10-K/A 1 form10ka-60090_cbnj.txt U.S. SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K/A (Mark One) |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 Number 000-26587 COMMUNITY BANCORP OF NEW JERSEY (Exact name of registrant as specified in its charter) New Jersey 22-3666589 (State of other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 3535 Highway 9 North, Freehold, New Jersey 07728 (Address of principal executive offices) (Zip Code) (732) 863-9000 (Issuer's telephone number, including area code) (Former name, former address and former year, if changed since last report) Securities registered under Section 12(b) of the Exchange Act: None Securities registered under Section 12(g) of the Exchange Act: Common Stock, no par value 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 and Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), 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 is not contained herein, and will not be contained, to the best of Issuer'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 Exchange Act). Yes |_| No |X| The aggregate market value of voting and non-voting equity held by non-affiliates was $73,255,828. As of March 4, 2004, there were 3,389,719 shares of common stock, no par value per share outstanding. PART I ITEM 7. -- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS Year Ended December 31, 2003 OVERVIEW AND STRATEGY Community Bancorp of New Jersey is a one bank holding company incorporated under the laws of New Jersey to serve as the holding company for the Community Bank of New Jersey. The Company acquired all the capital stock of the Bank in July 1999. The Bank commenced operations in 1997 with the goal of providing first class banking services through a locally headquartered financial institution, offering customers direct access to senior officers and decision makers. We seek to serve individuals, professionals, small businesses, and real estate developers in our Monmouth, Middlesex, and Ocean County, New Jersey, trade area, whom we believe are not adequately served by larger regional and multi-state financial institutions. Since it commenced operations in 1997, the Company has increased its asset base at a rapid pace. Our assets have grown from $34.8 million at December 31, 1997 to $427.8 million at December 31, 2003, a compound annual growth rate of 51.9%. This growth has come both through our success in penetrating our original market in the Freehold, New Jersey area, and through expansion into other market areas in New Jersey. We opened our second office in downtown Freehold, New Jersey, in September 1997, our third office in Howell, New Jersey, in November 1998, our fourth office in Matawan, New Jersey in February 1999, our fifth office in Manalapan, New Jersey in November 1999, our sixth office in Colts Neck, New Jersey in July 2001, our seventh office in Shrewsbury, New Jersey in October 2001 and our eighth office in Millhurst, New Jersey in November 2002. During 2003, in order to capitalize on the stable, low interest rate environment in effect, we undertook a leveraging strategy under which short term borrowings, primarily short term advances from the Federal Home Loan Bank of New York, were used to purchase investment securities, primarily U.S. Government and agency securities. Although this strategy contributed to earnings in 2003, management has elected to discontinue the strategy and reduce its borrowings and securities holdings in 2004. This financial review presents management's discussion and analysis of financial condition and results of operations. It should be read in conjunction with the consolidated condensed financial statements and the accompanying notes included elsewhere herein. CRITICAL ACCOUNTING POLICIES, JUDGMENTS AND ESTIMATES The accounting and reporting policies of the Company conform to accounting principles generally accepted in the United States of America (US GAAP) and predominant practices within the banking industry. The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the amounts reported in the financial statements and the accompanying notes. Actual results could differ from those estimates. The principal estimate that is particularly susceptible to significant change in the near term relates to the allowance for loan losses. The evaluation of the adequacy of the allowance for loan losses includes an analysis of the individual loans and overall risk characteristics and size of the different loan portfolios, and takes into consideration current economic and market conditions, the capability of specific borrowers to pay specific loan obligations, as well as current loan collateral values. However, actual losses on specific loans, which also are encompassed in the analysis, may vary from estimated losses. The allowance for loan loss is maintained at an amount management deems adequate to cover estimated losses. In determining the level to be maintained, management evaluates many factors, including current economic trends, industry experience, historical loss experience, industry loan concentrations, the borrowers' ability to repay and repayment performance, and estimated collateral values. In the opinion of management, the present allowance is adequate to absorb reasonable, foreseeable loan losses. While management uses available information to recognize losses on loans, future additions to the allowance may be necessary based on changes in economic conditions or any of the other factors used in management's determination. In addition, various regulatory agencies, as an integral part of their examination process, periodically review the Company's allowance for losses on loans. Such agencies may require the Company to recognize additions to the allowance based on their judgments about information available to them at the time of their examination. Future increases to our allowance for possible loan losses, whether due to unexpected changes in economic conditions or otherwise, would adversely affect our future results of operations. The Company recognizes deferred tax assets and liabilities for the future tax effects of temporary differences, net operating loss carry forwards and tax credits. Deferred tax assets are subject to management's judgment based upon available evidence that future realization is more likely than not. In the event management determines the inability to realize all or part of net deferred tax assets in the future, a direct charge to income tax expense may be required to reduce the recorded value of the net deferred tax asset to the expected realizable amount. Results of Operations Our results of operations depend primarily on our net interest income, which is the difference between the sum of interest we earn on our interest-earning assets and loan origination fees and the interest we pay on deposits and borrowed funds used to support our interest-earning assets. In addition, the Bank earns fee income, primarily through service fees on deposit accounts and non-interest related service fees on loans. Net interest spread is the difference between the weighted average rate earned on interest earning assets and the weighted average rate paid on interest bearing liabilities. Net interest margin is a function of the difference between the weighted average rate earned on interest-earning assets and the weighted average rate paid on interest-bearing liabilities, as well as the average level of interest-earning assets as compared with that of interest-bearing liabilities. Net income is also affected by the amount of non-interest income and operating expenses. 2 Net Income For the year ended December 31, 2003, net income increased to $2.4 million or $0.71 per share for basic and $0.67 per share for diluted earnings, compared to net income of $2.0 million or $0.61 per share for basic and $0.58 per share for diluted shares for the same period in 2002. The increase in net income from 2002 to 2003 was primarily due to a $1.0 million, or 9.4% increase in net interest income and a 20.5% increase in non-interest income, excluding gain on sale of securities, partially offset by higher non-interest expense and higher income tax expense. The improvement in net income is attributable to our continued growth. The results for the year ended December 31, 2003 were also positively affected by a reduced provision for loan losses during the year ended December 31, 2003 compared to the year ended December 31, 2002. The increase in net income from 2001 to 2002 was primarily due to a $2.1 million, or 24.4% increase in net interest income and a 35.7% increase in non-interest income, partially offset by an increase in the provision for loan losses and higher non-interest expense and higher income tax expense. The results for the year ended December 31, 2002 were also positively affected by $554 thousand in realized gains on sales of investment securities compared to no realized gains during 2001. Net Interest Income For the year ended December 31, 2003, we recognized net interest income of $11.7 million as compared to $10.7 million for the year ended December 31, 2002. The increase in net interest income was largely due to an increase in the average balance of interest earning assets, which increased $107.9 million, or 40.9%, to $371.6 million from $263.7 million. The increase reflects an increase in average investment securities of $80.9 million, or 86.1% as a result of our leveraging strategy and an increase in average loans outstanding of $26.3 million, or 15.5% over the 2002 period. Primarily as a result of the increase in the average balance of interest-earning assets, our interest income increased to $17.4 million for the year ended December 31, 2003, from $15.9 million for the year ended December 31, 2002. The improvement in interest income was primarily due to volume-related increases in income from the investment securities portfolio of $3.2 million and volume-related increases in income of $1.9 million in the loan portfolio, partially offset by rate-related decreases in income of $2.3 million from the investment securities portfolio and rate-related decreases in income of $1.3 million from the loan portfolio. The average yield on our interest-earning assets decreased to 4.68% for the year ended December 31, 2003 from 6.02% for the year ended December 31, 2002. Total interest expense increased 10.0% to $5.8 million for the 2003 period from $5.2 million for the 2002 period. This increase in interest expense is primarily related to an increase of $97.4 million or 46.2% in the average balance of interest-bearing liabilities from $210.6 for the 2002 period to $307.9 million for the 2003 and is partially offset by a decrease in the average rate paid on interest-bearing liabilities from 2.48% during 2002 to 1.87% in 2003. The volume related increases in interest-bearing liabilities reflect the results of our leveraging strategy, as we increased short term borrowings and used the proceeds to purchase investment securities. In addition, other increases in interest bearing liabilities and expense-rate reductions were the result of marketing and pricing decisions made by management in response to the need for cost effective sources of funds, primarily to fund loan growth and investment securities purchases. Our ALCO Committee implemented these strategies as the Federal Reserve Bank reduced the target funds rate to 1% during 2003. The net interest margin was 3.14% in 2003 compared to 4.04% in 2002. The decline resulted primarily from the Federal Reserve Bank's easing of its target federal funds rate to a historically low level of 1.00% in June 2003, which reduced the general level of interest rates in the market. For the year ended December 31, 2002, we recognized net interest income of $10.7 million as compared to $8.6 million for the year ended December 31, 2001. The increase in net interest income was largely due to an increase in the average balance of interest earning assets, which increased $73.5 million, or 38.6%, to $263.7 million from $190.2 million. The increase reflects an increase in average loans outstanding of $30.8 million, or 22.2% and an increase in average investment securities of $52.9 million, or 129.0% over the 2001 period. Primarily as a result of the increase in the average balance of interest-earning assets, our interest income increased to $15.9 million for the year ended December 31, 2002, from $14.2 million for the year ended December 31, 2001. The improvement in interest income was primarily due to volume-related increases in income from the loan portfolio of $2.5 million and volume-related increases in income of $2.9 million in the investment securities portfolio, partially offset by volume-related decreases income $471 thousand in Federal funds sold. In addition to the net volume-related increases, rate related decreases amounting to $3.3 million resulted as the average yield on our interest-earning assets decreased to 6.02% for the year ended December 31, 2002 from 7.45% for the year ended December 31, 2001. Total interest expense decreased 7.1% to $5.2 million for the 2002 period from $5.6 million for the 2001 period. This decrease in interest expense is primarily related to a decrease in average yield paid on interest-bearing liabilities of 139 basis points to 2.48% for the 2002 period compared to 3.87% for the 2001 period. The savings from the decline in rates was partially offset by an increase in the average balance of interest-bearing liabilities, which increased $66.1 million to $210.6 million for the 2002 period compared to $144.5 million for the 2001 period. Volume-related increases in interest expense accounted for $2.4 million of increased expense and were offset by rate reductions amounting to $2.8 million in reduced expense. The volume related increases in interest-bearing liabilities and expense-rate reductions were the result of marketing and pricing decisions made by management in response to the need for cost effective sources of funds, primarily to fund loan growth and investment securities purchases. These strategies were implemented by our ALCO Committee as the Federal Reserve Bank reduced the target funds rate to 1.25% by December 31, 2002. The net interest margin was 4.04% in 2002 compared to 4.51% in 2001. The decline resulted primarily from timely implementation of asset/liability management strategies which leveraged the balance sheet during the 2002 period, resulting in reduced net interest margin percentage offset by increased net interest income. 3 The following table reflects, for the periods presented, the components of our net interest income, setting forth: (1) average assets, liabilities, and stockholders' equity, (2) interest income earned on interest-earning assets and interest expenses paid on interest-bearing liabilities, (3) average yields earned on interest-earning assets and average rates paid on interest-bearing liabilities, (4) our net interest spread (i.e., the average yield on interest-earnings assets less the average rate on interest-bearing liabilities) and (5) our yield on interest-earning assets. Rates are computed on a taxable equivalent basis.

(1) Included in interest income on loans are rate related loan fees. (2) The interest rate spread is the difference between the weighted average yield on average interest-earning assets and the weighted average cost of average interest-bearing liabilities. (3) The interest rate margin is calculated by dividing net interest income by average interest-earning assets. 4 The following table presents by category the major factors that contributed to the changes in net interest income for the periods indicated below. Amounts have been computed on a fully tax-equivalent basis.

Provision for Loan Losses The provision we recorded for the year ended December 31, 2003 was $214 thousand compared to $893 thousand for the year ended December 31, 2002. The provision is the result of our review of several factors, including net loan charge-offs of $2 thousand during the period ended December 31, 2003 compared to $451 thousand for the same prior year period. In addition, the provision reflects management's assessment of economic conditions, credit quality and other risk factors inherent in the loan portfolio. We had no non-performing assets at the end of each of 2003 and 2002. The allowance for loan losses totaled $2.6 million, or 1.30% of total loans at December 31, 2003, compared to $2.4 million, or 1.31% of total loans, at December 31, 2002. The provision we recorded for the year ended December 31, 2002 was $893 thousand compared to $386 thousand for the year ended December 31, 2001. The provision is the result of our review of several factors, including loan charge-offs of $451 thousand during the period ended December 31, 2002 compared to $6 thousand for the same prior year period. In addition, the increased provision reflects increased loan balances and management's assessment of economic conditions, credit quality and other risk factors inherent in the loan portfolio. We had no non-performing assets at the end of each of 2002 and 2001. The allowance for loan losses totaled $2.4 million, or 1.31% of total loans at December 31, 2002, compared to $2.0 million, or 1.33% of total loans, at December 31, 2001. Non-Interest Income Non-interest income amounted to $2.0 million for the year ended December 31, 2003, compared to $1.9 million for the year ended December 31, 2002, an increase of $124 thousand, or 6.6%. The increase was primarily attributable to an increase in service fees on deposits of $161 thousand or 37% from $435 thousand during 2002 to $596 thousand during 2003. The increase was partially offset by a reduction of $146 thousand in gains on sales of securities during 2003 compared to the gains in 2002. The growth in service fees on deposits reflects the growth in transaction account deposits and activity. The gains on sales of investment securities resulted from the implementation of asset/liability management strategies intended to shorten the duration of our investment securities portfolio. Non-interest income amounted to $1.9 million for the year ended December 31, 2002, compared to $1.4 million for the year ended December 31, 2001, an increase of $446 thousand, or 31.2%. The increase was primarily attributable to gains on sales of investment securities of $554 thousand compared to no such gains during the prior year. In addition, the Company also had an increase in service fees on deposits of $33 thousand, or 8.2%, an increase in other fees and commissions of $217 thousand, or 78.3%. These increases were partially offset by a decrease in loan servicing fees of $358 thousand, or 47.8%. The growth in service fees on deposits and other fees and commissions reflects the growth in transaction account deposits and activity. The decrease in non-interest fee income on loans was attributable to a decrease in loan participations and the fees and commissions generated on those transactions. The gains on sales of investment securities resulted from the implementation of asset/liability management strategies intended to shorten the duration of our investment securities portfolio. 5 Non-Interest Expense Non-interest expense amounted to $9.7 million for the year ended December 31, 2003, compared to $8.5 million for the year ended December 31, 2002, an increase of $1.3 million, or 15.0%. The increase was due primarily to increases in employment expenses, occupancy expenses, equipment expenses and other costs generally attributable to our growth. Employment costs increased $552 thousand, or 13.8%, from $4.0 million during 2002 to $4.6 million in 2003. The increase resulted from higher salary costs and increases in insurance costs during 2003. Occupancy expenses increased $222 thousand, or 13.6% from $1.6 million in 2002 to $1.9 million during 2003. These increases resulted from increased lease expense and increased maintenance costs during 2003 compared to 2002. Other operating expenses increased $490 thousand, or 17.4% to $3.3 million for the year ended December 31, 2003 from $2.8 million for the year ended December 31, 2002. The increase was attributable to increased other expenses resulting from our continued growth, as costs of data processing services amounted to $1.1 million, an increase of $195 thousand, or 21.6%; directors' fees amounted to $175 thousand, an increase of $98 thousand, or 127.3%; professional fees amounted to $516 thousand, an increase of $68 thousand, or 15.2%. Non-interest expense amounted to $8.5 million for the year ended December 31, 2002, compared to $7.3 million for the year ended December 31, 2001, an increase of $1.2 million, or 16.4%. The increase was due primarily to increases in employment expenses as well as increases in occupancy expenses, equipment expenses and other costs generally attributable to our growth. Of this increase, employment costs increased $612 thousand, or 18.0%, and reflected increases in the number of employees from 95 full-time equivalents at December 31, 2001 to 104 full-time equivalents at December 31, 2002. The increase in personnel is attributable to the acquisition of additional support personnel required due to our growth and the opening of one new branch office in 2002 and the full year expenses associated with the opening of two new offices during the last half of 2001. Occupancy expenses increased $401 thousand, or 32.6%, to $1.6 million for the year ended December 31, 2002. The increase was attributable to the opening of three new branch offices since the second half of 2001, which resulted in increased lease expense and increased maintenance costs. In addition, the Company recognized increased depreciation costs associated with new facilities and purchases of computer processing equipment. Other operating expenses increased $180 thousand, or 6.8% to $2.8 million for the year ended December 31, 2002 from $2.6 million for the year ended December 31, 2001. The increase was attributable to increased other expenses resulting from our continued growth, as costs of data processing services amounted to $904 thousand, an increase of $165 thousand; professional fees amounted to $448 thousand, an increase of $124 thousand; marketing and advertising costs amounted to $470 thousand, an increase of $53 thousand; stationery, communications and office costs amounted to $317 thousand, an increase of $50 thousand; and all other expenses amounted to $460 thousand, an increase of $109 thousand. These increases were partially offset by a decrease in stationery and printing costs of $107 thousand to $213 thousand and a decrease in systems conversion costs to $214 thousand to $3 thousand. These decreases resulted from the successful systems conversions which were completed during 2001. Income Tax Expenses We recognized $1.3 million and $1.2 million in income tax expense for the years ended December 31, 2003 and 2002, respectively. The effective tax rate for the year ended December 31, 2003 was 35.4% compared to 36.5% for the year ended December 31, 2002. We recognized $1.2 million and $844 thousand in income tax expense for the years ended December 31, 2002 and 2001, respectively. The effective tax rate for the year ended December 31, 2002 was 36.5% compared to 35.8% for the year ended December 31, 2001. Financial Condition At December 31, 2003, our total assets were $427.8 million, an increase of $95.6 million, or 28.8% over total 2002 year end assets of $332.2 million. At December 31, 2003, our net loans were $199.4 million, an increase of $18.9 million, or 10.4% from the $180.6 million reported at December 31, 2002. Investment securities increased to $200.0 million at December 31, 2003, from $131.7 million at December 31, 2002, an increase of $68.3 million or 51.9%. At December 31, 2003 and December 31, 2002, we had no Federal Funds sold. Loan Portfolio At December 31, 2003 our total loans were $202.0 million, an increase of $19.1 million, or 10.4% over our total loans of $183.0 million at December 31, 2002. Our loan portfolio consists primarily of loans secured by real estate, and, to a lesser extent, commercial, construction, and consumer loans. Our loans are granted primarily to businesses and individuals located in Monmouth, Middlesex, and Ocean Counties, New Jersey. We have not made loans to borrowers outside of the United States of America. We believe that our strategy of customer service, competitive rate structures, and selective marketing have enabled us to gain market entry to local loans. Within the portfolio, commercial mortgage loans remained the largest component, constituting 49.4% of the total portfolio. These loans increased by $5.7 million, or 6.0%. Our commercial and industrial loans remained the second largest component despite a decline during 2003, with year-end balances declining by $7.2 million to $39.8 million, or 19.7% of our total portfolio, from $47.0 million or 25.7% or our total portfolio. 6 The following table sets forth the classification of our loans by major category; net of unearned discounts and deferred loan fees for the periods indicated below.

The following table sets forth the aggregate maturities of loans net of unearned discounts and deferred loan fees, in specified categories and the amount of such loans, which have fixed and variable rates at December 31, 2003. Within 1 1 to 5 After 5 year years years Total -------- ------- ------- ------- Commercial and industrial $22,851 $11,426 $ 5,514 $39,791 Construction 23,607 3,766 7,321 34,694 ------- ------- ------- ------- Total $46,458 $15,192 $12,835 $74,485 ======= ======= ======= ======= Fixed rate loans $ 2,374 $ 7,537 $ 4,312 $14,223 Variable rate loans 44,084 7,655 8,523 60,262 ------- ------- ------- ------- Total $46,458 $15,192 $12,835 $74,485 ======= ======= ======= ======= Asset Quality Our loans are our principal earning assets. Inherent in the lending function is the risk of the borrower's inability to repay its loan under its existing terms. Risk elements in a loan portfolio include non-accrual loans, past due and restructured loans, potential problem loans, loan concentrations and other real estate owned, acquired through foreclosure or a deed in lieu of foreclosure. Non-performing assets include loans that are not accruing interest (non-accruing loans) as a result of principal or interest being in default for a period of 90 days or more and other real estate owned. We had no loans past due 90 days or more at any of the year ends December 31, 1998 through 2003, although during the years 2003, 2002 and 2001, we charged off $3 thousand, $452 thousand and zero, respectively, in non-performing loans. When a loan is classified as non-accrual, interest accruals cease and all past due interest, including interest applicable to prior years, is reversed and charged against current income. Until the loan becomes current, any payments received from the borrower are applied to outstanding principal until such time as management determines that the financial condition of the borrower and other factors merit recognition of such payments as interest. We maintain a risk rating system for grading all non-consumer credit facilities. The purpose of the system is to detect changes in loan quality for individual credits and for homogenous pools of loans in the portfolio. All such credits are assigned a numerical rating in accordance with criteria established in ten categories ranging from #1-Excellent to #10-Loss. Definitions for categories #6-Special Mention Loans, #7-Substandard, #8-Doubtful, #9-Specific Reserve, and #10-Loss are consistent with those established by federal regulatory agencies. The initial rating is assigned at inception and reviewed annually when financial statements are received and at other times when deterioration in a relationship is detected. An independent outsourced loan review function tests these ratings in its normal course and resolves any rating differences. Any loan, including unrated consumer credits, may be assigned to a watch list of credits, identified by management as credits warranting special attention for a variety of reasons, which might bear on ultimate collectibility. In addition to our internal rating system, our federal regulators provide for the classification of certain loans into substandard, doubtful or loss categories. A loan is classified as substandard when it is inadequately protected by the current value and paying capacity of the obligor or of the collateral pledged, if any. Loans so classified have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that we will sustain some loss if the deficiencies are not corrected. A loan is classified as doubtful when it has all the weaknesses inherent in one classified as substandard with the added characteristics that the weaknesses make collection or liquidation in full, on the basis of currently existing factors, conditions, and values, highly questionable and improbable. A loan is classified as loss when it is considered uncollectible and of such little value that the asset's continuance as an asset on the balance sheet is not warranted. As of December 31, 2003, $839 thousand in loans were classified as substandard, $96 thousand in loans were classified as doubtful, and no loans were classified as loss. As of December 31, 2002, $356 thousand in loans were classified as substandard, $82 thousand in loans were classified as doubtful, and no loans were classified as loss. As of December 31, 2001, 2000 and 1999, no loans were classified as substandard, doubtful or loss. 7 Allowance for Loan Losses We attempt to maintain an allowance for loan losses at a sufficient level to provide for potential losses in the loan portfolio. Loan losses are charged directly to the allowance when they occur and any recovery is credited to the allowance. Risks within the loan portfolio are analyzed on a continuous basis by our officers, by outside independent loan review auditors, our Directors Loan Committee, and the Board of Directors. A risk system, consisting of multiple grading categories, is utilized as an analytical tool to assess risk and set appropriate reserves. Along with the risk system, management further evaluates risk characteristics of the loan portfolio under current economic conditions and considers such factors as the financial condition of the borrower, past and expected loss experience, and other factors management feels deserve recognition in establishing an appropriate reserve. These estimates are reviewed at least monthly, and, as adjustments become necessary, they are realized in the periods in which they become known. During 2003, 2002 and 2001, $3 thousand 452 thousand and zero, respectively, in loans were charged directly to the allowance when the loss was identified. Additions to the allowance are made by provisions charged to expense and the allowance is reduced by net charge-offs (i.e., loans judged to be uncollectible and charged against the reserve, less any recoveries on such loans). Although management attempts to maintain the allowance at a level deemed adequate, future additions to the allowance may be necessary based upon changes in market conditions. In addition, various regulatory agencies periodically review our allowance for loan losses. These agencies may require us to take additional provisions based on their judgments about information available to them at the time of their examination. Our allowance for loan losses totaled $2.6 million at December 31, 2003, or 1.30% of total loans outstanding. We had no non-performing loans or loans past due 90 days or more at December 31, 2003 and 2002. The following is a summary of the reconciliation of the allowance for loan losses for the periods indicated.

The following table sets forth, for each of the Bank's major lending areas, the amount of the Bank's allowance for loan losses attributable to such category, and the percentage of total loans represented by such category, as of the periods indicated. The allocation of the allowance for loan losses to the respective loan classifications is not necessarily indicative of future losses or future allocations.

8 Investment Securities We maintain an investment portfolio to fund increased loans or decreased deposits and other liquidity needs and to provide an additional source of interest income. The portfolio is composed of obligations of U.S. Government and agencies, government sponsored entities, and a limited amount of corporate debt securities. We follow Statement of Financial Accounting Standards (SFAS) No. 115, Accounting for Certain Investments in Debt and Equity Securities. Under SFAS No. 115, securities are classified as securities held to maturity based on management's intent and our ability to hold them to maturity. Such securities are stated at cost, adjusted for unamortized purchase premiums and discounts. Securities not classified as securities held to maturity or trading securities are classified as securities available for sale, and are stated at fair value. Unrealized gains and losses on securities available for sale are excluded from results of operations, and are reported as a separate component of stockholders' equity, net of taxes. Securities classified as available for sale include securities that may be sold in response to changes in interest rates, changes in prepayment risks, the need to increase regulatory capital, or other similar requirements. The Bank has no trading securities. Management determines the appropriate classification at the time of purchase. At December 31, 2003 we classified our investment portfolio as available-for-sale. These available-for-sale securities had a cost basis of $203.2 million. The fair value adjustment at December 31, 2003 required us to reduce the carrying value of these investment securities by $3.2 million, increase the deferred tax benefit by $1.2 million, and reduce stockholders' equity by $2.0 million. Securities with a cost of $349.2 million were purchased for the available-for-sale account during 2003. Total investment securities at December 31, 2003 were $200.0 million, an increase of $68.3 million, or 51.9% over total investment securities of $131.7 million at December 31, 2002. The increase during 2003 resulted as we utilized our liquidity in excess of loan demand to fund additional purchases of investment securities. In addition, during the middle of 2003, the company engaged in a leveraging strategy pursuant to which $47.2 million in FHLB advances were used to purchase investment securities. This strategy resulted from the Asset/Liability management considerations arising from our analysis of several economic scenarios, including reduced loan growth and deposit repricing opportunities. We maintain an investment portfolio of short duration in order to fund projected increased loan volume and to provide for other liquidity uses as needed, and secondarily as an additional source of interest income. The amortized cost and fair value of our investment securities are as follows (in thousands):

The amortized cost and fair value of our investment securities at December 31, 2003, by contractual maturity, are shown below. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties (in thousands). Available-for-sale ------------------ Amortized Fair Average Cost Value Yield ---- ----- ----- Due in one year or less $ $ -- Due after one year through five years 197,011 198,896 2.29% Due after five years through ten years 2,500 2,484 4.20 Due after ten years 3,645 3,645 0.36 -------- -------- ---- $203,156 $200,025 2.27 ======== ======== ==== 9 Other Assets Other Assets are comprised primarily of bank owned life insurance, which increased to $5.8 million at December 31, 2003 from $1.6 million at December 31, 2002. Deposits Our total deposits at December 31, 2003, were $326.0 million, an increase of $34.4 million, or 11.8% over total deposits of $291.6 million at December 31, 2002. Deposits are our primary source of funds. The growth in deposits during this period was primarily due to greater penetration of our marketplace and the continued growth of our new locations. As we adjusted the mix of our deposit base through marketing and pricing initiatives, lower costing demand deposits, savings accounts, money market and NOW accounts increased by $46.1 million, while higher costing certificates of deposit decreased by $11.7 million. Average total deposits increased by $73.6 million, or 29.8% to $321.0 million for the year ended December 31, 2003 compared to $247.4 million for 2002. Changes in the deposit mix averages for 2003 compared to 2002 include a $29.5 million, or 35.9% increase in savings deposits; a $23.3 million, or 25.6% increase in time deposits; a $13.3 million or 29.0% increase in demand deposits; a $4.4 million, or 21.1% increase in NOW accounts and a $3.1 million, or 42.0% increase in money market deposits. We emphasize relationships with commercial customers and seek to obtain transactional accounts, which are frequently kept in non-interest bearing deposits. We also emphasize the origination of savings and money market deposits, which amounted to $135.7 million at December by offering rates higher than our peer group institutions. Our primary savings product is the stepped rate savings account. The interest rate is based upon the amount on deposit, and the deposit amount can be changed. We may modify the interest rate amount paid without notice, and the depositor may withdraw their funds on demand. We market this product as an alternative to time deposits and believe it has resulted in a higher rate of core deposits and lower cost of funds than our peer group institutions. Deposits are obtained primarily from the market areas that we serve. The following table sets forth the average amounts of various types of deposits at the periods indicated.

The following table summarizes the maturity distribution of certificates of deposits as of December 31, 2003. Time CD's $100,000 and over Amount Percent ------ ------- (In thousands, except percentages) Due in three months or less $15,667 47.7% Due over three months through six months 5,093 15.5 Due over six months through twelve months 11,899 36.2 Due over one year through three years 204 0.6 ------- ----- Total certificates of deposit $32,863 100.0% ======= ===== Interest Rate Risk Management Interest rate risk management involves managing the extent to which interest-sensitive assets and interest-sensitive liabilities are matched. Interest rate sensitivity is the relationship between market interest rates and earnings volatility due to the repricing characteristics of assets and liabilities. Our net income is affected by changes in the level of market interest rates. In order to maintain consistent earnings performance, we seek to manage, to the extent possible, the repricing characteristics of our assets and liabilities. The ratio between assets and liabilities repricing in specific time intervals is referred to as an interest rate sensitivity gap. Interest rate sensitivity gaps can be managed to take advantage of the slope of the yield curve as well as forecasted changes in the level of interest rate changes. 10 One of our major objectives when managing the rate sensitivity of our assets and liabilities is to stabilize net interest income. The management of and authority to assume interest rate risk is the responsibility of the Asset/Liability Committee (ALCO), which is comprised of senior management and Board members. We have instituted policies and practices of measuring and reporting interest rate risk exposure, particularly regarding the treatment of non-contractual assets and liabilities. In addition, we annually review our interest rate risk policy, which includes limits on the impact to earnings from shifts in interest rates. To manage our interest sensitivity position, an asset/liability model called "gap analysis" is used to monitor the difference in the volume of our interest sensitive assets and liabilities that mature or reprice within given periods. A positive gap (asset sensitive) indicates that more assets reprice during a given period compared to liabilities, while a negative gap (liability sensitive) has the opposite effect. We employ computerized net interest income simulation modeling to assist in quantifying interest rate risk exposure. This process measures and quantifies the impact on net interest income through varying interest rate changes and balance sheet compositions. The use of this model assists the ALCO to gauge the effects of the interest rate changes on interest sensitive assets and liabilities in order to determine what impact these rate changes will have upon the net interest spread.

(1) The following are the assumptions that were used to prepare the gap analysis: a. Investment securities are included at amortized cost in the period in which they mature at stated maturity, except for government agency securities with coupon rates of 3.00% and above and with call provisions of one year or less, which are stated as maturing at the call date. b. Loans are spread through the maturity buckets based on the earlier of their actual maturity date or the date of their first potential rate adjustment. c. Non-maturing NOW accounts, money market accounts and savings deposits typically change rates more slowly than maturing balances. The rate change speed of these accounts compared to the economic rate change, has been adjusted based upon the Company's experience. d. Certificates of deposits are spread through the maturity buckets based on their actual maturity date. (2) Valuation reserves include allowance for loan losses, FASB No. 91 deferred fees and the investment securities available-for-sale market-to-market adjustment. 11 Liquidity Our liquidity is a measure of our ability to fund loans, withdrawals or maturities of deposits, and other cash outflows in a cost-effective manner. Our principal sources of liquidity are deposits, scheduled amortization and prepayments of loan principal, maturities of investment securities, access to purchased funds, and funds provided by operations. While scheduled loan payments and maturing investments are relatively predictable sources of funds, deposit flows, loan prepayments and callable investment securities are greatly influenced by general interest rates, economic conditions and competition. Liquid assets (consisting of cash, federal funds sold and investment securities classified as available-for-sale) comprised 49.4% and 42.5% of our total assets at December 31, 2003 and 2002, respectively. Should liquidity needs arise to fund new loan demand, we have the capability to sell our available-for-sale securities, and to purchase federal funds as alternative sources of liquidity. We have established credit lines with other financial institutions to purchase up to $5.0 million in federal funds and may borrow funds at the Federal Reserve discount window, subject to our ability to supply collateral. During 2000, we became a member of the Federal Home Loan Bank of New York and have a combined overnight borrowing line and term line of $38.9 million. In addition, subject to certain Federal Home Loan Bank requirements, we may also obtain longer-term advances of up to 30% of our assets. As of December 31, 2003, we have $12.4 million in overnight borrowings. We believe that our liquidity position is sufficient to provide funds to meet future loan demand or the possible outflow of deposits, in addition to enabling us to adapt to changing interest rate conditions. Short-Term Borrowings Short-term borrowings consist of overnight federal funds purchased and short-term advances from the Federal Home Loan Bank of New York, which generally have maturities of less than one month. The details of these categories are presented below: Year ended December 31, ----------------------- 2003 2002 -------- -------- Federal funds purchased and short-term advances Balance at year-end $ 72,400 $ 11,500 Average during the year 41,263 9,015 Maximum month-end balance 110,200 15,700 Weighted average rate during the year 1.15% 1.77% Rate at December 31 1.11% 1.35% Guaranteed Preferred Beneficial Interest in the Company's Subordinated Debt The Company issued $5.0 million of trust preferred securities to a pooled investment vehicle sponsored by Bear, Stearns & Co., Inc. on December 20, 2002. These securities have a floating interest rate equal to three month LIBOR plus 335 basis points, which resets quarterly. The average interest rate paid during 2003 was 4.80%. The variable interest rate is capped at 12.5% though January 7, 2008. The securities mature on January 7, 2033, and may be called at par by the Company any time after January 7, 2008. The securities were placed in a private transaction exempted from registration under the Securities Act of 1933, as amended. Although the subordinated debentures are treated as debt of the Company, they currently qualify as Tier I Capital investments, subject to the 25% limitation under risk-based capital guidelines of the Federal Reserve. The portion of the Trust Preferred Securities that exceeds this limitation qualifies as Tier II capital of the Company. At December 31, 2003 the $5.0 million of the Trust Preferred Securities qualified for treatment as Tier I capital. Off-Balance Sheet Arrangements and Contractual Obligations and Other Commitments The following table sets forth contractual obligations and other commitments representing required and potential cash outflows as of December 31, 2003:

The Company had no capital leases at December 31, 2003. 12 The Company's financial statements do not reflect off-balance sheet arrangements that are made in the normal course of business. These off-balance sheet arrangements consist of unfunded loans and letters of credit made under the same standards as on-balance sheet instruments. These unused commitments, at December 31, 2003 totaled $86,950,000. This consisted of unfunded loan commitments, unused lines of credit and letters of credit. These instruments have fixed maturity dates, and because many of them will expire without being drawn upon, they do not generally present any significant liquidity risk the Company. Management believes that any amounts actually drawn upon can be funded in the normal course of operations. The Company has no investment in or financial relationship with any unconsolidated entities that are reasonably likely to have a material effect on liquidity or the availability of capital resources. Capital A significant measure of the strength of a financial institution is its capital base. Our federal regulators have classified and defined capital into the following components: (1) Tier I capital, which includes common stock, qualifying preferred stock, and certain hybrid capital instruments, such as trust preferred securities, and (2) Tier II capital, which includes a portion of the allowance for possible loan losses, certain qualifying long-term debt and preferred stock and hybrid capital instruments which do not qualify for Tier I capital. Minimum capital levels are regulated by risk-based capital adequacy guidelines which require a financial institution to maintain capital as a percent of its assets and certain off-balance sheet items adjusted for predefined credit risk factors (risk-adjusted assets). A financial institution is required to maintain, at a minimum, Tier I capital as a percentage of risk-adjusted assets of 4.0% and combined Tier I and Tier II capital as a percentage of risk-adjusted assets of 8.0%. In addition to the risk-based guidelines, the federal regulators require that a financial institution which meets the regulators' highest performance and operation standards maintain a minimum leverage ratio (Tier I capital as a percentage of tangible assets) of 3.0%. For those institutions with higher levels of risk or that are experiencing or anticipating significant growth, the minimum leverage ratio will be proportionately increased by 100 to 200 basis points. Minimum leverage ratios for the Company are evaluated through the ongoing regulatory examination process. The following table sets forth certain capital performance ratios for the Company. 2003 2002 2001 ---- ---- ---- Capital performance Return on average assets 0.61% 0.72% 0.74% Return on average equity 9.99% 9.06% 7.45% The following table summarizes our risk-based and leverage ratios at December 31, 2003, as well as the required minimum regulatory capital ratios.

13 Impact of Inflation and Changing Prices Our financial statements and notes thereto, presented elsewhere herein, have been prepared in accordance with accounting principles generally accepted in the United States of America, which require the measurement of financial position and operating results in terms of historical dollars without considering the change in the relative purchasing power of money over time and due to inflation. The impact of inflation is reflected in the increased cost of the Company's operations. Unlike most industrial companies, nearly all our assets and liabilities are monetary. As a result, interest rates have a greater impact on our performance than do the effects of general levels of inflation. Interest rates do not necessarily move in the same direction or to the same extent as the prices of goods and services. Recent Accounting Pronouncements Off Balance Sheet Guarantees The Company adopted FASB Interpretation 45 (FIN 45) Guarantor's Accounting and Disclosure Requirements for Guarantees, including Indirect Guarantees of Indebtedness of Others on January 1, 2003. FIN 45 requires a guarantor entity, at the inception of a guarantee covered by the measurement provisions of the interpretation, to record a liability for the fair value of the obligation undertaken in issuing the guarantee. The Company has financial and performance letters of credit. Financial letters of credit require the Company to make payment if the customer's financial condition deteriorates, as defined in the agreements. Performance letters of credit require the Company to make payments if the customer fails to perform certain non-financial contractual obligations. The Company previously did not record an initial liability, other than the fees received for these letters of credit, when guaranteeing obligations unless it became probable that the Company would have to perform under the guarantee. FIN 45 applies prospectively to letters of credit the Company issues or modifies subsequent to December 31, 2002. The Company defines the initial fair value of these letters of credit as the fee received from the customer. The maximum potential undiscounted amount of future payments of these letters of credit as of December 31, 2003 is $4.5 million and they expire through April 2005. Amounts due under these letters of credit would be reduced by any proceeds that the Company would be able to obtain in liquidating the collateral for the loans, which varies depending on the customer. Variable Interest Entities In January, 2003, the FASB issued FASB Interpretation 46 (FIN 46), Consolidation of Variable Interest Entities. FIN 46 clarifies the application of Accounting Research Bulletin 51, Consolidated Financial Statements, for certain entities that do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties or in which equity investors do not have the characteristics of a controlling financial interest ("variable interest entities"). Variable interest entities within the scope of FIN 46 will be required to be consolidated by their primary beneficiary. The primary beneficiary of a variable interest entity is determined to be the party that absorbs a majority of the entity's expected losses, receives a majority of its expected returns, or both. Management has determined that CBNJ Capital Trust I qualifies as a variable interest entity under FIN 46. CBNJ Capital Trust I issued mandatorily redeemable preferred stock to investors and loaned the proceeds to the Company. CBNJ Capital Trust I holds, as its sole asset, subordinated debentures issued by the Company in 2002. CBNJ Capital Trust I is currently included in the Company's consolidated balance sheets and statements of income. The Company has evaluated the impact of FIN 46 and concluded it should continue to consolidate CBNJ Capital Trust I as of December 31, 2003, in part due to its ability to call the preferred stock prior to the mandatory redemption date and thereby benefit from a decline in required dividend yields. Subsequent to the issuance of FIN 46, the FASB issued a revised interpretation, FIN 46(R), the provisions of which must be applied to certain variable interest entities by March 31, 2004. The Company plans to adopt the provisions under the revised interpretation in the first quarter of 2004. FIN 46(R) will require Community Bancorp of New Jersey, Inc. to deconsolidate CBNJ Capital Trust I as of March 31, 2004. FIN 46(R) precludes consideration of the call option embedded in the preferred stock when determining if the Company has the right to a majority of CBNJ Capital Trust I's expected residual returns. Accordingly, the Company will deconsolidate CBNJ Capital Trust I at the end of the first quarter, which will result in an increase in the outstanding debt by $155,000. The banking regulatory agencies have not issued any guidance that would change the regulatory capital treatment for the trust preferred securities issued by CBNJ Capital Trust I based on the adoption of FIN 46(R). However, as additional interpretations from the banking regulators related to entities such as CBNJ Capital Trust I become available, management will reevaluate its potential impact to its Tier I capital calculation under such interpretations. Amendment to SFAS 133 on Derivative Instruments and Hedging Activities The Company adopted Statement of Financial Accounting Standard 149 (SFAS No. 149), Amendment of Statement 133 on Derivative Instruments and Hedging Activities, on July 1, 2003. SFAS No. 149 clarifies and amends SFAS No. 133 for implementation issues raised by constituents and includes the conclusions reached by the FASB on certain FASB Staff Implementation Issues. Statement 149 also amends SFAS No. 133 to require a lender to account for loan commitments related to mortgage loans that will be held for sale as derivatives. SFAS No. 149 is effective for contracts entered into or modified after June 30, 2003. The Company periodically enters into commitments with its customers, which it intends to sell in the future. Management does not anticipate the adoption of SFAS No. 149 to have a material impact on the Company's financial position or results of operations. 14 Financial Instruments with Characteristics of Both Liabilities and Equity The FASB issued SFAS No. 150, Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity, on May 15, 2003. SFAS No. 150 changes the classification in the statement of financial position of certain common financial instruments from either equity or mezzanine presentation to liabilities and requires an issuer of those financial statements to recognize changes in fair value or redemption amount, as applicable, in earnings. SFAS No. 150 is effective for public companies for financial instruments entered into or modified after May 31, 2003 and is effective at the beginning of the first interim period beginning after June 15, 2003. Management has not entered into any financial instruments that would qualify under SFAS No. 150. The Company currently classifies its Guaranteed Preferred Beneficial Interest in the Company's Subordinated Debt as a liability. As a result, management does not anticipate the adoption of SFAS No. 150 to have a material impact on the Company's financial position or results of operations. Transfers of Loans In October 2003, the AICPA issued SOP 03-3 Accounting for Loans or Certain Debt Securities Acquired in a Transfer. SOP 03-3 applies to a loan with evidence of deterioration of credit quality since origination acquired by completion of a transfer for which it is probable at acquisition, that the Company will be unable to collect all contractually required payments receivable. SOP 03-3 requires that the Company recognize the excess of all cash flows expected at acquisition over the investor's initial investment in the loan as interest income on a level-yield basis over the life of the loan as the accretable yield. The loan's contractual required payments receivable in excess of the amount of its cash flows expected at acquisition (nonaccretable difference) should not be recognized as an adjustment to yield, a loss accrual or a valuation allowance for credit risk. SOP 03-3 is effective for loans acquired in fiscal years beginning after December 31, 2004. Early adoption is permitted. Management is currently evaluating the provisions of SOP 03-3. Other than Temporary Impairment The Company adopted EITF 03-1, The Meaning of Other than Temporary Impairment and its Application to Certain Investments, as of December 31, 2003. EITF 03-1 includes certain disclosures regarding quantitative and qualitative disclosures for investment securities accounted for under SFAS 115, Accounting for Certain Investments in Debt and Equity Securities, that are impaired at the balance sheet date, but an other-than-temporary impairment has not been recognized. The disclosures under EITF 03-1 are required for financial statements for years ending after December 15, 2003 and are included in these financial statements. ITEM 11. -- EXECUTIVE COMPENSATION Executive Compensation The following table sets forth a summary of the cash and non-cash compensation awarded to, earned by, or paid to, the Chief Executive Officer of the Company for each of the last three fiscal years and the other executive officers of the Company whose cash remuneration exceeds $100,000. SUMMARY COMPENSATION TABLE Cash and Cash Equivalent Forms of Remuneration

(1) Other annual compensation includes expenses incurred for the use of an automobile. The Company believes the value of the personal use of such vehicle was less than 10% of the salary and bonus of each respective officer. (2) Bonuses were earned in the years disclosed, although they may have been paid in subsequent years. (3) Options have not been retroactively adjusted for stock dividends or stock split. 15 On May 8, 1998, the Company retained Mr. Robert D. O'Donnell as President and Chief Executive Officer at an original base salary of $151,000. Mr. O'Donnell is entitled to receive an annual increase of at least 10%, provided that the Company has met certain performance targets. Mr. O'Donnell is also entitled to an annual cash bonus in an amount equal to 5% of the Company's after tax net profit. If Mr. O'Donnell is terminated for any reason other than for "cause", he is entitled to continue to receive his then current base salary and bonus for the next twenty-four (24) months. In the event of a change in control of the Company, Mr. O'Donnell is entitled to twice his then current base salary and bonus, payable at the option of Mr. O'Donnell either in a lump sum, or over a period of twenty-four (24) months. Consummation of the transaction proposed with Sun would constitute a change in control under Mr. O'Donnell's agreement. On July 11, 2002, the Company entered into a change of control agreement with Mr. Kinghorn. Under this agreement, in the event of a change in control, as defined by the Agreement, Mr. Kinghorn is to be employed for a three-year period (unless he attains age 65 sooner, in which case his term of employment would end then). During this employment period, Mr. Kinghorn is to receive base compensation equal to the annual compensation, including salary and bonus, as was paid to or accrued for him during the twelve months immediately prior to the change in control. He is also to receive an annual increase to reflect the impact of inflation, Mr. Kinghorn's performance and the performance of the Company. The minimum increase must equal the annual percentage increase in the consumer price index for urban wage earners and clerical workers for the New York and Northern New Jersey area during the preceding twelve months. After a change in control, Mr. Kinghorn may be terminated by the Company or its successor for "cause", as defined in the agreement. However, in the event he is terminated without cause, or in the event he resigns his position for "good reason", he will be entitled to a lump sum payment equal to two times the highest annual compensation, including salary and cash bonus, paid to him during any of the three calendar years immediately prior to the change in control. The payments due to Mr. Kinghorn may be reduced if the payment would not be deductible by the Company or its successor for federal income tax purposes due to Section 280G of the Internal Revenue Code of 1986. Mr. Kinghorn's agreement does not become effective, and does not govern the terms of his employment, until a change in control takes place. The agreement has a term of three years, and renews annually unless the Company, by a majority vote of the directors then in office, decide not to extend the term of the Agreement. If a change in control were to have happened at December 31, 2003 and Mr. Kinghorn were to be terminated without cause or to resign for good cause, he would have been entitled to a payment equal to $ 400,000. During early 2004, the Company also entered into a change in control bonus agreement with Mr. Kinghorn. Under this agreement, in the event of a change in control of the Company, as defined under the agreement, Mr. Kinghorn will be entitled to a lump sum payment equal to $250,000 provided that he remains employed by the Company through completion of the change in control, The payment due to Mr. Kinghorn may be reduced if the payment would not be deductible by the Company or its successor for federal income tax purposes due to Section 280G of the Internal Revenue Code of 1986. Consummation of the transaction proposed with Sun would constitute a change in control under Mr. Kinghorn's agreements. STOCK OPTION PLANS In the following discussion, options authorized for grant under each option plan have been adjusted to reflect stock dividends and stock splits. During 1997, the Bank's Board of Directors approved the 1997 Stock Option Plan, the 1997 Employee Stock Option Plan and the 1997 Option Plan for Non-Employee Directors. Under the 1997 Stock Option Plan, directors of the Bank, including employees who are directors of the Bank, may be granted non-qualified or incentive stock options. The 1997 Stock Option Plan provides for the grant of options to purchase up to 109,278 shares of common stock. Pursuant to the terms of the 1997 Stock Option Plan, options which qualify as incentive stock options under the Internal Revenue Code of 1986 must be granted at an exercise price of no less than 100% of the then current fair market value of the common stock, and options which are non-qualified options may be granted at an exercise price to be determined by the Board of Directors at the time of grant, but no less than 85% of the then fair market value of the common stock. The 1997 Employee Stock Option Plan permits grants of options to purchase up to 93,897 shares of common stock. Under the 1997 Employee Stock Option Plan, grants may either be incentive stock options or non-qualified options. The 1997 Employee Stock Option Plan is administered by the Board of Directors, which has the authority to determine the officers and employees of the Bank who will receive options, whether the options will be incentive stock options or non-qualified options and, subject to the terms of the Plan, the exercise price for the options. Under the Plan, incentive stock options must have an exercise price of no less than 100% of the fair market value of the common stock on the date of grant, and non-qualified options may have an exercise price to be determined by the Board of Directors at grant, but no less than 85% of the fair market value of the common stock on the date of grant. The 1997 Stock Option Plan for Non-Employee Directors permits grants of options to purchase up to 84,508 shares of common stock. Under the 1997 Stock Option Plan for Non-Employee Directors, each director who is not an employee of the Company, upon the adoption of the Plan or when first appointed or elected a member of the Board, shall receive a grant of non-qualified options under Section 422 of the Internal Revenue Code of 1986 to purchase 5,000 shares of the Company's common stock. The exercise price of the options will be the greater of $11.00 per share or 100 % of the fair market value of the common stock on the date of grant, whichever is greater. In May 1998, the Board of Directors of the Bank adopted the 1998 Stock Option Plan pursuant to which options may be granted to employees of the Bank. The 1998 Stock Option Plan provides for the granting of options to purchase up to 93,897 shares of common stock. The terms of the 1998 Stock Option Plan are substantially similar to the terms of the 1997 Employee Stock Option Plan. In January 2000, the Board of Directors of the Company adopted the 2000 Employee Stock Option Plan pursuant to which options may be granted to employees of the Company. The 2000 Employee Stock Option Plan provides for the granting of options to purchase up to 156,498 shares of common stock. The terms of the 2000 Employee Stock Option Plan are substantially similar to the terms of the 1997 Employee Stock Option Plan. 16 In January, 2000, the Board of Directors of the Company also adopted the 2000 Stock Option Plan for Non-Employee Directors pursuant to which options may be granted to directors who are not employees of the Company. The 2000 Stock Option Plan for Non-Employee Directors provides for the granting of options to purchase up to 127,628 shares of common stock. Under the 2000 Stock Option Plan for Non-Employee Directors, the exercise price for the purchase of shares under the options is no less than 105% of the fair market value of the shares on the date of the grant. The following table sets forth information regarding stock option grants to the individuals named in the table above during 2003.

(1) As of December 31, 2003, 20% of these options were exercisable. These options vest ratably over four years, commencing on the date of grant. (2) The present value of each option grant is estimated on the date of grant using the Black-Scholes option pricing model with the following weighted average assumptions: dividend yield of 0%, expected volatility of 25%, risk free interest rate of 2.87%, and an expected life of five (5) years. The following table sets forth information concerning the fiscal year-end value of unexercised options held by the executive officers of the Company named herein under the caption "Executive Compensation". No stock options were exercised by such executive officers during 2003.

(1) Market value of the underlying securities at year end (based upon the closing price on the NASDAQ National Market) minus the exercise price per share. Options vest and become exercisable over various periods not exceeding five years and are subject to acceleration in certain circumstances. Compensation of the Board of Directors During 2003, the Directors of the Company were paid meeting fees totaling $89,600 in connection with their service on the Board of Directors of the Company. Additionally, the Bank has established a Director Deferred Compensation Plan pursuant to which the consideration each Director would have received for service on the Board of Directors of the Bank is paid into a trust and deferred until the time such Director reaches their stated retirement age from the Board. Executive Officers of the Bank that also serve as Directors may contribute like sums from their pre-tax salary into the trust. Upon attaining retirement age, the deferred Director's fees, and all earnings on such fees, will be paid out to the Director over a ten-year period. The Director Deferred Compensation Plan was amended in 2003 so that in the event of a change of control of the Company, if a Directors service is terminated within three (3) years, the Director will be treated as if they have contributed ten (10) years worth of Director fees into the plan and had received earnings on those contributions at a stipulated rate. Amounts then due under the Directors Deferred Compensation Plan are to be paid in a lump sum into a trust for distribution to the Plan participants. For the year ended 2003 each Bank Director who was not a full time employee of the Bank was credited with $12,000 in fees paid into the plan. Upon consummation, the proposed transaction with Sun will constitute a change in control under the Directors Deferred Compensation Plan. In addition, members of the Board of Directors participate in the 1997 Stock Option Plan for Non-Employee Directors, the 1997 Stock Option Plan and the 2000 Stock Option Plan. Pursuant to these Plans, members of the Board of Directors have in the past, received stock options to purchase shares of our common stock. In addition, during 2002 each non-employee Director was granted 14,150 options at an exercise price of $15.81 per share. 17 PERFORMANCE GRAPH Set forth below is a graph and table comparing the yearly percentage change in the cumulative total shareholder return on the Company's Common Stock against (1) the cumulative total return on the NASDAQ Bank Index and (2) the cumulative total return on the NASDAQ Market Index for the period commencing January 1, 1999, and ending December 31, 2003. [THE FOLLOWING TABLE DATA WAS REPRESENTED IN A LINE GRAPH] Relative Relative Relative Change Change Change -------------------------------------------------------------------------------- Date Nasdaq Bank Index Nasdaq CBNJ ================================================================================ 1/1/1999 1.00 1.00 1.00 5/21/1999 1.01 1.15 1.00 10/8/1999 0.95 1.32 1.00 2/25/2000 0.78 2.09 0.78 7/14/2000 0.87 1.94 0.84 12/1/2000 0.96 1.21 0.90 4/20/2001 1.03 0.99 1.08 9/7/2001 1.09 0.77 1.16 1/25/2002 1.19 0.88 1.17 6/14/2002 1.27 0.69 1.51 11/1/2002 1.25 0.62 1.60 3/21/2003 1.22 0.65 2.10 8/8/2003 1.36 0.75 2.27 12/26/2003 1.57 0.90 2.52 ASSUMES $100 INVESTED ON JANUARY 1, 1999 ASSUMES DIVIDEND REINVESTED FISCAL YEAR ENDING DEC. 31, 2003

Human Resources Committee Report on Executive Compensation The Company's compensation package for its executive officers consists of base salary, an annual bonus, annual discretionary stock option grants and various broad based employee benefits. The objective of the Company's executive compensation is to enhance the Company's long-term profitability by providing compensation that will attract and retain superior talent, reward performance and align the interests of the executive officers with the long-term interests of the shareholders of the Company. Base salary levels for the Company's executive officers are competitively set relative to companies in peer businesses. The annual financial performance of the Company is one of the most important factors in reviewing base salaries and bonuses. In reviewing base salaries, the Human Resources Committee also takes into account individual experience and performance. The Company's annual bonuses are intended to provide a direct cash incentive to executive officers and other key employees to maximize the Company's profitability. Financial performance is compared against budgets as well as peer businesses. Stock options are intended to encourage officers and other key employees to remain employed by the Company by providing them with a long term interest in the Company's overall performance as reflected by the performance of the market of the Company's Common Stock. In granting stock options, the Human 18 Resources Committee takes into account prior stock option grants and consider the executive's level of compensation and past contributions to the Company. Robert D. O'Donnell was the President and Chief Executive Officer of the Company and the Bank for 2003. Mr. O'Donnell's base salary is set competitively relative to other chief executive officers in financial service companies in the Company's market area and determined pursuant to the terms of his Employment Agreement. In determining Mr. O'Donnell's base salary, the Committee reviewed independent compensation data and the Company's performance as compared against budgets and peer businesses. The calculation of Mr. O'Donnell's bonus is determined pursuant to his Employment Agreement. As with the Company's other executive officers, Mr. O'Donnell's total compensation involves certain subjective judgments and is not based solely upon any specific objective criteria or weighting. James Kinghorn Morris Kaplan Robert D. O'Donnell Howard Schoor Arnold Silverman 19 PART IV ITEM 15. -- EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) Financcial Statements Consolidated balance sheets of Community Bancorp of New Jersey and its 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. (b) Reports on Form 8-K (i) None (c) Exhibits Exhibit number Description of Exhibits ----------------------- 10.1 Form of Directors Deferred Compensation Plan Agreement* 10.2 Change in Control Agreement* 14 Principal Executive and Senior Financial Officer Code of Ethics 21 Subsidiaries of the Registrant* 23 Consent of Grant Thornton LLP 31.1 Certification of Robert D. O'Donnell pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 31.2 Certification of Marie P. Mueller pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 32 Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 * previously filed 20 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this amendment to be signed on its behalf by the undersigned, thereunto duly authorized. COMMUNITY BANCORP OF NEW JERSEY By: /s/ Robert D. O'Donnell --------------------------- Robert D. O'Donnell Dated: April __, 2004 President and Chief Executive Officer 21 COMMUNITY BANCORP OF NEW JERSEY Consolidated Balance Sheets (In thousands, except per share data)

The accompanying notes are an integral part of these statements. 22 COMMUNITY BANCORP OF NEW JERSEY Consolidated Statements of Income (In thousands, except per share data)

The accompanying notes are an integral part of these statements. 23 COMMUNITY BANCORP OF NEW JERSEY Consolidated Statement of Changes in Stockholders' Equity Years ended December 31, 2003, 2002 and 2001 (In thousands, except per share data)

The accompanying notes are an integral part of this statement. 24 COMMUNITY BANCORP OF NEW JERSEY Consolidated Statements of Cash Flows (In thousands)

The accompanying notes are an integral part of these statements. 25 COMMUNITY BANCORP OF NEW JERSEY Notes to Consolidated Financial Statements December 31, 2003 and 2002 NOTE A - ORGANIZATION Community Bancorp of New Jersey (the Company) is a one-bank holding company incorporated under the laws of New Jersey to serve as the holding company for the Community Bank of New Jersey (the Bank). The Company is a registered bank holding company under the Bank Holding Company Act of 1956, as amended. The Bank is a New Jersey state-chartered banking institution and a member of the Federal Reserve System and Federal Home Loan Bank of New York. The Bank provides banking services to small and medium-sized businesses, professionals, and individual consumers in the area of central New Jersey. Additionally, the Company competes with other banking and financial institutions in its market communities, including financial institutions with resources substantially greater than its own. Commercial banks, credit unions, and money market funds actively compete for savings and time deposits and for similar types of loans. Such institutions, as well as consumer finance and insurance companies, may be considered competitors of the Company with respect to one or more of the services it provides. The Company and Bank are subject to regulations of certain state and federal agencies and, accordingly, they are periodically examined by those regulatory authorities. As a consequence of the extensive regulation of commercial banking activities, the Company's and Bank's businesses are susceptible to being affected by state and federal legislation and regulations. NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES 1. Basis of Financial Statement Presentation The accounting and reporting policies of the Company conform to accounting principles generally accepted in the United States of America and predominant practices within the banking industry. The financial statements include the accounts of the Company and its wholly owned subsidiary, the Bank. All intercompany balances and transactions have been eliminated in the financial statements. In preparing the financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the balance sheet and the reported amounts of revenues and expenses during the reporting periods. Therefore, actual results could differ from those estimates. The estimate and the evaluation of the adequacy of the allowance for loan losses includes an analysis of the individual loans and overall risk characteristics and size of the different loan portfolios, and takes into consideration current economic and market conditions, the capability of specific borrowers to pay specific loan obligations, as well as current loan collateral values. However, actual losses on specific loans, which also are encompassed in the analysis, may vary from estimated losses. 2. Segment Reporting Statement of Financial Accounting Standards (SFAS) No. 131, Disclosures about Segments of an Enterprise and Related Information, establishes standards for the way business enterprises report information about operating segments in annual financial statements. The Bank has one operating segment, and accordingly, one reportable segment, "Community Banking". All of the Bank's activities are interrelated, and each activity is dependent and assessed based on how each of the activities of the Bank supports the other. For example, commercial lending is dependent upon the ability of the Bank to fund itself with retail deposits and other borrowings and to manage interest rate and credit risk. This situation is also similar for consumer and residential and commercial mortgage lending. All significant operating decisions are based upon analysis of the Bank as one operating segment or unit. 3. Cash and Cash Equivalents Cash and cash equivalents include cash on hand, amounts due from banks, and federal funds sold with maturities of three months or less. 4. Investment Securities The Company accounts for its investment securities in accordance with SFAS No. 115, Accounting for Certain Investments in Debt and Equity Securities. This standard requires, among other things, that debt and equity securities classified as available-for-sale be reported at fair value, with unrealized gains and losses excluded from earnings and reported as a separate component, net of income taxes. The net effect of unrealized gains or losses, caused by marking an available-for-sale portfolio to market, could cause fluctuations in the level of undivided profits and equity-related financial ratios as market interest rates cause the fair value of fixed-rate securities to fluctuate. Investment and mortgage-backed securities, which the Company has the ability and intent to hold to maturity, are held for investment purposes and carried at cost, adjusted for amortization of premium and accretion of discount over the terms of the maturity in a manner, which approximates the interest method. At the time of purchase, the Company makes a determination as to whether or not it will hold the investment securities to maturity based upon an evaluation of the probability of the occurrence of future events. Gains or losses on the sales of securities available-for-sale are recognized upon realization utilizing the specific identification method. 26 COMMUNITY BANCORP OF NEW JERSEY Notes to Consolidated Financial Statements - Continued December 31, 2003 and 2002 NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued The Company adopted EITF 03-1, The Meaning of Other than Temporary Impairment and its Application to Certain Investments, as of December 31, 2003. EITF 03-1 includes certain disclosures regarding quantitative and qualitative disclosures for investment securities accounted for under SFAS 115, Accounting for Certain Investments in Debt and Equity Securities, that are impaired at the balance sheet date, but an other-than-temporary impairment has not been recognized. The disclosures under EITF 03-1 are required for financial statements for years ending after December 15, 2003 and are included in these financial statements. 5. Loans Receivable and Allowance for Loan Losses Loans receivable that management has the intent and ability to hold for the foreseeable future or until maturity or pay-off are reported at their outstanding principal, adjusted for any charge-offs, the allowance for loan losses, and any deferred fees or costs on originated loans. Interest on loans is accrued and credited to operations based upon the principal amounts outstanding. The allowance for loan losses is maintained at an amount management deems adequate to cover estimated losses. In determining the level to be maintained, management evaluates many factors, including current economic trends, industry experience, historical loss experience, industry loan concentrations, the borrowers' ability to repay and repayment performance, and estimated collateral values. In the opinion of management, the present allowance is adequate to absorb reasonable, foreseeable loan losses. While management uses available information to recognize losses on loans, future additions to the allowance may be necessary based on changes in economic conditions or any of the other factors used in management's determination. In addition, various regulatory agencies, as an integral part of their examination process, periodically review the Company's allowance for losses on loans. Such agencies may require the Company to recognize additions to the allowance based on their judgments about information available to them at the time of their examination. Loans are placed on non-accrual when a loan is specifically determined to be impaired or when principal or interest is delinquent for 90 days or more. Any unpaid interest previously accrued on those loans is reversed from income. Interest income generally is not recognized on specific impaired loans unless the likelihood of further loss is remote. Interest payments received on such loans are applied as a reduction of the loan principal balance. Interest income on other non-accrual loans is recognized only to the extent of interest payments received. The Company had no non-accrual loans as of December 31, 2003 or 2002. The Company accounts for its impaired loans in accordance with SFAS No. 114, Accounting by Creditors for Impairment of a Loan, as amended by SFAS No 118, Accounting by Creditors for Impairment of a Loan - Income Recognition and Disclosures. This standard requires that a creditor measure impairment based on the present value of expected future cash flows discounted at the loan's effective interest rate, except that as a practical expedient, a creditor may measure impairment based on a loan's observable market price, or the fair value of the collateral if the loan is collateral dependent. Regardless of the measurement method, a creditor must measure impairment based on the fair value of the collateral when the creditor determines that foreclosure is probable. The Company had no loans that would be defined as impaired at December 31, 2003 or 2002. The Company adopted Financial Accounting Standards Board (FASB) Interpretation (FIN) 45, "Guarantor's Accounting and Disclosure Requirements for Guarantees, including Indirect Guarantees of Indebtedness of Others," on January 1,2003. FIN 45 requires a guarantor entity, at the inception of a guarantee covered by the measurement provisions of the interpretation, to record a liability for the fair value of the obligation undertaken in issuing the guarantee. Financial letters of credit require the Company to make payment if the customer's financial condition deteriorates, as defined in the agreements. Performance letters of credit require the Company to make payments if the customer fails to perform certain non-financial contractual obligations. At December 31, 2003, the Company was not contingently liable for any financial and performance letters of credit. It is the Company's practice to generally hold collateral and/or obtain personal guarantees supporting any outstanding letter of credit commitments. In the event that the Company is required to fulfill its contingent liability under a standby letter of credit, it could liquidate the collateral held, if any, and enforce the personal guarantee(s) held, if any, to recover all or a portion of the amount paid under the letter of credit. The Company adopted SFAS No. 149, "Amendment of Statement No. 133 on Derivative Instruments and Hedging Activities," on July 1, 2003. SFAS No. 149 clarifies and amends SFAS No. 133 for implementation issues raised by constituents and includes the conclusions reached by the FASB on certain FASB Staff Implementation Issues. SFAS No. 149 also amends SFAS No. 133 to require a lender to account for loan commitments related to mortgage loans that will be held for sale as derivatives. SFAS No. 149 is effective for contracts entered into or modified after June 30, 2003. The Company generally does not enter into commitments with its customers, which it intends to sell in the future and therefore, the adoption of SFS No. 149 did not have an impact on the Company's financial position or results of operations. 6. Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities The Bank accounts for its transfers and servicing assets in accordance with SFAS No. 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities, which revised the accounting and reporting for transfers and servicing of financial assets and extinguishments of liabilities. SFAS No. 140 was effective for transfers and servicing of financial assets and extinguishments of liabilities occurring after March 31, 2002. 27 COMMUNITY BANCORP OF NEW JERSEY Notes to Consolidated Financial Statements - Continued December 31, 2003 and 2002 NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued 7. Premises and Equipment Premises and equipment are stated at cost less accumulated depreciation and amortization. Depreciation and amortization are charged to operations on a straight-line basis over the estimated useful lives of the assets. On January 1, 2002, the Company adopted SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets. SFAS No. 144 retains the existing requirements to recognize and measure the impairment of long-lived assets to be held and used or to be disposed of by sale. However, SFAS No. 144 makes changes to the scope and certain measurement requirements of existing accounting guidance. SFAS No. 144 also changes the requirements relating to reporting the effects of a disposal or discontinuation of a segment of a business. The Company had no long-lived assets that would be defined as impaired at December 31, 2003 or 2002. 8. Bank Owned Life Insurance The Company has an investment in bank owned life insurance (BOLI). BOLI involves the purchasing of life insurance by the Company on a select group of employees or directors. The Company is the owner and beneficiary of the policies. Due to tax advantages to the Bank, this pool of insurance is profitable to the Company. A portion of future benefit cost increases are offset by this profitability. Bank deposits fund the BOLI and the earnings from the BOLI are recognized as other income. 9. Other Assets Financing costs related to the issuance of guaranteed preferred, beneficial interest in the Company's subordinated debt are being amortized over the life of the instruments and are included in other assets. 10. Income Taxes Under the liability method, deferred tax assets and liabilities are determined based on the difference between the financial statement and tax basis of assets and liabilities, as measured by the enacted tax rates, which will be in effect when these differences reverse. The primary temporary differences are allowance for loan loss recognition and net unrealized gains (losses) on investment securities available-for-sale. 11. Earnings Per Share The Company follows the provisions of SFAS No. 128, Earnings Per Share. Basic EPS excludes dilution and is computed by dividing income available to common shareholders by the weighted average common shares outstanding during the period. Diluted EPS takes into account the potential dilution that could occur if securities or other contracts to issue common stock were exercised and converted into common stock. EPS is computed based on the weighted average number of shares of common stock outstanding. All weighted average, actual shares or per share information in the financial statements have been adjusted retroactively for the effect of stock dividends and splits. 12. Advertising Costs The Company expenses advertising costs as incurred. 13. Comprehensive Income (Loss) The Company followed SFAS No. 130, Reporting Comprehensive Income. Comprehensive income consists of net income or loss for the current period and income, expenses, gains, and losses that bypass the income statement and are reported directly in a separate component of equity. The income tax effects allocated to comprehensive income (loss) for the years ended are as follows (in thousands):

28 COMMUNITY BANCORP OF NEW JERSEY Notes to Consolidated Financial Statements - Continued December 31, 2003, 2002 and 2001 NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued

14. Stock-Based Compensation The Company accounts for stock options under SFAS No. 123, Accounting for Stock-Based Compensation, as amended by SFAS No. 148, Accounting for Stock-Based Compensation - Transition and Disclosure, which contains a fair value-based method for valuing stock-based compensation that entities may use, which measures compensation cost at the grant date based on the fair value of the award. Compensation is then recognized over the service period, which is usually the vesting period. Alternatively, SFAS No. 123 permits entities to continue accounting for employee stock options and similar equity instruments under APB Opinion No. 25, Accounting for Stock Issued to Employees. Entities that continue to account for stock options using APB Opinion No. 25 are required to make pro forma disclosures of net income and earnings per share, as if the fair value-based method of accounting defined in SFAS No. 123 had been applied. At December 31, 2003, the Company had six stock-based compensation plans, which are more fully described in note M. The Company accounts for these plans under the recognition and measurement principles of APB Opinion No. 25, Accounting for Stock Issued to Employees, and related interpretations. Stock-based employee compensation costs are not reflected in net income, as all options granted under the plans had an exercise price equal to the market value of the underlying common stock on the date of grant. The following table illustrates the effect on net income and earnings per share if the Company had applied the fair value recognition provisions of SFAS No. 123, to stock-based employee compensation (in thousands, except per share amounts).

(Continued) 29 COMMUNITY BANCORP OF NEW JERSEY Notes to Consolidated Financial Statements - Continued December 31, 2003 and 2002 NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued The fair value of each option grant is estimated on the date of grant using the Black-Scholes options-pricing model with the following weighted-average assumptions used for grants in 2003, 2002 and 2001, dividend yield of 0 % for each year; expected volatility of 25% in each year; risk-free interest rate of 2.87% in 2003, 3.81% in 2002 and 5.65% in 2001; and expected lives of five years in each year. 15. Variable Interest Entities In January, 2003, the FASB issued FASB Interpretation 46 (FIN 46), Consolidation of Variable Interest Entities. FIN 46 clarifies the application of Accounting Research Bulletin 51, Consolidated Financial Statements, for certain entities that do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties or in which equity investors do not have the characteristics of a controlling financial interest ("variable interest entities"). Variable interest entities within the scope of FIN 46 will be required to be consolidated by their primary beneficiary. The primary beneficiary of a variable interest entity is determined to be the party that absorbs a majority of the entity's expected losses, receives a majority of its expected returns, or both. Management has determined that CBNJ Capital Trust I qualifies as a variable interest entity under FIN 46. CBNJ Capital Trust I issued mandatorily redeemable preferred stock to investors and loaned the proceeds to the Company. CBNJ Capital Trust I holds, as its sole asset, subordinated debentures issued by the Company in 2002. CBNJ Capital Trust I is currently included in the Company's consolidated balance sheets and statements of income. The Company has evaluated the impact of FIN 46 and concluded it should continue to consolidate CBNJ Capital Trust I as of December 31, 2003, in part due to its ability to call the preferred stock prior to the mandatory redemption date and thereby benefit from a decline in required dividend yields. Subsequent to the issuance of FIN 46, the FASB issued a revised interpretation, FIN 46(R), the provisions of which must be applied to certain variable interest entities by March 31, 2004. The Company plans to adopt the provisions under the revised interpretation in the first quarter of 2004. FIN 46(R) will require Community Bancorp of New Jersey, Inc. to deconsolidate CBNJ Capital Trust I as of March 31, 2004. FIN 46(R) precludes consideration of the call option embedded in the preferred stock when determining if the Company has the right to a majority of CBNJ Capital Trust I's expected residual returns. Accordingly, the Company will deconsolidate CBNJ Capital Trust I at the end of the first quarter, which will result in an increase in the outstanding debt by $155,000. The banking regulatory agencies have not issued any guidance that would change the regulatory capital treatment for the trust preferred securities issued by CBNJ Capital Trust I based on the adoption of FIN 46(R). However, as additional interpretations from the banking regulators related to entities such as CBNJ Capital Trust I become available, management will reevaluate its potential impact to its Tier I capital calculation under such interpretations. 16. Reclassification Certain reclassifications have been made to the 2002 and 2001 financial statements to conform to the 2003 presentation. NOTE C - PENDING MERGER On February 16, 2004, the Company and Sun Bancorp, Inc ("Sun Bancorp") entered into an Agreement and Plan of Merger (the "Agreement") which provides for, among other things, the acquisition of the Company by Sun Bancorp. Contemporaneous with the completion of the acquisition, Community Bank of New Jersey, a wholly-owned subsidiary of the Company, will merge with and into Sun National Bank, a wholly-owned subsidiary of Sun Bancorp. The Agreement provides that shareholders of the Company will receive 0.8715 shares of Sun Bancorp common stock for each share of the Company's common stock as adjusted to reflect Sun's recently announced 5% stock dividend. The Boards of Directors of the Company and Sun Bancorp expect the transaction to close in mid-2004. The merger is subject to a number of conditions including the approval of the regulators and the Company's shareholders. NOTE D - INVESTMENT SECURITIES The following tables present the book values, fair values and gross unrealized gains and losses of the Company's investment securities portfolio as of December 31, 2003 and 2002 (in thousands):

30 COMMUNITY BANCORP OF NEW JERSEY Notes to Consolidated Financial Statements - Continued December 31, 2003 and 2002 NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued

The amortized cost and fair value of the Company's investment securities at December 31, 2003, by contractual maturity, are shown below. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties (in thousands). Available-for-sale ------------------ Amortized Fair cost value ---- ----- Due in one year or less $ -- $ -- Due after one year through five years 197,011 193,896 Due after five years through ten years 2,500 2,484 Due after ten years 3,645 3,645 -------- -------- $203,156 $200,025 ======== ======== A portion of the Company's U.S. Government and agency securities, totaling approximately $993,000 and $1,300,000 at December 31, 2003 and 2002, was pledged as collateral to secure deposits as required or permitted by law. Proceeds from the sales of investment securities during 2003 and 2002 were approximately $84,355,000 and $15,704,000, respectively. Gross gains realized on those sales were approximately $408,000 and $554,000 in 2003 and 2002, respectively. There were no sales of investment securities during 2001. The table below indicates the length of time individual securities have been in a continuous unrealized loss position at December 31, 2003 (in thousands):

Management has considered factors regarding other than temporarily impaired securities and determined that there are no securities that are impaired as of December 31, 2003. 31 COMMUNITY BANCORP OF NEW JERSEY Notes to Consolidated Financial Statements - Continued December 31, 2003, 2002 and 2001 NOTE E - LOANS RECEIVABLE Major loan classifications at December 31 are as follows (in thousands): 2003 2002 ---- ---- Consumer loans $ 24,161 $ 22,195 Residential mortgages 3,324 5,832 Commercial and industrial loans 39,791 46,998 Construction loans 34,694 13,295 Commercial mortgages 100,008 94,304 Other 323 585 --------- --------- 202,301 183,209 Less Unearned discounts and deferred loan fees (257) (242) Allowance for loan losses (2,618) (2,406) --------- --------- $ 199,426 $ 180,561 ========= ========= The Company had no non-accrual loans or loans that would be defined as impaired at December 31, 2003 or 2002. The Company defines non-performing assets to include loans past due 90 days or more, impaired loans and other real estate owned. The Company had no non-performing assets at December 31, 2003 or 2002. There were no loans to directors or executive officers at or during the periods ended December 31, 2003 or 2002. Changes in the allowance for loan losses is as follows (in thousands): 2003 2002 ---- ---- Balance, beginning of year $ 2,406 $ 1,964 Provision charged to expenses 214 893 Loans charged-off, net (2) (451) ------- ------- Balance, end of period $ 2,618 $ 2,406 ======= ======= NOTE F - PREMISES AND EQUIPMENT Premises and equipment at December 31 are as follows (in thousands):

Depreciation and amortization charged to operations amounted to approximately $970,000, $879,000 and $656,000 for years ended December 31, 2003, 2002 and 2001 respectively. 32 COMMUNITY BANCORP OF NEW JERSEY Notes to Consolidated Financial Statements - Continued December 31, 2003 and 2002 NOTE G - DEPOSITS At December 31, 2003, the scheduled maturities of certificates of deposit are summarized as follows (in thousands): 2004 $101,998 2005 1,729 -------- $103,727 ======== Interest expense on deposits is as follows (in thousands): 2003 2002 2001 ---- ---- ---- Savings $1,694 $1,610 $1,461 NOW and money market 391 372 477 Time deposits 2,952 3,075 3,623 ------ ------ ------ $5,037 $5,057 $5,561 ====== ====== ====== NOTE H - EQUITY TRANSACTIONS On May 15, 2003 the Company paid a 5% stock dividend to shareholders of record as of April 28, 2003. On May 15, 2002 the Company paid a 5% stock dividend to shareholders of record as of April 23, 2002. Weighted average shares outstanding and earnings per share were retroactively adjusted to reflect the stock dividends. On August 28, 2002, the Company's Board of Directors declared a three-for-two stock split payable September 20, 2002 to shareholders of record as of September 10, 2002. The Company paid shareholders a 5% stock dividend in 2002 and 2001. Weighted average shares outstanding and earnings per share were retroactively adjusted to reflect the stock split and the stock dividends. NOTE I - DEBT 1. Short-Term Borrowings Short-term borrowings consist of overnight federal funds purchased and short-term advances from the Federal Home Loan Bank of New York, which generally have maturities of less than one month. The details of these categories are presented below: Year ended December 31, ----------------------- 2003 2002 ---- ---- (in thousands) Federal funds purchased and short-term advances Balance at year-end $ 72,400 $ 11,500 Average during the year 41,263 9,015 Maximum month-end balance 110,200 15,700 Weighted average rate during the year 1.15% 1.77% Rate at December 31 1.11% 1.35 2. Guaranteed Preferred Beneficial Interest in the Company's Subordinated Debt The Company issued $5.0 million of trust preferred securities to a pooled investment vehicle sponsored by Bear, Stearns & Co., Inc. on December 20, 2002. These securities have a floating interest rate equal to three month LIBOR plus 335 basis points, which resets quarterly. The average interest rate paid during 2003 was 4.80%. The variable interest rate is capped at 12.5% through January 7, 2008. The securities mature on January 7, 2033, and may be called at par by the Company any time after January 7, 2008. The securities were placed in a private transaction exempted from registration under the Securities Act of 1933, as amended. Although the subordinated debentures are treated as debt of the Company, they currently qualify as Tier I capital investments, subject to the 25% limitation under risk-based capital guidelines of the Federal Reserve. The portion of the Trust Preferred Securities that exceeds this limitation qualifies as Tier II capital of the Company. At December 31, 2003 the $5.0 million of Trust Preferred Securities qualified for treatment as Tier I capital. 33 COMMUNITY BANCORP OF NEW JERSEY Notes to Consolidated Financial Statements - Continued December 31, 2003 and 2002 NOTE J - INCOME TAXES The components of the provision for income taxes (benefit) are as follows (in thousands):

A reconciliation between the reported income tax expense and the amount computed by multiplying income before income tax by the Federal statutory income tax rate is as follows (in thousands):

Net deferred tax assets consist of the following (in thousands):

34 COMMUNITY BANCORP OF NEW JERSEY Notes to Consolidated Financial Statements - Continued December 31, 2003, 2002 and 2001 NOTE K - OTHER EXPENSES Other expenses consist of the following (in thousands): 2003 2002 2001 ---- ---- ---- Communications and office expense $ 343 $ 317 $ 267 Stationery and printing 247 213 320 Data processing 1,099 904 739 Professional fees 516 448 324 Marketing and advertising 482 470 417 Stockholder expense 87 50 49 Directors' fees 175 77 58 Other 356 336 461 ------ ------ ------ $3,305 $2,815 $2,635 ====== ====== ====== NOTE L - EARNINGS PER SHARE The following table illustrates the required disclosure of the reconciliation of the numerators and denominators of the basic and diluted earnings per share (EPS) computations (in thousands, except per share data). Weighted-average shares for 2003 and 2002 have been retroactively adjusted to reflect the 5% stock dividends in 2003 and 2002 and the 3-for-2 stock split in 2002.

18,000 options to purchase shares of common stock with exercise prices ranging from $20.64 to $21.86 per share were not included in the computation of 2003 diluted EPS because the exercise price was greater than the average market price of the common stock. 35 COMMUNITY BANCORP OF NEW JERSEY Notes to Consolidated Financial Statements - Continued December 31, 2003, 2002 and 2001 NOTE L - EARNINGS PER SHARE - Continued

756 options to purchase shares of common stock with exercise prices of $16.50 per share were not included in the computation of 2002 diluted EPS because the exercise price was greater than the average market price of the common stock.

NOTE M - STOCK OPTIONS Under the Company's 1997 Stock Option Plan for Non-Employee Directors (the 1997 Stock Option Plan for Non-Employee Directors), options to purchase 84,508 common stock shares may be issued. Each of the nine non-employee directors were automatically granted 9,389 common stock options exercisable at $6.12 per share (110% of market value on date of grant, as adjusted for subsequent stock dividends and stock splits) in July 1997. The options vest one-third each year. The option may be exercised up to 10 years after the grant. At December 31, 2003, 71,988 options were outstanding under this plan. Under the Company's 1997 Stock Option Plan (the 1997 Stock Option Plan), options to purchase 109,278 common stock shares may be issued. Options to purchase 81,691 common stock shares were granted to nine non-employee directors at $6.12 per share (110% of market value on date of grant, as adjusted for subsequent stock dividends and stock splits) in July 1997, in varying amounts to each non-employee director. Additionally, 28,169 options were granted to the President at $7.86 per share in May 1999, as adjusted for subsequent stock dividends and stock splits. The options vest one-third each year. The options may be exercised up to 10 years after the grant. At December 31, 2003,107,669 options were outstanding under this plan. Under the Company's 1997 Employee Stock Option Plan (the 1997 Employee Stock Option Plan), options to purchase 93,897 common stock shares may be issued. The plan is designed to reserve options for employees of the Company. The discretion of the board is very broad in determining to whom, how many, and at what price options may be issued. Under the Plan, employees may be awarded either incentive stock options, which must have an exercise price of no less than 100% of the fair market value of the common stock on the date of grant, or non-qualified options, which may have an exercise price to be determined by the Board of Directors at grant, but not less than 85% of the fair market value of the common stock on the date of grant. The options under this plan vest from 3 to 5 years. At December 31, 2003, 71,646 options were outstanding under this plan. 36 COMMUNITY BANCORP OF NEW JERSEY Notes to Consolidated Financial Statements - Continued December 31, 2003 and 2002 NOTE M - STOCK OPTIONS - Continued Under the 1998 Stock Option Plan (the 1998 Stock Option Plan) options to purchase up to 93,897 shares of common stock may be issued to members of management. The Board adopted this stock option plan in connection with the retention of the President and Chief Executive Officer of the Company. Under the terms of the President's employment, he is entitled to receive options to purchase 140,847 shares of common stock. The options under this plan vest from 3 to 5 years. At December 31, 2003, 64,081 options were outstanding under this plan. The Board of Directors approved and received shareholder approval in April 2000 for the 2000 Director Stock Option Plan (the 2000 Director Stock Option Plan), pursuant to which options to purchase 156,498 common stock shares may be issued. Options to purchase 133,098 and 23,400 shares of common stock have been granted to eight non-employee directors at $7.56 and $9.56, respectively, per share (110% of market value on date of grant, as adjusted for subsequent stock dividends and stock splits) in varying amounts to each non-employee director. The options vest over a two year period. The options may be exercised up to ten years after the grant. At December 31, 2003, 139,679 options were outstanding under this plan. The Board of Directors approved and received shareholder approval in April 2000 for the 2000 Employee Stock Option Plan (the 2000 Employee Stock Option Plan). Options to purchase 127,628 shares of the common stock are authorized under this Plan. Options to purchase 120,908 common stock shares have been granted to key employees, including 26,398 to the President, at prices ranging from $7.20 to $21.86. The options under this plan vest from two to five years. The options may be exercised up to ten years after grant. At December 31, 2003, 94,751 options were granted under this plan. A summary of the status of the Company's stock option plans as of December 31, 2003, and the change during the years then ended is represented below. A summary of the status of the Company's stock option plans as of December 31, 2003, and the change during the years then ended is represented below.

37 COMMUNITY BANCORP OF NEW JERSEY Notes to Consolidated Financial Statements - Continued December 31, 2003 and 2002 NOTE M - STOCK OPTIONS - Continued The following table summarizes information about nonqualified options outstanding at December 31, 2003:

NOTE N - EMPLOYEE BENEFIT PLANS Retirement Savings The Company contributes to a Company sponsored 401(k) plan. All eligible employees can contribute a portion of their annual salary with the Company matching up to 2% of the employee's gross salary. The Company's contributions for 2003, 2002 and 2001 totaled $15 thousand, $9 thousand and $4 thousand, respectively. In 2004, the Company expects to match up to 2% of the employee's gross salary. Supplemental Executive Retirement Plan In 2003, the Company purchased a supplemental executive retirement plan for its Chief Executive Officer and its Chief Lending Officer. The plan provides annual retirement benefits of $47,815 a year for the Chief Executive Officer and $56,652 a year for the Chief Lending Officer, for a ten-year period when either officer reaches the age of 72. The Company intends to fund its obligations under the deferred compensation arrangements with the increase in cash surrender value of bank owned life insurance policies purchased in 2003. NOTE O - COMMITMENTS Lease Commitments The Company leases several banking facilities under noncancelable operating lease agreements expiring through 2024. At the end of the lease terms, the leases are renewable at the then fair rental value for periods of 5 to 20 years. Rent expense was $380 thousand $313 thousand and $193 thousand for the years ended December 31, 2003, 2002 and 2001, respectively. The approximate minimum rental commitments under operating leases at December 31, 2003, are as follows (in thousands): 2004 $412 2005 472 2006 511 2007 517 2008 459 Thereafter 5,079 ------ $7,450 ------ NOTE P - FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK AND CONCENTRATIONS OF CREDIT RISK The Company is a party to financial instruments with off-balance-sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit and standby letters of credit. Those instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the financial statements. The Company's exposure to credit loss in the event of non-performance by the other party to the financial instrument for commitments to extend credit and standby letters of credit is represented by the contractual amount of those instruments. The Company uses the same credit policies in making commitments and conditional obligations as it does for on-balance-sheet instruments. (Continued) 38 COMMUNITY BANCORP OF NEW JERSEY Notes to Consolidated Financial Statements - Continued December 31, 2003 and 2002 NOTE P - FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK AND CONCENTRATIONS OF CREDIT RISK - Continued The Company had the following approximate off-balance-sheet financial instruments whose contract amounts represent credit risk (in thousands): 2003 2002 ---- ---- Commitments to extend credit $82,470 $35,785 Letters of credit - standby and performance 4,480 4,042 ------- ------- $86,950 $39,827 ======= ======= Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The Company evaluates each customer's creditworthiness on a case-by-case-basis. The amount of collateral obtained, if deemed necessary by the Company upon extension of credit, is based on management's credit evaluation of the customer. Collateral held varies but may include guarantees, personal or commercial real estate, accounts receivable, inventory, and equipment. Commitments include lines of credit with maturities as shown in the following table (in thousands).

Standby letters of credit are conditional commitments issued by the Company to guarantee the performance of a customer to a third party. Those guarantees are primarily issued to support contracts entered into by customers. Most guarantees extend for one year. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers. The company defines the fair value of these letters of credit as the fees paid by the customer or similar fees collected on similar instruments. The company amortizes the fees collected over the life of the instrument. Management, based upon their periodic analysis, has determined that an SFAS No. 5, Accounting for Contingencies, reserve is not necessary at December 31, 2003. The Bank generally obtains collateral, such as real estate or liens on customer assets for these types of commitments. The Bank's potential liability would be reduced by proceeds obtained in liquidation of the collateral held. The Bank had standby letters of credit for customers aggregating $4.5 million and $4.0 million at December 31, 2003 and 2002, respectively. Substantially all of the Company's loans are secured by real estate in New Jersey. Accordingly, the Company's primary concentration of credit risk is related to the real estate market in New Jersey, and the ultimate collectibility of this portion of the Company's loan portfolio is susceptible to changes in economic conditions in that area. NOTE Q - FAIR VALUE OF FINANCIAL INSTRUMENTS SFAS No. 107 requires disclosure of the estimated fair value of an entity's assets and liabilities considered to be financial instruments. For the Company, as for most financial institutions, the majority of its assets and liabilities are considered financial instruments. However, many such instruments lack an available trading market, as characterized by a willing buyer and seller engaging in an exchange transaction. Also, it is the Company's general practice and intent to hold its financial instruments to maturity and not to engage in trading or sales activities, except for certain loans. Therefore, the Company had to use significant estimations and present value calculations to prepare this disclosure. Changes in the assumptions or methodologies used to estimate fair values may materially affect the estimated amounts. Also, management is concerned that there may not be reasonable comparability between institutions due to the wide range of permitted assumptions and methodologies in the absence of active markets. This lack of uniformity gives rise to a high degree of subjectivity in estimating financial instrument fair values. (Continued) 39 COMMUNITY BANCORP OF NEW JERSEY Notes to Consolidated Financial Statements - Continued December 31, 2003 and 2002 NOTE Q - FAIR VALUE OF FINANCIAL INSTRUMENTS - Continued Estimated fair values have been determined by the Company using the best available data and an estimation methodology suitable for each category of financial instruments. The estimation methodologies used, the estimated fair values, and recorded book balances at December 31, 2003 and 2002, are outlined below. For cash and cash equivalents, including cash and due from banks and federal funds sold the recorded book values of $11,465 and $9,424 as of December 31, 2003 and 2002, respectively, approximate fair values. The estimated fair values of investment securities are based on quoted market prices, if available. Estimated fair values are based on quoted market prices of comparable instruments if quoted market prices are not available. The net loan portfolio at December 31, 2003 and 2002, has been valued using a present value discounted cash flow where market prices were not available. The discount rate used in these calculations is the estimated current market rate adjusted for credit risk. The carrying value of accrued interest approximates fair value. The estimated fair values of demand deposits (i.e., interest- and non-interest bearing checking accounts, 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). The fair values of certificates of deposit are estimated using a discounted cash flow calculation that applies interest rates currently being offered to a schedule of aggregated expected monthly time deposit maturities. Based upon the current time deposit maturities, the carrying value approximates its fair value. The carrying amount of accrued interest payable approximates its fair value. Fair value of financial instruments with stated maturities has been estimated using present value cash flow, discounted at a rate approximating current market for similar assets and liabilities.

The fair value of commitments to extend credit is estimated based on the amount of unamortized deferred loan commitment fees. The fair value of letters of credit is based on the amount of unearned fees plus the estimated cost to terminate the letters of credit. Fair values of unrecognized financial instruments including commitments to extend credit and the fair value of letters of credit are considered immaterial. NOTE R - REGULATORY MATTERS The Company and the Bank are subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory - and possible additional discretionary - actions by regulators that, if undertaken, could have a direct material effect on the Company's consolidated financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Company must meet specific capital 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. (Continued) 40 COMMUNITY BANCORP OF NEW JERSEY Notes to Consolidated Financial Statements - Continued December 31, 2003 and 2002 NOTE R - REGULATORY MATTERS - Continued Quantitative measures established by regulations to ensure capital adequacy require the Company and the Bank to maintain minimum amounts and ratios (set forth in the following table) of total and Tier I capital (as defined in the regulations) to risk-weighted assets, and of Tier I capital to average assets. Management believes, as of December 31, 2003, that the Company and the Bank meet all capital adequacy requirements to which they are subject. As of December 31, 2003, the Bank met all regulatory requirements for classification as well-capitalized under the regulatory framework for prompt corrective action. To be categorized as well-capitalized, the Bank must maintain minimum total risk-based, core risk-based and core leverage ratios as set forth in the table. There are no conditions or events that management believes have changed the institution's category. The Company and the Bank's actual capital amounts and ratios are also presented in the following table (in thousands, except percentages).

(Continued) 41 COMMUNITY BANCORP OF NEW JERSEY Notes to Consolidated Financial Statements - Continued December 31, 2003 and 2002 NOTE S - PARENT COMPANY FINANCIAL INFORMATION The condensed financial information for Community Bancorp of New Jersey, parent company only, has been presented as follows (in thousands): BALANCE SHEET

STATEMENT OF OPERATIONS

(Continued) 42 COMMUNITY BANCORP OF NEW JERSEY Notes to Consolidated Financial Statements - Continued December 31, 2003, 2002 and 2001 NOTE S - PARENT COMPANY FINANCIAL INFORMATION STATEMENT OF CASH FLOWS

43 COMMUNITY BANCORP OF NEW JERSEY Notes to Consolidated Financial Statements - Continued December 31, 2003, 2002 and 2001 NOTE T - SUMMARY OF QUARTERLY RESULTS (UNAUDITED) The following summarizes the consolidated results of operations during 2003, 2002 and 2001, on a quarterly basis, for Community Bancorp of New Jersey (in thousands except per share data):

44 COMMUNITY BANCORP OF NEW JERSEY Notes to Consolidated Financial Statements - Continued December 31, 2003, 2002 and 2001 NOTE T - SUMMARY OF QUARTERLY RESULTS (UNAUDITED) The following summarizes the consolidated results of operations during 2003, 2002 and 2001, on a quarterly basis, for Community Bancorp of New Jersey (in thousands except per share data):

45 Report of Independent Certified Public Accountants Board of Directors and Stockholders Community Bancorp of New Jersey We have audited the consolidated balance sheets of Community Bancorp of New Jersey and its 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 of America. Those standards require that we plan and perform the audits 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 Community Bancorp of New Jersey as of December 31, 2003 and 2002, and the consolidated results of its consolidated operations and consolidated 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 of America. /S/ GRANT THORNTON LLP Philadelphia, Pennsylvania January 12, 2004 (except for Note C, as to which the date is February 16, 2004) 46

COMMUNITY BANCORP OF NEW JERSEY 10-K/A