Dec. 17 (Bloomberg) -- National City Corp., Ohio's largest bank, took a $200 million charge related to its mortgage securities and expects to set aside about $700 million in the fourth quarter to cover bad loans.

The charges in October and November came as National City decided to hold some mortgages and home-equity lines of credit as investments and settled existing trades, the Cleveland-based bank said today in a regulatory filing.

National City said it still has ``elevated risk'' from loans made by its former First Franklin unit and by its closed National Home Equity business as well as certain types of residential construction loans. National City sold First Franklin to Merrill Lynch & Co. last December and combined its home-equity business with the mortgage division in August.

``The credit problems for National City will spread in our view in an economic slowdown or recession, and it will spread to commercial loans and further into the consumer portfolios,'' said Gerard Cassidy, an analyst with RBC Capital Markets in Portland, Maine. He rates the stock ``underperform.''

National City fell 11 cents, or 0.7 percent, to $16.51 at 4 p.m. in New York Stock Exchange composite trading. The stock has dropped 55 percent this year compared with a 24 percent decline in the 24-member KBW Bank index.

``The remaining loans are high quality agency or similar loans where there is a functioning, active market,'' Treasurer Thomas Richlovsky said in an interview, referring to loans left on the company's books. National City isn't seeing any ``unusual trends'' in its commercial loans, he said.

First Franklin Loans

The bank had $6.24 billion of loans made by First Franklin on its books in November, the filing shows. It had $30 billion in commercial loans and total portfolio loans of $113.2 billion, up 23 percent from last year.

``As of the end of November, the balance of loans in the warehouse consisted mainly of agency-eligible and other loans deemed readily salable, and no additional losses of significance are expected,'' the company said in the filing.

National City said its net interest margin -- the difference between what the bank makes on lending and borrowing money --will be unchanged or slightly down in the fourth quarter from the third quarter.

To contact the reporter on this story: Elizabeth Hester in New York at ehester@bloomberg.net.

Last Updated: December 17, 2007 16:09 EST