NATIONAL CITY CORP - 10-Q Quarterly Report

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

FORM 10-Q

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

For the quarterly period ended September 30, 2002

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 [X] NO [ ]

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 October 31, 2002 -- 611,895,942

[NATIONAL CITY CORPORATION LOGO]

QUARTER ENDED SEPTEMBER 30, 2002

FINANCIAL REPORT

AND FORM 10-Q

FINANCIAL REPORT AND FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 2002

All reports filed electronically by National City Corporation (National
City or the 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
www.nationalcity.com/investorrelations. These filings are also accessible on the
SEC's Web site at www.sec.gov.

TABLE OF CONTENTS

PART I -- FINANCIAL INFORMATION
Financial Highlights........................................ 3
Item 1. Financial Statements:
Consolidated Statements of Income....................... 4
Consolidated Balance Sheets............................. 5
Consolidated Statements of Cash Flows................... 6
Consolidated Statements of Changes in Stockholders'
Equity................................................. 7
Notes to Consolidated Financial Statements.............. 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations:
Financial Review........................................ 33
Consolidated Average Balance Sheets..................... 47
Daily Average Balances/Net Interest Income/Rates........ 48
Item 3. Quantitative and Qualitative Disclosures About
Market Risk............................................... 36
Item 4. Controls and Procedures............................. 46
PART II -- OTHER INFORMATION
Item 1. Legal Proceedings
The information contained in Note 17 to the consolidated
financial statements under the section heading
"Contingent Liabilities" on pages 24-25 of this report
is incorporated herein by reference.
Item 2. Changes in Securities and Use of Proceeds
On August 30, 2002, the Corporation redeemed all of the
then outstanding shares of its preferred stock.
Further discussion of the redemption is included in
Note 15 to the consolidated financial statements,
which is incorporated herein by reference.
Item 3. Defaults Upon Senior Securities (None)
Item 4. Submission of Matters to a Vote of Security Holders
(None)
Item 5. Other Information (None)
Item 6. Exhibits and Reports on Form 8-K
Exhibits: The index of exhibits has been filed as
separate pages of the September 30, 2002 Financial
Report and Form 10-Q and is available on request from
the Secretary of the Corporation at the principal
executive offices or through the United States
Securities and Exchange Commission's Web site as
listed above.
Reports on Form 8-K: The following reports were filed by
National City during the three-month period ended
September 30, 2002 and through the date of this
Financial Report.
July 18, 2002 -- National City issued a news release
announcing its financial results for the three and
six-month periods ended June 30, 2002.
July 31, 2002 -- National City issued a news release
announcing the redemption of all the outstanding
shares of its 6% Cumulative Convertible Preferred
Stock, Series 1, on August 30, 2002.
August 2, 2002 -- National City issued a news release
announcing Peter E. Raskind, executive vice
president, as the new head of the Retail Sales and
Distribution business unit.
August 12, 2002 -- National City furnished
certifications of the Corporation's December 31, 2001
Form 10-K/A and its June 30, 2002 Form 10-Q signed by
the Corporation's Chief Executive Officer and Chief
Financial Officer pursuant to 18 U.S.C. Section 1350.
Also furnished were the sworn statements signed by
the Corporation's Chief Executive Officer and Chief
Financial Officer pursuant to the SEC's order under
Section 21(a)(1) of the Securities Exchange Act of
1934 No. 4-460.
August 14, 2002 -- National City issued a news release
announcing the realignment of management
responsibilities for its consumer finance and
mortgage businesses. This Form 8-K also announced
other organizational management changes made for
corporate governance purposes.
October 16, 2002 -- National City issued a news release
announcing its financial results for the three and
nine-month periods ended September 30, 2002.
October 29, 2002 -- National City issued a news release
announcing its Board of Directors approved a series
of actions to strengthen and improve the
Corporation's corporate governance practices.
Signatures.................................................. 51
Certification of Chief Executive Officer.................... 52
Certification of Chief Financial Officer.................... 53

2

FINANCIAL HIGHLIGHTS

3

FINANCIAL STATEMENTS

CONSOLIDATED STATEMENTS OF INCOME

See Notes to Consolidated Financial Statements
4

CONSOLIDATED BALANCE SHEETS

See Notes to Consolidated Financial Statements
5

CONSOLIDATED STATEMENTS OF CASH FLOWS

See Notes to Consolidated Financial Statements
6

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

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 distribution network in Ohio, Michigan, Pennsylvania, Indiana,
Kentucky, and Illinois and also serves customers in selected markets nationally.
Its primary businesses include commercial and retail banking, consumer finance,
asset management, mortgage financing and servicing, and payment processing.

1. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES

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

7

normally included in other assets and National City's proportionate share of
income or loss is included in other noninterest income.
The Corporation, on a limited basis, uses special purpose entities (SPEs),
including securitization trusts and a commercial paper conduit, to diversify its
funding sources and to provide financial services to its corporate customers.
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 debt
securities to investors. The legal documents governing the SPE transactions
describe how the cash earned on the assets held in the SPE must be allocated to
the investors and other parties that have rights to these cash flows. SPEs can
be structured to be bankruptcy remote, thereby insulating investors from the
impact of the creditors of other entities, including the seller of the assets.
SPEs are critical to the functioning of several significant markets, including,
for example, the asset-backed securities, mortgage-backed securities, and
commercial paper markets.
Where the Corporation is a transferor of assets to an SPE, the assets sold
to the SPE are no longer recorded on the Corporation's balance sheet and the SPE
is not consolidated when the SPE is a qualifying special-purpose entity (QSPE).
Statement of Financial Accounting Standards (SFAS) No. 140, Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of Liabilities,
provides specific criteria for determining when an SPE meets the definition of
an QSPE. In determining whether to consolidate non-qualifying SPEs where assets
are legally isolated from National City's creditors, the Corporation considers
such factors as the amount of third party equity, the retention of risks and
rewards, and the extent of control available to third parties. National City's
credit card and automobile securitization transactions meet the applicable QSPE
criteria under SFAS 140, and accordingly are not consolidated on the
Corporation's balance sheet.
The accounting and reporting policies of National City conform with
accounting principles generally accepted in the United States of America. The
preparation of financial statements in conformity with generally accepted
accounting principles 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 2001 Annual Report on Form 10-K, as amended (Form 10-K).
These financial statements do not include all information and footnotes
necessary to constitute a complete set of financial statements under generally
accepted accounting principles 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. A summary of the
Corporation's significant accounting policies follows:
STATEMENT OF CASH FLOWS: Cash and demand balances due from banks are
considered "cash and cash equivalents" for financial reporting purposes.
BUSINESS COMBINATIONS: Since the issuance of SFAS 141, Business
Combinations, by the Financial Accounting Standards Board (FASB), business
combinations initiated after June 30, 2001 are required to be accounted for by
the purchase method. Under the purchase method, net assets 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 only included in the statement of
income from the date of acquisition.
Prior to SFAS 141, certain business combinations not accounted for as
purchase acquisitions were accounted for under the pooling-of-interests method,
which required the retroactive combining of the assets, liabilities,
stockholders' equity, and results of operations of the merged entity with the
Corporation's respective accounts at historical amounts. Prior period financial
statements were then restated to give effect to business combinations accounted
for under this method.
LOANS: Loans are generally reported at the principal amount outstanding, net
of unearned income. Loans held for sale or securitization are valued on an
aggregate basis at the lower of carrying cost or fair value.
Interest income is recognized on an accrual basis. Loan origination fees,
certain direct costs, and unearned discounts are deferred and amortized as an
adjustment to the yield over the term of the loan. Loan commitment fees are
generally deferred and amortized into fee income on a straight-line basis over
the commitment period. Other credit-related fees, including letter and line of
credit fees and loan syndication fees, are recognized as fee income when earned.
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 rate of
return on the outstanding investment in the lease, net of the related deferred
tax liability, in the years in which the net investment is positive. Residual
values on leased assets are reviewed regularly for other-than-temporary
impairment. When there is other-than-temporary impairment in the estimated fair
value of the Corporation's interest in the residual value of a leased asset, the
carrying value is reduced to the estimated fair value with the write-down
recognized in the current-period statement of income.
Commercial loans and leases and loans secured by real estate are designated
as nonperforming when either principal or interest payments are 90 days or more
past due (unless the loan or lease is sufficiently collateralized such that full
repayment of both principal and interest is expected and is in the process of
collection), terms are renegotiated below market levels, or when an individual
analysis of a borrower's creditworthiness indicates a

8

credit should be placed on nonperforming status. When a loan is placed on
nonperforming status, uncollected interest accrued in prior years is charged
against the allowance for loan losses, while uncollected interest accrued in the
current year is charged against interest income. Interest income during the
period the loan is on nonperforming status is recorded on a cash basis after
recovery of principal is reasonably assured. Commercial loans and leases and
commercial loans secured by real estate are generally charged off to the extent
principal and interest due exceed the net realizable value of the collateral,
with the charge-off occurring when the loss is reasonably quantifiable but not
later than when the loan becomes 180 days past due. Loans secured by residential
real estate are generally charged off to the extent principal and interest due
exceed 90% of the current appraised value of the collateral and the loan becomes
180 days past due.
Commercial and commercial real estate loans exceeding $500,000 are evaluated
for impairment in accordance with the provisions of SFAS 114, Accounting by
Creditors for Impairment of a Loan, which requires an allowance to be
established as a component of the allowance for loan losses when it is probable
all amounts due will not be collected pursuant to the contractual terms of the
loan and the recorded investment in the loan exceeds its fair value. Fair value
is measured using either the present value of expected future cash flows
discounted at the loan's effective interest rate, the observable market price of
the loan, or the fair value of the collateral if the loan is collateral
dependent. All loans subject to evaluation and considered impaired are included
in nonperforming assets.
Consumer loans are subject to mandatory charge-off at a specified
delinquency date and 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.
ALLOWANCE FOR LOAN LOSSES: The allowance for loan losses is maintained at a
level believed adequate by management to absorb probable losses inherent in the
loan portfolio and is based on the size and current risk characteristics of the
loan portfolio, an assessment of individual problem loans and actual loss
experience, current economic events in specific industries and geographical
areas, including unemployment levels, and other pertinent factors, including
regulatory guidance and general economic conditions. Determination of the
allowance is inherently subjective as it requires significant estimates,
including the amounts and timing of expected future cash flows on impaired
loans, estimated losses on pools of homogeneous loans based on historical loss
experience, and consideration of current 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 loan losses is charged to operations based on
management's periodic evaluation of the factors previously mentioned, as well as
other pertinent factors. Evaluations are conducted at least quarterly and more
often if deemed necessary. When loans are identified for sale or securitization,
attributed loan loss allowance is reclassified as a direct reduction to the
carrying value of the loans.
The allowance for loan losses consists of an allocated component and an
unallocated component. The components of the allowance for loan losses represent
an estimation done pursuant to either SFAS 5, Accounting for Contingencies, or
SFAS 114. The allocated component of the allowance for loan losses reflects
expected losses resulting from analysis developed through specific credit
allocations for individual loans and historical loss experience for each loan
category. The specific credit allocations are based on a regular analysis of all
loans over a fixed-dollar amount where the internal credit rating is at or below
a predetermined classification. The historical loan loss element is determined
statistically using a loss migration analysis that examines loss experience and
the related internal gradings of loans charged off. The loss migration analysis
is performed quarterly and loss factors are updated regularly based on actual
experience. The allocated component of the allowance for loan losses also
includes consideration of concentrations and changes in portfolio mix and
volume.
The unallocated portion of the allowance reflects management's estimate of
probable inherent but undetected losses within the portfolio due to
uncertainties in economic conditions, delays in obtaining information, including
unfavorable information about a borrower's financial condition, the difficulty
in identifying triggering events that correlate perfectly to subsequent loss
rates, and risk factors that have not yet manifested themselves in loss
allocation factors. In addition, the unallocated allowance includes a component
that explicitly accounts for the inherent imprecision in loan loss migration
models. The Corporation has grown through acquisition, expanded the geographic
footprint in which it operates, and changed its portfolio mix in recent years.
As a result, historical loss experience data used to establish allocation
estimates may not precisely correspond to the current portfolio. Also, loss data
representing a complete economic cycle is not available for all sectors. The
uncertainty surrounding the strength and timing of economic cycles, including
management's concerns over the effects of the prolonged economic downturn in the
current cycle, also affects the allocation model's estimates of loss. The
historical losses used in the migration analysis may not be representative of
actual losses inherent in the portfolio that have not yet been realized.
SECURITIES: Securities purchased with the intention of realizing short-term
profits are considered trading securities, carried at fair value, and included
in other investments. Realized and unrealized gains and losses are included in
other income. Interest on trading account securities is recorded in interest
income. As of September 30, 2002, December 31, 2001, and September 30, 2001,
trading account securities totaled $28.4 million, $121.0 million, and $20.2
million, respectively.

9

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.
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 losses reported separately in other comprehensive income,
net of tax. Realized gains and losses on the sale of and other-than-temporary
impairment charges on available-for-sale securities are recorded in securities
gains or losses on the income statement.
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. Gains and losses on the sales of
securities are determined using the specific-identification method and
recognized on a trade-date basis.
PRINCIPAL INVESTMENTS: Principal investments, which include direct
investments in private and public companies and indirect investments in private
equity funds, are carried at estimated fair value with changes in fair value
recognized in other noninterest income.
Direct investments include equity and mezzanine investments in the form of
common stock, preferred stock, limited liability company interests, warrants and
subordinated debt. Direct mezzanine investments in the form of subordinated debt
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
investors and are included in other assets on the balance sheet.
The fair values of publicly traded investments are determined by using
quoted market prices, subject to liquidity discounts, sales restrictions, or
regulation. Investments that are not publicly traded are initially valued at
cost and subsequent adjustments to fair value are estimated in good faith by
management. Factors used in determining the fair value of direct investments
include consideration of the company's business model, current and projected
financial performance, liquidity, management team, and overall economic and
market conditions. Factors used in determining the fair value of indirect
investments include evaluation of the general partner's valuation techniques and
overall economic and market conditions. The fair value estimates of the
investments are based upon currently available information and may not
necessarily represent amounts that will ultimately be realized, which depend on
future events and circumstances.
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 obtained or requested
to be returned to the Corporation as deemed 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 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. On January
1, 2002, the Corporation adopted SFAS 142, Goodwill and Other Intangible Assets.
Under the provisions of SFAS 142, goodwill is no longer ratably amortized into
the income statement over an estimated life but rather is tested at least
annually for impairment. Intangible assets which have finite lives continue to
be amortized over their estimated useful lives and also continue to be subject
to impairment testing. All of the Corporation's other intangible assets have
finite lives and are amortized on a straight-line basis over varying periods not
exceeding 10 years. Prior to the adoption of SFAS 142, the Corporation's
goodwill was amortized on a straight-line basis over varying periods not
exceeding 25 years, except for certain goodwill related to purchase acquisitions
at the Corporation's 85%-owned payment processing subsidiary, National
Processing, Inc. (National Processing), which was amortized over 40 years. Note
9 includes a summary of the Corporation's goodwill and other intangible assets
as well as further detail about the impact of the adoption of SFAS 142.
DEPRECIABLE ASSETS: Properties and equipment are stated at cost less
accumulated depreciation and amortization. Buildings and equipment, including
costs related to developing or obtaining software for internal use, are
depreciated on a straight-line basis over their estimated useful lives.
Leasehold improvements are amortized over the lives of the leases. Maintenance
and repairs are charged to expense as incurred, while improvements which extend
the useful life are capitalized and depreciated over the estimated remaining
life.
ASSET SECURITIZATIONS: National City uses securitization vehicles as a
source of funding. Financial assets, including pools of credit card receivables
and automobile loans, are transferred to SPEs, which are legally isolated from
the Corporation. The trust issues beneficial interests in the form of senior and
subordinated asset-backed securities collateralized by the assets sold to the
trust. The senior classes of the asset-backed securities receive an AAA or A
credit rating at the time of issuance. These ratings are generally achieved
through the creation of lower-rated subordinated classes of asset-backed
securities. In some cases, the Corporation retains interests in the securitized
loans, which may take the form of subordinated tranches, cash reserve balances,
servicing assets, and interest-only strips representing the cash flows generated
by the assets in excess of the contractual cash flows required to be paid to the

10

investors and for any other obligations such as servicing fees and credit
losses.
In accordance with SFAS 140, securitized loans are removed from the balance
sheet and a net gain or loss is recognized in income at the time of initial sale
and each subsequent sale when the combined net sales proceeds and, if
applicable, retained interests differ from the loans' allocated carrying amount.
Net gains or losses resulting from securitizations are recorded in noninterest
income on the statement of income.
Retained interests in the subordinated tranches and interest-only strips are
recorded at their fair value and included in the available-for-sale securities
portfolio with subsequent adjustments to fair value recorded through other
comprehensive income within stockholders' equity or in other noninterest expense
in the statement of income if the fair value has declined below the carrying
amount and such decline has been determined to be other-than-temporary. The
Corporation uses assumptions and estimates in determining the fair value
allocated to the retained interests at the time of sale and each subsequent sale
in accordance with SFAS 140. These assumptions and estimates include projections
concerning rates charged to customers, the expected life of the receivables,
credit loss experience, loan repayment rates, the cost of funds, and discount
rates commensurate with the risks involved.
On a quarterly basis, the Corporation ensures retained interests are valued
appropriately in the financial statements. Management reviews the historical
performance of each retained interest and the assumptions used to project future
cash flows. If past performance and future expectations dictate, assumptions are
revised and the present value of future cash flows is recalculated. Refer to
Note 4 for further analysis of the assumptions used in the determination of fair
value.
When the Corporation retains the right to service the loans and receives
related fees that exceed the current market rate to service the receivables, a
servicing asset is recorded and included in other assets on the balance sheet. A
servicing asset would not be recognized if the Corporation receives adequate
compensation relative to current market servicing prices to service the
receivables sold. Servicing assets created in a securitization are initially
measured at their allocated carrying amount based upon relative fair values at
the date of securitization and are subsequently evaluated and measured for
impairment. Impairment, if any, is recognized when and in the amount carrying
value exceeds its fair value as determined by calculating the present value of
the expected future net servicing cash flows using the assumptions described
previously. The amortization of servicing assets is determined in proportion to,
and over the period of, the estimated net servicing income and is recorded in
noninterest income on the statement of income.
For securitizations involving credit card receivables, the Corporation's
continuing involvement in the securitized assets includes maintaining an
undivided, pro rata interest in all credit card loan receivables that are in the
trust, referred to as seller's interest. The seller's interest ranks pari-passu
with the investors' interest in the trust. As the amount of the loans in the
securitized pool fluctuates due to customer payments, purchases, cash advances,
and credit losses, the carrying amount of the seller's interest will vary.
However, the Corporation is required to maintain its seller's interest at a
minimum level of 4% of the initial invested amount in each series to ensure
receivables are available for allocation to the investors' interests.
Also with regard to credit card securitizations, the trust is not required
to make principal payments to the investors during the revolving period, which
generally approximates 48 months. Instead, the trust uses principal payments
received on the accounts to purchase new loan receivables. Therefore, the
principal dollar amount of the investor's interest in the loans within the trust
remains unchanged. Once the revolving period ends, the trust distributes
principal payments to the investors according to the terms of the transaction.
Distribution of principal to the investors in the credit card trust may begin
earlier if the average annualized yield on the loans securitized (generally
equal to the sum of interest income, interchange and other fees, less principal
credit losses during the period) for three consecutive months drops below a
minimum yield (generally equal to the sum of the coupon rate payable to
investors plus contractual servicing fees), or certain other events occur.
The retained interests represent National City's maximum loss exposure with
respect to securitization vehicles. The investors in the debt securities issued
by the SPEs have no further recourse against the Corporation if cash flows
generated by the securitized assets are inadequate to service the obligations of
the SPEs.
Transaction costs associated with revolving loan securitizations are
deferred at the time of sale and amortized over the revolving term of the
securitization while transaction costs associated with fixed-term loan
securitizations are recognized as a component of the gain or loss at the time of
sale.
DERIVATIVE INSTRUMENTS: The Corporation enters into derivative transactions
principally to protect against the risk of adverse price or interest rate
movements on the value of certain assets and liabilities and on future cash
flows. The Corporation is also required to recognize certain contracts and
commitments as derivatives when the characteristics of those contracts and
commitments meet the definition of a derivative.
Under the guidelines of SFAS 133, Accounting for Derivative Instruments and
Hedging Activities, as amended, all derivative instruments are required to be
carried at fair value on the balance sheet. SFAS 133 provides special hedge
accounting provisions, which permit the change in the fair value of the hedged
item related to the risk being hedged to be recognized in earnings in the same
period and in the same income statement line as the change in 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

11

expected future cash flows, or other types of forecasted transactions, are
considered cash flow hedges. The Corporation formally documents all
relationships between hedging instruments and hedged items, as well as its
risk-management objective and strategy for undertaking each hedge transaction.
Fair value hedges are accounted for by recording the fair value of the
derivative instrument and the fair value related to the risk being hedged of the
hedged asset or liability on the balance sheet with corresponding offsets
recorded in the income statement. The adjustment to the hedged asset or
liability is included in the basis of the hedged item, while the fair value of
the derivative is recorded as a freestanding asset or liability. Actual cash
receipts or payments and related amounts accrued during the period on
derivatives included in a fair value hedge relationship are recorded as
adjustments to the interest income or expense recorded on the hedged asset or
liability.
Cash flow hedges are accounted for by recording the fair value of the
derivative instrument on the balance sheet as either a freestanding asset or
liability, with a corresponding offset recorded in other comprehensive income
within stockholders' equity, net of tax. Amounts are reclassified from other
comprehensive income to the income statement in the period or periods the hedged
forecasted transaction affects earnings.
Under both the fair value and cash flow hedge methods, derivative gains and
losses not considered highly 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 prospectively and the derivative
instrument continues to be carried at fair value but with no corresponding
offset being recorded on the hedged item.
MORTGAGE SERVICING ASSETS: The Corporation recognizes as separate assets
rights to service mortgage loans it does not own but services for others for a
fee. The total cost of loans sold is allocated between the loans sold and the
servicing assets retained based on the relative fair values of each. Mortgage
servicing assets, when purchased, are initially recorded at cost. Mortgage
servicing assets are carried at the lower of the initial carrying value,
adjusted for amortization, or estimated fair value. For purposes of determining
impairment, the mortgage servicing assets are stratified by product type and
interest rate. Certain mortgage servicing assets hedged with derivative
instruments as part of SFAS 133 hedge relationships are carried at fair value
and consequently may be adjusted above their initial carrying value.
The fair value of mortgage servicing assets is estimated by calculating the
present value of estimated future net servicing cash flows, taking into
consideration actual and expected mortgage loan prepayment rates, discount
rates, servicing costs, and other economic factors. The expected and actual rate
of mortgage loan prepayments are the most significant factors driving the value
of mortgage servicing assets. Increases in mortgage loan prepayments reduce
estimated future net servicing cash flows because the underlying life of the
loan is reduced.
STOCK-BASED COMPENSATION: The Corporation's stock-based compensation plans
are accounted for based on the intrinsic value method set forth in Accounting
Principles Board (APB) Opinion 25, Accounting for Stock Issued to Employees, and
related interpretations. Compensation expense for stock options is generally not
recognized if the exercise price of the option equals or exceeds the fair value
of the stock on the date of grant. Compensation expense for restricted share
awards is ratably recognized over the period of service, usually the restricted
period, based on the fair value of the stock on the date of grant.
In October 2002, the Corporation announced it plans to adopt the fair value
method of recording stock options under the transitional guidance of SFAS 123,
Accounting for Stock-Based Compensation, effective January 1, 2003. Refer to the
Recent Accounting Pronouncements and Developments Section of the Financial
Review for further discussion on the Corporation's planned adoption of SFAS 123.
INCOME TAXES: The Corporation and its subsidiaries file a consolidated
Federal income tax return. The provision for income taxes is based upon income
in the financial statements, rather than amounts reported on the Corporation's
income tax return.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized as income or
expense in the period that includes the enactment date.
TREASURY STOCK: Acquisitions of treasury stock are recorded on the par value
method, which requires the cash paid to be allocated to common or preferred
stock, capital surplus, and retained earnings.

2. RECENT ACCOUNTING PRONOUNCEMENTS

ACQUISITIONS OF CERTAIN FINANCIAL INSTITUTIONS: In October 2002, the FASB
issued SFAS 147, Acquisitions of Certain Financial Institutions, which provides
guidance on the accounting for the acquisition of a financial institution and
supersedes the specialized accounting guidance provided in SFAS 72, Accounting
for Certain Acquisitions of Banking or Thrift Institutions. SFAS 147 is
effective immediately and requires companies to cease amortization of
unidentified intangible assets associated with certain branch acquisitions. Upon
adoption of SFAS 147, the amount of unidentifiable intangible assets previously
recorded will be reclassified to goodwill. SFAS 147 also modifies SFAS 144,
Accounting for the Impairment or Disposal of Long-Lived Assets, to include in
its scope long-term customer-relationship intangible

12

assets and thus subject those intangible assets to the same undiscounted cash
flow recoverability test and impairment loss recognition and measurement
provisions required for other long-lived assets.
While SFAS 147 may affect how future business combinations, if undertaken,
are accounted for and disclosed in the financial statements, the issuance of the
new guidance currently has no effect on the Corporation's result of operations,
financial position, or liquidity. The Corporation does not have any assets
subject to the specialized accounting guidance provided in SFAS 72 or SFAS 147.
ACCOUNTING FOR COSTS ASSOCIATED WITH EXIT OR DISPOSAL ACTIVITIES: SFAS 146,
Accounting for Costs Associated with Exit or Disposal Activities, was issued in
July 2002 and becomes effective for the Corporation beginning January 1, 2003.
This statement requires a cost associated with an exit or disposal activity,
such as the sale or termination of a line of business, the closure of business
activities in a particular location, or a change in management structure, be
recorded as a liability at fair value when it becomes probable the cost will be
incurred and no future economic benefit will be gained by the company for such
cost. Applicable costs include employee termination benefits, contract
termination costs, and costs to consolidate facilities or relocate employees.
SFAS 146 supersedes EITF Issue No. 94-3, Liability Recognition for Certain
Employee Termination Benefits and Other Costs to Exit an Activity, which in some
cases required certain costs to be recognized before a liability was actually
incurred. The adoption of this standard is not expected to have a material
impact on the Corporation's results of operations, financial position, or
liquidity.
RESCISSION OF FASB STATEMENTS NO. 4, 44, AND 64, AMENDMENT OF FASB STATEMENT
NO. 13, AND TECHNICAL CORRECTIONS: In April 2002, the FASB issued SFAS 145,
which updates, clarifies, and simplifies certain existing accounting
pronouncements beginning at various dates in 2002 and 2003. The statement
rescinds SFAS 4 and SFAS 64, which required net gains or losses from the
extinguishment of debt to be classified as an extraordinary item in the income
statement. These gains and losses will now be classified as extraordinary only
if they meet the criteria for such classification as outlined in APB Opinion 30,
which allows for extraordinary treatment if the item is material and both
unusual and infrequent in nature. The statement also rescinds SFAS 44 related to
the accounting for intangible assets for motor carriers and amends SFAS 13 to
require certain lease modifications that have economic effects similar to
sale-leaseback transactions to be accounted for as such. The changes required by
SFAS 145 are expected to have little or no impact on the Corporation's results
of operations, financial position, or liquidity.
ACCOUNTING FOR LONG-LIVED ASSETS: SFAS 144 was issued in October 2001 and
addresses how and when to measure impairment on long-lived assets and how to
account for long-lived assets that an entity plans to dispose of either through
sale, abandonment, exchange, or distribution to owners. The statement's
provisions supersede SFAS 121, which addressed asset impairment, and certain
provisions of APB Opinion 30 related to reporting the effects of the disposal of
a business segment and requires expected future operating losses from
discontinued operations to be recorded in the period in which the losses are
incurred rather than the measurement date. Under SFAS 144, more dispositions may
qualify for discontinued operations treatment in the income statement. The
provisions of SFAS 144 became effective for the Corporation on January 1, 2002
and are not expected to have a material impact on the Corporation's results of
operations, financial position, or liquidity.
ASSET RETIREMENT OBLIGATIONS: In August 2001, the FASB issued SFAS 143,
Accounting for Asset Retirement Obligations. SFAS 143 requires an entity to
record a liability for an obligation associated with the retirement of an asset
at the time the liability is incurred by capitalizing the cost as part of the
carrying value of the related asset and depreciating it over the remaining
useful life of that asset. The standard is effective for the Corporation
beginning January 1, 2003 and its adoption is not expected to have a material
impact on the Corporation's results of operations, financial position, or
liquidity.
GOODWILL AND OTHER INTANGIBLE ASSETS: On January 1, 2002, the Corporation
adopted SFAS 142, Goodwill and Other Intangible Assets, which addresses the
accounting and reporting for acquired goodwill and other intangible assets and
supersedes APB Opinion 17. Notes 1 and 9 provide further detail on the
accounting for goodwill and intangible assets under the standard and the impact
of the adoption on the Corporation's financial statements. The standard's
adoption had no impact on the Corporation's liquidity.

3. ACQUISITIONS AND DIVESTITURES

In April 2001, National City sold its preferred share interest in National
Asset Management Corporation (NAMCO), a Louisville, Kentucky-based investment
advisor, to AMVESCAP PLC (AVZ) for a gain of $88.8 million. The gain is included
in other noninterest income on the income statement. The carrying value of
National City's investment in NAMCO preferred shares was $1.5 million. Cash
proceeds of $49.0 million and 2.8 million shares of AVZ stock, with a value of
$41.3 million, were received in connection with the sale. The shares were sold
later in the second quarter of 2001. In May 2002, National City received
additional contingent consideration of $5.1 million related to the sale of
NAMCO. The consideration was recorded in other noninterest income on the income
statement.
In June 2001, National Processing, the Corporation's 85%-owned payment
processing subsidiary, acquired a 70% interest in ABN AMRO Merchant Services,
LLC (AAMS) for cash of $48.5 million. Under the terms of the agreement, National
Processing provides AAMS with all merchant-processing services, including both
authorization and settlement of all card-based transactions. The acquisition was
accounted for by the purchase method, with the results of operations of AAMS
included in the Corporation's income statement from the date of acquisition.
Goodwill of $27.1 million was recorded in connection with the acquisition. The
remainder of the purchase price was allocated to other intangible assets,
primarily acquired-merchant contracts,

13

which are being amortized on a straight-line basis over 10 years.
In August 2001, National Processing sold its Business Process Outsourcing
business unit for $43.0 million in cash. This business unit primarily processed
healthcare claims, credit card applications, and airline lift tickets. In
connection with the disposal, a pretax impairment loss, net of minority interest
benefit, of $2.7 million was recorded in 2001.

4. SECURITIZATION ACTIVITY

The Corporation periodically sells assets through securitization
transactions.
On January 31, 2002, National City sold $425.0 million of receivables to the
National City Credit Card Master Trust (trust) and recognized a pretax gain of
$24.8 million, which was recorded in other noninterest income. Retained
interests in the form of interest-only strips and subordinated tranches were
also recognized with initial carrying values of $4.9 million and $27.0 million,
respectively. Transaction costs of $1.7 million incurred in connection with the
securitization were deferred and are being amortized over the revolving term of
the securitization.
In January 2001, the Corporation also sold $425.0 million of credit card
receivables in a securitization transaction and recognized a pretax gain of
$20.6 million, which was recorded in other noninterest income. Retained
interests in the form of interest-only strips and subordinated tranches were
also recognized with initial carrying values of $4.4 million and $27.6 million,
respectively. Transaction costs of $1.8 million incurred in connection with the
securitization were deferred and are being amortized over the revolving term of
the securitization.
During 2000, credit card receivables totaling $600.0 million were sold to
the trust.
The Corporation established an automobile receivables trust into which it
sold, through securitization on March 27, 2002, $1.1 billion of fixed-rate,
closed-end automobile loans. A pretax gain of $25.3 million was recorded as a
result of the term securitization and was recorded in other noninterest income.
Retained interests in the form of interest-only strips, subordinated tranches,
and dealer rebate receivables were also recognized with initial carrying values
of $41.3 million, $62.1 million, and $1.6 million, respectively. In addition, a
servicing asset was created in the amount of $16.5 million. See Footnote 1 for
further details regarding the accounting for servicing assets.
A summary of the components of managed loans, which represents both owned
and sold loans, along with quantitative information about delinquencies and net
credit losses follows. The credit card loan data presented below excludes
certain unsecured personal and business lines of credit included in the caption
"credit card loans" elsewhere in this quarterly report. Automobile loans are
included within the Corporation's consumer loan portfolio. The automobile loans
presented represent the managed portfolio of indirect prime automobile loans.

The investor principal in loan receivables related to the credit card
securitizations is scheduled to amortize back into the Corporation's portfolio
of loan receivables five years following the original securitization.

14

Certain cash flows received from and paid to the securitization trusts
follow:

A summary of the fair values of the interest-only strips and servicing
assets retained, key economic assumptions used to arrive at the fair values, and
the sensitivity of the September 30, 2002 fair values to immediate 10% and 20%
adverse changes in those assumptions follows:

(a)Represents interest-only strip
(b)Absolute prepayment speed
(c)Carrying value of servicing asset at September 30, 2002 was $11.9 million

15

These sensitivities are hypothetical and should be used with caution. As the
figures indicate, 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 either magnify or counteract the sensitivities.

5. ASSET-BACKED COMMERCIAL PAPER CONDUIT
The Corporation serves as the administrative agent and investment advisor to
a commercial paper conduit that purchased high-grade assets from the Corporation
and certain corporate customers and then issued high-grade commercial paper to
third-party investors that was collateralized by such assets. The conduit was
established in 2000, and at that time, was considered an unconsolidated
qualified special purpose entity under the guidelines of SFAS 140.
Effective September 29, 2002, the underlying agreements to the conduit were
amended to grant the conduit the right to sell assets in its sole discretion. As
a result, the conduit no longer met the criteria for a qualifying special
purpose entity and under applicable accounting guidance, the assets and
liabilities and results of operations of the conduit were required to be
included in the consolidated financial statements of the Corporation. As of
September 29, the conduit held assets with a fair value of $2.673 billion and
liabilities with a fair value of $2.689 billion. The difference between the fair
value of liabilities assumed and the fair value of assets received as of
September 29 was $15.9 million, which was recorded as a charge to noninterest
expense in the third quarter. The assets consolidated included $680.9 million of
secured loans and lease receivables and $1.992 billion of marketable
asset-backed securities, and the liabilities consisted primarily of commercial
paper borrowings. As the remaining balance of commercial paper matures, the
excess funds will be used to repurchase assets. All outstanding balances are
anticipated to be wound down by December 31, 2002. As of September 30, 2002, the
conduit held assets of $871.3 million.

6. LOANS AND ALLOWANCE FOR LOAN LOSSES
Portfolio loans and loans held for sale or securitization are presented in
the consolidated balance sheets on page 5.
During the first quarter of 2002, approximately $400 million of loans were
transferred from the commercial to the commercial real estate category. This
transfer followed a review by the Corporation's Investment Real Estate Division
that identified loans not classified on the balance sheet consistent with the
current definitional parameters for loans secured by nonresidential real estate.
The balance sheet transfer had no impact on the Corporation's results of
operations or liquidity.

Activity in the allowance for loan losses follows:

The Credit Quality section of the Financial Review provides detail regarding
nonperforming loans. Nonperforming loans totaled $747.5 million, $594.0 million,
and $586.8 million at September 30, 2002, December 31, 2001, and September 30,
2001, respectively. For loans classified as nonperforming at September 30, 2002,
the contractual interest due and actual interest recognized on those loans for
the first nine months of 2002 was $54.8 million and $11.4 million, respectively.
Included in nonperforming loans were impaired loans, as defined by SFAS 114,
aggregating $465.5 million, $170.1 million, and $114.1 million at September 30,
2002, December 31, 2001, and September 30, 2001, respectively. Average impaired
loans for the first nine months of 2002 and 2001 totaled $353.7 million and
$113.9 million, respectively. The majority of loans deemed impaired were
evaluated using the fair value of the collateral as the measurement method. The
related allowance allocated to impaired loans at September 30, 2002, December
31, 2001, and September 30, 2001 was $52.8 million, $62.9 million, and $45.2
million, respectively. At September 30, 2002, impaired loans with an associated
allowance totaled $200.3 million, while $265.2 million of impaired loans had no
related allowance. There was no interest recognized during the nine months ended
September 30, 2002 and 2001 on impaired loans while such loans were considered
impaired.

16

During the third quarter of 2001, $8.4 million of residential real estate
portfolio loans were sold. Related loan loss allowance of $2.4 million was
included in the basis of the loans sold, thereby covering the loss on the sale.
Also during the 2001 third quarter, National City sold credit card receivables
that had previously been charged off. The sale generated a gain of $6.7 million,
$5.6 million of which was allocated to credit card receivables owned by the
Corporation and recorded as a recovery of loan loss allowance, with the
remaining $1.1 million allocated to securitized receivables and included in
card-related fees on the income statement.

7. SECURITIES

Securities available for sale follow:

The other category includes the Corporation's internally managed equity
portfolio of bank and thrift common stock investments, which had an amortized
cost and fair value of $256.9 million and $217.4 million, respectively, as of
September 30, 2002, compared to an amortized cost and fair value of $399.9
million and $444.8 million, respectively, at December 31, 2001, and an amortized
cost and fair value of $351.0 million and $380.1 million, respectively, at
September 30, 2001. The other category also includes certain retained interests
in securitized assets. See Note 4 for further discussion of these retained
interests.
Gross unrealized gains for the total securities portfolio totaled $384.6
million, $179.2 million, and $278.5 million at September 30, 2002, December 31,
2001 and September 30, 2001, respectively. Gross unrealized losses at the same
period ends totaled $44.7 million, $22.6 million and $5.7 million, respectively.
Net unrealized gains and losses in the available-for-sale securities portfolio
are included, net of tax, in accumulated other comprehensive income within
stockholders' equity or, for the portion attributable to changes in a hedged
risk as part of a fair value hedge strategy, in net income.
For the nine months ended September 30, 2002 and 2001, gross realized
securities gains were $97.7 million and $127.8 million, respectively. Gross
realized securities losses for the nine months ended September 30, 2001 were
$1.5 million. There were no securities losses realized during the first nine
months of 2002.
At September 30, 2002, the carrying value of securities pledged to secure
public and trust deposits, U.S. Treasury demand notes, security repurchase
agreements, and derivative instruments totaled $6.8 billion.
As of September 30, 2002, there were no securities of a single issuer, other
than U.S. Treasury securities and other U.S. government agency securities, which
exceeded 10% of stockholders' equity.

17

8. PRINCIPAL INVESTMENTS

The Corporation's principal investment portfolio is managed by National City
Equity Partners and National City Capital Corporation, both subsidiaries within
the Wholesale Banking line of business. A rollforward of the Corporation's
principal investment portfolio follows:

(a) Consists primarily of interest and dividends

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

Accounting policies for principal investments are included in Note 1.
Commitments to fund principal investments are discussed in Note 17.

9. GOODWILL AND OTHER INTANGIBLE ASSETS

Upon the adoption of SFAS 142 on January 1, 2002 (see Note 1), the
Corporation ceased amortizing its goodwill, which decreased noninterest expense
and increased net income for the three and nine month periods ended September
30, 2002 as compared to the same periods in 2001. A presentation showing
comparable three and nine month periods ended September 30, 2002 and 2001
follows. The 2001 periods are presented on a pro forma basis excluding goodwill
amortization.

Additionally, as part of the adoption, SFAS 142 required a transitional
impairment test be applied to goodwill and other indefinite-lived intangible
assets within the first half of 2002 with any resulting impairment loss reported
as a change in accounting principle. Management performed a transitional
impairment test on its goodwill assets on January 1, 2002 and determined no
impairment existed as of the date of adoption. Currently, the Corporation does
not have any other indefinite-lived intangible assets on its balance sheet.
A summary of goodwill assets by line of business follows:

As of December 31, 2001 and September 30, 2001, the Corporation had goodwill
assets of $1,086.0 million and $1,103.2 million, respectively. On January 1,
2002, in conjunction with the adoption of SFAS 142, previously classified
goodwill assets with a gross carrying value of $28.2 million, accumulated
amortization of $20.5 million, and a net carrying value of $7.7 million, were
transferred to core deposit intangibles because these assets met

18

the criteria for recognition apart from goodwill, the assets were established on
the date of acquisition based on their fair values at that time, and separate
accounting records were maintained to support the assets.
The Corporation has finite-lived intangible assets capitalized on its
balance sheet in the form of core deposit, credit card, and merchant portfolios
and other intangibles. Merchant portfolio intangibles relate to merchant card
customer portfolios acquired by National Processing. These intangible assets
continue to be amortized over their estimated useful lives in accordance with
SFAS 142, which range from one to ten years. There were no adjustments to the
useful lives of these intangible assets as a result of the adoption of SFAS 142.
A summary of core deposit, credit card, and merchant portfolios and other
intangible assets follows:

Amortization expense on finite-lived intangible assets totaled $5.4 million
and $15.8 million for the three and nine months ended September 30, 2002,
respectively. For the same 2001 periods, amortization expense on finite-lived
intangible assets was $4.6 million and $12.7 million, respectively. Amortization
expense on finite-lived intangible assets is expected to total $21.1 million,
$21.3 million, $20.0 million, $7.9 million, and $5.3 million in 2002, 2003,
2004, 2005, and 2006, respectively.

10. MORTGAGE BANKING

Mortgage banking revenue includes conforming mortgage loan servicing,
origination, and sales activity conducted through the Corporation's wholly-owned
subsidiary, National City Mortgage Co., and the Corporation's banking
affiliates, as well as nonconforming mortgage loan origination and sales
activity conducted through National City's consumer finance subsidiary, First
Franklin Financial Corporation. Details of mortgage banking revenue follow:

Conforming and nonconforming residential mortgage loans originated for sale
to third parties and sales follows:

19

National City's portfolio of residential mortgage loans serviced for third
parties was $98.4 billion at September 30, 2002, compared to $73.9 billion at
December 31, 2001, and $70.1 billion at September 30, 2001.

The net carrying value of mortgage servicing assets follows:

Changes in the carrying value of mortgage servicing assets follows:

During the first nine months of 2002, the Corporation reduced the carrying
value of its mortgage servicing asset portfolio through $121.1 million of
impairment charges and $685.7 million of SFAS 133 hedge basis adjustments. These
write downs reflected a decline in the estimated fair value of the assets as a
result of higher than anticipated mortgage loan prepayments fueled by the low
interest rate environment. The fair value of mortgage servicing assets is
determined by calculating the present value of estimated future net cash flows,
taking into consideration actual and expected mortgage loan prepayment rates,
discount rates, servicing costs, and other economic factors. Increases in
expected and actual mortgage loan prepayments, the most significant factors
driving the value of mortgage servicing assets, reduce estimated future net
servicing cash flows because the underlying life of the loan is reduced.

At September 30, 2002, key economic assumptions and the sensitivity of the
current fair value of mortgage servicing assets to immediate 10% and 20% adverse
changes in those assumptions are presented in the table that follows. These
sensitivities are hypothetical and should be used with caution. As the figures
indicate, 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 mortgage servicing
asset is calculated independently without changing any other assumption. In
reality, changes in one factor may result in changes in another (for example,
changes in prepayment rate estimates could result in changes in the discount
rates), which might magnify or counteract the sensitivities.

The key economic assumptions used in determining the fair value of mortgage
servicing assets capitalized in the first nine months of 2002 were as follows:
- ------------------------------------------------------------

Weighted-average prepayment rate (annual CPR)........ 17.57%
Weighted-average life (in years)..................... 4.3
Weighted-average discount rate....................... 10.88%

- ------------------------------------------------------------
CPR: Constant prepayment rate

Risk associated with declines in the estimated fair value of mortgage
servicing assets due to increases in mortgage loan prepayments is managed using
a variety of derivative instruments intended to increase in value when interest
rates decline. During the first nine months of 2002, derivative instruments used
to protect the value of the mortgage servicing assets generated a net gain of
$969.3 million, more than offsetting the impairment charges and SFAS 133 hedge
losses recorded for the same period. This net gain was recorded within mortgage
banking revenue on the income statement. Of the total net gain recognized,
$946.2 million related to derivative instruments which were included in SFAS 133
hedge relationships with specific mortgage servicing assets during the
year-to-date period, while $23.0 million represented net gains from derivatives
that were also used to protect the value of the servicing assets but were not
included in a SFAS 133 hedge relationship for some period of time, primarily due
to the timing of purchase. The Corporation typically strives to include the
derivative instruments it uses to protect the value of the mortgage servicing
assets in SFAS 133 hedge relationships in order to record gains and losses on
both the mortgage servicing assets and derivative instruments simultaneously in
the income statement. Mortgage servicing assets not included in SFAS 133
relationships cannot be written up above their initial carrying value, adjusted
for amortization, limiting the amount of gains

20

that can be recognized to offset losses on the derivative instruments, which are
always carried at fair value. At September 30, 2002, the net fair value of
derivative instruments used to protect the value of the mortgage servicing
assets totaled $395.0 million and was included in other assets on the balance
sheet. Notes 1 and 19 provide further discussion on how derivative instruments
are accounted for, the nature of the derivative instruments used by the
Corporation, the risks associated with the use of derivative instruments, and
ineffective hedge and other gains and losses generated by derivative instruments
during the current and prior year. The interest rate risk associated with
mortgage servicing assets is closely monitored and reported on monthly as part
of the Corporation's overall interest rate risk management process.
11. BORROWED FUNDS

U.S. Treasury demand notes represent secured borrowings from the U.S.
Treasury. These borrowings are collateralized by qualifying securities and
commercial and residential real estate loans. The funds are placed with the
Corporation's subsidiary banks at the discretion of the U.S. Treasury and may be
called at any time.
12. LONG-TERM DEBT

The amounts above represent the par value of the debt adjusted for any
unamortized discount or other basis adjustments related to hedging the debt with
derivative instruments. The Corporation uses derivative instruments, primarily
interest rate swaps, to manage interest rate risk by hedging the fair value of
certain fixed-rate debt by effectively converting the debt to variable rate and
by hedging the cash flow variability associated with certain variable-rate debt
by effectively converting the debt to fixed rate. Further discussion on
derivative instruments is included in Notes 1 and 19.
At September 30, 2002, the par values of subordinated debt, senior bank
notes, and long-term advances from the Federal Home Loan Bank (FHLB) totaled
$3,485.0 million, $13,396.0 million and $3,740.8 million, respectively.
All subordinated notes of the parent company and bank subsidiaries were
issued at fixed rates, pay interest

21

semi-annually, and may not be redeemed prior to maturity. At September 30, 2002,
$2,325.0 million of fixed-rate subordinated debt was effectively converted to
variable-rate debt based on the three-month London Interbank Offering Rate
(LIBOR) through the use of interest rate swaps.
At September 30, 2002, senior bank notes totaling $2,197.0 million were
contractually based on a fixed rate of interest and $11,199.0 million were
contractually based on a variable rate of interest. The weighted-average
contractual interest rates for fixed- and variable-rate senior bank notes at
September 30 were 2.99% and 2.06%, respectively. Through the use of interest
rate swaps, as of September 30, $1,130.0 million of the fixed-rate senior bank
notes had been effectively converted to variable-rate notes based on either the
one- or three- month LIBOR rate or the Federal Funds rate and $2,950.0 million
of the variable-rate senior bank notes had been effectively converted to
fixed-rate notes with a weighted average fixed rate of 4.20%. Additionally, $1.0
billion of variable rate senior bank notes were capped at a rate of 4.15%
through the use of an interest rate cap.
FHLB advances at September 30, 2002 contractually consisted of $190.8
million of fixed-rate obligations and $3,550.0 million of variable-rate
obligations. The weighted-average contractual interest rates for fixed-and
variable-rate advances at September 30 were 5.67% and 1.75%, respectively.
Through the use of interest rate swaps, as of September 30, fixed-rate advances
with a par value of $100.0 million had been effectively converted to a variable
rate based on one-month LIBOR and variable-rate advances with a par value of
$1,300.0 million had been effectively converted to fixed-rate advances with a
weighted-average fixed rate of 3.42%. FHLB advances are collateralized by
qualifying residential real estate loans.
A credit agreement dated April 12, 2001, as amended, with a group of
unaffiliated banks allows the Corporation to borrow up to $375 million until
April 12, 2005 with a provision to extend the expiration date under certain
circumstances. The Corporation pays a variable annual facility fee based on the
Corporation's long-term debt rating. The fee is currently ten basis points on
the amount of the credit facility. There were no borrowings outstanding under
this agreement at September 30, 2002.

13. CORPORATION-OBLIGATED MANDATORILY REDEEMABLE CAPITAL SECURITIES OF
SUBSIDIARY TRUSTS HOLDING SOLELY DEBENTURES OF THE CORPORATION

The composition of capital securities follows:

The corporation-obligated mandatorily redeemable capital securities (the
capital securities) of subsidiary trusts holding solely junior subordinated debt
securities of the Corporation (the debentures) were issued by two statutory
business trusts, First of America Capital Trust I and Fort Wayne Capital Trust
I, of which 100% of the common equity in each of the trusts is owned by the
Corporation. The trusts were formed for the purpose of issuing the capital
securities and investing the proceeds from the sale of such capital securities
in the debentures. The debentures held by each trust are the sole assets of that
trust. Distributions on the capital securities issued by each trust are payable
semiannually at a rate per annum equal to the interest rate being earned by the
trust on the debentures held by that trust and are recorded as interest expense
by the Corporation. 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 First of America Capital Trust I and Fort Wayne
Capital Trust I qualify as Tier 1 capital under Federal Reserve Board guidelines
and are first redeemable, in whole or in part, by the Corporation on January 31,
2007 and April 15, 2007, respectively.

14. REGULATORY RESTRICTIONS AND CAPITAL RATIOS

The Corporation and its banking subsidiaries are subject to various
regulatory capital requirements that involve quantitative measures of assets,
liabilities, and certain off-balance-sheet items as calculated under regulatory
accounting practices. The capital amounts and classification of risk-weighted
assets 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 the
Corporation's financial position, operations, and liquidity.
The table below reflects regulatory and various other measures of capital:

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 interest, less unrealized gains and losses accumulated in other
comprehensive

22

income, certain intangible assets and adjustments related to the valuation of
mortgage servicing assets.
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 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 excludes certain
intangible and mortgage servicing assets.
National City's Tier 1, total risk-based capital and leverage ratios for the
current period are based on preliminary data. Such ratios are above the required
minimum levels of 4.00%, 8.00%, and 3.00%, respectively.
The capital levels at all of National City's subsidiary banks are maintained
at or above the well-capitalized minimums of 6.00%, 10.00%, and 5.00% for the
Tier 1 capital, total risk-based capital, and leverage ratios, respectively.
As of September 30, 2002, December 31, 2001, and September 30, 2001,
National City and each of its affiliate banks were categorized as
well-capitalized under the regulatory framework for prompt corrective action.
There are no conditions or events since September 30, 2002 that management
believes have changed any subsidiary bank's capital category. Under current
Federal Reserve regulations, the banking subsidiaries are limited in the amount
they may loan to the parent company and its nonbank subsidiaries. Loans to a
single affiliate may not exceed 10% and loans to all affiliates may not exceed
20% of the bank's capital stock, surplus and undivided profits, plus the
allowance for loan losses. Loans from subsidiary banks to nonbank affiliates,
including the parent company, are also required to be collateralized.

15. STOCKHOLDERS' EQUITY

A summary of outstanding shares of the Corporation's preferred and common
stock follows:

National City's preferred stock had a stated value of $50 per share. On
August 30, 2002, the Corporation redeemed all preferred shares outstanding at a
redemption price of $50.50137 per share, representing a total cost of $37,119.
Prior to redemption, holders of preferred shares had the right at their option,
to convert each share of preferred into 3.0291 shares of National City common
stock at any time through August 20, 2002. The holders of the preferred shares
were entitled to receive cumulative preferred dividends payable quarterly at the
annual rate of 6%.
On January 1, 2001, the Corporation recorded a transition loss of $26.0
million after tax, presented as a cumulative effect of a change in accounting
principle, associated with establishing the fair values of derivatives
designated into cash flow hedging relationships on the balance sheet in
accordance with the adoption of SFAS 133.
In October 1999, the Corporation's Board of Directors authorized the
repurchase of up to 30 million shares of National City common stock, subject to
an aggregate purchase limit of $1.0 billion. Shares repurchased will be held for
reissue in connection with the Corporation's stock compensation plans and for
general corporate purposes. During the first nine months of 2001, the
Corporation repurchased 9.3 million shares of its common stock. There were no
shares repurchased by the Corporation during the first nine months of 2002 and
as of September 30, 2002, 15.6 million shares remained authorized for repurchase
under the October 1999 repurchase authorization. In the month of October and
first half of November of 2002, the Corporation repurchased 798,900 shares of
its common stock.

23

A summary of activity in accumulated other comprehensive income follows:

16. INCOME TAX EXPENSE

The composition of income tax expense follows:

The effective tax rate was 33.6% and 36.6% for the nine months ended
September 30, 2002 and 2001, respectively. Income tax expense for the first nine
months of 2001 included a $40.0 million charge related to tax exposure for
corporate-owned life insurance deductions. See Note 17 for further discussion.

17. COMMITMENTS, CONTINGENT LIABILITIES, AND RELATED PARTY TRANSACTIONS

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

Commitments to extend credit are agreements to lend, generally having fixed
expiration dates or other termination clauses that may require payment of a fee.
Since many of the commitments to extend credit may expire without being drawn
upon, the total commitment amounts do not necessarily represent future cash flow
requirements. Fixed-rate commitments are subject to market risk resulting from
fluctuations in interest rates, and the Corporation's exposure is limited to the
replacement value of those contracts. Certain lending commitments for conforming
residential mortgage loans to be sold into the secondary market are considered
derivative instruments under the guidelines of SFAS 133. The changes in the fair
value of these commitments due to interest rate risk are recorded on the balance
sheet as either derivative assets or derivative liabilities and are included in
other loans in the table above. Further discussion on derivative instruments is
included in Notes 1 and 19.
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 also enters into forward contracts for the future delivery
or purchase of fixed-rate conforming residential mortgage loans and mortgage-
backed securities at a specified interest rate to reduce the interest rate risk
associated with loans held for sale, commitments to fund loans, and mortgage
servicing assets. These contracts are also considered derivative instruments
under SFAS 133 and changes in the fair value of these contracts due to interest
rate risk are recorded on the balance sheet as either derivative assets or
derivative liabilities. Further discussion on derivative instruments is included
in Notes 1 and 19.

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Under an agreement with the formerly unconsolidated asset-backed commercial
paper conduit, National City had commitments to provide liquidity to the conduit
in the event funding could not be readily accessed in the commercial paper
market. The Corporation also provided standby letters of credit to the conduit
to provide partial credit protection to commercial paper holders. As a result of
the consolidation of the conduit, National City no longer has liquidity and
standby letter of credit commitments to third parties related to the conduit as
of September 30, 2002. At December 31, 2001, the Corporation had conduit-related
liquidity and letter of credit commitments of $3.6 billion and $18.5 million,
respectively. Liquidity and letter of credit commitments at September 30, 2001
were $3.4 billion and $47.0 million, respectively. Further discussion of the
consolidation of the asset-backed commercial paper conduit is included in Note
5.
The Corporation also has principal investment commitments, which represent
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, the period 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.
National City also has commitments under long-term operating leases, which
are discussed in Note 9 to the Corporation's 2001 Form 10-K and have not
materially changed since December 31, 2001.
CONTINGENT LIABILITIES: During late 1999, the Corporation was notified by
the Internal Revenue Service (IRS) of adjustments relating to its
corporate-owned life insurance (COLI) programs proposed in the Revenue Agent's
Reports for the Corporation's Federal income tax returns for the years 1990
through 1995. These proposed adjustments involved the disallowance of certain
deductions, which, with the expected effect on tax returns for years subsequent
to 1995, represented an exposure for tax and interest of approximately $200
million. In the first quarter of 2000, the Corporation made payments of taxes
and interest attributable to COLI interest deductions for years 1990 through
1995 to avoid the potential assessment by the IRS of any additional above-market
rate interest on the contested amount. The payments to the IRS were included on
the balance sheet in other assets pending the resolution of this matter. In
February 2001, the Corporation recorded a $40.0 million charge related to the
tax exposure on the COLI deductions. Subsequently, in May 2001, the Corporation
reached a final settlement through negotiations with the IRS for all tax years
containing such deductions. The first quarter charge when combined with previous
accruals covered the full settlement amount. There were no other impacts on
operations in 2000 and 2001 and the Corporation has no further balance sheet or
income statement exposure related to this matter.
The Corporation, and its subsidiary National City Bank of Kentucky, through
merchant card services provided by the Corporation's National Processing
subsidiary and under the rules governing VISA(R) and MasterCard(R) transactions,
may be contingently liable for certain amounts disputed between a customer and a
merchant for which National Processing credits or refunds the customer but is
unable to collect the amount from the merchant due to liquidation or other
reasons. In most cases, a contingent liability is unlikely to arise because most
products and services are delivered when purchased, and credits are issued on
returned items. However, where the product or service is not provided until some
later time following the purchase, a contingent liability could be more likely
in the event National Processing is unable to collect from the merchant.
National Processing processes card transactions for several of the largest
airlines in the United States of America. National Processing could become
financially responsible for refunding tickets purchased from these airlines.
Based upon information currently available to the Corporation and actions
management has taken to mitigate this risk, management currently believes a
material loss under the governing rules is unlikely.
National City and its subsidiaries are also 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. It is
management's opinion that the Corporation's 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.
RELATED PARTY TRANSACTIONS: The Corporation has no material related party
transactions which would require disclosure. The Corporation may extend credit
to certain officers and directors of the Corporation and its banking
subsidiaries in the ordinary course of business, and under substantially the
same terms as comparable third party lending arrangements, and in compliance
with applicable banking regulations.

25

18. NET INCOME PER SHARE

The calculation of net income per common share follows:

Basic net income per common share is calculated by dividing net income, less
dividend requirements on convertible preferred stock, by the weighted-average
number of common shares outstanding for the period.
Diluted net income per common share takes into consideration the pro forma
dilution assuming the Corporation's outstanding convertible preferred stock and
in-the-money outstanding stock options were converted or exercised into common
shares. Net income is not adjusted for preferred dividend requirements since the
preferred shares are assumed to be converted at the beginning of the period. The
average price of the Corporation's common stock for the period is used to
determine the dilutive effect of outstanding stock options.

19. 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 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 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.
The Corporation's primary market risk is interest rate risk. Market risk is
the risk of loss arising from an adverse change in interest rates, exchange
rates, and equity prices. 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 primarily include
interest rate swaps, interest rate futures, forward agreements, and interest
rate caps and floors with indices that relate to the pricing of specific assets
and liabilities. The nature and volume of the derivative instruments used to
manage interest rate risk depend on the level and type of assets and liabilities
on the balance sheet and the risk management strategies for the current and
anticipated rate environments.
SFAS 133 requires all derivative instruments to be carried at fair value on
the balance sheet. SFAS 133 provides special hedge accounting provisions. These
provisions permit the change in the fair value of the hedged item related to the
risk being hedged to be recognized in earnings in the same period and in the
same income statement line as the change in fair value of the derivative. Note 1
provides further detail on how derivative instruments are accounted for in the
financial statements. The Corporation usually designates derivative instruments
used to manage interest rate risk into SFAS 133 hedge relationships with the
specific assets, liabilities, or cash flows being hedged. Some derivative
instruments used for interest rate risk management are not designated in a SFAS
133 hedge relationship. Such will be the case if the derivative instrument is
being used to offset risk related to an asset or liability that is accounted for
at fair value in the financial statements, if the derivative instrument has been
moved out of a SFAS 133 relationship because the hedge was deemed not effective,
or if operational or cost constraints make it prohibitive to apply hedge
accounting.
As with any financial instrument, derivative instruments have inherent
risks, primarily market and credit risk. Market risk associated with changes in
interest rates is managed by establishing and monitoring limits as to the degree
of risk that may be undertaken as part of the Corporation's overall market risk
monitoring process carried out by the Asset/Liability Management Committee. See
further discussion of this process in the Market Risk section of the Financial
Review.
Credit risk occurs when a counterparty to a derivative contract with an
unrealized gain fails to perform according to the terms of the agreement. Credit
risk is managed by limiting the aggregate amount of net unrealized gains in
agreements outstanding, monitoring the size and the maturity structure of the
derivative portfolio, applying uniform credit standards to all activities with
credit risk, and collateralizing gains. The Corporation has established
bilateral collateral agreements with its major derivative dealer counterparties
that provide for exchanges of marketable securities or cash to collateralize
either party's net gains. At September 30, 2002, these collateral

26

agreements covered 99.3% of the notional amount of the total derivative
portfolio, excluding futures, and forward commitments to sell or purchase
mortgage loans or mortgage-backed securities, and customer derivative contracts,
and the Corporation held cash, U.S. government, and U.S. government-sponsored
agency securities with a fair value of $420.4 million to collateralize net gains
with counterparties. The Corporation had also pledged and delivered to
counterparties U.S. government and U.S. government-sponsored agency securities
with a fair value of $41.0 million to collateralize net losses with
counterparties. The Corporation typically does not have collateral agreements
covering open forward commitments to sell or purchase mortgage loans or
mortgage-backed securities due to the fact these contracts usually mature within
90 days. Open futures contracts are also not covered by collateral agreements
because the contracts are cash settled with counterparties daily. The credit
risk associated with derivative instruments executed with the Corporation's
commercial banking customers is essentially the same as that involved in
extending loans and is subject to normal credit policies. Collateral may be
obtained based on management's assessment of the customer.
Derivative contracts are valued using observable market prices, if
available, or cash flow projection models acquired from third parties. Pricing
models used for valuing derivative instruments are regularly validated by
testing through comparison with other third parties. The 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
September 30, 2002 and December 31, 2001.
Derivative assets and liabilities are included within other assets and other
liabilities, respectively, on the Corporation's balance sheet.
FAIR VALUE HEDGES: The Corporation primarily uses interest rate swaps,
interest rate futures, interest rate caps and floors, interest rate forwards and
forward purchase commitments to hedge the fair values of mortgage servicing
assets, certain fixed-rate residential and commercial loans, and U.S. Treasury
securities for changes in interest rates.
The Corporation also uses receive-fixed interest rate swaps to hedge the
fair values of certain fixed-rate funding products against changes in interest
rates. The funding products hedged include purchased deposits, long-term FHLB
advances, corporate and subordinated long-term debt, and senior bank notes.
The tables on the following pages provide further information regarding the
derivative instruments designated in fair value hedge relationships at September
30, 2002 and December 31, 2001.
For the three and nine months ended September 30, 2002, the Corporation
recognized total net ineffective fair value hedge gains of $145.3 million and
$310.5 million, respectively. For the same periods in 2001, the Corporation
recognized total net ineffective hedge gains of $24.3 million and $26.0 million,
respectively. Of the total gains recognized, net ineffective hedge gains related
to mortgage loans held for sale and servicing assets were $142.0 million and
$301.0 million for the three and nine months ended September 30, 2002,
respectively, compared to $24.4 million and $28.3 million for the same periods
in 2001. Ineffective hedge gains (losses) for these hedged assets are included
in mortgage banking revenue on the income statement. Net ineffective hedge gains
related to hedging commercial loans, U.S. Treasury securities, and fixed-rate
funding products are included in other noninterest income on the income
statement and totaled $3.3 million and $9.5 million for the three and nine
months ended September 30, 2002, respectively. Net ineffective hedge losses
related to these hedged assets and liabilities were $.1 million and $2.3 million
for the same periods in 2001, respectively. There were no components of
derivative instruments which were excluded from the assessment of hedge
ineffectiveness during the first nine months of 2002 and 2001.
CASH FLOW HEDGES: The Corporation hedges cash flow variability related to
variable-rate funding products, specifically FHLB advances and senior bank
notes, through the use of pay-fixed interest rate swaps and interest rate caps.
The Corporation also holds pay-fixed interest rate swaps and caps to hedge
forecasted cash flows associated with debt instruments expected to be issued
subsequent to 2002.
Pay-fixed interest rate swaps and interest rate futures were entered into in
2001 to hedge the cash flows expected from the forecasted sale through
securitization of certain fixed-rate automobile loans classified as held for
securitization on the Corporation's balance sheet as of December 31, 2001. The
automobile loans were sold through securitization in the first quarter of 2002.
See Note 4 for further discussion of the automobile loan securitization.
For the three and nine months ended September 30, 2002, the Corporation
recognized net ineffective cash flow hedge gains (losses) of $.3 million and
$(.3) million, respectively. For the same periods in 2001, net ineffective cash
flow hedge losses were $.3 million and $.4 million, respectively. These losses
are included in other noninterest income on the income statement. There were no
components of derivative instruments which were excluded from the assessment of
hedge ineffectiveness during the first nine months of 2002 and 2001.
Gains and losses on derivative instruments 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 September 30, 2002 and
2001, accumulated other comprehensive income included a deferred after-tax net
loss of $99.8 million and $106.8 million, respectively, related to derivatives
used to hedge funding cash flows. See Note 15 for further detail of the amounts
included in accumulated other comprehensive income. The net after-tax derivative
loss included in other comprehensive income as of September 30, 2002 is
projected to be reclassified into interest expense in conjunction with the
recognition of interest payments on funding products through June 2005, with
$91.5 million of net loss expected to be reclassified within the next year. For
the three and nine months ended September 30, 2002, pretax losses of $42.6
million and $129.8 million, respectively, were reclassified into interest
expense as

27

adjustments to interest payments on variable-rate funding products. For the same
2001 periods, pretax losses of $23.1 million and $38.4 million, respectively,
were reclassified into interest expense. Also during the first nine months of
2002, pretax gains of $2.0 million were reclassified into other noninterest
income as part of the gain on the automobile loan securitization. There were no
gains or losses reclassified into earnings during the first nine months of 2002
or 2001 arising from the determination that the original forecasted transaction
would not occur.
OTHER DERIVATIVE ACTIVITIES: The Corporation's derivative portfolio also
includes derivative instruments not included in SFAS 133 hedge relationships.
Those derivatives include purchased derivatives, primarily swaps, futures, and
forwards, used for interest rate, foreign currency, and other risk management
purposes, as well as mortgage banking loan commitments defined as derivatives
under SFAS 133, and derivatives executed with customers, primarily interest rate
swaps and options, to facilitate their interest rate risk management strategies.
The Corporation generally does not enter into derivative transactions for purely
speculative purposes. Gains and losses on mortgage banking related derivative
instruments are included in mortgage banking revenue on the income statement,
while gains and losses on other non-SFAS 133 derivative instruments are included
in other noninterest income. A summary of non-SFAS 133 derivative instruments by
type of activity follows:

28

Summary information regarding the interest rate derivatives portfolio used
for interest-rate risk management purposes and designated as accounting hedges
under SFAS 133 at September 30, 2002 and December 31, 2001 follows:

(a) Represents net ineffective hedge gain (loss) on hedging strategy for the
nine and twelve-month periods ended September 30, 2002 and December 31,
2001, respectively

29

20. LINE OF BUSINESS RESULTS

National City operates six major lines of business: retail sales and
distribution, wholesale banking, consumer finance, asset management, National
City Mortgage, and National Processing.
Retail Sales and Distribution is engaged in full-service retail banking,
including deposit gathering and direct consumer lending, in all six states of
the National City footprint. In addition to retail banking, the business also
includes small business banking, electronic and telephone banking, insurance,
and bank branch mortgage origination. Major drivers of revenue include interest
spread on loan and deposit accounts, deposit account service fees, debit card
interchange fees, mortgage revenue, ATM surcharge and net interchange fees,
insurance revenue, and other miscellaneous loan fees. The business' expense base
is primarily comprised of personnel expenses and costs to support the branch
network.
Wholesale Banking provides credit-related and treasury management products,
as well as capital markets and international services to large- and medium-sized
corporations. Major products and services include: lines of credit, term loans,
leases, investment real estate lending, asset-based lending, structured finance,
syndicated lending, equity and mezzanine capital, treasury management services,
and international payment and clearing services. The majority of revenue is
driven by loans to middle-market companies with annual revenue in the $5-500
million range across a diverse group of industries.
Consumer Finance is engaged in the following lines of business: dealer
finance, education finance, home equity lending, credit card, and nonconforming
mortgage lending. With the exception of the mortgage-related businesses, which
are national in scope, the other businesses within Consumer Finance operate
primarily within National City's six-state footprint. Consumer financial
products offered through this line of business include indirect automobile,
marine, and RV loans, government or privately guaranteed student loans, and
credit cards. Mortgage products offered include fixed and variable rate home
equity loans and nonconforming residential real estate loans, of which the
nonconforming residential real estate loans are offered through National City's
subsidiary First Franklin Financial Corporation.
The Asset Management business is comprised of both institutional asset and
personal wealth management. The institutional asset management business provides
investment management, custody, retirement planning services, bond
administration and other corporate trust services to institutional clients. The
clients served are primarily publicly traded corporations, charitable endowments
and foundations, as well as unions, residing primarily in National City's
six-state footprint and generally complementing its corporate banking
relationships. Personal wealth management services are provided by three
business units -- Private Client Group, NatCity Investments, Inc. and Sterling.
Products and services include private banking services and tailored credit
solutions; customized investment management services; brokerage; estate and tax
planning, as well as trust management and administration for affluent
individuals and families. Sterling offers family office, financial management
services, and alternative investments for high net worth clients.
National City's wholly-owned subsidiary, National City Mortgage Co.
originates, sells, and services conforming residential real estate loans. Loans
are originated through a number of different channels including National City's
banking subsidiaries, retail branch offices of National City Mortgage, a
servicing portfolio retention group, correspondent relationships, and through a
network of brokers, realtors, and builders. Wholesale production accounted for
about 55% of total originations in 2002, followed by 35% in retail. Major
sources of revenue include income associated with loan originations and sales,
net interest income earned on loans from the time of origination until sale, and
servicing fee income net of mortgage servicing asset amortization/impairment.
Expenses are comprised of labor and non-labor costs associated with those
activities.
National Processing consists of National Processing, Inc., National City's
85%-owned payment processing subsidiary. National Processing has two business
lines, Merchant Card Services, which represents 95% of the business line's
revenue, and Payment Services, which represents 5% of the business line's
revenue. Merchant Card Services authorizes, processes, and performs financial
settlement and reporting of card transactions, including credit, debit, and
electronic benefits transfer. Payment Services provides financial settlement and
reporting solutions to large and mid-size corporate customers in the travel and
healthcare industries. Payment Services settles 100% of domestic airline tickets
issued by travel agencies and settled through the Airlines Reporting
Corporation. Payment Services also settles commission payments for car rental
companies, cruise line operators, and hotels.
The business units are identified by the product or services offered and the
channel through which the product or service is delivered. The reported results
reflect the underlying economics of the businesses. Expenses for centrally
provided services are allocated based upon estimated usage of those services.
The business units' assets and liabilities are match-funded and interest rate
risk is centrally managed as part of investment funding activities. Asset
securitizations are also considered investment funding activities and the
effects of such securitizations are included within the parent and other
category. The assets sold through securitization continue to be reflected as
owned by the business unit that manages those assets. Asset sales and other
transactions between business units are primarily conducted at fair value,
resulting in gains or losses that are eliminated for reporting consolidated
results of operations. Parent and other is primarily comprised of the results of
investment funding activities, including asset securitization activities,
intersegment revenue (expense) eliminations, and unallocated corporate income
and expense. The intersegment revenue (expense) amounts presented in the tables
relate to either services provided or asset sales between the operating
segments. The amounts do not include reimbursements related to expense
allocations and the effects of centrally managing interest rate risk. The

30

accounting policies of the individual business units are the same as those of
the Corporation. Prior period amounts have been restated to conform with the
current period's presentation.
During the third quarter of 2002, several organizational changes were
announced, which will result in changes in the business structure and
presentation of the lines of business. Further discussion of these
organizational changes and the operating results of the business units based
upon the organizational structure in place at September 30, 2002, can be found
in the Line of Business Results section of the Financial Review. National City
intends to begin reporting under the new alignment in the fourth quarter of
2002. Selected financial information by line of business is included in the
tables below.

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

31

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

32

FINANCIAL REVIEW
This financial review discusses the financial condition and results of
operations of National City Corporation for the three and nine months ended
September 30, 2002 and serves to update the Corporation's 2001 Annual Report on
Form 10-K, as amended (Form 10-K). The financial review should be read in
conjunction with the financial information contained in the Form 10-K and in the
accompanying consolidated interim financial statements and notes presented on
pages 4 through 32 of this Form 10-Q.
This quarterly report contains certain forward-looking statements (as
defined in the Private Securities Reform Act of 1995), which reflect
management's beliefs and expectations based on information currently available.
These forward-looking statements are inherently subject to significant risks and
uncertainties, including changes in general economic and financial market
conditions, the Corporation's ability to effectively carry out its business
plans, changes in regulatory or legislative requirements, changes in competitive
conditions, continuing consolidation in the financial services industry, and
pending or threatened litigation. Although management believes the expectations
reflected in such forward-looking statements are reasonable, actual results may
differ materially.
APPLICATION OF CRITICAL ACCOUNTING POLICIES
National City's consolidated financial statements are prepared in
accordance with accounting principles generally accepted in the United States of
America and follow general practices within the industries in which it operates.
Application of these principles requires management to make estimates,
assumptions, and judgments that affect the amounts reported in the financial
statements and accompanying notes. These estimates, assumptions, and judgments
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, assumptions, and judgments. Certain policies inherently
have a greater reliance on the use of estimates, assumptions, and judgments and
as such have a greater possibility of producing results that could be materially
different than originally reported. Estimates, assumptions, and judgments are
primarily 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
on 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
third-party sources, when available. When third-party information is not
available, valuation adjustments are estimated in good faith by management
primarily through the use of internal cash flow modeling techniques. The most
significant accounting policies followed by the Corporation are presented in
Note 1 to the consolidated financial statements. These policies, along with the
disclosures presented in the other financial statement notes and in this
financial review, provide information on how significant assets and liabilities
are valued in the financial statements and how those values are determined.
Based on the valuation techniques used and the sensitivity of financial
statement amounts to the methods, assumptions, and estimates underlying those
amounts, management has identified the determination of the allowance for loan
losses, the valuation of retained interests, including mortgage and other
servicing assets, the valuation of derivative instruments, and the valuation of
leased asset residuals to be the accounting areas that require the most
subjective or complex judgments, and as such could be most subject to revision
as new information becomes available. Any material effect on the financial
statements during the first nine months of 2002 related to these critical
accounting areas is discussed in this financial review. In addition, the
sensitivities of valuations to adverse changes in the factors and assumptions
used in estimating certain fair values are discussed in the notes to the
consolidated financial

33

statements. The remainder of this financial review should be read in conjunction
with the consolidated financial statements and related notes presented on pages
4 through 32.
RECENT ACCOUNTING PRONOUNCEMENTS AND DEVELOPMENTS
Note 2 to the consolidated financial statements discusses new accounting
policies adopted by the Corporation during 2002 and the expected impact of
accounting policies recently issued but not yet required to be adopted. To the
extent the adoption of new accounting standards materially affects the
Corporation's financial condition, results of operations, or liquidity, the
impacts are discussed in the applicable section(s) of this financial review.
Effective January 1, 2003, the Corporation plans to adopt the fair value
method of recording stock options under the existing transitional guidance of
SFAS 123, Accounting for Stock-Based Compensation. This method of accounting for
stock options will be applied prospectively to awards granted subsequent to
January 1, 2003. As permitted by SFAS 123, the pro forma impact of options
granted prior to January 1, 2003 will continue to be accounted for under APB
Opinion 25, Accounting for Stock Issued to Employees, and disclosed in the
financial statement footnotes until the last of those options vest in 2005.
National City estimates the income statement impact associated with expensing
stock options will be approximately $.02 per diluted share in 2003, assuming
options are granted in 2003 at a similar level and under similar market
conditions to 2002. As the cost of expensing anticipated future options is
phased in over a four-year period, the annual impact will rise to approximately
$.10 per diluted share assuming options are granted in future years at a similar
level and under similar market conditions to 2002. The actual impact per diluted
share may vary in the event the fair value or the number of options granted
increases or decreases from the current estimate, or if the current accounting
guidance changes. National City uses the Black-Scholes model to estimate option
values.

EARNINGS SUMMARY
Net income for the third quarter and first nine months of 2002 was $374.2
million and $1.2 billion, respectively, compared to net income of $356.6 million
and $1.0 billion, respectively, for the same periods in 2001. Net income per
diluted share was $.61 for the 2002 third quarter, up from $.58 per diluted
share in the third quarter last year. Net income per diluted share for the first
nine months of 2002 was $1.97, up from $1.70 during the first nine months of
2001.
Returns on average common equity and average assets were 18.1% and 1.47%,
respectively, for the third quarter of 2002, compared to 19.9% and 1.50%,
respectively, for the third quarter of 2001. Year-to-date returns on average
common equity and average assets in 2002 were 20.6% and 1.62%, respectively,
versus 20.3% and 1.52%, respectively, in 2001.
Over the past three years, several strategic initiatives were undertaken to
improve the financial strength and performance of National City. Most
significant among these initiatives were balance sheet restructuring efforts
which focused on retaining assets with the highest risk-adjusted returns.
Specifically, National City began to retain on its balance sheet high-quality
nonconforming mortgages originated through its subsidiary, First Franklin
Financial Corporation (First Franklin), sold low-margin adjustable-rate
mortgages and student loans, and securitized credit card receivables. These
actions helped to improve capital efficiency and the net interest margin. In
December 2000, National City also ceased origination of retail automobile leases
and exited the wholesale non-prime mortgage origination businesses operated
through its Altegra Credit Company subsidiary.
From a business line perspective, National City has focused on improving
its products and service quality levels consistent with the formal adoption of
its Customer Champion Brand Promise in 2000: "National City Cares About Doing
What's Right for Our Customers." Efforts have included measurement and
improvement of service quality, increased investment in customer-focused
products and technologies, and the establishment of the National City Institute
to deepen employee training on our brand and culture. Accompanying these
infrastructure investments has been renewed emphasis on creating long-term
customer relationships by providing a full array of financial products and
services to meet the needs of individual and business customers through their
personal and business lifecycles. Tangible evidence of this focus has been a
move toward market-driven

34

deposit account rates, initiation of free checking, development of an improved
retail asset management account, improved small business cash management
products, and development of investment banking expertise to complement strong
middle market relationship competencies.
Benefits from these initiatives, combined with the record levels of
mortgage banking activity resulting from the historically low interest rate
environment, along with favorable lending spreads, led to strong financial
results in 2002.

TABLE 1: AVERAGE EARNING ASSETS

Three Months Ended
---------------------------------
SEPT. 30 June 30 Sept. 30
(In Millions) 2002 2002 2001
- -----------------------------------------------------------------------------------------------
Portfolio loans............................................. $68,945 $67,930 $68,461
Loans held for sale or securitization....................... 11,851 10,343 8,780
Securities (at cost)........................................ 8,336 8,660 8,276
Other....................................................... 882 864 580
------- ------- -------
Total earning assets...................................... $90,014 $87,797 $86,097
======= ======= =======

TABLE 2: AVERAGE SOURCES OF FUNDING

Three Months Ended
---------------------------------
SEPT. 30 June 30 Sept. 30
(In Millions) 2002 2002 2001
- -----------------------------------------------------------------------------------------------
Noninterest bearing deposits................................ $13,864 $12,760 $11,611
Interest bearing core deposits.............................. 38,671 37,950 36,301
------- ------- -------
Total core deposits..................................... 52,535 50,710 47,912
Purchased deposits.......................................... 8,846 8,834 10,851
Short-term borrowings....................................... 9,582 8,499 10,533
Long-term debt and capital securities....................... 18,985 19,432 16,475
------- ------- -------
Total purchased funding................................. 37,413 36,765 37,859
Stockholders' equity........................................ 8,218 7,886 7,106
------- ------- -------
Total funding........................................... $98,166 $95,361 $92,877
======= ======= =======
Total interest bearing liabilities...................... $76,084 $74,715 $74,160
======= ======= =======

TABLE 3: PERCENTAGE COMPOSITION OF AVERAGE FUNDING SOURCES

Three Months Ended
---------------------------------
SEPT. 30 June 30 Sept. 30
2002 2002 2001
- -----------------------------------------------------------------------------------------------
Core deposits............................................... 53.5% 53.2% 51.6%
Purchased deposits.......................................... 9.0 9.3 11.7
Short-term borrowings....................................... 9.8 8.9 11.3
Long-term debt and capital securities....................... 19.3 20.3 17.7
----- ----- -----
Purchased funding........................................... 38.1 38.6 40.7
Stockholders' equity........................................ 8.4 8.3 7.7
----- ----- -----
Total................................................... 100.0% 100.0% 100.0%
===== ===== =====

EARNING ASSETS AND FUNDING
This section should be reviewed in connection with the information
presented in tables 1, 2, and 3 and the average balance sheets on pages 47-49.
Average earning assets were higher on a linked-quarter and year-over-year
basis due to continued mortgage and home equity loan growth fueled mainly by the
low rate environment and appreciating home values, offset to some extent by a
decline in commercial loan balances and the effects of the credit card and
automobile loan securitizations.
Portfolio loan growth over the past quarter and year has been driven by
strong nonconforming residential real estate and home equity loan production.
Nonconforming mortgage production is generated by the Corporation's consumer
finance subsidiary First Franklin. A portion of this production is retained in
portfolio with the remainder sold to third parties. Over the past year, $5.3
billion of First Franklin production has been retained for the residential real
estate portfolio. The retention of these loans drove the increase in average
residential real estate loans, offset to some extent by runoff in the conforming
mortgage loan portfolio as nearly all conforming mortgage production was
originated for sale in the secondary market. Strong home equity loan growth over
the past year also benefited from the low interest rate environment,
appreciating home values, and the Corporation's focus on the national home
equity market. The national home equity group, which is part of the consumer
finance line of business, originates home equity loans through a network of
retail and wholesale brokers throughout the United States.
Commercial loans declined on a linked-quarter and year-over-year basis due
to the weakened economic environment, which has dampened loan demand. Also
affecting the commercial loan portfolio during 2002 was the transfer of
approximately $400 million of real-estate secured loans from the commercial loan
portfolio to the commercial real estate loan portfolio. This transfer followed a
review by the Corporation's Investment Real Estate Division that identified
loans not classified on the balance sheet consistent with the current
definitional parameters for loans secured by

35

nonresidential real estate. The Corporation has no commercial loans to borrowers
in similar industries that exceed 10% of total loans other than commercial real
estate.
The growth in average loans held for sale or securitization on a
linked-quarter and year-over-year basis related to the increase in mortgage
loans held for sale. This increase, driven mainly by mortgage loan refinancings,
was primarily a result of the lowest mortgage loan interest rates in nearly 40
years.
Average securities were flat on a year-over-year basis but declined
slightly on a linked-quarter basis. Average securities balances for the third
quarter and first nine months of 2002 were virtually unaffected by the
consolidation of the asset-backed commercial paper conduit, as the consolidation
occurred on September 29. See Note 5 to the consolidated financial statements
for further discussion on the asset-backed commercial paper conduit
consolidation.
Average core deposits grew to $52.5 billion in the third quarter of 2002,
up from $50.7 billion last quarter and $47.9 billion in the third quarter of
2001. The increase in core deposits continued a sequential quarterly growth
trend that began in the fourth quarter of 2000 and reflects new account
acquisition and retention, expanded product offerings, and improved customer
service. Core deposit growth over the past quarter and year has also been driven
by an increase in deposits associated with a higher level of customer escrow
balances related to the increase in mortgage loan origination and loan payoff
activities as well as a general shift in customer preference away from the
equity markets and into insured bank deposits.
During the first nine months of 2002, the Corporation continued to
diversify its funding sources for greater capital efficiency through the
securitization of $425.0 million of credit card receivables and $1.1 billion of
automobile loans. For the same period in 2001, the Corporation also securitized
$425.0 million of credit card receivables. Securitization involves the sale of
assets to an unconsolidated trust, which sells beneficial interests to investors
in the form of asset-backed securities. The Corporation's on-balance-sheet
funding needs are then reduced. Further discussion on asset securitizations,
including retained interests, is included in Notes 1 and 4 of the consolidated
financial statements.

NET INTEREST INCOME
Tax-equivalent net interest income for the third quarter and first nine
months of 2002 was $978.9 million and $3.0 billion, respectively, up from $905.3
million and $2.5 billion for the comparable 2001 periods. The net interest
margin increased to 4.34% in the third quarter of 2002 from 4.20% in last year's
third quarter. The 2002 year-to-date net interest margin was 4.38%, up from
4.04% for the same period a year ago.
The growth in net interest income and improvement in net interest margin in
2002 reflected strong mortgage and home equity volumes, successful deposit
gathering and retention efforts, and the positive impact of a low rate
environment on funding costs and spreads. An improved asset and funding mix,
resulting from the balance sheet restructuring efforts discussed previously,
also contributed to the net interest margin's strength.

MARKET RISK
Market risk is the risk of loss arising from adverse changes in the fair
value of financial instruments due to changes in interest rates, exchange rates,
and equity prices. Interest rate risk is National City's primary market risk and
results from timing differences in the repricing of assets and liabilities,
changes in relationships between rate indices and the potential exercise of
explicit or embedded options. The Asset/Liability Management Committee (ALCO)
meets monthly and is responsible for reviewing the interest-rate-sensitivity
position of the Corporation and establishing policies to monitor and limit
exposure to interest rate risk. The guidelines established by ALCO are reviewed
by the Investment Committee of the Corporation's Board of Directors. One of the
primary goals of asset/liability management is to maximize net interest income
and the net value of future cash flows within authorized interest rate risk
limits. As part of this process, management continually takes into consideration
many factors, primarily expected future interest rate movements, variability and
timing of future cash flows, mortgage prepayments, and changes in core deposits.
Interest rate risk is monitored principally through the use of two
complementary measures: earnings simulation modeling, which projects changes in
net income caused by the effect of changes in

36

interest rates on net interest income, and net present value (NPV) estimation,
which measures the sensitivity of balance sheet cash flows to changes in
interest rates. Both measures are highly assumption-dependent and will change
regularly as the Corporation's asset-liability structure and business evolves
from one period to the next; however, taken together they represent a reasonably
comprehensive view of the magnitude of the Corporation's 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. Both the earnings simulation and NPV models assume the shape of the
yield curve does not change.
The most recent earnings simulation model prepared for the October 2002
ALCO meeting projects net income would decrease by approximately 8.7% of
stable-rate net income if rates were to fall gradually by two percentage points
over the next year. It projects an increase of approximately 3.1% if rates were
to rise gradually by two percentage points over the same period. The projected
decrease in net income is above the ALCO guideline of minus 4.0%, however,
management believes a sustained decline in market interest rates from their
current low level is unlikely.
The earnings simulation model discussed in the previous paragraph excludes
the earnings dynamics of the Corporation's mortgage banking business conducted
through National City Mortgage Co. Mortgage banking revenue, which is generated
from originating, selling, and servicing residential mortgage loans, is highly
sensitive to changes in interest rates due to the direct effect changes in
interest rates have on loan demand and the value of mortgage servicing assets.
In general, low or declining interest rates typically lead to increased
origination and sales income but potentially lower servicing-related income due
to the impact of higher loan prepayments on the value of mortgage servicing
assets. Conversely, high or rising interest rates typically reduce mortgage loan
demand and hence origination and sales income but may also lead to an increase
in servicing-related income. In addition, net interest income earned on loans
held for sale increases when the yield curve steepens and decreases when the
yield curve flattens. The Corporation manages both the risk to net income over
time and the risk to an immediate reduction in the fair value of its mortgage
servicing assets within guidelines set forth by ALCO. Further discussion of
mortgage servicing asset valuation and risk management is included in Note 10 to
the consolidated financial statements.
The NPV model prepared for the October 2002 ALCO meeting projects an
increase in NPV of approximately 1.7%, if interest rates immediately increased
by 150 basis points. If rates immediately decreased by 150 basis points, the
model projects an approximate decrease in NPV of 2.1%. Policy guidelines limit
the amount of the estimated decline in NPV to 7.0%.
At the end of 2001, the Corporation's interest-rate-risk position, as
presented and discussed in the Corporation's 2001 Form 10-K, was slightly asset
sensitive. During the first nine months of 2002, management continued to
maintain the Corporation's asset sensitive risk position due to the expectation
market interest rates will rise. The Corporation primarily used derivative
instruments to maintain its asset sensitive risk position during 2002. See Notes
1 and 19 to the consolidated financial statements for further discussion of the
Corporation's use of and the accounting for derivative instruments.

37

NONINTEREST INCOME

Fees and other income (Table 4) for the third quarter of 2002 totaled
$620.6 million, up from the $597.3 million recorded in the third quarter of 2001
but down from the $729.3 million recorded in the second quarter of 2002. Fees
and other income for the first nine months of 2002 were $2.0 billion, up from
the $1.9 billion recorded for the same period a year ago. The predominant factor
behind the changes in fees and other income on both a linked-quarter and
year-over-year basis was mortgage banking revenue.

TABLE 4: NONINTEREST INCOME

Three Months Ended Nine Months Ended
---------------------------------- -----------------------
SEPT. 30 June 30 Sept. 30 SEPT. 30 Sept. 30
(In Thousands) 2002 2002 2001 2002 2001
- --------------------------------------------------------------------------------------------------------------------------
Mortgage banking revenue.................................... $177,958 $247,475 $125,786 $ 620,650 $ 365,136
Deposit service charges..................................... 132,270 125,763 117,336 376,820 346,608
Payment processing revenue.................................. 113,513 111,707 120,293 334,061 342,458
Trust and investment management fees........................ 73,936 85,136 79,410 236,647 247,283
Card-related fees........................................... 47,212 31,873 42,610 111,221 125,850
Other service fees.......................................... 23,672 30,706 36,651 75,933 88,628
Brokerage revenue........................................... 24,986 30,762 22,367 82,815 69,449
Other....................................................... 27,083 65,869 52,839 202,635 292,335
-------- -------- -------- ---------- ----------
Total fees and other income............................... 620,630 729,291 597,292 2,040,782 1,877,747
Securities gains, net....................................... 157 44,033 21,193 97,722 126,259
-------- -------- -------- ---------- ----------
Total noninterest income.................................. $620,787 $773,324 $618,485 $2,138,504 $2,004,006
======== ======== ======== ========== ==========

The year-over-year increase in mortgage banking revenue was driven
primarily by record mortgage loan origination volume and higher gains on sales
of loans into the secondary market. Conforming mortgage loan sales reached $47.3
billion for the first nine months of 2002, compared to $28.9 billion for the
same period in 2001. Conforming mortgage loan sales for the third quarter of
2002 were $14.9 billion, up from the $12.4 billion sold during the same quarter
a year ago, but down slightly from the $15.4 billion sold in the second quarter
of 2002. Sales of First Franklin originated loans were $2.7 billion for the
first nine months of 2002, up from the $1.2 billion sold last year. For the
third quarter of 2002, First Franklin loan sales were $867.5 million, up from
the $224.5 million sold during the same 2001 quarter, but down from the $1.2
billion sold during the second quarter of 2002. Conforming and nonconforming
mortgage loan production continued to be strong during the third quarter of
2002. Total conforming and nonconforming loans originated for sale to third
parties totaled $22.9 billion and $52.8 billion for the third quarter and first
nine months of 2002, respectively, compared to $13.7 billion and $37.7 billion
for the comparable periods in 2001. Total conforming and nonconforming loans
originated for sale also increased in the third quarter over the $14.9 billion
originated during the second quarter of 2002. The high volume of mortgage loan
originations has been fueled by the refinancing market. Management expects
refinancing activity to decline in subsequent quarters subject to the level of
mortgage interest rates, among other factors.
In addition to the strong mortgage origination and sales activity in 2002,
mortgage banking revenue also benefited from the impact of favorable financial
market conditions on hedging strategies designed to protect the values of
mortgage servicing assets, fixed-rate mortgage loans not yet sold, and loan
commitments.
Mortgage banking revenue declined on a linked-quarter basis due to fewer
loan sales, reduced margins on loans sold, and a decrease in gains related to
hedges of loan commitments and loans not yet sold.
Further detail of mortgage banking revenue and discussion regarding hedging
strategies used to mitigate risk related to mortgage banking activities is
included in Notes 10 and 19 to the consolidated financial statements.
Continued growth in core deposits and cash management products led to
volume-driven growth in deposit service charges in the third quarter of and
first nine months of 2002. Trust and investment management fees were lower
primarily as a result of the weak equity markets. Payment processing revenue
declined on a year-over-year basis due to the sale of National Processing's
Business Processing Outsourcing unit in August 2001 and lower travel-related
revenue, mostly offset by an increase in merchant processing revenue related to
new customers and higher transaction volume. Card-related fees increased
compared to the previous quarter due to certain excess cash flows, principally
interchange fees, from the securitized balances being recorded as fee income
versus interest income during the first half of 2002. The year-over-year
decrease in card-related fees was mostly attributed to the

38

increase in securitized credit card balances, which resulted in excess cash
flows on retained interests being recorded as interest income. Other service
fees on a linked-quarter and year-over-year basis decreased due to lower loan
syndication revenue. Brokerage revenue decreased on a linked-quarter basis but
increased year over year as a result of respective changes in fixed annuity
sales.

Other fee income declined on a linked-quarter and year-over-year basis. For
the first nine months of 2001, other fee income included an $88.8 million gain
on the sale of the Corporation's preferred share interest in National Management
Corporation (NAMCO). See Note 3 to the consolidated financial statements for
further discussion of this transaction. Also affecting the year-over-year
comparison, as well as the linked-quarter, were third quarter 2002 principal
investment losses of $17.2 million. Total principal investment losses recognized
for the first nine months of 2002 were $21.0 million versus a gain of $1.9
million recorded for the same period a year earlier. Offsetting the decrease in
other fee income during 2002 from the aforementioned items were asset
securitization gains of $50.1 million, $11.9 million of gains on sales of
student loans, and a $5.1 million gain recorded for contingent consideration
received in connection with the NAMCO sale. For the first nine months of 2001,
asset securitization and student loan sale gains were $20.6 million and $6.6
million, respectively.
Net securities gains were $.2 million and $97.7 million for the third
quarter and first nine months of 2002, respectively. Net securities gains for
the same 2001 periods were $21.2 million and $126.3 million, respectively. The
securities gains recognized during these periods were mainly generated from the
Corporation's internally managed portfolio of bank and thrift common stock
investments. Bank stock gains for the first nine months of 2002 were $90.1
million, compared to $123.4 million for the same 2001 period. Bank stock gains
were $21.1 million for the third quarter of 2001. There were no bank stock gains
or losses recognized during the third quarter of 2002. Of the total amount of
bank stock gains recorded in 2002, $14.2 million represented appreciation on
securities donated to the Corporation's charitable foundation during the second
quarter. Net unrealized losses in the bank stock fund portfolio are included in
other comprehensive income, net of tax, within stockholders' equity and were
$39.5 million at September 30, 2002.

NONINTEREST EXPENSE
Noninterest expense (Table 5) was $870.2 million in the third quarter of
2002, compared to $973.9 million in the second quarter of this year and $815.5
million in the third quarter of 2001. Noninterest expense for the first nine
months of 2002 was $2.7 billion, compared to $2.5 billion for the same 2001
period. In general, noninterest expense in 2002 reflected higher personnel,
processing, and operational costs associated with business volumes and various
brand development, technology, and service quality initiatives.

TABLE 5: NONINTEREST EXPENSE

Three Months Ended Nine Months Ended
------------------------------ -----------------------
SEPT. 30 June 30 Sept. 30 SEPT. 30 Sept. 30
(In Thousands) 2002 2002 2001 2002 2001
- ----------------------------------------------------------------------------------------------------------------------
Salaries, benefits, and other personnel..................... $448,517 $445,393 $418,138 $1,338,238 $1,261,364
Equipment................................................... 56,667 61,325 53,549 180,291 174,298
Net occupancy............................................... 56,035 55,334 52,190 166,193 159,213
Third-party services........................................ 54,671 59,668 49,871 167,924 143,435
Card processing............................................. 50,963 52,112 50,295 156,891 141,422
Postage and supplies........................................ 31,743 29,996 30,674 93,243 94,493
Goodwill and other intangible asset amortization............ 5,362 5,213 21,842 15,778 63,989
Marketing and public relations.............................. 25,402 75,447 23,620 126,998 64,178
Telecommunications.......................................... 21,196 22,056 21,252 64,685 63,459
Travel and entertainment.................................... 14,298 14,625 14,157 43,029 41,718
State and local taxes....................................... 15,299 14,352 12,976 46,887 39,957
Other....................................................... 90,023 138,401 66,898 318,830 213,035
-------- -------- -------- ---------- ----------
Total noninterest expense................................ $870,176 $973,922 $815,462 $2,718,987 $2,460,561
======== ======== ======== ========== ==========

Significant items affecting year-over-year comparability included: a $15.9
million charge in the third quarter of 2002 associated with the consolidation of
the asset-backed commercial paper conduit (see Note 5 to the consolidated
financial statements); a $52.8 million charge recorded in the second quarter of
2002 for the donation of appreciated investment securities to the Corporation's
charitable foundation; charges to reduce the estimated value of automobile lease
residuals in the amounts of $50.9 million and $54.0 million for year-to-date
2002 and 2001, respectively; a charge of $26.0 million recorded in the third
quarter of 2002 to accelerate the amortization of

39

certain low-income housing and historic tax credit investments held by the
Corporation; and $22.4 million of asset impairment charges recorded in the
second quarter of 2002. All of the aforementioned charges were included in other
noninterest expense, except for the charitable foundation contribution, which
was included in marketing and public relations expense. Other noninterest
expense in 2002 also included a higher level of fraud and other operational
losses.

In addition, the adoption of SFAS 142, the new accounting standard for
goodwill and intangible assets, at the beginning of 2002 reduced noninterest
expense by $16.6 million and $49.2 million for the third quarter and first nine
months of the year, respectively, as compared to 2001, with a resulting benefit
to diluted earnings per share of approximately $.02 and $.07 for the third
quarter and first nine months of 2002, respectively. See Notes 1 and 9 to the
consolidated financial statements for further discussion of the adoption of SFAS
142.
On a linked-quarter basis, significant items affecting decreases in
marketing and public relations and other noninterest expense included the
previously discussed second quarter charge for the donation of the appreciated
investment securities to the Corporation's charitable foundation and a second
quarter automobile lease residual value charge of $37.7 million, respectively.
Consistent with its focus on long-term sustainable revenue growth, the
Corporation continues to invest in increased training, expanded product
offerings, enhanced service quality, and targeted investments, and also to
pursue process improvement initiatives across all businesses. The efficiency
ratio, which expresses noninterest expense as a percentage of tax-equivalent net
interest income and total fees and other income, was 54.4% for both the third
quarter and first nine months of 2002, compared to 54.3% and 56.0% for the third
quarter and first nine months of 2001, respectively.
National City's staffing level on a full-time equivalent basis was 32,099
at September 30, 2002, up slightly from 31,933 a year ago. An increased level of
staff at National City Mortgage, necessary to support the record level of loan
originations and associated sales activity experienced this year, was mostly
offset by personnel reductions resulting from efficiencies achieved across the
Corporation and operational changes at National Processing.

INCOME TAXES
The Corporation's effective tax rate was 33.6% for the first nine months of
2002 compared to 36.6% for the same period in 2001. The lower effective tax rate
in 2002 resulted primarily from the $40.0 million charge recorded in 2001
related to the settlement of a tax exposure on corporate-owned life insurance
(COLI) deductions and the recognition of $10.0 million of tax benefits in the
third quarter of 2002, concurrent with the filing of the Corporation's Federal
tax return in September 2002, related to the $26.0 million accelerated
amortization charge on certain low-income housing and historic tax credits.
Further discussion of the COLI tax matter is included in Note 17 to the
consolidated financial statements.

LINE OF BUSINESS RESULTS
Following is a discussion of National City's results by line of business. A
description of each business line, including its products, customers and markets
served, and selected financial information for the quarter and year-to-date
periods of 2002 and 2001 is included in Note 20 to the consolidated financial
statements. Net income for each business line is also presented in Table 6.
TABLE 6: NET INCOME BY LINE OF BUSINESS

Three Months Ended Nine Months Ended
--------------------------- ---------------------
SEPT. 30 June 30 Sept. 30 SEPT. 30 Sept. 30
(In Thousands) 2002 2002 2001 2002 2001
- ----------------------------------------------------------------------------------------------------------------------
Retail Sales and Distribution............................... $140,098 $134,669 $137,660 $ 408,846 $ 418,827
Wholesale Banking........................................... 64,881 76,754 72,152 203,631 281,125
Consumer Finance............................................ 75,456 60,280 51,464 182,548 77,580
Asset Management............................................ 25,819 26,553 27,837 79,225 90,333
National City Mortgage...................................... 90,630 113,517 49,063 305,413 107,177
National Processing......................................... 12,686 12,198 15,035 36,933 34,490
Parent and other............................................ (35,383) (31,189) 3,407 (3,496) 31,991
-------- -------- -------- ---------- ----------
Consolidated net income.................................. $374,187 $392,782 $356,618 $1,213,100 $1,041,523
======== ======== ======== ========== ==========

For the first nine months of 2002, National City's operations were managed
along the following six lines of business: Retail Sales and Distribution,
Wholesale Banking, Consumer Finance, Asset Management, National City Mortgage,
and National Processing. During the third quarter of 2002, several
organizational changes were announced which resulted in the separation of
Consumer Finance into two other business lines. The dealer finance, credit card,

40

and education finance units of Consumer Finance were moved into Retail Sales and
Distribution and the business line was renamed Consumer and Small Business
Financial Services, while the national home equity and nonconforming lending
units of Altegra and First Franklin were joined with National City Mortgage to
form a new business line entitled National Consumer Finance. Also as part of the
realignment, the residential mortgage lending division of the former Retail
Sales and Distribution business line was moved into the new National Consumer
Finance business line in order to consolidate all conforming residential real
estate lending activities in one line of business. National City intends to
begin reporting under the new alignment in the fourth quarter of 2002.
The Retail Sales and Distribution line of business showed growth in loans
and deposits during the first nine months of 2002. Loan production continued to
benefit from the low interest rate environment, while core deposit growth was
aided by new products, including free checking and money management accounts,
investments in technology, an ongoing emphasis on customer service and account
retention, and a general shift in customer preference away from the equity
markets and into insured bank deposits. The cost of the customer service
initiatives, combined with the effects of lower interest rates on deposit
account profitability and an increase in credit costs, led to the decline in
2002 year-to-date net income compared to 2001. The loan loss provision increased
due to higher net charge-offs on home equity and small business loans.
Noninterest expense increased primarily as a result of higher personnel and
other costs associated with the service quality and technology initiatives and
the expanded deposit product offerings. Partially offsetting the increased
credit and operating costs was an increase in noninterest income driven by
higher gains on sales of conforming residential real estate loans and an
increase in deposit service charges. Noninterest expense for the first nine
months of 2002 was reduced by approximately $13.0 million as a result of the
adoption of SFAS 142, under which goodwill is no longer ratably amortized into
the income statement. On a year-over-year quarter basis, the increase in
noninterest income from loan sale gains and deposit service charges more than
offset the decline in net interest income and higher level of credit and
operational expenses, leading to the increase in net income. Compared to the
second quarter of 2002, results for the third quarter improved primarily due to
an increase in noninterest income driven by higher loan sale gains.
Wholesale Banking's results in 2002 have been adversely affected by
increased credit costs and soft commercial loan demand, both stemming from a
weaker economy. Losses on principal investments in public and private entities
and a decline in revenue associated with syndicated lending activities also
contributed to the decrease in net income in 2002. Losses on principal
investments totaled $17.2 million and $21.0 million for the third quarter and
first nine months of 2002, respectively, compared to losses of $5.8 million and
gains of $1.9 million for same periods in 2001. Noninterest expense for the
first nine months of 2002 was reduced by approximately $3.8 million as a result
of the adoption of SFAS 142. Compared to the second quarter of this year, net
income in the third quarter decreased due mainly to an increase in losses on
principal investments.
The successful execution of strategies aimed at generating loan growth in
the Consumer Finance business line led to improved financial results in 2002.
Heightened focus on growing the national home equity business, the cumulative
retention of First Franklin originated nonconforming residential real estate
loans, and the decision made in late 2000 to discontinue two underperforming
business lines, auto leasing and the Altegra nonconforming loan origination
unit, all contributed to the unit's growth. For the first nine months of 2002,
loan origination volume in national home equity, dealer finance, and at First
Franklin were all higher than the prior-year period. First Franklin
nonconforming loan originations totaled $7.1 billion for the first nine months
of 2002, up from $4.5 billion for the comparable 2001 period. The portfolio of
First Franklin originated loans grew to $8.7 billion at September 30, 2002 from
$5.0 billion a year ago, as Consumer Finance retained about 60 percent of all
First Franklin production. First Franklin loans not retained in portfolio are
sold to third parties. Sales of loans to third parties totaled $2.7 billion and
$1.2 billion for the year-to-date 2002 and 2001 periods, respectively. The
strong loan production was the primary

41

driver behind the year-over-year improvement in net interest income and
noninterest income. Somewhat offsetting the increase in revenue were higher
credit costs and noninterest expense. Credit costs have increased due to an
increase in net charge-offs on nonconforming mortgage loans and the addition of
allowance in excess of net charge-offs in the third quarter of 2002 to cover
probable inherent losses in the nonconforming mortgage loan portfolio related to
general economic weakness. The increase in noninterest expense was mainly due to
volume-driven increases in personnel and loan-related expenses. Noninterest
expense included automobile lease residual value write-downs of $50.9 million
and $54.0 million for the first nine months of 2002 and 2001, respectively.
There were no residual value write-downs in the third quarter of 2002, while the
third quarter of 2001 included write-downs of $2.4 million. Noninterest expense
for the first nine months of 2002 was reduced by approximately $9.4 million as a
result of the adoption of SFAS 142. Compared to the second quarter of 2002, net
income increased due to higher net interest income and lower noninterest
expense, offset partly by slightly higher credit costs and a decrease in
noninterest income. The decline in noninterest income was primarily due to fewer
nonconforming loan sale gains, while the decline in noninterest expense was due
to the second quarter charge of $37.7 million to write down automobile lease
residual values.
Net income for 2002 for Asset Management was down from the prior year due
primarily to a decline in net interest income and higher credit costs related to
lending activities within the private banking division. Noninterest income was
relatively unchanged on a year-over-year basis as an increase in fee income
related to brokerage activities, primarily the sale of annuity products, was
offset by lower trust and investment management fee income. Trust and investment
management fees have been unfavorably affected by a lower level of assets under
administration resulting from equity market devaluation and net cash outflows,
along with a shift in the mix of administered assets from equity investment
products to money market funds, which generate lower fees. Assets under
administration were $129.8 billion at September 30, 2002, down from $140.0
billion a year ago. The adoption of SFAS 142 reduced noninterest expense in 2002
by approximately $3.2 million. Third quarter net income declined slightly from
the second quarter of 2002 due to a decrease in noninterest income related to
seasonal tax preparation fees recognized in the second quarter and a decline in
third quarter brokerage activity, offset mostly by a volume-driven decrease in
noninterest expense related to the reduced brokerage activity.
National City Mortgage produced record net income for the first nine months
of 2002 as the low interest rate environment continued to stimulate strong loan
origination and sales volume. Loans originated by National City Mortgage totaled
$19.6 billion and $45.0 billion for the three and nine months ended September
30, 2002, respectively, up from $11.5 billion and $31.6 billion for the same
periods in 2001. Loan sales to the secondary market increased to $14.9 billion
and $47.3 billion for the three and nine months ended September 30, 2002,
respectively, from $12.4 billion and $28.9 billion for the comparable 2001
periods. In addition to higher origination and sales revenue, 2002 net income
also grew due to higher servicing fee income and the impact of favorable
financial conditions on mortgage servicing asset risk management activities. The
portfolio of mortgage loans serviced for third parties grew to $98.4 billion at
September 30, 2002 from $70.1 billion a year ago. Noninterest expense for the
first nine months of 2002 was reduced by approximately $2.7 million as a result
of the adoption of SFAS 142. Results for the third quarter of 2002 declined from
the second quarter due to an increase in loan loss provision associated with
certain delinquent mortgage loans held in portfolio and a decline in net
overhead (noninterest income less noninterest expense) due principally to lower
pricing margins on loan sales in the third quarter and higher gains from loan
commitment and warehouse risk management activities in the second quarter.
National Processing's net income was up slightly in 2002 on a year-to-date
basis but down in the third quarter of 2002 compared to the third quarter of
last year. Affecting the comparability of National Processing's year-to-date
results was a third quarter 2002 charge of $3.4 million pretax, or $2.0 million
after tax, related to a separation agreement with its former chief executive
officer, a second quarter 2002 charge of $1.7 million pretax, or $2.4 million
after tax, for

42

severance costs and building and equipment write-downs related to the relocation
of certain processing operations from Mexico to the United States, and a second
quarter 2001 charge of $6.3 million pretax, or $6.2 million after tax,
associated with the disposal of its Business Processing Outsourcing unit.
Year-to-date 2002 noninterest expense was reduced by $1.9 million as a result of
the adoption of SFAS 142. During the second quarter of 2002, National Processing
announced a long-term strategic decision to discontinue processing transactions
for the airline industry as existing contractual obligations expire. The
contracts have various expiration dates through 2005. The revenue generated from
this business represents about 7% of National Processing's total revenue.
Several significant items affected comparability between 2002 and 2001
within the parent and other category. The sale of the Corporation's investment
in NAMCO in the second quarter of 2001 generated a gain of $88.8 million, with
an additional $5.1 million of contingent consideration recognized in the second
quarter of 2002. Gains on the initial securitizations of credit card and
automobile receivables also affected year-to-date comparability, with gains of
$50.1 million recorded in the first quarter of 2002 compared to gains of $20.6
million in the first quarter of 2001. Bank stock fund gains totaled $90.1
million and $123.4 million in the first nine months of 2002 and 2001,
respectively. There were no bank stock fund gains recognized in the third
quarter of 2002. Gains of $21.1 million were recorded in the third quarter of
2001. Affecting the comparability of noninterest expense were charges in the
third quarter of 2002 of $15.9 million and $26.0 million associated with the
consolidation of the asset-backed commercial paper conduit and the acceleration
of amortization on certain low-income housing and historic tax credit
investments, respectively, along with second quarter 2002 charges of $52.8
million and $13.7 million associated with the donation of appreciated investment
securities to the Corporation's charitable foundation and impairment losses on
retained interests in securitized assets, respectively. Partially offsetting
these charges was lower goodwill amortization expense in 2002 resulting from the
adoption of SFAS 142 as noninterest expense in each of the 2001 quarters
included approximately $5.1 million of goodwill amortization which was not
allocated to the business lines. Income tax expense for the first nine months of
2002 was affected by $10.0 million in tax benefits associated with low income
housing and historic tax credit investments. For the same period in 2001, income
tax expense was affected by the first quarter $40.0 million COLI tax charge.

43

CREDIT QUALITY

The Corporation's loan portfolios are subject to varying degrees of credit
risk. Credit risk is mitigated through portfolio diversification, limiting
exposure to any single industry or customer, collateral protection, and standard
lending policies and underwriting criteria. Note 1 to the consolidated financial
statements describes the Corporation's accounting policies related to
nonperforming loans and charge-offs and describes the methodologies used to
develop the allowance for loan losses, including both the allocated and
unallocated components. The policies governing nonperforming loans and
charge-offs are consistent with regulatory standards.
Net charge-offs in the third quarter of 2002 totaled $119.9 million, or
..69% of average portfolio loans, compared to $139.1 million, or .81% of average
portfolio loans, in the third quarter of 2001. For the first nine months of
2002, net charge-offs totaled $436.3 million, or .85% of average portfolio
loans, compared to $315.0 million, or .63% of average portfolio loans for the
first nine months of 2001. Annualized net charge-offs as a percentage of average
loans by portfolio type are presented in Table 7.
Nonperforming assets (Table 8) were $852.1 million at September 30, 2002,
up from $648.9 million a year ago. At September 30, 2002, loans 90 days past due
accruing interest (Table 8) were $548.8 million, up from $530.2 million at
September 30, 2001.
Net charge-offs, nonperforming assets, and delinquent loans increased over
the prior year periods principally due to deterioration in syndicated commercial
loans and seasoning of nonconforming residential mortgage loans.

TABLE 7: ANNUALIZED NET CHARGE-OFFS AS A PERCENTAGE OF AVERAGE LOANS

Three Months Ended Nine Months Ended
------------------------------- --------------------
SEPT. 30 June 30 Sept. 30 SEPT. 30 Sept. 30
2002 2002 2001 2002 2001
- ---------------------------------------------------------------------------------------------------------------------
Commercial.................................................. .94% 1.08% .99% 1.19% .62%
Real estate - commercial.................................... .18 .37 .33 .21 .18
Real estate - residential................................... .40 .49 .36 .50 .33
Consumer.................................................... .72 .74 1.09 .90 .94
Credit card................................................. 3.65 3.87 2.75 4.01 3.31
Home equity................................................. .21 .21 .23 .22 .18
Total net charge-offs to average loans...................... .69% .80% .81% .85% .63%

TABLE 8: NONPERFORMING ASSETS AND LOANS 90 DAYS PAST DUE

SEPT. 30 June 30 Mar. 31 Dec. 30 Sept. 30
(In Millions) 2002 2002 2002 2001 2001
- ---------------------------------------------------------------------------------------------------------------
Commercial.................................................. $443.4 $420.7 $368.3 $364.2 $354.1
Real estate - commercial.................................... 77.7 57.2 53.3 63.9 56.1
Real estate - residential................................... 226.4 225.9 228.4 165.9 176.6
------ ------ ------ ------ ------
Total nonperforming loans................................... 747.5 703.8 650.0 594.0 586.8
Other real estate owned (OREO).............................. 104.6 89.4 65.6 64.3 62.1
------ ------ ------ ------ ------
Total nonperforming assets.................................. $852.1 $793.2 $715.6 $658.3 $648.9
====== ====== ====== ====== ======
Nonperforming assets as a percentage of period-end portfolio
loans and OREO............................................. 1.20% 1.15% 1.05% .97% .94%
Loans 90 days past due accruing interest:
Commercial............................................... $ 77.2 $ 64.0 $ 67.9 $ 57.9 $ 70.9
Real estate - commercial................................. 17.1 29.5 30.9 29.6 35.5
Real estate - residential................................ 414.3 385.0 381.3 396.9 380.0
Consumer................................................. 17.7 18.0 21.0 27.9 22.6
Credit card.............................................. 7.9 7.4 7.8 12.4 11.1
Home equity.............................................. 14.6 15.2 16.9 17.0 10.1
------ ------ ------ ------ ------
Total loans 90 days past due................................ $548.8 $519.1 $525.8 $541.7 $530.2
====== ====== ====== ====== ======

The provision for loan losses for the third quarter and first nine months
of 2002 was $169.2 million and $523.3 million, respectively, up from $160.0
million and $396.3 million for the comparable 2001 periods. The provision for
loan losses in 2002 increased over the prior year due to the increases in net
charge-offs and delinquent loans as well as management's concern about ongoing
economic weakness and its effect on borrowers and residential real estate
values.
At September 30, 2002, the allowance for loan losses was $1.1 billion, or
1.52% of portfolio loans, compared to $997.3 million, or 1.47% of portfolio
loans, at December 31, 2001, and $1.0 billion, or 1.46% of portfolio loans, at
September 30, 2001. The allocation of the allowance for loan losses by portfolio
type at September 30, 2002, as compared to the allocation presented and
discussed in National City's 2001 Form 10-K, reflected a decline in the
allowance for loan losses allocated to commercial loans due primarily to credit
losses taken in the first nine months of 2002, an increase in the allowance
allocated to the consumer loan portfolios due to loan growth, and a higher level
of unallocated allowance reflecting management's concern about sustained
economic

44

weakness and its effect on borrowers' ability to repay their debt obligations,
as well as residential real estate values.

While management considers the allowance for loan losses to be adequate
based on information currently available, future adjustments to the allowance
may be necessary due to changes in economic conditions, delinquencies or loss
rates, and management's intent with regard to asset disposition options. In
addition, the allowance for loan losses is periodically reviewed by the bank
regulatory agencies as an integral part of their examination process.

CAPITAL
The Corporation has consistently maintained regulatory capital ratios at or
above the "well-capitalized" standards. Further detail on capital ratios is
presented in Note 14 to the consolidated financial statements.
Total stockholders' equity was $8.2 billion at September 30, 2002, up from
$7.4 billion at December 31, 2001, and $7.2 billion at September 30, 2001.
Equity as a percentage of assets was 7.46% at September 30, 2002, compared to
6.98% at December 31, 2001, and 7.49% at September 30, 2001. Book value per
common share increased to $13.32 at the end of the third quarter of 2002, up
from $12.15 at the end of 2001, and $11.87 a year ago.
On August 30, 2002, the Corporation redeemed all preferred shares
outstanding at a redemption price of $50.50137 per share, representing a total
cost of $37,119. Through August 20, 2002, holders of preferred shares had the
right, at any time, to convert each share of preferred into 3.0291 shares of
National City common stock.
In October 1999, the Corporation's Board of Directors authorized the
repurchase of up to 30 million shares of National City's common stock. Shares
purchased will be held for reissue in connection with the Corporation's stock
compensation plans and for general corporate purposes. The Corporation's diverse
mix of financial services generates a substantial amount of capital every year
in excess of normal dividends and reinvestment requirements. Based on the
capital, investment, and acquisition needs of the Corporation, management may at
times believe it prudent to return capital to shareholders through share
repurchases.
In the first quarter of 2001, the Corporation repurchased 9.3 million
shares of its common stock. No other shares were repurchased during the
remainder of 2001 or during the first nine months of 2002. As of September 30,
2002, 15.6 million shares remained authorized for repurchase under the share
repurchase program. In the month of October and first half of November of 2002,
the Corporation repurchased 798,900 shares of its common stock.
The dividend payout is continually reviewed by management and the Board of
Directors. Dividends of $.305 per common share were declared in the third
quarter of 2002, up one cent from the quarterly dividend per share declared in
the third quarter last year of $.295. The dividend payout ratio, which
represents the percentage of earnings per share declared to stockholders as
dividends, was 50.0% and 50.9% for the third quarters of 2002 and 2001,
respectively.
As of September 30, 2002, the Corporation's market capitalization was
approximately $17.5 billion. National City's common stock is traded on the New
York Stock Exchange under the symbol "NCC". Stock price information for National
City's common stock is presented in Table 9.

TABLE 9: COMMON STOCK INFORMATION

2002 2001
--------------------------- -----------------
THIRD Second First Fourth Third
NYSE: NCC QUARTER Quarter Quarter Quarter Quarter
- -------------------------------------------------------------------------------------------------------------
High........................................................ $33.49 $33.75 $31.16 $30.30 $32.70
Low......................................................... 25.58 29.60 26.31 26.15 26.00
Close....................................................... 28.53 33.25 30.76 29.24 29.95

LIQUIDITY MANAGEMENT
The objective of liquidity management is to ensure the cash flow
requirements of depositors and borrowers, as well as the operating cash needs of
the Corporation, are met.
Funds are available from a number of sources, including the securities
portfolio, the core deposit base, the capital markets, the Federal Home Loan
Bank, the U.S. Treasury, and through the sale and securitization of various
types of loans.
The Corporation's primary funding sources did not change significantly
during the first nine months of 2002. The levels of various types of borrowings
are presented in the end-of-period and average balance sheets on pages 5 and 47
of this report and in Table 2 on page 35.

45

Additional detail on borrowed funds and long-term debt is presented in Notes 11,
12, and 13 to the consolidated financial statements. In the first quarter of
2002, the Corporation securitized $1.5 billion of credit card and automobile
loans. Further detail of these securitization transactions is included in Note 4
to the consolidated financial statements.
The parent company has five major sources of funding to meet its liquidity
requirements: dividends and returns of investment from its subsidiaries, a line
of credit with its bank subsidiaries, the commercial paper market, a revolving
credit agreement with a group of unaffiliated banks, and access to the capital
markets.
The main source used to meet parent company cash requirements continued to
be dividends from its subsidiaries. During the first nine months of 2002,
dividends totaling $878.0 million were declared and paid to the parent company
by the bank subsidiaries. At September 30, 2002, the amount of dividends the
bank subsidiaries can pay to the parent company without prior regulatory
approval was $1.1 billion, versus $848.0 million at January 1, 2002. As
discussed in the Corporation's 2001 Form 10-K, subsidiary banks are subject to
regulation and, among other things, may be limited in their ability to pay
dividends or transfer funds to the parent 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 parent company.
The parent company also has a $500 million line of credit with its banking
subsidiaries to provide additional liquidity. There were no borrowings under
this agreement at September 30, 2002.
In the second quarter of 2002, the Corporation increased to $375.0 million
from $350.0 million its revolving credit agreement with a group of unaffiliated
banks, which serves as a back-up liquidity facility. No borrowings have occurred
under this facility. See Note 12 to the consolidated financial statements.
National City also has in place a shelf registration with the Securities
and Exchange Commission permitting ready access to the public debt markets. As
of September 30, 2002, $300 million of debt was available for issuance under
this shelf registration.

CONTROLS AND PROCEDURES
As of September 30, 2002, an evaluation was performed under the supervision
and with the participation of the Corporation's 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, as
defined under Rules 13a-14 and 15d-14 of the Securities Exchange Act of 1934.
Based on that evaluation, the Corporation's management, including the Chief
Executive Officer and Chief Financial Officer, concluded that the Corporation's
disclosure controls and procedures as of September 30, 2002 were effective in
ensuring that information required to be disclosed in this Quarterly Report on
Form 10-Q was recorded, processed, summarized, and reported within the time
period required by the Securities and Exchange Commission's rules and forms.
There have been no significant changes in the Corporation's internal controls or
in other factors that could significantly affect internal controls subsequent to
September 30, 2002.

46

CONSOLIDATED AVERAGE BALANCE SHEETS

47

DAILY AVERAGE BALANCES/NET INTEREST INCOME/RATES

(Dollars in Millions) Daily Average Balance
- ----------------------------------------------------------------------------------------------
2002 2001
----------------------------- -----------------
THIRD Second First Fourth Third
QUARTER Quarter Quarter Quarter Quarter
-------- ------- -------- ------- -------
ASSETS
Earning Assets:
Loans(a):
Commercial............................. $ 24,881 $25,127 $ 26,137 $27,135 $27,488
Real estate -- commercial.............. 8,037 7,909 7,682 7,077 6,826
Real estate -- residential............. 27,728 25,504 28,794 26,075 23,052
Consumer............................... 10,924 11,244 12,343 12,434 12,375
Credit card............................ 1,910 1,810 1,922 2,206 2,198
Home equity............................ 7,316 6,679 6,066 5,675 5,302
-------- ------- -------- ------- -------
Total loans.......................... 80,796 78,273 82,944 80,602 77,241
Securities available for sale, at cost:
Taxable................................ 7,668 7,981 8,145 7,613 7,557
Tax-exempt............................. 668 679 689 709 719
-------- ------- -------- ------- -------
Total securities available for
sale.............................. 8,336 8,660 8,834 8,322 8,276
Federal funds sold, security resale
agreements and other investments....... 882 864 800 424 580
-------- ------- -------- ------- -------
Total earning assets/
total interest income/rates....... 90,014 87,797 92,578 89,348 86,097
Allowance for loan losses.................. (1,031) (1,000) (1,021) (1,001) (1,004)
Fair value appreciation of securities
available for sale....................... 299 208 188 229 202
Nonearning assets.......................... 11,825 10,916 10,363 9,852 9,038
-------- ------- -------- ------- -------
TOTAL ASSETS............................... $101,107 $97,921 $102,108 $98,428 $94,333
======== ======= ======== ======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Interest bearing liabilities:
NOW and money market accounts............ $ 21,006 $20,119 $ 19,411 $18,840 $18,378
Savings accounts......................... 2,543 2,622 2,594 2,602 2,664
Consumer time deposits................... 15,122 15,209 15,119 14,902 15,259
Other deposits........................... 3,065 3,462 4,529 6,109 6,004
Foreign deposits......................... 5,781 5,372 6,792 5,757 4,847
Federal funds borrowed................... 4,482 4,092 5,961 5,093 5,237
Security repurchase agreements........... 3,316 3,206 3,441 3,946 3,981
Borrowed funds........................... 1,784 1,201 3,480 2,581 1,315
Long-term debt and capital securities.... 18,985 19,432 18,615 16,721 16,475
-------- ------- -------- ------- -------
Total interest bearing liabilities/
total interest expense/rates......... 76,084 74,715 79,942 76,551 74,160
Noninterest bearing deposits............. 13,864 12,760 12,366 12,526 11,611
Accrued expenses and other liabilities... 2,941 2,560 2,271 2,018 1,456
-------- ------- -------- ------- -------
TOTAL LIABILITIES.......................... 92,889 90,035 94,579 91,095 87,227
TOTAL STOCKHOLDERS' EQUITY................. 8,218 7,886 7,529 7,333 7,106
-------- ------- -------- ------- -------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY................................... $101,107 $97,921 $102,108 $98,428 $94,333
======== ======= ======== ======= =======
NET INTEREST INCOME...........................................................................
INTEREST SPREAD...............................................................................
Contribution of noninterest bearing sources of funds..........................................
NET INTEREST MARGIN...........................................................................

(a) Includes loans held for sale or securitization

48

(Dollars in Millions) Quarterly Interest
----------------------------------------------------
2002 2001
------------------------------ -------------------
THIRD Second First Fourth Third
QUARTER Quarter Quarter Quarter Quarter
-------- -------- -------- -------- --------
ASSETS

Earning Assets:
Loans(a):
Commercial..................................... $ 301.1 $ 309.5 $ 317.4 $ 369.0 $ 456.5
Real estate -- commercial...................... 133.1 134.2 130.8 129.7 135.7
Real estate -- residential..................... 506.5 481.0 525.3 483.9 462.9
Consumer(a).................................... 232.3 235.6 258.3 267.3 270.3
Credit Card.................................... 44.3 43.5 46.0 59.5 64.3
Home equity.................................... 92.2 84.2 76.8 87.3 94.8
-------- -------- -------- -------- --------
Total loans................................. 1,309.5 1,288.0 1,354.6 1,396.7 1,484.5
Securities available for sale, at cost:
Taxable........................................ 118.5 132.3 133.5 106.6 114.9
Tax-exempt..................................... 13.7 13.8 14.0 14.4 14.7
-------- -------- -------- -------- --------
Total securities available for sale......... 132.2 146.1 147.5 121.0 129.6
Federal funds sold, security resale agreements
and other investments.......................... 9.0 9.6 9.3 5.7 8.9
-------- -------- -------- -------- --------
Total earning assets/
total interest income/rates................ $1,450.7 $1,443.7 $1,511.4 1,523.4 $1,623.0

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.................. $ 78.1 $ 74.2 $ 71.9 $ 86.9 $ 117.6
Savings accounts............................... 5.1 5.6 5.8 7.0 8.7
Consumer time deposits......................... 158.8 166.1 171.1 185.2 206.3
Other deposits................................. 14.6 16.1 20.9 41.3 59.1
Foreign deposits............................... 27.3 25.5 31.5 32.2 43.6
Federal funds borrowed......................... 25.4 23.7 32.9 33.8 49.0
Security repurchase agreements................. 9.1 8.5 9.0 13.4 24.7
Borrowed funds................................. 7.1 5.0 13.3 10.8 11.8
Long-term debt and capital securities.......... 146.3 148.6 149.7 160.1 196.9
-------- -------- -------- -------- --------
Total interest bearing liabilities/
total interest expense/rates............... $ 471.8 $ 473.3 $ 506.1 $ 570.7 $ 717.7
Noninterest bearing deposits...................
Accrued expenses and other liabilities.........
TOTAL LIABILITIES.................................

TOTAL STOCKHOLDERS' EQUITY........................
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY........

NET INTEREST INCOME............................... $ 978.9 $ 970.4 $1,005.3 $ 952.7 $ 905.3
======== ======== ======== ======== ========

INTEREST SPREAD...................................

Contribution of noninterest bearing sources of
funds............................................

NET INTEREST MARGIN...............................

(a) Includes loans held for sale or securitization.

[Additional columns below]
[Continued from above table, first column(s) repeated]

(Dollars in Millions) Average Annualized Rate
----------------------------------------------------
2002 2001
------------------------------ -------------------
THIRD Second First Fourth Third
QUARTER Quarter Quarter Quarter Quarter
-------- -------- -------- -------- --------
ASSETS

Earning Assets:
Loans(a):
Commercial..................................... 4.80% 4.94% 4.92% 5.40% 6.59%
Real estate -- commercial...................... 6.57 6.81 6.90 7.27 7.89
Real estate -- residential..................... 7.31 7.54 7.30 7.42 8.03
Consumer....................................... 8.44 8.40 8.49 8.53 8.66
Credit Card.................................... 9.20 9.64 9.70 10.72 11.60
Home equity.................................... 5.04 5.04 5.06 6.15 7.16
Total loans................................. 6.46 6.59 6.58 6.90 7.65
Securities available for sale, at cost:
Taxable........................................ 6.18 6.63 6.56 5.59 6.08
Tax-exempt..................................... 8.15 8.15 8.16 8.18 8.17
Total securities available for sale......... 6.33 6.75 6.69 5.81 6.26
Federal funds sold, security resale agreements
and other investments.......................... 4.03 4.48 4.73 5.38 6.07
Total earning assets/
total interest income/rates................ 6.42% 6.59% 6.58% 6.79% 7.51%

Allowance for loan losses.........................

Fair value appreciation of securities available
for sale.........................................

Nonearning assets.................................
TOTAL ASSETS......................................

LIABILITIES AND STOCKHOLDERS' EQUITY

Interest bearing liabilities:
NOW and money market accounts.................. 1.47% 1.48% 1.50% 1.83% 2.54%
Savings accounts............................... .80 .85 .90 1.06 1.29
Consumer time deposits......................... 4.16 4.38 4.59 4.93 5.36
Other deposits................................. 1.89 1.86 1.87 2.68 3.91
Foreign deposits............................... 1.87 1.91 1.88 2.22 3.56
Federal funds borrowed......................... 2.25 2.32 2.24 2.63 3.71
Security repurchase agreements................. 1.08 1.07 1.07 1.35 2.46
Borrowed funds................................. 1.59 1.66 1.55 1.65 3.56
Long-term debt and capital securities.......... 3.06 3.07 3.25 3.81 4.75
Total interest bearing liabilities/
total interest expense/rates............... 2.46% 2.54% 2.57% 2.96% 3.84%
Noninterest bearing deposits...................
Accrued expenses and other liabilities.........
TOTAL LIABILITIES.................................

TOTAL STOCKHOLDERS' EQUITY........................
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY........

NET INTEREST INCOME...............................

INTEREST SPREAD................................... 3.96% 4.05% 4.01% 3.83% 3.67%

Contribution of noninterest bearing sources of
funds............................................ .38 .37 .35 .42 .53
-------- -------- -------- -------- --------

NET INTEREST MARGIN............................... 4.34% 4.42% 4.36% 4.25% 4.20%
======== ======== ======== ======== ========

(a) Includes loans held for sale or securitization.

49

CORPORATE INFORMATION

CORPORATE HEADQUARTERS

National City Center
1900 East Ninth Street
Cleveland, Ohio 44114-3484
(216) 222-2000
www.nationalcity.com

TRANSFER AGENT AND REGISTRAR

National City Bank
Corporate Trust Operations
Department 5352
P.O. Box 92301
Cleveland, Ohio 44193-0900
E-mail: shareholder.inquiries@nationalcity.com

Stockholders of record may access their accounts via the Internet to review
account holdings and transaction history through National City's StockAccess at
www.ncstockaccess.com. Stockholders can also download frequently used forms from
this Web site. For log-in assistance or other inquiries, call 1-800-622-6757.

INVESTOR INFORMATION

Betsy Figgie
Investor Relations
Department 2101
P.O. Box 5756
Cleveland, Ohio 44101-0756
1-800-622-4204
E-mail: investor.relations@nationalcity.com

WEB SITE ACCESS TO UNITED STATES SECURITIES AND EXCHANGE COMMISSION FILINGS

All reports filed electronically by National City Corporation with the United
States Securities and Exchange Commission (SEC), including the annual report on
Form 10-K, quarterly reports on Form 10-Q, and current event reports on Form
8-K, as well as any amendments to those reports, are accessible at no cost on
the Corporation's Web site at
www.nationalcity.com/investorrelations. These filings are also accessible on
the SEC's Web site at www.sec.gov.

COMMON STOCK LISTING

National City Corporation common stock
is traded on the New York Stock
Exchange under the symbol NCC. The
stock is abbreviated in financial
publications as NTLCITY.

The common stock of National City's 85%-owned payment processing subsidiary,
National Processing, Inc., is traded on the New York Stock Exchange under the
symbol NAP. The stock is abbreviated in financial publications as NTLPROC.

DIVIDEND REINVESTMENT AND STOCK
PURCHASE PLAN

National City Corporation offers stockholders a convenient way to increase
their investment through the National City Corporation 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 www.nationalcity.com.

DIRECT DEPOSIT OF DIVIDENDS

The direct deposit program, which is offered at no charge, provides for
automatic deposit of quarterly dividends directly to a checking or savings
account. For information regarding this program, call 1-800-622-6757.

DEBT RATINGS

50

FORM 10-Q -- SEPTEMBER 30, 2002

SIGNATURES

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

NATIONAL CITY CORPORATION
- --------------------------------------------------------------------------------
(Registrant)

Date: November 14, 2002
/s/ DAVID A. DABERKO
-----------------------------------
David A. Daberko
Chairman and Chief Executive Officer

/s/ JEFFREY D. KELLY
-----------------------------------
Jeffrey D. Kelly
Executive Vice President and
Chief Financial Officer

51

CERTIFICATION OF CHIEF EXECUTIVE OFFICER

I, David A. Daberko, certify that:

1. I have reviewed this quarterly report on Form 10-Q of National City
Corporation;

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

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

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

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

b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and

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

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

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

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

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

Date: November 14, 2002 By: /s/ DAVID A. DABERKO
-------------------------------------
David A. Daberko
Chairman and Chief Executive
Officer

52

CERTIFICATION OF CHIEF FINANCIAL OFFICER

I, Jeffrey D. Kelly, certify that:

1. I have reviewed this quarterly report on Form 10-Q of National City
Corporation;

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

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

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

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

b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and

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

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

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

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

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

Date: November 14, 2002 By: /s/ JEFFREY D. KELLY
-------------------------------------
Jeffrey D. Kelly
Executive Vice President and
Chief Financial Officer

53

[NATIONAL CITY CORPORATION LOGO] Presort Standard
National City Center U.S. Postage
1900 East Ninth Street PAID
Cleveland, Ohio 44114-3484 National City
Corporation

EXHIBIT INDEX