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 March 31, 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 Tower at Detroit Center
Detroit, Michigan
48226

(Zip Code)

(248) 371-5000

     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 April 13, 2007: 155,944,728 shares

 

 

COMERICA INCORPORATED AND SUBSIDIARIES

TABLE OF CONTENTS

PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
Consolidated Balance Sheets at March 31, 2007 (unaudited), December 31, 2006 and March 31, 2006 (unaudited)			3
Consolidated Statements of Income for the Three Months Ended March 31, 2007 and 2006 (unaudited)			4
Consolidated Statements of Changes in Shareholders’ Equity for the Three Months Ended March 31, 2007 and 2006 (unaudited)			5
Consolidated Statements of Cash Flows for the Three Months Ended March 31, 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			43
ITEM 4. Controls and Procedures			48
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings			49
ITEM 1A. Risk Factors			49
ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds			49
ITEM 6. Exhibits			50
Signatures			51
Section 302 Certification
Section 302 Certification
Section 1350 Certification

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.

PART I. FINANCIAL INFORMATION

CONSOLIDATED BALANCE SHEETS
Comerica Incorporated and Subsidiaries

		March 31,				December 31,				March 31,
(in millions, except share data)		2007				2006				2006
		(unaudited)								(unaudited)
ASSETS
Cash and due from banks		$	1,334			$	1,434			$	1,685
Federal funds sold and securities purchased under agreements to resell			1,457				2,632				2,837
Other short-term investments			220				327				190
Investment securities available-for-sale			3,989				3,662				4,251
Commercial loans			26,681				26,265				24,738
Real estate construction loans			4,462				4,203				3,679
Commercial mortgage loans			9,592				9,659				9,146
Residential mortgage loans			1,741				1,677				1,516
Consumer loans			2,392				2,423				2,607
Lease financing			1,273				1,353				1,292
International loans			1,848				1,851				1,761
Total loans			47,989				47,431				44,739
Less allowance for loan losses			(500	)			(493	)			(472	)
Net loans			47,489				46,938				44,267
Premises and equipment			596				568				516
Customers’ liability on acceptances outstanding			55				56				60
Accrued income and other assets			2,387				2,384				2,635
Total assets		$	57,527			$	58,001			$	56,441
LIABILITIES AND SHAREHOLDERS’ EQUITY
Noninterest-bearing deposits		$	13,584			$	13,901			$	15,772
Money market and NOW deposits			14,815				15,250				15,653
Savings deposits			1,410				1,365				1,480
Customer certificates of deposit			7,447				7,223				6,122
Institutional certificates of deposit			5,679				5,783				4,129
Foreign office time deposits			735				1,405				940
Total interest-bearing deposits			30,086				31,026				28,324
Total deposits			43,670				44,927				44,096
Short-term borrowings			329				635				1,901
Acceptances outstanding			55				56				60
Accrued expenses and other liabilities			1,205				1,281				1,228
Medium- and long-term debt			7,148				5,949				4,062
Total liabilities			52,407				52,848				51,347
Common stock — $5 par value:
Authorized - 325,000,000 shares Issued - 178,735,252 shares at 3/31/07, 12/31/06 and 3/31/06			894				894				894
Capital surplus			524				520				466
Accumulated other comprehensive loss			(284	)			(324	)			(198	)
Retained earnings			5,311				5,282				4,880
Less cost of common stock in treasury - 22,834,368 shares at 3/31/07, 21,161,161 shares at 12/31/06 and 16,461,565 shares at 3/31/06			(1,325	)			(1,219	)			(948	)
Total shareholders’ equity			5,120				5,153				5,094
Total liabilities and shareholders’ equity		$	57,527			$	58,001			$	56,441

See notes to consolidated financial statements.

CONSOLIDATED STATEMENTS OF INCOME (unaudited)
Comerica Incorporated and Subsidiaries

		Three Months Ended
		March 31,
(in millions, except per share data)		2007				2006
INTEREST INCOME
Interest and fees on loans		$	851			$	723
Interest on investment securities			42				44
Interest on short-term investments			8				5
Total interest income			901				772
INTEREST EXPENSE
Interest on deposits			286				199
Interest on short-term borrowings			22				42
Interest on medium- and long-term debt			91				52
Total interest expense			399				293
Net interest income			502				479
Provision for loan losses			23				(27	)
Net interest income after provision for loan losses			479				506
NONINTEREST INCOME
Service charges on deposit accounts			54				54
Fiduciary income			50				44
Commercial lending fees			16				15
Letter of credit fees			16				16
Foreign exchange income			9				10
Brokerage fees			11				10
Card fees			12				11
Bank-owned life insurance			9				13
Net income (loss) from principal investing and warrants			(4	)			3
Net securities losses			—				(2	)
Net gain (loss) on sales of businesses			1				(5	)
Other noninterest income			29				26
Total noninterest income			203				195
NONINTEREST EXPENSES
Salaries			206				193
Employee benefits			46				50
Total salaries and employee benefits			252				243
Net occupancy expense			35				30
Equipment expense			15				13
Outside processing fee expense			20				21
Software expense			15				14
Customer services			14				13
Litigation and operational losses			3				1
Provision for credit losses on lending-related commitments			(2	)			13
Other noninterest expenses			55				81
Total noninterest expenses			407				429
Income from continuing operations before income taxes			275				272
Provision for income taxes			86				65
Income from continuing operations			189				207
Income (loss) from discontinued operations, net of tax			1				(13	)
NET INCOME		$	190			$	194
Basic earnings per common share:
Income from continuing operations		$	1.21			$	1.28
Net income			1.21				1.20
Diluted earnings per common share:
Income from continuing operations			1.19				1.26
Net income			1.19				1.18
Cash dividends declared on common stock			101				96
Dividends per common share			0.64				0.59

See notes to consolidated financial statements.

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (unaudited)
Comerica Incorporated and Subsidiaries

														Accumulated
														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			—				—				—				—				194				—				194
Other comprehensive loss, net of tax			—				—				—				(28	)			—				—				(28	)
Total comprehensive income																											166
Cash dividends declared on common stock ($0.59 per share)			—				—				—				—				(96	)			—				(96	)
Purchase of common stock			(1.5	)			—				—				—				—				(87	)			(87	)
Net issuance of common stock under employee stock plans			0.9				—				(18	)			—				(14	)			52				20
Recognition of share-based compensation expense			—				—				18				—				—				—				18
Other			—				—				5				—				—				—				5
BALANCE AT MARCH 31, 2006			162.3			$	894			$	466			$	(198	)		$	4,880			$	(948	)		$	5,094
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			—				—				—				—				190				—				190
Other comprehensive income, net of tax			—				—				—				40				—				—				40
Total comprehensive income																											230
Cash dividends declared on common stock ($0.64 per share)			—				—				—				—				(101	)			—				(101	)
Purchase of common stock			(3.5	)			—				—				—				—				(208	)			(208	)
Net issuance of common stock under employee stock plans			1.8				—				(20	)			—				(17	)			103				66
Recognition of share-based compensation expense			—				—				23				—				—				—				23
Employee deferred compensation obligations			—				—				1				—				—				(1	)			—
BALANCE AT MARCH 31, 2007			155.9			$	894			$	524			$	(284	)		$	5,311			$	(1,325	)		$	5,120

See notes to consolidated financial statements.

CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
Comerica Incorporated and Subsidiaries

		Three Months Ended
		March 31,
(in millions)		2007				2006
OPERATING ACTIVITIES
Net income		$	190			$	194
Income (loss) from discontinued operations, net of tax			1				(13	)
Income from continuing operations			189				207
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses			23				(27	)
Provision for credit losses on lending-related commitments			(2	)			13
Depreciation and software amortization			22				19
Share-based compensation expense			23				18
Excess tax benefits from share-based compensation arrangements			(6	)			(5	)
Net loss on sale/settlement of investment securities available-for-sale			—				2
Net (gain) loss on sales of businesses			(1	)			5
Net decrease in trading securities			54				6
Net decrease in loans held-for-sale			53				27
Net increase in accrued income receivable			(5	)			(19	)
Net increase (decrease) in accrued expenses			36				(35	)
Other, net			(144	)			97
Discontinued operations, net			—				(8	)
Total adjustments			53				93
Net cash provided by operating activities			242				300
INVESTING ACTIVITIES
Net decrease (increase) in other short-term investments			1,175				(1,901	)
Proceeds from maturities of investment securities available-for-sale			192				299
Purchases of investment securities available-for-sale			(489	)			(343	)
Net increase in loans			(579	)			(1,510	)
Net increase in fixed assets			(46	)			(29	)
Net decrease (increase) in customers’ liability on acceptances outstanding			1				(1	)
Proceeds from sales of businesses			2				—
Discontinued operations, net			1				—
Net cash provided by (used in) investing activities			257				(3,485	)
FINANCING ACTIVITIES
Net (decrease) increase in deposits			(1,257	)			1,665
Net (decrease) increase in short-term borrowings			(306	)			1,599
Net (decrease) increase in acceptances outstanding			(1	)			1
Proceeds from issuance of medium- and long-term debt			1,661				253
Repayments of medium- and long-term debt			(461	)			(100	)
Proceeds from issuance of common stock under employee stock plans			60				15
Excess tax benefits from share-based compensation arrangements			6				5
Purchase of common stock for treasury			(208	)			(87	)
Dividends paid			(93	)			(90	)
Discontinued operations, net			—				—
Net cash (used in) provided by financing activities			(599	)			3,261
Net (decrease) increase in cash and due from banks			(100	)			76
Cash and due from banks at beginning of period			1,434				1,609
Cash and due from banks at end of period		$	1,334			$	1,685
Interest paid		$	378			$	264
Income taxes paid		$	53			$	5
Noncash investing and financing activities:
Loans transferred to other real estate		$	3			$	4
See notes to consolidated financial statements.

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 three months ended March 31, 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 $1 million for the three months ended March 31, 2007. In the first quarter 2007, the Securities and Exchange Commission requested that the American Institute of Certified Public Accountants clarify that an election to change classification of interest and penalties on tax liabilities under the Interpretation could only be prospective. Therefore, 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.

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. 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.

     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. Under the option, any changes in fair value would be included in earnings. 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.

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

Note 3 — Investment Securities

     A summary of the Corporation’s temporarily impaired investment securities available-for-sale as of March 31, 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		$	25			$	-	*		$	13			$	-	*		$	38			$	-	*
Government-sponsored enterprise securities			189				1				2,675				70				2,864				71
State and municipal securities			—				—				—				—				—				—
Other securities			—				—				—				—				—				—
Total temporarily impaired securities		$	214			$	1			$	2,688			$	70			$	2,902			$	71

*		Unrealized losses less than $0.5 million.

     At March 31, 2007, the Corporation had 126 securities in an unrealized loss position, including 122 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 March 31, 2007.

     At March 31, 2007, investment securities having a carrying value of $1.8 billion were pledged where permitted or required by law to secure $758 million of liabilities, including public and other deposits, and derivative instruments. This included securities of $946 million pledged with the Federal Reserve Bank to secure actual treasury tax and loan borrowings of $2 million at March 31, 2007, and potential borrowings of up to an additional $848 million. The remaining pledged securities of $867 million are primarily with state and local government agencies to secure $756 million of deposits and other liabilities, including deposits of the State of Michigan of $229 million at March 31, 2007.

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:

		Three Months Ended
		March 31,
(in millions)		2007				2006
Balance at beginning of period		$	493			$	516
Loan charge-offs:
Domestic
Commercial			13				12
Real estate construction
Commercial Real Estate business line			1				—
Other			—				—
Total real estate construction			1				—
Commercial mortgage
Commercial Real Estate business line			3				—
Other			14				2
Total commercial mortgage			17				2
Residential mortgage			—				—
Consumer			3				3
Lease financing			—				6
International			—				2
Total loan charge-offs			34				25
Recoveries:
Domestic
Commercial			10				4
Real estate construction			—				—
Commercial mortgage			—				2
Residential mortgage			—				—
Consumer			1				1
Lease financing			4				—
International			3				1
Total recoveries			18				8
Net loan charge-offs			16				17
Provision for loan losses			23				(27	)
Balance at end of period		$	500			$	472

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

Note 4 — Allowance for Credit Losses (continued)

     The following table provides an analysis of the changes in the allowance for credit losses on lending-related commitments.

		Three Months Ended
		March 31,
(in millions)		2007				2006
Balance at beginning of period		$	26			$	33
Less: Charge-offs on lending-related commitments*			3				5
Add: Provision for credit losses on lending-related commitments			(2	)			13
Balance at end of period		$	21			$	41

*		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 no loans included in the $213 million of impaired loans at March 31, 2007 that were restructured and met the requirements to be on accrual status. Impaired loans averaged $214 million and $130 million for the three month periods ended March 31, 2007 and 2006, respectively. The following presents information regarding the period-end balances of impaired loans:

		Three Months Ended				Year Ended
(in millions)		March 31, 2007				December 31, 2006
Total period-end nonaccrual business loans		$	213			$	209
Plus: Impaired loans restructured during the period on accrual status at period-end			—				—
Total period-end impaired loans		$	213			$	209
Period-end impaired loans requiring an allowance		$	201			$	195
Allowance allocated to impaired loans		$	44			$	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.

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)		March 31, 2007				December 31, 2006
Parent company
7.25% subordinated note due 2007		$	151			$	151
4.80% subordinated note due 2015			295				294
6.576% subordinated notes due 2037			510				—
7.60% subordinated note due 2050			—				361
Total parent company			956				806
Subsidiaries
Subordinated notes:
7.25% subordinated note due 2007			201				201
9.98% subordinated note due 2007			57				58
6.00% subordinated note due 2008			254				253
6.875% subordinated note due 2008			101				102
8.50% subordinated note due 2009			101				101
7.125% subordinated note due 2013			156				157
5.70% subordinated note due 2014			252				251
5.75% subordinated notes due 2016			647				397
5.20% subordinated notes due 2017			489				489
8.375% subordinated note due 2024			183				182
7.875% subordinated note due 2026			191				192
Total subordinated notes			2,632				2,383
Medium-term notes:
Floating rate based on LIBOR indices due 2007 to 2011			2,699				2,299
Floating rate based on PRIME indices due 2007 to 2008			850				350
2.85% fixed rate note due 2007			—				100
Variable rate note payable due 2009			11				11
Total subsidiaries			6,192				5,143
Total medium- and long-term debt		$	7,148			$	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.

     The Bank issued $900 million of floating rate notes during the first quarter of 2007 under an existing $15 billion medium-term senior note program. The Bank used the proceeds for general corporate purposes.

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

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 interest income on state and municipal securities. 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 $1 million in interest on tax liabilities for the three months ended March 31, 2007 included in the “provision for income taxes” on the consolidated statements of income, compared to approximately $26 million, included in “other noninterest expenses” on the consolidated statements of income, for the same period in 2006. 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 footnote 1 to these consolidated financial statements. The Corporation had approximately $71 million and $70 million accrued for the payment of interest at March 31, 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 March 31, 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.

     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 remain subject to examination as of March 31, 2007:

Jurisdiction		Tax Years
Federal			2001-2006
California			1998-2006

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

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

     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 three months ended March 31, 2007 and 2006. Total comprehensive income totaled $230 million and $166 million for the three months ended March 31, 2007 and 2006, respectively. The $64 million increase in total comprehensive income in the three months ended March 31, 2007, when compared to the same period in the prior year, resulted principally from increases in net unrealized gains on investment securities available-for-sale ($37 million) due to changes in the interest rate environment, and net gains on cash flow hedges ($29 million).

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

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

		Three Months Ended
		March 31,
(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			30				(28	)
Less: Reclassification adjustment for gains (losses) included in net income			—				(2	)
Change in net unrealized gains (losses) before income taxes			30				(26	)
Less: Provision for income taxes			10				(9	)
Change in net unrealized gains (losses) on investment securities available-for-sale, net of tax			20				(17	)
Balance at end of period, net of tax		$	(41	)		$	(86	)
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			—				(45	)
Less: Reclassification adjustment for gains (losses) included in net income			(24	)			(25	)
Change in cash flow hedges before income taxes			24				(20	)
Less: Provision for income taxes			8				(7	)
Change in cash flow hedges, net of tax			16				(13	)
Balance at end of period, net of tax		$	(32	)		$	(104	)
Accumulated foreign currency translation adjustment:
Balance at beginning of period		$	—			$	(7	)
Net translation gains (losses) arising during the period			—				1
Change in foreign currency translation adjustment			—				1
Balance at end of period		$	—			$	(6	)
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				—
Change in minimum pension liability, net of tax			N/A				1
Net defined benefit pension and other postretirement adjustment arising during the period			7				N/A
Less: Provision for income taxes			3				N/A
Change in defined benefit and other postretirement plans adjustment, net of tax			4				N/A
Balance at end of period, net of tax		$	(211	)		$	(2	)
Total accumulated other comprehensive loss at end of period, net of tax		$	(284	)		$	(198	)

		N/A — Not Applicable

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 month periods ended March 31, 2007 and 2006 were computed as follows:

		Three Months Ended
		March 31,
(in millions, except per share data)		2007				2006
Basic
Income from continuing operations applicable to common stock		$	189			$	207
Net income applicable to common stock			190				194
Average common shares outstanding			156				162
Basic income from continuing operations per common share		$	1.21			$	1.28
Basic net income per common share			1.21				1.20
Diluted
Income from continuing operations applicable to common stock		$	189			$	207
Net income applicable to common stock			190				194
Average common shares outstanding			156				162
Nonvested stock			2				1
Common stock equivalents:
Net effect of the assumed exercise of stock options			1				1
Diluted average common shares			159				164
Diluted income from continuing operations per common share		$	1.19			$	1.26
Diluted net income per common share			1.19				1.18

     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
		March 31,
(options in millions)		2007				2006
Average outstanding options			5.8				6.0
Range of exercise prices		$	60.09 - $71.58			$	56.80 - $71.58

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
		March 31,
(in millions)		2007				2006
Service cost		$	8			$	9
Interest cost			15				17
Expected return on plan assets			(24	)			(26	)
Amortization of unrecognized prior service cost			2				2
Amortization of unrecognized net loss			3				7
Net periodic benefit cost		$	4			$	9

Non-Qualified Defined Benefit Pension Plan		Three Months Ended
		March 31,
(in millions)		2007				2006
Service cost		$	1			$	1
Interest cost			1				1
Amortization of unrecognized net loss			1				1
Net periodic benefit cost		$	3			$	3

Postretirement Benefit Plan		Three Months Ended
		March 31,
(in millions)		2007				2006
Interest cost		$	2			$	1
Expected return on plan assets			(1	)			(1	)
Amortization of unrecognized transition obligation			1				1
Net periodic benefit cost		$	2			$	1

     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.

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.

		March 31, 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		$	5,500			$	—			$	61			$	(61	)		$	6,200			$	—			$	87			$	(87	)
Swaps — fair value			2,153				75				6				69				2,253				75				7				68
Total interest rate contracts			7,653				75				67				8				8,453				75				94				(19	)
Foreign exchange contracts:
Spot and forwards			630				7				5				2				518				6				2				4
Swaps			30				1				—				1				33				—				—				—
Total foreign exchange contracts			660				8				5				3				551				6				2				4
Total risk management			8,313				83				72				11				9,004				81				96				(15	)
Customer-initiated and other
Interest rate contracts:
Caps and floors written			528				—				3				(3	)			551				—				3				(3	)
Caps and floors purchased			514				3				—				3				536				3				—				3
Swaps			4,741				38				25				13				4,480				37				26				11
Total interest rate contracts			5,783				41				28				13				5,567				40				29				11
Energy derivative contracts:
Caps and floors written			284				—				21				(21	)			310				—				23				(23	)
Caps and floors purchased			284				21				—				21				310				23				—				23
Swaps			529				17				16				1				485				22				21				1
Total energy derivative contracts			1,097				38				37				1				1,105				45				44				1
Foreign exchange contracts:
Spot, forwards, futures and options			2,698				8				6				2				2,889				24				21				3
Swaps			7				—				—				—				4				—				—				—
Total foreign exchange contracts			2,705				8				6				2				2,893				24				21				3
Total customer-initiated and other			9,585				87				71				16				9,565				109				94				15
Total derivative instruments		$	17,898			$	170			$	143			$	27			$	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.

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.

     For hedge relationships accounted for under SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities,” at inception of the hedge the Corporation uses either the short-cut method if it qualifies, or applies dollar offset or statistical regression analysis to assess effectiveness. The short-cut method is used for fair value hedges of medium and long-term debt. This method allows for the assumption of zero hedge ineffectiveness and eliminates the requirement to further assess hedge effectiveness on these transactions. For SFAS No. 133 hedge relationships to which the Corporation does not apply the short-cut method, dollar offset or statistical regression analysis is used at inception and consistently applied for each reporting period thereafter to assess whether the derivative used has been and is expected to be highly effective in offsetting changes in the fair value or cash flows of the hedged item. All components of each derivative instrument’s gain or loss are included in the assessment of hedge effectiveness. Net hedge ineffectiveness is recorded in “other noninterest income” on the consolidated statements of income.

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

		Three Months Ended
		March 31,
(dollar amounts in millions)		2007				2006
Cash Flow Hedges		$	—			$	(2	)
Fair Value Hedges			—				—
Foreign Currency Hedges			—				—
Total		$	—			$	(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 3 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 1 to 2 years. Approximately 11 percent ($5.5 billion) of outstanding loans were designated as hedged items to interest rate swap agreements at March 31, 2007. Interest rate swap agreements designated as cash flow hedges decreased interest and fees on loans by $24 million and $25 million, during the three month periods ended March 31, 2007 and 2006, respectively. If interest rates, interest yield curves and notional amounts remain at current levels, the Corporation expects to reclassify $30 million of net losses on derivative instruments from accumulated other comprehensive income to earnings during the next twelve 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

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 month period ended March 31, 2006, in accordance with SFAS No. 52, “Foreign Currency Translation,” the Corporation recognized a net gain of less than $0.5 million 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 months ended March 31, 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 March 31, 2007. Swaps have been grouped by asset and liability designation.

Remaining Expected Maturity of Risk Management Interest Rate Swaps:

																										March 31,				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		$	2,300			$	3,200			$	—			$	—			$	—			$	—			$	5,500			$	6,200
Weighted average: (1)
Receive rate			5.39	%			7.02	%			—	%			—	%			—	%			—	%			6.34	%			6.03	%
Pay rate			7.37				8.25				—				—				—				—				7.88				7.69
Fixed rate asset designation:
Pay fixed swaps Amortizing		$	1			$	2			$	—			$	—			$	—			$	—			$	3			$	3
Weighted average: (2)
Receive rate			4.34	%			4.34	%			—	%			—	%			—	%			—	%			4.34	%			4.34	%
Pay rate			3.52				3.52				—				—				—				—				3.52				3.52
Medium- and long-term debt designation:
Generic receive fixed swaps		$	350			$	350			$	100			$	—			$	—			$	1,350			$	2,150			$	2,250
Weighted average: (1)
Receive rate			6.67	%			6.17	%			6.06	%			—	%			—	%			5.92	%			6.09	%			5.95	%
Pay rate			5.37				5.36				5.36				—				—				5.42				5.40				5.44
Total notional amount		$	2,651			$	3,552			$	100			$	—			$	—			$	1,350			$	7,653			$	8,453