of $10 to $12 million, I think was it a quarter or a month?

KIRK WALTERS: That would have been a month, Heather. And I believe we gave guidance last call somewhere between $140 and $150 for the year. More front-loaded through the first half is what our models are telling us. And our performance is operating in those models.

HEATHER WOLF: Okay. So if we're looking at $140 to $150 net charge-offs for the year in this business, that $91 million in reserves isn't going to come close to covering that. Should we assume --

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KIRK WALTERS: No. No. The $140 million to $150 million is indirect in the whole.

HEATHER WOLF: For the overall portfolio. Okay.

BOB ROSE: The entire reserve against this is March 31st is $135 million.

HEATHER WOLF: Okay. Okay. So $91 of that is to the out-of-market. So the remainder is the in-market.

BOB ROSE: Correct.

HEATHER WOLF: Okay. Are you seeing similar trends to your in-market auto business than you are in the out-of-market?

BOB ROSE: It's stabilized. The step up in charge-offs we saw have stabilized. Delinquencies are down. And, we expect the same trend.

HEATHER WOLF: Okay. Very good.

Thanks.

KIRK WALTERS: You bet.

OPERATOR: Your next question comes from line of Matthew Kelly with the Sterne, Agee.

KIRK WALTERS: Hi, Matt. Good morning.

MATTHEW KELLY, ANALYST, STERNE, AGEE: Hi. Along the lines of capital. It sounds like the preferred method here is to give it a go if a shrink in the balance sheet. Kind of seen some of these credit costs stabilizing. But, I was wondering if you can give us a better sense of how much we should expect to see the asset levels come down, the risk-based asset levels come down, maybe kind of break it down a little bit by bucket there in terms of hitting some of your goals. What are those goals for capital over the next six, 12, 24 months?

KIRK WALTERS: We haven't, Matt, as you go through that, really, we haven't put anything out public in terms of specific goals. I think what we're certainly trying to put the message across as we know that our primary responsibility is to be good stewards of the existing shareholders capital. Accordingly, under that scenario of continuing to work our balance sheet down in a careful and thoughtful fashion, not only on the wholesale activities, but also on anything that we look at and deem to be non-core businesses as we sort through it. And make sure that our balance sheet is right size as we look at the capital needs. While at the same time obviously adding to it in retaining the earnings and doing what we can to move the risk structure for regulatory standpoint to maximize that capital. As we indicate in our comments, that being said we certainly are going to remain to be diligent and thoughtful about what all has gone on in the macro environment as well in terms of the overall credit environment as well as the other factors that play into it.

MATTHEW KELLY: Okay. I mean, in the current quarter total assets are down 3%. The fourth quarter they're down 2%. Would it be fair to kind of extrapolate those type of percentage drops over the next couple of quarters in terms of -- ?

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KIRK WALTERS: Yes, I think at this point we're really not in a position or really not intending to give any specific guidance on them.

MATTHEW KELLY: Okay.

KIRK WALTERS: All right?

MATTHEW KELLY: Thank you.

OPERATOR: Your next question comes from line of John Wagner with Camden Asset Management .

JOHN WAGNER, ANALYST, CAMDEN ASSET MANAGEMENT: It's been answered. Thanks.

OPERATOR: Your next question comes from line of Ken Usdin with Banc of America.

KIRK WALTERS: Morning, Ken.

OPERATOR: Ken, your line is open.

KEN USDIN, ANALYST, BANC OF AMERICA SECURITIES: Sorry, about that. Pardon me. Good morning. Two questions if I may. First, just on asset quality broadly, speaking the third straight quarter of a really sizable provision and understanding the risks still out there as far as the direction and magnitude of where the economic deterioration goes? I'm just wondering if you can give us a little more color on your overall comfort with the reserve and/or how much we might expect you to need to over-provide as we still go forward through this cycle?

KIRK WALTERS: Let me take an initial crack at that time, and we'll have Bob augment my comments. I think in terms of the overall reserve and what we're seeing in terms of the environment we are obviously continuing to build that reserve now since at 1.36% of loans and provide it well in excess of charge-offs for this quarter. We obviously need to really continue to evaluate the economic environment, how that's going to play out against our portfolios and such, as to needs -- the further needs to increase absolute level and then ultimately how you expect to see the charge-offs come through. But, it is one I think if we see the continuing deterioration in the economy that it was certainly prudent to continue to build those reserves as we did this quarter. Bob.

BOB ROSE: Right. I would comment on three things. I would say that we've taken a kind of concerted effort to turning the dial on the factors that we use for our past loans and recognition that the economy is not improving. At best, it's stable, but it's clearly not going to get much better fast. And it has been skewed heavily towards commercial real estate construction with a flavor towards home builders. And so increasing those past factors is anticipatory of what could be happening in those portfolios.

Secondly, we recognize deterioration in those portfolios. And, that's been driving more money into the reserve and excessive charge-offs. And, we continue to take, and we are taking a deep look and a hard look at certain segments of the portfolio given what's going on around us. And being as conservative as we can in our acknowledgement of given customer status. So, those are really the three primary reasons behind the excess provisioning.

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KEN USDIN: Okay. And, okay. But do you think that though that -- I guess I'm really wondering also about the magnitude of lower provision. Take all things considered, you've taken on a conservative over-provisioning. Yet, it seems your view is a little, you know, less optimistic. I'm just wondering if you think it's at magnitude of over-provision. We all believe that over-provisioning will continue. I'm wondering if you believe the magnitude of over-provisioning might have to widen out also.

KIRK WALTERS: Yes, I think that's one that we'll obviously be evaluating quarter-to-quarter. If you look, we would probably not expect certainly during this year to see charge-offs appreciably drop during on a quarterly basis. And, so, As we look on a quarter-to-quarter basis what's going on in terms of specific portfolios and, such, the need as Bob would say, the need to adjust the dials and reflect that in the portfolio is what's going to drive the underlying amounts. What's important is we're careful and thoughtful and make sure we're adequately reserved to deal with those factors.

KEN USDIN: Okay, great. My second question just relates to the margins. I know there's a lot of moving factors with you shrinking the balance sheet and the liability sensitivity playing out a little bit. I'm just wondering what would prevent the margin from being biased towards the upside? You kind of gave a brood plus or minus five basis points. What are the factors that are really still weighing on the margin and preventing it from continuing from to move - to move directionally higher?

KIRK WALTERS: Well, I think as we see the numbers continue to play out from the current set increase, we're going to see yield portfolios, the portfolios, the loan portfolios, excuse me, yield drop as all the replacing goes through on the commercial side. I'm thinking our consumer side on the focus at the higher end of the quality spectrum and the end-market and auto and a variety of things and continued adjustments coming through on home equities you'll see that drop in there as a piece, I'm sorry, that drop in there as well.

On the deposit side, we will certainly continue to push down as we're able to deposit rates. One of the realities that you have to face though is looking at the absolute level of rates, you will start running into some of those situations like we did back in '03 that you are limited in terms of how much you can continue to push down the rates in the customers and still have them feel like there's a fair deal for all on the strict - on the overall deposits. So there are pieces going both ways. Some of that obviously, but ultimately the Fed does. A lot of it is what our competitors do, et cetera, et cetera, that we'll balance against. I think that's the plus or minus 5 right now is a pretty good indication for what we currently see. And certainly as we go forward into the future into the quarters, we can certainly update that.

KEN USDIN: Okay. Great. Thanks a lot.

KIRK WALTERS: You bet.

OPERATOR: Your next question comes from the line of Robert Roell of RiverSource.

KURT SWARTZ, SENIOR VP AND DIRECTOR, TAX., SOVEREIGN BANCORP: Hi, Rob.

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ROBERT ROELL, ANALYST, RIVERSOURCE: Hi, good morning. Thank you. I have two questions. And I guess the theme is the same. Many have asked about credit and capital. I guess my credit question is -- I just have I guess a fundamentally I have a hard time reconciling an acceleration MPAs in the quarter with a decline in reserve coverage of those MPAs. So I guess the question is, is now the time to reduce -- why is now the time to have our coverage ratio of our -- reserve coverage ratio of our MPAs go down when in fact our MPAs are accelerating?

KURT SWARTZ: I'm going to have Bob answer that question because it really is a factor of how you are valuing and what you reserved against the Mpas going in there. So, Bob, go ahead.

BOB ROSE: Right. The fact a loan is on non-accrual or non-performing status, Robert, doesn't necessarily mean that it has a high loss in it. In some cases there are no losses or right on the cusp.

And, so I think that in times like you can see that ratio drop a little bit. You'll see it move around as names come in and out of here. But, I don't think there's any magic that says a reserve has to always been 200% of MPAs or 175% of MPAs. Then if we went down them name-by-name, I think some of them are current on their payments to us. It's just a way we call them in the workouts.

ROBERT ROELL: So effectively, I mean, effectively, you think you have visibility into what the ultimate charge-offs would be from the current MPA -MPAs. And that's, I guess, what gives you the conviction sort of that you don't need to maintain the previous levels of coverage. Is that correct?

BOB ROSE: Well, yes. In the case of commercial real estate non-performing assets, on non-accrual loans, they're all in the managed assets group. They're all managed very intently. We review them on a name-by-name basis. We take charge-offs where appropriate when the time is correct, when it would appear that we're in a permanently impaired situation. And so, that review gives us a very strong disability in them. To the extent an MPA is in OREO they're written down to a carrying value before they're placed into OREOs to so they reflect a realizable value dollar-for-dollar. So there is good knowledge of them on a one-by-one basis.

ROBERT ROELL: And then just regarding the forward look, obviously the economy is not accelerating here. I guess, doesn't prudence -- just answer this question, doesn't prudence warrant that you keep the reserve maybe higher just out of prudence, considering the uncertainty of things?

KURT SWARTZ: I would go back once again that I don't think we manage or look to manage our credit quality by that ratio. There's a lot of factors that go into the numbers in terms of how we look at our allowance and adequacy of our allowance, et cetera. And that's just one of many ratios that happen to fall out.

ROBERT ROELL: Okay. Regarding capital, obviously, tangible capital of the company is very low relative to on an absolute basis and relative to most banking institutions in this country. One question I have is we've seen a lot of other banks and thrifts with much higher capital levels go out and raise billions of dollars of capital. And I guess in some ways some of this is forced by regulators, and I guess it's a two-part question. Why do you think you can escape that capital raising? And no. two, whether is your next deep examination by the OTS?

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KURT SWARTZ: Well, in relation to no one, I think we've already went through that and described how we look at capital, what we're going to do, et cetera, and how we're going to continuously evaluate it on a go-forward basis. I think, that's been addressed in a number of questions. Second, we are examined on an annual basis by the regulators on a variety of fronts, obviously safety and soundness as well as CRA trust, et cetera.

ROBERT ROELL: When is the next examination?

KURT SWARTZ: That is not something that is out there as public information. All I can say -- all I can say at this point is that we're examined annually as most large institutions are, and, as most large institutions are, there's almost continuous discussion and following and dialogue with the regulators on a regular basis.

ROBERT ROELL: Have they -- have you received any inbound calls on your capital ratios? Is it something you would be worried about at this point?

KURT SWARTZ: Well, as I said earlier, we really have covered the capital discussion, how we're going about it. I don't think there's any other commentary that would be appropriate at this point.

ROBERT ROELL: Okay. Thanks very much.

OPERATOR: Your next question comes from line of Gerard Cassidy of RBC Capital Market.

GERARD CASSIDY, ANALYST, RBC CAPITAL MARKET: Hi, Kirk, how are you?

KIRK WALTERS: I'm doing fine, how are you?

GERARD CASSIDY: Good. Good to hear your voice. Question for you, on the home equity correspondent portfolio, which, I think, totals $500 million at the end of '07. I apologize if you've already said this. I've been on and off the call. Where does that stand today? And, within that portfolio, what kind of losses are you seeing when the consolidated loan-to-value number is over 90% for that portion of the corresponding portfolio?

KIRK WALTERS: The - in terms of the correspondent portfolio itself -- just looking back here to my notes -- we have a total -- the remaining total in that portfolio is $439 million of which, of course, $321 million is first lien loans, which we have reserves of about $11.6 against. And $117.6 million is the second lien loans, which are pretty heavily reserved at $47.8 million. So, with that as a backdrop, turn the second question over to Bob Rose.

BOB ROSE: Well, we've seen some fairly heavy losses on this particular portfolio. The second liens in particular. The second liens, because of the nature of this portfolio, it's had a very high loan-to-value profile. A FICA profile that was skewed due to the subprime areas. And we see in some cases you're at 100% losses on the second mortgage.

GERARD CASSIDY: Which is what we're hearing from others as well.

BOB ROSE: Exactly. It is a well-reserved portfolio the way we have it set up today. We have, as of March 31st, the reserves on the second liens are almost 40% on the principal balances. So, we look at this over its remaining lifetime and make adjustments up or down for the reserve as we see the life of it playing out.

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GERARD CASSIDY: As a follow-up question to this, and possibly, Joe, you might want to answer this as well, with what's going on in Washington with some of the legislation that Barney Frank from your state as well as Dodd from Connecticut is pushing regarding relief for people that have - whose houses are upside down, where the value of the home is less than the mortgage. Does that worry you guys about the moral hazard of the people who have big home equity portfolios that maybe more people rush -- if this legislation is ever passed, the unintended consequences - more people come rushing in to participate in this program, and therefore home equity portfolios may have greater risk in them if some type of legislation similar to what's being talked about is actually passed?

JOE CAMPANELLI: Yes, I think it's hard to predict anything that's going to come out of Washington, especially during an election year. So you probably have as good an insight as I do, Gerard. But, we believe we will not be affected significantly when you look at the nature of our home equity portfolio. It's really the tale of two cities. You have the residual portfolio, legacy, correspondents businesses, we exited back in '06, early, and we sold the majority of that, both first and second mortgages, to some $3.5 billion between the end of '06 and early '07. So, this is really a runoff that is very troubled, as Bob talked about. We put up significant reserves to keep in track. The balance of our home equity is really high-quality FICO scores, relatively stable communities in the Northeast. We have good diversity of employment. And people need their homes to sort of live in and what not. So, it's really at the higher-end of the market in an area where there's a much better balance between supply and demand levels. So, we really have not seen any -- we saw delinquencies come down the first quarter, and our charge-offs fall to an all-time historial levels. It truly speaks to the underwriting going in. I think, I don't know if you want to call earlier, the average originations last quarter were at about 791 bureau score. About a 63% combined loan of value, first and second mortgage, all within footprint. So, this is an industry-wide effect, we believe will be less impacted than other regions and other types of customer segments.

GERARD CASSIDY: And, another question. I think Bob mentioned something about a non-performing asset that was down in Florida, multifamily type of property. And, I thought I heard one of the reasons that you have it is you followed one of your in footprint down to Florida. What percentage of your commercial real estate or multi-family portfolio is in that category where it's an in-footprint developer that's chosen to go to Florida or some other part outside your footprint?

BOB ROSE: Well, it can be common in certain types -- certain types of operators. Let me just turn to the right page here. In the multi-family book, I believe they have 200 -- one SEC SEC -- a multifamily book has $200 million in multi- exposure in the state of Florida. And practically all of that are customers that operate in both places.

GERARD CASSIDY: And how about just other out-of-footprint, not just Florida, or is that the extent of it? It's just in Florida?

BOB ROSE: No, we have commercial real estate business that's heavily concentrated in our footprint. But we do have it in other states. But -- let's see, yes, Florida would be the largest piece of it. That would be the biggest number.

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JOE CAMPANELLI: Hi, Gerard, in our investor slides, which will be filed next Monday, we do have a graph that gives sort of the out-of-footprint by portfolio. So your question on multi-family, about 14% the multi-family is out-of-footprint.

GERARD CASSIDY: Great. And then finally, coming back to the capital commentary you guys have had. We're seeing companies raising capital with either private equity or straight common offerings. With your ownership with the Spanish Bank, is there any special or different restrictions or opportunities that you have in terms of, should you ever decide to raise capital in whatever form, a preferred or a common offering, at some point in the future, could you share with if there's any color -- is different from what other banks are doing because of that ownership by the Spanish?

JOE CAMPANELLI: No, Jerry. It's a public document, so I'm sure you've seen it. There's nothing in it that precludes us from taking appropriate steps that we feel would be necessary if the time ever came.

KIRK WALTERS: And, in terms of obviously what our responsibilities here are, and, I think, we're pretty clear in the commentary to all the shareholders in terms of making sure we're good stewards of capital there. And, there's nothing in particular one way or the other that would be driven by one shareholder or the other.

GERARD CASSIDY: Thank you.

OPERATOR: Your next question comes from line Sal DiMartino with Bear Stearns.

JOE CAMPANELLI: Morning, Sal.

SAL DIMARTINO, ANALYST, BEAR STEARNS: Hi, good morning. Most of my questions have been asked. I do have a couple. One is more of a housekeeping one. And that is can you give us the size of your home builder portfolio at the end of the quarter?

And the second question, and this is probably for Joe, could you provide us with an update on your retail banking strategy? I think you had a pilot program with Santander in the Phillie market? Where does that stand, and when will that be rolled out to the rest of the franchise?

BOB ROSE: Sal, this is Bob. The home builder portfolio outstandings are about $982 million at the end of March.

SAL DIMARTINO: Okay, and geographically, is it still mostly in the Mid-Atlantic?

BOB ROSE: Yes, it is. $600 million is in the Mid-Atlantic and $250 million is in New England.

SAL DIMARTINO: Great. Thanks.

JOE CAMPANELLI: On your second question, you may recall from prior earnings calls we talked about our Customer First initiative. During the course of 2007, we took a hard look at our whole organizational structure and strategy. And we recognized we have significant opportunities on the retail front to really stimulate retail customer acquisitions and really grow at least market rates if not faster with the franchise that we put together.

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We had a group internally that was supplemented with some consultants that we engaged from Santander and looked at some of the activities that they had found successful in Europe and other areas in Latin America. And put together a team to formulate what's the best strategy for us us to execute. We implemented the test program in the fourth quarter of '07 to really fine-tune the structure and strategy. We rolled out that entire strategy bank-wide to 750 branches. You may recall that the the test program was concentrated in about 25 branches. We saw significant improvements in productivity.

With the rollout in January also supplemented it with the -- a new organizational structure headed up by Roy Leaver, which we talked about earlier. During the course of the first quarter, we've seen strong results. They showed up in our retail deposit numbers, 5.8% on a quarter link deposit growth. Really a combination of higher levels of customer acquisitions and lower levels of customer attrition.

We're looking at a set of metric we can share with the street on a regular basis to track what progress we make there. But the end of the day, it's really predicated on knowing our customers better than ever before and taking our knowledge and using it to really drive further cross-selling in faster acquisition of new clients. So, it's probably one of the most significant initiatives we have given the opportunity we have in our deposit franchise in the northeast.

KIRK WALTERS: And Sal, Roy will be one of the featured speakers at our annual meeting in Brooklyn on May 8th as well. So, there will be more discussion and information to be put out at that time.

SAL DIMARTINO: Okay. Good. Thank you.

KIRK WALTERS: Tameka, we have time for one more question.

OPERATOR: Okay, your final question comes from line of Rick Weiss with Janney.

KIRK WALTERS: Morning, Rick.

RICK WEISS, ANALYST, JANNEY: Already answered.

KIRK WALTERS: All right. Great.

RICK WEISS: Okay.

KIRK WALTERS: All right. Well, since we have went well over the time, certainly appreciate everybody listening in in the interest in Sovereign. And, I'm sure we'll be talking to folks as we go forward here. Thanks a bunch.

JOE CAMPANELLI: Thanks, everyone.

OPERATOR: This concludes today's conference. You may now disconnect.

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