##### Table of Contents



---

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



---



Form 10-Q



---



Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934



For the period ended March 31, 2003



Commission File Number: 0-6094



---



NATIONAL COMMERCE FINANCIAL CORPORATION

(Exact
name of issuer as specified in charter)



---



|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



---



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 |  | 204,611,295                            
|-------------------------- |  | ---------------------------------------
|(Class of Stock)           |  | (Shares outstanding as of May 14, 2003)



---



---

##### Table of Contents



National
Commerce Financial Corporation and Subsidiaries



INDEX TO FORM 10-Q



|        
|--------
|Part I. 
|        
|        
|        
|        
|        
|        
|        
|        
|        
|        
|        
|        
|        
|        
|        
|        
|        
|        
|        
|Part II.
|        
|        
|        
|        
|        
|        



2



---

##### Table of Contents



PART I. FINANCIAL INFORMATION



Item 1. Financial Statements



National Commerce Financial Corporation and Subsidiaries



CONSOLIDATED BALANCE SHEETS

March 31, 2003 and December 31, 2002



|                                                                                                     |  | March 31, 2003                 |            | December 31, 2002
|---------------------------------------------------------------------------------------------------- |  | ------------------------------ | ---------- | -----------------
|                                                                                                     |  | (Unaudited)                    |            |                  
|                                                                                                     |  | In Thousands Except Share Data
|ASSETS                                                                                               |  |                                |            |                  
|Cash and due from banks                                                                              |  | $                              | 522,814    |                  
|Time deposits in other banks                                                                         |  |                                | 4,328      |                  
|Federal funds sold and other short-term investments                                                  |  |                                | 42,899     |                  
|Investment securities:                                                                               |  |                                |            |                  
|Available for sale (amortized cost of $5,222,146 and $4,693,316)                                     |  |                                | 5,299,253  |                  
|Held to maturity (market values of $1,320,776 and $953,294)                                          |  |                                | 1,295,609  |                  
|Trading account securities                                                                           |  |                                | 80,842     |                  
|Loans                                                                                                |  |                                | 12,288,866 |                  
|Less allowance for loan losses                                                                       |  |                                | 162,842    |                  
|                                                                                                     |  |                                |            |                  
|Net loans                                                                                            |  |                                | 12,126,024 |                  
|                                                                                                     |  |                                |            |                  
|Bank owned life insurance                                                                            |  |                                | 230,228    |                  
|Investment in First Market Bank, FSB                                                                 |  |                                | 28,923     |                  
|Premises and equipment                                                                               |  |                                | 274,433    |                  
|Goodwill                                                                                             |  |                                | 1,077,332  |                  
|Core deposit intangibles                                                                             |  |                                | 220,632    |                  
|Other assets                                                                                         |  |                                | 518,668    |                  
|                                                                                                     |  |                                |            |                  
|Total assets                                                                                         |  | $                              | 21,721,985 |                  
|                                                                                                     |  |                                |            |                  
|LIABILITIES                                                                                          |  |                                |            |                  
|Deposits:                                                                                            |  |                                |            |                  
|Demand (noninterest-bearing)                                                                         |  | $                              | 2,383,806  |                  
|Savings, NOW and money market accounts                                                               |  |                                | 5,795,400  |                  
|Jumbo and brokered certificates of deposits                                                          |  |                                | 1,804,492  |                  
|Time deposits                                                                                        |  |                                | 4,942,165  |                  
|                                                                                                     |  |                                |            |                  
|Total deposits                                                                                       |  |                                | 14,925,863 |                  
|Short-term borrowed funds                                                                            |  |                                | 1,351,105  |                  
|Federal Home Loan Bank advances                                                                      |  |                                | 1,951,912  |                  
|Trust preferred securities and long-term debt                                                        |  |                                | 300,127    |                  
|Other liabilities                                                                                    |  |                                | 496,964    |                  
|                                                                                                     |  |                                |            |                  
|Total liabilities                                                                                    |  |                                | 19,025,971 |                  
|                                                                                                     |  |                                |            |                  
|STOCKHOLDERS EQUITY                                                                                 |  |                                |            |                  
|Serial preferred stock. Authorized 5,000,000 shares; none issued                                     |  |                                |           |                  
|Common stock, $2 par value. Authorized 400,000,000 shares; 205,009,566 and 205,408,183
shares issued |  |                                | 410,019    |                  
|Additional paid-in capital                                                                           |  |                                | 1,743,146  |                  
|Retained earnings                                                                                    |  |                                | 496,783    |                  
|Accumulated other comprehensive income                                                               |  |                                | 46,066     |                  
|                                                                                                     |  |                                |            |                  
|Total stockholders equity                                                                           |  |                                | 2,696,014  |                  
|                                                                                                     |  |                                |            |                  
|Total liabilities and stockholders equity                                                           |  | $                              | 21,721,985 |                  
|                                                                                                     |  |                                |            |                  
|Commitments and contingencies (note 9)                                                               |  |                                |            |                  





See accompanying notes to consolidated financial statements.



3



---

##### Table of Contents



National
Commerce Financial Corporation and Subsidiaries



CONSOLIDATED STATEMENTS OF INCOME

Three Months Ended March 31, 2003 and 2002

(Unaudited)



|                                                                |  | Three Months Ended March 31,      
|--------------------------------------------------------------- |  | ----------------------------------
|                                                                |  | 2003                              
|                                                                |  | In Thousands Except Per Share Data
|INTEREST INCOME                                                 |  |                                   
|Interest and fees on loans                                      |  | $                                 
|Interest and dividends on investment securities:                |  |                                   
|U.S. Treasury                                                   |  |                                   
|U.S. Government agencies and corporations                       |  |                                   
|States and political subdivisions (primarily tax-exempt)        |  |                                   
|Equity and other securities                                     |  |                                   
|Interest and dividends on trading account securities            |  |                                   
|Interest on time deposits in other banks                        |  |                                   
|Interest on federal funds sold and other short-term investments |  |                                   
|                                                                |  |                                   
|Total interest income                                           |  |                                   
|                                                                |  |                                   
|INTEREST EXPENSE                                                |  |                                   
|Deposits                                                        |  |                                   
|Short-term borrowed funds                                       |  |                                   
|Federal Home Loan Bank advances                                 |  |                                   
|Trust preferred securities and long-term debt                   |  |                                   
|                                                                |  |                                   
|Total interest expense                                          |  |                                   
|                                                                |  |                                   
|Net interest income                                             |  |                                   
|Provision for loan losses                                       |  |                                   
|                                                                |  |                                   
|Net interest income after provision for loan losses             |  |                                   
|                                                                |  |                                   
|OTHER INCOME                                                    |  |                                   
|Service charges on deposit accounts                             |  |                                   
|Other service charges and fees                                  |  |                                   
|Broker/dealer revenue                                           |  |                                   
|Asset management                                                |  |                                   
|Mortgage banking income                                         |  |                                   
|Equity earnings from First Market Bank, FSB                     |  |                                   
|Other                                                           |  |                                   
|Investment securities gains, net                                |  |                                   
|                                                                |  |                                   
|Total other income                                              |  |                                   
|                                                                |  |                                   
|OTHER EXPENSE                                                   |  |                                   
|Personnel                                                       |  |                                   
|Net occupancy                                                   |  |                                   
|Equipment                                                       |  |                                   
|Core deposit intangibles amortization                           |  |                                   
|Other                                                           |  |                                   
|First Mercantile litigation                                     |  |                                   
|Conversion/merger expenses                                      |  |                                   
|                                                                |  |                                   
|Total other expenses                                            |  |                                   
|                                                                |  |                                   
|Income before income taxes                                      |  |                                   
|Income taxes                                                    |  |                                   
|                                                                |  |                                   
|Net income                                                      |  | $                                 
|                                                                |  |                                   
|EARNINGS PER COMMON SHARE                                       |  |                                   
|Basic                                                           |  | $                                 
|Diluted                                                         |  |                                   
|WEIGHTED AVERAGE SHARES OUTSTANDING                             |  |                                   
|Basic                                                           |  |                                   
|Diluted                                                         |  |                                   



See
accompanying notes to consolidated financial statements.



4



---

##### Table of Contents



National
Commerce Financial Corporation and Subsidiaries



CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY

Three Months Ended March 31, 2003 and 2002

(Unaudited)



|                                                                                                                |  | Shares of Common Stock |   |  | Common Stock |         |   | Additional Paid-In Capital |           |   | Retained Earnings |         |   | Other Comp. Income |         |   | Total Stockholders Equity |          
|--------------------------------------------------------------------------------------------------------------- |  | ---------------------- | - |  | ------------ | ------- | - | -------------------------- | --------- | - | ----------------- | ------- | - | ------------------ | ------- | - | -------------------------- | ---------
|Balance January 1, 2002                                                                                         |  | 205,058,713            |   |  | $            | 410,117 |   |                            | 1,756,128 |   |                   | 276,342 |   |                    | 12,744  |   |                            | 2,455,331
|Net income                                                                                                      |  |                       |   |  |              |        |   |                            |          |   |                   | 74,899  |   |                    |        |   |                            | 74,899   
|Restricted stock transactions, net                                                                              |  | 3,497                  |   |  |              | 7       |   |                            | 583       |   |                   |        |   |                    |        |   |                            | 590      
|Options exercised, net of shares tendered                                                                       |  | 1,143,789              |   |  |              | 2,288   |   |                            | 22,664    |   |                   |        |   |                    |        |   |                            | 24,952   
|Cash dividends ($.15 per share)                                                                                 |  |                       |   |  |              |        |   |                            |          |   |                   | (31,177 | ) |                    |        |   |                            | (31,177  
|Change in minimum pension liability, net of applicable income taxes                                             |  |                       |   |  |              |        |   |                            |          |   |                   |        |   |                    | 98      |   |                            | 98       
|Change in unrealized gains (losses) on investment securities available for sale, net of
applicable income taxes |  |                       |   |  |              |        |   |                            |          |   |                   |        |   |                    | (20,906 | ) |                            | (20,906  
|Other transactions, net                                                                                         |  | (42,577                | ) |  |              | (85     | ) |                            | (1,477    | ) |                   |        |   |                    |        |   |                            | (1,562   
|                                                                                                                |  |                        |   |  |              |         |   |                            |           |   |                   |         |   |                    |         |   |                            |          
|Total equity, March 31, 2002                                                                                    |  | 206,163,422            |   |  | $            | 412,327 |   |                            | 1,777,898 |   |                   | 320,064 |   |                    | (8,064  | ) |                            | 2,502,225
|                                                                                                                |  |                        |   |  |              |         |   |                            |           |   |                   |         |   |                    |         |   |                            |          
|Total equity, 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 (losses) 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
|                                                                                                                |  |                        |   |  |              |         |   |                            |           |   |                   |         |   |                    |         |   |                            |          



See
accompanying notes to the consolidated financial statements.



5



---

##### Table of Contents



National
Commerce Financial Corporation and Subsidiaries



CONSOLIDATED STATEMENTS OF CASH FLOWS

Three Months Ended March 31, 2003 and 2002

(Unaudited)



|                                                                                  |  | 2003         |            |   | 2002 |           
|--------------------------------------------------------------------------------- |  | ------------ | ---------- | - | ---- | ----------
|                                                                                  |  | In Thousands |           
|OPERATING ACTIVITIES                                                              |  |              |            |   |      |           
|Net income                                                                        |  | $            | 64,090     |   |      | 74,899    
|Adjustments to reconcile net income to net cash provided by operating
activities: |  |              |            |   |      |           
|Depreciation, amortization and accretion, net                                     |  |              | 31,008     |   |      | 22,194    
|Provision for loan losses                                                         |  |              | 7,684      |   |      | 5,514     
|Net gain on sales of investment securities                                        |  |              | (2,464     | ) |      | (2,720    
|Deferred income taxes                                                             |  |              | (577       | ) |      | (3,087    
|Origination of loans held for sale                                                |  |              | (1,092,821 | ) |      | (417,876  
|Sales of loans held for sale                                                      |  |              | 1,119,583  |   |      | 455,489   
|Changes in:                                                                       |  |              |            |   |      |           
|Trading account securities                                                        |  |              | 36,112     |   |      | 100,631   
|Other assets                                                                      |  |              | (52,524    | ) |      | (5,392    
|Other liabilities                                                                 |  |              | 61,541     |   |      | (26,933   
|Other operating activities, net                                                   |  |              | (4,949     | ) |      | (1,074    
|                                                                                  |  |              |            |   |      |           
|Net cash provided by operating activities                                         |  |              | 166,683    |   |      | 201,645   
|                                                                                  |  |              |            |   |      |           
|INVESTING ACTIVITIES                                                              |  |              |            |   |      |           
|Proceeds from:                                                                    |  |              |            |   |      |           
|Maturities and issuer calls of investment securities held to maturity             |  |              | 81,613     |   |      | 185,528   
|Sales of investment securities available for sale                                 |  |              | 478,779    |   |      | 1,123,882 
|Maturities and issuer calls of investment securities available for sale           |  |              | 713,276    |   |      | 297,189   
|Purchases of:                                                                     |  |              |            |   |      |           
|Investment securities held to maturity                                            |  |              | (416,237   | ) |      | (4,326    
|Investment securities available for sale                                          |  |              | (1,116,513 | ) |      | (1,162,606
|Premises and equipment                                                            |  |              | (23,851    | ) |      | (7,038    
|Net originations of loans                                                         |  |              | (47,103    | ) |      | 121,401   
|Net cash paid in business combinations                                            |  |              |           |   |      | (324,132  
|                                                                                  |  |              |            |   |      |           
|Net cash provided (used) by investing activities                                  |  |              | (330,036   | ) |      | 229,898   
|                                                                                  |  |              |            |   |      |           
|FINANCING ACTIVITIES                                                              |  |              |            |   |      |           
|Net increase in deposit accounts                                                  |  |              | 433,853    |   |      | 184,892   
|Net decrease in short-term borrowed funds                                         |  |              | (101,659   | ) |      | (319,949  
|Net decrease in Federal Home Loan Bank advances                                   |  |              | (154,857   | ) |      | (428,715  
|Increase in long-term debt                                                        |  |              |           |   |      | 13        
|Issuances of common stock from exercise of stock options, net                     |  |              | 2,281      |   |      | 13,929    
|Purchase and retirement of common stock                                           |  |              | (13,980    | ) |      |          
|Other equity transactions, net                                                    |  |              | (53        | ) |      | (302      
|Cash dividends paid                                                               |  |              | (34,948    | ) |      | (31,177   
|                                                                                  |  |              |            |   |      |           
|Net cash provided (used) by financing activities                                  |  |              | 130,637    |   |      | (581,309  
|                                                                                  |  |              |            |   |      |           
|Net increase (decrease) in cash and cash equivalents                              |  |              | (32,716    | ) |      | (149,766  
|Cash and cash equivalents at beginning of period (December 31)                    |  |              | 602,757    |   |      | 644,420   
|                                                                                  |  |              |            |   |      |           
|Cash and cash equivalents at end of period                                        |  | $            | 570,041    |   |      | 494,654   
|                                                                                  |  |              |            |   |      |           
|SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION                                  |  |              |            |   |      |           
|Interest paid during the period                                                   |  | $            | 85,516     |   |      | 105,328   
|                                                                                  |  |              |            |   |      |           
|Income taxes paid during the period                                               |  | $            | 2,377      |   |      | 3,237     
|                                                                                  |  |              |            |   |      |           



See
accompanying notes to consolidated financial statements.



6



---

##### Table of Contents



National
Commerce Financial Corporation and Subsidiaries



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

As of and for the Three Months Ended March 31, 2003
and 2002

(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, 2002. Operating results for the
three-month period ended March 31, 2003 are not necessarily indicative of the results that may be expected for the year ending December 31, 2003.



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 2003 presentation.



BUSINESS COMBINATIONS    In 2002, NCF acquired divested Wachovia branches and BancMortgage Financial
Corp. (BancMortgage), an Atlanta based mortgage originator, in acquisitions consummated in February and December, respectively, and accounted for as purchases. The acquisitions continue NCFs strategic expansion into high growth
areas of the Southeast. Results of operations of the acquired companies were included in NCFs 2002 consolidated statement of income from the respective dates of acquisition.



The 37 divested Wachovia branches and corresponding ATMs acquired are located in North Carolina, South Carolina, Georgia and
Virginia. This acquisition added to NCFs balance sheet $1.4 billion in deposits, $450 million in loans, $25 million in fixed assets and $1 billion in available for sale investment securities which were subsequently sold to restructure the
balance sheet. Net cash paid in this business combination totaled $324 million. Core deposit intangible and goodwill recorded from the branches acquired amounted to $55 million and $125 million, respectively. The core deposit intangible is being
amortized over a period of 7 years. In accordance with the terms of the acquisition agreement with Wachovia, NCF made a contingent purchase price payment based on the retention of specifically identified deposit accounts. The April 2003 payment
approximated $8 million and will be recorded as an addition to goodwill in the second quarter.



7



---

##### Table of Contents

National Commerce Financial Corporation and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS





(1) CONSOLIDATION AND
PRESENTATION (Continued)



EARNINGS PER
SHARE    Basic earnings per share (EPS) excludes dilution and 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, 2003 and 2002 and accumulated other comprehensive income as of March 31, 2003, December 31, 2002 and
March 31, 2002 are comprised of unrealized gains and losses on investment securities available for sale and certain hedging instruments and adjustments of minimum pension liability.



STOCK-BASED COMPENSATION    Generally, NCF 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. 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, compensation expense is recognized in accordance with APB Opinion No. 25 over the period the employee
performs related service, the vesting period.



NCF discloses pro
forma net income and earnings per share in the notes to its consolidated financial statements as if compensation 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, 2003 and 2002 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.



|            |  |             |  | 2003                               |        | 2002
|----------- |  | ----------- |  | ---------------------------------- | ------ | ----
|            |  |             |  | In Thousands Except Per Share Data
|Net income  |  | As reported |  | $                                  | 64,090 |     
|            |  | Pro forma   |  |                                    | 61,813 |     
|Basic EPS   |  | As reported |  |                                    | .31    |     
|            |  | Pro forma   |  |                                    | .30    |     
|Diluted EPS |  | As reported |  |                                    | .31    |     
|            |  | Pro forma   |  |                                    | .30    |     



8



---

##### Table of Contents

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, 2003 and December 31, 2002. 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.



|                                         |  | 2003         |            | 2002
|---------------------------------------- |  | ------------ | ---------- | ----
|                                         |  | In Thousands
|Commercial                               |  | $            | 3,403,217  |     
|Construction and commercial real estate  |  |              | 3,689,692  |     
|Mortgage (including loans held for sale) |  |              | 1,017,221  |     
|Consumer                                 |  |              | 3,966,994  |     
|Revolving credit                         |  |              | 76,616     |     
|Lease financing                          |  |              | 135,126    |     
|                                         |  |              |            |     
|Total loans                              |  | $            | 12,288,866 |     
|                                         |  |              |            |     



Mortgage loans held for
sale, included above, totaled $407 million at March 31, 2003 and $430 million at December 31, 2002.



During March 2003, NCF consummated a transaction securitizing approximately $646 million of single family mortgages and retained a majority of the resulting securities which are classified as available
for sale. The securitization was a private securitization with NCF retaining subordinated beneficial interests. NCF retained the servicing rights for the securitized single-family mortgages and initially recorded the mortgage servicing rights at
approximately $5 million.



9



---

##### Table of Contents

National Commerce Financial Corporation and Subsidiaries



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS





(3) ALLOWANCE FOR LOAN
LOSSES



Following is the activity in the allowance for loan
losses during the three months ended March 31, 2003 and 2002:



|                                        |  | 2003         |         |   | 2002 |        
|--------------------------------------- |  | ------------ | ------- | - | ---- | -------
|                                        |  | In Thousands |        
|Balance at beginning of period          |  | $            | 163,424 |   |      | 156,401
|Charge-offs:                            |  |              |         |   |      |        
|Commercial                              |  |              | (1,441  | ) |      | (1,082 
|Construction and commercial real estate |  |              | (141    | ) |      | (98    
|Secured by real estate                  |  |              | (727    | ) |      | (883   
|Consumer                                |  |              | (5,977  | ) |      | (6,392 
|Revolving credit                        |  |              | (941    | ) |      | (944   
|Lease financing                         |  |              | (53     | ) |      | (168   
|                                        |  |              |         |   |      |        
|Total charge-offs                       |  |              | (9,280  | ) |      | (9,567 
|Recoveries:                             |  |              |         |   |      |        
|Commercial                              |  |              | 273     |   |      | 375    
|Construction and commercial real estate |  |              | 7       |   |      |       
|Secured by real estate                  |  |              | 26      |   |      | 4      
|Consumer                                |  |              | 931     |   |      | 1,116  
|Revolving credit                        |  |              | 322     |   |      | 222    
|Lease financing                         |  |              | 37      |   |      | 22     
|                                        |  |              |         |   |      |        
|Total recoveries                        |  |              | 1,596   |   |      | 1,739  
|                                        |  |              |         |   |      |        
|Net charge-offs                         |  |              | (7,684  | ) |      | (7,828 
|Provision for loan losses               |  |              | 7,684   |   |      | 5,514  
|Changes from acquisitions (sales)       |  |              | (582    | ) |      | 6,107  
|                                        |  |              |         |   |      |        
|Balance at end of period                |  | $            | 162,842 |   |      | 160,194
|                                        |  |              |         |   |      |        



(4) NONPERFORMING ASSETS



Following is a summary of nonperforming assets as of March 31,
2003, December 31, 2002 and March 31, 2002:



|                                               |  | March        |        | December |        | March
|---------------------------------------------- |  | ------------ | ------ | -------- | ------ | -----
|                                               |  | 2003         |        | 2002     |        | 2002 
|                                               |  | In Thousands
|Nonaccrual loans                               |  | $            | 32,838 |          | 30,806 |      
|Foreclosed real estate                         |  |              | 22,981 |          | 25,480 |      
|                                               |  |              |        |          |        |      
|Nonperforming loans and foreclosed real estate |  |              | 55,819 |          | 56,286 |      
|Other repossessed assets                       |  |              | 11,962 |          | 9,285  |      
|                                               |  |              |        |          |        |      
|Nonperforming assets                           |  | $            | 67,781 |          | 65,571 |      
|                                               |  |              |        |          |        |      
|Accruing loans 90 days or more past due        |  | $            | 56,104 |          | 56,384 |      
|                                               |  |              |        |          |        |      



10



---

##### Table of Contents

National Commerce Financial Corporation and Subsidiaries



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS





(5) GOODWILL AND OTHER
INTANGIBLE ASSETS



The changes in the carrying amount of goodwill
for the three months ended March 31, 2003 and year ended December 31, 2002 for NCFs business segments are as follows:



|                                    |  | Traditional Banking |           | Financial Enterprises |        | Total
|----------------------------------- |  | ------------------- | --------- | --------------------- | ------ | -----
|                                    |  | In Thousands       
|Balance as of January 1, 2002       |  | $                   | 911,185   |                       | 34,972 |      
|Other goodwill adjustments          |  |                     | 927       |                       |       |      
|Goodwill acquired during the year   |  |                     | 130,034   |                       |       |      
|                                    |  |                     |           |                       |        |      
|Balance as of December 31, 2002     |  |                     | 1,042,146 |                       | 34,972 |      
|Other goodwill adjustments          |  |                     | 214       |                       |       |      
|Goodwill acquired during the period |  |                     |          |                       |       |      
|                                    |  |                     |           |                       |        |      
|Balance as of March 31, 2003        |  | $                   | 1,042,360 |                       | 34,972 |      
|                                    |  |                     |           |                       |        |      



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, 2003 |         |                          | Year Ended December 31, 2002 |  
|--------------------------------------------- |  | --------------------------------- | ------- | ------------------------ | ---------------------------- | -
|                                              |  | Gross Carrying Amount             |         | Accumulated Amortization |                              |  
|                                              |  | In Thousands                      |        
|Core deposit intangibles                      |  | $                                 | 405,127 |                          | (184,495                     | )
|Aggregate amortization expense for the period |  |                                   | 16,284  |                          |                              |  
|Estimated annual amortization expense:        |  |                                   |         |                          |                              |  
|For year ended 12/31/03                       |  |                                   | 61,469  |                          |                              |  
|For year ended 12/31/04                       |  |                                   | 51,691  |                          |                              |  
|For year ended 12/31/05                       |  |                                   | 41,954  |                          |                              |  
|For year ended 12/31/06                       |  |                                   | 32,526  |                          |                              |  
|For year ended 12/31/07                       |  |                                   | 23,476  |                          |                              |  



11



---

##### Table of Contents

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, 2003 and 2002:



|                                                             |  | 2003              |        |   | 2002        |      
|------------------------------------------------------------ |  | ----------------- | ------ | - | ----------- | -----
|                                                             |  | Before Tax Amount |        |   | Tax Benefit |      
|                                                             |  | In Thousands      |       
|Unrealized losses on securities:                             |  |                   |        |   |             |      
|Unrealized losses arising during holding period              |  | $                 | (4,020 | ) |             | 1,585
|Reclassification adjustment for gains realized in net income |  |                   | (2,464 | ) |             | 973  
|Minimum pension liability:                                   |  |                   |        |   |             |      
|Adjustment to minimum pension liability                      |  |                   | (1,237 | ) |             | 495  
|                                                             |  |                   |        |   |             |      
|Other comprehensive loss                                     |  | $                 | (7,721 | ) |             | 3,053
|Net income                                                   |  |                   |        |   |             |      
|                                                             |  |                   |        |   |             |      
|Comprehensive income                                         |  |                   |        |   |             |      
|                                                             |  |                   |        |   |             |      



(7) PER SHARE DATA



The following schedule presents the components of the basic and
diluted EPS computations for the three months ended March 31, 2003 and 2002. Dilutive common shares arise from the potentially dilutive effect of NCFs stock options outstanding.



|                               |  | Three Months Ended March 31,      
|------------------------------ |  | ----------------------------------
|                               |  | 2003                              
|                               |  | In Thousands Except Per Share Data
|Basic EPS                      |  |                                   
|Average common shares          |  |                                   
|Net income                     |  | $                                 
|Earnings per share             |  |                                   
|                               |  |                                   
|Diluted EPS                    |  |                                   
|Average common shares          |  |                                   
|Average dilutive common shares |  |                                   
|                               |  |                                   
|Adjusted average common shares |  |                                   
|Net income                     |  | $                                 
|Earnings per share             |  |                                   
|                               |  |                                   



12



---

##### Table of Contents

National Commerce Financial Corporation and Subsidiaries



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS





(8) SUPPLEMENTARY INCOME
STATEMENT INFORMATION



Following is a breakdown of the components
of other operating expense on the Consolidated Statement of Income for the three-month periods ended March 31, 2003 and 2002:



|                               |  | Three Months Ended March 31,
|------------------------------ |  | ----------------------------
|                               |  | 2003                        
|                               |  | In Thousands                
|Legal and professional fees    |  | $                           
|Telecommunications             |  |                             
|Data processing                |  |                             
|Marketing                      |  |                             
|Printing and office supplies   |  |                             
|Postage and freight            |  |                             
|All other                      |  |                             
|                               |  |                             
|Total other operating expenses |  | $                           
|                               |  |                             



(9) CONTINGENCIES



NCF has reached a proposed agreement with plaintiffs
counsel to settle a purported class action filed in December 2002 against NCF, its subsidiaries First Mercantile Trust Company (First Mercantile) and National Bank of Commerce, a subsidiary of First Mercantile, and two officers of First
Mercantile. The purported class action is pending in the United States District Court for the Western District of Tennessee and alleges, among other things, that fees collected by First Mercantile on investments held in common trust funds were
improperly charged.



The settlement agreement is subject to
confirmatory discovery by the plaintiffs and approval by the federal court in Tennessee, among other conditions, includes no admission of liability or wrongdoing by NCF or other defendants and, assuming all conditions are met, will fully resolve the
lawsuit. NCF expects to file formal settlement documents with the court after confirmatory discovery is completed. Thereafter, the court will set the schedule for final resolution of the matter. Under the proposed settlement, the plaintiff class
will receive a total benefit with an estimated value of $18 million, payable $10.7 million in cash and $7.3 million in go-forward fee reductions. NCF is pursuing recovery of a portion of the settlement and its legal fees with its corporate
insurance carriers; however, the amount of recovery, if any, cannot be determined at this time. NCF has not factored any recovery into its $19.7 million pre-tax charge for the first quarter.



Certain other legal claims have arisen in the normal course of business,
which, in the opinion of management and counsel, will have no material adverse effect on the financial position of NCF or its subsidiaries.



(10) 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 also offers 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



13



---

##### Table of Contents

National Commerce Financial Corporation and Subsidiaries



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS





(10) SEGMENT INFORMATION
(Continued)



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. Revenues and expenses of NCFs correspondent mortgage business have been reclassified from financial enterprises to traditional banking for all periods presented.



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.



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



|                                |  | Traditional Banking |          |   | Financial Enterprises |         |   | Intersegment Eliminations |        |   | Total |         
|------------------------------- |  | ------------------- | -------- | - | --------------------- | ------- | - | ------------------------- | ------ | - | ----- | --------
|                                |  | In Thousands        |         
|Quarter ended March 31, 2003:   |  |                     |          |   |                       |         |   |                           |        |   |       |         
|Net interest income (TE)        |  | $                   | 179,151  |   |                       | 5,231   |   |                           |       |   |       | 184,382 
|Provision for loan losses       |  |                     | (7,684   | ) |                       |        |   |                           |       |   |       | (7,684  
|Noninterest income              |  |                     | 65,795   |   |                       | 44,644  |   |                           | (1,150 | ) |       | 109,289 
|Intangibles amortization        |  |                     | (16,284  | ) |                       |        |   |                           |       |   |       | (16,284 
|First Mercantile litigation     |  |                     |         |   |                       | (19,654 | ) |                           |       |   |       | (19,654 
|Noninterest expense             |  |                     | (115,201 | ) |                       | (34,809 | ) |                           | 1,150  |   |       | (148,860
|                                |  |                     |          |   |                       |         |   |                           |        |   |       |         
|Income before income taxes (TE) |  |                     | 105,777  |   |                       | (4,588  | ) |                           |       |   |       | 101,189 
|Income taxes                    |  |                     | 38,888   |   |                       | (1,789  | ) |                           |       |   |       | 37,099  
|                                |  |                     |          |   |                       |         |   |                           |        |   |       |         
|Net income                      |  | $                   | 66,889   |   |                       | (2,799  | ) |                           |       |   |       | 64,090  
|                                |  |                     |          |   |                       |         |   |                           |        |   |       |         
|Quarter ended March 31, 2002:   |  |                     |          |   |                       |         |   |                           |        |   |       |         
|Net interest income (TE)        |  | $                   | 181,636  |   |                       | 4,441   |   |                           |       |   |       | 186,077 
|Provision for loan losses       |  |                     | (5,514   | ) |                       |        |   |                           |       |   |       | (5,514  
|Noninterest income              |  |                     | 47,886   |   |                       | 38,543  |   |                           | (1,152 | ) |       | 85,277  
|Intangibles amortization        |  |                     | (17,410  | ) |                       |        |   |                           |       |   |       | (17,410 
|Conversion/merger expense       |  |                     | (4,940   | ) |                       |        |   |                           |       |   |       | (4,940  
|Noninterest expense             |  |                     | (97,102  | ) |                       | (30,337 | ) |                           | 1,152  |   |       | (126,287
|                                |  |                     |          |   |                       |         |   |                           |        |   |       |         
|Income before income taxes (TE) |  |                     | 104,556  |   |                       | 12,647  |   |                           |       |   |       | 117,203 
|Income taxes                    |  |                     | 37,372   |   |                       | 4,932   |   |                           |       |   |       | 42,304  
|                                |  |                     |          |   |                       |         |   |                           |        |   |       |         
|Net income                      |  | $                   | 67,184   |   |                       | 7,715   |   |                           |       |   |       | 74,899  
|                                |  |                     |          |   |                       |         |   |                           |        |   |       |         



14



---

##### Table of Contents



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, 2003 and 2002. NCF is a registered bank holding company which 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 2002 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 include:



| |  |  | A major element of our net income is our net interest income, which consists largely of the difference between interest earned on loans and investments and the
interest paid on deposits and borrowings. We cannot predict fluctuations of market interest rates, which are affected by, among other things, changes in inflation rates, levels of business activity, unemployment levels, monetary and fiscal policies
of the United States and its agencies, particularly the Federal Reserve Board, money supply and domestic and foreign financial markets. Rapid changes in interest rates could have a material adverse effect on our funding costs and our net interest
margin and, consequently, our earnings per share.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Our markets are intensely competitive. Competition in loan and deposit pricing, as well as the entry of new competitors in our markets through, among other means,
de novo expansion and acquisitions could have a material adverse effect on our operations in our existing markets. Moreover, we have expanded our operations into new markets, such as Atlanta, and will continue to look for additional expansion
opportunities, in each case facing substantial competition from financial institutions with better established infrastructure and presence in those markets. Competition could have a material adverse effect on net interest margin, our ability to
recruit and retain associates in new and existing markets, our noninterest income and our ability to grow our banking and non-banking businesses at the same rate as we have historically grown. Moreover, recent banking legislation has removed many
obstacles to bank holding companies entering other financial services businesses. Several larger bank holding companies could enter the transaction processing, asset management, securities brokerage and capital markets businesses in our markets,
deploying capital resources that are significantly greater than ours. Such activities could adversely affect our banking and non-banking businesses and have a material adverse effect on our earnings.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | The economy in the United States continues to be sluggish and there is significant uncertainty about the economic future. Various domestic or international
military or terrorist activities or conflicts could further impact the domestic and international economy. If the recovery of the domestic economy continues to lag, we could experience a decline in credit quality, resulting in higher charge-offs and
higher provisions for loan losses which would have a material adverse effect on our earnings. In addition, we could have a decline in loan demand, our largest source of revenue.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | We are subject to regulation by federal banking agencies and authorities and the Securities and Exchange Commission. Changes in or new regulations could make
it more costly for us to do business or could force changes to the way we do business, which could have a material adverse effect on earnings. The NCF Parent Company relies on dividends from its subsidiaries as a primary source of funds to pay
dividends to shareholders, cover debt obligations and for other corporate purposes. Federal banking law restricts the ability of our banking subsidiaries to pay dividends to the Parent Company. Although we expect to continue receiving dividends from
our banking subsidiaries sufficient to meet our current and anticipated cash needs,
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



15



---

##### Table of Contents

a decline in their profitability could result in restrictions on the payment of future dividends to the Parent Company.



| |  |  | While we have a proposed settlement of the class action litigation against First Mercantile and other NCF entities, there can be no assurances that the settlement
will be consummated on the terms discussed herein. We have recorded a reserve of $18 million payments/fees due the plaintiffs under the proposed settlement terms. We also can not determine at this time the amount of a recovery, if any, from our
insurance carriers for the settlement and legal fees.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



A variety of factors, including those described above, 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.



Critical Accounting Policies



Our consolidated financial statements are prepared in accordance with accounting policies generally accepted in the United States (GAAP). In
accordance with these policies, we make estimates and assumptions that affect the amounts reported in those financial statements. As discussed more fully in the 2002 Annual Report on Form 10-K, we believe that our determination of the allowance for
loan losses and the valuation of assets, including the impairment of intangibles, involve a higher degree of judgment and complexity than our other significant accounting policies. We refer you to our 2002 Annual Report for a more complete
description of our critical accounting policies.



As of March 31,
2003, we have unamortized goodwill totaling $1.1 billion and core deposit intangibles totaling $221 million (see Note 5 to the Consolidated Financial Statements). Mortgage servicing rights totaled $15 million at March 31, 2003. Intangible assets
subject to amortization will be reviewed for impairment in accordance with GAAP. Goodwill and intangible assets not subject to amortization will be reviewed for impairment annually, or more frequently if events or changes in circumstances indicate
that the asset might be impaired.



Results of Operations
 Three Months Ended March 31, 2003 and 2002



Net
income for the three months ended March 31, 2003 totaled $64 million compared to 2002s $75 million. Basic and diluted net income per share were $.31 in first quarter 2003 and $.36 in the first quarter of 2002. Annualized returns on average
assets and stockholders equity were 1.22 percent and 9.64 percent, respectively, in 2003 compared to 1.55 percent and 12.21 percent, respectively, for the three months ended March 31, 2002. Net income and earnings per diluted share in the
first quarter of 2003 were reduced by a $13 million charge (after-tax), or $.06 per diluted share, related to the proposed settlement of a class action lawsuit against NCFs First Mercantile business unit. First quarter 2002 included a charge
of $3 million (after-tax), or $.02 per diluted share, for conversion and merger expenses.



Net income for first quarter 2003 includes a full quarters results of operations of BancMortgage and 37 Wachovia branches and corresponding ATMs acquired in December 2002 and February 2002, respectively. Net income for
first quarter 2002 includes a half-quarters results of operations of the 37 acquired Wachovia branches and corresponding ATMs.



In the first quarter, we consummated a transaction to purchase traditional branch buildings from Wachovia and assume Wachovias lease obligations for
seven additional branch buildings in the Atlanta market. These branches complement our existing and planned in-store branches and will give us the fifth largest branch presence in the Atlanta Metropolitan Statistical Area (MSA) by the
end of 2003 with approximately 60 branches opened or under development. Under the terms of the agreement, we are not permitted to commence



16



---

##### Table of Contents

operations in these branches until the fourth quarter of 2003. The settlement on an additional two branches was delayed and it is anticipated
these will close at a later date.



We are focusing our efforts on
capturing a five percent share of the $62 billion deposit market within five years. The expansion to Atlanta solidifies our geographic footprint, linking Tennessee and the north Georgia regions with the westernmost edge of our North and South
Carolina operations. Having built our branch network in the fastest growing MSAs in the Southeast, we will now focus on increasing market share in each region.



NET INTEREST INCOME Average Balances and Net Interest Income Analyses on a taxable equivalent basis for each of the periods
are included in Table 1. Taxable equivalent interest income is a non-GAAP financial measure used by NCF and other financial services companies to reflect tax-advantaged interest income on loans and securities on an equivalent pre-tax basis. Taxable
equivalent net interest income was $184 million in the first quarter of 2003, compared to $186 million for the first quarter of 2002. This decrease was primarily the result of a lower net interest margin. NCFs net interest margin declined 41
basis points from 4.39 percent in the first quarter of 2002 to 3.98 percent in the first quarter of 2003. This decline is attributed primarily to prepayments of collateralized mortgage obligations which resulted in increased premium amortization on
the investments and lower overall portfolio yields as higher rate investments were replaced with securities at lower rates. In addition, NCF experienced lower commercial loan yields as a result of fixed rate borrowers opting to refinance into
variable rate products and was unable to reduce its deposit and other funding costs to the same extent. NCF has reduced its asset sensitivity to a more neutral position by selling certain securities in order to lower the risk of prepayments in the
investment portfolio while at the same time shortening its maturities of certificates of deposit and other borrowings. Management continues to target a neutral position in recognition that interest rate increases will likely begin as the economy
improves and strengthens. See Liquidity and Interest Sensitivity section for additional discussion of our asset sensitivity.



In late March 2003, NCF consummated a securitization transaction involving one-to-four family mortgages. Average and period end loan balances
were reduced by $50 million and $646 million, respectively, as a result of this transaction. The transaction is a private securitization with NCF retaining subordinated beneficial interests.



NCF securitized $428 million of adjustable rate mortgages (ARMs) and $218
million of fixed rate mortgages. We retained all but approximately $90 million of the newly created securities. NCF will continue to service all the loans and will be compensated for its servicing responsibilities at market rates. Mortgage servicing
rights of approximately $5 million were recorded in this transaction. The securitization will result in increases in mortgage banking revenue as a result of the various servicing revenues.



The yield on our interest-earning assets declined from 6.86 percent in the first quarter 2002 to 5.85 percent for the first
quarter 2003. The decline of 101 basis points was largely attributable to a decline of 106 and 79 basis points, respectively, in the loan and investment yields. These declines were attributable to lower interest rates available for new assets as
existing assets matured or repriced, the decline in the yield on variable rate assets impacted by the November 2002 drop in short-term interest rates and higher premium amortization on investment securities.



Our cost of interest-bearing liabilities declined by only 65 basis points from
2.83 percent for the three months ended March 31, 2002 compared to 2.18 percent for the three months ended March 31, 2003. While interest-bearing deposit costs declined 75 basis points, longer-term liabilities such as FHLB advances declined only 13
basis points. The contribution of net free liabilities to the net interest margin (computed as net interest margin less the interest rate spread) fell to 31 basis points in 2003 from 2002s 36 basis points. Despite the increase in
net free liabilities of approximately $485 million, their benefit to our net interest margin declined as a result of the significant decline in the average yield on our interest-earning assets as discussed previously.



Our Asset/Liability Management Committee (ALCO), which monitors
our interest sensitivity and liquidity, had restructured our balance sheet during 2002 to a slightly asset sensitive position in the expectation of rising rates in the latter part of 2003. Throughout the remainder of 2003, interest rate sensitivity
will be managed to a more neutral position to offset further declines in the net interest margin. The Federal Reserve last adjusted the target



17



---

##### Table of Contents



Table 1



AVERAGE BALANCES AND NET INTEREST INCOME
ANALYSIS



Three Months Ended March 31, 2003
and 2002

(Taxable Equivalent BasisDollars in Thousands) (1)



|                                                    |  | 2003            |            |          | 2002
|--------------------------------------------------- |  | --------------- | ---------- | -------- | ----
|                                                    |  | Average Balance |            | Interest |     
|Earning assets:                                     |  |                 |            |          |     
|Loans (2)                                           |  | $               | 12,789,028 |          |     
|U.S. Treasury and agency obligations (3)            |  |                 | 4,975,088  |          |     
|States and political subdivision obligations (3)    |  |                 | 114,474    |          |     
|Other securities (3)                                |  |                 | 617,142    |          |     
|Trading securities                                  |  |                 | 87,496     |          |     
|Time deposits in other banks                        |  |                 | 9,575      |          |     
|Federal funds sold and other short-term investments |  |                 | 51,187     |          |     
|                                                    |  |                 |            |          |     
|Total earning assets                                |  |                 | 18,643,990 |          |     
|                                                    |  |                 |            |          |     
|Non-earning assets:                                 |  |                 |            |          |     
|Cash and due from banks                             |  |                 | 398,564    |          |     
|Bank owned life insurance                           |  |                 | 228,214    |          |     
|Investment in First Market Bank                     |  |                 | 28,353     |          |     
|Premises and equipment                              |  |                 | 258,614    |          |     
|Goodwill                                            |  |                 | 1,077,121  |          |     
|Core deposit intangibles                            |  |                 | 229,044    |          |     
|All other assets, net                               |  |                 | 428,542    |          |     
|                                                    |  |                 |            |          |     
|Total assets                                        |  | $               | 21,292,442 |          |     
|                                                    |  |                 |            |          |     
|Interest-bearing liabilities:                       |  |                 |            |          |     
|Savings, NOW and money market accounts              |  | $               | 5,684,696  |          |     
|Jumbo and brokered certificates of deposit          |  |                 | 1,796,198  |          |     
|Time deposits                                       |  |                 | 4,909,848  |          |     
|                                                    |  |                 |            |          |     
|Total interest-bearing deposits                     |  |                 | 12,390,742 |          |     
|Short-term borrowed funds                           |  |                 | 1,249,458  |          |     
|FHLB advances                                       |  |                 | 2,056,896  |          |     
|Trust preferred securities and long-term debt       |  |                 | 296,745    |          |     
|                                                    |  |                 |            |          |     
|Total interest-bearing liabilities                  |  |                 | 15,993,841 |          |     
|                                                    |  |                 |            |          |     
|Other liabilities and stockholders equity:         |  |                 |            |          |     
|Demand deposits                                     |  |                 | 2,140,299  |          |     
|Other liabilities                                   |  |                 | 462,456    |          |     
|Stockholders equity                                |  |                 | 2,695,846  |          |     
|                                                    |  |                 |            |          |     
|Total liabilities and stockholders equity          |  | $               | 21,292,442 |          |     
|                                                    |  |                 |            |          |     
|Net interest income and net interest margin (4)     |  |                 |            |          |     
|                                                    |  |                 |            |          |     
|Interest rate spread (5)                            |  |                 |            |          |     
|                                                    |  |                 |            |          |     
|Tax equivalent adjustment                           |  |                 |            |          |     
|                                                    |  |                 |            |          |     
|GAAP net interest income and net interest margin    |  |                 |            |          | $   
|                                                    |  |                 |            |          |     

---

|(1) |  | The taxable equivalent basis is computed using 35% federal and applicable state tax rates in 2003 and 2002.
|--- |  | -----------------------------------------------------------------------------------------------------------

|(2) |  | The average loan balances include non-accruing loans. Gross loan fees of $5 million and $6 million for 2003 and 2002, respectively, are included in interest income.
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(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.
|--- |  | ----------------------------------------------------------------------------------------------



18



---

##### Table of Contents

federal funds rate in November 2002, a reduction of 50 basis points. Historically, the Federal Reserve has
not increased interest rates until the national unemployment rate is on a sustained downward trend. We anticipate a very slow-paced recovery of the U.S. economy.



PROVISION FOR LOAN LOSSES The provision for loan losses during the first quarter of 2003 was $8 million compared to $6
million in the first quarter of 2002. Net loan charge-offs totaled $8 million in the first quarter of 2003 and 2002 which represent .24 percent and .26 percent (annualized) net charge-offs to average loans for the respective periods. The allowance
for loan losses as a percent of total loans was 1.33 percent at March 31, 2003 and 1.31 percent at March 31, 2002. The increase in the percentage of allowance to total loans was primarily attributable to the securitization discussed earlier. The
current level of the allowance for loan losses provides a coverage level of 5.23 times the current quarters annualized net charge-offs and 4.96 times nonperforming loans. Management performs an analysis of the loan portfolio quarterly to
determine the adequacy of the allowance for loan losses. The overall allowance analysis considers the results of detailed loan reviews, quantitative and qualitative indicators of the current quality of the loan portfolio and the inherent risk not
captured in the reviews and assessments of individual loans or pools of loans.



We also track a number of key performance indicators in establishing the allowance for loan losses. As discussed previously, the U.S. economy continues to show signs of weakness and while general economic conditions have
deteriorated, our portfolio quality indicators have not dramatically deteriorated. Management believes that our strong collateral positions will prevent significant charge-offs from assets that are currently not performing. The Table 2 summarizes
indicators of portfolio quality and the allowance for loan losses as of and for the five quarters ended March 31, 2003.



Table 2



INDICATORS OF PORTFOLIO QUALITY AND

ALLOWANCE
FOR LOAN LOSSES



Five Quarters Ended March
31, 2003

(Dollars in Thousands)



|                                                                                                             |  | 2003          |            |   | 2002          
|------------------------------------------------------------------------------------------------------------ |  | ------------- | ---------- | - | --------------
|                                                                                                             |  | First Quarter |            |   | Fourth Quarter
|Loans outstanding                                                                                            |  | $             | 12,288,866 |   |               
|Ratio of allowance for loan losses to loans outstanding                                                      |  |               | 1.33       | % |               
|Average loans outstanding for the period                                                                     |  | $             | 12,789,028 |   |               
|Ratio of annualized net charge-offs to average loans for the period                                          |  |               | .24        | % |               
|Ratio of recoveries to charge-offs for the period                                                            |  |               | 17.20      | % |               
|Ratio of nonperforming loans to:                                                                             |  |               |            |   |               
|Loans outstanding                                                                                            |  |               | .27        | % |               
|Total assets                                                                                                 |  |               | .15        | % |               
|Ratio of nonperforming assets to: Loans outstanding plus foreclosed real estate and
other repossessed assets |  |               | .55        | % |               
|Total assets                                                                                                 |  |               | .31        | % |               
|Allowance for loan losses to total nonperforming loans                                                       |  |               | 4.96       | x |               



Asset quality ratios for
the first quarter of 2003 are impacted by the reduction of average and period-end loan balances attributable to the securitization transaction described previously. The ratio of nonperforming loans to loans outstanding was .27 percent at March 31,
2003 compared to .24 percent at December 31, 2002 and .27 percent at March 31, 2002. The increase from December 31, 2002 to March 31, 2003 is due primarily to the decline in loans outstanding at period end rather than increased levels of
nonperforming loans.



19



---

##### Table of Contents



Nonperforming assets have
remained stable over the last four quarters. At March 31, 2003 total nonperforming assets (consisting of nonperforming loans, foreclosed real estate and other repossessed assets) amounted to $68 million or .55 percent of outstanding loans plus other
real estate acquired through foreclosure and other repossessed assets. This compares to $66 million or .51 percent at December 31, 2002 and $48 million or .39 percent at March 31, 2002. The increase in the ratios is primarily attributable to the
securitization discussed previously.



Based on its review,
management believes that the allowance for loan losses at March 31, 2003 is adequate to absorb estimated probable losses inherent in the loan portfolio. As discussed in our 2002 Annual Report on Form 10-K, we refined our risk scoring system in late
2002 to better align our risk definitions with regulatory requirements. By year-end 2002, we had substantially completed the steps to refine the criteria and review loans but we had not completed the re-evaluation of risk factors assigned to each
credit category. The refinements resulted in certain credits shifting from special mention to substandard; however, management believes that the modification of credit classifications did not indicate deterioration of credit
quality as much as different grading methodologies.



Our model
for computing allowance for loan losses assigns risk factors to each credit category based on many factors, including historical loan losses within each credit category. Substandard credits are given a substantially higher risk factor
than special mention credits. As a result of not completing our re-evaluation of risk factors by year-end, the shift of certain credits from special mention to substandard increased the allowance allocated to
specific credits and decreased the unallocated portion of the allowance. We completed our risk factor re-evaluation process during the first quarter of 2003. Our re-evaluation indicated that lower risk factors than those used in the December 31,
2002 model were warranted. Consequently, our unallocated allowance for loan losses increased to approximately $45 million at March 31, 2003 compared to $25 million at December 31, 2002. The March 31, 2003 unallocated allowance is comparable to our
unallocated allowance at September 30, 2002, December 31, 2001 and December 31, 2000. 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.



NONINTEREST INCOME AND EXPENSE Noninterest income, excluding investment securities transactions, increased from $83 million
in first quarter 2002 to $107 million in first quarter 2003. Service charges on deposit accounts increased $7 million from $34 million in first quarter of 2002 to $41 million in first quarter 2003 due to higher volume of commercial accounts, the
impact of lower interest rates in computing commercial service charges, increases in ATM and check card usage, and increases in overdraft fees primarily due to growth in consumer demand deposit accounts. Broker/dealer revenue and other commissions
increased $6 million, from $15 million for the first quarter of 2002 to $21 million in first quarter 2003 due primarily to sales of fixed income securities to institutional customers. Mortgage banking income, which includes the results of
BancMortgage, which was acquired in December 2002, increased $11 million from $3 million in 2002 to $14 million in 2003, on over $1 billion of residential mortgage loan originations. The mortgage banking industry is experiencing tremendous levels of
refinancings due to the low rates currently in effect. As rates begin to rise and refinancing volumes decline, lower levels of mortgage banking income may be experienced. Annualized noninterest income as a percentage of average assets improved to
2.08 percent for first quarter 2003 compared to 1.77 percent in the same period of 2002.



Noninterest expense increased $36 million to $185 million in first quarter 2003 from $149 million in first quarter 2002, due primarily to a $19.7 million pre-tax charge related to the proposed settlement of a class action
lawsuit against NCFs First Mercantile business unit. Noninterest expense for 2002 includes $5 million of conversion/merger expense related to the business combinations discussed in Note 1 to the financial statements. Personnel expenses
increased $13 million in the first quarter of 2003 over the first quarter of 2002 primarily due to higher headcount from the acquisitions noted previously, and commissions paid for higher revenue in the mortgage and broker/dealer businesses. We had
5,564 full-time equivalent employees at March 31, 2003 compared to 5,278 at March 31, 2002. We anticipate minimal increases in FTEs during the remainder of 2003



20



---

##### Table of Contents

as we plan to fund FTE increases required for our Atlanta expansion with FTE reductions elsewhere in the Company.



Occupancy and equipment expense increased $3 million in the first quarter of
2003 over the same quarter in 2002 due in large part to our expanded branch network. Other expenses increased $7 million in the first quarter of 2003 (see Note 8 to the Consolidated Financial Statements). Telecommunications, marketing and postage
and freight increased due primarily to our expanded branch network. Data processing expense increases were related to new technology platforms including implementation of imaging checks and statements and branch automation in addition to increases
in Internet banking customers. Included within all other expense are increased FDIC insurance, courier expenses and ATM and debit card fees related to the expanded branch network.



In the first quarter of 2003, core deposit intangibles amortization totaled $16 million compared to $17 million for the
quarter ended March 31, 2002.



Financial Condition and Capital
Resources



Total assets have increased to $21.7 billion at
March 31, 2003 from $20.1 billion at March 31, 2002. Quarterly average assets increased to $21.3 billion for the first quarter of 2003 from $19.5 billion for the same quarter in 2002. The increase was attributable to the acquisitions and Atlanta
expansion, as well as growth in existing markets.



Our ratio of
average equity to average assets has fallen from 12.73 percent as of March 31, 2002 to 12.66 percent as of March 31, 2003 due to the increase in our average assets as well as our share repurchase program. Our book value per share at March 31, 2003
was $13.15 compared to $12.14 at March 31, 2002. The effect of unrealized gains on investment securities available for sale, net of applicable tax expense, decreased stockholders equity by $4 million from December 31, 2002. As of March 31,
2003, unrealized gains on investment securities available for sale, net of applicable tax expense, totaled $47 million and contributed $.23 per share to period-end book value.



On April 23, 2003, NCFs Board of Directors declared a quarterly cash dividend of $.17 per common share payable July 1,
2003 to shareholders of record June 6, 2003. NCFs Board of Directors also announced approval of a stock repurchase program authorizing the repurchase of up to three million shares through December 31, 2003. During the first quarter of 2003,
approximately 590,000 shares were repurchased under a repurchase authorization approved in December 2002 at an average cost of $23.70 per share. The December 2002 repurchase authorization was canceled effective April 22, 2003.



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. NCF and our banking subsidiaries continue to maintain higher capital ratios than required under regulatory guidelines and all of our banking subsidiaries were considered to be well-capitalized at March 31, 2003.
Table 3 discloses NCF and NBCs components of capital, risk-adjusted asset information and capital ratios at March 31, 2003.



21



---

##### Table of Contents



Table 3



CAPITAL INFORMATION AND RATIOS



As of March 31, 2003

(Dollars in Thousands)



|                            |  | NCF                |           | NBC
|--------------------------- |  | ------------------ | --------- | ---
|                            |  | Regulatory Minimum |           |    
|                            |  | In Thousands      
|Tier I capital              |  | $                  | 608,829   |    
|Tier II capital:            |  |                    |           |    
|Allowable loan loss reserve |  |                    |           |    
|Other                       |  |                    |           |    
|                            |  |                    |           |    
|Total capital               |  | $                  | 1,217,658 |    
|                            |  |                    |           |    
|Risk-adjusted assets        |  |                    |           |    
|Average regulatory assets   |  |                    |           |    
|Tier I capital ratio        |  |                    | 4.00      | %  
|Total capital ratio         |  |                    | 8.00      |    
|Leverage ratio              |  |                    | 3.00      |    
|                            |  |                    |           |    



In addition to the
regulatory capital ratios, NCF monitors its tangible equity to tangible assets ratio which was 6.85 percent and 6.10 percent at March 31, 2003 and 2002, respectively. Our internal goal is to increase this ratio to 7 percent.



Liquidity and Interest Sensitivity



NCF manages interest sensitivity so as to avoid significant net interest
margin fluctuations while promoting consistent net income increases during periods of changing interest rates. Interest sensitivity is our primary market risk and is defined as the risk of economic loss resulting from adverse changes in interest
rates. This risk of loss can be reflected in reduced potential net interest income in future periods. The structure of our loan and deposit portfolios is such that a significant increase or decline in interest rates may adversely impact net interest
income. Responsibility for managing interest rate, market and liquidity risks rests with the 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 feels 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, 2003 is presented in Table 4. At March 31, 2003, we had a cumulative positive gap (interest-sensitive assets
exceeded interest-sensitive liabilities and interest rate swaps) of $1.1 billion or 5.17 percent of total assets over a twelve-month horizon. This compares to a cumulative positive gap of $909 million or 4.23 percent of total assets over a
twelve-month horizon at December 31, 2002. Management had restructured the balance sheet during 2002 to a slightly



22



---

##### Table of Contents

asset sensitive gap position in anticipation of rising rates in the latter part of 2003. Throughout the remainder of 2003, interest rate
sensitivity will be managed to a more neutral position by repositioning maturities of certain investment securities, adding fixed rate loans to the loan portfolio and adding shorter duration interest-bearing liabilities as longer term liabilities
reprice and mature. The ratio of assets to liabilities, equity and interest rate swaps was 1.11x at March 31, 2003 compared to 1.10x at December 31, 2002.



In November 2002, the Federal Reserve reduced the federal funds rate 50 basis points to 1.25% and NCF lowered its prime rate by the same amount to 4.25%.
As a result of the asset sensitive gap position in the less than 30 day category, as shown in Table 4, additional declines in interest rates could have a negative impact on our margin during the second quarter and in the remainder of 2003 until our
interest-bearing liabilities reprice.



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 28, 2003 and those results do not vary significantly from those that would
have been obtained for an analysis as of March 31, 2003.



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 28, 2003, a 100 basis point increase is projected to increase net income 1.3 percent and a 100 basis point decrease is projected to decrease net income 3.9 percent.
The model uses asymmetrical pricing assumptions with 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.



23



---

##### Table of Contents



Table 4



INTEREST SENSITIVITY ANALYSIS

(Dollars in Thousands)



|                                                                          |  | As of March 31, 2003 (1)
|------------------------------------------------------------------------- |  | ------------------------
|                                                                          |  | 30 Days Sensitive       
|Assets:                                                                   |  |                         
|Short term investments                                                    |  | $                       
|Investment securities                                                     |  |                         
|Loans                                                                     |  |                         
|Other assets                                                              |  |                         
|                                                                          |  |                         
|Total assets                                                              |  |                         
|                                                                          |  |                         
|Liabilities:                                                              |  |                         
|Noninterest DDA                                                           |  |                         
|Savings deposits                                                          |  |                         
|Time deposits                                                             |  |                         
|Short-term borrowed funds                                                 |  |                         
|Long-term debt                                                            |  |                         
|Other liabilities                                                         |  |                         
|                                                                          |  |                         
|Total liabilities                                                         |  |                         
|Total equity                                                              |  |                         
|                                                                          |  |                         
|Total liabilities and equity                                              |  |                         
|                                                                          |  |                         
|Interest rate swaps:                                                      |  |                         
|Pay floating/receive fixed                                                |  |                         
|                                                                          |  |                         
|Total interest rate swaps                                                 |  |                         
|                                                                          |  |                         
|Interest sensitivity gap                                                  |  | $                       
|                                                                          |  |                         
|Cumulative gap                                                            |  | $                       
|                                                                          |  |                         
|Cumulative ratio of assets to liabilities, equity and interest rate
swaps |  |                         
|                                                                          |  |                         
|Cumulative gap to total assets                                            |  |                         
|                                                                          |  |                         
|COMPARATIVE INTEREST SENSITIVITY GAP AT DECEMBER 31, 2002                 |  |                         
|Cumulative gap                                                            |  | $                       
|                                                                          |  |                         
|Cumulative ratio of assets to liabilities, equity and interest rate
swaps |  |                         
|                                                                          |  |                         
|Cumulative gap to total assets                                            |  |                         
|                                                                          |  |                         

---

|(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.
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Management continues to target a neutral position relative to future interest rate increases in recognition that interest rate increases will likely begin as the economy improves and strengthens.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.



Management uses both on- and off-balance sheet strategies to manage the
balance sheet. ALCO reviews the interest-earning and interest-bearing portfolios to ensure a proper mix of fixed and variable rate products. Emphasis will continue to be placed on maintaining a more neutral interest sensitivity as new assets and
liabilities are added to our balance sheet.



24



---

##### Table of Contents



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.



Impact of Recently Issued Accounting Standards



In December 2002, the FASB issued Statement No. 148, Accounting for Stock-Based CompensationTransition and Disclosure. Statement No. 148
amends Statement No. 123, Accounting for Stock-Based Compensation, to provide alternative methods of transition for a voluntary change to the fair value-based method of accounting for stock-based employee compensation (the
transition provisions). In addition, Statement No. 148 amends the disclosure requirements of Accounting Principles Board (APB) Opinion No. 28, Interim Financial Reporting, to require proforma disclosure in interim financial statements by
companies that elect to account for stock-based compensation using the intrinsic value method prescribed in APB Opinion No. 25. The transition methods of Statement No. 148 are effective for NCFs March 31, 2003 Form 10-Q. NCF continues to use
the intrinsic value method of accounting for stock-based compensation. As a result, the transition provisions will not have an effect on NCFs consolidated financial statements.



Additionally, the FASB recently announced that it will require all companies to use a fair value-based method of accounting
to recognize expense related to stock-based compensation. The accounting policies that may ultimately be promulgated and the effective date of the new accounting standard cannot be determined at this time.



In January 2003, the FASB issued FIN 46, Consolidation of Variable
Interest Entities. FIN 46 sets forth the criteria used in determining whether an investment in a variable interest entity (VIE) should be consolidated and is based on the general premise that companies that control another entity
through interests other than voting interests should consolidate the controlled entity. FIN 46 would require the consolidation of specified VIEs created before February 1, 2003 in NCFs September 30, 2003 Form 10-Q. For specified VIEs created
after January 31, 2003, FIN 46 would require consolidation in NCFs March 31, 2003 Form 10-Q. NCF does not expect the implementation of FIN 46 to have a material impact on its consolidated financial statements.



25



---

##### Table of Contents



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, 2002.



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.



26



---

##### Table of Contents



PART II. OTHER INFORMATION



Item 6. Exhibits and Reports on Form 8-K



(a). Exhibits



|99.1 |  | Certification of Periodic Report by Chief Executive Officer
|---- |  | -----------------------------------------------------------

|99.2 |  | Certification of Periodic Report by Chief Financial Officer
|---- |  | -----------------------------------------------------------



(b). Reports on Form 8-K



None.



27



---

##### Table of Contents



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 14, 2003 |  |  |  | /s/    RICHARD W.
EDWARDS
|------------------ |  |  |  | -------------------------
|                   |  |  |  |                          



28



---

##### Table of Contents



CERTIFICATIONS



I, Ernest C. Roessler,
certify that:



|(1) |  | I have reviewed this quarterly report on Form 10-Q of National Commerce Financial Corporation;
|--- |  | ----------------------------------------------------------------------------------------------



|(2) |  | Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(3) |  | Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(4) |  | The registrants other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act
Rules 13a-14 and 15d-14) for the registrant and we have:
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | a) |  | designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made
known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;
| | -- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | b) |  | evaluated the effectiveness of the registrants disclosure controls and procedures as of the date within 90 days prior to filing date of this quarterly report
(the Evaluation Date); and
| | -- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | c) |  | presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation
Date;
| | -- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(5) |  | The registrants other certifying officers and I have disclosed, based on our most recent evaluation, to the registrants auditors and the audit committee
of registrants board of directors (or persons performing the equivalent function):
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | a) |  | all significant deficiencies in the design or operation of internal controls which could adversely affect the registrants ability to record, summarize and
report financial data and have identified for the registrants auditors any material weaknesses in internal controls; and
| | -- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | b) |  | any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal controls; and
| | -- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------



|(6) |  | The registrants other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or
in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|                  
|------------------
|Date: May 14, 2003
|                  



29



---

##### Table of Contents



I, Sheldon M. Fox, certify
that:



|(1) |  | I have reviewed this quarterly report on Form 10-Q of National Commerce Financial Corporation;
|--- |  | ----------------------------------------------------------------------------------------------



|(2) |  | Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(3) |  | Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(4) |  | The registrants other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act
Rules 13a-14 and 15d-14) for the registrant and we have:
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | a) |  | designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made
known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;
| | -- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | b) |  | evaluated the effectiveness of the registrants disclosure controls and procedures as of the date within 90 days prior to filing date of this quarterly report
(the Evaluation Date); and
| | -- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | c) |  | presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation
Date;
| | -- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(5) |  | The registrants other certifying officers and I have disclosed, based on our most recent evaluation, to the registrants auditors and the audit committee
of registrants board of directors (or persons performing the equivalent function):
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | a) |  | all significant deficiencies in the design or operation of internal controls which could adversely affect the registrants ability to record, summarize and
report financial data and have identified for the registrants auditors any material weaknesses in internal controls; and
| | -- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | b) |  | any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal controls; and
| | -- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------



|(6) |  | The registrants other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or
in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|                  
|------------------
|Date: May 14, 2003
|                  



30