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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



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Form 10-Q



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Quarterly Report Pursuant to Section
13 or 15(d) of

the Securities Exchange Act of 1934



For the period ended March 31, 2004



Commission File Number: 0-6094



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NATIONAL COMMERCE FINANCIAL CORPORATION

(Exact name of issuer as specified in charter)



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|                                               |  |                                     
|---------------------------------------------- |  | ------------------------------------
|Tennessee                                      |  | 62-0784645                          
|(State or other jurisdiction of incorporation) |  | (I.R.S. Employer Identification No.)



One Commerce Square,
Memphis, Tennessee 38150

(Address of principal executive offices)



Registrants telephone number, including area code (901) 523-3434



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



APPLICABLE ONLY TO CORPORATE ISSUERS:



Indicate the number of shares outstanding of each of the issuers classes of

common stock, as of the latest practicable date.



|                           |  |                                       
|-------------------------- |  | --------------------------------------
|Common Stock, $2 Par Value |  | 204,037,335                           
|(Class of Stock)           |  | (Shares outstanding as of May 6, 2004)



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##### Table of Contents

National Commerce Financial Corporation and Subsidiaries



INDEX TO FORM 10-Q



|                                                                                                        |  |                                                                                       |  |     
|------------------------------------------------------------------------------------------------------- |  | ------------------------------------------------------------------------------------- |  | ----
|                                                                                                        |  |                                                                                       |  | Page
|Part I.
Financial Information                                                                           |  |                                                                                      
|                                                                                                        |  |                                                                                      
|Item 1.                                                                                                 |  | Financial Statements                                                                  |  |     
|                                                                                                        | 
|Consolidated Balance Sheets March 31, 2004 and December 31, 2003                                        |  | 3                                                                                    
|                                                                                                        | 
|Consolidated Statements of Income Three Months Ended March 31, 2004 and 2003                            |  | 4                                                                                    
|                                                                                                        | 
|Consolidated Statements of Stockholders Equity Three Months Ended March 31, 2004 and 2003              |  | 5                                                                                    
|                                                                                                        | 
|Consolidated Statements of Cash Flows Three Months Ended March 31, 2004 and 2003                        |  | 6                                                                                    
|                                                                                                        | 
|Notes to Consolidated Financial Statements As of and for the Three Months Ended March 31, 2004 and 2003 |  | 7                                                                                    
|                                                                                                        |  |                                                                                      
|Item 2.                                                                                                 |  | Managements Discussion and Analysis of Financial Condition and Results of Operations |  | 15  
|                                                                                                        |  |                                                                                      
|Item 3.                                                                                                 |  | Quantitative and Qualitative Disclosures About Market Risk                            |  | 28  
|                                                                                                        |  |                                                                                      
|Item 4.                                                                                                 |  | Controls and Procedures                                                               |  | 28  
|                                                                                                        | 
|Part II.
Other Information                                                                              |  |                                                                                      
|                                                                                                        |  |                                                                                      
|Item 6.                                                                                                 |  | Exhibits and Reports on Form 8-K                                                      |  | 29  
|                                                                                                        | 
|Signatures                                                                                              |  | 30                                                                                   



2



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##### Table of Contents

PART I. FINANCIAL INFORMATION



Item 1. Financial Statements



National Commerce Financial Corporation and Subsidiaries

CONSOLIDATED BALANCE SHEETS

March 31, 2004 and December 31, 2003



|                                                                                                     |  |               |            |                  |           
|---------------------------------------------------------------------------------------------------- |  | ------------- | ---------- | ---------------- | ----------
|                                                                                                     |  | (Unaudited)   |            |                 
|In Thousands Except Share Data                                                                       |  | March 31,2004 |            | December 31,2003
|                                                                                                     |  |              
|ASSETS                                                                                               |  |               |            |                  |           
|Cash and due from banks                                                                              |  | $             | 458,494    |                  | 558,313   
|Time deposits in other banks                                                                         |  |               | 4,552      |                  | 64,174    
|Federal funds sold and other short-term investments                                                  |  |               | 164,818    |                  | 129,722   
|Investment securities:                                                                               |  |               |            |                  |           
|Available for sale (amortized cost of $4,833,717 and $5,220,555)                                     |  |               | 4,858,421  |                  | 5,238,429 
|Held to maturity (market values of $1,377,976 and $1,375,484)                                        |  |               | 1,358,756  |                  | 1,380,571 
|Trading account securities                                                                           |  |               | 257,338    |                  | 280,649   
|Loans held for sale                                                                                  |  |               | 277,778    |                  | 215,132   
|Loans                                                                                                |  |               | 13,418,567 |                  | 13,034,948
|Less allowance for loan losses                                                                       |  |               | 173,384    |                  | 170,452   
|                                                                                                     |  |               |            |                  |           
|Net loans                                                                                            |  |               | 13,245,183 |                  | 12,864,496
|                                                                                                     |  |               |            |                  |           
|Bank owned life insurance                                                                            |  |               | 244,842    |                  | 241,481   
|Investment in First Market Bank, FSB                                                                 |  |               | 33,811     |                  | 32,527    
|Premises and equipment                                                                               |  |               | 261,699    |                  | 266,401   
|Goodwill                                                                                             |  |               | 1,090,117  |                  | 1,085,565 
|Core deposit intangibles                                                                             |  |               | 158,800    |                  | 172,658   
|Other assets                                                                                         |  |               | 623,913    |                  | 486,798   
|                                                                                                     |  |               |            |                  |           
|Total assets                                                                                         |  | $             | 23,038,522 |                  | 23,016,916
|                                                                                                     |  |               |            |                  |           
|LIABILITIES                                                                                          |  |               |            |                  |           
|Deposits:                                                                                            |  |               |            |                  |           
|Demand (noninterest-bearing)                                                                         |  | $             | 2,705,354  |                  | 2,602,026 
|Savings, NOW and money market accounts                                                               |  |               | 5,871,488  |                  | 5,878,002 
|Jumbo and brokered certificates of deposits                                                          |  |               | 2,321,673  |                  | 2,206,736 
|Time deposits                                                                                        |  |               | 4,892,453  |                  | 4,862,823 
|                                                                                                     |  |               |            |                  |           
|Total deposits                                                                                       |  |               | 15,790,968 |                  | 15,549,587
|Short-term borrowed funds                                                                            |  |               | 1,671,568  |                  | 1,671,908 
|Federal Home Loan Bank advances                                                                      |  |               | 1,875,893  |                  | 2,301,191 
|Long-term debt                                                                                       |  |               | 279,973    |                  | 277,996   
|Other liabilities                                                                                    |  |               | 621,181    |                  | 435,048   
|                                                                                                     |  |               |            |                  |           
|Total liabilities                                                                                    |  |               | 20,239,583 |                  | 20,235,730
|                                                                                                     |  |               |            |                  |           
|STOCKHOLDERS EQUITY                                                                                 |  |               |            |                  |           
|Serial preferred stock. Authorized 5,000,000 shares; none issued                                     |  |               |           |                  |          
|Common stock, $2 par value. Authorized 400,000,000 shares; 203,911,127 and 205,136,649 shares issued |  |               | 407,822    |                  | 410,273   
|Additional paid-in capital                                                                           |  |               | 1,700,765  |                  | 1,738,157 
|Retained earnings                                                                                    |  |               | 676,622    |                  | 627,406   
|Accumulated other comprehensive income                                                               |  |               | 13,730     |                  | 5,350     
|                                                                                                     |  |               |            |                  |           
|Total stockholders equity                                                                           |  |               | 2,798,939  |                  | 2,781,186 
|                                                                                                     |  |               |            |                  |           
|Total liabilities and stockholders equity                                                           |  | $             | 23,038,522 |                  | 23,016,916
|                                                                                                     |  |               |            |                  |           
|Commitments and contingencies (note 11)                                                              |  |               |            |                  |           



See
accompanying notes to consolidated financial statements.



3



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##### Table of Contents

National Commerce Financial Corporation and Subsidiaries

CONSOLIDATED STATEMENTS OF INCOME

Three Months Ended March 31, 2004 and 2003

(Unaudited)



|                                                                |  |                              |             |      |             |  
|--------------------------------------------------------------- |  | ---------------------------- | ----------- | ---- | ----------- | -
|                                                                |  | Three Months Ended March 31, |            
|In Thousands Except Per Share Data                              |  | 2004                         |             | 2003 |            
|INTEREST INCOME                                                 |  |                              |             |      |             |  
|Interest and fees on loans                                      |  | $                            | 182,982     |      | 197,669     |  
|Interest and dividends on investment securities:                |  |                              |             |      |             |  
|U.S. Treasury                                                   |  |                              | 174         |      | 282         |  
|U.S. Government agencies and corporations                       |  |                              | 56,705      |      | 55,682      |  
|States and political subdivisions (primarily tax-exempt)        |  |                              | 1,269       |      | 1,510       |  
|Equity and other securities                                     |  |                              | 16,690      |      | 7,470       |  
|Interest and dividends on trading account securities            |  |                              | 1,925       |      | 575         |  
|Interest on time deposits in other banks                        |  |                              | 408         |      | 25          |  
|Interest on federal funds sold and other short-term investments |  |                              | 374         |      | 163         |  
|                                                                |  |                              |             |      |             |  
|Total interest income                                           |  |                              | 260,527     |      | 263,376     |  
|                                                                |  |                              |             |      |             |  
|INTEREST EXPENSE                                                |  |                              |             |      |             |  
|Deposits                                                        |  |                              | 47,759      |      | 57,288      |  
|Short-term borrowed funds                                       |  |                              | 4,565       |      | 4,368       |  
|Federal Home Loan Bank advances                                 |  |                              | 15,602      |      | 22,118      |  
|Trust preferred securities and long-term debt                   |  |                              | 1,530       |      | 2,160       |  
|                                                                |  |                              |             |      |             |  
|Total interest expense                                          |  |                              | 69,456      |      | 85,934      |  
|                                                                |  |                              |             |      |             |  
|Net interest income                                             |  |                              | 191,071     |      | 177,442     |  
|Provision for loan losses                                       |  |                              | 12,088      |      | 7,684       |  
|                                                                |  |                              |             |      |             |  
|Net interest income after provision for loan losses             |  |                              | 178,983     |      | 169,758     |  
|                                                                |  |                              |             |      |             |  
|OTHER INCOME                                                    |  |                              |             |      |             |  
|Service charges on deposit accounts                             |  |                              | 41,026      |      | 41,250      |  
|Other service charges and fees                                  |  |                              | 8,437       |      | 9,341       |  
|Broker/dealer revenue                                           |  |                              | 25,762      |      | 21,081      |  
|Asset management                                                |  |                              | 16,498      |      | 12,382      |  
|Mortgage banking income                                         |  |                              | 7,383       |      | 9,654       |  
|Equity earnings from First Market Bank, FSB                     |  |                              | 1,285       |      | 926         |  
|Other                                                           |  |                              | 8,584       |      | 7,642       |  
|Gain (loss) on branch sale                                      |  |                              | 45          |      | (145        | )
|Investment securities gains, net                                |  |                              | 10,918      |      | 2,464       |  
|                                                                |  |                              |             |      |             |  
|Total other income                                              |  |                              | 119,938     |      | 104,595     |  
|                                                                |  |                              |             |      |             |  
|OTHER EXPENSE                                                   |  |                              |             |      |             |  
|Personnel                                                       |  |                              | 79,121      |      | 77,453      |  
|Net occupancy                                                   |  |                              | 13,407      |      | 12,904      |  
|Equipment                                                       |  |                              | 7,233       |      | 7,405       |  
|Core deposit intangibles amortization                           |  |                              | 13,639      |      | 16,284      |  
|Other                                                           |  |                              | 50,326      |      | 46,404      |  
|First Mercantile litigation                                     |  |                              |            |      | 19,654      |  
|                                                                |  |                              |             |      |             |  
|Total other expenses                                            |  |                              | 163,726     |      | 180,104     |  
|                                                                |  |                              |             |      |             |  
|Income before income taxes                                      |  |                              | 135,195     |      | 94,249      |  
|Income taxes                                                    |  |                              | 44,951      |      | 30,159      |  
|                                                                |  |                              |             |      |             |  
|Net income                                                      |  | $                            | 90,244      |      | 64,090      |  
|                                                                |  |                              |             |      |             |  
|EARNINGS PER COMMON SHARE                                       |  |                              |             |      |             |  
|Basic                                                           |  | $                            | .44         |      | .31         |  
|Diluted                                                         |  |                              | .44         |      | .31         |  
|WEIGHTED AVERAGE SHARES OUTSTANDING                             |  |                              |             |      |             |  
|Basic                                                           |  |                              | 204,978,998 |      | 205,270,721 |  
|Diluted                                                         |  |                              | 207,082,844 |      | 206,755,698 |  



See
accompanying notes to consolidated financial statements.



4



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##### Table of Contents

National Commerce Financial Corporation and Subsidiaries

CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY

Three Months Ended March 31, 2004 and 2003

(Unaudited)



|                                                                                                       |  |                      |   |  |             |         |   |                          |           |   |                  |         |   |                  |        |   |                          |           |  
|------------------------------------------------------------------------------------------------------ |  | -------------------- | - |  | ----------- | ------- | - | ------------------------ | --------- | - | ---------------- | ------- | - | ---------------- | ------ | - | ------------------------ | --------- | -
|In Thousands Except Share Data                                                                         |  | Shares ofCommonStock |   |  | CommonStock |         |   | AdditionalPaid-InCapital |           |   | RetainedEarnings |         |   | OtherComp.Income |        |   | TotalStockholdersEquity |          
|Balance January 1, 2003                                                                                |  | 205,408,183          |   |  | $           | 410,816 |   |                          | 1,753,241 |   |                  | 467,641 |   |                  | 50,734 |   |                          | 2,682,432 |  
|                                                                                                       |  |                      |   |  |             |        
|Net income                                                                                             |  |                     |   |  |             |        |   |                          |          |   |                  | 64,090  |   |                  |       |   |                          | 64,090    |  
|                                                                                                       |  |                      |   |  |             |        
|Restricted stock transactions, net                                                                     |  | 1,568                |   |  |             | 3       |   |                          | 606       |   |                  |        |   |                  |       |   |                          | 609       |  
|                                                                                                       |  |                      |   |  |             |        
|Options exercised, net of shares tendered                                                              |  | 213,009              |   |  |             | 427     |   |                          | 2,566     |   |                  |        |   |                  |       |   |                          | 2,993     |  
|                                                                                                       |  |                      |   |  |             |        
|Shares repurchased and retired                                                                         |  | (589,800             | ) |  |             | (1,180  | ) |                          | (12,800   | ) |                  |        |   |                  |       |   |                          | (13,980   | )
|                                                                                                       |  |                      |   |  |             |        
|Cash dividends ($.17 per share)                                                                        |  |                     |   |  |             |        |   |                          |          |   |                  | (34,948 | ) |                  |       |   |                          | (34,948   | )
|                                                                                                       |  |                      |   |  |             |        
|Change in minimum pension liability, net of applicable income taxes                                    |  |                     |   |  |             |        |   |                          |          |   |                  |        |   |                  | (742   | ) |                          | (742      | )
|                                                                                                       |  |                      |   |  |             |        
|Change in unrealized gains on investment securities available for sale, net of applicable income taxes |  |                     |   |  |             |        |   |                          |          |   |                  |        |   |                  | (3,926 | ) |                          | (3,926    | )
|                                                                                                       |  |                      |   |  |             |        
|Other transactions, net                                                                                |  | (23,394              | ) |  |             | (47     | ) |                          | (467      | ) |                  |        |   |                  |       |   |                          | (514      | )
|                                                                                                       |  |                      |   |  |             |         |   |                          |           |   |                  |         |   |                  |        |   |                          |           |  
|Balance, March 31, 2003                                                                                |  | 205,009,566          |   |  | $           | 410,019 |   |                          | 1,743,146 |   |                  | 496,783 |   |                  | 46,066 |   |                          | 2,696,014 |  
|                                                                                                       |  |                      |   |  |             |         |   |                          |           |   |                  |         |   |                  |        |   |                          |           |  
|Balance, January 1, 2004                                                                               |  | 205,136,649          |   |  | $           | 410,273 |   |                          | 1,738,157 |   |                  | 627,406 |   |                  | 5,350  |   |                          | 2,781,186 |  
|                                                                                                       |  |                      |   |  |             |        
|Net income                                                                                             |  |                     |   |  |             |        |   |                          |          |   |                  | 90,244  |   |                  |       |   |                          | 90,244    |  
|                                                                                                       |  |                      |   |  |             |        
|Restricted stock transactions, net                                                                     |  | 29,200               |   |  |             | 58      |   |                          | 120       |   |                  |        |   |                  |       |   |                          | 178       |  
|                                                                                                       |  |                      |   |  |             |        
|Options exercised, net of shares tendered                                                              |  | 560,215              |   |  |             | 1,121   |   |                          | 10,859    |   |                  |        |   |                  |       |   |                          | 11,980    |  
|                                                                                                       |  |                      |   |  |             |        
|Shares repurchased and retired                                                                         |  | (1,886,806           | ) |  |             | (3,774  | ) |                          | (49,471   | ) |                  |        |   |                  |       |   |                          | (53,245   | )
|                                                                                                       |  |                      |   |  |             |        
|Cash dividends ($.20 per share)                                                                        |  |                     |   |  |             |        |   |                          |          |   |                  | (41,028 | ) |                  |       |   |                          | (41,028   | )
|                                                                                                       |  |                      |   |  |             |        
|Change in minimum pension liability, net of applicable income taxes                                    |  |                     |   |  |             |        |   |                          |          |   |                  |        |   |                  | (113   | ) |                          | (113      | )
|                                                                                                       |  |                      |   |  |             |        
|Change in unrealized gains on investment securities available for sale, net of applicable income taxes |  |                     |   |  |             |        |   |                          |          |   |                  |        |   |                  | 4,104  |   |                          | 4,104     |  
|                                                                                                       |  |                      |   |  |             |        
|Change in unrealized loss on hedging instruments, net of applicable income taxes                       |  |                     |   |  |             |        |   |                          |          |   |                  |        |   |                  | 4,389  |   |                          | 4,389     |  
|                                                                                                       |  |                      |   |  |             |        
|Other transactions, net                                                                                |  | 71,869               |   |  |             | 144     |   |                          | 1,100     |   |                  |        |   |                  |       |   |                          | 1,244     |  
|                                                                                                       |  |                      |   |  |             |         |   |                          |           |   |                  |         |   |                  |        |   |                          |           |  
|Balance, March 31, 2004                                                                                |  | 203,911,127          |   |  | $           | 407,822 |   |                          | 1,700,765 |   |                  | 676,622 |   |                  | 13,730 |   |                          | 2,798,939 |  
|                                                                                                       |  |                      |   |  |             |         |   |                          |           |   |                  |         |   |                  |        |   |                          |           |  



See
accompanying notes to the consolidated financial statements.



5



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##### Table of Contents

National Commerce Financial Corporation and Subsidiaries

CONSOLIDATED STATEMENTS OF CASH FLOWS

Three Months Ended March 31, 2004 and 2003

(Unaudited)



|                                                                                  |  |      |            |   |      |            |  
|--------------------------------------------------------------------------------- |  | ---- | ---------- | - | ---- | ---------- | -
|In Thousands                                                                      |  | 2004 |            |   | 2003 |           
|OPERATING ACTIVITIES                                                              |  |      |            |   |      |            |  
|Net income                                                                        |  | $    | 90,244     |   |      | 64,090     |  
|Adjustments to reconcile net income to net cash provided by operating activities: |  |      |            |   |      |            |  
|Depreciation, amortization and accretion, net                                     |  |      | 25,185     |   |      | 31,008     |  
|Provision for loan losses                                                         |  |      | 12,088     |   |      | 7,684      |  
|Net gain on sales of investment securities                                        |  |      | (10,918    | ) |      | (2,464     | )
|Deferred income taxes                                                             |  |      | (930       | ) |      | (577       | )
|Origination of loans held for sale                                                |  |      | (1,078,347 | ) |      | (1,092,821 | )
|Sales of loans held for sale                                                      |  |      | 1,022,181  |   |      | 1,119,583  |  
|Tax benefit from exercise of stock options                                        |  |      | 1,931      |   |      | 765        |  
|Changes in:                                                                       |  |      |            |   |      |            |  
|Trading account securities                                                        |  |      | 23,311     |   |      | 36,112     |  
|Other assets                                                                      |  |      | (137,730   | ) |      | (50,400    | )
|Other liabilities                                                                 |  |      | 187,447    |   |      | 60,776     |  
|Other operating activities, net                                                   |  |      | (6,267     | ) |      | (3,622     | )
|                                                                                  |  |      |            |   |      |            |  
|Net cash provided by operating activities                                         |  |      | 128,195    |   |      | 170,134    |  
|                                                                                  |  |      |            |   |      |            |  
|INVESTING ACTIVITIES                                                              |  |      |            |   |      |            |  
|Proceeds from:                                                                    |  |      |            |   |      |            |  
|Maturities and issuer calls of investment securities held to maturity             |  |      | 22,288     |   |      | 81,613     |  
|Sales of investment securities available for sale                                 |  |      | 867,025    |   |      | 478,779    |  
|Maturities and issuer calls of investment securities available for sale           |  |      | 324,620    |   |      | 713,276    |  
|Purchases of:                                                                     |  |      |            |   |      |            |  
|Investment securities held to maturity                                            |  |      | (247       | ) |      | (416,237   | )
|Investment securities available for sale                                          |  |      | (795,936   | ) |      | (1,116,513 | )
|Premises and equipment                                                            |  |      | (2,583     | ) |      | (23,851    | )
|Net originations of loans                                                         |  |      | (401,872   | ) |      | (49,220    | )
|Net cash paid on branch sales                                                     |  |      | (15,818    | ) |      | (1,327     | )
|                                                                                  |  |      |            |   |      |            |  
|Net cash used by investing activities                                             |  |      | (2,523     | ) |      | (333,480   | )
|                                                                                  |  |      |            |   |      |            |  
|FINANCING ACTIVITIES                                                              |  |      |            |   |      |            |  
|Net increase in deposit accounts                                                  |  |      | 259,754    |   |      | 433,853    |  
|Net decrease in short-term borrowed funds                                         |  |      | (340       | ) |      | (101,659   | )
|Net decrease in Federal Home Loan Bank advances                                   |  |      | (425,173   | ) |      | (154,857   | )
|Issuances of common stock from exercise of stock options, net                     |  |      | 10,145     |   |      | 2,274      |  
|Purchase and retirement of common stock                                           |  |      | (53,245    | ) |      | (13,980    | )
|Other equity transactions, net                                                    |  |      | (130       | ) |      | (53        | )
|Cash dividends paid                                                               |  |      | (41,028    | ) |      | (34,948    | )
|                                                                                  |  |      |            |   |      |            |  
|Net cash provided (used) by financing activities                                  |  |      | (250,017   | ) |      | 130,630    |  
|                                                                                  |  |      |            |   |      |            |  
|Net decrease in cash and cash equivalents                                         |  |      | (124,345   | ) |      | (32,716    | )
|Cash and cash equivalents at beginning of period (December 31)                    |  |      | 752,209    |   |      | 602,757    |  
|                                                                                  |  |      |            |   |      |            |  
|Cash and cash equivalents at end of period                                        |  | $    | 627,864    |   |      | 570,041    |  
|                                                                                  |  |      |            |   |      |            |  
|SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION                                  |  |      |            |   |      |            |  
|Interest paid during the period                                                   |  | $    | 68,484     |   |      | 85,516     |  
|                                                                                  |  |      |            |   |      |            |  
|Income taxes paid during the period                                               |  | $    | 25,309     |   |      | 2,377      |  
|                                                                                  |  |      |            |   |      |            |  



See
accompanying notes to consolidated financial statements.



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National Commerce Financial Corporation and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

As of and for the Three Months Ended March 31, 2004 and 2003

(Unaudited)



(1)
CONSOLIDATION AND PRESENTATION



The accompanying unaudited consolidated
financial statements of National Commerce Financial Corporation (NCF) have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission. Accordingly, they do not include all of the information and
footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. In the opinion of management, the accompanying financial statements reflect all adjustments necessary for a fair
presentation of the financial position, results of operations and cash flows of NCF on a consolidated basis, and all such adjustments are of a normal recurring nature. These financial statements and the notes thereto should be read in conjunction
with NCFs Annual Report on Form 10-K for the year ended December 31, 2003. Operating results for the three-month period ended March 31, 2004 are not necessarily indicative of the results that may be expected for the year ending December 31,
2004.



CONSOLIDATION NCF is a bank holding company that provides diverse
financial services through a regional network of banking affiliates and a national network of nonbanking affiliates. NCFs wholly owned banking subsidiaries include National Bank of Commerce (NBC) and NBC Bank, FSB. The consolidated
financial statements also include the accounts and results of operations of NCFs direct and indirect wholly owned non-bank subsidiaries. All significant intercompany transactions and accounts are eliminated in consolidation.



NCF has two business segments: traditional banking and financial enterprises. Financial
enterprises include transaction processing, trust services and investment management, retail banking consulting/in-store licensing and broker/dealer activities.



Certain prior period amounts have been reclassified to conform to the 2004 presentation.



EARNINGS PER SHARE Basic earnings per share (EPS) is computed by dividing net income by the weighted average number of common
shares outstanding during each period. Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock. Diluted EPS is computed by dividing net income
by the weighted average number of common shares outstanding plus dilutive stock options (as computed under the treasury stock method) assumed to have been exercised during the period.



COMPREHENSIVE INCOME Comprehensive income is the change in equity during the period from transactions and other events and circumstances
from non-owner sources. Total comprehensive income is comprised of net income and other comprehensive income. Other comprehensive income for the three months ended March 31, 2004 and 2003 and accumulated other comprehensive income as of March 31,
2004, December 31, 2003 and March 31, 2003 are comprised of unrealized gains and losses on investment securities available for sale, unrealized gains and losses on cash flow hedges and adjustments of minimum pension liability.



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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



(1) CONSOLIDATION AND PRESENTATION (Continued)



STOCK-BASED COMPENSATION NCF from time to time grants stock options for a fixed number of shares to employees with an exercise price equal to the fair value of the shares
on the date of grant, which become exercisable on certain future dates with continued service by employees. NCF has elected to account for these stock option grants in accordance with Accounting Principles Board (APB) Opinion No. 25,
Accounting for Stock Issued to Employees, and accordingly, recognizes no compensation expense for these stock option grants. For all variable stock option grants, which include any grant that is not at a fixed exercise price or whose
vesting is dependent on future performance or some event other than the passage of time, compensation expense is recognized in accordance with APB Opinion No. 25 over the period the employee performs related service, also called the vesting period.



NCF discloses pro forma net income and earnings per share in the notes to its
consolidated financial statements as if compensation expense was measured under the fair value based method according to Statement No. 123, Accounting for Stock-based Compensation. Under the fair value based method, compensation cost is
measured at the grant date of the option based on the value of the award and is recognized over the service period, which is usually the vesting period. Had compensation expense for the stock option plans been determined consistent with Statement
No. 123, NCFs net income and net income per share for the three-months ended March 31, 2004 and 2003 would have been reduced to the pro forma amounts indicated below. These pro forma amounts may not be representative of the effect on reported
net income for future periods.



|                                   |  |             |  |                              |        |      |       
|---------------------------------- |  | ----------- |  | ---------------------------- | ------ | ---- | ------
|                                   |  |             |  | Three Months Ended March 31,
|In Thousands Except Per Share Data |  |             |  | 2004                         |        | 2003
|Net income                         |  | As reported |  | $                            | 90,244 |      | 64,090
|                                   |  | Pro forma   |  |                              | 88,143 |      | 61,813
|Basic EPS                          |  | As reported |  |                              | .44    |      | .31   
|                                   |  | Pro forma   |  |                              | .43    |      | .30   
|Diluted EPS                        |  | As reported |  |                              | .44    |      | .31   
|                                   |  | Pro forma   |  |                              | .43    |      | .30   



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National Commerce Financial Corporation and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



(2) LOANS



Management internally classifies the loan portfolio by the purpose of the borrowing. Such classification is presented below as of March 31, 2004 and December 31, 2003.
This classification method emphasizes the source of loan repayment rather than the collateral for the loan, which is the classification method followed for regulatory reporting purposes.



|                                        |  |      |            |      |           
|--------------------------------------- |  | ---- | ---------- | ---- | ----------
|In Thousands                            |  | 2004 |            | 2003
|Commercial                              |  | $    | 3,935,130  |      | 3,820,585 
|Construction and commercial real estate |  |      | 3,765,122  |      | 3,723,336 
|Mortgage                                |  |      | 970,923    |      | 933,057   
|Consumer                                |  |      | 4,531,275  |      | 4,342,695 
|Revolving credit                        |  |      | 85,718     |      | 84,534    
|Lease financing                         |  |      | 130,399    |      | 130,741   
|                                        |  |      |            |      |           
|Total loans                             |  | $    | 13,418,567 |      | 13,034,948
|                                        |  |      |            |      |           



(3) ALLOWANCE FOR LOAN LOSSES



Following is the activity in the allowance for loan losses during the three
months ended March 31, 2004 and 2003:



|                                        |  |      |         |   |      |         |  
|--------------------------------------- |  | ---- | ------- | - | ---- | ------- | -
|In Thousands                            |  | 2004 |         |   | 2003 |        
|Balance at beginning of period          |  | $    | 170,452 |   |      | 163,424 |  
|Charge-offs:                            |  |      |         |   |      |         |  
|Commercial                              |  |      | (1,600  | ) |      | (1,441  | )
|Construction and commercial real estate |  |      |        |   |      | (141    | )
|Secured by real estate                  |  |      | (1,022  | ) |      | (727    | )
|Consumer                                |  |      | (6,565  | ) |      | (5,977  | )
|Revolving credit                        |  |      | (1,109  | ) |      | (941    | )
|Lease financing                         |  |      | (405    | ) |      | (53     | )
|                                        |  |      |         |   |      |         |  
|Total charge-offs                       |  |      | (10,701 | ) |      | (9,280  | )
|Recoveries:                             |  |      |         |   |      |         |  
|Commercial                              |  |      | 219     |   |      | 273     |  
|Construction and commercial real estate |  |      | 1       |   |      | 7       |  
|Secured by real estate                  |  |      | 50      |   |      | 26      |  
|Consumer                                |  |      | 967     |   |      | 931     |  
|Revolving credit                        |  |      | 234     |   |      | 322     |  
|Lease financing                         |  |      | 74      |   |      | 37      |  
|                                        |  |      |         |   |      |         |  
|Total recoveries                        |  |      | 1,545   |   |      | 1,596   |  
|                                        |  |      |         |   |      |         |  
|Net charge-offs                         |  |      | (9,156  | ) |      | (7,684  | )
|Provision for loan losses               |  |      | 12,088  |   |      | 7,684   |  
|Changes from sales                      |  |      |        |   |      | (582    | )
|                                        |  |      |         |   |      |         |  
|Balance at end of period                |  | $    | 173,384 |   |      | 162,842 |  
|                                        |  |      |         |   |      |         |  



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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



(4) NONPERFORMING ASSETS



Following is a summary of nonperforming assets as of March 31, 2004, December 31, 2003 and March 31, 2003:



|                                               |  |           |        |              |        |           |       
|---------------------------------------------- |  | --------- | ------ | ------------ | ------ | --------- | ------
|In Thousands                                   |  | March2004 |        | December2003 |        | March2003
|Nonaccrual loans                               |  | $         | 34,725 |              | 30,689 |           | 32,838
|Foreclosed real estate                         |  |           | 23,225 |              | 28,196 |           | 22,981
|                                               |  |           |        |              |        |           |       
|Nonperforming loans and foreclosed real estate |  |           | 57,950 |              | 58,885 |           | 55,819
|Other repossessed assets                       |  |           | 6,108  |              | 4,638  |           | 11,962
|                                               |  |           |        |              |        |           |       
|Nonperforming assets                           |  | $         | 64,058 |              | 63,523 |           | 67,781
|                                               |  |           |        |              |        |           |       
|Accruing loans 90 days or more past due        |  | $         | 65,275 |              | 64,457 |           | 56,384
|                                               |  |           |        |              |        |           |       



(5)
GOODWILL AND OTHER INTANGIBLE ASSETS



The changes in the carrying amount of
goodwill for the year ended December 31, 2003 and three months ended March 31, 2004 for NCFs business segments are as follows:



|                                    |  |                    |           |                      |        |       |          
|----------------------------------- |  | ------------------ | --------- | -------------------- | ------ | ----- | ---------
|In Thousands                        |  | TraditionalBanking |           | FinancialEnterprises |        | Total
|Balance as of January 1, 2003       |  | $                  | 1,042,146 |                      | 34,972 |       | 1,077,118
|Other goodwill adjustments          |  |                    | 6,039     |                      |       |       | 6,039    
|Goodwill acquired during the year   |  |                    | 2,408     |                      |       |       | 2,408    
|                                    |  |                    |           |                      |        |       |          
|Balance as of December 31, 2003     |  |                    | 1,050,593 |                      | 34,972 |       | 1,085,565
|Goodwill acquired during the period |  |                    |          |                      | 4,552  |       | 4,552    
|                                    |  |                    |           |                      |        |       |          
|Balance as of March 31, 2004        |  | $                  | 1,050,593 |                      | 39,524 |       | 1,090,117
|                                    |  |                    |           |                      |        |       |          



Core deposit intangibles are amortized
over a period of up to 10 years using an accelerated method. Following is an analysis of core deposit intangibles:



|                                              |  |                                   |         |                         |                              |   |                     |         |                         |          |  
|--------------------------------------------- |  | --------------------------------- | ------- | ----------------------- | ---------------------------- | - | ------------------- | ------- | ----------------------- | -------- | -
|                                              |  | Three Months Ended March 31, 2004 |         |                         | Year Ended December 31, 2003 |  
|In Thousands                                  |  | GrossCarryingAmount               |         | AccumulatedAmortization |                              |   | GrossCarryingAmount |         | AccumulatedAmortization |         
|Core deposit intangibles                      |  | $                                 | 401,712 |                         | (242,912                     | ) |                     | 402,225 |                         | (229,567 | )
|                                              |  |                                   |         |                        
|Aggregate amortization expense for the period |  |                                   | 13,639  |                         |                              |   |                     | 61,356  |                         |          |  
|                                              |  |                                   |         |                        
|Estimated annual amortization expense:        |  |                                   |         |                         |                              |   |                     |         |                         |          |  
|For year ended 12/31/04                       |  |                                   | 50,897  |                         |                              |   |                     |         |                         |          |  
|For year ended 12/31/05                       |  |                                   | 41,296  |                         |                              |   |                     |         |                         |          |  
|For year ended 12/31/06                       |  |                                   | 32,033  |                         |                              |   |                     |         |                         |          |  
|For year ended 12/31/07                       |  |                                   | 23,137  |                         |                              |   |                     |         |                         |          |  
|For year ended 12/31/08                       |  |                                   | 14,516  |                         |                              |   |                     |         |                         |          |  
|                                              |  |                                   |         |                         |                              |   |                     |         |                         |          |  



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National Commerce Financial Corporation and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



(6) COMPREHENSIVE INCOME



The following table presents the components of other comprehensive income and the related tax effects allocated for the three months ended March 31, 2004 and 2003:



|                                                             |  |                 |         |   |                     |        |   |                  |   |        |                 |  |        |                     |  |                  |  |        |  
|------------------------------------------------------------ |  | --------------- | ------- | - | ------------------- | ------ | - | ---------------- | - | ------ | --------------- |  | ------ | ------------------- |  | ---------------- |  | ------ | -
|                                                             |  | 2004            |         |   | 2003                |       
|In Thousands                                                 |  | BeforeTaxAmount |         |   | Tax(Expense)Benefit |        |   | Net of TaxAmount |   |        | BeforeTaxAmount |  |        | Tax(Expense)Benefit |  | Net of TaxAmount | 
|Unrealized (losses) gains on securities:                     |  |                 |         |   |                     |        |   |                  |   |        |                 |  |        |                     |  |                  |  |        |  
|Unrealized (losses) gains arising during holding period      |  | $               | 17,775  |   |                     | (7,066 | ) |                  |   | 10,709 |                 |  | (4,020 | )                   |  | 1,585            |  | (2,435 | )
|Reclassification adjustment for gains realized in net income |  |                 | (10,918 | ) |                     | 4,313  |   |                  |   | (6,605 | )               |  | (2,464 | )                   |  | 973              |  | (1,491 | )
|Minimum pension liability:                                   |  |                 |         |   |                     |        |   |                  |   |        |                 |  |        |                     |  |                  |  |        |  
|Adjustment to minimum pension liability                      |  |                 | (188    | ) |                     | 75     |   |                  |   | (113   | )               |  | (1,237 | )                   |  | 495              |  | (742   | )
|Unrealized losses on cash flow hedging instruments:          |  |                 |         |   |                     |        |   |                  |   |        |                 |  |        |                     |  |                  |  |        |  
|Unrealized losses arising during holding period              |  |                 | 7,315   |   |                     | (2,926 | ) |                  |   | 4,389  |                 |  |       |                     |  |                 |  |       |  
|                                                             |  |                 |         |   |                     |        |   |                  |   |        |                 |  |        |                     |  |                  |  |        |  
|Other comprehensive (income) loss                            |  | $               | 13,984  |   |                     | (5,604 | ) |                  |   | 8,380  |                 |  | (7,721 | )                   |  | 3,053            |  | (4,668 | )
|Net income                                                   |  |                 |         |   |                     |        |   |                  |   | 90,244 |                 |  |        |                     |  |                  |  | 64,090 |  
|                                                             |  |                 |         |   |                     |        |   |                  |   |        |                 |  |        |                     |  |                  |  |        |  
|Comprehensive income                                         |  |                 |         |   |                     |        |   |                  | $ | 98,624 |                 |  |        |                     |  |                  |  | 59,422 |  
|                                                             |  |                 |         |   |                     |        |   |                  |   |        |                 |  |        |                     |  |                  |  |        |  



(7) FHLB ADVANCES



Overnight FHLB borrowings, included in short-term borrowed funds on the
Consolidated Balance Sheet, totaled $180 million at March 31, 2004.



Maturities
of FHLB advances for each of the years ending December 31 are as follows:



|             |  |                |  |                 |          
|------------ |  | -------------- |  | --------------- | ---------
|In Thousands |  | Range of Rates |  | TotalMaturities
|2004         |  | 1.06% to 7.65% |  | $               | 812,385  
|2005         |  | 1.82% to 5.68% |  |                 | 2,335    
|2006         |  | 4.44% to 4.44% |  |                 | 25,205   
|2007         |  | 7.00% to 7.00% |  |                 | 285      
|2008         |  | 2.00% to 5.94% |  |                 | 204,565  
|Thereafter   |  | 2.17% to 6.39% |  |                 | 831,118  
|             |  |                |  |                 |          
|Total        |  | 1.06% to 7.65% |  | $               | 1,875,893
|             |  |                |  |                 |          



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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



(8) EMPLOYEE BENEFITS



The following tables disclose the components of the net periodic benefit costs and the assumptions used in computing those costs for the three months ended March 31, 2004
and 2003 for NCFs pension and other benefit plans:



|                                         |  |              |        |   |             |        |   |      |      |      |     
|---------------------------------------- |  | ------------ | ------ | - | ----------- | ------ | - | ---- | ---- | ---- | ----
|                                         |  | Pension Plan |        |   | Other Plans
|In Thousands                             |  | 2004         |        |   | 2003        |        |   | 2004 |      | 2003
|Components of Net Periodic Benefit Cost: |  |              |        |   |             |        |   |      |      |      |     
|Service cost                             |  | $            | 1,688  |   |             | 1,467  |   |      | 112  |      | 91  
|Interest cost                            |  |              | 2,164  |   |             | 2,173  |   |      | 444  |      | 402 
|Expected return on plan assets           |  |              | (3,352 | ) |             | (2,814 | ) |      |     |      |    
|Transition obligation amortization       |  |              |       |   |             |       |   |      | 5    |      | 5   
|Amortization of prior service cost       |  |              | (26    | ) |             | (26    | ) |      | 14   |      | 3   
|Amortization of net loss                 |  |              | 396    |   |             | 564    |   |      | 275  |      | 184 
|FAS88 settlement loss                    |  |              |       |   |             |       |   |      | 100  |      | 99  
|                                         |  |              |        |   |             |        |   |      |      |      |     
|Net expense                              |  | $            | 870    |   |             | 1,364  |   |      | 950  |      | 784 
|                                         |  |              |        |   |             |        |   |      |      |      |     
|Assumptions:                             |  |              |        |   |             |        |   |      |      |      |     
|Discount rate                            |  |              | 6.00   | % |             | 6.75   |   |      | 6.00 |      | 6.75
|Expected long-term return on assets      |  |              | 8.50   |   |             | 8.50   |   |      |     |      |    
|Rate of compensation increase            |  |              | 3.50   |   |             | 3.50   |   |      |     |      |    
|Initial health care trend rate           |  |              |       |   |             |       |   |      | 9.00 |      | 9.00
|Ultimate trend rate                      |  |              |       |   |             |       |   |      | 5.00 |      | 5.00
|Year ultimate trend rate is reached      |  |              |       |   |             |       |   |      | 2012 |      | 2011



(9)
PER SHARE DATA



The following schedule presents the components of the basic
and diluted EPS computations for the three months ended March 31, 2004 and 2003. Dilutive common shares arise from the potentially dilutive effect of NCFs stock options outstanding.



|                                   |  |                             |         |      |        
|---------------------------------- |  | --------------------------- | ------- | ---- | -------
|                                   |  | Three Months EndedMarch 31,
|In Thousands Except Per Share Data |  | 2004                        |         | 2003
|Basic EPS                          |  |                             |         |      |        
|Average common shares              |  |                             | 204,979 |      | 205,271
|Net income                         |  | $                           | 90,244  |      | 64,090 
|Earnings per share                 |  |                             | .44     |      | .31    
|                                   |  |                             |         |      |        
|Diluted EPS                        |  |                             |         |      |        
|Average common shares              |  |                             | 204,979 |      | 205,271
|Average dilutive common shares     |  |                             | 2,104   |      | 1,485  
|                                   |  |                             |         |      |        
|Adjusted average common shares     |  |                             | 207,083 |      | 206,756
|Net income                         |  | $                           | 90,244  |      | 64,090 
|Earnings per share                 |  |                             | .44     |      | .31    
|                                   |  |                             |         |      |        



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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



(10) SUPPLEMENTARY INCOME STATEMENT INFORMATION



Following is a breakdown of the components of other expense on the Consolidated Statement of Income for the three-month periods ended March 31, 2004 and
2003:



|                             |  |                             |        |      |       
|---------------------------- |  | --------------------------- | ------ | ---- | ------
|                             |  | Three Months EndedMarch 31,
|In Thousands                 |  | 2004                        |        | 2003
|Legal and professional fees  |  | $                           | 13,298 |      | 8,145 
|Telecommunications           |  |                             | 4,132  |      | 4,508 
|Data processing              |  |                             | 6,590  |      | 5,245 
|Marketing                    |  |                             | 3,029  |      | 2,518 
|Printing and office supplies |  |                             | 3,116  |      | 3,314 
|Postage and freight          |  |                             | 2,365  |      | 2,780 
|All other                    |  |                             | 17,796 |      | 19,894
|                             |  |                             |        |      |       
|Total other expense          |  | $                           | 50,326 |      | 46,404
|                             |  |                             |        |      |       



(11)
CONTINGENCIES



Certain legal claims have arisen in the normal course of
business in which NCF and certain of its Subsidiary Banks have been named as defendants. Although the amount of any ultimate liability with respect to such matters cannot be determined, in the opinion of management and counsel, any such liability
will have no material effect on NCFs financial position or results of operations.



(12) SEGMENT INFORMATION



Management monitors NCF performance as two business segments, traditional banking and financial enterprises.



The traditional banking segment includes sales and distribution of financial products and services to individuals. These products and
services include loan products such as residential mortgage, home equity lending, automobile and other personal financing needs. Traditional banking products also include various deposit products that are designed for customers saving and
transaction needs. This segment also includes lending and related financial services provided to small- to medium-sized companies. Included among these services are several specialty services such as real estate finance, asset-based lending and
residential construction lending. The traditional banking segment also includes management of the investment portfolio and non-deposit based funding.



The financial enterprises segment is comprised of trust services and investment management, transaction processing, retail banking consulting/in-store licensing and
broker/dealer activities.



The accounting policies of the individual segments
are the same as those of NCF. Transactions between business segments are conducted at arms length. Interest income for tax-exempt loans and securities is adjusted to a taxable-equivalent basis.



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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



(12) SEGMENT INFORMATION (Continued)



The following tables present condensed income statements for each reportable segment:



|                                |  |                    |            |   |                      |           |   |                          |        |   |       |            |  
|------------------------------- |  | ------------------ | ---------- | - | -------------------- | --------- | - | ------------------------ | ------ | - | ----- | ---------- | -
|In Thousands                    |  | TraditionalBanking |            |   | FinancialEnterprises |           |   | IntersegmentEliminations |        |   | Total |           
|Quarter ended March 31, 2004:   |  |                    |            |   |                      |           |   |                          |        |   |       |            |  
|Net interest income (TE)        |  | $                  | 190,886    |   |                      | 7,002     |   |                          |       |   |       | 197,888    |  
|Provision for loan losses       |  |                    | (12,088    | ) |                      |          |   |                          |       |   |       | (12,088    | )
|Gain (loss) on branch sale      |  |                    | 45         |   |                      |          |   |                          |       |   |       | 45         |  
|Noninterest income              |  |                    | 68,789     |   |                      | 53,068    |   |                          | (1,964 | ) |       | 119,893    |  
|Intangibles amortization        |  |                    | (13,639    | ) |                      |          |   |                          |       |   |       | (13,639    | )
|Noninterest expense             |  |                    | (111,756   | ) |                      | (40,295   | ) |                          | 1,964  |   |       | (150,087   | )
|                                |  |                    |            |   |                      |           |   |                          |        |   |       |            |  
|Income before income taxes (TE) |  |                    | 122,237    |   |                      | 19,775    |   |                          |       |   |       | 142,012    |  
|Income taxes                    |  |                    | 44,056     |   |                      | 7,712     |   |                          |       |   |       | 51,768     |  
|                                |  |                    |            |   |                      |           |   |                          |        |   |       |            |  
|Net income                      |  | $                  | 78,181     |   |                      | 12,063    |   |                          |       |   |       | 90,244     |  
|                                |  |                    |            |   |                      |           |   |                          |        |   |       |            |  
|Average assets                  |  | $                  | 22,105,456 |   |                      | 1,038,608 |   |                          |       |   |       | 23,144,064 |  
|                                |  |                    |            |  
|Quarter ended March 31, 2003:   |  |                    |            |   |                      |           |   |                          |        |   |       |            |  
|Net interest income (TE)        |  | $                  | 179,167    |   |                      | 5,215     |   |                          |       |   |       | 184,382    |  
|Provision for loan losses       |  |                    | (7,684     | ) |                      |          |   |                          |       |   |       | (7,684     | )
|Gain (loss) on branch sale      |  |                    | (145       | ) |                      |          |   |                          |       |   |       | (145       | )
|Noninterest income              |  |                    | 61,601     |   |                      | 44,757    |   |                          | (1,618 | ) |       | 104,740    |  
|Intangibles amortization        |  |                    | (16,284    | ) |                      |          |   |                          |       |   |       | (16,284    | )
|First Mercantile litigation     |  |                    |           |   |                      | (19,654   | ) |                          |       |   |       | (19,654    | )
|Noninterest expense             |  |                    | (111,053   | ) |                      | (34,731   | ) |                          | 1,618  |   |       | (144,166   | )
|                                |  |                    |            |   |                      |           |   |                          |        |   |       |            |  
|Income before income taxes (TE) |  |                    | 105,602    |   |                      | (4,413    | ) |                          |       |   |       | 101,189    |  
|Income taxes                    |  |                    | 38,820     |   |                      | (1,721    | ) |                          |       |   |       | 37,099     |  
|                                |  |                    |            |   |                      |           |   |                          |        |   |       |            |  
|Net income                      |  | $                  | 66,782     |   |                      | (2,692    | ) |                          |       |   |       | 64,090     |  
|                                |  |                    |            |   |                      |           |   |                          |        |   |       |            |  
|Average assets                  |  | $                  | 20,578,077 |   |                      | 714,365   |   |                          |       |   |       | 21,292,442 |  



(13) SUBSEQUENT EVENT



On May 9, 2004, NCF announced that it had signed a definitive merger agreement with SunTrust
Banks, Inc. The merger, which is subject to approval by regulatory authorities and by shareholders of both companies, is expected to close in the fourth quarter of 2004. Under the terms of the definitive merger agreement, which has been approved by
both boards of directors, NCF shareholders will have the right, subject to proration, to elect to receive cash or SunTrust common stock, in either case having a value equal to $8.625 plus .3713 SunTrust shares.



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Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations



The following sets forth managements discussion and analysis of financial condition and results of operations of National Commerce Financial Corporation
(NCF) and its wholly owned subsidiaries on a consolidated basis for the three months ended March 31, 2004 and 2003. NCF is a registered bank holding company that provides diverse financial services through a regional network of banking
subsidiaries and a national network of non-bank subsidiaries. This Quarterly Report on Form 10-Q should be read in conjunction with NCFs 2003 Annual Report on Form 10-K.



The following discussion contains certain forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995.
These forward-looking statements relate to anticipated future operating and financial performance measures, including net interest margin, credit quality, business initiatives, growth opportunities and growth rates, among other things. Words such as
expects, plans, estimates, projects, objectives and goals and similar expressions are intended to identify these forward-looking statements. We caution readers that such
forward-looking statements are necessarily estimates based on managements judgment, and obtaining the estimated results is subject to a number of risks and uncertainties. Such risks are discussed below. A variety of factors, including those
described below, could cause actual results and experience to differ materially from the anticipated results or other expectations expressed in this report. We do not assume any obligation to update these forward-looking statements or to update the
reasons why actual results could differ from those projected in the forward-looking statements. Certain amounts for prior periods have been reclassified to conform to the current presentation.



The following risks are those we believe to pose the greatest risk to our financial
condition, operations and prospects: fluctuations in interest rates could adversely affect our net interest income and impact funding sources; competition with other providers of financial services could adversely affect our profitability and
ability to grow core businesses; adverse changes in general economic conditions could result in declines in credit quality with resulting higher charge-offs, in the value of the collateral that secure our loans and in loan demand, our largest source
of revenue; unfavorable political conditions including acts or threats of terrorism and actions taken by governments in response to terrorism; various monetary and fiscal policies and regulations, including those determined by the Federal Reserve
Board, the Office of the Comptroller of the Currency, the Federal Deposit Insurance Corporation and the Securities and Exchange Commission; and managements ability to manage these and other risks.



We are a registered bank holding company headquartered in Memphis, Tennessee. We provide
banking and other financial services through our banking and non-banking subsidiaries. We are the surviving corporation from the July 2000 merger of National Commerce Bancorporation with CCB Financial Corporation. Our banking subsidiaries are
National Bank of Commerce (NBC) and NBC Bank, FSB. In certain of our markets, NBC operates under the trade names of Central Carolina Bank and Wal-Mart Money Center by National Bank of Commerce. We also are a 49
percent owner of First Market Bank, FSB. First Market operates 30 branch offices in the Richmond, Virginia area. Additionally, we own all of the outstanding common stock of numerous non-bank subsidiaries that provide a variety of financial services.



PERFORMANCE OVERVIEW - THREE MONTHS ENDED MARCH 31, 2004 AND 2003



Management focuses on five key financial performance drivers in managing
our operations and planning for the future. These performance drivers are: net interest margin, revenue growth, efficiency ratio, asset quality, and de novo expansion. Our discussion and analysis of operating results is structured in the context of
these key drivers.



During the first quarter of 2004, with respect to our key
drivers, we experienced:



| |  | Continued compression of our net interest margin due primarily to interest rates remaining at historically low levels;
| | - | ----------------------------------------------------------------------------------------------------------------------



| |  | A seven percent increase in noninterest income, excluding investment securities gains, over first quarter 2003 despite an industry-wide decline in mortgage banking activity;
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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| |  | Improvement in our operating cash efficiency ratio to 48.08 percent for first quarter 2004 compared to 50.29 percent for the same period in 2003;
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------



| |  | A six percent decline in nonperforming assets compared to one year ago; and
| | - | ---------------------------------------------------------------------------



| |  | Continued de novo expansion in Atlanta and through our co-branding relationship with Wal-Mart.
| | - | ----------------------------------------------------------------------------------------------



Net income for the three months ended March 31, 2004 totaled $90 million compared to 2003s $64 million. Basic and diluted net income
per share were $.44 in first quarter 2004 and $.31 in the first quarter of 2003. Annualized returns on average assets and stockholders equity were 1.57 percent and 13.04 percent, respectively, for the three months ended March 31, 2004 compared
to 1.22 percent and 9.64 percent, respectively, for the three months ended March 31, 2003.



CRITICAL ACCOUNTING POLICIES



Our
consolidated financial statements are prepared in accordance with accounting policies generally accepted in the United States (GAAP) which require that we make estimates and assumptions (see Note 1 to the Consolidated Financial
Statements) that affect the amounts reported in those financial statements. We have established procedures and processes to facilitate making the judgments necessary to prepare financial statements. In particular, we have identified accounting for
loan losses, accounting for the fair value of tangible and intangible assets and accounting for income taxes as the more material items in our financial statements that involve complex accounting estimates and principles and a greater degree of
judgment than required for most of our accounting entries. We refer you to our 2003 Annual Report for a more complete summary of our critical accounting policies. In each case, we have identified the variables most important in the estimation
process. Management used the best information available to make the estimations necessary to value the related assets and liabilities. Actual performance that differs from our estimates and future changes in key variables could change future
valuations and impact net income.



Determining our allowance for loan losses
inherently entails our making estimates based on future events and involves a large degree of judgment and subjective analysis. The allowance for loan losses is discussed more fully in the section following under the heading Provision for Loan
Losses.



As of March 31, 2004, we have unamortized goodwill totaling $1.1
billion and core deposit intangibles totaling $159 million (see Note 5 to the Consolidated Financial Statements). Mortgage servicing rights totaled $17 million at March 31, 2004. Intangible assets subject to amortization will be reviewed for
impairment in accordance with GAAP. Goodwill and intangible assets not subject to amortization are reviewed for impairment annually, or more frequently if events or changes in circumstances indicate that the asset might be impaired.



We employ certain tax structures to reduce our tax rate below the statutory rates of the
federal and individual state governments. Our estimate of tax expense considers the risk that certain income may be taxed or certain deductions may be disallowed. In the event that tax authorities disagree with our treatment of revenues and
expenses, we could incur additional tax expense from prior periods and in the future. Various states have been more aggressively pursuing income taxes due to their budget shortfalls. In addition, states have considered legislation that could impact
our state tax expense.



DISCUSSION AND ANALYSIS OF KEY DRIVERS



Net Interest Margin



Net interest margin is one of the key drivers as net interest income is our principal source
of earnings. Volume, yield/cost and relative mix of both earning assets and interest-bearing and noninterest-bearing sources of funds impact net interest income.



16



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The net interest margin for the first quarter of 2004 declined 12 basis points to 3.86 percent from 3.98 percent in the
first quarter of 2003. This decline is attributable to lower prepayment penalty and origination fees as well as decreased fixed rate loan yields due to prepayments/maturities. New loan production continues to be predominately at lower, variable
rates. Currently, more than half of our loans are at variable rates which would improve our net interest margin in the short-term if rates rise. See Table 1 for an analysis of our net interest margin.



Interest-earning Assets and Interest-bearing Liabilities To combat recession
fears and slowdowns in the economy, the Federal Reserve has decreased the target federal funds rate during the past three years. Since the beginning of 2001, the Federal Reserve has decreased the target federal funds rate by a total of 550 basis
points, with the most recent decrease being 25 basis points in June 2003. We do not anticipate any further decreases by the Federal Reserve in 2004 and believe that the Federal Reserve is likely to increase rates later in 2004, perhaps as soon as
the end of the second quarter.



Each time the Federal Reserve decreased the
target federal funds rate, our banking subsidiaries lowered their prime lending rate to keep pace with the changes in funding costs. The prime rates charged by our banking subsidiaries were 4.00 percent at March 31, 2004 and 4.25 percent at March
31, 2003. Our yield on interest-earning assets has fallen due to these interest rate changes and the lower-reinvestment rates available as loans repaid. Additionally, accelerated prepayments of our investments in mortgage-backed securities and
collateralized mortgage obligations resulted in increased amortization of premiums on those investments that negatively impacted our yield on earning assets. We did not expand our investment securities portfolio during the first quarter of 2004 due
to unattractive market rates. During first quarter of 2004, the increase in interest income from higher volumes of interest-earning assets was more than offset by the decrease in interest income from lower rates earned on those assets.



Corresponding with the falling yields on interest-earning assets, the rates paid on our
interest-bearing liabilities have decreased when repriced. Additionally, the long-term debt restructuring undertaken in 2003 decreased our cost of funds. Increases in interest expense due to higher volumes of interest-bearing liabilities were more
than offset by decreased interest expense due to lower rates paid on those liabilities. We remain optimistic that a rise in rates will increase net interest income due to the slightly asset sensitive position of the balance sheet and the relatively
low current value of noninterest-bearing deposits. Overall, our net interest income increased by $34 million in first quarter of 2004 due to variances in volume from average outstandings in first quarter of 2003 and decreased $20 million due to
variances in rates in effect during first quarter 2004 compared to 2003.



Our
net free liabilities (noninterest-bearing liabilities and equity) impact our net interest margin as they provide a free source of funding our asset growth. We focused our sales efforts on increasing noninterest-bearing deposits during
2003 with a resulting increase of $374 million in average noninterest-bearing deposits at March 31, 2004 compared to March 31, 2003. The contribution of net free liabilities to the net interest margin (computed as net interest margin
less interest rate spread) fell to 25 basis points for the three months ended March 31, 2004 from 31 basis points for the three months ended March 31, 2003. Despite the increase in our net free liabilities of approximately $572 million,
the contribution of net free liabilities to our net interest margin declined as a result of the 63 basis point decline in the average yield on our interest-earning assets as discussed previously.



17



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Table 1. Average Balances and Net Interest Income Analysis



|                                                    |  |                              |            |          |      |                     |  |      |                |  |            |  |                   |  |     
|--------------------------------------------------- |  | ---------------------------- | ---------- | -------- | ---- | ------------------- |  | ---- | -------------- |  | ---------- |  | ----------------- |  | ----
|                                                    |  | Three Months Ended March 31,
|                                                    |  | 2004                         |            |          | 2003
|In Thousands (1)  Taxable Equivalent Basis         |  | AverageBalance               |            | Interest |      | Average Yield/ Rate |  |      | AverageBalance |  | Interest   |  | AverageYield/Rate
|Earning assets:                                     |  |                              |            |          |      |                     |  |      |                |  |            |  |                   |  |     
|Loans (2)                                           |  | $                            | 13,451,587 |          |      | 184,637             |  | 5.52 | %              |  | 12,789,028 |  | 199,861           |  | 6.32
|U.S. Treasury and agency obligations (3)            |  |                              | 5,253,008  |          |      | 60,903              |  | 4.64 |                |  | 4,975,088  |  | 59,887            |  | 4.82
|States and political subdivision obligations (3)    |  |                              | 89,600     |          |      | 1,876               |  | 8.38 |                |  | 114,474    |  | 2,253             |  | 7.87
|Other securities (3)                                |  |                              | 1,299,803  |          |      | 17,212              |  | 5.30 |                |  | 617,142    |  | 7,537             |  | 4.89
|Trading securities                                  |  |                              | 259,602    |          |      | 1,934               |  | 2.98 |                |  | 87,496     |  | 586               |  | 2.68
|Time deposits in other banks                        |  |                              | 38,023     |          |      | 408                 |  | 4.31 |                |  | 9,575      |  | 25                |  | 1.06
|Federal funds sold and other short-term investments |  |                              | 178,951    |          |      | 374                 |  | .84  |                |  | 51,187     |  | 167               |  | 1.33
|                                                    |  |                              |            |          |      |                     |  |      |                |  |            |  |                   |  |     
|Total earning assets                                |  |                              | 20,570,574 |          |      | 267,344             |  | 5.22 |                |  | 18,643,990 |  | 270,316           |  | 5.85
|                                                    |  |                              |            |          |      |                     |  |      |                |  |            |  |                   |  |     
|Non-earning assets:                                 |  |                              |            |          |      |                     |  |      |                |  |            |  |                   |  |     
|Cash and due from banks                             |  |                              | 431,289    |          |      |                     |  |      |                |  | 398,564    |  |                   |  |     
|Bank owned life insurance                           |  |                              | 243,306    |          |      |                     |  |      |                |  | 228,214    |  |                   |  |     
|Investment in First Market Bank                     |  |                              | 32,946     |          |      |                     |  |      |                |  | 28,353     |  |                   |  |     
|Premises and equipment                              |  |                              | 265,599    |          |      |                     |  |      |                |  | 258,614    |  |                   |  |     
|Goodwill                                            |  |                              | 1,087,115  |          |      |                     |  |      |                |  | 1,077,121  |  |                   |  |     
|Core deposit intangibles                            |  |                              | 165,967    |          |      |                     |  |      |                |  | 229,044    |  |                   |  |     
|All other assets, net                               |  |                              | 347,268    |          |      |                     |  |      |                |  | 428,542    |  |                   |  |     
|                                                    |  |                              |            |          |      |                     |  |      |                |  |            |  |                   |  |     
|Total assets                                        |  | $                            | 23,144,064 |          |      |                     |  |      |                |  | 21,292,442 |  |                   |  |     
|                                                    |  |                              |            |          |      |                     |  |      |                |  |            |  |                   |  |     
|Interest-bearing liabilities:                       |  |                              |            |          |      |                     |  |      |                |  |            |  |                   |  |     
|Savings, NOW and money market accounts              |  | $                            | 5,816,757  |          |      | 8,990               |  | .62  | %              |  | 5,684,696  |  | 11,957            |  | .85 
|Jumbo and brokered certificates of deposit          |  |                              | 2,290,967  |          |      | 6,416               |  | 1.13 |                |  | 1,796,198  |  | 7,189             |  | 1.62
|Time deposits                                       |  |                              | 4,913,286  |          |      | 32,353              |  | 2.65 |                |  | 4,909,848  |  | 38,142            |  | 3.15
|                                                    |  |                              |            |          |      |                     |  |      |                |  |            |  |                   |  |     
|Total interest-bearing deposits                     |  |                              | 13,021,010 |          |      | 47,759              |  | 1.48 |                |  | 12,390,742 |  | 57,288            |  | 1.88
|Short-term borrowed funds                           |  |                              | 1,697,317  |          |      | 4,565               |  | 1.08 |                |  | 1,249,458  |  | 4,368             |  | 1.40
|FHLB advances                                       |  |                              | 2,351,862  |          |      | 15,602              |  | 2.67 |                |  | 2,056,896  |  | 22,118            |  | 4.36
|Trust preferred securities and long-term debt       |  |                              | 278,344    |          |      | 1,530               |  | 2.20 |                |  | 296,745    |  | 2,160             |  | 2.95
|                                                    |  |                              |            |          |      |                     |  |      |                |  |            |  |                   |  |     
|Total interest-bearing liabilities                  |  |                              | 17,348,533 |          |      | 69,456              |  | 1.61 |                |  | 15,993,841 |  | 85,934            |  | 2.18
|                                                    |  |                              |            |          |      |                     |  |      |                |  |            |  |                   |  |     
|Other liabilities and stockholders equity:         |  |                              |            |          |      |                     |  |      |                |  |            |  |                   |  |     
|Demand deposits                                     |  |                              | 2,514,792  |          |      |                     |  |      |                |  | 2,140,299  |  |                   |  |     
|Other liabilities                                   |  |                              | 497,784    |          |      |                     |  |      |                |  | 462,456    |  |                   |  |     
|Stockholders equity                                |  |                              | 2,782,955  |          |      |                     |  |      |                |  | 2,695,846  |  |                   |  |     
|                                                    |  |                              |            |          |      |                     |  |      |                |  |            |  |                   |  |     
|Total liabilities and stockholders equity          |  | $                            | 23,144,064 |          |      |                     |  |      |                |  | 21,292,442 |  |                   |  |     
|                                                    |  |                              |            |          |      |                     |  |      |                |  |            |  |                   |  |     
|Net interest income and net interest margin (4)     |  |                              |            |          | $    | 197,888             |  | 3.86 | %              |  |            |  | 184,382           |  | 3.98
|                                                    |  |                              |            |          |      |                     |  |      |                |  |            |  |                   |  |     
|Interest rate spread (5)                            |  |                              |            |          |      |                     |  | 3.61 | %              |  |            |  |                   |  | 3.67
|                                                    |  |                              |            |          |      |                     |  |      |                |  |            |  |                   |  |     

---

|(1) | The taxable equivalent basis is computed using 35% federal and applicable state tax rates in 2004 and 2003. A reconciliation of taxable equivalent interest income to GAAP interest
income is provided below:
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|                                                    |  |      |         |      |        
|--------------------------------------------------- |  | ---- | ------- | ---- | -------
|In Thousands                                        |  | 2004 |         | 2003
|Taxable equivalent interest income                  |  | $    | 267,344 |      | 270,316
|Less taxable equivalent adjustment for:             |  |      |         |      |        
|Loans                                               |  |      | 1,655   |      | 2,192  
|Investment securities                               |  |      | 5,153   |      | 4,733  
|Trading account securities                          |  |      | 9       |      | 11     
|Federal funds sold and other short-term investments |  |      |        |      | 4      
|                                                    |  |      |         |      |        
|GAAP interest income                                |  | $    | 260,527 |      | 263,376
|                                                    |  |      |         |      |        

|(2) | The average loan balances include non-accruing loans. The average loan balances include nonaccrual loans and loans available for sale.
|--- | --------------------------------------------------------------------------------------------------------------------------------------

|(3) | The average balances for debt and equity securities exclude the effect of their mark-to-market adjustment, if any.
|--- | ------------------------------------------------------------------------------------------------------------------

|(4) | Net interest margin is computed by dividing net interest income by total earning assets.
|--- | ----------------------------------------------------------------------------------------

|(5) | Interest rate spread equals the earning asset yield minus the interest-bearing liability rate.
|--- | ----------------------------------------------------------------------------------------------



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Interest Rate Risk ManagementWe manage the interest rate sensitive components of our balance sheet with a
view toward achieving consistent net income increases in spite of fluctuations in net interest margin caused by changing interest rates. Interest sensitivity is our primary market risk and is defined as the risk of economic loss resulting from
changes in interest rates that negatively impact net interest income. Responsibility for managing interest rate, market and liquidity risks rests with our Asset/Liability Management Committee (ALCO). ALCO reviews interest rate and
liquidity exposures and, based on its view of existing and expected market conditions, adopts balance sheet strategies that are intended to optimize net interest income to the extent possible while minimizing the risk associated with changes in
interest rates.



Interest rate sensitivity varies with different types of
interest-earning assets and interest-bearing liabilities. Overnight federal funds, on which rates change daily, and loans which are tied to the prime rate are much more interest rate sensitive than fixed-rate securities and loans. Similarly, time
deposits of $100,000 and over and money market accounts are much more interest rate sensitive than savings accounts. The shorter-term interest rate sensitivities are the key to measurement of the interest sensitivity gap, or difference between
interest-sensitive earning assets and interest-sensitive liabilities. Trying to minimize this gap is a continual challenge in a changing interest rate environment and one of the objectives of the ALCO. ALCO uses Gap Analysis as one method to
determine and monitor the appropriate balance between interest-sensitive assets and interest-sensitive liabilities.



Gap Analysis measures the interest sensitivity of assets and liabilities at a given point in time. The interest sensitivity of assets and liabilities is based on the
timing of contractual maturities and repricing opportunities. A positive interest-sensitive gap occurs when interest-sensitive assets exceed interest-sensitive liabilities. The reverse situation results in a negative gap. Management believes that an
essentially balanced position (+/- 15 percent of tangible assets) between interest-sensitive assets and liabilities is necessary in order to protect against wide fluctuations in interest rates. An analysis of our interest sensitivity position at
March 31, 2004 is presented in Table 2. At March 31, 2004, we had a cumulative positive gap (interest-sensitive assets exceeded interest-sensitive liabilities, equity and interest rate swaps) of $972 million or 4.22 percent of total
assets over a twelve-month horizon. This compares to a cumulative negative gap of $821 million or 3.57 percent of total assets over a twelve-month horizon at December 31, 2003. The ratio of assets to liabilities, equity and interest rate
swaps was 1.09x at March 31, 2004 compared to .93x at December 31, 2003. ALCO decided that a change in our gap position was prudent due to its expectation that short-term interest rates may rise slightly during 2004. As a result of the asset
sensitive gap position in the less than 30 day category, as shown in Table 2, additional declines in interest rates could have a negative impact on our net interest margin until our interest-bearing liabilities reprice.



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##### Table of Contents

Table 2. Interest Sensitivity Analysis



|                                                                          |  |                          |           |   |                   |            |   |                            |           |                |            |                       |            |   |       |           
|------------------------------------------------------------------------- |  | ------------------------ | --------- | - | ----------------- | ---------- | - | -------------------------- | --------- | -------------- | ---------- | --------------------- | ---------- | - | ----- | ----------
|                                                                          |  | As of March 31, 2004 (1)
|In Thousands                                                              |  | 30 DaysSensitive         |           |   | 6 MonthsSensitive |            |   | 6 Monthsto 1 YearSensitive |           | TotalSensitive |            | Beyond 1YearSensitive |            |   | Total
|Assets:                                                                   |  |                          |           |   |                   |            |   |                            |           |                |            |                       |            |   |       |           
|Short term investments                                                    |  | $                        | 426,708   |   |                   |           |   |                            |          |                | 426,708    |                       |           |   |       | 426,708   
|Investment securities                                                     |  |                          | 770,944   |   |                   | 1,083,046  |   |                            | 718,904   |                | 2,572,894  |                       | 3,644,283  |   |       | 6,217,177 
|Loans                                                                     |  |                          | 6,900,592 |   |                   | 1,137,827  |   |                            | 1,163,964 |                | 9,202,383  |                       | 4,493,962  |   |       | 13,696,345
|Other assets                                                              |  |                          |          |   |                   |           |   |                            |          |                |           |                       | 2,698,292  |   |       | 2,698,292 
|                                                                          |  |                          |           |   |                   |            |   |                            |           |                |            |                       |            |   |       |           
|Total assets                                                              |  |                          | 8,098,244 |   |                   | 2,220,873  |   |                            | 1,882,868 |                | 12,201,985 |                       | 10,836,537 |   |       | 23,038,522
|                                                                          |  |                          |           |   |                   |            |   |                            |           |                |            |                       |            |   |       |           
|Liabilities:                                                              |  |                          |           |   |                   |            |   |                            |           |                |            |                       |            |   |       |           
|Noninterest DDA                                                           |  |                          | 225,454   |   |                   | 450,907    |   |                            |          |                | 676,361    |                       | 2,028,993  |   |       | 2,705,354 
|Savings deposits                                                          |  |                          | 887,928   |   |                   | 584,452    |   |                            | 584,452   |                | 2,056,832  |                       | 3,814,656  |   |       | 5,871,488 
|Time deposits                                                             |  |                          | 1,921,040 |   |                   | 2,421,237  |   |                            | 1,103,216 |                | 5,445,493  |                       | 1,768,633  |   |       | 7,214,126 
|Short-term borrowed funds                                                 |  |                          | 1,312,170 |   |                   | 349,414    |   |                            | 9,984     |                | 1,671,568  |                       |           |   |       | 1,671,568 
|Long-term debt                                                            |  |                          | 854,023   |   |                   | 407        |   |                            | 498       |                | 854,928    |                       | 1,300,938  |   |       | 2,155,866 
|Other liabilities                                                         |  |                          |          |   |                   |           |   |                            |          |                |           |                       | 621,181    |   |       | 621,181   
|                                                                          |  |                          |           |   |                   |            |   |                            |           |                |            |                       |            |   |       |           
|Total liabilities                                                         |  |                          | 5,200,615 |   |                   | 3,806,417  |   |                            | 1,698,150 |                | 10,705,182 |                       | 9,534,401  |   |       | 20,239,583
|Total equity                                                              |  |                          |          |   |                   |           |   |                            |          |                |           |                       | 2,798,939  |   |       | 2,798,939 
|                                                                          |  |                          |           |   |                   |            |   |                            |           |                |            |                       |            |   |       |           
|Total liabilities and equity                                              |  |                          | 5,200,615 |   |                   | 3,806,417  |   |                            | 1,698,150 |                | 10,705,182 |                       | 12,333,340 |   |       | 23,038,522
|                                                                          |  |                          |           |   |                   |            |   |                            |           |                |            |                       |            |   |       |           
|Interest rate swaps:                                                      |  |                          |           |   |                   |            |   |                            |           |                |            |                       |            |   |       |           
|Pay floating/receive fixed                                                |  |                          | 300,000   |   |                   | 225,000    |   |                            |          |                | 525,000    |                       | (525,000   | ) |       |          
|                                                                          |  |                          |           |   |                   |            |   |                            |           |                |            |                       |            |   |       |           
|Total interest rate swaps                                                 |  |                          | 300,000   |   |                   | 225,000    |   |                            |          |                | 525,000    |                       | (525,000   | ) |       |          
|                                                                          |  |                          |           |   |                   |            |   |                            |           |                |            |                       |            |   |       |           
|Interest sensitivity gap                                                  |  | $                        | 2,597,629 |   |                   | (1,810,544 | ) |                            | 184,718   |                | 971,803    |                       |            |   |       |           
|                                                                          |  |                          |           |   |                   |            |   |                            |           |                |            |                       |            |   |       |           
|Cumulative gap                                                            |  | $                        | 2,597,629 |   |                   | 787,085    |   |                            | 971,803   |                |            |                       |            |   |       |           
|                                                                          |  |                          |           |   |                   |            |   |                            |           |                |            |                       |            |   |       |           
|Cumulative ratio of assets to liabilities, equity and interest rate swaps |  |                          | 1.47      | x |                   | 1.08       |   |                            | 1.09      |                |            |                       |            |   |       |           
|                                                                          |  |                          |           |   |                   |            |   |                            |           |                |            |                       |            |   |       |           
|Cumulative gap to total assets                                            |  |                          | 11.28     | % |                   | 3.42       |   |                            | 4.22      |                |            |                       |            |   |       |           
|                                                                          |  |                          |           |   |                   |            |   |                            |           |                |            |                       |            |   |       |           



Comparative Interest Sensitivity
Gap



|                                                                          |  |                         |           |   |                   |          |   |                            |          |   |                |  |                       |  |       | 
|------------------------------------------------------------------------- |  | ----------------------- | --------- | - | ----------------- | -------- | - | -------------------------- | -------- | - | -------------- |  | --------------------- |  | ----- | 
|                                                                          |  | As of December 31, 2003
|In Thousands                                                              |  | 30 DaysSensitive        |           |   | 6 MonthsSensitive |          |   | 6 Monthsto 1 YearSensitive |          |   | TotalSensitive |  | Beyond 1YearSensitive |  | Total
|Cumulative gap                                                            |  | $                       | 1,634,139 |   |                   | (326,487 | ) |                            | (821,082 | ) |                |  |                       |  |       | 
|                                                                          |  |                         |           |   |                   |          |   |                            |          |   |                |  |                       |  |       | 
|Cumulative ratio of assets to liabilities, equity and interest rate swaps |  |                         | 1.26      | x |                   | .97      |   |                            | .93      |   |                |  |                       |  |       | 
|                                                                          |  |                         |           |   |                   |          |   |                            |          |   |                |  |                       |  |       | 
|Cumulative gap to total assets                                            |  |                         | 7.10      | % |                   | (1.42    | ) |                            | (3.57    | ) |                |  |                       |  |       | 
|                                                                          |  |                         |           |   |                   |          |   |                            |          |   |                |  |                       |  |       | 

---

|(1) | Assets and liabilities that mature in one year or less and/or have interest rates that can be adjusted during this period are considered interest-sensitive. The interest sensitivity
position has meaning only as of the date for which it is prepared.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Gap Analysis is a limited measurement tool, however, because it does not incorporate the interrelationships between interest rates charged or paid, balance sheet trends and reaction to interest rate changes. In addition, a gap analysis
model does not consider that changes in interest rates do not affect all categories of assets and liabilities equally or simultaneously. Therefore, ALCO uses Gap Analysis as a tool to monitor changes in the balance sheet structure. To estimate the
impact that changes in interest rates would have on our earnings, ALCO uses Simulation Analysis. ALCO prepares and reviews the Simulation Analysis quarterly. The most recent Simulation Analysis was as of February 29, 2004 and those results do not
vary significantly from those that would have been obtained for an analysis as of March 31, 2004.



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Simulation Analysis is performed using a computer-based asset/liability model incorporating current portfolio balances
and rates, contractual maturities, repricing opportunities, and assumptions about prepayments, future interest rates and future volumes. Using this information, the model calculates earnings estimates under multiple interest rate scenarios. To
measure the sensitivity of our earnings, the results of multiple simulations, which assume changes in interest rates, are compared to the base case simulation, which assumes no changes in interest rates. The sensitivity of earnings is
expressed as a percentage change in comparison to the base case simulation. The model assumes an immediate parallel shift in the interest rate environment. Using data as of February 29, 2004, a 100 basis point increase is projected to
decrease net income .3 percent and a 100 basis point decrease is projected to decrease net income 3.6 percent. The model uses asymmetrical pricing assumptions with respect to certain borrowings whereby interest rates are assumed not to be able to
fall as much as they are able to rise (a floor is established but no ceiling). With call risk, in a falling interest rate environment, issuer calls of higher yielding securities produce excess cash that would be re-invested at the lower rates
available in the market. In a rising rate environment, maturities of lower-yielding callable securities are extended and less cash is generated for re-investment at the higher market rates available.



As of March 31, 2004, management believes that NCF is positioned to avoid material negative
changes in net income resulting from future changes in interest rates. Management continues to target a relatively neutral position relative to future interest rate increases in the event that interest rates increase in 2004.If simulation
results show that earnings sensitivity exceeds the targeted limit, ALCO will adopt on-balance sheet and/or off-balance sheet strategies to bring earnings sensitivity within target guidelines. ALCO reviews the interest-earning and interest-bearing
portfolios to ensure a proper mix of fixed- and variable-rate products.



Estimating the amount of interest rate risk requires using significant assumptions about the future. These estimates will be different from actual results for many reasons, including but not limited to, changes in the growth of the overall
economy, changes in credit spreads, market interest rates moving in patterns other than the patterns chosen for analysis, changes in customer preferences, changes in tactical and strategic plans and changes in Federal Reserve policy. Stress testing
is performed quarterly on all market risk measurement analyses to help understand the relative sensitivity of key assumptions and thereby better understand and evaluate our risk profile.



Management will continue to monitor our interest sensitivity position with the goals of ensuring adequate liquidity while at the same time
seeking profitable spreads between the yields on funding uses and the rates paid for funding sources.



Revenue Growth



Revenue growth is our
second identified driver. Revenue consists of net interest income, discussed above, and noninterest income. Growth in noninterest income is, and will continue to be, a significant factor in determining our financial success. Noninterest income as a
percentage of total revenues (taxable equivalent basis) grew to 37.7 percent in first quarter 2004 compared to first quarter 2003s 35.2 percent. Excluding net investment securities gains and gains on branch sales, the percentages would be 34.3
percent and 34.4 percent, respectively. The largest increases in noninterest income in first quarter 2004 were broker/dealer revenues and asset management fees.



Service charges on deposit accounts are our largest single category of noninterest income. Despite our higher volume of deposit accounts, service charge revenue was
negatively impacted over the last 12 months by the Wal-Mart interchange settlement, by commercial deposit customers maintaining higher deposit balances as interest rates on overnight sweep opportunities are not as attractive, by commercial customers
processing more electronic and less paper transactions, by the rollout of our free Internet bill pay, and by the continued conversion by our retail customers of fee-paying checking accounts to no-fee products. Additionally, first quarter
historically results in seasonally lower consumer banking fees; we are encouraged the service charge revenue came back strongly in March 2004. We review our deposit products and service charge structure periodically to ensure that we are competitive
with the marketplace. We anticipate growth in deposit service charge income as we emphasize transaction account deposit growth.



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Our mortgage banking income declined in first quarter 2004 to $7 million from $10 million in first quarter 2003. The
mortgage industry experienced unprecedented levels of refinancings during the first three quarters of 2003 due to the lowest mortgage rates in many years; mortgage activity slowed significantly in the latter part of 2003 and 2004 activity is
expected to be significantly below 2003 levels. For approximately the last year and a half, we retained the servicing rights on newly originated, conforming loans eligible for sale in the secondary market. In second quarter 2004, we anticipate
selling servicing on loans with outstanding principal balances of $1.1 billion as of March 31, 2004. Gains, if any, realized on mortgage servicing sales will be dependent on market rates in effect at the time of sale. Loans originated by the Atlanta
mortgage-originator acquired in late 2002 continue to be sold on a flow basis.



Broker/dealer revenues were up $5 million in first quarter 2004 to $26 million from first quarter 2003 due primarily to sales of trust preferred securities to institutional customers. We anticipate selling another pool of trust preferred
securities during the second quarter. We expect broker/dealer revenues in 2004 to be lower than 2003s. Changes in interest rate levels or equity markets could significantly impact these revenues.



In 2002, we began to extend our wealth management programs throughout our NCF footprint with
the goal of synchronizing private banking, trust, brokerage and our First Mercantile retirement plan products to provide complete wealth management solutions. In response to those efforts, asset management fees have risen steadily over the past five
quarters. First Mercantile continues to market their retirement plan products to other financial providers and we anticipate a strong year in 2004.



The sale of our merchant processing operations in late 2003 was the primary cause of the decrease in other service charges and fees for the first quarter 2004 compared to
the same quarter in 2003.



In the first quarter of 2004, we recognized $11
million of investment securities gains. The market rates in effect presented us with the opportunity to take some of the gains in the investment portfolio and, with our expectation that rates might rise in 2004, we determined that it was in our best
interest to sell investments from the available for sale portfolio. We do not anticipate significant securities sales during the remainder of 2004.



Efficiency



Management looks to our efficiency ratio as a key indicator of how well we manage the noninterest cost of operating our diverse institution. NCFs effort to improve operational efficiency remains a top
initiative. The first wave of recommendations from the previously announced project to improve internal performance will be implemented in the second quarter and revenue enhancement/expense control benefits should gradually increase through the
fourth quarter of this year. First quarter 2004 included an expense of $2.4 million for outside consulting services related to this initiative.



NCFs first quarter operating cash efficiency ratio, defined as cash operating noninterest expense divided by operating revenues, has improved 221 basis points from
first quarter 2003 despite our significant de novo expansion in the Atlanta metropolitan area. During this time operating revenues rose 7.0 percent while cash operating noninterest expense rose only 2.3 percent. The first quarter 2004 operating cash
efficiency ratio increased 80 basis points from fourth quarter 2003 primarily due to lower net interest income, annual salary increases adopted in the first quarter, seasonally higher FICA and employee benefits, and the addition of eight new
branches. We expect the current revenue/expense initiatives to provide significant leverage as much of the anticipated lift in revenue is not expected to require an offsetting rise in expense.



22



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Table 3 presents efficiency ratios for the first quarter 2004, fourth quarter 2003 and first quarter 2003. Included
within Table 3 is our efficiency ratio computed on a cash operating basis. Management uses a cash operating efficiency ratio as a key performance indicator rather a ratio computed using GAAP measures. Accordingly, our cash operating efficiency ratio
is a non-GAAP financial measure that is reconciled to the most comparable GAAP measure in the table below. Management believes that certain noninterest expenses included in the GAAP measure are not fairly indicative of the on-going cost to operate
our business. For example, gains or losses on investment securities are not considered part of our core earnings. Core deposit intangible amortization is a noninterest expense related to an intangible asset that was recorded due to the accounting
basis of certain acquisitions. Accordingly, such items have been excluded in computing our cash operating efficiency ratio. Our goal for 2004 is to maintain an operating cash efficiency ratio of less than 48 percent.



Table 3. Efficiency Ratios



|                                                  |  |                    |         |   |              |         |   |           |         |  
|------------------------------------------------- |  | ------------------ | ------- | - | ------------ | ------- | - | --------- | ------- | -
|                                                  |  | Three Months Ended |        
|In Thousands                                      |  | March 2004         |         |   | December2003 |         |   | March2003 |        
|Noninterest expense                               |  | $                  | 163,726 |   |              | 162,236 |   |           | 180,104 |  
|                                                  |  |                    |         |   |              |         |   |           |         |  
|Net interest income (TE) (1)                      |  | $                  | 197,888 |   |              | 202,391 |   |           | 184,382 |  
|Noninterest income                                |  |                    | 119,938 |   |              | 111,705 |   |           | 104,595 |  
|                                                  |  |                    |         |   |              |         |   |           |         |  
|Total revenues                                    |  | $                  | 317,826 |   |              | 314,096 |   |           | 288,977 |  
|                                                  |  |                    |         |   |              |         |   |           |         |  
|Efficiency ratio (TE)                             |  |                    | 51.51   | % |              | 51.65   |   |           | 62.32   |  
|                                                  |  |                    |         |   |              |         |   |           |         |  
|Noninterest expense                               |  | $                  | 163,726 |   |              | 162,236 |   |           | 180,104 |  
|Less:                                             |  |                    |         |   |              |         |   |           |         |  
|Core deposit intangible and goodwill amortization |  |                    | (13,639 | ) |              | (14,337 | ) |           | (16,284 | )
|First Mercantile litigation                       |  |                    |        |   |              |        |   |           | (19,654 | )
|Employment contract terminations                  |  |                    |        |   |              | (987    | ) |           |        |  
|Other items (2)                                   |  |                    | (2,543  | ) |              | (1,021  | ) |           |        |  
|                                                  |  |                    |         |   |              |         |   |           |         |  
|Cash operating noninterest expense                |  | $                  | 147,544 |   |              | 145,891 |   |           | 144,166 |  
|                                                  |  |                    |         |   |              |         |   |           |         |  
|Net interest income (TE) (1)                      |  | $                  | 197,888 |   |              | 202,391 |   |           | 184,382 |  
|Noninterest income                                |  |                    | 119,938 |   |              | 111,705 |   |           | 104,595 |  
|Less:                                             |  |                    |         |   |              |         |   |           |         |  
|(Gain) loss on branch sales                       |  |                    | (45     | ) |              | (2,200  | ) |           | 145     |  
|Investment securities (gains) losses              |  |                    | (10,918 | ) |              | (3,338  | ) |           | (2,464  | )
|                                                  |  |                    |         |   |              |         |   |           |         |  
|Operating revenues                                |  | $                  | 306,863 |   |              | 308,558 |   |           | 286,658 |  
|                                                  |  |                    |         |   |              |         |   |           |         |  
|Cash operating efficiency ratio (TE)              |  |                    | 48.08   | % |              | 47.28   |   |           | 50.29   |  
|                                                  |  |                    |         |   |              |         |   |           |         |  

---

|(1) | The taxable equivalent adjustment to net interest income is computed using a 35% federal tax rate and applicable state tax rates.
|--- | ---------------------------------------------------------------------------------------------------------------------------------

|(2) | Comprised of expenses related to consulting project, severance and branch closures.
|--- | -----------------------------------------------------------------------------------



Core deposit intangible amortization expense decreased $3 million in first quarter of 2004 from first quarter of 2003. This decrease is
consistent with the accelerated amortization method we use. During 2003, core deposit intangibles were reduced by $3 million in connection with deposits sold in branch sales. We anticipate 2004s core deposit intangible amortization will be
approximately $51 million.



Asset Quality



Nonperforming Loans and Nonperforming Assets Nonperforming loans and nonperforming
assets have experienced moderate improvement over the last four quarters. During 2003, we charged-off $11 million of known problem loans within our aircraft portfolio and do not expect any future significant losses in this portfolio. The ratio of
nonperforming loans to loans outstanding was .26 percent at March 31, 2004 compared to .24 percent at December 31, 2003 and .28 percent at March 31, 2003. At March 31, 2004, total nonperforming assets (consisting of nonperforming loans, foreclosed
real estate and other repossessed assets) amounted to $64 million or .48 percent of outstanding loans plus other real estate acquired through foreclosure and other repossessed assets. This compares to $64 million or .49 percent at December 31, 2003
and $68 million or .57 percent at March 31, 2003.



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Allowance for Loan Losses Management considers determination of the amount of the allowance for loan losses to be
a critical accounting estimate and performs periodic analysis of the loan portfolio to determine its appropriateness. The overall allowance analysis considers the results of the loan reviews, quantitative and qualitative indicators of the current
quality of the loan portfolio and the inherent risk of loss not captured in the reviews and assessments of pools of loans. Management responsible for credit and financial matters performs the assessment and determines the amount of the allowance for
loan losses.



As discussed in our 2003 Annual Report on Form 10-K, we refined
our risk scoring system in late 2002 to better align our risk definitions with regulatory requirements but had not completed the re-evaluation of loss factors assigned to each credit category as of December 31, 2002. The loss factors used in our
allowance allocation model were re-evaluated in the first quarter of 2003 based upon the modified loan classification system. The re-evaluation of our risk factors included historical data, including loss levels and resulted in decreased loss
factors utilized in allocating our allowance. Consequently, our unallocated allowance increased. Although the allocation of the allowance is an important management process, no portion of the allowance is restricted to any individual or group of
loans; rather the entire allowance is available to absorb losses for the entire loan portfolio.



The unallocated allowance for loan losses increased to $51 million at March 31, 2004 compared to $50 million at December 31, 2003 and $45 million at March 31, 2003. We believe the level of unallocated reserve is
appropriate given that the economy has not yet experienced consistent trends in economic recovery indicators, we have higher levels of nonperforming loans than experienced one year ago, there is the possibility of rising interest rates placing
increased debt service requirements on borrowers and the levels of unallocated allowance we have historically maintained.



Table 4 summarizes indicators of portfolio quality and the allowance for loan losses as of and for the five quarters ended March 31, 2004.



Table 4. Indicators of Portfolio Quality and Allowance for Loan Losses



|                                                                           |  |               |            |   |               |            |              |            |               |            |              |           
|-------------------------------------------------------------------------- |  | ------------- | ---------- | - | ------------- | ---------- | ------------ | ---------- | ------------- | ---------- | ------------ | ----------
|                                                                           |  | 2004          |            |   | 2003          |            | 2003         |            | 2003          |            | 2003        
|In Thousands                                                               |  | First Quarter |            |   | FourthQuarter |            | ThirdQuarter |            | SecondQuarter |            | FirstQuarter
|Loans outstanding (1)                                                      |  | $             | 13,418,567 |   |               | 13,034,948 |              | 12,897,774 |               | 12,411,446 |              | 11,881,973
|Ratio of allowance for loan losses to loans outstanding                    |  |               | 1.29       | % |               | 1.31       |              | 1.34       |               | 1.35       |              | 1.37      
|Average loans outstanding for the period (1)                               |  | $             | 13,239,512 |   |               | 12,992,875 |              | 12,736,334 |               | 12,220,225 |              | 12,373,824
|Ratio of annualized net charge-offs to average loans for the period        |  |               | .28        | % |               | .43        |              | .31        |               | .29        |              | .25       
|Ratio of recoveries to charge-offs for the period                          |  |               | 14.44      |   |               | 14.48      |              | 11.80      |               | 14.23      |              | 17.20     
|Ratio of nonperforming loans to:                                           |  |               |            |   |               |            |              |            |               |            |              |           
|Loans outstanding                                                          |  |               | .26        |   |               | .24        |              | .28        |               | .27        |              | .28       
|Total assets                                                               |  |               | .15        |   |               | .13        |              | .16        |               | .15        |              | .15       
|Ratio of nonperforming assets to:                                          |  |               |            |   |               |            |              |            |               |            |              |           
|Loans outstanding plus foreclosed real estate and other repossessed assets |  |               | .48        |   |               | .49        |              | .52        |               | .53        |              | .57       
|Total assets                                                               |  |               | .28        |   |               | .28        |              | .29        |               | .29        |              | .31       
|Allowance for loan losses to total nonperforming loans                     |  |               | 4.99       | x |               | 5.55       |              | 4.79       |               | 4.94       |              | 4.96      

---

|(1) | Excluding loans held for sale.
|--- | ------------------------------



The provision for loan losses during the first quarter of 2004 was $12 million compared to $8 million in the first quarter of 2003. Net loan charge-offs totaled $9
million in the first quarter of 2004 and $8 million in the first quarter of 2003, representing .28 percent and .25 percent (annualized) net charge-offs to average loans for the respective periods. The allowance for loan losses as a percent of total
loans, excluding loans held for sale, was 1.29 percent at March 31, 2004 and 1.37 percent at March 31, 2004.



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##### Table of Contents

Net annualized chargeoffs were .28 percent of average loans in the first quarter of 2004 compared to .25 percent in the
first quarter of 2003. We continue to target a range of .25 percent to .30 percent for the full year of 2004. The allowance at March 31, 2004 provides for a coverage level of 4.71 times the current quarters annualized net charge-offs and 4.99
times nonperforming loans.



Management considers many quantitative ratios and
factors in its ultimate determination of the allowance for loan losses including: coverage ratio, the level of nonperforming loans and past due loans, the level of unallocated reserve and our loan mix. Qualitative factors considered include
considerations of overall interest rates, political conditions, legislation that may directly or indirectly affect the banking industry and economic conditions in the geographical areas and industries in which we do business.



Management believes that the allowance for loan losses is adequate to absorb estimated
probable losses inherent in the loan portfolio. The most recent regulatory agency examinations have not revealed any material problem credits that had not been previously identified; however, future regulatory examinations may result in the
regulatory agencies requiring adjustments to the allowance for loan losses based on information available at the date of examination.



De Novo Expansion



NCF continues to focus its efforts on de novo expansion opportunities with emphasis on its newest markets: Asheville, Savannah, Atlanta, and Wal-Mart Money Centers. In April 2004, NCF announced that it has entered
into a master lease agreement with Wal-Mart Stores, Inc. to expand its existing relationship by adding approximately 70 new branches in stores throughout Florida and Georgia, with plans for additional branches under discussion. The agreement
provides NCF with its initial entry into Florida, a market which complements NCFs existing geographic footprint in the Southeast United States. The planned branches will be concentrated primarily in Jacksonville, Orlando, and Tampa/St.
Petersburg with the first branch under this agreement expected to open in the third quarter of 2004, with the remainder to follow through 2005. These planned branches could result in immaterial short-term earnings drag.



Each of the de novo expansion initiatives experienced another strong quarter of strong growth
with Asheville and Savannah (acquired from Wachovia), Atlanta, and the pilot Wal-Mart Money Centers experiencing double-digit end-of-period loan growth, a pace faster than NCF as a whole.



Table 5 provides information regarding loan and deposit growth for our de novo markets.



Table 5. De Novo Loans and Deposits



|                       |  |               |           |                  |           |               |          
|---------------------- |  | ------------- | --------- | ---------------- | --------- | ------------- | ---------
|In Thousands           |  | March 31,2004 |           | December 31,2003 |           | March 31,2003
|Loans:                 |  |               |           |                  |           |               |          
|Asheville and Savannah |  | $             | 399,065   |                  | 380,151   |               | 276,570  
|Atlanta                |  |               | 335,304   |                  | 281,372   |               | 91,102   
|Wal-Mart Money Center  |  |               | 78,008    |                  | 71,028    |               | 48,131   
|                       |  |               |           |                  |           |               |          
|Total                  |  | $             | 812,377   |                  | 732,551   |               | 415,803  
|                       |  |               |           |                  |           |               |          
|Deposits:              |  |               |           |                  |           |               |          
|Asheville and Savannah |  | $             | 648,224   |                  | 644,207   |               | 611,017  
|Atlanta                |  |               | 555,857   |                  | 487,070   |               | 348,354  
|Wal-Mart Money Center  |  |               | 497,244   |                  | 469,667   |               | 383,628  
|                       |  |               |           |                  |           |               |          
|Total                  |  | $             | 1,701,325 |                  | 1,600,944 |               | 1,342,999
|                       |  |               |           |                  |           |               |          



In Atlanta, five new traditional
locations were opened in the first quarter of 2004, six are planned for the second quarter and three additional Kroger locations are planned to be added by year-end. This will complete the opening of the traditional branches previously acquired from
Wachovia and bring the year-end planned branch total to 52. In addition to the significant growth of new customers, we anticipate that the Atlanta branches will begin to experience significant operating leverage. With much of the investment behind
us, every effort is being made to increase the number of high-value households as well as to improve the number of services per household.



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During the quarter, three additional Wal-Mart Money Center pilot locations were added, increasing their total to 19. The
co-branded Wal-Mart pilot program began in October 2003 and we are encouraged by the results and look forward to expanding the relationship. El Banco, our Hispanic banking partner, now operates four locations in the Atlanta metropolitan area and
plans to open six additional locations by year end.



Within existing markets,
NCF now has the first right of refusal for branch opportunities within Harris Teeter supermarkets in the Charlotte metropolitan area. Harris Teeter, Inc., headquartered in Charlotte, has 23 percent market share and will provide the first in-store
locations in Charlotte supporting the 40 traditional locations we currently operate. The first two locations opened in mid-April 2004 and additional locations will be evaluated as they become available.



CAPITAL RESOURCES AND REGULATORY CAPITAL



Capital Resources Our ratio of average equity to average assets has fallen from 12.66
percent as of March 31, 2003 to 12.02 percent as of March 31, 2004 due to the increase in our average assets and the impact of our share repurchase program discussed below. Our book value per share at March 31, 2004 was $13.73 compared to $13.15 at
March 31, 2003. The effect of unrealized losses on investment securities available for sale, net of applicable tax expense, increased stockholders equity by $4 million from December 31, 2003. As of March 31, 2004, unrealized net gains on
investment securities available for sale, net of applicable tax expense, totaled $15 million and contributed $.07 per share to period-end book value.



NCFs Board of Directors announced approval in January 2004 of a stock repurchase program authorizing the repurchase of up to three million shares through December
31, 2004. In April 2004 the Board of Directors announced approval of a stock repurchase program authorizing the repurchase of an additional three million shares through December 31, 2004, in addition to the stock repurchase program announced in
January. However, with the announcement of our pending merger with SunTrust, there may be limited repurchase opportunities prior to consummation of that merger. As of March 31, 2004, approximately 1,113,000 shares remain available for repurchase in
the remainder of 2004 from the January 2004 stock repurchase program.



Table
6. Stock Repurchases During the Quarter



|                      |  |                   |  |                         |      
|--------------------- |  | ----------------- |  | ----------------------- | -----
|                      |  | SharesRepurchased |  | Average Price per share
|January 2004          |  | 245,000           |  | $                       | 28.23
|February 2004         |  | 452,900           |  |                         | 28.28
|March 2004            |  | 1,188,906         |  |                         | 28.19
|                      |  |                   |  |                         |      
|Total for the quarter |  | 1,886,806         |  |                         | 28.22
|                      |  |                   |  |                         |      



On April 28, 2004, NCFs Board
of Directors declared a quarterly cash dividend of $.20 per common share payable July 1, 2004 to shareholders of record June 4, 2004.



Regulatory Capital Bank holding companies are required to comply with the Federal Reserves risk-based capital guidelines requiring a minimum leverage ratio
relative to average total assets and minimum capital ratios relative to risk-adjusted assets. The minimum leverage ratio is 3 percent if the holding company has the highest regulatory rating and meets other requirements but the leverage ratio
required may be raised from 100 to 200 basis points if the holding company does not meet these requirements. The minimum risk-adjusted capital ratios are 4 percent for Tier I capital and 8 percent for total capital. Additionally, the Federal Reserve
may set capital requirements higher than the minimums we have described for holding companies whose circumstances warrant it. Each of our banking subsidiaries is subject to similar risk-based and leverage capital requirements adopted by its
applicable federal banking agency. Each continues to maintain higher capital ratios than required under regulatory guidelines and all were considered to be well-capitalized as of March 31, 2004. Table 7 discloses our components of
capital, risk-adjusted asset information and capital ratios.



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Table 7. Capital Information and Ratios



|                            |  |                      |           |     |        |            |                   |           |        |           
|--------------------------- |  | -------------------- | --------- | --- | ------ | ---------- | ----------------- | --------- | ------ | ----------
|                            |  | As of March 31, 2004
|                            |  | NCF                  |           | NBC
|In Thousands                |  | RegulatoryMinimum    |           |     | Actual |            | RegulatoryMinimum |           | Actual
|Tier I capital              |  | $                    | 655,429   |     |        | 1,778,990  |                   | 648,841   |        | 1,595,132 
|Tier II capital:            |  |                      |           |     |        |            |                   |           |        |           
|Allowable loan loss reserve |  |                      |           |     |        | 173,384    |                   |           |        | 172,972   
|Other                       |  |                      |           |     |        | 864        |                   |           |        | 864       
|                            |  |                      |           |     |        |            |                   |           |        |           
|Total capital               |  | $                    | 1,310,857 |     |        | 1,953,238  |                   | 1,297,683 |        | 1,768,968 
|                            |  |                      |           |     |        |            |                   |           |        |           
|Risk-adjusted assets        |  |                      |           |     |        | 16,385,713 |                   |           |        | 16,221,032
|Average regulatory assets   |  |                      |           |     |        | 21,875,647 |                   |           |        | 21,653,095
|Tier I capital ratio        |  |                      | 4.00      | %   |        | 10.86      |                   | 4.00      |        | 9.83      
|Total capital ratio         |  |                      | 8.00      |     |        | 11.92      |                   | 8.00      |        | 10.91     
|Leverage ratio              |  |                      | 3.00      |     |        | 8.13       |                   | 3.00      |        | 7.37      



OTHER ACCOUNTING MATTERS



In December 2003, the FASB revised Statement No. 132, Employers
Disclosures about Pensions and Other Postretirement Benefits. This Statement retains the disclosures required by the original SFAS 132 and requires additional disclosures about the assets, obligations, cash flows and net periodic benefit cost of
defined benefit pension and postretirement plans. In addition, this Statement requires interim period disclosure of the components of net period benefit cost and contributions if significantly different from previously reported amounts. NCF adopted
the provisions of this Statement as of December 31, 2003; see Note 8 for the interim pension and other postretirement benefit disclosures.



On March 9, 2004, the SEC staff issued a Staff Accounting Bulletin that require all registrants to account for mortgage loan interest rate lock commitments related to
loans held for sale as written options, effective no later than for commitments entered into after March 31, 2004. NCF enters into such commitments with customers in connection with residential mortgage loan applications and at March 31, 2004 had
approximately $159 million in notional amount of these commitments outstanding. This guidance requires NCF to recognize a liability on its balance sheet equal to the fair value of the commitment at the time the loan commitment is issued. As a
result, this guidance would delay the recognition of any revenue related to these commitments until such time as the loan is sold; however, it would have no effect on the ultimate amount of revenue or cash flows recognized over time. NCF is
currently assessing the impact of this guidance on its results of operations and financial position. In the quarter of adoption, there will likely be an immaterial one-time negative impact to mortgage banking revenue.



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Item 3. Quantitative and Qualitative Disclosures About Market Risk



Market risk reflects the risk of economic loss resulting from adverse changes in market price and interest rates. This risk of loss can be reflected in diminished current market values and/or reduced potential net
interest income in future periods.



NCFs market risk arises primarily
from interest rate risk inherent in its lending and deposit-taking activities. The structure of NCFs loan and deposit portfolios is such that a significant rise or decline in interest rates may adversely impact net market values and net
interest income. NCF is not subject to currency exchange risk or commodity price risk. Responsibility for monitoring interest rate risk rests with ALCO, comprised of senior management. ALCO regularly reviews NCFs interest rate risk position
and adopts balance sheet strategies that are intended to optimize net interest income while maintaining market risk within a set of Board-approved guidelines.



Management believes that there have been no other significant changes in market risk as disclosed in NCFs Annual Report on Form 10-K for the year ended December
31, 2003.



Item 4. Controls and Procedures



(a). Evaluation of Disclosure Controls and Procedures



NCF maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed in our Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the
SECs rules and forms, and that such information is accumulated and communicated to NCFs management, including its Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required
disclosure. Management necessarily applied its judgment in assessing the costs and benefits of such controls and procedures, which by their nature, can provide only reasonable assurance regarding managements control objectives. NCF also has an
investment in an unconsolidated entity which is not under our control. Consequently, our disclosure controls and procedures with respect to such entity are necessarily more limited than those we maintain with respect to our consolidated
subsidiaries.



Within the 90-day period prior to the filing of this report, an
evaluation was carried out under the supervision and with the participation of NCFs management, including the Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and
procedures pursuant to Rule 13a-14 of the Securities Exchange Act of 1934 (the Exchange Act). Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that NCFs disclosure controls and
procedures are effective in timely alerting them to material information relating to NCF (including its consolidated subsidiaries) that is required to be included in our Exchange Act filings.



(b). Changes in Internal Controls



There have been no significant changes in our internal controls or in other factors which
could significantly affect internal controls subsequent to the date our evaluation was completed.



Special Note Regarding Analyst Reports



Investors should also be aware that while NCFs management does, from time to time, communicate with securities analysts, it is against our policy to disclose to them any material non-public information or other confidential commercial
information. Accordingly, shareholders should not assume that NCF agrees with any statement or report issued by any analyst irrespective of the content of the statement or report. Furthermore, we have a policy against issuing or confirming financial
forecasts or projections issued by others. Thus, to the extent that reports issued by securities analysts contain any projections, forecasts or opinions, such reports are not the responsibility of NCF.



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PART II. OTHER INFORMATION



Item 6. Exhibits and Reports on Form 8-K



|(a). | Exhibits
|---- | --------



|     |  |                                                                                                                       
|---- |  | ----------------------------------------------------------------------------------------------------------------------
|     | 
|10   |  | Employment Agreement dated January 1, 2004 by and between Registrant and John J. Mistretta.                           
|     | 
|31.1 |  | Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002                                               
|     | 
|31.2 |  | Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002                                               
|     | 
|32   |  | Certification Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002



|(b). | Reports on Form 8-K
|---- | -------------------



A current report on Form 8-K dated January 15, 2004 was filed January 16, 2004 under Item 7 furnishing Financial Statements and Exhibits and Item 12 reporting Results of Operations and Financial Condition.



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SIGNATURES



Pursuant to the requirements of the
Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.



|                   |  |                                                   
|------------------ |  | --------------------------------------------------
|                   |  | NATIONAL COMMERCE FINANCIAL CORPORATION Registrant
|                   | 
|Date: May 10, 2004 |  | /s/ JOHN M. PRESLEY                               
|                   |  | John M. Presley                                   
|                   |  | Chief Financial Officer                           



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