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

 
FORM 8-K/A
 
AMENDMENT NO. 1 TO
CURRENT REPORT
 
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 
Date of Report: November 12, 2004
 
Date of Earliest Event Reported: October 1, 2004
 
SunTrust Banks, Inc.
(Exact name of registrant as specified in its charter)

Georgia	 	001-08918	 	58-1575035	
(State or other jurisdiction
of incorporation)	 	(Commission
File Number)	 	(IRS Employer
Identification No.)	

303 Peachtree St., N.E.
Atlanta, Georgia	 	30308	
(Address of principal executive offices)	 	(Zip Code)	
 
Registrant’s telephone number, including area code (404) 588-7711

 
Not Applicable
(Former Name or Former Address, if Changed Since Last Report)
 
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
 
 	¨	Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)	
 
 	¨	Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)	
 
 	¨	Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))	
 
 	¨	Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))	

SunTrust Banks, Inc. (“SunTrust” or the “Registrant”) hereby amends this Current Report on Form 8-K, which was initially filed on October 7, 2004, to include the financial statements required by Item 9.01 hereof. These financial statements are filed as Exhibits 99.2, 99.3 and 99.4 to this Current Report on Form 8-K. Except for the filing of the financial statements required by Item 9.01 hereof, this Current Report on Form 8-K is not being amended or updated in any manner.
 
Item 2.01	Completion of Acquisition or Disposition of Assets	
 
As previously announced, effective October 1, 2004, National Commerce Financial Corporation, a Tennessee corporation (“NCF”), merged with and into SunTrust, pursuant to the Agreement and Plan of Merger, dated as of May 7, 2004 (the “Merger Agreement”), between NCF and SunTrust (the “Merger”). NCF is a registered bank holding company headquartered in Memphis, Tennessee, which provides banking and other financial services through its banking and non-banking subsidiaries. As of June 30, 2004, NCF had total assets of $24.0 billion, total liabilities of $21.3 billion and total equity of $2.8 billion. As a result of the Merger, SunTrust issued approximately 76.4 million shares of common stock and paid an aggregate of $1.8 billion to the former shareholders of NCF. A copy of the Merger Agreement, which has been filed as Appendix A to Amendment No. 3 to SunTrust’s Registration Statement on Form S-4, which was filed with the Securities and Exchange Commission (the “Commission”) on August 3, 2004, is incorporated into this Item 2.01 by reference. A copy of the press release announcing the closing of the Merger, which has been filed as Exhibit 99.1 to SunTrust’s Current Report on Form 8-K, which was filed with the Commission on October 1, 2004, is incorporated into this Item 2.01 by reference.
 
Item 5.02	Departure of Directors or Principal Officers; Election of Directors; Appointment of Principal Officers	
 
Newly-Appointed Officers and Directors
 
Concurrently with the closing of the Merger, the following individuals were appointed as officers and/or elected to serve as directors of SunTrust.

Name
	  	Age
	  	Position with
SunTrust
	  	Principal Occupation for Past Five Years
and Other Public Company Directorships
	
William R. Reed, Jr.	  	58	  	Vice Chairman	  	President and Chief Executive Officer of NCF between May 2003 and October 2004. Chief Operating Officer of NCF between July 2000 and May 2003.	
				
Thomas C. Farnsworth, Jr.	  	66	  	Director	  	Member of the Board of Directors of NCF between July 1977 and October 2004. Chairman of Farnsworth Investment Co. and affiliated companies (real estate development) since 1985.	
				
Blake P. Garrett, Jr.	  	64	  	Director	  	Partner in Garrett & Garrett Construction and related companies (commercial real estate development) since March 1966.	
				
Thomas M. Garrott	  	66	  	Director	  	Chairman of the Board of Directors of NCF between May 1993 and January 2003. Chairman of the Board, President and Chief Executive Officer of NCF between May 1993 and July 2000. Chairman of the Board, President and Chief Executive Officer of National Bank of Commerce between May 1993 and July 1998. Director of Internet Pictures Corporation.	
				
Phail Wynn, Jr.	  	57	  	Director	  	President of Durham Technical Community College, since May 1980.	
 
Certain Related-Party Transactions
 
At the effective time of the Merger, the employment of Mr. Reed, who was a party to an employment agreement and change of control employment agreement with NCF dated as of July 5, 2000, was deemed to have been terminated without cause. Accordingly, pursuant to the existing contract, Mr. Reed became entitled to the payments, benefits and rights pursuant to his employment agreement, without regard to whether Mr. Reed’s

employment actually terminated as of the closing. At the closing of the Merger, SunTrust paid to Mr. Reed an aggregate lump sum cash payment of $ 4,002,759 in satisfaction of certain obligations under such agreement. In addition, the Merger constituted a change in control under the NCF supplemental retirement plan (the “NCF SERP”). At the time of completion of the Merger, accrued benefits under the NCF SERP, amounting to an aggregate of $ 289,605 for Mr. Reed, became fully vested. While these accrued benefits were not payable to Mr. Reed in a lump sum at the time of completion of the Merger (since Mr. Reed remains employed by SunTrust), such benefits will be payable in a lump sum in the event Mr. Reed’s employment is terminated after the Merger.
 
SunTrust has not entered into any formal agreement with Mr. Reed outlining the terms of his service to SunTrust as Vice Chairman, or the compensation therefor. In accordance with the Commission’s rules and regulations, SunTrust will file an amendment to this Current Report on Form 8-K within four business days after such information becomes available.
 
In connection with the Merger and effective as of the effective time of the Merger, SunTrust granted an aggregate of 100,000 options to purchase SunTrust common stock in accordance with SunTrust’s 2004 executive compensation stock option grant guidelines to Mr. Reed. Using the Black-Scholes valuation methodology used by SunTrust in its current stock options reporting and based on $ 71.24, the closing price of SunTrust common stock on October 1, 2004, it is estimated that such options have an intrinsic value of $ 812,848.
 
At the effective time of the Merger, 8,100 restricted shares of NCF common stock held by Mr. Reed were converted into 4,012 shares of SunTrust common stock. These shares have an aggregate fair market value of approximately $ 285,815, based on the closing price of SunTrust common stock on October 1, 2004. All such shares of SunTrust common stock became fully vested and free of restrictions and risk of forfeiture.
 
At the effective time of the Merger, SunTrust assumed a pre-existing employment agreement between Thomas M. Garrott, formerly Chairman of the executive committee of the NCF board of directors, and NCF that provides for annual salary payments of approximately $477,000, adjusted for inflation, annual grants of stock options and other benefits through July 5, 2006. Pursuant to this agreement, at the effective time of the Merger, Mr. Garrott received grants of stock options to acquire at then-market prices 122,488 shares of SunTrust common stock in each of January 2005 and January 2006. Using the Black-Scholes valuation methodology used by SunTrust in its current stock options reporting, it is estimated that such options have an intrinsic value of $ 1,991,284.
 
Membership on Committees of the Board of Directors
 
SunTrust currently expects that, as soon as practicable following the closing of the Merger, it will appoint Mr. Farnsworth and Mr. Garrett to serve on SunTrust’s Audit Committee of the Board of Directors, Mr. Garrott to serve on SunTrust’s Executive Committee of the Board of Directors, and Mr. Wynn to serve on SunTrust’s Governance and Nominating Committee of the Board of Directors.
 
Item 9.01	Financial Statements and Exhibits	
 
(a) Financial Statements of Business Acquired
 
The required financial statements of NCF as of and for the year ended December 31, 2003 are attached hereto as Exhibit 99.2 and are incorporated in their entirety herein by reference. The required financial statements of NCF as of and for the six months ended June 30, 2004 are attached hereto as Exhibit 99.3 and are incorporated in their entirety herein by reference.

(b) Pro Forma Financial Information
 
The required pro forma financial information as of June 30, 2004 and for the twelve and six months ended December 31, 2003 and June 30, 2004, respectively, is attached hereto as Exhibit 99.4 and is incorporated in its entirety herein by reference.
 
(c) Exhibits
 
The following exhibits are being filed herewith:

		
  2.1  	  	Agreement and Plan of Merger, dated as of May 7, 2004, by and between SunTrust Banks, Inc. and National Commerce Financial Corporation (attached as Appendix A to Amendment No. 3 to the Registrant’s Registration Statement on Form S-4, filed with the Commission on August 3, 2004 and incorporated herein by reference).	
		
23.1*	  	Consent of KPMG LLP.	
		
99.1	  	Press release dated October 1, 2004 with respect to the closing of the Merger (attached as Exhibit 99.1 to the Registrant’s Current Report on Form 8-K, filed with the Commission on October 1, 2004 and incorporated herein by reference).	
		
99.2*	  	Audited consolidated financial statements of National Commerce Financial Corporation as of and for the year ended December 31, 2003.	
		
99.3*	  	Unaudited consolidated financial statements of National Commerce Financial Corporation as of and for the six months ended June 30, 2004.	
		
99.4*	  	Unaudited Pro Forma Condensed Combined Financial Information as of June 30, 2004 and for twelve and six months ended December 31, 2003 and June 30, 2004, respectively.	

*	Filed herewith.	

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

 	 	 	 	SUNTRUST BANKS, INC.	
 	 	 	 	      (Registrant)	
Date: November 12, 2004	 	 	 	 	
					
 	 	 	 	 	 	By:	 	/s/ Thomas E. Panther	
 	 	 	 	 	 	 	 	Thomas E. Panther	
 	 	 	 	 	 	 	 	Senior Vice President and Interim Controller
(Chief Accounting Officer)	

 
Exhibit 23.1
 
Consent of Independent Registered Public Accounting Firm
 
The Board of Directors National Commerce Financial Corporation:
 
We consent to the incorporation by reference of our report dated January 23, 2004, into the previously filed Registration Statements on Form S-3 (Nos. 333-118382, 333-73368 and 333-46123) and on Form S-8 (Nos. 333-118963, 333-114625, 333-106638, 333-86306, 333-86330, 333-69331, 333-43348, 333-91521, 333-50719 and 033-58723) of SunTrust Banks, Inc., with respect to the consolidated balance sheets of National Commerce Financial Corporation (the “Company”) and subsidiaries as of December 31, 2003 and 2002, and the related consolidated statements of income, stockholders’ equity and comprehensive income, and cash flows, for each of the years in the three-year period ended December 31, 2003, which report appears in the Current Report on Form 8-K/A of SunTrust Banks, Inc. to be filed with the Securities and Exchange Commission on November 12, 2004. Our report refers to the fact that the Company adopted the provisions of Statement of Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets effective January 1, 2002.
 
KPMG LLP
 
Memphis, Tennessee
November 9, 2004

Exhibit 99.2
 
NATIONAL COMMERCE FINANCIAL CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets

 	  	As of December 31
	
In Thousands Except Share Data
	  	2003
	  	2002
	
Assets:	  	 	 	  	 	
Cash and due from banks	  	$	558,313	  	517,295	
Time deposits in other banks	  	 	64,174	  	12,276	
Federal funds sold and other short-term investments	  	 	129,722	  	73,186	
Investment securities:	  	 	 	  	 	
Available for sale (amortized cost of $5,220,555 and $4,693,316)	  	 	5,238,429	  	4,777,009	
Held to maturity (market values of $1,375,484 and $953,294)	  	 	1,380,571	  	925,652	
Trading account securities	  	 	280,649	  	116,954	
Loans	  	 	13,250,080	  	12,923,940	
Less allowance for loan losses	  	 	170,452	  	163,424	
 	  			  		
Net loans	  	 	13,079,628	  	12,760,516	
 	  			  		
Bank owned life insurance	  	 	241,481	  	227,051	
Investment in First Market Bank, FSB	  	 	32,527	  	27,997	
Premises and equipment	  	 	266,401	  	257,676	
Goodwill	  	 	1,085,565	  	1,077,118	
Core deposit intangibles	  	 	172,658	  	236,916	
Other assets	  	 	486,798	  	462,470	
 	  			  		
Total assets	  	$	23,016,916	  	21,472,116	
 	  			  		
Liabilities:	  	 	 	  	 	
Deposits:	  	 	 	  	 	
Demand (noninterest-bearing)	  	$	2,602,026	  	2,241,833	
Savings, NOW and money market accounts	  	 	5,878,002	  	5,666,407	
Jumbo and brokered certificates of deposit	  	 	2,206,736	  	1,723,548	
Time deposits	  	 	4,862,823	  	4,862,946	
 	  			  		
Total deposits	  	 	15,549,587	  	14,494,734	
Short-term borrowed funds	  	 	1,671,908	  	1,452,764	
Federal Home Loan Bank advances	  	 	2,301,191	  	2,106,474	
Trust preferred securities and long-term debt	  	 	277,996	  	296,707	
Other liabilities	  	 	435,048	  	439,005	
 	  			  		
Total liabilities	  	 	20,235,730	  	18,789,684	
 	  			  		
Stockholders’ equity:	  	 	 	  	 	
Serial preferred stock. Authorized 5,000,000 shares; none issued	  	 	—  	  	—  	
Common stock of $2 par value. Authorized 400,000,000 shares; 205,136,649 and 205,408,183 shares issued	  	 	410,273	  	410,816	
Additional paid-in capital	  	 	1,738,157	  	1,753,241	
Retained earnings	  	 	627,406	  	467,641	
Accumulated other comprehensive income	  	 	5,350	  	50,734	
 	  			  		
Total stockholders’ equity	  	 	2,781,186	  	2,682,432	
 	  			  		
Total liabilities and stockholders’ equity	  	$	23,016,916	  	21,472,116	

Commitments and contingencies (note 17)
 
See accompanying notes to consolidated financial statements.
 
1

NATIONAL COMMERCE FINANCIAL CORPORATION AND SUBSIDIARIES
Consolidated Statements of Income

 	  	Years Ended December 31
	
In Thousands Except Per Share Data
	  	2003
	  	2002
	 	 	2001
	
Interest income:	  	 	 	  	 	 	 	 	
Interest and fees on loans	  	$	760,855	  	861,288	 	 	945,628	
Interest and dividends on investment securities:	  	 	 	  	 	 	 	 	
U.S. Treasury	  	 	1,038	  	2,180	 	 	2,892	
U.S. government agencies and corporations	  	 	231,416	  	215,928	 	 	191,528	
States and political subdivisions (primarily tax-exempt)	  	 	5,627	  	7,054	 	 	9,084	
Equity and other securities	  	 	50,390	  	40,792	 	 	66,527	
Interest and dividends on trading account securities	  	 	2,842	  	2,274	 	 	3,134	
Interest on time deposits in other banks	  	 	872	  	372	 	 	1,257	
Interest on federal funds sold and other short-term investments	  	 	1,096	  	609	 	 	2,815	
 	  			  			 		
Total interest income	  	 	1,054,136	  	1,130,497	 	 	1,222,865	
 	  			  			 		
Interest expense:	  	 	 	  	 	 	 	 	
Deposits	  	 	210,687	  	275,759	 	 	429,623	
Short-term borrowed funds	  	 	18,217	  	17,817	 	 	39,066	
Federal Home Loan Bank advances	  	 	77,473	  	93,492	 	 	97,838	
Trust preferred securities and long-term debt	  	 	8,249	  	9,823	 	 	5,225	
 	  			  			 		
Total interest expense	  	 	314,626	  	396,891	 	 	571,752	
 	  			  			 		
Net interest income	  	 	739,510	  	733,606	 	 	651,113	
Provision for loan losses	  	 	48,414	  	32,344	 	 	29,199	
 	  			  			 		
Net interest income after provision for loan losses	  	 	691,096	  	701,262	 	 	621,914	
 	  			  			 		
Other income:	  	 	 	  	 	 	 	 	
Service charges on deposit accounts	  	 	168,256	  	159,402	 	 	121,450	
Other service charges and fees	  	 	36,930	  	38,381	 	 	36,703	
Broker/dealer revenue	  	 	95,532	  	75,645	 	 	68,006	
Asset management	  	 	56,800	  	50,916	 	 	51,184	
Mortgage banking income	  	 	46,701	  	8,449	 	 	2,371	
Equity earnings from First Market Bank, FSB	  	 	4,530	  	3,447	 	 	2,216	
Other	  	 	33,113	  	32,801	 	 	28,248	
Gain on branch sales	  	 	9,110	  	—  	 	 	—  	
Investment securities gains, net	  	 	3,750	  	11,502	 	 	6,635	
 	  			  			 		
Total other income	  	 	454,722	  	380,543	 	 	316,813	
 	  			  			 		
Other expenses:	  	 	 	  	 	 	 	 	
Personnel	  	 	310,066	  	273,985	 	 	241,490	
Occupancy	  	 	54,338	  	48,486	 	 	37,302	
Equipment	  	 	30,305	  	28,188	 	 	24,166	
Goodwill amortization	  	 	—  	  	—  	 	 	48,240	
Core deposit intangibles amortization	  	 	61,356	  	69,930	 	 	58,775	
First Mercantile litigation	  	 	20,695	  	—  	 	 	—  	
Employment contract terminations	  	 	15,699	  	—  	 	 	—  	
Debt retirement/prepayment penalties (gains)	  	 	31,661	  	(400	)	 	—  	
Conversion/merger expenses	  	 	—  	  	4,940	 	 	11,364	
Other	  	 	200,319	  	182,654	 	 	158,706	
 	  			  			 		
Total other expenses	  	 	724,439	  	607,783	 	 	580,043	
 	  			  			 		
Income before income taxes	  	 	421,379	  	474,022	 	 	358,684	
Income taxes	  	 	134,614	  	150,412	 	 	133,388	
 	  			  			 		
Net income from continuing operations	  	 	286,765	  	323,610	 	 	225,296	
Discontinued operations – merchant processing, net of tax expense of $13,412	  	 	24,909	  	—  	 	 	—  	
 	  			  			 		
Net income	  	$	311,674	  	323,610	 	 	225,296	
 	  			  			 		
Earnings from continuing operations per common share:	  	 	 	  	 	 	 	 	
Basic	  	$	1.40	  	1.57	 	 	1.10	
Diluted	  	 	1.39	  	1.55	 	 	1.09	
				
Earnings per common share:	  	 	 	  	 	 	 	 	
Basic	  	 	1.52	  	1.57	 	 	1.10	
Diluted	  	 	1.51	  	1.55	 	 	1.09	
				
Weighted average shares outstanding:	  	 	 	  	 	 	 	 	
Basic	  	 	204,864	  	205,933	 	 	204,972	
Diluted	  	 	206,368	  	208,144	 	 	207,484	
 
See accompanying notes to consolidated financial statements.
 
2

NATIONAL COMMERCE FINANCIAL CORPORATION AND SUBSIDIARIES
Consolidated Statements of Stockholders’ Equity and
Comprehensive Income 
Years Ended December 31, 2003, 2002 and 2001

In Thousands Except Per Share Data
	  	Number of
Shares
	 	 	Common
Stock
	 	 	Additional
Paid-In
Capital
	 	 	Retained
Earnings
	 	 	Accumulated
Other
Comprehensive
Income (Loss)
	 	 	Total
Stockholders’
Equity
	 	
Balance January 31, 2001	  	205,246,098	 	 	$	410,492	 	 	1,765,723	 	 	165,829	 	 	22,794	 	 	2,364,838	 	
							
Net income	  	—  	 	 	 	—  	 	 	—  	 	 	225,296	 	 	—  	 	 	225,296	 	
Other comprehensive loss —	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Unrealized loss on securities, net of deferred tax benefit of $5,217	  	—  	 	 	 	—  	 	 	—  	 	 	—  	 	 	(10,050	)	 	(10,050	)	
 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 			
Total comprehensive income	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	215,246	 	
Restricted stock transactions, net	  	26,159	 	 	 	52	 	 	2,769	 	 	—  	 	 	—  	 	 	2,821	 	
Stock options exercised, net of shares tendered	  	1,658,120	 	 	 	3,316	 	 	21,022	 	 	—  	 	 	—  	 	 	24,338	 	
Common stock issued in acquisitions	  	2,384,695	 	 	 	4,769	 	 	61,727	 	 	—  	 	 	—  	 	 	66,496	 	
Purchase and retirement of shares	  	(4,255,132	)	 	 	(8,510	)	 	(93,702	)	 	—  	 	 	—  	 	 	(102,212	)	
Other transactions, net	  	(1,227	)	 	 	(2	)	 	(1,411	)	 	55	 	 	—  	 	 	(1,358	)	
Cash dividends ($.56 per share)	  	—  	 	 	 	—  	 	 	—  	 	 	(114,838	)	 	—  	 	 	(114,838	)	
 	  			 				 			 			 			 			
Balance December 31, 2001	  	205,058,713	 	 	 	410,117	 	 	1,756,128	 	 	276,342	 	 	12,744	 	 	2,455,331	 	
							
Net income	  	—  	 	 	 	—  	 	 	—  	 	 	323,610	 	 	—  	 	 	323,610	 	
Other comprehensive gain —	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Unrealized gain on securities, net of deferred tax expense of $24,115	  	—  	 	 	 	—  	 	 	—  	 	 	—  	 	 	37,892	 	 	37,892	 	
Change in minimum pension liability, net of deferred tax expense of $63	  	—  	 	 	 	—  	 	 	—  	 	 	—  	 	 	98	 	 	98	 	
 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 			
Total comprehensive income	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	361,600	 	
Restricted stock transactions, net	  	5,115	 	 	 	10	 	 	2,488	 	 	—  	 	 	—  	 	 	2,498	 	
Stock options exercised, net of shares tendered	  	2,256,614	 	 	 	4,514	 	 	37,238	 	 	—  	 	 	—  	 	 	41,752	 	
Common stock issued in acquisitions	  	610,998	 	 	 	1,222	 	 	13,637	 	 	—  	 	 	—  	 	 	14,859	 	
Purchase and retirement of shares	  	(2,356,900	)	 	 	(4,714	)	 	(53,020	)	 	—  	 	 	—  	 	 	(57,734	)	
Other transactions, net	  	(166,357	)	 	 	(333	)	 	(3,230	)	 	—  	 	 	—  	 	 	(3,563	)	
Cash dividends ($.64 per share)	  	—  	 	 	 	—  	 	 	—  	 	 	(132,311	)	 	—  	 	 	(132,311	)	
 	  			 				 			 			 			 			
Balance December 31, 2002	  	205,408,183	 	 	 	410,816	 	 	1,753,241	 	 	467,641	 	 	50,734	 	 	2,682,432	 	
Net income	  	—  	 	 	 	—  	 	 	—  	 	 	311,674	 	 	—  	 	 	311,674	 	
Other comprehensive loss —	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Unrealized loss on securities, net of deferred tax benefit of $25,854	  	—  	 	 	 	—  	 	 	—  	 	 	—  	 	 	(39,625	)	 	(39,625	)	
Unrealized loss on hedging instruments, net of deferred tax benefit of $3,344	  	—  	 	 	 	—  	 	 	—  	 	 	—  	 	 	(5,017	)	 	(5,017	)	
Change in minimum pension liability, net of deferred tax benefit of $495	  	—  	 	 	 	—  	 	 	—  	 	 	—  	 	 	(742	)	 	(742	)	
 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 			
Total comprehensive income	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	266,290	 	
Restricted stock transactions, net	  	42,092	 	 	 	84	 	 	1,490	 	 	—  	 	 	—  	 	 	1,574	 	
Stock options exercised, net of shares tendered	  	1,545,388	 	 	 	3,091	 	 	23,551	 	 	—  	 	 	—  	 	 	26,642	 	
Purchase and retirement of shares	  	(1,892,964	)	 	 	(3,786	)	 	(39,919	)	 	—  	 	 	—  	 	 	(43,705	)	
Other transactions, net	  	33,950	 	 	 	68	 	 	(206	)	 	—  	 	 	—  	 	 	(138	)	
Cash dividends ($.74 per share)	  	—  	 	 	 	—  	 	 	—  	 	 	(151,909	)	 	—  	 	 	(151,909	)	
 	  			 				 			 			 			 			
Balance December 31, 2003	  	205,136,649	 	 	$	410,273	 	 	1,738,157	 	 	627,406	 	 	5,350	 	 	2,781,186	 	

See accompanying notes to consolidated financial statements.
 
3

NATIONAL COMMERCE FINANCIAL CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows

 	  	Years Ended December 31
	 	
In Thousands
	  	2003
	 	 	2002
	 	 	2001
	 	
Operating activities:	  	 	 	 	 	 	 	 	 	 	
Net income	  	$	311,674	 	 	323,610	 	 	225,296	 	
Adjustments to reconcile net income to net cash provided (used) by operating activities:	  	 	 	 	 	 	 	 	 	 	
Depreciation, amortization and accretion, net	  	 	119,287	 	 	103,870	 	 	105,216	 	
Provision for loan losses	  	 	48,414	 	 	32,344	 	 	29,199	 	
Investment securities gains	  	 	(3,750	)	 	(11,502	)	 	(6,635	)	
Deferred income taxes	  	 	(52,766	)	 	2,332	 	 	20,407	 	
Origination or purchase of loans held for sale	  	 	(7,658,420	)	 	(2,113,181	)	 	(504,812	)	
Sales of loans held for sale	  	 	7,876,367	 	 	1,926,673	 	 	401,413	 	
Loss (gain) on debt retirement/prepayment penalties	  	 	31,661	 	 	(400	)	 	—  	 	
Tax benefit from exercise of stock options	  	 	6,793	 	 	11,945	 	 	9,015	 	
Changes in:	  	 	 	 	 	 	 	 	 	 	
Trading account securities	  	 	(163,695	)	 	80,260	 	 	(122,797	)	
Other assets	  	 	41,020	 	 	31,422	 	 	(220,870	)	
Other liabilities	  	 	25,459	 	 	(96,177	)	 	(6,222	)	
Other operating activities, net	  	 	(3,686	)	 	(317	)	 	3,297	 	
 	  				 			 			
Net cash provided (used) by operating activities	  	 	578,358	 	 	290,879	 	 	(67,493	)	
 	  				 			 			
Investing activities:	  	 	 	 	 	 	 	 	 	 	
Proceeds from:	  	 	 	 	 	 	 	 	 	 	
Maturities and issuer calls of investment securities held to maturity	  	 	440,181	 	 	584,014	 	 	1,213,809	 	
Sales of investment securities available for sale	  	 	1,705,236	 	 	1,644,596	 	 	152,760	 	
Maturities and issuer calls of investment securities available for sale	  	 	2,428,172	 	 	2,416,515	 	 	1,352,900	 	
Purchases of:	  	 	 	 	 	 	 	 	 	 	
Investment securities held to maturity	  	 	(858,160	)	 	(607,717	)	 	(92,720	)	
Investment securities available for sale	  	 	(4,067,751	)	 	(4,115,114	)	 	(2,585,766	)	
Premises and equipment	  	 	(40,399	)	 	(37,643	)	 	(22,702	)	
Net originations of loans	  	 	(1,279,559	)	 	(241,902	)	 	(309,591	)	
Net cash paid on branch sales	  	 	(114,035	)	 	—  	 	 	—  	 	
Net cash paid in business combinations	  	 	—  	 	 	(321,602	)	 	(21,616	)	
 	  				 			 			
Net cash used by investing activities	  	 	(1,786,315	)	 	(678,853	)	 	(312,926	)	
 	  				 			 			
Financing activities:	  	 	 	 	 	 	 	 	 	 	
Net increase in deposit accounts	  	 	1,188,896	 	 	527,306	 	 	73,803	 	
Net increase (decrease) in short-term borrowed funds	  	 	219,144	 	 	186,948	 	 	(85,329	)	
Net increase (decrease) in Federal Home Loan Bank advances	  	 	163,209	 	 	(201,256	)	 	513,901	 	
Net decrease in long-term debt	  	 	(37,982	)	 	(3,564	)	 	(7,276	)	
Issuance of trust preferred securities	  	 	—  	 	 	—  	 	 	200,000	 	
Issuances of common stock from exercise of stock options, net	  	 	20,027	 	 	27,707	 	 	15,595	 	
Purchase and retirement of common stock	  	 	(43,705	)	 	(57,734	)	 	(102,212	)	
Other equity transactions, net	  	 	(271	)	 	(785	)	 	(272	)	
Cash dividends paid	  	 	(151,909	)	 	(132,311	)	 	(114,838	)	
 	  				 			 			
Net cash provided by financing activities	  	 	1,357,409	 	 	346,311	 	 	493,372	 	
 	  				 			 			
Net increase (decrease) in cash and cash equivalents	  	 	149,452	 	 	(41,663	)	 	112,953	 	
Cash and cash equivalents at beginning of year	  	 	602,757	 	 	644,420	 	 	531,467	 	
 	  				 			 			
Cash and cash equivalents at end of year	  	$	752,209	 	 	602,757	 	 	644,420	 	
 	  				 			 			
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:	  	 	 	 	 	 	 	 	 	 	
Interest paid during the year	  	$	325,411	 	 	402,008	 	 	595,423	 	
Income taxes paid during the year	  	 	175,097	 	 	156,435	 	 	103,675	 	
 
See accompanying notes to consolidated financial statements.
 
4

NATIONAL COMMERCE FINANCIAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
 
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
Consolidation The consolidated financial statements include the accounts and results of operations of National Commerce Financial Corporation (“NCF”) and its subsidiaries. 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 has two wholly owned banking subsidiaries (collectively, the “Subsidiary Banks”). National Bank of Commerce (“NBC”) is NCF’s principal subsidiary. The Subsidiary Banks provide a full range of banking services to individual and corporate customers through their branch networks based in Tennessee, Mississippi, Arkansas, Georgia, North Carolina, South Carolina, Virginia and West Virginia. Neither NCF nor its Subsidiary Banks have active foreign operations. NCF believes that there is no concentration of risk with any single customer or supplier, or small group of customers or suppliers, whose failure or nonperformance would materially affect NCF’s results. Products and services offered to customers include traditional banking services such as accepting deposits; making secured and unsecured loans; renting safety deposit boxes; performing trust functions for corporations, employee benefit plans and individuals; and providing certain insurance and brokerage services. The Subsidiary Banks are subject to competition from other financial entities and are subject to the regulations of certain Federal agencies and undergo periodic examinations by those regulatory agencies.
 
NCF has two business segments: traditional banking and financial enterprises. The financial enterprises segment is comprised of trust services and investment management, transaction processing, retail banking consulting/in-store licensing and broker/dealer activities. Many of these services are offered nationally.
 
Accounting Research Bulletin No. 51 (“ARB 51”), Consolidated Financial Statements , requires a company’s consolidated financial statements to include subsidiaries in which the company has a controlling financial interest. This requirement usually has been applied to subsidiaries in which a company has a majority voting interest. Investments in companies in which a company controls operating and financing decisions (principally defined as owning a voting or economic interest greater than 50 percent) are consolidated. Investments in companies in which the company has significant influence over operating and financing decisions (principally defined as owning a voting or economic interest of 20 percent to 50 percent) and limited partnership investments are generally accounted for by the equity method of accounting. These investments are normally included in other assets and the company’s proportionate share of income or loss is included in other noninterest income.
 
The voting interest approach defined in ARB 51 is not applicable in identifying controlling financial interests in entities that are not controllable through voting interests or in which the equity investors do not bear the residual economic risks. In such instances, FASB Interpretation No. 46 (“FIN 46”), Consolidation of Variable Interest Entities , indicates when a company should include in its financial statements the assets, liabilities and activities of another entity. In general, a variable interest entity (“VIE”) is a corporation, partnership, trust, or any other legal structure used for business purposes that either does not have equity investors with voting rights or has equity investors that do not provide sufficient financial resources for the entity to support its activities. FIN 46 requires a VIE to be consolidated by a company if that company is subject to a majority of the risk of loss from the VIE’s activities or entitles it to receive a majority of the entity’s residual returns or both. A company that consolidates a VIE is called the primary beneficiary of that entity.
 
NCF uses special-purpose entities (SPEs), primarily statutory business trusts, to diversify its funding sources. SPEs are not operating entities, generally have no employees, and usually have a limited life. The basic SPE structure involves NCF transferring assets to the SPE. The SPE funds the purchase of those assets by issuing asset-backed securities to investors. The legal documents governing the SPE describe how the cash received on the assets held in the SPE must be allocated to the investors and other parties that have rights to these cash flows. NCF structures these SPEs to be bankruptcy remote, thereby insulating investors from the impact of the creditors of other entities, including the transferor of the assets.
 
Where NCF is a transferor of assets to an SPE, the assets sold to the SPE are no longer recorded on the balance sheet and the SPE is not consolidated when the SPE is a qualifying special-purpose entity (“QSPE”). Statement of Financial Accounting Standards No. 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities , provides specific criteria for determining when an SPE meets the definition of a QSPE. In determining whether to consolidate nonqualifying SPEs where assets are legally isolated from NCF’s creditors, NCF considers such factors as the amount of third-party equity, the retention of risks and rewards, and the extent of control available to third parties. NCF created two statutory business trusts which each issued a series of trust preferred securities. Both business trusts meet the applicable QSPE criteria under Statement No. 140, and accordingly, are not consolidated on the balance sheet as of December 31, 2003. Further discussion regarding these business trusts is included in Note 11.
 
Financial Statement Presentation NCF’s accounting and reporting polices are in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and they conform to general practices within the applicable industries. All significant intercompany transactions and accounts are eliminated in consolidation.
 
In the preparation of the consolidated financial statements in conformity with GAAP, management makes a number of estimates and assumptions relating to the reporting of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reporting of revenues and expenses during the period. Significant items subject to such estimates and assumptions include the carrying amount of intangibles and goodwill; allowance for loan losses; deferred income tax assets; valuation of derivative instruments and assets and obligations related to employee benefits. Actual results could differ from those estimates.
 
Certain amounts for prior years have been reclassified to conform to the 2003 presentation.
 
Cash and Cash Equivalents NCF considers time deposits in other banks, federal funds sold and other short-term investments to be cash equivalents.
 
5

Securities Securities are classified at their purchase date as trading account securities, securities available for sale or investment securities held to maturity, based on management’s intention. Interest and dividends on securities, including amortization of premiums and accretion of discounts, are included in interest income. The amortized cost of the specific securities sold is used to compute gains or losses from the sale of securities.
 
Trading account securities consist of securities inventories held for the purpose of brokerage activities and are carried at fair value with changes in fair value included in earnings. Broker/dealer revenue includes the effects of adjustments to market values of trading account securities. Interest on trading account securities is recorded in interest income.
 
Securities available for sale are carried at fair value. Unrealized gains or losses are excluded from earnings and reported in other comprehensive income as a separate component of stockholders’ equity.
 
Investment securities that NCF has the positive intent and ability to hold to maturity are classified as held to maturity and reported at amortized cost.
 
Loan Portfolio The loan portfolio is comprised of: commercial, financial and agricultural; real estate-construction; real estate-mortgage; consumer, revolving credit accounts and leases. The lease portfolio includes rolling stock such as automobiles, trucks and trailers as well as a broadly diversified base of equipment.
 
A loan is considered to be impaired when, based on current information, it is probable that NCF will not receive all amounts due in accordance with the contractual terms of the loan agreement.
 
Interest income on loans is recorded on the accrual basis. Loan origination fees and direct origination costs are amortized as an adjustment to the yield over the term of the loan.
 
Accrual of interest on loans (including impaired loans) is discontinued at the time the loan is 90 days delinquent unless the credit is well secured and in the process of collection. Consumer and other retail loans are typically charged-off no later than 120 days past due. In all cases, loans are placed on nonaccrual status or charged-off at an earlier date if collection of principal or interest is considered doubtful. Interest accrued but not collected on loans that are placed on nonaccrual or are charged-off is reversed against interest income. Subsequent interest collected is accounted for on the cash-basis or cost-recovery method, until qualifying for return to accrual status. Loans are returned to accrual status when all principal and interest amounts contractually due are brought current and future payments are reasonably assured.
 
Allowance for Loan Losses The allowance for loan losses is maintained at a level considered appropriate by management to provide for probable loan losses inherent in the loan portfolio as of the date of the consolidated financial statements. The evaluation of the allowance is inherently subjective as it requires estimates that are susceptible to significant revision as more information becomes available. Additions to the allowance for loan losses are made by charges to the provision for loan losses. Loans deemed to be uncollectible are charged against the allowance. Recoveries of previously charged-off amounts are credited to the allowance.
 
The allowance is comprised of specific loan loss allocations, nonaccrual and classified loan allocations, and general allocations by loan type for all other loans. Specific loan loss allocations are determined for significant credits where management believes that a risk of loss exists. The unallocated component of the allowance represents the estimated probable losses inherent in the portfolio that are not fully captured in either the specific loan loss allocation or nonaccrual and classified loan allocations. The amount of unallocated allowance was based on the results of analyses including industry, borrower or collateral concentrations, the risk inherent in the loss estimation process for pools of loans and the estimated effect of general economic conditions. Due to the subjectivity involved in the determination of the unassigned portion of the allowance for loan losses, the relationship of the unallocated component to the total allowance for loan losses may fluctuate from period to period. Management evaluates the balance of the allowance for loan losses based on the combined total of the allocated and unallocated components.
 
NCF believes it has developed appropriate policies and processes for the determination of an allowance for loan losses that reflects its assessment of credit risk after consideration of known relevant facts. Depending on changes in circumstances, future adjustments to the allowance may be necessary if economic conditions, particularly in the Subsidiary Banks’ markets, differ substantially from the assumptions used by management. Additionally, bank regulatory agency examiners periodically review the loan portfolio and may require the Subsidiary Banks to charge-off loans and/or increase the allowance for loan losses to reflect their assessment of the collectibility of loans based on available information at the time of their examination. Such adjustments to original estimates, as necessary, are made in the period in which these factors and other relevant considerations indicate that loss levels may vary from previous estimates.
 
Mortgage Banking NCF originates and purchases mortgage loans with the intent to sell the loans to investors. Loans held for sale are recorded at the lower of aggregate cost or fair value, except if the loans are designated as a hedge under Statement No. 133, Accounting for Derivatives and Hedging Activities , in which case the loans are recorded at fair value. The lower of cost or fair value is determined on an aggregate loan basis. Mortgage servicing rights are amortized over the estimated life of the asset using a method that approximates the interest method.
 
NCF sells and has securitized residential mortgage loans. When NCF sells receivables in securitizations of loans, it retains interest-only strips, one or more subordinated tranches, servicing rights, and in some cases a cash reserve account, all of which are retained interests in the securitized receivables. Retained interests are initially recorded at their allocated carrying amounts based on the relative fair value of assets sold and retained. Retained interests in debt securities are subsequently carried at fair value based on quoted market prices. Servicing fees are recorded in noninterest income.
 
Mortgage banking income includes servicing fees, gains from selling originated mortgages, ancillary servicing income and gains and losses on sales to the secondary market.
 
6

Derivatives and Hedging Activities NCF utilizes a variety of financial instruments to manage various financial risks. The instruments, commonly referred to as derivatives, primarily consist of interest rate swaps, caps, floors, collars, financial forwards and futures contracts and options written and purchased. A derivative is a financial instrument that derives its cash flows, and therefore its value, by reference to an underlying instrument, index or referenced interest rate. NCF uses derivatives primarily to hedge loans, forecasted sales of mortgage loans, long-term debt and to facilitate transactions on behalf of its customers.
 
Derivative contracts are written in amounts referred to as notional amounts. Notional amounts only provide the basis for calculating payments between counterparties and do not represent amounts to be exchanged between parties or are a measure of financial risk. NCF classifies its derivative financial instruments as either (1) a hedge of an exposure to changes in the fair value of a recorded asset or liability (“fair value hedge”), (2) a hedge of an exposure to changes in the cash flows of a recognized asset, liability or forecasted transaction (“cash flow hedge”), or (3) derivatives not designated as hedges. If the derivative is a qualified fair value hedge, changes in fair value of the derivatives that have been highly effective as hedges are recognized in current period earnings along with the corresponding changes in the value of the designated hedged item attributable to the risk being hedged. If the derivative is a qualified cash flow hedge, the effective portion of changes in the value of the derivatives that have been highly effective are recognized in other comprehensive income until the related cash flows from the hedged item are recognized in earnings. The ineffective portion of a derivative’s change in fair value is immediately recognized in earnings.
 
NCF records derivatives at fair value on the Consolidated Balance Sheets. Derivatives that are not hedges are adjusted to fair value through earnings. Derivative contracts are accounted for on the accrual basis and the net interest differential, including premiums paid, if any, are recognized as an adjustment to the item specifically designated as being hedged at the start of the agreement. NCF formally documents its risk management objectives and strategies for undertaking various hedge transactions at the inception of the transaction. NCF uses discounted cash flow analysis at the hedge’s inception and quarterly thereafter to assess whether the derivative used in its hedging transaction is expected to be or has been highly effective in offsetting changes in the fair
value or cash flows of the hedged items. NCF discontinues hedge accounting when it is determined that a derivative is not expected to be or has ceased to be highly effective as a hedge, and then reflects changes in fair value in earnings. A highly effective hedging relationship is one in which NCF achieves offsetting changes in fair value or cash flows between 80 percent and 120 percent for the risk being hedged. The related amount payable or receivable from counterparties is included in “other assets” or “other liabilities” on the Consolidated Balance Sheet.
 
If a derivative instrument in a fair value hedge is terminated or the hedge designation removed, the difference between a hedged item’s then carrying amount and its face amount is recognized into income over the original hedge period. Similarly, if a derivative instrument in a cash flow hedge is terminated or the hedge designation removed, related amounts accumulated in other comprehensive income are reclassified into earnings in the same period during which the hedged item affects income.
 
Premises and Equipment Premises and equipment are stated at cost less accumulated depreciation and amortization. Purchased software and costs of computer software developed for internal use are capitalized provided certain criteria are met. Depreciation is computed over the estimated lives of the assets on accelerated and straight-line methods. Leasehold improvements are amortized over the term of the respective leases or the estimated useful lives of the improvements, whichever is shorter.
 
Goodwill and Other Intangible Assets Net assets of companies acquired in purchase transactions are recorded at fair value at the date of acquisition. Identified intangibles are recorded at acquisition and the excess of the purchase price over the fair value of assets acquired is recorded as goodwill. Identified intangible assets are amortized on an accelerated basis over the period benefited and are evaluated for impairment if events and circumstances indicate a possible impairment. Intangible assets included in the Consolidated Balance Sheet consist primarily of core deposit intangibles that are amortized over their anticipated lives. In accordance with GAAP, goodwill is not amortized. 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. Unamortized intangible assets associated with disposed assets and businesses are included in the determination of gain or loss on sale of the disposed asset or business.
 
Comprehensive Income Comprehensive income is the change in NCF’s equity during the period from transactions and other events and circumstances from non-owner sources. Total comprehensive income is divided into net income and other comprehensive income (loss). “Other comprehensive income” and “accumulated other comprehensive income” are comprised of unrealized gains and losses on certain investments in debt and equity securities, unrealized loss on hedging instruments and adjustments to the minimum pension liability.
 
Income Taxes The provision for income taxes is based on income and expense reported for financial statement purposes after adjustment for permanent differences such as tax-exempt interest income. Deferred income taxes are provided when there is a difference between the periods items are reported for financial statement purposes and when they are reported for tax purposes and are recorded at the enacted tax rates expected to apply to taxable income in the years in which these temporary differences are expected to be recovered or settled. Subsequent changes in tax rates will require adjustment to these assets and liabilities with the cumulative effect included in the current year’s income tax provision. Each subsidiary provides for federal income taxes based on its contribution to income tax expense (benefit) of the consolidated group.
 
7

Recognition of deferred tax assets is based on management’s belief that it is more likely than not that the tax benefit associated with certain temporary differences, tax operating loss carryforwards and tax credits will be realized. A valuation allowance would be recorded for the amount of the deferred tax item for which it is more likely than not that realization will not occur.
 
Stock-based Compensation Plans NCF has stock-based incentive compensation plans covering certain officers of NCF and its subsidiaries. The market value of restricted stock issued under such incentive plans is charged to compensation expense over the vesting period, generally up to three years. Vesting is dependent on continued service with NCF.
 
Generally, NCF grants stock options under the incentive plans 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 promulgated under 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 years ended December 31, 2003, 2002 and 2001 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 in future years.

In Thousands Except Per Share Data
	  	 	  	2003
	  	2002
	  	2001
	
Net income	  	As reported	  	$	311,674	  	323,610	  	225,296	
 	  	Pro forma	  	 	302,726	  	316,733	  	219,626	
					
Basic EPS	  	As reported	  	 	1.52	  	1.57	  	1.10	
 	  	Pro forma	  	 	1.48	  	1.54	  	1.07	
					
Diluted EPS	  	As reported	  	 	1.51	  	1.55	  	1.09	
 	  	Pro forma	  	 	1.47	  	1.52	  	1.06	
 
The weighted average fair value of options granted approximated $5.80 in 2003, $6.22 in 2002 and $5.83 in 2001. The fair values of the options granted in 2003, 2002 and 2001 are estimated on the date of the grants using the Black-Scholes option-pricing model. Option pricing models require the use of highly subjective assumptions, including expected stock volatility, which when changed can materially affect fair value estimates. The fair values were estimated using the following weighted-average assumptions:

 	  	2003
	 	 	2002
	  	2001
	
Dividend yield	  	2.50	%	 	2.50	  	2.00	
Expected volatility	  	30.00	 	 	30.00	  	30.00	
Risk-free interest rate	  	2.79	 	 	3.05	  	2.50	
Expected average life	  	5 years	 	 	5 years	  	5 years	
 
Earnings Per Share Basic earnings per share (“EPS”) excludes dilution and is computed by dividing net income available to common shareholders by the weighted average number of common shares outstanding during each period. Diluted EPS reflects the potential dilution that could occur if potentially dilutive shares were issued. Diluted EPS is computed by dividing income available to common shareholders 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.
 
Fair Value of Financial Instruments The financial statements include disclosure of fair value information about financial instruments, whether or not recognized on the balance sheet, for which it is practicable to estimate that value. In cases where quoted market prices are not available, fair values are based on estimates using present value or other valuation techniques. Those techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. In that regard, the derived fair value estimates cannot be substantiated by comparison to independent markets and, in many cases, could not be realized in immediate settlement of the financial instrument. As the fair value of certain financial instruments and all nonfinancial instruments are not presented, the aggregate fair value amounts presented do not represent the underlying value of NCF.
 
8

(2) R ESTRICTIONS ON C ASH AND D UE FROM B ANKS
 
The Subsidiary Banks are required to maintain reserve and clearing balances with the Federal Reserve Bank (the “FRB”). These balances are included in “cash and due from banks” on the Consolidated Balance Sheets. For the reserve maintenance periods in effect at both December 31, 2003 and 2002, the Subsidiary Banks were required to maintain average reserve and clearing balances of $39 million and $16 million, respectively.
 
(3) TRADING AND I NVESTMENT S ECURITIES
 
Unrealized net gains on trading securities were $224,000, $246,000 and $2 million at December 31, 2003, 2002 and 2001, respectively.
 
Investment securities with amortized costs of approximately $4.3 billion at December 31, 2003 and 2002 were pledged to secure public funds on deposit, repurchase agreements and for other purposes required by law. The investment securities portfolio is segregated into securities available for sale and securities held to maturity.
 
Securities available for sale are carried at estimated fair value. The amortized cost and approximate fair values of available for sale and held to maturity securities at December 31, 2003 and 2002 were as follows:

 	  	Available for Sale
	  	Held to Maturity
	
In Thousands
	  	Amortized
Cost
	  	Unrealized
Gains
	  	Unrealized
Losses
	 	 	Fair Value
	  	Amortized
Cost
	  	Unrealized
Gains
	  	Unrealized
Losses
	 	  	Fair
Value
	
As of December 31, 2003	  	 	 	  	 	  	 	 	 	 	  	 	  	 	  	 	 	  	 	
U.S. Treasury	  	$	36,408	  	173	  	(3	)	 	36,578	  	—  	  	—  	  	—  	 	  	—  	
U.S. government agencies and corporations	  	 	926,264	  	3,071	  	(4,740	)	 	924,595	  	427,677	  	2,784	  	(7,495	)	  	422,966	
Mortgage-backed securities	  	 	3,902,534	  	36,765	  	(19,653	)	 	3,919,646	  	756,091	  	5,818	  	(23,563	)	  	738,347	
States and political subdivisions	  	 	48,375	  	2,054	  	(104	)	 	50,325	  	45,706	  	1,474	  	—  	 	  	47,180	
Debt and equity securities	  	 	306,974	  	549	  	(238	)	 	307,285	  	151,097	  	16,570	  	(675	)	  	166,991	
 	  			  		  			 		  		  		  			  		
Total	  	$	5,220,555	  	42,612	  	(24,738	)	 	5,238,429	  	1,380,571	  	26,646	  	(31,733	)	  	1,375,484	

As of December 31, 2002	  	 	 	  	 	  	 	 	 	 	  	 	  	 	  	 	 	  	 	
U.S. Treasury	  	$	35,724	  	781	  	—  	 	 	36,505	  	—  	  	—  	  	—  	 	  	—  	
U.S. government agencies and corporations	  	 	860,005	  	28,276	  	(500	)	 	887,781	  	397,693	  	11,601	  	—  	 	  	409,294	
Mortgage-backed securities	  	 	3,422,244	  	53,345	  	(1,071	)	 	3,474,518	  	307,096	  	3,361	  	(25	)	  	310,432	
States and political subdivisions	  	 	61,317	  	3,050	  	(16	)	 	64,351	  	56,012	  	2,202	  	—  	 	  	58,214	
Debt and equity securities	  	 	314,026	  	386	  	(558	)	 	313,854	  	164,851	  	13,433	  	(2,930	)	  	175,354	
 	  			  		  			 		  		  		  			  		
Total	  	$	4,693,316	  	85,838	  	(2,145	)	 	4,777,009	  	925,652	  	30,597	  	(2,955	)	  	953,294	

Gross gains realized on sales of securities available for sale totaled $14 million, $12 million and $7 million, respectively, for 2003, 2002 and 2001, and gross losses totaled $10 million, $60,000 and $110,000, respectively, for 2003, 2002 and 2001.
 
Equity securities include the Subsidiary Banks’ required investment in stock of the FRB and the Federal Home Loan Bank (the “FHLB”) which totaled $189 million at December 31, 2003 and $195 million at December 31, 2002. No ready market exists for these stocks and they have no quoted market value. However, redemption has historically been at par value. Accordingly, the carrying amounts were deemed to be a reasonable estimate of fair value.
 
Following is a maturity schedule of securities available for sale and held to maturity at December 31, 2003:

 	  	Available for Sale
	  	Held to Maturity
	
In Thousands
	  	Amortized
Cost
	  	Fair
Value
	  	Amortized
Cost
	  	Fair
Value
	
Within 1 year	  	$	25,856	  	25,996	  	3,353	  	3,414	
After 1 but within 5 years	  	 	215,140	  	218,134	  	201,981	  	204,826	
After 5 but within 10 years	  	 	764,495	  	761,635	  	267,563	  	261,386	
After 10 years	  	 	5,556	  	5,733	  	486	  	520	
 	  			  		  		  		
Subtotal	  	 	1,011,047	  	1,011,498	  	473,383	  	470,146	
Mortgage-backed securities	  	 	3,902,534	  	3,919,646	  	756,091	  	738,347	
Debt and equity securities	  	 	306,974	  	307,285	  	151,097	  	166,991	
 	  			  		  		  		
Total securities available for sale	  	$	5,220,555	  	5,238,429	  	1,380,571	  	1,375,484	

9

Unrealized gains and losses on certain investments in debt and equity securities included in other comprehensive income (loss) for the years ended December 31, 2003, 2002 and 2001 follows:

 	  	2003
	 	 	2002
	 	 	2001
	 	
In Thousands
	  	Before
tax
amount
	 	 	Tax
(expense)
benefit
	  	Net
of tax
amount
	 	 	Before
tax
amount
	 	 	Tax
(expense)
benefit
	 	 	Net
of tax
amount
	 	 	Before
tax
amount
	 	 	Tax
(expense)
benefit
	  	Net
of tax
amount
	 	
Unrealized gains (losses) on securities:	  	 	 	 	 	 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	  	 	 	
Unrealized gains (losses) arising during holding period	  	$	(61,729	)	 	24,373	  	(37,356	)	 	73,509	 	 	(28,658	)	 	44,851	 	 	(8,632	)	 	2,596	  	(6,036	)	
Reclassification adjustment for losses (gains) realized in net income	  	 	(3,750	)	 	1,481	  	(2,269	)	 	(11,502	)	 	4,543	 	 	(6,959	)	 	(6,635	)	 	2,621	  	(4,014	)	
 	  				 		  			 			 			 			 			 		  			
Other comprehensive income (loss)	  	$	(65,479	)	 	25,854	  	(39,625	)	 	62,007	 	 	(24,115	)	 	37,892	 	 	(15,267	)	 	5,217	  	(10,050	)	

Securities in an Unrealized Loss Position The tables below provide a summary of investment securities, both available for sale and held to maturity, with unrealized losses at December 31, 2003. Less than 2 percent of the unrealized loss was comprised of securities in a loss position for twelve consecutive months or more. All of the securities with losses for twelve months or more are the obligations of regional banks and the majority are floating-rate securities with coupons that reset every three months at a spread above three-month LIBOR. NCF has the ability and intent to hold these securities until such time as the value recovers or the securities mature. NCF believes the unrealized losses of these securities are not permanent. The majority of the deterioration in value is attributable to changes in market interest rates, especially short-term interest rates such as three-month LIBOR.

 	  	Less than 12 Months
	  	12 Months or Longer
	  	Total
	
In Thousands
	  	Fair Value
	  	Unrealized
Losses
	  	Fair Value
	  	Unrealized
Losses
	  	Fair Value
	  	Unrealized
Losses
	
Securities Available for Sale	  	 	 	  	 	  	 	  	 	  	 	  	 	
U.S. Treasury	  	$	2,106	  	3	  	—  	  	—  	  	2,106	  	3	
U.S. government agencies and corporations	  	 	437,570	  	4,740	  	—  	  	—  	  	437,570	  	4,740	
Mortgage-backed securities	  	 	1,161,537	  	19,653	  	—  	  	—  	  	1,161,537	  	19,653	
States and political subdivisions	  	 	2,511	  	104	  	—  	  	—  	  	2,511	  	104	
Debt and equity securities	  	 	—  	  	—  	  	7,876	  	238	  	7,876	  	238	
 	  			  		  		  		  		  		
Total	  	$	1,603,724	  	24,500	  	7,876	  	238	  	1,611,600	  	24,738	
 	  			  		  		  		  		  		
Securities Held to Maturity	  	 	 	  	 	  	 	  	 	  	 	  	 	
U.S. government agencies and corporations	  	$	247,677	  	7,495	  	—  	  	—  	  	247,677	  	7,495	
Mortgage-backed securities	  	 	575,556	  	23,564	  	—  	  	—  	  	575,556	  	23,564	
Debt and equity securities	  	 	5,345	  	186	  	9,219	  	488	  	14,564	  	674	
 	  			  		  		  		  		  		
Total	  	$	828,578	  	31,245	  	9,219	  	488	  	837,797	  	31,733	

(4) L OANS
 
The Subsidiary Banks do not engage in highly leveraged transactions or foreign lending activities. The loan portfolios are diversified and there are no significant concentrations of credit risk. Management internally classifies the loan portfolio by the purpose of the borrowing and such classification is presented below as of December 31, 2003 and 2002. This classification basis places the emphasis on the source of repayment rather than the collateral source, which is the basis for the regulatory classification.

In Thousands
	  	2003
	  	2002
	
Consumer, net of unearned	  	$	4,342,695	  	3,933,482	
Commercial, net of unearned	  	 	3,820,585	  	3,329,451	
Construction and miscellaneous real estate	  	 	3,723,336	  	3,655,671	
Credit cards	  	 	14,884	  	10,203	
Check protection	  	 	69,650	  	64,260	
Mortgage	  	 	933,057	  	1,368,564	
Mortgage held for sale	  	 	215,132	  	429,762	
Leases receivable, net of unearned	  	 	130,741	  	132,547	
 	  			  		
Total loans	  	$	13,250,080	  	12,923,940	

10

Loans with outstanding balances of $27 million and $9 million were transferred from loans to foreclosed real estate and other repossessed assets, respectively, during 2003. Foreclosed real estate and other repossessed assets are included in “other assets” on the Consolidated Balance Sheets. Following are nonperforming assets as of December 31, 2003 and 2002.

In Thousands
	  	2003
	  	2002
	
Nonaccrual loans	  	$	30,689	  	30,806	
Foreclosed real estate	  	 	28,196	  	25,480	
Other repossessed assets	  	 	4,638	  	9,285	
 	  			  		
Total nonperforming assets	  	$	63,523	  	65,571	

The following is an analysis of interest income related to loans on nonaccrual status for the years ended December 31, 2003, 2002 and 2001:

In Thousands
	  	2003
	  	2002
	  	2001
	
Interest income that would have been recognized if the loans had been current at original contractual rates	  	$	2,114	  	1,810	  	1,481	
Amount recognized as interest income	  	 	953	  	483	  	619	
 	  			  		  		
Difference	  	$	1,161	  	1,327	  	862	

Substantially all loans are made on a secured basis. At December 31, 2003, impaired loans totaled $40 million, of which $21 million were on nonaccrual status, and their related allowance for loan losses totaled $13 million. The average carrying value of impaired loans was $45 million during 2003 and gross interest income recognized on impaired loans totaled $3 million. At December 31, 2002, impaired loans totaled $50 million, of which $21 million were on nonaccrual status, and their related allowance for loan losses totaled $20 million. The average carrying value of impaired loans was $46 million during 2002 and gross interest income recognized on impaired loans totaled $2 million.
 
During 2003 and 2002, the Subsidiary Banks had loan and deposit relationships with NCF’s executive officers and directors and their associates. In the opinion of management, these loans do not involve more than the normal risk of collectibility and are made on terms comparable to those of other borrowers. Following is an analysis of these borrowings for the year ended December 31, 2003 (in thousands):

 	  	Beginning
of Year
	  	New
Loans
	  	Repayments
	 	 	Other
Changes
	 	 	End of
Year
	
Directors, executive officers and associates	  	$	117,820	  	23,039	  	(44,337	)	 	(500	)	 	$	96,022	
 
(5) A LLOWANCE FOR L OAN L OSSES
 
Following is a summary of the allowance for loan losses for the years ended December 31, 2003, 2002 and 2001:

In Thousands
	  	2003
	 	 	2002
	 	 	2001
	 	
Balance at beginning of year	  	$	163,424	 	 	156,401	 	 	143,614	 	
Provision charged to operations	  	 	48,414	 	 	32,344	 	 	29,199	 	
Change from acquisitions (sales)	  	 	(582	)	 	6,189	 	 	7,850	 	
Recoveries of loans previously charged-off	  	 	6,815	 	 	6,008	 	 	7,375	 	
Loan losses charged to allowance	  	 	(47,619	)	 	(37,518	)	 	(31,637	)	
 	  				 			 			
Balance at end of year	  	$	170,452	 	 	163,424	 	 	156,401	 	

(6) MORTGAGE BANKING
 
Loans held for sale had a carrying value of $215 million and $430 million at December 31, 2003 and 2002, respectively. Loans serviced for the benefit of others totaled $2 billion and $1.1 billion at December 31, 2003 and 2002, respectively. NCF retains certain servicing rights on loans sold to investors. At December 31, 2003, the book value of the mortgage servicing rights was $19 million, which approximates the fair value. The following is a summary of NCF’s mortgage servicing rights, net of accumulated amortization and valuation allowance, included in other assets on the Consolidated Balance Sheets:

In Thousands
	  	2003
	 	 	2002
	 	 	2001
	 	
Balance at beginning of year	  	$	11,240	 	 	6,523	 	 	7,688	 	
Amount capitalized or purchased	  	 	22,750	 	 	10,471	 	 	920	 	
Amortization expense	  	 	(7,150	)	 	(2,544	)	 	(2,085	)	
Sales	  	 	(7,605	)	 	(3,210	)	 	—  	 	
 	  				 			 			
Subtotal	  	 	19,235	 	 	11,240	 	 	6,523	 	
Valuation allowance	  	 	(700	)	 	—  	 	 	—  	 	
 	  				 			 			
Balance at end of year	  	$	18,535	 	 	11,240	 	 	6,523	 	

11

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 primarily 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 mortgage servicing rights recorded at the transaction date approximated $5 million. NCF receives annual servicing fees approximating 30 basis points of the outstanding balance and rights to future cash flows arising after the investors in the securitization trust have received the return for which they contracted. The investors and the securitization trust have no recourse to NCF’s other assets for failure of debtors to pay when due. Certain of NCF’s retained interests are subordinate to the investors’ interests. Their value is subject to credit, prepayment and interest rate risks on the transferred mortgage loans. NCF recognized an immaterial loss on the securitization transaction.
 
At the time of the securitization, the retained interests were recorded based on their relative fair values, including a reserve on retained interests subordinate to the investors’ interests. The reserve was established based on management’s evaluation of the size and risk characteristics of the securitized loan portfolio. The reserve is periodically evaluated by management for appropriateness, with consideration given to the balance of problem loans, prior loan loss experience, current economic conditions, value of collateral and other risk factors. As of December 31, 2003, the net carrying value of the non-rated subordinated retained interests was $1 million.
 
The table below summarizes certain cash flows received from and paid to the securitization trust during 2003 (in thousands):

Proceeds from sales of securities issued in securitization	  	$	91,109	
Servicing fees received	  	 	1,315	
Other cash flows received on retained interests	  	 	236,314	
 
Sensitivity analyses were not performed on the retained debt securities or the retained reserve for probable recourse exposure due to their immateriality. The balance remaining at December 31, 2003 of the mortgage servicing rights recorded in connection with the securitization transaction was $3 million and no sensitivity analysis was performed at December 31, 2003 due to its immateriality.
 
As of December 31, 2003, the securitized mortgage loans totaled $389 million of which less than $1 million were greater than 60 days past due. No charge-offs were recorded on the securitized mortgage loans during 2003.
 
NCF’s secondary marketing operations enter into transactions involving forward contracts with off-balance sheet risk in order to reduce exposure to fluctuations in the interest rates of mortgage loans held for sale. All such contracts are for forward commitments to sell conventional, fixed-rate mortgage loans. These financial instruments involve varying degrees of credit and market risk that arise from the possible inability of counterparties to meet the terms of their contracts and from movements in interest rates. Forward contract commitments to sell totaled $264 million at December 31, 2003. These contracts are recorded on the balance sheet at their fair value.
 
(7) D ERIVATIVES AND H EDGING A CTIVITIES
 
NCF utilizes interest rate swap agreements to provide an exchange of interest payments computed on notional amounts that will offset undesirable changes in cash flows or fair value resulting from market rate changes on designated hedged transactions or items thereby helping to manage NCF’s interest rate sensitivity and market risk. Because the notional amount of the instruments only serves as a basis for calculating amounts receivable or payable, the risk of loss with any counterparty is limited to a small fraction of the notional amount. NCF limits the credit risks of these instruments by initiating the transactions with counterparties that have significant financial positions. NCF further limits the risk of loss by subjecting counterparties to credit reviews and approvals. Because of these factors, NCF’s credit risk exposure related to derivative contracts at December 31, 2003 was not material.
 
The following table sets forth certain information concerning NCF’s interest rate swaps at December 31, 2003:

 	  	Notional
Amount
	  	Fair Value
	  	Maturity Date
	  	Date Callable
	
In Thousands
	  		  	Gain
	  	Loss
	  		  		
Derivatives designated as cash flow hedges:	  	 	 	  	 	  	 	  	 	  	 	
Hedging loans	  	$	75,000	  	—  	  	2,873	  	June 2009	  	—  	
Hedging loans	  	 	75,000	  	—  	  	3,220	  	July 2009	  	—  	
Hedging loans	  	 	50,000	  	—  	  	1,407	  	July 2008	  	—  	
Hedging loans	  	 	100,000	  	—  	  	861	  	August 2008	  	—  	
Derivatives designated as fair value hedges:	  	 	 	  	 	  	 	  	 	  	 	
Hedging long-term debt	  	 	200,000	  	16,740	  	—  	  	December 2031	  	December 2006	
Hedging deposits	  	 	25,000	  	—  	  	1	  	June 2009	  	June 2004	
 	  			  		  		  	 	  	 	
Total	  	$	525,000	  	16,740	  	8,362	  	 	  	 	

12

(8) P REMISES AND E QUIPMENT
 
Following is a summary of premises and equipment at December 31, 2003 and 2002:

In Thousands
	  	Average life
(years)
	  	2003
	 	 	2002
	 	
Land	  	—  	  	$	39,070	 	 	40,339	 	
Buildings	  	17.5	  	 	187,068	 	 	173,639	 	
Leasehold improvements	  	7.5	  	 	58,526	 	 	55,718	 	
Furniture and equipment	  	7.5	  	 	258,477	 	 	239,659	 	
 	  	 	  				 			
Gross premises and equipment	  	 	  	 	543,141	 	 	509,355	 	
Less: accumulated depreciation and amortization	  	 	  	 	(276,740	)	 	(251,679	)	
 	  	 	  				 			
Total premises and equipment	  	 	  	$	266,401	 	 	257,676	 	

(9) INTANGIBLES
 
The changes in the carrying amount of goodwill for the years ended December 31, 2003 and 2002 are presented in the following table. The goodwill adjustments recorded in 2003 related to settlement of a contingent purchase price payment related to a 2002 acquisition.

In Thousands
	  	Traditional
Banking
	  	Financial
Enterprises
	  	Total
	
Balance as of January 1, 2002	  	$	911,185	  	34,972	  	946,157	
Other goodwill adjustments	  	 	927	  	—  	  	927	
Goodwill acquired during the year	  	 	130,034	  	—  	  	130,034	
 	  			  		  		
Balance as of December 31, 2002	  	 	1,042,146	  	34,972	  	1,077,118	
Other goodwill adjustments	  	 	6,039	  	—  	  	6,039	
Goodwill acquired during the year	  	 	2,408	  	—  	  	2,408	
 	  			  		  		
Balance as of December 31, 2003	  	$	1,050,593	  	34,972	  	1,085,565	

Core deposit intangibles are amortized over a period of up to 10 years using an accelerated method. During 2003, core deposit intangibles were reduced by $3 million in connection with deposits sold in branch sales. Following is an analysis of core deposit intangibles:

 	  	Year ended
December 31, 2003
	 	 	Year ended
December 31, 2002
	 	
In Thousands
	  	Gross
Carrying
Amount
	  	Accumulated
Amortization
	 	 	Gross
Carrying
Amount
	  	Accumulated
Amortization
	 	
Core deposit intangibles	  	$	402,225	  	(229,567	)	 	405,127	  	(168,211	)	
					
Aggregate amortization expense for the period	  	 	61,356	  	 	 	 	69,930	  	 	 	
					
Estimated amortization expense for the years ended December 31:	  	 	 	  	 	 	 	 	  	 	 	
2004	  	 	50,942	  	 	 	 	 	  	 	 	
2005	  	 	41,355	  	 	 	 	 	  	 	 	
2006	  	 	32,075	  	 	 	 	 	  	 	 	
2007	  	 	23,173	  	 	 	 	 	  	 	 	
2008	  	 	14,539	  	 	 	 	 	  	 	 	

13

The following is a reconciliation of the reported net income for the years ended December 31, 2003, 2002 and 2001:

 	  	Years Ended December 31
	
In Thousands Except Per Share Data
	  	2003
	  	2002
	  	2001
	
Net income:	  	 	 	  	 	  	 	
Reported net income	  	$	311,674	  	323,610	  	225,296	
Add: goodwill amortization	  	 	—  	  	—  	  	48,240	
 	  			  		  		
Adjusted net income	  	$	311,674	  	323,610	  	273,536	
 	  			  		  		
Basic EPS:	  	 	 	  	 	  	 	
Reported net income	  	$	1.52	  	1.57	  	1.10	
Add: goodwill amortization	  	 	—  	  	—  	  	.24	
 	  			  		  		
Adjusted net income	  	$	1.52	  	1.57	  	1.34	
 	  			  		  		
Diluted EPS:	  	 	 	  	 	  	 	
Reported net income	  	$	1.51	  	1.55	  	1.09	
Add: goodwill amortization	  	 	—  	  	—  	  	.23	
 	  			  		  		
Adjusted net income	  	$	1.51	  	1.55	  	1.32	

(10) T IME D EPOSITS
 
Interest on jumbo time deposits totaled $27 million, $34 million and $77 million in 2003, 2002 and 2001, respectively. Maturities of time deposits for each of the years ending December 31 are as follows:

In Thousands
	  	Total
Maturities
	
2004	  	$	5,490,417	
2005	  	 	906,820	
2006	  	 	320,778	
2007	  	 	323,744	
2008 and thereafter	  	 	27,800	
 	  			
Total	  	$	7,069,559	

(11) B ORROWINGS
 
At December 31, 2003, NCF (Parent Company) had available $50 million in an unsecured line of credit with a commercial bank which would bear interest at a rate tied to LIBOR. No draws were outstanding as of December 31, 2003 or at any time during 2003. The line expires on December 31, 2004.
 
Short-term Borrowed Funds Following is an analysis of short-term borrowed funds at December 31, 2003 and 2002:

 	  	End of Period
	 	 	Daily Average
	  	Maximum
Outstanding
At Any
Month End
	
In Thousands
	  	Balance
	  	Interest
Rate
	 	 	Balance
	  	Interest
Rate
	  		
2003:	  	 	 	  	 	 	 	 	  	 	  	 	
Federal funds purchased	  	$	880,090	  	1.01	%	 	674,448	  	1.13	  	880,090	
Treasury tax and loan depository note account and other short-term borrowed funds	  	 	12,565	  	.79	 	 	7,836	  	.68	  	12,565	
Securities sold under agreements to repurchase and master notes	  	 	779,253	  	1.14	 	 	802,126	  	1.31	  	929,205	
 	  			  	 	 	 		  	 	  	 	
Total	  	$	1,671,908	  	 	 	 	1,484,410	  	 	  	 	
 	  			  	 	 	 		  	 	  	 	
2002:	  	 	 	  	 	 	 	 	  	 	  	 	
Federal funds purchased	  	$	697,486	  	1.26	%	 	433,290	  	1.69	  	697,486	
Treasury tax and loan depository note account and other short-term borrowed funds	  	 	12,866	  	2.00	 	 	9,834	  	1.51	  	12,866	
Securities sold under agreements to repurchase and master notes	  	 	742,412	  	1.49	 	 	663,332	  	1.56	  	742,935	
 	  			  	 	 	 		  	 	  	 	
Total	  	$	1,452,764	  	 	 	 	1,106,456	  	 	  	 	

14

Interest on federal funds purchased totaled $8 million in 2003 and $7 million in 2002. The treasury tax and loan depository note account is payable on demand and is collateralized by various investment securities with amortized costs and fair values of $29 million at December 31, 2003. Interest on borrowings under this arrangement is payable at .25 percent below the weekly federal funds rate as quoted by the Federal Reserve. Master note borrowings are unsecured obligations of NCF that mature daily. Securities sold under agreements to repurchase are collateralized by U.S. Treasury and U.S. government agency and corporation securities with carrying values of $639 million and fair values of $654 million at December 31, 2003. Interest expense on securities sold under agreements to repurchase totaled $11 million in 2003 and $10 million in 2002.
 
FHLB Advances FHLB advances bear interest at fixed and variable rates. The FHLB advances are collateralized by mortgage-related securities and by liens on first mortgage loans with carrying values totaling $3.8 billion at December 31, 2003. During 2003, the Subsidiary Banks prepaid approximately $658 million of fixed-rate FHLB advances and incurred early debt retirement/termination penalties of $32 million. The terminated advances were replaced with short-term borrowings. The Subsidiary Banks have the capacity to borrow additional advances from the FHLB of up to 50 percent of total assets, subject to available collateral and level of FHLB stock ownership.
 
Maturities of FHLB allowances for each of the years ending December 31 are as follows:

In Thousands
	  	Range of
Rates
	  	Total
Maturities
	
2004	  	.94% to 7.65%	  	$	1,237,847	
2005	  	1.82% to 5.68%	  	 	2,463	
2006	  	4.44% to 7.00%	  	 	25,404	
2007	  	5.94% to 7.00%	  	 	533	
2008	  	2.00% to 5.94%	  	 	204,540	
Thereafter	  	2.17% to 6.39%	  	 	830,404	
 	  		  			
Total	  	.94% to 7.65%	  	$	2,301,191	

Trust Preferred Securities and Long-term Debt Following is a summary of trust preferred securities and long-term debt at December 31, 2003 and 2002:

In Thousands
	  	2003
	  	2002
	
Subordinated debentures to unconsolidated business trusts	  	$	240,208	  	—  	
Trust preferred securities	  	 	—  	  	239,009	
6.75 percent subordinated notes	  	 	—  	  	32,993	
Term notes and other long-term debt	  	 	37,788	  	24,705	
 	  			  		
Total long-term debt	  	$	277,996	  	296,707	

The Parent Company created two statutory business trusts (the “Trusts”) which each issued a series of trust preferred securities (“TRUPS”). Prior to October 1, 2003, the accounts of the Trusts were included in NCF’s consolidated financial statements. On October 1, 2003, NCF adopted the provisions of FIN 46 and related revised interpretations and deconsolidated the Trusts from its financial statements. The deconsolidation of the net assets and results of operations of the trusts had virtually no impact on NCF’s financial statements or liquidity position since NCF continues to be obligated to repay the debentures held by the Trusts. The principal assets of the Trusts are $240 million of the Parent Company’s subordinated debentures with identical rates of interest and maturities as the TRUPS. The subordinated debentures are unsecured and are effectively subordinated to all existing and future liabilities of NCF. NCF has the right, at any time, so long as no event of default has occurred, to defer payments of interest on either issue for a period not to exceed 20 consecutive quarters. NCF has fully and unconditionally guaranteed payment of amounts due under the trust preferred securities on a subordinated basis and only to the extent the related Trusts have funds available for payment of those amounts. The TRUPS continue to qualify as Tier 1 capital under the risk-based capital guidelines established by the Federal Reserve Board.
 
In 1997, National Commerce Capital Trust I (“Trust I”) sold $50 million of floating rate TRUPS bearing interest at a variable annual rate equal to LIBOR plus .98 percent (2.14 percent and 2.79 percent at December 31, 2003 and 2002) due April 1, 2027 but redeemable in whole or in part any time on or after December 31, 2006. In 2001, National Commerce Capital Trust II (“Trust II”) sold $200 million of 7.70 percent TRUPS due December 15, 2031. The Trust II TRUPS may be redeemed in whole or in part at any time on or after December 31, 2006. When the Trust II TRUPS were issued, NCF entered into an interest rate swap that converts the Trust II TRUPS’ fixed-rate to a variable-rate tied to three-month LIBOR plus .83 percent (1.99 percent at December 31, 2003).
 
The trust preferred securities issued by the Trusts qualify as Tier 1 capital under Federal Reserve Board guidelines. As a result of the issuance of FIN 46, the Federal Reserve Board is currently evaluating whether deconsolidation of the Trusts will affect the qualification of the trust preferred securities as Tier 1 capital.
 
15

NCF’s unsecured 6.75 percent subordinated notes, which matured on December 1, 2003, paid interest semi-annually. Interest on the subordinated notes totaled $2 million in 2003 and 2002.
 
Unsecured term notes totaling $6 million bear interest payable quarterly at a variable rate repriced every three years. The term notes next reprice in 2006. At December 31, 2003, the average rate was 5.15 percent. The notes mature in 2007. Interest on the term notes totaled $328,000 in 2003 and $363,000 in 2002. Other long-term debt includes $30 million of preferred stock issued by a subsidiary with varying dividend rates ranging up to 4.50 percent at December 31, 2003.
 
(12) E MPLOYEE B ENEFITS
 
Benefit Plans NCF has a defined contribution employee benefit plan (the “401(k) plan”) covering substantially all employees with six months’ service. Under this plan, employee contributions are partially matched by NCF.
 
NCF has a noncontributory, qualified defined benefit pension plan covering substantially all full-time employees. The pension plan makes provisions for early and delayed retirement as well as normal retirement and provides participants with retirement benefits based on credited years of service. Contributions to the pension plan are funded as allowable for federal income tax purposes.
 
NCF sponsors a postretirement benefit plan that provides postretirement healthcare and life insurance benefits. The plan is contributory and contains other cost-sharing features such as deductibles and coinsurance. NCF’s policy to fund the cost of medical benefits to employees varies by age and service at retirement. Benefits are provided through a self-insured plan administered by an insurance company.
 
In December 2003, President Bush signed into law a bill that expands Medicare benefits, primarily adding a prescription drug benefit for Medicare-eligible retirees beginning in 2006. The law also provides a federal subsidy to companies which sponsor postretirement benefit plans the provide prescription drug coverage. FASB Staff Position 106-1, Accounting and Disclosure Requirements Related to the Medicare Prescription Drug, Improvement and Modernization Act of 2003, permits deferring the recognition of the new Medicare provisions’ impact due to lack of specific authoritative guidance on accounting for the federal subsidy. NCF has elected to defer accounting for the effects of this new legislation until the specific authoritative guidance is issued. Accordingly, the postretirement obligations and net periodic costs reported in the accompanying financial statements and notes do not reflect the impact of this legislation. The accounting guidance, when issued, could require changes to previously reported financial information. NCF anticipates its benefit costs after 2006 will be somewhat lower as a result of the new Medicare provisions; however, the adoption of this standard is not expected to have a material impact on results of operations, financial position or liquidity.
 
NCF also has established a noncontributory, nonqualified defined benefit pension plan (the “SERP”) covering highly compensated employees that provide benefits that cannot be paid from a qualified retirement plan due to Internal Revenue Code restrictions. Assets used to fund benefit payments are in a grantor trust included in NCF’s other assets; therefore, in general, a participant’s or beneficiary’s claim to benefits under these plans is a as a general creditor. NCF’s funding policy is to contribute, on an ad hoc discretionary basis, an amount sufficient for grantor trust assets to equal the SERP’s accumulated benefit obligation. 
 
In 2004, NCF expects to contribute an amount equal to the stated NCF match for the 401(k) plan; the minimum required under ERISA to the pension plan; an amount equal to the postretirement benefit payments made in 2004, net of employee contributions, to the postretirement benefit plan; and $685,000 to SERP grantor trust.
 
For disclosure purposes, the postretirement and SERP information have been combined and are presented as “Other Benefits.” The table below discloses information relating to the obligations and plan assets of NCF’s benefit plans:
 
16

														
 	  	Pension Benefits
	 	 	Other Benefits
	 	
In Thousands
	  	2003
	 	 	2002
	 	 	2003
	 	 	2002
	 	
Change in benefit obligation	  	 	 	 	 	 	 	 	 	 	 	 	 	
Benefit obligation at beginning of year	  	$	133,973	 	 	131,274	 	 	22,155	 	 	18,840	 	
Service cost	  	 	5,867	 	 	5,117	 	 	363	 	 	270	 	
Interest cost	  	 	8,691	 	 	8,678	 	 	1,609	 	 	1,438	 	
Actuarial loss	  	 	8,873	 	 	1,172	 	 	4,917	 	 	4,377	 	
Benefits paid	  	 	(13,552	)	 	(12,268	)	 	(3,097	)	 	(2,065	)	
Plan amendment	  	 	1,408	 	 	—  	 	 	500	 	 	—  	 	
FAS 88 curtailment adjustment	  	 	—  	 	 	—  	 	 	—  	 	 	(705	)	
 	  				 			 			 			
Benefit obligation at end of year	  	 	145,260	 	 	133,973	 	 	26,447	 	 	22,155	 	
 	  				 			 			 			
Change in fair value of plan assets	  	 	 	 	 	 	 	 	 	 	 	 	 	
Fair value of plan assets at beginning of year	  	 	135,563	 	 	135,569	 	 	—  	 	 	—  	 	
Actuarial return on plan assets	  	 	26,495	 	 	(1,638	)	 	—  	 	 	—  	 	
Employer contribution	  	 	15,000	 	 	13,900	 	 	3,097	 	 	2,065	 	
Benefits paid	  	 	(13,552	)	 	(12,268	)	 	(3,097	)	 	(2,065	)	
 	  				 			 			 			
Fair value of plan assets at end of year	  	 	163,506	 	 	135,563	 	 	—  	 	 	—  	 	
 	  				 			 			 			
Funded status	  	 	18,246	 	 	1,590	 	 	(26,447	)	 	(22,155	)	
Unrecognized net loss	  	 	24,024	 	 	32,647	 	 	11,677	 	 	7,893	 	
Unrecognized prior service cost	  	 	1,882	 	 	368	 	 	1	 	 	(489	)	
Unrecognized transition obligation	  	 	—  	 	 	—  	 	 	182	 	 	203	 	
 	  				 			 			 			
Net amount recognized	  	$	44,152	 	 	34,605	 	 	(14,587	)	 	(14,548	)	
 	  				 			 			 			
Amounts recognized in the statement of financial position consist of:	  	 	 	 	 	 	 	 	 	 	 	 	 	
Prepaid (accrued) benefit cost	  	$	44,152	 	 	34,605	 	 	(17,075	)	 	(15,785	)	
Intangible assets	  	 	—  	 	 	—  	 	 	1,062	 	 	689	 	
Accumulated other comprehensive income	  	 	—  	 	 	—  	 	 	1,426	 	 	548	 	
 	  				 			 			 			
Net amount recognized	  	$	44,152	 	 	34,605	 	 	(14,587	)	 	(14,548	)	
 	  				 			 			 			
Accumulated benefit obligation	  	$	132,578	 	 	118,332	 	 	8,203	 	 	7,212	 	
 	  				 			 			 			
Additional information	  	 	 	 	 	 	 	 	 	 	 	 	 	
Adjustments to minimum liability included in other comprehensive income	  	$	—  	 	 	—  	 	 	(742	)	 	98	 	
 	  				 			 			 			
Weighted average assumptions at December 31 used to determine benefit obligation	  	 	 	 	 	 	 	 	 	 	 	 	 	
Discount rate	  	 	6.00	%	 	6.75	 	 	6.00	 	 	6.75	 	
Rate of compensation increase	  	 	3.50	 	 	3.50	 	 	N/A	 	 	N/A	 	

NCF determines the pension plan’s return on asset actuarial assumption by reviewing the long-term historical returns of each asset category comprising the plan’s target asset allocation. This review produces an annual return assumption ranging from 5 percent to 13.5 percent for each asset category. The product of the annual return assumption and the plan’s target asset allocation percentage for each asset category equals the annual return attribution by asset category. The pension plan’s equity securities include shares of NCF common stock with fair values of $15 million (9.0 percent of total plan assets) and $13 million (9.5 percent of total plan assets) at December 31, 2003 and 2002, respectively.
 
The investment objective for the NCF pension plan is to maximize total return with exposure to reasonable and prudent risk. Investment managers have flexibility with respect to investment decisions and timing within a range assigned by the plan’s investment policy for each asset class under management.
 
17

								
 	  	Target
Allocation
	 	 	Actual Allocation
	
 	  			 	2003
	  	2002
	
Weighted-average asset allocations for pension plan at December 31 by asset category	  	 	 	 	 	  	 	
Equity securities	  	52.50	%	 	59.19	  	47.97	
Debt securities	  	15.00	 	 	13.56	  	36.22	
Real estate	  	5.00	 	 	3.88	  	4.46	
Other	  	27.50	 	 	23.37	  	11.35	
 	  			 		  		
Total	  	100.00	%	 	100.00	  	100.00	

The following table discloses the components of the net periodic benefit costs and the assumptions used in computing those costs for the years ended December 31, 2003, 2002 and 2001:

In Thousands
	  	2003
	 	 	2002
	 	 	2001
	 	
Components of Net Periodic Benefit Cost – Pension:	  	 	 	 	 	 	 	 	 	 	
Service cost	  	$	5,867	 	 	5,117	 	 	4,751	 	
Interest cost	  	 	8,691	 	 	8,678	 	 	8,746	 	
Expected return on plan assets	  	 	(11,257	)	 	(12,326	)	 	(13,974	)	
Transition obligation/(asset) amortization	  	 	—  	 	 	(1	)	 	(10	)	
Amortization of prior service cost	  	 	(105	)	 	(270	)	 	(373	)	
Amortization of net (gain) loss	  	 	2,257	 	 	321	 	 	354	 	
 	  				 			 			
Net pension expense (benefit)	  	$	5,453	 	 	1,519	 	 	(506	)	
 	  				 			 			
Components of Net Periodic Benefit Cost - Other Benefit Plans:	  	 	 	 	 	 	 	 	 	 	
Service cost	  	$	363	 	 	270	 	 	1,072	 	
Interest cost	  	 	1,609	 	 	1,438	 	 	1,314	 	
Transition obligation/(asset) amortization	  	 	20	 	 	20	 	 	20	 	
Amortization of prior service cost	  	 	10	 	 	(48	)	 	(4	)	
Amortization of net (gain) loss	  	 	738	 	 	474	 	 	75	 	
FAS 88 curtailment gain	  	 	396	 	 	(509	)	 	(506	)	
 	  				 			 			
Net other benefit plans expense	  	$	3,136	 	 	1,645	 	 	1,971	 	

													
 	  	Pension Benefits
	  	Other Benefits
	 	
 	  	2003
	 	 	2002
	  	2003
	 	 	2002
	 	
Weighted average assumptions at December 31 used to determine net periodic benefit cost	  	 	 	 	 	  	 	 	 	 	 	 	
Discount rate	  	6.75	%	 	7.00	  	 	6.75	 	 	7.00	 	
Expected long-term return on plan assets	  	8.50	 	 	9.50	  	 	N/A	 	 	N/A	 	
Rate of compensation increase	  	3.50	 	 	3.50	  	 	N/A	 	 	N/A	 	
					
 	  	 	 	 	 	  	2003
	 	 	2002
	 	
Assumed health care cost trend rates at December 31	  	 	 	 	 	  	 	 	 	 	 	 	
Health care cost trend rate assumed for next year	  	 	 	 	 	  	 	9.00	%	 	9.00	 	
Rate to which the cost trend rate is assumed to decline (the ultimate trend rate)	  	 	 	 	 	  	 	5.00	 	 	5.00	 	
Year that the rate reaches the ultimate trend rate	  	 	 	 	 	  	 	2011	 	 	2010	 	

In Thousands
	  	 	 	 	 	  	Increase
	 	 	Decrease
	 	
Change in health care cost trend rate by 1 percent	  	 	 	 	 	  	 	 	 	 	 	 	
Effect on total of service and interest cost	  	 	 	 	 	  	$	60	 	 	(52	)	
Effect on postretirement benefit obligation	  	 	 	 	 	  	 	1,055	 	 	(918	)	

18

Stock Options and Restricted Stock NCF has stock incentive plans under which stock options and restricted stock may be granted periodically to certain employees. The options are granted at an exercise price equal to the fair value of the underlying shares at the date of grant; they generally vest within three years following the date of grant and have a term of ten years. As of December 31, 2003, 9,476,000 shares are authorized and available for grant. NCF continued in effect nonstatutory and incentive stock option plans existing at the date of merger with acquired financial institutions. The stock options under these plans were granted to directors and certain officers of the respective financial institutions and entitled them to purchase shares of common stock at an exercise price equal to the fair market value of the stock on the date of grant. The options granted under these plans were exercisable for periods of up to ten years with varying vesting provisions. All options outstanding at the time of the respective mergers were converted into options to acquire NCF common stock. No further awards may be granted under these plans.
 
NCF instituted the Share NCF program to encourage stock ownership by its employees. Eligible employees who purchase NCF shares through NCF’s discount brokerage subsidiary are awarded for each share purchased two options which have an exercise price equal to the purchase price of the qualifying shares. The options are cancelled if the employee does not remain in NCF’s employ over the vesting period. For Share NCF options issued prior to August 1, 2001, the options vest after two years if the employee has held the purchased shares for the two-year period after purchase. For Share NCF options issued after August 1, 2001, the options vest after two years if the employee has held the purchased shares for the two-year period after purchase or vest after six years if the purchased shares were not held for the two-year period after purchase. As of December 31, 2003, approximately 360 employees were participating in the Share NCF program. NCF accounts for Share NCF options issued prior to August 1, 2001 as variable options, and, accordingly, recognizes compensation expense ratably over the vesting period based on differences in the options’ exercise price and the market price of NCF stock on the reporting date. Compensation expense recognized in 2003 related to the variable options was immaterial as the variable options were fully vested by June 2003. For the years ended December 31, 2002 and 2001, NCF recorded compensation expense of $251,000, and $348,000, respectively.
 
During 2000, the terms of approximately 600,000 stock options were modified; as a result, NCF accounts for these option grants as variable grants. During 2003, 2002 and 2001, compensation expense of $185,000, $342,000 and $1 million, respectively, was recorded related to these options.
 
A summary of stock option activity and related information for the years ended December 31, 2003, 2002 and 2001 follows:

 	  	Outstanding
	  	Exercisable
	
 	  	Option Shares
	 	 	Weighted Average
Exercise Price
	  	Option Shares
	  	Weighted Average
Exercise Price
	
At January 1, 2001	  	10,670,207	 	 	$	14.45	  	 	  	 	 	
Granted	  	2,322,079	 	 	 	24.64	  	 	  	 	 	
Assumed under acquisitions	  	625,637	 	 	 	15.38	  	 	  	 	 	
Exercised	  	(1,773,155	)	 	 	10.39	  	 	  	 	 	
Forfeited	  	(179,716	)	 	 	21.07	  	 	  	 	 	
 	  			 			  	 	  	 	 	
At December 31, 2001	  	11,665,052	 	 	 	17.26	  	7,676,218	  	$	15.38	
 	  	 	 	 	 	 	  		  			
Granted	  	2,970,795	 	 	 	25.82	  	 	  	 	 	
Exercised	  	(2,324,192	)	 	 	12.91	  	 	  	 	 	
Forfeited	  	(436,617	)	 	 	22.27	  	 	  	 	 	
 	  			 			  		  			
At December 31, 2002	  	11,875,038	 	 	 	19.94	  	7,175,003	  	$	17.38	
 	  	 	 	 	 	 	  		  			
Granted	  	3,241,996	 	 	 	24.31	  	 	  	 	 	
Exercised	  	(1,691,681	)	 	 	14.03	  	 	  	 	 	
Forfeited	  	(356,210	)	 	 	24.73	  	 	  	 	 	
 	  			 			  	 	  	 	 	
At December 31, 2003	  	13,069,143	 	 	$	21.64	  	8,083,897	  	$	19.79	

The following table summarizes information about stock options outstanding at December 31, 2003:

 	  	Options Outstanding
	  	Options Exercisable
	
Range of Exercise Prices
	  	Number of
Options
	  	Weighted
Average
Years
Remaining
	  	Weighted
Average
Exercise
Price
	  	Number of
Options
	  	Weighted
Average
Exercise
Price
	
$5.39 to $16.22	  	2,613,221	  	4.43	  	$	14.08	  	2,613,221	  	$	14.08	
$16.25 to $22.70	  	2,575,313	  	5.48	  	 	19.48	  	2,418,110	  	 	19.40	
$22.71 to $23.94	  	2,779,225	  	7.88	  	 	23.70	  	713,245	  	 	23.07	
$23.95 to $24.75	  	1,821,620	  	6.88	  	 	24.68	  	1,241,213	  	 	24.69	
$24.76 to $29.25	  	3,279,764	  	8.06	  	 	25.93	  	1,098,108	  	 	25.84	
 	  		  		  			  		  			
$5.39 to $29.25	  	13,069,143	  	6.62	  	$	21.64	  	8,083,897	  	$	19.79	

19

NCF employees were awarded 43,943 shares of restricted stock during 2003, 7,565 shares during 2002 and 26,159 shares during 2001. The grants in 2003, 2002 and 2001 were recorded at their fair values of $1 million, $197,000, and $702,000, respectively, on the dates of grant and had weighted average fair values of $24.42, $26.05 and $25.74 per share. During 2003, $1 million of restricted stock award expense was recognized and in 2002 and 2001, $2 million of expense was recognized.
 
(13) S TOCKHOLDERS ’ E QUITY
 
Earnings Per Share The following schedule reconciles the numerators and denominators of the basic and diluted EPS computations for the years ended December 31, 2003, 2002 and 2001. Dilutive common shares arise from the potentially dilutive effect of NCF’s stock options outstanding.

In Thousands Except Per Share Data
	  	2003
	  	2002
	  	2001
	
Basic EPS	  	 	 	  	 	 	  	 	
Average common shares outstanding	  	 	204,864	  	 	205,933	  	204,972	
Net income	  	$	311,674	  	 	323,610	  	225,296	
Earnings per share	  	 	1.52	  	 	1.57	  	1.10	
 	  			  			  		
Diluted EPS	  	 	 	  	 	 	  	 	
Average common shares outstanding	  	 	204,864	  	 	205,933	  	204,972	
Average dilutive common shares	  	 	1,504	  	 	2,211	  	2,512	
 	  			  			  		
Adjusted average common shares outstanding	  	 	206,368	  	 	208,144	  	207,484	
Net income	  	$	311,674	  	$	323,610	  	225,296	
Earnings per share	  	 	1.51	  	 	1.55	  	1.09	

Regulatory Matters NCF and the Subsidiary Banks are subject to risk-based capital guidelines requiring minimum capital levels based on the perceived risk of assets and off-balance sheet instruments. As required by the Federal Deposit Insurance Corporation Improvement Act, the federal bank regulatory agencies have jointly issued rules that implement a system of prompt corrective action for financial institutions. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, there are minimum ratios of capital to risk-weighted assets. The capital amounts and classifications are also subject to qualitative judgments by the regulators about components, risk-weightings and other factors. Failure to meet minimum capital requirements can initiate certain mandatory and possibly discretionary actions by regulators that, if undertaken, could have a material effect on NCF’s consolidated financial statements.
 
Disclosure about the Subsidiary Banks’ capital adequacy are set forth in the table below. Tier I capital consists of common equity and trust preferred securities less goodwill and certain other intangible assets. Tier I excludes the equity impact of adjusting available for sale securities to market value. Total capital is comprised of Tier I and Tier II capital. Tier II capital includes subordinated notes and loan loss allowance, as defined and limited according to regulatory guidelines. Balance sheet assets and the credit equivalent amount of off-balance sheet items per regulatory guidelines are assigned to broad risk categories and a category risk-weight is then applied. Management believes that as of December 31, 2003, NCF and the Subsidiary Banks met all capital adequacy requirements to which they were subject.
 
The risk-based capital and leverage ratios for NCF and NBC as of December 31, 2003 and 2002 are presented below.

 	  	2003
	  	2002
	
In Thousands
	  	NCF
	 	 	NBC
	  	NCF
	  	NBC
	
Tier I capital	  	$	1,761,063	 	 	1,589,752	  	1,563,230	  	1,431,727	
Total capital	  	 	1,931,589	 	 	1,759,840	  	1,726,719	  	1,577,744	
Risk-weighted assets	  	 	15,959,920	 	 	15,809,326	  	14,386,002	  	14,166,962	
Adjusted quarterly average assets	  	 	21,563,817	 	 	21,368,740	  	19,762,400	  	19,270,050	
Risk-based capital ratios:	  	 	 	 	 	 	  	 	  	 	
Tier I capital to risk-weighted assets:	  	 	 	 	 	 	  	 	  	 	
Actual	  	 	11.03	%	 	10.06	  	10.87	  	10.11	
Regulatory minimum	  	 	4.00	 	 	4.00	  	4.00	  	4.00	
Well-capitalized under prompt corrective action provisions	  	 	—  	 	 	6.00	  	—  	  	6.00	
Total capital to risk-weighted assets:	  	 	 	 	 	 	  	 	  	 	
Actual	  	 	12.10	 	 	11.13	  	12.00	  	11.14	
Regulatory minimum	  	 	8.00	 	 	8.00	  	8.00	  	8.00	
Well-capitalized under prompt corrective action provisions	  	 	—  	 	 	10.00	  	—  	  	10.00	
Leverage ratio:	  	 	 	 	 	 	  	 	  	 	
Actual	  	 	8.17	 	 	7.44	  	7.91	  	7.43	
Regulatory minimum	  	 	3.00	 	 	4.00	  	3.00	  	4.00	
Well-capitalized under prompt corrective action provisions	  	 	—  	 	 	5.00	  	—  	  	5.00	
 
20

As of their most recent regulatory examination date, the Subsidiary Banks were categorized as well-capitalized. No conditions or events have occurred since December 31, 2003 that would change the capital categorizations presented as of December 31, 2003.
 
NCF’s mortgage banking operations and broker/dealer subsidiary are also required to maintain minimum net worth capital requirements with various governmental agencies. The mortgage banking operations’ net worth requirements are governed by the Department of Housing and Urban Development and the broker/dealer’s net worth requirements are governed by the Securities and Exchange Commission. As of December 31, 2003, these subsidiaries met their respective minimum net worth capital requirements.
 
Certain restrictions exist regarding the ability of the Subsidiary Banks to transfer funds to NCF in the form of cash dividends. Regulatory capital requirements must be met by the Subsidiary Banks as well as other requirements under applicable federal and state laws. Under these requirements, the Subsidiary Banks have approximately $253 million in retained earnings at December 31, 2003 that can be transferred to NCF in the form of cash dividends without prior regulatory approval. Management believes that it will be able to receive regulatory approval to transfer dividends in excess of that amount, if needed. Total dividends declared by the Subsidiary Banks to NCF in 2003 were $233 million. As a result of the above requirements, consolidated net assets of the Subsidiary Banks amounting to approximately $2.6 billion at December 31, 2003 were restricted from transfer to NCF without prior approval from regulatory agencies. 
 
Under Federal Reserve regulations, the Subsidiary Banks are also limited as to the amount they may loan to affiliates, including the Parent Company, unless such loans are collateralized by specified obligations. At December 31, 2003, the Subsidiary Banks had loans to the Parent Company totaling $12 million.
 
(14) S UPPLEMENTARY I NCOME S TATEMENT I NFORMATION
 
Following is a breakdown of the components of “other operating” expenses on the Consolidated Statements of Income for the years ended December 31, 2003, 2002 and 2001:

In Thousands
	  	2003
	  	2002
	  	2001
	
Legal and professional fees	  	$	38,780	  	39,221	  	35,563	
Telecommunications	  	 	18,225	  	17,278	  	14,365	
Data processing	  	 	23,251	  	16,891	  	13,538	
Marketing	  	 	10,724	  	11,337	  	14,555	
Printing and office supplies	  	 	13,857	  	14,993	  	12,896	
Postage and freight	  	 	10,528	  	9,441	  	7,871	
All other	  	 	84,954	  	73,493	  	59,246	
 	  			  		  		
Total other operating expenses	  	$	200,319	  	182,654	  	158,034	

(15) I NCOME T AXES
 
Income taxes for the years ended December 31, 2003, 2002 and 2001 were allocated as follows:

In Thousands
	  	2003
	 	 	2002
	 	 	2001
	 	
Income from continuing operations	  	$	134,614	 	 	150,412	 	 	133,388	 	
Stockholders’ equity, for unrealized gains (losses) on securities available for sale	  	 	(25,854	)	 	24,115	 	 	(5,127	)	
Stockholders’ equity, for unrealized losses on hedging instruments	  	 	(3,344	)	 	—  	 	 	—  	 	
Stockholders’ equity, for changes in minimum pension liability	  	 	(495	)	 	63	 	 	—  	 	
Stockholders’ equity, for compensation expense for tax purposes in excess of financial reporting purposes	  	 	(6,522	)	 	(11,160	)	 	(8,743	)	
Income from discontinued operations	  	 	13,412	 	 	—  	 	 	—  	 	
 	  				 			 			
Total	  	$	111,811	 	 	163,430	 	 	119,518	 	

Components of income tax expense for the years ended December 31, 2003, 2002 and 2001 were as follows:

In Thousands
	  	2003
	 	 	2002
	 	 	2001
	 	
Current income taxes:	  	 	 	 	 	 	 	 	 	 	
Federal	  	$	177,933	 	 	142,058	 	 	108,487	 	
State	  	 	9,447	 	 	6,022	 	 	4,494	 	
 	  				 			 			
Total current tax expense	  	 	187,380	 	 	148,080	 	 	112,981	 	
 	  				 			 			
Deferred income tax expense (benefit):	  	 	 	 	 	 	 	 	 	 	
Federal	  	 	(49,198	)	 	3,511	 	 	21,016	 	
State	  	 	(3,568	)	 	(1,179	)	 	(609	)	
 	  				 			 			
Total deferred tax expense	  	 	(52,766	)	 	2,332	 	 	20,407	 	
 	  				 			 			
Total income tax expense for continuing operations	  	$	134,614	 	 	150,412	 	 	133,388	 	

21

A reconciliation of income tax expense from continuing operations to the amount computed by multiplying income before income taxes by the statutory federal income tax rate of 35 percent follows:

 	  	Amount
	 	 	% of Pretax Income
	 	
In Thousands
	  	2003
	 	 	2002
	 	 	2001
	 	 	2003
	 	 	2002
	 	 	2001
	 	
Tax expense at statutory rate on income before income taxes	  	$	147,482	 	 	165,908	 	 	125,539	 	 	35.00	%	 	35.00	 	 	35.00	 	
State taxes, net of federal benefit	  	 	3,821	 	 	3,148	 	 	2,525	 	 	.91	 	 	.66	 	 	.70	 	
Increase (reduction) in taxes resulting from:	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Tax-exempt interest on investment securities and loans	  	 	(2,440	)	 	(2.581	)	 	(3,462	)	 	(.58	)	 	(.54	)	 	(.97	)	
Non-deductible goodwill amortization	  	 	—  	 	 	—  	 	 	16,766	 	 	—  	 	 	—  	 	 	4.67	 	
Non-taxable life insurance income	  	 	(4,470	)	 	(4,450	)	 	(3,395	)	 	(1.06	)	 	(.94	)	 	(.95	)	
Subsidiary stock, recognition of basis difference	  	 	(3,993	)	 	(6,475	)	 	—  	 	 	(.95	)	 	(1.37	)	 	—  	 	
Federal tax credits	  	 	(5,680	)	 	—  	 	 	—  	 	 	(1.35	)	 	—  	 	 	—  	 	
Other, net	  	 	(106	)	 	(5,138	)	 	(4,585	)	 	(.02	)	 	(1.08	)	 	(1.26	)	
 	  				 			 			 			 			 			
Income tax expense	  	$	134,614	 	 	150,412	 	 	133,388	 	 	31.95	%	 	31.73	 	 	37.19	 	

At December 31, 2003 and 2002, NCF had recorded net deferred tax liabilities of $96 million and $174 million, respectively. A valuation allowance is provided when it is more likely than not that some portion of the deferred tax asset will not be realized. In management’s opinion, it is more likely than not that the results of future operations will generate sufficient taxable income to realize the deferred tax assets. Consequently, management has determined that a valuation allowance for deferred tax assets was not required at December 31, 2003 or 2002. The sources and tax effects of cumulative temporary differences that give rise to significant deferred tax assets (liabilities) at December 31, 2003 and 2002 are shown below:

In Thousands
	  	2003
	 	 	2002
	 	
Deferred tax assets:	  	 	 	 	 	 	 	
Allowance for loan losses	  	$	66,991	 	 	63,389	 	
Deferred compensation	  	 	4,471	 	 	3,859	 	
Net operating loss and credit carryovers	  	 	2,643	 	 	3,763	 	
Basis difference on securities and loans	  	 	17,637	 	 	7,332	 	
Other	  	 	15,029	 	 	13,162	 	
 	  				 			
Total gross deferred tax assets	  	 	106,771	 	 	91,505	 	
 	  				 			
Deferred tax liabilities:	  	 	 	 	 	 	 	
Intangible assets	  	 	52,516	 	 	62,081	 	
Deferred loan fees and costs	  	 	24,529	 	 	31,092	 	
Premises and equipment	  	 	4,262	 	 	23,339	 	
Investments	  	 	19,715	 	 	10,607	 	
Pension costs	  	 	15,810	 	 	11,433	 	
Unrealized gains on investment securities available for sale	  	 	6,997	 	 	32,695	 	
Deferred income	  	 	60,369	 	 	85,053	 	
Other	  	 	18,260	 	 	9,356	 	
 	  				 			
Total gross deferred tax liabilities	  	 	202,458	 	 	265,656	 	
 	  				 			
Net deferred tax liability	  	$	(95,687	)	 	(174,151	)	

(16) DISCONTINUED OPERATIONS
 
In the third and fourth quarters of 2003, NCF sold substantially the entire merchant processing business. The $38 million gain realized on the sale is reported as income from discontinued operations, net of tax. Basic and diluted EPS for the after-tax discontinued operations were $.12 per share for the quarter ended September 30, 2003; discontinued operations had no impact on EPS for the quarter ended December 31, 2003. The operating results of this business were not material and have not been reclassified and reported as discontinued operations for financial reporting purposes. NCF has partnered with the third-party purchaser to continue to provide merchant services to NCF’s customers and NCF may receive commissions under that arrangement.
 
(17) C OMMITMENTS , C ONTINGENCIES AND O FF -B ALANCE S HEET R ISK
 
Lease Commitments NCF’s subsidiaries lease certain real property and equipment under long-term operating leases expiring at various dates to 2024. Total rental expense amounted to $29 million in 2003, $26 million in 2002 and $20 million in 2001. A summary of the commitments under noncancellable, long-term leases in effect at December 31, 2003 for each of the years ending December 31 follows:
 
22

								
 	  	Type of Property
	  	Total
Commitments
	
In Thousands
	  	Real
Property
	  	Equipment
	  		
2004	  	$	17,019	  	3,696	  	20,715	
2005	  	 	15,334	  	2,740	  	18,074	
2006	  	 	13,752	  	1,979	  	15,731	
2007	  	 	11,216	  	308	  	11,524	
2008	  	 	9,870	  	290	  	10,160	
Thereafter	  	 	46,373	  	—  	  	46,373	
 	  			  		  		
Total lease commitments	  	$	113,564	  	9,013	  	122,577	

Generally, real estate taxes, insurance and maintenance expenses are obligations of the Subsidiary Banks. It is expected that in the normal course of business, leases that expire will be renewed or replaced by leases on other properties; thus, it is anticipated that future minimum lease commitments will not be less than the amounts shown for 2004.
 
Litigation Certain legal claims have arisen in the normal course of business in which NCF and certain of its Subsidiary Banks have been named as defendants. Although the amount of any ultimate liability with respect to such matters cannot be determined, in the opinion of management and counsel, any such liability will have no material effect on NCF’s financial position or results of operations.
 
NCF has settled a purported class action filed in December 2002 against NCF, NCF’s subsidiaries First Mercantile Trust Company (“First Mercantile”) and NBC, a subsidiary of First Mercantile, and two former officers of First Mercantile. The purported class action alleged, among other things, that fees collected by First Mercantile on investments held in common trust funds were improperly charged.
 
The settlement agreement has been approved by the federal court in Tennessee and all appeal periods have expired. The settlement agreement as approved by the court includes no admission of liability or wrongdoing by NCF or other defendants and, assuming all conditions are met, will fully resolve the lawsuit. Under the settlement, the plaintiff class will receive a total benefit with an estimated value of approximately $20 million, payable $12 million in cash and $8 million in go-forward fee reductions. The cash portion of the settlement was paid in October 2003.
 
Lending Commitments Commitments to extend credit are agreements to lend to customers as long as there is no violation of any condition established in the contract. These commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of these commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. Each customer’s credit worthiness is evaluated on a case-by-case basis and collateral, primarily real estate or business assets, is generally obtained. At December 31, 2003 and 2002, the Subsidiary Banks had commitments to extend credit of approximately $4.6 billion and $3.7 billion. These amounts include unused home equity lines and commercial real estate, construction and land development commitments of $1.7 billion and $1.4 million, respectively, at December 31, 2003 and $1.5 billion and $937 million, respectively, at December 31, 2002.
 
Standby letters of credit are commitments issued by the Subsidiary Banks to guarantee the performance of a customer to a third party. Non-depreciable assets generally secure the standby letters of credit. The Subsidiary Banks had approximately $162 million and $89 million in outstanding standby letters of credit at December 31, 2003 and 2002.
 
Guarantees NBC originates residential mortgage loans which are sold to outside investors in the normal course of business on a non-recourse basis. When mortgage loans are sold in the secondary market, representations and warranties regarding certain attributes of the loans sold are made to the third-party purchaser. These representations and warranties extend through the life of the mortgage loan. Subsequent to the sale, if inadvertent underwriting deficiencies or defects are discovered in individual mortgage loans, NBC may be obligated to repurchase the respective mortgage loan if such deficiencies or defects cannot be cured by NBC within the 90-day period following discovery.
 
Mortgage loans sold to outside investors for the years ended December 31, 2003 and 2002 were $7.9 billion and $1.9 billion, respectively. In the event that NBC repurchases a mortgage loan, NBC will record the mortgage loan as an asset and continue to collect principal and interest from the mortgagee. In the event that the mortgage loan goes into default, NBC may take possession of the property securing the mortgage loan and remarket the property to offset any potential losses.
 
Additionally, NBC may sell mortgage servicing rights and transfer the servicing obligation to a buyer in the ordinary course of business. NBC warrants and represents to the buyer that the underlying loans meet certain attributes and criteria. If, subsequent to the sale and transfer of the servicing rights, if inadvertent underwriting deficiencies or defects are discovered in individual underlying loans, NBC may be obligated to repurchase the respective mortgage loan or reimburse the buyer of any related loss if these deficiencies or defects cannot be cured.
 
23

Off-balance Sheet Risk NCF’s mortgage banking and broker/dealer operations enter into transactions involving financial instruments with off-balance sheet risk in order to meet the financing and hedging needs of their customers and to reduce their own exposure to fluctuations in interest rates. Financial instruments for mortgage banking operations are discussed in Note 6. The broker/dealer operation’s financial instruments include forward contracts, when issued contracts and options written. All such contracts are for U.S. Treasury, federal agency or municipal securities. These financial instruments involve varying degrees of credit and market risk. The contract amounts of those instruments reflect the extent of involvement in particular classes of financial instruments. Risks arise from the possible inability of counterparties to meet the terms of their contracts and from movements in securities’ market values and interest rates. The extent of broker/dealer financial instruments with off-balance sheet risk as of December 31 was as follows:

In Thousands
	  	2003
	  	2002
	
Forward contracts:	  	 	 	  	 	
Commitments to purchase	  	$	188,021	  	396,788	
Commitments to sell	  	 	183,993	  	384,643	
When issued contracts:	  	 	 	  	 	
Commitments to purchase	  	 	—  	  	10,777	
Commitments to sell	  	 	—  	  	8,326	
 
(18) N ATIONAL C OMMERCE F INANCIAL C ORPORATION (P ARENT C OMPANY )
 
The Parent Company’s principal assets are its investments in the Subsidiary Banks and dividends from the Subsidiary Banks are its primary source of income. Condensed Balance Sheets as of December 31, 2003 and 2002, and the related Condensed Statements of Income and Cash Flows for the years ended December 31, 2003, 2002 and 2001, follow:
 
Condensed Balance Sheets
As of December 31, 2003 and 2002

In Thousands
	  	2003
	  	2002
	
Cash and short-term investments	  	$	989,398	  	849,574	
Investment securities	  	 	25,487	  	25,744	
Loans	  	 	26,151	  	37,598	
Less allowance for loan losses	  	 	340	  	487	
 	  			  		
Net loans	  	 	25,811	  	37,111	
Investment in subsidiaries	  	 	2,939,876	  	2,888,163	
Other assets	  	 	39,219	  	27,485	
 	  			  		
Total assets	  	$	4,019,791	  	3,828,077	
 	  			  		
Master notes	  	$	936,216	  	805,114	
Note payable to subsidiary	  	 	13,547	  	25,047	
Subordinated notes and debentures	  	 	240,208	  	278,187	
Other liabilities	  	 	48,634	  	37,297	
 	  			  		
Total liabilities	  	 	1,238,605	  	1,145,645	
Stockholders’ equity	  	 	2,781,186	  	2,682,432	
 	  			  		
Total liabilities and stockholders’ equity	  	$	4,019,791	  	3,828,077	

Condensed Statements of Income
Years Ended December 31, 2003, 2002 and 2001

In Thousands
	  	2003
	 	 	2002
	 	 	2001
	 	
Dividends from subsidiaries	  	$	233,506	 	 	137,676	 	 	236,700	 	
Interest income	  	 	5,521	 	 	11,356	 	 	15,324	 	
Other income, net of losses on sales of investment securities	  	 	(58	)	 	783	 	 	1,154	 	
 	  				 			 			
Total operating income	  	 	238,969	 	 	149,815	 	 	253,178	 	
 	  				 			 			
Interest expense	  	 	10,142	 	 	17,287	 	 	15,252	 	
Other operating expenses	  	 	3,794	 	 	3,565	 	 	4,153	 	
 	  				 			 			
Total operating expenses	  	 	13,936	 	 	20,852	 	 	19,405	 	
 	  				 			 			
Income before income taxes	  	 	225,033	 	 	128,963	 	 	233,773	 	
Income tax benefit	  	 	(3,544	)	 	(1,843	)	 	(559	)	
 	  				 			 			
Income before equity in undistributed net income of subsidiaries	  	 	228,577	 	 	130,806	 	 	234,332	 	
Net income of subsidiaries, net of dividends paid	  	 	83,097	 	 	192,804	 	 	(9,036	)	
 	  				 			 			
Net income	  	$	311,674	 	 	323,610	 	 	225,296	 	

24

Condensed Statements of Cash Flows
Years Ended December 31, 2003, 2002 and 2001

In Thousands
	  	2003
	 	 	2002
	 	 	2001
	 	
Net cash provided by operating activities	  	$	236,604	 	 	151,441	 	 	225,582	 	
 	  				 			 			
Investment in subsidiaries	  	 	(14,000	)	 	(22,500	)	 	(160,188	)	
Net decrease in loans	  	 	11,447	 	 	15,693	 	 	18,296	 	
Other, net	  	 	—  	 	 	93	 	 	(28,266	)	
 	  				 			 			
Net cash used by investing activities	  	 	(2,553	)	 	(6,714	)	 	(170,158	)	
 	  				 			 			
Increase in master notes	  	 	131,102	 	 	479,393	 	 	130,651	 	
Net decrease in notes payable to subsidiaries	  	 	(11,500	)	 	(13,500	)	 	(12,000	)	
Net increase (decrease) in subordinated notes and debentures	  	 	(37,971	)	 	(3,636	)	 	198,902	 	
Purchase and retirement of common stock	  	 	(43,705	)	 	(57,734	)	 	(102,212	)	
Cash dividends paid	  	 	(151,909	)	 	(132,311	)	 	(114,838	)	
Other, net	  	 	19,756	 	 	26,922	 	 	15,595	 	
 	  				 			 			
Net cash provided (used) by financing activities	  	 	(94,227	)	 	299,134	 	 	116,098	 	
 	  				 			 			
Net increase in cash and short-term investments	  	 	139,824	 	 	443,861	 	 	171,522	 	
Cash and short-term investments at beginning of year	  	 	849,574	 	 	405,713	 	 	234,191	 	
 	  				 			 			
Cash and short-term investments at end of year	  	$	989,398	 	 	849,574	 	 	405,713	 	

(19) S EGMENT I NFORMATION
 
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 as real estate finance, asset-based lending and residential construction lending. The traditional banking segment also includes management of the investment portfolio and non-deposit based funding.
 
The financial enterprises segment is comprised of trust services and investment management, transaction processing, retail banking consulting/in-store licensing and broker/dealer activities.
 
The accounting policies of the individual segments are the same as those of NCF as described in Note 1. 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 and average assets for each reportable segment.
 
25

														
In Thousands
	  	Traditional
Banking
	 	 	Financial
Enterprises
	 	 	Intersegment
Eliminations
	 	 	Total
	 	
Year ended December 31, 2003:	  	 	 	 	 	 	 	 	 	 	 	 	 	
Net interest income, taxable equivalent basis	  	$	745,374	 	 	22,314	 	 	—  	 	 	767,688	 	
Provision for loan loss	  	 	(48,414	)	 	—  	 	 	—  	 	 	(48,414	)	
 	  				 			 			 			
Net interest income after provision	  	 	696,960	 	 	22,314	 	 	—  	 	 	719,274	 	
Gain on branch sale	  	 	9,110	 	 	—  	 	 	—  	 	 	9,110	 	
Other income	  	 	254,074	 	 	199,041	 	 	(7,503	)	 	445,612	 	
Core deposit amortization	  	 	(61,356	)	 	—  	 	 	—  	 	 	(61,356	)	
First Mercantile litigation	  	 	—  	 	 	(20,695	)	 	—  	 	 	(20,695	)	
Employment contract terminations	  	 	(15,699	)	 	—  	 	 	—  	 	 	(15,699	)	
Debt retirement/prepayment penalties	  	 	(31,661	)	 	—  	 	 	—  	 	 	(31,661	)	
Other expense	  	 	(446,602	)	 	(155,929	)	 	7,503	 	 	(595,028	)	
 	  				 			 			 			
Income before income taxes	  	 	404,826	 	 	44,731	 	 	—  	 	 	449,557	 	
Income taxes	  	 	145,347	 	 	17,445	 	 	—  	 	 	162,792	 	
 	  				 			 			 			
Net income from continuing operations	  	 	259,479	 	 	27,286	 	 	—  	 	 	286,765	 	
Discontinued operation – merchant processing	  	 	—  	 	 	24,909	 	 	—  	 	 	24,909	 	
 	  				 			 			 			
Net income	  	$	259,479	 	 	52,195	 	 	—  	 	 	311,674	 	
 	  				 			 			 			
Average assets	  	$	21,433,195	 	 	832,050	 	 	—  	 	 	22,265,245	 	
					
Year ended December 31, 2002:	  	 	 	 	 	 	 	 	 	 	 	 	 	
Net interest income, taxable equivalent basis	  	$	742,373	 	 	20,692	 	 	—  	 	 	763,065	 	
Provision for loan loss	  	 	32,344	 	 	—  	 	 	—  	 	 	32,344	 	
 	  				 			 			 			
Net interest income after provision	  	 	710,029	 	 	20,692	 	 	—  	 	 	730,721	 	
Other income	  	 	213,739	 	 	173,737	 	 	(6,933	)	 	380,543	 	
Core deposit amortization	  	 	(69,930	)	 	—  	 	 	—  	 	 	(69,930	)	
Debt retirement/prepayment gains	  	 	400	 	 	—  	 	 	—  	 	 	400	 	
Conversion/merger expenses	  	 	(4,940	)	 	—  	 	 	—  	 	 	(4,940	)	
Other expense	  	 	(403,434	)	 	(136,812	)	 	6,933	 	 	(533,313	)	
 	  				 			 			 			
Income before income taxes	  	 	445,864	 	 	57,617	 	 	—  	 	 	503,481	 	
Income taxes	  	 	157,400	 	 	22,471	 	 	—  	 	 	179,871	 	
 	  				 			 			 			
Net income	  	$	288,464	 	 	35,146	 	 	—  	 	 	323,610	 	
 	  				 			 			 			
Average assets	  	$	19,691,510	 	 	663,676	 	 	—  	 	 	20,355,186	 	
					
Year ended December 31, 2001:	  	 	 	 	 	 	 	 	 	 	 	 	 	
Net interest income, taxable equivalent basis	  	$	663,936	 	 	18,518	 	 	—  	 	 	682,454	 	
Provision for loan loss	  	 	29,199	 	 	—  	 	 	—  	 	 	29,199	 	
 	  				 			 			 			
Net interest income after provision	  	 	634,737	 	 	18,518	 	 	—  	 	 	653,255	 	
Other income	  	 	154,355	 	 	166,758	 	 	(4,300	)	 	316,813	 	
Core deposit and goodwill amortization	  	 	(105,225	)	 	(1,790	)	 	—  	 	 	(107,015	)	
Conversion/merger expenses	  	 	(11,364	)	 	—  	 	 	—  	 	 	(11,364	)	
Other expense	  	 	(346,188	)	 	(119,776	)	 	4,300	 	 	(461,664	)	
 	  				 			 			 			
Income before income taxes	  	 	326,315	 	 	63,710	 	 	—  	 	 	390,025	 	
Income taxes	  	 	139,835	 	 	24,894	 	 	—  	 	 	164,729	 	
 	  				 			 			 			
Net income	  	$	186,480	 	 	38,816	 	 	—  	 	 	225,296	 	
 	  				 			 			 			
Average assets	  	$	17,319,317	 	 	587,695	 	 	—  	 	 	17,907,012	 	
 
26

(20) Q UARTERLY F INANCIAL D ATA (U NAUDITED )
 
The following table presents quarterly financial data for each quarter in the years ended December 31, 2003 and 2002. Third quarter 2003 results include the gain on sale of merchant processing as a discontinued operation as a result of our decision in the fourth quarter of 2003 to exit additional elements of that business. Other income and other expense for each quarter include the effect of reclassing the costs to originate mortgage loans held for sale against the origination fees earned on those loans as well as other reclassifications to conform to current period presentation.

 	  	2003
	 	 	2002
	 	
In Thousands Except Per Share Data
	  	4 th Qtr.
	 	 	3 rd Qtr.
	 	 	2 nd Qtr.
	 	 	1 st Qtr.
	 	 	4 th Qtr.
	 	 	3 rd Qtr.
	 	 	2 nd Qtr.
	 	 	1 st Qtr.
	 	
Interest income	  	$	266,012	 	 	260,155	 	 	264,593	 	 	263,376	 	 	279,606	 	 	283,540	 	 	284,666	 	 	282,685	 	
Interest expense	  	 	70,584	 	 	74,696	 	 	83,412	 	 	85,934	 	 	93,783	 	 	97,680	 	 	101,424	 	 	104,004	 	
 	  				 			 			 			 			 			 			 			
Net interest income	  	 	195,428	 	 	185,459	 	 	181,181	 	 	177,442	 	 	185,823	 	 	185,860	 	 	183,242	 	 	178,681	 	
Provision for loan losses	  	 	12,382	 	 	14,972	 	 	13,376	 	 	7,684	 	 	7,127	 	 	10,990	 	 	8,713	 	 	5,514	 	
 	  				 			 			 			 			 			 			 			
Net interest income after provision for loan losses	  	 	183,046	 	 	170,487	 	 	167,805	 	 	169,758	 	 	178,696	 	 	174,870	 	 	174,529	 	 	173,167	 	
Investment securities gains (losses)	  	 	3,338	 	 	(4,512	)	 	2,460	 	 	2,464	 	 	2,028	 	 	5,060	 	 	1,694	 	 	2,720	 	
Gain (loss) on branch sale	  	 	2,200	 	 	7,055	 	 	—  	 	 	(145	)	 	—  	 	 	—  	 	 	—  	 	 	—  	 	
Other income	  	 	106,167	 	 	118,461	 	 	114,958	 	 	102,276	 	 	101,460	 	 	95,430	 	 	91,458	 	 	80,693	 	
Core deposit amortization	  	 	(14,337	)	 	(15,062	)	 	(15,673	)	 	(16,284	)	 	(16,895	)	 	(17,507	)	 	(18,118	)	 	(17,410	)	
First Mercantile litigation	  	 	—  	 	 	—  	 	 	(1,041	)	 	(19,654	)	 	—  	 	 	—  	 	 	—  	 	 	—  	 	
Employment contract terminations	  	 	(987	)	 	(604	)	 	(14,108	)	 	—  	 	 	—  	 	 	—  	 	 	—  	 	 	—  	 	
Debt retirement/prepayment (penalties) gains	  	 	—  	 	 	(31,987	)	 	326	 	 	—  	 	 	65	 	 	335	 	 	—  	 	 	—  	 	
Conversion/merger expenses	  	 	—  	 	 	—  	 	 	—  	 	 	—  	 	 	—  	 	 	—  	 	 	—  	 	 	(4,940	)	
Other expenses	  	 	(146,912	)	 	(153,842	)	 	(150,108	)	 	(144,166	)	 	(141,308	)	 	(136,608	)	 	(130,974	)	 	(124,423	)	
 	  				 			 			 			 			 			 			 			
Income before income taxes	  	 	132,515	 	 	89,996	 	 	104,619	 	 	94,249	 	 	124,046	 	 	121,580	 	 	118,589	 	 	109,807	 	
Income tax expense	  	 	43,014	 	 	28,329	 	 	33,112	 	 	30,159	 	 	39,180	 	 	38,603	 	 	37,721	 	 	34,908	 	
 	  				 			 			 			 			 			 			 			
Net income from continuing operations	  	 	89,501	 	 	61,667	 	 	71,507	 	 	64,090	 	 	84,866	 	 	82,977	 	 	80,868	 	 	74,899	 	
Discontinued operation – merchant processing	  	 	767	 	 	24,142	 	 	—  	 	 	—  	 	 	—  	 	 	—  	 	 	—  	 	 	—  	 	
 	  				 			 			 			 			 			 			 			
Net income	  	$	90,268	 	 	85,809	 	 	71,507	 	 	64,090	 	 	84,866	 	 	82,977	 	 	80,868	 	 	74,899	 	
 	  				 			 			 			 			 			 			 			
Net income per share:	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Basic	  	$	.44	 	 	.42	 	 	.35	 	 	.31	 	 	.41	 	 	.40	 	 	.39	 	 	.36	 	
Diluted	  	 	.44	 	 	.42	 	 	.35	 	 	.31	 	 	.41	 	 	.40	 	 	.39	 	 	.36	 	

(21) F AIR V ALUE OF F INANCIAL I NSTRUMENTS
 
The following methods and assumptions were used to estimate the fair value of each class of financial instruments for which it is practicable to estimate that value.

 	  	2003
	  	2002
	 	
In Thousands
	  	Carrying
Amount
	  	Fair Value
	  	Carrying
Amount
	 	 	Fair Value
	 	
Financial assets:	  	 	 	  	 	  	 	 	 	 	 	
Cash and cash equivalents	  	$	752,209	  	752,209	  	602,757	 	 	602,757	 	
Investment securities	  	 	6,619,000	  	6,613,913	  	5,702,661	 	 	5,730,303	 	
Trading account securities	  	 	280,649	  	280,649	  	116,954	 	 	116,954	 	
Net loans	  	 	13,079,628	  	13,445,636	  	12,760,516	 	 	13,276,693	 	
Financial liabilities:	  	 	 	  	 	  	 	 	 	 	 	
Deposits	  	 	15,549,587	  	15,596,213	  	14,494,734	 	 	14,606,569	 	
Short-term borrowings	  	 	1,671,908	  	1,671,908	  	1,452,764	 	 	1,452,764	 	
Federal Home Loan Bank advances	  	 	2,301,191	  	2,352,099	  	2,106,474	 	 	2,198,002	 	
Trust preferred securities and long-term debt	  	 	277,996	  	277,126	  	296,707	 	 	299,381	 	
Derivative financial instruments:	  	 	 	  	 	  	 	 	 	 	 	
Interest rate swaps	  	 	8,378	  	8,378	  	20,494	 	 	20,494	 	
Forward sales contracts	  	 	225	  	225	  	(1,165	)	 	(1,165	)	
 
27

Cash and Cash Equivalents The carrying amounts reported in the balance sheet for cash and cash equivalents approximate those assets’ fair values.
 
Investment and Trading Account Securities Fair values for investment and trading account securities are based on quoted market prices, where available. If quoted market prices are not available, fair values are based on quoted market prices of comparable instruments.
 
Net Loans For variable rate loans that reprice frequently and with no significant change in credit risk, fair values are based on carrying values. The fair values for certain mortgage loans (e.g., one-to-four family residential) and certain consumer loans are based on quoted market prices of similar loans sold in conjunction with securitization transactions, adjusted for differences in loan characteristics. The fair values for other loans are estimated using discounted cash flow analyses, using interest rates currently offered for loans with similar terms to borrowers of similar credit quality. The carrying amount of accrued interest approximates its fair value.
 
Deposits The fair values disclosed for demand deposits (e.g., interest and noninterest checking, passbook savings and certain types of money market accounts) are, by definition, equal to the amount payable on demand at the reporting date (i.e., their carrying amounts). The carrying amounts for variable-rate, fixed-term money market accounts and certificates of deposit approximate their fair values at the reporting date. Fair values for fixed-rate certificates of deposit are estimated using a discounted cash flow calculation that applies interest rates currently offered on certificates to a schedule of aggregated expected monthly maturities on time deposits.
 
Borrowings The carrying amounts of short-term borrowings approximate their fair values. The fair values of FHLB advances, trust preferred securities and long-term debt are estimated using discounted cash flow analyses, based on NCF’s incremental borrowing rates for similar types of borrowing arrangements.
 
Interest Rate Swaps Fair values for interest rate swaps are based on discounted cash flow projections under the swap agreements based on assumptions about future interest rate movements.
 
Off-balance Sheet Financial Instruments The Subsidiary Banks have commitments to extend credit and standby letters of credit. These types of credit are made at market rates; therefore, there would be no market risk associated with these credits that would create a significant fair value liability.
 
28

REPORT OF MANAGEMENT REGARDING RESPONSIBILITY FOR FINANCIAL STATEMENTS
 
Management is responsible for the content of the financial information included in this annual report. The financial statements from which the financial information has been drawn are prepared in accordance with accounting principles generally accepted in the United States of America. Other information in this report is consistent with the financial statements.
 
In meeting its responsibility, management relies on the system on internal accounting control and related control systems. Elements of these systems include selection and training of qualified personnel, establishment and communication of accounting and administrative policies and procedures, appropriate segregation of responsibilities and programs of internal audit. These systems are designed to provide reasonable assurance that financial records are reliable for preparing financial statements and maintaining accountability for assets and that assets are safeguarded against unauthorized use or disposition. Such assurance cannot be absolute because of inherent limitations in any system of internal control. The concept of reasonable assurance recognizes that the cost of a system of internal control should not exceed the benefit derived and that the evaluation of such cost and benefit necessarily requires estimates and judgments.
 
KPMG LLP, independent auditors, audited NCF’s consolidated financial statements in accordance with auditing standards generally accepted in the United States of America. These standards include a study and evaluation of internal control for the purpose of establishing a basis for reliance thereon relative to the determination of the scope of their audits.
 
The voting members of the Audit Committee of the Board of Directors consist solely of independent Directors. The Audit Committee meets periodically with management, NCF’s internal auditors and the independent auditors to discuss audit, financial reporting and related matters. KPMG LLP and the internal auditors have direct access to the Audit Committee.

	 		 		
WILLIAM R. REED, JR.	 	JOHN M. PRESLEY	 	RICHARD W. EDWARDS	
President and Chief Executive Officer	 	Chief Financial Officer	 	Chief Accounting Officer	
 
29

INDEPENDENT AUDITORS’ REPORT
 
The Board of Directors and Shareholders
National Commerce Financial Corporation:
 
We have audited the accompanying consolidated balance sheets of National Commerce Financial Corporation and subsidiaries as of December 31, 2003 and 2002, and the related consolidated statements of income, stockholders’ equity and comprehensive income, and cash flows for each of the years in the three-year period ended December 31, 2003. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
 
We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
 
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of National Commerce Financial Corporation and subsidiaries as of December 31, 2003 and 2002, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2003, in conformity with accounting principles generally accepted in the United States of America.
 
Effective January 1, 2002, the Company adopted the provisions of Statement of Financial Standards No. 142, Goodwill and Other Intangibles Assets .

KPMG LLP
 
Memphis, Tennessee
January 23, 2004
 
30

Exhibit 99.3
 
National Commerce Financial Corporation and Subsidiaries
 CONSOLIDATED BALANCE SHEETS
June 30, 2004 and December 31, 2003

 	  	(Unaudited)	 	 	 	
In Thousands Except Share Data
	  	June 30,
2004
	 	 	December 31,
2003
	
ASSETS	  	 	 	 	 	 	
Cash and due from banks	  	$	568,360	 	 	558,313	
Time deposits in other banks	  	 	7,803	 	 	64,174	
Federal funds sold and other short-term investments	  	 	267,182	 	 	129,722	
Investment securities:	  	 	 	 	 	 	
Available for sale (amortized cost of $5,217,931 and $5,220,555)	  	 	5,116,531	 	 	5,238,429	
Held to maturity (fair values of $1,113,177 and $1,375,484)	  	 	1,140,777	 	 	1,380,571	
Trading account securities, at fair value	  	 	245,913	 	 	280,649	
Loans held for sale	  	 	334,156	 	 	215,132	
Loans	  	 	14,191,270	 	 	13,034,948	
Less allowance for loan losses	  	 	178,438	 	 	170,452	
 	  				 		
Net loans	  	 	14,012,832	 	 	12,864,496	
 	  				 		
Bank owned life insurance	  	 	349,473	 	 	241,481	
Investment in First Market Bank, FSB	  	 	35,214	 	 	32,527	
Premises and equipment, net	  	 	245,279	 	 	266,401	
Goodwill, net	  	 	1,090,101	 	 	1,085,565	
Core deposit intangibles, net	  	 	145,899	 	 	172,658	
Other assets	  	 	484,597	 	 	486,798	
 	  				 		
Total assets	  	$	24,044,117	 	 	23,016,916	
 	  				 		
LIABILITIES	  	 	 	 	 	 	
Deposits:	  	 	 	 	 	 	
Demand (noninterest-bearing)	  	$	2,862,746	 	 	2,602,026	
Savings, NOW and money market accounts	  	 	5,804,172	 	 	5,878,002	
Jumbo and brokered certificates of deposits	  	 	2,464,471	 	 	2,206,736	
Time deposits	  	 	4,883,076	 	 	4,862,823	
 	  				 		
Total deposits	  	 	16,014,465	 	 	15,549,587	
Short-term borrowed funds	  	 	1,708,305	 	 	1,671,908	
Federal Home Loan Bank advances	  	 	2,875,720	 	 	2,301,191	
Long-term debt	  	 	285,158	 	 	277,996	
Other liabilities	  	 	378,357	 	 	435,048	
 	  				 		
Total liabilities	  	 	21,262,005	 	 	20,235,730	
 	  				 		
STOCKHOLDERS’ EQUITY	  	 	 	 	 	 	
Serial preferred stock. Authorized 5,000,000 shares; none issued	  	 	—  	 	 	—  	
Common stock, $2 par value. Authorized 400,000,000 shares;
205,003,949 and 205,136,649 shares issued, respectively	  	 	410,008	 	 	410,273	
Additional paid-in capital	  	 	1,722,205	 	 	1,738,157	
Retained earnings	  	 	720,633	 	 	627,406	
Accumulated other comprehensive income, net	  	 	(70,734	)	 	5,350	
 	  				 		
Total stockholders’ equity	  	 	2,782,112	 	 	2,781,186	
 	  				 		
Total liabilities and stockholders’ equity	  	$	24,044,117	 	 	23,016,916	

Commitments and contingencies (note 11)
 
See accompanying notes to consolidated financial statements. 
 
1

National Commerce Financial Corporation and Subsidiaries
 CONSOLIDATED STATEMENTS OF INCOME
Three and Six Months Ended June 30, 2004 and 2003
(Unaudited)

 	  	Three Months Ended
June 30,
	 	 	Six Months Ended
June 30,
	 	
In Thousands Except Per Share Data
	  	2004
	  	2003
	 	 	2004
	  	2003
	 	
INTEREST INCOME	  	 	 	  	 	 	 	 	  	 	 	
Interest and fees on loans	  	$	189,282	  	188,099	 	 	372,264	  	385,768	 	
Interest and dividends on investment securities:	  	 	 	  	 	 	 	 	  	 	 	
U.S. Treasury	  	 	132	  	274	 	 	306	  	556	 	
U.S. Government agencies and corporations	  	 	51,619	  	58,118	 	 	108,324	  	113,800	 	
States and political subdivisions (primarily tax-exempt)	  	 	1,293	  	1,453	 	 	2,562	  	2,963	 	
Equity and other securities	  	 	18,304	  	15,875	 	 	34,994	  	23,345	 	
Interest and dividends on trading account securities	  	 	2,248	  	421	 	 	4,173	  	996	 	
Interest on time deposits in other banks	  	 	9	  	17	 	 	417	  	42	 	
Interest on federal funds sold and other short-term investments	  	 	646	  	336	 	 	1,020	  	499	 	
 	  			  			 		  			
Total interest income	  	 	263,533	  	264,593	 	 	524,060	  	527,969	 	
 	  			  			 		  			
INTEREST EXPENSE	  	 	 	  	 	 	 	 	  	 	 	
Deposits	  	 	47,110	  	55,184	 	 	94,869	  	112,472	 	
Short-term borrowed funds	  	 	4,924	  	4,698	 	 	9,489	  	9,066	 	
Federal Home Loan Bank advances	  	 	15,968	  	21,397	 	 	31,570	  	43,515	 	
Trust preferred securities and long-term debt	  	 	1,545	  	2,133	 	 	3,075	  	4,293	 	
 	  			  			 		  			
Total interest expense	  	 	69,547	  	83,412	 	 	139,003	  	169,346	 	
 	  			  			 		  			
Net interest income	  	 	193,986	  	181,181	 	 	385,057	  	358,623	 	
Provision for loan losses	  	 	12,845	  	13,376	 	 	24,933	  	21,060	 	
 	  			  			 		  			
Net interest income after provision for loan losses	  	 	181,141	  	167,805	 	 	360,124	  	337,563	 	
 	  			  			 		  			
OTHER INCOME	  	 	 	  	 	 	 	 	  	 	 	
Service charges on deposit accounts	  	 	44,973	  	43,500	 	 	85,999	  	84,750	 	
Other service charges and fees	  	 	9,467	  	9,721	 	 	17,904	  	19,062	 	
Broker/dealer revenue	  	 	26,711	  	28,152	 	 	52,473	  	49,233	 	
Asset management	  	 	15,986	  	13,356	 	 	32,484	  	25,738	 	
Mortgage banking income	  	 	13,459	  	11,458	 	 	20,842	  	21,112	 	
Equity earnings from First Market Bank, FSB	  	 	1,402	  	1,071	 	 	2,687	  	1,997	 	
Other	  	 	11,470	  	7,700	 	 	20,054	  	15,342	 	
Gain (loss) on branch sales	  	 	714	  	—  	 	 	759	  	(145	)	
Investment securities gains, net	  	 	66	  	2,460	 	 	10,984	  	4,924	 	
 	  			  			 		  			
Total other income	  	 	124,248	  	117,418	 	 	244,186	  	222,013	 	
 	  			  			 		  			
OTHER EXPENSE	  	 	 	  	 	 	 	 	  	 	 	
Personnel	  	 	77,807	  	77,483	 	 	156,928	  	154,936	 	
Net occupancy	  	 	13,413	  	13,292	 	 	26,820	  	26,196	 	
Equipment	  	 	7,194	  	7,992	 	 	14,427	  	15,397	 	
Core deposit intangibles amortization	  	 	12,901	  	15,673	 	 	26,540	  	31,957	 	
Other	  	 	55,052	  	51,341	 	 	105,378	  	97,745	 	
Merger-related expenses	  	 	8,290	  	—  	 	 	8,290	  	—  	 	
First Mercantile litigation	  	 	—  	  	1,041	 	 	—  	  	20,695	 	
Employment contract terminations	  	 	—  	  	14,108	 	 	—  	  	14,108	 	
Debt retirement/prepayment gains	  	 	—  	  	(326	)	 	—  	  	(326	)	
 	  			  			 		  			
Total other expenses	  	 	174,657	  	180,604	 	 	338,383	  	360,708	 	
 	  			  			 		  			
Income before income taxes	  	 	130,732	  	104,619	 	 	265,927	  	198,868	 	
Income taxes	  	 	45,641	  	33,112	 	 	90,592	  	63,271	 	
 	  			  			 		  			
Net income	  	$	85,091	  	71,507	 	 	175,335	  	135,597	 	
 	  			  			 		  			
EARNINGS PER COMMON SHARE	  	 	 	  	 	 	 	 	  	 	 	
Basic	  	$	.42	  	.35	 	 	.86	  	.66	 	
Diluted	  	 	.41	  	.35	 	 	.85	  	.66	 	
WEIGHTED AVERAGE SHARES OUTSTANDING	  	 	 	  	 	 	 	 	  	 	 	
Basic	  	 	204,340	  	204,629	 	 	204,660	  	204,948	 	
Diluted	  	 	206,737	  	205,701	 	 	206,910	  	206,225	 	
 
See accompanying notes to consolidated financial statements. 
 
2

National Commerce Financial Corporation and Subsidiaries
 CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
Six Months Ended June 30, 2004 and 2003
(Unaudited)

In Thousands Except Share Data
	  	Shares of
Common
Stock
	 	 	Common
Stock
	 	 	Additional
Paid-In
Capital
	 	 	Retained
Earnings
	 	 	Other
Comp.
Income
	 	 	Total
Stockholders’
Equity
	 	
Balance January 1, 2003	  	205,408,183	 	 	$	410,816	 	 	1,753,241	 	 	467,641	 	 	50,734	 	 	2,682,432	 	
Net income	  	—  	 	 	 	—  	 	 	—  	 	 	135,597	 	 	—  	 	 	135,597	 	
Restricted stock transactions, net	  	1,693	 	 	 	3	 	 	1,258	 	 	—  	 	 	—  	 	 	1,261	 	
Options exercised, net of shares tendered	  	472,596	 	 	 	947	 	 	5,607	 	 	—  	 	 	—  	 	 	6,554	 	
Shares repurchased and retired	  	(1,474,300	)	 	 	(2,949	)	 	(29,272	)	 	—  	 	 	—  	 	 	(32,221	)	
Cash dividends ($.34 per share)	  	—  	 	 	 	—  	 	 	—  	 	 	(69,776	)	 	—  	 	 	(69,776	)	
Change in minimum pension liability, net of applicable income taxes	  	—  	 	 	 	—  	 	 	—  	 	 	—  	 	 	(742	)	 	(742	)	
Change in unrealized gains on investment securities available for sale, net of applicable income taxes	  	—  	 	 	 	—  	 	 	—  	 	 	—  	 	 	(1,955	)	 	(1,955	)	
Unrealized loss on cash flow hedges, net of applicable income taxes	  	—  	 	 	 	—  	 	 	—  	 	 	—  	 	 	(201	)	 	(201	)	
Other transactions, net	  	(23,394	)	 	 	(47	)	 	(467	)	 	—  	 	 	—  	 	 	(514	)	
 	  			 				 			 			 			 			
Balance, June 30, 2003	  	204,384,778	 	 	$	408,770	 	 	1,730,367	 	 	533,462	 	 	47,836	 	 	2,720,435	 	
 	  			 				 			 			 			 			
Balance, January 1, 2004	  	205,136,649	 	 	$	410,273	 	 	1,738,157	 	 	627,406	 	 	5,350	 	 	2,781,186	 	
Net income	  	—  	 	 	 	—  	 	 	—  	 	 	175,335	 	 	—  	 	 	175,335	 	
Restricted stock transactions, net	  	37,200	 	 	 	74	 	 	297	 	 	—  	 	 	—  	 	 	371	 	
Options exercised, net of shares tendered	  	2,128,005	 	 	 	4,257	 	 	45,328	 	 	—  	 	 	—  	 	 	49,585	 	
Shares repurchased and retired	  	(2,408,906	)	 	 	(4,818	)	 	(62,532	)	 	—  	 	 	—  	 	 	(67,350	)	
Cash dividends ($.40 per share)	  	—  	 	 	 	—  	 	 	—  	 	 	(82,108	)	 	—  	 	 	(82,108	)	
Change in minimum pension liability, net of applicable income taxes	  	—  	 	 	 	—  	 	 	—  	 	 	—  	 	 	(113	)	 	(113	)	
Change in unrealized losses on investment securities available for sale, net of applicable income taxes	  	—  	 	 	 	—  	 	 	—  	 	 	—  	 	 	(72,735	)	 	(72,735	)	
Change in unrealized loss on hedging instruments, net of applicable income taxes	  	—  	 	 	 	—  	 	 	—  	 	 	—  	 	 	(3,236	)	 	(3,236	)	
Other transactions, net	  	111,001	 	 	 	222	 	 	955	 	 	—  	 	 	—  	 	 	1,177	 	
 	  			 				 			 			 			 			
Balance, June 30, 2004	  	205,003,949	 	 	$	410,008	 	 	1,722,205	 	 	720,633	 	 	(70,734	)	 	2,782,112	 	

See accompanying notes to the consolidated financial statements.
 
3

National Commerce Financial Corporation and Subsidiaries
 CONSOLIDATED STATEMENTS OF CASH FLOWS
Six Months Ended June 30, 2004 and 2003
(Unaudited)

In Thousands
	  	2004
	 	 	2003
	 	
OPERATING ACTIVITIES	  	 	 	 	 	 	 	
Net income	  	$	175,335	 	 	135,597	 	
Adjustments to reconcile net income to net cash provided by operating activities:	  	 	 	 	 	 	 	
Depreciation, amortization and accretion, net	  	 	48,324	 	 	62,433	 	
Provision for loan losses	  	 	24,933	 	 	21,060	 	
Net gain on sales of investment securities	  	 	(10,984	)	 	(4,924	)	
Net gain on sales of loans held for sale	  	 	(18,241	)	 	(4,157	)	
Deferred income taxes	  	 	(889	)	 	(82	)	
Origination of loans held for sale	  	 	(2,407,640	)	 	(3,593,274	)	
Sales of loans held for sale	  	 	2,306,857	 	 	3,528,746	 	
Gain on debt retirement/prepayment penalties	  	 	—  	 	 	(326	)	
Tax benefit from exercise of stock options	  	 	8,504	 	 	1,731	 	
Changes in:	  	 	 	 	 	 	 	
Trading account securities	  	 	34,736	 	 	11,031	 	
Other assets	  	 	(103,357	)	 	(81,566	)	
Other liabilities	  	 	(4,627	)	 	40,355	 	
Other operating activities, net	  	 	211	 	 	(215	)	
 	  				 			
Net cash provided by operating activities	  	 	53,162	 	 	116,409	 	
 	  				 			
INVESTING ACTIVITIES	  	 	 	 	 	 	 	
Proceeds from:	  	 	 	 	 	 	 	
Maturities and issuer calls of investment securities held to maturity	  	 	244,339	 	 	305,806	 	
Sales of investment securities available for sale	  	 	934,956	 	 	1,373,732	 	
Maturities and issuer calls of investment securities available for sale	  	 	787,232	 	 	849,895	 	
Purchases of:	  	 	 	 	 	 	 	
Investment securities held to maturity	  	 	(4,084	)	 	(788,776	)	
Investment securities available for sale	  	 	(1,712,181	)	 	(2,160,777	)	
Premises and equipment	  	 	6,421	 	 	(32,190	)	
Net originations of loans	  	 	(1,190,136	)	 	(596,469	)	
Net cash paid on branch sales	  	 	(24,875	)	 	(1,327	)	
 	  				 			
Net cash used by investing activities	  	 	(958,328	)	 	(1,050,106	)	
 	  				 			
FINANCING ACTIVITIES	  	 	 	 	 	 	 	
Net increase in deposit accounts	  	 	495,757	 	 	954,191	 	
Net increase in short-term borrowed funds	  	 	36,397	 	 	12,661	 	
Net increase in Federal Home Loan Bank advances	  	 	574,778	 	 	168,047	 	
Decrease in long-term debt	  	 	(2,134	)	 	(4,997	)	
Issuances of common stock from exercise of stock options, net	  	 	41,404	 	 	4,899	 	
Purchase and retirement of common stock	  	 	(67,350	)	 	(32,221	)	
Other equity transactions, net	  	 	(442	)	 	(93	)	
Cash dividends paid	  	 	(82,108	)	 	(69,776	)	
 	  				 			
Net cash provided by financing activities	  	 	996,302	 	 	1,032,711	 	
 	  				 			
Net increase in cash and cash equivalents	  	 	91,136	 	 	99,014	 	
Cash and cash equivalents at beginning of period (December 31)	  	 	752,209	 	 	602,757	 	
 	  				 			
Cash and cash equivalents at end of period	  	$	843,345	 	 	701,771	 	
 	  				 			
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION	  	 	 	 	 	 	 	
Interest paid during the period	  	$	137,364	 	 	172,008	 	
 	  				 			
Income taxes paid during the period	  	$	74,872	 	 	65,366	 	

See accompanying notes to consolidated financial statements.
 
4

National Commerce Financial Corporation and Subsidiaries
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
As of and for the Six Months Ended June 30, 2004 and 2003
(Unaudited)
 
(1) CONSOLIDATION AND PRESENTATION
 
The accompanying unaudited consolidated financial statements of National Commerce Financial Corporation (“NCF”) have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. In the opinion of management, the accompanying financial statements reflect all adjustments necessary for a fair presentation of the financial position, results of operations and cash flows of NCF on a consolidated basis, and all such adjustments are of a normal recurring nature. These financial statements and the notes thereto should be read in conjunction with NCF’s Annual Report on Form 10-K for the year ended December 31, 2003. Operating results for the three- and six-month periods ended June 30, 2004 are not necessarily indicative of the results that may be expected for the year ending December 31, 2004.
 
CONSOLIDATION. NCF is a bank holding company that provides diverse financial services through a regional network of banking affiliates and a national network of nonbanking affiliates. NCF’s wholly owned banking subsidiaries include National Bank of Commerce (“NBC”) and NBC Bank, FSB. The consolidated financial statements also include the accounts and results of operations of NCF’s direct and indirect wholly owned non-bank subsidiaries. All significant intercompany transactions and accounts are eliminated in consolidation.
 
NCF has two business segments: traditional banking and financial enterprises. Financial enterprises include transaction processing, trust services and investment management, retail banking consulting/in-store licensing and broker/dealer activities.
 
Certain prior period amounts have been reclassified to conform to the 2004 presentation. The reclassifications had no effect on net income available for common stockholders.
 
BUSINESS COMBINATIONS. On May 9, 2004, NCF announced that it had signed a definitive merger agreement with SunTrust Banks, Inc. The proposed merger, which is subject to approval by regulatory authorities and by shareholders of both companies, is expected to close in the fourth quarter of 2004. Under the terms of the definitive merger agreement, which has been approved by both boards of directors, NCF shareholders will have the right, subject to proration, to elect to receive cash or SunTrust common stock, in either case having a value equal to $8.625 plus .3713 SunTrust shares. During the second quarter of 2004, NCF incurred $8 million of investment advisor, contract termination and other expense directly attributable to the proposed merger.
 
EARNINGS PER SHARE. Basic earnings per share (“EPS”) is computed by dividing net income by the weighted average number of common shares outstanding during each period. Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock. Diluted EPS is computed by dividing net income by the weighted average number of common shares outstanding plus dilutive stock options (as computed under the treasury stock method) assumed to have been exercised during the period.
 
COMPREHENSIVE INCOME. Comprehensive income is the change in equity during the period from transactions and other events and circumstances from non-owner sources. Total comprehensive income is comprised of net income and other comprehensive income. Other comprehensive income for the six months ended June 30, 2004 and 2003 and accumulated other comprehensive income as of June 30, 2004, December 31, 2003 and June 30, 2003 are comprised of unrealized gains and losses on investment securities available for sale, unrealized gains and losses on cash flow hedges and adjustments of minimum pension liability.
 
5

National Commerce Financial Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
(1) CONSOLIDATION AND PRESENTATION (Continued)
 
STOCK-BASED COMPENSATION. NCF from time to time grants stock options for a fixed number of shares to employees with an exercise price equal to the fair value of the shares on the date of grant, which become exercisable on certain future dates with continued service by employees. NCF has elected to account for these stock option grants in accordance with Accounting Principles Board (“APB”) Opinion No. 25, “Accounting for Stock Issued to Employees,” and accordingly, recognizes no compensation expense for these stock option grants. For all variable stock option grants, which include any grant that is not at a fixed exercise price or whose vesting is dependent on future performance or some event other than the passage of time, compensation expense is recognized in accordance with APB Opinion No. 25 over the period the employee performs related service, also called the vesting period.
 
NCF discloses pro forma net income and earnings per share in the notes to its consolidated financial statements as if compensation expense was measured under the fair value based method according to Statement No. 123, “Accounting for Stock-based Compensation.” Under the fair value based method, compensation cost is measured at the grant date of the option based on the value of the award and is recognized over the service period, which is usually the vesting period. Had compensation expense for the stock option plans been determined consistent with Statement No. 123, NCF’s net income and net income per share for the three- and six-month periods ended June 30, 2004 and 2003 would have been reduced to the pro forma amounts indicated below. These pro forma amounts may not be representative of the effect on reported net income for future periods.

 	  	 	  	Three Months Ended
June 30,
	  	Six Months Ended
June 30,
	
In Thousands Except Per Share Data
	  	 	  	2004
	  	2003
	  	2004
	  	2003
	
Net income	  	As reported	  	$	85,091	  	71,507	  	175,335	  	135,597	
 	  	Pro forma	  	 	82,909	  	68,850	  	171,052	  	130,663	
Basic EPS	  	As reported	  	 	.42	  	.35	  	.86	  	.66	
 	  	Pro forma	  	 	.41	  	.34	  	.84	  	.64	
Diluted EPS	  	As reported	  	 	.41	  	.35	  	.85	  	.66	
 	  	Pro forma	  	 	.40	  	.33	  	.83	  	.63	
 
CHANGES IN ACCOUNTING POLICY. NCF adopted the provisions of SEC Staff Accounting Bulletin No. 105 on April 1, 2004. It requires all registrants to account for mortgage loan interest rate lock commitments related to loans held for sale as written options, effective no later than for commitments entered into after March 31, 2004. NCF enters into such commitments with customers in connection with residential mortgage loan applications. This guidance requires NCF to recognize a liability on its balance sheet equal to the fair value of the commitment at the time the loan commitment is issued. As a result, this guidance delays the recognition of any revenue related to these commitments until such time as the loan is sold; however, it has no effect on the ultimate amount of revenue or cash flows recognized over time. Implementation of this guidance during the second quarter of 2004 did not have a material impact on NCF.
 
6

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 June 30, 2004 and December 31, 2003. This classification method emphasizes the source of loan repayment rather than the collateral for the loan, which is the classification method followed for regulatory reporting purposes.

In Thousands
	  	2004
	  	2003
	
Commercial	  	$	4,058,205	  	3,820,585	
Construction and commercial real estate	  	 	3,919,168	  	3,723,336	
Mortgage	  	 	1,161,352	  	933,057	
Consumer	  	 	4,832,412	  	4,342,695	
Revolving credit	  	 	88,821	  	84,534	
Lease financing	  	 	131,312	  	130,741	
 	  			  		
Total loans	  	$	14,191,270	  	13,034,948	

(3) ALLOWANCE FOR LOAN LOSSES
 
Following is the activity in the allowance for loan losses during the six months ended June 30, 2004 and 2003:

In Thousands
	  	2004
	 	 	2003
	 	
Balance at beginning of period	  	$	170,452	 	 	163,424	 	
Charge-offs:	  	 	 	 	 	 	 	
Commercial	  	 	(3,420	)	 	(2,334	)	
Construction and commercial real estate	  	 	—  	 	 	(225	)	
Secured by real estate	  	 	(2,642	)	 	(2,102	)	
Consumer	  	 	(11,715	)	 	(12,266	)	
Revolving credit	  	 	(2,204	)	 	(2,074	)	
Lease financing	  	 	(581	)	 	(658	)	
 	  				 			
Total charge-offs	  	 	(20,562	)	 	(19,659	)	
Recoveries:	  	 	 	 	 	 	 	
Commercial	  	 	909	 	 	534	 	
Construction and commercial real estate	  	 	2	 	 	8	 	
Secured by real estate	  	 	84	 	 	95	 	
Consumer	  	 	1,964	 	 	1,755	 	
Revolving credit	  	 	569	 	 	612	 	
Lease financing	  	 	87	 	 	69	 	
 	  				 			
Total recoveries	  	 	3,615	 	 	3,073	 	
 	  				 			
Net charge-offs	  	 	(16,947	)	 	(16,586	)	
Provision for loan losses	  	 	24,933	 	 	21,060	 	
Changes from sales	  	 	—  	 	 	(582	)	
 	  				 			
Balance at end of period	  	$	178,438	 	 	167,316	 	

7

National Commerce Financial Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
(4) NONPERFORMING ASSETS
 
Following is a summary of nonperforming assets as of June 30, 2004, December 31, 2003 and June 30, 2003:

In Thousands
	  	June
2004
	  	December
2003
	  	June
2003
	
Nonaccrual loans	  	$	37,638	  	30,689	  	33,843	
Foreclosed real estate	  	 	22,619	  	28,196	  	23,961	
 	  			  		  		
Nonperforming loans and foreclosed real estate	  	 	60,257	  	58,885	  	57,804	
Other repossessed assets	  	 	5,125	  	4,638	  	8,420	
 	  			  		  		
Nonperforming assets	  	$	65,382	  	63,523	  	66,224	
 	  			  		  		
Accruing loans 90 days or more past due	  	$	65,722	  	64,457	  	51,761	

(5) GOODWILL AND OTHER INTANGIBLE ASSETS
 
The changes in the carrying amount of goodwill for the year ended December 31, 2003 and six months ended June 30, 2004 for NCF’s business segments are as follows:

In Thousands
	  	Traditional
Banking
	  	Financial
Enterprises
	  	Total
	
Balance as of January 1, 2003	  	$	1,042,146	  	34,972	  	1,077,118	
Other goodwill adjustments	  	 	6,039	  	—  	  	6,039	
Goodwill acquired during the year	  	 	2,408	  	—  	  	2,408	
 	  			  		  		
Balance as of December 31, 2003	  	 	1,050,593	  	34,972	  	1,085,565	
Goodwill acquired during the period	  	 	—  	  	4,536	  	4,536	
 	  			  		  		
Balance as of June 30, 2004	  	$	1,050,593	  	39,508	  	1,090,101	

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:

 	  	Six Months Ended
June 30, 2004
	 	 	Year Ended
December 31, 2003
	 	
In Thousands
	  	Gross
Carrying
Amount
	  	Accumulated
Amortization
	 	 	Gross
Carrying
Amount
	  	Accumulated
Amortization
	 	
Core deposit intangibles	  	$	402,006	  	(256,107	)	 	402,225	  	(229,567	)	
Aggregate amortization expense for the period	  	 	26,540	  	 	 	 	61,356	  	 	 	
Estimated annual amortization expense:	  	 	 	  	 	 	 	 	  	 	 	
For year ended 12/31/04	  	 	50,897	  	 	 	 	 	  	 	 	
For year ended 12/31/05	  	 	41,296	  	 	 	 	 	  	 	 	
For year ended 12/31/06	  	 	32,033	  	 	 	 	 	  	 	 	
For year ended 12/31/07	  	 	23,137	  	 	 	 	 	  	 	 	
For year ended 12/31/08	  	 	14,516	  	 	 	 	 	  	 	 	

8

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 six months ended June 30, 2004 and 2003:

 	  	2004
	 	 	2003
	 	
In Thousands
	  	Before
Tax
Amount
	 	 	Tax
(Expense)
Benefit
	  	Net
of Tax
Amount
	 	 	Before
Tax
Amount
	 	 	Tax
(Expense)
Benefit
	 	 	Net
of Tax
Amount
	 	
Unrealized (losses) gains on securities:	  	 	 	 	 	 	  	 	 	 	 	 	 	 	 	 	 	 	
Unrealized (losses) gains arising during holding period	  	$	(108,236	)	 	42,146	  	(66,090	)	 	1,541	 	 	(517	)	 	1,024	 	
Reclassification adjustment for gains realized in net income	  	 	(10,984	)	 	4,339	  	(6,645	)	 	(4,924	)	 	1,945	 	 	(2,979	)	
Minimum pension liability:	  	 	 	 	 	 	  	 	 	 	 	 	 	 	 	 	 	 	
Adjustment to minimum pension liability	  	 	(188	)	 	75	  	(113	)	 	(1,237	)	 	495	 	 	(742	)	
Unrealized losses on cash flow hedging instruments:	  	 	 	 	 	 	  	 	 	 	 	 	 	 	 	 	 	 	
Unrealized losses arising during holding period	  	 	(5,393	)	 	2,157	  	(3,236	)	 	(335	)	 	134	 	 	(201	)	
 	  				 		  			 			 			 			
Other comprehensive (income) loss	  	$	(124,801	)	 	48,717	  	(76,084	)	 	(4,955	)	 	2,057	 	 	(2,898	)	

(7) FHLB ADVANCES
 
Maturities of FHLB advances for each of the years ending December 31 are as follows:

In Thousands
	  	Range of
Rates
	  	Total
Maturities
	
2004	  	1.11% to 7.65%	  	$	1,812,253	
2005	  	1.82% to 5.68%	  	 	2,335	
2006	  	4.44% to 4.44%	  	 	25,204	
2007	  	7.00% to 7.00%	  	 	276	
2008	  	2.00% to 5.94%	  	 	204,559	
Thereafter	  	2.17% to 6.39%	  	 	831,093	
 	  	 	  			
Total	  	 	  	$	2,875,720	

9

National Commerce Financial Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
(8) EMPLOYEE BENEFITS
 
The following tables disclose the components of the net periodic benefit costs and the assumptions used in computing those costs for the six months ended June 30, 2004 and 2003 for NCF’s pension and other benefit plans:

 	  	Pension Plan
	 	 	Other Plans
	
In Thousands
	  	2004
	 	 	2003
	 	 	2004
	  	2003
	
Components of Net Periodic Benefit Cost:	  	 	 	 	 	 	 	 	 	  	 	
Service cost	  	$	1,541	 	 	1,467	 	 	112	  	91	
Interest cost	  	 	2,076	 	 	2,173	 	 	444	  	402	
Expected return on plan assets	  	 	(3,311	)	 	(2,814	)	 	—  	  	—  	
Transition obligation amortization	  	 	—  	 	 	—  	 	 	5	  	5	
Amortization of prior service cost	  	 	(26	)	 	(26	)	 	14	  	3	
Amortization of net loss	  	 	241	 	 	564	 	 	275	  	184	
FAS88 settlement loss	  	 	—  	 	 	—  	 	 	100	  	99	
 	  				 			 		  		
Net expense	  	$	521	 	 	1,364	 	 	950	  	784	
 	  				 			 		  		
Assumptions:	  	 	 	 	 	 	 	 	 	  	 	
Discount rate	  	 	6.00	%	 	6.75	 	 	6.00	  	6.75	
Expected long-term return on assets	  	 	8.50	 	 	8.50	 	 	—  	  	—  	
Rate of compensation increase	  	 	3.50	 	 	3.50	 	 	—  	  	—  	
Initial health care trend rate	  	 	—  	 	 	—  	 	 	9.00	  	9.00	
Ultimate trend rate	  	 	—  	 	 	—  	 	 	5.00	  	5.00	
Year ultimate trend rate is reached	  	 	—  	 	 	—  	 	 	2012	  	2011	
 
(9) PER SHARE DATA
 
The following schedule presents the components of the basic and diluted EPS computations for the three and six months ended June 30, 2004 and 2003. Dilutive common shares arise from the potentially dilutive effect of NCF’s stock options outstanding.

 	  	Three Months Ended
June 30,
	  	Six Months Ended
June 30,
	
In Thousands Except Per Share Data
	  	2004
	  	2003
	  	2004
	  	2003
	
Basic EPS	  	 	 	  	 	  	 	  	 	
Average common shares	  	 	204,340	  	204,629	  	204,660	  	204,948	
Net income	  	$	85,091	  	71,507	  	175,335	  	135,597	
Earnings per share	  	 	.42	  	.35	  	.86	  	.66	
 	  			  		  		  		
Diluted EPS	  	 	 	  	 	  	 	  	 	
Average common shares	  	 	204,340	  	204,629	  	204,660	  	204,948	
Average dilutive common shares	  	 	2,397	  	1,072	  	2,250	  	1,277	
 	  			  		  		  		
Adjusted average common shares	  	 	206,737	  	205,701	  	206,910	  	206,225	
Net income	  	$	85,091	  	71,507	  	175,335	  	135,597	
Earnings per share	  	 	.41	  	.35	  	.85	  	.66	

10

National Commerce Financial Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
(10) SUPPLEMENTARY INCOME STATEMENT INFORMATION
 
Following is a breakdown of the components of “other expense” on the Consolidated Statement of Income for the three- and six-month periods ended June 30, 2004 and 2003:

 	  	Three Months Ended
June 30,
	  	Six Months Ended
June 30,
	
In Thousands
	  	2004
	  	2003
	  	2004
	  	2003
	
Legal and professional fees	  	$	13,385	  	9,830	  	26,684	  	17,975	
Telecommunications	  	 	4,132	  	4,544	  	8,265	  	9,052	
Data processing	  	 	7,061	  	5,579	  	13,650	  	10,824	
Marketing	  	 	4,133	  	2,967	  	7,162	  	5,486	
Printing and office supplies	  	 	3,769	  	3,781	  	6,885	  	7,095	
Postage and freight	  	 	2,622	  	2,731	  	4,987	  	5,511	
All other	  	 	19,950	  	21,909	  	37,745	  	41,802	
 	  			  		  		  		
Total other expense	  	$	55,052	  	51,341	  	105,378	  	97,745	

(11) COMMITMENTS AND CONTINGENCIES 
 
Certain legal claims have arisen in the normal course of business in which NCF and certain of its subsidiary banks have been named as defendants. Although the amount of any ultimate liability with respect to such matters cannot be determined, in the opinion of management and counsel, any such liability will have no material effect on NCF’s financial position or results of operations.
 
On May 9, 2004, a shareholder of NCF filed a purported class action complaint in the Circuit Court of Shelby County, Tennessee against NCF and each member of the NCF board of directors. On May 21, 2004, another shareholder of NCF filed a purported class action complaint in the same court. The substantially identical complaints have been consolidated into one lawsuit and allege that the NCF board of directors breached its fiduciary duties to the NCF shareholders in approving and adopting the merger agreement by, among other things, failing to wait until after announcement of 2 nd quarter 2004 operating results in order to achieve a higher price for the company and by attempting to trigger the payment of certain change of control payments to NCF’s senior management. The consolidated lawsuit seeks, among other things, to enjoin the completion of the merger and to recover costs and disbursements incurred by the plaintiffs, including reasonable attorney fees and expert fees. Simultaneously with the filing of the lawsuits, the plaintiffs propounded requests for production of documents controlled by NCF and its directors. NCF and its directors served written responses and objections thereto on June 25, 2004 and produced responsive documents to the plaintiffs on July 7, 2004. NCF believes that these lawsuits are entirely without merit and intends to vigorously defend the lawsuits.
 
In December 2002, NCF completed the acquisition of BancMortgage, an Atlanta-based mortgage originator. Approximately 611,000 shares of NCF common stock were issued and $5 million of goodwill was initially recorded in the transaction. In accordance with the merger agreement, additional consideration, shares of NCF common stock and cash, may be paid based on a multiple of pretax earnings for the three years ended December 31, 2005, provided such amount exceeds consideration already exchanged. Any contingent payment will be recorded as goodwill.
 
11

National Commerce Financial Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
(12) SEGMENT INFORMATION
 
Management monitors NCF performance as two business segments, traditional banking and financial enterprises.
 
The traditional banking segment includes sales and distribution of financial products and services to individuals. These products and services include loan products such as residential mortgage, home equity lending, automobile and other personal financing needs. Traditional banking products also include various deposit products that are designed for customers’ saving and transaction needs. This segment also includes lending and related financial services provided to small- to medium-sized companies. Included among these services are several specialty services such as real estate finance, asset-based lending and residential construction lending. The traditional banking segment also includes management of the investment portfolio and non-deposit based funding.
 
The financial enterprises segment is comprised of trust services and investment management, transaction processing, retail banking consulting/in-store licensing and broker/dealer activities.
 
The accounting policies of the individual segments are the same as those of NCF. Transactions between business segments are conducted at arm’s length. Interest income for tax-exempt loans and securities is adjusted to a taxable-equivalent basis.
 
The following tables present condensed income statements for each reportable segment:

In Thousands
	  	Traditional
Banking
	 	 	Financial
Enterprises
	 	 	Intersegment
Eliminations
	 	 	Total
	 	
Quarter ended June 30, 2004:	  	 	 	 	 	 	 	 	 	 	 	 	 	
Net interest income (TE)	  	$	193,524	 	 	7,241	 	 	—  	 	 	200,765	 	
Provision for loan losses	  	 	(12,845	)	 	—  	 	 	—  	 	 	(12,845	)	
Gain on branch sale	  	 	714	 	 	—  	 	 	—  	 	 	714	 	
Noninterest income	  	 	69,050	 	 	56,409	 	 	(1,925	)	 	123,534	 	
Intangibles amortization	  	 	(12,901	)	 	—  	 	 	—  	 	 	(12,901	)	
Merger-related expenses	  	 	(8,290	)	 	—  	 	 	—  	 	 	(8,290	)	
Noninterest expense	  	 	(112,800	)	 	(42,591	)	 	1,925	 	 	(153,466	)	
 	  				 			 			 			
Income before income taxes (TE)	  	 	116,452	 	 	21,059	 	 	—  	 	 	137,511	 	
Income taxes	  	 	(44,207	)	 	(8,213	)	 	—  	 	 	(52,420	)	
 	  				 			 			 			
Net income	  	$	72,245	 	 	12,846	 	 	—  	 	 	85,091	 	
 	  				 			 			 			
Average assets	  	$	22,513,130	 	 	1,228,760	 	 	—  	 	 	23,741,890	 	
Quarter ended June 30, 2003:	  	 	 	 	 	 	 	 	 	 	 	 	 	
Net interest income (TE)	  	$	183,113	 	 	5,286	 	 	—  	 	 	188,399	 	
Provision for loan losses	  	 	(13,376	)	 	—  	 	 	—  	 	 	(13,376	)	
Noninterest income	  	 	65,301	 	 	54,215	 	 	(2,098	)	 	117,418	 	
Intangibles amortization	  	 	(15,673	)	 	—  	 	 	—  	 	 	(15,673	)	
First Mercantile litigation	  	 	—  	 	 	(1,041	)	 	—  	 	 	(1,041	)	
Employment contract terminations	  	 	(14,108	)	 	—  	 	 	—  	 	 	(14,108	)	
Debt retirement/prepayment gains	  	 	326	 	 	—  	 	 	—  	 	 	326	 	
Noninterest expense	  	 	(111,313	)	 	(40,893	)	 	2,098	 	 	(150,108	)	
 	  				 			 			 			
Income before income taxes (TE)	  	 	94,270	 	 	17,567	 	 	—  	 	 	111,837	 	
Income taxes	  	 	(33,479	)	 	(6,851	)	 	—  	 	 	(40,330	)	
 	  				 			 			 			
Net income	  	$	60,791	 	 	10,716	 	 	—  	 	 	71,507	 	
 	  				 			 			 			
Average assets	  	$	21,369,652	 	 	803,743	 	 	—  	 	 	22,173,395	 	
 
12

National Commerce Financial Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
(12) SEGMENT INFORMATION (Continued)

In Thousands
	  	Traditional
Banking
	 	 	Financial
Enterprises
	 	 	Intersegment
Eliminations
	 	 	Total
	 	
Six months ended June 30, 2004:	  	 	 	 	 	 	 	 	 	 	 	 	 	
Net interest income (TE)	  	$	384,410	 	 	14,243	 	 	—  	 	 	398,653	 	
Provision for loan losses	  	 	(24,933	)	 	—  	 	 	—  	 	 	(24,933	)	
Gain on branch sale	  	 	759	 	 	—  	 	 	—  	 	 	759	 	
Noninterest income	  	 	137,839	 	 	109,477	 	 	(3,889	)	 	243,427	 	
Intangibles amortization	  	 	(26,540	)	 	—  	 	 	—  	 	 	(26,540	)	
Merger-related expenses	  	 	(8,290	)	 	—  	 	 	—  	 	 	(8,290	)	
Noninterest expense	  	 	(224,556	)	 	(82,886	)	 	3,889	 	 	(303,553	)	
 	  				 			 			 			
Income before income taxes (TE)	  	 	238,689	 	 	40,834	 	 	—  	 	 	279,523	 	
Income taxes	  	 	(88,263	)	 	(15,925	)	 	—  	 	 	(104,188	)	
 	  				 			 			 			
Net income	  	$	150,426	 	 	24,909	 	 	—  	 	 	175,335	 	
 	  				 			 			 			
Average assets	  	$	22,308,654	 	 	1,134,459	 	 	—  	 	 	23,443,113	 	
Six months ended June 30, 2003:	  	 	 	 	 	 	 	 	 	 	 	 	 	
Net interest income (TE)	  	$	362,280	 	 	10,501	 	 	—  	 	 	372,781	 	
Provision for loan losses	  	 	(21,060	)	 	—  	 	 	—  	 	 	(21,060	)	
Loss on branch sale	  	 	(145	)	 	—  	 	 	—  	 	 	(145	)	
Noninterest income	  	 	126,902	 	 	98,972	 	 	(3,716	)	 	222,158	 	
Intangibles amortization	  	 	(31,957	)	 	—  	 	 	—  	 	 	(31,957	)	
First Mercantile litigation	  	 	—  	 	 	(20,695	)	 	—  	 	 	(20,695	)	
Employment contract terminations	  	 	(14,108	)	 	—  	 	 	—  	 	 	(14,108	)	
Debt retirement/prepayment gains	  	 	326	 	 	—  	 	 	—  	 	 	326	 	
Noninterest expense	  	 	(222,366	)	 	(75,624	)	 	3,716	 	 	(294,274	)	
 	  				 			 			 			
Income before income taxes (TE)	  	 	199,872	 	 	13,154	 	 	—  	 	 	213,026	 	
Income taxes	  	 	(72,299	)	 	(5,130	)	 	—  	 	 	(77,429	)	
 	  				 			 			 			
Net income	  	$	127,573	 	 	8,024	 	 	—  	 	 	135,597	 	
 	  				 			 			 			
Average assets	  	$	20,976,051	 	 	759,301	 	 	—  	 	 	21,735,352	 	
 
13

Exhibit 99.4
 
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
 
The following unaudited pro forma condensed combined financial information and explanatory notes present how the combined financial statements of SunTrust Banks, Inc. (SunTrust) and National Commerce Financial (NCF) may have appeared had the businesses actually been combined as of June 30, 2004 (with respect to the balance sheet information, using currently available fair value information) or as of January 1, 2003 (with respect to income statement information). The unaudited pro forma condensed combined financial information shows the impact of the merger of SunTrust and NCF on the companies’ respective historical financial positions and results of operations under the purchase method of accounting with SunTrust treated as the acquirer. Under this method of accounting, the assets and liabilities of NCF will be recorded by SunTrust at their estimated fair values as of the merger date. The unaudited pro forma condensed combined financial information combines the historical financial information of SunTrust and NCF as of and for the six months ended June 30, 2004 and for the year ended December 31, 2003. The unaudited pro forma condensed combined balance sheet as of June 30, 2004 assumes the merger was completed on that date. The unaudited pro forma condensed combined statements of income give effect to the merger as if the merger had been completed on January 1, 2003.
 
SunTrust issued approximately 76.4 million shares of common stock and $1.8 billion in cash consideration to NCF common shareholders based on the average of the closing prices of SunTrust common stock for the five trading days immediately before the merger and an estimate of NCF’s outstanding common shares as of the merger date. The unaudited pro forma condensed combined financial information has been derived from and should be read in conjunction with the historical consolidated financial statements and the related notes of both SunTrust and NCF which are incorporated in this document by reference.
 
The unaudited pro forma condensed combined financial information is presented for illustrative purposes only and does not indicate the financial results of the combined companies had the companies actually been combined and had the impact of possible revenue enhancements, expense efficiencies, asset dispositions and share repurchases, among other factors, been considered. In addition, as explained in more detail in the accompanying notes to the unaudited pro forma condensed combined financial information, the allocation of the purchase price reflected in the pro forma condensed combined financial information is subject to adjustment and may vary from the actual purchase price allocation.
 
EXPLANATORY NOTE
 
On November 12, 2004, SunTrust restated its unaudited historical financial statements for the quarterly periods ended March 31, 2004 and June 30, 2004. The restatement pertains to a misstatement of SunTrust’s Allowance for Loan Losses during these periods, as a result of errors and internal control deficiencies. The restatement does not affect SunTrust’s audited consolidated financial statements for the year ended December 31, 2003. The unaudited pro forma condensed combined financial information contained herein as of and for the period ended June 30, 2004 reflects the impact of this restatement. See SunTrust’s Quarterly Reports on Form 10-Q/A for the periods ended March 31, 2004 and June 30, 2004, which are being filed concurrently with this Amendment to Current Report on Form 8-K/A, for more detailed information concerning the restatement.

SunTrust/National Commerce Financial
Proforma Condensed Combined Balance Sheet
(Unaudited)
 
The following preliminary unaudited proforma condensed combined balance sheet combines the historical balance sheets of SunTrust and National Commerce Financial assuming the companies had been combined on June 30, 2004 on a purchase accounting basis.

 	  	June 30, 2004
	 	
(In thousands) 
 	  	SunTrust
(As restated)
	 	 	NCF
	 	 	Pro Forma
Adjustments (1)
	 	 	SunTrust
NCF
Combined
	 	
Assets	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Cash and due from banks	  	$	4,068,693	 	 	$	568,360	 	 	$	(800,000	)(A)	 	$	3,837,053	 	
Interest-bearing deposits in other banks	  	 	17,196	 	 	 	7,803	 	 	 	 	 	 	 	24,999	 	
Funds sold and securities purchased under agreements to resell	  	 	1,679,403	 	 	 	267,182	 	 	 	 	 	 	 	1,946,585	 	
Trading assets	  	 	1,807,320	 	 	 	245,913	 	 	 	 	 	 	 	2,053,233	 	
Securities available for sale	  	 	25,587,978	 	 	 	5,116,531	 	 	 	1,115,378	(B)	 	 	31,819,887	 	
Securities held to maturity	  	 	—  	 	 	 	1,140,777	 	 	 	(1,140,777	)(B)	 	 	—  	 	
Loans held for sale	  	 	5,030,617	 	 	 	334,156	 	 	 	 	 	 	 	5,364,773	 	
					
Loans	  	 	82,540,230	 	 	 	14,191,270	 	 	 	15,624	(C)	 	 	96,747,124	 	
Allowance for loan losses	  	 	(902,243	)	 	 	(178,438	)	 	 	 	 	 	 	(1,080,681	)	
 	  				 				 				 				
Net loans	  	 	81,637,987	 	 	 	14,012,832	 	 	 	15,624	 	 	 	95,666,443	 	
					
Premises and equipment	  	 	1,615,562	 	 	 	245,279	 	 	 	(40,788	)(D)	 	 	1,820,053	 	
Goodwill	  	 	1,164,846	 	 	 	1,090,101	 	 	 	(1,090,101	)(E)	 	 	7,003,923	 	
 	  	 	 	 	 	 	 	 	 	 	5,839,077	(E)	 	 	 	 	
Other intangible assets	  	 	721,428	 	 	 	145,899	 	 	 	(145,899	)(F)	 	 	1,084,428	 	
 	  	 	 	 	 	 	 	 	 	 	363,000	(F)	 	 	 	 	
Other assets	  	 	4,845,493	 	 	 	869,284	 	 	 	(109,564	)(G)	 	 	5,605,213	 	
 	  				 				 				 				
Total assets	  	$	128,176,523	 	 	$	24,044,117	 	 	$	4,005,950	 	 	$	156,226,590	 	
 	  				 				 				 				
Liabilities and Shareholders’ Equity	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Noninterest-bearing consumer and commercial deposits	  	$	20,610,429	 	 	$	2,862,746	 	 	$	—  	 	 	$	23,473,175	 	
Interest-bearing consumer and commercial deposits	  	 	53,244,549	 	 	 	10,687,248	 	 	 	24,997	(H)	 	 	63,956,794	 	
 	  				 				 				 				
Total consumer and commercial deposits	  	 	73,854,978	 	 	 	13,549,994	 	 	 	24,997	 	 	 	87,429,969	 	
Brokered and foreign deposits	  	 	11,673,725	 	 	 	2,464,471	 	 	 	 	 	 	 	14,138,196	 	
 	  				 				 				 				
Total deposits	  	 	85,528,703	 	 	 	16,014,465	 	 	 	24,997	 	 	 	101,568,165	 	
					
Other short-term borrowings	  	 	9,538,593	 	 	 	1,708,305	 	 	 	164	(I)	 	 	11,247,062	 	
Long-term debt	  	 	17,441,487	 	 	 	3,160,878	 	 	 	61,412	(J)	 	 	21,663,777	 	
 	  	 	 	 	 	 	 	 	 	 	1,000,000	(K)	 	 	 	 	
Other liabilities	  	 	5,607,981	 	 	 	378,357	 	 	 	170,387	(L)	 	 	6,169,832	 	
 	  	 	 	 	 	 	 	 	 	 	13,107	(L)	 	 	 	 	
 	  				 				 				 				
Total liabilities	  	 	118,116,764	 	 	 	21,262,005	 	 	 	1,270,067	 	 	 	140,648,836	 	
 	  				 				 				 				
Preferred stock	  	 	—  	 	 	 	—  	 	 	 	 	 	 	 	—  	 	
Common stock	  	 	294,163	 	 	 	410,008	 	 	 	(410,008	)(M)	 	 	370,585	 	
 	  	 	 	 	 	 	 	 	 	 	76,422	(M)	 	 	 	 	
Additional paid in capital	  	 	1,297,555	 	 	 	1,722,205	 	 	 	(1,722,205	)(M)	 	 	6,739,128	 	
 	  	 	 	 	 	 	 	 	 	 	5,441,573	(M)	 	 	 	 	
Retained earnings	  	 	7,615,503	 	 	 	720,633	 	 	 	(720,633	)(M)	 	 	7,615,503	 	
Treasury stock, at cost, and other	  	 	(625,137	)	 	 	—  	 	 	 	—  	 	 	 	(625,137	)	
Accumulated other comprehensive income	  	 	1,477,675	 	 	 	(70,734	)	 	 	70,734	(M)	 	 	1,477,675	 	
 	  				 				 				 				
Total shareholders’ equity	  	 	10,059,759	 	 	 	2,782,112	 	 	 	2,735,883	 	 	 	15,577,754	 	
 	  				 				 				 				
Total liabilities and shareholders’ equity	  	$	128,176,523	 	 	$	24,044,117	 	 	$	4,005,950	 	 	$	156,226,590	 	

(1)	See notes to Unaudited Pro Forma Condensed Combined Financial Information	

SunTrust/National Commerce Financial
Pro Forma Condensed Combined Income Statement
(Unaudited)
 
The following preliminary unaudited pro forma condensed combined income statement combines the historical income statements of SunTrust and National Commerce Financial assuming the companies had been combined on January 1, 2003 on a purchase accounting basis.

 	  	Six months ended June 30, 2004
	
(In thousands except per share data) 
 	  	SunTrust
(As restated)
	 	 	NCF
	  	Pro Forma
Adjustments (1)
	 	 	SunTrust
NCF
Combined
	
Interest Income	  	 	 	 	 	 	 	  	 	 	 	 	 	 	
Interest and fees on loans and loans held for sale	  	$	1,907,471	 	 	$	372,264	  	$	(3,007	)(C)	 	$	2,276,728	
Interest and dividends on investment securities	  	 	435,704	 	 	 	146,186	  	 	1,450	(B)	 	 	583,340	
Other interest income	  	 	18,763	 	 	 	5,610	  	 	 	 	 	 	24,373	
 	  				 			  				 			
Total interest income	  	 	2,361,938	 	 	 	524,060	  	 	(1,557	)	 	 	2,884,441	
 	  				 			  				 			
Interest Expense	  	 	 	 	 	 	 	  	 	 	 	 	 	 	
Interest on deposits	  	 	318,064	 	 	 	94,869	  	 	(3,963	)(H)	 	 	419,151	
 	  	 	 	 	 	 	 	  	 	10,181	(A)	 	 	 	
Interest on other short-term borrowings	  	 	54,350	 	 	 	9,489	  	 	—  	(I)	 	 	63,839	
Interest on long-term debt	  	 	265,447	 	 	 	34,645	  	 	(3,837	)(J)	 	 	318,505	
 	  	 	 	 	 	 	 	  	 	22,250	(K)	 	 	 	
 	  				 			  				 			
Total interest expense	  	 	637,861	 	 	 	139,003	  	 	24,631	 	 	 	801,495	
 	  				 			  				 			
Net Interest Income	  	 	1,724,077	 	 	 	385,057	  	 	(26,188	)	 	 	2,082,946	
Provision for loan losses	  	 	56,664	 	 	 	24,933	  	 	 	 	 	 	56,664	
 	  				 			  				 			
Net interest income after provision for loan losses	  	 	1,667,413	 	 	 	360,124	  	 	(26,188	)	 	 	2,026,282	
 	  				 			  				 			
Noninterest Income	  	 	 	 	 	 	 	  	 	 	 	 	 	 	
Fees and other charges	  	 	451,648	 	 	 	70,377	  	 	 	 	 	 	522,025	
Service charges on deposit accounts	  	 	331,922	 	 	 	85,999	  	 	 	 	 	 	417,921	
Trust and investment management income	  	 	276,584	 	 	 	32,484	  	 	 	 	 	 	309,068	
Other noninterest income	  	 	161,718	 	 	 	44,342	  	 	 	 	 	 	206,060	
Securities (losses) gains	  	 	(4,121	)	 	 	10,984	  	 	 	 	 	 	6,863	
 	  				 			  	 	 	 	 			
Total noninterest income	  	 	1,217,751	 	 	 	244,186	  	 	 	 	 	 	1,461,937	
 	  				 			  	 	 	 	 			
Noninterest Expense	  	 	 	 	 	 	 	  	 	 	 	 	 	 	
Employee compensation and benefits	  	 	1,027,718	 	 	 	156,928	  	 	 	 	 	 	1,184,646	
Net occupancy expense	  	 	123,488	 	 	 	26,820	  	 	 	 	 	 	150,308	
Equipment expense	  	 	90,825	 	 	 	14,427	  	 	 	 	 	 	105,252	
Amortization of intangibles	  	 	30,230	 	 	 	26,540	  	 	(26,540	)(N)	 	 	59,930	
 	  	 	 	 	 	 	 	  	 	29,700	(F)	 	 	 	
Other noninterest expense	  	 	545,936	 	 	 	113,668	  	 	 	 	 	 	659,604	
 	  				 			  				 			
Total noninterest expense	  	 	1,818,197	 	 	 	338,383	  	 	3,160	 	 	 	2,159,740	
 	  				 			  				 			
Income from continuing operations before provision for income taxes	  	 	1,066,967	 	 	 	265,927	  	 	(29,348	)	 	 	1,303,546	
Provision for income taxes	  	 	318,561	 	 	 	90,592	  	 	(11,152	)(O)	 	 	398,001	
 	  				 			  				 			
Income from Continuing Operations	  	$	748,406	 	 	$	175,335	  	$	(18,196	)	 	$	905,545	
 	  				 			  				 			
Per Common Share Information	  	 	 	 	 	 	 	  	 	 	 	 	 	 	
Diluted earnings per share - continuing operations	  	$	2.64	 	 	$	0.85	  	 	 	 	 	$	2.51	
Basic earnings per share - continuing operations	  	 	2.68	 	 	 	0.86	  	 	 	 	 	 	2.55	
Cash dividends paid	  	 	1.00	 	 	 	0.40	  	 	 	 	 	 	1.00	
Average common shares - diluted (in thousands)	  	 	283,320	 	 	 	206,910	  	 	(130,084	)(P)	 	 	360,146	
Average common shares - basic (in thousands)	  	 	279,682	 	 	 	204,660	  	 	(128,670	)(P)	 	 	355,672	

(1)	See notes to Unaudited Pro Forma Condensed Combined Financial Information	

SunTrust/National Commerce Financial
Pro Forma Condensed Combined Income Statement
(Unaudited)
 
The following preliminary unaudited pro forma condensed combined income statement combines the historical income statements of SunTrust and National Commerce Financial assuming the companies had been combined on January 1, 2003 on a purchase accounting basis.

 	  	Twelve months ended December 31, 2003
	
(In thousands except per share data) 
 	  	SunTrust
	  	NCF
	  	Pro Forma
Adjustments (1)
	 	 	SunTrust
NCF
Combined
	
Interest Income	  	 	 	  	 	 	  	 	 	 	 	 	
Interest and fees on loans and loans held for sale	  	$	4,041,952	  	$	760,855	  	(11,972	)(C)	 	$	4,790,835	
Interest and dividends on investment securities	  	 	694,142	  	 	288,471	  	2,254	(B)	 	 	984,867	
Other interest income	  	 	32,748	  	 	4,810	  	 	 	 	 	37,558	
 	  			  			  			 			
Total interest income	  	 	4,768,842	  	 	1,054,136	  	(9,718	)	 	 	5,813,260	
 	  			  			  			 			
Interest Expense	  	 	 	  	 	 	  	 	 	 	 	 	
Interest on deposits	  	 	771,631	  	 	210,687	  	(2,063	)(H)	 	 	1,007,455	
 	  	 	 	  	 	 	  	27,200	(A)	 	 	 	
Interest on other short-term borrowings	  	 	139,685	  	 	18,217	  	(164	)(I)	 	 	157,738	
Interest on long-term debt	  	 	537,223	  	 	85,722	  	(7,484	)(J)	 	 	659,961	
 	  	 	 	  	 	 	  	44,500	(K)	 	 	 	
 	  			  			  			 			
Total interest expense	  	 	1,448,539	  	 	314,626	  	61,989	 	 	 	1,825,154	
 	  			  			  			 			
Net Interest Income	  	 	3,320,303	  	 	739,510	  	(71,707	)	 	 	3,988,106	
Provision for loan losses	  	 	313,550	  	 	48,414	  	 	 	 	 	361,964	
 	  			  			  			 			
Net interest income after provision for loan losses	  	 	3,006,753	  	 	691,096	  	(71,707	)	 	 	3,626,142	
 	  			  			  			 			
Noninterest Income	  	 	 	  	 	 	  	 	 	 	 	 	
Fees and other charges	  	 	800,129	  	 	132,462	  	 	 	 	 	932,591	
Service charges on deposit accounts	  	 	643,103	  	 	168,256	  	 	 	 	 	811,359	
Trust and investment management income	  	 	502,409	  	 	56,800	  	 	 	 	 	559,209	
Other noninterest income	  	 	233,484	  	 	93,454	  	 	 	 	 	326,938	
Securities gains	  	 	123,876	  	 	3,750	  	 	 	 	 	127,626	
 	  			  			  	 	 	 			
Total noninterest income	  	 	2,303,001	  	 	454,722	  	 	 	 	 	2,757,723	
 	  			  			  	 	 	 			
Noninterest Expense	  	 	 	  	 	 	  	 	 	 	 	 	
Employee compensation and benefits	  	 	1,944,563	  	 	310,066	  	 	 	 	 	2,254,629	
Net occupancy expense	  	 	237,266	  	 	54,338	  	 	 	 	 	291,604	
Equipment expense	  	 	178,443	  	 	30,305	  	 	 	 	 	208,748	
Amortization of intangibles	  	 	64,515	  	 	61,356	  	(61,356	)(N)	 	 	129,861	
 	  	 	 	  	 	 	  	65,346	(F)	 	 	 	
Other noninterest expense	  	 	975,829	  	 	268,374	  	 	 	 	 	1,244,203	
 	  			  			  			 			
Total noninterest expense	  	 	3,400,616	  	 	724,439	  	3,990	 	 	 	4,129,045	
 	  			  			  			 			
Income from continuing operations before provision for income taxes	  	 	1,909,138	  	 	421,379	  	(75,697	)	 	 	2,254,820	
Provision for income taxes	  	 	576,841	  	 	134,614	  	(28,765	)(O)	 	 	682,690	
 	  			  			  			 			
Income from Continuing Operations	  	$	1,332,297	  	$	286,765	  	(46,932	)	 	$	1,572,130	
 	  			  			  			 			
Per Common Share Information	  	 	 	  	 	 	  	 	 	 	 	 	
Diluted earnings per share - continuing operations	  	$	4.73	  	$	1.39	  	 	 	 	$	4.39	
Basic earnings per share - continuing operations	  	 	4.79	  	 	1.40	  	 	 	 	 	4.44	
Cash dividends paid	  	 	1.80	  	 	0.74	  	 	 	 	 	1.80	
Average common shares - diluted (in thousands)	  	 	281,434	  	 	206,368	  	(129,744	)(P)	 	 	358,058	
Average common shares - basic (in thousands)	  	 	278,295	  	 	204,864	  	(128,798	)(P)	 	 	354,361	

(1)	See notes to Unaudited Pro Forma Condensed Combined Financial Information	

NOTES TO THE UNAUDITED PRO FORMA CONDENSED COMBINED
FINANCIAL INFORMATION
 
Note 1 — Basis of Pro Forma Presentation
 
The unaudited pro forma condensed combined financial information related to the merger is included for the year ended December 31, 2003 and as of and for the six months ended June 30, 2004. The pro forma adjustments included herein reflect the issuance of approximately 76.4 million shares of SunTrust common stock and $1.8 billion in cash consideration to NCF common shareholders, based on the average of the closing prices of SunTrust common stock for the five trading days immediately before the merger and an estimate of NCF’s outstanding common shares as of the merger date. The estimated purchase price of $7.4 billion, which includes the value of outstanding stock options, is based on a per share price for SunTrust common stock of $70.41, which was the closing price of SunTrust common stock on the day before the completion of the merger.
 
The merger is being accounted for using the purchase method of accounting; accordingly, SunTrust’s cost to acquire NCF will be allocated to the assets (including identifiable intangible assets) and liabilities (including executory contracts and other commitments) of NCF at their respective fair values as of the merger date.
 
The unaudited pro forma condensed combined financial information includes estimated adjustments to record the assets and liabilities of NCF at their respective fair values and represents SunTrust’s estimates based on available information. The pro forma adjustments included herein may be revised as additional information becomes available and as additional analyses are performed. Some revisions could be significant, especially fair value adjustments based on interest rate assumptions. The final allocation of the purchase price will be determined after completion of final analyses to determine the fair values of NCF’s tangible, and identifiable intangible, assets and liabilities as of the merger date. Accordingly, the final purchase accounting adjustments and integration charges may be materially different from the pro forma adjustments presented in this document. Increases or decreases in the fair value of the net assets, commitments, executory contracts and other items of NCF as compared to the information shown in this document may change the amount of the purchase price allocated to goodwill and other assets and liabilities and may impact the statement of income due to adjustments in yield and/or amortization of the adjusted assets or liabilities.
 
The pro forma financial statements do not currently include any amount related to the estimated $77.5 million after-tax ($125.0 million pre-tax) merger related charges that will be incurred to combine the operations of SunTrust and NCF. The estimated merger related charges will result from action taken with respect to both SunTrust and NCF operations, facilities and associates. The charges will be recorded based on the nature and timing of these integration actions. These charges are also subject to change as additional information becomes known. The pro forma financial statements also do not currently include any amount related to potential efficiencies (i.e., cost reductions and revenue growth) that may be realized from the merger.
 
Certain amounts in the historical consolidated financial statements of NCF have been reclassified to conform with SunTrust’s historical financial information presentation. Discontinued operations separately reported in NCF’s historical consolidated statements of income have been excluded. The unaudited pro forma condensed combined financial information presented in this document does not necessarily indicate the results of operations or the combined financial position that would have resulted had the merger been completed at the beginning of the applicable period presented, nor is it indicative of the results of operations in future periods or the future financial position of the combined company.
 
Note 2 — Pro Forma Adjustments
 
The unaudited pro forma condensed combined financial information for the merger includes the pro forma balance sheet as of June 30, 2004 assuming the merger was completed on June 30, 2004 (using currently available fair value information). The pro forma income statements for the six months ended June 30, 2004 and the year ended December 31, 2003 were prepared assuming the merger was completed on January 1, 2003.
 
The unaudited pro forma condensed combined financial information reflects the issuance of approximately 76.4 million shares of SunTrust common stock based on the average of the closing stock prices for SunTrust common stock during the five trading days immediately before the merger and an estimate of NCF’s outstanding common shares as of the merger date. The aggregate value of approximately $7.4 billion was based on the closing price of SunTrust common stock on the day before the completion of the merger. Also reflected in the pro forma condensed combined financial information is a $1.8 billion cash payment to NCF common shareholders.

The allocation of the purchase price follows:
 
SunTrust/National Commerce Financial
Purchase Accounting Adjustments

(Dollars and shares in thousands) 
 	  	June 30, 2004
	 	
Purchase Price	  	 	 	 	 	 	 	 	 	 	 	
Total SunTrust common stock to be issued	  	 	 	 	 	76,422	 	 	 	 	 	
Purchase price per SunTrust common share	  	 	 	 	$	70.41	 	 	 	 	 	
 	  	 	 	 				 	 	 	 	
Value of SunTrust stock issued	  	 	 	 	 	 	 	 	$	5,380,873	 	
Investment banking fees	  	 	 	 	 	 	 	 	 	44,380 	(L)	
Estimated fair value of employee stock options	  	 	 	 	 	 	 	 	 	137,122 	(M)	
Cash paid	  	 	 	 	 	 	 	 	 	1,800,000	 	
 	  	 	 	 	 	 	 	 				
Total Purchase Price	  	 	 	 	 	 	 	 	$	7,362,375	 	
				
Net Assets Acquired	  	 	 	 	 	 	 	 	 	 	 	
NCF’s stockholder’s equity at June 30, 2004	  	 	 	 	$	2,782,112	 	 	 	 	 	
Less: Elimination of NCF goodwill	  	 	 	 	 	(1,090,101 	) (E)	 	 	 	 	
Less: Elimination of NCF core deposit intangibles	  	 	 	 	 	(145,899 	) (F)	 	 	 	 	
Estimated adjustments to reflect assets acquired at fair value:	  	 	 	 	 	 	 	 	 	 	 	
Securities	  	(25,399 	) (B)	 	 	 	 	 	 	 	 	
Loans	  	15,624 	(C)	 	 	 	 	 	 	 	 	
Premises & equipment	  	(40,788 	) (D)	 	 	 	 	 	 	 	 	
Other assets	  	(109,564 	) (G)	 	 	 	 	 	 	 	 	
Estimated amounts allocated to liabilities assumed at fair value:	  	 	 	 	 	 	 	 	 	 	 	
Deposits	  	(24,997 	) (H)	 	 	 	 	 	 	 	 	
Other short-term borrowings	  	(164 	) (I)	 	 	 	 	 	 	 	 	
Long-term debt	  	(61,412 	) (J)	 	 	 	 	 	 	 	 	
Personnel related liabilities	  	(70,563 	) (L)	 	 	 	 	 	 	 	 	
Other liabilities	  	(55,444 	) (L)	 	 	 	 	 	 	 	 	
 	  			 	 	 	 	 	 	 	 	
Estimated adjustments to reflect assets and liabilities at fair value:	  	 	 	 	 	(372,707	)	 	 	 	 	
Identified intangibles	  	 	 	 	 	363,000 	(F)	 	 	 	 	
Deferred taxes	  	 	 	 	 	(13,107 	) (L)	 	 	 	 	
 	  	 	 	 				 	 	 	 	
Total Adjustments	  	 	 	 	 	 	 	 	 	1,523,298	 	
 	  	 	 	 	 	 	 	 				
Goodwill resulting from merger	  	 	 	 	 	 	 	 	$	5,839,077	 	

The pro forma adjustments included in the unaudited pro forma condensed combined financial information are as follows:
 
(A)	Adjustment to reflect payment of $800.0 million to NCF shareholders. Payment was financed by the issuance of $800.0 million in brokered certificates of deposit in May 2004 with an interest rate estimated to be 3.40% per annum, and a weighted average maturity of 2.5 years. The impact of this issuance was to increase interest expense by approximately $10.2 million and $27.2 million for the six months ended June 30, 2004 and the twelve months ended December 31, 2003, respectively.	
 
(B)	Adjustment to reclassify held to maturity securities to securities available for sale to reflect the change in SunTrust’s intent as it relates to those investments. Also included is an approximate $(25.4) million adjustment to fair-value the securities portfolio. This adjustment will be recognized over the estimated remaining life of the securities portfolio using the effective yield method. The fair value adjustments reflected herein are based on current assumptions and valuations. The final adjustment may be significantly different. The impact of this adjustment was to increase interest income by approximately $1.5 million and $2.3 million for the six months ended June 30, 2004 and the twelve months ended December 31, 2003, respectively.	
 
(C)	Adjustment to fair-value the loan portfolio. The adjustment will be recognized over the estimated remaining life of the loan portfolio using the effective yield method. The adjustments reflected herein	

are based on current assumptions and valuations. The final adjustment may be significantly different. The impact of the adjustment was to decrease interest income by approximately $3.0 million and $12.0 million for the six months ended June 30, 2004 and the twelve months ended December 31, 2003, respectively.
 
(D)	Adjustment to fair-value premises and equipment.	
 
(E)	Adjustment to eliminate historical NCF goodwill and record goodwill created as a result of the merger.	
 
(F)	Adjustment to eliminate historical NCF intangible assets (other than goodwill) and to record intangible assets (other than goodwill) resulting from the merger based on estimated fair values. The nature, amount and amortization method of various possible identified intangibles are being studied by SunTrust. The adjustments reflected herein are based on current assumptions and valuations, which are subject to change. For purposes of the pro forma adjustments shown here, SunTrust has estimated $363.0 million of intangibles that consists of a core deposit intangible of approximately $327.0 million and other identifiable intangibles of approximately $36.0 million. SunTrust estimates the core deposit intangible will be amortized over ten years using the sum of the years digit method and the other intangibles will be amortized over an estimated weighted average of 7.3 years using the straight line method. The value of the intangibles represents the estimated future economic benefit resulting from the acquired customer balances and relationships. The final value will be determined based on an independent analysis of cash flows from the current balances of accounts, expected growth or attrition in balances, and the estimated life of the relationship. The impact of these adjustments is to increase noninterest expenses by $29.7 million and $65.3 million for the six months ended June 30, 2004 and the twelve months ended December 31, 2003, respectively.	
 
(G)	Adjustments to fair-value other assets including pension, computer software, deferred costs and other miscellaneous items.	
 
(H)	Adjustment to fair-value fixed-rate deposit liabilities based on current interest rates for similar instruments. The adjustment will be recognized over the estimated remaining term of the related deposit liability using the effective yield method. The adjustments reflected herein are based on current assumptions and valuations. The final adjustment may be significantly different. The impact of the adjustment was to decrease interest expense by approximately $4.0 million and $2.1 million for the six months ended June 30, 2004 and the twelve months ended December 31, 2003, respectively.	
 
(I)	Adjustment to fair-value outstanding short-term debt instruments. The adjustment will be recognized over the estimated remaining life of the short-term debt instruments using the effective yield method. The adjustments reflected herein are based on current assumptions and valuations. The final adjustment may be significantly different. The impact of the adjustment was to decrease interest expense by approximately $0.2 million for the twelve months ended December 31, 2003. There was no impact of this adjustment on interest expense for the six months ended June 30, 2004.	
 
(J)	Adjustment to fair-value outstanding long-term debt instruments. The adjustment will be recognized over the estimated remaining life of the long-term debt instruments using the effective yield method. The adjustments reflected herein are based on current assumptions and valuations. The final adjustment may be significantly different. The impact of the adjustment was to decrease interest expense by approximately $3.8 million and $7.5 million for the six months ended June 30, 2004 and the twelve months ended December 31, 2003, respectively.	
 
(K)	Adjustment to reflect issuance of $1.0 billion in debt at an interest rate estimated to be 4.45% per annum, and a weighted average maturity of 4.3 years, to finance a portion of the estimated cash payment to NCF shareholders. The impact of the adjustment was to increase interest expense by approximately $22.3 million and $44.5 million for the six months ended June 30, 2004 and the twelve months ended December 31, 2003, respectively.	

(L)	Adjustment to accrued expenses and other liabilities consists of $44.4 million for investment banking fees, $70.6 million to reflect the fair value of personnel related liabilities which arise due to employment and severance agreements which include change in control provisions triggered at the time of closing and due to other expected terminations of NCF personnel, and $55.4 million primarily for contract terminations and other liabilities. The remaining $13.1 million adjustment is for deferred tax liabilities, net of deferred tax assets, resulting from the pro forma adjustments. Deferred taxes were recorded using SunTrust’s statutory rate of 38.0%.	
 
(M)	Adjustment to eliminate NCF’s historical shareholders’ equity. Additionally, the adjustment reflects the issuance of SunTrust common stock and the conversion of NCF stock options outstanding at the closing of the merger to options to purchase SunTrust common stock. In accordance with the terms of NCF’s stock option agreements, outstanding stock options became fully vested upon the change in control; therefore, the adjustment presented assumed that all NCF stock options were converted to fully vested options to purchase SunTrust common stock. This resulted in the issuance of approximately 5.8 million vested options to purchase SunTrust common stock at a fair value of $23.52 per share. The number of stock options expected to be issued was based on the product of the estimated number of outstanding NCF stock options as of the merger date and the Exchange Ratio (as defined in the merger agreement) of 0.4953. The estimated fair value per share of $23.52 was calculated as the closing price of SunTrust’s common stock on the day before the completion of the merger of $70.41 less $46.89, the estimated average exercise price of the SunTrust stock options to be issued. This amount approximates the fair value applying the assumptions described on page 76 of SunTrust’s 2003 Annual Report to Shareholders to the SunTrust options to be issued based on the Exchange Ratio (as defined in the merger agreement) using the Black-Scholes option pricing model. The estimated average exercise price of $46.89 was calculated as the average exercise price of a NCF stock option as of the merger date divided by the assumed Exchange Ratio of 0.4953.	
 
(N)	Adjustment to reverse amortization of intangible assets recorded in NCF’s historical financial statements.	
 
(O)	Adjustment to record the tax effect of the pro forma adjustments using SunTrust’s statutory tax rate of 38.0%.	
 
(P)	Weighted average shares were calculated using the historical weighted average shares outstanding of SunTrust and NCF, adjusted using an exchange ratio of 0.3713, to the equivalent shares of SunTrust common stock, for the year ended December 31, 2003 and the six months ended June 30, 2004. Earnings per share data have been computed based on the combined historical income of SunTrust, income from continuing operations for NCF and the impact of purchase accounting adjustments.