National City ( NCC) dropped 5% after posting soft third-quarter earnings fettered and setting plans to cut 1,200 more jobs.

The Cleveland bank reported profit of $106 million, or 18 cents a share, down nearly 80% from the year-ago $526 million, or 86 cents a share.

Analysts on average were expecting the company would make 32 cents a share, according to Thomson Financial.

Nat City's mortgage banking business posted a loss of $152 million, in line with what the company projected at an investor presentation in September.

But its provision for credit losses more than doubled from the second quarter to $361 million due to higher delinquencies, charge-offs and foreclosures in residential real estate and home equity loans.

Loans that were charged off rose 44% from the second quarter to $141 million. Nat City's non-performing assets rose 42% from the second quarter to $1.2 billion.

"Our third-quarter results were clearly affected by the unprecedented disruption and weakness in the mortgage and housing markets," said Nat City's CEO Peter Raskind in the earnings release. "Based on the difficult conditions in the financial markets which we expect to persist in 2008, we have undertaken an aggressive review of our cost structure across the company."

Nat City increased the amount of workforce reductions it plans to a total of 2,500 positions. Nat City said last month that it would slash 1,300 jobs tied to its mortgage business.

Of the enlarged total, 1,700 jobs cuts are related to its mortgage business. The rest are companywide, "primarily in non-customer facing support functions," a spokeswoman said via e-mail.

Nat City's mortgage woes aren't surprising given the dour outlooks to come from rivals such as Citigroup ( C), Washington Mutual ( WM) and Bank of America ( BAC). Banks and lenders across the board have felt the pinch as housing prices have fallen.

The company sold its subprime lender, First Franklin, to Merrill Lynch ( MER) last year.

Merrill also posted a third-quarter loss of more than $2 billion on Wednesday. The New York brokerage firm said it took $7.9 billion of writedowns related to collateralized debt obligations and subprime mortgage-backed securities - up from its estimate of $4.5 billion just a few weeks ago.

"While credit quality was bad for the industry, National City's results were worse," writes Lori Appelbaum, an analyst at Goldman Sachs. "Non-performing asset inflows totaled $400 million in the quarter versus a range of inflows of $150-$225 million over the past year and half. This includes five large residential construction projects which average $25 million each, including one $50 million condo conversion which is a very large exposure. In sum, National City has outsized exposure to troubled real estate credit risk." Appelbaum has a neutral rating on the company.

Shares fell $1.21 to $22.70.