NATIONAL CITY CORP - 10-K Annual Report

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NATIONALCITY(R) 2 0 0 3
ANNUAL REPORT

(PICTURE)

My bank is National City.

FINANCIAL HIGHLIGHTS
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CONTENTS

1 Chairman's Letter

3 Introduction

4 Success Stories

8 Board of Directors and Officers

9 Financial Review

Consolidated Financial Statements
and Notes

Form 10-K

Certifications of Chief Executive Officer
and Chief Financial Officer

ABOUT US

National City Corporation (NYSE: NCC), headquartered in Cleveland, Ohio, is one
of the nation's largest financial holding companies. We operate through an
extensive distribution network in Ohio, Illinois, Indiana, Kentucky, Michigan
and Pennsylvania, and serve customers in selected markets nationally. Our
primary businesses include commercial and retail banking, consumer finance,
asset management, mortgage financing and servicing, and payment processing.

(left to right)
[PHOTO OF David A. Daberko
DAVID A. DABERKO Chairman & CEO
AND
WILLIAM E. William E. MacDonald III
MacDONALD III] Vice Chairman

National City again posted record earnings in 2003, with net income of $2.1
billion, or $3.43 per share, well above the previous record set in 2002, and 51
percent higher than just two years ago. We were extremely well positioned to
benefit from a record low interest rate environment in 2003, which fueled
unprecedented volumes of mortgage activity. Core deposit growth and consumer
lending were also strong, and in combination with mortgage, boosted earnings
well above our initial expectations for the year. As discussed in the financial
section of this report, results for prior periods have been restated to reflect
timing differences in recognizing changes in the fair value of certain
mortgage-related assets, with minimal cumulative effect for the three-year
period ending December 31, 2003. Although the restatement adds some confusion in
comparing current amounts to those previously reported, it does not change the
fact that all three years were highly successful ones for National City.

While we are proud of record earnings in a year when many other companies
struggled, the real achievements of 2003 go far beyond the financial results. In
reality, 2003 was as much about making investments for long-term growth as it
was about current earnings. We recognize that the banking and financial services
industry is becoming more competitive each year, that customers are becoming
more sophisticated and discerning, and that no one has the luxury of resting on
his or her laurels. What was adequate or even good performance a few years ago
is not sufficient to meet today's higher standards. Our efforts this past year
focused on developing and enhancing sustainable business models and building
world-class customer franchises.

In our most critical and visible business, Consumer and Small Business Financial
Services, comprising the retail branch bank network, call centers, Internet, and
small business banking, the achievements were significant. We attracted core
deposits faster than the rate for the market as a whole, taking market share
from several significant competitors. Customer Connections, our $125 million
investment in technology and delivery system infrastructure, began its rollout
last summer. As of year-end, 21 percent of the branch network had been
converted, with the balance to follow this year. This system improves and
streamlines the routine processes of account openings and customer transactions
and substantially reduces paper flow to the back office. More importantly, it
provides real-time and relevant customer information and sales prompts to allow
our people to serve customers better. The ultimate return on this investment is
not the savings in back-office costs, but the increased revenues from a more
effective sales process.

As a business still heavily based on personal interactions, we are only as good
as the people who face our customers every day. To that end, a major initiative
has been the upgrading of our branch staff, specifically branch managers. We
have improved the hiring process and have raised not only the standards of
performance, but also the training, incentives and career opportunities. To be a
great retail bank, we must have a great branch system, and that requires great
branch managers. We believe we have more of them today than ever before.

We have also undertaken selective expansion of our branch network to better
serve our markets

2003 ANNUAL REPORT 1

and grow market share. We believe Although revenue and earnings growth
the greatest potential is in are the primary drivers of
Chicago, where we added four shareholder value, a strong balance
branches in 2003 and plan to open 17 sheet and risk management culture
more in 2004. Pockets of opportunity are necessary accompaniments to
for profitable expansion are also protect that value. With a high
evident in most of our other return on equity and a solid equity
markets, including Columbus and base, National City not only has
Indianapolis, where we would expect sufficient capital to fund growth
to open a dozen or more new and reinvestment, but also
locations in 2004, bringing the consistently generates excess
corporate-wide total to around 30. capital. We return much of that
We announced an expansion into the capital to stockholders in the form
St. Louis marketplace in November of quarterly cash dividends, and
via the proposed acquisition of periodically through repurchases of
Allegiant Bancorp. This market is an stock in the open market. We expect
attractive and logical extension of to prudently deploy excess capital
our existing footprint, and we see going forward through a combination
good potential to add to Allegiant's of dividend increases, targeted
existing 35-branch network and acquisitions, and stock repurchases,
expand the breadth of product and all to the long-term benefit of
service offerings over the next stockholders.
couple of years.
National City is fortunate to have a
Although retail banking has been our strong, independent Board of
primary focus, literally every Directors, a capable and deep
business unit has a story of management team, and a great cadre
investment, growth, and positioning of dedicated employees. They take
for future success. The Wholesale our brand promise, "At National
Banking unit, for example, which City, we care about doing what's
provides credit, treasury management right for our customers," seriously
and investment banking services to and personally, and on behalf of all
middle-market companies, is well stockholders I want to thank them
positioned and highly regarded in for their service and dedication. In
the marketplace. If, as we believe, the following pages you will see
the business cycle continues on its some live examples of what that
upward trend, the combination of dedication means to customers. I
improving credit quality and more also encourage you to review the
robust credit demand will be a financial pages of this report and
powerful driver of earnings growth to regularly visit our Web site for
for this business over the next supplemental financial updates and
several years. Likewise, our periodic investor presentations.
consumer lending businesses, which National City prides itself on the
performed well during the recession, quality, thoroughness, and
will exhibit further strength in a transparency of financial and
recovery. In 2004, the cyclical operating disclosures to investors,
decline in mortgage earnings will and we welcome your comments and
likely not be immediately replaced feedback.
dollar for dollar by earnings growth
from the other businesses, but over Thank you for your continued support
time we are very confident that our and investment.
balanced business mix, attention to
customers' needs, and focused
execution will produce above-average /s/ DAVID A. DABERKO
revenue and earnings growth and will David A. Daberko
be valued accordingly by the market. Chairman and CEO
January 29, 2004

A NOTE OF THANKS TO ROBERT G. SIEFERS

(PHOTO OF ROBERT Bob Siefers, vice chairman, retired from National
G. SIEFERS) City in 2003 after 32 years of extraordinary service.
Bob, through his clear strategic thinking and
no-nonsense operating style, was instrumental in
shaping National City as it exists today. His vision
guided the expansion of our banking franchise from
its original base in Cleveland and the growth of our
mortgage business to national scale, among other
accomplishments.

Bob's first love is investing, and he launched our
highly successful Bank Stock Fund, producing over
$750 million in net gains from 1991 to 2003 from
astute investments in banking and financial services
stocks.

Thanks, Bob, for your hard work and dedication, and
all the best for a happy and prosperous retirement.

2003 ANNUAL REPORT 2

Small business customers Bill, Jeff and Eric
(PHOTO OF BILL, JEFF Sullivan, legendary bluegrass instrument craftsmen
AND ERIC SULLIVAN) and owners of First Quality Musical Supplies in
Louisville, Kentucky.

For every organization, greatness grows from vision, innovation and
accountability. For our company, it also grows from remaining true to our brand
promise:

At National City, we care about doing what's right for our customers.

Living our brand promise is our guide to becoming a great company. It tells us
what to do at each moment of truth...how to enhance each customer's brand
experience...ways we can deliver beyond expectations at every opportunity.

This year's message from our chairman and the following success stories
illustrate the ways we strived for greatness in 2003. And how we'll continue to
win the hearts and minds of our customers in the future.

2003 ANNUAL REPORT 3

Sharon and Alan Rosen
Young, Rosen, Finkel & Silbert, LTD (PHOTO OF SHARON AND ALAN ROSEN)
National City customers

Our expansion in Chicago. It's more than just
geography.

Meet the Rosens. National City and referred Sharon to
Small Business Banking Officer Beth
For Sharon and Alan Rosen, Chicago's Blom.
Gold Coast Art Fair was more than a
great place to find the perfect "The banks here in Chicago tend to
impressionist painting. focus on middle-market companies,"
observes Beth Blom, "and that gives
A few days after picking up National us an amazing opportunity to do more
City interest rate information at for small businesses."
the event, Sharon visited our One
North Franklin office. She spoke Following numerous phone
with Beth Zamfoti concerning a money conversations and two face-to-face
market savings account. "Beth was meetings which included One North
extremely helpful," says Sharon. Franklin's small business banking,
"She actually led me to something corporate banking and wealth
better suited to our needs." management teams, Young, Rosen,
Finkel & Silbert opened a business
The better-suited solution was a savings account with a substantial
money market checking account deposit.
offering a competitive rate and
unlimited check writing. During the "Our firm was looking for a mutually
application process, Beth learned beneficial business relationship and
Sharon was a CPA for her husband's we wanted to make a statement that
law firm - Young, Rosen, Finkel & we were committed to that
Silbert, Ltd. She also learned there relationship," notes Alan.
was some dissatisfaction with the
firm's bank and recognized a The afternoon of the second meeting,
cross-selling opportunity. Beth One North Franklin Branch Manager
suggested trying Michael Staudt picked up the firm's
check and met all the partners. He
was

2003 ANNUAL REPORT 4

DOING WHAT'S RIGHT
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asked if he had a few moments to discuss a potential referral opportunity for
National City -one of the firm's business clients that was looking for a new
bank.

Although still in its infancy, a great long-term relationship and strategic
partnership has begun for Young, Rosen, Finkel & Silbert and National City. As
of December 2003, the law firm initiated a line of credit and National City is
working out the details for using the firm's commercial and industrial real
estate tax abatement expertise.

This success story is just one of many from our Chicago expansion that
illustrate how we're working as one company to meet and exceed customer needs.
Exceptional individual effort and teamwork are building brand over time and
sales overnight by attracting customers, keeping them and earning their
referrals.

Beth Zamfoti
(PHOTO) One North Franklin
Sales and Service Representative
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NATIONALCITY.COM AND ONLINE BANKING

We greatly enhanced the appearance and functionality of NationalCity.com
throughout the year, earning an eighth-place ranking for overall bank site from
Gomez Advisors (Q4 2003). During the same time period, Gomez ranked
NationalCity.com as the No. 2 site for small business, the No. 6 site for credit
card and the No. 10 site for mortgage.

Based on an extensive customer survey, our Online Banking and Online Bill
Payment services have new and improved capabilities. Now, customers can:

o See pending ATM and debit card transactions immediately

o View changes in their balances instantaneously when they make
transfers

o "Nickname" their online accounts

o Pay multiple bills at one time from a consolidated screen

o Skip or edit recurring payments

o Receive notifications from our customer support center

o View and print images of cancelled checks from their computers

FOR OUR CUSTOMERS
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Beth Blom
(PHOTO OF BETH BLOM AND One North Franklin
MICHAEL STAUDT) Small Business Banking Officer

Michael Staudt
One North Franklin Branch
Manager

2003 ANNUAL REPORT 5

RECREATION FINANCE

To serve the growing number of individuals and families interested in domestic
travel and marine recreation, we expanded our recreation finance business to 38
states. As part of the expansion, we'll work closely with dealers to develop
specialized retail and floorplan financing options.

In addition, we entered a strategic alliance with Gulf Stream Coach, Inc., one
of the fastest growing RV manufacturers in the country. This alliance enables
Gulf Stream's nearly 500 dealers to offer some of the best financing options in
the industry.

Being innovative. We showcase our competitive spirit and add something extra.

This is Misha Sekula.

Misha is a breast cancer survivor. She's an antique shop owner and the National
City customer featured in our most recent television commercial promoting the
Diamond Edition(SM) Visa(R) Platinum card.

"I'm for anything that in any way helps to prevent breast cancer," says Misha,
who uses her card for business purchases, travel and theater tickets.

A customer's first purchase with a Diamond Edition card provides a donation of
five dollars to the National Breast Cancer Foundation. A portion of every
following transaction is also contributed to the organization. By using the card
- - which offers a low, fixed rate - National City customers contribute to the
battle against breast cancer at no cost to themselves.

Market research indicates that women are the fastest growing consumer segment in
our economy, yet nine out of 10 women believe that financial services companies
are not meeting their needs. The Diamond Edition card sends a message to women
that they're a priority for National City. It also shows our ability to
recognize a potential competitive opportunity, develop an innovative product and
deliver it to the marketplace.

In our partnership with the National Breast Cancer Foundation, National City
contributed $125,000 to the organization - the largest one-time donation it has
received to date. Card transactions enabled us to provide an additional $165,000
for various breast cancer education and prevention initiatives.

"This card and what it stands for really shows that National City is a
forward-thinking company that cares about people, not just profit," states
Misha. "It says they want to go beyond the status quo and make a deeper
difference for their customers and the community."

WINNING THE HEARTS
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Misha Sekula
National City customer (PHOTO OF MISHA SEKULA)
Diamond Edition Visa
Platinum cardholder

2003 ANNUAL REPORT 6

Mary Clark
(PHOTO OF MARY CLARK) Market Leader/Branch Manager
38th and
Georgetown Road Branch
Indianapolis, Indiana

Transforming our branches. It's the people that bring our investments to life.

Introducing Mary Clark.

Mary's ingenuity and genuine concern have made her a true "personal banker" for
many National City customers. Soon after joining National City in 1999 as a
branch manager, she began reviewing the daily overdrawn checking account report
in a different way.

"I looked for names that didn't usually appear on the reports, individuals who
had few previous account issues," she says. "Then I'd call, offering my
assistance as their personal banker - someone who could help them with any
financial need."

According to Mary, most of the customers she called, and continues to call, are
surprised to learn that they've overdrawn their accounts. After talking with
each customer, she recommends financial solutions that meet the individual's
needs.

For instance, she recently contacted a small business customer who had overdrawn
a personal checking account. She learned that the business had a $35,000 credit
line with National City and several loans from other banks. Mary knew she could
make a difference.

"Today this customer benefits from a more convenient and efficient financial
relationship," Mary points out. "We consolidated $340,000 in non-National City
loans for the company and increased their credit line to $100,000."

What Mary's built with her approach is remarkable and it exemplifies one of the
many ways we're enhancing the branch experience for our customers. In fact,
customers are so pleased to have her as their personal banker, they consistently
send family, friends and acquaintances her way.

"My philosophy is really pretty simple," claims Mary. "If you take care of
people and find ways to say `yes,' you'll always win."

NATIONAL CITY MORTGAGE CO.

This past May, National City Mortgage Co. celebrated the milestone of surpassing
the one-million-mortgage mark in servicing for the first time since the
company's inception in 1955. A dedication to working with customers, even when
they experience difficult times, has enabled our servicing portfolio to grow
from $16 billion in 1996 to more than $141 billion today.

National City Mortgage Co. is now ranked as the country's eighth largest
residential loan originator, according to Inside Mortgage Finance magazine.

2003 ANNUAL REPORT 7

BOARD OF DIRECTORS
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(PHOTO OF DAVID (PHOTO OF JON E. (PHOTO OF JAMES (PHOTO OF JOHN (PHOTO OF DUANE
DABERKO) BARFIELD) S. BROADHURST) W. BROWN) E. COLLINS)

David A. Daberko Jon E. Barfield James S. Broadhurst John W. Brown Duane E. Collins
(2,3) (1,3) (1,7) (3,4,5) (2,3,5,6)
Chairman & CEO Chairman & President Chairman & CEO Chairman & CEO Chairman
National City The Bartech Group, Inc. Eat'n Park Hospitality Stryker Corporation Parker Hannifin
Corporation Group, Inc. Corporation

(PHOTO OF CHRISTOPHER (PHOTO OF DANIEL (PHOTO OF JOSEPH (PHOTO OF BERNADINE (PHOTO OF PAUL
M. CONNOR) E. EVANS) T. GORMAN) P. HEALY, M.D) A. ORMOND)

Christopher M. Connor Daniel E. Evans Joseph T. Gorman Bernadine P. Healy, M.D. Paul A. Ormond
(5,6) (1,2) (4,5) (3,6,7) (3,5,6)
Chairman & CEO Retired Chairman Retired Chairman Medicine and Health Chairman, President
The Sherwin-Williams Bob Evans Farms, Inc. TRW Inc. Columnist and Senior & CEO
Company Writer, U.S. News and Manor Care, Inc.

(PHOTO OF ROBERT (PHOTO OF GERALD (PHOTO OF JEROME (PHOTO OF JERRY SUE (PHOTO OF MORRY
A. PAUL) L. SHADEEN) F. TATAR) THORNTON, PH.D.) WEISS)

Robert A. Paul Gerald L. Shaheen Jerome F. Tatar Jerry Sue Thornton, Ph.D. Morry Weiss
(1,2,3,7) (4,5) (1,3,7) (2,6,7) (3,4,7)
President & CEO Group President Retired Chairman President Chairman
Ampco-Pittsburgh Caterpillar Inc. MeadWestvaco Corporation Cuyahoga Community College American Greetings
Corporation Corporation

Committees:

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

OFFICERS
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OFFICE OF THE CHAIRMAN EXECUTIVE VICE PRESIDENTS SENIOR VICE PRESIDENTS

David A. Daberko James R. Bell III Jeffrey M. Biggar Joseph T. McCartin
Chairman and CEO Paul G. Clark William I. Cornett, Jr. Bruce A. McCrodden
William E. MacDonald III John D. Gellhausen Richard J. DeKaser T. Michael Price
Vice Chairman Thomas W. Golonski J. Andrew Dunham Thomas A. Richlovsky
Jon L. Gorney Daniel L. Frate Treasurer
Jeffrey D. Kelly Paul D. Geraghty William H. Schecter
Chief Financial Officer Kenneth M. Goetz Karin L. Stone
Timothy J. Lathe Jane Grebenc
Herbert R. Martens, Jr. Mary H. Griffith
Robert J. Ondercik James P. Gulick
Ted M. Parker General Auditor
J. Armando Ramirez James Hughes
Peter E. Raskind Thomas C. Kaylor
Philip L. Rice J. Michael Kearney
Shelley J. Seifert Janis E. Lyons
Stephen A. Stitle Comptroller
David L. Zoeller W. Robert Manning, Jr.
General Counsel and Secretary

2003 ANNUAL REPORT 8

2003 ANNUAL REPORT

9

FINANCIAL REVIEW

FINANCIAL REVIEW

This Annual Report contains forward-looking statements. See page 28 for further
information on the risks and uncertainties associated with forward-looking
statements.

The Financial Review section discusses the financial condition and results of
operations of National City Corporation (the Corporation or National City) for
each of the past three years and should be read in conjunction with the
accompanying consolidated financial statements and notes presented on pages 35
through 75.

Overview

The primary source of National City's revenue is net interest income from loans
and deposits, and fees from financial services provided to customers. Business
volumes tend to be influenced by overall economic factors including market
interest rates, business spending, and consumer confidence, as well as
competitive conditions within the marketplace.

During 2003, interest rates reached record low levels resulting in an
unprecedented volume of mortgage loan originations. As a result,
mortgage-related business contributed to record earnings in 2003, including
production and sale of loans, and earnings on the mortgage warehouse (mortgage
loans closed, but not yet sold into the secondary market). A rapid rise in
interest rates during the third quarter slowed mortgage loan volume. The
mortgage warehouse, which peaked in July 2003, has since continued to decline in
size as loans sold outpaced new loan activity. The large balance in the
warehouse during 2003 benefited both net interest income and net interest
margin. As the warehouse declines, both net interest income and net interest
margin are expected to be lower going into 2004, as the carrying spread on the
warehouse is wider than that of most other assets on the balance sheet. Industry
expectations are for mortgage originations to fall approximately 50% nationally
in 2004. Other sources of consumer lending, such as home equity loans, remain on
a positive trend. However, this activity will likely not completely offset the
decline in mortgage loan volumes in the near term.

Low levels of corporate investment spending continued in 2003 as many companies
continued to experience excess capacity. Commercial loans outstanding declined
in 2003 as payoffs exceeded new loan volume. A lift in business spending in
2004, typically accompanied by an increase in interest rates, would
significantly increase earnings in the commercial lending business. Certain
economic indicators suggest that business spending has begun to increase;
however, uncertainty exists as to how robust and sustainable this trend will be
in 2004.

Growth in core deposits continued to be strong throughout 2003. This growth
reflects a number of strategic initiatives to grow the deposit base, including
investing in new technology, upgrading branch management, and developing an
enhanced retail sales culture. These initiatives will continue in 2004 and
beyond. Deposit balances associated with mortgage escrow funds are expected to
decrease in 2004 as mortgage loan activity declines.

Credit costs continued to be high in 2003, but recent trends have shown
improvement as corporate cash flows have strengthened and consumers' financial
position has improved in line with an improving economy. Nonperforming assets at
the end of 2003 were $657 million, declining about $160 million year-over-year,
and other credit indicators show positive trends. Given this improvement, the
loan loss provision will most likely be lower in 2004 than in 2003.

Restatement of Prior Period Financial Statements

National City has restated prior period financial results as a result of
discussions with the Securities and Exchange Commission (SEC) staff on the
application of certain technical provisions of Statement of Financial Accounting
Standards No. 133, Accounting for Derivative Instruments and Hedging Activities,
governing when hedge accounting is permitted to be applied. These provisions
pertained specifically to the design and frequency of effectiveness tests.

The restatement primarily changed the timing of recognition of changes in the
fair value of loans held for sale and mortgage servicing rights in the financial
statements, moving mortgage revenue and net income among several quarters and
between years during the three-year period ended December 31, 2003. There was no
effect on cash flow, and the hedging programs themselves have not changed.

Management has modified its effectiveness testing methods for 2004 pursuant to
discussions with the SEC staff. It is not possible to specify what the exact
impact might be other than increased potential for quarterly earnings volatility
in periods of significant changes in interest rates. System enhancements
initiated in 2002 and completed at year-end 2003 are expected to meet the more
rigorous contemporaneous testing standards requested by the SEC. The actual
hedging strategies themselves, which have been highly effective in economic
terms, will not change as a result of these actions.

Net income for 2002, previously reported as $1.6 billion, or $2.59 per diluted
share, was restated to $1.4 billion, or $2.35 per diluted share. Net income for
2001, previously reported as $1.4 billion, or $2.27 per diluted share, remained
unchanged, but quarterly results within the year were restated with no net
effect for the full year. In addition, net income for the first nine months of
2003, previously reported as $1.5 billion, or $2.42 per diluted share, was
restated to $1.6 billion, or $2.55 per diluted share. Quarterly results within
each period were also affected. Reconciliations of the restated results for all
affected periods to the results previously reported are included in the
Quarterly Summary section of this Financial Review on pages 30 and 31 and in
Note 1 to the consolidated financial statements.

All applicable data within this Annual Report has been adjusted to reflect the
restatement.

FINANCIAL REVIEW CONTINUED
2003 ANNUAL REPORT

10

(a)Includes both portfolio loans and loans held for sale or securitization

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 on 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 1999 through 2003, 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 2003, 2002, and 2001
were $28 million, $30 million, and $34 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.

2003 ANNUAL REPORT

11

In order to manage exposure to changes in interest rates, the Corporation uses
various types of derivative instruments. The effects of 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 25 to the
consolidated financial statements. A discussion of the effects of changing
interest rates is included in the Market Risk section beginning on page 23.

Strong mortgage loan volumes, a higher level of core deposits, and lower funding
costs drove the growth in net interest income in both 2003 and 2002.

The net interest margin, which had benefited in 2002 and 2001 from declining
interest rates, was unfavorably affected in 2003 by the sustained low rate
environment, which served to narrow deposit spreads.

The record low interest rate environment continued to boost mortgage-related
loan production throughout much of 2003, which increased the average balance of
mortgage loans held for sale to close to triple that of just two years ago and
drove significant growth in the amount of nonconforming residential real estate
and home equity loans retained in the loan portfolio.

Solid growth in core deposits over the past three years, fueled by strategic
initiatives to grow this funding source, as well as higher mortgage-banking
escrow balances, also aided net interest income growth. The Corporation
considers noninterest bearing deposits, NOW and money market accounts, savings
accounts, and consumer time deposits to be core deposits.

Going into the first half of 2004, it is anticipated that net interest income
and the net interest margin will be lower as a result of the continued decline
in the

FINANCIAL REVIEW CONTINUED
2003 ANNUAL REPORT

12

warehouse of mortgage loans held for sale, which peaked in the third quarter of
2003.

Further discussion of trends in the loan and securities portfolios and detail on
the mix of funding sources is included in the Financial Condition section
beginning on page 16.

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.

Noninterest Income
Details of noninterest income follow:

On the strength of mortgage banking revenue, noninterest income grew to $3.6
billion in 2003, up from $2.6 billion in 2002 and $2.7 billion in 2001. Mortgage
banking revenue includes mortgage loan servicing, hedging, origination, and
sales activity conducted through National City Mortgage Co. (NCMC), as well as
nonconforming mortgage loan origination and sales activity conducted through
First Franklin Financial Corporation (First Franklin), both wholly-owned
subsidiaries of the Corporation.

The Corporation sells substantially all of its NCMC loan production into the
secondary market and retains the servicing rights. Approximately one-half of the
loans originated by First Franklin are also sold as whole loans (with servicing
released) to third parties, with the remainder held in portfolio.

Details of mortgage banking revenue follow:

Information on mortgage loan originations and sales follows:

2003 ANNUAL REPORT

13

The growth in mortgage banking revenue during 2003 was reflective of record
mortgage originations driven by the historically low interest rate environment,
record sales of mortgages sold into the secondary market, and successful hedging
strategies to protect the value of mortgage servicing assets (MSRs), partially
offset by higher MSR amortization expense. Mortgage loans originated for sale to
third parties increased to $112.5 billion in 2003, up from $84.1 billion in 2002
and $58.5 billion in 2001. Mortgage loan sales for 2003 of $117.5 billion
outpaced originations resulting in a decrease in the mortgage loan warehouse to
$14.5 billion at December 31, 2003 from $24.5 billion at December 31, 2002.
Mortgage loan originations declined during the fourth quarter of 2003 as a
result of higher interest rates and decreased demand for refinancing. Given an
outlook for higher interest rates, this trend is expected to continue into 2004
resulting in lower mortgage loan originations and sales on a year-over-year
basis.

The Corporation typically retains the right to service the NCMC mortgage loans
it sells. Upon sale, the Corporation recognizes a mortgage servicing right (MSR)
asset, which represents the present value of the estimated future net servicing
cash flows to be realized over the estimated life of the underlying loan. As a
result of the high volume of mortgage loan production and sales in 2003, the
unpaid principal balance of loans serviced for third parties increased to $141.1
billion at December 31, 2003, up from $101.9 billion at December 31, 2002, and
$73.9 billion at December 31, 2001. Accordingly, the carrying value of mortgage
servicing assets also grew to $1.3 billion at December 31, 2003 up from $950
million at December 31, 2002.

The value of MSRs is sensitive to changes in interest rates. In a low rate
environment, as was experienced during most of 2003 and 2002, mortgage loan
refinancings generally increase, causing actual and expected loan prepayments to
increase, which drives down the estimated carrying value of existing MSRs.
Conversely, as interest rates rise, as was experienced during the third quarter
of 2003, mortgage loan refinancings generally decline, causing actual and
expected loan prepayments to decrease, which drives up the estimated value of
MSRs. The Corporation manages the risk associated with declines in the estimated
value of MSRs by using derivative instruments. Further detail on MSRs, including
a sensitivity analysis of the effect changes in assumptions have on the
estimated value of servicing assets, is included in Note 12 to the consolidated
financial statements.

The growth in deposit service charges in 2003 and 2002 is a result of growth in
core deposits and deposit accounts, a higher level of customer debit card usage,
and fewer waived fees.

Trust and investment management fees include both institutional and personal
accounts and is based primarily on the market value of assets under
administration. Trust and investment management fees have declined since 2001 as
the result of lower assets under administration. At December 31, 2003, the
Corporation had total assets under administration of $111.6 billion, compared to
$131.3 billion at December 31, 2002, and $147.2 billion at December 31, 2001.
Managed assets under administration increased to $59.4 billion at December 31,
2003, as the result of improved equity markets which more than offset the effect
of withdrawals and distributions in excess of new business, compared to $57.6
billion at December 31, 2002, but were still below the balance at December 31,
2001 of $65.0 billion. Proprietary Armada(R) mutual fund balances, included in
assets under management, totaled $15.3 billion, $16.0 billion, and $18.3 billion
at December 31, 2003, 2002 and 2001, respectively.

The year-over-year growth in brokerage revenue in 2003 and 2002 resulted from
better alignment and integration of retail brokerage activities with the retail
branch network. In addition, in 2003, retail brokerage equity trading activities
were aided by the recovery in the equity markets.

Other fee income increased in 2003 due to growth in insurance revenue, increases
in derivative gains, and higher principal investment gains. Insurance revenue
increased to $73 million in 2003 from $45 million in 2002 as a result of title
insurance commissions and private mortgage insurance contract premiums.
Derivative gains, which were mainly associated with increases in the fair values
of derivative instruments used to economically hedge risk associated with yield
curve flattening as well as to hedge deferred compensation liabilities, were
$100 million in 2003, up from $24 million in 2002. Gains recognized on principal
investments were $7 million in 2003 compared to losses of $23 million in 2002.
Principal investments are carried at estimated fair value with losses resulting
from regularly adjusting the carrying values to the most recent estimation of
fair value recognized in earnings. Further detail on the principal investments
portfolio is included in Notes 1 and 10 to the consolidated financial
statements. Partially offsetting increases in other fee income were asset
securitization gains of $50 million recognized in 2002 that did not recur in
2003.

Other fee income declined in 2002 principally due to the recognition in 2001 of
an $89 million gain from the sale of the Corporation's preferred share interest
in National Asset Management Corporation (NAMCO), a former subsidiary of
National City, and $20 million of gains recognized on stock received from
insurance company demutualizations. Losses on principal investments also
contributed to the decline as $23 million of losses on these investments were
recognized in 2002 compared to only $2 million in 2001. Partially offsetting the
decrease in 2002 in fee income from the aforementioned items was an increase in
asset securitization gains, which were $50 million in 2002 compared to $21
million in 2001.

Net securities gains are summarized as follows:

FINANCIAL REVIEW CONTINUED
2003 ANNUAL REPORT

14

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.

Pre-tax gains from the bank stock fund were $40 million, $74 million, and $123
million in 2003, 2002, and 2001, respectively. Of the total bank stock gains
recognized in 2003 and 2002, $15 million and $14 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 $19 million on Student Loan Marketing Association stock
that was called. The lower level of gains recognized in 2003 and 2002 in
comparison to 2001 is due to a smaller portfolio and market conditions.

Noninterest Expense

Details of noninterest expense follow:

Noninterest expense was $4.1 billion in 2003, compared to $3.7 billion in 2002
and $3.3 billion in 2001. The increases over the past two years are a result of
increased personnel, third party services, and operational costs associated with
increased business volumes and various brand development initiatives.

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

Salaries and incentive costs increased in 2003 and 2002 primarily due to
increases in mortgage-banking staff and record mortgage origination and sale
volume. The increases in contract labor in both years were also mainly driven by
mortgage activity. In addition, the Corporation recorded severance expenses of
$77 million in 2003, included in severance and other above, associated with a
voluntary early retirement program and position eliminations across all business
lines.

Third-party services increased in both 2003 and 2002 primarily due to increases
in outsourcing activities related to mortgage banking volumes, and to a lesser
extent, increases in payment processing referral fees and professional services.

Marketing and public relations expense rose in 2003 and 2002 in comparison to
2001 due to donations of appreciated investment securities to the Corporation's
charitable foundation of $40 million and $53 million in 2003 and 2002,
respectively. Excluding these charges, 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.

Amortization expense associated with goodwill 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 amortizing its goodwill. Further discussion of the adoption of SFAS 142
and detail of the components of goodwill and other intangible assets is included
in Note 11 to the consolidated financial statements.

Other noninterest expense decreased in 2003 compared to 2002 due to lower
automobile residual value charges, lower non-credit related fraud losses, and a
$16 million loss recognized in 2002 on the consolidation of a commercial paper
conduit. Automobile lease residual value charges were $14 million and $51
million in 2003 and 2002, respectively.

Other noninterest expense increased in 2002 compared to 2001 primarily due to
losses related to the revaluation of community development and civic partnership
investments, which totaled $68 million in 2002, compared to $7 million in 2001.
In addition, 2002 results include higher expenses associated with mortgage
banking activities, increases in minority interest expense and non-credit
related fraud losses, and the loss upon consolidation of the commercial paper
conduit, as described above. Partially offsetting the increase in other expense
in 2002 was a decline in write-downs taken on automobile lease residual values,
which totaled $51 million in 2002 compared to $67 million in 2001.

The efficiency ratio, which expresses noninterest expense as a percentage of
tax-equivalent net interest income and total fees and other income, was 51.46%
for 2003, down from 57.12% in 2002 and 55.70% in 2001. The lower efficiency
ratio in 2003 was due to revenue growth and cost management across all business
lines.

Income Taxes

The Corporation's effective tax rate for 2003, 2002, and 2001 was 34.6%, 33.3%
and 35.9%, respectively. The rate increased in 2003 mainly due to the effect of
state taxes, driven largely by mortgage banking activities. The higher effective
rate in 2001 resulted primarily from a $40 million charge related to the
settlement of a tax exposure on corporate-owned life insurance deductions. A
reconciliation of the effective tax rate to the statutory tax rate is included
in Note 21 to the consolidated financial statements.

2003 ANNUAL REPORT

15

Line of Business Results

National City is organized and managed along five major business lines, as
described in Note 27 to the consolidated financial statements. Net income by
line of business follows:

Consumer and Small Business Financial Services (CSB): Net income growth over the
past three years is the result of strong growth in core deposits and consumer
lending. This growth reflects fundamental improvements in service quality;
customer care; training, incentives, and career paths for branch employees; and
competitive product offerings such as free checking, on-line bill payment, and
enhanced small business banking services. Credit quality has been relatively
stable. The persistence of low market interest rates has compressed deposit
spreads, resulting in declines in net interest income in spite of volume growth.
Fee income, on the other hand, has benefited from growth in deposit and other
service fees, reflecting higher volumes of transactions and account growth, and
title insurance commissions and private mortgage insurance premiums driven by
the strong mortgage market. Loan growth has been good in all categories,
especially home equity, partially offset by the run-off of the automobile lease
portfolio. CSB ceased originating automobile leases in December 2000, and since
then the portfolio has declined from $1.8 billion to $151 million, and will be
substantially gone in 2004. Noninterest expense includes charges taken in 2003,
2002, and 2001 to recognize the estimated losses on lease residual values in the
amounts of $14 million, $51 million, and $67 million, respectively. The 2003
amount is net of insurance recoveries of $13 million. Additional insurance
recoveries are possible in 2004.

Wholesale Banking: Net income growth in 2003 reflects revenue growth, improving
credit quality, and good expense controls, and the decline in 2002 is primarily
from higher credit costs. Net interest income in 2003 benefited from wider loan
spreads, as loan outstandings declined. Loan activity was weakest in the capital
markets portfolio, which includes purchased nationally syndicated loans and
structured finance, and strongest in commercial real estate. Regional middle
market lending was positive in terms of new customer acquisition, but line
utilization remained low. Noninterest income was aided by revenue from
investment banking and related activities, treasury management services, and
principal investment gains. Principal investment gains were $7 million in 2003
versus losses of $23 million and $2 million in 2002 and 2001, respectively.
Noninterest expense included residual value write-downs on commercial leases of
$16 million in 2003 and $9 million in 2002, principally related to commercial
aircraft.

National Consumer Finance (NCF): Net income growth in the past three years was
due to a combination of strong mortgage and housing markets, strategic decisions
in the late 1990s to enter the national home equity and nonconforming mortgage
businesses, and successful hedging strategies to protect the value of mortgage
servicing rights (MSRs). Production of mortgage loans for sale reached a record
$112.5 billion in 2003, up from $84.1 billion in 2002 and $58.5 billion in 2001.
Most of the increase represented refinancing of existing loans, although new
purchase volume also grew during these periods. A record-low interest rate
environment in 2003 stimulated mortgage activity nationally and at NCF. While
most of NCF's revenue was generated from the sale of mortgage loans in 2002 and
2003, the business also benefited from net interest income on loans prior to
sale and portfolio loan growth, the latter arising from the retention of a
portion of First Franklin nonconforming loan production, as well as robust
growth in the National Home Equity division. Servicing income was also strong,
as loans serviced for third parties grew from $73.9 billion at the end of 2001
to $141.1 billion at the end of 2003. Servicing revenue benefited from growth in
loans serviced, as well as from the effects of hedging transactions designed to
protect MSRs from declines in value arising from prepayments. Absent hedging,
declines in the value of MSRs during this period would have negated much of the
overall net income growth.

Asset Management: The decline in net income over the three years was due mainly
to lower levels of assets under administration, resulting in lower fee income.
In 2002 most of the decline in assets under administration came from declines in
market value. In 2003, market value increased, but was more than offset by
withdrawals and distributions in excess of new business.

National Processing: Net income decreased slightly in both 2003 and 2002,
despite increases in transaction volumes and associated revenues, due mainly to
lower margins in the national market sector of the business. That price
compression more than offset strong growth in the more profitable regional
sector of the business. This business line's results were also hurt by lower
market interest rates, which reduced interest income earned on its excess cash.

Parent and Other: This category includes the results of investment funding
activities, certain unallocated corporate income and expense items, and
intersegment revenue and expense eliminations. The larger loss in 2003 reflects,
on a fundamental basis, the cost of maintaining an asset-sensitive interest rate
risk position in a low interest rate environment, and was further affected by
several unusual items. The major items affecting comparisons of 2003 to 2002
were higher severance and related charges ($81 million versus $33 million) and
lower bank stock fund gains ($40 million versus $74 million). The net loss for
2002 relative to net income for 2001 reflects higher bank stock fund gains in
2001 and the $89 million gain on the sale of the preferred stock of NAMCO. In
addition, the parent incurred expenses of $40 million and $53 million in 2003
and 2002, respectively, upon donation of securities to the Corporation's
charitable foundation, with no comparable expense in 2001.

FINANCIAL REVIEW CONTINUED
2003 ANNUAL REPORT

16

Financial Condition

PORTFOLIO LOANS: End-of-period and average portfolio loan balances by category
at December 31 follow:

National City has diversified and granular commercial, commercial construction,
and commercial real estate portfolios lending to a broad customer base
represented by over 800 different standard industrial classifications. The
customer base is geographically dispersed within National City's six-state
footprint and in selected national accounts. The Corporation has no commercial,
commercial construction or commercial real estate loans to borrowers in similar
industries that exceed 10% of total loans. The following table as of December
31, 2003 summarizes the major industry categories and exposure to individual
borrowers.

Commercial: The Commercial loan category includes loans to a wide variety of
businesses across many industries and regions. Included in this category are
loans directly originated by National City and syndicated transactions
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 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 National City's limited ability
to control actions of 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 2003 Shared National Credit Examination, the Corporation had $15.3 billion
in commitments to lend, of which $6.2 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.
Policies are in place governing the degree of risk assumed and volume of loans
held. At December 31, 2003, 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 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

2003 ANNUAL REPORT

17

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 loan outstandings decreased over the past couple of years due to the
overall weak demand by corporate borrowers for capital. Despite the improvement
in the economy in 2003 and the addition of new customers to the portfolio,
commercial borrowers remained cautious in their spending and investment
decisions, and paydowns in the portfolio offset the impact of new commercial
borrowings. In addition, $1.5 billion and $400 million of loans secured by real
estate collateral were reclassified from commercial to the commercial real
estate and commercial construction portfolios, respectively, in 2002. These
reclassifications were made in order to make the presentation of loans secured
by real estate more consistent with bank regulatory definitions.

The commercial lease portfolio, included in commercial loans, was $1.4 billion,
$1.7 billion, and $2.0 billion at December 31, 2003, 2002, and 2001,
respectively. National City serves a diversified customer base in steel,
automotive, manufacturing, transportation, and other capital-intensive
industries and provides lease financing arrangements for a broad range of
equipment, including transportation, manufacturing, technology, aircraft,
material handling, construction, and other equipment types. Commercial leasing
activities are conducted principally within the Corporation's six-state
footprint. The Corporation also has selective investments in lease transactions
that are national in scope and originated from secondary sources.

A distribution of total commercial loans by maturity and interest rate at
December 31, 2003 follows:

Commercial Construction: The commercial construction loan category includes
loans originated to developers of real estate to finance the construction of
commercial properties. Commercial construction loans are transferred to the
commercial real estate portfolio upon completion of the property under
construction and satisfaction of all terms in the loan agreement. Lending
activities are based primarily on relationships with developers who are active
in National City's six-state footprint. Commercial construction loans are
governed by the same lending policies and are subject to the same credit risk as
described for commercial loans. The increase in the commercial construction
balances in 2003 and 2002 was primarily due to new business, and was also
affected by the reclassification of $400 million of loans from the commercial
loan portfolio in 2002.

A distribution of total commercial construction loans by maturity and interest
rate at December 31, 2003 follows:

Commercial Real Estate: The commercial real estate category contains mortgage
loans to developers and owners of commercial real estate. Origination activities
for commercial real estate loans are similar to those described above for the
commercial construction portfolio. Lending and credit risk policies for
commercial real estate loans are governed by the same policies as for the
commercial portfolio. The increase in the commercial real estate balance
includes the previously discussed 2002 reclassification of $1.5 billion of loans
from the commercial portfolio. Commercial real estate lending activity continued
to grow in 2003 as the result of sustained demand for credit for commercial real
estate projects and business development efforts.

Residential real estate: The residential real estate category contains loans to
consumers secured by residential real estate, including home equity installment
loans. The Corporation's residential real estate lending policies require 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,
using such factors as 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 loans, 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.

Residential real estate portfolio loans are originated by NCMC and First
Franklin. NCMC's residential real estate production is primarily originated in
accordance with underwriting standards set forth by the government-sponsored
entities (GSEs) of the 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. NCMC originates residential real estate loans through
retail branch offices located throughout the United States, a wholesale network
of brokers, and through National City banking offices located within the
Corporation's six-state footprint. Substantially all residential real estate
loans originated by NCMC are sold in the secondary mortgage market. The right to
service the loans and receive fee income is generally retained when NCMC sells
the mortgage loans. During 2003, $1.2 billion of adjustable-rate mortgage loans
originated by NCMC were retained in portfolio and contributed to the increase in
the residential real estate portfolio.

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2003 ANNUAL REPORT

18

Residential real estate loans originated by First Franklin are generally not
readily saleable in the secondary market to the GSEs for inclusion in
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. Mortgage loans originated by First Franklin are typically
readily saleable to other secondary market investors, and the Corporation
generally sells between 40% and 50% of the origination volume to third-party
investors, servicing released. During the past three years, $10.2 billion, $5.5
billion, and $3.8 billion, respectively, of First Franklin originated loans were
retained in portfolio by the Corporation. The retention of these mortgage loans
was a primary driver of the increases in the residential real estate portfolio
in 2003 and 2002. At December 31, 2003 and 2002, the First Franklin residential
real estate portfolio totaled $15.1 billion and $9.4 billion, respectively.
First Franklin offers a variety of loan programs and documentation levels for
borrowers. 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 and mortgage bankers. No single source
represents more than 1% of total production. Loan production is primarily
located on the West Coast (59% of volume, of which 45% is California); however,
expansion continues in the Midwest (20%) and East Coast (21%) markets. Written
agreements are in place with all brokers that require them to be knowledgeable
of all consumer protection laws and regulations, and brokers are actively
monitored for compliance.

Also included in the residential real estate loan portfolio are prime-quality
installment home equity loans originated in National City's six-state footprint
through the retail branch network of the CSB line of business and nationally
through NCF's National Home Equity business unit.

Prior to 2001, the Corporation also originated residential real estate loans
through its former Altegra unit. This business unit was closed in December 2000.
During 2003, the majority of the remaining Altegra originated loans, totaling
$950 million, were sold.

Also affecting the increase in the residential real estate portfolio was the
December 2002 reclassification of approximately $3.2 billion of installment
loans secured by home equity from the other consumer portfolio to the
residential real estate portfolio. This reclassification was made for
consistency with bank regulatory definitions.

Home Equity Lines of Credit: The home equity category consists mainly of
revolving lines of credit 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 through the National Home Equity division, as well as
through National City banking offices. The increase in home equity lines of
credit during the past two years reflects strategies to grow this business,
aided by the low interest rate environment, national marketing efforts, and
cross-selling programs.

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 similar lending policies and credit risk as described for
residential real estate and consumer loans. The 2003 increase in credit cards
and other unsecured lines of credit was due to the growth in credit card
receivable balances associated with new products and marketing programs. In each
of 2002 and 2001, the Corporation securitized $425 million of credit card
receivables. Off-balance sheet securitized credit card receivables totaled $1.5
billion at December 31, 2003 and 2002.

Other Consumer: Other consumer loans include installment loans used for the
purchase of 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. The decrease in the other consumer
portfolio over the past three years reflects the $3.2 billion loan
reclassification described in the residential real estate discussion above and
the run-off of the automobile lease portfolio. The Corporation ceased the
origination of automobile leases in December 2000 and at December 31, 2003,
2002, and 2001, the automobile lease portfolio balance totaled $151 million,
$572 million, and $1.2 billion, respectively. In addition, in 2003, the
Corporation designated a portion of its automobile loan production as held for
sale rather than placing them in the loan portfolio.

LOANS HELD FOR SALE OR SECURITIZATION: End-of-period and average loans held for
sale or securitization at December 31 follow:

The increase in the average loans held for sale or securitization was mainly due
to the record volume of mortgage loan originations by NCMC and First Franklin in
2003, aided by the historically low interest rate environment, which fueled
mortgage refinancings and home purchase activity. The lower end-of-period
mortgage loans held for sale is attributed to mortgage loan sales outpacing new
mortgage loan production in the third and fourth quarters of 2003 and to a
lesser extent,

2003 ANNUAL REPORT

19

the $950 million sale of the former Altegra portfolio previously discussed above
in the residential real estate portfolio section. The higher level of mortgage
loans held for sale served as the primary driver of the increase in net interest
income and, as a result of the steep yield curve, also had a positive impact on
the net interest margin.

SECURITIES: Securities balances at December 31 follow:

The majority of the decline in the securities portfolio in 2003 and 2002 has
been through sales and principal paydowns in the mortgage-backed securities
portfolio. This runoff in mortgage-backed securities more than offset the 2002
increase which resulted from the consolidation of $2 billion of asset-backed
securities from the commercial paper conduit, as described in Note 6 of the
consolidated financial statements. At December 31, 2003, the securities
portfolio included net unrealized gains of $204 million. The weighted-average
yield of debt securities included in the portfolio at December 31, 2003 was
4.99%, compared to 5.40% at December 31, 2002, computed on a tax equivalent
basis.

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

Average funding balances increased in 2003 and 2002 to support the increase in
portfolio loans and loans held for sale.

Core deposits increased in 2003, continuing a growth trend that began in late
2000, reflecting net new account acquisition and higher balances per account.
This growth reflects the previously mentioned strategic initiatives to grow the
customer deposit base through investments in new technology, new product
offerings, and improved customer service. A higher level of mortgage
banking-related escrow deposits also boosted core deposit balances over the past
several years as the result of strong refinancing activity and growth in the
portfolio of loans serviced for third parties. Average mortgage banking-related
escrow deposits totaled $5.1 billion, $2.7 billion, and $1.5 billion in 2003,
2002, and 2001, respectively. Within the core deposit categories, there has been
a shift in mix over the past three 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 suited to their needs in order to promote longer-term
customer satisfaction and retention. Consumer time deposits consist primarily of
certificates of deposit sold to retail banking customers. Balances have declined
since 2000 due to the reduced attractiveness of this product in a low interest
rate environment.

Other deposits consist principally of brokered deposits and other non-core
certificates of deposit. Brokered deposits represent certificates of deposit
acquired through third parties. The remaining certificates of deposit within
other deposits are issued primarily to commercial customers, including trusts
and state and political subdivisions.

Foreign deposits primarily represent U.S. dollar deposits in the Corporation's
Grand Cayman branches from institutional money managers and corporate customers.
A small portion of these balances also represents deposits denominated in
Canadian dollars used to support lending activity in Canada.

Certificates of deposit of $100,000 or more totaled $3.5 billion at December 31,
2003, of which $.6 billion mature within three months, $.3 billion mature
between three and six months, $.3 billion mature between six months and one
year, and $2.3 billion mature beyond one year.

Short-term borrowings are comprised mainly of Federal funds purchased,
securities sold under agreements to repurchase, U.S. Treasury demand notes,
commercial paper, and short-term senior bank notes. Balances have increased over
the past three years principally due to the increase in mortgage loans held for
sale. At December 31, 2003 and 2002, short-term borrowings included $5.7 billion
and $8.9 billion, respectively, of U.S. Treasury demand 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 channels is available in the event the notes
are called.

FINANCIAL REVIEW CONTINUED
2003 ANNUAL REPORT

20

Long-term debt includes senior and subordinated debt issued by the Corporation
or its bank subsidiaries and debt obligations related to capital securities
issued by two subsidiary trusts. 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. The Corporation increased its use of
longer-term funding in 2003 and 2002, principally through the issuance of senior
and subordinated bank notes, to take advantage of the relatively attractive
pricing of such funding.

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 18 and 19 to the consolidated financial statements.

Stockholders' equity was $9.3 billion at December 31, 2003, up from $8.2 billion
at December 31, 2002. Equity as a percentage of assets was 8.19% at December 31,
2003, compared to 6.91% a year ago. Book value per common share rose to $15.39
at December 31, 2003, up from $13.35 at December 31, 2002.

On February 24, 2003, the Corporation's Board of Directors authorized a share
repurchase program for the repurchase of up to 25,000,000 shares of National
City common stock, subject to an aggregate purchase limit of $800 million. On
October 25, 1999, the Corporation's Board of Directors authorized the repurchase
of up to 30,000,000 shares of National City common stock, subject to an
aggregate purchase limit of $1.0 billion. There are no expiration dates
associated with the 2003 and 1999 programs (collectively, the programs). Shares
repurchased under the programs are purchased on the open market and are held for
reissue in connection with the Corporation's stock compensation plans and for
general corporate purposes. During 2003, 2002, and 2001, the Corporation
repurchased 11,462,200, 1,264,000, and 9,316,800 shares of its common stock,
respectively. As of December 31, 2003, 27,858,000 shares remain authorized for
repurchase. The 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 2004 on an opportunistic
basis.

National City paid dividends per common share of $1.25 in 2003 and $1.20 in
2002, and has paid dividends in every year since its founding except 1868, 1934
and 1935. The dividend payout ratio, representing dividends per share divided by
earnings per share, was 36.4% and 51.1% for the years 2003 and 2002,
respectively. The decrease in the dividend payout ratio is attributable to the
significant increase in earnings in 2003. The dividend payout ratio continues to
be reviewed by management and the Board of Directors, particularly in light of
new tax laws enacted in 2003.

At December 31, 2003, the Corporation's market capitalization was $20.6 billion
and there were 61,370 shareholders 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.

Risk Management

National City management, with the oversight of the Board of Directors, has in
place a variety of committees and organizational structures for managing and
mitigating risk. The following discussion addresses the three major risks facing
National City: credit, market, and liquidity.

Credit Risk

The Corporation's lending activities are subject to varying degrees of credit
risk. Credit risk is mitigated through portfolio diversification, limiting
exposure to any single industry or customer, collateral protection, and standard
lending policies and underwriting criteria. Note 1 to the consolidated financial
statements describes the accounting policies related to nonperforming loans and
charge-offs and describes the methodologies used to develop the allowance for
loan losses. The policies governing nonperforming loans and charge-offs are
consistent with regulatory standards.

The most significant factor affecting the level of nonperforming and delinquent
loans and net charge-offs in 2003 and the allowance for loan losses at year end
was the overall improvement in the economy, which lessened the financial stress
on companies and individual borrowers that had manifested itself into increased
levels of delinquencies and net charge-offs during 2002 and early 2003. The
disposition of certain commercial and residential real estate portfolio loans in
2003 also served to reduce nonperforming and delinquent loans at year end.

There were no particular industry or geographic concentrations in nonperforming
or delinquent loans or net charge-offs.

2003 ANNUAL REPORT

21

NONPERFORMING ASSETS: Nonperforming assets at December 31 follow:

Detail of loans 90 days past due accruing interest follows:

Nonperforming assets and loans 90 days past due declined from 2002 to 2003, as
loan charge-offs, sales, and paydowns outpaced the addition of new loans to
nonperforming and delinquent status. New additions of nonperforming and
delinquent loans slowed due to the improvement in the economy. During 2003, $127
million of nonperforming commercial loans and approximately $7 million of
nonperforming residential real estate loans were sold to third parties.
Delinquent credit card and other unsecured lines of credit increased in 2003 as
a result of a change in the charge-off policy during the first quarter, which
extended the period of time before charging off delinquent balances from 120
days to 150 days. The change in policy was implemented to better manage
collection efforts and is consistent with bank regulatory guidelines. The
increase in nonperforming and delinquent mortgage loans held for sale was
related to the growth in mortgage lending during 2003.

The increase in nonperforming commercial loans from 2001 to 2002 was largely
related to commercial loans to leveraged borrowers, whose dependence on
third-party financing and inherently higher interest costs made them
particularly vulnerable to the economic downturn. The increase in nonperforming
and delinquent residential real estate loans from 2001 to 2002 was attributed to
growth in the residential real estate portfolio and the effects of the economic
downturn on the former Altegra portfolio.

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

FINANCIAL REVIEW CONTINUED
2003 ANNUAL REPORT

22

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

Net charge-offs increased during 2003 and 2002 due to losses on commercial loans
to highly leveraged borrowers, the effect of higher residential real estate
portfolio balances, and charge-offs recognized on sales of portfolio loans. The
increase in leveraged loan charge-offs was driven by nationally syndicated loans
in which National City participates but was not the agent bank. The increase in
commercial real estate loan net charge-offs was a function of overall portfolio
growth. The increase in residential real estate net charge-offs reflects the
growth and seasoning of the portfolio through the retention of First Franklin
loans, a $17 million write-down related to the sale of $950 million of the
former Altegra portfolio in 2003, and to a lesser extent, the reclassification
of certain home equity installment loans to the residential real estate
portfolio from the other consumer portfolio in December 2002. The year-over-
year increase in net charge-offs on credit card and other unsecured lines of
credit was primarily the result of higher losses associated with an increase in
consumer bankruptcies and growth in the portfolio, offset to some extent by
approximately $2 million associated with the aforementioned change in the
charge-off policy for delinquent credit card balances. The year-over-year
decrease in other consumer net charge-offs was due to the overall lower balance
of the portfolio affected by the aforementioned reclassification of certain home
equity installment loans to the residential real estate portfolio and the
continued run-off of the automobile lease portfolio.

The provision for loan losses decreased in 2003 in response to the decline in
nonperforming and delinquent assets and rose in 2002 and 2001 in response to the
higher level of nonperforming assets and charge-offs and uncertainty surrounding
the magnitude and duration of the deterioration of economic conditions.

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:

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 of the overall allowance is based on the size and current
risk characteristics of the loan portfolio and includes an assessment of
individual problem loans, actual loss experience, current economic events in
specific industries and geographical areas, and other pertinent factors,
including general economic conditions, unemployment levels, and regulatory
guidance.

The allowance allocated to the commercial portfolio at December 31, 2003
decreased since last year due to the overall improvement in credit quality, the
decline in the portfolio balance, and sales of nonperforming commercial loans in
2003. The lower allowance allocated to home equity lines of credit and other
consumer loans at year-end 2003 was primarily due to the refinement of loss
allocation factors to reflect a more detailed product mix and, to a lesser
extent, the reclassification of allowance to residential real estate associated
with the aforementioned home equity installment loan reclassification. The 2003
increase in credit card and other unsecured lines of credit allocated allowance
was attributed to the increase in delinquent balances coupled with growth in the
portfolio.

2003 ANNUAL REPORT

23

The unallocated allowance recognizes estimated probable inherent but undetected
losses in the loan portfolio. The increase in the unallocated allowance in 2003
relative to the allocated allowance and to the 2002 unallocated allowance
reflects continued uncertainty surrounding near term economic conditions and the
sustained effects of a weak economy over the past two years. Although most
observable credit quality indicators have shown improvement, there are also
increased risks that additional undetected losses exist in light of the severity
of the past recession and ongoing uncertainty. Such uncertainty is evidenced by
conflicting reports on economic growth and job creation, volatility of interest
rates and energy prices, the impacts of terrorism and war, budget shortfalls at
all levels of government, and continuing slow demand for capital investments,
especially in the manufacturing sector, all of which has led to greater
volatility in historical loss rates used in National City's credit risk models.
Additionally, as the result of acquisitions and expansion of lending activities
into new products and markets, the portfolio mix has changed in recent years. As
a result, historical loss experience data used in the allowance allocation
estimates may not correspond exactly to the characteristics of the current
portfolio. Also, in some portfolio sectors, robust data representative of a
complete economic cycle is not available. In light of these factors, management
believes that the actual risk of loss in the portfolio may be greater than the
estimates in the historical loss allocation models. As such, and in light of the
overall decline in the ratio of allowance to loans, management believes that the
unallocated allowance at year-end 2003 appropriately reflects probable inherent
but undetected losses in the portfolio.

Market Risk

Market risk is the risk of loss arising from adverse changes in the fair value
of financial instruments or other assets 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 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 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 analyses 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 .6% of stable-rate net income if rates were to rise gradually by
200 basis points over the next twelve months. The model also projects a decrease
in net income of 8.2% 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 200 basis
point decline in market interest rates from their current low level is highly
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 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 while servicing-related income may rise due to
lower prepayments. In addition, net interest income earned on loans held for
sale increases when the yield curve steepens and decreases when the yield curve
flattens. Risk related to mortgage banking activities is also monitored by ALCO.

FINANCIAL REVIEW CONTINUED
2003 ANNUAL REPORT

24

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 upon the most recent NPV estimation, a 150 basis point immediate increase
in rates was estimated to increase NPV by 1.8%. NPV was projected to decline by
1.8% 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 2003, the interest-rate-risk position was asset sensitive, meaning
net income should increase as rates rise and decrease as rates fall. During
2003, the Corporation maintained an asset sensitive interest-rate risk position
due to management's expectation that rates would rise.

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 25 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 2003, the average, high, and low VAR amounts were $552
thousand, $858 thousand, and $293 thousand, respectively, and within the limit
established by ALCO of $2 million. During 2002, the average, high, and low VAR
amounts were $603 thousand, $1 million, and $318 thousand, respectively.
Month-end VAR estimates are monitored regularly. Income from these activities,
including interest income, totaled $11 million in 2003, $16 million in 2002, and
$29 million in 2001.

Liquidity Risk

Liquidity risk arises from the possibility the Corporation may not be able to
satisfy current or future financial commitments, or may become unduly reliant on
alternative funding sources. The objective of liquidity risk management is to
ensure that the cash flow requirements of depositors and borrowers, as well as
the operating cash needs of the Corporation, are met, taking into account all
on- and off-balance sheet funding demands. Liquidity risk management also
includes ensuring cash flow needs are met at a reasonable cost. The Corporation
maintains a liquidity risk management policy, which identifies the primary
sources of liquidity, establishes procedures for monitoring and measuring
liquidity, and establishes minimum liquidity requirements in compliance with
regulatory guidance. The policy also includes a contingency funding plan to
address liquidity needs in the event of an institution-specific or a systemic
financial crisis. The liquidity position is continually monitored and reviewed
by 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 2003. Core
deposits, the most significant source of funding, comprised approximately 56% of
funding during each of the three years ended December 31, 2003. Asset
securitization vehicles have also been used as a source of funding. In 2002, the
Corporation securitized $1.1 billion of automobile loans and $425 million of
credit card receivables. During 2001, credit card receivables of $425 million
were sold through securitization. As of December 31, 2003, the Corporation had
designated $854 million of newly originated automobile loans as held for
securitization pending an anticipated transaction in 2004. Further discussion of
securitization activities is included in Note 5 to the consolidated financial
statements.

2003 ANNUAL REPORT

25

At the holding company level, the Corporation uses cash to pay dividends to
stockholders, repurchase common stock, make selected investments and
acquisitions, and service debt. 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.

The primary source of funding for the holding company has been dividends and
returns of investment from its bank subsidiaries. As discussed in Note 18 to the
consolidated financial statements, subsidiary banks are 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 financial statements of cash flows on page 38 may
not represent cash immediately available to the holding company. During 2003,
the subsidiary banks declared dividends to the holding company totaling $1.3
billion, of which $918 million had been paid as of year end. During 2002 and
2001, the subsidiary banks declared and paid dividends to the holding company of
$1.1 billion and $775 million, respectively. Additionally, during 2003, the bank
subsidiaries were granted regulatory approval to provide liquidity to the
holding company in the form of return of capital in the amount of $555 million.
Of this amount, $306 million was paid to the holding company in 2003. In 2002
and 2001, returns of capital paid to the holding company were $345 thousand and
$465 million, respectively. As of January 1, 2004, the amount of dividends that
the bank subsidiaries can pay to the parent company without prior regulatory
approval was $1.2 billion compared to $975 million at January 1, 2003.

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, 2003 and 2002,
$693 million and $1.0 billion, respectively, of commercial paper borrowings were
outstanding.

The holding company has a $500 million internal line of credit with its banking
subsidiaries to provide additional liquidity support. There were no borrowings
under this agreement at December 31, 2003 or 2002. During 2001, $310 million of
collateralized borrowings under this agreement were repaid. The holding company
also has a $375 million revolving credit agreement with a group of unaffiliated
financial institutions, which serves as a back-up liquidity facility. No
borrowings have occurred under this facility. This facility expires in 2005 with
a provision to extend the expiration date under certain circumstances.

During 2003, the Corporation filed a shelf registration with the SEC to allow
for the sale, over time, of up to $1.5 billion in senior subordinated debt
securities, preferred stock, depository shares, and common stock issuable in
connection with conversion of the aforementioned securities. During 2003, the
holding company issued $300 million of senior notes under a prior shelf
registration.

Contractual Obligations, Commitments, Contingent Liabilities, and Off-balance
Sheet Arrangements

The Corporation has various financial obligations, including contractual
obligations and commitments, that may require future cash payments.

Contractual Obligations: The following table presents, as of December 31, 2003,
significant fixed and determinable contractual obligations to third parties by
payment date. Further discussion of the nature of each obligation is included in
the referenced note to the consolidated financial statements.

(a) Excludes interest
(b) Includes interest on both fixed and variable rate obligations. The interest
associated with variable rate obligations is based upon interest rates in
effect at December 31, 2003. The contractual amounts to be paid on variable
rate obligations are affected by changes in market interest rates. Future
changes in market interest rates could materially affect the contractual
amounts to be paid.
(c) Excludes unamortized premiums or discounts, hedge basis adjustments, or
other similar carrying value adjustments

The Corporation's operating lease obligations represent short and long-term
lease and rental payments for facilities, certain software and data processing
and other equipment. Purchase obligations represent obligations under agreements
to purchase goods or services that are enforceable and legally binding on the
Corporation and that specify all significant terms, including: fixed or minimum
quantities to be purchased; fixed, minimum or variable price provisions; and the
approximate timing of the transaction. The purchase obligation amounts presented
above primarily relate to certain contractual payments for services provided for
information technology, capital expenditures, and the outsourcing of certain
operational activities.

The Corporation also has obligations under its postretirement plan as described
in Note 24 to the consolidated financial statements. The postretirement benefit
payments represent actuarially determined future benefit payments to eligible
plan participants. The Corporation reserves the right to terminate the
postretirement benefit plan at any time. The Corporation does not have any
commitments or obligations to the defined benefit pension plan at December 31,
2003 due to the funded status of the plan. See further discussion in Note 24.

The Corporation also enters into derivative contracts under which the
Corporation is required to either

FINANCIAL REVIEW CONTINUED
2003 ANNUAL REPORT

26

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, involve monthly
cash settlement. Because the derivative liabilities recorded on the balance
sheet at December 31, 2003 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 on the previous page. Further discussion of
derivative instruments is included in Notes 1 and 25 to the consolidated
financial statements.

Commitments: The following table details the amounts and expected maturities of
significant commitments as of December 31, 2003. Further discussion of these
commitments is included in Note 22 to the consolidated financial statements.

Commitments to extend credit, including loan commitments, standby letters of
credit, and commercial letters of credit do not necessarily represent future
cash requirements, in that these commitments often expire without being drawn
upon.

The commitments to fund principal investments primarily relate to the
Corporation's indirect investments in various private equity funds managed by
third-party general and limited partners. These estimated commitments were based
primarily on the expiration of each fund's investment period at December 31,
2003. The timing of these payments could change due to extensions in the
investment periods of the funds or by the rate the commitments are invested,
both of which are determined by either the general and/or limited partners of
the funds.

The commitments to fund civic and community investments represent future cash
outlays for the construction and development of properties for low-income
housing, small business real estate, and historic tax credit projects. The
timing and amounts of these commitments are projected based upon the financing
arrangements provided in each project's partnership or operating agreement, and
could change due to variances in the construction schedule, project revisions,
or the cancellation of the project.

Contingent Liabilities: The Corporation may also incur 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 22 to the consolidated financial statements.

Off-Balance Sheet Arrangements: The Corporation's significant off-balance sheet
arrangements include the use of special-purpose entities, generally
securitization trusts, to diversify its funding sources. During the past three
years, National City has sold credit card receivables and automobile loans to
securitization trusts which are considered qualifying special-purpose entities
and, accordingly, are not included in the consolidated balance sheet. The
Corporation continues to service the loans sold to the trusts, for which it
receives a servicing fee, and also has certain retained interests in the assets
of the trusts. Further discussion on the accounting for securitizations is
included in Note 1 to the consolidated financial statements and detail regarding
securitization transactions and retained interests is included in Note 5.

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 or judgments that affect
the amounts reported in the financial statements and accompanying notes. These
estimates are based on information available as of the date of the financial
statements; accordingly, as this information changes, the financial statements
could reflect different estimates or judgments. Certain policies inherently have
a greater reliance on the use of estimates, and as such have a greater
possibility of producing results that could be materially different than
originally reported. Estimates or judgments are necessary when assets and
liabilities are required to be recorded at fair value, when a decline in the
value of an asset not carried on the financial statements at fair value warrants
an impairment write-down or valuation reserve to be established, or when an
asset or liability needs to be recorded contingent upon a future event. Carrying
assets and liabilities at fair value inherently results in more financial
statement volatility. The fair values and the information used to record
valuation adjustments for certain assets and liabilities are based either on
quoted market prices or are provided by other third-party sources, when
available. When third-party information is not available, valuation adjustments
are estimated in good

2003 ANNUAL REPORT

27

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. Management views critical accounting policies to be those which are
highly dependent on subjective or complex judgments, estimates and assumptions,
and where changes in those estimates and assumptions could have a significant
impact on the financial statements. Management currently views the determination
of the allowance for loan losses, the valuation of mortgage servicing assets,
and the valuation of derivative instruments to be critical accounting policies.

Allowance for Loan Losses: The allowance for loan losses represents management's
estimate of probable credit losses inherent in the loan and lease portfolio.
Estimating the amount of the allowance for loan losses 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 and lease portfolio also represents the largest asset type on the
consolidated balance sheet. 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.

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 Statement of Financial Accounting
Standards No. (SFAS) 5, Accounting for Contingencies, or SFAS 114, Accounting by
Creditors for Impairment of a Loan. The allocated component of the allowance for
loan losses reflects expected losses resulting from analyses developed through
specific credit allocations for individual loans and historical loss experience
for each loan category. The specific credit allocations are based on regular
analyses of all loans over a fixed-dollar amount where the internal credit
rating is at or below a predetermined classification. These analyses involve a
high degree of judgment in estimating the amount of loss associated with
specific loans, including estimating the amount and timing of future cash flows
and collateral values. 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 accounts for the inherent imprecision in loan loss migration models. The
Corporation has grown through acquisition, expanded the geographic footprint in
which it operates, and changed its portfolio mix in recent years. As a result,
historical loss experience data used to establish allocation estimates may not
precisely correspond to the current portfolio. Also, loss data representing a
complete economic cycle is not available for all sectors. Uncertainty
surrounding the strength and timing of economic cycles also affects estimates of
loss. The historical losses used in the migration analysis may not be
representative of actual unrealized losses inherent in the portfolio.

There are many factors affecting the allowance for loan losses; some are
quantitative while others require qualitative judgment. Although management
believes its process for determining the allowance adequately considers all of
the potential factors that could potentially result in credit losses, the
process includes subjective elements and may be susceptible to significant
change. To the extent actual outcomes differ from management estimates,
additional provision for credit losses could be required that could adversely
affect earnings or financial position in future periods. The allowance for loan
losses is assigned to the Corporation's business lines based on the nature of
the loan portfolio in each business line. The Wholesale Banking, Consumer and
Small Business Financial Services, and National Consumer Finance business lines
have been assigned the majority of the allocated allowance and accordingly would
be the business lines most affected by actual outcomes differing from management
estimates.

The Credit Risk section of this financial review includes a discussion of the
factors driving changes in the allowance for loan losses during the current
period.

Mortgage Servicing Right (MSR) Assets: Servicing residential mortgage loans for
third-party investors represents a significant business activity of the National
Consumer Finance line of business. As of December 31, 2003, the MSR portfolio
totaled $1.3 billion. MSRs do not trade in an active open market with readily
observable market prices. Although sales of MSRs do occur, the exact terms and
conditions may not be readily available. As such, MSRs are established and
valued using discounted cash flow modeling techniques which require management
to make estimates regarding future net servicing cash flows, taking into
consideration actual and expected mortgage loan prepayment rates, discount
rates, servicing costs, and other economic factors. The expected and actual
rates of mortgage loan prepayments are the most significant factors driving the
value of MSRs. Increases in mortgage loan prepayments reduce estimated future
net servicing cash flows because the life of the underlying loan is reduced. In
determining the fair value of the MSRs, mortgage interest rates, which are used
to determine prepayment

FINANCIAL REVIEW CONTINUED
2003 ANNUAL REPORT

28

rates, and discount rates are held constant over the estimated life of the
portfolio. Expected mortgage loan prepayment rates are derived from a
third-party model and adjusted to reflect National City's actual prepayment
experience. MSRs are carried at the lower of the initial capitalized amount, net
of accumulated amortization and hedge accounting adjustments, or fair value.
Certain MSRs hedged with derivative instruments as part of SFAS 133 hedge
relationships may be adjusted above their initial carrying value. Management
compares its fair value estimates and assumptions to observable market data
where available and to recent market activity and believes that the fair values
and related assumptions are comparable to those used by other market
participants.

Note 12 to the consolidated financial statements includes a sensitivity analysis
showing the effects immediate 10% and 20% adverse changes in the mortgage loan
prepayment and discount rate assumptions used to estimate the fair value of MSRs
would have on the fair value. Management mitigates risk associated with declines
in the estimated fair value of MSRs due to increases in mortgage loan
prepayments through the use of derivative instruments that are expected to
increase in value when interest rates decline. The effects of recognized changes
in the values of the MSRs and the related derivative instruments are included in
mortgage banking revenue on the income statement. Note 12 to the financial
statements includes discussion of the impacts of valuation changes on current
period income.

Derivative Instruments: The Corporation regularly uses derivative instruments as
part of its risk management activities to protect the value of certain assets
and liabilities and future cash flows against adverse price or interest rate
movements. As of December 31, 2003, the recorded amount of derivative assets and
liabilities were $1.3 billion and $876 million, respectively. All derivative
instruments are carried at fair value on the balance sheet. The valuation of
derivative instruments is considered critical because most are valued using
discounted cash flow modeling techniques in the absence of market value quotes.
Therefore, management must make estimates regarding the amount and timing of
future cash flows, which are susceptible to significant change in future periods
based on changes in interest rates. The cash flow projection models are acquired
from third parties and the assumptions used by management are based on yield
curves, forward yield curves, and implied volatilities observable in the cash
and derivatives markets. The pricing models are also regularly validated by
testing through comparison with other third parties.

Because the majority of the derivative instruments are used to protect the value
of other assets and liabilities on the balance sheet, changes in the value of
the derivative instruments are typically offset by changes in the value of the
assets and liabilities being hedged, although income statement volatility can
occur if the derivative instruments are not effective in hedging changes in the
value of those assets and liabilities. Changes in the fair values of derivative
instruments associated with mortgage banking activities are included in mortgage
banking revenue on the consolidated income statement and affect the results of
the National Consumer Finance line of business. Changes in the fair values of
other derivatives are included in other income on the income statement and are
primarily generated from investment funding activities and are not allocated to
the business lines. Notes 1 and 25 to the consolidated financial statements also
provide further discussion on the accounting and use of derivative instruments.

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 2003 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 financial condition, results of operations, or liquidity, the impacts
are discussed in the applicable section(s) of this financial review and notes to
the consolidated financial statements.

FORWARD LOOKING STATEMENTS
- --------------------------------------------------------------------------------

This Annual Report contains forward-looking statements. Forward-looking
statements provide current expectations or forecasts of future events and are
not guarantees of future performance, nor should they be relied upon as
representing management's views as of any subsequent date. The forward-looking
statements are based on management's expectations and are subject to a number of
risks and uncertainties. Although management believes that the expectations
reflected in such forward-looking statements are reasonable, actual results may
differ materially from those expressed or implied in such statements. Risks and
uncertainties that could cause actual results to differ materially include,
without limitation, the Corporation's ability to effectively execute its
business plans; changes in general economic and financial market conditions;
changes in interest rates; changes in the competitive environment; continuing
consolidation in the financial services industry; new litigation or changes in
existing litigation; losses, customer bankruptcy, claims and assessments;
changes in banking regulations or other regulatory or legislative requirements
affecting the Corporation's business; and changes in accounting policies or
procedures as may be required by the Financial Accounting Standards Board or
other regulatory agencies. Management may elect to update forward-looking
statements at some future point; however, it specifically disclaims any
obligation to do so.

2003 ANNUAL REPORT

29

QUARTERLY SUMMARY

Fourth Quarter Review

Unaudited quarterly results are presented on pages 30 and 31.

Net income for the fourth quarter of 2003 was $544 million, or $.88 per diluted
share, compared to $344 million, or $.56 per diluted share for the third quarter
of 2003, and $280 million, or $.46 per diluted share for the fourth quarter of
2002. The increase in net income in the fourth quarter of 2003 over these prior
periods was primarily due to increased mortgage banking revenue, offset to a
lesser extent by a decrease in net interest income and an increase in
noninterest expense.

Returns on average common equity and average assets were 22.99% and 1.89%,
respectively, for the fourth quarter of 2003, compared to 14.87% and 1.10% for
the third quarter of 2003, and 13.41% and .99% for the fourth quarter of 2002.
The improvement in linked-quarter and year-over-year quarter results was
primarily driven by the growth in mortgage banking revenue discussed above. In
addition, average total assets for the fourth quarter of 2003 were $9.2 billion
lower than the third quarter primarily due to lower levels of loans held for
sale.

Net interest income for the fourth quarter of 2003 was $1.0 billion, down 9.6%
from the prior quarter and down 3.7% from the fourth quarter of 2002. Net
interest margin was 4.03% during the fourth quarter of 2003, versus 4.10% in the
third quarter of 2003 and 4.26% in the fourth quarter of 2002. Net interest
margin has declined in comparison to the prior quarter due to lower balances of
mortgage loans held for sale, which carried higher spreads than most other
earning assets. Lower interest rates accounted for the decrease in net interest
income and margin in comparison to the prior year fourth quarter.

The provision for loan losses was $148 million for the fourth quarter of 2003,
compared to $107 million for the third quarter of 2003 and $159 million for the
fourth quarter of 2002. The changes were driven primarily by commercial
charge-offs. See the Credit Risk section of the Financial Review for further
discussion of the allowance for loan losses and credit quality.

Fees and other income was $981 million for the fourth quarter of 2003, up
significantly from $484 million in the prior quarter and $528 million in the
fourth quarter of 2002. The increase in fees and other income during the fourth
quarter of 2003 reflect increases in mortgage banking revenue, which rose $478
million compared to the prior quarter and $406 million compared to the prior
year. Mortgage origination and sales revenue accounted for most of this increase
at $399 million, $(57) million, and $24 million for the fourth quarter of 2003,
the third quarter of 2003 and the fourth quarter of 2002, respectively. These
variations were amplified by not applying hedge accounting to loans held for
sale. Changes in the fair value of loans held for sale were recognized in the
period of loan sale rather than in the period that interest rates moved, while
losses on derivatives used to economically hedge the value of the loans were
recorded immediately, thereby increasing the volatility of mortgage origination
and sales revenue. Net servicing revenue also increased during the fourth
quarter as a result of continued growth in the servicing portfolio. Net
servicing revenue was $52 million in the fourth quarter of 2003, up from $30
million in the third quarter of 2003, and $21 million in the fourth quarter of
2002.

2003 ANNUAL REPORT

30

QUARTERLY SUMMARY CONTINUED

Quarterly Financial Information

Unaudited quarterly results are presented below. The quarterly and year-to-date
results for 2001, 2002 and the first three quarters of 2003 were restated
related to the application of Statement of Financial Accounting Standards No.
133, Accounting for Derivative Instruments and Hedging Activities. On the
following page, a reconciliation has been provided to show the impact of the
restatement on previously reported amounts in the Corporation's Quarterly
Reports on Form 10-Q filed with the Securities and Exchange Commission. Refer to
Note 1 to the Consolidated Financial Statements for further discussion on the
restatement.

2003 ANNUAL REPORT

31

2003 ANNUAL REPORT

32

STATISTICAL DATA

CONSOLIDATED STATEMENTS OF INCOME AND SELECTED FINANCIAL DATA(a)

(a)Prior period data have been restated, where applicable, for stock splits and
pooling-of-interests business combinations
(b)Financial data reflects restated results for 2001, 2002 and the first nine
months of 2003 related to the application of Statement of Financial
Accounting Standards No. 133, Accounting for Derivative Instruments and
Hedging Activities. Refer to Note 1 of the Consolidated Financial Statements
for further details.

2003 ANNUAL REPORT

33

REPORT OF MANAGEMENT ON INTERNAL CONTROL

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, 2003, 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, 2003, 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 29, 2004

2003 ANNUAL REPORT

34

REPORTS OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS

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, 2003, 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 2003 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, 2003, 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 2003 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.

Cleveland, Ohio /s/ Ernst & Young LLP

January 29, 2004

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, 2003 and 2002, 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, 2003. 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, 2003 and 2002, and the consolidated
results of their operations and their cash flows for each of the three years in
the period ended December 31, 2003, in conformity with accounting principles
generally accepted in the United States.

As discussed in Note 1, the consolidated financial statements for the years
ended December 31, 2002 and 2001 have been restated.

/s/ Ernst & Young LLP
Cleveland, Ohio

January 29, 2004

2003 ANNUAL REPORT

35

CONSOLIDATED FINANCIAL STATEMENTS

Consolidated Balance Sheets

See Notes to Consolidated Financial Statements

2003 ANNUAL REPORT

36

CONSOLIDATED FINANCIAL STATEMENTS CONTINUED

Consolidated Statements of Income

See Notes to Consolidated Financial Statements

2003 ANNUAL REPORT

37

Consolidated Statements of Changes in Stockholders' Equity

See Notes to Consolidated Financial Statements

2003 ANNUAL REPORT

38

CONSOLIDATED FINANCIAL STATEMENTS CONTINUED

Consolidated Statements of Cash Flows

See Notes to Consolidated Financial Statements

2003 ANNUAL REPORT

39

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Nature of Operations

National City Corporation (National City or the Corporation) is a financial
holding company headquartered in Cleveland, Ohio. National City operates through
an extensive branch bank network in Ohio, Michigan, Pennsylvania, Indiana,
Kentucky, and Illinois and also conducts selected consumer lending businesses
and other financial services on a nationwide basis. 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 consolidated subsidiaries. All significant intercompany
transactions and balances have been eliminated. Certain prior period amounts
have been reclassified to conform with the current period presentation.

RESTATEMENT OF PRIOR PERIOD FINANCIAL STATEMENTS: The Corporation has restated
prior period financial statements based upon changes in its method of assessing
effectiveness of its hedging activities pursuant to Statement of Financial
Accounting Standards No. 133, Accounting for Derivatives and Hedging Activities
(SFAS 133). The restatement resulted from changes in the technical application
of effectiveness tests under SFAS 133 relating to hedging programs for mortgage
servicing rights and mortgage loans held for sale. The impact of the restatement
to net income and the related per share amounts for the years ended December 31,
2001 and 2002 and the nine months ended September 30, 2003 was as follows:

This change had no significant impact on financial position or cumulative net
income for the three-year period ending December 31, 2003. See the Financial
Review section for a Summary Condensed Income Statement of the restated
quarterly financial results.

CONSOLIDATION: Accounting Research Bulletin No. 51 (ARB 51), Consolidated
Financial Statements, requires a company's consolidated financial statements
include subsidiaries in which the company has a controlling financial interest.
This requirement usually has been applied to subsidiaries in which a company has
a majority voting interest. Investments in companies in which the Corporation
controls operating and financing decisions (principally defined as owning a
voting or economic interest greater than 50%) are consolidated. Investments in
companies in which the Corporation has significant influence over operating and
financing decisions (principally defined as owning a voting or economic interest
of 20% to 50%) and limited partnership investments are generally accounted for
by the equity method of accounting. These investments are normally included in
other assets and National City's proportionate share of income or loss is
included in other noninterest income.

The voting interest approach defined in ARB 51 is not applicable in identifying
controlling financial interests in entities that are not controllable through
voting interests or in which the equity investors do not bear the residual
economic risks. In such instances, Interpretation No. 46 (FIN 46), Consolidation
of Variable Interest Entities (VIE), indicates when a company should include in
its financial statements the assets, liabilities and activities of another
entity. In general, a VIE is a corporation, partnership, trust, or any other
legal structure used for business purposes that either does not have equity
investors with voting rights or has equity investors that do not provide
sufficient financial resources for the entity to support its activities. FIN 46
requires a VIE to be consolidated by a company if that company is subject to a
majority of the risk of loss from the VIE's activities or entitles it to receive
a majority of the entity's residual returns or both. A company that consolidates
a VIE is called the primary beneficiary of that entity. The Corporation's
consolidated financial statements include the assets, liabilities and activities
of VIEs for which it is deemed to be the primary beneficiary.

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

Where the Corporation is a transferor of assets to an SPE, the assets sold to
the SPE are no longer recorded on the balance sheet and the SPE is not
consolidated when the SPE is a qualifying special-purpose entity (QSPE).
Statement of Financial Accounting Standards (SFAS) 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

2003 ANNUAL REPORT

40

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED

QSPE criteria under SFAS 140, and accordingly, are not consolidated on the
balance sheet. Further discussion regarding these securitization trusts is
included in Note 5.

USE OF ESTIMATES: 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.

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

BUSINESS COMBINATIONS: SFAS 141, Business Combinations, requires business
combinations initiated after June 30, 2001 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.

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 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 generally recognized in other 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.

The Corporation, through its subsidiary NCMC, sells mortgage loans to GNMA in
the normal course of business and retains the servicing rights. The GNMA
programs under which the loans are sold allow the Corporation to repurchase
individual delinquent loans that meet certain criteria from the securitized
pool. At the Corporation's option, and without GNMA's prior authorization, the
Corporation may repurchase the delinquent loan for an amount equal to 100
percent of the remaining principal balance of the loan. Under SFAS 140, once the
Corporation has the unconditional ability to repurchase the delinquent loan, the
Corporation is deemed to have regained effective control over the loan and is
required to recognize the loan on its balance sheet and record an offsetting
liability, regardless of the Corporation's intent to repurchase the loan. As of
December 31, 2003, residential real estate portfolio loans included $240 million
of loans available for repurchase under the GNMA optional repurchase pro-

2003 ANNUAL REPORT

41

grams with the offsetting liability recorded within other borrowed funds.

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 analyses developed through specific credit
allocations for individual loans and historical loss experience for each loan
category. The specific credit allocations are based on regular analyses 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 historical losses used in the migration analysis may not be
representative of actual unrealized losses inherent in the portfolio.

OTHER REAL ESTATE OWNED: Other real estate owned (OREO) is comprised principally
of commercial and residential real estate properties obtained in partial or
total satisfaction of loan obligations. 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.
Changes in value subsequent to transfer are recorded in noninterest expense on
the income statement. Gains or losses not previously recognized resulting from
the sale of OREO are recognized in noninterest expense on the date of sale.

SECURITIES: 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
securities gains or losses on the income statement. Interest on trading account
securities is recorded in interest income. As of December 31, 2003 and December
31, 2002, trading account securities totaled $22 million and $15 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. National City held no
securities classified as held to maturity at either December 31, 2003 or 2002.

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 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. Realized gains and losses on the sale
of and other-than-temporary impairment charges on securities, except for the
Corporation's internally-managed equity portfolio comprised primarily of bank
and thrift common stock investments (bank stock fund), are determined using the
specific-identification method. On January 1, 2003, the Corporation changed to
the average-cost method to determine realized gains and losses and
other-than-temporary impairment charges on bank stock fund investments,
consistent with the manner in which the Corporation manages the investments in
this fund. Purchases and sales of securities are recognized on a trade-date
basis.

2003 ANNUAL REPORT

42

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED

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

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

The fair values of publicly traded investments are determined using quoted
market prices, subject to various discount factors, 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.

Interest and dividends on principal investments are recorded in interest income
on the statement of income. Principal investment fee income, fair value
adjustments, realized gain and losses on the return of capital, and principal
investment write-offs are recognized in other noninterest income.

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

GOODWILL AND OTHER INTANGIBLE ASSETS: Goodwill represents the excess of the cost
of an acquisition over the fair value of the net assets acquired. Other
intangible assets represent purchased assets that also lack physical substance
but can be distinguished from goodwill because of contractual or other legal
rights or because the asset is capable of being sold or exchanged either on its
own or in combination with a related contract, asset, or liability. On January
1, 2002, the Corporation adopted SFAS 142, Goodwill and Other Intangible Assets.
Under the provisions of SFAS 142, goodwill is no longer ratably amortized into
the income statement over an estimated life, but rather is tested at least
annually for impairment. Intangible assets which have finite lives continue to
be amortized over their estimated useful lives and also continue to be subject
to impairment testing. All other intangible assets have finite lives and are
amortized on a straight-line basis over varying periods not exceeding 10 years.
Note 11 includes a summary of goodwill and other intangible assets.

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. Impairment losses are recorded
in other noninterest expense on the income statement.

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. In addition, National City purchases the guaranteed portion of
Small Business Administration (SBA) loans from third-party lenders and then
securitizes these loans into SBA guaranteed pooled securities through the use of
a fiscal and transfer agent approved by the SBA. The certificates are then sold
directly to institutional investors, achieving legal isolation.

SFAS 140 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 Corporation was a debtor under the bankruptcy code. A "true sale" legal
analysis includes several legally relevant factors, such as the nature and level
of recourse to the transferor and the nature of retained servicing rights. The
analytical conclusion as to a true sale is

2003 ANNUAL REPORT

43

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 Federal Deposit
Insurance Corporation (FDIC) regulation, Treatment by the Federal Deposit
Insurance Corporation as Conservator or Receiver of Financial Assets Transferred
by an Insured Depository Institution in Connection with a Securitization or
Participation (Securitization Rule) would be applicable to the transfer of such
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. The process of securitizing SBA loans into pools of SBA
certificates is prescribed by the SBA and must be followed to obtain the SBA
guarantee. This process has been developed to meet the requirements for sale
treatment under SFAS 140.

In a securitization, the trust issues beneficial interests in the form of senior
and subordinated asset-backed securities backed or collateralized by the assets
sold to the trust. The senior classes of the asset-backed securities typically
receive investment grade credit ratings at the time of issuance. These ratings
are generally achieved through the creation of lower-rated subordinated classes
of asset-backed securities, as well as subordinated interests retained by an
affiliate of the Corporation. In all cases, the Corporation or its 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.

An SBA approved fiscal and transfer agent associated with the SBA
securitizations issues certificates once all the necessary documents to support
the transaction have been provided. The Corporation retains beneficial interests
in the securitized assets in the form of interest-only strips. The SBA
guarantees the credit risk with respect to the loans sold.

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

Retained interests in the subordinated tranches and interest-only strips are
recorded at their fair value and included in the available-for-sale or trading
securities portfolio. Retained interests in the credit card and automobile loan
securitizations are classified as available-for-sale securities. Retained
interests in the SBA securitizations are classified as trading securities and
are included in other investments on the consolidated balance sheet. Subsequent
adjustments to the fair value of retained interests classified as
available-for-sale are recorded through 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. Fair value adjustments and
other-than-temporary adjustments to retained interests classified as trading
securities are recorded in other noninterest income on the income statement. 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 5 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

2003 ANNUAL REPORT

44

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED

carrying value, adjusted for amortization, or fair value. Impairment, if any, is
recognized when and in the amount the 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 occurs 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' interests in the trust. As the amount of the
loans in the securitized pool fluctuates due to customer payments, purchases,
cash advances, and credit losses, the carrying amount of the seller's interest
will vary. However, the Corporation is required to maintain its seller's
interest at a minimum level of 4% of the initial invested amount in each series
to ensure receivables are available for allocation to the investors' interests.

Also with regard to credit card securitizations, the trust is not required to
make principal payments to the investors during the revolving period, which
generally approximates 48 months. Instead, the trust uses principal payments
received on the accounts to purchase new loan receivables. Therefore, the
principal dollar amount of the investor's interest in the loans 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 asset-backed securities
issued by the SPEs have no further recourse against the Corporation if cash
flows generated by the securitized assets are inadequate to service the
obligations of the SPEs.

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 the fair value of
the derivative.

Derivative instruments designated in a hedge relationship to mitigate exposure
to changes in the fair value of an asset, liability, or firm commitment
attributable to a particular risk, such as interest rate risk, are considered
fair value hedges under SFAS 133. Derivative instruments designated in a hedge
relationship to mitigate exposure to variability in expected future cash flows,
or other types of forecasted transactions, are considered cash flow hedges. The
Corporation formally documents all relationships between hedging instruments and
hedged items, as well as its risk-management objective and strategy for
undertaking each hedge transaction.

Fair value hedges are accounted for by recording the fair value of the
derivative instrument 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 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. SFAS 133 basis adjustments recorded on hedged assets
and liabilities are amortized over the remaining life of the hedged item
beginning no later than when hedge accounting ceases.

2003 ANNUAL REPORT

45

MORTGAGE SERVICING ASSETS: The Corporation sells mortgage loans in the secondary
market and typically retains the right to service the loans sold. Upon sale, a
mortgage servicing right (MSR) asset is established, which represents the then
current fair value of future net cash flows expected to be realized for
performing the servicing activities. MSRs, when purchased, are initially
recorded at cost. MSRs are carried at the lower of the initial capitalized
amount, net of accumulated amortization and hedge accounting adjustments, or
fair value. Certain MSRs hedged with derivative instruments as part of SFAS 133
hedge relationships may be adjusted above their initial carrying value. Changes
in fair value resulting from the application of hedge accounting become part of
the carrying values of MSRs.

The carrying values of MSRs (initial capitalized amount, net of accumulated
amortization and hedge accounting adjustments) are amortized in proportion to,
and over the period of, estimated net servicing income.

MSRs are evaluated for impairment in accordance with SFAS 140. For purposes of
determining impairment, the MSRs are stratified by certain risk characteristics,
primarily loan type and note rate. If temporary impairment exists within a risk
stratification tranche, a valuation allowance is established through a charge to
income equal to the amount by which the carrying value, including hedge
accounting adjustments, exceeds the fair value. If it is later determined all or
a portion of the temporary impairment no longer exists for a particular tranche,
the valuation allowance is reduced through a recovery of income.

MSRs are also reviewed for other-than-temporary impairment. Other-than-temporary
impairment exists when the recoverability of a recorded valuation allowance is
determined to be remote taking into consideration historical and projected
interest rates and loan pay-off activity. When this situation occurs, the
unrecoverable portion of the valuation allowance is applied as a direct
write-down to the carrying value of the MSRs. Unlike a valuation allowance, a
direct write-down permanently reduces the carrying value of the MSR and the
valuation allowance, precluding subsequent recoveries.

The fair value of MSRs 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, which are determined based on current market conditions.
The expected and actual rates of mortgage loan prepayments are the most
significant factors driving the value of MSRs. Increases in mortgage loan
prepayments reduce estimated future net servicing cash flows because the life of
the underlying loan is reduced. In determining the fair value of the MSRs,
mortgage interest rates, which are used to determine prepayment rates, and
discount rates are held constant over the estimated life of the portfolio.
Expected mortgage loan prepayment rates are derived from a third-party model and
adjusted to reflect National City's actual prepayment experience. Servicing
fees, net of amortization, impairment, and related derivative gains and losses
are recorded in mortgage banking revenue on the income statement.

STOCK-BASED COMPENSATION: Effective January 1, 2003, the Corporation adopted the
fair value method of recording stock awards under SFAS 123, Accounting for
Stock-Based Compensation. Under the guidance of SFAS 148, Accounting for
Stock-Based Compensation - Transition and Disclosure, the Corporation began
applying the recognition provisions of SFAS 123 to all awards granted to
employees after January 1, 2003. Compensation expense for option awards granted
subsequent to January 1, 2003 were determined based on the estimated fair value
of the award at the date of grant and recognized ratably in the income statement
over the option's vesting period. Stock options granted prior to January 1,
2003, will continue to be accounted for under the recognition and measurement
provisions of Accounting Principles Board (APB) Opinion 25, Accounting for Stock
Issued to Employees. Under APB 25, compensation expense for employee stock
options is generally not recognized if the exercise price of the option equals
or exceeds the market price of the stock on the date of grant. Therefore, the
cost related to stock-based employee compensation included in the determination
of net income for 2003 is less than that which would have been recognized if the
fair value method had been applied to all unvested stock awards. The remaining
outstanding options accounted for under APB 25 vest through 2005.

Compensation expense for restricted share awards is ratably recognized over the
period of service, usually the restricted period, based upon the fair value of
the stock on the date of grant. The adoption of the recognition provisions of
SFAS 123 did not have a significant impact on the determination of compensation
expense for restricted share awards.

The table on the following page illustrates the effect on net income and
earnings per share if the Corporation had applied the fair value recognition
provisions of SFAS 123 to all stock option awards. Also included in the pro
forma net income and earnings per share is the after-tax expense, net of
minority interest benefit, related to option awards granted by the Corporation's
84%-owned payment processing subsidiary, National Processing, Inc., on its
common stock.

2003 ANNUAL REPORT

46

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED

The fair values of stock options granted were estimated at the date of grant
using the Black-Scholes option pricing model. 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 assumptions, which can
materially affect the fair value estimate. The following weighted-average
assumptions were used to determine the fair value of options granted on National
City common stock:

The weighted-average assumptions used to value the National Processing option
grants are disclosed in National Processing, Inc.'s December 31, 2003 Annual
Report on Form 10-K, as filed with the United States Securities and Exchange
Commission (SEC) and is accessible at www.sec.gov.

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
using the par value method, which requires the cash paid to be allocated to
common stock, capital surplus, and retained earnings.

2. Recent Accounting Pronouncements

LOAN COMMITMENTS: On December 11, 2003, the SEC staff announced its intention to
release a Staff Accounting Bulletin that would require all registrants to
account for mortgage loan interest rate lock commitments related to loans held
for sale as written options, effective no later than for commitments entered
into after March 31, 2004. The Corporation enters into such commitments with
customers in connection with residential mortgage loan applications and at
December 31, 2003 had approximately $4.1 billion in notional amount of these
commitments outstanding. This guidance, if issued, would require the Corporation
to recognize a liability on its balance sheet equal to the fair value of the
commitment at the time the loan commitment is issued. As a result, this guidance
would delay the recognition of any revenue related to these commitments until
such time as the loan is sold, however, it would have no effect on the ultimate
amount of revenue or cash flows recognized over time. The Corporation is
currently assessing the impact of this pending guidance on its results of
operations and financial position. In the quarter of adoption, there would
likely be a one-time negative impact to mortgage banking revenue yet to be
determined.

EMPLOYERS' DISCLOSURES ABOUT PENSIONS AND OTHER POSTRETIREMENT BENEFITS: In
December 2003, the FASB revised SFAS 132 Employers' Disclosures about Pensions
and Other Postretirement Benefits. This Statement retains the disclosures
required by the original SFAS 132 and requires additional disclosures about the
assets, obligations, cash flows and net periodic benefit cost of defined benefit
pension and postretirement plans. In addition, this Statement requires interim
period disclosure of the components of net period benefit cost and contributions
if significantly different from previously reported amounts. See Note 24 for the
additional pension and other postretirement benefit disclosures as the
Corporation adopted the provisions of this Statement as of December 31, 2003.

ACCOUNTING FOR CERTAIN FINANCIAL INSTRUMENTS WITH CHARACTERISTICS OF BOTH
LIABILITIES AND EQUITY: In May 2003, the Financial Accounting Standards Board
(FASB) issued SFAS 150, Accounting for Certain Financial Instruments with
Characteristics of Both Liabilities and Equity. This Statement establishes
standards for classifying and measuring certain financial instruments that
embody obliga-

2003 ANNUAL REPORT

47

tions of the issuer and have characteristics of both liabilities and equity. The
provisions of SFAS 150 became effective June 1, 2003, for all financial
instruments created or modified after May 31, 2003, and otherwise became
effective as of July 1, 2003. The adoption of this standard did not have a
material impact on financial condition, the results of operations, or liquidity.

In December 2003, the FASB deferred for an indefinite period the application of
the guidance in SFAS 150 to noncontrolling interests that are classified as
equity in the financial statements of a subsidiary but would be classified as a
liability in the parent's financial statements under SFAS 150. The deferral is
limited to mandatorily redeemable noncontrolling interests associated with
finite-lived subsidiaries. Management does not believe any such applicable
entities exist as of December 31, 2003, but will continue to evaluate the
applicability of this deferral to entities which may be consolidated as a result
of FASB Interpretation No. 46 (FIN 46), Consolidation of Variable Interest
Entities.

AMENDMENT OF STATEMENT 133 ON DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES: In
April 2003, the FASB issued SFAS 149, Amendment of Statement 133 on Derivative
Instruments and Hedging Activities, which amends and clarifies financial
accounting and reporting for derivative instruments and hedging activities under
SFAS 133, as well as amends certain other existing FASB pronouncements. In
general, SFAS 149 is effective for derivative transactions entered into or
modified and for hedging relationships designated after June 30, 2003. The
adoption of this standard did not have a material impact on financial condition,
the results of operations, or liquidity.

CONSOLIDATION OF VARIABLE INTEREST ENTITIES: In January 2003, the FASB issued
FIN 46, which provides 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 are to be included in an entity's consolidated
financial statements. A VIE exists when either the total equity investment at
risk is not sufficient to permit the entity to finance its activities by itself,
or the equity investors lack one of three characteristics associated with owning
a controlling financial interest. Those characteristics include the direct or
indirect ability to make decisions about an entity's activities through voting
rights or similar rights, the obligation to absorb the expected losses of an
entity if they occur, or the right to receive the expected residual returns of
the entity if they occur.

During the third quarter of 2003, the Corporation applied the provisions of FIN
46 to two wholly-owned subsidiary trusts that issued capital securities to
third-party investors and to certain direct and indirect interests in investment
partnerships. The application of FIN 46 resulted in the deconsolidation of the
two wholly-owned subsidiary trusts. The assets and liabilities of the subsidiary
trusts that were deconsolidated totaled $189 million and $183 million,
respectively. See Note 17 for further discussion of these trusts and the
Corporation's related obligations. The application of FIN 46 to certain direct
and indirect interests in investment partnerships resulted in the consolidation
of assets and liabilities each totaling $73 million. Of the total $73 million of
liabilities consolidated, $72 million represented amounts owned by minority
ownership interests.

In December 2003, the FASB reissued FIN 46 with certain modifications and
clarifications. Application of this guidance was effective for interests in
certain VIEs commonly referred to as special-purpose entities (SPEs) as of
December 31, 2003. Application for all other types of entities is required for
periods ending after March 15, 2004, unless previously applied.

Management continues to evaluate the applicability of FIN 46 on various other
investments and interests, including low-income housing partnership interests,
small business commercial real estate partnerships, historic tax credit
partnerships, leveraged leasing structures, and certain trust accounts. The
Corporation does not believe that the application of FIN 46 to any of these
investments or interests, if required, will have a material impact on financial
condition, results of operations, or liquidity.

GUARANTEES: In November 2002, the FASB issued 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 about its obligations under certain
guarantees and requires the guarantor to recognize a liability for the
obligation assumed under a guarantee. 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, while other guarantees are
subject to just the disclosure requirements of FIN 45 but not to the recognition
provisions. The disclosure requirements of FIN 45 were 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 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 applied prospectively to guarantees
issued or modified after December 31, 2002. Significant guarantees are disclosed
in Note 22. The implementation of the accounting requirements of FIN 45 did not
have a material impact on financial condition, the results of operations, 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 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 adopted the fair value method of
recording stock options under SFAS 123 prospectively for awards granted,
modified or settled after January 1, 2003. Refer to Notes 1 and 23 for further
discussion on the adoption of SFAS 148. The income statement impact associated
with expensing

2003 ANNUAL REPORT

48

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED

National City stock options was approximately $12 million pretax and $9 million,
or $.01 per diluted share, after tax, in 2003.

ACCOUNTING FOR COSTS ASSOCIATED WITH EXIT OR DISPOSAL ACTIVITIES: SFAS 146,
Accounting for Costs Associated with Exit or Disposal Activities, was issued in
June 2002 and was adopted by the Corporation on 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 did not have a material impact on
financial condition, the results of operations, or liquidity.

ASSET RETIREMENT OBLIGATIONS: In June 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 became effective for the Corporation on January 1, 2003
and its adoption did not have a material impact on financial condition, the
results of operations, or liquidity.

NON-GAAP FINANCIAL MEASURES: In March 2003, the SEC issued Regulation G,
Conditions for Use of Non-GAAP Financial Measures. As defined in Regulation G, a
non-GAAP financial measure is a numerical measure of a company's historical or
future performance, financial position, or cash flow that excludes or includes
amounts or adjustments that are included or excluded in the most directly
comparable measure calculated in accordance with generally accepted accounting
principles (GAAP). Companies that present non-GAAP financial measures must
disclose a numerical reconciliation to the most directly comparable measurement
using GAAP. Management does not believe it has used any non-GAAP financial
measure in this report.

3. Acquisitions and Divestitures

In November 2003, the Corporation signed a definitive agreement to acquire
Allegiant Bancorp, Inc., a $2.5 billion asset bank holding company operating a
35 branch network in the St. Louis, Missouri metropolitan area. Under the terms
of the purchase agreement, Allegiant shareholders will receive either .833
shares of National City common stock in a tax-free exchange, or $27.25 in cash,
for each share of Allegiant common stock, for a total indicated value of
approximately $475 million. Completion of this transaction is subject to
shareholder and regulatory approvals.

In June 2003, National Processing, Inc., the Corporation's 84%-owned payment
processing subsidiary, acquired Bridgeview Payment Solutions, Inc. (BPS) from
Bridgeview Bank and Trust Company for $32 million in cash. The preliminary
allocation of the purchase price increased goodwill by approximately $24
million. The remainder of the purchase price was primarily allocated to merchant
contracts, which were recorded as other intangible assets and are being
amortized on a straight-line basis over five years. The results of operations
for BPS have been included in the consolidated financial statements since the
date of acquisition.

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 $89 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 $2 million. Cash proceeds of $49
million and 2.8 million shares of AVZ stock, with a value of $41 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 million related to the sale of NAMCO, consisting of cash of
$4 million and 126,677 shares of AVZ stock, with a value of $1 million. The
consideration was recorded in other noninterest income on the income statement.

In June 2001, National Processing acquired a 70% interest in ABN AMRO Merchant
Services, LLC (AAMS) for cash of $49 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 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 million in cash. This business unit primarily processed
health care claims, credit card applications, and airline tickets. In connection
with the disposal, a pretax impairment loss, net of minority interest benefit,
of $3 million was recorded in 2001.

4. Restructuring Charges

In the first quarter of 2003, the Corporation implemented cost-reduction
initiatives focused on improving long-term profitability. These cost-reduction
initiatives included a voluntary retirement program and position eliminations
across the Corporation's lines of business. In connection with the
cost-reduction initiatives, a liability was established and a charge to income
recorded for severance and costs associated with outplacement services provided
to employees whose positions were eliminated. A rollforward of the severance
liability is presented in the table below. Also included in the rollforward of
the liability are severance expenses incurred in the normal course of business.
Except for

2003 ANNUAL REPORT

49

severance charges incurred by the National Processing line of business, all
other severance and related termination expenses were recorded as unallocated
corporate charges within the Parent and Other category. Of the total net expense
recorded in 2003 of $82 million, $5 million related to outplacement services
provided and was recorded within third-party services expense on the income
statement. The remainder was recorded within personnel expense.

Adjustments to the liability were recognized for instances in which severed
employees accepted new positions resulting in termination of their severance
benefits.

5. Securitization Activity

The Corporation periodically sells assets through securitization transactions.

During 2003, the Corporation securitized five pools of Small Business
Administration (SBA) loans totaling $52 million, and recognized a pretax loss of
$215 thousand, which was recorded in other noninterest income. Retained
interests in the form of interest-only strips were recognized with an initial
carrying value of approximately $4 million. The SBA loans securitized were sold
servicing released and transaction costs were expensed in conjunction with the
sale.

On January 31, 2002, National City sold $425 million of credit card receivables
to the National City Credit Card Master Trust (trust) and recognized a pretax
gain of $25 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 $5 million and $27 million,
respectively. Transaction costs of $2 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 million of credit card
receivables in a securitization transaction and recognized a pretax gain of $21
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 million and $28 million, respectively.
Transaction costs of $2 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 million was recorded as a result of the
securitization and was recorded in other noninterest income. Retained interests
in the form of interest-only strips, subordinated tranches, and dealer rebate
receivables were also recognized with initial carrying values of $41 million,
$62 million, and $2 million, respectively. In addition, a servicing asset was
created in the amount of $17 million. See Note 1 for further details regarding
the accounting for servicing assets.

A summary of the assumptions used to value the credit card retained interests
and automobile retained interests and servicing asset at the time of the
securitizations were as follows:

A summary of the components of managed loans, representing both owned and
securitized loans, along with quantitative information about delinquencies and
net credit losses is presented on the following page. The automobile loans
presented represent the managed portfolio of indirect prime automobile loans.
The SBA loans represent securitized loans originally purchased and then sold by
the Corporation.

2003 ANNUAL REPORT

50

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED

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, 2003, fair values to immediate 10% and 20%
adverse changes in those assumptions follows. Actual credit losses experienced
through year-end 2003 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.

2003 ANNUAL REPORT

51

(a) Represents interest-only strips recognized in connection with the credit
card securitization series 2000-1, 2001-1 and 2002-1

(b) Represents weighted-average assumptions and aggregate declines in fair value
for all credit card securitization series

(a) Absolute prepayment speed

(b) Carrying value of servicing asset at December 31, 2003 was $4.8 million

(c) The expected static pool loss assumption performed consistent with the
expected cumulative credit loss assumptions

6. Asset-Backed Commercial Paper Conduit

During 2002 and 2001, 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
consolidated in the financial statements of the Corporation. During the fourth
quarter of 2002, the remaining commercial paper borrowings held by third-party
investors matured and the conduit was legally dissolved.

7. Loans and Lease Financings

Total loans outstanding were recorded net of unearned income and deferred loan
fees and costs of $208 million and $390 million, respectively, at December 31,
2003 and 2002.

The 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, railroad
equipment, 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:

2003 ANNUAL REPORT

52

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED

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

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

The commercial lease residual value write-downs recorded during 2003 were
primarily associated with various commercial aircraft leases. The write-downs
consisted of $16 million attributable to decreases in the residual values of
airplanes which were charged to other noninterest expense, $6 million
attributable to credit losses which were charged to the allowance for loan
losses, and $16 million attributable to the write-off of unearned income and
other related accounts.

At December 31, 2003, the minimum future lease payments to be received from
lease financings were as follows:

8. Allowance for Loan Losses

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 2003, 2002, and 2001, $2 million, $4 million, and $29 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.

During 2003, $967 million of residential real estate loans from the former
Altegra portfolio were sold and $17 million was charged off to record the loans
at fair value prior to sale. In 2001, the Corporation decided to accelerate the
disposition of these loans and increased the allowance for loan losses by $68
million. Loans totaling $150 million were sold from the portfolio during 2001
with related loan loss allowance of $46 million included in the bases of the
loans sold, essentially covering the loss on sale.

Nonperforming loans totaled $550 million and $702 million at December 31, 2003
and 2002, respectively. For loans classified as nonperforming at December 31,
2003, the contractual interest due and actual interest recognized on those loans
during 2003 was $65 million and $16 million, respectively. Included in
nonperforming loans were impaired loans, as defined under SFAS 114, aggregating
$263 million and $391 million at December 31, 2003 and 2002, respectively.
Average impaired loans for 2003, 2002, and 2001 totaled $358 million, $354
million, and $122 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 2003
and 2002 was $22 million and $76 million, respectively. At December 31, 2003,
impaired loans with an associated allowance totaled $75 million, while $188
million of impaired loans had no related allowance. At December 31, 2002, $206
million of impaired loans had an associated allowance, while $185 million of
impaired loans had no related allowance. There was no interest recognized in
2003, 2002, and 2001 on impaired loans while they were considered impaired.

2003 ANNUAL REPORT

53

9. Securities

Securities available for sale follow:

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 $7 million and $8 million, respectively, at
December 31, 2003, and $75 million and $71 million, respectively, at December
31, 2002.

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

Management does not believe any individual unrealized loss as of December 31,
2003 represents an other-than-temporary impairment. The unrealized losses
reported for mortgage-backed securities relate primarily to securities issued by
FNMA, FHLMC and private institutions. These unrealized losses are primarily
attributable to changes in interest rates and individually were 2% or less of
their respective amortized cost basis. The unrealized losses associated with the
asset-backed securities relate primarily to securities collateralized by home
equity and manufactured housing loans. These unrealized losses were also mainly
attributed to changes in interest rates and were individually 2% or less of
their respective amortized cost basis. The Corporation has both the intent and
ability to hold the securities contained in the previous table for a time
necessary to recover the amortized cost.

The following table presents the amortized cost, fair value, and
weighted-average yield of securities at December 31, 2003 by maturity:

(a) Yield on debt securities only; equity securities and retained interests in
securitizations are 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, 2003, the fair value of securities pledged to secure public and
trust deposits, U.S. Treasury notes, security repurchase agreements, and
derivative instruments totaled $5.4 billion.

At December 31, 2003, 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 2003, 2002, and 2001, gross securities gains of $52 million, $109 million,
and $146 million and gross securities losses of $5 million, $28 million, and $2
million were recognized, respectively.

2003 ANNUAL REPORT

54

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED

10. Principal Investments

The principal investment portfolio is managed within the Wholesale Banking line
of business. The principal investment portfolio primarily consists of
investments in the consumer, retail, manufacturing, automotive, commercial
services, and building products industries with the largest industry
constituting approximately 22% of the total portfolio. A rollforward of
principal investments follows:

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

(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 22.

11. 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 2003 and 2002 as compared to 2001. The following table shows the pro
forma effects of applying SFAS 142 to 2001.

A rollforward of goodwill by line of business for 2003 and 2002 follows:

2003 ANNUAL REPORT

55

The goodwill acquired for National Processing relates to the payment processing
company's second quarter acquisition of Bridgeview Payment Solutions, Inc. The
value assigned to goodwill is based upon a preliminary allocation of the
purchase price. Other intangibles, primarily merchant contracts, of
approximately $10 million were capitalized and are being amortized on a
straight-line basis over five years. Refer to Note 3 for further discussion.

During the second quarter of 2003, the Consumer and Small Business Financial
Services line of business acquired a teleconsulting business and capitalized
goodwill and other intangible assets of $550 thousand and $1 million,
respectively. The other intangible assets capitalized are being amortized over a
period of four years.

During the third quarter of 2003, the National City Mortgage Co. division of
National Consumer Finance purchased two retail residential mortgage loan
origination branches and capitalized goodwill of $430 thousand. There were no
other intangible assets capitalized in connection with this transaction.

On January 1, 2002, in conjunction with the adoption of SFAS 142, previously
classified goodwill assets with a gross carrying value of $28 million,
accumulated amortization of $20 million, and a net carrying value of $8 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, which range from one
to 10 years.

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

Amortization expense on finite-lived intangible assets totaled $23 million, $21
million, and $17 million for 2003, 2002, and 2001, respectively. Amortization
expense on finite-lived intangible assets is expected to total $23 million, $11
million, $9 million, $8 million, and $4 million in 2004, 2005, 2006, 2007, and
2008, respectively.

12. Mortgage Servicing Right (MSR) Assets

The unpaid principal balance of residential mortgage loans serviced for third
parties was $141.1 billion at December 31, 2003, compared to $101.9 billion at
December 31, 2002.

Changes in the carrying value of MSRs and the associated valuation allowance
follow:

MSRs are evaluated for impairment and a valuation allowance is established
through a charge to income when the carrying value of the MSR, including hedge

2003 ANNUAL REPORT

56

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED

accounting adjustments, exceeds the fair value and is determined to be
temporary. Other-than-temporary impairment is recognized when the recoverability
of a recorded valuation allowance is determined to be remote taking into
consideration historical and projected interest rates and loan pay-off activity.
When this situation occurs, the unrecoverable portion of the valuation allowance
is applied as a direct write-down to the carrying value of the MSRs. Unlike a
valuation allowance, a direct write-down permanently reduces the carrying value
of the MSR and the valuation allowance, precluding subsequent recoveries. During
the second quarter of 2003, management determined that $138 million of
previously established valuation allowance was not recoverable and reduced both
the asset and the valuation allowance. At January 1, 2001, there was no
valuation allowance recognized against the carrying value of the MSRs. Activity
in the valuation allowance during 2001 totaled $88 million and was entirely
related to impairment charges.

The fair value of MSRs 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, which are determined based on current market conditions.
The expected and actual rates of mortgage loan prepayments are the most
significant factors driving the valuation. Increases in mortgage loan
prepayments reduce estimated future net servicing cash flows because the life of
the underlying loan is reduced. In determining the fair value of the MSRs,
mortgage interest rates, which are used to determine prepayment rates, and
discount rates are held constant over the estimated life of the portfolio.
Expected mortgage loan prepayment rates are derived from a third-party model and
adjusted to reflect National City's actual prepayment experience. At December
31, 2003, the fair value of MSRs exceeded the carrying value reported in the
consolidated balance sheet by $145 million. This difference represents increases
in the fair value of certain MSRs accounted for under SFAS 140 that were not
permitted to be recorded above their cost basis, net of accumulated amortization
and SFAS 133 adjustments.

The key economic assumptions used to estimate the value of the MSRs at December
31, 2003 and 2002 are presented in the table that follows. A sensitivity
analysis of the current fair value to immediate 10% and 20% adverse changes in
those assumptions as of December 31, 2003 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 MSR is calculated
independently without changing any other assumption. In reality, changes in one
factor may result in changes in another (for example, changes in mortgage
interest rates, which drive changes in prepayment rate estimates, could result
in changes in the discount rates), which might magnify or counteract the
sensitivities.

The key economic assumptions used in determining the fair value of MSRs
capitalized in 2003 were as follows:
- ------------------------------------------------------------

Weighted-average CPR 26.74%
Weighted-average life (in years) 3.9
Weighted-average discount rate 9.46%
===========================================================

Risk associated with declines in estimated fair value due to increases in
mortgage loan prepayments is managed using derivative instruments that are
expected to increase in value when interest rates decline. The Corporation
typically strives to include the derivative instruments it uses to protect the
value of the MSRs in SFAS 133 hedge relationships in order to record gains and
losses on both the assets and the associated derivative instruments
simultaneously in the income statement. MSRs 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. Notes 1 and 25 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.

13. Properties and Equipment

Properties and equipment follow:

2003 ANNUAL REPORT

57

Depreciation and amortization of properties and equipment totaled $195 million
in 2003, and $183 million in both 2002 and 2001.

The Corporation also leases owned equipment to customers under operating lease
arrangements. The net book value of leased equipment was $40 million and $71
million at December 31, 2003 and 2002, respectively. Net rental income from
operating equipment leases, which represents lease rental income less
depreciation expense on the equipment, was $7 million, $5 million, and $8
million in 2003, 2002, and 2001, respectively. At December 31, 2003, aggregate
minimum future rental payments to be received under these operating leases
totaled $11 million in 2004, $8 million in 2005, $4 million in 2006, $1 million
in 2007, $1 million in 2008, and $1 million in 2009 and beyond.

14. 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.

15. 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, 2003 and 2002, $5.7 billion and $7.9 billion
of notes, respectively, were callable on demand by 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.

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

The other category at December 31, 2003 includes the Corporation's liability
related to mortgage loans available for repurchase under GNMA optional
repurchase programs. See further discussion in Note 1.

16. Long-Term Debt

The composition of long-term debt follows. This note excludes the discussion and
amounts associated with the junior subordinated notes owed to the unconsolidated
subsidiary trusts. See Note 17 for further discussion on these obligations.

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 instru-

2003 ANNUAL REPORT

58

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED

ments, primarily interest rate swaps and caps, to manage interest rate risk on
its long-term debt. Interest rate swaps are used to hedge the fair value of
certain fixed-rate debt by converting the debt to variable rate and are also
used to hedge the cash flow variability associated with certain variable-rate
debt by converting the debt to fixed rate. Interest rate caps are used to hedge
cash flow variability by capping the interest payments associated with
variable-rate debt issuances. Interest rate swaps and caps used to convert the
Corporation's debt are based on the one- or three-month London Interbank
Offering Rate (LIBOR) rate, the Federal Funds rate, or the Prime rate. Further
discussion on derivative instruments is included in Notes 1 and 25.

The subordinated notes of the holding company and bank subsidiaries qualify for
Tier 2 capital under the regulatory capital requirements of the federal banking
agencies. Further discussion on regulatory capital requirements is included in
Note 18.

A summary of par values and weighted-average rates of long-term debt as of
December 31, 2003 follows. The weighted-average effective rate includes the
effects of derivative instruments used to manage interest rate risk.

All senior notes and subordinated notes of the holding company and subordinated
notes of the bank subsidiaries were issued at fixed rates, pay interest
semi-annually and may not be redeemed prior to maturity. Subordinated notes with
a par amount of $550 million were issued by the bank subsidiaries in 2003. In
March 2003, the holding company issued senior notes with a par value of $300
million.

Senior bank notes are issued by National City's bank subsidiaries. During 2003,
senior bank notes with a par value of $10.0 billion were issued by the bank
subsidiaries. At December 31, 2003, senior bank notes totaling $1.3 billion were
contractually based on a fixed rate of interest and $13.9 billion were
contractually based on a variable rate of interest. Senior bank notes have
maturities ranging from 2004 to 2078.

FHLB advances at December 31, 2003, contractually consisted of $189 million of
fixed-rate obligations and $3.7 billion of variable-rate obligations. FHLB
advances are collateralized by qualifying residential real estate loans and have
maturities ranging from 2004 to 2023.

At December 31, 2003, long-term debt maturities for the next five years and
thereafter are as follows: $10.9 billion in 2004, $4.7 billion in 2005, $2.0
billion in 2006, $1.3 billion in 2007, $1.2 billion in 2008, and $3.1 billion
thereafter. These maturities are based upon the par values of long-term debt.

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 its
long-term debt rating. The fee is currently 10 basis points on the amount of the
credit facility. There have been no borrowings outstanding under this agreement.

17. Junior Subordinated Debentures Owed to Unconsolidated Subsidiary Trusts and
Corporation-Obligated Mandatorily Redeemable Capital Securities of
Subsidiary Trusts Holding Solely Debentures of the Corporation

National City has sponsored two 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
corporation-obligated mandatorily redeemable capital securities (the capital
securities) to third-party investors and investing the proceeds from the sale of
such capital securities solely in junior subordinated debt securities of the
Corporation (the debentures). The debentures held by each trust are the sole
assets of that trust. 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. The capital
securities are subject to mandatory redemption, in whole or in part, upon
repayment of the debentures. The Corporation has entered into agreements which,
taken collectively, fully and unconditionally guarantee the capital securities
subject to the terms of each of the guarantees. The debentures held by the First
of America and Fort Wayne capital trusts are first redeemable, in whole or in
part, by the Corporation on January 31, 2007 and April 15, 2007, respectively.

In the third quarter of 2003, as a result of applying the provisions of FIN 46,
governing when an equity interest should be consolidated, the Corporation was
required to deconsolidate these subsidiary trusts from its financial statements.
The deconsolidation of the net assets and results of operations of the trusts
had virtually no impact on the Corporation's financial statements or liquidity
position since the Corporation continues to be obligated to repay the debentures
held by the trusts and guarantees repayment of the capital securities issued by
the trusts. The consolidated debt obligation related to the trusts increased
from $180 million to $186 million upon deconsolidation with the difference
representing the Corporation's common ownership interest in the trusts.

The capital securities held by the trusts qualify as Tier 1 capital for the
Corporation under Federal Reserve Board guidelines. As a result of the issuance
of FIN 46, the Federal Reserve Board is currently evaluating whether
deconsolidation of the trusts will affect the qualification of the capital
securities as Tier 1 capital. If it is determined that the capital securities no
longer qualify as Tier 1 capital, the effect would be immaterial.

2003 ANNUAL REPORT

59

Consolidated debt obligations related to subsidiary trusts holding solely
debentures of the Corporation follows:

18. 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 December
15, 2003, 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, 2003, each of the subsidiary banks were also categorized as
well-capitalized.

As discussed in Note 17, the capital securities held by the First of America and
Fort Wayne subsidiary trusts qualify as Tier 1 capital for the Corporation under
Federal Reserve Board guidelines. As a result of the issuance of FIN 46, the
Federal Reserve Board is currently evaluating whether deconsolidation of the
trusts will affect the qualification of the capital securities as Tier 1
capital. If it is determined that the capital securities no longer qualify as
Tier 1 capital, the effect of such a change would not be material.

The Corporation's subsidiary banks are required to maintain noninterest bearing
reserve balances with the Federal Reserve Bank. The required reserve balance was
$153 million at December 31, 2003.

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 2004 of $1.2 billion, plus an additional amount equal to their net profits
for 2004, as defined by statute, up to the date of any such dividend
declaration, without prior regulatory approval.

2003 ANNUAL REPORT

60

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED

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, 2003, these subsidiaries
met their respective minimum net worth capital requirements.

19. Stockholders' Equity

A summary of activity in accumulated other comprehensive income follows:

The Corporation had two share repurchase authorizations outstanding at December
31, 2003. In February 2003, the Corporation's Board of Directors authorized a
share repurchase program for the repurchase of up to 25 million shares of
National City common stock, subject to an aggregate purchase limit of $800
million. 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 under these
programs are held for reissue in connection with stock compensation plans and
for general corporate purposes. During 2003, 2002, and 2001, the Corporation
repurchased 11.5 million, 1.3 million, and 9.3 million shares of its common
stock, respectively. As of December 31, 2003, 27.8 million shares remain
authorized for repurchase.

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 thousand.

On January 1, 2001, the Corporation recorded a transition loss of $26 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.

20. Net Income per Common Share

Basic and diluted net income per common share calculations follow:

2003 ANNUAL REPORT

61

Basic net income per common share is calculated by dividing net income, less
dividend requirements on outstanding 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 outstanding convertible preferred stock and certain unvested
restricted stock and unexercised stock option awards were converted or exercised
into common shares. For the years ended December 31, 2003, 2002, and 2001,
options to purchase 18,136,018, 22,866,306, and 18,731,994 shares of common
stock, respectively, were outstanding but not included in the computation of
diluted net income per share because the option exercise price exceeded the fair
value of the stock and consequently their inclusion would have had an anti-
dilutive effect. Net income is not adjusted for preferred dividend requirements
since the preferred shares are assumed to be converted from the beginning of the
period.

21. Income Taxes

The composition of income tax expense follows:

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 in the following table:

Income tax expense for 2001 included a $40 million charge related to tax
exposure for corporate-owned life insurance deductions.

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

For the years ended 2003, 2002, and 2001, income tax benefits of $27 million,
$20 million, and $27 million, respectively, were credited to stockholders'
equity related to the exercise of nonqualified employee stock options.

22. Commitments, Contingent Liabilities, Guarantees, and Related Party
Transactions

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

2003 ANNUAL REPORT

62

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED

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 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 changes in
mortgage interest rates are recorded on the balance sheet as either derivative
assets or derivative liabilities and are included in other loans in the table.
Further discussion on derivative instruments is included in Notes 1 and 25.

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

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

The Corporation enters into forward contracts for the future delivery or
purchase of fixed-rate residential mortgage loans 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
the fair value of these contracts due to interest rate risk are recorded on the
balance sheet as either derivative assets or derivative liabilities. Further
discussion on derivative instruments is included in Notes 1 and 25.

The Corporation has principal investment commitments to provide equity and
mezzanine capital financing to private and public companies through either
direct investments in specific companies or through investment funds and
partnerships. The timing of future cash requirements to fund such commitments is
generally dependent on the investment cycle. This cycle, 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 invests in low-income housing, small-business commercial real
estate, and historic tax credit projects to promote the revitalization of
low-to-moderate-income neighborhoods throughout the local communities of its
banking subsidiaries. As a limited partner in these unconsolidated projects, the
Corporation is allocated tax credits and deductions associated with the
underlying projects. The commitments to fund civic and community investments
represent funds committed for existing and future projects.

The Corporation and certain of its subsidiaries occupy certain 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 $123 million in 2004, $98 million in
2005, $84 million in 2006, $73 million in 2007, $62 million in 2008, and $290
million thereafter. The Corporation also subleases and receives rental income on
certain leased properties. As of December 31, 2003, aggregate future minimum
rentals to be received under noncancelable subleases totaled $23 million. Total
operating lease expense, net of sublease income, recorded under all operating
leases was $131 million, $132 million, and $123 million in 2003, 2002, and 2001,
respectively.

CONTINGENT LIABILITIES AND GUARANTEES: 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
$117.5 billion, $72.1 billion, and $43.1 billion in 2003, 2002, and 2001,
respectively. Total loans repurchased or indemnified during 2003, 2002, and 2001
were $265 million, $206 million, and $157 million, respectively. Loans
indemnified that remain outstanding as of December 31, 2003 totaled $171
million. In addition, total loans sold of $1.6 billion remained uninsured as of
December 31, 2003. The volume and balance of uninsured government loans may be
affected by processing or notification delays. Management believes the majority
of the uninsured loans at December 31, 2003 will become insured during the
normal course of business. To the extent insurance is not obtained, the loans
may be subject to repurchase. Uninsured government loans, which were ultimately
repurchased, have been included in the repurchase totals above. Losses charged
against the liability for estimated losses, including uninsured government
loans, were $65 million, $42 million, and $10 million for 2003, 2002, and 2001,
respectively. At December 31, 2003 and 2002, the liability for estimated losses
on repurchase and indemnification was $167 million and $95 million,
respectively, and was included in other liabilities on the balance sheet.

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

2003 ANNUAL REPORT

63

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. As of December 31, 2003, the current
liability, which represents the fair value of the financial guarantee, and the
maximum exposure to loss under these contracts totaled $397 thousand and $2
million, respectively. As a result of the issuance of SFAS 149, similar
contracts entered into after June 30, 2003 are accounted for as derivative
instruments.

The guarantee liability for standby letters of credit was $8 million at December
31, 2003, which was recorded in other liabilities on the balance sheet. The
current liability reflects the fair value of the guarantee associated with
standby letters of credit originated since January 1, 2003, the implementation
date for the recognition provisions of FIN 45. See above for further discussion
on standby letters of credit and their associated outstanding commitments.

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 2003, this amount totaled approximately
$55.9 billion. At December 31, 2003, the Corporation had $6 million of
unresolved chargebacks that were in process of resolution.

During 2003, 2002 and 2001, the Corporation processed $151 million, $163
million, and $168 million, respectively, in chargebacks presented by issuing
banks. Actual losses recorded for 2003, 2002, and 2001 were $3 million, $3
million and $4 million, respectively. The Corporation accrues for probable
losses based on historical experience and at December 31, 2003 and 2002, had $1
million and $2 million, respectively, recorded in accrued expenses and other
liabilities for expected losses.

In most cases, a contingent liability for chargebacks is unlikely to arise, as
most products or services are delivered when purchased, and credits are issued
on returned items. Where the product or service is not provided, however, until
some time after the purchase (delayed-delivery), the potential for this
contingent liability increases. In 2003, the Corporation processed approximately
$13.0 billion of merchant transactions related to delayed-delivery purchases.

The Corporation currently processes card transactions for two of the largest
airlines in the United States. In May 2002, the Corporation announced its
decision to discontinue processing debit and credit card transactions for the
airline industry. The Corporation will honor its existing contractual
obligations to the two airlines it currently serves but does not intend to renew
such contracts when their current terms expire. The contracts currently in
effect have expiration dates of April 2004 and November 2005. One of the two
continuing airline merchants, United Airlines, Inc., is currently operating
under Chapter 11 protection. In the event of liquidation of United Airlines or
the Corporation's other airline customer, the Corporation could become
financially responsible for refunding tickets purchased through Visa(R) and
MasterCard(R) under the chargeback rules of those associations. At December 31,
2003, the estimated dollar value of tickets purchased, but as yet unflown, under
continuing merchant processing contracts, was approximately $786 million, of
which approximately $464 million pertained to United Airlines. Based upon
available information, these amounts represent management's best estimate of its
maximum potential chargeback exposure related to its continuing airline
customers. As of December 31, 2003, the Corporation held no significant
collateral under these contracts.

During the second quarter of 2003, the Corporation's obligation to process card
transactions for two other airline merchants, including U.S. Airways Group,
Inc., ceased with these merchants transitioning to new processors. At December
31, 2003, the estimated dollar value of tickets purchased, but as yet unflown,
under these concluding contracts was approximately $5 million. This amount
represents management's best estimate of its maximum potential chargeback
exposure under these concluded contracts. As of December 31, 2003, the
Corporation held cash collateral of $1 million and third-party indemnifications
of $110 million against this remaining chargeback exposure.

In November 2003, Congress passed the Federal Aviation Administration
Reauthorization Act. This legislation included an extension of the airline
ticket re-accommodation provision, which requires airlines to honor tickets
through November 2004 for other airlines that may suspend, interrupt or
discontinue services due to insolvency or liquidation.

Based on current conditions in the airline industry and other information
currently available to the Corporation, management believes the risk of 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

2003 ANNUAL REPORT

64

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED

not be materially affected by the outcome of any pending or threatened legal
proceedings, commitments, or claims.

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

23. 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.

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 million
options to purchase shares of common stock at the market price of the common
stock on the date of grant. These options generally become exercisable to the
extent of 25% to 50% annually beginning one year from the date of grant and
expire 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 market price of the common stock on the date the additional option is
granted. Additional options vest six months from the date of grant and have a
contractual term equal to the remaining term of the original option.

On January 1, 2003, the Corporation prospectively adopted the fair value method
of accounting for stock options under SFAS 123. Further discussion of the impact
of the change is included in Notes 1 and 2. Compensation expense recognized
related to National City's stock option plans totaled $12 million in 2003.
Compensation expense of $4 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 2003, 2002, and 2001 was
$32.38, $29.69, and $29.30, respectively. Compensation expense recognized in
2003, 2002, and 2001 totaled $18 million, $12 million, and $8 million,
respectively, related to restricted share plans.

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

As of December 31, 2003 and 2002, 16,240,499 and 22,443,809 shares, respectively
were available for grant under the various stock option and restricted stock
plans.

Cancelled activity includes both forfeited and expired awards and options.

Information about stock options outstanding at December 31, 2003 follows:

At December 31, 2003, 2002, and 2001, options for 40,448,964, 38,664,840, and
33,723,522 shares of common stock, respectively, were exercisable.

2003 ANNUAL REPORT

65

Additional stock option and restricted award information as of December 31, 2003
follows:

(a) Includes plans assumed through various acquisitions. As of December 31,
2003, outstanding options related to these acquired plans totaled 710,692
with a weighted-average exercise price per share of $17.05.

(b) In 1995, in commemoration of its 150th anniversary, National City granted to
virtually all employees a total of 5.6 million options to purchase common
stock at the then market price. The options became exercisable to the extent
of 33% per year beginning two years from the grant date. The 506,000
remaining outstanding options at December 31, 2003 are all exercisable.

24. 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 assets for each of the
plans follows:

The asset allocation for the defined benefit pension plan as of the measurement
date, by asset category, is as follows:

The investment objective for the defined benefit pension plan is to maximize
total return with tolerance for slightly above average risk. Asset allocation
strongly favors equities, with a target allocation of approximately 80% equity
securities, 15% fixed income securities, and 5% cash. Due to volatility in the
market, the target allocation is not always desirable and asset allocations will
fluctuate between the acceptable ranges. A core equity position of large cap
stocks will be maintained. However, more aggressive or volatile sectors will be
meaningfully represented in the asset mix in pursuit of higher returns. Higher
volatility investment strategies such as credit risk, structured finance, and
international bonds will be appropriate strategies in conjunction with the core
position.

It is management's intent to give the investment managers flexibility within the
overall guidelines with respect to investment decisions and their timing.
However, certain investments require specific review and approval by management.
Management is also informed of anticipated changes in nonproprietary investment
managers, significant modifications of any previously approved investment, or
anticipated use of derivatives to execute investment strategies.

Equity securities include $164 million and $136 million of National City common
stock at October 31, 2003 and 2002, respectively. The $164 million of National
City Common stock included in plan assets at October 31, 2003 represented
5,015,808 shares of stock at a closing price of $32.66 as of that date. During
2003, dividends of $6 million were paid on the shares included in plan assets.

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

2003 ANNUAL REPORT

66

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED

The accumulated benefit obligation for the defined benefit pension plan was $1.3
billion and $1.2 billion at October 31, 2003 and 2002, respectively.

The weighted-average assumptions used to determine benefit obligations at the
measurement date were as follows:

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

The weighted-average assumptions used to determine net periodic benefit and net
periodic cost for the years ended December 31 were as follows:

The expected long-term rate of return was estimated using market benchmarks for
equities and bonds applied to the plan's target asset allocation. The expected
return on equities was computed utilizing a valuation framework, which projected
future returns based on current equity valuations rather than historical
returns. Due to active management of the plan's assets, the return on the plan's
equity investments historically has exceeded market averages. Management
estimated the rate by which the plan assets would outperform the market in the
future based on historical experience adjusted for changes in asset allocation
and expectations for overall lower future returns on equities compared to past
periods.

National City does not anticipate making a contribution to its defined benefit
pension plan in 2004 as the plan is currently overfunded. The 2004 pension plan
assumptions used to determine net periodic cost will be a discount rate of 6.25%
and an expected long-term return on plan assets of 8.50%.

The assumed health care cost trend rate at the measurement date follows:

The health care trend rate assumption affects only those participants retired
under the plan prior to April 1, 1989.

Assumed health care cost trend rates have a significant effect on the amounts
reported for the health care plan. A one-percentage-point change in the assumed
health care cost trend rate would have the following effect:

In December 2003, President Bush signed into law a bill that expands Medicare
benefits, primarily adding a prescription drug benefit for Medicare-eligible
retirees beginning in 2006. The law also provides a federal subsidy to companies
which sponsor postretirement benefit plans that provide prescription drug
coverage. FASB Staff Position 106-1, Accounting and Disclosure Requirements
Related to the Medicare Prescription

2003 ANNUAL REPORT

67

Drug, Improvement and Modernization Act of 2003 permits deferring the
recognition of the new Medicare provisions' impact due to lack of specific
authoritative guidance on accounting for the federal subsidy. The Corporation
has elected to defer accounting for the effects of this new legislation until
the specific authoritative guidance is issued. Accordingly, the postretirement
benefit obligations and net periodic costs reported in the accompanying
financial statements and notes do not reflect the impact of this legislation.
The accounting guidance, when issued, could require changes to previously
reported financial information. The Corporation anticipates its benefit costs
after 2006 will be somewhat lower as a result of the new Medicare provisions,
however, the adoption of this standard is not expected to have a material impact
on results of operations, financial position, or liquidity.

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, 2003
and 2002, obligations of $83 million and $80 million, respectively, were
included in accrued expenses and other liabilities for these plans. For the
years ended December 31, 2003, 2002, and 2001, expense related to these plans
was $21 million, $15 million, and $15 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. The Corporation provides up to a 6.9% matching
contribution. For the years ended 2003, 2002, and 2001, the expense related to
the plan was $64 million, $58 million, and $53 million, respectively.

25. Derivative Instruments and Hedging Activities

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

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, 2003, these collateral agreements
covered 99.8% 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. At December 31,
2003, the Corporation held cash, U.S. government, and U.S. government-sponsored
agency securities with a fair value of $411 million to collateralize net gains
with counterparties and had pledged or delivered to counterparties U.S.
government and U.S. government-

2003 ANNUAL REPORT

68

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED

sponsored agency securities with a fair value of $32 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, 2003
and 2002.

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 commercial loans, and U.S.
Treasury securities for changes in interest rates.

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

During 2003, 2002, and 2001, the Corporation recognized total net ineffective
fair value hedge gains of $69.9 million, $278.0 million, and $73.5 million,
respectively. Of the total gains recognized, net ineffective hedge gains related
to servicing assets were $41.6 million, $263.5 million, and $79.1 million in
2003, 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 $28.3 million, $14.5
million, and $(5.6) million in 2003, 2002, and 2001, respectively. There were no
components of derivative instruments which were excluded from the assessment of
hedge effectiveness during 2003, 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 uses pay-fixed interest rate swaps and caps to hedge
forecasted cash flows associated with debt instruments expected to be issued in
subsequent periods.

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 5
for further discussion of the automobile loan securitization.

During 2003, 2002, and 2001, the Corporation recognized net ineffective cash
flow hedge gains (losses) of $.1 million, $(.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 effectiveness during 2003, 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, 2003 and 2002,
accumulated other comprehensive income included a deferred after-tax net loss of
$67.6 million and $155.9 million, respectively, related to derivatives used to
hedge funding cash flows. See Note 19 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, 2003, is
projected to be reclassified into interest expense in conjunction with the
recognition of interest payments on funding products through November 2008, with
$77.3 million of net loss expected to be reclassified within the next year.
During 2003, 2002, and 2001, pretax losses of $189.0 million, $159.8 million,
and $77.7 million, respectively, were reclassified into interest expense as
adjustments to interest payments on variable-rate funding products. During 2002,
pretax gains of $2.0 million were also 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 2003, 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.

2003 ANNUAL REPORT

69

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, 2003 and 2002 follows:

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

2003 ANNUAL REPORT

70

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED

OTHER DERIVATIVE ACTIVITIES: The derivative portfolio also includes derivative
financial instruments not included in SFAS 133 hedge relationships. Those
derivatives include 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 commercial
banking 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 financial instruments are
included in mortgage banking revenue on the income statement, while gains and
losses on other derivative financial instruments are included in other
noninterest income. A summary of derivative financial instruments not in SFAS
133 hedge relationships by type of activity follows:

26. 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, 2003 and 2002. 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.

2003 ANNUAL REPORT

71

LOANS AND LOANS HELD FOR SALE OR SECURITIZATION: The fair values of portfolio
loans and the automobile and commercial loans held for sale or securitization
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. The fair values of mortgage loans held for sale is
based either upon observable market prices or prices obtained from third
parties.

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.

27. Line of Business Results

National City operates five major lines of business: Consumer and Small Business
Financial Services, Wholesale Banking, National Consumer Finance, Asset
Management, and National Processing.

Consumer and Small Business Financial Services (CSB) 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, CSB's activities
also include small business services, dealer finance, education finance, retail
brokerage, and lending-related insurance services. Consumer lending products
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. CSB'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, generally within
National City's six-state footprint. Expenses include personnel and support
costs, in addition to credit costs.

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. (NCMC), a
business unit within NCF. These loans are typically sold to primary market
aggregators (Fannie Mae, Freddie Mac, Ginnie Mae, or the Federal Home Loan
Banks) and jumbo loan investors. During 2003, approximately 55% of NCMC mortgage
loans were originated through wholesale and correspondent channels, while 45%
were originated through retail mortgage branches operated by NCMC nationally, or
through CSB bank branches within National City's six-state footprint. First
Franklin Financial Corporation, a business unit within NCF, originates
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. 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
prime-quality 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, and
acts as the investment advisor for the Armada(R) mutual funds. 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 relation-

2003 ANNUAL REPORT

72

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED

ships. 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
84%-owned payment processing subsidiary. National Processing authorizes,
processes, and performs financial settlement and reporting of card transactions,
including credit and debit transactions and also provides financial settlement
and reporting solutions to large and mid-size corporate customers in the travel
and health care industries. National Processing is the second largest acquirer
of card transactions in the United States.

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 related to credit card and automobile loans are also considered
funding activities and the effects of such securitizations are included within
the Parent and Other category. The credit card and automobile loans sold through
securitization continue to be reflected as owned by the business unit that
manages those assets. Asset sales and other transactions between business units
are primarily conducted at fair value, resulting in gains or losses that are
eliminated for reporting consolidated results of operations. Parent and Other is
primarily comprised of the results of investment funding activities,
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 following table.

2003 ANNUAL REPORT

73

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

2003 ANNUAL REPORT

74

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED

28. Financial Holding Company

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

Balance Sheets

Securities and other investments totaling $106 million at December 31, 2003,
were restricted for use in certain of the Corporation's nonqualified benefit
plans. The borrowed funds from subsidiaries balance includes the junior
subordinated debt securities payable to the two wholly-owned subsidiary trusts
(the trusts) that were deconsolidated as a result of applying the provisions of
FIN 46. The holding company continues to guarantee the capital securities issued
by the trusts, which totaled $180 million at December 31, 2003. Refer to Note 17
for further discussion on FIN 46 and the deconsolidation of the trusts. The
holding company also guarantees commercial paper issued by its subsidiary
National City Credit Corporation, which borrowings totaled $693 million at
December 31, 2003. Additionally, the holding company guarantees National City
Bank of Kentucky's financial obligation under this subsidiary's membership with
VISA(R) up to $600 million and Mastercard(R) up to $400 million. Refer to Note
22 for further discussion of contingent liabilities and guarantees related to
the Corporation's merchant card processing business.

Statements of Income

2003 ANNUAL REPORT
75

Statements of Cash Flows

At December 31, 2003 and 2002, retained earnings of the holding company included
$6.9 billion and $5.9 billion, respectively, of equity in undistributed net
income of subsidiaries.

2003 ANNUAL REPORT
76

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2003 ANNUAL REPORT
77

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 2003 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, 2003

[ ] 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 30, 2003, determined using a per share closing
price on that date of $32.71, as quoted on the New York Stock Exchange, was
$19,904,581,093.

The number of shares outstanding of each of the registrant's classes of common
stock, as of December 31, 2003:

Common Stock, $4.00 Per Share - 605,996,120

Documents Incorporated By Reference:

Portions of the registrant's Proxy Statement (to be dated approximately March 8,
2004) 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; Item 13. Certain Relationships and Related Transactions; and Item 14.
Principal Accounting Fees and Services, of Part III.

2003 ANNUAL REPORT

78

FORM 10-K CONTINUED

Form 10-K Cross Reference Index

Reports on Form 8-K filed or furnished during the fourth quarter of 2003 and
through the date of this Form 10-K filing:

October 16, 2003 - National City issued a news release announcing its financial
results for the three- and nine-month periods ended September 30, 2003 and the
availability of the September 30, 2003 Financial Supplement on its Web site at
www.NationalCity.com.

October 28, 2003 - National City issued a news release announcing the retirement
of Vice Chairman, Robert G. Siefers, effective the end of 2003.

November 20, 2003 - National City issued a news release announcing that it
entered into a definitive agreement to acquire Allegiant Bancorp, Inc.

December 9, 2003 - National City announced the posting of its Mid-Quarter Update
to Financial Supplement to its Web site.

January 15, 2004 - National City issued a news release announcing its financial
results for the fourth quarter and fiscal year ended December 31, 2003 and the
availability of the December 31, 2003 Condensed Financial Supplement on its Web
site. The news release also announced that National City restated its results
for 2001, 2002, and the nine-month period ended September 30, 2003 related to
the application of Statement of Financial Accounting Standards No. 133,
Accounting for Derivative Instruments and Hedging Activities.

January 26, 2004 - National City announced the posting of its December 31, 2003
Financial Supplement to its Web site.

The index of exhibits and any exhibits filed as part of the 2003 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 8, 2004.

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

2003 ANNUAL REPORT

79

Business

National City Corporation (National City or the Corporation), founded in 1845,
is a $113.9 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 330 retail mortgage offices located throughout the United States. National
City and its subsidiaries had 33,331 full-time-equivalent employees at December
31, 2003.

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, 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

2003 ANNUAL REPORT

80

FORM 10-K CONTINUED

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 18 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 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

During 2003, National City purchased its headquarters building, National City
Center, located in Cleveland, Ohio. The Corporation also owns freestanding
operation centers in Columbus and Cleveland, Ohio, Louisville, Kentucky, and
Kalamazoo and Royal Oak, Michigan. Certain of National City's significant
subsidiaries occupy their headquarters offices under long-term leases. The
Corporation also 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 22 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 29, 2004) are as follows:

The term of office for executive officers is one year.

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

2003 ANNUAL REPORT

81

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 a senior executive vice president from 1999 to 2001 and an executive vice
president from 1993 to 1999.

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. Prior to that time
he was chief executive officer of National City Bank of Michigan/Illinois from
1998 to 2000.

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.

2003 ANNUAL REPORT

82

FORM 10-K CONTINUED

Controls and Procedures

National City's management is responsible for establishing and maintaining
effective disclosure controls and procedures, as defined under Rules 13a-15(e)
and 15d-15(e) of the Securities Exchange Act of 1934. As of December 31, 2003,
an evaluation was performed under the supervision and with the participation of
management, including the Chief Executive Officer and Chief Financial Officer,
of the effectiveness of the design and operation of the Corporation's disclosure
controls and procedures. Based on that evaluation, management concluded that
disclosure controls and procedures as of December 31, 2003 were effective in
ensuring material information required to be disclosed in this Annual Report on
Form 10-K was recorded, processed, summarized, and reported on a timely basis.
Additionally, there were no changes in the Corporation's internal control over
financial reporting that occurred during the quarter ended December 31, 2003
that have materially affected, or are reasonably likely to materially affect,
the Corporation's internal control over financial reporting.

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, 2003, 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, 2003, 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, 2003.

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 29, 2004.

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 29, 2004.

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

David A. Daberko

Chairman and Chief Executive Officer

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

William E. MacDonald III

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

2003 ANNUAL REPORT

83

Certifications of Chief Executive Officer Sarbanes-Oxley Act Section 302

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 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 report;

3. Based on my knowledge, the financial statements, and other financial
information included in this 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 report;

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

a) Designed such disclosure controls and procedures, or caused such disclosure
controls and procedures to be designed under our supervision, 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 report is being prepared;

b) Evaluated the effectiveness of the registrant's disclosure controls and
procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of the
period covered by this report based on such evaluation; and

c) Disclosed in this report any change in the registrant's internal control
over financial reporting that occurred during the registrant's most recent
fiscal quarter that has materially affected, or is reasonably likely to
materially affect, the registrant's internal control over financial reporting;
and

5. The registrant's other certifying officer and I have disclosed, based on our
most recent evaluation of internal control over financial reporting, to the
registrant's auditors and the audit committee of the registrant's board of
directors:

a) All significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are reasonably
likely to adversely affect the registrant's ability to record, process,
summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal control
over financial reporting.

Date: February 9, 2004

By: /s/ David A. Daberko
-----------------------------
David A. Daberko
Chairman and Chief Executive Officer

Sarbanes-Oxley Act Section 906

Pursuant to 18 U.S.C. section 1350, the undersigned officer of National City
Corporation (the "Company"), hereby certifies, to such officer's knowledge, that
the Company's Annual Report on Form 10-K for the year ended December 31, 2003
(the "Report") fully complies with the requirements of Section 13(a) or 15(d),
as applicable, of the Securities Exchange Act of 1934 and that the information
contained in the Report fairly presents, in all material respects, the financial
condition and results of operations of the Company.

Date: February 9, 2004

By: /s/ David A Daberko
-----------------------------
David A. Daberko
Chairman and Chief Executive Officer

The signed original of this written statement required by Section 906, or other
document authenticating, acknowledging, or otherwise adopting the signature that
appears in typed form within the electronic version of this written statement
required by Section 906, has been provided to the Company and will be retained
by the Company and furnished to the Securities and Exchange Commission or its
staff upon request.

New York Stock Exchange

The undersigned Chief Executive Officer of National City Corporation certifies
to the New York Stock Exchange that, as of the date of this certification, he is
unaware of any violation by National City Corporation of the New York Stock
Exchange's corporate governance listing standards in effect as of the date of
this certification.

Date: February 9, 2004

By: /s/ David A Daberko
-----------------------------
David A. Daberko
Chairman and Chief Executive Officer

2003 ANNUAL REPORT

84

FORM 10-K CONTINUED

Certifications of Chief Financial Officer

Sarbanes-Oxley Act Section 302

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 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 report;

3. Based on my knowledge, the financial statements, and other financial
information included in this 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 report;

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

a) Designed such disclosure controls and procedures, or caused such disclosure
controls and procedures to be designed under our supervision, 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 report is being prepared;

b) Evaluated the effectiveness of the registrant's disclosure controls and
procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of the
period covered by this report based on such evaluation; and

c) Disclosed in this report any change in the registrant's internal control
over financial reporting that occurred during the registrant's most recent
fiscal quarter that has materially affected, or is reasonably likely to
materially affect, the registrant's internal control over financial reporting;
and

5. The registrant's other certifying officer and I have disclosed, based on our
most recent evaluation of internal control over financial reporting, to the
registrant's auditors and the audit committee of the registrant's board of
directors:

a) All significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are reasonably
likely to adversely affect the registrant's ability to record, process,
summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal control
over financial reporting.

Date: February 9, 2004

By: /s/ Jeffrey D. Kelly
-----------------------------
Jeffrey D. Kelly
Executive Vice President and Chief Financial Officer

Sarbanes-Oxley Act Section 906

Pursuant to 18 U.S.C. section 1350, the undersigned officer of National City
Corporation (the "Company"), hereby certifies, to such officer's knowledge, that
the Company's Annual Report on Form 10-K for the year ended December 31, 2003
(the "Report") fully complies with the requirements of Section 13(a) or 15(d),
as applicable, of the Securities Exchange Act of 1934 and that the information
contained in the Report fairly presents, in all material respects, the financial
condition and results of operations of the Company.

Date: February 9, 2004

By: /s/ Jeffrey D. Kelly
-----------------------------
Jeffrey D. Kelly
Executive Vice President and Chief Financial Officer

The signed original of this written statement required by Section 906, or other
document authenticating, acknowledging, or otherwise adopting the signature that
appears in typed form within the electronic version of this written statement
required by Section 906, has been provided to the Company and will be retained
by the Company and furnished to the Securities and Exchange Commission or its
staff upon request.

CORPORATE INFORMATION
- --------------------------------------------------------------------------------

CORPORATE HEADQUARTERS COMMON STOCK LISTING
National City Center National City Corporation common stock is traded
1900 East Ninth Street on the New York Stock Exchange under the symbol
Cleveland, Ohio 44114-3484 NCC. The stock is abbreviated in financial
216-222-2000 publications as NtlCity.
NationalCity.com
The common stock of the National City 84%-owned
TRANSFER AGENT AND REGISTRAR payment processing subsidiary, National
National City Bank Processing, Inc., is traded on the New York
Corporate Trust Operations Stock Exchange under the symbol NAP. The stock
Department 5352 is abbreviated in financial publications as
P.O. Box 92301 NtlProc.
Cleveland, Ohio 44193-0900
E-mail: shareholder.inquiries@nationalcity.com ANNUAL MEETING
The Annual Meeting of Stockholders will be on
Stockholders of record may access their accounts Tuesday, April 27, 2004 at
via the Internet to review account holdings and 10:00 a.m. Eastern time
transaction history through National City
StockAccess at www.ncstockaccess.com. National City Corporation
Stockholders can also download frequently used National City Center
forms from this Web site. For log-in assistance 1900 East Ninth Street
or other inquiries, call 800-622-6757. Cleveland, Ohio 44114-3484

INVESTOR INFORMATION DIVIDEND REINVESTMENT AND
Betsy Figgie STOCK PURCHASE PLAN
Investor Relations National City Corporation offers stockholders a
Department 2101 convenient way to increase their investment
P.O. Box 5756 through the National City Corporation Amended
Cleveland, Ohio 44101-0756 and Restated Dividend Reinvestment and Stock
800-622-4204 Purchase Plan (the Plan). Under the Plan,
E-mail: investor.relations@nationalcity.com investors can elect to acquire National City
shares in the open market by reinvesting
WEB SITE ACCESS TO UNITED STATES SECURITIES dividends and through optional cash payments.
AND EXCHANGE COMMISSION FILINGS National City absorbs the fees and brokerage
All reports filed electronically by National commissions on shares acquired through the Plan.
City Corporation with the United States To obtain a Plan prospectus and authorization
Securities and Exchange Commission (SEC), card, call 800-622-6757. The Plan prospectus is
including the annual report on Form 10-K, also available on the Corporation's Web site.
quarterly reports on Form 10-Q, and current
event reports on Form 8-K, as well as any DIRECT DEPOSIT OF DIVIDENDS
amendments to those reports, are accessible at The direct deposit program, which is offered at
no cost on the Corporation's Web site at no charge, provides for automatic deposit of
NationalCity.com. These filings are also quarterly dividends directly to a checking or
accessible on the SEC's Web site at www.sec.gov. savings account. For information regarding this
program, call 800-622-6757.
CORPORATE GOVERNANCE
The National City corporate governance practices NAIC
are described in the following documents, which National City is a proud sponsor of the National
are available on the Corporation's Web site at Association of Investors Corporation (NAIC) and
NationalCity.com or which may be obtained in participates in its Low-Cost Investment Plan. To
print form through the investor relations receive more information on NAIC, call
depart- ment: Corporate Governance Guidelines, 248-583-NAIC.
Code of Ethics, Code of Ethics for Senior
Financial Officers, Audit Committee Charter,
Nominating and Board of Directors Governance
Committee Charter, Compensation Committee
Charter, and the Risk and Public Policy
Committee Charter.

Debt Ratings

Common Stock Information

NATIONAL CITY(R) PRSRT STD
U S POSTAGE
1900 East Ninth Street PAID
Cleveland, OH 44114 National City
Corporation

74-0549-00 (Rev. 02/04)

EXHIBIT INDEX