AGREEMENT


     THIS AGREEMENT ("Agreement") made the 25th day of September, 1997, between
SOVEREIGN BANCORP, INC., a Pennsylvania corporation ("SBI"), and KARL D.
GERHART, an individual (the "Executive").

                                   WITNESSETH:

     WHEREAS, Sovereign Bank, a federal savings bank (the "Bank") is a
wholly-owned subsidiary of SBI; and

     WHEREAS, the Bank and the Executive entered into an Agreement dated as of
September 15, 1992 (the "1992 Agreement"), regarding, among other things, the
employment of the Executive by the Bank; and

     WHEREAS, SBI and the Executive desire to enter into a new agreement
regarding, among other things, the employment of the Executive by the SBI, and
concurrently therewith, to terminate the 1992 Agreement, all as hereinafter set
forth.

                                   AGREEMENT:

     NOW, THEREFORE, the parties hereto, intending to be legally bound hereby,
agree as follows:

     1. Employment. SBI hereby employs the Executive, and the Executive hereby
accepts employment with SBI, on the terms and conditions set forth in this
Agreement.

     2. Duties of Employee. The Executive shall perform and discharge well and
faithfully such duties as an executive officer of SBI as may be assigned to the
Executive from time to time by the Chief Executive Officer of SBI. The Executive
shall be employed as the Chief Financial Officer and Treasurer of SBI, and shall
hold such other titles as may be given to him from time to time by the Chief
Executive Officer of SBI (or by the Board of Directors of SBI or any of its
affiliated companies). The Executive shall devote his full time, attention and
energies to the business of SBI (and its affiliated companies) and shall not,
during the Employment Period (as defined in Section 3 hereof), be employed or
involved in any other business activity, whether or not such activity is pursued
for gain, profit or other pecuniary advantage; provided, however, that this
Section 2 shall not be 

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<PAGE>


construed as preventing the Executive from (a) investing the Executive's
personal assets, (b) acting as a member of the Board of Directors of any other
corporation or as a member of the Board of Trustees of any other organization,
or (c) being involved in any other activity with the prior approval of the
Chairman or Chief Executive Officer of SBI. In the event of any reduction in
title or a reduction in the Executive's responsibilities or authority, including
such responsibilities and authority as the same may be increased at any time
during the term of this Agreement, or the assignment to the Executive of duties
inconsistent with the Executive's status as Chief Financial Officer and
Treasurer of SBI, then the Executive may resign at any time thereafter during
the term of this Agreement, in which case Executive shall be entitled to receive
the amounts and benefits set forth in Section 7 hereof. The preceding sentence
shall apply only if such termination does not follow a Change in Control.

     3. Term of Employment. The Executive's employment under this Agreement
shall be for a period (the "Employment Period") commencing upon the date of this
Agreement and ending at the end of the term of this Agreement pursuant to
Section 16 hereof, unless the Executive's employment is sooner terminated in
accordance with Section 5 hereof or one of the following provisions:

          (a) The Executive's employment under this Agreement may be terminated
at any time during the Employment Period for "Cause" (as herein defined), by
action of the Board of Directors of SBI, upon giving notice of such termination
to the Executive at least fifteen (15) days prior to the date upon which such
termination shall take effect. As used in this Agreement, "Cause" means any of
the following events:

          (i) The Executive is convicted of or enters a plea of guilty or nolo
     contendere to a felony, a crime of falsehood, or a crime involving fraud or
     moral turpitude, or the actual incarceration of the Executive for a period
     of forty-five (45) consecutive days;

          (ii) The Executive willfully fails to follow the lawful instructions
     of the Board of Directors of SBI after the Executive's receipt of written
     notice of such instructions, other than a failure resulting from the
     Executive's incapacity because of physical or mental illness; or

 
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<PAGE>


                                    
          (iii) Any government regulatory agency recommends or orders that SBI
     terminate the employment of the Executive or relieve him of his duties.

Notwithstanding the foregoing, the Executive's employment under this Agreement
shall not be deemed to have been terminated for "Cause" under Sections 3(a)(i)
or 3(a)(ii) above if such termination took place solely as a result of:

          (i) Questionable judgment on the part of the Executive;

          (ii) Any act or omission believed by the Executive, in good faith, to
     have been in, or not opposed to, the best interests of SBI (or its
     affiliated companies); or

          (iii) Any act or omission in respect of which a determination could
     properly be made that the Executive met the applicable standard of conduct
     prescribed for indemnification or reimbursement or payment of expenses
     under the Charter or By-laws of SBI or the directors' and officers'
     liability insurance of SBI, in each case as in effect at the time of such
     act or omission.

If the Executive's employment is terminated under the provisions of this Section
3(a), then all rights of the Executive under Section 4 hereof shall cease as of
the effective date of such termination.

     (b) The Executive's employment under this Agreement may be terminated at
any time during the Employment Period without "Cause" (as defined in Section
3(a) hereof), by action of the Board of Directors of SBI, upon giving notice of
such termination to the Executive at least thirty (30) days prior to the date
upon which such termination shall take effect. If the Executive's employment is
terminated under the provisions of this Section 3(b), then the Executive shall
be entitled to receive the compensation and benefits set forth in Section 6 or
Section 7 hereof, whichever shall be applicable.

     (c) If the Executive retires or dies, the Executive's employment under this
Agreement shall be deemed terminated as of the date of the Executive's
retirement or death, and all rights of the Executive under Section 4 hereof
shall cease as of the date of such termination and any benefits payable


                                       3
<PAGE>

to the Executive shall be determined in accordance with the retirement and
insurance programs of SBI then in effect.

     (d) If the Executive is incapacitated by accident, sickness, or otherwise
so as to render the Executive mentally or physically incapable of performing the
services required of the Executive under Section 2 of this Agreement for a
continuous period of six (6) months, then, upon the expiration of such period or
at any time thereafter, by action of the Board of Directors of SBI, the
Executive's employment under this Agreement may be terminated immediately upon
giving the Executive notice to that effect. If the Executive's employment is
terminated under the provisions of this Section 3(d), then all rights of the
Executive under Section 4 hereof shall cease as of the last business day of the
week in which such termination occurs and any benefits payable to the Executive
shall be determined in accordance with the retirement and insurance programs of
SBI then in effect.

     4. Employment Period Compensation.

     (a) Salary. For services performed by the Executive under this Agreement,
SBI shall pay (or cause to be paid to) the Executive a salary, during the
Employment Period, at the rate of One Hundred Eighty Thousand Dollars ($180,000)
per year, payable at the same times as salaries are payable to other executive
employees of SBI. SBI may, from time to time, increase the Executive's salary
(or cause it to be increased), and any and all such increases shall be deemed to
constitute amendments to this Section 4(a) to reflect the increased amounts,
effective as of the dates established for such increases by the Board of
Directors of SBI in the resolutions authorizing such increases.

     (b) Bonus. For services performed by the Executive under this Agreement,
SBI shall pay (or cause to be paid to) the Executive a bonus, during the
Employment Period, in such amounts and at such times, annually, as is provided
in such executive incentive plan for the Executive as shall be approved by the
Board of Directors of SBI and in effect from time to time. In addition, SBI may,
from time to time, pay such other bonus or bonuses to the Executive as SBI, in
its sole discretion, deems appropriate. The payment of any such bonuses shall
not reduce or otherwise affect any other obligation of SBI to the Executive
provided for in this Agreement.


                                       4

<PAGE>

     (c) Other Benefits. SBI will provide the Executive, during the Employment
Period, with insurance, vacation, pension, and other fringe benefits in the
aggregate not less favorable than those received by other executive employees of
SBI.

     (d) Salary Deferral. The Executive may request that the payment of any
portion of his base salary for any year be deferred. Such request must be made
in writing to SBI before the beginning of such calendar year and must include
the period of deferral requested by the Executive (the "Deferral Period"). If
the Board of Directors of SBI approves such request, the Executive shall be
entitled to receive, at the end of the Deferral Period, the deferred portion of
his base salary plus interest, which interest shall be computed by reference to
an annual interest rate determined each year by the Board of Directors of SBI.
Any salary which is deferred as described herein shall be credited to an account
on the books of SBI established in the name of the Executive. However, this
account shall not be funded, and SBI shall not be deemed to be a trustee for the
Executive with respect to any deferred salary. The liabilities of SBI to the
Executive hereunder are those of a debtor pursuant to such contractual
obligations as are created by this Agreement. No liabilities of SBI which arise
under this Section 4(d) shall be deemed to be secured by any pledge or other
encumbrance on any property of SBI. SBI shall not be required to segregate any
funds representing such deferred salary, and nothing herein shall be construed
as providing for such segregation.

     5. Resignation of the Executive for Good Reason.

     (a) The Executive may resign for "Good Reason" (as herein defined) at any
time during the three year period following a "Change in Control" (as defined in
Section 5(b) hereof), as hereinafter set forth. As used in this Agreement, "Good
Reason" means any of the following:

          (i) Any reduction in title or a reduction in the Executive's
     responsibilities or authority, including such responsibilities and
     authority as the same may be increased at any time during the term of this
     Agreement, or the assignment to the Executive of duties inconsistent with
     the Executive's status as Chief Financial Officer and Treasurer of SBI;

                                       5
<PAGE>


          (ii) Any reassignment of the Executive which requires the Executive to
     move his principal residence;

          (iii) Any removal of the Executive from office or any adverse change
     in the terms and conditions of the Executive's employment, except for any
     termination of the Executive's employment under the provisions of Section
     3(a) hereof;

          (iv) Any reduction in the Executive's annual base salary as in effect
     on the date hereof or as the same may be increased from time to time;

          (v) Any failure of SBI to provide the Executive with benefits at least
     as favorable as those enjoyed by the Executive under any of the pension,
     life insurance, medical, health and accident, disability or other employee
     plans of SBI in which the Executive participated at the time of the Change
     in Control, or the taking of any action that would materially reduce any of
     such benefits in effect at the time of the Change in Control unless such
     reduction is part of a reduction applicable to all employees;

          (vi) Any failure to obtain a satisfactory agreement from any successor
     to assume and agree to perform this Agreement, as contemplated in Section
     15 hereof; or

          (vii) Any breach of this Agreement of any nature whatsoever on the
     part of SBI.

At the option of the Executive, exercisable by the Executive within 90 days
after the occurrence of the event constituting "Good Reason," the Executive may
resign from employment under this Agreement by a notice in writing (the "Notice
of Termination") delivered to SBI (or its successor) and the provisions of
Section 6 hereof shall thereupon apply.

     (b) As used in this Agreement, "Change in Control" means a change of
control of a nature that would be required to be reported in response to Item
6(e) of Schedule 14A of Regulation 14A promulgated under the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), as enacted and in force on the
date hereof, whether or not SBI is then subject to such reporting requirement;
provided, however, that, without 

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<PAGE>


limitation, such a Change in Control shall be deemed to have occurred if:

          (i) Any "person" (including a group acting in concert, as the term
     "person" is defined in Section 13(d) of the Exchange Act, as enacted and in
     force on the date hereof) becomes the "beneficial owner" (as that term is
     defined in Rule 13d-3, as enacted and in force on the date hereof, under
     the Exchange Act) of securities of SBI representing 10% or more of the
     combined voting power of SBI's securities then outstanding (such percentage
     determined without regard to Article Twelfth of SBI's Articles of
     Incorporation), except, however, that a "Change in Control" shall not
     include any such "person" becoming a "beneficial owner" of securities of
     SBI representing more than 10% but less than 25% of the combined voting
     power of SBI's securities then outstanding (such percentage determined as
     aforesaid) if:

               (A) such person (or any member of a group acting in concert which
          includes such person) was a member of the Board of Directors of SBI at
          the time of acquisition of beneficial ownership of securities of SBI
          representing more than 10% but less than 25% of the combined voting
          power of SBI's securities then outstanding (such percentage determined
          as aforesaid); or

               (B) such person (or any member of a group acting in concert which
          includes such person) obtained the prior approval of the Board of
          Directors of SBI (by a majority vote of all directors) to his becoming
          a beneficial owner of securities of SBI representing more than 10% but
          less than 25% of the combined voting power of SBI's securities then
          outstanding (such percentage determined as aforesaid);

          (ii) There occurs a merger, consolidation or other business
     combination or reorganization to which SBI or the Bank is a party, whether
     or not approved in advance by the Board of Directors of SBI or the Bank (as
     the case may be) in which the members of the Board of Directors of SBI or
     the Bank (as the case may be) immediately preceding the consummation of
     such transaction do not constitute a majority of the members of the Board
     of Directors of the 

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<PAGE>


     resulting corporation and of any parent corporation thereof immediately 
     after the consummation of such transaction;

          (iii) There occurs a sale, exchange, transfer, or other disposition of
     substantially all of the assets of SBI or the Bank to another entity, which
     is not approved in advance by the Board of Directors of SBI;

          (iv) There occurs a contested proxy solicitation of the stockholders
     of SBI that results in the contesting party obtaining the ability to elect
     candidates to a majority of the positions on SBI's Board of Directors next
     up for election; or

          (v) There occurs a tender offer for the shares of voting securities of
     SBI that results in the tender offeror obtaining securities representing
     25% or more of the combined voting power of SBI's securities then
     outstanding (such percentage determined without regard to Article Twelfth
     of SBI's Articles of Incorporation).

     6. Rights in Event of Termination of Employment After Change in Control. In
the event that Executive resigns from employment for Good Reason following a
Change in Control, by delivery of a Notice of Termination to SBI, or Executive's
employment is terminated by SBI without Cause after a Change in Control,
Executive shall be absolutely entitled to receive the amounts and benefits set
forth in this section.

     (a) For a period of three (3) years from the date of termination of
employment, Executive shall be paid his Current Compensation at Termination.

          (i) For purposes of this section, the term "Current Compensation at
     Termination" means the sum of (A) Executive's base salary as of the date of
     termination of employment (or prior to any reduction thereof resulting in
     Good Reason for resignation), and (B) a dollar amount equal to the average
     of the awards Executive received under the executive incentive plan or
     otherwise received as a bonus for each of the three (3) years preceding the
     year in which the termination of employment occurs.

          (ii) Amounts required to be paid to Executive under Section 6(a) shall
     be paid in equal monthly 

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<PAGE>


     installments, beginning thirty (30) days following the date of termination
     of employment.

     (b) For a period of three (3) years from the date of termination of
employment, Executive shall receive a continuation of all life, disability,
medical insurance and other normal benefits in effect with respect to Executive
during the two (2) years prior to his termination of employment, or, if SBI
cannot provide such benefits because Executive is no longer an employee, a
dollar amount equal to the cost to Executive of obtaining such benefits (or
substantially similar benefits).

     (c) Notwithstanding anything in this section or elsewhere in this Agreement
to the contrary, in the event the amounts and benefits payable hereunder to or
on behalf of the Executive, when added to all other amounts and benefits payable
to or on behalf of the Executive, would result in the imposition of an excise
tax under Section 4999 of the Internal Revenue Code of 1986, as amended, the
amounts and benefits payable hereunder shall be reduced to such extent as may be
necessary to avoid such imposition. The Executive shall have the right, within
30 days of receipt of written notice from SBI, to specify which amounts and
benefits shall be reduced to satisfy the requirements of this subsection.

     7. Rights in Event of Termination of Employment Without Cause in Absence of
Change in Control. In the event that Executive's employment is terminated by SBI
without Cause and no Change in Control shall have occurred at the date of such
termination, Executive shall be entitled to receive the amounts and benefits set
forth in this section.

     (a) For a period of three (3) years from the date of termination of
employment, Executive shall be paid his Current Compensation at Termination.

          (i) For purposes of this section, the term "Current Compensation at
     Termination" means the sum of (A) Executive's base salary as of the date of
     termination of employment (or prior to any reduction thereof preceding
     termination of employment), and (B) a dollar amount equal to the average of
     the awards Executive received under the executive incentive plan or
     otherwise received as a bonus for each of the three (3) years preceding the
     year in which the termination of employment occurs.

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<PAGE>



          (ii) Amounts required to be paid to Executive under Section 7(a) shall
     be paid in equal monthly installments, beginning thirty (30) days following
     the date of termination of employment.

     (b) For a period of three (3) years from the date of termination of
employment, Executive shall receive a continuation of all life, disability,
medical insurance and other normal benefits in effect with respect to Executive
during the two (2) years prior to his termination of employment, or, if SBI
cannot provide such benefits because Executive is no longer an employee, a
dollar amount equal to the cost to Executive of obtaining such benefits (or
substantially similar benefits).

     (c) Notwithstanding anything in this section or elsewhere in this Agreement
to the contrary, in the event the amounts and benefits payable hereunder to or
on behalf of the Executive, when added to all other amounts and benefits payable
to or on behalf of the Executive, would result in the imposition of an excise
tax under Section 4999 of the Internal Revenue Code of 1986, as amended, the
amounts and benefits payable hereunder shall be reduced to such extent as may be
necessary to avoid such imposition. The Executive shall have the right, within
30 days of receipt of written notice from SBI, to specify which amounts and
benefits shall be reduced to satisfy the requirements of this subsection.

     (d) Executive shall not be required to mitigate the amount of any payment
provided for in this section by seeking employment or otherwise; provided,
however, that for each dollar of compensation earned by Executive from another
employer, a corresponding dollar amount of any sum otherwise payable to, or for
the benefit of, Executive under this section shall be reduced by twenty-five
percent (25%). Application of this subsection shall be subject to the following
rules:

          (i) The reduction provision of this subsection shall apply only to
     compensation earned by Executive during the period of time he is receiving
     payments described in Section 7(a) hereof.

          (ii) Compensation earned from another employer shall include
     compensation deferred under any qualified or nonqualified arrangement.

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<PAGE>


          (iii) Compensation earned from another employer shall be determined on
     an annual basis by reference to Executive's date of termination of
     employment.

          (iv) Within fifteen (15) days following each anniversary date of
     Executive's termination of employment (and within fifteen (15) days
     following receipt of the last Section 7(a) payment), he shall provide SBI
     with such detailed information and records as may have been reasonably
     requested to confirm the compensation he earned during the preceding twelve
     (12) months (or shorter period, if applicable). In the absence of a
     specific request for detailed information, he shall only be required to
     deliver written notice of the total of such compensation amount.

          (v) Upon receipt of the earned compensation information from
     Executive, SBI shall withhold subsequent monthly payments until the amount
     withheld equals the reduction required with respect to the prior year. If
     no monthly payments remain to be paid, SBI will remit to Executive a bill,
     setting forth the amount overpaid to him by reason of this subsection,
     which bill shall become due and payable thirty (30) days following its
     receipt.

     8. Covenant Not to Compete.

     (a) The Executive hereby acknowledges and recognizes the highly competitive
nature of the business of SBI and of the Bank and accordingly agrees that,
during and for the applicable period set forth in Section 8(c) hereof, the
Executive shall not:

          (i) Be engaged, directly or indirectly, either for his own account or
     as agent, consultant, employee, partner, officer, director, proprietor,
     investor (except as an investor owning less than 5% of the stock of a
     publicly-owned company) or otherwise of, any person,, firm, corporation, or
     enterprise engaged, in (1) the banking or financial services industry, or
     (2) any other activity in which SBI or any of its subsidiaries is engaged
     during the Employment Period, in any county in which, at any time during
     the Employment Period or at the date of termination of the Executive's
     employment, a branch, office or other facility of SBI or any of its
     subsidiaries is located, or in any county contiguous to such a county,
     including contiguous 

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<PAGE>


     counties located outside of the Commonwealth of Pennsylvania (the 
     "Non-Competition Area");

          (ii) Provide financial or other assistance to any person, firm,
     corporation, or enterprise engaged in (1) the banking or financial services
     industry, or (2) any other activity in which SBI or any of its subsidiaries
     is engaged during the Employment Period, in the NonCompetition Area.

     (b) It is expressly understood and agreed that, although the Executive and
SBI consider the restrictions contained in Section 8(a) hereof reasonable for
the purpose of preserving for SBI and its subsidiaries their good will and other
proprietary rights, if a final judicial determination is made by a court having
jurisdiction that the time or territory or any other restriction contained in
Section 8(a) hereof is an unreasonable or otherwise unenforceable restriction
against the Executive, the provisions of Section 8(a) hereof shall not be
rendered void but shall be deemed amended to apply as to such maximum time and
territory and to such other extent as such court may judicially determine or
indicate to be reasonable.

     (c) The provisions of this Section 8 shall be applicable commencing on the
date of this Agreement and ending on one of the following periods, as
applicable:

          (i) If the Executive's employment is terminated in accordance with the
     provisions of Section 3 (other than Section 3(a)) or Section 16 hereof, the
     effective date of termination of employment, but if such termination of
     employment is in accordance with the provisions of Section 3(b) hereof, the
     provisions of Section 7(d) shall apply notwithstanding the termination of
     this Section 8's applicability;

          (ii) If the Executive's employment is terminated in accordance with
     the provisions of Section 3(a) hereof or the Executive voluntarily
     terminates his employment other than in accordance with the provisions of
     Section 5 hereof, twelve (12) months following the effective date of
     termination of employment; or

          (iii) If the Executive voluntarily terminates his employment in
     accordance with the provisions of Section 5 hereof, the date of the Notice
     of Termination.

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<PAGE>


     9. Arbitration. SBI and the Executive recognize that in the event a dispute
should arise between them concerning the interpretation or implementation of
this Agreement, lengthy and expensive litigation will not afford a practical
resolution of the issues within a reasonable period of time. Consequently, each
party agrees that all disputes, disagreements and questions of interpretation
concerning this Agreement are to be submitted for resolution to the American
Arbitration Association (the "Association") in Philadelphia, Pennsylvania. SBI,
or the Executive, may initiate an arbitration proceeding at any time by giving
notice to the others in accordance with the rules of the Association. The
Association shall designate a single arbitrator to conduct the proceeding, but
SBI, and the Executive, may, as a matter of right, require the substitution of a
different arbitrator chosen by the Association. Each such right of substitution
may be exercised only once. The arbitrator shall not be bound by the rules of
evidence and procedure of the courts of the Commonwealth of Pennsylvania but
shall be bound by the substantive law applicable to this Agreement. The decision
of the arbitrator, absent fraud, duress, incompetence or gross and obvious error
of fact, shall be final and binding upon the parties and shall be enforceable in
courts of proper jurisdiction. Following written notice of a request for
arbitration, SBI, and the Executive, shall be entitled to an injunction
restraining all further proceedings in any pending or subsequently filed
litigation concerning this Agreement, except as otherwise provided herein.

     10. Legal Expenses. SBI shall pay to the Executive all reasonable legal
fees and expenses when incurred by the Executive in seeking to obtain or enforce
any right or benefit provided by this Agreement.

     11. Notices. Any notice required or permitted to be given under this
Agreement shall be deemed properly given if in writing and if mailed by
registered or certified mail, postage prepaid with return receipt requested, to
the residence of the Executive, in the case of notices to the Executive, and to
the principal office of SBI, in the case of notices to SBI.

     12. Waiver. No provision of this Agreement may be modified, waived, or
discharged unless such waiver, modification, or discharge is agreed to in
writing and signed by the Executive and an executive officer of SBI specifically
designated by the Board of Directors of SBI. No waiver by any party hereto at
any time of any breach by any other party hereto of, or compliance 

                                       13
<PAGE>

with, any condition or provision of this Agreement to be performed by such other
party shall be deemed a waiver of similar or dissimilar provisions or conditions
at the same or at any prior or subsequent time.

     13. Assignment. This Agreement shall not be assignable by either party
hereto, except by SBI to any successor in interest to the business of SBI.

     14. Entire Agreement. This Agreement contains the entire agreement of the
parties relating to the subject matter of this Agreement and supersedes any
prior agreement of the parties.

     15. Successors, Binding Agreement.

     (a) SBI will require any successor (whether direct or indirect, by
purchase, merger, consolidation, or otherwise) to all or substantially all of
the business and/or assets of SBI to expressly assume and agree to perform this
Agreement in the same manner and to the same extent that SBI would be required
to perform it if no such succession had taken place. Failure by SBI to obtain
such assumption and agreement prior to the effectiveness of any such succession
shall constitute a breach of this Agreement and the provisions of Section 6
hereof shall apply. As used in this Agreement, "SBI" shall mean SBI as
hereinbefore defined and any successor to the respective business and/or assets
of SBI as aforesaid which assumes and agrees to perform this Agreement by
operation of law, or otherwise.

     (b) This Agreement shall inure to the benefit of and be enforceable by the
Executive's personal or legal representatives, executors, administrators, heirs,
distributees, devisees, and legatees. If the Executive should die while any
amount is payable to the Executive under this Agreement if the Executive had
continued to live, all such amounts, unless otherwise provided herein, shall be
paid in accordance with the terms of this Agreement to the Executive's devisee,
legatee, or other designee, or, if there is no such designee, to the Executive's
estate.

     16. Termination.

     (a) Unless the Executive's employment is terminated pursuant to the
provisions of Section 3 or Section 5 hereof, the term of this Agreement shall:

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<PAGE>

          (i) Initially be a term commencing on September 25, 1997, and ending
     on September 24, 2000; and

          (ii) Be automatically extended to provide for a three (3) year term,
     annually, on September 25, 1998, and again on September 25, of each year
     thereafter, effective as of such respective dates, unless either (1) SBI or
     (2) the Executive shall have given written notice of nonextension of the
     term of this Agreement to the other at least ninety (90) days before the
     date of any such extension.

     (b) Any termination of the Executive's employment under this Agreement or
of this Agreement shall not affect the provisions of Sections 6 or 7 hereof
which shall survive any such termination and remain in full force and effect in
accordance with their respective terms.

     17. Validity. The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of any other provision
of this Agreement, which shall remain in full force and effect.

     18. Applicable Law. This Agreement shall be governed by and construed in
accordance with the domestic laws (but not the law of conflict of laws) of the
Commonwealth of Pennsylvania.

     19. Headings. The headings of the Sections of this Agreement are for
convenience only and shall not control or affect the meaning or construction or
limit the scope or intent of any of the provisions of this Agreement.

     20. Effective Date; Termination of Prior Agreement. This Agreement shall
become effective immediately upon the execution and delivery of this Agreement
by the parties hereto. Upon the execution and delivery of this Agreement by the
parties 

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<PAGE>

hereto, any prior agreement relating to the subject matter hereof, including
without limitation the 1992 Agreement, shall be automatically terminated and be
of no further force or effect.

     IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.

                                           SOVEREIGN BANCORP, INC.

                                           By_________________________________
                                                        President
(SEAL)

                                           Attest:____________________________
                                                          Secretary
                                                            ("SBI")
Witness:

_________________________                   _____________________________(SEAL)
                                                    Karl D. Gerhart
                                                     ("Executive")

Agreed to as of the date
of this Agreement,

SOVEREIGN BANK, A FEDERAL
SAVINGS BANK

By_______________________



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Source: OneCLE Business Contracts.