NEW YORK (Dow Jones) -- Cleveland-based banking firm National City Corp. said Wednesday its third-quarter profit fell 80%, largely due to a big loss at its mortgage banking business.

The firm also said it is cutting 2,500 jobs.

The firm (NCC) reported third-quarter net income of $106 million, or 18 cents a share, compared to $526 million, or 86 cents a share last year.

The firm reported a $152 million, or 25 cents a share loss in its mortgage- banking business.

"Higher loan loss provisions were taken on portfolio mortgage loans, reflecting recent delinquency and loss trends, and continued deterioration in the housing markets," the firm said.

Analysts polled by Thomson First Call had expected the company to report operating earnings of 32 cents a share.

Analysts had expected big losses and write downs on the bank's loan portfolios from the mortgage business, and a big uptick in loan loss provisions after the bank pre-announced an estimated a loss of up to $160 million.

National City (NCC) said loan loss provisions rose $361 million in the third quarter of 2007, up from $143 million in the preceding quarter, and $73 million in the third quarter a year ago.

National City said it expects that mortgage defaults are likely to continue to rise in the Ohio bank's turf.

"Based on the difficult conditions in the financial markets, which we expect to persist into 2008, we have undertaken an aggressive review of our cost structure across the company," the firm said.

"That review, coupled with our 2008 budget process, has resulted in the elimination of approximately 2,500 positions representing approximately $125 million of personnel expense," it concluded.

Because of rising loan defaults, banks are forced to write down the value of portfolios holding those loans. Banks will also need to increase cash reserves to cover any losses in those portfolios from charge offs.

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