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NATIONAL CITY
1999 ANNUAL REPORT

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FINANCIAL HIGHLIGHTS

(a)	Excludes nonrecurring items. See further discussion in Note 4 to the Consolidated Financial Statements.
(b)	All share and per share information reflects the two-for-one stock split declared June 30, 1999, effective July 26, 1999.

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[PHOTO]
(Left to Right)
Robert G. Siefers, Vice Chairman & CFO
David A. Daberko, Chairman & CEO
Vincent A. DiGirolamo, Vice Chairman

TO OUR STOCKHOLDERS:

“We believe we are doing the right things, both tactically and strategically...”

      National City earned record net income in 1999 and made significant progress in executing its growth initiatives. Diluted earnings per share were $2.22, up 11.0% from 1998, capping nearly a decade of consistent double-digit annual increases. Return on equity reached 22.6%, also the highest ever. The quarterly dividend was increased twice during the year, as has been the case for each of the past seven years, and $1.7 billion of excess capital was returned to stockholders through open market stock repurchases. In July, the stock was split two-for-one for the second time in the decade.

      These accomplishments, however, seem overshadowed by the performance of the stock. In a year where the major market indices set record after record, most bank stocks, including National City, declined in price. The market had many concerns about the banking sector during the year, from merger-related disruptions to rising interest rates to fundamental concerns about revenue growth. Unfortunately, the combination of these concerns had a dramatic, and we think exaggerated, effect on National City stock.

      While the decline in the stock price was disheartening to individual and institutional investors alike, it has been equally troubling to management and employees, who hold significant personal ownership stakes in the company. Now, more than ever, it is important for

[BAR GRAPH]

Net Income, Dividends and Stock Price
(not restated for poolings; excludes 1998 merger and restructuring charges)

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“...It is important for us to remain focused and execute our strategic plan.”

      us to remain focused and execute our strategic plan. We firmly believe that National City’s defining characteristics of asset quality, profitability, and earnings consistency will be recognized and properly valued in the long run.

      A solid foundation was put in place in 1999 for the future through a series of initiatives encompassing all of our businesses. This past year was the first in which we operated the business along functional lines. This structure has resulted in quicker, more effective decision-making and greater responsiveness to customers. We initiated a formal process during the year to monitor and enhance service quality within each business unit. Beginning this year we have added specific service quality objectives to each manager’s annual performance goals.

      While service quality is vital for customer retention, first-rate products and targeted marketing are critical for attracting new business and sustaining long-term revenue growth. The real story of 1999 and beyond is the investments we have made and are making in these areas. Systems resources previously dedicated to consolidations, reorganizations, and “Y2K” remediation activities are now wholly redirected to product and service enhancements directly supporting revenue growth plans of the business units. Some of these are Internet-related, such as improved online banking, online brokerage, and new Web cash management products for small- and medium-sized companies. Others involve internal systems to enhance availability of information for decision making.

      We are also increasing our marketing outlays on a targeted basis. Finally, we have moved aggressively to expand our presence in selected corporate banking markets and to increase our origination capability in the consumer and mortgage sectors. These and other specific business initiatives are highlighted in the pages that follow. Taken together, they represent an emphasis on revenue growth unparalleled in our history.

      Nothing in our business occurs independent of the overall economy. Clearly, banks and financial services businesses have benefited greatly from the extraordinary economy of the ‘90s. One of our strongest core competencies-credit risk management- has not been a point of differentiation for National City in the past several years because times have been good for nearly everyone. We believe that credit quality will matter in the next few years. A combination of careful, consistent underwriting and low levels of problem assets puts us in good stead. Similarly, as interest rates continue to fluctuate, we are confident of our ability to manage through this fundamental banking risk.

      We believe we are doing the right things, both tactically and strategically, for the ongoing success of the company, and the market will ultimately recognize this fact. As owners of National City stock, the interests of the Board, the management team, and the employees are directly aligned with those of outside investors. We are dedicated as a team to serving our customers, our communities, and most importantly, our stockholders.

Thank you for your support.

/s/ David A. Daberko

David A. Daberko
Chairman and Chief Executive Officer

January 20, 2000

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A CULTURE OF QUALITY AND SERVICE

[PHOTO]

Quick response and courteous service are the focus of telephone banking
representative Leslie Barrow. During 1999, National City’s three retail call
centers handled approximately 54 million customer calls.

      Sales momentum. Customer service. Efficiency. Credit quality.

      These are the core values driving National City in its dedication to serving consumers, businesses and investors. Throughout its six-state footprint and beyond, National City offers a wide range of financial products and services, delivered through convenient technologies with personal service provided by knowledgeable employees.

      To build and maintain long-term, profitable relationships with customers, a financial services provider must distinguish itself with competitive products and the highest standards of performance. National City’s broad line of products and services is designed for the full range of customers’ financial needs, with an emphasis on convenience, accessibility and efficiency.

      Most importantly, National City hires talented people and provides them with the training and support they need to offer advice and solutions to customers. And National City is committed to its communities by providing financing for low- to moderate-income housing and small businesses. National City’s commitment to its neighborhoods is evidenced by more than $16 billion in affordable loans, grants and investments over the past five years.

Service Quality

Customer service is the core of any successful business. Serving customers well is a prerequisite to serving shareholders well.

At National City, our goal is to provide products that meet the full range of customers’ financial needs and to deliver those products profitably with top-notch professional service.

We have embarked on a major initiative to ensure that our service meets the highest standards of quality and consistency. Our employees are equipped with the tools and information they need to address challenges and satisfy the unique requirements of each customer.

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[PHOTO]

                                 EFFICIENCY

NatCity Investments client Robert Kane appreciates the convenience and detailed
information available online to help him manage his finances. National City
offers a range of investment services, including trust, private banking and
brokerage.

Reaching Out to Consumers

      National City provides broad-based banking and financial services to approximately 8.5 million consumers in Ohio, Pennsylvania, Kentucky, Michigan, Illinois and Indiana. Services are delivered through more than 1,200 branch offices, more than 1,800 ATMs and three telephone banking centers handling a monthly average of 4.5 million calls. A growing number of customers choose the convenience of National City’s online banking services at www.national-city.com. Enhancements planned for 2000 will increase the Web site’s versatility, functionality, ease of use and interconnectivity.

      Based on the changing preferences of consumers, National City is changing the way it delivers financial products and services. More than a third of traditional branches will be converted by the end of 2000 to the “Bank Express” model, improving the customer service environment and efficiency of National City’s 13,000 retail professionals. Many consumers also like the convenient hours and locations of some 100 branches in grocery stores and other retail sites.

      National City is focusing on total customer relationship management through an initiative called “iVALUE,” which emphasizes retaining customers, expanding high-value relationships, attracting new relationships and efficiently managing service delivery. Critical to the success of “iVALUE” is National City’s valuable client information-based data warehouse. Through effective use of the warehouse, client service professionals can offer the right products and services, at the right time, enhancing the client’s overall relationship with National City.

      Reflecting its respect for the privacy of customer data, National City was a leader in implementing an explicit privacy policy that protects consumers’ rights to privacy.

Financing Life Events

      When it’s time to buy a home, send a child to college, lease a car or finance other life events, National City offers numerous alternatives.

      Mortgages and home equity are national businesses. National City originates and services home mortgages through its branches and 260 retail mortgage offices and wholesale/broker branches in 38 states. National City Mortgage Company ranks as the seventh largest originator and 17th largest servicer of retail mortgages in the U.S., and the 1999 acquisition of the mortgage origination business of Dallas-based AccuBanc Mortgage added to National City’s representation in the western U.S.

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      In 1999 National City also acquired First Franklin Financial Companies, a leading wholesale originator of nonconforming home mortgages. This acquisition, combined with Altegra, the existing nonconforming mortgage lender, places National City in the top 10 nationally in this type of financing.

      The expanding mortgage business also provides opportunities for National City to grow the home equity business — as mortgage applications are approved, eligible clients are offered a home equity loan. Other cross-sell opportunities exist with products like insurance and credit cards.

      National City is also one of the five top originators of federally guaranteed student loans in the country and in dealer finance, is ranked as the fifth largest non-captive originator of retail loans and leases. National City offers competitive credit card products and indirect consumer installment loans and leases for automotive, marine, recreational vehicle, heavy equipment and property improvement.

Relationships

Business is all about relationships. For the small business, a close relationship with a financial services provider is essential.

National City serves as a valuable partner for small businesses by providing timely and effective solutions to all their financial needs. As the fifth largest small-business lender in the country, National City is committed to helping small businesses grow.

This commitment includes understanding the customer’s needs and fulfilling them with outstanding products and services, ranging from traditional lending and deposit products to value-added treasury management and other financial services

[PHOTO]

Frank Linsalata (left), chairman of Linsalata Capital Partners, a middle-market
venture capital group, relies on his broad relationship with National City and
senior lending officer Tim Healy (center). One of Linsalata Capital’s
acquisitions is The Tranzonic Companies, a manufacturer and distributor of
health, safety and industrial products, headed by president Rich Sims (right).

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[PHOTO]

Mortgage loan officer Denise Mortenson (left) takes technology on the road to
simplify and speed up the mortgage application process for homebuyers like
Angela and Howard Bush. National City is the seventh largest originator of
residential mortgage loans in the U.S.

Responsiveness

      In financial services, the speed at which customer needs are changing is matched only by the rapid advancement of technology available to meet those needs. The Internet, the ATM, telephone banking and interactive television—as well as the traditional branch, fully equipped with modern technology—all will have a vital role in delivering financial services in the future.

      To fully meet the needs of all customers, financial services providers will have to do business through a variety of channels. National City is positioning itself to provide its products and services seamlessly through whatever channels the customer prefers. We will continue to invest in new technologies that will increase efficiency and convenience.

Investing for the Future

      National City provides professional investment services to individuals, families and businesses.

      Through an integrated structure encompassing personal trust, investment management, private banking and brokerage, National City offers a single-source solution for clients to manage their personal and family wealth. Clients maintain relationships with skilled financial professionals, and state-of-the-art technology enables efficient access to trust, investment and brokerage services.

      National City’s primary objective is to produce sustainable, above-average investment performance. Offering 39 mutual funds, National City covers the full spectrum of investment styles. In 1999 seven mutual funds in the Armada® and Parkstone™ fund families earned impressive four- or five-star ratings from Morningstar, an industry rating service, for their relative performance over the previous five-year period.

      National City also provides professional investment services for businesses. The PlanWorks online reporting service allows 401(k) participants to check their balances, fund performances and elections in a secure, Internet-based environment. In a survey of stock transfer clients conducted by Group Five, Inc., National City’s stock transfer service was recognized as the industry leader in customer service and satisfaction in each of the last two years.

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Helping Businesses and Entrepreneurs Grow

      National City provides a wide range of financial solutions to meet the unique needs of companies of all sizes.

      Serving more than 20,000 business clients, National City is a single source for integrated financial solutions, from traditional services such as business financing and treasury management, to specialties such as commercial finance, leasing and investment banking.

      A team orientation enables more than 600 experienced relationship managers to partner with product experts with specialized knowledge on a wide range of business challenges. National City has built top-tier performance through a consistent commitment to responsive local decision-making and quality credit underwriting.

      Specialized capabilities, including commercial finance, leasing, structured finance and syndications, complement traditional credit products. Each of these businesses was virtually non-existent five years ago, and they are growing to a scale where they can begin to have meaningful impact.

      In 1999 National City expanded its presence in the Chicago and Detroit metropolitan areas and opened an office serving corporate clients in the Philadelphia market. There are approximately 150 relationship managers covering these markets, versus 70 in 1998, and more will be added in 2000. These markets provide significant opportunity for growth given their high concentration of small- and middle-market businesses, as well as Fortune 1000 corporations.

      In 1999 National City’s small business services were consolidated into a single organizational structure to improve focus and provide direction to this important customer segment. National City is ranked as the fifth largest small-business bank in the U.S., and the opportunities to grow are significant.

Leading the Merchant Processing Business

      National City is a leading provider of merchant processing, travel and customized outsourcing and processing services through National Processing Company, Inc. National Processing is 88-percent owned by National City, and its stock trades separately on the New York Stock Exchange under the symbol NAP.

      In 1999 National Processing completed the divestiture of four business units, allowing it to concentrate on its core business. National Processing is the nation’s second largest processor of point-of-sale credit card transactions, serving approximately 160,000 merchants in 470,000 locations and processing one out of every six Visa(R) and MasterCard(R) transactions in the U.S. and more than $100 billion in transactions annually.

      From its leadership position in the merchant processing business, National Processing intends to drive future growth through improved operational efficiencies and further consolidation in the transaction processing industry, in an environment where credit and debit card transactions account for a growing share of the retail payment system.

[PHOTO]

National City has grown its automotive
finance business just as Ron Glavic
(right), president of Glavic Auto
Dealerships, grew his business from his
father’s first dealership to five current
locations, including Saturn of
Chagrin, where Betsi Staugh (center) is
general manager. National City dealer
finance manager Jeffrey Standen (left)
says lasting partnerships come from
exceeding dealers’ expectations.

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Earnings Summary

National City Corporation (“the Corporation” or “National City”) reported net income of $1,405.5 million, or $2.22 per diluted share, in 1999, compared to $1,070.7 million, or $1.61 per diluted share, in 1998, and $1,122.2 million, or $1.71 per diluted share, in 1997. Included in reported net income for 1999 were nonrecurring items which, while having no per share impact on the full year, did affect a number of reported income and expense line items. The combination of these items increased 1999 pre-tax income by $35.3 million but increased reported net income by only $1.3 million. Reported net income included after-tax merger and restructuring charges of $261.9 million, or $.39 per diluted share, in 1998, and a $34.9 million, or $.06 per diluted share, in 1997.

Excluding nonrecurring items, 1999 net income of $1,404.2 million increased 5.4% over 1998 net income of $1,332.6 million, compared to the 15.2% advance in 1998 net income from $1,157.1 million in 1997. On this same basis, net income per diluted share was $2.22, $2.00 and $1.77 in 1999, 1998 and 1997, respectively, representing increases of 11.0% in 1999 and 13.0% in 1998.

Excluding nonrecurring items, return on average common equity was 22.6% in 1999, up from 19.2% in 1998 and 18.8% in 1997 (Chart 1). On this same basis, return on average assets was 1.67% in 1999, compared to 1.66% in 1998 and 1.61% in 1997 (Chart 2).

Excluding nonrecurring items, “tangible” or “cash” earnings per diluted share were $2.33 in 1999, $2.10 in 1998 and $1.84 in 1997. This earnings per share presentation adjusts net income for the non-cash impact of intangible amortization expense. Return on tangible equity, which excludes the non-cash impact of intangibles amortization from net income and intangibles from average common equity, was 29.1% in 1999, compared to 23.5% in 1998 and 21.5% in 1997.

The following table reconciles net income before nonrecurring items to net income as reported in the Consolidated Financial Statements.

See Note 4 to the Consolidated Financial Statements for a more detailed discussion of the nonrecurring items.

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Line of Business Results

National City’s operations are managed along six major lines of business: corporate banking, retail sales and distribution, consumer finance, asset management, National City Mortgage and National Processing. A description of each business, selected financial information and the methodologies used to measure financial performance are presented in Note 22 to the Consolidated Financial Statements beginning on page 44. The following table summarizes net income by line of business for each of the last three years:

Corporate banking net income was $399.4 million for 1999 compared to the $419.4 million earned in 1998. The decline in net income was due to an increase in the allocated provision for loan losses and a decrease in net interest income, partially offset by lower noninterest expense. The reduction in net interest income resulted from lower loan spreads and higher funding costs, offset in part by loan growth. Merger integration synergies led to the improvement in noninterest expense. The increase in corporate banking income for 1998 versus 1997 was attributable primarily to loan and fee income growth and lower credit costs.

Retail sales and distribution net income was $516.2 million for 1999, up from $508.6 million for 1998 and $466.1 million for 1997. Net income for 1999 increased due to growth in net interest income and lower noninterest expense, mostly offset by reduced branch sale gains. Improved deposit spreads drove the growth in 1999 net interest income. Cost efficiencies from merger integration savings and functional centralization efforts drove the decline in 1999 noninterest expense. Branch sale gains included in noninterest income were $9.5 million in 1999, $52.1 million in 1998 and $31.9 million in 1997. Excluding these gains, higher fee income also contributed to the improvement in operating results for 1999 and 1998. The increase in 1998 net income over 1997 principally resulted from an improved net interest margin and stronger fee income.

Consumer finance net income was $152.5 million, $117.5 million and $124.0 million in 1999, 1998 and 1997, respectively. Record loan origination volumes and the second half 1999 purchase acquisition of a leading wholesale originator of nonconforming residential mortgage loans drove the 1999 earnings increase. Net income for 1998 declined in comparison to 1997 primarily due to higher credit costs.

National Processing, Inc., National City’s 88%-owned item processing subsidiary, is a leading provider of merchant credit card processing services and corporate outsourcing solutions. The Corporation’s financial results included a net loss of $32.7 million in 1999 representing National City’s proportionate share of National Processing’s reported net loss compared to net income of $13.4 million in 1998 and $16.8 million in 1997. The net loss for 1999 stemmed from losses incurred on the divestiture of certain businesses. The divestitures also affected the comparability of revenue and expense, which was included for the entire 1998 and 1997 years, yet only included until the time of sale in the second quarter of 1999. Excluding the effect of the divested businesses, net income grew to $35.2 million in 1999, up from $22.1 million in 1998. An expanded merchant customer base and increased operating efficiencies led to the growth in net income in 1999. The decline in 1998 versus 1997 was due mainly to operating problems in the corporate outsourcing business.

Asset management, which includes institutional trust, brokerage and wealth management, reported net income of $146.6 million in 1999 and $126.7 million in 1998, representing increases of 15.6% and 36.2% over 1998 and 1997, respectively. New business and the strength of the equity markets drove the increases in net income.

National City Mortgage, a wholly-owned subsidiary of the Corporation, reported net income of $77.7 million, $69.5 million and $24.3 million in 1999, 1998 and 1997, respectively. A favorable interest rate environment in 1999 and 1998 fueled record origination volume which led to the strong operating results in both years.

The parent and other category for 1999 includes the effects of nonrecurring items other than the loss on the sale of the National Processing businesses. Excluding these items, parent and other net income in 1999 increased compared to 1998 due to more securities gains and a higher contribution from investment and funding activities. For 1998, the decline in the parent and other category reflects merger charges partially offset by securities gains.

Net Interest Income

The table beginning on the following page presents net interest income, interest spread and net interest margin for the five years 1995 through 1999, comparing daily average outstanding balances of earning assets and interest-bearing liabilities with the associated interest income and expense and the corresponding average rates earned and paid. To compare the tax-exempt asset yields to taxable yields, amounts are adjusted to pre-tax equivalents based on the marginal corporate Federal tax rate of 35%. The tax-equivalent adjustments to net interest income for 1999, 1998 and 1997 were $36.9 million, $40.2 million and $43.0 million, respectively. Average outstanding loan balances include nonperforming loans and mortgage loans held for sale. Average outstanding securities balances are computed based on amortized cost and exclude unrealized gains and losses on securities available for sale.

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The primary source of the Corporation’s traditional banking revenue is net interest income. Net interest income is the difference between interest income on earning assets, such as loans and securities, and the interest expense on liabilities used to fund those assets, including interest-bearing deposits and other borrowings. The amount of net interest income is affected by both changes in the level of interest rates and the amount and composition of earning assets and interest-bearing liabilities. Changes in net interest income are most often measured through two statistics — interest spread and net interest margin. The difference between the yields on earning assets and the rates paid for

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supporting funds represents the interest spread. The net interest margin is expressed as the percentage of net interest income to average earning assets. Both the interest spread and net interest margin are presented on a tax-equivalent basis. Because noninterest bearing sources of funds, or free funding, principally demand deposits and stockholders’ equity, also support earning assets, the net interest margin exceeds the interest spread.

Tax-equivalent net interest income increased $85.1 million to $3,037.0 million in 1999 from $2,951.9 million in 1998, which followed a $98.6 million increase from $2,853.3 million in 1997. A higher level of earning assets, partially

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offset by a lower net interest margin, led to the increase in 1999. The lower margin primarily reflects the cost of funding the Corporation’s share repurchase program. Since the fourth quarter of 1998, the Corporation repurchased 62.6 million shares, for an aggregate cost of $2.1 billion, which resulted in incremental funding costs during 1999 of approximately $98 million and reduced the net interest margin by an estimated 13 basis points. Excluding the cost of funding the share repurchase program, tax-equivalent net interest income for 1999 would have increased an estimated 6.2% compared to 1998. Net interest income increased in 1998 as a result of the Fort Wayne National Corporation acquisition, which added $87 million to net interest income, and strong loan growth, partially offset by a lower net interest margin. The decline in the net interest margin was due primarily to the combination of a lower yield on earning assets, the reliance on higher-cost borrowed funds to fund loan growth and a lower contribution from free funds.

The net interest margin was 3.99% in 1999, 4.11% in 1998 and 4.37% in 1997. Consistent with industry trends, the Corporation’s net interest margin has been narrowing. That trend is a reflection of heightened price competition for traditional loan and deposit products. Recent increases in short-term interest rates by the Federal Reserve have also pressured the Corporation’s net interest margin. A planned mix shift in 1999 toward higher-yielding loans and away from thinner-spread investment securities and conventional residential mortgages has helped mitigate this trend.

Average earning assets were $76.1 billion in 1999, an increase of $4.4 billion, or 6.1%, from 1998. During 1998, average earning assets were $71.7 billion, up $6.5 billion, or 9.9%, from 1997. Loan production during both years contributed to the growth in earning assets and the resulting improvement in net interest income. During 1999, the Corporation focused on shifting the composition of its loan portfolio and growing the proportion of higher-yielding commercial and installment loans. Average loans in 1999, excluding real estate, were $42.9 billion, up 11.1% compared to 1998, and advanced 14.5% in 1998 versus 1997. A 12.5% increase in average consumer installment loans and an 11.0% increase in average commercial loans propelled the earning asset growth in 1999. Throughout much of 1999, the Corporation actively managed its real estate portfolio, reducing lower-yielding residential loans and paring back commercial real estate exposure in certain markets and property types. Acquisitions contributed approximately $3 billion of the total asset growth in 1998.

Average interest bearing liabilities were $65.5 billion in 1999 and $61.9 billion in 1998, increases of 5.8% and 12.0%, respectively. Although the Corporation has been successful in attracting new noninterest bearing demand deposits, loan growth has outpaced deposits and the Corporation has used purchased funds to support the higher level of earning assets and to fund the share repurchase program.

In order to manage exposure to changes in interest rates, the Corporation has entered into various derivative contracts. Interest rate derivatives contributed $51.3 million, $40.2 million and $42.3 million to net interest income for 1999, 1998 and 1997, respectively. The effects of changing interest rates are more fully discussed in the Market Risk Management discussion beginning on page 19.

The following table shows changes in interest income, interest expense and net interest income due to volume and rate variances for major categories of earning assets and interest bearing liabilities. The change in interest not solely due to changes in volume or rates has been allocated in proportion to the absolute dollar amounts of the change in each.

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Noninterest Income

The following table provides details of noninterest income for the last three years:

The nonrecurring items referenced in the table above were comprised of gains on the sales of National City’s interest in Electronic Payment Services, Inc. and Stored Value Systems, Inc., partially offset by losses on the divestiture of certain business lines at National Processing, Inc., National City’s 88%-owned item processing subsidiary. Also affecting comparability was income from National Processing’s divested businesses being included in item processing revenue for the entire 1998 and 1997 years, yet only included until the time of sale in the second quarter of 1999. Excluding the effect of the divested businesses and nonrecurring items, fees and other income grew to $2,144.7 million, a 5.9% increase, from $2,026.2 million for 1998, with growth experienced in mortgage banking revenue, service charges on deposits, item processing revenue, trust and investment management fees, and brokerage revenue. Total fees and other income increased 23.4% in 1998, led by solid growth in most components of noninterest income. Lower service fees earned on securitized credit card receivables, which had begun to amortize, reduced card-related fees in 1998. The Fort Wayne acquisition added approximately $23 million to fees and other income in 1998, primarily within trust and investment management fees and service charges on deposits.

Total item processing revenue generated by National Processing declined in 1999 as a result of the divestiture of four business units. Item processing revenue from the core businesses was $360.1 million in 1999, up 8.8% from $331.0 million in 1998, and reflected increased consumer usage of credit and debit cards, as well as an expanded merchant customer base. In 1998, item processing revenue rose 23.2% due to acquisitions and an increase in merchant card revenue, offset by a decline in National Processing’s merchant check and remittance operations.

Service charges on deposits reached $420.4 million in 1999 and $384.9 million in 1998, representing increases of 9.2% and 7.1%, respectively. A higher volume of debit and other transactions as well as an increase in treasury management revenue led to the growth in both years. Improved deposit fee management and fee standardization implemented in connection with the Corporation’s reorganization along functional lines also contributed to the 1999 increase.

Trust and investment management fees, which includes both institutional trust and private investment management, increased 4.8% in 1999 and 11.6% in 1998. Successful sales efforts resulted in new business volume and along with equity market appreciation, led to the revenue growth in both years. Implementation of a uniform fee structure also contributed to higher fees earned in 1999. Investment management fees, based on the market value of assets, benefited from asset growth of 5.2%. At December 31, 1999, National City had total assets under administration of $147.9 billion, a $7.1 billion increase over year-end 1998, with $69.9 billion in assets under management, including $16.7 billion in National City’s proprietary Armada ® and Parkstone™ funds.

Card-related fees were $191.7 million in 1999, down from $201.2 million in 1998 and $205.6 million in 1997. Although the Corporation attracted new customers and account balances grew, the effect was more than offset by reduced servicing income from credit card securitizations.

Mortgage banking revenue advanced 19.0% in 1999 and 106.4% in 1998. Revenue growth was robust through most of 1999, although a higher interest rate environment in the latter half of the year slowed mortgage origination volume. Purchase acquisitions in the second half of 1999 of a wholesale originator of nonconforming residential mortgage loans, First Franklin Financial Companies, and the mortgage production units of AccuBanc Mortgage Corporation contributed $51.6 million to 1999’s mortgage banking revenue. A favorable interest rate environment drove revenue growth in 1998. Origination volume was $17.9 billion, $19.5 billion and $7.3 billion in 1999, 1998 and 1997, respectively. Strong origination volume led to the Corporation’s residential loan servicing portfolio climbing to $46.7 billion at December 31, 1999, up from $35.3 billion at December 31, 1998 and $24.9 billion at December 31, 1997. Mortgage banking revenue included gains on mortgage loans sold to the secondary market totaling $170.0 million, $165.5 million and $66.7 million in 1999, 1998 and 1997, respectively.

Brokerage revenue was up 15.0% in 1999 and 20.0% in 1998, propelled by successful retail sales efforts, increased marketing and strength in the equity markets. The increases posted in both years reflect strong retail brokerage sales, mutual fund and advisory fees, and investment banking revenue.

The decrease in 1999 other income was principally due to a $42.6 million decline in branch sale gains, partially offset by an $11.8 million increase in income from corporate-owned life insurance and a $10.2 million increase in income on leased equipment.

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Branch sale gains included in other income were $9.5 million, $52.1 million and $31.9 million in 1999, 1998 and 1997, respectively. The growth in other income in 1998 was largely attributable to an increase in the cash surrender value of corporate-owned life insurance, and higher income related to venture capital and trading activities.

Net realized securities gains and losses before nonrecurring items for the last three years are summarized as follows:

Securities gains reported in the Consolidated Statements of Income included a nonrecurring pre-tax gain of $32.1 million from the sale of Concord EFS, Inc. common stock. See Note 4 to the Consolidated Financial Statements.

Noninterest Expense

The following table provides details of noninterest expense for the last three years:

Operating expense levels are often measured by the efficiency ratio, which expresses noninterest expense as a percentage of tax-equivalent net interest income and total fees and other income. As Chart 3 illustrates, National City’s efficiency ratio, excluding nonrecurring items, has shown steady improvement over the last several years, moving down to 56.2% in 1999, from 58.4% in 1998 and 59.0% in 1997.

Noninterest expense, excluding nonrecurring items, for 1999 declined by $53.0 million, or 1.8%, compared to 1998. Merger integration savings and expense reductions from National Processing’s divestiture of business lines contributed to the decline. Partially offsetting these reductions were 1999 expenses added from purchase acquisitions, volume-related growth in the processing and other fee businesses, higher loan and lease processing costs from record originations, and information technology initiatives.

Nonrecurring expense in 1999 included charges of $28.6 million pursuant to a plan to improve the cost-efficiency of branch office facilities, along with $9.2 million for certain unrelated executive contract obligations. In 1998, nonrecurring expense represented merger and restructuring charges incurred in connection with the First of America Bank Corporation and Fort Wayne acquisitions. In 1997, nonrecurring expense included $33.3 million in costs associated with reorganizing National City’s six Ohio banking subsidiaries under a single statewide charter, $19.3 million in conjunction with the First of America merger and $13.3 million in severance and reorganization costs at National Processing.

The purchase acquisition of Fort Wayne added approximately $80 million to noninterest expense in 1998.

Salaries, benefits and other personnel costs increased in 1998 as a result of acquisitions but fell in 1999 as merger-related synergies were achieved. Incentive compensation increased in both years due to higher sales production.

Third-party service fees have fluctuated over the past three years. In 1999, the decline was primarily attributable to merger synergies leading to lower director, consulting and correspondent banking fees. In 1998, the increase in third-party service fees was due to the outsourcing of credit card processing, increased brokerage clearing fees and consulting costs.

Amortization of intangibles in both of the last two years increased due to goodwill and other intangible assets recorded in connection with 1999 and 1998 purchase acquisitions.

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Financial Condition

Average earning assets for 1999 were $76.1 billion compared to $71.7 billion in 1998 and $65.3 billion in 1997. Strong commercial and consumer loan originations contributed most prominently to the 6.1% increase in average earning assets during 1999. The 9.9% increase in 1998 over 1997 was primarily due to a 10.1% increase in average loans and a 9.3% increase in securities and other earning assets.

Loans: Loan balances at December 31 are summarized as follows:

The following table shows the percentage of loans in each category to total loans at year-end:

Commercial: Commercial loans grew in 1999 due to strong demand in local markets, aggressive sales efforts and competitive product offerings. The commercial lease portfolio, included in commercial loans, grew 30.8% to $1,211.2 million at December 31, 1999 from $926.1 million at December 31, 1998.

The majority of the commercial loan portfolio consists of loans made to middle-market customers in National City’s six-state market. The loan mix is diverse, covering a broad range and number of borrowers. There are no concentrations of loans in any one industry and as a matter of policy, emerging concentrations within a particular industry are continually monitored and controlled. International loans totaled $28.0 million and $41.0 million at December 31, 1999 and 1998, respectively.

An analysis of the maturity and interest rate sensitivity of commercial loans at December 31, 1999 follows:

Commercial Real Estate: At December 31, 1999, total commercial real estate loans comprised 10.0% of the total loan portfolio, down from 10.8% at year-end 1998. During 1999, the Corporation deliberately reduced its commercial real estate exposure in certain markets and property types. The portfolio contains no known concentrations of real estate loans in any deteriorating economic areas.

Activities in commercial real estate are based primarily on relationships with developers who are active in National City’s local markets, with more than 90% of outstandings in National City’s six-state market.

Residential Real Estate: During the past few years, the Corporation has intentionally reduced its investment in lower-yielding residential real estate loans. Conversely, because the Corporation has sold most of its new residential real estate loan volume into the secondary market, the off-balance sheet portfolio of residential loans serviced for other investors has grown to $46.7 billion at year-end 1999, up from $35.3 billion at December 31, 1998 and $24.9 billion at December 31, 1997.

Consumer: 71% of the portfolio is comprised of installment loans of which a majority are automobile sales financing; 71% of installment loans are indirect and 97% are at fixed rates. Education loans represented another 17% of the consumer portfolio and totaled $2,696.9 million at December 31, 1999, up from $2,586.6 million at December 31, 1998. The auto lease portfolio is also included in consumer loans and grew 23.2% to $1,882.7 million at December 31, 1999 compared to $1,528.5 million at year-end 1998.

Credit Card: Increased promotional activities, along with loans being transferred back onto the balance sheet from the unwind of securitizations, led to the 1999 growth in credit card balances. In 1998, credit card balances declined as a result of attrition. Off-balance sheet securitized credit cards totaled $500 million and $770 million at December 31, 1999 and 1998, respectively.

Home Equity: As a result of the Corporation offering home equity loans nationally through all available distribution channels and to qualified customers along with their mortgage loan approval, the outstanding balances grew 16.0% in 1999, following a 6.9% increase in 1998.

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Securities: Securities balances at December 31 are summarized as follows: