NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note A – Basis of
Presentation
The
accompanying unaudited condensed consolidated financial statements of Capitol
Bancorp Limited (Capitol or the Corporation) have been prepared in accordance
with generally accepted accounting principles for interim financial information
and with the instructions for Form 10-Q. Accordingly, they do not
include all information and footnotes necessary for a fair presentation of
consolidated financial position, results of operations and cash flows in
conformity with accounting principles generally accepted in the United States of
America.
The
condensed consolidated financial statements do, however, include all adjustments
of a normal recurring nature (in accordance with Rule 10-01(b)(8) of Regulation
S-X) which Capitol considers necessary for a fair presentation of the interim
periods.
The
results of operations for the periods ended June 30, 2009 are not necessarily
indicative of the results to be expected for the year ending December 31,
2009.
The
consolidated balance sheet as of December 31, 2008 was derived from audited
consolidated financial statements as of that date. Certain 2008
amounts have been reclassified to conform to the 2009 presentation.
Note B – Implementation of
New Accounting Standards
In
September 2006, the Financial Accounting Standards Board (FASB) issued Statement
No. 157,
Fair Value
Measurements
, which provides a definition of fair value for accounting
purposes, establishes a framework for measuring fair value and expands related
financial statement disclosures. In February 2008, the FASB issued
FASB Staff Position (FSP) FAS 157-2 which deferred the effective date of
Statement No. 157 until January 1, 2009 for nonfinancial assets and nonfinancial
liabilities except those items recognized or disclosed at fair value on an
annual or on a more frequently recurring basis. The implementation of
previously deferred aspects of Statement No. 157 in 2009 (as permitted by FSP
FAS 157-2) did not have a material effect on the Corporation's results of
operations or financial position. Fair value disclosures are set
forth in Note D to the condensed consolidated financial statements.
The FASB
issued Statement No. 160,
Noncontrolling Interests in
Consolidated Financial Statements – an amendment of ARB No. 51
, to create
accounting and reporting standards for the noncontrolling interest in a
subsidiary and for the deconsolidation of a subsidiary. Statement No.
160 establishes accounting and reporting standards that require (1) the
ownership interest in subsidiaries held by parties other than the parent to be
clearly identified and presented in the consolidated balance sheet within
equity, but separate from the parent's equity, (2) the amount of consolidated
net income attributable to the parent and the noncontrolling interest to be
clearly identified and presented on the face of the consolidated statement of
income, (3) changes in a parent's ownership interest while the parent retains
its controlling financial interest in its subsidiary to be accounted for
consistently, (4) when a subsidiary is deconsolidated, any retained
noncontrolling equity investment in the former subsidiary to be initially
measured at fair value and (5) entities provide sufficient disclosures that
clearly identify and distinguish between the interests of the parent and the
interests of the noncontrolling owners. Statement No. 160 became
effective for Capitol on January 1, 2009 and the accompanying condensed
consolidated financial statements reflect implementation of the new accounting
standard.
In
December 2007, the FASB issued Statement No. 141(R),
Business Combinations
, to
further enhance the accounting and financial reporting related to business
combinations. Statement No. 141(R) establishes principles and
requirements for how the acquirer in a business combination (1) recognizes and
measures in its financial statements the identifiable assets acquired, the
liabilities assumed and any noncontrolling interest in the acquiree, (2)
recognizes and measures goodwill acquired in the business combination or a gain
from a bargain purchase, (3) requires that acquisition-related and restructuring
costs be recognized separately from the acquisition, generally charged to
expense when incurred and (4) determines information to disclose to enable users
of the financial statements to evaluate the nature and financial effects of the
business combination. Statement No. 141(R) applies prospectively to
business combinations for which the acquisition date is on or after January 1,
2009. The effects of the Corporation's adoption of Statement No.
141(R) had no impact upon implementation and its subsequent impact will depend
upon the extent and magnitude of acquisitions in the future.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
CAPITOL
BANCORP LIMITED – Continued
Note B – Implementation of
New Accounting Standards – Continued
On April
9, 2009, the FASB issued the following FSPs, each of which become effective for
second quarter reporting, with earlier implementation permitted for the first
calendar quarter of 2009. Capitol elected to implement the new
guidance effective January 1, 2009.
FSP FAS
107-1 and APB 28-1 amends FASB Statement No. 107,
Disclosures about Fair Value of
Financial Instruments
, and APB Opinion No. 28,
Interim Financial Reporting
,
to require interim disclosures about fair value of financial instruments in
addition to annual reporting. The required disclosures are included
in Note D to the condensed consolidated financial statements.
FSP FAS
115-2 and FAS 124-2 amends the other-than-temporary impairment guidance for debt
securities to make it more operational and to improve the presentation and
disclosure of other-than-temporary impairments on debt and equity securities in
financial statements. Implementation of this new guidance did not
have a material effect on Capitol
'
s consolidated
financial statements. The expanded interim disclosures about
investment securities are set forth in Note C to the condensed consolidated
financial statements.
FSP FAS
157-4 amends prior fair value guidance to aid in determining fair value when the
volume and level of activity for an asset or liability have significantly
decreased and identifying transactions that are not orderly. This new
guidance is intended to clarify that significant adjustments to quoted prices
may be necessary to estimate fair value when there has been a significant
decrease in the volume and activity for the asset/liability in relation to
normal market activity. Fair value is the price that would be
received to sell an asset (or paid to transfer a liability) in an orderly
transaction (that is, not a forced liquidation or distressed sale) between
willing market participants under current market
conditions. Capitol
'
s implementation
of FSP FAS 157-4 and related disclosures are set forth in Note D to the
condensed consolidated financial statements.
In March 2008 the FASB issued
Statement No. 161,
Disclosures
about Derivative Instruments and Hedging Activities
, an amendment of FASB
Statement No. 133. This new guidance revises the presentation and
disclosure of derivatives and hedging activities, became effective for Capitol
on January 1, 2009 and did not have a material impact on Capitol's condensed
consolidated financial statements upon implementation.
In
February 2008, the FASB issued FSB FAS 140-3,
Accounting for Transfers of
Financial Assets and Repurchase Financing Transactions
. The
new guidance clarifies transfers and certain transactions' accounting subject to
the provisions of FAS 140 and became effective January 1, 2009. This
new guidance did not have a material impact on Capitol's financial position or
results of operations upon implementation.
In May 2009, the FASB issued Statement
No. 165,
Subsequent
Events
. This new guidance requires the disclosure of the date
through which an entity has evaluated subsequent events and became effective
June 30, 2009. This new guidance did not have a material impact on
the Corporation's consolidated financial statements and related disclosures are
set forth in Note I to the condensed consolidated financial
statements.
In June 2009, the FASB issued Statement
No. 166,
Accounting for
Transfers of Financial Assets – an Amendment of FASB Statement No.
140
. This new guidance revises the presentation and disclosure
of transfers of financial assets and the effects of a transfer on an entity's
financial position, operating results and cash flows. Statement No.
166 applies to annual financial statements and interim periods beginning on or
after November 15, 2009. Management has not completed its review of
this new guidance.
In June 2009, the FASB issued Statement
No. 168,
The FASB Accounting
Standards Codification™ and The Hierarchy of Generally Accepted Accounting
Principles – a replacement of FASB Statement No. 162
. On the
effective date of this statement, the FASB Accounting Standards Codification™
(Codification) will supersede all then-existing non-Securities and Exchange
Commission (SEC) accounting and reporting standards. All other
non-grandfathered non-SEC accounting literature not included in the Codification
will become non-authoritative. This statement is effective for
financial statements issued for interim and annual periods ending after
September 15, 2009, and will not have a material impact on the Corporation's
consolidated financial statements.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
CAPITOL
BANCORP LIMITED – Continued
Note C – Investment
Securities
Investment
securities consisted of the following (in $1,000s):
|
|
June
30, 2009
|
|
|
December
31, 2008
|
|
|
|
Amortized
Cost
|
|
|
Estimated
Fair
Value
|
|
|
Amortized
Cost
|
|
|
Estimated
Fair
Value
|
|
Available
for sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
United
States government agency
securities
|
|
$
|
6,840
|
|
|
$
|
6,850
|
|
|
$
|
9,785
|
|
|
$
|
9,913
|
|
Mortgage
backed securities
|
|
|
6,041
|
|
|
|
6,177
|
|
|
|
4,813
|
|
|
|
4,890
|
|
Municipals
|
|
|
767
|
|
|
|
782
|
|
|
|
768
|
|
|
|
781
|
|
|
|
|
13,648
|
|
|
|
13,809
|
|
|
|
15,366
|
|
|
|
15,584
|
|
Held
for long-term investment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
Reserve Bank stock
|
|
|
192
|
|
|
|
192
|
|
|
|
146
|
|
|
|
146
|
|
Federal
Home Loan Bank stock
|
|
|
26,676
|
|
|
|
26,676
|
|
|
|
26,053
|
|
|
|
26,053
|
|
Corporate
|
|
|
6,642
|
|
|
|
6,642
|
|
|
|
6,591
|
|
|
|
6,591
|
|
Other
|
|
|
151
|
|
|
|
151
|
|
|
|
66
|
|
|
|
66
|
|
|
|
|
33,661
|
|
|
|
33,661
|
|
|
|
32,856
|
|
|
|
32,856
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
47,309
|
|
|
$
|
47,470
|
|
|
$
|
48,222
|
|
|
$
|
48,440
|
|
Investments
in Federal Reserve Bank and Federal Home Loan Bank stock are restricted and may
only be resold to, or redeemed by, the issuer.
Gross
unrealized gains and losses on investment securities available for sale were as
follows (in $1,000s):
|
|
June
30, 2009
|
|
|
December
31, 2008
|
|
|
|
Gains
|
|
|
Losses
|
|
|
Gains
|
|
|
Losses
|
|
United
States government agency
securities
|
|
$
|
13
|
|
|
$
|
3
|
|
|
$
|
128
|
|
|
$
|
--
|
|
Mortgage
backed securities
|
|
|
138
|
|
|
|
2
|
|
|
|
85
|
|
|
|
8
|
|
Municipals
|
|
|
15
|
|
|
|
--
|
|
|
|
13
|
|
|
|
--
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
166
|
|
|
$
|
5
|
|
|
$
|
226
|
|
|
$
|
8
|
|
The age
of gross unrealized losses and carrying value (at estimated fair value) of
securities available for sale are summarized below (in $1,000s):
|
|
June
30, 2009
|
|
|
December
31, 2008
|
|
|
|
Unrealized
Loss
|
|
|
Carrying
Value
|
|
|
Unrealized
Loss
|
|
|
Carrying
Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One
year or less:
|
|
|
|
|
|
|
|
|
|
|
|
|
United
States government agency
securities
|
|
$
|
3
|
|
|
$
|
597
|
|
|
$
|
--
|
|
|
$
|
--
|
|
Mortgage
backed securities
|
|
|
1
|
|
|
|
29
|
|
|
|
4
|
|
|
|
281
|
|
|
|
|
4
|
|
|
|
626
|
|
|
|
4
|
|
|
|
281
|
|
In
excess of one year:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage
backed securities
|
|
|
1
|
|
|
|
51
|
|
|
|
4
|
|
|
|
501
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
5
|
|
|
$
|
677
|
|
|
$
|
8
|
|
|
$
|
782
|
|
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
CAPITOL
BANCORP LIMITED – Continued
Note C – Investment
Securities—Continued
Management
does not believe any individual unrealized loss as of June 30, 2009 represents
an other-than-temporary loss (primarily due to such amounts being attributable
to changes in interest rates). Further, it does not intend to sell
such securities and believes it is unlikely sale would become required before
the amortized cost can be recovered.
Gross
realized gains and losses from sales and maturities of investment securities
were insignificant for the periods presented.
Scheduled maturities of investment
securities held as of June 30, 2009 were as follows:
|
|
Amortized
Cost
|
|
|
Estimated
Fair
Value
|
|
|
|
|
|
|
|
|
Due
in one year or less
|
|
$
|
4,937
|
|
|
$
|
4,942
|
|
After
one year, through five years
|
|
|
2,504
|
|
|
|
2,522
|
|
After
five years, through ten years
|
|
|
593
|
|
|
|
602
|
|
After
ten years
|
|
|
5,614
|
|
|
|
5,743
|
|
Securities
held for long-term investment
|
|
|
|
|
|
|
|
|
without
stated maturities
|
|
|
33,661
|
|
|
|
33,661
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
47,309
|
|
|
$
|
47,470
|
|
Note D – Fair
Value
FAS No.
157 establishes a hierarchy that prioritizes the use of fair value inputs used
in valuation methodologies into the following three levels:
|
Level
1: Quoted prices (unadjusted) for identical assets or
liabilities in active markets that the entity has the ability to access as
of the measurement date.
|
|
Level
2: Significant observable inputs other than Level 1 prices such
as quoted prices for similar assets or liabilities in active markets;
quoted prices for identical or similar assets or liabilities in markets
that are not active; or other inputs that are observable or can be derived
from or corroborated by observable market data by correlation or other
means.
|
|
Level
3: Significant unobservable inputs that reflect the reporting
entity's own assumptions about the assumptions that market participants
would use in pricing an asset or
liability.
|
The
following is a description of Capitol's valuation methodologies used to measure
and disclose the fair values of its assets and liabilities on a recurring or
nonrecurring basis:
|
Investment securities
available for sale:
Securities available for sale are
recorded at fair value on a recurring basis. Fair value
measurement is based on quoted prices, when available (Level
1). If quoted prices are not available, fair values are
measured using independent pricing models (Level
2).
|
|
Mortgage loans held for
sale:
Mortgage loans held for sale are carried at the
lower of cost or fair value and are measured on a nonrecurring
basis. There were no mortgage loans held for sale written down
to fair value at June 30, 2009. Fair value is based on
independent quoted market prices, where applicable, or the prices for
other mortgage whole loans with similar
characteristics.
|
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
CAPITOL
BANCORP LIMITED – Continued
Note D – Fair Value –
Continued
|
Loans:
The
Corporation does not record loans at fair value on a recurring
basis. However, from time to time, nonrecurring fair value
adjustments to collateral dependent loans are recorded to reflect partial
write-downs based on the observable market price, current appraised value
of the collateral or other estimates of fair
value.
|
|
Other real estate
owned:
At the time of foreclosure, foreclosed properties
are adjusted to fair value less estimated costs to sell upon transfer from
portfolio loans to other real estate owned, establishing a new accounting
basis. The Corporation subsequently adjusts fair value on other
real estate owned on a nonrecurring basis to reflect partial write-downs
based on the observable market price, current appraised value of the asset
or other estimates of fair value.
|
The
balances of assets and liabilities measured at fair value on a recurring basis
as of June 30, 2009 were as follows (in $1,000s):
|
|
Total
|
|
|
Significant
Other
Observable
Inputs
(Level
2)
|
|
|
|
|
|
|
|
|
Investment
securities available for sale:
|
|
|
|
|
|
|
United
State government agency
securities
|
|
$
|
6,850
|
|
|
$
|
6,850
|
|
Mortgage
backed securities
|
|
|
6,177
|
|
|
|
6,177
|
|
Municipals
|
|
|
782
|
|
|
|
782
|
|
|
|
$
|
13,809
|
|
|
$
|
13,809
|
|
The
balances of assets and liabilities measured at fair value on a recurring basis
as of December 31, 2008 were as follows (in $1,000s):
|
|
Total
|
|
|
Significant
Other
Observable
Inputs
(Level
2)
|
|
|
|
|
|
|
|
|
Investment
securities available for sale:
|
|
|
|
|
|
|
United
State government agency
securities
|
|
$
|
9,913
|
|
|
$
|
9,913
|
|
Mortgage
backed securities
|
|
|
4,890
|
|
|
|
4,890
|
|
Municipals
|
|
|
781
|
|
|
|
781
|
|
|
|
$
|
15,584
|
|
|
$
|
15,584
|
|
The
balances of assets and liabilities measured at fair value on a nonrecurring
basis as of June 30, 2009 were as follows (in $1,000s):
|
|
Total
|
|
|
Significant
Unobservable
Inputs
(1)
(Level
3)
|
|
|
|
|
|
|
|
|
Impaired
loans
|
|
$
|
72,527
|
|
|
$
|
72,527
|
|
|
|
|
|
|
|
|
|
|
Other
real estate owned
|
|
$
|
103,739
|
|
|
$
|
103,739
|
|
(1)
|
Represents
carrying value based on the appraised value of the applicable collateral
or foreclosed property or other estimates of fair
value.
|
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
CAPITOL
BANCORP LIMITED – Continued
Note D – Fair Value –
Continued
The
balances of assets and liabilities measured at fair value on a nonrecurring
basis as of December 31, 2008 were as follows (in $1,000s):
|
|
Total
|
|
|
Significant
Other
Observable
Inputs
(Level
2)
|
|
|
|
|
|
|
|
|
Impaired
loans
(1)
|
|
$
|
103,580
|
|
|
$
|
103,580
|
|
(1)
|
Represents
carrying value and related write-downs for which adjustments are based on
the appraised value of the
collateral.
|
Many of Capitol
'
s
collateral-dependent impaired loans and other real estate owned are located in
severely depressed real estate markets. In those markets, appraisal
data may be of limited usefulness in estimating fair value because comparable
sale transactions are infrequent, not orderly and are often distressed or
forced.
Capitol began
applying the fair value measurement and disclosure provisions of FAS No. 157
effective January 1, 2009 to nonfinancial assets and liabilities measured on a
nonrecurring basis, which did not have a material effect on Capitol
'
s consolidated
financial position upon implementation. The Corporation measures the
fair value of the following on a nonrecurring basis: (1) long-lived
assets, (2) foreclosed assets (other real estate owned), (3) the reporting unit
under step one of its goodwill impairment test and (4) indefinite lived
intangible assets.
[The
remainder of this page intentionally left blank]
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
CAPITOL
BANCORP LIMITED – Continued
Note D – Fair Value –
Continued
Carrying values and estimated fair
values of financial instruments for FAS No. 107 disclosure purposes were as
follows (in $1,000s):
|
|
June
30, 2009
|
|
|
December
31, 2008
|
|
|
|
Carrying
Value
|
|
|
Estimated
Fair
Value
|
|
|
Carrying
Value
|
|
|
Estimated
Fair
Value
|
|
Financial
assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
804,581
|
|
|
$
|
804,581
|
|
|
$
|
624,366
|
|
|
$
|
624,366
|
|
Loans
held for sale
|
|
|
30,843
|
|
|
|
30,843
|
|
|
|
10,474
|
|
|
|
10,474
|
|
Investment
securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available
for sale
|
|
|
13,809
|
|
|
|
13,809
|
|
|
|
15,584
|
|
|
|
15,584
|
|
Held
for long-term investment
|
|
|
33,661
|
|
|
|
33,661
|
|
|
|
32,856
|
|
|
|
32,856
|
|
|
|
|
47,470
|
|
|
|
47,470
|
|
|
|
48,440
|
|
|
|
48,440
|
|
Portfolio
loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans
secured by real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
2,125,443
|
|
|
|
2,106,646
|
|
|
|
2,115,515
|
|
|
|
2,105,204
|
|
Residential
(including multi-family)
|
|
|
895,239
|
|
|
|
880,529
|
|
|
|
879,754
|
|
|
|
865,406
|
|
Construction,
land development and other
land
|
|
|
676,358
|
|
|
|
622,673
|
|
|
|
797,486
|
|
|
|
753,028
|
|
Total
loans secured by real estate
|
|
|
3,697,040
|
|
|
|
3,609,848
|
|
|
|
3,792,755
|
|
|
|
3,723,638
|
|
Commercial
and other business-purpose loans
|
|
|
786,175
|
|
|
|
778,314
|
|
|
|
845,593
|
|
|
|
830,283
|
|
Consumer
|
|
|
55,830
|
|
|
|
56,066
|
|
|
|
61,340
|
|
|
|
62,313
|
|
Other
|
|
|
41,383
|
|
|
|
39,447
|
|
|
|
35,541
|
|
|
|
32,504
|
|
Total
portfolio loans
|
|
|
4,580,428
|
|
|
|
4,483,675
|
|
|
|
4,735,229
|
|
|
|
4,648,738
|
|
Less
allowance for loan losses
|
|
|
(114,215
|
)
|
|
|
(114,215
|
)
|
|
|
(93,040
|
)
|
|
|
(93,040
|
)
|
Net
portfolio loans
|
|
|
4,466,213
|
|
|
|
4,369,460
|
|
|
|
4,642,189
|
|
|
|
4,555,698
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial
liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest-bearing
|
|
|
721,497
|
|
|
|
721,497
|
|
|
|
700,786
|
|
|
|
700,786
|
|
Interest-bearing:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Demand
accounts
|
|
|
1,328,138
|
|
|
|
1,328,138
|
|
|
|
1,231,170
|
|
|
|
1,231,172
|
|
Time
certificates of less than $100,000
|
|
|
956,677
|
|
|
|
959,751
|
|
|
|
1,160,221
|
|
|
|
1,161,411
|
|
Time
certificates of $100,000 or more
|
|
|
1,688,707
|
|
|
|
1,690,283
|
|
|
|
1,405,435
|
|
|
|
1,408,431
|
|
Total
interest-bearing
|
|
|
3,973,522
|
|
|
|
3,978,172
|
|
|
|
3,796,826
|
|
|
|
3,801,014
|
|
Total
deposits
|
|
|
4,695,019
|
|
|
|
4,699,669
|
|
|
|
4,497,612
|
|
|
|
4,501,800
|
|
Notes
payable and short-term borrowings
|
|
|
362,575
|
|
|
|
363,701
|
|
|
|
446,925
|
|
|
|
447,490
|
|
Subordinated
debentures
|
|
|
167,366
|
|
|
|
170,841
|
|
|
|
167,293
|
|
|
|
170,841
|
|
Estimated
fair values of financial assets and liabilities in the preceding table are based
upon a comparison of current interest rates on financial instruments and the
timing of related scheduled cash flows to the estimated present value of such
cash flows using current estimated market rates of interest (unless quoted
market values or other fair value information is more readily
available). For example, the estimated fair value of portfolio loans
is based on discounted cash flow computations. Similarly, the
estimated fair value of time deposits, debt obligations and subordinated
debentures were determined through discounted cash flow
computations. Such estimates of fair value are not intended to
represent market value or portfolio liquidation value, and only represent an
estimate of fair value based on current financial reporting
requirements.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
CAPITOL
BANCORP LIMITED – Continued
Note D – Fair Value –
Continued
Given
current market conditions, a portion of the loan portfolio is not readily
marketable and market prices do not exist. Capitol has not attempted
to market the loan portfolio to potential buyers, if any exist, to determine the
fair value of those instruments in accordance with the definition in FAS No.
157. Since negotiated prices in illiquid markets depend upon the then
present motivations of the buyer and seller, it is reasonable to assume that
actual sales prices could vary widely from any estimate of fair value made
without the benefit of negotiations. Additionally, changes in market
interest rates can dramatically impact the value of financial instruments in a
short period of time. Accordingly, the fair value measurements for
loans included in the table on the preceding page are unlikely to represent the
instruments' liquidation values.
Note E – Stock
Options
Stock
option activity for the interim 2009 period is summarized as
follows:
|
|
Number
of
Stock
Options
Outstanding
|
|
|
Exercise
Price
Range
|
|
|
Weighted
Average
Exercise
Price
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding
at January 1
|
|
|
2,374,159
|
|
|
$
|
13.50 to $ 46.20
|
|
|
$
|
28.28
|
|
Granted
|
|
|
69,520
|
|
|
|
6.04
|
|
|
|
6.04
|
|
Exercised
|
|
|
--
|
|
|
|
|
|
|
|
|
|
Cancelled
or expired
|
|
|
(15,814
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding
at June 30
|
|
|
2,427,865
|
|
|
$
|
6.04 to $ 46.20
|
|
|
$
|
27.70
|
|
Stock
options were granted in the first six months of 2009 and 2008, with an aggregate
fair value approximating $240,000 and $255,000, respectively. Stock
options granted during the interim 2009 period have a vesting date of December
31, 2009 and stock options granted during the interim 2008 period (52,360)
became vested at December 31, 2008. Each stock option expires seven
years from date of grant. Share-based compensation expense relating
to stock options for the six months ended June 30, 2009 and 2008 approximated
$238,000 and $411,000, respectively.
As of
June 30, 2009, stock options outstanding had a weighted average remaining
contractual life of 2.23 years and had no intrinsic value at that
date. The following table summarizes stock options outstanding
segregated by exercise price range as of June 30, 2009:
|
|
|
|
|
|
Weighted
Average
|
Exercise
Price
Range
|
|
|
Number
Outstanding
|
|
|
Exercise
Price
|
|
Remaining
Contractual
Life
|
|
|
|
|
|
|
|
|
|
$
|
5.00 to 14.99
|
|
|
|
69,520
|
|
|
$
|
6.04
|
|
6.61
years
|
$
|
15.00 to 19.99
|
|
|
|
135,853
|
|
|
|
16.67
|
|
1.23
years
|
$
|
20.00 to 24.99
|
|
|
|
574,450
|
|
|
|
21.69
|
|
2.30
years
|
$
|
25.00 to 29.99
|
|
|
|
585,415
|
|
|
|
27.09
|
|
1.15
years
|
$
|
30.00 to 34.99
|
|
|
|
695,119
|
|
|
|
32.10
|
|
2.19
years
|
$
|
35.00 or more
|
|
|
|
367,508
|
|
|
|
37.92
|
|
3.42
years
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
outstanding
|
|
|
|
2,427,865
|
|
|
|
|
|
|
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
CAPITOL
BANCORP LIMITED – Continued
Note F – Net Income (Loss)
Per Share Attributable to Capitol Bancorp Limited
The
computations of basic and diluted earnings (loss) per share were based on the
following (in 1,000s) for the 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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number
of antidilutive unvested restricted shares
excluded
from diluted earnings per share
computation
|
|
|
123
|
|
|
|
83
|
|
|
|
123
|
|
|
|
78
|
|
Note G – Trust-Preferred
Securities
In April 2009, the Corporation
determined that it would commence the deferral of interest payments on its
various trust-preferred securities, as is permitted under the terms of the
securities, to conserve cash and capital resources. The payment of
interest may be deferred for periods up to five years. During such
deferral periods, Capitol is prohibited from paying dividends on its common
stock (subject to certain exceptions) and will continue to accrue interest
payable on such securities. Holders of the trust-preferred securities
will continue to recognize current taxable income relating to the deferred
interest payments.
Note H – Share-Exchange
Transaction
Effective
May 31, 2009, Capitol completed a share-exchange transaction with the
noncontrolling shareholders of Bank of Auburn Hills, previously a 51% owned
subsidiary. In conjunction with the share exchange, Capitol issued
227,000 previously unissued shares of Capitol's common stock and warrants for
the purchase of 76,000 shares of Capitol's common stock. The exercise
price of the warrants is $20.37 per share of Capitol's common stock, which
expire May 31, 2012. As a result of the share exchange transaction,
Bank of Auburn Hills became wholly-owned. Capitol's results of
operations would not have been materially different if it had occurred at the
beginning of 2009 or 2008.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
CAPITOL
BANCORP LIMITED – Continued
Note I – Subsequent
Events
Management has evaluated subsequent
events through the time of filing this quarterly report on Form 10-Q on July 31,
2009.
In July 2009, Capitol entered into
definitive agreements to sell the following four affiliate
institutions: Bank of Belleville, Bank of Santa Barbara, 1
st
Commerce Bank and Community Bank of Rowan. The projected financial
impact of the divestiture of these four institutions, along with the sale of
Yuma Community Bank announced in May 2009, is set forth in the accompanying pro
forma condensed consolidated balance sheet (along with the proposed spin-off
discussed in the following paragraphs) on page 34.
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, through a
spin-off transaction. Upon completion of the proposed spin-off,
Capitol will continue to be a bank holding company with national banking
operations and MCBL will be a separate publicly-traded bank holding company
consisting of the substantial majority of Capitol's prior Michigan-based banks
(see accompanying pro forma consolidated financial statements on pages 32 and
33).
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.
MCBL's
consolidated total assets approximated $1.25 billion or about 22% of Capitol's
total assets as of June 30, 2009. If the proposed spin-off had been
completed on June 30, 2009, consolidated total assets of Capitol would have
approximated $4.5 billion, while reflecting a 32% decline in nonperforming
assets and a modest increase in the consolidated total capital
ratio. If the proposed spin-off would have occurred at the beginning
of 2009, the consolidated net loss attributable to stockholders of Capitol would
have been reduced 40% to $20.6 million ($1.20 per share) for the six months
ended June 30, 2009.
In July
2009, Capitol proposed a share exchange offer regarding the shares of CDBLs
III-VI not already owned by Capitol, whereby there may be an opportunity to
exchange Class B common stock of the CDBLs for a combination of convertible
preferred stock of Capitol and trust-preferred securities. If all of
the CDBL III-VI shareholders were to exchange their shares pursuant to the
proposed exchange offer, Capitol would issue convertible preferred stock with a
preference value of approximately $66.7 million and trust-preferred securities
with an aggregate liquidation value approximating $23.5 million. If
all CDBL III-VI shareholders were to exchange their CDBL interests, as proposed
and if consummated, Capitol's net loss attributable to Capitol Bancorp Limited
would have approximated $42.6 million ($2.48 per share) for the six months ended
June 30, 2009. The proposed exchange offer is subject to a number of
contingencies.
[The
remainder of this page intentionally left blank]
PART
I, ITEM 2
MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND
RESULTS OF OPERATIONS
Financial
Condition
Total
assets approximated $5.7 billion at June 30, 2009 and December 31,
2008. The balance sheet includes Capitol and its consolidated
subsidiaries (in thousands):
|
|
Total
Assets
|
|
|
|
June
30, 2009
|
|
|
December
31, 2008
|
|
Arizona
Region:
|
|
|
|
|
|
|
Arrowhead
Community Bank
|
|
$
|
83,918
|
|
|
$
|
80,606
|
|
Asian
Bank of Arizona
|
|
|
41,911
|
|
|
|
38,127
|
|
Bank
of Tucson
|
|
|
205,047
|
|
|
|
189,869
|
|
Camelback
Community Bank
|
|
|
90,586
|
|
|
|
93,754
|
|
Central
Arizona Bank
|
|
|
84,894
|
|
|
|
79,775
|
|
Colonia
Bank
|
|
|
13,740
|
|
|
|
12,522
|
|
Mesa
Bank
|
|
|
233,622
|
|
|
|
248,262
|
|
Southern
Arizona Community Bank
|
|
|
91,852
|
|
|
|
88,146
|
|
Sunrise
Bank of Albuquerque
|
|
|
77,879
|
|
|
|
81,977
|
|
Sunrise
Bank of Arizona
|
|
|
139,456
|
|
|
|
119,395
|
|
Yuma
Community Bank
|
|
|
71,743
|
|
|
|
73,028
|
|
Arizona
Region Total
|
|
|
1,134,648
|
|
|
|
1,105,461
|
|
|
|
|
|
|
|
|
|
|
California
Region:
|
|
|
|
|
|
|
|
|
Bank
of Escondido
|
|
|
100,215
|
|
|
|
96,803
|
|
Bank
of Feather River
|
|
|
33,616
|
|
|
|
29,218
|
|
Bank
of San Francisco
|
|
|
81,148
|
|
|
|
74,670
|
|
Bank
of Santa Barbara
|
|
|
58,984
|
|
|
|
72,076
|
|
Napa
Community Bank
|
|
|
158,232
|
|
|
|
149,093
|
|
Point
Loma Community Bank
|
|
|
71,036
|
|
|
|
61,514
|
|
Sunrise
Bank of San Diego
|
|
|
94,144
|
|
|
|
86,322
|
|
Sunrise
Community Bank
|
|
|
41,191
|
|
|
|
36,139
|
|
California
Region Total
|
|
|
638,566
|
|
|
|
605,835
|
|
|
|
|
|
|
|
|
|
|
Colorado
Region:
|
|
|
|
|
|
|
|
|
Fort
Collins Commerce Bank
|
|
|
86,163
|
|
|
|
80,247
|
|
Larimer
Bank of Commerce
|
|
|
89,610
|
|
|
|
88,725
|
|
Loveland
Bank of Commerce
|
|
|
36,754
|
|
|
|
32,034
|
|
Mountain
View Bank of Commerce
|
|
|
43,321
|
|
|
|
37,740
|
|
Colorado
Region Total
|
|
|
255,848
|
|
|
|
238,746
|
|
|
|
|
|
|
|
|
|
|
Great
Lakes Region:
|
|
|
|
|
|
|
|
|
Bank
of Auburn Hills
|
|
|
41,540
|
|
|
|
43,856
|
|
Bank
of Maumee
|
|
|
51,773
|
|
|
|
56,812
|
|
Bank
of Michigan
|
|
|
82,429
|
|
|
|
78,716
|
|
Capitol
National Bank
|
|
|
242,481
|
|
|
|
245,354
|
|
Elkhart
Community Bank
|
|
|
110,171
|
|
|
|
99,917
|
|
Evansville
Commerce Bank
|
|
|
62,009
|
|
|
|
63,228
|
|
Goshen
Community Bank
|
|
|
82,993
|
|
|
|
87,419
|
|
Michigan
Commerce Bank
(1)
|
|
|
1,212,675
|
|
|
|
1,275,125
|
|
Ohio
Commerce Bank
|
|
|
58,567
|
|
|
|
60,678
|
|
Paragon
Bank & Trust
|
|
|
114,427
|
|
|
|
107,491
|
|
Great
Lakes Region Total
|
|
|
2,059,065
|
|
|
|
2,118,596
|
|
|
|
|
|
|
|
|
|
|
Midwest
Region:
|
|
|
|
|
|
|
|
|
Adams
Dairy Bank
|
|
|
38,915
|
|
|
|
33,867
|
|
Bank
of Belleville
|
|
|
73,815
|
|
|
|
73,901
|
|
Community
Bank of Lincoln
|
|
|
55,652
|
|
|
|
53,222
|
|
Summit
Bank of Kansas City
|
|
|
61,241
|
|
|
|
53,429
|
|
Midwest
Region Total
|
|
|
229,623
|
|
|
|
214,419
|
|
MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND
RESULTS OF OPERATIONS – Continued
Financial Condition –
Continued
Summary
of total assets – continued:
|
|
Total
Assets
|
|
|
|
June
30, 2009
|
|
|
December
31, 2008
|
|
Nevada
Region:
|
|
|
|
|
|
|
1
st
Commerce Bank
|
|
$
|
45,075
|
|
|
$
|
52,622
|
|
Bank
of Las Vegas
|
|
|
71,526
|
|
|
|
73,692
|
|
Black
Mountain Community Bank
|
|
|
163,766
|
|
|
|
157,545
|
|
Desert
Community Bank
|
|
|
94,408
|
|
|
|
100,312
|
|
Red
Rock Community Bank
|
|
|
124,120
|
|
|
|
126,993
|
|
Nevada
Region Total
|
|
|
498,895
|
|
|
|
511,164
|
|
|
|
|
|
|
|
|
|
|
Northeast
Region:
|
|
|
|
|
|
|
|
|
USNY
Bank
|
|
|
63,700
|
|
|
|
49,620
|
|
|
|
|
|
|
|
|
|
|
Northwest
Region:
|
|
|
|
|
|
|
|
|
Bank
of Bellevue
|
|
|
56,346
|
|
|
|
55,841
|
|
Bank
of Everett
|
|
|
45,731
|
|
|
|
44,756
|
|
Bank
of Tacoma
|
|
|
47,645
|
|
|
|
44,241
|
|
High
Desert Bank
|
|
|
50,075
|
|
|
|
41,904
|
|
Issaquah
Community Bank
|
|
|
37,857
|
|
|
|
36,942
|
|
Northwest
Region Total
|
|
|
237,654
|
|
|
|
223,684
|
|
|
|
|
|
|
|
|
|
|
Southeast
Region:
|
|
|
|
|
|
|
|
|
Bank
of Valdosta
|
|
|
54,628
|
|
|
|
58,995
|
|
Community
Bank of Rowan
|
|
|
141,598
|
|
|
|
138,341
|
|
First
Carolina State Bank
|
|
|
119,331
|
|
|
|
119,774
|
|
Peoples
State Bank
|
|
|
29,106
|
|
|
|
29,233
|
|
Pisgah
Community Bank
|
|
|
51,983
|
|
|
|
36,897
|
|
Sunrise
Bank of Atlanta
|
|
|
60,624
|
|
|
|
62,198
|
|
Southeast
Region Total
|
|
|
457,270
|
|
|
|
445,438
|
|
|
|
|
|
|
|
|
|
|
Texas
Region:
|
|
|
|
|
|
|
|
|
Bank
of Fort Bend
|
|
|
33,111
|
|
|
|
26,424
|
|
Bank
of Las Colinas
|
|
|
43,694
|
|
|
|
31,354
|
|
Texas
Region Total
|
|
|
76,805
|
|
|
|
57,778
|
|
|
|
|
|
|
|
|
|
|
Parent
company and other, net
|
|
|
74,074
|
|
|
|
84,095
|
|
|
|
|
|
|
|
|
|
|
Consolidated
Totals
|
|
$
|
5,726,148
|
|
|
$
|
5,654,836
|
|
(1)
|
Michigan
Commerce Bank resulted from the merger of Ann Arbor Commerce Bank,
Brighton Commerce Bank, Detroit Commerce Bank, Grand Haven Bank, Kent
Commerce Bank, Macomb Community Bank, Muskegon Commerce Bank, Oakland
Commerce Bank and Portage Commerce Bank effective March 31,
2009.
|
Portfolio
loans, the single largest asset category, decreased during the six months ended
June 30, 2009 by approximately $155 million, compared to loan growth of about
$250 million during the corresponding period of 2008. Portfolio
growth has slowed in response to the need to preserve liquidity and capital in
the current economic climate and the general economic slowdown occurring
nationally.
Geographic diversification of
Capitol's balance sheet has become increasingly important. Prior to
1996, all of Capitol's banking operations were located in
Michigan. As of June 30, 2009, 37% of the consolidated loan portfolio
relates to banks located within the Great Lakes Region (39% at December 31,
2008) and 63% of the consolidated loan portfolio relates to banks located in
other regions of the country (61% at December 31, 2008). The reason
why this is important is that Capitol's diversification efforts will add
stability to results of operations by further reducing a disproportionate
geographic concentration within a specific region. On July 21, 2009,
Capitol announced the proposed spin-off of the substantial majority of its
Michigan banking operation which, if completed, would minimize Capitol's future
exposure to the Michigan economy. The proposed spin-off transaction
is discussed elsewhere in this narrative.
MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND
RESULTS OF OPERATIONS – Continued
Financial Condition –
Continued
The
consolidated allowance for loan losses at June 30, 2009 approximated $114
million or 2.49% of total portfolio loans, a significant increase from the 1.96%
ratio at the beginning of the year.
The
allowance for loan losses is maintained at a level believed adequate by
management to absorb potential losses inherent in the loan portfolio at the
balance sheet date. Management's determination of the adequacy of the
allowance is based on evaluation of the portfolio (including potential
impairment of individual loans and concentrations of credit), past loss
experience, current economic conditions, volume, amount and composition of the
loan portfolio and other factors. The allowance is increased by
provisions charged to operations and reduced by net charge-offs. The
table below summarizes portfolio loan balances and activity in the allowance for
loan losses (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 the period
|
|
$
|
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
|
%
|
MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND
RESULTS OF OPERATIONS – Continued
Financial Condition –
Continued
Interim
loan charge-offs for the six-month 2009 period, which increased significantly
compared to 2008, are not necessarily indicative of future charge-off levels
because of the variability in asset quality and resolution of nonperforming
loans. The significant increase in the provision for loan losses in
2009 was associated primarily with Michigan and certain Arizona and Nevada
banks, due to growth in nonperforming loans and a sustained difficult and
uncertain economic climate. The interim 2009 provision for loan
losses is discussed in further detail in the ‘Results of Operations’ section of
this narrative.
The
amounts of the allowance for loan losses allocated in the following table
(dollars in thousands) 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:
|
|
June
30, 2009
|
|
|
December
31, 2008
|
|
|
|
Amount
|
|
|
Percentage
of
Total
Portfolio
Loans
|
|
|
Amount
|
|
|
Percentage
of
Total
Portfolio
Loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans
secured by real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
$
|
36,999
|
|
|
|
0.81
|
%
|
|
$
|
30,007
|
|
|
|
0.63
|
%
|
Residential
(including multi-family)
|
|
|
23,594
|
|
|
|
0.51
|
%
|
|
|
21,645
|
|
|
|
0.46
|
%
|
Construction,
land development and
other
land
|
|
|
20,957
|
|
|
|
0.46
|
%
|
|
|
17,496
|
|
|
|
0.37
|
%
|
Total
loans secured by real estate
|
|
|
81,550
|
|
|
|
1.78
|
%
|
|
|
69,148
|
|
|
|
1.46
|
%
|
Commercial
and other business-purpose loans
|
|
|
31,027
|
|
|
|
0.68
|
%
|
|
|
22,547
|
|
|
|
0.47
|
%
|
Consumer
|
|
|
1,373
|
|
|
|
0.03
|
%
|
|
|
1,032
|
|
|
|
0.02
|
%
|
Other
|
|
|
265
|
|
|
|
|
|
|
|
313
|
|
|
|
0.01
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
allowance for loan losses
|
|
$
|
114,215
|
|
|
|
2.49
|
%
|
|
$
|
93,040
|
|
|
|
1.96
|
%
|
[The
remainder of this page intentionally left blank]
MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND
RESULTS OF OPERATIONS – Continued
Financial Condition –
Continued
Nonperforming
loans (i.e., loans which are 90 days or more past due and still accruing
interest and loans on nonaccrual status) and other nonperforming assets are
summarized below (in thousands):
|
|
June
30,
2009
|
|
|
March
31,
2009
|
|
|
December
31,
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 (
>
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
|
|
Nonperforming
loans at June 30, 2009 approximated 5.78% of total portfolio loans, an increase
from the December 31, 2008 ratio of 3.59%. Nonperforming loans
increased $94 million or 55% during the six-month 2009
period. Notably, the increase in nonperforming loans during the three
months ended June 30, 2009 was about half of the corresponding increase during
the preceding quarter. Of the nonperforming loans at June 30, 2009,
about 90% were real estate secured. Those loans, when originated, had
appropriate loan-to-value ratios based upon real estate market conditions at
that time and, accordingly, have loss exposure which would be expected to be
minimal; however, underlying real estate values depend upon current economic
conditions and liquidation strategies. Most other nonperforming loans
were generally secured by other business assets. Nonperforming loans
at June 30, 2009 were in various stages of resolution for which management
believes such loans are adequately collateralized or otherwise appropriately
considered in its determination of the adequacy of the allowance for loan
losses.
Due to
local and regional economic conditions, there is uncertainty in future real
estate values, appraisal results and the resulting potential impact on valuation
of collateral-dependent loans and real estate owned. The fair value
measurement of collateral-dependent loans and other real estate owned is
dependent primarily upon appraisal of the underlying property
value. Fair value measurement has been defined in a relatively recent
accounting standard, Financial Accounting Standards Board Statement No. 157 (see
Note B of the notes to the condensed consolidated financial
statements). Management cautiously monitors real estate values and
related appraisal data when evaluating such valuations.
MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND
RESULTS OF OPERATIONS – Continued
Financial Condition –
Continued
Many of
Capitol
'
s
collateral-dependent impaired loans are located in severely depressed real
estate markets. In those markets, appraisal data may be of limited
usefulness in estimating fair value because comparable sale transactions are
infrequent, not orderly and are often distressed or forced. In
accordance with FSP FAS 157-4, management made significant adjustments to
appraisal data during the first three months of 2009, reducing estimated losses
relating to fair value by $8 million (no material effect during the three months
ended June 30, 2009). Previously, Capitol did not make significant
adjustments to appraisal data for the effect of disorderly markets and/or
distressed or forced sale price comparisons.
Total
nonperforming loans approximated $265 million at June 30, 2009. Of
that total, $137 million or 52% (including some loans carried at the parent
level) were originated by banks within the Great Lakes Region, primarily located
in Michigan. Within the Great Lakes Region, nonperforming loans
approximated 2.99% of total portfolio loans at June 30,
2009. Responsive to the elevated level of nonperforming loans within
the Great Lakes Region, higher levels of allowances for loan losses have been
established, approximating 3.35% of portfolio loans for the region on a combined
basis as of June 30, 2009 and ranging as high as 4.47% at certain
banks. Those ratios can be contrasted with other banks and geographic
regions within the Corporation with lower levels of nonperforming
loans. Nonperforming loans have increased during the six months ended
June 30, 2009 in other regions, such as the Arizona Region ($16.3 million
increase) and the Nevada Region ($20.1 million increase) to 7.1% and 8.4% of
portfolio loans, respectively, as the effects of the recession have had an
evolving significant effect on those regions recently.
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 ratings. At inception, all loans
are individually assigned a rating which grades the credits on a risk basis,
based on the 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 rating process is fluid and
subjective.
Potential
problem loans include loans which are generally performing as agreed; however,
because of loan reviews and/or lending staff's risk assessment, increased
monitoring is deemed appropriate. In addition, some loans are
assigned a more adverse classification, with specific performance issues or
other risk factors requiring close management and development of specific
remedial action plans.
At June
30, 2009, potential problem loans (including the previously-mentioned
nonperforming loans) approximated $747 million or about 16% of total
consolidated portfolio loans, compared to approximately $551 million or about
12% at December 31, 2008. 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. Management has considered
these loans in its evaluation of the adequacy of the allowance for loan
losses. Management believes, however, that current general economic
conditions in some markets may result in higher levels of future loan losses in
comparison to previous years, as experienced in the first six months of
2009.
Real
estate owned and other repossessed assets increased $37 million to $104 million
during the six months ended June 30, 2009. Most of this increase ($28
million) was related to banks located in Michigan and the Arizona
Region.
Foreclosure
laws in Michigan generally favor borrowers rather than lenders and, accordingly,
foreclosure and redemption periods (i.e., the number of months it takes for a
financial institution to obtain clear title to freely market the real estate)
take much longer than many other states. Further, once the property
is available to the bank for sale or liquidation, market conditions, as they are
currently (particularly in Michigan and some western communities), may not be
conducive to rapid marketing or near-term sale of the properties.
MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND
RESULTS OF OPERATIONS – Continued
Financial Condition –
Continued
The
following comparative analysis summarizes each bank's total portfolio loans,
allowance for loan losses, nonperforming loans and ratio of the allowance as a
percentage of portfolio loans (dollars in thousands):
|
|
|
|
|
Allowance
for
|
|
|
|
|
|
Allowance
as a Percentage
|
|
|
|
Total
Portfolio Loans
|
|
|
Loan
Losses
|
|
|
Nonperforming
Loans
|
|
|
of
Total Portfolio Loans
|
|
|
|
June
30,
2009
|
|
|
Dec
31,
2008
|
|
|
June
30,
2009
|
|
|
Dec
31,
2008
|
|
|
June
30,
2009
|
|
|
Dec
31,
2008
|
|
|
June
30,
2009
|
|
|
Dec
31,
2008
|
|
Arizona
Region:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Arrowhead
Community Bank
|
|
$
|
56,664
|
|
|
$
|
69,487
|
|
|
$
|
4,321
|
|
|
$
|
2,375
|
|
|
$
|
7,135
|
|
|
$
|
7,430
|
|
|
|
7.63
|
%
|
|
|
3.42
|
%
|
Asian
Bank of Arizona
|
|
|
33,184
|
|
|
|
33,023
|
|
|
|
990
|
|
|
|
694
|
|
|
|
1,560
|
|
|
|
1,898
|
|
|
|
2.98
|
%
|
|
|
2.10
|
%
|
Bank
of Tucson
|
|
|
153,309
|
|
|
|
168,390
|
|
|
|
1,552
|
|
|
|
1,550
|
|
|
|
7,284
|
|
|
|
2,462
|
|
|
|
1.01
|
%
|
|
|
0.92
|
%
|
Camelback
Community Bank
|
|
|
80,465
|
|
|
|
84,957
|
|
|
|
1,550
|
|
|
|
789
|
|
|
|
2,938
|
|
|
|
2,030
|
|
|
|
1.93
|
%
|
|
|
0.93
|
%
|
Central
Arizona Bank
|
|
|
68,231
|
|
|
|
69,372
|
|
|
|
1,900
|
|
|
|
1,339
|
|
|
|
2,409
|
|
|
|
1,895
|
|
|
|
2.78
|
%
|
|
|
1.93
|
%
|
Colonia
Bank
|
|
|
9,857
|
|
|
|
7,483
|
|
|
|
256
|
|
|
|
120
|
|
|
|
|
|
|
|
|
|
|
|
2.60
|
%
|
|
|
1.60
|
%
|
Mesa
Bank
|
|
|
124,156
|
|
|
|
147,853
|
|
|
|
2,381
|
|
|
|
3,250
|
|
|
|
19,983
|
|
|
|
21,423
|
|
|
|
1.92
|
%
|
|
|
2.20
|
%
|
Southern
Arizona Community Bank
|
|
|
74,909
|
|
|
|
79,434
|
|
|
|
1,080
|
|
|
|
875
|
|
|
|
353
|
|
|
|
|
|
|
|
1.44
|
%
|
|
|
1.10
|
%
|
Sunrise
Bank of Albuquerque
|
|
|
68,021
|
|
|
|
74,115
|
|
|
|
1,550
|
|
|
|
933
|
|
|
|
5,486
|
|
|
|
43
|
|
|
|
2.28
|
%
|
|
|
1.26
|
%
|
Sunrise
Bank of Arizona
|
|
|
93,817
|
|
|
|
110,131
|
|
|
|
2,224
|
|
|
|
1,159
|
|
|
|
9,410
|
|
|
|
3,707
|
|
|
|
2.37
|
%
|
|
|
1.05
|
%
|
Yuma
Community Bank
|
|
|
59,137
|
|
|
|
63,804
|
|
|
|
675
|
|
|
|
730
|
|
|
|
2,096
|
|
|
|
1,506
|
|
|
|
1.14
|
%
|
|
|
1.14
|
%
|
Arizona
Region Total
|
|
|
821,750
|
|
|
|
908,049
|
|
|
|
18,479
|
|
|
|
13,814
|
|
|
|
58,654
|
|
|
|
42,394
|
|
|
|
2.25
|
%
|
|
|
1.52
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
California
Region:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bank
of Escondido
|
|
|
70,300
|
|
|
|
62,608
|
|
|
|
1,573
|
|
|
|
810
|
|
|
|
2,811
|
|
|
|
817
|
|
|
|
2.24
|
%
|
|
|
1.29
|
%
|
Bank
of Feather River
|
|
|
29,139
|
|
|
|
22,962
|
|
|
|
360
|
|
|
|
320
|
|
|
|
|
|
|
|
|
|
|
|
1.24
|
%
|
|
|
1.39
|
%
|
Bank
of San Francisco
|
|
|
71,680
|
|
|
|
60,772
|
|
|
|
1,125
|
|
|
|
823
|
|
|
|
165
|
|
|
|
299
|
|
|
|
1.57
|
%
|
|
|
1.35
|
%
|
Bank
of Santa Barbara
|
|
|
50,863
|
|
|
|
60,535
|
|
|
|
1,347
|
|
|
|
1,138
|
|
|
|
2,054
|
|
|
|
1,841
|
|
|
|
2.65
|
%
|
|
|
1.88
|
%
|
Napa
Community Bank
|
|
|
137,168
|
|
|
|
130,150
|
|
|
|
2,091
|
|
|
|
1,890
|
|
|
|
|
|
|
|
1,848
|
|
|
|
1.52
|
%
|
|
|
1.45
|
%
|
Point
Loma Community Bank
|
|
|
54,713
|
|
|
|
52,497
|
|
|
|
951
|
|
|
|
797
|
|
|
|
2,288
|
|
|
|
795
|
|
|
|
1.74
|
%
|
|
|
1.52
|
%
|
Sunrise
Bank of San Diego
|
|
|
75,124
|
|
|
|
76,282
|
|
|
|
2,041
|
|
|
|
1,048
|
|
|
|
2,176
|
|
|
|
1,444
|
|
|
|
2.72
|
%
|
|
|
1.37
|
%
|
Sunrise
Community Bank
|
|
|
32,982
|
|
|
|
28,355
|
|
|
|
535
|
|
|
|
440
|
|
|
|
1,585
|
|
|
|
|
|
|
|
1.62
|
%
|
|
|
1.55
|
%
|
California
Region Total
|
|
|
521,969
|
|
|
|
494,161
|
|
|
|
10,023
|
|
|
|
7,266
|
|
|
|
11,079
|
|
|
|
7,044
|
|
|
|
1.92
|
%
|
|
|
1.47
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Colorado
Region:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fort
Collins Commerce Bank
|
|
|
78,911
|
|
|
|
74,280
|
|
|
|
1,380
|
|
|
|
1,101
|
|
|
|
962
|
|
|
|
48
|
|
|
|
1.75
|
%
|
|
|
1.48
|
%
|
Larimer
Bank of Commerce
|
|
|
80,040
|
|
|
|
78,638
|
|
|
|
1,400
|
|
|
|
1,160
|
|
|
|
|
|
|
|
|
|
|
|
1.75
|
%
|
|
|
1.48
|
%
|
Loveland
Bank of Commerce
|
|
|
32,949
|
|
|
|
27,251
|
|
|
|
705
|
|
|
|
652
|
|
|
|
1,709
|
|
|
|
1,090
|
|
|
|
2.14
|
%
|
|
|
2.39
|
%
|
Mountain
View Bank of Commerce
|
|
|
37,556
|
|
|
|
32,180
|
|
|
|
565
|
|
|
|
474
|
|
|
|
598
|
|
|
|
|
|
|
|
1.50
|
%
|
|
|
1.47
|
%
|
Colorado
Region Total
|
|
|
229,456
|
|
|
|
212,349
|
|
|
|
4,050
|
|
|
|
3,387
|
|
|
|
3,269
|
|
|
|
1,138
|
|
|
|
1.77
|
%
|
|
|
1.60
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Great
Lakes Region:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bank
of Auburn Hills
|
|
|
34,008
|
|
|
|
39,914
|
|
|
|
1,310
|
|
|
|
988
|
|
|
|
1,628
|
|
|
|
2,895
|
|
|
|
3.85
|
%
|
|
|
2.48
|
%
|
Bank
of Maumee
|
|
|
42,245
|
|
|
|
50,094
|
|
|
|
729
|
|
|
|
752
|
|
|
|
468
|
|
|
|
37
|
|
|
|
1.73
|
%
|
|
|
1.50
|
%
|
Bank
of Michigan
|
|
|
66,423
|
|
|
|
67,700
|
|
|
|
1,025
|
|
|
|
996
|
|
|
|
709
|
|
|
|
306
|
|
|
|
1.54
|
%
|
|
|
1.47
|
%
|
Capitol
National Bank
|
|
|
196,755
|
|
|
|
213,392
|
|
|
|
8,719
|
|
|
|
8,341
|
|
|
|
21,610
|
|
|
|
12,828
|
|
|
|
4.43
|
%
|
|
|
3.91
|
%
|
Elkhart
Community Bank
|
|
|
80,449
|
|
|
|
87,971
|
|
|
|
3,005
|
|
|
|
1,702
|
|
|
|
5,688
|
|
|
|
3,941
|
|
|
|
3.74
|
%
|
|
|
1.93
|
%
|
Evansville
Commerce Bank
|
|
|
49,150
|
|
|
|
55,779
|
|
|
|
1,171
|
|
|
|
943
|
|
|
|
1,164
|
|
|
|
158
|
|
|
|
2.38
|
%
|
|
|
1.69
|
%
|
Goshen
Community Bank
|
|
|
69,168
|
|
|
|
74,144
|
|
|
|
1,679
|
|
|
|
1,501
|
|
|
|
1,309
|
|
|
|
876
|
|
|
|
2.43
|
%
|
|
|
2.02
|
%
|
Michigan
Commerce Bank
(1)
|
|
|
1,053,537
|
|
|
|
1,127,348
|
|
|
|
35,648
|
|
|
|
30,258
|
|
|
|
89,933
|
|
|
|
63,092
|
|
|
|
3.38
|
%
|
|
|
2.68
|
%
|
Ohio
Commerce Bank
|
|
|
50,352
|
|
|
|
48,207
|
|
|
|
814
|
|
|
|
723
|
|
|
|
|
|
|
|
|
|
|
|
1.62
|
%
|
|
|
1.50
|
%
|
Paragon
Bank & Trust
|
|
|
74,084
|
|
|
|
87,651
|
|
|
|
3,312
|
|
|
|
2,990
|
|
|
|
8,109
|
|
|
|
6,447
|
|
|
|
4.47
|
%
|
|
|
3.41
|
%
|
Great
Lakes Region Total
|
|
|
1,716,171
|
|
|
|
1,852,200
|
|
|
|
57,412
|
|
|
|
49,194
|
|
|
|
130,618
|
|
|
|
90,580
|
|
|
|
3.35
|
%
|
|
|
2.66
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Midwest
Region:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adams
Dairy Bank
|
|
|
33,681
|
|
|
|
28,834
|
|
|
|
505
|
|
|
|
450
|
|
|
|
|
|
|
|
|
|
|
|
1.50
|
%
|
|
|
1.56
|
%
|
Bank
of Belleville
|
|
|
63,319
|
|
|
|
65,150
|
|
|
|
938
|
|
|
|
923
|
|
|
|
|
|
|
|
|
|
|
|
1.48
|
%
|
|
|
1.42
|
%
|
Community
Bank of Lincoln
|
|
|
45,427
|
|
|
|
43,657
|
|
|
|
1,000
|
|
|
|
674
|
|
|
|
590
|
|
|
|
|
|
|
|
2.20
|
%
|
|
|
1.54
|
%
|
Summit
Bank of Kansas City
|
|
|
46,191
|
|
|
|
44,068
|
|
|
|
711
|
|
|
|
709
|
|
|
|
1,509
|
|
|
|
779
|
|
|
|
1.54
|
%
|
|
|
1.61
|
%
|
Midwest
Region Total
|
|
|
188,618
|
|
|
|
181,709
|
|
|
|
3,154
|
|
|
|
2,756
|
|
|
|
2,099
|
|
|
|
779
|
|
|
|
1.67
|
%
|
|
|
1.52
|
%
|
MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND
RESULTS OF OPERATIONS – Continued
Financial Condition –
Continued
Summary
of loan information – continued:
|
|
|
|
|
Allowance
for
|
|
|
|
|
|
Allowance
as a Percentage
|
|
|
|
Total
Portfolio Loans
|
|
|
Loan
Losses
|
|
|
Nonperforming
Loans
|
|
|
of
Total Portfolio Loans
|
|
|
|
June
30,
2009
|
|
|
Dec
31,
2008
|
|
|
June
30,
2009
|
|
|
Dec
31,
2008
|
|
|
June
30,
2009
|
|
|
Dec
31,
2008
|
|
|
June
30,
2009
|
|
|
Dec
31,
2008
|
|
Nevada
Region:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1
st
Commerce Bank
|
|
$
|
37,065
|
|
|
$
|
30,663
|
|
|
$
|
1,192
|
|
|
$
|
740
|
|
|
$
|
5,894
|
|
|
$
|
1,000
|
|
|
|
3.22
|
%
|
|
|
2.41
|
%
|
Bank
of Las Vegas
|
|
|
64,205
|
|
|
|
64,648
|
|
|
|
930
|
|
|
|
901
|
|
|
|
7,649
|
|
|
|
4,399
|
|
|
|
1.45
|
%
|
|
|
1.39
|
%
|
Black
Mountain Community Bank
|
|
|
144,865
|
|
|
|
143,654
|
|
|
|
1,619
|
|
|
|
1,765
|
|
|
|
8,292
|
|
|
|
1,722
|
|
|
|
1.12
|
%
|
|
|
1.23
|
%
|
Desert
Community Bank
|
|
|
84,943
|
|
|
|
87,388
|
|
|
|
1,607
|
|
|
|
943
|
|
|
|
4,060
|
|
|
|
3,671
|
|
|
|
1.89
|
%
|
|
|
1.08
|
%
|
Red
Rock Community Bank
|
|
|
99,653
|
|
|
|
110,143
|
|
|
|
1,984
|
|
|
|
1,200
|
|
|
|
10,496
|
|
|
|
5,488
|
|
|
|
1.99
|
%
|
|
|
1.09
|
%
|
Nevada
Region Total
|
|
|
430,731
|
|
|
|
436,496
|
|
|
|
7,332
|
|
|
|
5,549
|
|
|
|
36,391
|
|
|
|
16,280
|
|
|
|
1.70
|
%
|
|
|
1.27
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Northeast
Region:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
USNY
Bank
|
|
|
50,884
|
|
|
|
43,471
|
|
|
|
772
|
|
|
|
680
|
|
|
|
|
|
|
|
|
|
|
|
1.52
|
%
|
|
|
1.56
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Northwest
Region:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bank
of Bellevue
|
|
|
42,053
|
|
|
|
48,838
|
|
|
|
1,245
|
|
|
|
850
|
|
|
|
1,456
|
|
|
|
170
|
|
|
|
2.96
|
%
|
|
|
1.74
|
%
|
Bank
of Everett
|
|
|
37,055
|
|
|
|
32,735
|
|
|
|
1,550
|
|
|
|
686
|
|
|
|
1,582
|
|
|
|
92
|
|
|
|
4.18
|
%
|
|
|
2.10
|
%
|
Bank
of Tacoma
|
|
|
38,218
|
|
|
|
40,175
|
|
|
|
930
|
|
|
|
770
|
|
|
|
2,502
|
|
|
|
1,183
|
|
|
|
2.43
|
%
|
|
|
1.92
|
%
|
High
Desert Bank
|
|
|
36,867
|
|
|
|
35,407
|
|
|
|
736
|
|
|
|
624
|
|
|
|
1,345
|
|
|
|
|
|
|
|
2.00
|
%
|
|
|
1.76
|
%
|
Issaquah
Community Bank
|
|
|
27,176
|
|
|
|
24,238
|
|
|
|
595
|
|
|
|
385
|
|
|
|
339
|
|
|
|
|
|
|
|
2.19
|
%
|
|
|
1.59
|
%
|
Northwest
Region Total
|
|
|
181,369
|
|
|
|
181,393
|
|
|
|
5,056
|
|
|
|
3,315
|
|
|
|
7,224
|
|
|
|
1,445
|
|
|
|
2.79
|
%
|
|
|
1.83
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Southeast
Region:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bank
of Valdosta
|
|
|
46,403
|
|
|
|
51,629
|
|
|
|
896
|
|
|
|
835
|
|
|
|
794
|
|
|
|
|
|
|
|
1.93
|
%
|
|
|
1.62
|
%
|
Community
Bank of Rowan
|
|
|
113,446
|
|
|
|
109,290
|
|
|
|
1,702
|
|
|
|
1,634
|
|
|
|
2,357
|
|
|
|
1,688
|
|
|
|
1.50
|
%
|
|
|
1.50
|
%
|
First
Carolina State Bank
|
|
|
94,290
|
|
|
|
97,670
|
|
|
|
1,553
|
|
|
|
1,312
|
|
|
|
2,429
|
|
|
|
2,421
|
|
|
|
1.65
|
%
|
|
|
1.34
|
%
|
Peoples
State Bank
|
|
|
21,223
|
|
|
|
21,314
|
|
|
|
400
|
|
|
|
366
|
|
|
|
1,591
|
|
|
|
937
|
|
|
|
1.88
|
%
|
|
|
1.72
|
%
|
Pisgah
Community Bank
|
|
|
43,956
|
|
|
|
27,746
|
|
|
|
715
|
|
|
|
475
|
|
|
|
116
|
|
|
|
100
|
|
|
|
1.63
|
%
|
|
|
1.71
|
%
|
Sunrise
Bank of Atlanta
|
|
|
47,589
|
|
|
|
52,763
|
|
|
|
1,070
|
|
|
|
1,063
|
|
|
|
1,679
|
|
|
|
269
|
|
|
|
2.25
|
%
|
|
|
2.01
|
%
|
Southeast
Region Total
|
|
|
366,907
|
|
|
|
360,412
|
|
|
|
6,336
|
|
|
|
5,685
|
|
|
|
8,966
|
|
|
|
5,415
|
|
|
|
1.73
|
%
|
|
|
1.58
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Texas
Region:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bank
of Fort Bend
|
|
|
27,483
|
|
|
|
19,859
|
|
|
|
411
|
|
|
|
305
|
|
|
|
|
|
|
|
|
|
|
|
1.50
|
%
|
|
|
1.54
|
%
|
Bank
of Las Colinas
|
|
|
31,779
|
|
|
|
29,657
|
|
|
|
508
|
|
|
|
435
|
|
|
|
|
|
|
|
|
|
|
|
1.60
|
%
|
|
|
1.47
|
%
|
Texas
Region Total
|
|
|
59,262
|
|
|
|
49,516
|
|
|
|
919
|
|
|
|
740
|
|
|
|
|
|
|
|
|
|
|
|
1.55
|
%
|
|
|
1.49
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parent
company and other, net
|
|
|
13,311
|
|
|
|
15,473
|
|
|
|
682
|
|
|
|
654
|
|
|
|
6,253
|
|
|
|
5,135
|
|
|
|
5.12
|
%
|
|
|
4.23
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
totals
|
|
$
|
4,580,428
|
|
|
$
|
4,735,229
|
|
|
$
|
114,215
|
|
|
$
|
93,040
|
|
|
$
|
264,553
|
|
|
$
|
170,210
|
|
|
|
2.49
|
%
|
|
|
1.96
|
%
|
(1)
|
Michigan
Commerce Bank resulted from the merger of Ann Arbor Commerce Bank,
Brighton Commerce Bank, Detroit Commerce Bank, Grand Haven Bank, Kent
Commerce Bank, Macomb Community Bank, Muskegon Commerce Bank, Oakland
Commerce Bank and Portage Commerce Bank effective March 31,
2009.
|
Accounting
for income taxes requires significant estimates and management
judgments. At June 30, 2009, Capitol had a deferred tax asset
approximating $89.3 million ($61.3 million at December 31, 2008). The
deferred tax asset is composed primarily of temporary differences relating to
the allowance for loan losses and net operating loss
carryforwards. If it is determined that realization of the deferred
tax asset is in doubt, a valuation reserve is required to reduce the deferred
tax asset to the amount which is more-likely-than-not realizable. No
valuation reserve has been deemed necessary by management, inasmuch as it is
believed that it is more-likely-than-not that the deferred tax asset will be
realized. Such conclusion is based on the expectation that
realization will occur through future operating results and that Capitol's prior
experience with
de novo
banks which incur operating losses and large provisions for loan losses in their
most early periods of operation, ultimately becoming
profitable. If a valuation allowance against the deferred tax asset
may be necessary in the future, it will adversely affect consolidated operating
results.
MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND
RESULTS OF OPERATIONS – Continued
Results of
Operations
Summary
The
second quarter 2009 net loss attributable to Capitol Bancorp Limited was
approximately $18.7 million compared to net income of $623,000 reported for the
second quarter of 2008. The net loss per share attributable to
Capitol Bancorp Limited for the three months ended June 30, 2009 was $1.08
compared to diluted earnings per share of $0.04 in the corresponding period of
2008. The net loss attributable to Capitol Bancorp Limited for the
six months ended June 30, 2009 approximated $34.4 million, compared to net
income of $2.8 million in the corresponding period of 2008. The net
loss per share attributable to Capitol Bancorp Limited was $2.00 for the six
months ended June 30, 2009, compared to earnings per share of $0.16 in the
corresponding 2008 period.
The
primary reason for the interim 2009 loss was a very large provision for loan
losses recorded during the six months ended June 30, 2009 as the Corporation
continued to carefully assess the implications and impact of declining property
values and weak bank performance. The provision for loan losses
increased $46 million to $64 million for the six months ended June 30, 2009,
compared to a provision of $18 million for the corresponding period of
2008.
Analytical
Review
The
provision for loan losses for the three months ended June 30, 2009 was $35.8
million compared to $9 million during the corresponding 2008
period. The provision for loan losses for the six-month 2009 period
was $64 million compared to $18 million for the same period in
2008. The provision for loan losses increased significantly in the
2009 period due to higher levels of loan charge-offs and in response to growth
in nonperforming loans. Of the provision for loan losses for the
three months ended June 30, 2009, about half was attributable to increasing the
allowance for loan losses as a percentage of portfolio loans from 2.12% to
2.49%. Provisions for loan losses are based upon management's
analysis of the adequacy of the allowance for loan losses, as previously
discussed. The significant increase in the provision for loan losses
compared to the preceding year had a material adverse effect on operating
results for the interim 2009 periods.
Net
interest income for the first six months of 2009 totaled $78 million, a 7.2%
decrease compared to $84.1 million in 2008. Net interest income for
the three months ended June 30, 2009 totaled $40.6 million, a 3.8% decrease
compared to $42.2 million in 2008. The net interest margin
approximated 3.02% for the three months ended June 30, 2009, a 4 basis-point
increase compared to 2.98% for the three months ended December 31, 2008 and a
0.48% decrease compared to 3.50% for the three months ended June 30,
2008. Notably, the net interest margin for the three months ended
June 30, 2009 improved 21 basis-points from the immediately preceding quarterly
period. Several causal factors impacted the 2009 margin, including
elevated levels of nonperforming loans, higher levels of liquidity, competitive
pressures at the bank level in pricing of loans and deposits, migration of
noninterest-bearing deposits to interest-bearing accounts, changes in interest
rates and higher interest costs related to debt obligations. It is
difficult to speculate on future changes in net interest margin.
Noninterest
income for the three months ended June 30, 2009 was $7 million, an 8% increase
compared to the $6.5 million for the same period in 2008. Noninterest
income for the six months ended June 30, 2009 was $12 million, a decrease of $1
million or 8.4%, over the same period in 2008. The reduction in the
six-month 2009 period was due to decreases of $415,000 in other fee income and
$685,000 in trust and wealth-management revenue. Fees from
origination of non-portfolio residential mortgage loans totaled $2.4 million for
the first six months of 2009, up slightly from $2.0 million for the comparable
period in 2008, due to lower interest rates and increasing loan origination
volume. The gain on sales of government-guaranteed loans decreased
about 47% in the interim 2009 period compared to 2008, due to the lack of a
favorable market for sale of such loans.
MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND
RESULTS OF OPERATIONS – Continued
Results of Operations –
Continued
Noninterest
expense totaled $101.7 million for the six-month 2009 period and $51.7 million
for the second quarter of 2009, compared to $92.6 million and $47.8 million,
respectively, for the comparable periods of 2008. The increase in
noninterest expense is associated with regulatory fees, growth in the size of
previously-existing banks, costs of problem loan administration and other real
estate write-downs. Costs associated with foreclosed properties and
other real estate increased to $8.1 million in the 2009 period ($2.1 million in
the 2008 period) while the cost of FDIC insurance and other regulatory fees also
increased significantly to $7.5 million ($1.9 million in the 2008 period)
primarily attributable to a one-time special FDIC industry-wide assessment
effective June 30, 2009 which approximated $2.6 million. The FDIC has
announced it is likely that an additional special assessment will be imposed
later in 2009, however, the amount has not been determined. Increases
in occupancy, equipment rent, depreciation and maintenance in 2009 relate
primarily to the addition of four
de novo
banks in
2008.
The
largest element of noninterest expense is salaries and employee benefits, which
approximated $53.5 million for the six months ended June 30, 2009, an increase
from $53.3 million in the corresponding period of 2008. The increase
is partly due to the opening of four new banks in 2008 and the severance
payments arising from the consolidation of the nine Michigan banks into Michigan
Commerce Bank effective March 31, 2009. For the three months ended
June 30, 2009, salaries and employee benefits expense decreased $4.6 million or
about 16% from amounts recorded in the immediately preceding quarter, as a
result of reductions in staffing and other cost-cutting measures implemented in
late 2008 and early 2009.
The more
significant elements of other noninterest expense consisted of the following (in
thousands) for the periods ended June 30:
|
|
Three
Month Period
|
|
|
Six
Month Period
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bank
services (ATMs, telephone
banking
and Internet banking)
|
|
$
|
737
|
|
|
$
|
626
|
|
|
$
|
1,453
|
|
|
$
|
1,181
|
|
Loan
and collection expense
|
|
|
673
|
|
|
|
487
|
|
|
|
1,263
|
|
|
|
1,033
|
|
Directors'
fees
|
|
|
578
|
|
|
|
756
|
|
|
|
1,261
|
|
|
|
1,558
|
|
Legal
fees
|
|
|
581
|
|
|
|
450
|
|
|
|
1,040
|
|
|
|
573
|
|
Advertising
|
|
|
513
|
|
|
|
857
|
|
|
|
1,020
|
|
|
|
1,633
|
|
Paper,
printing and supplies
|
|
|
511
|
|
|
|
782
|
|
|
|
1,009
|
|
|
|
1,552
|
|
Communications
|
|
|
423
|
|
|
|
541
|
|
|
|
914
|
|
|
|
1,049
|
|
Travel,
lodging and meals
|
|
|
494
|
|
|
|
853
|
|
|
|
886
|
|
|
|
1,486
|
|
Professional
fees
|
|
|
374
|
|
|
|
334
|
|
|
|
675
|
|
|
|
699
|
|
Postage
|
|
|
314
|
|
|
|
348
|
|
|
|
631
|
|
|
|
658
|
|
Taxes
other than income taxes
|
|
|
268
|
|
|
|
137
|
|
|
|
493
|
|
|
|
511
|
|
Dues
and memberships
|
|
|
220
|
|
|
|
238
|
|
|
|
427
|
|
|
|
459
|
|
Courier
service
|
|
|
181
|
|
|
|
232
|
|
|
|
357
|
|
|
|
472
|
|
Insurance
expense
|
|
|
172
|
|
|
|
146
|
|
|
|
345
|
|
|
|
293
|
|
Publications
|
|
|
72
|
|
|
|
45
|
|
|
|
126
|
|
|
|
90
|
|
Contracted
labor
|
|
|
35
|
|
|
|
124
|
|
|
|
75
|
|
|
|
244
|
|
Preopening
and start-up costs
|
|
|
|
|
|
|
1,086
|
|
|
|
|
|
|
|
2,038
|
|
Other
|
|
|
1,978
|
|
|
|
2,394
|
|
|
|
4,246
|
|
|
|
5,046
|
|
Total
|
|
$
|
8,124
|
|
|
$
|
10,436
|
|
|
$
|
16,221
|
|
|
$
|
20,575
|
|
MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND
RESULTS OF OPERATIONS – Continued
Results of
Operations
–
Continued
Operating results (dollars in
thousands) were as follows:
|
|
Six
Months Ended June 30
|
|
|
|
Total
Revenues
|
|
|
Net
Income (Loss)
(1)
|
|
|
Return
on
Average
Equity
(2)
|
|
|
Return
on
Average
Assets
(2)
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
Arizona
Region:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Arrowhead
Community Bank
|
|
$
|
2,029
|
|
|
$
|
3,303
|
|
|
$
|
(4,186
|
)
|
|
$
|
(222
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Asian
Bank of Arizona
|
|
|
1,088
|
|
|
|
953
|
|
|
|
(815
|
)
|
|
|
(535
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Bank
of Tucson
|
|
|
6,428
|
|
|
|
6,783
|
|
|
|
1,066
|
|
|
|
1,978
|
|
|
|
12.24
|
%
|
|
|
22.17
|
%
|
|
|
1.09
|
%
|
|
|
2.15
|
%
|
Camelback
Community Bank
|
|
|
2,718
|
|
|
|
3,012
|
|
|
|
(226
|
)
|
|
|
509
|
|
|
|
|
|
|
|
11.07
|
%
|
|
|
|
|
|
|
1.15
|
%
|
Central
Arizona Bank
|
|
|
2,010
|
|
|
|
2,559
|
|
|
|
(1,475
|
)
|
|
|
(646
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Colonia
Bank
|
|
|
283
|
|
|
|
25
|
|
|
|
(560
|
)
|
|
|
(376
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mesa
Bank
|
|
|
3,865
|
|
|
|
7,985
|
|
|
|
(2,398
|
)
|
|
|
744
|
|
|
|
|
|
|
|
7.84
|
%
|
|
|
|
|
|
|
0.69
|
%
|
Southern
Arizona Community Bank
|
|
|
2,621
|
|
|
|
3,041
|
|
|
|
21
|
|
|
|
582
|
|
|
|
0.46
|
%
|
|
|
12.84
|
%
|
|
|
0.05
|
%
|
|
|
1.34
|
%
|
Sunrise
Bank of Albuquerque
|
|
|
2,124
|
|
|
|
2,640
|
|
|
|
(457
|
)
|
|
|
171
|
|
|
|
|
|
|
|
4.69
|
%
|
|
|
|
|
|
|
0.46
|
%
|
Sunrise
Bank of Arizona
|
|
|
3,408
|
|
|
|
4,177
|
|
|
|
(2,705
|
)
|
|
|
(180
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Yuma
Community Bank
|
|
|
2,379
|
|
|
|
2,745
|
|
|
|
312
|
|
|
|
365
|
|
|
|
8.55
|
%
|
|
|
9.39
|
%
|
|
|
0.87
|
%
|
|
|
0.96
|
%
|
Arizona
Region Total
|
|
|
28,953
|
|
|
|
37,223
|
|
|
|
(11,423
|
)
|
|
|
2,390
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
California
Region:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bank
of Escondido
|
|
|
2,372
|
|
|
|
2,564
|
|
|
|
(733
|
)
|
|
|
175
|
|
|
|
|
|
|
|
2.42
|
%
|
|
|
|
|
|
|
0.37
|
%
|
Bank
of Feather River
|
|
|
957
|
|
|
|
584
|
|
|
|
(30
|
)
|
|
|
(326
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bank
of San Francisco
|
|
|
2,153
|
|
|
|
1,880
|
|
|
|
21
|
|
|
|
12
|
|
|
|
0.50
|
%
|
|
|
0.28
|
%
|
|
|
0.05
|
%
|
|
|
0.04
|
%
|
Bank
of Santa Barbara
|
|
|
1,810
|
|
|
|
2,080
|
|
|
|
(638
|
)
|
|
|
(170
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Napa
Community Bank
|
|
|
4,497
|
|
|
|
4,240
|
|
|
|
926
|
|
|
|
467
|
|
|
|
11.87
|
%
|
|
|
6.59
|
%
|
|
|
1.29
|
%
|
|
|
0.74
|
%
|
Point
Loma Community Bank
|
|
|
1,724
|
|
|
|
1,872
|
|
|
|
(367
|
)
|
|
|
114
|
|
|
|
|
|
|
|
3.16
|
%
|
|
|
|
|
|
|
0.42
|
%
|
Sunrise
Bank of San Diego
|
|
|
2,441
|
|
|
|
2,847
|
|
|
|
(788
|
)
|
|
|
168
|
|
|
|
|
|
|
|
3.17
|
%
|
|
|
|
|
|
|
0.38
|
%
|
Sunrise
Community Bank
|
|
|
905
|
|
|
|
753
|
|
|
|
(482
|
)
|
|
|
(377
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
California
Region Total
|
|
|
16,859
|
|
|
|
16,820
|
|
|
|
(2,091
|
)
|
|
|
63
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Colorado
Region:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fort
Collins Commerce Bank
|
|
|
2,532
|
|
|
|
2,275
|
|
|
|
166
|
|
|
|
364
|
|
|
|
3.48
|
%
|
|
|
8.06
|
%
|
|
|
0.40
|
%
|
|
|
1.13
|
%
|
Larimer
Bank of Commerce
|
|
|
2,613
|
|
|
|
2,055
|
|
|
|
183
|
|
|
|
140
|
|
|
|
4.60
|
%
|
|
|
3.76
|
%
|
|
|
0.42
|
%
|
|
|
0.46
|
%
|
Loveland
Bank of Commerce
|
|
|
893
|
|
|
|
646
|
|
|
|
(177
|
)
|
|
|
(116
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mountain
View Bank of Commerce
|
|
|
1,066
|
|
|
|
358
|
|
|
|
(113
|
)
|
|
|
(611
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Colorado
Region Total
|
|
|
7,104
|
|
|
|
5,334
|
|
|
|
59
|
|
|
|
(223
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Great
Lakes Region:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bank
of Auburn Hills
|
|
|
1,138
|
|
|
|
1,459
|
|
|
|
(952
|
)
|
|
|
(459
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bank
of Maumee
|
|
|
1,318
|
|
|
|
1,373
|
|
|
|
(217
|
)
|
|
|
(507
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bank
of Michigan
|
|
|
2,342
|
|
|
|
2,477
|
|
|
|
19
|
|
|
|
268
|
|
|
|
0.53
|
%
|
|
|
8.05
|
%
|
|
|
0.04
|
%
|
|
|
0.78
|
%
|
Capitol
National Bank
|
|
|
6,248
|
|
|
|
7,723
|
|
|
|
(1,147
|
)
|
|
|
954
|
|
|
|
|
|
|
|
9.98
|
%
|
|
|
|
|
|
|
0.84
|
%
|
Elkhart
Community Bank
|
|
|
2,402
|
|
|
|
2,870
|
|
|
|
(996
|
)
|
|
|
272
|
|
|
|
|
|
|
|
6.18
|
%
|
|
|
|
|
|
|
0.60
|
%
|
Evansville
Commerce Bank
|
|
|
1,789
|
|
|
|
1,997
|
|
|
|
(245
|
)
|
|
|
(174
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goshen
Community Bank
|
|
|
2,254
|
|
|
|
2,675
|
|
|
|
(148
|
)
|
|
|
261
|
|
|
|
|
|
|
|
6.64
|
%
|
|
|
|
|
|
|
0.66
|
%
|
Michigan
Commerce Bank
(3)
|
|
|
33,838
|
|
|
|
42,436
|
|
|
|
(9,846
|
)
|
|
|
(1,305
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ohio
Commerce Bank
|
|
|
1,403
|
|
|
|
1,272
|
|
|
|
(66
|
)
|
|
|
(111
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Paragon
Bank & Trust
|
|
|
2,844
|
|
|
|
3,624
|
|
|
|
(1,797
|
)
|
|
|
(185
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Great
Lakes Region Total
|
|
|
55,576
|
|
|
|
67,906
|
|
|
|
(15,395
|
)
|
|
|
(986
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Midwest
Region
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adams
Dairy Bank
|
|
|
1,097
|
|
|
|
672
|
|
|
|
(50
|
)
|
|
|
(511
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bank
of Belleville
|
|
|
1,900
|
|
|
|
1,743
|
|
|
|
13
|
|
|
|
4
|
|
|
|
0.37
|
%
|
|
|
0.11
|
%
|
|
|
0.04
|
%
|
|
|
0.01
|
%
|
Community
Bank of Lincoln
|
|
|
1,792
|
|
|
|
816
|
|
|
|
(268
|
)
|
|
|
(326
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Summit
Bank of Kansas City
|
|
|
1,866
|
|
|
|
1,547
|
|
|
|
24
|
|
|
|
40
|
|
|
|
0.70
|
%
|
|
|
1.14
|
%
|
|
|
0.08
|
%
|
|
|
0.18
|
%
|
Midwest
Region Total
|
|
|
6,655
|
|
|
|
4,778
|
|
|
|
(281
|
)
|
|
|
(793
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nevada
Region:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1
st
Commerce Bank
|
|
|
1,252
|
|
|
|
1,141
|
|
|
|
(474
|
)
|
|
|
(291
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bank
of Las Vegas
|
|
|
2,409
|
|
|
|
2,437
|
|
|
|
23
|
|
|
|
37
|
|
|
|
0.57
|
%
|
|
|
0.86
|
%
|
|
|
0.06
|
%
|
|
|
0.10
|
%
|
Black
Mountain Community Bank
|
|
|
4,935
|
|
|
|
5,433
|
|
|
|
179
|
|
|
|
881
|
|
|
|
2.34
|
%
|
|
|
11.95
|
%
|
|
|
0.22
|
%
|
|
|
1.16
|
%
|
Desert
Community Bank
|
|
|
3,021
|
|
|
|
3,765
|
|
|
|
(864
|
)
|
|
|
176
|
|
|
|
|
|
|
|
3.50
|
%
|
|
|
|
|
|
|
0.35
|
%
|
Red
Rock Community Bank
|
|
|
3,200
|
|
|
|
3,971
|
|
|
|
(1,870
|
)
|
|
|
480
|
|
|
|
|
|
|
|
7.06
|
%
|
|
|
|
|
|
|
0.82
|
%
|
Nevada
Region Total
|
|
|
14,817
|
|
|
|
16,747
|
|
|
|
(3,006
|
)
|
|
|
1,283
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND
RESULTS OF OPERATIONS – Continued
Results of Operations –
Continued
Operating
results – continued:
|
|
Six
Months Ended June 30
|
|
|
|
Total
Revenues
|
|
|
Net
Income (Loss)
(1)
|
|
|
Return
on
Average
Equity
(2)
|
|
|
Return
on
Average
Assets
(2)
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
Northeast
Region:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
USNY
Bank
|
|
$
|
1,394
|
|
|
$
|
712
|
|
|
$
|
(243
|
)
|
|
$
|
(409
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Northwest
Region:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bank
of Bellevue
|
|
|
1,377
|
|
|
|
1,432
|
|
|
|
(681
|
)
|
|
|
(196
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Bank
of Everett
|
|
|
1,192
|
|
|
|
993
|
|
|
|
(763
|
)
|
|
|
(656
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Bank
of Tacoma
|
|
|
1,188
|
|
|
|
931
|
|
|
|
(648
|
)
|
|
|
(399
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
High
Desert Bank
|
|
|
1,178
|
|
|
|
574
|
|
|
|
(829
|
)
|
|
|
(380
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Issaquah
Community Bank
|
|
|
1,022
|
|
|
|
536
|
|
|
|
(344
|
)
|
|
|
(326
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Northwest
Region Total
|
|
|
5,957
|
|
|
|
4,466
|
|
|
|
(3,265
|
)
|
|
|
(1,957
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Southeast
Region:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bank
of Valdosta
|
|
|
1,491
|
|
|
|
1,640
|
|
|
|
(218
|
)
|
|
|
(43
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Community
Bank of Rowan
|
|
|
3,222
|
|
|
|
3,726
|
|
|
|
298
|
|
|
|
427
|
|
|
|
5.64
|
%
|
|
|
8.75
|
%
|
|
|
0.46
|
%
|
|
|
0.72
|
%
|
First
Carolina State Bank
|
|
|
2,831
|
|
|
|
3,319
|
|
|
|
(492
|
)
|
|
|
208
|
|
|
|
|
|
|
|
4.09
|
%
|
|
|
|
|
|
|
0.38
|
%
|
Peoples
State Bank
|
|
|
699
|
|
|
|
916
|
|
|
|
(109
|
)
|
|
|
27
|
|
|
|
|
|
|
|
1.06
|
%
|
|
|
|
|
|
|
0.21
|
%
|
Pisgah
Community Bank
|
|
|
1,059
|
|
|
|
69
|
|
|
|
(243
|
)
|
|
|
(560
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sunrise
Bank of Atlanta
|
|
|
1,964
|
|
|
|
2,305
|
|
|
|
(215
|
)
|
|
|
(200
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Southeast
Region Total
|
|
|
11,266
|
|
|
|
11,975
|
|
|
|
(979
|
)
|
|
|
(141
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Texas
Region:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bank
of Fort Bend
|
|
|
661
|
|
|
|
353
|
|
|
|
(309
|
)
|
|
|
(462
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bank
of Las Colinas
|
|
|
936
|
|
|
|
511
|
|
|
|
(182
|
)
|
|
|
(339
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Texas
Region Total
|
|
|
1,597
|
|
|
|
864
|
|
|
|
(491
|
)
|
|
|
(801
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parent
company and other, net
|
|
|
(39
|
)
|
|
|
1,857
|
|
|
|
2,745
|
|
|
|
4,388
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
totals
|
|
$
|
150,139
|
|
|
$
|
168,682
|
|
|
$
|
(34,370
|
)
|
|
$
|
2,814
|
|
|
|
|
|
|
|
1.45
|
%
|
|
|
|
|
|
|
0.11
|
%
|
(1)
|
Excludes
net losses attributable to noncontrolling interests.
|
(2)
|
Annualized
for periods presented.
|
(3)
|
Michigan
Commerce Bank resulted from the merger of Ann Arbor Commerce Bank,
Brighton Commerce Bank, Detroit Commerce Bank, Grand Haven Bank, Kent
Commerce Bank, Macomb Community Bank, Muskegon Commerce Bank, Oakland
Commerce Bank and Portage Commerce Bank effective March 31,
2009.
|
Liquidity and Capital
Resources
The
principal funding source for asset growth and loan origination activities is
deposits. Total deposits increased $198 million for the six months
ended June 30, 2009, compared to a $313 million increase in the corresponding
period of 2008. Growth occurred in most interest-bearing deposit
categories, with the majority coming from time deposit
accounts. Brokered deposits approximated $1.1 billion as of June 30,
2009, or about 24% of total deposits, an increase of $24 million during the
six-month 2009 period, as the banks have sought to add these funds selectively
based on maturity and interest-rate opportunities to aid in matching the
repricing of funding sources and assets. Brokered deposits at June
30, 2009 include about $323 million of relationship-based structured time
accounts.
Noninterest-bearing
deposits approximated 15.4% of total deposits at June 30, 2009, a decrease from
15.6% at December 31, 2008, and an increase of $21 million in the 2009 interim
period compared to a decrease of $2 million during the 2008
period. Levels of noninterest-bearing deposits can, however,
fluctuate based on customers' transaction activity.
During
the 2009 period, interest-bearing accounts increased about $177 million which
served as the primary funding source for growth in liquid
assets. Because of the growth in interest-bearing deposits, coupled
with higher relative rates on those balances (particularly with time deposit
accounts) and deployment of funds into liquid assets, net interest margins have
generally decreased.
MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND
RESULTS OF OPERATIONS – Continued
Liquidity and Capital
Resources – Continued
Interim
2009 deposit growth was deployed primarily into cash and cash equivalents to
enhance liquidity. Cash and cash equivalents amounted to $804.6
million or 14% of total assets at June 30, 2009, compared to $624.4 million or
11% of total assets at December 31, 2008. As liquidity levels vary
continuously based on customer activities, amounts of cash and cash equivalents
can vary widely at any given point in time. Management believes the
banks' liquidity position at June 30, 2009 is adequate to fund loan demand and
meet depositor needs. In the current low interest rate environment,
deployment of deposit growth into cash and cash equivalents adversely impacts
net interest margin.
In
addition to cash and cash equivalents, an additional source of long-term
liquidity is the banks' marketable investment securities. Liquidity
needs have not historically necessitated the sale of investments in order to
meet funding requirements and the banks have not engaged in active trading of
their investments. At June 30, 2009, Capitol's banks had
approximately $13.8 million of investment securities classified as available for
sale which may be utilized to meet various liquidity needs as they
arise.
Several
of Capitol's banks have secured lines of credit with regional Federal Home Loan
Banks. Borrowings thereunder approximated $339 million and additional
borrowing capacity approximated $295 million at June 30, 2009. These
facilities are used from time to time as a lower-cost funding source versus
various rates and maturities of time deposits available within banks' individual
communities. Total notes payable and short-term borrowings were $363
million at June 30, 2009, a reduction of $84.4 million from the beginning of the
year as deposit growth enabled repayment of select borrowings in addition to
enhanced liquidity discussed previously.
Capitol
Bancorp Limited stockholders' equity, as a percentage of total assets,
approximated 5.62% at June 30, 2009 and 6.26% at December 31,
2008. As of June 30, 2009, Capitol
'
s total capital
funds (i.e., the sum of Capitol Bancorp Limited stockholders' equity,
noncontrolling interests in consolidated subsidiaries and subordinated
debentures) approximated $631.9 million or 11.03% of total assets.
In April
2009, the Corporation determined that it would commence the deferral of interest
payments on its various trust-preferred securities, as is permitted under the
terms of the securities, to conserve cash and capital resources. The
payment of interest may be deferred for periods up to five
years. During such deferral periods, Capitol is prohibited from
paying dividends on its common stock (subject to certain exceptions) and will
continue to accrue interest payable on such securities. Holders of
the trust-preferred securities will continue to recognize current taxable income
relating to the deferred interest payments.
Capitol
and its banks are subject to complex regulatory capital requirements, which
require maintaining certain minimum capital ratios. These ratio
measurements, in addition to certain other requirements, are used by regulatory
agencies to determine the level of regulatory intervention and enforcement
applied to financial institutions. Management believes Capitol and
each of its banks are in compliance with regulatory requirements and are
expected to maintain such compliance.
Effective
May 31, 2009, Capitol completed a share-exchange transaction with the
noncontrolling shareholders of Bank of Auburn Hills, previously a 51% owned
subsidiary. In conjunction with the share exchange, Capitol issued
227,000 previously unissued shares of Capitol's common stock and warrants for
the purchase of 76,000 shares of Capitol's common stock. The exercise
price of the warrants is $20.37 per share of Capitol's common stock, which
expire May 31, 2012. As a result of the share exchange transaction,
Bank of Auburn Hills became wholly-owned. Capitol's results of
operations would not have been materially different if it had occurred at the
beginning of 2009 or 2008.
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 Capital Purchase Program (CPP) under the Troubled Asset Relief
Program (TARP). Capitol has withdrawn its application to participate
in this program.
MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND
RESULTS OF OPERATIONS – Continued
Liquidity and Capital
Resources – Continued
In February 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. Capitol has recently submitted a CAP application on behalf
of Michigan Commerce Bancorp Limited (MCBL, described more fully on page 31) in
the amount of $21.7 million. There can be no assurance the CAP
application will be approved or, if approved, whether Capitol or MCBL would
choose to participate.
Trends Affecting
Operations
One of
the most significant trends which can impact the financial condition and results
of operations of financial institutions is changes in market rates of
interest.
Changes
in interest rates, either up or down, have an impact on net interest income
(plus or minus), depending on the direction and timing of such
changes. At any point in time, there is a difference between interest
rate-sensitive assets and interest rate-sensitive liabilities. This
means that when interest rates change, the timing and magnitude of the effect of
such interest rate changes can alter the relationship between asset yields and
the cost of funds.
The Board
of Governors of the Federal Reserve, which influences interest rates, changed
interbank borrowing rates dramatically in 2008 by an aggregate 400 basis-point
decrease. The Board of Governors of the Federal Reserve has also
expressed concerns about a variety of macro economic issues. Home
mortgage rates have recently fluctuated and residential real estate markets have
deteriorated in various regions, which adversely impacts fee income from the
origination of residential mortgages. There has been widespread media
coverage of subprime and other residential mortgage “meltdown” issues; Capitol
believes its exposure to the residential real estate crisis to be generally
minimal due to its practice of selling residential mortgage loan production to
the secondary market. Many of Capitol's banks' commercial loans are
variable-rate and, accordingly, rate decreases may result in lower interest
income to Capitol in the near term; however, depositors will continue to expect
reasonable rates of interest on their accounts, potentially compressing net
interest margins further. The future outlook on interest rates and
their impact on Capitol's interest income, interest expense and net interest
income is uncertain.
General
economic conditions also have a significant impact on both the results of
operations and the financial condition of financial institutions. As
mentioned previously, general economic conditions within the state of Michigan
and the national economic recession are uncertain and are likely to continue to
have an adverse effect on Capitol's banks and their customers. It is
likely that, absent significant catalysts, Michigan's economic recovery in
particular may take an extended period of time.
Media
reports raising questions about the health of the domestic economy and the
sustained national recession have continued in 2009. During the
interim 2009 period, nonperforming assets have increased significantly; it is
likely levels of nonperforming assets and related loan losses will increase
further as economic conditions, locally and nationally, evolve.
Effective
March 31, 2009, nine Michigan bank charters were merged into Michigan Commerce
Bank. The resulting bank, with nine locations, was combined to gain
efficiencies in loan portfolio and problem asset management and general
operating efficiencies in daily processing. A similar four-bank
merger proposal in the greater Phoenix area of Arizona, is pending and subject
to regulatory approval. Additional mergers and combinations of bank
charters in other markets are under consideration as management evaluates
potential synergies and cost savings. In April 2009, Capitol
announced the engagement of a financial advisor to assist management in pursuing
divestiture opportunities.
MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND
RESULTS OF OPERATIONS – Continued
Proposed 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 through a spin-off transaction. Upon
completion of the proposed spin-off, Capitol will continue to be a bank holding
company with national banking operations and MCBL will be a separate
publicly-traded bank holding company consisting of the substantial majority of
Capitol's prior Michigan-based banks (see accompanying pro forma consolidated
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. The proposed spin-off is illustrated in the accompanying
pro forma consolidated financial statements on pages 32 and 33.
MCBL's
consolidated total assets approximated $1.25 billion or about 22% of Capitol's
total assets as of June 30, 2009. If the proposed spin-off had been
completed on June 30, 2009, consolidated total assets of Capitol would have
approximated $4.5 billion, while reflecting a 32% decline in nonperforming
assets and a modest increase in the consolidated total capital
ratio. If the proposed spin-off would have occurred at the beginning
of 2009, the consolidated net loss attributable to stockholders of Capitol would
have been reduced 40% to $20.6 million ($1.20 per share) for the six months
ended June 30, 2009.
Pending Sale of Five
Banks
In July 2009, Capitol entered into
definitive agreements to sell the following four affiliate
institutions: Bank of Belleville, Bank of Santa Barbara, 1
st
Commerce Bank and Community Bank of Rowan. The projected financial
impact of the divestiture of these four institutions, along with the sale of
Yuma Community Bank announced in May 2009, is set forth in the accompanying pro
forma condensed consolidated balance sheet (along with the proposed spin-off
discussed above) on page 34. Total proceeds from the pending sales
are expected to approximate $34.5 million, resulting in a pre-tax gain of $10.2
million ($6.6 million, or $0.38 per share, after federal income tax) and are
expected to be consummated in the second half of 2009, subject to regulatory
approval and other contingencies.
Proposed Share Exchange
Offer
In July
2009, Capitol proposed a share exchange offer regarding the shares of CDBLs
III-VI not already owned by Capitol, whereby there may be an opportunity to
exchange Class B common stock of the CDBLs for a combination of convertible
preferred stock of Capitol and trust-preferred securities. If all of
the CDBL III-VI shareholders were to exchange their shares pursuant to the
proposed exchange offer, Capitol would issue convertible preferred stock with a
preference value of approximately $66.7 million and trust-preferred securities
with an aggregate liquidation value approximating $23.5 million. If
all CDBL III-VI shareholders were to exchange their CDBL interests, as proposed
and if consummated, Capitol's net loss attributable to Capitol Bancorp Limited
would have approximated $42.6 million ($2.48 per share) for the six months ended
June 30, 2009. The proposed exchange offer is subject to a number of
contingencies.