CMA 10-Q Quarterly Report March 31, 2012 | Alphaminr
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CMA 10-Q Quarter ended March 31, 2012

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COMERICA INC /NEW/
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10-Q 1 cma-201233110q.htm FORM 10-Q CMA-2012.3.31 10Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
______________________________
FORM 10-Q
______________________________
(Mark One)
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2012
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
incorporation or organization)
(I.R.S. Employer
Identification No.)
Comerica Bank Tower
1717 Main Street, MC 6404
Dallas, Texas 75201
(Address of principal executive offices)
(Zip Code)
(214) 462-6831
(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 x No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes x No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act:
Large accelerated filer
x
Accelerated filer
o
Non-accelerated filer
o (Do not check if a smaller reporting company)
Smaller reporting company
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 x
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 27, 2012 : 196,672,892 shares


COMERICA INCORPORATED AND SUBSIDIARIES
TABLE OF CONTENTS


Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
CONSOLIDATED BALANCE SHEETS
Comerica Incorporated and Subsidiaries
(in millions, except share data)
March 31,
2012
December 31,
2011
March 31,
2011
(unaudited)
(unaudited)
ASSETS
Cash and due from banks
$
984

$
982

$
875

Federal funds sold
10

—

—

Interest-bearing deposits with banks
2,966

2,574

3,570

Other short-term investments
180

149

154

Investment securities available-for-sale
10,061

10,104

7,406

Commercial loans
25,640

24,996

21,360

Real estate construction loans
1,442

1,533

2,023

Commercial mortgage loans
10,079

10,264

9,697

Lease financing
872

905

958

International loans
1,256

1,170

1,326

Residential mortgage loans
1,485

1,526

1,550

Consumer loans
2,238

2,285

2,262

Total loans
43,012

42,679

39,176

Less allowance for loan losses
(704
)
(726
)
(849
)
Net loans
42,308

41,953

38,327

Premises and equipment
670

675

637

Accrued income and other assets
5,414

4,571

4,048

Total assets
$
62,593

$
61,008

$
55,017

LIABILITIES AND SHAREHOLDERS’ EQUITY
Noninterest-bearing deposits
$
20,741

$
19,764

$
16,357

Money market and NOW deposits
20,502

20,311

17,888

Savings deposits
1,586

1,524

1,457

Customer certificates of deposit
6,145

5,808

5,672

Foreign office time deposits
332

348

499

Total interest-bearing deposits
28,565

27,991

25,516

Total deposits
49,306

47,755

41,873

Short-term borrowings
82

70

61

Accrued expenses and other liabilities
1,301

1,371

1,090

Medium- and long-term debt
4,919

4,944

6,116

Total liabilities
55,608

54,140

49,140

Common stock - $5 par value:
Authorized - 325,000,000 shares
Issued - 228,164,824 shares at 3/31/12 and 12/31/11 and 203,878,110 shares at 3/31/11
1,141

1,141

1,019

Capital surplus
2,154

2,170

1,464

Accumulated other comprehensive loss
(326
)
(356
)
(382
)
Retained earnings
5,630

5,546

5,317

Less cost of common stock in treasury - 31,032,920 shares at 3/31/12, 30,831,076 shares at 12/31/11 and 27,103,941 shares at 3/31/11
(1,614
)
(1,633
)
(1,541
)
Total shareholders’ equity
6,985

6,868

5,877

Total liabilities and shareholders’ equity
$
62,593

$
61,008

$
55,017

See notes to consolidated financial statements.

1

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (unaudited)
Comerica Incorporated and Subsidiaries
Three Months Ended March 31,
(in millions, except per share data)
2012
2011
INTEREST INCOME
Interest and fees on loans
$
411

$
375

Interest on investment securities
64

57

Interest on short-term investments
3

2

Total interest income
478

434

INTEREST EXPENSE
Interest on deposits
19

22

Interest on medium- and long-term debt
16

17

Total interest expense
35

39

Net interest income
443

395

Provision for loan losses
23

49

Net interest income after provision for loan losses
420

346

NONINTEREST INCOME
Service charges on deposit accounts
56

52

Fiduciary income
38

39

Commercial lending fees
25

21

Letter of credit fees
17

18

Card fees
11

15

Foreign exchange income
9

9

Bank-owned life insurance
10

8

Brokerage fees
6

6

Net securities gains
5

2

Other noninterest income
29

37

Total noninterest income
206

207

NONINTEREST EXPENSES
Salaries
201

188

Employee benefits
60

50

Total salaries and employee benefits
261

238

Net occupancy expense
41

40

Equipment expense
17

15

Outside processing fee expense
26

24

Software expense
23

23

FDIC insurance expense
10

15

Advertising expense
7

7

Other real estate expense
4

8

Other noninterest expenses
59

45

Total noninterest expenses
448

415

Income before income taxes
178

138

Provision for income taxes
48

35

NET INCOME
130

103

Less income allocated to participating securities
1

1

Net income attributable to common shares
$
129

$
102

Earnings per common share:
Basic
$
0.66

$
0.58

Diluted
0.66

0.57

Comprehensive income
160

110

Cash dividends declared on common stock
20

17

Cash dividends declared per common share
0.10

0.10

See notes to consolidated financial statements.

2

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (unaudited)
Comerica Incorporated and Subsidiaries
Common Stock
Accumulated
Other
Comprehensive
Loss
Total
Shareholders’
Equity
(in millions, except per share data)
Shares
Outstanding
Amount
Capital
Surplus
Retained
Earnings
Treasury
Stock
BALANCE AT DECEMBER 31, 2010
176.5

$
1,019

$
1,481

$
(389
)
$
5,247

$
(1,565
)
$
5,793

Net income
—

—

—

—

103

—

103

Other comprehensive income, net of tax
—

—

—

7

—

—

7

Cash dividends declared on common stock ($0.10 per share)
—

—

—

—

(17
)
—

(17
)
Purchase of common stock
(0.5
)
—

—

—

—

(21
)
(21
)
Net issuance of common stock under employee stock plans
0.8

—

(30
)
—

(16
)
45

(1
)
Share-based compensation
—

—

13

—

—

—

13

BALANCE AT MARCH 31, 2011
176.8

$
1,019

$
1,464

$
(382
)
$
5,317

$
(1,541
)
$
5,877

BALANCE AT DECEMBER 31, 2011
197.3

$
1,141

$
2,170

$
(356
)
$
5,546

$
(1,633
)
$
6,868

Net income
—

—

—

—

130

—

130

Other comprehensive income, net of tax
—

—

—

30

—

—

30

Cash dividends declared on common stock ($0.10 per share)
—

—

—

—

(20
)
—

(20
)
Purchase of common stock
(1.2
)
—

—

—

—

(36
)
(36
)
Net issuance of common stock under employee stock plans
1.1

—

(32
)
—

(26
)
58

—

Share-based compensation
—

—

13

—

—

—

13

Other
(0.1
)
—

3

—

—

(3
)
—

BALANCE AT MARCH 31, 2012
197.1

$
1,141

$
2,154

$
(326
)
$
5,630

$
(1,614
)
$
6,985

See notes to consolidated financial statements.



3

CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
Comerica Incorporated and Subsidiaries
Three Months Ended March 31,
(in millions)
2012
2011
OPERATING ACTIVITIES
Net income
$
130

$
103

Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses
23

49

Provision for deferred income taxes
22

13

Depreciation and amortization
33

29

Share-based compensation expense
13

13

Net amortization of securities
10

7

Accretion of loan purchase discount
(25
)
—

Net securities gains
(5
)
(2
)
Excess tax benefits from share-based compensation arrangements
(1
)
(1
)
Net change in:
Trading securities
(33
)
(13
)
Accrued income receivable
(1
)
(2
)
Accrued expenses payable
(85
)
(59
)
Other, net
77

13

Net cash provided by operating activities
158

150

INVESTING ACTIVITIES
Investment securities available-for-sale:
Maturities and redemptions
937

592

Purchases
(869
)
(448
)
Net change in loans
(357
)
946

Other, net
(14
)
(4
)
Net cash (used in) provided by investing activities
(303
)
1,086

FINANCING ACTIVITIES
Net change in:
Deposits
600

1,226

Short-term borrowings
12

(69
)
Medium- and long-term debt:
Repayment
(4
)
—

Common stock:
Repurchased
(36
)
(21
)
Cash dividends paid
(20
)
(18
)
Excess tax benefits from share-based compensation arrangements
1

1

Other, net
(4
)
7

Net cash provided by financing activities
549

1,126

Net increase in cash and cash equivalents
404

2,362

Cash and cash equivalents at beginning of period
3,556

2,083

Cash and cash equivalents at end of period
$
3,960

$
4,445

Interest paid
$
32

$
34

Income taxes, tax deposits and tax-related interest paid
5

14

Noncash investing and financing activities:
Loans transferred to other real estate
5

13

See notes to consolidated financial statements.

4

Notes to Consolidated Financial Statements (unaudited)
Comerica Incorporated and Subsidiaries
NOTE 1 - BASIS OF PRESENTATION AND ACCOUNTING POLICIES
The accompanying unaudited consolidated financial statements were prepared in accordance with U.S. generally accepted accounting principles (GAAP) 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 GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation were included. The results of operations for the three months ended March 31, 2012 are not necessarily indicative of the results that may be expected for the year ending December 31, 2012 . Certain items in prior periods were 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, 2011 .
Recently Adopted Accounting Standards
In the first quarter 2012, the Corporation adopted amendments to GAAP which revise the presentation of comprehensive income in the financial statements. As a result, the Corporation presents on an interim basis the components of net income and a total for comprehensive income in one continuous consolidated statement of comprehensive income and will present on an annual basis the components of net income and other comprehensive income in two separate, but consecutive statements. Information on the components of other comprehensive income is provided on an interim basis in Note 9 to these unaudited financial statements.
In the first quarter 2012, the Corporation adopted an amendment to GAAP which generally aligns the principles of fair value measurements with International Financial Reporting Standards (IFRSs) and requires expanded disclosures. The adoption of the amendment had no impact on the Corporation's financial condition or results of operations. The required disclosures are provided in Note 2 to these unaudited financial statements.
Pending Accounting Pronouncements
In December 2011, the Financial Accounting Standards Board issued an amendment to GAAP which requires enhanced disclosures about the nature and effect or potential effect of an entity's rights of setoff associated with its financial and derivative instruments. The Corporation will adopt the amendment in the first quarter 2013. While the amendment will expand the Corporation's financial and derivative instruments disclosures, the Corporation does not expect the adoption of the amendment to have any effect on the Corporation's financial condition and results of operations.
NOTE 2 – FAIR VALUE MEASUREMENTS
The Corporation utilizes fair value measurements to record fair value adjustments to certain assets and liabilities and to determine fair value disclosures. The determination of fair values of financial instruments often requires the use of estimates. In cases where quoted market values in an active market are not available, the Corporation uses present value techniques and other valuation methods to estimate the fair values of its financial instruments. These valuation methods require considerable judgment and the resulting estimates of fair value can be significantly affected by the assumptions made and methods used.
Fair value is an estimate of the exchange price that would be received to sell an asset or paid to transfer a liability in an orderly transaction (i.e., not a forced transaction, such as a liquidation or distressed sale) between market participants at the measurement date. However, the calculated fair value estimates in many instances cannot be substantiated by comparison to independent markets and, in many cases, may not be realizable in a current sale of the financial instrument.
Trading securities, investment securities available-for-sale, derivatives and deferred compensation plan liabilities are recorded at fair value on a recurring basis. Additionally, from time to time, the Corporation may be required to record other assets and liabilities at fair value on a nonrecurring basis, such as impaired loans, other real estate (primarily foreclosed property), nonmarketable equity securities and certain other assets and liabilities. These nonrecurring fair value adjustments typically involve write-downs of individual assets or application of lower of cost or fair value accounting.
The Corporation categorizes assets and liabilities recorded at fair value on a recurring or nonrecurring basis and the estimated fair value of financial instruments not recorded at fair value on a recurring basis into a three-level hierarchy, based on the markets in which the assets and liabilities are traded and the reliability of the assumptions used to determine fair value.

5

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

Level 1
Valuation is based upon quoted prices for identical instruments traded in active markets.
Level 2
Valuation is based upon quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-based valuation techniques for which all significant assumptions are observable in the market.
Level 3
Valuation is generated from model-based techniques that use at least one significant assumption not observable in the market. These unobservable assumptions reflect estimates of assumptions that market participants would use in pricing the asset or liability. Valuation techniques include use of option pricing models, discounted cash flow models and similar techniques.
The Corporation generally utilizes third-party pricing services to value Level 1 and Level 2 trading and investment securities, as well as certain derivatives designated as fair value hedges. Management reviews the methodologies and assumptions used by the third-party pricing services and evaluates the values provided, principally by comparison with other available market quotes for similar instruments and/or analysis based on internal models using available third-party market data. The Corporation may occasionally adjust certain values provided by the third-party pricing service when management believes, as the result of its review, that the adjusted price most appropriately reflects the fair value of the particular security.
Following are descriptions of the valuation methodologies and key inputs used to measure financial assets and liabilities recorded at fair value, as well as a description of the methods and significant assumptions used to estimate fair value disclosures for financial instruments not recorded at fair value in their entirety on a recurring basis. The descriptions include an indication of the level of the fair value hierarchy in which the assets or liabilities are classified. Transfers of assets or liabilities between levels of the fair value hierarchy are recognized at the beginning of the reporting period, when applicable.
Cash and due from banks, federal funds sold and interest-bearing deposits with banks
Due to their short-term nature, the carrying amount of these instruments approximates the estimated fair value. As such, the Corporation classifies the estimated fair value of these instruments as Level 1.
Trading securities and associated deferred compensation plan liabilities
Securities held for trading purposes and associated deferred compensation plan liabilities are recorded at fair value on a recurring basis and included in “other short-term investments” and “accrued expenses and other liabilities,” respectively, on the consolidated balance sheets. Level 1 securities held for trading purposes include assets related to employee deferred compensation plans, which are invested in mutual funds, U.S. Treasury securities that are traded by dealers or brokers in active over-the-counter markets and other securities traded on an active exchange, such as the New York Stock Exchange. Deferred compensation plan liabilities represent the fair value of the obligation to the employee, which corresponds to the fair value of the invested assets. Level 2 trading securities include municipal bonds and residential mortgage-backed securities issued by U.S. government-sponsored entities and corporate debt securities. Securities classified as Level 3 include securities in less liquid markets and securities not rated by a credit agency. The methods used to value trading securities are the same as the methods used to value investment securities available-for-sale, discussed below.
Loans held-for-sale
Loans held-for-sale, included in “other short-term investments” on the consolidated balance sheets, are recorded at the lower of cost or fair value. Loans held-for-sale may be carried at fair value on a nonrecurring basis when fair value is less than cost. The fair value is based on what secondary markets are currently offering for portfolios with similar characteristics. As such, the Corporation classifies both loans held-for-sale subjected to nonrecurring fair value adjustments and the estimated fair value of loans held-for sale as Level 2.
Investment securities available-for-sale
Investment securities available-for-sale are recorded at fair value on a recurring basis. Fair value measurement is based upon quoted prices, if available. If quoted prices are not available or the market is deemed to be inactive at the measurement date, an adjustment to the quoted prices may be necessary. In some circumstances, the Corporation may conclude that a change in valuation technique or the use of multiple valuation techniques may be appropriate to estimate an instrument's fair value. Level 1 securities include those traded on an active exchange, such as the New York Stock Exchange, U.S. Treasury securities that are traded by dealers or brokers in active over-the-counter markets and money market funds. Level 2 securities include residential mortgage-backed securities issued by U.S. government agencies and U.S. government-sponsored entities and corporate debt securities. The fair value of Level 2 securities was determined using quoted prices of securities with similar characteristics, or pricing models based on observable market data inputs, primarily interest rates, spreads and prepayment information.

6

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

Securities classified as Level 3, of which the substantial majority is auction-rate securities, represent securities in less liquid markets requiring significant management assumptions when determining fair value. Due to the lack of a robust secondary auction-rate securities market with active fair value indicators, fair value for all periods presented was determined using an income approach based on a discounted cash flow model. The discounted cash flow model utilizes two significant inputs: discount rate and workout period. The discount rate was calculated using credit spreads of the underlying collateral or similar securities plus a liquidity risk premium. The liquidity risk premium was derived from observed liquidity premiums based on auction-rate securities valuations performed by third parties and incorporated the rate at which the various types of similar auction-rate securities had been redeemed or sold since acquisition in 2008. The workout period was based on an assessment of publicly available information on efforts to re-establish functioning markets for these securities and the Corporation's own redemption experience. As of March 31, 2012 , approximately 72 percent of the aggregate auction-rate securities par value had been redeemed or sold since acquisition. Significant increases in any of these inputs in isolation would result in a significantly lower fair value. Additionally, as the discount rate incorporates the liquidity risk premium, a change in an assumption used for the liquidity risk premium would be accompanied by a directionally similar change in the discount rate. On an annual basis, an independent third party verifies the fair value by reviewing the appropriateness of the discounted cash flow model and its significant inputs.
Loans
The Corporation does not record loans at fair value on a recurring basis. However, periodically, the Corporation records nonrecurring adjustments to the carrying value of loans based on fair value measurements. Loans for which it is probable that payment of interest or principal will not be made in accordance with the contractual terms of the original loan agreement are considered impaired, which are reported as nonrecurring fair value measurements when a specific allowance for the impaired loan is established based on the fair value of collateral. Collateral values supporting individually evaluated impaired loans are evaluated quarterly. When management determines that the fair value of the collateral requires additional adjustments, either as a result of non-current appraisal value or when there is no observable market price, the Corporation classifies the impaired loan as Level 3.
The Corporation provides fair value estimates for loans not recorded at fair value. The estimated fair value is determined based on characteristics such as loan category, repricing features and remaining maturity, and includes prepayment and credit loss estimates. For variable rate business loans that reprice frequently, the estimated fair value is based on carrying values adjusted for estimated credit losses inherent in the portfolio at the balance sheet date. For other business loans and retail loans, fair values are estimated using a discounted cash flow model that employs a discount rate that reflect the Corporation's current pricing for loans with similar characteristics and remaining maturity, adjusted by an amount for estimated credit losses inherent in the portfolio at the balance sheet date. The rates take into account the expected yield curve, as well as an adjustment for prepayment risk, when applicable. The Corporation classifies the estimated fair value of loans held for investment as Level 3.
Customers’ liability on acceptances outstanding and acceptances outstanding
The carrying amount of these instruments approximates the estimated fair value, due to their short-term nature. As such, the Corporation classifies the estimated fair value of these instruments as Level 1.
Derivative assets and derivative liabilities
Derivative instruments held or issued for risk management or customer-initiated activities are traded in over-the-counter markets where quoted market prices are not readily available. Fair value for over-the-counter derivative instruments is measured on a recurring basis using internally developed models that use primarily market observable inputs, such as yield curves and option volatilities. The Corporation manages credit risk for its over-the-counter derivative positions on a counterparty-by-counterparty basis and calculates credit valuation adjustments, included in the fair value of these instruments, on the basis of its relationships at the counterparty portfolio/master netting agreement level. These credit valuation adjustments are determined by applying a credit spread for the counterparty or the Corporation, as appropriate, to the total expected exposure of the derivative after considering collateral and other master netting arrangements. These adjustments, which are considered Level 3 inputs, are based on estimates of current credit spreads to evaluate the likelihood of default. The Corporation assessed the significance of the impact of the credit valuation adjustments on the overall valuation of its derivative positions and determined that the credit valuation adjustments were not significant to the overall valuation of its derivatives. As a result, the Corporation classifies its over-the-counter derivative valuations in Level 2 of the fair value hierarchy. Examples of Level 2 derivative instruments are interest rate swaps and energy derivative and foreign exchange contracts.
The Corporation holds a portfolio of warrants for generally nonmarketable equity securities. These warrants are primarily from high technology, non-public companies obtained as part of the loan origination process. Warrants which contain a net exercise provision or a non-contingent put right embedded in the warrant agreement are accounted for as derivatives and recorded at fair

7

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

value on a recurring basis using a Black-Scholes valuation model. The Black-Scholes valuation model utilizes five inputs: risk-free rate, expected life, volatility, exercise price, and the per share market value of the underlying company. Significant increases in any of these inputs in isolation, with the exception of exercise price, would result in a significantly higher fair value. Significant increases in exercise price in isolation would result in a significantly lower fair value. The Corporation classifies warrants accounted for as derivatives as Level 3.
The Corporation also holds a derivative contract associated with the 2008 sale of its remaining ownership of Visa Inc. (Visa) Class B shares. Under the terms of the derivative contract, the Corporation will compensate the counterparty primarily for dilutive adjustments made to the conversion factor of the Visa Class B to Class A shares based on the ultimate outcome of litigation involving Visa. Conversely, the Corporation will be compensated by the counterparty for any increase in the conversion factor from anti-dilutive adjustments. The recurring fair value of the derivative contract is based on unobservable inputs consisting of management's estimate of the litigation outcome, timing of litigation settlements and payments related to the derivative. Significant increases in the estimate of litigation outcome and the timing of litigation settlements in isolation would result in a significantly higher liability fair value. Significant increases in payments related to the derivative in isolation would result in a significantly lower liability fair value. The Corporation classifies the derivative liability as Level 3.
Nonmarketable equity securities
The Corporation has a portfolio of indirect (through funds) private equity and venture capital investments. These funds generally cannot be redeemed and the majority are not readily marketable. Distributions from these funds are received by the Corporation as a result of the liquidation of underlying investments of the funds and/or as income distributions. It is estimated that the underlying assets of the funds will be liquidated over a period of up to 15 years. The value of these investments is at risk to changes in equity markets, general economic conditions and a variety of other factors. The investments are accounted for on the cost or equity method and are individually reviewed for impairment on a quarterly basis by comparing the carrying value to the estimated fair value. These investments may be carried at fair value on a nonrecurring basis when they are deemed to be impaired and written down to fair value. Where there is not a readily determinable fair value, the Corporation estimates fair value for indirect private equity and venture capital investments based on the Corporation's percentage ownership in the net asset value of the entire fund, as reported by the fund, after indication that the fund adheres to applicable fair value measurement guidance. For those funds where the net asset value is not reported by the fund, the Corporation derives the fair value of the fund by estimating the fair value of each underlying investment in the fund. In addition to using qualitative information about each underlying investment, as provided by the fund, the Corporation gives consideration to information pertinent to the specific nature of the debt or equity investment, such as relevant market conditions, offering prices, operating results, financial conditions, exit strategy and other qualitative information, as available. The lack of an independent source to validate fair value estimates, including the impact of future capital calls and transfer restrictions, is an inherent limitation in the valuation process. The Corporation classifies both nonmarketable equity securities subjected to nonrecurring fair value adjustments and the estimated fair value of nonmarketable equity securities not recorded at fair value in their entirety on a recurring basis as Level 3. Commitments to fund additional investments in nonmarketable equity securities recorded at fair value on a nonrecurring basis were $2 million and $1 million at March 31, 2012 and December 31, 2011 , respectively.
The Corporation also holds restricted equity investments, primarily Federal Home Loan Bank (FHLB) and Federal Reserve Bank (FRB) stock. Restricted equity securities are not readily marketable and are recorded at cost (par value) and evaluated for impairment based on the ultimate recoverability of the par value. No significant observable market data for these instruments is available. The Corporation considers the profitability and asset quality of the issuer, dividend payment history and recent redemption experience, when determining the ultimate recoverability of the par value. The Corporation’s investment in FHLB stock totaled $92 million and its investment in FRB stock totaled $85 million at both March 31, 2012 and December 31, 2011 , respectively. The Corporation believes its investments in FHLB and FRB stock are ultimately recoverable at par.
Other real estate
Other real estate is included in “accrued income and other assets” on the consolidated balance sheets and includes primarily foreclosed property. Foreclosed property is initially recorded at fair value, less costs to sell, at the date of foreclosure, establishing a new cost basis. Subsequently, foreclosed property is carried at the lower of cost or fair value, less costs to sell. Other real estate may be carried at fair value on a nonrecurring basis when fair value is less than cost. Fair value is based upon independent market prices, appraised value or management's estimate of the value of the property. Throughout each quarter, the Corporation obtains updated independent market prices and appraised values as are required by state regulation or as are deemed necessary based on market conditions and determines if additional write-downs are necessary. On a quarterly basis, senior management reviews all other real estate and determines whether the carrying values are reasonable, based on collateral values and other current market

8

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

factors. Other real estate carried at fair value based on an observable market price or a current appraised value is classified by the Corporation as Level 2. When management determines that the fair value of other real estate requires additional adjustments, either as a result of a non-current appraisal or when there is no observable market price, the Corporation classifies the other real estate as Level 3.
Loan servicing rights
Loan servicing rights, included in “accrued income and other assets” on the consolidated balance sheets and primarily related to Small Business Administration loans, are subject to impairment testing. Loan servicing rights may be carried at fair value on a nonrecurring basis when impairment testing indicates that the fair value of the loan servicing rights is less than the recorded value. A valuation model is used for impairment testing on a quarterly basis, which utilizes a discounted cash flow model, using interest rates and prepayment speed assumptions currently quoted for comparable instruments and a discount rate determined by management. If the valuation model reflects a value less than the carrying value, loan servicing rights are adjusted to fair value through a valuation allowance as determined by the model. As such, the Corporation classifies loan servicing rights as Level 3.
Deposit liabilities
The estimated fair value of checking, savings and certain money market deposit accounts is represented by the amounts payable on demand. The estimated fair value of term deposits is calculated by discounting the scheduled cash flows using the period-end rates offered on these instruments. As such, the Corporation classifies the estimated fair value of deposit liabilities as Level 2.
Short-term borrowings
The carrying amount of federal funds purchased, securities sold under agreements to repurchase and other short-term borrowings approximates the estimated fair value. As such, the Corporation classifies the estimated fair value of short-term borrowings as Level 1.
Medium- and long-term debt
The carrying value of variable-rate FHLB advances approximates the estimated fair value. The estimated fair value of the Corporation's remaining variable- and fixed-rate medium- and long-term debt is based on quoted market values when available. If quoted market values are not available, the estimated fair value is based on the market values of debt with similar characteristics. The Corporation classifies the estimated fair value of medium- and long-term debt as Level 2.
Credit-related financial instruments
Credit-related financial instruments include unused commitments to extend credit and standby and commercial letters of credit. These instruments generate ongoing fees which are recognized over the term of the commitment. In situations where credit losses are probable, the Corporation records an allowance. The carrying value of these instruments, which includes the carrying value of the deferred fees plus the related allowance, approximates the estimated fair value. The Corporation classifies the estimated fair value of credit-related financial instruments as Level 3.

9

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

ASSETS AND LIABLILITIES RECORDED AT FAIR VALUE ON A RECURRING BASIS
The following tables present the recorded amount of assets and liabilities measured at fair value on a recurring basis as of March 31, 2012 and December 31, 2011 .
(in millions)
Total
Level 1
Level 2
Level 3
March 31, 2012
Trading securities:
Deferred compensation plan assets
$
94

$
94

$
—

$
—

Residential mortgage-backed securities (a)
5

—

5

—

State and municipal securities
46

—

46

—

Corporate debt securities
2

—

2

—

Total trading securities
147

94

53

—

Investment securities available-for-sale:
U.S. Treasury and other U.S. government agency securities
20

20

—

—

Residential mortgage-backed securities (a)
9,584

—

9,584

—

State and municipal securities (b)
23

—

—

23

Corporate debt securities:
Auction-rate debt securities
1

—

—

1

Other corporate debt securities
47

—

47

—

Equity and other non-debt securities:
Auction-rate preferred securities
320

—

—

320

Money market and other mutual funds
66

66

—

—

Total investment securities available-for-sale
10,061

86

9,631

344

Derivative assets:
Interest rate contracts
564

—

564

—

Energy derivative contracts
152

—

152

—

Foreign exchange contracts
33

—

33

—

Warrants
3

—

—

3

Total derivative assets
752

—

749

3

Total assets at fair value
$
10,960

$
180

$
10,433

$
347

Derivative liabilities:
Interest rate contracts
$
235

$
—

$
235

$
—

Energy derivative contracts
151

—

151

—

Foreign exchange contracts
28

—

28

—

Total derivative liabilities
414

—

414

—

Deferred compensation plan liabilities
94

94

—

—

Total liabilities at fair value
$
508

$
94

$
414

$
—

(a)
Residential mortgage-backed securities issued and/or guaranteed by U.S. government agencies or U.S. government-sponsored enterprises.
(b)
Primarily auction-rate securities.

10

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

(in millions)
Total
Level 1
Level 2
Level 3
December 31, 2011
Trading securities:
Deferred compensation plan assets
$
90

$
90

$
—

$
—

Residential mortgage-backed securities (a)
2

—

2

—

Other government-sponsored enterprise securities
9

—

9

—

State and municipal securities
12

—

12

—

Corporate debt securities
1

—

1

—

Other securities
1

1

—

—

Total trading securities
115

91

24

—

Investment securities available-for-sale:
U.S. Treasury and other U.S. government agency securities
20

20

—

—

Residential mortgage-backed securities (a)
9,512

—

9,512

—

State and municipal securities (b)
24

—

—

24

Corporate debt securities:
Auction-rate debt securities
1

—

—

1

Other corporate debt securities
46

—

46

—

Equity and other non-debt securities:
Auction-rate preferred securities
408

—

—

408

Money market and other mutual funds
93

93

—

—

Total investment securities available-for-sale
10,104

113

9,558

433

Derivative assets:
Interest rate contracts
602

—

602

—

Energy derivative contracts
115

—

115

—

Foreign exchange contracts
40

—

40

—

Warrants
3

—

—

3

Total derivative assets
760

—

757

3

Total assets at fair value
$
10,979

$
204

$
10,339

$
436

Derivative liabilities:
Interest rate contracts
$
253

$
—

$
253

$
—

Energy derivative contracts
115

—

115

—

Foreign exchange contracts
35

—

35

—

Other
6

—

—

6

Total derivative liabilities
409

—

403

6

Deferred compensation plan liabilities
90

90

—

—

Total liabilities at fair value
$
499

$
90

$
403

$
6

(a)
Residential mortgage-backed securities issued and/or guaranteed by U.S. government agencies or U.S. government-sponsored enterprises.
(b)
Primarily auction-rate securities.
There were no transfers of assets or liabilities recorded at fair value on a recurring basis into or out of Level 1, Level 2 and Level 3 fair value measurements during the three-month periods ended March 31, 2012 and 2011 .

11

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

The following table summarizes the changes in Level 3 assets and liabilities measured at fair value on a recurring basis for the three-month periods ended March 31, 2012 and 2011 .
Net Realized/Unrealized Gains (Losses)
Balance at
Beginning
of Period
Recorded in Earnings
Recorded in
Other
Comprehensive
Income (Pre-tax)
Balance at
End of
Period
(in millions)
Realized
Unrealized
Sales
Settlements

Three Months Ended March 31, 2012
Investment securities available-for-sale:
State and municipal securities (a)
$
24

$
—

$
—

$
(1
)
(b)
$
—

$
—

$
23

Auction-rate debt securities
1

—

—

—

—

—

1

Auction-rate preferred securities
408

5

—

4

(b)
(97
)
—

320

Total investment securities available-for-sale
433

5

—

3

(b)
(97
)
—

344

Derivative assets:
Warrants
3

1

—

—

(1
)
—

3

Derivative liabilities:
Other
6

—

—

—

—

(6
)
—

Three Months Ended March 31, 2011
Trading securities:
Other securities
1

—

—

—

(1
)
—

—

Total trading securities
1

—

—

—

(1
)
—

—

Investment securities available-for-sale:
State and municipal securities (a)
39

—

—

—

(13
)
—

26

Auction-rate debt securities
1

—

—

—

—

—

1

Other corporate debt securities
1

—

—

—

—

—

1

Auction-rate preferred securities
570

3

—

(11
)
(b)
(58
)
—

504

Total investment securities available-for-sale
611

3

—

(11
)
(b)
(71
)
—

532

Derivative assets:
Warrants
7

2

1

—

(2
)
—

8

Derivative liabilities:
Other
1

—

(1
)
—

—

—

2

(a)
Primarily auction-rate securities.
(b)
Recorded in "net unrealized gains (losses) on investment securities available-for-sale" in other comprehensive income.

12

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

The following table presents the income statement classification of realized and unrealized gains and losses due to changes in fair value recorded in earnings for the three months ended March 31, 2012 and 2011 for recurring Level 3 assets and liabilities, as shown in the previous table.
Net Securities Gains (Losses)
Other Noninterest Income
Total
(in millions)
Realized
Unrealized
Realized
Unrealized
Realized
Unrealized
Three Months Ended March 31, 2012
Investment securities available-for-sale:
Auction-rate preferred securities
$
5

$
—

$
—

$
—

$
5

$
—

Derivative assets:
Warrants
—

—

1

—

1

—

Three Months Ended March 31, 2011
Investment securities available-for-sale:
Auction-rate preferred securities
3

—

—

—

3

—

Derivative assets:
Warrants
—

—

2

1

2

1

Derivative liabilities:
Other
—

(1
)
—

—

—

(1
)
ASSETS AND LIABILITIES RECORDED AT FAIR VALUE ON A NONRECURRING BASIS
The Corporation may be required, from time to time, to record certain assets and liabilities at fair value on a nonrecurring basis. These include assets that are recorded at the lower of cost or fair value that were recognized at fair value below cost at the end of the period. Assets recorded at fair value on a nonrecurring basis are presented in the following table. No liabilities were recorded at fair value on a nonrecurring basis at March 31, 2012 and December 31, 2011 .
(in millions)
Total
Level 3
March 31, 2012
Loans:
Commercial
$
133

$
133

Real estate construction
72

72

Commercial mortgage
288

288

Lease financing
3

3

International
4

4

Total loans
500

500

Nonmarketable equity securities
1

1

Other real estate
10

10

Loan servicing rights
3

3

Total assets at fair value
$
514

$
514

December 31, 2011
Loans:
Commercial
$
164

$
164

Real estate construction
87

87

Commercial mortgage
302

302

Lease financing
3

3

International
8

8

Total loans
564

564

Nonmarketable equity securities
1

1

Other real estate
29

29

Loan servicing rights
3

3

Total assets at fair value
$
597

$
597


13

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


The following table presents quantitative information related to the significant unobservable inputs utilized in the Corporation's Level 3 recurring fair value measurements as of March 31, 2012 . No liabilities were recorded as Level 3 at March 31, 2012 .
Discounted Cash Flow Model
Unobservable Input
March 31, 2012
Fair Value
(in millions)
Discount Rate
Workout Period (in years)
State and municipal securities (a)
$
23

5% - 10%
4 - 5
Equity and other non-debt securities:
Auction-rate preferred securities
320

3% - 7%
2 - 4
(a)
Primarily auction-rate securities.
Level 3 assets recorded at fair value on a nonrecurring basis at March 31, 2012 included loans for which a specific allowance was established based on the fair value of collateral and other real estate for which fair value of the properties was less than the cost basis. For both asset classes, the unobservable inputs were the additional adjustments applied by management to the appraised values to reflect such factors as non-current appraisals and revisions to estimated time to sell. These adjustments are determined based on qualitative judgments made by management on a case-by-case basis and are not quantifiable inputs, although they are used in the determination of fair value.
ESTIMATED FAIR VALUES OF FINANCIAL INSTRUMENTS NOT RECORDED AT FAIR VALUE ON A RECURRING BASIS
The Corporation typically holds the majority of its financial instruments until maturity and thus does not expect to realize many of the estimated fair value amounts disclosed. The disclosures also do not include estimated fair value amounts for items that are not defined as financial instruments, but which have significant value. These include such items as core deposit intangibles, the future earnings potential of significant customer relationships and the value of trust operations and other fee generating businesses. The Corporation believes the imprecision of an estimate could be significant.

14

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

The carrying amount and estimated fair value of financial instruments not recorded at fair value in their entirety on a recurring basis on the Corporation’s consolidated balance sheets are as follows:
Carrying
Amount
Estimated Fair Value
(in millions)
Total
Level 1
Level 2
Level 3
March 31, 2012
Assets
Cash and due from banks
$
984

$
984

$
984

$
—

$
—

Federal funds sold
10

10

10

—

—

Interest-bearing deposits with banks
2,966

2,966

2,966

—

—

Loans held-for-sale
32

32

—

32

—

Total loans, net of allowance for loan losses (a)
42,308

42,597

—

—

42,597

Customers’ liability on acceptances outstanding
17

17

17

—

—

Nonmarketable equity securities (b)
15

28

—

—

28

Liabilities
Demand deposits (noninterest-bearing)
20,741

20,741

—

20,741

—

Interest-bearing deposits
22,420

22,420

—

22,420

—

Customer certificates of deposit
6,145

6,144

—

6,144

—

Total deposits
49,306

49,305

—

49,305

—

Short-term borrowings
82

82

82

—

—

Acceptances outstanding
17

17

17

—

—

Medium- and long-term debt
4,919

4,805

—

4,805

—

Credit-related financial instruments
(97
)
(97
)
—

—

(97
)
December 31, 2011
Assets
Cash and due from banks
$
982

$
982

$
982

$
—

$
—

Interest-bearing deposits with banks
2,574

2,574

2,574

—

—

Loans held-for-sale
34

34

—

34

—

Total loans, net of allowance for loan losses (a)
41,953

42,233

—

—

42,233

Customers’ liability on acceptances outstanding
22

22

22

—

—

Nonmarketable equity securities (b)
16

27

—

—

27

Liabilities
Demand deposits (noninterest-bearing)
19,764

19,764

—

19,764

—

Interest-bearing deposits
22,183

22,183

—

22,183

—

Customer certificates of deposit
5,808

5,809

—

5,809

—

Total deposits
47,755

47,756

—

47,756

—

Short-term borrowings
70

70

70

—

—

Acceptances outstanding
22

22

22

—

—

Medium- and long-term debt
4,944

4,794

—

4,794

—

Credit-related financial instruments
(101
)
(101
)
—

—

(101
)
(a)
Included $500 million and $564 million of impaired loans recorded at fair value on a nonrecurring basis at March 31, 2012 and December 31, 2011 , respectively.
(b)
Included $1 million of nonmarketable equity securities recorded at fair value on a nonrecurring basis at both March 31, 2012 and December 31, 2011 .


15

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

NOTE 3 - INVESTMENT SECURITIES
A summary of the Corporation’s investment securities available-for-sale follows:
(in millions)
Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Fair Value
March 31, 2012
U.S. Treasury and other U.S. government agency securities
$
20

$
—

$
—

$
20

Residential mortgage-backed securities (a)
9,334

250

—

9,584

State and municipal securities (b)
29

—

6

23

Corporate debt securities:
Auction-rate debt securities
1

—

—

1

Other corporate debt securities
47

—

—

47

Equity and other non-debt securities:
Auction-rate preferred securities
331

—

11

320

Money market and other mutual funds
66

—

—

66

Total investment securities available-for-sale
$
9,828

$
250

$
17

$
10,061

December 31, 2011
U.S. Treasury and other U.S. government agency securities
$
20

$
—

$
—

$
20

Residential mortgage-backed securities (a)
9,289

224

1

9,512

State and municipal securities (b)
29

—

5

24

Corporate debt securities:
Auction-rate debt securities
1

—

—

1

Other corporate debt securities
46

—

—

46

Equity and other non-debt securities:
Auction-rate preferred securities
423

—

15

408

Money market and other mutual funds
93

—

—

93

Total investment securities available-for-sale
$
9,901

$
224

$
21

$
10,104

(a)
Residential mortgage-backed securities issued and/or guaranteed by U.S. government agencies or U.S. government-sponsored enterprises.
(b)
Primarily auction-rate securities.

16

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

A summary of the Corporation’s investment securities available-for-sale in an unrealized loss position as of March 31, 2012 and December 31, 2011 follows:
Temporarily Impaired
Less than 12 months
12 months or more
Total
(in millions)
Fair
Value
Unrealized
Losses
Fair
Value
Unrealized
Losses
Fair
Value
Unrealized
Losses
March 31, 2012
Residential mortgage-backed securities (a)
$
362

$
—

(c)
$
—

$
—

$
362

$
—

(c)
State and municipal securities (b)
—

—

23

6

23

6

Corporate debt securities:
Auction-rate debt securities
—

—

1

—

(c)
1

—

(c)
Equity and other non-debt securities:
Auction-rate preferred securities
88

—

(c)
232

11

320

11

Total impaired securities
$
450

$
—

$
256

$
17

$
706

$
17

December 31, 2011
Residential mortgage-backed securities (a)
$
249

$
1

$
—

$
—

$
249

$
1

State and municipal securities (b)
—

—

24

5

24

5

Corporate debt securities:
Auction-rate debt securities
—

—

1

—

(c)
1

—

(c)
Equity and other non-debt securities:
Auction-rate preferred securities
88

1

320

14

408

15

Total impaired securities
$
337

$
2

$
345

$
19

$
682

$
21

(a)
Residential mortgage-backed securities issued and/or guaranteed by U.S. government agencies or U.S. government-sponsored enterprises.
(b)
Primarily auction-rate securities.
(c)
Unrealized losses less than $0.5 million.
As of March 31, 2012 , 92 percent of the Corporation’s auction-rate portfolio was rated Aaa/AAA by the credit rating agencies.
At March 31, 2012 , the Corporation had 158 securities in an unrealized loss position with no credit impairment, including 121 auction-rate preferred securities, 24 state and municipal auction-rate securities, 12 residential mortgage-backed securities and one auction-rate debt security. The unrealized losses for these securities resulted from changes in market interest rates and liquidity. The Corporation ultimately expects full collection of the carrying amount of these securities, does not intend to sell the securities in an unrealized loss position, and it is not more-likely-than-not that the Corporation will be required to sell the securities in an unrealized loss position prior to recovery of amortized cost. The Corporation does not consider these securities to be other-than-temporarily impaired at March 31, 2012 .
Sales, calls and write-downs of investment securities available-for-sale resulted in the following gains and losses, recorded in “net securities gains” on the consolidated statements of comprehensive income, computed based on the adjusted cost of the specific security.
Three Months Ended March 31,
(in millions)
2012
2011
Securities gains
$
5

$
3

Securities losses (a)
—

(1
)
Total net securities gains
$
5

$
2

(a)    Primarily charges related to a derivative contract tied to the conversion rate of Visa Class B shares.

17

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

The following table summarizes the amortized cost and fair values of debt securities by contractual maturity. Securities with multiple maturity dates are classified in the period of final maturity. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.
March 31, 2012
(in millions)
Amortized Cost
Fair Value
Contractual maturity
Within one year
$
67

$
67

After one year through five years
239

248

After five years through ten years
139

140

After ten years
8,986

9,220

Subtotal
9,431

9,675

Equity and other nondebt securities:
Auction-rate preferred securities
331

320

Money market and other mutual funds
66

66

Total investment securities available-for-sale
$
9,828

$
10,061

Included in the contractual maturity distribution in the table above were auction-rate securities with a total amortized cost and fair value of $28 million and $23 million , respectively. Auction-rate securities are long-term, floating rate instruments for which interest rates are reset at periodic auctions. At each successful auction, the Corporation has the option to sell the security at par value. Additionally, the issuers of auction-rate securities generally have the right to redeem or refinance the debt. As a result, the expected life of auction-rate securities may differ significantly from the contractual life. Also included in the table above were residential mortgage-backed securities with a total amortized cost and fair value of $9.3 billion and $9.6 billion , respectively. The actual cash flows of mortgage-backed securities may differ from contractual maturity as the borrowers of the underlying loans may exercise prepayment options.
At March 31, 2012 , investment securities with a carrying value of $2.8 billion were pledged where permitted or required by law to secure $2.1 billion of liabilities, primarily public and other deposits of state and local government agencies and derivative instruments.
NOTE 4 – CREDIT QUALITY AND ALLOWANCE FOR CREDIT LOSSES
The following table summarizes nonperforming assets.
(in millions)
March 31, 2012
December 31, 2011
Nonaccrual loans
$
830

$
860

Reduced-rate loans (a)
26

27

Total nonperforming loans
856

887

Foreclosed property
67

94

Total nonperforming assets
$
923

$
981

(a)
Reduced-rate business loans totaled $7 million and $8 million , respectively, and reduced-rate retail loans totaled $19 million at both March 31, 2012 and December 31, 2011 .

18

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

The following table presents an aging analysis of the recorded balance of loans.
Loans Past Due and Still Accruing
(in millions)
30-59
Days
60-89
Days
90 Days
or More
Total
Nonaccrual
Loans
Current
Loans (c)
Total
Loans
March 31, 2012
Business loans:
Commercial
$
113

$
8

$
4

$
125

$
205

$
25,310

$
25,640

Real estate construction:
Commercial Real Estate business line (a)
54

—

—

54

77

924

1,055

Other business lines (b)
1

1

1

3

8

376

387

Total real estate construction
55

1

1

57

85

1,300

1,442

Commercial mortgage:
Commercial Real Estate business line (a)
21

15

7

43

174

2,284

2,501

Other business lines (b)
26

8

18

52

275

7,251

7,578

Total commercial mortgage
47

23

25

95

449

9,535

10,079

Lease financing
—

—

—

—

4

868

872

International
23

—

3

26

4

1,226

1,256

Total business loans
238

32

33

303

747

38,239

39,289

Retail loans:
Residential mortgage
18

7

8

33

69

1,383

1,485

Consumer:
Home equity
9

5

4

18

9

1,585

1,612

Other consumer
4

2

5

11

5

610

626

Total consumer
13

7

9

29

14

2,195

2,238

Total retail loans
31

14

17

62

83

3,578

3,723

Total loans
$
269

$
46

$
50

$
365

$
830

$
41,817

$
43,012

December 31, 2011
Business loans:
Commercial
$
45

$
6

$
8

$
59

$
237

$
24,700

$
24,996

Real estate construction:
Commercial Real Estate business line (a)
15

5

—

20

93

990

1,103

Other business lines (b)
1

1

1

3

8

419

430

Total real estate construction
16

6

1

23

101

1,409

1,533

Commercial mortgage:
Commercial Real Estate business line (a)
62

16

1

79

159

2,269

2,507

Other business lines (b)
34

22

31

87

268

7,402

7,757

Total commercial mortgage
96

38

32

166

427

9,671

10,264

Lease financing
—

—

—

—

5

900

905

International
2

—

—

2

8

1,160

1,170

Total business loans
159

50

41

250

778

37,840

38,868

Retail loans:
Residential mortgage
28

6

6

40

71

1,415

1,526

Consumer:
Home equity
11

8

6

25

5

1,625

1,655

Other consumer
11

2

5

18

6

606

630

Total consumer
22

10

11

43

11

2,231

2,285

Total retail loans
50

16

17

83

82

3,646

3,811

Total loans
$
209

$
66

$
58

$
333

$
860

$
41,486

$
42,679

(a)
Primarily loans to real estate investors and developers.
(b)
Primarily loans secured by owner-occupied real estate.
(c)
Included acquired purchase credit-impaired (PCI) loans with a total carrying value of $72 million and $87 million at March 31, 2012 and December 31, 2011 , respectively.

19

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

The following table presents loans by credit quality indicator, based on internal risk ratings assigned to each business loan at the time of approval and subjected to subsequent reviews, generally at least annually, and to pools of retail loans with similar risk characteristics.
Internally Assigned Rating
(in millions)
Pass (a)
Special
Mention (b)
Substandard (c)
Nonaccrual (d)
Total
March 31, 2012
Business loans:
Commercial
$
23,920

$
879

$
636

$
205

$
25,640

Real estate construction:
Commercial Real Estate business line (e)
766

117

95

77

1,055

Other business lines (f)
344

14

21

8

387

Total real estate construction
1,110

131

116

85

1,442

Commercial mortgage:
Commercial Real Estate business line (e)
1,751

391

185

174

2,501

Other business lines (f)
6,445

363

495

275

7,578

Total commercial mortgage
8,196

754

680

449

10,079

Lease financing
840

13

15

4

872

International
1,173

39

40

4

1,256

Total business loans
35,239

1,816

1,487

747

39,289

Retail loans:
Residential mortgage
1,390

13

13

69

1,485

Consumer:
Home equity
1,575

18

10

9

1,612

Other consumer
602

11

8

5

626

Total consumer
2,177

29

18

14

2,238

Total retail loans
3,567

42

31

83

3,723

Total loans
$
38,806

$
1,858

$
1,518

$
830

$
43,012

December 31, 2011
Business loans:
Commercial
$
23,206

$
898

$
655

$
237

$
24,996

Real estate construction:
Commercial Real Estate business line (e)
768

139

103

93

1,103

Other business lines (f)
370

23

29

8

430

Total real estate construction
1,138

162

132

101

1,533

Commercial mortgage:
Commercial Real Estate business line (e)
1,728

409

211

159

2,507

Other business lines (f)
6,541

415

533

268

7,757

Total commercial mortgage
8,269

824

744

427

10,264

Lease financing
865

18

17

5

905

International
1,097

33

32

8

1,170

Total business loans
34,575

1,935

1,580

778

38,868

Retail loans:
Residential mortgage
1,434

12

9

71

1,526

Consumer:
Home equity
1,600

22

28

5

1,655

Other consumer
603

12

9

6

630

Total consumer
2,203

34

37

11

2,285

Total retail loans
3,637

46

46

82

3,811

Total loans
$
38,212

$
1,981

$
1,626

$
860

$
42,679

(a)
Includes all loans not included in the categories of special mention, substandard or nonaccrual.
(b)
Special mention loans are accruing loans that have potential credit weaknesses that deserve management’s close attention, such as loans to borrowers who may be experiencing financial difficulties that may result in deterioration of repayment prospects from the borrower at some future date. Included in the special mention category were $409 million and $481 million at March 31, 2012 and December 31, 2011 , respectively, of loans proactively monitored by management that were considered “pass” by regulatory authorities.
(c)
Substandard loans are accruing loans that have a well-defined weakness, or weaknesses, such as loans to borrowers who may be experiencing losses from operations or inadequate liquidity of a degree and duration that jeopardizes the orderly repayment of the loan. Substandard loans also are distinguished by the distinct possibility of loss in the future if these weaknesses are not corrected. PCI loans are included in the substandard category. This category is generally consistent with the "substandard" category as defined by regulatory authorities.
(d)
Nonaccrual loans are loans for which the accrual of interest has been discontinued. For further information regarding nonaccrual loans, refer to the Nonperforming Assets subheading in Note 1 - Summary of Significant Accounting Policies - on page F-59 in the Corporation's 2011 Annual Report. A significant majority of nonaccrual loans are generally consistent with the "substandard" category and the remainder are generally consistent with the "doubtful" category as defined by regulatory authorities.
(e)
Primarily loans to real estate investors and developers.
(f)
Primarily loans secured by owner-occupied real estate.

20

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

Allowance for Credit Losses
The following table details the changes in the allowance for loan losses and related loan amounts.
2012
2011
(in millions)
Business Loans
Retail Loans
Total
Business Loans
Retail Loans
Total
Three Months Ended March 31
Allowance for loan losses:
Balance at beginning of period
$
648

$
78

$
726

$
824

$
77

$
901

Loan charge-offs
(55
)
(7
)
(62
)
(113
)
(10
)
(123
)
Recoveries on loans previously charged-off
14

3

17

21

1

22

Net loan charge-offs
(41
)
(4
)
(45
)
(92
)
(9
)
(101
)
Provision for loan losses
25

(2
)
23

39

10

49

Balance at end of period
$
632

$
72

$
704

$
771

$
78

$
849

As a percentage of total loans
1.61
%
1.94
%
1.64
%
2.18
%
2.02
%
2.17
%
March 31
Allowance for loan losses:
Individually evaluated for impairment
$
143

$
1

$
144

$
168

$
5

$
173

Collectively evaluated for impairment
489

71

560

603

73

676

Total allowance for loan losses
$
632

$
72

$
704

$
771

$
78

$
849

Loans:
Individually evaluated for impairment
$
702

$
50

$
752

$
854

$
46

$
900

Collectively evaluated for impairment
38,523

3,665

42,188

34,510

3,766

38,276

PCI loans (a)
64

8

72

—

—

—

Total loans evaluated for impairment
$
39,289

$
3,723

$
43,012

$
35,364

$
3,812

$
39,176

(a) No allowance for loan losses was required for PCI loans at March 31, 2012.
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.
Three Months Ended March 31,
(in millions)
2012
2011
Balance at beginning of period
$
26

$
35

Provision for credit losses on lending-related commitments
(1
)
(3
)
Balance at end of period
$
25

$
32

Unfunded lending-related commitments sold
$
—

$
2



21

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

Individually Evaluated Impaired Loans
The following table presents additional information regarding individually evaluated impaired loans.
Recorded Investment In:
(in millions)
Impaired
Loans with
No Related
Allowance
Impaired
Loans with
Related
Allowance
Total
Impaired
Loans
Unpaid
Principal
Balance
Related
Allowance
for Loan
Losses
March 31, 2012
Business loans:
Commercial
$
—

$
227

$
227

$
345

$
51

Real estate construction:
Commercial Real Estate business line (a)
—

68

68

101

10

Other business lines (b)
—

5

5

7

2

Total real estate construction
—

73

73

108

12

Commercial mortgage:
Commercial Real Estate business line (a)
3

175

178

240

36

Other business lines (b)
5

212

217

313

42

Total commercial mortgage
8

387

395

553

78

Lease financing
—

3

3

6

1

International
—

4

4

4

1

Total business loans
8

694

702

1,016

143

Retail loans:
Residential mortgage
16

26

42

45

1

Consumer:
Home equity
3

2

5

6

—

Other consumer
—

3

3

9

—

Total consumer
3

5

8

15

—

Total retail loans
19

31

50

60

1

Total individually evaluated impaired loans
$
27

$
725

$
752

$
1,076

$
144

December 31, 2011
Business loans:
Commercial
$
2

$
244

$
246

$
348

$
57

Real estate construction:
Commercial Real Estate business line (a)
—

102

102

146

18

Other business lines (b)
—

5

5

7

1

Total real estate construction
—

107

107

153

19

Commercial mortgage:
Commercial Real Estate business line (a)
—

148

148

198

34

Other business lines (b)
6

201

207

299

36

Total commercial mortgage
6

349

355

497

70

Lease financing
—

3

3

6

1

International
—

8

8

10

2

Total business loans
8

711

719

1,014

149

Retail loans:
Residential mortgage
16

30

46

51

3

Consumer:
Home equity
—

1

1

1

—

Other consumer
—

5

5

12

1

Total consumer
—

6

6

13

1

Total retail loans
16

36

52

64

4

Total individually evaluated impaired loans
$
24

$
747

$
771

$
1,078

$
153

(a)
Primarily loans to real estate investors and developers.
(b)
Primarily loans secured by owner-occupied real estate.

22

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

The following table presents information regarding average individually evaluated impaired loans and the related interest recognized. Interest income recognized for the period primarily related to reduced-rate loans.
2012
2011
(in millions)
Average Impaired Loans for the Period
Interest Income Recognized for the Period
Average Impaired Loans for the Period
Interest Income Recognized for the Period
Three Months Ended March 31
Business loans:
Commercial
$
236

$
1

$
231

$
1

Real estate construction:
Commercial Real Estate business line (a)
85

—

219

—

Other business lines (b)
5

—

—

—

Total real estate construction
90

—

219

—

Commercial mortgage:
Commercial Real Estate business line (a)
163

—

189

—

Other business lines (b)
212

1

241

1

Total commercial mortgage
375

1

430

1

Lease financing
3

—

7

—

International
6

—

3

—

Total business loans
710

2

890

2

Retail loans:
Residential mortgage
44

—

39

—

Consumer loans:
Home equity
3

—

—

—

Other consumer
4

—

8

—

Total consumer
7

—

8

—

Total retail loans
51

—

47

—

Total individually evaluated impaired loans
$
761

$
2

$
937

$
2

(a)
Primarily loans to real estate investors and developers.
(b)
Primarily loans secured by owner-occupied real estate.

23

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

Troubled Debt Restructurings (TDRs)
The following tables detail the recorded balance at March 31, 2012 and 2011 of loans considered to be TDRs that were restructured during the three months ended March 31, 2012 and 2011, by type of modification. In cases of loans with more than one type of modification, the loans were categorized based on the most significant modification.
Type of Modification
(in millions)
Principal Deferrals (a)
Interest Rate Reductions
AB Note Restructures (b)
Total Modifications
Three Months Ended March 31, 2012
Business loans:
Commercial
$
21

$
—

$
—

$
21

Commercial mortgage:
Commercial Real Estate business line (c)
24

—

6

30

Other business lines (d)
9

—

—

9

Total commercial mortgage
33

—

6

39

Total business loans
54

—

6

60

Total loans
$
54

$
—

$
6

$
60

Three Months Ended March 31, 2011
Business loans:
Commercial
$
32

$
8

$
—

$
40

Commercial mortgage:
Other business lines (d)
14

5

—

19

Total commercial mortgage
14

5

—

19

Total business loans
46

13

—

59

Retail loans:
Residential mortgage
—

2

—

2

Total retail loans
—

2

—

2

Total loans
$
46

$
15

$
—

$
61

(a)
Primarily represents loan balances where terms were extended 90 days or more at or above contractual interest rates.
(b)
Loan restructurings whereby the original loan is restructured into two notes: an "A" note, which generally reflects the portion of the modified loan which is expected to be collected; and a "B" note, which is either fully charged off or exchanged for an equity interest.
(c)
Primarily loans to real estate investors and developers.
(d)
Primarily loans secured by owner-occupied real estate.
At March 31, 2012 and December 31, 2011 , commitments to lend additional funds to borrowers whose terms have been modified in TDRs totaled $11 million and $13 million , respectively.
The majority of the modifications considered to be TDRs that occurred during the three-month period ended March 31, 2012 were principal deferrals. The Corporation charges interest on principal balances outstanding during deferral periods. Additionally, none of the modifications involved forgiveness of principal. As a result, the current and future financial effects of the recorded balance of loans considered to be TDRs that were restructured during the three-month period ended March 31, 2012 were insignificant.
On an ongoing basis, the Corporation monitors the performance of modified loans to their restructured terms. For reduced-rate loans and AB Note restructures, a subsequent payment default is defined in terms of delinquency, when a principal or interest payment is 90 days past due. During the twelve-month period from April 1, 2011 to March 31, 2012 , loans with a carrying value of $32 million at March 31, 2012 had been modified by reducing the rate on the loans. Of these modifications, $7 million , primarily consisting of commercial mortgage loans included in other business lines and residential mortgage loans, subsequently defaulted during the same twelve-month period. During the twelve-month period from April 1, 2011 to March 31, 2012 , loans with a carrying value of $33 million at March 31, 2012 had been restructured into two notes. Of these modifications, $2 million of commercial loans subsequently defaulted during the same twelve-month period. For principal deferrals, incremental deterioration in the credit quality of the loan, represented by a downgrade in the risk rating of the loan, for example, due to missed interest payments or a reduction of collateral value, is considered a subsequent default. During the twelve-month period from April 1, 2011 to March 31, 2012 , loans with a carrying value of $187 million at March 31, 2012 had been modified by principal deferral. Of these principal deferral modifications, $91 million , primarily consisting of commercial loans and commercial mortgage loans included in the

24

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

Commercial Real Estate and other business lines, subsequently experienced a change in the risk rating such that the loans are currently included in non-performing loans. In the event of a subsequent default, the allowance for loan losses continues to be reassessed on the basis of an individual evaluation of the loan.
Purchased Credit-Impaired (PCI) Loans
In connection with the acquisition of Sterling Bancshares, Inc. (Sterling) on July 28, 2011, the Corporation acquired loans both with and without evidence of credit quality deterioration since origination. The acquired loans were initially recorded at fair value with no carryover of any allowance for loan losses.
Loans acquired with evidence of credit quality deterioration at acquisition for which it was probable that the Corporation would not be able to collect all contractual amounts due were accounted for as PCI. The Corporation aggregated the acquired PCI loans into pools of loans based on common risk characteristics.
The carrying amount of acquired PCI loans included in the consolidated balance sheet and the related outstanding balance at March 31, 2012 and December 31, 2011 were as follows. The outstanding balance represents the total amount owed as of March 31, 2012 and December 31, 2011 , including accrued but unpaid interest and any amounts previously charged off. No allowance for loan losses was required on the acquired PCI loan pools at both March 31, 2012 and December 31, 2011 .
(in millions)
March 31, 2012
December 31, 2011
Acquired PCI loans:
Carrying amount
$
72

$
87

Outstanding balance
210

234

Changes in the accretable yield for acquired PCI loans for the three months ended March 31, 2012 were as follows.
(in millions)
Three Months Ended March 31, 2012
Balance at December 31, 2011
$
25

Accretion
(5
)
Balance at March 31, 2012
$
20

NOTE 5 - GOODWILL
The Corporation performs its annual evaluation of goodwill impairment in the third quarter of each year and on an interim basis if events or changes in circumstances between annual tests indicate goodwill might be impaired.
In January 2012, the Federal Reserve announced their expectation for the Federal Funds target rate to remain at currently low levels through 2014. Given the potential for a continued low interest rate environment, the Corporation determined that an additional interim goodwill impairment test should be performed in the first quarter 2012.
At the conclusion of the first step of the interim goodwill impairment tests performed in the first quarter 2012, the estimated fair values of all reporting units exceeded their carrying amounts, including goodwill.
NOTE 6 - DERIVATIVE AND CREDIT-RELATED FINANCIAL INSTRUMENTS
In the normal course of business, the Corporation enters into various transactions involving derivative and credit-related financial instruments to manage exposure to fluctuations in interest rate, foreign currency and other market risks and to meet the financing needs of customers (customer-initiated derivatives). These financial instruments involve, to varying degrees, elements of market and credit risk. Derivatives are carried at fair value in the consolidated financial statements. Market and credit risk are included in the determination of fair value.
Market risk is the potential loss that may result from movements in interest rates, foreign currency exchange rates or energy commodity prices that cause an unfavorable change in the value of a financial instrument. The Corporation manages this risk by establishing monetary exposure limits and monitoring compliance with those limits. Market risk inherent in interest rate and energy contracts entered into on behalf of customers is mitigated by taking offsetting positions, except in those circumstances when the amount, tenor and/or contract rate level results in negligible economic risk, whereby the cost of purchasing an offsetting contract is not economically justifiable. The Corporation mitigates most of the inherent market risk in foreign exchange contracts entered into on behalf of customers 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. Market risk inherent

25

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

in derivative instruments held or issued for risk management purposes is typically offset by changes in the fair value of the assets or liabilities being hedged.
Credit risk is the possible loss that may occur in the event of nonperformance by the counterparty to a financial instrument. The Corporation attempts to minimize credit risk arising from customer-initiated derivatives by evaluating the creditworthiness of each customer, adhering to the same credit approval process used for traditional lending activities and obtaining collateral as deemed necessary. For derivatives with dealer counterparties, the Corporation utilizes counterparty risk limits and monitoring procedures as well as master netting arrangements and bilateral collateral agreements to facilitate the management of credit risk. Master netting arrangements effectively reduce credit risk by permitting settlement, on a net basis, of contracts entered into with the same counterparty. Bilateral collateral agreements require daily exchange of cash or highly rated securities issued by the U.S. Treasury or other U.S. government entities to collateralize amounts due to either party beyond certain risk limits. At March 31, 2012 , counterparties had pledged marketable investment securities to secure 89 percent of the fair value of contracts with bilateral collateral agreements in an unrealized gain position. For those counterparties not covered under bilateral collateral agreements, collateral is obtained, if deemed necessary, based on the results of management’s credit evaluation of the counterparty. Collateral varies, but may include cash, investment securities, accounts receivable, equipment or real estate. Included in the fair value of derivative instruments are credit valuation adjustments reflecting counterparty credit risk. These adjustments are determined by applying a credit spread for the counterparty or the Corporation, as appropriate, to the total expected exposure of the derivative.
The aggregate fair value of all derivative instruments with credit-risk-related contingent features that were in a liability position on March 31, 2012 was $82 million , for which the Corporation had pledged collateral of $67 million in the normal course of business. The credit-risk-related contingent features require the Corporation’s debt to maintain an investment grade credit rating from each of the major credit rating agencies. If the Corporation’s debt were to fall below investment grade, the counterparties to the derivative instruments could require additional overnight collateral on derivative instruments in net liability positions. If the credit-risk-related contingent features underlying these agreements had been triggered on March 31, 2012 , the Corporation would have been required to assign an additional $15 million of collateral to its counterparties.
Derivative Instruments
Derivative instruments utilized by the Corporation are negotiated over-the-counter and primarily include swaps, caps and floors, forward contracts and options, each of which may relate to interest rates, energy commodity prices or foreign currency exchange rates. Swaps are agreements in which two parties periodically exchange cash payments based on specified indices applied to a specified notional amount until a stated maturity. Caps and floors are agreements which entitle the buyer to receive cash payments based on the difference between a specified reference rate or price and an agreed strike rate or price, applied to a specified notional amount until a stated maturity. Forward contracts are over-the-counter agreements to buy or sell an asset at a specified future date and price. Options are similar to forward contracts except the purchaser has the right, but not the obligation, to buy or sell the asset during a specified period or at a specified future date.
Over-the-counter contracts are tailored to meet the needs of the counterparties involved and, therefore, contain a greater degree of credit risk and liquidity risk than exchange-traded contracts, which have standardized terms and readily available price information. The Corporation reduces exposure to market and liquidity risks from over-the-counter derivative instruments entered into for risk management purposes, and transactions entered into to mitigate the market risk associated with customer-initiated transactions, by conducting hedging transactions with investment grade domestic and foreign financial institutions and subjecting counterparties to credit approvals, limits and collateral monitoring procedures similar to those used in making other extensions of credit.

26

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

The following table presents the composition of the Corporation’s derivative instruments held or issued for risk management purposes or in connection with customer-initiated and other activities at March 31, 2012 and December 31, 2011 . The table excludes commitments, warrants accounted for as derivatives and a derivative related to the Corporation’s 2008 sale of its remaining ownership of Visa shares.
March 31, 2012
December 31, 2011
Fair Value (a)
Fair Value (a)
(in millions)
Notional/
Contract
Amount (b)
Asset
Derivatives
Liability
Derivatives
Notional/
Contract
Amount (b)
Asset
Derivatives
Liability
Derivatives
Risk management purposes
Derivatives designated as hedging instruments
Interest rate contracts:
Swaps - fair value - receive fixed/pay floating
$
1,450

$
299

$
—

$
1,450

$
317

$
—

Derivatives used as economic hedges
Foreign exchange contracts:
Spot, forwards and swaps
301

1

—

229

1

1

Total risk management purposes
$
1,751

$
300

$
—

$
1,679

$
318

$
1

Customer-initiated and other activities
Interest rate contracts:
Caps and floors written
$
399

$
—

$
3

$
421

$
—

$
3

Caps and floors purchased
399

3

—

421

3

—

Swaps
10,204

262

232

9,699

282

250

Total interest rate contracts
11,002

265

235

10,541

285

253

Energy contracts:
Caps and floors written
1,563

—

108

1,141

—

86

Caps and floors purchased
1,563

108

—

1,141

86

—

Swaps
893

44

43

379

29

29

Total energy contracts
4,019

152

151

2,661

115

115

Foreign exchange contracts:
Spot, forwards, options and swaps
2,547

32

28

2,842

39

34

Total customer-initiated and other activities
$
17,568

$
449

$
414

$
16,044

$
439

$
402

Total derivatives
$
19,319

$
749

$
414

$
17,723

$
757

$
403

(a)
Asset derivatives are included in “accrued income and other assets” and liability derivatives are included in “accrued expenses and other liabilities” on the consolidated balance sheets. Included in the fair value of derivative assets and liabilities are credit valuation adjustments reflecting counterparty credit risk and credit risk of the Corporation. The fair value of derivative assets included credit valuation adjustments for counterparty credit risk totaling $6 million and $4 million at March 31, 2012 and December 31, 2011 , respectively.
(b)
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.
Risk Management
As an end-user, the Corporation employs a variety of financial instruments for risk management purposes, including cash instruments, such as investment securities, as well as derivative instruments. Activity related to these instruments is centered predominantly in the interest rate markets and mainly involves interest rate swaps. Various other types of instruments also may be used to manage exposures to market risks, including interest rate caps and floors, total return swaps, foreign exchange forward contracts and foreign exchange swap agreements.
As part of a fair value hedging strategy, the Corporation entered into interest rate swap agreements for interest rate risk management purposes. These interest rate swap agreements effectively modify the Corporation’s exposure to interest rate risk by converting fixed-rate 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.
Risk management fair value interest rate swaps generated net interest income of $17 million and $18 million for the three-month periods ended March 31, 2012 and 2011 , respectively.

27

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

The net gains (losses) recognized in "other noninterest income" (i.e., the ineffective portion) in the consolidated statements of comprehensive income on risk management derivative instruments designated as fair value hedges of fixed-rate debt were as follows.
Three Months Ended March 31,
(in millions)
2012
2011
Interest rate swaps
$
—

$
1

As of and for the three-month period ended March 31, 2012 the Corporation had no interest rate swap agreements designated as cash flow hedges of loans. In the first quarter 2011, the remaining interest rate swap agreements outstanding matured. The net gains (losses) recognized in income and OCI on risk management derivatives designated as cash flow hedges of loans for the three-month period ended March 31, 2011 are displayed in the table below.
(in millions)
Three Months Ended March 31, 2011
Interest rate swaps
Gain recognized in OCI (effective portion)
$
(2
)
Gain recognized in other noninterest income (ineffective portion)
1

Gain reclassified from accumulated OCI into interest and fees on loans (effective portion)
1

Foreign exchange rate risk arises from changes in the value of certain assets and liabilities denominated in foreign currencies. The Corporation employs spot and forward contracts in addition to swap contracts to manage exposure to these and other risks.
The Corporation recognized an insignificant amount of net gains (losses) on risk management derivative instruments used as economic hedges in "other noninterest income" in the consolidated statements of comprehensive income for both the three-month periods ended March 31, 2012 and 2011 .
The following table summarizes the expected weighted average remaining maturity of the notional amount of risk management interest rate swaps and the weighted average interest rates associated with amounts expected to be received or paid on interest rate swap agreements as of March 31, 2012 and December 31, 2011 .
Weighted Average
(dollar amounts in millions)
Notional
Amount
Remaining
Maturity
(in years)
Receive Rate
Pay Rate (a)
March 31, 2012
Swaps - fair value - receive fixed/pay floating rate
Medium- and long-term debt designation
$
1,450

5.2

5.45
%
0.72
%
December 31, 2011
Swaps - fair value - receive fixed/pay floating rate
Medium- and long-term debt designation
1,450

5.4

5.45
%
0.60
%
(a)
Variable rates paid on receive fixed swaps are based on prime and six-month LIBOR rates in effect at March 31, 2012 and December 31, 2011 .
Management believes these hedging strategies achieve the desired relationship between the rate maturities of assets and funding sources which, in turn, reduce the overall exposure of net interest income to interest rate risk, although there can be no assurance that such strategies will be successful.
Customer-Initiated and Other
The Corporation enters into derivative transactions at the request of customers and generally takes offsetting positions with dealer counterparties to mitigate the inherent market risk. Income primarily results from the spread between the customer derivative and the offsetting dealer position.
For customer-initiated foreign exchange contracts where offsetting positions have not been taken, the Corporation manages the remaining inherent market risk 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

28

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

where the Corporation holds a speculative position within the limits described above, the Corporation recognized an insignificant amount of net gains in “other noninterest income” in the consolidated statements of comprehensive income in both the three-month periods ended March 31, 2012 and 2011 .
Fair values of 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 statements of comprehensive income. The net gains recognized in income on customer-initiated derivative instruments, net of the impact of offsetting positions, were as follows.
Three Months Ended March 31,
(in millions)
Location of Gain
2012
2011
Interest rate contracts
Other noninterest income
$
2

$
6

Energy contracts
Other noninterest income
1

—

Foreign exchange contracts
Foreign exchange income
9

8

Total
$
12

$
14

Additional information regarding the nature, terms and associated risks of derivative instruments can be found in the Corporation's 2011 Annual Report on page F-38 and F-39 and in Notes 1 and 9 to the consolidated financial statements.
Credit-Related Financial Instruments
The Corporation issues off-balance sheet financial instruments in connection with commercial and consumer lending activities. The Corporation’s credit risk associated with these instruments is represented by the contractual amounts indicated in the following table.
(in millions)
March 31, 2012
December 31, 2011
Unused commitments to extend credit:
Commercial and other
$
26,016

$
24,819

Bankcard, revolving check credit and home equity loan commitments
1,636

1,612

Total unused commitments to extend credit
$
27,652

$
26,431

Standby letters of credit
$
5,246

$
5,325

Commercial letters of credit
122

132

Other credit-related financial instruments
—

6

The Corporation 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. At March 31, 2012 and December 31, 2011 , the allowance for credit losses on lending-related commitments, included in “accrued expenses and other liabilities” on the consolidated balance sheets, was $25 million and $26 million , respectively. The Corporation recorded a purchase discount for lending-related commitments acquired from Sterling on July 28, 2011 . An allowance for credit losses will be recorded on Sterling lending-related commitments only to the extent that the required allowance exceeds the remaining purchase discount. At both March 31, 2012 and December 31, 2011 , no allowance was recorded for Sterling lending-related commitments and $3 million of purchase discount remained.
Unused Commitments to Extend Credit
Commitments to extend credit are legally binding agreements to lend to a customer, provided there is no violation of any condition established in the contract. These commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many commitments expire without being drawn upon, the total contractual amount of commitments does not necessarily represent future cash requirements of the Corporation. Commercial and other unused commitments are primarily variable rate commitments. The allowance for credit losses on lending-related commitments included $8 million and $9 million at March 31, 2012 and December 31, 2011 , respectively, for probable credit losses inherent in the Corporation’s unused commitments to extend credit.
Standby and Commercial Letters of Credit
Standby letters of credit represent conditional obligations of the Corporation which guarantee the performance of a customer to a third party. Standby letters of credit are primarily issued to support public and private borrowing arrangements, including commercial paper, bond financing and similar transactions. Commercial letters of credit are issued to finance foreign

29

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

or domestic trade transactions. These contracts expire in decreasing amounts through the year 2021 . The Corporation may enter into participation arrangements with third parties that effectively reduce the maximum amount of future payments which may be required under standby and commercial letters of credit. These risk participations covered $292 million and $271 million , respectively, of the $5.4 billion and $5.5 billion standby and commercial letters of credit outstanding at March 31, 2012 and December 31, 2011 , respectively.
The carrying value of the Corporation’s standby and commercial letters of credit, included in “accrued expenses and other liabilities” on the consolidated balance sheets, totaled $86 million at March 31, 2012 , including $69 million in deferred fees and $17 million in the allowance for credit losses on lending-related commitments. At December 31, 2011 , the comparable amounts were $89 million , $72 million and $17 million , respectively.
The following table presents a summary of internally classified watch list standby and commercial letters of credit at March 31, 2012 and December 31, 2011 . The Corporation's internal watch list is generally consistent with the Special mention, Substandard and Doubtful categories defined by regulatory authorities. The Corporation manages credit risk through underwriting, periodically reviewing and approving its credit exposures using Board committee approved credit policies and guidelines.
(dollar amounts in millions)
March 31, 2012
December 31, 2011
Total watch list standby and commercial letters of credit
$
200

$
195

As a percentage of total outstanding standby and commercial letters of credit
3.7
%
3.6
%
Other Credit-Related Financial Instruments
The Corporation enters into credit risk participation agreements, under which the Corporation assumes credit exposure associated with a borrower’s performance related to certain interest rate derivative contracts. The Corporation is not a party to the interest rate derivative contracts and only enters into these credit risk participation agreements in instances in which the Corporation is also a party to the related loan participation agreement for such borrowers. The Corporation manages its credit risk on the credit risk participation agreements by monitoring the creditworthiness of the borrowers, which is based on the normal credit review process had it entered into the derivative instruments directly with the borrower. The notional amount of such credit risk participation agreement reflects the pro-rata share of the derivative instrument, consistent with its share of the related participated loan. As of March 31, 2012 and December 31, 2011 , the total notional amount of the credit risk participation agreements was approximately $439 million and $394 million , respectively, and the fair value, included in customer-initiated interest rate contracts recorded in "accrued expenses and other liabilities" on the consolidated balance sheets, was insignificant for each period. The maximum estimated exposure to these agreements, as measured by projecting a maximum value of the guaranteed derivative instruments, assuming 100 percent default by all obligors on the maximum values, was approximately $12 million at both March 31, 2012 and December 31, 2011 , respectively. In the event of default, the lead bank has the ability to liquidate the assets of the borrower, in which case the lead bank would be required to return a percentage of the recouped assets to the participating banks. As of March 31, 2012 , the weighted average remaining maturity of outstanding credit risk participation agreements was 2.5 years.
In 2008, the Corporation sold its remaining ownership of Visa Class B shares and entered into a derivative contract. Under the terms of the derivative contract, the Corporation will compensate the counterparty primarily for dilutive adjustments made to the conversion factor of the Visa Class B shares to Class A shares based on the ultimate outcome of litigation involving Visa. Conversely, the Corporation will be compensated by the counterparty for any increase in the conversion factor from anti-dilutive adjustments. The notional amount of the derivative contract was equivalent to approximately 780,000 Visa Class B shares. The fair value of the derivative liability, included in "accrued expenses and other liabilities" on the consolidated balance sheets, was insignificant at March 31, 2012 and $6 million at December 31, 2011 , respectively.
NOTE 7 - VARIABLE INTEREST ENTITIES (VIEs)
The Corporation evaluates its interest in certain entities to determine if these entities meet the definition of a VIE and whether the Corporation is the primary beneficiary and should consolidate the entity based on the variable interests it held both at inception and when there is a change in circumstances that requires a reconsideration. The following provides a summary of the VIEs in which the Corporation has an interest.
The Corporation has a limited partnership interest in 157 low income housing tax credit/historic rehabilitation tax credit partnerships. These entities meet the definition of a VIE; however, the Corporation is not the primary beneficiary of the entities, as the general partner has both the power to direct the activities that most significantly impact the economic performance of the entities and the obligation to absorb losses or the right to receive benefits that could be significant to the entities. While the partnership agreements allow the limited partners, through a majority vote, to remove the general partner, this right is not deemed to be substantive as the general partner can only be removed for cause.

30

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

The Corporation accounts for its interest in these partnerships on either the cost or equity method. Exposure to loss as a result of the Corporation’s involvement with these entities at March 31, 2012 was limited to approximately $351 million , which reflected the book basis of the Corporation's investment and unfunded commitments for future investments.
As a limited partner, the Corporation obtains income tax credits and deductions from the operating losses of these low income housing tax credit/historic rehabilitation tax credit partnerships, which are recorded as a reduction of income tax expense (or an increase to income tax benefit) and a reduction of federal income taxes payable. These income tax credits and deductions are allocated to the funds’ investors based on their ownership percentages. Investment balances, including all legally binding commitments to fund future investments, are included in “accrued income and other assets” on the consolidated balance sheets, with amortization and other write-downs of investments recorded in “other noninterest income” on the consolidated statements of comprehensive income. In addition, a liability is recognized in “accrued expenses and other liabilities” on the consolidated balance sheets for all legally binding unfunded commitments to fund low income housing partnerships ( $98 million at March 31, 2012 ).
The Corporation provided no financial or other support that was not contractually required to any of the above VIEs during the three-month periods ended March 31, 2012 and 2011 .
The following table summarizes the impact of these VIEs on line items on the Corporation’s consolidated statements of comprehensive income.
Three Months Ended March 31,
(in millions)
2012
2011
Other noninterest income
$
(14
)
$
(13
)
Provision (benefit) for income taxes (a)
(14
)
(13
)
(a)
Income tax credits from low income housing tax credit/historic rehabilitation tax credit partnerships.
For further information on the Corporation’s consolidation policy, see Note 1 to the consolidated financial statements in the Corporation's 2011 Annual Report.


31

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

NOTE 8 - MEDIUM- AND LONG-TERM DEBT
Medium- and long-term debt is summarized as follows:
(in millions)
March 31, 2012
December 31, 2011
Parent company
Subordinated notes:
4.80% subordinated notes due 2015
$
336

$
338

Floating-rate subordinated notes related to trust preferred securities due 2012
26

30

Total subordinated notes
362

368

Medium-term notes:
3.00% notes due 2015
298

298

Total parent company
660

666

Subsidiaries
Subordinated notes:
7.375% subordinated notes due 2013
53

53

5.70% subordinated notes due 2014
274

276

5.75% subordinated notes due 2016
695

699

5.20% subordinated notes due 2017
590

595

Floating-rate based on LIBOR index subordinated notes due 2018
26

26

8.375% subordinated notes due 2024
189

189

7.875% subordinated notes due 2026
235

243

Total subordinated notes
2,062

2,081

Medium-term notes:
Floating-rate based on LIBOR indices due 2012
158

158

Federal Home Loan Bank advances:
Floating-rate based on LIBOR indices due 2013 to 2014
2,000

2,000

Other notes:
6.0% - 6.4% fixed-rate notes due 2020
39

39

Total subsidiaries
4,259

4,278

Total medium- and long-term debt
$
4,919

$
4,944

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.
Subordinated notes with remaining maturities greater than one year qualify as Tier 2 capital.
On July 28, 2011 , the Corporation assumed $83 million of subordinated notes from Sterling related to trust preferred securities issued by unconsolidated subsidiaries. At December 31, 2011 , $30 million of the subordinated notes remained. On January 7, 2012 , the Corporation fully redeemed $4 million of floating rate subordinated notes, and the related trust preferred securities, with an original maturity date of July 7, 2033 . Further, on April 24, 2012, the Corporation announced its intention to redeem the remaining $26 million of floating rate subordinated notes, with an original maturity of June 15, 2037 , and the related trust preferred securities, effective June 15, 2012 .
Comerica Bank (the Bank), a subsidiary of the Corporation, is a member of the FHLB, which provides short- and long-term funding collateralized by mortgage-related assets to its members. FHLB advances bear interest at variable rates based on LIBOR and were secured by a blanket lien on $15 billion of real estate-related loans at March 31, 2012 .


32

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

NOTE 9 - ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
The following table presents reconciliations of the components of accumulated other comprehensive income (loss) for the three-month periods ended March 31, 2012 and 2011 .
Three Months Ended March 31,
(in millions)
2012
2011
Accumulated net unrealized gains on investment securities available-for-sale:
Balance at beginning of period, net of tax
$
129

$
14

Net unrealized holding gains (losses) arising during the period
35

(2
)
Less: Reclassification adjustment for net gains included in net income
5

3

Change in net unrealized gains before income taxes
30

(5
)
Less: Provision (benefit) for income taxes
11

(1
)
Change in net unrealized gains on investment securities available-for-sale, net of tax
19

(4
)
Balance at end of period, net of tax
$
148

$
10

Accumulated net gains on cash flow hedges:
Balance at beginning of period, net of tax
$
—

$
2

Net cash flow hedge losses arising during the period
—

(2
)
Less: Reclassification adjustment for net gains included in net income
—

1

Change in net cash flow hedge gains (losses) before income taxes
—

(3
)
Less: Provision (benefit) for income taxes
—

(1
)
Change in net cash flow hedge gains, net of tax
—

(2
)
Balance at end of period, net of tax
$
—

$
—

Accumulated defined benefit pension and other postretirement plans adjustment:
Balance at beginning of period, net of tax
$
(485
)
$
(405
)
Net defined benefit pension and other postretirement adjustment arising during the period
—

8

Less: Adjustment for amounts recognized as components of net periodic benefit cost during the period
(17
)
(12
)
Change in defined benefit pension and other postretirement plans adjustment before income taxes
17

20

Less: Provision for income taxes
6

7

Change in defined benefit pension and other postretirement plans adjustment, net of tax
11

13

Balance at end of period, net of tax
$
(474
)
$
(392
)
Total accumulated other comprehensive loss at end of period, net of tax
$
(326
)
$
(382
)


33

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

NOTE 10 - NET INCOME PER COMMON SHARE
Basic and diluted net income per common share is presented in the following table.
Three Months Ended March 31,
(in millions, except per share data)
2012
2011
Basic and diluted
Net income
$
130

$
103

Less:
Income allocated to participating securities
1

1

Net income attributable to common shares
$
129

$
102

Basic average common shares
195

175

Basic net income per common share
$
0.66

$
0.58

Basic average common shares
195

175

Dilutive common stock equivalents:
Net effect of the assumed exercise of stock options
1

1

Net effect of the assumed exercise of warrants
—

2

Diluted average common shares
196

178

Diluted net income per common share
$
0.66

$
0.57

The following average shares related to outstanding options and warrants to purchase shares of common stock were not included in the computation of diluted net income per common share because the prices of the options and warrants were greater than the average market price of common shares for the period.
Three Months Ended March 31,
(shares in millions)
2012
2011
Average outstanding options
17.6
15.5
Range of exercise prices
$30.77 - $64.50
$39.10 - $64.50
Average outstanding warrants
0.6
Exercise price
$30.36
NOTE 11 - EMPLOYEE BENEFIT PLANS
Net periodic benefit costs are charged to "employee benefits expense" on the consolidated statements of comprehensive 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)
2012
2011
Service cost
$
8

$
8

Interest cost
19

19

Expected return on plan assets
(28
)
(29
)
Amortization of prior service cost
1

1

Amortization of net loss
13

9

Net periodic defined benefit cost
$
13

$
8

Non-Qualified Defined Benefit Pension Plan
Three Months Ended March 31,
(in millions)
2012
2011
Service cost
$
1

$
1

Interest cost
2

2

Amortization of net loss
2

1

Net periodic defined benefit cost
$
5

$
4

(Table continues on following page).

34

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

Postretirement Benefit Plan
Three Months Ended March 31,
(in millions)
2012
2011
Interest cost
$
1

$
1

Expected return on plan assets
(1
)
(1
)
Amortization of transition obligation
1

1

Net periodic postretirement benefit cost
$
1

$
1

For further information on the Corporation's employee benefit plans, refer to Note 18 to the consolidated financial statements in the Corporation's 2011 Annual Report.
NOTE 12 - INCOME TAXES AND TAX-RELATED ITEMS
The provision for federal income taxes is computed by applying the statutory federal income tax rate 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. Tax-related interest and penalties, state taxes and foreign taxes are then added to the federal tax provision.
At March 31, 2012 , net unrecognized tax benefits were $21 million , compared to $9 million at March 31, 2011 . The increase in unrecognized tax benefits of $12 million from March 31, 2011 to March 31, 2012 was primarily the result of the recognition of a settlement agreement with the Internal Revenue Service (IRS) regarding the repatriation of foreign earnings on a structured investment transaction and the recognition of other federal and state settlements. The Corporation anticipates that it is reasonably possible that final settlement of federal and state tax issues will result in a decrease of net unrecognized tax benefits of $21 million within the next twelve months. At March 31, 2012, the Corporation had no investment structures with uncertain tax positions. Included in "accrued expense and other liabilities" on the consolidated balance sheets was a $7 million receivable for tax-related interest at March 31, 2012 compared to a $7 million liability for tax-related interest and penalties at March 31, 2011 . The $14 million decrease in accrued interest payable from March 31, 2011 to March 31, 2012 was primarily the result of the aforementioned settlements with tax authorities.
In the ordinary course of business, the Corporation enters into certain transactions that have tax consequences. From time to time, the Internal Revenue Service may review and/or challenge specific interpretive tax positions taken by the Corporation with respect to those transactions. 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 IRS, an administrative authority or a court, if presented with the transactions, could disagree with the Corporation’s interpretation of the tax law.
Based on current knowledge and probability assessment of various potential outcomes, the Corporation believes that current tax reserves are adequate, and the amount of any potential incremental liability arising 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.
NOTE 13 - 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. The Corporation believes it has meritorious defenses to the claims asserted against it in its currently outstanding legal proceedings and, with respect to such legal proceedings, intends to continue to defend itself vigorously, litigating or settling cases according to management’s judgment as to what is in the best interests of the Corporation and its shareholders. Settlement may result from the Corporation's determination that it may be more prudent financially to settle, rather than litigate, and should not be regarded as an admission of liability. On at least a quarterly basis, the Corporation assesses its liabilities and contingencies in connection with outstanding legal proceedings utilizing the latest information available. On a case-by-case basis, reserves are established for those legal claims for which it is probable that a loss will be incurred either as a result of a settlement or judgment, and the amount of such loss can be reasonably estimated. The actual costs of resolving these claims may be substantially higher or lower than the amounts reserved. Litigation-related expense of $11 million and $1 million and legal fees of $9 million each period were included in “other noninterest expenses” on the consolidated statements of comprehensive income for the three-month periods ended March 31, 2012 and 2011 , respectively. Based on current knowledge, and after consultation with legal counsel, management believes that current reserves 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, consolidated results of operations or consolidated cash flows. However, in the event of significant unexpected future developments on existing cases, it is possible that the ultimate resolution of these matters, if unfavorable, may be material to the

35

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

Corporation's consolidated financial condition, consolidated results of operations or consolidated cash flows.
For other matters, where a loss is not probable, the Corporation has not established legal reserves. In determining whether it is possible to provide an estimate of loss or range of possible loss, the Corporation reviews and evaluates its material litigation on an ongoing basis, in conjunction with legal counsel, in light of potentially relevant factual and legal developments. Based on current knowledge, expectation of future earnings, and after consultation with legal counsel, management believes the maximum amount of reasonably possible losses would not have a material adverse effect on the Corporation's consolidated financial condition, consolidated results of operations or consolidated cash flows. However, in the event of unexpected future developments, it is possible that the ultimate resolution of these matters, if unfavorable, may be material to the Corporation's consolidated financial condition, consolidated results of operations or consolidated cash flows.
The damages alleged by plaintiffs or claimants may be overstated, unsubstantiated by legal theory, unsupported by the facts, and/or bear no relation to the ultimate award that a court, jury or agency might impose. In view of the inherent difficulty of predicting the outcome of such matters, the Corporation cannot state with confidence a range of reasonably possible losses, nor what the eventual outcome of these matters will be. However, based on current knowledge and after consultation with legal counsel, management believes the maximum amount of reasonably possible losses would not have a material adverse effect on the Corporation’s consolidated financial condition, consolidated results of operations or consolidated cash flows.
For information regarding income tax contingencies, refer to Note 12 .
NOTE 14 - BUSINESS SEGMENT INFORMATION
The Corporation has strategically aligned its operations into three major business segments: the Business Bank, the Retail Bank and Wealth 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. 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. The performance of the business segments in not comparable with the Corporation's consolidated results and is not necessarily comparable with similar information for any other financial institution. Additionally, because of the interrelationships of the various segments, the information presented is not indicative of how the segments would perform if they operated as independent entities. 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 March 31, 2012 . 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 23 to the consolidated financial statements in the Corporation's 2011 Annual Report.
Business segment financial results are as follows:
(dollar amounts in millions)
Business
Bank
Retail
Bank
Wealth Management
Finance
Other
Total
Three Months Ended March 31, 2012
Earnings summary:
Net interest income (expense) (FTE)
$
379

$
167

$
47

$
(156
)
$
7

$
444

Provision for loan losses
1

4

14

—

4

23

Noninterest income
81

42

65

13

5

206

Noninterest expenses
159

184

81

3

21

448

Provision (benefit) for income taxes (FTE)
94

7

6

(54
)
(4
)
49

Net income (loss)
$
206

$
14

$
11

$
(92
)
$
(9
)
$
130

Net credit-related charge-offs
$
28

$
12

$
5

$
—

$
—

$
45

Selected average balances:
Assets
$
33,184

$
6,173

$
4,636

$
12,095

$
5,525

$
61,613

Loans
32,242

5,462

4,565

—

—

42,269

Deposits
23,997

20,373

3,611

161

169

48,311

Statistical data:
Return on average assets (a)
2.49
%
0.27
%
0.97
%
N/M

N/M

0.84
%
Efficiency ratio
34.74

87.73

75.23

N/M

N/M

69.50

(Table continues on following page).

36

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

(dollar amounts in millions)
Business
Bank
Retail
Bank
Wealth Management
Finance
Other
Total
Three Months Ended March 31, 2011
Earnings summary:
Net interest income (expense) (FTE)
$
341

$
139

$
44

$
(135
)
$
7

$
396

Provision for loan losses
18

23

8

—

—

49

Noninterest income
77

42

64

18

6

207

Noninterest expenses
160

162

78

2

13

415

Provision (benefit) for income taxes (FTE)
73

(2
)
8

(44
)
1

36

Net income (loss)
$
167

$
(2
)
$
14

$
(75
)
$
(1
)
$
103

Net credit-related charge-offs
$
73

$
23

$
5

$
—

$
—

$
101

Selected average balances:
Assets
$
30,092

$
5,558

$
4,809

$
9,370

$
3,946

$
53,775

Loans
29,638

5,106

4,807

—

—

39,551

Deposits
20,084

17,360

2,800

249

105

40,598

Statistical data:
Return on average assets (a)
2.22
%
(0.05
)%
1.14
%
N/M

N/M

0.77
%
Efficiency ratio
38.14

89.19

74.38

N/M

N/M

69.05

(a)
Return on average assets is calculated based on the greater of average assets or average liabilities and attributed equity.
FTE - Fully Taxable Equivalent
N/M – not meaningful
The Corporation 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 ASC Topic 280, Segment Reporting. For comparability purposes, amounts in all periods are based on business segments and methodologies in effect at March 31, 2012 .
The Midwest market consists of operations located in the states of Michigan, Ohio and Illinois. Michigan operations represent the significant majority of this geographic market.
The Western market consists of the states of California, Arizona, Nevada, Colorado and Washington. 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 include businesses with a national perspective, the Corporation’s investment management and trust alliance businesses as well as activities in 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 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.

37

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

Market segment financial results are as follows:
(dollar amounts in millions)
Midwest
Western
Texas
Florida
Other
Markets
International
Finance
& Other
Total
Three Months Ended March 31, 2012
Earnings summary:
Net interest income (expense) (FTE)
$
198

$
171

$
151

$
10

$
45

$
18

$
(149
)
$
444

Provision for loan losses
10

(7
)
14

6

(3
)
(1
)
4

23

Noninterest income
98

33

31

4

14

8

18

206

Noninterest expenses
183

107

92

9

24

9

24

448

Provision (benefit) for income taxes (FTE)
35

39

27

—

—

6

(58
)
49

Net income (loss)
$
68

$
65

$
49

$
(1
)
$
38

$
12

$
(101
)
$
130

Net credit-related charge-offs
$
18

$
11

$
7

$
2

$
6

$
1

$
—

$
45

Selected average balances:
Assets
$
14,095

$
12,623

$
10,082

$
1,416

$
4,021

$
1,756

$
17,620

$
61,613

Loans
13,829

12,383

9,295

1,418

3,693

1,651

—

42,269

Deposits
19,415

13,897

10,229

424

2,628

1,388

330

48,311

Statistical data:
Return on average assets (a)
1.33
%
1.75
%
1.72
%
(0.21
)%
3.77
%
2.73
%
N/M

0.84
%
Efficiency ratio
61.78

52.50

50.33

68.94

44.62

33.02

N/M

69.50

(dollar amounts in millions)
Midwest
Western
Texas
Florida
Other
Markets
International
Finance
& Other
Total
Three Months Ended March 31, 2011
Earnings summary:
Net interest income (expense) (FTE)
$
203

$
164

$
87

$
11

$
41

$
18

$
(128
)
$
396

Provision for loan losses
34

11

4

8

(7
)
(1
)
—

49

Noninterest income
100

37

23

4

11

8

24

207

Noninterest expenses
188

109

61

12

21

9

15

415

Provision (benefit) for income taxes (FTE)
28

30

16

(1
)
—

6

(43
)
36

Net income (loss)
$
53

$
51

$
29

$
(4
)
$
38

$
12

$
(76
)
$
103

Net credit-related charge-offs
$
46

$
26

$
8

$
8

$
9

$
4

$
—

$
101

Selected average balances:
Assets
$
14,303

$
12,590

$
7,031

$
1,553

$
3,247

$
1,735

$
13,316

$
53,775

Loans
14,104

12,383

6,824

1,580

2,960

1,700

—

39,551

Deposits
18,230

12,235

5,786

367

2,298

1,328

354

40,598

Statistical data:
Return on average assets (a)
1.07
%
1.54
%
1.65
%
(0.93
)%
4.74
%
2.79
%
N/M

0.77
%
Efficiency ratio
62.11

54.34

55.39

80.08

41.67

34.62

N/M

69.05

(a)
Return on average assets is calculated based on the greater of average assets or average liabilities and attributed equity.
FTE—Fully Taxable Equivalent
N/M – not meaningful
NOTE 15 – MERGER AND RESTRUCTURING CHARGES
The Corporation committed to a restructuring plan in connection with the completion of the acquisition of Sterling on July 28, 2011. The restructuring plan, which is expected to be substantially completed by December 31, 2012 , is intended to streamline operations across the combined organization. The restructuring plan is expected to result in cumulative costs of approximately $115 million ( $73 million , after-tax) through the end of the plan, primarily encompassing facilities and contract termination charges, systems integration and related charges, severance and other employee-related charges, and transaction-related costs. The Corporation recognized acquisition-related expenses of $75 million ( $47 million after-tax) from July 28, 2011 (the acquisition date) to March 31, 2012 , recorded in “merger and restructuring charges” in the consolidated statements of comprehensive income. Merger and restructuring charges include the incremental costs to integrate the operations of Sterling and do not reflect

38

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

the costs of the fully integrated combined organization. Merger and restructuring charges comprised the following from the acquisition date to March 31, 2012 .
Total Incurred March 31, 2012
(in millions)
Total Expected Per Plan
Three Months Ended
Inception To-Date
Facilities and contract termination charges
$
53

$
(2
)
$
14

Systems integration and related charges
28

1

27

Severance and other employee-related charges
26

1

26

Transaction costs
8

—

8

Total merger and restructuring charges
$
115

$
—

$
75

The following table presents the changes in restructuring reserves for the three-month period ended March 31, 2012 .
(in millions)
Three Months Ended March 31, 2012
Balance at December 31, 2011
$
26

Merger and restructuring charges
6

Payments
(11
)
Other adjustments (a)
(6
)
Balance at March 31, 2012
$
15

(a)
Other adjustments include revisions to the timing or amount of estimated net costs related to the exit of lease facilities included in facilities and contract termination charges.

39

ITEM 2.  Management's Discussion and Analysis of Financial Condition and Results of Operations
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 communications 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,” “contemplates,” “feels,” “expects,” “estimates,” “seeks,” “strives,” “plans,” “intends,” “outlook,” “forecast,” “position,” “target,” “mission,” “assume,” “achievable,” “potential,” “strategy,” “goal,” “aspiration,” “opportunity,” “initiative,” “outcome,” “continue,” “remain,” “maintain,” "on course," “trend,” “objective,” “looks forward” 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. These forward-looking statements are predicated on the beliefs and assumptions of the Corporation's management based on information known to the Corporation's management as of the date of this news release and do not purport to speak as of any other date. Forward-looking statements may include descriptions of plans and objectives of the Corporation's management for future or past operations, products or services, and forecasts of the Corporation's revenue, earnings or other measures of economic performance, including statements of profitability, business segments and subsidiaries, estimates of credit trends and global stability. Such statements reflect the view of the Corporation's management as of this date with respect to future events and are subject to risks and uncertainties. Should one or more of these risks materialize or should underlying beliefs or assumptions prove incorrect, Comerica's actual results could differ materially from those discussed. Factors that could cause or contribute to such differences are changes in general economic, political or industry conditions; changes in monetary and fiscal policies, including the interest rate policies of the Federal Reserve Board; volatility and disruptions in global capital and credit markets; changes in the Corporation's credit rating; the interdependence of financial service companies; changes in regulation or oversight; unfavorable developments concerning credit quality; the acquisition of Sterling Bancshares, Inc., or any future acquisitions; the effects of more stringent capital or liquidity requirements; declines or other changes in the businesses or industries of the Corporation's customers; the implementation of the Corporation's strategies and business models, including the implementation of revenue enhancements and efficiency improvements; the Corporation's ability to utilize technology to efficiently and effectively develop, market and deliver new products and services; operational difficulties, failure of technology infrastructure or information security incidents; changes in the financial markets, including fluctuations in interest rates and their impact on deposit pricing; competitive product and pricing pressures among financial institutions within the Corporation's markets; changes in customer behavior; management's ability to maintain and expand customer relationships; management's ability to retain key officers and employees; the impact of legal and regulatory proceedings; the effectiveness of methods of reducing risk exposures; the effects of terrorist activities and other hostilities; the effects of catastrophic events including, but not limited to, hurricanes, tornadoes, earthquakes, fires, droughts and floods; changes in accounting standards and the critical nature of the Corporation's accounting policies. The Corporation cautions that the foregoing list of factors is not exclusive. For discussion of factors that may cause actual results to differ from expectations, please refer to our filings with the Securities and Exchange Commission. In particular, please refer to “Item 1A. Risk Factors” beginning on page 12 of the Corporation's Annual Report on Form 10-K for the year ended December 31, 2011. Forward-looking statements speak only as of the date they are made. 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. For any forward-looking statements made in this news release or in any documents, the Corporation claims the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995.


40

Results of Operations
Net income for the three months ended March 31, 2012 was $130 million , an increase of $27 million from $103 million reported for the three months ended March 31, 2011. The increase in net income in the first quarter 2012, compared to the same period in 2011, was primarily due to a $48 million increase in net interest income and a $26 million decrease in the provision for loan losses, partially offset by a $23 million increase in salaries and employee benefits expense. Net income per diluted common share was $0.66 in the first quarter 2012, compared to $0.57 for the same period one year ago. Results for the three-month period ended March 31, 2012 include the impact of operations of the former Sterling Bancshares, Inc. (Sterling), acquired by the Corporation on July 28, 2011.
Full-year 2012 Outlook
For full-year 2012, management expects the following, compared to full-year 2011, assuming a continuation of the current economic environment. For purposes of this outlook, management defines "moderate" as two percent to five percent.
•
Average loans increasing moderately.
•
Net interest income increasing moderately.
•
Net credit-related charge-offs and provision for credit losses declining.
•
Noninterest income relatively stable.
•
Noninterest expenses relatively stable.
•
Effective tax rate of approximately 27 percent.
Net Interest Income
Net interest income was $443 million for the three months ended March 31, 2012, an increase of $48 million compared to $395 million for the same period in 2011. The increase in net interest income in the first quarter 2012, compared to the same period in 2011, resulted primarily from an increase in average earning assets, accretion of the purchase discount on the acquired Sterling loan portfolio, one additional day in first quarter 2012, lower deposit rates and the continued shift in funding sources toward lower-cost funds, partially offset by decreased yields on loans and mortgage-backed investment securities. The lower loan yields reflected a shift in the average loan portfolio mix, largely due to a decrease in average commercial real estate loans and an increase in average commercial loans. The "Quarterly Analysis of Net Interest Income & Rate/Volume - Fully Taxable Equivalent" table of this financial review details the components of the change in net interest income on a fully taxable equivalent (FTE) basis for the three months ended March 31, 2012, compared to the same period in the prior year. Average earning assets increased $6.8 billion , or 14 percent, to $56.2 billion in the first quarter 2012, compared to $49.3 billion in the first quarter 2011, primarily due to the acquisition of Sterling and reflecting increases of $2.7 billion in average loans, $2.6 billion in average investment securities available-for-sale and $1.5 billion in average interest-bearing deposits with banks. The net interest margin (FTE) for the three months ended March 31, 2012 decreased 6 basis points to 3.19 percent, from 3.25 percent for the comparable period in 2011, primarily from decreased yields on loans and mortgage-backed investment securities and the impact of higher excess liquidity levels from deposit growth, partially offset by the benefit from accretion of the purchase discount on the Sterling acquired loan portfolio and lower deposit costs. Accretion of the purchase discount on the acquired Sterling loan portfolio of $25 million increased the net interest margin by 18 basis points in the first quarter 2012, and excess liquidity reduced the net interest margin by approximately 21 basis points and 14 basis points in the first quarters of 2012 and 2011, respectively. At March 31, 2012, $76 million of purchase discounts remained on acquired loans not deemed credit impaired at acquisition. Excess liquidity was represented by $3.8 billion and $2.3 billion of average balances deposited with the Federal Reserve Bank (FRB) in the first quarters of 2012 and 2011, respectively, included in “interest-bearing deposits with banks” on the consolidated balance sheets.
For further discussion of the effects of market rates on net interest income, refer to the "Market Risk" section of this financial review.

41

Quarterly Analysis of Net Interest Income & Rate/Volume - Fully Taxable Equivalent (FTE)
Three Months Ended
March 31, 2012
March 31, 2011
(dollar amounts in millions)
Average
Balance
Interest
Average
Rate
Average
Balance
Interest
Average
Rate
Commercial loans
$
24,736

$
219

3.56
%
$
21,496

$
201

3.76
%
Real estate construction loans
1,453

17

4.58

2,179

19

3.51

Commercial mortgage loans
10,202

119

4.73

9,790

95

3.95

Lease financing
897

8

3.41

987

9

3.62

International loans
1,205

11

3.76

1,219

12

3.87

Residential mortgage loans
1,519

18

4.77

1,599

21

5.24

Consumer loans
2,257

20

3.49

2,281

19

3.42

Total loans (a)
42,269

412

3.92

39,551

376

3.85

Auction-rate securities available-for-sale
352

1

0.63

554

1

0.88

Other investment securities available-for-sale
9,537

63

2.73

6,757

56

3.37

Total investment securities available-for-sale
9,889

64

2.65

7,311

57

3.17

Federal funds sold
9

—

0.29

3

—

0.32

Interest-bearing deposits with banks (b)
3,884

2

0.26

2,354

1

0.26

Other short-term investments
135

1

1.97

128

1

2.68

Total earning assets
56,186

479

3.44

49,347

435

3.57

Cash and due from banks
999

884

Allowance for loan losses
(737
)
(908
)
Accrued income and other assets
5,165

4,452

Total assets
$
61,613

$
53,775

Money market and NOW deposits
$
20,795

10

0.19

$
17,797

12

0.26

Savings deposits
1,543

—

0.08

1,421

—

0.09

Customer certificates of deposit
5,978

8

0.57

5,509

10

0.76

Foreign office time deposits
358

1

0.57

412

—

0.49

Total interest-bearing deposits
28,674

19

0.26

25,139

22

0.37

Short-term borrowings
78

—

0.11

94

—

0.31

Medium- and long-term debt
4,940

16

1.34

6,128

17

1.10

Total interest-bearing sources
33,692

35

0.42

31,361

39

0.51

Noninterest-bearing deposits
19,637

15,459

Accrued expenses and other liabilities
1,345

1,120

Total shareholders’ equity
6,939

5,835

Total liabilities and shareholders’ equity
$
61,613

$
53,775

Net interest income/rate spread (FTE)
$
444

3.02

$
396

3.06

FTE adjustment
$
1

$
1

Impact of net noninterest-bearing sources of funds
0.17

0.19

Net interest margin (as a percentage of average earning assets (FTE) (a) (b)
3.19
%
3.25
%
(a)
Accretion of the purchase discount on the acquired loan portfolio of $25 million increased the net interest margin by 18 basis points in the three months ended March 31, 2012 .
(b)
Excess liquidity, represented by average balances deposited with the Federal Reserve Bank, reduced the net interest margin by 21 basis points and 14 basis points in the three months ended March 31, 2012 and 2011 , respectively.

42

Quarterly Analysis of Net Interest Income & Rate/Volume - Fully Taxable Equivalent (FTE) (continued)
Three Months Ended
March 31, 2012/March 31, 2011
(in millions)
Increase
(Decrease)
Due to Rate
Increase
(Decrease)
Due to
Volume (a)
Net
Increase
(Decrease)
Loans
$
13

$
23

$
36

Investment securities available-for-sale
(12
)
19

7

Interest-bearing deposits with banks
—

1

1

Total earning assets
1

43

44

Interest-bearing deposits
(5
)
2

(3
)
Medium- and long-term debt
3

(4
)
(1
)
Total interest-bearing sources
(2
)
(2
)
(4
)
Net interest income/rate spread (FTE)
$
3

$
45

$
48

(a)
Rate/volume variances are allocated to variances due to volume.
Provision for Credit Losses
The provision for credit losses includes both the provision for loan losses and the provision for credit losses on lending-related commitments. The Corporation performs a detailed credit quality review quarterly to determine the appropriateness of the allowance for loan losses and the allowance for credit losses on lending-related commitments and records provisions for each based on the results. For further discussion of both allowances, refer to the "Credit Risk" subheading in the "Risk Management" section of this financial review.
The provision for loan losses was $23 million for the first quarter 2012, compared to $49 million for the same period in 2011. The decrease of $26 million in the provision for loan losses in the three-month period ended March 31, 2012, when compared to the same period in 2011, resulted primarily from continued improvements in credit quality. Improvements in credit quality included a decline of $960 million, to $4.2 billion , in the Corporation's internal watch list loans from March 31, 2011 to March 31, 2012. The Corporation's internal watch list is generally consistent with loans in the Special Mention, Substandard and Doubtful categories defined by regulatory authorities. Additional indicators of improved credit quality included a decrease of $80 million in the inflow to nonaccrual loans (based on an analysis of nonaccrual loans with book balances greater than $2 million) and a decrease in net credit-related charge-offs of $56 million in the three-month period ended March 31, 2012, compared to the same period in the prior year.
Net loan charge-offs for the first quarter 2012 decreased $56 million to $45 million , or 0.43 percent of average total loans, compared to $101 million , or 1.03 percent, for the first quarter 2011. The $56 million decrease in net loan charge-offs for the first quarter 2012, compared to the first quarter 2011, primarily reflected a decrease of $50 million in Middle Market. By geographic market, net loan charge-offs decreased in all markets for the first quarter 2012, compared to the first quarter 2011.
The provision for credit losses on lending-related commitments, a component of other noninterest expenses on the consolidated statements of comprehensive income, increased $2 million to a benefit of $1 million for the three months ended March 31, 2012, compared to a benefit of $3 million for the same period in the prior year. The Corporation establishes this provision to maintain an appropriate allowance to cover probable credit losses inherent in lending-related commitments, which is discussed under the "Credit Risk" subheading in the "Risk Management" section of this financial review. The Corporation recorded a purchase discount for lending-related commitments acquired from Sterling. A provision for credit losses will not be recorded on Sterling lending-related commitments until the required allowance exceeds the remaining purchase discount. No provision was recorded for Sterling lending-related commitments during the first quarter 2012. Lending-related commitment charge-offs were insignificant in the three month periods ended March 31, 2012 and 2011.
The U.S. economy showed increasing momentum through the second half of 2011 and into the first quarter 2012. Real gross domestic product (GDP) for the fourth quarter 2011 grew at a 3.0 percent annualized rate. The Corporation expects real GDP growth in the first half of 2012 to be positive, but slow-to-moderate, indicative of an economy still hampered by lingering aftereffects of the recession of 2008-2009. The ISM Manufacturing and Non-Manufacturing Indexes for March both indicate ongoing expansion for those two broad sectors of the economy. U.S. automotive sales for March registered a 14.3 million unit annual rate and are expected to total 14.9 million units for all of 2012. The unemployment rate has declined to 8.2 percent as of March 2012. However, March 2012 payroll job growth of 120,000 was below expectations. Interest rates remain historically low. Inflation in early 2012 notched up on a month-to-month basis as petroleum prices increased. However, year-to-year comparisons of price levels trended down in early 2012. Gasoline prices climbed through the first quarter 2012 but appear to be peaking early in the second quarter 2012. Recession in the Eurozone and slower economic growth in Asia are key risk factors for the U.S.

43

economy in 2012, as is the threat of rapidly climbing oil prices in the aftermath of military conflict in the Middle East. Momentum in the Texas economy increased in early 2012. Labor market conditions have improved, the energy sector remains very active, and residential construction activity is picking up. Risks to the Texas economy include possible cuts in defense spending and consolidation in the airlines industry. The economy of California remains hindered by a depressed housing market. Some parts of the California economy are vibrant, notably the high tech industries of Silicon Valley. The state's large government sector remains challenged by weaker than expected tax revenues. California's economy may also be further challenged by cuts to defense spending. Michigan's economy is being buoyed by a rebounding U.S. automotive industry. Gains in durable goods manufacturing are broadening and supporting improvement to other manufacturing and to the service sector. However, many areas of the state remain hampered following the restructuring of the domestic automotive industry.
An analysis of the allowance for credit losses and nonperforming assets is presented under the "Credit Risk" subheading in the "Risk Management" section of this financial review.
Noninterest Income
Noninterest income was $206 million for the three months ended March 31, 2012, a decrease of $1 million compared to $207 million for the same period in 2011. Service charges on deposit accounts increased $4 million , in part from the acquisition of Sterling. Commercial lending fees increased $4 million , due to an increase in syndication agent fees, reflecting a higher volume of activity in the first three months of 2012, compared to the same period in the prior year. Net securities gains increased $3 million , primarily from an increase in gains from redemptions of auction-rate securities. Card fees decreased $4 million in the three-month period ended March 31, 2012, compared to the same period in the prior year, reflecting the impact of regulatory limits on debit card transaction processing fees implemented in the fourth quarter 2011. Net income from principal investing and warrants decreased $4 million and risk management hedge gains decreased $2 million in the three-month period ended March 31, 2012, compared to the same period in the prior year, primarily due to one-time gains recognized in the first quarter 2011.
Noninterest Expenses
Noninterest expenses were $448 million for the three months ended March 31, 2012, an increase of $33 million , or 8 percent, from $415 million for the comparable period in 2011. Salaries expense increased $13 million , primarily due to the acquisition of Sterling. Employee benefits expense increased $10 million , primarily reflecting increased pension expense and the addition of Sterling. Litigation-related expenses, included in other noninterest expenses on the consolidated statements of comprehensive income, increased $10 million in the three-month period ended March 31, 2012, compared to the same period in the prior year, primarily as a result of developments on certain litigation claims during the first quarter 2012. FDIC insurance expense decreased $5 million in the three-month period ended March 31, 2012, compared to the same period in 2011, primarily due to the implementation of changes to the deposit insurance assessment system effective April 1, 2011. Other real estate expense decreased $4 million in the three months ended March 31, 2012, compared to the same period in the prior year, primarily reflecting a decrease in write-downs on foreclosed property.
Provision for Income Taxes
The provision for income taxes for the three months ended March 31, 2012 was $48 million , compared to $35 million for the same period in 2011. The $13 million increase in the provision for income taxes in the three-month period ended March 31, 2012, compared to the same period in 2011, was due primarily to an increase in income before income taxes during the same period.
Net deferred tax assets were $356 million at March 31, 2012, compared to $395 million at December 31, 2011, a decrease of $39 million, primarily due to a decrease in deferred tax assets due to the utilization of tax credits, accretion of the purchase discount on the acquired Sterling loan portfolio and an increase in unrealized gains recognized in other comprehensive income. Deferred tax assets were evaluated for realization and it was determined that no valuation allowance was needed at both March 31, 2012 and December 31, 2011. This conclusion was based on available evidence of loss carryback capacity, projected future reversals of existing taxable temporary differences and assumptions made regarding future events.

44

Business Segments
The Corporation's operations are strategically aligned into three major business segments: the Business Bank, the Retail Bank and Wealth Management. These business segments are differentiated based upon 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 items not directly associated with these business segments or the Finance Division. The performance of the business segments in not comparable with the Corporation's consolidated results and is not necessarily comparable with similar information for any other financial institution. Additionally, because of the interrelationships of the various segments, the information presented is not indicative of how the segments would perform if they operated as independent entities. Note 14 to these unaudited consolidated financial statements presents financial results of these business segments for the three months ended March 31, 2012 and 2011. For a description of the business activities of each business segment and the methodologies which form the basis for these results, refer to Note 14 to these unaudited financial statements and Note 23 to the consolidated financial statements in the Corporation's 2011 Annual Report.
The following table presents net income (loss) by business segment.
Three Months Ended March 31,
(dollar amounts in millions)
2012
2011
Business Bank
$
206

89
%
$
167

93
%
Retail Bank
14

6

(2
)
(1
)
Wealth Management
11

5

14

8

231

100
%
179

100
%
Finance
(92
)
(75
)
Other (a)
(9
)
(1
)
Total
$
130

$
103

(a)
Includes items not directly associated with the three major business segments or the Finance Division .
The Business Bank's net income of $206 million increased $39 million for the three months ended March 31, 2012, compared to three months ended March 31, 2011. Net interest income (FTE) of $379 million increased $38 million in the three months ended March 31, 2012, compared to the same period in the prior year, primarily due to the benefit provided by an increase of $2.6 billion in average loans, accretion of the purchase discount on the acquired Sterling loan portfolio of $16 million in the three months ended March 31, 2012, an increase in net funds transfer pricing (FTP) funding credits, primarily due to the benefit provided by an increase of $3.9 billion in average deposits, one more day in 2012 and lower deposit rates, partially offset by lower loan yields. The provision for loan losses of $1 million decreased $17 million from the comparable period in the prior year, primarily reflecting a decrease in Middle Market, partially offset by increases in Commercial Real Estate and National Dealer Services. Net credit-related charge-offs of $28 million decreased $45 million from the comparable period in the prior year, primarily due to a decrease in net charge-offs in Middle Market. Noninterest income of $81 million increased $4 million from the comparable period in the prior year, primarily due to a $5 million increase in syndication agent fees. Noninterest expenses of $159 million decreased $1 million from the same period in the prior year, primarily due to a $4 million decrease in other real estate expense, partially offset by smaller increases in several other noninterest expense categories. The provision for income taxes (FTE) of $94 million for the three months ended March 31, 2012 increased $21 million, compared to the same period in the prior year, primarily due to an increase in income before income taxes.
Net income for the Retail Bank was $14 million for the three months ended March 31, 2012, compared to a net loss of $2 million for the three months ended March 31, 2011. Net interest income (FTE) of $167 million increased $28 million in the three months ended March 31, 2012 compared to the same period in the prior year, primarily due to an increase of $356 million in average loans, an increase in net FTP funding credits, primarily due to the benefit provided by an increase of $3.0 billion in average deposits, accretion of the purchase discount on the acquired Sterling loan portfolio of $9 million in the three months ended March 31, 2012, and lower deposit rates. The provision for loan losses of $4 million decreased $19 million from the comparable period in the prior year, primarily reflecting decreases in Small Business Banking and Personal Banking. Net credit-related charge-offs of $12 million decreased $11 million from the comparable period in the prior year, with broad-based decreases across all major markets and business lines. Noninterest income of $42 million was unchanged from the comparable period in the prior year, as smaller increases in several other noninterest income categories were offset by a $5 million decrease in card fees. Noninterest expenses of $184 million increased $22 million from the comparable period in the prior year, primarily due to increases in salaries and benefit expense ($9 million), processing charges ($4 million) and allocated net corporate overhead expenses ($3 million). The increase in salaries and benefit expense was primarily due to the addition of Sterling. The provision for income taxes (FTE) of $7 million for the three months ended March 31, 2012 increased $9 million, compared to the same period in the prior year, primarily due to an increase in income before income taxes.
Wealth Management's net income of $11 million decreased $3 million for the three months ended March 31, 2012,

45

compared to the three months ended March 31, 2011. Net interest income (FTE) of $47 million increased $3 million in the three months ended March 31, 2012 compared to the same period in the prior year, primarily due to an increase in FTP funding credits, primarily due to the benefit provided by an $811 million increase in average deposits, and a decrease in FTP funding costs, partially offset by lower loan yields and the impact of a $242 million decrease in average loan balances. The provision for loan losses of $14 million increased $6 million from the comparable period in the prior year, primarily reflecting increases in the Florida and Midwest markets. Net credit-related charge-offs of $5 million were unchanged from the comparable period in the prior year. Noninterest income of $65 million increased $1 million from the comparable period in the prior year. Noninterest expenses of $81 million increased $3 million from the comparable period in the prior year, primarily due to a $2 million increase in salaries and employee benefits expense. The provision for income taxes (FTE) of $6 million for the three months ended March 31, 2012 decreased $2 million, compared to the same period in the prior year, primarily due to a decrease in income before income taxes.
The net loss in the Finance Division was $92 million for the three months ended March 31, 2012, compared to a net loss of $75 million in the three months ended March 31, 2011. Net interest expense (FTE) of $156 million increased $21 million in the three months ended March 31, 2012, compared to the same period in the prior year, primarily as a result of the Corporation's internal FTP methodology as described on page F-13 of the Corporation's 2011 Annual Report. The Finance Division pays the three major business segments for the long-term value of deposits based on their assumed lives. The three major business segments pay the Finance Division for funding based on the pricing and term characteristics of their loans. The increase in net interest expense (FTE) was primarily due to an increase in average deposits in the three major business segments, partially offset by an increase in average loans in the three major business segments and an an increase in average investment securities available-for-sale in the Finance Division. Noninterest income of $13 million decreased $5 million from the comparable period in the prior year, primarily due to decreases in customer derivative income and risk management hedge income. Noninterest expenses of $3 million decreased $1 million from the comparable period in the prior year. The benefit for income taxes (FTE) of $54 million for the three months ended March 31, 2012 increased $10 million, compared to the same period in the prior year, primarily resulting from an increase in losses before income taxes.
The net loss in the Other category of $9 million for the three months ended March 31, 2011 increased $8 million from the comparable period in the prior year. The increase in net loss primarily reflected an $8 million increase in noninterest expenses, primarily due to an increase in litigation and legal expenses.
Market Segments
Market segment results are provided 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. The Finance & Other category includes items not directly associated with the market segments. Note 14 to these unaudited consolidated financial statements presents a description of each of these market segments as well as the financial results for the three months ended March 31, 2012 and 2011.
The following table presents net income (loss) by market segment.
Three Months Ended March 31,
(dollar amounts in millions)
2012
2011
Midwest
$
68

30
%
$
53

29
%
Western
65

28

51

28

Texas
49

21

29

16

Florida
(1
)
—

(4
)
(2
)
Other Markets
38

16

38

22

International
12

5

12

7

231

100
%
179

100
%
Finance & Other (a)
(101
)
(76
)
Total
$
130

$
103

(a)    Includes items not directly associated with the market segments.
The Midwest market's net income of $68 million increased $15 million for the three months ended March 31, 2012, compared to the three months ended March 31, 2011. Net interest income (FTE) of $198 million decreased $5 million from the comparable period in the prior year, primarily due to a decrease in loan yields, the impact of a $275 million decrease in average loans and an increase in net FTP funding costs, partially offset by the benefit provided by a $1.2 billion increase in average deposits, lower deposit rates and the benefit of one more day in 2012. The provision for loan losses of $10 million decreased $24 million from the comparable prior year period, primarily reflecting decreases in Middle Market, Commercial Real Estate, Small Business Banking and Personal Banking. Net credit-related charge-offs decreased $28 million from the comparable period in the prior year, primarily due to a decrease in Middle Market. Noninterest income of $98 million decreased $2 million from the comparable prior

46

year period, primarily due to a $2 million decrease in card fees. Noninterest expenses of $183 million decreased $5 million from the comparable prior year period, primarily due to decreases in other real estate expense ($6 million) and FDIC insurance expense ($3 million), partially offset by an increase in the provision for credit losses on lending-related commitments ($5 million). The provision for income taxes (FTE) of $35 million for the three months ended March 31, 2012 increased $7 million compared to the same period in the prior year, primarily resulting from an increase in income before income taxes.
The Western market's net income of $65 million increased $14 million for the three months ended March 31, 2012, compared to the three months ended March 31, 2011. Net interest income (FTE) of $171 million increased $7 million from the comparable period in the prior year, primarily due to an increase in FTP funding credits, reflecting the benefit provided by a $1.7 billion increase in average deposits, a decrease in FTP funding costs, lower deposit rates and one more day in 2012, partially offset by lower loan yields. The provision for loan losses decreased $18 million from the comparable prior year period, primarily reflecting decreases in Middle Market and Small Business Banking, partially offset by increases in Commercial Real Estate and Global Corporate Banking. Net credit-related charge-offs decreased $15 million from the comparable period in the prior year, primarily due to decreases in net charge-offs in Middle Market, Commercial Real Estate and Small Business Banking. Noninterest income of $33 million decreased $4 million from the comparable prior year period, primarily due to a $2 million decrease in net income from principal investing and warrants. Noninterest expenses of $107 million decreased $2 million from the comparable prior year period, primarily due to smaller decreases in several other noninterest expense categories. The provision for income taxes (FTE) of $39 million for the three months ended March 31, 2012 increased $9 million compared to the same period in the prior year, primarily resulting from an increase in income before income taxes.
The Texas market's net income increased $20 million to $49 million for the three months ended March 31, 2012, compared to the three months ended March 31, 2011. Net interest income (FTE) of $151 million increased $64 million from the comparable period in the prior year, primarily due to accretion of the purchase discount on the acquired Sterling loan portfolio of $25 million in three months ended March 31, 2012, an increase in FTP funding credits, primarily due to the benefit provided by an increase of $4.4 billion in average deposits, a $2.5 billion increase in average loans, lower deposit rates and an increase in loan yields, partially offset by an increase in FTP funding costs. The increases in average loans and average deposits were primarily due to the acquisition of Sterling. The provision for loan losses increased $10 million from the comparable prior year period, primarily reflecting an increase in Commercial Real Estate. Net credit-related charge-offs of $7 million decreased $1 million from the comparable prior year period, primarily due to a decrease in Middle Market. Noninterest income of $31 million increased $8 million from the comparable prior year period, primarily due to a $3 million increase in service charges on deposit accounts, substantially all from the addition of Sterling, and smaller increases in several other noninterest income categories. Noninterest expenses of $92 million increased $31 million from the comparable prior year period, primarily due to increases in salaries and benefits expense ($9 million), allocated corporate overhead ($6 million), processing charges ($4 million) and smaller increases in several other noninterest expense categories. The increase in salaries and benefit expense was primarily due to the addition of Sterling. The provision for income taxes (FTE) of $27 million for the three months ended March 31, 2012 increased $11 million compared to the same period in the prior year, primarily resulting from an increase in income before income taxes.
The net loss in the Florida market was $1 million for the three months ended March 31, 2012, compared to a net loss of $4 million for the three months ended March 31, 2011. Net interest income (FTE) of $10 million decreased $1 million from the comparable period in the prior year, primarily due to a $162 million decrease in average loans. The provision for loan losses decreased $2 million from the comparable prior year period, primarily reflecting decreases in Commercial Real Estate and Middle Market, partially offset by an increase in Private Banking. Net credit-related charge-offs of $2 million decreased $6 million from the comparable prior year period, primarily due to decreases in Commercial Real Estate and Middle Market. Noninterest income of $4 million was unchanged from the comparable prior year period. Noninterest expenses of $9 million decreased $3 million from the comparable prior year period, primarily due to smaller decreases in several noninterest expense categories.
Net income in Other Markets of $38 million for the three months ended March 31, 2012, was unchanged compared to the three months ended March 31, 2011. Net interest income (FTE) of $45 million increased $4 million from the comparable period in the prior year, primarily the result of the benefit provided by an increase of $733 million in average loans, partially offset by lower loan yields. The provision for loan losses increased $4 million from the comparable prior year period, primarily reflecting an increase in Commercial Real Estate, partially offset by a decrease in Middle Market. Net credit-related charge-offs decreased $3 million from the comparable prior year period, primarily due to a decrease in Middle Market, partially offset by an increase in Commercial Real Estate. Noninterest income of $14 million and noninterest expenses of $24 million each increased $3 million from the comparable prior year period.
The International market's net income of $12 million was unchanged for the three months ended March 31, 2012, compared to the three months ended March 31, 2011. Net interest income (FTE) of $18 million was unchanged from the comparable period in the prior year. The provision for loan losses was unchanged compared to the comparable prior year period. Net credit-related charge-offs decreased $3 million from the comparable prior year period. Noninterest income of $8 million and noninterest expenses of $9 million were each unchanged from the comparable prior year period.

47

The net loss for the Finance & Other segment was $101 million in the three months ended March 31, 2012, compared to a net loss of $76 million in the three months ended March 31, 2011. The $25 million increase in net loss resulted from the same reasons noted in the Finance Division and Other category discussions under the “Business Segments” heading above.
The following table lists the Corporation's banking centers by geographic market segment.
March 31,
2012
2011
Midwest (Michigan)
218

217

Texas
142

95

Western:
California
105

104

Arizona
18

17

Total Western
123

121

Florida
11

11

International
1

1

Total
495

445

Financial Condition
Total assets were $62.6 billion at March 31, 2012, an increase of $1.6 billion from $61.0 billion at December 31, 2011, reflecting increases of $392 million in interest-bearing deposits with banks, $333 million in total loans and $843 million in accrued income and other assets. The increase in accrued income and other assets primarily reflected a receivable for the pending settlement of a large customer-initiated sweep transaction that cleared on the first business day in April 2012. On an average basis, total assets increased $568 million to $61.6 billion in the first quarter 2012, compared to the fourth quarter 2011, resulting primarily from increases in average loans ($815 million) and investment securities available-for-sale ($108 million), partially offset by a decrease in average interest-bearing deposits with banks ($409 million).

48

The following tables show the change in the Corporation's average loan portfolio by business line and geographic market in the first quarter 2012, compared to the fourth quarter 2011.
Three Months Ended
Percent
Change
(dollar amounts in millions)
March 31, 2012
December 31, 2011
Change
Average Loans By Business Line:
Middle Market
$
12,040

$
11,913

$
127

1
%
Commercial Real Estate
4,356

4,567

(211
)
(5
)
Global Corporate Banking
4,935

4,681

254

5

National Dealer Services
3,800

3,393

407

12

Specialty Businesses (a)
7,111

6,711

400

6

Total Business Bank
32,242

31,265

977

3

Small Business
3,750

3,791

(41
)
(1
)
Personal Financial Services
1,712

1,780

(68
)
(4
)
Total Retail Bank
5,462

5,571

(109
)
(2
)
Private Banking
4,565

4,618

(53
)
(1
)
Total Wealth Management
4,565

4,618

(53
)
(1
)
Total loans
$
42,269

$
41,454

$
815

2
%
Average Loans By Geographic Market:
Midwest
$
13,829

$
13,725

$
104

1
%
Western
12,383

12,026

357

3

Texas
9,295

8,952

343

4

Florida
1,418

1,457

(39
)
(3
)
Other Markets
3,693

3,718

(25
)
(1
)
International
1,651

1,576

75

5

Total loans
$
42,269

$
41,454

$
815

2
%
(a)
Includes Entertainment, Energy, Leasing, Financial Services Division, Mortgage Banker Finance, and Technology and Life Sciences.
Average loans increased $815 million , or 2 percent, to $42.3 billion at March 31, 2012, compared to December 31, 2011, primarily reflecting an increase of $1.2 billion, or 5 percent, in commercial loans, partially offset by a decrease of $352 million, or 3 percent, in commercial real estate loans (commercial mortgage and real estate construction loans). The increase in average loans reflected increases in National Dealer Services ( $407 million ), Energy ($359 million), Global Corporate Banking ( $254 million ), Middle Market ( $127 million ) and Technology and Life Sciences ($126 million), partially offset by a decrease in Commercial Real Estate ( $211 million ). Average loans in the Commercial Real Estate business line continued to decline, primarily reflecting ongoing payment activity. Changes in average loans by geographic market are displayed in the table above.
Total liabilities increased $1.5 billion to $55.6 billion at March 31, 2012, compared to December 31, 2011, due to a $1.5 billion increase in total deposits. On an average basis, total liabilities increased $576 million in the first quarter 2012, compared to the fourth quarter 2011, primarily due to a $532 million increase in average deposits. The increases in average deposits from the fourth quarter 2011 to the first quarter 2012 resulted primarily from an increase in average noninterest-bearing deposits of $461 million and primarily reflected increases in Global Corporate Banking ($296 million), the Financial Services Division ($285 million), Technology and Life Sciences ($262 million) and Private Banking ($208 million), partially offset by decreases in Small Business Banking ($301 million) and Energy ($179 million). By geographic market, the increase in average deposits from the fourth quarter 2011 to the first quarter 2012 primarily reflected increases in the Midwest ($339 million), Western ($227 million) and Other ($214 million) markets, partially offset by a $105 million decrease in the Texas market.

49

Capital
Total shareholders' equity increased $117 million to $7.0 billion at March 31, 2012, compared to December 31, 2011. The following table presents a summary of changes in total shareholders' equity for the three months ended March 31, 2012.
(in millions)
Balance at January 1, 2012
$
6,868

Retention of earnings (net income less cash dividends declared)
110

Change in accumulated other comprehensive income (loss):
Investment securities available-for-sale
$
19

Defined benefit and other postretirement plans
11

Total change in accumulated other comprehensive income (loss)
30

Purchase of common stock
(36
)
Share-based compensation
13

Balance at March 31, 2012
$
6,985

The Federal Reserve completed its review of the Corporation's 2012 Capital Plan in March 2012 and did not object to the capital distributions contemplated in the plan. The capital plan provides for up to $375 million in equity repurchases for the five-quarter period ending March 31, 2013. The capital plan, which was approved by the Corporation's Board of Directors, further contemplated a 50 percent increase in Comerica's quarterly dividend, from 10 cents per share to 15 cents per share. The dividend proposal was approved by the Board on April 24, 2012. In addition, the capital plan included the authority to redeem the remaining $25 million of trust preferred securities outstanding as of March 31, 2012. On April 24, 2012, the Corporation provided notice to the trustee of its intent to redeem these securities effective June 15, 2012 .
In November 2010, the Board of Directors of the Corporation authorized the repurchase of up to 12.6 million shares of Comerica Incorporated outstanding common stock and authorized the purchase of up to all 11.5 million of the Corporation's original outstanding warrants. On April 24, 2012, the Board authorized the repurchase of an additional 5.7 million shares of Comerica Incorporated outstanding common stock. There is no expiration date for the Corporation's share repurchase program. For further information regarding the repurchase program, refer to Note 14 to the consolidated financial statements in the Corporation's 2011 Annual Report. The following table summarizes the Corporation's repurchase activity during the three months ended March 31, 2012.
(shares in thousands)
Total Number of Shares and Warrants Purchased as
Part of Publicly Announced Repurchase Plans or Programs
Remaining
Repurchase
Authorization (a)
Total Number
of Shares
Purchased (b)
Average Price
Paid Per Share
Average Price Paid Per
Warrant (c)
January 2012
385

19,562

505

28.63

—

February 2012
545

19,017

557

29.74

—

March 2012
195

18,822

195

29.66

—

Total first quarter 2012
1,125

18,822

1,257

29.28

—

(a)
Maximum number of shares and warrants that may yet be purchased under the publicly announced plans or programs.
(b)
Includes approximately 132,000 shares purchased pursuant to deferred compensation plans and shares purchased from employees to pay for taxes related to restricted stock vesting under the terms of an employee share-based compensation plan. These transactions are not considered part of the Corporation's repurchase program.
(c)
The Corporation made no repurchases of warrants under the repurchase program during the three months ended March 31, 2012.
Risk-based regulatory capital standards are designed to make regulatory capital requirements more sensitive to differences in credit risk profiles among banking institutions and to account for off-balance sheet exposure. Assets and off-balance sheet items are assigned to broad risk categories, each with specified risk-weighting factors. The resulting capital ratios represent capital as a percentage of total risk-weighted assets and off-balance sheet items. As shown in the table below, the Tier 1 common capital, Tier 1 risk-based capital, total risk-based capital and tangible common equity ratios decreased from December 31, 2011 to March 31, 2012, while the leverage ratio increased in the same period. The risk-based ratios decreased, while the leverage ratio increased, because the denominator for the risk-based ratios, period-end risk-weighted assets, increased more relative to the increase in capital than the denominator for the leverage ratio, adjusted quarterly average assets.

50

The Corporation's capital ratios exceeded minimum regulatory requirements as follows:
March 31, 2012
December 31, 2011
(dollar amounts in millions)
Capital
Ratio
Capital
Ratio
Tier 1 common (a) (b)
$
6,647

10.33
%
$
6,557

10.37
%
Tier 1 risk-based (4.00% - minimum) (b)
6,672

10.37

6,582

10.41

Total risk-based (8.00% - minimum) (b)
9,081

14.11

9,015

14.25

Leverage (3.00% - minimum) (b)
6,672

10.97

6,582

10.92

Tangible common equity (a)
6,320

10.21

6,201

10.27

(a)
See Supplemental Financial Data section for reconcilements of non-GAAP financial measures.
(b)
March 31, 2012 capital and ratios are estimated.
In December 2010, the Basel Committee on Banking Supervision (the Basel Committee) issued a framework for strengthening international capital and liquidity regulation (Basel III). The Basel III capital framework includes higher global minimum capital standards, including a more stringent definition of capital, new capital conservation buffers and a minimum Tier 1 common capital ratio. The Basel III capital framework also proposes the deduction of certain assets from capital, including deferred tax assets and mortgage servicing rights, among others and within prescribed limitations, as well as the inclusion of other comprehensive income in capital and increased capital requirements for counterparty credit risk. Rules are expected to be implemented between 2013 and 2019. Adoption in the U.S. is expected to occur over a similar timeframe, but the final form of the U.S. rules is not yet known.
The Basel III liquidity framework includes two minimum liquidity measures. The Liquidity Coverage Ratio requires a financial institution to hold a buffer of high-quality, liquid assets to fully cover net cash outflows under a 30-day systematic liquidity stress scenario. The Net Stable Funding Ratio requires the amount of available longer-term, stable sources of funding to be at least 100 percent of the required amount of longer-term stable funding over a one-year period. The Corporation's liquidity position is strong, but if subject to the Basel III liquidity framework as currently proposed, the Corporation may decide to consider additional liquidity management initiatives. While uncertainty exists in both the final form of the Basel III guidance and whether or not the Corporation will be required to adopt the guidelines, the Corporation is closely monitoring the development of the guidance. We expect to meet the final requirements adopted by U.S. banking regulators within regulatory timelines.
Risk Management
The following updated information should be read in conjunction with the "Risk Management" section on pages F-23 through F-42 in the Corporation's 2011 Annual Report.
Credit Risk
Allowance for Credit Losses and Nonperforming Assets
The allowance for credit losses includes both the allowance for loan losses and the allowance for credit losses on lending-related commitments. The allowance for loan losses represents management's assessment of probable, estimable losses inherent in the Corporation's loan portfolio. The allowance for credit losses on lending-related commitments, included in "accrued expenses and other liabilities" on the consolidated balance sheets, provides for probable losses inherent in lending-related commitments, including unused commitments to extend credit and standby letters of credit.
The Corporation disaggregates the loan portfolio into segments for purposes of determining the allowance for credit losses. These segments are based on the level at which the Corporation develops, documents and applies a systematic methodology to determine the allowance for credit losses. The Corporation's portfolio segments are business loans and retail loans. Business loans are defined as those belonging to the commercial, real estate construction, commercial mortgage, lease financing and international loan portfolios. Retail loans consist of traditional residential mortgage, home equity and other consumer loans.
The allowance for loan losses includes specific allowances, based on individual evaluations of certain loans, and allowances for homogeneous pools of loans with similar risk characteristics. In the first quarter 2012, the Corporation implemented enhancements to the methodology used for determining the allowance for loan losses for business loans. The enhancements included expanding the historical borrower rating migration and loss experience periods and estimating probability of default and loss given default from a national perspective, in addition to a market-by-market basis.
The allowance for loan losses was $704 million at March 31, 2012, compared to $726 million at December 31, 2011, a decrease of $22 million , or 3 percent. The decrease resulted primarily from improvements in credit quality, partially offset by increased loan volumes and an increase in the allowance for loan losses resulting from the methodology enhancements described above. Improvements in credit quality included a decline of $261 million in the Corporation's internal watch list loans from December 31, 2011 to March 31, 2012, a decrease in the inflow to nonaccrual (based on an analysis of nonaccrual loans with balances greater than $2 million) of $30 million and a decrease in net credit-related charge-offs of $15 million for the three months

51

ended December 31, 2011 compared to the three months ended March 31, 2012. The $22 million decrease in the allowance for loan losses primarily reflected decreases in Commercial Real Estate and Middle Market, partially offset by an increase in Private Banking. The allowance for loan losses as a percentage of total period-end loans was 1.64 percent at March 31, 2012, compared to 1.70 percent at December 31, 2011. Nonperforming loans of $856 million at March 31, 2012 decreased $31 million , compared to December 31, 2011. Loan charge-offs are taken as amounts are determined to be uncollectible. A measure of the level of charge-offs already taken on nonaccrual loans is the current book balance as a percentage of the contractual amount owed. At both March 31, 2012 and December 31, 2011, nonaccrual loans were charged-off to approximately 60 percent of the contractual amount. This level of write-downs is consistent with losses experienced on loan defaults in the first three months of 2012 and in recent years. The allowance as a percentage of total nonperforming loans, a ratio which results from the actions noted above, was 82 percent at both March 31, 2012 and December 31, 2011. The Corporation's loan portfolio is primarily composed of business loans, which, in the event of default, are typically carried on the books at fair value as nonperforming assets for a longer period of time than are consumer loans, which are generally fully charged off when they become nonperforming, resulting in a lower nonperforming loan allowance coverage when compared to banking organizations with higher concentrations of consumer loans.
Loans acquired from Sterling were initially recorded at fair value, which included an estimate of credit losses expected to be realized over the remaining lives of the loans, and therefore no corresponding allowance for loan losses was recorded for these loans at acquisition. Methods utilized to estimate the required allowance for loan losses for acquired loans not deemed credit-impaired at acquisition are similar to originated loans; however, the estimate of loss is based on the unpaid principal balance less the remaining purchase discount. At both March 31, 2012 and December 31, 2011, no allowance was required for acquired loans not deemed credit-impaired and $76 million and $96 million of purchase discounts remained, respectively. Purchased credit impaired (PCI) loans are not considered nonperforming loans.
The total allowance for loan losses is sufficient to absorb incurred losses inherent in the total loan portfolio. Unanticipated economic events, including political, economic and regulatory instability 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.
The allowance for credit losses on lending-related commitments includes specific allowances, based on individual evaluations of certain letters of credit in a manner consistent with business loans, and allowances based on the pool of the remaining letters of credit and all unused commitments to extend credit within each internal risk rating.
The allowance for credit losses on lending-related commitments was $25 million at March 31, 2012, a decrease of $1 million from $26 million at December 31, 2011. The Corporation recorded a purchase discount for lending-related commitments acquired from Sterling. An allowance for credit losses will be recorded on Sterling lending-related commitments only to the extent that the required allowance exceeds the remaining purchase discount. At both March 31, 2012 and December 31, 2011, no allowance was recorded for Sterling lending-related commitments and $3 million of purchase discount remained.

52

Nonperforming assets include loans on nonaccrual status, troubled debt restructured loans (TDRs) which have been renegotiated to less than the original contractual rates (reduced-rate loans) and real estate which has been acquired through foreclosure and is awaiting disposition (foreclosed property). Nonperforming assets do not include PCI loans. Nonperforming assets decreased $58 million to $923 million at March 31, 2012, from $981 million at December 31, 2011. The table below presents nonperforming asset balances by category.
(dollar amounts in millions)
March 31, 2012
December 31, 2011
Nonaccrual loans:
Business loans:
Commercial
$
205

$
237

Real estate construction:
Commercial Real Estate business line (a)
77

93

Other business lines (b)
8

8

Total real estate construction
85

101

Commercial mortgage:
Commercial Real Estate business line (a)
174

159

Other business lines (b)
275

268

Total commercial mortgage
449

427

Lease financing
4

5

International
4

8

Total nonaccrual business loans
747

778

Retail loans:
Residential mortgage
69

71

Consumer:
Home equity
9

5

Other consumer
5

6

Total consumer
14

11

Total nonaccrual retail loans
83

82

Total nonaccrual loans
830

860

Reduced-rate loans
26

27

Total nonperforming loans
856

887

Foreclosed property
67

94

Total nonperforming assets
$
923

$
981

Nonperforming loans as a percentage of total loans
1.99
%
2.08
%
Nonperforming assets as a percentage of total loans and foreclosed property
2.14

2.29

Allowance for loan losses as a percentage of total nonperforming loans
82

82

Loans past due 90 days or more and still accruing
$
50

$
58

Loans past due 90 days or more and still accruing as a percentage of total loans
0.12
%
0.14
%
(a)
Primarily loans to real estate investors and developers.
(b)
Primarily loans secured by owner-occupied real estate.

53

The following table presents a summary of changes in nonaccrual loans.
Three Months Ended
(in millions)
March 31, 2012
December 31, 2011
Balance at beginning of period
$
860

$
929

Loans transferred to nonaccrual (a)
69

99

Nonaccrual business loan gross charge-offs (b)
(55
)
(76
)
Nonaccrual business loans sold (c)
(7
)
(19
)
Payments/Other (d)
(37
)
(73
)
Balance at end of period
$
830

$
860

(a) Based on an analysis of nonaccrual loans with book balances greater than $2 million.
(b) Analysis of gross loan charge-offs:
Nonaccrual business loans
$
55

$
76

Performing watch list loans
—

—

Retail loans
7

9

Total gross loan charge-offs
$
62

$
85

(c) Analysis of loans sold:
Nonaccrual business loans
$
7

$
19

Performing watch list loans
11

—

Total loans sold
$
18

$
19

(d) Includes net changes related to nonaccrual loans with balances less than $2 million, payments on nonaccrual loans with book balances greater than $2 million, transfers of nonaccrual loans to foreclosed property and retail loan charge-offs. Excludes business loan gross charge-offs and nonaccrual business loans sold.
The following table presents the composition of nonaccrual loans by balance and the related number of borrowers at March 31, 2012.
(dollar amounts in millions)
Number of
Borrowers
Balance
Under $2 million
1,005

$
279

$2 million - $5 million
61

191

$5 million - $10 million
18

130

$10 million - $25 million
15

203

Greater than $25 million
1

27

Total at March 31, 2012
1,100

$
830

There were 16 borrowers with balances greater than $2 million, totaling $69 million , transferred to nonaccrual status in the first quarter 2012, a decrease of $30 million when compared to $99 million in the fourth quarter 2011. Of the transfers to nonaccrual in the first quarter 2012, $29 million were from Private Banking and $23 million were from Commercial Real Estate. There were two borrowers with balances greater than $10 million, totaling $21 million, transferred to nonaccrual in the first quarter 2012.

54

The following table presents a summary of nonaccrual loans at March 31, 2012 and loans transferred to nonaccrual and net loan charge-offs for the three months ended March 31, 2012, based primarily on Standard Industrial Classification (SIC) industry categories.
March 31, 2012
Three Months Ended March 31, 2012
(dollar amounts in millions)
Nonaccrual Loans
Loans Transferred to
Nonaccrual (a)
Net Loan Charge-Offs
Industry Category
Real Estate
$
320

39
%
$
16

23
%
$
16

38
%
Services
107

14

2

3

4

8

Residential Mortgage
68

8

3

4

2

4

Holding & Other Invest. Co.
68

8

16

23

2

4

Wholesale Trade
51

6

—

—

(1
)
(2
)
Hotels, etc.
48

6

20

31

2

6

Retail Trade
44

5

3

4

3

7

Natural Resources
25

3

—

—

9

20

Manufacturing
24

3

3

4

—

1

Utilities
17

2

—

—

—

—

Information
12

1

—

—

—

—

Contractors
11

1

—

—

(2
)
(5
)
Finance
9

1

—

—

2

3

Entertainment
7

1

—

—

—

—

Transportation & Warehousing
7

1

6

8

2

4

Other (b)
12

1

—

—

6

12

Total
$
830

100
%
$
69

100
%
$
45

100
%
(a)
Based on an analysis of nonaccrual loans with book balances greater than $2 million.
(b)
Consumer, excluding residential mortgage and certain personal purpose nonaccrual loans and net charge-offs, are included in the “Other” category.
Business loans are generally placed on nonaccrual status when management determines that full collection of principal or interest is unlikely or when principal or interest payments are 90 days past due, unless the loan is fully collateralized and in the process of collection. The primary driver of when the principal amount of a business loan should be fully or partially charged off is based on a qualitative assessment of the recoverability of the principal amount from collateral and other cash flow sources. Residential mortgage and home equity loans are generally placed on nonaccrual status and charged off to current appraised values, less costs to sell, during the foreclosure process, normally no later than 180 days past due. Other consumer loans are generally not placed on nonaccrual status and are charged off at no later than 120 days past due, earlier if deemed uncollectible. Loan amounts in excess of probable future cash collections are charged off to an amount that management ultimately expects to collect. At the time a loan is placed on nonaccrual status, interest previously accrued but not collected is charged against current income. Income on such loans is then recognized only to the extent that cash is received and the future collection of principal is probable. Generally, a loan may be returned to accrual status when all delinquent principal and interest have been received and the Corporation expects repayment of the remaining contractual principal and interest, generally based on a period of sustained payment performance, normally at least six months, or when the loan is both well secured and in the process of collection. Refer to Note 1 to the consolidated financial statements in the Corporation's 2011 Annual Report for further information regarding impaired loans.
At March 31, 2012, TDRs totaled $346 million, of which $235 million were nonperforming ($209 million nonaccrual TDRs and $26 million reduced-rate TDRs) and $111 million were considered performing. Performing TDRs included $60 million of commercial loans (primarily in Middle Market, Global Corporate Banking and Private Banking) and $51 million of commercial mortgage loans (primarily in Commercial Real Estate, Middle Market, National Dealer Services and Private Banking) at March 31, 2012. At December 31, 2011, TDRs totaled $331 million, including $206 million nonaccrual TDRs, $27 million reduced-rate TDRs and $98 million TDRs considered performing. The $15 million increase in total TDRs primarily reflected increases in Global Corporate Banking and Private Banking.

55

Loans past due 30-89 days increased $40 million to $315 million at March 31, 2012, compared to $275 million at December 31, 2011. Loans past due 90 days or more and still accruing interest generally represent loans that are well collateralized and in a continuing process of collection. Loans past due 90 days or more and still accruing are summarized in the following table.
(in millions)
March 31, 2012
December 31, 2011
Business loans:
Commercial
$
4

$
8

Real estate construction
1

1

Commercial mortgage
25

32

International
3

—

Total business loans
33

41

Retail loans:
Residential mortgage
8

6

Consumer
9

11

Total retail loans
17

17

Total loans past due 90 days or more and still accruing
$
50

$
58

The following table presents a summary of total internal watch list loans at March 31, 2012 and December 31, 2011. Watch list loans that meet certain criteria are individually subjected to quarterly credit quality reviews, and the Corporation may establish specific allowances for such loans. The $261 million decrease in total watch list loans, compared to December 31, 2011, is reflected in the decrease in the allowance for loan losses in the same period.
(dollar amounts in millions)
March 31, 2012
December 31, 2011
Total watch list loans
$
4,206

$
4,467

As a percentage of total loans
9.8
%
10.5
%
The following table presents a summary of foreclosed property by property type.
(in millions)
March 31, 2012
December 31, 2011
Construction, land development and other land
$
31

$
32

Single family residential properties
12

14

Other non-land, nonresidential properties
24

48

Total foreclosed property
$
67

$
94

At March 31, 2012, foreclosed property totaled $67 million and consisted of approximately 209 properties, compared to $94 million and approximately 223 properties at December 31, 2011.
The following table presents a summary of changes in foreclosed property.
Three Months Ended
(in millions)
March 31, 2012
December 31, 2011
Balance at beginning of period
$
94

$
87

Acquired in foreclosure
5

31

Write-downs
(3
)
(3
)
Foreclosed property sold (a)
(29
)
(21
)
Balance at end of period
$
67

$
94

(a) Net gain on foreclosed property sold
$
3

$
2

At March 31, 2012, there were 7 foreclosed properties each with a carrying value greater than $2 million, totaling $25 million, compared to 8 foreclosed properties totaling $44 million at December 31, 2011. Of the foreclosed properties with balances greater than $2 million at March 31, 2012, $12 million, $10 million, and $3 million were from Middle Market, Commercial Real Estate and Private Banking, respectively. At March 31, 2012, there were no foreclosed properties with a carrying value greater than $10 million, compared to one foreclosed property with a carrying value of $18 million at December 31, 2011.
For further information regarding credit quality and the allowance for credit losses, refer to Note 4 to these unaudited consolidated financial statements.

56

Commercial and Residential Real Estate Lending
The following table summarizes the Corporation's commercial real estate loan portfolio by loan category as of March 31, 2012 and December 31, 2011.
(in millions)
March 31, 2012
December 31, 2011
Real estate construction loans:
Commercial Real Estate business line (a)
$
1,055

$
1,103

Other business lines (b)
387

430

Total real estate construction loans
$
1,442

$
1,533

Commercial mortgage loans:
Commercial Real Estate business line (a)
$
2,501

$
2,507

Other business lines (b)
7,578

7,757

Total commercial mortgage loans
$
10,079

$
10,264

(a)
Primarily loans to real estate investors and developers.
(b)
Primarily loans secured by owner-occupied real estate.
The Corporation limits risk inherent in its commercial real estate lending activities by limiting exposure to those borrowers directly involved in the commercial real estate markets and adhering to conservative policies on loan-to-value ratios for such loans. Commercial real estate loans, consisting of real estate construction and commercial mortgage loans, totaled $11.5 billion at March 31, 2012, of which $3.6 billion , or 31 percent, were to borrowers in the Commercial Real Estate business line, which includes loans to residential real estate investors and developers. The remaining $7.9 billion , or 69 percent, of commercial real estate loans in other business lines consisted primarily of owner-occupied commercial mortgages which bear credit characteristics similar to non-commercial real estate business loans.
The real estate construction loan portfolio totaled $1.4 billion at March 31, 2012. The real estate construction loan portfolio primarily contains loans made to long-time customers with satisfactory completion experience. However, the significant and prolonged decline in residential real estate activity that began in late 2008 in the Western, Florida and Midwest markets proved extremely difficult for many of the smaller residential real estate developers. Of the $1.1 billion of real estate construction loans in the Commercial Real Estate business line, $77 million were on nonaccrual status at March 31, 2012. Real estate construction loan net charge-offs in the Commercial Real Estate business line totaled $1 million for the three months ended March 31, 2012.
The commercial mortgage loan portfolio totaled $10.1 billion at March 31, 2012 and included $2.5 billion in the Commercial Real Estate business line and $7.6 billion in other business lines. Loans in the commercial mortgage portfolio generally mature within three to five years. Of the $2.5 billion of commercial mortgage loans in the Commercial Real Estate business line, $174 million were on nonaccrual status at March 31, 2012. Commercial mortgage loan net charge-offs in the Commercial Real Estate business line totaled $12 million for the three months ended March 31, 2012.

57

The geographic distribution and project type of commercial real estate loans are important factors in diversifying credit risk within the portfolio. The following table reflects real estate construction and commercial mortgage loans to borrowers in the Commercial Real Estate business line by project type and location of property.
March 31, 2012
Location of Property
December 31, 2011
(dollar amounts in millions)
Project Type:
Western
Michigan
Texas
Florida
Other
Markets
Total
% of
Total
Total
% of
Total
Real estate construction loans:
Commercial Real Estate business line:
Residential:
Single family
$
74

$
8

$
29

$
4

$
7

$
122

11
%
$
114

10
%
Land development
17

6

23

—

23

69

7

76

7

Total residential
91

14

52

4

30

191

18

190

17

Other construction:
Multi-family
83

—

68

37

11

199

19

248

22

Retail
103

40

85

11

29

268

25

264

24

Multi-use
65

—

52

—

—

117

11

118

11

Office
70

—

38

—

—

108

10

125

11

Commercial
3

4

21

—

—

28

3

17

2

Land development
6

8

8

—

—

22

2

22

2

Other
6

—

1

2

—

9

1

8

1

Sterling real estate construction loans (a)
—

—

113

—

—

113

11

111

10

Total
$
427

$
66

$
438

$
54

$
70

$
1,055

100
%
$
1,103

100
%
Commercial mortgage loans:
Commercial Real Estate business line:
Residential:
Single family
$
16

$
5

$
5

$
3

$
20

$
49

2
%
$
46

2
%
Land carry
60

38

19

29

8

154

6

138

5

Total residential
76

43

24

32

28

203

8

184

7

Other commercial mortgage:
Multi-family
110

55

118

153

22

458

18

503

20

Retail
177

79

46

66

18

386

15

396

16

Multi-use
114

19

36

—

24

193

8

202

8

Land carry
67

58

17

11

11

164

7

175

7

Office
113

27

5

24

4

173

7

166

7

Commercial
64

46

28

—

30

168

7

169

7

Other
15

24

17

—

9

65

3

60

2

Sterling commercial mortgage loans (a)
—

—

691

—

—

691

27

652

26

Total
$
736

$
351

$
982

$
286

$
146

$
2,501

100
%
$
2,507

100
%
(a)    Complete information related to project type and location of property not currently available.
The following table summarizes the Corporation's residential mortgage and home equity loan portfolio by geographic market as of March 31, 2012.
March 31, 2012
(dollar amounts in millions)
Residential
Mortgage Loans
% of
Total
Home
Equity Loans
% of
Total
Geographic market:
Midwest
$
479

33
%
$
930

58
%
Western
462

31

420

26

Texas
315

21

217

13

Florida
224

15

45

3

Other Markets
5

—

—

—

Total
$
1,485

100
%
$
1,612

100
%
Residential real estate loans, which consist of traditional residential mortgages and home equity loans and lines of credit, totaled $3.1 billion at March 31, 2012. Residential mortgages totaled $1.5 billion at March 31, 2012, and were primarily larger, variable-rate mortgages originated and retained for certain private banking relationship customers. Of the $1.5 billion of residential mortgage loans outstanding, $69 million were on nonaccrual status at March 31, 2012. The home equity portfolio totaled $1.6

58

billion at March 31, 2012, of which $1.4 billion was outstanding under primarily variable-rate, interest-only home equity lines of credit and $186 million consisted of closed-end home equity loans. Of the $1.6 billion of home equity loans outstanding, $9 million were on nonaccrual status at March 31, 2012. A majority of the home equity portfolio was secured by junior liens.
The Corporation rarely originates residential real estate loans with loan-to-value ratios above 100 percent at origination, has no sub-prime mortgage programs and does not originate payment-option adjustable-rate mortgages or other nontraditional mortgages that allow negative amortization. A significant majority of residential mortgage originations are sold in the secondary market. Since 2008, the Corporation has used a third party to originate, document and underwrite residential mortgage loans on behalf of the Corporation. Under this arrangement, the third party assumes repurchase liability for the loans it originates. The Corporation has repurchase liability exposure for residential mortgage loans originated prior to 2008, however based on historical experience, the Corporation believes such exposure, which could be triggered by underwriting discrepancies, is minimal. The residential real estate portfolio is principally located within the Corporation's primary geographic markets. The economic recession and significant declines in home values in the Western, Florida and Midwest markets following the financial market turmoil beginning in the fall of 2008 adversely impacted the residential real estate portfolio. At March 31, 2011, the Corporation estimated that, of the $8 million total residential mortgage loans past due 90 days or more and still accruing interest, approximately $1 million exceeded 90 percent of the current value of the underlying collateral, based on S&P/Case-Shiller home price indices. To account for this exposure, the Corporation factors changes in home values into estimated loss ratios for residential real estate loans, using index-based estimates by major metropolitan area, resulting in an increased allowance allocated for residential real estate loans when home values decline. Additionally, to mitigate increasing credit exposure due to depreciating home values, the Corporation periodically reviews home equity lines of credit and makes line reductions or converts outstanding balances at line maturity to closed-end, amortizing loans when necessary.
Shared National Credits
Shared National Credit (SNC) loans are facilities greater than $20 million shared by three or more federally supervised financial institutions that are reviewed annually by regulatory authorities at the agent bank level. The Corporation generally seeks to obtain ancillary business at the origination of a SNC relationship. Loans classified as SNC loans (approximately 890 borrowers at March 31, 2012) totaled $8.7 billion at March 31, 2012, compared to $8.4 billion at December 31, 2011. SNC net loan charge-offs totaled $14 million and $1 million for the three month periods ended March 31, 2012 and 2011, respectively. SNC loans, diversified by both business line and geographic market, comprised approximately 20 percent of total loans at both March 31, 2012 and December 31, 2011 SNC loans are held to the same credit underwriting standards as the remainder of the loan portfolio and face similar credit challenges.
Automotive Lending
Substantially all dealer loans are in the National Dealer Services business line. Loans in the National Dealer Services business line include floor plan financing and other loans to automotive dealerships. Floor plan loans, included in “commercial loans” in the consolidated balance sheets, totaled $2.2 billion at March 31, 2012, an increase of $330 million compared to $1.8 billion at December 31, 2011, primarily reflecting the continued recovery from the impact of supply chain disruptions caused by the catastrophic earthquake and tsunami in Japan in March 2011, as the significant majority of the decrease in floor plan loans was concentrated in automotive franchises selling Japanese-made vehicles. At both March 31, 2012 and December 31, 2011, other loans to automotive dealers in the National Dealer Services business line totaled $1.9 billion, including $1.4 billion of owner-occupied commercial real estate mortgage loans at both March 31, 2012 and December 31, 2011. Automotive lending also includes loans to borrowers involved with automotive production, primarily Tier 1 and Tier 2 suppliers. Loans to borrowers involved with automotive production totaled approximately $1.1 billion at March 31, 2012, compared to $931 million at December 31, 2011.
State and Local Municipalities
In the normal course of business, the Corporation serves the needs of state and local municipalities in multiple capacities, including traditional banking products such as deposit services, loans and letters of credit, investment banking services such as bond underwriting and private placements, and by investing in municipal securities.
The following table summarizes the Corporation's direct exposure to state and local municipalities as of March 31, 2012 and December 31, 2011.
(in millions)
March 31, 2012
December 31, 2011
Loans outstanding
$
41

$
46

Lease financing
369

397

Investment securities available-for-sale
23

24

Trading account securities
46

12

Standby letters of credit
144

158

Unused commitments to extend credit
17

15

Total direct exposure to state and local municipalities
$
640

$
652


59

Indirect exposure comprised $232 million in auction-rate preferred securities collateralized by municipal securities at March 31, 2012, compared to $320 million at December 31, 2011. Additionally, the Corporation is exposed to Automated Clearing House (ACH) transaction risk for those municipalities utilizing this electronic payment and/or deposit method and similar products in their cash flow management. The Corporation sets limits on ACH activity during the underwriting process.
Extensions of credit to state and local municipalities are subjected to the same underwriting standards as other business loans. At March 31, 2012 and December 31, 2011, all outstanding municipal loans and leases were performing according to contractual terms and none were included in the Corporation's internal watch list. Municipal leases are secured by the underlying equipment, and a substantial majority of the leases are fully defeased with AAA-rated U.S. government securities. Substantially all municipal investment securities available-for sale are auction-rate securities. All auction-rate securities are reviewed quarterly for other-than-temporary impairment. All auction-rate municipal securities were rated investment grade, and all auction-rate preferred securities collateralized by municipal securities were rated AAA or the equivalent and were adequately collateralized at both March 31, 2012 and December 31, 2011. Municipal securities are held in the trading account for resale to customers. In addition, Comerica Securities, a broker-dealer subsidiary of Comerica Bank, underwrites bonds issued by municipalities. All bonds underwritten by Comerica Securities are sold to third party investors.
European Exposure
The Corporation does not hold any sovereign exposure to Europe. The Corporation's international strategy as it pertains to Europe is to focus on European corporations doing business in North America, with an emphasis on the major geographic markets. The following table summarizes cross-border exposure to entities domiciled in European countries at March 31, 2012 and December 31, 2011.
Outstanding (a)
(in millions)
Commercial and Industrial
Banks and Other Financial Institutions
Total Outstanding
Unfunded Commitments and Guarantees
Total Exposure
March 31, 2012
United Kingdom
$
82

$
5

$
87

$
132

$
219

Netherlands
44

—

44

75

119

Switzerland
—

40

40

65

105

Germany
4

4

8

50

58

Ireland
22

—

22

10

32

Luxembourg
—

—

—

20

20

Sweden
10

—

10

9

19

Belgium
2

—

2

6

8

Italy
5

1

6

—

6

Spain
—

—

—

3

3

Finland
—

2

2

—

2

Total Europe
$
169

$
52

$
221

$
370

$
591

December 31, 2011
United Kingdom
$
72

$
4

$
76

$
135

$
211

Switzerland
—

39

39

64

103

Netherlands
46

—

46

46

92

Germany
4

5

9

39

48

Ireland
20

—

20

14

34

Sweden
10

—

10

8

18

Italy
5

1

6

—

6

Belgium
1

—

1

5

6

Spain
—

—

—

3

3

Finland
—

2

2

—

2

France
—

—

—

1

1

Total Europe
$
158

$
51

$
209

$
315

$
524

(a)
Includes funded loans, bankers acceptances and net counterparty derivative exposure.
For further discussion of credit risk, see the "Credit Risk" section on pages F-23 through F-36 in the Corporation's 2011 Annual Report.

60

Market and Liquidity 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's balance sheet is predominantly characterized by floating-rate loans funded by a combination of core deposits and wholesale borrowings. Approximately 80 percent of the Corporation's loans were floating at March 31, 2012, of which approximately 70 percent were based on LIBOR and 30 percent were based on Prime. This creates a natural imbalance between the floating-rate loan portfolio and the more slowly repricing deposit products. The result is that growth and/or contraction in the Corporation's core businesses may lead to sensitivity to interest rate movements in the absence of mitigating actions. Examples of such actions are purchasing investment securities, primarily fixed-rate, which provide liquidity to the balance sheet and act to mitigate the inherent interest sensitivity, and hedging the sensitivity with interest rate swaps. The Corporation actively manages its exposure to interest rate risk, with the principal objective of optimizing net interest income and the economic value of equity while operating within acceptable limits established for interest rate risk and maintaining adequate levels of funding and liquidity.
The Corporation frequently evaluates net interest income under various balance sheet and interest rate scenarios, looking at a 12-month time horizon, using simulation modeling analysis as its principal risk management evaluation technique. The results of this analysis provides the information needed to assess the balance sheet structure. Changes in economic activity, whether domestic or international, different from the changes management included in its simulation analysis could translate into a materially different interest rate environment than currently expected. Management evaluates a base case net interest income under an unchanged interest rate environment and what is believed to be the most likely balance sheet structure. This base case net interest income is then evaluated against non-parallel interest rate scenarios that increase and decrease 200 basis points in a linear fashion from the base case over 12 months, resulting in an average change in interest rates of 100 basis points over the period. Due to the current low level of interest rates, the analysis reflects a declining interest rate scenario of a 25 basis point drop, to zero percent. In addition, consistent with each interest rate scenario, adjustments to asset prepayment levels, yield curves, and overall balance sheet mix and growth assumptions are made. These assumptions are inherently uncertain and, as a result, the model may not precisely predict the impact of higher or lower interest rates on net interest income. Additionally, the estimated impact on net interest income over the 12-month time horizon is generally not linear relative to other time horizons. Actual results may differ from simulated results due to timing, magnitude and frequency of changes in interest rates, market conditions and management strategies, among other factors. However, the model can indicate the likely direction of change. Existing derivative instruments entered into for risk management purposes are included in the analysis, but no additional hedging is forecasted.
The table below, as of March 31, 2012 and December 31, 2011, displays the estimated impact on net interest income during the next 12 months by relating the base case scenario results to those from the rising and declining rate scenarios described above. The sensitivity from December 31, 2011 to March 31, 2012 increased primarily due to growth in core deposits, though risk to declining interest rates is limited by the current low level of rates.
March 31, 2012
December 31, 2011
(in millions)
Amount
%
Amount
%
Change in Interest Rates:
+200 basis points
$
165

10
%
$
156

9
%
-25 basis points (to zero percent)
(22
)
(1
)
(20
)
(1
)
In addition to the simulation analysis, an economic value of equity analysis is performed for a longer term view of the interest rate risk position. The economic value of equity analysis begins with an estimate of the economic value of the financial assets, liabilities and off-balance sheet instruments on the Corporation's balance sheet, derived through discounting cash flows based on actual rates at the end of the period. Next, the estimated impact of rate movements is applied to the economic value of assets, liabilities and off-balance sheet instruments. The economic value of equity is then calculated as the difference between the estimated market value of assets and liabilities net of the impact of off-balance sheet instruments. As with net interest income simulation analysis, a variety of alternative scenarios are performed to measure the impact on economic value of equity, including changes in the level, slope and shape of the yield curve.

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The table below, as of March 31, 2012 and December 31, 2011, displays the estimated impact on the economic value of equity from a 200 basis point immediate parallel increase or decrease in interest rates. Similar to the simulation analysis above, due to the current low level of interest rates, the economic value of equity analyses below reflect an interest rate scenario of an immediate 25 basis point drop, to zero percent, while the rising interest rate scenario reflects an immediate 200 basis point rise. The change in the sensitivity of the economic value of equity to a 200 basis point parallel increase in rates between December 31, 2011 and March 31, 2012 was primarily driven by changes in market interest rates, increases in noninterest-bearing and lower cost deposits, and forecasted prepayments on the Corporation's mortgage-backed securities portfolio.
March 31, 2012
December 31, 2011
(in millions)
Amount
%
Amount
%
Change in Interest Rates:
+200 basis points
$
862

8
%
$
719

7
%
-25 basis points (to zero percent)
(163
)
(2
)
(147
)
(1
)
Wholesale Funding
The Corporation satisfies liquidity requirements with either liquid assets or various funding sources. Liquid assets, which totaled $11.4 billion at March 31, 2012, compared to $11.2 billion at December 31, 2011, provide a reservoir of liquidity. Liquid assets include cash and due from banks, federal funds sold, interest-bearing deposits with banks, other short-term investments and unencumbered investment securities available-for-sale. At March 31, 2012, the Corporation held excess liquidity, represented by $2.9 billion deposited with the FRB, compared to $2.5 billion at December 31, 2011.
The Corporation may access the purchased funds market when necessary, which includes foreign office time deposits and short-term borrowings. Capacity for incremental purchased funds at March 31, 2012 included the ability to purchase federal funds, sell securities under agreements to repurchase, as well as issue deposits to institutional investors and issue certificates of deposit through brokers. Purchased funds totaled $414 million at March 31, 2012, compared to $418 million at December 31, 2011.
The Corporation is a member of the Federal Home Loan Bank of Dallas, Texas (FHLB), which provides short- and long-term funding to its members through advances collateralized by real estate-related assets. The actual borrowing capacity is contingent on the amount of collateral available to be pledged to the FHLB. As of March 31, 2012, the Corporation had $2.0 billion of outstanding borrowings from the FHLB with remaining maturities ranging from May 2013 to May 2014. Additionally, the Bank had the ability to issue up to $14.8 billion of debt at March 31, 2012 under an existing $15 billion medium-term senior note program which allows the issuance of debt with maturities between three months and 30 years. The Corporation also maintains a shelf registration statement with the Securities and Exchange Commission from which it may issue debt and/or equity securities.
The ability of the Corporation and the Bank to raise funds at competitive rates is impacted by rating agencies' views of the credit quality, liquidity, capital and earnings of the Corporation and the Bank. As of March 31, 2012, the four major rating agencies had assigned the following ratings to long-term senior unsecured obligations of the Corporation and the Bank. A security rating is not a recommendation to buy, sell, or hold securities and may be subject to revision or withdrawal at any time by the assigning rating agency. Each rating should be evaluated independently of any other rating.
March 31, 2012
Comerica Incorporated
Comerica Bank
Standard and Poor’s
A-
A
Moody’s Investors Service
A3
A2
Fitch Ratings
A
A
DBRS
A
A (High)
Other Market Risks
Market risk related to the Corporation's trading instruments is not significant, as trading activities are limited. 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 and debt securities. Other components of noninterest income, primarily brokerage fees, are at risk to changes in the volume of market activity.
At both March 31, 2012 and December 31, 2011, the Corporation had a $15 million portfolio of investments in indirect private equity and venture capital funds, with commitments of $9 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 included in “accrued income and other assets” on the consolidated balance sheets. The investments are individually reviewed for impairment on a quarterly basis by comparing the carrying value to the estimated fair value.

62

For further discussion of market risk, see Note 6 to these unaudited consolidated financial statements and pages F-36 through F-41 in the Corporation's 2011 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 2011 Annual 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. At December 31, 2011, the most critical of these significant accounting policies were the policies related to the allowance for credit losses, valuation methodologies, goodwill, pension plan accounting and income taxes. These policies were reviewed with the Audit Committee of the Corporation’s Board of Directors and are discussed more fully on pages F-43 through F-48 in the Corporation’s 2011 Annual Report.
The following is the critical accounting policy for goodwill reflecting the results of the most recent impairment test performed in the first quarter 2012. As of the date of this report, the Corporation does not believe there are any other material changes in the nature or categories of the critical accounting policies or estimates and assumptions from those discussed in the Corporation’s 2011 Annual Report.
Goodwill
Goodwill is the value attributed to unidentifiable intangible elements in acquired businesses. Goodwill is initially recorded at fair value and is subsequently evaluated at least annually for impairment. Goodwill impairment testing is performed at the reporting unit level, equivalent to a business segment or one level below. The Corporation has three reporting units: the Business Bank, the Retail Bank and Wealth Management. At both March 31, 2012 and December 31, 2011, goodwill totaled $635 million , including $380 million allocated to the Business Bank, $194 million allocated to the Retail Bank and $61 million allocated to Wealth Management.
The Corporation performs its annual evaluation of goodwill impairment in the third quarter of each year and on an interim basis if events or changes in circumstances between annual tests suggest additional testing may be warranted to determine if goodwill might be impaired. The goodwill impairment test is a two-step test. The first step of the goodwill impairment test compares the estimated fair value of identified reporting units with their carrying amount, including goodwill. If the estimated fair value of the reporting unit is less than the carrying value, the second step must be performed to determine the implied fair value of the reporting unit's goodwill and the amount of goodwill impairment, if any.
Estimating the fair value of reporting units is a subjective process involving the use of estimates and judgments related to the selection of inputs such as future cash flows, discount rates, comparable public company multiples, applicable control premiums and economic expectations used in determining the interest rate environment. The estimated fair values of the reporting units are determined using a blend of two commonly used valuation techniques: the market approach and the income approach. For the market approach, valuations of reporting units consider a combination of earnings, equity and other multiples from companies with characteristics similar to the reporting unit. Since the fair values determined under the market approach are representative of noncontrolling interests, the valuations accordingly incorporate a control premium. For the income approach, estimated future cash flows and terminal value are discounted. Estimated future cash flows are derived from internal forecasts and economic expectations for each reporting unit. The applicable discount rate is based on the imputed cost of equity capital appropriate for each reporting unit, which incorporates the risk-free rate of return, the level of non-diversified risk associated with companies with characteristics similar to the reporting unit (beta), an entity-specific risk premium and a market equity risk premium.
In January 2012, the Federal Reserve announced their expectation for the Federal Funds target rate to remain at currently low levels through late 2014. Given the potential for a continued low interest rate environment, the Corporation determined that an interim goodwill impairment test should be performed in the first quarter 2012. As part of the impairment analysis, the Corporation incorporated the Federal Reserve's expectation of the low Federal Fund target rate level through 2014 in its forecasts. In the first quarter 2012, the Corporation engaged an independent valuation specialist to review its valuation models and assumptions. Based on the results of this review and in light of the current rate environment, the Corporation updated its assumptions, discount factors and control premiums. The updated assumptions included maintaining the low Federal funds target rate through the end of 2014. For the years after 2014, the Corporation developed rate assumptions based on the expectation of modest increases in the Federal Funds target rate, eventually reaching a normal interest rate environment. Increases to the fair value of the reporting units were in part a result of the improvement in the stock price of the Corporation as well as the stock prices of the guideline companies used in the market approach. The first step of the interim goodwill impairment test performed in the first quarter 2012 indicated that the estimated fair values of each of the reporting units substantially exceeded their carrying values, including goodwill. The fair value of the Retail Bank exceeded the carrying value by 14 percent. The results of the goodwill impairment test for each reporting unit were subjected to stress testing as appropriate.

63

Economic conditions impact the assumptions related to interest and growth rates, loss rates and imputed cost of equity capital. The fair value estimates for each reporting unit incorporated current economic and market conditions, including the recent Federal Reserve announcement and the impact of legislative and regulatory changes, to the extent known and as described above. However, further weakening in the economic environment, such as adverse changes in interest rates, a decline in the performance of the reporting units or other factors could cause the fair value of one or more of the reporting units to fall below their carrying value, resulting in a goodwill impairment charge. Additionally, new legislative or regulatory changes not anticipated in management's expectations may cause the fair value of one or more of the reporting units to fall below the carrying value, resulting in a goodwill impairment charge. Any impairment charge would not affect the Corporation's regulatory capital ratios, tangible common equity ratio or liquidity position.

64

Supplemental Financial Data
The following table provides a reconciliation of non-GAAP financial measures used in this financial review with financial measures defined by GAAP.
(dollar amounts in millions)
March 31, 2012
December 31, 2011
Tier 1 Common Capital Ratio:
Tier 1 capital (a) (b)
$
6,672

$
6,582

Less:
Trust preferred securities
25

25

Tier 1 common capital (b)
$
6,647

$
6,557

Risk-weighted assets (a) (b)
$
64,362

$
63,244

Tier 1 risk-based capital ratio (b)
10.37
%
10.41
%
Tier 1 common capital ratio (b)
10.33

10.37

Tangible Common Equity Ratio:
Common shareholders' equity
$
6,985

$
6,868

Less:
Goodwill
635

635

Other intangible assets
30

32

Tangible common equity
$
6,320

$
6,201

Total assets
$
62,593

$
61,008

Less:
Goodwill
635

635

Other intangible assets
30

32

Tangible assets
$
61,928

$
60,341

Common equity ratio
11.16
%
11.26
%
Tangible common equity ratio
10.21

10.27

Tangible Common Equity per Share of Common Stock:
Common shareholders' equity
$
6,985

$
6,868

Tangible common equity
6,320

6,201

Shares of common stock outstanding (in millions)
197

197

Common shareholders' equity per share of common stock
$
35.44

$
34.80

Tangible common equity per share of common stock
32.06

31.42

(a)
Tier 1 capital and risk-weighted assets as defined by regulation.
(b)
March 31, 2012 Tier 1 capital and risk-weighted assets are estimated.
The Tier 1 common capital ratio removes qualifying trust preferred securities from Tier 1 capital as defined by and calculated in conformity with bank regulations. The tangible common equity ratio removes the effect of intangible assets from capital and the effect of intangible assets from total assets and tangible common equity per share of common stock removes the effect of intangible assets from common shareholders' equity per share of common stock. The Corporation believes these measurements are meaningful measures of capital adequacy used by investors, regulators, management and others to evaluate the adequacy of common equity and to compare against other companies in the industry.
ITEM 3. Quantitative and Qualitative Disclosures about Market Risk
Quantitative and qualitative disclosures for the current period can be found in the "Market and Liquidity Risk" section of "Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations."
ITEM 4. Controls and Procedures
(a)
Evaluation of Disclosure Controls and Procedures . The Corporation maintains a set of disclosure controls and procedures (as 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

65

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 Control Over Financial Reporting . During the period to which this report relates, there have not been any changes in the Corporation’s internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that have materially affected, or that are reasonably likely to materially affect, such controls.
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings
For information regarding the Corporation’s legal proceedings, see “Part I. Item 1. Note 13 – 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, 2011 in response to Part I, Item 1A. 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 purchase of equity securities, see “Part I. Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations – Capital,” which is incorporated herein by reference.
ITEM 6. Exhibits

66

Exhibit No.
Description
3.1
Restated Certificate of Incorporation of Comerica Incorporated (filed as Exhibit 3.2 to Registrant’s Current Report on Form 8-K dated August 4, 2010, and incorporated herein by reference).
3.2
Certificate of Amendment to Restated Certificate of Incorporation of Comerica Incorporated (filed as Exhibit 3.2 to Registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2011, and incorporated herein by reference).
3.3
Amended and Restated Bylaws of Comerica Incorporated (filed as Exhibit 3.3 to Registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2011, and incorporated herein by reference).
4
[In accordance with Regulation S-K Item No. 601(b)(4)(iii), the Registrant is not filing copies of instruments defining the rights of holders of long-term debt because none of those instruments authorizes debt in excess of 10% of the total assets of the registrant and its subsidiaries on a consolidated basis. The Registrant hereby agrees to furnish a copy of any such instrument to the Securities and Exchange Commission upon request.]
10.1
Form of Standard Comerica Incorporated Non-Qualified Stock Option Agreement under the Comerica Incorporated Amended and Restated 2006 Long-Term Incentive Plan (2012 version) (filed as Exhibit 10.1C to Registrant's Annual Report on Form 10-K for the year ended December 31, 2011, and incorporated herein by reference).
10.2
Form of Standard Comerica Incorporated Restricted Stock Award Agreement (non-cliff vesting) under the Amended and Restated Comerica Incorporated 2006 Long-Term Incentive Plan (2012 version) (filed as Exhibit 10.1F to Registrant's Annual Report on Form 10-K for the year ended December 31, 2011, and incorporated herein by reference).
10.3
Form of Standard Comerica Incorporated Restricted Stock Award Agreement (cliff vesting) under the Comerica Incorporated 2006 Amended and Restated Long-Term Incentive Plan (2012 version) (filed as Exhibit 10.1I to Registrant's Annual Report on Form 10-K for the year ended December 31, 2011, and incorporated herein by reference).
10.4
Restrictive Covenants and General Release Agreement by and between Elizabeth S. Acton and Comerica Incorporated dated April 20, 2012 (filed as Exhibit 10.1 to Registrant's Current Report on Form 8-K dated April 20, 2012, and incorporated herein by reference).
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
Vice Chairman 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)
101*
Financial statements from Quarterly Report on Form 10-Q of the Registrant for the quarter ended March 31, 2012, formatted in Extensible Business Reporting Language: (i) the Consolidated Balance Sheets, (ii) the Consolidated Statements of Comprehensive Income, (iii) the Consolidated Statements of Changes in Shareholders’ Equity, (iv) the Consolidated Statements of Cash Flows and (v) the Notes to Consolidated Financial Statements.*
*
As provided in Rule 406T of Regulation S-T, this information shall not be deemed “filed” for purposes of Section 11 and 12 of the Securities Act of 1933 and Section 18 of the Securities Exchange Act of 1934 or otherwise subject to liability under those sections.

67

SIGNATURE
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/ Muneera S. Carr
Muneera S. Carr
Senior Vice President and
Chief Accounting Officer and
Duly Authorized Officer

Date: May 1, 2012

68

EXHIBIT INDEX
Exhibit No.
Description
3.1
Restated Certificate of Incorporation of Comerica Incorporated (filed as Exhibit 3.2 to Registrant’s Current Report on Form 8-K dated August 4, 2010, and incorporated herein by reference).
3.2
Certificate of Amendment to Restated Certificate of Incorporation of Comerica Incorporated (filed as Exhibit 3.2 to Registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2011, and incorporated herein by reference).
3.3
Amended and Restated Bylaws of Comerica Incorporated (filed as Exhibit 3.3 to Registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2011, and incorporated herein by reference).
4
[In accordance with Regulation S-K Item No. 601(b)(4)(iii), the Registrant is not filing copies of instruments defining the rights of holders of long-term debt because none of those instruments authorizes debt in excess of 10% of the total assets of the registrant and its subsidiaries on a consolidated basis. The Registrant hereby agrees to furnish a copy of any such instrument to the Securities and Exchange Commission upon request.]
10.1
Form of Standard Comerica Incorporated Non-Qualified Stock Option Agreement under the Comerica Incorporated Amended and Restated 2006 Long-Term Incentive Plan (2012 version) (filed as Exhibit 10.1C to Registrant's Annual Report on Form 10-K for the year ended December 31, 2011, and incorporated herein by reference).
10.2
Form of Standard Comerica Incorporated Restricted Stock Award Agreement (non-cliff vesting) under the Amended and Restated Comerica Incorporated 2006 Long-Term Incentive Plan (2012 version) (filed as Exhibit 10.1F to Registrant's Annual Report on Form 10-K for the year ended December 31, 2011, and incorporated herein by reference).
10.3
Form of Standard Comerica Incorporated Restricted Stock Award Agreement (cliff vesting) under the Comerica Incorporated 2006 Amended and Restated Long-Term Incentive Plan (2012 version) (filed as Exhibit 10.1I to Registrant's Annual Report on Form 10-K for the year ended December 31, 2011, and incorporated herein by reference).
10.4
Restrictive Covenants and General Release Agreement by and between Elizabeth S. Acton and Comerica Incorporated dated April 20, 2012 (filed as Exhibit 10.1 to Registrant's Current Report on Form 8-K dated April 20, 2012, and incorporated herein by reference).
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
Vice Chairman 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)
101*
Financial statements from Quarterly Report on Form 10-Q of the Registrant for the quarter ended March 31, 2012, formatted in Extensible Business Reporting Language: (i) the Consolidated Balance Sheets, (ii) the Consolidated Statements of Comprehensive Income, (iii) the Consolidated Statements of Changes in Shareholders’ Equity, (iv) the Consolidated Statements of Cash Flows and (v) the Notes to Consolidated Financial Statements.*
*
As provided in Rule 406T of Regulation S-T, this information shall not be deemed “filed” for purposes of Section 11 and 12 of the Securities Act of 1933 and Section 18 of the Securities Exchange Act of 1934 or otherwise subject to liability under those sections.


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TABLE OF CONTENTS