CBC Capitol Bancorp Ltd. Common Stock

RECENT 2009 HIGHLIGHTS - Assets in Excess of $5.7 Billion - Total Capital in Excess of 11% - Sales of Five Affiliate Banks Announced - Spin-Off of Michigan Banking Operations Announced LANSING, Mich. and PHOENIX, July 23 /PRNewswire-FirstCall/ -- Capitol reported a second quarter net loss of approximately $18.7 million. The net loss per share for the quarter ended June 30, 2009 was $1.08, compared to net income of $0.04 per diluted share reported for the second quarter of 2008. Consolidated assets approximated $5.7 billion compared to the approximate $5.3 billion reported at June 30, 2008, resulting in a 7 percent year-over-year increase. Total portfolio loans were relatively flat at approximately $4.6 billion year-over-year, but reflect a 7 percent decline year-to-date and a nearly 10 percent decline on a linked-quarter basis (annualized). Total deposits increased nearly 13 percent to approximately $4.7 billion from the approximate $4.2 billion reported at June 30, 2008. While consolidated assets and total deposits show healthy growth over the past twelve months, and portfolio loans reflected a modest increase during this period, all three major balance sheet components demonstrate the Corporation's focus on building balance sheet strength and liquidity by harvesting resources during these difficult economic times, as assets (-4 percent), loans (-10 percent) and deposits (-1 percent) all declined on a linked-quarter basis (annualized). Capitol's Chairman and CEO Joseph D. Reid said, "Capitol's response to recessionary pressures has resulted in a shift from our historic strategic initiatives of developing and retaining affiliate banks to deleveraging the consolidated balance sheet and preserving capital resources. Capitol has maintained strong core capital ratios, with a total capital ratio in excess of 11 percent of total assets, and we continue to focus our attention on marshalling resources through the recently announced divestitures of five affiliate banks and the spin-off of Michigan Commerce Bancorp Limited, with an aim to ensure the future soundness of the Corporation." Added Reid, "In this environment, the analyst and investor communities are focusing on two key performance metrics for the banking sector: the 'pre-tax, pre-provision' operating results, and the 'tangible equity' measure of core balance sheet strength. When appropriately adjusted for noncontrolling interests, Capitol's 'pre-tax, pre-provision' operating results approximated $2.5 million for the second quarter of 2009, after dipping slightly into negative territory for 2009's first quarter. And, even with a challenging first six months of 2009 that has witnessed Capitol's provision for loan losses of $64.0 million while experiencing modest balance sheet expansion to over $5.7 billion, the Corporation's 'tangible equity' level, giving effect to noncontrolling interests in consolidated subsidiaries, was a solid 7 percent at June 30, 2009." Chairman Reid stated further, "After careful consideration and factoring in potential costs of the Treasury's TARP program, both quantifiable and hidden, Capitol decided to officially withdraw its application for funds. We believe Capitol's key strategic initiatives, including the select divestitures of affiliate banks and the proposed spin-off of Michigan Commerce Bancorp Limited's operations, will prove to be both cost-effective and more shareholder-oriented paths toward our objectives of building balance sheet strength, enhancing corporate-wide liquidity, marshalling resources and preserving core capital to support our organization." Spin-Off of Michigan Commerce Bancorp Limited On July 21, 2009, Capitol announced its intention to formally and legally separate the operations of Michigan Commerce Bancorp Limited ("MCBL") as an independent publicly-traded company. Upon completion of the spin-off, Capitol will continue to be a national bank holding company and MCBL will be a separate publicly-traded bank holding company consisting of the substantial majority of Capitol's prior Michigan-based banks (see attached pro forma financial statements). In the proposed spin-off, Capitol's shareholders will receive shares of MCBL common stock according to a distribution ratio. The distribution ratio and related record date for the proposed distribution will be determined in the near future. The proposed spin-off is subject to a number of contingencies. The proposed spin-off will enable the two separate publicly-traded companies to focus on maximizing opportunities for the distinct business markets of each, and will allow both Capitol and MCBL to each develop and implement a strategic plan that fits their specific market and operations, resulting in enhanced shareholder value in both companies. MCBL's consolidated total assets approximated $1.3 billion or about 22 percent of Capitol's total assets as of June 30, 2009. If the proposed spin-off had been completed on June 30, 2009, consolidated assets for Capitol would have totaled approximately $4.5 billion, while reflecting a material decline in nonperforming assets and a modest increase in the consolidated total capital ratio. Keefe, Bruyette & Woods is serving as financial advisor to Capitol for the spin-off. Affiliate Bank Divestitures In April, Capitol announced that it had retained Keefe, Bruyette & Woods as a financial advisor for the assessment and evaluation of current affiliate divestiture opportunities. Capitol has since entered into definitive agreements to sell the following five affiliate institutions: Yuma Community Bank, located in Yuma, Arizona; Bank of Belleville, located in Belleville, Illinois; Bank of Santa Barbara, located in Santa Barbara, California; 1st Commerce Bank, located in North Las Vegas, Nevada; and Community Bank of Rowan, located in Salisbury, North Carolina. Chairman Reid stated, "These pending transactions serve to support our strategic initiatives to enhance balance sheet strength and prudently redeploy capital resources in certain markets experiencing select growth opportunities, while also supporting those affiliates currently facing challenges as a result of the volatile and uncertain economy. These initiatives will further strengthen Capitol to weather this deep national recession. We are proud to have worked with the management teams at each affiliate to establish strong banking foundations and financial platforms in their formative years. We are confident that each will continue to deliver the best in personalized banking service to their respective communities through their alliances with customers and investors committed to the traditional community banking model fostered in those respective markets." At June 30, 2009, these five bank affiliates represented approximately $400 million in assets, and with transaction book value multiples in a range of 1.4x to 1.8x of tangible equity, collectively represent more than $50 million of "franchise" value for the five institutions. Each of the divestiture transactions is subject to requisite regulatory approval and is expected to be completed in the second half of 2009. The pro forma balance sheet implications are attached, serving to highlight the capital preservation benefits of these balance sheet deleveraging transactions. Quarterly Performance In the second quarter of 2009, consolidated net operating revenues were approximately $47.6 million, a slight 2 percent decrease compared to the approximate $48.7 million reported for the same period in 2008, reflecting the impact of a static earning asset profile over the past twelve months, combined with elevated levels of nonperforming assets causing pressure on the consolidated net interest margin. Margin pressures were partially offset by an 8 percent year-over-year increase in noninterest income (a 41 percent increase on a linked-quarter basis), driven largely by a solid pick-up in non-portfolio residential mortgage origination fees and modest expansion in service charges on deposit accounts, helping to mute a slight decline in trust and wealth-management revenues reflective of the volatile capital markets. An encouraging preliminary sign was the 21 basis-point improvement in Capitol's linked-quarter net interest margin from 2.81 percent in the first quarter to 3.02 percent for the three months ended June 30, 2009. The improvement in the quarterly margin was achieved despite a linked-quarter contraction in earning assets, coupled with a continued focus on corporate liquidity (cash and cash equivalents rose to approximately $804.6 million at June 30, 2009 or more than 14 percent of consolidated assets), which were positively offset by both a better funding mix in the quarter, that saw noninterest-bearing demand deposits increase to $721.5 million from $689.8 million at March 31, 2009, and slightly better yields on performing portfolio loans. Noninterest, or operating, expenses increased 8.2 percent year-over-year, and reflect a 3.4 percent expansion on a linked-quarter basis to approximately $51.7 million. However, the linked-quarter analysis is negatively distorted by a dramatic $3.2 million increase in regulatory fees (primarily attributable to a one-time special FDIC industry-wide assessment) and a $3.3 million increase in costs associated with problem asset resolution. These two factors more than offset a $4.6 million linked-quarter reduction (approximately 16 percent) in compensation expense, which also represented a nearly 12 percent decline year-over-year tied to Capitol's ongoing system-wide efficiency initiatives. The Corporation continues to emphasize the reduction of operating expenses through salary and staffing reductions, operational efficiencies and tight controls on corporate overhead. Growth initiatives have been suspended to ensure sufficient capital strength to weather the recession. Capitol will continue to focus on liquidity and the support of its affiliate bank network. The net loss for the second quarter of 2009 approximated $18.7 million compared to net income of $623,000 reported for the second quarter of 2008. The net loss per share for the second quarter of 2009 was $1.08 compared to earnings per share of $0.04 for the quarter ended June 30, 2008. The second quarter 2009 provision for loan losses increased to $35.8 million versus approximately $9.0 million for the same period in 2008 and $28.2 million recorded in the first quarter of 2009. During the second quarter of 2009, net loan charge-offs were $21.2 million, resulting in a provision-to-net-charge-offs coverage ratio of 1.7x, enabling the Corporation to continue to build reserves in this challenging environment. Six Month Performance Net operating revenues approximated $90.0 million for the six months ended June 30, 2009, a 7 percent decrease compared to the approximate $97.2 million for the year-ago period, driven by margin compression and general softness across all major revenue components. A significant increase in the provision for loan losses, which approximated $64.0 million for the first six months of 2009 versus $18.0 million for the comparable 2008 period, was the primary contributor in Capitol's loss for the first half of the year. The net loss per share for the first half of 2009 was $2.00, a decrease from earnings of $0.16 per diluted share reported for the corresponding period in 2008. Bank performance, reserve building and related operating results of the Corporation's mature banks in its Great Lakes Region were a major reason for the net loss. Balance Sheet With total capital resources approximating $631.9 million at June 30, 2009, the total capital-to-asset ratio was 11 percent, providing continued support for the Corporation's $5.7 billion balance sheet. Net charge-offs of 1.83 percent of average loans (annualized) reported for the second quarter of 2009 remained consistent with the first quarter of 2009, an increase from 0.60 percent reported for the corresponding period of 2008. The ratio of nonperforming loans to total portfolio loans was 5.8 percent at June 30, 2009 compared to 5 percent reported at March 31, 2009. Although still an increase from the previous quarter, the rate of increase for nonperforming loans and assets slowed substantially, as reflected in the material decline in the rate of increase for nonperforming loans that measured 37 percent in the first quarter of 2009 to approximately 14 percent for the most recent quarter. The continued increase in nonperforming assets is attributable to borrower stress and nonperformance, coupled with a virtually nonexistent market for the sale of real estate which hinders the disposition of such assets. The allowance coverage ratio of nonperforming loans improved modestly to approximately 43 percent at June 30, 2009, while the allowance for loan losses increased to 2.49 percent of portfolio loans from 2.12 percent at March 31, 2009. The Michigan market, dealing with significant secular change versus what had historically been cyclical challenges, continues to be the source of a dominant portion of nonperforming loans, representing approximately 48 percent of consolidated nonperforming loans. Capitol's loan portfolio practices continue to reflect a disciplined approach to review, analysis and proper identification of portfolio issues with a long-term view to value preservation. About Capitol Bancorp Limited Capitol Bancorp Limited (NYSE:CBC) is a $5.7 billion national community banking company, with a network of separately chartered banks with operations in 17 states. It is the holder of the most individual bank charters in the country. Founded in 1988, Capitol Bancorp Limited has executive offices in Lansing, Michigan, and Phoenix, Arizona. CAPITOL BANCORP LIMITED SUMMARY OF SELECTED FINANCIAL DATA (in thousands, except share and per share data) Three Months Ended Six Months Ended June 30 June 30 ------------------ ---------------- 2009 2008 2009 2008 ---- ---- ---- ---- Condensed results of operations: Interest income $69,472 $76,137 $138,188 $155,640 Interest expense 28,890 33,945 60,149 71,513 ------ ------ ------ ------ Net interest income 40,582 42,192 78,039 84,127 Provision for loan losses 35,813 9,019 63,985 17,977 Noninterest income 6,994 6,477 11,951 13,042 Noninterest expense 51,688 47,788 101,683 92,593 Loss before income tax benefit (39,925) (8,138) (75,678) (13,401) Net income (loss) attributable to Capitol Bancorp Limited $(18,698) $623 $(34,370) $2,814 ======== ==== ======== ====== Net income (loss) per share attributable to Capitol Bancorp Limited: Basic $(1.08) $0.04 $(2.00) $0.16 Diluted (1.08) 0.04 (2.00) 0.16 Book value per share at end of period 18.36 22.29 18.36 22.29 Common stock closing price at end of period $2.65 $8.97 $2.65 $8.97 Common shares outstanding at end of period 17,517,000 17,317,000 17,517,000 17,317,000 Number of shares used to compute: Basic earnings (loss) per share 17,244,000 17,144,000 17,203,000 17,143,000 Diluted earnings (loss) per share 17,244,000 17,177,000 17,203,000 17,179,000 2nd Quarter 1st Quarter 4th Quarter 3rd Quarter 2nd Quarter 2009 2009 2008 2008 2008 ---- ---- ---- ---- ---- Condensed summary of financial position: Total assets $5,726,148 $5,782,608 $5,654,836 $5,427,347 $5,340,400 Portfolio loans 4,580,428 4,695,317 4,735,229 4,662,772 4,564,522 Deposits 4,695,019 4,706,562 4,497,612 4,283,561 4,157,634 Capitol Bancorp Limited stockholders' equity 321,585 337,491 353,848 353,108 385,965 Total capital $631,874 $656,942 $680,361 $681,154 $707,232 Key performance ratios: Return on average assets -- -- 0.08% -- 0.05% Return on average Capitol Bancorp Limited stockholders' equity -- -- 1.23% -- 0.64% Net interest margin 3.02% 2.81% 2.98% 3.30% 3.50% Efficiency ratio 108.64% 117.87% 97.52% 112.09% 98.19% Asset quality ratios: Allowance for loan losses / portfolio loans 2.49% 2.12% 1.96% 2.09% 1.40% Total nonperforming loans / portfolio loans 5.78% 4.95% 3.59% 2.73% 2.10% Total nonperforming assets / total assets 6.44% 5.53% 4.20% 3.43% 2.63% Net charge-offs (annualized) / average portfolio loans 1.83% 1.83% 1.30% 1.74% 0.60% Allowance for loan losses / nonperforming loans 43.17% 42.86% 54.66% 76.78% 66.77% Capital ratios: Capitol Bancorp Limited stockholders' equity / total assets 5.62% 5.84% 6.26% 6.51% 7.23% Total capital / total assets 11.03% 11.36% 12.03% 12.55% 13.24% Forward-Looking Statements -------------------------- This press release contains certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward- looking statements include expressions such as "expect," "intend," "believe," "estimate," "may," "will," "anticipate" and "should" and similar expressions also identify forward-looking statements which are not necessarily statements of belief as to the expected outcomes of future events. Actual results could materially differ from those presented due to a variety of internal and external factors. Actual results could materially differ from those contained in, or implied by, such statements. Capitol Bancorp Limited undertakes no obligation to release revisions to these forward-looking statements or reflect events or circumstances after the date of this release. Supplemental analyses follow providing additional detail regarding Capitol's results of operations, financial position, asset quality and other supplemental data. CAPITOL BANCORP LIMITED Condensed Consolidated Statements of Operations (Unaudited) (in thousands, except per share data) Three Months Six Months Ended June 30 Ended June 30 ------------- -------------- 2009 2008 2009 2008 ---- ---- ---- ---- INTEREST INCOME: Portfolio loans (including fees) $68,359 $74,238 $136,435 $151,569 Loans held for sale 344 236 561 536 Taxable investment securities 152 102 304 235 Federal funds sold 23 1,008 58 2,221 Other 594 553 830 1,079 --- --- --- ----- Total interest income 69,472 76,137 138,188 155,640 INTEREST EXPENSE: Deposits 22,911 26,989 47,783 57,677 Debt obligations and other 5,979 6,956 12,366 13,836 ----- ----- ------ ------ Total interest expense 28,890 33,945 60,149 71,513 ------ ------ ------ ------ Net interest income 40,582 42,192 78,039 84,127 PROVISION FOR LOAN LOSSES 35,813 9,019 63,985 17,977 ------ ----- ------ ------ Net interest income after provision for loan losses 4,769 33,173 14,054 66,150 NONINTEREST INCOME: Service charges on deposit accounts 1,505 1,457 3,007 2,790 Trust and wealth-management revenue 1,135 1,563 2,523 3,208 Fees from origination of non- portfolio residential mortgage loans 1,496 1,063 2,398 1,984 Gain on sales of government- guaranteed loans 405 643 645 1,223 Realized gains on sale of investment securities available for sale 2 1 45 Other 2,453 1,749 3,377 3,792 ----- ----- ----- ----- Total noninterest income 6,994 6,477 11,951 13,042 NONINTEREST EXPENSE: Salaries and employee benefits 24,442 27,730 53,495 53,278 Occupancy 4,843 4,500 9,734 8,904 Equipment rent, depreciation and maintenance 3,201 3,008 6,634 5,874 Costs associated with foreclosed properties and other real estate owned 5,730 1,181 8,137 2,092 FDIC insurance premiums and other regulatory fees 5,348 933 7,462 1,870 Other 8,124 10,436 16,221 20,575 ----- ------ ------ ------ Total noninterest expense 51,688 47,788 101,683 92,593 ------ ------ ------- ------ Loss before income tax benefit (39,925) (8,138) (75,678) (13,401) Income tax benefit (14,571) (2,701) (27,419) (4,696) ------- ------ ------- ------ NET LOSS (25,354) (5,437) (48,259) (8,705) Less interest in net losses attributable to noncontrolling interests 6,656 6,060 13,889 11,519 ----- ----- ------ ------ NET INCOME (LOSS) ATTRIBUTABLE TO CAPITOL BANCORP LIMITED $(18,698) $623 $(34,370) $2,814 ======== ==== ======== ====== NET INCOME (LOSS) PER SHARE ATTRIBUTABLE TO CAPITOL BANCORP LIMITED: Basic $(1.08) $0.04 $(2.00) $0.16 ====== ===== ====== ===== Diluted $(1.08) $0.04 $(2.00) $0.16 ====== ===== ====== ===== CAPITOL BANCORP LIMITED Condensed Consolidated Balance Sheets (in thousands, except share data) (Unaudited) June 30 December 31 2009 2008 ---- ---- ASSETS ------ Cash and due from banks $119,801 $136,499 Money market and interest-bearing deposits 652,383 391,836 Federal funds sold 32,397 96,031 ------ ------ Cash and cash equivalents 804,581 624,366 Loans held for sale 30,843 10,474 Investment securities: Available for sale, carried at market value 13,809 15,584 Held for long-term investment, carried at amortized cost which approximates fair value 33,661 32,856 ------ ------ Total investment securities 47,470 48,440 Portfolio loans: Loans secured by real estate: Commercial 2,125,443 2,115,515 Residential (including multi-family) 895,239 879,754 Construction, land development and other land 676,358 797,486 ------- ------- Total loans secured by real estate 3,697,040 3,792,755 Commercial and other business-purpose loans 786,175 845,593 Consumer 55,830 61,340 Other 41,383 35,541 ------ ------ Total portfolio loans 4,580,428 4,735,229 Less allowance for loan losses (114,215) (93,040) -------- ------- Net portfolio loans 4,466,213 4,642,189 Premises and equipment 53,669 59,249 Accrued interest income 17,899 18,871 Goodwill 71,592 72,342 Other real estate owned 103,739 67,171 Other assets 130,142 111,734 ------- ------- TOTAL ASSETS $5,726,148 $5,654,836 ========== ========== LIABILITIES AND EQUITY ---------------------- LIABILITIES: Deposits: Noninterest-bearing $721,497 $700,786 Interest-bearing 3,973,522 3,796,826 --------- --------- Total deposits 4,695,019 4,497,612 Debt obligations: Notes payable and short-term borrowings 362,575 446,925 Subordinated debentures 167,366 167,293 ------- ------- Total debt obligations 529,941 614,218 Accrued interest on deposits and other liabilities 36,680 29,938 ------ ------ Total liabilities 5,261,640 5,141,768 EQUITY: Capitol Bancorp Limited stockholders' equity: Preferred stock, 20,000,000 shares authorized; none issued and outstanding Common stock, no par value, 50,000,000 shares authorized; issued and outstanding: 2009 - 17,517,331 shares 2008 - 17,293,908 shares 277,000 274,018 Retained earnings 45,048 80,255 Undistributed common stock held by employee- benefit trust (569) (569) Fair value adjustment (net of tax effect) for investment securities available for sale (accumulated other comprehensive income) 106 144 --- --- Total Capitol Bancorp Limited stockholders' equity 321,585 353,848 Noncontrolling interests in consolidated subsidiaries 142,923 159,220 ------- ------- Total equity 464,508 513,068 ------- ------- TOTAL LIABILITIES AND EQUITY $5,726,148 $5,654,836 ========== ========== CAPITOL BANCORP LIMITED Allowance for Loan Losses Activity ALLOWANCE FOR LOAN LOSSES ACTIVITY (in thousands): Periods Ended June 30 --------------------- Three Month Period Six Month Period ------------------ ---------------- 2009 2008 2009 2008 ---- ---- ---- ---- Allowance for loan losses at beginning of period $99,629 $61,666 $93,040 $58,124 Loans charged-off: Loans secured by real estate: Commercial (3,341) (2,772) (5,625) (3,444) Residential (including multi-family) (6,180) (1,013) (11,368) (3,163) Construction, land development and other land (7,153) (1,761) (13,867) (3,120) ------ ------ ------- ------ Total loans secured by real estate (16,674) (5,546) (30,860) (9,727) Commercial and other business-purpose loans (4,825) (2,496) (12,758) (4,297) Consumer (252) (55) (544) (189) Other (1) (34) (1) (34) -- --- -- --- Total charge-offs (21,752) (8,131) (44,163) (14,247) Recoveries: Loans secured by real estate: Commercial 20 600 122 718 Residential (including multi-family) 154 376 201 460 Construction, land development and other land 2 197 121 223 - --- --- --- Total loans secured by real estate 176 1,173 444 1,401 Commercial and other business-purpose loans 335 153 879 583 Consumer 14 24 29 65 Other -- -- 1 1 --- --- ----- ----- Total recoveries 525 1,350 1,353 2,050 --- ----- ----- ----- Net charge-offs (21,227) (6,781) (42,810) (12,197) Additions to allowance charged to expense 35,813 9,019 63,985 17,977 ------ ----- ------ ------ Allowance for loan losses at June 30 $114,215 $63,904 $114,215 $63,904 ======== ======= ======== ======= Average total portfolio loans for period ended June 30 $4,649,187 $4,541,327 $4,684,544 $4,472,508 ========== ========== ========== ========== Ratio of net charge-offs (annualized) to average portfolio loans outstanding 1.83% 0.60% 1.83% 0.55% ==== ==== ==== ==== CAPITOL BANCORP LIMITED Asset Quality Data ASSET QUALITY (in thousands): June 30 March 31 December 31 2009 2009 2008 ---- ---- ---- Nonaccrual loans: Loans secured by real estate: Commercial $84,879 $68,537 $39,892 Residential (including multi-family) 57,764 62,961 35,675 Construction, land development and other land 87,055 77,861 72,996 ------ ------ ------ Total loans secured by real estate 229,698 209,359 148,563 Commercial and other business-purpose loans 24,767 17,233 16,283 Consumer 586 356 190 --- --- --- Total nonaccrual loans 255,051 226,948 165,036 Past due (greater than or equal to 90 days) loans and accruing interest: -------------------------------------- Loans secured by real estate: Commercial 2,706 2,345 1,623 Residential (including multi-family) 1,318 2,371 365 Construction, land development and other land 4,284 109 2,293 ----- --- ----- Total loans secured by real estate 8,308 4,825 4,281 Commercial and other business-purpose loans 1,152 636 747 Consumer 42 50 146 -- -- --- Total past due loans 9,502 5,511 5,174 ----- ----- ----- Total nonperforming loans $264,553 $232,459 $170,210 ======== ======== ======== Real estate owned and other repossessed assets 103,953 87,074 67,449 ------- ------ ------ Total nonperforming assets $368,506 $319,533 $237,659 ======== ======== ======== CAPITOL BANCORP LIMITED Selected Supplemental Data EPS COMPUTATION COMPONENTS (in thousands): Periods Ended June 30 --------------------- Three Month Period Six Month Period ------------------ ---------------- 2009 2008 2009 2008 ---- ---- ---- ---- Numerator-net income (loss) attributable to Capitol Bancorp Limited for the period $(18,698) $623 $(34,370) $2,814 ======== ==== ======== ====== Denominator: Weighted average number of shares outstanding, excluding unvested restricted shares (denominator for basic earnings per share) 17,244 17,144 17,203 17,143 Effect of dilutive securities: Unvested restricted shares -- 33 -- 27 Stock options -- -- -- 9 ---- ---- ---- ---- Total effect of dilutive securities -- 33 -- 36 ---- ---- ---- ---- Denominator for diluted earnings per share- Weighted average number of shares and potential dilution 17,244 17,177 17,203 17,179 ====== ====== ====== ====== Number of antidilutive stock options excluded from diluted earnings per share computation 2,428 2,494 2,428 2,269 ===== ===== ===== ===== AVERAGE BALANCES (in thousands): Periods Ended June 30 --------------------- Three Month Period Six Month Period ------------------ ---------------- 2009 2008 2009 2008 ---- ---- ---- ---- $4,649,187 $4,541,327 $4,684,544 $4,472,508 Portfolio loans Earning assets 5,382,603 4,817,307 5,347,703 4,729,691 Total assets 5,756,390 5,191,195 5,718,720 5,092,365 Deposits 4,696,428 4,026,851 4,627,644 3,965,178 Capitol Bancorp Limited stockholders' equity 330,977 386,688 338,176 387,831 Unaudited Pro Forma Condensed Consolidated Balance Sheet Capitol Bancorp Limited and Subsidiaries June 30, 2009 (in $1,000s, except per share amounts) Proposed Spin-Off of Historical Michigan Commerce Amounts Bancorp Limited Pro Forma As Reported (Note A) Consolidated ----------- -------- ------------ ASSETS Cash and cash equivalents $804,581 $(115,020) $689,561 Loans held for resale 30,843 (2,592) 28,251 Investment securities 47,470 (8,374) 39,096 Portfolio loans 4,580,428 (1,087,545) 3,492,883 Less allowance for loan losses (114,215) 36,958 (77,257) -------- ------ ------- Net portfolio loans 4,466,213 (1,050,587) 3,415,626 Premises and equipment, net 53,669 (11,932) 41,737 Goodwill 71,592 (2,875) 68,717 Other real estate owned 103,739 (25,116) 78,623 Other assets 148,041 (33,474) 114,567 ------- ------- ------- TOTAL ASSETS $5,726,148 $(1,249,970) $4,476,178 ========== =========== ========== LIABILITIES AND EQUITY Liabilities: Deposits $4,695,019 $(1,086,341) $3,608,678 Debt obligations 529,941 (51,400) 478,541 Other liabilities 36,680 (6,523) 30,157 ------ ------ ------ Total liabilities 5,261,640 (1,144,264) 4,117,376 Equity: Capitol Bancorp Limited stockholders' equity: Preferred stock - - - Common stock 277,000 (118,546) 158,454 Retained earnings 45,048 12,799 57,847 Other, net (463) 41 (422) ---- -- ---- Total Capitol Bancorp Limited stockholders' equity 321,585 (105,706) 215,879 Noncontrolling interests in consolidated subsidiaries 142,923 - 142,923 ------- - ------- Total equity 464,508 (105,706) 358,802 ------- -------- ------- TOTAL LIABILITIES AND EQUITY $5,726,148 $(1,249,970) $4,476,178 ========== =========== ========== Number of common shares outstanding 17,517,331 17,517,331 ========== ========== Book value per share of Capitol Bancorp Limited stockholders' equity $18.36 $12.32 ====== ====== Nonperforming loans $264,553 $(91,562) $172,991 Real estate owned and other repossessed assets 103,953 (25,134) 78,819 ------- ------- ------ Total nonperforming assets $368,506 $(116,696) $251,810 ======== ========= ======== Selected ratios: Total equity as a percentage of total assets 8.11% 8.46% 8.02% Total capital as a percentage of total assets--Note B 11.03% 8.46% 11.75% Allowance for loan losses as a percentage of portfolio loans 2.49% 3.40% 2.21% Allowance for loan losses coverage ratio of nonperforming loans 43.17% 40.36% 44.66% Nonperforming loans as a percentage of portfolio loans 5.78% 8.42% 4.95% Nonperforming assets as a percentage of total assets 6.44% 9.34% 5.63% Notes to Unaudited Pro Forma Condensed Consolidated Balance Sheet: A--Pro forma spin-off of Michigan Commerce Bancorp Limited (MCBL), previously a wholly-owned subsidiary of Capitol Bancorp Limited (Capitol). MCBL's amounts include its wholly-owned subsidiaries, Michigan Commerce Bank and Bank of Auburn Hills. B--Total capital includes trust-preferred securities (subordinated debentures) and total equity. Unaudited Pro Forma Condensed Consolidated Statements of Operations Capitol Bancorp Limited and Subsidiaries (in $1,000s, except per-share data) Six Months Ended June 30, 2009 ---------------------------------- Spin-Off of Michigan Commerce Historical Bancorp Limited Pro Forma Amounts (Notes A and B) Consolidated Interest income $138,188 $(32,344) $105,844 Interest expense 60,149 (14,813) 45,336 ------ ------- ------ Net interest income 78,039 (17,531) 60,508 Provision for loan losses 63,985 (18,031) 45,954 ------ ------- ------ Net interest income after provision for loan losses 14,054 500 14,554 Noninterest income 11,951 (2,104) 9,847 Noninterest expense 101,683 (22,446) 79,237 ------- ------- ------ Loss before income tax benefit (75,678) 20,842 (54,836) Income tax benefit (27,419) 7,075 (20,344) ------- ----- ------- NET LOSS (48,259) 13,767 (34,492) Less net losses attributable to noncontrolling interests 13,889 - 13,889 ------ - ------ NET LOSS ATTRIBUTABLE TO CAPITOL BANCORP LIMITED $(34,370) $13,767 $(20,603) ======== ======= ======== NET LOSS PER SHARE ATTRIBUTABLE TO CAPITOL BANCORP LIMITED: Basic $(2.00) $(1.20) ====== ====== Diluted $(2.00) $(1.20) ====== ====== Elements of net loss per share computations (in 1,000s): Average number of common shares outstanding for purposes of computing basic net loss per share--denominator for basic net loss per share 17,203 17,203 Effect of dilutive securities-- stock options and unvested restricted shares - - - - Average number of common shares and dilutive securities for purposes of computing diluted net loss per share 17,203 17,203 ====== ====== Year Ended December 31, 2008 -------------------------------- Pro Forma Adjustments ------------------------- Spin-Off of Michigan Spin-Off of Commerce Bank of Bancorp Auburn Historical Limited Hills Pro Forma Amounts (Note A) (Note B) Consolidated ------- -------- -------- ------------ Interest income $304,315 $(75,446) $(2,674) $226,195 Interest expense 140,466 (36,809) (1,512) 102,145 ------- ------- ------ ------- Net interest income 163,849 (38,637) (1,162) 124,050 Provision for loan losses 82,492 (30,040) (1,189) 51,263 ------ ------- ------ ------ Net interest income after provision for loan losses 81,357 (8,597) 27 72,787 Noninterest income 26,432 (4,491) (91) 21,850 Noninterest expense 190,388 (33,916) (1,509) 154,963 ------- ------- ------ ------- Loss before income tax benefit (82,599) 20,828 1,445 (60,326) Income tax benefit (30,148) 7,060 487 (22,601) ------- ----- --- ------- NET LOSS (52,451) 13,768 958 (37,725) Less net losses attributable to noncontrolling interests 23,844 - - 23,844 ------ - - ------ NET LOSS ATTRIBUTABLE TO CAPITOL BANCORP LIMITED $(28,607) $13,768 $958 $(13,881) ======== ======= ==== ======== NET LOSS PER SHARE ATTRIBUTABLE TO CAPITOL BANCORP LIMITED: Basic $(1.67) $(0.81) ====== ====== Diluted $(1.67) $(0.81) ====== ====== Elements of net loss per share computations (in 1,000s): Average number of common shares outstanding for purposes of computing basic net loss per share--denominator for basic net loss per share 17,147 17,147 Effect of dilutive securities-- stock options and unvested restricted shares - - - - Average number of common shares and dilutive securities for purposes of computing diluted net loss per share 17,147 17,147 ====== ====== Notes to Unaudited Pro Forma Condensed Consolidated Statements of Operations: A--Pro forma spin-off of Michigan Commerce Bancorp Limited (MCBL), previously a wholly-owned subsidiary of Capitol Bancorp Limited (Capitol). On March 31, 2009, Capitol transferred its interest in Michigan Commerce Bank (MCB, a wholly-owned subsidiary of Capitol) to MCBL, resulting in MCB becoming a wholly-owned subsidiary of MCBL. The pro forma adjustment removes the operating results of MCB as if the spin-off occurred at the beginning of the period presented. B--Pro forma spin-off of Bank of Auburn Hills (BAH), previously a wholly-owned subsidiary of Capitol. On June 30, 2009, Capitol transferred its interest in BAH to MCBL, resulting in BAH becoming a wholly-owned subsidiary of MCBL. The pro forma adjustment removes the operating results of BAH as if the spin-off occurred at the beginning of the period presented. Unaudited Pro Forma Condensed Consolidated Balance Sheet Capitol Bancorp Limited and Subsidiaries June 30, 2009 (in $1,000s) Pro Forma Adjustments ------------------------- Proposed Spin-Off of Michigan Pending Commerce Sale of Historical Bancorp Five Bank Amounts Limited Subsidiaries Pro Forma As Reported (Note A) (Note B) Consolidated ----------- -------- -------- ------------ ASSETS Cash and cash equivalents $804,581 $(115,020) $(20,178) $669,383 Loans held for resale 30,843 (2,592) (2,370) 25,881 Investment securities 47,470 (8,374) (6,970) 32,126 Portfolio loans 4,580,428 (1,087,545) (323,830) 3,169,053 Less allowance for loan losses (114,215) 36,958 5,854 (71,403) -------- ------ ----- ------- Net portfolio loans 4,466,213 (1,050,587) (317,976) 3,097,650 Premises and equipment, net 53,669 (11,932) (4,439) 37,298 Goodwill 71,592 (2,875) (1,234) 67,483 Other real estate owned 103,739 (25,116) (1,985) 76,638 Other assets 148,041 (33,474) (6,474) 108,093 ------- ------- ------ ------- TOTAL ASSETS $5,726,148 $(1,249,970) $(361,626) $4,114,552 ========== =========== ========= ========== LIABILITIES AND EQUITY Liabilities: Deposits $4,695,019 $(1,086,341) $(319,706) $3,288,972 Debt obligations 529,941 (51,400) (34,500) 444,041 Other liabilities 36,680 (6,523) (951) 29,206 ------ ------ ---- ------ Total liabilities 5,261,640 (1,144,264) (355,157) 3,762,219 Equity: Capitol Bancorp Limited stockholders' equity: Preferred stock - - - Common stock 277,000 (118,546) 158,454 Retained earnings 45,048 12,799 6,601 64,448 Other, net (463) 41 (422) ---- -- ----- ---- Total Capitol Bancorp Limited stockholders' equity 321,585 (105,706) 6,601 222,480 Noncontrolling interests in consolidated subsidiaries 142,923 - (13,070) 129,853 ------- - ------- ------- Total equity 464,508 (105,706) (6,469) 352,333 ------- -------- ------ ------- TOTAL LIABILITIES AND EQUITY $5,726,148 $(1,249,970) $(361,626) $4,114,552 ========== =========== ========= ========== Nonperforming loans $264,553 $(91,562) $(12,401) $160,590 Real estate owned and other repossessed assets 103,953 (25,134) (1,985) 76,834 ------- ------- ------ ------ Total nonperforming assets $368,506 $(116,696) $(14,386) $237,424 ======== ========= ======== ======== Selected ratios: Total equity as a percentage of total assets 8.11% 8.56% Total capital as a percentage of total assets--Note D 11.03% 12.63% Allowance for loan losses as a percentage of portfolio loans 2.49% 2.25% Allowance for loan losses coverage ratio of nonperforming loans 43.17% 44.46% Nonperforming loans as a percentage of portfolio loans 5.78% 5.07% Nonperforming assets as a percentage of total assets 6.44% 5.77% Notes to Unaudited Pro Forma Condensed Consolidated Balance Sheet: A--Pro forma spin-off of Michigan Commerce Bancorp Limited (MCBL), previously a wholly-owned subsidiary of Capitol Bancorp Limited (Capitol). MCBL's amounts include its wholly-owned subsidiaries, Michigan Commerce Bank and Bank of Auburn Hills. B--Pending sale of Yuma Community Bank, Bank of Santa Barbara, Bank of Belleville, Community Bank of Rowan and 1st Commerce Bank. C--Estimated gain on pending sale of banks (see Note B), less transaction expenses and related federal income tax effect. Sale proceeds are estimated to approximate $34.5 million. D--Total capital includes trust-preferred securities (subordinated debentures) and total equity. Capitol Bancorp's National Network of Community Banks Arizona Region: Arrowhead Community Bank Glendale, Arizona Asian Bank of Arizona Phoenix, Arizona Bank of Tucson Tucson, Arizona Camelback Community Bank Phoenix, Arizona Central Arizona Bank Casa Grande, Arizona Colonia Bank Phoenix, Arizona Mesa Bank Mesa, Arizona Southern Arizona Community Bank Tucson, Arizona Sunrise Bank of Albuquerque Albuquerque, New Mexico Sunrise Bank of Arizona Phoenix, Arizona Yuma Community Bank Yuma, Arizona California Region: Bank of Escondido Escondido, California Bank of Feather River Yuba City, California Bank of San Francisco San Francisco, California Bank of Santa Barbara Santa Barbara, California Napa Community Bank Napa, California Point Loma Community Bank San Diego, California Sunrise Bank of San Diego San Diego, California Sunrise Community Bank Palm Desert, California Colorado Region: Fort Collins Commerce Bank Fort Collins, Colorado Larimer Bank of Commerce Fort Collins, Colorado Loveland Bank of Commerce Loveland, Colorado Mountain View Bank of Commerce Westminster, Colorado Great Lakes Region: Bank of Auburn Hills Auburn Hills, Michigan Bank of Maumee Maumee, Ohio Bank of Michigan Farmington Hills, Michigan Capitol National Bank Lansing, Michigan Elkhart Community Bank Elkhart, Indiana Evansville Commerce Bank Evansville, Indiana Goshen Community Bank Goshen, Indiana Michigan Commerce Bank Ann Arbor, Michigan Ohio Commerce Bank Beachwood, Ohio Paragon Bank & Trust Holland, Michigan Midwest Region: Adams Dairy Bank Blue Springs, Missouri Bank of Belleville Belleville, Illinois Community Bank of Lincoln Lincoln, Nebraska Summit Bank of Kansas City Lee's Summit, Missouri Nevada Region: 1st Commerce Bank North Las Vegas, Nevada Bank of Las Vegas Las Vegas, Nevada Black Mountain Community Bank Henderson, Nevada Desert Community Bank Las Vegas, Nevada Red Rock Community Bank Las Vegas, Nevada Northeast Region: USNY Bank Geneva, New York Northwest Region: Bank of Bellevue Bellevue, Washington Bank of Everett Everett, Washington Bank of Tacoma Tacoma, Washington High Desert Bank Bend, Oregon Issaquah Community Bank Issaquah, Washington Southeast Region: Bank of Valdosta Valdosta, Georgia Community Bank of Rowan Salisbury, North Carolina First Carolina State Bank Rocky Mount, North Carolina Peoples State Bank Jeffersonville, Georgia Pisgah Community Bank Asheville, North Carolina Sunrise Bank of Atlanta Atlanta, Georgia Texas Region: Bank of Fort Bend Sugar Land, Texas Bank of Las Colinas Irving, Texas DATASOURCE: Capitol Bancorp Limited CONTACT: Analysts, Michael M. Moran, Chief of Capital Markets, +1-877-884-5662; or Media, Stephanie Swan, Director of Shareholder Services, +1-517-372-7402, both for Capitol Bancorp Limited Web Site: http://www.capitolbancorp.com/

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