Commerce Bancorp, Inc. and Subsidiaries Selected Financial Data

<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------------------
                                                                            Year Ended December 31,
-------------------------------------------------------------------------------------------------------------------------------
(dollars in thousands, except per share data)        1999            1998            1997             1996              1995
-------------------------------------------------------------------------------------------------------------------------------
<S>                                               <C>             <C>             <C>             <C>              <C>
Income Statement Data:
  Net interest income                             $  244,367      $  194,661      $  165,322      $  139,959       $  121,855
  Provision for loan losses                            9,175           8,762           5,805           5,798            3,453
  Noninterest income                                 114,596          96,277          62,410          36,129           25,094
  Noninterest expense                                252,523         213,950         153,804         121,285           99,261
  Income before income taxes                          97,265          68,226          68,123          49,005           44,235
  Net income                                          65,960          42,155          44,432          31,149           28,299
Balance Sheet Data:
  Total assets                                    $6,635,793      $5,424,190      $4,387,851      $3,592,972       $3,021,565
  Loans (net)                                      2,922,706       2,249,061       1,638,836       1,463,933        1,210,485
  Securities available for sale                    1,664,257       1,305,004       1,330,684         779,630          583,490
  Securities held to maturity                      1,201,892       1,220,874         985,676         919,149          825,008
  Trading securities                                 117,837          85,359           7,911          15,327            8,843
  Federal funds sold                                   5,300          10,395          15,813          36,625           54,345
  Deposits                                         5,608,920       4,928,808       3,784,576       3,251,865        2,789,084
  Long-term debt                                      23,000          24,282          25,308          26,333           27,359
  Trust preferred securities                          57,500          57,500          57,500
  Stockholders' equity                               356,756         323,552         279,900         228,543          200,017
Per Share Data:
  Net income-basic                                 $    2.26       $    1.49       $    1.64       $    1.24        $    1.15
  Net income-diluted                                    2.17            1.42            1.56            1.16             1.10
  Cash dividends                                        0.83            0.87            0.55            0.46             0.40
  Book value                                           11.99           11.28           10.27            8.54             8.05
  Average shares outstanding:
    Basic                                             29,155          28,254          26,715          24,450           23,730
    Diluted                                           30,465          29,662          28,386          26,850           25,641
Selected Ratios:
  Performance
  Return on average assets                              1.12%           0.87%           1.12%           0.95%            0.98%
  Return on average equity                             19.63           13.57           17.87           15.17            15.88
  Net interest margin                                   4.65            4.42            4.59            4.65             4.62
Liquidity and Capital
   Average loans to average deposits                   50.31%          44.71%          45.07%          45.64%           44.73%
   Dividend payout                                     36.64           58.55           33.31           36.71            35.01
   Stockholders' equity to total assets                 5.38            5.96            6.38            6.36             6.62
   Risk-based capital:
     Tier 1                                            11.40           12.09           14.91           12.36            12.43
     Total                                             12.72           13.71           17.06           14.71            15.06
   Leverage capital                                     7.02            7.05            7.69            6.53             6.59
Asset Quality
   Non-performing assets to total
     year-end assets                                    0.18%           0.27%           0.43%           0.56%            0.74%
   Net charge-offs to average loans
     outstanding                                        0.08            0.08            0.13            0.24             0.15
   Non-performing loans to total
     year-end loans                                     0.29            0.38            0.78            0.80             0.86
   Allowance for loan losses to total
     end of year loans                                  1.30            1.37            1.45            1.37             1.46
   Allowance for loan losses to non-
     performing loans                                 442.09          364.86          187.35          170.74           169.32
</TABLE>

                                                                              23
<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.  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  Bank/Shore,  N.A.  Also,
effective January 15, 1999, the Company acquired Prestige Financial  Corporation
(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
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.

1999 Overview

In 1999,  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 30% for 1999,  and deposit growth totaled 14%. At December 31, 1999, the
Company had total assets of $6.6  billion,  total loans of $3.0  billion,  total
investment securities of $3.0 billion, and total deposits of $5.6 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
60. The following  table  summarizes  net income by segment for each of the last
three years:

--------------------------------------------------------------------------------
                                            Net Income
--------------------------------------------------------------------------------
                               1999               1998                1997
--------------------------------------------------------------------------------
Community Banks               $66,313            $43,627             $45,948
Parent/Other                     (353)            (1,472)             (1,516)
--------------------------------------------------------------------------------
Consolidated total            $65,960            $42,155             $44,432
--------------------------------------------------------------------------------

Average Balances and Net Interest Income

The table on page 26 sets forth balance sheet items on a daily average basis for
the years ended December 31, 1999, 1998, and 1997 and presents the daily average
interest  rates earned on assets and the daily  average  interest  rates paid on
liabilities  for such periods.  During 1999,  average  interest  earning  assets
totaled $5.4  billion,  an increase of $898.7  million,  or 20% over 1998.  This
increase  resulted  primarily from the increase in the average balance of loans,
which rose $691.3  million,  and the average  balance of investment  securities,
which rose $236.6  million  during  1999.  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 $889.2
million.  The growth in interest  earning  assets was also  partly  funded by an
increase  in other  borrowed  money,  which  rose  $114.8  million to an average
balance of $183.6 million during 1999.

Net Interest Income and Net Interest Margin

Net interest margin on a tax-equivalent basis was 4.65% for 1999, an increase of
23 basis points from 1998.

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 1999  was  $249.6  million,  an  increase  of $52.0
million, or 26%, over 1998. Interest income on a tax-equivalent  basis increased
to $391.6  million from $327.6  million,  or 20%.  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 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 1999 was 7.29%, a
slight decrease of three basis points from 7.32% in 1998.

24
<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.  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  Bank/Shore,  N.A.  Also,
effective January 15, 1999, the Company acquired Prestige Financial  Corporation
(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
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.

1999 Overview

In 1999,  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 30% for 1999,  and deposit growth totaled 14%. At December 31, 1999, the
Company had total assets of $6.6  billion,  total loans of $3.0  billion,  total
investment securities of $3.0 billion, and total deposits of $5.6 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
60. The following  table  summarizes  net income by segment for each of the last
three years:

-------------------------------------------------------------------------------
                                           Net Income
-------------------------------------------------------------------------------
                              1999               1998                1997
-------------------------------------------------------------------------------
Community Banks              $66,313            $43,627             $45,948
Parent/Other                    (353)            (1,472)             (1,516)
-------------------------------------------------------------------------------
Consolidated total           $65,960            $42,155             $44,432
-------------------------------------------------------------------------------

Average Balances and Net Interest Income

The table on page 26 sets forth balance sheet items on a daily average basis for
the years ended December 31, 1999, 1998, and 1997 and presents the daily average
interest  rates earned on assets and the daily  average  interest  rates paid on
liabilities  for such periods.  During 1999,  average  interest  earning  assets
totaled $5.4  billion,  an increase of $898.7  million,  or 20% over 1998.  This
increase  resulted  primarily from the increase in the average balance of loans,
which rose $691.3  million,  and the average  balance of investment  securities,
which rose $236.6  million  during  1999.  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 $889.2
million.  The growth in interest  earning  assets was also  partly  funded by an
increase  in other  borrowed  money,  which  rose  $114.8  million to an average
balance of $183.6 million during 1999.

Net Interest Income and Net Interest Margin

Net interest margin on a tax-equivalent basis was 4.65% for 1999, an increase of
23 basis points from 1998.

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 1999  was  $249.6  million,  an  increase  of $52.0
million, or 26%, over 1998. Interest income on a tax-equivalent  basis increased
to $391.6  million from $327.6  million,  or 20%.  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 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 1999 was 7.29%, a
slight decrease of three basis points from 7.32% in 1998.

24
<PAGE>
Management's Discussion and Analysis of
Financial Condition and Results of Operations

The cost of  interest-bearing  liabilities  decreased 34 basis points in 1999 to
3.29% from 3.63% in 1998.  The decrease  resulted  primarily  from the level and
timing of changes in general  market  interest  rates during 1999 as compared to
1998.  The cost of total  funding  sources  decreased 26 basis points in 1999 to
2.64% from 2.90%.

The following  table presents the major factors that  contributed to the changes
in net  interest  income  for the  years  ended  December  31,  1999 and 1998 as
compared to the respective previous periods.

<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------
                                   1999 vs. 1998                         1998 vs. 1997
                                Increase (Decrease)                   Increase (Decrease)
                               Due to Changes in (1)                 Due to Changes in (1)
---------------------------------------------------------------------------------------------------
                          Volume       Rate        Total        Volume        Rate        Total
---------------------------------------------------------------------------------------------------
(dollars in thousands)
<S>                         <C>          <C>         <C>         <C>          <C>         <C>
Interest on
  investments:
    Taxable                 $12,294      $1,724      $14,018     $28,358      $(5,536)    $22,822
    Tax-exempt                  387          99          486        (226)         725         499
    Trading                   2,552         253        2,805       1,561           83       1,644
    Federal
      funds sold             (1,474)       (114)      (1,588)        530          (77)        453
Interest on loans:
    Commercial
      real estate            18,805      (3,994)      14,811      10,832       (1,428)      9,404
    Commercial               10,824      (1,869)       8,955       5,638       (1,348)      4,290
    Consumer                 23,752      (2,315)      21,437      12,059       (1,917)     10,142
    Tax-exempt                3,279        (121)       3,158       1,645          (65)      1,580
---------------------------------------------------------------------------------------------------
Total interest
  income                     70,419      (6,337)      64,082      60,397       (9,563)     50,834
---------------------------------------------------------------------------------------------------
Interest expense:
  Regular
    savings                   2,952      (2,900)          52       3,246       (1,013)      2,233
  N.O.W.
    accounts                    285         808        1,093       1,618         (198)      1,420
  Money
    market plus              10,487      (1,671)       8,816       6,393          313       6,706
  Time
    deposits                  3,415      (3,479)         (64)      4,376          495       4,871
  Public funds               (1,843)     (1,765)      (3,608)      4,043         (194)      3,849
  Other
    borrowed
    money                     6,177        (311)       5,866      (1,323)         201      (1,122)
  Long-term
    debt                          0         (56)         (56)      2,217           22       2,239
---------------------------------------------------------------------------------------------------
Total interest
  expense                    21,473      (9,374)      12,099      20,570         (374)     20,196
---------------------------------------------------------------------------------------------------
Net increase                $48,946      $3,037      $51,983     $39,827      $(9,189)    $30,638
---------------------------------------------------------------------------------------------------
<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 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  Services,  Inc.
(Commerce Insurance), the Company's insurance brokerage subsidiary. 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

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 and the expansion of Commerce 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 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  70.36%,
73.81% and 67.42% in 1999, 1998 and 1997, respectively. The Company's efficiency
ratio  remains  above its peer  group  primarily  due to its  aggressive  growth
expansion activities.

                                                                              25
<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,
------------------------------------------------------------------------------------------------------------------------------------
                                                 1999                            1998                                1997
------------------------------------------------------------------------------------------------------------------------------------
(dollars in thousands)              Average              Average     Average              Average      Average              Average
Earning Assets                      Balance    Interest   Rate       Balance    Interest    Rate       Balance     Interest  Rate
------------------------------------------------------------------------------------------------------------------------------------
<S>                                <C>         <C>        <C>       <C>         <C>         <C>       <C>          <C>       <C>
Investment securities
        Taxable                    $2,583,530  $164,712   6.38 %    $2,390,688  $150,693    6.30 %    $1,940,797   $127,872  6.59 %
        Tax-exempt                     58,503     3,828   6.54          52,592     3,342    6.35          56,156      2,843  5.06
        Trading                        70,800     4,769   6.74          32,921     1,965    5.97           6,766        321  4.74
------------------------------------------------------------------------------------------------------------------------------------
Total investment securities         2,712,833   173,309   6.39       2,476,201   156,000    6.30       2,003,719    131,036  6.54
Federal funds sold                     19,419       978   5.04          48,691     2,566    5.27          38,640      2,113  5.47
Loans
        Commercial real estate        963,679    81,985   8.51         742,644    67,174    9.05         622,888     57,770  9.27
        Commercial                    519,963    45,615   8.77         396,578    36,660    9.24         335,582     32,370  9.65
        Consumer                    1,086,487    83,525   7.69         777,518    62,088    7.99         626,506     51,946  8.29
        Tax-exempt                     71,926     6,222   8.65          34,018     3,064    9.01          15,758      1,484  9.42
------------------------------------------------------------------------------------------------------------------------------------
Total loans                         2,642,055   217,347   8.23       1,950,758   168,986    8.66       1,600,734    143,570  8.97
------------------------------------------------------------------------------------------------------------------------------------
Total earning assets               $5,374,307   391,634   7.29 %    $4,475,650  $327,552    7.32 %    $3,643,093   $276,719  7.60 %
------------------------------------------------------------------------------------------------------------------------------------
Sources of Funds
------------------------------------------------------------------------------------------------------------------------------------
Interest-bearing liabilities
        Regular savings            $1,011,642   $20,834   2.06 %     $ 886,311   $20,782    2.39 %     $ 732,688    $18,549  2.53 %
        N.O.W. accounts               240,409     6,070   2.52         229,109     4,977    2.17         154,620      3,557  2.30
        Money market plus           1,594,602    39,204   2.46       1,168,045    30,388    2.60         922,325     23,683  2.57
        Time deposits                 882,081    42,995   4.87         812,028    43,060    5.30         729,507     38,189  5.23
        Public funds                  320,768    16,026   5.00         357,663    19,634    5.49         284,019     15,785  5.56
------------------------------------------------------------------------------------------------------------------------------------
Total deposits                      4,049,502   125,129   3.09       3,435,156   118,841    3.46       2,823,159     99,763  3.53

Other borrowed money                  183,554     9,880   5.38          68,795     4,014    5.83          91,470      5,136  5.61
Long-term debt                         80,500     7,071   8.78          80,500     7,127    8.85          55,452      4,887  8.81
------------------------------------------------------------------------------------------------------------------------------------
Total deposits and interest-
        bearing liabilities         4,313,556   142,080   3.29       3,584,451   129,982    3.63       2,970,081    109,786  3.70
Noninterest-bearing funds
        (net)                       1,060,751                          891,199                           673,013
------------------------------------------------------------------------------------------------------------------------------------
Total sources to fund
        earning assets             $5,374,307   142,080   2.64      $4,475,650   129,982    2.90      $3,643,093    109,786  3.01
------------------------------------------------------------------------------------------------------------------------------------
Net interest income and
        margin tax-equivalent
        basis                                   249,554   4.65                   197,570    4.42                    166,933  4.59
Tax-exempt adjustment                             5,187                            2,909                              1,611
------------------------------------------------------------------------------------------------------------------------------------
Net interest income and
        margin                                 $244,367   4.55 %                $194,661    4.35 %                 $165,322  4.54 %
------------------------------------------------------------------------------------------------------------------------------------
Other Balances
------------------------------------------------------------------------------------------------------------------------------------
Cash and due from banks              $251,438                        $ 197,282                         $ 168,708
Other assets                          312,652                          220,142                           182,980
Total assets                        5,903,869                        4,866,005                         3,971,495
Demand deposits
        (noninterest-bearing)       1,202,412                          927,601                           728,426
Other liabilities                      51,921                           43,248                            24,314
Stockholders' equity                  335,982                          310,705                           248,674
------------------------------------------------------------------------------------------------------------------------------------
<FN>
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.
</FN>
</TABLE>

26
<PAGE>
Management's Discussion and Analysis of
Financial Condition and Results of Operations

Income Taxes

The  provision  for federal and state  income  taxes for 1999 was $31.3  million
compared to $26.1 million in 1998 and $23.7  million in 1997.  The effective tax
rate was 32.2%, 38.2% and 34.8% in 1999, 1998, and 1997, respectively.

Net Income

Net income for 1999 was $66.0 million, an increase of $23.8 million, or 56% over
the $42.2  million  recorded  for 1998.  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 1999 was $2.17  compared  to
$1.42 per common share for 1998.

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 1999, the Company's
ROA was 1.12%  compared to 0.87% for 1998.  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 1999, the Company's ROE was 19.63% compared to
13.57% for 1998.

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 1995 through 1999.

<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------
                                                       December 31,
---------------------------------------------------------------------------------------------------
                             1999          1998           1997           1996           1995
---------------------------------------------------------------------------------------------------
<S>                          <C>            <C>           <C>           <C>             <C>
(dollars in thousands)
Commercial real estate:
  Owner-occupied             $ 475,700      $ 397,933     $ 316,057     $ 244,995     $  207,429
  Other                        431,473        358,600       287,510       288,733        250,782
  Construction                 185,712        122,797        64,948        60,434         57,911
-------------------------------------------------------------------------------------------------
                             1,092,885        879,330       668,515       594,162        516,122

Commercial:
  Term                         393,953        282,556       211,827       205,990        172,283
  Line of credit               277,917        192,485       118,631       106,326         78,469
  Demand                         1,328            417           617           708            603
-------------------------------------------------------------------------------------------------
                               673,198        475,458       331,075       313,024        251,355

Consumer:
  Mortgages
    (1-4 family
     residential)              428,453        322,310       184,479       171,102        150,358
  Installment                  125,856         96,188        89,150        83,953         75,017
  Home equity                  621,597        494,047       377,437       311,122        225,425
  Credit lines                  19,099         12,993        12,330        10,967         10,127
-------------------------------------------------------------------------------------------------
                             1,195,005        925,538       663,396       577,144        460,927
-------------------------------------------------------------------------------------------------
Total loans                 $2,961,088     $2,280,326    $1,662,986    $1,484,330     $1,228,404
-------------------------------------------------------------------------------------------------
</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), other commercial real estate,
and construction  loans.  Owner-occupied  and other commercial real estate 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 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. Such loans comprised
approximately 88% of consumer loans at December 31, 1999.

                                                                              27
<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, 1999, are summarized in the following table.

<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------
                                                     December 31, 1999
-------------------------------------------------------------------------------------------------
                                Due in One Year   Due in One to     Due in Over Five
                                   or Less         Five Years            Years            Total
-------------------------------------------------------------------------------------------------
(dollars in thousands)
<S>                                 <C>            <C>                 <C>              <C>
Commercial real
  estate:
    Owner
      Occupied/other                $137,255       $  643,498          $126,420       $  907,173
    Construction                     134,997           50,368               347          185,712
-------------------------------------------------------------------------------------------------
                                     272,252          693,866           126,767        1,092,885
Commercial:
    Term                             124,036          201,514            68,403          393,953
    Line of credit                   266,522           11,395                 0          277,917
    Demand                             1,289               39                 0            1,328
-------------------------------------------------------------------------------------------------
                                     391,847          212,948            68,403          673,198
Consumer:
    Mortgages
      (1-4 family
       Residential)                   12,508           51,218           364,727          428,453
    Installment                       63,869           58,178             3,809          125,856
    Home equity                       74,173          270,802           276,622          621,597
    Credit lines                       7,074           12,025                 0           19,099
-------------------------------------------------------------------------------------------------
                                     157,624          392,223           645,158        1,195,005
-------------------------------------------------------------------------------------------------
Total loans                         $821,723       $1,299,037          $840,328       $2,961,088
-------------------------------------------------------------------------------------------------
Interest rates:
    Predetermined                   $312,139       $1,045,872          $630,463       $1,988,474
    Floating                         509,584          253,165           209,865          972,614
-------------------------------------------------------------------------------------------------
Total loans                         $821,723       $1,299,037          $840,328       $2,961,088
-------------------------------------------------------------------------------------------------
</TABLE>

During 1999,  loans increased  $680.8 million,  or 30% from $2.3 billion to $3.0
billion.  During  the third  quarter of 1999,  the  Company  securitized  $129.8
million of residential  mortgage loans,  and included the securities in its held
to maturity investment portfolio. At December 31, 1999, loans represented 52% of
total  deposits  and 44% of total  assets.  All  segments of the loan  portfolio
experienced  growth in 1999,  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, 1999,  $475.7 million,
or 52%, 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 loans secured by one to four family  residential  properties,  including home
equity loans and home equity lines of credit.

Commercial  real estate  construction  loans  increased  $62.9 million to $185.7
million  in 1999.  At  December  31,  1999,  construction  loans for 1-4  family
residential  dwellings  totaled $5.5 million and  construction  loans secured by
commercial  properties amounted to $50.0 million.  The balance of $130.2 million
was for land development, of which $84.6 million was residential. As of December
31,  1999,  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, 1999
were $12.2 million or .18% of total assets, as compared to $14.7 million or .27%
of total assets at December 31, 1998.

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, 1999
were $8.7 million as compared to $8.6 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, 1999, loans past due 90 days or more
and still accruing interest amounted to $499 thousand,  compared to $1.0 million
at December 31, 1998.  Additional  loans  considered as potential  problem loans
($26.6  million at December  31,  1999) 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 $3.5 million at December 31, 1999 as compared to
$6.1 million at December 31, 1998.  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.

28
<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, 1995 through 1999.

<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------
                                                     Year Ended December 31,
-------------------------------------------------------------------------------------------------
                                      1999         1998         1997          1996         1995
-------------------------------------------------------------------------------------------------
(dollars in thousands)
<S>                                  <C>         <C>          <C>           <C>          <C>
Non-accrual loans (1):
  Commercial                         $ 2,254     $ 2,655      $ 2,937       $ 1,746      $ 1,877
  Consumer                               674         831          703         1,164        1,026
  Real estate
    Construction                          55           0        1,345         2,156        1,787
    Mortgage                           5,230       4,849        7,886         6,378        5,431
-------------------------------------------------------------------------------------------------
  Total non-accrual
    Loans                              8,213       8,335       12,871        11,444       10,121
-------------------------------------------------------------------------------------------------
Restructured loans (1):
  Commercial                             277          17           19            21          161
  Consumer
  Real estate
    Construction
    Mortgage                             192         217            0           481          301
-------------------------------------------------------------------------------------------------
  Total restructured
    Loans                                469         234           19           502          462
-------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------
Total non-performing
  Loans                                8,682       8,569       12,890        11,946       10,583
-------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------
Other real estate                      3,523       6,081        5,845         8,252       11,862
-------------------------------------------------------------------------------------------------
Total non-performing
  Assets                             $12,205     $14,650      $18,735       $20,198      $22,445
-------------------------------------------------------------------------------------------------
Non-performing
  assets as a percent
  of total assets                       0.18%       0.27%        0.43%         0.56%        0.74%
-------------------------------------------------------------------------------------------------
Loans past due 90
  days or more and still
  accruing interest                  $   499     $ 1,029      $   818       $   948      $   626
-------------------------------------------------------------------------------------------------
<FN>
(1)     Interest  income  of  approximately  $986,000,  $1,030,000,  $1,434,000,
        $1,263,000, and $1,080,000 would have been recorded in 1999, 1998, 1997,
        1996 and 1995 respectively,  on non-performing  loans in accordance with
        their original terms.  Actual interest  recorded on these loans amounted
        to $255,000 in 1999,  $266,000  in 1998,  $323,000 in 1997,  $262,000 in
        1996, and $299,000 in 1995.
</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 1999, net charge-offs  amounted to $2.1 million, or .08% of average loans
outstanding  for the year,  compared  to $1.6  million or .08% of average  loans
outstanding  for 1998.  During 1999,  the Company  recorded  provisions  of $9.2
million to the allowance  for loan losses  compared to $8.8 million for 1998. At
December 31, 1999,  the  allowance  aggregated  $38.4  million or 1.30% of total
loans and provided coverage of 442% 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,
-------------------------------------------------------------------------------------------------
                                       1999        1998         1997        1996        1995
-------------------------------------------------------------------------------------------------
(dollars in thousands)
<S>                                    <C>         <C>          <C>        <C>          <C>
Balance at beginning
    of period                          $31,265     $24,150      $20,397    $17,919      $16,214
Provisions charged to
    operating expenses                   9,175       8,762        5,805      5,798        3,453
-------------------------------------------------------------------------------------------------
                                        40,440      32,912       26,202     23,717       19,667
-------------------------------------------------------------------------------------------------
Recoveries of loans
    previously charged-off:
        Commercial                         551         418          360        378          488
        Consumer                           286         305          415        276          245
        Commercial real
           estate                          132         764          144         95          292
-------------------------------------------------------------------------------------------------
Total recoveries                           969       1,487          919        749        1,025
-------------------------------------------------------------------------------------------------
Loans charged-off:
        Commercial                      (1,599)     (1,281)      (1,481)    (1,647)      (1,522)
        Consumer                        (1,078)     (1,352)      (1,344)    (1,119)        (811)
        Commercial real
           estate                         (350)       (501)        (146)    (1,303)        (440)
-------------------------------------------------------------------------------------------------
Total charged-off                       (3,027)     (3,134)      (2,971)    (4,069)      (2,773)
-------------------------------------------------------------------------------------------------
Net charge-offs                         (2,058)     (1,647)      (2,052)    (3,320)      (1,748)
-------------------------------------------------------------------------------------------------
Balance at end of period               $38,382     $31,265      $24,150    $20,397      $17,919
-------------------------------------------------------------------------------------------------
Net charge-offs as a
    percentage of average
    loans outstanding                     0.08%       0.08%        0.13%      0.24%        0.15%
-------------------------------------------------------------------------------------------------
Allowance for loan losses
    as a percentage of
    year-end loans                        1.30%       1.37%        1.45%      1.37%        1.46%
-------------------------------------------------------------------------------------------------
</TABLE>

                                                                              29
<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,
------------------------------------------------------------------------------------------------------------------------------------
                                   1999                 1998                   1997                 1996                  1995
------------------------------------------------------------------------------------------------------------------------------------
                                      % 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                  $14,268     23%      $ 7,738      21%       $ 5,236    20%       $ 4,108     21%       $ 3,529    20%
 Consumer                      4,120     40         7,800      41          6,406    40          4,808     39          4,622    38
 Commercial real
    estate                    19,994     37        15,727      38         12,508    40         11,481     40          9,768    42
------------------------------------------------------------------------------------------------------------------------------------
                             $38,382    100%      $31,265     100%       $24,150   100%       $20,397    100%       $17,919   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.

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------
                                                     December 31,
------------------------------------------------------------------------------------
                                      1999               1998               1997
------------------------------------------------------------------------------------
(dollars in thousands)
<S>                                <C>                <C>                <C>
U.S. Government agency
    and mortgage-backed
    obligations                    $1,582,933         $1,154,765         $1,267,784
Obligations of state and
    political subdivisions             42,182             26,041             23,515
Equity securities                       9,107             15,397             11,364
Other                                  30,035            108,801             28,021
------------------------------------------------------------------------------------
Securities available
    for sale                       $1,664,257         $1,305,004         $1,330,684
------------------------------------------------------------------------------------
U.S. Government agency
    and mortgage-backed
    obligations                    $1,134,115         $1,165,290         $  937,324
Obligations of state and
    political subdivisions             35,667             30,654             29,103
Other                                  32,110             24,930             19,249
------------------------------------------------------------------------------------
Securities held to
    maturity                       $1,201,892         $1,220,874         $  985,676
------------------------------------------------------------------------------------
</TABLE>

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 $372.7 million from $2.6 billion to
$3.0 billion at December 31, 1999. Deposit growth and other funding sources were
used to increase the  Company's  investment  portfolio.  The  available for sale
portfolio  increased $359.3 million to $1.7 billion,  and the securities held to
maturity portfolio  decreased $19.0 million to $1.2 billion at year-end 1998. In
connection with the acquisition of CFBC and PFC,  management  reclassified $91.0
million of investment securities from held to maturity to available from sale in
the first quarter of 1999.  Unrealized  losses on those  securities  transferred
were approximately $330 thousand.  The portfolio of trading securities increased
$32.5 million from year-end 1998 to $117.8 million at year-end 1999. At December
31,  1999,  the average  life and  duration  of the  investment  portfolio  were
approximately  6.3 years and 4.5 years,  respectively,  as compared to 4.4 years
and 3.2 years,  respectively,  at December  31,  1998.  At December 31, 1999 the
yield on the portfolio was 6.53%, up from 6.23% at December 31, 1998.

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

30
<PAGE>
Management's Discussion and Analysis of
Financial Condition and Results of Operations

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 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,  1999,  the yield on the
investment  portfolio was 6.39%,  an increase of nine basis points from 6.30% in
fiscal 1998.

At December 31, 1999, the unrealized  depreciation  in securities  available for
sale  included  in  stockholders'  equity  totaled  $39.7  million,  net of tax,
compared to unrealized appreciation of $7.0 million, net of tax, at December 31,
1998.

The  contractual  maturity  distribution  and  weighted  average  yield  of  the
Company's  investment  portfolio  (excluding  equity and trading  securities) at
December 31, 1999, 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, 1999
------------------------------------------------------------------------------------------------------------------------------------
                                  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)
<S>                                <C>       <C>       <C>       <C>      <C>      <C>      <C>         <C>       <C>         <C>
Securities available for sale:
U.S. Government agency and
    mortgage-backed obligations    $34,975   3.67%     $59,035   6.10%    $24,556  6.22%    $1,464,367  6.58%     $1,582,933  6.49%
Obligations of state and
    political subdivisions           3,485   5.79       11,449   6.99      20,309  7.58          6,939  7.81          42,182  7.31
Other securities                    13,188   4.56          476   7.29       5,851  7.20         10,520  7.52          30,035  6.16
------------------------------------------------------------------------------------------------------------------------------------
                                   $51,648   4.04%     $70,960   6.25%    $50,716  6.88%    $1,481,826  6.59%     $1,655,150  6.51%
------------------------------------------------------------------------------------------------------------------------------------
Securities held to maturity:
U.S. Government agency and
    mortgage-backed obligations                        $59,168   6.44%    $48,413  5.95%    $1,026,534  6.64%     $1,134,115  6.60%
Obligations of state and
    political subdivisions         $32,287   6.14%       2,505   7.04                              875 11.24          35,667  6.33
Other securities                    31,110   6.00          830   9.50                              170  5.63          32,110  6.09
------------------------------------------------------------------------------------------------------------------------------------
                                   $63,397   6.07%     $62,503   6.51%    $48,413  5.95%    $1,027,579  6.64%     $1,201,892  6.57%
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>

                                                                              31
<PAGE>
Management's Discussion and Analysis of
Financial Condition and Results of Operations

Deposits

Total  deposits at December  31, 1999 were $5.6  billion,  an increase of $680.1
million or 14% above total  deposits of $4.9 billion at December  31, 1998.  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.
Certificates of deposit in excess of $100 thousand  decreased $18.3 million from
year-end  1998 to year-end  1999,  and all of the 1999 growth in deposits was in
the various core categories.

Total deposits  averaged $5.3 billion for 1999, an increase of $889.2 million or
20% above the 1998 average.  The average balance of  noninterest-bearing  demand
deposits in 1999 was $1.2  billion,  a $274.8  million or 30% increase  over the
average  balance for 1998.  The average  total balance of passbook and statement
savings accounts  increased  $143.3 million,  or 17% compared to the prior year.
The average balance of interest-bearing demand accounts (money market and N.O.W.
accounts) for 1999 was $1.8 billion,  a $437.9  million or 31% increase over the
average  balance for the prior year.  The average  balance of time  deposits for
1999 was $1.2  billion,  a $33.2 million  increase over the average  balance for
1998.  For 1999,  the cost of total  deposits  was 2.38% as compared to 2.72% in
1998.

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 1999, 1998, and 1997 are presented below.

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
                                                         1999                        1998                            1997
------------------------------------------------------------------------------------------------------------------------------------
                                                 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                           $1,202,412                   $  927,601                    $  728,426
  Interest-bearing (money market and
    N.O.W. accounts)                             1,835,011    2.47%           1,397,154     2.53%           1,076,945       2.53%
Savings deposits                                 1,011,642    2.06              868,311     2.39              732,688       2.53
Time deposits/public funds                       1,202,849    4.91            1,169,691     5.36            1,013,526       5.33
------------------------------------------------------------------------------------------------------------------------------------
Total deposits                                  $5,251,914                   $4,362,757                    $3,551,585
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>

The  remaining  maturity of  certificates  of deposit for $100,000 or more as of
December 31, 1999, 1998, and 1997 is presented below:

<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------
Maturity                                         1999                     1998                    1997
-----------------------------------------------------------------------------------------------------------
(dollars in thousands)
<S>                                            <C>                      <C>                     <C>
3 months or less                               $323,029                 $332,300                $287,226
3 to 6 months                                    49,983                   47,123                  40,745
6 to 12 months                                   22,733                   33,077                  24,268
Over 12 months                                    7,628                    9,172                   7,857
-----------------------------------------------------------------------------------------------------------
Total                                          $403,373                 $421,672                $360,096
-----------------------------------------------------------------------------------------------------------
</TABLE>

32
<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, 1999.
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------
                                                 Interest Rate Sensitivity Gaps
                                                       December 31, 1999
---------------------------------------------------------------------------------------------------

                               1-90        91-180     181-365        1-5      Beyond
                               Days         Days        Days        Years     5 Years     Total
---------------------------------------------------------------------------------------------------
(dollars in millions)
<S>                          <C>          <C>         <C>         <C>         <C>        <C>
Rate sensitive:
  Interest-earning
    Loans                    $1,120.8     $   55.2    $  99.8     $1,053.3    $629.1     $2,958.2
    Investment
      securities                 89.8         16.3       36.8        164.8   2,676.3      2,984.0
    Federal funds sold            5.3                                                         5.3
---------------------------------------------------------------------------------------------------
Total interest-
  earning assets              1,215.9         71.5      136.6      1,218.1   3,305.4      5,947.5
---------------------------------------------------------------------------------------------------
Interest-bearing
  liabilities
  Transaction
    accounts                    979.0                                        2,139.6      3,118.6
  Time deposits                 527.0        177.6      165.7        199.1                1,069.4
  Other borrowed
    money                       558.1                                                       558.1
  Long-term debt                                                      23.0      57.5         80.5
---------------------------------------------------------------------------------------------------
Total interest-
  bearing
  liabilities                 2,064.1        177.6      165.7        222.1   2,197.1      4,826.6
---------------------------------------------------------------------------------------------------
Period gap                     (848.2)      (106.1)     (29.1)       996.0   1,108.3     $1,120.9
---------------------------------------------------------------------------------------------------
Cumulative gap                $(848.2)     $(954.3)   $(983.4)       $12.6  $1,120.9
---------------------------------------------------------------------------------------
Cumulative gap as a
  percentage of total
  interest-earning
  assets                        (14.3)%      (16.0)%    (16.5)%        0.2%     18.8%
-------------------------------------------------------------------------------------------
</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.

                                                                              33
<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, 1999, the Company's  income  simulation  model indicates net income
would  increase  by 4.8% and  1.0% in the  first  year and over a two year  time
frame,  respectively,  if rates  decreased as described  above, as compared to a
decrease  of 1.0% and  6.3%,  respectively,  at  December  31,  1998.  The model
projects  that net income would  decrease by 6.7% and 5.6% in the first year and
over a two year time frame, respectively, if rates increased as described above,
as compared to a decrease of 2.9% and 2.0%, respectively,  at December 31, 1998.
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  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, 1999,  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, 1999 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 1999,  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 1999 to
meet short-term liquidity needs. For 1999, short-term borrowings averaged $183.6
million as compared to $68.8 million in 1998.  The average rate on the Company's
short-term borrowings was 5.38% and 5.83% during 1999 and 1998, respectively. As
of  December  31,  1999,   short-term  borrowings  included  $292.3  million  of
securities  sold under  agreements  to  repurchase  at an average rate of 5.88%,
$20.0 million of federal funds purchased at an average rate of 4.50%, and $245.8
million of borrowings under lines of credit at an average rate of 5.67%.

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.

34
<PAGE>
Management's Discussion and Analysis of
Financial Condition and Results of Operations

Stockholders' Equity and Dividends

At December 31, 1999,  stockholders'  equity  totaled $356.8  million,  up $33.2
million or 10% over stockholders' equity of $323.6 million at December 31, 1998.
This  increase  was  primarily  due to the  Company's  net  income for the year.
Stockholders'  equity as a percent  of total  assets was 5.38% at  December  31,
1999, as compared to 5.96% at December 31, 1998.

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.

<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------
                                                                           Minimum
                                          December 31,             Regulatory Requirements
-------------------------------------------------------------------------------------------------
                                        1999        1998           1999              1998
-------------------------------------------------------------------------------------------------
<S>                                   <C>          <C>             <C>             <C>
Risk based capital ratios:
    Tier 1                             11.40%       12.09%           4.00%           4.00%
    Total capital                      12.72        13.71            8.00            8.00
Leverage ratio                          7.02         7.05            4.00            3.00
-------------------------------------------------------------------------------------------------
</TABLE>

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,  1999,  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.
The prices and dividends  per share have been  adjusted to reflect  common stock
dividends  of 5% with  record  dates of January 7,  2000,  January 7, 1999,  and
January 7, 1998,  as well as the 5-for-4  stock split in the form of a 25% stock
dividend  with a record date of July 13, 1998.  As of February  29, 2000,  there
were approximately 19,000 holders of record of the Company's common stock.

<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------
                               Common Share Data
-----------------------------------------------------------------------------------------
                                        Market Prices
                                ------------------------------      Cash Dividends
                                     High            Low              Per Share
-----------------------------------------------------------------------------------------
<S>                                <C>            <C>             <C>
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

1998 Quarter Ended
  December 31                         $47.95         $31.63          $0.17687
  September 30                         43.03          31.86           0.35556
  June 30                              44.17          38.64           0.17415
  March 31                             39.95          31.25           0.16586
-----------------------------------------------------------------------------------------
</TABLE>

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 - 1998 versus 1997

Net income for 1998 was $42.2 million compared to $44.4 million in 1997. Diluted
net income per common share was $1.42 compared to $1.56 per common share for the
prior year.

Net  interest  income  on a  tax-equivalent  basis for 1998  amounted  to $197.6
million, an increase of $30.6 million, or 18% over 1997.

Interest  income on a  tax-equivalent  basis  increased  $50.8 million or 18% to
$327.6 million in 1998. This increase was primarily  related to volume increases
in the loan and  investment  portfolios.  Interest  expense  for 1998 rose $20.2

                                                                              35
<PAGE>
Management's Discussion and Analysis of
Financial Condition and Results of Operations

million to $130.0  million  from  $109.8  million  in 1997.  This  increase  was
primarily related to increases in the Company's levels of deposits.

The  provision for loan losses was $8.8 million in 1998 compared to $5.8 million
in the prior year.

For 1998, noninterest income totaled $96.3 million, an increase of $33.9 million
or 54% from 1997.  The increase was due primarily to increased  other  operating
income,  which rose $26.5  million  from 1997,  including  an  increase  of $8.7
million in revenues (to $25.2 million in 1998) from Commerce  Insurance,  and an
increase of $10.8 million in revenues  from CCMI,  which was formed in the first
quarter of 1998. In addition,  deposit  charges and service fees  increased $6.8
million  over  1997  due to  higher  transaction  volumes,  and  net  investment
securities gains were $597 thousand higher in 1998 than the prior year.

Noninterest  expenses  totaled  $214.0  million  for 1998,  an increase of $60.1
million,  or 39% over 1997.  Contributing  to this  increase was the addition of
eight new branches  during 1998,  the expansion of Commerce  Insurance,  and the
formation  of CCMI.  With the  addition of these new  offices  and CCMI,  staff,
facilities,  marketing and related expenses rose accordingly.  Salaries included
$7.5  million  paid in 1998  under  imminent  change in  control  provisions  of
employment  contracts.  Other  noninterest  expenses rose $13.4 million to $35.8
million in 1998. Higher bank- card related service charges,  increased  business
development  expenses,  and  higher  provisions  for  non-credit-related  losses
contributed to the increase. In addition, in 1998 the Company paid approximately
$2.2  million  in  directors  compensation  under  imminent  change  in  control
provisions of a benefit plan.

Impact of Year 2000

In prior years,  the Company  discussed  the nature and progress of its plans to
become Year 2000 ready.  In 1999,  the Company  completed  its  remediation  and
testing of systems.  As a result of those planning and  implementation  efforts,
the  Company   experienced  no  significant   disruptions  in  mission  critical
information and technology and non-information  technology systems, and believes
those  systems  successfully  responded  to  the  Year  2000  date  change.  The
cumulative  cost of the Year 2000  compliance  process,  including  internal and
external  personnel and any required  hardware and software  modifications,  was
less than $1.0  million.  The  Company  is not  aware of any  material  problems
resulting  from Year 2000  issues,  either  with its  internal  systems,  or the
products and services of third parties (including loan customers).

Mergers and Acquisitions

In January, 2000, Traber and Vreeland,  Inc., an insurance brokerage agency, was
merged  with and into  Commerce  Insurance.  The  Company  issued  approximately
284,000 shares of common stock in exchange for all of the outstanding  shares of
this  agency.  The  transaction  was  accounted  for as a pooling of  interests.
However,  the Company does not expect to restate the financial statements of the
periods prior to the  acquisition  as the changes,  in the  aggregate,  would be
immaterial.

36

<PAGE>
Commerce Bancorp, Inc. and Subsidiaries
Consolidated Balance Sheets

<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------------------
                                                                                                 December 31,
----------------------------------------------------------------------------------------------------------------------------
                   (dollars in thousands)                                                 1999                   1998
----------------------------------------------------------------------------------------------------------------------------
<S>                                                                                    <C>                   <C>
Assets             Cash and due from banks                                             $  317,624            $  267,220
                   Federal funds sold                                                       5,300                10,395
                   ---------------------------------------------------------------------------------------------------------
                        Cash and cash equivalents                                         322,924               277,615
                   Loans held for sale                                                      5,704                22,418
                   Trading securities                                                     117,837                85,359
                   Securities available for sale                                        1,664,257             1,305,004
                   Securities held to maturity                                          1,201,892             1,220,874
                        (market value 1999-$1,155,447; 1998-$1,223,667)
                   Loans                                                                2,961,088             2,280,326
                        Less allowance for loan losses                                     38,382                31,265
                   ---------------------------------------------------------------------------------------------------------
                                                                                        2,922,706             2,249,061
                   Bank premises and equipment, net                                       198,515               147,448
                   Other assets                                                           201,958               116,411
                   ---------------------------------------------------------------------------------------------------------
                                                                                       $6,635,793            $5,424,190
----------------------------------------------------------------------------------------------------------------------------
Liabilities        Deposits:
                        Demand:
                            Interest-bearing                                           $2,063,899            $1,682,958
                            Noninterest-bearing                                         1,420,865             1,162,126
                        Savings                                                         1,054,791               973,324
                        Time                                                            1,069,365             1,110,400
                   ---------------------------------------------------------------------------------------------------------
                                   Total deposits                                       5,608,920             4,928,808

                   Other borrowed money                                                   558,092                27,845
                   Other liabilities                                                       31,525                62,203
                   Obligation to Employee Stock Ownership Plan (ESOP)                                             1,282
                   Trust Capital Securities - Commerce Capital Trust I                     57,500                57,500
                   Long-term debt                                                          23,000                23,000
                   ---------------------------------------------------------------------------------------------------------
                                                                                        6,279,037             5,100,638
----------------------------------------------------------------------------------------------------------------------------
Stockholders'      Common stock, 29,844,314 shares issued                                  44,418                40,988
Equity                  (28,790,949 shares in 1998)
                   Capital in excess of par or stated value                               321,443               236,928
                   Retained earnings                                                       32,263                41,536
                   Accumulated other comprehensive income                                 (39,744)                7,006
                   ---------------------------------------------------------------------------------------------------------
                                                                                          358,380               326,458
                   Less commitment to ESOP                                                                        1,282
                   Less treasury stock, at cost                                             1,624                 1,624
                   ---------------------------------------------------------------------------------------------------------
                                   Total stockholders' equity                             356,756               323,552
                   ---------------------------------------------------------------------------------------------------------
                                                                                       $6,635,793            $5,424,190
                   ---------------------------------------------------------------------------------------------------------
                   See accompanying notes.
</TABLE>

                                                                              37
<PAGE>
Commerce Bancorp, Inc. and Subsidiaries
Consolidated Statements of Income

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------
                                                                                         Year Ended December 31,
------------------------------------------------------------------------------------------------------------------------------
              (dollars in thousands, except per share amounts)                      1999           1998           1997
------------------------------------------------------------------------------------------------------------------------------
<S>           <C>                                                                 <C>           <C>            <C>
Interest      Interest and fees on loans                                           $215,170      $167,914       $143,050
Income        Interest on investment securities                                     170,300       154,164        129,945
              Other interest                                                            978         2,565          2,113
              ----------------------------------------------------------------------------------------------------------------
                                   Total interest income                            386,448       324,643        275,108
              ----------------------------------------------------------------------------------------------------------------

------------------------------------------------------------------------------------------------------------------------------
Interest      Interest on deposits:
Expense              Demand                                                          45,274        35,477         27,218
                     Savings                                                         20,835        20,672         18,571
                     Time                                                            59,021        62,692         53,974
              ----------------------------------------------------------------------------------------------------------------
                                   Total interest on deposits                       125,130       118,841         99,763
              Interest on other borrowed money                                        9,880         4,014          5,136
              Interest on long-term debt                                              7,071         7,127          4,887
              ----------------------------------------------------------------------------------------------------------------
                                   Total interest expense                           142,081       129,982        109,786
              ----------------------------------------------------------------------------------------------------------------

              Net interest income                                                   244,367       194,661        165,322
              Provision for loan losses                                               9,175         8,762          5,805
              ----------------------------------------------------------------------------------------------------------------
              Net interest income after provision for loan losses                   235,192       185,899        159,517
------------------------------------------------------------------------------------------------------------------------------
Noninterest   Deposit charges and service fees                                       44,196        35,343         28,555
Income        Other operating income                                                 67,818        58,042         31,560
              Net investment securities gains                                         2,582         2,892          2,295
              ----------------------------------------------------------------------------------------------------------------
                                   Total noninterest income                         114,596        96,277         62,410
              ----------------------------------------------------------------------------------------------------------------

------------------------------------------------------------------------------------------------------------------------------
Noninterest   Salaries                                                              101,650        87,078         58,577
Expense       Benefits                                                               20,232        18,475         13,840
              Occupancy                                                              22,407        18,565         15,835
              Furniture and equipment                                                31,659        24,995         19,934
              Office                                                                 21,356        16,974         13,091
              Audit and regulatory fees and assessments                               2,623         2,246          1,745
              Marketing                                                              10,155         8,451          6,563
              Other real estate (net)                                                 1,786         1,348          1,814
              Other                                                                  40,655        35,818         22,405
              ----------------------------------------------------------------------------------------------------------------
                                   Total noninterest expenses                       252,523       213,950        153,804
              ----------------------------------------------------------------------------------------------------------------
              Income before income taxes                                             97,265        68,226         68,123
              Provision for federal and state income taxes                           31,305        26,071         23,691
              ----------------------------------------------------------------------------------------------------------------
              Net income                                                             65,960        42,155         44,432
              Dividends on preferred stocks                                                                          563
              ----------------------------------------------------------------------------------------------------------------
              Net income applicable to common stock                                $ 65,960      $ 42,155       $ 43,869
              ----------------------------------------------------------------------------------------------------------------
              Net income per common and common equivalent share:
                            Basic                                                  $   2.26      $   1.49       $   1.64
              ----------------------------------------------------------------------------------------------------------------
                            Diluted                                                $   2.17      $   1.42       $   1.56
              ----------------------------------------------------------------------------------------------------------------
              Average common and common equivalent shares outstanding:
                            Basic                                                    29,155        28,254         26,715
              ----------------------------------------------------------------------------------------------------------------
                            Diluted                                                  30,465        29,662         28,386
              ----------------------------------------------------------------------------------------------------------------
              Cash dividends declared, common stock                                $   0.83      $   0.87       $   0.55
              ----------------------------------------------------------------------------------------------------------------
              See accompanying notes.
</TABLE>

38
<PAGE>
Commerce Bancorp, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
                                                                                                  Year Ended December 31,
------------------------------------------------------------------------------------------------------------------------------------
              (dollars in thousands)                                                        1999             1998        1997
------------------------------------------------------------------------------------------------------------------------------------
<S>           <C>                                                                       <C>              <C>         <C>
Operating     Net income                                                                $    65,960      $  42,155   $  44,432
Activities    Adjustments to reconcile net income to net cash
                 (used) provided by operating activities:
                     Provision for loan losses                                                9,175          8,762       5,805
                     Provision for depreciation, amortization
                         and accretion                                                       28,186         26,640      19,285
                     Gains on sales of securities available for sale                         (2,582)        (2,892)     (2,295)
                     Proceeds from sales of mortgages held for sale                         111,055         67,125      59,571
                     Originations of mortgages held for sale                                (94,341)       (61,629)    (67,950)
                     Net loan (chargeoffs)                                                   (2,058)        (1,647)     (2,051)
                     Net (increase) decrease in trading securities                          (32,478)       (77,448)      7,416
                     Increase in other assets                                               (60,142)       (44,022)    (17,628)
                     (Decrease) increase in other liabilities                               (23,064)        48,226       3,544
                     Deferred income tax benefit                                             (3,468)        (3,115)     (2,499)
              ----------------------------------------------------------------------------------------------------------------------
                                   Net cash (used) provided by operating activities          (3,757)         2,155      47,630

Investing     Proceeds from the sales of securities available for sale                      398,274        435,488       231,190
Activities    Proceeds from the maturity of securities available for sale                   313,373        404,927       163,433
              Proceeds from the maturity of securities held to maturity                     241,690        374,540       165,336
              Purchase of securities available for sale                                  (1,002,738)      (807,276)     (846,919)
              Purchase of securities held to maturity                                      (236,623)      (616,780)     (316,945)
              Net increase in loans                                                        (820,299)      (626,307)     (189,091)
              Proceeds from sales of loans                                                    9,769          8,966        10,020
              Purchases of premises and equipment                                           (73,303)       (48,320)      (33,108)
              ----------------------------------------------------------------------------------------------------------------------
                                   Net cash used by investing activities                 (1,169,857)      (874,762)     (816,084)

Financing     Net increase in demand and savings deposits                                   721,147        976,959       491,681
Activities    Net (decrease) increase in time deposits                                      (41,035)       167,272        41,029
              Net increase (decrease) in other borrowed money                               530,247       (195,455)      153,300
              Issuance of common stock                                                                       1,795         1,432
              Dividends paid                                                                (23,476)       (23,062)      (13,693)
              Proceeds from issuance of Trust Capital Securities                                                          57,500
              Proceeds from issuance of common stock under
                 dividend reinvestment and other stock plans                                 31,428          9,428         6,876
              Other                                                                             612          8,509         1,553
              ----------------------------------------------------------------------------------------------------------------------
                                   Net cash provided  by financing activities             1,218,923        945,446       739,678

              Increase (decrease) in cash and cash equivalents                               45,309         72,839       (28,776)
              Cash and cash equivalents at beginning of year                                277,615        204,776       233,552
              ----------------------------------------------------------------------------------------------------------------------
              Cash and cash equivalents at end of year                                  $   322,924      $ 277,615     $ 204,776
              ----------------------------------------------------------------------------------------------------------------------

              Supplemental disclosures of cash flow information:
                 Cash paid during the year for:
                     Interest                                                           $   141,810      $ 124,535     $ 107,218
                     Income taxes                                                            26,753         29,755        25,538
              Other noncash activities:
                 Transfer of securities to securities available for sale                     91,010                       83,773
                 Securitization of loans                                                    129,768
              ----------------------------------------------------------------------------------------------------------------------
              See accompanying notes.
</TABLE>

                                                                              39
<PAGE>
Commerce Bancorp, Inc. and Subsidiaries
Consolidated Statements of Changes in Stockholders' Equity

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
Years ended December 31, 1999, 1998 and 1997
                                                                        Capital in
                                                                           Excess                              Accumulated
                                                                           of Par           Commitment         Other Compre-
(in thousands, except per share amounts)               Common  Preferred or Stated Retained    to    Treasury    hensive
                                                        Stock    Stock     Value   Earnings   ESOP     Stock     Income     Total
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                    <C>      <C>      <C>       <C>      <C>       <C>      <C>        <C>
Balances at December 31, 1996                          $27,329  $7,536   $164,493  $42,860  $(4,403)  $(3,352) $  (5,919) $228,544
Acquisition of insurance brokerage agencies
   (308 shares)                                            332                (55)                                             277
------------------------------------------------------------------------------------------------------------------------------------
As adjusted balance at January 1, 1997                  27,661   7,536    164,438   42,860   (4,403)   (3,352)    (5,919)  228,821
Net income                                                                          44,432                                  44,432
  Other comprehensive income, net of tax
    Unrealized gain on securities (pre-tax $14,880)                                                               10,643    10,643
    Reclassification adjustment (pre-tax ($1,494))                                                                  (971)     (971)
                                                                                                                          ----------
  Other comprehensive income                                                                                                 9,672
                                                                                                                          ----------
           Total comprehensive income                                                                                       54,104
Common stock dividend and cash paid in lieu of
     fractional shares (925 shares)                      1,446             19,398  (20,868)                                    (24)
Cash dividends paid                                                                (13,669)                                (13,669)
Shares issued under dividend reinvestment and
     compensation and benefit plans (477 shares)           746              7,592                                            8,338
Other                                                     (201)    (30)    (1,262)            2,095     1,728                2,330
------------------------------------------------------------------------------------------------------------------------------------
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
------------------------------------------------------------------------------------------------------------------------------------
See accompanying notes.
</TABLE>

40
<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 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 1999 presentation.  All common stock and per share information
     has been adjusted for the 5% common stock dividend declared on December 21,
     1999.

     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  $6,499,000,  $5,584,000,  and $1,112,000 in 1999, 1998,
     and 1997, 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 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

                                                                              41
<PAGE>
Commerce Bancorp, Inc. and Subsidiaries
Notes to Consolidated Financial Statements

     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  $2,494,000  and  $2,788,000  at  December  31, 1999 and 1998,
     respectively.  Other  intangible  assets are  amortized on a  straight-line
     basis over 10 to 15 year lives.  Other  intangibles  amounted to $1,808,000
     and $2,019,000 at December 31, 1999 and 1998, 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 1999
     and 1998 were approximately $13,596,000 and $12,242,000, respectively.

     Recent Accounting Statements
     In June 1998, the FASB issued  Statement No. 133 "Accounting for Derivative
     Instruments  and Hedging  Activities"  (FAS 133).  FAS 133 will require the
     Company to recognize  all  derivatives  on the balance sheet at fair value.
     Derivatives  that are not hedges  must be  adjusted  to fair value  through
     income. If the derivative is a hedge, depending on the nature of the hedge,
     changes in the fair value of the  derivative  will either be offset against
     the change in fair value of the hedged asset or liability  through earnings
     or  recognized  in other  comprehensive  income  until the  hedged  item is
     recognized in earnings. The ineffective portion of a derivative's change in
     fair value will be immediately recognized in earnings. FAS 133, as amended,
     becomes effective for the Company beginning January 1, 2001. Although early
     adoption is allowed in any  quarterly  period after June 1998,  the Company
     has no plans to adopt FAS 133  prior to the  effective  date.  Based on the
     Company's  minimal use of derivatives at the current time,  management does
     not expect the adoption of FAS 133 to have a significant  effect on results
     of operations or the financial position of the Company. However, the impact
     from  adopting  FAS 133  will  depend  on the  nature  and  purpose  of the
     derivative instruments in use by the Company at that time.

2.   Mergers and Acquisitions

     In January 1997,  Colkate,  Inc., t/a The Morrissey Agency, Mt. Laurel, New
     Jersey,  was merged with and into  Commerce  Insurance.  In December  1997,
     Joseph J.  Reinhart and  Associates,  Inc.,  Cherry  Hill,  NJ, a risk/loss
     management and loss investigation consulting firm, and Associated Insurance
     Management,  Inc.,  Haddonfield,  NJ, an  employee  and  executive  benefit
     consulting firm, were merged with and into Commerce

42
<PAGE>
Commerce Bancorp, Inc. and Subsidiaries
Notes to Consolidated Financial Statements

     Insurance.  The Company issued approximately 308,000 shares of common stock
     in exchange for all of the outstanding  shares of the agencies  acquired in
     1997. In August 1998, J.A. Montgomery,  Inc., Wilmington,  DE, an insurance
     brokerage agency, was merged with and into Commerce 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 Insurance.  The Company issued  approximately
     67,000 shares of common stock in exchange for all of the outstanding shares
     of this agency. 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 engaging in
     certain   securities   activities   permitted   under  Section  20  of  the
     Glass-Steagall Act. 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.

     The former Independence Bancorp, Inc. ("Independence"),  Bergen County, New
     Jersey, was merged into Commerce Bancorp,  Inc. on January 21, 1997 and its
     wholly-owned   subsidiary  bank,  Independence  Bank  of  New  Jersey,  was
     thereafter renamed Commerce  Bank/North.  The Company issued  approximately
     3,849,000 shares of common stock to effect the merger.  The transaction was
     accounted for as a pooling of interests.

     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.

     In January 2000,  Traber and  Vreeland,  Inc.,  Randolph,  NJ, an insurance
     brokerage agency, was merged with and into Commerce Insurance.  The Company
     issued approximately  284,000 shares of common stock in exchange for all of
     the outstanding shares of this agency. The transaction was accounted for as
     a pooling of interests. However, the Company does not expect to restate the
     financial  statements  of the  periods  prior  to the  acquisition,  as the
     changes, in the aggregate, would be immaterial.

                                                                              43
<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,
     1999 and 1998 follows:
<TABLE>
------------------------------------------------------------------------------------------------------------------------------------
                                                                            December 31,
------------------------------------------------------------------------------------------------------------------------------------
                                                     1999                                                1998
------------------------------------------------------------------------------------------------------------------------------------
                                              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                 $1,644,698    $    7    $(61,772)    $1,582,933      $1,147,931    $ 9,254    $(2,420)    $1,154,765
Obligations of state and
    political subdivisions          43,379        87      (1,284)        42,182          25,338        703                    26,041
Equity securities                    7,655     2,206        (754)         9,107          11,988      3,584       (175)        15,397
Other                               30,209        71        (245)        30,035         108,770         50        (19)       108,801
------------------------------------------------------------------------------------------------------------------------------------
Securities available
    for sale                    $1,725,941    $2,371    $(64,055)    $1,664,257      $1,294,027    $13,591    $(2,614)    $1,305,004
------------------------------------------------------------------------------------------------------------------------------------
U.S. Government agency
    and mortgage-backed
    obligations                 $1,134,115    $   87    $(46,527)    $1,087,675      $1,165,290    $ 8,640    $(5,983)    $1,167,947
Obligations of state and
    political subdivisions          35,667                               35,667          30,654        158        (21)        30,791
Other                               32,110                    (5)        32,105          24,930                    (1)        24,929
------------------------------------------------------------------------------------------------------------------------------------
Securities held to
    maturity                    $1,201,892    $   87    $(46,532)    $1,155,447      $1,220,874    $ 8,798    $(6,005)    $1,223,667
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>

     The amortized cost and estimated market value of investment  securities (in
     thousands) at December 31, 1999, 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                    $   51,665        $   51,648             $   63,397      $   63,397
Due after one year through five years          32,219            32,094                 28,335          27,397
Due after five years through ten years         26,658            26,160
Due after ten years                            19,363            18,459                  1,045           1,040
Mortgage backed securities                  1,588,381         1,526,789              1,109,115       1,063,613
Equity securities                               7,655             9,107
-----------------------------------------------------------------------------------------------------------------
                                           $1,725,941        $1,664,257             $1,201,892      $1,155,447
-----------------------------------------------------------------------------------------------------------------
</TABLE>

44
<PAGE>
Commerce Bancorp, Inc. and Subsidiaries
Notes to Consolidated Financial Statements

     Proceeds from sales of securities  available for sale during 1999, 1998 and
     1997 were $398,274,000, $435,488,000 and $231,190,000,  respectively. Gross
     gains of $2,609,000,  $3,268,000 and $2,696,000  were realized on the sales
     in 1999, 1998 and 1997, respectively, and gross losses of $27,000, $376,000
     and $401,000 were realized in 1999, 1998 and 1997, respectively.

     At December 31, 1999 and 1998,  investment securities with a carrying value
     of  $564,836,000  and  $610,905,000,  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, 1999 and 1998:

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------
                                                                            December 31,
------------------------------------------------------------------------------------------------------
                                                                    1999                  1998
------------------------------------------------------------------------------------------------------
<S>                                                             <C>                   <C>
Commercial real estate:
        Owner-occupied                                          $   475,700           $   397,933
        Other                                                       431,473               358,600
        Construction                                                185,712               122,797
------------------------------------------------------------------------------------------------------
                                                                  1,092,885               879,330
Commercial loans:
        Term                                                        393,953               282,556
        Line of credit                                              277,917               192,485
        Demand                                                        1,328                   417
------------------------------------------------------------------------------------------------------
                                                                    673,198               475,458
Consumer:
        Mortgages (1-4 family residential)                          428,453               322,310
        Installment                                                 125,856                96,188
        Home equity                                                 621,597               494,047
        Credit lines                                                 19,099                12,993
------------------------------------------------------------------------------------------------------
                                                                  1,195,005               925,538
------------------------------------------------------------------------------------------------------
                                                                 $2,961,088            $2,280,326
------------------------------------------------------------------------------------------------------
</TABLE>

     At  December  31, 1999 and 1998,  loans of  approximately  $11,258,000  and
     $10,836,000, respectively, were outstanding to certain of the Company's and
     its subsidiaries' directors and officers, and approximately $22,467,000 and
     $26,111,000,  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, 1999 is as follows:

--------------------------------------------------------------------------------
                                                        1999
--------------------------------------------------------------------------------
Balance, January 1                                    $36,947
New loans                                              21,980
Loan payments                                          25,202
--------------------------------------------------------------------------------
Balance, December 31                                  $33,725
--------------------------------------------------------------------------------

                                                                              45
<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 $334,000 in 1999,  $304,000 in 1998,
     and $183,000 in 1997.  The Company  received  legal  services  from two law
     firms of which two  directors of the Company are partners.  Such  aggregate
     legal  services  amounted to  $1,594,000 in 1999,  $1,554,000 in 1998,  and
     $1,439,000 in 1997.

5.   Allowance for Loan Losses

     The  following is an analysis of changes in the  allowance  for loan losses
     (in thousands) for 1999, 1998, and 1997:

<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------
                                                      1999                1998              1997
---------------------------------------------------------------------------------------------------------
<S>                                                 <C>                 <C>                <C>
Balance, January 1                                     $31,265             $24,150            $20,397
Provision charged to operating expense                   9,175               8,762              5,805
Recoveries of loans previously charged off                 969               1,487                919
Loan charge-offs                                        (3,027)             (3,134)            (2,971)
---------------------------------------------------------------------------------------------------------
Balance, December 31                                   $38,382             $31,265            $24,150
---------------------------------------------------------------------------------------------------------
</TABLE>

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

     The total of non-performing  loans (non-accrual and restructured loans) was
     $8,682,000  and  $8,569,000  at December  31, 1999 and 1998,  respectively.
     Non-performing  loans of  $1,590,000,  $3,361,000,  and  $2,320,000  net of
     charge offs of  $39,000,  $0, and $47,000  were  transferred  to other real
     estate  during  1999,  1998,  and 1997,  respectively.  Other  real  estate
     ($3,523,000 and $6,081,000 at December 31, 1999 and 1998,  respectively) is
     included in other assets.

     At December 31, 1999 and 1998, the recorded  investment in loans considered
     to be impaired  under FASB  Statement No. 114  "Accounting by Creditors for
     Impairment of a Loan" totaled $5,467,000 and $5,138,000,  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 1999 or 1998 was  allocated  to these loans.
     During 1999 and 1998, impaired loans averaged approximately  $4,575,000 and
     $7,419,000,  respectively.  Interest income of  approximately  $986,000 and
     $1,030,000  would have been  recorded on  non-performing  loans  (including
     impaired  loans) in accordance  with their original terms in 1999 and 1998,
     respectively.  Actual  interest  income recorded on these loans amounted to
     $255,000 and $266,000 during 1999 and 1998, respectively.

46
<PAGE>
Commerce Bancorp, Inc. and Subsidiaries
Notes to Consolidated Financial Statements

7.   Bank Premises, Equipment, and Leases

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

<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------
                                                                     December 31,
                                                         -------------------------------------
                                                               1999                1998
----------------------------------------------------------------------------------------------
<S>                                                          <C>                 <C>
Land                                                         $ 40,952            $ 28,763
Buildings                                                      88,427              68,314
Leasehold improvements                                          9,657              10,351
Furniture, fixtures and equipment                             128,642              91,206
Leased property under capital leases                              124                 124
----------------------------------------------------------------------------------------------
                                                              267,802             198,758

Less accumulated depreciation
    and amortization                                           69,287              51,310
----------------------------------------------------------------------------------------------
                                                             $198,515            $147,448
----------------------------------------------------------------------------------------------
</TABLE>

     At  December  31,  1999,  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, 1999. 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,  1999,  the  Company  leased from  related  parties  under
     separate operating lease agreements the land on which it has constructed 14
     branch  offices.  The  aggregate  annual  rental under these  related party
     leases for 1999 was approximately  $723,000, and was approximately $440,000
     and  $375,000  in  1998  and  1997,   respectively.   These  leases  expire
     periodically  through 2020 but are renewable through 2040. Aggregate annual
     rentals  escalate to $934,000 in 2005. 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, 1999,  the total future minimum lease
     payments to be received by the Company amount to approximately $432,000 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  $432,000 for each of 1999,
     1998, and 1997. 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  $484,000 in 1999 and
     $474,000  in 1998 and 1997,  respectively.  The  leases  expire in 2004 and
     2015.

     Total  rent  expense  charged  to  operations  under  operating  leases was
     approximately  $7,836,000 in 1999,  $6,328,000 in 1998,  and  $5,421,000 in
     1997.

                                                                              47

<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, 1999:

<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------
                                                 Capital                  Operating
-----------------------------------------------------------------------------------------
<S>                                                 <C>                    <C>
2000                                                $ 12                   $  9,133
2001                                                  12                      8,877
2002                                                  12                      8,235
2003                                                  12                      7,981
2004                                                  12                      6,548
Later years                                          123                     71,719
-----------------------------------------------------------------------------------------
Net minimum lease payment                           $183                   $112,493
-----------------------------------------------------------------------------------------
Less amount representing interest                     86
-----------------------------------------------------------------------------------------
Present value of net minimum
        lease payments                              $ 97
-----------------------------------------------------------------------------------------
</TABLE>

     The Company obtained  interior design and general  contractor  services for
     $2,498,000, $1,313,000, and $916,000 in 1999, 1998, and 1997, respectively,
     from a  business  owned by the spouse of the  Chairman  of the Board of the
     Company.  Additionally,  the business received commissions of approximately
     $1,408,000,  $814,000, and $1,464,000 in 1999, 1998 and 1997, 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 $403,373,000 and $421,672,000 at December 31, 1999 and
     1998, respectively.

9.   Other Borrowed Money

     Other  borrowed  money   consisted   primarily  of  securities  sold  under
     agreements  to  repurchase,  with a weighted  average  maturity of 12 days,
     federal funds purchased,  and lines of credit,  which included Federal Home
     Loan Bank advances.  The following table  represents  information for other
     borrowed money.

<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------
                                                                           December 31,
-------------------------------------------------------------------------------------------------------------------
                                                               1999                              1998
                                                      ----------------------           ----------------------------
                                                                    Average                            Average
                                                        Amount        Rate               Amount          Rate
-------------------------------------------------------------------------------------------------------------------
<S>                                                    <C>            <C>               <C>              <C>
Securities sold under
    agreements to repurchase                           $292,266       5.88%             $  4,000         5.72%

Federal funds purchased                                  20,000       4.50                 2,000         5.25
Lines of credit                                         245,826       5.67                21,845         4.82
-------------------------------------------------------------------------------------------------------------------
                                                       $558,092                         $ 27,845
-------------------------------------------------------------------------------------------------------------------
Average amount outstanding                             $183,554       5.38%             $ 68,795         5.83%
Maximum month-end balance                               558,092                          228,950
-------------------------------------------------------------------------------------------------------------------
</TABLE>

     As of December 31, 1999, the Company had a line of credit of $409.3 million
     from the Federal Home Loan Bank of New York,  of which  $359.3  million was
     available, a line of credit of $100 million from the Federal Home Loan Bank
     of  Pittsburgh,  none of which was  available,  and a line of credit of $25
     million from another bank,  all of which was available.  In addition,  CCMI
     had a line of credit of $125  million  from  another  bank,  of which $29.2
     million was available.

48
<PAGE>
Commerce Bancorp, Inc. and Subsidiaries
Notes to Consolidated Financial Statements

10.  Long-Term Debt

     On July 15, 1993,  the Company issued  $23,000,000  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  $57,500,000  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  $57,500,000  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):

---------------------------------------------------------------------------
                                  1999            1998           1997
---------------------------------------------------------------------------
Current:
        Federal                   $34,339         $28,012          $24,208
        State                         434           1,174            1,982
Deferred:
        Federal                    (2,368)         (3,060)          (2,146)
        State                      (1,100)            (55)            (353)
---------------------------------------------------------------------------
                                  $31,305         $26,071          $23,691
---------------------------------------------------------------------------

     The above provision  includes  income taxes related to securities  gains of
     $904,000, $1,012,000 and $803,000 for 1999, 1998 and 1997, respectively.

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

<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------
                                                         1999           1998            1997
----------------------------------------------------------------------------------------------------
<S>                                                      <C>            <C>            <C>
Expected provision at statutory rate:                    35.0%          35.0%          35.0%
Difference resulting from:
        Tax-exempt interest on loans                     (0.7)          (0.4)          (0.3)
        Tax-exempt interest on securities                (1.0)          (1.8)          (1.1)
        Purchase accounting adjustments                   0.1            0.1            0.2
        Other, including acquisition costs               (1.2)           5.3            1.0
----------------------------------------------------------------------------------------------------
                                                         32.2%          38.2%          34.8%
----------------------------------------------------------------------------------------------------
</TABLE>

     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.

                                                                              49
<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, 1999 and 1998 are as follows (in thousands):

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------
                                                                             1999          1998
------------------------------------------------------------------------------------------------------
<S>                                                                          <C>           <C>
Deferred tax assets:
        Loan loss reserves                                                   $11,797       $11,067
        Fair value adjustment, available for sale securities                  21,940
        Other reserves                                                         1,546           178
        Other                                                                  1,026         1,411
------------------------------------------------------------------------------------------------------
Total deferred tax assets                                                     36,309        12,656
------------------------------------------------------------------------------------------------------
Deferred tax liabilities:
        Depreciation                                                             677           464
        Intangibles                                                             (336)           92
        Fair value adjustment, available for sale securities                                 3,970
        Other                                                                  2,053         1,729
------------------------------------------------------------------------------------------------------
Total deferred tax liabilities                                                 2,394         6,255
------------------------------------------------------------------------------------------------------
Net deferred assets                                                          $33,915        $6,401
------------------------------------------------------------------------------------------------------
</TABLE>

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,
     1999, the Banks had outstanding  standby letters of credit in the amount of
     $108.0 million.

     In  addition,  the Banks are  committed  as of December 31, 1999 to advance
     $197.8 million on construction  loans,  $187.3 million on home equity lines
     of credit and $354.8  million  on lines of  credit.  All other  commitments
     total  approximately  $249.7 million.  The Company  anticipates no material
     losses as a result of these transactions.

13.  Common Stock and Preferred Stock

     At  December  31,  1999,  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 21, 1999,  the Board of Directors  declared a cash  dividend of
     $0.245 for each share of common stock  outstanding  and a 5% stock dividend
     payable  January  21,  2000 to  stockholders  of record on January 7, 2000.
     Payment  of the  stock  dividend  resulted  in the  issuance  of  1,416,966
     additional common shares and cash of $83,684 in lieu of fractional shares.

50
<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)                                    1999             1998           1997
----------------------------------------------------------------------------------------------------
<S>                                                     <C>               <C>           <C>
Basic:
Net income                                              $65,960           $42,155       $44,432
Preferred stock dividends                                                                   563
----------------------------------------------------------------------------------------------------
Net income applicable to common stock                   $65,960           $42,155       $43,869
----------------------------------------------------------------------------------------------------
Average common shares outstanding                        29,155            28,254        26,715
----------------------------------------------------------------------------------------------------
Net income per common share                             $  2.26           $  1.49       $  1.64
----------------------------------------------------------------------------------------------------

Diluted:
Net income                                               $65,960           $42,155       $44,432
Additional ESOP contribution
        under the if-converted method                                                         49
-----------------------------------------------------------------------------------------------------
Net income applicable to common stock
        on a diluted basis                               $65,960           $42,155       $44,383
-----------------------------------------------------------------------------------------------------

Average common shares outstanding                         29,155            28,254        26,715
Additional shares considered in diluted
        computation assuming:
           Exercise of stock options                       1,310             1,303         1,024
           Conversion of preferred stock                                       105           647
-----------------------------------------------------------------------------------------------------

Average common and common equivalent
        shares outstanding                                30,465            29,662        28,386
-----------------------------------------------------------------------------------------------------

Net income per common and common
        equivalent share                                 $  2.17           $  1.42       $  1.56
-----------------------------------------------------------------------------------------------------
</TABLE>

     Effective  March 1, 1998,  the  Trustees of the  Company's  Employee  Stock
     Ownership  Plan  exercised  their right to convert  all  417,000  shares of
     Series C ESOP Cumulative  Convertible Preferred Stock held by the ESOP into
     891,515 shares of the Company's common stock.

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 3,617,000  shares of common stock (as adjusted for stock dividends) upon
     the exercise of options. 3,587,000 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.

                                                                              51
<PAGE>
Commerce Bancorp, Inc. and Subsidiaries
Notes to Consolidated Financial Statements

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

<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------
                                                Shares Under             Weighted Average
                                                   Option                 Exercise Price
-------------------------------------------------------------------------------------------------
<S>                                              <C>                         <C>
Balance at January 1, 1998                        3,032,906                   $18.12
Options granted                                   1,922,573                    41.46
Options exercised                                   291,142                    10.44
Options canceled                                    109,976                    37.01
Balance at December 31, 1998                      4,554,361                    27.71
-------------------------------------------------------------------------------------------------
Balance at January 1, 1999                        4,554,361                   $27.71
Options granted                                   1,124,525                    38.83
Options exercised                                   345,590                    12.59
Options canceled                                    116,638                    39.77
Balance at December 31, 1999                      5,216,658                    30.83
-------------------------------------------------------------------------------------------------
</TABLE>

     Information  concerning  options  outstanding as of December 31, 1999 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          12/31/1999      Exercise Price
------------------------------------------------------------------------------------------------------------------------------------
<S>                            <C>                    <C>                  <C>                  <C>               <C>
$3.00 to $18.50                1,119,232              4.60                 $10.90               1,093,984         $10.84
$18.51 and greater             4,097,426              8.30                  36.29               2,195,936          34.10
------------------------------------------------------------------------------------------------------------------------------------
</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  granted after 1994 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):

<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------
                                                 1999              1998             1997
---------------------------------------------------------------------------------------------------

<S>                                            <C>                <C>              <C>
Pro forma net income                           $57,619            $36,251          $42,643

Pro forma net income per share:
        Basic                                  $  1.98            $  1.28          $  1.58
        Diluted                                   1.91               1.23             1.50
---------------------------------------------------------------------------------------------------
</TABLE>

     Due to the  inclusion of only  options  granted  after 1994,  the pro forma
     effects  of  applying   FAS  123  in  1999,   1998  and  1997  may  not  be
     representative of the pro forma impact in future years.

     The fair value of options granted in 1999,  1998, and 1997 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 6.35%,  dividend yields of' 3% to 4%, volatility factors of the expected
     market price of the Company's  common stock of .215 to .316, and a weighted
     average expected life of the options of' four 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

52
<PAGE>

     stock options have  characteristics  significantly  different from those of
     traded options, and because changes in 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, 1999, 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 922,610 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 1999, 1998 and
     1997 was $547,000, $1,134,000 and $1,177,000, 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, 1999 and 1998:

<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------------
                                                                           December 31,
                                                 -------------------------------------------------------------------
                                                             1999                               1998
--------------------------------------------------------------------------------------------------------------------
                                                  Carrying           Fair            Carrying           Fair
                                                   Amount            Value            Amount            Value
--------------------------------------------------------------------------------------------------------------------
<S>                                              <C>               <C>              <C>               <C>
Financial assets:
        Cash and cash equivalents                $  322,924        $  322,924       $  277,615        $  277,615
        Loans held for sale                           5,704             5,704           22,418            22,418
        Trading securities                          117,837           117,837           85,359            85,359
        Investment securities                     2,866,149         2,819,704        2,525,878         2,528,671
        Loans (net)                               2,922,706         2,960,855        2,249,061         2,293,118

Financial liabilities:
        Deposits                                  5,608,920         5,618,204        4,928,808         4,942,234
        Other borrowed money                        558,092           558,092           27,845            27,845
        Obligation to ESOP                                                               1,282             1,282
        Long-term debt                               80,500            76,820           80,500            84,939
--------------------------------------------------------------------------------------------------------------------
Off-balance sheet liabilities:
        Standby letters of credit                                  $    1,080                         $      492
        Commitments to extend credit                                      906                                749
</TABLE>



                                                                              53
<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.

     Obligation to ESOP: The fair value of the guarantee of the ESOP  obligation
     is estimated using a discounted cash flow calculation that applies interest
     rates currently being offered to obligations of' a similar maturity.

     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.


54
<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
------------------------------------------------------------------------------------------------------------------
<S>                                               <C>               <C>              <C>              <C>
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

1998
Interest income                                   $ 84,927          $83,156          $80,314          $76,246
Interest expense                                    33,068           33,083           32,223           31,608
Net interest income                                 51,859           50,073           48,091           44,638
Provision for loan losses                            3,321            2,053            1,951            1,437
Net investment securities gains                        972              991             920                 9
Provision for federal and state
    income taxes                                     4,764            7,097            7,274            6,936
Net income                                           2,030           13,999           13,446           12,680

Net income per common share:
Basic                                             $   0.07          $  0.49          $  0.48          $  0.45
Diluted                                               0.07             0.47             0.45             0.43
</TABLE>


                                                                              55

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

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

Balance Sheets

--------------------------------------------------------------------------------
                                                          December 31,
--------------------------------------------------------------------------------
(dollars in thousands)                               1999             1998
--------------------------------------------------------------------------------
Assets
Cash                                               $    381         $ 20,840
Securities available for sale                        36,137           14,575
Investment in subsidiaries                          406,485          367,961
Other assets                                         11,588           10,253
--------------------------------------------------------------------------------
                                                   $454,591         $413,629
--------------------------------------------------------------------------------
Liabilities
Other liabilities                                  $ 17,335         $  8,295
Trust Capital Securities                             57,500           57,500
Long-term debt                                       23,000           23,000
Obligation to Employee Stock
    Ownership Plan (ESOP)                                              1,282
--------------------------------------------------------------------------------
                                                     97,835           90,077
--------------------------------------------------------------------------------
Stockholders' equity
Common stock                                         44,418           40,988
Capital in excess of par or stated value            321,443          236,928
Retained earnings                                    32,263           41,536
Accumulated other comprehensive income              (39,744)           7,006
--------------------------------------------------------------------------------
                                                    358,380          326,458
Less commitment to ESOP                                                1,282
Less treasury stock                                   1,624            1,624
--------------------------------------------------------------------------------
        Total stockholders' equity                  356,756          323,552
--------------------------------------------------------------------------------
                                                   $454,591         $413,629
--------------------------------------------------------------------------------


Statements of Income

<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------
                                                            Year Ended December 31
---------------------------------------------------------------------------------------------
(dollars in thousands)                                1999            1998            1997
---------------------------------------------------------------------------------------------
<S>                                                 <C>             <C>             <C>
Income:
        Dividends from subsidiaries                 $15,750         $18,357         $14,448
        Interest income                                 507             293             248
        Other                                         3,690           2,098             491
---------------------------------------------------------------------------------------------
                                                     19,947          20,748          15,187
---------------------------------------------------------------------------------------------
Expenses:
        Interest expense                              7,375           7,259           4,961
        Operating expenses                            2,508           3,053           3,051
---------------------------------------------------------------------------------------------
                                                      9,883          10,312           8,012
Income before income taxes and equity
        in undistributed income of subsidiaries      10,064          10,436           7,175
Income tax benefit                                   (2,636)         (2,692)         (2,354)
---------------------------------------------------------------------------------------------
                                                     12,700          13,128           9,529
Equity in undistributed income of subsidiaries       53,260          29,027          34,903
---------------------------------------------------------------------------------------------
Net income                                           65,960          42,155          44,432
Dividends on preferred stock                                                            563
---------------------------------------------------------------------------------------------
Net income applicable to common stock               $65,960         $42,155         $43,869
---------------------------------------------------------------------------------------------
</TABLE>

56
<PAGE>
Commerce Bancorp, Inc. and Subsidiaries
Notes to Consolidated Financial Statements

Statements of Cash Flows

<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------
                                                                                  Year Ended December 31,
-------------------------------------------------------------------------------------------------------------------
(dollars in thousands)                                                        1999          1998         1997
-------------------------------------------------------------------------------------------------------------------
<S>                                                                          <C>          <C>           <C>
Operating activities:
    Net income                                                               $65,960      $42,155       $44,432
    Adjustments to reconcile net income to net
        cash provided by operating activities:
           Undistributed income of subsidiaries                              (53,260)     (29,027)      (34,903)
           Gains on sales of securities available for sale                      (639)                      (301)
           Increase in other assets                                           (1,335)        (211)       (1,329)
           Increase in other liabilities                                      13,846        2,111           968
-------------------------------------------------------------------------------------------------------------------
               Net cash provided by operating activities                      24,572       15,028         8,867
Investing activities:
    Investment in subsidiaries                                               (31,000)     (40,253)       (2,000)
    Proceeds from sale of securities available for sale                        5,733                      1,090
    Proceeds from the maturity of securities available for sale               26,980
    Purchase of securities available for sale                                (54,723)      (4,308)       (5,636)
    Other                                                                         27           51           (50)
-------------------------------------------------------------------------------------------------------------------
               Net cash used by investing activities                         (52,983)     (44,510)       (6,596)
Financing activities:
    Proceeds from issuance of common stock
        under dividend reinvestment plan                                      27,830        7,427         4,259
    Cash dividends                                                           (23,476)     (21,563)      (12,484)
    Proceeds from exercise of stock options                                    3,598        2,001         2,617
    Proceeds from issuance of long-term debt                                                             57,500
-------------------------------------------------------------------------------------------------------------------
               Net cash provided (used) by financing
                   activities                                                  7,952      (12,135)       51,892
(Decrease) increase in cash and cash equivalents                             (20,459)     (41,617)       54,163
Cash and cash equivalents at beginning of year                                20,840       62,457         8,294
-------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year                                     $   381      $20,840       $62,457
-------------------------------------------------------------------------------------------------------------------
Supplemental  disclosures of cash flow information:
    Cash paid during the period for:
        Interest                                                             $ 7,089      $ 7,089       $ 4,809
        Income taxes                                                          26,056       27,626        21,377
-------------------------------------------------------------------------------------------------------------------
</TABLE>

                                                                              57
<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 2000  without  additional  approval of  approximately
     $53.6  million,  $5.3  million,  $12.9  million,  $12.3  million,  and $3.8
     million,  respectively,  plus an additional amount equal to each bank's net
     profit for 2000 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, 1999 and
     1998, 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, 1999, that
     the Company and its subsidiaries meet all capital adequacy  requirements to
     which they are subject.

58
<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, 1999 and 1998:

<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------------------
                                                                                    Per Regulatory Guidelines
----------------------------------------------------------------------------------------------------------------------------
                                                            Actual                 Minimum           "Well Capitalized"
----------------------------------------------------------------------------------------------------------------------------
                                                      Amount     Ratio        Amount     Ratio        Amount     Ratio
----------------------------------------------------------------------------------------------------------------------------
<S>                                                    <C>        <C>          <C>       <C>           <C>        <C>
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

December 31, 1998
Company
    Risk based capital ratios:
        Tier I                                        $369,238   12.09%       $122,180   4.00%        $183,270    6.00%
        Total capital                                  418,903   13.71         244,360   8.00          305,450   10.00
    Leverage ratio                                     369,238    7.05         157,018   3.00          261,696    5.00

Commerce NJ Risk based capital ratios:
        Tier 1                                        $190,578   11.44%        $66,657   4.00%        $ 99,985    6.00%
        Total capital                                  207,908   12.48         133,314   8.00          166,642   10.00
    Leverage ratio                                     190,578    6.51          87,889   3.00          146,481    5.00
</TABLE>

                                                                              59
<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  and other includes the holding
     company,  Commerce  Insurance  (whose  revenues  of  $32.4  million,  $25.2
     million,  and $16.5 million in 1999,  1998,  and 1997,  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>
------------------------------------------------------------------------------------------------------------------------------------
                                         1999                                   1998                             1997
------------------------------------------------------------------------------------------------------------------------------------
                          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      $  251,132   $  (6,765)   $   244,367  $  200,998  $ (6,337) $  194,661  $  170,035   $ (4,713) $  165,322
Provision for loan
      losses                  9,175                      9,175       8,762                 8,762       5,805                  5,805
------------------------------------------------------------------------------------------------------------------------------------
Net interest income
      after provision       241,957      (6,765)       235,192     192,236    (6,337)    185,899     164,230     (4,713)    159,517
Noninterest income           66,127      48,469        114,596      58,426    37,851      96,277      45,390     17,020      62,410
Noninterest expense         209,808      42,715        252,523     180,736    33,214     213,950     138,974     14,830     153,804
------------------------------------------------------------------------------------------------------------------------------------
Income (loss) before
      income taxes           98,276      (1,011)        97,265      69,926    (1,700)     68,226      70,646     (2,523)     68,123
Income tax expense
      (benefit)              31,963        (658)        31,305      26,299      (228)     26,071      24,698     (1,007)     23,691
------------------------------------------------------------------------------------------------------------------------------------
Net income (loss)        $   66,313    $   (353)    $   65,960  $   43,627  $ (1,472) $   42,155  $   45,948   $ (1,516) $   44,432
------------------------------------------------------------------------------------------------------------------------------------
Average assets
      (in millions)      $5,301,844    $602,025     $5,903,869  $4,395,127  $470,878  $4,866,005  $3,643,188   $328,307  $3,971,495
------------------------------------------------------------------------------------------------------------------------------------
</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.


60
<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, 1999 and 1998 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, 1999.  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 total assets  constituting 9.8% in 1998,
and net  interest  income  constituting  12.3% in 1998 and  11.8% in 1997 of the
related  consolidated  totals.  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, 1999 and 1998, and the consolidated  results of their operations
and their cash flows for each of the three  years in the period  ended  December
31, 1999 in conformity  with  accounting  principles  generally  accepted in the
United States.


/s/ Ernst & Young LLP
Philadelphia, Pennsylvania
January 28, 2000

                                                                              61