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, 2007

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 a large accelerated filer, an accelerated filer or a non-accelerated filer (as defined in Rule 12b-2 of the Exchange Act).

Large accelerated filer þ Accelerated filer o Non-accelerated filer o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

YES o NO þ

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, 2007 — 567,586,866

PART I – FINANCIAL INFORMATION

FINANCIAL HIGHLIGHTS


	Three Months Ended						Six Months Ended
	June 30						June 30
(Dollars In Thousands, Except Per Share Amounts)	2007			2006			2007			2006

Tax-equivalent net interest income	$	1,096,086		$	1,167,563		$	2,214,368		$	2,351,343
Provision for credit losses		143,121			59,917			249,967			86,960
Noninterest income		764,538			784,081			1,385,059			1,439,728
Noninterest expense		1,187,673			1,173,775			2,359,033			2,322,450
Income tax expense and tax-equivalent adjustment		183,226			245,026			324,611			449,928

Net income	$	346,604		$	472,926		$	665,816		$	931,733

Net income per common share
Basic	$	.60		$	.77		$	1.10		$	1.52
Diluted		.60			.77			1.09			1.51
Dividends paid per common share		.39			.37			.78			.74
Return on average common equity		11.35	%		15.08	%		10.08	%		15.00	%
Return on average assets		1.00			1.35			.97			1.34
Net interest margin		3.59			3.73			3.64			3.77
Efficiency ratio		63.83			60.14			65.54			61.26
Average equity to average assets		8.83			8.97			9.63			8.96
Annualized net charge-offs to average portfolio loans		.39			.30			.50			.38
Average shares
Basic		572,729,604			609,656,508			602,057,167			610,777,446
Diluted		580,385,828			618,230,041			610,293,635			618,959,606

At June 30
Assets							$	140,636,066		$	141,485,577
Portfolio loans								99,683,290			100,972,869
Loans held for sale or securitization								14,421,303			12,963,924
Securities, at fair value								7,023,923			7,725,543
Deposits								92,568,210			83,223,846
Stockholders’ equity								12,146,526			12,609,764

Book value per common share							$	21.45		$	20.84
Market value per common share								33.32			36.19
Equity to assets								8.64	%		8.91	%
Allowance for loan losses as a percentage of period-end portfolio loans								1.14			.98
Nonperforming assets to period-end portfolio loans and other nonperforming assets								.85			.66

Common shares outstanding								566,285,142			605,053,511
Full-time equivalent employees								32,445			33,951

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)	2007			2006			2007		2006

Interest Income
Loans	$	2,113,945		$	2,089,927		$	4,169,878	$	4,100,753
Securities:
Taxable		86,288			97,085			183,433		187,073
Exempt from Federal income taxes		5,392			6,495			10,742		13,352
Dividends		461			345			917		1,696
Federal funds sold and security resale agreements		14,525			7,013			37,452		11,007
Other investments		26,796			35,265			55,402		67,329

Total interest income		2,247,407			2,236,130			4,457,824		4,381,210
Interest Expense
Deposits		727,596			581,307			1,413,301		1,118,360
Federal funds borrowed and security repurchase agreements		77,531			53,967			134,908		113,174
Borrowed funds		35,987			31,909			52,184		54,409
Long-term debt and capital securities		317,764			408,688			658,177		758,713

Total interest expense		1,158,878			1,075,871			2,258,570		2,044,656

Net Interest Income		1,088,529			1,160,259			2,199,254		2,336,554
Provision for Credit Losses		143,121			59,917			249,967		86,960

Net interest income after provision for credit losses		945,408			1,100,342			1,949,287		2,249,594
Noninterest Income
Deposit service charges		223,060			203,587			427,311		392,135
Loan sale revenue		110,121			285,001			185,358		429,097
Loan servicing revenue		95,687			(20,597	)		127,743		(64,650	)
Trust and investment management fees		84,352			80,031			158,071		153,086
Brokerage revenue		54,711			30,266			94,494		63,831
Leasing revenue		45,133			61,110			100,507		121,276
Insurance revenue		34,563			32,989			68,812		64,724
Other service fees		33,143			36,557			68,498		68,884
Card-related fees		28,867			25,036			60,948		54,306
Securities (losses)/gains, net		(1,314	)		990			25,671		12,706
Other		56,215			49,111			67,646		144,333

Total noninterest income		764,538			784,081			1,385,059		1,439,728
Noninterest Expense
Salaries, benefits, and other personnel		641,696			635,968			1,274,843		1,276,607
Third-party services		89,227			91,326			174,912		170,116
Equipment		84,468			78,877			167,769		157,675
Net occupancy		75,461			73,125			153,907		146,615
Marketing and public relations		45,028			37,903			77,572		66,171
Leasing expense		32,073			42,254			66,523		85,359
Other		219,720			214,322			443,507		419,907

Total noninterest expense		1,187,673			1,173,775			2,359,033		2,322,450

Income before income tax expense		522,273			710,648			975,313		1,366,872
Income tax expense		175,669			237,722			309,497		435,139

Net Income	$	346,604		$	472,926		$	665,816	$	931,733

Net Income Per Common Share
Basic	$	.60		$	.77		$	1.10	$	1.52
Diluted		.60			.77			1.09		1.51
Average Common Shares Outstanding
Basic		572,729,604			609,656,508			602,057,167		610,777,446
Diluted		580,385,828			618,230,041			610,293,635		618,959,606
Dividends declared per common share	$	.39		$	.37		$	.78	$	.74

See Notes to Consolidated Financial Statements

CONSOLIDATED BALANCE SHEETS


	June 30			December 31			June 30
(Dollars in Thousands, Except Per Share Amounts)	2007			2006			2006

Assets
Cash and demand balances due from banks	$	2,895,764		$	3,521,153		$	3,804,115
Federal funds sold and security resale agreements		718,087			1,551,350			925,594
Securities available for sale, at fair value		7,023,923			7,508,820			7,725,543
Other investments		1,620,428			6,317,779			2,405,917
Loans held for sale or securitization:
Commercial		38,111			33,661			82,276
Commercial real estate		377,474			177,312			87,292
Residential real estate		10,694,467			9,327,783			9,683,317
Home equity lines of credit		3,310,851			2,888,512			3,099,705
Credit card		—			425,000			—
Student loans		400			638			11,334

Total loans held for sale or securitization		14,421,303			12,852,906			12,963,924
Portfolio loans:
Commercial		32,359,721			31,052,021			29,298,715
Commercial construction		4,964,161			4,266,280			3,585,662
Commercial real estate		13,011,123			12,436,458			12,233,327
Residential real estate		27,549,792			24,775,632			31,443,519
Home equity lines of credit		13,974,592			14,594,782			16,626,039
Credit card and other unsecured lines of credit		3,163,904			3,006,789			2,569,448
Other consumer		4,659,997			5,360,110			5,216,159

Total portfolio loans		99,683,290			95,492,072			100,972,869
Allowance for loan losses		(1,135,766	)		(1,131,175	)		(989,405	)

Net portfolio loans		98,547,524			94,360,897			99,983,464
Properties and equipment		1,518,707			1,402,150			1,308,358
Equipment leased to others		446,935			572,952			661,542
Other real estate owned		284,396			229,070			167,378
Mortgage servicing rights		2,467,749			2,094,387			2,541,250
Goodwill		4,533,742			3,815,911			3,346,779
Other intangible assets		241,970			183,648			162,188
Derivative assets		444,756			612,914			566,777
Accrued income and other assets		5,470,782			5,166,905			4,922,748

Total Assets	$	140,636,066		$	140,190,842		$	141,485,577

Liabilities
Deposits:
Noninterest bearing	$	17,547,090		$	17,537,278		$	17,312,118
NOW and money market		33,798,901			30,335,531			28,710,382
Savings		2,260,197			1,881,444			1,970,616
Consumer time		25,437,213			23,620,821			21,750,652
Other		3,027,619			4,119,756			4,846,707
Foreign		10,497,190			9,738,760			8,633,371

Total deposits		92,568,210			87,233,590			83,223,846
Federal funds borrowed and security repurchase agreements		5,653,283			5,283,997			4,912,465
Borrowed funds		2,670,238			1,648,967			3,150,985
Long-term debt		21,914,624			25,406,971			32,181,511
Junior subordinated debentures owed to unconsolidated subsidiary trusts		1,273,114			948,705			343,870
Derivative liabilities		732,310			717,830			1,119,162
Accrued expenses and other liabilities		3,677,761			4,369,779			3,943,974

Total Liabilities	$	128,489,540		$	125,609,839		$	128,875,813

Stockholders’ Equity
Preferred stock	$	—		$	—		$	—
Common stock		2,265,141			2,529,527			2,420,214
Capital surplus		4,763,670			4,793,537			3,749,508
Retained earnings		5,270,420			7,328,853			6,564,449
Accumulated other comprehensive loss		(152,705	)		(70,914	)		(124,407	)

Total Stockholders’ Equity		12,146,526			14,581,003			12,609,764

Total Liabilities and Stockholders’ Equity	$	140,636,066		$	140,190,842		$	141,485,577

See Notes to Consolidated Financial Statements

CONSOLIDATED STATEMENTS OF CASH FLOWS


	For the Six Months Ended June 30
(In Thousands)	2007			2006

Operating Activities
Net income	$	665,816		$	931,733
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for credit losses		249,967			86,960
Depreciation and amortization of properties and equipment		195,034			206,549
Amortization on securities, loans, deposits, and debt obligations		24,436			58,252
MSR fair value changes		(84,528	)		(142,773	)
Amortization of intangible assets and other servicing assets		62,160			47,264
Derivative losses, net		384,784			635,036
Securities gains, net		(25,671	)		(12,706	)
Gains on loans sold or securitized, net		(258,300	)		(363,018	)
Other (gains) losses, net		(10,968	)		7,487
Originations and purchases of loans held for sale or securitization		(29,013,132	)		(30,814,161	)
Principal payments on and proceeds from sales of loans held for sale or securitization		25,091,943			31,523,877
Net change in trading assets and liabilities		117,186			(38,072	)
Excess tax benefit for share based payments		(12,269	)		(15,296	)
(Increase) decrease in accrued interest receivable		(38,912	)		27,798
(Decrease) increase in accrued interest payable		(75,818	)		15,854
Other operating activities, net		(880,148	)		261,861

Net cash (used in) provided by operating activities		(3,608,420	)		2,416,645

Lending and Investing Activities
Net decrease (increase) in federal funds sold, security resale agreements, and other investments		5,399,768			(822,512	)
Purchases of available-for-sale securities		(1,065,774	)		(1,039,692	)
Proceeds from sales of available-for-sale securities		1,473,405			461,660
Proceeds from maturities, calls, and prepayments of available-for-sale securities		616,797			694,331
Net increase in portfolio loans		(530,912	)		(583,235	)
Proceeds from sales of loans		970,011			1,090,573
Proceeds from securitizations of loans		425,000			425,000
Net increase in properties and equipment		(46,275	)		(143,453	)
Net cash paid for acquisitions		(376,295	)		(74,789	)

Net cash provided by lending and investing activities		6,865,725			7,883

Deposit and Financing Activities
Net increase (decrease) in deposits		1,963,492			(1,255,351	)
Net decrease in federal funds borrowed and security repurchase agreements		(94,090	)		(1,608,091	)
Net increase (decrease) in borrowed funds		1,039,826			(429,349	)
Repayments of long-term debt		(5,441,813	)		(5,196,096	)
Proceeds from issuances of long-term debt		2,124,157			6,959,000
Dividends paid		(487,036	)		(458,160	)
Issuances of common stock		205,454			180,068
Repurchases of common stock		(3,204,953	)		(535,395	)
Excess tax benefit for share based payments		12,269			15,296

Net cash used in deposit and financing activities		(3,882,694	)		(2,328,078	)

Net (decrease) increase in cash and demand balances due from banks		(625,389	)		96,450
Cash and demand balances due from banks, January 1		3,521,153			3,707,665

Cash and Demand Balances Due from Banks, June 30	$	2,895,764		$	3,804,115

Supplemental Information
Cash paid for:
Interest	$	2,334,388		$	2,028,802
Income taxes		639,253			186,996
Noncash items:
Transfers of portfolio loans and property to other real estate		320,335			177,573
Transfers of portfolio loans to held for sale		—			4,481,877
Transfers of held for sale loans to portfolio		1,697,732			—
Common shares and stock options issued for acquisitions		492,155			—

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, 2006	$	—	$	2,460,191		$	3,681,603		$	6,459,212		$	11,865		$	12,612,871
Comprehensive income:
Net income										931,733						931,733
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													(120,041	)		(120,041	)
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													(16,231	)		(16,231	)

Total comprehensive income																795,461
Cumulative effect of change in accounting for mortgage servicing assets										16,886						16,886
Common dividends declared, $.74 per share										(457,330	)					(457,330	)
Preferred dividends declared, $11.81 per share										(830	)					(830	)
Issuance of 5,244,748 common shares under stock option plans				20,991			157,110									178,101
Repurchase of 15,242,100 common shares				(60,968	)		(89,205	)		(385,222	)					(535,395	)

Balance, June 30, 2006	$	—	$	2,420,214		$	3,749,508		$	6,564,449		$	(124,407	)	$	12,609,764


Balance, January 1, 2007	$	—	$	2,529,527		$	4,793,537		$	7,328,853		$	(70,914	)	$	14,581,003
Comprehensive income:
Net income										665,816						665,816
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													(76,537	)		(76,537	)
Change in unrealized gains and losses on derivative instruments used in cash flow hedging relationships, net of reclassification adjustment for net gains included in net income													(4,915	)		(4,915	)
Change in accumulated unrealized losses for pension and other postretirement obligations													(339	)		(339	)

Total comprehensive income																584,025
Cumulative effect of change in accounting for uncertainty in income taxes										(24,122	)					(24,122	)
Common dividends declared, $.78 per share										(486,162	)					(486,162	)
Preferred dividends declared, $12.45 per share										(874	)					(874	)
Issuance of 5,231,767 common shares under stock-based compensation plans				21,263			184,191									205,454
Issuance of 13,654,061 common shares pursuant to acquisition⁽¹⁾				54,617			437,538									492,155
Repurchase of 85,066,638 common shares				(340,266	)		(651,596	)		(2,213,091	)					(3,204,953	)

Balance, June 30, 2007	$	—	$	2,265,141		$	4,763,670		$	5,270,420		$	(152,705	)	$	12,146,526

⁽¹⁾ Includes fair value of stock options exchanged.

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, Florida, Illinois, Indiana, Kentucky, Michigan, Missouri, and Pennsylvania, and also conducts selected lending businesses and provides 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(R) (FIN 46R), 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 46R 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 entitled 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 nonqualifying 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 credit card and automobile loans that were sold to 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 2006 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 that the Corporation has both the intent and ability to hold until maturity or payoff are classified in the balance sheet as portfolio loans. Portfolio loans are carried at the principal amount outstanding net of unearned income, unamortized premiums or discounts, deferred loan origination fees and costs, and acquisition fair value adjustments, if any. Loans that the Corporation has the intent and ability to sell or securitize are classified as held for sale or securitization. Loans held for sale or securitization are carried at the lower of the carrying amount or fair value applied on an aggregate basis. Fair value is measured based on purchase commitments, bids received from potential purchasers, quoted prices for the same or similar loans, or prices of recent sales or securitizations.

When a decision is made to sell or securitize a loan that was not originated or initially acquired with the intent to sell or securitize, the loan is reclassified from portfolio into held for sale or securitization. Such reclassifications may occur, and have occurred in the past, due to a change in strategy in managing the liquidity of the balance sheet, a strategic decision to divest an operation or product, the maturity of an existing securitization structure, or favorable terms offered in securitization markets. See Note 5 for further information on recent securitization activities. Substantially all recently originated residential mortgage loans and broker-sourced home equity loans and lines of credit are classified as held for sale upon origination based on management’s intent and ability to sell these loans.

When the Corporation sells a loan or group of loans which qualify as a sale pursuant to SFAS 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities, the loans are removed from the balance sheet and a gain or loss is recognized in loan sale revenue.

Interest income is recognized utilizing the interest method. Loan origination fees, certain direct origination costs, and unearned discounts are deferred and amortized into interest income utilizing the interest method to achieve a level effective 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.

At the inception of a lease, residual value is determined based on the estimated fair market value of the asset at the end of the original lease term. For automobile leases, fair value was based upon published industry market guides. For commercial equipment leases, fair value may be based upon observable market prices, third-party valuations, or prices received on sales of similar assets at the end of the lease term. Renewal options and extensions are not considered in the original lease term due to the absence of penalties for nonrenewal.

Automobile lease residual values and certain types of commercial equipment lease residuals are guaranteed by third parties. Although these guarantees of residual value are not considered in determining the initial accounting for these leases, the guarantees can affect the future accounting for the residual values. Commercial equipment residual values not protected by a guarantee are reviewed quarterly for other-than-temporary impairment. Impairment is assessed by comparing the carrying value of the leased asset’s residual value to both current and end of lease term market values. Where this analysis indicates that an other-than-temporary impairment has occurred, the carrying value of the lease residual 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 commercial 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 reversed against interest income. Interest income is recorded on a cash basis during the period the loan is on nonperforming status 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.

Commercial and commercial real estate loans exceeding $5 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.

Loans secured by one-to-four family residential real estate, including home equity lines of credit and loans, are designated as nonperforming based upon several factors including payment delinquency, bankruptcy status and prior principal charge-offs. 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 reversed against interest income. Additionally, these loan types are generally charged off to the extent principal and interest due exceed the estimated realizable value of the collateral on the date the loan becomes 180 days past due or at the earlier of the foreclosure sale or when an appraisal indicates a value less than the loan value. Loans covered by lender-paid mortgage insurance are not charged off to the extent an insurance recovery is expected.

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. 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 sells residential and commercial real estate loans to Government National Mortgage Association (GNMA) and Federal National Mortgage Association (FNMA) in the normal course of business. These loan sale programs allow the Corporation to repurchase individual delinquent loans that meet certain criteria. Without the sponsoring entity’s prior authorization, the Corporation has the option to repurchase the delinquent loan for an amount equal to 100% of the remaining principal balance of the loan. Under SFAS 140, once the Corporation has the unconditional ability to repurchase the delinquent loan, effective control over the loan has been regained. At this point, the Corporation is required to recognize the loan and a related liability on its balance sheet, regardless of the Corporation’s intent to repurchase the loan. Refer to Note 7 for balances recognized under these programs.

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, probable recoveries under lender paid mortgage insurance, 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, insurance coverage limits, 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 recorded 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 portfolio loans are identified for sale or securitization, the attributed loan loss allowance is reclassified to held for sale as a reduction to the carrying value of the loans. If a loss attributable to deterioration of the creditworthiness of the borrower is anticipated upon sale, a charge-off is recognized upon transfer.

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, as well as 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: Investments in debt securities and certain equity securities with readily determinable fair values, other than those classified as principal investments or accounted for under the equity method, are accounted for under SFAS 115, Accounting for Certain Investments in Debt and Equity Securities. SFAS 115 requires investments to be classified within one of three categories: trading, held to maturity, or available for sale, based on the type of security and management’s intent with regard to selling the security.

Securities purchased with the intention of realizing short-term profits or that are used to manage risk in other balance sheet assets and liabilities carried at fair value, are considered trading securities, carried at fair value, and are included in other investments on the balance sheet. Depending on the purpose for holding the securities, realized and unrealized gains and losses are included in either brokerage revenue, loan servicing revenue or other noninterest income on the statement of income. Interest on trading account securities is recorded in interest income. Loans are classified as trading where positions are bought and sold primarily to make profits on short-term appreciation or for other trading purposes. Trading loans are also included in other investments on the balance sheet and are carried at fair value, with gains and losses included in other noninterest income. See Note 9 for further information on trading securities.

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, 2007, December 31, 2006, or June 30, 2006.

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 accumulated 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 in the statement of income.

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. Purchases and sales of securities are recognized on a trade date basis.

Certain equity security investments that do not have readily determinable fair values and for which the Corporation does not exercise significant influence are carried at cost and classified either within other investments or other assets on the balance sheet depending on the frequency of dividend declarations. Cost method investments classified within other investments, which consist solely of shares of Federal Home Loan Bank and Federal Reserve Bank stock, totaled $506 million, $483 million, and $517 million at June 30, 2007, December 31, 2006, and June 30, 2006, respectively. Cost method investments classified within other assets were less than $1 million at June 30, 2007, December 31, 2006, and June 30, 2006. Cost method investments are reviewed for impairment at least annually or sooner if events or changes in circumstances indicate the carrying value may not be recoverable.

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 related to sales restrictions and regulations, when appropriate. Investments that are not publicly traded are initially recorded 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 investments owned by the private equity funds, 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 in 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, is 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 impairment testing is performed annually, or more frequently if events or circumstances indicate possible impairment. Goodwill is allocated to reporting units one level below business segments. Fair values of reporting units are determined using either market-based valuation multiples for comparable businesses if available, or discounted cash flow analyses based on internal financial forecasts. Note 11 contains additional information regarding goodwill and the carrying values by major lines of business.

Intangible assets with finite lives include those associated with core deposits, credit cards, and other items. 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. Other intangibles, primarily 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 is recognized in noninterest expense. Note 11 includes a summary of other intangible assets.

Depreciable Assets: Properties and equipment are stated at cost less accumulated depreciation and amortization. Maintenance and repairs are charged to expense as incurred, while improvements which extend an asset’s useful life are capitalized and depreciated over the estimated remaining life of the asset. Depreciation and amortization are calculated using the straight-line method over the estimated useful life of the asset. 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. Leasehold improvements are amortized over the shorter of the asset’s useful life or the remaining lease term, including renewal periods when reasonably assured pursuant to SFAS 13, Accounting for Leases. For leasehold improvements acquired in a business combination, lease renewals reasonably assured at the date of acquisition are included in the remaining lease term. For leasehold improvements placed in service after the inception of the lease, lease renewals reasonably assured at the date of purchase are included in the remaining lease term.

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 available, 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 leased equipment is impaired by comparing expected undiscounted cash flows from rental income to the carrying value. An impairment loss is recognized if the carrying amount of the equipment exceeds the future expected cash flows.

Asset Securitizations: National City uses the securitization of financial assets as a source of funding. In a securitization, financial assets, including pools of credit card 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 the Bank, legal isolation is accomplished through compliance with specific rules and regulations of the relevant regulatory authorities. In addition, the Corporation has from time to time purchased the guaranteed portion of Small Business Administration (SBA) loans from third-party lenders and then securitized 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, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities 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 interests in the loans sold. 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 has been obtained by the Bank for each credit card securitization. These opinions stated in their conclusions 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 assets. 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 assets from the securitization trust or recharacterize the assets 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 each automobile loan securitization, which were all structured as two-step transfers. 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 that 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 affiliates may retain interests in the securitized assets, which may take the form of seller certificates, subordinated tranches, cash reserve balances or 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.

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 has retained 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 loan sale revenue within 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 the trading securities portfolio. Retained interests from the credit card and automobile loan 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 accumulated other comprehensive income within stockholders’ equity, or in security losses 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 to retained interests classified as trading securities are recorded in other noninterest income while other-than-temporary impairments are recorded within security losses on the income statement.

Management 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 loans, 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 or 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 or retained interests. The value of these 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.

For credit card securitizations, the Corporation’s continuing involvement in the securitized assets includes maintaining an undivided, pro rata interest in all credit card assets 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 assets 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 5% of the initial invested amount in each series to ensure sufficient assets 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 credit card loans. Therefore, the principal dollar amount of the investor’s interest in the assets 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.

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 securitizations are recognized as a component of the gain or loss at the time of sale.

Servicing Assets: The Corporation periodically sells or securitizes loans while retaining the obligation to perform the servicing of such loans. In addition, the Corporation may purchase or assume the right to service loans originated by others. Whenever the Corporation undertakes an obligation to service a loan, management assesses whether a servicing asset or liability should be recognized. A servicing asset is recognized whenever the compensation for servicing is expected to exceed current market servicing prices. Likewise, a servicing liability would be recognized in the event that servicing fees to be received are not expected to adequately compensate the Corporation for its expected cost. Servicing assets related to residential real estate loans sold are separately presented on the balance sheet as mortgage servicing rights (MSRs). Servicing assets associated with the sale or securitization of commercial real estate and other consumer loans are presented within other assets on the balance sheet. The Corporation does not presently have any servicing liabilities.

All separately recognized servicing assets and/or liabilities are initially recognized at fair value. For subsequent measurement of servicing rights, the Corporation has elected the fair value method for MSRs while all other servicing assets follow the amortization method. Under the fair value measurement method, MSRs are measured at fair value each reporting period and changes in fair value are reported in loan servicing revenue in the income statement. Under the amortization method, other servicing assets are amortized in proportion to, and over the period of, estimated servicing income and assessed for impairment based on fair value at each reporting period. Contractual servicing fees including ancillary income and late fees, fair value adjustments, associated derivative gains and losses, and impairment losses, if any, are reported in loan servicing revenue on the income statement.

The fair value of MSRs is estimated by using a cash flow valuation model which calculates 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 condition. Expected mortgage loan prepayment assumptions are derived from an internal proprietary model and consider empirical data drawn from the historical performance of the Corporation’s managed portfolio. 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.

Future interest rates are another significant factor in the valuation of MSRs. In the second quarter of 2007, the Corporation refined its MSR valuation model to incorporate market implied forward interest rates to estimate the future direction of mortgage and discount rates. The forward rates utilized are derived from the current yield curve for U.S. dollar interest rate swaps and are consistent with pricing of capital markets instruments. In prior periods, the MSR valuation model assumed that interest rates remained constant over the life of the servicing asset cash flows.

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 generally accepted accounting principles.

Under the requirements of SFAS 133, Accounting for Derivative Instruments and Hedging Activities, as amended, all derivative instruments are 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, the fair value of the hedged risk of the hedged asset or liability, with corresponding offsets recorded in the income statement. The fair value of derivatives are recorded as a freestanding asset or liability on the balance sheet, while fair value adjustments to the hedged asset or liability are included in the basis of the hedged item. 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 accumulated other comprehensive income within stockholders’ equity, net of tax. Amounts are reclassified from accumulated 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. When this occurs, 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.

Share-Based Payment: Compensation cost is recognized for stock options and restricted stock awards issued to employees. Compensation cost is measured as the fair value of these awards on their date of grant. A Black-Scholes model is utilized to estimate the fair value of stock options, while the market price of the Corporation’s common stock at the date of grant is used to estimate the fair value of restricted stock awards. Compensation cost is recognized over the required service period, generally defined as the vesting period for stock option awards and as the restriction period for restricted stock awards. For awards with graded vesting, compensation cost is recognized on a straight-line basis over the requisite service period for the entire award. When an award is granted to an employee who is retirement eligible, compensation cost of these awards is recognized over the period up to the date the employee first becomes eligible to retire.

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 Consolidated Financial Statements, rather than amounts reported on the 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.

Positions taken in the Corporation’s tax returns may be subject to challenge by the taxing authorities upon examination. Uncertain tax positions are initially recognized in the financial statements when it is more likely than not the position will be sustained upon examination by the tax authorities. Such tax positions are both initially and subsequently measured as the largest amount of tax benefit that is greater than 50% likely of being realized upon settlement with the tax authority, assuming full knowledge of the position and all relevant facts. The Corporation provides for interest and, in some cases, penalties on tax positions that may be challenged by the taxing authorities. Interest expense is recognized beginning in the first period that such interest would begin accruing. Penalties are recognized in the period that the Corporation claims the position in the tax return. Interest and penalties on income tax uncertainties are classified within income tax expense in the income statement.

Stock Repurchases: The Corporation periodically repurchases shares of its outstanding common stock through open market purchases or other methods. Repurchased shares are recorded as treasury shares on the trade date using the par value method, and the cash paid is

allocated to common stock, capital surplus, and retained earnings. Treasury shares are available for reissuance upon exercise of employee stock awards.

2. Recent Accounting Pronouncements

Accounting for Uncertainty in Income Taxes: In June 2006, the Financial Accounting Standards Board (FASB) issued Interpretation No. 48 (FIN 48), Accounting for Uncertainty in Income Taxes, an interpretation of SFAS 109, Accounting for Income Taxes. FIN 48 prescribes a comprehensive model for how companies should recognize, measure, present, and disclose in their financial statements uncertain tax positions taken or expected to be taken on a tax return. Under FIN 48, tax positions shall initially be recognized in the financial statements when it is more likely than not the position will be sustained upon examination by the tax authorities. Such tax positions shall initially and subsequently be measured as the largest amount of tax benefit that is greater than 50% likely of being realized upon settlement with the tax authority assuming full knowledge of the position and all relevant facts. FIN 48 also revises disclosure requirements to include an annual tabular rollforward of uncertain tax positions. The provisions of this interpretation were adopted by the Corporation on January 1, 2007. Upon adoption, the Corporation increased its reserves for uncertain tax positions by $31 million which was recognized by way of a cumulative effect adjustment to retained earnings ($24 million net of tax).

Fair Value Option: In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities. This statement allows a company to elect to measure certain financial assets and financial liabilities at fair value. This statement also requires disclosure of additional information to identify the effects of a company’s fair value election on its earnings. National City plans to elect the fair value option for mortgage loans held for sale, currently designated in SFAS 133 hedge relationships, and certain other financial assets, effective January 1, 2008. The impact of adoption on the financial condition, results of operations, and liquidity is not yet determinable.

Fair Value Measurements: In September 2006, the FASB issued SFAS 157, Fair Value Measurements, which upon adoption will replace various definitions of fair value in existing accounting literature with a single definition, will establish a framework for measuring fair value, and will require additional disclosures about fair value measurements. SFAS 157 clarifies that fair value is the price that would be received to sell an asset or the price paid to transfer a liability in the most advantageous market available to the entity and emphasizes that fair value is a market-based measurement and should be based on the assumptions market participants would use. The statement also creates a three-level hierarchy under which individual fair value estimates are to be ranked based on the relative reliability of the inputs used in the valuation. This hierarchy is the basis for the disclosure requirements, with fair value estimates based on the least reliable inputs requiring more extensive disclosures about the valuation method used and the gains and losses associated with those estimates. SFAS 157 is required to be applied whenever another financial accounting standard requires or permits an asset or liability to be measured at fair value. The statement does not expand the use of fair value to any new circumstances. The Corporation will be required to apply the new guidance beginning January 1, 2008. The impact of adoption on the financial condition, results of operations, and liquidity is not expected to be material.

Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans: In September 2006, the FASB issued SFAS 158, Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans. On December 31, 2006, the Corporation adopted certain provisions of this statement which resulted in the recognition of the funded status of its pension and postretirement plans as either assets or liabilities on the Consolidated Balance Sheet, the recognition of unrecognized actuarial gains/losses, prior service costs, and transition obligations totaling $71 million as a separate component of accumulated other comprehensive income, net of tax. SFAS 158 will also require the Corporation to change the date used to measure its defined benefit pension and other postretirement obligations from October 31 to December 31. The measurement date change will be effective as of December 31, 2008. The incremental pension cost recognized as a result of this change in measurement date will be recognized as an adjustment to retained earnings. The measurement date change is not expected to have a material impact on financial position, results of operations, or liquidity.

Accounting for Certain Hybrid Financial Instruments: In February 2006, the FASB issued SFAS 155, Accounting for Certain Hybrid Financial Instruments, which amends SFAS 133, Accounting for Derivative Instruments and Hedging Activities, and SFAS 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities. SFAS 155 requires entities to evaluate and identify whether interests in securitized financial assets are freestanding derivatives, hybrid financial instruments that contain an embedded derivative requiring bifurcation, or hybrid financial instruments that contain embedded derivatives that do not require bifurcation. SFAS 155 also permits fair value measurement for any hybrid financial instrument that contains an embedded derivative that otherwise would require bifurcation. This statement was effective for all financial instruments acquired or issued by the Corporation on or after January 1, 2007. The adoption of this statement did not have a material impact on financial condition, results of operations, or liquidity.

Accounting for a Change or Projected Change in the Timing of Cash Flows Relating to Income Taxes Generated by a Leveraged Lease Transaction: In July 2006, the FASB issued FASB Staff Position (FSP) 13-2, Accounting for a Change or Projected Change in the Timing of Cash Flows Relating to Income Taxes Generated by a Leveraged Lease Transaction. This FSP amends SFAS 13, Accounting for Leases, to require a lessor in a leveraged lease transaction to recalculate the leveraged lease for the effects of a change or

projected change in the timing of cash flows relating to income taxes that are generated by the leveraged lease. The guidance in FSP 13-2 is required to be applied to fiscal years beginning after December 15, 2006. The adoption of this FSP did not have a material impact on financial condition, results of operations, or liquidity.

Accounting for Collateral Assignment Split-Dollar Life Insurance Arrangements – In March 2007, the FASB ratified the consensus reached in Emerging Issues Task Force (EITF) 06-10, Accounting for Collateral Assignment Split-Dollar Life Insurance Arrangements. EITF 06-10 will require a company to recognize a liability for postretirement benefits related to its collateral assignment split-dollar life insurance arrangements in accordance with either SFAS 106, Employers Accounting for Postretirement Benefits Other Than Pensions, or Accounting Principles Board (APB) Opinion No. 12, if the life insurance arrangement is deemed part of the entity’s postretirement plan, or if the life insurance arrangement is, in substance, an individual deferred compensation contract. The consensus in EITF 06-10 is effective for fiscal years beginning after December 15, 2007, including interim periods within those years, with early application permitted. Management is presently assessing the substance of its split-dollar life insurance arrangements in relation to this consensus. If a change in accounting for these arrangements is required, the effects of applying the consensus in this EITF will be reported as a cumulative effect adjustment to retained earnings. The impact of adoption on the financial condition, results of operations, and liquidity is not yet determinable.

Amendment of FASB Interpretation No. 39: In April 2007, the FASB issued FSP 39-1, Amendment of FASB Interpretation No. 39, Offsetting of Amounts Related to Certain Contracts. FSP 39 permits companies to offset fair value amounts recognized for multiple derivative instruments executed with the same counterparty under a master netting agreement. FIN 39-1 clarifies that the fair value amounts recognized for the right to reclaim cash collateral, or the obligation to return cash collateral, arising from the same master netting arrangement, may also be offset against the fair value of the related derivative instruments. The Corporation will have a choice as to whether or not it wants to offset the fair values of its collateral received/pledged against the fair value of the related derivative instruments. The guidance in this FSP will be effective as of January 1, 2008, with earlier application permitted. The Corporation has historically presented all of its derivative positions and related collateral on a gross basis. Management is pursuing master netting agreements with its major derivative counterparties which would enable netting of derivative positions under FIN 39, as amended by FIN 39-1. Subject to master netting agreements being in place before year end, management plans to adopt a net presentation for its offsetting derivative positions and related cash collateral effective January 1, 2008.

Accounting for Income Tax Benefits of Dividends on Share-Based Payment Awards: In June 2007, the FASB ratified the consensus reached in EITF 06-11, Accounting for Income Tax Benefits on Share-Based Payment Awards. EITF 06-11 applies to entities that have share-based payment arrangements that entitle employees to receive dividends or dividend equivalents on equity-classified nonvested shares when those dividends or dividend equivalents are charged to retained earnings and result in an income tax deduction. Entities that have share-based payment arrangements that fall within the scope of this EITF will be required to increase additional paid in capital for any realized income tax benefit associated with dividends or dividend equivalents paid to employees for equity classified nonvested equity awards. Any increase recorded to additional paid in capital is required to be included in an entity’s pool of excess tax benefits that are available to absorb potential future tax deficiencies on share-based payment awards. EITF 06-11 will be required to be adopted prospectively on January 1, 2008. The adoption of this EITF is not expected to have a material impact on financial condition, results of operations, or liquidity.

3. Acquisitions and Divestitures

Acquisitions: On May 1, 2006, in a cash transaction, the Corporation completed its acquisition of Forbes First Financial Corporation (Pioneer), a privately held bank holding company operating eight branches in the St. Louis, Missouri, metropolitan area through its subsidiary Pioneer Bank. As of the acquisition date, the fair value of Pioneer’s loans and deposits were $372 million and $430 million, respectively. Goodwill and intangibles resulting from this acquisition total $60 million.

On December 1, 2006, the Corporation completed its acquisition of Harbor Florida Bancshares, Inc. (Harbor), a banking company operating 42 branches along the central east coast of Florida through its subsidiary Harbor Federal Savings Bank. Under the terms of the agreement, each share of Harbor common stock was exchanged for 1.2206 shares of National City common stock. Approximately 29 million shares of National City common stock were issued in conjunction with this transaction. The common shares issued were valued at $36.68 per share, representing the average of closing market prices for two days prior and subsequent to the date the exchange ratio was finalized. The total cost of the transaction was $1.1 billion, and included $14 million for the fair value of stock options exchanged.

On January 5, 2007, the Corporation completed its acquisition of Fidelity Bankshares, Inc. (Fidelity), a banking company operating 52 branches along Florida’s southeast coast through its subsidiary Fidelity Federal Bank & Trust. Under the terms of the agreement, Fidelity shareholders elected to receive either $39.50 in cash or 1.0977 shares of National City common stock for each share of Fidelity stock outstanding. Shareholder elections were subject to an allocation process that resulted in 50% of Fidelity’s outstanding shares being exchanged for cash and 50% exchanged for National City common stock, resulting in the issuance of approximately 14 million shares of National City common stock and a cash payment of $506 million. The common shares were valued at $36.16 per share, representing the

average of closing market prices for two days prior and subsequent to the date the merger was announced. The total cost of the transaction was $1.0 billion, including $20 million related to stock options settled in cash.

Assets and liabilities of acquired entities are recorded on the Consolidated Balance Sheet at estimated fair values as of respective acquisition dates, and the results of acquired entity operations are included in the Consolidated Statement of Income from those dates. The fair values of acquired assets and liabilities, including identifiable intangible assets, are finalized as quickly as possible following an acquisition. As of June 30, 2007, the purchase price allocations for Harbor and Fidelity were substantially complete. Valuations are subject to revision, however, as additional information becomes available and exit plans are finalized. Purchase accounting adjustments determinable within 12 months of acquisition date result in adjustments to goodwill.

The following table shows the excess purchase price over carrying value of net assets acquired, purchase price allocation and resulting goodwill recorded to date for the Harbor and Fidelity acquisitions.


(In Thousands)	Harbor			Fidelity

Purchase price	$	1,080,145		$	1,034,828
Carrying value of net assets acquired		(344,162	)		(269,008	)

Excess of purchase price over carrying value of net assets acquired		735,983			765,820
Purchase accounting adjustments
Securities		9,699			(531	)
Loans		(29,852	)		(52,930	)
Premises and equipment		(26,984	)		(36,057	)
Mortgage servicing rights		(3,253	)		(3,749	)
Other assets		(9,039	)		(54	)
Deposits		(1,244	)		(1,415	)
Borrowings		(769	)		2,855
Severance and exit costs		11,236			31,612
Other liabilities		24,421			25,942
Deferred taxes		28,312			63,922

Subtotal		738,510			795,415

Core deposit intangibles		(36,935	)		(84,972	)
Other identifiable intangible assets		(9,108	)		(2,060	)

Goodwill	$	692,467		$	708,383

The following table summarizes the estimated fair value of net assets acquired related to the Harbor and Fidelity acquisitions.


(In Thousands)	Harbor		Fidelity

Assets
Cash and cash equivalents	$	242,124	$	142,483
Securities		389,869		607,118
Loans, net of allowance for loan losses		2,638,893		3,569,353
Premises and other equipment		88,518		130,484
Goodwill and other intangibles		738,510		795,415
Mortgage servicing rights		4,741		7,074
Other assets		63,206		115,660

Total Assets		4,165,861		5,367,587

Liabilities
Deposits		2,389,861		3,375,712
Borrowings		614,681		763,931
Other liabilities		81,174		193,116

Total Liabilities		3,085,716		4,332,759

Fair value of net assets acquired	$	1,080,145	$	1,034,828

On May 1, 2007, the Corporation announced a definitive agreement to acquire MAF Bancorp, Inc., headquartered in Clarendon Hills, Illinois. MAF Bancorp is the holding company of MidAmerica Bank, which operates 82 branches throughout Chicago and Milwaukee and surrounding areas. As of June 30, 2007, MAF Bancorp had portfolio loans of $7.2 billion and deposits of $7.2 billion. Under the terms of the agreement, MAF Bancorp shareholders will receive National City common stock worth $56 for each share of MAF Bancorp common stock. The exchange ratio will be based on the average closing price of National City common stock for the 20 trading days immediately preceding Federal Reserve Board approval. The total indicated value of the transaction is approximately $1.9 billion.

Completion of this transaction is expected to occur late in the third quarter or in the fourth quarter, subject to shareholder and regulatory approvals.

Divestitures: On December 30, 2006, the Corporation completed the sale of its First Franklin nonconforming mortgage origination network and related servicing platform. The Corporation recognized a pretax gain of $984 million or $622 million after tax on this transaction. The purchase price and the resulting gain are subject to adjustment based on the closing date values of assets and liabilities sold, as well as other negotiated matters. The amount of such adjustment, if any, is not determinable at this time. Refer to Note 20 for further discussion regarding any purchase price adjustments.

4. Restructuring Charges

Best In Class is a series of projects designed to drive long-term performance improvement and cultural change. Restructuring costs related to the program include employee severance, lease exits, contract terminations, asset impairment, and other items. During the three-month periods ended June 30, 2007 and June 30, 2006 the Corporation recognized restructuring charges of $1 million and $4 million, respectively. Restructuring charges for the six months ended June 30, 2007 and June 30, 2006 were $1 million and $9 million, respectively. The charges were primarily related to severance benefits.

Charges recognized since the inception of the program total $77 million, substantially all recorded within the Parent and Other segment. Additional restructuring costs may be incurred through 2008. The amounts and exact timing of additional charges cannot be reasonably estimated. As of June 30, 2007, payments related to the Best In Class restructuring liability are scheduled to occur through August 2008 for severance benefits and through December 2010 for lease obligations on vacated facilities.

The Corporation has also implemented restructuring plans related to the integration of recently acquired entities. These plans are formulated prior to each acquisition. Costs incurred for acquisition-related employee terminations consist of severance, retention, and outplacement benefits. Severance and outplacement benefit costs are recognized in the allocation of the purchase price to acquired assets and liabilities. Retention benefits are recorded to salaries expense over the required service period. Exit and termination costs relating to the exit of certain businesses, facility leases, and other contract termination costs are also recognized in the allocation of the purchase price to acquired assets and liabilities.

During the three-month periods ended June 30, 2007 and June 30, 2006, the Corporation recorded expense of $2 million and $5 million, respectively, for severance and other employee-related termination costs related to acquisitions, divestitures and other business activities. Similar expenses for the six-month periods ended June 30, 2007 and June 30, 2006 totaled $10 million and $5 million, respectively. The three and six-month periods ended June 30, 2007 included retention benefits of $1 million and $3 million, respectively. The three- and six-month periods ended June 30, 2006 did not include any significant retention benefits expense. Payments will continue to be made for acquisition-related restructuring plan costs through 2013, primarily related to lease obligations on vacated facilities.

Severance and other employee-related restructuring costs not associated with acquisitions are recorded in salaries, benefits and other personnel costs in the income statement. Other restructuring costs, which consist primarily of consulting and lease exit costs unrelated to acquisitions, are recorded in third-party services and other noninterest expense, respectively, in the income statement.

Activity in the severance and restructuring liability for the three- and six-month periods ended June 30, 2007 and 2006 is presented in the following table and includes severance expenses incurred in the normal course of business. All severance and other termination expenses are recorded as unallocated corporate charges within the Parent and Other segment.

Three Months Ended

Six Months Ended

June 30, 2007

Best In

Acquisitions

Best In

Acquisitions

(In Thousands)

Total

Class

and Other

Total

Class

And Other

Beginning balance

77,373

12,058

65,315

72,604

15,219

57,385

Severance and other employee related costs:

Charged to expense

2,987

543

2,444

11,471

1,316

10,155

Recognized in purchase price allocation

(1,835

)

—

(1,835

)

15,262

—

15,262

Payments

(19,959

)

(1,216

)

(18,743

)

(45,636

)

(4,506

)

(41,130

)

Exit costs, contract terminations and other:

Charged to expense

1,444

363

1,081

1,127

1,081

Recognized in purchase price allocation

(510

)

—

(510

)

8,046

—

8,046

Payments

(7,315

)

(999

)

(6,316

)

(10,689

)

(1,326

)

(9,363

)

Ending balance

52,185

10,749

41,436

52,185

10,749

41,436


	Three Months Ended									Six Months Ended
	June 30, 2006									June 30, 2006
				Best In			Acquisitions						Best In			Acquisitions
(In Thousands)	Total			Class			and Other			Total			Class			And Other

Beginning balance	$	66,781		$	32,921		$	33,860		$	87,853		$	47,690		$	40,163
Severance and other employee related costs:
Charged to expense		8,627			3,659			4,968			12,521			7,223			5,298
Recognized in purchase price allocation		757			—			757			(243	)		—			(243	)
Payments		(14,552	)		(11,569	)		(2,983	)		(35,116	)		(28,421	)		(6,695	)
Exit costs, contract terminations and other:
Charged to expense		839			839			—			1,687			1,687			—
Recognized in purchase price allocation		1,143			—			1,143			1,143			—			1,143
Payments		(3,031	)		(1,561	)		(1,470	)		(7,281	)		(3,890	)		(3,391	)

Ending balance	$	60,564		$	24,289		$	36,275		$	60,564		$	24,289		$	36,275

5. Securitization Activity

The Corporation has securitized pools of credit card, automobile, and Small Business Administration (SBA) loans. Recent securitization activities are described below.

Credit Card: In the first quarter of 2007, the Corporation securitized a $425 million pool of credit card receivables (Series 2007-1) following the maturity of its Series 2002-1 securitization. A pretax gain of approximately $2 million was recognized on this transaction within loan sale revenue. Retained interests of $31 million were recognized at the date of sale. Retained interests included a seller’s interest in the loans, accrued interest, and an interest-only strip. The initial carrying values were determined by allocating the carrying value among the assets sold and retained based on their relative fair values at the date of sale. The fair value of the interest-only strip was estimated by discounting the projected future cash flows of this security. The Corporation retained the right to service these loans. Servicing fees to be received approximated the current market rate for servicing fees, therefore, no servicing asset or liability was recognized. Transaction costs of $2 million were capitalized and are being amortized over the revolving period of this securitization of four years.

In the first quarter of 2006, the Corporation securitized a $425 million pool of credit card receivables (Series 2006-1) following the maturity of its Series 2001-1 securitization. A pretax gain of $2 million was recognized on this transaction within loan sale revenue. Retained interests in these loans of $28 million were recognized at the date of sale. Retained interests included a seller’s interest in the loans, accrued interest, and an interest-only strip. The initial carrying values of these retained interests were determined by allocating the carrying value among the assets sold and retained based on their relative fair values at the date of sale. The fair value of the interest-only strip was estimated by discounting the projected future cash flows of this security. The Corporation has also retained the right to service these loans. Servicing fees to be received approximated the current market rate for servicing fees, therefore, no servicing asset or liability was recognized. Transaction costs associated with this revolving-term securitization of $1 million were capitalized and are being amortized over the revolving period of this securitization of four years.

At the inception of each securitization, the assumptions used to value retained interests were as follows:


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

*Credit Card Loans:*
Interest-only strip (Series 2005-1)		3.2		3.75	%		18.21	%		5.35	%		15.00	%		12.00	%
Interest-only strip (Series 2006-1)		3.1		4.81			19.01			4.77			15.00			13.79
Interest-only strip (Series 2007-1)		3.1		5.39			19.19			4.04			15.00			13.13


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

*Automobile Loans:*
Interest-only strip (Series 2004-A)		21.8		1.50	%		1.75	%		12.00	%		6.79	%
Servicing asset (Series 2004-A)		21.8		1.50			1.75			11.00			6.79
Interest-only strip (Series 2005-A)		16.6		1.50			2.18			12.00			7.06
Servicing asset (Series 2005-A)		12.5		1.50			2.18			10.00			7.06

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:

Three Months Ended

Six Months Ended

As of June 30, 2007

June 30, 2007

Loans Past

Due 30

Principal

Days or

Average

Net Credit

Average

Net Credit

(In Millions)

Balance

More

Balances

Losses

Balances

Losses

Type of loan:

Credit Card

2,724.7

95.7

2,692.9

26.4

2,658.0

57.5

Automobile

1,130.8

23.9

1,245.6

2.3

1,369.1

5.7

SBA

207.3

84.9

216.1

—

222.7

—

Total loans managed or securitized

4,062.8

204.5

4,154.6

28.7

4,249.8

63.2

Less loans securitized:

Credit Card

1,450.0

45.7

1,450.0

14.5

1,266.9

25.3

Automobile

1,013.5

18.0

1,111.1

2.5

1,218.3

6.1

SBA

207.3

84.9

216.1

—

222.7

—

Less loans held for securitization:

Credit Card

—

183.1

—

Loans held in portfolio

1,392.0

55.9

1,377.4

11.7

1,358.8

31.8


					Three Months Ended				Six Months Ended
	As of June 30, 2006				June 30, 2006				June 30, 2006
			Loans Past
			Due 30
	Principal		Days or		Average		Net Credit		Average		Net Credit
(In Millions)	Balance		More		Balances		Losses		Balances		Losses

Type of loan:
Credit Card	$	2,350.4	$	92.4	$	2,342.4	$	23.5	$	2,356.6	$	43.6
Automobile		2,218.8		42.4		2,406.5		.3		2,592.9		8.8
SBA		38.9		4.3		40.2		—		41.5		—

Total loans managed or securitized		4,608.1		139.1		4,789.1		23.8		4,991.0		52.4
Less loans securitized:
Credit Card		1,450.0		50.1		1,450.0		14.1		1,243.6		20.9
Automobile		1,987.2		27.4		2,142.0		3.4		2,302.5		7.0
SBA		38.9		4.3		40.2		—		41.5		—
Less loans held for securitization:
Credit Card		—		—		—		—		206.6		—

Loans held in portfolio	$	1,132.0	$	57.3	$	1,156.9	$	6.3	$	1,196.8	$	24.5

Certain cash flows received from the securitization trusts follow:


	Three Months Ended						Six Months Ended
	June 30, 2007						June 30, 2007
	Credit						Credit
(In Millions)	Card		Automobile		SBA		Card		Automobile		SBA

Proceeds from new securitizations	$	—	$	—	$	—	$	425.0	$	—	$	—
Proceeds from collections reinvested in previous securitizations		832.3		—		—		1,419.5		—		—
Servicing fees received		7.3		2.8		—		12.6		6.2		—
Other cash flows received on interests that continue to be held		21.3		1.4		.6		37.0		3.1		1.3
Proceeds from sales of previously charged-off accounts		1.5		—		—		2.1		—		—
Purchases of delinquent or foreclosed assets		—		—		—		—		—		—


	Three Months Ended						Six Months Ended
	June 30, 2006						June 30, 2006
	Credit						Credit				Home
(In Millions)	Card		Automobile		SBA		Card		Automobile		Equity		SBA

Proceeds from new securitizations	$	—	$	—	$	—	$	425.0	$	—	$	—	$	—
Proceeds from collections reinvested in previous securitizations		855.1		—		—		1,459.9		—		—		—
Servicing fees received		7.3		5.4		—		12.4		11.6		—		—
Other cash flows received on interests that continue to be held		27.2		16.5		.3		36.5		25.0		—		.6
Proceeds from sales of previously charged-off accounts		.3		—		—		4.1		—		—		—
Purchases of delinquent or foreclosed assets		—		—		—		—		—		.1		—

The Corporation holds certain interests in securitized credit card and automobile loans consisting of interest-only strips and servicing assets. The table below presents the weighted-average assumptions used to measure the fair values of these retained interests as of June 30, 2007. The sensitivity of these fair values to immediate 10% and 20% adverse changes in key assumptions is also shown. 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.


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

*Credit Card Loans*
Interest-only strips	$	3.3		3.1		5.39	%		19.05	%		4.12	%		15.00	%		12.49	%
Decline in fair value of 10% adverse change					$	2.0		$	0.2		$	1.5		$	—		$	3.3
Decline in fair value of 20% adverse change						3.3			0.4			3.0			—			3.3


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

*Automobile Loans*
Interest-only strip	$	12.5		4.7		1.50	%		1.73	%		12.00	%		7.02	%
Decline in fair value of 10% adverse change					$	0.0		$	2.7		$	0.2		$	4.4
Decline in fair value of 20% adverse change						0.1			5.9			0.3			5.0
Servicing asset(b)	$	5.9		6.9		1.50	%		1.82	%		10.14	%		7.02	%
Decline in fair value of 10% adverse change					$	0.6		$	—		$	0.0		$	0.0
Decline in fair value of 20% adverse change						1.3			—			0.1			0.1

(a) Absolute prepayment speed.

(b) Carrying value of servicing assets at June 30, 2007 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 a new 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, airplanes, medical, construction, 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 no longer originates automobile leases; accordingly, the retail 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)	2007		2006		2006

Commercial
Direct financings	$	4,176,913	$	3,868,271	$	3,258,516
Leveraged leases		157,949		214,669		272,058

Total commercial lease financings		4,334,862		4,082,940		3,530,574
Consumer
Retail automobile lease financings		223,215		299,704		355,856

Total net investment in lease financings	$	4,558,077	$	4,382,644	$	3,886,430

The components of the net investment in lease financings by type follow:


	June 30			December 31			June 30
(In Thousands)	2007			2006			2006

Commercial
Lease payments receivable	$	4,585,129		$	4,260,255		$	3,572,514
Estimated residual value of leased assets		378,076			408,809			466,211

Gross investment in commercial lease financings		4,963,205			4,669,064			4,038,725
Unearned income		(628,343	)		(586,124	)		(508,151	)

Total net investment in commercial lease financings	$	4,334,862		$	4,082,940		$	3,530,574

Consumer
Lease payments receivable	$	71,688		$	117,176		$	166,430
Estimated residual value of leased assets		162,649			201,723			218,912

Gross investment in consumer lease financings		234,337			318,899			385,342
Unearned income		(11,122	)		(19,195	)		(29,486	)

Total net investment in consumer lease financings	$	223,215		$	299,704		$	355,856

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


	Three Months Ended						Six Months Ended
	June 30						June 30
(In Thousands)	2007			2006			2007			2006

Commercial
Beginning balance	$	388,465		$	493,616		$	408,809		$	482,049
Additions		28,012			16,393			59,083			36,850
Runoff		(38,401	)		(37,118	)		(89,816	)		(46,008	)
Write-downs		—			(6,680	)		—			(6,680	)

Ending balance	$	378,076		$	466,211		$	378,076		$	466,211

Consumer
Beginning balance	$	187,033		$	225,397		$	201,723		$	231,582
Runoff		(24,384	)		(6,485	)		(39,074	)		(12,670	)

Ending balance	$	162,649		$	218,912		$	162,649		$	218,912

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 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)	2007			2006			2006

Commercial
Cost	$	567,643		$	616,787		$	584,809
Accumulated depreciation		(170,944	)		(151,358	)		(132,088	)

Net carrying value of commercial leased equipment		396,699			465,429			452,721
Consumer
Cost		61,610			156,342			298,750
Accumulated depreciation		(11,374	)		(48,819	)		(89,929	)

Net carrying value of consumer leased equipment		50,236			107,523			208,821

Total net carrying value of equipment leased to others	$	446,935		$	572,952		$	661,542

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 $441 million, $387 million, and $285 million, at June 30, 2007, December 31, 2006, and June 30, 2006, respectively.

The Corporation has the option to repurchase certain delinquent loans that were sold in prior periods. The Corporation has recognized these loans and the related repurchase obligation on its balance sheet as follows:


	June 30		December 31		June 30
(In Millions)	2007		2006		2006

Residential real estate portfolio loans	$	254	$	297	$	234
Commercial real estate loans held for sale		7		8		17

Other borrowed funds	$	261	$	305	$	251

To provide for probable losses in the loan portfolio, National City maintains an allowance for loan losses and an allowance for losses on lending-related commitments.

Activity in the allowance for loan losses follows:


	Three Months Ended					Six Months Ended
	June 30					June 30
(In Thousands)	2007			2006		2007			2006

Balance at beginning of period	$	1,104,011		$	1,001,324	$	1,131,175		$	1,094,047
Provision for credit losses		144,540			61,975		266,508			93,888
Charge-offs:
Commercial		29,459			28,798		63,609			73,614
Commercial construction		2,211			1,890		2,651			1,762
Commercial real estate		2,756			5,100		5,630			11,783
Residential real estate		58,279			46,488		130,517			92,788
Home equity lines of credit		20,121			14,681		43,277			36,037
Credit cards and other unsecured lines of credit		28,104			20,089		62,865			47,940
Other consumer		13,357			10,791		27,347			36,665

Total charge-offs		154,287			127,837		335,896			300,589
Recoveries:
Commercial		11,801			10,156		22,416			26,511
Commercial construction		131			6		138			133
Commercial real estate		4,709			1,382		5,257			3,060
Residential real estate		22,175			18,880		26,661			30,680
Home equity lines of credit		7,382			5,150		13,613			8,612
Credit cards and other unsecured lines of credit		3,814			3,561		8,849			9,995
Other consumer		6,989			13,075		14,271			25,115

Total recoveries		57,001			52,210		91,205			104,106
Net charge-offs		97,286			75,627		244,691			196,483
Other^(a)		(15,499	)		1,733		(17,226	)		(2,047	)

Balance at end of period	$	1,135,766		$	989,405	$	1,135,766		$	989,405

(a)

Includes the allowance for loan losses associated with acquisitions, portfolio loans transferred to held for sale, and in 2007, reinsurance claims paid to third parties.

At June 30, 2007, the provision for loan losses included $18 million of expected reinsurance losses associated with insured nonconforming mortgage loans. The Corporation’s insurance subsidiary provides reinsurance to a third party who provides the primary mortgage insurance on certain portfolio loans. Under this arrangement, National City assumes a 50% pro rata share of credit losses on the insured portfolio loans subject to certain limits.

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


	Three Months Ended						Six Months Ended
	June 30						June 30
(In Thousands)	2007			2006			2007			2006

Balance at beginning of period	$	62,864		$	78,731		$	77,986		$	83,601
Net provision for credit losses on lending-related commitments		(1,419	)		(2,058	)		(16,541	)		(6,928	)

Balance at end of period	$	61,445		$	76,673		$	61,445		$	76,673

Nonperforming loans totaled $562 million, $500 million, and $489 million as of June 30, 2007, December 31, 2006, and June 30, 2006, respectively. For loans classified as nonperforming at June 30, 2007, the contractual interest due and actual interest recognized on those loans during the six months ended June 30, 2007 was $30 million and $3 million, respectively.

Impaired loans, as defined under SFAS 114, are included in nonperforming loans. Average impaired loans for the first six months of 2007 and 2006 totaled $177 million and $146 million, respectively. During the first six months of 2007 and 2006, interest recognized on impaired loans while they were considered impaired was not material. The majority of the loans deemed impaired were evaluated using the fair value of the collateral as the measurement method. The following table presents details on the allowance for loan losses related to impaired loans.


	June 30		December 31		June 30
(In Thousands)	2007		2006		2006

Impaired loans with an associated allowance	$	104,002	$	118,127	$	104,151
Impaired loans without an associated allowance		56,956		71,360		71,564

Total impaired loans	$	160,958	$	189,487	$	175,715

Allowance for loan losses allocated to impaired loans	$	28,514	$	29,545	$	28,898

8. Securities

Securities available for sale follow:


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

June 30, 2007
U.S. Treasury	$	1,064,952	$	1,468	$	27,679	$	1,038,741
Federal agency		228,297		1,962		1,601		228,658
Mortgage-backed securities		5,100,975		4,981		111,144		4,994,812
Asset-backed and corporate debt securities		129,645		983		63		130,565
States and political subdivisions		414,637		3,989		1,267		417,359
Other		199,368		14,566		146		213,788

Total securities	$	7,137,874	$	27,949	$	141,900	$	7,023,923


December 31, 2006
U.S. Treasury	$	1,051,590	$	8,872	$	12,001	$	1,048,461
Federal agency		250,054		2,458		1,589		250,923
Mortgage-backed securities		5,305,629		41,119		51,919		5,294,829
Asset-backed and corporate debt securities		174,829		2,188		20		176,997
States and political subdivisions		499,563		7,205		972		505,796
Other		221,327		10,834		347		231,814

Total securities	$	7,502,992	$	72,676	$	66,848	$	7,508,820


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

June 30, 2006
U.S. Treasury	$	1,042,572	$	3,127	$	31,628	$	1,014,071
Federal agency		223,332		2,725		3,969		222,088
Mortgage-backed securities		5,683,181		4,776		184,506		5,503,451
Asset-backed and corporate debt securities		205,325		2,094		87		207,332
States and political subdivisions		555,973		8,770		1,901		562,842
Other		206,009		10,645		895		215,759

Total securities	$	7,916,392	$	32,137	$	222,986	$	7,725,543

Other securities included retained interests from securitizations as well as equity securities.

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

June 30, 2007

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

546,942

12,728

471,322

14,951

1,018,264

27,679

Federal agency

113,398

413

69,141

1,188

182,539

1,601

Mortgage-backed securities

2,326,872

38,365

2,195,207

72,780

4,522,079

111,145

Asset-backed securities

12,520

1,637

14,157

States and political subdivisions

24,020

194

50,542

1,073

74,562

1,267

Other

519

10,692

138

11,211

145

Total

3,024,271

51,758

2,798,541

90,142

5,822,812

141,900

Securities available for sale are reviewed quarterly for possible other-than-temporary impairment. The review includes an analysis of the facts and circumstances of each individual investment including the severity of loss, the creditworthiness of the issuer, the length of time the fair value has been below cost, and management’s intent and ability to hold the security for the time necessary to recover the amortized cost, taking into consideration balance sheet management strategies and management’s market view and outlook. At June 30, 2007, management concluded that none of the individual unrealized losses represented an other-than-temporary impairment as management attributes the declines in value to changes in market interest rates, not credit quality or other factors, and management had the intent and ability to hold these securities for the time necessary to recover the amortized cost. The majority of the losses related to securities issued by the U.S. government or government-sponsored agencies and other investment-grade issuers.

At June 30, 2007, 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 $6.4 billion. At June 30, 2007, 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, 2007 and 2006, gross securities gains of $31 million and $15 million, respectively, were recognized, while gross securities losses were $5 million and $2 million, respectively.

9. Trading Assets and Liabilities

Securities, loans, and derivative instruments are classified as trading when they are entered into for the purpose of making short-term profits or to provide risk management products to customers. Certain securities used to manage risk related to mortgage servicing assets are also classified as trading securities. All trading instruments are carried at fair value. Trading securities primarily include U.S. Treasury securities, U.S. government agency securities, mortgage-backed securities, and corporate bonds. Trading loans include the guaranteed portion of Small Business Administration loans and syndicated commercial loans held for distribution to others. Trading securities and loans are classified within other investments on the balance sheet. Trading derivative instruments principally represent interest-rate swap and option contracts and foreign currency futures and forward contracts entered into to meet the risk management needs of commercial banking customers. The fair values of trading derivatives are included in derivative assets and derivative liabilities on the balance sheet. Further detail on derivative instruments is included in Note 23. Trading liabilities also include securities sold short, which are obligations to purchase securities that have already been sold to other third parties. Liabilities for securities sold short are classified within borrowed funds on the balance sheet.

The following table presents the fair values of trading assets and liabilities.


	June 30		December 31		June 30
(In Thousands)	2007		2006		2006

Trading assets:
Securities	$	355,878	$	447,031	$	514,531
Loans		164,820		213,514		520,253
Derivative instruments		115,330		118,962		169,814

Total trading assets	$	636,028	$	779,507	$	1,204,598

Trading liabilities:
Securities sold short	$	33,566	$	52,122	$	88,655
Derivative instruments		89,848		97,585		141,082

Total trading liabilities	$	123,414	$	149,707	$	229,737

Trading revenue includes both net interest income from trading securities, loans, and securities sold short, and gains and losses from changes in the fair value of trading instruments. Gains and losses on trading instruments are included either within loan servicing revenue, brokerage revenue, or other income on the income statement. Total revenue from trading activities was as follows:


	Three Months Ended						Six Months Ended
	June 30						June 30
(In Thousands)	2007			2006			2007			2006

Net interest income	$	6,367		$	13,513		$	12,182		$	25,968
Gains (losses):
Securities and securities sold short		(12,358	)		(774	)		(13,511	)		6,021
Loans		10			(10,665	)		462			(11,764	)
Derivative instruments		18			8,332			8,564			11,702

Total net (losses) gains in noninterest income		(12,330	)		(3,107	)		(4,485	)		5,959

Total net trading (loss) revenue	$	(5,963	)	$	10,406		$	7,697		$	31,927

10. Principal Investments

The principal investment portfolio includes direct investments in private and public companies, as well as indirect investments in private equity funds which are managed by third parties. The direct portfolio consists of investments in the consumer, retail, manufacturing, automotive, commercial services, healthcare, commercial distribution, and building products industries with the largest industry, manufacturing, constituting approximately 13% of the total principal investment portfolio. The indirect portfolio is diversified according to the terms of the fund’s agreement and the general partner’s direction. Principal investments are classified within other investments on the balance sheet. A rollforward of principal investments follows:


	Three Months Ended						Six Months Ended
	June 30						June 30
(In Thousands)	2007			2006			2007			2006

Direct Investments:
Carrying value at beginning of period	$	319,036		$	318,913		$	311,218		$	316,974
Investments — new fundings		17,961			20,305			33,408			30,818
Returns of capital and write-offs		(3,546	)		(7,097	)		(11,175	)		(12,890	)
Fair value adjustments		6,045			(6,000	)		6,045			(8,781	)

Carrying value at end of period	$	339,496		$	326,121		$	339,496		$	326,121

Indirect Investments:
Carrying value at beginning of period	$	365,184		$	348,422		$	354,278		$	343,864
Investments — new fundings		21,980			20,321			44,714			42,894
Returns of capital and write-offs		(14,845	)		(14,338	)		(26,950	)		(32,141	)
Fair value adjustments		(772	)		419			(495	)		207

Carrying value at end of period	$	371,547		$	354,824		$	371,547		$	354,824

Total Principal Investments:
Carrying value at beginning of period	$	684,220		$	667,335		$	665,496		$	660,838
Investments — new fundings		39,941			40,626			78,122			73,712
Returns of capital and write-offs		(18,391	)		(21,435	)		(38,125	)		(45,031	)
Fair value adjustments		5,273			(5,581	)		5,550			(8,574	)

Carrying value at end of period	$	711,043		$	680,945		$	711,043		$	680,945


	Three Months Ended				Six Months Ended
	June 30				June 30
(In Thousands)	2007		2006		2007		2006

Principal investment revenue ^(a)	$	6,474	$	6,930	$	13,090	$	13,383

Net principal investment gains ^(b)		19,865		24,430		29,987		58,255


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

(b)		Consists primarily of fair value adjustments and realized gains and losses on investments

The principal investment portfolio is managed primarily within the Commercial Banking – National line of business. Accounting policies for principal investments are included in Note 1. Commitments to fund principal investments are discussed in Note 20.

11. Goodwill and Other Intangible Assets

On January 5, 2007, the Corporation completed the acquisition of Fidelity Bankshares, Inc. (Fidelity), which resulted in an increase to goodwill of $708 million. This goodwill was primarily allocated to the Retail Banking and Commercial Banking – Regional segments based on the relative fair value that this acquisition added to these segments. The fair value of each business added to these segments was estimated based on generally accepted valuation techniques including discounted projected cash flows, earnings multiples, and comparable transactions. Refer to Note 3 for further discussion on recent acquisitions.

The carrying value of goodwill was $4.5 billion, $3.8 billion, and $3.3 billion at June 30, 2007, December 31, 2006 and June 30, 2006, respectively. No impairment of goodwill was recognized in either of the six months ended June 30, 2007 or 2006.

A rollforward of goodwill by line of business for the three months ended June 30, 2007 follows:

January 1

Goodwill

Impairment

June 30

(In Thousands)

2007

Adjustments^(a)

Losses

2007

Retail Banking

1,501,931

422,521

—

1,924,452

Commercial Banking – Regional

1,671,003

287,304

—

1,958,307

Commercial Banking – National

336,897

750

—

337,647

Mortgage Banking

76,031

7,256

—

83,287

Asset Management

230,049

—

230,049

Parent and Other

—

Total

3,815,911

717,831

—

4,533,742


(a)		Represents goodwill associated with acquisitions, purchase accounting adjustments, as well as the realignment of goodwill among segments.

Finite-lived intangible assets capitalized on the balance sheet include core deposit, credit card and other intangibles. A summary of these intangible assets follows:


	June 30		December 31		June 30
(In Thousands)	2007		2006		2006

Core deposit intangibles
Gross carrying amount	$	321,589	$	239,289	$	268,303
Less: accumulated amortization		108,942		85,876		135,423

Net carrying amount		212,647		153,413		132,880

Credit card intangibles
Gross carrying amount		6,310		7,699		7,699
Less: accumulated amortization		3,538		2,914		2,349

Net carrying amount		2,772		4,785		5,350

Other intangibles
Gross carrying amount		73,098		62,183		52,697
Less: accumulated amortization		46,547		36,733		28,739

Net carrying amount		26,551		25,450		23,958

Total finite-lived intangibles
Gross carrying amount		400,997		309,171		328,699
Less: accumulated amortization		159,027		125,523		166,511

Net carrying amount	$	241,970	$	183,648	$	162,188

Amortization expense on finite-lived intangible assets totaled $19 million and $13 million for the three months ended June 30, 2007 and 2006, respectively. Amortization expense on finite-lived intangible assets totaled $36 million and $26 million for the six months ended June 30, 2007 and 2006, respectively. Amortization expense on finite-lived intangible assets is expected to total $52 million, $44 million, $35 million, $28 million, and $21 million for fiscal years 2008 through 2012, respectively.

12. Servicing Assets

The Corporation has obligations to service residential mortgage loans, commercial real estate loans, automobile loans, and other consumer loans. Classes of servicing assets are identified based on loan type and management’s method of managing the risks associated with these assets. A description of the various classes of servicing assets follows.

Residential Mortgage Servicing Rights: The Corporation recognizes mortgage servicing right (MSR) assets on residential real estate loans when it retains the obligation to service these loans upon sale and the servicing fee is more than adequate compensation. MSRs are subject to declines in value from actual or expected prepayments of the underlying loans. The Corporation manages this risk by hedging the fair value of MSRs with securities and derivative instruments which are expected to increase in value when the value of MSRs declines.

Effective January 1, 2006, the Corporation adopted the provisions of SFAS 156 and elected the fair value measurement method for MSRs. Upon adoption, the carrying value of the MSRs was increased to fair value by recognizing a cumulative effect adjustment of $26 million pretax, or $17 million after tax. Management selected the fair value measurement method of accounting for MSRs to be consistent with its risk management strategy to hedge the fair value of these assets. The fair value method of accounting for MSRs matches the accounting for the related securities and derivative instruments. Changes in the fair value of MSRs, as well as changes in fair value of the related securities and derivative instruments, are recognized each period within loan servicing revenue on the income statement.

On December 30, 2006, the First Franklin nonconforming mortgage servicing platform and servicing rights valued at $223 million were sold.

Changes in the carrying value of MSRs, accounted for at fair value, follow:


	Three Months Ended June 30
(In Thousands)	2007			2006

Balance at beginning of period	$	2,089,863		$	2,361,617
Additions from loans sold with servicing retained		152,457			137,152
Changes in fair value due to:
Time decay and payoffs^(a)		(89,244	)		(110,711	)
Implementation of internal prepayment model		—			(55,983	)
All other changes in valuation inputs or assumptions^(b)		314,673			209,175

Fair value of MSRs at end of period	$	2,467,749		$	2,541,250


	Six Months Ended June 30
(In Thousands)	2007			2006

Balance at beginning of period	$	2,094,387		$	2,115,715
Cumulative effect of change in accounting		—			26,392
Additions:
From loans sold with servicing retained		281,759			256,566
From acquisitions		7,075			—
Subtractions from sales of servicing rights		—			(196	)
Changes in fair value due to:
Time decay and payoffs^(a)		(174,886	)		(203,305	)
Implementation of internal prepayment model		—			(55,983	)
All other changes in valuation inputs or assumptions^(b)		259,414			402,061

Fair value of MSRs at end of period	$	2,467,749		$	2,541,250

Unpaid principal balance of loans serviced for others (in millions)	$	167,357		$	184,384


(a)		Represents decrease in MSR value due to passage of time, including the impact from both regularly scheduled loan principal payments and loans that paid down or paid off during the period.

(b)		Represents MSR value change resulting primarily from market-driven changes in interest rates.

The fair value of MSRs is estimated using a valuation model that calculates 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 current mortgage interest rate influences the expected prepayment rate and therefore, the length of the cash flows associated with the servicing asset, while the discount rate determines the present value of those cash flows. Expected mortgage loan prepayment assumptions are estimated by an internal proprietary model and consider empirical data drawn from the historical performance of the Corporation’s managed loan portfolio.

Management periodically obtains third-party valuations of the MSR portfolio to assess the reasonableness of the fair value calculated by the valuation model.

The key economic assumptions used in determining the fair value of MSRs capitalized during the three and six months ended June 30, 2007 and 2006 were as follows:


	Three Months Ended June 30						Six Months Ended June 30
	2007			2006			2007			2006

Weighted-average life (in years)		6.4			4.6			5.9			4.1
Weighted-average CPR		14.49	%		23.58	%		18.82	%		25.66	%
Spread over forward interest rate swap rates^(a)		5.70			—			5.70			—
Weighted-average discount rate^(b)		9.96			10.95			10.14			10.87


(a)		Spread for the months of May and June 2007. Utilized to discount the servicing cash flows.

(b)		Represents the weighted-average discount rate through April 2007.

The key economic assumptions used in determining the fair value of MSRs as of June 30, 2007 and 2006 were as follows:


	2007			2006

Weighted-average life (in years)		6.2			5.6
Weighted-average CPR		13.13	%		15.35	%
Spread over forward interest rate swap rates		5.44			—
Weighted-average discount rate		—			10.36

Commercial Real Estate Servicing Assets: Commercial real estate servicing assets are recognized upon selling commercial real estate loans into the secondary market, while retaining the obligation to service those loans, or from purchasing or assuming the right to service commercial real estate loans originated by others. These servicing assets are initially measured at fair value and subsequently accounted for using the amortization method. Under this method, the assets are amortized in proportion to and over the period of estimated servicing income and are evaluated for impairment on a quarterly basis. For purposes of the impairment analysis, management stratifies these servicing assets by loan type as well as by the term of the underlying loans. When the carrying value exceeds the fair value and is believed to be temporary, a valuation allowance is established by a charge to loan servicing revenue in the income statement. Other-than-temporary impairment is recognized when the recoverability of the carrying value is determined to be remote. When this situation occurs, the unrecoverable portion of the valuation allowance is applied as a direct write-down to the carrying value of the servicing asset. Unlike a valuation allowance, a direct write-down permanently reduces the carrying value of the servicing asset and the valuation allowance, precluding recognition of subsequent recoveries. There were no other-than-temporary impairments on commercial real estate servicing assets recognized during the three or six months ended June 30, 2007 or 2006.

The fair value of commercial real estate servicing assets is estimated by using either a third-party opinion of value or an internal valuation model. Both methods are based on calculating the present value of estimated future net servicing cash flows, taking into consideration discount rates, prepayments, and servicing costs. The internal valuation model is validated at least annually through a third-party valuation.

Commercial real estate servicing assets are classified in other assets on the balance sheet. Changes in the carrying value of the commercial real estate servicing assets and the associated valuation allowance follow:


	Three Months Ended June 30						Six Months Ended June 30
(In Thousands)	2007			2006			2007			2006

Commercial real estate servicing assets
Balance at beginning of period	$	148,767		$	138,791		$	146,867		$	138,408
Additions:
From loans sold with servicing retained		3,640			11,516			11,056			16,592
From assumptions of servicing		216			787			276			787
From purchases of servicing		598			465			1,721			842
Subtractions:
Amortization		(6,080	)		(5,521	)		(12,695	)		(10,591	)
Sales		—			(116	)		(84	)		(116	)


	Three Months Ended June 30						Six Months Ended June 30
(In Thousands)	2007			2006			2007			2006

Carrying value before valuation allowance at end of period		147,141			145,922			147,141			145,922

Valuation allowance
Balance at beginning of period		(907	)		(1,130	)		(957	)		(1,075	)
Impairment recoveries		65			185			115			130

Balance at end of period		(842	)		(945	)		(842	)		(945	)

Net carrying value of servicing assets at end of period	$	146,299		$	144,977		$	146,299		$	144,977

Unpaid principal balance of commercial real estate loans serviced for others (in millions)	$	16,862		$	15,705

Fair value of servicing assets:
Beginning of period	$	185,864		$	173,881		$	188,716		$	163,182
End of period		198,069		$	190,595			198,069		$	190,595

The key economic assumptions used to estimate the fair value of these servicing assets as of June 30, 2007 and 2006 were as follows:


	2007			2006

Weighted-average life (in years)		8.2			8.5
Weighted-average discount rate		13.22	%		13.66	%

Other Consumer Loans: The Corporation also has servicing assets related to sales or securitizations of automobile loans and certain home equity loans and home equity lines of credit. These servicing assets are accounted for using the amortization method and are included in other assets on the balance sheet. The servicing asset related to securitized automobile loans was $5 million, $8 million, and $14 million as of June 30, 2007, December 31, 2006 and June 30, 2006, respectively. The servicing asset related to home equity loans and lines of credit was $31 million, $22 million, and $8 million at June 30, 2007, December 31, 2006 and June 30, 2006, respectively. No servicing asset or liability has been recognized related to the Corporation’s obligation to service credit card loans as the fee received for performing this service is deemed to approximate the amount that would be paid to fairly compensate a substitute servicer, should one be required.

Contractual Servicing Fees: Contractual servicing fees, including late fees and ancillary income, for each type of loan serviced are presented below. Contractual servicing fees are included within loan servicing revenue on the income statement.


	Three Months Ended June 30				Six Months Ended June 30
(In Thousands)	2007		2006		2007		2006

Residential real estate	$	128,066	$	151,682	$	256,734	$	299,315
Credit card		27,874		38,033		47,091		58,356
Commercial real estate		9,348		8,353		19,950		15,549
Automobile		4,824		11,526		11,049		21,571
Home equity lines of credit		13,998		4,080		26,198		6,107
Home equity loans		3,934		417		6,712		417

Total contractual servicing fees	$	188,044	$	214,091	$	367,734	$	401,315

13. Borrowed Funds

Detail of borrowed funds follows:


	June 30			December 31			June 30
(In Thousands)	2007			2006			2006

Federal Home Loan Bank advances	$	1,000,000		$	—		$	—
Commercial paper		836,208			811,842			1,361,074
U.S. Treasury notes		258,556			433,829			1,325,027
Senior bank notes		—			—			45,500
Other		575,474			403,296			419,384

Total borrowed funds	$	2,670,238		$	1,648,967		$	3,150,985

Weighted-average rate		5.08	%		4.96	%		4.93	%

Federal Home Loan Bank advances represent short-term borrowings with the Federal Home Loan Bank and mature within one month. Commercial paper is issued by the Corporation’s subsidiary, National City Credit Corporation. As of June 30, 2007, the entire balance had maturities of three months or less. 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, 2007, the entire balance of outstanding U.S. Treasury notes was callable on demand by the U.S. Treasury.

The other category included obligations totaling $288 million, $52 million, and $89 million at June 30, 2007, December 31, 2006, and June 30, 2006, respectively, related to securities sold short, which are obligations to purchase securities that have already been sold to other third parties. Some short sales are held for trading purposes, while others are used to economically hedge risk associated with other assets or liabilities. See further discussion in Note 9 for more on short sales held for trading purposes. The other category at June 30, 2007, December 31, 2006, and June 30, 2006 also included liabilities totaling $261 million, $305 million, and $251 million, respectively, related to mortgage loans available for repurchase under GNMA and FNMA loan sale programs. See further discussion in Note 1.

14. Long-Term Debt

The composition of long-term debt follows. This note excludes the junior subordinated notes owed to the unconsolidated subsidiary trusts. See Note 15 for further discussion on these obligations.


	June 30		December 31		June 30
(In Thousands)	2007		2006		2006

3.20% senior notes due 2008	$	294,553	$	291,764	$	286,283
3.125% senior notes due 2009		192,416		190,898		185,950
5.75% subordinated notes due 2009		301,518		302,550		298,820
Variable-rate senior note due 2009		600,000		—		—
Variable-rate senior note due 2010		299,918		299,908		299,894
4.90% senior notes due 2015		377,911		389,674		370,417
6.875% subordinated notes due 2019		728,301		764,052		720,919
8.375% senior note due 2032		68,353		69,960		68,589

Total holding company		2,862,970		2,308,806		2,230,872
Senior bank notes		13,614,576		18,580,239		25,275,202
Federal Home Loan Bank advances		1,995,843		1,998,923		2,721,295
7.25% subordinated notes due 2010		237,503		239,052		235,017
6.30% subordinated notes due 2011		206,025		208,065		203,176
7.25% subordinated notes due 2011		195,129		197,933		191,295
6.25% subordinated notes due 2011		305,180		310,214		302,434
6.20% subordinated notes due 2011		499,008		507,892		491,841
4.63% subordinated notes due 2013		288,693		295,326		283,129
5.25% subordinated notes due 2016		235,388		244,697		—
5.70% subordinated notes due 2016		249,700		249,486		—
5.73% subordinated notes due 2017		523,118		—		—
5.80% subordinated notes due 2017		415,150		—		—
4.25% subordinated notes due 2018		214,696		224,354		209,719
Secured debt financings		62,756		31,067		24,715
Other		8,889		10,917		12,816

Total subsidiaries		19,051,654		23,098,165		29,950,639

Total long-term debt	$	21,914,624	$	25,406,971	$	32,181,511

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, and 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 also used to hedge cash flow variability by capping the interest payments associated with variable-rate debt issuances. Further discussion on derivative instruments is included in Notes 1 and 23.

The subordinated notes of the holding company and National City Bank 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 16.

A summary of par values and weighted-average rates of long-term debt as of June 30, 2007, 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

13,662,909

5.17

5.18

Subordinated notes

4,425,000

5.99

6.03

Senior notes

1,875,000

4.83

4.84

FHLB advances

1,977,626

5.12

4.37

Secured debt financings

62,756

8.42

Other

8,889

6.08

Total long-term debt

22,012,180

5.31

5.26

National City Bank has issued senior and subordinated bank notes. During 2007, National City Bank issued senior bank notes with a par value of $10 million and subordinated bank notes with par values totaling $950 million. At June 30, 2007, senior bank notes totaling $2.4 billion were contractually based on a fixed rate of interest and $11.3 billion were contractually based on a variable rate of interest. Senior bank notes have maturities ranging from 2007 to 2078. All subordinated notes of National City Bank were issued at fixed rates, pay interest semi-annually and may not be redeemed prior to maturity.

The holding company has issued both senior and subordinated notes. All but two of the notes issued by the holding company are fixed rate. The $600 million variable-rate note was issued by the holding company during the first quarter of 2007. The interest rate on this note is based on three-month LIBOR plus 1.5 basis points, is reset quarterly, and was 5.375% at June 30, 2007. The interest rate on the $300 million variable-rate senior note of the holding company is based on three-month LIBOR plus 17 basis points, is reset quarterly and was 5.53% at June 30, 2007. The 8.375% senior note of the holding company was called 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.

At June 30, 2007, Federal Home Loan Bank (FHLB) advances consisted of $1.4 billion of fixed-rate obligations and $600 million of variable-rate obligations. The Corporation’s maximum remaining borrowing limit with the FHLB was $605 million at June 30, 2007. The Corporation pledged $10.1 billion in residential real estate loans, $6.2 billion in home equity lines of credit, and $17 million in mortgage-backed securities as collateral against FHLB borrowings at June 30, 2007. FHLB advances have maturities ranging from 2007 to 2030.

15. 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, 2007, National City sponsored four trusts, of which 100% of the common equity is owned by the Corporation, 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.

On May 25, 2007, the Corporation issued $500 million of junior subordinated debentures (2007 debentures) to National City Capital Trust III. The 2007 debentures are the sole assets of this trust, which issued common securities to the Corporation and preferred capital securities to third-party investors. The 2007 debentures bear interest at a fixed rate of 6.625%, payable quarterly in arrears. The 2007 debentures are redeemable at par plus accrued unpaid interest, in whole or in part, anytime after May 25, 2012, with the prior approval of the Federal Reserve Board. The capital securities of the trust qualify as Tier I capital of the Corporation for regulatory purposes. The 2007 debentures will rank pari-passu to the 2006 junior subordinated debentures, junior to the Corporation’s outstanding debt, and junior to its other outstanding junior subordinated debentures. The 2007 debentures have a scheduled maturity date of May 25, 2047. Upon the scheduled maturity date, the Corporation will be required to refinance the 2007 debentures with securities that are treated as capital for regulatory purposes. If the Corporation is unable to refinance these securities, they will remain outstanding until their legal maturity date of May 25, 2067, and bear interest at a variable rate equal to one-month LIBOR plus 2.1263 basis points.

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 acquisitions.


	June 30		December 31		June 30
(In Thousands)	2007		2006		2006

6.625% junior subordinated debentures owed to National City Capital Trust II due November 15, 2036	$	740,873	$	752,681	$	—
6.625% junior subordinated debentures owed to National City Capital Trust III due May 25, 2047		476,297		—		—
Variable-rate junior subordinated debentures owed to Fidelity Capital Trust III due November 23, 2034		32,296		—		—
Variable-rate junior subordinated debentures owed to Fidelity Capital Trust II due January 23, 2034		23,648		—		—
9.85% junior subordinated debentures owed to Fort Wayne Capital Trust I redeemed April 15, 2007		—		30,928		30,928
Variable-rate junior subordinated debentures owed to Banc Services Corp. Statutory Trust I redeemed June 26, 2007		—		7,317		7,418
Variable-rate junior subordinated debentures owed to Forbes First Financial Statutory Trust I redeemed June 26, 2007		—		3,139		3,213
8.12% junior subordinated debentures owed to First of America Capital Trust I redeemed January 31, 2007		—		154,640		154,640
9.00% junior subordinated debentures owed to Allegiant Capital Trust II redeemed October 2, 2006		—		—		41,775
8.60% junior subordinated debentures owed to Provident Capital Trust I redeemed December 1, 2006		—		—		105,896

Total junior subordinated debentures owed to unconsolidated subsidiary trusts	$	1,273,114	$	948,705	$	343,870

Distributions on the capital securities issued by National City Capital Trust II and National City Capital Trust III 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 Fidelity Capital Trust III are payable quarterly at a variable rate equal to the three-month LIBOR rate plus 1.97 basis points, with no maximum interest rate. The interest rate associated with Fidelity Capital Trust III was 7.33% at June 30, 2007. Distributions on the capital securities issued by Fidelity Capital Trust II are payable quarterly at a variable rate equal to the three-month LIBOR rate plus 2.85 basis points, with no maximum interest rate. The interest rate associated with Fidelity Capital Trust II was 8.205% at June 30, 2007.

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

Fidelity Capital Trust II		January 23, 2009
Fidelity Capital Trust III		November 23, 2009
National City Capital Trust II		November 15, 2011
National City Capital Trust III		May 25, 2012

On June 26, 2007, the Corporation exercised the early call on Banc Services Corp. Statutory Trust I and Forbes First Financial Statutory Trust I. On April 15, 2007, the Corporation exercised the early call on Fort Wayne Capital Trust I.

The Corporation may only redeem or repurchase its junior subordinated notes payable owed to National City Capital Trust II and National City Capital Trust III on or before November 15, 2056 and May 25, 2057, respectively, subject to certain limitations. During the 180 days prior to the dates of that redemption or repurchase, the Corporation must have received proceeds from the issuance of equity or hybrid securities that qualify as Tier 1 capital under the Federal Reserve’s capital guidelines. The Corporation will also be required to obtain approval of the Federal Reserve prior to the issuance of such securities. The current beneficiary of this limitation are the holders of the Corporation’s 6.875% subordinated notes due 2019.

16. Regulatory Restrictions and Capital Ratios

The Corporation and its bank subsidiary, National City Bank, 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
	2007					2006					2006
(Dollars in Thousands)	Amount		Ratio			Amount		Ratio			Amount		Ratio

Total equity/assets	$	12,146,526		8.64	%	$	14,581,003		10.40	%	$	12,609,764		8.91	%
Total common equity/assets		12,146,526		8.64			14,581,003		10.40			12,609,764		8.91
Tangible common equity/tangible assets		7,370,814		5.43			10,581,444		7.77			9,100,797		6.60
Tier 1 capital		8,721,367		6.56			11,534,600		8.93			9,392,056		7.31
Total risk-based capital		13,667,303		10.28			15,704,502		12.16			13,102,889		10.20
Leverage		8,721,367		6.53			11,534,600		8.56			9,392,056		6.89

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 National City Bank 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 defined under the regulatory framework for prompt corrective action.

National City Bank from time to time is required to maintain noninterest bearing reserve balances with the Federal Reserve Bank. The required reserve balance was $7 million at June 30, 2007.

Under current Federal Reserve regulations, a bank subsidiary is limited in the amount it may loan to its parent company and 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 the subsidiary bank to nonbank affiliates, including the parent company, are also required to be collateralized.

Dividends paid by a subsidiary bank to its parent company are also subject to certain legal and regulatory limitations. In 2007, National City Bank may pay dividends of $568 million, plus an additional amount equal to its net profits for 2007, as defined by statute, up to the date of any such dividend declaration, without prior regulatory approval.

17. Stockholders’ Equity

The number of authorized and outstanding shares of each class of the Corporation’s stock is shown in the following table.


	June 30		December 31		June 30
	2007		2006		2006

Preferred Stock, no par value, $100 liquidation value per share, authorized 5,000,000 shares		70,272		70,272		70,272
Common Stock, $4 par value, authorized 1,400,000,000 shares		566,285,142		632,381,603		605,053,511

Preferred Stock: The Corporation issued 70,272 shares of no par, Series D convertible non-voting preferred stock in conjunction with a 2004 acquisition. 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 as 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.

Common Stock Repurchases: On April 24, 2007, the Corporation’s Board of Directors authorized the repurchase of up to 40 million shares of National City common stock subject to an aggregate purchase limit of $1.6 billion. This authorization, which has no expiration date, was incremental to all previous authorizations. Repurchased shares are held for reissue in connection with compensation plans and for general corporate purposes. During the first six months of 2007 and 2006, the Corporation repurchased 44.8 million and 15.2 million shares, respectively under those authorizations. Repurchases under the October 24, 2005 and December 19, 2006 share repurchase authorizations have been completed. As of June 30, 2007, 38.7 million shares remain authorized for repurchase.

On January 25, 2007, the Corporation’s Board of Directors authorized a “modified Dutch auction” tender offer to purchase up to 75 million shares of its outstanding common stock, at a price range not greater than $38.75 per share nor less than $35.00 per share, for a maximum aggregate repurchase price of $2.9 billion. The tender offer expired on February 28, 2007 and on March 7, 2007, the Corporation accepted for purchase 40.3 million shares of its common stock at $38.75 per share for an aggregate price of $1.6 billion. The share repurchase authorizations described above were unaffected by the tender offer.

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


	Six Months Ended
	June 30
(In Thousands)	2007			2006

Accumulated unrealized gains (losses) on securities available for sale at January 1, net of tax	$	3,938		$	(4,018	)
Net unrealized losses for the period, net of tax benefit of $32,227 in 2007 and $60,084 in 2006		(59,851	)		(111,584	)
Reclassification adjustment for gains included in net income net of tax expense of $8,985 in 2007 and $4,575 in 2006		(16,686	)		(8,457	)

Effect on other comprehensive income for the period		(76,537	)		(120,041	)

Accumulated unrealized losses on securities available for sale at June 30, net of tax	$	(72,599	)	$	(124,059	)

Accumulated unrealized (losses) gains on derivatives used in cash flow hedging relationships at January 1, net of tax	$	(3,505	)	$	15,883
Net unrealized (losses) gains for the period, net of tax (benefit) expense of $(2,370) in 2007 and $5,063 in 2006		(4,401	)		9,403
Reclassification adjustment for gains included in net income, net of tax expense of $276 in 2007 and $13,803 in 2006		(514	)		(25,634	)

Effect on other comprehensive income for the period		(4,915	)		(16,231	)

Accumulated unrealized losses on derivatives used in cash flow hedging relationships at June 30, net of tax	$	(8,420	)	$	(348	)

Accumulated unrealized losses for pension and other postretirement obligations at January 31, net of tax	$	(71,347	)		—
Amortization of prior service costs included in net periodic benefit		(1,864	)		—
Amortization of transition obligation included in net periodic cost		383			—
Amortization of net loss included in net periodic cost		1,142			—

Effect on other comprehensive income for the period		(339	)		—

Accumulated unrealized losses for pension and other postretirement obligations at June 30, net of tax	$	(71,686	)		—

Accumulated other comprehensive (loss) income at January 1, net of tax	$	(70,914	)	$	11,865
Other comprehensive loss, net of tax		(81,791	)		(136,272	)

Accumulated other comprehensive loss at June 30, net of tax	$	(152,705	)	$	(124,407	)

18. Net Income Per Common Share

Calculations of basic and diluted net income per share follow:


	Three Months Ended				Six Months Ended
	June 30				June 30
(Dollars in Thousands, Except Per Share Amounts)	2007		2006		2007		2006

Basic
Net income	$	346,604	$	472,926	$	665,816	$	931,733
Less preferred dividends		437		415		874		830

Net income applicable to common stock	$	346,167	$	472,511	$	664,942	$	930,903

Average common shares outstanding		573,464,999		609,656,508		602,872,366		610,777,446
Less average unallocated ESOP shares		735,395		—		815,199		—

Average common shares outstanding — basic		572,729,604		609,656,508		602,057,167		610,777,446

Net income per common share — basic	$	.60	$	.77	$	1.10	$	1.52

Diluted
Net income	$	346,604	$	472,926	$	665,816	$	931,733

Average common shares outstanding — basis		572,729,604		609,656,508		602,057,167		610,777,446
Stock awards		6,534,683		7,451,992		7,114,927		7,060,619
Convertible preferred stock		1,121,541		1,121,541		1,121,541		1,121,541

Average common shares outstanding — diluted		580,385,828		618,230,041		610,293,635		618,959,606

Net income per common share — diluted	$	.60	$	.77	$	1.09	$	1.51

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, less unallocated Employee Stock Ownership Plan (ESOP) shares, for the period.

Diluted net income per common share takes into consideration the pro forma dilution of outstanding convertible preferred stock and certain unvested restricted stock and unexercised stock option awards. For the three and six months ended June 30, 2007, options to purchase 8.0 million and 5.2 million 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. For the three and six months ended June 30, 2006, options to purchase 4.4 million and 7.5 million 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. Diluted net income is not adjusted for preferred dividend requirements since preferred shares are assumed to be converted from the beginning of the period.

19. Income Taxes

The Corporation adopted the provisions of FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes, on January 1, 2007. As a result of the adoption of this new accounting standard, the Corporation recorded a $31 million increase in its liability for uncertain tax positions ($24 million net of tax), which was accounted for as a cumulative effect of an accounting change, reducing the opening balance of retained earnings. As of June 30, 2007, the Corporation had a liability for uncertain tax positions of $254 million, including accrued interest and penalties of $49 million. The Corporation recognizes interest and penalties associated with uncertain tax positions in income tax expense. During the three and six months ended June 30, 2007, the provision/(benefit) for interest and penalties was $12 million and $15 million, respectively. During the three and six months ended June 30, 2006, the provision/(benefit) for interest and penalties was $2 million and $(4) million, respectively.

The composition of income tax expense follows:


	Three Months Ended					Six Months Ended
	June 30					June 30
(In Thousands)	2007			2006		2007		2006

Applicable to income exclusive of securities transactions	$	176,129		$	237,236	$	300,512	$	430,565
Applicable to securities transactions		(460	)		486		8,985		4,574

Income tax expense	$	175,669		$	237,722	$	309,497	$	435,139

The effective tax rate for the three- and six- month periods ended June 30, 2007 was 33.6% and 31.7%, respectively. The effective tax rate for the three- and six- month periods ended June 30, 2006 was 33.5% and 31.8%, respectively.

20. 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)	2007		2006		2006

Commitments to extend credit:
Revolving home equity and credit card lines	$	35,353,745	$	34,286,346	$	33,281,472
Commercial		26,558,137		25,351,297		23,923,625
Residential real estate		13,770,321		9,506,648		11,113,918
Other		597,799		1,047,439		606,989
Standby letters of credit		5,314,849		5,265,929		4,915,436
Commercial letters of credit		237,156		338,110		306,610
Net commitments to sell mortgage loans and mortgage-backed securities		7,555,014		3,480,387		9,039,177
Net commitments to sell commercial real estate loans		391,884		376,375		271,909
Commitments to fund civic and community investments		589,925		607,190		309,622
Commitments to purchase beneficial interests in securitized automobile loans		408,532		573,152		428,230
Commitments to fund principal investments		357,952		282,407		765,280

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 23.

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 23.

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 subsidiary. As a limited partner in these unconsolidated projects, the Corporation is allocated tax credits and deductions. The commitments to fund civic and community investments represent funds committed for existing and future projects.

National City Bank, a subsidiary of the Corporation, along with other financial institutions, has agreed to provide backup liquidity to an unrelated commercial paper conduit. The conduit holds various third-party assets including beneficial interests in the cash flows of trade receivables, credit cards and other financial assets, as well as automobile loans securitized by the Corporation in 2005. In the event of a disruption in the commercial paper markets, the conduit could experience a liquidity event. At such time, the conduit may require National City Bank, as well as another financial institution, to purchase an undivided interest in its note representing a beneficial interest in the securitized automobile loans. This commitment expires in December 2007 but may be renewed annually for an additional 12 months by mutual agreement of the parties.

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.

Contingent Liabilities and Guarantees: The Corporation enters into agreements to sell residential mortgage loans and home equity lines of credit (collectively, loans) in the normal course of business. These agreements usually require certain representations concerning credit information, loan documentation, collateral, and insurability. On a regular basis, investors request 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 such 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. In connection with the sale of the First Franklin origination and sales platform, the Corporation transferred its recourse obligation associated with this unit to the buyer. At June 30, 2007, December 31, 2006 and June 30, 2006, the liability for estimated losses on repurchase and indemnification was $158 million, $171 million and $202 million, respectively, and was included in other liabilities on the balance sheet. Further details on loans sold subject to indemnification provisions, loans repurchased or indemnified, and losses charged against the liability follow:


	Three Months Ended				Six Months Ended
	June 30				June 30
(In Millions)	2007		2006^(a)		2007		2006^(b)

Total loans sold	$	11,631	$	16,004	$	23,808	$	30,079
Total loans repurchased or indemnified		88		114		247		203
Losses incurred		32		26		70		54


(a)		Included $6.2 billion of loans sold, $61 million of loans repurchased or indemnified, and $14 million of losses incurred related to the First Franklin unit.

(b)		Included $10.4 billion of loans sold, $108 million of loans repurchased or indemnified, and $29 million of losses incurred related to the First Franklin unit.

Loans indemnified that remain outstanding as of June 30, 2007, December 31, 2006, and June 30, 2006, totaled $453 million, $343 million, and $343 million, respectively. Loans sold which remain uninsured as of June 30, 2007 were $88 million. The volume and balance of uninsured government loans may be affected by processing or notification delays. Management believes the majority of the uninsured loans 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.

On December 30, 2006, the Corporation completed the sale of the First Franklin nonconforming mortgage origination and servicing platform. The proceeds received from this transaction were based on a preliminary statement of net assets sold. The purchase price is subject to adjustment based on the closing date values of net assets sold, as well as other negotiated matters. Accordingly, the Corporation may either pay or receive additional consideration depending on the final outcome of this matter. The amount of the purchase price adjustment, if any, will decrease or increase the gain recognized on the sale of this unit. On April 13, 2007, the Corporation received a dispute notice from Merrill Lynch Bank & Trust Co., FSB, the buyer of First Franklin, which asserted that the closing date net asset values and related purchase price were overstated by $67 million. National City management does not agree with that assertion. If the parties cannot reach agreement on this dispute, this matter would be subject to arbitration.

The Corporation has a wholly owned captive insurance subsidiary which provides reinsurance to third-party insurers who provide lender paid mortgage insurance on approximately $1.9 billion of the Corporation’s nonconforming mortgage second loans and lines. These arrangements are quota share reinsurance contracts whereby the Corporation’s captive insurance subsidiary is entitled to 50% of the primary policy premiums and assumes 50% of the risk of loss under the lender paid mortgage insurance primary policy which limits losses to 10% of the original insured risk per policy year.

Loss reserves are provided for the estimated costs of settling reinsurance claims on defaulted loans. Loss reserves are established for reported claims as well as incurred but not reported claims. Management establishes loss reserves using historical experience and by making various assumptions and estimates of trends in loss severity, frequency, and other factors. The methods used to develop these reserves are subject to continual review and refinement, and any necessary adjustments to these reserves are reflected in operations in the period identified. Reinsurance loss reserves of $43 million were recognized within the allowance for loan losses as of June 30, 2007. The provision for reinsurance losses at June 30, 2007 of $18 million is presented within the provision for credit losses in the Consolidated Financial Statements. In segment reporting, the provision for reinsurance losses is presented within Retail Banking’s results as noninterest expense. As of June 30, 2007, Retail Banking’s remaining exposure to reinsurance claims is $32 million.

Red Mortgage Capital, a wholly owned subsidiary, is 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. The maximum potential amount of undiscounted future payments that may be required under this program is equal to approximately one-third of the principal balance of the loans outstanding at June 30, 2007. If payment is required under this program, Red Mortgage Capital would have an interest in the collateral underlying the commercial mortgage loan on which the loss occurred. As of June 30, 2007, December 31, 2006, and June 30, 2006, Red Mortgage Capital serviced loans, subject to risk sharing under the DUS program, had outstanding principal balances aggregating $4.8 billion, $4.9 billion and $4.8 billion, respectively. This 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 $4 million, $5 million and $4 million at June 30, 2007, December 31, 2006, and June 30, 2006, respectively.

The guarantee liability for standby letters of credit was $33 million, $39 million and $42 million at June 30, 2007, December 31, 2006, and June 30, 2006, 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 is subject to nonincome taxes in the various jurisdictions where it does business. The most significant of these taxes is franchise tax which is assessed by some states in lieu of or in addition to income taxes. The amount of tax due may be subject to different interpretations by the Corporation and the taxing authorities. In preparing the Corporation’s tax returns, management attempts to make reasonable interpretations of the tax laws; however, its positions may be subject to challenge upon audit. Management accrues for nonincome tax contingencies that are judged to be both probable and estimable. Management has also identified other unaccrued nonincome tax contingencies, which are considered reasonably possible but not probable, totaling approximately $36 million as of June 30, 2007.

National City and its subsidiaries are involved in a number of legal proceedings arising from the conduct of their business activities. These 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. In many lawsuits and arbitrations, including almost all of the class action lawsuits, it is not possible to determine whether a liability has been incurred or to estimate the ultimate or minimum amount of that liability until the case is close to resolution, in which case a reserve will not be recognized until that time.

On or about November 22, 2002, a claim was asserted in the Marion County Probate Court (Indiana) against National City Bank of Indiana, a subsidiary of the Corporation since merged into National City Bank, concerning management of investments held in a trust for the benefit of the Americans for the Arts and The Poetry Foundation. The claim alleged failure to adequately and timely diversify investments held in this trust, which resulted in investment losses. The beneficiaries were seeking damages of as much as $100 million. In December 2005, the court entered an order granting National City Bank of Indiana’s motion for summary judgment, and the beneficiaries filed an appeal. On October 19, 2006, the Indiana Court of Appeals, in a unanimous decision, affirmed the order granting National City Bank of Indiana’s motion for summary judgment. By order dated March 8, 2007, the Indiana Supreme Court unanimously denied the beneficiaries’ motion to transfer the appeal to the Indiana Supreme Court. The beneficiaries have no further appeals as a matter of right.

Beginning on June 22, 2005, a series of antitrust class action lawsuits were filed against Visa^®, MasterCard^®, and several major financial institutions, including eight cases naming the Corporation and its subsidiary, National City Bank of Kentucky, since merged into National City Bank. The plaintiffs, merchants operating commercial businesses throughout the U.S. and trade associations, claim that the interchange fees charged by card-issuing banks are unreasonable and seek injunctive relief and unspecified damages. The cases have been consolidated for pretrial proceedings in the United States District Court for the Eastern District of New York. On July 1, 2007, the Corporation and National City Bank entered into a Judgment Sharing Agreement (JSA) with respect to this litigation. On July 1, 2007, the Corporation also entered into a Loss Sharing Agreement (LSA) with respect to certain litigation, including this series of antitrust class action lawsuits. The purpose of the JSA and the LSA is to apportion financial responsibility arising from a potential adverse judgment or negotiated settlement. Given the preliminary stage of these suits, it is not possible for management to assess the probability of a material adverse outcome or the range of possible damages, if any.

On March 31, 2006, the Corporation and National City Bank were served with a patent infringement lawsuit filed in the United States District Court for the Eastern District of Texas. The plaintiff, Data Treasury Corporation, claims that the Corporation, as well as over 50 other financial institutions or check processors, are infringing on its patents involving check imaging, storage and transfer. The plaintiff seeks unspecified damages and injunctive relief. On January 6, 2006, the U.S. Patent and Trademark Office ordered a reexamination of two of the image patents involved in the litigation. The litigation regarding those two patents was stayed pending the reexamination. On June 29, 2007, the U.S. Patent and Trademark Office issued a “Final Office Action” rejecting certain claims and confirming other claims. This decision is subject to response by Data Treasury. At this stage of this lawsuit, it is not possible for management to assess the probability of a material adverse outcome, or the range of possible damages, if any.

On December 19, 2005, a class action suit was filed against National City Mortgage Co. in the U.S. District Court for the Southern District of Illinois. The lawsuit alleges that National City Mortgage loan originators were improperly designated as exempt employees. On June 21, 2007, the court conditionally certified an opt-in class of loan originators. Due to the preliminary stage of this suit, it is not possible for management to assess the probability of a material adverse outcome or assess 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 the Corporation’s 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.

21. Stock Options and Awards

Under the National City Corporation Long-Term Cash and Equity Incentive Plan (the Long-Term Incentive Plan) up to 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, 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. As of June 30, 2007, stock options and restricted stock awards available for grant under the Long-Term Incentive Plan totaled 24 million and 6 million shares, respectively.

Stock Options: Stock options may 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 no later than 10 years from the date of grant. Prior to 2006, stock options were also granted that included 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. During the second quarter and first half of 2007, pretax compensation expense recognized for stock options totaled $6 million and $13 million, respectively, while pretax compensation expense recognized for stock options totaled $5 million and $11 million for the comparable periods of 2006, respectively. The tax benefit was $2 million and $4 million for the second quarter and first half, respectively, of 2007 and for the comparable periods of 2006 was $2 million and $3 million, respectively.

The fair values of stock options granted were estimated at the date of grant using the Black-Scholes option pricing model. The Black-Scholes 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 sensitive to changes in assumptions which can materially affect the fair value estimate. The Corporation’s method of estimating expected volatility includes both historical volatility and implied volatility based upon National City options traded in the open market. The expected dividend yield is computed based on the current dividend rate. The expected term of the options is based on the Corporation’s historical exercise experience, and the risk-free interest rate is based on U.S. Treasury zero-coupon issues with a remaining term approximating the expected life of the options. The following assumptions were used to determine the fair value of options granted in the periods stated below.


	Three Months Ended						Six Months Ended
	June 30						June 30
	2007			2006			2007			2006

Expected volatility		20.1	%		19.9	%		19.4	%		19.8	%
Expected dividend yield		4.2			4.3			4.3			4.3
Risk-free interest rate		4.1			4.2			4.0			4.1
Expected term (in years)		5			6.2			5			5.9

The weighted-average grant date fair value per share of options granted during the three and six months ended June 30, 2007 was $5.17 and $5.04, respectively. The weighted-average grant date fair value of options granted during the three and six months ended June 30, 2006 was $5.38 and $5.16, respectively. The total intrinsic value of options exercised during the three and six months ended June 30, 2007, was $6 million and $59 million, respectively. The total intrinsic value of options exercised during the three and six months ended June 30, 2006, was $30 million and $55 million, respectively. As of June 30, 2007, there was $19 million of total unrecognized compensation cost related to nonvested stock option awards. This cost is expected to be recognized over a period of four years.

Upon the consummation of the Harbor acquisition, all outstanding options issued by Harbor became fully vested and were converted into equivalent National City options.

Cash received from the exercise of options for the three and six months ended June 30, 2007 was $17 million and $137 million, respectively. Cash received from the exercise of options for the three and six months ended June 30, 2006 was $77 million and $134 million, respectively. The tax benefit realized for the tax deductions from option exercises totaled $2 million and $19 million for the three and six months ended June 30, 2007, respectively. The tax benefit realized for the tax deductions from option exercises totaled $9 million and $17 million for the three and six months ended June 30, 2006, respectively. The Corporation generally uses treasury shares to satisfy stock option exercises.

Stock option activity follows:


				Weighted-		Weighted-
				Average		Average Remaining
				Exercise		Contractual Term		Aggregate Intrinsic Value
	Shares			Price		(in years)		(In thousands)

Outstanding at January 1, 2007		43,014,406		$	31.36
Granted		480,973			37.46
Exercised		(6,406,885	)		28.43
Forfeited or expired		(361,416	)		35.64

Outstanding at June 30, 2007		36,727,078		$	31.91		4.5	$	91,473

Exercisable at June 30, 2007		30,456,307		$	31.12		3.9	$	91,470


Outstanding at January 1, 2006		50,135,498		$	30.72
Granted		592,602			36.49
Exercised		(6,547,629	)		27.52
Forfeited or expired		(370,964	)		34.61

Outstanding at June 30, 2006		43,809,507		$	31.24		4.9	$	221,282

Exercisable at June 30, 2006		35,686,190		$	30.35		4.2	$	212,621

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. Pretax compensation expense recognized for restricted shares during the three and six months ended June 30, 2007 totaled $16 million and $32 million, respectively. Pretax compensation expense recognized for restricted shares during the three and six months ended June 30, 2006 totaled $12 million and $22 million, respectively. The tax benefit was $6 million and $12 million for the three and six months ended June 30, 2007, respectively, while the tax benefit was $4 million and $8 million for the corresponding periods in 2006.

Restricted share activity follows:


	For the Six Months Ended June 30
	2007					2006
				Weighted-					Weighted-
				Average					Average
				Grant Date					Grant Date
	Shares			Fair Value		Shares			Fair Value

Nonvested at January 1		7,344,918		$	34.96		6,452,193		$	33.76
Granted		389,483			36.60		171,303			35.20
Vested		(227,694	)		33.88		(593,504	)		32.63
Forfeited		(203,747	)		35.00		(202,538	)		33.86

Nonvested at June 30		7,302,960		$	35.08		5,827,454		$	33.90

As of June 30, 2007, there was $129 million of total unrecognized compensation cost related to restricted shares. This cost is expected to be recognized over a weighted-average period of 2.1 years. The total fair value of shares vested during the three and six months ended June 30, 2007, was $1 million and $9 million, respectively. The total fair value of shares vested during the three and six months ended June 30, 2006, was $12 million and $21 million, respectively.

22. Pension and Other Postretirement Benefit Plans

Defined Benefit Plans: National City has a qualified pension plan covering substantially all employees hired prior to April 1, 2006. 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 benefits expense in the income statement. The Corporation’s funding policy is to contribute at least the minimum amount required by the Employee Retirement Income Security Act of 1974. National City does not anticipate making a contribution to this plan in 2007 as the plan is currently overfunded.

The Corporation 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.

In connection with the Harbor acquisition, the Corporation acquired a frozen multi-employer pension plan. This plan was terminated in June 2007 at a cost of $7 million. In connection with the Fidelity acquisition, the Corporation acquired a frozen qualified defined benefit pension plan. There were no contributions to this plan for the six-month period ended June 30, 2007.

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. As of April 1, 2006, retiree life insurance was eliminated for active employees who were not yet participants in the plan. 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, components of net periodic (benefit) cost for the three and six months ended June 30 follow:


	Three Months Ended						Six Months Ended
	June 30						June 30
(In Thousands)	2007			2006			2007			2006

Qualified Pension Plan
Service cost	$	14,979		$	14,532		$	29,777		$	29,064
Interest cost		24,782			22,359			48,859			44,718
Expected return on plan assets		(39,362	)		(34,682	)		(77,439	)		(69,364	)
Amortization of prior service cost		(1,189	)		(1,189	)		(2,378	)		(2,378	)
Recognized net actuarial loss		150			275			300			550

Net periodic (benefit) cost	$	(640	)	$	1,295		$	(881	)	$	2,590

Supplemental Pension Plan
Service cost	$	468		$	397		$	936		$	795
Interest cost		2,580			1,964			4,568			3,928
Amortization of prior service cost		244			333			489			665
Recognized net actuarial loss		794			837			1,587			1,675

Net periodic cost	$	4,086		$	3,531		$	7,580		$	7,063

Other Postretirement Benefits
Service cost	$	380		$	292		$	760		$	888
Interest cost		2,087			2010			4,174			4,262
Amortization of prior service cost		40			32			80			94
Transition obligation		202			103			404			453
Recognized net actuarial loss		69			143			138			286
Curtailment gain		—			(2,597	)		—			(2,597	)

Net periodic cost (benefit)	$	2,778		$	(17	)	$	5,556		$	3,386

Total net periodic cost	$	6,224		$	4,809		$	12,255		$	13,039

Defined Contribution Plans: 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 2007 and 2006, the Corporation provided up to a 6.9% matching contribution. Matching contributions totaled $20 million and $47 million for the three and six months ended June 30, 2007, respectively, compared with $21 million and $48 million for the three and six months ended June 30, 2006, respectively. The Corporation also acquired Harbor’s leveraged employee stock ownership plan (ESOP) plan which covered all former Harbor employees age 21 and over. As shares are released to plan participants, the Corporation recognizes compensation equal to the current market price of the shares. Expense related to this plan was $4 million and $9 million for the three and six months ended June 30, 2007, respectively.

23. 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 residential and commercial real estate 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.

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 in conjunction with the Corporation’s overall market risk monitoring process, as further discussed in the Market Risk section of the Financial Review.

Credit risk occurs when a counterparty to a derivative contract where the Corporation has 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, 2007, these collateral agreements covered 99.4% of the notional amount of the total derivative portfolio, excluding futures contracts that are cash settled daily with counterparties, certain forward commitments to sell or purchase mortgage loans or mortgage-backed securities, and customer derivative contracts. At June 30, 2007, the Corporation held cash, U.S. government, and U.S. government-sponsored agency securities with a fair value of $70 million to collateralize net gains with counterparties and had pledged or delivered to counterparties cash, U.S. government, and U.S. government-sponsored agency securities with a fair value of $400 million to collateralize net losses with counterparties. In certain instances, open forward commitments to sell or purchase mortgage loans or mortgage-backed securities are not covered by collateral agreements due to the fact these contracts usually mature within 90 days. 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 similar credit policies. Collateral may be obtained based on management’s assessment of the customer.

Derivative contracts are valued using observable market prices, when available. In the absence of observable market prices, the Corporation uses discounted cash flow models to estimate the fair value of its derivatives. The interest rates used in these cash flow models are based on forward yield curves that are observable in the current cash and derivatives markets, consistent with how derivatives are valued by market participants. Cash flow 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 fund 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, 2007, December 31, 2006, and June 30, 2006.

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 residential mortgage and commercial real estate loans held for sale and certain fixed-rate commercial portfolio loans for changes in interest rates. The Corporation also uses receive-fixed interest-rate swaps to hedge the fair value 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 fair value hedges of fixed-rate debt, including purchased certificates of deposit, management uses a monthly dollar offset ratio to test retrospective effectiveness. For fair value hedges of portfolio loans and residential mortgage loans held for sale, a dollar offset ratio test is

performed on a daily basis. Effectiveness testing for commercial real estate loans held for sale is measured monthly using a dollar offset ratio. There were no components of derivative instruments that were excluded from the assessment of hedge effectiveness.

For the three and six months ended June 30, 2007, the Corporation recognized total net ineffective fair value hedge losses of $7 million and $9 million, respectively. For the three- and six-month periods ended June 30, 2006, the Corporation recognized total net ineffective fair value hedge gains of $2 million and $3 million, respectively. Details of net ineffective hedge gains and losses by hedge strategy are presented in the tables on pages 46-47. Net ineffective hedge gains and losses on residential mortgage and commercial real estate loans held for sale are included in loan sale revenue on the income statement. Net ineffective hedge gains and losses related to hedging commercial portfolio loans and fixed-rate funding products are included in other noninterest income on the income statement.

Cash Flow Hedges: The Corporation hedges cash flow variability related to variable-rate commercial loans and funding products, specifically FHLB advances and senior bank notes. Interest-rate floors are used to hedge the cash flows associated with variable-rate commercial loans while interest-rate caps are used to hedge cash flows from the variable-rate funding products.

Retrospective hedge effectiveness for cash flow hedges of variable-rate funding products is determined using a dollar offset ratio applied on a monthly basis. Retrospective hedge effectiveness for variable-rate commercial loans is determined on a monthly basis using regression analysis. There were no components of derivative instruments that were excluded from the assessment of hedge effectiveness. For the six-month periods ended June 30, 2007 and 2006, the Corporation recognized net ineffective cash flow hedge losses of $65 thousand and $34 thousand, respectively. There were no ineffective hedge gains or losses associated with cash flow hedges in the second quarter of 2007 or 2006. These losses are included in other noninterest income on the income statement.

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, 2007, December 31, 2006, and June 30, 2006, accumulated other comprehensive income included a deferred after-tax net loss of $8 million, $4 million and $348 thousand, respectively, related to derivatives used to hedge loan and funding cash flows. See Note 17 for further detail of the amounts included in accumulated other comprehensive income. The net after-tax derivative loss included in accumulated other comprehensive income at June 30, 2007 is projected to be reclassified into net interest income in conjunction with the recognition of interest payments on loan and funding products through August 2013, with $2 million of after-tax net loss expected to be recognized in net interest income within the next year. There were no gains or losses reclassified into earnings in the first six months of 2007 or 2006 arising from the determination that the original forecasted transaction would not occur.

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, 2007, December 31, 2006, and June 30, 2006 follows:


	June 30, 2007						Net Ineffective						December 31, 2006
			Derivative				Hedge Gains (Losses)^(a)								Derivative
							Three			Six
							Months			Months
							Ended			Ended
	Notional						June 30,			June 30,			Notional
(In Millions)	Amount		Asset		Liability		2007			2007			Amount		Asset		Liability

Fair Value Hedges
Commercial loans
Receive-fixed interest rate swaps	$	156	$	.6	$	.3							$	112	$	1.0	$	.3
Pay-fixed interest rate swaps		2,320		32.2		3.6								2,712		33.3		10.3
Interest rate caps sold		150		—		—								150		—		—
Interest rate floors sold		100		—		—								100		—		—
Interest rate collars purchased		5		—		.1								5		—		.2
Interest rate futures purchased		1,611		—		—								2,204		—		—
Interest rate futures sold		2,274		—		—								2,595		—		—


Total		6,616		32.8		4.0	$	(1.1	)	$	(2.3	)		7,878		34.3		10.8

Mortgage loans held for sale
Forward commitments to sell mortgage loans and mortgage-backed securities		5,834		37.8		5.8								1,855		6.0		11.8
Receive-fixed interest rate swaps		825		—		27.2								1,775		12.0		27.7
Receive-fixed interest rate swaps purchased		350		1.5		—								—		—		—
Pay-fixed interest rate swaps		550		9.3		—								550		—		6.8
Interest rate caps purchased		—		—		—								500		—		—
Interest rate floors purchased		—		—		—								500		1.8		—

Total		7,559		48.6		33.0		3.6			3.2			5,180		19.8		46.3

Commercial real estate loans held for sale
Forward commitments to sell commercial real estate loans		14		.3		.1								136		.2		1.3
Interest rate futures purchased		21		.2		—								—		—		—
Interest rate swaps		91		2.1		—								—		—		—

Total		126		2.6		.1		(.1	)		(.1	)		136		.2		1.3

Funding
Receive-fixed interest rate swaps		6,637		35.2		149.3								7,991		112.1		115.8
Callable receive-fixed interest rate swaps		3,134		—		177.1								2,706		—		87.5

Total		9,771		35.2		326.4		(9.6	)		(9.7	)		10,697		112.1		203.3

Total derivatives used in fair value hedges		24,072		119.2		363.5		(7.2	)		(8.9	)		23,891		166.4		261.7

Cash Flow Hedges
Commercial loans
Interest rate floors purchased		13,200		40.0		1.3		—			—			—		—		—

Funding
Pay-fixed interest rate swaps		—		—		—								170		—		.9
Interest rate caps purchased		300		—		—								300		.1		—

Total		300		—		—		—			(.1	)		470		.1		.9

Total derivatives used in cash flow hedges		13,500		40.0		1.3		—			(.1	)		470		.1		.9

Total derivatives used for interest-rate risk management and designated in SFAS 133 relationships	$	37,572	$	159.2	$	364.8	$	(7.2	)	$	(9.0	)	$	24,361	$	166.5	$	262.6


(a)		Represents net ineffective hedge loss on hedging strategy for the three-and six-month periods ended June 30, 2007.


	June 30, 2006						Net Ineffective
			Derivative				Hedge Gains (Losses)
							Three			Six
	Notional						Months Ended			Months Ended
(In Millions)	Amount		Asset		Liability		June 30, 2006			June 30, 2006

Fair Value Hedges
Commercial loans
Receive-fixed interest rate swaps	$	112	$	.5	$	.7
Pay-fixed interest rate swaps		3,253		81.1		7.4
Pay-fixed interest rate swaptions sold		50		—		—
Interest rate caps sold		150		—		.3
Interest rate floors sold		210		—		—
Interest rate futures purchased		2,088		—		—
Interest rate futures sold		2,884		—		—

Total		8,747		81.6		8.4	$	5.2		$	8.9

Mortgage loans held for sale
Net forward commitments to sell mortgage loans and mortgage-backed securities		4,069		33.1		4.6
Receive-fixed interest rate swaps		1,115		.7		70.9
Pay-fixed interest rate swaps		550		17.5		—
Interest rate caps purchased		1,000		.2		—

Total		6,734		51.5		75.5		(.9	)		(.4	)

Commercial real estate loans held for sale Forward commitments to sell commercial real estate loans		68		.5		—		—			—

Funding
Receive-fixed interest rate swaps		8,132		39.1		238.2
Callable receive-fixed interest rate swaps		2,431		—		164.9

Total		10,563		39.1		403.1		(2.2	)		(5.3	)

Total derivatives used in fair value hedges		26,112		172.7		487.0		2.1			3.2

Cash Flow Hedges
Funding
Interest rate caps purchased		300		.4		—

Total derivatives used in cash flow hedges		300		.4		—		—			—

Total derivatives used for interest rate risk management and designated in SFAS 133 relationships	$	26,412	$	173.1	$	487.0	$	2.1		$	3.2


(a)		Represents net ineffective hedge gain (loss) on hedging strategy for the three- and six-month periods ended June 30, 2006.

Other Derivative Activities: The derivative portfolio also includes derivative financial instruments not included in SFAS 133 hedge relationships. These derivatives primarily consist of interest-rate swaps, futures, options, caps, floors, and forwards used to hedge the risk or declines in the value of residential mortgage servicing rights accounted for at fair value. Details of the specific derivative instruments used for mortgage servicing rights risk management as of June 30, 2007, December 31, 2006 and June 30, 2006 are presented in the following table.


	June 30, 2007						December 31, 2006						June 30, 2006
	Notional		Derivative				Notional		Derivative				Notional		Derivative
(In Millions)	Amount		Asset		Liability		Amount		Asset		Liability		Amount		Asset		Liability

Net forward commitments to purchase mortgage loans and mortgage-backed securities	$	2,525	$	.7	$	9.2	$	4,300	$	—	$	22.2	$	3,750	$	—	$	39.2
Basis swaps		178		1.2		—		—		—		—		386		.1		6.8
Receive-fixed interest rate swaps		4,360		—		160.5		5,570		12.9		124.0		6,650		6.6		335.1
Receive-fixed interest rate swaptions purchased		5,000		24.6		—		7,300		58.9		—		7,015		16.2		—
Receive-fixed interest rate swaptions sold		650		—		26.5		3,000		—		43.9		2,675		—		44.0
Pay-fixed interest rate swaps		2,670		12.3		15.0		1,930		—		80.0		1,180		17.2		5.6
Pay-fixed interest rate swaptions purchased		1,150		26.5		—		2,550		31.9		—		3,365		49.5		—
Pay-fixed interest rate swaptions sold		650		—		13.6		2,000		—		39.1		1,175		—		18.1
Principal-only interest rate swaps		—		—		—		396		—		6.2		—		—		—
Interest rate caps purchased		2,500		13.9		—		2,500		—		—		21,850		31.8		—
Interest rate caps sold		—		—		—		—		—		—		3,000		—		—
Interest rate floors purchased		5,500		7.6		—		14,200		86.1		—		14,200		29.1		—
Interest rate futures purchased		—		—		—		1,410		—		—		—		—		—

Total derivative instruments used for mortgage servicing right risk management not included in designated SFAS 133 hedge relationships	$	25,183	$	86.8	$	224.8	$	45,156	$	189.8	$	315.4	$	65,246	$	150.5	$	448.8

Other derivatives held but not included in SFAS 133 hedge relationships include mortgage banking loan commitments, which are defined as derivative instruments under SFAS 133, forward commitments to sell mortgage loans and mortgage-backed securities which are used to hedge the loan commitments, certain instruments used to economically hedge interest-rate risk, and instruments held for trading purposes, which are entered into for the purpose of making short-term profits or for providing risk management products to commercial banking customers.

A summary of the net assets and net gains or losses associated with derivative instruments not designated in SFAS 133 hedge relationships, including those used to hedge mortgage servicing rights, 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)	2007			2006			2006			2007			2006			2007			2006

Loan sale and servicing related:
Mortgage servicing right risk management	$	(138.0	)	$	(125.6	)	$	(298.3	)	$	(293.4	)	$	(268.4	)	$	(287.5	)	$	(589.5	)
Mortgage and commercial real estate loan commitments and loan risk management		23.3			17.0			16.0			(45.3	)		(36.5	)		(66.7	)		(25.4	)

Total loan sale and servicing related		(114.7	)		(108.6	)		(282.3	)		(338.7	)		(304.9	)		(354.2	)		(614.9	)

Trading derivatives:
Customer risk management		30.8			29.6			29.9			3.2			6.1			7.9			9.4
Other		(5.4	)		(8.2	)		(1.2	)		(3.2	)		2.2			.7			2.3

Total trading		25.4			21.4			28.7			—			8.3			8.6			11.7

Used for other risk management purposes		7.3			78.4			15.1			4.4			(22.9	)		(26.1	)		(32.8	)

Total other derivative instruments	$	(82.0	)	$	(8.8	)	$	(238.5	)	$	(334.3	)	$	(319.5	)	$	(371.7	)	$	(636.0	)

Gains and losses on derivatives used to manage risk associated with mortgage servicing rights are included in loan servicing income, while gains and losses on mortgage and commercial real estate loan commitments and associated loan risk management instruments are included in loan sale revenue on the income statement. Gains and losses on derivative instruments held for trading or other risk management purposes are included in other noninterest income.

24. Line of Business Results

The Corporation manages its business by product and service offerings as well as the distribution channel through which these products and services are offered. Effective January 1, 2007, the Corporation implemented a reorganization of its management structure resulting in the following five reportable segments: Retail Banking, Commercial Banking — Regional, Commercial Banking — National, Mortgage Banking, and Asset Management. Each of these segments is further described below. All revenues and expenses not directly associated with or allocated to these segments are reported within Parent and Other. Prior periods’ results have been reclassified to conform with the current presentation.

Net income is the primary measure used by management to assess segment performance and allocate resources. Segment results are derived from the Corporation’s management reporting system. There is no comprehensive authoritative guidance on how to allocate revenues and expenses among business segments. The Corporation uses various methodologies to assign revenues, expenses and assets to its segments in an attempt to reflect the underlying economics of each business. These methodologies may differ from techniques applied by other financial institutions. The accounting policies of the segments are generally the same as the Corporation, except that certain transactions are presented differently within the segment results, as described below.

Net interest income is presented in the segment results on a tax-equivalent basis. Assets and liabilities within each business unit are match funded, and interest rate risk is centrally managed as part of investment funding activities. Net interest income of each segment also includes interest earned on securitized loans which, for management reporting purposes, continue to be reflected as owned by the business that manages those assets. Interest income and funding costs associated with securitized loans are eliminated within Parent & Other. The provision for credit losses is assigned to each segment based upon the required allowance for loan losses of each segment. Noninterest income, as well as certain operating expenses, can generally be directly identified with a specific business. Indirect expenses are allocated to each segment based on various methodologies to estimate usage. The income tax provision is assigned to each segment using a standard rate which considers federal, state and local income taxes as well as state franchise taxes. Adjustments to reconcile the segments’ income tax provision to the consolidated income tax provision are recorded within Parent and Other. Goodwill is assigned to each segment based on the fair value of each acquired business added to each segment in relation to the total acquisition cost. A risk-based methodology is used to allocate capital to the segments. Management periodically refines its methodologies to allocate revenues and expenses as well as assets, liabilities and capital to its various businesses.

Retail Banking provides banking services to consumers and small businesses within National City’s eight state footprint. In addition to deposit gathering and direct lending services provided through the retail bank branch network, call centers, and the Internet, Retail Banking’s activities also include small business banking services, education finance, retail brokerage, and lending-related insurance services. Consumer lending products include home equity, government or privately guaranteed student loans, and credit cards and other unsecured personal and small business lines of credit. Significant 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. Major expenses are credit, personnel costs, and branch network support.

Commercial Banking-Regional provides products and services to large and medium-sized corporations within National City’s eight state footprint. Major products and services include: lines of credit, term loans, leases, investment real estate lending, asset-based lending, treasury management, syndicated lending, derivatives, stock transfer, investment banking, public finance, international services and dealer floorplan financing. Significant revenue sources are net interest income on loan and deposit accounts, brokerage revenue, leasing revenue and other fee income. A major source of revenue is from companies with annual sales in the $5 million to $500 million range across a diverse group of industries. Major expenses are credit and personnel costs.

Commercial Banking-National provides products and services to select customers in certain industries or distribution channels, as well as customers outside of the National City’s footprint. Major products and services include: loan sales and securitization, structured finance, syndicated loans, equity and mezzanine capital, mortgage warehouse lending, correspondent banking, multi-family real estate lending and commercial real estate lending in certain national markets. Significant revenue sources are loan sales revenue, principal investment gains and other fee income. Major expenses are primarily personnel costs.

Mortgage Banking originates residential mortgage, home equity lines and loans both within National City’s banking footprint and on a nationwide basis. Mortgage Banking is comprised of two business units: National City Mortgage (NCM) and National Home Equity (NHE). 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. NCM’s business activities also include servicing mortgage loans for third-party investors. NHE originates prime quality home equity loans and lines of credit outside National City’s banking footprint through a broker network. Significant revenue streams include net interest income earned on portfolio loans and loans held for sale, as well as loan sale and servicing revenue. Major expenses include credit, personnel costs, branch office costs, loan servicing and insurance expense.

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 acts as the investment advisor for the Allegiant^® 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, financial planning, as well as trust management and administration for affluent individuals and families. Sterling offers financial management services for high net worth clients.

Parent and Other contains revenues and expenses not directly associated with or allocated to the above segments, as well as investment funding activities including the investment portfolio, short and long-term borrowings, derivatives used for interest-rate risk management, and asset securitizations. Revenues and expenses associated with discontinued or exited products, services or business units, including the former First Franklin loan origination and servicing platform, are recorded with Parent and Other. Adjustments to reconcile the segment results to the Consolidated Financial Statements are also recorded within Parent and Other.

Selected financial information by line of business follows. For further discussion on the segments’ results see the Financial Review section.


				Commercial		Commercial
	Retail			Banking –		Banking –		Mortgage			Asset			Parent			Consolidated
(In Thousands)	Banking			Regional		National		Banking			Management			and Other			Total

Three months ended June 30, 2007

Net interest income (expense)^(a)	$	552,861		$	311,216	$	75,102	$	178,901		$	35,278		$	(57,272	)	$	1,096,086
Provision for credit losses		57,588			30,363		4,353		19,261			1,741			29,815			143,121

Net interest income (expense) after provision		495,273			280,853		70,749		159,640			33,537			(87,087	)		952,965
Noninterest income		300,881			116,038		58,277		163,511			98,526			27,305			764,538
Noninterest expense		473,184			197,861		50,014		223,573			85,768			157,273			1,187,673

Income (loss) before taxes		322,970			199,030		79,012		99,578			46,295			(217,055	)		529,830
Income tax expense (benefit)^(a)		126,291			75,889		29,253		37,627			17,500			(103,334	)		183,226

Net income (loss)	$	196,679		$	123,141	$	49,759	$	61,951		$	28,795		$	(113,721	)	$	346,604

Intersegment revenue (expense)	$	(619	)	$	5,948	$	2,728	$	(4,883	)	$	2,098		$	(5,272	)	$	—
Average assets (in millions)		27,978			41,906		10,991		30,177			4,064			23,471			138,587



Three months ended June 30, 2006

Net interest income^(a)	$	491,018		$	298,736	$	80,388	$	154,850		$	31,753		$	110,818		$	1,167,563
Provision (benefit) for credit losses		24,789			30,554		1,884		5,477			(3,767	)		980			59,917

Net interest income after provision		466,229			268,182		78,504		149,373			35,520			109,838			1,107,646
Noninterest income		275,563			145,379		65,907		30,676			92,825			173,731			784,081
Noninterest expense		406,021			186,435		45,629		206,788			79,441			249,461			1,173,775

Income (loss) before taxes		335,771			227,126		98,782		(26,739	)		48,904			34,108			717,952
Income tax expense (benefit)^(a)		129,165			86,614		35,596		(10,121	)		18,485			(14,713	)		245,026

Net income (loss)	$	206,606		$	140,512	$	63,186	$	(16,618	)	$	30,419		$	48,821		$	472,926

Intersegment revenue (expense)	$	(600	)	$	8,681	$	2	$	5,965		$	1,699		$	(15,747	)	$	—
Average assets (in millions)		24,891			37,994		10,266		26,629			3,690			36,549			140,019


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


				Commercial		Commercial
	Retail			Banking –		Banking –			Mortgage			Asset			Parent			Consolidated
(In Thousands)	Banking			Regional		National			Banking			Management			and Other			Total

Six months ended June 30, 2007

Net interest income (loss)^(a)	$	1,096,930		$	635,598	$	152,918		$	337,935		$	70,420		$	(79,433	)	$	2,214,368
Provision (benefit) for credit losses		121,648			16,515		(13,356	)		47,726			2,292			75,142			249,967

Net interest income (expense) after provision		975,282			619,083		166,274			290,209			68,128			(154,575	)		1,964,401
Noninterest income		568,369			239,202		103,572			248,558			187,651			37,707			1,385,059
Noninterest expense		934,218			389,965		100,167			428,044			165,885			340,754			2,359,033

Income (loss) before taxes		609,433			468,320		169,679			110,723			89,894			(457,622	)		990,427
Income tax expense (benefit)^(a)		238,783			178,337		63,245			41,825			33,981			(231,560	)		324,611

Net income (loss)	$	370,650		$	289,983	$	106,434		$	68,898		$	55,913		$	(226,062	)	$	665,816

Intersegment revenue (expense)	$	(1,237	)	$	12,837	$	7,089		$	(8,253	)	$	5,232		$	(15,668	)	$	—
Average assets (in millions)		27,916			41,570		10,801			28,798			4,030			25,086			138,201



Six months ended June 30, 2006

Net interest income^(a)	$	974,653		$	599,087	$	157,800		$	315,549		$	63,022		$	241,232		$	2,351,343
Provision (benefit) for credit losses		53,402			29,216		(4,519	)		14,647			(3,064	)		(2,722	)		86,960

Net interest income after provision		921,251			569,871		162,319			300,902			66,086			243,954			2,264,383
Noninterest income		515,599			252,373		128,290			24,007			178,018			341,441			1,439,728
Noninterest expense		819,645			363,358		90,703			405,640			159,626			483,478			2,322,450

Income (loss) before taxes		617,205			458,886		199,906			(80,731	)		84,478			101,917			1,381,661
Income tax expense (benefit)^(a)		237,703			175,003		71,833			(30,542	)		31,932			(36,001	)		449,928

Net income (loss)	$	379,502		$	283,883	$	128,073		$	(50,189	)	$	52,546		$	137,918		$	931,733

Intersegment revenue (expense)	$	(1,201	)	$	14,389	$	5		$	10,199		$	3,161		$	(26,553	)	$	—
Average assets (in millions)		24,772			37,370		10,049			26,645			3,655			37,219			139,710


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

25. 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)	2007		2006		2006

Assets
Cash and demand balances due from banks	$	665,452	$	1,315,479	$	231,415
Loans to and receivables from subsidiaries		1,551,393		3,048,331		776,323
Securities		216,871		219,952		187,680
Other investments		6,930		192,398		212,196
Investments in:
Subsidiary banks		13,353,260		12,735,292		13,473,421
Nonbank subsidiaries		525,904		346,770		421,532
Goodwill		117,325		117,471		122,276
Derivative assets		28,379		67,632		22,426
Other assets		777,362		705,035		654,745

Total Assets	$	17,242,876	$	18,748,360	$	16,102,014

Liabilities and Stockholders’ Equity
Long-term debt	$	2,862,970	$	2,308,802	$	2,230,867
Borrowed funds from subsidiaries		1,273,114		948,705		343,870
Derivative liabilities		97,817		39,858		66,317
Accrued expenses and other liabilities		862,449		869,992		851,196

Total liabilities		5,096,350		4,167,357		3,492,250
Stockholders’ equity		12,146,526		14,581,003		12,609,764

Total Liabilities and Stockholders’ Equity	$	17,242,876	$	18,748,360	$	16,102,014

Securities and other investments totaling $105 million at June 30, 2007 were restricted for use in certain nonqualified benefit plans. The borrowed funds from subsidiaries balance include 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 $1.3 billion at June 30, 2007. The holding company also guarantees commercial paper issued by its subsidiary National City Credit Corporation, which borrowings totaled $836 million at June 30, 2007. Additionally, the holding company guarantees National City Bank’s financial obligation under its membership with Visa^® up to $600 million and MasterCard^® up to $400 million.

Statements of Income


	Three Months Ended						Six Months Ended
	June 30						June 30

(In Thousands)	2007			2006			2007			2006

Income
Dividends from:
Subsidiary banks	$	950,000		$	200,000		$	950,000		$	425,000
Nonbank subsidiaries		—			—			—			274
Interest on loans to subsidiaries		24,650			14,995			55,826			32,022
Interest and dividends on securities		1,317			1,458			2,640			4,035
Securities gains, net		769			171			1,456			11,631
Other income		11,119			2,858			15,219			26,576

Total Income		987,855			219,482			1,025,141			499,538

Expense
Interest on debt and other borrowings		58,315			36,461			107,976			72,780
Other expense		36,597			27,965			73,653			60,682

Total Expense		94,912			64,426			181,629			133,462

Income before taxes and equity in undistributed net income of subsidiaries		892,943			155,056			843,512			366,076
Income tax benefit		(4,691	)		(15,109	)		(20,835	)		(36,933	)

Income before equity in undistributed net income of subsidiaries		897,634			170,165			864,347			403,009
Equity in undistributed net (loss)/income of subsidiaries		(551,030	)		302,761			(198,531	)		528,724

Net Income	$	346,604		$	472,926		$	665,816		$	931,733

Statements of Cash Flows


	Six Months Ended
	June 30

(In Thousands)	2007			2006

Operating Activities
Net income	$	665,816		$	931,733
Adjustments to reconcile net income to net cash provided by operating activities:
Equity in undistributed loss/(net income) of subsidiaries		198,531			(528,724	)
Depreciation and amortization of properties and equipment		1,346			1,346
Decrease (increase) in receivables from subsidiaries		1,547,249			(37,531	)
Securities gains, net		(1,456	)		(11,631	)
Other losses/(gains), net		19,043			(1,443	)
Amortization of premiums and discounts on securities and debt		(1,318	)		(4,558	)
Decrease in accrued expenses and other liabilities		(36,410	)		(6,211	)
Excess tax benefit for share based payments		(12,269	)		(15,296	)
Other, net		(66,283	)		74,618

Net cash provided by operating activities		2,314,249			402,303

Investing Activities
Purchases of securities		(53,595	)		(41,608	)
Proceeds from sales and maturities of securities		62,214			198,830
Net change in other investments		185,468			26,459
Principal collected on loans to subsidiaries		258,000			267,000
Loans to subsidiaries		(302,000	)		(17,000	)
Investments in subsidiaries		(27,387	)		(95,616	)
Returns of investment from subsidiaries		3,640			—
Cash paid for acquisitions, net		(505,651	)		(80,497	)

Net cash (used in) provided by investing activities		(379,311	)		257,568

Financing Activities
Issuance of debt		1,085,177			—
Repayment of debt		(195,876	)		(139,266	)
Excess tax benefit for share based payments		12,269			15,296
Dividends paid		(487,036	)		(458,160	)
Issuances of common stock		205,454			180,068
Repurchases of common stock		(3,204,953	)		(535,395	)

Net cash used in financing activities		(2,584,965	)		(937,457	)

Decrease in cash and demand balances due from banks		(650,027	)		(277,586	)
Cash and demand balances due from banks, January 1		1,315,479			509,001

Cash and Demand Balances Due from Banks, June 30	$	665,452		$	231,415

Supplemental Information
Cash paid for interest	$	109,600		$	78,304
Common shares and stock options issued for acquisitions		492,155			—

Retained earnings of the holding company included $ 8.8 billion, $8.0 billion, and $8.4 billion of equity in undistributed net income of subsidiaries at June 30, 2007, December 31, 2006, and June 30, 2006, 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 74 for a discussion of 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) as of June 30, 2007 and for the three and six months ended June 30, 2007 and serves to update the 2006 Annual Report on Form 10-K (Form 10-K). The Financial Review should be read in conjunction with the accompanying Consolidated Financial Statements and notes presented on pages 4 through 52.

OVERVIEW

The primary source of National City’s revenue is net interest income from loans and deposits, revenue from loan sales and servicing, 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.

Tax-equivalent net interest income was $1.1 billion for the second quarter of 2007, down slightly compared to both the preceding quarter and the second quarter a year ago. Net interest margin was 3.59%, down 10 basis points from the first quarter of 2007, and down 14 basis points from the second quarter a year ago. Compared to the preceding quarter, the lower margin reflects lower levels of noninterest bearing funds, in part due to share repurchases, and, to a lesser extent, contraction of loan spreads. Compared to a year ago, narrower loan spreads, particularly on commercial loans, were the major reason for the margin decline. If loan spreads stabilize, the net interest margin could improve slightly in the second half of the year. Otherwise, further weakness in margin is a risk.

Average portfolio loans were $99.7 billion for the second quarter of 2007, up from $98.2 billion in the first quarter of 2007, but down compared to $101.8 billion in the second quarter of 2006. Commercial loan growth drove the linked-quarter increase in average portfolio loans. Compared to the second quarter a year ago, average portfolio loans decreased due to the implementation of an originate-and-sell strategy for certain indirect consumer loans, as well as the sale of $3.9 billion of nonconforming mortgage portfolio loans in late 2006.

The provision for credit losses was $143 million in the second quarter of 2007, up compared to $107 million in the first quarter of 2007, and $60 million in the second quarter a year ago. The higher provision for credit losses in the second quarter of 2007 was mainly concentrated among mortgage and home equity loans reflecting weakness in the housing market. Second quarter 2007 net charge-offs were $98 million, compared to $147 million in the preceding quarter, and $76 million in the second quarter a year ago. Net charge-offs declined on a linked-quarter basis as the first quarter of 2007 included larger charge-offs for passenger airline leases and nonconforming mortgage loans. Credit quality continues to be stable.

Noninterest income was $764 million in the second quarter of 2007, compared to $621 million in the preceding quarter, and $784 million in the second quarter a year ago. Deposit service and brokerage fees showed good growth. Loan sale revenue increased compared to the preceding quarter due to higher mortgage production volume, which more than offset weaker gain on sale margins. Loan servicing revenue increased on both a linked-quarter and year-over-year basis which primarily reflects better MSR hedging results. Noninterest expense was flat compared to the first quarter of 2007 and the second quarter a year ago.

Comparisons of results to prior periods are affected by recently completed acquisitions and divestitures. On December 1, 2006 and January 5, 2007, the Corporation completed its acquisitions of Harbor Florida Bancshares and Fidelity Bankshares, respectively. On December 30, 2006, the Corporation completed the sale of its First Franklin nonconforming mortgage origination and sale business and related servicing platform.

BEST IN CLASS

Best In Class is a program designed to drive long-term performance improvement and cultural change. It includes re-engineering or replacement of business processes, incentive systems, and management structures. Progress continues on implementing these initiatives. Management estimates that Best In Class will benefit pretax earnings by approximately $400 million in 2007 and $700 million in 2008. These estimates are subject to revision as implementation progresses.

RESULTS OF OPERATIONS

Net Interest Income

This section should also be reviewed in conjunction with the daily average balances/net interest income/rates tables presented on pages 76-78 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. To compare the tax-exempt asset yields to taxable yields, interest amounts earned are adjusted to the pretax-equivalent amounts based on the marginal corporate Federal tax rate of 35%. The tax-equivalent adjustment to net interest income was $7 million and $15 million for the second quarter and first six months of 2007, respectively, and $6 million and $14 million for the same periods of 2006, respectively.

Tax-equivalent net interest income was $1.1 billion and $2.2 billion for the second quarter and first six months of 2007, respectively, down slightly from $1.2 billion and $2.4 billion for the same periods in 2006. Tax-equivalent net interest income for the second quarter of 2007 was down slightly compared to the preceding quarter. Net interest margin was 3.59% in the second quarter of 2007, compared to

3.69% for the preceding quarter, and 3.73% for the second quarter of 2006. Net interest margin for the first six months of 2007 was 3.64%, compared to 3.77% for the same period of 2006.

The decrease in tax-equivalent net interest income from 2006 was the result of a lower margin and a slight decline in average earning assets. The decrease in margin from the preceding quarter was the result of lower levels of noninterest bearing funds due in part to share repurchases, as well as some contraction of loan spreads. The decrease in the margin from the comparable periods of the preceding year was a result of narrower loan spreads, particularly in the commercial portfolio. The lower level of average earning assets compared to the prior year reflects the implementation of an originate-and-sell strategy for indirect, nonfootprint nonconforming mortgage, home equity loans, and home equity lines formerly originated for portfolio.

Further discussion of trends in the loan and securities portfolios and detail on the mix of funding sources is included in the Financial Condition section beginning on page 60.

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)	2007			2007			2006			2007			2006

Deposit service charges and fees	$	223		$	204		$	203		$	427		$	392
Loan sale revenue		110			75			285			185			429
Loan servicing revenue		96			32			(21	)		128			(65	)
Trust and investment management fees		84			74			80			158			153
Brokerage revenue		54			40			30			94			64
Leasing revenue		46			55			61			101			121
Insurance revenue		35			34			33			69			65
Other service fees		33			35			36			68			69
Card-related fees		29			32			25			61			54
Principal investment gains, net		20			10			24			30			58
Derivatives (losses)/gains		(7	)		(23	)		(11	)		(30	)		(17	)
Securities (losses)/gains		(1	)		27			1			26			13
Other		42			26			38			68			104

Total noninterest income	$	764		$	621		$	784		$	1,385		$	1,440

Deposit service revenue increased nearly 10% on both a linked-quarter and year-over-year basis reflecting growth in personal checking accounts, aided by recent acquisitions, which drove higher overdraft and debit card interchange fees.

Loan sale revenue includes loan sale or securitization gains and losses as well as gains and losses recognized on derivative instruments utilized to hedge mortgage loan commitments and certain loans prior. Revenue by loan type is shown below:


	Three Months Ended						Six Months Ended
	June 30		March 31		June 30		June 30		June 30
(In Millions)	2007		2007		2006		2007		2006

Residential real estate	$	94	$	47	$	207	$	141	$	326
Commercial loans		10		16		52		26		66
Other consumer loans		6		12		26		18		37

Total loan sale revenue	$	110	$	75	$	285	$	185	$	429

National City Mortgage (NCM) originations for sale and sales increased on both a linked-quarter basis and year-over-year basis. NCM’s loan sales were $10.5 billion in the second quarter of 2007, up from $9.3 billion in the preceding quarter, and $8.3 billion in the second quarter a year ago. On a year-to-date basis, NCM loan sales were $19.8 billion in 2007 versus $17.1 billion in 2006. Gain on sale margins narrowed in the second quarter of 2007, reflecting less liquidity in the mortgage capital markets with investors being more selective in the loans they would purchase. Home equity loans originated by National Home Equity (NHE) are also included in residential real estate loan sale revenue. Home equity loan sales were $671 million in the second quarter of 2007, compared to $1.1 billion in the preceding quarter and $420 million sold in the second quarter a year ago. On a year-to-date basis, home equity loan sales were $1.8 billion in 2007 compared to $420 million in 2006. Gain on sale of home equity loans was stable on a linked-quarter basis and up about 100 basis points on a year-over-year basis.

Comparisons of residential real estate loan sale to the prior year are affected by the sale in late 2006 of the First Franklin nonconforming mortgage origination and sale business and related servicing platform. Loan sale revenue for the second quarter and the first half of 2006 included $113 million and $171 million, respectively, of First Franklin loan sale revenue. Loan sale revenue for the first quarter of 2007 reflects a $23 million loss recognized on First Franklin loans held for sale which were transferred back to portfolio during the first quarter of 2007 due to unfavorable market conditions.

Commercial loan sale revenue decreased on a year-over-year basis due to a higher volume of commercial loan sales in the second quarter of 2006, as well as a nonrecurring $26 million gain on sale of certain commercial leases in the same period.

Other consumer loan sales include home equity lines of credit, credit card, and student loans. Home equity lines of credit originated for sale increased on both on a linked-quarter and year-over-year basis year. However, sales of home equity lines for the second quarter of 2007 declined compared to prior periods due to unsettled market conditions. Home equity lines of credit sold were $463 million in the second quarter of 2007, $1.8 billion in the preceding quarter, and $1.1 billion in the second quarter a year ago. On a year-to-date basis, home equity lines of credit sold were about $2.2 billion in the first half of 2007 and 2006. The gain on sale of home equity lines of credit declined compared to the first quarter of 2007 and the second quarter of 2006 due to market conditions. However, the gain on sale margin was higher in the first half of 2007 versus the first half of 2006. Student loan sale revenue was $15 million in the second quarter of 2007, $1 million in the preceding quarter, and $16 million in the second quarter of 2006. Student loan sales are seasonal with the highest volume of sales typically occurring in the second quarter.

As a result of deterioration in mortgage capital market conditions beginning in late July, management suspended the origination of certain mortgage loans, home equity loans, and home equity lines of credit which are originated by brokers and reported within the Mortgage Banking segment.

The Corporation typically retains the right to service the mortgage loans it sells. Upon sale, the Corporation recognizes a mortgage servicing right (MSR), which represents the present value of the estimated net servicing cash flows to be realized over the estimated life of the underlying loan. The carrying value of MSRs was $2.5 billion at June 30, 2007, $2.1 billion at December 31, 2006 and $2.5 billion at June 30, 2006. The sale of the First Franklin nonconforming loan servicing platform, National City Home Loan Services (NCHLS), in late 2006 removed $223 million of mortgage servicing assets from the balance sheet.

Loan servicing revenue includes net contractual servicing fees, late fees, ancillary fees, servicing asset valuation adjustments, and gains or losses on derivatives and securities utilized to hedge mortgage servicing assets. The components of loan servicing revenue (loss) by product type follow:


	Three Months Ended								Six Months Ended
	June 30		March 31			June 30			June 30		June 30
(In Millions)	2007		2007			2006			2007		2006

Residential real estate	$	49	$	(6	)	$	(72	)	$	43	$	(145	)
Other consumer loans		44		34			48			78		75
Commercial real estate		3		4			3			7		5

Total loan servicing revenue/(loss)	$	96	$	32		$	(21	)	$	128	$	(65	)

The components of residential real estate loan servicing revenue are as follows:


	Three Months Ended									Six Months Ended
	June 30			March 31			June 30			June 30			June 30
(In Millions)	2007			2007			2006			2007			2006

Net contractual servicing fees	$	128		$	129		$	153		$	257		$	301
Servicing asset time decay and payoffs		(89	)		(86	)		(110	)		(175	)		(203	)
MSR hedging gains/(losses):
Servicing asset valuation changes		315			(55	)		153			260			346
(Losses) /gains on related derivatives		(305	)		6			(268	)		(299	)		(589	)

Net MSR hedging gains/(losses)		10			(49	)		(115	)		(39	)		(243	)

Total mortgage servicing revenue/(loss)	$	49		$	(6	)	$	(72	)	$	43		$	(145	)

Residential real estate servicing revenue increased in the second quarter of 2007 primarily due to net MSR hedging gains. 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 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 value of MSRs. The Corporation manages the risk associated with declines in the value of MSRs using derivative instruments and securities. As shown in the above table, net MSR hedging gains were $10 million in the second quarter of 2007, versus a loss of $49 million in the first quarter of 2007 and $115 million in the second quarter a year ago. On a year-to-date basis, net MSR hedging losses were $39 million in 2007 versus $243 million in 2006. Unrealized net losses associated with derivatives utilized to hedge MSRs were $138 million as of June 30, 2007.

The ultimate realization of these losses can be affected by changes in interest rates, which may increase or decrease the ultimate cash settlement of these instruments.

Mortgage servicing revenue comparisons are affected by certain unusual and nonrecurring revenues and losses. The First Franklin mortgage servicing platform contributed $15 million of servicing revenue in the second quarter of 2006 and $29 million in the first half of 2006. As this unit was sold in late 2006, there were no comparable revenues in 2007. In the second quarter of 2006, implementation of a new prepayment model resulted in a one-time decrease to the MSR valuation of $56 million.

Other consumer loans servicing revenue increased on a linked-quarter basis due to higher income earned on credit card securitizations. Average credit card securitized balances were higher on a linked-quarter basis due to a $425 million securitization completed in March 2007.

Trust and investment management fees increased on a linked-quarter basis due primarily to tax preparation services which are billed in the second quarter of the year. Leasing revenue declined compared to the preceding quarter and the second quarter a year ago due to continued run-off of the leased automobile portfolio, which more than offset the growth in the commercial leasing portfolio. Brokerage revenue increased on both a linked-quarter and year-over-year basis due to a higher volume of advisory services. Lower trading losses also contributed to the higher brokerage revenues compared to the second quarter a year ago. Card-related fees increased on a year-to-date basis due to higher credit and debit card interchange fees arising from higher transaction volumes.

Principal investments represent direct investments in private and public companies and indirect investments in private equity funds. Principal investment gains include both market value adjustments and realized gains from sales of these investments. Principal investment results can vary from year to year due to changes in fair value and decisions to sell versus hold various investments.

Derivative gains/(losses) include certain ineffective hedge gains and losses on derivatives designated as SFAS 133 qualifying hedges, and fair value adjustments on derivatives not designated as SFAS 133 qualifying hedges. These derivatives are held for trading purposes, to hedge the fair value of certain recognized assets and liabilities, and to hedge certain forecasted cash flows. Derivatives used to hedge mortgage loans held for sale and MSRs are presented within loan sale revenue and loan servicing revenue, respectively. Smaller net derivative losses were recognized in the second quarter of 2007 on derivatives held for interest-rate risk management purposes, which are not designated as SFAS 133 qualifying hedges.

During the second quarter of 2007, a small impairment loss was recorded on retained interests from credit card securitizations. During the first quarter of 2007, certain fixed income investments used for balance sheet management purposes were sold, resulting in a realized gain. Security gains for the first half of 2006 included an $11 million gain on the liquidation of the Corporation’s former bank stock fund.

There were no significant unusual items in other noninterest income in the second quarter or the first half of 2007. Other noninterest income for the first half of 2006 included $35 million of income ($4 million in the second quarter and $31 million in the first quarter) related to the release of a chargeback guarantee liability associated with a now-terminated credit card processing agreement.

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)	2007		2007		2006		2007		2006

Salaries, benefits, and other personnel	$	642	$	633	$	636	$	1,275	$	1,277
Third-party services		89		86		91		175		170
Equipment		85		83		79		168		158
Net occupancy		76		78		74		154		147
Marketing and public relations		45		33		38		78		66
Postage and supplies		33		41		34		74		71
Leasing expense		33		34		42		67		85
Insurance		23		25		30		48		57
State and local taxes		23		20		23		43		40
Travel and entertainment		21		18		20		39		38
Telecommunications		19		18		20		37		38
Intangible asset amortization		19		17		10		36		21
Impairment, fraud and other losses		16		21		13		37		32
Other		64		64		64		128		123

Total noninterest expense	$	1,188	$	1,171	$	1,174	$	2,359	$	2,323

Included within noninterest expense were acquisition-related integration costs of $20 million for the second quarter of 2007, $16 million for the first quarter of 2007, and $2 million for the second quarter of 2006.

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)	2007			2007			2006			2007			2006

Salaries and wages	$	354		$	350		$	354		$	704		$	706
Incentive compensation		190			159			204			349			375
Deferred personnel costs		(88	)		(75	)		(104	)		(163	)		(194	)
Medical and other benefits		46			47			46			93			94
Payroll taxes		36			49			39			85			92
Contract labor		35			32			43			67			78
Retirement plans		24			31			22			55			50
Stock-based compensation		22			23			17			45			33
Deferred compensation		12			4			(1	)		16			14
Severance and other		11			13			16			24			29

Total salaries, benefits, and other personnel	$	642		$	633		$	636		$	1,275		$	1,277

Full-time-equivalent employees		32,445			32,311			33,951

Salaries, benefits, and other personnel costs were relatively flat compared to the first quarter of 2007. Incentive compensation increased due to higher loan originations and other incentive-based activities in the second quarter of 2007 as well as reserve adjustments made in the first quarter arising from actual incentive payments being less than the amount estimated at year end. Market value adjustments on deferred compensation liabilities increased in the second quarter of 2007 due to an increase in the investment indices used to value these obligations. Deferred personnel costs increased compared to the first quarter of 2007 due to higher levels of loan originations and an increase in capitalized labor for internally developed software. The decrease in payroll taxes compared to the preceding quarter is seasonal.

On a year-over-year basis, salaries, benefits and other personnel costs were also flat as lower incentive compensation was offset by lower deferrals of personnel costs and higher deferred compensation costs. Incentive compensation and personnel costs were lower during 2007 due to decreased nonconforming mortgage loan originations as a result of the sale of the First Franklin nonconforming mortgage origination and servicing platform during the fourth quarter of 2006. Deferred compensation costs increased compared to the second quarter last year for the same reasons discussed above.

Equipment costs increased on a year-to-date basis due to higher technology and software costs.

Marketing and public relations increased compared to the linked-quarter due to increased advertising expenses as a result of the timing of ad campaigns. The increase in marketing and public relations expense on a year-over-year and year-to-date basis is due to increased marketing efforts in our newly acquired Florida markets.

Leasing expense decreased on a year-over-year and year-to-date basis due to a smaller portfolio of equipment leased to others.

Insurance costs decreased on a year-over-year basis due to lower mortgage insurance costs on run-off residential real estate loan and consumer loan portfolios.

Intangible asset amortization increased on a year-over-year and year-to-date basis due to amortization related to intangibles recorded for the recent acquisitions of Harbor and Fidelity.

Other noninterest expense increased slightly on a year-to-date basis due to higher foreclosure expenses, partially offset by lower losses on community development and civic partnerships and lower third-party collection fees.

The efficiency ratio, equal to noninterest expense as a percentage of tax-equivalent net interest income and noninterest income, was 63.83% in second quarter of 2007, compared to 67.37% in the first quarter of 2007, and 60.14% in the second quarter of 2006. The efficiency ratio was 65.54% and 61.26% for the first half of 2007 and 2006, respectively. The lower efficiency ratio on a linked-quarter basis reflected higher noninterest income driven mainly by increased loan sale and servicing revenue. The higher efficiency ratio on a year-over-year comparison reflected both lower net interest income as a result of lower earning assets and narrower commercial loan spreads, in addition to lower noninterest income driven by a decrease in loan sale revenue.

Income Taxes

The effective tax rate for the second quarter of 2007 was 34%, compared with 30% in the preceding quarter, and 34% in the second quarter a year ago. The higher tax provision for the second quarter of 2007 reflects discrete tax adjustments totaling $12 million, including estimated interest and penalties accrued for uncertain tax provisions versus the preceding quarter. Further, the first quarter provision included a $7 million net tax benefit primarily associated with the completion of certain internal reorganizations and mergers. The effective tax rate for the first half of 2007 was 32%, consistent with the first half of 2006. Management’s estimate of the effective tax rate for the full year 2007 approximates 32%, inclusive of all of the foregoing items.

Line of Business Results

The Corporation’s businesses are organized by product and service offerings as well as the distribution channels through which these products and services are offered. Effective January 1, 2007, the Corporation implemented a reorganization of its management structure resulting in the following five reportable segments: Retail Banking, Commercial Banking-Regional, Commercial Banking-National, Mortgage Banking, and Asset Management. Further discussion of the activities of each of these businesses is presented in Note 24. All revenues and expenses not directly associated with or allocated to these segments are reported within Parent and Other. Parent and Other also includes revenues and expenses associated with discontinued products or services and exited businesses, including the former First Franklin origination and servicing platform and the remaining run-off portfolio. Prior periods’ results have been reclassified to conform with the current presentation.

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)	2007			2007			2006			2007			2006

Retail Banking	$	197		$	174		$	207		$	371		$	380
Commercial Banking — Regional		123			167			141			290			284
Commercial Banking — National		49			57			63			106			128
Mortgage Banking		62			7			(17	)		69			(50	)
Asset Management		29			27			30			56			52
Parent and Other		(113	)		(113	)		49			(226	)		138

Consolidated net income	$	347		$	319		$	473		$	666		$	932

Retail Banking: This business provides banking products and services to consumers and small businesses within National City’s eight state footprint. Net interest income and noninterest income increased on both a linked-quarter and year-over-year basis due to growth in outstanding loans and deposits. The provision for credit losses was $58 million in the second quarter of 2007, $64 million in the first quarter of 2007, and $25 million in the second quarter a year ago. Deposit and other service fees increased on both a linked-quarter and year-over-year basis which reflects growth in accounts and household relationships. Average core deposits were $63.2 billion at June 30, 2007, compared to $55.9 billion at December 31, 2006 and $55.3 billion at June 30, 2006. Noninterest expense was relatively stable compared to the first quarter but increased compared to the second quarter last year due to higher business volumes and reinsurance expense.

Commercial Banking — Regional: This business provides banking products and services to large and medium-sized companies within National City’s eight state footprint. Net interest income decreased compared to the first quarter of 2007 due to narrower spreads on loans and deposits. Net interest income increased compared to the second quarter last year due to growth in average outstanding loans, which more than offset the narrower spreads. The provision/(benefit) for credit losses was $30 million in the second quarter of 2007, $(14) million in the first quarter of 2007, and $31 million in the second quarter a year ago. The first quarter of 2007 benefited from improvements in the underlying loss factors used to calculate the allowance, driven in part by a refinement in the method of allocating recoveries on previously charged-off commercial and commercial real estate loans within the loan loss model. Noninterest income decreased compared to the preceding quarter primarily due to lower leasing revenue. On a year-over-year basis, noninterest income decreased due to a nonrecurring gain on the sale of commercial leases of $26 million in 2006. Operating expenses increased on both a linked-quarter and year-over-year basis primarily due to higher business volumes.

Commercial Banking — National: This business provides banking products and services to targeted customer segments in selected industries or distribution channels, as well as to corporate customers outside of National City’s branch footprint. Net interest income was down slightly on a linked-quarter and year-over-year basis primarily due to narrower spreads on loans. A lower average balance of loans outstanding also contributed to the decrease in net interest income compared to the preceding quarter. The provision/(benefit) for credit losses was $4 million for the second quarter of 2007, $(18) million in the first quarter of 2007, and $2 million in the second quarter a year ago. The reversal of previously recognized provision in the first quarter of 2007 reflects the same factors as the Commercial Banking — Regional provision described above. Noninterest income increased compared to the preceding quarter due to higher principal investment

gains and brokerage revenue. Noninterest income decreased compared to the second quarter a year ago due to lower principal investment gains. Principal investments gains were $20 million in the second quarter of 2007, $10 million in the first quarter of 2007, and $30 million in the second quarter of 2006. Noninterest expenses were stable on a linked-quarter basis and slightly higher than the second quarter last year due to higher incentive compensation costs, higher leased equipment depreciation costs, and higher allocated corporate expenses.

Mortgage Banking: This business originates residential mortgages, home equity loans, and home equity lines of credit both within National City’s banking footprint and on a nationwide basis through two units, National City Mortgage (NCM) and National Home Equity (NHE). Net interest income increased on both a linked-quarter and year-over-year basis due to a higher average balance of loans held for sale. NCM’s net interest income increased on both a linked quarter and year-over-year basis on higher production volumes, offset somewhat by lower spreads. NHE’s net interest income was relatively stable on a linked-quarter basis but declined on a year-over-year basis as the remaining portfolio continues to run off following the implementation of the originate-and-sell strategy. The provision for credit losses was $19 million in the second quarter of 2007, $28 million in the first quarter of 2007, and $5 million in the second quarter of 2006.

Noninterest income increased on both linked-quarter and year-over-year basis. NCM’s loan sale revenue increased compared to the preceding quarter on higher sales volume which more than offset lower gain on sale margins. NCM’s lower gain on sale margin reflects investors being more selective in loans they will purchase, resulting in a larger percentage of lower margin “scratch-and-dent” sales, larger write-downs on loans held for sale, and higher recourse reserves. Compared to the second quarter a year ago, NCM’s loan sale revenue declined due to lower gain on sale margins which more than offset the higher sales volumes. NCM’s gain on sale margin declined on a year-over-year basis for substantially the same reasons previously described. NHE’s loan sale revenue decreased compared to the preceding quarter but was stable compared to the second quarter a year ago. NHE’s sales volume of home equity lines of credit declined compared to the first quarter of 2007 due to unsettled market conditions. NHE’s margin realized on sales of home equity loans was stable compared to the preceding quarter and better than the second quarter a year ago.

Loan servicing revenue/(loss) was $71 million in the second quarter of 2007, $4 million in the first quarter of 2007, and $(79) million in the second quarter a year ago. Net MSR hedging gains/(losses) were $10 million in the second quarter of 2007, $(49) million in the first quarter of 2007, and $(110) million in the second quarter a year ago. In the second quarter of 2006, implementation of a new MSR prepayment model added $56 million to net MSR hedging losses. The unpaid principal balance associated with mortgage and home equity lines and loans serviced for others was $177.0 billion at June 30, 2007, $169.4 billion at December 31, 2006 and $164.7 billion at June 30, 2006. Noninterest expense increased compared to the preceding quarter and the second quarter a year ago on higher production volumes.

Asset Management: This segment includes both institutional asset management and personal wealth management services. Net interest income was stable compared to the preceding quarter and grew compared to the second quarter a year ago. The year-over-year increase reflects a higher average balance of deposits and loans, offset to some extent by narrower spreads on loans and deposits. The provision/(benefit) for credit losses was $2 million in the second quarter of 2007, less than $1 million in the first quarter of 2007, and $(4) million in the second quarter a year ago. Noninterest income increased compared to the preceding quarter primarily due to seasonal tax preparation fees. Noninterest income also grew compared to the second quarter a year ago due to higher personal trust fees, brokerage and mutual fund revenue reflecting growth in assets under administration. Operating expenses increased on both a linked-quarter and year-over-year basis due to higher incentive compensation. Assets under administration grew to $117.4 billion at June 30, 2007, from $112.2 billion at December 31, 2006, and $107.5 billion at June 30, 2006.

Parent and Other: Parent and Other includes the results of investment funding activities, run-off portfolios associated with discontinued businesses, unallocated corporate income and expense, intersegment revenue and expense eliminations and reclassifications. Parent and Other also includes the operating results of the former First Franklin nonconforming mortgage origination and servicing platform. Comparisons with prior periods are also affected by acquisition integration costs and other unusual or infrequently occurring items.

Net interest expense increased compared to the first quarter of 2007 and the second quarter of last year as the loan portfolios within Parent and Other continue to run off. Average loans outstanding all in run-off portfolios were $10.1 billion in the second quarter of 2007, $11.6 billion in the preceding quarter, and $23.2 billion in the second quarter a year ago. The provision for credit losses was $30 million in the second quarter of 2007, $45 million in the first quarter of 2007, and $1 million in the second quarter a year ago. The provision for credit losses in 2007 reflects higher forecasted losses for the nonconforming mortgage portfolio given the continued seasoning of this portfolio, and weakness in the housing markets.

Noninterest income increased on a linked-quarter basis but was down significantly from the second quarter a year ago. There were no unusual transactions in the second quarter of 2007. During the first quarter of 2007, a fair value write-down of $23 million was recognized on First Franklin loans held for sale. No comparable loss occurred in the second quarter of 2007 as these loans have since been returned to portfolio. In the second quarter and first half of 2006, the First Franklin unit contributed $128 million and $199 million, respectively, to noninterest income. There is no comparable revenue in 2007. The first half of 2006 also included $35 million of income ($4 million in the second quarter) related to the release of a chargeback guarantee liability from a now-terminated credit card processing contract.

Noninterest expense decreased on both a linked-quarter and year-over-year basis. Recent acquisitions increased operating expenses in 2007 compared to the prior year; however, the sale of the First Franklin unit eliminated certain costs. Acquisition integration costs were $20 million in the second quarter of 2007, $16 million in the preceding quarter, and $2 million in the second quarter of 2006.

FINANCIAL CONDITION

This section should also be reviewed in conjunction with the average balance sheets presented on pages 75-78.

Average Earning Assets


	Three Months Ended						Six Months Ended
	June 30		March 31		June 30		June 30		June 30
(In Millions)	2007		2007		2006		2007		2006

Portfolio loans
Commercial	$	32,079	$	30,985	$	28,709	$	31,535	$	28,126
Commercial construction		4,872		4,722		3,507		4,797		3,466
Commercial real estate		12,919		12,976		12,100		12,948		12,061
Residential real estate		27,366		26,604		31,812		26,988		32,364
Home equity lines of credit		14,010		14,409		17,089		14,208		19,023
Credit card and other unsecured lines of credit		3,099		3,019		2,528		3,059		2,522
Other consumer		5,344		5,483		6,012		5,412		6,022

Total portfolio loans		99,689		98,198		101,757		98,947		103,584
Loans held for sale or securitization		12,615		11,769		12,760		12,194		10,804
Securities (at amortized cost)		7,143		7,704		7,802		7,422		7,761
Other		2,897		3,872		2,808		3,383		2,645

Total earning assets	$	122,344	$	121,543	$	125,127	$	121,946	$	124,794

Average portfolio loans increased by 2% in the second quarter of 2007 from the previous quarter, and decreased by 2% from the year ago quarter. The linked-quarter increase was primarily due to strong commercial loan growth, combined with the return to portfolio of approximately $1.6 billion of nonconforming mortgages held for sale in the preceding quarter. The year-over-year decrease in average portfolio loans reflects the originate-and-sell strategy for certain broker-originated consumer loans, along with the sale of $3.9 billion of nonconforming mortgage portfolio loans in late 2006. These decreases were partially offset by strong commercial loan growth and loans acquired in recent acquisitions. Average portfolio loans decreased by 4% during the first half of 2007 over the comparable period a year ago for the same reasons. As certain indirect consumer loan portfolios are in run-off, management expects overall portfolio loan balances will be stable to down slightly in the second half of the year, exclusive of the pending acquisition of MAF Bancorp.

Average loans held for sale or securitization increased from the preceding quarter, and were stable compared to the year ago quarter. The linked-quarter increase was primarily the result of increased mortgage and home equity production, partially offset by a decrease in nonconforming mortgages held for sale, which were returned to portfolio in the preceding quarter. Average loans held for sale or securitization increased during the first half of 2007 over the same period a year ago for the same reasons.

As a result of deterioration in mortgage capital market conditions beginning in late July, management is reassessing its intent to sell certain mortgage and home equity loans currently classified as held for sale. When there is no longer the intent or ability to sell these loans, they would be transferred to portfolio at the lower of cost or fair value at the time of transfer. Management may also decide to retain current production of certain mortgage loans and home equity lines of credit in portfolio should the market continue in an unsettled state.

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, 2007.

Average

Largest Loan

Outstanding

% of

Loan Balance

to a Single

(Dollars in Millions)

Balance

Total

Per Obligor

Obligor

Real estate

14,645

1.0

Consumer cyclical

8,769

1.0

Industrial

6,820

1.3

117

Consumer noncyclical

6,080

Basic materials

3,979

1.7

Financial

3,465

1.9

142

Services

1,928

Energy and utilities

967

1.3

Technology

623

3.7

Miscellaneous

3,059

Total

50,335

100

Average Interest Bearing Liabilities and Funding


	Three Months Ended						Six Months Ended
	June 30		March 31		June 30		June 30		June 30
(In Millions)	2007		2007		2006		2007		2006

Noninterest bearing deposits	$	16,875	$	16,831	$	17,057	$	16,853	$	16,912
Interest bearing core deposits		61,089		59,491		52,377		60,294		51,799

Total core deposits		77,964		76,322		69,434		77,147		68,711
Purchased deposits		12,060		11,525		13,373		11,795		14,186
Short-term borrowings		9,433		6,312		7,878		7,881		8,126
Long-term debt		23,111		25,164		33,087		24,132		32,407

Total purchased funding		44,604		43,001		54,338		43,808		54,719
Stockholders’ equity		12,231		14,398		12,565		13,308		12,517

Total funding	$	134,799	$	133,721	$	136,337	$	134,263	$	135,947

Total interest bearing liabilities	$	105,693	$	102,492	$	106,715	$	104,102	$	106,518

Total core deposits, excluding mortgage escrow deposits and HELOC custodial balances	$	74,047	$	72,783	$	65,211	$	73,418	$	64,705

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
	2007			2007			2006			2007			2006

Noninterest bearing deposits		12.5	%		12.6	%		12.5	%		12.6	%		12.4	%
Interest bearing core deposits		45.3			44.5			38.4			44.9			38.1

Total core deposits		57.8			57.1			50.9			57.5			50.5
Purchased deposits		9.0			8.6			9.8			8.7			10.4
Short-term borrowings		7.0			4.7			5.8			5.9			6.0
Long-term debt		17.1			18.8			24.3			18.0			23.9

Total purchased funding		33.1			32.1			39.9			32.6			40.3
Stockholders’ equity		9.1			10.8			9.2			9.9			9.2

Total		100.0	%		100.0	%		100.0	%		100.0	%		100.0	%

Interest bearing core deposits have increased as a percentage of total funding due to recent acquisitions and consumer preference for interest bearing products in a higher rate environment. Additionally, core deposits are a larger percentage of funding due to recent acquisitions, continued deposit growth, and a year-over-year reduction in average earning assets which has reduced the need for purchased funds.

Capital

The Corporation has consistently maintained regulatory capital ratios at or above the “well-capitalized” standards. Further detail on capital and capital ratios is included in Notes 16 and 17 to the Consolidated Financial Statements. Information on stockholders’ equity is presented in the following table.


(Dollars in Millions, Except Per Share Amounts)	June 30, 2007			December 31, 2006			June 30, 2006

Stockholders’ equity	$	12,147		$	14,581		$	12,610
Equity as a percentage of assets		8.64	%		10.40	%		8.91	%
Book value per common share	$	21.45		$	23.06		$	20.84

The following table summarizes share repurchase activity for the second quarter of 2007.

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

April 1 to April 30, 2007

20,248,477

36.75

20,134,700

48,465,400

May 1 to May 31, 2007

9,781,920

35.86

9,741,000

38,724,400

June 1 to June 30, 2007

18,687

34.50

—

38,724,400

Total

30,049,084

36.46

29,875,700


(a)		Includes shares repurchased under the April 24, 2007 and December 19, 2006 share repurchase authorizations, 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)].

On April 24, 2007, the Corporation’s Board of Directors authorized the repurchase of up to 40 million shares of National City common stock subject to an aggregate purchase limit of $1.6 billion. This authorization, which has no expiration date, was incremental to the previous authorization of December 19, 2006. The December 19, 2006 repurchase authorization was completed on May 23, 2007. Repurchased shares are held for reissue in connection with compensation plans and for general corporate purposes. During the second quarter and first half of 2007, 29.9 million and 44.7 million shares of common stock were repurchased, respectively, compared to 7.7 million and 15.2 million shares for the comparable periods of 2006. Share repurchase activity will likely be limited during the second half of 2007 due to the fact that the Corporation is now within its target capital range, as well as restrictions arising from the pending acquisition of MAF Bancorp.

On January 25, 2007, the Corporation’s Board of Directors authorized a modified “Dutch auction” tender offer to purchase up to 75 million shares of its outstanding common stock, at a price range not greater than $38.75 per share nor less than $35.00 per share, for a maximum aggregate repurchase price of $2.9 billion. The tender offer expired on February 28, 2007 and on March 7, 2007, the Corporation accepted for purchase 40.3 million shares of its common stock at $38.75 per share for an aggregate price of $1.6 billion. The share repurchase authorizations described above were unaffected by the tender offer.

National City declared and paid dividends per common share of $.39 during the second quarter of 2007, up two cents from the same quarter of 2006. The dividend payout ratio, representing dividends per share divided by earnings per share, was 65.0% and 48.1% for the second quarter of 2007 and 2006, 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 2, 2007, the Board of Directors approved a two cent increase in the third quarter dividend to $.41 per common share, payable on August 1, 2007, to stockholders of record as of July 13, 2007.

At June 30, 2007, the Corporation’s market capitalization was $18.9 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.


	2007						2006
	Second		First		Fourth		Third		Second		First
NYSE: NCC	Quarter		Quarter		Quarter		Quarter		Quarter		Quarter

High	$	38.32	$	38.94	$	37.47	$	37.42	$	38.04	$	36.25
Low		33.08		34.82		35.29		34.50		34.38		33.26
Close		33.32		37.25		36.56		36.60		36.19		34.90

RISK MANAGEMENT

National City management, with the oversight of the Board of Directors, has in place enterprise-wide structures, processes, and controls for managing and mitigating risk, with particular emphasis on credit, market, and liquidity risk.

Credit Risk

The Corporation’s lending activities are subject to varying degrees of credit risk. Credit risk is mitigated through portfolio diversification, the management of industry and client exposure levels, collateral protection, credit risk transfer strategies, and credit policies and underwriting guidelines. Note 1 to the Consolidated Financial Statements describes the accounting policies related to nonperforming loans and charge-offs and the methodologies used to develop the allowance for loan losses and lending-related commitments. Policies governing nonperforming loans and charge-offs are consistent with regulatory standards.

The Corporation has a credit risk transfer agreement on a $5.0 billion pool of nonconforming mortgage loans to provide protection against unexpected catastrophic credit losses. As of June 30, 2007, the remaining outstanding balance of loans subject to this protection was approximately $1.8 billion. The Corporation bears the risk of credit losses up to the first loss position, estimated at 3.5% of the initial pool balance. The counterparty to this arrangement would bear the risk of additional credit losses up to $263 million, subject to adjustment as the portfolio pays down. To date, credit losses on this portfolio have not exceeded the first loss position. Probable credit losses on the underlying loans are included in the determination of the allowance for loan losses.

The Corporation has purchased mortgage insurance to reduce its exposure to credit losses on certain first and second lien nonconforming mortgages, as well as home equity loans and lines of credit. These policies provide varying levels of coverage, deductibles, and stop loss limits. As of June 30, 2007, the outstanding balance of insured first and second lien nonconforming mortgage loans subject to this insurance was $1.7 billion and $1.9 billion, respectively; and the outstanding balance of insured home equity lines and loans was $568 million. Credit losses covered by third-party insurance arrangements are excluded from the determination of the allowance for loan losses to the extent an insurance recovery is deemed probable.

A third-party mortgage insurance provider has been denying a meaningful number of claims on second lien nonconforming mortgages for reasons that management believes are inappropriate. In the first quarter of 2007, management changed its charge-off practices and loss forecast on this portfolio to reflect an assumed loss of insurance coverage for all disputed claims. In the second quarter of 2007, the Corporation recovered $12 million from the insurance carrier on certain previously denied claims, and additional payments were received in July. Charge-off practices and loss forecast factors have not been adjusted since the first quarter.

Certain of these insurance arrangements are subject to reinsurance by a wholly-owned subsidiary of the Corporation. Expected reinsurance losses are included within the provision for credit losses and the related reinsurance reserves are included in the allowance for loan losses in the Consolidated Financial Statements. See Note 20 for further information on reinsurance arrangements.

Portfolio Loans: The percentage of portfolio loans in each category to total portfolio loans at period end follows:


	June 30			December 31			June 30
	2007			2006			2006

Commercial		32.5	%		32.5	%		29.0	%
Commercial construction and real estate		18.0			17.5			15.7
Residential real estate		27.6			26.0			31.1
Home equity lines of credit and other consumer loans		18.7			20.9			21.6
Credit card and other unsecured lines of credit		3.2			3.1			2.6

Total		100.0	%		100.0	%		100.0	%

At June 30, 2007, residential real estate represented a larger percentage of portfolio loans compared to year end due to a recently completed acquisition and the return to portfolio of $1.6 billion of nonconforming mortgage loans which were classified as held for sale at year end. Residential real estate, as well as home equity lines of credit and other consumer loans, represent a smaller percentage of the loan portfolio compared to a year ago as broker-originated mortgage loans and home equity lines are now originated for sale, and the related portfolios are in run-off. Commercial loans, including commercial construction and real estate, represent a higher percentage of the loan portfolio compared to a year ago due to growth in these portfolios and acquisitions, as well as the previously described decline in certain consumer loans.

Nonperforming Assets: Detail of nonperforming assets follows:


	June 30			December 31			June 30
(Dollars in Millions)	2007			2006			2006

Commercial	$	125		$	124		$	178
Commercial construction		59			38			36
Commercial real estate		138			111			108
Residential real estate		240			227			167

Total nonperforming loans		562			500			489
Other real estate owned (OREO)		284			229			167
Mortgage loans held for sale and other		2			3			11

Total nonperforming assets	$	848		$	732		$	667

Nonperforming assets as a percentage of:
Period-end portfolio loans and other nonperforming assets		.85	%		.76	%		.66	%
Period-end total assets		.60			.52			.47

Nonperforming commercial loans have decreased in comparison to second quarter a year ago, consistent with the overall stable credit quality in this portfolio. Nonperforming commercial construction loans have increased as a result of two new problem loans identified in 2007. Nonperforming commercial real estate loans increased due to nonperforming loans added from acquisitions, as well as one newly identified problem loan in the amount of $20 million. Nonperforming residential real estate loans have increased due to weakness in the housing market as well as a more seasoned portfolio versus prior periods. Other real estate owned (OREO) has increased due to a weaker housing market, resulting in higher foreclosure rates, as well as a longer elapsed time to complete foreclosures.

As of June 30, 2007, loans to residential real estate developers represented approximately 11% of nonperforming loans. There were no other industry or geographic concentrations within nonperforming loans at June 30, 2007. At June 30, 2007, the Corporation had commitments to lend an additional $11 million to borrowers whose loans are currently classified as nonperforming.

Delinquent Loans: Detail of loans 90 days past due accruing interest follows:


	June 30		December 31		June 30
(In Millions)	2007		2006		2006

Commercial	$	45	$	31	$	51
Commercial construction		51		9		—
Commercial real estate		38		18		17
Residential real estate		882		708		516
Home equity lines of credit		27		37		21
Credit card and other unsecured lines of credit		28		35		21
Other consumer		9		11		8
Mortgage loans held for sale and other		19		89		40

Total loans 90 days past due accruing interest	$	1,099	$	938	$	674

Commercial loan delinquencies increased compared to year-end due to growth in the portfolio as well as a higher delinquency rate. Commercial construction and commercial real estate delinquencies increased primarily due to acquired loans in the Florida market. Residential real estate delinquencies increased compared to both year end and a year ago due to weakness in the housing market which has caused more financial stress on both consumers and residential developers. Residential real estate delinquencies also increased compared to year end due to the return to portfolio of a $1.6 billion pool of nonconforming mortgages which were classified as held for sale at year end. Delinquent home equity lines of credit decreased compared to year end due to seasonal trends. Improvements made in the collections area and additional pay periods in 2007 also contributed to lower home equity delinquencies. Delinquent credit card and other unsecured lines of credit also decreased compared to year end due to the same seasonal trends, as well as higher credit quality of new customers.

Allowance for Loan 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 for loan losses is based upon the size and risk characteristics of the loan portfolio and includes an assessment of individual impaired loans, historical loss experience on pools of homogeneous loans, specific environmental factors, and factors to account for estimated imprecision in forecasting losses. 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.

A summary of the changes in the allowance for loan losses follows:


	Three Months Ended				Six Months Ended
	June 30		June 30		June 30		June 30
(Dollars in Millions)	2007		2006		2007		2006

Balance at beginning of period	$	1,104	$	1,001	$	1,131	$	1,094
Provision for loan losses		145		62		267		94
Charge-offs:
Commercial		30		28		64		73
Commercial construction		2		2		3		2
Commercial real estate		3		5		6		12
Residential real estate		58		47		130		93
Home equity lines of credit		20		15		43		36
Credit card and other unsecured
lines of credit		28		20		63		48
Other consumer		13		11		27		37

Total charge-offs		154		128		336		301

Recoveries:
Commercial		11		10		22		26
Commercial construction		—		—		—		—
Commercial real estate		4		1		5		3
Residential real estate		22		19		27		31
Home equity lines of credit		8		5		14		9


	Three Months Ended						Six Months Ended
	June 30			June 30			June 30			June 30
(Dollars in Millions)	2007			2006			2007			2006

Credit card and other unsecured lines of credit		4			4			9			10
Other consumer		7			13			14			25

Total recoveries		56			52			91			104

Net charge-offs		98			76			245			197
Other ^(a)		(15	)		2			(17	)		(2	)

Balance at end of period	$	1,136		$	989		$	1,136		$	989

Portfolio loans outstanding at period end	$	99,683		$	100,973		$	99,683		$	100,973
Allowance as a percentage of:
Portfolio loans		1.14	%		.98	%		1.14	%		.98	%
Nonperforming loans		202.2			202.1			202.2			202.1
Annualized net charge-offs		291.1			326.2			230.2			249.7


(a)		Other includes the allowance for loan losses associated with acquisitions, portfolio loans transferred to held for sale, and reinsurance claims paid to third parties.

A summary of the changes in the allowance for losses on lending-related commitments follows:


	Three Months Ended						Six Months Ended
	June 30			June 30			June 30			June 30
(Dollars in Millions)	2007			2006			2007			2006

Balance at beginning of period	$	63		$	79		$	78		$	84
Net provision for losses on lending-related commitments		(2	)		(2	)		(17	)		(7	)

Balance at end of period	$	61		$	77		$	61		$	77

Total provision for credit losses	$	143		$	60		$	250		$	87

During the second quarter of 2007, the Corporation changed its charge-off policy for home equity loans and lines of credit to be more consistent with capital market standards. Charge-offs for these residential real estate secured loans are now recognized net of the estimated realizable value of the underlying collateral. Previously, these loans were charged-off in full with a recovery recognized upon liquidation of the collateral. Additionally, home equity loans, which were previously charged-off when they became 150 days past due, are now charged-off at 180 days past due. This policy change decreased residential real estate and home equity lines of credit net charge-offs for the second quarter of 2007 by $7 million and $3 million, respectively.

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
	2007			2007			2006			2007			2006

Commercial		.22	%		.31	%		.26	%		.26	%		.34	%
Commercial construction		.17			.04			.22			.11			.09
Commercial real estate		(.06	)		.07			.12			.01			.15
Residential real estate		.53			1.03			.35			.78			.39
Home equity lines of credit		.36			.48			.22			.42			.29
Credit card and other unsecured lines of credit		3.14			3.99			2.62			3.56			3.03
Other consumer		.48			.50			(.15	)		.49			.39

Total net charge-offs to average portfolio loans (annualized)		.39	%		.61	%		.30	%		.50	%		.38	%

Commercial net charge-offs decreased on a linked-quarter and year-over-year basis consistent with overall stable credit quality of this portfolio. In addition, the first quarter of 2007 included previously reserved passenger airline lease charge-offs. Commercial construction net charge-offs were $2 million in the second quarter of 2007, well within their normal level for this portfolio. Expressed as a percentage of average portfolio loans, net charge-offs for commercial construction can vary considerably from period to period due to the relatively small size of this portfolio. Commercial real estate recoveries exceeded charge-offs during the second quarter of 2007 due to the timing of a few recoveries. Management does not expect recoveries to exceed charge-offs on an ongoing basis.

Residential real estate net charge-offs decreased on a linked-quarter basis due to a $12 million claims payment from a third-party insurer on previously disputed claims received in the second quarter of 2007. In the first quarter of 2007, the Corporation changed its policy on insured mortgage loans to charge-off all disputed insurance claims at 180 days past due, which resulted in an incremental $24 million of

charge-offs. This change in charge-off policy, as well as a weaker housing market, also affected residential real estate net charge-offs on a year-to-date basis. Home equity lines of credit net charge-offs increased compared to the second quarter a year ago and on a year-to-date basis due to weakness in the housing market and continued seasoning of the run-off portfolio of broker-originated loans. Credit card and other unsecured lines of credit net charge-offs decreased on a linked-quarter basis due to seasonally lower balances and delinquencies, as well as better credit quality of the customer base. Credit card net charge-offs for the second quarter and first half of 2006 were lower than normal as a result of a large volume of consumer bankruptcy filings in late 2005. Net recoveries were recognized on other consumer loans in the second quarter a year ago due to the timing of receipt of a few large recoveries.

An allocation of the allowance for loan losses and allowance for losses on lending-related commitments by portfolio type is shown below.


	June 30		December 31		June 30
(In Millions)	2007		2006		2006

Allowance for loan losses:
Commercial	$	415	$	459	$	486
Commercial construction and commercial real estate		177		140		129
Residential real estate		286		280		144
Home equity lines of credit and other consumer loans		114		102		98
Credit card and other unsecured lines of credit		144		150		132

Total	$	1,136	$	1,131	$	989

Allowance for losses on lending-related commitments:
Commercial	$	61	$	78	$	77

As of June 30, 2007, a lower allowance was allocated to the commercial portfolio which reflects stable credit quality as well as a refinement in 2007 in the method of applying commercial and commercial real estate loan recoveries within the loss migration analysis. As of June 30, 2007, a higher allowance was allocated to the commercial construction and commercial real estate portfolios due to portfolio growth, largely from recent acquisitions, as well as a shift in mix of criticized assets. The allowance allocated to the residential real estate portfolio was substantially equal to year end as these loans have performed consistent with year-end loss forecasts. Compared to the second quarter a year ago, the residential real estate allowance increased due to deterioration in credit quality, particularly among nonconforming mortgage loans.

As of June 30, 2007, a higher allowance was allocated to home equity lines of credit and other consumer loans due to higher loss factors applied to this portfolio to recognize weakness in the housing market. The allowance allocated to credit card and other unsecured lines of credit declined compared to year end which reflects lower loss factors, as well as seasonally lower outstanding balances compared to year end. The allowance for losses on commercial lending-related commitments declined for substantially the same reasons described for the commercial portfolio. Refer to the Application of Critical Accounting Policies section for further discussion of the allowance for loan losses.

Market Risk

Market risk is the potential for 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) 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 does not currently have any material equity price risk or foreign currency exchange rate risk.

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 modeling of the market value of equity 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.

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 23 to the Consolidated Financial Statements.

Market Value Modeling: Market Value of Equity (MVE) represents 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 12 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 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 +4.0% and -1.0%, respectively, as measured between +/-150 basis point instantaneous, parallel shifts in the yield curve.

The most recent market value model estimated the current DOE at +1.2%, slightly below the long-term target of +1.5% but consistent with management’s view on interest rates. DOE would rise to +2.2% given a parallel shift of the yield curve up 150 basis points and would be within the maximum constraint of +4.0%. DOE would decline to +1.0% given a parallel shift of the yield curve down 150 basis points and would be within the minimum constraint of -1.0%.

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 nonparallel 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 projects that net income would be 1.5% 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 1.2% if rates were two standard deviations below the implied forward curve over the same period. Both of the earnings simulation projections of net income were within the ALCO guideline of -4.0%.

The earnings simulation model excludes the potential effects on noninterest income and noninterest expense associated with changes in interest rates. In particular, revenue generated from originating, selling, and servicing residential mortgage loans is highly sensitive to changes in interest rates due to the direct effect such changes have on loan demand and the value of MSRs. In general, low or declining interest rates typically lead to increased loan sales revenue but potentially lower loan servicing revenue 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 loan sales revenue while loan servicing revenue 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.

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. Management adheres to 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, core deposits, the capital markets, the Federal Reserve Bank, the Federal Home Loan Bank, the U.S. Treasury, and through the sale or securitization of various types of assets. Funding sources did not change significantly during the second quarter of 2007. Core deposits, which continue to be the most significant source of funding, comprised 58%, 54% and 51% of funding at June 30, 2007, December 31, 2006 and June 30, 2006, respectively. Refer to the Financial Condition section for further discussion on changes in funding sources. Asset securitizations have also been used as a source of funding over the past several years. During the first quarter of 2007, the Corporation securitized $425 million of credit card loans. 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, 2007, the main sources of funding for the holding company include dividends and returns of investment from its subsidiaries, the commercial paper market, and access to the capital markets. As discussed in Note 16 to the Consolidated Financial Statements, the Corporation’s bank subsidiary is subject to regulation and, among other things, may be limited in its 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 2007, the Corporation’s bank and nonbank subsidiaries declared and paid cash dividends totaling $950 million. Returns of capital paid to the holding company by nonbank subsidiaries during the first six months of 2007 totaled $5 million.

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, 2007, December 31, 2006 and June 30, 2006, $836 million, $812 million and $1.4 billion, respectively, of commercial paper borrowings were outstanding.

During the first quarter of 2007, the holding company issued $600 million of senior notes which completed its existing shelf registration. In April 2007, the Corporation’s Board authorized the holding company to issue up to $1.5 billion in senior debt securities or subordinated debt securities in future periods. A new shelf registration will be filed with the Securities and Exchange Commission at the time of issuance of these securities. There were no issuances during the second quarter of 2007.

The Corporation also has in place an additional shelf registration with the Securities and Exchange Commission, to allow for the sale over time of an unspecified amount of junior subordinated debt securities to subsidiary trusts, and an equal amount of capital securities of the trusts in the capital markets. During the second quarter of 2007, the Corporation issued $500 million of junior subordinated debentures to National City Trust III. Further discussion of junior subordinated debentures is included in Note 15 to the Consolidated Financial Statements.

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

The Corporation’s financial obligations include contractual obligations and commitments that may require future cash payments.

Contractual Obligations: The following table presents significant fixed and determinable contractual obligations by payment date as of June 30, 2007. 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		One to		Three to		Over
	Note		Year		Three		Five		Five
(In Millions)	Reference		or Less		Years		Years		Years		Total

Deposits without a stated maturity^(a)			$	64,103	$	—	$	—	$	—	$	64,103
Consumer and brokered certificates of deposits^(b)				25,401		3,370		1,228		2,643		32,642
Federal funds borrowed and security repurchase agreements^(b)				5,655		—		—		—		5,655
Borrowed funds^(b)		13		2,414		—		—		—		2,414
Long-term debt^(b)		14,15		10,713		7,383		2,300		9,171		29,567
Operating leases				155		244		191		558		1,148
Purchase obligations				169		176		102		1		448


(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, 2007. 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.

The operating lease obligations arise from short- and long-term leases for facilities, certain software, and data processing and other equipment. Purchase obligations arise from 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 obligations are primarily associated with information technology, data processing, branch construction, and the outsourcing of certain operational activities.

As of June 30, 2007, the liability for uncertain tax positions, including associated interest and penalties, was $254 million pursuant to FASB Interpretation No. 48. This liability represents an estimate of tax positions that the Corporation has taken in its tax returns which may ultimately not be sustained upon examination by the tax authorities. Since the ultimate amount and timing of any future cash settlements cannot be predicted with reasonable certainty, this estimated liability has been excluded from the contractual obligations table.

The Corporation did not have any commitments or obligations to its qualified pension plan at June 30, 2007 due to the overfunded status of the plan. The Corporation also has obligations under its supplemental pension and postretirement plans as described in Note 22 to the Consolidated Financial Statements. These obligations represent actuarially determined future benefit payments to eligible plan participants. The Corporation reserves the right to terminate these plans at any time.

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 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, 2007 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 23 to the Consolidated Financial Statements.

Commitments: The following table details the amounts and expected maturities of significant commitments as of June 30, 2007. Further discussion of these commitments is included in Note 20 to the Consolidated Financial Statements.


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

Commitments to extend credit:
Commercial	$	10,607	$	9,039	$	6,484	$	428	$	26,558
Residential real estate		13,770		—		—		—		13,770
Revolving home equity and credit card lines		35,343		11		—		—		35,354
Other		598		—		—		—		598
Standby letters of credit		2,385		1,798		1,033		99		5,315
Commercial letters of credit		208		14		15		—		237
Net commitments to sell mortgage loans and mortgage-backed securities		7,555		—		—		—		7,555
Net commitments to sell commercial real estate loans		219		173		—		—		392
Commitments to fund principal investments		41		32		111		174		358
Commitments to fund civic and community investments		343		143		79		25		590
Commitments to purchase beneficial interests in securitized automobile loans		409		—		—		—		409

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, 2007. The timing of these payments could change due to extensions in the investment periods of the funds or by the rate at which the commitments are invested, as determined by the general 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.

National City Bank, as well as another financial institution, to purchase an undivided interest in its note, representing a beneficial interest in the securitized automobile loans. This commitment expires in December 2007 but may be renewed annually for an additional 12 months by mutual agreement of the parties. This commitment does not necessarily represent a future cash requirement, and may expire without being drawn upon.

Contingent Liabilities: The Corporation may also incur liabilities under various 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 20 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 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. 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.

In the first quarter of 2007, the Corporation securitized a $425 million pool of credit card receivables (Series 2007-1) following the January 2007 maturity of its Series 2002-1 credit card securitization. The initial carrying values of retained interests were determined by allocating the carrying value among the assets sold and retained based on their relative fair values at the date of sale. The fair value of the interest-only strip was estimated by discounting the projected future cash flows of this security. The Corporation retained the right to service these loans. Servicing fees to be received approximated the current market rate for servicing fees, therefore, no servicing asset or liability was recognized. 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 FASB Interpretation No. 45. These obligations are discussed in Note 20.

Application of Critical Accounting Policies

National City’s financial statements are prepared in accordance with U.S. generally accepted accounting principles and follow general industry 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 such information is not available, valuation adjustments are estimated by management primarily through the use of discounted 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. Any material effect on the financial statements related to these critical accounting areas is also discussed in this Financial Review. 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: Management’s assessment of the adequacy of the allowance for loan losses and allowance for lending-related commitments considers individual impaired loans, pools of homogenous loans with similar risk characteristics, imprecision in estimating losses, and other environmental risk factors. As described below, an established methodology exists for estimating the risk of loss for each of these elements.

An allowance is established for probable credit losses on impaired loans. Nonperforming commercial loans and leases exceeding policy thresholds are regularly reviewed to identify impairment. A loan or lease is impaired when, based on current information and events, it is probable that the Corporation will not be able to collect all amounts contractually due. Measuring impairment of a loan requires judgment and estimates, and the eventual outcomes may differ from those estimates. Impairment is measured based upon the present value of expected future cash flows from the loan discounted at the loan’s effective rate, the loan’s observable market price or the fair value of

collateral, if the loan is collateral dependent. When the selected measure is less than the recorded investment in the loan, an impairment has occurred. The allowance for impaired loans was $29 million at June 30, 2007 compared to $60 million at both December 31, 2006 and June 30, 2006. This element of the allowance decreased primarily due to charge-offs of previously reserved impaired passenger airline leases.

Pools of homogeneous loans with similar risk and loss characteristics are also assessed for probable losses. These loan pools include all other loans and leases not individually evaluated for impairment as discussed above. For commercial loans, a loss migration analysis is performed which averages historic loss ratios. In 2007, management refined its method of applying commercial and commercial real estate loan recoveries within the loss migration analysis. In prior periods, commercial and commercial real estate recoveries were largely applied to the nonperforming loan category. In 2007, these recoveries have now been applied across all loan grades to produce what management believes is a more accurate estimate of the net loss ratio for each category. For consumer loans, average historical losses are utilized to estimate losses currently inherent in the portfolio. Consumer loans are pooled by probability of default within product segments. The probability of default is based on the historical performance of customer attributes, such as credit score, loan-to-value, origination date, collateral type, worst delinquency, and other relevant factors. Credit losses on certain consumer loans are covered by lender-paid mortgage insurance. These insurance policies have various levels of coverage, deductibles, and stop loss limits. Management considers probable third-party insurance recoveries in its assessment of estimated losses for pools of homogeneous loans. One third-party insurance carrier had been rejecting a meaningful number of the Corporation’s claims. However, during the second quarter of 2007, the Corporation received payment from this carrier for a number of these previously rejected claims. The allowance for pools of homogeneous loans was $716 million at June 30, 2007, $757 million at December 31, 2006, and $607 million at June 30, 2006. This element in the allowance decreased compared to year end primarily due to the effect of the previously described change in the method of applying commercial loan recoveries. Compared to a year ago, this element of the allowance increased due to higher estimated losses on residential real estate loans.

An allowance is also recognized for imprecision inherent in loan loss migration models and other estimates of loss. Imprecision occurs because historic loss patterns may not be representative of losses inherent in the current portfolio. Reasons for imprecision include expansion of the Corporation’s footprint, changes in economic conditions, and difficulty identifying triggering events, among other factors. Imprecision is estimated by comparing actual losses incurred to previously forecasted losses over several time periods. The volatility of this imprecision, as expressed in terms of the standard deviation of the difference between the actual and forecasted losses, is used to calculate an imprecision percentage that represents the probable forecast error. The imprecision percentage is applied to the current portfolio balance to determine the required allowance. The allowance established for imprecision was $452 million at June 30, 2007, $392 million at December 31, 2006, and $378 million at June 30, 2006. This element of the allowance increased compared to year end and the second quarter a year ago primarily due to growth in the commercial and commercial real estate portfolios, including the effect of acquisitions.

Finally, the allowance considers specific environmental factors which pose additional risks that may not have been adequately captured in the elements described above. For each environmental risk, a range of expected losses is calculated based on observable data. Management applies judgment to determine the most likely amount of loss within the range. Historically, this element of the allowance has provided for losses on loans acquired in acquisitions where loss history and underwriting information were incomplete or materially different than that of the Corporation’s existing portfolio, as well as expected losses on certain credit risks in excess of the amounts predicted using the methods described above. When an allowance is established for environmental risks, conditions for its release are also established. While there were no environmental risks provided for within the allowance as of either June 30, 2007 or December 31, 2006, there was a $21 million environmental allocation at June 30, 2006. During 2006, charge-offs of passenger airline leases depleted the environmental component of the allowance.

There are many factors affecting the allowance for loan losses and allowance for lending-related commitments; some are quantitative while others require qualitative judgment. Although management believes its methodology for determining the allowance adequately considers all of the potential factors to identify and quantify probable losses in the portfolio, the process includes subjective elements and is therefore susceptible to change. To the extent that actual outcomes differ from management’s estimates, additional provision for credit losses could be required, or a previously recognized provision could be reversed, either of which could have a material impact on earnings in future periods.

The allowance for loan losses addresses credit losses inherent in the loan and lease portfolio and is presented as a reserve against portfolio loans on the balance sheet. The allowance for losses on lending-related commitments addresses credit losses inherent in commitments to lend and letters of credit and is presented in other liabilities on the balance sheet. The allowance for losses on lending-related commitments 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. When a commitment is funded, any previously established allowance for losses on lending-related commitments is reversed and re-established in the allowance for loan losses.

The allowance for loan losses and the allowance for losses on lending-related commitments are assigned to business lines based on the nature of the loan portfolio in each business line. Commercial Banking-Regional, Commercial Banking-National, Retail Banking, and

Mortgage Banking have been assigned most of the allowance, and accordingly, would be the business lines most affected by actual outcomes differing from prior estimates.

Valuation of Mortgage Servicing Rights (MSRs): The Corporation employs a risk management strategy designed to protect the value of MSRs from changes in interest rates. MSR values are hedged with securities and a portfolio of derivatives, primarily interest-rate swaps, options, mortgage-backed forwards, and futures contracts. As interest rates change, these financial instruments are expected to have changes in fair value which are negatively correlated to the change in fair value of the hedged MSR portfolio. The hedge relationships are actively managed in response to changing market risks over the life of the MSR assets. Selecting appropriate financial instruments to hedge this risk requires significant management judgment to assess how mortgage rates and prepayment speeds could affect the future values of MSRs.

Management has elected fair value as its measurement method for MSRs. Management measures net MSR hedging gains or losses as the change in the fair value of mortgage servicing rights, exclusive of changes associated with time decay and payoffs, compared to the change in the fair value of the associated financial instruments. Hedging results are frequently volatile in the short term, but over longer periods of time the hedging strategies have been largely successful in protecting the economic value of the MSR portfolio.

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 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. Management regularly updates its model inputs to reflect current market conditions. In addition, the reasonableness of its model inputs are periodically validated by obtaining third-party broker estimates of the market value of the MSR portfolio.

The expected and actual rates of mortgage loan prepayments are the most significant factors driving the value of MSRs. The Corporation uses an internal proprietary model to estimate future loan prepayments. This model uses empirical data drawn from the historical performance of the Corporation’s managed portfolio. The implementation of this model resulted in a one-time decrease in the fair value of MSRs of $56 million during the second quarter of 2006.

Future interest rates are another significant factor in the valuation of MSRs. In the second quarter of 2007, the Corporation refined its MSR valuation model to incorporate market implied forward interest rates to estimate the future direction of mortgage and discount rates. The forward rates utilized are derived from the current yield curve for U.S. dollar interest rate swaps and are consistent with pricing of capital markets instruments. In prior periods, the MSR valuation model held interest rates constant at the current market rate. This change in model inputs had a negligible impact on the MSR valuation as the forward curve was relatively flat at the date of adoption. However, changes in the shape and slope of the forward curve could introduce additional volatility to the fair value of MSRs in the future.

The fair value of MSRs and significant inputs to the valuation model are shown below.


	June 30			December 31			June 30
	2007			2006			2006
(Dollars in Millions)	NCM			NCM			NCM			NCHLS^(a)

Fair value	$	2,468		$	2,094		$	2,395		$	147
Weighted-average life (in years)		6.2			5.0			6.2			1.9
Weighted-average constant prepayment rate (CPR)		13.13	%		17.66	%		13.80	%		41.25	%
Spread over forward interest rate swap rates		5.44			—			—			—
Weighted-average discount rate		—			9.77			10.11			14.49


(a)		National City Home Loan Services (NCHLS) was sold in late 2006.

A sensitivity analysis of the hypothetical effect on the fair value of MSRs to adverse changes in key assumptions is presented below. Changes in fair value 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 interest rate), which could either magnify or counteract the sensitivities.


	June 30,
(Dollars in Millions)	2007

Fair value	$	2,468
Prepayment rate:
Decline in fair value from 10% adverse change	$	100
Decline in fair value from 20% adverse change		193
Spread over forward interest rate swap rates ^(a):
Decline in fair value from 10% adverse change		49
Decline in fair value from 20% adverse change		97


(a)		Used to discount MSR cash flows.

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. The Corporation also has residential and commercial mortgage loan commitments, which are defined as derivatives under SFAS 133, and enters into derivatives for trading purposes.

All derivative instruments are carried at fair value on the balance sheet. Management values derivative instruments using observable market prices, when available. In the absence of observable market prices, management uses discounted cash flow models to estimate the fair value of derivatives. The interest rates used in these cash flow models are based on forward yield curves observable in the current cash and derivatives markets, consistent with how derivatives are valued by most market participants. As of June 30, 2007, the recorded fair values of derivative assets and liabilities were $445 million and $732 million, respectively.

Certain derivative instruments are formally designated in SFAS 133 hedge relationships as a hedge of one of the following: the fair value of a recognized asset or liability, the expected future cash flows of a recognized asset or liability, or the expected future cash flows of a forecasted transaction. For these derivatives, both at the inception of the hedge and on an ongoing basis, management assesses the effectiveness of the hedge instrument in achieving offsetting changes in fair value or cash flows compared to the hedged item.

At the inception of each SFAS 133 hedge relationship, management performs a prospective test of the effectiveness of the hedge. For hedges of funding products and commercial real estate loans originated for sale, management reviews the terms of the hedge instrument compared to the terms of the hedged item to assess whether the hedge relationship is expected to be highly effective. For all other SFAS 133 hedge relationships, a quantitative prospective test is performed at the inception of the hedge to assess the effectiveness of the hedge.

For each SFAS 133 hedge relationship, a quantitative retrospective test is performed to determine if the hedge was highly effective. The methods utilized to retrospectively test hedge effectiveness, as well as the frequency of testing, vary based on the hedged item and the designated hedge period. For fair value hedges of fixed-rate debt including certificates of deposit, management utilizes a dollar offset ratio to test hedge effectiveness on a monthly basis. For fair value hedges of portfolio loans and residential mortgage loans held for sale, a dollar offset ratio test is performed on a daily basis. Effectiveness testing for commercial real estate loans originated for sale is measured using a dollar offset ratio test applied on either a monthly or quarterly basis. For cash flow hedges of funding products, a dollar offset ratio test is applied on a monthly basis. For cash flow hedges of commercial loans, a monthly regression analysis is performed. There are no known sources of variability between the hedge instrument and the hedged item that are excluded from the effectiveness test.

When a retrospective hedge effectiveness test fails, the change in the derivative’s fair value is recognized in earnings without a corresponding offset for the hedged item. A quantitative prospective test is then employed to determine whether the hedge relationship is expected to be highly effective in future periods under various interest-rate shock scenarios. The method used for these prospective tests is the same method used for retrospective testing.

Because the majority of the derivative instruments are used to protect the value of recognized assets and liabilities on the balance sheet, changes in the value of the derivative 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 fair value of those assets and liabilities. Changes in the fair values of derivative instruments associated with mortgage banking activities are included in either loan sale revenue or loan servicing revenue on the income statement and affect the results of the Mortgage Banking line of business. Changes in the fair values of other derivatives are included in other noninterest income on the income statement and are primarily generated from investment funding activities that are not allocated to the business lines. Notes 1 and 23 to the Consolidated Financial Statements 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 it 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. The Internal Revenue Service (IRS) has completed their examinations of the Corporation’s income tax returns for years prior to 2002. Their examination of tax years 2003-2004 is currently in process. At this time, the IRS has not proposed any significant adjustments to the tax positions claimed in these returns that are not currently reflected in the liabilities for uncertain tax positions.

The Corporation adopted the provisions of FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes, on January 1, 2007. As a result of the adoption of this new accounting standard, the Corporation recognized a $31 million increase in its estimated liability for uncertain tax positions ($24 million net of tax), which was recorded as the cumulative effect of an accounting change, reducing the opening balance of retained earnings. As of June 30, 2007, the estimated liability for uncertain tax positions was $254 million, including accrued interest and penalties of $49 million. Approximately $147 million of that liability pertains to tax positions where a change in the actual or estimated outcome would increase or decrease the provision for income taxes.

It is reasonably possible that the liability for uncertain tax positions could significantly increase or decrease in the next 12 months due to the completion of tax authorities’ exams or the expiration of the statute of limitations. Management estimates that the liability for uncertain tax positions could decrease by $14 million within the next 12 months.

During the three and six months ended June 30, 2007, the provision for interest and penalties was $12 million and $15 million, respectively. During the three and six months ended June 30, 2006, the provision/(benefit) for interest and penalties was $2 million and $(4) million, respectively. The Corporation recognizes interest and penalties associated with uncertain tax positions within the income tax provision.

Recent Accounting Pronouncements and Developments

Note 2 to the Consolidated Financial Statements discusses accounting standards recently adopted by the Corporation and the expected impact of recently issued accounting standards that are 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, 2006, 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 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)	2007			2006			2007			2006

Assets
Earning Assets:
Portfolio loans:
Commercial	$	32,079		$	28,709		$	31,535		$	28,126
Commercial construction		4,872			3,507			4,797			3,466
Commercial real estate		12,919			12,100			12,948			12,061
Residential real estate		27,366			31,812			26,988			32,364
Home equity lines of credit		14,010			17,089			14,208			19,023
Credit card and other unsecured lines of credit		3,099			2,528			3,059			2,522
Other consumer		5,344			6,012			5,412			6,022

Total portfolio loans		99,689			101,757			98,947			103,584
Loans held for sale or securitization:
Commercial		37			68			38			40
Commercial real estate		226			142			200			114
Residential real estate		9,478			9,086			9,000			8,535
Home equity lines of credit		2,873			3,460			2,772			1,904
Student		1			4			1			4
Credit card		—			—			183			207

Total loans held for sale or securitization		12,615			12,760			12,194			10,804
Securities available for sale, at cost		7,143			7,802			7,422			7,761
Federal funds sold and security resale agreements		1,117			536			1,431			432
Other investments		1,780			2,272			1,952			2,213

Total earning assets		122,344			125,127			121,946			124,794
Allowance for loan losses		(1,107	)		(1,009	)		(1,130	)		(1,050	)
Fair value depreciation of securities available for sale		(34	)		(120	)		(23	)		(74	)
Cash and demand balances due from banks		2,748			3,246			2,856			3,286
Properties and equipment		1,493			1,300			1,494			1,305
Equipment leased to others		480			687			516			697
Other real estate owned		270			158			255			131
Mortgage servicing rights		2,233			2,438			2,204			2,315
Goodwill		4,544			3,326			4,512			3,318
Other intangible assets		251			156			253			158
Derivative assets		245			—			245			62
Accrued income and other assets		5,120			4,710			5,073			4,768

Total Assets	$	138,587		$	140,019		$	138,201		$	139,710

Liabilities
Deposits:
Noninterest bearing	$	16,875		$	17,057		$	16,853		$	16,912
NOW and money market		33,675			28,872			33,131			28,621
Savings		2,345			2,042			2,389			2,074
Consumer time		25,069			21,463			24,774			21,104
Brokered retail CDs		2,469			4,899			2,736			5,194
Other		914			956			916			1,001
Foreign		8,677			7,518			8,143			7,991

Total deposits		90,024			82,807			88,942			82,897

Federal funds borrowed and security repurchase agreements		6,566			5,110			5,823			5,651
Borrowed funds		2,867			2,768			2,058			2,475
Long-term debt		23,111			33,087			24,132			32,407
Derivative liabilities		434			181			393			185
Accrued expenses and other liabilities		3,354			3,501			3,545			3,578

Total Liabilities		126,356			127,454			124,893			127,193

Total Stockholders’ Equity		12,231			12,565			13,308			12,517

Total Liabilities and Stockholders’ Equity	$	138,587		$	140,019		$	138,201		$	139,710

DAILY AVERAGE BALANCES/NET INTEREST INCOME/RATES


				Daily Average Balances
	2007									2006
	Second			First			Fourth			Third			Second
(Dollar in Millions)	Quarter			Quarter			Quarter			Quarter			Quarter

Assets
Earning Assets:
Loans^(a):
Commercial	$	32,116		$	31,023		$	30,141		$	29,594		$	28,777
Commercial construction		4,872			4,722			4,058			3,723			3,507
Commercial real estate		13,145			13,150			12,167			12,177			12,242
Residential real estate		36,844			35,124			38,222			40,392			40,898
Home equity lines of credit		16,883			17,078			17,711			18,610			20,549
Credit card and other unsecured lines of credit		3,099			3,387			2,888			2,654			2,528
Other consumer		5,345			5,483			5,362			5,319			6,016

Total loans		112,304			109,967			110,549			112,469			114,517
Securities available for sale, at cost:
Taxable		6,734			7,257			7,313			7,351			7,260
Tax-exempt		409			447			493			523			542

Total securities available for sale		7,143			7,704			7,806			7,874			7,802
Federal funds sold, security resale agreements and other investments		2,897			3,872			3,133			2,783			2,808

Total earning assets/total interest income/rates		122,344			121,543			121,488			123,126			125,127
Allowance for loan losses		(1,107	)		(1,154	)		(941	)		(988	)		(1,009	)
Fair value depreciation of securities available for sale		(34	)		(11	)		(4	)		(120	)		(120	)
Nonearning assets		17,384			17,432			16,350			16,416			16,021

Total assets	$	138,587		$	137,810		$	136,893		$	138,434		$	140,019

Liabilities and stockholders’ equity
Interest bearing liabilities:
NOW and money market accounts	$	33,675		$	32,582		$	29,538		$	28,810		$	28,872
Savings accounts		2,345			2,433			1,834			1,903			2,042
Consumer time deposits		25,069			24,476			22,650			21,966			21,463
Other deposits		3,383			3,923			4,471			5,210			5,855
Foreign deposits		8,677			7,602			9,334			8,878			7,518
Federal funds borrowed		2,508			1,237			3,675			3,286			1,746
Security repurchase agreements		4,058			3,835			3,614			3,590			3,364
Borrowed funds		2,867			1,240			1,937			1,925			2,768
Long-term debt		23,111			25,164			25,886			29,432			33,087

Total interest bearing liabilities/ total interest expense/rates		105,693			102,492			102,939			105,000			106,715
Noninterest bearing deposits		16,875			16,831			16,695			16,740			17,057
Accrued expenses and other liabilities		3,788			4,089			3,871			4,007			3,682

Total liabilities		126,356			123,412			123,505			125,747			127,454
Total stockholders’ equity		12,231			14,398			13,388			12,687			12,565

Total liabilities and stockholders’ equity	$	138,587		$	137,810		$	136,893		$	138,434		$	140,019

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


			Quarterly Interest
	2007						2006
	Second		First		Fourth		Third		Second
(Dollars in Millions)	Quarter		Quarter		Quarter		Quarter		Quarter

Assets
Earning Assets:
Loans^(a):
Commercial	$	602	$	582	$	577	$	572	$	529
Commercial construction		94		83		81		73		67
Commercial real estate		236		237		229		224		218
Residential real estate		680		633		706		750		738
Home equity lines of credit		332		336		349		363		373
Credit card and other unsecured lines of credit		86		96		81		75		69
Other consumer		88		94		89		90		100

Total loans		2,118		2,061		2,112		2,147		2,094
Securities available for sale, at cost:
Taxable		87		97		101		99		97
Tax-exempt		8		8		8		9		10

Total securities available for sale		95		105		109		108		107
Federal funds sold, security resale agreements and other investments		42		52		49		43		42

Total earning assets/total interest income/rates	$	2,255	$	2,218	$	2,270	$	2,298	$	2,243
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	$	265	$	249	$	221	$	211	$	194
Savings accounts		8		8		2		3		3
Consumer time deposits		302		287		265		245		224
Other deposits		45		51		60		68		74
Foreign deposits		108		91		115		112		86
Federal funds borrowed		33		16		50		44		22
Security repurchase agreements		45		41		40		38		32
Borrowed funds		36		16		25		23		32
Long-term debt		317		341		359		404		409

Total interest bearing liabilities/ total interest expense/rates	$	1,159	$	1,100	$	1,137	$	1,148	$	1,076
Noninterest bearing deposits
Accrued expenses and other liabilities

Total liabilities
Total stockholders’ equity

Total liabilities and stockholders’ equity

Tax-equivalent net interest income	$	1,096	$	1,118	$	1,133	$	1,150	$	1,167

Interest spread
Contribution of noninterest bearing sources of funds

Net interest margin


^(a)		Includes loans held for sale or securitization


				Average Annualized Rate
	2007									2006
	Second			First			Fourth			Third			Second
	Quarter			Quarter			Quarter			Quarter			Quarter

Assets
Earning Assets:
Loans^(a):
Commercial		7.53	%		7.60	%		7.61	%		7.66	%		7.38	%
Commercial construction		7.73			7.12			7.87			7.83			7.62
Commercial real estate		7.19			7.31			7.44			7.31			7.13
Residential real estate		7.38			7.23			7.39			7.41			7.22
Home equity lines of credit		7.86			7.87			7.87			7.82			7.26
Credit card and other unsecured lines of credit		11.13			11.47			11.12			11.24			10.95
Other consumer		6.64			6.91			6.56			6.70			6.68

Total loans		7.56			7.55			7.61			7.61			7.32
Securities available for sale, at cost:
Taxable		5.16			5.39			5.53			5.37			5.37
Tax-exempt		7.77			7.03			7.03			6.98			7.07

Total securities available for sale		5.31			5.48			5.62			5.48			5.49
Federal funds sold, security resale agreements and other investments		5.75			5.41			6.20			6.00			6.05

Total earning assets/total interest income/rates		7.38	%		7.36	%		7.44	%		7.43	%		7.18	%
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		3.16	%		3.09	%		2.97	%		2.89	%		2.70	%
Savings accounts		1.36			1.34			.65			.64			.57
Consumer time deposits		4.83			4.76			4.65			4.43			4.19
Other deposits		5.26			5.31			5.30			5.19			5.02
Foreign deposits		5.01			4.84			4.86			5.00			4.61
Federal funds borrowed		5.31			5.32			5.31			5.33			5.02
Security repurchase agreements		4.38			4.35			4.33			4.25			3.83
Borrowed funds		5.04			5.30			5.14			4.82			4.62
Long-term debt		5.51			5.47			5.52			5.45			4.95

Total interest bearing liabilities/ total interest expense/rates		4.40	%		4.35	%		4.39	%		4.34	%		4.04	%
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		2.98	%		3.01	%		3.05	%		3.09	%		3.14	%
Contribution of noninterest bearing sources of funds		.61			.68			.68			.64			.59

Net interest margin		3.59	%		3.69	%		3.73	%		3.73	%		3.73	%


^(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 66-67 of this report are incorporated herein by reference.

ITEM 4. CONTROLS AND PROCEDURES

National City 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, 2007, 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, 2007, 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, 2007 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 20 to the Consolidated Financial Statements.

On October 11, 2006, Allegiant Asset Management Company (Allegiant), a registered investment adviser and an indirect subsidiary of National City Corporation, was notified that the Pacific Regional Office of the Securities and Exchange Commission (SEC) is conducting an examination concerning marketing arrangements Allegiant may have with entities that provide administrative services to the Allegiant Funds. The Corporation and Allegiant are cooperating fully with the SEC. Allegiant submitted a written response to the SEC’s inquiries on January 12, 2007 and subsequently provided follow-up written responses. Due to the preliminary stage of this investigation, management is not able to predict the outcome of this examination.

On August 23, 2005, the Office of Inspector General issued its final audit concerning late submitted requests to the Department of Housing and Urban Development for FHA insurance made between May 1, 2002 and April 30, 2004 by National City Mortgage Co., a subsidiary of National City Bank. One of the recommendations contained in the final audit was for a determination to be made as to the legal sufficiency of possible remedies under the Program Fraud Civil Remedies Act. In late 2006, the Department of Housing and Urban Development referred the matter to the Department of Justice’s Civil Division to determine if possible civil claims exist under the Program Fraud Civil Remedies Act and the False Claims Act. The Company is cooperating with the Department of Justice in its civil claims investigation. The nature and amount of any liabilities that might arise from this investigation are not determinable at this time.

ITEM 1A. RISK FACTORS

There have been no material changes to the risk factors as previously disclosed in the Corporation’s 2006 Form 10-K.

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 pages 61-62 of this report are incorporated herein by reference.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

On April 24, 2007 at the Annual Meeting of Stockholders of the Registrant, stockholders took the following actions:

1. Elected as directors all nominees designated in the proxy statement dated March 7, 2007 as follows:


	Number of Votes
	For		Withheld
J.E. Barfield		535,978,451		14,898,356
J.S. Broadhurst		536,757,905		14,118,902
C.M. Connor		537,864,935		13,011,872
D.A. Daberko		533,552,825		17,323,982
B.P. Healy, M.D.		536,928,765		13,948,042
M.B. McCallister		539,081,788		11,795,019
P.A. Ormond		539,037,361		11,839,446
P.E. Raskind		536,602,550		14,274,257
G.L. Shaheen		539,009,521		11,867,286
J.S. Thornton, Ph.D.		536,457,474		14,419,333
M. Weiss		536,477,528		14,399,279

2. Ratified the Audit Committee’s selection of Ernst & Young LLP as independent registered public accounting firm for National City Corporation for 2007: 537,233,407 votes cast for, 9,018,433 votes cast against, and 4,724,964 votes abstained.

3. Rejected the stockholder proposal concerning executive compensation: 161,121,545 votes cast for, 273,321,884 votes cast against, and 16,363,292 votes abstained.

ITEM 6. EXHIBITS

Exhibits

Any exhibits within exhibit numbers 3, 4, 10 or 14 documented in this index as being filed with the United States Securities and Exchange Commission (SEC) as part of the June 30, 2007 Form 10-Q have been filed separately with the SEC and are available on request from the Secretary of the Corporation at the principal executive offices or through the SEC at www.sec.gov.

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


Exhibit
Number		Exhibit Description

		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’s 1993 Stock Option Plan (filed as Exhibit 10.5 to Registration Statement No. 33-49823 and incorporated herein by reference).

	10.2	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).

	10.3	National City Corporation Supplemental Executive Retirement Plan, as Amended and Restated effective January 1, 2005 (filed as Exhibit 10.4 to Registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2006, and incorporated herein by reference).

	10.4	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).

	10.5	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).

	10.6	Form of contracts with Jon L. Gorney, Jeffrey D. Kelly, David L. Zoeller, Thomas A. Richlovsky, James P. Gulick, James R. Bell III, Peter E. Raskind, Philip L. Rice, Timothy J. Lathe, Shelley J. Seifert and Daniel J. Frate (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).

	10.7	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).

	10.8	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).

	10.9	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).

	10.10	National City Corporation Retention Plan for Executive Officers, Amended and Restated effective January 1, 2005 (filed as Exhibit 10.17 to Registrant’s Annual Report on Form 10-K for the fiscal year ended December 31, 2005, and incorporated herein by reference).

	10.11	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).

	10.12	National City Corporation Management Incentive Plan for Senior Officers, as Amended and Restated effective January 1, 2005.

	10.13	National City Corporation Supplemental Cash Balance Pension Plan, as Amended and Restated effective January 1, 2005 (filed as Exhibit 10.14 to Registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2006, and incorporated herein by reference).

	10.14	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).

	10.15	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).

	10.16	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).

	10.17	The National City Corporation Deferred Compensation Plan, as Amended and Restated effective January 1, 2005 (filed as Exhibit 10.18 to Registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2006, and incorporated herein


Exhibit
Number		Exhibit Description

		by reference).

	10.18	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).

	10.19	Summary of Non-employee Directors’ Compensation (filed as Exhibit 99.3 to Registrant’s Current Report on Form 8-K filed on July 25, 2007, and incorporated herein by reference).

	10.20	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).

	10.21	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).

	10.22	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).

	10.23	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).

	10.24	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).

	10.25	Agreement to Terminate Change in Control Benefits between National City Corporation and David A. Daberko (filed as exhibit 10.25 to Registrant’s Annual Report on Form 10-K for the fiscal year ended December 31, 2006, and incorporated herein by reference).

	10.26	The National City Corporation Long-Term Cash and Equity Incentive Plan Effective January 1, 2005.

	10.27	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).

	10.28	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).

	10.29	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).

	10.30	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).

	10.31	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).

	10.32	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).

	10.33	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).

	10.34	The National City Corporation 2004 Deferred Compensation Plan, as Amended and Restated effective January 1, 2005 (filed as Exhibit 10.35 to Registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2006, and incorporated herein by reference).

	10.35	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).


Exhibit
Number		Exhibit Description

	10.36	Amendment No. 6 to the National City Savings and Investment Plan, 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, 2005, and incorporated herein by reference).

	10.37	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).

	10.38	Form of Restricted Stock Award Agreement (filed as Exhibit 10.64 to Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2005, and incorporated herein by reference).

	10.39	Form of Restricted Stock Award 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).

	10.40	Form of Incentive Stock Option Award Agreement (filed as Exhibit 10.66 to Registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2005, and incorporated herein by reference).

	10.41	Form of Non-qualified Stock Option Award Agreement.

	10.42	Form of contracts with Robert B. Crowl, Jeffrey J. Tengel and Jon N. Couture (filed as Exhibit 10.68 to Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2005, and incorporated herein by reference).

	10.43	Release and Non-competition Agreement between National City Corporation and Jose Armando Ramirez (filed as Exhibit 10.69 to Registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2005, and incorporated herein by reference).

	10.44	Appendices AS, AT, AU, AV, and AW to the National City Savings and Investment Plan, as Amended and Restated effective January 1, 2001 (filed as Exhibit 10.70 to Registrant’s Annual Report on Form 10-K for the fiscal year ended December 31, 2005, and incorporated herein by reference).

	10.45	Form of Restricted Stock Unit Award Agreement (filed as Exhibit 10.45 to Registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2007, and incorporated herein by reference).

	10.46	National City Corporation Management Severance Plan, as Amended and Restated effective January 1, 2005.

	10.47	Form of Amendment to Agreement Not to Compete with David A. Daberko and William E. MacDonald III (filed as Exhibit 10.48 to Registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2006, and incorporated herein by reference).

	10.48	Form of Non-Elective Deferred Compensation Award Statement.

	10.49	Form of Non-Elective Deferred Compensation Award Statement (filed as exhibit 99.2 to Registrant’s Current Report on Form 8-K filed on May 1, 2006, and incorporated herein by reference).

	10.50	Deferred Compensation Plan for Daniel J. Frate (filed as exhibit 10.51 to Registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2006, and incorporated herein by reference).

	10.51	Release and Separation Agreement between National City Corporation and John D. Gellhausen (filed as exhibit 10.51 to Registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2006, and incorporated herein by reference).

	10.52	Form of Restricted Stock Unit Agreement (Retention/Non-compete) between National City Corporation and each of Jeffrey D. Kelly and Peter E. Raskind (filed as exhibit 10.52 to Registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2006, and incorporated herein by reference).

	10.53	Form of Restricted Stock Unit Agreement (Performance) between National City Corporation and each of Jeffrey D. Kelly , Peter E. Raskind and Daniel J. Frate (filed as exhibit 10.53 to Registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2006, and incorporated herein by reference).

	10.54	Form of Restricted Stock Award Agreement (filed as exhibit 99.1 to Registrant’s Current Report on Form 8-K filed on October 23, 2006, and incorporated herein by reference).

	10.55	Form of Restricted Stock Unit Award Agreement (filed as exhibit 99.2 to Registrant’s Current Report on Form 8-K filed on October 23, 2006, and incorporated herein by reference).

	10.56	Form of Restricted Stock Unit Award Agreement (filed as exhibit 99.3 to Registrant’s Current Report on Form 8-K filed on October 23, 2006, and incorporated herein by reference).


Exhibit
Number		Exhibit Description

	10.57	Aircraft Time Sharing Agreement between National City Credit Corporation and David A. Daberko (filed as exhibit 99.1 to Registrant’s Current Report on Form 8-K filed on October 23, 2006, and incorporated herein by reference).

	10.58	Aircraft Time Sharing Agreement between National City Credit Corporation and David A. Daberko (filed as exhibit 99.2 to Registrant’s Current Report on Form 8-K filed on October 23, 2006, and incorporated herein by reference).

	10.59	Severance Agreement Termination between National City Corporation and William E. MacDonald III (filed as exhibit 99.3 to Registrant’s Current Report on Form 8-K filed on October 23, 2006, and incorporated herein by reference).

	10.60	Severance Agreement Termination between National City Corporation and David A. Daberko (filed as exhibit 99.4 to Registrant’s Current Report on Form 8-K filed on October 23, 2006, and incorporated herein by reference).

	10.61	Amendment to National City Corporation Amended and Second Restated 1991 Restricted Stock Plan (filed as exhibit 10.61 to Registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2006, and incorporated herein by reference).

	10.62	Amendment to National City Corporation Amended and Restated 1993 Stock Option Plan (filed as exhibit 10.62 to Registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2006, and incorporated herein by reference).

	10.63	Amendment to National City Corporation 1997 Restricted Stock Plan, Amended and Restated Effective October 31, 2001 (filed as exhibit 10.63 to Registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2006, and incorporated herein by reference).

	10.64	Amendment to National City Corporation 1997 Stock Option Plan as Amended and Restated Effective October 22, 2001 (filed as exhibit 10.64 to Registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2006, and incorporated herein by reference).

	10.65	Amendment to National City Corporation 2001 Stock Option Plan as Amended and Restated Effective October 22, 2001 (filed as exhibit 10.65 to Registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2006, and incorporated herein by reference).

	10.66	Amendment to National City Corporation 2002 Restricted Stock Plan (filed as exhibit 10.66 to Registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2006, and incorporated herein by reference).

	10.67	National City Corporation CEO Post-Retirement Office Plan (filed as Exhibit 99.2 to Registrant’s Current Report on Form 8-K filed on July 25, 2007, and incorporated herein by reference).

	10.68	Agreement to Terminate Change in Control Benefits between National City Corporation and William E. MacDonald III (filed as exhibit 10.68 to Registrant’s Annual Report on Form 10-K for the fiscal year ended December 31, 2006, and incorporated herein by reference).

	11.0	Statement re computation of per share earnings incorporated by reference to Note 18 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, 2007 for National City Corporation’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2007.

	31.2	Chief Financial Officer Sarbanes-Oxley Act 302 Certification dated August 8, 2007 for National City Corporation’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2007.

	32.1	Chief Executive Officer Sarbanes-Oxley Act 906 Certification dated August 8, 2007 for National City Corporation’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2007.

	32.2	Chief Financial Officer Sarbanes-Oxley Act 906 Certification dated August 8, 2007 for National City Corporation’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2007.

CORPORATE INFORMATION


Corporate Headquarters		Common Stock Listing
National City Center 1900 East Ninth Street Cleveland, Ohio 44114-3484 1-216-222-2000 NationalCity.com		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.

Transfer Agent and Registrar		Dividend Reinvestment and Stock Purchase Plan
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 ncstockaccess.com. For log-in assistance or other inquiries, call 1-800-622-6757.		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 1-800-622-6757. The Plan prospectus is also available at NationalCity.com.

Investor Information		Direct Deposit of Dividends
Jill Hennessey Investor Relations Department 2229 P.O. Box 5756 Cleveland, Ohio 44101-0756 1-800-622-4204 E-mail: investor.relations@nationalcity.com		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 1-800-622-6757.

Web Site Access to United States Securities and Exchange Commission Filings		Corporate Governance
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.		National City’s corporate governance practices are described in the following documents, available free of charge on 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.

Fitch

Moody’s

Standard

Debt Ratings

DBRS

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-

National City Bank

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 (high)

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		8
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations:
Financial Review		52
Consolidated Average Balance Sheets		75
Daily Average Balances/Net Interest Income/Rates		76
Item 3. Quantitative and Qualitative Disclosures About Market Risk		79
Item 4. Controls and Procedures		79

Part II — Other Information
Item 1. Legal Proceedings		79
Item 1A. Risk Factors		79
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		79
Item 3. Defaults Upon Senior Securities (None)
Item 4. Submission of Matters to a Vote of Security Holders		80
Item 5. Other Information (None)
Item 6. Exhibits		80

Signatures		86
EX-10.12
EX-10.26
EX-10.41
EX-10.46
EX-10.48
EX-12.1
EX-31.1
EX-31.2
EX-32.1
EX-32.2


		NATIONAL CITY CORPORATION

		(Registrant)

Date: August 8, 2007

		/s/ PETER E. RASKIND

		Peter E. Raskind
		President and Chief Executive Officer

		/s/ JEFFREY D. KELLY

		Jeffrey D. Kelly
		Vice Chairman and Chief Financial Officer