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SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

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

PFGI CAPITAL CORPORATION

1900 East Ninth Street, Cleveland, Ohio 44114

Phone: 1-800-622-4204

Securities Registered Pursuant to Section 12(b) of the Act: Income PRIDES, $25 Stated Value

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, 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 need 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. [X]

        Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). Yes [ ] No [X]

        All Common Stock is held by an affiliate of the registrant as of December 31, 2004. As of February 28, 2005, 5,940,000 shares of Common Stock at $.01 per share par value were outstanding. The aggregate market value of the Common Stock held by non-affiliates of the registrant as of the close of business on June 30, 2004 is $0.

Documents Incorporated by Reference:

        Information Statement for the 2005 Annual Meeting of Stockholders (portions which are incorporated by reference into Part III hereof).

        Please address all correspondence to:

David J. Lucido
Chief Financial Officer and Treasurer
PFGI Capital Corporation
1900 East Ninth Street
Cleveland, Ohio 44114

PFGI CAPITAL CORPORATION

INDEX TO ANNUAL REPORT

ON FORM 10-K

FORWARD-LOOKING STATEMENTS

        This Form 10-K contains certain forward-looking statements that are subject to numerous assumptions, risks or uncertainties. The Private Securities Litigation Reform Act of 1995 provides a safe harbor for forward-looking statements. Forward-looking statements may be identified by words such as estimates, anticipates, projects, plans, expects, intends, believes, should and similar expressions and by the context in which they are used. Such statements are based upon current expectations of the company and speak only as of the date made. Actual results could differ materially from those contained in or implied by such forward-looking statements for a variety of factors including: sharp and/or rapid changes in interest rates; prepayments of loans with fixed interest rates resulting in reinvestment of the proceeds in loans with lower interest rates; significant changes in the anticipated economic scenario which could materially change anticipated credit quality trends; adverse economic and other developments in states where loans are concentrated; the possible exchange of Series A Preferred Stock for preferred shares of National City Bank at the direction of the Office of the Comptroller of the Currency if The Bank becomes undercapitalized; the failure of PFGI Capital Corporation to maintain its status as a REIT for federal income tax purposes; significant changes in accounting, tax, or regulatory practices or requirements; and factors noted in connection with forward-looking statements. Additionally, borrowers of loan participations could suffer unanticipated losses without regard to general economic conditions. The result of these and other factors could cause differences from expectations in the level of defaults, changes in risk characteristics of the loan participation portfolio, and changes in the provision for loan participation losses. PFGI Capital Corporation undertakes no obligation to update any forward-looking statements to reflect events or circumstances arising after the date on which they are made.

PFGI CAPITAL CORPORATION

PART I

ITEM 1. BUSINESS

PFGI CAPITAL CORPORATION

General

        PFGI Capital Corporation (PFGI Capital) is a Maryland corporation incorporated on May 9, 2002. The principal business objective of PFGI Capital is to acquire, hold and manage commercial mortgage loan assets and other authorized investments that will generate net income for distribution to PFGI Capital’s stockholders. As such, management views its financial condition and results of operations as one business segment. PFGI Capital has elected to be treated as a real estate investment trust (REIT) for federal income tax purposes. As a REIT, PFGI Capital generally will not be liable for federal income tax to the extent that it distributes its income to its stockholders and continues to meet a number of other requirements.

        All of PFGI Capital’s Common Stock is owned by National City Bank, a wholly owned subsidiary of National City Corporation, a financial holding company headquartered in Cleveland Ohio (National City). Prior to March 5, 2005, all of PFGI Capital’s Common Stock was owned by The Provident Bank, a wholly-owned subsidiary of Provident Financial Group, Inc. (Provident) prior to July 1, 2004. Effective July 1, 2004, National City Corporation acquired Provident pursuant to an Agreement and Plan of Merger under which The Provident Bank became a wholly-owned subsidiary of National City Corporation. On March 5, 2005, The Provident Bank was merged into National City Bank.

        Under terms of the merger, Provident’s shareholders received 1.135 shares of National City common stock for each share of Provident common stock. National City has assumed Provident’s obligations under the PRIDES Forward Purchase Contracts. Holders of PRIDES Forward Purchase Contracts will be required to purchase shares of National City common stock and the settlement rate has been adjusted to reflect the exchange ratio.

        Unless specifically referenced, references in this document relative to the Bank refer to The Provident Bank prior to March 5, 2005 and National City Bank thereafter.

        Copies of National City’s Form 10-K and all other SEC filings by National City may be obtained, without charge, by contacting Investor Relations at (216) 222-9849 or (800) 622-4204. These reports may also be obtained via the Internet at the web sites of National City at http://www.nationalcity.com, and the Securities and Exchange Commission (SEC) at http://www.sec.gov.

        PFGI Capital and National City’s executive offices are located at 1900 East Ninth Street, Cleveland, Ohio 44114. Directors and officers of PFGI Capital are:

(1)

   The Registrar and Transfer Agent of PFGI Capital is:National City Bank
1900 East Ninth Street
Cleveland, Ohio 44114
Phone: 1-800-622-6757

        In connection with the startup of business, PFGI Capital acquired mortgage assets from the Bank in an aggregate amount of approximately $330 million pursuant to a participation agreement. These assets were comprised of participation interests in commercial mortgage loans, before the allowance for loan losses. Since acquiring these assets, PFGI Capital has met all of the REIT qualification tests for federal income tax purposes.

        Although PFGI Capital has the authority to acquire interests in an unlimited number of mortgage assets from unaffiliated third parties, all of PFGI Capital’s interests in mortgage and other assets were acquired from the Bank, pursuant to the participation agreement between the Bank and PFGI Capital. The Bank either originated the mortgage assets or acquired them as part of the acquisition of other financial institutions. PFGI Capital may also acquire from time to time a limited amount of additional non-mortgage-related securities. PFGI Capital has no present plans or expectations to purchase mortgage assets or other assets from unaffiliated third parties.

        PFGI Capital’s participation interests do not entitle PFGI Capital to retain any portion of any late payment charges or penalties, assumption fees or conversion fees collected and retained by the Bank in connection with the loans underlying PFGI Capital’s participation interests serviced by the Bank.

General Description of Mortgage Assets and Other Authorized Investments; Investment Policy

        In order to qualify as a REIT under the Internal Revenue Code, at least 75% of the total value of PFGI Capital’s assets must, broadly speaking, consist of real estate assets, which includes: residential mortgage loans and commercial mortgage loans, including participation interests in residential or commercial mortgage loans; mortgage-backed securities eligible to be held by REITs; cash; cash equivalents which includes receivables and government securities; and other real estate assets. PFGI Capital refers to these types of assets as REIT qualifying assets. PFGI Capital may invest up to 25% of the value of its total assets in other types of securities (within the meaning of the Investment Company Act). Under the Investment Company Act, the term “security” is defined broadly to include, among other things, any note, stock, treasury stock, debenture, evidence of indebtedness, or certificate of interest or participation in any profit sharing agreement or a group or index of securities. The Internal Revenue Code also generally requires that the value of any one issuer’s securities, other than those securities included in the 75% test, may not exceed 5% by value of the total assets of PFGI Capital. In addition, under the Internal Revenue Code, PFGI Capital generally may not own more than 10% of the voting securities nor more than 10% of the value of the outstanding securities of any one issuer, other than those securities included in the 75% test.

(2)

        As of December 31, 2004, nearly 100% of PFGI Capital’s assets were invested in REIT Qualifying Assets. PFGI Capital does not hold any securities nor does PFGI Capital intend to hold securities in any one issuer that exceed 5% of PFGI Capital’s total assets or more than 10% of the voting securities of any one issuer. PFGI Capital’s assets consisted of the following at December 31, 2004:

        REITs generally are subject to tax at the maximum corporate rate on any income from foreclosure property, other than income that would be qualifying income for purposes of the 75% gross income test, less deductible expenses directly connected with the production of such income. Therefore, prior to foreclosure of any underlying loan acquired by PFGI Capital from the Bank, PFGI Capital currently intends to try to sell the participation interest in the underlying loan back to the Bank. The Bank will then bear all expenses related to the foreclosure after that time.

        Loan Participations: PFGI Capital holds participation interests in commercial mortgage loans that are secured by real property such as: office buildings; multi-family properties of five units or more; industrial, warehouse and self-storage properties; office and industrial condominiums; retail space; strip shopping centers; mixed use commercial properties; mobile home parks; nursing homes; hotels and motels; churches and farms. Commercial mortgage loans may not be fully amortizing. This means that the loans may have a significant principal balance or “balloon” payment due on maturity. Additionally, apart from the Bank’s commercial mortgage loan origination guidelines, there is no requirement regarding the percentage of any commercial real estate property that must be leased at the time PFGI Capital acquires a participation interest in a commercial mortgage loan secured by such property nor are commercial mortgage loans required to have third party guarantees. Commercial properties, particularly industrial and warehouse properties, generally are subject to relatively greater environmental risks than non-commercial properties. This gives rise to increased costs of compliance with environmental laws and regulations. The Bank may be affected by environmental liabilities related to the underlying real property, which could exceed the value of the real property. Although the Bank has exercised, and will continue to exercise, due diligence to discover potential environmental liabilities prior to PFGI Capital’s acquisition of any participation interests in loans secured by such property, hazardous substances or wastes, contaminants, pollutants, or their sources may be discovered on properties during PFGI Capital’s ownership of the participation interests. There can be no assurance that the Bank would not incur full recourse liability for the entire cost of any removal and clean-up on a property it acquired in foreclosure, that the cost of removal and clean-up would not exceed the value of the property, or that the Bank could recoup any of the costs from any third party. Even though PFGI Capital intends to sell back to the Bank the participation interest in any loan prior to foreclosure, the discovery of these liabilities and any associated costs could have a material adverse effect on the fair value of that loan, and therefore PFGI Capital may not recover any or all of its investment in the underlying loan.

(3)

        The credit quality of a commercial mortgage loan may depend on, among other factors:
o the existence and structure of underlying leases;
o the physical condition of the property, including whether any maintenance has been deferred;
o the creditworthiness of tenants; o the historical and anticipated level of vacancies;
o rents on the property and on other comparable properties located in the same region;
o potential or existing environmental risks;
o the availability of credit to refinance the loan at or prior to maturity; and
o the local and regional economic climate in general.

        Foreclosures of defaulted commercial mortgage loans generally are subject to a number of complicating factors, including environmental considerations, which are not generally present in foreclosures of residential mortgage loans.

        Other Assets: “Cash and Due From Banks” on the Balance Sheet represent cash received by the Bank from borrowers for the payment of principal and interest on the underlying loans deposited in a demand deposit account of the Bank for PFGI Capital. These funds are available for the purchase of additional participation interests, payment of dividends and other operating expenses of PFGI Capital.

        Other assets also include accrued interest on the loans underlying PFGI Capital’s participation interests, which is calculated by the Bank’s loan accounting systems.

Dividend Policy

        PFGI Capital expects to distribute annually an aggregate amount of dividends with respect to its outstanding capital shares equal to approximately 100% of its REIT taxable income (as determined before any deduction for dividends paid and excluding any net capital gain). In order to remain qualified as a REIT, PFGI Capital is required to distribute annually at least 90% of such REIT taxable income to its stockholders.

        Dividends will be authorized and declared at the discretion of PFGI Capital’s board of directors. Factors that would generally be considered by PFGI Capital’s board of directors in making this determination are PFGI Capital’s distributable funds, financial condition and capital needs, the impact of current and pending legislation and regulations, economic conditions, tax considerations, and PFGI Capital’s continued qualification as a REIT. PFGI Capital currently expects that both PFGI Capital’s cash available for distribution and its REIT taxable income will be in excess of the amounts needed to pay dividends on all outstanding shares of preferred stock, even in the event of a significant drop in interest rate levels because:

(4)

        o substantially all of PFGI Capital’s mortgage assets and other authorized investments are interest-earning;

        o all outstanding shares of PFGI Capital’s preferred stock represent in the aggregate only approximately 50% of PFGI Capital’s capitalization and, as a result, the scheduled distributions to be paid to PFGI Capital with respect to its participation interests will exceed the aggregate dividends to be paid on PFGI Capital Series A preferred stock;

        o with the prior approval of PFGI Capital’s independent directors, PFGI Capital may incur indebtedness in an aggregate amount of no more than 20% of PFGI Capital’s stockholder’s equity as determined in accordance with generally accepted accounting principles: provided that PFGI Capital may incur indebtedness in an aggregate amount not to exceed $10.0 million without such prior approval so long as, at the time of incurrence of such indebtedness, PFGI Capital’s outstanding common stockholder’s equity as determined in accordance with accounting principles generally accepted in the United States is at least $150.0 million; and

        o PFGI Capital anticipates that it will have cash flows from principal payments on its commercial mortgage loan portfolio.

        Accordingly, PFGI Capital expects that it will, after paying the dividends on all series and classes of preferred stock, pay dividends to the holder of its Common Stock in an amount sufficient to comply with applicable requirements regarding qualification as a REIT and to ensure that there will be no federal taxable income at the PFGI Capital level.

        As an alternative to distributing a cash dividend, PFGI Capital has the option of distributing to its common stockholder, a dividend using a procedure known as a “consent dividend”, as authorized by Section 565 of the Internal Revenue Code. A consent dividend procedure is where a stockholder, on the last day of a REIT’s tax year, agrees to treat as a dividend the amount that the REIT so designates, without any distribution of cash or property actually occurring. The effect of the consent dividend is that the REIT is considered to have paid a dividend on the last day of its tax year, and the stockholder is treated as having received that amount and contributed it back to the REIT. The dollar amount of the consent dividend is included, as if it were distributed, in the calculation to determine that at least 90% of a REIT’s taxable income has been distributed to its stockholders. PFGI Capital, as a REIT, receives a deduction for dividends paid, reducing its taxable income by the amount of the consent dividend, but without the need to have cash available to distribute. For the years ended December 31, 2004, 2003, and for the period from June 12 to December 31, 2002, PFGI Capital and its common stockholder have agreed to use the consent dividend procedure. As a result, PFGI Capital will have additional funds available for investment purposes and/or for distribution to its preferred stockholders than if PFGI Capital had paid a cash dividend to the common stockholder.

        Under certain circumstances, including any determination that the Bank’s relationship with PFGI Capital results in an unsafe and unsound banking practice, the Office of the Comptroller of the Currency will have the authority to issue an order that restricts PFGI Capital’s ability to make dividend payments to PFGI Capital’s stockholders, including holders of PFGI Capital Series A preferred stock. The exercise of these powers to restrict dividends on PFGI Capital Series A preferred stock would also have the effect of restricting PFGI Capital’s ability to pay dividends on its Common Stock and affect its status as a REIT.

Conflict of Interests and Related Policies

        The Bank controls 90% of the voting power of PFGI Capital’s outstanding securities. Accordingly, the Bank will continue to have the right to elect all of PFGI Capital’s directors, including PFGI Capital’s independent directors, other than the two additional independent directors to be elected by the holders of PFGI Capital Series A preferred stock if PFGI Capital fails to pay quarterly dividends of $.484375 per share on PFGI Capital Series A preferred stock for at least six consecutive dividend periods. In addition, PFGI Capital’s officers and six of its directors are also officers and/or employees of National City, the Bank or its affiliates. Because of the nature of PFGI Capital’s relationship with National City and the Bank, it is likely that conflicts of interest will arise with respect to certain transactions because National City, the Bank and their affiliates have interests which are not identical to those of PFGI Capital.

(5)

        The Bank administers PFGI Capital’s day-to-day activities under the terms of a management agreement between PFGI Capital and the Bank. Since the parties to this agreement are affiliated, this agreement was not the result of arms-length negotiations. Any future modification of the management agreement will require the approval of a majority of PFGI Capital’s independent directors. However, since the Bank, through its ownership of all of PFGI Capital’s Common Stock, controls the election of all of PFGI Capital’s directors, including PFGI Capital’s independent directors, any such modification also would not be the result of arms-length negotiations. Thus, there can be no guarantee that future modifications will be on terms as favorable to PFGI Capital as those that could have been obtained from unaffiliated third parties.

        Under the terms of the management agreement between PFGI Capital and the Bank, PFGI Capital pays the Bank a monthly management fee equal to (i) 1/12 multiplied by (ii) .10% multiplied by the average daily outstanding principal balance of the loans of PFGI Capital during each such calendar month. Similarly, PFGI Capital pays the Bank a monthly servicing fee under the term of the participation agreement equal to (i) 1/12 multiplied by (ii) .125% multiplied by the average daily outstanding principal balance of the loans of PFGI Capital during each such calendar month. PFGI Capital and the Bank believe the combined 22.5 annual basis point charge is below current market rates that could be obtained for the management services and the servicing of commercial mortgage loans from independent parties.

        National City, the owner of all the Bank’s common shares, may have investment goals and strategies that differ from those of the holders of shares of PFGI Capital Series A preferred stock. Nevertheless, PFGI Capital’s investment and operating strategies will largely be directed by National City and the Bank. In addition, neither National City nor the Bank has a policy addressing treatment of new business opportunities. Thus, new business opportunities identified by National City or the Bank may be directed to affiliates other than PFGI Capital.

        PFGI Capital is dependent on the diligence and skill of the officers and employees of the Bank for the selection and structuring of the loans underlying PFGI Capital’s participation interests and PFGI Capital’s other authorized investments. Management will select the amount, type, and price of loan participation interests and other assets which PFGI Capital will acquire from the Bank and its affiliates. PFGI Capital anticipates that it will continue to acquire all or substantially all of its assets from National City, the Bank or its affiliates. To date, all participation interests have been transferred at the Bank’s carrying value, which the parties believe approximates fair value. Carrying value is the principal amount outstanding plus accrued interest. At December 31, 2004, approximately 85% of the loan participations are adjustable rate loans. Substantially all of the loans underlying both the fixed rate and adjustable rate participations are current on principal and interest payments. Neither PFGI Capital nor the Bank has obtained any third-party valuations, nor does PFGI Capital intend to do so in the future. Although PFGI Capital has adopted certain policies to guide the acquisition and disposition of assets, these policies may be revised or exceptions may be approved from time to time at the discretion of the board of directors without a vote of PFGI Capital’s stockholders. Changes in or exceptions made to these policies could permit PFGI Capital to acquire lower quality assets.

(6)

        PFGI Capital is also dependent on the Bank and others for monitoring and servicing the loans underlying PFGI Capital’s participation interests under the terms of the participation agreement between the Bank and PFGI Capital. Since the parties to this agreement are affiliated, this agreement is not the result of arms-length negotiations. Any future modification of the participation agreement will require the approval of a majority of PFGI Capital’s independent directors. However, since the Bank, through its ownership of all of PFGI Capital’s Common Stock, controls the election of all of PFGI Capital’s directors, including PFGI Capital’s independent directors, any such modification would not be the result of arms-length negotiation. Conflicts may arise as part of such servicing, particularly with respect to loans that are placed on nonaccrual status. While PFGI Capital believes that the Bank will diligently pursue collection of any non-performing assets, there can be no guarantee that this will be the case. Conflicts of interest between PFGI Capital and the Bank may also arise in connection with making decisions that bear upon the credit arrangements that the Bank may have with a borrower under a loan. The Bank could also seek to exercise its influence over PFGI Capital’s affairs so as to cause the sale of PFGI Capital’s assets and their replacement by lesser quality assets purchased from the Bank or elsewhere. Although these potential conflicts exist, PFGI Capital believes that the Bank will service the assets with a view toward PFGI Capital’s interests.

        The requirement in PFGI Capital’s charter that certain of PFGI Capital’s actions be approved by a majority of PFGI Capital’s independent directors is intended to ensure fair dealings between PFGI Capital and the Bank. There can be no assurance, however, that such agreement or transaction will be on terms as favorable to PFGI Capital as could have been obtained from unaffiliated third parties.

        There are no provisions in PFGI Capital’s charter limiting any of PFGI Capital’s officers, directors, stockholders, or affiliates from having any direct or indirect pecuniary interest in any asset to be acquired or disposed of by PFGI Capital or in any transaction in which PFGI Capital has an interest or from engaging in acquiring, holding, and managing PFGI Capital’s assets. It is expected that the Bank and its affiliates will have direct interests in transactions with PFGI Capital including, without limitation, the sale of assets to PFGI Capital; however, it is not anticipated that any of PFGI Capital’s officers or directors will have any interests in such assets, other than as borrowers or guarantors of loans underlying PFGI Capital’s participation interests, in which case such loans would be on substantially the same terms, including interest rates and collateral on loans, as those prevailing at the time for comparable transactions with others and would not involve more than the normal risk of collectibility or present other unfavorable features.

(7)

Other Management Policies and Programs

        General: In administering PFGI Capital’s participation interests and other authorized investments, the Bank has a high degree of autonomy. PFGI Capital, however, adopted certain policies to guide PFGI Capital’s administration with respect to the acquisition and disposition of assets, use of capital and leverage, credit risk management and certain other activities. These policies, which are discussed below, may be amended or revised from time to time at the discretion of PFGI Capital’s board of directors and, in certain circumstances subject to the approval of a majority of PFGI Capital’s independent directors, but without a vote of PFGI Capital’s stockholders, including holders of shares of PFGI Capital’s Series A preferred stock.

        Underwriting Standards: In connection with the acquisition of commercial mortgage loan participations by PFGI Capital, the Bank represents to PFGI Capital that substantially all of the commercial mortgage loans underlying the participation interests acquired by PFGI Capital were originated generally in accordance with underwriting policies customarily employed by the Bank during the period in which the commercial mortgage loans were originated. It is the policy of the Bank to make commercial mortgage loans primarily in the geographic areas in which the Bank is doing business, normally a l00-mile radius of Cincinnati, Dayton, Columbus and Cleveland, Ohio. The Bank avoids transactions perceived to have unacceptably high risk, as well as excessive industry, type of collateral and other concentrations. It is the policy of the Bank that no more than two-thirds of the Bank’s commercial mortgage loans cover properties that are not stabilized at any one time.

        Some of the loans, however, were acquired by the Bank in connection with the acquisition of other financial institutions. Prior to acquiring any financial institution, the Bank performed due diligence procedures to, among other things, assess the overall quality of the target institution’s loan portfolio. These procedures included the examination of underwriting standards used in the origination of loan products by the target institution, the review of loan documents and the contents of selected loan files, and the verification of the past due status and payment histories of selected borrowers. Through its due diligence procedures, the Bank obtained a sufficient level of comfort pertaining to the underwriting standards used by the target institution and their influence on the quality of the portfolio. Even though the Bank did not and does not warrant those standards, the Bank found them acceptable in comparison to its own underwriting standards in cases where the Bank had made a favorable decision to acquire the institution as a whole.

        The underwriting standards imposed by the Bank in connection with the origination of the commercial mortgage loans underlying the participation interests acquired by PFGI Capital include careful consideration of the borrower’s overall creditworthiness and capacity to service debt independent of the income generated from the underlying property. In most instances, cash equity is required in each commercial mortgage loan transaction to reduce debt to a level where the income of the property can comfortably service that debt. In other instances where income from the underlying property does not provide adequate debt service coverage margins, additional collateral is required to offset any perceived deficiency. In the case of properties where the stability of the income stream may be in question, such as construction and development situations, the Bank requires the borrower to have met the pre-leasing and pre-sale standard designated by the Bank for the type of property.

(8)

        The underwriting procedures and guidelines taken into account by the Bank include such factors as:

        o demographic factors, including population and employment trends;

        o current and projected vacancy, construction and absorption rates;

        o current and projected lease terms, rental rates and sales prices, including concessions;

        o economic indicators, including trends and diversification of the lending

area;

        o valuation trends, including discount and direct capitalization rates;

        o amount and credit rating of additional collateral;

        o the net worth and credit rating of the borrower, as well as its operating and liquidity ratios;

        o the existence of a guarantee;

        o the management ability of the borrower, including its business experience and financial soundness;

        o the characteristics of the specific project financed; and

        o such other economic, demographic, or other factors as in the judgment of the Bank might affect the value of the collateral and the ability of the borrower to service the loan.

        Asset Acquisition and Disposition Policies: PFGI Capital adopted the policy of purchasing from the Bank or its affiliates participation interests generally in commercial mortgage loans that:

        o are performing, meaning they have no more than two payments past due, if any,

        o are in accruing status,

        o are secured by real property such that they are REIT qualifying, and

        o have not been previously sold, securitized or charged-off either in whole or in part.

        PFGI Capital’s policy also will allow for investment in assets which are not REIT qualifying assets up to but not exceeding the statutory limitations imposed on organizations that qualify as a REIT. PFGI Capital, under this policy, will have the discretion to purchase other assets to maximize its return to stockholders.

        From time to time PFGI Capital acquires participation interests in additional commercial mortgage loans from the Bank or its affiliates on a basis consistent with secondary market standards pursuant to the participation agreement. These acquisitions are made out of proceeds received by PFGI Capital in connection with the repayment or disposition of loan participation interests in PFGI Capital’s portfolio. Although PFGI Capital is permitted to do so, PFGI Capital has no present plans or intentions to purchase loans or loan participation interests from unaffiliated third parties. PFGI Capital currently anticipates that additional participation interests in mortgage loans acquired by PFGI Capital will be of the types described above under the heading “Business: General Description of Mortgage Assets and Other Authorized Investments; Investment Policy,” although PFGI Capital is not precluded from purchasing additional types of loans or loan participation interests.

        PFGI Capital may acquire from time to time limited amounts of participation interests in loans that are not commercial mortgage loans, such as residential mortgage loans and equipment loans. PFGI Capital also may from time to time acquire a limited amount of other authorized investments. Although PFGI Capital currently does not intend to acquire any mortgage-backed securities representing interests in or obligations backed by pools of mortgage loans that will be secured by single-family residential or multi-family real estate properties located throughout the United States, PFGI Capital is not restricted from doing so. PFGI Capital does not intend to acquire any interest-only or principal-only mortgage-backed securities. PFGI Capital also will not be precluded from investing in mortgage-backed securities when the Bank is the sponsor or issuer. PFGI Capital does not intend to acquire any mortgage-backed securities that are not backed by pools of commercial real estate properties.

(9)

        PFGI Capital currently anticipates that it will not acquire the right to service any loan underlying a participation interest that it acquires in the future and that the Bank will act as servicer of any such additional loans. PFGI Capital anticipates that any future servicing arrangement with the Bank will contain fees and other terms that would be substantially equivalent to or more favorable to PFGI Capital than those that would be contained in servicing arrangements entered into with third parties unaffiliated with PFGI Capital.

        PFGI Capital has a policy of not acquiring any participation interest in any loan that constitutes more than 9% of the total book value of PFGI Capital’s assets at the time of acquisition.

        PFGI Capital has a policy of reinvesting the proceeds of PFGI Capital’s assets in other interest-earning assets so that PFGI Capital’s funds from operations over any period of four fiscal quarters will be anticipated to equal or exceed 140% of the amount that would be required to pay full annual dividends on PFGI Capital Series A preferred stock, except as may be necessary to maintain PFGI Capital’s status as a REIT. As of December 31, 2004 this ratio stands at 125% due to the impact of the lower interest rate environment on the adjustable rate mortgage loans. Management does not believe the shortfall constitutes a significant risk or has a negative impact on its ability to meet its dividend commitments. PFGI Capital’s charter provides that PFGI Capital cannot amend or change this policy with respect to the reinvestment of proceeds without the consent or affirmative vote of the holders of at least two thirds of PFGI Capital Series A preferred stock, voting as a separate class.

        Credit Risk Management Policies: The Bank represents to PFGI Capital that at least 95% of the participation interests acquired in the future will represent commercial mortgage loans in which the Bank has a first lien position and will be originated by National City, the Bank, one of its affiliates or an unaffiliated third party in the ordinary course of its real estate lending activities based on the underwriting standards generally applied by or substantially similar to those applied by the Bank at the time of origination for its own account. The Bank also represents to PFGI Capital that all loans will be serviced by or through the Bank pursuant to the participation agreement, which requires servicing in conformity with any loan servicing guidelines promulgated by PFGI Capital.

        Other Policies: PFGI Capital intends to operate in a manner that will not subject PFGI Capital to regulation under the Investment Company Act. PFGI Capital does not intend to:

        o borrow money at any time other than indebtedness incurred by PFGI Capital with the prior approval of PFGI Capital’s independent directors in an aggregate amount not to exceed 20% of PFGI Capital’s stockholders’ equity as determined in accordance with generally accepted accounting principles; provided, that PFGI Capital may incur indebtedness in an aggregate amount not to exceed $10.0 million without such prior approval so long as, at the time of incurrence of such indebtedness, PFGI Capital’s outstanding common stockholder’s equity is at least $150.0 million;

(10)

        o invest in the securities of other issuers for the purpose of exercising control over such issuers;

        o underwrite securities of other issuers;

        o actively trade in loans or other investments;

        o offer securities in exchange for property; or

        o make loans to third parties, including its officers, directors, or other affiliates.

        The Investment Company Act exempts entities that, directly or through majority-owned subsidiaries, are “primarily engaged in the business of purchasing or otherwise acquiring mortgages and other liens on and interests in real estate.” PFGI Capital refers to these interests as Qualifying Interests. Under current interpretations by the staff of the SEC, in order to qualify for this exemption, PFGI Capital, among other things, must maintain at least 55% of its total assets in Qualifying Interests and also may be required to maintain an additional 25% of its total assets in Qualifying Interests or other real estate-related assets. The assets that PFGI Capital may acquire, therefore, may be limited by the provisions of the Investment Company Act. PFGI Capital established a policy of limiting authorized investments which are not Qualifying Interests or real estate-related assets to no more than 20% of the value of PFGI Capital’s total assets.

        PFGI Capital may, under certain circumstances, purchase PFGI Capital Series A preferred stock and other stock in the open market or otherwise. PFGI Capital intends to redeem any of its preferred stock which participates in the remarketing in 2005.

        PFGI Capital intends to distribute to its stockholders, in accordance with the Exchange Act, annual reports containing financial statements prepared in accordance with generally accepted accounting principles and audited by PFGI Capital’s independent registered public accounting firm. PFGI Capital’s charter provides that it will maintain PFGI Capital’s status as a reporting company under the Exchange Act for so long as any of PFGI Capital Series A preferred stock is outstanding and held by unaffiliated stockholders.

        PFGI Capital intends to make investments and operate its business in such a manner consistent with the requirements of the Internal Revenue Code to qualify as a REIT and to elect to be treated as a REIT for federal income tax purposes. However, future economic, market, legal, tax or other considerations may cause PFGI Capital’s board of directors, subject to approval by a majority of PFGI Capital’s independent directors, to determine that it is in PFGI Capital’s best interest and the best interest of PFGI Capital’s stockholders to revoke PFGI Capital’s status as a REIT. The Internal Revenue Code prohibits PFGI Capital from electing REIT status for the four taxable years following the year of such revocation.

Servicing

        The loans underlying PFGI Capital’s participation interests are serviced by the Bank pursuant to the terms of the participation agreement between the Bank and PFGI Capital.

        Under the participation agreement, the Bank has the right in its discretion to give consents, waivers and modifications of the loan documents to the same extent as if the loans were wholly owned by the Bank; provided, however, that the Bank may not do the following without the written consent of an officer or director:

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        o waive any payment default;

        o extend the maturity of the loans;

        o reduce the rate or rates of interest with respect to the loans;

        o forgive or reduce the principal sum of the loans;

        o increase the lending formula or advance rates; or

        o amend or modify the financial covenants contained in the loan documents in any way that would make such financial covenants less restrictive.

        The Bank has the right to accept payment or prepayment of the whole principal sum and accrued interest in accordance with the terms of the loans, waive prepayment charges in accordance with the Bank’s policy for loans in which no participation interest has been granted and accept additional security for the loans. No specific term is specified in the participation agreement. The participation agreement may be terminated by mutual agreement of the parties at any time, without penalty. Due to the relationship between the Bank and PFGI Capital, PFGI Capital does not anticipate that the participation agreement will be terminated by either party in the foreseeable future.

        The Bank, in its role as servicer under the terms of the participation agreement, receives a servicing fee designed as a reimbursement for costs incurred to service the underlying loans. PFGI Capital will pay the Bank a monthly servicing fee equal to (i) 1/12 multiplied by (ii) .125% multiplied by the average daily outstanding principal balance of the loans of PFGI Capital during each such calendar month. Based on these formulas, PFGI Capital paid the Bank servicing compensation of $398,000, $401,000, and $221,000 for the years ended December 31, 2004, 2003, and for the period June 12 to December 31, 2002, respectively. The participation agreement does not limit or cap the servicing fees payable to the Bank. Other than the compensation referred to in this paragraph, and the management fee referred to in “Business: Other Management Policies and Programs — Management”, PFGI Capital pays no other compensation to the Bank or its affiliates. The Bank does, however, receive certain non-compensation benefits from its relationship with PFGI Capital.

        The participation agreement requires the Bank to service the loans underlying PFGI Capital’s participation interests in a manner substantially similar to work performed by the Bank for transactions on its own behalf. The Bank or its affiliates collect and remit principal and interest payments, maintain perfected collateral positions and submit and pursue insurance claims. The Bank and its affiliates also provide accounting and reporting services required by PFGI Capital for PFGI Capital’s participation interests. PFGI Capital also may direct the Bank to dispose of any mortgage loans at the time the real property securing the mortgage loan becomes classified as a OREO property, the mortgage loan is in default or placed in a non-performing status, or, when any other development occurs that adversely affects the value of the mortgaged property, the borrower’s financial condition or its ability to repay the loan in accordance with its terms, including any renegotiation of loan terms due to the financial deterioration of the borrower. The Bank is required to pay all expenses related to the performance of its duties under the participation agreement, including any payment to its affiliates for servicing the loans. The Bank or its affiliates may institute foreclosure proceedings at the direction of PFGI Capital, exercise any power of sale contained in any mortgage or deed of trust, obtain a deed in lieu of foreclosure or otherwise acquire title to a mortgaged property underlying a mortgage loan by operation of law or otherwise in accordance with the terms of the participation agreement.

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        Prior to foreclosure of any commercial mortgage loan underlying PFGI Capital’s participation interests acquired by it from the Bank or its affiliates, PFGI Capital currently intends to try to sell the participation interest in the underlying commercial mortgage loan back to the Bank. The Bank will then bear all expenses related to the foreclosure after that time.

Management

        The day-to-day operations of PFGI Capital will be managed pursuant to the terms of the management agreement between the Bank and PFGI Capital. The Bank, in its role as manager under the terms of the management agreement, will receive a management fee designed as a reimbursement for costs incurred to manage PFGI Capital. The Bank is required to pay all expenses related to the performance of its duties under the management agreement, including any payment to its affiliates for managing PFGI Capital. PFGI Capital will pay the Bank a monthly management fee equal to (i) 1/12 multiplied by (ii) .10% multiplied by the average daily outstanding principal balance of the loans of PFGI Capital during each such calendar month. Based on these formulas, PFGI Capital paid the Bank management compensation of approximately $318,000, $320,000, and $177,000 for the years ended December 31, 2004, 2003, and for the period June 12 to December 31, 2002, respectively. No specific term is specified in the management agreement, and the management agreement may be terminated by mutual agreement of the parties at any time, without penalty. Due to the relationship between the Bank and PFGI Capital, PFGI Capital does not anticipate that the management agreement will be terminated by either party in the foreseeable future.

Employees

        PFGI Capital has five executive officers. PFGI Capital does not anticipate that PFGI Capital will require any employees because employees of the Bank and its affiliates are servicing the loans and managing the day-to-day operations and affairs of PFGI Capital under the participation and management agreements. All of PFGI Capital’s officers are also officers and/or employees of National City and/or the Bank. PFGI Capital intends to maintain corporate records and audited financial statements that are separate from those of National City and the Bank.

        Although there are no restrictions or limitations contained in PFGI Capital’s charter or bylaws, PFGI Capital does not anticipate that PFGI Capital’s officers or directors will have any direct or indirect pecuniary interest in any asset to be acquired or disposed of by PFGI Capital or in any transaction in which PFGI Capital has an interest or will engage in acquiring, holding and managing assets, other than as borrowers or guarantors of commercial mortgage loans underlying PFGI Capital’s participation interests, in which case such commercial mortgage loans would be on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable transaction with others and would not involve more than the normal risk of collectibility or present other unfavorable features.

Competition

        In order to qualify as a REIT under the Internal Revenue Code, PFGI Capital cannot engage in the business of originating loans. PFGI Capital anticipates that it will continue to possess participation interests in mortgage and other loans in addition to those in the current portfolio and that substantially all of these loans will be owned by the Bank, although PFGI Capital may purchase loans from unaffiliated third parties. Accordingly, PFGI Capital does not expect to compete with mortgage conduit programs, investment banking firms, savings and loan associations, banks, thrift and loan associations, finance companies, mortgage bankers or insurance companies in acquiring loans.

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Regulatory Matters

        The Bank, a nationally-chartered bank, and its subsidiaries, including PFGI Capital, are subject to supervision and examination by the Office of the Comptroller of the Currency. In addition to the impact of federal regulation, the Bank is affected significantly by the actions of the Federal Reserve Board as it attempts to control the money supply and credit availability in order to influence the economy.

Overview of the Prides

        In June of 2002, PFGI Capital issued 6,600,000 units of PRIDES to the public for $165,000,000. The proceeds of this issuance were used to purchase commercial mortgage loan participations from the Bank. Each PRIDES is comprised of a unit consisting of:

    (1)        a forward purchase contract pursuant to which (a) the holder will agree to purchase, and National City will agree to sell, for $25, newly issued shares of National City common stock on or before August 17, 2005, the number or fraction of which will be determined by the settlement rate described below, based on an average trading price of National City common stock for a period preceding that date; and (b) National City will make unsecured contract adjustment payments to the holder at a rate of 1.25% of the stated amount per year, paid quarterly, subject to National City’s right to defer these payments, and

    (2)        one share of PFGI Capital Series A preferred stock with a liquidation preference of $25, on which PFGI Capital will pay dividends on a non-cumulative basis at the rate of 7.75%.

        Each forward purchase contract obligates the holder to buy, on August 17, 2005, for $25.00, a number of newly issued shares of National City common stock equal to the settlement rate. The settlement rate will be calculated as follows:

        o if the applicable market value of National City common stock is equal to or greater than $25.6033, the settlement rate will be .9764;

        o if the applicable market value of National City common stock is between $25.6033 and $21.5154, the settlement rate will be equal to the $25.00 stated amount divided by the applicable market value; and

        o if the applicable market value is less than or equal to $21.5154, the settlement rate will be 1.1620.

        “Applicable market value” is defined as the average of the closing price per share of National City common stock on each of the twenty consecutive trading days ending on the fifth trading day immediately preceding August 17, 2005.

        Holders of PFGI Capital’s Series A preferred stock are entitled to receive, if, when, and as authorized and declared by the board of directors out of legally available assets, non-cumulative cash dividends at the rate of 7.75% per annum of the initial liquidation preference which is $25.00 per share ($1.9375 per share). Dividends on the preferred stock will be payable, if authorized and declared, quarterly in arrears on February 17, May 17, August 17 and November 17 of each year, or if any such day is not a business day, on the next business day. The preferred stock will rank senior to the Common Stock of PFGI Capital as to dividend rights and rights upon liquidation, winding up or dissolution.

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        In connection with the settlement of the forward purchase contract, National City has engaged a remarketing agent to remarket the PFGI Capital preferred stock on behalf of the holders, at which time the PFGI preferred stock will be permanently detached from the forward purchase contract. Once the forward purchase contract is settled, there will be two separate and distinct securities outstanding: PFGI Capital preferred stock and National City common stock. The proceeds received from the remarketing will be used by the holders of preferred stock to fulfill their commitment under the terms of the forward purchase contract.

        Upon a successful remarketing of shares of the PFGI Capital’s preferred stock, the applicable dividend rate on the shares of preferred stock that have been purchased in the remarketing will be reset to the reset rate described below. The dividend rate of shares of preferred stock that are not remarketed will not be reset and will continue to be 7.75%.

        The reset rate will be determined by the reset agent as the dividend rate the preferred stock should bear for the preferred stock to have a market value on the fifth business day immediately preceding August 17, 2005 of 100.5% of the aggregate liquidation preference of the preferred stock, plus declared and unpaid dividends, if any.

        Each share of PFGI Capital’s preferred stock will be automatically exchanged for one newly issued share of Bank Series A preferred stock upon the occurrence of an exchange event. An exchange event occurs when:

        o the Bank becomes less than “adequately capitalized” according to regulations established by the Office of the Comptroller of the Currency;

        o the Bank is placed into conservatorship or receivership;

        o the Office of the Comptroller of the Currency, in its sole discretion, directs such exchange in writing, and, even if the Bank is not less than “adequately capitalized,” the Office of the Comptroller of the Currency anticipates the Bank becoming less than “adequately capitalized” in the near term; or

        o the Office of the Comptroller of the Currency, in its sole discretion, directs such exchange in writing in the event that the Bank has a Tier 1 risk-based capital ratio of less than 5.0%.

ITEM 2. PROPERTIES

None

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ITEM 3. LEGAL PROCEEDINGS

        On May 3, 2003, a purported class action was filed in the U.S. District Court for the Southern District of Ohio by shareholder Silverback Master Ltd. As amended August 22, 2003 the case names as defendants Provident, PFGI Capital, Provident’s President, Robert L. Hoverson and Provident’s Chief Financial Officer, Christopher J. Carey, and is allegedly, on behalf of all purchasers of PRIDES in or traceable to a June 6, 2002 offering of those securities registered with the Securities and Exchange Commission and extending to March 5, 2003. This action is based upon circumstances involved in a restatement of earnings announced by Provident on March 5, 2003. It alleges violations of securities laws by the defendants in Provident’s financial disclosures during the period from March 30, 1998 through March 5, 2003 and in the June 2002 offering. It seeks an unspecified amount of compensatory damages.

        This action and other class actions have been consolidated before Judge S. Arthur Spiegel of the United States District Court for the Southern District of Ohio under the caption, Merzin v. Provident Financial Group, Inc., consolidated Civil Action Master File No. C-1-03-165. PFGI Capital and other Defendants filed a Motion to Dismiss the Complaint on November 5, 2003. The motion was granted on March 9, 2004 and the Court dismissed all claims except those relating to the June 6, 2002 offering of 6,600,000 PRIDE securities. However, the Court’s order confined any later finding of damages to $0.70 per PRIDE security.

        National City has reached a tentative agreement with the plaintiffs to settle this matter. The negotiated settlement is pending court approval. PFGI Capital will not have any obligation to the plaintiffs under the tentative settlement. Accordingly, there will be no impact on PFGI Capital’s financial condition, results of operations or cash flows.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None in the fourth quarter

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ITEM II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

        There is no public trading market for PFGI Capital’s Common Stock as the Bank owns all of the 5,940,000 shares of its outstanding Common Stock. As an alternative to distributing a common dividend in cash, PFGI Capital has the option of distributing to the Bank, a dividend using a procedure known as a “consent dividend”, as authorized by Section 565 of the Internal Revenue Code. A consent dividend procedure is where a stockholder, on the last day of a REIT’s tax year, agrees to treat as a dividend the amount that the REIT so designates, without any distribution of cash or property actually occurring. The effect of the consent dividend is that the REIT is considered to have paid a dividend on the last day of its tax year, and the stockholder is treated as having received that amount and contributed it back to the REIT. PFGI Capital, as a REIT, receives a deduction for dividends paid, reducing its taxable income by the amount of the consent dividend, but without the need to have cash available to distribute. For the years ended December 31, 2004, 2003, and for the period June 12 to December 31, 2002, PFGI Capital and the Bank have agreed to use the consent dividend procedure. As a result, PFGI Capital will have additional funds available for investment purposes and/or for distribution to its preferred stockholders than if PFGI Capital had paid a cash dividend to the common stockholder.

        PFGI Capital has 6,600,000 shares of Series A Preferred Stock issued and outstanding. The proceeds of this issuance were used by PFGI Capital to purchase commercial mortgage loan participations from the Bank. One share of Series A Preferred Stock is included within each PRIDES and is not traded separately from the PRIDES. For more information regarding the Series A Preferred Stock and the Prides, see the section entitled “Overview of the Prides” included in ITEM 1. For the years ended December 31, 2004 and 2003, PFGI Capital paid dividends on the Series A Preferred Stock of $12,788,000, and its parent paid contract adjustment payments of $2,062,000. For the period of June 12 to December 31, 2002, PFGI Capital paid dividends of $5,541,000 on the Series A Preferred Stock and its parent paid contract adjustment payments of $894,000. On February 17, 2005, dividends of $3,197,000 and a contract adjustment payment of $516,000 were paid on the Series A Preferred Stock. A discussion of limitations and restrictions on the payment of dividends by PFGI Capital is contained under Note 8 included in “Notes to Financial Statements.”

        The PRIDES are traded on the New York Stock Exchange under the symbol “PCE_pi.” The following table sets forth, for the periods indicated, the high, low and period end closing sales prices as reported on the New York Stock Exchange.

At March 9, 2005, there were 566 holders of record of the PRIDES.

A report of purchases of equity securities is not required for this period.

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ITEM 6. SELECTED FINANCIAL DATA

        The information presented below represents selected financial data relative to PFGI Capital for the years ended December 31, 2004 and 2003, and for the period from June 12, 2002 (commencement of operations) to December 31, 2002.

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PFGI CAPITAL CORPORATION
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

INTRODUCTION

        PFGI Capital’s principal business objective is to acquire, hold, and manage mortgage assets and other authorized investments that will generate net income for distribution to its stockholders. Since operations commenced in June 2002, PFGI Capital has been operating as a REIT for federal income tax purposes.

        PFGI Capital is a subsidiary of the Bank, which is owned by National City. All of PFGI Capital’s day-to-day activities and the servicing of the loans underlying its participation interests are administered by the Bank.

        The participation agreement between the Bank and PFGI Capital requires the Bank to service PFGI Capital’s loan portfolio in a manner substantially the same as for similar work performed by the Bank for transactions on its own behalf. The Bank collects and remits principal and interests payments, maintains perfected collateral positions, and submits and pursues insurance claims. The Bank also provides to PFGI Capital accounting and reporting services as required. The Bank is required to pay all expenses related to the performance of its duties under the participation agreement.

SUMMARY

        PFGI Capital began its operations on June 12, 2002. PFGI Capital issued 5,940,000 shares of Common Stock to the Bank in exchange for $165,000,000 of commercial mortgage loan participations. As part of the PRIDES issuance, PFGI Capital also issued 6,600,000 shares of Series A Preferred Stock to the public for $165,000,000. Such proceeds were used to purchase an additional $165,000,000 of outstanding principal balance of commercial mortgage loan participations from the Bank. Management views its financial condition and results of operations as one operating segment.

        PFGI Capital reported net income and net income available to common stockholders of $15,948,000 and $3,160,000, respectively, for the year ended December 31, 2004, $16,869,000 and $4,081,000, respectively, for the year ended December 31, 2003, and $9,617,000 and $4,076,000, respectively, for the period June 12 to December 31, 2002. Earnings per common share were $0.53, $0.69, and $0.69 for 2004, 2003, and 2002, respectively. Cash dividends of $12,788,000 were paid to the Series A Preferred stockholders during 2004 and 2003. Cash dividends of $5,541,000 were paid in 2002. Consent dividends of $2,560,000, $2,427,000, and $2,633,000 were considered to be paid to the common stockholders and contributed back to the REIT for 2004, 2003 and 2002, respectively.

        At December 31, 2004 and 2003, PFGI Capital had total assets of $335,756,000 and $332,910,000, respectively. These assets were primarily comprised of net commercial loan participations totaling $323,175,000 and $323,762,000 at year-end 2004 and 2003, respectively. All loan participations were acquired from the Bank. Equity for PFGI Capital was $335,756,000 and $332,596,000 as of December 31, 2004 and 2003, respectively.

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RESULTS OF OPERATIONS

Interest Income

        PFGI Capital’s primary source of revenue is interest income on its commercial mortgage loan participations. A secondary source of interest income is interest earned on a deposit account held at the Bank. PFGI Capital has no interest-bearing liabilities and no related interest expense. Total interest income was $16,216,000 and $16,073,000 for the years ended December 31, 2004 and 2003, respectively, and $10,065,000 for the period from June 12 to December 31, 2002. PFGI Capital’s average yield on total earnings assets was 4.86%, 4.83%, and 5.51% during these same periods. The decrease in average yield in 2004 and 2003 compared to 2002 is due to the effect of a low interest rate environment on PFGI Capital’s variable rate loan participations.

        The following table provides average balances, along with their related interest income and average rate earned for earning assets, for the years ended December 31, 2004 and 2003, and for the period from June 12 to December 31, 2002.

Provision For Loan Participation Losses

        The provision for loan participation losses is the charge to earnings necessary to maintain the allowance for loan losses at a level adequate to absorb management’s estimate of inherent losses in the portfolio of loan participations. In 2004 and 2003, PFGI had a negative provision for loan participation losses of $600,000 and $1,654,000, respectively, as it was determined that the reserve for participation losses was higher than needed based on management’s estimate of inherent losses. For the period June 12 to December 31, 2002, no provision for loan losses was required.

Noninterest Income and Expense

        PFGI Capital did not record any noninterest income for the years ended December 31, 2004, 2003, or for the period June 12 to December 31, 2002. Noninterest expense of $868,000, $858,000, and $448,000 was recognized during these same periods. Noninterest expense was comprised primarily of compensation paid to the Bank for loan servicing and management fees. For the years ended December 31, 2004 and 2003, loan servicing fees were $398,000 and $401,000, respectively, and management fees were $318,000 and $320,000, respectively. For the period June 12 to December 31, 2002, loan servicing fees were $221,000 and management fees were $177,000. On an annual basis, loan servicing fees are assessed at a rate of .125% of the average daily outstanding principal balance of the loan participations and management fees are assessed at a rate of .10% of the average daily outstanding balance of loan participations.

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Income Taxes

        PFGI Capital has elected to be treated as a REIT for federal income tax purposes and intends to maintain compliance with the provisions of the Code and therefore is not currently subject to income taxes.

FINANCIAL CONDITION

Loan Participations

        As of December 31, 2004 and 2003, PFGI Capital had $323,175,000 and $323,762,000 of loan participations, net of reserves, respectively. The participation portfolio was acquired from the Bank. In order to qualify as a REIT, at least 75% of PFGI Capital’s assets must consist of real estate assets.

        The following table shows the composition of the loan participations by property type at December 31, 2004:

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        Some of the loans underlying the loan participations bear interest at fixed rates, and some bear interest at adjustable rates based on indices such as LIBOR and the prime rate. The following tables show data with respect to interest rates of the loans underlying the loan participations at December 31, 2004:

Other Assets and Liabilities

        As of December 31, 2004 and 2003, PFGI Capital had cash of $10,803,000 and $8,088,000, respectively, in an interest bearing deposit account at the Bank. As of year-end 2004, the account was yielding a rate of 2.188%

        Additionally, PFGI Capital had interest receivable of $1,087,000 and $1,019,000, accounts receivable/(payable) of $657,000 and ($314,000), and prepaid expenses of $34,000 and $41,000 as of December 31, 2004 and 2003, respectively.

INTEREST RATE RISK MANAGEMENT

        PFGI Capital’s income consists primarily of interest income on participation interests in commercial mortgage loans. PFGI Capital does not intend to use any derivative products to manage its interest rate risk. If there is a decline in market interest rates, PFGI Capital may experience a reduction in interest income on its participation interests and a corresponding decrease in funds available to be distributed to stockholders. The reduction in interest income may result from downward adjustments of the indices upon which the interest rates on loans are based and from prepayments of loans with fixed interest rates, resulting in reinvestment of the proceeds in lower-yielding participation interests. Further information regarding market risk can be found under “Item 7A. Quantitative and Qualitative Disclosures About Market Risk” of this report.

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LIQUIDITY AND CAPITAL RESOURCES

        The objective of maintaining liquidity within PFGI Capital is to ensure the availability of sufficient cash flows to meet all of PFGI Capital’s financial and dividend commitments. In managing liquidity, PFGI Capital takes into account various legal limitations placed on a REIT.

        PFGI Capital’s principal liquidity needs are to maintain the loan participation portfolio size through the acquisition of additional commercial mortgages as loans currently in the portfolio mature, or prepay, and to pay dividends to the holders of Preferred Stock and Common Stock. The acquisition of additional commercial mortgage loan participations is intended to be funded with the proceeds obtained from the repayment of principal balances by individual borrowers. PFGI Capital does not anticipate any material capital expenditures.

        Holders of PFGI Capital’s Preferred Stock are entitled to receive, if authorized and declared by the board of directors, non-cumulative dividends at the rate of 7.75% per annum, or $1.9375 per share. The dividend rate on PFGI Capital’s Preferred Stock which participates in the remarketing will be reset in 2005. Dividends on Preferred Stock which is not remarketed will continue at 7.75% per annum.

        As an alternative to distributing a common dividend in cash, PFGI Capital has the option of distributing to the Bank, a dividend using a procedure known as a “consent dividend”, as authorized by Section 565 of the Internal Revenue Code. For information regarding the consent dividend procedure, see ITEM 5. For the years ended December 31, 2004, 2003 and for the period June 12 to December 31, 2002, PFGI Capital and the Bank have agreed to use the consent dividend procedure. As a result, PFGI Capital will have additional funds available for investment purposes and/or for distribution to its preferred stockholders than if PFGI Capital had paid a cash dividend to the common stockholder.

        On March 23, 2005, PFGI Capital’s Board of Directors authorized the repurchase of up to 3 million shares of its Preferred Stock.

        A discussion of limitations and restrictions on the payment of dividends is provided in Note 8 included in “Notes to Financial Statements.”

OFF-BALANCE SHEET ARRANGEMENTS AND CONTRACTUAL OBLIGATIONS

        PFGI Capital does not have any off-balance sheet arrangements, such as guarantees, retained or contingent interests, derivative instruments, or variable interests.

        No table is provided for contractual obligations as PFGI has no long-term debt obligations, capital lease obligations, operating lease obligations, purchased obligations or other long-term liabilities.

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CRITICAL ACCOUNTING POLICIES

        Note 1 to the “Notes to Financial Statements” lists significant accounting policies used in the development and presentation of PFGI Capital’s financial statements. However, the “Reserve for Loan Participation Losses” policy is considered to be critical due to the level of sensitivity and subjectivity of its underlying accounting estimates.

        PFGI Capital’s exposure to credit risk is managed through its use of consistent underwriting standards that emphasize “in-market” lending while avoiding excessive property type and business activity concentrations. National City’s credit administration function employs extensive risk management techniques to ensure that loans adhere to corporate policy and problem loans are promptly identified. These procedures provide executive management of National City and PFGI Capital with the information necessary to implement policy adjustments where necessary, and take corrective actions on a proactive basis. These procedures also include evaluating the adequacy of the reserve for loan participation losses, which includes an analysis of specific credits and the application of relevant reserve factors that represent relative risk, based on portfolio trends, current and historic loss experience, and prevailing economic conditions, to specific portfolio segments.

        Concentration of credit risk generally arises with respect to participation interests when a number of underlying loans have borrowers in the same geographical region or with similar property types. Concentration of credit risk may increase the relative sensitivity of performance to both positive and negative developments affecting a particular region or property type. PFGI Capital’s balance sheet exposure to geographic concentrations directly affects the credit risk of the underlying loans within the participation interests. Approximately 73% of the loans underlying the participation interests are located in Ohio as of December 31, 2004. Consequently, the portfolio may experience a higher default rate in the event of adverse economic, political, or business developments or natural hazards in Ohio and may affect the ability of borrowers to make payments of principal and interest on the underlying loans. “Shopping / Retail” and “Office / Warehouse” property types represent approximately 24% and 18% of the total loan participation balance, respectively, as of year-end 2004. As a result, the portfolio may also experience a higher default rate in the event of adverse business developments related to these property types. Borrowers obligated in loans underlying PFGI Capital’s participation interests, however, do not represent a particular concentration of similar business activity.

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        The following table shows a progression of the reserve for loan participation losses for the years ended December 31, 2004 and 2003:

        Non-performing assets consist of underlying loans that are no longer accruing interest and property acquired through foreclosure. Commercial mortgage loans are placed on non-accrual status and stop accruing interest when collection of principal or interest is in doubt or generally when the underlying loans are 90 days past due. When interest accruals are suspended, accrued interest income is reversed with prior period accruals charged to earnings. As of December 31, 2004 and 2003, no loans had been placed on non-accrual status nor had any property been acquired through foreclosure. Additionally, no loan participations were delinquent ninety days or more as of December 31, 2004 and 2003.

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PFGI CAPITAL CORPORATION

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

        Management is concerned with the timing and magnitude of the repricing of assets and liabilities. It is management’s objective to attempt to control risks associated with interest rate movements. Market risk is the risk of loss from adverse changes in market prices and interest rates. Market risk arises primarily from interest rate risk inherent in lending and other related activities. Management actively monitors interest rate risk exposure. Management reviews, among other things, the sensitivity of assets and liabilities, as applicable, to interest rate changes, the book and market values of assets and liabilities, unrealized gains and losses, purchase and sale activity, maturities of investments and anticipated loan participation pay-offs. PFGI Capital’s interest-rate-sensitive assets consisted largely of participation interests in commercial mortgage loans. At December 31, 2004, 15% of PFGI Capital’s loan participation portfolio had fixed interest rates. Such loans tend to increase interest rate risk. At December 31, 2004, PFGI Capital did not have any interest-rate-sensitive liabilities.

        As indicated earlier, PFGI Capital’s income consists primarily of interest income from participation interests. If there is a decline in market interest rates resulting from downward adjustments in the indices upon which the interest rates on loans are based, PFGI Capital may experience a reduction in interest income and a corresponding decrease in funds available for distribution to holders of Preferred Stock. A decline in interest income can also be realized from prepayments, including pay-offs, of loans with fixed interest rates, resulting in reinvestment of proceeds in lower-yielding participation interests. The borrower has the ability to prepay a loan with or without premium or penalty depending on the provisions found in the underlying loan agreements. The level of underlying loan prepayments is influenced by several factors, including the interest rate environment, the real estate market in particular geographic areas, the timing of transactions, and circumstances related to individual borrowers and loans.

        An earnings simulation model is provided by National City to analyze PFGI Capital’s net interest income sensitivity to movements in interest rates. The model evaluates the effect on net interest income by running various interest rate scenarios up and down from a flat rate scenario. Based on the results of the simulation model, net interest income would change by the following over the next 12-month period:

        Due to the low interest rate environment in 2003, nothing beyond a 100 basis point decrease was simulated.

        In order for PFGI Capital to have sufficient cash flows to meet projected expenses and scheduled dividend payments to holders of Preferred Stock, loan participations of PFGI Capital cannot yield lower than approximately 4.20%. As of December 31, 2004, the average weighted yield on loan participations was 5.64%. Assuming that the investment in participation interests remain level, yields on loan participations would have to decrease by 144 basis points before cash flows would be insufficient to cover the regular dividend payments to holders of Preferred Stock.

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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

INDEX TO FINANCIAL STATEMENTS

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Board of Directors and Stockholders
PFGI Capital Corporation

        We have audited the accompanying balance sheets of PFGI Capital Corporation as of December 31, 2004 and 2003, and the related statements of income, changes in stockholders’ equity and cash flows for each of the three years in the period ended December 31, 2004. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

        We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. We were not engaged to perform an audit of the Company’s internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and 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 financial position of PFGI Capital Corporation at December 31, 2004 and 2003, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2004, in conformity with U.S. generally accepted accounting principles.

/s/ ERNST & YOUNG LLP

Cleveland, Ohio
March 23, 2005

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PFGI CAPITAL CORPORATION

NOTES TO FINANCIAL STATEMENTS

NOTE 1. ACCOUNTING POLICIES

        The following is a summary of significant accounting policies for PFGI Capital:

        ORGANIZATION: PFGI Capital Corporation (PFGI Capital) is a Maryland corporation that was incorporated on May 9, 2002 and began operations on June 12, 2002 as a subsidiary of The Provident Bank. On July 1, 2004, The Provident Bank was acquired by National City Corporation. All of PFGI Capital’s Common Stock is presently owned by National City Bank (the Bank) while its Series A Preferred Stock is owned by outside investors. The principal business objective of PFGI Capital is to acquire, hold, and manage commercial mortgage loan assets and other authorized investments that will generate net income for distribution to PFGI Capital’s stockholders. PFGI Capital has elected to be treated as a real estate investment trust (REIT). As a REIT, PFGI Capital generally is not liable for federal income tax to the extent that it distributes its income to its stockholders and continues to meet a number of other requirements.

        The Bank, a nationally-chartered bank, is a wholly owned subsidiary of National City Corporation (National City) and provides full-service retail and commercial banking operations.

        BASIS OF PRESENTATION: The accompanying financial statements include the accounts of PFGI Capital. PFGI Capital has no equity ownership in any other entities or interest in “variable interest entities”. Certain estimates are required to be made by management in the preparation of the financial statements. Actual results may differ from those estimates.

        STATEMENT OF CASH FLOWS: For cash flow purposes, cash equivalents include deposit accounts at banks.

        BUSINESS SEGMENTS: As PFGI Capital’s operations consist of acquiring, holding and managing loan participations, management views its financial condition and results of operations as one business segment.

        LOAN PARTICIPATIONS: PFGI Capital holds participation interests in commercial mortgage loans that are secured by real property such as office buildings; multi-family properties of five units or more; industrial, warehouse and self-storage properties; office and industrial condominiums; retail space; strip shopping centers; mixed use commercial properties; mobile home parks; nursing homes; hotels and motels; churches and farms. Loan participations are generally stated at the principal amount outstanding. Interest on loan participations is computed on the outstanding principal balance. Late charges and other loan fees are not transferred to PFGI Capital, but rather, kept by the Bank as part of its loan servicing fees. Any premium or discount applicable to specific loans purchased is amortized over the remaining lives of such loans using the interest method. Loans are generally placed on nonaccrual status when the payment of principal or interest is past due 90 days or more. However, loans that are well secured and in the process of collection may not be placed on nonaccrual status. When a loan is placed on nonaccrual status, any interest income previously recognized that has not been received is reversed. Future interest income is recorded only when a payment is received and collection of principal is considered reasonably assured.

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        PFGI Capital considers a loan to be an impaired loan when it is probable that all amounts due will not be collected according to the contractual terms of the loan agreement. PFGI Capital measures the value of an impaired loan based on the present value of expected future cash flows discounted at the loan’s effective interest rate or, if more practical, at the loan’s observable market price, or the fair value of the collateral. Income on impaired loans is recognized on a cash basis.

        RESERVE FOR LOAN PARTICIPATION LOSSES: The reserve for loan participation losses is maintained at a level management estimates as necessary to absorb losses inherent in the loan participation portfolio. When PFGI Capital purchases loan participations from the Bank, a reserve for loan participation losses is transferred from the Bank to PFGI Capital. The reserve is increased whenever further deterioration of the credit quality of the portfolio occurs and decreased whenever credit quality improves. Loans deemed uncollectible are charged off and deducted from the reserve and recoveries on loans previously charged off are added back to the reserve. Loans sold back to the Bank are accompanied by a transfer of the reserve for those loans from PFGI Capital to the Bank.

        Management’s determination of the adequacy of the reserve is based on an assessment of the inherent loss potential given the conditions at the time. This assessment consists of certain loans being evaluated on an individual basis, as well as all loans being categorized based on common characteristics related to the reserve factors and being evaluated as a group. Loans reviewed on an individual basis include large non-homogeneous credits where their internal credit rating is at or below a predetermined classification. Loans not individually reviewed are segmented by characteristics related to the reserve factors. Analyses are performed on segments of the portfolio based upon trends in delinquencies, charge-offs, economic factors and business strategies. Adequacy factors may be adjusted based on changes in expected potential losses in a particular segment.

        DIVIDENDS: Dividends on the Series A Preferred Stock are non-cumulative. Upon authorization of the Board of Directors, dividends are payable in arrears and paid quarterly on February 17, May 17, August 17 and November 17 of each year, or if any such day is not a business day, on the next business day. Dividends are paid at a rate of 7.75% per annum of the initial liquidation preference which is $25.00 per share.

        Common stockholders are entitled to receive dividends when, as and if declared by the Board of Directors out of funds available after the preferred dividends have been paid. Both the Common and Preferred Stock dividends are treated as ordinary income to the stockholders.

        As an alternative to distributing a cash dividend, PFGI Capital has the option of distributing to its common stockholder, a dividend using a procedure known as a “consent dividend”, as authorized by Section 565 of the Internal Revenue Code. A consent dividend procedure is where a stockholder, on the last day of a REIT’s tax year, agrees to treat as a dividend the amount that the REIT so designates, without any distribution of cash or property actually occurring. The effect of the consent dividend is that the REIT is considered to have paid a dividend on the last day of its tax year, and the stockholder is treated as having received that amount and contributed it back to the REIT. The dollar amount of the consent dividend is included, as if it were distributed, in the calculation to determine that at least 90% of a REIT’s taxable income has been distributed to its stockholders. PFGI Capital, as a REIT, receives a deduction for dividends paid, reducing its taxable income by the amount of the consent dividend, but without the need to have cash available to distribute. For the years ended December 31, 2004 and 2003, PFGI Capital and its common stockholder have agreed to use the consent dividend procedure. As a result, PFGI Capital will have additional funds available for investment purposes and/or for distribution to its preferred stockholders than if PFGI Capital had paid a cash dividend to the common stockholder.

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        LOAN FORECLOSURES: Prior to foreclosure of any commercial mortgage loan, PFGI Capital intends to sell the participation interest in the underlying loan back to the Bank. The Bank will then bear all expenses related to the foreclosure after that time.

        INCOME TAXES: PFGI Capital has elected to be treated as a REIT for Federal income tax purposes and intends to comply with the provisions of the Internal Revenue Code and therefore is not subject to income taxes. No provision for income taxes is included in the accompanying financial statements.

NOTE 2. RECENT ACCOUNTING PRONOUNCEMENTS

        In December 2003, the FASB issued revised FASB Interpretation No. 46, “Consolidation of Variable Interest Entities” (FIN 46). FIN 46, which is an interpretation of Accounting Research Bulletin No. 51, “Consolidated Financial Statements,” addresses consolidation by business enterprises of variable interest entities (VIEs). A VIE exists when (1) the equity investment at risk is not sufficient to permit the entity to finance its activities without additional subordinated financial support; (2) equity investors do not have the ability to make decisions about the entity’s activities through voting rights or do not have the obligation/right to absorb expected losses/residual returns of the entity; or (3) equity investors have voting rights that are not proportionate to their economic interests and the activities of the entity are conducted on behalf of an investor with a disproportionately small voting interest. FIN 46 requires VIEs to be consolidated by their primary beneficiaries. The primary beneficiary of a VIE is the party that absorbs a majority of the entity’s expected losses and/or receives a majority of its expected residual returns as a result of holding variable interests. FIN 46 became effective for entities that have interest in special purpose entities for periods ending after December 15, 2003, and for all other types of VIEs for periods ending after March 15, 2004. As of December 31, 2004, PFGI Capital did not hold any interest in VIEs, and therefore, the adoption of FIN 46 did not have a material impact on PFGI Capital’s results of operations or financial condition.

        Also in December 2003, the Accounting Standards Executive Committee of the American Institute of Certified Public Accountants issued Statement of Position (SOP) 03-3, Accounting for Certain Loans or Debt Securities Acquired in a Transfer. SOP 03-3 addresses the accounting for acquired loans that show evidence of having deteriorated in terms of credit quality since their origination (i.e. impaired loans). This SOP states that acquired loans should be recorded at their fair value defined as the present value of future cash flows. An allowance for loan losses would not be recognized at acquisition as credit losses would be considered in future cash flows. Subsequent increases in expected cash flows would be accounted for as a change in estimate of the accretable yield on a prospective basis. Subsequent decreases in cash flows would be accounted for as a loss contingency in the current period. SOP 03-03 is effective for loans that are acquired in fiscal years beginning after December 15, 2004. The adoption of this standard is not expected to have a material impact on PFGI Capital’s financial condition, results of operations or liquidity.

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Note 3. LOAN PARTICIPATIONS AND RESERVE FOR LOAN PARTICIPATION LOSSES

        Participations in loans are generally purchased from the Bank at the Bank’s carrying value, which approximates fair value. Carrying value is the principal amount outstanding plus accrued interest. A reserve for loan participation losses is transferred from the Bank to PFGI Capital at the time participations are transferred. Loans sold back to the Bank are accompanied by a transfer of the reserve for those loans from PFGI Capital to the Bank. The reserve for loan participation losses reflects management’s judgment as to the level considered appropriate to absorb inherent losses in the loan participation portfolio. PFGI did not have any nonperforming assets or impaired loans during 2004 or 2003.

        At December 31, 2004 and 2003, 73% and 93%, respectively, of the properties underlying the loan participation interests of PFGI Capital were located in Ohio. Because of the concentration of PFGI Capital’s interests in Ohio, in the event of adverse economic, political or business conditions or natural hazards in Ohio, PFGI Capital would likely experience higher rates of loss and delinquency on PFGI Capital’s loan participation interests than if the underlying loans were more geographically diversified.

        The following table sets forth an analysis of the reserve for loan participation losses for the years ended December 31, 2004 and 2003:

NOTE 4. EARNINGS PER COMMON SHARE

        Basic earnings per common share is the amount of earnings for the period available to each share of Common Stock outstanding during the reporting period. Diluted earnings per common share is the amount of earnings available to each share of Common Stock outstanding during the reporting period adjusted for the potential issuance of common shares for stock options, convertible debt, etc. The earnings available to each share of Common Stock has been reduced by Series A Preferred Stock dividends. PFGI Capital has no stock options or convertible debt or other potential dilutive instruments and therefore basic and diluted earnings per share are calculated on the same basis. The Bank owns all of the issued and outstanding Common Stock of PFGI Capital.

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        The following table sets forth the computation of basic and diluted earnings per common share for the years ended December 31, 2004 and 2003, and for the period from June 12, 2002 to December 31, 2002:

NOTE 5. DESCRIPTION OF PRIDES

        Each PRIDES has a stated amount of $25.00 per unit and is comprised of two components – a 3-year forward purchase contract and PFGI Capital Series A Preferred Stock.

        Each forward purchase contract obligates the holder to buy, on or before August 17, 2005, for $25.00, a number of newly issued shares of National City common stock equal to the settlement rate. The settlement rate will be calculated as follows:

        o if the applicable market value of National City common stock is equal to or greater than $25.6033, the settlement rate will be .9764;

        o if the applicable market value of National City common stock is between $25.6033 and $21.5154, the settlement rate will be equal to the $25.00 stated amount divided by the applicable market value; and

        o if the applicable market value is less than or equal to $21.5154, the settlement rate will be 1.1620.

        “Applicable market value” is defined as the average of the closing price per share of National City common stock on each of the twenty consecutive trading days ending on the fifth trading day immediately preceding August 17, 2005.

        Under the forward purchase contract, National City will also make quarterly contract adjustment payments to the PRIDES holders at an annualized rate of 1.25% of the stated amount ($0.3125 per share).

        Holders of PFGI Capital’s Series A Preferred Stock are entitled to one-tenth of one vote per share on all matters submitted to a vote of the stockholders, voting as a single class with the holders of Common Stock. The holders of Preferred Stock will be entitled to receive, if, when, and as authorized and declared by the board of directors out of legally available assets, non-cumulative cash dividends at the rate of 7.75% per annum of the initial liquidation preference which is $25.00 per share ($1.9375 per share). Dividends on the Preferred Stock will be payable, if authorized and declared, quarterly in arrears on February 17, May 17, August 17 and November 17 of each year, or if any such day is not a business day, on the next business day. The Preferred Stock will rank senior to the Common Stock of PFGI Capital as to dividend rights and rights upon liquidation, winding up or dissolution.

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        In connection with the settlement of the forward purchase contract, National City has engaged a remarketing agent to remarket the PFGI Capital Preferred Stock on behalf of the holders, at which time the PFGI Preferred Stock will be permanently detached from the forward purchase contract. Once the forward purchase contract is settled, there will be two separate and distinct securities outstanding: PFGI Capital Preferred Stock and National City common stock. The proceeds received from the remarketing will be used by the holders of Preferred Stock to fulfill their commitment under the terms of the forward purchase contract.

        Upon a successful remarketing of shares of the PFGI Capital’s Preferred Stock, the applicable dividend rate on the shares of Preferred Stock that have been purchased in the remarketing will be reset to the reset rate described below. The dividend rate of shares of Preferred Stock that are not remarketed will not be reset and will continue to be 7.75%.

        The reset rate will be determined by the reset agent as the dividend rate the Preferred Stock should bear for the Preferred Stock to have a market value on the fifth business day immediately preceding August 17, 2005 of 100.5% of the aggregate liquidation preference of the Preferred Stock, plus declared and unpaid dividends, if any.

        Each share of PFGI Capital’s Preferred Stock will be automatically exchanged for one newly issued share of Bank Series A Preferred Stock upon the occurrence of an exchange event. An exchange event occurs when:

        o the Bank becomes less than “adequately capitalized” according to regulations established by the Office of the Comptroller of the Currency;

        o the Bank is placed into conservatorship or receivership;

        o the Office of the Comptroller of the Currency, in its sole discretion, directs such exchange in writing, and, even if the Bank is not less than “adequately capitalized,” the Office of the Comptroller of the Currency anticipates the Bank becoming less than “adequately capitalized” in the near term; or

        o the Office of the Comptroller of the Currency, in its sole discretion, directs such exchange in writing in the event that the Bank has a Tier 1 risk-based capital ratio of less than 5.0%.

        On March 23, 2005, PFGI Capital’s Board of Directors authorized the repurchase of up to 3 million shares of its Preferred Stock.

NOTE 6. RELATED PARTY TRANSACTIONS

        PFGI Capital holds a 95% participation interest through a participation agreement with the Bank in certain loans originated by the Bank and its subsidiaries. Generally, the participation interests are in commercial mortgage loans secured by real property that were either directly underwritten by the Bank and its subsidiaries or acquired by the Bank. PFGI Capital expects to continue to purchase such interests in the future from the Bank under the terms of the participation agreement.

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        The participation agreement also provides for the Bank to service the commercial mortgage loans underlying the participations held by PFGI Capital in a manner substantially the same for similar work performed by the Bank for transactions on its own behalf. The servicing fee that the Bank charges is .125% per year of the average daily outstanding principal balances of the commercial mortgage loans underlying the participation interests. Loan servicing costs incurred by PFGI Capital totaled $398,000, $401,000, and $221,000 for the years ended December 31, 2004, 2003, and for the period from June 12 to December 31, 2002, respectively.

        A summary of loan participation activity between the Bank and PFGI Capital for the years ended December 31, 2004 and 2003 follows:

        The day-to-day operations of PFGI Capital are managed pursuant to the terms of a management agreement between the Bank and PFGI Capital. The Bank, in its role as manager under the terms of the management agreement, receives a management fee designed as a reimbursement for costs incurred to manage PFGI Capital. The Bank is required to pay all expenses related to the performance of its duties under the management agreement, including any payment to its affiliates for managing PFGI Capital. The management fee that the Bank charges is .10% per year of the average daily outstanding principal balances of the commercial mortgage loans underlying the participation interests. Management fees incurred by PFGI Capital was $318,000, $320,000, and $177,000 for the years ended December 31, 2004, 2003, and for the period from June 12 to December 31, 2002, respectively.

        The Bank owns 100% of the Common Stock of PFGI Capital. Accordingly, the Bank is entitled to all common dividends paid by PFGI Capital.

        As of December 31, 2004 and 2003, PFGI Capital had an interest-bearing deposit account of $10,803,000 and $8,088,000, respectively, at the Bank and a net receivable/(payable) of $657,000 and ($314,000), respectively, from the Bank.

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NOTE 7. FAIR VALUE OF FINANCIAL INTRUMENTS

        Carrying values and estimated fair values for certain financial instruments as of December 31 are shown in the following table. In cases where quoted market prices are not available, fair values are based on estimates using present value or other valuation techniques. Those techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. Because no secondary market exists for most of PFGI Capital’s assets, the derived fair values are calculated estimates, and the fair values provided herein do not necessarily represent the actual values which may be realized in the disposition of these instruments. The aggregate fair value amounts presented do not represent the underlying value of PFGI Capital. What is presented below is a point-in-time valuation that is affected, in part, by unrealized gains and losses resulting from management’s implementation of its program to manage overall interest rate risk. It is not management’s intention to immediately dispose of a significant portion of its financial instruments. As a result, the following fair value information should not be interpreted as a forecast of future earnings and cash flows.

        The following methods and assumptions were used by National City in estimating its fair value disclosures for financial instruments:

        o Loan participations: The fair values for loan participations are estimated using discounted cash flow analyses and interest rates currently being offered for loans with similar terms to borrowers of similar credit quality.

        o Cash and due from banks: The carrying amounts reported in the balance sheet for cash and due from banks approximate those assets’ fair values.

NOTE 8. DIVIDEND RESTRICTIONS

        Because PFGI Capital is a direct subsidiary of the Bank, regulatory authorities will have the right to examine PFGI Capital and PFGI Capital’s activities and, under certain circumstances, to impose restrictions on the Bank or PFGI Capital. If the Office of the Comptroller of the Currency determines that the Bank’s relationship with PFGI Capital results in an unsafe and unsound banking practice, the Bank’s regulators have the authority to restrict PFGI Capital’s ability to make distributions to its stockholders, including dividends to holders of shares of PFGI Capital Series A preferred stock.

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        Payment of dividends on PFGI Capital’ Series A preferred stock could also be subject to regulatory limitations if the Bank becomes less than “well-capitalized” for purposes of regulations issued by the Office of the Comptroller of the Currency. Under these regulations, the Bank will be deemed less than “well-capitalized” if it has a total risk-based capital ratio of less than 10.0%; a Tier 1 risk-based capital ratio of less than 6.0%; or a leverage ratio of less than 5.0%. At December 31, 2004 and 2003, the Bank’s total risk-based capital ratio was 11.84% and 12.26%, respectively, its Tier 1 risk-based capital ratio was 8.61% and 9.12%, respectively, and its leverage ratio was 6.67% and 7.00%, respectively. The exercise of the Office of the Comptroller of the Currency’s power to restrict dividends on PFGI Capital Series A preferred stock would, however, also have the effect of restricting the payment of dividends on PFGI Capital’s Common Stock and all series and classes of preferred stock. The inability to pay dividends on PFGI Capital’s Common Stock would prevent PFGI Capital from meeting the statutory requirement for a REIT in effect to distribute 90% of its taxable income and, therefore, would cause PFGI Capital to fail to qualify for the favorable tax treatment accorded to REITs.

        Legal and regulatory limitations on the payment of dividends by the Bank could also affect PFGI Capital’s ability to pay dividends to unaffiliated third parties, including the holders of shares of PFGI Capital Series A preferred stock. Regulatory approval is required prior to the Bank’s declaration of any dividends in excess of available retained earnings. The amount of dividends that may be declared without regulatory approval is further limited to the sum of net income for the current year and retained net income for the preceding two years, less any required transfers to surplus or common stock. At December 31, 2004, the Bank could, without prior regulatory approval and absent contrary supervisory guidance, declare dividends in 2005 of approximately $873 million plus an additional amount equal to its net income through the date of declaration in 2005. Since PFGI Capital is a member of National City’s consolidated group, payment of common and preferred dividends by National City and/or any member of its consolidated group to unaffiliated third parties, including PFGI Capital’s payment of dividends to the holders of shares of PFGI Capital Series A preferred stock, would require regulatory approval if aggregate dividends on a consolidated basis exceed these limitations.

NOTE 9. LEGAL CONTINGENCIES

        On May 3, 2003, a purported class action was filed in the U.S. District Court for the Southern District of Ohio by shareholder Silverback Master Ltd. As amended August 22, 2003 the case names as defendants Provident, PFGI Capital, Provident’s President, Robert L. Hoverson and Provident’s Chief Financial Officer, Christopher J. Carey, and is allegedly, on behalf of all purchasers of PRIDES in or traceable to a June 6, 2002 offering of those securities registered with the Securities and Exchange Commission and extending to March 5, 2003. This action is based upon circumstances involved in a restatement of earnings announced by Provident on March 5, 2003. It alleges violations of securities laws by the defendants in Provident’s financial disclosures during the period from March 30, 1998 through March 5, 2003 and in the June 2002 offering. It seeks an unspecified amount of compensatory damages.

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        This action and other class actions have been consolidated before Judge S. Arthur Spiegel of the United States District Court for the Southern District of Ohio under the caption, Merzin v. Provident Financial Group, Inc., consolidated Civil Action Master File No. C-1-03-165. PFGI Capital and other Defendants filed a Motion to Dismiss the Complaint on November 5, 2003. The motion was granted on March 9, 2004 and the Court dismissed all claims except those relating to the June 6, 2002 offering of 6,600,000 PRIDE securities. However, the Court’s order confined any later finding of damages to $0.70 per PRIDE security.

        National City has reached a tentative agreement with the plaintiffs to settle this matter. The negotiated settlement is pending court approval. PFGI Capital will not have any obligation to the plaintiffs under the tentative settlement. Accordingly, there will be no impact on PFGI Capital’s financial condition, results of operations or cash flows.

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NOTE 10. QUARTERLY RESULTS OF OPERATIONS - (Unaudited)

        The following are quarterly results of operations for PFGI Capital for the years ended December 31, 2004 and 2003, and for the period from June 12, 2002 to December 31, 2002: