NATIONAL CITY CORPORATION 10-Q

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2005

Commission file number 1-10074

NATIONAL CITY CORPORATION

(Exact name of registrant as specified in its charter)

DELAWARE
(State or other jurisdiction of
incorporation or organization)

34-1111088
(I.R.S. Employer
Identification No.)

1900 EAST NINTH STREET
CLEVELAND, OHIO 44114
(Address of principal executive office)

216-222-2000
(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.

YES þ NO o

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).

YES þ NO o

Indicate the number of shares outstanding of each of the issuer’s classes of Common Stock as of the latest practicable date.

Common stock — $4.00 Par Value
Outstanding as of July 31, 2005 — 637,638,697

PART I – FINANCIAL INFORMATION

FINANCIAL HIGHLIGHTS


	Three Months Ended						Six Months Ended
	June 30						June 30
(Dollars In Thousands, Except Per Share Amounts)	2005			2004			2005			2004

For the Period
Tax-equivalent net interest income	$	1,196,759		$	1,066,780		$	2,374,601		$	2,091,937
Provision for credit losses		25,827			60,788			96,274			143,295
Noninterest income		956,000			866,277			1,745,281			1,983,974
Noninterest expense		1,182,645			1,075,137			2,337,989			2,061,477
Income tax expense and tax-equivalent adjustment		319,160			278,086			576,350			641,725

Net income	$	625,127		$	519,046		$	1,109,269		$	1,229,414

Net income per common share
Basic	$	.98		$	.84		$	1.73		$	2.01
Diluted		.97			.83			1.71			1.99
Dividends paid per common share		.35			.32			.70			.64
Return on average common equity		19.65	%		20.13	%		17.51	%		24.69	%
Return on average assets		1.80			1.80			1.61			2.19
Net interest margin		3.85			4.09			3.85			4.12
Efficiency ratio		55.06			55.77			57.01			50.64
Average equity to average assets		9.14			8.94			9.19			8.88
Annualized net charge-offs to average portfolio loans		.27			.30			.31			.36
Average shares
Basic		636,882,733			619,097,523			639,926,863			612,507,157
Diluted		644,134,005			625,476,357			648,287,671			619,036,496

At Period End
Assets							$	143,975,359		$	117,086,872
Portfolio loans								106,639,561			84,537,266
Loans held for sale or securitization								11,539,181			12,466,789
Securities, at fair value								7,694,298			6,516,742
Deposits								83,139,332			73,036,089
Stockholders’ equity								13,001,754			10,334,984

Book value per common share							$	20.42		$	16.86
Market value per common share								34.12			35.01
Equity to assets								9.03	%		8.83	%
Allowance for loan losses as a percentage of period-end portfolio loans								1.06			1.22
Nonperforming assets to period-end portfolio loans and other nonperforming assets								.54			.64

Common shares outstanding								636,715,366			612,880,193
Full-time equivalent employees								35,493			34,062

ITEM 1. FINANCIAL STATEMENTS

CONSOLIDATED STATEMENTS OF INCOME


	Three Months Ended				Six Months Ended
	June 30				June 30
(Dollars in Thousands, Except Per Share Amounts)	2005		2004		2005		2004

Interest Income
Loans	$	1,763,065	$	1,305,225	$	3,403,939	$	2,554,332
Securities:
Taxable		86,041		65,332		175,817		134,625
Exempt from Federal income taxes		7,538		8,544		15,927		16,743
Dividends		9,150		4,670		17,143		8,876
Federal funds sold and security resale agreements		2,070		1,505		4,124		2,234
Other investments		15,393		9,827		31,128		22,231

Total interest income		1,883,257		1,395,103		3,648,078		2,739,041
Interest Expense
Deposits		357,827		201,650		670,529		390,195
Federal funds borrowed and security repurchase agreements		37,551		19,664		75,205		37,668
Borrowed funds		14,492		3,101		20,990		6,059
Long-term debt and capital securities		284,428		110,303		521,516		226,107

Total interest expense		694,298		334,718		1,288,240		660,029

Net Interest Income		1,188,959		1,060,385		2,359,838		2,079,012
Provision for Loan Losses		25,827		60,788		96,274		143,295

Net interest income after provision for loan losses		1,163,132		999,597		2,263,564		1,935,717
Noninterest Income
Mortgage banking revenue		400,505		193,173		683,474		772,571
Deposit service charges		171,801		161,549		332,630		308,902
Payment processing revenue		413		131,944		787		253,563
Trust and investment management fees		78,379		79,803		151,466		155,379
Card-related fees		32,191		37,965		60,593		75,095
Brokerage revenue		43,590		34,167		83,008		66,419
Leasing revenue		68,952		5,828		143,023		11,604
Other		155,311		216,651		271,189		335,105

Total fees and other income		951,142		861,080		1,726,170		1,978,638
Securities gains, net		4,858		5,197		19,111		5,336

Total noninterest income		956,000		866,277		1,745,281		1,983,974
Noninterest Expense
Salaries, benefits, and other personnel		651,152		594,060		1,281,961		1,142,951
Equipment		75,880		68,843		151,870		135,166
Net occupancy		72,087		59,476		172,717		119,435
Third-party services		65,482		72,346		131,765		140,710
Card processing		5,198		60,396		10,045		117,939
Marketing and public relations		39,288		29,858		67,477		52,118
Leasing expense		52,735		1,883		109,310		5,520
Other		220,823		188,275		412,844		347,638

Total noninterest expense		1,182,645		1,075,137		2,337,989		2,061,477

Income before income tax expense		936,487		790,737		1,670,856		1,858,214
Income tax expense		311,360		271,691		561,587		628,800

Net Income	$	625,127	$	519,046	$	1,109,269	$	1,229,414

Net Income Per Common Share
Basic	$	.98	$	.84	$	1.73	$	2.01
Diluted		.97		.83		1.71		1.99
Average Common Shares Outstanding
Basic		636,882,733		619,097,523		639,926,863		612,507,157
Diluted		644,134,005		625,476,357		648,287,671		619,036,496

Dividend declared per common share	$	.35	$	.32	$	.70	$	.64

See Notes to Consolidated Financial Statements

CONSOLIDATED BALANCE SHEETS


	June 30			December 31			June 30
(In Thousands)	2005			2004			2004

Assets
Cash and demand balances due from banks	$	3,937,424		$	3,832,040		$	3,171,945
Federal funds sold and security resale agreements		265,575			302,534			1,087,481
Securities available for sale, at fair value		7,694,298			9,280,917			6,516,742
Other investments		1,929,430			934,236			568,230
Loans held for sale or securitization:
Commercial		9,000			24,534			26,249
Commercial real estate		137,789			546,072			—
Mortgage		10,976,873			11,859,715			12,440,540
Credit card		414,343			—			—
Student loans		1,176			—			—

Total loans held for sale or securitization		11,539,181			12,430,321			12,466,789
Portfolio loans:
Commercial		27,934,129			25,160,464			19,738,970
Commercial construction		3,112,916			2,922,921			2,284,178
Real estate — commercial		11,787,695			12,193,394			11,014,482
Real estate — residential		32,498,082			30,398,068			28,731,664
Home equity lines of credit		21,567,669			18,884,890			13,781,781
Credit card and other unsecured lines of credit		2,302,375			2,413,465			2,198,703
Other consumer		7,436,695			8,164,633			6,787,488

Total portfolio loans		106,639,561			100,137,835			84,537,266
Allowance for loan losses		(1,125,127	)		(1,188,462	)		(1,027,550	)

Net portfolio loans		105,514,434			98,949,373			83,509,716
Properties and equipment		1,267,479			1,268,688			1,170,130
Equipment leased to others		865,476			1,050,787			34,508
Other real estate owned		90,578			89,362			95,470
Mortgage servicing rights		1,454,444			1,504,866			1,926,051
Goodwill		3,317,259			3,302,413			1,423,536
Other intangible assets		194,796			213,461			68,408
Derivative assets		983,019			885,541			876,243
Accrued income and other assets		4,921,966			5,235,838			4,171,623

Total Assets	$	143,975,359		$	139,280,377		$	117,086,872

Liabilities
Deposits:
Noninterest bearing	$	18,756,679		$	18,652,502		$	17,448,186
NOW and money market		28,191,008			29,263,454			28,153,616
Savings		2,369,628			2,552,990			2,560,288
Consumer time		18,604,907			16,828,303			13,689,154
Other		6,432,114			4,635,416			1,278,431
Foreign		8,784,996			14,021,942			9,906,414

Total deposits		83,139,332			85,954,607			73,036,089
Federal funds borrowed and security repurchase agreements		8,217,810			5,892,428			5,892,472
Borrowed funds		1,538,640			2,035,900			3,903,212
Long-term debt		33,067,725			28,091,363			20,243,182
Junior subordinated debentures owed to unconsolidated subsidiary trusts		597,950			604,629			249,210
Derivative liabilities		643,487			596,822			707,349
Accrued expenses and other liabilities		3,768,661			3,301,099			2,720,374

Total Liabilities		130,973,605			126,476,848			106,751,888

Stockholders’ Equity
Preferred stock	$	—		$	—		$	—
Common stock		2,546,862			2,586,999			2,451,521
Capital surplus		3,726,660			3,647,711			1,607,658
Retained earnings		6,649,450			6,468,231			6,234,266
Accumulated other comprehensive income		78,782			100,588			41,539

Total Stockholders’ Equity		13,001,754			12,803,529			10,334,984

Total Liabilities and Stockholders’ Equity	$	143,975,359		$	139,280,377		$	117,086,872

See Notes to Consolidated Financial Statements

CONSOLIDATED STATEMENTS OF CASH FLOWS


	Six Months Ended
	June 30
(In Thousands)	2005			2004

Operating Activities
Net income	$	1,109,269		$	1,229,414
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for credit losses		96,274			143,295
Depreciation and amortization of properties and equipment and equipment leased to others		223,176			104,743
Amortization of intangible assets and servicing assets		293,086			253,471
Accretion of premiums and discounts on securities, loans, deposits, and debt obligations		(27,485	)		10,972
Servicing asset (recoveries) impairment charges		(69,716	)		76,242
Ineffective hedge and other derivative gains, net		(330,758	)		(191,658	)
Securities gains, net		(19,111	)		(5,336	)
Losses (gains) on loans sold or securitized, net		53,004			(255,349	)
Other losses (gains), net		43,477			(52,241	)
Originations and purchases of loans held for sale or securitization		(36,790,733	)		(40,941,975	)
Principal payments on and proceeds from sales of loans held for sale or securitization		37,702,651			42,510,919
(Increase) decrease in accrued interest receivable		(22,814	)		40,481
Increase (decrease) in accrued interest payable		3,667			(26,312	)
Other operating activities, net		838,514			155,117

Net cash provided by operating activities		3,102,501			3,051,783

Lending and Investing Activities
Net increase in federal funds sold, security resale agreements, and other investments		(443,806	)		(662,438	)
Purchases of available-for-sale securities		(1,162,230	)		(680,684	)
Proceeds from sales of available-for-sale securities		1,224,168			36,659
Proceeds from maturities, calls, and prepayments of available-for-sale securities		947,657			1,301,630
Net increase in loans		(7,316,816	)		(4,931,612	)
Proceeds from sales of loans		1,014,979			1,837,712
Proceeds from securitizations of loans		23,892			—
Net increase in properties and equipment and equipment leased to others		(62,978	)		(131,450	)
Net cash (paid) received for acquisitions		(319,056	)		10,582
Cash received for sale of Corporate Trust Bond Administration business		—			66,500

Net cash used in lending and investing activities		(6,094,190	)		(3,153,101	)

Deposit and Financing Activities
Net (decrease) increase in deposits		(2,757,601	)		7,314,582
Net increase (decrease) in federal funds borrowed and security repurchase agreements		2,325,382			(801,444	)
Net decrease in borrowed funds		(497,260	)		(2,922,599	)
Repayments of long-term debt		(6,012,085	)		(8,557,601	)
Proceeds from issuances of long-term debt, net		10,920,642			5,306,970
Dividends paid		(453,665	)		(393,838	)
Issuances of common stock		224,760			122,816
Repurchases of common stock		(653,100	)		(391,329	)

Net cash provided by (used in) deposit and financing activities		3,097,073			(322,443	)

Net increase (decrease) in cash and demand balances due from banks		105,384			(423,761	)
Cash and demand balances due from banks, January 1		3,832,040			3,595,706

Cash and Demand Balances Due from Banks, June 30	$	3,937,424		$	3,171,945

Supplemental Information
Cash paid for:
Interest	$	1,284,573		$	686,341
Income taxes		564,579			815,874
Noncash items:
Transfers of loans to other real estate		173,661			147,922
Common stock and options issued in Allegiant acquisition		—			469,666

See Notes to Consolidated Financial Statements

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY


												Accumulated
												Other
	Preferred		Common			Capital			Retained			Comprehensive
(Dollars in Thousands, Except Per Share Amounts)	Stock		Stock			Surplus			Earnings			Income (Loss)			Total

Balance, January 1, 2004	$	—	$	2,423,985		$	1,116,279		$	5,723,720		$	64,687		$	9,328,671
Comprehensive income:
Net income										1,229,414						1,229,414
Other comprehensive income, net of tax:
Change in unrealized gains and losses on securities, net of reclassification adjustment for net gains included in net income													(87,422	)		(87,422	)
Change in unrealized gains and losses on derivative instruments used in cash flow hedging relationships, net of reclassification adjustment for net losses included in net income													64,274			64,274

Total comprehensive income																1,206,266
Common dividends declared, $.64 per share										(393,838	)					(393,838	)
Issuance of 3,808,028 common shares under stock-based compensation plans, including related tax effects				15,232			107,584									122,816
Repurchase of 11,195,600 common shares				(44,782	)		(21,517	)		(325,030	)					(391,329	)
Issuance of 14,271,645 common shares pursuant to acquisition				57,086			405,702									462,788
Other							(390	)								(390	)

Balance, June 30, 2004	$	—	$	2,451,521		$	1,607,658		$	6,234,266		$	41,539		$	10,334,984


Balance, January 1, 2005	$	—	$	2,586,999		$	3,647,711		$	6,468,231		$	100,588		$	12,803,529
Comprehensive income:
Net income										1,109,269						1,109,269
Other comprehensive income, net of tax:
Change in unrealized gains and losses on securities, net of reclassification adjustment for net gains included in net income													(36,367	)		(36,367	)
Change in unrealized gains and losses on derivative instruments used in cash flow hedging relationships, net of reclassification adjustment for net losses included in net income													14,561			14,561

Total comprehensive income																1,087,463
Common dividends declared, $.70 per share										(452,879	)					(452,879	)
Preferred dividends declared, $11.17 per share										(786	)					(786	)
Issuance of 2,597,946 common shares under stock-based compensation plans				10,418			53,363									63,781
Issuance of 6,004,709 common shares pursuant to exercise of PRIDES forward contracts				24,019			129,727									153,746
Repurchase of 18,643,500 common shares				(74,574	)		(104,141	)		(474,385	)					(653,100	)

Balance, June 30, 2005	$	—	$	2,546,862		$	3,726,660		$	6,649,450		$	78,782		$	13,001,754

See Notes to Consolidated Financial Statements

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NATURE OF OPERATIONS

National City Corporation (National City or the Corporation) is a financial holding company headquartered in Cleveland, Ohio. National City operates through an extensive branch bank network in Ohio, Indiana, Illinois, Kentucky, Michigan, Missouri, and Pennsylvania, and also conducts selected consumer lending businesses and other financial services on a nationwide basis. Primary businesses include commercial and retail banking, mortgage financing and servicing, consumer finance, and asset management.

1. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES

The accompanying consolidated financial statements include the accounts of the Corporation and its consolidated subsidiaries. All significant intercompany transactions and balances have been eliminated. Certain prior period amounts have been reclassified to conform with the current period presentation.

Consolidation: Accounting Research Bulletin 51 (ARB 51), Consolidated Financial Statements, requires a company’s consolidated financial statements 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 the Corporation controls operating and financing decisions (principally defined as owning a voting or economic interest greater than 50%) are consolidated. Investments in companies in which the Corporation has significant influence over operating and financing decisions (principally defined as owning a voting or economic interest of 20% to 50%) and limited partnership investments are generally accounted for by the equity method of accounting. These investments are principally included in other assets, and National City’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, Financial Accounting Standards Board Interpretation 46 (FIN 46), Consolidation of Variable Interest Entities (VIE), provides guidance on when a company should include in its financial statements the assets, liabilities and activities of another entity. In general, a 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. The Corporation’s consolidated financial statements include the assets, liabilities and activities of VIEs for which it is deemed to be the primary beneficiary.

The Corporation uses special-purpose entities (SPEs), primarily securitization 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 the Corporation 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. National City 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 the Corporation is a transferor of assets to an SPE, the assets sold to the SPE generally 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 (SFAS) 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 non-qualifying SPEs where assets are legally isolated from National City’s creditors, the Corporation 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. The Corporation currently services certain credit card receivables, automobile loans, and home equity loans and lines that were sold to various securitization trusts. Further discussion regarding these securitization trusts is included in Note 5.

Use of Estimates: The accounting and reporting policies of National City conform with U.S. generally accepted accounting principles (GAAP). The preparation of financial statements in conformity with GAAP requires management to make estimates, assumptions, and judgments that affect the amounts reported in the financial statements and accompanying notes. Actual realized amounts could differ materially from those estimates. These interim financial statements have been prepared in accordance with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X and serve to update National City’s 2004 Annual Report on Form 10-K (Form 10-K). These financial statements may not include all information and notes necessary to constitute a complete set of financial statements under GAAP applicable to annual periods and accordingly should be read in conjunction with the financial information contained in the Form 10-K. Management believes these unaudited consolidated financial statements reflect all adjustments of a normal recurring nature which are necessary for a fair presentation of the results for the interim periods presented. The results of operations for the interim periods are not necessarily indicative of the results that may be expected for the full year or any other interim period.

Statement of Cash Flows: Cash and demand balances due from banks are considered “cash and cash equivalents” for financial reporting purposes.

Business Combinations: Business combinations are accounted for under the purchase method of accounting. Under the purchase method, assets and liabilities of the business acquired are recorded at their estimated fair values as of the date of acquisition with any excess of the cost of the acquisition over the fair value of the net tangible and intangible assets acquired recorded as goodwill. Results of operations of the acquired business are included in the income statement from the date of acquisition. Refer to Note 3 for further discussion.

Loans and Leases: Loans are generally reported at the principal amount outstanding. Loans held for sale or securitization are valued on an aggregate basis at the lower of carrying amount or fair value. Interest income is recognized on an accrual basis. Loan origination fees, certain direct costs, and unearned discounts are deferred and amortized into interest income as an adjustment to the yield over the term of the loan. Loan commitment fees are generally deferred and amortized into fee income on a straight-line basis over the commitment period. Other credit-related fees, including letter and line of credit fees and loan syndication fees, are recognized as fee income when earned.

Leases are classified as either direct financing leases or operating leases, based on the terms of the lease arrangement. To be classified as a direct financing lease, the lease must have at least one of the following four characteristics: 1) the lease transfers ownership of the property to the lessee by the end of the lease term, 2) the lease contains a bargain purchase option, 3) the lease term is equal to 75% or more of the estimated economic life of the leased property, or 4) the present value of the lease payments and the guaranteed residual value are at least 90% of the cost of the leased property. Leases that do not meet any of these four criteria are classified as operating leases and reported as equipment leased to others on the balance sheet.

Income on operating leases is recognized on a straight-line basis over the lease term. Income on direct financing leases is recognized on a basis that achieves a constant periodic rate of return on the outstanding investment. Income on leveraged leases is recognized on a basis that achieves a constant periodic rate of return on the outstanding investment in the lease, net of the related deferred tax liability, in the years in which the net investment is positive. Residual values on leased assets are reviewed regularly for other-than-temporary impairment. When there is other-than-temporary impairment in the carrying value of the Corporation’s interest in the residual value of a leased asset, the carrying value is reduced to the estimated fair value, with the write-down generally recognized in other noninterest expense in the income statement.

Commercial loans and leases and loans secured by real estate are designated as nonperforming when either principal or interest payments are 90 days or more past due (unless the loan or lease is sufficiently collateralized such that full repayment of both principal and interest is expected and is in the process of collection), terms are renegotiated below market levels, or when an individual analysis of a borrower’s creditworthiness indicates a credit should be placed on nonperforming status. When a loan is placed on nonperforming status, uncollected interest accrued in prior years is charged against the allowance for loan losses, while uncollected interest accrued in the current year is charged against interest income. Interest income during the period the loan is on nonperforming status is recorded on a cash basis after recovery of principal is reasonably assured.

Nonperforming commercial loans and leases and commercial loans secured by real estate are generally charged off to the extent principal and interest due exceed the net realizable value of the collateral, with the charge-off occurring when the loss is reasonably quantifiable but not later than when the loan becomes 180 days past due. Loans secured by residential real estate are generally charged off to the extent principal and interest due exceed 90% of the current appraised value of the collateral and the loan becomes 180 days past due.

Commercial and commercial real estate loans exceeding $3 million are evaluated for impairment in accordance with the provisions of SFAS 114, Accounting by Creditors for Impairment of a Loan, which requires an allowance to be established as a component of the allowance for loan losses when it is probable all amounts due will not be collected pursuant to the contractual terms of the loan and the recorded investment in the loan exceeds its fair value. Fair value is measured using either the present value of expected future cash flows discounted at the loan’s effective interest rate, the observable market price of the loan, or the fair value of the collateral if the loan is collateral dependent. All loans subject to evaluation and considered impaired are included in nonperforming assets.

Consumer loans are subject to mandatory charge-off at a specified delinquency date and, except for residential real estate loans, are usually not classified as nonperforming prior to being charged off. Closed-end consumer loans, which include installment and student loans and automobile leases, are generally charged off in full no later than when the loan becomes 120 days past due. Installment loans secured by home equity and classified as residential real estate are also subject to this charge-off policy. Open-end, unsecured consumer loans, such as credit card loans, are generally charged off in full no later than when the loan becomes 150 days past due.

The Corporation, through its subsidiary National City Mortgage, sells mortgage loans to the Government National Mortgage Association (GNMA) in the normal course of business and retains the servicing rights. The GNMA programs under which the loans are sold allow the Corporation to repurchase individual delinquent loans that meet certain criteria from the securitized pool. At the Corporation’s option, and without GNMA’s prior authorization, the Corporation may repurchase the delinquent loan for an amount equal to 100 percent of the remaining principal balance of the loan. Under SFAS 140, once the Corporation has the unconditional ability to repurchase the delinquent loan, the Corporation is deemed to have regained effective control over the loan and is required to recognize the loan on its balance sheet and record an offsetting liability, regardless of the Corporation’s intent to repurchase the loan. At June 30, 2005, December 31, 2004, and June 30, 2004, residential real estate portfolio loans included $184 million, $233 million, and $171 million, respectively, of loans available for repurchase under the GNMA optional repurchase programs with the offsetting liability recorded within other borrowed funds.

Allowance for Loan Losses and Allowance for Losses on Lending-Related Commitments: The allowance for loan losses is maintained at a level believed adequate by management to absorb probable losses inherent in the loan portfolio and is based on the size and current risk characteristics of the loan portfolio, an assessment of individual problem loans and actual loss experience, current economic events in specific industries and geographical areas, including unemployment levels, and other pertinent factors, including regulatory guidance and general economic conditions. Determination of the allowance is inherently subjective as it requires significant estimates, including the amounts and timing of expected future cash flows on impaired loans, estimated losses on pools of homogeneous loans based on historical loss experience, and consideration of current environmental factors and economic trends, all of which may be susceptible to significant change. Loan losses are charged off against the allowance, while recoveries of amounts previously charged off are credited to the allowance. A provision for credit losses is charged to operations based on management’s periodic evaluation of the factors previously mentioned, as well as other pertinent factors. Evaluations are conducted at least quarterly and more often if deemed necessary. When loans are identified for sale or securitization, the attributed loan loss allowance is reclassified as a reduction to the carrying value of the loans.

The Corporation maintains an allowance for losses on unfunded commercial lending commitments and letters of credit to provide for the risk of loss inherent in these arrangements. The allowance is computed using a methodology similar to that used to determine the allowance for loan losses, modified to take into account the probability of a drawdown on the commitment. This allowance is reported

as a liability on the balance sheet within accrued expenses and other liabilities, while the corresponding provision for these losses is recorded as a component of the provision for credit losses.

Other Real Estate Owned: Other real estate owned (OREO) is comprised principally of commercial and residential real estate properties obtained in partial or total satisfaction of loan obligations. OREO also includes bank premises qualifying as held for sale under SFAS 144, Accounting for the Impairment or Disposal of Long-Lived Assets. OREO obtained in satisfaction of a loan is recorded at the estimated fair value less anticipated selling costs based upon the property’s appraised value at the date of transfer, with any difference between the fair value of the property and the carrying value of the loan charged to the allowance for loan losses. Bank premises are transferred at the lower of carrying value or estimated fair value less anticipated selling costs. Subsequent changes in value are reported as adjustments to the carrying amount, not to exceed the initial carrying value of the assets at the time of transfer. Changes in value subsequent to transfer are recorded in noninterest expense on the income statement. Gains or losses not previously recognized resulting from the sale of OREO are recognized in noninterest expense on the date of sale.

Securities: Securities purchased with the intention of realizing short-term profits are considered trading securities, carried at fair value, and included in other investments. Realized and unrealized gains and losses are included in securities gains or losses on the statement of income. Interest on trading account securities is recorded in interest income. As of June 30, 2005, December 31, 2004, and June 30, 2004, trading account securities totaled $300 million, $117 million, and $24 million, respectively.

Debt securities are classified as held to maturity when management has the positive intent and ability to hold the securities to maturity. Securities held to maturity, when present, are carried at amortized cost. National City held no securities classified as held to maturity at June 30, 2005, December 31, 2004 or June 30, 2004.

Debt and marketable equity securities not classified as held to maturity or trading are classified as available for sale. Securities available for sale are carried at fair value with unrealized gains and unrealized losses not deemed other-than-temporary reported in other comprehensive income, net of tax. Realized gains and losses on the sale of and other-than-temporary impairment charges on available-for-sale securities are recorded in securities gains or losses on the statement of income.

Stock acquired for regulatory purposes, such as Federal Reserve Bank stock and Federal Home Loan Bank stock, which does not have a readily determinable fair value, is accounted for at cost and as of June 30, 2005 is included in other investments.

Interest and dividends on securities, including amortization of premiums and accretion of discounts using the effective-interest method over the period to maturity, are included in interest income. Realized gains and losses on the sale of and other-than-temporary impairment charges on securities are determined using the specific-identification method, except for the Corporation’s internally-managed equity portfolio comprised primarily of bank and thrift common stock investments (bank stock fund). The Corporation utilizes the average-cost method to determine realized gains and losses and other-than-temporary impairment charges on bank stock fund investments, consistent with the manner in which the investments in this fund are managed. Purchases and sales of securities are recognized on a trade-date basis.

Principal Investments: Principal investments, which include direct investments in private and public companies and indirect investments in private equity funds, are carried at estimated fair value with changes in fair value recognized in other noninterest income.

Direct investments include equity and mezzanine investments in the form of common stock, preferred stock, limited liability company interests, warrants, and subordinated debt. Direct mezzanine investments in the form of subordinated debt and preferred stock, which earn interest or dividends, are included in other investments on the balance sheet, while the remainder of the direct investments are included in other assets. Indirect investments include ownership interests in private equity funds managed by third-party general partners and are included in other assets on the balance sheet.

The fair values of publicly traded investments are determined using quoted market prices, subject to various discount factors, sales restrictions, and regulation, when appropriate. Investments that are not publicly traded are initially valued at cost and subsequent adjustments to fair value are estimated in good faith by management. Factors used in determining the fair value of direct investments include consideration of the company’s business model, current and projected financial performance, liquidity, management team, and overall economic and market conditions. Factors used in determining the fair value of indirect investments include evaluation of the general partner’s valuation techniques and overall economic and market conditions. The fair value estimates of the investments are based upon currently available information and may not necessarily represent amounts that will ultimately be realized, which depend on future events and circumstances.

Interest and dividends on direct mezzanine debt and preferred stock investments are recorded in interest income on the statement of income. All other income on principal investments, including fair value adjustments, realized gains and losses on the return of capital, and principal investment write-offs, are recognized in other noninterest income.

Securities Purchased Under Agreements to Resell and Securities Sold Under Agreements to Repurchase: Securities purchased under agreements to resell and securities sold under agreements to repurchase are generally accounted for as collateralized financing transactions and are recorded at the amounts at which the securities were acquired or sold plus accrued interest. Securities, generally U.S. government and Federal agency securities, pledged as collateral under these financing arrangements cannot be sold or repledged by the secured party. The fair value of collateral either received from or provided to a third party is continually monitored, and additional collateral is obtained or requested to be returned as appropriate.

Goodwill and Other Intangible Assets: Goodwill represents the excess of the cost of an acquisition over the fair value of the net assets acquired. Other intangible assets represent purchased assets that also lack physical substance but can be separately distinguished from goodwill because of contractual or other legal rights or because the asset is capable of being sold or exchanged either on its own or in combination with a related contract, asset, or liability. Goodwill is tested at least annually for impairment.

Intangible assets with finite lives include core deposits, credit card, operating lease, and other intangibles. Intangible assets are subject to impairment testing whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. Core deposit intangibles are primarily amortized over a period not to exceed 10 years using an accelerated amortization method. Credit card intangibles are amortized over their estimated useful lives on a straight-line basis, which range from one to 10 years. Operating lease intangibles are amortized based upon an accelerated amortization method over the remaining weighted average lease term. Other intangibles, which consist primarily of customer contracts and noncompete agreements, are amortized over the period benefited ranging from three to nine years. Amortization expense for core deposits and other intangibles are recognized in noninterest expense. Amortization expense for operating lease intangibles is recognized in noninterest income. Note 10 includes a summary of goodwill and other intangible assets.

Depreciable Assets: Properties and equipment are stated at cost less accumulated depreciation and amortization. Depreciation and amortization are calculated using the straight-line method over the estimated useful lives of the assets. Useful lives range from one to 10 years for furniture, fixtures, and equipment; three to five years for software, hardware, and data handling equipment; and 10 to 40 years for buildings and building improvements. Land improvements are amortized over a period of 15 years, and leasehold improvements are amortized over the term of the respective lease plus the first optional renewal period, when renewal is reasonably assured. Maintenance and repairs are charged to expense as incurred, while improvements which extend the useful life are capitalized and depreciated over the estimated remaining life of the asset.

Long-lived depreciable assets are evaluated periodically for impairment when events or changes in circumstances indicate the carrying amount may not be recoverable. Impairment exists when the expected undiscounted future cash flows of a long-lived asset are less than its carrying value. In that event, the Corporation recognizes a loss for the difference between the carrying amount and the estimated fair value of the asset based on a quoted market price, if applicable, or a discounted cash flow analysis. Impairment losses are recorded in other noninterest expense on the income statement.

Equipment leased to others is stated at cost less accumulated depreciation. Depreciation expense is recorded on a straight-line basis over the life of the lease considering the estimated residual value. On a periodic basis, a review is undertaken to determine if the leased equipment is impaired by comparing expected undiscounted cash flows from rental income to the equipment carrying value. An impairment loss is recognized if the carrying amount of the equipment exceeds the expected cash flows.

Asset Securitizations: National City uses the securitization of financial assets as a source of funding. Financial assets, including pools of credit card receivables and automobile loans, are transferred into trusts or to SPEs in transactions which are effective under applicable banking rules and regulations to legally isolate the assets from National City Bank (the Bank), a subsidiary of the Corporation. Where the transferor is a depository institution such as a bank subsidiary of the Corporation, legal isolation is accomplished through compliance with specific rules and regulations of the relevant regulatory authorities. In addition, National City purchases the guaranteed portion of Small Business Administration (SBA) loans from third-party lenders and then securitizes these loans into SBA guaranteed pooled securities through the use of a fiscal and transfer agent approved by the SBA. The certificates are then sold directly to institutional investors, achieving legal isolation.

SFAS 140 requires a “true sale” analysis of the treatment of the transfer under state law as if the Corporation was a debtor under the bankruptcy code. A “true sale” legal analysis includes several legally relevant factors, such as the nature and level of recourse to the transferor and the nature of retained servicing rights. The analytical conclusion as to a true sale is never absolute and unconditional, but contains qualifications based on the inherent equitable powers of a bankruptcy court, as well as the unsettled state of the common law. Once the legal isolation test has been met under SFAS 140, other factors concerning the nature and extent of the transferor’s control over the transferred assets are taken into account in order to determine whether derecognition of assets is warranted, including whether the SPE has complied with rules concerning qualifying special-purpose entities.

A legal opinion regarding legal isolation for each credit card securitization has been obtained by the Bank. The opinion rendered in connection with the 2002 credit card securitization included in its conclusion that the Federal Deposit Insurance Corporation (FDIC) regulation, Treatment by the Federal Deposit Insurance Corporation as Conservator or Receiver of Financial Assets Transferred by an Insured Depository Institution in Connection with a Securitization or Participation (Securitization Rule) would be applicable to the

transfer of such receivables. The Securitization Rule provides reasonable assurance that neither the FDIC acting as conservator or receiver for the transferring bank subsidiary, nor any other creditor of the bank, may reclaim or recover the receivables from the securitization trust or recharacterize the receivables as property of the transferring bank subsidiary or of the conservatorship or receivership for the bank. The opinion further reasoned, even if the Securitization Rule did not apply, then pursuant to various FDIC pronouncements, the FDIC would uphold the effectiveness of the security interest granted in the financial assets.

Legal opinions were also obtained for the automobile loan securitization transactions in 2004 and 2002, which were structured as two-step securitizations. While noting each of these transactions fall within the meaning of a “securitization” under the Securitization Rule, in accordance with accounting guidance, an analysis was also rendered under state law as if the transferring Bank was a debtor under the bankruptcy code. The “true sale” opinion obtained for each of these transactions provides reasonable assurance the purchased assets would not be characterized as the property of the transferring Bank’s receivership or conservatorship estate in the event of insolvency and also states the transferor would not be required to substantively consolidate the assets and liabilities of the purchaser SPE with those of the transferor upon such event.

The process of securitizing SBA loans into pools of SBA certificates is prescribed by the SBA and must be followed to obtain the SBA guarantee. This process meets the requirements for sale treatment under SFAS 140.

In a securitization, the trust issues beneficial interests in the form of senior and subordinated asset-backed securities backed or collateralized by the assets sold to the trust. The senior classes of the asset-backed securities typically receive investment grade credit ratings at the time of issuance. These ratings are generally achieved through the creation of lower-rated subordinated classes of asset-backed securities, as well as subordinated interests retained by an affiliate of the Corporation. In all cases, the Corporation or its affiliate retains interests in the securitized assets, which may take the form of seller certificates, subordinated tranches, cash reserve balances, servicing assets, and interest-only strips representing the cash flows generated by the assets in excess of the contractual cash flows required to be paid to the investors and for other obligations such as servicing fees.

An SBA approved fiscal and transfer agent associated with the SBA securitizations issues certificates once all the necessary documents to support the transaction have been provided. The Corporation retains beneficial interests in the securitized assets in the form of interest-only strips. The SBA guarantees the credit risk with respect to the loans sold.

In accordance with SFAS 140, securitized loans are removed from the balance sheet and a net gain or loss is recognized in income at the time of initial sale and each subsequent sale when the combined net sales proceeds and, if applicable, retained interests differ from the loans’ allocated carrying amount. Net gains or losses resulting from securitizations are recorded in noninterest income.

Retained interests in the subordinated tranches and interest-only strips are recorded at their fair value and included in the available-for-sale or trading securities portfolio. Retained interests from the credit card, automobile loan, and home equity securitizations are classified as available-for-sale securities. Retained interests from the SBA securitizations are classified as trading securities and are included in other investments on the consolidated balance sheet. Subsequent adjustments to the fair value of retained interests classified as available-for-sale are recorded through other comprehensive income within stockholders’ equity or in other noninterest expense in the income statement if the fair value has declined below the carrying amount and such decline has been determined to be other-than-temporary. Fair value adjustments and other-than-temporary adjustments to retained interests classified as trading securities are recorded in other noninterest income on the income statement. The Corporation uses assumptions and estimates in determining the fair value allocated to the retained interests at the time of sale and each subsequent sale in accordance with SFAS 140. These assumptions and estimates include projections concerning rates charged to customers, the expected life of the receivables, credit loss experience, loan repayment rates, the cost of funds, and discount rates commensurate with the risks involved.

On a quarterly basis, management reviews the historical performance of each retained interest and the assumptions used to project future cash flows. If past performance and future expectations dictate, assumptions are revised and the present value of future cash flows is recalculated. Refer to Note 5 for further analysis of the assumptions used in the determination of fair value.

When the Corporation retains the right to service the loans and receives related fees that exceed the current market rate to service the receivables, a servicing asset is recorded and included in other assets on the balance sheet. A servicing asset is not recognized if the Corporation receives adequate compensation relative to current market servicing prices to service the receivables sold. Servicing assets created in a securitization are initially measured at their allocated carrying amount based upon relative fair values at the date of securitization and are subsequently carried at the lower of this initial carrying value, adjusted for amortization, or fair value. Impairment, if any, is recognized when and in the amount the carrying value exceeds its fair value as determined by calculating the present value of the expected future net servicing cash flows using the assumptions described previously. The amortization of servicing assets occurs in proportion to, and over the period of, the estimated net servicing income and is recorded in noninterest income on the income statement.

For securitizations involving credit card receivables, the Corporation’s continuing involvement in the securitized assets includes maintaining an undivided, pro rata interest in all credit card loan receivables that are in the trust, referred to as seller’s interest. The seller’s interest ranks pari-passu with the investors’ interests in the trust. As the amount of the loans in the securitized pool fluctuates

due to customer payments, purchases, cash advances, and credit losses, the carrying amount of the seller’s interest will vary. However, the Corporation is required to maintain its seller’s interest at a minimum level of 4% of the initial invested amount in each series to ensure receivables are available for allocation to the investors’ interests.

Also with regard to credit card securitizations, the trust is not required to make principal payments to the investors during the revolving period, which generally approximates 48 months. Instead, the trust uses principal payments received on the accounts to purchase new loan receivables. Therefore, the principal dollar amount of the investor’s interest in the loans within the trust remains unchanged. Once the revolving period ends, the trust will distribute principal payments to the investors according to the terms of the transaction. Distribution of principal to the investors in the credit card trust may begin earlier if the average annualized yield on the loans securitized (generally equal to the sum of interest income, interchange and other fees, less principal credit losses during the period) for three consecutive months drops below a minimum yield (generally equal to the sum of the coupon rate payable to investors plus contractual servicing fees), or certain other events occur.

The retained interests represent National City’s maximum loss exposure with respect to securitization vehicles. The investors in the asset-backed securities issued by the SPEs have no further recourse against the Corporation if cash flows generated by the securitized assets are inadequate to service the obligations of the SPEs.

Transaction costs associated with revolving loan securitizations are deferred at the time of sale and amortized over the revolving term of the securitization, while transaction costs associated with fixed-term loan securitizations are recognized as a component of the gain or loss at the time of sale.

Derivative Instruments: The Corporation enters into derivative transactions principally to protect against the risk of adverse price or interest rate movements on the value of certain assets and liabilities and on future cash flows. In addition, certain contracts and commitments are defined as derivatives under GAAP.

Under the guidelines of SFAS 133, Accounting for Derivative Instruments and Hedging Activities, as amended, all derivative instruments are required to be carried at fair value on the balance sheet. SFAS 133 provides special hedge accounting provisions, which permit the change in the fair value of the hedged item related to the risk being hedged to be recognized in earnings in the same period and in the same income statement line as the change in the fair value of the derivative.

Derivative instruments designated in a hedge relationship to mitigate exposure to changes in the fair value of an asset, liability, or firm commitment attributable to a particular risk, such as interest rate risk, are considered fair value hedges under SFAS 133. Derivative instruments designated in a hedge relationship to mitigate exposure to variability in expected future cash flows, or other types of forecasted transactions, are considered cash flow hedges. The Corporation formally documents all relationships between hedging instruments and hedged items, as well as its risk management objective and strategy for undertaking each hedge transaction.

Fair value hedges are accounted for by recording the fair value of the derivative instrument and the fair value related to the risk being hedged of the hedged asset or liability on the balance sheet with corresponding offsets recorded in the income statement. The adjustment to the hedged asset or liability is included in the basis of the hedged item, while the fair value of the derivative is recorded as a freestanding asset or liability. Actual cash receipts or payments and related amounts accrued during the period on derivatives included in a fair value hedge relationship are recorded as adjustments to the income or expense recorded on the hedged asset or liability.

Cash flow hedges are accounted for by recording the fair value of the derivative instrument on the balance sheet as either a freestanding asset or liability, with a corresponding offset recorded in other comprehensive income within stockholders’ equity, net of tax. Amounts are reclassified from other comprehensive income to the income statement in the period or periods the hedged forecasted transaction affects earnings.

Under both the fair value and cash flow hedge methods, derivative gains and losses not effective in hedging the change in fair value or expected cash flows of the hedged item are recognized immediately in the income statement. At the hedge’s inception and at least quarterly thereafter, a formal assessment is performed to determine whether changes in the fair values or cash flows of the derivative instruments have been highly effective in offsetting changes in the fair values or cash flows of the hedged items and whether they are expected to be highly effective in the future. If it is determined a derivative instrument has not been or will not continue to be highly effective as a hedge, hedge accounting is discontinued. SFAS 133 basis adjustments recorded on hedged assets and liabilities are amortized over the remaining life of the hedged item beginning no later than when hedge accounting ceases.

Mortgage Servicing Rights (MSRs): The Corporation sells mortgage loans in the secondary market and typically retains the right to service the loans sold. Upon sale, an MSR is established, which represents the then current fair value of future net cash flows expected to be realized for performing the servicing activities. In addition, the Corporation may purchase the right to service mortgage loans originated by others. MSRs, when purchased, are initially recorded at cost. MSRs are carried at the lower of the initial capitalized amount, net of accumulated amortization and hedge accounting adjustments, or fair value. Certain MSRs hedged with derivative instruments as part of SFAS 133 hedge relationships may be adjusted above their initial carrying value. Changes in fair value resulting

from the application of hedge accounting become part of the carrying values of MSRs.

The fair value of MSRs is estimated by calculating the present value of estimated future net servicing cash flows, taking into consideration actual and expected mortgage loan prepayment rates, discount rates, servicing costs, and other economic factors, which are determined based on current market conditions. The expected and actual rates of mortgage loan prepayments are the most significant factors driving the value of MSRs, particularly for residential mortgage loans. Increases in mortgage loan prepayments reduce estimated future net servicing cash flows because the life of the underlying loan is reduced. In determining the fair value of the MSRs, mortgage interest rates, which are used to determine prepayment rates, and discount rates are held constant over the estimated life of the portfolio. Expected mortgage loan prepayment rates are derived from a third-party model and adjusted to reflect National City’s actual prepayment experience. Prepayment rates have a lesser impact on the value of servicing assets associated with commercial real estate loans as these loans have lockout and prepayment penalties generally ranging from five to nine years. Servicing fees, net of amortization, impairment, and related derivative gains and losses, are recorded in mortgage banking revenue on the income statement.

The carrying values of MSRs (initial capitalized amount, net of accumulated amortization and hedge accounting adjustments) are amortized in proportion to, and over the period of, estimated net servicing income.

MSRs are evaluated for impairment in accordance with SFAS 140. For purposes of determining impairment, the MSRs are stratified by certain risk characteristics, primarily loan type and note rate. If temporary impairment exists within a risk stratification tranche, a valuation allowance is established through a charge to income equal to the amount by which the carrying value, including hedge accounting adjustments, exceeds the fair value. If it is later determined all or a portion of the temporary impairment no longer exists for a particular tranche, the valuation allowance is reduced through a recovery of income.

MSRs are also reviewed for other-than-temporary impairment. Other-than-temporary impairment exists when the recoverability of a recorded valuation allowance is determined to be remote, taking into consideration historical and projected interest rates and loan pay-off activity. When this situation occurs, the unrecoverable portion of the valuation allowance is applied as a direct write-down to the carrying value of the MSRs. Unlike a valuation allowance, a direct write-down permanently reduces the carrying value of the MSR and the valuation allowance, precluding subsequent recoveries.

Stock-Based Compensation: Effective January 1, 2003, the Corporation adopted the fair value method of recording stock awards under SFAS 123, Accounting for Stock-Based Compensation. Under the guidance of SFAS 148, Accounting for Stock-Based Compensation – Transition and Disclosure, the Corporation applied the recognition provisions of SFAS 123 to all awards granted to employees after January 1, 2003. Compensation expense for option awards granted subsequent to January 1, 2003 was determined based on the estimated fair value of the award at the date of grant and recognized ratably in the income statement over the option’s vesting period. Stock options granted prior to January 1, 2003, were accounted for under the recognition and measurement provisions of Accounting Principles Board Opinion 25 (APB 25), Accounting for Stock Issued to Employees. Under APB 25, compensation expense for employee stock options is generally not recognized if the exercise price of the option equaled or exceeded the market price of the stock on the date of grant. All stock options granted prior to January 1, 2003, which were accounted for under APB 25, became fully vested in 2004. Therefore, the cost related to stock-based employee compensation included in the determination of net income for 2005 equals the fair value method for all unvested stock awards.

Compensation expense for restricted share awards is recognized ratably over the period of service, usually the restricted period, based upon the fair value of the stock on the date of grant. The adoption of the recognition provisions of SFAS 123 did not have a significant impact on the determination of compensation expense for restricted share awards.

The following table illustrates the effect on net income and earnings per share if the Corporation had applied the fair value recognition provisions of SFAS 123 to all stock option awards in 2004. Also included in the pro forma net income and earnings per share for the three- and six-month periods of 2004 is the after-tax expense, net of minority interest benefit, related to option awards granted by the Corporation’s former 83%-owned payment processing subsidiary, National Processing, Inc., on its common stock. Refer to Note 3 for discussion on the sale of this business in October 2004.


	Three Months Ended						Six Months Ended
	June 30						June 30
(In Thousands, Except Per Share Amounts)	2005			2004			2005			2004

Net income, as reported	$	625,127		$	519,046		$	1,109,269		$	1,229,414
Add: option expense included in reported net income, net of related tax effects National City common stock		3,797			3,652			7,702			7,622
National Processing common stock		—			34			—			137
Less: total option expense determined under fair value method for all option awards, net of related tax effects
National City common stock		(3,797	)		(8,585	)		(7,702	)		(17,488	)
National Processing common stock		—			(878	)		—			(2,172	)

Pro forma net income	$	625,127		$	513,269		$	1,109,269		$	1,217,513

Pro forma net income per share:
Basic — as reported	$	.98		$	.84		$	1.73		$	2.01
Basic — pro forma		.98			.83			1.73			1.99
Diluted — as reported		.97			.83			1.71			1.99
Diluted — pro forma		.97			.82			1.71			1.97

The fair values of stock options granted were estimated at the date of grant using the Black-Scholes option pricing model. The Black-Scholes option pricing model was originally developed for use in estimating the fair value of traded options, which have different characteristics from the Corporation’s employee stock options. The model is also sensitive to changes in assumptions, which can materially affect the fair value estimate. The following weighted-average assumptions were used to determine the fair value of options granted on National City common stock:


	Three Months Ended						Six Months Ended
	June 30						June 30
	2005			2004			2005			2004

Risk-free interest rate		3.61	%		2.86	%		3.51	%		3.01	%
Expected dividend yield		3.90			4.01			3.77			3.95
Expected volatility		20.90			27.02			20.90			27.03
Expected option life (in years)		5			5			5			5
Weighted-average grant-date fair value of options	$	5.02		$	6.18		$	5.27		$	6.28

The weighted-average assumptions used to value the National Processing option grants for the three- and six-month periods ended June 30, 2004 are disclosed in National Processing, Inc.’s June 30, 2004 Quarterly Report on Form 10-Q, as filed with the United States Securities and Exchange Commission (SEC) and accessible at www.sec.gov.

Advertising Costs: Advertising costs are generally expensed as incurred.

Income Taxes: The Corporation and its subsidiaries file a consolidated federal income tax return. The provision for income taxes is based upon income in the financial statements, rather than amounts reported on the Corporation’s income tax return. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized as income or expense in the period that includes the enactment date.

Stock Repurchases: Acquisitions of the Corporation’s common stock are recorded using the par value method, which requires the cash paid to be allocated to common stock, capital surplus, and retained earnings.

2. RECENT ACCOUNTING PRONOUNCEMENTS

Accounting Changes and Error Corrections: In May 2005, the Financial Accounting Standards Board (FASB) issued SFAS 154, Accounting Changes and Error Corrections, which changes the accounting for and reporting of a change in accounting principle. This statement applies to all voluntary changes in accounting principle and changes required by an accounting pronouncement in the unusual instance that the pronouncement does not include specific transition provisions. This statement requires retrospective application to prior period financial statements of changes in accounting principle, unless it is impractical to determine either the period-specific or cumulative effects of the change. SFAS 154 is effective for accounting changes made in fiscal years beginning after December 15, 2005. The adoption of this standard is not expected to have a material effect on financial condition, the results of operations, or liquidity.

Exchanges of Nonmonetary Assets: In December 2004, the FASB issued SFAS 153, Exchanges of Nonmonetary Assets, an amendment of APB Opinion No. 29, Accounting for Nonmonetary Transactions. This statement amends the principle that exchanges of nonmonetary assets should be measured based on the fair value of the assets exchanged and more broadly provides for exceptions regarding exchanges of nonmonetary assets that do not have commercial substance. This Statement is effective for nonmonetary asset exchanges occurring in fiscal periods beginning after June 15, 2005. The adoption of this standard is not expected to have a material impact on financial condition, results of operations, or liquidity.

Share-Based Payment: In December 2004, the FASB revised SFAS 123, Accounting for Stock-Based Compensation. SFAS 123R establishes accounting requirements for share-based compensation to employees and carries forward prior guidance on accounting for awards to non-employees. The provisions of this statement will become effective on January 1, 2006. On January 1, 2003, the Corporation adopted the provisions of SFAS 123 and began recognizing compensation expense ratably in the income statement, based on the estimated fair value of all awards granted after this date. SFAS 123R will require the Corporation to change its method of accounting for share-based awards to exclude from the initial estimate of compensation expense awards expected to be forfeited. The adoption of this standard is not expected to have a material effect on financial condition, the results of operations, or liquidity.

Meaning of Other Than Temporary Impairment: In June 2005, the FASB directed its staff to draft FSP FAS 115-1, “The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments”. FSP 115-1 will codify the guidance set forth in EITF Topic D-44 and clarify that an investor should recognize an impairment loss no later than when the impairment is deemed other than temporary, even if a decision to sell has not been made. FSP FAS 115-1 will be effective for other-than-temporary impairment analysis conducted in periods beginning after September 15, 2005. Management does not anticipate the issuance of the final consensus will have a material impact on financial condition, the results of operations, or liquidity.

Accounting for Certain Loans or Debt Securities Acquired in a Transfer: In December 2003, the American Institute of Certified Public Accountants issued Statement of Position (SOP) 03-3, Accounting for Certain Loans or Debt Securities Acquired in a Transfer. SOP 03-3 requires acquired loans, including debt securities, to be recorded at the amount of the purchaser’s initial investment and prohibits carrying over valuation allowances from the seller for those individually-evaluated loans that have evidence of deterioration in credit quality since origination, and it is probable all contractual cash flows on the loan will be unable to be collected. SOP 03-3 also requires the excess of all undiscounted cash flows expected to be collected at acquisition over the purchaser’s initial investment to be recognized as interest income on a level-yield basis over the life of the loan. Subsequent increases in cash flows expected to be collected are recognized prospectively through an adjustment of the loan’s yield over its remaining life, while subsequent decreases are recognized as impairment. Loans carried at fair value, mortgage loans held for sale, and loans to borrowers in good standing under revolving credit agreements are excluded from the scope of SOP 03-3. The Corporation adopted the provisions of SOP 03-03 effective January 1, 2005. The adoption of this standard did not have a material impact on financial condition, results of operations, or liquidity.

3. ACQUISITIONS & DIVESTITURES

Acquisitions: On January 15, 2005, the Corporation completed its acquisition of Charter One Vendor Finance for a cash payment of $312 million. Charter One Vendor Finance has been renamed National City Vendor Finance (NCVF). NCVF serves major vendors, such as manufacturers, value-added resellers, and select specialized lessors, in middle- and large-ticket equipment and software markets, and finances equipment and real estate for franchises of selected, leading franchisors.

On April 9, 2004, National City Corporation completed its acquisition of Allegiant Bancorp, Inc. (Allegiant), a bank holding company operating 36 retail bank branch offices in the St. Louis, Missouri metropolitan area, for $493 million. On July 1, 2004, the Corporation completed its acquisition of Provident Financial Group, Inc. (Provident), a bank holding company operating 65 branch banking offices in the Cincinnati and Dayton, Ohio metropolitan areas. The total cost of this transaction was $2.2 billion, including the fair value of stock options exchanged and forward purchase contracts assumed of $78 million and $59 million, respectively. On October 5, 2004, the Corporation completed its acquisition of Wayne Bancorp, Inc. (Wayne), an $825 million asset banking company operating 23 branches in several northeastern Ohio counties, for a cash price of $182 million.

The assets and liabilities of these acquired entities were recorded on the balance sheet at their estimated fair values as of the respective acquisition dates, and the results of operations have been included in the consolidated statement of income from those dates. Refer to Note 4 for discussion on severance and other restructuring costs incurred in connection with these acquisitions.

The following table shows the excess purchase price over carrying value of net assets acquired, purchase price allocations, and resulting goodwill for the acquisitions completed in the past 12 months:


(In Thousands)	Provident			Wayne			NCVF

Purchase price	$	2,174,043		$	182,132		$	311,764
Carrying value of net assets acquired		(734,519	)		(71,254	)		(306,260	)

Excess of purchase price over carrying value of net assets acquired		1,439,524			110,878			5,504

Purchase accounting adjustments
Securities		95,283			477			—
Loans		(39,646	)		(7,234	)		3,166
Premises and equipment		32,760			3,449			—
Leased equipment		25,327			—			—
Other assets		(819	)		819			—
Deposits		110,563			654			—
Borrowings		217,083			547			—
Severance and exit costs		285,444			3,714			—
Other liabilities		180,868			621			—
Deferred taxes		(223,817	)		5,111			—

Subtotal		2,122,570			119,036			8,670

Core deposit intangibles		(132,956	)		(20,589	)		—
Other identifiable intangible assets		(90,050	)		(1,565	)		—

Goodwill	$	1,899,564		$	96,882		$	8,670

The following table summarizes the estimated fair value of the net assets acquired related to these acquisitions:


(In Thousands)	Provident		Wayne		NCVF

Assets
Cash and cash equivalents	$	317,247	$	27,966	$	201
Securities		4,818,846		277,757		—
Loans, net of allowance for loan losses		9,203,739		460,553		307,206
Premises and other equipment		1,348,816		11,851		157
Goodwill and other intangibles		2,122,570		119,036		8,670
Other assets		696,848		8,163		23

Total Assets		18,508,066		905,326		316,257

Liabilities
Deposits		10,000,273		665,624		—
Borrowings		5,450,477		43,070		—
Other liabilities		883,273		14,500		4,493

Total Liabilities		16,334,023		723,194		4,493

Fair value of net assets acquired	$	2,174,043	$	182,132	$	311,764

The fair values of acquired assets, liabilities and identified intangibles for Allegiant and Provident have been finalized. As of June 30, 2005, the balance of goodwill and intangible assets resulting from the Allegiant acquisition was $364 million. The estimated fair values of the acquired assets and liabilities, including identifiable intangible assets, for the Wayne and NCVF acquisitions are preliminary and subject to refinement as exit plans are finalized and additional information becomes available. Any subsequent adjustments to the fair values of assets and liabilities acquired, identifiable intangible assets, or other purchase accounting adjustments, determinable within 12 months of acquisition dates, would result in adjustments to goodwill.

The following unaudited pro forma consolidated financial information presents the combined results of operations of the Corporation as if the Allegiant, Provident, and Wayne acquisitions had occurred as of January 1, 2004.


	Three Months Ended		Six Months Ended
(In Thousands)	June 30, 2004		June 30, 2004

Net interest income	$	1,169,909	$	2,318,302
Provision for credit losses		122,396		234,022

Net interest income after provision for credit losses		1,047,513		2,084,280
Noninterest income		996,230		2,278,343
Noninterest expense		1,339,219		2,595,379

Income before income tax expense		704,524		1,767,244
Income tax expense		239,891		593,838

Net Income	$	464,633	$	1,173,406

Net Income Per Common Share
Basic	$	.69	$	1.73
Diluted	$	.67	$	1.70
Average Common Shares Outstanding
Basic		676,112,530		676,655,960
Diluted		688,370,577		689,144,114

The pro forma results include amortization of fair value adjustments on loans, deposits, and debt, amortization of newly created intangibles and post-merger acquisition related charges. The pro forma number of average common shares outstanding includes adjustments for shares issued for the acquisitions and the impact of additional dilutive securities but does not assume any incremental share repurchases. The pro forma results presented do not reflect cost savings or revenue enhancements anticipated from the acquisitions and are not necessarily indicative of what actually would have occurred if the acquisitions had been completed as of the beginning of the periods presented, nor are they necessarily indicative of future consolidated results.

Divestitures: On March 10, 2005, the Corporation agreed to sell its wholly-owned subsidiary Madison Bank and Trust, a five-branch bank located in Madison, Indiana. Completion of this transaction is subject to regulatory approval and is expected to occur in the third quarter. The Corporation expects to recognize a pretax gain on the sale of this bank of approximately $16 million.

On October 15, 2004, the Corporation completed the sale of its 83% owned payment processing subsidiary, National Processing, Inc. (NPI). In conjunction with the sale, the Corporation, through its subsidiary National City Bank of Kentucky, entered into a Service and Sponsorship Agreement with NPI. This agreement relates to the United Airlines, Inc. card processing agreement, whereby the buyer, through NPI, made a one-time payment of $36 million to the Corporation in exchange for the Corporation’s agreement to release NPI from its obligation to indemnify the Corporation against any losses or claims arising from the United Airlines card processing agreement. As a result, the Corporation has retained the contractual obligation to process card transactions for United Airlines. Refer to Note 19 for the related discussion on chargeback exposure.

On June 30, 2004, the Corporation sold its Corporate Trust Bond Administration business. Assets under administration transferred in this transaction were approximately $10.8 billion. On December 1, 2004, the Corporation completed the sale of Provident PCFS, a subprime lending and servicing business. Provident PCFS was part of the acquisition of Provident. A potential purchase price reduction could occur if Provident PCFS is replaced as servicer under any of the servicing agreements transferred to the buyer prior to December 1, 2009.

4. RESTRUCTURING CHARGES

The Corporation has implemented restructuring plans related to the integration of Allegiant, Provident, and Wayne. These plans were formulated prior to the acquisition of these entities. Costs incurred for employee terminations consist of severance, relocation, retention, and outplacement benefits. Certain costs associated with severance, relocation, and outplacement benefits were recognized in the allocation of the purchase price to acquired assets and liabilities. Retention benefits are expensed over the required service period. Exit and termination costs relating to the exit of Provident PCFS, facility leases, and other contract termination costs, were also recognized in the allocation of the purchase price to acquired assets and liabilities.

A rollforward of the severance and restructuring liability for the three- and six-month periods ended June 30, 2005 and 2004 is presented in the table below. Effective October 15, 2004, the Corporation sold its former subsidiary, National Processing, resulting in the transfer of all of its severance liabilities to the buyer. The table below also includes severance expenses incurred in the normal course of business. Except for severance charges incurred by the National Processing line of business, all severance and other termination expenses were recorded as unallocated corporate charges within the Parent and Other category.


	Three Months Ended June 30
	2005			2004
(In Thousands)	Total			Parent and Other			National Processing			Total

Beginning balance	$	78,099		$	11,755		$	1,455		$	13,210
Severance and other employee related costs:
Charged to expense		5,139			6,344			—			6,344
Recognized in purchase price allocation		1,053			2,892			—			2,892
Payments		(20,133	)		(5,065	)		(331	)		(5,396	)
Exit costs and other termination costs:
Recognized in purchase price allocation		2,783			—			—			—
Payments		(1,166	)		—			—			—

Ending balance	$	65,775		$	15,926		$	1,124		$	17,050


	Six Months Ended June 30
	2005			2004
(In Thousands)	Total			Parent and Other			National Processing			Total

Beginning balance	$	98,486		$	14,154		$	1,773		$	15,927
Severance and other employee related costs:
Charged to expense		13,354			9,677			54			9,731
Recognized in purchase price allocation		(2,167	)		2,892			—			2,892
Payments		(40,868	)		(10,797	)		(703	)		(11,500	)
Exit costs and other termination costs:
Recognized in purchase price allocation		1,640			—			—			—
Payments		(4,670	)		—			—			—

Ending balance	$	65,775		$	15,926		$	1,124		$	17,050

During the three months ended June 30, 2005 and 2004, the Corporation recorded severance and other employee-related termination expenses of $5 million and $6 million, respectively. Severance expenses for the second quarter of 2005 and 2004 included acquisition-related retention benefits of $800 thousand and $1 million, respectively.

During the six months ended June 30, 2005 and 2004, the Corporation recorded severance and other employee-related termination expenses of $13 million and $10 million, respectively. Severance expenses for the six months ended June 30, 2005 and 2004 included acquisition-related retention benefits of $5 million and $1 million, respectively. As of June 30, 2005, substantially all retention benefits have been paid.

As acquisition-related activities are completed, the associated liabilities are adjusted to reflect the actual costs incurred. For adjustments determinable within 12 months of the respective acquisition dates, goodwill is increased or decreased to reflect the change in cost estimates. Substantially all acquisition-related severance, exit, and other termination costs are expected to be paid by December 31, 2005.

5. SECURITIZATION ACTIVITY

The Corporation periodically sells pools of credit card receivables and automobile loans through securitization transactions. Small Business Administration (SBA) loans are also purchased and then sold by the Corporation. Home equity securitizations were acquired with the Provident acquisition.

During the first six months of 2005, the Corporation securitized four pools of SBA loans totaling $25 million, and recognized retained interests in the form of interest-only strips with an initial carrying value of $1 million. Transaction costs were expensed in conjunction with the sale.

A summary of the assumptions used to value the credit card retained interests and automobile retained interests and servicing asset at the time of each securitization follows:


			Variable			Monthly			Expected
	Weighted-Average		Annual			Principal			Annual			Annual
	Life		Coupon Rate			Repayment			Credit			Discount
	(in months)		to Investors			Rate			Losses			Rate			Yield

*Credit Card:*
Series 2000-1		5.5		6.86	%		18.08	%		4.17	%		15.00	%		14.43	%
Series 2001-1		5.6		6.06			17.79			4.08			15.00			14.77
Series 2002-1		5.7		2.06			17.41			5.34			15.00			11.99


			Monthly			Expected
	Weighted-Average		Prepayment			Cumulative			Annual			Weighted-
	Life		Speed			Credit			Discount			Average
	(in months)		(% ABS)			Losses			Rate			Coupon

*Automobile:*
Series 2002-A
Interest only strip		22.9		1.40	%		2.25	%		12.00	%		8.71	%
Servicing asset		22.9		1.40			2.25			12.00			8.71
Series 2004-A
Interest only strip		21.8		1.50	%		1.75	%		12.00	%		6.79	%
Servicing asset		21.8		1.50			1.75			11.00			6.79

A summary of the assumptions used to value the home equity retained interests at the time of the Provident acquisition were as follows:


			Variable			Monthly			Expected
	Weighted-Average		Annual			Principal			Annual			Annual
	Life		Coupon Rate			Repayment			Credit			Discount
	(in months)		to Investors			Rate/CPR^(a)			Losses^(b)			Rate			Yield^(c)

*Home Equity:*
Series 1998-A		14.1		1.95	%		4.42/33.00	%		1.25	%		6.25	%		4.87	%
Series 1999-A		17.4		1.88			4.61/33.00			2.00			6.25			5.38
Series 2000-A		16.4		1.74			5.74/33.00			2.40			6.25			5.92


^(a)		Monthly principal repayment rate assumption relates to home equity lines of credit and cumulative prepayment rate (CPR) relates to home equity installment loans.

^(b)		The home equity securitizations are credit enhanced with cash collateral accounts that are maintained within the securitization vehicle. The cash collateral accounts absorb all credit losses with respect to the securitized loans.

^(c)		Yield represents the weighted-average of fixed-rate loan and variable-rate lines of credit.

A summary of the components of managed loans, representing both owned and securitized loans, along with quantitative information about delinquencies and net credit losses follows. The automobile loans presented represent the managed portfolio of indirect prime automobile loans. The home equity loans presented represent the managed portfolio of prime home equity lines of credit and prime home equity installment loans. The SBA loans represent securitized loans originally purchased and then sold by the Corporation.

Three Months Ended

Six Months Ended

As of June 30, 2005

June 30, 2005

Principal

Loans Past Due 30

Average

Net Credit

Average

Net Credit

(In Millions)

Balance

Days or More

Balances

Losses

Balances

Losses

Type of loan:

Credit Card

2,307.6

86.7

2,343.0

37.6

2,387.9

74.1

Automobile

3,338.0

61.5

3,447.4

8.1

3,520.9

19.0

Home Equity

27,507.6

82.3

26,683.6

11.4

25,960.2

24.5

SBA

29.9

5.2

29.7

—

24.8

—

Total loans managed or Securitized

33,183.1

235.7

32,503.7

57.1

31,893.8

117.6

Less:

Loans securitized:

Credit Card

1,035.7

40.9

1,376.5

20.3

1,413.0

38.4

Automobile

674.2

14.7

724.9

2.5

779.7

5.9

Home Equity

42.1

45.6

51.0

1.0

SBA

29.9

5.2

29.7

—

24.8

—

Loans held for securitization:

Credit Card

414.3

—

70.6

—

35.5

—

Loans held in portfolio

30,986.9

174.0

30,256.4

34.1

29,589.8

72.3


					Three Months Ended				Six Months Ended
	As of June 30, 2004				June 30, 2004				June 30, 2004
	Principal		Loans Past Due 30		Average		Net Credit		Average		Net Credit
(In Millions)	Balance		Days or More		Balances		Losses		Balances		Losses

Type of loan:
Credit Card	$	2,400.5	$	89.9	$	2,446.8	$	38.8	$	2,490.2	$	76.6
Automobile		3,989.4		62.0		4,055.9		9.6		4,127.4		21.5
SBA		39.0		3.7		40.5		—		41.5		—

Total loans managed or securitized		6,428.9		155.6		6,543.2		48.4		6,659.1		98.1
Less:
Loans securitized:
Credit Card		1,450.0		45.6		1,450.0		20.5		1,450.0		37.7
Automobile		1,128.7		13.6		1,196.0		2.7		1,104.0		4.8
SBA		39.0		3.7		40.5		—		41.5		—
Loans held for securitization:
Automobile		—		—		—		—		264.9		—

Loans held in portfolio	$	3,811.2	$	92.7	$	3,856.7	$	25.2	$	3,798.7	$	55.6

Certain cash flows received from the securitization trusts follow:


	Three Months Ended						Six Months Ended
	June 30, 2005						June 30, 2005
	Credit								Credit
(In Millions)	Card		Automobile		Home Equity		SBA		Card		Automobile		Home Equity		SBA

Proceeds from new securitizations	$	—	$	—	$	—	$	3.3	$	—	$	—	$	—	$	23.9
Proceeds from collections reinvested in previous securitizations		780.2		—		1.4		—		1,563.6		—		2.7		—
Servicing fees received		6.7		1.8		.1		—		14.0		3.9		.2		—
Other cash flows received on retained interest		19.4		4.6		.3		.2		42.2		9.1		.6		.3
Proceeds from sales of previously charged-off accounts		.6		—		—		—		.6		—		—		—
Purchases of delinquent or foreclosed assets		—		—		.3		—		—		—		.8		—
Repayments of servicing advances		—		—		—		—		—		—		—		—


	Three Months Ended						Six Months Ended
	June 30, 2004						June 30, 2004
	Credit Card		Automobile		SBA		Credit Card		Automobile		SBA
(In Millions)

Proceeds from new securitizations	$	—	$	—	$	—	$	—	$	811.2	$	—
Proceeds from collections reinvested in previous securitizations		772.9		—		—		1,539.2		—		—
Servicing fees received		7.2		3.0		—		14.5		5.6		—
Other cash flows received on retained interest		22.1		5.4		.2		44.7		8.0		.5
Proceeds from sales of previously charged-off accounts		—		—		—		—		—		—
Purchases of delinquent or foreclosed assets		—		—		—		—		—		—
Repayments of servicing advances		—		—		—		—		—		—

A summary of the fair values of the interest-only strips and servicing assets retained, key economic assumptions used to arrive at the fair values, and the sensitivity of the June 30, 2005 fair values to immediate 10% and 20% adverse changes in those assumptions follows. These sensitivities are hypothetical. Changes in fair value based on a 10% variation in assumptions generally cannot be extrapolated because the relationship of the change in the assumption to the change in fair value may not be linear. Also, the effect of a variation in a particular assumption on the fair value of the retained interests is calculated without changing any other assumption; in reality, changes in one factor may result in changes in another (for example, increases in market interest rates may result in lower prepayments and increased credit losses), which might magnify or counteract the sensitivities.

During 2004, actual credit losses for the auto securitizations exceeded their initial projections developed at the time of the securitizations. As a result, the cumulative loss curve was increased to 2.25% in 2004, and this change is reflected in the expected static pool loss assumption disclosed in the sensitivity analysis.


			Weighted-		Variable Annual			Monthly			Expected
			average		Coupon Rate			Principal			Annual			Annual
	Fair		Life		To			Repayment			Credit			Discount
(Dollars in Millions)	Value		(in months)^(b)		Investors^(b)			Rate^(b)			Losses^(b)			Rate^(b)			Yield^(b)
*Credit Card Loans*
Interest-only strips^(a)	$	1.6		3.2		3.55	%		18.02	%		5.37	%		15.00	%		11.58	%
As of June 30, 2005
Decline in fair value of 10% adverse change					$	.9		$	.1		$	1.4		$	—		$	1.6
Decline in fair value of 20% adverse change						1.6			.2			1.6			—			1.6


^(a)		Represents interest-only strips recognized in connection with the credit card securitization series 2000-1, 2001-1 and 2002-1.

^(b)		Represents weighted-average assumptions and aggregate declines in fair value for all credit card securitization series.


			Weighted-		Monthly			Expected
			average		Prepayment			Cumulative			Annual			Weighted-
	Fair		Life		Speed			Credit			Discount			average
(Dollars in Millions)	Value		(in months)^(b)		(% ABS)^(b)(c)			Losses^(b)			Rate^(b)			Coupon^(b)

*Automobile Loans*
Interest-only strip^(a)	$	28.2		13.4		1.50	%		2.25	%		12.00	%		7.26	%
As of June 30, 2005
Decline in fair value of 10% adverse change					$	.9		$	2.6		$	.4		$	4.7
Decline in fair value of 20% adverse change						1.8			5.1			.8			9.5
Servicing asset^(a)	$	5.3		9.1		1.50	%		2.25	%		11.24	%		7.26	%
As of June 30, 2005^(d)
Decline in fair value of 10% adverse change					$	.4		$	—		$	—		$	—
Decline in fair value of 20% adverse change						.8			—			.1			—


^(a)		Represents interest-only strips and servicing assets associated with the automobile securitization series 2004-A and 2002-A.

^(b)		Represents weighted-average assumptions and aggregate declines in fair value for all automobile securitization series.

^(c)		Absolute prepayment speed.

^(d)		Carrying value of servicing assets at June 30, 2005 was $4.7 million.

6. LEASES

National City leases commercial equipment and automobiles to customers. The leases are classified as either lease financings or operating leases based on the terms of the lease arrangement. When a lease is classified as a lease financing, the future lease payments, net of unearned income and the estimated residual value of the leased property at the end of the lease term, are recorded as an asset within the loan portfolio. The amortization of the unearned income is recorded as interest income. When a lease is classified as an operating lease, the cost of the leased property, net of depreciation, is recorded as equipment leased to others on the balance sheet. Rental income is recorded in noninterest income while the depreciation on the leased property is recorded in noninterest expense. At the expiration of a lease, the leased property is either sold or another lease agreement is initiated.

Lease Financings: Lease financings, included in portfolio loans on the consolidated balance sheet, consist of direct financing and leveraged leases of commercial and other equipment, primarily computers and office equipment, manufacturing and mining equipment, commercial trucks and trailers, and airplanes, along with retail automobile lease financings. Commercial equipment lease financings are included in commercial loans, while automobile lease financings are included in other consumer loans. The Corporation ceased originating retail automobile leases in December 2000, however, additional automobile leases financings were acquired as part of the acquisition of Provident in July 2004. No new leases have been originated since the acquisition date, and this portfolio will run off over time as the leases expire and the automobiles are sold.

A summary of lease financings by type follows:


	June 30		December 31		June 30
(In Thousands)	2005		2004		2004

Commercial
Direct financings	$	2,856,140	$	2,508,415	$	1,092,479
Leveraged leases		310,248		327,707		276,604

Total commercial lease financings		3,166,388		2,836,122		1,369,083
Consumer
Retail automobile lease financings		466,987		530,382		65,947

Total net investment in lease financings	$	3,633,375	$	3,366,504	$	1,435,030

The components of the net investment in lease financings follow:


	June 30			December 31			June 30
(In Thousands)	2005			2004			2004

Commercial
Lease payments receivable	$	3,143,342		$	2,753,551		$	1,189,639
Estimated residual value of leased assets		492,770			541,809			453,340

Gross investment in commercial lease financings		3,636,112			3,295,360			1,642,979
Unearned income		(469,724	)		(459,238	)		(273,896	)

Total net investment in commercial lease financings	$	3,166,388		$	2,836,122		$	1,369,083

Consumer
Lease payments receivable	$	277,286		$	339,840		$	14,582
Estimated residual value of leased assets		245,882			263,768			54,828

Gross investment in consumer lease financings		523,168			603,608			69,410
Unearned income		(56,181	)		(73,226	)		(3,463	)

Total net investment in consumer lease financings	$	466,987		$	530,382		$	65,947

A rollforward of the residual value component of lease financings follows:


	Three Months Ended						Six Months Ended
	June 30						June 30
(In Thousands)	2005			2004			2005			2004

Commercial
Beginning balance	$	518,004		$	457,172		$	541,809		$	487,007
Additions		7,501			13,993			13,317			16,590
Acquisition^(a)		—			—			1,520			—
Runoff		(32,735	)		(17,825	)		(63,876	)		(50,257	)
Write-downs		—			—			—			—

Ending balance	$	492,770		$	453,340		$	492,770		$	453,340

Consumer
Beginning balance	$	255,034		$	86,743		$	263,768		$	121,630
Additions		—			—			—			—
Acquisition		—			—			—			—
Runoff		(10,926	)		(33,247	)		(19,660	)		(68,134	)
Recoveries		1,774			1,332			1,774			1,332

Ending balance	$	245,882		$	54,828		$	245,882		$	54,828


^(a)		Associated with the acquisition of National City Vendor Finance. Refer to Note 3 for further details of this acquisition.

Equipment Leased to Others: Equipment leased to others represents equipment owned by National City that is leased to customers under operating leases. Commercial equipment includes aircraft and other transportation, manufacturing, data processing, medical, and office equipment leased to commercial customers while consumer equipment consists of automobiles leased to retail customers. The majority of the balance of consumer leased equipment at June 30, 2005 was acquired with Provident in July 2004. As discussed above with regard to lease financings, National City ceased originating retail automobile leases in 2000 and plans to let the acquired automobile portfolio run off over time. The totals below also include the carrying value of any equipment previously leased to customers under either operating or financing leases that are in the process of being either re-leased or sold.

A summary of the net carrying value of equipment leased to others by type follows:


	June 30			December 31			June 30
(In Thousands)	2005			2004			2004

Commercial
Cost	$	408,351		$	341,164		$	89,580
Accumulated depreciation		(81,012	)		(52,541	)		(57,610	)

Net carrying value of commercial leased equipment		327,339			288,623			31,970
Consumer
Cost		652,477			849,578			2,538
Accumulated depreciation		(114,340	)		(87,414	)		—

Net carrying value of consumer leased equipment		538,137			762,164			2,538

Total net carrying value of equipment leased to others	$	865,476		$	1,050,787		$	34,508

7. LOANS, ALLOWANCE FOR LOAN LOSSES AND ALLOWANCE FOR LOSSES ON LENDING-RELATED COMMITMENTS

Total portfolio loans outstanding were recorded net of unearned income, unamortized premiums and discounts, deferred loan fees and costs, and fair value adjustments associated with acquired loans of $360 million, $328 million, and $205 million at June 30, 2005, December 31, 2004, and June 30, 2004, respectively.

To provide for the risk of loss inherent in the process of extending credit, National City maintains an allowance for loan losses and an allowance for losses on lending-related commitments. During the fourth quarter of 2004, the allowance for losses on lending-related commitments was reclassified from the allowance for loan losses to other liabilities. Previously reported periods were restated to conform to the current period presentation. The reclassifications had no effect on the provision for credit losses, which continues to be comprised of the sum of the provision for loan losses and the provision for credit losses on lending related commitments, nor on net income or stockholders’ equity.

Activity in the allowance for loan losses follows:


	Three Months Ended					Six Months Ended
	June 30					June 30
(In Thousands)	2005			2004		2005			2004

Balance at beginning of period	$	1,178,824		$	1,010,549	$	1,188,462		$	1,022,720
Provision for loan losses		18,704			60,608		96,316			130,613
Allowance related to loans acquired, sold or securitized		(751	)		19,114		(41	)		19,114
Charge-offs:
Commercial		31,018			17,376		73,946			47,515
Commercial construction		537			—		2,377			1
Real estate – commercial		7,442			7,490		12,610			9,279
Real estate – residential		28,158			34,092		70,700			62,233
Home equity lines of credit		8,075			7,032		15,431			12,931
Credit cards and other unsecured lines of credit		30,165			27,789		58,567			58,460
Other consumer		20,015			24,324		45,640			51,469

Total charge-offs		125,410			118,103		279,271			241,888
Recoveries:
Commercial		24,560			22,802		56,329			37,136
Commercial construction		109			411		113			451
Real estate – commercial		1,974			3,227		4,827			6,593
Real estate – residential		12,223			14,124		29,066			23,660
Home equity lines of credit		2,201			2,810		4,066			4,862
Credit cards and other unsecured lines of credit		3,513			1,940		5,962			3,753
Other consumer		9,180			10,068		19,298			20,536

Total recoveries		53,760			55,382		119,661			96,991
Net charge-offs		71,650			62,721		159,610			144,897

Balance at end of period	$	1,125,127		$	1,027,550	$	1,125,127		$	1,027,550

Activity in the allowance for losses on lending-related commitments follows:


	Three Months Ended				Six Months Ended
	June 30				June 30
(In Thousands)	2005		2004		2005			2004

Balance at beginning of period	$	93,373	$	115,111	$	100,538		$	102,609
Net provision for losses on lending-related commitments		7,123		180		(42	)		12,682
Allowance related to lending-related commitments acquired		—		1,778		—			1,778

Balance at end of period	$	100,496	$	117,069	$	100,496		$	117,069

Nonperforming loans totaled $471 million, $469 million, and $439 million as of June 30, 2005, December 31, 2004, and June 30, 2004, respectively. For loans classified as nonperforming at June 30, 2005, the contractual interest due and actual interest recognized on those loans for the first six months of 2005 was $21 million and $3 million, respectively. Included in nonperforming loans were impaired loans, as defined under SFAS 114, aggregating $116 million, $91 million, and $192 million at June 30, 2005, December 31, 2004, and June 30, 2004, respectively. Average impaired loans for the first six months of 2005 and 2004 totaled $105 million and $217 million, respectively. The majority of the loans deemed impaired were evaluated using the fair value of the collateral as the measurement method. The related allowance allocated to impaired loans as of June 30, 2005, December 31, 2004, and June 30, 2004 was $7 million, $5 million, and $26 million, respectively. At June 30, 2005, December 31, 2004, and June 30, 2004, impaired loans with an associated allowance totaled $35 million, $25 million, and $85 million, respectively, while impaired loans with no associated allowance totaled $82 million, $66 million, and $107 million, respectively, for these same period ends. During the first six months of 2005 and 2004, interest recognized on impaired loans while they were considered impaired was not material.

8. SECURITIES

Securities available for sale follow:


	Amortized		Unrealized		Unrealized		Fair
(In Thousands)	Cost		Gains		Losses		Value


June 30, 2005
U.S. Treasury and Federal agency debentures	$	961,680	$	30,747	$	2,634	$	989,793
Mortgage-backed securities		5,133,549		57,800		20,280		5,171,069
Asset-backed and corporate debt securities		357,899		3,022		456		360,465
States and political subdivisions		645,816		23,825		460		669,181
Other		486,390		21,276		3,876		503,790

Total securities	$	7,585,334	$	136,670	$	27,706	$	7,694,298


December 31, 2004
U.S. Treasury and Federal agency debentures	$	652,521	$	32,621	$	2,131	$	683,011
Mortgage-backed securities		6,309,061		89,150		21,274		6,376,937
Asset-backed and corporate debt securities		510,358		3,437		626		513,169
States and political subdivisions		705,367		32,010		288		737,089
Other		938,698		32,971		958		970,711

Total securities	$	9,116,005	$	190,189	$	25,277	$	9,280,917


June 30, 2004
U.S. Treasury and Federal agency debentures	$	549,272	$	28,668	$	3,381	$	574,559
Mortgage-backed securities		3,812,290		52,121		62,574		3,801,837
Asset-backed and corporate debt securities		691,076		4,187		971		694,292
States and political subdivisions		660,811		34,342		447		694,706
Other		734,182		17,825		659		751,348

Total securities	$	6,447,631	$	137,143	$	68,032	$	6,516,742

The other category includes the Corporation’s internally-managed equity portfolio of bank and thrift common stock investments (bank stock fund). The bank stock fund had an amortized cost and fair value of $247 million and $261 million, respectively, at June 30, 2005, compared to an amortized cost and fair value of $208 million and $236 million, respectively, at December 31, 2004, and an amortized cost and fair value of $157 million and $169 million, respectively, at June 30, 2004. At June 30, 2005, Federal Reserve Bank and Federal Home Loan Bank stock was reclassified from the securities portfolio to other investments. Prior to June 30, 2005, this stock was classified as securities and is included in the other category in the above table.

The following table presents the age of gross unrealized losses and associated fair value by investment category.

June 30, 2005

Less Than 12 Months

12 Months or More

Total

Fair

Unrealized

Fair

Unrealized

Fair

Unrealized

(In Thousands)

Value

Losses

Value

Losses

Value

Losses

U.S. Treasury and Federal agency debentures

266,184

2,544

13,917

280,101

2,634

Mortgage-backed securities

1,571,488

8,764

722,609

11,516

2,294,097

20,280

Asset-backed securities

105,055

281

49,637

175

154,692

456

States and political subdivisions

74,675

458

193

74,868

460

Other

47,291

2,951

29,579

925

76,870

3,876

Total

2,064,693

14,998

815,935

12,708

2,880,628

27,706

Management does not believe any individual unrealized loss as of June 30, 2005, represents an other-than-temporary impairment. The unrealized losses reported for mortgage-backed securities relate primarily to securities issued by FNMA, FHLMC and private institutions. These unrealized losses are primarily attributable to changes in interest rates and individually were 4% or less of their respective amortized cost basis. The Corporation has both the intent and ability to hold these securities for the time necessary to recover the amortized cost.

At June 30, 2005, the fair value of securities pledged to secure public and trust deposits, U.S. Treasury notes, security repurchase agreements, FHLB borrowings, and derivative instruments totaled $6.6 billion.

At June 30, 2005, there were no securities of a single issuer, other than U.S. Treasury and Federal agency debentures and other U.S. government-sponsored agency securities, which exceeded 10% of stockholders’ equity.

For the six months ended June 30, 2005 and 2004, gross securities gains of $21 million and $5 million, respectively, were recognized. For the six months ended June 30, 2005, gross securities losses of $2 million were recognized. There were no securities losses for the six months ended June 30, 2004.

9. PRINCIPAL INVESTMENTS

The principal investment portfolio is managed within the Wholesale Banking line of business. The direct portfolio primarily consists of investments in the consumer, retail, manufacturing, automotive, commercial services, and building products industries with the largest industry constituting approximately 17% of the total principal investment portfolio. The indirect portfolio consists of investments in private equity funds managed by third parties. Each fund is diversified according to the terms of the fund’s agreement and the general partner’s direction. A rollforward of principal investments follows:


	Three Months Ended						Six Months Ended
	June 30						June 30
(In Thousands)	2005			2004			2005			2004

Direct Investments:
Carrying value at beginning of period	$	313,139		$	288,454		$	323,028		$	300,077
Investments — new fundings		14,367			51,617			21,975			63,262
Returns of capital and write-offs		(22,215	)		(18,405	)		(43,178	)		(41,071	)
Fair value adjustments		(2,861	)		1,243			605			641

Carrying value at end of period	$	302,430		$	322,909		$	302,430		$	322,909

Indirect Investments:
Carrying value at beginning of period	$	350,600		$	296,463		$	342,517		$	294,939
Investments — new fundings		21,973			30,814			38,918			40,852
Returns of capital and write-offs		(28,782	)		(11,281	)		(37,168	)		(19,676	)
Fair value adjustments		(1,341	)		(2,339	)		(1,817	)		(2,458	)

Carrying value at end of period	$	342,450		$	313,657		$	342,450		$	313,657

Total Principal Investments:
Carrying value at beginning of period	$	663,739		$	584,917		$	665,545		$	595,016
Investments — new fundings		36,340			82,431			60,893			104,114
Returns of capital and write-offs		(50,997	)		(29,686	)		(80,346	)		(60,747	)
Fair value adjustments		(4,202	)		(1,096	)		(1,212	)		(1,817	)

Carrying value at end of period	$	644,880		$	636,566		$	644,880		$	636,566


	Three Months Ended				Six Months Ended
	June 30				June 30
(In Thousands)	2005		2004		2005		2004

Principal investment revenue ^(a)	$	5,514	$	7,699	$	12,923	$	18,032

Net principal investment gains ^(b)		9,107		17,496		19,430		40,402


^(a)		Consists primarily of interest, dividends, and fee income

^(b)		Consists primarily of fair value adjustments, realized gains and losses on the return of capital, and principal investment write-offs

Accounting policies for principal investments are included in Note 1. Commitments to fund principal investments are discussed in Note 19.

10. GOODWILL AND OTHER INTANGIBLE ASSETS

The carrying value of goodwill at June 30, 2005, December 31, 2004, and June 30, 2004 was $3.3 billion, and $3.3 billion, and $1.4 billion, respectively. A rollforward of goodwill by line of business as of June 30, 2005 follows:

Goodwill

January 1

Acquired/

Impairment

June 30

(In Thousands)

2005

Adjustments

Losses

2005

Consumer and Small Business Financial Services

1,027,598

2,074

—

1,029,672

Wholesale Banking

1,633,441

11,899

—

1,645,340

National City Mortgage

62,432

—

62,450

National Consumer Finance

348,019

495

—

348,514

Asset Management

230,923

360

—

231,283

Parent and Other

—

Total

3,302,413

14,846

—

3,317,259

Goodwill recognized in connection with the first quarter 2005 acquisition of National City Vendor Finance totaled $9 million and is included in Wholesale Banking in the above table. Refer to Note 3 for further discussion on goodwill and other intangible assets recognized in connection with the Corporation’s recent acquisitions.

The Corporation has finite-lived intangible assets capitalized on its balance sheet in the form of core deposit, credit card, operating lease, and other intangibles as shown in the following table. Merchant portfolio intangibles were associated with the former National Processing subsidiary.


	June 30		December 31		June 30
(In Thousands)	2005		2004		2004

Core deposit intangibles
Gross carrying amount	$	279,507	$	279,413	$	109,441
Less: accumulated amortization		128,905		109,167		85,451

Net carrying amount		150,602		170,246		23,990

Credit card intangibles
Gross carrying amount		17,323		17,323		17,323
Less: accumulated amortization		15,613		15,392		14,882

Net carrying amount		1,710		1,931		2,441

Merchant portfolios
Gross carrying amount		—		—		73,499
Less: accumulated amortization		—		—		35,248

Net carrying amount		—		—		38,251

Operating lease
Gross carrying amount		47,205		47,205		—
Less: accumulated amortization		34,932		20,298		—

Net carrying amount		12,273		26,907		—

Other intangibles
Gross carrying amount		47,858		21,644		4,498
Less: accumulated amortization		17,647		7,267		772

Net carrying amount		30,211		14,377		3,726

Total finite-lived intangibles
Gross carrying amount		391,893		365,585		204,761
Less: accumulated amortization		197,097		152,124		136,353

Net carrying amount	$	194,796	$	213,461	$	68,408

Amortization expense on finite-lived intangible assets totaled $22 million and $7 million for the three months ended June 30, 2005 and 2004, respectively. Amortization expense on finite-lived intangible assets totaled $45 million and $13 million for the six months ended June 30, 2005 and 2004, respectively. Amortization expense on finite-lived intangible assets is expected to total $44 million, $36 million, $23 million, $19 million, and $15 million for fiscal years 2006, 2007, 2008, 2009, and 2010, respectively.

11. SERVICING ASSETS

Mortgage Servicing Rights (MSRs): The Corporation recognizes MSRs on conforming and nonconforming residential real estate loans sold servicing retained by the National City Mortgage (NCM) and First Franklin business units, respectively. First Franklin began selling certain nonconforming residential real estate loans with servicing retained during the fourth quarter of 2004. MSRs retained from First Franklin sales are transferred to the National City Home Loan Services (NCHLS) business unit subsequent to sale. Changes in the carrying value of MSRs and the associated valuation allowance follow:


	Three Months Ended June 30
				2005						2004
	NCM			NCHLS						NCM
(In Thousands)	MSRs			MSRs			Total			MSRs

Mortgage servicing rights
Balance at beginning of period	$	1,817,585		$	25,126		$	1,842,711		$	1,320,235
Additions		112,311			17,495			129,806			219,293
Amortization		(126,668	)		(2,230	)		(128,898	)		(140,133	)
SFAS 133 hedge basis adjustments		(350,665	)		—			(350,665	)		607,524
Sales		(814	)		—			(814	)		(2,431	)

Carrying value before valuation allowance at end of period		1,451,749			40,391			1,492,140			2,004,488

Valuation allowance
Balance at beginning of period		(55,368	)		—			(55,368	)		(120,317	)
Impairment recoveries (charges)		18,902			(1,230	)		17,672			41,880

Balance at end of period		(36,466	)		(1,230	)		(37,696	)		(78,437	)

Net carrying value of MSRs at end of period	$	1,415,283		$	39,161		$	1,454,444		$	1,926,051

Fair value of MSRs at end of period	$	1,450,645		$	39,161		$	1,489,806		$	1,955,110

Unpaid principal balance of loans serviced for others (in millions)	$	156,938		$	5,804		$	162,742		$	146,958


	Six Months Ended June 30
				2005						2004
	NCM			NCHLS						NCM
(In Thousands)	MSRs			MSRs			Total			MSRs

Mortgage servicing rights
Balance at beginning of period	$	1,596,908		$	15,188		$	1,612,096		$	1,300,612
Additions		254,482			28,047			282,529			359,432
Amortization		(237,383	)		(2,844	)		(240,227	)		(240,030	)
SFAS 133 hedge basis adjustments		(160,915	)		—			(160,915	)		589,390
Sales		(1,343	)		—			(1,343	)		(4,916	)

Carrying value before valuation allowance at end of period		1,451,749			40,391			1,492,140			2,004,488

Valuation allowance
Balance at beginning of period		(107,230	)		—			(107,230	)		(2,195	)
Impairment recoveries (charges)		70,764			(1,230	)		69,534			(76,242	)

Balance at end of period		(36,466	)		(1,230	)		(37,696	)		(78,437	)

Net carrying value of MSRs at end of period	$	1,415,283		$	39,161		$	1,454,444		$	1,926,051

Fair value of MSRs at end of period	$	1,450,645		$	39,161		$	1,489,806		$	1,955,110

MSRs are periodically evaluated for impairment, and a valuation allowance is established through a charge to income when the carrying value of the MSR, including hedge accounting adjustments (if applicable), exceeds the fair value and is determined to be temporary. Other-than-temporary impairment is recognized when the recoverability of a recorded valuation allowance is determined to be remote, taking into consideration historical and projected interest rates and loan pay-off activity. When this situation occurs, the unrecoverable portion of the valuation allowance is applied as a direct write-down to the carrying value of the MSRs. Unlike a valuation allowance, a direct write-down permanently reduces the carrying value of the MSRs and the valuation allowance, precluding recognition of subsequent recoveries. There were no other-than-temporary write-downs recognized during the first six months of 2005 and 2004.

The fair value of MSRs was estimated by calculating the present value of estimated future net servicing cash flows, taking into consideration actual and expected mortgage loan prepayment rates, discount rates, servicing costs, and other economic factors, which are determined based on current market conditions. The expected and actual rates of mortgage loan prepayments are the most significant factors driving the valuation. Increases in mortgage loan prepayments reduce estimated future net servicing cash flows

because the life of the underlying loan is reduced. In determining the fair value of the MSRs, mortgage interest rates, which are used to determine prepayment rates, and discount rates are held constant over the estimated life of the portfolio. Expected mortgage loan prepayment rates are derived from a third-party model and adjusted to reflect National City’s actual prepayment experience. At June 30, 2005, the fair value of MSRs exceeded the carrying value reported in the consolidated balance sheet by $35 million. This difference represents increases in the fair value of certain MSRs accounted for under SFAS 140 that were not permitted to be recorded above their cost basis, net of accumulated amortization and SFAS 133 adjustments.

The key economic assumptions used to estimate the value of the MSRs at June 30, 2005, December 31, 2004, and June 30, 2004 are presented in the table that follows. A sensitivity analysis of the current fair value to immediate 10% and 20% adverse changes in those assumptions as of June 30, 2005 is also presented. These sensitivities are hypothetical. Changes in fair value based on a 10% variation in assumptions generally cannot be extrapolated because the relationship of the change in the assumption to the change in fair value may not be linear. Also, the effect of a variation in a particular assumption on the fair value of the MSRs is calculated independently without changing any other assumption. In reality, changes in one factor may result in changes in another (for example, changes in mortgage interest rates, which drive changes in prepayment rate estimates, could result in changes in the discount rates), which might magnify or counteract the sensitivities.

June 30, 2005

December 31, 2004

June 30, 2004

NCM

NCHLS

NCM

NCHLS

NCM

(Dollars in Millions)

MSRs

MSRs

Fair value

1,450.6

39.2

1,501.9

15.3

1,955.1

Weighted-average life (in years)

3.3

2.4

3.9

2.5

5.3

Weighted-average constant prepayment rate (CPR)

25.87

34.83

23.07

33.59

16.40

Weighted-average discount rate

9.50

12.75

9.52

12.75

9.81

Prepayment rate:

Decline in fair value from 10% adverse change

99.9

2.3

Decline in fair value from 20% adverse change

188.7

4.5

Discount rate:

Decline in fair value from 10% adverse change

36.2

Decline in fair value from 20% adverse change

70.5

1.5

The key economic assumptions used in determining the fair value of MSRs capitalized during the three- and six-month periods ended June 30, were as follows:

Three Months Ended June 30

Six Months Ended June 30

2005

2004

2005

2004

NCM

NCHLS

NCM

NCM

NCHLS

NCM

MSRs

MSRs

MSRs

MSRs

Weighted-average life (in years)

3.8

2.5

5.8

4.0

2.5

4.7

Weighted-average CPR

24.08

34.16

16.15

23.35

34.09

20.43

Weighted-average discount rate

9.79

12.75

9.79

9.87

12.75

9.67

Risk associated with declines in the estimated fair value due to increases in mortgage loan prepayments is managed using derivative instruments that are expected to increase in value when interest rates decline. The Corporation typically strives to include the derivative instruments it uses to protect the value of the NCM MSRs in SFAS 133 hedge relationships in order to record gains and losses on both the assets and the associated derivative instruments simultaneously in the income statement. MSRs not included in the SFAS 133 relationships may not be written up above their initial carrying value, adjusted for amortization, limiting the amount of gains that might otherwise be recognized to offset losses on the derivative instruments, which are always carried at fair value. Notes 1 and 22 provide further discussion on how derivative instruments are accounted for, the nature of the derivative instruments used by the Corporation, the risks associated with the use of derivative instruments, and ineffective hedge and other gains and losses generated by derivative instruments during the current and prior year.

Other Servicing Rights: The Corporation also recognizes servicing assets on commercial real estate loans sold servicing retained through its Red Mortgage Capital and Capstone Realty business units. These businesses and their commercial real estate servicing rights were acquired with Provident in July 2004. Commercial real estate servicing assets are recorded in other assets on the consolidated balance sheet. Changes in the carrying value of the commercial real estate servicing assets and the associated valuation allowance follow:


	Three Months Ended			Six Months Ended
(In Thousands)	June 30, 2005			June 30, 2005

Commercial real estate servicing assets
Balance at beginning of period	$	132,389		$	125,778
Additions		4,316			14,950
Amortization		(4,054	)		(7,884	)
Sales		(123	)		(316	)

Carrying value before valuation allowance at end of period		132,528			132,528

Valuation allowance
Balance at beginning of period		(852	)		(1,032	)
Impairment recoveries		2			182

Balance at end of period		(850	)		(850	)

Net carrying value of servicing assets at end of period	$	131,678		$	131,678

Unpaid principal balance of loans serviced for others (in millions)	$	13,304

12. BORROWED FUNDS

Detail of borrowed funds follows:


	June 30			December 31			June 30
(In Thousands)	2005			2004			2004

U.S. Treasury notes	$	600,214		$	1,024,477		$	2,985,841
Commercial paper		662,043			415,490			612,071
Senior bank notes		20,000			195,000			100,000
Other		256,383			400,933			205,300

Total borrowed funds	$	1,538,640		$	2,035,900		$	3,903,212

Weighted-average rate		2.99	%		1.93	%		.84	%

U.S. Treasury notes represent secured borrowings from the U.S. Treasury. These borrowings are collateralized by qualifying securities and commercial loans. The funds are placed at the discretion of the U.S. Treasury. At June 30, 2005, December 31, 2004 and June 30, 2004, all U.S. Treasury notes were callable on demand by the U.S. Treasury.

Commercial paper is issued by the Corporation’s subsidiary, National City Credit Corporation, and is due in six months or less.

The senior bank notes are issued by National City’s bank subsidiaries and have maturities of four months or less.

The other category at June 30, 2005, December 31, 2004, and June 30, 2004 included liabilities totaling $184 million, $233 million, and $171 million, respectively, related to mortgage loans available for repurchase under GNMA optional repurchase programs. See further discussion in Note 1.

13. LONG-TERM DEBT

The composition of long-term debt follows. This note excludes the discussion and amounts associated with the junior subordinated notes owed to the unconsolidated subsidiary trusts. See Note 14 for further discussion on these obligations.


	June 30		December 31		June 30
(In Thousands)	2005		2004		2004

3.20% fixed-rate senior notes due 2008	$	291,814	$	292,800	$	288,597
3.125% fixed-rate senior notes due 2009		192,362		192,335		187,855
4.90% fixed-rate senior notes due 2015		405,952		—		—
3.584% variable-rate senior notes due 2010		299,863		—		—
8.375% fixed-rate senior notes due 2032		75,604		74,312		—
7.75% fixed-rate subordinated notes due 2004		—		—		199,979
7.20% fixed-rate subordinated notes due 2005		—		251,559		253,899
5.75% fixed-rate subordinated notes due 2009		314,794		318,533		315,521
6.875% fixed-rate subordinated notes due 2019		822,022		783,528		743,956
Other		—		880		880

Total holding company		2,402,411		1,913,947		1,990,687
Senior Bank Notes		23,602,424		18,549,507		12,359,723
7.25% fixed-rate subordinated notes due 2010		253,833		256,219		252,578
6.30% fixed-rate subordinated notes due 2011		219,576		220,220		215,603
7.25% fixed-rate subordinated notes due 2011		198,757		198,658		198,559
6.25% fixed-rate subordinated notes due 2011		326,715		327,249		319,918
6.20% fixed-rate subordinated notes due 2011		533,563		530,820		515,438
4.63% fixed-rate subordinated notes due 2013		299,359		299,318		299,277
4.25% fixed-rate subordinated notes due 2018		237,498		224,424		210,938
Federal Home Loan Bank advances		4,783,044		4,904,387		3,880,461
Secured debt financings		177,794		666,614		—
Other		32,751		—		—

Total bank subsidiaries		30,665,314		26,177,416		18,252,495

Total long-term debt	$	33,067,725	$	28,091,363	$	20,243,182

The amounts above represent the par value of the debt adjusted for any unamortized discount, other basis adjustments related to hedging the debt with derivative instruments, or fair value adjustments recognized in connection with debt acquired through acquisitions. The Corporation uses derivative instruments, primarily interest rate swaps and caps, to manage interest rate risk on its long-term debt. Interest rate swaps are used to hedge the fair value of certain fixed-rate debt by converting the debt to variable rate and are also used to hedge the cash flow variability associated with certain variable-rate debt by converting the debt to fixed rate. Interest rate caps are used to hedge cash flow variability by capping the interest payments associated with variable-rate debt issuances. Interest rate swaps and caps are based on the one- or three-month London Interbank Offering Rate (LIBOR) rate, the Federal Funds rate, or the Prime rate. Further discussion on derivative instruments is included in Notes 1 and 22.

The subordinated notes of the holding company and bank subsidiaries qualify for Tier 2 capital under the regulatory capital requirements of the federal banking agencies. Further discussion on regulatory capital requirements is included in Note 15.

A summary of par values and weighted-average rates of long-term debt as of June 30, 2005 follows. The weighted-average effective rate includes the effects of derivative instruments used to manage interest rate risk, amortization of discounts, and amortization of fair value adjustments associated with debt acquired through acquisitions.

Weighted-Average

(Dollars in Thousands)

Par Value

Contractual Rate

Effective Rate

Senior bank notes

23,605,636

3.34

3.25

Subordinated notes

2,975,000

6.15

4.04

Senior notes

1,275,000

4.12

3.65

FHLB advances

4,728,252

3.58

3.21

Secured debt financings

173,983

7.11

5.42

Other

32,751

4.87

Total long-term debt

32,790,622

3.68

3.34

For the first six months of 2005, senior bank notes with a par value of $10.2 billion were issued by National City’s bank subsidiaries. At June 30, 2005, senior bank notes totaling $3.3 billion were contractually based on a fixed rate of interest and $20.3 billion were contractually based on a variable rate of interest. Senior bank notes have maturities ranging from 2005 to 2078.

All subordinated notes of the bank subsidiaries pay interest semi-annually and may not be redeemed prior to maturity. The 8.375% senior note of the holding company was acquired with Provident, pays interest quarterly, and is callable on July 15, 2007. All remaining senior notes and subordinated notes of the holding company pay interest semi-annually and may not be redeemed prior to maturity. During the first six months of 2005, the holding company issued senior notes with a par value of $700 million.

At June 30, 2005, FHLB advances consisted of $858 million of fixed-rate obligations and $3.9 billion of variable-rate obligations. The Corporation’s maximum borrowing limit with the FHLB totaled $7.4 billion at June 30, 2005. The Corporation pledged $24.3 billion in residential real estate loans, $63 million in commercial real estate loans, and $9.3 billion in home equity lines of credit as collateral against FHLB borrowings at June 30, 2005. FHLB advances have maturities ranging from 2005 to 2030.

Secured debt financings were obtained from acquisitions, primarily Provident. At June 30, 2005, secured debt financings relate to fixed obligations of $172 million and $2 million collateralized by automobile and equipment leases, respectively. The automobile lease secured debt financings pay interest monthly, may be redeemed prior to maturity, and were collateralized by $309 million in automobile leases and $75 million in cash at June 30, 2005. The equipment lease secured debt financings outstanding at June 30, 2005 pay interest quarterly, may not be redeemed prior to maturity, and were collateralized by $2 million in equipment leases. Secured debt financings have contractual maturities ranging from 2005 to 2008. During the first six months of 2005, the Corporation called obligations secured by automobile leases totaling $363 million.

14. JUNIOR SUBORDINATED DEBENTURES OWED TO UNCONSOLIDATED SUBSIDIARY TRUSTS AND CORPORATION-OBLIGATED MANDATORILY REDEEMABLE CAPITAL SECURITIES OF SUBSIDIARY TRUSTS HOLDING SOLELY DEBENTURES OF THE CORPORATION

As of June 30, 2005, National City sponsored seven trusts, First of America Capital Trust I, Fort Wayne Capital Trust I, Allegiant Capital Trust II, Provident Capital Trust I, Provident Capital Trust III, Provident Capital Trust IV, and Banc Services Corp. Statutory Trust I, of which 100% of the common equity is owned by the Corporation. The trusts were formed for the purpose of issuing corporation-obligated mandatorily redeemable capital securities (the capital securities) to third-party investors and investing the proceeds from the sale of such capital securities solely in junior subordinated debt securities of the Corporation (the debentures). The debentures held by each trust are the sole assets of that trust.

Distributions on the capital securities issued by First of America Capital Trust I, Fort Wayne Capital Trust I, and Provident Capital Trust I are payable semi-annually at a rate per annum equal to the interest rate being earned by the trust on the debentures held by these trusts. Distributions on the capital securities issued by Allegiant Capital Trust II, Provident Capital Trust III, and Provident Capital Trust IV are payable quarterly at a rate per annum equal to the interest rate being earned by the trust on the debentures held by these trusts. Distributions on the capital securities issued by Banc Services Corp. Statutory Trust I are payable quarterly at a variable rate equal to the three-month LIBOR rate plus 3.45 basis points, with a maximum interest rate of 11.95%. The interest rate associated with the Banc Services Corp. Statutory Trust capital securities was 6.92% at June 30, 2005.

The capital securities are subject to mandatory redemption, in whole or in part, upon repayment of the debentures. The Corporation has entered into agreements which, taken collectively, fully and unconditionally guarantee the capital securities subject to the terms of each of the guarantees. The debentures held by the trusts are first redeemable, in whole or in part, by the Corporation as follows:


		First Call Date

Provident Capital Trust III		December 31, 2005
Provident Capital Trust IV		March 30, 2006
Allegiant Capital Trust II		September 30, 2006
Provident Capital Trust I		December 1, 2006
First of America Capital Trust I		January 31, 2007
Fort Wayne Capital Trust I		April 15, 2007
Banc Services Corp. Statutory Trust I		June 26, 2007

The capital securities held by the trusts qualify as Tier 1 capital for the Corporation under Federal Reserve Board guidelines. On March 1, 2005, the Federal Reserve issued rules that retain Tier 1 capital treatment for trust preferred securities but with stricter limits. Under the final rules, after a five-year transition period, the aggregate amount of trust preferred securities and certain other capital elements will retain its current limit of 25% of Tier 1 capital elements, net of goodwill. The amount of trust preferred securities and certain other elements in excess of the limit could be included in Tier 2 capital, subject to restrictions. These new rules will have no impact on the Corporation’s Tier 1 capital.

Consolidated debt obligations related to subsidiary trusts holding solely debentures of the Corporation follow. These amounts represent the par value of the obligations owed to the subsidiary trusts, including the Corporation’s ownership interest in the trusts, plus basis adjustments related to hedging the obligations with derivative instruments and fair value adjustments recognized in connection with obligations acquired through acquisition.


	June 30		December 31		June 30
(In Thousands)	2005		2004		2004

8.12% junior subordinated debentures owed to First of America Capital Trust I due January 31, 2027	$	154,640	$	154,640	$	154,640
9.85% junior subordinated debentures owed to Fort Wayne Capital Trust I due April 15, 2027		30,928		30,928		30,928
9.875% junior subordinated debentures owned to Allegiant Capital Trust I redeemed August 2, 2004		—		—		18,067
9.00% junior subordinated debentures owed to Allegiant Capital Trust II due September 30, 2031		43,675		44,626		45,575
8.60% junior subordinated debentures owed to Provident Capital Trust I due December 1, 2026		112,624		115,988		—
10.25% junior subordinated debentures owed to Provident Capital Trust III due December 31, 2030		118,145		120,477		—
9.45% junior subordinated debentures owed to Provident Capital Trust IV due March 30, 2031		130,319		130,251		—
Variable-rate junior subordinated debentures owed to Banc Services Corp. Statutory Trust I due June 26, 2032		7,619		7,719		—

Total junior subordinated debentures owed to unconsolidated subsidiary trusts	$	597,950	$	604,629	$	249,210

15. REGULATORY RESTRICTIONS AND CAPITAL RATIOS

The Corporation and its banking subsidiaries are subject to various regulatory capital requirements of federal banking agencies that involve quantitative measures of assets, liabilities, and certain off-balance-sheet items as calculated under regulatory accounting practices. 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 result in certain mandatory and possible additional discretionary actions by regulators that could have a material effect on financial position and operations.

Regulatory and other capital measures follow:


	June 30					December 31					June 30
	2005					2004					2004
(Dollars in Thousands)	Amount		Ratio			Amount		Ratio			Amount		Ratio

Total equity/assets	$	13,001,754		9.03	%	$	12,803,529		9.19	%	$	10,334,984		8.83	%
Total common equity/assets		13,001,754		9.03			12,803,529		9.19			10,334,984		8.83
Tangible common equity/tangible assets		9,489,699		6.76			9,287,655		6.84			8,843,040		7.65
Tier 1 capital		10,002,515		7.96			9,815,314		8.25			9,017,904		9.02
Total risk-based capital		14,078,497		11.20			14,023,018		11.79			13,073,114		13.07
Leverage		10,002,515		7.36			9,815,314		7.31			9,017,904		7.90

The tangible common equity ratio excludes goodwill and other intangible assets from both the numerator and denominator.

Tier 1 capital consists of total equity plus qualifying capital securities and minority interests, less unrealized gains and losses accumulated in other comprehensive income, certain intangible assets, and adjustments related to the valuation of servicing assets and certain equity investments in nonfinancial companies (principal investments).

Total risk-based capital is comprised of Tier 1 capital plus qualifying subordinated debt and allowance for loan losses and a portion of unrealized gains on certain equity securities.

Both the Tier 1 and the total risk-based capital ratios are computed by dividing the respective capital amounts by risk-weighted assets, as defined.

The leverage ratio reflects Tier 1 capital divided by average total assets for the period. Average assets used in the calculation exclude certain intangible and servicing assets.

National City Corporation’s Tier 1, total risk-based capital, and leverage ratios for the current period are above the required minimum levels of 4.00%, 8.00%, and 3.00%, respectively. The capital levels at all of National City’s subsidiary banks are maintained at or above the well-capitalized minimums of 6.00%, 10.00%, and 5.00% for the Tier 1 capital, total risk-based capital, and leverage ratios, respectively. As of the most recent notification from the Federal Deposit Insurance Corporation, which was June 15, 2005, each of the Corporation’s subsidiary banks were considered well-capitalized under the regulatory framework for prompt corrective action. There have been no conditions or events since these filings were made that management believes have changed any subsidiary bank’s capital category. As of December 31, 2004 and June 30, 2004, each of the subsidiary banks was also categorized as well-capitalized.

As discussed in Note 14, the capital securities held by the First of America, Fort Wayne, Allegiant, Provident, and Banc Services Corp. subsidiary trusts qualify as Tier 1 capital under Federal Reserve Board guidelines. On March 1, 2005, the Federal Reserve issued rules that retain Tier 1 capital treatment for trust preferred securities but with stricter limits. Under these rules, after a five-year transition period, the aggregate amount of trust preferred securities and certain other capital elements will retain its current limit of 25% of Tier 1 capital elements, net of goodwill. The amount of trust preferred securities and certain other elements in excess of the limit could be included in Tier 2 capital, subject to restrictions. These new rules will have no impact on the Corporation’s Tier 1 capital.

The Corporation’s subsidiary banks are required to maintain noninterest bearing reserve balances with the Federal Reserve Bank. The required reserve balance was $32 million at June 30, 2005.

Under current Federal Reserve regulations, the banking subsidiaries are limited in the amount they may loan to the parent company and its nonbank subsidiaries. Loans to a single affiliate may not exceed 10% and loans to all affiliates may not exceed 20% of the bank’s capital stock, surplus and undivided profits, plus the allowance for loan losses. Loans from subsidiary banks to nonbank affiliates, including the parent company, are also required to be collateralized.

Dividends paid by subsidiary banks to the parent company are also subject to certain legal and regulatory limitations. At June 30, 2005, the subsidiary banks may pay dividends of $1.6 billion, plus an additional amount equal to their net profits for the remainder of 2005, as defined by statute, up to the date of any such dividend declaration, without prior regulatory approval.

16. STOCKHOLDERS’ EQUITY

A summary of outstanding shares of preferred and common stock follows:


	June 30		December 31		June 30
	2005		2004		2004

Preferred Stock, no par value, $100 liquidation value per share, authorized 5,000,000 shares		70,272		70,272		—
Common Stock, $4 par value, authorized 1,400,000,000 shares		636,715,366		646,749,650		612,880,193

Stock Repurchases: On December 21, 2004, the Corporation’s Board of Directors authorized the repurchase of up to 25 million shares of National City common stock, subject to an aggregate purchase limit of $1.1 billion. This new authorization was incremental to the previous share repurchase authorization approved by the Board of Directors on February 14, 2004. Repurchases under the February 14, 2004 authorization were completed during the first quarter of 2005. Shares repurchased under these programs are held for reissue in connection with stock compensation plans and for general corporate purposes. During the first six months of 2005 and 2004, the Corporation repurchased 18.6 million and 11.2 million shares of its common stock, respectively. As of June 30, 2005, 18.5 million shares remain authorized for repurchase.

Preferred Stock: In connection with the acquisition of Provident on July 1, 2004, 70,272 shares of National City Series D convertible non-voting preferred stock were issued. Each share of Series D preferred stock is convertible at any time by the holder into 15.96 shares of National City common stock. The conversion rate is subject to adjustment in the event the Corporation takes certain actions such as paying a dividend in stock, splitting its common stock, or combining its common stock into a smaller number of shares. Common shares deliverable upon conversion of the preferred stock have been reserved for future issuance. The Corporation has no right to redeem the preferred stock. Dividends are paid on the preferred stock when dividends are paid on common stock at the dividend rate per common share multiplied by the preferred stock conversion ratio. The Series D preferred stock shall be preferred over the Corporation’s common stock in the event of liquidation or dissolution of the Corporation. In such event, the preferred holders will be entitled to receive $100 per share, or $7 million, plus accrued and unpaid dividends.

Preferred Securities of Subsidiaries: As part of the acquisition of Provident, PFGI Capital Corporation (PFGI Capital) became a consolidated subsidiary of the Corporation. PFGI Capital issued 6.6 million equity units (PRIDES) to outside investors for $165 million. Each PRIDES is comprised of two components — a 3-year forward purchase contract and PFGI Capital Series A Preferred Stock. This ownership by outside investors is accounted for as a minority interest in the consolidated financial statements. The purpose of PFGI Capital is to hold and manage commercial mortgage loan assets and other authorized investments acquired from the

Corporation to generate net income for distribution to its stockholders. PFGI Capital has elected to be treated as a real estate investment trust (REIT) for federal income tax purposes.

Holders of PRIDES are entitled to receive non-cumulative cash distributions at a dividend rate of 7.75%. Under the forward purchase contract described below, the Corporation will also make quarterly contract payments to holders at the rate of 1.25% of the stated amount per year. The PRIDES have a liquidation preference of $25 per share. Under certain regulatory circumstances, the PRIDES will be automatically exchanged into National City preferred stock.

PRIDES contain a forward purchase contract. Each forward purchase contract obligates the holder to buy, on or before August 17, 2005, for $25.00, a number of newly issued shares of National City Common Stock equal to the settlement rate, determined as follows:

•		if the applicable market value of National City Common Stock is equal to or greater than $25.6033, the settlement rate will be 0.9764;

•		if the applicable market value of National City Common Stock is between $25.6033 and $21.5154, the settlement rate will be equal to the $25.00 stated amount divided by the applicable market value; and

•		if the applicable market value is less than or equal to $21.5154, the settlement rate will be 1.1620.

Applicable market value is defined as the average of the closing price per share of National City Common Stock on each of the 20 consecutive trading days ending on the fifth trading day immediately preceding August 17, 2005.

During the first half of 2005, holders of 6.1 million PRIDES exercised their forward purchase contracts. The Corporation issued 6.0 million shares of National City common stock for proceeds of $154 million. During the second quarter of 2005, PFGI Capital repurchased 2.1 million shares of its preferred stock for $57 million.

Other Comprehensive Income: A summary of activity in accumulated other comprehensive income follows.


	Six Months Ended
	June 30
(In Thousands)	2005			2004

Accumulated unrealized gains on securities available for sale at January 1, net of tax	$	107,193		$	132,318
Net unrealized losses for the period, net of tax benefit of $12,893 in 2005 and $45,255 in 2004		(23,945	)		(84,044	)
Reclassification adjustment for gains included in net income, net of tax expense of $6,689 in 2005 and $1,819 in 2004		(12,422	)		(3,378	)

Effect on other comprehensive income for the period		(36,367	)		(87,422	)

Accumulated unrealized gains on securities available for sale at June 30, net of tax	$	70,826		$	44,896

Accumulated unrealized losses on derivatives used in cash flow hedging relationships at January 1, net of tax	$	(6,605	)	$	(67,631	)
Net unrealized gains for the period, net of tax expense of $4,183 in 2005 and $11,436 in 2004		7,769			21,239
Reclassification adjustment for losses included in net income, net of tax benefit of $3,657 in 2005 and $23,172 in 2004		6,792			43,035

Effect on other comprehensive income for the period		14,561			64,274

Accumulated unrealized gains (losses) on derivatives used in cash flow hedging relationships at June 30, net of tax	$	7,956		$	(3,357	)

Accumulated other comprehensive income at January 1, net of tax	$	100,588		$	64,687
Other comprehensive loss, net of tax		(21,806	)		(23,148	)

Accumulated other comprehensive income at June 30, net of tax	$	78,782		$	41,539

17. NET INCOME PER COMMON SHARE

Basic and diluted net income per common share calculations follow:


	Three Months Ended				Six Months Ended
	June 30				June 30
(Dollars in Thousands, Except Per Share Amounts)	2005		2004		2005		2004

Basic
Net income	$	625,127	$	519,046	$	1,109,269	$	1,229,414
Less preferred dividends		393		—		786		—

Net income applicable to common stock		624,734	$	519,046		1,108,483	$	1,229,414

Average common shares outstanding		636,882,733		619,097,523		639,926,863		612,507,157

Net income per common share — basic	$	.98	$	.84	$	1.73	$	2.01

Diluted
Net income	$	625,127	$	519,046	$	1,109,269	$	1,229,414

Average common shares outstanding		636,882,733		619,097,523		639,926,863		612,507,157
Stock awards		5,811,040		6,378,834		6,518,565		6,529,339
Convertible preferred stock		1,121,541		—		1,121,541		—
Forward contracts		318,691		—		720,702		—

Average common shares outstanding — diluted		644,134,005		625,476,357		648,287,671		619,036,496

Net income per common share — diluted	$	.97	$	.83	$	1.71	$	1.99

Basic net income per common share is calculated by dividing net income, less dividend requirements on convertible preferred stock, by the weighted-average number of common shares outstanding for the period.

Diluted net income per common share takes into consideration the pro forma dilution of outstanding convertible preferred stock, commitments to issue additional shares pursuant to forward contracts, and certain unvested restricted stock and unexercised stock option awards. During 2004, the Corporation issued convertible preferred stock and assumed an obligation to issue additional shares under forward contracts in connection with the acquisition of Provident (see discussion of forward contracts in Note 16). For the three- and six-month periods ended June 30, 2005, options to purchase 13,512,068 and 9,300,941 shares of common stock, respectively, were outstanding but not included in the computation of diluted net income per share because the option exercise price exceeded the fair value of the stock such that their inclusion would have had an anti-dilutive effect. Comparably, for the three- and six-month periods ended June 30, 2004, options to purchase 1,717,786 and 3,367,677 shares of common stock, respectively, were outstanding but not included in the computation of diluted net income per share. Diluted net income is not adjusted for preferred dividend requirements since preferred shares are assumed to be converted from the beginning of the period.

18. INCOME TAX EXPENSE

The composition of income tax expense follows:


	Three Months Ended				Six Months Ended
	June 30				June 30
(In Thousands)	2005		2004		2005		2004

Applicable to income exclusive of securities gains	$	309,659	$	269,929	$	554,898	$	626,990
Applicable to securities gains		1,701		1,762		6,689		1,810

Income tax expense	$	311,360	$	271,691	$	561,587	$	628,800

The effective tax rate for the three- and six-month periods ended June 30, 2005 was 33.2% and 33.6%, respectively. The effective tax rate for the three- and six-month periods ended June 30, 2004 was 34.4% and 33.8%, respectively.

19. COMMITMENTS, CONTINGENT LIABILITIES, GUARANTEES, AND RELATED PARTY TRANSACTIONS

Commitments: A summary of the contractual amount of significant commitments follows:


	June 30		December 31		June 30
(In Thousands)	2005		2004		2004

Commitments to extend credit:
Commercial	$	21,154,167	$	19,891,479	$	15,418,477
Residential real estate		15,232,472		14,126,791		15,995,940
Revolving home equity and credit card lines		33,127,203		32,095,788		25,518,133
Other		391,030		416,751		397,362
Standby letters of credit		4,614,115		4,227,310		3,760,763
Commercial letters of credit		357,195		260,081		328,806
Net commitments to sell mortgage loans and mortgage-backed securities		8,631,795		6,314,013		9,733,997
Net commitments to sell commercial real estate loans		215,042		241,737		—
Commitments to fund principal investments		296,915		263,878		255,676
Commitments to fund civic and community investments		344,449		313,257		206,270

Commitments to extend credit are agreements to lend. Since many of these commitments expire without being drawn upon, the total commitment amounts do not necessarily represent future cash flow requirements. Certain lending commitments for residential mortgage and commercial real estate loans to be sold into the secondary market are considered derivative instruments in accordance with SFAS 133. The changes in the fair value of these commitments due to changes in interest rates are recorded on the balance sheet as either derivative assets or derivative liabilities. The commitments related to residential mortgage loans and commercial real estate loans are included in residential real estate and commercial loans, respectively, in the above table. Further discussion on derivative instruments is included in Notes 1 and 22.

Standby and commercial letters of credit are conditional commitments issued to guarantee the performance of a customer to a third party. Standby letters of credit generally are contingent upon the failure of the customer to perform according to the terms of the underlying contract with the third party, while commercial letters of credit are issued specifically to facilitate commerce and typically result in the commitment being drawn on when the underlying transaction is consummated between the customer and the third party.

The credit risk associated with loan commitments and standby and commercial letters of credit is essentially the same as that involved in extending loans to customers and is subject to normal credit policies. Collateral may be obtained based on management’s credit assessment of the customer.

The Corporation enters into forward contracts for the future delivery or purchase of fixed-rate residential mortgage loans, mortgage-backed securities, and commercial real estate loans to reduce the interest rate risk associated with loans held for sale, commitments to fund loans, and mortgage servicing rights. These contracts are also considered derivative instruments under SFAS 133 and the fair value of these contracts are recorded on the balance sheet as either derivative assets or derivative liabilities. Further discussion on derivative instruments is included in Notes 1 and 22.

The Corporation has principal investment commitments to provide equity and mezzanine capital financing to private and public companies through either direct investments in specific companies or through investment funds and partnerships. The timing of future cash requirements to fund such commitments is generally dependent on the investment cycle. This cycle, over which privately-held companies are funded by private equity investors and ultimately sold, merged, or taken public through an initial offering, can vary based on overall market conditions as well as the nature and type of industry in which the companies operate.

The Corporation invests in low-income housing, small-business commercial real estate, and historic tax credit projects to promote the revitalization of low-to-moderate-income neighborhoods throughout the local communities of its banking subsidiaries. As a limited partner in these unconsolidated projects, the Corporation is allocated tax credits and deductions associated with the underlying projects. The commitments to fund civic and community investments represent funds committed for existing and future projects.

Contingent Liabilities and Guarantees: The Corporation enters into residential mortgage loan sale agreements with investors in the normal course of business. These agreements usually require certain representations concerning credit information, loan documentation, collateral, and insurability. On occasion, investors have requested the Corporation to indemnify them against losses on certain loans or to repurchase loans which the investors believe do not comply with applicable representations. Upon completion of its own investigation, the Corporation generally repurchases or provides indemnification on certain loans. Indemnification requests are generally received within two years subsequent to sale.

Management maintains a liability for estimated losses on loans expected to be repurchased or on which indemnification is expected to be provided and regularly evaluates the adequacy of this recourse liability based on trends in repurchase and indemnification requests, actual loss experience, known and inherent risks in the loans, and current economic conditions. Total loans sold, including loans sold with servicing released, were $16.9 billion and $34.9 billion for the second quarter and the first six months of 2005, respectively, and were $22.1 billion and $42.2 billion for the same 2004 periods, respectively. Total loans repurchased or indemnified during the second quarter and first half of 2005 were $85 million and $196 million, respectively, and total loans repurchased or indemnified for the same 2004 period were $117 million and $162 million, respectively. Loans indemnified that remained outstanding as of June 30, 2005, December 31, 2004, and June 30, 2004 totaled $316 million, $228 million, and $233 million, respectively. In addition, total loans sold of $167 million, $292 million, and $524 million remained uninsured as of June 30, 2005, December 31, 2004, and June 30, 2004, respectively. The volume and balance of uninsured government loans may be affected by processing or notification delays. Management believes the majority of the uninsured loans at June 30, 2005 will become insured during the normal course of business. To the extent insurance is not obtained, the loans may be subject to repurchase. Uninsured government loans which were ultimately repurchased have been included in the repurchase totals above. Losses charged against the liability for estimated losses, including uninsured government loans, were $26 million and $42 million for the second quarter and the first six months of 2005, respectively. Losses charged against the liability for the second quarter and first six months of 2004 were $31 million and $58 million, respectively. At June 30, 2005, December 31, 2004, and June 30, 2004, the liability for estimated losses on repurchase and indemnification was $223 million, $209 million, and $190 million, respectively, and was included in other liabilities on the balance sheet.

In connection with the acquisition of Provident in July 2004, the Corporation assumed a guarantee made to Fannie Mae on behalf of its acquired subsidiary Red Mortgage Capital, an approved Fannie Mae Delegated Underwriting and Servicing (DUS) mortgage lender. Under the Fannie Mae DUS program, Red Mortgage Capital underwrites, funds, and sells mortgage loans on multifamily rental projects. Red Mortgage Capital then services these mortgage loans on Fannie Mae’s behalf. Participation in the Fannie Mae DUS program requires Red Mortgage Capital to share the risk of loan losses with Fannie Mae. Under the loss sharing arrangement, Red Mortgage Capital and Fannie Mae split losses with one-third assumed by Red Mortgage Capital and two-thirds assumed by Fannie Mae. The Corporation provides a guarantee to Fannie Mae that it would fulfill all payments required of Red Mortgage Capital under the loss sharing arrangement if Red Mortgage Capital fails to meet its obligations. As of June 30, 2005, Red Mortgage Capital serviced loans with outstanding principal balances aggregating $4.6 billion under the DUS program. The guarantee will continue until such time as the loss sharing agreement is amended or Red Mortgage Capital no longer shares the risk of losses with Fannie Mae. The fair value of the guarantee, in the form of reserves for losses under the Fannie Mae DUS program, is recorded in accrued expenses and other liabilities on the balance sheet and totaled $9 million and $10 million at June 30, 2005 and December 31, 2004, respectively.

The guarantee liability for standby letters of credit was $60 million, $59 million, and $54 million at June 30, 2005, December 31, 2004, and June 30, 2004, respectively. This liability was recorded in other liabilities on the balance sheet. See above for further discussion on standby letters of credit and their associated outstanding commitments.

The Corporation, through various subsidiaries, has historically provided merchant card processing or sponsorship services. Under the rules of VISA^® and MasterCard_®, when a merchant processor acquires card transactions, it has certain contingent liabilities for the transactions processed. This contingent liability arises in the event of a billing dispute between the merchant and a cardholder that is ultimately resolved in the cardholder’s favor. In such a case, the transaction is “charged back” to the merchant and the disputed amount is credited or otherwise refunded to the cardholder. If the Corporation is unable to collect this amount from the merchant’s account, and if the merchant refuses or is unable to reimburse the Corporation for the chargeback due to liquidation or other reasons, the Corporation will bear the loss for the amount of the refund paid to the cardholder.

Effective October 15, 2004, National Processing, Inc. was sold as described in Note 3. As a result of this sale, the Corporation has exited the merchant card processing business and has no continuing or future exposure to potential chargeback liabilities, except for the exposure to United Airlines as described in the following paragraph.

Under the terms of the National Processing sale agreement, the Corporation retained the contractual obligation to process card transactions for United Airlines, Inc., which is currently operating under Chapter 11 protection. The Corporation was paid $36 million to retain this obligation. Pursuant to FASB Interpretation 45, regarding accounting for guarantees, this amount is deemed to be the fair value of this obligation and is included in accrued expenses and other liabilities. In the event of liquidation of United Airlines, the Corporation could become financially responsible for refunding tickets purchased through VISA^® and MasterCard_® under the chargeback rules of those associations. At June 30, 2005, the estimated dollar value of tickets purchased, but as yet unflown, under the United Airlines merchant processing contract, was approximately $947 million. Based upon available information, this amount represents management’s best estimate of its maximum potential chargeback exposure related to United Airlines, Inc. As of June 30, 2005, the Corporation held no significant collateral under this contract. In April 2005, the bankruptcy court entered an order approving and authorizing United Airlines, Inc. to enter into a Stipulation and Agreed Order, which among other things, establishes a contract termination date of January 16, 2006.

In November 2004, Congress passed the Intelligence Reform and Terrorism Prevention Act of 2004. This legislation included an extension of the airline ticket re-accommodation provision, which requires airlines to honor tickets through November 2005 for other airlines that may suspend, interrupt or discontinue services due to insolvency or liquidation.

Based on information currently available to the Corporation, management believes the risk of a material loss under the chargeback rules is unlikely.

National City and its subsidiaries are involved in a number of legal proceedings arising from the conduct of their business activities. These legal proceedings include claims brought against the Corporation and its subsidiaries where National City acted as depository bank, lender, underwriter, fiduciary, financial advisor, broker or other business activities. Reserves are established for legal claims when losses associated with the claims are judged to be probable and the loss can be reasonably estimated.

A claim has been asserted against a subsidiary of the Corporation concerning management of investments held in a trust. The complaint alleges failure to adequately and timely diversify investments held in this trust, which resulted in investment losses. The plaintiffs are seeking damages of as much as $100 million. The court has denied the Corporation’s request to dismiss this claim. Discovery and development of expert testimony has been completed. The Corporation’s motion for summary judgment is pending. If the Corporation’s motion for summary judgment is not granted, the case is set for trial on September 26, 2005. Management believes that this claim does not have merit and that the risk of material loss is unlikely.

An antitrust class action lawsuit has been filed against Visa^®, MasterCard_®, and several major financial institutions, including the Corporation and its subsidiary, National City Bank of Kentucky. The plaintiffs, merchants operating commercial businesses throughout the U.S., claim that the interchange fees charged by card issuing banks are unreasonable and seek injunctive relief and unspecified damages. Given the preliminary stage of this suit, it is not possible for management to assess the probability of a material adverse outcome or the range of possible damages, if any.

Based on information currently available, advice of counsel, available insurance coverage and established reserves, management believes that the eventual outcome of all claims against the Corporation and its subsidiaries, will not, individually or in the aggregate, have a material adverse effect on consolidated financial position or results of operations. However, it is possible that the ultimate resolution of these matters, if unfavorable, may be material to the results of operations for a particular period.

Related Party Transactions: The Corporation has no material related party transactions which would require disclosure. In compliance with applicable banking regulations, the Corporation may extend credit to certain officers and directors of the Corporation and its banking subsidiaries in the ordinary course of business under substantially the same terms as comparable third-party lending arrangements.

20. STOCK OPTIONS AND AWARDS

National City maintains various incentive and nonqualified stock option plans and also maintains various restricted stock plans. These plans provide for the granting of stock options, stock appreciation rights, and restricted shares to eligible employees and directors.

On April 27, 2004, stockholders approved the National City Corporation Long-Term Cash and Equity Incentive Plan (the Long-Term Incentive Plan), which consolidates and replaces all long-term incentive programs under one plan and formalizes the use of performance measures in connection with all long-term awards. Under the Long-Term Incentive Plan no more than 45 million shares of National City common stock may be made the subject of option rights, stock appreciation rights, restricted awards, common stock awards, or restricted stock units, in the aggregate. In addition to the aggregate limit on awards of National City common stock, the Long-Term Incentive Plan includes the following limitations: no more than 13 million shares may be awarded in the form of restricted stock, restricted stock units, or common stock awards; and no more than 40 million shares may be awarded in the form of incentive stock options.

Stock Options: Stock options may currently be granted to officers and key employees to purchase shares of common stock at the market price of the common stock on the date of grant. These options generally become exercisable to the extent of 25% to 50% annually, beginning one year from the date of grant, and expire not later than 10 years from the date of grant. In addition, stock options may be granted that include the right to receive additional options if certain criteria are met. The exercise price of an additional option is equal to the market price of the common stock on the date the additional option is granted. Additional options vest six months from the date of grant and have a contractual term equal to the remaining term of the original option.

On January 1, 2003, the Corporation prospectively adopted the fair value method of accounting for stock options under SFAS 123. Further discussion of the impact of this change is included in Note 1. During the second quarter and first half of 2005, compensation expense recognized related to stock options totaled $5 million and $11 million, respectively, consistent with compensation expense recognized for the same comparable periods in 2004.

Restricted Shares: Restricted common shares may currently be awarded to officers, key employees, and outside directors. In general, restrictions on outside directors’ shares expire after nine months and restrictions on shares granted to key employees and officers expire within a four-year period. The Corporation recognizes compensation expense over the restricted period. The weighted-average grant-date fair value of restricted share awards granted during the second quarter and first six months of 2005 were $35.57 and $36.19, respectively, and $34.88 and $34.02, respectively, for the second quarter and first six months of 2004. Compensation expense

recognized for restricted share plans during the second quarter and first half of 2005 totaled $9 million and $19 million, respectively, and $7 million and $13 million, respectively, for the second quarter and first half of 2004.

Option and Restricted Stock Award Activity: Stock option and restricted stock award activity follows:


							Weighted-
							Average
							Exercise
	Shares Outstanding						Price Per
	Awards			Options			Share

January 1, 2004		3,781,641			50,851,242		$	28.52
Acquisition		—			456,754			17.32
Cancelled		(113,494	)		(216,097	)		30.01
Exercised		(594,516	)		(5,172,041	)		23.84
Granted		480,823			1,140,731			34.79

June 30, 2004		3,554,454			47,060,589		$	29.07



January 1, 2005		4,838,125			54,700,740		$	29.83
Cancelled		(131,229	)		(363,537	)		30.65
Exercised		(331,209	)		(3,376,827	)		23.70
Granted		442,342			553,865			35.43

June 30, 2005		4,818,029			51,514,241		$	30.29

Cancelled activity includes both forfeited and expired awards and options.

Information about stock options outstanding at June 30, 2005, follows:


					Weighted-
					Average
			Weighted-		Remaining				Weighted-
			Average		Contractual				Average
Range of			Exercise		Life				Exercise
Exercise Prices	Outstanding		Price		(in years)		Exercisable		Price

$5.46-$12.99		24,555	$	9.84		.7		24,555	$	9.84
13.00-19.99		4,663,665		18.16		4.6		4,663,665		18.16
20.00-26.99		3,551,385		24.48		5.1		3,551,385		24.48
27.00-33.99		33,420,282		30.83		5.3		29,647,363		30.46
34.00-40.99		9,487,840		36.04		6.7		3,784,690		36.41
41.00-47.99		366,514		43.51		2.6		366,514		43.51

Total		51,514,241	$	30.29		5.5		42,038,172	$	29.23

At June 30, 2005 and 2004, options for 42,038,172 and 36,486,174 shares of common stock, respectively, were exercisable. As of June 30, 2005, stock options and restricted stock awards available for grant under the Long-Term Incentive Plan totaled 27 million and 11 million shares, respectively.

21. PENSION AND OTHER POSTRETIREMENT BENEFIT PLANS

National City has a noncontributory defined benefit pension plan covering substantially all employees. Employees retained from the Allegiant, Provident, and Wayne acquisitions became eligible to participate in the Corporation’s defined benefit pension plan effective January 1, 2005. Pension benefits are derived from a cash balance formula, whereby credits based on salary, age, and years of service are allocated to employee accounts. Actuarially determined pension costs are charged to current operations. The funding policy is to contribute at least the minimum amount required by the Employee Retirement Income Security Act of 1974.

National City also has a benefit plan offering postretirement medical and life insurance benefits. The medical portion of the plan is contributory and the life insurance coverage is noncontributory to the participants. The Corporation has no plan assets attributable to the plan, and funds the benefits as claims arise. Benefit costs related to this plan are recognized in the periods employees provide service for such benefits. The Corporation reserves the right to terminate or make plan changes at any time.

Using an actuarial measurement date of October 31, 2004 and 2003, components of net periodic cost for the three-and six-month periods ended June 30 follow:


	Three Months Ended						Six Months Ended
	June 30						June 30
(In Thousands)	2005			2004			2005			2004

Pension Benefits
Service cost	$	14,735		$	13,847		$	29,770		$	27,694
Interest cost		21,293			20,681			42,586			41,363
Expected return on plan assets		(34,498	)		(31,825	)		(68,996	)		(63,650	)
Amortization of prior service cost		(1,189	)		(1,189	)		(2,378	)		(2,378	)
Recognized net actuarial loss		375			743			750			1,486

Net periodic cost	$	716		$	2,257		$	1,732		$	4,515

Other Postretirement Benefits
Service cost	$	846		$	833		$	1,692		$	1,665
Interest cost		2,233			2,354			4,466			4,709
Amortization of prior service cost		24			24			48			48
Transition obligation		350			350			701			701
Recognized net actuarial loss		245			498			489			996

Net periodic cost	$	3,698		$	4,059		$	7,396		$	8,119

Actuarial assumptions used to calculate the net periodic pension and the postretirement benefits and costs were as follows:


	Pension Benefits						Postretirement Benefits
	2005			2004			2005			2004

Weighted-Average Assumptions
Discount rate		6.00	%		6.25	%		6.00	%		6.25	%
Rate of compensation increase		2.75-7.50			2.75-7.50			2.75-7.50			2.75-7.50
Expected long-term return on plan assets		8.5			8.5			—			—

In December 2003, a bill was signed into law 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 that sponsor postretirement benefit plans that provide prescription drug coverage. In May 2004, FASB Staff Position 106-2, Accounting and Disclosure Requirements Related to the Medicare Prescription Drug, Improvement and Modernization Act of 2003 (Act), was issued which provides guidance on accounting for the federal subsidy. The provisions of FASB Staff Position 106-2 became effective for the Corporation as of July 1, 2004 and were applied prospectively. On January 21, 2005, the Centers for Medicare and Medicaid Services released the final regulations implementing the Act. The Corporation anticipates its benefit costs will be somewhat lower than would otherwise be the case as a result of the new Medicare provisions.

The Corporation also maintains nonqualified supplemental retirement plans for certain key employees. All benefits provided under these plans are unfunded, and payments to plan participants are made by the Corporation. At June 30, 2005, December 31, 2004, and June 30, 2004, obligations of $92 million, $90 million, and $86 million, respectively, were included in accrued expenses and other liabilities for these plans. Expenses related to these plans totaled $4 million and $8 million for the second quarter and first six months of 2005, respectively, and $4 million and $7 million for the second quarter and first six months of 2004, respectively.

Substantially all employees are eligible to contribute a portion of their pretax compensation to a defined contribution plan. The Corporation may make contributions to the plan for employees with one or more years of service in the form of National City common stock in varying amounts depending on participant contribution levels. In 2005 and 2004, the Corporation provided up to a 6.9% matching contribution. Matching contributions totaled $20 million and $45 million for the second quarter and first six months of 2005, respectively, and $17 million and $39 million for the second quarter and first six months of 2004, respectively.

22. DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

The Corporation uses derivative instruments primarily to protect against the risk of adverse price or interest rate movements on the value of certain assets and liabilities and on future cash flows. It also executes derivative instruments with its commercial banking customers to facilitate their risk management strategies. Derivative instruments represent contracts between parties that usually require little or no initial net investment and result in one party delivering cash or another type of asset to the other party based on a notional amount and an underlying as specified in the contract. A notional amount represents the number of units of a specific item, such as currency units or shares. An underlying represents a variable, such as an interest rate, security price, or price index. The amount of cash or other asset delivered from one party to the other is determined based on the interaction of the notional amount of the contract with the underlying. Derivatives are also implicit in certain contracts and commitments, such as mortgage-banking loan commitments, which by definition qualify as derivative instruments under SFAS 133.

Market risk is the risk of loss arising from an adverse change in interest rates, exchange rates, or equity prices. The Corporation’s primary market risk is interest rate risk. Management uses derivative instruments to protect against the risk of interest rate movements on the value of certain assets and liabilities and on future cash flows. These instruments include interest rate swaps, interest rate futures, interest rate options, forward agreements, and interest rate caps and floors with indices that relate to the pricing of specific assets and liabilities. The nature and volume of the derivative instruments used to manage interest rate risk depend on the level and type of assets and liabilities on the balance sheet and the risk management strategies for the current and anticipated rate environments.

SFAS 133 requires all derivative instruments to be carried at fair value on the balance sheet. SFAS 133 provides special hedge accounting provisions which permit the change in the fair value of the hedged item related to the risk being hedged to be recognized in earnings in the same period and in the same income statement line as the change in fair value of the derivative. Note 1 provides further detail on how derivative instruments are accounted for in the financial statements. The Corporation usually designates derivative instruments used to manage interest rate risk into SFAS 133 hedge relationships with the specific assets, liabilities, or cash flows being hedged. Some derivative instruments used for interest rate risk management are not designated in an SFAS 133 hedge relationship. Such will be the case if the derivative instrument is being used to offset risk related to an asset or liability that is accounted for at fair value in the financial statements, if the derivative instrument has been moved out of an SFAS 133 relationship because the hedge was deemed not effective, or if operational or cost constraints make it prohibitive to apply hedge accounting.

As with any financial instrument, derivative instruments have inherent risks, primarily market and credit risk. Market risk associated with changes in interest rates is managed by establishing and monitoring limits as to the degree of risk that may be undertaken as part of the Corporation’s overall market risk monitoring process carried out by the Asset/Liability Management Committee. See further discussion of this process in the Market Risk section of the Financial Review.

Credit risk occurs when a counterparty to a derivative contract with an unrealized gain fails to perform according to the terms of the agreement. Credit risk is managed by limiting the aggregate amount of net unrealized gains in agreements outstanding, monitoring the size and the maturity structure of the derivative portfolio, applying uniform credit standards to all activities with credit risk, and collateralizing gains. The Corporation has established bilateral collateral agreements with its major derivative dealer counterparties that provide for exchanges of marketable securities or cash to collateralize either party’s net gains. At June 30, 2005, these collateral agreements covered 99.9% of the notional amount of the total derivative portfolio, excluding futures, forward commitments to sell or purchase mortgage loans or mortgage-backed securities, and customer derivative contracts. At June 30, 2005, the Corporation held cash, U.S. government, and U.S. government-sponsored agency securities with a fair value of $347 million to collateralize net gains with counterparties and had pledged or delivered to counterparties U.S. government and U.S. government-sponsored agency securities with a fair value of $14 million to collateralize net losses with counterparties. The Corporation typically does not have collateral agreements covering open forward commitments to sell or purchase mortgage loans or mortgage-backed securities due to the fact these contracts usually mature within 90 days. Open futures contracts are also not covered by collateral agreements because the contracts are cash settled with counterparties daily. The credit risk associated with derivative instruments executed with the Corporation’s commercial banking customers is essentially the same as that involved in extending loans and is subject to normal credit policies. Collateral may be obtained based on management’s assessment of the customer.

Derivative contracts are valued using observable market prices, if available, or cash flow projection models acquired from third parties. Pricing models used for valuing derivative instruments are regularly validated by testing through comparison with other third parties. The estimated fair value of a mortgage banking loan commitment is based on the change in estimated fair value of the underlying mortgage loan and the probability that the mortgage loan will fund within the terms of the loan commitment. The change in fair value of the underlying mortgage loan is based on quoted mortgage-backed securities prices. The probability that the loan will be funded is derived from the Corporation’s own historical empirical data. The change in value of the underlying mortgage loan is measured from the commitment date. At the time of issuance, the estimated fair value of the commitment is zero. The valuations presented in the following tables are based on yield curves, forward yield curves, and implied volatilities that were observable in the cash and derivatives markets on June 30, 2005, December 31, 2004, and June 30, 2004.

Fair Value Hedges: The Corporation primarily uses interest rate swaps, interest rate futures, interest rate caps and floors, interest rate options, interest rate forwards, and forward purchase and sales commitments to hedge the fair values of mortgage loans held for sale, mortgage servicing rights, and certain fixed-rate commercial loans for changes in interest rates.

The Corporation also uses receive-fixed interest rate swaps to hedge the fair values of certain fixed-rate funding products against changes in interest rates. The funding products hedged include purchased certificates of deposit, long-term FHLB advances, senior and subordinated long-term debt, and senior bank notes.

For the three- and six-month periods ended June 30, 2005, the Corporation recognized total net ineffective fair value hedge gains of $95 million and $54 million, respectively. For the same periods in 2004, the Corporation recognized total net ineffective fair value hedge losses of $57 million and $80 million, respectively. Detail of net ineffective hedge gains and losses by hedge strategy are presented in the tables on pages 45-46. Net ineffective hedge gains and losses for mortgage servicing rights and mortgage loans held for sale are included in mortgage banking revenue on the income statement. Net ineffective hedge gains and losses related to hedging

commercial loans and fixed-rate funding products are included in other noninterest income on the income statement. There were no components of derivative instruments that were excluded from the assessment of hedge effectiveness during the first six months of 2005 and 2004.

Cash Flow Hedges: The Corporation hedges cash flow variability related to variable-rate funding products, specifically FHLB advances, senior bank notes, and Federal funds borrowed, through the use of pay-fixed interest rate swaps and interest rate caps. The Corporation also uses forward starting pay-fixed interest rate swaps and caps to hedge forecasted cash flows associated with debt instruments anticipated to be issued in the future.

For the three- and six-month periods ended June 30, 2005, the Corporation recognized net ineffective cash flow hedge losses of $62 thousand and $184 thousand, respectively. For the same periods in 2004, the Corporation recognized net ineffective cash flow hedge gains of $93 thousand and $166 thousand, respectively. These gains (losses) are included in other noninterest income on the income statement. There were no components of derivative instruments that were excluded from the assessment of hedge effectiveness during the first six months of 2005 and 2004.

Derivative gains and losses reclassified from accumulated other comprehensive income to current period earnings are included in the line item in which the hedged cash flows are recorded. At June 30, 2005, December 31, 2004, and June 30, 2004, accumulated other comprehensive income included a deferred after-tax net gain (loss) of $8 million, $(7) million and $(3) million, respectively, related to derivatives used to hedge funding cash flows. See Note 16 for further detail of the amounts included in accumulated other comprehensive income. The net after-tax derivative gain included in accumulated other comprehensive income at June 30, 2005 was projected to be reclassified into interest expense in conjunction with the recognition of interest payments on funding products through June 2009, with $11 million of after-tax net gain expected to be recognized in interest expense within the next year. During the three- and six-month periods ended June 30, 2005, pretax losses of $9 million and $22 million, respectively, were reclassified into interest expense as adjustments to interest payments on variable-rate funding products. For the same 2004 periods, pretax losses of $33 million and $63 million, respectively, were reclassified into interest expense as adjustments to interest payments on variable-rate funding products. For the three- and six-month periods ended June 30, 2005, a pretax gain of $8 million was reclassified from other comprehensive income to noninterest expense as a component of the net gain on the extinguishment of certain variable-rate secured debt financings collateralized by automobile leases. During the first six months of 2004, a pretax loss of $4 million was reclassified from other comprehensive income to noninterest income due to cash flow hedges that were discontinued because the forecasted debt issuances originally contemplated were not probable of occurring.

Summary information regarding the interest rate derivatives portfolio used for interest-rate risk management purposes and designated as accounting hedges under SFAS 133 at June 30, 2005, December 31, 2004, and June 30, 2004 follows:


	June 30, 2005						Net Ineffective						December 31, 2004

			Derivative				Hedge Gains (Losses)								Derivative

							Three			Six
(In Millions)	Notional						Months Ended			Months Ended			Notional
	Amount		Asset		Liability		June 30, 2005			June 30, 2005			Amount		Asset		Liability

Fair Value Hedges
Loans
Receive-fixed interest rate swaps	$	68	$	2.3	$	.3							$	68	$	2.1	$	.1
Receive-fixed interest rate swaptions sold		25		—		—								25		—		—
Pay-fixed interest rate swaps		3,565		15.9		80.1								3,492		13.3		104.2
Pay-fixed interest rate swaptions sold		75		—		3.4								175		—		3.5
Interest rate caps sold		360		—		.1								640		—		.3
Interest rate floors sold		260		—		1.4								260		—		3.2
Interest rate futures purchased		3,466		—		—								2,070		—		—
Interest rate futures sold		3,998		—		—								3,306		—		—

Total		11,817		18.2		85.3	$	5.5		$	12.0			10,036		15.4		111.3

Mortgage loans held for sale
Forward commitments to sell mortgage loans and mortgage-backed securities		3,066		1.7		3.6								6,565		7.5		—
Receive-fixed interest rate swaps		1,145		52.4		5.6								410		16.6		1.6
Pay-fixed interest rate swaps		—		—		—								550		—		28.2
Pay-fixed interest rate swaptions purchased		—		—		—								500		2.2		—
Pay-fixed interest rate swaptions sold		—		—		—								250		—		4.6
Interest rate caps purchased		2,750		2.7		—								5,000		19.5		—
Interest rate futures purchased		—		—		—								1,335		—		—

Total		6,961		56.8		9.2		(.2	)		4.0			14,610		45.8		34.4

Mortgage servicing rights
Forward commitments to purchase mortgage loans and mortgage-backed securities		6,815		18.2		.7								8,157		—		18.7
Receive-fixed interest rate swaps		12,080		263.5		63.6								7,755		187.0		77.0
Receive-fixed interest rate swaptions purchased		—		—		—								1,492		14.5		—
Receive-fixed interest rate swaptions sold		500		—		.1								497		—		2.3
Pay-fixed interest rate swaps		—		—		—								200		—		23.3
Pay-fixed interest rate swaptions purchased		18,800		22.6		—								6,150		20.0		—
Pay-fixed interest rate swaptions sold		3,100		—		94.1								635		—		8.5
Principal-only interest rate swaps		845		.2		7.2								903		—		15.3
Interest rate caps purchased		26,900		23.2		—								28,900		30.7		—
Interest rate caps sold		3,000		—		.1								2,984		—		1.9
Interest rate floors purchased		1,500		—		—								1,492		1.4		—
Interest rate futures purchased		1,331		—		—								—		—		—

Total		74,871		327.7		165.8		88.2			37.3			59,165		253.6		147.0

Funding
Receive-fixed interest rate swaps		7,693		290.6		56.2								6,802		265.6		68.1
Callable receive-fixed interest rate swaps		2,837		8.1		32.8								2,893		11.9		52.4

Total		10,530		298.7		89.0		1.1			.7			9,695		277.5		120.5

Total derivatives used in fair value hedges		104,179		701.4		349.3		94.6			54.0			93,506		592.3		413.2

Cash Flow Hedges
Funding
Receive-fixed interest rate swaps		—		—		—								152		2.6		—
Pay-fixed interest rate swaps		2,100		15.3		1.0								8,102		38.4		17.2
Interest rate caps purchased		4,800		20.3		—								4,860		17.6		—

Total		6,900		35.6		1.0		(.1	)		(.2	)		13,114		58.6		17.2

Total derivatives used in cash flow hedges		6,900		35.6		1.0		(.1	)		(.2	)		13,114		58.6		17.2

Total derivatives used for interest rate risk management and designated in SFAS 133 relationships	$	111,079	$	737.0	$	350.3	$	94.5		$	53.8		$	106,620	$	650.9	$	430.4


	June 30, 2004						Net Ineffective
			Derivative				Hedge Gains (Losses)

							Three			Six
(In Millions)	Notional						Months Ended			Months Ended
	Amount		Asset		Liability		June 30, 2004			June 30, 2004

Fair Value Hedges
Loans
Receive-fixed interest rate swaps	$	60	$	1.1	$	—
Receive-fixed interest rate swaptions sold		25		—		.1
Pay-fixed interest rate swaps		3,335		25.4		115.9
Callable pay-fixed interest rate swaps		43		—		2.5
Pay-fixed interest rate swaptions sold		175		—		2.2
Interest rate caps sold		715		—		1.0
Interest rate floors sold		360		—		4.0
Interest rate futures purchased		1,789		—		—
Interest rate futures sold		3,303		—		—

Total		9,805		26.5		125.7	$	7.4		$	14.0

Mortgage loans held for sale
Forward commitments to purchase and sell mortgage loans and mortgage-backed securities		10,059		—		20.4
Receive-fixed interest rate swaps		775		—		15.0
Pay-fixed interest rate swaps		550		—		5.9
Pay-fixed interest rate swaptions purchased		450		—		—
Interest rate caps purchased		9,750		28.0		—

Total		21,584		28.0		41.3		(7.0	)		(42.5	)

Mortgage servicing assets
Forward commitments to purchase mortgage loans and mortgage-backed securities		5,624		9.6		—
Receive-fixed interest rate swaps		7,628		134.7		196.1
Receive-fixed interest rate swaptions purchased		1,500		10.2		—
Receive-fixed interest rate swaptions sold		500		—		7.4
Pay-fixed interest rate swaptions purchased		4,150		66.2		—
Pay-fixed interest rate swaptions sold		500		—		2.8
Principal-only interest rate swaps		427		2.4		4.0
Interest rate caps purchased		30,898		105.0		—
Interest rate caps sold		2,999		—		10.0
Interest rate floors purchased		1,500		5.4		—
Interest rate futures purchased		700		—		—

Total		56,426		333.5		220.3		(57.8	)		(51.6	)

Funding
Receive-fixed interest rate swaps		5,085		188.6		85.6
Callable receive-fixed interest rate swaps		358		4.8		11.0

Total		5,443		193.4		96.6		.1			.1

Total derivatives used in fair value hedges		93,258		581.4		483.9		(57.3	)		(80.0	)

Cash Flow Hedges
Funding
Pay-fixed interest rate swaps		9,210		61.8		17.1
Interest rate caps purchased		4,500		40.3		—

Total		13,710		102.1		17.1		.1			.2

Total derivatives used in cash flow hedges		13,710		102.1		17.1		.1			.2

Total derivatives used for interest rate risk management and designated in SFAS 133 relationships	$	106,968	$	683.5	$	501.0	$	(57.2	)	$	(79.8	)

Other Derivative Activities: The derivative portfolio also includes derivative financial instruments not included in SFAS 133 hedge relationships. Those derivatives include swaps, futures, options, and forwards used for interest rate and other risk management purposes, as well as mortgage banking loan commitments defined as derivatives under SFAS 133, and derivatives executed with commercial banking customers, primarily interest rate swaps and options, to facilitate their interest rate risk management strategies. Price risk associated with mortgage banking loan commitments is managed primarily through the use of other derivative instruments, such as forward sales of mortgage loans and mortgage-backed securities. Because mortgage banking loan commitments are defined as derivative instruments under SFAS 133, the associated derivative instruments used for risk management activities do not qualify for hedge accounting under SFAS 133. The Corporation generally does not enter into derivative transactions for purely speculative purposes. Gains and losses on mortgage-banking related derivative financial instruments are included in mortgage banking revenue on the income statement, while gains and losses on other derivative financial instruments are included in other noninterest income. A summary of derivative financial instruments not in SFAS 133 hedge relationships by type of activity follows:


	Net Derivative Asset (Liability)								Net Gains (Losses)
									Three Months Ended					Six Months Ended
	June 30			December 31		June 30			June 30					June 30
(In Millions)	2005			2004		2004			2005		2004			2005		2004

Other derivative instruments
Mortgage-banking-related:
Mortgage servicing right risk management	$	(54.2	)	$	12.7	$	(33.0	)	$	50.2	$	(41.0	)	$	119.1	$	365.6
Mortgage loan commitments and mortgage loan risk management		(27.2	)		4.5		2.8			43.6		(242.1	)		125.9		(122.8	)

Total mortgage-banking related		(81.4	)		17.2		(30.2	)		93.8		(283.1	)		245.0		242.8

Customer risk management		19.0			13.7		10.1			4.7		4.5			7.2		6.5
Other		15.2			37.3		6.5			20.4		22.9			24.7		22.2

Total other		34.2			51.0		16.6			25.1		27.4			31.9		28.7

Total other derivative instruments	$	(47.2	)	$	68.2	$	(13.6	)	$	118.9	$	(255.7	)	$	276.9	$	271.5

23. LINE OF BUSINESS RESULTS

National City operates five major lines of business: Consumer and Small Business Financial Services, Wholesale Banking, National City Mortgage, National Consumer Finance, and Asset Management. A sixth business line, National Processing, was sold in October 2004.

Consumer and Small Business Financial Services (CSB) provides banking services to consumers and small businesses within National City’s seven-state footprint. In addition to deposit gathering and direct lending services provided through the retail bank branch network, call centers, and the Internet, CSB’s activities also include small business banking services, dealer finance, education finance, retail brokerage, and lending-related insurance services. Consumer lending products include home equity, automobile, marine, and recreational vehicle installment loans, government or privately guaranteed student loans, and credit cards and other unsecured personal and small business lines of credit. Major revenue sources include net interest income on loan and deposit accounts, deposit account service fees, debit and credit card interchange and service fees, and ATM surcharge and net interchange fees. CSB’s expenses are mainly personnel and branch network support costs.

Wholesale Banking provides credit-related and treasury management services, as well as capital markets and international services, to large- and medium-sized corporations. Major products and services include: lines of credit, term loans, leases, investment real estate lending, asset-based lending, structured finance, syndicated lending, equity and mezzanine capital, treasury management, and international payment and clearing services. The majority of revenue is driven by loans to middle-market companies with annual revenue in the $5 million to $500 million range across a diverse group of industries, generally within National City’s seven-state footprint. Expenses include personnel and support costs, in addition to credit costs.

National City Mortgage (NCM) primarily originates conventional residential mortgage and home equity loans both within National City’s banking footprint and nationally. NCM’s activities also include servicing mortgage loans for third-party investors. Mortgage loans originated by NCM generally represent loans collateralized by one-to-four-family residential real estate and are made to borrowers in good credit standing. These loans are typically sold to primary mortgage market aggregators (Fannie Mae, Freddie Mac, Ginnie Mae, or the Federal Home Loan Banks) and jumbo loan investors. During the first six months of 2005, approximately 46% of NCM mortgage loans were originated through wholesale and correspondent channels, while 54% were originated through retail mortgage branches operated by NCM nationally, or through CSB bank branches within National City’s banking footprint. Significant revenue streams for NCM include net interest income on loans held for sale and fee income related to the origination, sale and servicing of loans. Expenses include personnel costs, branch office costs, third-party outsourcing and loan collection expenses.

National Consumer Finance (NCF) is comprised of four business units involved in the origination and servicing of home equity loans and nonconforming residential mortgage loans. Loans are originated nationally through correspondent relationships and a network of brokers. Nonconforming mortgage loans are originated by First Franklin Financial Corporation (First Franklin), a business unit within NCF, principally through wholesale channels, including a national network of brokers and mortgage bankers. During the first six months of 2005, 36% of First Franklin originated loans were retained in portfolio at NCF’s National City Home Loan Services business unit compared to approximately 29% for the same period in 2004. During the first half of 2005, 49% of the remaining loans

sold were sold with servicing retained versus all loans sold servicing released in the first half of 2004. First Franklin began selling certain loans with servicing retained in November 2004. The percentage of loans sold versus retained in any given period will vary depending on product mix and market conditions. Nonconforming mortgages are generally not readily saleable to primary mortgage market aggregators due to the credit characteristics of the borrower, the underlying documentation, the loan-to-value ratio, or the size of the loan, among other factors. The National Home Equity business unit within NCF originates and holds in portfolio prime-quality home equity loans outside National City’s banking footprint. The National City Warehouse Resources business unit within NCF provides emerging mortgage bankers across the country with lines of credit for loan funding purposes. Significant revenue streams for NCF include net interest income on loans and fee income related to the origination and sale of loans. Expenses include personnel costs, branch office costs, and loan collection expenses.

The Asset Management business includes both institutional asset and personal wealth management. Institutional asset management services are provided by two business units — Allegiant Asset Management Group and Allegiant Asset Management Company. These business units provide investment management, custody, retirement planning services, and other corporate trust services to institutional clients, and act as the investment advisor for the Allegiant_® mutual funds (formerly the Armada_® mutual funds). The clients served include publicly traded corporations, charitable endowments and foundations, as well as unions, residing primarily in National City’s banking footprint and generally complementing its corporate banking relationships. Personal wealth management services are provided by two business units — Private Client Group and Sterling. Products and services include private banking services and tailored credit solutions, customized investment management services, brokerage, estate and tax planning, as well as trust management and administration for affluent individuals and families. Sterling offers financial management services and alternative investments for high net worth clients.

National Processing consisted of National Processing, Inc., National City’s former 83%-owned payment processing subsidiary. In October 2004, this business was sold. Refer to Note 3 for further discussion. National Processing’s business consisted of the authorization, processing, financial settlement, and reporting of debit and credit card transactions, and financial settlement and reporting solutions for large and mid-size corporate customers in the travel and health care industries.

The business units are identified by the product or services offered and the channel through which the product or service is delivered. The reported results attempt to reflect the underlying economics of the businesses. Expenses for centrally provided services are allocated based upon estimated usage of those services. The business units’ assets and liabilities are match-funded and interest rate risk is centrally managed as part of investment funding activities. Asset securitizations are also considered funding activities and the effects of such securitizations are included within the Parent and Other category. Loans sold through securitizations continue to be reflected as owned by the business unit that manages those assets. Asset sales and other transactions between business units are primarily conducted at fair value, resulting in gains or losses that are eliminated for reporting consolidated results of operations. Parent and Other is primarily comprised of the results of investment funding activities, intersegment revenue and expense eliminations, and unallocated corporate income and expense. The intersegment revenue and expense amounts presented in the tables relate to either services provided or asset sales between the operating segments. The amounts do not include reimbursements related to expense allocations and the effects of centrally managing interest rate risk. The accounting policies of the individual business units are the same as those of the Corporation. Prior period amounts have been restated to conform with the current period’s presentation.

Operating results of the business units are discussed in the Line of Business Results section of the Financial Review. Selected financial information by line of business follows:


	Consumer and
	Small Business								National
	Financial			Wholesale			National City		Consumer			Asset		National		Parent and			Consolidated
(In Thousands)	Services			Banking			Mortgage		Finance			Management		Processing		Other			Total


Quarter ended June 30, 2005
Net interest income (expense)^(a)	$	532,647		$	360,928		$	95,340	$	305,110		$	30,282	$	—	$	(127,548	)	$	1,196,759
Provision (benefit) for credit losses		65,939			(14,846	)		387		(5,729	)		1,196		—		(21,120	)		25,827

Net interest income (expense) after provision		466,708			375,774			94,953		310,839			29,086		—		(106,428	)		1,170,932
Noninterest income		281,957			148,920			332,031		62,813			94,464		—		35,815			956,000
Noninterest expense		451,205			208,234			183,361		147,237			80,384		—		112,224			1,182,645

Income (loss) before taxes		297,460			316,460			243,623		226,415			43,166		—		(182,837	)		944,287
Income tax expense (benefit)^(a)		114,779			119,768			92,077		85,585			16,317		—		(109,366	)		319,160

Net income (loss)	$	182,681		$	196,692		$	151,546	$	140,830		$	26,849	$	—	$	(73,471	)	$	625,127

Intersegment revenue (expense)	$	(833	)	$	7,981		$	13,530	$	(9,323	)	$	1,972	$	—	$	(13,327	)	$	—
Average assets (in millions)		32,017			43,310			14,015		36,098		$	3,416		—		10,658			139,514


Quarter ended June 30, 2004
Net interest income (expense)^(a)	$	498,505		$	277,419		$	160,834	$	278,732		$	26,317	$	986	$	(176,013	)	$	1,066,780
Provision (benefit) for credit losses		75,017			(6,445	)		2,753		10,406			1,421		—		(22,364	)		60,788

Net interest income (expense) after provision		423,488			283,864			158,081		268,326			24,896		986		(153,649	)		1,005,992
Noninterest income		213,658			105,431			51,326		157,226			158,391		132,334		47,911			866,277
Noninterest expense		369,617			128,898			182,813		140,179			80,400		109,620		63,610			1,075,137

Income (loss) before taxes		267,529			260,397			26,594		285,373			102,887		23,700		(169,348	)		797,132
Income tax expense (benefit) ^(a)		101,426			96,753			10,093		107,871			38,892		9,314		(86,263	)		278,086

Net income (loss)	$	166,103		$	163,644		$	16,501	$	177,502		$	63,995	$	14,386	$	(83,085	)	$	519,046

Intersegment revenue (expense)	$	(865	)	$	5,068		$	14,357	$	(6,549	)	$	1,330	$	1,191	$	(14,532	)	$	—
Average assets (in millions)		27,328			31,274			17,502		27,162			3,015		705		8,962			115,948


^(a)		Includes tax-equivalent adjustment for tax-exempt interest income


	Consumer and
	Small Business								National
	Financial			Wholesale			National City		Consumer			Asset		National		Parent and			Consolidated
(In Thousands)	Services			Banking			Mortgage		Finance			Management		Processing		Other			Total


Six months ended June 30, 2005

Net interest income (expense)^(a)	$	1,068,949		$	708,663		$	195,635	$	607,738		$	60,352	$	—	$	(266,736	)	$	2,374,601
Provision (benefit) for credit losses		146,509			(34,481	)		30,918		(5,945	)		1,756		—		(42,483	)		96,274

Net interest income (expense) after provision		922,440			743,144			164,717		613,683			58,596		—		(224,253	)		2,278,327
Noninterest income		539,823			278,404			555,299		136,452			178,133		—		57,170			1,745,281
Noninterest expense		903,990			403,942			363,477		281,390			158,541		—		226,649			2,337,989

Income (loss) before taxes		558,273			617,606			356,539		468,745			78,188		—		(393,732	)		1,685,619
Income tax expense (benefit)^(a)		215,769			233,999			121,646		177,186			29,555		—		(201,805	)		576,350

Net income (loss)	$	342,504		$	383,607		$	234,893	$	291,559		$	48,633	$	—	$	(191,927	)	$	1,109,269

Intersegment revenue (expense)	$	(1,669	)	$	13,634		$	28,652	$	(17,814	)	$	3,218	$	—	$	(26,021	)	$	—
Average assets (in millions)		32,205			42,456			14,606		35,388			3,386		—		10,908		$	138,949


Six months ended June 30, 2004
Net interest income (expense)^(a)	$	991,829		$	534,104		$	302,578	$	536,993		$	52,394	$	1,881	$	(327,842	)	$	2,091,937
Provision (benefit) for credit losses		150,340			4,153			7,251		21,467			1,649		—		(41,565	)		143,295

Net interest income (expense) after provision		841,489			529,951			295,327		515,526			50,745		1,881		(286,277	)		1,948,642
Noninterest income		393,149			206,630			511,294		292,777			249,021		254,325		76,778			1,983,974
Noninterest expense		721,537			255,310			338,964		259,606			156,044		212,934		117,082			2,061,477

Income (loss) before taxes		513,101			481,271			467,657		548,697			143,722		43,272		(326,581	)		1,871,139
Income tax expense (benefit) ^(a)		194,252			178,004			177,684		207,407			54,327		16,922		(186,871	)		641,725

Net income (loss)	$	318,849		$	303,267		$	289,973	$	341,290		$	89,395	$	26,350	$	(139,710	)	$	1,229,414

Intersegment revenue (expense)	$	(1,741	)	$	9,024		$	26,013	$	(12,543	)	$	2,805	$	2,568	$	(26,126	)	$	—
Average assets (in millions)		27,220			30,178			16,948		25,753			2,993		702		8,945			112,739


^(a)		Includes tax-equivalent adjustment for tax-exempt interest income

24. FINANCIAL HOLDING COMPANY

Condensed financial statements of the holding company, which include transactions with subsidiaries, follow:

Balance Sheets


	June 30		December 31		June 30
(In Thousands)	2005		2004		2004

Assets
Cash and demand balances due from banks	$	883,244	$	91,495	$	180,790
Loans to and receivables from subsidiaries		753,197		747,581		1,244,748
Securities		466,417		409,503		333,018
Other investments		30,908		77,027		127,919
Investments in:
Subsidiary banks		13,375,521		13,557,393		10,093,241
Nonbank subsidiaries		328,163		369,184		646,124
Goodwill		110,137		109,096		59,989
Derivative assets		153,484		118,857		70,011
Other assets		637,948		704,760		650,806

Total Assets	$	16,739,019	$	16,184,896	$	13,406,646

Liabilities and Stockholders’ Equity
Long-term debt	$	2,402,411	$	1,913,946	$	1,990,687
Borrowed funds from subsidiaries		597,950		604,629		249,210
Derivative liabilities		15,916		16,933		23,548
Accrued expenses and other liabilities		720,988		845,859		808,217

Total liabilities		3,737,265		3,381,367		3,071,662
Stockholders’ equity		13,001,754		12,803,529		10,334,984

Total Liabilities and Stockholders’ Equity	$	16,739,019	$	16,184,896	$	13,406,646

Securities and other investments totaling $112 million at June 30, 2005 were restricted for use in certain nonqualified benefit plans. The borrowed funds from subsidiaries balance includes the junior subordinated debt securities payable to the wholly-owned subsidiary trusts (the trusts). The holding company continues to guarantee the capital securities issued by the trusts, which totaled $565 million at June 30, 2005. The holding company also guarantees commercial paper issued by its subsidiary National City Credit Corporation, which borrowings totaled $662 million at June 30, 2005. Additionally, the holding company guarantees National City Bank of Kentucky’s financial obligation under this subsidiary’s membership with VISA^® up to $600 million and MasterCard_® up to $400 million. Refer to Note 19 for further discussion of contingent liabilities and guarantees related to the Corporation’s former merchant card processing business.

Statements of Income


	Three Months Ended						Six Months Ended
	June 30						June 30
(In Thousands)	2005			2004			2005		2004

Income
Dividends from:
Subsidiary banks	$	350,000		$	1,275,000		$	775,000	$	1,275,000
Nonbank subsidiaries		11,300			4,000			11,361		6,000
Interest on loans to subsidiaries		11,479			818			20,110		1,708
Interest and dividends on securities		3,361			1,981			6,620		3,255
Securities gains (losses), net		2,145			(5	)		10,690		98
Other income		15,470			8,651			18,999		23,238

Total Income		393,755			1,290,445			842,780		1,309,299

Expense
Interest on debt and other borrowings		28,218			17,480			53,975		37,918
Other expense		30,887			22,596			32,194		41,239

Total Expense		59,105			40,076			86,169		79,157

Income before taxes and equity in undistributed net income of subsidiaries		334,650			1,250,369			756,611		1,230,142
Income tax (benefit) expense		(2,325	)		(6,213	)		11,020		(32,119	)

Income before equity in undistributed net income of subsidiaries		336,975			1,256,582			745,591		1,262,261
Equity in undistributed net income (loss) of subsidiaries		288,152			(737,536	)		363,678		(32,847	)

Net Income	$	625,127		$	519,046		$	1,109,269	$	1,229,414

Statements of Cash Flows


	Six Months Ended
	June 30
(In Thousands)	2005			2004

Operating Activities
Net income	$	1,109,269		$	1,229,414
Adjustments to reconcile net income to net cash provided by operating activities:
Equity in undistributed net income of subsidiaries		(363,678	)		32,847
Depreciation and amortization of properties and equipment		1,346			943
Increase in receivables from subsidiaries		(10,616	)		(738,068	)
Securities gains, net		(10,690	)		(98	)
Other losses (gains), net		1,199			(910	)
Amortization of premiums and discounts on securities and debt		(4,844	)		(1,055	)
(Decrease) increase in accrued expenses and other liabilities		(121,402	)		21,335
Other, net		66,642			41,468

Net cash provided by operating activities		667,226			585,876

Investing Activities
Purchases of securities		(212,600	)		(218,091	)
Proceeds from sales and maturities of securities		154,424			58,583
Net change in other investments		46,119			351,475
Principal collected on loans to subsidiaries		435,000			331,000
Loans to subsidiaries		(430,000	)		(405,000	)
Investments in subsidiaries		(55,000	)		(15,001	)
Returns of investment from subsidiaries		620,590			250,005
Purchases of properties and equipment		—			(13,163	)
Cash paid for Allegiant, net of cash acquired		—			(19,465	)

Net cash provided by investing activities		558,533			320,343

Financing Activities
Issuance of debt		698,875			200,000
Repayment of debt		(250,880	)		(400,880	)
Dividends paid		(453,665	)		(393,838	)
Issuances of common stock		224,760			122,816
Repurchases of common stock		(653,100	)		(391,329	)

Net cash used in financing activities		(434,010	)		(863,231	)

Increase in cash and demand balances due from banks		791,749			42,988
Cash and demand balances due from banks, January 1		91,495			137,802

Cash and Demand Balances Due from Banks, June 30	$	883,244		$	180,790

Supplemental Information
Cash paid for interest	$	50,227		$	46,227
Common stock and options issued in Allegiant acquisition		—			469,666

Retained earnings of the holding company included $7.4 billion, $7.0 billion, and $6.8 billion of equity in undistributed net income of subsidiaries at June 30, 2005, December 31, 2004, and June 30, 2004, respectively.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

FINANCIAL REVIEW

This Quarterly Report contains forward-looking statements. See page 70 for further information on the risks and uncertainties associated with forward-looking statements.

The financial review section discusses the financial condition and results of operations of National City Corporation (the Corporation or National City) for the three and six months ended June 30, 2005 and serves to update the 2004 Annual Report on Form 10-K (Form 10-K). The financial review should be read in conjunction with the financial information contained in the Form 10-K and in the accompanying consolidated financial statements and notes presented on pages 4 through 51 of this Form 10-Q.

OVERVIEW

The primary source of National City’s revenue is net interest income from loans and deposits, and fees from financial services provided to customers. Business volumes tend to be influenced by overall economic factors including market interest rates, business spending, and consumer confidence, as well as competitive conditions within the marketplace.

For the quarter ended June 30, 2005, net income was $625 million ($.97 per diluted share), compared to $484 million ($.74 per diluted share) in the preceding period, and $519 million ($.83 per diluted share) for the comparable period in 2004. The increase in net income compared to the preceding period was due mainly to loan growth, good credit quality, and strong fee income.

Average portfolio loans outstanding increased 4% during the second quarter. Commercial borrowing activity has clearly increased. Home equity lending continues at a record pace. Residential real estate loan originations have exceeded expectations resulting from the persistence of low interest rates and a vibrant housing market.

Net interest margin for the second quarter of 2005 of 3.85% was stable compared with the preceding quarter. Management forecasts some slight compression in net interest margin in the last half of the year based on the expectation that tight loan spreads and a flat yield curve will persist over the rest of the year.

Credit quality was very good resulting in a lower provision for credit losses during the second quarter in comparison to prior periods. Annualized net charge-offs as a percentage of average portfolio loans declined to .27%, representing the lowest level of charge-offs since the second quarter of 1994. Nonperforming assets were stable compared to the preceding period. Management does not expect further improvement in credit in future periods.

Growth in fee income was attributable to higher mortgage servicing rights (MSR) net hedging gains and higher fee-based business. Hedging performance was strong due to a continued widening of the spread between 10-year interest rate swap rates and 30-year mortgage rates, and outperformance by other hedge instruments. Retail banking fees of all types demonstrated a solid growth trend. Wholesale banking fee-based income was also strong.

Comparisons of results to prior periods are affected by acquisitions and dispositions which occurred during 2004 and early 2005. In 2004, the Corporation completed the acquisition of three financial institutions: Allegiant Bancorp (Allegiant) on April 9, 2004, Provident Financial Group (Provident) on July 1, 2004, and Wayne Bancorp (Wayne) on October 5, 2004. In addition, the Corporation sold its former subsidiary, National Processing, on October 15, 2004. In January 2005, the Corporation completed the acquisition of National City Vendor Finance. The financial results of acquired companies are included in the consolidated financial results of the Corporation from their respective acquisition dates. The financial results of National Processing are included up to its sale date.

RESULTS OF OPERATIONS

Net Interest Income

This section should also be reviewed in conjunction with the daily average balances/net interest income/rates table presented on pages 71-74 of this financial review.

Net interest income is discussed and presented in this financial review on a tax-equivalent basis, recognizing that interest on certain loans and securities is not taxable for Federal income tax purposes. In order to compare the tax-exempt yields on these assets to taxable yields, the interest earned on these assets is adjusted to a pretax-equivalent amount based upon the marginal Federal income tax rate of 35%. The tax-equivalent adjustments to net interest income were $8 million and $15 million for the second quarter and the first six months of 2005, respectively, and $6 million and $13 million for the same periods in 2004, respectively.

Tax-equivalent net interest income was $1.2 billion and $2.4 billion for the second quarter and first six months of 2005, respectively, up from $1.1 billion and $2.1 billion for the comparable 2004 periods. The increase in net interest income in 2005 was primarily the result of acquisitions and growth in portfolio loans.

Net interest margin was 3.85% in the second and first quarters of 2005 and was 4.09% in the second quarter of 2004. Net interest margin for the first six months of 2005 was 3.85%, compared to 4.12% for the same period a year ago. The lower net interest margin in 2005 was reflective of a flatter yield curve, lower mortgage warehouse balances, and tighter portfolio loan spreads. Net interest margin is expected to compress slightly throughout the remainder of 2005.

Further discussion of trends in the loan and securities portfolios and detail on the mix of funding sources affecting net interest income and net interest margin is included in the Financial Condition section of this financial review beginning on page 58.

Noninterest Income

Details of noninterest income follow:


	Three Months Ended						Six Months Ended
	June 30		March 31		June 30		June 30		June 30
(In Millions)	2005		2005		2004		2005		2004

Mortgage banking revenue	$	400	$	283	$	193	$	683	$	772
Deposit service charges		172		161		162		333		309
Trust and investment management fees		78		73		79		151		155
Leasing revenue		69		74		6		143		12
Brokerage revenue		44		39		34		83		66
Card-related fees		33		28		38		61		75
Other service fees		33		26		29		59		52
Ineffective hedge and other derivative gains, net		32		13		35		45		43
Payment processing revenue		1		—		132		1		254
Other		89		78		153		167		241

Total fees and other income		951		775		861		1,726		1,979
Securities gains, net		5		14		5		19		5

Total noninterest income	$	956	$	789	$	866	$	1,745	$	1,984

Noninterest income was $956 million for the second quarter of 2005, up from $789 million in the first quarter of 2005 and $866 million in the second quarter of 2004. The linked-quarter and year-over-year increases in noninterest income were primarily due to higher mortgage banking revenue, as well as growth in most other fee categories.

Mortgage banking revenue includes mortgage loan servicing, hedging, origination and sales activity conducted through the National City Mortgage (NCM) business unit, as well as nonconforming mortgage loan origination and sales activity conducted through the First Franklin business unit. Details of mortgage banking revenue follow:


	Three Months Ended									Six Months Ended
	June 30			March 31			June 30			June 30			June 30
(In Millions)	2005			2005			2004			2005			2004

Servicing revenue:
Net servicing fees	$	123		$	123		$	115		$	246		$	235
Amortization of mortgage servicing rights		(126	)		(111	)		(140	)		(237	)		(240	)
Mortgage servicing right impairment (charge) recovery		19			52			42			71			(76	)
Mortgage servicing right ineffective hedge and other derivative gains (losses), net		138			18			(99	)		156			314
Other		—			—			—			—			1

Net servicing revenue		154			82			(82	)		236			234
NCM origination and sales revenue		155			117			110			272			232
First Franklin origination and sales revenue		80			84			165			164			306
NCHLS mortgage banking revenue		11			—			—			11			—
Other mortgage banking revenue		—			—			—			—			—

Total mortgage banking revenue	$	400		$	283		$	193		$	683		$	772

The increase in mortgage banking revenue on a linked-quarter basis was due primarily to MSR hedging gains resulting from successful hedging strategies. Pretax MSR net hedging gains were $157 million in the second quarter of 2005, compared to gains of $70 million in the first quarter, and losses of $57 million in the second quarter of 2004. The favorable MSR hedging results were due to a combination of factors including a widening of the basis between mortgage and swap rates and an allocation to hedge instruments that have performed better than expected. MSR net hedge results for the second quarter of 2005 also include a $20 million MSR

impairment charge resulting from changing the valuation model to reflect lower estimates of earnings on custodial balances.

The year-over-year decline in mortgage banking revenue was mainly driven by lower First Franklin origination and sales revenue, reflective of lower production and gain on sale margins during the first half of 2005. The lower gain on sales margins are the result of increased competition and a flatter yield curve. Management expects loan sale margins to remain under pressure during the second half of the year.

The Corporation sells substantially all of its NCM loan production into the secondary market and retains the servicing rights. Approximately 40% of the loans originated by First Franklin were retained in portfolio during the second quarter of 2005 compared to 35% for the same period a year ago. The remaining First Franklin loans were sold in the secondary market either with servicing retained or with servicing released. Prior to the fourth quarter of 2004, First Franklin had not sold loans with servicing retained. The percentage of loans sold versus retained varies based upon product mix and market conditions. Information on mortgage loan originations and sales follows:


	Three Months Ended									Six Months Ended
	June 30			March 31			June 30			June 30			June 30
(In Millions)	2005			2005			2004			2005			2004

NCM loan originations:
Total loan originations	$	15,388		$	14,974		$	18,728		$	30,362		$	33,752
Less: portfolio originations		(1,671	)		(1,227	)		(1,452	)		(2,898	)		(2,397	)

Total NCM loans originated for sale		13,717			13,747			17,276			27,464			31,355

First Franklin loan originations:
Total loan originations		8,059			5,605			8,782			13,664			14,455
Less: portfolio loan originations		(3,235	)		(1,662	)		(3,056	)		(4,897	)		(4,169	)

Total First Franklin loans originated for sale		4,824			3,943			5,726			8,767			10,286

Total mortgage loans originated for sale	$	18,541		$	17,690		$	23,002		$	36,231		$	41,641


NCM loan sales:
Servicing retained	$	12,329		$	13,088		$	16,735		$	25,417		$	32,147
Servicing released		473			418			312			891			597

Total NCM loan sales		12,802			13,506			17,047			26,308			32,744

First Franklin loan sales:
Servicing retained		2,328			1,876			—			4,204			—
Servicing released		1,818			2,596			4,887			4,414			9,320

Total First Franklin loan sales		4,146			4,472			4,887			8,618			9,320

Total mortgage loan sales	$	16,948		$	17,978		$	21,934		$	34,926		$	42,064

Mortgage loan sales for the second quarter of 2005 were $16.9 billion, down from $18.0 billion in the preceding quarter and $21.9 billion in the second quarter of 2004. Mortgage loans originated for sale to third parties were $18.5 billion in the second quarter of 2005, up from $17.7 billion in the first quarter and down from $23.0 billion in the second quarter of 2004. In general, origination volume slowed, as expected, during 2005 due to the combination of higher interest rates, increased competition, and the reduction in refinancing activity.

The Corporation typically retains the right to service the NCM mortgage loans it sells. Upon sale, the Corporation recognizes a MSR, which represents the present value of the estimated future net servicing cash flows to be realized over the estimated life of the underlying loan. The unpaid principal balance of loans serviced for third parties was $156.9 billion at June 30, 2005, up from $152.4 billion at December 31, 2004, and $147.0 billion at June 30, 2004. The carrying value of MSRs at NCM was $1.4 billion at June 30, 2005, down from $1.5 billion at December 31, 2004, and from $1.9 billion at June 30, 2004. Unfavorable hedge basis adjustments, which more than offset MSR additions, resulted in the decrease in the carrying value of MSRs during 2005.

The value of MSRs is sensitive to changes in interest rates. In a low rate environment, mortgage loan refinancings generally increase, causing actual and expected loan prepayments to increase, which drives down the estimated carrying value of existing MSRs. Conversely, as interest rates rise, mortgage loan refinancings generally decline, causing actual and expected loan prepayments to decrease, which drives up the estimated value of MSRs. The Corporation manages the risk associated with declines in the estimated value of MSRs by using derivative instruments. Further detail on MSRs, including a sensitivity analysis of the effect changes in assumptions have on the estimated value of servicing assets, is included in Note 11 to the consolidated financial statements.

Deposit service charges increased in comparison to the first quarter of 2005. Overdraft and nonsufficient funds fees increased 18% on a linked quarter basis due mainly to growth in the number of personal deposit accounts. On a year-over-year comparison, debit card interchange fees grew 26% driven by increased transaction volume.

Trust and investment management fees increased on a linked-quarter basis due mainly to fees related to tax preparation services which are billed in the second quarter. On a year-over year basis, average assets under management increased primarily due to acquisitions which occurred in 2004. Assets under management at June 30, 2005 were $62.5 billion, up from $59.8 billion at June 30, 2004.

Leasing revenue decreased on a linked quarter basis primarily due to the continued run-off of the auto lease portfolio which more than offset growth in the equipment leasing portfolio. Auto leases are no longer being originated; therefore, revenue related to the auto lease portfolio will decline in future periods as this portfolio runs off. On a year-over-year basis, leasing revenue has grown significantly due to the acquisition of Provident in July 2004, which included commercial equipment and automobile lease portfolios.

Brokerage revenue increased on both a linked-quarter and year-over-year basis due to improved equity market activity. The increase in brokerage revenue in 2005 also reflects business obtained with the Provident acquisition.

Card-related fees for the first half of 2005 were down compared to the prior year. This category includes revenue for both traditional credit cards and other revolving lines of credit. The decline resulted from higher amortization of deferred loan origination fees on home equity lines of credit as a result of faster prepayments in this portfolio.

Gains on derivatives accounted for as fair value hedges or not designated in SFAS 133 relationships increased to $32 million in the second quarter of 2005 compared to $13 million in the first quarter of 2005, and $35 million in the second quarter of 2004. The linked-quarter increase primarily resulted from higher gains on derivative instruments used to economically hedge the market value of deferred compensation liabilities.

Payment processing revenue substantially ceased with the sale of National Processing in October 2004.

Other fee income increased in comparison to the first quarter of 2004 mainly due to an $12 million gain recognized on student loan sales during the second quarter of 2005. Student loan sales are seasonal with the highest volume of sales occurring in the second quarter. In comparison, the second quarter of 2004 included a $15 million gain on student loan sales.

Other fee income declined during the first half of 2005 over the same period a year ago primarily due to a $65 million gain recognized in 2004 from the sale of the Bond Administration business.

Gains and losses on debt securities are generated mainly from the investment portfolio maintained for asset/liability management purposes, while equity securities gains are generated primarily from the Corporation’s bank stock fund, an internally managed equity portfolio of bank and thrift common stock investments. For the second quarter of 2005, pretax securities gains were $5 million inclusive of $2 million of gains associated with the bank stock fund. There were $14 million of securities gains recognized in the preceding quarter, of which $8 million represented the bank stock fund, and $5 million of securities gains recognized in the second quarter of 2004, none of which represented the bank stock fund.

Noninterest Expense

Details of noninterest expense follow:


	Three Months Ended						Six Months Ended
	June 30		March 31		June 30		June 30		June 30
(In Millions)	2005		2005		2004		2005		2004

Salaries, benefits, and other personnel	$	651	$	631	$	594	$	1,282	$	1,143
Third-party services		66		66		73		132		141
Equipment		76		76		69		152		135
Net occupancy		72		101		59		173		119
Card processing		5		5		60		10		118
Postage and supplies		37		38		35		75		69
Marketing and public relations		39		28		30		67		52
Leasing expense		52		57		2		109		6
Telecommunications		20		21		23		41		42
State and local taxes		22		24		13		46		28
Travel and entertainment		22		21		19		43		35
Intangible asset amortization		15		15		7		30		13
Other		106		72		91		178		160

Total noninterest expense	$	1,183	$	1,155	$	1,075	$	2,338	$	2,061

Included within noninterest expense are acquisition-related integration costs of $12 million, $19 million, and $6 million for the three months ended June 30, 2005, March 31, 2005 and June 30, 2004, respectively. Management expects integration costs will decrease further in the last half of 2005 as integration activities are completed.

Details of salaries, benefits, and other personnel expense follow:


	Three Months Ended									Six Months Ended
	June 30			March 31			June 30			June 30			June 30
(Dollars in Millions)	2005			2005			2004			2005			2004

Salaries and wages	$	355		$	350		$	318		$	705		$	631
Incentive compensation		209			169			210			378			367
Deferred personnel costs		(100	)		(76	)		(104	)		(176	)		(185	)
Stock-based compensation		15			15			12			30			24
Payroll taxes		38			51			36			89			80
Contract labor		47			34			32			81			51
Medical and other benefits		48			52			48			100			94
Defined contribution plans		20			25			17			45			39
Defined benefit pension plan		1			1			3			2			5
Market valuation adjustments on deferred compensation liabilities		7			(6	)		7			1			10
Severance and other		11			16			15			27			27

Total salaries, benefits, and other personnel	$	651		$	631		$	594		$	1,282		$	1,143

Full-time-equivalent employees		35,493			35,108			34,062

Salaries, benefits and other personnel costs increased in the second quarter of 2005 compared to the preceding quarter primarily due to increases in incentive compensation, contract labor and deferred compensation. These increases were partially offset by higher deferred personnel costs and lower payroll taxes. The increase in incentive compensation reflects higher loan originations at First Franklin. Contract labor increased in the second quarter of 2005 as a result of additional acquisition integration costs incurred and higher mortgage origination volume. Deferred compensation costs increased due to changes in the investment indices used to value these liabilities. The decrease in payroll taxes compared to the preceding quarter is seasonal.

Salaries and wages increased on a year-over-year basis primarily due to employees retained from acquisitions. Contract labor costs also increased on a year-over-year basis as a result of integrating systems and processes of recent acquisitions. Partially offsetting these increases, the market value of deferred compensation liabilities increased in the first half of 2005 by only $1 million versus an increase of $10 million in the prior year.

Net occupancy expense decreased on a linked-quarter basis due to a $29 million one-time adjustment of rent expense to account for leases with escalating rentals on a straight-line basis which was recognized in the first quarter. The year-over-year increase in net occupancy expense includes this rent expense adjustment as well as costs associated with property acquired with Provident in July 2004.

The increase in equipment costs and leasing expense on a year-over-year basis reflects higher depreciation expense on owned and leased assets obtained with acquisitions, primarily Provident, and other fixed asset additions placed in service in the last half of 2004.

Marketing expense increased in comparison to prior periods due to heavier advertising and customer incentives to promote free checking, home equity lines, and the launch of a television ad campaign.

State and local taxes increased in 2005 in both Ohio and Michigan due to acquisitions and anticipated lower tax credits.

Intangible asset amortization increased in the first half of 2005 compared to the prior year due to amortization of intangibles recognized in prior year acquisitions.

Card processing fees decreased in 2005 as these costs were primarily associated with the Corporation’s former National Processing subsidiary.

Other noninterest expense increased in the second quarter of 2005 compared to the preceding quarter due to a $13 million asset impairment on under-utilized buildings which management intends to sell and a $7 million premium paid to repurchase a subsidiary’s preferred shares. These factors also contributed to the year-over-year increase in addition to higher noncredit fraud losses offset by lower minority interest expense due to the sale of National Processing.

The efficiency ratio, equal to noninterest expense as a percentage of tax-equivalent net interest income and total fees and other income, was 55.1% for the second quarter of 2005, 59.2% for the first quarter of 2005, compared to 55.8% in the second quarter of 2004. The efficiency ratio was 57.0% and 50.6% for the first half of 2005 and 2004, respectively. The lower efficiency ratio on a linked-quarter resulted from growth in net interest income and higher mortgage banking revenue. The higher efficiency ratio on a year-over-comparison was primarily related to higher acquisition-related expenses.

Income Taxes

The effective tax rate for the first six months of 2005 was 33.6% compared to 33.8% for the comparable period in 2004. The effective rate for the full year in 2005 is forecasted to approximate 33%.

Line of Business Results

National City is functionally managed along five major business lines as discussed in Note 23 to the consolidated financial statements. National Processing, reported as a separate segment in prior periods, was sold in October 2004. Net income (loss) by line of business follows:


	Three Months Ended									Six Months Ended
	June 30			March 31			June 30			June 30			June 30
(In Millions)	2005			2005			2004			2005			2004

Consumer and Small Business Financial Services	$	183		$	160		$	166		$	342		$	319
Wholesale Banking		197			187			164			384			303
National City Mortgage		152			83			17			235			290
National Consumer Finance		141			151			177			291			341
Asset Management		27			22			64			49			89
National Processing		—			—			14			—			26
Parent and Other		(75	)		(119	)		(83	)		(192	)		(139	)

Consolidated net income	$	625		$	484		$	519		$	1,109		$	1,229

Consumer and Small Business Financial Services (CSB): Net income for the second quarter of 2005 increased in comparison to the first quarter due to higher deposit and card-related fees, gains on sales of student loans, and a lower provision for credit losses. Deposit fee income and credit card fees increased due to a higher volume of fee-generating transactions in the second quarter driven by account growth. Gains on the sale of student loans were $12 million in the second quarter ($8 million after tax) compared to $500 thousand in the first quarter ($300 thousand after tax) and $15 million ($10 million after tax) in the second quarter of 2004. Student loan sales tend to be seasonal with the largest volume of such sales occurring during the second quarter. The provision for credit losses was $66 million, $81 million, and $75 million in the three-month periods ending June 30, 2005, March 31, 2005 and June 30, 2004, respectively. Charge-offs declined compared to the preceding quarter and credit quality was stable. Net income increased on a year-over-year basis due the factors described above and acquisitions completed in the last half of 2004. The number of consumer and small business deposit accounts have also grown steadily since year end, as have core deposit balances.

Wholesale Banking: Net income for the second quarter of 2005 increased in comparison to the first quarter as a result of strong growth in net interest income and fee revenue. The increase in net interest income over the preceding quarter reflects continued growth in outstanding commercial loans offset somewhat by a lower spread. Average loan balances have grown 7% since year end. Noninterest income increased in the second quarter due to higher syndication fees, underwriting and advisory fees, and leasing revenue. Commercial credit quality continues to improve. The provision for credit losses recognized in the second quarter of 2005 was a reversal of previously recognized provision of $15 million compared to a reversal of $20 million and $6 million in the first quarter of 2005 and the second quarter of 2004, respectively. Net income was up 26% on a year-over-year comparison due to improved credit quality, new business, and acquisitions.

National City Mortgage: Results for the second quarter of 2005 improved from the preceding quarter mainly due to MSR net hedging gains which were $157 million ($101 million after tax), compared to $70 million ($45 million after tax) in the first quarter. Partially offsetting MSR hedging gains was a decline in net interest income, reflective of lower average balances of loans held for sale and a lower spread between mortgage and funding rates. The provision for credit losses decreased during the second quarter compared to the preceding period due to good credit quality as well as a reassessment of anticipated losses on repurchased loans which increased the provision in the preceding quarter. Compared to the prior year’s results, net income increased due primarily to MSR net hedging gains of $157 million ($101 million after tax) recognized in the current period versus losses recognized of $57 million ($35 million after tax) in the prior year. Loans originated for sale were $13.7 billion in both the second and first quarter of 2005, down compared to $17.3 billion in the prior year. The year-over-year decline in net income primarily resulted from the aforementioned decline in net interest income and increased provision expense.

National Consumer Finance: Net income for the second quarter of 2005 decreased compared to the first quarter of 2005 and the second quarter of last year. Net interest income was relatively stable compared to the first quarter of 2005. Noninterest income decreased in comparison to the preceding quarter due to a decrease in loans sold at First Franklin. Noninterest income also decreased due to higher amortization of home equity loan origination costs in the second quarter. Partially offsetting this decrease, average margins realized on the sale of First Franklin loans increased 19 basis points compared to the first quarter of 2005 but were down 163 basis points in comparison to the second quarter of 2004. The First Franklin retained portfolio was $18.9 billion at the close of the second quarter of 2005, up from $18.1 billion for first quarter of 2005. Net income of National Home Equity increased in comparison

to both the preceding period and a year ago as production of home equity lines and loans continued to be strong. All National Home Equity production is retained in portfolio, and balances grew to $14.4 billion at the end of the second quarter, up from $13.0 billion at the end of the first quarter, and $8.6 billion a year ago.

Asset Management: Net income for the second quarter of 2005 increased from the preceding period due to higher trust fee income. Trust fees tend to be higher in the second quarter as revenue is recognized for preparation of clients’ tax returns. The prior year’s second quarter results included a $65 million gain ($42 million after tax) on the sale of the Bond Administration business. Assets under administration were $105.4 billion at June 30, 2005, $106.1 billion at March 31, 2005, and $100.9 billion at June 30, 2004. The decline in assets under administration during the current period was primarily in non-managed custodial accounts. The increase in assets under administration in comparison to the prior year is primarily due to acquisitions completed in the last half of 2004.

Parent and Other: This category includes the results of investment funding activities, unallocated corporate income and expense, and intersegment revenue and expense eliminations. Comparisons to prior periods are affected by derivatives gains, costs related to integration of acquisitions, and other nonrecurring items. Noninterest income included gains on derivatives used to economically hedge deferred compensation liabilities of $8 million ($5 million after tax) and losses on these derivatives of $6 million ($4 million after tax) for the second quarter and first quarter of 2005, respectively. Merger integration costs incurred in the second quarter of 2005, the first quarter of 2005, and the second quarter of 2004 were $12 million ($8 million after tax) and $19 million ($13 million after tax), and $6 million ($4 million after tax), respectively. Noninterest expense for the second quarter included a $13 million ($9 million after tax) impairment charge associated with under-utilized buildings that management intends to sell. Noninterest expense for the first quarter of 2005 included a $29 million ($19 million after tax) charge resulting from a change in accounting for leases with escalating rentals. Bank stock fund gains of $2 million ($1 million after tax) and $8 million ($6 million after tax) were recognized in the second and first quarter of 2005, respectively, with no such gains in the second quarter of the prior year.

FINANCIAL CONDITION

This section should also be reviewed in conjunction with the average balance sheets presented on pages 71-74.

Average Earning Assets

A summary of average earning assets follows:


	Three Months Ended						Six Months Ended
	June 30		March 31		June 30		June 30		June 30
(In Millions)	2005		2005		2004		2005		2004

Portfolio loans
Commercial	$	27,151	$	25,553	$	19,531	$	26,356	$	19,197
Commercial construction		2,999		2,909		2,270		2,954		2,257
Real estate — commercial		11,782		12,127		10,821		11,954		10,320
Real estate — residential		31,669		30,515		27,981		31,095		27,529
Home equity lines of credit		20,791		19,381		12,819		20,089		12,108
Credit card and other unsecured lines of credit		2,304		2,351		2,232		2,327		2,257
Other consumer		8,053		8,308		7,209		8,181		7,306

Total portfolio loans		104,749		101,144		82,863		102,956		80,974
Loans held for sale or securitization		10,109		11,502		13,910		10,803		13,117
Securities (at amortized cost)		8,291		8,714		6,646		8,501		6,591
Other		1,383		1,348		1,148		1,367		981

Total earning assets	$	124,532	$	122,708	$	104,567	$	123,627	$	101,663

Average portfolio loans grew 4% and 26% during the second quarter of 2005 compared to the first quarter of 2005 and the same quarterly period a year ago, respectively. Average portfolio loans grew 27% during the first half of 2005 over the same comparable period a year ago. In general, the increase in portfolio loans was attributed to continued growth in the commercial, residential real estate, and home equity portfolios and loans obtained through acquisitions in 2004.

The linked-quarter growth in the commercial portfolio was attributed to higher loan demand for corporate and lease borrowings, reflective of new business generation and increased borrowings from existing customers. Growth in the commercial portfolios on a year-over-year comparison primarily resulted from prior year acquisitions. Commercial borrowings are expected to continue to grow throughout the second half of 2005.

The year-over-year growth in the residential real estate portfolio primarily resulted from ongoing retention of First Franklin originated loans. Over the past 12 months, $10.3 billion of First Franklin originated loans were retained in portfolio. At June 30, 2005, period-end First Franklin loans in portfolio totaled $18.9 billion, compared to $18.3 billion at December 31, 2004, and $16.7 billion at June 30, 2004.

The linked-quarter and year-over-year increases in home equity balances reflect continued strong home equity production at the National Home Equity business unit. The year-over-year growth in home equity lines of credit was also affected by loans acquired through acquisitions, primarily Provident. Home equity growth is expected to continue throughout the second half of 2005. Growth in other consumer loans on a year-over-year comparison resulted from acquisitions.

Average loans held for sale declined on a linked-quarter and year-over-year basis primarily due to lower production volumes at National City Mortgage (NCM). The linked-quarter decline in average loans held for sale were also affected by lower balances of First Franklin originated mortgage loans. Offsetting the decline in average loans held for sale on a year-over-year comparison were higher balances of First Franklin mortgage loans held for sale, reflective of new product offerings and expansion of the production footprint, and balances associated with commercial real estate loans originated by the Red Mortgage Capital and Capstone Realty business units acquired with Provident in July 2004. Refer to the noninterest income section of this Financial Review for further discussion on NCM and First Franklin loan originations and sales.

The linked-quarter decline in the securities portfolio is attributable to sales and principal paydowns of mortgage-backed and asset-backed securities. The year-over-year increase is attributable to security portfolios obtained through acquisitions more than offsetting the effects of sales and principal paydowns.

The following table summarizes the period-end commercial, commercial construction, and commercial real estate portfolios by major industry and exposure to individual borrowers as of June 30, 2005.


						Average		Largest Loan
	Outstanding		% of			Loan Balance		to a Single
(Dollars in Millions)	Balance		Total			Per Obligor		Obligor

Real estate	$	13,109		31	%	$	.9	$	58
Consumer cyclical		6,803		16			1.0		89
Consumer noncyclical		5,377		12			.5		63
Industrial		5,173		12			1.1		40
Basic materials		3,429		8			1.5		39
Financial		4,053		9			1.5		51
Services		1,657		4			.4		100
Energy and utilities		755		2			1.1		38
Technology		351		1			2.5		30
Miscellaneous		2,128		5			.2		24

Total	$	42,835		100	%

Average Interest Bearing Liabilities and Funding

A summary of average interest bearing liabilities and funding follows:


	Three Months Ended						Six Months Ended
	June 30		March 31		June 30		June 30		June 30
(In Millions)	2005		2005		2004		2005		2004

Noninterest bearing deposits	$	18,434	$	18,136	$	17,756	$	18,286	$	16,707
Interest bearing core deposits		49,294		48,973		44,664		49,134		43,683

Total core deposits		67,728		67,109		62,420		67,420		60,390
Purchased deposits		12,894		14,413		10,248		13,650		8,813
Short-term borrowings		8,601		8,616		9,801		8,608		9,668
Long-term debt		34,364		31,684		20,031		33,031		20,686

Total purchased funding		55,859		54,713		40,080		55,289		39,167
Stockholders’ equity		12,752		12,779		10,370		12,765		10,014

Total funding	$	136,339	$	134,601	$	112,870	$	135,474	$	109,571

Total interest bearing liabilities	$	105,153	$	103,686	$	84,744	$	104,423	$	82,850

Total core deposits, excluding mortgage escrow deposits	$	63,291	$	63,002	$	57,672	$	63,147	$	56,292

The percentage of each funding source to total funding follows:


	Three Months Ended									Six Months Ended
	June 30			March 31			June 30			June 30			June 30
	2005			2005			2004			2005			2004

Noninterest bearing deposits		13.5	%		13.5	%		15.7	%		13.5	%		15.3	%
Interest bearing core deposits		36.2			36.4			39.6			36.3			39.9

Total core deposits		49.7			49.9			55.3			49.8			55.2
Purchased deposits		9.5			10.7			9.1			10.1			8.0
Short-term borrowings		6.3			6.4			8.7			6.3			8.8
Long-term debt		25.2			23.5			17.7			24.4			18.9

Total purchased funding		41.0			40.6			35.5			40.8			35.7
Stockholders’ equity		9.3			9.5			9.2			9.4			9.1

Total		100.0	%		100.0	%		100.0	%		100.0	%		100.0	%

The year-over-year increases in average core and purchased deposit balances primarily resulted from deposits obtained through prior year acquisitions. The linked-quarter decline in purchased deposits and short-term borrowings resulted from changes in the purchased funding mix away from fed funds purchased and foreign deposits and into longer-term purchased funding vehicles. This change in funding mix drove the linked-quarter increase in long-term debt as favorable spreads in the capital markets led to new debt issuances of senior bank notes during the first half of 2005. Refer to Note 13 to the consolidated financial statements for further discussion on issuances of long-term debt.

Capital

The Corporation has consistently maintained regulatory capital ratios at or above the “well-capitalized” standards. For further detail on capital and capital ratios, see Notes 15 and 16 to the consolidated financial statements.

A summary of stockholders’ equity, equity as a percentage of assets, and book value per common share follows:


(Dollars in Millions)	June 30, 2005			December 31, 2004			June 30, 2004

Stockholders’ equity	$	13,002		$	12,804		$	10,335
Equity as a percentage of assets		9.03	%		9.19	%		8.83	%
Book value per common share	$	20.42		$	19.80		$	16.86

The following table summarizes share repurchase activity for the second quarter of 2005.

Total Number of

Maximum Number of

Shares Purchased Under

Shares that May Yet Be

Total Number

Average

Publicly Announced

Purchased Under the

of Shares

Price Paid

Share Repurchase

Period

Purchased^(a)

Per Share

Authorizations^(b)

Authorizations^(c)

April 1 to April 30, 2005

2,243,903

33.55

2,200,000

20,972,600

May 1 to May 31, 2005

1,098,297

33.95

1,072,800

19,899,800

June 1 to June 30, 2005

1,803,540

33.92

1,446,400

18,453,400

Total

5,145,740

33.77

4,719,200


^(a)		Includes shares repurchased under the December 21, 2004 share repurchase authorization and shares acquired under the Corporation’s Long-term Cash and Equity Compensation Plan (the Plan). Under the terms of the Plan, the Corporation accepts common shares from employees when they elect to surrender previously owned shares upon exercise of stock options or awards to cover the exercise price of the stock options or awards or to satisfy tax withholding obligations associated with the stock options or awards.

^(b)		Included in total number of shares purchased [column ^(a)].

^(c)		Shares available to be repurchased under the December 21, 2004 share repurchase authorization.

On December 21, 2004, the Corporation’s Board of Directors authorized the repurchase of up to 25 million shares of National City Common stock, subject to an aggregate purchase limit of $1.1 billion. Shares repurchased under this and all previous share repurchase programs were acquired on the open market and are held for reissue in connection with the Corporation’s compensation plans and for general corporate purposes. The share repurchase program currently authorized by the Board of Directors has no date of expiration. During the second quarter and first half of 2005, 4.7 million and 18.6 million shares of common stock were repurchased, respectively, compared to 9.0 million and 11.2 million for the comparable periods of 2004. The Corporation’s businesses typically generate significant amounts of capital in excess of normal dividend and reinvestment requirements. Management intends to continue share repurchases over the rest of the year, subject to market conditions and applicable regulatory constraints.

National City declared and paid dividends per common share of $.35 during the second quarter of 2005, up three cents from the quarterly dividend per share declared and paid in the 2004 second quarter of $.32. The dividend payout ratio, representing dividends per share divided by earnings per share, was 36.08% and 38.55% for the second quarters of 2005 and 2004, respectively. The dividend payout ratio is continually reviewed by management and the Board of Directors, and the current intention is to pay out approximately 45% of earnings in dividends over time. On July 1, 2005, the Board of Directors approved a two cent increase in the third quarter dividend to $.37 per common share.

At June 30, 2005, the Corporation’s market capitalization was $21.7 billion. National City common stock is traded on the New York Stock Exchange under the symbol “NCC.” Historical stock price information is presented in the following table.


	2005				2004
	Second		First		Fourth		Third		Second
NYSE: NCC	Quarter		Quarter		Quarter		Quarter		Quarter

High	$	35.30	$	37.75	$	39.66	$	39.35	$	36.10
Low		32.08		32.85		36.07		34.35		32.60
Close		34.12		33.50		37.55		38.62		35.01

RISK MANAGEMENT

National City management, with the oversight of the Board of Directors, has in place enterprise-wide structures, processes, and controls for monitoring and mitigating risk. The following discussion addresses the three major risks facing National City: credit, market, and liquidity.

Credit Risk

The Corporation’s lending activities are subject to varying degrees of credit risk. Credit risk is mitigated through portfolio diversification, exposure limits to any single industry or customer, collateral protection, credit risk transfer strategies, and standard lending policies and underwriting criteria. Note 1 to the consolidated financial statements describes the accounting policies related to nonperforming loans and charge-offs and describes the methodologies used to develop the allowance for loan losses and lending-related commitments. The Corporation’s policies governing nonperforming loans and charge-offs are consistent with regulatory standards.

During May 2005, the Corporation executed a credit risk transfer agreement on $5 billion of nonconforming (First Franklin) mortgage loans. In the event that cumulative net credit losses on these loans exceed a defined threshold, the counterparty to this arrangement would bear the risk of additional losses. Based upon current estimates, this protection would engage if cumulative net credit losses on this portfolio exceed approximately $180 million, up to a maximum of approximately $460 million. As of June 30, 2005, this transaction reduced risk-weighted assets by $1.0 billion. As a result, the Corporation’s regulatory capital requirement was reduced by $100 million and its Tier I and total risk-based capital ratios improved by 6 and 9 basis points, respectively.

During the first half of 2005, the most significant factor affecting the level of loan loss provision was the continued decrease in net charge-offs. Commercial credit quality continues to improve and consumer credit quality has been stable. There are no particular industry or geographic concentrations in nonperforming or delinquent loans or net charge-offs.

The following tables provide information and statistics on the overall quality of the loan portfolio.

Net Charge-offs:


	Three Months Ended							Six Months Ended
	June 30		March 31		June 30			June 30		June 30
(In Millions)	2005		2004		2004			2005		2004

Commercial	$	6	$	11	$	(6	)	$	17	$	10
Commercial construction		—		2		—			2		—
Real estate — commercial		6		2		3			8		2
Real estate — residential		17		25		20			42		38
Home equity lines of credit		6		5		4			11		8
Credit card and other unsecured lines of credit		26		26		25			52		54
Other consumer		11		16		16			27		32

Total net charge-offs	$	72	$	87	$	62		$	159	$	144

Annualized net charge-offs as a percentage of average loans by portfolio type follow:


	Three Months Ended									Six Months Ended
	June 30			March 31			June 30			June 30			June 30
	2005			2005			2004			2005			2004

Commercial		.10	%		.18	%		(.11	)%		.13	%		.11	%
Commercial construction		.06			.26			(.07	)		.15			(.04	)
Real estate — commercial		.19			.08			.16			.13			.05
Real estate — residential		.20			.34			.29			.27			.28
Home equity lines of credit		.11			.11			.13			.11			.13
Credit card and other unsecured lines of credit		4.64			4.48			4.66			4.56			4.87
Other consumer		.54			.76			.80			.65			.85

Total net charge-offs to average portfolio loans (annualized)		.27	%		.35	%		.30	%		.31	%		.36	%

On a linked quarter basis, the improvement in net charge-offs reflects lower losses in commercial, residential real estate, and other consumer loans, partially offset by higher net charge-offs of commercial real estate and credit card and other unsecured lines of credit. The increase in commercial real estate was not specific to any particular geographic area or property type. The increase in credit card and other unsecured lines of credit net charge-offs was due to higher losses associated with the seasoning of this portfolio, higher levels of consumer bankruptcies, and an increase in minimum payment requirements.

On a year-over-year basis, annualized net charge-offs for the second quarter of 2005 declined as a percentage of average portfolio loans. This improvement is most notable in residential real estate and other consumer loans. Higher charge-off rates in the commercial and commercial construction portfolios were due to net recoveries recognized in the second quarter of 2004 which did not recur in 2005.

Nonperforming Assets:


	June 30			December 31			June 30
(Dollars in Millions)	2005			2004			2004

Commercial	$	142		$	161		$	164
Commercial construction		28			12			2
Real estate — commercial		118			102			89
Real estate — residential		183			194			184

Total nonperforming loans		471			469			439
Other real estate owned (OREO)		91			89			95
Mortgage loans held for sale and other		10			5			10

Total nonperforming assets	$	572		$	563		$	544

Nonperforming assets as a percentage of:
Period-end portfolio loans and other nonperforming assets		.54	%		.56	%		.64	%
Period-end total assets		.40			.40			.46

Detail of loans 90 days past due accruing interest follows:


	June 30		December 31		June 30
(In Millions)	2005		2004		2004

Commercial	$	51	$	44	$	39
Commercial construction		10		12		3
Real estate – commercial		32		29		51
Real estate – residential		402		467		383
Home equity lines of credit		11		10		7
Credit card and other unsecured lines of credit		22		21		22
Other consumer		13		13		10
Mortgage loans held for sale and other		4		25		35

Total loans 90 days past due accruing interest	$	545	$	621	$	550

At June 30, 2005, nonperforming assets, expressed as a percentage of period-end portfolio loans and other nonperforming assets, were down compared to December 31, 2004 and June 30, 2004. The decline in commercial and residential real estate nonperforming loans reflects continued strong credit quality in these portfolios. Commercial construction and commercial real estate nonperforming loans increased in comparison to prior periods mainly due to a small number of multi-family projects.

Residential real estate loans and mortgage loans held for sale 90 days past due but still accruing interest decreased due to improved collections and the sale of $34 million of delinquent loans in 2005. Mortgage loans held for sale 90 days past due also declined in the first half of 2005, more than offsetting small increases in delinquent commercial and commercial real estate. Compared to June 30, 2004, delinquent loans were fairly stable despite an increase in the loan portfolio.

Allowance for Credit Losses and Allowance for Losses on Lending-Related Commitments: To provide for the risk of loss inherent in extending credit, National City maintains an allowance for loan losses and an allowance for losses on lending-related commitments. The determination of the allowance is based upon the size and current risk characteristics of the loan portfolio and includes an assessment of individual problem loans, actual loss experience, current economic events in specific industries and geographical areas, and other pertinent factors, including general economic conditions, unemployment levels, and regulatory guidance.

In the fourth quarter of 2004, the allowance for losses on lending-related commitments was reclassified from the allowance for loan losses to other liabilities. Previously reported periods were restated to conform to the current presentation. The reclassifications had no effect on the provision for credit losses, which continues to be comprised of the sum of the provision for loan losses and the provision for losses on lending-related commitments, nor on net income or stockholders’ equity. The allowance for losses on lending-related commitments is computed using a methodology similar to that used to determine the allowance for loan losses, modified to take into account the probability of drawdown on the commitment.

The provision for credit losses was $26 million, $70 million and $61 million in the second quarter of 2005, first quarter of 2005 and second quarter of 2004, respectively. For the first half of 2005, the provision for credit losses was $96 million down from $144 million in the first half of 2004. The decrease in the provision compared to the preceding periods reflects improvement in the underlying quality of the portfolios evidenced by lower delinquencies and net charge-offs.

The allowance for loan losses as a percentage of portfolio loans was 1.06%, 1.19%, and 1.22% as of June 30, 2005, December 31, 2004, and June 30, 2004, respectively. An allocation of the allowance for loan losses and allowance for losses on lending-related commitments by portfolio type is shown below. In the fourth quarter of 2004, the Corporation refined its methodology for determining certain elements of the allowance for loan losses. This refinement resulted in allocation of the entire allowance to the specific loan portfolios. As a result, the allocation of the allowance as of June 30, 2004 is not directly comparable to the current presentation. In addition to the refinement of the allocation, all loan categories were affected on a year-over-year comparison by portfolio loan growth and acquisitions.


	June 30		December 31		June 30
(In Millions)	2005		2004		2004

Allowance for loan losses:
Commercial	$	525	$	572	$	306
Commercial construction and real estate – commercial		136		146		62
Real estate — residential		176		185		117
Home equity lines of credit and other consumer loans		131		127		99
Credit card and other unsecured lines of credit		157		158		125
Unallocated		—		—		319

Total	$	1,125	$	1,188	$	1,028

Allowance for losses on lending-related commitments:
Commercial	$	100	$	100	$	117

Market Risk

Market risk is the risk of loss arising from adverse changes in the fair value of financial instruments due to changes in interest rates, currency exchange rates, or equity prices. Interest rate risk is National City’s primary market risk and results from timing differences in the repricing of assets and liabilities, changes in relationships between rate indices, and the potential exercise of explicit or embedded options. The Asset/Liability Management Committee (ALCO) meets monthly and is responsible for reviewing the interest-rate-sensitivity position and establishing policies to monitor and limit exposure to interest rate risk. The guidelines established by ALCO are reviewed by the Risk and Public Policy Committee of the Corporation’s Board of Directors. The Corporation is also exposed to equity price risk through its bank stock fund, an internally managed portfolio of bank and thrift common stock investments. As of June 30, 2005, this portfolio had a cost basis and fair value of $247 million and $261 million, respectively. Price risk in the bank stock fund is mitigated by limiting the amount invested in any one company. The Corporation does not have any material foreign currency exchange rate risk exposure.

Asset/Liability Management: The primary goal of asset/liability management is to maximize the net present value of future cash flows and net interest income within authorized risk limits. Interest rate risk is monitored primarily through market value modeling and secondarily through earnings simulation. Both measures are highly assumption-dependent and change regularly as the balance

sheet and business mix evolve; however, taken together they represent a reasonably comprehensive view of the magnitude of interest rate risk, the distribution of risk along the yield curve, the level of risk through time, and the amount of exposure to changes in certain interest rate relationships. The key assumptions employed by these measures are analyzed regularly and reviewed by ALCO.

Market Value Modeling: The Market Value of Equity (MVE) is defined as the discounted present value of net cash flows from all assets, liabilities, and off-balance sheet arrangements, other than MSRs and associated hedges. Market risk associated with MSRs is hedged through the use of derivative instruments. Refer to Note 11 to the consolidated financial statements for further details on managing market risk for MSRs. Unlike the earnings simulation model described below, MVE analysis has no time horizon limitations. In addition, MVE analysis is performed as of a single point in time and does not include estimates of future business volumes. As with earnings simulations, assumptions driving timing and magnitude of cash flows are critical inputs to the model. Particularly important are assumptions driving loan and security prepayments and noncontractual deposit balance and rate movements.

The sensitivity of MVE to changes in interest rates is an indication of the longer-term interest rate risk embedded in the balance sheet. A primary measure of the sensitivity of MVE to movements in rates is defined as the Duration of Equity (DOE). DOE represents the estimated percentage change in MVE for a 1% instantaneous, parallel shift in the yield curve. Generally, the larger the absolute value of DOE the more sensitive the value of the balance sheet is to movements in rates. A positive DOE indicates the MVE should increase as rates fall, or decrease as rates rise. A negative DOE indicates that MVE should increase as rates rise, or decrease as rates fall. Due to the embedded options in the balance sheet, DOE is not constant and can shift with movements in the level or shape of the yield curve. ALCO has set limits on the maximum and minimum acceptable DOE at +3.0% and -1.0%, respectively, as measured between +/-150 basis point instantaneous, parallel shifts in the yield curve.

The most recent market value model prepared for the July 2005 ALCO meeting estimated the current DOE at +0.1%. While the current DOE is below management’s long-term target of +1.0%, it is consistent with management’s current view of the interest rate outlook. DOE would rise to +1.1% given a parallel shift of the yield curve up 150 basis points and would be within the maximum constraint of +3.0%. DOE would fall to -1.2% given a parallel shift of the yield curve down 150 basis points. Although this result would be below the minimum constraint of -1.0%, management believes that a sustained 150 basis point fall in rates from current rate levels is unlikely.

Earnings Simulation Modeling: The earnings simulation model projects changes in net income caused by the effect of changes in interest rates on net interest income. The model requires management to make assumptions about how the balance sheet is likely to evolve through time in different interest rate environments. Loan and deposit growth rate assumptions are derived from historical analysis and management’s outlook, as are the assumptions used to project yields and rates for new loans and deposits. Mortgage loan prepayment models are developed from industry median estimates of prepayment speeds in conjunction with the historical prepayment performance of the Corporation’s own loans. Noncontractual deposit growth rates and pricing are modeled on historical patterns.

Net interest income is affected by changes in the absolute level of interest rates and by changes in the shape of the yield curve. In general, a flattening of the yield curve would result in a decline in earnings due to the compression of earning asset yields and funding rates, while a steepening would result in increased earnings as investment margins widen. The earnings simulations are also affected by changes in spread relationships between certain rate indices, such as the prime rate and the London Interbank Offering Rate (LIBOR).

Market implied forward rates over the next 12 months are used as the base rate scenario in the earnings simulation model. High and low rate scenarios are also modeled and consist of statistically determined two-standard deviation moves above and below market implied forward rates over the next 12 months. These rate scenarios are non-parallel in nature and result in short and long-term rates moving in different magnitudes. Resulting net incomes from the base, high, and low scenarios are compared and the percentage change from base net income is limited by ALCO policy to -4.0%.

The most recent earnings simulation model prepared for the July 2005 ALCO meeting projects net income would be .6% lower than base net income if rates were two standard deviations higher than the implied forward curve over the next 12 months. The model also projects a decrease in net income of 2.3% if rates were two standard deviations below the implied forward curve over the same period. Both of the earning simulation projections in net income were within the ALCO guideline of -4.0%.

The earnings simulation model excludes the potential effects on fee income and noninterest expense associated with changes in interest rates. Mortgage banking revenue in particular, which is generated from originating, selling, and servicing residential mortgage loans, is highly sensitive to changes in interest rates due to the direct effect changes in interest rates have on loan demand and the value of MSRs. In general, low or declining interest rates typically lead to increased origination and sales income but potentially lower servicing-related income due to the impact of higher loan prepayments on the value of MSRs. Conversely, high or rising interest rates typically reduce mortgage loan demand and hence origination and sales income while servicing-related income may rise due to lower prepayments. In addition, net interest income earned on loans held for sale increases when the yield curve steepens and decreases when the yield curve flattens. Risk related to mortgage banking activities is also monitored by ALCO.

At the end of 2004, the interest rate risk position, as presented in the 2004 Form 10-K, was slightly asset sensitive, meaning net income should increase as rates rise and decrease as rates fall, other things being equal. During the first half of 2005, the Corporation’s

interest rate risk position was asset sensitive from a DOE perspective and slightly liability sensitive from an earnings simulation perspective.

Interest Rate Risk Management: Financial instruments used to manage interest rate risk include investment securities and interest rate derivatives, which include interest rate swaps, interest rate caps and floors, interest rate forwards, and exchange-traded futures and options contracts. Interest rate derivatives have characteristics similar to securities but possess the advantages of customization of the risk-reward profile of the instrument, minimization of balance sheet leverage, and improvement of the liquidity position. Further discussion of the use of and the accounting for derivative instruments is included in Notes 1 and 22 to the consolidated financial statements.

Liquidity Risk

Liquidity risk arises from the possibility the Corporation may not be able to satisfy current or future financial commitments, or may become unduly reliant on alternative funding sources. The objective of liquidity risk management is to ensure that the cash flow requirements of depositors and borrowers, as well as the operating cash needs of the Corporation, are met, taking into account all on- and off-balance sheet funding demands. Liquidity risk management also includes ensuring cash flow needs are met at a reasonable cost. The Corporation maintains a liquidity risk management policy which identifies the primary sources of liquidity, establishes procedures for monitoring and measuring liquidity, and establishes minimum liquidity requirements in compliance with regulatory guidance. The policy also includes a contingency funding plan to address liquidity needs in the event of an institution-specific or a systemic financial crisis. The liquidity position is continually monitored and reviewed by ALCO.

Funds are available from a number of sources, including the securities portfolio, the core deposit base, the capital markets, the Federal Home Loan Bank, the U.S. Treasury, and through the sale or securitization of various types of assets. Core deposits, which continue to be the most significant source of funding, comprised approximately 49% of funding at June 30, 2005, 50% of funding at December 31, 2004, and 54% of funding at June 30, 2004. The year-over-year decline in the core deposit funding source was affected by the mix of funding sources acquired through acquisitions and through the use of low-cost purchased funding to fund loan growth. Refer to the Financial Condition section of this Financial Review for further discussion on changes in funding sources. Asset securitization vehicles have also been used as a source of funding over the past several years. Further discussion of securitization activities is included in Note 5 to the consolidated financial statements.

At the holding company level, the Corporation uses cash to pay dividends to stockholders, repurchase common stock, make selected investments and acquisitions, and service debt. At June 30, 2005, the main sources of funding for the holding company include dividends and returns of investment from its subsidiaries, a line of credit with its bank subsidiaries, the commercial paper market, and access to the capital markets.

The primary source of funding for the holding company has been dividends and returns of investment from its bank and nonbank subsidiaries. As discussed in Note 15 to the consolidated financial statements, the Corporation’s bank subsidiaries are subject to regulation and, among other things, may be limited in their ability to pay dividends or otherwise transfer funds to the holding company. Accordingly, consolidated cash flows as presented in the consolidated statements of cash flows on page 6 may not represent cash immediately available to the holding company. During the first six months of 2005, the Corporation’s bank and nonbank subsidiaries declared and paid cash dividends totaling $786 million. During the first six months of 2005, the bank subsidiaries were granted regulatory approval to provide liquidity to the holding company in the form of returns of capital in the amount of $608 million. Additionally, during the first six months of 2005, returns of capital totaling $22 million were provided to the holding company by the nonbank subsidiaries.

Funds raised in the commercial paper market through the Corporation’s subsidiary, National City Credit Corporation, support the short-term cash needs of the holding company and nonbank subsidiaries. At June 30, 2005, December 31, 2004 and June 30, 2004, $662 million, $415 million and $612 million, respectively, of commercial paper borrowings were outstanding.

The holding company has a $500 million internal line of credit with its banking subsidiaries to provide additional liquidity support. There were no borrowings under this agreement at June 30, 2005, December 31, 2004 and June 30, 2004.

The Corporation also has in place a shelf registration with the Securities and Exchange Commission to allow for the sale, over time, of up to $1.5 billion in senior subordinated debt securities, preferred stock, depositary shares, and common stock issuable in connection with conversion of the aforementioned securities. During the first half of 2005, the holding company issued $700 million of senior notes under this shelf registration, leaving $800 million available for future issuance.

CONTRACTUAL OBLIGATIONS, COMMITMENTS, CONTINGENT LIABILITIES, AND OFF-BALANCE SHEET ARRANGEMENTS

The Corporation has various financial obligations, including contractual obligations and commitments that may require future cash payments.

Contractual Obligations: The following table presents, as of June 30, 2005, significant fixed and determinable contractual obligations by payment date. The payment amounts represent those amounts contractually due to the recipient and do not include unamortized premiums or discounts, hedge basis adjustments, fair value adjustments, or other similar carrying value adjustments. Further discussion of the nature of each obligation is included in the referenced note to the consolidated financial statements.


			Payments Due In
					One to		Three to		Over
	Note		One Year		Three		Five		Five
(In Millions)	Reference		or Less		Years		Years		Years		Total

Deposits without a stated maturity^(a)			$	58,102	$	—	$	—	$	—	$	58,102
Consumer and brokered certificates of deposits^(b)(c)				14,711		7,742		2,139		3,902		28,494
Federal funds borrowed and security repurchase agreements^(b)				8,219		—		—		—		8,219
Borrowed funds^(b)		12		1,356		—		—		—		1,356
Long-term debt^(b)(c)		13, 14		9,476		17,161		5,865		6,240		38,742
Operating leases				142		234		166		349		891
Purchase obligations				166		174		28		4		372


(a)		Excludes interest.

(b)		Includes interest on both fixed and variable rate obligations. The interest associated with variable rate obligations is based upon interest rates in effect at June 30, 2005. The contractual amounts to be paid on variable rate obligations are affected by changes in market interest rates. Future changes in market interest rates could materially affect the contractual amounts to be paid.

(c)		Excludes unamortized premiums or discounts, hedge basis adjustments, fair value adjustments, or other similar carrying value adjustments.

The operating lease obligations represent short and long-term lease and rental payments for facilities, certain software, and data processing and other equipment. Purchase obligations represent obligations under agreements to purchase goods or services that are enforceable and legally binding and that specify all significant terms, including: fixed or minimum quantities to be purchased; fixed, minimum or variable price provisions; and the approximate timing of the transaction. The purchase obligation amounts presented above primarily relate to certain contractual payments for services provided for information technology, data processing, advertising, and the outsourcing of certain operational activities.

The Corporation also has obligations under its postretirement plan as described in Note 21 to the consolidated financial statements. The postretirement benefit payments represent actuarially determined future benefit payments to eligible plan participants. The Corporation reserves the right to terminate the postretirement benefit plan at any time. The Corporation did not have any commitments or obligations to the defined benefit pension plan at June 30, 2005, due to the funded status of the plan.

The Corporation also enters into derivative contracts under which it either receives cash from or pays cash to counterparties depending on changes in interest rates. Derivative contracts are carried at fair value on the consolidated balance sheet with the fair value representing the net present value of expected future cash receipts or payments based on market interest rates as of the balance sheet date. The fair value of the contracts change daily as market interest rates change. Certain contracts, such as interest rate futures, are cash settled daily, while others, such as interest rate swaps, involve monthly cash settlement. Because the derivative liabilities recorded on the balance sheet at June 30, 2005 do not represent the amounts that may ultimately be paid under these contracts, these liabilities are not included in the table of contractual obligations presented above. Further discussion of derivative instruments is included in Notes 1 and 22 to the consolidated financial statements.

Commitments: The following table details the amounts and expected maturities of significant commitments as of June 30, 2005. Further discussion of these commitments is included in Note 19 to the consolidated financial statements.


	One Year		One to		Three to		Over
(In Millions)	or Less		Three Years		Five Years		Five Years		Total

Commitments to extend credit:
Commercial	$	9,928	$	5,428	$	5,525	$	273	$	21,154
Residential real estate		15,232		—		—		—		15,232
Revolving home equity and credit card lines		33,119		6		2		—		33,127
Other		391		—		—		—		391
Standby letters of credit		2,335		1,276		928		75		4,614
Commercial letters of credit		346		2		9		—		357
Net commitments to sell mortgage loans and mortgage- backed securities		8,632		—		—		—		8,632
Net commitments to sell commercial real estate loans		149		62		4		—		215
Commitments to fund principal investments		44		42		51		160		297
Commitments to fund civic and community investments		213		67		35		29		344

Commitments to extend credit, including loan commitments, standby letters of credit, and commercial letters of credit do not necessarily represent future cash requirements, in that these commitments often expire without being drawn upon.

The commitments to fund principal investments primarily relate to indirect investments in various private equity funds managed by third-party general and limited partners. These estimated commitments were based primarily on the expiration of each fund’s investment period at June 30, 2005. The timing of these payments could change due to extensions in the investment periods of the funds or by the rate the commitments are invested, both of which are determined by either the general and/or limited partners of the funds.

The commitments to fund civic and community investments pertain to the construction and development of properties for low-income housing, small business real estate, and historic tax credit projects. The timing and amounts of these commitments are projected based upon the financing arrangements provided in each project’s partnership or operating agreement, and could change due to variances in the construction schedule, project revisions, or the cancellation of the project.

Contingent Liabilities: The Corporation may also incur liabilities under certain contractual agreements contingent upon the occurrence of certain events. A discussion of significant contractual arrangements under which National City may be held contingently liable is included in Note 19 to the consolidated financial statements.

Off-Balance Sheet Arrangements: Significant off-balance sheet arrangements include the use of special-purpose entities, generally securitization trusts, to diversify its funding sources. During the past several years, National City has sold credit card receivables and automobile loans to securitization trusts which are considered qualifying special-purpose entities and, accordingly, are not included in the consolidated balance sheet. In addition, the Corporation acquired home equity securitizations as part of the acquisition of Provident. The Corporation continues to service the loans sold to the trusts, for which it receives a servicing fee, and also has certain retained interests in the assets of the trusts. During the second quarter of 2005, the revolving period for the credit card securitization Series 2000-1 ended resulting in an increase in the Corporation’s on-balance-sheet credit card receivables of $414 million at June 30, 2005. On-balance-sheet receivable balances are expected to increase to $600 million prior to maturity of the securitization in August 2005. Further discussion on the accounting for securitizations is included in Note 1 to the consolidated financial statements and detail regarding securitization transactions and retained interests is included in Note 5.

The Corporation also has obligations arising from contractual arrangements that meet the criteria of Financial Accounting Standards Board Interpretation No. 45. These obligations are discussed in Note 19.

APPLICATION OF CRITICAL ACCOUNTING POLICIES

National City’s consolidated financial statements are prepared in accordance with U.S. generally accepted accounting principles and follow general practices within the industries in which it operates. Application of these principles requires management to make estimates or judgments that affect the amounts reported in the financial statements and accompanying notes. These estimates are based on information available as of the date of the financial statements; accordingly, as this information changes, the financial statements could reflect different estimates or judgments. Certain policies inherently have a greater reliance on the use of estimates, and as such have a greater possibility of producing results that could be materially different than originally reported. Estimates or judgments are necessary when assets and liabilities are required to be recorded at fair value, when a decline in the value of an asset not carried on the financial statements at fair value warrants an impairment write-down or valuation reserve to be established, or when an asset or liability needs to be recorded contingent upon a future event. Carrying assets and liabilities at fair value inherently results in more financial statement volatility. The fair values and the information used to record valuation adjustments for certain assets and liabilities

are based either on quoted market prices or are provided by other third-party sources, when available. When third-party information is not available, valuation adjustments are estimated in good faith by management primarily through the use of internal cash flow modeling techniques.

The most significant accounting policies followed by the Corporation are presented in Note 1 to the consolidated financial statements. These policies, along with the disclosures presented in the other financial statement notes and in this financial review, provide information on how significant assets and liabilities are valued in the financial statements and how those values are determined. Management views critical accounting policies to be those which are highly dependent on subjective or complex judgments, estimates and assumptions, and where changes in those estimates and assumptions could have a significant impact on the financial statements. Management currently views the determination of the allowance for loan losses and allowance for losses on lending-related commitments, the valuation of mortgage servicing rights, the valuation of derivative instruments, and income taxes to be critical accounting policies.

Allowance for Loan Losses and Allowance for Losses on Lending-Related Commitments

The Corporation maintains an allowance for losses inherent in the loan and lease portfolio and an allowance for losses on lending-related commitments for losses inherent in commitments to lend. The allowance for loan losses is presented as a reserve against loans and leases while the allowance for losses on lending-related commitments is presented in other liabilities on the balance sheet. When a commitment is funded, any credit loss reserve previously recognized within the allowance for losses on lending-related commitments is reversed and established in the allowance for loan losses. Loan losses are charged off against the allowance for loan losses, while recoveries of amounts previously charged off are credited to the allowance for loan losses. A provision for credit losses is charged to operations based on management’s periodic evaluation of adequacy of the allowance. The provision for credit losses provides for probable losses on loans, leases and lending-related commitments.

Estimating the amount of the allowance for loan losses and allowance for losses on lending-related commitments requires significant judgment and the use of estimates related to the amount and timing of expected future cash flows on impaired loans, estimated losses on pools of homogeneous loans based on historical loss experience, and consideration of current economic trends and conditions, all of which may be susceptible to significant change.

Management’s assessment of the adequacy of the allowance for loan losses considers individual impaired loans, pools of homogeneous loans with similar risk characteristics and other environmental risk factors. The allowance established for individual impaired loans reflects expected losses resulting from analyses developed through specific credit allocations for individual loans. The specific credit allocations are based on regular analyses of all loans over a fixed dollar amount where the internal credit rating is at or below a predetermined classification. These analyses involve a high degree of judgment in estimating the amount of loss associated with specific impaired loans, including estimating the amount and timing of future cash flows, current market value of the loan, and collateral values.

Pools of homogeneous loans with similar risk characteristics are also assessed for probable losses. The loss migration analysis is performed quarterly and loss factors are updated regularly based on actual experience. The analysis also examines historical loss experience and the related internal gradings of loans charged off. The loss migration analysis considers inherent but undetected losses within the portfolio. These losses may arise due to uncertainties in economic conditions, delays in obtaining information, including unfavorable information about a borrower’s financial condition, the difficulty in identifying triggering events that correlate perfectly to subsequent loss rates, and risk factors that have not yet manifested themselves in loss allocation factors. This component of the allowance also considers inherent imprecision in loan loss migration models. The Corporation has grown through acquisition, expanded the geographic footprint in which it operates, and changed its portfolio mix in recent years. As a result, historical loss experience data used to establish loss estimates may not precisely correspond to the current portfolio. Also, loss data representing a complete economic cycle is not available for all sectors. Uncertainty surrounding the strength and timing of economic cycles also affects estimates of loss. The historical loss experience used in the migration analysis may not be representative of actual unrealized losses inherent in the portfolio.

Management also evaluates the impact of environmental factors which pose additional risks that may not adequately be addressed in the analyses described above. Such environmental factors could include: levels of, and trends in, delinquencies and impaired loans, charge-offs and recoveries; trends in volume and terms of loans; effects of any changes in lending policies and procedures including those for underwriting, collection, charge-off, and recovery; experience, ability, and depth of lending management and staff; national and local economic trends and conditions; industry and geographic conditions; concentrations of credit such as, but not limited to, local industries, their employees, suppliers; or any other common risk factor that might affect loss experience across one or more components of the portfolio. The determination of this component of the allowance requires considerable management judgment.

The allowance for losses on lending-related commitments relates primarily to unfunded commercial lending-related commitments and letters of credit. The allowance is computed using a methodology similar to that used in determining the allowance for loan losses, modified to take into account the probability of funding these commitments.

There are many factors affecting the allowance for loan losses and allowance for losses on lending-related commitments; some are quantitative while others require qualitative judgment. Although management believes its process for determining the allowance adequately considers all of the potential factors that could potentially result in credit losses, the process includes subjective elements and may be susceptible to significant change. To the extent actual outcomes differ from management estimates, additional provision for credit losses could be required that could adversely affect earnings or financial position in future periods. The allowance for loan losses and allowance for losses on lending-related commitments are assigned to the Corporation’s business lines based on the nature of the loan portfolio in each business line. The Wholesale Banking, Consumer and Small Business Financial Services, and National Consumer Finance business lines have been assigned the majority of the allowance and accordingly would be the business lines most affected by actual outcomes differing from management estimates.

The Credit Risk section of this financial review includes a discussion of the factors driving changes in the allowance for loan losses during the current period.

Mortgage Servicing Rights (MSRs)

Servicing residential mortgage loans for third-party investors represents a significant business activity of the National City Mortgage (NCM) line of business. As of June 30, 2005, NCM’s MSRs totaled $1.4 billion. MSRs do not trade in an active open market with readily observable market prices. Although sales of MSRs do occur, the exact terms and conditions may not be readily available. As a result, MSRs are established and valued using discounted cash flow modeling techniques which require management to make estimates regarding future net servicing cash flows, taking into consideration actual and expected mortgage loan prepayment rates, discount rates, servicing costs, and numerous other factors. The expected and actual rates of mortgage loan prepayments are the most significant factors driving the value of MSRs. Increases in mortgage loan prepayments reduce estimated future net servicing cash flows because the life of the underlying loan is reduced. In determining the fair value of the MSRs, mortgage interest rates, which are used to determine prepayment rates, and discount rates are held constant over the estimated life of the portfolio. Expected mortgage loan prepayment rates are derived from a third-party model and adjusted to reflect National City’s actual prepayment experience. MSRs are carried at the lower of the initial capitalized amount, net of accumulated amortization and hedge accounting adjustments, or fair value. Certain MSRs hedged with derivative instruments as part of SFAS 133 hedge relationships may be adjusted above their initial carrying value. Management compares its fair value estimates and assumptions to observable market data where available and to recent market activity and believes that the fair values and related assumptions are reasonable and comparable to those used by other market participants.

Note 11 to the consolidated financial statements includes a sensitivity analysis showing the effects immediate 10% and 20% adverse changes in the mortgage loan prepayment and discount rate assumptions used to estimate the fair value of MSRs would have on the fair value. Management mitigates risk associated with declines in the estimated fair value of its MSRs due to increases in mortgage loan prepayments through the use of derivative instruments that are expected to increase in value when interest rates decline. The effects of recognized changes in the values of the MSRs and the related derivative instruments are included in mortgage banking revenue on the income statement. Note 11 to the financial statements includes discussion of the impacts of valuation changes on current period income.

Derivative Instruments

The Corporation regularly uses derivative instruments as part of its risk management activities to protect the value of certain assets and liabilities and future cash flows against adverse price or interest rate movements. As of June 30, 2005, the recorded fair values of derivative assets and liabilities were $983 million and $643 million, respectively. All derivative instruments are carried at fair value on the balance sheet. The valuation of derivative instruments is considered critical because most are valued using discounted cash flow modeling techniques in the absence of market value quotes. Therefore, management must make estimates regarding the amount and timing of future cash flows, which are susceptible to significant change in future periods based on changes in interest rates. The cash flow projection models are acquired from third parties and the assumptions used by management are based on yield curves, forward yield curves, and implied volatilities observable in the cash and derivatives market. The pricing models are also regularly validated by testing through comparison with other third parties.

Because the majority of the derivative instruments are used to protect the value of other assets and liabilities on the balance sheet, changes in the value of the derivatives instruments are typically offset by changes in the value of the assets and liabilities being hedged, although income statement volatility can still occur if the derivative instruments are not effective in hedging changes in the value of those assets and liabilities. Changes in the fair values of derivative instruments associated with mortgage banking activities are included in mortgage banking revenue on the consolidated income statement and affect the results of the National City Mortgage line of business. Changes in the fair values of other derivatives are included in other income on the income statement and are primarily generated from investment funding activities and are not allocated to the business lines. Notes 1 and 22 to the consolidated financial statements also provide further discussion on the accounting and use of derivative instruments.

Income Taxes

The Corporation is subject to the income tax laws of the U.S., its states and other jurisdictions where the Corporation conducts business. These laws are complex and subject to different interpretations by the taxpayer and the various taxing authorities. In determining the provision for income taxes, management must make judgments and estimates about the application of these inherently complex laws, related regulations and case law. In the process of preparing the Corporation’s tax returns, management attempts to make reasonable interpretations of the tax laws. These interpretations are subject to challenge by the tax authorities upon audit or to reinterpretation based on management’s ongoing assessment of facts and evolving case law.

On a quarterly basis, management assesses the reasonableness of its effective tax rate based upon its current best estimate of net income and the applicable taxes expected for the full year. Deferred tax assets and liabilities are reassessed on an annual basis, or sooner, if business events or circumstances warrant. Reserves for contingent tax liabilities are reviewed quarterly for adequacy based upon developments in tax law and the status of examinations or audits. In 2004, tax benefits of $67 million were recognized associated with the reduction of deferred taxes due to the favorable conclusion of tax examinations and the regular reassessment of certain tax exposures.

Any material effect on the financial statements related to these critical accounting areas is also discussed in this financial review.

RECENT ACCOUNTING PRONOUNCEMENTS AND DEVELOPMENTS

Note 2 to the consolidated financial statements discusses new accounting policies adopted by the Corporation during 2005 and the expected impact of accounting policies recently issued or proposed but not yet required to be adopted. To the extent the adoption of new accounting standards materially affects financial condition, results of operations, or liquidity, the impacts are discussed in the applicable section(s) of this financial review and notes to the consolidated financial statements.

FORWARD LOOKING STATEMENTS

This Quarterly Report contains forward-looking statements. Forward-looking statements provide current expectations or forecasts of future events and are not guarantees of future performance, nor should they be relied upon as representing management’s views as of any subsequent date. The forward-looking statements are based on management’s expectations and are subject to a number of risks and uncertainties. Although management believes that the expectations reflected in such forward-looking statements are reasonable, actual results may differ materially from those expressed or implied in such statements. Risks and uncertainties that could cause actual results to differ materially include, without limitation, the Corporation’s ability to effectively execute its business plans; changes in general economic and financial market conditions; changes in interest rates; changes in the competitive environment; continuing consolidation in the financial services industry; new litigation or changes in existing litigation; losses, customer bankruptcy, claims and assessments; changes in banking regulations or other regulatory or legislative requirements affecting the Corporation’s business; and changes in accounting policies or procedures as may be required by the Financial Accounting Standards Board or other regulatory agencies. Additional information concerning factors that could cause actual results to differ materially from those expressed or implied in forward-looking statements is available in the Corporation’s annual report on Form 10-K for the year ended December 31, 2004, and subsequent filings with the United States Securities and Exchange Commission (SEC). Copies of these filings are available at no cost on the SEC’s Web site at www.sec.gov or on the Corporation’s Web site at www.NationalCity.com. Management may elect to update forward-looking statements at some future point; however, it specifically disclaims any obligation to do so.

CONSOLIDATED AVERAGE BALANCE SHEETS


	Three Months Ended						Six Months Ended
	June 30			June 30			June 30			June 30
(In Millions)	2005			2004			2005			2004

Assets
Earning Assets:
Portfolio loans:
Commercial	$	27,151		$	19,531		$	26,356		$	19,197
Commercial construction		2,999			2,270			2,954			2,257
Real estate — commercial		11,782			10,821			11,954			10,320
Real estate — residential		31,669			27,981			31,095			27,529
Home equity lines of credit		20,791			12,819			20,089			12,108
Credit card and other unsecured lines of credit		2,304			2,232			2,327			2,257
Other consumer		8,053			7,209			8,181			7,306

Total portfolio loans		104,749			82,863			102,956			80,974
Loans held for sale or securitization:
Commercial		13			21			15			17
Commercial real estate		279			—			295			—
Mortgage		9,746			13,889			10,458			12,835
Credit card		71			—			35			—
Automobile		—			—			—			265

Total loans held for sale or securitization		10,109			13,910			10,803			13,117
Securities available for sale, at cost		8,291			6,646			8,501			6,591
Federal funds sold and security resale agreements		218			530			239			395
Other investments		1,165			618			1,128			586

Total earning assets		124,532			104,567			123,627			101,663
Allowance for loan losses		(1,178	)		(1,027	)		(1,177	)		(1,021	)
Fair value appreciation of securities available for sale		79			138			112			179
Cash and demand balances due from banks		3,687			3,088			3,696			3,052
Properties and equipment		1,282			1,158			1,279			1,123
Equipment leased to others		915			37			961			40
Other real estate owned		91			93			91			96
Mortgage servicing rights		1,710			1,593			1,608			1,467
Goodwill		3,308			1,403			3,304			1,253
Other intangible assets		188			72			197			66
Derivative assets		295			573			324			678
Accrued income and other assets		4,605			4,253			4,927			4,143

Total Assets	$	139,514		$	115,948		$	138,949		$	112,739

Liabilities
Deposits:
Noninterest bearing	$	18,434		$	17,756		$	18,286		$	16,707
NOW and money market		28,726			28,614			28,988			27,970
Savings		2,425			2,576			2,478			2,472
Consumer time		18,143			13,474			17,668			13,241
Brokered retail CDs		4,843			531			4,591			515
Other		619			567			579			463
Foreign		7,432			9,150			8,480			7,835

Total deposits		80,622			72,668			81,070			69,203

Federal funds borrowed and security repurchase agreements		6,077			8,254			6,600			8,098
Borrowed funds		2,524			1,547			2,008			1,570
Long-term debt		34,364			20,031			33,031			20,686
Derivative liabilities		219			343			251			389
Accrued expenses and other liabilities		2,956			2,735			3,224			2,779

Total Liabilities		126,762			105,578			126,184			102,725

Total Stockholders’ Equity		12,752			10,370			12,765			10,014

Total Liabilities and Stockholders’ Equity	$	139,514		$	115,948		$	138,949		$	112,739

DAILY AVERAGE BALANCES/NET INTEREST INCOME/RATES


(Dollars in Millions)	Daily Average Balance
	2005						2004
	Second			First			Fourth			Third			Second
	Quarter			Quarter			Quarter			Quarter			Quarter

Assets
Earning Assets:
Loans^(a):
Commercial	$	27,164		$	25,569		$	25,189		$	24,845		$	19,552
Commercial construction		2,999			2,909			2,936			2,815			2,270
Real estate — commercial		12,061			12,439			12,324			12,321			10,821
Real estate — residential		41,415			41,689			41,709			41,111			41,870
Home equity lines of credit		20,791			19,381			18,082			16,247			12,819
Credit card and other unsecured lines of credit		2,375			2,351			2,350			2,281			2,232
Other consumer		8,053			8,308			7,919			7,565			7,209

Total loans		114,858			112,646			110,509			107,185			96,773
Securities available for sale, at cost:
Taxable		7,657			8,058			8,834			9,023			5,979
Tax-exempt		634			656			690			647			667

Total securities available for sale		8,291			8,714			9,524			9,670			6,646
Federal funds sold, security resale agreements and other investments		1,383			1,348			1,420			1,477			1,148

Total earning assets/total interest income/rates		124,532			122,708			121,453			118,332			104,567
Allowance for loan losses		(1,178	)		(1,175	)		(1,176	)		(1,181	)		(1,027	)
Fair value appreciation of securities available for sale		79			146			161			82			138
Nonearning assets		16,081			16,698			17,471			16,369			12,270

Total assets	$	139,514		$	138,377		$	137,909		$	133,602		$	115,948

Liabilities and stockholders’ equity
Interest bearing liabilities:
NOW and money market accounts	$	28,726		$	29,253		$	29,851		$	29,778		$	28,614
Savings accounts		2,425			2,531			2,706			2,679			2,576
Consumer time deposits		18,143			17,189			16,665			16,318			13,474
Other deposits		5,462			4,874			5,046			5,201			1,098
Foreign deposits		7,432			9,539			10,279			9,809			9,150
Federal funds borrowed		2,978			3,912			3,987			5,156			5,548
Security repurchase agreements		3,099			3,218			3,139			2,877			2,706
Borrowed funds		2,524			1,486			1,651			1,120			1,547
Long-term debt		34,364			31,684			28,928			25,744			20,031

Total interest bearing liabilities/ total interest expense/rates		105,153			103,686			102,252			98,682			84,744
Noninterest bearing deposits		18,434			18,136			18,883			18,731			17,756
Accrued expenses and other liabilities		3,175			3,776			3,927			3,830			3,078

Total liabilities		126,762			125,598			125,062			121,243			105,578
Total stockholders’ equity		12,752			12,779			12,847			12,359			10,370

Total liabilities and stockholders’ equity	$	139,514		$	138,377		$	137,909		$	133,602		$	115,948

Tax-equivalent net interest income

Interest spread
Contribution of noninterest bearing sources of funds

Net interest margin


^(a)		Includes loans held for sale or securitization


(Dollars in Millions)	Quarterly Interest
	2005				2004
	Second		First		Fourth		Third		Second
	Quarter		Quarter		Quarter		Quarter		Quarter

Assets
Earning Assets:
Loans^(a):
Commercial	$	385	$	330	$	309	$	273	$	179
Commercial construction		45		40		38		33		24
Real estate — commercial		188		183		181		173		151
Real estate — residential		660		643		663		664		656
Home equity lines of credit		306		267		222		169		138
Credit card and other unsecured lines of credit		57		52		62		46		45
Other consumer		126		129		126		124		115

Total loans		1,767		1,644		1,601		1,482		1,308
Securities available for sale, at cost:
Taxable		95		98		108		111		70
Tax-exempt		12		12		12		12		13

Total securities available for sale		107		110		120		123		83
Federal funds sold, security resale agreements and other investments		17		18		31		15		11

Total earning assets/total interest income/rates	$	1,891	$	1,772	$	1,752	$	1,620	$	1,402
Allowance for loan losses
Fair value appreciation of securities available for sale
Nonearning assets

Total assets

Liabilities and stockholders’ equity
Interest bearing liabilities:
NOW and money market accounts	$	112	$	93	$	77	$	61	$	57
Savings accounts		3		2		2		3		2
Consumer time deposits		150		133		124		114		117
Other deposits		41		30		25		19		4
Foreign deposits		51		55		47		34		22
Federal funds borrowed		22		25		21		20		16
Security repurchase agreements		15		13		10		5		4
Borrowed funds		15		6		5		4		3
Long-term debt		285		237		198		164		110

Total interest bearing liabilities/ total interest expense/rates	$	694	$	594	$	509	$	424	$	335
Noninterest bearing deposits
Accrued expenses and other liabilities

Total liabilities
Total stockholders’ equity

Total liabilities and stockholders’ equity

Tax-equivalent net interest income	$	1,197	$	1,178	$	1,243	$	1,196	$	1,067

Interest spread
Contribution of noninterest bearing sources of funds

Net interest margin


^(a)		Includes loans held for sale or securitization


	Average Annualized Rate
	2005						2004
	Second			First			Fourth			Third			Second
	Quarter			Quarter			Quarter			Quarter			Quarter

Assets
Earning Assets:
Loans^(a):
Commercial		5.69	%		5.22	%		4.90	%		4.36	%		3.69	%
Commercial construction		5.99			5.59			5.11			4.64			4.34
Real estate — commercial		6.25			5.98			5.84			5.58			5.61
Real estate — residential		6.36			6.17			6.36			6.47			6.26
Home equity lines of credit		5.88			5.51			4.92			4.16			4.29
Credit card and other unsecured lines of credit		9.74			8.90			10.37			8.16			8.02
Other consumer		6.28			6.28			6.35			6.51			6.43

Total loans		6.16			5.87			5.78			5.52			5.42
Securities available for sale, at cost:
Taxable		4.95			4.89			4.90			4.92			4.69
Tax-exempt		7.40			7.29			7.02			7.28			7.62

Total securities available for sale		5.14			5.07			5.06			5.08			4.98
Federal funds sold, security resale agreements and other investments		5.06			5.35			8.69			3.94			3.97

Total earning assets/total interest income/rates		6.08	%		5.81	%		5.76	%		5.46	%		5.37	%
Allowance for loan losses
Fair value appreciation of securities available for sale
Nonearning assets

Total assets

Liabilities and stockholders’ equity
Interest bearing liabilities:
NOW and money market accounts		1.57	%		1.28	%		1.03	%		.82	%		.80	%
Savings accounts		.41			.38			.37			.34			.35
Consumer time deposits		3.33			3.13			2.94			2.78			3.50
Other deposits		2.99			2.51			2.03			1.46			1.13
Foreign deposits		2.77			2.33			1.83			1.35			.98
Federal funds borrowed		2.98			2.55			2.11			1.56			1.15
Security repurchase agreements		2.00			1.65			1.20			.77			.56
Borrowed funds		2.30			1.77			1.30			1.35			.81
Long-term debt		3.32			3.03			2.72			2.54			2.21

Total interest bearing liabilities/ total interest expense/rates		2.65	%		2.32	%		1.98	%		1.71	%		1.59	%
Noninterest bearing deposits
Accrued expenses and other liabilities

Total liabilities
Total stockholders’ equity

Total liabilities and stockholders’ equity

Tax-equivalent net interest income

Interest spread		3.43	%		3.49	%		3.78	%		3.75	%		3.78	%
Contribution of noninterest bearing sources of funds		.42			.36			.31			.29			.31

Net interest margin		3.85	%		3.85	%		4.09	%		4.04	%		4.09	%


^(a)		Includes loans held for sale or securitization

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The disclosures contained in the Market Risk Management section of the Management Discussion and Analysis of Financial Condition and Results of Operations on pages 63-65 of this report are incorporated herein by reference.

ITEM 4. CONTROLS AND PROCEDURES

National City Corporation’s management is responsible for establishing and maintaining effective disclosure controls and procedures, as defined under Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934. As of June 30, 2005, an evaluation was performed under the supervision and with the participation of management, including the Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Corporation’s disclosure controls and procedures. Based on that evaluation, management concluded that disclosure controls and procedures as of June 30, 2005, were effective in ensuring material information required to be disclosed in this Quarterly Report on Form 10-Q was recorded, processed, summarized, and reported on a timely basis. Additionally, there were no changes in the Corporation’s internal control over financial reporting that occurred during the quarter ended June 30, 2005 that have materially affected, or are reasonably likely to materially affect, the Corporation’s internal control over financial reporting.

PART II – OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

National City and its subsidiaries are involved in a number of legal proceedings arising out of their businesses and regularly face various claims, including unasserted claims, which may ultimately result in litigation. Management believes that financial position, results of operations, and cash flows would not be materially affected by the outcome of any pending or threatened legal proceedings, commitments, or claims. For additional information on litigation, contingent liabilities, and guarantees, refer to Note 19 to the Consolidated Financial Statements.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

The share repurchase disclosures contained in the Financial Condition section of the Management Discussion and Analysis of Financial Condition and Results of Operations on page 60 of this report are incorporated herein by reference.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

On April 26, 2005 at the Annual Meeting of Stockholders of the Registrant, stockholders took the following actions:

Elected as directors all nominees designated in the proxy statement dated March 9, 2005 as follows:


	Number of Votes
	For		Withheld
J.E. Barfield		548,789,944		7,399,174
J.S. Broadhurst		549,302,771		6,886,347
C.M. Connor		549,462,753		6,726,365
D.A. Daberko		543,719,073		12,470,045
J.T. Gorman		548,774,361		7,414,757
B.P. Healy, M.D.		548,624,451		7,564,667
S.C. Lindner		547,966,232		8,222,886
P.A. Ormond		549,523,948		6,665,170
R.A. Paul		549,001,057		7,188,061
G.L. Shaheen		549,330,571		6,858,547
J.S. Thornton, Ph.D.		545,882,435		10,306,683
M. Weiss		544,465,747		11,723,371

Ratified the Audit Committee’s selection of Ernst & Young LLP as independent auditors for National City Corporation for 2005: 541,018,832 votes cast for, 10,372,692 votes cast against, and 4,797,594 votes abstained.

ITEM 5. OTHER INFORMATION

On August 2, 2005, National City Corporation’s Board of Directors approved the form of Restricted Stock Agreement, form of Incentive Stock Option Agreement and the form of Non-qualified Stock Option Agreement filed as exhibits 10.64, 10.66 and 10.67, respectively, to this Form 10-Q.

On August 3, 2005, the Corporation entered in a Severance Agreement, in the form of the agreement filed as exhibit 10.68 to this Form 10-Q, with Robert B. Crowl, Comptroller of the Corporation. The form of agreement provides for certain benefits for senior executives in the event of a change in control.

ITEM 6. EXHIBITS

Exhibit Index


Exhibit
Number		Exhibit Description
3.1		Amended and Restated Certificate of Incorporation of National City Corporation dated April 13, 1999 (filed as Exhibit 3.2 to Registrant’s Quarterly Report on Form 10-Q for the quarter and nine months ended September 30, 2000, and incorporated herein by reference).

3.2		National City Corporation First Restatement of By-laws adopted April 27, 1987 (as Amended through February 28, 2005) (filed as Exhibit 3 (ii) to Registrant’s Current Report on Form 8-K filed on February 28, 2005, and incorporated herein by reference).

3.3		Certificate of Designation Rights and Preferences of the Series D Non-voting Convertible Preferred Stock Without Par Value of National City Corporation (filed as Exhibit 3.3 to Registrant’s Annual Report on Form 10-K for the fiscal year ended December 31, 2004, and incorporated herein by reference).

4.1		Amended and restated Certificate of Incorporation of National City Corporation dated April 13, 1999 (filed as Exhibit 3.2 to Registrant’s Quarterly Report on Form 10-Q for the quarter and nine months ended September 30, 2000, and incorporated herein by reference) related to capital stock of National City Corporation.

4.2		National City Corporation First Restatement of By-laws adopted April 27, 1987 (as Amended through February 28, 2005)(filed as Exhibit 3 (ii) to Registrant’s Current Report on Form 8-K filed on February 28, 2005, and incorporated herein by reference) related to stockholder rights.

4.3		Certificate of Designation Rights and Preferences of the Series D Non-voting Convertible Preferred Stock Without Par Value of National City Corporation (filed as Exhibit 3.3 to Registrant’s Annual Report on Form 10-K for the fiscal year ended December 31, 2004, and incorporated herein by reference).

4.4		National City agrees to furnish upon request to the Commission a copy of each instrument defining the rights of holders of Senior and Subordinated debt of National City.

10.1		National City Corporation 1989 Stock Option Plan (filed as Exhibit 10.1 to Registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2003, and incorporated herein by reference).

10.2		National City Corporation’s 1993 Stock Option Plan (filed as Exhibit 10.5 to Registration Statement No. 33-49823 and incorporated herein by reference).

10.3		National City Corporation 150th Anniversary Stock Option Plan (filed as Exhibit 4 to Registrant’s Form S-8 Registration Statement No. 33-58815 dated April 25, 1995, and incorporated herein by reference).

10.4		National City Corporation Plan for Deferred Payment of Directors’ Fees, as Amended (filed as Exhibit 10.5 to Registration Statement No. 2-914334 and incorporated herein by reference).

10.5		National City Corporation Supplemental Executive Retirement Plan, as Amended and Restated July 1, 2002 (filed as Exhibit 10.7 to Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2002, and incorporated herein by reference).

10.6		National City Corporation Amended and Second Restated 1991 Restricted Stock Plan (filed as Exhibit 10.9 to Registration Statement No. 33-49823 and incorporated herein by reference).


Exhibit
Number		Exhibit Description
10.7		Form of grant made under National City Corporation 1991 Restricted Stock Plan in connection with National City Corporation Supplemental Executive Retirement Plan as Amended (filed as Exhibit 10.7 to Registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2003, and incorporated herein by reference).

10.8		Central Indiana Bancorp Option Plan effective March 15, 1991 (filed as Exhibit 10.8 to Registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2003, and incorporated herein by reference).

10.9		Central Indiana Bancorp 1993 Option Plan effective October 12, 1993 (filed as Exhibit 10.9 to Registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2003, and incorporated herein by reference).

10.10		Form of contracts with David A. Daberko, William E. MacDonald III, Jon L. Gorney, Jeffrey D. Kelly, David L. Zoeller, Thomas A. Richlovsky, James P. Gulick, John D. Gellhausen, Herbert R. Martens, Jr., Thomas W. Golonski, Stephen A. Stitle, James R. Bell III, Peter E. Raskind, Philip L. Rice, Timothy J. Lathe, J. Armando Ramirez, Paul G. Clark, Shelley J. Seifert, Ted M. Parker, Paul D. Geraghty, and Richard B. Payne, Jr. (filed as Exhibit 10.29 to Registrant’s Form S-4 Registration Statement No. 333-45609 dated February 4, 1998, and incorporated herein by reference).

10.11		Split Dollar Insurance Agreement effective January 1, 1994, between National City Corporation and certain key employees (filed as Exhibit 10.11 to Registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2003, and incorporated herein by reference).

10.12		Restated First of America Bank Corporation 1987 Stock Option Plan (filed as Exhibit 4.4 to Registrant’s Post-Effective Amendment No. 2 [on Form S-8] to Form S-4 Registration Statement No. 333-46571 dated March 19, 1998, and incorporated herein by reference).

10.13		Amended and Restated First of America Bank Corporation Stock Compensation Plan (filed as Exhibit 4.5 to Registrant’s Post-Effective Amendment No. 2 [on Form S-8] to Form S-4 Registration Statement No. 333-46571 dated March 19, 1998, and incorporated herein by reference).

10.14		First of America Bank Corporation Directors Stock Compensation Plan (filed as Exhibit 4.6 to Registrant’s Post-Effective Amendment No. 2 [on Form S-8] to Form S-4 Registration Statement No. 333-46571 dated March 19, 1998, and incorporated herein by reference).

10.15		National City Corporation 1997 Stock Option Plan as Amended and Restated effective October 22, 2001 (filed as Exhibit 10.17 to Registrant’s Annual Report on Form 10-K for the fiscal year ended December 31, 2001, and incorporated herein by reference).

10.16		National City Corporation 1997 Restricted Stock Plan as Amended and Restated effective October 31, 2001 (filed as Exhibit 10.18 to Registrant’s Annual Report on Form 10-K for the fiscal year ended December 31, 2001, and incorporated herein by reference).

10.17		The National City Corporation Retention Plan for Executive Officers effective April 29, 2003 (filed as Exhibit 10.17 to Registrant’s Quarterly Report on Form 10-Q for the quarter and six months ended June 30, 2003, and incorporated herein by reference).

10.18		Integra Financial Corporation Employee Stock Option Plan (filed as Exhibit 4.3 to Registrant’s Post-Effective Amendment No. 1 [on Form S-8] to Form S-4 Registration Statement No. 333-01697, dated April 30, 1996, and incorporated herein by reference).

10.19		Integra Financial Corporation Management Incentive Plan (filed as Exhibit 4.4 to Registrant’s Post-Effective Amendment No. 1 [on Form S-8] to Form S-4 Registration Statement No. 333-01697, dated April 30, 1996, and incorporated herein by reference).

10.20		Integra Financial Corporation Non-Employee Directors Stock Option Plan (filed as Exhibit 4.5 to Registrant’s Post-Effective Amendment No. 1 [on Form S-8] to Form S-4 Registration Statement No. 333-01697, dated April 30, 1996, and incorporated herein by reference).

10.21		National City Corporation Amended and Restated Long-Term Incentive Compensation Plan for Senior Officers as Amended and Restated effective January 1, 2001 (filed as Exhibit 10.32 to Registrant’s Quarterly Report on Form 10-Q for the quarter and nine months ended September 30, 2000, and incorporated herein by reference).

10.22		The National City Corporation Management Incentive Plan for Senior Officers, as Amended and Restated effective February 23, 2004 (filed as Exhibit D to Registrant’s Proxy Statement dated March 11, 2004, and incorporated herein by reference).

10.23		National City Corporation Supplemental Cash Balance Pension Plan as Amended and Restated effective November 1, 2001 (filed as Exhibit 10.25 to Registrant’s Annual Report on Form 10-K for the fiscal year ended December 31, 2001, and incorporated herein by reference).


Exhibit
Number		Exhibit Description
10.24		The National City Corporation 2001 Stock Option Plan as Amended and Restated effective October 22, 2001 (filed as Exhibit 10.27 to Registrant’s Annual Report on Form 10-K for the fiscal year ended December 31, 2001, and incorporated herein by reference).

10.25		National City Savings and Investment Plan No. 3 (filed as Exhibit 4.3 to Registrant’s Form S-8 Registration Statement No. 333-61712 dated as of May 25, 2001, and incorporated herein by reference).

10.26		Amendment No. 1 to the National City Savings and Investment Plan No. 3 (filed as Exhibit 4.5 to Registrant’s Post-Effective Amendment No. 1 to Form S-8 Registration Statement No. 333-61712 and incorporated herein by reference).

10.27		National City Corporation 2002 Restricted Stock Plan (filed as Exhibit A to Registrant’s Proxy Statement dated March 8, 2002, and incorporated herein by reference).

10.28		The National City Corporation Long-Term Deferred Share Compensation Plan effective April 22, 2002 (filed as Exhibit 10.33 to Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2002, and incorporated herein by reference).

10.29		The National City Corporation Deferred Compensation Plan as Amended and Restated effective July 23, 2002 (filed as Exhibit 10.34 to Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2002, and incorporated herein by reference).

10.30		Form of Agreement Not To Compete with David A. Daberko and William E. MacDonald III (filed as Exhibit 10.35 to Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2002, and incorporated herein by reference).

10.31		Visa(R) U.S.A. Inc. limited guaranty between National City Corporation and Visa(R) U.S.A. Inc. dated August 6, 2002 (filed as Exhibit 10.36 to Registrant’s Quarterly Report on Form 10-Q for the quarter and nine months ended September 30, 2002, and incorporated herein by reference).

10.32		The National City Corporation Executive Savings Plan, as Amended and Restated effective January 1, 2003 (filed as Exhibit 10.32 to Registrant’s Annual Report on Form 10-K for the fiscal year ended December 31, 2002, and incorporated herein by reference).

10.33		The National City Corporation Savings and Investment Plan, as Amended and Restated effective January 1, 2001 (filed as Exhibit 10.33 to Registrant’s Annual Report on Form 10-K for the fiscal year ended December 31, 2002, and incorporated herein by reference).

10.34		The National City Corporation Savings and Investment Plan No. 2, as Amended and Restated effective January 1, 2001 (filed as Exhibit 10.34 to Registrant’s Annual Report on Form 10-K for the fiscal year ended December 31, 2002, and incorporated herein by reference).

10.35		Amendment No. 1 to the National City Savings and Investment Plan, as Amended and Restated effective January 1, 2001 (filed as Exhibit 10.35 to Registrant’s Annual Report on Form 10-K for the fiscal year ended December 31, 2002, and incorporated herein by reference).

10.36		Amendment No. 1 to the National City Savings and Investment Plan No. 2, as Amended and Restated effective January 1, 2001 (filed as Exhibit 10.36 to Registrant’s Annual Report on Form 10-K for the fiscal year ended December 31, 2002, and incorporated herein by reference).

10.37		Amendment No. 1 to the Split Dollar Insurance Agreement effective January 1, 2003 (filed as Exhibit 10.37 to Registrant’s Annual Report on Form 10-K for the fiscal year ended December 31, 2002, and incorporated herein by reference).

10.38		Credit Agreement dated as of April 12, 2001, by and between National City and the banks named therein (filed as Exhibit 4.2 to Registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2001, and incorporated herein by reference) and the Assumption Agreement dated June 11, 2002 (filed as Exhibit 4.2 to Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2002, and incorporated herein by reference).

10.39		MasterCard International Incorporated limited guaranty between National City Corporation and MasterCard International Incorporated dated April 30, 2003 (filed as Exhibit 10.39 to Registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2003, and incorporated herein by reference).

10.40		The National City Corporation Long-Term Cash and Equity Incentive Plan (filed as Exhibit 99.1 to Registrant’s Current Report on Form 8-K filed April 6, 2004, and incorporated herein by reference).

10.41		National City Executive Long-Term Disability Plan (filed as Exhibit 10.41 to Registrant’s Annual Report on Form 10-K for the fiscal year ended December 31, 2004, and incorporated herein by reference).

10.42		Amendment No. 2 to the National City Savings and Investment Plan, as Amended and Restated effective January 1, 2001 (filed as Exhibit 10.42 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2004, and incorporated herein by reference).


Exhibit
Number		Exhibit Description
10.43		Amendment No. 2 to the National City Savings and Investment Plan No. 2, as Amended and Restated effective January 1, 2001 (filed as Exhibit 10.43 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2004, and incorporated herein by reference).

10.44		Amendment No. 3 to the National City Savings and Investment Plan, as Amended and Restated effective January 1, 2001 (filed as Exhibit 10.1 to the Registrant’s Post-Effective Amendment No. 3 to Form S-8 Registration Statement No. 333-61712 dated April 19, 2004, and incorporated herein by reference).

10.45		Amendment No. 3 to the National City Savings and Investment Plan No. 2, as Amended and Restated effective January 1, 2001 (filed as Exhibit 10.2 to the Registrant’s Post-Effective Amendment No. 3 to Form S-8 Registration Statement No. 333-61712 dated April 19, 2004, and incorporated herein by reference).

10.46		Amendment No. 4 to the National City Savings and Investment Plan, as Amended and Restated effective January 1, 2001 (filed as Exhibit 10.3 to the Registrant’s Post-Effective Amendment No. 3 to Form S-8 Registration Statement No. 333-61712 dated April 19, 2004, and incorporated herein by reference).

10.47		Allegiant Bancorp, Inc. 2002 Stock Incentive Plan (filed as Appendix A to Allegiant Bancorp, Inc.’s Proxy Statement for its 2002 Annual Meeting, and incorporated herein by reference).

10.48		Allegiant Bancorp, Inc. 2000 Stock Incentive Plan (filed as Annex A to Allegiant Bancorp, Inc.’s Proxy Statement for its 2000 Annual Meeting, and incorporated herein by reference).

10.49		Provident Financial Group, Inc. 1988 Stock Option Plan (filed as Exhibit 10.18 to Provident Financial Group, Inc.’s Annual Report on Form 10-K for the fiscal year ended December 31, 2002, and incorporated herein by reference).

10.50		Provident Financial Group, Inc. 1996 Non-Executive Officer Stock Option Plan (filed as Exhibit 10.19 to Provident Financial Group, Inc.’s Annual Report on Form 10-K for the fiscal year ended December 31, 2002, and incorporated herein by reference).

10.51		Provident Financial Group, Inc. 1997 Stock Option Plan (filed as Exhibit 10.20 to Provident Financial Group, Inc.’s Annual Report on Form 10-K for the fiscal year ended December 31, 2002, and incorporated herein by reference).

10.52		Provident Financial Group, Inc. 2000 Employee Stock Option Plan (filed as Exhibit 10.21 to Provident Financial Group, Inc.’s Annual Report on Form 10-K for the fiscal year ended December 31, 2002, and incorporated herein by reference).

10.53		Provident Financial Group, Inc. 2002 Outside Directors Stock Option Plan (filed as Exhibit 10.23 to Provident Financial Group, Inc.’s Annual Report on Form 10-K for the fiscal year ended December 31, 2002, and incorporated herein by reference).

10.54		Provident Financial Group, Inc. 1992 Outside Directors Stock Option Plan (filed with Provident Financial Group, Inc.’s Form S-8 Registration Statement No. 33-51230, and incorporated herein by reference).

10.55		Provident Financial Group, Inc. Retirement Plan (filed with Provident Financial Group, Inc.’s Form S-8 Registration Statement No. 33-90792, and incorporated herein by reference).

10.56		Provident Financial Group, Inc. Deferred Compensation Plan (filed as Exhibit 10.22 to Provident Financial Group, Inc.’s Annual Report on Form 10-K for the fiscal year ended December 31, 2002, and incorporated herein by reference).

10.57		Provident Financial Group, Inc. Outside Directors Deferred Compensation Plan (filed as Exhibit 10.24 to Provident Financial Group, Inc.’s Annual Report on Form 10-K for the fiscal year ended December 31, 2002, and incorporated herein by reference).

10.58		Provident Financial Group, Inc. Supplemental Executive Retirement Plan (filed as Exhibit 10.25 to Provident Financial Group, Inc.’s Annual Report on Form 10-K for the fiscal year ended December 31, 2002, and incorporated herein by reference).

10.59		Fourth Amendment to the Provident Financial Group, Inc. Retirement Plan, as Amended and Restated as of January 1, 2001 (filed as Exhibit 10.59 to Registrant’s Annual Report on Form 10-K for the fiscal year ended December 31, 2004, and incorporated herein by reference).

10.60		National City Corporation 2004 Deferred Compensation Plan (filed as Exhibit 10.60 to Registrant’s Annual Report on Form 10-K for the fiscal year ended December 31, 2004, and incorporated herein by reference).

10.61		Amendment No. 5 to the National City Savings and Investment Plan, as Amended and Restated effective January 1, 2001 (filed as Exhibit 10.61 to Registrant’s Annual Report on Form 10-K for the fiscal year ended December 31, 2004, and incorporated herein by reference).

10.62		Amendment No. 4 to the National City Savings and Investment Plan No. 2, as Amended, and Restated effective January 1, 2001 (filed as Exhibit 10.62 to Registrant’s Annual Report on Form 10-K for the fiscal year ended December 31, 2004, and incorporated herein by reference).


Exhibit
Number		Exhibit Description
10.63		Appendices AO, AP, AQ, and AR to the National City Savings and Investment Plan, as Amended and Restated effective January 1, 2001 (filed as Exhibit 10.63 to Registrant’s Annual Report on Form 10-K for the fiscal year ended December 31, 2004, and incorporated herein by reference).

10.64		Form of Restricted Stock Agreement.

10.65		Form of Restricted Stock Agreement used in connection with National City Corporation Management Incentive Plan for Senior Officers (filed as Exhibit 10.65 to Registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2005, and incorporated herein by reference).

10.66		Form of Incentive Stock Option Agreement.

10.67		Form of Non-qualified Stock Option Agreement.

10.68		Form of contract with Robert B. Crowl.

11.0		Statement re computation of per share earnings incorporated by reference to Note 17 of the Notes to the Consolidated Financial Statements of this report.

12.1		Computation of Ratio of Earnings to Fixed Charges.

14.1		Code of Ethics (filed as Exhibit 14.1 to Registrant’s Current Report on Form 8-K filed on April 26, 2005, and incorporated herein by reference).

14.2		Code of Ethics for Senior Financial Officers (filed as Exhibit 14.2 to Registrant’s Current Report on Form 8-K filed on April 26, 2005, and incorporated herein by reference).

31.1		Chief Executive Officer Sarbanes-Oxley Act 302 Certification dated August 8, 2005 for National City Corporation’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2005.

31.2		Chief Financial Officer Sarbanes-Oxley Act 302 Certification dated August 8, 2005 for National City Corporation’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2005.

32.1		Chief Executive Officer Sarbanes-Oxley Act 906 Certification dated August 8, 2005 for National City Corporation’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2005.

32.2		Chief Financial Officer Sarbanes-Oxley Act 906 Certification dated August 8, 2005 for National City Corporation’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2005.

CORPORATE INFORMATION

Corporate Headquarters
National City Center
1900 East Ninth Street
Cleveland, Ohio 44114-3484
216-222-2000
NationalCity.com

Transfer Agent and Registrar
National City Bank
Corporate Trust Operations
Department 5352
P.O. Box 92301
Cleveland, Ohio 44193-0900
Web site: NationalCityStockTransfer.com
E-mail: shareholder.inquiries@nationalcity.com

Stockholders of record may access their accounts via the Internet to review account holdings and transaction history through National City’s StockAccess at www.ncstockaccess.com. Stockholders can also download frequently used forms from this Web site. For log-in assistance or other inquiries, call 800-622-6757.

Investor Information
Jennifer Hammarlund
Investor Relations
Department 2101
P.O. Box 5756
Cleveland, Ohio 44101-0756
800-622-4204
E-mail: investor.relations@nationalcity.com

Web Site Access to United States Securities and Exchange Commission Filings

All reports filed electronically by National City Corporation with the United States Securities and Exchange Commission (SEC), including the Annual Report on Form 10-K, quarterly reports on Form 10-Q, and current event reports on Form 8-K, as well as any amendments to those reports, are accessible at no cost on the Corporation’s Web site at NationalCity.com. These filings are also accessible on the SEC’s Web site at www.sec.gov.

Common Stock Listing

National City Corporation common stock is traded on the New York Stock Exchange under the symbol NCC. The stock is abbreviated in financial publications as NtlCity.

Dividend Reinvestment and Stock Purchase Plan

National City Corporation offers stockholders a convenient way to increase their investment through the National City Amended and Restated Dividend Reinvestment and Stock Purchase Plan (the Plan). Under the Plan, investors can elect to acquire National City shares in the open market by reinvesting dividends and through optional cash payments. National City absorbs the fees and brokerage commissions on shares acquired through the Plan. To obtain a Plan prospectus and authorization card, please call 800-622-6757. The Plan prospectus is also available at www.NationalCity.com.

Direct Deposit of Dividends

The direct deposit program provides for free automatic deposit of quarterly dividends directly to a checking or savings account. For information regarding this program, call 800-622-6757.

NAIC

National City is a proud sponsor of the National Association of Investors Corporation (NAIC) and participates in its Low-Cost Investment Plan. To receive more information on NAIC, call (248) 583-NAIC.

Corporate Governance

National City’s corporate governance practices are described in the following documents, which are available free of charge on the Corporation’s Web site at NationalCity.com or in print form through the investor relations department: Corporate Governance Guidelines, Code of Ethics, Code of Ethics for Senior Financial Officers, Audit Committee Charter, Nominating and Board of Directors Governance Committee Charter, Compensation Committee Charter, and Risk and Public Policy Committee Charter.

Dominion Bond

Fitch

Moody’s

Standard

Debt Ratings

Rating Service

Ratings

Investors Service

& Poor’s

National City Corporation

A/B

Commercial Paper

R-1 (mid)

F1+

P-1

A-1

Senior Debt

A (high)

AA-

Subordinated debt

A+

A-

Bank Subsidiaries

A/B

Short-term certificates of deposit

R-1 (mid)

F1+

P-1

A-1

Long-term certificates of deposit

AA (low)

Aa3

A+

Senior bank notes

AA (low)

AA-

Aa3

A+

Subordinated bank notes

A+


	Page
Part I — Financial Information
Financial Highlights		3
Item 1. Financial Statements:
Consolidated Statements of Income		4
Consolidated Balance Sheets		5
Consolidated Statements of Cash Flows		6
Consolidated Statements of Changes in Stockholders’ Equity		7
Notes to Consolidated Financial Statements		7
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations:
Financial Review		52
Consolidated Average Balance Sheets		71
Daily Average Balances/Net Interest Income/Rates		72
Item 3. Quantitative and Qualitative Disclosures About Market Risk		75
Item 4. Controls and Procedures		75

Part II — Other Information
Item 1. Legal Proceedings		75
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		75
Item 3. Defaults Upon Senior Securities (None)
Item 4. Submission of Matters to a Vote of Security Holders		75
Item 5. Other Information		76
Item 6. Exhibits		76

Signatures		82
EX-10.64 Restricted Stock Award Agreement
EX-10.66 Stock Option Agreement - Incentive Stock Option
EX-10.67 Stock Option Agreement - Non-Incentive Stock Option
EX-10.68 Severance Agreement
EX-12.1 Computation of Ratio of Earnings to Fixed Charges
EX-31.1 CEO 302 Certification
EX-31.2 CFO 302 Certification
EX-32.1 CEO 906 Certification
EX-32.2 CFO 906 Certification


		NATIONAL CITY CORPORATION
		(Registrant)

Date: August 8, 2005

		/s/ DAVID A. DABERKO

		David A. Daberko
		Chairman and Chief Executive Officer

		/s/ JEFFREY D. KELLY

		Jeffrey D. Kelly
		Vice Chairman and Chief Financial Officer