UNITED
STATES
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SECURITIES
AND EXCHANGE COMMISSION
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WASHINGTON,
D.C. 20549
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T
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ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
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SECURITIES
EXCHANGE ACT OF 1934
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For
the fiscal year ended December 31, 2008
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OR
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£
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TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
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SECURITIES
EXCHANGE ACT OF 1934
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For the
transition period from ____________ to ____________
Commission
File Number:
001-31708
CAPITOL
BANCORP LTD.
(Exact
name of registrant as specified in its charter)
MICHIGAN
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38-2761672
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(State
or other jurisdiction of
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(IRS
Employer
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incorporation
or organization)
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Identification
Number)
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Capitol
Bancorp Center
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200
N. Washington Square
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Lansing,
Michigan
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48933
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(Address
of principal executive offices)
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(Zip
Code)
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517-487-6555
(Registrant's
telephone number, including area code)
None
(Former
name, former address and former fiscal year, if changed since last
report)
Securities
registered pursuant to Section 12(b) of the Act:
Title
of each class
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Name
of each exchange on which registered
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Common
Stock, no par value per share
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New
York Stock Exchange
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8.50%
Cumulative Trust Preferred Securities,
$10
Liquidation Amount
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New
York Stock Exchange
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10.5%
Cumulative Trust Preferred Securities,
$10
Liquidation Amount
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New
York Stock Exchange
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Securities
registered pursuant to Section 12(g) of the Act:
None
Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act.
Yes
o
No
x
Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Exchange Act.
Yes
o
No
x
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 if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the best
of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.
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 (as
defined in Rule 12b-2 of the Exchange Act).
Large
accelerated filer
o
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Accelerated
filer
x
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Non-accelerated
filer
o
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Smaller
Reporting Company
o
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(Do not
check if a smaller reporting company)
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
As of
June 30, 2008, the aggregate market value of the registrant's common stock held
by non-affiliates of the registrant
was: $119,302,283. (Such amount was computed based on
shares held by non-affiliates as of January 31, 2008 and the common stock
closing price reported by the New York Stock Exchange on June 30,
2008. For purposes of this computation, all executive officers,
directors and 5% shareholders have been assumed to be
affiliates. Certain of such persons may disclaim that they are
affiliates of registrant.)
Indicate
the number of shares outstanding of each of the issuer's classes of common
stock, as of the latest practicable date.
Class
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Outstanding
at February 24, 2009
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Common
Stock, no par value per share
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17,290,623
shares
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DOCUMENTS
INCORPORATED BY REFERENCE
Document
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Parts Into Which
Incorporated
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Annual
Report to Shareholders for the Year Ended
December
31, 2008 (Annual Report)
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Parts
I, II, and IV
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Portions
of Proxy Statement for the Annual Meeting of
Shareholders
to be held April 22, 2009 (Proxy Statement)
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Part
III
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CAPITOL
BANCORP LTD.
Form
10-K
Fiscal
Year Ended: December 31, 2008
Cross
Reference Sheet
Item of Form 10-K
Part I
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Incorporation by
Reference From
:
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Item
1. Business
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Pages
F-7 – F-11, F-22 – F-31, F-42 – F-45 and F-58 – F-59,
Financial
Information Section of Annual Report
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Item
1A. Risk Factors
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Page
F-33, Financial Information Section of Annual Report
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Item
2. Properties
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Pages
F-42 – F-43 and F-56, Financial Information Section of Annual
Report
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Part II
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Item
5. Market for Registrant's Common Equity,
Related
Stockholder Matters and Issuer
Purchases
of Equity Securities
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Pages
F-2 – F-6, F-59 – F-61 and F-69 – F-70 , Financial
Information
Section
of Annual Report
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Item
6. Selected Financial Data
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Page
F-2, Financial Information Section of Annual Report
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Item
7. Management's Discussion and Analysis of
Financial
Condition and Results of
Operations
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Pages
F-7 – F-33, Financial Information Section of Annual Report
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Item
7A. Quantitative and Qualitative Disclosures
About
Market Risk
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Pages
F-6 and F-26 – F-31, Financial Information Section of
Annual
Report
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Item
8. Financial Statements and Supplementary
Data
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Pages
F-2 and F-38 – F-72, Financial Information Section of
Annual
Report
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Item
9A. Controls and Procedures
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Pages
F-34 – F-36, Financial Information Section of Annual Report
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Part III
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Item
10. Directors, Executive Officers and Corporate
Governance
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Proxy
Statement
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Item
11. Executive Compensation
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Proxy
Statement
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Item
12. Security Ownership of Certain Beneficial
Owners
and Management and Related
Stockholder
Matters
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Proxy
Statement
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Item
13. Certain Relationships and Related
Transactions
and Director Independence
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Proxy
Statement
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Item
14. Principal Accountant Fees and Services
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Proxy
Statement
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Part IV
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Item
15. Exhibits and Financial Statement Schedules
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Pages
F-34 – F-72, Financial Information Section of Annual
Report
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Key:
"Annual
Report"
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means
the 2008 Annual Report of Capitol provided to Shareholders and the
Commission pursuant to Rule 14a-3(b). Capitol's 2008 Annual
Report is divided into two sections: a Financial Information
Section and a Marketing Section and is filed as Exhibit 13 with this Form
10-K report.
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"Proxy
Statement"
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means
the Proxy Statement of Capitol for the Annual Meeting of Shareholders to
be held April 22, 2009.
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Note:
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The
page number references herein are based on the paper version of the
referenced documents. Accordingly, those page number references
may differ from the electronically filed versions of those
documents.
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2008 FORM
10-K ANNUAL REPORT
TABLE OF
CONTENTS
PART
I
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Page
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ITEM 1. Business
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6
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ITEM
1A. Risk Factors
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24
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ITEM
1B. Unresolved Staff Comments
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31
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ITEM 2. Properties
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31
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ITEM 3. Legal
Proceedings
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32
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ITEM 4. Submission
of Matters to a Vote of Security Holders
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33
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PART
II
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ITEM 5. Market
for Registrant's Common Equity, Related Stockholder Matters and Issuer
Purchases
of
Equity Securities
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34
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ITEM
6. Selected Financial Data
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35
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ITEM 7. Management's
Discussion and Analysis of Financial Condition and Results of
Operations
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35
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ITEM
7A. Quantitative and Qualitative Disclosures About Market
Risk
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35
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ITEM 8. Financial
Statements and Supplementary Data
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35
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ITEM 9. Changes
in and Disagreements with Accountants on Accounting and Financial
Disclosure
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35
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ITEM
9A. Controls and Procedures
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35
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ITEM
9B. Other Information
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36
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PART
III
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ITEM
10. Directors, Executive Officers and Corporate
Governance
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37
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ITEM
11. Executive Compensation
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37
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ITEM
12. Security Ownership of Certain Beneficial Owners and
Management and Related
Stockholder
Matters
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37
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ITEM
13. Certain Relationships and Related Transactions and Director
Independence
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37
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ITEM
14. Principal Accountant Fees and Services
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37
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PART
IV
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ITEM
15. Exhibits and Financial Statement Schedules
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38
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FORWARD-LOOKING
STATEMENTS
Some of
the statements contained or incorporated by reference in this annual report on
Form 10-K that are not historical facts may constitute forward-looking
statements. Those forward-looking statements, within the meaning of
the Private Securities Litigation Reform Act of 1995, are subject to known and
unknown risks, uncertainties and other factors which may cause the actual future
results, performance or achievements of Capitol and/or its subsidiaries and
other operating units to differ materially from those contemplated in such
forward-looking statements. The words "intend," "expect," "project,"
"estimate," "predict," "anticipate," "should," "will," "may," "believe" and
similar expressions also identify forward-looking
statements. Important factors which may cause actual results to
differ from those contemplated in such forward-looking statements include, but
are not limited to: (i) the results of Capitol's efforts to implement its
business strategy, (ii) changes in interest rates, (iii) legislation or
regulatory requirements adversely impacting Capitol's banking business and/or
strategy, (iv) adverse changes in business conditions or inflation, (v) general
economic conditions, either nationally or regionally, which are less favorable
than expected and that result in, among other things, a deterioration in credit
quality and/or loan performance and collectability, (vi) competitive pressures
among financial institutions, (vii) changes in securities markets, (viii)
actions of competitors of Capitol's banks and Capitol's ability to respond to
such actions, (ix) the cost of and access to capital, which may depend in part
on Capitol's asset quality, prospects and outlook, (x) changes in governmental
regulation, tax rates and similar matters, (xi) availability of funds under the
U.S. Treasury's Capital Purchase Program, (xii) changes in management and (xiii)
other risks detailed in Capitol's other filings with the Securities and Exchange
Commission. If one or more of these risks or uncertainties
materialize, or if underlying assumptions prove incorrect, actual outcomes may
vary materially from those indicated. The preparation of consolidated
financial statements in conformity with generally accepted accounting principles
in the United States of America requires management to make certain estimates
and assumptions, many of which are based on assumptions relating to the
above-stated forward-looking statements, that affect the reported amounts of
assets and liabilities at the date of the consolidated financial statements and
the reported amounts of revenues and expenses during the reporting
period. Actual results will differ from those estimates because of
the inherent subjectivity and inaccuracy of any estimation. All
subsequent written or oral forward-looking statements attributable to Capitol or
persons acting on its behalf are expressly qualified in their entirety by the
foregoing factors. Investors and other interested parties are
cautioned not to place undue reliance on such statements, which speak as of the
date of such statements. Capitol undertakes no obligation to release
publicly any revisions to these forward-looking statements to reflect events or
circumstances after the date of such statements or to reflect the occurrence of
unanticipated events.
[The
remainder of this page intentionally left blank]
PART I
Item 1.
Business.
a. General
development of business:
Incorporated
by reference from Pages F-7 – F-11, Financial Information Section of Annual
Report, under the captions "Summary and Overview" and "Capitol's Approach to
Community Banking" and Pages F-42 – F-45, Financial Information Section of
Annual Report, under the caption "Note A—Nature of Operations, Basis of
Presentation and Principles of Consolidation."
b. Financial
information about segments:
Incorporated
by reference from Pages F-10 – F-13, Financial Information Section of Annual
Report (excerpt from management's discussion and analysis of financial
conditions and results of operations) and Pages F-42 – F-45, Financial
Information Section of Annual Report, under the caption "Note A—Nature of
Operations, Basis of Presentation and Principles of Consolidation."
c. Narrative
description of business:
Incorporated
by reference from Pages F-7 – F-11, Financial Information Section of Annual
Report, under the caption "Summary and Overview," and "Capitol's Approach to
Community Banking," Pages F-42 – F-45, Financial Information Section of Annual
Report, under the caption "Note A—Nature of Operations, Basis of Presentation
and Principles of Consolidation," Pages F-22 – F-26, Financial Information
Section of Annual Report, under the caption "Liquidity, Capital Resources and
Capital Adequacy" and Pages F-26 – F-31, Financial Information Section of Annual
Report, under the caption "Trends Affecting Operations."
At
December 31, 2008, Capitol and its subsidiaries employed approximately 1,580
full time equivalent employees.
Capitol
Trust I and Capitol Trust XII were formed in 1997 and 2008, respectively; each
is a Delaware statutory business trust. The business and affairs of
Capitol Trust I and Capitol Trust XII are conducted by their respective property
trustee, a Delaware trustee, and administrative trustees who are employees and
officers of Capitol. Capitol Trust I and Capitol Trust XII exist for
the sole purpose of issuing and selling its preferred securities and common
securities, using the proceeds from the sale of those securities to acquire
subordinated debentures issued by Capitol and certain related
services. During 2001, Capitol formed Capitol Trust II and Capitol
Statutory Trust III, in conjunction with private placements of trust-preferred
securities. Capitol Trust IV was similarly formed in 2002, Capitol
Trust VI, Capitol Trust VII and Capitol Statutory Trust VIII were formed in
2003, Capitol Trust IX was formed in 2004 and Capitol Trust X and Capitol Trust
XI were formed in 2007. Each of these securities has similar
terms. Additional information regarding trust-preferred securities is
incorporated by reference from Pages F-58 – F-59, Financial Information Section
of Annual Report, under the caption "Note I—Subordinated Debt."
Supervision and
Regulation:
General:
The
banking industry is subject to extensive state and federal regulation and
continues to undergo significant change, particularly during the current severe
economic recession. Proposals to change the laws and regulations
governing the banking industry are currently being discussed in Congress, in
state legislatures and before the various
bank
regulatory agencies, in addition to direct investment in some financial
institutions by the U.S. government. The likelihood and timing of any
changes and the impact such changes might have on Capitol are impossible to
determine
with any
certainty. A change in applicable laws or regulations, or a change in
the way such laws or regulations are interpreted by regulatory agencies or
courts, may have a material impact on the business, operations and earnings of
Capitol. Although Congress in recent years had sought to reduce the
regulatory burden on financial institutions with
Item 1. Business –
continued.
respect
to the approval of specific transactions, Capitol expects that the financial
services industry will remain heavily regulated and that additional laws or
regulations may be adopted. The following discussion summarizes
certain aspects of the banking laws and regulations that affect
Capitol. To the extent that the following information describes
statutory or regulatory provisions, it is qualified entirely by reference to the
particular statutory or regulatory provision.
In
October 2008, Capitol applied to its primary federal regulator and the FDIC for
up to $142 million of preferred stock to be purchased by the U.S. Treasury
pursuant to the Capitol Purchase Program (CPP) under the Troubled Asset Relief
Program (TARP). If the U.S. Treasury purchases such preferred stock
from Capitol, Capitol would also issue warrants up to 4.5 million in shares of
its common stock, which would be immediately exercisable. The
preferred stock issued under CPP bears a 5% annual dividend for the first five
years, increasing to 9% thereafter, and would be treated as permanent tier 1
capital for regulatory purposes. Entering into a CPP stock purchase
agreement with the U.S. Treasury under TARP restricts the issuer of preferred
stock from increasing its dividends on common stock and repurchasing its common
stock, places restrictions on executive compensation and has other evolving
conditions and reporting obligations. There is no certainty Capitol will be
approved for the CPP or, if approved, whether Capitol will choose to
participate.
On February 25, 2009, the U.S. Treasury
announced its new Capital Assistance Program (CAP) under which U.S. banking
organizations may apply for a U.S. Treasury investment in mandatorily
convertible preferred stock in an amount of up to 1% or 2% of risk-weighted
assets. The purpose of the CAP is to provide eligible banking
organizations with capital in the form of a preferred security which is
convertible into common equity. Participating banking organizations
would also issue warrants to the U.S. Treasury. Eligibility will be
consistent with the criteria and deliberative process established under the
TARP/CPP. The CAP is open immediately and the application deadline
for participation is in May 2009. Capitol has not yet determined
whether it will submit a CAP application.
Capitol
is a bank holding company registered with the Board of Governors of the Federal
Reserve and is subject to regulation under the Bank Holding Company Act of 1956,
as amended (Bank Holding Company Act). The Bank Holding Company Act
requires the Federal Reserve Board's prior approval of an acquisition of assets
or of ownership or control of voting shares of any bank or bank holding company,
if the acquisition would give the acquiring institution more than 5% of the
voting shares of such bank or bank holding company. It also imposes
restrictions, summarized below, on the assets or voting shares of nonbanking
companies that Capitol may acquire.
Consistent
with the requirements of the Bank Holding Company Act, Capitol's lines of
business provide its customers with banking, trust and other financial services
and products. These services include commercial banking through 64
subsidiary banks (as of December 31, 2008), as well as trust services, mortgage
origination and servicing, equipment leasing, brokerage and investment advisory
services, property and casualty insurance, life insurance and annuity products,
and portfolio management services through subsidiary banks and other
subsidiaries.
Under
Federal Reserve Board policy, a bank holding company is expected to serve as a
source of financial strength to its subsidiary banks and to stand prepared to
commit resources to support each of them. There are no specific
quantitative rules on a holding company's potential liability. If one
of Capitol's subsidiary banks were to encounter financial difficulty, the
Federal Reserve Board could invoke the doctrine and require a capital
contribution from Capitol. In addition, and as a separate legal
matter, a holding company is required to guarantee the capital plan of an
undercapitalized subsidiary bank. See "Capital Adequacy and Prompt
Corrective Action" below.
Capitol's
subsidiary banks are subject to the provisions of the banking laws of their
respective states of organization, the National Bank Act or national thrift
regulations. They are under the supervision of, and are subject to
periodic examination by, their respective state banking departments (in the case
of state-chartered banks), the Office of
the
Comptroller of the Currency (OCC) (in the case of national banks) or the Office
of Thrift Supervision (OTS) (in the case of federal savings banks) and are
subject to the rules and regulations of the OCC, the OTS, the Federal Reserve
Board and
the Federal Deposit Insurance Corporation (FDIC). As of December 31,
2008, 56 of Capitol's banking subsidiaries were state-chartered banks and
therefore subject to supervision, regulation and examination by state
banking
Item 1. Business –
continued.
regulators
and the FDIC. Seven of Capitol's depository institution subsidiaries,
as of December 31, 2008, were chartered as federal savings banks and are subject
to regulation and examination by the OTS and FDIC; one bank subsidiary was a
national bank, subject to regulation by the OCC and
FDIC. Additionally, non-bank subsidiaries are supervised and examined
by the Federal Reserve Board and various other federal and state
agencies.
Capitol's
insured depository institution subsidiaries are also subject to cross-guaranty
liability under federal law. This means that if one FDIC-insured
depository institution subsidiary of a multi-institution bank holding company
fails or requires FDIC assistance, the FDIC may assess "commonly controlled"
depository institutions for the estimated losses suffered by the
FDIC. Such liability could have a material adverse effect on the
financial condition of any assessed subsidiary institution and on Capitol as the
common parent. While the FDIC's cross-guaranty claim is generally
junior to the claims of depositors, holders of secured liabilities, general
creditors and subordinated creditors, it is generally superior to the claims of
shareholders and affiliates.
Payment
of Dividends:
There are
various statutory restrictions on the ability of Capitol's banking subsidiaries
to pay dividends or make other payments to Capitol. Each of the
state-chartered banking subsidiaries is subject to dividend limits under the
laws of the state in which it is chartered. Federal Reserve Board
policy provides that, as a matter of prudent banking, a bank holding company
generally should not maintain a rate of cash dividends unless its net income
available to common shareholders has been sufficient to fully fund the dividends
and the prospective rate of earnings retention appears to be consistent with the
holding company's capital needs, asset quality and overall financial
condition.
Dividends
from a national banking association may be declared only from the bank's
undivided profits, and until the bank's surplus fund equals its common capital,
no dividends may be declared unless at least 10% of the bank's net income for a
given time period has been carried to the surplus fund, depending on the
frequency of dividend payments in a given year. The OCC's approval is
required if the total of all dividends declared in any calendar year exceeds the
sum of the bank's net income of that year combined with its retained net income
of the preceding two years.
OTS
regulations limit capital distributions by federal savings banks, including the
payment of cash dividends. A federal savings bank must file an
application with the OTS for prior approval if a capital distribution in a
calendar year will exceed the sum of the institution's net income for that year
to date plus retained net income for the preceding two years, or if such
distribution would violate prior OTS agreements or OTS-imposed conditions or
would otherwise raise safety and soundness concerns.
Capitol
has several series of trust-preferred securities outstanding which are interest
bearing. Under certain conditions, Capitol may defer payment of
interest on the related subordinated debentures for periods of up to five
years. The documents governing the trusts restrict Capitol's right to
pay a dividend on its common stock under certain circumstances and give holders
of the securities preference on liquidation over the holders of Capitol's common
stock.
Capital
Adequacy and Prompt Corrective Action:
The
Federal Deposit Insurance Corporation Improvement Act of 1991 (FDICIA) requires
federal regulators to take prompt corrective action against any undercapitalized
institution. FDICIA establishes five capital categories:
well-capitalized, adequately capitalized, undercapitalized, significantly
undercapitalized and critically undercapitalized. "Well capitalized"
institutions significantly exceed the required minimum level for each capital
measure (currently, risk-based and leverage). "Adequately
capitalized" institutions include depository institutions that meet the required
minimum level for each capital measure. "Undercapitalized"
institutions consist of those that fail to meet the required minimum level for
one or more relevant capital measures. "Significantly
undercapitalized" characterizes depository institutions with capital levels
significantly below the minimum requirements. "Critically
undercapitalized" refers to depository institutions with minimal capital and at
serious risk for government seizure.
Item 1. Business –
continued.
Under
certain circumstances, a well-capitalized, adequately capitalized or
undercapitalized institution may be treated as if the institution were in the
next lower capital category. A depository institution is generally
prohibited from making capital distributions, including paying dividends or fees
to a holding company, if the institution would thereafter be
undercapitalized. Institutions that are adequately but not well
capitalized cannot accept, renew or roll over brokered deposits except with a
waiver from the FDIC, and are subject to restrictions on the interest rates that
can be paid on such deposits. Undercapitalized institutions may not
accept, renew or roll over brokered deposits.
The
banking regulatory agencies are permitted or, in certain cases, required to take
certain actions with respect to institutions falling within one of the three
undercapitalized categories. Depending on the level of an
institution's capital, the agencies' corrective powers include, among other
things:
·
|
prohibiting
the payment of principal and interest on subordinated debt;
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·
|
prohibiting
the holding company from obtaining distributions from the institution
without prior regulatory approval;
|
·
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placing
limits on asset growth and restrictions on activities;
|
·
|
placing
additional restrictions on transactions with affiliates;
|
·
|
restricting
the interest rate the institution may pay on deposits;
|
·
|
prohibiting
the institution from accepting deposits from correspondent banks;
and
|
·
|
in
the most severe cases, appointing a conservator or receiver for the
institution.
|
A banking
institution that is undercapitalized is required to submit a capital restoration
plan, and such a plan will not be accepted unless, among other things, the
banking institution's holding company guarantees the plan up to a certain
specified amount. Any such guarantee from a depository institution's
holding company is entitled to a priority of payment in bankruptcy.
FDICIA
also contains a variety of other provisions that may affect Capitol's
operations, including reporting requirements, regulatory standards for real
estate lending, "truth in savings" provisions, and the requirement that a
depository institution give 90 days' prior notice to customers and regulatory
authorities before closing any branch.
Information
concerning capital adequacy guidelines for Capitol and its banking subsidiaries
including their regulatory capital position at December 31, 2008 is incorporated
by reference from Pages F-69 – F-70, Financial Information Section of Annual
Report, under the caption "Note P—Dividend Limitations of Subsidiaries and Other
Capital Requirements."
FDIC
Insurance Assessments:
On November 30, 2006, the FDIC adopted
a new rule for calculating deposit insurance based on a risk-weighting. The new
rule took effect on January 1, 2007, and increased the assessment amount for all
insured institutions for payments due June 30, 2007 and
thereafter. The new minimum annual assessment rate is 0.05% for a
well capitalized bank, while the maximum annual rate is 0.43%. The
FDIC retains the ability to increase regular insurance assessments and to levy
special additional assessments.
FDIC deposit insurance premium levels
became a much more significant expense in 2008 ($3.2 million) and 2007 ($2.0
million) compared to 2006 ($362,000), and will increase in future periods as a
result of the FDIC imposing a risk-based matrix approach for assessment of
premiums for deposit insurance, as it seeks to replenish its insurance fund from
the costs of bank failures and address higher deposit insurance
coverage.
Item 1. Business –
continued.
During
2008, bank failures, coupled with deteriorating economic conditions,
significantly reduced the FDIC's reserve ratio. As of June 30, 2008,
the designated reserve ratio was 1.01% of estimated insured deposits at March
31, 2008. As a result of this reduced reserve ratio, in December
2008, the FDIC issued a ruling raising assessment rates uniformly by seven basis
points for the first quarter of 2009. The FDIC also recently modified
the way its assessment system differentiates for risk beginning April 1, 2009,
resulting in corresponding changes in assessment rates beginning with the second
quarter of 2009.
In
conjunction with the October 2008 enactment of the Emergency Economic
Stabilization Act of 2008 (EESA), the limit on FDIC insurance coverage was
increased to $250,000 for all accounts through December 31,
2009. That legislation, along with the rate increases, will cause
significant increases to FDIC insurance premiums incurred by Capitol's bank
subsidiaries in 2009.
In early March 2009, the FDIC announced
a special assessment to be charged equal to 20 basis points on deposits as of
December 31, 2008, on June 30, 2009, payable September 30, 2009. The
FDIC subsequently indicated the possibility of reducing that special assessment
to 10 basis points if Congress increases the FDIC's credit facility available
from the U.S. Treasury.
In 2006,
the FDIC merged the Bank Insurance Fund (BIF) and the Savings Association
Insurance Fund (SAIF) into a single fund called the Deposit Insurance
Fund. As a result of the merger, the BIF and the SAIF were
abolished. The merger of the BIF and the SAIF into the Deposit
Insurance Fund does not affect the authority of the Financing Corporation (FICO)
to impose and collect, with the approval of the FDIC, assessments for
anticipated payments, issuance costs and custodial fees on bonds issued by the
FICO in the 1980s to recapitalize the Federal Savings and Loan Insurance
Corporation. The bonds issued by the FICO are due to mature in 2017
through 2019. For the quarter ended December 31, 2008, the annualized
FICO assessment was equal to 1.10 basis points for each $100 in domestic
deposits maintained at an institution.
Temporary
Liquidity Guarantee Program:
On
November 21, 2008, the Board of Directors of the FDIC adopted a final rule
relating to the Temporary Liquidity Guarantee Program (TLG
Program). The TLG Program was announced by the FDIC on October 14,
2008, preceded by the determination of systemic risk by the U.S. Treasury, as an
initiative to counter the system-wide crisis in the nation's financial
sector. Under the TLG Program, the FDIC will (i) guarantee, through
the earlier of maturity or June 30, 2012, certain newly issued senior unsecured
debt issued by participating institutions and (ii) provide full FDIC deposit
insurance coverage for noninterest bearing transaction deposit accounts,
Negotiable Order of Withdrawal Accounts (commonly known as NOW accounts) paying
less than 0.5% interest per annum and Interest on Lawyers Trust Accounts
(commonly known as IOLTA) held at participating FDIC-insured institutions
through December 31, 2009. Coverage under the TLG Program was
available for the first 30 days without charge. The fee assessment
for coverage of senior unsecured debt ranges from 50 basis points to 100 basis
points per annum, depending on the initial maturity of the debt. The
fee assessment for deposit insurance coverage is 10 basis points per quarter on
amounts in covered accounts exceeding $250,000. Capitol elected to
participate in both guarantee programs.
American
Recovery and Reinvestment Act of 2009:
On
February 17, 2009, the American Recovery and Reinvestment Act of 2009 (ARRA) was
enacted. The ARRA, commonly known as the economic stimulus or
economic recovery package, includes a wide variety of programs intended to
stimulate the economy and provide for extensive infrastructure, energy, health
and education programs. In addition, ARRA imposes certain new
executive compensation and corporate expenditure limits on all current and
future TARP recipients, which would include Capitol (if Capitol is approved to
receive and agrees to receive TARP funds), until the institution has repaid the
U.S. Treasury, which is now permitted under ARRA without penalty and without the
need to raise new capital, subject to the U.S. Treasury's consultation with the
recipient's appropriate regulatory agency. The executive compensation
standards are more stringent than those currently in effect under the CPP or
those previously proposed by the U.S. Treasury, but it is not yet clear how
these executive compensation standards will relate to the
Item 1. Business –
continued.
similar
standards announced by the U.S. Treasury in its guidelines on February 4, 2009,
or whether the standards will be considered effective immediately or only after
implementing regulations are issued by the U.S. Treasury. The new
standards include (but are not limited to) (i) prohibitions on bonuses,
retention awards and other incentive compensation, other than restricted stock
grants which do not fully vest during the TARP period up to one-third of an
employee's total annual compensation, (ii) prohibitions on so-called golden
parachute payments upon departure from a company, (iii) an expanded claw-back of
bonuses, retention awards and incentive compensation if payment is based on
materially inaccurate statements of earnings, revenues, gains or other criteria,
(iv) prohibitions on compensation plans that encourage manipulation of reported
earnings, (v) retroactive review of bonuses, retention awards and other
compensation previously provided by TARP recipients if found by the U.S.
Treasury to be inconsistent with the purposes of TARP or otherwise contrary to
public interest, (vi) required establishment of a company-wide policy regarding
“excessive or luxury expenditures” and (vii) inclusion in a participant's proxy
statements for annual shareholder meetings of a nonbinding “say on pay”
shareholder vote on the compensation of executives.
Future
Legislation:
Various
legislation affecting financial institutions and the financial industry is, from
time to time, introduced in Congress. Such legislation may change
banking statutes and the operating environment of Capitol and its subsidiaries
in substantial and unpredictable ways and could increase or decrease the cost of
doing business, limit or expand permissible activities or affect the competitive
balance, depending upon whether any of this potential legislation will be
enacted and, if enacted, the effect that it or any implementing regulations
would have on the financial condition or results of operations of Capitol or any
of its subsidiaries. With the recent enactments of EESA and ARRA, the
nature and extent of future legislative and regulatory changes affecting
financial institutions is very unpredictable.
Interstate
Banking:
Under the
Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 (Riegle-Neal
Act), as amended, a bank holding company may acquire banks in states other than
its home state, subject to any state requirement that the bank has been
organized and operating for a minimum period of time (not to exceed five years)
and the requirement that the bank holding company not control, prior to or
following the proposed acquisition, more than 10% of the total amount of
deposits of insured depository institutions nationwide or, unless the
acquisition is the bank holding company's initial entry into the state, more
than 30% of such deposits in the state, or such lesser or greater amount set by
the state. The Riegle-Neal Act also authorizes banks to merge across
state lines, thereby creating interstate branches. Banks are also
permitted to acquire and to establish
de novo
branches in other
states where authorized under the laws of those states.
Transactions
with Affiliates:
Transactions
between Capitol's subsidiary banks and their affiliates are governed by
Regulation W of the Federal Reserve Act and substantially similar regulations of
the FDIC. The affiliates of the banks include Capitol and any entity
controlled by Capitol. Generally, Regulation W (i) limits the extent
to which the subsidiary banks may engage in "covered transactions" with any one
affiliate to an amount equal to 10% of such institution's capital stock and
surplus, and maintain an aggregate limit on all such transactions with
affiliates to an amount equal to 20% of the bank's capital stock and surplus,
(ii) require that a bank's extensions of credit to such affiliates be fully
collateralized (with 100% to 130% collateral coverage, depending on the type of
collateral), (iii) prohibit the bank from purchasing or accepting as collateral
from an affiliate any "low quality assets" (including non-performing loans) and
(iv) require that all "covered transactions" be on terms substantially the same,
or at least as favorable, to the bank or its subsidiary as those provided to a
non-affiliate. The term "covered transaction" includes the making of
loans, purchase of assets, issuance of a guarantee and other types of similar
transactions.
Loans
to Insiders:
The
Federal Reserve Act and related regulations impose specific restrictions on
loans to directors, executive officers and principal stockholders of
banks. Under Section 22(h) of the Federal Reserve Act and its
implementing regulations, loans to a director, an executive officer and to a
principal shareholder of a bank, and some affiliated entities
of any of
the foregoing, may not exceed, together with all other outstanding loans to such
person and affiliated entities,
Item 1. Business –
continued.
the
bank's loan-to-one-borrower limit. Loans in the aggregate to insiders
and their related interests as a class may not exceed the bank's unimpaired
capital and unimpaired surplus. Section 22(h) and its implementing
regulations also prohibit loans, above amounts prescribed by the appropriate
federal banking agency, to directors, executive officers and principal
shareholders of a bank or bank holding company, and their respective affiliates,
unless such loan is approved in advance by a majority of the board of directors
of the bank with any "interested" director not participating in the
voting. Section 22(h) generally requires that loans to directors,
executive officers and principal shareholders be made on terms and underwriting
standards substantially the same as offered in comparable transactions to other
persons.
Community
Reinvestment Act:
Under the
Community Reinvestment Act (CRA) and related regulations, depository
institutions have an affirmative obligation to assist in meeting the credit
needs of their market areas, including low and moderate income areas, consistent
with safe and sound banking practice. The CRA requires the adoption
by each institution of a CRA statement for each of its market areas describing
the depository institution's efforts to assist in its community's credit
needs. Depository institutions are periodically examined for
compliance with CRA and are periodically assigned ratings in this
regard. Banking regulators consider a depository institution's CRA
rating when reviewing applications to establish new branches, undertake new
lines of business, and/or acquire part or all of another depository
institution. An unsatisfactory rating can significantly delay or even
prohibit regulatory approval of a proposed transaction by a bank holding company
or its depository institution subsidiary.
Fair
Lending and Consumer Laws:
In
addition to the Community Reinvestment Act, other federal and state laws
regulate various lending and consumer aspects of the banking
business. Governmental agencies, including the Department of Housing
and Urban Development, the Federal Trade Commission and the Department of
Justice, have become concerned that, in some cases, prospective borrowers
experience unlawful discrimination in their efforts to obtain loans from
depository and other lending institutions. These agencies have
brought litigation against some depository institutions alleging discrimination
against borrowers. Many of these suits have been settled, in some
cases for material sums, short of a full trial.
Those
governmental agencies have clarified what they consider to be lending
discrimination and have specified various factors that they will use to
determine the existence of lending discrimination under the Equal Credit
Opportunity Act and the Fair Housing Act. These factors include
evidence that a lender discriminated on a prohibited basis, evidence that a
lender treated applicants differently based on prohibited factors in the absence
of evidence that the treatment was the result of prejudice or a conscious
intention to discriminate, and evidence that a lender applied an otherwise
neutral nondiscriminatory policy uniformly to all applicants, but the practice
had a discriminatory effect, unless the practice could be justified as a
business necessity.
Banks and
other depository institutions also are subject to numerous consumer-oriented
laws and regulations. These laws, which include the Truth in Lending
Act, the Truth in Savings Act, the Real Estate Settlement Procedures Act, the
Electronic Funds Transfer Act, the Equal Credit Opportunity Act, and the Fair
Housing Act, require compliance by depository institutions with various
disclosure requirements and requirements regulating the availability of funds
after deposit or the making of certain loans to customers.
Gramm-Leach
Bliley Act of 1999:
The
Gramm-Leach-Bliley Act of 1999 (GLBA) covers a broad range of issues, including
a repeal of most of the restrictions on affiliations among depository
institutions, securities firms and insurance companies. The following
description summarizes some of its significant provisions.
The GLBA
repeals sections 20 and 32 of the Glass-Steagall Act, thus permitting
unrestricted affiliations between banks and securities firms. It also
permits bank holding companies to elect to become financial holding
companies. A financial holding company may engage in or acquire
companies that engage in a broad range of financial services, including
securities activities such as underwriting, dealing, investment, merchant
banking, insurance underwriting, sales
Item 1. Business –
continued.
and
brokerage activities. In order to become a financial holding company,
the bank holding company and all of its affiliated depository institutions must
be well-capitalized, well-managed and have at least a satisfactory Community
Reinvestment Act rating. Capitol has determined not to become
certified as a financial holding company at this time, but may reconsider this
determination in the future.
The GLBA
provides that the states continue to have the authority to regulate insurance
activities, but prohibits the states in most instances from preventing or
significantly interfering with the ability of a bank, directly or through an
affiliate, to engage in insurance sales, solicitations or cross-marketing
activities. Although the states generally must regulate bank
insurance activities in a nondiscriminatory manner, the states may continue to
adopt and enforce rules that specifically regulate bank insurance activities in
specific areas identified under the law. The federal bank regulatory
agencies adopted insurance consumer protection regulations that apply to sales
practices, solicitations, advertising and disclosures.
The GLBA
repeals the broad exemption of banks from the definitions of "broker" and
"dealer" for purposes of the Securities Exchange Act of 1934, as
amended. It also identifies a set of specific activities, including
traditional bank trust and fiduciary activities, in which a bank may engage
without being deemed a "broker," and a set of activities in which a bank may
engage without being deemed a "dealer." Additionally, the law makes
conforming changes in the definitions of "broker" and "dealer" for purposes of
the Investment Company Act of 1940, as amended, and the Investment Advisers Act
of 1940, as amended.
The GLBA
also contains extensive customer privacy protection provisions. Under
these provisions, a financial institution must provide to its customers, both at
the inception of the customer relationship and on an annual basis, the
institution's policies and procedures regarding the handling of customers'
nonpublic personal financial information. The law provides that,
except for specific limited exceptions, an institution may not provide such
personal information to unaffiliated third parties unless the institution
discloses to the customer that such information may be so provided and the
customer is given the opportunity to "opt out" of such disclosure. An
institution may not disclose to a non-affiliated third party, other than to a
consumer reporting agency, customer account numbers or other similar account
identifiers for marketing purposes. The GLBA also provides that the
states may adopt customer privacy protections that are more strict than those
contained in the GLBA.
Anti-Money
Laundering and the USA Patriot Act of 2001:
In 2001,
Congress enacted the Uniting and Strengthening America by Providing Appropriate
Tools Required to Intercept and Obstruct Terrorism Act of 2001 (Patriot Act).
The Patriot Act is designed to deny terrorists and criminals the ability to
obtain access to the United States' financial system and has significant
implications for depository institutions, brokers, dealers and other businesses
involved in the transfer of money. The Patriot Act mandates that
financial services companies implement policies and procedures with respect to
additional measures designed to address the following matters: money laundering,
terrorist financing, identifying and reporting suspicious activities and
currency transactions and currency crimes. The Patriot Act also
substantially broadened existing anti-money laundering legislation, imposed new
compliance and due diligence obligations, created new crimes and penalties and
compelled the production of documents located both inside and outside the United
States. The U.S. Treasury Department has issued a number of
regulations that apply some of these requirements to financial institutions such
as Capitol's banking subsidiaries. The regulations impose new
obligations on financial institutions to maintain appropriate policies,
procedures and controls to detect, prevent and report money laundering and
terrorist financing. Pursuant to the Patriot Act and the related
regulations, Capitol and its banking subsidiaries have established anti-money
laundering compliance and due diligence programs that include, among other
things, the designation of a compliance officer, employee training programs and
an independent audit function to review and test the program.
Item 1. Business –
continued.
Capitol
maintains an Internet web site at
http://
www.capitolbancorp.com
that includes links to Capitol's Annual Report on Form 10-K, Quarterly Reports
on Form 10-Q, Current Reports on Form 8-K and any amendments to those reports
(SEC Reports). The SEC Reports are available without charge as soon
as reasonably practicable following the time they are filed with or furnished to
the SEC. Information on Capitol's web site is not incorporated into
this Form 10-K or Capitol's other securities filings and is not a part of those
filings. The public may read and copy any materials Capitol files
with the SEC at the SEC's Public Reference Room at 100 F. Street, NE,
Washington, DC 20549. The public may obtain information on the
operation of the Public Reference Room by calling the SEC at
1-800-SEC-0330. The SEC also maintains an Internet site that contains
information regarding issuers that file electronically with the
SEC. That address is
http://www.sec.gov
. In
addition, Capitol makes available on its web site at
http://www.capitolbancorp.com
,
under the heading "Governance," its: (i) Code of Ethics; (ii)
Governance Guidelines; and (iii) the charters of Capitol's Board committees, and
also intends to disclose any amendments to its Code of Ethics, or waivers of the
Code of Ethics on behalf of its Chief Executive Officer and other senior
financial officers, on its web site. These corporate governance
materials are also available free of charge in print to shareholders who request
them in writing to: Capitol Bancorp Ltd.,
Attention: Secretary, Capitol Bancorp Center, 200 N. Washington
Square, Lansing, Michigan 48933.
The
following tables (Tables A to G, inclusive), present certain statistical
information regarding Capitol's business.
[The
remainder of this page intentionally left blank]
DISTRIBUTION
OF ASSETS, LIABILITIES AND STOCKHOLDERS' EQUITY (TABLE A)
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CAPITOL
BANCORP LIMITED
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Net
interest income, the primary component of earnings, represents the
difference between interest income on interest-earning assets and interest
expense on interest-
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bearing
liabilities. Net interest income depends upon the volume of
interest-earning assets and interest-bearing liabilities and the rates
earned or paid on them. This
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table
shows the daily average balances for the major asset and liability
categories and the actual related interest income and expense (in $1,000s)
and average
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yield/cost
for the years ended December 31, 2008, 2007 and 2006.
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2008
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2007
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2006
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Interest
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(1)
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Interest
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(1)
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Interest
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(1)
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Average
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Income/
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Average
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Average
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Income/
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Average
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Average
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Income/
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Average
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Balance
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Expense
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Yield/Cost
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Balance
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Expense
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Yield/Cost
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Balance
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Expense
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Yield/Cost
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ASSETS
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Money market and interest-bearing deposits
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$
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127,311
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$
|
1,218
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0.96
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%
|
|
$
|
23,912
|
|
|
$
|
1,120
|
|
|
|
4.68
|
%
|
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$
|
33,123
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|
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$
|
1,403
|
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4.24
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%
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Federal funds sold
|
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220,128
|
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|
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3,822
|
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|
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1.74
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%
|
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|
205,294
|
|
|
|
10,687
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|
|
|
5.21
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%
|
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|
171,445
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8,703
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5.08
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%
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Investment securities -- U.S. Treasury,
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government agencies, mutual funds and other
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44,691
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1,812
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4.05
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%
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39,330
|
|
|
|
1,699
|
|
|
|
4.32
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%
|
|
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42,277
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|
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|
1,806
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|
|
|
4.27
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%
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Loans held for sale
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10,774
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|
774
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|
7.18
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%
|
|
|
24,427
|
|
|
|
2,133
|
|
|
|
8.73
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%
|
|
|
36,306
|
|
|
|
2,740
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|
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|
7.55
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%
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Portfolio loans (2)
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4,621,247
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296,689
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6.42
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%
|
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|
3,840,526
|
|
|
|
314,800
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8.20
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%
|
|
|
3,236,538
|
|
|
|
264,701
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|
|
8.18
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%
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Total
interest-earning
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assets/interest
income
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5,024,151
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|
304,315
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|
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6.06
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%
|
|
|
4,133,489
|
|
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|
330,439
|
|
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7.99
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%
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|
3,519,689
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|
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|
279,353
|
|
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7.94
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%
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Allowance for loan losses (deduct)
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(79,554
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)
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(50,316
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)
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(44,000
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)
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Cash and due from banks
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133,039
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153,042
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150,782
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|
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|
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Premises and equipment, net
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60,160
|
|
|
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56,925
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|
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50,656
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|
|
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|
|
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Other assets
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234,342
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|
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159,855
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|
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119,987
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Total
assets
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$
|
5,372,138
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$
|
4,452,995
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|
|
|
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|
|
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|
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|
$
|
3,797,114
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|
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|
|
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|
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|
LIABILITIES
AND STOCKHOLDERS' EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing deposits:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Savings deposits
|
|
$
|
89,025
|
|
|
$
|
1,496
|
|
|
|
1.68
|
%
|
|
$
|
83,632
|
|
|
$
|
2,291
|
|
|
|
2.74
|
%
|
|
$
|
59,985
|
|
|
$
|
981
|
|
|
|
1.64
|
%
|
Time deposits under $100,000
|
|
|
1,029,914
|
|
|
|
36,759
|
|
|
|
3.57
|
%
|
|
|
569,773
|
|
|
|
28,060
|
|
|
|
4.92
|
%
|
|
|
429,108
|
|
|
|
17,983
|
|
|
|
4.19
|
%
|
Time deposits $100,000 and over
|
|
|
1,199,988
|
|
|
|
50,099
|
|
|
|
4.17
|
%
|
|
|
1,031,011
|
|
|
|
52,828
|
|
|
|
5.12
|
%
|
|
|
889,769
|
|
|
|
38,115
|
|
|
|
4.28
|
%
|
Other interest-bearing deposits
|
|
|
1,236,841
|
|
|
|
24,016
|
|
|
|
1.94
|
%
|
|
|
1,227,480
|
|
|
|
40,981
|
|
|
|
3.34
|
%
|
|
|
1,066,109
|
|
|
|
31,550
|
|
|
|
2.96
|
%
|
Notes payable and short-term borrowings
|
|
|
408,521
|
|
|
|
15,067
|
|
|
|
3.69
|
%
|
|
|
220,996
|
|
|
|
11,048
|
|
|
|
5.00
|
%
|
|
|
173,719
|
|
|
|
8,169
|
|
|
|
4.70
|
%
|
Subordinated debentures
|
|
|
162,453
|
|
|
|
13,029
|
|
|
|
8.02
|
%
|
|
|
143,390
|
|
|
|
11,954
|
|
|
|
8.34
|
%
|
|
|
100,999
|
|
|
|
8,788
|
|
|
|
8.70
|
%
|
Total
interest-bearing
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
liabilities/interest
expense
|
|
|
4,126,742
|
|
|
|
140,466
|
|
|
|
3.40
|
%
|
|
|
3,276,282
|
|
|
|
147,162
|
|
|
|
4.49
|
%
|
|
|
2,719,689
|
|
|
|
105,586
|
|
|
|
3.88
|
%
|
Noninterest-bearing demand deposits
|
|
|
661,578
|
|
|
|
|
|
|
|
|
|
|
|
628,345
|
|
|
|
|
|
|
|
|
|
|
|
614,529
|
|
|
|
|
|
|
|
|
|
Accrued interest on deposits and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
other liabilities
|
|
|
49,230
|
|
|
|
|
|
|
|
|
|
|
|
31,640
|
|
|
|
|
|
|
|
|
|
|
|
25,305
|
|
|
|
|
|
|
|
|
|
Minority interests in consolidated subsidiaries
|
|
|
163,563
|
|
|
|
|
|
|
|
|
|
|
|
133,170
|
|
|
|
|
|
|
|
|
|
|
|
110,060
|
|
|
|
|
|
|
|
|
|
Stockholders' equity
|
|
|
371,025
|
|
|
|
|
|
|
|
|
|
|
|
383,558
|
|
|
|
|
|
|
|
|
|
|
|
327,531
|
|
|
|
|
|
|
|
|
|
Total
liabilities and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
stockholders'
equity
|
|
$
|
5,372,138
|
|
|
|
|
|
|
|
|
|
|
$
|
4,452,995
|
|
|
|
|
|
|
|
|
|
|
$
|
3,797,114
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
interest income
|
|
|
|
|
|
$
|
163,849
|
|
|
|
|
|
|
|
|
|
|
$
|
183,277
|
|
|
|
|
|
|
|
|
|
|
$
|
173,767
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
Rate Spread (3)
|
|
|
|
|
|
|
|
|
|
|
2.66
|
%
|
|
|
|
|
|
|
|
|
|
|
3.50
|
%
|
|
|
|
|
|
|
|
|
|
|
4.06
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Yield on Interest-Earning Assets (4)
|
|
|
|
|
|
|
|
|
|
|
3.26
|
%
|
|
|
|
|
|
|
|
|
|
|
4.43
|
%
|
|
|
|
|
|
|
|
|
|
|
4.94
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ratio
of Average Interest-Earning
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets
to Interest-Bearing Liabilities
|
|
|
1.22
|
|
|
|
|
|
|
|
|
|
|
|
1.26
|
|
|
|
|
|
|
|
|
|
|
|
1.29
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
Average yield/cost is determined by dividing the actual interest
income/expense by the daily average balance of the asset or liability
category.
|
|
(2)
Average balance of loans includes nonaccrual loans.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3)
Interest rate spread represents the average yield on interest-earning
assets less the average cost of interest-bearing
liabilities.
|
|
(4)
Net yield is based on net interest income as a percentage of average total
interest-earning assets.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
[The
remainder of this page intentionally left
blank]
|
CHANGES
IN NET INTEREST INCOME (TABLE B)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CAPITOL
BANCORP LIMITED
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
table below summarizes the extent to which changes in interest rates and
changes in the volume of interest-earning assets and
interest-bearing
|
|
liabilities
have affected Capitol's net interest income (in $1,000s). The change
in interest attributable to volume is calculated by
multiplying
|
|
the
annual change in volume by the prior year's rate. The change in
interest attributable to rate is calculated by multiplying the annual
change
|
|
in
rate by the prior year's average balance. Any variance attributable
jointly to volume and rate changes has been allocated to each category
based
|
|
on
the percentage of each to the total change in both
categories.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
compared to 2007
|
|
|
2007
compared to 2006
|
|
|
|
Volume
|
|
|
Rate
|
|
|
Net
Total
|
|
|
Volume
|
|
|
Rate
|
|
|
Net
Total
|
|
Increase
(decrease) in interest income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money
market and interest-bearing deposits
|
|
$
|
1,588
|
|
|
$
|
(1,490
|
)
|
|
$
|
98
|
|
|
$
|
(420
|
)
|
|
$
|
137
|
|
|
$
|
(283
|
)
|
Federal
funds sold
|
|
|
722
|
|
|
|
(7,587
|
)
|
|
|
(6,865
|
)
|
|
|
1,757
|
|
|
|
227
|
|
|
|
1,984
|
|
Investment securities -- U.S. Treasury, government
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
agencies,
mutual funds and other
|
|
|
222
|
|
|
|
(109
|
)
|
|
|
113
|
|
|
|
(127
|
)
|
|
|
20
|
|
|
|
(107
|
)
|
Loans
held for sale
|
|
|
(1,032
|
)
|
|
|
(327
|
)
|
|
|
(1,359
|
)
|
|
|
(992
|
)
|
|
|
385
|
|
|
|
(607
|
)
|
Portfolio
loans
|
|
|
57,281
|
|
|
|
(75,392
|
)
|
|
|
(18,111
|
)
|
|
|
49,506
|
|
|
|
593
|
|
|
|
50,099
|
|
Total
|
|
|
58,781
|
|
|
|
(84,905
|
)
|
|
|
(26,124
|
)
|
|
|
49,724
|
|
|
|
1,362
|
|
|
|
51,086
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase
(decrease) in interest expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing
deposits:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Savings
deposits
|
|
|
140
|
|
|
|
(935
|
)
|
|
|
(795
|
)
|
|
|
483
|
|
|
|
827
|
|
|
|
1,310
|
|
Time
deposits under $100,000
|
|
|
22,293
|
|
|
|
(13,594
|
)
|
|
|
8,699
|
|
|
|
6,568
|
|
|
|
3,509
|
|
|
|
10,077
|
|
Time
deposits $100,000 and over
|
|
|
(56
|
)
|
|
|
(2,673
|
)
|
|
|
(2,729
|
)
|
|
|
6,581
|
|
|
|
8,132
|
|
|
|
14,713
|
|
Other
interest-bearing deposits
|
|
|
310
|
|
|
|
(17,275
|
)
|
|
|
(16,965
|
)
|
|
|
5,107
|
|
|
|
4,324
|
|
|
|
9,431
|
|
Notes
payable and short-term borrowings
|
|
|
7,497
|
|
|
|
(3,478
|
)
|
|
|
4,019
|
|
|
|
2,337
|
|
|
|
542
|
|
|
|
2,879
|
|
Subordinated
debentures
|
|
|
1,542
|
|
|
|
(467
|
)
|
|
|
1,075
|
|
|
|
3,548
|
|
|
|
(382
|
)
|
|
|
3,166
|
|
Total
|
|
|
31,726
|
|
|
|
(38,422
|
)
|
|
|
(6,696
|
)
|
|
|
24,624
|
|
|
|
16,952
|
|
|
|
41,576
|
|
Increase
(decrease) in net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
interest
income
|
|
$
|
27,055
|
|
|
$
|
(46,483
|
)
|
|
$
|
(19,428
|
)
|
|
$
|
25,100
|
|
|
$
|
(15,590
|
)
|
|
$
|
9,510
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
[The
remainder of this page intentionally left
blank]
|
INVESTMENT
PORTFOLIO (TABLE C)
|
|
|
|
|
|
|
|
|
CAPITOL
BANCORP LIMITED
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
table below shows amortized cost and estimated fair value of investment
securities as of December 31, 2008, 2007 and 2006 (in
$1,000s):
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
Estimated
|
|
|
|
|
|
Estimated
|
|
|
|
|
|
Estimated
|
|
|
Amortized
|
|
|
Fair
|
|
|
Amortized
|
|
|
Fair
|
|
|
Amortized
|
|
|
Fair
|
|
|
Cost
|
|
|
Value
|
|
|
Cost
|
|
|
Value
|
|
|
Cost
|
|
|
Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available
for sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United
States treasury securities
|
|
|
|
|
|
$
|
499
|
|
|
$
|
499
|
|
|
|
|
|
|
United
States government agency securities
|
|
$
|
9,785
|
|
|
$
|
9,913
|
|
|
|
8,991
|
|
|
|
9,025
|
|
|
$
|
13,403
|
|
|
$
|
13,285
|
Mortgage-backed
securities
|
|
|
4,813
|
|
|
|
4,890
|
|
|
|
3,402
|
|
|
|
3,368
|
|
|
|
4,089
|
|
|
|
3,991
|
Municipals
|
|
|
768
|
|
|
|
781
|
|
|
|
1,222
|
|
|
|
1,227
|
|
|
|
1,630
|
|
|
|
1,628
|
|
|
|
15,366
|
|
|
|
15,584
|
|
|
|
14,114
|
|
|
|
14,119
|
|
|
|
19,122
|
|
|
|
18,904
|
Held
for long-term investment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
Reserve Bank stock
|
|
|
146
|
|
|
|
146
|
|
|
|
563
|
|
|
|
563
|
|
|
|
864
|
|
|
|
864
|
Federal
Home Loan Bank stock
|
|
|
26,053
|
|
|
|
26,053
|
|
|
|
18,765
|
|
|
|
18,765
|
|
|
|
14,148
|
|
|
|
14,148
|
Corporate
|
|
|
6,591
|
|
|
|
6,591
|
|
|
|
6,085
|
|
|
|
6,085
|
|
|
|
6,737
|
|
|
|
6,737
|
Other
|
|
|
66
|
|
|
|
66
|
|
|
|
65
|
|
|
|
65
|
|
|
|
--
|
|
|
|
--
|
|
|
|
32,856
|
|
|
|
32,856
|
|
|
|
25,478
|
|
|
|
25,478
|
|
|
|
21,749
|
|
|
|
21,749
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
investment securities
|
|
$
|
48,222
|
|
|
$
|
48,440
|
|
|
$
|
39,592
|
|
|
$
|
39,597
|
|
|
$
|
40,871
|
|
|
$
|
40,653
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
table below shows the amortized cost, estimated fair value, relative
maturities and weighted average yields of investment
securities
|
|
at
December 31, 2008 (in $1,000s):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimated
|
|
|
Weighted
|
|
|
|
|
Amortized
|
|
|
Fair
|
|
|
Average
|
|
|
|
|
Cost
|
|
|
Value
|
|
|
Yield
|
|
|
Maturity:
|
|
|
|
|
|
|
|
|
|
|
Due
in one year or less
|
|
$
|
4,622
|
|
|
$
|
4,678
|
|
|
|
0.33
|
%
|
|
After
one year, through five years
|
|
|
6,093
|
|
|
|
6,169
|
|
|
|
6.73
|
%
|
|
After
five years, through ten years
|
|
|
120
|
|
|
|
126
|
|
|
|
0.57
|
%
|
|
After
ten years
|
|
|
4,531
|
|
|
|
4,611
|
|
|
|
4.88
|
%
|
|
Securities
held for long-term investment,
|
|
|
|
|
|
|
without stated maturities
|
|
|
32,856
|
|
|
|
32,856
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
48,222
|
|
|
$
|
48,440
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment
securities which do not have stated maturities (corporate, Federal Reserve
Bank stock and Federal Home Loan Bank stock)
|
|
do
not have stated yields or rates of return and such rates of return vary
from time to time.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Following
is a summary of the weighted average maturities of investment securities
(exclusive of securities without stated maturities) at
|
|
December
31, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United
States government agency securities
|
|
3
years and
|
|
5
months
|
|
|
|
|
|
Mortgage-backed
securities
|
|
3
years and
|
|
2
months
|
|
|
|
|
|
Municipals
|
|
2
years and
|
|
10
months
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
[The
remainder of this page intentionally left
blank]
|
LOAN
PORTFOLIO AND SUMMARY OF OTHER REAL ESTATE OWNED (TABLE D)
|
|
|
|
|
|
|
|
CAPITOL
BANCORP LIMITED
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Portfolio
loans outstanding as of December 31 are shown below (in
$1,000s):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
Loans
secured by real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
$
|
2,115,515
|
|
|
|
44.68
|
%
|
|
$
|
1,917,113
|
|
|
|
44.43
|
%
|
|
$
|
1,602,743
|
|
|
|
45.94
|
%
|
|
$
|
1,352,338
|
|
|
|
45.21
|
%
|
|
$
|
1,187,648
|
|
|
|
44.10
|
%
|
Residential
(including multi-family)
|
|
|
879,754
|
|
|
|
18.58
|
%
|
|
|
698,960
|
|
|
|
16.20
|
%
|
|
|
529,357
|
|
|
|
15.17
|
%
|
|
|
501,861
|
|
|
|
16.78
|
%
|
|
|
487,048
|
|
|
|
18.09
|
%
|
Construction, land development and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
other
land
|
|
|
797,486
|
|
|
|
16.84
|
%
|
|
|
852,595
|
|
|
|
19.76
|
%
|
|
|
705,255
|
|
|
|
20.22
|
%
|
|
|
579,132
|
|
|
|
19.36
|
%
|
|
|
499,166
|
|
|
|
18.54
|
%
|
Total
loans secured by real estate
|
|
|
3,792,755
|
|
|
|
80.10
|
%
|
|
|
3,468,668
|
|
|
|
80.39
|
%
|
|
|
2,837,355
|
|
|
|
81.33
|
%
|
|
|
2,433,331
|
|
|
|
81.35
|
%
|
|
|
2,173,862
|
|
|
|
80.73
|
%
|
Commercial
and other business-purpose
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
loans
|
|
|
845,593
|
|
|
|
17.86
|
%
|
|
|
768,473
|
|
|
|
17.81
|
%
|
|
|
602,294
|
|
|
|
17.26
|
%
|
|
|
512,018
|
|
|
|
17.12
|
%
|
|
|
474,781
|
|
|
|
17.63
|
%
|
Consumer
|
|
|
61,340
|
|
|
|
1.29
|
%
|
|
|
48,041
|
|
|
|
1.11
|
%
|
|
|
39,957
|
|
|
|
1.15
|
%
|
|
|
37,661
|
|
|
|
1.26
|
%
|
|
|
32,947
|
|
|
|
1.22
|
%
|
Other
|
|
|
35,541
|
|
|
|
0.75
|
%
|
|
|
29,519
|
|
|
|
0.69
|
%
|
|
|
9,072
|
|
|
|
0.26
|
%
|
|
|
8,179
|
|
|
|
0.27
|
%
|
|
|
11,314
|
|
|
|
0.42
|
%
|
Total
portfolio loans
|
|
$
|
4,735,229
|
|
|
|
100.00
|
%
|
|
$
|
4,314,701
|
|
|
|
100.00
|
%
|
|
$
|
3,488,678
|
|
|
|
100.00
|
%
|
|
$
|
2,991,189
|
|
|
|
100.00
|
%
|
|
$
|
2,692,904
|
|
|
|
100.00
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
table below summarizes (in $1,000s) the remaining maturity of portfolio
loans outstanding at December 31, 2008 according to scheduled
repayments
|
of
principal:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed
|
|
|
Variable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rate
|
|
|
Rate
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aggregate
maturities of portfolio loan balances which are due
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
in
one year or less:
|
|
|
|
|
|
|
|
|
|
$
|
810,610
|
|
|
$
|
1,426,829
|
|
|
$
|
2,237,439
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
After
one year but within five years
|
|
|
|
1,328,295
|
|
|
|
695,195
|
|
|
|
2,023,490
|
|
|
|
|
|
|
|
|
After
five years
|
|
|
|
|
|
|
|
|
|
|
295,205
|
|
|
|
14,059
|
|
|
|
309,264
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonaccrual
loans
|
|
|
|
|
|
|
|
|
|
|
165,036
|
|
|
|
|
|
|
|
165,036
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
$
|
2,599,146
|
|
|
$
|
2,136,083
|
|
|
$
|
4,735,229
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
following summarizes, in general, Capitol's various loan
classifications:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans
secured by real estate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprised
of a broad mix of business use and nonfarm nonresidential properties,
including office, retail, warehouse and light industrial
uses.
|
A
typical loan size is generally less than $1,000,000 and, at December 31,
2008, approximately 27% of such properties were
owner-occupied.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
(including multi-family)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Includes
single and multi family residential loans held for permanent portfolio and
home equity lines of credit.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction,
land development and other land
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Includes
loans made to finance land development for new or existing structures,
vacant land and agricultural land.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
and other business-purpose loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Includes
a range of loans to sole proprietorships, partnerships, corporations, and
other business enterprises and also to individuals for
|
commercial,
industrial and professional purposes but not for investment or personal
expenditure purposes.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Includes
a broad range of installment credit products, secured by automobiles,
watercraft, etc., with typical consumer credit risks.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Includes
loans to finance agricultural production, obligations of states and
political subdivisions in the US and nonprofit
organizations.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All
loans are subject to underwriting procedures commensurate with the loan
size, nature of collateral, industry trends, risks and experience
factors.
|
Appropriate
collateral is required for most loans, as is documented evidence of debt
repayment sources.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
|
|
|
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
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|
|
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|
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|
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|
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|
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|
[The
remainder of this page intentionally left
blank]
|
LOAN
PORTFOLIO AND SUMMARY OF OTHER REAL ESTATE OWNED (TABLE D -
CONTINUED)
|
|
CAPITOL
BANCORP LIMITED
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
aggregate amount of nonperforming portfolio loans is summarized below as
of December 31 (in $1,000s). Nonperforming loans are comprised of (a)
loans
|
|
accounted
for on a nonaccrual basis and (b) loans contractually past due 90 days or
more as to principal and interest payments (but not included in
nonaccrual
|
|
loans
in (a) above) and consist primarily of commercial real estate
loans. See Note D of the Notes to Consolidated Financial Statements
for additional information
|
|
regarding
nonperforming loans.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
Nonperforming
loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonaccrual
loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans
secured by real estate:
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
$
|
39,892
|
|
|
$
|
19,016
|
|
|
$
|
8,771
|
|
|
$
|
9,451
|
|
|
$
|
4,713
|
|
Residential
(including multi-family)
|
|
|
35,675
|
|
|
|
13,381
|
|
|
|
6,808
|
|
|
|
4,826
|
|
|
|
7,632
|
|
Construction,
land development and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
other
land
|
|
|
72,996
|
|
|
|
29,756
|
|
|
|
8,583
|
|
|
|
2,847
|
|
|
|
2,252
|
|
Total
loans secured by real estate
|
|
|
148,563
|
|
|
|
62,153
|
|
|
|
24,162
|
|
|
|
17,124
|
|
|
|
14,597
|
|
Commercial
and other business-purpose loans
|
|
|
16,283
|
|
|
|
5,782
|
|
|
|
5,349
|
|
|
|
5,279
|
|
|
|
8,491
|
|
Consumer
|
|
|
190
|
|
|
|
66
|
|
|
|
215
|
|
|
|
219
|
|
|
|
121
|
|
Other
|
|
|
--
|
|
|
|
84
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
Total
nonaccrual loans
|
|
|
165,036
|
|
|
|
68,085
|
|
|
|
29,726
|
|
|
|
22,622
|
|
|
|
23,209
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Past
due (
>
90 days) loans and accruing interest:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans
secured by real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
1,623
|
|
|
|
113
|
|
|
|
1,380
|
|
|
|
739
|
|
|
|
1,609
|
|
Residential
(including multi-family)
|
|
|
365
|
|
|
|
1,116
|
|
|
|
526
|
|
|
|
1,891
|
|
|
|
2,726
|
|
Construction,
land development and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
other
land
|
|
|
2,293
|
|
|
|
2,531
|
|
|
|
1,116
|
|
|
|
864
|
|
|
|
80
|
|
Total
loans secured by real estate
|
|
|
4,281
|
|
|
|
3,760
|
|
|
|
3,022
|
|
|
|
3,494
|
|
|
|
4,415
|
|
Commercial
and other business-purpose loans
|
|
|
747
|
|
|
|
714
|
|
|
|
1,375
|
|
|
|
339
|
|
|
|
568
|
|
Consumer
|
|
|
146
|
|
|
|
66
|
|
|
|
151
|
|
|
|
140
|
|
|
|
102
|
|
Other
|
|
|
--
|
|
|
|
5
|
|
|
|
--
|
|
|
|
137
|
|
|
|
177
|
|
Total
past due loans
|
|
|
5,174
|
|
|
|
4,545
|
|
|
|
4,548
|
|
|
|
4,110
|
|
|
|
5,262
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
nonperforming loans
|
|
$
|
170,210
|
|
|
$
|
72,630
|
|
|
$
|
34,274
|
|
|
$
|
26,732
|
|
|
$
|
28,471
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonperforming
loans as a percentage
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
of
total portfolio loans
|
|
|
3.59
|
%
|
|
|
1.68
|
%
|
|
|
0.98
|
%
|
|
|
0.89
|
%
|
|
|
1.06
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonperforming
loans as a percentage
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
of
total assets
|
|
|
3.01
|
%
|
|
|
1.48
|
%
|
|
|
0.84
|
%
|
|
|
0.77
|
%
|
|
|
0.92
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance
for loan losses as a
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
percentage
of nonperforming loans
|
|
|
54.66
|
%
|
|
|
80.03
|
%
|
|
|
132.50
|
%
|
|
|
151.72
|
%
|
|
|
131.97
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In
addition to the identification of nonperforming loans involving borrowers
with payment performance difficulties (i.e., nonaccrual loans and loans
past
|
|
due
90 days or more), management utilizes an internal loan review process to
identify other potential problem loans which may warrant additional
monitoring
|
|
or
other attention. This loan review process is a continuous activity
which periodically updates internal loan classifications. At
inception, all loans are
|
|
individually
assigned a classification which grades the credits on a risk basis, based
on the type and discounted value of collateral, financial
strength
|
|
of
the borrower and guarantors and other factors such as nature of the
borrower's business climate, local economic conditions and other
subjective factors.
|
|
The
loan classification process is fluid and subjective.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Potential
problem loans include loans which are generally performing as agreed;
however, because of loan review's and/or lending staff's risk
assessment,
|
|
increased
monitoring is deemed appropriate. In addition, some loans are
identified for monitoring because of specific performance issues or other
risk
|
|
factors
requiring closer management and development of specific remedial action
plans.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At
December 31, 2008, potential problem loans (which includes nonperforming
loans) approximated $551 million or about 12% of total
consolidated
|
|
portfolio
loans. Such totals have historically approximated 4% to 5% of loans
outstanding and are an important part of management's ongoing and
proactive
|
|
loan
review activities which are designed to early-identify loans which warrant
close monitoring at the bank and corporate credit-administration
levels.
|
|
During
2008, the amount of potential problem loans increased significantly as
management downgraded many credit relationships in response to the
impact
|
|
of
the recessionary environment and also as a result of growth in
nonpeforming loans. It is important to note that these potential
problem loans do not
|
|
necessarily
have significant loss exposure (nor are they necessarily deemed
'impaired'), but rather are identified by management in this manner to aid
in loan
|
|
administration
and risk management. These loans are considered in management's
evaluation of the adequacy of the allowance for loan
losses.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
table below summarizes activity in other real estate owned (in $1,000s)
for the year ended December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
real estate owned at January 1
|
|
$
|
16,357
|
|
|
$
|
9,464
|
|
|
$
|
3,733
|
|
|
$
|
3,855
|
|
|
$
|
4,248
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Properties
acquired in restructure of loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
or
in lieu of foreclosure
|
|
|
72,138
|
|
|
|
17,216
|
|
|
|
8,870
|
|
|
|
5,718
|
|
|
|
4,233
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Properties
sold
|
|
|
(10,377
|
)
|
|
|
(10,021
|
)
|
|
|
(2,806
|
)
|
|
|
(4,440
|
)
|
|
|
(3,833
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments
received from tenants, credited
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
to
carrying amount
|
|
|
(2,278
|
)
|
|
|
(162
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(552
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
changes, net (principally fair value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
adjustments)
|
|
|
(8,669
|
)
|
|
|
(140
|
)
|
|
|
(333
|
)
|
|
|
(1,400
|
)
|
|
|
(241
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
real estate owned at December 31
|
|
$
|
67,171
|
|
|
$
|
16,357
|
|
|
$
|
9,464
|
|
|
$
|
3,733
|
|
|
$
|
3,855
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
real estate owned is valued at estimated fair value (net of estimated
selling cost) at the date of transfer/acquisition. Management
performs a
|
|
periodic
analysis of estimated fair values to determine potential impairment of
other real estate owned.
|
|
SUMMARY
OF LOAN LOSS EXPERIENCE (TABLE E)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CAPITOL
BANCORP LIMITED
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
table below summarizes changes in the allowance for loan losses and
related portfolio data and ratios for the year ended December
31
|
|
(in
$1,000s):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance
for loan losses at January 1
|
|
$
|
58,124
|
|
|
$
|
45,414
|
|
|
$
|
40,559
|
|
|
$
|
37,572
|
|
|
$
|
31,404
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance
for loan losses of acquired
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
bank
subsidiary
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
724
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans
charged off:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans
secured by real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
(9,217
|
)
|
|
|
(3,102
|
)
|
|
|
(2,737
|
)
|
|
|
(1,182
|
)
|
|
|
(827
|
)
|
Residential
(including multi-family)
|
|
|
(8,942
|
)
|
|
|
(3,265
|
)
|
|
|
(1,831
|
)
|
|
|
(2,348
|
)
|
|
|
(1,005
|
)
|
Construction,
land development and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
other
land
|
|
|
(20,668
|
)
|
|
|
(1,192
|
)
|
|
|
(812
|
)
|
|
|
(346
|
)
|
|
|
(953
|
)
|
Total
loans secured by real estate
|
|
|
(38,827
|
)
|
|
|
(7,559
|
)
|
|
|
(5,380
|
)
|
|
|
(3,876
|
)
|
|
|
(2,785
|
)
|
Commercial
and other business-purpose loans
|
|
|
(11,116
|
)
|
|
|
(6,257
|
)
|
|
|
(2,943
|
)
|
|
|
(4,988
|
)
|
|
|
(5,306
|
)
|
Consumer
|
|
|
(461
|
)
|
|
|
(403
|
)
|
|
|
(255
|
)
|
|
|
(776
|
)
|
|
|
(277
|
)
|
Other
|
|
|
(43
|
)
|
|
|
--
|
|
|
|
(121
|
)
|
|
|
(3
|
)
|
|
|
(20
|
)
|
Total
charge-offs
|
|
|
(50,447
|
)
|
|
|
(14,219
|
)
|
|
|
(8,699
|
)
|
|
|
(9,643
|
)
|
|
|
(8,388
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recoveries:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans
secured by real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
986
|
|
|
|
70
|
|
|
|
66
|
|
|
|
20
|
|
|
|
111
|
|
Residential
(including multi-family)
|
|
|
648
|
|
|
|
226
|
|
|
|
213
|
|
|
|
601
|
|
|
|
99
|
|
Construction,
land development and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
other
land
|
|
|
342
|
|
|
|
20
|
|
|
|
8
|
|
|
|
4
|
|
|
|
--
|
|
Total
loans secured by real estate
|
|
|
1,976
|
|
|
|
316
|
|
|
|
287
|
|
|
|
625
|
|
|
|
210
|
|
Commercial
and other business-purpose loans
|
|
|
798
|
|
|
|
1,101
|
|
|
|
896
|
|
|
|
758
|
|
|
|
832
|
|
Consumer
|
|
|
97
|
|
|
|
165
|
|
|
|
215
|
|
|
|
287
|
|
|
|
80
|
|
Other
|
|
|
--
|
|
|
|
7
|
|
|
|
--
|
|
|
|
--
|
|
|
|
2
|
|
Total
recoveries
|
|
|
2,871
|
|
|
|
1,589
|
|
|
|
1,398
|
|
|
|
1,670
|
|
|
|
1,124
|
|
Net
charge-offs
|
|
|
(47,576
|
)
|
|
|
(12,630
|
)
|
|
|
(7,301
|
)
|
|
|
(7,973
|
)
|
|
|
(7,264
|
)
|
Additions
to allowance charged to expense
|
|
|
82,492
|
|
|
|
25,340
|
|
|
|
12,156
|
|
|
|
10,960
|
|
|
|
12,708
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance
for loan losses at December 31
|
|
$
|
93,040
|
|
|
$
|
58,124
|
|
|
$
|
45,414
|
|
|
$
|
40,559
|
|
|
$
|
37,572
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
portfolio loans outstanding at December 31
|
|
$
|
4,735,229
|
|
|
$
|
4,314,701
|
|
|
$
|
3,488,678
|
|
|
$
|
2,991,189
|
|
|
$
|
2,692,904
|
|
Ratio
of allowance for loan losses to
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
portfolio
loans outstanding
|
|
|
1.96
|
%
|
|
|
1.35
|
%
|
|
|
1.30
|
%
|
|
|
1.36
|
%
|
|
|
1.40
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
total portfolio loans for the year
|
|
$
|
4,621,247
|
|
|
$
|
3,840,526
|
|
|
$
|
3,236,538
|
|
|
$
|
2,834,973
|
|
|
$
|
2,492,379
|
|
Ratio
of net charge-offs to average
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
portfolio
loans outstanding
|
|
|
1.03
|
%
|
|
|
0.33
|
%
|
|
|
0.23
|
%
|
|
|
0.28
|
%
|
|
|
0.29
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See
Item 7., Management's Discussion and Analysis of Financial Condition and
Results of Operations, for additional information regarding
the
|
|
allowance
for loan losses and description of factors which influence management's
judgment in determining the amount of the allowance for
|
|
loan
losses at the balance-sheet date.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
[The
remainder of this page intentionally left
blank]
|
SUMMARY
OF LOAN LOSS EXPERIENCE (TABLE E - CONTINUED)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CAPITOL
BANCORP LIMITED
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
amounts of the allowance for loan losses allocated in the following table
(in $1,000s), as of December 31, are based on management's estimate of
losses inherent in the portfolio at the balance sheet date,
and
should not be interpreted as an indication of future
charge-offs:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
|
Amount
|
|
Percentage
of
Loans
|
|
|
Amount
|
|
Percentage
of
Loans
|
|
|
Amount
|
|
Percentage
of
Loans
|
|
|
Amount
|
|
Percentage
of
Loans
|
|
|
Amount
|
|
Percentage
of
Loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans
secured by real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
$
|
30,007
|
|
|
0.63
|
%
|
|
$
|
21,918
|
|
|
0.51
|
%
|
|
$
|
17,886
|
|
|
0.51
|
%
|
|
$
|
18,337
|
|
|
0.61
|
%
|
|
$
|
16,570
|
|
|
0.61
|
%
|
Residential
(including multi-family)
|
|
|
21,645
|
|
|
0.46
|
%
|
|
|
10,235
|
|
|
0.24
|
%
|
|
|
7,234
|
|
|
0.21
|
%
|
|
|
6,805
|
|
|
0.23
|
%
|
|
|
6,796
|
|
|
0.25
|
%
|
Construction,
land development and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
other
land
|
|
|
17,496
|
|
|
0.37
|
%
|
|
|
11,278
|
|
|
0.26
|
%
|
|
|
8,471
|
|
|
0.24
|
%
|
|
|
7,853
|
|
|
0.26
|
%
|
|
|
6,964
|
|
|
0.26
|
%
|
Total
loans secured by real estate
|
|
|
69,148
|
|
|
1.46
|
%
|
|
|
43,431
|
|
|
1.01
|
%
|
|
|
33,591
|
|
|
0.96
|
%
|
|
|
32,995
|
|
|
1.10
|
%
|
|
|
30,330
|
|
|
1.12
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
and other business-purpose
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
loans
|
|
|
22,547
|
|
|
0.47
|
%
|
|
|
13,727
|
|
|
0.32
|
%
|
|
|
11,112
|
|
|
0.32
|
%
|
|
|
6,943
|
|
|
0.23
|
%
|
|
|
6,624
|
|
|
0.25
|
%
|
Consumer
|
|
|
1,032
|
|
|
0.02
|
%
|
|
|
667
|
|
|
0.01
|
%
|
|
|
558
|
|
|
0.02
|
%
|
|
|
510
|
|
|
0.02
|
%
|
|
|
460
|
|
|
0.02
|
%
|
Other
|
|
|
313
|
|
|
0.01
|
%
|
|
|
299
|
|
|
0.01
|
%
|
|
|
153
|
|
|
0.00
|
%
|
|
|
111
|
|
|
0.01
|
%
|
|
|
158
|
|
|
0.01
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
allowance for loan losses
|
|
$
|
93,040
|
|
|
1.96
|
%
|
|
$
|
58,124
|
|
|
1.35
|
%
|
|
$
|
45,414
|
|
|
1.30
|
%
|
|
$
|
40,559
|
|
|
1.36
|
%
|
|
$
|
37,572
|
|
|
1.40
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
portfolio loans outstanding
|
|
$
|
4,735,229
|
|
|
|
|
|
$
|
4,314,701
|
|
|
|
|
|
$
|
3,488,678
|
|
|
|
|
|
$
|
2,991,189
|
|
|
|
|
|
$
|
2,692,904
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
[The
remainder of this page intentionally left
blank]
|
AVERAGE
DEPOSITS (TABLE F)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CAPITOL
BANCORP LIMITED
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
table below summarizes the average balances of deposits (in $1,000s) and
the average rates of interest for the years
|
|
|
|
|
|
ended
December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
Average
|
|
|
|
Amount
|
|
|
|
Rate
|
|
|
Amount
|
|
|
|
Rate
|
|
|
Amount
|
|
|
|
Rate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest-bearing
demand deposits
|
|
$
|
661,578
|
|
|
|
|
|
|
$
|
628,345
|
|
|
|
|
|
|
$
|
614,529
|
|
|
|
|
|
Savings
deposits
|
|
|
89,025
|
|
|
|
|
1.68
|
%
|
|
|
83,632
|
|
|
|
|
2.74
|
%
|
|
|
59,985
|
|
|
|
|
1.64
|
%
|
Time
deposits under $100,000
|
|
|
1,029,914
|
|
|
|
|
3.57
|
%
|
|
|
569,773
|
|
|
|
|
4.92
|
%
|
|
|
429,108
|
|
|
|
|
4.19
|
%
|
Time
deposits $100,000 and over
|
|
|
1,199,988
|
|
|
|
|
4.17
|
%
|
|
|
1,031,011
|
|
|
|
|
5.12
|
%
|
|
|
889,769
|
|
|
|
|
4.28
|
%
|
Other
interest-bearing deposits
|
|
|
1,236,841
|
|
|
|
|
1.94
|
%
|
|
|
1,227,480
|
|
|
|
|
3.34
|
%
|
|
|
1,066,109
|
|
|
|
|
2.96
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
deposits
|
|
$
|
4,217,346
|
|
|
|
|
|
|
|
$
|
3,540,241
|
|
|
|
|
|
|
|
$
|
3,059,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
table below shows the amount of time certificates of deposit issued in
amounts of $100,000 or more, by time
|
|
|
|
|
|
|
remaining
until maturity, which were outstanding at December 31, 2008 (in
$1,000s):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three
months or less
|
|
$
|
529,821
|
|
|
|
|
|
Over
three months to six months
|
|
|
271,356
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Over
six months to twelve months
|
|
|
403,861
|
|
|
|
|
|
Over
12 months
|
|
|
200,397
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,405,435
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
[The
remainder of this page intentionally left
blank]
|
FINANCIAL
RATIOS (TABLE G)
|
|
|
|
|
|
|
|
|
|
CAPITOL
BANCORP LIMITED
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year
Ended December 31
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
Net
income (loss) as a percentage of:
|
|
|
|
|
|
|
|
|
|
Average
stockholders' equity
|
|
|
(7.71
|
)%
|
|
|
5.72
|
%
|
|
|
12.94
|
%
|
Average
total assets
|
|
|
(0.53
|
)%
|
|
|
0.49
|
%
|
|
|
1.12
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital
ratios:
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
stockholders' equity as a
|
|
|
|
|
|
|
|
|
|
|
|
|
percentage
of average total assets
|
|
|
6.91
|
%
|
|
|
8.61
|
%
|
|
|
8.63
|
%
|
Average
total equity (stockholders' equity and
|
|
|
|
|
|
|
|
|
|
|
|
|
minority
interests in consolidated subsidiaries)
|
|
|
|
|
|
|
|
|
|
|
|
|
as
a percentage of average total assets
|
|
|
9.95
|
%
|
|
|
11.60
|
%
|
|
|
11.52
|
%
|
Average
total capital funds (stockholders'
|
|
|
|
|
|
|
|
|
|
|
|
|
equity,
minority interests in consolidated
|
|
|
|
|
|
|
|
|
|
|
|
|
subsidiaries
and subordinated debentures)
|
|
|
|
|
|
|
|
|
|
|
|
|
as
a percentage of average total assets
|
|
|
12.98
|
%
|
|
|
14.82
|
%
|
|
|
14.18
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividend
payout ratio (cash dividends per share
|
|
|
|
|
|
|
|
|
|
|
|
|
as
a percentage of net income (loss) per share):
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
N/A
|
|
|
|
77.52
|
%
|
|
|
35.32
|
%
|
Diluted
|
|
|
N/A
|
|
|
|
78.74
|
%
|
|
|
36.96
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
N/A
- Not applicable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
[The
remainder of this page intentionally left
blank]
|
Item 1A. Risk
Factors.
An
investment in Capitol's common stock is subject to the risks inherent to
Capitol's business. The material risks and uncertainties that Capitol
believes affect it are described below. The risks and uncertainties
described below are not the only ones Capitol faces. Additional risks
and uncertainties that Capitol is not aware of or focused on, or risks currently
deemed immaterial, may also impair business operations. This report
is qualified in its entirety by these risk factors. If any of the
following risks actually occur, Capitol's financial condition and results of
operations could be materially and adversely affected. If this were
to happen, the value of Capitol's common stock could decline significantly, and
shareholders could lose all or a portion of their investment.
Capitol's
Business May Be Adversely Affected by Conditions in the Financial Markets and
Economic Conditions Generally.
Since
December 2007, the United States has been in a recession. Business
activity across a wide range of industries and regions is greatly reduced and
local governments and many businesses are experiencing serious difficulty due to
the lack of consumer spending and the lack of liquidity in the credit
markets. Unemployment has increased significantly.
Since
mid-2007, and particularly during the second half of 2008, the financial
services industry and the securities markets generally were materially and
adversely affected by significant declines in the values of nearly all asset
classes and by a serious lack of liquidity. This was initially
triggered by declines in home prices and the values of subprime mortgages, but
spread to all mortgage and real estate asset classes, to leveraged bank loans
and to nearly all asset classes, including equity securities. Global
markets have been characterized by substantially increased volatility,
short-selling and an overall loss of investor confidence, initially in financial
institutions, but more recently in companies in a number of other industries and
in the broader markets.
Market
conditions have also led to the failure or merger of a number of prominent
financial institutions. Financial institution failures or
near-failures have resulted in further losses as a consequence of defaults on
securities issued by them and defaults under contracts entered into with such
entities as counterparties. Furthermore, declining asset values,
defaults on mortgages and consumer loans, and the lack of market and investor
confidence, as well as other factors, have all combined to increase credit
default swap spreads, to cause rating agencies to lower credit ratings, and to
otherwise increase the cost and decrease the availability of liquidity, despite
very significant declines in Federal Reserve borrowing rates and other
government actions. Some banks and other lenders have suffered
significant losses and have become reluctant to lend, even on a secured basis,
due to the increased risk of default and the impact of declining asset values on
the value of collateral. The foregoing has significantly weakened the
strength and liquidity of some financial institutions worldwide. In
2008, the U.S. government, the Federal Reserve Board and other regulatory
agencies took numerous steps to increase liquidity and to restore investor
confidence, including investing approximately $200 billion in the equity of
other banking organizations, but asset values have continued to decline and
access to liquidity continues to be very limited.
Capitol's
financial performance generally, and in particular the ability of its banks'
borrowers to pay interest on and repay principal of outstanding loans and the
value of collateral securing those loans, is highly dependent on the business
environment in the markets where Capitol operates and in the United States as a
whole. The current recession is characterized by declines in economic
growth, business activity or investor or business confidence; limitations on the
availability or increases in the cost of credit and capital; falling commercial
and residential real estate values; inactive or nonexistent markets for the sale
of real estate; or a combination of these or other factors.
Overall,
during 2008, the business environment was adverse for many households and
businesses in the United States and worldwide. The business
environment outside of Michigan and in some other markets in which Capitol
operates has been less adverse than in the United States generally but continues
to deteriorate. It is expected that the business environment in the
United States and worldwide will continue to deteriorate for the foreseeable
future. There
Item 1A. Risk Factors –
continued.
can be no
assurance that these conditions will improve in the near term. Such
conditions have and could continue to adversely affect the credit quality of
Capitol's loans, results of operations and financial condition.
Young
Banks Are Likely to Incur Significant Operating Losses That Could Negatively
Affect the Availability of Earnings to Support Future Growth.
Many of
Capitol's bank subsidiaries are less than three years old. Capitol
engaged in significant new bank development activity in recent
periods. Young banks are expected to incur operating losses in their
early periods of operation because of an inability to generate sufficient net
interest income to cover operating costs and may never become
profitable. Those operating losses can be significant and can occur
for longer periods than planned depending upon the ability to control operating
expenses and generate net interest income, which could affect the availability
of earnings retained to support future growth.
If
Capitol is Unable to Manage its Growth, its Ability to Provide Quality Services
to Customers Could Be Impaired and Cause its Customer and Employee Relations to
Suffer.
Capitol
has rapidly and significantly expanded its operations in recent
periods. Capitol's rapid growth has placed significant demands on its
management and other resources. To manage its growth, Capitol will
need to attract, hire and retain highly skilled and motivated officers and
employees and improve existing systems and/or implement new systems
for:
·
|
transaction
processing;
|
·
|
operational
and financial management; and
|
·
|
training,
integrating and managing Capitol's growing employee
base.
|
Capitol's
Banks' Small Size May Make it Difficult to Compete With Larger Institutions
Because Capitol is Not Able to Compete in the Offering of Significantly Larger
Loans.
Capitol
endeavors to capitalize its newly formed banks with a moderate dollar amount
permitted by regulatory agencies. As a result, the legal lending
limits of Capitol's banks severely constrain the size of loans that those banks
can make. In addition, many of the banks' competitors have
significantly larger capitalization and, hence, an ability to make significantly
larger loans. The inability to offer larger loans limits the revenues
that can be earned from interest amounts charged on larger loan
balances.
Capitol's
banks are intended to be small in size. Most operate from single
locations. They are small relative to the dynamic markets in which
they operate. Each of those markets has a variety of large and small
competitors that have resources far beyond those of Capitol's
banks. While it is the intention of Capitol's banks to operate as
niche players within their geographic markets, their continued existence is
dependent upon being able to attract and retain loan customers in those large
markets that are dominated by substantially larger regulated and unregulated
financial institutions.
If
Capitol Cannot Recruit Additional Highly Qualified Personnel, Capitol's Customer
Service Could Suffer, Causing its Customer Base to Decline.
Capitol's
strategy is also dependent upon its continuing ability to attract and retain
highly qualified personnel. Competition for such employees among financial
institutions is intense. Availability of personnel with appropriate
community banking experience varies. If Capitol does not succeed in
attracting new employees or retaining and motivating current and future
employees, Capitol's business could suffer significantly.
Item 1A. Risk Factors –
continued.
Capitol
and its Banks Operate in an Environment Highly Regulated by State and Federal
Government; Changes in Federal and State Banking Laws and Regulations Could Have
a Negative Impact on Capitol's Business.
As a bank
holding company, Capitol is regulated primarily by the Federal Reserve
Board. Capitol's current bank affiliates are regulated primarily by
the state banking regulators, the FDIC, the OTS and, in the case of one national
bank, the OCC.
Various
Federal and State Laws and Regulations Govern Numerous Aspects of the Banks'
Operations, Including:
·
|
adequate
capital and financial condition;
|
·
|
permissible
types and amounts of extensions of credit and
investments;
|
·
|
permissible
nonbanking activities; and
|
·
|
restrictions
on dividend payments.
|
Federal
and state regulatory agencies have broad discretion and power to prevent or
remedy unsafe or unsound practices or violations of law by banks and bank
holding companies. Capitol and its banks also undergo periodic
examinations by one or more regulatory agencies. Following such
examinations, Capitol may be required, among other things, to change its asset
valuations or the amounts of required loan loss allowances or to restrict its
operations. Those actions would result from the regulators' judgments
based on information available to them at the time of their
examination.
The
banks' operations are required to follow a wide variety of state and federal
consumer protection and similar statutes and regulations. Federal and
state regulatory restrictions limit the manner in which Capitol and its banks
may conduct business and obtain financing. Those laws and regulations
can and do change significantly from time to time, and any such change could
adversely affect Capitol.
The
Banks' Allowances for Loan Losses May Prove Inadequate to Absorb Actual
Loan Losses, Which May
Adversely Impact Net Income or Increase Operating Losses.
Capitol
believes that its consolidated allowance for loan losses is maintained at a
level adequate to absorb inherent losses in the loan portfolios at the
balance-sheet date. Management's estimates are used to determine the
allowance and are based on historical loss experience, specific problem loans,
value of underlying collateral and other relevant factors. These
estimates are subjective and their accuracy depends on the outcome of future
events. Actual future losses may differ from current
estimates. Depending on changes in economic, operating and other
conditions, including changes in interest rates that are generally beyond
Capitol's control, actual loan losses could increase
significantly. As a result, such losses could exceed current
allowance estimates. No assurance can be provided that the allowance
will be sufficient to cover actual future loan losses should such losses be
realized.
Loan loss
experience, which is helpful in estimating the requirements for the allowance
for loan losses at any given balance-sheet date, has been minimal at many of
Capitol's banks. Because many of Capitol's banks are young, they do
not have seasoned loan portfolios and it is likely that the ratio of the
allowance for loan losses to total loans may need to be increased in future
periods as the loan portfolios become more mature and loss experience evolves.
If it becomes necessary to increase the ratio of the allowance for loan losses
to total loans, such increases would be accomplished through higher provisions
for loan losses, which may adversely impact net income or increase operating
losses and could result in net losses on a consolidated basis.
The
domestic economy is in a severe recession and Capitol's levels of nonperforming
loans have increased significantly. Capitol's loan losses increased
significantly in 2008. It is anticipated that levels of nonperforming
loans and related loan losses will continue to increase as economic conditions,
locally and nationally, evolve.
Item 1A. Risk Factors –
continued.
In
addition, bank regulatory agencies, as an integral part of their supervisory
functions, periodically review the adequacy of the allowance for loan
losses. Regulatory agencies may require Capitol or its banks to
increase their provision for loan losses or to recognize further loan
charge-offs based upon judgments different from those of
management. Any increase in the allowance required by regulatory
agencies could have a negative impact on Capitol's operating
results.
Loan
Origination Activities, for Both Commercial and Residential Mortgages, Involve
Collateral Valuation Risks and the Risk of the Subsequent Identification of
Origination Fraud or Other Losses Which Could Exceed Capitol's Allowance for
Loan Losses.
Capitol's
banks use an enterprise-wide loan policy which provides for conservative
loan-to-value guidelines when loans are originated. In today's
difficult real estate economy in many parts of the country, falling property
values and significant foreclosure activity of both residential and commercial
real estate property are resulting in significant loan losses at many financial
institutions, including Capitol. Further, although most residential
mortgage loans originated by Capitol's banks have been sold away to investors,
if it is subsequently determined that such loans were originated with any
element of alleged fraud, such as exaggerated borrower income or assets, for
example, the originating institution may be liable for any losses with such
loans and may have to buy back those loans. The potential for
additional loan losses from valuation issues or fraud is
unknown. Fraud risks are particularly difficult to identify and
quantify, especially when the duration of the risk is the same as the term of
the loan, often as long as 30 years or more. Occurrences of fraud are
often more prevalent during an economic downturn or
recession. Potential losses from valuation issues or occurrences of
fraud could significantly exceed Capitol's allowance for loan losses, adversely
affecting Capitol's profitability.
New
Accounting or Tax Pronouncements or Interpretations May be Issued by the
Accounting Standard-Setters, Regulators or Other Government Bodies Which Could
Change Existing Accounting Methods. Changes in Accounting Methods
Could Negatively Impact Capitol's Results of Operations and Financial
Condition.
Current
accounting and tax rules, standards, policies, and interpretations influence the
methods by which financial institutions conduct business, implement strategic
initiatives and tax compliance, and govern financial reporting and
disclosures. These laws, regulations, rules, standards, policies and
interpretations are constantly evolving and may change significantly over
time. Events that may not have a direct impact on Capitol, such as
the bankruptcy of major U.S. companies, have resulted in legislators,
regulators, and authoritative bodies, such as the Financial Accounting Standards
Board, the Securities and Exchange Commission, the Public Company Accounting
Oversight Board, and various taxing authorities responding by adopting and/or
proposing substantive revisions to laws, regulations, rules, standards,
policies, and interpretations. New accounting pronouncements and
varying interpretations of accounting pronouncements have occurred and may occur
in the future. A change in accounting standards may adversely affect
reported financial condition and results of operations.
Capitol's
Business Continuity Plans or Data Security Systems Could Prove to be Inadequate,
Resulting in a Material Interruption in, or Disruption to, its Business and a
Negative Impact on the Results of Operations.
Capitol
relies heavily on communications and information systems to conduct its
business. Any failure, interruption or breach in security of these
systems, whether due to severe weather, natural disasters, acts of war or
terrorism, criminal activity or other factors, could result in failures or
disruptions in general ledger, deposit, loan, customer relationship management
and other systems. While Capitol has disaster recovery and other
policies and procedures designed to prevent or limit the effect of the failure,
interruption or security breach of Capitol's information systems, there can be
no assurance that any such failures, interruptions or security breaches will not
occur or, if they do occur, that they will be adequately
addressed. The occurrence of any failures, interruptions or security
breaches of Capitol's information systems could damage the reputation of Capitol
and its banks, result in a loss of customer business, subject Capitol and its
subsidiary banks to additional regulatory scrutiny, or expose Capitol to civil
litigation and possible financial liability, any of which could have a material
adverse effect on Capitol's results of operations.
Item 1A. Risk Factors –
continued.
Capitol
Could Face Unanticipated Environmental Liabilities or Costs Related to Real
Property Owned or Acquired Through Foreclosure. Compliance with
Federal, State and Local Environmental Laws and Regulations, Including Those
Related to Investigation and Clean-Up of Contaminated Sites, Could Have a
Negative Effect on Expenses and Results of Operations.
A
significant portion of Capitol's affiliate banks' loan portfolio are secured by
real property. During the ordinary course of business, Capitol's
affiliate banks may foreclose on and take title to properties securing certain
loans. In doing so, there is a risk that hazardous or toxic
substances could be found on these properties. If hazardous or toxic
substances are found, Capitol's affiliate banks may be liable for remediation
costs, as well as for personal injury and property
damage. Environmental laws may require Capitol's affiliate banks to
incur substantial expenses and may materially reduce the affected property's
value or limit Capitol's affiliate banks' ability to use or sell the affected
property. In addition, future laws or more stringent interpretations
or enforcement policies with respect to existing laws may increase Capitol's
affiliate banks' exposure to environmental liability. Although
Capitol's affiliate banks have policies and procedures to perform an
environmental review before initiating any foreclosure action on real property,
these reviews may not be sufficient to detect all potential environmental
hazards. The remediation costs and any other financial liabilities
associated with an environmental hazard could have a material adverse effect on
results of operations.
Capitol's
Commercial Loan Concentration to Small Businesses and Collateralized by
Commercial Real Estate Increases the Risk of Defaults by Borrowers and
Substantial Credit Losses Could Result, Causing Shareholders to Lose Their
Investment in Capitol's Common Stock.
Capitol's
banks make various types of loans, including commercial, consumer, residential
mortgage and construction loans. Capitol's strategy emphasizes
lending to small businesses and other commercial enterprises. Capitol
typically uses commercial real estate as a source of collateral for many of its
loans. Recently, regulatory agencies have expressed concern with
banks having large concentrations in commercial real estate due to the recent
downturn in the real estate market in certain areas of the country, leading to
increased risk of credit loss and extended periods of sale. Loans to
small and medium-sized businesses are generally riskier than single-family
mortgage loans. Typically, the success of a small or medium-sized
business depends on the management talents and efforts of one or two persons or
a small group of persons, and the death, disability or resignation of one or
more of these persons could have a material adverse impact on the
business. In addition, small and medium-sized businesses frequently
have smaller market shares than their competition, may be more vulnerable to
economic downturns, often need substantial additional capital to expand or
compete and may experience substantial variations in operating results, any of
which may impair a borrower's ability to repay a loan. During 2008,
due to borrower performance difficulties and adverse real estate market
conditions, levels of nonperforming loans, foreclosures and loan losses
increased significantly at Capitol, resulting from the current severe
recessionary environment. Substantial further credit losses could
result, causing shareholders to lose their entire investment in Capitol's common
stock.
Actions
by the Open Market Committee of the Federal Reserve Board (FRBOMC) May Adversely
Affect Capitol's Net Interest Income.
Changes in Net Interest
Income
. Capitol's profitability is significantly dependent
upon net interest income. Net interest income is the difference
between interest income on interest-earning assets, such as loans, and interest
expense on interest-bearing liabilities, such as deposits. Therefore,
any change in general market interest rates, whether as a result of changes in
monetary policies of the Federal Reserve Board or otherwise, can have a
significant effect on net interest income. Capitol's assets and
liabilities may react differently to changes in overall market rates or
conditions because there may be mismatches between the repricing or maturity
characteristic of assets and liabilities. As a result, changes in
interest rates can affect net interest income in either a positive or negative
way
.
Recently,
the FRBOMC has decreased interest rates to an unprecedented level to near
zero. Future stability of interest rates and FRBOMC policy, which
impact such rates, are uncertain.
Item 1A. Risk Factors –
continued.
Changes in the Yield
Curve
. Changes in the difference between short and long-term
interest rates, commonly known as the yield curve, may also harm Capitol's
business. For example, short-term deposits may be used to fund
longer-term loans. When differences between short-term and long-term
interest rates shrink or disappear, the spread between rates paid on deposits
and received on loans could narrow significantly, decreasing net interest
income.
Capitol
Relies on Dividends from its Wholly-Owned Subsidiaries.
Capitol
is a separate and distinct legal entity from its wholly-owned subsidiaries.
It receives dividends from its subsidiaries to help pay interest and
principal on its debt obligations. Capitol does not own, directly or
indirectly, all of the equity of all of its subsidiaries. Capitol
currently does not rely on dividends from partially-owned subsidiaries. To
the extent any partially owned subsidiaries do pay dividends or make
distributions, the other holders of equity will participate pro rata with
Capitol. Various federal and state laws and regulations limit the
amount of dividends that the banks and certain nonbank subsidiaries may pay to
the holding company. In the event the banks are unable to pay sufficient
dividends to Capitol, it may not be able to service its debt obligations or pay
its other obligations. The inability to receive dividends from its
subsidiaries could have a material adverse effect on Capitol's business,
financial condition and results of operations.
Capitol
May Participate in the U.S. Treasury's Capital Purchase Program Which May Be
Dilutive to Capitol's Common Stock.
The
Emergency Economic Stabilization Act of 2008 (EESA) enacted by the U.S. Congress
in response to the financial crises affecting the banking system and financial
markets and going concern threats to investment banks and other financial
institutions was signed into law on October 3, 2008. On October 14,
2008, the U.S. Department of Treasury (U.S. Treasury) announced the Troubled
Asset Relief Program's Capital Purchase Program (TARP). This program
made $250 billion of capital available to U.S. financial institutions from the
initial $350 billion authorized by the EESA in the form of preferred stock
investments by the U.S. Treasury under the following general terms:
·
|
the
preferred stock issued to the U.S. Treasury would pay 5% dividends for the
first five years, and then 9% dividends thereafter;
|
·
|
in
connection with the purchase of preferred stock, the U.S. Treasury will
receive warrants entitling the U.S. Treasury to buy the participating
institution's common stock equivalent in value to 15% of the preferred
stock;
|
·
|
the
preferred stock may not be redeemed for a period of three years, except
with proceeds from high-quality private capital;
|
·
|
the
consent of the U.S. Treasury will be required to increase common dividends
per share or any share repurchases, with limited exceptions, during the
first three years, unless the preferred stock has been redeemed or
transferred to third parties; and
|
·
|
participating
companies must adopt the U.S Treasury's standards for executive
compensation and corporate governance for the period during which the U.S.
Treasury holds the equity issued under the TARP.
|
On
October 22, 2008, Capitol submitted an application to sell up to $142 million in
preferred stock to the U.S. Treasury. If Capitol's application is
approved and its board of directors determines to move forward with
participation in the program, it would, as previously stated, generally be
prohibited from increasing the dividend paid on the shares of its common stock
or repurchasing any shares of its common stock, for three years after the
preferred stock is sold, unless Capitol obtains the U.S. Treasury's prior
consent. Accordingly, there can be no assurance that Capitol will
increase, or even pay, dividends on the shares of its common
stock.
Item 1A. Risk Factors –
continued.
In
addition, participation on the terms set forth in CPP would require Capitol to
issue a 10-year warrant permitting the U.S. Treasury to purchase up to 4.5
million in shares of Capitol's common stock, which would be immediately
exercisable. The proceeds from these transactions would be allocated
on a relative fair value basis between the preferred stock and the warrant
purchased by the U.S. Treasury. The preferred stock and the warrant
would both be classified in stockholders' equity in Capitol's consolidated
balance sheet. The issuance of the preferred stock and the warrant
issued by the U. S. Treasury, including preferred-stock dividends, would result
in a reduction of basic and diluted earnings per common share.
On
February 25, 2009, the U.S. Treasury announced its new Capital Assistance
Program (CAP) under which U.S. banking organizations may apply for a U.S.
Treasury investment in mandatorily convertible preferred stock in an amount of
up to 1% or 2% of risk-weighted assets. The purpose of the CAP is to
provide eligible banking organizations with capital in the form of a preferred
security which is convertible into common equity. Participating
banking organizations would also issue warrants to the U.S.
Treasury. Eligibility will be consistent with the criteria and
deliberative process established under the TARP/CPP. The CAP is open
immediately and the application deadline for participation is in May
2009. Capitol has not yet determined whether it will submit a CAP
application.
Capitol's participation in the CPP or
CAP would have a dilutive effect on Capitol's common stock.
There is
no assurance Capitol will be approved to participate in the TARP or, if
approved, whether it will choose to participate.
Capitol
has Trust-Preferred Securities Outstanding Which May Prohibit Future Cash
Dividends on Capitol's Common Stock or Otherwise Adversely Affect Regulatory
Capital Compliance.
Capitol
also has several series of trust-preferred securities outstanding, with a
liquidation amount totaling about $170.8 million, which are treated as capital
for regulatory ratio compliance purposes. Although these securities
are viewed as capital for regulatory purposes, they are debt securities which
have numerous covenants and other provisions which, in the event of
noncompliance, could have an adverse effect on Capitol and/or the value of the
trust-preferred securities. For example, these securities permit
Capitol to defer the periodic payment of interest of up to twenty consecutive
quarters; however, if such payments are deferred, Capitol is prohibited from
paying cash dividends on its common stock during deferral periods and until
accumulated deferred interest is paid. Future payment of interest on
the trust-preferred securities is dependent upon Capitol's bank subsidiaries'
earnings and dividends, which may be inadequate to service the
obligations. Capitol's board of directors could elect to
defer or regulatory agencies could require Capitol to defer the
payment of interest as is permitted under the terms of the trust-preferred
securities. Continued classification of these securities as elements
of capital for regulatory purposes is subject to future changes in regulatory
rules and regulations and the actions of regulatory agencies, all of which is
beyond the control or influence of Capitol.
Capitol's
Banks Have Restricted Investments in Federal Home Loan Banks Which May Be
Subject to Future Impairment.
As of December 31, 2008, Capitol's
banks had investments in several Federal Home Loan Banks approximating $26.1
million. Such investments are restricted securities which may be
redeemed only by the issuer. Future redemption of the securities is
subject to the issuer's liquidity and capital adequacy which are, in part,
dependent upon valuation of the issuer's significant mortgage-backed securities
portfolios.
Capitol's
Controls and Procedures May Fail or be Circumvented, Which Could Have a Material
Adverse Effect on Capitol's Business, Results of Operations and Financial
Condition.
Capitol
regularly reviews and updates its internal controls, disclosure controls and
procedures, and corporate governance policies and procedures. Any
system of controls, however well designed and operated, is based in part on
certain assumptions and can provide only reasonable, not absolute, assurances
that the objectives of the system are met.
Item 1A. Risk Factors –
continued.
Any
failure or circumvention of controls and procedures, or failure to comply with
regulations related to controls and procedures, could have a material adverse
effect on Capitol's business, results of operations and financial
condition.
Capitol's
Bylaws, as Well as Certain Banking Laws, May Have an Anti-Takeover
Effect.
Provisions
of Capitol's bylaws, the Michigan Control Share Act, and certain federal banking
laws, including regulatory approval requirements, could make it more difficult
for a third party to acquire Capitol, even if doing so would be perceived to be
beneficial to shareholders. The combination of these provisions
effectively inhibits a non-negotiated merger or other business combination
which, in turn, could adversely affect the market price of Capitol's common
stock.
Capitol's
Bank Subsidiaries Have Decentralized Management Which Could Have a Negative
Impact on the Rate of Growth and Profitability of Capitol and its Bank
Subsidiaries.
Capitol's
bank subsidiaries have independent boards of directors and management
teams. This decentralized structure gives the banks control over the
day-to-day management of the institution, including credit decisions, the
selection of personnel, the pricing of loans and deposits, marketing decisions
and the strategy in handling problem loans. This decentralized
structure may impact Capitol's ability to uniformly implement corporate or
enterprise-wide strategy at the bank level. It may slow Capitol's
ability to react to changes in strategic direction due to outside factors such
as interest rate changes and changing economic conditions. This
decentralized structure may cause additional management time to be spent on
internal issues and could negatively impact the growth and profitability of the
banks individually and the parent company.
Item 1B. Unresolved Staff
Comments.
None.
Item 2.
Properties.
The names
and locations of Capitol's banks are listed on Pages F-42 – F-43, Financial
Information Section of Annual Report, under the caption "Note A—Nature of
Operations, Basis of Presentation and Principles of Consolidation," which is
incorporated herein by reference.
Most of
the banks' locations are leased and operate from a single location. Most of
Capitol's banks' facilities are generally small (i.e., less than 10,000 square
feet), first floor offices with convenient access to parking. Ann
Arbor Commerce Bank, Capitol's largest bank, occupies the largest leased
facility, approximately 18,000 square feet.
Community
Bank of Rowan, Elkhart Community Bank, First Carolina State Bank, Goshen
Community Bank, Grand Haven Bank, Muskegon Commerce Bank, Paragon Bank &
Trust, Peoples State Bank and Portage Commerce Bank own their stand-alone bank
primary offices.
Some of
Capitol's banks have drive-up customer service capability. Capitol's
banks are typically located in or near high traffic centers of commerce in their
respective communities. Customer service is enhanced through Internet
banking, remote deposit and utilization of ATMs to process some
customer-initiated transactions, and some of the banks also make available a
courier service to pick up transactions at customers' locations.
Capitol's
Lansing, Michigan executive offices are located within the same building as
Capitol National Bank. Those offices include administrative,
operations, legal, accounting, human resources, credit administration, risk
management and executive staff.
Item 2. Properties –
continued.
Data
processing centers are located in both Lansing, Michigan and Tempe,
Arizona.
Capitol's
Phoenix, Arizona executive offices are located within the same building as
Camelback Community Bank. Those offices include administrative,
operations, credit administration, risk management and executive
staff.
Certain
office locations are leased from related parties. Rent expense,
including rent expense under leases with related parties, is incorporated by
reference from Page F-56, Financial Information Section of Annual Report, under
the caption "Note F—Premises and Equipment."
Capitol's
subsidiary bank, Brighton Commerce Bank, leases its primary banking facility
from Tri-O
Development. Three
of David O'Leary's adult children are members of the leasing
entity. Rent paid by Brighton Commerce Bank to the leasing entity
amounted to $269,695 in 2008. Capitol's subsidiary bank, Ann Arbor
Commerce Bank, leases its primary banking facility from South State Commerce
Center L.L.C. of which Lyle W. Miller's Trust owns a 10% membership interest, H.
Nicholas Genova's IRA owns a 10% membership interest and Kathleen A. Gaskin owns
a 5% membership interest. Rent paid by Ann Arbor Commerce Bank
amounted to $488,655 in 2008, and maintenance fees amounted to
$171,389. Capitol and its subsidiary bank, Capitol National Bank,
paid rent of $831,497 in 2008 for their principal offices at Capitol Bancorp
Center, 200 N. Washington Square, Lansing, Michigan and the adjacent Phoenix
Building to Business & Trade Center Limited, a Michigan limited partnership,
of which Joseph D. Reid and Lewis D. Johns are
partners. Additionally, the cost of significant leasehold
improvements and routine maintenance made in 2008 was $318,834. The
lease rates represent what Capitol believes to be fair market value in the
respective markets. All leasing arrangements which involve insiders
have been approved by Capitol's Ethics Committee and reported to bank regulatory
agencies prior to their commencement.
Management
believes Capitol's and its banks' offices to be in good and adequate condition
and adequately covered by insurance.
Item 3. Legal
Proceedings.
As of
December 31, 2008, there were no material pending legal proceedings to which
Capitol or its subsidiaries was a party or to which any of its property was
subject, except for proceedings which arise in the ordinary course of
business. In the opinion of management, pending legal proceedings
will not have a material effect on the consolidated financial position or
results of operations of Capitol.
[The
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Item 4. Submission of
Matters to a Vote of Security Holders.
During
the fourth quarter of 2008, security holders were asked to amend Capitol's
Articles of Incorporation to authorize Capitol to issue up to 20,000,000 shares
of preferred stock.
The
Special Meeting of Shareholders of Capitol was held on December 10, 2008
for the consideration of the following items, each of which was approved by the
number of votes set forth below:
|
|
|
|
Votes
|
|
|
Votes
|
|
|
|
|
For
|
|
|
Against
|
|
|
|
|
|
|
|
|
1.
|
|
To
act on a proposed amendment to Capitol's Articles of Incorporation to
authorize
issuance
of up to 20,000,000 shares of preferred stock.
|
|
|
8,940,856
|
|
|
|
2,801,397
|
|
|
Abstentions
:
|
31,724
|
|
Broker
Non-Votes:
|
None
reported
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Votes
|
|
|
Votes
|
|
|
|
|
For
|
|
|
Against
|
|
|
|
|
|
|
|
|
|
|
2.
|
|
To
grant management the authority to adjourn, postpone or continue the
special meeting.
|
|
|
8,960,750
|
|
|
|
2,783,175
|
|
|
Abstentions
:
|
30,053
|
|
Broker
Non-Votes:
|
None
reported
|
|
|
|
|
|
|
|
[The
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PART II
Item 5. Market for
Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities.
Incorporated
by reference from Pages F-3 – F-4, Financial Information Section of Annual
Report, under the caption "Information Regarding Capitol's Common Stock," Pages
F-59 – F-61 under the caption "Note J—Restricted Common Stock and Stock Options"
and Pages F-5 – F-6, under the caption "Shareholder Information."
B. Holders:
Incorporated
by reference from the second paragraph on Page F-4, Financial Information
Section of Annual Report, under the caption "Information Regarding Capitol's
Common Stock."
C. Dividends:
Incorporated
by reference from the first paragraph on Page F-4, Financial Information Section
of Annual Report under the caption "Information Regarding Capitol's Common
Stock." Incorporated by reference from Page
F-2,
Financial Information Section of Annual Report, under the caption "Quarterly
Results of Operations" and subcaption "Cash dividends paid per share" and Pages
F-69 – F-70, Financial Information Section of Annual Report, under the caption
"Note P—Dividend Limitations of Subsidiaries and Other Capital
Requirements."
D. Securities
Authorized for Issuance Under Equity Compensation Plan:
Summary of Equity
Compensation Plans as of December 31, 2008
|
|
(a)
|
|
|
(b)
|
|
|
(c)
|
Plan
category
|
|
Number
of securities to
be
issued upon exercise
of
outstanding options,
warrants
and rights (1)
|
|
|
Weighted-average
exercise
price of
outstanding options
warrants
and rights (1)
|
|
|
Number
of securities
remaining
available for
future
issuance under equity
compensation
plans
(excluding
securities reflected
in
column (a))
|
|
|
|
|
|
|
|
|
|
Equity
compensation plans approved by security holders*
|
|
|
1,947,590
|
|
|
$
|
29.87
|
|
|
|
44,988
|
Equity
compensation plans not approved by security holders
(1)
|
|
|
44,830
|
|
|
|
20.95
|
|
|
|
--
|
Equity
compensation plans resulting from share exchanges
|
|
|
381,739
|
|
|
|
21.04
|
|
|
|
--
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
2,374,159
|
|
|
$
|
28.28
|
|
|
|
44,988
|
(1)
|
Stock
options issued pursuant to employment agreements with various officers of
Capitol and its subsidiaries.
|
*
|
Does
not include shares that may be issued if Capitol elects to pay awards made
under the Capitol Bancorp Ltd. Management Incentive Plan in the form of
shares of Capitol's common stock. Also does not include shares
that were approved to be issued under the 2007 Incentive Plan, which
includes a provision increasing the shares available for the plan in an
amount equal to 2% of the outstanding shares of common stock as of
December 31 of each year.
|
E.
|
Performance
Graph. Incorporated by reference from Page F-3, Financial
Information Section of Annual Report, under the caption "Information
Regarding Capitol's Common Stock."
|
F. There
were no purchases of equity securities by the issuer or affiliated purchasers in
the fourth quarter of 2008.
G.
|
42,833
shares of Capitol's common stock subject to a restricted stock award made
to Joseph D. Reid, Capitol's Chairman and CEO, pursuant to the terms of
the Capitol Bancorp Limited Management Incentive Plan vested on January 1,
2008, resulting from the satisfaction of certain performance
targets. The shares were not registered under the Securities
Act of 1933.
|
Item 6. Selected Financial
Data.
Incorporated
by reference from Page F-2, Financial Information Section of Annual Report,
under the caption "Selected Consolidated Financial Data" under the column
heading "As of and for the Year Ended December 31, 2008, 2007, 2006, 2005 and
2004."
Item 7. Management's
Discussion and Analysis of Financial Condition and Results of
Operations.
Incorporated
by reference from Pages F-7 – F-33, Financial Information Section of Annual
Report, under the caption "Management's Discussion and Analysis of Capitol's
Business, Financial Condition and Results of Operations" and Page
F-6,
Financial Information Section of Annual Report, under the caption "Cautions
Regarding Forward-Looking Statements."
Item 7A. Quantitative and
Qualitative Disclosures About Market Risk.
Incorporated
by reference from Pages F-26 – F-31, Financial Information Section of Annual
Report, under the caption "Trends Affecting Operations" and Page F-6, Financial
Information Section of Annual Report, under the caption "Cautions Regarding
Forward-Looking Statements."
Item 8. Financial Statements
and Supplementary Data.
See Item
15 (under subcaption "(a) 1 and 2. Financial Statements/Schedules") of this Form
10-K for specific description of financial statements incorporated by reference
from Financial Information Section of Annual Report.
Incorporated
by reference from Page F-2, Financial Information Section of Annual Report,
under the caption "Quarterly Results of Operations."
Item 9. Changes In and
Disagreements With Accountants on Accounting and Financial
Disclosure.
None.
Item 9A. Controls and
Procedures.
Disclosure
Controls and Procedures:
Capitol
maintains disclosure controls and procedures designed to ensure that the
information Capitol must disclose in its filings with the Securities and
Exchange Commission is recorded, processed, summarized and reported on a timely
basis. Capitol's Chief Executive Officer and Chief Financial Officer
have reviewed and evaluated Capitol's disclosure controls and procedures as
defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of
1934, as amended (Exchange Act) as of the end of the period covered by this
report (Evaluation Date). Based on such evaluation, such officers
have concluded that, as of the Evaluation Date, Capitol's disclosure controls
and procedures are effective.
Item 9A. Controls
and Procedures – continued.
Management's
Annual Report on Internal Control Over Financial Reporting:
Incorporated
by reference from Page F-34, Financial Information Section of Annual
Report.
Attestation
Report of Independent Registered Public Accounting Firm:
Incorporated
by reference from Pages F-35 – F-36, Financial Information Section of Annual
Report.
Changes
in Internal Control Over Financial Reporting:
No change
in Capitol's internal control over financial reporting occurred during Capitol's
most recent fiscal quarter that has materially affected, or is reasonably likely
to materially affect, Capitol's internal control over financial
reporting.
Item 9B. Other
Information.
None.
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PART III
Item 10. Directors,
Executive Officers and Corporate Governance.
The
information required by this item is hereby incorporated by reference from the
material appearing in the Proxy Statement under the captions "PROPOSAL
ONE: ELECTION OF DIRECTORS," "INFORMATION REGARDING CAPITOL'S
DIRECTORS NOT CURRENTLY UP FOR ELECTION," "ROLE OF THE BOARD OF DIRECTORS,"
"CORPORATE GOVERNANCE," "COMMITTEE STRUCTURE," "SECTION 16(a) BENEFICIAL
OWNERSHIP REPORTING COMPLIANCE" and "EXECUTIVE OFFICERS."
Item 11. Executive
Compensation.
The
information required by this item is hereby incorporated by reference from the
material appearing in the Proxy Statement under the captions "COMPENSATION
DISCUSSION & ANALYSIS," "COMPENSATION COMMITTEE REPORT," "SUMMARY
COMPENSATION," "EMPLOYMENT AGREEMENTS," "GRANTS OF PLAN-BASED AWARDS," "2008 AND
2009 EQUITY GRANTS," "OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END 2008,"
"OPTION EXERCISES AND STOCK VESTED 2008," "PENSION BENEFITS 2008," "EXECUTIVE
SUPPLEMENTAL INCOME PLAN," "COMPENSATION COMMITTEE INTERLOCKS AND INSIDER
PARTICIPATION," "DIRECTOR COMPENSATION," "NON-EMPLOYEE DIRECTOR COMPENSATION IN
2008," "POTENTIAL PAYMENTS UPON TERMINATION OR CHANGE IN CONTROL" and "EXECUTIVE
BENEFITS AND PAYMENTS UPON TERMINATION."
Item 12. Security Ownership
of Certain Beneficial Owners and Management and Related Stockholder
Matters.
The
information required by this item is hereby incorporated by reference from the
material appearing in the Proxy Statement under the captions "STOCK OWNERSHIP"
and "EQUITY COMPENSATION PLAN INFORMATION."
Item 13. Certain
Relationships and Related Transactions and Director
Independence.
The
information required by this item is hereby incorporated by reference from the
material appearing in the Proxy Statement under the caption "CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS," "CORPORATE GOVERNANCE," "ROLE OF THE
BOARD OF DIRECTORS," "INDEPENDENCE OF DIRECTORS," "INDEPENDENT DIRECTORS,"
"NON-INDEPENDENT DIRECTORS" and "COMMITTEE STRUCTURE."
Item 14. Principal
Accountant Fees and Services.
The
information required by this item is hereby incorporated by reference from the
material appearing in the Proxy Statement under the caption "RELATIONSHIP WITH
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM."
PART IV
Item 15. Exhibits and
Financial Statement Schedules.
(a) 1 and
2. Financial Statements/Schedules:
The
following consolidated financial statements of Capitol Bancorp Limited and
subsidiaries and reports of independent registered public accounting firm
included on Pages F-34 – F-72 of the Financial Information Section of Annual
Report of the Registrant to its stockholders for the year ended December 31,
2008, are incorporated by reference in Item 8:
Reports
of Independent Registered Public Accounting Firm.
Consolidated
balance sheets--December 31, 2008 and 2007.
Consolidated
statements of operations--Years ended December 31, 2008, 2007 and
2006.
Consolidated
statements of changes in stockholders' equity--Years ended December 31, 2008,
2007 and 2006.
Consolidated
statements of cash flows--Years ended December 31, 2008, 2007 and
2006.
Notes to
consolidated financial statements.
All
financial statements have been incorporated by reference from the Annual
Report. No schedules are included here because they are either not
required, not applicable or the required information is contained
elsewhere.
(b)
Exhibits:
A list of
exhibits required to be filed as part of this report is set forth in the Exhibit
Index (pages 40-42) which immediately precedes such exhibits and is incorporated
herein by reference.
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SIGNATURES
Pursuant
to the requirements of Section 13 or 15(d) 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.
CAPITOL
BANCORP LTD.
Registrant
By:
/s/ Joseph D.
Reid
Joseph D. Reid
Chairman and
Chief Executive
Officer
|
By:
/s/ Lee W.
Hendrickson
Lee W. Hendrickson
Chief Financial
Officer
(Principal Financial
and
Accounting
Officer)
|
Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the registrant on March 12,
2009, in the capacities indicated below.
/s/ Joseph D.
Reid
Joseph
D. Reid, Chairman,
Chief
Executive Officer and Director
|
/s/ Michael F.
Hannley
Michael
F. Hannley, Director
|
/s/ David
O'Leary
David
O'Leary, Secretary and Director
|
/s/ Richard A.
Henderson
Richard
A. Henderson, Director
|
/s/ Paul R.
Ballard
Paul
R. Ballard, Director
|
________________________________
Lewis
D. Johns, Director
|
/s/ David L.
Becker
David
L. Becker, Director
|
/s/ Michael L.
Kasten
Michael
L. Kasten, Vice Chairman and
Director
|
/s/ Michael J.
Devine
Michael
J. Devine, Director
|
/s/ John S.
Lewis
John
S. Lewis, President of Bank
Performance
and Director
|
/s/ James C.
Epolito
James
C. Epolito, Director
|
/s/ Steven L.
Maas
Steven
L. Maas, Director
|
/s/ Gary A.
Falkenberg
Gary
A. Falkenberg, Director
|
/s/ Lyle W.
Miller
Lyle
W. Miller, Vice Chairman and
Director
|
_______________________________
Joel
I. Ferguson, Director
|
/s/ Myrl D.
Nofziger
Myrl
D. Nofziger, Director
|
/s/ Kathleen A.
Gaskin
Kathleen
A. Gaskin, Director
|
/s/ Cristin K.
Reid
Cristin
K. Reid, Corporate President and
Director
|
/s/ H. Nicholas
Genova
H.
Nicholas Genova, Director
|
/s/ Ronald K.
Sable
Ronald
K. Sable,
Director
|
EXHIBIT
INDEX
Exhibit No.
|
|
Description
|
Page
Number or
Incorporated
by
Reference from:
|
|
|
|
|
3
|
|
Articles
of Incorporation (as amended) and Bylaws (as amended)
|
(1)
(22) (24)
(28)
|
4
|
|
Instruments
Defining the Rights of Security Holders
|
|
|
(a)
|
Common
Stock Certificate
|
(1)
|
|
(b)
|
Indenture
dated December 18, 1997
|
(11)
|
|
(c)
|
Subordinated
Debenture
|
(11)
|
|
(d)
|
Amended
and Restated Trust Agreement dated December 18, 1997
|
(11)
|
|
(e)
|
Preferred
Security Certificate dated December 18, 1997
|
(11)
|
|
(f)
|
Preferred
Securities Guarantee Agreement of Capitol Trust I dated December 18,
1997
|
(11)
|
|
(g)
|
Agreement
as to Expenses and Liabilities of Capitol Trust I
|
(11)
|
|
(h)
|
Capitol
Bancorp Ltd. 2000 Incentive Stock Plan
|
(18)
|
|
(i)
|
Form
of Indenture for Junior Subordinated Debt Securities
relating
to Capitol Trust XII
|
(27)
|
|
(j)
|
Form
of Amended and Restated Trust Agreement for Capitol
Trust
XII
|
(27)
|
|
(k)
|
Form
of Preferred Securities Guarantee Agreement for Capitol
Trust
XII
|
(27)
|
|
(l)
|
Form
of Warrant to Purchase Common Stock
|
(29)
|
10
|
|
Material
Contracts:
|
|
|
|
Capitol
Bancorp Limited 2003 Stock Plan*
|
(20)
(22)
|
|
|
Form
of Stock Option Agreement for Awards pursuant to Capitol
Bancorp
Limited 2003 Stock Plan*
|
(20)
|
|
(a)
|
Amended
and Restated Employment Agreement of Joseph D. Reid
(dated
March 17, 2003 and amendment dated April 17, 2003)*
|
(19)
|
|
(b)
|
Profit
Sharing/401(k) Plan (as amended and restated April 1,
1995)*
|
(10)
|
|
(b1)
|
First
and Second Amendments to Profit Sharing/401(k) Plan*
|
(12)
|
|
(b2)
|
Third,
Fourth and Fifth Amendments to Profit Sharing/401(k)
Plan*
|
(14)
|
|
(b3)
|
Sixth,
Seventh, Eighth and Ninth Amendments to Profit
Sharing/401(k)
Plan*
|
(15)
|
|
(b4)
|
Tenth,
Eleventh, Twelfth, Thirteenth, Fourteenth and Fifteenth Amendments to
Profit Sharing/401(k) Plan*
|
(17)
|
|
(b5)
|
Sixteenth
and Seventeenth Amendments to Profit Sharing/401(k)
Plan*
|
(18)
|
|
(b6)
|
Eighteenth,
Nineteenth and Twentieth Amendments to Profit
Sharing/401(k)
Plan*
|
(21)
|
|
(b7)
|
Twenty-First,
Twenty-Second, Twenty-Third, Twenty-Fourth,
Twenty-Fifth
and Twenty-Sixth Amendments to Profit
Sharing/401(k)
Plan*
|
(23)
|
|
(b8)
|
Twenty-Seventh,
Twenty-Eighth, Twenty-Ninth, Thirtieth, Thirty-
First,
Thirty-Second, Thirty-Third, Thirty-Fourth, Thirty-Fifth,
Thirty-Sixth,
Thirty-Seventh, Thirty-Eighth, Thirty-Ninth, Fortieth,
Forty-First
and Forty-Second Amendments to Profit Sharing/401(k) Plan*
|
(25)
|
Exhibit No.
|
|
Description
|
Page
Number or
Incorporated
by
Reference from:
|
|
|
|
|
10
|
|
Material
Contracts—continued:
|
|
|
(b9)
|
Forty-Third,
Forty-Fourth, Forty-Fifth, Forty-Sixth, Forty-Seventh,
Forty-Eighth, Forty-Ninth, Fiftieth, Fifty-First,
Fifty-Second, Fifty-
Third, Fifty-Fourth and Fifty-Fifth Amendments to
Profit
Sharing/401(k) Plan*
|
(26)
|
|
(b10)
|
Fifty-Sixth,
Fifty-Seventh, Fifty-Eighth, Fifty-Ninth, Sixtieth,
Sixty-First and Sixty-Second Amendments to Profit
Sharing/401(k)
Plan*
|
|
|
(c)
|
Lease
Agreement with Business & Trade Center, Ltd.
|
(9)
|
|
(d)
|
Capitol
Bancorp Ltd Employee Stock Ownership Plan (as amended
and
restated January 1, 2008) and Amendment No. 1 thereto*
|
(26)
|
|
(d1)
|
Second
Amendment to Capitol Bancorp Ltd Employee Stock
Ownership
Plan*
|
|
|
(e)
|
Employment
Agreements with John C. Smythe and Charles J.
McDonald*
|
(2)
|
|
(f)
|
Executive
Supplemental Income Agreements with Paul R. Ballard,
Richard
G. Dorner, James R. Kaye, Scott G. Kling, David K.
Powers,
John C. Smythe and Charles J. McDonald*
|
(10)
|
|
(g)
|
Consolidation
Agreement between the Corporation and Portage
Commerce
Bank
|
(4)
|
|
(h)
|
Employment
Agreement with Richard G. Dorner*
|
(4)
|
|
(i)
|
Employment
Agreement with David K. Powers*
|
(5)
|
|
(j)
|
Definitive
Exchange Agreement and Closing Memorandum
between
Capitol and United Savings Bank, FSB
|
(6)
|
|
(k)
|
Employment
Agreement with James R. Kaye*
|
(7)
|
|
(l)
|
Definitive
Exchange Agreement between the Registrant and
Financial
Center Corporation
|
(8)
|
|
(m)
|
Capitol
Bancorp Ltd. Management Incentive Plan*
|
(22)
|
|
(n)
|
Employment
Agreement by and between Sun Community Bancorp
Limited
and John S. Lewis. (Exhibit 10.7 of Sun Community
Bancorp
Limited)*
|
(13)
|
|
(o)
|
Anti-dilution
Agreement by and between Sun Community Bancorp
Limited
and Capitol Bancorp Ltd. (Exhibit 10.10 of Sun
Community
Bancorp Limited)
|
(13)
|
|
(p)
|
Plan
of Share Exchange dated November 16, 2001 between and
among
Capitol Bancorp Ltd. and Sun Community Bancorp Limited
|
(16)
|
|
(q)
|
Restricted
Stock Agreement between Capitol Bancorp Ltd. and
Joseph
D. Reid*
|
(23)
|
|
(r)
|
Form
of Employment Agreement with Cristin K. Reid and Bruce
Thomas
(and, effective March 2008, Lee W. Hendrickson and John
S.
Lewis)*
|
(23)
|
|
(s)
|
Second
Amendment to Employment Agreement with Joseph D.
Reid
(dated March 14, 2007)*
|
|
13
|
|
Annual
Report to Security Holders
A. Marketing
Section of 2008 Annual Report
B. Financial
Information Section of 2008 Annual Report
|
|
Exhibit No.
|
|
Description
|
Page
Number or
Incorporated
by
Reference from:
|
|
|
|
|
21
|
|
Subsidiaries
of the Registrant
|
|
23
|
|
Consent
of BDO Seidman, LLP
|
|
31.1
|
|
Certification
of Chief Executive Officer, Joseph D. Reid,
pursuant
to Section 302of the Sarbanes-Oxley Act of 2002.
|
|
31.2
|
|
Certification
of Chief Financial Officer, Lee W. Hendrickson,
pursuant
to Section 302 of the Sarbanes-Oxley Act of 2002.
|
|
32.1
|
|
Certification
of Chief Executive Officer, Joseph D. Reid, pursuant
to
Section 906 of the Sarbanes-Oxley Act of 2002.
|
|
32.2
|
|
Certification
of Chief Financial Officer, Lee W. Hendrickson,
pursuant
to Section 906of the Sarbanes-Oxley Act of 2002.
|
|
Key:
|
|
(1)
|
Form
S-18, Reg. No. 33-24728C, filed September 15, 1988.
|
(2)
|
Form
S-1, Reg. No. 33-30492, filed August 14, 1989.
|
(3)
|
Form
S-1, Reg. No. 33-31323, filed September 29, 1989.
|
(4)
|
Originally
filed as exhibit to Form 10-K for year ended December 31, 1990, filed
March 6, 1991; refiled as exhibit to Form 10-KSB for year ended December
31, 1995, filed March 14, 1996, due to time limit
for
incorporation by reference pursuant to Regulation SB Item
10(f).
|
(5)
|
Form
10-K for year ended December 31, 1991, filed February 28,
1992.
|
(6)
|
Form
8-K dated July 15, 1992, as amended under Form 8-K on September 14,
1992.
|
(7)
|
Form
10-KSB for year ended December 31, 1992, filed February 25,
1993.
|
(8)
|
Form
S-4, Reg. No. 33-73474, filed December 27, 1993.
|
(9)
|
Form
10-KSB for year ended December 31, 1993, filed March 14,
1994.
|
(10)
|
Form
10-KSB for the year ended December 31, 1995, filed March 14,
1996.
|
(11)
|
Post
Effective Amendment No.1 to Form S-3, Reg. No. 333-41215 and 333-41215-01
filed February 9, 1998.
|
(12)
|
Form
10-K for year ended December 31, 1998, filed March 17,
1999.
|
(13)
|
Amendment
No. 2 to the Registration Statement on Form S-1 of Sun Community Bancorp
Limited (Registration No. 333-76719) dated June 15,
1999.
|
(14)
|
Form
10-K for year ended December 31, 1999, filed March 27,
2000.
|
(15)
|
Form
10-K for year ended December 31, 2000, filed March 23,
2001.
|
(16)
|
Amendment
No. 4 to the Registration Statement on Form S-4 Reg. No. 333-73624 filed
February 12, 2002.
|
(17)
|
Form
10-K for year ended December 31, 2001, filed March 15,
2002.
|
(18)
|
Form
10-K for year ended December 31, 2002, filed March 28,
2003.
|
(19)
|
Form
10-Q for the period ended March 31, 2003, filed May 14,
2003.
|
(20)
|
Form
10-Q for the period ended September 30, 2004, filed October 29,
2004.
|
(21)
|
Form
10-K for the year ended December 31, 2004, filed March 16,
2005.
|
(22)
|
Form
10-Q for the period ended June 30, 2005, filed July 29,
2005.
|
(23)
|
Form
10-K for the year ended December 31, 2005, filed March 16,
2006.
|
(24)
|
Exhibit
99.1 to Form 8-K filed on February 7, 2007.
|
(25)
|
Form
10-K for the year ended December 31, 2006, filed March 16,
2007.
|
(26)
|
Form
10-K for the year ended December 31, 2007, filed March 10,
2008.
|
(27)
|
Exhibits
4.1, 4.2 and 4.3 to Form 8-K, filed July 9, 2008.
|
(28)
|
Exhibit
3.1 to Form 8-K, filed December 10, 2008.
|
(29)
|
Exhibit
4(b) to Form 8-K, filed February 27, 2009.
|
*
|
A
management contract or compensatory plan required to be filed with this
report.
|
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