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                                  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, 2003
                                       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.
                                 [LOGO OMITTED]
             (Exact name of registrant as specified in its charter)

                 New Jersey                                   22-2433468
    (State of other jurisdiction of                       (I.R.S. Employee
     incorporation or organization)                      Identification Number)
               Commerce Atrium
             1701 Route 70 East                              08034-5400
           Cherry Hill, New Jersey                           (Zip Code)
  (Address of principal executive offices)

        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 $2,497,629,542.(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                            77,394,220
-------------------------------           --------------------------------------
       Title of Class                     No. of Shares Outstanding as of 3/1/04

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

                       DOCUMENTS INCORPORATED BY REFERENCE
     Part  III   incorporates   certain   information   by  reference  from  the
Registrant's Proxy Statement for the 2004 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 $37.10 , the last sale
price for the  Registrant's  Common Stock on June 30, 2003 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.

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<TABLE>
<CAPTION>
                                                       COMMERCE BANCORP, INC.
                                                   FORM 10-K CROSS-REFERENCE INDEX

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


                                                               Part II
Item 5.    Market for 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 .........................................................................27
Item 9.    Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.................................51
Item 9A.   Controls and Procedures..............................................................................................51


                                                              Part III
Item 10.   Directors and Executive Officers of the Registrant...................................................................51
Item 11.   Executive Compensation...............................................................................................51
Item 12.   Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.......................51
Item 13.   Certain Relationships and Related Transactions.......................................................................52
Item 14.   Principal Accountant Fees and Services...............................................................................52


                                                               Part IV
Item 15.   Exhibits, Financial Statement Schedules and Reports on Form 8-K .....................................................52

Signatures......................................................................................................................57

</TABLE>


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                                     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, 2003,  the Company had total  assets of $22.7  billion,
total loans of $7.4 billion, and total deposits of $20.7 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    four nationally chartered bank subsidiaries:

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

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

          o    Commerce Bank/Shore, N.A., Toms River, New Jersey;

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

     o    one New Jersey state chartered bank subsidiary:

          o    Commerce Bank/North, Ramsey, New Jersey.

     These five bank subsidiaries,  referred to collectively as the banks, as of
December  31, 2003 had 270 full service  retail  branch  offices  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

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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 branch office network.

Acquisitions

     The Company's  primary  growth  strategy is the opening of new full service
branch  offices  of which 46 opened in 2003 and 40 opened in 2002.  The  Company
expects to open an  additional  50 full  service  branch  offices  in 2004.  The
Company has also developed its full service  branch office  network  through the
following strategic acquisitions:

     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;

     o    on September  30, 1993,  the Company  acquired all of the  outstanding
          shares of The Coastal Bank,  Ocean City, New Jersey,  which was merged
          with and into Commerce NJ;

     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;

     o    on January 15, 1999,  the Company  acquired  Community  First  Banking
          Company, referred to as CFBC, a one-bank holding company headquartered
          in Tinton Falls,  New Jersey.  CFBC's  wholly-owned  bank  subsidiary,
          Tinton Falls State Bank, was merged with and into Commerce Shore; 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
branch 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 the most recent of which include
the following:

     o    in 2001, Fitzsimmons Insurance and Financial Services,  Inc., Business
          Training  Systems,  Inc.  and  Brettler  Financial  Group,  Inc.  were
          acquired.

     o    in 2002, Sanford and Purvis, Inc., Upper Montclair, NJ, was acquired.

     o    in 2003, The Porch Agency, Bridgeton, NJ, was acquired.

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.

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The Banks

     As of December  31, 2003,  Commerce NJ had total  assets of $12.8  billion,
total  deposits  of $11.5  billion,  and  total  shareholders'  equity of $759.0
million;  Commerce PA had total assets of $4.6 billion,  total  deposits of $4.3
billion and total  shareholders'  equity of $276.8  million;  Commerce Shore had
total  assets  of $2.7  billion,  total  deposits  of  $2.4  billion  and  total
shareholders' equity of $165.5 million;  Commerce North had total assets of $2.5
billion,  total  deposits of $2.3  billion,  and total  shareholders'  equity of
$153.9 million; and Commerce Delaware had total assets of $294.6 million,  total
deposits of $272.0 million, and total shareholders' equity of $20.6 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 branches 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.

     Commerce NJ provides  retail and commercial  banking  services  through 144
retail branch offices in Central and Southern New Jersey,  and  Metropolitan New
York.;  Commerce PA provides retail and commercial  banking  services through 61
retail branch offices in Philadelphia,  Bucks, Chester,  Delaware and Montgomery
Counties  in  Southeastern  Pennsylvania;  Commerce  Shore  provides  retail and
commercial  banking  services  through  31 retail  branch  offices  in Ocean and
Monmouth  Counties,  New Jersey;  Commerce North provides  retail and commercial
banking  services  through  28  retail  branch  offices  in Bergen  and  Passaic
Counties,  New Jersey;  and Commerce  Delaware  provides  retail and  commercial
banking services through 6 retail branch offices in New Castle County, 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,  consumer loan programs, including installment
loans for home  improvement and the purchase of consumer goods and  automobiles,
home equity and Visa Gold card 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 19 - Segment Reporting" of the Company's Notes
to Consolidated Financial Statements which appear 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 11 locations in New Jersey, 2 locations in  Pennsylvania,  and 2
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,  including  trading,  underwriting,  and
advisory  services.  Commerce  Capital  Markets'  principal place of business is
Philadelphia,   Pennsylvania,  with  branch  locations  in  Cherry  Hill,  South
Plainfield, Ramsey and Toms River, 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. Shore Asset Management Corporation, a Delaware corporation, is a
wholly-owned  subsidiary  of  Commerce  Shore  that  purchases,  holds and sells
investments of Commerce

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Shore.  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 and
Commerce Shore that provides business leasing services.

      The Company has an equity  investment in  Pennsylvania  Commerce  Bancorp,
Inc., Camp Hill, Pennsylvania (12.82% 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.

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.

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 Shore's,
Commerce  North's,  and  Commerce  Delaware's  legal  lending  limit to a single
borrower  (approximately  $127.6 million,  $43.3 million,  $25.9 million,  $24.7
million,  and $3.0 million,  respectively,  as of December 31, 2003) enables the
banks  to  compete  effectively  for  the  business  of  smaller  and  mid-sized
businesses.  The combined legal lending limit of the Company is $224.5  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

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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.  Under the CRA,  Commerce NJ, Commerce Delaware and Commerce
North are  currently  rated  "outstanding",  while  Commerce  Shore and Commerce
Pennsylvania are 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.

     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  percent 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 Shore, Commerce North, and Commerce Delaware

     Commerce NJ,  Commerce  PA,  Commerce  Shore,  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  branch
offices 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  branch  offices by any New
Jersey state-chartered bank, subject to applicable state law restrictions.

     Under present New Jersey law,  Commerce NJ,  Commerce  Shore,  and Commerce
North  would be  permitted  to operate  offices at any  location  in New Jersey,
subject to prior regulatory  approval.  Under present New York law,  Commerce NJ
would be  permitted to operate  offices at any location in New York,  subject to
certain home office protection rules and subject to regulatory  approval.  Under
present  Pennsylvania  law,  Commerce PA would be permitted  to operate  offices
within any county in Pennsylvania,  subject to prior regulatory approval.  Under
present Delaware law, Commerce Delaware would be permitted to operate offices 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 to assess an  institution's  record of meeting  the  credit  needs of its
community  and to take such record  into  account in its  evaluation  of certain
applications  by such  institution.  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, branches and other deposit facilities,
relocations,  mergers,  consolidations  and acquisitions.  Performance less than
satisfactory  may be the basis for denying an  application.  In addition,  under
applicable  regulations  a bank  having a less than  satisfactory  rating is not
entitled  to  participate  on the bid list for FDIC  offerings.  For their  most
recent  examinations,  Commerce

7

<PAGE>

NJ, Commerce  Delaware and Commerce North each received an "outstanding"  rating
while Commerce PA and Commerce Shore each received a "satisfactory" rating.

     Commerce NJ,  Commerce PA, Commerce  Shore,  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 Shore, 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  Shore,
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.

     Commerce NJ,  Commerce PA, Commerce  Shore,  Commerce  North,  and Commerce
Delaware are subject to certain limitations on the amount of cash dividends that
they  can pay.  See Note 18 of the  Company's  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.

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
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  public  finance  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

8

<PAGE>

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.

     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,  2003 the  Company  had in excess  of 8,200  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.

9
<PAGE>


     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 Commerce NJ occupy the majority of this
building.

     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 7 - Bank  Premises,  Equipment  and Leases" of the  Company's  Notes to
Consolidated Financial Statements, which appear elsewhere herein.


Item 3. Legal Proceedings

     Other than  routine  litigation  incidental  to its  business,  neither the
Company  or any of its  subsidiaries,  nor  any of the  Company's  or any of its
subsidiaries' properties, are subject to any material legal proceedings, nor are
any such proceedings known to be contemplated.


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 2003.


                                     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  included  elsewhere
herein.

     See Item 12, Security Ownership of Certain Beneficial Owners and Management
and Related  Stockholder  Matters 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 18
of the  Company's  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.

10
<PAGE>

<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------------------------
                                                                          Year Ended December 31, 2003
----------------------------------------------------------------------------------------------------------------------------------
(dollars in thousands, except per share data)         2003             2002            2001            2000            1999
----------------------------------------------------------------------------------------------------------------------------------
<S>                                                   <C>             <C>             <C>            <C>             <C>
Income Statement Data:
 Net interest income                                  $ 755,866       $  572,755      $  401,326     $  296,930      $  244,367
 Provision for loan losses                               31,850           33,150          26,384         13,931           9,175
 Noninterest income                                     332,478          257,466         196,805        150,760         114,596
 Noninterest expense                                    763,392          579,168         420,036        315,357         252,523
 Income before income taxes                             293,102          217,903         151,711        118,402          97,265
 Net income                                             194,287          144,815         103,022         80,047          65,960
Balance Sheet Data:
 Total assets                                       $22,712,180      $16,403,981     $11,363,703     $8,296,516      $6,635,793
 Loans (net)                                          7,328,519        5,731,856       4,516,431      3,638,580       2,922,706
 Securities available for sale                       10,650,655        7,806,779       4,152,704      2,021,326       1,664,257
 Securities held to maturity                          2,490,484          763,026       1,132,172      1,513,456       1,201,892
 Trading securities                                     170,458          326,479         282,811        109,306         117,837
 Federal funds sold                                                                                      52,000           5,300
 Deposits                                            20,701,400       14,548,841      10,185,594      7,387,594       5,608,920
 Long-term debt                                         200,000          200,000          80,500         80,500          80,500
 Stockholders' equity                                 1,277,288          918,010         636,570        492,224         356,756
Per Share Data:
 Net income-basic                                      $   2.73       $     2.16   $        1.59    $      1.30    $       1.13
 Net income-diluted                                        2.61             2.04            1.51           1.25            1.08
 Cash dividends                                            0.66             0.60            0.55           0.48            0.41
 Book value                                               16.70            13.53            9.70           7.77            6.00
 Average shares outstanding:
 Basic                                                   71,084           66,795          64,666         61,755          58,310
 Diluted                                                 74,462           70,903          68,102         64,223          60,930
Selected Ratios:
 Performance
 Return on average assets                                  0.99  %          1.05  %         1.08  %        1.09   %        1.12%
 Return on average equity                                 18.81            18.50           17.64          19.81           19.63
 Net interest margin                                       4.36             4.69            4.76           4.62            4.65
 Liquidity and Capital
 Average loans to average deposits                        36.93  %         42.48  %        48.04  %       52.17   %       50.31%
 Dividend payout                                          24.18            27.78           34.59          37.45           36.64
 Stockholders' equity to total assets                      5.62             5.60            5.60           5.93            5.38
 Risk-based capital:
 Tier 1                                                   12.66            11.47           10.81          10.79           11.40
 Total                                                    13.62            12.51           11.96          11.92           12.72
 Leverage capital                                          6.61             6.37            6.24           6.92            7.02
 Asset Quality
 Non-performing assets to total year-end assets            0.10  %          0.11  %         0.16  %        0.20   %        0.18%
 Net charge-offs to average loans outstanding              0.16             0.18            0.19           0.11            0.08
 Non-performing loans to total
    year-end loans                                         0.29             0.24            0.37           0.37            0.29
 Allowance for loan losses to total
    end of year loans                                      1.51             1.56            1.46           1.32            1.30
 Allowance for loan losses to non-
    performing loans                                     515.39           640.18          397.73         356.84          442.09

</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 2003, the company's total assets grew 38%. The interest rate  environment
during the year was  difficult for the Company's  growth model,  with  long-term
interest  rates  reaching   historically   low  levels.   The  rate  environment
contributed to the  compression  of the Company's net interest  margin to 4.36%,
the lowest level in over 10 years.  Despite  this,  the Company was able to grow
revenue  31%,  net income  34%,  and  diluted  net income per share by 28%.  The
Company  also  demonstrated  its  ability  to  access  the  capital  markets  by
successfully  completing a $209 million common stock offering in September 2003.
The Company's financial  performance for 2003 and projected performance for 2004
are further discussed below.

The 2003 financial  highlights are summarized  below.

o    Net income increased 34% and earnings per share increased 28%.

o    Total deposits grew 42% and total loans grew 28%.

o    Total revenues (net interest income plus noninterest income) increased 31%.

o    Successful  completion of common stock  offering that produced net proceeds
     of approximately $209 million, which will support future growth.

                                  2003        2002      Increase
  (amounts in billions)
  Total Assets              $     22.7      $  16.4         38%
  Total Loans (net)                7.3          5.7         28%
  Total Investments               13.3          8.9         49%
  Total Deposits                  20.7         14.5         42%

  (amounts in millions)
  Total Revenues            $  1,088.3      $ 830.2         31%
  Net Income                     194.3        144.8         34%
  Net Income per Share            2.61         2.04         28%


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 $771.5 million of net interest income on a tax
equivalent  basis in 2003,  an increase of $185.6  million or 32% over 2002.  As
more fully depicted in the chart below,  the increase in net interest  income in
both 2003 and 2002 was almost entirely due to volume  increases in the Company's
earning assets.

------------------------------------------------------------
                            Net Interest Income
                           (dollars in millions)
------------------------------------------------------------
                   Volume      Rate
                  Increase    Change      Total Increase
------------------------------------------------------------
2003               $227.1    ($41.5)    $185.6      32%
------------------------------------------------------------
2002               $174.0     ($0.8)    $173.2      42%
------------------------------------------------------------

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


                               Growth      Actual
                               Target    2003 Growth

       Total Deposits              25%         42%
       Comp Store Deposits         18%         27%
       Total Revenue               25%         31%

       Net Income                  25%         34%
       Earnings Per Share          20%         28%

The  Company  completed  it plan to open 46  stores in 2003 and plans to open 50
more during 2004. The Company plans to open  approximately  40 stores in 2004 in
the metro New York market.  This market has seen the highest  deposit growth per
branch and  management  expects  these  stores to  continue  to lead the deposit
growth of the  Company.  The  remaining  10  stores  will be opened in the metro
Philadelphia  market.  The Company has  previously  announced that it expects to
enter the Washington D.C./Northern Virginia market in 2005.


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  industries  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 two policies as being critical:  the policies  related to
the allowance for loan losses and  capitalization  of branch costs. The Company,
in  consultation  with the Audit  Committee,  has reviewed  and  approved  these
critical accounting policies (further described in Note 1 Significant Accounting
Policies to the Consolidated Financial Statements.)

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 to the
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.

Branch  Premises  and  Equipment.   In  accordance  with  accounting  principles
generally  accepted in the United  States,  when  capitalizing  costs for branch
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 branch.
All other pre-opening and post-opening costs related to branches are expensed as
incurred.

Segment Reporting

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

 -----------------------------------------------------------
                                    Net Income
 -----------------------------------------------------------
                           2003        2002        2001
 -----------------------------------------------------------
 Community Banks          $183,068    $139,560    $ 95,574
 Parent/Other               11,219       5,255       7,448
 -----------------------------------------------------------
 Consolidated total       $194,287    $144,815    $103,022
 -----------------------------------------------------------

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, 2003,  2002 and 2001 and presents the daily average
interest  rates earned on assets and the daily  average  interest  rates paid on
liabilities  for such periods.  During 2003,  average  interest  earning  assets
totaled  $17.7  billion,  an increase of $5.2  billion,  or 42% over 2002.  This
increase  resulted  primarily  from  the  increase  in the  average  balance  of
investments,  which rose $4.0 billion,  and the average balance of loans,  which
rose $1.2  billion  during 2003.  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 $5.2 billion.

Net Interest Margin and Net Interest Income

Net interest margin on a tax equivalent  basis was 4.36% for 2003, a decrease of
33  basis  points  from  2002.  The  decrease  is due to the low  interest  rate
environment throughout 2003. During the fourth quarter of 2003, the net interest
margin  increased  by 6 basis  points  and  management  expects  it to  continue
increasing in the first quarter of 2004.  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 2003 was  $771.5  million,  an  increase  of $185.6
million, or 32%, over 2002. Interest income on a tax-equivalent  basis increased
to $931.3  million from $768.5  million,  or 21%.  This  increase was  primarily
related to volume  increases  in the loan and  investment  portfolios.  Interest
expense for 2003 fell $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 debt instruments.

The  tax-equivalent  yield on interest  earning  assets during 2003 was 5.26%, a
decrease  of 89 basis  points from 6.15% in 2002.  The cost of  interest-bearing
liabilities decreased 70 basis points in 2003 to 1.11% from 1.81% in 2002. These
decreases resulted primarily from decreased general market interest rates during
2003 as compared to 2002. The cost of total funding  sources  decreased 56 basis
points in 2003 to 0.90% from 1.46%.

The following  table presents the major factors that  contributed to the changes
in net  interest  income  for the  years  ended  December  31,  2003 and 2002 as
compared to the respective previous periods.

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------
                                      2003 vs. 2002                                  2002 vs. 2001
                                   Increase (Decrease)                            Increase (Decrease)
                                  Due to Changes in (1)                          Due to Changes in (1)
------------------------------------------------------------------------------------------------------------------------
                           Volume        Rate           Total             Volume             Rate           Total
------------------------------------------------------------------------------------------------------------------------
                                                             (dollars in thousands)
<S>                      <C>            <C>            <C>              <C>                <C>            <C>
Interest on
  Investments:
   Taxable               $186,070       ($65,123)      $120,947         $156,146           ($29,870)      $126,276
   Tax-exempt               6,277            706          6,983            1,968               (214)         1,754
   Trading                 (1,029)        (1,527)        (2,556)           1,558                253          1,811
Federal
    Funds sold               (356)          (254)          (610)          (1,802)            (3,270)        (5,072)
Interest on loans:
   Commercial
     mortgages             24,352        (10,574)        13,778           31,083            (17,291)        13,792
   Commercial              21,154         (6,710)        14,444           16,240            (17,045)          (805)
   Consumer                24,965        (17,970)         6,995           27,817            (13,936)        13,881
   Tax-exempt               4,515         (1,701)         2,814            1,612               (499)         1,113
------------------------------------------------------------------------------------------------------------------------
Total interest
  Income                  265,948       (103,153)       162,795          234,622            (81,872)       152,750
------------------------------------------------------------------------------------------------------------------------
Interest expense:
  Savings                   9,453        (12,089)        (2,636)           9,678            (12,093)        (2,415)
  N.O.W.
   Accounts                   884         (1,682)          (798)           1,128             (2,606)        (1,478)
  Money
   Market plus             16,781        (20,685)        (3,904)          17,669            (24,332)        (6,663)
  Time
   Deposits                10,405        (18,077)        (7,672)          20,708            (20,730)           (22)
  Public funds             (1,069)        (6,711)        (7,780)           2,960            (19,455)       (16,495)
  Other
   Borrowed
   Money                    2,349           (924)         1,425              379             (2,048)        (1,669)
  Long-term
   Debt                        32         (1,517)        (1,485)           8,090                227          8,317
------------------------------------------------------------------------------------------------------------------------
Total interest
  Expense                  38,835        (61,685)       (22,850)          60,612            (81,037)       (20,425)
------------------------------------------------------------------------------------------------------------------------
Net increase             $227,113       ($41,468)      $185,645         $174,010              ($835)      $173,175
------------------------------------------------------------------------------------------------------------------------
<FN>
(1) Changes  due to both volume and rate have been  allocated  to volume or rate
    changes in proportion to the absolute dollar amounts of the change in each.
</FN>
</TABLE>




14

<PAGE>

<TABLE>
<CAPTION>
                            Commerce Bancorp, Inc. and Subsidiaries Average Balances and Net Interest Income

------------------------------------------------------------------------------------------------------------------------------------
                                                                    Year Ended December 31,
------------------------------------------------------------------------------------------------------------------------------------
                                              2003                            2002                            2001
------------------------------------------------------------------------------------------------------------------------------------
(dollars in thousands)            Average             Average     Average             Average     Average               Average
Earning Assets                    Balance    Interest  Rate       Balance    Interest   Rate      Balance    Interest    Rate
------------------------------------------------------------------------------------------------------------------------------------
<S>                             <C>          <C>       <C>      <C>          <C>        <C>      <C>          <C>          <C>
Investment securities
     Taxable                    $ 10,777,538 $508,758  4.72%    $ 6,835,820  $387,811   5.67%    $4,083,493   $261,535     6.40%
     Tax-exempt                      201,775   13,835  6.86         110,235     6,852   6.22         78,572      5,098     6.49
     Trading                         193,376    9,637  4.98         214,016    12,193   5.70        186,678     10,382     5.56
------------------------------------------------------------------------------------------------------------------------------------
Total investment securities       11,172,689  532,230  4.76       7,160,071   406,856   5.68      4,348,743    277,015     6.37
Federal funds sold                    22,530      255  1.13          54,043       865   1.60        166,619      5,937     3.56
Loans
     Commercial mortgages          2,419,855  152,642  6.31       2,037,091   138,864   6.82      1,581,118    125,072     7.91
     Commercial                    1,605,845   87,782  5.47       1,219,182    73,338   6.02        949,205     74,143     7.81
     Consumer                      2,224,197  137,138  6.17       1,815,679   130,143   7.17      1,427,586    116,262     8.14
     Tax-exempt                      269,592   21,230  7.87         212,261    18,416   8.68        193,678     17,303     8.93
------------------------------------------------------------------------------------------------------------------------------------
Total loans                        6,519,489  398,792  6.12       5,284,213   360,761   6.83      4,151,587    332,780     8.02
------------------------------------------------------------------------------------------------------------------------------------
Total earning assets             $17,714,708 $931,277  5.26%    $12,498,327  $768,482   6.15%    $8,666,949   $615,732     7.10%
------------------------------------------------------------------------------------------------------------------------------------
Sources of Funds
------------------------------------------------------------------------------------------------------------------------------------
Interest-bearing liabilities
     Savings                      $3,676,147  $27,596  0.75%    $ 2,416,884  $ 30,232   1.25%    $1,643,145   $ 32,647     1.99%
     N.O.W. accounts                 468,311    3,358  0.72         344,951     4,156   1.20        251,352      5,634     2.24
     Money market plus             6,495,847   47,353  0.73       4,193,963    51,257   1.22      2,748,236     57,920     2.11
     Time deposits                 2,335,124   53,721  2.30       1,882,823    61,393   3.26      1,247,741     61,415     4.92
     Public funds                    852,319   12,394  1.45         925,827    20,174   2.18        790,001     36,669     4.64
------------------------------------------------------------------------------------------------------------------------------------
Total deposits                    13,827,748  144,422  1.04       9,764,448   167,212   1.71      6,680,475    194,285     2.91

Other borrowed money                 423,538    3,263  0.77         118,734     1,839   1.55         94,257      3,508     3.72
Long-term debt                       200,000   12,080  6.04         199,464    13,565   6.80         80,500      5,248     6.52
------------------------------------------------------------------------------------------------------------------------------------
Total deposits and interest-
     bearing liabilities          14,451,286  159,765  1.11      10,082,646   182,616   1.81      6,855,232    203,041     2.96
Noninterest-bearing funds
     (net)                         3,263,422                      2,415,681                       1,811,717
------------------------------------------------------------------------------------------------------------------------------------
Total sources to fund
     earning assets              $17,714,708 $159,765  0.90     $12,498,327  $182,616   1.46     $8,666,949   $203,041     2.34
------------------------------------------------------------------------------------------------------------------------------------
Net interest income and
     margin tax-equivalent
     basis                                   $771,512  4.36                  $585,866   4.69                  $412,691     4.76
Tax-exempt adjustment                          15,646                          13,111                           11,365
                                             --------                        --------                       -----------
Net interest income and margin               $755,866  4.27%                 $572,755   4.58%                 $401,326     4.63%
Other Balances
------------------------------------------------------------------------------------------------------------------------------------
Cash and due from banks            $ 922,188                       $630,134                      $  417,110
Other assets                       1,053,283                        702,898                         519,799
Total assets                      19,590,319                     13,752,237                       9,546,794
Demand deposits
     (noninterest-bearing)         3,826,885                      2,674,233                       1,962,354
Other  liabilities                   279,203                        212,775                         145,084
Stockholders' equity               1,032,945                        782,583                         584,124

<FN>
Notes --Weighted average yields on tax-exempt obligatiohave been computed on a tax-equivalent basis assuming a federal
        tax rate of 35%.

      --Non-accrual loans have been included in the average loan balance.

      --Investment securities include investments available for sale.

      --Consumer loans include loans held for sale.
</FN>
</TABLE>

15

<PAGE>

Noninterest Income

For 2003,  noninterest  income  totaled  $332.5  million,  an  increase of $75.0
million or 29% from 2002.  Deposit  charges  and  service  fees had the  largest
increase of $29.6 million,  or 23%. Other  operating  income  increased by $23.5
million,  or 66%,  which  includes the Company's  insurance and capital  markets
divisions.  Commerce Insurance,  the Company's  insurance brokerage  subsidiary,
recorded  increased  revenues of $10.6 million,  or 19%, while Commerce  Capital
Markets generated  increased  revenues of $7.4 million,  or 21%. The increase in
other operating income is more fully depicted in the following chart.

                                   2003          2002
                               -------------  ------------
Deposit Charges & Service Fees     $160,678       $131,033
Other Operating Income:
   Insurance                         66,482         55,875
   Capital Markets                   42,518         35,082
   Loan Brokerage Fees               27,169         18,655
   Other                             31,780         16,821
                               -------------  ------------
     Total other                    167,949        126,433
                               -------------  ------------
Net Investment Securities
  Gains                               3,851
                               -------------  ------------
Total Noninterest Income           $332,478       $257,466
                               -------------  ------------

The  increase  in loan  brokerage  fees  resulted  from the  volume of  mortgage
refinancing  activity in 2003 related to  historically  low  long-term  interest
rates. Management does not anticipate the same level of refinancing activity and
fees in 2004. Other included gains on sale of loans,  primarily SBA loans, which
increased $10.4 million over 2002.  Management  intends to continue  selling the
majority of SBA loans originated in 2004.

Noninterest Expenses

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  branches.  With the  addition  of these  new  offices,  staff,  facilities,
marketing,  and related expenses rose accordingly.  Occupancy costs increased by
70%  during  2003.  This  increase  is due to the  growth  in the metro New York
market, where occupancy costs are higher especially in New York City.

Other  noninterest  expenses rose $26.0  million,  or 21%, to $150.1  million in
2003.  The  primary  increases  in other  noninterest  expenses  were  increased
business  development  expenses  of $3.3  million  to $24.9  million,  increased
bank-card  related service  charges of $3.5 million to $25.4 million,  increased
professional  services/insurance  expenses of $5.5 million to $24.6  million and
increased  provisions  for  non-credit-related  losses of $2.4  million to $15.5
million.


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 70.38%,  69.73%, and 70.06%, in 2003,
2002,  and 2001,  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 2003 was $98.8  million
compared to $73.1 million in 2002 and $48.7  million in 2001.  The effective tax
rate was  33.7%,  33.5% and 32.1% in 2003,  2002,  and 2001,  respectively.  The
increase in the  effective  income tax rate for 2002 was primarily due to higher
state income taxes under newly enacted tax laws in New Jersey.

Net Income

Net income for 2003 was $194.3  million,  an increase of $49.5  million,  or 34%
over the $144.8 million recorded for 2002.

Historically,  the  Company's  rate of revenue  growth has  exceeded the rate of
growth in noninterest expenses,  despite the Company's significant investment in
infrastructure  and people to support its ongoing  branch  expansion  plans.  In
2003,  total  revenues  increased  $258.1  million,  or 31%,  while  noninterest
expenses increased $184.2 million or 32%. As previously discussed,  the interest
rate  environment in 2003 negatively  impacted the Company's net interest margin
and revenue growth.  Management projects that deposit growth and an improved net
interest margin will positively impact revenues in 2004, and that revenue growth
will exceed the growth in noninterest expenses.

Diluted  net income  per share of common  stock for 2003 was $2.61  compared  to
$2.04 per common share for 2002.  Diluted net income per share for 2003 reflects
the issuance of 5,000,000 shares of common stock in September 2003.

Return on Average Equity and Average Assets

Two industry measures of the performance by a banking institution are its return
on average assets and return on average equity. Return on average assets ("ROA")
measures  net  income in  relation  to total  average  assets  and  indicates  a
company's  ability to employ its  resources  profitably.  The  Company's ROA was
0.99%,  1.05%,  and 1.08%  for 2003,  2002,  and 2001,  respectively.  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
18.81%, 18.50%, and 17.64% for 2003, 2002, and 2001, respectively.

16

<PAGE>


The Company's ROE excluding the accumulated other comprehensive income component
of  stockholders  equity  (the  unrealized   appreciation/depreciation   of  its
available for sale securities) was 19.33%, 20.28%, and 18.33% for 2003, 2002 and
2001 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 1999 through 2003.

<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------------
                                                                   December 31,
---------------------------------------------------------------------------------------------------------------
                                   2003              2002              2001            2000              1999
---------------------------------------------------------------------------------------------------------------
                                                                (dollars in thousands)
<S>                             <C>                  <C>              <C>            <C>                <C>
Commercial:
  Term                          $1,027,526           842,869          600,374        469,564            393,953
  Line of credit                   959,158           683,640          556,977        430,811            277,917
  Demand                             1,077               317              440          1,400              1,328
 ---------------------------------------------------------------------------------------------------------------
                                 1,987,761         1,526,826        1,157,791        901,775            673,198

Owner-occupied                   1,619,079         1,345,306        1,028,408        945,599            634,726

Consumer:
  Mortgages
  (1-4 family
  residential)                     918,686           626,652          471,680        351,644            428,453
  Installment                      138,437           140,493          161,647        154,415            125,856
  Home equity                    1,405,795         1,139,589          872,974        710,848            621,597
  Credit lines                      60,579            56,367           43,196         30,254             19,099
 ---------------------------------------------------------------------------------------------------------------
                                 2,523,497         1,963,101        1,549,497      1,247,161          1,195,005

Commercial real estate:
  Investor developer             1,167,672           885,276          799,799        578,982            452,579
  Construction                     142,567           102,080           47,917         13,743              5,580
 ---------------------------------------------------------------------------------------------------------------
                                 1,310,239           987,356          847,716        592,725            458,159
 ---------------------------------------------------------------------------------------------------------------
 Total loans                    $7,440,576        $5,822,589       $4,583,412     $3,687,260         $2,961,088
 ---------------------------------------------------------------------------------------------------------------
</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.
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 two
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, 2003, are summarized in the following table.

<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------
                                           December 31, 2003
-------------------------------------------------------------------------------------
                         Due in One    Due in One to   Due in Over
                        Year or Less     Five Years     Five Years          Total
-------------------------------------------------------------------------------------
(dollars in thousands)
<S>                       <C>             <C>            <C>             <C>
Commercial:
  Term                    $  336,652      $ 580,584      $ 110,290       $ 1,027,526
  Line of credit             920,292         38,866                          959,158
  Demand                       1,077                                           1,077
-------------------------------------------------------------------------------------
                           1,258,021        619,450        110,290         1,987,761

Owner-occupied               318,028        969,582        331,469         1,619,079

Consumer:
  Mortgages
   (1-4 family
   residential)               29,471        113,037        776,178           918,686
  Installment                 47,934         58,183         32,320           138,437
  Home equity                113,913        422,044        869,838         1,405,795
  Credit lines                21,809         38,770                           60,579
-------------------------------------------------------------------------------------
                             213,127        632,034      1,678,336         2,523,497
Commercial real estate:
  Investor developer         309,761        737,201        120,710         1,167,672
  Construction                71,968         70,599                          142,567
-------------------------------------------------------------------------------------
                             381,729        807,800        120,710         1,310,239
-------------------------------------------------------------------------------------
Total loans               $2,170,905     $3,028,866     $2,240,805        $7,440,576
-------------------------------------------------------------------------------------
Interest rates:
   Predetermined           $ 575,602     $2,070,183     $1,407,087        $4,052,872
   Floating                1,595,303        958,683        833,718         3,387,704
-------------------------------------------------------------------------------------
Total loans               $2,170,905     $3,028,866     $2,240,805        $7,440,576
-------------------------------------------------------------------------------------
</TABLE>


During 2003,  loans  increased  $1.6  billion,  or 28% from $5.8 billion to $7.4
billion.  At December 31, 2003, loans  represented 36% of total deposits and 33%
of total assets. All segments of the loan portfolio  experienced growth in 2003.
During the first three quarters of 2003,  increased loan prepayment activity put
pressure on overall loan  growth.  The  prepayment  activity  slowed  during the
fourth  quarter and helped  result in  increased  loan growth  relative to prior
quarters.  Management  expects  loan  growth  during  2004 to meet or exceed the
growth in 2003, with commercial loan growth in the metro New York market helping
to drive the growth.

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. Loans to finance  owner-occupied  properties grew
$273.8 million or 20% during 2003.  Commercial  loan growth of $460.9 million or
30% was led by activity in the middle market and healthcare  sectors.  Growth in
consumer  loans of $560.4  million,  or 29%, was  primarily in mortgage and home
equity lending.

17

<PAGE>


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, 2003
were $23.6 million or .10% of total assets, as compared to $17.8 million or .11%
of total assets at December 31, 2002.

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, 2003
were  $21.7  million  as  compared  to $14.2  million a year ago.  During  2003,
consumer  non-performing  loans increased by approximately $3.5 million of loans
that  were  part of  attempts  to  defraud  the  Company  and a number  of other
financial  institutions and mortgage  companies.  The Company generally places a
loan on  non-accrual  status  and ceases  accruing  interest  when loan  payment
performance  is  deemed  unsatisfactory.  Generally  loans  past due 90 days are
placed on  non-accrual  status,  unless the loan is both well secured and in the
process of collection.  At December 31, 2003, loans past due 90 days or more and
still accruing interest amounted to $538 thousand,  compared to $620 thousand at
December 31, 2002.  Additional loans  considered by the Company's  internal loan
review  department  as potential  problem loans of $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 $1.8 million at December 31, 2003 as compared to
$3.6 million at December 31, 2002.  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, 1999 through 2003.

<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------
                                                  Year Ended December 31,
-----------------------------------------------------------------------------------------------
                          2003          2002            2001          2000           1999
-----------------------------------------------------------------------------------------------
(dollars in thousands)
<S>                     <C>            <C>             <C>          <C>            <C>
Non-accrual loans (1):
  Commercial            $ 6,867        $ 5,412         $ 6,835      $ 4,955        $ 2,254
  Consumer                9,242          2,734           1,484        1,295            674
  Real estate
   Construction             138            131           1,590        1,459             55
   Mortgage               5,494          5,891           6,924        5,840          5,230
-----------------------------------------------------------------------------------------------
  Total non-accrual
   loans                 21,741         14,168          16,833       13,549          8,213
-----------------------------------------------------------------------------------------------
Restructured loans (1):
  Commercial                  1              5               8           11            277
  Real estate mortgage                                                   82            192
-----------------------------------------------------------------------------------------------
  Total restructured
   loans                      1              5               8           93            469
-----------------------------------------------------------------------------------------------
Total non-performing
  loans                  21,742         14,173          16,841       13,642          8,682
-----------------------------------------------------------------------------------------------
Other real estate         1,831          3,589           1,549        2,959          3,523
-----------------------------------------------------------------------------------------------
Total non-performing
  assets(1):            $23,573        $17,762         $18,390      $16,601        $12,205
-----------------------------------------------------------------------------------------------
Non-performing
  assets as a percent
  of total assets          0.10%          0.11%           0.16%        0.20%          0.18%
-----------------------------------------------------------------------------------------------
Loans past due 90
  days or more and
  still accruing
  interest                 $538           $620            $519      $   489        $   499

-----------------------------------------------------------------------------------------------
<FN>
(1)  Interest  income  of  approximately  $1,908,000,   $1,352,000,  $1,092,000,
     $1,731,000,  and $986,000  would have been  recorded in 2003,  2002,  2001,
     2000, and 1999  respectively,  on  non-performing  loans in accordance with
     their original terms.  Actual interest  recorded on these loans amounted to
     $418,000 in 2003, $275,000 in 2002, $237,000 in 2001, $525,000 in 2000, and
     $255,000 in 1999.
</FN>
</TABLE>

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.  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.

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

18

<PAGE>

and  management,  entrance  into  new  geographic  markets,  changes  in  credit
concentrations, and national and local economic trends and conditions. 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  2003,  net  charge-offs  amounted to $10.5
million,  or .16% of average loans  outstanding  for the year,  compared to $9.4
million, or .18% of average loans outstanding for 2002. During 2003, the Company
recorded  provisions of $31.9 million to the allowance for loan losses  compared
to $33.2  million for 2002.  The Company  continued  to  proactively  manage its
exposure  to credit  risk in 2003.  Based  upon  consistent  application  of the
Company's  reserve  methodology,  allowance levels increased by $21.3 million to
$122.1  million or 1.51% of total loans at December 31, 2003, but decreased as a
percentage of the total loans due to growth in the portfolio.

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

<TABLE>
<CAPTION>
 ---------------------------------------------------------------------------------------------
                                                Year Ended December 31,
 ---------------------------------------------------------------------------------------------
                              2003         2002          2001         2000          1999
 ---------------------------------------------------------------------------------------------
 (dollars in thousands)
<S>                          <C>          <C>          <C>           <C>          <C>
 Balance at beginning
    of period                $90,733      $66,981      $48,680       $38,382      $31,265
 Provisions charged to
    operating expenses        31,850       33,150       26,384        13,931        9,175
 ---------------------------------------------------------------------------------------------
                             122,583      100,131       75,064        52,313       40,440
 ---------------------------------------------------------------------------------------------
 Recoveries of loans
    previously charged-off:
      Commercial                 669          815          552           313          551
      Consumer                   584          339          288           249          286
      Commercial real
       estate                     11          176          134            14          132
 ---------------------------------------------------------------------------------------------
 Total recoveries              1,264        1,330          974           576          969
 ---------------------------------------------------------------------------------------------
 Loans charged-off:
      Commercial              (5,601)      (7,181)      (5,862)       (2,936)      (1,599)
      Consumer                (5,950)      (3,514)      (2,784)       (1,220)      (1,078)
      Commercial real
       estate                   (239)         (33)        (411)          (53)        (350)
 ---------------------------------------------------------------------------------------------
 Total charged-off           (11,790)     (10,728)      (9,057)       (4,209)      (3,027)
 ---------------------------------------------------------------------------------------------
 Net charge-offs             (10,526)      (9,398)      (8,083)       (3,633)      (2,058)
 ---------------------------------------------------------------------------------------------
 Balance at end of period   $112,057      $90,733      $66,981       $48,680      $38,382
 ---------------------------------------------------------------------------------------------
 Net charge-offs as a
    percentage of average
    loans outstanding           0.16%       0.18%        0.19%         0.11%        0.08%
 ---------------------------------------------------------------------------------------------
 Allowance for loan losses
    as a percentage of
    year-end loans              1.51%       1.56%        1.46%         1.32%        1.30%
 ---------------------------------------------------------------------------------------------
</TABLE>


Allocation of the Allowance for Loan Losses
The following  table details the  allocation of the allowance for loan losses to
the various  categories,  owner-occupied  is included in commercial real estate.
The  allocation  is  made  for  analytical  purposes  and it is not  necessarily
indicative of the  categories  in which future loan losses may occur.  The total
allowance is available to absorb losses from any segment of loans.

<TABLE>
<CAPTION>
 -------------------------------------------------------------------------------------------------------------------------
                                                   Allowance for Loan Losses at December 31,
 -------------------------------------------------------------------------------------------------------------------------
                            2003                2002                2001                2000               1999
 -------------------------------------------------------------------------------------------------------------------------
                               % Gross             % Gross             % Gross             % Gross            % Gross
                       Amount   Loans      Amount   Loans     Amount    Loans     Amount    Loans     Amount   Loans
 -------------------------------------------------------------------------------------------------------------------------
 (dollars in thousands)
<S>                     <C>        <C>     <C>         <C>     <C>        <C>      <C>          <C>    <C>        <C>
  Commercial            $50,400    27%     $33,708     26%     $24,110    25%      $20,396      24%    $14,268    23%
  Consumer               13,082    34       14,497     34        9,915    34         4,632      34       4,120    40
  Commercial real
  estate                 48,575    39       42,528     40       32,956    41        23,652      42      19,994    37
 -------------------------------------------------------------------------------------------------------------------------
                       $112,057   100%     $90,733    100%     $66,981   100%      $48,680     100%    $38,382   100%
 -------------------------------------------------------------------------------------------------------------------------
</TABLE>


19
<PAGE>


Investment Securities

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

<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------
                                                            December 31,
--------------------------------------------------------------------------------------------
                                           2003                2002                2001
--------------------------------------------------------------------------------------------
(dollars in thousands)
<S>                                    <C>                 <C>                   <C>
U.S. Government agency
   and mortgage-backed
   obligations                         $10,511,545         $7,659,737            $3,994,523
Obligations of state and
   political subdivisions                   30,927             23,185                82,922
Equity securities                           16,588             24,054                16,325
Other                                       91,595             99,803                58,934
--------------------------------------------------------------------------------------------
Securities available
   for sale                            $10,650,655         $7,806,779            $4,152,704
--------------------------------------------------------------------------------------------
U.S. Government agency
   and mortgage-backed
   obligations                         $ 2,193,577         $  624,688            $1,044,266
Obligations of state and
   political subdivisions                  227,199             91,204                50,602
Other                                       69,708             47,134                37,304
--------------------------------------------------------------------------------------------
Securities held to
   maturity                            $ 2,490,484         $  763,026            $1,132,172
--------------------------------------------------------------------------------------------
</TABLE>


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  $4.4  billion from $8.9 billion to
$13.3 billion at December 31, 2003.  Deposit  growth and other  funding  sources
were used to increase the Company's investment portfolio. The available for sale
portfolio  increased $2.8 billion to $10.7 billion,  and the securities  held to
maturity portfolio  increased $1.7 billion to $2.5 billion at year-end 2003. The
portfolio of trading  securities  decreased $156.0 million from year-end 2002 to
$170.5  million at year-end  2003.  During 2003,  management  determined  it was
appropriate to classify a greater portion of its securities purchases as held to
maturity.  By the end of 2004, up to a third of the investment  portfolio may be
in held to maturity securities.

At December 31, 2003, the average life and duration of the investment  portfolio
were  approximately  4.9 years and 3.9 years,  respectively,  as compared to 3.0
years and 2.5 years,  respectively,  at December 31, 2002.  At December 31, 2003
the yield on the portfolio was 4.84%,  down from 5.30% at December 31, 2002. The
decrease  in yield was due to lower  reinvestment  rates,  which  reflect  lower
general market interest rates in 2003 as compared to 2002.

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.  This  repositioning  involved  sales of
approximately  $4.8  billion  during  2003.  Management  expects to continue the
repositioning  of the investment  portfolio in 2004 as warranted by the changing
interest rate environment.

The Company's  investment portfolio consists primarily of U.S. Government agency
and  mortgage-backed  obligations.  These securities have little, if any, credit
risk  since  they are  either  backed by the full  faith and  credit of the U.S.
Government,  or are guaranteed by an agency of the U.S.  Government,  or are AAA
rated.  These  investment  securities  carry fixed  coupons  whose rate does not
change over the life of the  securities.  Certain  securities  are  purchased at
premiums or  discounts.  Their yield will change  depending on any change in the
estimated  rate of  prepayments.  The Company  amortizes  premiums  and accretes
discounts  over the  estimated  average life of the  securities.  Changes in the
estimated average life of the investment  portfolio will lengthen or shorten the
period in which the premium or discount  must be  amortized  or  accreted,  thus
affecting the Company's investment yields. For the year ended December 31, 2003,
the yield on the  investment  portfolio was 4.76%, a decrease of 92 basis points
from 5.68% in fiscal 2002.  The decrease in yield is a reflection of the general
decline in market interest rates in 2003.

At December 31, 2003, the net unrealized  depreciation  in securities  available
for sale included in  stockholders'  equity  totaled $3.7  million,  net of tax,
compared  to net  unrealized  appreciation  of $113.6  million,  net of tax,  at
December 31, 2002.


20
<PAGE>


The  contractual  maturity  distribution  and  weighted  average  yield  of  the
Company's  investment  portfolio  (excluding  equity and trading  securities) at
December 31, 2003, 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.


<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------------------------
                                                                    December 31, 2003
---------------------------------------------------------------------------------------------------------------------------
                                 Due Under 1 Year   Due 1-5 Years    Due 5-10 Years  Due Over 10 Years       Total
---------------------------------------------------------------------------------------------------------------------------
                                  Amount   Yield    Amount    Yield   Amount  Yield    Amount   Yield    Amount    Yield
---------------------------------------------------------------------------------------------------------------------------
(dollars in thousands)
<S>                              <C>        <C>       <C>      <C>   <C>       <C>    <C>         <C>   <C>          <C>
Securities available for sale:
U.S. Government agency and
   mortgage-backed obligations   $137,589   1.00%   $     1    8.50%  $346,674   4.50% $10,027,281  4.95% $10,511,545  4.89%
Obligations of state and
   political subdivisions           3,660   7.08     12,739    6.86      7,574   5.83        6,954  6.27       30,927  6.50
Other securities                   12,681   5.18        175    3.75     53,121   3.38       25,618  8.60       91,595  5.09
----------------------------------------------------------------------------------------------------------------------------
                                 $153,930   1.49%   $12,915    6.82%  $407,369   4.38% $10,059,853  4.96% $10,634,067  4.89%
----------------------------------------------------------------------------------------------------------------------------
Securities held to maturity:
U.S. Government agency and
   mortgage-backed obligations     $  415   7.22%   $ 5,005    6.52%  $488,141   4.21% $ 1,700,016  4.92% $ 2,193,577  4.77%

Obligations of state and
   political subdivisions          99,837   1.18        112    2.17     14,661   7.65      112,589  6.49      227,199  4.11
Other securities                   69,708   1.79                                                               69,708  1.79
----------------------------------------------------------------------------------------------------------------------------
                                 $169,960   1.45%   $ 5,117    6.43%  $502,802   4.31% $ 1,812,605  5.01% $ 2,490,484  4.63%
----------------------------------------------------------------------------------------------------------------------------
</TABLE>


Deposits

Total  deposits at December  31,  2003 were $20.7  billion,  an increase of $6.2
billion or 42% above total  deposits of $14.5 billion at December 31, 2002.  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 $5.9 billion from year-end 2002 to year-end 2003.

Total  deposits  averaged $17.7 billion for 2003, an increase of $5.2 billion or
42% above the 2002 average.  The average balance of  noninterest-bearing  demand
deposits  in 2003 was $3.8  billion,  a $1.2  billion or 43%  increase  over the
average  balance for 2002.  The average  total balance of passbook and statement
savings accounts increased $1.3 billion,  or 52% compared to the prior year. The
average  balance of  interest-bearing  demand  accounts (money market and N.O.W.
accounts)  for 2003 was $7.0  billion,  a $2.4 billion or 53% increase  over the
average  balance for the prior year.  The average  balance of time  deposits for
2003 was $3.2 billion, a $378.8 million or 13% increase over the average balance
for 2002. For 2003, the cost of total deposits was 0.82% as compared to 1.34% in
2002.

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 branch locations,  extended
hours of operation,  free checking  accounts (subject to a small minimum balance
requirement) 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  for  branches  open two years or more at the balance  sheet  date.  At
December 31, 2003, the comparable  store deposit growth was 27% and included 184
branches.  Management  expects strong comparable store deposit growth in 2004 as
additional metro New York stores continue to be added to the calculation.

The average  balances  and  weighted  average  rates of deposits for each of the
years 2003, 2002, and 2001 are presented below.


<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------------
                                                      2003                      2002                      2001
-------------------------------------------------------------------------------------------------------------------------
                                              Average      Average      Average      Average      Average     Average
                                              Balance        Rate       Balance        Rate       Balance       Rate
-------------------------------------------------------------------------------------------------------------------------
(dollars in thousands)
<S>                                         <C>           <C>         <C>           <C>         <C>          <C>
Demand deposits:
  Noninterest-bearing                       $  3,826,885               $ 2,674,233                $1,962,354
  Interest-bearing (money market and
   N.O.W. accounts)                            6,964,158     0.73%       4,538,914     1.22%       2,999,588    2.12%
Savings deposits                               3,676,147     0.75        2,416,884     1.25        1,643,145    1.99
Time deposits/public funds                     3,187,443     2.07        2,808,650     2.90        2,037,742    4.81
-------------------------------------------------------------------------------------------------------------------------
Total deposits                              $ 17,654,633               $12,438,681                $8,642,829
-------------------------------------------------------------------------------------------------------------------------
</TABLE>


21

<PAGE>

The  remaining  maturity of  certificates  of deposit for $100,000 or more as of
December 31, 2003, 2002 and 2001 is presented below:

<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------
Maturity                                2003                     2002                     2001
---------------------------------------------------------------------------------------------------------
(dollars in thousands)
<S>                                   <C>                      <C>                      <C>
3 months or less                      $1,017,986               $  950,299               $  897,304
3 to 6 months                            222,740                  116,721                  137,388
6 to 12 months                           112,800                  103,449                   70,630
Over 12 months                            23,272                   10,646                    6,820
---------------------------------------------------------------------------------------------------------
Total                                 $1,376,798               $1,181,115               $1,112,142
---------------------------------------------------------------------------------------------------------
</TABLE>


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, 2003.

<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------
                                                    Interest Rate Sensitivity Gaps
                                                          December 31, 2003
-------------------------------------------------------------------------------------------------------

                           1-90         91-180     181-365        1-5        Beyond
                           Days          Days         Days       Years       5 Years        Total
-------------------------------------------------------------------------------------------------------
(dollars in millions)
<S>                      <C>             <C>          <C>       <C>           <C>          <C>
Rate sensitive:
  Interest-earning
   assets
   Loans                 $3,832.1        $108.3       $180.3    $1,926.9      $1,414.1     $7,461.7
   Investment
    securities              765.7         726.8      1,338.4     6,622.3       3,858.4     13,311.6
-------------------------------------------------------------------------------------------------------
Total interest-
  earning assets          4,597.8         835.1      1,518.7     8,549.2       5,272.5     20,773.3
-------------------------------------------------------------------------------------------------------
Interest-bearing
  liabilities
  Transaction
   accounts               4,053.5                                              8,743.1     12,796.6
  Time deposits           1,346.8         717.9        736.7       528.6                    3,330.0
  Other borrowed
   money                    311.5                                                             311.5
  Long-term debt                                                                 200.0        200.0
-------------------------------------------------------------------------------------------------------
Total interest-
  bearing
  liabilities             5,711.8         717.9        736.7       528.6       8,943.1     16,638.1
-------------------------------------------------------------------------------------------------------
Period gap               (1,114.0)        117.2        782.0     8,020.6      (3,670.6)    $4,135.2
-------------------------------------------------------------------------------------------------------
Cumulative gap          $(1,114.0)      $(996.8)     $(214.8)   $7,805.8      $4,135.2
-------------------------------------------------------------------------------------------
Cumulative gap as a
  percentage of total
  interest-earning
  assets                     (5.4) %       (4.8)%       (1.0)%      37.6%         19.9%
-------------------------------------------------------------------------------------------
</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.

The  Company's  Asset/Liability  Committee  (ALCO) policy has  established  that
interest income  sensitivity will be

22

<PAGE>

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, 2003 and 2002 of
a plus 200 and minus 100 basis point change in interest rates.

------------------------------------------------------------
                                  Basis Point Change:
------------------------------------------------------------
                                Plus 200       Minus 100
------------------------------------------------------------
December 31, 2003:
   Twelve Months                   1.6%           (2.3)%
   Twenty Four Months              6.8%           (2.3)%

December 31, 2002:
   Twelve Months                   8.8%           (5.4)%
   Twenty Four Months             13.5%           (7.3)%

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 the
extension of the maturities of its short-term borrowings.

Management  also  monitors  interest  rate risk by  utilizing a market  value of
equity model. The model assesses the impact of a change in interest rates on the
market value of all the  Company's  assets and  liabilities,  as well as any off
balance  sheet items.  The model  calculates  the market value of the  Company's
assets and liabilities in excess of book value in the current rate scenario, and
then compares the excess of market value over book value given an immediate 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, 2003, 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 as permitted by the  Company's  regulatory
authorities. 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, 2003 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, 2003:

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

           Loans                           3.5

           Investments                     4.9

           Deposits                       13.6


The MVE  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, 2003 (in
millions, except for per share amounts):

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

   Plus 200 basis point          $3,254           $58.95

   Current Rate                  $3,379           $60.57

   Minus 100 basis point         $2,646           $51.05


Although the use of  derivatives  in 2003 was  minimal,  the Company may utilize
interest rate derivatives to manage interest rate risk,  including interest rate
swaps,   interest   rate  caps  and  floors,   interest   rate   forwards,   and
exchange-traded  futures  and  options  contracts.  Further  discussion  of  the
accounting for derivative  instruments is included in Note 1 to the consolidated
financial statements.

Liquidity  involves the Company's ability to raise funds to support asset growth
or reduce  assets to meet deposit  withdrawals  and other  borrowing  needs,  to
maintain reserve requirements and to otherwise operate the Company on an ongoing
basis.  The  Company's  liquidity  needs  are  primarily  met by  growth in core
deposits,  its cash and  federal  funds  sold  position,  and cash flow from its
amortizing  investment and loan  portfolios.  If necessary,  the Company has the
ability to raise liquidity through collateralized borrowings,  FHLB advances, or
the sale of its available for sale investment portfolio. As of December 31, 2003
the Company had in excess of $9.0  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 2003, 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 2003 to meet short-term liquidity needs. For 2003,
short-term  borrowings  averaged $423.5 million as compared to $118.7 million in
2002.  The average rate on the  Company's  short-term  borrowings  was 0.77% and
1.55% during 2003 and 2002,  respectively.  As of December 31, 2003,  short-term
borrowings  included  $200.0  million of  securities  sold under  agreements  to
repurchase at an average rate of 1.27%, compared to $391.6 million at an average
rate of 1.48% as of December 31, 2002.

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  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.

Holders of the  Convertible  Trust Capital  Securities may convert each security
into 0.9478 shares of Company common stock,  subject to  adjustment,  if (1) the
closing  sale price of Company  common  stock for at least 20 trading  days in a
period of 30  consecutive  trading  days  ending on the last  trading day of any
calendar  quarter  beginning  with the quarter ending June 30, 2003 is more than
110% of the Convertible  Trust Capital  Securities  conversion  price ($52.75 at
December 31, 2003) then in effect on the last day of such calendar quarter,  (2)
the  assigned  credit  rating  by  Moody's  of  the  Convertible  Trust  Capital
Securities is at or below Bal, (3) the Convertible Trust Capital  Securities are
called for redemption, or (4) specified corporate transactions have occurred. As
of  December  31,  2003,  the  Convertible  Trust  Capital  Securities  were not
convertible.

The Company may force conversion of the Convertible Trust Capital Securities if,
at any time on or after March 11, 2005, the closing sale price of Company common
stock for at least 20 trading  days in a period of 30  consecutive  trading days
exceeds  120% of the  Convertible  Trust  Capital  Securities  conversion  price
($52.75 at December 31, 2003).

Once  any of the  above  conditions  are  met,  the  Convertible  Trust  Capital
Securities  will be  convertible  into  approximately  3.8 million shares of the
Company's  common stock.  The effect of these securities on diluted earnings per
share is  calculated  using the  if-converted  method.  Under  the  if-converted
method,   the  related  interest  charges  on  the  Convertible   Trust  Capital
Securities,  adjusted for income  taxes,  is added back to the numerator and the
common shares to be issued upon conversion are added to the denominator.  If any
of the above conditions are met in 2004, the impact of the  if-converted  method
on diluted earnings per share will not be material.

Stockholders' Equity and Dividends

At December 31, 2003,  stockholders'  equity totaled $1,277.3 million, up $359.3
million or 39% over stockholders' equity of $918.0 million at December 31, 2002.
This increase was due to the  Company's  increase in net income for the year and
shares  issued under the  Company's  common  stock  offering in  September,  the
dividend   reinvestment  plan  and  employee  compensation  and  benefit  plans.
Stockholders'  equity as a percent of total assets was 5.6% at December 31, 2003
and 2002, respectively.

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 future 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.  The Federal Reserve Board is evaluating
the qualification of the Convertible Trust Capital Securities as Tier 1 capital.
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.

24

<PAGE>


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
--------------------------------------------------------------------------
                                2003          2002       2003       2002
--------------------------------------------------------------------------
Risk based capital ratios:
   Tier 1                       12.66%       11.47%      4.00%      4.00%
   Total capital                13.62        12.51       8.00       8.00
Leverage ratio                   6.61         6.37       4.00       4.00
--------------------------------------------------------------------------

The Federal Deposit  Insurance  Corporation  Improvement Act of 1991 ("FDICIA"),
which  became law in December of 1991,  required  each  federal  banking  agency
including  the Board of Governors of the 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, 2003 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%. If it is determined  that the  Convertible  Trust Capital
Securities  no longer  qualify as Tier 1 capital,  the Company will remain "well
capitalized".

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  paid per
common share for each of the last two years are shown in the table below.  As of
February  5, 2004,  there  were  approximately  49,000  holders of record of the
Company's common stock.

------------------------------------------------------------
                     Common Share Data
------------------------------------------------------------
                           Market Prices
                         -----------------  Cash Dividends
                           High      Low       Per Share
------------------------------------------------------------
2003 Quarter Ended
 December 31                $53.30   $47.33     $0.16000
 September 30                47.91    37.30      0.17000
 June 30                     40.67    36.37      0.16000
 March 31                    45.60    37.74      0.17000

2002 Quarter Ended
 December 31                $47.23   $36.42     $0.15000
 September 30                47.85    38.88      0.15000
 June 30                     50.24    43.70      0.15000
 March 31                    45.05    38.20      0.15000
------------------------------------------------------------


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.

Off-Balance Sheet Arrangements and Contractual Obligations

The Company enters into commitments to extend credit, such as letters of credit,
which are not reflected in the consolidated financial statements. See note 12 to
the Company's consolidated financial statements included elsewhere herein.

The Company has various  contractual  obligations  that may require  future cash
payments.  The following  table presents,  as of December 31, 2003,  significant
fixed and determinable  contractual obligations to third parties by payment date
excluding interest.

<TABLE>
<CAPTION>
   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)
<S>                          <C>            <C>                     <C>          <C>
Deposits without a stated
  maturity                   $ 5,425.9                              $11,945.5    $17,371.4
Certificates of deposits       2,801.4        404.1      124.5                     3,330.0
Other borrowed money             311.5                                               311.5
Long-term debt                                                         200.0         200.0
Operating leases                  29.0         58.2       57.0         299.0         443.2
</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.  See notes 4 and 7 to the Company's
consolidated financial statements included elsewhere herein.

Recent Accounting Statements

See note 1 to the Company's consolidated financial statements included elsewhere
herein.

25
<PAGE>


Results of Operations - 2002 versus 2001

Net income  for 2002 was  $144.8  million  compared  to $103.0  million in 2001.
Diluted net income per common share was $2.04 compared to $1.51 per common share
for the prior year.

Net  interest  income  on a  tax-equivalent  basis for 2002  amounted  to $585.9
million, an increase of $173.2 million, or 42% over 2001.

Interest income on a  tax-equivalent  basis  increased  $152.8 million or 25% to
$768.5 million in 2002. This increase was primarily  related to volume increases
in the loan and investment portfolios. Interest expense for 2002 decreased $20.4
million to $182.6  million  from  $203.0  million  in 2001.  This  decrease  was
primarily  related to decreases in the rates paid on the Company's  deposits and
other borrowed money.

The  provision  for loan  losses  was $33.2  million in 2002  compared  to $26.4
million in the prior year.

For 2002,  noninterest  income  totaled  $257.5  million,  an  increase of $60.7
million  or 31% 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  $30.1  million,  or 30%, over 2001 due primarily to
higher  transaction  volumes.  Commerce  Insurance  recorded an increase of $6.1
million  in  revenues  to $55.9  million  from $49.8  million in 2001.  Commerce
Capital  Markets  generated  noninterest  revenues of $35.1  million in 2002, an
increase of $13.1 million from revenues of $22.0 million in 2001. Loan brokerage
fees increased by $7.7 million in 2002.

Noninterest  expenses  totaled  $579.2  million for 2002,  an increase of $159.2
million, or 38% over 2001.  Contributing to this increase was the addition of 40
new  branches.  With the  addition  of these  new  offices,  staff,  facilities,
marketing, and related expenses rose accordingly.  Salaries and benefits had the
largest increase of $78.9 million during 2002. Other  noninterest  expenses rose
$37.2  million  to $124.1  million in 2002.  This  increase  included  increased
bank-card   related  service  charges  of  $8.3  million,   increased   business
development    expenses   of   $6.6   million   and    increased    professional
services/insurance expenses of $5.4 million.

Mergers and Acquisitions

During 2003,  the Company  purchased  The Porch Agency,  an insurance  brokerage
agency.  The  Company  issued  approximately  44,000  shares of common  stock in
connection with this immaterial acquisition.

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

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>


Item 8.       Financial Statements and Supplementary Data

Consolidated Balance Sheets

<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------------------------
                                                                                                       December 31
--------------------------------------------------------------------------------------------------------------------------------
                     (dollars in thousands)                                                     2003               2002
--------------------------------------------------------------------------------------------------------------------------------
<S>                  <C>                                                                       <C>               <C>
Assets               Cash and due from banks                                                   $  910,092        $  811,434
                     Federal funds sold
                     -----------------------------------------------------------------------------------------------------------
                        Cash and cash equivalents                                                 910,092           811,434
                     Loans held for sale                                                           42,769            96,920
                     Trading securities                                                           170,458           326,479
                     Securities available for sale                                             10,650,655         7,806,779
                     Securities held to maturity                                                2,490,484           763,026
                        (market value 2003 -$2,467,192; 2002- $791,889)
                     Loans                                                                      7,440,576         5,822,589
                        Less allowance for loan losses                                            112,057            90,733
                     -----------------------------------------------------------------------------------------------------------
                                                                                                7,328,519         5,731,856
                     Bank premises and equipment, net                                             811,451           580,818
                     Other assets                                                                 307,752           286,669
                     -----------------------------------------------------------------------------------------------------------
                     Total assets                                                             $22,712,180       $16,403,981
--------------------------------------------------------------------------------------------------------------------------------
Liabilities          Deposits:
                        Demand:
                           Noninterest-bearing                                                 $4,574,714        $3,243,091
                           Interest-bearing                                                     8,574,297         5,635,351
                        Savings                                                                 4,222,282         2,861,677
                        Time                                                                    3,330,107         2,808,722
                     -----------------------------------------------------------------------------------------------------------
                               Total deposits                                                  20,701,400        14,548,841

                     Other borrowed money                                                         311,510           391,641
                     Other liabilities                                                            221,982           345,489
                     Long-term debt                                                               200,000           200,000
                     -----------------------------------------------------------------------------------------------------------
                                                                                               21,434,892        15,485,971
--------------------------------------------------------------------------------------------------------------------------------
Stockholders'        Common stock, 76,869,415 shares issued (68,043,171 shares in 2002)            76,869            68,043
Equity               Capital in excess of par value                                               866,095           538,795
                     Retained earnings                                                            347,365           199,604
                     Accumulated other comprehensive (loss) income                                 (3,702)          113,614
                     -----------------------------------------------------------------------------------------------------------
                                                                                                1,286,627           920,056
                     Less treasury stock, at cost, 363,076 shares (209,794 shares in 2002)          9,339             2,046
                     -----------------------------------------------------------------------------------------------------------
                               Total stockholders' equity                                       1,277,288           918,010
                     -----------------------------------------------------------------------------------------------------------
                     Total liabilities and stockholders' equity                               $22,712,180       $16,403,981
                     -----------------------------------------------------------------------------------------------------------
                     See accompanying notes.
</TABLE>


27
<PAGE>

Consolidated Statements of Income


<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------------------------
                                                                                            Year Ended December 31,
--------------------------------------------------------------------------------------------------------------------------------
                   (dollars in thousands, except per share amounts)                  2003            2002            2001
--------------------------------------------------------------------------------------------------------------------------------
<S>                <C>                                                               <C>             <C>             <C>
Interest           Interest and fees on loans                                        $391,361        $354,315        $326,723
Income             Interest on investment securities                                  524,015         400,191         271,707
                   Other interest                                                         255             865           5,937
                   -------------------------------------------------------------------------------------------------------------
                                Total interest income                                 915,631         755,371         604,367
                   -------------------------------------------------------------------------------------------------------------

--------------------------------------------------------------------------------------------------------------------------------
Interest           Interest on deposits:
Expense                 Demand                                                         50,711          55,413          63,554
                        Savings                                                        27,596          30,232          32,647
                        Time                                                           66,115          81,567          98,084
                   -------------------------------------------------------------------------------------------------------------
                                Total interest on deposits                            144,422         167,212         194,285
                   Interest on other borrowed money                                     3,263           1,839           3,508
                   Interest on long-term debt                                          12,080          13,565           5,248
                   -------------------------------------------------------------------------------------------------------------
                                Total interest expense                                159,765         182,616         203,041
                   -------------------------------------------------------------------------------------------------------------

                   Net interest income                                                755,866         572,755         401,326
                   Provision for loan losses                                           31,850          33,150          26,384
                   -------------------------------------------------------------------------------------------------------------
                   Net interest income after provision for loan losses                724,016         539,605         374,942
--------------------------------------------------------------------------------------------------------------------------------
Noninterest        Deposit charges and service fees                                   160,678         131,033         100,912
Income             Other operating income                                             167,949         126,433          94,913
                   Net investment securities gains                                      3,851                             980
                   -------------------------------------------------------------------------------------------------------------
                                Total noninterest income                              332,478         257,466         196,805
                   -------------------------------------------------------------------------------------------------------------

--------------------------------------------------------------------------------------------------------------------------------
Noninterest        Salaries and benefits                                              354,954         276,933         198,034
Expense            Occupancy                                                           95,926          56,498          39,152
                   Furniture and equipment                                             89,162          66,700          50,724
                   Office                                                              39,190          31,186          26,808
                   Marketing                                                           34,075          23,733          18,378
                   Other                                                              150,085         124,118          86,940
                   -------------------------------------------------------------------------------------------------------------
                                Total noninterest expenses                            763,392         579,168         420,036
                   -------------------------------------------------------------------------------------------------------------
                   Income before income taxes                                         293,102         217,903         151,711
                   Provision for federal and state income taxes                        98,815          73,088          48,689
                   -------------------------------------------------------------------------------------------------------------
                   -------------------------------------------------------------------------------------------------------------
                   Net income                                                        $194,287        $144,815        $103,022
                   -------------------------------------------------------------------------------------------------------------

                   Net income per common and common equivalent share:
                            Basic                                                   $   2.73        $   2.16        $   1.59
                   -------------------------------------------------------------------------------------------------------------
                            Diluted                                                 $   2.61        $   2.04        $   1.51
                   -------------------------------------------------------------------------------------------------------------
                   Average common and common equivalent shares outstanding:
                            Basic                                                     71,084          66,795          64,666
                   -------------------------------------------------------------------------------------------------------------
                            Diluted                                                   74,462          70,903          68,102
                   -------------------------------------------------------------------------------------------------------------
                   Cash dividends, common stock                                     $   0.66        $   0.60         $  0.55
                   -------------------------------------------------------------------------------------------------------------

                   See accompanying notes.

</TABLE>

28

<PAGE>


Consolidated Statements of Cash Flows

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------
                                                                                           Year Ended December 31,
------------------------------------------------------------------------------------------------------------------------------
                   (dollars in thousands)                                             2003           2002           2001
------------------------------------------------------------------------------------------------------------------------------
<S>                <C>                                                               <C>            <C>            <C>
Operating          Net income                                                        $194,287       $144,815       $103,022
Activities         Adjustments to reconcile net income to net cash
                      provided by operating activities:
                        Provision for loan losses                                      31,850         33,150         26,384
                        Provision for depreciation, amortization
                          and accretion                                               132,432         70,462         44,263
                        Gains on sales of securities available for sale                (3,851)                         (980)
                        Proceeds from sales of loans held for sale                  1,429,072      1,375,768        688,752
                        Originations of loans held for sale                        (1,347,347)    (1,399,427)      (720,222)
                        Net decrease (increase) in trading securities                 156,021        (43,668)      (173,505)
                        Increase in other assets                                      (30,489)      (107,483)       (91,800)
                        (Decrease) increase in other liabilities                      (55,229)       150,194        148,055
                        Deferred income tax expense (benefit)                          15,417          6,359         (4,054)
                   -----------------------------------------------------------------------------------------------------------
                                Net cash provided by operating activities             522,163        230,170         19,915

Investing          Proceeds from the sales of securities available for sale         4,864,321      1,506,996        381,341
Activities         Proceeds from the maturity of securities available for sale      4,828,747      2,413,025        895,077
                   Proceeds from the maturity of securities held to maturity          613,848        486,292        384,388
                   Purchase of securities available for sale                      (12,777,850)    (7,437,004)    (3,311,356)
                   Purchase of securities held to maturity                         (2,342,384)      (118,221)       (68,420)
                   Net increase in loans                                           (1,781,455)    (1,326,712)      (949,552)
                   Proceeds from sales of loans                                       125,368         78,138         45,317
                   Purchases of premises and equipment                               (300,335)      (220,048)      (134,048)
                   -----------------------------------------------------------------------------------------------------------
                                Net cash used by investing activities              (6,769,740)    (4,617,534)    (2,757,253)

Financing          Net increase in demand and savings deposits                      5,631,174      3,801,855      2,083,736
Activities         Net increase in time deposits                                      521,385        561,393        714,264
                   Net (decrease) increase in other borrowed money                    (80,131)       127,087        (19,160)
                   Dividends paid                                                     (46,525)       (39,911)       (35,400)
                   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                      116,908         66,809         53,004
                   Other                                                               (5,401)         4,327          2,714
                   -----------------------------------------------------------------------------------------------------------
                                Net cash provided by financing activities           6,346,235      4,641,060       2,799,158

                   Increase in cash and cash equivalents                               98,658        253,696         61,820
                   Cash and cash equivalents at beginning of year                     811,434        557,738        495,918
                   -----------------------------------------------------------------------------------------------------------
                   Cash and cash equivalents at end of year                          $910,092       $811,434       $557,738
                   -----------------------------------------------------------------------------------------------------------

                   Supplemental disclosures of cash flow information:
                     Cash paid during the year for:
                        Interest                                                     $161,637       $185,143       $201,127
                        Income taxes                                                   62,569         59,644         48,826
                   See accompanying notes.
</TABLE>

29

<PAGE>

Consolidated Statements of Changes in Stockholders' Equity

<TABLE>
<CAPTION>

----------------------------------------------------------------------------------------------------------------
Years ended December 31, 2003, 2002 and 2001

                                                                                            Accumulated
(in thousands, except per share amounts)                   Capital in                          Other
                                                            Excess of                         Compre-
                                                Common       Par       Retained  Treasury     hensive
                                                 Stock      Value      Earnings   Stock    Income (Loss)  Total
-----------------------------------------------------------------------------------------------------------------
<S>                                             <C>         <C>          <C>       <C>       <C>        <C>
Balances at December 31, 2000                   $49,627     $422,375     $27,083   $(1,622)  $(5,239)   $492,224
Acquisition of insurance brokerage agencies
  (108 shares)                                      108         (885)                                       (777)
-----------------------------------------------------------------------------------------------------------------
As adjusted balance at January 1, 2001           49,735      421,490      27,083    (1,622)   (5,239)    491,447
Net income                                                               103,022                         103,022
 Other comprehensive income, net of tax
 Unrealized gain on securities (pre-tax $31,924)                                              20,525      20,525
 Reclassification adjustment (pre-tax $735)                                                      478         478
                                                                                                       ----------
 Other comprehensive income                                                                               21,003
                                                                                                       ----------
       Total comprehensive income                                                                        124,025
Cash dividends paid                                                      (35,400)                        (35,400)
Shares issued under dividend reinvestment and
 compensation and benefit plans (2,202 shares)    2,202       50,802                                      53,004
Restatement of par value                        (17,865)      17,865
Shares issued pursuant to stock split            31,761      (31,761)
Other                                                          3,501          (7)                          3,494
-----------------------------------------------------------------------------------------------------------------
Balances at December 31, 2001                   $65,833     $461,897     $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
   $153,397)                                                                                  97,850      97,850
 Reclassification adjustment (pre-tax $0)
                                                                                                       ----------
 Other comprehensive income                                                                               97,850
                                                                                                       ----------
       Total comprehensive income                                                                        242,665
Cash dividends paid                                                      (39,911)                        (39,911)
Shares issued under dividend reinvestment and
 compensation and benefit plans (2,098 shares)    2,098       64,711                                      66,809
Acquisition of insurance brokerage agency
  (113 shares)                                      113        4,633                                       4,746
Other                                                (1)       7,554           2      (424)                7,131
-----------------------------------------------------------------------------------------------------------------
Balances at December 31, 2002                   $68,043     $538,795    $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
   $146,701)                                                                                 (93,273)    (93,273)
 Reclassification adjustment (pre-tax $36,988)                                               (24,043)    (24,043)
                                                                                                       ----------
 Other comprehensive loss                                                                               (117,316)
       Total comprehensive income                                                                         76,971
Cash dividends paid                                                      (46,525)                        (46,525)
Shares issued under dividend reinvestment and
 compensation and benefit plans (3,782 shares)    3,782      113,126                                     116,908
Common stock issued (5,000 shares)                5,000      203,825                                     208,825
Acquisition of insurance brokerage agency
  (44 shares)                                        44        1,848                                       1,892
Other                                                          8,501          (1)   (7,293)                1,207
-----------------------------------------------------------------------------------------------------------------
Balances at December 31, 2003                   $76,869     $866,095    $347,365   $(9,339)  $(3,702) $1,277,288
-----------------------------------------------------------------------------------------------------------------
</TABLE>


See accompanying notes.

30
<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,  including trading,  underwriting and
advisory services.

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

Investment Securities
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 $13.0
million, $11.5 million, and $10.6 million were recorded in 2003, 2002, and 2001,
respectively,  including an unrealized loss of $192,000 at December 31, 2003 and
an unrealized gain of $987,000 at December 31, 2002.

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

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

Loans
Loans  are  stated  at  principal  amounts  outstanding,  net of  deferred  loan
origination fees and costs.  Interest income on loans is accrued and credited to
interest  income  monthly  as  earned.  Loans  held for sale  are  valued  on an
aggregate basis at the lower of cost or fair value.

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

Allowance for Loan Losses
The allowance for loan losses is increased by provisions  charged to expense and
reduced  by  loan  charge-offs  net  of  recoveries.   Based  upon  management's
evaluation  of the  loan  portfolio,  the  allowance  is  maintained  at a level
considered  adequate to absorb estimated  inherent losses in the loan portfolio.
The level of the allowance is based on an evaluation of the risk characteristics
included in the loan portfolio,  including such factors as 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,  and other  relevant  factors,  all of which may be  susceptible  to
significant change.

31

<PAGE>
Notes to Consolidated Financial Statements


Bank Premises and Equipment
Bank premises and equipment are carried at cost less  accumulated  depreciation.
Depreciation  and amortization  are determined on the  straight-line  method for
financial reporting  purposes,  and accelerated methods for income tax purposes.
When capitalizing costs for branch 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 branch. All other pre-opening and post-opening
costs related to branches 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 $180,000,
$231,000,  and $1.7 million  related to ORE expenses,  net for 2003,  2002,  and
2001, respectively.

Intangible Assets
Goodwill and certain other intangible assets, which do not possess finite useful
lives,  are not amortized  into net income over an estimated life but rather are
tested at least annually for impairment.  Intangible  assets  determined to have
finite  lives,  $4.4  million at December  31, 2003,  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, 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 2003 and 2002 were
approximately $62.8 million and $39.6 million, respectively.

Derivative Financial Instruments As part of CCMI's broker-dealer activities, the
Company maintains a trading  securities  portfolio for distribution to customers
in order to meet  those  customers'  needs.  Derivative  instruments,  primarily
interest  rate futures and options,  are used in order to reduce the exposure to
interest  rate risk  relating  to the trading  portfolio.  These  contracts  are
carried at fair value with  changes in fair value  included  in other  operating
income and  recorded  in the same period as changes in fair value of the trading
portfolio.  As an accomodation  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 December 2002, the FASB issued Statement No. 148, "Accounting for Stock-Based
Compensation - Transition and  Disclosure"  (FAS 148).  This statement  provides
alternative methods of transition for a voluntary change to the fair value based
method of  accounting  for  stock-based  employee  compensation  and  amends the
disclosure   requirement   of  FAS  No.   123,   "Accounting   for   Stock-Based
Compensation."  This  statement  is  effective  for fiscal  years  ending  after
December  15,  2002 and did not have an impact  on the  financial  condition  or
operating results of the Company.

32

<PAGE>
Notes to Consolidated Financial Statements


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

<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------
                                                          2003              2002               2001
--------------------------------------------------------------------------------------------------------

<S>                                                    <C>               <C>                <C>
Reported net income                                    $194,287          $144,815           $103,022
Less:  Stock option compensation expense
determined under fair value method, net of tax         (10,048)            (8,429)            (5,592)
                                                      --------            -------            -------

Pro forma net income                                   $184,239          $136,386            $97,430
                                                       ========          ========            =======

Reported net income per share:
     Basic                                             $   2.73          $   2.16            $  1.59
     Diluted                                               2.61              2.04               1.51

Pro forma net income per share:
     Basic                                             $   2.59          $   2.04            $  1.51
     Diluted                                               2.47              1.94               1.44
--------------------------------------------------------------------------------------------------------
</TABLE>

The fair value of options  granted in 2003,  2002, and 2001 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  4.86%,
dividend  yields of 1.50% to 2.50%,  volatility  factors of the expected  market
price  of the  Company's  common  stock of .304 to .309,  and  weighted  average
expected lives of the options of 4.75 to 5.22 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 April 2003, the FASB issued Statement No. 149, "Amendment of Statement 133 on
Derivative  Instruments and Hedging Activities" (FAS 149). This statement amends
and clarifies  financial  accounting and reporting for  derivative  instruments,
including certain embedded  derivatives,  and for hedging  activities under FASB
Statement  No.  133,   "Accounting   for  Derivative   Instruments  and  Hedging
Activities"  (FAS 133).  This Statement  amends FAS 133 to reflect the decisions
made as part of the  Derivatives  Implementation  Group  (DIG) and in other FASB
projects or  deliberations.  FAS 149 is effective for contracts  entered into or
modified after June 30, 2003,  and for hedging  relationships  designated  after
June 30, 2003.  The adoption of FAS 149 did not have an impact on the  Company's
financial condition or operating results.

In May  2003,  the FASB  issued  Statement  No.  150,  "Accounting  for  Certain
Financial  Instruments with Characteristics of Both Liabilities and Equity" (FAS
150). This Statement establishes standards for classification and measurement of
certain  financial  instruments  with  characteristics  of both  liabilities and
equity.  Financial  instruments  that fall within the scope of FAS 150 are to be
classified as  liabilities,  or an asset in some  circumstances.  This statement
became  effective  upon  issuance  for  financial  instruments  entered  into or
modified after May 31, 2003 and for all financial instruments previously entered
into at the beginning of the first interim period  beginning after September 15,
2003. The adoption of FAS 150 did not have an impact on the Company's  financial
condition or operating results.

33

<PAGE>
Notes to Consolidated Financial Statements


In November 2002, the FASB issued Interpretation No. 45, "Guarantor's Accounting
and Disclosure  Requirements for Guarantees,  Including  Indirect  Guarantees of
Indebtedness  of Others" (FIN 45). This  Interpretation  requires a guarantor to
recognize,  at the  inception of a guarantee,  a liability for the fair value of
obligations  undertaken.  The liability that must be recognized is  specifically
related  to the  obligation  to  stand  ready  to  perform  over the term of the
guarantee.  The initial recognition and measurement  provisions of this guidance
are effective on a  prospective  basis for  guarantees  issued or modified on or
after January 1, 2003. This  Interpretation  also expands the disclosures that a
guarantor  must make  about its  obligations  under  certain  guarantees.  These
disclosure  requirements  are effective  for financial  statements of interim or
annual periods ending after October 15, 2002. See Note 12 for further discussion
of the  Company's  guarantees.  The  adoption  of FIN 45 did not have a material
impact on the Company's financial condition or operating results.

In January  2003,  the FASB  issued  Interpretation  No. 46,  "Consolidation  of
Variable  Interest  Entities"  (FIN 46). In December  2003,  the FASB decided to
defer the  implementation  date of FIN 46 to periods ending after March 15, 2004
for all  variable  interest  entities  with  the  exception  of  special-purpose
entities,  which are subject to adoption in periods  ending  after  December 15,
2003.  FIN 46 provides  guidance on how to identify a variable  interest  entity
(VIE) and determine when the assets,  liabilities,  noncontrolling interests and
results of operations  of a VIE need to be included in a company's  consolidated
financial statements.  FIN 46's consolidation  criteria are based on an analysis
of risks and  rewards,  not control,  and  represent a  significant  and complex
modification of previous accounting principles.  Management does not believe the
application  of  FIN  46 to any of its  various  investments  or  interests,  if
required,  will have a material impact on the Company's  financial  condition or
operating results.

During the fourth quarter of 2003, the Company  applied the provisions of FIN 46
to its wholly-owned  subsidiary business trust,  Commerce Capital Trust II, that
has issued convertible trust preferred securities to third party investors.  The
Company believes Commerce Capital Trust II qualifies as a special-purpose entity
that falls within the adoption  exception  noted above.  The trusts' only assets
are junior subordinated  convertible  debentures issued by the Company that were
acquired  by the trust  using  proceeds  from the  issuance  of trust  preferred
securities and common stock. These debentures totaled $200.0 million at December
31, 2003. The adoption of FIN 46 has resulted in the deconsolidation of Commerce
Capital Trust II. As a result of deconsolidation, the trust preferred securities
have been  re-characterized  as  "Long-term  debt" on the  consolidated  balance
sheet.

The Company makes investments  directly in low-income housing tax credit (LIHTC)
operating  partnerships,  private  venture  capital  funds  and  Small  Business
Investment  Companies  (SBIC).  The Company has determined these entities do not
meet the  consolidation  criteria of FIN 46. At December 31, 2003, the Company's
investment in these entities  totals $30.1 million.

2.   Mergers and Acquisitions

During 2003,  the Company  purchased  The Porch Agency,  an insurance  brokerage
agency,   which  was  merged  with  Commerce   Insurance.   The  Company  issued
approximately  44,000 shares of common stock in connection  with this immaterial
acquisition.

In 2002, the Company purchased Sanford and Purvis,  Inc., an insurance brokerage
agency,   which  was  merged  with  Commerce   Insurance.   The  Company  issued
approximately  113,000 shares of common stock in connection with this immaterial
acquisition.

In 2001, the Company  purchased  Fitzsimmons  Insurance and Financial  Services,
Inc.,  Business  Training  Systems,  Inc. and Brettler  Financial  Group,  Inc.,
insurance  brokerage agencies,  which were merged with Commerce  Insurance.  The
Company issued  approximately  108,000 shares of common stock in connection with
these immaterial acquisitions.

34

<PAGE>
Notes to Consolidated Financial Statements


3.   Investment Securities

A summary of the  amortized  cost and market value of  securities  available for
sale and  securities  held to maturity (in  thousands)  at December 31, 2003 and
2002 follows:

<TABLE>
<CAPTION>
 -----------------------------------------------------------------------------------------------------------------------------------
                                                                              December 31,
 -----------------------------------------------------------------------------------------------------------------------------------
                                                     2003                                                      2002
 -----------------------------------------------------------------------------------------------------------------------------------
                                             Gross        Gross                                  Gross        Gross
                              Amortized    Unrealized  Unrealized      Market     Amortized    Unrealized   Unrealized   Market
                                 Cost        Gains       Losses        Value         Cost        Gains        Losses      Value
 -----------------------------------------------------------------------------------------------------------------------------------
<S>                           <C>            <C>        <C>          <C>           <C>          <C>          <C>        <C>
 U.S. Government agency
    and mortgage-backed
    obligations               $10,528,396    $82,057    $(98,908)    $10,511,545   $7,491,768   $172,699     $(4,730)   $7,659,737
 Obligations of state and
    political subdivisions         30,223        821        (117)         30,927       22,041      1,144                    23,185
 Equity securities                  8,571      8,017                      16,588       18,898      5,156                    24,054
 Other                             89,372      2,223                      91,595       96,291      3,512                    99,803
 ----------------------------------------------------------------------------------------------------------------------------------
 Securities available
    for sale                  $10,656,562    $93,118    $(99,025)    $10,650,655   $7,628,998   $182,511     $(4,730)   $7,806,779
 ----------------------------------------------------------------------------------------------------------------------------------
 U.S. Government agency and
    mortgage-backed
    obligations               $ 2,193,577    $15,209    $(27,088)    $ 2,181,698   $  624,688   $ 27,847                $  652,535
 Obligations of state and
    political subdivisions        227,199         30     (11,443)        215,786       91,204      1,041     $   (25)       92,220
 Other                             69,708                                 69,708       47,134                               47,134
 ----------------------------------------------------------------------------------------------------------------------------------
 Securities held to
    maturity                  $ 2,490,484    $15,239    $(38,531)    $ 2,467,192   $  763,026   $ 28,888     $   (25)   $  791,889
 ----------------------------------------------------------------------------------------------------------------------------------
</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. Management does not believe any individual unrealized loss as of December
31, 2003 represents an other-than-temporary impairment. The unrealized losses on
these  securities  are caused by the  changes in  interest  rates.  The  Company
believes it will collect all amounts  contractually  due on these securities and
that it has the intent and ability to hold these securities until the fair value
is at least equal to the carrying value.

The amortized  cost and  estimated  market value of  investment  securities  (in
thousands)  at December  31,  2003,  by  contractual  maturity  are shown below.
Expected  maturities will differ from  contractual  maturities  because obligors
have the right to repay obligations without prepayment penalties.

<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------
                                                    Available for Sale             Held to Maturity
----------------------------------------------------------------------------------------------------------
                                                 Amortized        Market        Amortized        Market
                                                    Cost           Value           Cost           Value
----------------------------------------------------------------------------------------------------------
<S>                                                <C>            <C>             <C>           <C>
Due in one year or less                         $   153,408    $   153,930      $  169,545    $  169,545
Due after one year through five years                12,310         12,915             112           112
Due after five years through ten years               59,590         60,695         450,878       435,989
Due after ten years                                  31,743         32,572         112,589       102,467
Mortgage backed securities                       10,390,940     10,373,955       1,757,360     1,759,079
Equity securities                                     8,571         16,588
----------------------------------------------------------------------------------------------------------
                                                $10,656,562    $10,650,655      $2,490,484    $2,467,192
----------------------------------------------------------------------------------------------------------
</TABLE>

Proceeds from sales of securities  available for sale during 2003, 2002 and 2001
were $4.86 billion, $1.51 billion and $381.3 million, respectively.  Gross gains
of $32.6  million,  $6.8 million and $2.2 million were  realized on the sales in
2003,  2002, and 2001,  respectively,  and gross losses of $28.8  million,  $6.8
million and $1.2 million were realized in 2003, 2002 and 2001, respectively.

At December 31, 2003 and 2002,  investment  securities  with a carrying value of
$5.0 billion and $2.1 billion, respectively,  were pledged to secure deposits of
public funds.

35
<PAGE>
Notes to Consolidated Financial Statements


4.   Loans

The following is a summary of loans  outstanding  (in thousands) at December 31,
2003 and 2002:

<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------
                                                              December 31,
-------------------------------------------------------------------------------------------
                                                       2003                   2002
-------------------------------------------------------------------------------------------
<S>                                                 <C>                       <C>
Commercial:
     Term                                           $1,027,526              $  842,869
     Line of credit                                    959,158                 683,640
     Demand                                              1,077                     317
-------------------------------------------------------------------------------------------
                                                     1,987,761               1,526,826

Owner-occupied                                       1,619,079               1,345,306

Consumer:
     Mortgages (1-4 family residential)                918,686                 626,652
     Installment                                       138,437                 140,493
     Home equity                                     1,405,795               1,139,589
     Credit lines                                       60,579                  56,367
-------------------------------------------------------------------------------------------
                                                     2,523,497               1,963,101
Commercial real estate:
     Investor developer                              1,167,672                 885,276
     Construction                                      142,567                 102,080
-------------------------------------------------------------------------------------------
                                                     1,310,239                 987,356
-------------------------------------------------------------------------------------------
                                                    $7,440,576              $5,822,589
-------------------------------------------------------------------------------------------
</TABLE>

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, 2003 and 2002:

             -------------------------------------------------------------------
                                                          December 31,
             -------------------------------------------------------------------
                                                     2003               2002
             -------------------------------------------------------------------

             Executive officers                   $   1.4            $   0.2
             Bancorp directors                       22.6               22.1
             -------------------------------------------------------------------
                                                  $  24.0            $  22.3
             -------------------------------------------------------------------

In addition, the Company had loans to directors of its subsidiary banks totaling
$121.7 million and $102.5 million at December 31, 2003 and 2002, respectively.

In addition to the services  referenced in Note 7, the Company  purchased  goods
and services, including legal services, from related parties. Such disbursements
aggregated  $1.2 million,  $5.9 million,  and $4.5 million,  in 2003,  2002, and
2001,  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.

36

<PAGE>
Notes to Consolidated Financial Statements


5.   Allowance for Loan Losses

The  following  is an analysis of changes in the  allowance  for loan losses (in
thousands) for 2003, 2002 and 2001:

<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------
                                                         2003             2002           2001
----------------------------------------------------------------------------------------------------
<S>                                                   <C>                <C>             <C>
Balance, January 1                                     $ 90,733          $66,981         $48,680
Provision charged to operating expense                   31,850           33,150          26,384
Recoveries of loans previously charged off                1,264            1,330             974
Loan charge-offs                                        (11,790)         (10,728)         (9,057)
----------------------------------------------------------------------------------------------------
Balance, December 31                                   $112,057          $90,733         $66,981
----------------------------------------------------------------------------------------------------
</TABLE>


6.   Non-Performing Loans and Other Real Estate

The total of non-performing loans (non-accrual and restructured loans) was $21.7
million  and  $14.2  million  at  December  31,  2003  and  2002,  respectively.
Non-performing  loans of $0.9  million,  $3.8  million  and $0.9  million net of
charge offs of $0, $0 and $17,000 were  transferred  to other real estate during
2003,  2002 and 2001,  respectively.  Other real estate  ($1.8  million and $3.6
million at  December  31,  2003 and 2002,  respectively)  is  included  in other
assets.

At December 31, 2003 and 2002, the recorded investment in loans considered to be
impaired under FASB Statement No. 114 "Accounting by Creditors for Impairment of
a Loan" totaled $15.6 million and $9.0 million,  respectively,  all of which are
included  in  non-performing  loans.  The  reserve  for loan  losses  related to
impaired loans totaled  approximately  $3.5 million and $2.2 million at December
31, 2003 and 2002,  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  $12.3 million and
$10.6  million  during  2003  and  2002,   respectively.   Interest   income  of
approximately  $1.9  million,  $1.4  million,  and $2.1 million  would have been
recorded on non-performing  loans (including  impaired loans) in accordance with
their original  terms in 2003,  2002, and 2001,  respectively.  Actual  interest
income  recorded on these loans  amounted to  $418,000,  $275,000,  and $237,000
during 2003, 2002, and 2001, respectively.


7.   Bank Premises, Equipment, and Leases

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

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------
                                                                      December 31,
                                                         ---------------------------------
                                                               2003               2002
------------------------------------------------------------------------------------------
<S>                                                          <C>                <C>
Land                                                         $180,324           $123,880
Buildings                                                     323,810            247,508
Leasehold improvements                                        128,261             43,130
Furniture, fixtures and equipment                             335,579            265,712
Leased property under capital leases                              124                124
------------------------------------------------------------------------------------------
                                                              968,098            680,354
Accumulated depreciation and amortization                    (243,809)          (181,165)
------------------------------------------------------------------------------------------
                                                              724,289            499,189
Premises and equipment in progress                             87,162             81,629
------------------------------------------------------------------------------------------
                                                             $811,451           $580,818
------------------------------------------------------------------------------------------
</TABLE>

At December 31, 2003,  the Company  leased from various  related  parties  under
separate  operating  lease  agreements  the land on which it has  constructed 19
offices. 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
$1.9  million,  $1.6  million,  and  $1.8  million  in  2003,  2002,  and  2001,
respectively.  These  leases  expire  periodically  beginning  in  2005  but are
renewable through 2040.

Total  rent  expense   charged  to  operations   under   operating   leases  was
approximately $33.7 million in 2003, $21.8 million in 2002, and $11.6 million in
2001. Total depreciation expense charged to operations was $69.7 million,  $52.7
million and $41.2 million in 2003, 2002 and 2001, respectively.

37

<PAGE>
Notes to Consolidated Financial Statements


The future minimum rental commitments, by year, under the non-cancelable leases,
including  escalation  clauses,  are as follows (in  thousands)  at December 31,
2003:

------------------------------------------------------------------------------
                                                                Operating
------------------------------------------------------------------------------
2004                                                            $ 28,987
2005                                                              29,058
2006                                                              29,113
2007                                                              28,249
2008                                                              28,783
Later years                                                      298,998
------------------------------------------------------------------------------
Net minimum lease payments                                      $443,188

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 $6.4 million,  $4.6 million,  and $2.3
million in 2003,  2002,  and 2001,  respectively,  for such services and related
costs.  Additionally,  the  business  received  additional  revenues for project
management  of  approximately  $3.8 million,  $3.5 million,  and $1.9 million in
2003,  2002, and 2001,  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.  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.


8.   Deposits

The  aggregate  amount of time  certificates  of  deposits in  denominations  of
$100,000  or more was $1.4  billion and $1.2  billion at  December  31, 2003 and
2002, respectively.


9.   Other Borrowed Money

Other borrowed money consists  primarily of securities sold under  agreements to
repurchase,  dollar rolls,  federal funds  purchased,  and lines of credit.  The
following table  represents  information for other borrowed money (in thousands)
at December 31, 2003 and 2002:

<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------
                                                                    December 31,
                                               -----------------------------------------------------
                                                          2003                         2002
                                               -----------------------------------------------------
                                                               Average                   Average
                                                 Amount          Rate          Amount       Rate
----------------------------------------------------------------------------------------------------
<S>                                              <C>            <C>           <C>            <C>
Securities sold under
     agreements to repurchase                    $311,510       1.10%         $391,641       1.56%
----------------------------------------------------------------------------------------------------

----------------------------------------------------------------------------------------------------
Average amount outstanding                       $423,538       0.77%         $118,734       1.55%
Maximum month-end balance                       1,114,482                      391,641
----------------------------------------------------------------------------------------------------
</TABLE>

As of December 31, 2003, the Company had a line of credit of $820.7 million from
the Federal Home Loan Bank of New York, a line of credit of $187.7  million from
the Federal  Home Loan Bank of  Pittsburgh,  and a $60.0  million line of credit
from a group of other banks, all of which was available. In addition, CCMI had a
line of credit of $50.0 million from another bank, all of which was available.


10.  Long-Term Debt

On July 15, 1993, the Company issued $23.0 million of 8 3/8% subordinated  notes
due  2003.  All of these  notes  were  redeemed  on May 20,  2002 at the  stated
liquidation amount ($101 per note) plus accrued interest to May 20, 2002.

In 1997,  the Company  issued $57.5  million of 8.75% Trust  Capital  Securities
through  Commerce  Capital Trust I, a Delaware  business trust subsidiary of the
Company.  All of these Trust Capital Securities were redeemed on July 1, 2002 at
the stated liquidation amount ($25 per capital security) plus accrued and unpaid
distributions thereon to July 1, 2002.

38

<PAGE>
Notes to Consolidated Financial Statements


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  Convertible  Trust  Capital
Securities mature in 2032.  Holders of the Convertible Trust Capital  Securities
may convert each security into 0.9478 shares of Company common stock, subject to
adjustment,  if (1) the closing sale price of Company  common stock for at least
20 trading  days in a period of 30  consecutive  trading days ending on the last
trading day of any calendar  quarter  beginning with the quarter ending June 30,
2002 is more than 110% of the Convertible  Trust Capital  Securities  conversion
price  ($52.75  at  December  31,  2003)  then in effect on the last day of such
calendar  quarter,  (2) the assigned credit rating by Moody's of the Convertible
Trust Capital  Securities is at or below Bal, (3) the Convertible  Trust Capital
Securities are called for redemption,  or (4) specified  corporate  transactions
have occurred.  All $200.0 million of the Convertible  Trust Capital  Securities
currently  qualify as Tier 1 capital for regulatory  capital  purposes.  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.  As of December 31, 2003,  the  Convertible
Trust Capital Securities were not convertible.


11.  Income Taxes

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

--------------------------------------------------------------------------------
                                             2003          2002        2001
--------------------------------------------------------------------------------
Current:
     Federal                                $77,437      $62,660       $52,085
     State                                    5,961        4,069           658
Deferred:
     Federal                                 15,417        6,359        (4,054)
--------------------------------------------------------------------------------
                                            $98,815      $73,088       $48,689
--------------------------------------------------------------------------------

The above provision  includes  income taxes related to securities  gains of $1.3
million, $0 and $400,000 for 2003, 2002 and 2001, respectively.

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

<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------
                                                    2003          2002        2001
---------------------------------------------------------------------------------------
<S>                                                  <C>          <C>          <C>
Expected provision at statutory rate:                35.0%        35.0%        35.0%
Difference resulting from:
     Tax-exempt interest on loans                    (1.5)        (1.7)        (2.0)
     Tax-exempt interest on securities               (1.7)        (1.8)        (1.8)
     State income taxes (net of federal benefit)      1.3          1.2          0.3
     Other                                            0.6          0.8          0.6
---------------------------------------------------------------------------------------
                                                     33.7%        33.5%        32.1%
---------------------------------------------------------------------------------------
</TABLE>

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

39

<PAGE>
Notes to Consolidated Financial Statements


The significant  components of the Company's deferred tax liabilities and assets
as of December 31, 2003 and 2002 are as follows (in thousands):

<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------
                                                                       2003           2002
-------------------------------------------------------------------------------------------------
<S>                                                                  <C>            <C>
Deferred tax assets:
     Loan loss reserves                                              $38,623        $ 30,960
     Intangibles                                                       2,172           2,837
     Other reserves                                                    3,951           2,702
     Fair value adjustment, available for sale securities              2,206
     Other                                                                               274
-------------------------------------------------------------------------------------------------
Total deferred tax assets                                             46,952          36,773
-------------------------------------------------------------------------------------------------
Deferred tax liabilities:
     Depreciation                                                    (37,661)        (16,157)
     Fair value adjustment, available for sale securities                            (64,167)
     Other                                                            (4,760)         (2,875)
-------------------------------------------------------------------------------------------------
Total deferred tax liabilities                                       (42,421)        (83,199)
-------------------------------------------------------------------------------------------------
Net deferred assets (liabilities)                                    $ 4,531        $(46,426)
-------------------------------------------------------------------------------------------------
</TABLE>

No valuation  allowance was  recognized  for the deferred tax assets at December
31, 2003 and 2002, respectively.


12.  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, 2003,
the Company had  outstanding  standby  letters of credit in the amount of $602.6
million.

In addition,  the Company is committed as of December 31, 2003 to advance $417.9
million on construction loans, $818.9 million on home equity lines of credit and
$1.7  billion  on lines of credit.  All other  commitments  total  approximately
$452.8 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 $21.3 million at December 31, 2003.

The fair value of the fees associated with standby letters of credit  originated
since  January 1, 2003,  which is the  implementation  date for the  recognition
provisions of FIN 45, have been deferred and recorded in "Other  liabilities" on
the  consolidated  balance  sheet.  These fees are  immaterial  to the Company's
consolidated financial statements at December 31, 2003.


13.  Common Stock

At December 31, 2003, the Company's  common stock had a par value of $1.00.  The
Company had 150,000,000 shares authorized as of this date.

During September 2003, the Company  completed an offering of 5,000,000 shares of
common stock for  aggregate  proceeds of  approximately  $209 million  under its
previously  filed Form S-3 shelf  registration.  The proceeds from this offering
will be used to support the Company's future growth.

On December 16, 2003,  the Board of Directors  declared a cash dividend of $0.19
for  each  share  of  common  stock  outstanding  payable  January  20,  2004 to
shareholders of record on January 6, 2004.

40

<PAGE>
Notes to Consolidated Financial Statements


14.  Earnings Per Share

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

<TABLE>
<CAPTION>
  -------------------------------------------------------------------------------------------------
                                                                   Year Ended December 31,
                                                          -----------------------------------------
                                                             2003           2002         2001
  -------------------------------------------------------------------------------------------------
<S>                                                         <C>             <C>          <C>
  Basic:
  Net income applicable to common stock                     $194,287        $144,815     $103,022
  -------------------------------------------------------------------------------------------------
  Average common shares outstanding                           71,084          66,795       64,666
  -------------------------------------------------------------------------------------------------
  Net income per common share                                  $2.73           $2.16        $1.59
  -------------------------------------------------------------------------------------------------

  Diluted:
  Net income applicable to common stock
       on a diluted basis                                   $194,287        $144,815     $103,022
  -------------------------------------------------------------------------------------------------

  Average common shares outstanding                           71,084          66,795       64,666
  Additional shares considered in diluted
       computation assuming:
         Exercise of stock options                             3,378           4,108        3,436
  -------------------------------------------------------------------------------------------------

  Average common and common equivalent
       shares outstanding                                     74,462          70,903       68,102
  -------------------------------------------------------------------------------------------------

  Net income per common and common
       equivalent share                                        $2.61           $2.04        $1.51
  -------------------------------------------------------------------------------------------------
</TABLE>


15.  Benefit Plans

Employee Stock Option Plan
The Company has the 1997 Employee  Stock Option Plan (the Plan) for the officers
and  employees  of the  Company and its  subsidiaries  as well as a plan for its
non-employee  directors.  The Plan  authorizes  the issuance of up to 17,234,000
shares of common stock (as adjusted  for stock  dividends)  upon the exercise of
options.  As of December  31,  2003,  options to purchase  14,403,096  shares of
common  stock have been  issued  under the Plan.  The option  price for  options
issued under the Plan must be at least equal to 100% of the fair market value of
the  Company's  common  stock as of the date the option is granted.  All options
granted  after  December 31, 2002 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:

<TABLE>
<CAPTION>
  ---------------------------------------------------------------------------------------
                                             Shares Under           Weighted Average
                                                Option               Exercise Price
  ---------------------------------------------------------------------------------------
<S>                                           <C>                        <C>
  Balance at January 1, 2001                    8,654,050                  15.86
  Options granted                               2,695,050                  30.68
  Options exercised                             1,092,393                  14.70
  Options canceled                                 74,017                  26.30
  Balance at December 31, 2001                 10,182,690                  19.83
  ---------------------------------------------------------------------------------------
  Options granted                               2,088,744                  40.40
  Options exercised                               974,145                  18.59
  Options canceled                                248,736                  29.69
  Balance at December 31, 2002                 11,048,553                  23.71
  ---------------------------------------------------------------------------------------
  Options granted                               2,674,960                  42.48
  Options exercised                             1,572,220                  15.30
  Options canceled                                193,691                  37.55
  Balance at December 31, 2003                 11,957,602                  28.76
  ---------------------------------------------------------------------------------------
</TABLE>

41

<PAGE>
Notes to Consolidated Financial Statements


Information  concerning  options  outstanding  as of  December  31,  2003  is as
follows:

<TABLE>
<CAPTION>
  --------------------------------------------------------------------------------------------------------
                                          Options Outstanding                    Options Exercisable
  --------------------------------------------------------------------------------------------------------
                                           Weighted-Average    Weighted-      Exercisable     Weighted
  Range of                       Number       Remaining         Average          as of        Average
  Exercise prices             Outstanding  Contractual Life  Exercise Price   12/31/2003   Exercise Price
  --------------------------------------------------------------------------------------------------------
<S>                             <C>               <C>           <C>             <C>            <C>
  $4.95 to $10.00               1,138,968         2.3           $  8.11         1,138,968      $  8.11
  $10.01 to $20.00              2,355,361         5.2             18.01         2,346,624        18.02
  $20.01 to $35.00              3,950,328         6.1             26.51         3,455,798        25.96
  $35.00 to $49.37              4,512,945         8.7             41.56         1,431,455        40.30
  --------------------------------------------------------------------------------------------------------
</TABLE>

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 $3.4 million, $2.8 million and $2.2 million for 2003,
2002 and 2001,  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, 2003,  the ESOP held  1,533,000  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 in 2003 or 2002. The total expense associated
with the ESOP for 2001 was $100,000.

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


16.  Fair Value of Financial Instruments

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

42

<PAGE>
Notes to Consolidated Financial Statements


The  following  table  represents  the  carrying  amounts and fair values of the
Company's financial instruments at December 31, 2003 and 2002:

<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------
                                                                   December 31,
                                           -------------------------------------------------------------
                                                        2003                           2002
--------------------------------------------------------------------------------------------------------
                                              Carrying          Fair         Carrying          Fair
                                               Amount          Value          Amount          Value
--------------------------------------------------------------------------------------------------------
<S>                                         <C>             <C>              <C>            <C>
Financial assets:
     Cash and cash equivalents              $   910,092     $   910,092      $  811,434     $  811,434
     Loans held for sale                         42,769          42,769          96,920         96,920
     Trading securities                         170,458         170,458         326,479        326,479
     Investment securities                   13,141,139      13,117,847       8,569,805      8,598,668
     Loans (net)                              7,328,519       7,454,910       5,731,856      5,768,650

Financial liabilities:
     Deposits                                20,701,400      20,724,863      14,548,841     14,576,800
     Other borrowed money                       311,510         311,510         391,641        391,641
     Long-term debt                             200,000         239,000         200,000        222,000
--------------------------------------------------------------------------------------------------------
Off-balance sheet instruments:
     Standby letters of credit              $     1,802     $     1,802                     $    3,685
     Commitments to extend credit                                 1,365                          1,324
</TABLE>


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

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

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

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

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

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

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

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

<PAGE>
Notes to Consolidated Financial Statements


17.  Quarterly Financial Data (unaudited)

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

<TABLE>
<CAPTION>
 ---------------------------------------------------------------------------------------------------------
                                                              Three Months Ended
 ---------------------------------------------------------------------------------------------------------
                                        December 31     September 30        June 30         March 31
 ---------------------------------------------------------------------------------------------------------
<S>                                       <C>              <C>              <C>              <C>
 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                                    $   0.75         $   0.70         $   0.65         $   0.63
 Diluted                                      0.71             0.67             0.63             0.60

 2002
 Interest income                          $202,024         $196,775         $188,368        $168,204
 Interest expense                           42,528           46,221           49,742           44,125
 Net interest income                       159,496          150,554          138,626          124,079
 Provision for loan losses                   8,000            8,000           10,250            6,900
 Provision for federal and state
    income taxes                            20,258           19,669           17,763           15,398
 Net income                                 40,574           37,689           34,802           31,750

 Net income per common share:
 Basic                                    $   0.60         $   0.56         $   0.52         $   0.48
 Diluted                                      0.57             0.53             0.49             0.45
</TABLE>

44

<PAGE>
Notes to Consolidated Financial Statements


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

Balance Sheets

<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------
                                                                         December 31,
---------------------------------------------------------------------------------------------------
(dollars in thousands)                                            2003                2002
---------------------------------------------------------------------------------------------------
<S>                                                           <C>                     <C>
Assets
Cash                                                          $       2,667           $    3,034
Securities available for sale                                       101,589               24,059
Investment in subsidiaries                                        1,375,806            1,094,635
Other assets                                                          8,843                9,452
---------------------------------------------------------------------------------------------------
                                                                 $1,488,905           $1,131,180
---------------------------------------------------------------------------------------------------
Liabilities
Other liabilities                                              $     11,617           $   13,170
Long-term debt                                                      200,000              200,000
---------------------------------------------------------------------------------------------------
                                                                    211,617              213,170
---------------------------------------------------------------------------------------------------
Stockholders' equity
Common stock                                                         76,869               68,043
Capital in excess of par value                                      866,095              538,795
Retained earnings                                                   347,365              199,604
Accumulated other comprehensive (loss) income                        (3,702)             113,614
---------------------------------------------------------------------------------------------------
                                                                  1,286,627              920,056
Less treasury stock                                                   9,339                2,046
---------------------------------------------------------------------------------------------------
     Total stockholders' equity                                   1,277,288              918,010
---------------------------------------------------------------------------------------------------
                                                                 $1,488,905           $1,131,180
---------------------------------------------------------------------------------------------------
</TABLE>


Statements of Income

<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------
                                                                   Year Ended December 31,
--------------------------------------------------------------------------------------------------
(dollars in thousands)                                        2003         2002          2001
--------------------------------------------------------------------------------------------------
<S>                                                       <C>             <C>          <C>
Income:
     Dividends from subsidiaries                            $ 44,500      $  9,600     $ 22,400
     Interest income                                             476           552          454
     Other                                                     1,711         2,826        7,022
--------------------------------------------------------------------------------------------------
                                                              46,687        12,978       29,876
--------------------------------------------------------------------------------------------------
Expenses:
     Interest expense                                         12,448        15,554        7,258
     Operating expenses                                        3,877         4,460        3,214
--------------------------------------------------------------------------------------------------
                                                              16,325        20,014       10,472
Income (loss) before income taxes and equity
     in undistributed income of subsidiaries                  30,362        (7,036)      19,404
Income tax benefit                                             4,971         5,757        1,004
--------------------------------------------------------------------------------------------------
                                                              35,333        (1,279)      20,408
Equity in undistributed income of subsidiaries               158,954       146,094       82,614
--------------------------------------------------------------------------------------------------
Net income                                                  $194,287      $144,815     $103,022
--------------------------------------------------------------------------------------------------
</TABLE>


45

<PAGE>
Notes to Consolidated Financial Statements


Statements of Cash Flows

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------
                                                                          Year Ended December 31,
------------------------------------------------------------------------------------------------------------
(dollars in thousands)                                              2003           2002           2001
------------------------------------------------------------------------------------------------------------
<S>                                                                <C>            <C>            <C>
Operating activities:
   Net income                                                     $ 194,287       $144,815       $103,022
   Adjustments to reconcile net income to net
     cash provided by operating activities:
       Undistributed income of subsidiaries                        (158,954)      (146,094)       (82,614)
       Gains on sales of securities available for sale                                                470
       Decrease increase in other assets                                609          2,082          4,484
       Increase (decrease) in other liabilities                       5,946        (11,509)        17,874
------------------------------------------------------------------------------------------------------------
         Net cash provided (used) by operating activities            41,888        (10,706)        43,236
Investing activities:
   Investments in subsidiaries                                     (239,500)      (145,520)       (62,667)
   Proceeds from sale of securities available for sale                               3,018          1,828
   Proceeds from the maturity of securities available for sale      144,314         95,972         66,422
   Purchase of securities available for sale                       (218,969)       (91,414)       (66,864)
   Other                                                                (15)            19            352
------------------------------------------------------------------------------------------------------------
         Net cash used by investing activities                     (314,170)      (137,925)       (60,929)
Financing activities:
   Proceeds from issuance of common stock
     under dividend reinvestment and other stock plans              116,908         66,809         53,005
   Cash dividends                                                   (46,525)       (39,911)       (35,400)
   Issuance of common stock                                         208,825
   Issuance of long-term debt                                                      206,186
   Redemption of long-term debt                                                    (82,000)
   Other                                                             (7,293)          (421)
------------------------------------------------------------------------------------------------------------
         Net cash provided by financing activities                  271,915        150,663         17,605
(Decrease) increase in cash and cash equivalents                       (367)         2,032            (88)
Cash and cash equivalents at beginning of year                        3,034          1,002          1,090
------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year                          $   2,667       $  3,034       $  1,002
------------------------------------------------------------------------------------------------------------
Supplemental disclosures of cash flow information:
   Cash paid during the period for:
     Interest                                                     $  12,268       $ 13,551       $  7,089
     Income taxes                                                    56,357         56,586         48,616
------------------------------------------------------------------------------------------------------------
</TABLE>

46

<PAGE>
Notes to Consolidated Financial Statements


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

The approval of the  Comptroller of the Currency is required for a national bank
to pay  dividends if the total of all  dividends  declared in any calendar  year
exceeds net profits (as  defined) for that year  combined  with its retained net
profits for the preceding two calendar years. New Jersey state banks are subject
to similar  dividend  restrictions.  Commerce NJ,  Commerce PA,  Commerce Shore,
Commerce  North and  Commerce  Delaware  can declare  dividends  in 2004 without
additional  approval of  approximately  $138.1  million,  $77.4  million,  $43.9
million, $47.4 million and $1.7 million, respectively, plus an additional amount
equal to each  bank's net  profit  for 2004 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,  2003  and  2002,  the  Company  complied  with  these
guidelines.

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

As of December 31, 2003 and 2002, the Company and each of its  subsidiary  banks
were categorized as "well-capitalized" under the regulatory framework for prompt
corrective  action.  As a result of the issuance of FIN 46, the Federal  Reserve
Board is  evaluating  whether  deconsolidation  of the  trust  will  affect  the
qualification of the Convertible Trust Capital Securities as Tier 1 capital.  If
it is determined that the Convertible Trust Capital Securities no longer qualify
as Tier 1 capital,  the Company  will remain  "well  capitalized".  There are no
conditions  or events since  December  31, 2003 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,  2003,  that  the  Company  and  its
subsidiaries meet all capital adequacy requirements to which they are subject.


47

<PAGE>
Notes to Consolidated Financial Statements


The following  table  presents the Company's  and Commerce NJ's  risk-based  and
leverage capital ratios at December 31, 2003 and 2002:

<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------
                                                                        Per Regulatory Guidelines
-----------------------------------------------------------------------------------------------------------
                                              Actual                  Minimum         "Well Capitalized"
-----------------------------------------------------------------------------------------------------------
                                      Amount        Ratio      Amount      Ratio      Amount       Ratio
-----------------------------------------------------------------------------------------------------------
<S>                                     <C>           <C>         <C>       <C>          <C>         <C>
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                               $769,945    10.81%      $284,796  4.00%        $427,194    6.00%
     Total capital                         845,009    11.87        569,592  8.00          711,991   10.00
   Leverage ratio                          769,945     6.03        510,853  4.00          638,566    5.00

December 31, 2002
Company
   Risk based capital ratios:
     Tier I                               $995,826    11.47%      $347,373  4.00%        $521,059    6.00%
     Total capital                       1,086,559    12.51        697,746  8.00          868,432   10.00
   Leverage ratio                          995,826     6.37        625,219  4.00          781,524    5.00

Commerce NJ
   Risk based capital ratios:
     Tier 1                               $526,612     9.77       $215,519  4.00%        $323,279    6.00%
     Total capital                         586,328    10.88        431,039  8.00          538,799   10.00
   Leverage ratio                          526,612     5.75        366,657  4.00          458,321    5.00

</TABLE>


48

<PAGE>
Notes to Consolidated Financial Statements


19.  Segment Reporting

The Company operates one reportable segment of business,  Community Banks, which
includes Commerce NJ, Commerce PA, Commerce Shore,  Commerce North, 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
$66.5  million,  $55.9  million  and  $49.8  million  in 2003,  2002,  and 2001,
respectively,  were  reported  in  other  operating  income),  and  CCMI  (whose
noninterest revenues of $42.5 million, $35.1 million, and $22.8 million in 2003,
2002, and 2001, 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>
 --------------------------------------------------------------------------------------------------------------------------------
                                        2003                                 2002                              2001
 --------------------------------------------------------------------------------------------------------------------------------
                        Community    Parent/                 Community   Parent/               Community   Parent/
                          Banks       Other       Total        Banks      Other     Total        Banks      Other      Total
 --------------------------------------------------------------------------------------------------------------------------------
<S>                      <C>         <C>        <C>           <C>        <C>       <C>         <C>           <C>     <C>
 Net interest income     $761,530    $(5,664)   $755,866      $579,687   $(6,932)  $572,755    $ 402,040   $  (714)  $ 401,326
 Provision for loan
     losses                31,850          -      31,850        33,150         -     33,150       26,384                26,384
 --------------------------------------------------------------------------------------------------------------------------------
 Net interest income
     after provision      729,680     (5,664)    724,016       546,537    (6,932)   539,605      375,656      (714)    374,942
 Noninterest income       222,967    109,511     332,478       166,384    91,082    257,466      125,418    71,387     196,805
 Noninterest expense      676,265     87,127     763,392       500,522    78,646    579,168      358,870    61,166     420,036
 --------------------------------------------------------------------------------------------------------------------------------
 Income before
     income taxes         276,382     16,720     293,102       212,399     5,504    217,903      142,204     9,507     151,711
 Income tax expense        93,314      5,501      98,815        72,839       249     73,088       46,630     2,059      48,689
 --------------------------------------------------------------------------------------------------------------------------------
 Net income              $183,068    $11,219    $194,287      $139,560   $ 5,255   $144,815    $  95,574   $ 7,448   $ 103,022
 --------------------------------------------------------------------------------------------------------------------------------
 Average assets
     (in millions)       $ 17,754    $ 1,836    $ 19,590      $ 12,192   $ 1,560   $ 13,752    $   8,548   $   999   $   9,547
 --------------------------------------------------------------------------------------------------------------------------------
</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.


20.  Derivative Financial Instruments

As part of CCMI's  broker-dealer  activities,  the  Company  maintains a trading
securities  portfolio for  distribution  to its customers in order to meet those
customers' needs. In order to reduce the exposure to market risk relating to the
inventory,  the  Company  buys  and  sells a  variety  of  derivative  financial
instruments including futures and option contracts. Market risk includes changes
in interest rates or value fluctuations in the underlying financial instruments.
The Company uses notional  (contract)  amounts to measure  derivative  activity.
Notional amounts are not included on the balance sheet, as those amounts are not
actually paid or received at settlement.  The following  table reflects the open
commitments for futures and options and the associated unrealized gains (losses)
for the years ended December 31, 2003 and 2002, respectively:

<TABLE>
<CAPTION>
  ---------------------------------------------------------------------------------------------
                                             Notional                       Unrealized
                                              Amount                        Gain (Loss)
                                           Long (Short)                         Net
  ---------------------------------------------------------------------------------------------
                                            2003         2002           2003            2002
<S>                                   <C>          <C>               <C>              <C>
  Municipal bond futures              $        -     $ 36,500        $     -         $   278
  Treasury bond futures                   (3,000)     (60,000)           (68)         (2,537)
  Treasury bond put options               (5,000)      45,000              3             (23)
  Treasury bond call options             (97,500)    (105,000)           343          (1,342)
  ---------------------------------------------------------------------------------------------
  Total                               $ (105,500)    $(83,500)       $   278         $(3,624)
  ---------------------------------------------------------------------------------------------
</TABLE>

The average  notional  amount for futures  and options  contracts  for the years
ended  December  31,  2003 and 2002  was  $240.9  million  and  $257.9  million,
respectively.  Realized and  unrealized  gains and losses  related to derivative
financial instruments are included in other operating income in the statement of
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,
2003 and 2002, respectively:

<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------
                                              Notional                       Estimated
                                               Amount                        Fair Value
--------------------------------------------------------------------------------------------
                                         2003         2002           2003            2002
<S>                                    <C>          <C>            <C>              <C>
Interest Rate Swaps:
   Assets                              $155,635     $109,432       $9,488           $11,164
   Liabilities                         $155,635      109,432       (8,659)          (10,338)
--------------------------------------------------------------------------------------------
                                                                   $  828           $   826
--------------------------------------------------------------------------------------------
</TABLE>



49

<PAGE>

Commerce Bancorp, Inc. and Subsidiaries
Report of Independent Auditors

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

We have  audited  the  accompanying  consolidated  balance  sheets  of  Commerce
Bancorp,  Inc. and Subsidiaries as of December 31, 2003 and 2002 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, 2003.  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 auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable  assurance about whether the financial  statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting  the amounts and  disclosures in the financial  statements.  An audit
also includes assessing the accounting principles used and significant estimates
made by  management,  as well as  evaluating  the  overall  financial  statement
presentation.  We believe  that our audits  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.  and  Subsidiaries  at  December  31, 2003 and 2002,  and the  consolidated
results of their  operations and their cash flows for each of the three years in
the period ended  December 31, 2003 in  conformity  with  accounting  principles
generally accepted in the United States.


                                             /s/ Ernst & Young LLP

Philadelphia, Pennsylvania
February 16, 2004



50

<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 as of the end of the period covered by this
report. Based on this evaluation,  the principal executive officer and principal
financial  officer  concluded  that  the  Company's   disclosure   controls  and
procedures  are  effective  in reaching a  reasonable  level of  assurance  that
information required to be disclosed by the Company in the reports that it files
or submits  under the  Securities  Exchange Act of 1934 is recorded,  processed,
summarized and reported  within the time period  specified in the Securities and
Exchange Commission's rules and forms.

     The  principal  executive  officer and  principal  financial  officer  also
conducted an evaluation of internal control over financial reporting  ("Internal
Control") to determine  whether any changes in Internal  Control occurred during
the  quarter  (the  Company's  fourth  fiscal  quarter  in the case of an annual
report)  that  have  materially  affected  or which  are  reasonably  likely  to
materially affect Internal Control. Based on that evaluation,  there has been no
such change during the quarter covered by this report.

     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 Registrant.

     The information called for by this item is incorporated by reference to the
Company's  definitive  proxy  statement  relating to its 2004 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 to the
Company's  definitive  proxy  statement  relating to its 2004 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 to the
Company's  definitive  proxy  statement  relating to its 2004 Annual  Meeting of
Shareholders,  which will be filed with the SEC.  The  following  table  details
information  regarding the Company's  existing equity  compensation  plans as of
December 31, 2003:

<TABLE>
<CAPTION>
                                                        (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))
                                              -------------------------------------------------------------------------------------
<S>                                                  <C>                         <C>                         <C>
Equity compensation plans approved by                11,957,602                  $28.76                      2,831,904
security holders
                                              -------------------------------------------------------------------------------------
Equity compensation plans not approved by               N/A                       N/A                           N/A
security holders
                                              =====================================================================================
Total                                                11,957,602                  $28.76                      2,831,904
                                              =====================================================================================
</TABLE>

Item 13. Certain Relationships and Related Transactions.

     The information called for by this item is incorporated by reference to the
Company's  definitive  proxy  statement  relating to its 2004 Annual  Meeting of
Shareholders, which will be filed with the SEC.

51

<PAGE>

Item 14. Principal Accountant Fees and Services

     The information called for by this item is incorporated by reference to the
Company's  definitive  proxy  statement  relating to its 2004 Annual  Meeting of
Shareholders, which will be filed with the SEC.

                                     Part IV

Item 15.   Exhibits, Financial Statement Schedules and Reports on Form 8-K

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

        Consolidated Balance Sheets as of December 31, 2003 and 2002

        Consolidated Statements of Income for the years ended December 31, 2003,
        2002 and 2001

        Consolidated  Statements of Cash Flows for the years ended  December 31,
        2003, 2002 and 2001

        Consolidated Statements of Changes in Shareholders' Equity for the years
        ended December 31, 2003, 2002 and 2001

        Notes  to  Consolidated   Financial  Statements

        Report  of  Independent Auditors

(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.

(a)(3)  Exhibits

<TABLE>
<CAPTION>
              Exhibit
               Number                   Description of Exhibit                                    Location
               ------                   ----------------------                                    --------
<S>                       <C>                                                  <C>
                3.1       Restated Certificate of Incorporation of the         Incorporated by reference from the Company's Annual
                          Company, as amended.                                 Report on Form 10-K for the fiscal year ended
                                                                               December 31, 2002.

                3.2       By-laws of the Company, as amended.                  Incorporated by reference from the Company's Annual
                                                                               Report on Form 10-K for the fiscal year ended
                                                                               December 31, 2002.

                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)

                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.


52

<PAGE>


Exhibits (continued)

                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 branch   Registration Statement on Form S-1, and
                          office 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 branch office in Mt. Holly, New        year ended December 31, 1987.
                          Jersey.

         *      10.3      The Company's 1984 Incentive Stock Option Plan.      Incorporated by reference from the Company's
                                                                               Registration Statement on Form S-1, and
                                                                               Amendments Nos. 1 and 2 thereto (Registration
                                                                               No. 2-94189)

        *       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.

                10.5      Lease, dated March 29, 1985, between Commerce PA     Incorporated by reference from the Company's
                          and Devon Properties (Ltd.), and lease dated         Registration Statement on Form S-2
                          September 4, 1985, between Commerce PA and Devon     (Registration No. 33-12603)
                          Properties (Ltd.), relating to Commerce PA's
                          branch office in Devon, Pennsylvania.

                10.6      Assignment of Lease and Assumption Agreement         Incorporated by reference from the Company's Annual
                          dated November 30, 1987, between the Company         Report on Form 10-K for the fiscal year ended
                          and Commerce PA, relating to Commerce PA's           December 31, 1987.
                          branch office in Devon, Pennsylvania.

                10.7      Lease between the Company and Astoria Associates,    Incorporated by reference from the Company's
                          relating to the Company's and Commerce NJ's          Registration Statement on Form S-2
                          headquarters facilities.                             (Registration No. 33-12603)

                10.8      Ground lease, dated April 15, 1986, between          Incorporated by reference from the Company's
                          Commerce NJ and U.S. Equities, relating to one of    Annual Report on Form 10-K for the fiscal
                          Commerce NJ"  branch offices in Washington           year ended December 31, 1988.
                          Township, New Jersey.

                10.9      Ground lease, dated February 1, 1988, between        Incorporated by reference from the Company's
                          Commerce NJ and Diversified Properties of New        Annual Report on Form 10-K for the fiscal
                          Jersey, relating to one of Commerce NJ's branch      year ended December 31, 1988.
                          offices in Washington Township, New Jersey.

53

<PAGE>


Exhibits (continued)

               10.10      Ground lease, dated February 15, 1998, between       Incorporated by reference from the Company's
                          Commerce NJ and Diversified Properties 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.
                          branch offices 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.

         *     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 and Whiting Equities, L.L.C.,         Annual Report on Form 10-K for the fiscal
                          relating to Commerce Shore's branch office in        year ended December 31, 1997.
                          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 branch office 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 branch offices in            year ended December 31, 1997.
                          Gloucester Township, New Jersey.

               10.21      Ground lease, dated October 11, 1996 and First       Incorporated by reference from the Company's Annual
                          Lease Amendment dated November 25, 1996 between      Report on Form 10-K for the fiscal year ended
                          Commerce PA and Plymouth Equities, L.L.C., relating  December 31, 1997.
                          to Commerce PA's branch office in Plymouth
                          Township, PA.

               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 branch in Ewing, New Jersey.        year ended December 31, 1998.

54

<PAGE>


Exhibits (continued)

         *     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.

               10.24      Ground lease, dated July 31, 1998, between Commerce  Incorporated by reference from the Company's Annual
                          NJ and English Creek Properties, L.L.C., relating    Report on Form 10-K for the fiscal year ended
                          to Commerce NJ's branch in Egg Harbor Township, New  December 31, 1998.
                          Jersey.

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

               10.26      Ground lease, dated November 30, 1998, between       Incorporated by reference from the Company's
                          Commerce Shore and Aberdeen Equities, L.L.C.,        Annual Report on Form 10-K for the fiscal
                          relating to Commerce Shore's branch office in        year ended December 31, 1999.
                          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 branch office in           year ended December 31, 1999.
                          Hamilton Township, New Jersey.

               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 branch office in           year ended December 31, 1999.
                          Abington 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 branch office in Bensalem,             year ended December 31, 2000.
                          Pennsylvania.

               10.30      Ground lease, dated June 9, 2000, between Commerce   Incorporated by reference from the Company's
                          NJ and Galloway Equities, L.L.C., relating to        Annual Report on Form 10-K for the fiscal
                          Commerce NJ's branch office in Galloway, New         year ended December 31, 2000.
                          Jersey.

               10.31      Ground lease, dated December 11, 2000, between       Incorporated by reference from the Company's
                          Commerce PA and Chadds Ford Equities, L.L.C.,        Annual Report on Form 10-K for the fiscal
                          relating to Commerce PA's branch office in Chadds    year ended December 31, 2001.
                          Ford, Pennsylvania.

               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 branch office in New       year ended December 31, 2001.
                          Britain 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 branch office in           year ended December 31, 2001.
                          Warminster 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,
                          relating to Commerce NJ's branch office in           2003.
                          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,
                          relating to Commerce PA's branch office in           2003.
                          Warrington, Pennsylvania.


         *     10.36      The Company's Supplemental Executive Retirement
                          Plan.

55

<PAGE>


Exhibits (continued)

                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.

(b)  Reports on Form 8-K

     On October 15, 2003, we filed a Current Report on Form 8-K which included
     as exhibits a press release, issued by us on October 15, 2003, announcing
     our results for the third quarter of 2003 and certain supplemental
     information.

     On October 30, 2003, we filed a Current Report on Form 8-K in response to
     published articles concerning a possible investigation of the municipal
     underwriting business of Commerce Capital Markets, Inc., a subsidiary of
     Commerce Bancorp, Inc.

     On December 4, 2003, we filed a Current Report on Form 8-K, which included
     certain questions and answers regarding corporate information.

(c)(d) 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.

56

<PAGE>



                                   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 12, 2004                                Chairman of the Board
                                                        and President

                                           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>
                  Signature                                        Title                                 Date
                  ---------                                        -----                                 ----

<S>                                                <C>                                             <C>
     /s/       Vernon W. Hill, II                  Chairman of the Board, President and Director   March 12, 2004
-----------------------------------------          (Principal Executive Officer)
               Vernon W. Hill, II

     /s/         Robert C. Beck                    Secretary and Director                          March 12, 2004
-----------------------------------------
                 Robert C. Beck

     /s/         Jack R Bershad                    Director                                        March 12, 2004
-----------------------------------------
                 Jack R Bershad

     /s/         Joseph Buckelew                   Director                                        March 12, 2004
-----------------------------------------
                 Joseph Buckelew

     /s/      Donald T. DiFrancesco                Director                                        March 12, 2004
-----------------------------------------
              Donald T. DiFrancesco

     /s/         Morton N. Kerr                    Director                                        March 12, 2004
-----------------------------------------
                 Morton N. Kerr

     /s/         Steven M. Lewis                   Director                                        March 12, 2004
-----------------------------------------
                 Steven M. Lewis

     /s/     George E. Norcross, III               Director                                        March 12, 2004
-----------------------------------------
             George E. Norcross, III

     /s/        Joseph J. Plumeri                  Director                                        March 12, 2004
-----------------------------------------
                Joseph J. Plumeri

     /s/        Daniel J. Ragone                   Director                                        March 12, 2004
-----------------------------------------
                Daniel J. Ragone

     /s/     William A. Schwartz Jr.               Director                                        March 12, 2004
-----------------------------------------
             William A. Schwartz Jr.

     /s/     Joseph T. Tarquini Jr.                Director                                        March 12, 2004
-----------------------------------------
             Joseph T. Tarquini Jr.

     /s/       Frank C. Videon Sr.                 Director                                        March 12, 2004
-----------------------------------------
               Frank C. Videon Sr.
</TABLE>

57