National City Corp. reports its second-quarter profits fell 24 percent from a year ago, attributing the decline to hedging losses on mortgages.

The Cleveland, Ohio-based bank reported net income for the quarter was $473 million, up $14 million from last quarter but down from the $625 million reported in second-quarter 2005. Profits for the first half of the year are $932 million, compared with $1.1 billion in the first six months of 2005.

At 77 cents, earnings per share for the second quarter of 2006 are up from 74 cents the preceding quarter, but off from 97 cents per share in the second quarter of 2005.

National City, which last week announced plans to sell its First Franklin mortgage lending unit in California and move into retail banking in Florida, reported $115 million in second-quarter losses from mortgage servicing rights hedging, compared with $157 million in gains during the same period last year. MSR hedging losses for the year now stand at $243 million, National City said.

“Excluding hedging results, earnings were up sharply compared to the prior year, driven by strong operating performance in our retail, small business and corporate banking units,” Chairman and CEO David A. Daberko said. Daberko said growth in corporate loans has been strong, credit quality for the company as a whole is sound, and that National City’s retail banking business had its best quarter ever.

Fees and other income for the second quarter of 2006 were $783 million, up $139 million from the first quarter of 2006, and deposit and other banking fees grew to $240 million, a 9 percent increase compared to the preceding quarter and a 15 percent increase over the second quarter of last year.

An “originate-and-sell” strategy for nonconforming mortgage loans and home equity lines and loans drove an overall decline in portfolio loans. Average portfolio loans were $102 billion for the second quarter of 2006, down 3 percent from the previous quarter and second-quarter 2005. Commercial loans were up 4 percent on a linked-quarter basis.

The originate-and-sell strategy helped boost loan sale revenue to $285 million in the second quarter of 2006, up $141 million from the preceding quarter. The $429 million in loan sale revenue for the year to date represents a 6 percent decline from the same period in 2005. A reduction in mortgage loan sales was largely offset by sales of home equity lines and loans as well as larger gains on sales of commercial loans and leases

National City reported nonperforming assets of $667 million, compared with $596 million at the end of 2005. But the bank’s allowance for loan losses now stands at $989 million, or .98 percent of portfolio loans, compared with $1.1 billion, or 1.03 percent of loans on Dec. 31, 2005.

National City operates banks in Ohio, Illinois, Indiana, Kentucky, Michigan, Missouri and Pennsylvania, and also serves customers in select markets nationally. Its core businesses include commercial and retail banking, mortgage financing and servicing, consumer finance and asset management.

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