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 June 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 July 31, 2002 -- 611,059,283

[NATIONAL CITY CORPORATION LOGO]

QUARTER ENDED JUNE 30, 2002

FINANCIAL REPORT

AND FORM 10-Q

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

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........................................ 30
Consolidated Average Balance Sheets..................... 42
Daily Average Balances/Net Interest Income/Rates........ 44
Item 3. Quantitative and Qualitative Disclosures About
Market Risk............................................... 32
PART II -- OTHER INFORMATION
Item 1. Legal Proceedings
The information contained in Note 15 to the consolidated
financial statements under the section heading
"Contingent Liabilities" on pages 21-22 of this report
is incorporated herein by reference.
Item 2. Changes in Securities and Use of Proceeds (None)
Item 3. Defaults Upon Senior Securities (None)
Item 4. Submission of Matters to a Vote of Security Holders

On April 22, 2002 at the Annual Meeting of Stockholders of the
Registrant, stockholders took the following actions:

1. Elected as directors all nominees designated in the proxy statement
of March 8, 2002 as follows:

2. Approved the National City Corporation 2002 Restricted Stock Plan:
471,730,946 votes cast for, 59,165,180 votes cast against, and
7,901,917 votes withheld.

3. Approved the selection of Ernst & Young LLP as independent auditors
for National City Corporation for 2002: 521,401,410 votes cast for,
14,816,486 votes cast against, 2,572,067 votes withheld, and 8,095
broker non-votes.

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 June 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 Securities and
Exchange Commission's Web site at www.sec.gov.
Reports on Form 8-K: The following report was filed by
National City during the three-month period ended June
30, 2002.
April 18, 2002 -- National City Corporation issued a
news release reporting earnings for the three-month
period ended March 31, 2002.
Signature................................................... 47

2

FINANCIAL HIGHLIGHTS

(a) On January 1, 2002, the Corporation adopted Statement of Financial
Accounting Standards (SFAS) No. 142, Goodwill and Other Intangible Assets,
which requires goodwill to no longer be ratably amortized into the income
statement. This pro forma information is presented for comparative purposes
only. See Notes 1 and 7 to the consolidated financial statements for further
discussion of the Corporation's adoption of SFAS 142.

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. 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

7

Annual Report on 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 Statement of Financial
Accounting Standards (SFAS) No. 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 income statement 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 income statement.
Commercial loans and leases and loans secured by real estate are designated
as nonperforming when either principal or interest payments are 90 days or more
past due unless the loan or lease is sufficiently collateralized such that full
repayment of both principal and interest is expected and is in the process of
collection, terms are renegotiated below market levels, or when an individual
analysis of a borrower's creditworthiness indicates a credit should be placed on
nonperforming status. When a loan is placed on nonperforming status, uncollected
interest accrued in prior years is charged against the allowance for loan
losses, while uncollected interest accrued in the current year is charged
against interest income. Interest income during the period the loan is on
nonperforming status may only be 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
that 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, actual and
anticipated loss experience, current economic events in specific industries and
geographical areas, including unemployment levels, and other pertinent factors,
including regulatory guidance and general economic

8

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 the amounts necessary for 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 the economic recovery also
impacts 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 June 30, 2002, December 31, 2001, and June 30, 2001, trading
account securities totaled $18.5 million, $121.0 million, and $25.1 million,
respectively.
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.
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 equity and
mezzanine capital investments in private and public companies entered into by
the private equity group within the wholesale banking line of business, are
carried at estimated fair value with changes in fair value recognized in other
noninterest income. The fair values of publicly traded investments are
determined using quoted market prices. The fair values of investments that are
not publicly traded are estimated in good faith by management. Management's
estimate of fair value generally approximates cost together with any
other-than-temporary valuation adjustments determined appropriate by management.
Principal investments in debt and preferred equity securities are included in
other investments on the balance sheet, while investments in partnerships and
other equity interests are included in other assets.
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 treated 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

9

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 7 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 SECURITIZATION: Asset securitization involves the sale, generally to
a trust, of a pool of loan receivables. In an asset securitization transaction
that meets the applicable criteria under SFAS 140, Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities, to be
accounted for as a sale, assets are sold to a trust which is not consolidated on
the Corporation's balance sheet. The trust issues beneficial interests in the
form of senior and subordinated asset-backed securities collateralized by the
assets sold to the trust. 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 investors and for any other obligations such as
servicing fees and credit losses.
Gains or losses on securitizations depend, in part, on the previous carrying
amount of the assets transferred, allocated between the assets sold and the
interests retained based on their relative fair values at the date of sale.
Because quoted market prices are generally not available, the Corporation
estimates the fair values of the retained interests at the time of sale, and at
each subsequent measurement period, by determining the present value of future
expected cash flows using modeling techniques which incorporate certain
assumptions including 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.
Gains on securitizations are included in noninterest income.
Retained interests in the subordinated tranches and interest-only strips are
recorded at their fair value and included in the available-for-sale securities
portfolio with subsequent adjustments to fair value recorded through other
comprehensive income within stockholders' equity or in other noninterest expense
in the income statement if the fair value has declined below the carrying amount
and such decline has been determined to be other-than-temporary. The excess of
the fair value over the initial allocated cost of the subordinated tranches and
interest-only strips is accretable yield recognized as interest income over the
life of the investment using the effective yield method.
Annual servicing fees based on the securitized balances are received by the
Corporation from the trust and a servicing asset is recorded in other assets at
the time of securitization if the servicing fees are expected to exceed
associated servicing costs. Alternatively, a servicing liability could be
recorded if the servicing costs are expected to exceed the servicing fees.
Servicing assets are amortized into noninterest income as an offset against the
actual servicing income in proportion to the estimated future net servicing
income stream. 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. A servicing asset or liability is generally not recognized in a
credit card securitization, and thus not considered in the gain or loss
computation, because the Corporation receives adequate compensation relative to
current market servicing prices to service the receivables sold.
For securitizations involving credit card receivables, the Corporation's
continuing involvement in the securitized assets includes maintaining an
undivided, pro rata interest in all credit card loan receivables that are in the
trust, referred to as seller's interest. The seller's interest ranks pari-passu
with the investors' interests in the trust. As the amount of the loans in the
securitized pool fluctuates due to customer payments, purchases, cash advances,
and credit losses, the carrying amount of the seller's interest will vary.
However, the Corporation is required to maintain its seller's interest at a
minimum level of 4% of the initial invested amount in each series to ensure
receivables are available for allocation to the investors' interests.
Also with regard to credit card securitizations, the trust is not required
to make principal payments to the investors during the revolving period, which
generally approximates 48 months. Instead, the trust uses principal payments
received on the accounts to purchase new loan receivables. Therefore, the
principal dollar amount of the investor's interest in the loans in 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

10

principal to the investors in the credit card trust may begin earlier if the
average annualized yield on the loans securitized (generally equal to the sum of
interest income, interchange and other fees, less principal credit losses during
the period) for three consecutive months drops below a minimum yield (generally
equal to the sum of the coupon rate payable to investors plus contractual
servicing fees), or certain other events occur.
Transaction costs associated with revolving loan securitizations are
deferred over the 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 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 scenarios, 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. Risk associated with declines in the estimated fair value of
mortgage servicing assets due to increases in mortgage prepayment rates is
managed using derivative instruments.
The Corporation hedges portions of the risk associated with declines in the
estimated fair value of its mortgage servicing assets by designating derivative
instruments and certain mortgage servicing assets into SFAS 133 fair value hedge
relationships. The Corporation also uses other derivative instruments, not
designated in SFAS 133 hedge relationships, to protect against declines in the
estimated fair value of the mortgage servicing assets. 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. Interest rate risk associated with mortgage servicing assets is
measured through analyses, which compute the expected change in estimated fair
value of

11

the mortgage servicing assets and the hedging derivatives at various parallel
interest rate shifts.
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 recognized over the period of service, usually the restricted period,
based on the fair value of the stock on the date of grant.
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

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, Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed of, 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
new 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 7 provide further detail on the
accounting for goodwill and intangible assets under the new 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

12

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, the Corporation's electronic payment processing subsidiary,
National Processing, 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, 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. OFF-BALANCE SHEET ARRANGEMENTS

ASSET SECURITIZATION: 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 comprised of $23.6 million representing the attributed
allowance for loan losses and $1.2 million representing net adjustments
associated with establishing the Corporation's retained interests in the trust.
The initial carrying value of the interests retained totaled $31.9 million, with
$4.9 million representing an interest-only strip and $27.0 million representing
subordinated loan tranches. Transaction costs of $1.7 million were incurred in
connection with the securitization and are being amortized over the five-year
revolving term of the securitization.
In January 2001, the Corporation also sold $425.0 million of credit card
receivables to the trust and recognized a pretax gain of $20.6 million, which
was comprised of $16.2 million of attributed allowance for loan losses and $4.4
million of adjustments associated with establishing the Corporation's retained
interests in the trust. The initial carrying value of the retained interests
totaled $32.0 million, with $4.4 million representing an interest-only strip and
$27.6 million representing subordinated loan tranches. Transaction costs of $1.8
million were deferred and are being amortized over the five-year 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 comprised of $8.4 million
representing the attributed allowance for loan losses and $16.9 million
representing the net of loan basis adjustments, the establishment of the
Corporation's retained interests in the trust, and transaction costs. The
initial carrying value of the interests retained totaled $121.5 million, with
$41.3 million representing an interest-only strip, $16.5 million representing
the Corporation's right to service the loans, $62.1 million representing
subordinated loan tranches, and $1.6 million representing dealer rebate
receivables.
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.

13

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

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, the key economic assumptions used to arrive at the fair values,
and the sensitivity of the June 30, 2002 fair values to immediate 10% and 20%
adverse changes in those assumptions follows:

(a)Represents interest-only strip
(b)Absolute prepayment speed

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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 assumptions; 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.
ASSET-BACKED COMMERCIAL PAPER CONDUIT: The Corporation serves as the
administrative agent and investment advisor to a commercial paper conduit that
purchases high-grade assets from the Corporation and certain select corporate
customers and then issues high-grade commercial paper to third-party investors
that is collateralized by such assets. The conduit was established in 2000 and
is considered an unconsolidated qualified special purpose entity under the
guidelines of SFAS 140. The conduit's purpose is to provide alternative funding
sources for the Corporation as well as to preserve capital. It also supports
customers' financing needs by facilitating their access to the commercial paper
markets. The Corporation does not sell troubled loans or problem assets to the
conduit. The Corporation continues to service the assets it sells the conduit
and provides a liquidity facility and letters of credit to the conduit for which
it earns fee income. The Corporation applies the same underwriting standards in
making liquidity and other credit commitments to the conduit as it would with
other extensions of credit. Further discussion of these commitments is included
in Note 15. The Corporation also assumes interest-rate risk through a
receive-fixed interest-rate swap under which it receives or pays the spread
between the yield earned on certain assets sold to the conduit and the interest
rate paid on the commercial paper issued by the conduit. The interest-rate swap
is included in the Corporation's derivative portfolio. Further discussion of
derivatives is included in Notes 1 and 17.
During the first half of 2002, the Corporation sold securities, primarily
high-grade variable-rate asset-backed securities, to the conduit having a
principal balance of $454.9 million. As of June 30, 2002, December 31, 2001, and
June 30, 2001, the conduit held assets totaling $3.1 billion, $2.8 billion and
$2.6 billion, respectively, with $819.7 million, $386.8 million, and $85.2
million, of those assets sold to the conduit by corporate customers. The assets
held by the conduit at June 30, 2002 primarily consisted of marketable asset-
backed securities and secured loan and lease receivables.
The accounting for special purpose entities is currently under review by the
Financial Accounting Standards Board and the conditions for consolidation or
non-consolidation of such entities could change.

5. LOANS AND ALLOWANCE FOR LOAN LOSSES

Activity in the allowance for loan losses follows:

The Credit Quality section of the Financial Review provides detail regarding
nonperforming loans. Nonperforming loans totaled $703.8 million, $594.0 million,
and $456.7 million at June 30, 2002, December 31, 2001, and June 30, 2001,
respectively. For loans classified as nonperforming at June 30, 2002, the
contractual interest due and actual interest recognized on those loans for the
first half of 2002 was $33.6 million and $5.2 million, respectively. Included in
nonperforming loans were impaired loans, as defined by SFAS 114, aggregating
$412.4 million, $170.1 million, and $142.5 million at June 30, 2002, December
31, 2001, and June 30, 2001, respectively. Average impaired loans for the first
six months of 2002 and 2001 totaled $311.0 million and $106.7 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 June 30, 2002, December 31, 2001, and June 30,
2001 was $75.8 million, $62.9 million, and $60.8 million, respectively. At June
30, 2002, impaired loans with an associated allowance totaled $237.8 million,
while $174.6 million of impaired loans had no related allowance. There was no
interest recognized during the six months ended June 30, 2002 and 2001 on
impaired loans while such loans were considered impaired.

15

6. 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 $155.4 million and $153.4 million, respectively, as of
June 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 $381.4 million and $445.7 million, respectively, at June 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 $277.0
million, $179.2 million, and $178.0 million at June 30, 2002, December 31, 2001
and June 30, 2001, respectively. Gross unrealized losses at the same period ends
totaled $10.6 million, $22.6 million and $23.0 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 six months ended June 30, 2002 and 2001, gross realized securities
gains were $97.6 million and $106.6 million, respectively. Gross realized
securities losses for the six month period ended June 30, 2001 were $1.5
million. There were no securities losses realized during the first half of 2002.
At June 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 $7.1 billion.
As of June 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.

7. 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 six month periods ended June 30, 2002
as compared to the same periods in 2001. A presentation showing comparable three
and six month periods ended June 30, 2002 and 2001 follows. The 2001 periods are
presented on a pro forma basis excluding goodwill amortization.

Additionally, as part of the statement's adoption provisions, SFAS 142
required a transitional impairment test be applied to goodwill and other
indefinite-lived intangible assets within the first half of 2002 and any
resulting impairment loss be 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 assets on
its balance sheet.

16

A summary of goodwill assets by line of business follows:

As of December 31, 2001 and June 30, 2001, the Corporation had goodwill
assets of $1,086.0 million and $1,116.6 million, respectively. On January 1,
2002, in conjunction with the adoption of SFAS 142, previously classified
goodwill with a net carrying value of $7.7 million was transferred to core
deposit intangibles because these assets met 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 other intangibles.
Other intangibles relate almost solely 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 other intangible assets follows:

Amortization expense on finite-lived intangible assets totaled $5.2 million
and $10.4 million for the three and six month periods ended June 30, 2002,
respectively. For the same 2001 periods, amortization expense was $4.1 million
and $8.2 million, respectively. Amortization expense on finite-lived intangible
assets is expected to total $20.9 million, $20.9 million, $19.6 million, $7.4
million, and $4.9 million in 2002, 2003, 2004, 2005, and 2006, respectively.

8. 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:

17

A summary of conforming and nonconforming residential mortgage loan
originations and sales follows:

National City's portfolio of residential mortgage loans serviced for third
parties was $94.6 billion at June 30, 2002, compared to $73.9 billion at
December 31, 2001 and $62.2 billion at June 30, 2001.
Changes in the carrying value of mortgage servicing assets follows:

At June 30, 2002 and 2001, the carrying value of the mortgage servicing
assets approximated the estimated fair value. 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 speeds, discount rates, servicing costs, and other economic
factors. The key economic assumptions used in determining the fair value of
mortgage servicing assets capitalized in the first half of 2002 were as follows:
- ------------------------------------------------------------

Weighted-average prepayment speed (annual CPR)....... 18.01%
Weighted-average life (in years)..................... 4.4
Weighted-average discount rate....................... 10.91%

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

At June 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 speed estimates could result in changes in the discount
rates), which might magnify or counteract the sensitivities.

Increases in mortgage loan prepayments reduce estimated future net servicing
cash flows because the underlying life of the loan is reduced. Risk associated
with declines in the estimated fair value of mortgage servicing assets due to
increases in mortgage prepayment rates is managed using derivative instruments.
The Corporation hedges portions of the risk associated with declines in the fair
value of its mortgage servicing assets by designating derivative instruments and
certain mortgage servicing assets into SFAS 133 fair value hedge relationships.
The Corporation also uses other derivative instruments, not designated in SFAS
133 hedge relationships, to protect against declines in the estimated fair value
of the mortgage servicing assets. Further discussion on derivative instruments
and hedging activities is included in Notes 1 and 17. 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.

9. 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.

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10. 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 converting the debt to variable rate and by hedging
the cash flow variability associated with certain variable-rate debt by
converting the debt to fixed rate. Further discussion on derivative instruments
is included in Notes 1 and 17.
At June 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, $11,516.0 million and $3,740.6 million, respectively.
All subordinated notes of the parent company and bank subsidiaries were
issued at fixed rates, pay interest semi-annually, and may not be redeemed prior
to maturity. At June 30, 2002, $2,325.0 million of fixed-rate subordinated debt
was converted to variable-rate debt based on the three-month London Interbank
Offering Rate (LIBOR).
At June 30, 2002, senior bank notes totaling $2,017.0 million were
contractually based on a fixed rate of interest and $9,499.0 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
June 30 were 3.04% and 2.13%, respectively. Through the use of interest rate
swaps, as of June 30, $950.0 million of the fixed-rate senior bank notes had
been 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 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 June 30, 2002 contractually consisted of $190.6 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 June 30 were 5.68% and 1.85%, respectively. Through the use of interest rate
swaps, as of June 30, fixed-rate advances with a par value of $100.0 million had
been 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 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 June 30, 2002.

11. 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

19

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.

12. 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, liquidity, and operations.
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 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 June 30, 2002, December 31, 2001, and June 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 June 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.

13. STOCKHOLDERS' EQUITY

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

National City's preferred stock has a stated value of $50 per share. The
holders of the preferred shares are entitled to receive cumulative preferred
dividends payable quarterly at the annual rate of 6%. Holders of the preferred
shares have the right, at any time at their option, to convert each share of
preferred stock into 3.0291 shares of National City common stock. The preferred
shares are redeemable by National City at $50 per share plus unpaid dividends.
In July 2002, National City announced that on August 30, 2002 it will redeem all
then outstanding shares of its preferred stock at a redemption price of
$50.50137 per share. Preferred stockholders can exercise their conversion right
through August 20, 2002.

20

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. During the first six 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 half of 2002 and
as of June 30, 2002, 15.6 million shares remained authorized for repurchase
under the October 1999 repurchase authorization.
A summary of activity in accumulated other comprehensive income follows:

14. INCOME TAX EXPENSE

The composition of income tax expense follows:

The effective tax rate was 34.2% and 37.9% for the six months ended June 30,
2002 and 2001, respectively. Income tax expense for the first six months of 2001
included a $40.0 million charge related to tax exposure for corporate-owned life
insurance deductions. See Note 15 for further discussion.

15. COMMITMENTS, CONTINGENT LIABILITIES, AND RELATED PARTY TRANSACTIONS

COMMITMENTS: A summary of the contract 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, and changes in the fair
value of those commitments 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 17.
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.

21

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 17.
Under an agreement with an unconsolidated commercial paper conduit into
which the Corporation and certain corporate customers have sold assets, National
City has a commitment to provide liquidity to the conduit in the event funding
cannot be readily accessed in the commercial paper market. As of June 30, 2002,
December 31, 2001, and June 30, 2001, the liquidity commitment to the commercial
paper conduit was $4.2 billion, $3.6 billion, and $3.2 billion, respectively.
There were no outstandings under this liquidity facility as of those dates.
National City also provides standby letters of credit to the conduit to provide
partial credit protection to commercial paper holders. Letter of credit
commitments totaled $83.5 million, $18.5 million, and $25.0 million at June 30,
2002, December 31, 2001, and June 30, 2001, respectively. The liquidity and
credit commitments to the conduit are included within the other loan commitment
and standby letter of credit totals presented in the table on the previous page.
Further discussion of this conduit is included in Note 4.
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 Annual Report on 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. As a result, the Corporation has no
further balance sheet or income statement exposure related to this matter.
The Corporation, through merchant card services provided by its 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 the Corporation credits or refunds the
customer but is unable to collect the amount from the merchant due to bankruptcy
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 arise
in the event the Corporation is unable to collect from the merchant. In the
opinion of management, the probability of a material loss to the Corporation
arising from any potential contingent liability is remote.
National City or 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 the consolidated financial statements would not be
materially affected by the outcome of any present legal proceedings,
commitments, or claims.
RELATED PARTY TRANSACTIONS: The Corporation has no material related party
transactions which would require disclosure. The Corporation does 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.

22

16. 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.

17. 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, Accounting for Derivative Instruments and Hedging Activities,
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 is the risk a counterparty to a derivative contract with an
unrealized gain fails to perform according to the terms of the agreement. Credit
risk is managed by limiting the aggregate amount of net unrealized gains in
agreements outstanding, monitoring the size and the maturity structure of the
derivative portfolio, applying uniform credit standards to all activities with
credit risk, and collateralizing gains. The Corporation has established
bilateral collateral agreements with its major derivative dealer counterparties
that provide for exchanges of marketable securities or cash to collateralize
either party's net gains. At June 30, 2002, these collateral agreements covered
99.2% of the notional amount of the total derivative portfolio, excluding
futures and forward commitments to sell or purchase mortgage loans or
23

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 $137.8 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 $68.5 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 that these contracts usually mature within 90 days. Open futures
contracts are also not covered by collateral agreements since 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.
All derivative contracts are valued using either cash flow projection models
acquired from third parties or observable market prices. Pricing models used for
valuing derivative instruments are regularly validated by testing through
comparison with other third parties. The valuations and expected lives presented
in the following tables are based on yield curves, forward yield curves, and
implied volatilities that were observable in the cash and derivatives markets on
June 30, 2002 and December 31, 2001.
FAIR VALUE HEDGES: The Corporation 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 included 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 June 30,
2002 and December 31, 2001.
For the three and six month periods ended June 30, 2002, the Corporation
recognized total net ineffective fair value hedge gains of $141.0 million and
$165.1 million, respectively. For the same periods in 2001, the Corporation
recognized total net ineffective hedge gains in the amount of $6.3 million and
$1.7 million, respectively. Of the total gains recognized, net ineffective hedge
gains related to mortgage loans held for sale and servicing assets were $139.1
million and $159.0 million for the three and six month periods ended June 30,
2002, respectively, compared to $5.3 million and $3.9 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 $1.9 million and $6.1 million for the three and six
month periods ended June 30, 2002, respectively. Net ineffective hedge gains
(losses) related to these hedged assets and liabilities were $1.0 million and
$(2.2) million for the same periods in 2001, respectively. No gains or losses
were recognized during the first half of 2002 and 2001 related to components of
derivative instruments which were excluded from the assessment of hedge
ineffectiveness.
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 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 six month periods ended June 30, 2002, the Corporation
recognized net ineffective cash flow hedge losses of $.4 million and $.5
million, respectively. For the six months ended June 30, 2001, a net ineffective
cash flow hedge loss of $.1 million was recognized. These losses are included in
other noninterest income on the income statement. There were no ineffective cash
flow hedge gains or losses recognized during the second quarter of 2001. Also,
no gains or losses were recognized during the first half of 2002 and 2001
related to components of derivative instruments which were excluded from the
assessment of hedge ineffectiveness.
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 June 30, 2002 and 2001,
accumulated other comprehensive income included a deferred after-tax net loss of
$82.8 million and $52.2 million, respectively, related to derivatives used to
hedge funding cash flows. See Note 13 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 June 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 $66.8 million of
net loss expected to be reclassified within the next year. For the three and six
month periods ended June 30, 2002, pretax losses of $40.8 million and $87.3
million, respectively, were reclassified into interest expense as adjustments to
interest payments on variable rate funding products. For the same 2001 periods,
pretax losses of $13.3 million and $15.3 million, respectively,

24

were reclassified into interest expense. Also during the first six 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 in either the first half of 2002 or
2001 because it became probable 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:

25

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

(a) Represents net ineffective hedge gain (loss) on hedging strategy for the
six-month period ended June 30, 2002
(b) The weighted-average rates are those in effect in the specified contracts at
June 30, 2002

26

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

(a) The weighted-average rates are those in effect in the specified contracts at
December 31, 2001

27

18. 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 includes deposit gathering, direct consumer
lending, and small business banking services. Wholesale banking includes credit
and related financial services to large- and medium-sized corporations along
with syndicated lending, principal investing, structured finance, and investment
banking. Consumer finance is comprised of credit card lending, education
finance, dealer finance, national home equity lending, and nonconforming
residential lending and servicing. Asset management includes the institutional
trust, retail brokerage, and personal wealth management businesses. National
City Mortgage represents conforming mortgage banking activities conducted
through the Corporation's wholly-owned subsidiary, National City Mortgage Co.
National Processing consists of electronic merchant card processing and payment
services conducted through National Processing, Inc., National City's 85%-owned
subsidiary.
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
accounting policies of the individual business units are the same as those of
the Corporation. Prior period amounts have been restated to conform with the
current period's presentation.
Operating results of the business units are discussed in the Line of
Business Results section of the Financial Review. Selected financial information
by line of business is included in the table below.

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

28

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

29

FINANCIAL REVIEW
This financial review discusses the financial condition and results of
operations of National City Corporation for the three and six months ended June
30, 2002 and serves as an update to the Corporation's 2001 Annual Report on 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 29 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, and changes in regulatory or legislative requirements. Other factors that
could cause or contribute to such differences are 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 half of 2002 related to these critical accounting
areas is discussed in this financial review. The remainder of this financial
review should be read in conjunction with the consolidated financial statements
and related notes presented on pages 4 through 29.
RECENT ACCOUNTING PRONOUNCEMENTS
Note 2 to the consolidated financial statements discusses new accounting
policies adopted

30

by the Corporation during the first half of 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 or results of operations, the impacts are
discussed in the applicable section(s) of this financial review.

EARNINGS SUMMARY
Net income for the second quarter and first six months of 2002 was $392.8
million and $838.9 million, respectively, compared to net income of $349.5
million and $684.9 million, respectively, for the same periods in 2001. Net
income per diluted share was $.63 for the 2002 second quarter, up from $.57 in
the second quarter of 2001. Net income per diluted share for the first six
months of 2002 was $1.36, up from $1.12 for the first six months of 2001.
Returns on average common equity and average assets were 20.0% and 1.61%,
respectively, for the second quarter of 2002, compared to 20.5% and 1.52%,
respectively, for the second quarter of 2001. Year-to-date returns on average
common equity and average assets in 2002 were 22.0% and 1.69%, respectively,
versus 20.5% and 1.54%, respectively, in 2001.
NET INTEREST INCOME
This section should be read in conjunction with the information presented
in tables 1, 2, and 3, and the average balance sheets on pages 42-45.

TABLE 1: AVERAGE EARNING ASSETS

Three Months Ended
---------------------------------
JUNE 30 Mar. 31 June 30
(In Millions) 2002 2002 2001
- -----------------------------------------------------------------------------------------------
Portfolio loans............................................. $67,930 $67,929 $67,158
Loans held for sale or securitization....................... 10,343 15,015 7,453
Securities (at cost)........................................ 8,660 8,834 8,768
Other....................................................... 864 800 642
------- ------- -------
Total earning assets...................................... $87,797 $92,578 $84,021
======= ======= =======

TABLE 2: AVERAGE SOURCES OF FUNDING

Three Months Ended
-------------------------------
JUNE 30 Mar. 31 June 30
(In Millions) 2002 2002 2001
- ---------------------------------------------------------------------------------------------
Noninterest bearing deposits................................ $12,760 $12,366 $11,550
Interest bearing core deposits.............................. 37,950 37,124 36,175
------- ------- -------
Total core deposits..................................... 50,710 49,490 47,725
Purchased deposits.......................................... 8,834 11,321 10,348
Short-term borrowings....................................... 8,499 12,882 10,083
Long-term debt and capital securities....................... 19,432 18,615 15,612
------- ------- -------
Total purchased funding................................. 36,765 42,818 36,043
Stockholders' equity........................................ 7,886 7,529 6,868
------- ------- -------
Total funding........................................... $95,361 $99,837 $90,636
======= ======= =======
Total interest bearing liabilities...................... $74,715 $79,942 $72,218
======= ======= =======

TABLE 3: PERCENTAGE COMPOSITION OF AVERAGE FUNDING SOURCES

Three Months Ended
-------------------------------
JUNE 30 Mar. 31 June 30
2002 2002 2001
- ---------------------------------------------------------------------------------------------
Core deposits............................................... 53.2% 49.6% 52.7%
Purchased deposits.......................................... 9.3 11.3 11.4
Short-term borrowings....................................... 8.9 12.9 11.1
Long-term debt and capital securities....................... 20.3 18.7 17.2
----- ----- -----
Purchased funding........................................... 38.6 42.9 39.7
Stockholders' equity........................................ 8.3 7.5 7.6
----- ----- -----
Total................................................... 100.0% 100.0% 100.0%
===== ===== =====

Tax-equivalent net interest income for the second quarter and first six
months of 2002 was $970.4 million and $2.0 billion, respectively, up from $835.0
million and $1.6 billion for the comparable 2001 periods. The net interest
margin increased to 4.42% in the second quarter of 2002 from 4.36% in the first
quarter of this year and 3.98% in last year's second quarter. The 2002
year-to-date net interest margin was 4.39%, up from 3.95% 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 loan 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 balance sheet restructuring efforts in prior periods, also
contributed to the net interest margin's strength.
The Corporation continued to diversify its funding sources for greater
capital efficiency through asset securitization. During the first half of 2002,
$425.0 million of credit card receivables and $1.1 billion of automobile loans
were securitized. During the first half of last year, the Corporation
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

31

of asset-backed securities. The Corporation's on-balance-sheet funding needs are
then reduced. Further detail on asset securitization transactions, including
retained interests, is included in Notes 1 and 4 of the consolidated financial
statements.
Average earning assets were higher on a year-over-year basis due to strong
mortgage and home equity loan growth fueled mainly by the low rate environment,
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 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 Financial Corporation (First Franklin). A
portion of this production is retained in portfolio with the remainder sold to
third parties. Over the past year, $4.9 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 loan production was originated for sale in the secondary
market. In addition to benefiting from lower interest rates, home equity loan
growth during the past year has also been supported by increased focus on the
national home equity market. The national home equity group, which is part of
the consumer finance line of business, originates out-of-market home equity
loans through a network of retail and wholesale brokers throughout the United
States. Commercial loans declined from the prior year primarily due to the
weaker economy, which has dampened loan demand. Also affecting the commercial
loan portfolio during the first half of 2002 was the reclassification of
approximately $400 million of real-estate secured loans from the commercial loan
portfolio to the commercial real estate portfolio.
Year-over-year growth in average loans held for sale or securitization was
driven primarily by mortgage refinancing. Average mortgage loans held for sale
decreased in the second quarter of 2002 as sales outpaced originations.
Average year-to-date securities balances declined slightly in 2002 while
the balance of other earning investments increased. These fluctuations primarily
reflect a lower level of investment in the Corporation's bank stock fund
portfolio and an increase in cash held in short-term money market funds.
The funding mix has improved over the past year. Average core deposits grew
to $50.7 billion in the second quarter of 2002, up from $49.5 billion last
quarter and $47.7 billion in the year ago quarter. The increase in core deposits
continued a sequential quarter growth trend that began in the fourth quarter of
2000 as the Corporation continued its focus on new account acquisition and
retention, expanded product offerings, and improved customer service. Core
deposit growth over the past 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.

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

32

by the effect of changes in 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 that the shape of the yield curve does not
change.

The most recent earnings simulation model prepared for the July 2002 ALCO
meeting projects net income would decrease by approximately 7.9% 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 3.2% 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 Company. 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 8 to the consolidated financial statements.
The NPV model prepared for the July 2002 ALCO meeting projects a decline in
NPV of approximately .5%, 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 1.3%. 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 Annual Report on Form 10-K,
was slightly asset sensitive. During the first half of 2002, management
continued to allow the Corporation's interest-rate-risk position to grow more
asset sensitive due to the continued expectation that market interest rates will
rise. The shift toward greater asset sensitivity resulted from both changes in
business mix, particularly an increase in specialty deposit products, which
extended the maturity of the customer deposit portfolio, and the use of
derivative instruments to convert variable-rate funding to fixed rate. See Notes
1 and 17 to the consolidated financial statements for further discussion of the
Corporation's use of and the accounting for derivative instruments.

NONINTEREST INCOME
Fees and other income (Table 4) for the second quarter of 2002 totaled
$729.3 million, up from $690.9 million in the 2002 first quarter and from $681.9
million in the second quarter of 2001. Fees and other income for the first half
of 2002 reached $1.4 billion, up from $1.3 billion last year. The predominant
factor behind the growth in 2002 was mortgage banking revenue, which reached
record levels in both the second quarter and first half of the year.
Mortgage banking revenue growth on both a year-over-year and linked-quarter
basis was driven primarily by heavy origination volumes and higher gains on
sales of loans into the secondary market. Conforming mortgage loan sales reached
$15.4 billion in the second quarter of 2002, up from $10.4 billion for the same
quarter

33

in 2001, but down slightly from the $17.0 billion sold during the first quarter
of this year. For the first half of 2002, conforming mortgage loan sales were
$32.4 billion, compared to $16.5 billion for the same period in 2001. Sales of
First Franklin nonconforming mortgage loans totaled $1.2 billion during the
second quarter of 2002, up from $634.7 million in the first quarter of this year
and $851.7 million for the second quarter of 2001. First Franklin loan sales for
the first six months of 2002 were $1.9 billion, up from the $955.1 million sold
during the same period in 2001. Both conforming and nonconforming mortgage loan
production continued to be strong during the second quarter and first half of
2002 as interest rates for new loans remained at historically low levels. Total
conforming and nonconforming loans originated for sale to third parties totaled
$14.9 billion and $29.9 billion for the second quarter and first half of 2002,
respectively, compared to $14.6 billion and $24.1 billion for the same 2001
periods. Management expects loan refinancing activity, which has been driving
the high volume of originations, to subside 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 value of
mortgage servicing assets and the value of fixed-rate loans not yet sold and
loan commitments. Further detail of mortgage banking revenue and discussion
regarding hedging strategies used to mitigate risk related to mortgage banking
activities is included in Notes 8 and 17 to the consolidated financial
statements.
The second quarter and first half of 2002 saw volume-driven growth in
deposit service charges, other service fees, and brokerage income compared to
the prior year. These increases were partially offset by declines in
card-related fees, trust and investment management fees, and payment processing
revenue. Other service fees were up due to a higher level of loan syndication
revenue, while brokerage income increased due mainly to an increase in fixed
annuity sales, reflecting stronger customer demand for this type of product. The
decrease in card- related fees was primarily attributed to the increase in
securitized credit card balances, which resulted in certain revenue streams
being shifted to interest income. Trust and investment management fees were
lower primarily as a result of the weaker equity markets but showed a
linked-quarter increase due to seasonal tax preparation fees. Payment processing
revenue declined slightly due to the sale of National Processing's Business
Processing Outsourcing unit in August 2001 and lower airline ticket processing
revenue, mostly offset by an increase in merchant processing revenue related to
new customers and higher transaction volumes.

TABLE 4: NONINTEREST INCOME

Three Months Ended Six Months Ended
---------------------------------- -----------------------
JUNE 30 Mar. 31 June 30 JUNE 30 June 30
(In Thousands) 2002 2002 2001 2002 2001
- --------------------------------------------------------------------------------------------------------------------------
Mortgage banking revenue.................................... $247,475 $195,217 $114,924 $ 442,692 $ 239,350
Deposit service charges..................................... 125,763 118,787 117,466 244,550 229,272
Payment processing revenue.................................. 111,707 108,841 115,724 220,548 222,165
Trust and investment management fees........................ 85,136 77,575 86,023 162,711 167,873
Card-related fees........................................... 31,873 32,136 38,569 64,009 83,240
Other service fees.......................................... 30,706 21,555 25,787 52,261 51,977
Brokerage income............................................ 30,762 27,067 23,657 57,829 47,082
Other....................................................... 65,869 109,683 159,765 175,552 239,496
-------- -------- -------- ---------- ----------
Total fees and other income............................... 729,291 690,861 681,915 1,420,152 1,280,455
Securities gains, net....................................... 44,033 53,532 16,936 97,565 105,066
-------- -------- -------- ---------- ----------
Total noninterest income.................................. $773,324 $744,393 $698,851 $1,517,717 $1,385,521
======== ======== ======== ========== ==========

Other fee income declined on a year-over-year and linked-quarter basis.
Included in fee income in the second quarter and first half of 2001 was an $88.8
million gain on the sale of the Corporation's preferred share interest in
National Asset Management Corporation (NAMCO). See Note 3 to the consolidated
financial statements for further discussion of this transaction. Also affecting
comparability between periods were asset securitization gains of $50.1 million
and $20.6 million recorded in the first quarters of 2002 and 2001, respectively.
See Note 4 of the consolidated financial statements for further discussion of
these securitization transactions. On a linked-quarter basis, the decrease in
other fee income is attributed to the previously mentioned securitization gains
recorded in the first quarter of this year, partially offset by a $10.3 million
gain on the sale of student loans and a $5.1 million gain recorded for
contingent consideration

34

received in accordance with the NAMCO sales agreement, both recorded in the 2002
second quarter.

Net securities gains were $44.0 million and $97.6 million, respectively,
for the second quarter and first half of 2002. Net securities gains for the same
2001 periods were $16.9 million and $105.1 million, respectively. The majority
of the securities gains were generated from the Corporation's internally managed
portfolio of bank and thrift common stock investments. Bank stock gains for the
second quarter and first half of 2002 were $41.6 million and $90.1 million,
respectively, compared to $17.4 million and $102.3 million, respectively, for
the same 2001 periods. Of the $41.6 million of bank stock fund gains recorded in
the 2002 second quarter, $14.2 million represented appreciation on securities
donated to the Corporation's charitable foundation. Net unrealized losses in the
bank stock fund portfolio are included in other comprehensive income within
stockholders' equity and were $2.0 million at June 30, 2002.

NONINTEREST EXPENSE
Noninterest expense (Table 5) was $973.9 million in the second quarter of
2002, compared to $874.9 million in the first quarter and $840.1 million in the
second quarter of 2001. Noninterest expense for the first half of 2002 was $1.8
billion, compared to $1.6 billion in the first half of 2001. In general, 2002
noninterest expense 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 Six Months Ended
------------------------------ -----------------------
JUNE 30 Mar. 31 June 30 JUNE 30 June 30
(In Thousands) 2002 2002 2001 2002 2001
- ----------------------------------------------------------------------------------------------------------------------
Salaries, benefits, and other personnel..................... $445,393 $444,328 $432,833 $ 889,721 $ 843,226
Equipment................................................... 61,325 62,299 60,747 123,624 120,749
Net occupancy............................................... 55,334 54,824 53,544 110,158 107,023
Third-party services........................................ 59,668 53,585 49,963 113,253 93,564
Card processing............................................. 52,112 53,816 47,652 105,928 91,127
Postage and supplies........................................ 29,996 31,504 32,643 61,500 63,819
Goodwill and other intangible asset amortization............ 5,213 5,203 21,065 10,416 42,147
Marketing and public relations.............................. 75,447 26,149 24,013 101,596 40,558
Telecommunications.......................................... 22,056 21,433 20,900 43,489 42,207
Travel and entertainment.................................... 14,625 14,106 14,009 28,731 27,561
State and local taxes....................................... 14,352 17,236 13,582 31,588 26,981
Other....................................................... 138,401 90,406 69,151 228,807 146,137
-------- -------- -------- ---------- ----------
Total noninterest expense................................ $973,922 $874,889 $840,102 $1,848,811 $1,645,099
======== ======== ======== ========== ==========

Significant items affecting comparability between periods included: a $52.8
million charge in the second quarter of 2002 arising from 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 $37.7 million and $18.1 million in the second quarter of 2002 and
2001, respectively, and $50.9 million and $51.6 million, respectively, for the
first half of 2002 and 2001; and charges totaling $22.4 million recorded in the
second quarter of 2002 to reflect estimated impairment in various other assets.
The charitable foundation contribution was included in marketing and public
relations expense, while the automobile lease residual and other impairment
charges were included in other noninterest expense. Other noninterest expense in
2002 also included a higher level of fraud and other losses associated primarily
with increased mortgage banking activity.
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 $16.3 million and $32.6 million for the second quarter and first half
of the year, respectively, as compared to 2001, with a resulting benefit to
diluted earnings per share of approximately $.03 and $.05 for the second quarter
and first half of 2002, respectively. See Notes 1 and 7 to the consolidated
financial statements for further discussion of the adoption of SFAS 142.
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 investment, 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 57.3% and 54.4% for the
second quarter and first six months of 2002, respectively, compared to 55.4%

35

and 56.8% for the comparable periods in 2001.
National City's staffing level on a full-time equivalent basis was 32,158
at June 30, 2002, down from 36,153 a year ago due primarily to a decline in
staff at National Processing resulting from the sale of its Business Process
Outsourcing unit last year, offset to some extent by an increase in staff at
National City Mortgage necessary to manage the higher level of loan origination
and sale activity.

INCOME TAXES
The Corporation's effective tax rate was 34.2% for the first half of 2002
compared to 37.9% for the first half of 2001. In the first quarter of 2001, the
Corporation recorded a $40.0 million charge related to the settlement of a tax
exposure on corporate-owned life insurance (COLI) deductions, which resulted in
the higher effective tax rate in 2001. Further discussion of the COLI tax matter
is included in Note 15 to the consolidated financial statements.

LINE OF BUSINESS RESULTS
Following is a discussion of National City's results by line of business.
Selected financial information for each business is presented in Note 18 to the
consolidated financial statements and in Table 6.

TABLE 6: NET INCOME BY LINE OF BUSINESS

Three Months Ended Six Months Ended
--------------------------- -----------------
JUNE 30 Mar. 31 June 30 JUNE 30 June 30
(In Thousands) 2002 2002 2001 2002 2001
- ------------------------------------------------------------------------------------------------------------------
Retail sales and distribution............................... $134,547 $133,992 $143,114 $268,539 $281,314
Wholesale banking........................................... 76,623 61,876 103,300 138,499 207,699
Consumer finance............................................ 60,277 46,803 9,117 107,080 26,068
Asset management............................................ 26,496 27,117 32,647 53,613 63,254
National City Mortgage...................................... 113,517 101,265 28,301 214,782 58,114
National Processing......................................... 12,199 12,048 7,918 24,247 19,457
Parent and other............................................ (30,877) 63,030 25,105 32,153 28,999
-------- -------- -------- -------- --------
Consolidated net income.................................. $392,782 $446,131 $349,502 $838,913 $684,905
======== ======== ======== ======== ========

National City's operations are managed along six lines of business: retail
sales and distribution, wholesale banking, consumer finance, asset management,
National City Mortgage, and National Processing.
The retail sales and distribution line of business showed growth in loans
and deposits during the first half 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 checking 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-related
initiatives, combined with the effects of lower interest rates on deposit
account profitability and higher credit costs, led to the decline in 2002 net
income compared to 2001. The loan loss provision increased due to higher net
charge-offs on home equity and residential real estate 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 six months of 2002 was
reduced by approximately $8.6 million as a result of the adoption of SFAS 142,
under which goodwill is no longer ratably amortized into the income statement.
Financial results for the second quarter of 2002 were comparable to the first
quarter with an increase in net interest income related to higher deposit
balances mostly offset by slightly higher credit costs and an increase in
marketing and technology expenses.
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. On a year-over-year basis, wholesale banking's loan balances
were slightly lower. The positive effects on the net interest margin of improved
loan spreads and a higher level of deposits offset the effect of the decline in
loan balances and resulted in 2002's increase in net interest income.
Noninterest expense for the first half of 2002 was reduced by approximately $2.5
million as a result of the adoption of SFAS 142. Compared to the first quarter
of this year, net income in the second quarter improved as credit costs
declined, net interest income grew due to stronger margins, and

36

noninterest income rose due to higher loan syndication revenue.
The successful execution of strategies aimed at generating 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 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 half 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 $4.4 billion for the first half of 2002, up from $2.6
billion for the comparable 2001 period. The portfolio of First Franklin
originated loans grew to $7.3 billion at June 30, 2002 from $3.5 billion a year
ago, as consumer finance retained about sixty 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 $1.9 billion and $955.1 million
for the first half of 2002 and 2001, respectively, and generated gains of $57.1
million and $29.3 million, respectively. The strong loan production was the
primary driver behind the year-over-year improvement in net interest income and
noninterest income. Net income also benefited in 2002 from a decline in the loan
loss provision, which in 2001 had included additional provisions to cover
expected losses associated with loans generated by the discontinued Altegra
unit. Somewhat offsetting the increase in revenue and lower loan loss provision
in 2002 was higher noninterest expense, due mainly to volume-driven increases in
personnel and loan-related expenses. Noninterest expense included automobile
lease residual value write-downs of $37.7 million and $50.9 million for the
second quarter and first half of 2002, compared to $18.1 million and $51.6
million for the same periods in 2001. Noninterest expense for the first half of
2002 was reduced by approximately $6.2 million as a result of the adoption of
SFAS 142. Compared to the first quarter of 2002, net income increased in the
second quarter due to higher net interest income, a lower loan loss provision,
and an increase in gains on sales of First Franklin loans, offset partly by
higher noninterest expense resulting principally from an increase in automobile
lease residual value write-downs.
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 $141.1 billion at June 30, 2002, down from $146.7 billion a
year ago. The adoption of SFAS 142 reduced noninterest expense in 2002 by
approximately $2.2 million. Second quarter 2002 net income declined modestly
from the first quarter as higher loan loss provision and noninterest expense
offset an increase in fee income associated with seasonal tax preparation fees.
National City Mortgage produced record net income in the first half of 2002
as the low interest rate environment continued to stimulate strong loan
origination and sales volumes. Loans originated by National City Mortgage
totaled $12.4 billion and $25.4 billion for the three and six months ended June
30, 2002, up from $12.2 billion and $20.1 billion for the same periods last
year. Loan sales to the secondary market increased to $15.4 billion and $32.4
billion for the three and six month periods ended June 30, 2002, from $10.4
billion and $16.5 billion for the comparable 2001 periods. In addition to higher
origination and sales income, 2002 net income also grew due to higher servicing
fee income and the impact of favorable financial market conditions on mortgage
servicing asset risk management activities. The portfolio of mortgage loans
serviced for third parties grew to $94.6 billion at June 30, 2002 from $62.2
billion a year ago. First half 2002 noninterest expense was reduced by
approximately $1.8 million as a result of the adoption of SFAS 142. Results for
the second quarter of 2002 improved over the first quarter primarily

37

because of higher origination and sales revenue driven by better pricing and the
impact of favorable financial market conditions on loan commitment and warehouse
risk management activities.
National Processing's results improved in 2002 due to the addition of new
customers and an increase in transaction volume, stemming in part from the
acquisition of AAMS in June 2001, but offset partially by the effects of the
August 2001 sale of its Business Processing Outsourcing unit. During the second
quarter of 2002, National Processing decided to relocate certain processing
operations from Mexico to the United States and recorded a charge of $1.7
million pretax, or $2.4 million after tax, for severance costs, building and
equipment write-downs, and related items. National Processing also 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 revenues generated from this business
currently represent about 7% of National Processing's total revenue. Included in
2001's second quarter was a $6.3 million pretax, or $6.2 million after tax,
charge recorded in connection with National Processing's disposal of the
Business Processing Outsourcing unit. First half 2002 noninterest expense was
reduced by $1.1 million as a result of the adoption of SFAS 142.
Several significant items affected comparability between 2002 and 2001
within the parent and other category. During the second quarter of 2002,
noninterest expense included a $52.8 million charge associated with the donation
of appreciated investment securities to the Corporation's charitable foundation
and $13.7 million of impairment losses on retained interests in securitized
assets. Noninterest income for the 2002 second quarter included $5.1 million of
contingent consideration related to the sale of the Corporation's investment in
NAMCO, which occurred in the second quarter of 2001 and generated a gain of
$88.8 million at the time of original sale. 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 recorded in the first quarter of 2001. Bank
stock fund gains were $41.6 million and $90.1 million for the three and six
months ended June 30, 2002, compared to $17.4 million and $102.3 million for the
same periods in 2001. The first quarter of 2001 also included the $40.0 million
COLI tax charge. Noninterest expense for each of the 2001 quarters included
approximately $5.1 million of goodwill amortization, which was not allocated to
the lines of business.

38

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 second quarter of 2002 totaled $135.0 million, or
..80% of average loans, compared to $92.7 million, or .55% of average loans, in
the second quarter of 2001. For the first six months of 2002, net charge-offs
totaled $316.5 million, or .94% of average loans, compared to $175.8 million or
..53% of average loans for the first six months of 2001. Annualized net
charge-offs as a percentage of average loans by portfolio type are presented in
Table 7.

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

Three Months Ended Six Months Ended
------------------------ ----------------
JUNE 30 Mar. 31 June 30 JUNE 30 June 30
2002 2002 2001 2002 2001
- -----------------------------------------------------------------------------------------------------------------
Commercial.................................................. 1.08% 1.53% .48% 1.31% .43%
Real estate - commercial.................................... .37 .09 .10 .23 .10
Real estate - residential................................... .49 .62 .33 .56 .31
Consumer.................................................... .74 1.24 .80 .99 .86
Credit card................................................. 3.87 4.56 3.67 4.21 3.61
Home equity................................................. .21 .25 .20 .23 .15
Total net charge-offs to average loans...................... .80% 1.08% .55% .94% .53%

TABLE 8: NONPERFORMING ASSETS AND LOANS 90 DAYS PAST DUE

JUNE 30 Mar. 31 Dec. 31 Sept. 30 June 30
(In Millions) 2002 2002 2001 2001 2001
- --------------------------------------------------------------------------------------------------------------
Commercial.................................................. $420.7 $368.3 $364.2 $354.1 $266.3
Real estate - commercial.................................... 57.2 53.3 63.9 56.1 56.1
Real estate - residential................................... 225.9 228.4 165.9 176.6 134.3
------ ------ ------ ------ ------
Total nonperforming loans................................... 703.8 650.0 594.0 586.8 456.7
Other real estate owned (OREO).............................. 89.4 65.6 64.3 62.1 52.0
------ ------ ------ ------ ------
Total nonperforming assets.................................. $793.2 $715.6 $658.3 $648.9 $508.7
====== ====== ====== ====== ======
Nonperforming assets as a percentage of period-end loans and
OREO....................................................... 1.15% 1.05% .97% .94% .75%
Loans 90 days past due accruing interest:
Commercial............................................... $ 64.0 $ 67.9 $ 57.9 $ 70.9 $103.0
Real estate - commercial................................. 29.5 30.9 29.6 35.5 19.5
Real estate - residential................................ 385.0 381.3 396.9 380.0 307.0
Consumer................................................. 18.0 21.0 27.9 22.6 19.9
Credit card.............................................. 7.4 7.8 12.4 11.1 10.2
Home equity.............................................. 15.2 16.9 17.0 10.1 8.4
------ ------ ------ ------ ------
Total loans 90 days past due................................ $519.1 $525.8 $541.7 $530.2 $468.0
====== ====== ====== ====== ======

Nonperforming assets (Table 8) were $793.2 million at June 30, 2002, up
from $508.7 million a year ago. At June 30, 2002, loans 90 days past due
accruing interest (Table 8) were $519.1 million, up from $468.0 million at June
30, 2001. Net charge-offs and delinquent loans increased over the prior year
periods principally due to deterioration in leveraged commercial loans and
residential mortgage loans.
During the first half of 2002, management continued to actively target the
identification and disposition of troubled leveraged commercial credits and
mortgage loans. The level of new problem loans being identified has slowed and
delinquency trends appear to be improving. As a result, credit losses moderated
during the second quarter and are expected to decline further over the remaining
quarters of 2002.
At June 30, 2002, the allowance for loan losses was $1.0 billion, or 1.50%
of portfolio loans, compared to $997.3 million, or 1.47% of portfolio loans, at
December 31, 2001, and $989.9 million, or 1.46% of portfolio loans, a year
earlier.
National City maintains an allowance for loan losses sufficient to absorb
estimated probable credit losses inherent in the loan portfolio. The evaluation
of each element and the overall allowance are based on the size and current risk
characteristics of the loan portfolio and include an assessment of individual
problem loans, actual loss experience, economic trends in specific industries
and geographical areas, and other factors, including regulatory guidance and
general economic conditions. The allocation of the allowance for loan losses by
portfolio type at June 30, 2002 was reasonably consistent with the allocation at
December 31, 2001, as presented and discussed in National City's 2001 Annual
Report on Form 10-K, after considering credit actions taken during the first
half of 2002.

39

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. Based on
these examinations, the agencies may require the Corporation to adjust the
allowance for loan losses.

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 12 to the consolidated financial statements.
Total stockholders' equity was $7.9 billion at June 30, 2002, up from $7.4
billion at December 31, 2001, and $7.0 billion at June 30, 2001. Equity as a
percentage of assets was 8.02% at June 30, 2002, compared to 6.98% at December
31, 2001, and 7.39% at June 30, 2001. Book value per common share increased to
$13.02 at the end of the second quarter of 2002, up from $12.15 at the end of
2001, and $11.52 a year ago.
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 half of 2002. As of June 30, 2002, 15.6
million shares remain authorized for repurchase under the share repurchase
program approved by the Corporation's Board of Directors in October 1999.
The dividend payout is continually reviewed by management and the Board of
Directors. Dividends of $.295 per common share were declared in each of the
first and second quarters of 2002, up one cent from the dividends declared in
the corresponding periods of last year. The dividend payout ratio, which
represents the percentage of earnings per share declared to stockholders as
dividends, was 46.8% and 50.0% for the second quarters of 2002 and 2001,
respectively. On July 1, 2002, the Board of Directors approved an increase in
the third quarter dividend, to $.305 per common share.
As of June 30, 2002, the Corporation's market capitalization was
approximately $20.3 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
----------------- ---------------------------
SECOND First Fourth Third Second
NYSE: NCC QUARTER Quarter Quarter Quarter Quarter
- -------------------------------------------------------------------------------------------------------------
High........................................................ $33.75 $31.16 $30.30 $32.70 $30.86
Low......................................................... 29.60 26.31 26.15 26.00 25.56
Close....................................................... 33.25 30.76 29.24 29.95 30.78

In July 2002, National City announced that on August 30, 2002 it will
redeem all then outstanding shares of its preferred stock at a redemption price
of $50.50137 per share. Preferred stockholders can exercise their conversion
right through August 20, 2002.

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 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, and access to the capital markets.
The Corporation's primary funding sources did not change significantly
during the first half of 2002. The levels of various types of borrowings are
presented in the end-of-period and average balance sheets on pages 5 and 42 of
this report and in Table 2 on page 31. Additional detail of the mix of borrowed
funds and long-term debt outstanding is presented in Notes 9, 10, and 11 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

40

transactions is included in Note 4 to the consolidated financial statements.
The main source used to meet parent company cash requirements continued to
be dividends from its subsidiaries. During the first half of 2002, dividends
totaling $656.0 million were declared and paid to the parent company by the bank
subsidiaries. At June 30, 2002, the amount of dividends the bank subsidiaries
can pay to the parent company without prior regulatory approval was $939.3
million, versus $848.0 million at January 1, 2002. As discussed in the
Corporation's 2001 Annual Report on 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 June 30, 2002.
During the 2002 second quarter, 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 10 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 June 30, 2002, $300 million of debt was available for issuance under this
shelf registration.

41

CONSOLIDATED AVERAGE BALANCE SHEETS

42

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43

DAILY AVERAGE BALANCES/NET INTEREST INCOME/RATES

(Dollars in Millions) Daily Average Balance
- -----------------------------------------------------------------------------------
2002 2001
------------------ ---------------------------
SECOND First Fourth Third Second
QUARTER Quarter Quarter Quarter Quarter
------- -------- ------- ------- -------
ASSETS
Earning Assets:
Loans(a):
Commercial............................. $25,127 $ 26,137 $27,135 $27,488 $27,532
Real estate -- commercial.............. 7,909 7,682 7,077 6,826 6,692
Real estate -- residential............. 25,504 28,794 26,075 23,052 20,937
Consumer............................... 11,244 12,343 12,434 12,375 12,286
Credit card............................ 1,810 1,922 2,206 2,198 2,139
Home equity............................ 6,679 6,066 5,675 5,302 5,025
------- -------- ------- ------- -------
Total loans.......................... 78,273 82,944 80,602 77,241 74,611
Securities available for sale, at cost:
Taxable................................ 7,981 8,145 7,613 7,557 8,024
Tax-exempt............................. 679 689 709 719 744
------- -------- ------- ------- -------
Total securities available for
sale.............................. 8,660 8,834 8,322 8,276 8,768
Federal funds sold, security resale
agreements and other investments....... 864 800 424 580 642
------- -------- ------- ------- -------
Total earning assets/
total interest income/rates....... 87,797 92,578 89,348 86,097 84,021
Allowance for loan losses.................. (1,000) (1,021) (1,001) (1,004) (942)
Fair value appreciation of securities
available for sale....................... 208 188 229 202 111
Nonearning assets.......................... 10,916 10,363 9,852 9,038 8,746
------- -------- ------- ------- -------
TOTAL ASSETS............................... $97,921 $102,108 $98,428 $94,333 $91,936
======= ======== ======= ======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Interest bearing liabilities:
NOW and money market accounts............ $20,119 $ 19,411 $18,840 $18,378 $17,963
Savings accounts......................... 2,622 2,594 2,602 2,664 2,753
Consumer time deposits................... 15,209 15,119 14,902 15,259 15,459
Other deposits........................... 3,462 4,529 6,109 6,004 6,107
Foreign deposits......................... 5,372 6,792 5,757 4,847 4,241
Federal funds borrowed................... 4,092 5,961 5,093 5,237 5,012
Security repurchase agreements........... 3,206 3,441 3,946 3,981 3,789
Borrowed funds........................... 1,201 3,480 2,581 1,315 1,282
Long-term debt and capital securities.... 19,432 18,615 16,721 16,475 15,612
------- -------- ------- ------- -------
Total interest bearing liabilities/
total interest expense/rates......... 74,715 79,942 76,551 74,160 72,218
Noninterest bearing deposits............. 12,760 12,366 12,526 11,611 11,550
Accrued expenses and other liabilities... 2,560 2,271 2,018 1,456 1,300
------- -------- ------- ------- -------
TOTAL LIABILITIES.......................... 90,035 94,579 91,095 87,227 85,068
TOTAL STOCKHOLDERS' EQUITY................. 7,886 7,529 7,333 7,106 6,868
------- -------- ------- ------- -------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY................................... $97,921 $102,108 $98,428 $94,333 $91,936
======= ======== ======= ======= =======
NET INTEREST INCOME..........................................................................
INTEREST SPREAD..............................................................................
Contribution of noninterest bearing sources of funds.........................................
NET INTEREST MARGIN..........................................................................

(a) Includes loans held for sale or securitization

44

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

Earning Assets:
Loans(a):
Commercial..................................... $ 309.5 $ 317.4 $ 369.0 $ 456.5 $ 502.9
Real estate -- commercial...................... 134.2 130.8 129.7 135.7 136.4
Real estate -- residential..................... 481.0 525.3 483.9 462.9 411.2
Consumer(a).................................... 235.6 258.3 267.3 270.3 269.0
Credit Card.................................... 43.5 46.0 59.5 64.3 65.1
Home equity.................................... 84.2 76.8 87.3 94.8 101.0
-------- -------- -------- -------- --------
Total loans................................. 1,288.0 1,354.6 1,396.7 1,484.5 1,485.6
Securities available for sale, at cost:
Taxable........................................ 132.3 133.5 106.6 114.9 124.9
Tax-exempt..................................... 13.8 14.0 14.4 14.7 15.1
-------- -------- -------- -------- --------
Total securities available for sale......... 146.1 147.5 121.0 129.6 140.0
Federal funds sold, security resale agreements
and other investments.......................... 9.6 9.3 5.7 8.9 8.4
-------- -------- -------- -------- --------
Total earning assets/
total interest income/rates................ $1,443.7 $1,511.4 1,523.4 $1,623.0 $1,634.0

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.................. $ 74.2 $ 71.9 $ 86.9 $ 117.6 $ 137.3
Savings accounts............................... 5.6 5.8 7.0 8.7 9.6
Consumer time deposits......................... 166.1 171.1 185.2 206.3 221.0
Other deposits................................. 16.1 20.9 41.3 59.1 71.3
Foreign deposits............................... 25.5 31.5 32.2 43.6 44.5
Federal funds borrowed......................... 23.7 32.9 33.8 49.0 56.3
Security repurchase agreements................. 8.5 9.0 13.4 24.7 30.3
Borrowed funds................................. 5.0 13.3 10.8 11.8 14.1
Long-term debt and capital securities.......... 148.6 149.7 160.1 196.9 214.6
-------- -------- -------- -------- --------
Total interest bearing liabilities/
total interest expense/rates............... $ 473.3 $ 506.1 $ 570.7 $ 717.7 $ 799.0
Noninterest bearing deposits...................
Accrued expenses and other liabilities.........
TOTAL LIABILITIES.................................

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

NET INTEREST INCOME............................... $ 970.4 $1,005.3 $ 952.7 $ 905.3 $ 835.0
======== ======== ======== ======== ========

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
------------------- ------------------------------
SECOND First Third Second First
QUARTER Quarter Quarter Quarter Quarter
-------- -------- -------- -------- --------
ASSETS

Earning Assets:
Loans(a):
Commercial..................................... 4.94% 4.92% 5.40% 6.59% 7.32%
Real estate -- commercial...................... 6.81 6.90 7.27 7.89 8.18
Real estate -- residential..................... 7.54 7.30 7.42 8.03 7.86
Consumer....................................... 8.40 8.49 8.53 8.66 8.78
Credit Card.................................... 9.64 9.70 10.72 11.60 12.21
Home equity.................................... 5.04 5.06 6.15 7.16 8.04
Total loans................................. 6.59 6.58 6.90 7.65 7.98
Securities available for sale, at cost:
Taxable........................................ 6.63 6.56 5.59 6.08 6.23
Tax-exempt..................................... 8.15 8.16 8.18 8.17 8.13
Total securities available for sale......... 6.75 6.69 5.81 6.26 6.39
Federal funds sold, security resale agreements
and other investments.......................... 4.48 4.73 5.38 6.07 5.24
Total earning assets/
total interest income/rates................ 6.59% 6.58% 6.79% 7.51% 7.79%

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.................. 1.48% 1.50% 1.83% 2.54% 3.06%
Savings accounts............................... .85 .90 1.06 1.29 1.41
Consumer time deposits......................... 4.38 4.59 4.93 5.36 5.74
Other deposits................................. 1.86 1.87 2.68 3.91 4.68
Foreign deposits............................... 1.91 1.88 2.22 3.56 4.21
Federal funds borrowed......................... 2.32 2.24 2.63 3.71 4.50
Security repurchase agreements................. 1.07 1.07 1.35 2.46 3.21
Borrowed funds................................. 1.66 1.55 1.65 3.56 4.43
Long-term debt and capital securities.......... 3.07 3.25 3.81 4.75 5.51
Total interest bearing liabilities/
total interest expense/rates............... 2.54% 2.57% 2.96% 3.84% 4.44%
Noninterest bearing deposits...................
Accrued expenses and other liabilities.........
TOTAL LIABILITIES.................................

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

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

INTEREST SPREAD................................... 4.05% 4.01% 3.83% 3.67% 3.35%

Contribution of noninterest bearing sources of
funds............................................ .37 .35 .42 .53 .63
-------- -------- -------- -------- --------

NET INTEREST MARGIN............................... 4.42% 4.36% 4.25% 4.20% 3.98%
======== ======== ======== ======== ========

(a) Includes loans held for sale or securitization.

45

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

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

Investors may access this Form 10-Q and other filings with the Securities and
Exchange Commission at www.nationalcity.com.

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

46

FORM 10-Q -- JUNE 30, 2002

SIGNATURE

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: August 12, 2002
/s/ JEFFREY D. KELLY
-----------------------------------
Jeffrey D. Kelly
Executive Vice President and
Chief Financial Officer
(Duly Authorized Signer and
Principal Financial Officer)

47

[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