UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 10-K

             X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                         SECURITIES EXCHANGE ACT OF 1934
                   For the fiscal year ended December 31, 2004
                                       OR
            TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                         SECURITIES EXCHANGE ACT OF 1934
      For the transition period from ________________ to ________________.
                            Commission File #1-12609

                             Commerce Bancorp, Inc
                                [GRAPHIC OMITTED]
             (Exact name of registrant as specified in its charter)

                  New Jersey                              22-2433468
      --------------------------------               ---------------------
        (State of other jurisdiction                   (I.R.S. Employee
      of incorporation or organization)              Identification Number)


                    Commerce Atrium
                  1701 Route 70 East
                Cherry Hill, New Jersey                       08034-5400
       ---------------------------------------                ----------
       (Address of principal executive offices)               (Zip Code)

        Registrant's telephone number, including area code: 856-751-9000

     Securities registered pursuant to Section 12(b) of the Act:

     Common Stock                       New York Stock Exchange
 ----------------------       -----------------------------------------------
    Title of Class             Name of Each Exchange on Which Registered

     Securities registered pursuant to Section 12(g) of the Act: None

     Indicate  by check mark  whether the  registrant  (1) has filed all reports
required to be filed by Section 13 or 15(d) of the  Securities  Exchange  Act of
1934  during  the  preceding  12 months  (or for such  shorter  period  that the
registrant was required to file such report(s), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No ____.

     Indicate by check mark if disclosure of delinquent  filers pursuant to Item
405 of Regulation S-K (ss. 229.405 of this chapter) is not contained herein, and
will not be  contained,  to the best of  registrant's  knowledge,  in definitive
proxy or information  statements  incorporated  by reference in Part III of this
Form 10-K or any amendment to this Form 10- K.

     Indicate by check mark whether the registrant is an  accelerated  filer (as
defined in Rule 12b-2 of the Act).Yes X No __.

     The aggregate  market value of the voting stock held by  non-affiliates  of
the Registrant was approximately $3,611,075,918.(1)

                      APPLICABLE ONLY TO CORPORATE ISSUERS:

     Indicate the number of shares  outstanding of each of the issuer's  classes
of common stock, as of the last practicable date.

  Common Stock $1.00 Par Value                        161,188,028
--------------------------------        ----------------------------------------
         Title of Class                 No. of Shares Outstanding as of 3/8/05

                       DOCUMENTS INCORPORATED BY REFERENCE

     Part  III   incorporates   certain   information   by  reference  from  the
Registrant's Proxy Statement for the 2005 Annual Meeting of Shareholders.

(1) The aggregate  dollar amount of the voting stock set forth equals the number
of shares of the Registrant's  Common Stock outstanding reduced by the number of
shares of Common Stock held by officers,  directors, and shareholders owning 10%
or more of the Registrant's Common Stock,  multiplied by $27.22 (as adjusted for
the two-for-one  stock split  effective March 7, 2005),  the last sale price for
the  Registrant's  Common  Stock on June 30, 2004 the last  business  day of the
Registrant's  most recently  completed  second fiscal  quarter.  The information
provided  shall in no way be  construed  as an  admission  that any person whose
holdings are excluded from this figure is an affiliate of the Registrant or that
such person is the beneficial owner of the shares reported as being held by him,
and any such inference is hereby disclaimed.  The information provided herein is
included  solely for the  recordkeeping  purposes of the Securities and Exchange
Commission.



<PAGE>

<TABLE>
<CAPTION>

<S>  <C>                                                                                                                        <C>



                             COMMERCE BANCORP, INC.
                         FORM 10-K CROSS-REFERENCE INDEX

                                                                                                                              Page
                                     Part I
Item 1.    Business..............................................................................................................3
Item 2.    Properties............................................................................................................9
Item 3.    Legal Proceedings ...................................................................................................10
Item 4.    Submission of Matters to a Vote of Security Holders..................................................................10


                                     Part II
Item 5.    Market for the Registrant's Common Equity and Related Stockholder Matters ...........................................10
Item 6.    Selected Financial Data .............................................................................................10
Item 7.    Management's Discussion and Analysis of Financial Condition and Results of Operations ...............................12
Item 7A.   Quantitative and Qualitative Disclosures About Market Risk ..........................................................26
Item 8.    Financial Statements and Supplementary Data .........................................................................30
Item 9.    Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.................................54
Item 9A.   Controls and Procedures..............................................................................................54


                                    Part III
Item 10.   Directors and Executive Officers of the Registrant...................................................................54
Item 11.   Executive Compensation...............................................................................................54
Item 12.   Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.......................54
Item 13.   Certain Relationships and Related Transactions.......................................................................55
Item 14.   Principal Accountant Fees and Services...............................................................................55


                                     Part IV
Item 15.   Exhibits and Financial Statement Schedules...........................................................................55

Signatures......................................................................................................................59
Section 302 Certifications......................................................................................................60
Section 906 Certification.......................................................................................................62

</TABLE>

<PAGE>


30



                                     PART I
Item 1. Business
Forward-Looking Statements

     Commerce  Bancorp,  Inc. (the "Company") may from time to time make various
written or oral "forward looking statements"  including  statements contained in
the  Company's  filings  with the  Securities  and Exchange  Commission  ("SEC")
(including  this Annual  Report on Form 10-K and the  exhibits  hereto),  in its
reports to shareholders and in other  communications  by the Company,  which are
made in good faith by the Company pursuant to the Private Securities  Litigation
Reform Act of 1995.

     These  forward-looking  statements  include  statements with respect to the
Company's  beliefs,  plans,  objectives,  goals,  expectations,   anticipations,
estimates  and   intentions,   that  are  subject  to   significant   risks  and
uncertainties  and are  subject  to change  based on  various  factors  that are
sometimes beyond the Company's control.  You will generally be able to recognize
a  forward-looking   statement  because  it  contains  the  words  "anticipate,"
"believe,"   "estimate,"  "expect,"  "project,"   "objective,"  "may,"  "could,"
"should,"  "would,"  "intend,"  "forecast,"  "plan" or  similar  expressions  to
identify it as a forward-looking statement.

     The following factors,  among others,  could cause the Company's  financial
performance to differ  materially  from that  expressed in such  forward-looking
statements: the strength of the United States and world economies in general and
the  strength  of  the  local  economies  in  which  the  Company  conducts  its
operations; the effects of, and changes in, trade, monetary and fiscal policies,
including  interest  rate  policies  of the Board of  Governors  of the  Federal
Reserve System; inflation; interest rates, market and monetary fluctuations; the
Company's  timely  development of competitive  new products and services and the
acceptance  of such  products  and services by  customers;  the  willingness  of
customers to  substitute  competitors'  products and services for the  Company's
products  and  services  and vice  versa;  the impact of  changes  in  financial
services  laws  and  regulations,  including  laws  concerning  taxes,  banking,
securities  and  insurance;  technological  changes;  future  acquisitions;  the
expense  savings  and revenue  enhancements  from  acquisitions  being less than
expected;  the growth and  profitability  of the  Company's  noninterest  or fee
income being less than expected;  the ability to maintain the growth and further
development  of  the  Company's   community-based   retail  branching   network;
unanticipated  regulatory or judicial proceedings;  changes in consumer spending
and saving habits;  and the Company's  success at managing the risks involved in
the foregoing. The Company cautions that the foregoing list of important factors
is not exclusive.

     The Company cautions you that any such  forward-looking  statements are not
guarantees  of  future   performance   and  involve  known  and  unknown  risks,
uncertainties  and other factors which may cause the Company's  actual  results,
performance  or  achievements  to differ  materially  from the  future  results,
performance or achievements the Company has anticipated in such  forward-looking
statements.  You should note that many  factors,  some of which are discussed in
this Annual  Report on Form 10-K could  affect the  Company's  future  financial
results and could cause those results to differ  materially from those expressed
or implied in the Company's forward-looking statements contained or incorporated
by reference  in this  document.  The Company  does not  undertake to update any
forward-looking  statement,  whether written or oral, that may be made from time
to time by or on behalf of the  Company.

General

     The  Company  is a New Jersey  business  corporation  registered  as a bank
holding company under the Bank Holding Company Act of 1956, as amended ("Holding
Company Act").  The Company was  incorporated  on December 9, 1982 and became an
active bank holding company on June 30, 1983 through the acquisition of Commerce
Bank, N.A., referred to as Commerce NJ.

     As of December  31, 2004,  the Company had total  assets of $30.5  billion,
total loans of $9.5 billion, and total deposits of $27.7 billion. The address of
the Company's principal executive office is Commerce Atrium, 1701 Route 70 East,
Cherry Hill, New Jersey,  08034-5400 and the telephone number is (856) 751-9000.
The Company operates:

     o    three nationally chartered bank subsidiaries:

          o    Commerce Bank, N.A., Cherry Hill, New Jersey;

          o    Commerce Bank/Pennsylvania, N.A., Devon, Pennsylvania;

          o    Commerce Bank/Delaware, N.A., Wilmington, Delaware; and

     o    one New Jersey state chartered bank subsidiary:

          o    Commerce Bank/North, Ramsey, New Jersey.


                                       3
<PAGE>


     These four bank subsidiaries,  referred to collectively as the banks, as of
December 31, 2004 had 319 full service  retail  stores  located in the states of
New Jersey,  Pennsylvania,  Delaware  and New York.  These banks  provide a full
range of retail and  commercial  banking  services for  consumers  and small and
mid-sized companies.  Lending services are focused on commercial real estate and
commercial  and consumer  loans to local  borrowers.  These  banks'  lending and
investment activities are funded principally by retail deposits gathered through
each bank's retail store network.

Stock Split

     On February 15, 2005, the Board of Directors  declared a two-for-one  stock
split in the  form of a 100%  stock  dividend  distributed  on March 7,  2005 to
stockholders  of  record  on  February  25,  2005.  Per  share  data  and  other
appropriate  share  information for all periods  presented have been restated to
reflect the stock split.

Acquisitions

     The Company's  primary  growth  strategy is the opening of new full service
stores of which 49 opened in 2004 and 46 opened in 2003. The Company  expects to
open an  additional  55 - 60 full service  stores in 2005,  including  its first
stores in the Metro Washington,  D.C. market. The Company has also developed its
full service office network through certain acquisitions including:

     o    on January 2, 1987, the Company acquired all of the outstanding shares
          of Commerce Bank/Pennsylvania, N.A., referred to as Commerce PA;

     o    on  December  31,  1988 the Company  acquired  all of the  outstanding
          shares of Citizens State Bank of New Jersey,  Forked River,  which was
          subsequently  converted  to a national  charter and  renamed  Commerce
          Bank/Shore,  N.A.,  referred to as Commerce Shore.  Commerce Shore was
          merged with and into Commerce NJ in 2004;

     o    on January 21, 1997, the Company acquired Independence Bancorp,  Inc.,
          a bank holding  company  headquartered  in Bergen County,  New Jersey.
          Independence   Bancorp,   Inc.'s  wholly-owned   state-chartered  bank
          subsidiary,  Independence Bank of New Jersey, was subsequently renamed
          Commerce Bank/North, referred to as Commerce North; and

     o    on January 15, 1999, the Company  acquired  Prestige  Financial Corp.,
          referred  to as PFC,  a  one-bank  holding  company  headquartered  in
          Flemington,  New  Jersey.  PFC's  wholly-owned   state-chartered  bank
          subsidiary,  Prestige State Bank, was  subsequently  re-chartered as a
          national bank and renamed Commerce Bank/Central, N.A. Commerce Central
          was merged with and into Commerce NJ in 2001.

     In  1998,  the  Company  received  regulatory  approvals  to open  Commerce
Bank/Delaware, N.A., referred to as Commerce Delaware. Commerce Delaware's first
store opened in New Castle County, Delaware, on December 18, 1999.

     Commerce NJ operates a non-bank subsidiary, Commerce Capital Markets, Inc.
(CCMI), Philadelphia, Pennsylvania, referred to as Commerce Capital Markets,
which engages in various securities, investment banking and brokerage
activities.

     In addition,  the Company,  through Commerce  Insurance  Services,  Inc., a
non-bank subsidiary of Commerce  Bank/North,  referred to as Commerce Insurance,
operates an insurance  brokerage agency  concentrating  on commercial  property,
casualty and surety as well as personal lines of insurance and employee benefits
for clients in multiple states,  primarily  Delaware,  New Jersey,  New York and
Pennsylvania.  Since 1996,  Commerce  Insurance has completed  several strategic
acquisitions of insurance brokerage agencies.

Dividends

     As a legal entity separate and distinct from its bank and non-bank
subsidiaries, the Company's principal sources of revenues are dividends and fees
from its bank and non-bank subsidiaries. The subsidiaries that operate in the
banking, insurance and securities business can pay dividends only if they are in
compliance with the applicable regulatory requirements imposed on them by
federal and state regulatory authorities.

The Banks

     As of December  31, 2004,  Commerce NJ had total  assets of $21.4  billion,
total deposits of $19.1 billion, and total shareholders' equity of $1.3 billion;
Commerce PA had total assets of $5.7 billion, total deposits of $5.3 billion and
total shareholders' equity of $340.4 million; Commerce North had total assets of
$3.2 billion,  total deposits of $2.9 billion, and total shareholders' equity of
$203.3 million; and Commerce Delaware had total assets of $381.0 million,  total
deposits of $356.7 million, and total shareholders' equity of $23.0 million.

Service Areas

     The Company's primary service areas include New Jersey, Metropolitan
Philadelphia and New York, and Northern Delaware. The Company has attempted to
locate its stores in the fastest growing communities within its service areas.
Retail deposits gathered through these focused branching activities are used to
support lending throughout the Company.


                                       4
<PAGE>



     Commerce NJ provides  retail and commercial  banking  services  through 208
retail stores in Central and Southern New Jersey,  and  Metropolitan  New York.;
Commerce PA provides retail and commercial  banking  services  through 68 retail
stores in  Philadelphia,  Bucks,  Chester,  Delaware and Montgomery  Counties in
Southeastern Pennsylvania; Commerce North provides retail and commercial banking
services through 35 retail stores in Bergen, Essex, Hudson and Passaic Counties,
New  Jersey;  and  Commerce  Delaware  provides  retail and  commercial  banking
services  through 8 retail  stores in New  Castle and Kent  Counties,  Delaware.

Retail Banking Services and Products

     Each bank provides a broad range of retail  banking  services and products,
including free checking accounts, subject to minimum balances, savings programs,
money market accounts, negotiable orders of withdrawal accounts, certificates of
deposit,  safe deposit facilities,  free coin counting,  consumer loan programs,
including  installment  loans for home  improvement and the purchase of consumer
goods and  automobiles,  home equity and  revolving  lines of credit,  overdraft
checking and automated  teller  facilities.  Each bank also offers  construction
loans and permanent mortgages for houses.

Trust Services

     Commerce NJ,  Commerce PA and Commerce  Delaware each offer trust  services
primarily  focusing on corporate trust  services,  particularly as bond trustee,
paying agent,  and registrar for municipal bond  offerings.

Commercial  Banking Services and Products

     Each bank offers a broad range of commercial  banking  services,  including
free checking accounts, subject to minimum balance, night depository facilities,
money market accounts, certificates of deposit, short-term loans for seasonal or
working capital  purposes,  term loans for fixed assets and expansion  purposes,
revolving credit plans and other commercial loans and leases to fit the needs of
its customers.  Each bank also finances the construction of business  properties
and makes real estate mortgage loans on completed buildings.  Where the needs of
a customer  exceed a bank's legal lending limit for any one customer,  such bank
may  participate  with  other  banks,  including  the other  banks  owned by the
Company, in making a loan.

     Additional information pertaining to the Company's segments is set forth in
Note 18 - Segment Reporting of the Notes to Consolidated  Financial  Statements,
which appears elsewhere herein.

Commerce Insurance

     Commerce  Insurance operates one of the nation's largest regional insurance
brokerage firms  concentrating  on commercial  property,  casualty and surety as
well as  personal  lines.  In  addition,  Commerce  Insurance  offers  a line of
employee benefit programs including group as well as individual  medical,  life,
disability,  pension, and risk management services. Commerce Insurance currently
operates out of 12 locations in New Jersey, 2 locations in  Pennsylvania,  and 3
locations  in  Delaware.  Commerce  Insurance  places  insurance  for clients in
multiple states, primarily New Jersey, Pennsylvania, New York, and Delaware.

Commerce Capital Markets

     Commerce  Capital  Markets  engages  in  various   securities,   investment
management and brokerage  activities.  Commerce Capital Markets' principal place
of business is Philadelphia,  Pennsylvania, with locations in Cherry Hill, South
Plainfield, Ramsey and Mount Laurel, New Jersey and New York, New York.

Commerce Capital Trust II

     Commerce  Capital  Trust II is a statutory  business  trust  created  under
Delaware  law.  On March 11,  2002 the Company  issued  $200.0  million of 5.95%
Convertible  Trust Capital  Securities  through Commerce Capital Trust II.

Other Activities

     NA Asset Management,  a Delaware corporation,  is a wholly-owned subsidiary
of Commerce  NJ that  purchases,  holds and sells  investments  of Commerce  NJ.
Commerce Mortgage  Acceptance Corp., a Delaware  corporation,  is a wholly-owned
subsidiary of Commerce NJ that is utilized in the  securitization of residential
mortgage  loans.  North  Asset  Management,   a  Delaware   corporation,   is  a
wholly-owned  subsidiary  of Commerce  North that  purchases,  holds,  and sells
investments  of  Commerce  North.  Delaware  Asset  Management,   a  New  Jersey
corporation,  is a wholly-owned  subsidiary of Commerce Delaware that purchases,
holds, and sells investments of Commerce Delaware.  Commerce  Commercial Leasing
LLC, a New Jersey Limited  Liability  Company,  is a wholly-owned  subsidiary of
Commerce NJ that provides business leasing services.

     The Company has an investment in Pennsylvania Commerce Bancorp,  Inc., Camp
Hill,  Pennsylvania  (15.50%  beneficial  ownership assuming the exercise of all
outstanding  warrants  held by the  Company).  The Company and its  subsidiaries
provide  marketing  support  and  technical  support  services  to  Pennsylvania
Commerce   Bancorp,   Inc.   and   its   wholly-owned    subsidiary,    Commerce
Bank/Harrisburg.


                                       5
<PAGE>



Risk Factors

     The Company is subject to a number of risk factors including, among others,
business and economic conditions,  monetary and other governmental policies, and
competition.  These factors,  and others,  could impact the Company's  business,
financial condition and results of operations. In the normal course of business,
the Company assumes various types of risk, which include,  among others,  credit
risk,  interest  rate risk,  liquidity  risk and risk  associated  with  trading
activities.  The Company has risk management  processes  designed to provide for
risk  identification,   measurement  and  monitoring.   Additional   information
pertaining  to the  Company's  risk factors is set forth in the  Forward-Looking
Statements, which appear on page 3.

Competition

     The Company's  service area is characterized by intense  competition in all
aspects  and areas of its  business  from  commercial  banks,  savings  and loan
associations,  mutual  savings  banks  and  other  financial  institutions.  The
Company's  competitors,  including credit unions,  consumer  finance  companies,
factors, insurance companies and money market mutual funds, compete with lending
and deposit  gathering  services  offered by the Company.  Many competitors have
substantially  greater financial resources with larger lending limits and larger
branch systems than the Company.

     In commercial transactions, Commerce NJ's, Commerce PA's, Commerce North's,
and Commerce Delaware's legal lending limit to a single borrower  (approximately
$204.0 million, $53.3 million, $31.7 million, and $3.7 million, respectively, as
of December 31, 2004) enables the banks to compete  effectively for the business
of smaller and  mid-sized  businesses.  The combined  legal lending limit of the
Company is $292.7  million.  These legal  lending  limits are lower than that of
various  competing  institutions  and  may  act as a  constraint  on the  bank's
effectiveness in competing to provide financing in excess of these limits.

     The Company  believes that it is able to compete on a  substantially  equal
basis with larger financial institutions because its banks offer longer hours of
operation than those offered by most of the Company's competitors, free checking
accounts for customers  maintaining  minimum  balances and competitive  interest
rates on savings and time accounts with low minimum deposit requirements.

     The Company seeks to provide  personalized  services  through  management's
knowledge and awareness of its market area, customers and borrowers. The Company
believes this knowledge and awareness  provides a business  advantage in serving
the retail  depositors  and the small and mid-sized  commercial  borrowers  that
comprise the Company's customer base.

Supervision and Regulation

     THE FOLLOWING DISCUSSION SETS FORTH CERTAIN OF THE MATERIAL ELEMENTS OF THE
REGULATORY FRAMEWORK APPLICABLE TO BANK HOLDING COMPANIES AND THEIR SUBSIDIARIES
AND  PROVIDES  CERTAIN  SPECIFIC  INFORMATION  RELEVANT  TO THE  COMPANY AND ITS
SUBSIDIARIES.  THE REGULATORY FRAMEWORK IS INTENDED PRIMARILY FOR THE PROTECTION
OF DEPOSITORS,  OTHER CUSTOMERS AND THE FEDERAL DEPOSIT  INSURANCE FUNDS AND NOT
FOR THE  PROTECTION  OF  SECURITY  HOLDERS.  TO THE  EXTENT  THAT THE  FOLLOWING
INFORMATION  DESCRIBES STATUTORY AND REGULATORY  PROVISIONS,  IT IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO THE PARTICULAR STATUTORY AND REGULATORY PROVISIONS.
A CHANGE IN APPLICABLE  STATUTES,  REGULATIONS  OR REGULATORY  POLICY MAY HAVE A
MATERIAL EFFECT ON THE BUSINESS OF THE COMPANY.

The Company

     The  Company is  registered  as a bank  holding  company  under the Holding
Company Act, and is  therefore  subject to  supervision  and  regulation  by the
Federal  Reserve Board ("FRB").  The Company is also regulated by the New Jersey
Department of Banking and Insurance (the "Department").

     Under the Holding Company Act, the Company is required to secure the prior
approval of the FRB before it can merge or consolidate with any other bank
holding company or acquire all or substantially all of the assets of any bank or
acquire direct or indirect ownership or control of any voting shares of any bank
that is not already majority owned by it, if after such acquisition it would
directly or indirectly own or control more than 5% of the voting shares of such
bank.
     The Company is generally prohibited under the Holding Company Act from
engaging in, or acquiring direct or indirect ownership or control or more than
5% of the voting shares of any company engaged in non-banking activities unless
the FRB, by order or regulation, has found such activities to be so closely
related to banking or managing or controlling banks as to be a proper incident
thereto. In making such a determination, the FRB considers whether the
performance of these activities by a bank holding company can reasonably be
expected to produce benefits to the public which outweigh the possible adverse
effects.

     Satisfactory  financial  condition,  particularly  with  regard to  capital
adequacy,  and  satisfactory  Community  Reinvestment  Act,  as amended  ("CRA")
ratings are generally  prerequisites to obtaining federal regulatory approval to
make  acquisitions  and open  branches.  Under the CRA,  Commerce  NJ,  Commerce
Delaware and Commerce North are currently  rated  "outstanding",  while Commerce
Pennsylvania is currently rated "satisfactory".

     In addition, under the Holding Company Act, the Company is required to file
periodic  reports of its operations  with, and is subject to examination by, the
FRB.



                                       6
<PAGE>


     The  Company  is  under  the  jurisdiction  of the  SEC and  various  state
securities  commissions  for matters  relating to the  offering  and sale of its
securities  and is  subject  to the SEC's  rules  and  regulations  relating  to
periodic  reporting,  reporting to shareholders,  proxy solicitation and insider
trading.

     There are various legal restrictions on the extent to which the Company and
its non-bank subsidiaries can borrow or otherwise obtain credit from its banking
subsidiaries. In general, these restrictions require that any such extensions of
credit must be secured by  designated  amounts of specified  collateral  and are
limited,  as to any one of the  Company or such  non-bank  subsidiaries,  to ten
percent of the lending bank's  capital stock and surplus,  and as to the Company
and all such  non-bank  subsidiaries  in the  aggregate,  to 20% of such lending
bank's  capital  stock and  surplus.  Further,  a bank  holding  company and its
subsidiaries  are  prohibited  from engaging in certain tie-in  arrangements  in
connection with any extension of credit, lease or sale of property or furnishing
of services.

     The Financial Institutions Reform,  Recovery and Enforcement Act ("FIRREA")
contains  a  "cross-guarantee"  provision  that  could  result  in  any  insured
depository  institution  owned by the Company being assessed for losses incurred
by the FDIC in connection  with  assistance  provided to, or the failure of, any
other depository  institution owned by the Company.  Also, under FRB policy, the
Company is  expected  to act as a source of  financial  strength  to each of its
banking  subsidiaries  and to  commit  resources  to  support  each such bank in
circumstances  where such bank might not be in a  financial  position to support
itself.  Consistent with the "source of strength"  policy for subsidiary  banks,
the FRB has stated that, as a matter of prudent banking,  a bank holding company
generally  should not  maintain a rate of cash  dividends  unless its net income
available to common shareholders has been sufficient to fully fund the dividends
and the prospective rate of earnings retention appears to be consistent with the
corporation's  capital needs, asset quality and overall financial  condition.

     A discussion of capital  guidelines  and capital is included in the section
entitled  "Stockholders'  Equity and Dividends"  contained within  "Management's
Discussion  and  Analysis of  Financial  Condition  and  Results of  Operations"
included elsewhere herein.

Commerce NJ, Commerce PA, Commerce North, and Commerce Delaware

     Commerce NJ, Commerce PA, and Commerce  Delaware,  as national  banks,  are
subject to the National  Bank Act. Each is also subject to the  supervision  of,
and is  regularly  examined  by, the Office of the  Comptroller  of the Currency
("OCC") and is required to furnish quarterly reports to the OCC. The approval of
the OCC is required for the  establishment of additional  stores by any national
bank, subject to applicable state law restrictions.

     Commerce North, as a New Jersey state-chartered bank, is subject to the New
Jersey Banking Act. Commerce North is also subject to the supervision of, and is
regularly  examined by, the  Department and the FDIC, and is required to furnish
quarterly reports to each agency. The approval of the Department and the FDIC is
necessary  for the  establishment  of any  additional  stores by any New  Jersey
state-chartered bank, subject to applicable state law restrictions.

     Under present New Jersey law, Commerce NJ, and Commerce North are permitted
to operate  stores at any  location in New Jersey,  subject to prior  regulatory
approval. Under present New York law, Commerce NJ is permitted to operate stores
at any location in New York, subject to certain home office protection rules and
subject to regulatory  approval.  Under present Pennsylvania law, Commerce PA is
permitted to operate stores within any county in Pennsylvania,  subject to prior
regulatory approval.  Under present Delaware law, Commerce Delaware is permitted
to operate  stores at any location in Delaware at which  deposits are  received,
checks are paid, or money is lent, subject to prior regulatory approval.

     Under  the  CRA,  a  bank  has  a  continuing  and  affirmative  obligation
consistent  with its safe and sound  operation  to help meet the credit needs of
its entire community, including low- and moderate-income neighborhoods. CRA does
not  establish   specific   lending   requirements  or  programs  for  financial
institutions nor does it limit an institution's  discretion to develop the types
of products  and  services  that it believes  are best suited to its  particular
community,  consistent  with CRA. CRA requires  that the  applicable  regulatory
agency  assess  an  institution's  record of  meeting  the  credit  needs of its
community. The CRA requires public disclosure of an institution's CRA rating and
requires that the applicable  regulatory agency provide a written  evaluation of
an  institution's  CRA performance  utilizing a four-tiered  descriptive  rating
system.  An  institution's  CRA rating is considered in  determining  whether to
grant  charters,  stores and other  deposit  facilities,  relocations,  mergers,
consolidations  and acquisitions.  Performance less than satisfactory may be the
basis for denying an application.  For their most recent examinations,  Commerce
NJ, Commerce  Delaware and Commerce North each received an "outstanding"  rating
while Commerce PA received a "satisfactory" rating.

     Commerce NJ, Commerce PA, Commerce  North,  and Commerce  Delaware are also
members of the FDIC and,  except  for  Commerce  North,  members of the FRB and,
therefore,  are subject to additional regulation by these agencies.  Some of the
aspects of the lending  and  deposit  business  of  Commerce  NJ,  Commerce  PA,
Commerce  North,  and Commerce  Delaware  which are regulated by these  agencies
include  personal  lending,  mortgage  lending  and  reserve  requirements.  The
operation of Commerce NJ, Commerce PA, Commerce North, and Commerce  Delaware is
also subject to numerous federal, state and local laws and regulations which set
forth specific restrictions and procedural requirements with respect to interest
rates on loans,  the extension of credit,  credit  practices,  the disclosure of
credit terms and discrimination in credit transactions.


                                       7
<PAGE>


     Commerce NJ, Commerce PA, Commerce North, and Commerce Delaware are subject
to certain  limitations  on the amount of cash  dividends that they can pay. See
Note 17 - Condensed Financial Statements of the Parent Company and Other Matters
of the Notes to  Consolidated  Financial  Statements,  which  appears  elsewhere
herein.

     A discussion of capital  guidelines  and capital is included in the section
entitled  "Stockholders'  Equity and Dividends"  contained within  "Management's
Discussion  and  Analysis of  Financial  Condition  and  Results of  Operations"
included elsewhere herein.

     The OCC has authority under the Financial  Institutions  Supervisory Act to
prohibit  national  banks from  engaging  in any  activity  which,  in the OCC's
opinion,   constitutes  an  unsafe  or  unsound  practice  in  conducting  their
businesses.  The FRB has similar  authority  with respect to the Company and the
Company's non-bank subsidiaries.  The FDIC has similar authority with respect to
Commerce North.

     All  of  the  deposits  of  the  banking  subsidiaries  are  insured  up to
applicable limits by the FDIC and are subject to deposit insurance  assessments.
The  insurance  assessments  are based upon a matrix  that takes into  account a
bank's capital level and supervisory rating. Effective January 1, 1996, the FDIC
reduced  the  insurance  premiums it charged on bank  deposits to the  statutory
minimum of $2,000  annually for "well  capitalized"  banks. At December 31, 2004
the Company's  consolidated  capital  levels and each of the  Company's  banking
subsidiaries meet the regulatory  definition of a "well  capitalized"  financial
institution.

Commerce Insurance/ Commerce Capital Markets

     Commerce  Insurance,  a non-bank subsidiary of Commerce North, is currently
subject to supervision, regulation and examination by the Department, as well as
other state insurance departments where it operates. Commerce Capital Markets, a
non-bank subsidiary of Commerce NJ, engages in certain permitted  securities and
brokerage  activities and is regulated by the SEC.  Commerce  Capital Markets is
also subject to rules and regulations promulgated by the National Association of
Securities Dealers,  Inc., the Securities Investors  Protection  Corporation and
various state  securities  commissions and with respect to municipal  securities
activities the Municipal Securities Rulemaking Board.

     Both Commerce  Insurance and Commerce  Capital  Markets are also subject to
various  state laws and  regulations  in which they do business.  These laws and
regulations  are  primarily  intended  to benefit  clients and  generally  grant
supervisory agencies broad administrative  powers,  including the power to limit
or restrict the carrying on of business for failure to comply with such laws and
regulations.  In such event, the possible sanctions which may be imposed include
the suspension of individual employees,  limitations on engaging in business for
specific periods, censures and fines.

Gramm-Leach-Bliley Act

     On November  12, 1999 the  Gramm-Leach-Bliley  Act (the "Act")  became law,
repealing  the  1933  Glass-Steagall  Act's  separation  of the  commercial  and
investment  banking  industries.  The Act  expanded  the  range  of  non-banking
activities  a bank  holding  company may engage in,  while  preserving  existing
authority for bank holding  companies to engage in  activities  that are closely
related to  banking.  The Act  created a category  of holding  company  called a
"Financial Holding Company," a subset of bank holding companies that satisfy the
following criteria: (1) all of the depository  institution  subsidiaries must be
well capitalized and well managed; and (2) the holding company must have made an
effective election with the FRB that it elects to be a financial holding company
to engage in activities that would not have been permissible  before the Act. In
order  for the  election  to be  effective,  all of the  depository  institution
subsidiaries  must have a CRA rating of  "satisfactory" or better as of its most
recent  examination.  The  Company  has not  elected to be a  financial  holding
company.  Financial  holding  companies  may engage in any activity  that (i) is
financial  in  nature  or  incidental  to  such  financial  activity  or (ii) is
complementary  to a financial  activity and does not pose a substantial  risk to
the safety and soundness of  depository  institutions  or the  financial  system
generally.  The Act specifies  certain  activities that are financial in nature.
These  activities  include  acting as principal,  agent or broker for insurance;
underwriting,  dealing  in or  making  a market  in  securities;  and  providing
financial and investment  advice. The FRB and the Secretary of the Treasury have
authority to decide  whether other  activities  are also  financial in nature or
incidental to financial  activity,  taking into account  changes in  technology,
changes in the banking marketplace, competition for banking services and so on.

     These financial activities  authorized by the Act may also be engaged in by
a  "financial  subsidiary"  of a national  or state  bank,  except  for  annuity
underwriting,  insurance company portfolio  investments,  real estate investment
and development,  and merchant  banking,  which must be conducted in a financial
holding company. In order for the new financial activities to be engaged in by a
financial  subsidiary of a national or state bank,  the Act requires each of the
parent bank (and its  sister-bank  affiliates) to be well  capitalized  and well
managed;  the  aggregate  consolidated  assets of all of that  bank's  financial
subsidiaries may not exceed the lesser of 45% of its  consolidated  total assets
or $50.0 billion; the bank must have at least a satisfactory CRA rating; and, if
that  bank is one of the 100  largest  national  banks,  it  must  meet  certain
financial rating or other comparable requirements.

     The Act  establishes  a system of  functional  regulation,  under which the
federal  banking  agencies  will  regulate the banking  activities  of financial
holding companies and banks' financial subsidiaries, the SEC will regulate their
securities  activities  and  state  insurance  regulators  will  regulate  their
insurance activities. The Act also provides new protections against the transfer
and use by financial institutions of consumers' nonpublic, personal information.



                                       8
<PAGE>


     The  foregoing  discussion is qualified in its entirety by reference to the
statutory  provisions  of the Act and the  implementing  regulations,  which are
adopted by various government agencies pursuant to the Act.

     THE RULES GOVERNING THE REGULATION OF FINANCIAL  SERVICES  INSTITUTIONS AND
THEIR HOLDING COMPANIES ARE VERY DETAILED AND TECHNICAL.  ACCORDINGLY, THE ABOVE
DISCUSSION  IS  GENERAL  IN NATURE AND DOES NOT  PURPORT  TO BE  COMPLETE  OR TO
DESCRIBE  ALL OF THE LAWS AND  REGULATIONS  THAT  APPLY TO THE  COMPANY  AND ITS
SUBSIDIARIES.

National Monetary Policy

     In addition to being affected by general economic conditions, the Company's
earnings  and growth are  affected by the  policies of  regulatory  authorities,
including the OCC, the FRB and the FDIC. An important function of the FRB, is to
regulate the money supply and credit  conditions.  Among the instruments used to
implement  these  objectives  are  open  market  operations  in U.S.  Government
securities,  setting the  discount  rate,  and  changes in reserve  requirements
against bank deposits.  These  instruments  are used in varying  combinations to
influence overall growth and distribution of credit, bank loans, investments and
deposits,  and their use may also affect interest rates charged on loans or paid
on deposits.

     The  monetary  policies  and  regulations  of the FRB have had  significant
effects  on the  operating  results  of  commercial  banks  in the  past and are
expected to continue to do so in the future.  The effects of these policies upon
the Company's future business, earnings and growth cannot be predicted.

Employees

     As of  December  31,  2004 the  Company  had in excess  of 9,800  full-time
equivalent employees.

Available Information

     The Company's internet address is www.commerceonline.com. The Company makes
available  free of charge on  www.commerceonline.com  its annual  report on Form
10-K,  quarterly  reports  on Form 10-Q and  current  reports  on Form 8-K,  and
amendments  to those  reports  filed or furnished  pursuant to Section  13(a) or
15(d) of the Exchange Act, as soon as reasonably  practicable  after the Company
electronically  files such  material  with,  or  furnishes  it to,  the SEC.  In
addition,  the Company makes available free of charge on  www.commerceonline.com
its Corporate Governance  Guidelines,  Code of Business Conduct and Ethics, Code
of  Ethics  for  Senior  Financial  Officers,  and the  charters  of its  Audit,
Compensation and Nominating and Governance Committees.

     In addition,  the Company will  provide,  at no cost,  paper or  electronic
copies of its reports and other filings  (excluding  exhibits) made with the SEC
and its Corporate  Governance  Guidelines,  Code of Business Conduct and Ethics,
Code of Ethics for Senior  Financial  Officers,  and the  charters of its Audit,
Compensation  and  Nominating  and  Governance  Committees.  Requests  should be
directed to:

                             Commerce Bancorp, Inc.
                                 Commerce Atrium
                               1701 Route 70 East
                           Cherry Hill, NJ 08034-5400
                           Attn: C. Edward Jordan, Jr.
                            Executive Vice President

     The  information  on the website  listed above,  is not, and should not, be
considered  part of this annual report on Form 10-K and is not  incorporated  by
reference  in this  document.  This  website  is and is only  intended  to be an
inactive textual reference.

Item 2. Properties

     The executive and administrative offices of the Company and Commerce NJ are
located at 1701 Route 70 East, Cherry Hill, New Jersey. This six-story structure
is owned by the Company.The  Company and its  subsidiaries own or lease numerous
other premises for use in conducting business  activities.  The facilities owned
or  occupied  under  lease  by the  Company's  subsidiaries  are  considered  by
management to be adequate.

     Additional information pertaining to the Company's properties is set forth
in Note 6 - Bank Premises, Equipment, and Leases of the Notes to Consolidated
Financial Statements, which appears elsewhere herein.



                                       9
<PAGE>



Item 3. Legal Proceedings

     During July and August 2004, six class action  complaints were filed in the
United  States  District  Court for the  District  of New Jersey and the Eastern
District of Pennsylvania against the Company and certain Company (or subsidiary)
current and former officers and directors. All class action complaints have been
consolidated in the United States District Court for the District of New Jersey,
Camden  Division.  As a  result  of the  consolidation,  a  single  consolidated
complaint  has been  filed.  It alleges  that the  defendants  violated  federal
securities laws,  specifically Sections 10(b) and 20(a) of the Securities Act of
1934 and Rule 10b-5 of the  Securities and Exchange  Commission.  The plaintiffs
seek  unspecified  damages on behalf of a purported  class of  purchasers of the
Company's  securities  during various periods.  The Company believes these class
action  complaints are without merit. No accrual for a loss contingency has been
recorded, as the risk of loss is considered remote.

     Other than routine litigation arising in the normal course of business, the
Company and its subsidiaries are not parties to any other material litigation.

Item 4. Submission of Matters to a Vote of Security Holders

     There were no matters submitted to a vote of security holders in the fourth
quarter of 2004.

                                     Part II

Item 5. Market for the Registrant's Common Equity and Related Stockholder
Matters

     See Item 7, Management's Discussion and Analysis of Financial Condition and
Results of Operations; Stockholders' Equity and Dividends and Capital Resources,
which appear elsewhere herein.

     See Item 12, Security Ownership of Certain Beneficial Owners and Management
and Related Stockholder Matters,  which appears elsewhere herein, for disclosure
regarding the Company's Equity Compensation Plans.

Dividend Policy

     It is the present  intention  of the  Company's  Board of  Directors to pay
quarterly cash dividends on the Company's common stock. However, the declaration
and payment of future dividends will be subject to determination and declaration
by the Board of Directors, which will consider the Company's earnings, financial
condition and capital needs and applicable regulatory requirements.  See Note 17
- Condensed Financial  Statements of the Parent Company and Other Matters of the
Notes to Consolidated Financial Statements, which appears elsewhere herein.

Item 6. Selected Financial Data

     The  following  selected  consolidated  financial  data  should  be read in
conjunction with  "Management's  Discussion and Analysis of Financial  Condition
and Results of Operations" and the Company's  consolidated  financial statements
and  accompanying  notes  included  elsewhere  herein.  Per share data and other
appropriate  share  information for all periods presented have been restated for
the two-for-one stock split in the form of a 100% stock dividend effective March
7, 2005. In addition,  prior year diluted net income per share amounts have been
restated to reflect the impact of the Company's 5.95%  Convertible Trust Capital
Securities.  Refer to Note 1 - Significant  Accounting  Policies of the Notes to
Consolidated Financial Statements,  which appears elsewhere herein, under Recent
Accounting Statements for further discussion of the required restatement.



                                       10
<PAGE>


<TABLE>
<CAPTION>

<S>                                                  <C>               <C>            <C>             <C>             <C>



-----------------------------------------------------------------------------------------------------------------------------------
                                                                             Year Ended December 31,
-----------------------------------------------------------------------------------------------------------------------------------
(dollars in thousands, except per share data)         2004             2003            2002            2001             2000
-----------------------------------------------------------------------------------------------------------------------------------
Income Statement Data:
 Net interest income                                $ 1,017,785      $   755,866     $   572,755     $   401,326     $   296,930
 Provision for loan losses                               39,238           31,850          33,150          26,384          13,931
 Noninterest income                                     375,071          332,478         257,466         196,805         150,760
 Noninterest expense                                    938,778          763,392         579,168         420,036         315,357
 Income before income taxes                             414,840          293,102         217,903         151,711         118,402
 Net income                                             273,418          194,287         144,815         103,022          80,047
Balance Sheet Data:
 Total assets                                       $30,501,645      $22,712,180     $16,403,981     $11,363,703     $ 8,296,516
 Loans (net)                                          9,318,991        7,328,519       5,731,856       4,516,431       3,638,580
 Securities available for sale                        8,044,150       10,650,655       7,806,779       4,152,704       2,021,326
 Securities held to maturity                         10,463,658        2,490,484         763,026       1,132,172       1,513,456
 Trading securities                                     169,103          170,458         326,479         282,811         109,306
 Deposits                                            27,658,885       20,701,400      14,548,841      10,185,594       7,387,594
 Long-term debt                                         200,000          200,000         200,000          80,500          80,500
 Stockholders' equity                                 1,665,705        1,277,288         918,010         636,570         492,224
Per Share Data:
 Net income-basic                                   $      1.74      $      1.36     $      1.08   $        0.80     $      0.65
 Net income-diluted                                        1.63             1.29            1.01            0.76            0.62
 Dividends declared                                        0.40             0.34            0.31            0.28            0.25
 Book value                                               10.42             8.35            6.77            4.85            3.89
 Average shares outstanding:
 Basic                                                  156,625          142,169         133,590         129,331         123,511
 Diluted                                                172,603          156,507         149,389         136,204         128,445
Selected Ratios:
 Performance
 Return on average assets                                  1.03  %          0.99  %         1.05  %         1.08   %        1.09%
 Return on average equity                                 18.78            18.81           18.50           17.64           19.81
 Net interest margin                                       4.28             4.36            4.69            4.76            4.62
 Liquidity and Capital
 Average loans to average deposits                        34.49  %         36.93  %        42.48  %        48.04   %       52.17%
 Dividend payout-basic                                    22.99            25.00           28.70           35.00           38.46
 Stockholders' equity to total assets                      5.46             5.62            5.60            5.60            5.93
 Risk-based capital:
     Tier 1                                               12.30            12.66           11.47           10.81           10.79
     Total                                                13.25            13.62           12.51           11.96           11.92
 Leverage ratio                                            6.19             6.61            6.37            6.24            6.92
 Asset Quality
 Non-performing assets to total year-end assets            0.11  %          0.10  %         0.11  %         0.16   %        0.20%
 Net charge-offs to average loans outstanding              0.19             0.16            0.18            0.19            0.11
 Non-performing loans to total
    year-end loans                                         0.35             0.29            0.24            0.37            0.37
 Allowance for loan losses to total
    end of year loans                                      1.43             1.51            1.56            1.46            1.32
 Allowance for loan losses to non-
    performing loans                                     412.88           515.39          640.18          397.73          356.84

</TABLE>

                                       11
<PAGE>






Item 7.  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.

Executive Summary

The  Commerce  model is built on the  gathering  and  retention of low cost core
deposits as being  essential to  shareholder  value.  Management  believes  core
deposit  growth  has been and will  continue  to be the  primary  driver  of the
Company's success,  and that service and a great retail  experience,  not rates,
drives  deposit  growth.  The  consistent  inflow of low cost,  long  lived core
deposits allows the Company to avoid taking  excessive risks in growing its loan
and investment  portfolios.  In addition,  the Company's  significant  cash flow
provides ongoing reinvestment opportunities as interest rates change.

During 2004, the Company's total assets grew 34%. The interest rate  environment
was difficult for the Company's  growth model,  with overall low interest  rates
and the  flattening  of the yield curve during the second half of the year.  The
flattening  curve  contributed to the  compression of the Company's net interest
margin to 4.28%, the lowest level in over 10 years.  Despite this, the Company's
continued low cost deposit growth significantly outpaced the current year margin
compression  and enabled the Company to grow  revenue  28%,  net income 41%, and
diluted net income per share by 26%.

The Company's financial  performance for 2004 and projected performance for 2005
are further discussed below.

The 2004 financial highlights are summarized below.

     o    Net income increased 41% and earnings per share increased 26%.

     o    Total deposits grew 34% and total (net) loans grew 27%.

     o    Total revenues (net interest income plus noninterest income) increased
          28%.

                                       2004          2003    Increase
 (amounts in billions)
 Total Assets                    $      30.5  $      22.7       34%
 Total Loans (net)                       9.3          7.3       27%
 Total Investments                      18.7         13.3       41%
 Total Deposits                         27.7         20.7       34%

 (amounts in millions)
 Total Revenues                  $   1,392.9  $   1,088.3       28%
 Net Income                            273.4        194.3       41%
 Net Income per Share Diluted           1.63         1.29       26%

The Company's 26% increase in diluted net income per share  includes a full year
impact of the additional  5,000,000  shares  resulting from the Company's common
stock  offering  during  September  2003.

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's  unique business model continues to produce strong
top-line revenue growth that is driven by strong deposit growth.

The continued ability to grow deposits has resulted in significant earning asset
growth.  This growth  resulted in $1.0 billion of net  interest  income on a tax
equivalent  basis in 2004,  an increase of $264.7  million or 34% over 2003.  As
more fully depicted in the chart below,  the increase in net interest  income in
both 2004 and 2003 was due to volume increases in the Company's earning assets.

------------------------------------------------------------
                            Net Interest Income
                           (dollars in millions)
------------------------------------------------------------
                   Volume     Rate
                  Increase    Change    Total    Increase
------------------------------------------------------------
2004               $285.0    ($20.3)    $264.7      34%
------------------------------------------------------------
2003               $227.1    ($41.5)    $185.6      32%
------------------------------------------------------------

The Company  continues to reiterate its future growth targets,  which management
expects to meet or exceed.


                                 Growth      Actual
                                 Target    2004 Growth

       Total Deposits              25%         34%
       Comp Store Deposits         18%         24%
       Total Revenue               25%         28%

       Net Income                  25%         41%
       Earnings Per Share          20%         26%

The Company opened 49 stores in 2004 and plans to open 55 - 60 more during 2005,
including its first stores in the Metro  Washington,  D.C.  market.  The Company
plans to open approximately 35 stores in 2005 in the metro New York market. This
market has seen the  highest  deposit  growth per store and  management  expects
these stores to continue to lead the deposit growth of the Company.

Per share data and other appropriate share information for all periods presented
have been restated for the  two-for-one  stock split in the form of a 100% stock
dividend  effective March 7, 2005. In addition,  prior year net income per share
amounts  have  been  restated  to  reflect  the  impact of the  Company's  5.95%
Convertible Trust Capital Securities.  Refer to Note 1 - Significant  Accounting
Policies  of the  Notes to  Consolidated  Financial  Statements,  which  appears
elsewhere herein,  under Recent Accounting  Statements for further discussion of
the required restatement.

                                       12
<PAGE>



Application of Critical Accounting Policies

The Company's  consolidated financial statements are prepared in accordance with
accounting principles generally accepted in the United States and follow general
practices  within  the  industry  in which  it  operates.  Application  of these
principles  requires  management to make estimates,  assumptions,  and judgments
that affect the amounts  reported in the financial  statements and  accompanying
notes.  These  estimates,  assumptions,  and judgments are based on  information
available  as of the  date of the  financial  statements;  accordingly,  as this
information changes, the financial statements could reflect different estimates,
assumptions,  and judgments. Certain policies inherently have a greater reliance
on the use of estimates,  assumptions,  and judgments and as such have a greater
possibility  of  producing  results  that  could be  materially  different  than
originally reported.

The Company's accounting policies are fundamental to understanding Management's
Discussion and Analysis of Financial Condition and Results of Operations. The
Company has identified the policy related to the allowance for loan losses as
being critical. The Company, in consultation with the Audit Committee, has
reviewed and approved this critical accounting policy (further described in Note
1 - Significant Accounting Policies of the Notes to Consolidated Financial
Statements, which appears elsewhere herein.)

Allowance for loan losses. The allowance for loan losses represents management's
estimate  of  probable  credit  losses  inherent  in the loan  portfolio  of the
Company. Determining the amount of the allowance for loan losses is considered a
critical  accounting estimate because it requires  significant  judgment and the
use of estimates  related to the amount and timing of expected future cash flows
on  impaired  loans,  estimated  losses on pools of  homogeneous  loans based on
historical loss  experience,  and  consideration  of current economic trends and
conditions,  all of which may be  susceptible to  significant  change.  Note 1 -
Significant   Accounting  Policies  of  the  Notes  to  Consolidated   Financial
Statements  describes the  methodology  used to determine the allowance for loan
losses,  and a discussion  of the factors  driving  changes in the amount of the
allowance  for  loan  losses  is  included  in the  Allowance  for  Loan  Losses
discussion  within  this  Management's  Discussion  and  Analysis  of  Financial
Condition and Results of Operations.

Segment Reporting

The Company  operates one reportable  segment of business,  Community  Banks, as
more fully described in Note 18 - Segment Reporting of the Notes to Consolidated
Financial  Statements,  which appears  elsewhere  herein.  The  following  table
summarizes  net income by segment for each of the last three  years  (amounts in
thousands):



 -----------------------------------------------------------
                                    Net Income
 -----------------------------------------------------------
                           2004        2003        2002
 -----------------------------------------------------------
 Community Banks          $267,466    $183,068    $139,560
 Parent/Other                5,952      11,219       5,255
 -----------------------------------------------------------
 Consolidated Total       $273,418    $194,287    $144,815
 -----------------------------------------------------------

Average Balances and Net Interest Income

The table on page 15 sets forth balance sheet items on a daily average basis for
the years ended December 31, 2004,  2003 and 2002 and presents the daily average
interest  rates earned on assets and the daily  average  interest  rates paid on
liabilities  for such periods.  During 2004,  average  interest  earning  assets
totaled  $24.2  billion,  an increase of $6.5  billion,  or 37% over 2003.  This
increase  resulted  primarily  from  the  increase  in the  average  balance  of
investments,  which rose $4.6 billion,  and the average balance of loans,  which
rose $1.8  billion  during 2004.  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 $6.6 billion.

Net Interest Margin and Net Interest Income

Net interest margin on a tax equivalent  basis was 4.28% for 2004, a decrease of
8 basis points from 2003.  The decrease was due to the overall low interest rate
environment  in 2004 and the  flattening  yield  curve in the second half of the
year.  During the third and fourth quarters of 2004,  short-term  interest rates
increased by 125 basis points, increasing the Company's overall cost of funds by
approximately 30 basis points.  With no significant change in long-term interest
rates over the same time  periods,  the  Company  did not  experience  a similar
increase in its interest earning assets.  While the Company's continuing ability
to  grow  core  deposits  produces  net  interest  income  growth  despite  rate
compression, management does not expect net interest margin expansion until long
term rates increase and/or the yield curve steepens.  The net interest margin is
calculated by dividing net interest income by average earning assets.

Net interest  income is the  difference  between the  interest  income on loans,
investments and other interest-earning  assets and the interest paid on deposits
and other  interest-bearing  liabilities.  Net  interest  income is the  primary
source of earnings  for the Company.  There are several  factors that affect net
interest income, including:

     o    the  volume,   pricing,   mix  and  maturity  of  earning  assets  and
          interest-bearing liabilities;

     o    market interest rate fluctuations; and

     o    asset quality.



                                       13
<PAGE>


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 2004 was $1.0 billion, an increase of $264.7 million,
or 34%, over 2003.  Interest income on a tax-equivalent  basis increased to $1.3
billion from $931.3  million,  or 35%. This  increase was  primarily  related to
volume  increases in the loan and investment  portfolios.  Interest  expense for
2004 increased $60.7 million to $220.5 million from $159.8 million in 2003. This
increase was  primarily  related to increases in the Company's  average  deposit
balances.

The  tax-equivalent  yield on interest  earning  assets during 2004 was 5.19%, a
decrease  of 7 basis  points  from 5.26% in 2003.  The cost of  interest-bearing
liabilities  increased 2 basis  points in 2004 to 1.13% from 1.11% in 2003.  The
cost of total funding sources increased  slightly to 0.91% in 2004 from 0.90% in
2003.

The following  table presents the major factors that  contributed to the changes
in net interest  income on a tax  equivalent  basis for the years ended December
31, 2004 and 2003 as compared to the respective previous periods.

<TABLE>
<CAPTION>

<S>               <C>          <C>          <C>          <C>            <C>        <C>

---------------------------------------------------------------------------------------------
                         2004 vs. 2003                               2003 vs. 2002
                      Increase (Decrease)                         Increase (Decrease)
                     Due to Changes in (1)                       Due to Changes in (1)
---------------------------------------------------------------------------------------------
                    Volume         Rate        Total        Volume        Rate        Total
---------------------------------------------------------------------------------------------
                                           (dollars in thousands)
---------------------------------------------------------------------------------------------
 Interest on
   Investments:
    Taxable       $ 216,828    $  10,630    $ 227,458    $ 186,070     ($65,123)   $ 120,947
    Tax-exempt        8,015       (2,772)       5,243        6,277          706        6,983
    Trading          (1,225)         180       (1,045)      (1,029)      (1,527)      (2,556)
 Federal
     Funds sold         633           15          648         (356)        (254)        (610)
 Interest on
  loans:
    Commercial
     mortgages       41,216       (4,115)      37,101       24,352      (10,574)      13,778
    Commercial       22,840         (206)      22,634       21,154       (6,710)      14,444
    Consumer         39,258       (9,545)      29,713       24,965      (17,970)       6,995
    Tax-exempt        5,163       (1,507)       3,656        4,515       (1,701)       2,814
---------------------------------------------------------------------------------------------
 Total
 interest
   income           332,728       (7,320)      325,408      265,948    (103,153)     162,795
---------------------------------------------------------------------------------------------
 Interest
 expense:
   Savings           15,174        3,910       19,084        9,453      (12,089)      (2,636)
   Interest
    bearing          29,354       15,188       44,542       17,665      (22,367)      (4,702)
    demand
   Time
    deposits          2,253       (9,792)      (7,539)      10,405      (18,077)      (7,672)
   Public funds         404          828        1,232       (1,069)      (6,711)      (7,780)
   Other
    borrowed
    money               598        2,824        3,422        2,349         (924)       1,425
   Long-term
    debt                                                        32       (1,517)      (1,485)
---------------------------------------------------------------------------------------------
 Total
 interest
   expense           47,783       12,958       60,741       38,835      (61,685)     (22,850)
---------------------------------------------------------------------------------------------
 Net change       $ 284,945     ($20,278)   $ 264,667    $ 227,113     ($41,468)   $ 185,645
---------------------------------------------------------------------------------------------

(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.

</TABLE>



                                       14
<PAGE>

<TABLE>
<CAPTION>

<S>                          <C>            <C>         <C>       <C>            <C>        <C>       <C>           <C>       <C>


                                        Commerce Bancorp, Inc. and Subsidiaries Average Balances and Net Interest Income

------------------------------------------------------------------------------------------------------------------------------------
                                                                  Year Ended December 31,
------------------------------------------------------------------------------------------------------------------------------------
                                             2004                                2003                             2002
------------------------------------------------------------------------------------------------------------------------------------
(dollars in thousands)            Average            Average         Average              Average       Average             Average
Earning Assets                    Balance   Interest   Rate          Balance    Interest    Rate        Balance   Interest   Rate
------------------------------------------------------------------------------------------------------------------------------------
Investment securities

Taxable                      $15,276,797    $736,216    4.82 %    $10,777,538    $508,758   4.72  %   $6,835,820    $387,811  5.67 %
Tax-exempt                       347,979      19,078    5.48          201,775      13,835   6.86         110,235       6,852  6.22
Trading                          169,242       8,592    5.08          193,376       9,637   4.98         214,016      12,193  5.70
------------------------------------------------------------------------------------------------------------------------------------
Total investment securities   15,794,018     763,886    4.84       11,172,689     532,230   4.76       7,160,071     406,856  5.68
Federal funds sold                75,269         903    1.20           22,530         255   1.13          54,043         865  1.60
Loans
Commercial mortgages           3,091,350     189,743    6.14        2,419,855     152,642   6.31       2,037,091     138,864  6.82
Commercial                     2,024,648     110,416    5.45        1,605,845      87,782   5.47       1,219,182      73,338  6.02
Consumer                       2,908,561     166,851    5.74        2,224,197     137,138   6.17       1,815,679     130,143  7.17
Tax-exempt                       340,172      24,886    7.32          269,592      21,230   7.87         212,261      18,416  8.68
------------------------------------------------------------------------------------------------------------------------------------
Total loans                    8,364,731     491,896    5.88        6,519,489     398,792   6.12       5,284,213     360,761  6.83
------------------------------------------------------------------------------------------------------------------------------------
Total earning assets         $24,234,018  $1,256,685    5.19 %    $17,714,708    $931,277   5.26  %  $12,498,327    $768,482  6.15 %
------------------------------------------------------------------------------------------------------------------------------------
Sources of Funds
------------------------------------------------------------------------------------------------------------------------------------
Interest-bearing liabilities
Savings                       $5,446,713     $46,680    0.86 %     $3,676,147     $27,596   0.75  %   $2,416,884     $30,232  1.25 %
Interest-bearing demand       10,066,187      95,253    0.95        6,964,158      50,711   0.73       4,538,914      55,413  1.22
Time deposits                  2,454,910      46,182    1.88        2,335,124      53,721   2.30       1,882,823      61,393  3.26
Public funds                     878,310      13,626    1.55          852,319      12,394   1.45         925,827      20,174  2.18
------------------------------------------------------------------------------------------------------------------------------------
Total deposits                18,846,120     201,741    1.07       13,827,748     144,422   1.04       9,764,448     167,212  1.71

Other borrowed money             465,137       6,685    1.44          423,538       3,263   0.77         118,734       1,839  1.55
Long-term debt                   200,000      12,080    6.04          200,000      12,080   6.04         199,464      13,565  6.80
------------------------------------------------------------------------------------------------------------------------------------
Total deposits and interest-
        bearing liabilities   19,511,257     220,506    1.13       14,451,286     159,765   1.11      10,082,646     182,616  1.81
Noninterest-bearing funds
(net)                          4,722,761                            3,263,422                          2,415,681
------------------------------------------------------------------------------------------------------------------------------------
Total sources to fund
earning assets               $24,234,018    $220,506    0.91      $17,714,708    $159,765   0.90     $12,498,327    $182,616  1.46
------------------------------------------------------------------------------------------------------------------------------------
Net interest income and
margin tax-equivalent
basis                                     $1,036,179    4.28                     $771,512   4.36                    $585,866  4.69
Tax-exempt adjustment                         18,394                               15,646                             13,111
                                         ------------                         ------------                       ------------
Net interest income and margin            $1,017,785    4.20 %                   $755,866   4.27  %                 $572,755  4.58 %
------------------------------------------------------------------------------------------------------------------------------------
Other Balances
------------------------------------------------------------------------------------------------------------------------------------
Cash and due from banks       $1,134,991                             $922,188                        $   630,134
Other assets                   1,376,006                            1,053,283                            702,898
Total assets                  26,618,555                           19,590,319                         13,752,237
Demand deposits
(noninterest-bearing)          5,408,094                            3,826,885                          2,674,233
Other liabilities                243,284                              279,203                            212,775
Stockholders' equity           1,455,920                            1,032,945                            782,583
------------------------------------------------------------------------------------------------------------------------------------

</TABLE>


Notes

     --Weighted average yields on tax-exempt obligations have been computed on a
          tax-equivalent basis assuming a federal tax rate of 35%.
     --Non-accrual loans have been included in the average loan balance.


                                       15
<PAGE>




Noninterest Income

For 2004,  noninterest  income  totaled  $375.1  million,  an  increase of $42.6
million or 13% from 2003.  Deposit  charges and  service  fees  increased  $57.4
million, or 36%. Other operating income,  which includes the Company's insurance
and capital markets divisions,  decreased by $13.6 million,  or 8%. The decrease
in other operating income is more fully depicted in the following chart.

                                   2004          2003
                               -------------  ------------
Other Operating Income:
   Insurance                      $  72,479      $  66,482
   Capital Markets                   28,053         42,518
   Loan Brokerage Fees               13,189         27,169
   Other                             40,585         31,780
                               -------------  ------------
     Total Other                   $154,306       $167,949
                               -------------  ------------

Commerce  Insurance,  the Company's  insurance  brokerage  subsidiary,  recorded
increased  revenues of $6.0  million,  or 9%,  while  Commerce  Capital  Markets
recorded decreased  revenues of $14.5 million,  or 34%. The decrease in revenues
for Commerce  Capital  Markets was primarily  attributable  to the exit from the
government public finance business and lower municipal trading results.

The decrease in loan brokerage  fees resulted  primarily from the reduced volume
of mortgage  refinancing  activity in 2004,  as compared to the record levels in
2003 as well as the Company's  decision to hold certain loans in its  portfolio.
Other increased by $8.8 million,  or 28%,  primarily due to increased  letter of
credit fees and revenues  generated by the Company's leasing division.  Included
in other  noninterest  income are gains on sale of SBA loans of $9.1 million and
$11.7 million during 2004 and 2003, respectively.

Noninterest Expenses

Noninterest  expenses  totaled  $938.8  million for 2004,  an increase of $175.4
million,  or 23% over 2003.  Contributing to this increase was the opening of 49
new  stores  during  2004.  With  the  addition  of  these  new  stores,  staff,
facilities, marketing, and related expenses rose accordingly.

Other noninterest  expense  increased by $44.8 million,  or 30%. The increase in
other noninterest expenses is depicted in the following chart.

                                     2004          2003
                                  ------------  ------------
Other Noninterest Expenses:
   Business Development Costs       $ 29,516      $ 24,937
   Bank-Card Related Service
    Charges                           35,728        25,382
   Professional                       40,515        24,597
    Services/Insurance
   Provisions for
    Non-Credit-Related Losses         22,243        15,546
   Other                              66,919        59,623
                                  ------------  ------------
     Total Other                    $194,921      $150,085
                                  ------------  ------------


The growth in business development costs,  bank-card related service charges and
non-credit-related  losses,  which  includes fraud and forgery losses on deposit
and other  non-credit  related  items,  was due to the  Company's  growth in new
stores and customer accounts.  The growth in professional services and insurance
expense was primarily  attributable to increased  consulting and insurance costs
related to the Company's growth as well as increased legal fees.

The Company  experienced  positive operating leverage in 2004, as revenue growth
of 28%  exceeded  noninterest  expense  growth  of  23%.  One  important  factor
influencing  the  growth in  noninterest  expense is that the  Company  absorbed
significant  start-up  expenses  related  to the New York  City and Long  Island
markets in prior  years.  As a result,  the impact of the growth in  noninterest
expenses in these markets declined in 2004. 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).  This ratio
equaled  67.62%,  70.38%,  and 69.73%,  in 2004,  2003, and 2002,  respectively.
Management  believes the Company's  aggressive  growth  activities will keep its
efficiency ratio above its peer group.


Income Taxes

The  provision  for federal and state income  taxes for 2004 was $141.4  million
compared to $98.8 million in 2003 and $73.1  million in 2002.  The effective tax
rate was  34.1%,  33.7% and 33.5% in 2004,  2003,  and 2002,  respectively.  The
increase  in the  effective  income tax rate for 2004 was  primarily  due to the
reduced impact of tax free interest income.

Net Income

Net income for 2004 was $273.4  million,  an increase of $79.1  million,  or 41%
over the $194.3 million recorded for 2003.

Diluted  net income  per share of common  stock for 2004 was $1.63  compared  to
$1.29 per common share for 2003.

Return on Average Equity and Average Assets

Two industry measures of 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.  The  Company's ROA was
1.03%, 0.99%, and 1.05% for 2004, 2003, and 2002, respectively.  The increase in
the  Company's  2004  ROA as  compared  to the 2003  ROA was the  result  of the
Company's  positive operating leverage for 2004, which contributed to net income
growth  of 41%.  Prior  year  ROA's  were  impacted  in part by the  significant
start-up expenses related to the New York City and Long Island markets.


                                       16
<PAGE>

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.  The Company's
ROE was 18.78%, 18.81%, and 18.50% for 2004, 2003, and 2002, respectively.

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 2000 through 2004.

<TABLE>
<CAPTION>

<S>                           <C>                  <C>                    <C>                   <C>               <C>

--------------------------------------------------------------------------------------------------------------------------
                                                                    December 31,
--------------------------------------------------------------------------------------------------------------------------
                                2004                 2003                2002                  2001                2000
--------------------------------------------------------------------------------------------------------------------------
(dollars in thousands)
Commercial:
Term                          $1,283,476           $1,027,526             842,869               600,374           469,564
Line of credit                 1,168,542              959,158             683,640               556,977           430,811
Demand                                                  1,077                 317                   440             1,400
--------------------------------------------------------------------------------------------------------------------------
                               2,452,018            1,987,761           1,526,826             1,157,791           901,775

Owner-occupied                 1,998,203            1,619,079           1,345,306             1,028,408           945,599

Consumer:
Mortgages
(1-4 family
  residential)                 1,340,009              918,686             626,652               471,680           351,644
Installment                      132,646              138,437             140,493               161,647           154,415
Home equity                    1,799,841            1,405,795           1,139,589               872,974           710,848
Credit lines                      69,079               60,579              56,367                43,196            30,254
--------------------------------------------------------------------------------------------------------------------------
                               3,341,575            2,523,497           1,963,101             1,549,497         1,247,161

Commercial real estate:
Investor developer             1,455,891            1,167,672             885,276               799,799           578,982
Construction                     206,924              142,567             102,080                47,917            13,743
--------------------------------------------------------------------------------------------------------------------------
                               1,662,815            1,310,239             987,356               847,716           592,725
--------------------------------------------------------------------------------------------------------------------------
Total loans                   $9,454,611           $7,440,576          $5,822,589            $4,583,412        $3,687,260
==========================================================================================================================

</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  investor/
developer  permanent and construction loans and residential  construction loans.
The  owner-occupied  portfolio is comprised  primarily of commercial real estate
loans in which  the  borrower  occupies  a  majority  of the  commercial  space.
Owner-occupied  and  investor/  developer  loans  generally  have five year call
provisions  and  bear  the  personal  guarantees  of  the  principals  involved.
Financing for  investor/developer  construction  is generally for  pre-leased or
pre-sold  property,  while  residential  construction  is provided  against firm
agreements  of sale with  speculative  construction  generally  limited to three
samples per  project.  The  commercial  loan  portfolio is comprised of loans to
businesses in the Philadelphia and New York City metropolitan areas. 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.

The  contractual  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, 2004, are summarized in the following table.

--------------------------------------------------------------------------------
                                            December 31, 2004
--------------------------------------------------------------------------------
                             Due in One    Due in One    Due in Over
                            Year or Less  to Five Years  Five Years    Total
--------------------------------------------------------------------------------
(dollars in thousands)
  Commercial:
  Term                      $  378,421   $  802,481   $  102,574   $1,283,476
  Line of credit             1,112,853       55,689                 1,168,542
-------------------------------------------------------------------------------
                             1,491,274      858,170      102,574    2,452,018

  Owner-occupied               375,001    1,059,003      564,199    1,998,203

  Consumer:
  Mortgages
  (1-4 family
    residential)                40,654      152,452    1,146,903    1,340,009
  Installment                   45,045       51,421       36,180      132,646
  Home equity                  137,615      503,920    1,158,306    1,799,841
  Credit lines                  23,737       45,342                    69,079
-------------------------------------------------------------------------------
                               247,051      753,135    2,341,389    3,341,575
  Commercial real estate:
  Investor developer           392,612      813,982      249,297    1,455,891
  Construction                 119,535       87,389                   206,924
-------------------------------------------------------------------------------
                               512,147      901,371      249,297    1,662,815
-------------------------------------------------------------------------------
  Total loans               $2,625,473   $3,571,679   $3,257,459   $9,454,611
-------------------------------------------------------------------------------
  Interest rates:
  Predetermined             $  721,526   $2,421,222   $2,205,961   $5,348,709
  Floating                   1,903,947    1,150,457    1,051,498    4,105,902
-------------------------------------------------------------------------------
  Total loans               $2,625,473   $3,571,679   $3,257,459   $9,454,611
===============================================================================


During 2004,  loans  increased  $2.0  billion,  or 27% from $7.4 billion to $9.4
billion.  At December 31, 2004, loans  represented 34% of total deposits and 31%
of total assets. All segments of the loan portfolio  experienced growth in 2004.
Geographically,  the  metro  Philadelphia  market  contributed  48% of the total
growth in the loan  portfolio  while the  northern New Jersey and metro New York
markets contributed 25% and 27%,  respectively.  During 2004, the metro New York
market  continued to mature and its loan portfolio grew by almost 100%. The loan
portfolios  in metro  Philadelphia  and northern New Jersey grew by 21% and 23%,
respectively.

The Company has  traditionally  been an active  provider of real estate loans to
creditworthy  local borrowers,  with such loans secured by properties within the
Company's  primary  trade area.  During  2004,  commercial  real estate  lending
increased $352.6 million or 27%, which was consistent with the overall growth in
the loan  portfolio.  Loans to finance  owner-occupied  properties  grew  $379.1
million  or 23%.  Commercial  loan  growth of $464.3  million  or 23% was led by
activity in the middle market and healthcare  sectors.  Growth in consumer loans
of $818.1 million,  or 32%, was primarily in mortgage  lending.  The residential
mortgage  portfolio  increased  $421.3 million,  or 46%, during 2004, due to the
Company's  decision to hold jumbo  mortgage loans in its portfolio as opposed to
selling them in the secondary  market.  The Company's home equity portfolio grew
$394.0 million or 28%, which was consistent  with the overall growth in the loan
portfolio.

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, 2004
were $33.5 million or .11% of total assets, as compared to $23.6 million or .10%
of total assets at December 31, 2003.



                                       17
<PAGE>


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, 2004
were  $32.8  million  as  compared  to $21.7  million  a year ago.  The  Company
generally places a loan on non-accrual  status and ceases accruing interest when
loan payment  performance  is deemed  unsatisfactory.  During  2004,  commercial
non-accrual  loans  increased  $6.9 million or 63%.  The increase in  commercial
non-accrual  loans was primarily due to one large credit of  approximately  $9.3
million that was placed on non-accrual  status during the third quarter of 2004.
This  increase  was  offset  by a  commercial  credit of $3.5  million  that was
restructured  and  reclassified  as a restructured  loan during 2004.  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, 2004, loans past
due 90 days or more and  still  accruing  interest  amounted  to $602  thousand,
compared to $538 thousand at December 31, 2003.  Additional  loans considered by
the  Company's  internal loan review  department  as potential  problem loans of
$37.7  million at December 31, 2004,  compared to $47.7  million at December 31,
2003, have been evaluated as to risk exposure in determining the adequacy of the
allowance for loan losses.

Other real estate (ORE)  totaled $626  thousand at December 31, 2004 as compared
to $1.8 million at December 31, 2003. 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 non-performing loans
secured by real estate.  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.

The following summary presents  information  regarding  non-performing loans and
assets as of December 31, 2000 through 2004.

<TABLE>
<CAPTION>

<S>                            <C>         <C>         <C>          <C>         <C>
----------------------------------------------------------------------------------------
                                                Year Ended December 31,
----------------------------------------------------------------------------------------
                              2004        2003        2002         2001        2000
----------------------------------------------------------------------------------------
(dollars in thousands)
Non-accrual loans (1):
Commercial                     $17,874     $10,972     $ 6,829      $ 9,104     $ 7,468
Consumer                        10,138       9,242       6,326        4,390       3,467
Real estate
Construction                                   138         131        1,590       1,459
Mortgage                         1,317       1,389         882        1,749       1,155
----------------------------------------------------------------------------------------
Total non-accrual
Loans                           29,329      21,741      14,168       16,833      13,549
----------------------------------------------------------------------------------------
Restructured loans (1):
Commercial                       3,518           1           5            8          11
Real estate mortgage                                                                 82
----------------------------------------------------------------------------------------
Total restructured
loans                            3,518           1           5            8          93
----------------------------------------------------------------------------------------
Total non-performing
loans                           32,847      21,742      14,173       16,841      13,642
----------------------------------------------------------------------------------------
Other real estate                  626       1,831       3,589        1,549       2,959
----------------------------------------------------------------------------------------
Total non-performing
assets(1):                     $33,473     $23,573     $17,762      $18,390     $16,601
----------------------------------------------------------------------------------------
Non-performing
assets as a percent
of total assets                  0.11%        0.10%       0.11%        0.16%       0.20%
----------------------------------------------------------------------------------------
Loans past due 90
days or more and still
accruing interest              $  602      $  538      $   620      $   519     $   489
----------------------------------------------------------------------------------------

</TABLE>


(1)  Interest  income  of  approximately  $2,906,000,   $1,908,000,  $1,352,000,
     $2,092,000,  and $1,731,000  would have been recorded in 2004,  2003, 2002,
     2001, and 2000  respectively,  on  non-performing  loans in accordance with
     their original terms.  Actual interest  recorded on these loans amounted to
     $1,070,000 in 2004,  $418,000 in 2003,  $275,000 in 2002, $237,000 in 2001,
     and $525,000 in 2000.

Allowance for Loan Losses

The  allowance for loan losses is  maintained  at a level  believed  adequate by
management to absorb losses inherent in the loan portfolio.  In conjunction with
an internal  loan review  function that  operates  independently  of the lending
function,  management  monitors the loan portfolio to identify risks on a timely
basis so that an appropriate allowance can be maintained. 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,  in addition to the factors  discussed below,  management
considers  the results of regulatory  examinations,  which  typically  include a
review of the allowance  for loan losses as an integral part of the  examination
process.

In establishing the allowance,  management evaluates individual large classified
loans and nonaccrual  loans, and determines an aggregate reserve for those loans
based on that review. At December 31, 2004, approximately 26.4% of the allowance
was attributed to individually  evaluated  loans. An allowance for the remainder
of the loan portfolio is also  determined  based on historical  loss  experience
within the components of the  portfolio.  These  allocations  may be modified if
current  conditions  indicate  that  loan  losses  may  differ  from  historical
experience,  based on economic  factors and changes in portfolio mix and volume.
At December 31, 2004,  approximately  58.5% of the allowance  was  attributed to
historical loss experience.


                                       18
<PAGE>


In addition,  a portion of the allowance is established  for losses  inherent in
the loan  portfolio  which  have not been  identified  by the more  quantitative
processes  described  above.  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. Those factors
include  changes  in  levels  and  trends  of  charge-offs,  delinquencies,  and
nonaccrual loans,  trends in volume and terms of loans,  changes in underwriting
standards and practices,  portfolio mix, tenure of loan officers and management,
entrance into new  geographic  markets,  changes in credit  concentrations,  and
national  and local  economic  trends and  conditions.  At  December  31,  2004,
approximately  15.1%  of the  allowance  was  attributed  to  these  qualitative
factors.

While the  allowance  for loan losses is  maintained  at a level  believed to be
adequate by management for estimated losses in the loan portfolio, determination
of the  allowance is inherently  subjective,  as it requires  estimates,  all of
which may be susceptible to significant  change.  Changes in these estimates may
impact the provisions charged to expense in future periods.

The allowance for loan losses is increased by provisions  charged to expense and
reduced by loan charge-offs net of recoveries.  Charge-offs occur when loans are
deemed to be  uncollectible.  During  2004,  net  charge-offs  amounted to $15.7
million,  or .19% of average loans  outstanding for the year,  compared to $10.5
million,  or .16% of  average  loans  outstanding  for 2003.  Total  charge-offs
increased $6.1 million or 51% during 2004.  The  commercial and commercial  real
estate categories  experienced increases of $3.8 million or 68% and $1.5 million
or 612%,  respectively.  Both  categories  were impacted by a few large credits,
relative to each portfolio,  that were charged-off during the year. During 2004,
the Company  recorded  provisions  of $39.2  million to the  allowance  for loan
losses compared to $31.9 million for 2003. The Company  continued to proactively
manage its exposure to credit risk in 2004.  Based upon the  application  of the
Company's  reserve  methodology,  allowance levels increased by $23.6 million to
$135.6  million at December 31, 2004, but decreased as a percentage of the total
loans due to growth in the portfolio (1.43% at December 31, 2004 versus 1.51% at
December 31, 2003).

The following  table  presents,  for the periods  indicated,  an analysis of the
allowance for loan losses and other related data.

<TABLE>
<CAPTION>

<S>                          <C>           <C>         <C>         <C>          <C>

----------------------------------------------------------------------------------------
                                              Year Ended December 31,
----------------------------------------------------------------------------------------
                               2004         2003        2002        2001         2000
----------------------------------------------------------------------------------------
(dollars in thousands)
Balance at beginning
of period                    $112,057      $90,733     $66,981     $48,680      $38,382
Provisions charged to
operating expenses             39,238       31,850      33,150      26,384       13,931
----------------------------------------------------------------------------------------
                              151,295      122,583     100,131      75,064       52,313
----------------------------------------------------------------------------------------
Recoveries of loans
previously charged-off:
Commercial                      1,000          669         815         552          313
Consumer                        1,123          584         339         288          249
Commercial real
 estate                            52           11         176         134           14
----------------------------------------------------------------------------------------
Total recoveries                2,175        1,264       1,330         974          576
----------------------------------------------------------------------------------------
Loans charged-off:
Commercial                     (9,416)      (5,601)     (7,181)     (5,862)      (2,936)
Consumer                       (6,733)      (5,950)     (3,514)     (2,784)      (1,220)
Commercial real
 estate                        (1,701)        (239)        (33)       (411)         (53)
----------------------------------------------------------------------------------------
Total charged-off             (17,850)     (11,790)    (10,728)     (9,057)      (4,209)
----------------------------------------------------------------------------------------
Net charge-offs               (15,675)     (10,526)     (9,398)     (8,083)      (3,633)
----------------------------------------------------------------------------------------
Balance at end of period     $135,620     $112,057     $90,733     $66,981      $48,680
----------------------------------------------------------------------------------------
Net charge-offs as a
percentage of average
loans outstanding               0.19%        0.16%       0.18%       0.19%        0.11%
----------------------------------------------------------------------------------------
Allowance for loan losses
as a percentage of
year-end loans                  1.43%        1.51%       1.56%       1.46%        1.32%
----------------------------------------------------------------------------------------

</TABLE>



Allocation of the Allowance for Loan Losses

The following  table details the  allocation of the allowance for loan losses to
the various  loan  categories.  The current  year  evaluation  of the  Company's
allowance for loan losses by loan category has been expanded to include analyses
under multiple  economic and portfolio  assumptions.  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>

<S>                    <C>         <C>    <C>          <C>     <C>        <C>      <C>          <C>    <C>        <C>

 -------------------------------------------------------------------------------------------------------------------------
                                                   Allowance for Loan Losses at December 31,
 -------------------------------------------------------------------------------------------------------------------------
                            2004                2003                2002                2001               2000
 -------------------------------------------------------------------------------------------------------------------------
                               % Gross             % Gross             % Gross             % Gross            % Gross
                       Amount   Loans      Amount   Loans     Amount    Loans     Amount    Loans     Amount   Loans
 -------------------------------------------------------------------------------------------------------------------------
 (dollars in
 thousands)
  Commercial           $ 47,230    26%    $ 50,400     27%     $33,708    26%      $24,110      25%    $20,396    24%
  Owner-occupied         29,488    21       26,862     22       24,539    23        18,060      22      14,546    26
  Consumer               38,100    35       13,082     34       14,497    34         9,915      34       4,632    34
  Commercial real
     estate              20,802    18       21,713     17       17,989    17        14,896      19       9,106    16
 -------------------------------------------------------------------------------------------------------------------------
                       $135,620   100%    $112,057    100%     $90,733   100%      $66,981     100%    $48,680   100%
 -------------------------------------------------------------------------------------------------------------------------

</TABLE>


                                       19
<PAGE>




Investment Securities

The following table summarizes the Company's securities available for sale and
securities held to maturity as of the dates shown.


-------------------------------------------------------------------
                                           December 31,
-------------------------------------------------------------------
                                 2004         2003         2002
-------------------------------------------------------------------
(dollars in thousands)
U.S. Government agency
and mortgage-backed
obligations                $ 7,902,816   $10,511,545   $ 7,659,737
Obligations of state and
political subdivisions          87,910        30,927        23,185
Equity securities               23,303        16,588        24,054
Other                           30,121        91,595        99,803
-------------------------------------------------------------------
Securities available
for sale                   $ 8,044,150   $10,650,655   $ 7,806,779
-------------------------------------------------------------------
U.S. Government agency
and mortgage-backed
obligations                $ 9,967,041   $ 2,193,577   $   624,688
Obligations of state and
political subdivisions         398,963       227,199        91,204
Other                           97,654        69,708        47,134
-------------------------------------------------------------------
Securities held to
maturity                   $10,463,658   $ 2,490,484   $   763,026
-------------------------------------------------------------------


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 with unrealized gains
and losses,  net of income tax  effects,  recognized  in  Stockholders'  Equity.
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,  primarily municipal  securities,
are  carried  at  market  value,  with  gains  and  losses,  both  realized  and
unrealized, included in other operating income.

In total,  investment  securities  increased  $5.4 billion from $13.3 billion to
$18.7 billion at December 31, 2004.  Deposit  growth and other  funding  sources
were used to increase the Company's investment portfolio. The available for sale
portfolio  decreased $2.6 billion to $8.0 billion,  and the  securities  held to
maturity portfolio increased $8.0 billion to $10.5 billion at year-end 2004. The
portfolio of trading  securities  decreased to $169.1  million at year-end  2004
from $170.5  million at year-end  2003.  During the fourth  quarter of 2004, the
Company transferred $5.9 billion of securities  classified as available for sale
to the  held to  maturity  classification  based  on the  Company's  anticipated
liquidity  needs and expected  annual cash flow from deposit growth and bond and
loan  prepayments.  The  aggregate  market value of the  securities  transferred
equaled their book value,  with no effect on  stockholders'  equity,  regulatory
capital or results of operations. During the fourth quarter of 2004, the Company
sold $126.0  million of securities  from its held to maturity  portfolio.  These
securities  experienced  a  deterioration  in  creditworthiness  which meets the
specific  exception  provided  for a sale of a  security  classified  as held to
maturity.  Gross gains of $768  thousand  and gross  losses of $1.2 million were
realized on the sale of these securities.

At December 31, 2004, the average life and duration of the investment  portfolio
were  approximately  3.8 years and 3.2 years,  respectively,  as compared to 4.9
years  and  3.9  years,  respectively,  at  December  31,  2003.  The  Company's
significant  cash flow provides  reinvestment  opportunities  as interest  rates
change.  In  addition,   management  continually  reviews  and  repositions  the
investment  portfolio to adjust for current and  anticipated  interest  rate and
yield curve levels.

The Company's  investment portfolio consists primarily of U.S. Government agency
and  mortgage-backed  obligations.  These securities have little, if any, credit
risk  since  they are  either  backed by the full  faith and  credit of the U.S.
Government,  or are guaranteed by an agency of the U.S.  Government,  or are AAA
rated.  These  investment  securities  carry fixed  coupons  whose rate does not
change over the life of the  securities.  Certain  securities  are  purchased at
premiums or  discounts.  Their yield will change  depending on any change in the
estimated  rate of  prepayments.  The Company  amortizes  premiums  and accretes
discounts over the estimated life of the securities in the investment portfolio.
Changes in the estimated life of the securities in 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, 2004,  the yield on the investment  portfolio was 4.84%,
an increase of 8 basis points from 4.76% in fiscal year 2003.

At December 31, 2004, the net unrealized  appreciation  in securities  available
for sale included in  stockholders'  equity totaled $21.0  million,  net of tax,
compared to net unrealized depreciation of $3.7 million, net of tax, at December
31, 2003.

The  contractual  maturity  distribution  and  weighted  average  yield  of  the
Company's  investment  portfolio  (excluding  equity and trading  securities) at
December 31, 2004, are summarized in the following table. Weighted average yield
is calculated by dividing  income within each maturity range by the  outstanding
amortized  cost  amount of the  related  investment  and has been tax  effected,
assuming a federal tax rate of 35%, on tax-exempt obligations.

                                       20
<PAGE>

<TABLE>
<CAPTION>

<S>                               <C>       <C>                      <C>       <C>   <C>         <C>   <C>          <C>

-------------------------------------------------------------------------------------------------------------------------
                                                                    December 31, 2004
-------------------------------------------------------------------------------------------------------------------------
                                 Due Under 1 Year   Due 1-5 Years    Due 5-10 Years  Due Over 10 Years       Total
-------------------------------------------------------------------------------------------------------------------------
                                  Amount   Yield   Amount    Yield    Amount  Yield    Amount   Yield      Amount  Yield
-------------------------------------------------------------------------------------------------------------------------
(dollars in thousands)
Securities available for sale:
U.S. Government agency and
   mortgage-backed obligations    $61,927   1.44%                    $428,928  4.87% $7,411,961  4.83% $ 7,902,816  4.81%
Obligations of state and
   political subdivisions           3,395   7.12     $4,663     6.72%   3,038   3.22     76,814  2.40       87,910  2.84
Other securities                    2,289   0.99        275     4.00    2,180   5.97     25,377  8.62       30,121  7.81
-------------------------------------------------------------------------------------------------------------------------
                                  $67,611   1.71%    $4,983    6.57% $434,146  4.87% $7,514,152  4.82% $ 8,020,847  4.80%
-------------------------------------------------------------------------------------------------------------------------
Securities held to maturity:
U.S. Government agency and
   mortgage-backed obligations                        $ 366    8.46% $472,758  4.18% $9,493,917  4.94% $ 9,967,041  4.91%
Obligations of state and
   political subdivisions        $272,404   1.49%     4,326     3.23    1,303   3.55    120,930  5.22      398,963  2.67
Other securities                   97,654   2.36                                                            97,654  2.36
-------------------------------------------------------------------------------------------------------------------------
                                 $370,058   1.72%    $4,692    3.64% $474,061  4.18% $9,614,847  4.94% $10,463,658  4.80%
-------------------------------------------------------------------------------------------------------------------------

</TABLE>



Deposits

Total  deposits at December  31,  2004 were $27.7  billion,  an increase of $7.0
billion or 34% above total  deposits of $20.7 billion at December 31, 2003.  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
public  certificates  of  deposit.  Deposits  in  the  various  core  categories
increased  $6.9 billion from  year-end 2003 to year-end  2004.  Core deposits by
type of customer is as follows (in millions):

------------------------------------------------------
                                December 31,
------------------------------------------------------
                            2004            2003
------------------------------------------------------
Consumer                  $12,227        $ 9,760
Commercial                  9,138          6,599
Government                  5,292          3,420
------------------------------------------------------
           Total          $26,657        $19,779
------------------------------------------------------


Total  deposits  averaged $24.3 billion for 2004, an increase of $6.6 billion or
37% above the 2003 average.  The average balance of  noninterest-bearing  demand
deposits  in 2004 was $5.4  billion,  a $1.6  billion or 41%  increase  over the
average  balance for 2003.  The average  total balance of passbook and statement
savings accounts increased $1.8 billion,  or 48% compared to the prior year. The
average balance of interest-bearing  demand accounts for 2004 was $10.1 billion,
a $3.1 billion or 44% increase over the average  balance for the prior year. The
average  balance of time deposits and public funds for 2004 was $3.3 billion,  a
$145.8  million or 4% increase over the average  balance for 2003. For 2004, the
cost of total deposits was 0.83% as compared to 0.82% in 2003.

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 superior customer service,  convenient store locations,  extended
hours of operation,  free checking  accounts  (subject to small minimum  balance
requirements) and active marketing. This approach is especially reflected in the
Company's  comparable  store  deposit  growth.  The Company's  comparable  store
deposit  growth is  measured as the year over year  percentage  increase in core
deposits at the balance sheet date. At December 31, 2004, the  comparable  store
deposit  growth for the  Company's 224 stores open two years or more was 24% and
for the Company's 270 stores open one year or more was 32%.

The average  balances  and  weighted  average  rates of deposits for each of the
years 2004, 2003, and 2002 are presented below.

<TABLE>
<CAPTION>

<S>                                         <C>                       <C>                        <C>

-------------------------------------------------------------------------------------------------------------------------
                                                      2004                      2003                      2002
-------------------------------------------------------------------------------------------------------------------------
                                              Average      Average      Average      Average      Average     Average
                                              Balance        Rate       Balance        Rate       Balance       Rate
-------------------------------------------------------------------------------------------------------------------------
(dollars in thousands)
Demand deposits:
  Noninterest-bearing                       $  5,408,094              $  3,826,885               $ 2,674,233
  Interest-bearing (money market and
   N.O.W. accounts)                           10,066,187     0.95%       6,964,158     0.73%       4,538,914    1.22%
Savings deposits                               5,446,713     0.86        3,676,147     0.75        2,416,884    1.25
Time deposits/public funds                     3,333,220     1.79        3,187,443     2.07        2,808,650    2.90
-------------------------------------------------------------------------------------------------------------------------
Total deposits                              $ 24,254,214              $ 17,654,633               $12,438,681
-------------------------------------------------------------------------------------------------------------------------

</TABLE>



                                       21
<PAGE>


The  remaining  maturity of  certificates  of deposit for $100,000 or more as of
December 31, 2004, 2003 and 2002 is presented below:

--------------------------------------------------------------------------------
Maturity                              2004            2003          2002
--------------------------------------------------------------------------------
(dollars in thousands)
3 months or less                  $   983,909      $1,076,960    $  983,698
3 to 6 months                         182,573         357,810       164,568
6 to 12 months                        206,326         322,204       266,779
Over 12 months                        457,489         253,477       189,587
--------------------------------------------------------------------------------
Total                             $ 1,830,297      $2,010,451    $1,604,632
--------------------------------------------------------------------------------

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 and approved 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, 2004.

<TABLE>
<CAPTION>

<S>                      <C>          <C>         <C>        <C>         <C>         <C>

------------------------------------------------------------------------------------------------
                                               Interest Rate Sensitivity Gaps
                                                        31-Dec-04
-----------------------------------------------------------------------------------------------

                         Jan-90       91-180     181-365        5-Jan       Beyond
                          Days        Days         Days        Years       5 Years      Total
-----------------------------------------------------------------------------------------------
(dollars in millions)
Rate sensitive:
Interest-earning
assets
Loans                    $4,762.6      $120.8      $238.7    $2,154.9    $2,189.0    $9,466.0
Investment
 securities               1,049.0       993.0     1,829.5     9,158.1     5,647.3    18,676.9
-----------------------------------------------------------------------------------------------
Total interest-
earning assets            5,811.6     1,113.8     2,068.2    11,313.0     7,836.3    28,142.9
-----------------------------------------------------------------------------------------------
Interest-bearing
liabilities
Transaction
accounts                  5,674.9                                        12,419.4    18,094.3
Time deposits             1,456.4       456.9       504.0       740.7                 3,158.0
Other borrowed
money                       661.2                                                       661.2
Long-term debt                                                              200.0       200.0
-----------------------------------------------------------------------------------------------
Total interest-
bearing
liabilities               7,792.5       456.9       504.0       740.7    12,619.4    22,113.5
-----------------------------------------------------------------------------------------------
Period gap               (1,980.9)      656.9     1,564.2    10,572.3    (4,783.1)   $6,029.4
-----------------------------------------------------------------------------------------------
Cumulative gap          ($1,980.9)  ($1,324.0)     $240.2   $10,812.5    $6,029.4
-----------------------------------------------------------------------------------------------
Cumulative gap as a
percentage of total
interest-earning
assets                      (7.0%)      (4.7%)        0.9%       38.4%       21.4%
-----------------------------------------------------------------------------------------------

</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  plus 200 and minus 100 basis point  change  during the next year,
with rates remaining constant in the second year.


                                       22
<PAGE>


The Company's ALCO policy has established that interest income  sensitivity will
be considered  acceptable  if net income in the above  interest rate scenario is
within 10% of net income in the flat rate  scenario in the first year and within
15% over the two year  time  frame.  Net  income in the flat  rate  scenario  is
projected  to  increase  by  approximately  25% per year.  The  following  table
illustrates  the impact on projected net income at December 31, 2004 and 2003 of
a plus 200 and minus 100 basis point change in interest rates.

------------------------------------------------------------
                                  Basis Point Change:
------------------------------------------------------------
                                Plus 200       Minus 100
------------------------------------------------------------
December 31, 2004:
   Twelve Months                  4.3%          (4.2)%
   Twenty Four Months             9.0%          (9.6)%

December 31, 2003:
   Twelve Months                  1.6%          (2.3)%
   Twenty Four Months             6.8%          (2.3)%

All of these forecasts are within an acceptable  level of interest rate risk per
the  policies  established  by  ALCO.  In  the  event  the  model  indicates  an
unacceptable level of risk, the Company could undertake a number of actions that
would reduce this risk,  including  the sale of a portion of its  available  for
sale  investment  portfolio,  the  use of  risk  management  strategies  such as
interest rate swaps and caps, or fixing the cost of its short-term borrowings.

Many  assumptions were used by the Company to calculate the impact of changes in
interest rates,  including the proportionate  shift in rates. Actual results may
not be similar to the Company's projections due to several factors including the
timing and frequency of rate  changes,  market  conditions  and the shape of the
yield curve.  In general,  a flattening  yield curve would result in reduced net
interest  income  compared to the current flat rate  scenario and  proportionate
rate shift  assumptions.  Actual  results may also  differ due to the  Company's
actions, if any, in response to the changing rates.

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 plus
200 and minus 100  basis  point  change in  rates.  The  Company's  ALCO  policy
indicates that the level of interest rate risk is  unacceptable if the immediate
plus 200 or minus 100 basis point change would result in the loss of 45% or more
of the excess of market value over book value in the current rate  scenario.  At
December 31, 2004, 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  plus 200 or minus 100 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.  Utilizing an independent consultant, the
Company has completed and updated comprehensive core deposit studies in order to
assign its own core deposit premiums.  The studies have  consistently  confirmed
management's  assertion  that the Company's  core deposits have stable  balances
over long  periods of time,  are  generally  insensitive  to changes in interest
rates  and have  significantly  longer  average  lives  and  durations  than the
Company's loans and investment  securities.  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,
2004 provide an accurate  assessment  of the Company's  interest rate risk.  The
following  table depicts the average lives of the Company's  loans,  investments
and deposits at December 31, 2004:

        --------------------------------------------
                                      Average Life
                                       (in years)
        --------------------------------------------

           Loans                          3.5
           Investments                    3.8
           Deposits                      14.9

The market value of equity model  analyzes  both sides of the balance sheet and,
as indicated  below,  demonstrates  the  inherent  value of the  Company's  core
deposits in a rising rate environment. As rates rise, the value of the Company's
core  deposits  increases  which  helps  offset  the  decrease  in  value of the
Company's fixed rate assets.  The following table summarizes the market value of
equity at December 31, 2004 (in millions, except for per share amounts):

------------------------------------------------------------
                            Market Value of
                                 Equity        Per Share
------------------------------------------------------------

   Plus 200 basis point          $6,138         $38.21
   Current Rate                  $5,932         $36.93
   Minus 100 basis point         $5,004         $31.15

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 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. As of December 31, 2004 the Company had in excess
of $13.0 billion in immediately  available  liquidity which includes  securities
that  could be sold or used for  collateralized  borrowings,  cash on hand,  and
borrowing capacities under existing lines of credit. During 2004, deposit growth
and  short-term  borrowings  were used to fund growth in the loan  portfolio and
purchase additional investment securities.



                                       23
<PAGE>


Other Borrowed Money

Other  borrowed  money,  or short-term  borrowings,  which consist  primarily of
securities  sold under  agreement to repurchase,  federal funds  purchased,  and
lines of credit, were used in 2004 to meet short-term liquidity needs. For 2004,
short-term  borrowings  averaged $465.1 million as compared to $423.5 million in
2003.  The average rate on the  Company's  short-term  borrowings  was 1.44% and
0.77%  during 2004 and 2003,  respectively.  At December  31,  2004,  short-term
borrowings  included  $586.2  million of  securities  sold under  agreements  to
repurchase at an average rate of 2.28%, compared to $311.5 million at an average
rate of 1.10% as of December 31, 2003.

Long-Term Debt

On March 11, 2002 the Company  issued $200  million of 5.95%  Convertible  Trust
Capital Securities through Commerce Capital Trust II, a Delaware business trust.
The equity in the business  trust is netted  against the  long-term  debt on the
Consolidated  Balance Sheets. The Convertible Trust Capital Securities mature in
2032.  The net  proceeds  of this  offering  were  used  for  general  corporate
purposes, including the redemption of the Company's $57.5 million of 8.75% Trust
Capital  Securities  on July 1, 2002 and the  repayment of the  Company's  $23.0
million of 8 3/8%  subordinated  notes on May 20,  2002.  On April 1, 2004,  the
Convertible  Trust Capital  Securities  became  convertible at the option of the
holder. The holders of the Convertible Trust Capital Securities may convert each
security into 1.8956 shares of Company common stock.

The Company may call the Convertible Trust Capital  Securities on or after March
11, 2005,  provided various terms and conditions are met,  primarily  related to
the market price of the Company's common stock. In summary, the Company's common
stock must trade at a price of $31.65 or higher for 20 trading  days in a period
of 30 consecutive trading days in order for the Company to force conversion.

As  discussed  in Note 1 -  Significant  Accounting  Policies  of the  Notes  to
Consolidated  Financial Statements,  which appears elsewhere herein, the Company
has calculated the effect of these securities on diluted net income per share by
using the  if-converted  method.  Under the  if-converted  method,  the  related
interest  charges on the  Convertible  Trust  Capital  Securities,  adjusted for
income taxes,  have been added back to the numerator and the common shares to be
issued  upon  conversion  (7.6  million  common  shares)  have been added to the
denominator.  Refer to Note 13 - Earnings Per Share of the Notes to Consolidated
Financial  Statements,  which appears elsewhere herein,  for illustration of the
if-converted method.

Stockholders' Equity and Dividends

At December 31, 2004,  stockholders'  equity  totaled  $1.7  billion,  up $388.4
million or 30% over  stockholders'  equity of $1.3 billion at December 31, 2003.
This increase was due to the  Company's  increase in net income for the year, as
well as shares issued under the  Company's  dividend  reinvestment  and employee
compensation  and  benefit  plans.  Stockholders'  equity as a percent  of total
assets was 5.5% at December 31, 2004 and 5.6% at December 31, 2003.

Capital Resources

In August 2003, the Company filed a Form S-3 shelf  registration  statement with
the Securities and Exchange Commission (SEC). This shelf registration  statement
allows  the  Company  to  periodically  offer and sell,  individually  or in any
combination,  common stock,  preferred stock,  debt securities,  trust preferred
securities,  warrants to purchase  other  securities  and units (which include a
combination  of any of the preceding  securities) up to a total of $500 million,
subject to market conditions and the Company's  capital needs.  During September
2003, the Company  completed an offering of 5,000,000 shares of common stock for
aggregate  proceeds  of  approximately  $209  million  under this Form S-3 shelf
registration.  The  proceeds  from this  offering  are being used to support the
Company's growth.

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
Convertible Trust Capital  Securities.  Total capital is comprised of all of the
components of Tier 1 capital plus qualifying  subordinated  debt instruments and
the reserve for possible loan losses.

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

------------------------------------------------------------------
                                                      Minimum
                                                    Regulatory
                              December 31,          Requirements
------------------------------------------------------------------
                              2004     2003        2004     2003
------------------------------------------------------------------
Risk based capital ratios:

   Tier 1                     12.30%   12.66%      4.00%    4.00%
   Total capital              13.25    13.62       8.00     8.00
Leverage ratio                 6.19     6.61       4.00     4.00
------------------------------------------------------------------


                                       24
<PAGE>


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 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, 2004 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 (as adjusted for the two-for-one stock split effective March 7,
2005) for each of the last two years are shown in the table below. As of January
27, 2005,  there were  approximately  58,000  holders of record of the Company's
common stock.

------------------------------------------------------------
                     Common Share Data
------------------------------------------------------------
                             Market Prices      Dividends
                         -------------------    Declared
                           High      Low        Per Share
------------------------------------------------------------
2004 Quarter Ended
 December 31                $32.20   $28.16      $0.1100
 September 30                28.18    24.12       0.0950
 June 30                     33.39    27.51       0.0950
 March 31                    32.94    26.58       0.0950

2003 Quarter Ended
 December 31                $26.65   $23.67      $0.0950
 September 30                23.96    18.65       0.0825
 June 30                     20.34    18.19       0.0825
 March 31                    22.80    18.87       0.0825
------------------------------------------------------------

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 the Company's  common Stock at a 3% discount  (subject to change)
to the market price and without payment of brokerage commissions.

Contractual Obligations and Commitments

As disclosed in the Notes to Consolidated  Financial  Statements,  which appears
elsewhere  herein,  the Company has certain  obligations and commitments to make
future payments under contracts. At December 31, 2004, the aggregate contractual
obligations and commitments are shown in the following table.

<TABLE>
<CAPTION>

<S>                                   <C>                                  <C>         <C>


     Contractual Obligations                              Payments Due By Period
---------------------------------------------------------------------------------------------------
                                                     One to     Three to     Beyond
                                        One Year     Three         Five       Five
                                        or Less      Years        Years       Years       Total
---------------------------------------------------------------------------------------------------
(dollars in millions)
Deposits without a stated maturity    $ 7,596.9                           $16,904.0   $24,500.9
Time deposits                           2,417.3     $399.4      $341.30                 3,158.0
Other borrowed money                      661.2                                           661.2
Long-term debt                                                                200.0       200.0
Operating leases                           36.2       72.7        72.6        372.9       554.4
--------------------------------------------------------------------------------------------------
Total                                 $10,711.6     $472.1      $413.9    $17,476.9   $29,074.5
--------------------------------------------------------------------------------------------------


Commitments                                               Expiration by Period
--------------------------------------------------------------------------------------------------
                                                     One to     Three to     Beyond
                                        One Year     Three         Five       Five
                                        or Less      Years        Years       Years       Total
---------------------------------------------------------------------------------------------------
(dollars in millions)
Standby letters of credit              $  366.4   $  188.2      $221.0     $ 11.8   $    787.4
Lines of credit                         1,636.1      164.4        65.0       18.6      1,884.1
Commitments to extend credit:
Construction                              209.7      341.8         2.0        4.7        558.2
Home equity                                66.2      132.4       132.4      662.1        993.1
Other                                     420.7      188.1                               608.8
--------------------------------------------------------------------------------------------------
Total                                  $2,699.1   $1,014.9      $420.4     $697.2     $4,831.6
--------------------------------------------------------------------------------------------------

</TABLE>


Related Parties

The Company engaged in certain activities with entities that would be considered
related parties.  Management believes disbursements made to related parties were
substantially  equivalent  to those that  would  have been paid to  unaffiliated
companies  for similar goods and services  (further  discussed in Note 3 - Loans
and Note 6 - Bank Premises,  Equipment,  and Leases of the Notes to Consolidated
Financial Statements, which appear elsewhere herein).

Recent Accounting Statements

In December  2004,  the  Financial  Accounting  Standards  Board  (FASB)  issued
Statement No. 123 (revised 2004),  "Share-Based  Payment" (FAS 123R), which is a
revision of FASB Statement No. 123,  "Accounting for  Stock-Based  Compensation"
(FAS 123). FAS 123R supersedes APB Opinion No. 25,  "Accounting for Stock Issued
to Employees"  (APB 25), and amends FASB  Statement  No. 95,  "Statement of Cash
Flows" (FAS 95). FAS 123R requires all  share-based  payments to employees to be
recognized  in the income  statement  based on their  fair  values and no longer
allows  pro forma  disclosure  as an  alternative  to  reflecting  the impact of
share-based  payments  on net income and  earnings  per share.  FAS 123R must be
adopted  no  later  than  July 1,  2005.  The  Company  currently  accounts  for
share-based  payments to  employees  using APB 25's  intrinsic  value method and
therefore  does not recognize  compensation  expense for employee stock options.
Accordingly,  the  adoption  of FAS 123R will  impact  the  Company's  financial
results.  While the future impact cannot be predicted,  had the Company  adopted
FAS 123R in prior periods,  the impact would have approximated the impact of FAS
123 as disclosed  in Note 1 -  Significant  Accounting  Policies of the Notes to
Consolidated  Financial Statements,  which appears



                                       25
<PAGE>


elsewhere herein. The Company plans to adopt FAS 123R on July 1, 2005.

Results of Operations - 2003 versus 2002

Net income  for 2003 was  $194.3  million  compared  to $144.8  million in 2002.
Diluted net income per common share was $1.29 compared to $1.01 per common share
for the prior year.

Net  interest  income  on a  tax-equivalent  basis for 2003  amounted  to $771.5
million, an increase of $185.6 million, or 32% over 2002.

Interest income on a  tax-equivalent  basis  increased  $162.8 million or 21% to
$931.3 million in 2003. This increase was primarily  related to volume increases
in the loan and investment portfolios. Interest expense for 2003 decreased $22.8
million to $159.8  million  from  $182.6  million  in 2002.  This  decrease  was
primarily  related to decreases in the rates paid on the Company's  deposits and
other borrowed money.

During 2003, the Company  recorded  provisions of $31.9 million to the allowance
for loan losses  compared to $33.2 million for 2002.  At December 31, 2003,  the
allowance  aggregated $112.1 million or 1.51% of total loans.  Despite the $21.3
million or 24% increase in the allowance  level during 2003,  the allowance as a
percentage of total loans  decreased 3%, which was primarily due to  significant
growth  in  the  loan  portfolio  of 28%  during  the  same  period.  For  2003,
noninterest  income totaled $332.5 million,  an increase of $75.0 million or 29%
from 2002.

The growth in noninterest  income was primarily  reflected in increased  deposit
and service fees and other operating income,  including the Company's  insurance
and capital markets divisions.  Deposit charges and service fees increased $29.6
million, or 23%, over 2002 due primarily to higher transaction volumes. Commerce
Insurance  recorded an increase  of $10.6  million in revenues to $66.5  million
from $55.9  million in 2002.  Commerce  Capital  Markets  generated  noninterest
revenues of $42.5  million in 2003, an increase of $7.4 million from revenues of
$35.1 million in 2002. Loan brokerage fees increased by $8.5 million in 2003.

Noninterest  expenses  totaled  $763.4  million for 2003,  an increase of $184.2
million, or 32% over 2002.  Contributing to this increase was the addition of 46
new stores. With the addition of these new stores, staff, facilities, marketing,
and related  expenses  rose  accordingly.  Salaries and benefits had the largest
increase of $78.0 million  during 2003.  Other  noninterest  expenses rose $26.0
million to $150.1 million in 2003. This increase  included  increased  bank-card
related service charges of $3.5 million, increased business development expenses
of $3.3 million and increased professional  services/insurance  expenses of $5.5
million.


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

Item 7A.   Quantitative and Qualitative Disclosures About Market Risk

See Item 7,  Management's  Discussion  and Analysis of Financial  Condition  and
Results  of  Operations;   Interest  Rate  Sensitivity  and  Liquidity  included
elsewhere herein.


                                       26
<PAGE>




Commerce Bancorp, Inc.
Report on Management's Assessment of Internal Control Over Financial Reporting

Commerce Bancorp, Inc. is responsible for the preparation,  integrity,  and fair
presentation of the consolidated  financial  statements  included in this annual
report. The consolidated  financial statements and notes included in this annual
report have been prepared in conformity  with United States  generally  accepted
accounting  principles  and  necessarily  include some amounts that are based on
management's best estimates and judgments.

We, as management of Commerce  Bancorp,  Inc., are responsible for  establishing
and  maintaining  effective  internal  control over financial  reporting that is
designed to produce  reliable  financial  statements in  conformity  with United
States generally accepted accounting principles. Internal control over financial
reporting includes those policies and procedures that pertain to the maintenance
of  records  that  in  reasonable  detail  accurately  and  fairly  reflect  the
transactions and dispositions of the assets of the Company;  provide  reasonable
assurance that  transactions are recorded as necessary to permit  preparation of
financial   statements  in  accordance   with  generally   accepted   accounting
principles,  and that  receipts and  expenditures  of the Company are only being
made in  accordance  with  authorizations  of  management  and  directors of the
company;  and  provide  reasonable  assurance  regarding  prevention  or  timely
detection of  unauthorized  acquisition,  use, or  disposition  of the Company's
assets that could have a material effect on the financial statements. The system
of internal  control over  financial  reporting  as it relates to the  financial
statements  is  evaluated  for   effectiveness  by  management  and  tested  for
reliability  through a program of internal audits.  Actions are taken to correct
potential deficiencies as they are identified.

Any system of  internal  control,  no matter  how well  designed,  has  inherent
limitations,  including the  possibility  that a control can be  circumvented or
overridden  and  misstatements  due to  error  or  fraud  may  occur  and not be
detected. Also, because of changes in conditions, internal control effectiveness
may vary over time.  Accordingly,  even an effective  system of internal control
will  provide only  reasonable  assurance  with  respect to financial  statement
preparation.

Management  assessed the  Company's  system of internal  control over  financial
reporting  as of December  31,  2004,  in relation  to  criteria  for  effective
internal  control over  financial  reporting as described in Internal  Control -
Integrated Framework, issued by the Committee of Sponsoring Organizations of the
Treadway Commission. Based on this assessment,  management concludes that, as of
December 31, 2004, its system of internal  control over  financial  reporting is
effective and meets the criteria of the Internal Control - Integrated Framework.
Ernst & Young LLP, independent  registered public accounting firm, has issued an
attestation  report  on  management's  assessment  of the  effectiveness  of the
Company's internal control over financial reporting as of December 31, 2004.


                                           /s/ Vernon W. Hill, II
                              -----------------------------------------------
                                            Vernon W. Hill, II
                              Chairman, President and Chief Executive Officer
                                       (Principal Executive Officer)


                                            /s/ Douglas J. Pauls
                              -----------------------------------------------
                                             Douglas J. Pauls
                             Senior Vice President and Chief Financial Officer
                               (Principal Financial and Accounting Officer)



March 15, 2005




                                       27
<PAGE>


Commerce Bancorp, Inc.
Report of Ernst & Young LLP,  Independent  Registered Public Accounting Firm, on
Effectiveness of Internal Control Over Financial Reporting

Audit  Committee  of the Board of  Directors  and the  Stockholders  of Commerce
Bancorp, Inc.

We have audited management's assessment,  included in the accompanying Report on
Management's  Assessment  of Internal  Control Over  Financial  Reporting,  that
Commerce  Bancorp,  Inc.  maintained  effective  internal control over financial
reporting  as of December 31, 2004,  based on criteria  established  in Internal
Control  -  Integrated   Framework   issued  by  the   Committee  of  Sponsoring
Organizations of the Treadway Commission (the COSO criteria).  Commerce Bancorp,
Inc.'s management is responsible for maintaining effective internal control over
financial  reporting  and for its  assessment of the  effectiveness  of internal
control over financial reporting. Our responsibility is to express an opinion on
management's  assessment  and an opinion on the  effectiveness  of the company's
internal control over financial reporting based on our audit.

We conducted  our audit in accordance  with the standards of the Public  Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain  reasonable  assurance  about whether  effective
internal  control  over  financial  reporting  was  maintained  in all  material
respects. Our audit included obtaining an understanding of internal control over
financial reporting,  evaluating management's assessment, testing and evaluating
the design and operating  effectiveness of internal control, and performing such
other  procedures as we considered  necessary in the  circumstances.  We believe
that our audit provides a reasonable basis for our opinion.

A company's  internal control over financial  reporting is a process designed to
provide reasonable  assurance  regarding the reliability of financial  reporting
and the preparation of financial  statements for external purposes in accordance
with generally accepted accounting principles. A company's internal control over
financial  reporting  includes those policies and procedures that (1) pertain to
the  maintenance  of records that, in reasonable  detail,  accurately and fairly
reflect the  transactions  and  dispositions  of the assets of the company;  (2)
provide  reasonable  assurance  that  transactions  are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted
accounting  principles,  and that receipts and  expenditures  of the company are
being made only in accordance with authorizations of management and directors of
the company; and (3) provide reasonable assurance regarding prevention or timely
detection of  unauthorized  acquisition,  use, or  disposition  of the company's
assets that could have a material effect on the financial statements.

Because of its inherent  limitations,  internal control over financial reporting
may not prevent or detect misstatements.  Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become
inadequate  because of changes in  conditions,  or that the degree of compliance
with the policies or procedures may deteriorate.

In our opinion,  management's  assessment that Commerce Bancorp, Inc. maintained
effective internal control over financial  reporting as of December 31, 2004, is
fairly stated, in all material  respects,  based on the COSO criteria.  Also, in
our opinion,  Commerce  Bancorp,  Inc.  maintained,  in all  material  respects,
effective  internal  control over  financial  reporting as of December 31, 2004,
based on the COSO criteria.

We also have  audited,  in accordance  with the standards of the Public  Company
Accounting  Oversight Board (United States),  the consolidated balance sheets of
Commerce  Bancorp,  Inc.  as of  December  31,  2004 and 2003,  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,  2004 of
Commerce  Bancorp,  Inc.  and our report  dated  March 15,  2005,  expressed  an
unqualified opinion thereon.


                                                      Ernst & Young LLP

Philadelphia, Pennsylvania
March 15, 2005





                                       28
<PAGE>


Commerce Bancorp, Inc.
Report Ernst & Young LLP,  Independent  Registreed  Public  Accounting  Firm, on
Consolidated Financial Statements

Audit  Committee  of the Board of  Directors  and the  Stockholders  of Commerce
Bancorp, Inc.

We have  audited  the  accompanying  consolidated  balance  sheets  of  Commerce
Bancorp,  Inc.  as of December  31,  2004 and 2003 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,  2004.  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 conducted our audits in accordance  with the standards of the Public  Company
Accounting Oversight Board (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  provide  a
reasonable basis for our opinion.

In our opinion,  the financial  statements  referred to above present fairly, in
all material respects,  the consolidated financial position of Commerce Bancorp,
Inc.  at  December  31,  2004 and  2003,  and the  consolidated  results  of its
operations  and its cash flows for each of the three  years in the period  ended
December  31,  2004,  in  conformity  with U.S.  generally  accepted  accounting
principles.

We also have  audited,  in accordance  with the standards of the Public  Company
Accounting  Oversight  Board  (United  States),  the  effectiveness  of Commerce
Bancorp,  Inc.'s  internal  control over financial  reporting as of December 31,
2004, based on criteria  established in Internal Control - Integrated  Framework
issued by the Committee of Sponsoring  Organizations of the Treadway  Commission
and our report dated March 15, 2005 expressed an unqualified opinion thereon.


                                                      Ernst & Young LLP

Philadelphia, Pennsylvania
March 15, 2005



                                       29
<PAGE>


Item 8.       Financial Statements and Supplementary Data

Consolidated Balance Sheets

<TABLE>
<CAPTION>

<S>                                                                                      <C>               <C>

---------------------------------------------------------------------------------------------------------------------------
                                                                                                  December 31
---------------------------------------------------------------------------------------------------------------------------
                (dollars in thousands)                                                     2004               2003
---------------------------------------------------------------------------------------------------------------------------
Assets          Cash and due from banks                                                  $ 1,050,806       $   910,092
                Loans held for sale                                                           44,072            42,769
                Trading securities                                                           169,103           170,458
                Securities available for sale                                              8,044,150        10,650,655
                Securities held to maturity                                               10,463,658         2,490,484
                   (market value 2004 -$10,430,451; 2003- $2,467,192)
                Loans                                                                      9,454,611         7,440,576
                   Less allowance for loan losses                                            135,620           112,057
                -----------------------------------------------------------------------------------------------------------
                                                                                           9,318,991         7,328,519
                Bank premises and equipment, net                                           1,059,519           811,451
                Other assets                                                                 351,346           307,752
                -----------------------------------------------------------------------------------------------------------
                Total assets                                                             $30,501,645       $22,712,180
---------------------------------------------------------------------------------------------------------------------------
Liabilities     Deposits:
                   Demand:
                      Noninterest-bearing                                                 $6,406,614        $4,574,714
                      Interest-bearing                                                    11,604,066         8,574,297
                   Savings                                                                 6,490,263         4,222,282
                   Time                                                                    3,157,942         3,330,107
                -----------------------------------------------------------------------------------------------------------
                          Total deposits                                                  27,658,885        20,701,400

                Other borrowed money                                                         661,195           311,510
                Other liabilities                                                            315,860           221,982
                Long-term debt                                                               200,000           200,000
                -----------------------------------------------------------------------------------------------------------
                                                                                          28,835,940        21,434,892
---------------------------------------------------------------------------------------------------------------------------
Stockholders'
Equity          Common stock, 160,635,618 shares issued (153,738,830 shares in 2003)         160,636           153,739
                Capital in excess of par value                                               951,476           789,225
                Retained earnings                                                            543,978           347,365
                Accumulated other comprehensive income (loss)                                 20,953            (3,702)
                -----------------------------------------------------------------------------------------------------------
                                                                                           1,677,043         1,286,627
                Less treasury stock, at cost, 795,610 shares (726,152 shares in               11,338             9,339
                2003)
                -----------------------------------------------------------------------------------------------------------
                          Total stockholders' equity                                       1,665,705         1,277,288
                -----------------------------------------------------------------------------------------------------------
                Total liabilities and stockholders' equity                               $30,501,645       $22,712,180
                -----------------------------------------------------------------------------------------------------------
                See accompanying notes.


</TABLE>


                                       30
<PAGE>



Consolidated Statements of Income

<TABLE>
<CAPTION>

<S>                                                                                  <C>             <C>             <C>

--------------------------------------------------------------------------------------------------------------------------------
                                                                                            Year Ended December 31,
--------------------------------------------------------------------------------------------------------------------------------
                   (dollars in thousands, except per share amounts)                    2004            2003            2002
--------------------------------------------------------------------------------------------------------------------------------
Interest           Interest and fees on loans                                        $483,186       $ 391,361       $ 354,315
Income             Interest on investment securities                                  754,202         524,015         400,191
                   Other interest                                                         903             255             865
                   -------------------------------------------------------------------------------------------------------------
                                Total interest income                               1,238,291         915,631         755,371
                   -------------------------------------------------------------------------------------------------------------

--------------------------------------------------------------------------------------------------------------------------------
Interest           Interest on deposits:
Expense                 Demand                                                         95,253          50,711          55,413
                        Savings                                                        46,680          27,596          30,232
                        Time                                                           59,808          66,115          81,567
                   -------------------------------------------------------------------------------------------------------------
                                Total interest on deposits                            201,741         144,422         167,212
                   Interest on other borrowed money                                     6,685           3,263           1,839
                   Interest on long-term debt                                          12,080          12,080          13,565
                   -------------------------------------------------------------------------------------------------------------
                                Total interest expense                                220,506         159,765         182,616
                   -------------------------------------------------------------------------------------------------------------

                   Net interest income                                              1,017,785         755,866         572,755
                   Provision for loan losses                                           39,238          31,850          33,150
                   -------------------------------------------------------------------------------------------------------------
                   Net interest income after provision for loan losses                978,547         724,016         539,605
--------------------------------------------------------------------------------------------------------------------------------
Noninterest        Deposit charges and service fees                                   218,126         160,678         131,033
Income             Other operating income                                             154,306         167,949         126,433
                   Net investment securities gains                                      2,639           3,851
                   -------------------------------------------------------------------------------------------------------------
                                Total noninterest income                              375,071         332,478         257,466
                   -------------------------------------------------------------------------------------------------------------

--------------------------------------------------------------------------------------------------------------------------------
Noninterest        Salaries and benefits                                              431,144         354,954         276,933
Expense            Occupancy                                                          121,210          95,926          56,498
                   Furniture and equipment                                            109,242          89,162          66,700
                   Office                                                              46,025          39,190          31,186
                   Marketing                                                           36,236          34,075          23,733
                   Other                                                              194,921         150,085         124,118
                   -------------------------------------------------------------------------------------------------------------
                                Total noninterest expenses                            938,778         763,392         579,168
                   -------------------------------------------------------------------------------------------------------------
                   Income before income taxes                                         414,840         293,102         217,903
                   Provision for federal and state income taxes                       141,422          98,815          73,088
                   -------------------------------------------------------------------------------------------------------------
                   Net income                                                        $273,418       $ 194,287       $ 144,815
                   -------------------------------------------------------------------------------------------------------------

                   Net income per common and common equivalent share:
                            Basic                                                    $  1.74        $   1.36        $   1.08
                   -------------------------------------------------------------------------------------------------------------
                            Diluted                                                  $  1.63        $   1.29        $   1.01
                   -------------------------------------------------------------------------------------------------------------
                   Average common and common equivalent shares outstanding:
                            Basic                                                    156,625         142,169         133,590
                   -------------------------------------------------------------------------------------------------------------
                            Diluted                                                  172,603         156,507         149,389
                   -------------------------------------------------------------------------------------------------------------
                   Dividends declared, common stock                                  $  0.40        $   0.34        $   0.31
                   -------------------------------------------------------------------------------------------------------------
                   See accompanying notes.

</TABLE>


                                       31
<PAGE>

<TABLE>
<CAPTION>

<S>                                                                                <C>              <C>            <C>

Consolidated Statements of Cash Flows
------------------------------------------------------------------------------------------------------------------------------
                                                                                           Year Ended December 31,
------------------------------------------------------------------------------------------------------------------------------
                   (dollars in thousands)                                             2004           2003           2002
------------------------------------------------------------------------------------------------------------------------------
Operating          Net income                                                      $  273,418       $194,287       $144,815
Activities         Adjustments to reconcile net income to net cash
                      provided by operating activities:
                        Provision for loan losses                                      39,238         31,850         33,150
                        Provision for depreciation, amortization
                          and accretion                                               133,535        132,432         70,462
                        Gains on sales of securities                                   (2,639)        (3,851)
                        Proceeds from sales of loans held for sale                    750,854      1,554,440      1,416,613
                        Originations of loans held for sale                          (752,157)    (1,500,289)    (1,440,272)
                        Net decrease (increase) in trading securities                   1,355        156,021        (43,668)
                        Increase in other assets                                      (58,429)       (30,489)      (107,483)
                        Increase (decrease) in other liabilities                       82,851        (55,229)       150,194
                        Deferred income tax expense                                    16,005         15,417          6,359
                   -----------------------------------------------------------------------------------------------------------
                                Net cash provided by operating activities             484,031        494,589        230,170

Investing          Proceeds from the sales of securities available for sale         2,119,230      4,864,321      1,506,996
Activities         Proceeds from the sales of securities held to maturity             125,580
                   Proceeds from the maturity of securities available for sale      3,876,918      4,828,747      2,413,025
                   Proceeds from the maturity of securities held to maturity        1,019,449        613,848        486,292
                   Purchase of securities available for sale                       (9,304,341)   (12,777,850)    (7,437,004)
                   Purchase of securities held to maturity                         (3,203,025)    (2,342,384)      (118,221)
                   Net increase in loans                                           (2,029,710)    (1,628,513)    (1,248,575)
                   Capital expenditures                                              (339,956)      (300,335)      (220,048)
                   -----------------------------------------------------------------------------------------------------------
                                Net cash used by investing activities              (7,735,855)    (6,742,166)    (4,617,535)

Financing          Net increase in demand and savings deposits                      7,129,650      5,631,174      3,801,855
Activities         Net (decrease) increase in time deposits                          (172,165)       521,385        561,393
                   Net increase (decrease) in other borrowed money                    349,685        (80,131)       127,087
                   Dividends paid                                                     (59,205)       (46,525)       (39,911)
                   Issuance of common stock                                                          208,825
                   Issuance of long-term debt                                                                       200,000
                   Redemption of long-term debt                                                                     (80,500)
                   Proceeds from issuance of common stock under
                     dividend reinvestment and other stock plans                      146,057        116,908         66,809
                   Other                                                               (1,484)        (5,401)         4,328
                   -----------------------------------------------------------------------------------------------------------
                                Net cash provided by financing activities           7,392,538      6,346,235       4,641,061

                   Increase in cash and cash equivalents                              140,714         98,658        253,696
                   Cash and cash equivalents at beginning of year                     910,092        811,434        557,738
                   -----------------------------------------------------------------------------------------------------------
                   Cash and cash equivalents at end of year                        $1,050,806       $910,092       $811,434
                   -----------------------------------------------------------------------------------------------------------

                   Supplemental disclosures of cash flow information: Cash paid
                     during the year for:
                        Interest                                                   $  218,986       $161,637       $185,143
                        Income taxes                                                  127,538         62,569         59,644
                     Other noncash activities:
                        Transfer of securities to securities held to maturity       5,919,301

See accompanying notes.

</TABLE>

                                       32
<PAGE>
<TABLE>
<CAPTION>

<S>                  <C> <C>                   <C>          <C>          <C>       <C>       <C>       <C>

Consolidated Statements of Changes in Stockholders' Equity
-------------------------------------------------------------------------------------------------------------------
Years ended December 31, 2004, 2003 and 2002

(in thousands, except per share amounts)                                                     Accumulated
                                                                                              Other
                                                           Capital in                       Comprehensive
                                                 Common     Excess of   Retained   Treasury   Income
                                                  Stock     Par Value   Earnings    Stock     (Loss)     Total
-------------------------------------------------------------------------------------------------------------------
Balances at December 31, 2001                  $131,665     $396,065     $94,698   $(1,622)  $15,764   $636,570
-------------------------------------------------------------------------------------------------------------------
Net income                                                               144,815                        144,815
 Other comprehensive income, net of tax
 Unrealized gain on securities (pre-tax                                                       97,850     97,850
$153,397)
 Reclassification adjustment (pre-tax $0)
                                                                                                      -------------
 Other comprehensive income                                                                              97,850
                                                                                                      -------------
       Total comprehensive income                                                                       242,665
Cash dividends                                                          (39,911)                        (39,911)
Shares issued under dividend reinvestment and
 compensation and benefit plans (4,196 shares)    4,196       62,613                                     66,809
Acquisition of insurance brokerage agency           226        4,520                                      4,746
(226 shares)
Other                                                (1)       7,554           2      (424)               7,131
-------------------------------------------------------------------------------------------------------------------
Balances at December 31, 2002                  $136,086     $470,752    $199,604   $(2,046) $113,614   $918,010
-------------------------------------------------------------------------------------------------------------------
Net income                                                               194,287                        194,287
 Other comprehensive loss,  net of tax
 Unrealized loss on securities (pre-tax                                                      (93,273)   (93,273)
$146,701)
 Reclassification adjustment (pre-tax $36,988)                                               (24,043)   (24,043)
                                                                                                      -------------
 Other comprehensive loss                                                                              (117,316)
       Total comprehensive income                                                                        76,971
Cash dividends                                                           (46,525)                       (46,525)
Shares issued under dividend reinvestment and
 compensation and benefit plans (7,564 shares)    7,564      109,344                                    116,908
Common stock issued (10,000 shares)              10,000      198,825                                    208,825
Acquisition of insurance brokerage agency (88        88        1,804                                      1,892
shares)
Other                                                 1        8,500          (1)   (7,293)               1,207
-------------------------------------------------------------------------------------------------------------------
Balances at December 31, 2003                  $153,739     $789,225    $347,365   $(9,339)  $(3,702) $1,277,288
-------------------------------------------------------------------------------------------------------------------
Net income                                                               273,418                        273,418
 Other comprehensive income,  net of tax
 Unrealized gain on securities (pre-tax                                                        1,465      1,465
$3,222)
 Reclassification adjustment (pre-tax $35,677)                                                23,190     23,190
                                                                                                      -------------
 Other comprehensive income                                                                              24,655
       Total comprehensive income                                                                       298,073
Cash dividends                                                           (62,258)                       (62,258)
Shares issued under dividend reinvestment and
 compensation and benefit plans (6,898 shares)    6,898      139,159                                    146,057
Other                                                (1)      23,092     (14,547)   (1,999)               6,545
-------------------------------------------------------------------------------------------------------------------
Balances at December 31, 2004                  $160,636     $951,476    $543,978  $(11,338)  $20,953 $1,665,705
===================================================================================================================
See accompanying notes.

</TABLE>




                                       33
<PAGE>



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 consolidated subsidiaries.  All material intercompany
transactions  have been  eliminated.  Certain amounts from prior years have been
reclassified to conform with the current year presentation.

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

Stock Split
Per share data and other appropriate share information for all periods presented
have been restated for the  two-for-one  stock split in the form of a 100% stock
dividend effective March 7, 2005.

Investment Securities
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 identification method and are included in noninterest
income.

Commerce Capital  Markets,  Inc. (CCMI) maintains a portfolio of trading account
securities,  which are carried at market.  Gains and losses,  both  realized and
unrealized,  are  included  in other  operating  income.  Trading  gains of $4.4
million, $13.0 million, and $11.5 million were recorded in 2004, 2003, and 2002,
respectively,  including  unrealized  losses of $85,000 and $192,000 at December
31, 2004 and 2003, respectively.

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.  Loans  held for sale  are  valued  on an
aggregate  basis  at the  lower  of  cost  or  fair  value.  Net  deferred  loan
origination fees and costs are amortized over the estimated lives of the related
loans as an adjustment to the yield.

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.  The level of the allowance is
based on an evaluation  of  individual  large  classified  loans and  nonaccrual
loans,  the Company's  historical loss  experience and the risk  characteristics
included  in the  loan  portfolio.  While  the  allowance  for  loan  losses  is
maintained  at a level  considered  to be adequate by  management  for estimated
losses in the loan  portfolio,  determination  of the  allowance  is  inherently
subjective,  as it requires  estimates  that may be  susceptible  to significant
change.


                                       34
<PAGE>


Notes to Consolidated Financial Statements

Transfers of Financial Assets
The Company accounts for the transfers of financial  assets,  including sales of
loans, as sales when control over the asset has been  surrendered.  Control over
transferred  assets is deemed to be  surrendered  when (1) the assets  have been
isolated  from the  Company,  (2) the  transferee  obtains  the  right  (free of
conditions  that constrain it from taking  advantage of that right) to pledge or
exchange the transferred assets, and (3) the Company does not maintain effective
control over the  transferred  assets through an agreement to repurchase  before
their maturity.

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 over
the estimated useful lives of the assets for financial reporting  purposes,  and
accelerated  methods for income tax purposes.  The estimated  useful lives range
from 15 to 40 years for  buildings,  3 to 5 years for  furniture,  fixtures  and
equipment  and the shorter of the lease terms or the  estimated  useful lives of
leasehold  improvements.  When capitalizing  costs for store  construction,  the
Company  includes  the  costs of  purchasing  the  land,  developing  the  site,
constructing the building (or leasehold improvements if the property is leased),
and furniture, fixtures and equipment necessary to equip the store. Depreciation
charges commence the month in which the store opens.  All other  pre-opening and
post-opening costs related to stores are expensed as incurred.

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. Included in other noninterest expense is $916,000,
$357,000,  and  $923,000  related  to ORE  expenses  for 2004,  2003,  and 2002,
respectively.

Other Investments
The Company makes investments  directly in low-income housing tax credit (LIHTC)
operating  partnerships,  private  venture  capital  funds  and  Small  Business
Investment  Companies  (SBIC).  At  December  31, 2004 and 2003,  the  Company's
investment  in  these   entities   totaled  $46.8  million  and  $30.1  million,
respectively.  The majority of these  investments  are  accounted  for under the
equity method of accounting.

Intangible Assets
Goodwill and certain other intangible assets, which do not possess finite useful
lives, are not amortized into net income but rather are tested at least annually
for impairment.  Intangible assets determined to have finite lives, $3.8 million
and $4.4 million at December 31, 2004 and 2003, respectively, are amortized over
their estimated  useful lives,  generally  10-15 years,  and also continue to be
subject to impairment testing.  The excess of cost over fair value of net assets
acquired  (goodwill) is included in other assets and amounted to $5.5 million at
December 31, 2004 and 2003.

Advertising Costs
Advertising costs are expensed as incurred.

Income Taxes
The  provision  for income taxes is based on current  taxable  income.  Deferred
income taxes are provided on temporary  differences between amounts reported for
financial statement and tax purposes.

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 2004 and 2003 were
approximately $110.8 million and $62.8 million, respectively.


                                       35
<PAGE>



Notes to Consolidated Financial Statements

Derivative Financial Instruments
As part of CCMI's broker-dealer activities,  CCMI maintains a trading securities
portfolio for distribution to customers in order to meet those customers' needs.
Derivative instruments, primarily interest rate futures and options, are used in
order to reduce the  exposure  to  interest  rate risk  relating  to the trading
portfolio.  These contracts are carried at fair value with changes in fair value
included in other operating income and recorded in the same period as changes in
fair value of the trading portfolio.  As an accommodation to its loan customers,
the Company enters into interest rate swap agreements. The Company minimizes its
risk by matching these positions with a counterparty. These swaps are carried at
fair value with changes in fair value included in noninterest income.

Recent Accounting Statements
In September  2004,  the EITF reached a consensus on Issue 04-8,  "The Effect of
Contingently  Convertible  Debt on  Diluted  Earnings  per  Share."  Issue  04-8
addresses the effect of contingently  convertible debt  instruments  (Co-Cos) on
diluted EPS. The EITF defines Co-Cos as instruments  that are  convertible  into
common stock if one or more  specified  contingencies  occur and at least one of
the  contingencies  is based on the market price of the  Company's  common stock
(market  price  contingency).  Issue 04-8  requires  that  Co-Cos be included in
diluted earnings per share computations (if dilutive)  regardless of whether the
market price trigger has been met. This  consensus  must be applied by restating
all periods during which the Co-Co was  outstanding.  The Company  adopted Issue
04-8 during the fourth quarter of 2004.  Prior period  diluted EPS  calculations
have been  restated  using the  if-converted  method for the periods since March
2002, which is when the Convertible  Trust Capital  Securities were issued.  The
adoption of Issue 04-8 decreased  previously  reported  diluted EPS by $0.02 and
$0.01 per share for the years ended 2003 and 2002, respectively.

In December  2004,  the  Financial  Accounting  Standards  Board  (FASB)  issued
Statement No. 123 (revised 2004),  "Share-Based  Payment" (FAS 123R), which is a
revision of FASB Statement No. 123,  "Accounting for  Stock-Based  Compensation"
(FAS 123). FAS 123R supersedes APB Opinion No. 25,  "Accounting for Stock Issued
to Employees"  (APB 25), and amends FASB  Statement  No. 95,  "Statement of Cash
Flows" (FAS 95). FAS 123R requires all  share-based  payments to employees to be
recognized  in the income  statement  based on their  fair  values and no longer
allows  pro forma  disclosure  as an  alternative  to  reflecting  the impact of
share-based  payments  on net income and  earnings  per share.  FAS 123R must be
adopted no later than July 1, 2005 and  permits  public  companies  to adopt its
requirements  using  one  of  two  methods:  modified  prospective  or  modified
retrospective.  A  modified  prospective  method  recognizes  compensation  cost
beginning  with the  effective  date of adoption  for all  share-based  payments
granted after the effective  date and all awards  granted prior to the effective
date, but that remain unvested on the effective  date. A modified  retrospective
method  includes the  requirements of the modified  prospective  method but also
permits  entities to restate  prior period  presentations.  The Company plans to
adopt FAS 123R on July 1, 2005 but has yet to decide on a method of adoption.

The Company currently  accounts for share-based  payments to employees using APB
25's  intrinsic  value  method  and  therefore  does  not  typically   recognize
compensation  expense for employee stock options.  Accordingly,  the adoption of
FAS 123R will impact the Company's financial results. While the future impact of
FAS 123R cannot be predicted, had the Company adopted FAS 123R in prior periods,
the impact  would have  approximated  the impact of FAS 123 as  described in the
disclosure of pro forma net income and pro forma net income per share below.

As stated above, the Company continued to follow APB Opinion No. 25, "Accounting
for Stock Issued to Employees"  and related  Interpretations  to account for its
stock-based  compensation  plans during 2004.  If the Company had  accounted for
stock  options  under the fair value  provisions  of FAS 123, net income and net
income  per share  would have been as follows  (in  thousands,  except per share
amounts):


                                       36
<PAGE>


Notes to Consolidated Financial Statements

<TABLE>
<CAPTION>
<S>                                                    <C>                <C>                <C>

-----------------------------------------------------------------------------------------------------------
                                                                   Year Ended December 31,
                                                    -------------------------------------------------------
                                                          2004              2003               2002
-----------------------------------------------------------------------------------------------------------

Reported net income                                    $273,418           $194,287           $144,815
Less:  Stock option compensation expense
determined under fair value method, net of tax          (11,849)           (10,048)            (8,429)
-----------------------------------------------------------------------------------------------------------

Pro forma net income, basic                             261,569            184,239            136,386

Add:  Interest expense on Convertible Trust
  Capital Securities, net of tax                         7,852               7,852              6,543
-----------------------------------------------------------------------------------------------------------

Pro forma net income, diluted                          $269,421           $192,091           $142,929
-----------------------------------------------------------------------------------------------------------

Reported net income per share:
     Basic                                             $   1.74           $  1.36            $   1.08
     Diluted                                               1.63              1.29                1.01

Pro forma net income per share:
     Basic                                             $   1.67           $  1.30            $   1.02
     Diluted                                               1.56              1.23                0.96
-----------------------------------------------------------------------------------------------------------

</TABLE>


The fair value of options  granted in 2004,  2003, and 2002 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  3.00% to  4.41%,
dividend  yields of 1.33% to 2.50%,  volatility  factors of the expected  market
price  of the  Company's  common  stock of .255 to .304,  and  weighted  average
expected lives of the options of 4.75 to 5.27 years.

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

In March 2004,  the EITF  reached a consensus  on Issue  03-1,  "The  Meaning of
Other-Than-Temporary  Impairment and its  Application  to Certain  Investments."
Issue 03-1 provides guidance that should be used to determine when an investment
is considered impaired, whether that impairment is other-than-temporary, and the
measurement  of  an  impairment  loss.  Issue  03-1  also  includes   accounting
considerations  subsequent to recognition of an other-than-temporary  impairment
and requires  certain  disclosures  about  unrealized  losses that have not been
recognized as  other-than-temporary  impairments.  In September  2004,  the FASB
deferred the  implementation  date of the provisions  that relate to measurement
and recognition of other-than-temporary impairments. The disclosure requirements
of Issue 03-1 were  effective  for fiscal years ending after  December 15, 2003.
The  Company  is  continuing  to  monitor  the status of Issue 03-1 but does not
expect it to have a material impact on the results of operations of the Company.


                                       37
<PAGE>

Notes to Consolidated Financial Statements

2.  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, 2004 and
2003 follows:

<TABLE>
<CAPTION>

<S>                          <C>             <C>        <C>        <C>          <C>             <C>         <C>       <C>

----------------------------------------------------------------------------------------------------------------------------------
                                                                      December 31,
----------------------------------------------------------------------------------------------------------------------------------
                                                     2004                                               2003
----------------------------------------------------------------------------------------------------------------------------------
                                           Gross        Gross                                  Gross       Gross
                            Amortized    Unrealized  Unrealized    Market      Amortized   Unrealized   Unrealized     Market
                               Cost        Gains       Losses       Value         Cost         Gains       Losses       Value
----------------------------------------------------------------------------------------------------------------------------------
U.S. Government agency
and mortgage backed
obligations                  $7,884,113      $40,141    ($21,438)  $7,902,816   $10,528,396     $82,057     ($98,908) $10,511,545
Obligations of state and         87,605          305                   87,910        30,223         821         (117)      30,927
political subdivisions
Equity securities                10,129       13,174                   23,303         8,571       8,017                    16,588
Other                            29,312          809                   30,121        89,372       2,223                    91,595
----------------------------------------------------------------------------------------------------------------------------------
Securities available
for sale                     $8,011,159      $54,429    ($21,438)  $8,044,150   $10,656,562     $93,118     ($99,025) $10,650,655
----------------------------------------------------------------------------------------------------------------------------------
U.S. Government agency
and mortgage backed
obligations                  $9,967,041      $43,982    ($81,028)  $9,929,995    $2,193,577     $15,209     ($27,088)  $2,181,698
Obligations of state and
political subdivisions          398,963        3,867         (28)     402,802       227,199          30      (11,443)     215,786
Other                            97,654                                97,654        69,708                                69,708
----------------------------------------------------------------------------------------------------------------------------------
Securities held to
maturity                    $10,463,658      $47,849    ($81,056) $10,430,451    $2,490,484     $15,239     ($38,531)  $2,467,192
----------------------------------------------------------------------------------------------------------------------------------

</TABLE>


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.

During the fourth  quarter of 2004,  the  Company  transferred  $5.9  billion of
securities   classified   as  available   for  sale  to  the  held  to  maturity
classification based on the Company's  anticipated  liquidity needs and expected
annual  cash  flow  from  deposit  growth  and bond and  loan  prepayments.  The
aggregate market value of the securities  transferred  equaled their book value,
with no effect  on  stockholders'  equity,  regulatory  capital  or  results  of
operations.

The amortized  cost and  estimated  market value of  investment  securities  (in
thousands)  at December  31,  2004,  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>
<S>                                            <C>            <C>             <C>            <C>

----------------------------------------------------------------------------------------------------------
                                                    Available for Sale             Held to Maturity
----------------------------------------------------------------------------------------------------------
                                                 Amortized        Market       Amortized        Market
                                                    Cost          Value           Cost          Value
----------------------------------------------------------------------------------------------------------
Due in one year or less                        $     67,554   $     67,611    $   370,058    $   370,058
Due after one year through five years               414,301        413,011          4,326          4,419
Due after five years through ten years               24,294         23,964        437,565        426,977
Due after ten years                                 101,433        102,193        150,929        153,859
Mortgage backed securities                        7,393,448      7,414,068      9,500,780      9,475,138
Equity securities                                    10,129         23,303
----------------------------------------------------------------------------------------------------------
                                               $  8,011,159   $   8,044,150   $10,463,658    $10,430,451
----------------------------------------------------------------------------------------------------------

</TABLE>


Proceeds from sales of securities  available for sale during 2004, 2003 and 2002
were $2.1 billion, $4.9 billion and $1.5 billion,  respectively.  Gross gains of
$16.7  million,  $32.6  million and $6.8 million  were  realized on the sales in
2004,  2003, and 2002,  respectively,  and gross losses of $14.1 million,  $28.8
million and $6.8 million were realized in 2004, 2003 and 2002, respectively.

At December 31, 2004 and 2003,  investment  securities  with a carrying value of
$6.2 billion and $5.0 billion, respectively,  were pledged to secure deposits of
public funds.


                                       38
<PAGE>

Notes to Consolidated Financial Statements


The  unrealized  losses and related fair value of  investments  with  unrealized
losses less than 12 months and those with unrealized  losses 12 months or longer
(in thousands) as of December 31, 2004 are shown below.

<TABLE>
<CAPTION>
<S>                               <C>             <C>         <C>         <C>      <C>            <C>

 ----------------------------------------------------------------------------------------------------------
                                    Less than 12 months       12 months or more            Totals
 ----------------------------------------------------------------------------------------------------------
                                                Unrealized              Unrealized             Unrealized
                                   Fair Value     Losses    Fair Value    Losses    Fair Value   Losses
 ----------------------------------------------------------------------------------------------------------
 Available for sale:
 U.S. Government agency and
 mortgage-
    backed obligations            $3,536,608      $19,935     $ 258,250   $ 1,503  $3,794,858     $21,438
 ----------------------------------------------------------------------------------------------------------
 Securities available
    for sale                      $3,536,608      $19,935     $ 258,250   $ 1,503  $3,794,858     $21,438
 ----------------------------------------------------------------------------------------------------------

 Held to maturity:
 U.S. Government agency and
 mortgage-
    backed obligations            $2,955,299      $33,930    $2,678,126 $  47,098  $5,633,425     $81,028
 Obligations of state and
 political subdivisions                2,469           22           810         6       3,279          28
 ----------------------------------------------------------------------------------------------------------
 Securities held to
    maturity                      $2,957,768      $33,952    $2,678,936 $  47,104  $5,636,704     $81,056
 ----------------------------------------------------------------------------------------------------------

</TABLE>


Management  does not believe any individual  unrealized  loss as of December 31,
2004 represents an  other-than-temporary  impairment.  The unrealized  losses on
these securities are caused by the changes in general market interest rates. The
Company  believes  it  will  collect  all  amounts  contractually  due on  these
securities as it has the ability to hold these  securities  until the fair value
is at least equal to the  carrying  value.  The  duration  and  average  life of
securities with  unrealized  losses at December 31, 2004 was 3.43 years and 4.09
years, respectively.

During 2004, $1.4 billion of securities were sold which had unrealized losses at
December 31, 2003.  Gross gains and losses on these securities were $2.5 million
and $14.0 million, respectively.

3.  Loans

The following is a summary of loans  outstanding  (in thousands) at December 31,
2004 and 2003:

------------------------------------------------------------------------
                                                  December 31,
------------------------------------------------------------------------
                                               2004         2003
------------------------------------------------------------------------
Commercial:
     Term                                   $1,283,476    $1,027,526
     Line of credit                          1,168,542       959,158
     Demand                                                    1,077
------------------------------------------------------------------------
                                             2,452,018     1,987,761

Owner-occupied                               1,998,203     1,619,079

Consumer:
     Mortgages (1-4 family residential)      1,340,009       918,686
     Installment                               132,646       138,437
     Home equity                             1,799,841     1,405,795
     Credit lines                               69,079        60,579
------------------------------------------------------------------------
                                             3,341,575     2,523,497
Commercial real estate:
     Investor developer                      1,455,891     1,167,672
     Construction                              206,924       142,567
------------------------------------------------------------------------
                                             1,662,815     1,310,239
------------------------------------------------------------------------

                                            $9,454,611    $7,440,576
------------------------------------------------------------------------



                                       39
<PAGE>
Notes to Consolidated Financial Statements


Loans to executive  officers and directors of the Company and its  subsidiaries,
and companies with which they are associated, are made in the ordinary course of
business  and  on   substantially   the  same  terms  as  comparable   unrelated
transactions.  The following table summarizes the Company's  related party loans
(in millions) at December 31, 2004 and 2003:

      ----------------------------------------------------------
                                            December 31,
      ----------------------------------------------------------
                                       2004            2003
      ----------------------------------------------------------

      Executive officers              $ 1.6           $  1.4
      Bancorp directors                 6.4             22.6
      ----------------------------------------------------------
                                      $ 8.0           $ 24.0
      ----------------------------------------------------------

In addition, the Company had loans to directors of its subsidiary banks totaling
$89.8 million and $121.7 million at December 31, 2004 and 2003, respectively.

In addition to the services referenced in Note 6 - Bank Premises, Equipment, and
Leases, the Company purchased goods and services, including legal services, from
related parties.  Such disbursements  aggregated $1.9 million, $1.2 million, and
$5.9  million,  in 2004,  2003,  and  2002,  respectively.  Management  believes
disbursements  made to related  parties were  substantially  equivalent to those
that  would  have been paid to  unaffiliated  companies  for  similar  goods and
services.


4.  Allowance for Loan Losses

The  following  is an analysis of changes in the  allowance  for loan losses (in
thousands) for 2004, 2003 and 2002:

--------------------------------------------------------------------------------
                                                       Year Ended December 31,
                                            ------------------------------------
                                               2004        2003       2002
--------------------------------------------------------------------------------

Balance, January 1                           $112,057   $  90,733     $66,981
Provision charged to operating expense         39,238      31,850      33,150
Recoveries of loans previously charged off      2,175       1,264       1,330
Loan charge-offs                              (17,850)    (11,790)    (10,728)
--------------------------------------------------------------------------------
Balance, December 31                         $135,620    $112,057     $90,733
--------------------------------------------------------------------------------



5.  Non-Performing Loans and Other Real Estate

Total  non-performing  loans  (non-accrual  and  restructured  loans) were $32.8
million  and  $21.7  million  at  December  31,  2004  and  2003,  respectively.
Non-performing  loans of $2.0 million and $0.9 million were transferred to other
real estate during 2004 and 2003, respectively.  Other real estate ($0.6 million
and $1.8  million at December  31, 2004 and 2003,  respectively)  is included in
other assets.

At December 31, 2004 and 2003, the recorded investment in loans considered to be
impaired under FASB Statement No. 114 "Accounting by Creditors for Impairment of
a Loan" totaled $13.4 million and $15.6 million,  respectively, all of which are
included  in  non-performing  loans.  The  reserve  for loan  losses  related to
impaired loans totaled  approximately  $4.1 million and $3.5 million at December
31, 2004 and 2003,  respectively.  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.  Impaired loans  averaged  approximately  $14.5 million and
$12.3  million  during  2004  and  2003,   respectively.   Interest   income  of
approximately  $2.9  million,  $1.9  million,  and $1.4 million  would have been
recorded on non-performing  loans (including  impaired loans) in accordance with
their original  terms in 2004,  2003, and 2002,  respectively.  Actual  interest
income recorded on these loans amounted to $1.1 million, $418 thousand, and $275
thousand during 2004, 2003, and 2002, respectively.


                                       40
<PAGE>


Notes to Consolidated Financial Statements


6.  Bank Premises, Equipment, and Leases

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

--------------------------------------------------------------------------
                                                      December 31,
                                           -------------------------------
                                                 2004           2003
--------------------------------------------------------------------------
Land                                          $  239,639         $180,324
Buildings                                        444,152          323,810
Leasehold improvements                           161,220          128,261
Furniture, fixtures and equipment                433,581          335,579
Leased property under capital leases                 124              124
--------------------------------------------------------------------------
                                               1,278,716          968,098
Accumulated depreciation and amortization       (328,831)        (243,809)
--------------------------------------------------------------------------
                                                 949,885          724,289
Premises and equipment in progress               109,634           87,162
--------------------------------------------------------------------------
                                              $1,059,519         $811,451
--------------------------------------------------------------------------

At December 31, 2004,  the Company  leased from various  related  parties  under
separate  operating  lease  agreements  the land on which it has  constructed 18
stores.  Rents paid under these agreements represent market rates, are supported
by independent  appraisals and approved by the independent  members of the Board
of Directors.  The aggregate annual rental under these leases was  approximately
$1.7  million,  $1.9  million,  and  $1.6  million  in  2004,  2003,  and  2002,
respectively.  These  leases  expire  periodically  beginning  in  2005  but are
renewable through 2042.

Total  rent  expense   charged  to  operations   under   operating   leases  was
approximately $40.1 million in 2004, $33.7 million in 2003, and $21.8 million in
2002. Total depreciation expense charged to operations was $91.9 million,  $69.7
million and $52.7 million in 2004, 2003 and 2002, respectively.

The future minimum rental commitments, by year, under the non-cancelable leases,
including  escalation  clauses,  are as follows (in  thousands)  at December 31,
2004:

----------------------------------------------------------
                                           Operating
----------------------------------------------------------
2005                                      $   36,159
2006                                          36,813
2007                                          35,937
2008                                          36,396
2009                                          36,206
Later years                                  372,917
----------------------------------------------------------
Net minimum lease payments                $  554,428
----------------------------------------------------------

The Company has obtained architectural design and facilities management services
for over 25 years from a business  owned by the  spouse of the  Chairman  of the
Board of the Company.  The Company  spent $6.5 million,  $6.4 million,  and $4.6
million in 2004,  2003,  and 2002,  respectively,  for such services and related
costs.  Additionally,  the  business  received  additional  revenues for project
management  of  approximately  $0.1 million,  $3.8 million,  and $3.5 million in
2004,  2003, and 2002,  respectively,  on furniture and facility  purchases made
directly by the Company. In 2003, the Board approved the transfer, without cost,
into the Company of the project management services,  which was completed during
2004. The business will continue to provide architectural and design services to
the  Company.   Management   believes  these  disbursements  were  substantially
equivalent  to those  that would have been paid to  unaffiliated  companies  for
similar services.  The Board of Directors  believes this arrangement has been an
important factor in the success of the Commerce brand.

7.  Deposits

The  aggregate  amount of time  certificates  of  deposits in  denominations  of
$100,000  or more was $1.8  billion and $2.0  billion at  December  31, 2004 and
2003, respectively.

                                       41
<PAGE>


Notes to Consolidated Financial Statements

8.   Other Borrowed Money


Other borrowed money consists primarily of securities sold under agreements to
repurchase, federal funds purchased, and lines of credit. The following table
represents information for other borrowed money (in thousands) at December 31,
2004 and 2003:

--------------------------------------------------------------------------------
                                                      December 31,
                                  ----------------------------------------------
                                            2004                      2003
                                  ----------------------------------------------
                                               Average                  Average
                                   Amount       Rate        Amount       Rate
--------------------------------------------------------------------------------
Securities sold under
     agreements to repurchase      $586,195     2.28%    $  311,510      1.10%
Federal funds purchased              75,000     2.46%
--------------------------------------------------------------------------------
Total                              $661,195     2.30%    $  311,510      1.10%
--------------------------------------------------------------------------------

--------------------------------------------------------------------------------
Average amount outstanding         $465,137     1.44%    $  423,538      0.77%
Maximum month-end balance           944,040               1,114,482
--------------------------------------------------------------------------------

As of December 31,  2004,  the Company had a line of credit of $1.1 billion from
the Federal Home Loan Bank of New York, a line of credit of $361.1  million from
the Federal  Home Loan Bank of  Pittsburgh,  and a $80.0  million line of credit
from a group of other banks, all of which was available.

9.   Long-Term Debt

On March 11, 2002 the Company issued $200.0 million of 5.95%  Convertible  Trust
Capital  Securities  through  Commerce Capital Trust II, a newly formed Delaware
business  trust  subsidiary of the Company.  The equity in the business trust is
netted  against the  long-term  debt on the  Consolidated  Balance  Sheets.  The
Convertible  Trust Capital  Securities mature in 2032. All $200.0 million of the
Convertible  Trust Capital  Securities  qualify as Tier 1 capital for regulatory
capital  purposes.  The net  proceeds  of this  offering  were used for  general
corporate purposes.

On April 1, 2004, the Convertible Trust Capital Securities became convertible at
the option of the holder.  Holders of the Convertible  Trust Capital  Securities
may convert each security into 1.8956 shares of Company common stock.

The Company may call the Convertible Trust Capital  Securities on or after March
11, 2005,  provided various terms and conditions are met,  primarily  related to
the market price of the Company's common stock. In summary, the Company's common
stock must trade at a price of $31.65 or higher for 20 trading  days in a period
of 30 consecutive trading days in order for the Company to force conversion.

As previously discussed in Note 1 - Significant Accounting Policies, the Company
has calculated the effect of these securities on diluted net income per share by
using the  if-converted  method.  Under the  if-converted  method,  the  related
interest  charges on the  Convertible  Trust  Capital  Securities,  adjusted for
income taxes,  have been added back to the numerator and the common shares to be
issued  upon  conversion  (7.6  million  common  shares)  have been added to the
denominator.  Refer to Note 13 -  Earnings  Per  Share for  illustration  of the
if-converted method.

10.  Income Taxes

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

--------------------------------------------------------------------------------
                                                        December 31,
                                          -------------------------------------
                                             2004          2003       2002
-------------------------------------------------------------------------------
Current:
     Federal                               $118,301      $77,437      $62,660
     State                                    7,116        5,961        4,069
Deferred:
     Federal                                 16,005       15,417        6,359
-------------------------------------------------------------------------------
                                           $141,422      $98,815      $73,088
-------------------------------------------------------------------------------

The above provision includes income taxes of $900,000,  $1.3 million, and $0 for
2004, 2003, and 2002, respectively, related to securities gains.



                                       42
<PAGE>


Notes to Consolidated Financial Statements


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

--------------------------------------------------------------------------------
                                                          December 31,
                                                    ----------------------------
                                                    2004      2003     2002
--------------------------------------------------------------------------------
Expected provision at statutory rate:                35.0%    35.0%     35.0%
Difference resulting from:
     Tax-exempt interest on loans                    (1.2)    (1.5)     (1.7)
     Tax-exempt interest on securities               (1.4)    (1.7)     (1.8)
     State income taxes (net of federal benefit)      1.1      1.3       1.2
     Other                                            0.6      0.6       0.8
--------------------------------------------------------------------------------
                                                     34.1%    33.7%     33.5%
--------------------------------------------------------------------------------

The  amount  payable  for  federal  income   taxes  during  2004 was  reduced by
approximately $22.6 million, which related to the exercise of stock options.

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.

The significant  components of the Company's deferred tax liabilities and assets
as of December 31, 2004 and 2003 are as follows (in thousands):

--------------------------------------------------------------------------------
                                                                December 31,
                                                           ---------------------
                                                               2004      2003
--------------------------------------------------------------------------------
Deferred tax assets:
     Loan loss reserves                                     $ 47,069    $38,623
     Intangibles                                               1,913      2,172
     Other reserves                                            7,742      3,951
     Fair value adjustment, available for sale securities                 2,206
--------------------------------------------------------------------------------
Total deferred tax assets                                     56,724     46,952
--------------------------------------------------------------------------------
Deferred tax liabilities:
     Depreciation                                            (64,503)   (37,661)
     Fair value adjustment, available for sale securities    (12,038)
     Other                                                    (5,901)    (4,760)
--------------------------------------------------------------------------------
Total deferred tax liabilities                               (82,442)   (42,421)
--------------------------------------------------------------------------------
Net deferred (liabilities) assets                           $(25,718)   $ 4,531
--------------------------------------------------------------------------------

No valuation  allowance was  recognized  for the deferred tax assets at December
31, 2004 or 2003.

11.  Commitments, Letters of Credit and Guarantees

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  consolidated 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, 2004,
the Company had  outstanding  standby  letters of credit in the amount of $787.4
million.  Fees  associated with standby letters of credit have been deferred and
recorded in other liabilities on the Consolidated Balance Sheets. These fees are
immaterial to the Company's  consolidated  financial  statements at December 31,
2004.

In addition,  the Company is committed as of December 31, 2004 to advance $558.2
million on construction loans, $993.1 million on home equity lines of credit and
$1.9 billion on other lines of credit. All other commitments total approximately
$608.8 million.  The Company anticipates no material losses as a result of these
transactions.

The Company has commitments to fund LIHTC partnerships,  private venture capital
funds and SBICs that total approximately $20.6 million at December 31, 2004.



                                       43
<PAGE>



Notes to Consolidated Financial Statements

12.  Common Stock

At December 31, 2004, the Company's  common stock had a par value of $1.00.  The
Company is authorized to issue 500,000,000 shares as of this date.

On December 21, 2004,  the Board of Directors  declared a cash dividend of $0.11
for  each  share  of  common  stock  outstanding  payable  January  20,  2005 to
stockholders of record on January 6, 2005.

On February 15, 2005, the Board of Directors  declared a two-for-one stock split
in  the  form  of a  100%  stock  dividend  distributed  on  March  7,  2005  to
stockholders of record on February 25, 2005.

13.  Earnings Per Share

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

<TABLE>
<CAPTION>

<S>                                                       <C>         <C>        <C>
  -----------------------------------------------------------------------------------------
                                                               Year Ended December 31,
                                                         ----------------------------------
                                                           2004       2003       2002
  -----------------------------------------------------------------------------------------
  Basic:
  Net income applicable to common stock                   $273,418    $194,287   $144,815
  -----------------------------------------------------------------------------------------
  Average common shares outstanding                        156,625     142,169    133,590
  -----------------------------------------------------------------------------------------
  Net income per common share                             $   1.74    $   1.36   $   1.08
  -----------------------------------------------------------------------------------------

  Diluted:
  Net income applicable to common stock
       on a diluted basis                                 $273,418    $194,287   $144,815
  Add:  Interest expense on Convertible Trust Capital
       Securities                                            7,852       7,852      6,544
  -----------------------------------------------------------------------------------------
                                                          $281,270    $202,139   $151,359
  -----------------------------------------------------------------------------------------


  Average common shares outstanding                        156,625     142,169    133,590
  Additional shares considered in diluted
       computation assuming:
         Exercise of stock options                           8,396       6,756      8,217
         Conversion of trust capital securities              7,582       7,582      7,582
  -----------------------------------------------------------------------------------------
  Average common and common equivalent
       shares outstanding                                  172,603     156,507    149,389
  -----------------------------------------------------------------------------------------
  Net income per common and common
       equivalent share
                                                          $   1.63    $   1.29   $   1.01
  -----------------------------------------------------------------------------------------

</TABLE>


                                       44
<PAGE>
Notes to Consolidated Financial Statements

14.  Benefit Plans

Stock Option Plans
In 2004, the Board of Directors  adopted and Company  shareholders  approved the
2004  Employee  Stock Option Plan (the 2004 Plan) for the officers and employees
of the Company and its subsidiaries. The 2004 Plan authorizes the issuance of up
to 30,000,000 shares of common stock (as adjusted for all stock splits and stock
dividends)  upon the exercise of options.  As of December  31, 2004,  options to
purchase 200,628 shares of common stock have been issued under the 2004 Plan. In
addition to the 2004 Plan,  the Company has the 1997 Employee  Stock Option Plan
(the  1997  Plan)  for  the  officers  and  employees  of the  Company  and  its
subsidiaries  as well as a plan for its  non-employee  directors.  The 1997 Plan
authorizes the issuance of up to 34,470,308  shares of common stock (as adjusted
for all stock splits and stock  dividends)  upon the exercise of options.  As of
December 31, 2004,  options to purchase  34,470,108  shares of common stock have
been issued under the 1997 Plan.  The option price for options  issued under the
1997 and 2004 Plans 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.  All options
granted  will vest  evenly  over four years from the date of grant.  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
prior plans.

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

  ------------------------------------------------------------------------------
                                           Shares Under     Weighted Average
                                              Option         Exercise Price
  ------------------------------------------------------------------------------
  Balance at January 1, 2002                 20,365,380           $ 9.92
  Options granted                             4,177,488            20.20
  Options exercised                           1,948,290             9.30
  Options canceled                              497,472            14.85
  Balance at December 31, 2002               22,097,106            11.86
  ------------------------------------------------------------------------------
  Options granted                             5,349,920            21.24
  Options exercised                           3,144,440             7.65
  Options canceled                              387,382            18.78
  Balance at December 31, 2003               23,915,204            14.38
  ------------------------------------------------------------------------------
  Options granted                             6,112,444            29.37
  Options exercised                           3,064,024            12.39
  Options canceled                              439,488            24.92
  Balance at December 31, 2004               26,524,136            17.89
  ------------------------------------------------------------------------------

Additional information concerning options outstanding as of December 31, 2004 is
as follows:

<TABLE>
<CAPTION>

<S>        <C>           <C>               <C>           <C>             <C>            <C>
  -------------------------------------------------------------------------------------------------
                                   Options Outstanding                    Options Exercisable
  -------------------------------------------------------------------------------------------------
                                    Weighted-Average    Weighted-      Exercisable     Weighted
  Range of                Number       Remaining         Average          as of        Average
  Exercise prices      Outstanding  Contractual Life  Exercise Price   12/31/2004   Exercise Price
  -------------------------------------------------------------------------------------------------
  $2.48 to $5.00         1,657,938         1.4           $  4.15         1,657,938      $  4.15
  $5.01 to $10.00        3,909,602         4.1              8.95         3,909,602         8.95
  $10.01 to $17.50       6,924,300         5.0             13.18         6,454,760        13.03
  $17.51 to $25.00       8,253,302         7.7             20.79         3,872,830        20.47
  $25.01 to $32.15       5,778,994         9.1             29.37
  -------------------------------------------------------------------------------------------------

</TABLE>



                                       45
<PAGE>


Notes to Consolidated Financial Statements


Employee 401(k) Plan
The Company has a defined contribution plan under Section 401(k) of the Internal
Revenue  Code.  The plan allows all eligible  employees to defer a percentage of
their  income on a pretax basis  through  contributions  to the plan.  Under the
provisions  of the plan,  the Company may match a percentage  of the  employees'
contributions  subject to a maximum limit.  The charge to operations for Company
matching contributions was $3.3 million, $3.4 million and $2.8 million for 2004,
2003 and 2002,  respectively.  As part of the 401(k) plan, the Company maintains
an Employee Stock Ownership Plan (ESOP) component for all eligible employees. As
of December 31, 2004,  the ESOP held  2,895,960  shares of the Company's  common
stock,   all  of  which  were  allocated  to  participant   accounts.   Employer
contributions  are  determined at the  discretion of the Board of Directors.  No
contribution expense was recorded for the ESOP in 2004 or 2003.

Supplemental Executive Retirement Plan
Effective  January  1, 2004,  the  Company's  Board of  Directors  formalized  a
Supplemental  Executive  Retirement Plan (SERP),  which was previously  approved
January  1,  1992,  for  certain  designated  executives  in  order  to  provide
supplemental  retirement  income.  The SERP is a defined  contribution  plan, is
unfunded,  and contributions will be made at the Company's  discretion.  For the
year ended December 31, 2004, the Company expensed $7.2 million for the SERP.

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


15.  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, 2004 and 2003:

<TABLE>
<CAPTION>

<S>                                         <C>             <C>             <C>             <C>
----------------------------------------------------------------------------------------------------------
                                                                    December 31,
                                            --------------------------------------------------------------
                                                         2004                           2003
----------------------------------------------------------------------------------------------------------
                                               Carrying          Fair         Carrying          Fair
                                                Amount          Value          Amount          Value
----------------------------------------------------------------------------------------------------------
Financial assets:
     Cash and cash equivalents              $  1,050,806    $  1,050,806    $    910,092    $   910,092
     Loans held for sale                          44,072          44,072          42,769         42,769
     Trading securities                          169,103         169,103         170,458        170,458
     Investment securities                    18,507,808      18,474,601      13,141,139     13,117,847
     Loans (net)                               9,318,991       9,422,638       7,328,519      7,454,910

Financial liabilities:
     Deposits                                 27,658,885      27,662,167      20,701,400     20,724,863
     Other borrowed money                        661,195         661,195         311,510        311,510
     Long-term debt                              200,000         255,000         200,000        239,000
----------------------------------------------------------------------------------------------------------
Off-balance sheet instruments:
     Standby letters of credit              $      2,163    $      2,163    $      1,802    $     1,802
     Commitments to extend credit                                  2,163                          1,365

</TABLE>


Refer to Note 19 - Derivative  Financial  Instruments for fair value information
on derivative financial instruments.



                                       46
<PAGE>


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.

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

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

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

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



                                       47
<PAGE>


Notes to Consolidated Financial Statements

16.  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.

<TABLE>
<CAPTION>

<S>                                       <C>              <C>              <C>              <C>

 ---------------------------------------------------------------------------------------------------------
                                                              Three Months Ended
 ---------------------------------------------------------------------------------------------------------
                                        December 31     September 30        June 30         March 31
 ---------------------------------------------------------------------------------------------------------
                                                            (dollars in thousands)
 ---------------------------------------------------------------------------------------------------------
 2004
 Interest income                          $353,395         $320,814         $292,030         $272,052
 Interest expense                           74,953           56,432           47,281           41,840
 Net interest income                       278,442          264,382          244,749          230,212
 Provision for loan losses                   8,240           10,750           10,748            9,500
 Provision for federal and state
    Income taxes                            38,424           36,493           33,786           32,719
 Net income                                 75,118           70,090           66,235           61,975

 Net income per common share:
 Basic                                    $   0.47         $   0.45         $   0.42         $   0.40
 Diluted                                      0.44             0.42             0.40             0.37

 2003
 Interest income                          $256,125         $233,901         $218,744         $206,861
 Interest expense                           41,001           39,792           39,440           39,532
 Net interest income                       215,124          194,109          179,304          167,329
 Provision for loan losses                  10,800            7,250            6,900            6,900
 Provision for federal and state
    income taxes                            29,321           25,231           22,779           21,484
 Net income                                 56,606           49,474           45,317           42,890

 Net income per common share:
 Basic                                    $   0.37         $   0.35         $   0.33         $   0.31
 Diluted                                      0.35             0.33             0.31             0.30

</TABLE>


                                       48
<PAGE>

Notes to Consolidated Financial Statements

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

Balance Sheets


<TABLE>
<CAPTION>

<S>                                              <C>                     <C>
--------------------------------------------------------------------------------------
                                                               December 31,
-------------------------------------------------------------------------------------
(dollars in thousands)                                     2004            2003
-------------------------------------------------------------------------------------
Assets
Cash                                                $       5,524     $      2,667
Securities available for sale                              63,310          101,589
Investment in subsidiaries                              1,828,492        1,375,806
Other assets                                               21,896            8,843
-------------------------------------------------------------------------------------
                                                    $   1,919,222     $  1,488,905
-------------------------------------------------------------------------------------
Liabilities
Other liabilities                                   $      53,517     $     11,617
Long-term debt                                            200,000          200,000
-------------------------------------------------------------------------------------
                                                          253,517          211,617
-------------------------------------------------------------------------------------
Stockholders' equity
Common stock                                              160,636          153,739
Capital in excess of par value                            951,476          789,225
Retained earnings                                         543,978          347,365
Accumulated other comprehensive income (loss)              20,953           (3,702)
-------------------------------------------------------------------------------------
                                                        1,677,043        1,286,627
Less treasury stock                                        11,338            9,339
-------------------------------------------------------------------------------------
     Total stockholders' equity                         1,665,705        1,277,288
-------------------------------------------------------------------------------------
                                                    $   1,919,222     $  1,488,905
-------------------------------------------------------------------------------------


Statements of Income

-----------------------------------------------------------------------------------------
                                                            Year Ended December 31,
-----------------------------------------------------------------------------------------
(dollars in thousands)                                 2004        2003         2002
-----------------------------------------------------------------------------------------
Income:
     Dividends from subsidiaries                   $   20,000    $  44,500    $  9,600
     Interest income                                      499          476         552
     Other                                              8,028        1,711       2,826
-----------------------------------------------------------------------------------------
                                                       28,527       46,687      12,978
-----------------------------------------------------------------------------------------
Expenses:
     Interest expense                                  12,448       12,448      15,554
     Operating expenses                                10,370        3,877       4,460
-----------------------------------------------------------------------------------------
                                                       22,818       16,325      20,014
Income (loss) before income taxes and equity
     in undistributed income of subsidiaries            5,709       30,362      (7,036)
Income tax benefit                                     (5,025)      (4,971)     (5,757)
-----------------------------------------------------------------------------------------
                                                       10,734       35,333      (1,279)
Equity in undistributed income of subsidiaries        262,684      158,954     146,094
-----------------------------------------------------------------------------------------
Net income                                         $  273,418    $ 194,287    $144,815
-----------------------------------------------------------------------------------------

</TABLE>



                                       49
<PAGE>



Notes to Consolidated Financial Statements

Statements of Cash Flows

<TABLE>
<CAPTION>

<S>                                                                 <C>         <C>             <C>

-----------------------------------------------------------------------------------------------------------
                                                                          Year Ended December 31,
-----------------------------------------------------------------------------------------------------------
(dollars in thousands)                                               2004          2003          2002
-----------------------------------------------------------------------------------------------------------

Operating activities:
   Net income                                                       $273,418    $  194,287      $144,815
   Adjustments to reconcile net income to net
     cash provided (used) by operating activities:
       Provision for depreciation, amortization and accretion            189           212           197
       Undistributed income of subsidiaries                         (262,684)     (158,954)     (146,094)
       (Increase) decrease increase in other assets                  (13,278)          384         1,857
       Increase (decrease) in other liabilities                       45,072         5,946       (11,509)
-----------------------------------------------------------------------------------------------------------
         Net cash provided (used) by operating activities             42,717        41,875       (10,734)
Investing activities:
   Investments in subsidiaries                                      (168,700)     (239,500)     (145,520)
   Proceeds from sale of securities available for sale                                             3,018
   Proceeds from the maturity of securities available for sale       198,000       144,327        96,000
   Purchase of securities available for sale                        (154,528)     (218,984)      (91,395)
-----------------------------------------------------------------------------------------------------------
         Net cash used by investing activities                      (125,228)     (314,157)     (137,897)
Financing activities:
   Proceeds from issuance of common stock
     under dividend reinvestment and other stock plans               146,057       116,908        66,809
   Dividends paid                                                    (59,205)      (46,525)      (39,911)
  Issuance of common stock                                                         208,825
  Issuance of long-term debt                                                                     206,186
  Redemption of long-term debt                                                                   (82,000)
  Other                                                               (1,484)       (7,293)         (421)
-----------------------------------------------------------------------------------------------------------
         Net cash provided by financing activities                    85,368       271,915       150,663
Increase (decrease) in cash and cash equivalents                       2,857          (367)        2,032
Cash and cash equivalents at beginning of year                         2,667         3,034         1,002
-----------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year                           $   5,524    $    2,667      $  3,034
-----------------------------------------------------------------------------------------------------------
Supplemental disclosures of cash flow information:
Cash paid during the period for:
     Interest                                                      $  12,268    $   12,268      $ 13,551
     Income taxes                                                    121,766        56,357        56,586
-----------------------------------------------------------------------------------------------------------

</TABLE>


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 North and
Commerce Delaware can declare dividends in 2005 without  additional  approval of
approximately  $258.5  million,  $91.3 million,  $69.3 million and $5.2 million,
respectively, plus an additional amount equal to each bank's net profit for 2005
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,  2004  and  2003,  the  Company  complied  with  these
guidelines.



                                       50
<PAGE>


Notes to Consolidated Financial Statements

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.

As of December 31, 2004 and 2003, the Company and each of its  subsidiary  banks
were categorized as "well-capitalized" under the regulatory framework for prompt
corrective  action.  There are no conditions  or events since  December 31, 2004
that management believes have changed any subsidiary bank's capital category.

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,  2004,  that  the  Company  and  its
subsidiaries meet all capital adequacy requirements to which they are subject.

The following  table  presents the Company's  and Commerce NJ's  risk-based  and
leverage  capital  ratios at  December  31,  2004 and 2003.  The 2003 ratios for
Commerce NJ have been adjusted to reflect the  consolidation  of Commerce  Shore
during 2004.

<TABLE>
<CAPTION>

<S>                                     <C>           <C>         <C>       <C>          <C>         <C>

------------------------------------- ------------------------ ---------------------------------------------
                                                                        Per Regulatory Guidelines
------------------------------------- ------------------------ ---------------------- ----------------------
                                              Actual                  Minimum         "Well Capitalized"
------------------------------------- ------------------------ ---------------------- ----------------------
                                      Amount        Ratio      Amount      Ratio      Amount       Ratio
------------------------------------- ------------- ---------- ----------- ---------- ------------ ---------
December 31, 2004
Company
   Risk based capital ratios:
     Tier I                             $1,835,484    12.30%      $596,834  4.00%        $895,251    6.00%
     Total capital                       1,977,032    13.25      1,193,668  8.00        1,492,086   10.00
   Leverage ratio                        1,835,484     6.19      1,187,037  4.00        1,483,796    5.00

Commerce NJ Risk based capital ratios:
     Tier 1                             $1,249,535    11.37%      $439,695  4.00%        $659,543    6.00%
     Total capital                       1,354,466    12.32        879,390  8.00        1,099,238   10.00
   Leverage ratio                        1,249,535     6.01        831,711  4.00        1,039,638    5.00

December 31, 2003
Company
   Risk based capital ratios:
     Tier I                             $1,471,131    12.66%      $464,961  4.00%        $697,442    6.00%
     Total capital                       1,583,188    13.62        929,922  8.00        1,162,403   10.00
   Leverage ratio                        1,471,131     6.61        890,390  4.00        1,112,987    5.00

Commerce NJ Risk based capital ratios:
     Tier 1                             $  931,981    11.07%      $336,641  4.00%        $504,962    6.00%
     Total capital                       1,017,498    12.09        673,282  8.00          841,603   10.00
   Leverage ratio                          931,981     6.07        614,020  4.00          767,526    5.00

</TABLE>


                                       51
<PAGE>

Notes to Consolidated Financial Statements

18.   Segment Reporting

The Company operates one reportable segment of business,  Community Banks, which
includes  Commerce  NJ,  Commerce PA,  Commerce  North,  and Commerce  Delaware.
Through its Community  Banks,  the Company  provides a broad range of retail and
commercial banking services, and corporate trust services. Parent/Other includes
the holding company,  Commerce Insurance (whose revenues of $72.5 million, $66.5
million and $55.9 million in 2004, 2003, and 2002,  respectively,  were reported
in other  operating  income),  and CCMI  (whose  noninterest  revenues  of $28.1
million, $42.5 million, and $35.1 million in 2004, 2003, and 2002, respectively,
were reported in other operating income).

Selected segment information for each of the three years ended December 31 is as
follows (in thousands):

<TABLE>
<CAPTION>

<S>                   <C>            <C>      <C>         <C>         <C>          <C>           <C>         <C>        <C>
----------------------------------------------------------------------------------------------------------------------------------
                                         2004                           2003                                  2002
----------------------------------------------------------------------------------------------------------------------------------
                        Community   Parent/               Community     Parent/                   Community    Parent/
                          Banks      Other       Total      Banks        Other      Total           Banks       Other      Total
----------------------------------------------------------------------------------------------------------------------------------
Net interest income
   (expense)
                      $1,024,092     ($6,307) $1,017,785  $  761,530  ($  5,664)   $  755,866    $  579,687  ($  6,932) $  572,755
Provision for loan
losses                    39,238        --        39,238      31,850       --          31,850        33,150       --        33,150
----------------------------------------------------------------------------------------------------------------------------------
Net interest income
after provision          984,854      (6,307)    978,547     729,680     (5,664)      724,016       546,537     (6,932)    539,605
Noninterest income       267,912     107,159     375,071     222,967    109,511       332,478       166,384     91,082     257,466
Noninterest expense      846,421      92,357     938,778     676,265     87,127       763,392       500,522     78,646     579,168
----------------------------------------------------------------------------------------------------------------------------------
Income before
income taxes             406,345       8,495     414,840     276,382     16,720       293,102       212,399      5,504     217,903
Income tax expense       138,879       2,543     141,422      93,314      5,501        98,815        72,839        249      73,088
----------------------------------------------------------------------------------------------------------------------------------
Net income            $  267,466  $    5,952  $  273,418  $  183,068   $ 11,219    $  194,287    $  139,560   $  5,255  $  144,815
----------------------------------------------------------------------------------------------------------------------------------
Average assets
(in millions)         $   24,452  $    2,167  $   26,619  $   17,754   $  1,836    $   19,590    $   12,192   $  1,560  $   13,752
----------------------------------------------------------------------------------------------------------------------------------

</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.




                                       52
<PAGE>


Notes to Consolidated Financial Statements

19.   Derivative Financial Instruments

As part of CCMI's broker-dealer activities,  CCMI maintains a trading securities
portfolio for  distribution  to its customers in order to meet those  customers'
needs. In order to reduce the exposure to market risk relating to the inventory,
CCMI buys and sells derivative  financial  instruments,  primarily interest rate
futures and option contracts.  Market risk includes changes in interest rates or
value fluctuations in the underlying financial instruments.  Notional (contract)
amounts  are used to  measure  derivative  activity.  Notional  amounts  are not
included  on the  balance  sheet,  as those  amounts  are not  actually  paid or
received at settlement.  The following  table reflects the open  commitments for
futures and options and the associated  unrealized gains (losses) (in thousands)
at December 31, 2004 and 2003:

<TABLE>
<CAPTION>

<S>                                     <C>        <C>                                 <C>

                                               Notional
                                                Amount                      Net Unrealized
                                             Long (Short)                     Gain (Loss)
  -----------------------------------------------------------------------------------------------
                                            2004         2003           2004            2003
  -----------------------------------------------------------------------------------------------
  Treasury bond futures                 $ 28,800   $   (3,000)        $   28           $ (68)
  Treasury bond put options               20,000       (5,000)           (62)              3
  Treasury bond call options            (123,500)     (97,500)          (525)            343
  -----------------------------------------------------------------------------------------------
  Total                                 $(74,700)   $(105,500)        $ (559)          $ 278
  -----------------------------------------------------------------------------------------------

</TABLE>


The average  notional  amount for futures  and options  contracts  for the years
ended  December  31,  2004 and 2003  was  $293.5  million  and  $240.9  million,
respectively.  Realized and unrealized gains and losses on derivative  financial
instruments are included in other operating income.

As an accommodation to its loan customers, the Company enters into interest rate
swap agreements. The Company minimizes its risk by matching the positions with a
counter party.  These swaps are carried at fair value with changes in fair value
included in other operating income.

The following table discloses the notional amounts and related fair value of the
Company's  interest rate swap  positions  (dollars in thousands) at December 31,
2004 and 2003:

  ------------------------------------------------------------------------------
                                            Notional            Estimated
                                             Amount             Fair Value
  ------------------------------------------------------------------------------
                                        2004      2003        2004      2003
  ------------------------------------------------------------------------------
  Interest Rate Swaps:
     Assets                           $179,744  $155,635     $7,363   $9,487
     Liabilities                       179,744   155,635     (6,537)  (8,659)
  ------------------------------------------------------------------------------
                                                             $  826   $  828
  ------------------------------------------------------------------------------

As part of the Company's  residential  mortgage  activities,  the Company enters
into interest rate lock commitments  with its customers.  The interest rate lock
commitments  on  residential  mortgage  loans  intended  to be held for sale are
considered free standing derivative instruments. The option to sell the mortgage
loans at the time the  commitments  are made are also free  standing  derivative
instruments.  The change in fair value of these  derivative  instruments  due to
changes in interest rates tend to offset each other.



                                       53
<PAGE>


Item  9.  Changes  in and  Disagreements  with  Accountants  on  Accounting  and
Financial Disclosure

None.

Item 9A. Controls and Procedures

     The  Company,   under   supervision  and  with  the  participation  of  its
management,  including its principal  executive officer and principal  financial
officer,  evaluated  the  effectiveness  of  the  design  and  operation  of its
disclosure  controls and  procedures  pursuant to Rules  13a-15(e) and 15d-15(e)
promulgated  under the Securities  Exchange Act of 1934 (Exchange Act). Based on
this evaluation, the principal executive officer and principal financial officer
concluded that the Company's disclosure controls and procedures are effective as
of  December  31,  2004.  There were no  significant  changes  in the  Company's
disclosure  controls  and  procedures  during 2004.  The Report on  Management's
Assessment of Internal Control Over Financial  Reporting is provided on page 27.
The  attestation  report  of  Ernst  &  Young  LLP,  the  Company's  independent
registered public accounting firm,  regarding the effectiveness of the Company's
internal control over financial reporting as of December 31, 2004 is provided on
page 28.

     A control  system,  no matter how well conceived and operated,  can provide
only  reasonable,  not absolute,  assurance  that the  objectives of the control
system are met.  Further,  the design of a control  system must reflect the fact
that there are  resource  constraints,  and the  benefits  of  controls  must be
considered relative to their costs.  Because of the inherent  limitations in all
control systems,  no evaluation of controls can provide absolute  assurance that
all control issues and instances of fraud,  if any, within the Company have been
detected.  Because  of the  inherent  limitations  in a  cost-effective  control
system,  misstatements due to error or fraud may occur and not be detected.  The
Company conducts periodic evaluations to enhance, where necessary its procedures
and controls.

                                    Part III

Item 10. Directors and Executive Officers of the Registrant

     The  information  called for by this item is incorporated by reference from
the Company's  definitive proxy statement relating to its 2005 Annual Meeting of
Shareholders, which will be filed with the SEC.

     The Company has adopted a Code of Ethics for Senior Financial Officers that
applies  to  its  principal  executive  officer,  principal  financial  officer,
principal accounting officer, controller and any other person performing similar
functions  and a Code of Business  Conduct and Ethics that applies to all of its
directors and employees,  including, without limitation, its principal executive
officer,  principal financial officer,  principal  accounting officer and all of
its employees performing financial or accounting  functions.  The Company's Code
of Ethics for Senior Financial  Officers and Code of Business Conduct and Ethics
are  posted on its  website,  www.commerceonline.com.  The  Company  intends  to
satisfy  the  disclosure  requirement  under  Item 10 of Form 8-K  regarding  an
amendment  to, or waiver  from,  a  provision  of its Code of Ethics  for Senior
Financial  Officers by posting such  information  on its website at the location
specified above.

Item 11. Executive Compensation

     The  information  called for by this item is incorporated by reference from
the Company's  definitive proxy statement relating to its 2005 Annual Meeting of
Shareholders, which will be filed with the SEC.

Item 12. Security Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters

     The  information  called for by this item is incorporated by reference from
the Company's  definitive proxy statement relating to its 2005 Annual Meeting of
Shareholders, which will be filed with the SEC.


                                       54
<PAGE>

<TABLE>
<CAPTION>

<S>                                                  <C>                         <C>                         <C>

 The following table details information regarding the Company's existing equity compensation plans as of December 31, 2004:

                                                        (a)                       (b)                           (c)
                                                                                                   Number of securities remaining
                                              Number of securities to       Weighted-average       available for future issuance
                                              be issued upon exercise      exercise price of      under equity compensation plans
                                              of outstanding options,     outstanding options,    (excluding securities reflected
                                                warrants and rights       warrants and rights              in column (a))
                                              ------------------------- ------------------------- ---------------------------------
Equity compensation plans approved by                26,524,136                  $17.89                      30,526,324
security holders
                                              ------------------------- ------------------------- ---------------------------------
Equity compensation plans not approved by               N/A                       N/A                           N/A
security holders
                                              ========================= ========================= =================================
Total                                                26,524,136                  $17.89                      30,526,324
                                              ========================= ========================= =================================

</TABLE>


Item 13. Certain Relationships and Related Transactions

     The  information  called for by this item is incorporated by reference from
the Company's  definitive proxy statement relating to its 2005 Annual Meeting of
Shareholders, which will be filed with the SEC.

Item 14. Principal Accountant Fees and Services

     The  information  called for by this item is incorporated by reference from
the Company's  definitive proxy statement relating to its 2005 Annual Meeting of
Shareholders, which will be filed with the SEC.

                                     Part IV

Item 15.   Exhibits and Financial Statement Schedules

(a)(1) The following financial statements of Commerce Bancorp, Inc.
       filed as part of this Form 10-K in Item 8:

       Report of Independent Registered Public Accounting Firm
       Consolidated Balance Sheets as of December 31, 2004 and 2003
       Consolidated Statements of Income for the years ended December 31, 2004,
       2003 and 2002
       Consolidated  Statements  of Cash Flows for the years ended  December 31,
       2004, 2003 and 2002
       Consolidated  Statements of Changes in Stockholders' Equity for the years
       ended December 31, 2004, 2003 and 2002
       Notes to Consolidated Financial Statements

(a)(2) Schedules

       All schedules have been omitted since the required information is
       included in the financial statements or the notes thereto, or is not
       applicable.

<TABLE>
<CAPTION>

<S>             <C>

(a)(3) Exhibits

              Exhibit
               Number                   Description of Exhibit                                    Location
              --------                  ----------------------                                    --------

                3.1       Restated Certificate of Incorporation of the
                          Company, as amended.

                3.2       By-laws of the Company, as amended.                  Incorporated by reference from the Company's
                                                                               Form 10-Q for the quarter ended June 30, 2004.

                4.1       Certificate of Trust of Commerce Capital Trust II,   Incorporated by reference from the Company's
                          a Delaware statutory trust, filed March 4, 2002.     Registration Statement of Form S-3
                                                                               (Registration No. 333-87512)


                                       55
<PAGE>


Exhibits (continued)

                4.2       Declaration of Trust of Commerce Capital Trust II,   Incorporated by reference from the Company's
                          dated as of March 4, 2002 among Commerce Bancorp,    Registration Statement of Form S-3
                          Inc., as Depositor, The Bank of New York, as         (Registration No. 333-87512)
                          Property Trustee, The Bank of New York (Delaware),
                          as Delaware Trustee and the Administrative
                          Trustees named therein.

                4.3       Amended and Restated Declaration of Trust of         Incorporated by reference from the Company's
                          Commerce Capital Trust II, dated as of March 11,     Registration Statement of Form S-3
                          2002, among Commerce Bancorp, Inc., as Sponsor,      (Registration No. 333-87512)
                          The Bank of New York, as Property Trustee, The
                          Bank of New York (Delaware), as Delaware Trustee,
                          the Administrative Trustees, and the holders from time
                          to time of unindividual beneficial interests in the
                          assets of the Trust, including form of 5.95%
                          Convertible Trust Preferred Security.

                4.4       Indenture, dated as of March 11, 2002, between       Incorporated by reference from the Company's
                          Commerce Bancorp, Inc. and The Bank of New York as   Registration Statement of Form S-3
                          Debenture Trustee, including form of 5.95% Junior    (Registration No. 333-87512)
                          Subordinated Convertible Debenture due March 11,
                          2032.

                4.5       Registration Rights Agreement, dated March 11,       Incorporated by reference from the Company's
                          2002, among Commerce Bancorp, Inc., and Commerce     Registration Statement of Form S-3
                          Capital Trust II, as issuers, and Merrill Lynch &    (Registration No. 333-87512)
                          Co., Merrill Lynch, Pierce, Fenner & Smith
                          Incorporated on behalf of itself and as
                          representative of the other initial purchasers.

                4.6       Guarantee Agreement, dated as of March 11, 2002,     Incorporated by reference from the Company's
                          between Commerce Bancorp, Inc. and The Bank of New   Registration Statement of Form S-3
                          York, as Guarantee Trustee.                          (Registration No. 333-87512)

                10.1      Ground lease, dated July 1, 1984, among Commerce     Incorporated by reference from the Company's
                          NJ and Group Four Equities, relating to the store    Registration Statement on Form S-1, and
                          in Gloucester Township, New Jersey.                  Amendments Nos. 1 and 2 thereto (Registration
                                                                               No. 2-94189)

                10.2      Ground lease, dated April 15, 1986, between          Incorporated by reference from the Company's
                          Commerce NJ and Mount Holly Equities, relating to    Annual Report on Form 10-K for the fiscal
                          Commerce NJ's store in Mt. Holly, New Jersey.        year ended December 31, 1987.

        *       10.4      The Company's Employee Stock Ownership Plan.         Incorporated by reference from the Company's
                                                                               Annual Report on Form 10-K for the fiscal year ended
                                                                               December 31, 1989.

               10.10      Ground lease, dated February 15, 1988, between       Incorporated by reference from the Company's
                          Commerce NJ and Holly Ravine Equities of New         Annual Report on Form 10-K for the fiscal
                          Jersey, relating to one of the Commerce NJ's         year ended December 31, 1988.
                          stores in Cherry Hill, New Jersey.

         *     10.11      The Company's 1989 Stock Option Plan for             Incorporated by reference from the Company's
                          Non-Employee Directors.                              Registration Statement on Form S-2 and
                                                                               Amendments Nos. 1 and 2 thereto (Registration
                                                                               No. 33-31042)

         *     10.12      A copy of employment contracts with Vernon W.        Incorporated by reference from the Company's
                          Hill, II, C. Edward Jordan, Jr., and Peter           Annual Report on Form 10-K for the fiscal
                          Musumeci, Jr., dated January 2, 1992.                year ended December 31, 1991.


                                       56
<PAGE>



Exhibits (continued)

         *     10.13      A copy of the Retirement Plan for Outside            Incorporated by reference from the Company's
                          Directors of Commerce Bancorp, Inc.                  Annual Report on Form 10-K for the fiscal
                                                                               year ended December 31, 1992.

         *     10.14      The Company's 1994 Employee Stock Option Plan.       Incorporated by reference from the Company's
                                                                               Annual Report on Form 10-K for the fiscal year
                                                                               ended December 31, 1994.

         *     10.15      The Company's 1997 Employee Stock Option Plan.       Incorporated by reference from the Company's
                                                                               Definitive Proxy Statement for its 1997
                                                                               Annual Meeting of Shareholders, Exhibit A
                                                                               thereto.

         *     10.16      A copy of employment contracts with Dennis M.        Incorporated by reference from the Company's
                          DiFlorio and Robert D. Falese dated January 1,       Annual Report on Form 10-K for the fiscal
                          1998.                                                year ended December 31, 1997.

               10.17      Ground lease, dated June 1, 1994, between Commerce   Incorporated by reference from the Company's
                          NJ and Absecon Associates, L.L.C., relating to       Annual Report on Form 10-K for the fiscal
                          Commerce NJ's branch office in Absecon, New Jersey.  year ended December 31, 1997.

               10.18      Ground lease, dated September 11, 1995, between      Incorporated by reference from the Company's
                          Commerce Shore (merged with and into Commerce NJ     Annual Report on Form 10-K for the fiscal
                          in 2004) and Whiting Equities, L.L.C., relating to   year ended December 31, 1997.
                          Commerce Shore's stores in Manchester Township,
                          New Jersey.

               10.19      Ground lease, dated November 1, 1995, between        Incorporated by reference from the Company's
                          Commerce NJ and Evesboro Associates, L.L.C.,         Annual Report on Form 10-K for the fiscal
                          relating to Commerce NJ's stores in Evesham          year ended December 31, 1997.
                          Township, New Jersey.

               10.20      Ground lease, dated October 1, 1996, between         Incorporated by reference from the Company's
                          Commerce NJ and Triad Equities, L.L.C., relating     Annual Report on Form 10-K for the fiscal
                          to one of Commerce NJ's stores in Gloucester         year ended December 31, 1997.
                          Township, New Jersey.

               10.22      Ground lease, dated January 16, 1998, between        Incorporated by reference from the Company's
                          Commerce NJ and Ewing Equities, L.L.C., relating     Annual Report on Form 10-K for the fiscal
                          to Commerce NJ's store in Ewing, New Jersey.         year ended December 31, 1998.

         *     10.23      The Company's 1998 Stock Option Plan for             Incorporated by reference from the Company's
                          Non-Employee Directors.                              Definitive Proxy Statement for its 1998
                                                                               Annual Meeting of Shareholders, Exhibit A
                                                                               thereto.

               10.25      Ground lease, dated November 30, 1998, between       Incorporated by reference from the Company's
                          Commerce Shore (merged with and into Commerce NJ     Annual Report on Form 10-K for the fiscal
                          in 2004) and Brick/Burnt Tavern Equities, L.L.C.,    year ended December 31, 1999.
                          relating to Commerce Shore's stores in Brick, New
                          Jersey.

               10.26      Ground lease, dated November 30, 1998, between       Incorporated by reference from the Company's
                          Commerce Shore (merged with and into Commerce NJ     Annual Report on Form 10-K for the fiscal
                          in 2004) and Aberdeen Equities, L.L.C., relating     year ended December 31, 1999.
                          to Commerce Shore's store in Aberdeen, New Jersey.

               10.27      Ground lease, dated November 30, 1998, between       Incorporated by reference from the Company's
                          Commerce NJ and Hamilton/Wash Properties, L.L.C.,    Annual Report on Form 10-K for the fiscal
                          relating to Commerce NJ's store in Hamilton          year ended December 31, 1999.
                          Township, New Jersey.


                                       57
<PAGE>



Exhibits (continued)

               10.28      Ground lease, dated April 2, 1999, between           Incorporated by reference from the Company's
                          Commerce PA and Abington Equities, L.L.C.,           Annual Report on Form 10-K for the fiscal
                          relating to Commerce PA's store in Abington          year ended December 31, 1999.
                          Township, Pennsylvania.

               10.29      Ground lease, dated October 1999, between Commerce   Incorporated by reference from the Company's
                          PA and Bensalem Equities, L.L.C., relating to        Annual Report on Form 10-K for the fiscal
                          Commerce PA's store in Bensalem, Pennsylvania.       year ended December 31, 2000.

               10.32      Ground lease, dated March 10, 2000, between          Incorporated by reference from the Company's
                          Commerce PA and Chalfont Equities, L.L.C.,           Annual Report on Form 10-K for the fiscal
                          relating to Commerce PA's store in New Britain       year ended December 31, 2001.
                          Township, Pennsylvania.

               10.33      Ground lease, dated January 4, 2001, between         Incorporated by reference from the Company's
                          Commerce PA and Warminster Equities, L.L.C.,         Annual Report on Form 10-K for the fiscal
                          relating to Commerce PA's store in Warminster        year ended December 31, 2001.
                          Township, Pennsylvania.

               10.34      Ground lease dated January 1, 2001, between          Incorporated by reference to the Company's
                          Commerce  NJ and  Willingboro  Equities,  L.L.C.,    Form 10-Q for the quarter ended March 31, 2003.
                          relating to Commerce  NJ's store in  Willingboro,
                          New Jersey.

               10.35      Ground lease dated November 27, 2001, between        Incorporated by reference to the Company's
                          Commerce  PA  and  Warrington  Equities,  L.L.C.,    Form 10-Q for the quarter ended March 31, 2003.
                          relating  to Commerce  PA's store in  Warrington,
                          Pennsylvania.

         *     10.36      The Company's Supplemental Executive Retirement      Incorporated by reference from the Company's
                          Plan.                                                Annual Report on Form 10-K for the fiscal
                                                                               year ended December 31, 2003.

        *      10.37      The Company's 2004 Employee Stock Option Plan.       Incorporated by reference from the Company's
                                                                               Form 10-Q for the quarter ended June 30, 2004.

                21.1      Subsidiaries of the Company.                         Incorporated by reference from PART 1, Item
                                                                               1. "BUSINESS" of this Report on Form 10-K.

                23.1      Consent of Ernst & Young LLP.

                31.1      Certification of the Company's Chief Executive
                          Officer pursuant to 18 U.S.C. Section 1350, as adopted
                          pursuant to Section 302 of the Sarbanes-Oxley Act of
                          2002.

                31.2      Certification of the Company's Chief Financial Officer
                          pursuant to 18 U.S.C. Section 1350, as adopted
                          pursuant to Section 302 of the Sarbanes-Oxley Act of
                          2002.

                 32       Certification of the Company's Chief Executive
                          Officer and Chief Financial Officer pursuant to 18
                          U.S.C. Section 1350, as adopted pursuant to
                          Section 906 of the Sarbanes-Oxley Act of 2002.

</TABLE>


*    Management contract or compensation plan or arrangement.





                                       58
<PAGE>



(c) Exhibits and Financial Statement Schedules

     All  other  exhibits  and  schedules  for  which  provision  is made in the
     applicable  accounting regulation of the Securities and Exchange Commission
     are not required  under the related  instruction or are  inapplicable  and,
     therefore, have been omitted.

                                   SIGNATURES

     Pursuant to the requirements of Section 13 or 15(d) of the Securities and
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.

                           Commerce Bancorp, Inc.

                           By             /s/ Vernon W. Hill, II
                             ------------------------------------------------
                                              Vernon W. Hill, II
Date: March 16, 2005                Chairman of the Board and President
                                       (Principal Executive Officer)

                           By             /s/ Douglas J. Pauls
                             ------------------------------------------------
                                              Douglas J. Pauls
                              Senior Vice President and Chief Financial Officer
                                (Principal Financial and Accounting Officer)



     Pursuant to the requirements of the Securities and Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.

<TABLE>
<CAPTION>

<S>                                                                                                      <C> <C>

                  Signature                                            Title                              Date

     /s/       Vernon W. Hill, II                  Chairman of the Board, President and Director   March 16, 2005
-----------------------------------------------    (Principal Executive Officer)
               Vernon W. Hill, II

     /s/         Robert C. Beck                    Director                                        March 16, 2005
-----------------------------------------------
                 Robert C. Beck

     /s/         Jack R Bershad                    Director                                        March 16, 2005
-----------------------------------------------
                 Jack R Bershad

     /s/         Joseph Buckelew                   Director                                        March 16, 2005
-----------------------------------------------
                 Joseph Buckelew

     /s/      Donald T. DiFrancesco                Director                                        March 16, 2005
-----------------------------------------------
              Donald T. DiFrancesco

     /s/          John K. Lloyd                    Director                                        March 16, 2005
-----------------------------------------------
                  John K. Lloyd

     /s/         Morton N. Kerr                    Director                                        March 16, 2005
-----------------------------------------------
                 Morton N. Kerr

     /s/         Steven M. Lewis                   Director                                        March 16, 2005
-----------------------------------------------
                 Steven M. Lewis

     /s/     George E. Norcross, III               Director                                        March 16, 2005
-----------------------------------------------
             George E. Norcross, III

                                                   Director                                        March 16, 2005
-----------------------------------------------
                Joseph J. Plumeri

     /s/        Daniel J. Ragone                   Director                                        March 16, 2005
-----------------------------------------------
                Daniel J. Ragone

     /s/     William A. Schwartz Jr.               Director                                        March 16, 2005
-----------------------------------------------
             William A. Schwartz Jr.

     /s/     Joseph T. Tarquini Jr.                Director                                        March 16, 2005
-----------------------------------------------
             Joseph T. Tarquini Jr.

</TABLE>

                                       59
<PAGE>