Summary of COMERICA INC /NEW/

ITEM 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Results of Operations
Net income for the three months ended June 30, 2008 was $56 million, a decrease of $140 million, or 72 percent, from $196 million reported for the three months ended June 30, 2007. Quarterly diluted net income per share decreased 70 percent to $0.37 in the second quarter 2008, compared to $1.25 in the same period a year ago. The decrease in net income in the three months ended June 30, 2008 from the comparable period last year resulted primarily from a $143 million increase in the provision for credit losses ($134 million increase in the provision for loan losses, $9 million increase in the provision for credit losses on lending-related commitments), from $34 million for the three months ended June 30, 2007. In addition, the Corporation recorded combined pre-tax charges of $50 million ($32 million after-tax, or $0.21 per share) in the second quarter 2008 related to an updated assessment of the timing of tax deductions on certain structured leasing transactions. The charges were recorded in net interest income ($19 million after-tax, or $0.13 per share) and the provision for income taxes ($13 million after-tax, or $0.08 per share). Return on average common shareholders' equity was 4.25 percent and return on average assets was 0.33 percent for the second quarter 2008, compared to 15.44 percent and 1.35 percent, respectively, for the comparable quarter last year.
Net income for the first six months of 2008 was $165 million, a decrease of $221 million, or 57 percent, from $386 million reported for the six months ended June 30, 2007. Diluted net income per share for the first six months of 2008 decreased 56 percent to $1.09 per diluted share, compared to $2.45 per diluted share, for the comparable period last year. The decrease in net income in the six months ended June 30, 2008 from the comparable period last year resulted primarily from a $285 million increase in the provision for credit losses ($270 million increase in the provision for loan losses, $15 million increase in the provision for credit losses on lending-related commitments), from $55 million for the six months ended June 30, 2007, and the $50 million ($32 million after-tax) of tax-related charges in the second quarter 2008 discussed above. Return on average common shareholders' equity was 6.34 percent and return on average assets was 0.51 percent for the first six months of 2008, compared to 15.16 percent and 1.34 percent, respectively, for the first six months of 2007.
Full-year 2008 Outlook.
For full-year 2008, management expects the following compared to full-year 2007 from continuing operations:
• Low single-digit full-year average loan growth, with average loans declining over the remainder of 2008.

• Securities averaging about $8 billion for the remainder of the year.

• Average full-year net interest margin about 3.10 percent (3.15 percent excluding the lease income charge), based on no federal funds rate changes in the third and fourth quarters of 2008, with a net interest margin of about 3.10 percent for the remainder of 2008.

• Full-year net credit-related charge-offs of $425 million to $450 million. The provision for credit losses is expected to exceed net charge-offs.

• Low single-digit growth in noninterest income.

• Low single-digit decline in noninterest expenses.

• Effective tax rate of about 30 percent for the full year, with a rate of 28 percent for the remainder of 2008.

• Maintain a Tier 1 capital ratio within a target range of 7.25 to 8.25 percent.

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 June 30, 2008 compared to the same period in the prior year. On a FTE basis, net interest income decreased $67 million to $443 million for the three months ended June 30, 2008, from $510 million for the comparable period in 2007. The decrease in net interest income in the second quarter 2008, compared to the same period in 2007, resulted primarily from a $30 million tax-related non-cash charge to lease income, a competitive loan and deposit pricing environment, a decrease in noninterest-bearing deposits in the Financial Services Division and a continued shift in funding sources toward higher-cost funds, partially offset by growth in investment securities and loans. The lease income charge reflected the reversal of previously recognized income, resulting from a projected change in the timing of income tax cash flows on certain structured leasing transactions, in accordance with FSP 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." The charge will fully reverse over the remaining lease terms (up to 20 years). Further information about the charge can be found in

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"Provision for Income and Tax-related Interest" in this financial review and Note 6 to the consolidated financial statements. Average earning assets increased $6.8 billion, or 12 percent, to $61.1 billion in the second quarter 2008, compared to $54.3 billion in the second quarter 2007, due to a $4.2 billion increase in average investment securities available-for-sale to $8.3 billion and a $2.6 billion, or five percent, increase in average loans to $52.4 billion in the second quarter 2008. The net interest margin (FTE) for the three months ended June 30, 2008 was 2.91 percent, compared to 3.76 percent for the comparable period in 2007. The decrease in the net interest margin (FTE) resulted primarily from the tax-related non-cash charge to lease income discussed above (-19 basis points), the reduced contribution of noninterest-bearing funds in a lower rate environment, the change in earning assets noted above and changes in the mix of interest-bearing sources of funds.
Table II provides an analysis of net interest income for the first six months of 2008 compared to the same period in the prior year. On a FTE basis, net interest income for the six months ended June 30, 2008 was $920 million, compared to $1.0 billion for the same period in 2007, a decrease of $93 million. The decline in net interest income was primarily due to the same reasons cited in the quarterly discussion above. Average earning assets increased $6.6 billion, or 12 percent, to $60.3 billion, in the six months ended June 30, 2008, compared to $53.7 billion in the same period in the prior year, due to a $3.8 billion increase in average investment securities available-for-sale to $7.8 billion and a $2.8 billion, or six percent, increase in average loans to $52.1 billion in the six months ended June 30, 2008. The net interest margin (FTE) for the six months ended June 30, 2008 decreased to 3.07 percent from 3.79 percent for the same period in 2007 primarily for the reasons cited in the quarterly discussion above. The impact of the tax-related non-cash charge to lease income, discussed above, was -10 basis points on the net interest margin (FTE) for the six months ended June 30, 2008.
Financial Services Division customers deposit large balances (primarily noninterest-bearing) and the Corporation pays certain expenses on behalf of such customers ("customer services" expense 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 one basis point and two basis points in the three and six month periods ended June 30, 2008, respectively, compared to a decrease of 10 basis points and 11 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 "Item 3. Quantitative and Qualitative Disclosures about Market Risk." Management currently expects average full-year 2008 net interest margin of about 3.10 percent.

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Table I - Quarterly Analysis of Net Interest Income & Rate/Volume - Fully

Taxable Equivalent (FTE)

                                                                                     Three Months Ended
                                                         June 30, 2008                                                    June 30, 2007
                                     Average                                       Average               Average                                   Average
(dollar amounts in millions)         Balance               Interest                 Rate                 Balance               Interest              Rate


Commercial loans (1) (2)          $      29,280         $           357                  4.90 %       $      28,324         $           517            7.31 %
Real estate construction
loans                                     4,843                      59                  4.89                 4,501                      95            8.45
Commercial mortgage loans                10,374                     141                  5.47                 9,634                     178            7.39
Residential mortgage loans                1,906                      29                  6.03                 1,791                      28            6.15
Consumer loans                            2,549                      32                  5.06                 2,331                      41            7.15
Lease financing (3)                       1,352                     (19 )                 N/M                 1,287                      11            3.33
International loans                       2,063                      25                  4.86                 1,925                      34            7.17
Business loan swap income
(expense)                                     -                      10                     -                     -                     (21 )             -

Total loans (2)                          52,367                     634                  4.87                49,793                     883            7.11

Investment securities
available-for-sale                        8,296                     101                  4.89                 4,085                      46            4.46
Federal funds sold and
securities purchased under
agreements to resell                        150                       1                  2.17                   195                       2            5.37
Other short-term investments                275                       2                  3.73                   231                       3            5.21

Total earning assets                     61,088                     738                  4.86                54,304                     934            6.89

Cash and due from banks                   1,217                                                               1,341
Allowance for loan losses                  (664 )                                                              (516 )
Accrued income and other
assets                                    4,322                                                               2,989

Total assets                      $      65,963                                                       $      58,118


Money market and NOW
deposits (1)                      $      14,784                      46                  1.26         $      14,825                     114            3.08
Savings deposits                          1,405                       2                  0.45                 1,419                       3            0.91
Customer certificates of
deposit                                   8,037                      64                  3.20                 7,463                      83            4.46
Institutional certificates
of deposit                                7,707                      61                  3.21                 5,484                      74            5.43
Foreign office time deposits              1,183                       8                  2.77                   858                      10            4.81

Total interest-bearing
deposits                                 33,116                     181                  2.20                30,049                     284            3.80

Short-term borrowings                     3,326                      19                  2.33                 1,816                      24            5.30
Medium- and long-term debt               12,041                      95                  3.15                 8,292                     116            5.63

Total interest-bearing
sources                                  48,483                     295                  2.45                40,157                     424            4.24


Noninterest-bearing deposits
(1)                                      10,648                                                              11,633
Accrued expenses and other
liabilities                               1,639                                                               1,240
Shareholders' equity                      5,193                                                               5,088

Total liabilities and
shareholders' equity              $      65,963                                                       $      58,118


Net interest income/rate
spread (FTE)                                            $           443                  2.41                               $           510            2.65


FTE adjustment                                          $             1                                                     $             1


Impact of net
noninterest-bearing sources
of funds                                                                                 0.50                                                          1.11

Net interest margin (as a
percentage of average
earning assets) (FTE) (2)
(3)                                                                                      2.91 %                                                        3.76 %

N/M - Not meaningful

(1) FSD balances included
above:
Loans (primarily low-rate)        $         469         $             2                  1.42 %       $       1,580         $             2            0.52 %
Interest-bearing deposits                   994                       4                  1.81                 1,228                      12            3.88
Noninterest-bearing deposits              1,823                                                               3,277

(2) Impact of FSD loans
(primarily low-rate) on the
following:
Commercial loans                                                                       (0.06) %                                                      (0.40) %
Total loans                                                                             (0.03 )                                                       (0.21 )
Net interest margin (FTE)
(assuming loans were funded
by noninterest-bearing
deposits)                                                                               (0.01 )                                                       (0.10 )

(3) Second quarter 2008 net interest income declined $30 million and the net interest margin declined by 19 basis points due to a non-cash lease income charge. Excluding this charge, the net interest margin would have been 3.10%.

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Table I - Quarterly Analysis of Net Interest Income & Rate/Volume - Fully

Taxable Equivalent (FTE) (continued)

                                                                           Three Months Ended
                                                                      June 30, 2008/June 30, 2007
                                                           Increase             Increase               Net
                                                          (Decrease)           (Decrease)           Increase
(in millions)                                             Due to Rate        Due to Volume*        (Decrease)

Loans                                                      $   (280 )            $     31           $   (249 )
Investment securities available-for-sale                          4                    51                 55
Federal funds sold and securites purchased under
agreements to repurchase                                         (1 )                   -                 (1 )
Other short-term investments                                     (2 )                   1                 (1 )

Total earning assets                                           (279 )                  83               (196 )

Interest-bearing deposits                                      (127 )                  24               (103 )
Short-term borrowings                                           (15 )                  10                 (5 )
Medium- and long-term debt                                      (51 )                  30                (21 )

Total interest-bearing sources                                 (193 )                  64               (129 )


Net interest income/rate spread (FTE)                      $    (86 )            $     19           $    (67 )

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

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Table II - Year-to-date Analysis of Net Interest Income & Rate/Volume - Fully

Taxable Equivalent (FTE)

                                                                              Six Months Ended
                                                   June 30, 2008                                           June 30, 2007
                                  Average                                                 Average
(dollar amounts in millions)      Balance          Interest          Average Rate         Balance          Interest          Average Rate


Commercial loans (1) (2)          $ 29,230        $      786                  5.41 %      $ 28,042        $    1,016                  7.31 %
Real estate construction
loans                                4,827               130                  5.40           4,376               186                  8.55
Commercial mortgage loans           10,258               300                  5.88           9,654               353                  7.37
Residential mortgage loans           1,911                58                  6.02           1,748                54                  6.13
Consumer loans                       2,499                69                  5.53           2,368                84                  7.15
Lease financing (3)                  1,349                (8 )                 N/M           1,280                21                  3.26
International loans                  2,036                55                  5.42           1,879                66                  7.12
Business loan swap income
(expense)                                -                15                     -               -               (45 )                   -

Total loans (2)                     52,110             1,405                  5.42          49,347             1,735                  7.08

Investment securities
available-for-sale                   7,759               189                  4.91           3,916                88                  4.40
Federal funds sold and
securities purchased under
agreements to resell                   115                 1                  2.56             235                 6                  5.38
Other short-term investments           319                 7                  4.08             231                 7                  6.00

Total earning assets                60,303             1,602                  5.34          53,729             1,836                  6.87

Cash and due from banks              1,229                                                   1,410
Allowance for loan losses             (630 )                                                  (509 )
Accrued income and other
assets                               4,043                                                   2,976

Total assets                      $ 64,945                                                $ 57,606


Money market and NOW
deposits (1)                      $ 15,063               125                  1.67        $ 14,788               225                  3.06
Savings deposits                     1,382                 4                  0.54           1,400                 6                  0.88
Customer certificates of
deposit                              8,161               148                  3.64           7,404               163                  4.45
Institutional certificates
of deposit                           7,482               139                  3.73           5,652               152                  5.43
Foreign office time deposits         1,190                19                  3.29             988                24                  4.90

Total interest-bearing
deposits                            33,278               435                  2.63          30,232               570                  3.80

Short-term borrowings                3,411                48                  2.82           1,736                46                  5.31
Medium- and long-term debt          10,949               199                  3.66           7,364               207                  5.68

Total interest-bearing
sources                             47,638               682                  2.88          39,332               823                  4.22

Noninterest-bearing deposits
(1)                                 10,635                                                  11,897
Accrued expenses and other
liabilities                          1,479                                                   1,287
Shareholders' equity                 5,193                                                   5,090

Total liabilities and
shareholders' equity              $ 64,945                                                $ 57,606


Net interest income/rate
spread (FTE)                                      $      920                  2.46                        $    1,013                  2.65


FTE adjustment                                    $        2                                              $        2


Impact of net
noninterest-bearing sources
of funds                                                                      0.61                                                    1.14

Net interest margin (as a
percentage of average
earning assets) (FTE) (2)
(3)                                                                           3.07 %                                                  3.79 %

N/M - Not meaningful

(1) FSD balances included above:

      Loans (primarily low-rate)     $   635     $  4       1.23 %   $ 1,575     $  5       0.60 %
      Interest-bearing deposits        1,044       12       2.31       1,238       24       3.90
      Noninterest-bearing deposits     1,858                           3,363

(2) Impact of FSD loans (primarily low-rate) on the following:

Commerical loans                                         (0.10 )%                                   (0.40 )%
Total loans                                              (0.05 )                                    (0.22 )
Net interest margin
(FTE) (assuming loans
were funded by
noninterest-bearing
deposits)                                                (0.02 )                                    (0.11 )

(3) 2008 net interest income declined $30 million and the net interest margin declined by 10 basis points due to a non-cash lease income charge. Excluding this charge, the net interest margin would have been 3.17%.

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Table II - Year-to-date Analysis of Net Interest Income & Rate/Volume - Fully

Taxable Equivalent (FTE) (continued)

                                                                             Six Months Ended
                                                                       June 30, 2008/June 30, 2007
                                                           Increase             Increase
                                                          (Decrease)           (Decrease)           Net Increase
(in millions)                                             Due to Rate        Due to Volume*          (Decrease)

Loans                                                      $   (404 )          $        74          $     (330 )
Investment securities available-for-sale                          7                     94                 101
Federal funds sold and securites purchased under
agreements to repurchase                                         (3 )                   (2 )                (5 )
Other short-term investments                                     (2 )                    2                   -

Total earning assets                                           (402 )                  168                (234 )

Interest-bearing deposits                                      (188 )                   53                (135 )
Short term borrowings                                           (22 )                   24                   2
Medium- and long-term debt                                      (73 )                   65                  (8 )

Total interest-bearing sources                                 (283 )                  142                (141 )


Net interest income/rate spread (FTE)                      $   (119 )          $        26          $      (93 )

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

Provision for Credit Losses
The provision for loan losses was $170 million for the second quarter 2008, compared to $36 million for the same period in 2007. The provision for loan losses for the first six months of 2008 was $329 million, compared to $59 million for the same period in 2007. 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 $134 million increase in the provision for loan losses in the three-months ended June 30, 2008, when compared to the same period in 2007, resulted primarily from challenges in the California residential real estate development industry. National growth has been hampered by surging oil prices, turmoil in the financial markets and declining home values. California lagged national growth primarily due to continued problems in the state's real estate sector and job growth that was trailing national performance. Evidence of real estate weakness in California included the continued downtrend of median sales prices of existing single-family homes and residential building permits (trailing 5 months), which declined 44 percent from one year ago. Michigan remained in a recession in 2007 and continued to contract in 2008. The average Michigan Business Activity index for the first four months of 2008 averaged 2.5 percent below the average for all of 2007. The Michigan Business Activity index represents 10 different measures of Michigan economic activity compiled by . . .