Commerce Bancorp, Inc. and Subsidiaries Selected Financial Data

<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------------------
                                                                           Year Ended December 31,
-------------------------------------------------------------------------------------------------------------------------------
(dollars in thousands, except per share data)          2000            1999           1998           1997            1996
-------------------------------------------------------------------------------------------------------------------------------
Income Statement Data:
<S>                                                 <C>             <C>            <C>            <C>             <C>
 Net interest income                                $  296,930      $  244,367     $  194,661     $  165,322      $  139,959
 Provision for loan losses                              13,931           9,175          8,762          5,805           5,798
 Noninterest income                                    150,760         114,596         96,277         62,410          36,129
 Noninterest expense                                   315,357         252,523        213,950        153,804         121,285
 Income before income taxes                            118,402          97,265         68,226         68,123          49,005
 Net income                                             80,047          65,960         42,155         44,432          31,149
Balance Sheet Data:
 Total assets                                       $8,296,516      $6,635,793     $5,424,190     $4,387,851      $3,592,972
 Loans (net)                                         3,638,580       2,922,706      2,249,061      1,638,836       1,463,933
 Securities available for sale                       2,021,326       1,664,257      1,305,004      1,330,684         779,630
 Securities held to maturity                         1,513,456       1,201,892      1,220,874        985,676         919,149
 Trading securities                                    109,306         117,837         85,359          7,911          15,327
 Federal funds sold                                     52,000           5,300         10,395         15,813          36,625
 Deposits                                            7,387,594       5,608,920      4,928,808      3,784,576       3,251,865
 Long-term debt                                         23,000          23,000         24,282         25,308          26,333
 Trust preferred securities                             57,500          57,500         57,500         57,500
 Stockholders' equity                                  492,224         356,756        323,552        279,900         228,543
Per Share Data:
 Net income-basic                                    $    2.59       $    2.26      $    1.49      $    1.64       $    1.24
 Net income-diluted                                       2.49            2.17           1.42           1.56            1.16
 Cash dividends                                           0.97            0.83           0.87           0.55            0.46
 Book value                                              15.55           11.99          11.28          10.27            8.54
 Average shares outstanding:
  Basic                                                 30,878          29,155         28,254         26,715          24,450
  Diluted                                               32,111          30,465         29,662         28,386          26,850
Selected Ratios:
 Performance
 Return on average assets                                 1.09%           1.12%          0.87%          1.12%           0.95%
 Return on average equity                                19.81           19.63          13.57          17.87           15.17
 Net interest margin                                      4.62            4.65           4.42           4.59            4.65
Liquidity and Capital
  Average loans to average deposits                      52.17%          50.31%         44.71%         45.07%          45.64%
  Dividend payout                                        37.45           36.64          58.55          33.31           36.71
  Stockholders' equity to total assets                    5.93            5.38           5.96           6.38            6.36
  Risk-based capital:
   Tier 1                                                10.79           11.40          12.09          14.91           12.36
   Total                                                 11.92           12.72          13.71          17.06           14.71
  Leverage capital                                        6.92            7.02           7.05           7.69            6.53
Asset Quality
  Non-performing assets to total
   year-end assets                                        0.20%           0.18%          0.27%          0.43%           0.56%
  Net charge-offs to average loans
   outstanding                                            0.11            0.08           0.08           0.13            0.24
  Non-performing loans to total
   year-end loans                                         0.37            0.29           0.38           0.78            0.80
  Allowance for loan losses to total
   end of year loans                                      1.32            1.30           1.37           1.45            1.37
  Allowance for loan losses to non-
   performing loans                                     356.84          442.09         364.86         187.35          170.74






                                                                                                                          43
</TABLE>


<PAGE>

Management's Discussion and Analysis of
Financial Condition and Results of Operations

Management's  Discussion  and  Analysis of  Financial  Condition  and Results of
Operations  of  the  Company  analyzes  the  major  elements  of  the  Company's
consolidated  balance  sheets and  statements of income.  This section should be
read in conjunction  with the Company's  consolidated  financial  statements and
accompanying notes.

2000 Overview

In 2000,  the Company  posted  increases  in net income,  deposits,  loans,  and
assets.  The increase in net income was due to increases in net interest  income
and noninterest income, which offset increased noninterest expenses. Loan growth
totaled 24% for 2000,  and deposit growth totaled 32%. At December 31, 2000, the
Company had total assets of $8.3  billion,  total loans of $3.7  billion,  total
investment securities of $3.6 billion, and total deposits of $7.4 billion.

Segment Reporting

The Company  operates one reportable  segment of business,  Community  Banks, as
more fully described in Note 19 to the Consolidated Financial Statements on page
80. The following  table  summarizes  net income by segment for each of the last
three years:

------------------------------------------------------------
                                   Net Income
------------------------------------------------------------
                            2000        1999        1998
------------------------------------------------------------
Community Banks           $77,262      $66,313     $43,627
Parent/Other                2,785         (353)     (1,472)
------------------------------------------------------------
Consolidated total        $80,047      $65,960     $42,155
------------------------------------------------------------

Average Balances and Net Interest Income

The table on page 46 sets forth balance sheet items on a daily average basis for
the years ended December 31, 2000,  1999 and 1998 and presents the daily average
interest  rates earned on assets and the daily  average  interest  rates paid on
liabilities  for such periods.  During 2000,  average  interest  earning  assets
totaled  $6.6  billion,  an increase  of $1.3  billion,  or 23% over 1999.  This
increase  resulted  primarily from the increase in the average balance of loans,
which rose $761.8  million,  and the average  balance of investment  securities,
which rose $446.3  million  during  2000.  The growth in the average  balance of
interest  earning  assets was funded  primarily  by an  increase  in the average
balance of deposits  (including  noninterest-bearing  demand  deposits)  of $1.3
billion.  The growth in interest  earning  assets was also  partly  funded by an
increase in other borrowed money, which rose $84.8 million to an average balance
of $268.3 million during 2000.

Net Interest Income and Net Interest Margin

Net interest margin on a tax-equivalent  basis was 4.62% for 2000, a decrease of
three basis points from 1999.

Net interest income on a tax-equivalent  basis (which adjusts for the tax-exempt
status of income earned on certain loans and  investments to express such income
as if it were  taxable)  for 2000  was  $306.1  million,  an  increase  of $56.6
million, or 23%, over 1999. Interest income on a tax-equivalent  basis increased
to $514.5  million from $391.6  million,  or 31%.  This  increase was  primarily
related to volume  increases  in the loan and  investment  portfolios.  Interest
expense for 2000 rose $66.3  million to $208.4  million  from $142.1  million in
1999. This increase was primarily  related to increases in the Company's  levels
of deposits and other borrowed money.

The  tax-equivalent  yield on interest  earning assets during 2000 was 7.76%, an
increase of 47 basis points from 7.29% in 1999.




44
<PAGE>
Management's Discussion and Analysis of
Financial Condition and Results of Operations

The cost of  interest-bearing  liabilities  increased 60 basis points in 2000 to
3.89% from 3.29% in 1999. The increase resulted primarily from increased general
market interest rates during 2000 as compared to 1999. The cost of total funding
sources increased 50 basis points in 2000 to 3.14% from 2.64%.

The following  table presents the major factors that  contributed to the changes
in net  interest  income  for the  years  ended  December  31,  2000 and 1999 as
compared to the respective previous periods.

<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------
                                 2000 vs. 1999                           1999 vs. 1998
                              Increase (Decrease)                     Increase (Decrease)
                             Due to Changes in (1)                   Due to Changes in (1)
--------------------------------------------------------------------------------------------------
                     Volume         Rate          Total        Volume         Rate          Total
--------------------------------------------------------------------------------------------------
(dollars in thousands)
Interest on
  investments:
<S>                 <C>            <C>          <C>           <C>            <C>          <C>
   Taxable          $25,664        $9,371       $35,035       $12,294        $1,724       $14,018
   Tax-exempt         1,029            54         1,083           387            99           486
   Trading            3,708           492         4,200         2,552           253         2,805
   Federal
    funds sold        3,224           263         3,487        (1,474)         (114)       (1,588)
Interest on
 loans:
   Commercial
    real estate      23,976         2,956        26,932        18,805        (3,994)       14,811
   Commercial        18,348         4,111        22,459        10,824        (1,869)        8,955
   Consumer          19,198         4,261        23,459        23,752        (2,315)       21,437
   Tax-exempt         5,676           551         6,227         3,279          (121)        3,158
--------------------------------------------------------------------------------------------------
Total
interest            100,823        22,059       122,882        70,419        (6,337)       64,082
  income
--------------------------------------------------------------------------------------------------
Interest
expense:
  Regular
   savings            9,306         6,795        16,101         2,952        (2,900)           52
  N.O.W
   accounts          (2,445)        2,293          (152)          285           808         1,093
  Money
   market plus       17,307        10,546        27,853        10,487        (1,671)        8,816
  Time
   deposits             565         3,621         4,186         3,414        (3,479)          (65)
  Public funds        7,550         4,289        11,839        (1,843)       (1,765)       (3,608)
  Other
   borrowed
   money              5,352         1,711         7,063         6,177          (311)        5,866
  Long-term
   debt                              (600)         (600)                        (56)          (56)
--------------------------------------------------------------------------------------------------
Total
interest             37,635        28,655        66,290        21,472        (9,374)       12,098
  expense
--------------------------------------------------------------------------------------------------
Net increase        $63,188       $(6,596)      $56,592       $48,947        $3,037       $51,984
--------------------------------------------------------------------------------------------------
<FN>
(1) Changes  due to both volume and rate have been  allocated  to volume or rate
    changes in proportion to the absolute dollar amounts of the change in each.
</FN>
</TABLE>

Noninterest Income

For 2000,  noninterest  income  totaled  $150.8  million,  an  increase of $36.2
million or 32% from 1999.  The  increase was due  primarily  to increased  other
operating income,  which rose $23.4 million from 1999,  including an increase of
$13.2  million in revenues  from  Commerce  National  Insurance  Services,  Inc.
(Commerce National Insurance),  the Company's insurance brokerage subsidiary. In
addition, deposit charges and service fees increased $12.1 million over 1999 due
primarily to higher  transaction  volumes,  and net investment  securities gains
increased $631 thousand over the prior year.

Noninterest Expenses

Noninterest  expenses  totaled  $315.4  million  for 2000,  an increase of $62.8
million, or 25% over 1999.  Contributing to this increase was the addition of 30
new  branches.  With the  addition  of these  new  offices,  staff,  facilities,
marketing,  and related expenses rose accordingly.  Other  noninterest  expenses
rose $14.5 million to $55.2 million in 2000.  This increase  resulted  primarily
from increased bank-card related service charges, increased business development
expenses, and increased provisions for non-credit-related losses.

A key industry  productivity  measure is the operating  efficiency  ratio.  This
ratio expresses the relationship of noninterest  expenses  (excluding other real
estate  expenses)  to net interest  income plus  noninterest  income  (excluding
non-recurring  gains).  Over the last three years,  this ratio  equaled  70.72%,
70.36% and 73.81% in 2000, 1999 and 1998, respectively. The Company's efficiency
ratio remains above its peer group  primarily  due to its  aggressive  expansion
activities.

                                                                              45
<PAGE>
Management's Discussion and Analysis of
Financial Condition and Results of Operations

<TABLE>
<CAPTION>
Commerce Bancorp, Inc. and Subsidiaries Average Balances and Net Interest Income
---------------------------------------------------------------------------------------------------------------------------
                                                                  Year Ended December 31,
---------------------------------------------------------------------------------------------------------------------------
                                              2000                         1999                          1998
---------------------------------------------------------------------------------------------------------------------------
(dollars in thousands)            Average            Average   Average             Average   Average             Average
Earning Assets                    Balance   Interest   Rate    Balance   Interest    Rate    Balance   Interest   Rate
-------------------------------------------------------------------------------------------------------------------------
Investment securities
<S>                              <C>        <C>        <C>    <C>         <C>        <C>    <C>         <C>       <C>
     Taxable                     $2,964,401 $199,747   6.74 % $2,583,530  $164,712   6.38 % $2,390,688  $150,693  6.30 %
     Tax-exempt                      74,001    4,911   6.64       58,503     3,828   6.54       52,592     3,342  6.35
     Trading                        120,702    8,969   7.43       70,800     4,769   6.74       32,921     1,965  5.97
-------------------------------------------------------------------------------------------------------------------------
Total investment securities       3,159,104  213,627   6.76    2,712,833   173,309   6.39    2,476,201   156,000  6.30
Federal funds sold                   69,841    4,465   6.39       19,419       978   5.04       48,691     2,566  5.27
Loans
     Commercial real estate       1,235,690  108,917   8.81      963,679    81,985   8.51      742,644    67,174  9.05
     Commercial                     711,826   68,074   9.56      519,963    45,615   8.77      396,578    36,660  9.24
     Consumer                     1,323,795  106,984   8.08    1,086,487    83,525   7.69      777,518    62,088  7.99
     Tax-exempt                     132,507   12,449   9.40       71,926     6,222   8.65       34,018     3,064  9.01
-------------------------------------------------------------------------------------------------------------------------
Total loans                       3,403,818  296,424   8.71    2,642,055   217,347   8.23    1,950,758   168,986  8.66
-------------------------------------------------------------------------------------------------------------------------
Total earning assets             $6,632,763 $514,516   7.76 % $5,374,307  $391,634   7.29 % $4,475,650  $327,552  7.32 %
-------------------------------------------------------------------------------------------------------------------------
Sources of Funds
-------------------------------------------------------------------------------------------------------------------------
Interest-bearing liabilities
     Regular savings             $1,352,364 $ 36,935   2.73 % $1,011,642  $ 20,834   2.06 % $  868,311  $ 20,782  2.39 %
     N.O.W. accounts                170,118    5,918   3.48      240,409     6,070   2.52      229,109     4,977  2.17
     Money market plus            2,149,329   67,057   3.12    1,594,602    39,204   2.46    1,168,045    30,388  2.60
     Time deposits                  892,780   47,181   5.28      882,081    42,995   4.87      812,028    43,060  5.30
     Public funds                   439,972   27,865   6.33      320,768    16,026   5.00      357,663    19,634  5.49
-------------------------------------------------------------------------------------------------------------------------
Total deposits                    5,004,563  184,956   3.70    4,049,502   125,129   3.09    3,435,156   118,841  3.46

Other borrowed money                268,304   16,943   6.31      183,554     9,880   5.38       68,795     4,014  5.83
Long-term debt                       80,500    6,471   8.04       80,500     7,071   8.78       80,500     7,127  8.85
-------------------------------------------------------------------------------------------------------------------------
Total deposits and interest-
bearing liabilities               5,353,367  208,370   3.89    4,313,556   142,080   3.29    3,584,451   129,982  3.63
Noninterest-bearing funds
     (net)                        1,279,396                    1,060,751                       891,199
-------------------------------------------------------------------------------------------------------------------------
Total sources to fund
     earning assets              $6,632,763  208,370   3.14   $5,374,307   142,080   2.64   $4,475,650   129,982  2.90
-------------------------------------------------------------------------------------------------------------------------
Net interest income and
     margin tax-equivalent
     basis                                   306,146   4.62                249,554   4.65                197,570  4.42
Tax-exempt adjustment                          9,216                         5,187                         2,909
-------------------------------------------------------------------------------------------------------------------------
Net interest income and
     margin                                 $296,930   4.48 %             $244,367   4.55 %             $194,661  4.35 %
-------------------------------------------------------------------------------------------------------------------------
Other Balances
-------------------------------------------------------------------------------------------------------------------------
Cash and due from banks          $  328,390                   $  251,438                    $  197,282
Other assets                        431,884                      312,652                       220,142
Total assets                      7,348,963                    5,903,869                     4,866,005
Demand deposits
     (noninterest-bearing)        1,519,313                    1,202,412                       927,601
Other liabilities                    72,162                       51,921                        43,248
Stockholders' equity                404,121                      335,982                       310,705
-------------------------------------------------------------------------------------------------------------------------
</TABLE>
Notes--Weighted average yields on tax-exempt obligations have been computed on a
       tax-equivalent basis assuming a federal tax rate of 35%.
     --Non-accrual  loans  have been  included  in the  average  loan  balance.
     --Investment   securities   includes   investments   available  for  sale.
     --Consumer loans include loans held for sale.

46
<PAGE>
Management's Discussion and Analysis of
Financial Condition and Results of Operations

Income Taxes

The  provision  for federal and state  income  taxes for 2000 was $38.4  million
compared to $31.3 million in 1999 and $26.1  million in 1998.  The effective tax
rate was 32.4%, 32.2% and 38.2% in 2000, 1999 and 1998, respectively.

Net Income

Net income for 2000 was $80.0 million, an increase of $14.0 million, or 21% over
the $66.0  million  recorded  for 1999.  The  increase  in net income was due to
increases in net interest income and noninterest income,  which offset increased
noninterest expenses.

Diluted  net income  per share of common  stock for 2000 was $2.49  compared  to
$2.17 per common share for 1999.

Return on Average Equity and Average Assets

Two industry measures of the performance by a banking institution are its return
on average assets and return on average equity. Return on average assets ("ROA")
measures  net  income in  relation  to total  average  assets  and  indicates  a
company's  ability to employ its resources  profitably.  For 2000, the Company's
ROA was 1.09%  compared to 1.12% for 1999.  Return on average  equity ("ROE") is
determined  by dividing  annual net income by average  stockholders'  equity and
indicates  how  effectively  a company  can  generate  net income on the capital
invested by its stockholders. For 2000, the Company's ROE was 19.81% compared to
19.63% for 1999.

Loan Portfolio

The following table summarizes the loan portfolio of the Company by type of loan
as of December 31, for each of the years 1996 through 2000.

<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------
                                                      December 31,
---------------------------------------------------------------------------------------------
                           2000           1999           1998           1997           1996
---------------------------------------------------------------------------------------------
(dollars in thousands)
Commercial real estate:
<S>                      <C>            <C>            <C>            <C>            <C>
Owner-occupied           $685,916       $512,087       $425,764       $332,745       $252,629
Investor/developer        471,604        395,086        330,769        270,822        281,099
  Construction            380,804        185,712        122,797         64,948         60,434
---------------------------------------------------------------------------------------------
                        1,538,324      1,092,885        879,330        668,515        594,162

Commercial:
  Term                    469,564        393,953        282,556        211,827        205,990
  Line of credit          430,811        277,917        192,485        118,631        106,326
  Demand                    1,400          1,328            417            617            708
---------------------------------------------------------------------------------------------
                          901,775        673,198        475,458        331,075        313,024

Consumer:
  Mortgages
   (1-4 family
   residential)           351,644        428,453        322,310        184,479        171,102
  Installment             154,415        125,856         96,188         89,150         83,953
  Home equity             710,848        621,597        494,047        377,437        311,122
  Credit lines             30,254         19,099         12,993         12,330         10,967
---------------------------------------------------------------------------------------------
                        1,247,161      1,195,005        925,538        663,396        577,144
---------------------------------------------------------------------------------------------
Total loans            $3,687,260     $2,961,088     $2,280,326     $1,662,986     $1,484,330
---------------------------------------------------------------------------------------------
</TABLE>

The  Company   manages  risk   associated   with  its  loan  portfolio   through
diversification,   underwriting  policies  and  procedures,   and  ongoing  loan
monitoring efforts. The commercial real estate portfolio includes owner-occupied
(owner occupies greater than 50% of the property), investor/developer loans, and
construction loans.  Owner-occupied and other investor/developer loans generally
have  five  year  call  provisions  and  bear  the  personal  guarantees  of the
principals  involved.  Construction  loans are primarily  used for single family
residential  properties.  Financing is provided against firm agreements of sale,
with speculative  construction limited to one sample per project. The commercial
loan portfolio is comprised primarily of amortizing loans to small businesses in
the New Jersey/Southeastern  Pennsylvania/Delaware  market area. These loans are
generally  secured by business  assets,  personal  guarantees,  and/or  personal
assets of the borrower.  The consumer loan  portfolio is comprised  primarily of
loans secured by first and second mortgage liens on residential real estate.

                                                                              47
<PAGE>
Management's Discussion and Analysis of
Financial Condition and Results of Operations

The  maturity  ranges  of the  loan  portfolio  and the  amount  of  loans  with
predetermined  interest rates and floating rates in each maturity  range,  as of
December 31, 2000, are summarized in the following table.

-------------------------------------------------------------------------------
                                         December 31, 2000
-------------------------------------------------------------------------------
                         Due in         Due in        Due in
                        One Year        One to         Over            Total
                        or Less       Five Years     Five Years
-------------------------------------------------------------------------------
(dollars in thousands)
Commercial real
 estate:

Owner-occupied
   and investor/
    developer            $145,278       $882,280       $129,962     $1,157,520
   Construction           231,526        145,585          3,693        380,804
-------------------------------------------------------------------------------
                          376,804      1,027,865        133,655      1,538,324
Commercial:
   Term                   135,222        277,303         57,039        469,564
   Line of credit         416,876         13,935                       430,811
   Demand                     920            480                         1,400
-------------------------------------------------------------------------------
                          553,018        291,718         57,039        901,775
Consumer:
   Mortgages
    (1-4 family
    Residential)            7,890         35,493        308,261        351,644
   Installment             71,723         73,206          9,486        154,415
   Home equity             83,776        285,968        341,104        710,848
   Credit lines            11,510         18,744                        30,254
-------------------------------------------------------------------------------
                          174,899        413,411        658,851      1,247,161
-------------------------------------------------------------------------------
Total loans            $1,104,721     $1,732,994       $849,545     $3,687,260
-------------------------------------------------------------------------------
Interest rates:
   Predetermined         $368,168     $1,373,070       $641,422     $2,382,660
   Floating               736,553        359,924        208,123      1,304,600
-------------------------------------------------------------------------------
Total loans            $1,104,721     $1,732,994       $849,545     $3,687,260
-------------------------------------------------------------------------------

During 2000,  loans increased  $726.2 million,  or 24% from $3.0 billion to $3.7
billion.  At December 31, 2000, loans  represented 50% of total deposits and 44%
of total assets. All segments of the loan portfolio  experienced growth in 2000,
including  loans  secured by  commercial  real  estate,  commercial  loans,  and
consumer loans.

The Company has traditionally  been an active provider of commercial real estate
loans to  creditworthy  local  borrowers,  with such loans secured by properties
within the Company's  primary trade area. At December 31, 2000,  $685.9 million,
or 45%, of commercial real estate loans (other than  construction)  were secured
by owner-occupied properties.  Commercial loan growth was led by activity in the
middle market and healthcare sectors. Growth in consumer loans was due primarily
to home equity  loans and home equity lines of credit.  The Company  securitized
$106.5 million and $252.4 million of residential mortgage loans during the third
and fourth  quarter,  respectively,  and included the  securities in its held to
maturity investment portfolio.

Commercial real estate  construction  loans  increased  $195.1 million to $380.8
million  in 2000.  At  December  31,  2000,  construction  loans for 1-4  family
residential  dwellings  totaled $13.7 million and construction  loans secured by
commercial  properties amounted to $146.6 million. The balance of $220.5 million
was for land  development,  of  which  $131.0  million  was  residential.  As of
December  31,  2000,  there were no  concentrations  of loans to any one type of
industry  exceeding  10% of total loans nor were there any loans  classified  as
highly leveraged transactions.

Non-Performing Loans and Assets

Non-performing  assets  (non-performing  loans and other real estate,  excluding
loans past due 90 days or more and still accruing interest) at December 31, 2000
were $16.6 million or .20% of total assets, as compared to $12.2 million or .18%
of total assets at December 31, 1999.

Total  non-performing loans (non-accrual loans, and restructured loans excluding
loans past due 90 days or more and still accruing interest) at December 31, 2000
were $13.6 million as compared to $8.7 million a year ago. The Company generally
places a loan on  non-accrual  status and  ceases  accruing  interest  when loan
payment performance is deemed  unsatisfactory.  Generally loans past due 90 days
are placed on  non-accrual  status,  unless the loan is both well secured and in
the process of collection.  At December 31, 2000, loans past due 90 days or more
and still accruing interest amounted to $489 thousand, compared to $499 thousand
at December 31, 1999.  Additional  loans  considered as potential  problem loans
($36.3  million at December  31,  2000) by the  Company's  internal  loan review
department  have been evaluated as to risk exposure in determining  the adequacy
of the allowance for loan losses.

Other real estate (ORE) totaled $3.0 million at December 31, 2000 as compared to
$3.5 million at December 31, 1999.  These  properties  have been written down to
the lower of cost or fair value less disposition costs.

The Company has on an ongoing basis updated  appraisals on loans secured by real
estate,  particularly  those categorized as  non-performing  loans and potential
problem loans.  In those  instances  where updated  appraisals  reflect  reduced
collateral values, an evaluation of the borrowers'  overall financial  condition
is made to determine  the need, if any, for possible  writedowns or  appropriate
additions to the allowance for loan losses.

48
<PAGE>
Management's Discussion and Analysis of
Financial Condition and Results of Operations

The following summary presents  information  regarding  non-performing loans and
assets as of December 31, 1996 through 2000.

<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------
                                                 Year Ended December 31,
-----------------------------------------------------------------------------------------
                               2000         1999          1998         1997         1996
-----------------------------------------------------------------------------------------
(dollars in thousands)
Non-accrual loans (1):
<S>                           <C>          <C>          <C>          <C>          <C>
  Commercial                  $4,955       $2,254       $2,655       $2,937       $1,746
  Consumer                     1,295          674          831          703        1,164
  Real estate
   Construction                1,459           55                     1,345        2,156
   Mortgage                    5,840        5,230        4,849        7,886        6,378
-----------------------------------------------------------------------------------------
  Total non-accrual
   loans                      13,549        8,213        8,335       12,871       11,444
-----------------------------------------------------------------------------------------
Restructured loans (1):
  Commercial                      11          277           17           19           21
  Real estate
   mortgage                       82          192          217                       481
-----------------------------------------------------------------------------------------
  Total restructured
   loans                          93          469          234           19          502
-----------------------------------------------------------------------------------------
Total non-performing
  loans                       13,642        8,682        8,569       12,890       11,946
-----------------------------------------------------------------------------------------
Other real estate              2,959        3,523        6,081        5,845        8,252
-----------------------------------------------------------------------------------------
Total non-performing
  assets                     $16,601      $12,205      $14,650      $18,735      $20,198
-----------------------------------------------------------------------------------------
Non-performing
  assets as a percent
  of total assets               0.20%        0.18%        0.27%        0.43%        0.56%
-----------------------------------------------------------------------------------------
Loans past due 90
  days or more and still
  accruing interest             $489         $499       $1,029         $818         $948
-----------------------------------------------------------------------------------------
<FN>
(1)  Interest  income  of  approximately   $1,731,000,   $986,000,   $1,030,000,
     $1,434,000 and  $1,263,000  would have been recorded in 2000,  1999,  1998,
     1997 and 1996  respectively,  on  non-performing  loans in accordance  with
     their original terms.  Actual interest  recorded on these loans amounted to
     $525,000 in 2000, $255,000 in 1999, $266,000 in 1998, $323,000 in 1997, and
     $262,000 in 1996.
</FN>
</TABLE>

Allowance for Loan Losses

The allowance for loan losses is increased by provisions  charged to expense and
reduced by loan charge-offs net of recoveries. Management has established a loan
loss  reserve  which it believes is adequate  for  estimated  losses in its loan
portfolio.  Based on an evaluation of the loan portfolio,  management presents a
quarterly review of the loan loss reserve to the Board of Directors,  indicating
any changes in the reserve since the last review and any  recommendations  as to
adjustments in the reserve. In making its evaluation,  management  considers the
results of recent regulatory examinations,  the effects on the loan portfolio of
current economic  indicators and their probable impact on borrowers,  the amount
of charge-offs for the period,  the amount of  non-performing  loans and related
collateral  security,  the evaluation of its loan portfolio by the internal loan
review  department  and  the  annual  examination  of  the  Company's  financial
statements by its independent auditors.  Charge-offs occur when loans are deemed
to be uncollectible.

Through an internal  loan review  function that  operates  independently  of the
lending  function,  management  employs  several  methodologies  to measure  the
appropriate level of loan loss reserves.  Those methodologies  include migration
analyses  based on historical  experience  and the related  internal  ratings of
loans  charged  off,  and an  allocation  methodology  based  on the  review  of
individual loans,  individual loan classifications,  and collateral values. When
utilizing the allocation  methodology,  an unallocated portion of the reserve is
determined based on management's  assessment of general national,  regional, and
local  economic  conditions.  This  determination  inherently  involves a higher
degree  of  subjectivity,  and  considers  risk  factors  that  may not have yet
manifested  themselves  in the  Company's  historical  loss  experience or other
methodology criteria.

During 2000, net charge-offs  amounted to $3.6 million, or .11% of average loans
outstanding  for the year,  compared  to $2.1  million or .08% of average  loans
outstanding  for 1999.  During 2000,  the Company  recorded  provisions of $13.9
million to the allowance  for loan losses  compared to $9.2 million for 1999. At
December 31, 2000,  the  allowance  aggregated  $48.7  million or 1.32% of total
loans and provided coverage of 357% of non-performing loans.

The following  table  presents,  for the periods  indicated,  an analysis of the
allowance for loan losses and other related data.
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------
                                                       Year Ended December 31,
----------------------------------------------------------------------------------------------------
                                  2000          1999            1998           1997           1996
----------------------------------------------------------------------------------------------------
(dollars in thousands)
<S>                             <C>            <C>            <C>            <C>            <C>
Balance at beginning
   of period                    $38,382        $31,265        $24,150        $20,397        $17,919
Provisions charged to
   operating expenses            13,931          9,175          8,762          5,805          5,798
----------------------------------------------------------------------------------------------------
                                 52,313         40,440         32,912         26,202         23,717
----------------------------------------------------------------------------------------------------
Recoveries of loans
   previously charged-off:
     Commercial                     313            551            418            360            378
     Consumer                       249            286            305            415            276
     Commercial real
       estate                        14            132            764            144             95
----------------------------------------------------------------------------------------------------
Total recoveries                    576            969          1,487            919            749
----------------------------------------------------------------------------------------------------
Loans charged-off:
     Commercial                  (2,936)        (1,599)        (1,281)        (1,481)        (1,647)
     Consumer                    (1,220)        (1,078)        (1,352)        (1,344)        (1,119)
     Commercial real
       estate                       (53)          (350)          (501)          (146)        (1,303)
----------------------------------------------------------------------------------------------------
Total charged-off                (4,209)        (3,027)        (3,134)        (2,971)        (4,069)
----------------------------------------------------------------------------------------------------
Net charge-offs                  (3,633)        (2,058)        (1,647)        (2,052)        (3,320)
----------------------------------------------------------------------------------------------------
Balance at end of period        $48,680        $38,382        $31,265        $24,150        $20,397
----------------------------------------------------------------------------------------------------
Net charge-offs as a
   percentage of average
   loans outstanding               0.11%          0.08%          0.08%          0.13%          0.24%
----------------------------------------------------------------------------------------------------
Allowance for loan losses
   as a percentage of
   year-end loans                  1.32%          1.30%          1.37%          1.45%          1.37%
----------------------------------------------------------------------------------------------------
</TABLE>


                                                                              49
<PAGE>
Management's Discussion and Analysis of
Financial Condition and Results of Operations

Allocation of the Allowance for Loan Losses

The following  table details the  allocation of the allowance for loan losses to
the various categories. The allocation is made for analytical purposes and it is
not  necessarily  indicative  of the  categories in which future loan losses may
occur.  The total  allowance is  available to absorb  losses from any segment of
loans.
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------------
                                                  Allowance for Loan Losses at December 31,
-------------------------------------------------------------------------------------------------------------------------
                            2000                1999                1998                1997               1996
-------------------------------------------------------------------------------------------------------------------------
                               % Gross             % Gross             % Gross             % Gross            % Gross
                       Amount   Loans     Amount    Loans     Amount    Loans     Amount    Loans     Amount   Loans
-------------------------------------------------------------------------------------------------------------------------
(dollars in thousands)
<S>                    <C>         <C>     <C>        <C>      <C>        <C>      <C>        <C>      <C>        <C>
 Commercial            $20,396     24%     $14,268    23%      $ 7,738    21%      $ 5,236    20%      $ 4,108    21%
 Consumer                4,632     34        4,120    40         7,800    41         6,406    40         4,808    39
 Commercial real
  estate                23,652     42       19,994    37        15,727    38        12,508    40        11,481    40
-------------------------------------------------------------------------------------------------------------------------
                       $48,680    100%     $38,382   100%      $31,265   100%      $24,150   100%      $20,397   100%
-------------------------------------------------------------------------------------------------------------------------
</TABLE>

Investment Securities

The following table  summarizes the book value of securities  available for sale
and securities held to maturity by the Company as of the dates shown.

-----------------------------------------------------------------
                                       December 31,
-----------------------------------------------------------------
                             2000          1999           1998
-----------------------------------------------------------------
(dollars in thousands)
U.S. Government agency
   and mortgage-backed
   obligations           $1,900,912     $1,582,933    $1,154,765
Obligations of state and
   political subdivisions    46,544         42,182        26,041
Equity securities            16,825          9,107        15,397
Other                        57,045         30,035       108,801
-----------------------------------------------------------------
Securities available
   for sale              $2,021,326     $1,664,257    $1,305,004
-----------------------------------------------------------------
U.S. Government agency
   and mortgage-backed
   obligations           $1,437,993     $1,134,115    $1,165,290
Obligations of state and
   political subdivisions    42,938         35,667        30,654
Other                        32,525         32,110        24,930
-----------------------------------------------------------------
Securities held to
   maturity              $1,513,456     $1,201,892    $1,220,874
-----------------------------------------------------------------

Consistent  with  accounting  and  regulatory  pronouncements,  the  Company has
segregated a portion of its  investment  portfolio as  securities  available for
sale. The balance of the investment  portfolio (excluding trading securities) is
categorized as securities held to maturity. Investment securities are classified
as  available  for sale if they might be sold in response to changes in interest
rates,  prepayment risk, the Company's income tax position, the need to increase
regulatory capital,  liquidity needs or other similar factors.  These securities
are carried at fair market value.  Investment  securities are classified as held
to maturity when the Company has the intent and ability to hold those securities
to  maturity.  Securities  held to maturity are carried at cost and adjusted for
accretion of discounts and  amortization  of premiums.  Trading  securities  are
carried at market value,  with gains and losses,  both realized and  unrealized,
included in other operating income.

In total,  investment  securities  increased $660.1 million from $3.0 billion to
$3.6 billion at December 31, 2000. Deposit growth and other funding sources were
used to increase the  Company's  investment  portfolio.  The  available for sale
portfolio  increased $357.1 million to $2.0 billion,  and the securities held to
maturity  portfolio  increased  $311.6 million to $1.5 billion at year-end 2000.
The portfolio of trading securities decreased $8.5 million from year-end 1999 to
$109.3  million at year-end  2000.  At December 31,  2000,  the average life and
duration of the investment portfolio were approximately 6.9 years and 4.9 years,
respectively,  as compared to 6.3 years and 4.5 years, respectively, at December
31, 1999.  At December 31, 2000 the yield on the  portfolio  was 6.80%,  up from
6.53% at December 31, 1999.

The Company's  investment portfolio consists primarily of U.S. Government agency
and  mortgage-backed  obligations.  These securities have little, if any, credit
risk  since  they are  either  backed by the full  faith and  credit of the U.S.
Government,  or are guaranteed by an agency of the U.S.  Government,  or are AAA
rated.  These  investment  securities  carry fixed  coupons  whose rate does not
change over the life of the  securities.  Certain  securities  are  purchased at
premiums or  discounts.  Their yield will change  depending on any change in the
estimated  rate of  prepayments.  The Company  amortizes  premiums  and accretes
discounts  over the  estimated  average life of the  securities.  Changes in the
estimated average

50
<PAGE>
Management's Discussion and Analysis of
Financial Condition and Results of Operations

life of the  investment  portfolio  will lengthen or shorten the period in which
the premium or discount  must be  amortized  or  accreted,  thus  affecting  the
Company's  investment yields. For the year ended December 31, 2000, the yield on
the investment portfolio was 6.76%, an increase of 37 basis points from 6.39% in
fiscal 1999.

At December 31, 2000, the net unrealized  depreciation  in securities  available
for sale included in  stockholders'  equity  totaled $5.2  million,  net of tax,
compared  to net  unrealized  depreciation  of  $39.7  million,  net of tax,  at
December 31, 1999.

The  contractual  maturity  distribution  and  weighted  average  yield  of  the
Company's  investment  portfolio  (excluding  equity and trading  securities) at
December 31, 2000, are summarized in the following table. Weighted average yield
is calculated by dividing  income within each maturity range by the  outstanding
amount  of the  related  investment  and has been  tax  effected  on  tax-exempt
obligations.


<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------------------------
                                                                    December 31, 2000
---------------------------------------------------------------------------------------------------------------------------
                                 Due Under 1 Year   Due 1-5 Years    Due 5-10 Years    Due Over 10 Years       Total
---------------------------------------------------------------------------------------------------------------------------
                                  Amount   Yield   Amount    Yield    Amount  Yield      Amount   Yield    Amount    Yield
---------------------------------------------------------------------------------------------------------------------------
(dollars in thousands)
Securities available for sale:
<S>                               <C>       <C>     <C>       <C>     <C>       <C>    <C>         <C>    <C>         <C>
U.S. Government agency and
   mortgage-backed obligations    $34,683   6.29%   $47,817   6.05%   $26,490   6.33%  $1,791,922  6.82%  $1,900,912  6.79%
Obligations of state and
   political subdivisions           4,796   7.20     17,440   6.97     20,509   6.50        3,799  6.56       46,544  6.75
Other securities                    2,882   5.56      7,230   9.04     33,864   7.31       13,069  9.51       57,045  7.95
---------------------------------------------------------------------------------------------------------------------------
                                  $42,361   6.39%   $72,487   6.57%   $80,863   6.78%  $1,808,790  6.84%  $2,004,501  6.82%
---------------------------------------------------------------------------------------------------------------------------
Securities held to maturity:
U.S. Government agency and
   mortgage-backed obligations    $89,000   7.21%   $37,872   6.42%   $45,343   6.44%  $1,265,778  6.78%  $1,437,993  6.79%
Obligations of state and
   political subdivisions          42,103   7.01                          835   7.31                          42,938  7.02
Other securities                   31,716   6.00        650   9.50                            159  6.81       32,525  6.07
---------------------------------------------------------------------------------------------------------------------------
                                 $162,819   6.92%   $38,522   6.48%   $46,178   6.46%  $1,265,937  6.78%  $1,513,456  6.78%
---------------------------------------------------------------------------------------------------------------------------
</TABLE>


                                                                              51
<PAGE>
Management's Discussion and Analysis of
Financial Condition and Results of Operations

Deposits

Total  deposits at  December  31,  2000 were $7.4  billion,  an increase of $1.8
billion or 32% above total  deposits of $5.6 billion at December  31, 1999.  The
Company remains a  deposit-driven  financial  institution  with emphasis on core
deposit   accumulation   and   retention   as  a  basis  for  sound  growth  and
profitability.  The Company  regards core  deposits as all  deposits  other than
certificates of deposit, retail and public, in excess of $100 thousand. Deposits
in the various core  categories  increased  $1.4 billion from  year-end  1999 to
year-end 2000.  Certificates  of deposit in excess of $100 thousand,  retail and
public, increased $403.6 million from year-end 1999.

Total  deposits  averaged  $6.5 billion for 2000, an increase of $1.3 billion or
24% above the 1999 average.  The average balance of  noninterest-bearing  demand
deposits in 2000 was $1.5  billion,  a $316.9  million or 26% increase  over the
average  balance for 1999.  The average  total balance of passbook and statement
savings accounts  increased  $340.7 million,  or 34% compared to the prior year.
The average balance of interest-bearing demand accounts (money market and N.O.W.
accounts) for 2000 was $2.3 billion,  a $484.4  million or 26% increase over the
average  balance for the prior year.  The average  balance of time  deposits for
2000 was $1.3 billion,  a $129.9 million  increase over the average  balance for
1999.  For 2000,  the cost of total  deposits  was 2.84% as compared to 2.38% in
1999.

The  Company  believes  that its record of  sustaining  core  deposit  growth is
reflective  of the  Company's  retail  approach to banking  which  emphasizes  a
combination  of free  checking  accounts  (subject  to a small  minimum  balance
requirement),  convenient branch locations, extended hours of operation, quality
service, and active marketing.

The average  balances  and  weighted  average  rates of deposits for each of the
years 2000, 1999 and 1998 are presented below.

<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------------
                                                      2000                      1999                      1998
-------------------------------------------------------------------------------------------------------------------------
                                              Average      Average      Average      Average      Average     Average
                                              Balance        Rate       Balance        Rate       Balance       Rate
-------------------------------------------------------------------------------------------------------------------------
(dollars in thousands)
<S>                                            <C>           <C>         <C>           <C>        <C>           <C>
Demand deposits:
  Noninterest-bearing                         $1,519,313                $1,202,412               $  927,601
  Interest-bearing (money market and
   N.O.W. accounts)                            2,319,447     3.15%       1,835,011     2.47%      1,397,154     2.53%
Savings deposits                               1,352,364     2.73        1,011,642     2.06         868,311     2.39
Time deposits/public funds                     1,332,752     5.63        1,202,849     4.91       1,169,691     5.36
-------------------------------------------------------------------------------------------------------------------------
Total deposits                                $6,523,876                $5,251,914               $4,362,757
-------------------------------------------------------------------------------------------------------------------------
</TABLE>

The  remaining  maturity of  certificates  of deposit for $100,000 or more as of
December 31, 2000, 1999 and 1998 is presented below:
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------------
Maturity                                                2000                     1999                     1998
-------------------------------------------------------------------------------------------------------------------------
(dollars in thousands)
<S>                                                     <C>                      <C>                     <C>
3 months or less                                        $641,342                 $323,029                $332,300
3 to 6 months                                             98,763                   49,983                  47,123
6 to 12 months                                            54,489                   22,733                  33,077
Over 12 months                                            12,420                    7,628                   9,172
-------------------------------------------------------------------------------------------------------------------------
Total                                                   $807,014                 $403,373                $421,672
-------------------------------------------------------------------------------------------------------------------------
</TABLE>


52
<PAGE>

Management's Discussion and Analysis of
Financial Condition and Results of Operations

Interest Rate Sensitivity and Liquidity

The  Company's  risk of loss arising  from adverse  changes in the fair value of
financial  instruments,  or market risk, is composed  primarily of interest rate
risk.  The  primary  objective  of  the  Company's  asset/liability   management
activities  is to maximize net  interest  income  while  maintaining  acceptable
levels of interest rate risk. The Company's  Asset/Liability Committee (ALCO) is
responsible for  establishing  policies to limit exposure to interest rate risk,
and to ensure  procedures  are  established  to  monitor  compliance  with those
policies. The guidelines established by ALCO are reviewed by the Company's Board
of Directors.

An interest rate sensitive asset or liability is one that, within a defined time
period,  either  matures or  experiences  an  interest  rate change in line with
general  market  interest  rates.  Historically,   the  most  common  method  of
estimating  interest  rate  risk  was to  measure  the  maturity  and  repricing
relationships between  interest-earning assets and interest-bearing  liabilities
at specific  points in time ("GAP"),  typically one year.  Under this method,  a
company   is   considered   liability   sensitive   when  the   amount   of  its
interest-bearing  liabilities exceeds the amount of its interest-earning  assets
within the one year  horizon.  However,  assets  and  liabilities  with  similar
repricing  characteristics  may not  reprice  at the  same  time or to the  same
degree. As a result,  the Company's GAP does not necessarily  predict the impact
of changes in general levels of interest rates on net interest income.

The following  table  illustrates the GAP position of the Company as of December
31, 2000.

<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------------
                                                        Interest Rate Sensitivity Gaps
                                                             December 31, 2000
---------------------------------------------------------------------------------------------------------------
                             1-90            91-180       181-365          1-5         Beyond
                             Days             Days          Days          Years        5 Years         Total
---------------------------------------------------------------------------------------------------------------
(dollars in
millions)
Rate sensitive:
<S>                         <C>               <C>           <C>          <C>             <C>          <C>
Interest-earning
   assets
   Loans                    $1,511.9          $70.7         $149.9       $1,342.3        $640.7       $3,715.5
   Investment
    securities                 192.9          179.7          341.5        1,798.8       1,131.2        3,644.1
  Federal funds sold            52.0                                                                      52.0
---------------------------------------------------------------------------------------------------------------
Total interest-
  earning assets             1,756.8          250.4          491.4        3,141.1       1,771.9        7,411.6
---------------------------------------------------------------------------------------------------------------
Interest-bearing
  liabilities
  Transaction
   accounts                  1,265.9                                                    2,799.3        4,065.2
  Time deposits                783.2          246.1          322.3          181.5                      1,533.1
  Other borrowed
   money                       283.7                                                                     283.7
  Long-term debt                                                            23.0           57.5           80.5
---------------------------------------------------------------------------------------------------------------
Total interest-
  bearing
  liabilities                2,332.8          246.1          322.3          204.5       2,856.8        5,962.5
---------------------------------------------------------------------------------------------------------------
Period gap                    (576.0)           4.3          169.1        2,936.6      (1,084.9)      $1,449.1
---------------------------------------------------------------------------------------------------------------
Cumulative gap               $(576.0)       $(571.7)       $(402.6)      $2,534.0      $1,449.1
---------------------------------------------------------------------------------------------------------------
Cumulative gap as a
  percentage of total
  interest-earning
  assets                        (7.8)%         (7.7)%         (5.4)%         34.2%         19.6%
---------------------------------------------------------------------------------------------------------------
</TABLE>

Management  believes  that the  simulation  of net interest  income in different
interest rate environments  provides a more meaningful  measure of interest rate
risk. Income  simulation  analysis captures not only the potential of all assets
and liabilities to mature or reprice, but also the probability that they will do
so. Income simulation also attends to the relative  interest rate  sensitivities
of these items,  and projects  their  behavior over an extended  period of time.
Finally,  income simulation permits management to assess the probable effects on
the balance  sheet not only of changes in interest  rates,  but also of proposed
strategies for responding to them.

The Company's  income  simulation  model analyzes  interest rate  sensitivity by
projecting net income over the next 24 months in a flat rate scenario versus net
income in alternative  interest rate scenarios.  Management  continually reviews
and  refines  its  interest  rate risk  management  process in  response  to the
changing   economic   climate.   Currently,   the  Company's  model  projects  a
proportionate  200 basis point change during the next year, with rates remaining
constant in the second year.



                                                                              53
<PAGE>
Management's Discussion and Analysis of
Financial Condition and Results of Operations

The  Company's  Asset/Liability  Committee  (ALCO) policy has  established  that
interest income  sensitivity will be considered  acceptable if net income in the
above  interest  rate  scenario  is  within  15% of net  income in the flat rate
scenario  in the first  year and  within  30% over the two year time  frame.  At
December 31, 2000, the Company's  income  simulation  model indicates net income
would  increase  by 5.0% and  2.6% in the  first  year and over a two year  time
frame,  respectively,  if rates decreased as described  above, as compared to an
increase  of 4.8% and  1.0%,  respectively,  at  December  31,  1999.  The model
projects  that net income would  decrease by 7.9% and 8.1% in the first year and
over a two year time frame, respectively, if rates increased as described above,
as compared to a decrease of 6.7% and 5.6%, respectively,  at December 31, 1999.
All of these forecasts are within an acceptable  level of interest rate risk per
the policies established by ALCO.

In the event the model  indicates  an  unacceptable  level of risk,  the Company
could  undertake a number of actions that would reduce this risk,  including the
sale of a portion of its available  for sale  investment  portfolio,  the use of
risk  management  strategies  such as  interest  rate  swaps  and  caps,  or the
extension of the maturities of its short-term borrowings.

Management  also  monitors  interest  rate risk by  utilizing a market  value of
equity model. The model assesses the impact of a change in interest rates on the
market value of all the  Company's  assets and  liabilities,  as well as any off
balance  sheet items.  The model  calculates  the market value of the  Company's
assets and liabilities in excess of book value in the current rate scenario, and
then  compares the excess of market value over book value given an immediate 200
basis point change in rates.  The Company's ALCO policy indicates that the level
of interest  rate risk is  unacceptable  if the immediate 200 basis point change
would  result in the loss of 60% or more of the excess of market value over book
value in the current rate  scenario.  At December 31, 2000,  the market value of
equity indicates an acceptable level of interest rate risk.

The market value of equity model  reflects  certain  estimates  and  assumptions
regarding the impact on the market value of the Company's assets and liabilities
given an  immediate  200 basis point  change in interest  rates.  One of the key
assumptions is the market value assigned to the Company's core deposits,  or the
core deposit premium.  The Company has completed and updated  comprehensive core
deposit studies in order to assign its own core deposit premiums as permitted by
regulation.  The studies have consistently confirmed management's assertion that
the Company's core deposits have stable  balances over long periods of time, and
are generally insensitive to changes in interest rates. Thus, these core deposit
balances provide an internal hedge to market value fluctuations in the Company's
fixed rate assets. Management believes the core deposit premiums produced by its
core deposit  study and utilized in its market value of equity model at December
31, 2000 provide an accurate assessment of the Company's interest rate risk.

Liquidity  involves the Company's ability to raise funds to support asset growth
or reduce  assets to meet deposit  withdrawals  and other  borrowing  needs,  to
maintain reserve requirements and to otherwise operate the Company on an ongoing
basis.  The  Company's  liquidity  needs  are  primarily  met by  growth in core
deposits,  its cash and  federal  funds  sold  position,  and cash flow from its
amortizing  investment and loan  portfolios.  If necessary,  the Company has the
ability to raise liquidity through collateralized borrowings,  FHLB advances, or
the sale of its available for sale investment  portfolio.  During 2000,  deposit
growth and short-term  borrowings were used to fund growth in the loan portfolio
and purchase additional investment securities.

Short-Term Borrowings

Short-term  borrowings,  or other  borrowed  money,  which consist  primarily of
securities  sold under  agreement to repurchase,  federal funds  purchased,  and
lines of credit, including Federal Home Loan Bank advances, were used in 2000 to
meet short-term liquidity needs. For 2000, short-term borrowings averaged $268.3
million as compared to $183.6 million in 1999. The average rate on the Company's
short-term borrowings was 6.31% and 5.38% during 2000 and 1999, respectively. As
of  December  31,  2000,   short-term  borrowings  included  $283.7  million  of
securities sold under agreements to repurchase at an average rate of 6.70%.

Long-Term Debt

On June 9,  1997,  the  Company  issued  $57.5  million of 8.75%  Trust  Capital
Securities  through Commerce  Capital Trust I, a newly formed Delaware  business
trust  subsidiary  of the  Company.  All  $57.5  million  of the  Trust  Capital
Securities qualify as Tier I capital for regulatory  capital purposes.  Proceeds
of this  offering  were  earmarked  for general  corporate  purposes,  including
additional capitalization of existing banking subsidiaries.




54
<PAGE>
Management's Discussion and Analysis of
Financial Condition and Results of Operations

Stockholders' Equity and Dividends

At December 31, 2000,  stockholders'  equity totaled $492.2  million,  up $135.4
million or 38% over stockholders' equity of $356.8 million at December 31, 1999.
This increase was due to the  Company's  net income for the year,  shares issued
under dividend  reinvestment  and compensation and benefit plans, and unrealized
appreciation on securities available for sale. Stockholders' equity as a percent
of total assets was 5.93% at December 31, 2000, as compared to 5.38% at December
31, 1999.

Risk-based capital standards issued by bank regulatory authorities in the United
States attempt to relate a banking  company's capital to the risk profile of its
assets  and  provide  the basis for which all  banking  companies  and banks are
evaluated in terms of capital adequacy. The risk-based capital standards require
all  banks to have Tier 1 capital  of at least 4% and total  capital,  including
Tier 1 capital, of at least 8% of risk-adjusted  assets. Tier 1 capital includes
stockholders'  equity  (adjusted  for  goodwill,  other  intangibles,   and  the
unrealized  appreciation/depreciation in securities available for sale) plus the
Trust Capital Securities. Total capital is comprised of all of the components of
Tier 1 capital plus qualifying subordinated debt instruments and the reserve for
possible loan losses.

Banking  regulators have also issued leverage ratio  requirements.  The leverage
ratio requirement is measured as the ratio of Tier 1 capital to adjusted average
assets.  The following  table provides a comparison of the Company's  risk-based
capital ratios and leverage ratio to the minimum regulatory requirements for the
periods indicated.

------------------------------------------------------------------
                                                    Minimum
                          December 31,            Regulatory
                                                 Requirements
------------------------------------------------------------------
                        2000      1999         2000       1999
------------------------------------------------------------------
Risk based capital ratios:
   Tier 1               10.79%    11.40%         4.00%      4.00%
   Total capital        11.92     12.72          8.00       8.00
Leverage ratio           6.92      7.02          4.00       4.00
------------------------------------------------------------------

The Federal Deposit  Insurance  Corporation  Improvement Act of 1991 ("FDICIA"),
which  became law in December of 1991,  required  each  federal  banking  agency
including  the Board of  Governors of the Federal  Reserve  System  ("FRB"),  to
revise its  risk-based  capital  standards to ensure that those  standards  take
adequate  account of interest  rate risk,  concentration  of credit risk and the
risks of non-traditional  activities,  as well as reflect the actual performance
and expected risk of loss on multi-family mortgages. This law also requires each
federal banking agency, including the FRB, to specify, by regulation, the levels
at  which  an  insured  institution  would  be  considered  "well  capitalized,"
"adequately capitalized," "undercapitalized,"  "significantly undercapitalized,"
or   "critically   undercapitalized."   At  December  31,  2000,  the  Company's
consolidated  capital levels and each of the Company's banking  subsidiaries met
the regulatory definition of a "well capitalized" financial institution, i.e., a
leverage capital ratio exceeding 5%, a Tier 1 risk-based capital ratio exceeding
6%, and a total risk-based capital ratio exceeding 10%.

The Company's  common stock is listed for trading on the New York Stock Exchange
under the symbol CBH. The quarterly  market price ranges and dividends  declared
per common share for each of the last two years are shown in the table below. As
of February 1, 2001,  there were  approximately  20,000 holders of record of the
Company's common stock.

------------------------------------------------------------
                     Common Share Data
------------------------------------------------------------
                             Market Prices    Cash Dividends
                           ----------------
                             High      Low       Per Share
------------------------------------------------------------
2000 Quarter Ended
 December 31                $70.00   $50.69     $0.24500
 September 30                58.50    46.63      0.24500
 June 30                     48.94    37.88      0.24500
 March 31                    39.63    31.31      0.23333

1999 Quarter Ended
 December 31                $44.34   $38.16     $0.20952
 September 30                43.63    38.45      0.20952
 June 30                     43.58    37.80      0.20952
 March 31                    47.50    39.28      0.19955
------------------------------------------------------------

The Company  offers a Dividend  Reinvestment  and Stock  Purchase  Plan by which
dividends on the Company's  Common Stock and optional  monthly cash payments may
be invested in Common  Stock at a 3% discount  (subject to change) to the market
price and without payment of brokerage commissions.

Results of Operations - 1999 versus 1998

Net income for 1999 was $66.0 million compared to $42.2 million in 1998. Diluted
net income per common share was $2.17 compared to $1.42 per common share for the
prior year.

Net  interest  income  on a  tax-equivalent  basis for 1999  amounted  to $249.6
million, an increase of $52.0 million, or 26% over 1998.

Interest  income on a  tax-equivalent  basis  increased  $64.1 million or 20% to
$391.6 million in 1999. This increase was primarily  related to volume increases
in the loan and  investment  portfolios.  Interest  expense  for 1999 rose $12.1
million to $142.1  million  from  $130.0  million  in 1998.  This



                                                                              55
<PAGE>
Management's Discussion and Analysis of
Financial Condition and Results of Operations

increase was primarily related to increases in the Company's levels of deposits.

The  provision for loan losses was $9.2 million in 1999 compared to $8.8 million
in the prior year.

For 1999,  noninterest  income  totaled  $114.6  million,  an  increase of $18.3
million or 19% from 1998.  The  increase was due  primarily  to increased  other
operating  income,  which rose $9.8 million from 1998,  including an increase of
$7.1 million in revenues from Commerce National Insurance. In addition,  deposit
charges and service  fees  increased  $8.8  million  over 1998 due  primarily to
higher  transaction  volumes,  and net  investment  securities  gains  were $310
thousand lower in 1999 than the prior year.

Noninterest  expenses  totaled  $252.5  million  for 1999,  an increase of $38.6
million, or 18% over 1998.  Contributing to this increase was the addition of 24
new branches during 1999 and the expansion of Commerce National Insurance.  With
the  addition of these new offices,  staff,  facilities,  marketing  and related
expenses rose accordingly. Other noninterest expenses rose $4.8 million to $40.7
million in 1999. This increase resulted  primarily from higher bank-card related
service charges,  increased business development expenses, and higher provisions
for non-credit-related losses.

Mergers and Acquisitions

During 2000,  the Company  acquired  Traber and  Vreeland,  Inc.  and  Guarantee
Service Agency, Inc. t/a Maywood Agency,  insurance  brokerage  agencies,  which
were merged  with and into  Commerce  National  Insurance.  The  Company  issued
approximately  301,000  shares  of  common  stock  in  exchange  for  all of the
outstanding  shares of these agencies.  The  transactions  were accounted for as
poolings of  interests.  However,  the  Company  did not  restate the  financial
statements  of the periods  prior to the  acquisitions  as the  changes,  in the
aggregate, were immaterial.








56
<PAGE>

Commerce Bancorp, Inc. and Subsidiaries
Consolidated Balance Sheets

<TABLE>
<CAPTION>
================================================================================================================================
                                                                                                        December 31,
--------------------------------------------------------------------------------------------------------------------------------
                     (dollars in thousands)                                                        2000               1999
--------------------------------------------------------------------------------------------------------------------------------
<S>                                                                                            <C>               <C>
Assets               Cash and due from banks                                                   $  443,918        $  317,624
                     Federal funds sold                                                            52,000             5,300
                     -----------------------------------------------------------------------------------------------------------
                        Cash and cash equivalents                                                 495,918           322,924
                     Loans held for sale                                                           41,791             5,704
                     Trading securities                                                           109,306           117,837
                     Securities available for sale                                              2,021,326         1,664,257
                     Securities held to maturity                                                1,513,456         1,201,892
                        (market value 2000-$1,503,202; 1999-$1,155,447)
                     Loans                                                                      3,687,260         2,961,088
                        Less allowance for loan losses                                             48,680            38,382
                     -----------------------------------------------------------------------------------------------------------
                                                                                                3,638,580         2,922,706
                     Bank premises and equipment, net                                             276,097           198,515
                     Other assets                                                                 200,042           201,958
                     -----------------------------------------------------------------------------------------------------------
                                                                                               $8,296,516        $6,635,793
--------------------------------------------------------------------------------------------------------------------------------
Liabilities          Deposits:
                        Demand:
                           Interest-bearing                                                    $2,628,358        $2,063,899
                           Noninterest-bearing                                                  1,789,371         1,420,865
                        Savings                                                                 1,436,800         1,054,791
                        Time                                                                    1,533,065         1,069,365
                     -----------------------------------------------------------------------------------------------------------
                               Total deposits                                                   7,387,594         5,608,920

                     Other borrowed money                                                         283,714           558,092
                     Other liabilities                                                             52,484            31,525
                     Trust Capital Securities - Commerce Capital Trust I                           57,500            57,500
                     Long-term debt                                                                23,000            23,000
                     -----------------------------------------------------------------------------------------------------------
                                                                                                7,804,292         6,279,037
--------------------------------------------------------------------------------------------------------------------------------
Stockholders'        Common stock, 31,761,453 shares issued                                        49,627            44,418
Equity                  (29,844,314 shares in 1999)
                     Capital in excess of par or stated value                                     422,375           321,443
                     Retained earnings                                                             27,083            32,263
                     Accumulated other comprehensive income                                        (5,239)          (39,744)
                     -----------------------------------------------------------------------------------------------------------
                                                                                                  493,846           358,380
                     Less treasury stock, at cost                                                   1,622             1,624
                     -----------------------------------------------------------------------------------------------------------
                               Total stockholders' equity                                         492,224           356,756
                     -----------------------------------------------------------------------------------------------------------
                                                                                               $8,296,516        $6,635,793
                     -----------------------------------------------------------------------------------------------------------
                     See accompanying notes.

                                                                                                                               57

</TABLE>


<PAGE>

Commerce Bancorp, Inc. and Subsidiaries
Consolidated Statements of Income

<TABLE>
<CAPTION>
================================================================================================================================
                                                                                            Year Ended December 31,
--------------------------------------------------------------------------------------------------------------------------------
                   (dollars in thousands, except per share amounts)                    2000            1999            1998
--------------------------------------------------------------------------------------------------------------------------------
<S>                                                                                  <C>             <C>             <C>
Interest           Interest and fees on loans                                        $292,066        $215,170        $167,914
Income             Interest on investment securities                                  208,769         170,300         154,164
                   Other interest                                                       4,465             978           2,565
                   -------------------------------------------------------------------------------------------------------------
                                Total interest income                                 505,300         386,448         324,643
                   -------------------------------------------------------------------------------------------------------------

--------------------------------------------------------------------------------------------------------------------------------
Interest           Interest on deposits:
Expense                 Demand                                                         72,975          45,274          35,477
                        Savings                                                        36,935          20,835          20,672
                        Time                                                           75,046          59,021          62,692
                   -------------------------------------------------------------------------------------------------------------
                                Total interest on deposits                            184,956         125,130         118,841
                   Interest on other borrowed money                                    16,943           9,880           4,014
                   Interest on long-term debt                                           6,471           7,071           7,127
                   -------------------------------------------------------------------------------------------------------------
                                Total interest expense                                208,370         142,081         129,982
                   -------------------------------------------------------------------------------------------------------------

                   Net interest income                                                296,930         244,367         194,661
                   Provision for loan losses                                           13,931           9,175           8,762
                   -------------------------------------------------------------------------------------------------------------
                   Net interest income after provision for loan losses                282,999         235,192         185,899
--------------------------------------------------------------------------------------------------------------------------------
Noninterest        Deposit charges and service fees                                    56,306          44,196          35,343
Income             Other operating income                                              91,241          67,818          58,042
                   Net investment securities gains                                      3,213           2,582           2,892
                   -------------------------------------------------------------------------------------------------------------
                                Total noninterest income                              150,760         114,596          96,277
                   -------------------------------------------------------------------------------------------------------------

--------------------------------------------------------------------------------------------------------------------------------
Noninterest        Salaries                                                           123,476         101,650          87,078
Expense            Benefits                                                            25,323          20,232          18,475
                   Occupancy                                                           31,419          22,407          18,565
                   Furniture and equipment                                             40,436          31,659          24,995
                   Office                                                              23,548          21,356          16,974
                   Audit and regulatory fees and assessments                            3,256           2,623           2,246
                   Marketing                                                           11,706          10,155           8,451
                   Other real estate (net)                                              1,042           1,786           1,348
                   Other                                                               55,151          40,655          35,818
                   -------------------------------------------------------------------------------------------------------------
                                Total noninterest expenses                            315,357         252,523         213,950
                   -------------------------------------------------------------------------------------------------------------
                   Income before income taxes                                         118,402          97,265          68,226
                   Provision for federal and state income taxes                        38,355          31,305          26,071
                   -------------------------------------------------------------------------------------------------------------
                   Net income                                                        $ 80,047        $ 65,960        $ 42,155
                   -------------------------------------------------------------------------------------------------------------

                   Net income per common and common equivalent share:
                            Basic                                                    $   2.59        $   2.26        $   1.49
                   -------------------------------------------------------------------------------------------------------------
                            Diluted                                                  $   2.49        $   2.17        $   1.42
                   -------------------------------------------------------------------------------------------------------------
                   Average common and common equivalent shares outstanding:
                            Basic                                                      30,878          29,155          28,254
                   -------------------------------------------------------------------------------------------------------------
                            Diluted                                                    32,111          30,465          29,662
                   -------------------------------------------------------------------------------------------------------------
                   Cash dividends declared, common stock                             $   0.97        $   0.83        $   0.87
                   -------------------------------------------------------------------------------------------------------------
                   See accompanying notes.

</TABLE>


58


<PAGE>


Commerce Bancorp, Inc. and Subsidiaries
Consolidated Statements of Cash Flows

<TABLE>
<CAPTION>
==============================================================================================================================
                                                                                             Year Ended December 31,
------------------------------------------------------------------------------------------------------------------------------
                   (dollars in thousands)                                               2000           1999           1998
------------------------------------------------------------------------------------------------------------------------------
<S>                                                                                   <C>        <C>             <C>
Operating          Net income                                                         $80,047    $    65,960     $  42,155
Activities         Adjustments to reconcile net income to net cash
                     (used) provided by operating activities:
                        Provision for loan losses                                      13,931          9,175         8,762
                        Provision for depreciation, amortization
                          and accretion                                                32,596         28,186        26,640
                        Gains on sales of securities available for sale                (3,213)        (2,582)       (2,892)
                        Proceeds from sales of mortgages held for sale                 56,101        111,055        67,125
                        Originations of mortgages held for sale                       (92,188)       (94,341)      (61,629)
                        Net loan (chargeoffs)                                          (3,633)        (2,058)       (1,647)
                        Net decrease (increase) in trading securities                   8,531        (32,478)      (77,448)
                        Increase in other assets                                      (17,494)       (60,142)      (44,022)
                        Increase (decrease) in other liabilities                       26,271        (23,064)       48,226
                        Deferred income tax benefit                                    (2,812)        (3,468)       (3,115)
                   -----------------------------------------------------------------------------------------------------------
                                Net cash provided (used) by operating                  98,137         (3,757)        2,155
                                activities

Investing          Proceeds from the sales of securities available for sale           410,541        398,274       435,488
Activities         Proceeds from the maturity of securities available for sale        345,160        313,373       404,927
                   Proceeds from the maturity of securities held to maturity          174,124        241,690       374,540
                   Purchase of securities available for sale                       (1,055,694)    (1,002,738)     (807,276)
                   Purchase of securities held to maturity                           (127,194)      (236,623)     (616,780)
                   Net increase in loans                                           (1,085,090)      (810,530)     (617,341)
                   Purchases of premises and equipment                               (109,701)       (73,303)      (48,320)
                   -----------------------------------------------------------------------------------------------------------
                                Net cash used by investing activities              (1,447,854)    (1,169,857)     (874,762)

Financing          Net increase in demand and savings deposits                      1,314,974        721,147       976,959
Activities         Net increase (decrease) in time deposits                           463,700        (41,035)      167,272
                   Net (decrease) increase in other borrowed money                   (274,378)       530,247      (195,455)
                   Issuance of common stock                                                                          1,795
                   Dividends paid                                                     (29,761)       (23,476)      (23,062)
                   Proceeds from issuance of common stock under
                     dividend reinvestment and other stock plans                       53,670         31,428         9,428
                   Other                                                               (5,494)           612         8,509
                   -----------------------------------------------------------------------------------------------------------
                                Net cash provided by financing activities           1,522,711      1,218,923        945,446

                   Increase in cash and cash equivalents                              172,994         45,309        72,839
                   Cash and cash equivalents at beginning of year                     322,924        277,615       204,776
                   -----------------------------------------------------------------------------------------------------------
                   Cash and cash equivalents at end of year                          $495,918    $   322,924     $ 277,615
                   -----------------------------------------------------------------------------------------------------------

                   Supplemental disclosures of cash flow information:  Cash paid
                     during the year for:
                        Interest                                                     $206,144    $   141,810     $ 124,535
                        Income taxes                                                   36,373         26,753        29,755
                   Other noncash activities:
                     Transfer of securities to securities available for sale                          91,010
                     Securitization of loans                                          358,918        129,768
                   -----------------------------------------------------------------------------------------------------------
                   See accompanying notes.



                                                                                                                            59
</TABLE>

<PAGE>
Commerce Bancorp, Inc. and Subsidiaries
Consolidated Statements of Changes in Stockholders' Equity
<TABLE>
<CAPTION>

====================================================================================================================================
Years ended December 31, 2000, 1999 and 1998
                                                                   Capital in                                   Accumulated
                                                                   Excess of                                      Other
                                                                    Par or                                       Compre-
(in thousands, except per share amounts)        Common  Preferred   Stated     Retained   Commitment  Treasury   hensive
                                                 Stock   Stock      Value      Earnings   to ESOP      Stock      Income     Total
------------------------------------------------------------------------------------------------------------------------------------
<S>                                             <C>      <C>       <C>          <C>       <C>         <C>      <C>         <C>
Balances at December 31, 1997                   $29,652  $7,506    $190,166     $52,755   $(2,308)    $(1,624) $  3,753    $279,900
Acquisition of investment firm/insurance
brokerage agency (735 shares)                       794                (552)      7,997                                       8,239
------------------------------------------------------------------------------------------------------------------------------------
As adjusted balance at January 1, 1998           30,446   7,506     189,614      60,752    (2,308)     (1,624)    3,753     288,139
Net income                                                                       42,155                                      42,155
 Other comprehensive income, net of tax
  Unrealized gain on securities (pre-tax $5,005)                                                                  3,157       3,157
  Reclassification adjustment (pre-tax $147)                                                                         96          96
                                                                                                                          ----------
 Other comprehensive income                                                                                                   3,253
                                                                                                                          ----------
       Total comprehensive income                                                                                            45,408
Common stock dividends and cash paid in lieu of
   fractional shares (5,671 shares)               8,860              29,449     (38,395)                                        (86)
Cash dividends paid                                                             (22,976)                                    (22,976)
Shares issued under dividend reinvestment and
   compensation and benefit plans (429 shares)      671              10,629                                                  11,300
Convert preferred C stock to common stock
(647 shares)                                      1,011  (7,506)      6,495                                                       0
Other                                                                   741                 1,026                             1,767
------------------------------------------------------------------------------------------------------------------------------------
Balances at December 31, 1998                   $40,988  $    0    $236,928     $41,536   $(1,282)    $(1,624) $  7,006    $323,552
Acquisition of insurance brokerage agencies
(74 shares)                                         110                 212                                                     322
------------------------------------------------------------------------------------------------------------------------------------
As adjusted balance at January 1, 1999           41,098       0     237,140      41,536    (1,282)     (1,624)    7,006     323,874
Net income                                                                       65,960                                      65,960
 Other comprehensive income, net of tax
  Unrealized loss on securities (pre-tax ($71,923))                                                              (45,431)   (45,431)
  Reclassification adjustment (pre-tax ($1,919))                                                                  (1,319)    (1,319)
                                                                                                                          ----------
 Other comprehensive income                                                                                                 (46,750)
                                                                                                                          ----------
       Total comprehensive income                                                                                            19,210
Common stock dividend and cash paid in lieu of
   fractional shares (1,145 shares)               1,790              49,968     (51,890)                                       (132)
Cash dividends paid                                                             (23,343)                                    (23,343)
Shares issued under dividend reinvestment and
   compensation and benefit plans (980 shares)    1,530              29,897                                                  31,427
Other                                                                 4,438                 1,282                             5,720
------------------------------------------------------------------------------------------------------------------------------------
Balances at December 31, 1999                   $44,418  $    0    $321,443     $32,263   $     0     $(1,624) $(39,744)   $356,756
Acquisition of insurance brokerage agencies
(301 shares)                                        470                (450)     (5,519)                                     (5,499)
------------------------------------------------------------------------------------------------------------------------------------
As adjusted balance at January 1, 2000           44,888       0     320,993      26,744         0      (1,624)  (39,744)    351,257
Net income                                                                       80,047                                      80,047
 Other comprehensive income, net of tax
  Unrealized gain on securities (pre-tax
    $52,382)                                                                                                     33,837      33,837
  Reclassification adjustment (pre-tax $1,027)                                                                      668         668
                                                                                                                          ----------
 Other comprehensive income                                                                                                  34,505
                                                                                                                          ----------
       Total comprehensive income                                                                                           114,552
Common stock dividend and cash paid in lieu of
   fractional shares (1,417 shares)               2,214              47,734     (50,031)                                        (83)
Cash dividends paid                                                             (29,678)                                    (29,678)
Shares issued under dividend reinvestment and
   compensation and benefit plans (1,615
   shares)                                        2,523              51,147                                                  53,670
Other                                                 2               2,501           1                     2                 2,506
------------------------------------------------------------------------------------------------------------------------------------
Balances at December 31, 2000                   $49,627  $    0    $422,375     $27,083    $    0     $(1,622) $ (5,239)   $492,224
------------------------------------------------------------------------------------------------------------------------------------
See accompanying notes.
</TABLE>

60
<PAGE>

Commerce Bancorp, Inc. and Subsidiaries
Notes to Consolidated Financial Statements


1. Significant Accounting Policies

Basis of Presentation
The consolidated  financial statements include the accounts of Commerce Bancorp,
Inc.  (the  Company) and its  wholly-owned  subsidiaries,  Commerce  Bank,  N.A.
(Commerce  NJ),  Commerce   Bank/Pennsylvania,   N.A.  (Commerce  PA),  Commerce
Bank/Shore,   N.A.  (Commerce  Shore),  Commerce  Bank/North  (Commerce  North),
Commerce Bank/Central,  N.A. (Commerce Central),  Commerce  Bank/Delaware,  N.A.
(Commerce  Delaware),  Commerce  National  Insurance  Services,  Inc.  (Commerce
National  Insurance),  Commerce  Capital Trust I, and Commerce  Capital Markets,
Inc.  (CCMI).  All  material  intercompany  transactions  have been  eliminated.
Certain  amounts  from prior years have been  reclassified  to conform with 2000
presentation.

The Company is a multi-bank  holding company  headquartered  in Cherry Hill, New
Jersey,  operating primarily in the metropolitan  Philadelphia,  New Jersey, and
Delaware  markets.  Through its  subsidiaries,  the Company  provides retail and
commercial   banking   services,   corporate  trust  services,   municipal  bond
underwriting services, and insurance brokerage services.

The preparation of financial statements in conformity with accounting principles
generally  accepted in the United States  requires  management to make estimates
and assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.

Investment Securities
Trading account securities are carried at market value.  Gains and losses,  both
realized and unrealized,  are included in other operating income.  Trading gains
were $8.4  million,  $7.8  million,  and $5.6  million  in 2000,  1999 and 1998,
respectively.

Investment  securities  are  classified as held to maturity when the Company has
the intent and ability to hold those securities to maturity.  Securities held to
maturity  are  stated  at cost and  adjusted  for  accretion  of  discounts  and
amortization of premiums.

Those  securities  that might be sold in response to changes in market  interest
rates,  prepayment risk, the Company's income tax position, the need to increase
regulatory  capital,  or similar other  factors are  classified as available for
sale.  Available for sale securities are carried at fair value,  with unrealized
gains and losses,  net of tax, reported as a component of stockholders'  equity.
The amortized cost of debt securities in this category is adjusted for accretion
of  discounts  and  amortization  of  premiums.  Realized  gains and  losses are
determined on the specific  certificate  method and are included in  noninterest
income.

Loans
Loans  are  stated  at  principal  amounts  outstanding,  net of  deferred  loan
origination fees and costs.  Interest income on loans is accrued and credited to
interest  income  monthly  as  earned.   Loan  origination  fees  are  generally
considered  as  adjustments  of  interest  rate  yields and are  amortized  into
interest income on loans over the terms of the related loans.

Loans are placed on a non-accrual  status and cease accruing  interest when loan
payment  performance is deemed  unsatisfactory.  However,  all loans past due 90
days are placed on non-accrual status,  unless the loan is both well secured and
in the process of collection.

Allowance for Loan Losses
The allowance for loan losses is increased by provisions  charged to expense and
reduced  by  loan  charge-offs  net  of  recoveries.   Based  upon  management's
evaluation of the loan portfolio, the allowance is maintained at


                                                                              61
<PAGE>
Commerce Bancorp, Inc. and Subsidiaries
Notes to Consolidated Financial Statements


a level  considered  adequate to absorb  estimated  inherent  losses in the loan
portfolio.  The level of the  allowance  is based on an  evaluation  of the risk
characteristics  included in the loan  portfolio,  including such factors as the
volume  and  composition  of the  portfolio,  historical  loan loss  experience,
present and prospective  financial condition of borrowers,  general national and
local economic conditions, and other relevant factors.

Bank Premises and Equipment
Bank premises and equipment are carried at cost less  accumulated  depreciation.
Depreciation  and amortization  are determined on the  straight-line  method for
financial reporting purposes, and accelerated methods for income tax purposes.

Other Real Estate (ORE)
Real estate  acquired in  satisfaction  of a loan is reported in other assets at
the lower of cost or fair value less disposition costs.  Properties  acquired by
foreclosure or deed in lieu of'  foreclosure are transferred to ORE and recorded
at the  lower  of cost or fair  value  less  disposition  costs  based  on their
appraised value at the date actually or constructively received.  Losses arising
from the acquisition of such property are charged against the allowance for loan
losses.  Subsequent  adjustments  to the carrying  values of ORE  properties are
charged to operating expense.

Intangible Assets
The excess of cost over fair value of net assets acquired (goodwill) is included
in other assets and is being amortized on a straight-line  basis over the period
of expected  benefit,  which  approximates 15 years.  Goodwill  amounted to $2.2
million and $2.5  million at December  31,  2000 and 1999,  respectively.  Other
intangible  assets are  amortized  on a  straight-line  basis over 10 to 15 year
lives.  Other intangibles  amounted to $1.6 million and $1.8 million at December
31, 2000 and 1999, respectively.

Income Taxes
The provision for income taxes is based on current taxable  income.  When income
and expenses are  recognized in different  periods for book  purposes,  deferred
taxes are provided.

Restriction on Cash and Due From Banks
The Banks are required to maintain  reserve  balances  with the Federal  Reserve
Bank. The weighted average amount of the reserve balances for 2000 and 1999 were
approximately $7.1 million and $13.6 million, respectively.

Derivative Financial Instruments
The  Company  utilizes  an  interest  rate  swap to  manage  interest  rate risk
associated with its Commerce  Capital Trust  Securities.  Net amounts payable or
receivable from this contract are accrued as an adjustment to interest  expense.
Unrealized  gains or losses on this  contract are not  recognized on the balance
sheet.

As part of CCMI's  broker-dealer  activities,  the  Company  maintains a trading
securities  portfolio  for  distribution  to  customers  in order to meet  those
customers' needs.  Derivative  instruments,  primarily interest rate futures and
options, are used in order to reduce the exposure to interest rate risk relating
to the trading portfolio. These contracts are carried at fair value with changes
in fair value included in other operating income.

Recent Accounting Statements
SFAS No. 133 "Accounting for Derivative  Instruments and Hedging Activities," as
amended  (FAS 133),  requires the Company to recognize  all  derivatives  on the
balance sheet at fair value. FAS 133 allows for hedge



62
<PAGE>
Commerce Bancorp, Inc. and Subsidiaries
Notes to Consolidated Financial Statements

accounting  treatment and sets forth  specific  criteria to be used to determine
when hedge  accounting is appropriate.  Hedge  accounting  allows for changes in
fair value of both the  derivative  and hedged item to be recognized in earnings
in the same  period.  Changes in fair value of  derivatives  not  considered  an
effective  hedge are recognized in earnings  immediately.  Derivatives for which
hedge  accounting  does not apply must also be  adjusted  to fair value  through
income.  The Company  adopted FAS 133 on January 1, 2001.  Due to the  Company's
minimal use of  derivatives,  adoption did not have a significant  effect on the
results of operations or the financial position of the Company. Future impact of
FAS 133 will depend on the nature and purpose of the  derivative  instruments in
use by the Company at that time.

In September  2000, the FASB issued  Statement No. 140 "Accounting for Transfers
and Servicing of Financial Assets and Extinguishments of Liabilities" (FAS 140).
FAS 140 revises the standards for existing  accounting for  securitizations  and
will  require  the  Company  to  disclose  additional   information  related  to
securitizations.   Certain   provisions   of  FAS  140,   including   disclosure
requirements,  became effective on December 15, 2000. Other provisions  relating
to the  transfer  and  servicing  of  financial  assets and  extinguishments  of
liabilities  become  effective after March 31, 2001.  Management does not expect
the adoption of FAS 140 to have a significant effect on results of operations or
the financial position of the Company.

The  Company  securitized  $358.9  million  and $129.8  million  of  residential
mortgage loans during 2000 and 1999, respectively,  and included the securitized
assets in its held to  maturity  investment  portfolio.  No gains or losses were
recognized on these transactions.

2. Mergers and Acquisitions

In August 1998, J.A. Montgomery,  Inc.,  Wilmington,  DE, an insurance brokerage
agency, was merged with and into Commerce National Insurance. The Company issued
approximately  211,000  shares  of  common  stock  in  exchange  for  all of the
outstanding  shares  of this  agency.  In  November,  1999,  Mullaney  Insurance
Associates, Oakhurst, NJ, an insurance brokerage agency was merged with and into
Commerce National Insurance.  The Company issued  approximately 67,000 shares of
common stock in exchange for all of the  outstanding  shares of this agency.  In
January 2000,  Traber and  Vreeland,  Inc.,  Randolph,  NJ, and in October 2000,
Guarantee  Service  Agency,  Inc. t/a Maywood  Agency,  Maywood,  NJ,  insurance
brokerage agencies,  were merged with and into Commerce National Insurance.  The
Company issued approximately  301,000 shares of common stock in exchange for all
the  outstanding  shares  of  these  agencies.  All of these  transactions  were
accounted for as poolings of  interests.  However,  financial  statements of the
periods prior to the acquisitions have not been restated, as the changes, in the
aggregate, would be immaterial.

In the first quarter of 1998,  the Company  completed the  acquisition  of A. H.
Williams & Co., Inc., (Williams)  Philadelphia,  PA, a public finance investment
firm, and combined  Williams with Commerce  Capital,  the bank securities dealer
division of Commerce NJ, to form Commerce Capital Markets,  Inc., a wholly-owned
nonbank subsidiary of the Company. The acquisition was completed by the issuance
of common  stock of the  Company  totaling  approximately  436,000  shares.  The
transaction  was  accounted for as a pooling of  interests,  however,  financial
statements of the periods prior to the  acquisition  have not been restated,  as
the changes, in the aggregate, would be immaterial.

Effective January 15, 1999, the Company acquired Community First Banking Company
(CFBC),  and CFBC's  wholly-owned bank subsidiary,  Tinton Falls State Bank, was
merged with and into Commerce Shore. The Company issued approximately  1,428,000
shares of common stock to effect the merger.  Also  effective  January 15, 1999,
the Company acquired Prestige Financial Corp. (PFC), and PFC's wholly-owned bank
subsidiary, Prestige State Bank, was re-chartered as a national bank and renamed
Commerce Bank/Central, N.A. The Company issued approximately 1,950,000 shares of
common  stock to effect the  merger.  The  transactions  were  accounted  for as
poolings of interests.  The Company's originally reported financial position and
results of  operations  have been  restated  herein to include  CFBC's and PFC's
results of operations for all periods presented.

                                                                              63
<PAGE>
Commerce Bancorp, Inc. and Subsidiaries
Notes to Consolidated Financial Statements


3. Investment Securities

A summary of the  amortized  cost and market value of  securities  available for
sale and  securities  held to maturity (in  thousands)  at December 31, 2000 and
1999 follows:

<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------------------------------
                                                                       December 31,
---------------------------------------------------------------------------------------------------------------------------------
                                                2000                                                1999
---------------------------------------------------------------------------------------------------------------------------------
                                          Gross         Gross                                 Gross        Gross
                            Amortized   Unrealized   Unrealized     Market      Amortized   Unrealized   Unrealized    Market
                              Cost        Gains        Losses       Value         Cost        Gains        Losses       Value
---------------------------------------------------------------------------------------------------------------------------------
<S>                        <C>           <C>         <C>          <C>          <C>            <C>         <C>         <C>
U.S. Government agency
   and mortgage-backed
   obligations             $1,912,261    $ 6,562     $(17,911)    $1,900,912   $1,644,698     $    7      $(61,772)   $1,582,933
Obligations of state and
   political subdivisions      46,528        436         (420)        46,544       43,379         87        (1,284)       42,182
Equity securities              13,823      3,170         (168)        16,825        7,655      2,206          (754)        9,107
Other                          56,989      1,083       (1,027)        57,045       30,209         71          (245)       30,035
---------------------------------------------------------------------------------------------------------------------------------
Securities available
   for sale                $2,029,601    $11,251     $(19,526)    $2,021,326   $1,725,941     $2,371      $(64,055)   $1,664,257
---------------------------------------------------------------------------------------------------------------------------------
U.S. Government agency
   and mortgage-backed
   obligations             $1,437,993    $ 5,111     $(15,365)    $1,427,739   $1,134,115     $   87      $(46,527)   $1,087,675
Obligations of state and
   political subdivisions      42,938                                 42,938       35,667                                 35,667
Other                          32,525                                 32,525       32,110                       (5)       32,105
---------------------------------------------------------------------------------------------------------------------------------
Securities held to
   maturity                $1,513,456    $ 5,111     $(15,365)    $1,503,202   $1,201,892     $   87      $(46,532)   $1,155,447
---------------------------------------------------------------------------------------------------------------------------------
</TABLE>

The amortized  cost and  estimated  market value of  investment  securities  (in
thousands)  at December  31,  2000,  by  contractual  maturity  are shown below.
Expected  maturities will differ from  contractual  maturities  because obligors
have the right to repay obligations without prepayment penalties.

<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------
                                                    Available for Sale             Held to Maturity
----------------------------------------------------------------------------------------------------------
                                                  Amortized        Market         Amortized      Market
                                                    Cost           Value             Cost         Value
----------------------------------------------------------------------------------------------------------
<S>                                               <C>            <C>            <C>            <C>
Due in one year or less                           $   37,716     $   37,361     $  162,819     $  162,677
Due after one year through five years                 44,687         44,406            650            650
Due after five years through ten years                53,168         54,373            835            835
Due after ten years                                   18,962         18,660            159            159
Mortgage backed securities                         1,861,245      1,849,701      1,348,993      1,338,881
Equity securities                                     13,823         16,825
----------------------------------------------------------------------------------------------------------
                                                  $2,029,601     $2,021,326     $1,513,456     $1,503,202
----------------------------------------------------------------------------------------------------------
</TABLE>


64
<PAGE>

Commerce Bancorp, Inc. and Subsidiaries
Notes to Consolidated Financial Statements


Proceeds from sales of securities  available for sale during 2000, 1999 and 1998
were $410.5  million,  $398.3 million and $435.5  million,  respectively.  Gross
gains of $3.2 million,  $2.6 million and $3.3 million were realized on the sales
in 2000,  1999 and 1998,  respectively,  and gross  losses  of $0,  $27,000  and
$376,000 were realized in 2000, 1999 and 1998, respectively.

At December 31, 2000 and 1999,  investment  securities  with a carrying value of
$998.9 million and $564.8 million, respectively, were pledged to secure deposits
of public funds.

In connection  with the  acquisition  of CFBC and PFC,  management  reclassified
$91.0  million of investment  securities  from held to maturity to available for
sale in the  first  quarter  of 1999.  Unrealized  losses  on  those  securities
transferred were approximately $330,000.

4.  Loans

The following is a summary of loans  outstanding  (in thousands) at December 31,
2000 and 1999:

-------------------------------------------------------------------------------
                                                           December 31,
-------------------------------------------------------------------------------
                                                      2000            1999
-------------------------------------------------------------------------------
Commercial real estate:
     Owner-occupied                              $  685,916       $  512,087
     Investor/developer                             471,604          395,086
     Construction                                   380,804          185,712
-------------------------------------------------------------------------------
                                                  1,538,324        1,092,885
Commercial loans:
     Term                                           469,564          393,953
     Line of credit                                 430,811          277,917
     Demand                                           1,400            1,328
-------------------------------------------------------------------------------
                                                    901,775          673,198
Consumer:
     Mortgages (1-4 family residential)             351,644          428,453
     Installment                                    154,415          125,856
     Home equity                                    710,848          621,597
     Credit lines                                    30,254           19,099
-------------------------------------------------------------------------------
                                                  1,247,161        1,195,005
-------------------------------------------------------------------------------
                                                 $3,687,260       $2,961,088
-------------------------------------------------------------------------------

At December 31, 2000 and 1999,  loans of  approximately  $14.4 million and $11.3
million,  respectively,  were  outstanding  to certain of the  Company's and its
subsidiaries'  directors and officers, and approximately $44.0 million and $21.2
million,  respectively,  of loans were  outstanding  from  companies  with which
certain of the  Company's  and its  subsidiaries'  directors  and  officers  are
associated, exclusive of loans to any such person and associated companies which
in aggregate did not exceed $60,000.  The terms of these loans are substantially
the same as those prevailing at the time for comparable unrelated  transactions.
A summary (in thousands) of the related party loans  outstanding at December 31,
2000 is as follows:

----------------------------------------------------------
                                               2000
----------------------------------------------------------
Balance, January 1                           $32,503
New loans                                     39,041
Loan payments                                 13,138
----------------------------------------------------------
Balance, December 31                         $58,406
----------------------------------------------------------



                                                                              65
<PAGE>

Commerce Bancorp, Inc. and Subsidiaries
Notes to Consolidated Financial Statements


The  Company  engaged  in  certain  activities  with  entities  affiliated  with
directors of the Company.  The Company received real estate  appraisal  services
from a company  owned by a director of the Company.  Such real estate  appraisal
services  amounted to $202,000 in 2000,  $334,000 in 1999 and  $304,000 in 1998.
The Company received legal services from two law firms of which two directors of
the Company are partners. Such aggregate legal services amounted to $1.7 million
in 2000 and $1.6 million in 1999 and 1998.


5. Allowance for Loan Losses

The  following  is an analysis of changes in the  allowance  for loan losses (in
thousands) for 2000, 1999 and 1998:

-------------------------------------------------------------------------------
                                              2000          1999       1998
-------------------------------------------------------------------------------

Balance, January 1                           $38,382      $31,265     $24,150
Provision charged to operating expense        13,931        9,175       8,762
Recoveries of loans previously charged off       576          969       1,487
Loan charge-offs                              (4,209)      (3,027)     (3,134)
-------------------------------------------------------------------------------
Balance, December 31                         $48,680      $38,382     $31,265
-------------------------------------------------------------------------------

6. Non-accrual and Restructured Loans and Other Real Estate

The total of non-performing loans (non-accrual and restructured loans) was $13.6
million  and  $8.7  million  at  December  31,  2000  and  1999,   respectively.
Non-performing  loans of $1.3  million,  $1.6  million  and $3.4  million net of
charge offs of $26,000,  $39,000  and $0 were  transferred  to other real estate
during 2000,  1999 and 1998,  respectively.  Other real estate ($3.0 million and
$3.5 million at December 31, 2000 and 1999,  respectively)  is included in other
assets.

At December 31, 2000 and 1999, the recorded investment in loans considered to be
impaired under FASB Statement No. 114 "Accounting by Creditors for Impairment of
a Loan"  totaled $9.1 million and $5.5 million,  respectively,  all of which are
included in non-performing  loans. As permitted,  all homogenous smaller balance
consumer and residential  mortgage loans are excluded from individual review for
impairment.  The majority of impaired  loans were measured using the fair market
value of  collateral.  No portion of the  allowance  for loan losses for 2000 or
1999 was allocated to these loans. During 2000 and 1999, impaired loans averaged
approximately  $7.3 million and $4.6 million,  respectively.  Interest income of
approximately  $1.7  million  and $1.0  million  would  have  been  recorded  on
non-performing  loans  (including  impaired  loans)  in  accordance  with  their
original terms in 2000 and 1999,  respectively.  Actual interest income recorded
on these  loans  amounted  to  $525,000  and  $255,000  during  2000  and  1999,
respectively.




66
<PAGE>


7. Bank Premises, Equipment, and Leases

A summary of bank premises and equipment (in thousands) is as follows:

--------------------------------------------------------------------------
                                                    December 31,
                                         ---------------------------------
                                              2000                1999
--------------------------------------------------------------------------
Land                                        $  54,066           $ 40,952
Buildings                                     121,908             88,427
Leasehold improvements                         20,979              9,657
Furniture, fixtures and equipment             177,708            128,642
Leased property under capital leases              124                124
--------------------------------------------------------------------------
                                              374,785            267,802

Less accumulated depreciation
  and amortization                             98,688             69,287
--------------------------------------------------------------------------
                                             $276,097           $198,515
--------------------------------------------------------------------------


At December  31, 2000,  Commerce NJ leased one of its  branches  under a capital
lease with an unrelated  party.  All other branch  leases are  accounted  for as
operating  leases with the related rental  payments being expensed  ratably over
the life of the lease.

The Company leases its operations  facilities  from two limited  partnerships in
which the Company is a limited  partner at  December  31,  2000.  The leases are
accounted for as operating leases with an aggregate annual rent of $1.5 million,
which  escalates to $1.8  million in 2011.  One lease  expires in 2014,  and the
other expires in 2014 and is renewable for five  additional  terms of five years
each.

At December 31, 2000,  the Company  leased from related  parties under  separate
operating  lease  agreements  the  land on which it has  constructed  20  branch
offices.  The aggregate  annual rental under these related party leases for 2000
was approximately $1.1 million,  and was approximately  $723,000 and $440,000 in
1999 and 1998,  respectively.  These leases expire periodically through 2020 but
are renewable through 2040. Aggregate annual rentals escalate to $1.2 million in
2006. The Company leases land to a limited  partnership  partially  comprised of
the  directors  of Commerce  PA and  Commerce  NJ. The initial  lease term is 25
years, with two successive  10-year options.  As of December 31, 2000, the total
future  minimum  lease  payments  to  be  received  by  the  Company  amount  to
approximately  $315,000  for  the  remainder  of  the  initial  lease  term.  In
accordance  with  the  provision  of the land  lease,  the  limited  partnership
constructed and owns the office building located on the land. Commerce PA leases
the building as a branch facility through 2010. Commerce North leases one of its
branches from a director and its  headquarters  facility  from a partnership  in
which a director has a substantial  interest.  The aggregate annual rental under
these related party leases was approximately  $486,000 for 2000 and $432,000 for
1999 and 1998. The leases expire in 2007 and 2017.  Commerce  Central leases one
of its branches and its  headquarters  facility from  partnerships  in which two
directors have  substantial  interests.  The aggregate annual rental under these
related party leases was  approximately  $550,000 in 2000,  $484,000 in 1999 and
$474,000 in 1998. The leases expire in 2004 and 2015.

Total  rent  expense   charged  to  operations   under   operating   leases  was
approximately  $10.4  million in 2000,  $7.8 million in 1999 and $6.3 million in
1998.


                                                                              67
<PAGE>

Commerce Bancorp, Inc. and Subsidiaries
Notes to Consolidated Financial Statements


The future minimum rental commitments,  by year, under the non-cancelable leases
are as follows (in thousands) at December 31, 2000:

--------------------------------------------------------------------------------
                                                 Capital          Operating
--------------------------------------------------------------------------------
2001                                                $12             $9,596
2002                                                 12              8,922
2003                                                 12              8,744
2004                                                 12              8,289
2005                                                 12              8,050
Later years                                         111             74,998
--------------------------------------------------------------------------------
Net minimum lease payment                          $171           $118,599
--------------------------------------------------------------------------------
Less amount representing interest                    75
--------------------------------------------------------------------------------
Present value of net minimum
     lease payments                                 $96
--------------------------------------------------------------------------------

The Company obtained  interior design and general  contractor  services for $2.0
million,  $2.5  million and $1.3 million in 2000,  1999 and 1998,  respectively,
from a business owned by the spouse of the Chairman of the Board of the Company.
Additionally,  the business received  commissions of approximately $1.6 million,
$1.4 million and $814,000 in 2000, 1999 and 1998, respectively, on furniture and
facility purchases made directly by the Company.

8.  Deposits

The  aggregate  amount of time  certificates  of  deposits in  denominations  of
$100,000 or more was $807.0  million and $403.4 million at December 31, 2000 and
1999, respectively.

9. Other Borrowed Money

Other borrowed money consists  primarily of securities sold under  agreements to
repurchase, federal funds purchased, and lines of credit, including Federal Home
Loan  Bank  advances.  The  following  table  represents  information  for other
borrowed money:
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------
                                                       December 31,
                                  ----------------------------------------------------
                                             2000                        1999
                                  ----------------------------------------------------
                                                  Average                   Average
                                    Amount          Rate         Amount        Rate
--------------------------------------------------------------------------------------
<S>                                 <C>            <C>          <C>             <C>
Securities sold under
     agreements to repurchase       $283,714       6.70%        $292,266        5.88%

Federal funds purchased                                           20,000        4.50
Lines of credit                                                  245,826        5.67
--------------------------------------------------------------------------------------
                                    $283,714                    $558,092
--------------------------------------------------------------------------------------
Average amount outstanding          $268,304       6.31%        $183,554        5.38%
Maximum month-end balance            583,208                     558,092
--------------------------------------------------------------------------------------
</TABLE>

As of December 31, 2000, the Company had a line of credit of $414.1 million from
the Federal Home Loan Bank of New York,  all of which was  available,  a line of
credit of $100.0 million from the Federal Home Loan Bank of  Pittsburgh,  all of
which was  available,  and a line of credit of $30.0  million from another bank,
all of which  was  available.  In  addition,  CCMI had a line of credit of $10.0
million from another bank, all of which was available.


68
<PAGE>
Commerce Bancorp, Inc. and Subsidiaries
Notes to Consolidated Financial Statements


10. Long-Term Debt

On July 15, 1993, the Company issued $23.0 million of 8 3/8% subordinated  notes
due 2003.  Interest on the debt is payable  semi-annually on January 15 and July
15 of each year.  The notes may be redeemed in whole or in part at the option of
the Company  after July 15,  2000 at a price from 102% to 100% of the  principal
plus  accrued  interest,  if any, to the date fixed for  redemption,  subject to
certain conditions.  A portion of the notes qualify for total risk-based capital
for regulatory purposes, subject to certain limitations.

On June 9, 1997,  the  Company  issued  $57.5  million  of 8 3/4% Trust  Capital
Securities  through Commerce  Capital Trust 1, a newly formed Delaware  business
trust subsidiary.  The Trust Capital Securities  evidence a preferred  ownership
interest  in the  Trust,  of which  100% of the  common  equity  is owned by the
Company.  The proceeds  from the issuance of the Trust Capital  Securities  were
invested in substantially  similar Junior Subordinated Debt of the Company.  The
Trust Capital Securities are unconditionally guaranteed by the Company. Interest
on the debt is payable  quarterly in arrears on March 31, June 30, September 30,
and December 31 of each year.  The Trust  Capital  Securities  are  scheduled to
mature on June 30, 2027.  The Trust Capital  Securities may be redeemed in whole
or in part at the option of the Company on or after June 30, 2002 at 100% of the
principal  plus  accrued  interest,  if any,  to the date fixed for  redemption,
subject to certain conditions. All $57.5 million of the Trust Capital Securities
qualify as Tier I capital for regulatory capital purposes.

11. Income Taxes

The provision for income taxes consists of the following (in thousands):

---------------------------------------------------------------------
                                2000           1999           1998
---------------------------------------------------------------------
Current:
     Federal                   $40,563       $34,339        $28,012
     State                         604           434          1,174
Deferred:
     Federal                    (2,812)       (2,368)        (3,060)
     State                                    (1,100)           (55)
---------------------------------------------------------------------
                               $38,355       $31,305        $26,071
---------------------------------------------------------------------

The above provision  includes  income taxes related to securities  gains of $1.1
million, $900 thousand and $1.0 million for 2000, 1999 and 1998, respectively.

The provision for income taxes differs from the expected statutory  provision as
follows:

-----------------------------------------------------------------------------
                                               2000        1999     1998
-----------------------------------------------------------------------------
Expected provision at statutory rate:          35.0%       35.0%     35.0%
Difference resulting from:
     Tax-exempt interest on loans              (1.4)       (0.7)     (0.4)
     Tax-exempt interest on securities         (2.1)       (1.0)     (1.8)
     Purchase accounting adjustments            0.1         0.1       0.1
     Other, including acquisition costs         0.8        (1.2)      5.3
-----------------------------------------------------------------------------
                                               32.4%       32.2%     38.2%
-----------------------------------------------------------------------------

Deferred  income  taxes  reflect  the net tax effects of  temporary  differences
between the carrying  amounts of assets and liabilities for financial  reporting
purposes and the amounts used for income tax purposes.


                                                                              69
<PAGE>

Commerce Bancorp, Inc. and Subsidiaries
Notes to Consolidated Financial Statements

The significant  components of the Company's deferred tax liabilities and assets
as of December 31, 2000 and 1999 are as follows (in thousands):

--------------------------------------------------------------------------------
                                                              2000       1999
--------------------------------------------------------------------------------
Deferred tax assets:
     Loan loss reserves                                     $15,577    $11,797
     Fair value adjustment, available for sale securities     3,036     21,940
     Intangibles                                              2,901        336
     Other reserves                                           2,597      1,546
     Other                                                    1,738      1,026
--------------------------------------------------------------------------------
Total deferred tax assets                                    25,849     36,645
--------------------------------------------------------------------------------
Deferred tax liabilities:
     Depreciation                                             1,440        677
     Other                                                    1,326      2,053
--------------------------------------------------------------------------------
Total deferred tax liabilities                                2,766      2,730
--------------------------------------------------------------------------------
Net deferred assets                                         $23,083    $33,915
--------------------------------------------------------------------------------


12. Commitments and Letters of Credit

In the normal course of business,  there are various outstanding  commitments to
extend  credit,  such as  letters  of  credit,  which are not  reflected  in the
accompanying   financial   statements.   These  arrangements  have  credit  risk
essentially  the same as that  involved in extending  loans to customers and are
subject to the Company's normal credit policies. Collateral is obtained based on
management's credit assessment of the borrower.  At December 31, 2000, the Banks
had outstanding standby letters of credit in the amount of $169.3 million.

In addition,  the Banks are committed as of December 31, 2000 to advance  $303.7
million on construction loans, $234.2 million on home equity lines of credit and
$570.0 million on lines of credit.  All other  commitments  total  approximately
$256.3 million.  The Company anticipates no material losses as a result of these
transactions.

13. Common Stock and Preferred Stock

At December 31, 2000, the Company's common stock had a par value of $1.5625. The
Company had 50,000,000 shares authorized as of this date.

On December 19, 2000, the Board of Directors  declared a cash dividend of $0.275
for  each  share  of  common  stock  outstanding  payable  January  18,  2001 to
stockholders of record on January 4, 2001.


70
<PAGE>

Commerce Bancorp, Inc. and Subsidiaries
Notes to Consolidated Financial Statements

14. Earnings Per Share

The  calculation  of earnings per share  follows (in  thousands,  except for per
share amounts):

<TABLE>
<CAPTION>
  -----------------------------------------------------------------------------------------------
                                                                  Year Ended December 31,
                                                        -----------------------------------------
  (dollars in thousands)                                    2000          1999         1998
  -----------------------------------------------------------------------------------------------
<S>                                                       <C>            <C>          <C>
  Basic:
  Net income applicable to common stock                   $80,047        $65,960      $42,155
  -----------------------------------------------------------------------------------------------
  Average common shares outstanding                        30,878         29,155       28,254
  -----------------------------------------------------------------------------------------------
  Net income per common share                             $  2.59        $  2.26      $  1.49
  -----------------------------------------------------------------------------------------------

  Diluted:
  Net income applicable to common stock
       on a diluted basis                                 $80,047        $65,960      $42,155
  -----------------------------------------------------------------------------------------------

  Average common shares outstanding                        30,878         29,155       28,254
  Additional shares considered in diluted
       computation assuming:
         Exercise of stock options                          1,233          1,310        1,303
         Conversion of preferred stock                                                    105
  -----------------------------------------------------------------------------------------------

  Average common and common equivalent
       shares outstanding                                  32,111         30,465       29,662
  -----------------------------------------------------------------------------------------------

  Net income per common and common
       equivalent share                                   $  2.49        $  2.17      $  1.42
  -----------------------------------------------------------------------------------------------
</TABLE>

15.  Benefit Plans

Employee Stock Option Plan
The Company has the 1997 Employee  Stock Option Plan (the Plan) for the officers
and  employees  of the  Company and its  subsidiaries  as well as a plan for its
non-employee  directors.  The Plan  authorizes  the  issuance of up to 8,617,000
shares of common stock (as adjusted  for stock  dividends)  upon the exercise of
options. 3,649,000 options have been issued under the Plan. The option price for
options  issued under the Plan must be at least equal to 100% of the fair market
value of the Company's common stock as of the date the option is granted.  These
options generally become exercisable to the extent of 25% annually beginning one
year from the date of grant,  although the amount exercisable beginning one year
from the date of grant may be  greater  depending  on the  employees'  length of
service.  The options expire not later than 10 years from the date of grant.  In
addition,  there are options  outstanding  from prior stock  option plans of the
Company  which were granted under similar  terms.  No additional  options may be
issued under these plans.


                                                                              71
<PAGE>

Commerce Bancorp, Inc. and Subsidiaries
Notes to Consolidated Financial Statements

Information concerning option activity for the periods indicated is as follows:

  ------------------------------------------------------------------------------
                                         Shares Under      Weighted Average
                                            Option          Exercise Price
  ------------------------------------------------------------------------------
  Balance at January 1, 1999                4,541,606            $27.67
  Options granted                           1,129,991             38.82
  Options exercised                           345,472             12.55
  Options canceled                            130,294             39.87
  Balance at December 31, 1999              5,195,831             30.79
  ------------------------------------------------------------------------------
  Balance at January 1, 2000                5,195,831            $30.79
  Options granted                              48,825             36.51
  Options exercised                           760,612             23.89
  Options canceled                            157,131             40.42
  Balance at December 31, 2000              4,326,913             31.72
  ------------------------------------------------------------------------------

Information  concerning  options  outstanding  as of  December  31,  2000  is as
follows:
<TABLE>
<CAPTION>
  --------------------------------------------------------------------------------------------------------
                                          Options Outstanding                    Options Exercisable
  --------------------------------------------------------------------------------------------------------
                                           Weighted-Average    Weighted-      Exercisable     Weighted
  Range of                       Number       Remaining         Average          as of        Average
  exercise prices             Outstanding  Contractual Life  Exercise Price   12/31/2000   Exercise Price
  --------------------------------------------------------------------------------------------------------
<S>                           <C>               <C>            <C>            <C>             <C>
  $3.00 to $32.50               1,888,375         5.4            $20.28         1,838,302       $19.98
  $32.51 and greater            2,438,538         7.9             40.58         1,895,592        40.86
  --------------------------------------------------------------------------------------------------------
</TABLE>

The  Company  has  elected  not to  adopt  the  recognition  provisions  of FASB
Statement No. 123,  "Accounting for Stock-Based  Compensation"  (FAS 123), which
requires  a fair  value  based  method  of  accounting  for all  employee  stock
compensation  plans.  The  Company  will  continue to follow APB Opinion No. 25,
"Accounting  for Stock  Issued to  Employees"  and  related  Interpretations  to
account for its stock-based compensation plans. If the Company had accounted for
stock  options  under the fair value  provisions  of FAS 123, net income and net
income  per share  would have been as follows  (in  thousands,  except per share
amounts):

--------------------------------------------------------------------------
                                       2000        1999       1998
--------------------------------------------------------------------------

Pro forma net income                 $70,706     $57,619     $36,251

Pro forma net income per share:
     Basic                           $  2.29     $  1.98     $  1.28
     Diluted                            2.22        1.91        1.23

--------------------------------------------------------------------------

The fair value of options  granted in 2000,  1999 and 1998 was  estimated at the
date of grant using a  Black-Scholes  option  pricing  model with the  following
weighted  average  assumptions:  risk-free  interest  rates of  4.54% to  6.54%,
dividend  yields of 3%,  volatility  factors of the expected market price of the
Company's  common stock of .288 to .332, and weighted  average expected lives of
the options of 4 to 4.75 years.

The Black-Scholes option valuation model was developed for use in estimating the
fair value of traded  options which have no vesting  restrictions  and are fully
transferable.  In addition,  option valuation models require the input of highly
subjective  assumptions  including the expected stock price volatility.  Because
the Company's stock options have  characteristics  significantly  different from
those of traded options, and because changes in

72
<PAGE>
Commerce Bancorp, Inc. and Subsidiaries
Notes to Consolidated Financial Statements

the subjective input  assumptions can materially affect the fair value estimate,
in  management's  opinion,  the  existing  models do not  necessarily  provide a
reliable single measure of the fair value of its stock options.

Employee Stock Ownership Plan
As of December 31, 2000, the Company  maintains an Employee Stock Ownership Plan
(ESOP) for the benefit of its  officers and  employees  who meet age and service
requirements.  The ESOP holds 890,000 shares of the Company's  common stock, all
of which are  allocated to  participant  accounts.  Employer  contributions  are
determined at the discretion of the Board of Directors.  The total  contribution
expense associated with the Plan for 2000, 1999 and 1998 was $100,000,  $547,000
and $1.1 million, respectively.

Post-employment or Post-retirement Benefits
The Company offers no post-employment or post-retirement benefits.

16. Fair Value of Financial Instruments

FASB Statement No. 107, "Disclosures about Fair Value of Financial  Instruments"
(FAS  107),  requires  disclosure  of fair  value  information  about  financial
instruments,  whether or not  recognized in the balance  sheet,  for which it is
practicable to estimate that value.  In cases where quoted market prices are not
available,  fair  values are based on  estimates  using  present  value or other
valuation  techniques.  Those  techniques  are  significantly  affected  by  the
assumptions  used,  including  the  discount  rate and  estimates of future cash
flows. In that regard,  the derived fair value estimates cannot be substantiated
by comparison to independent  markets and, in many cases,  could not be realized
in immediate  settlement of the instrument.  FAS 107 excludes certain  financial
instruments and all non-financial  instruments from its disclosure requirements.
Accordingly,  the aggregate  fair value  amounts  presented do not represent the
underlying value of the Company.

The  following  table  represents  the  carrying  amounts and fair values of the
Company's financial instruments at December 31, 2000 and 1999:

<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------
                                                           December 31,
                                     --------------------------------------------------------
                                                 2000                        1999
---------------------------------------------------------------------------------------------
                                       Carrying         Fair      Carrying         Fair
                                        Amount         Value       Amount         Value
---------------------------------------------------------------------------------------------
Financial assets:
<S>                                   <C>            <C>          <C>           <C>
     Cash and cash equivalents        $  495,918     $  495,918   $  322,924    $  322,924
     Loans held for sale                  41,791         41,791        5,704         5,704
     Trading securities                  109,306        109,306      117,837       117,837
     Investment securities             3,534,782      3,524,528    2,866,149     2,819,704
     Loans (net)                       3,638,580      3,652,000    2,922,706     2,960,855

Financial liabilities:
     Deposits                          7,387,594      7,400,507    5,608,920     5,618,204
     Other borrowed money                283,714        283,714      558,092       558,092
     Long-term debt                       80,500         81,475       80,500        76,820
---------------------------------------------------------------------------------------------
Off-balance sheet liabilities:
     Standby letters of credit                       $    1,693                 $    1,080
     Commitments to extend credit                           932                        906
</TABLE>




                                                                              73
<PAGE>


Commerce Bancorp, Inc. and Subsidiaries
Notes to Consolidated Financial Statements

The following methods and assumptions were used by the Company in estimating its
fair value disclosures for financial instruments:

Cash and cash  equivalents,  loans  held for sale and  trading  securities:  The
carrying amounts reported approximate those assets' fair value.

Investment securities: Fair values for investment securities are based on quoted
market prices, where available. If quoted market prices are not available,  fair
values are based on quoted market prices of comparable instruments.

Loans: For variable-rate  loans that reprice  frequently and with no significant
change in credit risk, fair values are based on carrying values. The fair values
for other loans  receivable were estimated using  discounted cash flow analyses,
using  interest  rates  currently  being offered for loans with similar terms to
borrowers  of similar  credit  quality.  Loans with  significant  collectibility
concerns were fair valued on a loan-by-loan  basis  utilizing a discounted  cash
flow  method.  The carrying  amount of accrued  interest  approximates  its fair
value.

Deposit  liabilities:  The fair  values  disclosed  for demand  deposits  (e.g.,
interest-bearing and noninterest-bearing checking, passbook savings, and certain
types of money market accounts) are, by definition,  equal to the amount payable
on demand at the reporting date (i.e., their carrying amounts).  Fair values for
fixed-rate  certificates  of deposit are estimated  using a discounted cash flow
calculation  that applies interest rates currently being offered on certificates
of deposit to a schedule  of  aggregated  expected  monthly  maturities  on time
deposits.

Other borrowed money: The carrying amounts reported approximate fair value.

Long-term debt: Current quoted market prices were used to estimate fair value.

Off-balance  sheet  liabilities:  Off-balance  sheet  liabilities of the Company
consist of letters of credit,  loan  commitments  and unfunded  lines of credit.
Fair values for the Company's  off-balance  sheet  liabilities are based on fees
currently  charged to enter into  similar  agreements,  taking into  account the
remaining terms of the agreements and the counterparties' credit standing.


74
<PAGE>

Commerce Bancorp, Inc. and Subsidiaries
Notes to Consolidated Financial Statements

17. Quarterly Financial Data (unaudited)

The following  represents  summarized  unaudited quarterly financial data of the
Company which, in the opinion of management,  reflects  adjustments  (comprising
only normal recurring  accruals)  necessary for fair presentation (in thousands,
except per share amounts):

<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------
                                                              Three Months Ended
-------------------------------------------------------------------------------------------------------
                                       December 31      September 30        June 30         March 31
-------------------------------------------------------------------------------------------------------
2000
<S>                                       <C>              <C>              <C>              <C>
Interest income                           $138,606         $131,185         $123,283         $112,226
Interest expense                            58,861           55,621           49,861           44,027
Net interest income                         79,745           75,564           73,422           68,199
Provision for loan losses                    3,128            3,668            3,642            3,493
Net investment securities gains              2,393                                                820
Provision for federal and state
   income taxes                              9,588           10,092            9,459            9,216
Net income                                  21,384           20,991           19,377           18,295

Net income per common share:
Basic                                     $   0.68         $   0.68         $   0.63         $   0.60
Diluted                                       0.65             0.64             0.61             0.59

1999
Interest income                           $106,629          $99,097          $93,556          $87,166
Interest expense                            40,252           36,118           33,727           31,984
Net interest income                         66,377           62,979           59,829           55,182
Provision for loan losses                    3,064            1,653            2,274            2,184
Net investment securities gains              1,047              270              400              865
Provision for federal and state
   income taxes                              8,377            7,704            7,726            7,498
Net income                                  17,623           16,840           16,016           15,481

Net income per common share:
Basic                                     $   0.59          $  0.58          $  0.55          $  0.54
Diluted                                       0.57             0.56             0.53             0.51
</TABLE>




                                                                              75
<PAGE>
Commerce Bancorp, Inc. and Subsidiaries
Notes to Consolidated Financial Statements

18. Condensed Financial Statements of the Parent Company and Other Matters

Balance Sheets

<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------
                                                              December 31,
---------------------------------------------------------------------------------------
(dollars in thousands)                                   2000                 1999
---------------------------------------------------------------------------------------
<S>                                                    <C>                  <C>
Assets
Cash                                                   $  1,090             $    381
Securities available for sale                            36,392               36,137
Investment in subsidiaries                              536,324              406,485
Other assets                                             16,018               11,588
---------------------------------------------------------------------------------------
                                                       $589,824             $454,591
---------------------------------------------------------------------------------------
Liabilities
Other liabilities                                      $ 17,100             $ 17,335
Trust Capital Securities                                 57,500               57,500
Long-term debt                                           23,000               23,000
---------------------------------------------------------------------------------------
                                                         97,600               97,835
---------------------------------------------------------------------------------------
Stockholders' equity
Common stock                                             49,627               44,418
Capital in excess of par or stated value                422,375              321,443
Retained earnings                                        27,083               32,263
Accumulated other comprehensive income                   (5,239)             (39,744)
---------------------------------------------------------------------------------------
                                                        493,846              358,380
Less treasury stock                                       1,622                1,624
---------------------------------------------------------------------------------------
     Total stockholders' equity                         492,224              356,756
---------------------------------------------------------------------------------------
                                                       $589,824             $454,591
---------------------------------------------------------------------------------------
</TABLE>



<TABLE>
<CAPTION>
Statements of Income
------------------------------------------------------------------------------------
                                                       Year Ended December 31,
------------------------------------------------------------------------------------
(dollars in thousands)                             2000        1999         1998
------------------------------------------------------------------------------------
<S>                                              <C>          <C>         <C>
Income:
     Dividends from subsidiaries                 $ 9,150      $15,750     $18,357
     Interest income                                 497          507         293
     Other                                         5,652        3,690       2,098
------------------------------------------------------------------------------------
                                                  15,299       19,947      20,748
------------------------------------------------------------------------------------
Expenses:
     Interest expense                              7,244        7,375       7,259
     Operating expenses                            2,352        2,508       3,053
------------------------------------------------------------------------------------
                                                   9,596        9,883      10,312
Income before income taxes and equity
     in undistributed income of subsidiaries       5,703       10,064      10,436
Income tax benefit                                (1,274)      (2,636)     (2,692)
------------------------------------------------------------------------------------
                                                   6,977       12,700      13,128
Equity in undistributed income of subsidiaries    73,070       53,260      29,027
------------------------------------------------------------------------------------
Net income                                       $80,047      $65,960     $42,155
------------------------------------------------------------------------------------
</TABLE>


76

<PAGE>
Commerce Bancorp, Inc. and Subsidiaries
Notes to Consolidated Financial Statements

<TABLE>
<CAPTION>
Statements of Cash Flows
--------------------------------------------------------------------------------------------------------
                                                                      Year Ended December 31,
--------------------------------------------------------------------------------------------------------
(dollars in thousands)                                            2000          1999          1998
--------------------------------------------------------------------------------------------------------
<S>                                                               <C>           <C>           <C>
Operating activities:
   Net income                                                     $80,047       $65,960       $42,155
   Adjustments to reconcile net income to net
     cash provided by operating activities:
       Undistributed income of subsidiaries                       (73,070)      (53,260)      (29,027)
       Gains on sales of securities available for sale                             (639)
       Increase in other assets                                    (4,430)       (1,335)         (211)
       Increase in other liabilities                                1,723        13,846         2,111
--------------------------------------------------------------------------------------------------------
         Net cash provided by operating activities                  4,270        24,572        15,028
Investing activities:
   Investment in subsidiaries                                     (28,770)      (31,000)      (40,253)
   Proceeds from sale of securities available for sale              9,997         5,733
   Proceeds from the maturity of securities available for sale    117,863        26,980
   Purchase of securities available for sale                     (126,522)      (54,723)       (4,308)
   Other                                                              (38)           27            51
--------------------------------------------------------------------------------------------------------
         Net cash used by investing activities                    (27,470)      (52,983)      (44,510)
Financing activities:
   Proceeds from issuance of common stock
     under dividend reinvestment plan                              36,110        27,830         7,427
   Cash dividends                                                 (29,761)      (23,476)      (21,563)
   Proceeds from exercise of stock options                         17,560         3,598         2,001
--------------------------------------------------------------------------------------------------------
         Net cash provided (used) by financing                     23,909         7,952       (12,135)
           activities
Increase (decrease) in cash and cash equivalents                      709       (20,459)      (41,617)
Cash and cash equivalents at beginning of year                        381        20,840        62,457
--------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year                          $ 1,090       $   381       $20,840
--------------------------------------------------------------------------------------------------------
Supplemental  disclosures of cash flow information:
 Cash paid during the period for:
     Interest                                                     $ 7,089       $ 7,089       $ 7,089
     Income taxes                                                  36,135        26,056        27,626
--------------------------------------------------------------------------------------------------------
</TABLE>



                                                                              77
<PAGE>


Commerce Bancorp, Inc. and Subsidiaries
Notes to Consolidated Financial Statements

Holders of common  stock of the Company are entitled to receive  dividends  when
declared by the Board of Directors out of funds legally available. Under the New
Jersey  Business  Corporation  Act, the Company may pay dividends  only if it is
solvent and would not be rendered  insolvent by the dividend payment and only to
the extent of surplus  (the  excess of the net  assets of the  Company  over its
stated capital).

The approval of the  Comptroller of the Currency is required for a national bank
to pay  dividends if the total of all  dividends  declared in any calendar  year
exceeds net profits (as  defined) for that year  combined  with its retained net
profits for the preceding two calendar years. New Jersey state banks are subject
to similar  dividend  restrictions.  Commerce NJ,  Commerce PA,  Commerce Shore,
Commerce  North,  and  Commerce  Central can declare  dividends  in 2001 without
additional approval of approximately $74.9 million, $6.1 million, $23.7 million,
$18.9 million and $1.1 million, respectively, plus an additional amount equal to
each bank's net profit for 2001 up to the date of any such dividend declaration.

The Federal Reserve Act requires the extension of credit by any of the Company's
banking  subsidiaries to certain  affiliates,  including Commerce Bancorp,  Inc.
(parent), be secured by readily marketable securities,  that extension of credit
to any one  affiliate  be limited to 10% of the capital and capital in excess of
par or stated  value,  as  defined,  and that  extensions  of credit to all such
affiliates  be limited to 20% of capital  and capital in excess of par or stated
value.  At  December  31,  2000  and  1999,  the  Company  complies  with  these
guidelines.

The  Company and its  subsidiaries  are  subject to various  regulatory  capital
requirements  administered  by the  federal  banking  agencies.  Failure to meet
minimum  capital  requirements  can  initiate  certain  mandatory  and  possibly
additional discretionary actions by regulators that, if undertaken, could have a
direct  material  effect on the Company's  financial  statements.  Under capital
adequacy  guidelines and the regulatory  framework for prompt corrective action,
the Company must meet specific guidelines that involve quantitative  measures of
the  Company's  assets,  liabilities,  and  certain  off-balance-sheet  items as
calculated under regulatory accounting practices.  The Company's capital amounts
and classification  are also subject to qualitative  judgments by the regulators
about components, risk weightings, and other factors.

Quantitative  measures  established  by  regulation to ensure  capital  adequacy
require the Company and its  subsidiaries to maintain minimum amounts and ratios
of total and Tier I capital (as defined in the regulations) to risk-based assets
(as defined) and of Tier I capital to average assets (as defined),  or leverage.
Management  believes,  as of  December  31,  2000,  that  the  Company  and  its
subsidiaries meet all capital adequacy requirements to which they are subject.




78
<PAGE>
Commerce Bancorp, Inc. and Subsidiaries
Notes to Consolidated Financial Statements


The following  table  presents the Company's  and Commerce NJ's  risk-based  and
leverage capital ratios at December 31, 2000 and 1999:

<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------
                                                                        Per Regulatory Guidelines
----------------------------------------------------------------------------------------------------------
                                                 Actual                Minimum         "Well Capitalized"
----------------------------------------------------------------------------------------------------------
                                           Amount       Ratio     Amount   Ratio        Amount       Ratio
-----------------------------------------------------------------------------------------------------------
<S>                                       <C>        <C>          <C>      <C>           <C>       <C>
December 31, 2000
Company
   Risk based capital ratios:
     Tier I                              $551,167    10.79%      $204,316  4.00%        $306,474    6.00%
     Total capital                        609,047    11.92        408,633  8.00          510,791   10.00
   Leverage ratio                         551,167     6.92        318,444  4.00          398,055    5.00

Commerce NJ Risk based capital ratios:
     Tier 1                              $288,630     9.80%      $117,775  4.00%        $176,663    6.00%
     Total capital                        317,052    10.77        235,550  8.00          294,438   10.00
   Leverage ratio                         288,630     6.51        177,474  4.00          221,843    5.00

December 31, 1999
Company
   Risk based capital ratios:
     Tier I                              $449,698    11.40%      $157,847  4.00%        $236,771    6.00%
     Total capital                        501,879    12.72        315,694  8.00          394,618   10.00
   Leverage ratio                         449,698     7.02        256,362  4.00          320,453    5.00

Commerce NJ Risk based capital ratios:
     Tier 1                              $225,189    10.35%      $ 87,054  4.00%        $130,582    6.00%
     Total capital                        246,263    11.32        174,109  8.00          217,636   10.00
   Leverage ratio                         225,189     6.33        142,233  4.00          177,791    5.00
</TABLE>



                                                                              79
<PAGE>
Commerce Bancorp, Inc. and Subsidiaries
Notes to Consolidated Financial Statements


19. Segment Reporting


The Company operates one reportable segment of business,  Community Banks, which
includes  Commerce NJ,  Commerce PA, Commerce  Shore,  Commerce North,  Commerce
Central,  and  Commerce  Delaware.  Through  its  Community  Banks,  the Company
provides a broad range of retail and commercial banking services,  and corporate
trust services.  Parent/Other  includes the holding company,  Commerce  National
Insurance  (whose revenues of $45.6 million,  $32.4 million and $25.2 million in
2000, 1999 and 1998,  respectively,  were reported in other  operating  income),
CCMI, and Commerce Capital Trust I.

Selected segment information for each of the three years ended December 31 is as
follows:
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------------------
                                      2000                                 1999                               1998
-----------------------------------------------------------------------------------------------------------------------------------
                        Community   Parent/                 Community     Parent/               Community     Parent/
                          Banks      Other        Total       Banks        Other       Total       Banks       Other          Total
-----------------------------------------------------------------------------------------------------------------------------------
<S>                     <C>         <C>         <C>          <C>          <C>         <C>         <C>         <C>          <C>
Net interest income     $298,985    $(2,055)    $296,930     $251,132     $(6,765)    $244,367    $200,998    $(6,337)     $194,661

Provision for loan
    losses                13,931                  13,931        9,175                    9,175       8,762                    8,762
-----------------------------------------------------------------------------------------------------------------------------------
Net interest income      285,054     (2,055)     282,999      241,957      (6,765)     235,192     192,236     (6,337)      185,899
    after provision
Noninterest income        90,464     60,296      150,760       66,127      48,469      114,596      58,426     37,851        96,277
Noninterest expense      263,001     52,356      315,357      209,808      42,715      252,523     180,736     33,214       213,950
-----------------------------------------------------------------------------------------------------------------------------------
Income (loss) before
    income taxes         112,517      5,885      118,402       98,276      (1,011)      97,265      69,926     (1,700)       68,226
Income tax expense
    (benefit)             35,255      3,100       38,355       31,963        (658)      31,305      26,299       (228)       26,071
-----------------------------------------------------------------------------------------------------------------------------------
Net income (loss)        $77,262     $2,785      $80,047      $66,313       $(353)     $65,960     $43,627    $(1,472)      $42,155
-----------------------------------------------------------------------------------------------------------------------------------
Average assets
    (in millions)     $6,626,429   $722,534   $7,348,963   $5,301,844    $602,025   $5,903,869   $4,395,127   $470,878   $4,866,005
-----------------------------------------------------------------------------------------------------------------------------------
</TABLE>

The  financial  information  for each  segment  is  reported  on the basis  used
internally by the Company's management to evaluate  performance.  Measurement of
the  performance  of each  segment is based on the  management  structure of the
Company and is not necessarily  comparable with financial information from other
entities.  The  information  presented  is  not  necessarily  indicative  of the
segment's  results of operations if each of the Community Banks were independent
entities.


80
<PAGE>
Commerce Bancorp, Inc. and Subsidiaries
Notes to Consolidated Financial Statements

20. Derivative Financial Instruments

As part of CCMI's  broker-dealer  activities,  the  Company  maintains a trading
securities  portfolio for  distribution  to its customers in order to meet those
customers' needs. In order to reduce the exposure to market risk relating to the
inventory,  the  Company  buys  and  sells a  variety  of  derivative  financial
instruments including futures and option contracts. Market risk includes changes
in interest rates or value fluctuations in the underlying financial instruments.
The Company uses notional  (contract)  amounts to measure  derivative  activity.
Notional amounts are not included on the balance sheet, as those amounts are not
actually paid or received at settlement.  The following  table reflects the open
commitments for futures and options and the associated unrealized gains (losses)
for the year ended December 31, 2000:

  -----------------------------------------------------------------
                                           Notional     Unrealized
                                            Amount      Gain (Loss)
  -----------------------------------------------------------------
  Municipal bond futures                   $44,100         $(664)
  Treasury bond futures                      9,200          (372)
  Treasury bond put options                  2,210            (7)
  Treasury bond call options                 9,400          (250)
  Treasury bond call options                 3,100            (9)
  -----------------------------------------------------------------
  Total                                    $68,010       $(1,302)
  -----------------------------------------------------------------

The average notional amount for futures and options contracts for the year ended
December 31, 2000 was $67.5 million and $6.7 million, respectively. Realized and
unrealized  gains and losses  related to derivative  financial  instruments  are
included in other operating income in the statement of income.




                                                                              81
<PAGE>

Commerce Bancorp, Inc. and Subsidiaries Report of Independent Auditors

The Board of Directors and Stockholders
Commerce Bancorp, Inc. and Subsidiaries

We have  audited  the  accompanying  consolidated  balance  sheets  of  Commerce
Bancorp,  Inc. and Subsidiaries as of December 31, 2000 and 1999 and the related
consolidated  statements of income,  changes in stockholders'  equity,  and cash
flows for each of the three years in the period ended  December 31, 2000.  These
financial  statements are the  responsibility of the Company's  management.  Our
responsibility  is to express an opinion on these financial  statements based on
our  audits.  We did not  audit the  financial  statements  of two  wholly-owned
subsidiaries, which statements reflect net interest income constituting 12.3% of
the related  consolidated totals in 1998. Those statements were audited by other
auditors whose reports have been furnished to us, and our opinion, insofar as it
relates  to data  included  for the two  subsidiaries,  is based  solely  on the
reports of other auditors.

We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable  assurance about whether the financial  statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting  the amounts and  disclosures in the financial  statements.  An audit
also includes assessing the accounting principles used and significant estimates
made by  management,  as well as  evaluating  the  overall  financial  statement
presentation.  We  believe  that our audits  and the  reports of other  auditors
provide a reasonable basis for our opinion.

In our  opinion,  based on our audits and the  reports  of other  auditors,  the
financial statements referred to above present fairly, in all material respects,
the consolidated  financial position of Commerce Bancorp,  Inc. and Subsidiaries
at December 31, 2000 and 1999, and the consolidated  results of their operations
and their cash flows for each of the three  years in the period  ended  December
31, 2000 in conformity  with  accounting  principles  generally  accepted in the
United States.




Philadelphia, Pennsylvania
January 30, 2001




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