NATIONAL CITY CORP - 10-K Annual Report

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NATIONAL CITY

2002
ANNUAL REPORT

ANNUAL REPORT

MY BANK IS NATIONAL CITY.

[PHOTO OF WOMEN]

ABOUT OUR CUSTOMER CHAMPION BRAND PROMISE

Our customers and communities have heard from National City with a stronger
voice this year. The stories and photos in this book reflect our brand
initiative, one that emphasizes a philosophy of being a "Customer Champion."
Declaring this position publicly is an extension of what our people have felt
for a long time... "At National City, we care about doing what's right for our
customers."

ABOUT

NATIONAL CITY

Founded in 1845 and headquartered in Cleveland, Ohio, National City Corporation
(NYSE: NCC) is a financial holding company with assets over $100 billion,
providing a full range of banking and financial services. National City operates
over 1,100 banking offices and more than 1,600 ATMs throughout Ohio,
Pennsylvania, Indiana, Kentucky, Illinois and Michigan, and conducts selected
consumer lending businesses and other financial services on a nationwide basis.

CONTENTS

1 Financial Highlights

2 Chairman's Letter

4 The Year in Review

8 Board of Directors and Officers

9 Financial Review

35 Consolidated Financial

Statements and Notes

71 Form 10-K

76 Certifications of
Chief Executive Officer
and Chief Financial Officer

[PHOTO OF MAN]

FINANCIAL HIGHLIGHTS

(Dollars in Millions, Except Per Share Amounts) 2002 2001 2000

FOR THE YEAR

REVENUE
TAX-EQUIVALENT NET INTEREST INCOME $4,036 $3,472 $2,992
NONINTEREST INCOME 2,812 2,678 2,484
TOTAL REVENUE $6,848 $6,150 $5,476

NET INCOME $1,594 $1,388 $1,302
NET INCOME PER COMMON SHARE
BASIC $2.61 $2.30 $2.14
DILUTED 2.59 2.27 2.13
DIVIDENDS PAID PER COMMON SHARE 1.20 1.16 1.14

RETURN ON AVERAGE COMMON EQUITY 19.90% 19.89% 21.29%
RETURN ON AVERAGE ASSETS 1.54 1.49 1.52
NET INTEREST MARGIN 4.34 4.09 3.85
EFFICIENCY RATIO 55.12 55.70 58.75

AVERAGE SHARES - BASIC 610,186,786 603,611,073 607,378,801
AVERAGE SHARES - DILUTED 616,174,238 611,936,906 612,625,349

AT YEAR END

ASSETS $118,258 $105,817 $88,535
LOANS 72,134 68,041 65,604
EARNING ASSETS 106,746 95,178 79,623
DEPOSITS 65,119 63,130 55,256
STOCKHOLDERS' EQUITY 8,308 7,381 6,770

BOOK VALUE PER COMMON SHARE $13.59 $12.15 $11.06
MARKET VALUE PER COMMON SHARE 27.32 29.24 28.75
EQUITY TO ASSETS RATIO 7.03% 6.98% 7.65%

COMMON SHARES OUTSTANDING 611,491,359 607,354,729 609,188,668
COMMON STOCKHOLDERS OF RECORD 61,916 64,631 68,981
FULL-TIME EQUIVALENT EMPLOYEES 32,731 32,360 36,097

2002 ANNUAL REPORT 1

CHAIRMAN'S LETTER

TO OUR STOCKHOLDERS:

National City achieved a record performance in 2002, with revenue, net income,
and earnings per share reaching the highest levels in our 158-year history. Net
income of $1.6 billion, or $2.59 per share, was up 15 percent over 2001. Return
on assets was 1.54 percent, and return on equity was 19.9 percent, both at
superior levels relative to the industry. The dividend was increased once
again, the 17th time in the last 10 years.

The strong earnings performance was most evident in the consumer lending and
mortgage-related businesses, which were well-positioned to benefit from the
low interest rate environment that prevailed throughout the year.
Mortgage-related lending, including conventional mortgages, home equity lines
and loans, and nonconforming mortgages, all posted record origination volumes.
The high performance in these areas overcame weaker results in corporate banking
and asset management, which have been adversely affected by a soft economy and
poor equity markets. Credit costs rose in 2002 from 2001; however, the loan
portfolios are in good shape, and nonperforming assets appear to have peaked. At
the same time, we have built loan loss reserves in recognition of greater
uncertainty about the economy.

While it's always gratifying to exceed earnings targets, our overarching goal is
to deliver superior long-term value to our stockholders. That means more than
focusing solely on short-term earnings. It means continued investments in our
core businesses, ongoing training and development of employees, prudent risk
management, responsive corporate governance, and, most importantly, the
cultivation and retention of customer relationships. These are the foundations
of sustainable revenue growth and long-term profitability. The year 2002 was as
much about progress in those areas as it was about record earnings.

The heart of our operating strategy is the Customer Champion Brand Promise
formally introduced in 2001: "At National City, we care about doing what's right
for our customers." It is a simple but powerful statement. The promise speaks to
a long-term customer relationship philosophy rather than a transactional one,
to superior products and service, and to a fair value exchange. Our goal is
not just to be the lead bank in our marketplace, but also the lead bank for each
and every one of our customers.

To that end, we are investing heavily, but we believe appropriately, in our core
banking businesses. Building on improved service quality and employee training
initiatives, we have enhanced our product offerings and are marketing them
aggressively. To cite just one example, our free checking and free online bill
payment products have attracted thousands of new accounts, representing
opportunities for expanded profitable relationships going forward. In middle
market corporate banking, independent, third-party customer surveys continue
to show National City as the bank of choice in our marketplace,

2

[PHOTO OF [PHOTO OF [PHOTO OF
DAVID A. DABERKO] WILLIAM E. MACDONALD III] ROBERT G. SIEFERS]

(left to right)

DAVID A. DABERKO
Chairman & CEO

WILLIAM E. MACDONALD III
Vice Chairman

ROBERT G. SIEFERS
Vice Chairman

with relationship manager, cash management, and operations capabilities on par
with the very best providers anywhere. This business is poised to rebound
sharply in an economic recovery.

In Consumer and Small Business Financial Services, which comprises the deposit
and lending business conducted through the branch system, call centers, and
Internet, we have initiated a series of major investments. "Customer
Connections" entails the complete revamp of teller and platform screens and
dramatically improves information flow while streamlining processes. The initial
payback is a reduction of paper and process time in the branches and back
office; however, the long-term value is in providing timely, relevant informa-
tion to improve sales effectiveness. The project is on schedule, with the first
set of branches beginning to convert in 2003, continuing into 2004. Neither 2002
nor 2003 financial results benefit from this project; in fact, the reverse is
true. We're investing today for 2004 and well beyond.

The goal of these initiatives is to create a powerful and meaningful brand. As
was demonstrated in the various corporate scandals of the past year, reputation
is everything, especially in a service business. Our brand, exemplified by a
culture of quality service, customer care, ethical behavior, and productive
relationships, is closely linked to our reputation and credibility with all of
National City's constituencies, and has the potential to be a significant
component of our share price over time.

Similarly, the corporate governance enhancements we announced in October can be
thought of as extensions of the brand promise to stockholders. We are proud to
be in a leadership position in adopting governance practices that put us in the
top 5 percent of the largest U.S. corporations in the quality of corporate
governance, according to data compiled by Institutional Shareholder Services, an
independent proxy and governance advisory firm. Indeed, several of the
"reforms" now being adopted by many companies, such as non-classified boards,
prohibitions on option repricing, and elimination of so-called shareholder
rights plans, have been in place at National City for many years.

The road ahead is not an easy one. Although we face the challenges of an
uncertain economy and an unforgiving competitive environment, we have never
been in a better position to address them. Our management team is strong and
focused, our products are first-rate and our employees are well-trained and
motivated. In that sense, the future has never been brighter for National City.

Thank you for your continued support and investment.

/s/ David A. Daberko
David A. Daberko
Chairman and CEO
January 23, 2003

2002 ANNUAL REPORT 3

2002
THE YEAR IN REVIEW

[PHOTO OF MAN]

"I had a problem and the manager stayed on after closing hours to get it fixed
for me. He went way beyond his job."

DELIVERING ON OUR PROMISE

National City has always been a good company. We want to become a great one. A
key factor to our success will be how well we continue to connect the "Customer
Champion" brand promise to the customer experience. To that end, we are
maintaining a strong effort to ensure that every National City employee, in any
capacity, understands and is motivated to do "what's right for our customers"
daily.

Our commitment to this direction is powerful. In customer relationships,
cross-selling, products per household, new core relationship households, service
quality measurements, behaviors and attitudes, we are gaining significant
momentum. Our brand promise is not only coming to life, it's taking hold.

Our challenge is to maintain and support the energy behind what we've done and
are continuing to do, so that each time a customer or prospect experiences
National City - whether in person, online, on the phone, or in seeing our
advertising - that experience matches the promise of our message. When we
consistently deliver the experience that equals expectations, "Customer
Champion" will indeed be how we do business.

4

[PHOTO OF A WOMAN]

"Nancy makes it her business to know and understand our business. She brings
real value to our relationship - and that means a lot, coming from your bank."

LISTENING TO CUSTOMERS: INDIVIDUALS AND SMALL BUSINESS

Our brand prescribes that we listen and learn about what our customers want and
need, then act on that knowledge. In 2002, we took steps to better meet customer
needs by re-aligning our organization.

Our newly shaped Consumer and Small Business Financial Services division can
better deliver services to our consumer and small business customers through
smoother coordination with branches, call centers and electronic banking, plus
easier access to many other financial services such as mortgage and credit card.

For example, this year we aggressively launched new consumer and small business
checking accounts, eliminating monthly fees and minimum balance requirements for
new accounts. Putting the customer at the heart of our strategic decisions and
actions is an exciting strategy and gives us a gateway toward earning additional
business. Because the checking account is most often the core of consumer and
small business banking relationships, our broad range of competitive financial
services works to solidify these new customers into a deeper connection with
National City.

Here's another example: We are now offering free, online bill payment in the
belief that once customers enroll in and activate this service, they will stay
with us and expand their relationship with the bank. Foregoing the fee has been
more than balanced out by higher customer loyalty and increased account
activity. In Gomez Advisors' independent ranking of online banking capabilities,
we are now rated in the top 10, a tremendous upsurge from three years ago.

2002 ANNUAL REPORT 5

[PHOTO OF PRITPAL (PETE) S. SAHOTA]

"I'm a head teller at National City. One Saturday morning on my day off, I
visited another National City branch to conduct personal business and found the
lobby crowded with customers. So I just hung up my coat and went to work on the
teller line for several hours to help out. Sometimes, that's what it takes."

Pritpal (Pete) S. Sahota
Head Teller and Sales Associate, Cleveland, Ohio

National City Excel Award Winner

- - National City is the sixth largest small business lender in the
country,(1) and the number one SBA lender in our six-state area.(2)

- - In 2002, BtoB magazine ranked National City's corporate Web site among
the top-rated sites operated by a bank.(3)

- - Gomez Advisors ranked NationalCity.com in 10th place in its biannual
scorecard ranking, an improvement from 59th just three years ago.(4)

- - Our stock transfer group received the No. 1 rating in customer
satisfaction, in their category, for the fifth consecutive year from an
annual independent study of the securities industry(5) - National City is
the only company to have earned this rating so often.

(1) National Association of Government Guaranteed Lenders, Inc. Top 30 7(a)
Lenders based on number of loans approved for the fiscal year ended 9/30/02.

(2) No. 1 SBA Lender based on aggregate data from SBA district offices for OH,
PA, MI, IN, KY and IL for the fiscal year 2002. Total SBA loan figures are
for type 7(a) loans, except in OH, where totals include 504 loans.

(3) BtoB magazine (8/12/02).

(4) Gomez rankings from 3rd quarter 2002 and 3rd quarter 1999.

(5) Group Five, Inc. 2002 Shareowner Services Corporate Satisfaction Study.

QUALITY OF SERVICE TO MATCH BRAND EXPECTATIONS

It is relatively easy to attract new customers. The challenge is, once we have
them, how well can we keep them? We know the answer is service quality, an area
where we have made significant progress this year.

We have taken major steps to foster, train, coach, support, and reward employees
for actions that put customers first. Brand means nothing if it is not carried
out every day on the line. And so we are fostering attitudes about what it means
to be a "Customer Champion," measuring constantly and role-modeling success.
At workshops and teleconferences, we develop and share ideas to help us build
a favorable customer experience so each customer will say or feel, "That's why
National City is my bank."

The independent customer surveys we do in our branches daily show continuous and
significant improvement. Nearly 50 percent of our branches exceeded stretch
goals and 96 percent surpassed baseline goals by the end of 2002. In our quest
to become a great company in 2003, those goals have been raised even higher.

Our brand position and promise continues to resonate with National City
employees as well, proving to be a motivator and inspiration throughout the
bank. Brand thinking has infiltrated and positively affected employee behavior,
which translates into the continued growth of better banking experiences for our
customers.

Our focus is to maintain this service quality momentum so customers will
continue to feel that National City is their bank; the one they would recommend
to a friend or relative. Our goal is to be the clear bank of choice in each
city, community, and neighborhood we serve.

TAKING STEPS IN TECHNOLOGY
National City's "Customer Connections" initiative will replace current branch
and call center technology beginning in 2003. As the largest such program
National City has ever undertaken, Customer Connections is much more than a
technology solution. The thinking behind this investment is translating customer
knowledge into a single technology platform. Our employees will have faster and
more complete information, allowing them to serve customers more fully and
improve cross-sell and products per household ratios.

6

[PHOTO OF PATRICK GORBETT]

"When a competitor of mine wanted to retire,
he offered to sell me his business. At the time, I couldn't afford it. Then
Betsy at National City suggested securing long-term lease agreements from my
clients. Her idea helped me buy the business. That's typical Betsy. Instead of
looking at me like a number, she sees things from a different perspective. My
name is Pat Gorbett and my bank is National City."

Patrick Gorbett
President,
Great Lakes Cold Storage
Cleveland, Ohio

BRINGING OUR BRAND TO LIFE
In 2002, National City was launched into the public consciousness with a
memorable series of television commercials demonstrating how our brand promise
plays out in the experiences of the people who matter most - our customers.
Based on real stories, the power of this compelling campaign comes from
customers using their own words to describe their National City experiences.

As National City customers consistently receive more out of a banking experience
or relationship than expected and individual employees and teams feel empowered
to create the experiences that bring our brand to life, we will continue to grow
and prosper. Respect, friendliness and accountability earn each customer's
loyalty which is reflected in the powerful statement, "My bank is National
City."

2002 ANNUAL REPORT 7

BOARD OF DIRECTORS

OFFICERS

[PHOTO OF [PHOTO OF [PHOTO OF [PHOTO OF
OFFICE OF THE CHAIRMAN DAVID A. DABERKO] JON E. BARFIELD] JAMES S. BROADHURST] JOHN W. BROWN]
DAVID A. DABERKO David A. Daberko(2,3) Jon E. Barfield(1,3,4,6) James S. Broadhurst(1,5,6) John W. Brown(3,4,5)
Chairman and CEO Chairman & CEO Chairman & President Chairman & CEO Chairman, President
National City Corporation The Bartech Group, Inc. Eat'n Park Hospitality & CEO
Group, Inc. Stryker Corporation
WILLIAM E. MACDONALD III
Vice Chairman
ROBERT G. SIEFERS
Vice Chairman

EXECUTIVE VICE PRESIDENTS
JAMES R. BELL III
PAUL G. CLARK
JOHN D. GELLHAUSEN [PHOTO OF [PHOTO OF [PHOTO OF [PHOTO OF
THOMAS W. GOLONSKI DUANE E. COLLINS] CHRISTOPHER M.CONNOR] SANDRA AUSTIN CRAYTON] DANIEL E. EVANS]
JON L. GORNEY Duane E. Collins(2,3,5) Christopher M.Connor(5,6) Sandra Austin Crayton Daniel E. Evans
JEFFREY D. KELLY Chairman Chairman & CEO (2,4,7) (1,2,6)
Chief Financial Officer Parker Hannifin Corporation The Sherwin-Williams CEO Retired Chairman
TIMOTHY J. LATHE Company Austin & Associates Bob Evans Farms, Inc.
HERBERT R. MARTENS, JR.
ROBERT J. ONDERCIK
TED M. PARKER
J. ARMANDO RAMIREZ
PETER E. RASKIND
PHILIP L. RICE
SHELLEY J. SEIFERT
STEPHEN A. STITLE
DAVID L. ZOELLER
General Counsel and
Secretary

[PHOTO OF PHOTO OF [PHOTO OF [PHOTO OF
SENIOR VICE PRESIDENTS JOSEPH T. GORMAN] PAUL A. ORMOND] ROBERT A. PAUL] GERALD L.SHAHEEN]
JEFFREY M. BIGGAR Joseph T. Gorman(4,5) Paul A. Ormond(3,5) Robert A. Paul(1,2,3,7) Gerald L.Shaheen
WILLIAM I. CORNETT, JR. Retired Chairman Chairman, President & CEO President & CEO (4,5)
RICHARD J. DEKASER TRW Inc. Manor Care, Inc. Ampco-Pittsburgh Group President
J. ANDREW DUNHAM Corporation Caterpillar Inc.
PAUL D. GERAGHTY
KENNETH M. GOETZ
JANE GREBENC
MARY H. GRIFFITH
JAMES P. GULICK
General Auditor
JOSEPH J. HERR
JAMES HUGHES
THOMAS C. KAYLOR
J. MICHAEL KEARNEY
JANIS E. LYONS
Comptroller
W. ROBERT MANNING JR.
BRUCE A. MCCRODDEN [PHOTO OF [PHOTO OF [PHOTO OF
GARY P. OBERS JEROME F. TATAR] JERRY SUE THORNTON] MORRY WEISS]
T. MICHAEL PRICE Jerome F. Tatar(1,3,7) Jerry Sue Thornton, Ph.D(2,6,7) Morry Weiss(3,4,7)
KAMALA R. RAGHAVAN Retired Chairman President Chairman & CEO
THOMAS A. RICHLOVSKY MeadWestvaco Corporation Cuyahoga Community College American Greetings
Treasurer Corporation
WILLIAM H. SCHECTER
THOMAS H. SCHROTH
KARIN L. STONE
GREGORY L. TUNIS

COMMITTEES:

(1) Audit (4) Nominating and Board (6) Public Policy
of Directors Governance
(2) Dividend (7) Investment
(5) Compensation & Organization
(3) Executive

8

9

FINANCIAL REVIEW
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CONSOLIDATED STATEMENTS OF INCOME AND SELECTED FINANCIAL DATA(a)

(a)Prior period data have been restated for stock splits and
pooling-of-interests business combinations
(b)Includes loans held for sale or securitization

10

FINANCIAL REVIEW CONTINUED
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The Financial Review section discusses the financial condition and results of
operations of National City Corporation (the Corporation or National City) for
each of the past three years and should be read in conjunction with the
accompanying consolidated financial statements and notes presented on pages 34
through 70.

Portions of this financial review, as well as the notes to the consolidated
financial statements, contain certain forward-looking statements (as defined in
the Private Securities Litigation Reform Act of 1995), which reflect
management's beliefs and expectations based on information currently available.
These forward-looking statements are inherently subject to significant risks and
uncertainties, including changes in general economic and financial market
conditions, the Corporation's ability to effectively carry out its business
plans, changes in regulatory or legislative requirements, changes in competitive
conditions, continuing consolidation in the financial services industry, and
pending or threatened litigation. Although management believes the expectations
reflected in such forward-looking statements are reasonable, actual results may
differ materially.

APPLICATION OF CRITICAL ACCOUNTING POLICIES

National City's consolidated financial statements are prepared in accordance
with accounting principles generally accepted in the United States 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
necessary when assets and liabilities are required to be recorded at fair value,
when a decline in the value of an asset not carried on the financial statements
at fair value warrants an impairment write-down or valuation reserve to be
established, or when an asset or liability needs to be recorded contingent upon
a future event. Carrying assets and liabilities at fair value inherently results
in more financial statement volatility. The fair values and the information used
to record valuation adjustments for certain assets and liabilities are based
either on quoted market prices or are provided by other third-party sources,
when available. When third-party information is not available, valuation
adjustments are estimated in good faith by management primarily through the use
of internal cash flow modeling techniques.

The most significant accounting policies followed by the Corporation are
presented in Note 1 to the consolidated financial statements. These policies,
along with the disclosures presented in the other financial statement notes and
in this financial review, provide information on how significant assets and
liabilities are valued in the financial statements and how those values are
determined. 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.

The allowance for loan losses represents management's estimate of probable
credit losses inherent in the loan portfolio. Determining the amount of the
allowance for loan losses is considered a critical accounting estimate because
it requires significant judgment and the use of estimates related to the amount
and timing of expected future cash flows on impaired loans, estimated losses on
pools of homogeneous loans based on historical loss experience, and
consideration of current economic trends and conditions, all of which may be
susceptible to significant change. The loan portfolio also represents the
largest asset type on the consolidated balance sheet. Note 1 to the consolidated
financial statements describes the methodology used to determine the allowance
for loan losses and a discussion of the factors driving changes in the amount of
the allowance for loan losses is included in the Credit Risk Management section
of this financial review.

Retained interests, including mortgage and other servicing assets, are
established and accounted for based on discounted cash flow modeling techniques
which require management to make estimates regarding the amount and timing of
expected future cash flows, including assumptions about loan repayment rates,
credit loss experience, and costs to service, as well as discount rates that
consider the risk involved. Because the values of these assets are sensitive to
changes in assumptions, the valuation of retained interests is considered a
critical accounting estimate. Notes 1, 4, and 10 to the consolidated financial
statements include further discussion on the accounting for these assets as well
as provide sensitivity analyses showing how the value of these assets change in
response to adverse changes in the key assumptions used to determine their
value.

11
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The valuation of derivative instruments is considered critical because the
majority of the derivative instruments held by the Corporation are valued using
discounted cash flow modeling techniques, which require the use of estimates
regarding the amount and timing of future cash flows. Derivative instruments are
also carried at fair value on the consolidated balance sheet with changes in
value recorded in the income statement. Notes 1 and 23 to the consolidated
financial statements provide further discussion on the accounting for and the
Corporation's use of derivative instruments.

Lease financing receivables include a residual value component, which represents
the estimated value of the leased asset upon the expiration of the lease. The
Corporation leases various types of equipment under commercial lease financing
arrangements and also has a portfolio of automobile lease financings, although
this portfolio has been declining since the decision was made in December 2000
to cease originating automobile leases. The valuation of residual assets is
considered critical due to the sensitivity in forecasting the impact of product
and technology changes, consumer behavior, competitor initiatives, shifts in
supply and demand, and economic conditions, among other factors, on the fair
value of residual assets. Notes 1 and 6 to the consolidated financial statements
provide further discussion of the Corporation's lease financing arrangements.

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

RECENT ACCOUNTING PRONOUNCEMENTS AND DEVELOPMENTS

Note 2 to the consolidated financial statements discusses new accounting
policies adopted by the Corporation during 2002 and the expected impact of
accounting policies recently issued or proposed but not yet required to be
adopted. To the extent the adoption of new accounting standards materially
affects the Corporation's financial condition, results of operations, or
liquidity, the impacts are discussed in the applicable section(s) of this
financial review and notes to the consolidated financial statements.

EARNINGS SUMMARY

National City reported net income of $1.6 billion, or $2.59 per diluted share,
in 2002, compared to $1.4 billion, or $2.27 per diluted share, in 2001, and $1.3
billion, or $2.13 per diluted share, in 2000. Returns on average common equity
and average assets for 2002 were 19.9% and 1.54%, respectively, compared to
returns of 19.9% and 1.49%, respectively, in 2001 and returns of 21.3% and
1.52%, respectively, in 2000.

Over the last several years, National City has focused on improving its products
and service quality levels consistent with the formal adoption in 2000 of its
Customer Champion Brand Promise: "National City Cares About Doing What's Right
for Our Customers." Efforts have included measurement and improvement of service
quality, increased investment in customer-focused products and technologies, and
the establishment of the National City Institute to deepen employee training on
our brand and culture. Accompanying these infrastructure investments has been
renewed emphasis on creating long-term customer relationships by providing a
full array of financial products and services to meet the needs of individual
and business customers through their personal and business life cycles. Tangible
evidence of this focus has been a move toward market-driven deposit account
rates, initiation of free checking, an improved retail asset management account,
improved small business cash management products, and development of capital
markets expertise to complement strong middle market relationship competencies.

In addition, balance sheet restructuring efforts were undertaken which focused
on retaining assets with the highest risk-adjusted returns. Specifically,
National City began to retain on its balance sheet high-quality nonconforming
mortgages originated through its subsidiary, First Franklin Financial
Corporation (First Franklin), sold fixed-rate debt securities and low-margin
adjustable-rate mortgages and student loans, and securitized credit card
receivables and automobile loans. These actions helped to improve capital
efficiency and the net interest margin. In December 2000, National City also
ceased origination of retail automobile leases and closed certain retail and
wholesale nonconforming loan origination units operated through its subsidiary
National City Home Loan Services, Inc. (formerly Altegra Credit Company or
Altegra).

Benefits from these initiatives, combined with the record levels of mortgage
banking activity resulting from the historically low interest rate environment,
partially offset by higher credit costs, led to strong financial results in 2002
and 2001.

12

FINANCIAL REVIEW CONTINUED
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(a)Includes loans held for sale or securitization

NET INTEREST INCOME

The primary source of the Corporation's revenue is net interest income. Net
interest income is the difference between interest income on earning assets,
such as loans and securities, and the interest expense on liabilities used to
fund those assets, including interest bearing deposits and other borrowings. The
amount of net interest income is affected by both changes in the level of
interest rates and the amount and composition of earning assets and interest
bearing liabilities. Changes in net interest income are most often measured
through two statistics - interest spread and net interest margin. The difference
between the yields on earning assets and the rates paid for interest bearing
liabilities represents the interest spread. The net interest margin is expressed
as the percentage of net interest income to average earning assets. Both the
interest spread and net interest margin are presented on a tax-equivalent basis.
Because noninterest bearing sources of funds, or free funding, principally
demand deposits and stockholders' equity, also support earning assets, the net
interest margin exceeds the interest spread.

The table above presents net interest income, interest spread, and net interest
margin for the five years 1998 through 2002, comparing daily average outstanding
balances of earning assets and interest bearing liabilities with the associated
interest income and expense and the corresponding average rates earned and paid.
To compare the tax-exempt asset yields to taxable yields, amounts are adjusted
to pretax equivalents based on the marginal corporate Federal tax rate of 35%.
The tax-equivalent adjustments to net interest income for 2002, 2001, and 2000
were $30.4 million, $33.3 million, and $33.7 million, respectively. Average
outstanding loan balances include nonperforming loans and loans held for sale or
securitization. Average outstanding securities balances are computed based on
amortized cost and exclude unrealized gains and losses on securities available
for sale.

13
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In order to manage exposure to changes in interest rates, the Corporation uses
various types of derivative instruments. The cash flows generated by derivative
instruments used to manage interest rate risk associated with earning assets and
interest bearing liabilities are included in interest income or expense of the
hedged item and consequently affect the yields on those assets and liabilities.
Further discussion of the derivative instruments used to manage interest rate
risk and the accounting for these instruments is included in Notes 1 and 23 to
the consolidated financial statements. A discussion of the effects of changing
interest rates is included in the Market Risk Management section beginning on
page 30.

Tax-equivalent net interest income in 2002 was $4,035.7 million, up from
$3,472.2 million in 2001 and $2,992.1 million in 2000. The net interest margin
increased to 4.34% in 2002 from 4.09% in 2001 and 3.85% in 2000. The growth in
net interest income and the net interest margin in both 2002 and 2001 was driven
by strong mortgage loan volumes, a more favorable earning asset mix, a higher
level of core deposits, and lower funding costs. Over the past three years, the
Corporation has taken steps to improve its earning asset mix. In 2000, the
Corporation restructured the balance sheet by selling $2.0 billion of low-
spread student loans, $3.7 billion of fixed-rate debt securities, and $1.0
billion of low-spread adjustable-rate mortgages. The Corporation also began to
retain high-quality nonconforming mortgages originated through its First
Franklin subsidiary and diversified its funding sources by securitizing credit
card receivables and automobile loans. Securitization involves the sale of a
pool of assets to a trust, which sells undivided interests to investors through
public or private issuance of asset-backed securities. As loan receivables are
securitized, on-balance sheet funding needs are reduced by the amount of the
receivables securitized. During 2002, $425.0 million of credit card receivables
and $1.1 billion of automobile loans were securitized. In 2001 and 2000, $425.0
million and $600.0 million of credit card receivables were securitized,
respectively.

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

AVERAGE EARNING ASSETS: A summary of earning assets follows:

Average earning assets grew to $92.9 billion in 2002, up from $84.8 billion in
2001, and $77.8 billion in 2000 principally due to mortgage and home equity loan
growth propelled by the low interest rate environment and appreciated home
values.

Portfolio loan growth in 2002 was driven by nonconforming residential real
estate and home equity loan production. Nonconforming mortgage loan originations
generated by First Franklin grew to $10.7 billion, up 70% from $6.3 billion in
2001. A portion of this nonconforming mortgage production is retained in
portfolio with the remainder sold to third parties. Over the past year, $5.5
billion of First Franklin's loan production was retained for the residential
real estate portfolio. The retention of these loans drove the increase in
average residential real estate loans, offset to some extent by runoff in the
conforming mortgage loan portfolio as nearly all conforming mortgage production
was originated for sale in the secondary market. Further discussion of
conforming and nonconforming mortgage lending is included in the Financial
Condition section of this financial review. Home equity loan production
benefited from the low interest rate environment, appreciating home values, and
a focus on the national home equity market. Somewhat offsetting the portfolio
growth resulting from mortgage lending activities was a decline in average
commercial loans, primarily due to the weak economic environment, which dampened
loan demand, and the effects of the securitizations of $425.0 million of credit
card receivables and $1.1 billion of automobile loans in the first quarter of
2002, which reduced average credit card and other consumer loan balances. Runoff
in the automobile lease portfolio also reduced other consumer loan balances. The
Corporation ceased originating automobile leases in December 2000.

Portfolio loan growth in 2001 was also due to strong nonconforming mortgage and
home equity loan originations as well as commercial loan and lease growth
resulting from market expansion in Chicago, Philadelphia, and Detroit, and
growth in specialized lending. Other consumer loan balances declined in 2001 due
to the sale of student loans in 2000 and runoff in the automobile lease
portfolio.

The average balance of loans held for sale increased $6.3 billion, or 79%, in
2002 over 2001 due to the origination of a record number of both conforming and
nonconforming mortgage loans as a result of historically low interest rates.
Total conforming and nonconforming mortgages originated for sale to third
parties increased to $84.1 billion in 2002 from $58.5 billion in 2001. The
higher level of loans held for sale served as the primary driver of the increase
in net interest income and, as a result of a steeper yield curve in 2002 as
compared to 2001, also served to strengthen the net interest margin. Low
interest rates also served as the primary driver of the increase in loans held
for sale in 2001 as compared to 2000. The Corporation typically sells all
conforming mortgage loan production into the secondary market. A portion of
nonconforming loans originated are also sold to third parties on a regular
basis.

Average securities balances in 2002 were maintained at a level comparable to
2001 after paring back the portfolio in 2000 through runoff and the sale of $3.7
billion of fixed-rate debt securities in an effort to improve the mix of earning
assets.

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AVERAGE INTEREST BEARING LIABILITIES AND FUNDING: A summary of interest bearing
liabilities and funding follows:

The percentage of each funding source to total funding follows:

Average interest bearing liabilities were $79.0 billion in 2002, compared to
$73.0 billion in 2001 and $67.3 billion in 2000. Average noninterest bearing
deposits increased to $13.7 billion in 2002, from $11.6 billion and $10.8
billion in 2001 and 2000, respectively. Average funding balances increased in
2002 and 2001 to support the increase in portfolio loans and loans held for
sale. The Corporation considers noninterest bearing deposits, NOW and money
market accounts, savings accounts, and consumer time deposits to be core
deposits. Purchased deposits consists primarily of brokered certificates of
deposit, certificates of deposit of $100,000 or more, and foreign deposits. Core
deposits increased in 2002, continuing a growth trend that began in late 2000,
reflecting new account acquisition and retention, expanded product offerings,
and improved customer service. Core deposit growth also was driven by an
increase in deposits associated with a higher level of mortgage banking
principal payoff balances as a result of the increase in refinancing activity
and, to a lesser extent, a general shift in customer preference away from the
equity markets and into insured bank deposits. The Corporation increased its use
of long-term funding in 2002, principally through the issuance of senior bank
notes, to take advantage of the relatively low cost of such funding. Average
noninterest bearing sources of funds, consisting of noninterest bearing demand
and other deposits and stockholders' equity, increased to $21.7 billion in 2002
from $18.6 billion in 2001 and $16.9 billion in 2000. Despite the increase in
noninterest bearing funding in both 2002 and 2001, the relative contribution of
such funding to the net interest margin has declined over the past two years as
a result of the significant growth in earning assets, mainly loans held for
sale, and a decline in market interest rates.

NONINTEREST INCOME

Details of noninterest income follow:

On the strength of mortgage banking revenue, fees and other income reached $2.7
billion in 2002, up from $2.5 billion in 2001 and $2.4 billion in 2000. Growth
in deposit and cash management service charges and brokerage revenue also
contributed to the increase in fee income in 2002.

Mortgage banking revenue includes 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
First Franklin.

Details of mortgage banking revenue follow:

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Information on origination and sales follows:

Mortgage banking revenue growth in both 2002 and 2001 reflected a strong
mortgage origination market driven by the historically low interest rate
environment and appreciating home values and the results of successful hedging
strategies used to protect the value of mortgage servicing assets. Conforming
mortgage loans originated for sale to third parties increased to $78.9 billion
in 2002, up from $56.0 billion in 2001, and $20.7 billion in 2000. Nonconforming
loans originated for sale grew to $5.2 billion from $2.5 billion in 2001 and
$1.6 billion in 2000. Virtually all conforming mortgage loan production is sold
into the secondary market. A portion of nonconforming loan production is also
sold to third parties. Sales of conforming mortgage loans totaled $67.5 billion
in 2002, up from $41.0 billion in 2001 and $18.3 billion in 2000. Sales of
nonconforming mortgage loans were $4.6 billion in 2002, up from $2.1 billion in
2001 and $2.0 billion in 2000.

The Corporation typically retains the right to service the conforming mortgage
loans it sells and recognizes a mortgage servicing asset upon sale of the loan,
which represents the present value of the estimated future net servicing cash
flows to be realized over the estimated life of the loan. As a result of the
high volume of conforming loan origination and sale activity, the unpaid
principal balance of loans serviced for third parties grew to $101.9 billion at
December 31, 2002, up from $73.9 billion at December 31, 2001, and $54.8 billion
at December 31, 2000. Despite growth in the portfolio of loans serviced, the
carrying value of mortgage servicing assets declined to $615.2 million at
December 31, 2002, down from $1.1 billion a year ago, due to faster amortization
and impairment reflecting higher actual and expected loan prepayments. The value
of mortgage servicing assets is sensitive to changes in interest rates. In a low
rate environment, as was experienced in 2002 and 2001, mortgage loan
refinancings generally increase, causing actual and expected loan prepayments to
increase, which drives down the estimated value of existing mortgage servicing
assets. The Corporation manages the risk associated with declines in the
estimated fair value of mortgage servicing assets primarily by using derivative
instruments. In both 2002 and 2001, mortgage banking revenue benefited from
successful hedging strategies designed to protect the value of mortgage
servicing assets, recognizing derivative gains which exceeded servicing asset
valuation write-downs. Further detail on mortgage servicing assets, including a
sensitivity analysis of the effect changes in assumptions have on the estimated
value of servicing assets, is included in Note 10 to the consolidated financial
statements.

Deposit service charges increased in both 2002 and 2001 as a result of growth in
core deposits, increased cash management account activity, a higher level of
customer debit card usage, and fewer waived fees. Core deposit balances have
increased over the past two years as a result of new account acquisition,
expanded product offerings, and improved customer service.

Payment processing revenue generated by National Processing, Inc. (National
Processing), National City's 85%-owned subsidiary, declined slightly in 2002
from 2001 due to the sale of National Processing's business processing
outsourcing unit in August 2001 and lower travel-related revenue, mostly offset
by an increase in electronic payment processing revenue related to new customers
and higher transaction volume. Over the past several years, National Processing
has taken strategic steps to grow its business by focusing exclusively on
electronic payment processing. These efforts have led to an expanded customer
base in both the regional and national markets and served to grow revenue in
2002 and 2001 as compared to 2000, despite divestitures.

Trust and investment management fees includes both institutional trust and
personal customers. Trust and investment management fee income is based
primarily on the market value of assets under administration. Trust and
investment management fees have declined since 2000 principally as a result of a
decline in the equity markets, which has reduced the value of assets under
administration. To a lesser extent, a shift in mix of administered assets from
equity investment products to money market funds, which generate lower fees,
also served to reduce trust and investment management fee income. At December
31, 2002, National City had total assets under administration of $134.2 billion,
compared to $147.8 billion at December 31, 2001, and $151.1 billion at December
31, 2000. Assets under administration included $57.6 billion, $65.0 billion, and
$66.2 billion of assets under management at December 31, 2002, 2001, and 2000,
respectively. Proprietary Armada(R) mutual fund balances, included in assets
under management, totaled $16.5 billion, $18.5 billion, and $16.9 billion at
those same period ends.

The decrease in card-related fees in 2002 as compared to 2001 was mostly due to
an increase in securitized credit card balances, which resulted in the excess
cash flows on retained interests being recorded as interest income. Certain cash
flows related to retained interests on securitized balances were included in
card-related fees in 2001 and 2000, whereas they were included in interest
income in 2002 to make the classification more consistent with industry
practice. Further discussion of securitization activities
is included in Notes 1 and 4 to the consolidated
financial statements.

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Other service fees include fees generated primarily from banking services, such
as safe deposit box rentals and check cashing, and syndicated lending
activities. Increased fee income from syndicated lending activities accounted
for the higher level of revenue in 2001 as compared to 2002 and 2000.

Brokerage revenue in 2002 benefited from increased fixed annuity product sales
driven by customers' preference for this product over equity investments and
more emphasis on selling this product through the retail branch network. The
equity market decline over the past two years combined with overall weaker
economic conditions reduced investment banking and retail brokerage equity
trading activities and related revenues in 2002 and 2001. Declines in revenue
from these activities partially offset the growth generated from annuity sales
in 2002 and drove the decline in brokerage revenue from 2000 to 2001.

Other fee income declined in 2002 due principally to the recognition in 2001 of
an $88.8 million gain from the sale of the Corporation's preferred share
interest in National Asset Management Corporation (NAMCO) and $20.0 million of
gains recognized on stock received from insurance company demutualizations.
Losses on principal investments also contributed to the decline as $22.9 million
of losses on these investments were recognized in 2002, compared to losses of
only $1.9 million in 2001. Principal investments are carried at fair value with
the losses recognized resulting from regularly adjusting the carrying values to
the most recent estimation of fair value. The fair values of publicly traded
investments were determined by using quoted market prices, subject to liquidity
discounts, sales restrictions, and regulation. Investments that are not publicly
traded were adjusted to fair value based upon good-faith estimates by
management. Factors used in determining the fair value of direct investments
included consideration of the company's business model, current and projected
financial performance, liquidity, management team, and overall economic and
market conditions. Factors used in determining the fair value of indirect
investments included evaluation of the general partner's valuation techniques
and overall economic and market conditions. Further detail on the principal
investments portfolio is included in Note 8 to the consolidated financial
statements. Partially offsetting the decrease in 2002 fee income from the
aforementioned items was an increase in asset securitization gains, which were
$50.1 million in 2002 compared to $20.6 million in 2001. Other fee income in
2000 was boosted by a $74.2 million gain on the sale of $2.0 billion of student
loans, $37.1 million of principal investment gains, a $27.2 million credit card
securitization gain, and $6.5 million of insurance company demutualization
gains.

Net securities gains and losses are summarized as follows:

Gains and losses on debt securities are generated mainly from the investment
portfolio maintained for asset/liability management purposes, while equity
securities gains are generated primarily from the Corporation's bank stock fund,
an internally managed equity portfolio of bank and thrift common stock
investments.

The bank stock fund is managed opportunistically, with the degree of market
strength and industry consolidation affecting the comparability of achieved
results between periods. Pretax gains generated from the bank stock fund were
$74.5 million, $123.4 million, and $112.8 million in 2002, 2001, and 2000,
respectively. Of the total bank stock gains recognized in 2002, $14.2 million
represented appreciation on securities donated to the Corporation's charitable
foundation.

In addition to gains from the bank stock fund, equity securities gains in 2001
included pretax gains of $18.5 million on Student Loan Marketing Association
stock that was called.

In conjunction with the Corporation's balance sheet restructuring efforts in
2000, the Corporation sold $3.7 billion of fixed-rate debt securities and
recognized pretax losses of $56.3 million.

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NONINTEREST EXPENSE

Details of noninterest expense follow:

Noninterest expense was $3.7 billion in 2002, compared to $3.3 billion in 2001
and $3.2 billion in 2000. In general, the increases in noninterest expense over
the past two years reflected higher personnel, processing, and operational costs
associated with increased business volumes and various brand development,
technology, and service quality initiatives.

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

Salaries, benefits, and other personnel expense increased in both 2002 and 2001
primarily due to a higher level of commissions and contract labor costs
associated with mortgage loan origination and sales activity. Employee
benefit-related expenses rose in both years due to higher costs associated with
medical benefits, an increase in contributions to 401(k) plan participants and,
in 2002, a reduction in the net periodic benefit earned related to the
Corporation's defined benefit pension plan. The Corporation expects the net
periodic pension benefit to decrease to approximately $15.7 million in 2003 due
to a decline in the fair value of plan assets related primarily to the decline
in the equity markets. Further discussion of the Corporation's benefit plans is
included in Note 22 to the consolidated financial statements. The Corporation
also plans to begin expensing stock options in 2003, as discussed in Note 2 to
the consolidated financial statements, and estimates the associated pretax cost
will be approximately $18 million. National City's staffing level on a full-time
equivalent basis was slightly higher than at the end of 2001 as increases in
staff to support the record level of mortgage banking activity were mostly
offset by personnel reductions resulting from efficiencies achieved across the
Corporation and operational changes at National Processing. The decline in staff
from 2000 to 2001 was associated with divestitures at National Processing.

Equipment and net occupancy expenses increased in both 2002 and 2001 in
conjunction with investments made to improve processing and communications
equipment within the branches and back office of the retail banking network.

Third-party services expense rose in both 2002 and 2001 primarily due to an
increase in activities outsourced related to the significant increase in
mortgage banking volumes and, to a lesser extent, increases in regulatory
examination fees, payment processing referral fees, and professional service
fees.

The increases in card processing expense in 2002 and 2001 were driven mainly by
volume increases in payment processing activity at National Processing and
increases in credit and debit card usage by retail banking customers.

Amortization expense associated with intangible assets declined in 2002 due to
the adoption of Statement of Financial Accounting Standards (SFAS) 142, Goodwill
and Other Intangible Assets. Upon adoption on January 1, 2002, the Corporation
ceased ratably amortizing its goodwill into the income statement. Further
discussion of the adoption of SFAS 142 and detail of goodwill and other
intangible assets is included in Note 9 to the consolidated financial
statements.

Marketing and public relations expense in 2002 included a $52.8 million charge
related to the donation of appreciated investment securities to the
Corporation's charitable foundation. Excluding this charge, marketing and public
relations expense increased due to costs associated with a brand awareness
campaign, which included targeted television and print advertising across the
National City footprint.

State and local tax expense increased in 2002 due primarily to an increase in
franchise taxes paid by the Corporation's subsidiary banks as a result of higher
capital levels. State and local tax expense was reduced in 2000 by the receipt
of several tax refunds.

Other real estate owned expense is comprised of costs associated with
maintaining and selling properties held for sale which were either obtained in
satisfaction of nonperforming loans or were formerly used as bank premises. Also
included in expense are any disposition gains and losses resulting from the sale
of these assets, as well as any write-downs in the estimated fair values of such
properties while they are held for sale. Other real estate owned expense has
increased over the past two years as a result of an increase in the amount of
other real estate owned, principally resulting from residential mortgage
foreclosures.

Other noninterest expense in 2002 increased due primarily to losses related to
the revaluation of community development and civic partnership investments,
which totaled $67.6 million in 2002, compared to $7.1 million in 2001, a $15.9
million loss incurred in 2002 upon the

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consolidation of an asset-backed commercial paper conduit, higher expenses
associated with mortgage banking activities, and increases in minority interest
expense and fraud losses. Somewhat offsetting the increase in other expense in
2002 was a decline in write-downs taken on automobile lease residual values,
which totaled $50.9 million in 2002 compared to $67.4 million in 2001.
Noninterest expense in 2000 included $41.0 million of automobile lease residual
value write-downs and an $18.0 million charge related to closing certain
nonconforming retail and wholesale loan origination units and ceasing the
origination of automobile leases.

The efficiency ratio, which expresses noninterest expense as a percentage of
tax-equivalent net interest income and total fees and other income, was 55.1%
for 2002, down from 55.7% in 2001 and 58.8% in 2000. Over the past two years,
the Corporation's efficiency ratio has improved due to revenue growth and cost
management across all business lines.

INCOME TAXES

The Corporation's effective tax rate for 2002, 2001, and 2000 was 33.8%, 35.9%,
and 34.0%, respectively. The higher effective tax rate in 2001 resulted
primarily from a $40.0 million charge related to the settlement of a tax
exposure on corporate-owned life insurance (COLI) deductions. Further discussion
of the COLI tax matter is included in Note 20 to the consolidated financial
statements and a reconciliation of the effective tax rate to the statutory rate
is included in Note 19.

LINE OF BUSINESS RESULTS

In the second half of 2002, National City combined its conventional and
nonconforming mortgage and national home equity lending groups into a new
business line designated as National Consumer Finance. In addition, in-
footprint dealer finance, credit card, and student lending activities formerly
housed in the Consumer Finance business line were combined with retail and small
business banking to form a new line of business designated as Consumer and Small
Business Financial Services. National City is now functionally managed along the
following five major business lines: Consumer and Small Business Financial
Services, Wholesale Banking, National Consumer Finance, Asset Management, and
National Processing. A detailed description of each business line, including its
products, customers and markets served, and selected financial information, is
included in Note 25 to the consolidated financial statements. All prior period
financial information has been restated to reflect the new organizational
structure.

Net income (loss) by line of business follows:

Results for Consumer and Small Business Financial Services for 2002 reflected
growth in both loans and deposits. Home equity loan production in particular
benefited from the low interest rate environment. Core deposits grew as the
result of initiatives put in place over the last two years and a shift in
customer preference away from the equity markets and into insured bank deposits.
The initiatives included new product offerings such as free checking accounts
and a new money management account, investments in training and back-office
technology, and an ongoing emphasis on customer service and account retention.
The cost of these customer service initiatives, combined with the effects of
lower interest rates on deposit account profitability and an increase in credit
costs, led to the decline in 2002 net income as compared to the previous two
years. The loan loss provision increased due to higher losses on credit card,
home equity, and small business loans. Offsetting the effects of lower net
interest income on deposits and higher credit costs was an increase in net
interest income on loans and noninterest income, due to volume-driven growth in
deposit-related fees and revenue earned from lending-related insurance
activities. During 2000, in conjunction with a corporate-wide initiative to
strengthen financial performance, $2.0 billion of low-margin student loans were
sold for a gain of $74.2 million and automobile leasing was discontinued. As of
December 31, 2002, the automobile lease portfolio had run down to $571.6
million, compared to $1.2 billion a year earlier. Automobile lease residual
value write-downs of $50.9 million, $67.4 million, and $41.0 million were
charged to noninterest expense in 2002, 2001, and 2000, respectively.
Noninterest expense in 2002 was also reduced by approximately $17 million
compared to the prior years as a result of the adoption of SFAS 142, under which
goodwill is no longer ratably amortized into the income statement.

Wholesale Banking's results in 2002 were adversely affected by increased credit
costs and soft commercial loan demand, both stemming from a weaker economy. The
provision for loan losses was $376.3 million in 2002, versus $218.0 million in
2001 and $68.9 million in 2000. Net charge-offs on loans for those same periods
were $281.1 million, $185.5 million, and $68.9 million, respectively. The
increases in provision and net charge-offs in both 2002 and 2001 were
principally associated with large corporate credits, including nationally
syndicated loans in which National City participates but is not the lead agent.
In addition, economic weakness has caused financial stress among corporate
customers, which has resulted in increased levels of delinquencies and losses.
There were no particular industry or geographic concentration trends in

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FINANCIAL REVIEW CONTINUED
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charge-offs in either 2002 or 2001. Losses on principal investments in public
and private entities, write-downs of commercial lease residual values, and a
decline in revenue associated with syndicated lending activities also
contributed to the decrease in net income in 2002. Losses on principal
investments totaled $22.9 million in 2002, compared to losses of $1.9 million in
2001 and gains of $37.1 million in 2000. Commercial lease residual value
write-downs totaled $8.6 million in 2002 and $4.5 million in 2001. There were no
significant commercial lease residual value write-downs in 2000. Noninterest
expense for 2002 was reduced by approximately $5 million as a result of the
adoption of SFAS 142.

National Consumer Finance recorded strong net income in 2002 as a result of the
low interest rate environment, which drove record mortgage and home equity loan
originations and sales. Revenue and net income benefited from higher levels of
loan originations and sales, along with an increase in servicing revenue from
loans serviced for third parties and successful hedging strategies designed to
protect the value of mortgage servicing assets. In comparison to 2002 and 2000,
the higher loan loss provision in 2001 related to the decision made in late 2000
to close certain retail and wholesale nonconforming loan origination units of
Altegra. Also as a result of the decision to close these origination units, a
charge of $17.1 million was recorded in 2000. Noninterest expense in 2002 was
reduced by approximately $17 million as a result of the adoption of SFAS 142.

Net income for Asset Management was down in 2002 principally due to a decline in
net interest income and higher credit costs related to lending activities within
the private banking division. Noninterest income was down slightly from 2001 as
higher fee income related to brokerage activities, primarily the sale of annuity
products, was more than offset by lower trust and investment management fee
income. Trust and investment management fees were unfavorably affected by a
lower level of assets under administration resulting from lower equity market
values and net cash outflows, along with a shift in the mix of administered
assets from equity products to money market funds, which generate lower fees.
Assets under administration were $134.2 billion at December 31, 2002, down from
$147.8 billion at December 31, 2001 and $151.1 billion at December 31, 2000. The
adoption of SFAS 142 reduced noninterest expense in 2002 by approximately $4
million.

National Processing's net income declined slightly in 2002 as an increase in
revenue from higher transaction volumes was offset by lower margins. Over the
past two years, National Processing has both acquired and discontinued several
business units and realigned others in an effort to focus on and strengthen its
core business of electronic payment processing. During 2002, National Processing
relocated certain processing operations from Mexico to the United States and
recorded a $1.7 million pretax charge for severance costs and building and
equipment write-downs. A $3.4 million pretax charge was also recorded in 2002
related to a separation agreement with the Company's former chief executive
officer. National Processing announced a strategic decision in 2002 to
discontinue processing transactions for the airline industry as existing
contractual obligations expire. The contracts have various expiration dates
through 2005. The revenue generated from this business represents about 8% of
National Processing's total revenue. In 2001, a $3.3 million pretax charge was
recognized in association with the disposal of its business processing
outsourcing unit, which processed health care claims, credit card applications,
and airline lift tickets. Also in 2001, National Processing acquired a 70%
ownership interest in ABN AMRO Merchant Services, LLC, a merchant payment
processor, and purchased from the Consumer and Small Business Financial Services
line of business, its merchant business unit, which processes debit and credit
card transactions. Results for 2000 included a $7.1 million pretax charge for
the divestiture of a small business unit. Noninterest expense for 2002 was
reduced by approximately $3 million as a result of the adoption of SFAS 142.

The parent and other category includes the results of investment funding
activities, unallocated corporate income and expense, and intersegment revenue
and expense eliminations. A net loss was incurred in the parent and other
category in 2002 due to unallocated corporate expenses and losses, including the
results of interest rate risk management activities, exceeding bank stock fund
and other gains. Results for 2001 included an $88.8 million gain from the
Corporation's sale of its investment in NAMCO. Bank stock fund gains totaled
$74.5 million in 2002, $123.4 million in 2001, and $112.8 million in 2000. Other
significant noninterest income and expense items affecting comparability between
years were gains on the initial securitizations of credit card receivables and
automobile loans totaling $50.1 million, $20.6 million, and $27.2 million in
2002, 2001, and 2000, respectively; a $15.9 million loss in 2002 resulting from
the consolidation of the asset-backed commercial paper conduit; losses of $67.6
million and $7.1 million in 2002 and 2001, respectively, related to the
revaluation of community development and civic partnership investments; a $52.8
million charge in 2002 associated with the donation of appreciated investment
securities to the Corporation's charitable foundation; and insurance company
demutualization gains totaling $20.0 million and $6.5 million in 2001 and 2000,
respectively. Results for 2001 were also adversely affected by the $40.0 million
tax charge related to COLI deductions. Noninterest expense in 2002 was reduced
by approximately $20 million resulting from the adoption of SFAS 142.

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FINANCIAL CONDITION

LOANS: Loan balances by category at December 31 follow:

Commercial: The commercial loan category includes loans to a wide variety of
businesses, small and large, across many industries and regions. Included in
this category are loans both directly originated by National City and syndicated
transactions that are originated by other financial institutions. The
Corporation's commercial lending policy requires each loan, regardless of
whether it is directly originated or purchased through syndication, to have
viable repayment sources. The risks associated with syndicated loans (that is,
loans in which National City participates as part of a syndicate of financial
institutions) are similar to those of directly originated commercial loans,
however, additional risk may arise from the limited ability to control actions
of the syndicate due to National City's limited voting percentage in the
syndicate.

Shared National Credits, as defined by the banking regulatory agencies,
represent syndicated lending arrangements with three or more participating
financial institutions and credit exceeding $20 million in the aggregate. As of
the 2002 Shared National Credit Examination, the Corporation had $14.6 billion
in commitments to lend, of which $7.5 billion of loans were outstanding under
this program, representing participations purchased as well as agented
transactions.

With respect to loans originated by National City for syndication to other
institutions, such activities are focused on long-term customer relationships.
Strict policies are in place governing the degree of risk assumed and volume of
loans held. At December 31, 2002, there were no unsold loans in inventory from
syndication activities.

Commercial loans are evaluated for the adequacy of repayment sources at the time
of approval and are regularly reviewed for any possible deterioration in the
ability of the borrower to repay the loan. In certain instances, collateral is
required to provide National City with an additional source of repayment in the
event of default by a commercial borrower. The structure of the collateral
package, including the type and amount of the collateral, varies from loan to
loan depending on the financial strength of the borrower, the amount and terms
of the loan, and the collateral available to be pledged by the borrower. Credit
risk for commercial loans arises from borrowers lacking the ability or
willingness to repay the loan, and in the case of secured loans, by a shortfall
in the collateral value in relation to the outstanding loan balance in the event
of a default and subsequent liquidation of collateral.

Commercial loans outstanding declined to $24.7 billion at December 31, 2002,
from $26.8 billion at December 31, 2001, due to the weakened economic
environment, which dampened loan demand. In addition, during 2002, approximately
$1.5 billion of business loans with underlying real estate collateral were
transferred from the commercial loan portfolio to the commercial real estate
loan portfolio to make the presentation of loans secured by real estate more
consistent with bank regulatory definitions. This balance sheet transfer had no
effect on credit reporting, underwriting, reported results of operations, or
liquidity.

Commercial loan growth was strong for much of 2001 due to market share gains in
Chicago, Philadelphia, and Detroit, combined with the success of new product
offerings. Commercial loan origination activity slowed in the fourth quarter of
2001 due to the weaker economy, leaving outstanding balances relatively
unchanged from year-end 2000 to year-end 2001.

The commercial lease portfolio, included in commercial loans, was $1.7 billion
at December 31, 2002, compared to $2.0 billion at December 31, 2001 and $1.8
billion at December 31, 2000.

Commercial leasing activities include equipment leasing to corporate customers
principally within the Corporation's six-state footprint as well as selective
investments in lease transactions that are national in scope and originated from
secondary sources. National City serves a diversified customer base in steel,
automotive, manufacturing, transportation, and other capital-intensive
industries and leases a broad range of capital equipment, including
transportation, manufacturing, technology, aircraft, material handling,
construction, and other capital equipment types.

Also included in the commercial loan portfolio were commercial construction
loans totaling $2.1 billion, $1.3 billion, and $1.3 billion as of December 31,
2002, 2001, and 2000, respectively. During 2002, approximately $400 million of
loans were reclassified from commercial general to commercial construction in
order to present them in conformity with bank regulatory loan definitions.

A distribution of total commercial loans by maturity and interest rate at
December 31, 2002 follows:

National City has a diversified and granular commercial loan portfolio and lends
to a broad customer base represented by over 800 different standard industrial
classifications. The customer base, although substantially located in National
City's six-state footprint, is geographically dispersed to mitigate
concentration risk in the event of regional economic difficulties. The
Corporation has no commercial

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loans to borrowers in similar industries that exceed 10% of total loans. The
following table as of December 31, 2002 summarizes the major industry categories
and exposure to individual borrowers.

(a)This loan is secured by government-insured student loans.

Commercial Real Estate: The commercial real estate category contains mortgage
loans to developers and owners of commercial real estate. Lending activities in
commercial real estate are based primarily on relationships with developers who
are active in National City's local markets, with almost all outstanding
balances in National City's six-state footprint. Commercial real estate loans
are governed by the same lending policies and subject to credit risk as
previously described for commercial loans. At December 31, 2002, commercial real
estate loans totaled $9.4 billion, compared to $7.3 billion at December 31,
2001. The increase in outstanding balances during 2002 includes the previously
discussed transfer of approximately $1.5 billion of business loans with
underlying real estate collateral from the commercial loan portfolio to the
commercial real estate loan portfolio. As of December 31, 2002, the average
individual outstanding commercial real estate loan balance was $.8 million and
the largest outstanding loan to a single obligor was $54.2 million. Profitable
lending opportunities in 2001, primarily in Illinois, Ohio, and Pennsylvania led
to the growth in commercial real estate loans in 2001.

Residential Real Estate: The residential real estate category contains loans to
consumers secured by residential real estate. The Corporation's residential real
estate lending policy requires each loan to have viable repayment sources.
Residential real estate loans are evaluated for the adequacy of these repayment
sources at the time of approval, including credit scores, debt-to-income ratios,
and collateral values. Credit risk for residential real estate loans arises from
borrowers lacking the ability or willingness to repay the loan, and by a
shortfall in the value of the residential real estate in relation to the
outstanding loan balance in the event of a default and subsequent liquidation of
the real estate collateral.

The residential real estate portfolio includes both conforming and nonconforming
mortgage loans. Conforming mortgage loans represent loans originated in
accordance with underwriting standards set forth by the government-sponsored
entities (GSEs) of Federal National Mortgage Association (FNMA), the Federal
Home Loan Mortgage Corporation (Freddie Mac), and the Government National
Mortgage Association (GNMA), who serve as the primary purchasers of loans sold
in the secondary mortgage market by mortgage lenders. These loans are generally
collateralized by one-to-four-family residential real estate, have
loan-to-collateral value ratios of 80% or less, and are made to borrowers in
good credit standing. The Corporation's wholly-owned subsidiary National City
Mortgage Co. originates conforming mortgage loans through retail branch offices
located throughout the United States, a wholesale network of brokers, realtors,
builders, and other correspondents, and through National City banking offices
located within the Corporation's six-state footprint. Substantially all
conforming loans originated are sold in the secondary mortgage market. The right
to service the loans and receive servicing fee income is generally retained when
conforming loans are sold. See further discussion under Loans Held for Sale or
Securitization.

Nonconforming mortgage loans represent loans that generally are not saleable in
the secondary market to the GSEs for inclusion in conventional mortgage-backed
securities due to the credit characteristics of the borrower, the underlying
documentation, the loan-to-value ratio, or the size of the loan, among other
factors. The Corporation's nonconforming residential real estate loan portfolio
is comprised of mortgage loans generated by First Franklin and the former
origination units of Altegra. The First Franklin loans are typically readily
saleable to other secondary market mortgage investors, and the Corporation sold
or intends to sell approximately 48%, 39%, and 37% of their origination volume
to third-party investors during 2002, 2001, and 2000, respectively. During the
past three years, as part of a focused effort to retain higher-value assets,
$5.5 billion, $3.8 billion, and $2.8 billion, respectively, of nonconforming
mortgage production was retained in the residential real estate portfolio. The
retention of these loans contributed to the increase in the residential real
estate portfolio in 2002 and to the majority of the increase in each of 2001 and
2000. As of December 31, 2002, 2001, and 2000, the nonconforming real estate
loan portfolio generated by First Franklin and Altegra totaled $11.3 billion,
$8.6 billion, and $6.6 billion, respectively. Nonconforming mortgage loans in
2002 and 2001 were generated mainly by First Franklin. Prior to 2001, the
Corporation's Altegra subsidiary also generated nonconforming mortgages through
its loan origination units. These units were closed in December 2000 as part of
a business line realignment. First Franklin offers a variety of loan programs
and documentation levels for nonconforming borrowers, including limited and no
documentation programs. The majority of these loans would not be considered
"sub-prime" as that term is commonly used in the industry. First Franklin uses
third-party credit scores that are incorporated into the lending guidelines
along with loan amount, loan-to-value, and loan purpose. These loans are
originated principally through wholesale channels, including a national network
of brokers, realtors, and mortgage bankers. No single source represents more
than 1% of total production.

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Loan production is primarily located on the West Coast (59% of volume); however,
expansion continues in the Midwest (20%) and East Coast (21%) markets. First
Franklin is committed to responsible lending and avoids practices that are
considered predatory. It maintains written agreements with all brokers that
require them to be knowledgeable of all consumer protection laws and
regulations, and actively monitors brokers for compliance.

During late 2002, approximately $3.2 billion of installment loans secured by
home equity were transferred from other consumer to residential real estate to
make the balance sheet presentation of loans secured by real estate more
consistent with bank regulatory definitions. The balance sheet transfer had no
effect on credit reporting, underwriting, reported results of operations, or
liquidity.

Home Equity Lines of Credit: The home equity category consists mainly of
revolving lines of credit to consumers which are secured by residential real
estate. Home equity lines are generally governed by the same lending policies
and subject to credit risk as described above for residential real estate loans.
These loans are originated on a nationwide basis as well as through National
City banking offices. Home equity lines of credit totaled $8.1 billion at
December 31, 2002, up substantially from $5.8 billion at December 31, 2001 and
$4.8 billion at December 31, 2000. During the past two years, the low interest
rate environment combined with appreciating home values, national marketing
efforts, and cross-sell programs has led to strong home equity originations and
the resulting growth in balances.

Credit Cards and Other Unsecured Lines of Credit: This category includes the
outstanding balances on open-ended credit card accounts and unsecured personal
and business lines of credit. Credit card loans are typically unsecured and are
generally governed by the same lending policies as described for residential
real estate and consumer loans and are subject to credit risk as described for
those loan categories. During 2002, 2001, and 2000, the Corporation securitized
$425.0 million, $425.0 million, and $600.0 million, respectively, of credit card
receivables. The reduction in on-balance sheet receivables due to securitization
offset steady but modest growth in credit card loans and unsecured business
lines of credit during 2002 and 2001. Off-balance sheet securitized credit card
receivables totaled $1.5 billion, $1.0 billion, and $630.0 million at December
31, 2002, 2001, and
2000, respectively.

Other Consumer: Other consumer loans includes installment loans used by
customers to purchase automobiles, boats, and recreational vehicles, automobile
leases, and student loans. These consumer loans are generally governed by the
same lending policies as described for residential real estate. Credit risk for
consumer loans arises from borrowers lacking the ability or willingness to repay
the loan, and in the case of secured loans, by a shortfall in the value of the
collateral in relation to the outstanding loan balance in the event of a default
and subsequent liquidation of collateral. During 2002, approximately $3.2
billion of installment loans secured by home equity were transferred from other
consumer to residential real estate to make the presentation of loans secured by
real estate more consistent with bank regulatory definitions. The balance sheet
transfer had no effect on credit reporting, underwriting, reported results of
operations, or liquidity. The automobile lease portfolio, included in other
consumer loans, was $571.6 million at December 31, 2002, down from $1.2 billion
at December 31, 2001, and $1.8 billion at December 31, 2000. The Corporation
ceased the origination of automobile leases in December 2000 and the automobile
lease portfolio is being liquidated over time.

Loans Held for Sale or Securitization: At December 31, 2002, this category
included $24.7 billion of mortgage loans held for sale and $14.8 million of
commercial loans held for sale. At December 31, 2001, this category included
$15.6 billion of mortgage loans held for sale, $51.0 million of commercial loans
held for sale, and $824.4 million and $402.3 million of automobile and credit
card loans held for securitization, respectively. At December 31, 2000, the
Corporation held $3.0 billion of mortgage loans for sale and $407.9 million of
credit card receivables for securitization. The substantial increase in mortgage
loans held for sale in 2002 and 2001 resulted from record origination volume,
principally mortgage loan refinances, driven by low interest rates and a strong
housing market. As discussed previously, the Corporation typically sells all
conforming mortgage loan originations in the secondary market and also sells
certain nonconforming mortgage loans to third parties.

SECURITIES: Securities balances at December 31 follow:

The Corporation has pared back the securities portfolio over the past several
years through sale and runoff in conjunction with balance sheet restructuring
and asset/liability management activities. In 2000, $3.7 billion of fixed-rate
debt securities were sold, of which $1.1 billion were sold to an asset-backed
commercial paper conduit for which the Corporation served as administrative
agent. On September 29, 2002, this conduit was consolidated onto the
Corporation's balance sheet, and $2.0 billion of asset-backed securities were
added to the portfolio. Further discussion of the asset-backed commercial paper
conduit is included in Note 5 to the consolidated financial statements.
Portfolio runoff in 2002, primarily within the mortgage-backed securities
category, more than offset the increase in balances due to the consolidation of
the commercial paper conduit and resulted in the decline in the portfolio from
2001 to 2002. At December 31, 2002, the securities portfolio

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included net unrealized gains of $343.2 million. The weighted-average yield of
debt securities included in the portfolio at December 31, 2002 was 5.40%,
compared to 6.29% at December 31, 2001.

FUNDING: Detail of average deposit and borrowed funds balances follows:

Core deposits, the most significant source of funding, grew in 2002 and 2001 as
a result of new account acquisition and retention, expanded product offerings,
and improved customer service. Core deposit growth has also been driven by an
increase in deposits associated with a higher level of mortgage banking
principal payoff balances as a result of the increase in refinancing activity
and, to a lesser extent, a general shift in customer preference away from the
equity markets and into insured bank deposits. In the fourth quarter of 2002,
the Corporation also introduced a new cash management product which allows
customers to sweep off-balance sheet money market trust funds into on-balance
sheet bank insured money market deposit accounts. As of December 31, 2002, money
market deposit balances associated with this new product totaled $565.2 million.
Within the core deposit categories, there has been a shift in mix over the past
two years from administered-rate products, such as savings accounts, to
market-indexed money market products, due in part to retail deposit migration
initiatives which encouraged customers to upgrade to deposit products more
suitable to their needs in order to promote longer-term customer satisfaction
and retention. Consumer time deposits consists primarily of certificates of
deposits issued to retail banking customers. Consumer time balances have
declined since 2000 due to the reduced attractiveness of this product in a low
interest rate environment.

Other deposits consists principally of brokered deposits and certificates of
deposit in denominations of $100,000 or more. Brokered deposits represent
certificates of deposit with specified maturity dates and fixed rates acquired
from retail and institutional sources through third-party brokers. Certificates
of deposit of $100,000 or more are acquired from National City's retail and
corporate customer base. Foreign deposits primarily represent U.S. dollars
placed on deposit in the Corporation's Grand Cayman branches. The sources of
these deposits are institutional money managers and corporate customers. A
relatively small portion of these balances also represents deposits denominated
in Canadian dollars used to support lending activity in Canada.

Short-term borrowings are comprised mainly of Federal funds purchased,
securities sold under agreements to repurchase, U.S. Treasury notes, commercial
paper, and short-term senior bank notes issued by the Corporation's bank
subsidiaries. Short-term borrowings generally fund short-term, rate-sensitive
earning asset growth. Long-term debt and capital securities include senior and
subordinated debt issued by the Corporation or its bank subsidiaries. A
wholesale funding policy governs the funding activity of all subsidiary banks.
The policy identifies eligible funding instruments and applicable constraints
for gathering discretionary liabilities. This policy requires compliance with
Section 301 of the FDIC Improvement Act of 1991 regarding the issuance of
brokered deposits. The Corporation conducts its funding activities in compliance
with the Bank Secrecy Act and other regulations relating to money laundering
activity. During 2002 and 2001, the use of purchased deposits and funding
increased in order to fund asset growth, mainly mortgage loans held for sale. At
December 31, 2002 and 2001, purchased funding included $8.9 billion and $8.2
billion, respectively, of U.S. Treasury notes. These notes are typically a
lower-cost source of funding provided by the U.S. Treasury when excess funds are
on hand. The amount of the notes held at any given time can fluctuate
significantly depending on the U.S. Treasury's cash needs. Replacement funding
through other short-term borrowing channels is available in the event the notes
are called.

Certificates of deposit of $100,000 or more totaled $5.8 billion at December 31,
2002, of which $2.0 billion mature within three months, $.8 billion mature
between three and six months, $.4 billion mature between six months and one
year, and $2.6 billion mature beyond one year.

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

The following table presents, as of December 31, 2002, the Corporation's
significant fixed and determinable contractual obligations by payment date. The
payment amounts represent those amounts contractually due to the recipient and
do not include any unamortized premiums or discounts, hedge basis adjustments,
or other similar carrying value adjustments. Further discussion of the nature of
each obligation is included in the referenced note to the consolidated financial
statements.

The Corporation also enters into derivative contracts under which the
Corporation is required to either receive cash from or pay cash to
counterparties depending on changes in interest rates. Derivative contracts are
carried at fair value on the consolidated balance sheet with the fair value
representing the net present value of expected future cash receipts or payments
based on market interest rates as of the balance sheet date. The fair value of
the contracts change daily as market interest rates change. Certain contracts,
such as interest rate futures, are cash settled daily, while others, such as
interest rate swaps, require monthly cash settlement. Because the derivative
liabilities recorded on the balance sheet at December 31, 2002 do not represent
the amounts that may ultimately be paid under these contracts, these liabilities
are not included in the table of contractual obligations presented above.
Further discussion of derivative instruments is included in Notes 1 and 23 to
the consolidated financial statements.

A schedule of significant commitments at December 31, 2002 follows:

Further discussion of these commitments is included in Note 20 to the
consolidated financial statements. In addition, the Corporation has commitments
and obligations under pension and other postretirement benefit plans as
described in Note 22 to the consolidated
financial statements.

The Corporation may also have liabilities under certain contractual agreements
contingent upon the occurrence of certain events. A discussion of significant
contractual arrangements under which National City may be held contingently
liable, including guarantee arrangements, is included in Note 20 to the
consolidated financial statements.

The Corporation's significant off-balance sheet arrangements include the use of
special-purpose entities, generally securitization trusts, to diversify its
funding sources. During each of the past three years, National City has sold
either credit card receivables and/or automobile loans to securitization trusts,
which are considered qualified special-purpose entities and, accordingly, are
not included in the consolidated balance sheet. The Corporation continues to
service the loans sold to the trusts, for which it receives a servicing fee, and
also has certain retained interests in the assets of the trusts. Further
discussion on the accounting for securitizations is included in Note 1 to the
consolidated financial statements and detail regarding securitization
transactions and retained interests is included in Note 4.

CAPITAL

The Corporation has consistently maintained regulatory capital ratios at or
above the "well-capitalized" standards. For further detail on capital and
capital ratios, see Notes 16 and 17 to the consolidated financial statements.

Total stockholders' equity was $8.3 billion at December 31, 2002, up from $7.4
billion at December 31, 2001. Equity as a percentage of assets was 7.03% at
December 31, 2002, compared to 6.98% a year ago. Book value per common share
rose to $13.59 at December 31, 2002, up from $12.15 at December 31, 2001.

On August 30, 2002, the Corporation redeemed all preferred shares outstanding at
a redemption price of $50.50137 per share, representing a total cost of $37,119.
Holders of the preferred shares had the right, at any time, through August 20,
2002, to convert each share of preferred into 3.0291 shares of National City
common stock. The holders of the preferred shares were entitled to receive
cumulative preferred dividends payable quarterly at the annual rate of 6%.

In October 1999, the Corporation's Board of Directors authorized the repurchase
of up to 30 million shares of National City common stock, subject to an
aggregate purchase limit of $1.0 billion. Shares repurchased are held for
reissue in connection with the Corporation's stock compensation plans and for
general corporate purposes. During 2002, 2001, and 2000, the Corporation
repurchased 1.3 million, 9.3 million, and 2.5 million shares of its common
stock, respectively. As of December 31, 2002, 14.3 million shares remain
authorized for repurchase. The

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Corporation's businesses typically generate significant amounts of capital each
year in excess of normal dividend and reinvestment requirements. Subject to
ongoing capital, investment, and acquisition considerations, management intends
to continue share repurchases in 2003 on an opportunistic basis.

At December 31, 2002, the Corporation's market capitalization was $16.7 billion,
and there were 61,916 common stockholders of record. National City's common
stock is traded on the New York Stock Exchange under the symbol "NCC."
Historical stock price information for National City's common stock is presented
in tabular form on the inside back cover of this report.

National City paid dividends per common share of $1.20 in 2002 and $1.16 in 2001
and has paid dividends every year since its founding except 1868, 1934, and
1935. The dividend payout is continually reviewed by management and the Board of
Directors. The dividend payout ratio, which equals dividends per share divided
by earnings per share, was 46.3% and 51.1% for the years 2002 and 2001,
respectively. The dividend payout ratio has averaged approximately 50% for the
past five years. It is management's intention to migrate to a lower payout ratio
over time.
RISK MANAGEMENT

The Board of Directors is the foundation for effective corporate governance and
risk management. The Board demands accountability of management, keeps
stockholders' and other constituencies' interests in focus, advocates the
upholding of the Corporation's code of ethics, and fosters a strong internal
control environment. Through its Investment and Audit Committees, the Board
actively reviews critical risk positions, including market, credit, liquidity,
and operational risk. The Corporation's goal in managing risk is to reduce
earnings volatility, control exposure to unnecessary risk, and ensure
appropriate returns for risk assumed. Senior management actively manages risk at
the line of business level, supplemented with corporate-level oversight through
the Asset Liability Committee, internal audit and quality control functions, and
other risk management groups within the Corporation. Building on these
strengths, the Corporation created a Chief Risk Officer function in late 2002 to
reinforce the focus on risk management. This risk management structure is
designed to surface risk issues through a systematic process, enabling timely
and appropriate action to avoid and mitigate risk. The new risk management
organization builds on existing practices by establishing risk limits and more
robust measurement systems, continuing to focus on risk reduction strategies,
and further refining capital allocation practices.

CREDIT RISK MANAGEMENT

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. The following tables provide information and
statistics on the overall quality of National City's loan portfolio. Note 1 to
the consolidated financial statements describes the accounting policies related
to nonperforming loans and charge-offs and describes the methodologies used to
develop the allowance for loan losses, including both the allocated and
unallocated components. The policies governing nonperforming loans and
charge-offs are consistent with regulatory standards.

NONPERFORMING ASSETS: Nonperforming assets at December 31 follow:

The increase in nonperforming assets and net charge-offs in both 2002 and 2001
largely related to commercial loans to leveraged borrowers, conforming
residential real estate mortgage loans originated through National City
Mortgage, and nonconforming residential real estate loans generated by First
Franklin and the former wholesale and retail origination units of Altegra. The
provision for loan losses rose in 2002 and 2001 in response to the higher level
of nonperforming assets and charge-offs and greater uncertainty surrounding the
magnitude and duration of the deterioration of economic conditions across all
industry and geographic sectors. The increased provision was primarily needed to
maintain an appropriate allowance for loan losses allocated to highly leveraged
commercial loans and in 2001, for loans originated by Altegra's former wholesale
and retail units. The Corporation closed the wholesale and retail loan
origination units of Altegra in December 2000. As part of the decision to exit
this activity, the Corporation assumed a more aggressive stance on the
management of this portfolio, which also contributed to increased levels of
nonperforming assets and charge-offs in 2001.

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ALLOWANCE FOR LOAN LOSSES: A reconciliation of the allowance for loan losses
follows:

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

Leveraged borrowers, by virtue of their dependence on third-party financing and
inherently higher interest costs, have experienced a diminished ability to
adjust to the economic downturn. The increase in leveraged loan charge-offs was
driven by nationally syndicated loans in which National City participates but
was not the agent bank. These syndicated loans were charged off to the extent
principal and interest due exceeded net realizable values. Factors influencing
net realizable value included tangible collateral values, cash-flow-based
enterprise values, and where existing, secondary market prices for the assets.
In addition, economic weakness has caused financial stress among corporate
customers generally, which has manifested into increased levels of delinquencies
and net charge-offs. There were no particular industry or geographic
concentration trends in charge-offs in 2002 and 2001. Management generally
expects a heightened level of nonperforming assets and net charge-offs in the
commercial portfolio to continue until the economy strengthens.

Loans originated by the discontinued Altegra units have higher interest rates
because its customer base is principally comprised of borrowers with certain
credit imperfections. Similar to leveraged loans, the poor economy has
diminished the ability of these borrowers to repay their obligations. It is
expected the Altegra portfolio will continue to experience a high percentage of
delinquencies. Collection and loss mitigation efforts are being keenly focused
on the disposition and resolution of this portfolio. As the former Altegra
portfolio runs off, the absolute level of nonperforming assets and net
charge-offs in this sub-portfolio are anticipated to decline. At the same time,
as the Corporation continues to retain more of the loan production generated by
First Franklin, the absolute level of nonperforming assets, delinquencies, and
net charge-offs in this subset of the nonconforming residential real estate loan
portfolio is expected to rise due to portfolio growth and seasoning. The First
Franklin product has performed favorably to date compared to management's
expectations of credit loss experience.

A more difficult economy, combined with more stringent standards for granting
extensions, drove the increase in loans 90 days past due accruing interest in
2001.

National City maintains an allowance for loan losses sufficient to absorb
estimated probable current 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, current economic events in specific
industries and geographical areas, including unemployment levels, and other
pertinent factors, including regulatory guidance and general economic
conditions.

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 their
review, the agencies may require the Corporation to adjust the allowance for
loan losses based on their judgments about information available to them at the
time of their review.

As portfolio loans are identified for sale or securitization, the balance, along
with the attributed allowance for loan losses, are reclassified to a
held-for-sale or securitization classification on the balance sheet. In 2002,
2001, and 2000, $4.5 million, $29.2 million, and $42.4 million of

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allowance for loan losses was transferred to the bases of the credit card
receivables and automobile loans either sold through securitization during the
year or held for securitization as of the end of the year.

Following the December 2000 decision to exit the loan origination units of
Altegra, management began extensive analysis and consultation with various third
parties in 2001 to determine the most cost-effective and timely means to dispose
of the remaining loans originated through these discontinued units, particularly
those loans which were nonperforming or otherwise delinquent. Management
considered several means of disposition, including internal workout through
enhanced loss collection and mitigation efforts, outsourcing of collection
efforts, or sale. As a result, management performed an extensive loan-by-loan
analysis above and beyond the periodic review normally performed for small
groups of homogeneous residential loans to assess potential losses. A portion of
the portfolio identified through this analysis in the second quarter resulted in
certain nonperforming and delinquent loans totaling approximately $225 million
being designated for accelerated disposition, although management had not yet
determined the specific means of resolution. At that time, however, as a result
of the loan-by-loan analysis, the Corporation provided additional allowance for
loan losses for the estimated loss exposure indicated by this analysis. A $68.1
million charge to the provision increased the allowance for losses on these
loans during 2001. Loans totaling $149.5 million were sold from the portfolio
during 2001 with $45.7 million of related loan loss allowance included in the
bases of the loans sold, which covered the loss on sale. Also during the year,
$13.9 million of loans in this segregated portfolio were charged off and
principal of $16.0 million was collected. Through a combination of the workouts,
collections, charge-offs, and sales in the last half of 2001, there remained
only $44.9 million of loan balances from the originally identified portfolio as
of December 31, 2001. The associated remaining allowance was $8.5 million. These
remaining loans and associated allowance at year-end were transferred back into
the larger portfolio and included in the overall evaluation of reserve adequacy
at December 31, 2001.

An allocation of the ending allowance for loan losses by portfolio type follows:

The percentage of portfolio loans in each category to total loans at year end
follows:

The allowance allocated to the commercial loan portfolio increased in each of
the past two years, principally reflecting increased risk in cyclical industries
and syndicated transactions, deterioration in the economy, and, in 2001,
portfolio growth. This increase in allowance was due to deterioration in credit
quality and increased levels of nonperforming loans to companies in industries
traditionally susceptible to downturns in economic conditions, such as
industrial companies, companies that produce basic materials, and companies that
produce consumer products for which demand decreases when economic conditions
are weak. The increase was also due to increased allowance for syndicated
transactions, which experienced deterioration in credit quality for the same
economic factors previously described. In addition, growth in the size of the
commercial loan portfolio during 2001 required additional allowance to provide
for probable losses inherent but undetected in the new loans originated during
the year.

Additional allowance was allocated to the residential real estate portfolio in
2002 through a charge to the provision for loan losses to reflect estimated
probable inherent losses in the First Franklin portfolio as a result of
portfolio growth and seasoning. In 2001, additional allowance was allocated to
the residential real estate portfolio to reflect estimated probable inherent
losses in the overall Altegra portfolio in light of continuing economic weakness
and the related effect on this subset of the nonconforming residential
portfolio. Allocations to the home equity, consumer loans, and credit card
portfolios were based on multiple factors, the most significant being changes in
loan mix as well as credit quality and portfolio size.

Management maintains the unallocated allowance to absorb estimated probable
inherent but undetected losses in the loan portfolio. Management performs a
periodic analysis of the unallocated allowance to ensure its reasonableness and
appropriateness in light of the risk assessment of the loan portfolios, both
individually and in total. The unallocated allowance at December 31, 2002
increased based upon management's judgment after taking into consideration the
greater uncertainty surrounding the magnitude and duration of the deterioration
of economic conditions across all industry and geographic sectors and the
effects the prolonged economic downturn is having on customers. The unallocated
allowance declined at December 31, 2001, based on management's determination
that general credit deterioration identified in 2000 on various segments of the

29
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portfolio had manifested itself in 2001 in the form of past-due and
nonperforming loans at which time specific allowance allocations were made to
these segments of the portfolio. During 2000, management discerned general
credit deterioration as reflected in a decline in economic conditions, decreased
revenue, profits and cash flow in borrower's financial statements and other
credit quality metrics, such as internal and external credit ratings and
industry ratings, in the portfolio. As of December 31, 2001, management
determined a large part of the impact of this deterioration in general credit
quality had manifested itself in the portfolio and therefore fewer inherent but
undetected probable losses existed in the portfolio. Additionally, the
Corporation implemented improvements to the loan loss migration models resulting
in relatively higher allocated components of the allowance for loan losses.
These improvements involved the incorporation of more recent and complete
historical loss data into the estimates of loss on pools of loans evaluated for
collective impairment. These improvements were judged by management to have
improved the accuracy of the estimates of impairment included in the allocated
allowance. Thus, the portion of unallocated allowance judged required to account
for possible allocation model imprecision was smaller than in 2000.

The unallocated portion of the allowance reflects estimated 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 might not precisely
correspond to the current portfolio. Also, loss data representing a complete
economic cycle is not available for some sectors. The longer-term consequences
of the September 11, 2001 terrorist attacks and the recessionary environment
also affect the precision of the allocation model's estimates of loss. The
losses in the historical testing period, given these recent factors, may not be
representative of the actual losses inherent in the portfolio that have not yet
been recognized.

LIQUIDITY RISK 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, taking into account all on- and off-balance sheet funding
demands. Liquidity management also includes ensuring cash flow needs are met at
a reasonable cost. Liquidity risk arises from the possibility the Corporation
may not be able to satisfy current or future financial commitments, or the
Corporation may become unduly reliant on alternative funding sources. The
Corporation maintains a liquidity risk management policy to address and manage
this risk. The policy identifies the primary sources of liquidity, establishes
procedures for monitoring and measuring liquidity, and establishes minimum
liquidity requirements which comply with regulatory guidance. The policy also
includes a contingency funding plan to address liquidity needs in the event of
an institution-specific or a systemic financial market crisis. The liquidity
position is continually monitored and reported on monthly to the Asset/Liability
Management Committee.

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 assets. Funding sources did not change significantly during 2002. Core
deposits, the most significant source of funding, comprised approximately 52% of
funding in both 2002 and 2001. Asset securitization vehicles have been used as a
source of funding in each of the past three years. During 2002, the Corporation
securitized $1.1 billion of automobile loans and $425 million of credit card
receivables. During 2001 and 2000, credit card receivables totaling $425 million
and $600 million were sold through securitization, respectively. Further
discussion of securitization activities is included in Note 4 to the
consolidated financial statements.

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

During the past three years, the primary source of funding for the holding
company has been dividends and returns of investment from its subsidiaries.
During 2002, 2001, and 2000, the subsidiary banks declared dividends to the
holding company of $1.1 billion, $775.0 million, and $950.0 million,
respectively. The bank subsidiaries also provided liquidity to the holding
company in the form of returns of capital totaling $345,000 in 2002, $465.0
million in 2001, and $1.4 billion in 1999. As of January 1, 2003, the amount of
dividends the bank subsidiaries can pay to the parent company without prior
regulatory approval was $975.3 million, versus $848.0 million at January 1,
2002. As discussed in Note 16 to the consolidated financial statements and Item
1 of Form 10-K, subsidiary banks are

30

FINANCIAL REVIEW CONTINUED
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subject to regulation and, among other things, may be limited in their ability
to pay dividends or transfer funds to the holding company. Accordingly,
consolidated cash flows as presented in the consolidated statements of cash
flows on page 38 may not represent cash immediately available to the holding
company.

Funds raised in the commercial paper market through the Corporation's
subsidiary, National City Credit Corporation, support the short-term cash needs
of the holding company and nonbank subsidiaries. At December 31, 2002 and 2001,
$1.0 billion and $322.0 million, respectively, of commercial paper proceeds were
advanced to the holding company.

In 2001, the holding company established a $500 million line of credit with its
banking subsidiaries to provide additional liquidity support. There were no
borrowings under this agreement at December 31, 2002. As of December 31, 2001,
collateralized borrowings under this agreement totaled $310.0 million.

The holding company has a $375 million 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 14 to the consolidated
financial statements.

National City also has in place a shelf registration with the United States
Securities and Exchange Commission permitting ready access to the public debt
markets. As of December 31, 2002, $300 million of debt was available for
issuance under this shelf registration.

MARKET RISK MANAGEMENT

Market risk is the risk of loss arising from adverse changes in the fair value
of financial instruments due to changes in interest rates, currency exchange
rates, or equity prices. Interest rate risk is National City's primary market
risk and results from timing differences in the repricing of assets and
liabilities, changes in relationships between rate indices, and the potential
exercise of explicit or embedded options. The Asset/Liability Management
Committee (ALCO) meets monthly and is responsible for reviewing the
interest-rate-sensitivity position and establishing policies to monitor and
limit exposure to interest rate risk. The guidelines established by ALCO are
reviewed by the Investment Committee of the Corporation's Board of Directors.
The Corporation is also exposed to equity price risk through its internally
managed portfolio of bank and thrift common stock investments. As of December
31, 2002, this portfolio had an amortized cost and fair value of $74.8 million
and $71.0 million, respectively. Price risk is mitigated through active
portfolio management and by limiting the amount invested in any one company. The
Corporation does not have any material foreign currency exchange rate risk
exposure.

ASSET/LIABILITY MANAGEMENT: 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.

Interest Rate Risk Measurement: Interest rate risk is monitored primarily
through the use of two complementary measures: earnings simulation modeling and
net present value estimation. Both measures are highly assumption-dependent and
change regularly as the balance sheet and business mix evolve; however, taken
together they represent a reasonably comprehensive view of the magnitude of
interest rate risk, the distribution of risk along the yield curve, the level of
risk through time, and the amount of exposure to changes in certain interest
rate relationships. Both models assume a parallel shift in the yield curve. The
key assumptions employed by these measures are analyzed regularly and reviewed
by ALCO.

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

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

The most recent earnings simulation model projects net income would increase by
approximately 1.9% of stable-rate net income if rates were to rise gradually by
200 basis points over the next year. The model projects a decrease in net income
of 6.9% if rates were to fall gradually by 200 basis 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 excludes the earnings dynamics related to how fee
income and noninterest expense may be affected by changes in interest rates.
Mortgage banking revenue in particular, which is generated from originating,
selling, and servicing residential mortgage loans, is highly sensitive to
changes in interest rates due to the direct effect changes in interest rates
have on loan demand and the value of mortgage servicing assets. In general, low
or declining interest rates typically lead to increased origination and sales
income but potentially lower servicing-related

31

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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.

Net Present Value Estimation: The Net Present Value (NPV) measure is used for
discerning levels of risk present in the balance sheet that might not be taken
into account in the earnings simulation model due to the shorter time horizon
used by that model. The NPV of the balance sheet, at a point in time, is defined
as the discounted present value of asset cash flows minus the discounted value
of liability cash flows. Interest rate risk analysis using NPV involves changing
the interest rates used in determining the cash flows and in discounting the
cash flows. The resulting percentage change in NPV is an indication of the
longer-term repricing risk and options risk embedded in the balance sheet. In
contrast to the earnings simulation model, which assumes rates will experience a
gradual change and then stabilize at a particular level after one year, implied
forward rates are used for the NPV measure. The NPV measure also assumes a
static balance sheet, versus the growth assumptions that are incorporated into
the earnings simulation measure and an unlimited time horizon instead of the
one-year horizon applied in the earnings simulation model. As with earnings
simulation modeling, assumptions about the timing and variability of balance
sheet cash flows are critical in NPV analysis. Particularly important are
assumptions driving mortgage prepayments and changes in the noncontractual
deposit portfolios. These assumptions are applied consistently in both models.

Based on the most recent NPV estimation, a 150 basis point immediate increase in
rates was estimated to increase NPV by 4.2%. NPV was projected to decline by
3.5% if rates immediately decreased by 150 basis points. Policy guidelines limit
the amount of the estimated decline in NPV to 7.0%.

Summary information about the interest-rate risk measures follows:

At the end of 2001, the interest-rate-risk position was slightly asset
sensitive, meaning net income should increase as rates rise and decrease as
rates fall. During 2002, the interest rate risk position became more asset
sensitive due to the decline in the level of market interest rates coupled with
management's use of derivative instruments to cap future funding prices.
Management has maintained an asset sensitive interest rate risk position due to
the expectation market interest rates will rise. Further discussion of the use
of and the accounting for derivative instruments is included in Notes 1 and 23
to the consolidated financial statements.

Interest Rate Risk Management: Financial instruments used to manage interest
rate risk include investment securities and interest rate derivatives, which
include interest rate swaps, interest rate caps and floors, interest rate
forwards, and exchange-traded futures and options contracts. Interest rate
derivatives have characteristics similar to securities but possess the
advantages of customization of the risk-reward profile of the instrument,
minimization of balance sheet leverage, and improvement of the liquidity
position. Further discussion of the use of and the accounting for derivative
instruments is included in Notes 1 and 23 to the consolidated financial
statements.

TRADING RISK MANAGEMENT: The Corporation maintains a trading account primarily
to provide investment products and risk management services to its customers.
Trading risk is monitored on a regular basis through the use of the value-
at-risk methodology (VAR). The Corporation primarily uses the historical
simulation VAR method. VAR is defined as the potential overnight dollar loss
from adverse market movements, with 97.5% confidence, based on historical prices
and market rates. During 2002, the average, high, and low VAR amounts were $.6
million, $1.0 million, and $.3 million, respectively, and within the limit
established by ALCO of $2.3 million. During 2001, the average, high, and low VAR
amounts were $.5 million, $.7 million, and $.3 million, respectively. Month-end
VAR estimates are monitored regularly. Income from these activities, including
interest income, totaled $16.3 million in 2002, $29.2 million in 2001, and $11.1
million in 2000.

32

QUARTERLY SUMMARY
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QUARTERLY FINANCIAL INFORMATION

Unaudited quarterly results are summarized as follows:

FOURTH QUARTER REVIEW

Net income for the fourth quarter of 2002 was $380.5 million, or $.62 per
diluted share, compared to $374.2 million, or $.61 per diluted share last
quarter and $346.6 million, or $.57 per diluted share for the fourth quarter of
2001. Returns on average common equity and average assets were 18.0% and 1.34%,
respectively, for the fourth quarter of 2002, compared to 18.1% and 1.47%,
respectively, for the third quarter of 2002, and 18.8% and 1.40%, respectively,
for the fourth quarter of last year. The improvement in linked-quarter and
year-over-year quarter results was driven by higher net interest income, a
decrease in the provision for loan losses and growth in mortgage banking
revenue, partially offset by fourth quarter 2002 net securities losses and an
increase in noninterest expense.

Net interest income for the fourth quarter of 2002 was $1.1 billion, up 11% from
last quarter and 14% from 2001's fourth quarter, and the net interest margin was
4.26%, versus 4.34% in the third quarter of 2002 and 4.25% in the 2001 fourth
quarter. The margin improvement over the last two years resulted from a more
favorable asset mix and lower funding costs, aided by strong core deposit
growth. The wider margin, coupled with earning asset growth driven mainly by
strong mortgage volumes, led to the increase in net interest income. The
consolidation of the commercial paper conduit, while serving to increase net
interest income on a linked-quarter basis, was partly responsible for the
decline in the margin due to the low spreads earned on the assets consolidated.

The provision for loan losses was $158.6 million for the fourth quarter of 2002,
compared to $169.2 million for the third quarter and $209.0 million for the
fourth quarter of 2001. See the Credit Risk Management section of the Financial
Review for further discussion about the allowance for loan losses and the
related provision.

Fees and other income for the fourth quarter of 2002 totaled $690.1 million,
compared to $620.6 million in the 2002 third quarter and $655.3 million in the
fourth quarter of 2001. Included in fees and other income for 2002 were

33
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QUARTERLY SUMMARY CONTINUED
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asset securitization gains of $50.1 million in the first quarter, a $5.1 million
gain recorded in the second quarter for contingent consideration received in
connection with the 2001 sale of the Corporation's preferred share interest in
NAMCO, $10.3 million of second quarter student loan sale gains, and principal
investment losses of $17.2 million in the third quarter. In 2001, fees and other
income included asset securitization gains of $20.6 million in the first
quarter, an $88.8 million gain on the sale of NAMCO in the second quarter, and
$20.0 million of gains recognized on stock received from insurance company
demutualizations in the fourth quarter.

The Corporation reported net securities losses of $16.6 million for the fourth
quarter of 2002, compared to net securities gains of $.2 million in the third
quarter and $18.5 million in the fourth quarter of last year. The fourth quarter
2002 net securities losses were generated primarily from the Corporation's bank
stock fund investments, while the fourth quarter 2001 gains related to Student
Loan Marketing Association stock that was called.

Noninterest expense for the fourth quarter of 2002 was $1.0 billion, compared to
$870.2 million for the 2002 third quarter and $884.3 million for the fourth
quarter of last year. The predominant factor behind the linked-quarter and
year-over-year increases was personnel expense. Noninterest expense for 2002
included charges to reduce the estimated value of automobile lease residuals of
$13.2 million in the first quarter and $37.7 million in the second quarter, a
$52.8 million charge in the second quarter for the donation of appreciated
securities to the Corporation's charitable foundation, a $15.9 million third
quarter charge associated with the consolidation of the asset-backed commercial
paper conduit, and charges of $28.0 million and $35.6 million in the third and
fourth quarters, respectively, to revalue certain community development and
civic partnership investments. In 2001, noninterest expense included charges to
reduce the estimated value of automobile lease residuals of $33.5 million, $18.1
million, $2.4 million, and $13.4 million, and goodwill amortization expense of
$17.0 million, $17.0 million, $17.3 million, and $17.1 million in the first
through fourth quarters, respectively.

Income tax expense for the first quarter of 2001 included a $40.0 million charge
related to the settlement of a tax exposure on corporate-owned life insurance
deductions.

REPORT OF MANAGEMENT ON INTERNAL CONTROL
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National City Corporation is responsible for the preparation, integrity, and
fair presentation of the financial statements included in this annual report.
The consolidated financial statements and notes included in this annual report
have been prepared in conformity with accounting principles generally accepted
in the United States and necessarily include some amounts that are based on
management's best estimates and judgments.

We, as management of National City Corporation, are responsible for establishing
and maintaining effective internal controls over financial reporting that are
designed to produce reliable financial statements in conformity with accounting
principles generally accepted in the United States. The system of internal
control over financial reporting as it relates to the financial statements
contains self-monitoring mechanisms, and compliance is tested and evaluated
through a program of internal audits. Actions are taken to correct potential
deficiencies as they are identified. Any system of internal control, no matter
how well designed, has inherent limitations, including the possibility that
controls can be circumvented or overridden and misstatements due to error or
fraud may occur and not be detected. Also, because of changes in condition,
internal control effectiveness may vary over time. Accordingly, even an
effective system of internal control will provide only reasonable assurance with
respect to financial statement preparation.

The Audit Committee, consisting entirely of outside directors, meets regularly
with management, internal auditors and independent auditors, and reviews audit
plans and results, as well as management's actions taken in discharging
responsibilities for accounting, financial reporting, and internal controls.
Ernst & Young LLP, independent auditors, and the internal auditors have direct
and confidential access to the Audit Committee at all times to discuss the
results of their examinations.

Management assessed the Corporation's system of internal control over financial
reporting as of December 31, 2002, in relation to criteria for effective
internal control over financial reporting as described in "Internal
Control - Integrated Framework," issued by the Committee of Sponsoring
Organizations of the Treadway Commission. Based on this assessment, management
believes that, as of December 31, 2002, its system of internal control over
financial reporting met those criteria.

/s/ David A. Daberko /s/ Jeffrey D. Kelly
DAVID A. DABERKO JEFFREY D. KELLY
Chairman and Chief Chief Financial Officer
Executive Officer

Cleveland, Ohio

January 23, 2003

34

REPORTS OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
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REPORT ON INTERNAL CONTROL

Audit Committee of the Board of Directors and the Stockholders of National City
Corporation

We have examined management's assertion, included in the accompanying Report of
Management on Internal Control, that National City Corporation's system of
internal control over financial reporting as of December 31, 2002, met the
criteria established in "Internal Control - Integrated Framework" issued by the
Committee of Sponsoring Organizations of the Treadway Commission (COSO), insofar
as management's assertion relates to internal control over the annual financial
reporting in the 2002 consolidated financial statements of National City
Corporation. National City Corporation's management is responsible for
maintaining effective internal control over financial reporting. Our
responsibility is to express an opinion on management's assertion based on our
examination.

Our examination was conducted in accordance with attestation standards
established by the American Institute of Certified Public Accountants and,
accordingly, included obtaining an understanding of internal control over
financial reporting, testing, and evaluating the design and operating
effectiveness of internal control, and performing such other procedures as we
considered necessary in the circumstances. We believe that our examination
provides a reasonable basis for our opinion.

Because of inherent limitations in any internal control, misstatement due to
errors or fraud may occur and not be detected. Also, projections of any
evaluation of internal control over financial reporting to future periods are
subject to the risk that internal control may become inadequate because of
changes in conditions, or that the degree of compliance with the policies or
procedures may deteriorate.

In our opinion, management's assertion that, it believes that, as of December
31, 2002, National City Corporation's system of internal control over financial
reporting insofar as management's assertion relates to internal control over the
annual financial reporting in the 2002 consolidated financial statements of
National City Corporation, met the established criteria in "Internal
Control - Integrated Framework" issued by the Committee of Sponsoring
Organizations of the Treadway Commission, is fairly stated, in all material
respects, based on those criteria.

/s/ Ernst & Young LLP
Cleveland, Ohio

January 23, 2003

REPORT ON CONSOLIDATED FINANCIAL STATEMENTS

Audit Committee of the Board of Directors and the Stockholders of National City
Corporation

We have audited the accompanying consolidated balance sheets of National City
Corporation and subsidiaries as of December 31, 2002 and 2001, and the related
consolidated statements of income, changes in stockholders' equity, and cash
flows for each of the three years in the period ended December 31, 2002. These
financial statements are the responsibility of National City Corporation's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform our
audits to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of National City
Corporation and subsidiaries at December 31, 2002 and 2001, and the consolidated
results of their operations and their cash flows for each of the three years in
the period ended December 31, 2002, in conformity with accounting principles
generally accepted in the United States.

/s/ Ernst & Young LLP
Cleveland, Ohio

January 23, 2003

35
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CONSOLIDATED FINANCIAL STATEMENTS
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CONSOLIDATED BALANCE SHEETS

See Notes to Consolidated Financial Statements

36

CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
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CONSOLIDATED STATEMENTS OF INCOME

See Notes to Consolidated Financial Statements

37
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CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

See Notes to Consolidated Financial Statements

38

CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
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CONSOLIDATED STATEMENTS OF CASH FLOWS

See Notes to Consolidated Financial Statements

39
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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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 conducts selected consumer lending businesses
and other financial services on a nationwide basis. 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 consolidated financial statements include the accounts of the
Corporation and its subsidiaries. All significant intercompany transactions and
balances have been eliminated. Certain prior period amounts have been
reclassified to conform with the current period presentation.

Investments in companies in which the Corporation has significant influence over
operating and financing decisions (principally defined as owning a voting or
economic interest of 20% to 50%) and limited partnership investments are
generally accounted for by the equity method of accounting. These investments
are normally included in other assets and National City's proportionate share of
income or loss is included in other noninterest income.

The Corporation, on a limited basis, uses special purpose entities (SPEs),
primarily securitization trusts, to diversify its funding sources and to provide
financial services to its corporate customers. SPEs are not operating entities,
generally have no employees, and usually have a limited life. The basic SPE
structure involves the Corporation transferring assets to the SPE. The SPE funds
the purchase of those assets by issuing debt securities to investors. The legal
documents governing the SPE describe how the cash earned on the assets held in
the SPE must be allocated to the investors and other parties that have rights to
these cash flows. National City structures these SPEs to be bankruptcy remote,
thereby insulating investors from the impact of the creditors of other entities,
including the transferor of the assets.

Where the Corporation is a transferor of assets to an SPE, the assets sold to
the SPE are no longer recorded on the Corporation's balance sheet and the SPE is
not consolidated when the SPE is a qualifying special-purpose entity (QSPE).
Statement of Financial Accounting Standards (SFAS) No. 140, Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of Liabilities,
provides specific criteria for determining when an SPE meets the definition of a
QSPE. In determining whether to consolidate non-qualifying SPEs where assets are
legally isolated from National City's creditors, the Corporation considers such
factors as the amount of third-party equity, the retention of risks and rewards,
and the extent of control available to third parties. The Corporation currently
services certain credit card receivables and automobile loans that were sold to
two separate securitization trusts. Both trusts meet the applicable QSPE
criteria under SFAS 140, and accordingly, are not consolidated on the
Corporation's balance sheet. Further discussion regarding these securitization
trusts is included in Note 4.

The accounting and reporting policies of National City conform with accounting
principles generally accepted in the United States. 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. A summary of the
Corporation's significant accounting policies follows:

STATEMENT OF CASH FLOWS: Cash and demand balances due from banks are considered
"cash and cash equivalents" for financial reporting purposes.

BUSINESS COMBINATIONS: Since the issuance of SFAS 141, Business Combinations, by
the Financial Accounting Standards Board (FASB), business combinations initiated
after June 30, 2001, are required to be accounted for by the purchase method.
Under the purchase method, net assets of the business acquired are recorded at
their estimated fair values as of the date of acquisition with any excess of the
cost of the acquisition over the fair value of the net tangible and intangible
assets acquired recorded as goodwill. Results of operations of the acquired
business are 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 amount or fair value.

Interest income is recognized on an accrual basis. Loan origination fees,
certain direct costs, and unearned discounts are deferred and amortized into
interest income as an adjustment to the yield over the term of the loan. Loan
commitment fees are generally deferred and amortized into fee income on a
straight-line basis over the commitment period. Other credit-related fees,
including letter and line of credit fees and loan syndication fees, are
recognized as fee income when earned.

Income on direct financing leases is recognized on a basis that achieves a
constant periodic rate of return on the outstanding investment. Income on
leveraged leases is recognized on a basis that achieves a constant periodic rate
of return on the outstanding investment in the lease, net of the related
deferred tax liability, in the years in which the net investment is positive.
Residual values on leased assets

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are reviewed regularly for other-than-temporary impairment. When there is
other-than-temporary impairment in the carrying value of the Corporation's
interest in the residual value of a leased asset, the carrying value is reduced
to the estimated fair value with the write-down recognized in noninterest
expense in the income statement.

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

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

Commercial and commercial real estate loans exceeding $500,000 are evaluated for
impairment in accordance with the provisions of SFAS 114, Accounting by
Creditors for Impairment of a Loan, which requires an allowance to be
established as a component of the allowance for loan losses when it is probable
all amounts due will not be collected pursuant to the contractual terms of the
loan and the recorded investment in the loan exceeds its fair value. Fair value
is measured using either the present value of expected future cash flows
discounted at the loan's effective interest rate, the observable market price of
the loan, or the fair value of the collateral if the loan is collateral
dependent. All loans subject to evaluation and considered impaired are included
in nonperforming assets.

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

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

The allowance for loan losses consists of an allocated component and an
unallocated component. The components of the allowance for loan losses represent
an estimation done pursuant to either SFAS 5, Accounting for Contingencies, or
SFAS 114. The allocated component of the allowance for loan losses reflects
expected losses resulting from analysis developed through specific credit
allocations for individual loans and historical loss experience for each loan
category. The specific credit allocations are based on a regular analysis of all
loans over a fixed-dollar amount where the internal credit rating is at or below
a predetermined classification. The historical loan loss element is determined
statistically using a loss migration analysis that examines loss experience and
the related internal gradings of loans charged off. The loss migration analysis
is performed quarterly and loss factors are updated regularly based on actual
experience. The allocated component of the allowance for loan losses also
includes consideration of concentrations and changes in portfolio mix and
volume.

The unallocated portion of the allowance reflects management's estimate of
probable inherent but undetected losses within the portfolio due to
uncertainties in economic conditions, delays in obtaining information, including
unfavorable information about a borrower's financial condition, the difficulty
in identifying triggering events that correlate perfectly to subsequent loss
rates, and risk factors that have not yet manifested themselves in loss
allocation factors. In addition, the unallocated allowance includes a component
that explicitly accounts for the inherent imprecision in loan loss migration
models. The Corporation has grown through acquisition, expanded the geographic
footprint in which it operates, and changed its portfolio mix in recent years.
As a result, historical loss experience data used to establish allocation
estimates may not precisely

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correspond to the current portfolio. Also, loss data representing a complete
economic cycle is not available for all sectors. The uncertainty surrounding the
strength and timing of economic cycles, including management's concerns over the
effects of the prolonged economic downturn in the current cycle, also affects
the allocation model's estimates of loss. The historical losses used in the
migration analysis may not be representative of actual losses inherent in the
portfolio that have not yet been realized.

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

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 noninterest income. Interest on trading account securities is recorded in
interest income. As of December 31, 2002 and 2001, trading account securities
totaled $15.2 million and $121.0 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. As of December 31, 2002
and 2001, there were no securities classified as held to maturity.

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

Interest and dividends on securities, including amortization of premiums and
accretion of discounts using the effective-interest method over the period to
maturity, are included in interest income. Unrealized and realized gains and
losses on securities are determined using the specific-identification method.
Purchases and sales of securities are recognized on a trade-date basis.

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

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

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

SECURITIES PURCHASED UNDER AGREEMENTS TO RESELL AND SECURITIES SOLD UNDER
AGREEMENTS TO REPURCHASE: Securities purchased under agreements to resell and
securities sold under agreements to repurchase are generally accounted for as
collateralized financing transactions and are recorded at the amounts at which
the securities were acquired or sold plus accrued interest. Securities,
generally U.S. government and Federal agency securities, pledged as collateral
under these financing arrangements cannot be sold or repledged by the secured
party. The fair value of collateral either received from or provided to a third
party is continually monitored and additional collateral obtained or requested
to be returned to the Corporation as deemed appropriate.

GOODWILL AND OTHER INTANGIBLE ASSETS: Goodwill represents the excess of the cost
of an acquisition over the fair value of the net assets acquired. Other
intangible assets represent purchased assets that also lack physical substance
but can be distinguished from goodwill because of contractual or other legal
rights or because the asset is capable of being sold or exchanged either on its
own or in combination with a related contract, asset, or liability. On January
1, 2002, the Corporation adopted SFAS 142, Goodwill and Other Intangible Assets.
Under the provisions of SFAS 142, goodwill is no longer ratably amortized into
the

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income statement over an estimated life, but rather is tested at least annually
for impairment. Intangible assets which have finite lives continue to be
amortized over their estimated useful lives and also continue to be subject to
impairment testing. All of the Corporation's other intangible assets have finite
lives and are amortized on a straight-line basis over varying periods not
exceeding 10 years. Prior to the adoption of SFAS 142, the Corporation's
goodwill was amortized on a straight-line basis over varying periods not
exceeding 25 years, except for certain goodwill related to purchase acquisitions
at the Corporation's 85%-owned payment processing subsidiary, National
Processing, Inc. (National Processing), which was amortized over 40 years. Note
9 includes a summary of the Corporation's goodwill and other intangible assets
as well as further detail about the impact of the adoption of SFAS 142.

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

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

ASSET SECURITIZATIONS: National City uses the securitization of financial assets
as a source of funding. Financial assets, including pools of credit card
receivables and automobile loans, are transferred into trusts or to SPEs in
transactions which are effective under applicable banking rules and regulations
to legally isolate the assets from National City Bank (the Bank), a subsidiary
of the Corporation. Where the transferor is a depository institution such as a
bank subsidiary of the Corporation, legal isolation is accomplished through
compliance with specific rules and regulations of the relevant regulatory
authorities. SFAS 140 requires, for certain transactions completed after the
initial adoption date, a "true sale" analysis of the treatment of the transfer
under state law as if the bank were a debtor under the bankruptcy code. A "true
sale" legal analysis includes several legally relevant factors, such as the
nature and level of recourse to the transferor and the nature of retained
servicing rights. The analytical conclusion as to a true sale is never absolute
and unconditional, but contains qualifications based on the inherent equitable
powers of a bankruptcy court, as well as the unsettled state of the common law.
Once the legal isolation test has been met under SFAS 140, other factors
concerning the nature and extent of the transferor's control over the
transferred assets are taken into account in order to determine whether
derecognition of assets is warranted, including whether the SPE has complied
with rules concerning qualifying special purpose entities.

A legal opinion regarding legal isolation for each credit card securitization
has been obtained by the Bank. The opinion rendered in connection with the 2002
credit card securitization included in its conclusion that the FDIC regulation,
"Treatment by the Federal Deposit Insurance Corporation as Conservator or
Receiver of Financial Assets Transferred by an Insured Depository Institution in
Connection with a Securitization or Participation" (the "Securitization Rule")
would be applicable to the transfer of such receivables. The Securitization Rule
provides reasonable assurance that neither the FDIC acting as conservator or
receiver for the transferring bank subsidiary, nor any other creditor of the
bank, may reclaim or recover the receivables from the securitization trust or
recharacterize the receivables as property of the transferring bank subsidiary
or of the conservatorship or receivership for the bank. The opinion further
reasoned, even if the Securitization Rule did not apply, then pursuant to
various FDIC pronouncements, the FDIC would uphold the effectiveness of the
security interest granted in the financial assets. A legal opinion was obtained
for the first step in the automobile loan securitization transaction in 2002,
which was structured as a two-step securitization. While noting the transaction
fell within the meaning of a "securitization" under the Securitization Rule, in
accordance with accounting guidance, an analysis was also rendered under state
law as if the transferring Bank was a debtor under the bankruptcy code. The
"true sale" opinion provides reasonable assurance the purchased assets would not
be characterized as the property of the transferring Bank's receivership or
conservatorship estate in the event of insolvency, and also states the
transferor would not be required to substantively consolidate the assets and
liabilities of the purchaser SPE with those of the transferor upon such event.

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

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

Retained interests in the subordinated tranches and interest-only strips are
recorded at their fair value and included in the available-for-sale 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 Corporation
uses assumptions and estimates in determining the fair value allocated to the
retained interests at the time of sale and each subsequent sale in accordance
with SFAS 140. These assumptions and estimates include projections concerning
rates charged to customers, the expected life of the receivables, credit loss
experience, loan repayment rates, the cost of funds, and discount rates
commensurate with the risks involved.

On a quarterly basis, management reviews the historical performance of each
retained interest and the assumptions used to project future cash flows. If past
performance and future expectations dictate, assumptions are revised and the
present value of future cash flows is recalculated. Refer to Note 4 for further
analysis of the assumptions used in the determination of fair value.

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

For securitizations involving credit card receivables, the Corporation's
continuing involvement in the securitized assets includes maintaining an
undivided, pro rata interest in all credit card loan receivables that are in the
trust, referred to as seller's interest. The seller's interest ranks pari-passu
with the investors' interest in the trust. As the amount of the loans in the
securitized pool fluctuates due to customer payments, purchases, cash advances,
and credit losses, the carrying amount of the seller's interest will vary.
However, the Corporation is required to maintain its seller's interest at a
minimum level of 4% of the initial invested amount in each series to ensure
receivables are available for allocation to the investors' interests.

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

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

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

DERIVATIVE INSTRUMENTS: The Corporation enters into derivative transactions
principally to protect against the risk of adverse price or interest rate
movements on the value of certain assets and liabilities and on future cash
flows. The Corporation is also required to recognize certain contracts and
commitments as derivatives when the characteristics of those contracts and
commitments meet the definition of a derivative.

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

Derivative instruments designated in a hedge relationship to mitigate exposure
to changes in the fair value of an asset, liability, or firm commitment
attributable to a particular risk, such as interest rate risk, are considered
fair value hedges under SFAS 133. Derivative instruments designated in a hedge
relationship to mitigate exposure to variability in

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expected future cash flows, or other types of forecasted transactions, are
considered cash flow hedges. The Corporation formally documents all
relationships between hedging instruments and hedged items, as well as its risk-
management objective and strategy for undertaking each hedge transaction.

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

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

Under both the fair value and cash flow hedge methods, derivative gains and
losses not 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. SFAS 133 basis adjustments recorded on
hedged assets and liabilities are amortized over the remaining life of the
hedged item no later than when hedge accounting ceases.

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. Amortization is determined in proportion
to and over the period of estimated net servicing income. 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 life of the underlying
loan is reduced.

STOCK-BASED COMPENSATION: The Corporation's stock-based compensation plans are
accounted for based on the intrinsic value method set forth in Accounting
Principles Board (APB) Opinion 25, Accounting for Stock Issued to Employees, and
related interpretations. Compensation expense for employee stock options is
generally not recognized if the exercise price of the option equals or exceeds
the fair value of the stock on the date of grant. Compensation expense for
restricted share awards is ratably recognized over the period of service,
usually the restricted period, based on the fair value of the stock on the date
of grant. Effective January 1, 2003, the Corporation will adopt the fair value
method of recording stock options under the transitional guidance of SFAS 148,
Accounting for Stock-Based Compensation - Transition and Disclosure.

The following table illustrates the effect on net income and earnings per share
if the Corporation had applied the fair value recognition provisions of SFAS
123, Accounting for Stock-Based Compensation, to stock option awards granted on
National City common stock. Also included in the pro forma net income and
earnings per share is after-tax expense, net of the minority interest benefit,
related to option awards granted by the Corporation's 85%-owned processing
subsidiary, National Processing, Inc., on its common stock.

The fair values of stock options granted were estimated at the date of grant
using a Black-Scholes option pricing model. The following weighted-average
assumptions were used to determine the fair value of options granted on National
City common stock: a risk-free interest rate of

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3.48%, 5.55%, and 5.01%, for 2002, 2001, and 2000, respectively; an expected
life of the option of five years for 2002 and four years for 2001 and 2000; an
expected dividend yield of 3.86% for 2002 and 3.50% for 2001 and 2000; and
expected volatility of 26.1% for 2002, 23.6% for 2001, and 22.1% for 2000. The
weighted-average grant-date fair value of options granted during 2002, 2001, and
2000 was $5.09, $5.83, and $3.11 respectively. The weighted-average assumptions
used to value the National Processing option grants are disclosed in National
Processing, Inc.'s Form 10-K. For purposes of the pro forma disclosures, the
estimated fair value of the option is amortized to expense over the vesting
period of the award.

ADVERTISING COSTS: Advertising costs are generally expensed as incurred.

INCOME TAXES: The Corporation and its subsidiaries file a consolidated Federal
income tax return. The provision for income taxes is based upon income in the
financial statements, rather than amounts reported on the Corporation's income
tax return.

Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized as income or
expense in the period that includes the enactment date.

STOCK REPURCHASES: Acquisitions of the Corporation's common stock are recorded
on the par value method, which requires the cash paid to be allocated to common
stock, capital surplus, and retained earnings.

2. RECENT ACCOUNTING PRONOUNCEMENTS

CONSOLIDATION OF VARIABLE INTEREST ENTITIES: In January 2003, the FASB issued
FASB Interpretation No. 46 (FIN 46), Consolidation of Variable Interest
Entities. The objective of this interpretation is to provide guidance on how to
identify a variable interest entity (VIE) and determine when the assets,
liabilities, noncontrolling interests, and results of operations of a VIE need
to be included in a company's consolidated financial statements. A company that
holds variable interests in an entity will need to consolidate the entity if the
company's interest in the VIE is such that the company will absorb a majority of
the VIE's expected losses and/or receive a majority of the entity's expected
residual returns, if they occur. FIN 46 also requires additional disclosures by
primary beneficiaries and other significant variable interest holders. The
provisions of this interpretation became effective upon issuance. As of December
31, 2002, the Corporation had variable interests in securitization trusts, which
are discussed in Note 4. These trusts are qualifying special purpose entities,
which are exempt from the consolidation requirements of FIN 46. The Corporation
is currently assessing the impact, if any, the interpretation will have on
results of operations, financial position, or liquidity, as it applies to other
areas within the Corporation.

GUARANTEES: In November 2002, the FASB issued FASB Interpretation No. 45 (FIN
45), Guarantor's Accounting and Disclosure Requirements for Guarantees,
Including Indirect Guarantees of Indebtedness of Others. This interpretation
expands the disclosures to be made by a guarantor in its financial statements
about its obligations under certain guarantees and requires the guarantor to
recognize a liability for the fair value of an obligation assumed under a
guarantee. FIN 45 clarifies the requirements of SFAS 5, Accounting for
Contingencies, relating to guarantees. In general, FIN 45 applies to contracts
or indemnification agreements that contingently require the guarantor to make
payments to the guaranteed party based on changes in an underlying that is
related to an asset, liability, or equity security of the guaranteed party.
Certain guarantee contracts are excluded from both the disclosure and
recognition requirements of this interpretation, including, among others,
guarantees relating to employee compensation, residual value guarantees under
capital lease arrangements, commercial letters of credit, loan commitments,
subordinated interests in an SPE, and guarantees of a company's own future
performance. Other guarantees are subject to the disclosure requirements of FIN
45 but not to the recognition provisions and include, among others, a guarantee
accounted for as a derivative instrument under SFAS 133, a parent's guarantee of
debt owed to a third party by its subsidiary or vice versa, and a guarantee
which is based on performance not price. The disclosure requirements of FIN 45
are effective for the Corporation as of December 31, 2002, and require
disclosure of the nature of the guarantee, the maximum potential amount of
future payments that the guarantor could be required to make under the
guarantee, and the current amount of the liability, if any, for the guarantor's
obligations under the guarantee. The recognition requirements of FIN 45 are to
be applied prospectively to guarantees issued or modified after December 31,
2002. Significant guarantees that have been entered into by the Corporation are
disclosed in Note 20. The Corporation does not expect the requirements of FIN 45
to have a material impact on results of operations, financial position, or
liquidity.

ACCOUNTING FOR STOCK-BASED COMPENSATION: In December 2002, the FASB issued SFAS
148, Accounting for Stock-Based Compensation - Transition and Disclosure, which
provides guidance on how to transition from the intrinsic value method of
accounting for stock-based employee compensation under APB 25 to SFAS 123's fair
value method of accounting, if a company so elects.

Effective January 1, 2003, the Corporation plans to adopt the fair value method
of recording stock options under SFAS 123. In accordance with the transitional
guidance of SFAS 148, the fair value method of accounting for stock options will
be applied prospectively to awards granted subsequent to January 1, 2003. As
permitted, options granted prior to January 1, 2003, will continue to be

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
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accounted for under APB Opinion 25, and the pro forma impact of accounting for
these options at fair value will continue to be disclosed in the consolidated
financial statements until the last of those options vest in 2005. National City
estimates the income statement impact associated with expensing stock options
will be approximately $18 million pretax and $15 million, or $.02 per diluted
share, after tax, in 2003, assuming options are granted in 2003 at a similar
level and under similar market conditions to 2002. As the cost of anticipated
future option awards is phased in over a four-year period, the annual impact
will rise to approximately $.10 per diluted share, assuming options are granted
in future years at a similar level and under similar market conditions to 2002.
The actual impact per diluted share may vary in the event the fair value or the
number of options granted increases or decreases from the current estimate, or
if the current accounting guidance changes. National City uses the Black-
Scholes model to estimate option values. The Black-Scholes option pricing model
was originally developed for use in estimating the fair value of traded options,
which have different characteristics from the Corporation's employee stock
options. The model is also sensitive to changes in subjective assumptions, which
can materially affect the fair value estimate.

ACQUISITIONS OF CERTAIN FINANCIAL INSTITUTIONS: In October 2002, the FASB issued
SFAS 147, Acquisitions of Certain Financial Institutions, which provides
guidance on the accounting for the acquisition of a financial institution and
supersedes the specialized accounting guidance provided in SFAS 72, Accounting
for Certain Acquisitions of Banking or Thrift Institutions. SFAS 147 became
effective upon issuance and requires companies to cease amortization of
unidentified intangible assets associated with certain branch acquisitions and
reclassify these assets to goodwill. SFAS 147 also modifies SFAS 144 to include
in its scope long-term customer-relationship intangible assets and thus subject
those intangible assets to the same undiscounted cash flow recoverability test
and impairment loss recognition and measurement provisions required for other
long-lived assets.

While SFAS 147 may affect how future business combinations, if undertaken, are
accounted for and disclosed in the financial statements, the issuance of the new
guidance had no effect on results of operations, financial position, or
liquidity because the Corporation does not have any assets subject to the
specialized accounting guidance provided in SFAS 72 or SFAS 147.

ACCOUNTING FOR COSTS ASSOCIATED WITH EXIT OR DISPOSAL ACTIVITIES: SFAS 146,
Accounting for Costs Associated with Exit or Disposal Activities, was issued in
July 2002 and becomes effective for the Corporation beginning January 1, 2003.
This statement requires a cost associated with an exit or disposal activity,
such as the sale or termination of a line of business, the closure of business
activities in a particular location, or a change in management structure, to 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 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 (SFAS 145): 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 not expected to have a material impact on results of operations,
financial position, or liquidity.

ACCOUNTING FOR LONG-LIVED ASSETS: SFAS 144, Accounting for the Impairment or
Disposal of Long-Lived Assets, was issued in October 2001 and addresses how and
when to measure impairment on long-lived assets and how to account for
long-lived assets that an entity plans to dispose of either through sale,
abandonment, exchange, or distribution to owners. The statement's provisions
supersede SFAS 121, Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed of, 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 did not have a material impact on 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,

47
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and its adoption is not expected to have a material impact on 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, Intangible Assets. Notes 1 and 9 provide further
detail on the accounting for goodwill and intangible assets under the standard
and the impact of the adoption on the financial statements. The standard's
adoption had no impact on liquidity.

3. ACQUISITIONS, DIVESTITURES, AND REALIGNMENT CHARGES

In April 2001, National City sold its preferred share interest in National Asset
Management Corporation (NAMCO), a Louisville, Kentucky-based investment advisor,
to AMVESCAP PLC (AVZ) for a gain of $88.8 million. The gain is included in other
noninterest income on the income statement. The carrying value of National
City's investment in NAMCO preferred shares was $1.5 million. Cash proceeds of
$49.0 million and 2.8 million shares of AVZ stock, with a value of $41.3
million, were received in connection with the sale. The shares were sold later
in the second quarter of 2001. In May 2002, National City received additional
contingent consideration of $5.1 million related to the sale of NAMCO,
consisting of cash of $3.7 million and 126,677 shares of AVZ stock, with a value
of $1.4 million. The consideration was recorded in other noninterest income on
the income statement.

In June 2001, National Processing, the Corporation's 85%-owned payment
processing subsidiary, acquired a 70% interest in ABN AMRO Merchant Services,
LLC (AAMS) for cash of $48.5 million. Under the terms of the agreement, National
Processing provides AAMS with all merchant-processing services, including both
authorization and settlement of all card-based transactions. The acquisition was
accounted for by the purchase method, with the results of operations of AAMS
included in the 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
health care 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.

During 2000, National City divested certain assets as part of a balance sheet
restructuring initiative intended to improve asset returns and capital position,
reduce reliance on purchased funding, and lessen interest rate sensitivity.
These transactions included the sales of $3.7 billion of fixed-rate debt
securities, $2.0 billion of low-spread student loans, and $1.0 billion of
low-spread adjustable-rate mortgage loans. Losses totaling $56.3 million pretax,
or $36.6 million after tax, were incurred on the disposition of the debt
securities and are included in net securities gains. A pretax gain of $74.2
million, or $48.2 million after tax, was recognized on the sale of the student
loans and is included in other noninterest income. The sale of the
adjustable-rate mortgage loans generated a pretax gain of $10.6 million, or $6.9
million after tax, which is included in mortgage banking revenue.

In December 2000, the Corporation recorded a $44.0 million pretax, or $28.6
million after tax, charge in association with closing certain retail and
wholesale loan origination units of the former Altegra Credit Company
subsidiary, and ceasing the origination of automobile leases. The charges
consisted of $26.0 million for residual value write-downs on the Corporation's
automobile lease portfolio, $3.7 million for severance costs, $9.0 million for
goodwill impairment, $2.9 million for facility closures and lease obligations,
and $2.4 million for fixed asset impairment and other costs. These charges are
included in other noninterest expense.

Also in 2000, National Processing divested a small operating unit and recorded a
pretax charge of $6.5 million, net of minority interest benefit, for goodwill
and fixed-asset impairment.

4. SECURITIZATION ACTIVITY

The Corporation periodically sells assets through securitization transactions.

On January 31, 2002, National City sold $425.0 million of credit card
receivables to the National City Credit Card Master Trust (trust) and recognized
a pretax gain of $24.8 million, which was recorded in other noninterest income.
Retained interests in the form of interest-only strips and subordinated tranches
were also recognized with initial carrying values of $4.9 million and $27.0
million, respectively. Transaction costs of $1.7 million incurred in connection
with the securitization were deferred and are being amortized over the revolving
term of the securitization.

In January 2001, the Corporation also sold $425.0 million of credit card
receivables in a securitization transaction and recognized a pretax gain of
$20.6 million, which was recorded in other noninterest income. Retained
interests in the form of interest-only strips and subordinated tranches were
also recognized with initial carrying values of $4.4 million and $27.6 million,
respectively. Transaction costs of $1.8 million incurred in connection with the
securitization were deferred and are being amortized over the revolving term of
the securitization.

The transaction costs deferred in connection with the credit card
securitizations consisted primarily of securities underwriting, filing, and
professional services fees.

The Corporation established an automobile receivables trust into which it sold,
through securitization on March 27, 2002, $1.1 billion of fixed-rate, closed-end
automobile loans. A pretax gain of $25.3 million was recorded as a result of the
term securitization and was recorded in other noninterest income. Retained
interests in the form of interest-only strips, subordinated tranches, and dealer
rebate receivables were also recognized with initial carrying values

48

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
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of $41.3 million, $62.1 million, and $1.6 million, respectively. In addition, a
servicing asset was created in the amount of $16.5 million. See Note 1 for
further details regarding the accounting for servicing assets.

A summary of the components of managed loans, which represents both owned and
securitized loans, along with quantitative information about delinquencies and
net credit losses follows. The automobile loans presented represent the managed
portfolio of indirect prime automobile loans.

The Corporation's on-balance-sheet credit card receivables are expected to
increase following the revolving period of the securitization.

Certain cash flows received from the securitization trusts follow:

A summary of the fair values of the interest-only strips and servicing assets
retained, key economic assumptions used to arrive at the fair values, and the
sensitivity of the December 31, 2002, fair values to immediate 10% and 20%
adverse changes in those assumptions follows. Actual credit losses experienced
through year-end 2002 on the pool of automobile loans securitized have been
consistent with initial projections. As such, the expected static pool loss
assumption would perform consistent with that disclosed in the sensitivity
analysis. The sensitivities are hypothetical. Changes in fair value based on a
10% variation in assumptions generally cannot be extrapolated because the
relationship of the change in the assumption to the change in fair value may not
be linear. Also, the effect of a variation in a particular assumption on the
fair value of the retained interests is calculated without changing any other
assumption; in reality, changes in one factor may result in changes in another
(for example, increases in market interest rates may result in lower prepayments
and increased credit losses), which might either magnify or counteract the
sensitivities.

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(a) Absolute prepayment speed
(b) Carrying value of servicing asset at December 31, 2002 was $10.2 million

5. ASSET-BACKED COMMERCIAL PAPER CONDUIT

The Corporation served as the administrative agent and investment advisor to a
commercial paper conduit (North Coast Funding, LLC) that purchased high-grade
assets from the Corporation and certain corporate customers and then issued
high-grade commercial paper to third-party investors collateralized by such
assets. The conduit was established in 2000, and at that time, was considered an
unconsolidated qualified special-purpose entity under the guidelines of SFAS
140.

Effective September 29, 2002, the asset sale agreement between North Coast
Funding, LLC and National City SPC, Inc. was amended to grant the conduit the
right to sell assets at its sole discretion. All parties to the conduit and the
rating agencies were informed of the intent to amend the agreement, and the
independent third-party owner of the conduit approved the amendment. The nature
of the amendment caused the conduit to lose its status as a qualifying
special-purpose entity. As a result, under applicable accounting guidance, the
assets and liabilities and results of operations of the conduit were required to
be included in the consolidated financial statements of the Corporation. As of
September 29, the conduit held assets with a fair value of $2.673 billion and
liabilities with a fair value of $2.689 billion. The difference between the fair
value of the liabilities assumed and the fair value of the assets received as of
September 29 was $15.9 million, which was recorded as a charge to noninterest
expense. The assets consolidated on September 29 included $679.5 million of
secured commercial loans and lease receivables and $1.992 billion of marketable
asset-backed securities, and the liabilities consisted primarily of commercial
paper borrowings. Prior to December 31, 2002, the remaining commercial paper
borrowings held by third-party investors matured and the conduit was legally
dissolved.

6. LOANS AND ALLOWANCE FOR LOAN LOSSES

Total loans outstanding were recorded net of unearned income as of December 31,
2002 and 2001 of $389.8 million and $556.7 million, respectively.

The Corporation's loan portfolio includes lease financing receivables consisting
of direct financing and leveraged leases on equipment, which are included in
commercial loans on the consolidated balance sheet, and retail automobile lease
financings, which are included in other consumer loans on the consolidated
balance sheet. The direct financing and leveraged leased equipment consists
primarily of manufacturing and mining equipment, commercial trucks and trailers,
and airplanes. The Corporation ceased originating retail automobile leases in
December 2000 and is letting the portfolio run off over time. A summary of lease
financings by type at December 31 follows:

The components of the net investment in lease financings at December 31 follow:

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
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A rollforward of the residual value component of lease financings follows:

In 2000, automobile lease residual value write-downs totaled $41.0 million.

At December 31, 2002, the minimum future lease payments to be received from
lease financings were as follows:

The allowance for loan losses represents an estimation of probable credit losses
inherent in the loan portfolio. Activity in the allowance for loan losses
follows:

In 2002, 2001, and 2000, $4.5 million, $29.2 million, and $42.4 million,
respectively, of allowance for loan losses was transferred to the bases of
credit card and automobile loans either sold through securitization during the
year or held for securitization as of the end of the year.

In 2001, the Corporation decided to accelerate the disposition of a portfolio of
nonperforming and delinquent loans which had been generated by the former
wholesale and retail loan origination units of Altegra. During 2001, the
allowance for loan losses related to these loans was increased by $68.1 million
through a charge to provision. Loans totaling $149.5 million were sold from the
portfolio during the year with related loan loss allowance of $45.7 million
included in the bases of the loans sold, essentially covering the loss on sale.

Nonperforming loans totaled $702.4 million and $594.0 million at December 31,
2002 and 2001, respectively. For loans classified as nonperforming at December
31, 2002, the contractual interest due and actual interest recognized on those
loans during 2002 was $66.2 million and $17.3 million, respectively. Included in
nonperforming loans were impaired loans, as defined under SFAS 114, aggregating
$391.4 million and $170.1 million at December 31, 2002 and 2001, respectively.
Average impaired loans for 2002, 2001, and 2000 totaled $354.0 million, $122.3
million, and $59.4 million, respectively. The majority of the loans deemed
impaired were evaluated using the fair value of the collateral as the
measurement method. The related allowance allocated to impaired loans for 2002
and 2001 was $76.0 million and $62.9 million, respectively. At December 31,
2002, impaired loans with an associated allowance totaled $205.8 million, while
$185.6 million of impaired loans had no related allowance. At December 31, 2001,
$170.1 million of impaired loans had an associated allowance. There was no
interest recognized in 2002, 2001, and 2000 on impaired loans while they were
considered impaired.

7. SECURITIES

Securities available for sale follow:

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The other category includes Federal Reserve and Federal Home Loan Bank stock,
certain retained interests in securitizations, and the Corporation's internally
managed equity portfolio of bank and thrift common stock investments, which had
an amortized cost and fair value of $74.8 million and $71.0 million,
respectively, at December 31, 2002, and $399.9 million and $444.8 million,
respectively, at December 31, 2001.

The following table presents the amortized cost, fair value, and
weighted-average yield of securities at December 31, 2002 by maturity:

(a) Yield on debt securities only; equity securities excluded

Weighted-average yields are based on amortized cost. Yields on tax-exempt
securities are calculated on a tax-equivalent basis using the marginal Federal
income tax rate of 35%. Mortgage-backed securities and retained interests in
securitizations are assigned to maturity categories based on their estimated
average lives. Equity securities are included in other securities in the "after
10 years" category.

At December 31, 2002, the carrying value of securities pledged to secure public
and trust deposits, U.S. Treasury notes, security repurchase agreements, and
derivative instruments totaled $7.5 billion.

At December 31, 2002, there were no securities of a single issuer, other than
U.S. Treasury debentures and other U.S. government-sponsored agency securities,
which exceeded 10% of stockholders' equity.

In 2002, 2001, and 2000, gross securities gains of $109.3 million, $146.4
million, and $124.3 million and gross securities losses of $28.2 million, $1.6
million, and $67.4 million were recognized, respectively.

8. PRINCIPAL INVESTMENTS

The Corporation's principal investment portfolio is managed within the Wholesale
Banking line of business. A rollforward of principal investments follows:

(a) Consists primarily of interest and dividends

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

Accounting policies for principal investments are included in Note 1.
Commitments to fund principal investments are discussed in Note 20.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
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9. GOODWILL AND OTHER INTANGIBLE ASSETS

Upon the adoption of SFAS 142 on January 1, 2002, the Corporation ceased
amortizing its goodwill, which decreased noninterest expense and increased net
income in 2002 as compared to 2001 and 2000. The following table shows the pro
forma effects of applying SFAS 142 to the 2001 and 2000 periods.

A summary of goodwill by line of business follows:

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

The Corporation has finite-lived intangible assets capitalized on its balance
sheet in the form of core deposit, credit card, and merchant portfolios and
other intangibles. Merchant portfolio intangibles relate to merchant card
customer portfolios acquired by National Processing. These intangible assets
continue to be amortized over their estimated useful lives in accordance with
SFAS 142, which range from one to 10 years. There were no adjustments to the
useful lives of these intangible assets as a result of the adoption of SFAS 142.

A summary of core deposit, credit card, and merchant portfolios and other
intangible assets follows:

Amortization expense on finite-lived intangible assets totaled $21.1 million,
$17.2 million, and $18.7 million for 2002, 2001, and 2000, respectively.
Amortization expense on finite-lived intangible assets is expected to total
$21.4 million, $20.1 million, $7.9 million, $5.4 million, and $5.2 million in
2003, 2004, 2005, 2006, and 2007, respectively.

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10. MORTGAGE SERVICING ASSETS

National City's portfolio of residential mortgage loans serviced for third
parties was $101.9 billion at December 31, 2002, compared to $73.9 billion at
December 31, 2001, and $54.8 billion at December 31, 2000.

The net carrying value of mortgage servicing assets follows:

Changes in the carrying value of mortgage servicing assets follow:

During 2002, the Corporation reduced the carrying value of its mortgage
servicing asset portfolio through $111.6 million of impairment charges and
$814.0 million of SFAS 133 hedge basis adjustments. These reductions reflected a
decline in the estimated fair value of the assets as a result of higher than
anticipated mortgage loan prepayments driven by the low interest rate
environment. The fair value of mortgage servicing assets is determined by
calculating the present value of estimated future net cash flows, taking into
consideration actual and expected mortgage loan prepayment rates, discount
rates, servicing costs, and other economic factors. Increases in expected and
actual mortgage loan prepayments, the most significant factors driving the value
of mortgage servicing assets, reduce estimated future net servicing cash flows
because the life of the underlying loan is reduced.

The key economic assumptions used to estimate the value of the mortgage
servicing asset portfolio at December 31, 2002 and 2001 are presented in the
table that follows. A sensitivity analysis of the current fair value of mortgage
servicing assets to immediate 10% and 20% adverse changes in those assumptions
as of December 31, 2002 is also presented. These sensitivities are hypothetical.
Changes in fair value based on a 10% variation in assumptions generally cannot
be extrapolated because the relationship of the change in the assumption to the
change in fair value may not be linear. Also, the effect of a variation in a
particular assumption on the fair value of the mortgage servicing asset is
calculated independently without changing any other assumption. In reality,
changes in one factor may result in changes in another (for example, changes in
prepayment rate estimates could result in changes in the discount rates), which
might magnify or counteract the sensitivities.

The key economic assumptions used in determining the fair value of mortgage
servicing assets capitalized in 2002 were as follows:
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Weighted-average CPR 22.04%
Weighted-average life (in years) 4.2
Weighted-average discount rate 10.59%
============================================================

Risk associated with declines in the estimated fair value of mortgage servicing
assets due to increases in mortgage loan prepayments is managed using a variety
of derivative instruments intended to increase in value when interest rates
decline. During 2002, derivative instruments used to protect the value of the
mortgage servicing assets generated a net gain of $1.2 billion, more than
offsetting the decline in fair value of the mortgage servicing assets recorded
for the same period. This net gain was recorded within mortgage banking revenue
on the income statement. Of the total net gain recognized, $1.1 billion related
to derivative instruments which were included in SFAS 133 hedge relationships
with specific mortgage servicing assets during the year, while $42.8 million
represented net gains from derivatives that were also used to protect the value
of the servicing assets but were not included in an SFAS 133 hedge relationship
for some period of time, primarily due to the timing of purchase. The
Corporation typically strives to include the derivative instruments it uses to
protect the value of the mortgage servicing assets in SFAS 133 hedge
relationships in order to record gains and losses on both the mortgage servicing
assets and derivative instruments simultaneously in the income statement.
Mortgage servicing assets not included in SFAS 133 relationships may not be
written up above their initial carrying value, adjusted for amortization,
limiting the amount of gains that might otherwise be recognized to offset losses
on the derivative instruments, which are always carried at fair value. At
December 31, 2002, the net fair value of derivative instruments used to protect
the value of the mortgage servicing assets totaled $392.5 million. Notes 1 and
23 provide further discussion on how derivative instruments are accounted for,
the nature of the derivative instruments used by the Corporation, the risks
associated with the use of derivative instruments, and ineffective hedge and
other gains and losses generated by derivative instruments during the current
and prior year.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
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11. PROPERTIES AND EQUIPMENT

Properties and equipment follow:

The Corporation also leases owned equipment to customers under operating lease
arrangements. The net book value of leased equipment was $71.4 million and
$145.2 million at December 31, 2002 and 2001, respectively. Net rental income
from operating equipment leases, which represents lease rental income less
depreciation expense on the equipment, was $4.5 million, $8.3 million, and $11.7
million in 2002, 2001, and 2000, respectively. At December 31, 2002, aggregate
minimum future rental payments to be received under these operating leases
totaled $16.4 million in 2003, $12.4 million in 2004, $7.6 million in 2005, $4.4
million in 2006, $1.2 million in 2007, and $2.0 million in 2008 and beyond.

12. FEDERAL FUNDS BORROWED AND SECURITY REPURCHASE AGREEMENTS

Detail of Federal funds borrowed and security repurchase agreements follows:

Federal funds borrowed and security repurchase agreements generally mature
within 30 days of the transaction date.

13. BORROWED FUNDS

Detail of borrowed funds follows:

U.S. Treasury 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 at the discretion of the
U.S. Treasury. As of December 31, 2002, $1.0 billion of the notes were term
notes with a stated maturity of less than one month. The remaining $7.9 billion
of notes were callable on demand by the U.S. Treasury.

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

The senior bank notes are issued by the bank subsidiaries and have maturities of
six months or less.

14. LONG-TERM DEBT

The composition of long-term debt follows:

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

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converting the debt to fixed rate. Further discussion on derivative instruments
is included in Notes 1 and 23.

At December 31, 2002, the par values of subordinated debt, senior bank notes,
and long-term advances from the Federal Home Loan Bank (FHLB) totaled $3,475.0
million, $14,904.5 million and $3,740.5 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 December 31, 2002, $2,325.0 million of fixed-rate subordinated debt
was effectively converted to variable-rate debt based on the three-month London
Interbank Offering Rate (LIBOR) through the use of interest rate swaps.

Senior bank notes are issued by the Corporation's bank subsidiaries. At December
31, 2002, senior bank notes totaling $2,382.0 million were contractually based
on a fixed rate of interest and $12,522.5 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 December 31 were 2.77% and 1.59%,
respectively. Through the use of interest rate swaps, as of December 31,
$1,665.0 million of the fixed-rate senior bank notes had been effectively
converted to variable-rate notes based on either the one- or three-month LIBOR
rate or the Federal Funds rate and $2,550.0 million of the variable-rate senior
bank notes had been effectively converted to fixed-rate notes with a
weighted-average fixed rate of 3.56%. Additionally, $5,500.0 million of variable
rate senior bank notes were capped at a weighted-average rate of 4.60% through
the use of interest rate caps.

FHLB advances at December 31, 2002, contractually consisted of $190.5 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 December 31 were 5.67% and 1.49%, respectively. Through the use of
interest rate swaps, as of December 31, fixed-rate advances with a par value of
$100.0 million had been effectively converted to a variable rate based on
one-month LIBOR and variable-rate advances with a par value of $1,300.0 million
had been effectively converted to fixed-rate advances with a weighted-average
fixed rate of 3.42%. FHLB advances are collateralized by qualifying residential
real estate loans.

Long-term debt maturities, based on par value, for the next five years are as
follows: $10,308.9 million in 2003, $4,721.3 million in 2004, $1,688.8 million
in 2005, $1,406.7 million in 2006, $1,315.4 million in 2007, and $2,681.6
million thereafter. The subordinated debt, senior bank notes, and long-term FHLB
advances have maturities ranging from 2003 to 2019, 2003 to 2078, and from 2003
to 2023, respectively.

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 10 basis points on the
amount of the credit facility. There were no borrowings outstanding under this
agreement at December 31, 2002 or 2001.

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

The composition of capital securities follows:

The corporation-obligated mandatorily redeemable capital securities (the capital
securities) of subsidiary trusts holding solely junior subordinated debt
securities of the Corporation (the debentures) were issued by two statutory
business trusts - First of America Capital Trust I and Fort Wayne Capital Trust
I, of which 100% of the common equity 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 semi-annually 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.

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16. REGULATORY RESTRICTIONS AND CAPITAL RATIOS

The Corporation and its banking subsidiaries are subject to various regulatory
capital requirements of federal banking agencies that involve quantitative
measures of assets, liabilities, and certain off-balance-sheet items as
calculated under regulatory accounting practices. The capital amounts and
classifications are also subject to qualitative judgments by the regulators
about components, risk weightings, and other factors. Failure to meet minimum
capital requirements can result in certain mandatory and possible additional
discretionary actions by regulators that could have a material effect on
financial position and operations.

Regulatory and other capital measures at December 31 follow:

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

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

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

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

The leverage ratio reflects Tier 1 capital divided by average total assets for
the period. Average assets used in the calculation 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 the most
recent notification from the Federal Deposit Insurance Corporation, which was
October 30, 2002, the due date of the last required quarterly regulatory
financial filings, each of the Corporation's subsidiary banks were considered
well-capitalized under the regulatory framework for prompt corrective action.
There have been no conditions or events since these filings were made that
management believes have changed any subsidiary bank's capital category. As of
December 31, 2001, each of the subsidiary banks were also categorized as
well-capitalized.

The Corporation's subsidiary banks are required to maintain noninterest bearing
reserve balances with the Federal Reserve Bank. The required reserve balance was
$144.4 million at December 31, 2002.

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

Dividends paid by subsidiary banks to the parent company are also subject to
certain legal and regulatory limitations. The subsidiary banks may pay dividends
in 2003 of $975.3 million, plus an additional amount equal to their net profits
for 2003, as defined by statute, up to the date of any such dividend
declaration, without prior regulatory approval.

The Corporation's mortgage banking and broker/dealer subsidiaries are also
required to maintain minimum net worth capital requirements with various
governmental agencies. The mortgage banking subsidiaries' net worth requirements
are governed by the Department of Housing and Urban Development and the
broker/dealer's net worth requirements are governed by the United States
Securities and Exchange Commission. As of December 31, 2002, these subsidiaries
met their respective minimum net worth capital requirements.

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17. STOCKHOLDERS' EQUITY

A summary of activity in accumulated other comprehensive income (loss) follows:

On August 30, 2002, the Corporation redeemed all preferred shares outstanding,
stated value $50 per share, at a redemption price of $50.50137 per share,
representing a total cost of $37,119. Prior to redemption, holders of preferred
shares had the right at their option, to convert each share of preferred into
3.0291 shares of National City common stock at any time through August 20, 2002.
The holders of the preferred shares were entitled to receive cumulative
preferred dividends payable quarterly at the annual rate of 6%.

In October 1999, the Corporation's Board of Directors authorized the repurchase
of up to 30 million shares of National City common stock, subject to an
aggregate purchase limit of $1.0 billion. Shares repurchased are held for
reissue in connection with the Corporation's stock compensation plans and for
general corporate purposes. During 2002, 2001, and 2000, the Corporation
repurchased 1.3 million, 9.3 million, and 2.5 million shares of its common
stock, respectively. As of December 31, 2002, 14.3 million shares remain
authorized for repurchase.

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.

18. NET INCOME PER COMMON SHARE

Basic and diluted net income per common share calculations follow:

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 from 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.

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19. INCOME TAXES

The composition of income tax expense follows:

Income tax expense for 2001 included a $40.0 million charge related to tax
exposure for corporate-owned life insurance deductions. Further discussion is
included in Note 20.

The effective tax rate differs from the statutory Federal tax rate applicable to
corporations as a result of permanent differences between accounting and taxable
income as shown below:

Significant components of deferred tax liabilities and assets as of December 31
follow:

For the years ended 2002, 2001, and 2000, income tax benefits of $19.5 million,
$26.8 million, and $6.7 million, respectively, were credited to stockholders'
equity related to the exercise of nonqualified employee stock options.

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

A summary of the contractual amount of significant commitments follows:

Commitments to extend credit are agreements to lend. 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.
Certain lending commitments for conforming residential mortgage loans to be sold
into the secondary market are considered derivative instruments under the
guidelines of SFAS 133. The changes in the fair value of these commitments due
to interest rate risk are recorded on the balance sheet as either derivative
assets or derivative liabilities and are included in other loans in the table
above. Further discussion on derivative instruments is included in Notes 1 and
23.

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

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

The Corporation 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

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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 23.

The Corporation also has principal investment commitments to provide equity and
mezzanine capital financing to private and public companies through either
direct investments in specific companies or through investment funds and
partnerships. The timing of future cash requirements to fund such commitments is
generally dependent on the investment cycle. This cycle, 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.

The Corporation and certain of its subsidiaries occupy their respective
headquarters offices and other facilities under long-term operating leases and,
in addition, lease certain software and data processing and other equipment. The
aggregate minimum annual rental commitments under these leases total
approximately $133.0 million in 2003, $114.3 million in 2004, $84.3 million in
2005, $61.2 million in 2006, $51.9 million in 2007, and $258.1 million
thereafter. The Corporation also subleases and receives rental income on certain
leased properties. As of December 31, 2002, aggregate future minimum rentals to
be received under noncancelable subleases totaled $24.6 million. Total operating
lease expense, net of sublease income, recorded under all operating leases was
$131.6 million, $122.6 million, and $120.9 million in 2002, 2001, and 2000,
respectively.

Under an agreement with the formerly unconsolidated asset-backed commercial
paper conduit, National City had commitments to provide liquidity to the conduit
in the event funding could not be readily accessed in the commercial paper
market. The Corporation also provided standby letters of credit to the conduit
to provide partial credit protection to commercial paper holders. As a result of
the consolidation and subsequent dissolution of the conduit, National City no
longer has liquidity and standby letter of credit commitments to third parties
related to the conduit. At December 31, 2001, the Corporation had
conduit-related liquidity and letter of credit commitments of $3.6 billion and
$18.5 million, respectively. Further discussion of the asset-backed commercial
paper conduit is included in Note 5.

The Corporation enters into residential mortgage loan sale agreements with
investors in the normal course of business. These agreements usually require the
Corporation to make certain representations concerning credit information, loan
documentation, collateral, and insurability. On occasion, investors have
requested the Corporation to indemnify them against losses on certain loans or
to repurchase loans which the investors believe do not comply with applicable
representations. Upon completion of its own investigation, the Corporation
generally repurchases or provides indemnification on certain loans.
Indemnification requests are generally received within two years subsequent to
sale. Management maintains a liability for estimated losses on loans expected to
be repurchased or on which indemnification is expected to be provided and
regularly evaluates the adequacy of this recourse liability based on trends in
repurchase and indemnification requests, actual loss experience, known and
inherent risks in the loans, and current economic conditions. Total loans sold,
including loans sold with servicing released, were $72.1 billion, $43.1 billion,
and $20.3 billion in 2002, 2001, and 2000, respectively. Total loans repurchased
or indemnified were $175.2 million, $157.0 million, and $55.5 million in 2002,
2001, and 2000, respectively. In addition, total loans sold of $2.0 billion
remained uninsured as of December 31, 2002. The volume and balance of uninsured
government loans may be impacted by processing or notification delays.
Management generally believes the majority of the uninsured loans at December
31, 2002 will become insured during the normal course of business in 2003. To
the extent insurance is not obtained, the loans may be subject to repurchase.
Uninsured government loans which were ultimately repurchased have been included
in the repurchase totals above. Losses charged against the liability for
estimated losses, including uninsured government loans, in 2002, 2001, and 2000
were $61.8 million, $10.2 million, and $4.9 million, respectively. At December
31, 2002, the Corporation's estimated liability for losses on repurchase and
indemnification was $94.5 million, which was included in accrued expenses and
other liabilities.

The Corporation from time to time also enters into financial guarantee contracts
whereby a premium is received from another financial institution counterparty to
guarantee a portion of credit risk on interest rate swap contracts entered into
between the financial institution counterparty and its customer. The Corporation
becomes liable to pay the financial institution only if the financial
institution is unable to collect amounts owed to them by their customer. The
premium is recorded as a liability when received and is ratably amortized over
the life of the contract to noninterest income. As of December 31, 2002, the
Corporation's maximum exposure to loss under these contracts totaled $2.7
million.

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

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settlement through negotiations with the IRS for all tax years containing such
deductions. The first quarter charge when combined with previous accruals
covered the full settlement amount. There were no other impacts on operations in
2000 and 2001 and the Corporation has no further balance sheet or income
statement exposure related to this matter.

The Corporation, through its subsidiaries, National Processing, Inc. and
National City Bank of Kentucky, provides merchant card processing services.
Under the rules of Visa(R) and MasterCard(R), when a merchant processor acquires
card transactions, it has certain contingent liabilities for the transactions
processed. This contingent liability arises in the event of a billing dispute
between the merchant and a cardholder that is ultimately resolved in the
cardholder's favor. In such a case, the transaction is "charged back" to the
merchant and the disputed amount is credited or otherwise refunded to the
cardholder. If the Corporation is unable to collect this amount from the
merchant's account, and if the merchant refuses or is unable to reimburse the
Corporation for the chargeback due to liquidation or other reasons, the
Corporation will bear the loss for the amount of the refund paid to the
cardholder.

A cardholder, through its issuing bank, generally has until the later of up to
four months after the date a transaction is processed or the delivery of the
product or service to present a chargeback to the Corporation as the merchant
processor. Management believes the maximum potential exposure for chargebacks
would not exceed the total amount of merchant transactions processed through
Visa(R) and MasterCard(R) for the last four months, plus any outstanding
delayed-delivery transactions and unresolved chargebacks in the process of
resolution. For the last four months of 2002, this amount totaled approximately
$50 billion. At December 31, 2002, the Corporation had $7.6 million of
unresolved chargebacks that were in process of resolution.

During 2002, 2001, and 2000, the Corporation processed $163 million, $168
million, and $131 million, respectively, in chargebacks presented by issuing
banks. Actual losses recorded for 2002, 2001, and 2000 were $3 million, $4
million, and $2 million, respectively. The Corporation accrues for probable
losses based on historical experience and at December 31, 2002 had $1.5 million
recorded in accrued expenses and other liabilities for expected losses.

In most cases, this contingent liability is unlikely to arise as most products
or services are delivered when purchased, and credits are issued on returned
items. However, where the product or service is not provided until some time
after the purchase (delayed-delivery), the potential for this contingent
liability increases. In 2002, the Corporation processed approximately $22
billion of merchant transactions related to delayed-delivery purchases.

The Corporation currently processes card transactions for several of the largest
airlines in the United States. In the event of liquidation of one or more of the
Corporation's airline customers, the Corporation could become financially
responsible for refunding tickets purchased through Visa(R) and MasterCard(R)
under the charge-back rules of those associations. At December 31, 2002, the
dollar value of tickets purchased, but as yet unflown, was approximately $1
billion. Based upon available information, this is management's best estimate of
maximum potential chargebacks related to its airline customers. As of December
31, 2002, the Corporation held $139.5 million in merchant deposits and withheld
settlement funds for certain airline merchants. The merchant deposits
collateralize only individual airline merchants and some airline merchants have
no deposits. Of the total merchant deposits, $125.0 million was related to a
single airline merchant. In the near term, management believes liquidations are
unlikely for any of the Corporation's airline customers.

US Airways Group, Inc. and United Air Lines, Inc., both of which are merchant
processing customers of the Corporation, have filed for bankruptcy court
protection under Chapter 11. Based upon information currently available to the
Corporation and actions management has taken to mitigate risks, management
currently believes a material loss under the chargeback rules is unlikely.

National City and its subsidiaries are also involved in a number of legal
proceedings arising out of their businesses and regularly face various claims,
including unasserted claims, which may ultimately result in litigation. It is
management's opinion that the Corporation's financial position, results of
operations, and cash flows would not be materially affected by the outcome of
any pending or threatened legal proceedings, commitments, or claims.

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

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21. STOCK OPTIONS AND AWARDS

National City maintains various incentive and nonqualified stock option plans
and also maintains various restricted stock plans. These plans provide for the
granting of stock options, stock appreciation rights, and restricted shares to
eligible employees and directors. All of the Corporation's stock option and
restricted stock plans were approved by stockholders with the exception of the
150th anniversary commemorative grant in 1995.

STOCK OPTION PLANS: The stock option plans under which options may currently be
granted authorize the issuance to officers and key employees of up to 92,000,000
options to purchase shares of common stock at the fair value of the common stock
on the date of grant. These options generally become exercisable to the extent
of 50% annually beginning one year from the date of grant and expire not later
than 10 years from the date of grant. In addition, stock options may be granted
that include the right to receive additional options if certain criteria are
met. The exercise price of an additional option is equal to the fair value of
the common stock on the date the additional option is granted. Additional
options vest six months from the date of grant and have a contractual term equal
to the remaining term of the original option.

In 1995, National City granted a total of 5.6 million options to purchase common
stock at the fair value of the common stock on the date of grant to virtually
all employees in commemoration of National City's 150th anniversary. The options
became exercisable to the extent of 33% per year beginning two years from the
date of grant. As of December 31, 2002, 699,400 of these options remained
outstanding and all were exercisable.

Compensation expense of $3.5 million was recorded in 2002 related to the fair
value of stock options for former employees in situations where vesting
continued upon a change in employee status.

RESTRICTED STOCK PLANS: National City's restricted stock plans provide for the
issuance of up to 8,000,000 shares of common stock to officers, key employees,
and outside directors. In general, restrictions on outside directors' shares
expire after nine months and restrictions on shares granted to key employees and
officers expire within a four-year period. The Corporation generally recognizes
compensation expense over the restricted period. The weighted-average grant-date
fair value of restricted share awards granted during 2002, 2001, and 2000 was
$29.69, $29.30, and $19.16, respectively. Compensation expense recognized in
2002, 2001, and 2000 totaled $11.9 million, $8.0 million, and $6.9 million,
respectively, related to restricted share plans.

OPTION AND RESTRICTED STOCK AWARD ACTIVITY: Stock option and restricted stock
award activity follows:

Cancelled activity includes both forfeited and expired awards and options.

Information about stock options outstanding at December 31, 2002 follows:

At December 31, 2002, 2001, and 2000, options for 38,664,840, 33,723,522 and
28,913,644 shares of common stock, respectively, were exercisable.

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22. PENSION AND OTHER

POSTRETIREMENT BENEFIT PLANS

National City has a noncontributory, defined benefit pension plan covering
substantially all employees. Pension benefits are derived from a cash balance
formula, whereby credits based on salary, age, and years of service are credited
to employee accounts. Actuarially-determined pension costs are charged to
current operations. The funding policy is to pay at least the minimum amount
required by the Employee Retirement Income Security Act of 1974.

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

Using an actuarial measurement date of October 31, plan asset and benefit
obligation activity for each of the plans follows:

Plan assets of the defined benefit pension plan consisted primarily of
marketable equity securities and bonds, including $137.0 million and $146.7
million of National City common stock at December 31, 2002 and 2001,
respectively. The $137.0 million of National City common stock included in plan
assets at December 31, 2002 represented 5,015,808 shares of stock at a closing
stock price of $27.32 as of that date. During 2002, dividends of $6.0 million
were paid on the shares included in plan assets.

Using an actuarial measurement date of October 31, components of net periodic
benefit and net periodic cost follow:

The Corporation estimates the 2003 net periodic pension benefit will be
approximately $15.7 million. The primary reason for the decrease from the 2002
net periodic pension benefit of $56.8 million is the decline in the fair value
of plan assets as of the 2002 measurement date. Additionally, assumed discount
rates and expected returns on plan assets have a significant effect on the
amounts reported. The 2003 estimate was actuarially determined using a discount
rate of 6.75% and an expected return on plan assets of 9.50%. A 25 basis point
increase in either the discount rate or the expected return on plan assets would
effect the 2003 net periodic benefit by $(636,000) and $3.8 million,
respectively. A 25 basis point decrease in either the discount rate or the
expected return on plan assets would effect the 2003 net periodic benefit by
$692,000 and $(3.8) million, respectively.

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The health care trend rate assumption affects only those participants retired
under the plan prior to April 1, 1989. The 2002 health care trend rate is
projected to be 10.0%. The rate is assumed to decrease incrementally each year
until it reaches 5.0% and remain at that level thereafter. Increasing the
assumed health care trend rate by one-percentage point would increase the
aggregate service and interest costs and the postretirement benefit obligation
by $191,000 and $3.1 million, respectively. A one-percentage point decrease
would reduce the aggregate service and interest costs and the postretirement
benefit obligation by $178,000 and $2.9 million, respectively.

The Corporation also maintains nonqualified supplemental retirement plans for
certain key employees. All benefits provided under these plans are unfunded, and
payments to plan participants are made by the Corporation. At December 31, 2002
and 2001, obligations of $80.4 million and $75.3 million, respectively, were
included in accrued expenses and other liabilities for these plans. For the
years ended December 31, 2002, 2001, and 2000, expense related to these plans
was $14.8 million, $15.0 million, and $16.1 million, respectively.

Substantially all employees are eligible to contribute a portion of their pretax
compensation to a defined contribution plan. The Corporation may make
contributions to the plan for employees with one or more years of service in the
form of National City common stock in varying amounts depending on participant
contribution levels. Prior to 2001, the Corporation provided up to a 5.0%
matching contribution and a discretionary profit-sharing component. Beginning in
2001, the Corporation provided up to a 6.9% matching contribution. For the years
ended 2002, 2001, and 2000, the expense related to the plan was $57.8 million,
$53.2 million, and $35.5 million, respectively.

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23. DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

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

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

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

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

Credit risk occurs when a counterparty to a derivative contract with an
unrealized gain fails to perform according to the terms of the agreement. Credit
risk is managed by limiting the aggregate amount of net unrealized gains in
agreements outstanding, monitoring the size and the maturity structure of the
derivative portfolio, applying uniform credit standards to all activities with
credit risk, and collateralizing gains. The Corporation has established
bilateral collateral agreements with its major derivative dealer counterparties
that provide for exchanges of marketable securities or cash to collateralize
either party's net gains. At December 31, 2002, these collateral agreements
covered 99.9% of the notional amount of the total derivative portfolio,
excluding futures, forward commitments to sell or purchase mortgage loans or
mortgage-backed securities, and customer derivative contracts, and the
Corporation held cash, U.S. government, and U.S. government-sponsored agency
securities with a fair value of $346.5 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 $36.1 million to collateralize net losses with counterparties. The
Corporation typically does not have collateral agreements covering open forward
commitments to sell or purchase mortgage loans or mortgage-backed securities due
to the fact these contracts usually mature within 90 days. Open futures
contracts are also not covered by collateral agreements because the contracts
are cash settled with counterparties daily. The credit risk associated with
derivative instruments executed with the Corporation's commercial banking
customers is essentially the same as that involved in extending loans and is
subject to normal credit policies. Collateral may be obtained based on
management's assessment of the customer.

Derivative contracts are valued using observable market prices, if available, or
cash flow projection models acquired from third parties. Pricing models used for
valuing derivative instruments are regularly validated by testing through
comparison with other third parties. The valuations presented in the following
tables are based on yield curves, forward yield curves, and implied volatilities
that were observable in the cash and derivatives markets on December 31, 2002
and 2001.

FAIR VALUE HEDGES: The Corporation primarily uses interest rate swaps, interest
rate futures, interest rate caps and floors, interest rate options, interest
rate forwards, and forward purchase 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.

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

During 2002 and 2001, the Corporation recognized total net ineffective fair
value hedge gains of $345.9 million and $98.7 million, respectively. Of the
total gains recognized, net ineffective hedge gains related to mortgage loans
held for sale and servicing assets were $331.4 million and $104.3 million in
2002 and 2001, respectively. Ineffective hedge gains (losses) for these hedged
assets are included in mortgage banking revenue on the income statement. Net
ineffective hedge gains (losses) 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 $14.5 million and $(5.6)
million in 2002 and 2001, respectively. There were no components of derivative
instruments which were excluded from the assessment of hedge ineffectiveness
during 2002 and 2001.

CASH FLOW HEDGES: The Corporation hedges cash flow variability related to
variable-rate funding products, specifically FHLB advances and senior bank
notes, through the use of pay-fixed interest rate swaps and interest rate caps.
The Corporation also holds pay-fixed interest rate swaps and caps to hedge
forecasted cash flows associated with debt instruments expected to be issued
subsequent to 2002.

Pay-fixed interest rate swaps and interest rate futures were entered into in
2001 to hedge the cash flows expected from the forecasted sale through
securitization of certain fixed-rate automobile loans classified as held for
securitization on the 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.
During 2002 and 2001, the Corporation recognized net ineffective cash flow hedge
gains (losses) of $(.1) million and $.2 million, respectively. These gains
(losses) are included in other noninterest income on the income statement. There
were no components of derivative instruments which were excluded from the
assessment of hedge ineffectiveness during 2002 and 2001.

Gains and losses on derivative instruments reclassified from accumulated other
comprehensive income to current-period earnings are included in the line item in
which the hedged cash flows are recorded. At December 31, 2002 and 2001,
accumulated other comprehensive income included a deferred after-tax net loss of
$155.9 million and $33.4 million, respectively, related to derivatives used to
hedge funding cash flows. See Note 17 for further detail of the amounts included
in accumulated other comprehensive income. The net after-tax derivative loss
included in accumulated other comprehensive income as of December 31, 2002, is
projected to be reclassified into interest expense in conjunction with the
recognition of interest payments on funding products through November 2005, with
$109.5 million of net loss expected to be reclassified within the next year.
During 2002 and 2001, pretax losses of $159.8 million and $77.7 million,
respectively, were reclassified into interest expense as adjustments to interest
payments on variable-rate funding products. Also during 2002, pretax gains of
$2.0 million were reclassified into other noninterest income as part of the gain
on the automobile loan securitization. There were no gains or losses
reclassified into earnings during 2002 and 2001 arising from the determination
that the original forecasted transaction would not occur.

The table on the following page provides further information regarding
derivative instruments designated in fair value and cash flow hedges at December
31, 2002 and 2001.

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 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:

66

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
- --------------------------------------------------------------------------------

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

(a) Represents net ineffective hedge gain (loss) on hedging strategy for the
year.

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24. FAIR VALUE OF FINANCIAL INSTRUMENTS

Fair value estimates are made as of a specific point in time based on the
characteristics of the financial instruments and relevant market information.
Where available, quoted market prices are used. In other cases, fair values are
based on estimates using an option-adjusted discounted cash flow model or other
valuation techniques. These techniques are significantly affected by the
assumptions used, including discount rates, market volatility, and estimates of
future cash flows. As such, the derived fair value estimates cannot be
substantiated by comparison to independent markets and, further, may not be
realizable in an immediate settlement of the instruments.

The following table presents the estimates of fair value
of financial instruments at December 31, 2002 and 2001. Excluded are certain
items not defined as financial instruments, including nonfinancial assets,
intangibles,
and future business growth, as well as certain liabilities such as obligations
for pension and other postretirement
benefits, deferred compensation arrangements, and leases. Accordingly, the
aggregate fair value amounts presented do not purport to represent the fair
value of the Corporation.

The following methods and assumptions were used to estimate the fair value of
each class of financial instrument:

CASH AND CASH EQUIVALENTS: Due to their short-term nature, the carrying amounts
reported in the balance sheet approximate fair value for these assets. For
purposes of this disclosure only, cash equivalents include Federal funds sold,
security resale agreements, accrued interest receivable, and other short-term
investments.

LOANS AND LOANS HELD FOR SALE OR SECURITIZATION: For residential mortgage loans
held for sale that are hedged with derivative instruments in an SFAS 133
relationship, the carrying value of the loans equals the fair value. The fair
value of credit card loans held for securitization is based on the principal
amount of the loans to be securitized, net of attributed loan loss allowance.
The fair values for all other loans are estimated using an option-adjusted
discounted cash flow model that discounts future cash flows using recent market
interest rates, market volatility, and credit spread assumptions.

SECURITIES: The fair values of securities are based primarily upon quoted market
prices.

DERIVATIVE ASSETS AND LIABILITIES: Fair values for derivative instruments are
based either on cash flow projection models acquired from third parties or
observable market prices.

DEPOSITS: The fair values disclosed for demand deposits (e.g., interest and
noninterest bearing checking, savings, and certain types of money market
accounts) are equal to the amounts payable on demand at the reporting date
(i.e., their carrying amounts). The carrying amounts for variable-rate money
market accounts and certificates of deposit approximate their fair values at the
reporting date. Fair values for fixed-rate certificates of deposit are estimated
using an option-adjusted discounted cash flow model.

SHORT-TERM BORROWINGS: The carrying amounts of Federal funds borrowed, security
repurchase agreements, commercial paper, and other short-term borrowings
approximate their fair values.

LONG-TERM DEBT: The fair values of long-term borrowings (other than deposits)
are estimated using an option-adjusted discounted cash flow model that
incorporates the Corporation's current incremental borrowing rates for similar
types of borrowing arrangements.

OTHER FINANCIAL INSTRUMENTS: The amounts shown under carrying value represent
deferred fees arising from the related off-balance-sheet financial instruments.
These deferred fees approximate the fair value of these instruments taking into
account the remaining terms of the agreements and the counterparties' credit
standing.

68

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
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25. LINE OF BUSINESS RESULTS

Presently National City operates five major lines of business: Consumer and
Small Business Financial Services, Wholesale Banking, National Consumer Finance,
Asset Management, and National Processing. Refer to the Line of Business Results
section of the Financial Review for discussion on the organizational changes
that occurred in 2002 and the resultant changes in the business structure and
presentation of the lines of business.

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

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

National Consumer Finance (NCF) originates conforming and nonconforming
residential mortgage and home equity loans within National City's six-state
footprint and nationally through retail branch offices, correspondent
relationships, and a network of brokers, real estate agents, and builders. NCF's
activities also include selling and servicing mortgage loans for third-party
investors. Conforming mortgage loans, which generally represent loans
collateralized by one-to-four-family residential real estate, having loan to
value collateral ratios of 80% or less, and made to borrowers in good credit
standing, are originated through National City Mortgage Co., a business unit
within NCF, and are eventually sold to primary market aggregators (Fannie Mae,
Freddie Mac, Ginnie Mae, or the Federal Home Loan Banks) and jumbo loan
investors. During 2002, approximately 55% of conforming mortgage loans were
originated through wholesale and correspondent channels, while 45% were
originated through retail mortgage branches operated by National City Mortgage
Co. nationally, or through CSBFS branches within National City's six-state
footprint. Nonconforming mortgage loans, which do not meet the above conforming
definition due to credit characteristics, the underlying documentation, the
loan-to-value ratio, or other factors, are originated primarily by First
Franklin Financial Corporation, a business unit within NCF. First Franklin
originates loans primarily through brokers, which are either sold
servicing-released to third parties or are retained in portfolio. NCF's National
Home Equity business unit originates home equity loans outside National City's
six-state footprint. Significant revenue streams for NCF include net interest
income on loans and fee income related to the origination, sale, and servicing
of loans. Expenses include personnel costs, branch office costs, and loan
collection expenses.

The Asset Management business includes both institutional asset and personal
wealth management. The institutional asset management business provides
investment management, custody, retirement planning services, bond
administration and other corporate trust services to institutional clients. The
clients served include publicly traded corporations, charitable endowments and
foundations, as well as unions, residing primarily in National City's six-state
footprint and generally complementing its corporate banking relationships.
Personal wealth management services are provided by three business
units - Private Client Group, NatCity Investments, Inc., and Sterling. Products
and services include private banking services and tailored credit solutions,
customized investment management services, brokerage, estate and tax planning,
as well as trust management and administration for affluent individuals and
families. Sterling offers financial management services and alternative
investments for high net worth clients.

National Processing consists of National Processing, Inc., National City's
85%-owned payment processing subsidiary. National Processing has two business
lines, Merchant Card Services, which represents 96% of the business line's
revenue, and Payment Services, which represents 4% of the business line's
revenue. Merchant Card Services authorizes, processes, and performs financial
settlement and reporting of card transactions, including credit, debit, and
electronic benefits transfer. Payment Services provides financial settlement and
reporting solutions to large and mid-size corporate customers in the travel and
health care industries. Payment Services settles 100% of domestic airline
tickets issued by travel agencies and settled through the Airlines Reporting
Corporation. Payment Services also settles commission payments for car rental
companies, cruise line operators, and hotels.

The business units are identified by the product or services offered and the
channel through which the product or service is delivered. The reported results
reflect the underlying economics of the businesses. Expenses for centrally
provided services are allocated based upon estimated usage of those services.
The business units' assets and liabilities are match-funded and interest rate
risk is centrally managed as part of investment funding activities. Asset
securitizations are also considered funding activities and the effects of such
securitizations are included within the parent and other category. The assets
sold through

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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 and expense eliminations,
and unallocated corporate income and expense. The intersegment revenue and
expense amounts presented in the tables relate to either services provided or
asset sales between the operating segments. The amounts do not include
reimbursements related to expense allocations and the effects of centrally
managing interest rate risk. The accounting policies of the individual business
units are the same as those of the Corporation. Prior period amounts have been
restated to conform with the current period's presentation.

Operating results of the business units are discussed in the Line of Business
Results section of the Financial Review. Selected financial information by line
of business is included in the table below.

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

70

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
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26. FINANCIAL HOLDING COMPANY

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

BALANCE SHEETS

The holding company guarantees commercial paper issued by its subsidiary
National City Credit Corporation and capital securities issued by two subsidiary
trusts. As of December 31, 2002, outstanding commercial paper borrowings totaled
$1.0 billion and outstanding capital securities totaled $180.0 million - refer
to Notes 13 and 15. The holding company also guarantees National City Bank of
Kentucky's financial obligations under this subsidiary bank's membership with
VISA(R) up to $600 million. Refer to Note 20 for further discussion of
contingent liabilities and guarantees related to the Corporation's merchant card
processing business.

STATEMENTS OF INCOME

STATEMENTS OF CASH FLOWS

At December 31, 2002 and 2001, retained earnings of the holding company included
$6.1 billion and $5.6 billion, respectively, of equity in undistributed net
income of subsidiaries.

71
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FORM 10-K
- --------------------------------------------------------------------------------

The Annual Report includes the materials required in Form 10-K filed with the
United States Securities and Exchange Commission. The integration of the two
documents gives stockholders and other interested parties timely, efficient, and
comprehensive information on 2002 results. Portions of the Annual Report are not
required by the Form 10-K report and are not filed as part of the Corporation's
Form 10-K. Only those portions of the Annual Report referenced in the
cross-reference index are incorporated in the Form 10-K. The report has not been
approved or disapproved by the United States Securities and Exchange Commission,
nor has the Commission passed upon its accuracy or adequacy.

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K

[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act
of 1934

For the fiscal year ended December 31, 2002

[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934

For the transition period from ______ to ______

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
---------------------------------------------------------
(Address of Principal Executive Offices)
44114-3484
---------------------------------------------------------
(ZIP Code)

Registrant's telephone number, including area code: 216-222-2000

Securities registered pursuant to Section 12(b) of the Act:

National City Corporation Common Stock, $4.00 Per Share
- --------------------------------------------------------------------------------
(Title of Class)

New York Stock Exchange
- --------------------------------------------------------------------------------
(Name of Each Exchange on Which Registered)

Securities registered pursuant to Section 12(g) of the Act: none

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 by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]

Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act). YES X NO ____

The aggregate market value of the registrant's outstanding voting common stock
held by nonaffiliates on June 28, 2002, determined using a per share closing
price on that date of $33.25, as quoted on the New York Stock Exchange, was
$20,153,111,710.

The number of shares outstanding of each of the registrant's classes of common
stock, as of December 31, 2002:

Common Stock, $4.00 Per Share - 611,491,359

Documents Incorporated By Reference:

Portions of the registrant's Proxy Statement (to be dated approximately March
13, 2003) are incorporated by reference into Item 10. Directors and Executive
Officers of the Registrant; Item 11. Executive Compensation; Item 12. Security
Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters; and Item 13. Certain Relationships and Related Transactions, of Part
III.

72

FORM 10-K CONTINUED
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FORM 10-K CROSS REFERENCE INDEX

Reports on Form 8-K filed during the fourth quarter of 2002 and through the date
of this Form 10-K filing:

October 16, 2002 - National City issued a news release announcing its financial
results for the third quarter and nine months ended September 30, 2002.

October 29, 2002 - National City issued a news release announcing that its Board
of Directors approved a series of actions to strengthen and improve the
Corporation's corporate governance practices.

November 19, 2002 - National City furnished signed certifications, pursuant to
18 U.S.C. Section 1350, of David A. Daberko, Chairman and Chief Executive
Officer, and Jeffrey D. Kelly, Chief Financial Officer, with respect to National
City's Quarterly Report on Form 10-Q for the quarter-ended September 30, 2002
and the Form 10-Q/A, constituting Amendment No. 1 to the September 30, 2002 Form
10-Q.

December 13, 2002 - National City issued a news release announcing that Hewitt
Associates will provide 401(k) administration services, including recordkeeping
and customer service, to National City clients.

December 16, 2002 - National City issued a news release reaffirming its earnings
guidance for 2002.

January 13, 2003 - National City issued a news release announcing the
availability of corporate officials to discuss the Corporation's dividend
policy.

January 15, 2003 - National City issued a news release announcing its financial
results for the fourth quarter and fiscal year ended December 31, 2002.

The index of exhibits and any exhibits filed as part of the 2002 Form 10-K are
accessible at no cost on the Corporation's Web site at NationalCity.com or
through the United States Securities and Exchange Commission's Web site at
www.sec.gov. Copies of exhibits may also be requested at a cost of 30 cents per
page from National City's investor relations department.

Financial Statement Schedules - Omitted due to inapplicability or because
required information is shown in the consolidated financial statements or the
notes thereto.
- ----------------------------------------------------------

Note (1) - Incorporated by reference from the Corporation's Proxy Statement to
be dated approximately March 13, 2003.

- ----------------------------------------------------------

BUSINESS

National City Corporation (National City or the Corporation) is a $118 billion
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 conducts selected
consumer lending businesses and other financial services on a nationwide basis.
Its primary businesses include commercial and retail banking, consumer finance,
asset management, mortgage financing and servicing, and payment processing.
Operations are primarily conducted through more than 1,100 branch banking
offices located within National City's six-state footprint and over 280 retail
mortgage offices located throughout the United States. National City and its
subsidiaries had 32,731 full-time-equivalent employees at December 31, 2002.

COMPETITION

The financial services business is highly competitive. The banking subsidiaries
of National City compete actively with national and state banks, thrift
institutions, securities dealers,

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mortgage bankers, finance companies, insurance companies, and other financial
service entities.

SUPERVISION AND REGULATION

National City is a financial holding company and, as such, is subject to
regulation under the Bank Holding Company Act of 1956, as amended (the BHC Act).
The BHC Act requires the prior approval of the Federal Reserve Board for a
financial holding company to acquire or hold more than a 5% voting interest in
any bank, and restricts interstate banking activities. The BHC Act allows
interstate bank acquisitions anywhere in the country and interstate branching by
acquisition and consolidation in those states that had not opted out by January
1, 1997.

The BHC Act restricts National City's nonbanking activities to those which are
determined by the Federal Reserve Board to be financial in nature, incidental to
such financial activity, or complementary to a financial activity. The BHC Act
does not place territorial restrictions on the activities of nonbank
subsidiaries of bank holding companies. National City's banking subsidiaries are
subject to limitations with respect to transactions with affiliates.

On July 30, 2002, the Senate and the House of Representatives of the United
States (Congress) enacted the Sarbanes-Oxley Act of 2002, a law that addresses,
among other issues, corporate governance, auditing and accounting, executive
compensation, and enhanced and timely disclosure of corporate information. The
New York Stock Exchange has also proposed corporate governance rules that were
presented to the Securities and Exchange Commission for review and approval. The
proposed changes are intended to allow stockholders to more easily and
efficiently monitor the performance of companies and directors.

Effective August 29, 2002, as directed by Section 302(a) of Sarbanes-Oxley,
National City's chief executive officer and chief financial officer are each
required to certify that National City's Quarterly and Annual Reports do not
contain any untrue statement of a material fact. The rules have several
requirements, including having these officers certify that: they are responsible
for establishing, maintaining and regularly evaluating the effectiveness of
National City's internal controls; they have made certain disclosures to
National City's auditors and the audit committee of the Board of Directors about
National City's internal controls; and they have included information in
National City's Quarterly and Annual Reports about their evaluation and whether
there have been significant changes in National City's internal controls or in
other factors that could significantly affect internal controls subsequent to
the evaluation.

At the October 28, 2002 Board of Directors' meeting, the Board of Directors of
National City approved a series of actions to strengthen and improve its already
strong corporate governance practices. Included in those actions was the
adoption of a new Code of Ethics, a Code of Ethics for Senior Financial
Officers, Corporate Governance Guidelines and new charters for the Audit,
Compensation, and Nominating and Board of Directors' Governance Committees. More
information on National City Corporation's corporate governance practices is
available on the National City Web site at NationalCity.com.

The enactment of the Graham-Leach-Bliley Act of 1999 (the GLB Act) represented a
pivotal point in the history of the financial services industry. The GLB Act
removed large parts of a regulatory framework that had its origins in the
Depression Era of the 1930s. Effective March 11, 2000, new opportunities became
available for banks, other depository institutions, insurance companies, and
securities firms to enter into combinations that permit a single financial
services organization to offer customers a more complete array of financial
products and services. The GLB Act provides a new regulatory framework for
regulation through the financial holding company, which has as its umbrella
regulator the Federal Reserve Board. Functional regulation of the financial
holding company's separately regulated subsidiaries is conducted by their
primary functional regulator. The GLB Act requires "satisfactory" or higher
Community Reinvestment Act compliance for insured depository institutions and
their financial holding companies in order for them to engage in new financial
activities. The GLB Act provides a federal right to privacy of non-public
personal information of individual customers. National City and its subsidiaries
are also subject to certain state laws that deal with the use and distribution
of non-public personal information.

A substantial portion of the Corporation's cash is derived from dividends paid
by its subsidiary banks. These dividends are subject to various legal and
regulatory restrictions as summarized in Note 16 to the Corporation's
consolidated financial statements.

The subsidiary banks are subject to the provisions of the National Bank Act or
the banking laws of their respective states, are under the supervision of, and
are subject to periodic examination by, the Comptroller of the Currency (the
OCC) or the respective state banking departments, and are subject to the rules
and regulations of the OCC, Board of Governors of the Federal Reserve System,
and the Federal Deposit Insurance Corporation (FDIC).

National City's subsidiary banks are also subject to certain laws of each state
in which such bank is located. Such state laws may restrict branching of banks
within the state and acquisition or merger involving banks located in other
states. Ohio, Kentucky, Illinois, Indiana, Michigan, and Pennsylvania have all
adopted nationwide reciprocal interstate banking.

The Financial Reform, Recovery and Enforcement Act of 1989 (FIRREA) provides
that a holding company's controlled insured depository institutions are liable
for any loss incurred by the FDIC in connection with the default of any
FDIC-assisted transaction involving an affiliated insured bank or savings
association.

The monetary policies of regulatory authorities, including the Federal Reserve
Board and the FDIC, have a significant effect on the operating results of banks
and holding

74

FORM 10-K CONTINUED
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companies. The nature of future monetary policies and the effect of such
policies on the future business and earnings of National City and its
subsidiaries cannot be predicted.

PROPERTIES

National City and its significant subsidiaries occupy their headquarters offices
under long-term leases. The Corporation also owns freestanding operations
centers in Columbus and Cleveland, Ohio, Louisville, Kentucky, and Kalamazoo and
Royal Oak, Michigan and leases operations centers in Cleveland and Miamisburg,
Ohio, Pittsburgh, Pennsylvania, and Chicago, Illinois. Branch office locations
are variously owned or leased.

LEGAL PROCEEDINGS

The information contained in Note 20 to the consolidated financial statements of
this Annual Report is incorporated herein by reference.

EXECUTIVE OFFICERS

The Executive Officers of National City (as of January 23, 2003) are as follows:

The term of office for executive officers is one year.

There is no family relationship between any of the executive officers.

Mr. Daberko has been chairman and chief executive officer since 1995.

Mr. MacDonald III was appointed vice chairman in 2001. Prior to that time, he
was an executive vice president since 1993.

Mr. Siefers was appointed vice chairman in 1997. He also served as chief
financial officer from 1991 to 2000.

Mr. Bell has been an executive vice president since 1996. Since 2000, he has
been head of the Capital Markets Group.

Mr. Clark was appointed an executive vice president in 1998.

Mr. Gellhausen was appointed an executive vice president in 2002. Prior to that
time, he was president and chief operating officer of National City Mortgage Co.
from 2000 to 2002 and senior vice president and comptroller of National City
Corporation from 1998 to 2000.

Mr. Golonski was appointed chairman and chief executive officer of National City
Bank of Pennsylvania in 1999. Prior to that time, he was president and chief
executive officer of National City Bank of Pennsylvania. He has been an
executive vice president since 1996.

Mr. Gorney has been an executive vice president since 1993.

Mr. Kelly was appointed chief financial officer in 2000. He has been an
executive vice president since 1994.

Mr. Lathe was appointed an executive vice president and president and chief
executive officer of National City Bank of Michigan/Illinois in 2000. Prior to
that time he was executive vice president of National City Bank for the
Syndications Division from 1998 to 2000.

Mr. Martens was appointed an executive vice president in 1997. He has been
chairman of NatCity Investments, Inc. since 1995.

Mr. Ondercik was appointed an executive vice president in 1994.

Mr. Parker was appointed an executive vice president and president and chief
executive officer of National City Bank of Kentucky in 2001. Prior to that time
he was senior vice president of National City Bank.

Mr. Ramirez was appointed an executive vice president in 2000. Prior to that
time he was senior vice president since 1994.

Mr. Raskind was appointed an executive vice president in 2000. Prior to that
time he was vice chairman of U.S. Bancorp.

Mr. Rice was appointed an executive vice president and president and chief
executive officer of National City Bank in 2000. Prior to that time, he was
executive vice president of the Northcoast Region of National City Bank.

Ms. Seifert was appointed an executive vice president in 2000. Prior to that
time, she was senior vice president of Corporate Human Resources.

Mr. Stitle was appointed an executive vice president in 1999. Since 1995, he has
been chairman of National City Bank of Indiana.

Mr. Zoeller was appointed an executive vice president in 2000. Since 1992, he
has been general counsel and secretary.

Mr. Gulick has been senior vice president and general auditor since 1995.

Ms. Lyons was appointed comptroller in 2000. She has been a senior vice
president since 1997.

Mr. Richlovsky has been senior vice president and treasurer since 1989.

75
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CONTROLS AND PROCEDURES

The management of National City Corporation is responsible for establishing and
maintaining effective disclosure controls and procedures, as defined under Rules
13a-14 and 15d-14 of the Securities Exchange Act of 1934. As of December 31,
2002, an evaluation was performed under the supervision and with the
participation of management, including the Chief Executive Officer and Chief
Financial Officer, of the effectiveness of the design and operation of the
Corporation's disclosure controls and procedures. Based on that evaluation,
management concluded that the Corporation's disclosure controls and procedures
as of December 31, 2002 were effective in ensuring that information required to
be disclosed in this Annual Report on Form 10-K was recorded, processed,
summarized, and reported within the time period required by the United States
Securities and Exchange Commission's rules and forms.

Management's responsibilities related to establishing and maintaining effective
disclosure controls and procedures include maintaining effective internal
controls over financial reporting that are designed to produce reliable
financial statements in accordance with accounting principles generally accepted
in the United States. As disclosed in the Report of Management on page 33 of
this Annual Report, management assessed the Corporation's system of internal
control over financial reporting as of December 31, 2002, in relation to
criteria for effective internal control over financial reporting as described in
"Internal Control - Integrated Framework," issued by the Committee of Sponsoring
Organizations of the Treadway Commission. Based on this assessment, management
believes that, as of December 31, 2002, its system of internal control over
financial reporting met those criteria.

There have been no significant changes in the Corporation's internal controls or
in other factors that could significantly affect internal controls subsequent to
December 31, 2002.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) 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, on January 23, 2003.

National City Corporation

/s/ David A. Daberko
- ---------------------------------------

David A. Daberko

Chairman and Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities indicated, on January 23, 2003.

/s/ David A. Daberko
- ---------------------------------------

David A. Daberko

Chairman and Chief Executive Officer

/s/ William E. MacDonald III
- ---------------------------------------

William E. MacDonald III

Vice Chairman

/s/ Robert G. Siefers
- ---------------------------------------

Robert G. Siefers

Vice Chairman

/s/ Jeffrey D. Kelly
- ---------------------------------------

Jeffrey D. Kelly

Executive Vice President and Chief Financial Officer

/s/ Thomas A. Richlovsky
- ---------------------------------------

Thomas A. Richlovsky

Senior Vice President and Treasurer

The Directors of National City Corporation executed a power of attorney
appointing David L. Zoeller, Carlton E. Langer, and Thomas A. Richlovsky their
attorneys-in-fact, empowering them to sign this report on their behalf.

/s/ David L. Zoeller
- ---------------------------------------

By David L. Zoeller

Attorney-in-fact

76

FORM 10-K CONTINUED
- --------------------------------------------------------------------------------

CERTIFICATION OF CHIEF EXECUTIVE OFFICER

I, David A. Daberko, certify that:

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

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

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

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

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

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

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

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

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

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

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

Date: January 23, 2003 By: /s/ David A. Daberko
-----------------------------
David A. Daberko
Chairman and Chief Executive Officer

CERTIFICATION OF CHIEF FINANCIAL OFFICER

I, Jeffrey D. Kelly, certify that:

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

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

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

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

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

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

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

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

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

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

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

Date: January 23, 2003 By: /s/ Jeffrey D. Kelly
-----------------------------
Jeffrey D. Kelly
Executive Vice President and Chief Financial Officer

CORPORATE INFORMATION

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

TRANSFER AGENT AND REGISTRAR

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

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

INVESTOR INFORMATION

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

WEB SITE ACCESS TO UNITED STATES SECURITIES AND EXCHANGE COMMISSION FILINGS

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

CORPORATE GOVERNANCE

National City's corporate governance practices are described in the following
documents, which are available on the Corporation's Web site or which may be
obtained in print form through the investor relations department: Corporate
Governance Guidelines, Code of Ethics, Code of Ethics for Senior Financial
Officers, Audit Committee Charter, Nominating and Board of Directors Governance
Committee Charter, and Compensation Committee Charter.

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.

ANNUAL MEETING

The Annual Meeting of Stockholders will be on Tuesday, April 29, 2003 at 10:00
a.m. Eastern Time National City Corporation National City Center 1900 East Ninth
Street Cleveland, Ohio 44114-3484

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, call 1-800-622-6757. The Plan prospectus is
also available on the Corporation's Web site.

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.

NAIC

National City is a proud sponsor of the National Association of Investors
Corporation (NAIC) and participates in its Low-Cost Investment Plan. To receive
more information on NAIC, call (248) 583-NAIC.

DEBT RATINGS

Moody's
Investors Standard
Fitch Ratings Service & Poor's
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National City Corporation A/B
Commercial paper F1+ P-1 A-1
Senior debt AA- A1 A
Subordinated debt A+ A2 A-
Bank Subsidiaries A/B
Certificates of deposit AA Aa3 A+
Senior bank notes AA- Aa3 A+
Subordinated bank notes A+ A1 A

COMMON STOCK INFORMATION

First Second Third Fourth Full
Quarter Quarter Quarter Quarter Year
- --------------------------------------------------------------------------------

2002
Dividends paid $ .295 $ .295 $ .305 $ .305 $ 1.20
High 31.16 33.75 33.49 29.82 33.75
Low 26.31 29.60 25.58 24.60 24.60
Close 30.76 33.25 28.53 27.32 27.32
- --------------------------------------------------------------------------------
2001
Dividends paid $ .285 $ .285 $ .295 $ .295 $ 1.16
High 30.31 30.86 32.70 30.30 32.70
Low 23.69 25.56 26.00 26.15 23.69
Close 26.75 30.78 29.95 29.24 29.24

PRSRT STD
NATIONAL CITY US POSTAGE
PAID
1900 East Ninth Street National City
Clevland, OH 44114 Corporation

EXHIBIT INDEX