COMERICA INC — Interim / Quarterly Report 2007

Oct 29, 2007

10-Q 1 k19626e10vq.htm QUARTERLY REPORT FOR PERIOD ENDED SEPTEMBER 30, 2007 e10vq PAGEBREAK

Table of Contents

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

þ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2007

or

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number 1-10706

Comerica Incorporated

(Exact name of registrant as specified in its charter)

Delaware	38-1998421
(State or other jurisdiction of	(I.R.S. Employer
Incorporation or organization)	Identification No.)

Comerica Bank Tower 1717 Main Street, MC 6404 Dallas, Texas

75201

(Address of principal executive offices)

(Zip Code)

(214) 969-6476

(Registrant’s telephone number, including area code)

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 (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes þ No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act (Check one):

Large accelerated filer þ Accelerated filer o Non-accelerated filer o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes o No þ

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

$5 par value common stock:

Outstanding as of October 12, 2007: 151,018,124 shares

Folio /Folio

PAGEBREAK

TOC

COMERICA INCORPORATED AND SUBSIDIARIES

TABLE OF CONTENTS

PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
Consolidated Balance Sheets at September 30, 2007 (unaudited), December 31, 2006 and September 30, 2006 (unaudited)	3
Consolidated Statements of Income for the Three Months and Nine Months Ended September 30, 2007 and 2006 (unaudited)	4
Consolidated Statements of Changes in Shareholders’ Equity for the Nine Months Ended September 30, 2007 and 2006 (unaudited)	5
Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2007 and 2006 (unaudited)	6
Notes to Consolidated Financial Statements (unaudited)	7
ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	27
ITEM 3. Quantitative and Qualitative Disclosures about Market Risk	46
ITEM 4. Controls and Procedures	49
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings	50
ITEM 1A. Risk Factors	50
ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds	50
ITEM 6. Exhibits	51
Signatures	52
Chairman, President & CEO Certification Pursuant to Section 302
Executive Vice President& CFO Certification Pursuant to Section 302
Section 1350 Certification of Periodic Report

/TOC

Forward-Looking Statements

This report includes forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. In addition, the Corporation may make other written and oral communication from time to time that contain such statements. All statements regarding the Corporation’s expected financial position, strategies and growth prospects and general economic conditions expected to exist in the future are forward-looking statements. The words, “anticipates,” “believes,” “feels,” “expects,” “estimates,” “seeks,” “strives,” “plans,” “intends,” “outlook,” “forecast,” “position,” “target,” “mission,” “assume,” “achievable,” “potential,” “strategy,” “goal,” “aspiration,” “outcome,” “continue,” “remain,” “maintain,” “trend,” “objective,” and variations of such words and similar expressions, or future or conditional verbs such as “will,” “would,” “should,” “could,” “might,” “can,” “may” or similar expressions, as they relate to the Corporation or its management, are intended to identify forward-looking statements.

The Corporation cautions that forward-looking statements are subject to numerous assumptions, risks and uncertainties, which change over time. Forward-looking statements speak only as of the date the statement is made, and the Corporation does not undertake to update forward-looking statements to reflect facts, circumstances, assumptions or events that occur after the date the forward-looking statements are made. Actual results could differ materially from those anticipated in forward-looking statements and future results could differ materially from historical performance.

Folio /Folio

PAGEBREAK

Table of Contents

CONSOLIDATED BALANCE SHEETS

Comerica Incorporated and Subsidiaries

(in millions, except share data)	September 30, — 2007	2006		2006
	(unaudited)			(unaudited)
ASSETS
Cash and due from banks	$ 1,271	$	1,434	$	1,456
Federal funds sold and securities purchased under agreements to resell	129		2,632		3,473
Other short-term investments	293		327		259
Investment securities available-for-sale	4,942		3,662		3,931
Commercial loans	27,392		26,265		25,755
Real estate construction loans	4,759		4,203		4,122
Commercial mortgage loans	9,994		9,659		9,485
Residential mortgage loans	1,892		1,677		1,622
Consumer loans	2,397		2,423		2,498
Lease financing	1,319		1,353		1,321
International loans	1,843		1,851		1,712
Total loans	49,596		47,431		46,515
Less allowance for loan losses	(512	)	(493	)	(493	)
Net loans	49,084		46,938		46,022
Premises and equipment	635		568		540
Customers’ liability on acceptances outstanding	39		56		64
Accrued income and other assets	3,629		2,384		2,729
Total assets	$ 60,022	$	58,001	$	58,474
LIABILITIES AND SHAREHOLDERS’ EQUITY
Noninterest-bearing deposits	$ 11,290	$	13,901	$	15,132
Money market and NOW deposits	14,814		15,250		14,711
Savings deposits	1,402		1,365		1,378
Customer certificates of deposit	8,010		7,223		7,057
Institutional certificates of deposit	5,049		5,783		5,783
Foreign office time deposits	1,355		1,405		869
Total interest-bearing deposits	30,630		31,026		29,798
Total deposits	41,920		44,927		44,930
Short-term borrowings	2,813		635		225
Acceptances outstanding	39		56		64
Accrued expenses and other liabilities	1,267		1,281		1,292
Medium- and long-term debt	8,906		5,949		6,755
Total liabilities	54,945		52,848		53,266
Common stock — $5 par value:
Authorized - 325,000,000 shares
Issued - 178,735,252 shares at 9/30/07, 12/31/06 and 9/30/06	894		894		894
Capital surplus	551		520		507
Accumulated other comprehensive loss	(238	)	(324	)	(128	)
Retained earnings	5,484		5,282		5,079
Less cost of common stock in treasury - 27,725,572 shares at 9/30/07,
21,161,161 shares at 12/31/06 and 19,892,137 shares at 9/30/06	(1,614	)	(1,219	)	(1,144	)
Total shareholders’ equity	5,077		5,153		5,208
Total liabilities and shareholders’ equity	$ 60,022	$	58,001	$	58,474

See notes to consolidated financial statements.

Folio 3 /Folio

PAGEBREAK

Table of Contents

CONSOLIDATED STATEMENTS OF INCOME (unaudited)

Comerica Incorporated and Subsidiaries

	Three Months Ended
	September 30,		September 30,
(in millions, except per share data)	2007	2006	2007		2006
INTEREST INCOME
Interest and fees on loans	$ 895	$ 843	$	2,628	$	2,358
Interest on investment securities	52	43		140		132
Interest on short-term investments	5	7		18		20
Total interest income	952	893		2,786		2,510
INTEREST EXPENSE
Interest on deposits	294	272		864		707
Interest on short-term borrowings	29	28		75		115
Interest on medium- and long-term debt	126	91		333		207
Total interest expense	449	391		1,272		1,029
Net interest income	503	502		1,514		1,481
Provision for loan losses	45	15		104		15
Net interest income after
provision for loan losses	458	487		1,410		1,466
NONINTEREST INCOME
Service charges on deposit accounts	55	56		164		164
Fiduciary income	49	45		147		133
Commercial lending fees	19	16		52		46
Letter of credit fees	16	17		47		48
Foreign exchange income	11	9		30		28
Brokerage fees	11	10		32		30
Card fees	14	11		40		34
Bank-owned life insurance	8	8		27		31
Net income from principal investing and warrants	11	—		13		7
Net securities gains (losses)	4	—		4		(1	)
Net gain (loss) on sales of businesses	—	(7	)	3		(12	)
Other noninterest income	32	30		99		85
Total noninterest income	230	195		658		593
NONINTEREST EXPENSES
Salaries	207	202		628		592
Employee benefits	49	48		145		142
Total salaries and employee benefits	256	250		773		734
Net occupancy expense	34	31		102		91
Equipment expense	15	13		45		41
Outside processing fee expense	23	21		67		64
Software expense	16	13		46		41
Customer services	11	11		36		33
Litigation and operational losses	6	3		—		7
Provision for credit losses on lending-related commitments	—	(5	)	(4	)	9
Other noninterest expenses	62	62		176		197
Total noninterest expenses	423	399		1,241		1,217
Income from continuing operations before income taxes	265	283		827		842
Provision for income taxes	85	88		262		245
Income from continuing operations	180	195		565		597
Income (loss) from discontinued operations, net of tax	1	5		2		(3	)
NET INCOME	$ 181	$ 200	$	567	$	594
Basic earnings per common share:
Income from continuing operations	$ 1.18	$ 1.22	$	3.67	$	3.70
Net income	1.20	1.25		3.69		3.69
Diluted earnings per common share:
Income from continuing operations	1.17	1.20		3.61		3.65
Net income	1.18	1.23		3.63		3.64
Cash dividends declared on common stock	97	94		296		286
Dividends per common share	0.64	0.59		1.92		1.77

See notes to consolidated financial statements.

Folio 4 /Folio

PAGEBREAK

Table of Contents

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (unaudited)

Comerica Incorporated and Subsidiaries

					Other							Total
	Common Stock			Capital	Comprehensive			Retained	Treasury			Shareholders’
(in millions, except per share data)	In Shares	Amount		Surplus	Loss			Earnings	Stock			Equity
BALANCE AT JANUARY 1, 2006	162.9	$	894	$ 461	$	(170	)	$ 4,796	$	(913	)	$ 5,068
Net income	—		—	—		—		594		—		594
Other comprehensive income, net of tax	—		—	—		42		—		—		42
Total comprehensive income												636
Cash dividends declared on common stock ($1.77 per
share)	—		—	—		—		(286	)	—		(286	)
Purchase of common stock	(5.2	)	—	—		—		—		(299	)	(299	)
Net issuance of common stock under employee stock plans	1.4		—	(16	)	—		(25	)	85		44
Recognition of share-based compensation expense	—		—	45		—		—		—		45
Employee deferred compensation obligations	(0.3	)	—	17		—		—		(17	)	—
BALANCE AT SEPTEMBER 30, 2006	158.8	$	894	$ 507	$	(128	)	$ 5,079	$	(1,144	)	$ 5,208
BALANCE AT DECEMBER 31, 2006	157.6	$	894	$ 520	$	(324	)	$ 5,282	$	(1,219	)	$ 5,153
FSP 13-2 transition adjustment, net of tax	—		—	—		—		(46	)	—		(46	)
FIN 48 transition adjustment, net of tax	—		—	—		—		3		—		3
BALANCE AT JANUARY 1, 2007	157.6		894	520		(324	)	5,239		(1,219	)	5,110
Net income	—		—	—		—		567		—		567
Other comprehensive income, net of tax	—		—	—		86		—		—		86
Total comprehensive income	—		—	—		—		—		—		653
Cash dividends declared on common stock ($1.92 per
share)	—		—	—		—		(296	)	—		(296	)
Purchase of common stock	(9.0	)	—	—		—		—		(533	)	(533	)
Net issuance of common stock under employee stock plans	2.4		—	(16	)	—		(26	)	139		97
Recognition of share-based compensation expense	—		—	46		—		—		—		46
Employee deferred compensation obligations	—		—	1		—		—		(1	)	—
BALANCE AT SEPTEMBER 30, 2007	151.0	$	894	$ 551	$	(238	)	$ 5,484	$	(1,614	)	$ 5,077

See notes to consolidated financial statements.

Folio 5 /Folio

PAGEBREAK

Table of Contents

CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)

Comerica Incorporated and Subsidiaries

	Nine Months Ended
	September 30,
(in millions)	2007	2006
OPERATING ACTIVITIES
Net income	$ 567	$	594
Income (loss) from discontinued operations, net of tax	2		(3	)
Income from continuing operations	565		597
Adjustments to reconcile net income to net cash provided by
operating activities:
Provision for loan losses	104		15
Provision for credit losses on lending-related commitments	(4	)	9
Depreciation and software amortization	69		61
Share-based compensation expense	46		45
Excess tax benefits from share-based compensation arrangements	(9	)	(8	)
Net amortization of securities	(2	)	(1	)
Net (gain) loss on sale/settlement of investment securities available-for-sale	(4	)	1
Net (gain) loss on sales of businesses	(3	)	12
Net decrease in trading securities	1		25
Net decrease in loans held-for-sale	48		57
Net increase in accrued income receivable	(10	)	(49	)
Net (decrease) increase in accrued expenses	(41	)	85
Other, net	(45	)	(31	)
Discontinued operations, net	1		26
Total adjustments	151		247
Net cash provided by operating activities	716		844
INVESTING ACTIVITIES
Net decrease (increase) in federal funds sold and other short-term investments	2,488		(2,629	)
Proceeds from sales of investment securities available-for-sale	4		1
Proceeds from maturities of investment securities available-for-sale	658		973
Purchases of investment securities available-for-sale	(1,912	)	(671	)
Net increase in loans	(2,261	)	(3,319	)
Net increase in fixed assets	(126	)	(106	)
Net decrease (increase) in customers’ liability on acceptances outstanding	17		(5	)
Proceeds from sales of businesses	3		43
Discontinued operations, net	1		—
Net cash used in investing activities	(1,128	)	(5,713	)
FINANCING ACTIVITIES
Net (decrease) increase in deposits	(4,140	)	2,499
Net increase (decrease) in short-term borrowings	2,178		(77	)
Net (decrease) increase in acceptances outstanding	(17	)	5
Proceeds from issuance of medium- and long-term debt	3,835		2,930
Repayments of medium- and long-term debt	(879	)	(104	)
Proceeds from issuance of common stock under employee stock plans	89		36
Excess tax benefits from share-based compensation arrangements	9		8
Purchase of common stock for treasury	(533	)	(299	)
Dividends paid	(293	)	(282	)
Discontinued operations, net	—		—
Net cash provided by financing activities	249		4,716
Net decrease in cash and due from banks	(163	)	(153	)
Cash and due from banks at beginning of period	1,434		1,609
Cash and due from banks at end of period	$ 1,271	$	1,456
Interest paid	$ 1,249	$	1,025
Income taxes paid	$ 313	$	202
Noncash investing and financing activities:
Loans transferred to other real estate	$ 13	$	15

See notes to consolidated financial statements.

Folio 6 /Folio

PAGEBREAK

Table of Contents

Notes to Consolidated Financial Statements (unaudited)

Comerica Incorporated and Subsidiaries

Note 1 — Basis of Presentation and Accounting Policies

The accompanying unaudited consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, the statements do not include all of the information and footnotes required by U.S. generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. The results of operations for the nine months ended September 30, 2007 are not necessarily indicative of the results that may be expected for the year ending December 31, 2007. Certain items in prior periods have been reclassified to conform to the current presentation. For further information, refer to the consolidated financial statements and footnotes thereto included in the Annual Report of Comerica Incorporated and Subsidiaries (the Corporation) on Form 10-K for the year ended December 31, 2006.

Income Taxes

On January 1, 2007, the Corporation adopted the provisions of FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes- an interpretation of FASB Statement No. 109,” (FIN 48). FIN 48 permits the Corporation to elect to change its accounting policy as to where interest and penalties on tax liabilities is classified in the consolidated statements of income. Effective January 1, 2007, the Corporation prospectively changed its accounting policy to classify interest and penalties on tax liabilities in the “provision for income taxes” on the consolidated statements of income. The provision for income taxes included interest on tax liabilities of $4 million and $8 million for the three and nine month periods ended September 30, 2007, respectively. For all prior periods presented, interest and penalties on tax liabilities remained classified in “other noninterest expenses” on the consolidated statements of income. Additional information regarding FIN 48 can be found in Note 6.

Impairment

Goodwill and identified intangible assets that have an indefinite useful life are subject to impairment testing, which the Corporation conducts annually, or on an interim basis if events or changes in circumstances between annual tests indicate the assets might be impaired. The Corporation performs its annual impairment test for goodwill and identified intangible assets that have an indefinite useful life as of July 1 of each year. The impairment test involves assigning tangible assets and liabilities, identified intangible assets and goodwill to reporting units, which are a subset of the Corporation’s operating segments, and comparing the fair value of each reporting unit to its carrying value. If the fair value is less than the carrying value, a further test is required to measure the amount of impairment. The annual test of goodwill and intangible assets that have an indefinite life, performed as of July 1, 2007, did not indicate that an impairment charge was required.

Note 2 — Pending Accounting Pronouncements

In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements,” (SFAS 157), which defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value measurements. SFAS 157 applies whenever other standards require (or permit) assets or liabilities to be measured at fair value, and therefore, does not expand the use of fair value in any new circumstances. Fair value refers to the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants in the market in which the Corporation transacts. SFAS 157 clarifies that fair value should be based on the assumptions market participants would use when pricing an asset or liability and establishes a fair value hierarchy that prioritizes the information used to develop those assumptions. The fair value hierarchy gives the highest priority to quoted prices in active markets and the lowest priority to unobservable data, for example, the Corporation’s own data. SFAS 157 requires fair value measurements to be separately disclosed by level within the fair value hierarchy. While not expanding the use of fair value, SFAS 157 may change the measurement of fair value. Any change in the measurement of fair value would be considered a change in estimate and included in the results of operations in the period of adoption. SFAS 157 is effective for fiscal years beginning after November 15, 2007. Accordingly, the Corporation will adopt the provisions of SFAS 157 in the first quarter of 2008. The Corporation is currently evaluating the guidance contained in SFAS 157 to determine the effect adoption of the guidance will have on the Corporation’s financial condition and results of operations.

Folio 7 /Folio

PAGEBREAK

Table of Contents

Notes to Consolidated Financial Statements (unaudited) Comerica Incorporated and Subsidiaries

Note 2 — Pending Accounting Pronouncements (continued)

In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities — Including an amendment of FASB Statement No. 115,” (SFAS 159). SFAS 159 provides entities with the irrevocable option to account for selected financial assets and liabilities at fair value on a contract-by-contract basis. The Corporation can elect to apply the standard prospectively and measure certain financial instruments at fair value beginning January 1, 2008. The Corporation is currently evaluating the guidance contained in SFAS 159, and has yet to determine which assets or liabilities (if any) will be selected. At adoption, the difference between the carrying amount and the fair value of existing eligible assets and liabilities selected (if any) would be recognized via a cumulative adjustment to beginning retained earnings on January 1, 2008. After adoption, all changes in fair value would be included in the results of operations.

Note 3 — Investment Securities

A summary of the Corporation’s temporarily impaired investment securities available-for-sale as of September 30, 2007 follows:

	Impaired
	Less than 12 months			Over 12 months			Total
	Fair	Unrealized		Fair	Unrealized		Fair	Unrealized
(in millions)	Value	Losses		Value	Losses		Value	Losses
U.S. Treasury and other
Government agency securities	$ 1	$ —	*	$ 4	$ —	*	$ 5	$ —	*
Government-sponsored enterprise securities	844	3		2,336	57		3,180	60
State and municipal securities	—	—		—	—		—	—
Other securities	—	—		—	—		—	—
Total temporarily
impaired securities	$ 845	$ 3		$ 2,340	$ 57		$ 3,185	$ 60

• Unrealized losses less than $0.5 million.

At September 30, 2007, the Corporation had 137 securities in an unrealized loss position, including 135 government-sponsored enterprise securities (i.e., FMNA, FHLMC). The unrealized losses resulted from changes in market interest rates, not credit quality. The Corporation has the ability and intent to hold these available-for-sale investment securities until maturity or market price recovery, and full collection of the amounts due according to the contractual terms of the debt is expected; therefore, the Corporation does not consider these investments to be other-than-temporarily impaired at September 30, 2007.

At September 30, 2007, investment securities having a carrying value of $1.8 billion were pledged where permitted or required by law to secure $1.2 billion of liabilities, including public and other deposits, and derivative instruments. This included securities of $962 million pledged with the Federal Reserve Bank to secure actual treasury tax and loan borrowings of $451 million at September 30, 2007, and potential borrowings of up to an additional $399 million. The remaining pledged securities of $831 million are primarily with state and local government agencies to secure $794 million of deposits and other liabilities, including deposits of the State of Michigan of $205 million at September 30, 2007.

Folio 8 /Folio

PAGEBREAK

Table of Contents

Notes to Consolidated Financial Statements (unaudited) Comerica Incorporated and Subsidiaries

Note 4 — Allowance for Credit Losses

The following summarizes the changes in the allowance for loan losses:

	Nine Months Ended
	September 30,
(in millions)	2007	2006
Balance at beginning of period	$ 493	$ 516
Loan charge-offs:
Domestic
Commercial	62	37
Real estate construction
Commercial Real Estate business line	13	—
Other business lines	4	—
Total real estate construction	17	—
Commercial mortgage
Commercial Real Estate business line	8	1
Other business lines	28	9
Total commercial mortgage	36	10
Residential mortgage	—	—
Consumer	9	10
Lease financing	—	7
International	—	3
Total loan charge-offs	124	67
Recoveries:
Domestic
Commercial	20	22
Real estate construction	—	—
Commercial mortgage	3	3
Residential mortgage	—	—
Consumer	3	2
Lease financing	4	—
International	8	2
Total recoveries	38	29
Net loan charge-offs	86	38
Provision for loan losses	104	15
Foreign currency translation adjustment	1	—
Balance at end of period	$ 512	$ 493

Folio 9 /Folio

PAGEBREAK

Table of Contents

Notes to Consolidated Financial Statements (unaudited) Comerica Incorporated and Subsidiaries

Note 4 — Allowance for Credit Losses (continued)

Changes in the allowance for credit losses on lending-related commitments, included in “accrued expenses and other liabilities” on the consolidated balance sheets, are summarized in the following table.

	Nine Months Ended
	September 30,
(in millions)	2007	2006
Balance at beginning of period	$ 26	$	33
Less: Charge-offs on lending-related commitments*	3		11
Add: Provision for credit losses on lending-related commitments	(4	)	9
Balance at end of period	$ 19	$	31

• Charge-offs result from the sale of unfunded lending-related commitments.

A loan is impaired when it is probable that interest and principal payments will not be made in accordance with the contractual terms of the loan agreement. Consistent with this definition, all nonaccrual and reduced-rate loans (with the exception of residential mortgage and consumer loans) are impaired. Impaired loans that are restructured and meet the requirements to be on accrual status are included with total impaired loans for the remainder of the calendar year of the restructuring. There were two loans totaling $9 million included in the $276 million of impaired loans at September 30, 2007 that were restructured and met the requirements to be on accrual status. Impaired loans averaged $269 million and $236 million for the three and nine month periods ended September 30, 2007, respectively, and $152 million and $139 million for the three and nine month periods ended September 30, 2006, respectively. The following presents information regarding the period-end balances of impaired loans:

	Nine Months Ended	Year Ended
(in millions)	September 30, 2007	December 31, 2006
Total period-end nonaccrual business loans	$ 267	$ 209
Plus: Impaired loans restructured during the period on accrual
status at period-end	9	—
Total period-end impaired loans	$ 276	$ 209
Period-end impaired loans requiring an allowance	$ 254	$ 195
Allowance allocated to impaired loans	$ 58	$ 34

Those impaired loans not requiring an allowance represent loans for which the fair value of expected repayments or collateral exceeded the recorded investments in such loans.

Folio 10 /Folio

PAGEBREAK

Table of Contents

Notes to Consolidated Financial Statements (unaudited) Comerica Incorporated and Subsidiaries

Note 5 — Medium- and Long-term Debt

Medium- and long-term debt are summarized as follows:

(in millions)	September 30, 2007	December 31, 2006
Parent company
Subordinated notes:
7.25% subordinated note due 2007	$ —	$ 151
4.80% subordinated note due 2015	296	294
6.576% subordinated notes due 2037	510	—
7.60% subordinated note due 2050	—	361
Total subordinated notes	806	806
Medium-term notes:
Floating rate based on LIBOR indices due 2010	150	—
Total parent company	956	806
Subsidiaries
Subordinated notes:
7.25% subordinated note due 2007	—	201
9.98% subordinated note due 2007	—	58
6.00% subordinated note due 2008	253	253
6.875% subordinated note due 2008	100	102
8.50% subordinated note due 2009	101	101
7.125% subordinated note due 2013	156	157
5.70% subordinated note due 2014	253	251
5.75% subordinated notes due 2016	657	397
5.20% subordinated notes due 2017	492	489
8.375% subordinated note due 2024	181	182
7.875% subordinated note due 2026	189	192
Total subordinated notes	2,382	2,383
Medium-term notes:
Floating rate based on LIBOR indices due 2007 to 2012	4,618	2,299
Floating rate based on PRIME indices due 2007 to 2008	850	350
2.85% fixed rate note due 2007	—	100
Floating rate based on Federal Funds indices due 2009	100	—
Variable rate note payable due 2009	—	11
Total subsidiaries	7,950	5,143
Total medium- and long-term debt	$ 8,906	$ 5,949

The carrying value of medium- and long-term debt has been adjusted to reflect the gain or loss attributable to the risk hedged with interest rate swaps.

In February 2007, the Corporation issued $515 million of 6.576% subordinated notes that relate to trust preferred securities issued by an unconsolidated subsidiary. The notes pay interest on February 20 and August 20 of each year, beginning August 20, 2007 through February 20, 2032. Beginning February 20, 2032, the notes will bear interest at an annual rate based on LIBOR, payable monthly on the 20 th day of each calendar month until the scheduled maturity date of February 20, 2037. The subordinated notes qualify as Tier 1 capital. The Corporation used the proceeds for the March 2007 redemption of a $350 million, 7.60% subordinated note due 2050 and to repurchase additional shares.

In March 2007, Comerica Bank (the Bank), a subsidiary of the Corporation, issued an additional $250 million of 5.75% subordinated notes under a series initiated in November 2006. The notes pay interest on May 21 and November 21 of each year, beginning with May 21, 2007, and mature November 21, 2016. The Bank used the net proceeds for general corporate purposes.

Folio 11 /Folio

PAGEBREAK

Table of Contents

Notes to Consolidated Financial Statements (unaudited) Comerica Incorporated and Subsidiaries

Note 5 — Medium- and Long-term Debt (continued)

In July 2007, the Corporation issued $150 million of floating rate senior notes due July 27, 2010. The notes pay interest on January 27, April 27, July 27 and October 27 of each year, beginning October 27, 2007. The notes bear interest at a variable rate reset each interest period based on three-month LIBOR plus 0.17%. The Corporation used the proceeds to repay the $150 million 7.25% subordinated note due 2007.

The Bank issued a total of $2.9 billion of floating rate notes during the nine months ended September 30, 2007 under an existing $15 billion medium-term senior note program. The Bank used the proceeds for general corporate purposes.

Note 6 — Income Taxes and Tax-Related Items

The provision for income taxes is computed by applying statutory federal income tax rates to income before income taxes as reported in the consolidated financial statements after deducting non-taxable items, principally income on bank-owned life insurance, and deducting tax credits related to investments in low income housing partnerships. State and foreign taxes are then added to the federal tax provision. In addition, beginning January 1, 2007, interest on tax liabilities is classified in the provision for income taxes.

The Corporation adopted the provisions of FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes- an interpretation of FASB Statement No. 109,” (FIN 48) on January 1, 2007. As a result, the Corporation recognized an increase in the liability for unrecognized tax benefits of approximately $5 million at January 1, 2007, accounted for as a change in accounting principle via a decrease to the opening balance of retained earnings. At January 1, 2007, the Corporation had unrecognized tax benefits of approximately $72 million. After consideration of the effect of the federal tax benefit available on unrecognized state tax benefits, the total amount of unrecognized tax benefits that, if recognized, would affect the Corporation’s effective tax rate was approximately $66 million at January 1, 2007.

The Corporation recognized approximately $4 million and $8 million in interest on tax liabilities included in the “provision for income taxes” on the consolidated statements of income for the three and nine month periods ended September 30, 2007, respectively, compared to $2 million and $23 million for the three and nine months ended September 30, 2006, respectively, included in “other noninterest expenses” on the consolidated statements of income. For further information regarding the change in classification of interest and penalties on tax liabilities as a result of applying the provisions of FIN 48, refer to Note 1 to these consolidated financial statements. The Corporation had approximately $78 million and $70 million accrued for the payment of interest at September 30, 2007 and January 1, 2007, respectively. Upon adoption of FIN 48, the Corporation recorded an $8 million decrease to interest on tax liabilities as an increase to the opening balance of retained earnings.

In the ordinary course of business, the Corporation enters into certain transactions that have tax consequences. From time to time, the Internal Revenue Service (IRS) questions and/or challenges the tax position taken by the Corporation with respect to those transactions. The Corporation engaged in certain types of structured leasing transactions that the IRS disallowed in its examination of the Corporation’s federal tax returns for the years 1996 through 2000. The IRS also disallowed foreign tax credits associated with the interest on a series of loans to foreign borrowers. The Corporation has had ongoing discussions with the IRS Appeals Office related to the disallowance of the foreign tax credits associated with the loans and adjusted tax and related interest reserves based on settlements discussed. The Corporation believes it is reasonably possible that a final settlement amount with the IRS will be agreed upon within the next twelve months. The FIN 48 unrecognized tax benefit related to the foreign tax credits was approximately $38 million at September 30, 2007, and reflects the Corporation’s current settlement expectations.

Based on current knowledge and probability assessment of various potential outcomes, the Corporation believes that current tax reserves, determined in accordance with FIN 48, are adequate to cover the matters outlined above, and the amount of any incremental liability arising from these matters is not expected to have a material adverse effect on the Corporation’s consolidated financial condition or results of operations. Probabilities and outcomes are reviewed as events unfold, and adjustments to the reserves are made when necessary.

Folio 12 /Folio

PAGEBREAK

Table of Contents

Notes to Consolidated Financial Statements (unaudited) Comerica Incorporated and Subsidiaries

Note 6 — Income Taxes and Tax-Related Items (continued)

The Corporation believes that its tax returns were filed based upon applicable statutes, regulations and case law in effect at the time of the transactions. The Corporation intends to vigorously defend its positions taken in those returns in accordance with its view of the law controlling these activities. However, as noted above, the IRS examination team, an administrative authority or a court, if presented with the transactions, could disagree with the Corporation’s interpretation of the tax law. After evaluating the risks and opportunities, the best outcome may result in a settlement. The ultimate outcome for each position is not known.

The following tax years for significant jurisdictions remain subject to examination as of September 30, 2007:

Jurisdiction
Federal	2001-2006
California	2002-2006

On January 1, 2007, the Corporation adopted the provisions of FASB Staff Position No. FAS 13-2, “Accounting for a Change or Projected Change in the Timing of Cash Flows Relating to Income Taxes Generated by a Leveraged Lease Transaction,” (FSP 13-2). FSP 13-2 requires a recalculation of the lease income from the inception of a leveraged lease if, during the lease term, the expected timing of the income tax cash flows generated from a leveraged lease is revised. The Corporation recorded a one-time non-cash after-tax charge to beginning retained earnings of $46 million to reflect changes in expected timing of the income tax cash flows generated from affected leveraged leases, which is expected to be recognized as income over periods ranging from 4 years to 20 years.

Note 7 — Accumulated Other Comprehensive Income (Loss)

Other comprehensive income (loss) includes the change in net unrealized gains and losses on investment securities available-for-sale, the change in accumulated net gains and losses on cash flow hedges, the change in the accumulated foreign currency translation adjustment and the change in the accumulated defined benefit and other postretirement plans adjustment. The Consolidated Statements of Changes in Shareholders’ Equity on page 5 include only combined other comprehensive income (loss), net of tax. The following table presents reconciliations of the components of the accumulated other comprehensive income (loss) for the nine months ended September 30, 2007 and 2006. Total comprehensive income totaled $653 million and $636 million for the nine months ended September 30, 2007 and 2006, respectively. The $17 million increase in total comprehensive income in the nine months ended September 30, 2007, when compared to the same period in the prior year, resulted principally from a decrease in net unrealized losses on investment securities available-for-sale ($26 million) due to changes in the interest rate environment, a decrease in net losses on cash flow hedges ($11 million) and a change in the defined benefit and other postretirement benefit plans adjustment ($14 million), partially offset by a decrease in net income ($27 million).

Folio 13 /Folio

PAGEBREAK

Table of Contents

Notes to Consolidated Financial Statements (unaudited) Comerica Incorporated and Subsidiaries

Note 7 — Accumulated Other Comprehensive Income (Loss) (continued)

	Nine Months Ended
	September 30,
(in millions)	2007		2006
Accumulated net unrealized gains (losses) on investment securities
available-for-sale:
Balance at beginning of period, net of tax	$ (61	)	$ (69	)
Net unrealized holding gains (losses) arising during the period	50		4
Less: Reclassification adjustment for gains (losses)
included in net income	4		(1	)
Change in net unrealized gains (losses) before income taxes	46		5
Less: Provision for income taxes	16		1
Change in net unrealized gains (losses) on investment
securities available-for-sale, net of tax	30		4
Balance at end of period, net of tax	$ (31	)	$ (65	)
Accumulated net gains (losses) on cash flow hedges:
Balance at beginning of period, net of tax	$ (48	)	$ (91	)
Net cash flow hedges gains (losses) arising during the period	5		(47	)
Less: Reclassification adjustment for gains (losses)
included in net income	(61	)	(94	)
Change in cash flow hedges before income taxes	66		47
Less: Provision for income taxes	24		16
Change in cash flow hedges, net of tax	42		31
Balance at end of period, net of tax	$ (6	)	$ (60	)
Accumulated foreign currency translation adjustment:
Balance at beginning of period	$ —		$ (7	)
Net translation gains (losses) arising during the period	—		—
Less: Reclassification adjustment for gains (losses)
included in net income, due to sale of foreign subsidiary	—		(7	)
Change in foreign currency translation adjustment	—		7
Balance at end of period	$ —		$ —
Accumulated defined benefit pension and other postretirement
plans adjustment:
Balance at beginning of period, net of tax	$ (215	)	$ (3	)
Minimum pension liability adjustment arising during
the period before income taxes	N/A		1
Less: Provision for income taxes	N/A		1
Change in minimum pension liability, net of tax	N/A		—
Adjustment for amounts recognized as components of
net periodic benefit cost during the period	23		N/A
Less: Provision for income taxes	9		N/A
Change in defined benefit and other postretirement
plans adjustment, net of tax	14		N/A
Balance at end of period, net of tax	$ (201	)	$ (3	)
Total accumulated other comprehensive
loss at end of period, net of tax	$ (238	)	$ (128	)

N/A — Not Applicable

Folio 14 /Folio

PAGEBREAK

Table of Contents

Notes to Consolidated Financial Statements (unaudited) Comerica Incorporated and Subsidiaries

Note 8 — Net Income per Common Share

Basic and diluted net income per common share for the three and nine month periods ended September 30, 2007 and 2006 were computed as follows:

	Three Months Ended — September 30,		Nine Months Ended — September 30,
(in millions, except per share data)	2007	2006	2007	2006
Basic
Income from continuing operations applicable
to common stock	$ 180	$ 195	$ 565	$ 597
Net income applicable to common stock	181	200	567	594
Average common shares outstanding	151	160	154	161
Basic income from continuing operations
per common share	$ 1.18	$ 1.22	$ 3.67	$ 3.70
Basic net income per common share	1.20	1.25	3.69	3.69
Diluted
Income from continuing operations applicable
to common stock	$ 180	$ 195	$ 565	$ 597
Net income applicable to common stock	181	200	567	594
Average common shares outstanding	151	160	154	161
Nonvested stock	1	1	1	1
Common stock equivalents:
Net effect of the assumed exercise of stock options	1	1	1	1
Diluted average common shares	153	162	156	163
Diluted income from continuing operations
per common share	$ 1.17	$ 1.20	$ 3.61	$ 3.65
Diluted net income per common share	1.18	1.23	3.63	3.64

The following average outstanding options to purchase shares of common stock were not included in the computation of diluted net income per common share because the options’ exercise prices were greater than the average market price of common shares for the period.

	Three Months Ended — September 30,		Nine Months Ended — September 30,
(options in millions)	2007	2006	2007	2006
Average outstanding options	10.5	6.0	5.8	7.8
Range of exercise prices	$ 55.61 - $71.58	$ 56.74 - $71.58	$ 59.47 - $71.58	$ 56.38 - $71.58

Folio 15 /Folio

PAGEBREAK

Table of Contents

Notes to Consolidated Financial Statements (unaudited) Comerica Incorporated and Subsidiaries

Note 9 — Employee Benefit Plans

Net periodic benefit costs are charged to “employee benefits expense” on the consolidated statements of income. The components of net periodic benefit cost for the Corporation’s qualified pension plan, non-qualified pension plan and postretirement benefit plan are as follows:

Qualified Defined Benefit Pension Plan	Three Months Ended
	September 30,			September 30,
(in millions)	2007	2006		2007		2006
Service cost	$ 8	$	8	$	23	$	23
Interest cost	15		14		46		43
Expected return on plan assets	(23	)	(22	)	(70	)	(67	)
Amortization of unrecognized prior service cost	2		2		5		5
Amortization of unrecognized net loss	3		5		11		16
Net periodic benefit cost	$ 5	$	7	$	15	$	20

Non-Qualified Defined Benefit Pension Plan	Three Months Ended		Nine Months Ended
	September 30,		September 30,
(in millions)	2007	2006	2007	2006
Service cost	$ 1	$ 1	$ 3	$	3
Interest cost	2	1	6		4
Amortization of unrecognized prior service cost	—	—	(1	)	(1	)
Amortization of unrecognized net loss	1	1	4		4
Net periodic benefit cost	$ 4	$ 3	$ 12	$	10

Postretirement Benefit Plan	Three Months Ended
	September 30,			September 30,
(in millions)	2007	2006		2007		2006
Interest cost	$ 1	$	1	$	4	$	3
Expected return on plan assets	(1	)	(1	)	(3	)	(3	)
Amortization of unrecognized transition obligation	1		1		3		3
Amortization of unrecognized prior service cost	1		—		1		—
Amortization of unrecognized net loss	—		1		—		1
Net periodic benefit cost	$ 2	$	2	$	5	$	4

For further information on the Corporation’s employee benefit plans, refer to Note 16 to the consolidated financial statements in the Corporation’s 2006 Annual Report.

Folio 16 /Folio

PAGEBREAK

Table of Contents

Notes to Consolidated Financial Statements (unaudited) Comerica Incorporated and Subsidiaries

Note 10 — Derivative Instruments

The following table presents the composition of derivative instruments, excluding commitments, held or issued for risk management purposes, and in connection with customer-initiated and other activities.

	September 30, 2007					December 31, 2006
	Notional/					Notional/
	Contract	Unrealized		Fair		Contract	Unrealized		Fair
	Amount	Gains	Unrealized	Value		Amount	Gains	Unrealized	Value
(in millions)	(1)	(2)	Losses	(3)		(1)	(2)	Losses	(3)
Risk management
Interest rate contracts:
Swaps — cash flow	$ 4,000	$ —	$ 16	$ (16	)	$ 6,200	$ —	$ 87	$ (87	)
Swaps — fair value	2,202	83	5	78		2,253	75	7	68
Total interest rate contracts	6,202	83	21	62		8,453	75	94	(19	)
Foreign exchange contracts:
Spot and forwards	653	7	2	5		518	6	2	4
Swaps	24	—	—	—		33	—	—	—
Total foreign exchange contracts	677	7	2	5		551	6	2	4
Total risk management	6,879	90	23	67		9,004	81	96	(15	)
Customer-initiated and other
Interest rate contracts:
Caps and floors written	629	—	2	(2	)	551	—	3	(3	)
Caps and floors purchased	615	2	—	2		536	3	—	3
Swaps	5,897	50	33	17		4,480	37	26	11
Total interest rate contracts	7,141	52	35	17		5,567	40	29	11
Energy derivative contracts:
Caps and floors written	394	—	30	(30	)	310	—	23	(23	)
Caps and floors purchased	394	30	—	30		310	23	—	23
Swaps	692	34	34	—		485	22	21	1
Total energy derivative contracts	1,480	64	64	—		1,105	45	44	1
Foreign exchange contracts:
Spot, forwards, futures and options	2,953	33	31	2		2,889	24	21	3
Swaps	7	—	—	—		4	—	—	—
Total foreign exchange contracts	2,960	33	31	2		2,893	24	21	3
Total customer-initiated and other	11,581	149	130	19		9,565	109	94	15
Total derivative instruments	$ 18,460	$ 239	$ 153	$ 86		$ 18,569	$ 190	$ 190	$ —

| (1) | Notional or contract amounts, which represent the extent of involvement in
the derivatives market, are used to determine the contractual cash flows
required in accordance with the terms of the agreement. These amounts are
typically not exchanged, significantly exceed amounts subject to credit or
market risk, and are not reflected in the consolidated balance sheets. |
| --- | --- |
| (2) | Unrealized gains represent receivables from derivative counterparties, and
therefore expose the Corporation to credit risk. Credit risk, which excludes
the effects of any collateral or netting arrangements, is measured as the cost
to replace, at current market rates, contracts in a profitable position. |
| (3) | The fair values of derivative instruments represent the estimated amounts
the Corporation would receive or pay to terminate or otherwise settle the
contracts at the balance sheet date. The fair values of all derivative
instruments are reflected in the consolidated balance sheets. |

Folio 17 /Folio

PAGEBREAK

Table of Contents

Notes to Consolidated Financial Statements (unaudited) Comerica Incorporated and Subsidiaries

Note 10 — Derivative Instruments (continued)

Risk Management

Fluctuations in net interest income due to interest rate risk result from the composition of assets and liabilities and the mismatches in the timing of the repricing of these assets and liabilities. In addition, external factors such as interest rates, and the dynamics of yield curve and spread relationships can affect net interest income. The Corporation utilizes simulation analyses to project the sensitivity of net interest income to changes in interest rates. Cash instruments, such as investment securities, as well as derivative instruments, are employed to manage exposure to these and other risks, including liquidity risk.

The following table presents net hedge ineffectiveness gains (losses) by risk management hedge type:

	Three Months Ended — September 30,		Nine Months Ended — September 30,
(dollar amounts in millions)	2007	2006	2007	2006
Cash flow hedges	$ 1	$ 2	$ 2	$ —
Fair value hedges	—	—	—	—
Foreign currency hedges	—	—	—	—
Total	$ 1	$ 2	$ 2	$ —

As an end-user, the Corporation employs a variety of financial instruments for risk management purposes. As part of a fair value hedging strategy, the Corporation has entered into interest rate swap agreements for interest rate risk management purposes. These interest rate swap agreements effectively modify exposure to interest rate risk by converting fixed-rate deposits and debt to a floating rate. These agreements involve the receipt of fixed rate interest amounts in exchange for floating rate interest payments over the life of the agreement, without an exchange of the underlying principal amount.

As part of a cash flow hedging strategy, the Corporation entered into predominantly three-year interest rate swap agreements (weighted-average original maturity of 3.0 years) that effectively convert a portion of its existing and forecasted floating-rate loans to a fixed-rate basis, which will reduce the impact of interest rate changes on future interest income over the next 13 months. Approximately eight percent ($4.0 billion) of outstanding loans were designated as hedged items to interest rate swap agreements at September 30, 2007. During the three and nine month periods ended September 30, 2007, interest rate swap agreements designated as cash flow hedges decreased interest and fees on loans by $16 million and $61 million, respectively, compared to a decrease of $35 million and $93 million, respectively, for the comparable periods last year. If interest rates, interest yield curves and notional amounts remain at current levels, the Corporation expects to reclassify $5 million of net losses, net of tax, on derivative instruments from accumulated other comprehensive income to earnings during the next 12 months due to receipt of variable interest associated with existing and forecasted floating-rate loans.

Foreign exchange rate risk arises from changes in the value of certain assets and liabilities denominated in foreign currencies. The Corporation employs cash instruments, such as investment securities, as well as derivative instruments, to manage exposure to these and other risks. In addition, the Corporation uses foreign exchange forward and option contracts to protect the value of its foreign currency investment in foreign subsidiaries. Realized and unrealized gains and losses from foreign exchange forward and option contracts used to protect the value of investments in foreign

Folio 18 /Folio

PAGEBREAK

Table of Contents

Notes to Consolidated Financial Statements (unaudited) Comerica Incorporated and Subsidiaries

Note 10 — Derivative Instruments (continued)

subsidiaries are not included in the statement of income, but are shown in the accumulated foreign currency translation adjustment account included in other comprehensive income, with the related amounts due to or from counterparties included in other liabilities or other assets. During the three and nine month periods ended September 30, 2006, in accordance with SFAS No. 52, “Foreign Currency Translation,” the Corporation recognized net losses of less than $0.5 million and net gains of less than $0.5 million, respectively, in accumulated foreign currency translation adjustment, related to the forward foreign exchange contracts. The Corporation did not hold any forward foreign exchange contracts recognized in accumulated foreign currency translation adjustment during the three and nine month periods ended September 30, 2007.

Management believes these strategies achieve the desired relationship between the rate maturities of assets and funding sources which, in turn, reduces the overall exposure of net interest income to interest rate risk, although there can be no assurance that such strategies will be successful. The Corporation also uses various other types of derivative instruments to mitigate interest rate and foreign currency risks associated with specific assets or liabilities, which are reflected in the table on page 17. Such instruments may include interest rate caps and floors, foreign exchange forward contracts, foreign exchange option contracts and foreign exchange cross-currency swaps.

The following table summarizes the expected maturity distribution of the notional amount of risk management interest rate swaps and provides the weighted-average interest rates associated with amounts to be received or paid on interest rate swap agreements as of September 30, 2007. Swaps have been grouped by asset and liability designation.

Remaining Expected Maturity of Risk Management Interest Rate Swaps:

								September 30,	Dec. 31,
							2012-	2007	2006
(dollar amounts in millions)	2007		2008	2009	2010	2011	2026	Total	Total
Variable rate asset designation:
Generic receive fixed swaps	$ 800		$ 3,200	$ —	$ —	$ —	$ —	$ 4,000	$ 6,200
Weighted average: (1)
Receive rate	6.21	%	7.02 %	— %	— %	— %	— %	6.86 %	6.03 %
Pay rate	8.15		8.04	—	—	—	—	8.06	7.69
Fixed rate asset designation:
Pay fixed swaps
Amortizing	$ -	*	$ 2	$ —	$ —	$ —	$ —	$ 2	$ 3
Weighted average: (2)
Receive rate	4.95	%	4.95 %	— %	— %	— %	— %	4.95 %	4.34 %
Pay rate	3.52		3.52	—	—	—	—	3.52	3.52
Medium- and long-term debt
designation:
Generic receive fixed swaps	$ —		$ 350	$ 100	$ —	$ —	$ 1,750	$ 2,200	$ 2,250
Weighted average: (1)
Receive rate	—	%	6.17 %	6.06 %	— %	— %	5.84 %	5.90 %	5.95 %
Pay rate	—		5.38	5.36	—	—	5.39	5.39	5.44
Total notional amount	$ 800		$ 3,552	$ 100	$ —	$ —	$ 1,750	$ 6,202	$ 8,453

*	Less than $1 million
(1)	Variable rates paid on receive fixed swaps are based on prime and LIBOR (with various maturities) rates in effect
at September 30, 2007
(2)	Variable rates received are based on one-month Canadian Dollar Offered Rates in effect at September 30, 2007

Folio 19 /Folio

PAGEBREAK

Table of Contents

Notes to Consolidated Financial Statements (unaudited) Comerica Incorporated and Subsidiaries

Note 10 — Derivative Instruments (continued)

The Corporation had commitments to purchase investment securities for its trading account and available-for-sale portfolios totaling $106 million at September 30, 2007 and $20 million at December 31, 2006. Commitments to sell investment securities related to the trading account portfolio totaled $6 million at September 30, 2007 and $16 million at December 31, 2006. Outstanding commitments expose the Corporation to both credit and market risk.

Customer-Initiated and Other

Fee income is earned from entering into various transactions, principally foreign exchange contracts, interest rate contracts, and energy derivative contracts at the request of customers. The Corporation mitigates market risk inherent in customer-initiated interest rate and energy contracts by taking offsetting positions, except in those circumstances when the amount, tenor and/or contracted rate level results in negligible economic risk, whereby the cost of purchasing an offsetting contract is not economically justifiable. For customer-initiated foreign exchange contracts, the Corporation mitigates most of the inherent market risk by taking offsetting positions and manages the remainder through individual foreign currency position limits and aggregate value-at-risk limits. These limits are established annually and reviewed quarterly.

For those customer-initiated derivative contracts which were not offset or where the Corporation holds a speculative position within the limits described above, the Corporation recognized $1 million of net gains in both the three and nine month periods ended September 30, 2007 and less than $0.5 million and $1 million of net gains in the three and nine month periods ended September 30, 2006, respectively, which were included in “other noninterest income” in the consolidated statements of income. The fair value of derivative instruments held or issued in connection with customer-initiated activities, including those customer-initiated derivative contracts where the Corporation does not enter into an offsetting derivative contract position, is included in the table on page 17.

Fair values for customer-initiated and other derivative instruments represent the net unrealized gains or losses on such contracts and are recorded in the consolidated balance sheets. Changes in fair value are recognized in the consolidated income statements. The following table provides the average unrealized gains and losses, and noninterest income generated on customer-initiated and other interest rate contracts, energy derivative contracts and foreign exchange contracts.

	Nine Months Ended	Year Ended	Nine Months Ended
(in millions)	September 30, 2007	December 31, 2006	September 30, 2006
Average unrealized gains	$ 114	$ 103	$ 102
Average unrealized losses	98	92	92
Noninterest income	35	42	31

Additional information regarding the nature, terms and associated risks of derivative instruments can be found in the Corporation’s 2006 Annual Report on page 54 and in Notes 1 and 20 to the consolidated financial statements.

Folio 20 /Folio

PAGEBREAK

Table of Contents

Notes to Consolidated Financial Statements (unaudited) Comerica Incorporated and Subsidiaries

Note 11 — Standby and Commercial Letters of Credit and Financial Guarantees

The total contractual amounts of standby letters of credit and financial guarantees and commercial letters of credit at September 30, 2007 and December 31, 2006, which represents the Corporation’s credit risk associated with these instruments, are shown in the table below.

(in millions)	September 30, 2007	December 31, 2006
Standby letters of credit and financial guarantees	$ 6,752	$ 6,584
Commercial letters of credit	200	249

Standby and commercial letters of credit and financial guarantees represent conditional obligations of the Corporation, which guarantee the performance of a customer to a third party. Standby letters of credit and financial guarantees are primarily issued to support public and private borrowing arrangements, including commercial paper, bond financing and similar transactions. These contracts expire in decreasing amounts through the year 2016. Commercial letters of credit are issued to finance foreign or domestic trade transactions and are short-term in nature. The Corporation may enter into participation arrangements with third parties, which effectively reduce the maximum amount of future payments which may be required under standby letters of credit. These risk participations covered $612 million of the $6,752 million of standby letters of credit and financial guarantees outstanding at September 30, 2007. The carrying value of the Corporation’s standby and commercial letters of credit and financial guarantees, which is included in “accrued expenses and other liabilities” on the consolidated balance sheet, totaled $83 million and $78 million at September 30, 2007 and December 31, 2006, respectively.

Note 12 — Contingent Liabilities

Legal Proceedings

The Corporation and certain of its subsidiaries are subject to various pending or threatened legal proceedings arising out of the normal course of business or operations. In view of the inherent difficulty of predicting the outcome of such matters, the Corporation cannot state what the eventual outcome of these matters will be. However, based on current knowledge and after consultation with legal counsel, management believes that current reserves, determined in accordance with SFAS No. 5, “Accounting for Contingencies” (SFAS 5), are adequate, and the amount of any incremental liability arising from these matters is not expected to have a material adverse effect on the Corporation’s consolidated financial condition or results of operations.

Folio 21 /Folio

PAGEBREAK

Table of Contents

Notes to Consolidated Financial Statements (unaudited) Comerica Incorporated and Subsidiaries

Note 13 — Business Segment Information

The Corporation has strategically aligned its operations into three major business segments: the Business Bank, the Retail Bank, and Wealth & Institutional Management. These business segments are differentiated based on the type of customer and the related products and services provided. In addition to the three major business segments, the Finance Division is also reported as a segment. The Finance segment includes the Corporation’s securities portfolio and asset and liability management activities. This segment is responsible for managing the Corporation’s funding, liquidity and capital needs, performing interest sensitivity analysis and executing various strategies to manage the Corporation’s exposure to liquidity, interest rate risk, and foreign exchange risk. The Other category includes discontinued operations, the income and expense impact of equity and cash, tax benefits not assigned to specific business segments and miscellaneous other expenses of a corporate nature. Business segment results are produced by the Corporation’s internal management accounting system. This system measures financial results based on the internal business unit structure of the Corporation. Information presented is not necessarily comparable with similar information for any other financial institution. The management accounting system assigns balance sheet and income statement items to each business segment using certain methodologies, which are regularly reviewed and refined. For comparability purposes, amounts in all periods are based on business segments and methodologies in effect at September 30, 2007. These methodologies may be modified as the management accounting system is enhanced and changes occur in the organizational structure and/or product lines.

For a description of the business activities of each business segment and further information on the methodologies, which form the basis for these results, refer to Note 24 to the consolidated financial statements in the Corporation’s 2006 Annual Report.

Beginning in the first quarter 2007, the Corporation assigned to the business segments the portion of the allowance for loan losses maintained to capture probable losses due to the inherent imprecision in the risk rating system and new business migration risk. This portion of the allowance was previously included in the Other category. In addition, the Corporation changed its method of allocating corporate overhead. Corporate overhead is assigned 50 percent based on the ratio of the business segment’s noninterest expenses to total noninterest expenses incurred by all business segments and 50 percent based on the ratio of the business segment’s attributed equity to total attributed equity of all business segments. Formerly, corporate overhead was allocated based entirely on noninterest expenses. Prior periods have been restated to reflect these changes.

Folio 22 /Folio

PAGEBREAK

Table of Contents

Notes to Consolidated Financial Statements (unaudited) Comerica Incorporated and Subsidiaries

Note 13 — Business Segment Information (continued)

Business segment financial results for the nine months ended September 30, 2007 and 2006 are shown in the table below.

			Wealth &
(dollar amounts in millions)	Business	Retail	Institutional
Nine Months Ended September 30, 2007	Bank	Bank	Management	Finance			Other		Total
Earnings summary:
Net interest income (expense) (FTE)	$ 999	$ 476	$ 108	$	(51	)	$ (15	)	$ 1,517
Provision for loan losses	89	16	(4	)	—		3		104
Noninterest income	211	165	211		49		22		658
Noninterest expenses	523	472	236		8		2		1,241
Provision (benefit) for income
taxes (FTE)	186	53	30		(13	)	9		265
Income from discontinued operations,
net of tax	—	—	—		—		2		2
Net income (loss)	$ 412	$ 100	$ 57	$	3		$ (5	)	$ 567
Net credit-related charge-offs	$ 67	$ 20	$ 2	$	—		$ —		$ 89
Selected average balances:
Assets	$ 40,570	$ 6,841	$ 4,021	$	5,294		$ 1,197		$ 57,923
Loans	39,531	6,102	3,867		7		18		49,525
Deposits	16,361	17,123	2,330		6,023		(50	)	41,787
Liabilities	17,201	17,136	2,335		15,877		300		52,849
Attributed equity	2,889	843	325		595		422		5,074
Statistical data:
Return on average assets (1)	1.35 %	0.74 %	1.88	%	N/M		N/M		1.30 %
Return on average attributed equity	19.00	15.86	23.29		N/M		N/M		14.89
Net interest margin (2)	3.37	3.72	3.72		N/M		N/M		3.75
Efficiency ratio	43.51	73.68	73.80		N/M		N/M		57.20

				Wealth &
	Business	Retail		Institutional
Nine Months Ended September 30, 2006	Bank	Bank		Management	Finance			Other		Total
Earnings summary:
Net interest income (expense) (FTE)	$ 979	$	478	$ 111	$	(76	)	$ (9	)	$ 1,483
Provision for loan losses	(1	)	17	(1	)	—		—		15
Noninterest income	189		158	191		47		8		593
Noninterest expenses	546		444	227		7		(7	)	1,217
Provision (benefit) for income
taxes (FTE)	188		58	26		(22	)	(3	)	247
Loss from discontinued operations,
net of tax	—		—	—		—		(3	)	(3	)
Net income (loss)	$ 435	$	117	$ 50	$	(14	)	$ 6		$ 594
Net credit-related charge-offs	$ 30	$	19	$ —	$	—		$ —		$ 49
Selected average balances:
Assets	$ 39,058	$	6,778	$ 3,638	$	5,189		$ 1,568		$ 56,231
Loans	37,850		6,079	3,497		16		33		47,475
Deposits	17,999		16,752	2,409		4,637		(103	)	41,694
Liabilities	18,908		16,753	2,406		12,718		305		51,090
Attributed equity	2,602		830	296		476		937		5,141
Statistical data:
Return on average assets (1)	1.49	%	0.88 %	1.84	%	N/M		N/M		1.41	%
Return on average attributed equity	22.30		18.73	22.59		N/M		N/M		15.40
Net interest margin (2)	3.45		3.81	4.23		N/M		N/M		3.80
Efficiency ratio	46.81		69.74	75.11		N/M		N/M		58.59

| (1) | Return on average assets is calculated based on the greater of average assets or average
liabilities and attributed equity. |
| --- | --- |
| (2) | Net interest margin is calculated based on the greater of average earning assets or average
deposits and purchased funds. |
| FTE — | Fully Taxable Equivalent |
| N/M — | Not Meaningful |

Folio 23 /Folio

PAGEBREAK

Table of Contents

Notes to Consolidated Financial Statements (unaudited) Comerica Incorporated and Subsidiaries

Note 13 — Business Segment Information (continued)

The Corporation’s management accounting system also produces market segment results for the Corporation’s four primary geographic markets: Midwest, Western, Texas and Florida. In addition to the four primary geographic markets, Other Markets and International are also reported as market segments. Market segment results are provided as supplemental information to the business segment results and may not meet all operating segment criteria as set forth in Statement of Financial Accounting Standards No. 131, “Disclosures about Segments of an Enterprise and Related Information,” (SFAS 131).

The Midwest market consists of operations located in the states of Michigan, Ohio and Illinois. Currently, Michigan operations represent the significant majority of the Midwest market.

The Western market consists of operations located in the states of California, Arizona, Nevada, Colorado and Washington. Currently, California operations represent the significant majority of the Western market.

The Texas and Florida markets consist of operations located in the states of Texas and Florida, respectively.

Other Markets includes the Corporation’s investment management and trust alliance businesses, as well as all other markets in which the Corporation has operations, except for the International market, as described below.

The International market represents the activity of the Corporation’s International Finance division, which provides banking services primarily to foreign-owned, North American-based companies and secondarily to international operations of North American-based companies.

The Finance & Other Businesses segment includes the Corporation’s securities portfolio, asset and liability management activities, discontinued operations, the income and expense impact of equity and cash not assigned to specific business/market segments, tax benefits not assigned to specific business/market segments and miscellaneous other expenses of a corporate nature. This segment includes responsibility for managing the Corporation’s funding, liquidity and capital needs, performing interest sensitivity analysis and executing various strategies to manage the Corporation’s exposure to liquidity, interest rate risk and foreign exchange risk.

Beginning in the first quarter 2007, the Corporation assigned to the market segments the portion of the allowance for loan losses maintained to capture probable losses due to the inherent imprecision in the risk rating system and new business migration risk. This portion of the allowance was previously included in the Other category. In addition, the Corporation changed its method of allocating corporate overhead. Corporate overhead is assigned 50 percent based on the ratio of the market segment’s noninterest expenses to total noninterest expenses incurred by all market segments and 50 percent based on the ratio of the market segment’s attributed equity to total attributed equity of all market segments. Prior periods have been restated to reflect these changes.

Folio 24 /Folio

PAGEBREAK

Table of Contents

Notes to Consolidated Financial Statements (unaudited) Comerica Incorporated and Subsidiaries

Note 13 — Business Segment Information (continued)

Market segment financial results for the nine months ended September 30, 2007 and 2006 are shown in the table below.

								Finance
(dollar amounts in millions)					Other			& Other
Nine Months Ended September 30, 2007	Midwest	Western	Texas	Florida	Markets	International		Businesses		Total
Earnings summary:
Net interest income (expense) (FTE)	$ 733	$ 533	$ 207	$ 35	$ 23	$ 52		$ (66	)	$ 1,517
Provision for loan losses	89	16	—	6	2	(12	)	3		104
Noninterest income	362	96	63	11	27	28		71		658
Noninterest expenses	642	334	168	28	27	32		10		1,241
Provision (benefit) for income
taxes (FTE)	98	104	35	4	7	21		(4	)	265
Income from discontinued operations,
net of tax	—	—	—	—	—	—		2		2
Net income (loss)	$ 266	$ 175	$ 67	$ 8	$ 14	$ 39		$ (2	)	$ 567
Net credit-related charge-offs
(recoveries)	$ 80	$ 6	$ 5	$ 2	$ 2	$ (6	)	$ —		$ 89
Selected average balances:
Assets	$ 22,807	$ 17,045	$ 6,914	$ 1,673	$ 750	$ 2,243		$ 6,491		$ 57,923
Loans	21,848	16,501	6,641	1,656	740	2,114		25		49,525
Deposits	16,580	13,431	3,867	282	486	1,168		5,973		41,787
Liabilities	17,359	13,468	3,882	285	485	1,193		16,177		52,849
Attributed equity	1,972	1,194	583	91	60	157		1,017		5,074
Statistical data:
Return on average assets (1)	1.55 %	1.37 %	1.30 %	0.63 %	2.45 %	2.32	%	N/M		1.30 %
Return on average attributed equity	17.98	19.50	15.40	11.50	30.72	33.25		N/M		14.89
Net interest margin (2)	4.47	4.31	4.16	2.83	4.12	3.19		N/M		3.75
Efficiency ratio	58.78	53.20	62.06	60.53	54.66	41.80		N/M		57.20

							Other		& Other
Nine Months Ended September 30, 2006	Midwest	Western	Texas		Florida		Markets	International	Businesses			Total
Earnings summary:
Net interest income (expense) (FTE)	$ 746	$ 523	$	192	$	32	$ 24	$ 51	$	(85	)	$ 1,483
Provision for loan losses	46	(16	)	(6	)	2	1	(12	)	—		15
Noninterest income	353	86		55		11	21	12		55		593
Noninterest expenses	644	328		157		25	25	38		—		1,217
Provision (benefit) for income
taxes (FTE)	112	107		31		5	6	11		(25	)	247
Loss from discontinued operations,
net of tax	—	—		—		—	—	—		(3	)	(3	)
Net income (loss)	$ 297	$ 190	$	65	$	11	$ 13	$ 26	$	(8	)	$ 594
Net credit-related charge-offs
(recoveries)	$ 38	$ 3	$	5	$	2	$ —	$ 1	$	—		$ 49
Selected average balances:
Assets	$ 22,661	$ 16,402	$	6,021	$	1,493	$ 660	$ 2,237	$	6,757		$ 56,231
Loans	21,617	15,830		5,761		1,474	650	2,094		49		47,475
Deposits	16,809	14,742		3,667		311	560	1,071		4,534		41,694
Liabilities	17,604	14,819		3,676		312	559	1,097		13,023		51,090
Attributed equity	1,826	1,089		519		78	55	161		1,413		5,141
Statistical data:
Return on average assets (1)	1.75 %	1.54	%	1.45	%	0.95 %	2.53 %	1.57	%	N/M		1.41	%
Return on average attributed equity	21.68	23.28		16.78		18.22	30.43	21.85		N/M		15.40
Net interest margin (2)	4.60	4.41		4.43		2.86	5.02	3.14		N/M		3.80
Efficiency ratio	58.67	53.83		63.34		58.12	55.81	60.51		N/M		58.59

| (1) | Return on average assets is calculated based on the greater of average assets or average
liabilities and attributed equity. |
| --- | --- |
| (2) | Net interest margin is calculated based on the greater of average earning assets or average
deposits and purchased funds. |
| FTE — | Fully Taxable Equivalent |
| N/M — | Not Meaningful |

Folio 25 /Folio

PAGEBREAK

Table of Contents

Notes to Consolidated Financial Statements (unaudited) Comerica Incorporated and Subsidiaries

Note 14 —Discontinued Operations

In December 2006, the Corporation sold its ownership interest in Munder Capital Management (Munder) to an investor group. As a result of the sale transaction, the Corporation accounted for Munder as a discontinued operation and all prior periods presented have been restated. As such, Munder was reported in “Other” and “Finance & Other” for business and market segment reporting purposes, respectively. Munder was previously reported in “Wealth & Institutional Management” and “Other Markets” for business and market segment reporting purposes, respectively. The assets and liabilities related to the discontinued operations of Munder are not material and have not been reclassified on the consolidated balance sheets.

The components of net income (loss) from discontinued operations for the three and nine month periods ended September 30, 2007 and 2006, respectively, were as follows:

	Three Months Ended		Nine Months Ended
	September 30,		September 30,
(in millions, except per share data)	2007	2006	2007	2006
Income from discontinued operations before income taxes
and cumulative effect of change in accounting principle	$ 2	$ 8	$ 3	$ 16
Provision for income taxes	1	3	1	11
Income from discontinued operations before cumulative
effect of change in accounting principle	1	5	2	5
Cumulative effect of change in accounting principle,
net of tax*	—	—	—	(8	)
Net income (loss) from discontinued operations	$ 1	$ 5	$ 2	$ (3	)
Earnings (loss) from discontinued operations per common share:
Basic	$ 0.02	$ 0.03	$ 0.02	$ (0.01	)
Diluted	0.01	0.03	0.02	(0.01	)

• Resulting from adoption of SFAS No. 123 (revised 2004), “Share-Based Payment,” in January 2006.

Folio 26 /Folio

PAGEBREAK

Table of Contents

ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Results of Operations

Net income for the three months ended September 30, 2007 was $181 million, a decrease of $19 million, or 10 percent, from $200 million reported for the three months ended September 30, 2006. Quarterly diluted net income per share decreased four percent to $1.18 in the third quarter 2007, compared to $1.23 in the same period a year ago. Income from continuing operations for the three months ended September 30, 2007 was $180 million, a decrease of $15 million, or eight percent, from $195 million reported for the three months ended September 30, 2006. Quarterly diluted income from continuing operations per share decreased three percent to $1.17 in the third quarter 2007, compared to $1.20 in the same period a year ago. Return on average common shareholders’ equity was 14.38 percent and return on average assets was 1.23 percent for the third quarter 2007, compared to 15.38 percent and 1.41 percent, respectively, for the comparable quarter last year. Return on average common shareholders’ equity from continuing operations was 14.24 percent and return on average assets from continuing operations was 1.22 percent for the third quarter 2007, compared to 15.00 percent and 1.37 percent, respectively, for the same period in 2006.

Net income for the first nine months of 2007 was $567 million, a decrease of $27 million, or five percent, from $594 million reported for the nine months ended September 30, 2006. Diluted net income per share for the first nine months of 2007 decreased less than one percent to $3.63 per diluted share, compared to $3.64 per diluted share, for the comparable period last year. Income from continuing operations for the nine months ended September 30, 2007 was $565 million, a decrease of $32 million, or five percent, from $597 million reported for the nine months ended September 30, 2006. Diluted income from continuing operations per share decreased one percent to $3.61 for the nine months ended September 30, 2007, compared to $3.65 for the same period in the prior year. The decrease in income from continuing operations in the nine months ended September 30, 2007 from the comparable period last year reflects a $76 million increase in the provision for credit losses (the net result of a $89 million increase in the provision for loan losses and a $13 million decrease in the provision for credit losses on lending-related commitments), from a provision for credit losses of $24 million for the nine months ended September 30, 2006. Return on average common shareholders’ equity was 14.89 percent and return on average assets was 1.30 percent for the first nine months of 2007, compared to 15.40 percent and 1.41 percent, respectively, for the first nine months of 2006. Return on average common shareholders’ equity from continuing operations was 14.83 percent and return on average assets from continuing operations was 1.30 percent for the first nine months of 2007, compared to 15.48 percent and 1.42 percent, respectively, for the same period in 2006.

Discontinued Operations

In December 2006, the Corporation sold its ownership interest in Munder Capital Management (Munder) to an investor group. The Corporation accounted for Munder as a discontinued operation and all prior periods presented have been restated. The remaining discussion and analysis of the Corporation’s results of operations is based on results from continuing operations. For detailed information concerning the sale of Munder and the components of discontinued operations, refer to Note 14 to these consolidated financial statements.

Full-year 2007 Outlook.

For full-year 2007, management expects the following compared to full-year 2006:

• Mid to high single-digit average loan growth, excluding Financial Services Division loans, with flat growth in the Midwest market, and low double-digit growth in the Western and Texas markets

• Average earning asset growth slightly less than average loan growth

• Average Financial Services Division noninterest-bearing deposits of about $2.8 billion, reflecting expected average deposits of about $1.8 billion in the fourth quarter 2007. Financial Services Division loans will fluctuate in tandem with the level of noninterest-bearing deposits

• Average full year net interest margin in the high 3.60 percent range, reflecting a net interest margin in the low 3.50 percent range for the fourth quarter 2007

• Average net credit-related charge-offs of about 25 basis points of average loans, with a provision for credit losses modestly exceeding net charge-offs. Fourth quarter 2007 net credit-related charge-offs consistent with third quarter 2007

• High single-digit growth in noninterest income, from a 2006 adjusted base of $820 million which excludes the Financial Services Division-related lawsuit settlement and the loss on sale of the Mexican bank charter

• Flat noninterest expenses, excluding the provision for credit losses on lending-related commitments, from a 2006 adjusted base of $1,669 million

• Effective tax rate of about 32 percent

Folio 27 /Folio

PAGEBREAK

Table of Contents

• Active capital management within targeted capital ratios (Tier 1 common of 6.50 percent to 7.50 percent and Tier 1 of 7.25 percent to 8.25 percent). Total open market share repurchases in 2007 expected to be about ten million shares

Net Interest Income

The rate-volume analysis in Table I details the components of the change in net interest income on a fully taxable equivalent (FTE) basis for the three months ended September 30, 2007. On a FTE basis, net interest income increased $2 million to $504 million for the three months ended September 30, 2007, from $502 million for the comparable period in 2006. The increase in net interest income in the third quarter 2007, compared to the same period in 2006, resulted primarily from loan growth, partially offset by changes in the funding mix, including a continued shift in funding sources toward higher-cost funds, and a decline in noninterest-bearing deposits (principally Financial Services Division). Average earning assets increased $2.1 billion, or four percent, to $54.6 billion in the third quarter 2007, compared to $52.5 billion in the third quarter 2006, primarily due to a $1.7 billion, or four percent, increase in average loans to $49.9 billion in the third quarter 2007. The net interest margin (FTE) for the three months ended September 30, 2007 was 3.66 percent, compared to 3.79 percent for the comparable period in 2006. The decrease in the net interest margin (FTE) resulted from the changes in the funding mix noted above and competitive pricing.

Table II provides an analysis of net interest income for the first nine months of 2007. On a FTE basis, net interest income for the nine months ended September 30, 2007 was $1.5 billion, an increase of $34 million compared to the same period in 2006. Average earning assets increased $2.1 billion, or four percent, to $54.0 billion, in the nine months ended September 30, 2007, compared to the same period in the prior year, primarily due to a $2.1 billion, or four percent, increase in average loans to $49.5 billion in the nine months ended September 30, 2007. The net interest margin (FTE) for the nine months ended September 30, 2007 decreased to 3.75 percent from 3.80 percent for the same period in 2006, due to loan growth funded with purchased funds and higher-cost deposits, resulting in a change in the funding mix.

Financial Services Division customers deposit large balances (primarily noninterest-bearing) and the Corporation pays certain customer services expenses (included in “noninterest expenses” on the consolidated statements of income) and/or makes low-rate loans (included in “net interest income” on the consolidated statements of income) to such customers. Footnote (1) to Tables I and II displays average Financial Services Division loans and deposits, with related interest income/expense and average rates. As shown in footnote (2) to Tables I and II, the impact of Financial Services Division loans (primarily low-rate) on net interest margin (assuming the loans were funded by Financial Services Division noninterest-bearing deposits) was a decrease of seven basis points and nine basis points in the three and nine month periods ended September 30, 2007, respectively, compared to a decrease of 14 basis points and 18 basis points for the comparable periods in the prior year.

For further discussion of the effects of market rates on net interest income, refer to the “Interest Rate Risk” subheading in the section entitled “Market Risk” of this financial review.

Management currently expects average full-year 2007 net interest margin in the high 3.60 percent range, reflecting a net interest margin in the low 3.50 percent range for the fourth quarter 2007.

Folio 28 /Folio

PAGEBREAK

Table of Contents

Table I — Quarterly Analysis of Net Interest Income & Rate/Volume — Fully Taxable Equivalent (FTE)

	Three Months Ended
	September 30, 2007					September 30, 2006
	Average		Average			Average		Average
(dollar amounts in millions)	Balance	Interest	Rate			Balance	Interest	Rate
Commercial loans (1) (2)	$ 28,052	$ 520		7.37	%	$ 27,534	$ 498		7.18	%
Real estate construction loans	4,607	97		8.33		4,064	90		8.79
Commercial mortgage loans	9,829	181		7.30		9,362	175		7.42
Residential mortgage loans	1,865	29		6.12		1,602	24		6.08
Consumer loans	2,320	41		7.06		2,474	45		7.32
Lease financing	1,319	11		3.25		1,323	13		4.00
International loans	1,882	33		6.98		1,766	33		7.35
Business loan swap expense	—	(16	)	—		—	(35	)	—
Total loans (2)	49,874	896		7.13		48,125	843		6.96
Investment securities available-for-sale	4,405	52		4.60		3,887	43		4.22
Federal funds sold and securities purchased
under agreements to resell	99	1		5.25		282	4		5.39
Other short-term investments	263	4		5.27		206	3		6.23
Total earning assets	54,641	953		6.91		52,500	893		6.74
Cash and due from banks	1,351					1,561
Allowance for loan losses	(521	)				(495	)
Accrued income and other assets	3,075					3,224
Total assets	$ 58,546					$ 56,790
Money market and NOW deposits (1)	$ 14,996	119		3.14		$ 14,885	116		3.07
Savings deposits	1,380	3		0.97		1,434	3		0.87
Customer certificates of deposit	7,702	87		4.48		6,710	70		4.17
Institutional certificates of deposit	5,170	72		5.49		5,180	72		5.45
Foreign office time deposits	1,028	13		4.96		924	11		4.96
Total interest-bearing deposits	30,276	294		3.85		29,133	272		3.70
Short-term borrowings	2,278	29		5.15		2,125	28		5.29
Medium- and long-term debt	8,852	126		5.61		6,297	91		5.73
Total interest-bearing sources	41,406	449		4.29		37,555	391		4.13
Noninterest-bearing deposits (1)	10,840					12,723
Accrued expenses and other liabilities	1,276					1,309
Shareholders’ equity	5,024					5,203
Total liabilities and shareholders’ equity	$ 58,546					$ 56,790
Net interest income/rate spread (FTE)		$ 504		2.62			$ 502		2.61
FTE adjustment		$ 1					$ —
Impact of net noninterest-bearing
sources of funds				1.04					1.18
Net interest margin (as a percentage
of average earning assets) (FTE) (2)				3.66	%				3.79	%
(1) FSD balances included above:
Loans (primarily low-rate)	$ 1,191	$ 2		0.71	%	$ 2,093	$ 3		0.64	%
Interest-bearing deposits	1,214	12		4.06		1,465	15		3.95
Noninterest-bearing deposits	2,575					4,079
(2) Impact of FSD loans (primarily
low-rate) on the following:
Commercial loans				(0.30	)%				(0.54	)%
Total loans				(0.16	)				(0.28	)
Net interest margin (FTE) (assuming
loans were
funded by
noninterest-bearing deposits)				(0.07	)				(0.14	)

Folio 29 /Folio

PAGEBREAK

Table of Contents

Table I — Quarterly Analysis of Net Interest Income & Rate/Volume – Fully Taxable Equivalent (FTE) (continued)

	Three Months Ended
	September 30, 2007/September 30, 2006
	Increase	Increase			Net
	(Decrease)	(Decrease)			Increase
(in millions)	Due to Rate	Due to Volume*			(Decrease)
Loans	$ 20	$	33		$ 53
Investment securities available-for-sale	3		6		9
Federal
funds sold and securities purchased
under agreements to repurchase	—		(3	)	(3	)
Other short-term investments	—		1		1
Total earning assets	23		37		60
Interest-bearing deposits	9		13		22
Short-term borrowings	(1	)	2		1
Medium- and long-term debt	(1	)	36		35
Total interest-bearing sources	7		51		58
Net interest income/rate spread (FTE)	$ 16	$	(14	)	$ 2

• Rate/Volume variances are allocated to variances due to volume.

Folio 30 /Folio

PAGEBREAK

Table of Contents

Table II — Year-to-date Analysis of Net Interest Income & Rate/Volume — Fully Taxable Equivalent (FTE)

	Nine Months Ended
	September 30, 2007					September 30, 2006
	Average		Average			Average		Average
(dollar amounts in millions)	Balance	Interest	Rate			Balance	Interest	Rate
Commercial loans (1) (2)	$ 28,046	$ 1,538		7.33	%	$ 27,251	$ 1,375		6.75	%
Real estate construction loans	4,454	282		8.47		3,805	244		8.57
Commercial mortgage loans	9,713	534		7.35		9,198	496		7.22
Residential mortgage loans	1,788	82		6.12		1,544	69		5.99
Consumer loans	2,351	125		7.12		2,555	135		7.07
Lease financing	1,293	32		3.26		1,307	40		4.04
International loans	1,880	99		7.07		1,815	94		6.93
Business loan swap expense	—	(61	)	—		—	(93	)	—
Total loans (2)	49,525	2,631		7.10		47,475	2,360		6.65
Investment securities available-for-sale	4,080	140		4.47		4,042	132		4.20
Federal funds sold and securities purchased
under agreements to resell	189	8		5.36		269	10		5.06
Other short-term investments	242	10		5.73		169	10		7.66
Total earning assets	54,036	2,789		6.89		51,955	2,512		6.44
Cash and due from banks	1,390					1,589
Allowance for loan losses	(513	)				(497	)
Accrued income and other assets	3,010					3,184
Total assets	$ 57,923					$ 56,231
Money market and NOW deposits (1)	$ 14,858	344		3.09		$ 15,597	327		2.80
Savings deposits	1,393	9		0.91		1,463	8		0.76
Customer certificates of deposit	7,505	250		4.46		6,275	181		3.86
Institutional certificates of deposit	5,490	224		5.45		4,053	156		5.13
Foreign office time deposits	1,001	37		4.92		1,007	35		4.70
Total interest-bearing deposits	30,247	864		3.82		28,395	707		3.33
Short-term borrowings	1,919	75		5.24		3,193	115		4.84
Medium- and long-term debt	7,865	333		5.65		4,963	207		5.57
Total interest-bearing sources	40,031	1,272		4.25		36,551	1,029		3.76
Noninterest-bearing deposits (1)	11,540					13,299
Accrued expenses and other liabilities	1,278					1,240
Shareholders’ equity	5,074					5,141
Total liabilities and shareholders’ equity	$ 57,923					$ 56,231
Net interest income/rate spread (FTE)		$ 1,517		2.64			$ 1,483		2.68
FTE adjustment		$ 3					$ 2
Impact of net noninterest-bearing
sources of funds				1.11					1.12
Net interest margin (as a percentage
of average earning assets) (FTE) (2)				3.75	%				3.80	%
(1) FSD balances included above:
Loans (primarily low-rate)	$ 1,445	$ 7		0.63	%	$ 2,516	$ 10		0.55	%
Interest-bearing deposits	1,230	36		3.95		1,835	53		3.84
Noninterest-bearing deposits	3,097					4,516
(2) Impact of FSD loans (primarily low-rate) on the following:
Commerical loans				(0.36	)%				(0.63	)%
Total loans				(0.20	)				(0.34	)
Net interest margin (FTE) (assuming loans were
funded by noninterest-bearing deposits)				(0.09	)				(0.18	)

Folio 31 /Folio

PAGEBREAK

Table of Contents

Table II — Year-to-date Analysis of Net Interest Income & Rate/Volume – Fully Taxable Equivalent (FTE) (continued)

	Nine Months Ended
	September 30, 2007/September 30, 2006
	Increase	Increase			Net
	(Decrease)	(Decrease)			Increase
(in millions)	Due to Rate	Due to Volume*			(Decrease)
Loans	$ 155	$	116		$ 271
Investment securities available-for-sale	7		1		8
Federal
funds sold and securities purchased
under agreements to repurchase	1		(3	)	(2	)
Other short-term investments	(2	)	2		—
Total earning assets	161		116		277
Interest-bearing deposits	76		81		157
Short term borrowings	10		(50	)	(40	)
Medium- and long-term debt	3		123		126
Total interest-bearing sources	89		154		243
Net interest income/rate spread (FTE)	$ 72	$	(38	)	$ 34

• Rate/Volume variances are allocated to variances due to volume.

Folio 32 /Folio

PAGEBREAK

Table of Contents

Provision for Credit Losses

The provision for loan losses was $45 million for the third quarter 2007, compared to $15 million for the same period in 2006. The provision for loan losses for the first nine months of 2007 was $104 million, compared to a provision of $15 million for the same period in 2006. The Corporation establishes this provision to maintain an adequate allowance for loan losses, which is discussed under the “Credit Risk” subheading in the section entitled “Risk Management” of this financial review. The increases in the provision for loan losses in the three and nine month periods ended September 30, 2007, when compared to the same periods in 2006, resulted primarily from challenges in the Michigan and California residential real estate development industries, a leveling off of overall credit quality improvement trends in the Texas market and remaining divisions in the Western market and loan growth. These credit trends reflect economic conditions in the Corporation’s three largest geographic markets. While the economic conditions in Michigan deteriorated over the last year, the economic conditions in Texas continue to experience growth at a rate somewhat faster than the national economy, while those in California, other than real estate, appear to be growing, but at a rate equal to the nation as a whole. The average Michigan Business Activity index for the first nine months of 2007 is essentially the same as the average index for the year ended December 31, 2006. The Michigan Business Activity index represents 10 different measures of Michigan economic activity compiled by the Corporation. Intense restructuring efforts in the Michigan-based automotive sector and weakness in the real estate sector are creating a significant drag on the state economy, however the economy is showing signs of stabilizing. Forward-looking indicators suggest that economic conditions in the Corporation’s primary markets are likely to resemble recent trends for the remainder of 2007.

The provision for credit losses on lending-related commitments was a provision of zero and a negative provision of $4 million for the three and nine month periods ended September 30, 2007, respectively, compared to a negative provision of $5 million and a provision of $9 million for the comparable periods in 2006. The Corporation establishes this provision to maintain an adequate allowance to cover probable credit losses inherent in lending-related commitments. The negative provision of $5 million in the three month period ending September 30, 2006 was primarily driven by reduced levels of commitments and improvements in the associated market values for unused commitments to customers in the automotive industry. The decrease of $13 million in the nine month period ended September 30, 2007, when compared to the same period in 2006, was primarily the result of a decrease in specific reserves related to unused commitments extended to two large customers in the automotive industry. These reserves declined due to sales of commitments and improved market values for the remaining commitments.

Net credit-related charge-offs were 24 basis points as a percent of average total loans for the first nine months of 2007, compared to 13 basis points for the same period in 2006. Management currently expects full-year 2007 average net credit-related charge-offs of about 25 basis points of full-year average loans, with a provision for credit losses modestly exceeding net charge-offs, reflecting fourth quarter 2007 net credit-related charge-offs consistent with third quarter 2007.

Noninterest Income

Noninterest income was $230 million for the three months ended September 30, 2007, an increase of $35 million, or 18 percent, compared to $195 million for the same period in 2006. The increase in noninterest income in the third quarter 2007 was primarily due to increases in net income from principal investing and warrants ($11 million), fiduciary income ($4 million), commercial lending fees ($3 million), card fees ($3 million) and the $7 million incremental net loss recognized on the sale of the Mexican bank charter in the third quarter of 2006. In addition, $4 million of net securities gains were recorded in the three months ended September 30, 2007, primarily consisting of a $3 million gain on the sale of put rights obtained in a nonaccrual loan workout several years ago.

Noninterest income was $658 million for the first nine months of 2007, an increase of $65 million, or 11 percent, compared to the same period in 2006, due primarily to increases in fiduciary income ($14 million), commercial lending fees ($6 million), card fees ($6 million), net income from principal investing and warrants ($6 million) and deferred compensation asset returns ($5 million), net securities gains of $4 million in the nine months ended September 30, 2007 and the net loss of $12 million recognized on the sale of the Mexican bank charter in the nine months ended September 30, 2006.

Folio 33 /Folio

PAGEBREAK

Table of Contents

Certain categories included in “other noninterest income” on the consolidated statements of income are highlighted in the following table.

	Three Months Ended			Nine Months Ended
	September 30,			September 30,
(in millions)	2007	2006		2007	2006
Other noninterest
income
Risk mangagement hedge gains (losses) from
interest rate and foreign exchange contracts	$ 1	$	2	$ 3	$ (1	)
Deferred compensation asset returns*	(2	)	1	5	—

• Compensation deferred by the Corporation’s officers is invested in stocks and bonds to reflect the investment selections of the officers. Income earned on these assets is reported in noninterest income and the offsetting increase in the liability is reported in salaries expense.

Management currently expects high single-digit growth in noninterest income in full-year 2007, from a 2006 adjusted base of $820 million which excludes the Financial Services Division-related lawsuit settlement and the loss on sale of the Mexican bank charter in 2006.

Noninterest Expenses

Noninterest expenses were $423 million for the three months ended September 30, 2007, an increase of $24 million, or six percent, from $399 million for the comparable period in 2006. The increase in noninterest expenses in the third quarter 2007, compared to the third quarter 2006, reflected increases in regular salaries ($6 million), net occupancy and equipment expense combined ($5 million), the provision for credit losses on lending-related commitments ($5 million) and incentive compensation ($4 million). The $6 million increase in regular salaries was primarily the result of annual merit increases. Net occupancy and equipment expense increased in part due to the addition of 13 new banking centers in the nine months ended September 30, 2007, along with 25 new banking centers in full-year 2006. Expenses from the addition of new banking centers totaled $13 million for the three months ended September 30, 2007, an increase of $5 million from the comparable period in 2006. For discussion regarding the $5 million increase in the provision for credit losses on lending-related commitments, refer to the section entitled “Provision for Credit Losses” above. The $4 million increase in incentive compensation included increased incentives primarily tied to peer-comparison performance. Customer services expense, which represents compensation provided to customers and is one method to attract and retain title and escrow deposits in the Financial Services Division, was $11 million in both the third quarter 2007 and 2006. The amount of customer services expense varies from period to period as a result of changes in the level of noninterest-bearing deposits in the Financial Services Division, the level of the low-rate loans, the earnings credit allowances provided on these deposits, and a competitive environment. Noninterest expenses in the third quarter 2007 included approximately $2 million of costs related to the previously announced relocation of the Corporation’s headquarters to Dallas, Texas, reflected in salaries and other noninterest expenses.

Folio 34 /Folio

PAGEBREAK

Table of Contents

The following table summarizes the various components of salaries and employee benefits expense.

	Three Months Ended			Nine Months Ended
	September 30,			September 30,
(in millions)	2007	2006		2007	2006
Salaries
Salaries — regular	$ 162	$	156	$ 472	$ 457
Severance	—		1	1	3
Incentives	35		31	102	87
Deferred compensation plan costs	(2	)	1	6	—
Share-based compensation	12		13	47	45
Total salaries	207		202	628	592
Employee benefits
Pension expense	9		10	27	30
Other employee benefits	40		38	118	112
Total employee benefits	49		48	145	142
Total salaries and employee benefits	$ 256	$	250	$ 773	$ 734

Noninterest expenses were $1.2 billion for the first nine months of 2007, an increase of $24 million, or two percent, from the comparable period in 2006. Noninterest expenses in the first nine months of 2007, compared to first nine months of 2006, reflected increases in regular salaries ($15 million), incentive compensation ($15 million) and net occupancy and equipment expense combined ($15 million), and were partially offset by decreases in the provision for credit losses on lending-related commitments ($13 million) and litigation and operational losses ($7 million). Expenses from the addition of new banking centers totaled $38 million for the first nine months of 2007, an increase of $17 million from the comparable period in 2006. The decrease in litigation and operational losses reflected a litigation-related settlement of $8 million in the second quarter 2007. All other increases and decreases for the first nine months of 2007, compared to the same period of 2006, were primarily due to the same reasons cited in the quarterly discussion above.

Beginning January 1, 2007, the Corporation prospectively classified interest expense on tax liabilities in the “provision for income taxes” on the consolidated statements of income. For further discussion of interest on tax liabilities, refer to Note 1 to the consolidated financial statements, and to the following section, entitled “Provision for Income Taxes and Tax-Related Interest.” Noninterest expenses included $23 million of interest on tax liabilities for the first nine months of 2006.

Management currently expects flat noninterest expenses for the full-year 2007, excluding the provision for credit losses on lending-related commitments, from a 2006 adjusted base of $1,669 million.

Provision for Income Taxes and Tax-related Interest

The provision for income taxes for the third quarter 2007 was $85 million, compared to $88 million for the same period a year ago. The effective tax rate was 32 percent and 31 percent for the third quarter 2007 and 2006, respectively. For the nine months ended September 30, 2007 and 2006, the provision for income taxes was $262 million and $245 million, respectively, and the effective tax rate was 32 percent and 29 percent, respectively. In the first quarter 2006, the IRS completed the examination of the Corporation’s federal tax returns for the years 1996 through 2000. Tax reserves, which include the provision for income taxes and interest expense on tax liabilities (included in “other noninterest expenses” in 2006) were adjusted to reflect the resolution of those tax years, and to reflect an updated assessment of reserves on certain types of structured lease transactions and a series of loans to foreign borrowers. The effect of these adjustments decreased federal taxes ($16 million) and increased interest expense on tax liabilities ($23 million, $15 million after-tax) in the first quarter 2006. Tax-related interest was reduced by $6 million in the second quarter 2006 upon settlement of various refund claims with the IRS.

On July 12, 2007, the State of Michigan replaced its current Single Business Tax (SBT) with a new Michigan Business Tax (MBT). For taxpayers other than financial institutions and insurance companies, the MBT imposes two taxes, a modified gross receipts tax and a business income tax. Financial institutions are subject to an industry-specific tax which is based on net capital. The MBT is effective January 1, 2008. Management believes the MBT will have an immaterial effect on the Corporation’s financial condition and results of operations when

Folio 35 /Folio

PAGEBREAK

Table of Contents

compared to the SBT. Both the SBT and the MBT, when effective, are recorded in “other noninterest expenses” on the consolidated statements of income.

On October 1, 2007, the State of Michigan enacted a new law which becomes effective December 1, 2007, expanding Michigan’s use tax to include specific services. The Corporation is currently analyzing the applicability of the new use tax on services provided and consumed by the Corporation to determine the effect that the law will have on the Corporation’s financial condition and results of operations.

Management currently expects an effective tax rate for the full-year 2007 of about 32 percent.

Business Segments

The Corporation’s operations are strategically aligned into three major business segments: the Business Bank, the Retail Bank, and Wealth & Institutional Management. These business segments are differentiated based on the products and services provided. In addition to the three major business segments, the Finance Division is also reported as a segment. The Other category includes discontinued operations and items not directly associated with these business segments or the Finance Division. Note 13 to the consolidated financial statements presents financial results of these business segments for the nine months ended September 30, 2007 and 2006. For a description of the business activities of each business segment and the methodologies which form the basis for these results, refer to Note 13 to these consolidated financial statements and Note 24 to the consolidated financial statements in the Corporation’s 2006 Annual Report.

The following table presents net income (loss) by business segment.

(dollar amounts in millions)	Nine Months Ended September 30, — 2007		2006
Business Bank	$ 412	72 %	$ 435	73 %
Retail Bank	100	18	117	19
Wealth & Institutional Management	57	10	50	8
	569	100 %	602	100 %
Finance	3		(14	)
Other*	(5	)	6
Total	$ 567		$ 594

• Includes discontinued operations and items not directly associated with the three major business segments or the Finance Division

The Business Bank’s net income of $412 million decreased $23 million, or five percent, for the nine months ended September 30, 2007, compared to the nine months ended September 30, 2006. Net interest income (FTE) was $999 million, an increase of $20 million from the comparable prior year period. The increase in net interest income (FTE) was primarily due to a $2.8 billion increase in average loan balances (excluding Financial Services Division), partially offset by a decline in net interest income from the Financial Services Division and a decline in loan spreads. Average low-rate Financial Services Division loan balances declined $1.1 billion for the nine months ended September 30, 2007, compared to the nine months ended September 30, 2006, and average Financial Services Division noninterest-bearing deposits declined $1.4 billion. The provision for loan losses increased $90 million, from a negative provision of $1 million in the comparable period in the prior year, primarily due to increases in industry reserves in 2007 for Michigan commercial real estate and California residential real estate and credit improvements recognized in the first nine months of 2006. Noninterest income of $211 million increased $22 million from the comparable prior year period, primarily due to a $12 million loss on the sale of the Mexican bank charter in 2006, net securities gains of $4 million in 2007, and increases in commercial lending fees ($4 million) and card fees ($3 million) over the comparable prior year period. Noninterest expenses of $523 million for the nine months ended September 30, 2007 decreased $23 million from the same period in the prior year, primarily due to a $12 million decline in the provision of loan losses on lending-related commitments and a $7 million decrease in legal fees related to the Financial Services Division, partially offset by a $4 million increase in salaries and employee benefits expense.

The Retail Bank’s net income decreased $17 million, or 14 percent, to $100 million for the nine months ended September 30, 2007, compared to the same period in 2006. Net interest income (FTE) of $476 million decreased $2 million from the comparable prior year period as the benefit of a $371 million increase in average deposit balances was more than offset by a decline in loan and deposit spreads. The provision for loan losses decreased $1 million. Noninterest income of $165 million increased $7 million from the comparable prior year

Folio 36 /Folio

PAGEBREAK

Table of Contents

period, partially due to a $4 million increase in income from the sale of Small Business Administration (SBA) loans. Noninterest expenses of $472 million for the nine months ended September 30, 2007 increased $28 million from the same period in the prior year, primarily due to a $17 million increase in expenses related to the addition of new banking centers, primarily salaries and employee benefits expense and net occupancy expenses . The Corporation opened 13 new banking centers in the nine months ended September 30, 2007, and is on target to open 30 banking centers in 2007.

Wealth & Institutional Management’s net income increased $7 million, or 13 percent, to $57 million for the nine months ended September 30, 2007, compared to the nine months ended September 30, 2006. Net interest income (FTE) of $108 million decreased $3 million from the comparable period in the prior year as decreases in loan spreads and average deposit balances were partially offset by an increase in average loan balances. The provision for loan losses decreased $3 million, primarily due to an improvement from one large customer in the Midwest market. Noninterest income of $211 million increased $20 million from the comparable period in the prior year, primarily due to a $14 million increase in fiduciary income, a $2 million increase in brokerage fees and a $1 million gain from the sale of an insurance subsidiary in the first quarter 2007. Noninterest expenses of $236 million increased $9 million from the same period in the prior year primarily due to a $5 million increase in salaries and employee benefits expense and a $2 million increase in outside processing fee expense.

Net income for the Finance Division was $3 million for the nine months ended September 30, 2007, compared to a net loss of $14 million for the same period in 2006. Contributing to the increase in net income was a $25 million increase in net interest income (FTE), primarily due to the rising rate environment in which income received from the lending-related business increased faster than the longer-term value attributed to deposits generated by the business units.

The net loss for the Other category was $5 million for the nine months ended September 30, 2007, compared to net income of $6 million for the nine months ended September 30, 2006. Income from discontinued operations, net of tax, was $2 million for the nine months ended September 30, 2007, compared to a net loss of $3 million for the same period of 2006. Noninterest income increased $14 million, primarily due to a $6 million increase in net income from principal investing and warrants and a $5 million increase in deferred compensation asset returns. The remaining difference is due to timing differences between when corporate overhead expenses are reflected as a consolidated expense and when the expenses are allocated to the business segments.

Market Segments

The Corporation’s management accounting system also produces market segment results for the Corporation’s four primary geographic markets: Midwest, Western, Texas and Florida. In addition to the four primary geographic markets, Other Markets and International are also reported as market segments. Note 13 to the consolidated financial statements contains a description and presents financial results of these market segments for the nine months ended September 30, 2007 and 2006.

The following table presents net income (loss) by market segment.

(dollar amounts in millions)	Nine Months Ended September 30, 2007 — 2 007		2006
Midwest	$ 266	47 %	$ 297	49 %
Western	175	31	190	32
Texas	67	12	65	11
Florida	8	1	11	2
Other Markets	14	2	13	2
International	39	7	26	4
	569	100 %	602	100 %
Finance & Other Businesses*	(2	)	(8	)
Total	$ 567		$ 594

• Includes discontinued operations and items not directly associated with the market segments

Folio 37 /Folio

PAGEBREAK

Table of Contents

The Midwest market’s net income decreased $31 million, or 10 percent, to $266 million for the nine months ended September 30, 2007, compared to the nine months ended September 30, 2006. Net interest income (FTE) of $733 million decreased $13 million from the comparable period in the prior year, as a decrease in loan spreads was partially offset by increases in average loan balances and deposit spreads. The provision for loan losses increased $43 million, primarily due to an increase in commercial real estate reserves in the first nine months of 2007, compared to the first nine months of 2006. Noninterest income of $362 million increased $9 million from the comparable period in the prior year due to a $7 million increase in fiduciary income and a $5 million increase in card fees, partially offset by a $2 million decline in investment banking fees. Noninterest expenses of $642 million decreased $2 million from the same period in the prior year, primarily due to a $13 million decline in the provision for loan losses on lending-related commitments, which reflected stable credit quality in 2007 for customers in the automotive industry, compared to declining credit quality in 2006. This decrease was partially offset by a $4 million increase in salaries and employee benefits expense and a $3 million increase in litigation and operational losses. The Corporation opened two new banking centers in Michigan in the nine months ended September 30, 2007.

The Western market’s net income decreased $15 million, or eight percent, to $175 million for the nine months ended September 30, 2007, compared to the same period in 2006. Net interest income (FTE) of $533 million increased $10 million from the comparable prior year period. The increase in net interest income (FTE) was primarily due to a $1.7 billion increase in average loan balances (excluding Financial Services Division) and a $780 million increase in average deposit balances (excluding Financial Services Division), partially offset by a decrease in net interest income from the Financial Services Division and declining loan spreads. Average low-rate Financial Services Division loan balances declined $1.1 billion in the first nine months of 2007 and average Financial Services Division noninterest-bearing deposits declined $1.7 billion. The provision for loan losses increased $32 million, primarily due to an increase in credit risk in the California residential real estate industry in the first nine months of 2007, compared to credit improvements in the first nine months of 2006. Noninterest income of $96 million for the nine months ended September 30, 2007 increased $10 million from the same period in 2006, in part due to a $4 million increase in income from the sale of SBA loans and a $2 million increase in customer derivative income. Noninterest expenses of $334 million increased $6 million primarily due to a $9 million increase in expenses related to the addition of new banking centers, primarily salaries and employee benefits expense and net occupancy expense. These increases were partially offset by a $7 million decrease in legal fees related to the Financial Services Division. The Corporation opened five new banking centers in the Western market in the nine months ended September 30, 2007.

The Texas market’s net income increased $2 million, or three percent, to $67 million for the nine months ended September 30, 2007, compared to the nine months ended September 30, 2006. Net interest income (FTE) of $207 million increased $15 million from the comparable period in the prior year. The increase in net interest income (FTE) was primarily due to an increase in average loan and deposit balances, partially offset by a decrease in loan spreads. The provision for loan losses increased $6 million, primarily due to credit improvements recognized in the first nine months of 2006. Noninterest income of $63 million increased $8 million from the same period in the prior year, primarily due to a $2 million increase in commercial lending fees and increases in various other fee categories. Noninterest expenses of $168 million increased $11 million from the comparable period in the prior year, primarily due to a $7 million increase in salaries and employee benefits expense and a $1 million increase in net occupancy expense, of which $5 million was related to the addition of new banking centers. The Corporation opened six new banking centers in the Texas market in the nine months ended September 30, 2007.

The Florida market’s net income decreased $3 million, or 26 percent, to $8 million for the nine months ended September 30, 2007, compared to the same period in 2006. Net interest income (FTE) of $35 million increased $3 million from the comparable period in the prior year, primarily due to an increase in average loan balances. The provision for loan losses increased $4 million, primarily due to an increase in commercial real estate industry reserves in the first nine months of 2007, compared to the same period in 2006. Noninterest income of $11 million was unchanged from the same period in the prior year. Noninterest expenses of $28 million increased $3 million from the comparable period in the prior year, primarily due to a $1 million increase in salaries and employee benefit expenses and a $1 million increase in net occupancy expenses.

The Other Markets’ net income increased $1 million to $14 million for the nine months ended September 30, 2007, compared to the nine months ended September 30, 2006. Net interest income (FTE) of $23 million decreased $1 million from the comparable period in the prior year, primarily due to a decrease in average deposit balances and a decline in loan spreads. The provision for loan losses increased $1 million, primarily due to an increase in loan balances. Noninterest income of $27 million increased $6 million from the comparable period in the prior year, primarily due to a $4 million increase in fiduciary income from Strategic Trust Alliances business. Noninterest expenses of $27 million increased $2 million from the comparable period in the prior year, primarily due to an increase in salaries and employee benefits expense.

Folio 38 /Folio

PAGEBREAK

Table of Contents

The International market’s net income increased $13 million, to $39 million for the nine months ended September 30, 2007, compared to the same period in 2006. Net interest income (FTE) of $52 million increased $1 million from the comparable period in the prior year. The provision for loan losses was negative in both the first nine months of 2007 and 2006, due to credit improvements and recoveries. Noninterest income of $28 million increased $16 million from the comparable period in the prior year, primarily due to a $12 million loss on the sale of the Mexican bank charter in the third quarter 2006 and a $3 million increase in net securities gains in the first nine months of 2007. Noninterest expenses of $32 million decreased $6 million from the comparable period in the prior year, partially due to the sale of the Mexican bank charter in the third quarter 2006.

The net loss for the Finance & Other Business segment was $2 million for the nine months ended September 30, 2007, compared to a loss of $8 million for the nine months ended September 30, 2006. Income from discontinued operations, net of tax, was $2 million for the nine months ended September 30, 2007, compared to a net loss of $3 million for the nine months ended September 30, 2006. Net interest income (FTE) increased $19 million, primarily due to the rising rate environment in which income received from the lending-related business increased faster than the longer-term value attributed to deposits generated by the business units. Noninterest income increased $16 million, primarily due to a $6 million increase in net income from principal investing and warrants and a $5 million increase in deferred compensation asset returns. The remaining difference is due to timing differences between when corporate overhead expenses are reflected as a consolidated expense and when the expenses are allocated to the business segments.

The following table lists the number of the Corporation’s banking centers by market at September 30:

Midwest	240	240
Western	80	69
Texas	73	64
Florida	9	8
International	1	1
Total	403	382

Financial Condition

Total assets were $60.0 billion at September 30, 2007, compared to $58.0 billion at year-end 2006 and $58.5 billion at September 30, 2006. Total period-end loans increased $2.2 billion, or five percent, to $49.6 billion from December 31, 2006 to September 30, 2007. On an average basis, total loans increased $1.3 billion, or three percent ($2.0 billion, or four percent, excluding Financial Services Division loans), to $49.9 billion in the third quarter 2007, compared to $48.6 billion in the fourth quarter 2006. Within average loans, several business lines showed growth from the fourth quarter 2006 to the third quarter 2007 including the Global Corporate Banking (12 percent), Private Banking (nine percent), Small Business (four percent), Commercial Real Estate (four percent) and Middle Market (three percent) loan portfolios. Excluding Financial Services Division loans, average loans grew in the Western Market (nine percent), Texas Market (nine percent), International Market (eight percent), Other Markets (eight percent) and the Florida Market (five percent), from the fourth quarter 2006 to the third quarter 2007. Period-end federal funds sold and securities purchased under agreements to resell decreased $2.5 billion from December 31, 2006 to September 30, 2007 as a result of loan growth. Investment securities available-for-sale increased $1.2 billion, from $3.7 billion at December 31, 2006, to $4.9 billion at September 30, 2007 primarily due to the purchase of approximately $1.4 billion of mortgage-backed Government-sponsored agency securities in the first nine months of 2007, to assist in managing interest rate risk.

Management currently expects average loan growth for full-year 2007, compared to 2006, to be in the mid to high single-digit range, excluding Financial Services Division loans, with flat growth in the Midwest market and low double-digit growth in the Western and Texas markets.

Shared National Credit (SNC) loans totaled $10.0 billion (approximately 1,045 borrowers) at September 30, 2007, compared to $8.8 billion (approximately 1,000 borrowers) at December 31, 2006. SNC loans are facilities greater than $20 million shared by three or more federally supervised financial institutions, which are reviewed by regulatory authorities at the agent bank level. These loans, diversified by both line of business and geography, represented approximately 20 percent and 19 percent of total loans at September 30, 2007 and December 31, 2006, respectively. The Corporation generally seeks to obtain ancillary business within about two years of entering a SNC relationship. There were no SNC net loan charge-offs for the nine month period ended September 30, 2007 and no

Folio 39 /Folio

PAGEBREAK

Table of Contents

nonaccrual SNC loans at September 30, 2007. SNC loans comprised less than one percent of total nonaccrual loans at December 31, 2006.

Commercial real estate loans, consisting of real estate construction and commercial mortgage loans, totaled $14.8 billion at September 30, 2007, of which $5.5 billion, or 37 percent, were to borrowers in the Commercial Real Estate line of business. Borrowers in the Commercial Real Estate line of business include both local and national real estate developers, primarily involved in residential real estate. The $9.3 billion of commercial real estate loans in other business lines consist primarily of commercial mortgages for properties of middle market and small business customers.

The following table reflects real estate construction and commercial mortgage loans to borrowers in the Commercial Real Estate line of business by project type and location of property.

(dollar amounts in millions)
September 30, 2007
	Location of Property
					Other
Project Type:	Western	Michigan	Texas	Florida	Markets	Total	% of Total
Real estate
construction loans:
Commercial Real Estate business
line:
Single Family	$ 978	$ 99	$ 167	$ 290	$ 184	$ 1,718	43 %
Land Development	386	119	154	44	55	758	19
Retail	131	94	189	38	45	497	12
Multi-family	68	21	129	42	52	312	8
Multi-use	123	21	26	29	13	212	5
Office	83	16	62	—	12	173	4
Land Carry	155	6	—	—	—	161	4
Commercial	105	26	10	5	59	205	5
Other	—	—	—	—	9	9	—
Total	$ 2,029	$ 402	$ 737	$ 448	$ 429	$ 4,045	100 %
Commercial mortgage
loans:
Commercial Real Estate business
line:
Land Carry	$ 290	$ 186	$ 109	$ 111	$ 35	$ 731	50 %
Office	45	57	32	—	2	136	10
Retail	9	53	12	3	47	124	9
Multi-family	7	97	16	31	64	215	15
Commercial	92	38	3	—	8	141	10
Single Family	14	2	5	11	20	52	4
Other	3	14	—	—	17	34	2
Total	$ 460	$ 447	$ 177	$ 156	$ 193	$ 1,433	100 %

Total liabilities increased $2.1 billion, or four percent, from $52.8 billion at December 31, 2006, to $54.9 billion at September 30, 2007. Total deposits decreased $3.0 billion, or seven percent, to $41.9 billion at September 30, 2007, from $44.9 billion at December 31, 2006, reflecting decreases of $2.6 billion in noninterest-bearing deposits and $436 million in money market and NOW deposits. Institutional certificates of deposit decreased $734 million, as the Corporation replaced maturing certificates with senior debt, a trend expected to continue for the remainder of 2007. Partially offsetting the declines in deposits was an increase of $787 million in customer certificates of deposits. Deposits in the Financial Services Division, some of which are not expected to be long-lived, decreased $2.7 billion to $3.8 billion at September 30, 2007 from $6.5 billion at December 31, 2006. Average Financial Services Division deposits decreased $1.5 billion, to $3.8 billion in the third quarter 2007 from $5.3 billion in the fourth quarter 2006, in part due to the continued slowing of the real estate activity combined with the destabilization of the mortgage market in California in the third quarter 2007. Average Financial Services Division noninterest-bearing deposits decreased $1.4 billion, to $2.6 billion in the third quarter 2007, from $4.0 billion in the fourth quarter 2006.

Folio 40 /Folio

PAGEBREAK

Table of Contents

Management expects the following for full-year 2007, based upon current trends:

| • | Average Financial Services Division noninterest-bearing deposits of about $2.8 billion,
reflecting expected average deposits of about $1.8 billion in the fourth quarter 2007; and |
| --- | --- |
| • | Average Financial Services Division loans will fluctuate in tandem with the level of
noninterest-bearing deposits. |

Capital

Shareholders’ equity was $5.1 billion at September 30, 2007 and $5.2 billion at December 31, 2006.

The following table presents a summary of changes in shareholders’ equity in the nine month period ended September 30, 2007:

(in millions) — Balance at December 31, 2006	$ 5,153
FSP 13-2 transition adjustment, net of tax	(46	)
FIN 48 transition adjustment, net of tax	3
Balance at January 1, 2007	5,110
Retention of earnings (net income less cash dividends declared)	271
Change in accumulated other comprehensive income (loss):
Investment securities available-for-sale	$ 30
Cash flow hedges	42
Defined benefit and other postretirement plans adjustment	14
Total change in accumulated other comprehensive income (loss)	86
Repurchase of approximately 9.0 million shares of common stock	(533	)
Net issuance of common stock under employee stock plans	97
Recognition of share-based compensation expense	46
Balance at September 30, 2007	$ 5,077

The November 14, 2006 authorization of the Board of Directors of the Corporation to purchase up to 10 million shares of Comerica Incorporated outstanding common stock remained unfilled at September 30, 2007. There is no expiration date for the Corporation’s share repurchase program. Substantially all shares purchased as part of the Corporation’s publicly announced repurchase program were transacted in the open market and were within the scope of Rule 10b-18, which provides a safe harbor for purchases in a given day if an issuer of equity securities satisfies the manner, timing, price and volume conditions of the rule when purchasing its own common shares in the open market.

The following table summarizes the Corporation’s share repurchase activity for the nine months ended September 30, 2007.

	Total Number		Total Number of Shares — Purchased as Part of Publicly	Remaining Share
	of Shares	Average Price	Announced Repurchase Plans	Repurchase
(shares in thousands)	Purchased (1)	Paid Per Share	or Programs	Authorization (2)
Total first quarter 2007	3,491	$ 60.29	3,441	9,113
Total second quarter 2007	3,496	62.15	3,488	5,625
July 2007	868	54.42	864	4,761
August 2007	649	53.50	649	4,112
September 2007	503	53.42	503	3,609
Total third quarter 2007	2,020	53.88	2,016	3,609
Total year-to-date 2007	9,007	$ 59.58	8,945	3,609

| (1) | Includes shares purchased as part of publicly announced repurchase plans or programs, shares
purchased
pursuant to deferred compensation plans and shares purchased from employees to pay for grant
prices
and/or taxes related to stock option exercises and restricted stock vesting under the terms of
an employee
share-based compensation plan. |
| --- | --- |
| (2) | Maximum number of shares that may yet be purchased under the publicly announced plans or
programs. |

Folio 41 /Folio

PAGEBREAK

Table of Contents

The Corporation’s capital ratios exceed minimum regulatory requirements as follows:

2007	2006
Tier 1 common capital ratio*	6.98 %	7.54 %
Tier 1
risk-based capital ratio (4.00% - minimum)*	7.65	8.02
Total
risk-based capital ratio (8.00% - minimum)*	11.40	11.63
Leverage
ratio (3.00% - minimum)*	9.61	9.76

• September 30, 2007 ratios are estimated

At September 30, 2007, the Corporation and its U.S. banking subsidiaries exceeded the ratios required for an institution to be considered “well capitalized” (Tier 1 risk-based capital, total risk-based capital and leverage ratios greater than six percent, 10 percent and five percent, respectively). Based on an interim decision issued by the banking regulators, the after-tax charge to shareholders’ equity associated with the adoption of SFAS No. 158 “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans, an Amendment of FASB Statements No. 87, 88, 106, and 132(R),” was excluded from the calculation of regulatory capital ratios. Therefore, for purposes of calculating regulatory capital ratios, shareholders’ equity was increased by $215 million and $201 million on December 31, 2006 and September 30, 2007, respectively.

The Corporation expects to continue active capital management in 2007 within targeted capital ratios: Tier 1 common from 6.50 percent to 7.50 percent and Tier 1 risk-based from 7.25 percent to 8.25 percent. Total open market share repurchases in 2007 are expected to be about ten million shares.

Folio 42 /Folio

PAGEBREAK

Table of Contents

Risk Management

The following updated information should be read in conjunction with the “Risk Management” section on pages 44-59 of the Corporation’s 2006 Annual Report.

Credit Risk

Allowance for Credit Losses and Nonperforming Assets

The allowance for credit losses is the combined allowance for loan losses and allowance for credit losses on lending-related commitments. The allowance for loan losses represents management’s assessment of probable losses inherent in the Corporation’s loan portfolio. The allowance provides for probable losses that have been identified with specific customer relationships and for probable losses believed to be inherent in the loan portfolio, but that have not been specifically identified. Internal risk ratings are assigned to each business loan at the time of approval and are subject to subsequent periodic reviews by the Corporation’s senior management. The Corporation performs a detailed quarterly credit quality review on both large business and certain large personal purpose consumer and residential mortgage loans that have deteriorated below certain levels of credit risk, and may allocate a specific portion of the allowance to such loans based upon this review. The Corporation defines business loans as those belonging to the commercial, real estate construction, commercial mortgage, lease financing and international loan portfolios. A portion of the allowance is allocated to the remaining business loans by applying projected loss ratios, based on numerous factors identified below, to the loans within each risk rating. In addition, a portion of the allowance is allocated to these remaining loans based on industry-specific risks inherent in certain portfolios, including portfolio exposures to automotive, technology-related, and retail trade (gasoline delivery) industries, Michigan and California residential real estate development and SBA loans. The portion of the allowance allocated to all other consumer and residential mortgage loans is determined by applying projected loss ratios to various segments of the loan portfolio. Projected loss ratios incorporate factors such as recent charge-off experience, current economic conditions and trends and past due and nonaccrual trends. These loss ratios are supported by underlying analysis, including information on migration and loss given default studies from each of the three largest geographic markets (Midwest, Western and Texas), as well as mapping to bond tables.

Actual loss ratios experienced in the future may vary from those projected. The uncertainty occurs because factors may exist which affect the determination of probable losses inherent in the loan portfolio and are not necessarily captured by the application of projected loss ratios or identified industry-specific risks. A portion of the allowance is maintained to capture these probable losses and reflects management’s view that the allowance should recognize the margin for error inherent in the process of estimating expected loan losses. Factors that were considered in the evaluation of the adequacy of the Corporation’s allowance include the inherent imprecision in the risk rating system and the risk associated with new customer relationships. The allowance associated with the margin for inherent imprecision covers probable loan losses as a result of an inaccuracy in assigning risk ratings or stale ratings which may not have been updated for recent negative trends in particular credits. The allowance due to new business migration risk is based on an evaluation of the risk of rating downgrades associated with loans that do not have a full year of payment history.

The total allowance for loan losses is available to absorb losses from any segment within the portfolio. Unanticipated economic events, including political, economic and regulatory instability in countries where the Corporation has loans, could cause changes in the credit characteristics of the portfolio and result in an unanticipated increase in the allowance. Inclusion of other industry-specific portfolio exposures in the allowance, as well as significant increases in the current portfolio exposures, could also increase the amount of the allowance. Any of these events, or some combination thereof, may result in the need for additional provision for loan losses in order to maintain an allowance that complies with credit risk and accounting policies. At September 30, 2007, the total allowance for loan losses was $512 million, an increase of $19 million from $493 million at December 31, 2006. The increase resulted mostly from an increase in individual and industry reserves for customers in the real estate industry, primarily Michigan and California residential real estate development. These increases were partially offset by reductions in the industry reserves for customers in the automotive, air transportation, and contractor industries. The allowance for loan losses as a percentage of total period-end loans was 1.03 percent at September 30, 2007 and 1.04 percent at December 31, 2006.

The Corporation also maintains an allowance to cover probable credit losses inherent in lending-related commitments, including unused commitments to extend credit, letters of credit and financial guarantees, which is included in “accrued expenses and other liabilities” on the consolidated balance sheets. Lending-related commitments for which it is probable that the commitment will be drawn (or sold) are reserved with the same projected loss rates as loans, or with specific reserves. In general, the probability of draw is considered certain once

Folio 43 /Folio

PAGEBREAK

Table of Contents

the credit becomes a watch list credit (generally consistent with regulatory defined special mention, substandard and doubtful credits). Non-watch list credits have a lower probability of draw, to which standard loan loss rates are applied. The allowance for credit losses on lending-related commitments was $19 million at September 30, 2007, a decrease of $7 million from $26 million at December 31, 2006, resulting primarily from a decrease in specific reserves related to unused commitments extended to two large customers in the automotive industry due to sales and improved market values for these commitments. Unfunded lending-related commitments of $60 million and $93 million were sold in the nine months ended September 30, 2007 and 2006, respectively.

Nonperforming assets at September 30, 2007 were $291 million, compared to $232 million at December 31, 2006, an increase of $59 million, or 26 percent. The allowance for loan losses as a percentage of nonperforming loans decreased to 188 percent at September 30, 2007, from 231 percent at December 31, 2006. Although nonperforming assets increased, the amount remains low by historical standards.

Nonperforming assets at September 30, 2007 and December 31, 2006 were categorized as follows:

	September 30,	December 31,
(in millions)	2007	2006
Nonaccrual loans:
Commercial	$ 64	$ 97
Real estate construction:
Commercial Real Estate business line	55	18
Other business lines	4	2
Total real estate construction	59	20
Commercial mortgage:
Commercial Real Estate business line	63	18
Other business lines	77	54
Total commercial mortgage	140	72
Residential mortgage	1	1
Consumer	4	4
Lease financing	—	8
International	4	12
Total nonaccrual loans	272	214
Reduced-rate loans	—	—
Total nonperforming loans	272	214
Foreclosed property	19	18
Total nonperforming assets	$ 291	$ 232
Loans past due 90 days or more and still accruing	$ 56	$ 14

Folio 44 /Folio

PAGEBREAK

Table of Contents

The following table presents a summary of changes in nonaccrual loans.

(in millions)	Three Months Ended — September 30, 2007	June 30, 2007		March 31, 2007
Nonaccrual loans at beginning of period	$ 244	$	218	$	214
Loans transferred to nonaccrual (1)	94		107		69
Nonaccrual business loan gross charge-offs (2)	(44	)	(40	)	(31	)
Loans transferred to accrual status (1)	(5	)	(8	)	—
Nonaccrual business loans sold (3)	(11	)	—		(4	)
Payments/Other (4)	(6	)	(33	)	(30	)
Nonaccrual loans at end of period	$ 272	$	244	$	218

(1)	Based on an analysis of nonaccrual loans with book balances greater than $2 million.
(2)	Analysis of gross loan charge-offs:

Nonaccrual business loans	$	$	$
Performing watch list loans	—	—	—
Consumer and residential mortgage loans	3	3	3
Total gross loan charge-offs	$ 47	$ 43	$ 34
(3) Analysis of loans sold:
Nonaccrual business loans	$ 11	$ —	$ 4
Performing watch list loans	—	—	—
Total loans sold	$ 11	$ —	$ 4

(4) Includes net changes related to nonaccrual loans with balances less than $2 million, other than business loan gross charge-offs and nonaccrual business loans sold, and payments on nonaccrual loans with book balances greater than $2 million.

Twelve loan relationships with balances greater than $2 million, which totaled $94 million, were transferred to nonaccrual status in the third quarter 2007, a decrease of $13 million from $107 million in the second quarter 2007. All of the transfers to nonaccrual with balances greater than $2 million in the third quarter 2007 were from the Midwest market. There were two loan relationships greater than $10 million transferred to nonaccrual in the third quarter 2007. These loans totaled $53 million and were to companies in the real estate industry.

The following table presents a summary of total internally classified watch list loans (generally consistent with regulatory defined special mention, substandard and doubtful loans). Total watch list loans increased both in dollars and as a percentage of the total loan portfolio from December 31, 2006 to September 30, 2007.

(dollar amounts in millions)	September 30, 2007	December 31, 2006
Total watch list loans	$ 3,207	$ 2,411
As a percentage of total loans	6.5 %	5.1 %

Folio 45 /Folio

PAGEBREAK

Table of Contents

The following table presents a summary of nonaccrual loans at September 30, 2007 and loan relationships transferred to nonaccrual and net loan charge-offs during the three months ended September 30, 2007, based primarily on the Standard Industrial Classification (SIC) industry categories.

(dollar amounts in millions)	September 30, 2007		Three Months Ended — September 30, 2007
			Loans Transferred to		Net Loan Charge-Offs
Industry Category	Nonaccrual Loans		Nonaccrual *		(Recoveries)
Real estate	$ 125	47 %	$ 77	82 %	$ 9	22 %
Retail trade	49	18	—	—	6	15
Services	32	12	—	—	4	10
Automotive	17	6	—	—	—	—
Manufacturing	14	5	—	—	—	1
Contractors	9	3	9	9	5	13
Transportation	7	2	2	2	3	6
Wholesale Trade	6	2	—	—	2	5
Finance	3	1	6	7	7	18
Other **	10	4	—	—	4	10
Total	$ 272	100 %	$ 94	100 %	$ 40	100 %

*	Based on an analysis of nonaccrual loans with book balances greater than $2 million.
**	Consumer nonaccrual loans and net charge-offs are included in the “Other” category.

Net loan charge-offs for the third quarter 2007 were $40 million, or 0.32 percent of average total loans, compared to $3 million, or 0.02 percent, for the third quarter 2006. Total net credit-related charge-offs for the third quarter 2007 were $40 million, or 0.32 percent of average total loans, compared to $8 million, or 0.06 percent, for the third quarter 2006. The carrying value of nonaccrual loans as a percentage of contractual value was 70 percent at September 30, 2007, compared to 71 percent at December 31, 2006 and 66 percent at September 30, 2006. The increase in carrying value of nonaccrual loans as a percentage of the contractual value from a year ago reflects a stronger focus in recent years on exiting under-collateralized loan relationships prior to the loan reaching nonaccrual status, either through secondary debt market sales or aggressively encouraging those borrowers to find other sources of financing.

For further discussion of credit risk, see pages 44-52 in the Corporation’s 2006 Annual Report.

Market Risk

Interest Rate Risk

Net interest income is the predominant source of revenue for the Corporation. Interest rate risk arises primarily through the Corporation’s core business activities of extending loans and accepting deposits. The Corporation actively manages its exposure to interest rate risk. The Corporation frequently evaluates net interest income under various balance sheet and interest rate scenarios, using simulation modeling analysis as its principal risk management evaluation technique. The results of these analyses provide the information needed to assess the balance sheet structure. Changes in economic activity, different from those management included in its simulation analyses, whether domestically or internationally, could translate into a materially different interest rate environment than currently expected. Management evaluates “base” net interest income under what is believed to be the most likely balance sheet structure and interest rate environment. The most likely interest rate environment is derived from management’s forecast for the next 12 months. This “base” net interest income is then evaluated against non-parallel interest rate scenarios that increase and decrease 200 basis points (but not lower than zero percent) from the most likely rate environment. Since movement is from the most likely rate environment, actual movement from the current rates may be more or less than 200 basis points. For this analysis, the rise or decline in interest rates occurs in a linear fashion over twelve months. In addition, adjustments to asset prepayment levels, yield curves and overall balance sheet mix and growth assumptions are made to be consistent with each interest rate environment. These assumptions are inherently uncertain and, as a result, the model cannot precisely predict the impact of higher or lower interest rates on net interest income. Actual results may differ from simulated results due to timing, magnitude and frequency of interest rate changes and changes in market conditions and management strategies, among other factors. However, the model can indicate the likely direction of change. Derivative instruments entered into for risk management purposes are included in these analyses.

Folio 46 /Folio

PAGEBREAK

Table of Contents

The table below as of September 30, 2007 and December 31, 2006 displays the estimated impact on net interest income during the next 12 months as it relates to the most likely scenario results from the 200 basis point non-parallel shock under this analysis. Corporate guidelines limit adverse change in this scenario to no more than four percent of management’s most likely net interest income forecast.

(in millions)	September 30, 2007 — Amount	%			December 31, 2006 — Amount	%
Change in Interest Rates:
+200 basis points	$ 32		2	%	$ 34		2	%
-200 basis points	(56	)	(3	)	(51	)	(2	)

The Corporation also performs an economic value of equity analysis for a longer term view of the interest rate risk position. The economic value of equity analysis begins with an estimate of the mark-to-market valuation of the Corporation’s balance sheet and then applies the estimated market value impact of rate movements upon the assets and liabilities. The economic value of equity is then calculated as the residual necessary to re-balance the resulting assets and liabilities. The market value change in the economic value of equity is then compared to the corporate policy guideline limiting such adverse change to 10 percent of the base economic value of equity as a result of an immediate parallel 200 basis point increase or decrease in interest rates. The Corporation is operating within this policy parameter. As with net interest income shocks, a variety of alternative scenarios are performed to measure the impact on economic value of equity, including, but not limited to, changes in balance sheet structure and yield curve twists.

The table below as of September 30, 2007 and December 31, 2006 displays the estimated impact on the economic value of equity from the 200 basis point immediate parallel increase or decrease in interest rates as described above. The change in the economic value of equity from December 31, 2006 to September 30, 2007 was primarily driven by the issuance of $515 million of 6.576% fixed rate subordinated notes due 2037, which accounted for three percentage points of the five percentage point decline under the 200 basis point parallel decrease in interest rates scenario in the table below. The subordinated notes due 2037 relate to trust preferred securities issued by an unconsolidated subsidiary in the first quarter 2007.

(in millions)	September 30, 2007 — Amount	%		Amount		%
Change in Interest Rates:
+200 basis points	$ 375		2	%	$ 155		2	%
-200 basis points	(772	)	(9	)	(351	)	(4	)

Other Market Risks

At September 30, 2007, the Corporation had a $76 million portfolio of indirect (through funds) private equity and venture capital investments, and had commitments of $44 million to fund additional investments in future periods. The value of these investments is at risk to changes in equity markets, general economic conditions and a variety of other factors. The majority of these investments are not readily marketable, and are reported in other assets. The investments are individually reviewed for impairment on a quarterly basis, by comparing the carrying value to the estimated fair value. Approximately $12 million of the underlying equity and debt (primarily equity) in these funds are to companies in the automotive industry. The automotive-related positions do not represent a majority of any one fund’s investments, and therefore, the exposure related to these positions is mitigated by the performance of other investment interests within the fund’s portfolio of companies.

The Corporation holds a portfolio of approximately 800 warrants for generally non-marketable equity securities. These warrants are primarily from high technology, non-public companies obtained as part of the loan origination process. As discussed in Note 1 to the consolidated financial statements in the Corporation’s 2006 Annual Report, warrants that have a net exercise provision embedded in the warrant agreement are required to be accounted for as derivatives and recorded at fair value (approximately 600 warrants at September 30, 2007). The value of all warrants that are carried at fair value ($23 million at September 30, 2007) is at risk to changes in equity markets, general economic conditions and other factors. The majority of new warrants obtained as part of the loan origination process no longer contain an embedded net exercise provision.

Folio 47 /Folio

PAGEBREAK

Table of Contents

Certain components of the Corporation’s noninterest income, primarily fiduciary income, are at risk to fluctuations in the market values of underlying assets, particularly equity securities. Other components of noninterest income, primarily brokerage fees, are at risk to changes in the level of market activity.

For further discussion of market risk, see Note 10 to these consolidated financial statements and pages 52-59 in the Corporation’s 2006 Annual Report.

Critical Accounting Policies

The Corporation’s consolidated financial statements are prepared based on the application of accounting policies, the most significant of which are described in Note 1 to the consolidated financial statements included in the Corporation’s 2006 Annual Report, as updated in Note 1 to the unaudited consolidated financial statements in this report. These policies require numerous estimates and strategic or economic assumptions, which may prove inaccurate or subject to variations. Changes in underlying factors, assumptions or estimates could have a material impact on the Corporation’s future financial condition and results of operations. The most critical of these significant accounting policies are the policies for allowance for credit losses, pension plan accounting, income taxes and valuation methodologies. These policies are reviewed with the Audit Committee of the Corporation’s Board of Directors and are discussed more fully on pages 60-64 of the Corporation’s 2006 Annual Report. As of the date of this report, the Corporation does not believe that there has been a material change in the nature or categories of its critical accounting policies or its estimates and assumptions from those discussed in its 2006 Annual Report, aside from certain refinements to estimates and assumptions related to the January 1, 2007 adoption of FIN 48 and FSP 13-2 as described in Note 6 to these consolidated financial statements.

Folio 48 /Folio

PAGEBREAK

Table of Contents

ITEM 4. Controls and Procedures

| (a) | Evaluation of Disclosure Controls and Procedures . The Corporation maintains a set of
disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e)
under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) that are designed
to ensure that information required to be disclosed by the Corporation in the reports that it
files or submits under the Exchange Act is recorded, processed, summarized and reported within
the time periods specified in the Securities and Exchange Commission’s rules and forms, and
that such information is accumulated and communicated to the Corporation’s management,
including the Corporation’s Chief Executive Officer and Chief Financial Officer, as
appropriate, to allow timely decisions regarding required disclosure. Management has
evaluated, with the participation of the Corporation’s Chief Executive Officer and Chief
Financial Officer, the effectiveness of the Corporation’s disclosure controls and procedures
as of the end of the period covered by this quarterly report (the “Evaluation Date”). Based on
the evaluation, the Corporation’s Chief Executive Officer and Chief Financial Officer have
concluded that, as of the Evaluation Date, the Corporation’s disclosure controls and
procedures are effective. |
| --- | --- |
| (b) | Changes in Internal Controls . During the period to which this report relates, there
have not been any changes in the Corporation’s internal controls over financial reporting that
have materially affected, or that are reasonably likely to materially affect, such controls. |

Folio 49 /Folio

PAGEBREAK

Table of Contents

PART II. OTHER INFORMATION

ITEM 1. Legal Proceedings

For information regarding the Corporation’s legal proceedings, see “Part 1. Item I. Note 12 – Contingent Liabilities,” which is incorporated herein by reference.

ITEM 1A. Risk Factors

There has been no material change in the Corporation’s risk factors as previously disclosed in our Form 10-K for the fiscal year ended December 31, 2006 in response to Item 1A. to Part I of such Form 10-K. Such risk factors are incorporated herein by reference.

ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds

For information regarding the Corporation’s share repurchase activity, see “Part 1. Item II. Management’s Discussion and Analysis of Financial Condition and Results of Operations – Capital,” which is incorporated herein by reference.

Folio 50 /Folio

PAGEBREAK

Table of Contents

ITEM 6. Exhibits

| (31.1) | Chairman, President and CEO Rule 13a-14(a)/15d-14(a) Certification of Periodic Report
(pursuant to Section 302 of the Sarbanes-Oxley Act of 2002) |
| --- | --- |
| (31.2) | Executive Vice President and CFO Rule 13a-14(a)/15d-14(a) Certification of Periodic
Report (pursuant to Section 302 of the Sarbanes-Oxley Act of 2002) |
| (32) | Section 1350 Certification of Periodic Report (pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002) |

Folio 51 /Folio

PAGEBREAK

Table of Contents

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

COMERICA INCORPORATED (Registrant)
/s/ Elizabeth S. Acton
Elizabeth S. Acton
Executive Vice President and
Chief Financial Officer
/s/ Marvin J. Elenbaas
Marvin J. Elenbaas
Senior Vice President and
Controller (Principal Accounting Officer)

Date: October 29, 2007

Folio 52 /Folio

PAGEBREAK

Table of Contents

EXHIBIT INDEX

Exhibit
No.	Description
31.1	Chairman, President and CEO Rule 13a-14(a)/15d-14(a) Certification of Periodic
Report (pursuant to Section 302 of the Sarbanes-Oxley Act of 2002)
31.2	Executive Vice President and CFO Rule 13a-14(a)/15d-14(a) Certification of
Periodic Report (pursuant to Section 302 of the Sarbanes-Oxley Act of 2002)
32	Section 1350 Certification of Periodic Report (pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002)

Folio /Folio