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UNITED
STATES
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SECURITIES
AND EXCHANGE COMMISSION
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WASHINGTON,
D.C. 20549
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T
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ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
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SECURITIES
EXCHANGE ACT OF 1934
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For
the fiscal year ended December 31, 2009
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OR
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£
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TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
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SECURITIES
EXCHANGE ACT OF 1934
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For the
transition period from ____________ to ____________
Commission
File Number:
001-31708
CAPITOL
BANCORP LTD.
(Exact
name of registrant as specified in its charter)
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MICHIGAN
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38-2761672
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(State
or other jurisdiction of
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(IRS
Employer
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incorporation
or organization)
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Identification
Number)
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Capitol
Bancorp Center
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200
N. Washington Square
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Lansing,
Michigan
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48933
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(Address
of principal executive offices)
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(Zip
Code)
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517-487-6555
(Registrant's
telephone number, including area code)
Not
Applicable
(Former
name, former address and former fiscal year, if changed since last
report)
Securities
registered pursuant to Section 12(b) of the Act:
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Title
of each class
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Name
of each exchange on which registered
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Common
Stock, no par value per share
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New
York Stock Exchange
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8.50%
Cumulative Trust Preferred Securities,
$10
Liquidation Amount
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New
York Stock Exchange
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10.5%
Cumulative Trust Preferred Securities,
$10
Liquidation Amount
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New
York Stock Exchange
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Securities
registered pursuant to Section 12(g) of the Act:
None
Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act.
Yes
o
No
x
Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Exchange Act.
Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.
Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the best
of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.
o
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer or a smaller reporting company (as
defined in Rule 12b-2 of the Exchange Act).
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Large
accelerated filer
o
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Accelerated
filer
o
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Non-accelerated
filer
x
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Smaller
Reporting Company
o
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(Do not
check if a smaller reporting company)
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).
As of
June 30, 2009, the aggregate market value of the registrant's common stock held
by non-affiliates of the registrant
was: $34,702,815. (Such amount was computed based on
shares held by non-affiliates as of January 31, 2009 and the common stock
closing price reported by the New York Stock Exchange on June 30,
2009. For purposes of this computation, all executive officers,
directors and 5% shareholders have been assumed to be
affiliates. Certain of such persons may disclaim that they are
affiliates of registrant.)
Indicate
the number of shares outstanding of each of the issuer's classes of common
stock, as of the latest practicable date.
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Class
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Outstanding
at March 2, 2010
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Common
Stock, no par value per share
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17,544,501
shares
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DOCUMENTS
INCORPORATED BY REFERENCE
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Document
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Parts Into Which
Incorporated
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Annual
Report to Shareholders for the Year Ended
December
31, 2009 (Annual Report)
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Parts
I, II and IV
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Portions
of Proxy Statement for the Annual Meeting of
Shareholders
to be held April 28, 2010 (Proxy Statement)
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Part
III
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CAPITOL
BANCORP LTD.
Form
10-K
Fiscal
Year Ended: December 31, 2009
Cross
Reference Sheet
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Item of Form 10-K
Part I
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Incorporation by
Reference From
:
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Item
1. Business
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Pages
F-11 – F-15, F-29 – F-42, F-57 – F-60 and F-74 – F-75,
Financial
Information Section of Annual Report
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Item
1A. Risk Factors
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Page
F-47, Financial Information Section of Annual Report
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Item
2. Properties
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Pages
F-57 – F-58 and F-72 – F-73, Financial Information Section
of Annual Report, and Page 49 of Proxy Statement
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Part II
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Item
5. Market for Registrant's Common Equity,
Related
Stockholder Matters and Issuer
Purchases
of Equity Securities
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Pages
F-2 – F-10, F-75 – F-77 and F-88 – F-90 , Financial
Information
Section of Annual Report
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Item
6. Selected Financial Data
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Page
F-2, Financial Information Section of Annual Report
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Item
7. Management's Discussion and Analysis of
Financial
Condition and Results of
Operations
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Pages
F-11 – F-47, Financial Information Section of Annual Report
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Item
7A. Quantitative and Qualitative Disclosures
About
Market Risk
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Pages
F-6 – F-10 and F-37 – F-41, Financial Information Section of
Annual
Report
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Item
8. Financial Statements and Supplementary
Data
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Pages
F-2 and F-52 – F-95, Financial Information Section of
Annual
Report
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Item
9A. Controls and Procedures
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Pages
F-48 – F-50, Financial Information Section of Annual Report
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Part III
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Item
10. Directors, Executive Officers and Corporate
Governance
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Pages
6 – 22 and 48 – 49, Proxy Statement
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Item
11. Executive Compensation
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Pages
22 – 46, Proxy Statement
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Item
12. Security Ownership of Certain Beneficial
Owners
and Management and Related
Stockholder
Matters
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Pages
35 and 47, Proxy Statement
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Item
13. Certain Relationships and Related
Transactions
and Director Independence
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Pages
9 – 22 and 49 – 51, Proxy Statement
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Item
14. Principal Accountant Fees and Services
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Pages
51 – 52, Proxy Statement
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Part IV
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Item
15. Exhibits and Financial Statement Schedules
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Pages
F-48 – F-95, Financial Information Section of Annual
Report
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Key:
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"Annual
Report"
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means
the 2009 Annual Report of Capitol Bancorp Limited (Capitol) provided to
Shareholders and the Commission pursuant to Rule
14a-3(b). Capitol's 2009 Annual Report is divided into two
sections: a Financial Information Section and a Marketing
Section and is filed as Exhibit 13 with this Form 10-K
report.
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"Proxy
Statement"
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means
the Proxy Statement of Capitol for the Annual Meeting of Shareholders to
be held April 28, 2010.
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Note:
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The
page number references herein are based on the paper version of the
referenced documents. Accordingly, those page number references
may differ from the electronically filed versions of those
documents.
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2009 FORM
10-K ANNUAL REPORT
TABLE OF
CONTENTS
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PART
I
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Page
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8
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26
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37
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37
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38
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38
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PART
II
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of
Equity Securities
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39
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40
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40
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40
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40
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40
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41
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41
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PART
III
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42
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42
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Stockholder
Matters
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42
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42
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42
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PART
IV
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43
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FORWARD-LOOKING
STATEMENTS
Some of
the statements contained in this document, including Capitol's consolidated
financial statements, Management's Discussion and Analysis of Financial
Condition and Results of Operations and in documents incorporated into this
document by reference that are not historical facts, including, without
limitation, statements of future expectations, projections of results of
operations and financial condition, statements of future economic performance
and other forward-looking statements within the meaning of the Private
Securities Litigation Reform Act of 1995, are subject to known and unknown
risks, uncertainties and other factors which may cause the actual future
results, performance or achievements of Capitol and/or its subsidiaries and
other operating units to differ materially from those contemplated in such
forward-looking statements. The words "intend," "expect," "project,"
"estimate," "predict," "anticipate," "should," "could," "believe," "may,"
"might" and similar expressions also are intended to identify forward-looking
statements. Important factors which may cause actual results to
differ from those contemplated in such forward-looking statements include, but
are not limited to: (i) the results of Capitol's efforts to implement its
business strategy, (ii) changes in interest rates, (iii) legislation or
regulatory requirements adversely impacting Capitol's banking business and/or
expansion strategy, (iv) adverse changes in business conditions or inflation,
(v) general economic conditions, either nationally or regionally, which are less
favorable than expected and that result in, among other things, a deterioration
in credit quality and/or loan performance and collectability, (vi) competitive
pressures among financial institutions, (vii) changes in securities markets,
(viii) actions of competitors of Capitol's banks and Capitol's ability to
respond to such actions, (ix) the cost of and access to capital, which may
depend in part on Capitol's asset quality, prospects and outlook, (x) changes in
governmental regulation, tax rates and similar matters, (xi) availability of
funds under the U.S. Treasury
'
s Capital
Assistance Program and Capital Purchase Program, (xii) changes in management,
(xiii) Capitol's proposed spin-off of Michigan Commerce Bancorp Limited; (xiv)
consummation of pending sales of certain bank subsidiaries, (xv) other risks
detailed in Capitol's other filings with the Securities and Exchange Commission,
and (xvi) the following, among others:
·
Management's
ability to effectively manage interest rate risk and the impact of interest
rates in general on the volatility of Capitol's net interest
income;
·
The
effect of the Emergency Economic Stabilization Act of 2008, the American
Recovery and Reinvestment Act of 2009, the implementation by the Department of
the U.S. Treasury and federal banking regulators of a number of programs to
address capital and liquidity issues within the banking system and additional
programs that may apply to Capitol in the future, all of which may have
significant effects on Capitol and the financial services industry;
·
The
decline in commercial and residential real estate values and sales volume and
the likely potential for continuing illiquidity in the real estate
market;
·
The risks
associated with the high concentration of commercial real estate loans within
Capitol's portfolio;
·
The
uncertainties in estimating the fair value of developed real estate and
undeveloped land relating to collateral-dependent loans and other real estate
owned in light of declining demand for such assets, falling prices and
continuing illiquidity in the real estate market;
·
Negative
developments and disruptions in the credit and lending markets, including the
impact of the ongoing credit crisis on Capitol's business and on the businesses
of its customers as well as other banks and lending institutions with which
Capitol has commercial relationships;
·
A
continuation of unprecedented volatility in the capital markets;
·
The risks
associated with implementing Capitol's business strategy, including its ability
to preserve and access sufficient capital to execute its strategy;
·
Rising
unemployment and its impact on Capitol's customers' savings rates and their
ability to service debt obligations;
·
Fluctuations
in the value of Capitol's investment securities;
FORWARD-LOOKING
STATEMENTS—Continued
·
The
ability to attract and retain senior management experienced in banking and
financial services;
·
The
sufficiency of the allowance for loan losses to absorb the amount of actual
losses inherent within the loan portfolio;
·
Capitol's
ability to adapt successfully to technological changes to compete effectively in
the marketplace;
·
Credit
risks and risks from concentrations (by geographic area and by industry) within
Capitol's consolidated loan portfolio and individual large loans;
·
The
effects of competition from other commercial banks, thrifts, mortgage banking
firms, consumer finance companies, credit unions, securities brokerage firms,
insurance companies, money market and other mutual funds, and other financial
institutions operating in Capitol's market or elsewhere or providing similar
services;
·
The
failure of assumptions underlying the establishment of the allowance for loan
losses and estimation of values of collateral or cash flow projections and
various financial assets and liabilities;
·
Volatility
of rate sensitive deposits;
·
Operational
risks, including data processing system failures or fraud;
·
Liquidity
risks;
·
The
ability to successfully acquire deposits for funding and the pricing
thereof;
·
The
ability to successfully execute strategies to increase noninterest
income;
·
Changes
in the economic environment, competition or other factors that may influence
loan demand and repayment, deposit inflows and outflows, and the quality of the
loan portfolio and loan and deposit pricing;
·
The
impact from liabilities arising from legal or administrative proceedings on the
financial condition of Capitol;
·
The
current prohibition of Capitol's subsidiary banks to pay dividends to Capitol
without prior written authorization from regulatory agencies;
·
The
current prohibition of Capitol's payment of cash dividends on its common stock
without prior written regulatory authorization;
·
Possible
administrative or enforcement actions of banking regulators in connection with
any material failure of Capitol or its subsidiary banks to comply with banking
laws, rules or regulations or formal agreements with regulatory
agencies;
·
Capitol's
compliance with the terms of its written agreement with the Federal Reserve
Bank, amendments thereto or subsequent regulatory agreements;
·
The
continued availability of credit facilities provided by Federal Home Loan Banks
to Capitol's banking subsidiaries;
·
The
uncertainties of future depositor activity regarding potentially uninsured
deposits upon expiration of the FDIC's Transaction Account Guarantee
Program;
·
The
possibility of the FDIC assessing Capitol's bank subsidiaries for any
cross-guaranty liability;
·
Governmental
monetary and fiscal policies, as well as legislative and regulatory changes,
that may result in the imposition of costs and constraints on Capitol through
higher FDIC insurance premiums, significant fluctuations in market interest
rates, increases in capital requirements, and operational
limitations;
·
Changes
in general economic or industry conditions, nationally or in the communities in
which Capitol conducts business;
FORWARD-LOOKING
STATEMENTS—Continued
·
Changes
in legislation or regulatory and accounting principles, policies, or guidelines
affecting the business conducted by Capitol;
·
The
impact of possible future goodwill and other material impairment
charges;
·
Acts of
war or terrorism;
·
Capitol's
ability to manage fluctuations in the value of its assets and liabilities and
maintain sufficient capital and liquidity to support its
operations;
·
The
concentration of Capitol's nonperforming assets by loan type in certain
geographic regions and with affiliated borrowing groups;
·
The risk
of additional future losses if the proceeds Capitol receives upon the
liquidation of assets are less than the carrying value of such
assets;
·
Restrictions
or limitations on access to funds from subsidiaries and potential obligations to
contribute additional capital to Capitol's subsidiaries, which may restrict its
ability to make payments on its obligations;
·
The
availability and cost of capital and liquidity on favorable terms, if at
all;
·
Changes
in accounting standards or applications and determinations made
thereunder;
·
The risk
that the realization of deferred tax assets and recoverable income taxes may
extend beyond 2010;
·
The risk
that Capitol will not be able to complete its various proposed mergers and
consolidations of certain of its subsidiary banks or, if completed, realize the
anticipated benefits of the proposed mergers and/or consolidations;
·
The
impact on Capitol's financial results, reputation and business if it is unable
to comply with all applicable federal and state regulations and applicable
formal agreements, consent orders, other regulatory actions and any related
capital initiatives;
·
The costs
and effects of litigation, investigations, inquiries or similar matters, or
adverse facts and developments related thereto;
·
The risk
that, if economic conditions worsen or regulatory capital requirements are
modified, Capitol may be required to seek additional liquidity and/or capital
from external sources, if available;
·
The risk
that Capitol could have an "ownership change" under Section 382 of the Internal
Revenue Code, which could impair its ability to timely and fully utilize its net
operating losses for tax purposes and so-called built-in losses that may exist
if such an "ownership change" occurs;
·
Other
factors and other information contained in this document and in other reports
and filings that Capitol makes with the SEC under the Exchange Act, including,
without limitation, under the caption "Risk Factors"; and
·
Other
economic, competitive, governmental, regulatory, and technical factors affecting
Capitol's operations, products, services, and prices.
For a
discussion of these and other risks that may cause actual results to differ from
expectations, you should refer to the risk factors and other information in this
Annual Report on Form 10-K and Capitol's other periodic filings, including
quarterly reports on Form 10-Q and current reports on Form 8-K, that Capitol
files from time to time with the SEC. All written or oral
forward-looking statements that are made by or are attributable to Capitol are
expressly qualified by this cautionary notice. You should not place
undue reliance on any forward-looking statements, since those statements speak
only as of the date on which the statements are made. Capitol
undertakes no obligation to update any forward-looking statement to reflect
events or circumstances after the date on which the statement is made to reflect
the occurrence of new information or unanticipated events, except as may
otherwise be required by law.
PART I
Item 1.
Business.
a. General
development of business:
Incorporated
by reference from Pages F-11 – F-15, Financial Information Section of Annual
Report, under the captions "Summary and Overview" and "Capitol's Approach to
Community Banking," Pages F-35 – F-37, Financial Information Section of Annual
Report, under the caption "Certain Regulatory Matters," Pages F-41 – F-42,
Financial Information Section of Annual Report, under the captions "Proposed
Spin-off of Michigan Commerce Bancorp Limited" and "Sales of Banks and Pending
Divestitures" and Pages F-57 – F-60, Financial Information Section of Annual
Report, under the caption "Note A—Nature of Operations, Basis of Presentation
and Principles of Consolidation."
Capitol was incorporated in
1988.
Capitol
Trust I and Capitol Trust XII were formed in 1997 and 2008, respectively; each
is a Delaware statutory business trust. The business and affairs of
Capitol Trust I and Capitol Trust XII are conducted by their respective property
trustee, a Delaware trustee, and administrative trustees who are employees and
officers of Capitol. Capitol Trust I and Capitol Trust XII exist for
the sole purpose of issuing and selling its preferred securities and common
securities, using the proceeds from the sale of those securities to acquire
subordinated debentures issued by Capitol and certain related
services. During 2001, Capitol formed Capitol Trust II and Capitol
Statutory Trust III, in conjunction with private placements of trust-preferred
securities. Capitol Trust IV was similarly formed in 2002, Capitol
Trust VI, Capitol Trust VII and Capitol Statutory Trust VIII were formed in
2003, Capitol Trust IX was formed in 2004 and Capitol Trust X and Capitol Trust
XI were formed in 2007. Each of these securities has similar
terms. Additional information regarding trust-preferred securities is
incorporated by reference from Pages F-74 – F-75, Financial Information Section
of Annual Report, under the caption "Note I—Subordinated Debt."
b. Financial
information about segments:
Incorporated
by reference from Pages F-14 – F-17, Financial Information Section of Annual
Report (excerpt from Management's Discussion and Analysis of Capitol's Business,
Financial Condition and Results of Operations) and Pages F-57 – F-60, Financial
Information Section of Annual Report, under the caption "Note A—Nature of
Operations, Basis of Presentation and Principles of Consolidation."
c. Narrative
description of business:
Incorporated
by reference from Pages F-11 – F-15, Financial Information Section of Annual
Report, under the captions "Summary and Overview" and "Capitol's Approach to
Community Banking," Pages F-29 – F-35, Financial Information Section of Annual
Report, under the caption "Liquidity, Capital Resources and Capital Adequacy,"
Pages
F-34 –
F-35, Financial Information Section of Annual Report, comparative analysis of
each bank's regulatory capital position, Pages F-35 – F-37, Financial
Information Section of Annual Report, under the caption "Certain Regulatory
Matters," Pages F-37 – F-41, Financial Information Section of Annual Report,
under the caption "Trends Affecting Operations," Pages F-41 – F-42, Financial
Information Section of Annual Report, under the captions "Proposed Spin-off of
Michigan Commerce Bancorp Limited" and "Sales of Banks and Pending Divestitures"
and Pages F-57 – F-60, Financial Information Section of Annual Report, under the
caption "Note A—Nature of Operations, Basis of Presentation and Principles of
Consolidation."
At
December 31, 2009, Capitol and its subsidiaries employed approximately 1,304
full time equivalent employees.
Item 1. Business –
continued.
Supervision and
Regulation:
General:
The
banking industry is subject to extensive state and federal regulation and
continues to undergo significant change, particularly during the current severe
economic recession. Proposals to change the laws and regulations
governing the banking industry are currently being discussed in Congress, in
state legislatures and before the various
bank
regulatory agencies, in addition to direct investment in some financial
institutions by the U.S. government. The likelihood and timing of any
changes and the impact such changes might have on Capitol are impossible to
determine with any certainty. A change in applicable laws or
regulations, or a change in the way such laws or regulations are interpreted by
regulatory agencies or courts, may have a material impact on Capitol's business,
financial position and results of operations. Capitol expects that
the financial services industry will remain heavily regulated and that
additional laws or regulations may be adopted. The following
discussion summarizes certain aspects of the banking laws and regulations that
affect Capitol. To the extent that the following information
describes statutory or regulatory provisions, it is qualified entirely by
reference to the particular statutory or regulatory provision.
Capitol has not received any so-called
"bailout" funds from any governmental sources and is not currently expecting to
participate in the various capital programs offered by the U.S. government as an
economic stimulus during the current severe recession.
Capitol
is a bank holding company registered with the Board of Governors of the Federal
Reserve and is subject to regulation under the Bank Holding Company Act of 1956,
as amended (Bank Holding Company Act). The Bank Holding Company Act
requires the Federal Reserve Board's prior approval of an acquisition of assets
or of ownership or control of voting shares of any bank or bank holding company,
if the acquisition would give the acquiring institution more than 5% of the
voting shares of such bank or bank holding company. It also imposes
restrictions, summarized below, on the assets or voting shares of nonbanking
companies that Capitol may acquire.
Consistent
with the requirements of the Bank Holding Company Act, Capitol's community banks
provide their customers with banking, trust and other financial services and
products. These services include commercial banking through 47
subsidiary banks (as of December 31, 2009), as well as trust services, mortgage
origination and servicing, equipment leasing, brokerage and investment advisory
services, property and casualty insurance, life insurance and annuity products,
and portfolio management services through subsidiary banks and other
subsidiaries.
Under
Federal Reserve Board policy, a bank holding company is expected to serve as a
source of financial strength to its subsidiary banks and to stand prepared to
commit resources to support each of them. There are no specific
quantitative rules on a holding company's potential liability to its subsidiary
banks. In its sole judgment, the Federal Reserve Board could invoke
the source-of-strength doctrine and require capital contributions from Capitol
to its subsidiary banks. In addition, and as a separate legal matter,
a holding company is required to guarantee the capital plan of an
undercapitalized subsidiary bank. See "Capital Adequacy and Prompt
Corrective Action" below.
Capitol's
subsidiary banks are subject to the provisions of the banking laws of their
respective states of organization, the National Bank Act or national thrift
regulations. They are under the supervision of, and are subject to
periodic examination by, their respective state banking departments (in the case
of state-chartered banks), the Office of the Comptroller of the Currency (OCC)
(in the case of national banks) or the Office of Thrift Supervision (OTS) (in
the case of federal savings banks) and are subject to the rules and regulations
of the OCC, the OTS, the Federal Reserve Board and the Federal Deposit Insurance
Corporation (FDIC). As of December 31, 2009, 39 of Capitol's banking
subsidiaries were state-chartered banks and, therefore, subject to supervision,
regulation and examination by state banking regulators and the
FDIC. Seven of Capitol's depository institution subsidiaries, as of
December 31, 2009, were chartered as federal savings banks and, accordingly, are
subject to regulation and examination by the OTS and FDIC; one bank subsidiary
was a national bank, subject to regulation by the OCC and
FDIC. Additionally, nonbank subsidiaries of Capitol are supervised
and examined by the Federal Reserve Board and various other federal and state
agencies.
Item 1. Business –
continued.
Capitol's
insured depository institution subsidiaries are also subject to cross-guaranty
liability under federal law. This means that if one FDIC-insured
depository institution subsidiary of a multi-institution bank holding company
fails or requires FDIC assistance, the FDIC may assess "commonly controlled"
depository institutions for the estimated losses suffered by the
FDIC. Such liability could have a material adverse effect on the
financial condition of any assessed subsidiary institution and on Capitol as the
common parent. While the FDIC's cross-guaranty claim is generally
junior to the claims of depositors, holders of secured liabilities, general
creditors and subordinated creditors, it is generally superior to the claims of
shareholders and affiliates.
Payment
of Dividends:
There are
various statutory restrictions on the ability of Capitol's banking subsidiaries
to pay dividends or make other payments to Capitol. Each of the
state-chartered banking subsidiaries is subject to dividend limits under the
laws of the state in which it is chartered. Federal Reserve Board
policy provides that, as a matter of prudent banking, a bank holding company
generally should not maintain a rate of cash dividends unless its net income
available to common shareholders has been sufficient to fully fund the dividends
and the prospective rate of earnings retention appears to be consistent with the
holding company's capital needs, asset quality and overall financial condition;
due to operating losses and a written agreement between the Federal Reserve and
Capitol, Capitol is currently prohibited from payment of dividends.
As of
December 31, 2009, Capitol's bank subsidiaries were prohibited from making
dividend payments to Capitol without prior regulatory approval.
Capitol
has several series of trust-preferred securities outstanding which are interest
bearing. Under certain conditions, Capitol may defer payment of
interest on the related subordinated debentures for periods of up to five
years. In April 2009, Capitol commenced deferral of interest payments
on such subordinated debentures and, pursuant to the written agreement between
the Federal Reserve and Capitol, may not make interest payments thereon without
prior written approval from the Federal Reserve. The documents
governing the trusts restrict Capitol's right to pay a dividend on its common
stock under certain circumstances and give holders of the securities preference
on liquidation over the holders of Capitol's common stock.
Capital
Adequacy and Prompt Corrective Action:
The FDIC
Improvement Act of 1991 (FDICIA) requires federal regulators to take prompt
corrective action against any undercapitalized institution. FDICIA
establishes five capital categories: well-capitalized, adequately-capitalized,
undercapitalized, significantly-undercapitalized and
critically-undercapitalized. "Well-capitalized" institutions
significantly exceed the required minimum level for each capital measure
(currently, risk-based and leverage). "Adequately-capitalized" institutions
include depository institutions that meet the required minimum level for each
capital
measure. "Undercapitalized"
institutions consist of those that fail to meet the required minimum level for
one or more relevant capital
measures. "Significantly-undercapitalized" characterizes depository
institutions with capital levels significantly below the minimum
requirements. "Critically-undercapitalized" refers to depository
institutions with minimal capital and at serious risk for government
seizure.
Under
certain circumstances, a well-capitalized, adequately-capitalized or
undercapitalized institution may be treated as if the institution were in the
next lower capital category. A depository institution is generally
prohibited from making capital distributions, including paying dividends or fees
to a holding company, if the institution would thereafter be
undercapitalized. Institutions that are adequately but not
well-capitalized cannot accept, renew or roll over brokered deposits except with
a waiver from the FDIC, and are subject to restrictions on the interest rates
that can be paid on such deposits. Undercapitalized institutions may
not accept, renew or roll over brokered deposits.
Some of
Capitol's subsidiary banks are subject to regulatory agreements which, among
other things, preclude classification of the bank at a level higher than
adequately-capitalized.
Item 1. Business –
continued.
The
banking regulatory agencies are permitted or, in certain cases, required to take
certain actions with respect to institutions falling within one of the three
undercapitalized categories. Depending on the level of an
institution's capital, the agencies' corrective powers include, among other
things:
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prohibiting
the payment of principal and interest on subordinated debt;
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prohibiting
the holding company from obtaining distributions from the institution
without prior regulatory approval;
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placing
limits on asset growth and restrictions on activities;
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placing
additional restrictions on transactions with affiliates;
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restricting
the interest rates the institution may pay on deposits;
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prohibiting
the institution from accepting deposits from correspondent banks;
and
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in
the most severe cases, appointing a conservator or receiver for the
institution.
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A banking
institution that is undercapitalized is required to submit a capital restoration
plan, and such a plan will not be accepted unless, among other things, the
banking institution's holding company guarantees the plan up to a certain
specified amount. Any such guarantee from a depository institution's
holding company is entitled to a priority of payment in bankruptcy.
FDICIA
also contains a variety of other provisions that may affect Capitol's
operations, including reporting requirements, regulatory standards for real
estate lending, "truth in savings" provisions, and the requirement that a
depository institution give 90 days' prior notice to customers and regulatory
authorities before closing any branch.
Information
concerning capital adequacy guidelines for Capitol and its banking subsidiaries,
including their regulatory capital position at December 31, 2009, is
incorporated by reference from Pages F-29 – F-37, Financial Information Section
of Annual Report, under the captions "Liquidity, Capital Resources and Capital
Adequacy" and "Certain Regulatory Matters" and Pages F-88 – F-90, Financial
Information Section of Annual Report, under the caption "Note P—Capital
Requirements and Related Regulatory Matters."
FDIC
Insurance Assessments:
FDIC deposit insurance premium levels
became a much more significant expense in 2009 ($14.3 million) compared to 2008
($3.2 million) and 2007 ($2.0 million), and will increase in future periods as a
result of the FDIC imposing a risk-based matrix approach for assessment of
premiums for deposit insurance, as it seeks to replenish its insurance fund from
the costs of bank failures and address higher levels of deposit insurance
coverage.
During
2008 and 2009, bank failures, coupled with deteriorating economic conditions,
significantly reduced the FDIC's insurance fund reserve ratio. As of
June 30, 2008, the designated reserve ratio was 1.01% of estimated insured
deposits at March 31, 2008. As a result of this reduced reserve
ratio, in December 2008, the FDIC issued a ruling raising assessment rates
uniformly by seven basis points for the first quarter of 2009. The
FDIC also recently modified the way its assessment system differentiates for
risk beginning April 1, 2009, resulting in corresponding changes in assessment
rates beginning with the second quarter of 2009.
In
conjunction with the October 2008 enactment of the Emergency Economic
Stabilization Act of 2008 (EESA), the limit on FDIC insurance coverage was
increased to $250,000 for all accounts through December 31, 2009.
Item 1. Business –
continued.
On June 30, 2009, the FDIC charged a
special assessment equal to 10 basis points on assets as of December 31, 2008,
payable September 30, 2009. Future special assessments by the FDIC to
bolster its insurance fund are possible. As a means to help improve
the reserve ratio of the FDIC's insurance fund, it charged many banks, in
December 2009, including some of Capitol's banks, an amount approximating
three-years' of annual assessments.
In 2006,
the FDIC merged the Bank Insurance Fund (BIF) and the Savings Association
Insurance Fund (SAIF) into a single fund called the Deposit Insurance
Fund. As a result of the merger, the BIF and the SAIF were
abolished. The merger of the BIF and the SAIF into the Deposit
Insurance Fund does not affect the authority of the Financing Corporation (FICO)
to impose and collect, with the approval of the FDIC, assessments for
anticipated payments, issuance costs and custodial fees on bonds issued by the
FICO in the 1980s to recapitalize the Federal Savings and Loan Insurance
Corporation. The bonds issued by the FICO are due to mature in 2017
through 2019. For the quarter ended December 31, 2009, the annualized
FICO assessment was equal to 1.02 basis points for each $100 in domestic
deposits maintained at an institution.
Temporary
Liquidity Guarantee Program:
In
November 2008, the FDIC adopted a final rule relating to the Temporary Liquidity
Guarantee Program (TLG Program). The TLG Program was an initiative to
counter the system-wide crisis in the nation's financial sector in
2008. Under the TLG Program, the FDIC will (i) guarantee, through the
earlier of maturity or June 30, 2012, certain newly-issued senior unsecured debt
issued by participating institutions and (ii) provide full FDIC deposit
insurance coverage for noninterest-bearing transaction deposit accounts,
Negotiable Order of Withdrawal Accounts (commonly known as NOW accounts) paying
less than 0.5% interest per annum and Interest on Lawyers Trust Accounts
(commonly known as IOLTA) held at participating FDIC-insured institutions
through December 31, 2009. Coverage under the TLG Program was
available for the first 30 days without charge. The fee assessment
for coverage of senior unsecured debt ranges from 50 basis points to 100 basis
points per annum, depending on the initial maturity of the debt. The
fee assessment for deposit insurance coverage is 10 basis points per quarter on
amounts in covered accounts exceeding $250,000. Capitol elected to
participate in both guarantee programs.
The FDIC's TLG Program provides an
unlimited guarantee of certain demand deposits. The TLG Program is
scheduled to end effective June 30, 2010. Capitol estimates $216.9
million of deposits at its banks would become uninsured, based on balances as of
December 31, 2009. The effect of depositor activity upon termination
of the TLG Program is not determinable.
American
Recovery and Reinvestment Act of 2009:
In
February 2009, the American Recovery and Reinvestment Act of 2009 (ARRA) was
enacted. The ARRA, commonly known as the economic stimulus or
economic recovery package, includes a wide variety of programs intended to
stimulate the economy and provide for extensive infrastructure, energy, health
and education programs. In addition, ARRA imposes certain new
executive compensation and corporate expenditure limits on all current and
future Troubled Asset Relief Program (TARP) recipients, until the institution
has repaid the U.S. Treasury, which is now permitted under ARRA without penalty
and without the need to raise new capital, subject to the U.S. Treasury's
consultation with the recipient's appropriate regulatory agency. The
executive compensation standards are more stringent than those previously
proposed by the U.S. Treasury, but it is not yet clear how these executive
compensation standards will relate to the similar standards announced by the
U.S. Treasury in its guidelines on February 4, 2009, or whether the standards
will be considered effective immediately or only after implementing regulations
are issued by the U.S. Treasury. The new standards include (but are
not limited to) (i) prohibitions on bonuses, retention awards and other
incentive compensation, other than restricted stock grants which do not fully
vest during the TARP period up to one-third of an employee's total annual
compensation, (ii) prohibitions on so-called golden parachute payments upon
departure from a company, (iii) an expanded claw-back of bonuses, retention
awards and incentive compensation if payment is based on materially inaccurate
statements of earnings, revenues, gains or other criteria, (iv) prohibitions on
compensation plans that encourage manipulation of reported earnings, (v)
retroactive review of bonuses, retention
Item 1. Business –
continued.
awards
and other compensation previously provided by TARP recipients if found by the
U.S. Treasury to be inconsistent with the purposes of TARP or otherwise contrary
to public interest, (vi) required establishment of a company-wide policy
regarding "excessive or luxury expenditures" and (vii) inclusion in a
participant's proxy statements for annual shareholder meetings of a nonbinding
"say on pay" shareholder vote on the compensation of executives.
Future
Legislation:
Various
legislation affecting financial institutions and the financial industry is, from
time to time, introduced in Congress. Such legislation may change
banking statutes and the operating environment of Capitol and its subsidiaries
in substantial and unpredictable ways and could increase or decrease the cost of
doing business, limit or expand permissible activities or affect the competitive
balance, depending upon whether any of this potential legislation will be
enacted and, if enacted, the effect that it or any implementing regulations
would have on the financial condition or results of operations of Capitol or any
of its subsidiaries. With the enactments of EESA and ARRA, the nature
and extent of future legislative and regulatory changes affecting financial
institutions is very unpredictable.
Interstate
Banking:
Under the
Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 (Riegle-Neal
Act), as amended, a bank holding company may acquire banks in states other than
its home state, subject to any state requirement that the bank has been
organized and operating for a minimum period of time (not to exceed five years)
and the requirement that the bank holding company not control, prior to or
following the proposed acquisition, more than 10% of the total amount of
deposits of insured depository institutions nationwide or, unless the
acquisition is the bank holding company's initial entry into the state, more
than 30% of such deposits in the state, or such lesser or greater amount set by
the state. The Riegle-Neal Act also authorizes banks to merge across
state lines, thereby creating interstate branches. Banks are also
permitted to acquire and to establish
de novo
branches in other
states where authorized under the laws of those states.
Transactions
with Affiliates:
Transactions
between Capitol's subsidiary banks and their affiliates are governed by
Regulation W of the Federal Reserve Act and substantially similar regulations of
the FDIC. The affiliates of the banks include Capitol and any entity
controlled by Capitol. Generally, Regulation W (i) limits the extent
to which the subsidiary banks may engage in "covered transactions" with any one
affiliate to an amount equal to 10% of such institution's capital stock and
surplus, and maintain an aggregate limit on all such transactions with
affiliates to an amount equal to 20% of the bank's capital stock and surplus,
(ii) require that a bank's extensions of credit to such affiliates be fully
collateralized (with 100% to 130% collateral coverage, depending on the type of
collateral), (iii) prohibit the bank from purchasing or accepting as collateral
from an affiliate any "low quality assets" (including nonperforming loans) and
(iv) require that all "covered transactions" be on terms substantially the same,
or at least as favorable, to the bank or its subsidiary as those provided to a
nonaffiliate. The term "covered transaction" includes the making of
loans, purchase of assets, issuance of a guarantee and other types of similar
transactions.
Loans
to Insiders:
The
Federal Reserve Act and related regulations impose specific restrictions on
loans to directors, executive officers and principal stockholders of
banks. Under Section 22(h) of the Federal Reserve Act and its
implementing regulations, loans to a director, an executive officer and to a
principal shareholder of a bank, and some affiliated entities of any of the
foregoing, may not exceed, together with all other outstanding loans to such
person and affiliated entities, the bank's loan-to-one-borrower
limit. Loans in the aggregate to insiders and their related interests
as a class may not exceed the bank's unimpaired capital and unimpaired
surplus. Section 22(h) and its implementing regulations also prohibit
loans, above amounts prescribed by the appropriate federal banking agency, to
directors, executive officers and principal shareholders of a bank or bank
holding company, and their respective affiliates, unless such loan is approved
in advance by a majority of the board of directors of the bank with any
"interested" director not participating in the voting. Section 22(h)
generally requires that loans to directors, executive officers and principal
shareholders be made on terms and underwriting standards substantially the same
as offered in comparable transactions to other persons.
Item 1. Business –
continued.
Community
Reinvestment Act:
Under the
Community Reinvestment Act (CRA) and related regulations, depository
institutions have an affirmative obligation to assist in meeting the credit
needs of their market areas, including low and moderate income areas, consistent
with safe and sound banking practices. The CRA requires the adoption
by each institution of a CRA statement for each of its market areas describing
the depository institution's efforts to assist in its community's credit
needs. Depository institutions are periodically examined for
compliance with CRA and are periodically assigned ratings in this
regard. Banking regulators consider a depository institution's CRA
rating when reviewing applications to establish new branches, undertake new
lines of business, and/or acquire part or all of another depository
institution. An unsatisfactory rating can significantly delay or even
prohibit regulatory approval of a proposed transaction by a bank holding company
or its depository institution subsidiary.
Fair
Lending and Consumer Laws:
In
addition to the CRA, other federal and state laws regulate various lending and
consumer aspects of the banking business. Governmental agencies,
including the Department of Housing and Urban Development, the Federal Trade
Commission and the Department of Justice, have become concerned that, in some
cases, prospective borrowers experience unlawful discrimination in their efforts
to obtain loans from depository and other lending institutions. These
agencies have brought litigation against some depository institutions alleging
discrimination against borrowers. Many of these suits have been
settled, in some cases for material sums, short of a full trial.
Those
governmental agencies have clarified what they consider to be lending
discrimination and have specified various factors that they will use to
determine the existence of lending discrimination under the Equal Credit
Opportunity Act and the Fair Housing Act. These factors include
evidence that a lender discriminated on a prohibited basis, evidence that a
lender treated applicants differently based on prohibited factors in the absence
of evidence that the treatment was the result of prejudice or a conscious
intention to discriminate, and evidence that a lender applied an otherwise
neutral nondiscriminatory policy uniformly to all applicants, but the practice
had a discriminatory effect, unless the practice could be justified as a
business necessity.
Banks and
other depository institutions also are subject to numerous consumer-oriented
laws and regulations. These laws, which include the Truth in Lending
Act, the Truth in Savings Act, the Real Estate Settlement Procedures Act, the
Electronic Funds Transfer Act, the Equal Credit Opportunity Act, and the Fair
Housing Act, require compliance by depository institutions with various
disclosure requirements and requirements regulating the availability of funds
after deposit or the making of certain loans to customers.
Gramm-Leach
Bliley Act of 1999:
The
Gramm-Leach-Bliley Act of 1999 (GLBA) covers a broad range of issues, including
a repeal of most of the restrictions on affiliations among depository
institutions, securities firms and insurance companies. The following
description summarizes some of its significant provisions.
The GLBA
repeals sections 20 and 32 of the Glass-Steagall Act, thus permitting
unrestricted affiliations between banks and securities firms. It also
permits bank holding companies to elect to become financial holding
companies. A financial holding company may engage in or acquire
companies that engage in a broad range of financial services, including
securities activities such as underwriting, dealing, investment, merchant
banking, insurance underwriting, sales and brokerage activities. In
order to become a financial holding company, the bank holding company and all of
its affiliated depository institutions must be well-capitalized, well-managed
and have at least a satisfactory CRA rating. Capitol has determined
not to become certified as a financial holding company at this time, but may
reconsider this determination in the future.
Item 1. Business –
continued.
The GLBA
provides that the states continue to have the authority to regulate insurance
activities, but prohibits the states in most instances from preventing or
significantly interfering with the ability of a bank, directly or through an
affiliate, to engage in insurance sales, solicitations or cross-marketing
activities. Although the states generally must regulate bank
insurance activities in a nondiscriminatory manner, the states may continue to
adopt and enforce rules that specifically regulate bank insurance activities in
specific areas identified under the law. The federal bank regulatory
agencies adopted insurance consumer protection regulations that apply to sales
practices, solicitations, advertising and disclosures.
The GLBA
repeals the broad exemption of banks from the definitions of "broker" and
"dealer" for purposes of the Securities Exchange Act of 1934, as
amended. It also identifies a set of specific activities, including
traditional bank trust and fiduciary activities, in which a bank may engage
without being deemed a "broker," and a set of activities in which a bank may
engage without being deemed a "dealer." Additionally, the law makes
conforming changes in the definitions of "broker" and "dealer" for purposes of
the Investment Company Act of 1940, as amended, and the Investment Advisers Act
of 1940, as amended.
The GLBA
also contains extensive customer privacy protection provisions. Under
these provisions, a financial institution must provide to its customers, both at
the inception of the customer relationship and on an annual basis, the
institution's policies and procedures regarding the handling of customers'
nonpublic personal financial information. The law provides that,
except for specific limited exceptions, an institution may not provide such
personal information to unaffiliated third parties unless the institution
discloses to the customer that such information may be so provided and the
customer is given the opportunity to "opt out" of such disclosure. An
institution may not disclose to a non-affiliated third party, other than to a
consumer reporting agency, customer account numbers or other similar account
identifiers for marketing purposes. The GLBA also provides that the
states may adopt customer privacy protections that are more strict than those
contained in the GLBA.
Anti-Money
Laundering and the USA Patriot Act of 2001:
In 2001,
Congress enacted the Uniting and Strengthening America by Providing Appropriate
Tools Required to Intercept and Obstruct Terrorism Act of 2001 (Patriot Act).
The Patriot Act is designed to deny terrorists and criminals the ability to
obtain access to the United States' financial system and has significant
implications for depository institutions, brokers, dealers and other businesses
involved in the transfer of money. The Patriot Act mandates that
financial services companies implement policies and procedures with respect to
additional measures designed to address the following matters: money laundering,
terrorist financing, identifying and reporting suspicious activities and
currency transactions and currency crimes. The Patriot Act also
substantially broadened existing anti-money laundering legislation, imposed new
compliance and due diligence obligations, created new crimes and penalties and
compelled the production of documents located both inside and outside the United
States. The U.S. Treasury Department has issued a number of
regulations that apply some of these requirements to financial institutions such
as Capitol's banking subsidiaries. The regulations impose new
obligations on financial institutions to maintain appropriate policies,
procedures and controls to detect, prevent and report money laundering and
terrorist financing. Pursuant to the Patriot Act and the related
regulations, Capitol and its banking subsidiaries have established anti-money
laundering compliance and due diligence programs that include, among other
things, the designation of a compliance officer, employee training programs and
an independent audit function to review and test the program.
[The
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Item 1. Business –
continued.
Evolving Legislation and Regulatory
Action
:
In 2009,
as many emergency government programs were enacted in 2008 in response to the
financial crisis and the recession slowed or wound-down, global regulatory and
legislative focus has generally moved to a second phase of broader regulatory
reform and potential restructuring of the entire financial regulatory
system. Legislators and regulators in the United States are currently
considering a wide range of proposals that, if enacted, could result in major
changes to the way banking operations are regulated. Some of these
major changes may take effect as early as 2010, and could materially impact the
profitability of Capitol's banking business, the value of assets Capitol holds
or the collateral available for Capitol's affiliate banks' loans, require
changes to business practices or force Capitol to discontinue businesses and
expose Capitol to additional costs, taxes, liabilities, enforcement actions and
reputational risk.
Capitol
maintains an Internet website at
http://
www.capitolbancorp.com
that includes links to Capitol's Annual Report on Form 10-K, Quarterly Reports
on Form 10-Q, Current Reports on Form 8-K and any amendments to those reports
(SEC Reports). The SEC Reports are available without charge as soon
as reasonably practicable following the time they are filed with or furnished to
the SEC. Information on Capitol's website is not incorporated into
this Form 10-K or Capitol's other securities filings and is not a part of those
filings. The public may read and copy any materials Capitol files
with the SEC at the SEC's Public Reference Room at 100 F. Street, NE,
Washington, DC. The public may obtain information on the operation of
the Public Reference Room by calling the SEC at 1-800-SEC-0330. The
SEC also maintains an Internet site that contains information regarding issuers
that file electronically with the SEC. That address is
http://www.sec.gov
. In
addition, Capitol makes available on its website at
http://www.capitolbancorp.com
,
under the heading "Governance," its: (i) Code of Ethics; (ii)
Governance Guidelines; and (iii) the charters of Capitol's board committees, and
also intends to disclose any amendments to its Code of Ethics, or waivers of the
Code of Ethics on behalf of its Chief Executive Officer and other senior
financial officers, on its website. These corporate governance
materials are also available free of charge in print to shareholders who request
them in writing to: Capitol Bancorp Ltd., Attention: Secretary,
Capitol Bancorp Center, 200 N. Washington Square, Lansing, Michigan
48933.
The
following tables (Tables A to G, inclusive), present certain statistical
information regarding Capitol's business.
[The
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Item 1A.
Risk Factors.
An
investment in Capitol's common stock is subject to the risks inherent to
Capitol's business. The material risks and uncertainties that Capitol
believes affect it are described below. The risks and uncertainties
described below are not the only ones Capitol faces. Additional risks
and uncertainties that Capitol is not aware of or focused on, or risks currently
deemed immaterial, may also impair business operations. This Annual
Report on Form 10-K is qualified in its entirety by these risk
factors. If any of the following risks actually occur, Capitol's
financial condition and results of operations could be materially and adversely
affected. If this were to happen, the value of Capitol's common stock
could decline significantly, and shareholders could lose all or a portion of
their investment.
The
market price of Capitol's common stock can be volatile.
Stock
price volatility may make it more difficult for you to resell your common stock
when you want and at prices you find attractive. Capitol's stock
price can fluctuate significantly in response to a variety of factors
including:
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Actual
or anticipated variations in quarterly results of
operations;
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Recommendations
by securities analysts;
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Operating
and stock price performance of other companies that investors deem
comparable to Capitol;
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News
reports relating to trends, concerns and other issues in the financial
services industry;
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Perceptions
in the marketplace regarding Capitol or Capitol's
competitors;
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New
technology used or services offered by
competitors;
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Significant
acquisitions or business combinations, strategic partnerships, joint
venture or capital commitments by or involving Capitol or Capitol's
competitors;
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Changes
in government regulations; or
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Geopolitical
conditions such as acts or threats of terrorism or military
conflicts.
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General
market fluctuations, industry factors and general economic and political
conditions and events, such as economic slowdowns or recessions, interest rate
changes or credit loss trends, could also cause Capitol's stock price to
decrease regardless of operating results.
Stock
markets in general and Capitol's common stock in particular have experienced
significant volatility over the past eighteen months, and continue to experience
significant price and volume volatility. As a result, the market
price of Capitol's common stock may continue to be subject to similar market
fluctuations that may be unrelated to Capitol's operating performance or
prospects. Increased volatility could result in a decline in the
market price of Capitol's common stock.
An
investment in Capitol's common stock is not an insured deposit.
An
investment in Capitol's common stock is not a bank deposit and, therefore, is
not insured against loss by the FDIC, any other deposit insurance fund or by any
other public or private entity. Investment in Capitol's common stock
is inherently risky for the reasons described in this "Risk Factors" section, or
elsewhere in this Form 10-K or the documents incorporated by reference herein,
and is subject to the same market forces that affect the price of common stock
in any company. As a result, if you acquire Capitol's common stock,
you could lose some or all of your investment.
Capitol
may issue additional common stock or other securities that could dilute the
ownership percentage of holders of Capitol's common stock.
Capitol
may determine to issue additional common stock or other securities from time to
time based on market conditions, Capitol's need for capital or other
factors. More generally, Capitol may issue additional securities to
raise additional capital or finance acquisitions or upon the exercise of
outstanding options. If Capitol issues additional common stock or
other securities, the ownership percentage of holders of Capitol's common stock
prior to such time could be diluted.
Item 1A. Risk Factors –
continued.
All
of Capitol's debt obligations and Capitol's obligations under Capitol's
debentures and preferred securities of certain related subsidiaries that Capitol
has guaranteed will likely have priority over Capitol's common stock with
respect to payment in the event of liquidation, dissolution or winding-up and
with respect to the payment of dividends.
Capitol
has issued debentures to certain of its subsidiaries which are Delaware business
trusts which, in turn, issued preferred securities to purchase the
debentures. Capitol also has additional trust-preferred securities
which were privately placed. Capitol has guaranteed the preferred
securities. The documents governing these securities, including the
indenture under which the debentures were issued, restrict Capitol's right to
pay a dividend on its common stock under certain circumstances and give the
holders of the preferred securities preference on liquidation over the holders
of Capitol's common stock. In April 2009, Capitol announced that it
had elected to defer interest payments on Capitol's subordinated
debentures. The total estimated annual interest that would be payable
on the debentures and the underlying debt securities, if not deferred, is
approximately $13.6 million. While Capitol defers the payment of
interest, it will continue to accrue the future interest obligation at the
applicable interest rate. Capitol is prohibited from declaring or
paying cash dividends on its common stock during such deferral and is restricted
from redeeming or purchasing any shares of its common stock except under very
limited circumstances. Capitol's obligation under the debentures, the
preferred securities and the guarantee approximates $170.8 million at an average
interest rate currently approximating 6.16% per annum, payable
quarterly.
In any
liquidation, dissolution or winding-up of Capitol, Capitol's common stock would
rank below all debt claims against Capitol, the claims with respect to the
debentures and the guarantee of the preferred securities of certain related
subsidiaries, and other senior equity securities, if any. As a
result, holders of Capitol's common stock will not be entitled to receive any
payment or other distribution of assets upon the liquidation, dissolution or
winding-up of Capitol until all of Capitol's obligations to Capitol's debt
holders have been satisfied and holders of senior equity securities have
received any payment or distribution due to them.
Offerings
of debt, which could be senior to Capitol's common stock upon liquidation,
and/or preferred equity securities which may be senior to Capitol's common stock
for purposes of dividend distributions or upon liquidation, may adversely affect
the market price of Capitol's common stock.
Capitol
may attempt to increase its capital resources or, if Capitol's capital ratios
fall below the required minimums, Capitol could be forced to raise additional
capital by making additional offerings of debt or preferred equity securities,
including trust-preferred securities, senior securities or notes, preferred
stock and/or common stock. Capitol may also decide to raise
additional capital by issuing debt or preferred equity securities for other
reasons. Upon liquidation, holders of Capitol's debt securities and
shares of preferred stock and lenders with respect to other borrowings will
receive distributions of Capitol's available assets prior to the holders of
Capitol's common stock. Additional equity offerings may dilute the
holdings of Capitol's existing shareholders or reduce the market price of
Capitol's common stock, or both. Holders of Capitol's common stock
are not entitled to preemptive rights or other protections against
dilution.
Capitol's
board of directors is authorized to issue one or more classes or series of
preferred stock from time to time without any action on the part of the
shareholders. Capitol's board of directors also has the power,
without shareholder approval, to set the terms of any such classes or series of
preferred stock that may be issued, including voting rights, dividend rights and
preferences over Capitol's common stock with respect to dividends or upon
Capitol's dissolution, winding up and liquidation and other terms. If
Capitol issues preferred shares in the future that have a preference over
Capitol's common stock with respect to the payment of dividends or upon
liquidation, or if Capitol issues preferred shares with voting rights that
dilute the voting power of its common stock, the rights of holders of Capitol's
common stock or the market price of Capitol's common stock could be adversely
affected.
Item 1A. Risk Factors –
continued.
Capitol's
business has been adversely affected by conditions in the financial markets and
economic conditions generally.
Since
December 2007, the United States has been in a deep
recession. Business activity across a wide range of industries and
regions is greatly reduced, and local governments and many businesses are
experiencing serious difficulty due to the lack of consumer spending and the
lack of liquidity in the credit markets. Unemployment has increased
significantly.
Since
mid-2007, the financial services industry and securities markets generally have
been materially and adversely affected by significant declines in the values of
nearly all asset classes and by a serious lack of liquidity. This was
initially triggered by declines in home prices and the values of subprime
mortgages, but spread to all mortgage and real estate asset classes, to
leveraged bank loans and to nearly all asset classes, including equity
securities. Global markets have been characterized by substantially
increased volatility, short-selling and an overall loss of investor confidence,
initially in financial institutions, but more recently in companies in a number
of other industries and in the broader markets.
Market
conditions have also led to the failure or merger of a number of prominent
financial institutions. Financial institution failures or
near-failures have resulted in further losses as a consequence of defaults on
securities issued by them, and defaults under contracts entered into with such
entities as counterparties. Furthermore, declining asset values,
defaults on mortgages and consumer loans, and the lack of market and investor
confidence, as well as other factors, have all combined to increase
credit-default swap spreads, to cause rating agencies to lower credit ratings,
and to otherwise increase the cost and decrease the availability of liquidity,
despite very significant declines in Federal Reserve borrowing rates and other
government actions. Some banks and other lenders, including Capitol,
have suffered significant losses and many institutions have become reluctant to
lend, even on a secured basis, due to the increased risk of default and the
impact of declining asset values on the value of collateral. The
foregoing has significantly weakened the strength and liquidity of some
financial institutions worldwide. The U.S. government, the Federal
Reserve Board and other regulatory agencies have taken numerous steps to
increase liquidity and to restore investor confidence, including investing
billions in the equity of other banking organizations, but asset values have
continued to decline and access to liquidity continues to be very
limited.
In
response to the financial crises affecting the banking system and financial
markets, and going concern threats to investment banks and other financial
institutions, President Bush signed the Emergency Economic Stabilization Act of
2008 (EESA) into law in October 2008. Among other things, EESA
authorizes the U.S. Treasury (Treasury) to spend up to $700 billion to inject
capital into financial institutions by purchasing non-voting preferred shares
directly from such institutions and to purchase mortgage-backed and other
non-performing assets from financial institutions for the purpose of stabilizing
the financial markets. There can be no assurance what impact the EESA
will have on the financial markets, including the extreme levels of volatility
currently being experienced.
Capitol's
financial performance generally, and in particular the ability of its banks'
borrowers to pay interest on and repay the principal of outstanding loans and
the value of collateral securing those loans, is highly dependent on the
business environment in the markets where Capitol operates and in the United
States as a whole. The current severe recession is characterized by
declines in economic growth, business activity or investor or business
confidence; limitations on the availability or increases in the cost of credit
and capital; falling commercial and residential real estate values; inactive or
nonexistent markets for the sale of real estate; or a combination of these or
other factors.
It is
expected that the business environment in the United States and worldwide will
continue to deteriorate for the foreseeable future. There can be no
assurance that these conditions will improve in the near term. Such
conditions have and could continue to adversely affect the credit quality of
Capitol's loans, results of operations and financial condition.
Item 1A. Risk Factors –
continued.
Capitol's
ability to maintain required capital levels and adequate sources of funding and
liquidity may be adversely affected by market conditions.
Capitol
is required to maintain certain capital levels in accordance with banking
regulations. Capitol must also maintain adequate funding sources in
the normal course of business to support Capitol's lending and investment
operations and repay outstanding liabilities as they become
due. Capitol's ability to maintain capital levels, as well as sources
of funding and liquidity could be impacted by deteriorating economic and market
conditions.
Failure
by Capitol or Capitol's bank affiliates to meet any applicable guideline or
capital requirement otherwise imposed upon Capitol or to satisfy certain other
regulatory requirements could subject Capitol to certain activity restrictions
or to a variety of enforcement remedies available to the regulatory authorities
that include limitations on the ability to pay dividends, the issuance by
regulatory authorities of a capital directive to increase capital and the
termination of deposit insurance by the FDIC.
Noncompliance
with capital requirements could have a material adverse effect on Capitol's
operations and financial position.
Regulatory
agencies may require Capitol and/or its individual subsidiary banks to maintain
a higher level of capital than Capitol currently anticipates, which could
adversely affect Capitol's liquidity at the holding company level and require it
to raise additional capital.
While
Capitol considers its capital position on a consolidated basis, the regulators
of each of Capitol's individual banks may require that those individual banks
maintain a higher level of capital than Capitol currently anticipates, which
would require that Capitol maintain a consolidated capital position that is well
beyond what Capitol presently anticipates and could be in excess of the levels
of capital used in the assumptions underlying Capitol's internal capital
analysis. As of December 31, 2009, several of Capitol's subsidiary
banks were required to maintain regulatory capital levels in excess of minimum
requirements. Further, as a holding company with obligations and
expenses separate from Capitol's bank subsidiaries, and because many of
Capitol's banks will be unable to make dividend payments to Capitol, Capitol
must maintain a level of liquidity at its holding company that is sufficient to
address those obligations and expenses. The maintenance of adequate
liquidity at Capitol's holding company may limit its ability to make further
capital investments in bank subsidiaries, which could adversely impact Capitol
and require Capitol to raise additional capital. Even if Capitol is
successful in implementing its current divestiture and charter consolidation
initiatives, there can be no guarantee that the resulting bank(s) would not be
required by the regulators to have a higher level of capital than Capitol may
anticipate.
Issuance
of additional shares of Capitol's common stock in the public markets and other
capital management or business strategies that Capitol may pursue could depress
the market price of Capitol's common stock and result in the dilution of
Capitol's existing shareholders ownership of Capitol.
Capitol
will continue to identify, consider and pursue additional capital management
strategies in the future to bolster its capital position. Future
issuances of Capitol's equity securities, including common stock, in any
transaction that Capitol may pursue may dilute the interests of Capitol's
existing shareholders and cause the market price of Capitol's common stock to
decline. Capitol may issue equity securities (including convertible
securities, preferred securities, and stock options and warrants on Capitol's
common or preferred stock) in the future for a number of reasons, including to
finance Capitol's operations and business strategy, to adjust Capitol's ratios
of debt to equity, to address regulatory capital concerns, to restructure
currently outstanding debt or equity securities or to satisfy Capitol's
obligations upon the exercise of outstanding stock options or
warrants. Capitol may issue equity securities in transactions that
generate cash proceeds, transactions that free-up regulatory capital but do not
immediately generate or preserve substantial amounts of cash, and transactions
that generate regulatory or balance sheet capital only and do not generate or
preserve cash. Capitol cannot predict the effect that these
transactions would have on the market price of its common stock. In addition, if
Capitol issues additional equity securities, including stock options, warrants,
preferred stock or convertible securities, such newly-issued securities could
cause significant dilution to the holders of Capitol's common
stock.
Item 1A. Risk Factors –
continued.
Issuances
or sales of common stock or other equity securities could result in an
"ownership change" as defined for U.S. federal income tax purposes. In the event
an "ownership change" were to occur, Capitol's ability to fully utilize a
significant portion of its U.S. federal and state tax net operating losses could
be impaired and could lose certain built-in losses that have not been recognized
for tax purposes as a result of the operation of Section 382 of the Internal
Revenue Code of 1986, as amended.
Capitol's
ability to use certain realized net operating losses and unrealized built-in
losses to offset future taxable income may be significantly limited if it
experiences an "ownership change" as defined by Section 382 of the Internal
Revenue Code of 1986, as amended (the
Code). An
ownership change under Section 382 generally occurs when a change in the
aggregate percentage ownership of the stock of the corporation held by "five
percent shareholders" increases by more than fifty percentage points over a
rolling three-year period ending on the transaction date. A
corporation experiencing an ownership change generally is subject to an annual
limitation on its utilization of pre-change losses and certain recognized
built-in losses equal to the value of the stock of the corporation immediately
before the "ownership change," multiplied by the long-term tax-exempt rate
(subject to certain adjustments). The annual limitation is increased
each year to the extent that there is an unused limitation in a prior
year. Since U.S. federal net operating losses generally may be
carried forward for up to 20 years, the annual limitation also effectively
provides a cap on the cumulative amount of pre-ownership-change losses and
certain post-change recognized built-in losses that may be
utilized. Pre-ownership-change losses and certain recognized built in
losses in excess of the cap are effectively unable to be used to reduce future
taxable income. In some circumstances, issuances or sales of common
stock (including any common stock issuances or debt-for-equity exchanges and
certain transactions involving common stock that are outside of Capitol's
control) could result in an "ownership change" under Section 382.
While
Capitol may, under certain circumstances, be able to utilize certain tax
strategies (including a "tax preservation" rights plan) to protect against an
"ownership change", if an "ownership change" under Section 382 were to occur,
the value of Capitol's net operating losses and a portion of the net unrealized
built-in losses will be impaired. Because a valuation allowance
currently exists for substantially the full amount of Capitol's deferred tax
assets, no additional charge to earnings would result. However, an
"ownership change", as defined above, could adversely impact Capitol's ability
to recognize Tier 1 capital from the potential future release of Capitol's
valuation allowance.
Problems
encountered by financial institutions larger than or similar to Capitol could
adversely affect financial markets generally and have indirect adverse effects
on Capitol.
The
commercial soundness of many financial institutions may be closely interrelated
as a result of credit, trading, clearing or other relationships between the
institutions. As a result, concerns about, or a default or threatened
default by, one institution could lead to significant market-wide liquidity and
credit problems, losses or defaults by other institutions. This is sometimes
referred to as "systemic risk" and may adversely affect financial
intermediaries, such as clearing agencies, clearing houses, banks, securities
firms and exchanges, with which Capitol interacts on a daily basis, and
therefore could adversely affect Capitol.
Capitol's
banks' small size may make it difficult to compete with larger institutions
because Capitol is not able to compete with large banks in the offering of
significantly larger loans.
Legal
lending limits of banks constrain the size of loans that those banks can
make. Many of Capitol's banks' competitors have significantly larger
capitalization and, hence, an ability to make significantly larger
loans. The inability to offer larger loans limits the revenues that
can be earned from interest amounts charged on larger loan
balances.
Item 1A. Risk Factors –
continued.
Capitol's
and its banks' allowances for loan losses may prove inadequate to absorb actual
loan losses, which may adversely impact results of operations.
Capitol
believes that its consolidated allowance for loan losses is maintained at a
level adequate to absorb inherent losses in the loan portfolio at the balance
sheet date. Management's determination 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, the volume, amount and composition of the portfolio and other
factors. These estimates are subjective and their accuracy depends on
the outcome of future events. Actual future losses may differ from
current estimates. Depending on changes in economic, operating and other
conditions, including changes in fair value of collateral that are generally
beyond Capitol's control, actual loan losses could increase
significantly. As a result, such losses could exceed current
allowance estimates. No assurance can be provided that the allowance
will be sufficient to cover actual future loan losses should such losses be
realized.
Loan loss
experience, which is helpful in estimating the requirements for the allowance
for loan losses at any given balance sheet date, has been minimal at some of
Capitol's younger banks. Conversely, some of Capitol's mature banks,
particularly those located in Michigan and Arizona, have recently experienced
significantly elevated levels of loan losses due to adverse economic
conditions. Because many of Capitol's banks are young, they do not
have seasoned loan portfolios and it is likely that the ratio of the allowance
for loan losses to total loans may need to be increased in future periods as the
loan portfolios become more mature and loss experience evolves. If it
becomes necessary to increase the ratio of the allowance for loan losses to
total loans, such increases would be accomplished through higher provisions for
loan losses, which may adversely impact results of operations and could result
in larger net losses on a consolidated basis.
The
domestic economy is in a severe recession and Capitol's levels of nonperforming
loans and related loan losses and levels of foreclosed assets and other real
estate owned have increased significantly. It is anticipated that
levels of nonperforming loans and related loan losses will continue to increase
as economic conditions, locally and nationally, continue to deteriorate for the
foreseeable future. Capitol's level of other real estate owned (OREO)
has increased dramatically causing a corresponding increase in carrying costs
and other operating expenses. Continued elevation of OREO could have
a negative material impact on Capitol.
In
addition, regulatory agencies, as an integral part of their supervisory
functions, periodically review the adequacy of the allowance for loan
losses. Regulatory agencies may require Capitol or its banks to
increase their provision for loan losses or to recognize further loan
charge-offs based upon judgments different from those of
management. Any increase in the allowance required by regulatory
agencies could have a negative impact on Capitol's operating
results.
Capitol's
commercial loan concentration in small businesses and loans collateralized by
commercial real estate increases the risk of defaults by borrowers and
substantial credit losses could result, causing shareholders to lose their
investment.
Capitol's
banks make various types of loans, including commercial, consumer, residential
mortgage and construction loans. Capitol's strategy emphasizes
lending to small businesses and other commercial enterprises. Capitol typically
relies upon commercial real estate as a source of collateral for many of
its banks'
loans. Recently, regulatory agencies have expressed concern with
banks with large concentrations in commercial real estate due to the recent
downturn in the real estate markets in certain areas of the country, leading to
increased risk of credit loss, incurred losses and extended sale
periods. Loans to small and medium-sized businesses are generally
riskier than single-family mortgage loans. Typically, the success of
a small or medium-sized business depends on the management talents and efforts
of one or two persons or a small group of persons, and the death, disability or
resignation of one or more of these persons could have a material adverse impact
on the business. In addition, small and medium-sized businesses
frequently have smaller market shares than their competition, may be more
vulnerable to economic downturns, often need substantial additional capital to
expand or compete and may experience substantial variations in operating
results, any of which may impair a borrower's ability to repay a
loan. Recently, due to borrower performance difficulties and adverse
real estate market
Item 1A. Risk Factors –
continued.
conditions,
levels of nonperforming loans, foreclosures and loan losses increased
significantly at Capitol, resulting from the current severe recessionary
environment. Substantial further credit losses could result, causing
shareholders to lose their entire investment in Capitol's
securities.
Actions
by the Open Market Committee of the Federal Reserve Board (FRBOMC) may adversely
affect Capitol's net interest income.
Changes in Market Interest
Rates.
Capitol's results of operations are
significantly dependent on net interest income. Net interest income
is the difference between interest income on interest-earning assets, such as
loans, and interest expense on interest-bearing liabilities, such as
deposits. Therefore, any change in general market interest rates,
whether as a result of changes in monetary policies of the Federal Reserve Board
or otherwise, can have a significant effect on net interest
income. Capitol's assets and liabilities may react differently to
changes in overall market rates or conditions because there may be mismatches
between the repricing or maturity characteristic of assets and
liabilities. As a result, changes in interest rates can affect net
interest income in either a positive or negative way.
In 2008,
the FRBOMC decreased interest rates to near zero. Future stability of
interest rates and FRBOMC policy, which impact such rates, are
uncertain.
Changes in the Yield
Curve.
Changes in the difference between short and
long-term interest rates, commonly known as the yield curve, may also harm
Capitol's business. For example, short-term deposits may be used to fund
longer-term loans. When differences between short-term and long-term
interest rates shrink or disappear, the spread between rates paid on deposits
and received on loans could narrow significantly, decreasing net interest
income.
Capitol
has relied upon on dividends from its wholly-owned subsidiaries.
Capitol
is a separate and distinct legal entity from its wholly-owned
subsidiaries. In the past it has received dividends from its
subsidiaries to help pay interest and principal on its debt. Due to
adverse operating results and constrained capital levels, most of Capitol's bank
subsidiaries are currently precluded from paying dividends to
Capitol. Capitol does not own, directly or indirectly, all of the
equity of all of its subsidiaries. Capitol currently does not rely on
dividends from such subsidiaries. To the extent any of those
subsidiaries would pay dividends or make distributions, the other holders of
equity would participate pro rata with Capitol. Various federal and
state laws and regulations limit the amount of dividends that the banks and
certain nonbank subsidiaries may pay to Capitol. A long-term
prohibition or inability of Capitol's banks to pay dividends to Capitol may have
a material adverse effect on Capitol including the inability of Capitol to
service its debt or pay its obligations.
Capitol
and its banks operate in an environment highly regulated by state and federal
government agencies; changes in federal and state banking laws and regulations
could have a negative impact on its business.
As a bank
holding company, Capitol is regulated primarily by the Federal Reserve
Board. Many of Capitol's current bank affiliates are regulated
primarily by state banking agencies, the FDIC, the Office of the Comptroller of
the Currency (OCC), in the case of one national bank, and the Office of Thrift
Supervision (OTS), in the case of Capitol's federal savings banks.
Various
federal and state laws and regulations govern numerous aspects of the banks'
operations, including:
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adequate
capital and financial condition;
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permissible
types and amounts of extensions of credit and
investments;
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permissible
nonbanking activities; and
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restrictions
on dividend payments.
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Item 1A. Risk Factors –
continued.
Federal
and state regulatory agencies have broad discretion and power to prevent or
remedy unsafe or unsound practices or violations of law by banks and bank
holding companies. Capitol and its banks also undergo periodic
examinations by one or more regulatory agencies. Following such
examinations, Capitol may be required, among other things, to change its asset
valuations or the amounts of required loan loss allowances or to restrict bank
operations. Those actions would result from the regulators' judgments
based on information available to them at the time of their examination, and
their estimate of future economic conditions. Judgments of various
regulatory agencies vary, and regulatory agencies may change their position and
apply new standards retroactively causing institutions to rebalance reserve
methodologies and re-state capital positions.
Capitol's
banks' operations are required to follow a wide variety of state and federal
consumer protection and similar statutes and regulations. Federal and
state regulatory restrictions limit the manner in which Capitol and its banks
may conduct business and obtain financing. Those laws and regulations
can and do change significantly from time to time and any such change could
adversely affect Capitol and its banks.
Loan
origination activities, for both commercial and residential mortgages, involve
collateral valuation risks and the risk of the subsequent identification of
origination fraud or other losses which could exceed Capitol's allowance for
loan losses.
Capitol's
banks use an enterprise-wide loan policy which provides for conservative
loan-to-value guidelines when loans are originated. In today's
difficult real estate economy in many parts of the country, falling property
values and significant foreclosure activity of both residential and commercial
real estate property are resulting in significant loan losses at many financial
institutions. Further, although most residential mortgage loans have
been originated and sold away to investors, if it is subsequently determined
that such loans were originated with any element of alleged fraud, such as
exaggerated borrower income or assets, for example, the originating institution
may be liable for any losses relating to such loans and may have to repurchase
those loans. The potential for additional loan losses from valuation
issues or fraud is unknown. Fraud risks are particularly difficult to
identify and quantify, especially when the duration of the risk is the same as
the term of the loan, often as long as 30 years or more. Occurrences
of fraud are often more prevalent during an economic downturn or
recession. Potential losses from valuation issues or occurrences of
fraud could significantly exceed allowances for loan losses, adversely affecting
Capitol's results of operations.
If
Capitol cannot recruit and retain highly qualified personnel, its banks'
customer service could suffer, causing its customer base to
decline.
Capitol's
strategy is also dependent upon its continuing ability to attract and retain
highly qualified personnel. Availability of personnel with
appropriate community banking experience varies. If Capitol does not
succeed in attracting new employees or retaining and motivating current and
future employees, its business could suffer significantly, increasing the
possibility of a loss of value in its common stock.
Capitol's
bank subsidiaries have decentralized management which could have a negative
impact on the rate of growth and profitability of Capitol and its bank
subsidiaries.
Capitol's
bank subsidiaries have independent boards of directors and management
teams. This decentralized structure gives the banks control over the
day-to-day management of their institution, including credit decisions, the
selection of personnel, the pricing of loans and deposits, marketing decisions
and the strategy in handling problem loans. This decentralized
structure may impact Capitol's ability to uniformly implement corporate or
enterprise-wide strategy at the bank level. It may slow Capitol's
ability to react to changes in strategic direction due to outside factors such
as rate changes and changing economic conditions. This decentralized
structure may cause additional management time to be spent on internal issues
and could negatively impact the growth and profitability of the banks
individually and the holding company.
Item 1A. Risk Factors –
continued.
New
accounting or tax pronouncements may be issued by the accounting
standard-setters, regulators or other government bodies which could change
existing accounting methods. Changes in accounting methods could
negatively impact Capitol's results of operations and financial
condition.
Current
accounting and tax rules, standards and policies influence the methods by which
financial institutions conduct business, implement strategic initiatives and tax
compliance, and govern financial reporting and disclosures. These
laws, regulations, rules, standards and policies are constantly evolving and may
change significantly over time. Events that may not have a direct
impact on Capitol, such as the bankruptcy of major U.S. companies, have resulted
in legislators, regulators, and authoritative bodies, such as the Financial
Accounting Standards Board (FASB), the SEC, the Public Company Accounting
Oversight Board, and various taxing authorities responding by adopting and/or
proposing substantive revisions to laws, regulations, rules, standards and
policies. New accounting pronouncements under the FASB Accounting
Standards Codification have occurred and may occur in the future. A
change in accounting standards may adversely affect Capitol's reported financial
condition and results of operations.
Capitol's
business continuity plans or data security systems could prove to be inadequate,
resulting in a material interruption in, or disruption to, Capitol's business
and a negative impact on its results of operations.
Capitol
relies heavily on communications and information systems to conduct its
business. Any failure, interruption or breach in security of these
systems, whether due to severe weather, natural disasters, acts of war or
terrorism, criminal activity or other factors, could result in failures or
disruptions in general ledger, deposit, loan, customer relationship management
and other systems. While Capitol has disaster recovery and other
policies and procedures designed to prevent or limit the effect of the failure,
interruption or security breach of its information systems, there can be no
assurance that any such failures, interruptions or security breaches will not
occur or, if they do occur, that they will be adequately
addressed. The occurrence of any failures, interruptions or security
breaches of Capitol's information systems could damage the reputation of Capitol
and its banks, result in a loss of customer business, subject Capitol and
Capitol's subsidiary banks to additional regulatory scrutiny, or expose Capitol
to civil litigation and possible financial liability, any of which could have a
material adverse effect on Capitol's results of operations.
Capitol
could face unanticipated environmental liabilities or costs related to real
property owned or acquired through foreclosure. Compliance with
federal, state and local environmental laws and regulations, including those
related to investigation and clean-up of contaminated sites, could have a
negative effect on expenses and results of operations.
A
significant portion of Capitol's affiliate banks' loan portfolios are secured by
real property. During the ordinary course of business, Capitol's
affiliate banks may foreclose on and take title to properties securing certain
loans. In doing so, there is a risk that hazardous or toxic
substances could be found on these properties. If hazardous or toxic
substances are found, Capitol's affiliate banks may be liable for remediation
costs, as well as for personal injury and property
damage. Environmental laws may require Capitol's affiliate banks to
incur substantial expenses and may materially reduce the affected property's
value or limit Capitol's affiliate banks' ability to use or sell the affected
property. In addition, future laws or more stringent interpretations or
enforcement policies with respect to existing laws may increase Capitol's
affiliate banks' exposure to environmental liability. Although
Capitol's affiliate banks have policies and procedures to perform an
environmental review before initiating any foreclosure action on real property,
these reviews may not be sufficient to detect all potential environmental
hazards. The remediation costs and any other financial liabilities
associated with an environmental hazard could have a material adverse effect on
results of operations.
Item 1A. Risk Factors –
continued.
Capitol's
controls and procedures may fail or be circumvented, which could have a material
adverse effect on Capitol's business, results of operations and financial
condition.
Capitol
regularly reviews and updates its internal controls, disclosure controls and
procedures, and corporate governance policies and procedures. Any
system of controls, however well designed and operated, is based in part on
certain assumptions and can provide only reasonable, not absolute, assurance
that the objectives of the system are met. Any failure or
circumvention of controls and procedures, or failure to comply with regulations
related to controls and procedures could have a material adverse effect on
Capitol's business, results of operations and financial condition.
Capitol's
banks have restricted investments in Federal Home Loan Banks which may be
subject to future impairment.
As of
December 31, 2009, Capitol's banks had investments in several Federal Home Loan
Banks approximating $24 million. Such investments are restricted
securities which may be redeemed only by the issuer. Future redemption of the
securities is subject to the issuers' liquidity and capital adequacy which are,
in part, dependent upon valuation of the issuers' significant mortgage-backed
securities portfolios.
Capitol's
bylaws, rights plan, as well as certain banking laws, may have an antitakeover
effect.
Provisions
of Capitol's bylaws, rights plan and certain federal banking laws, including
regulatory approval requirements, could make it more difficult for a third party
to acquire Capitol, even if doing so might be perceived to be beneficial to
shareholders. The combination of these provisions effectively
inhibits a non-negotiated merger or other business combination which, in turn,
could adversely affect the market price of the common stock.
Potential
cross-guaranty liability risk relating to Capitol's bank
affiliates.
In
accordance with Federal Reserve Board policy, Capitol is expected to act as a
source of financial strength to Capitol's affiliate banks and to commit
resources to support Capitol's affiliate banks in circumstances in which Capitol
might not otherwise do so. Under the Bank Holding Company Act of
1956, as amended, the Federal Reserve Board may require a bank holding company
to terminate any activity or relinquish control of a nonbank subsidiary, other
than a nonbank subsidiary of a bank, upon the Federal Reserve Board's
determination that such activity or control constitutes a serious risk to the
financial soundness or stability of any depository institution subsidiary of the
bank holding company. Further, federal bank regulatory authorities
have additional discretion to require a bank holding company to divest itself of
any bank or nonbank subsidiaries if the agency determines that divestiture may
aid the depository institution's financial condition.
As
FDIC-insured depository institutions, Capitol's bank subsidiaries may be held
liable for any loss incurred or expected to be incurred by the FDIC in
connection with another FDIC-insured institution under common control with the
institution in "default" or "in danger of default." This liability is
commonly referred to as "cross-guaranty" liability. A "default" is
generally defined as the appointment of a conservator or receiver and "in danger
of default" is defined as certain conditions indicating that a default is likely
to occur absent regulatory assistance. An FDIC cross-guaranty claim
against a depository institution is generally senior in right of payment to
claims of the holding company and its affiliates against the depository
institution.
If the
FDIC is appointed the conservator or receiver of an insured depository
institution, upon its insolvency or in certain other events, the FDIC has the
power: (1) to transfer any of the depository institution's assets and
liabilities to a new obligor without the approval of the depository
institution's creditors; (2) to enforce the terms of the depository
institution's contracts pursuant to their terms; or (3) to repudiate or
disaffirm any contract or lease to which the depository institution is a party,
the performance of which is determined by the FDIC to be burdensome and the
disaffirmance or repudiation of which is determined by the FDIC to promote the
orderly administration of the depository institution.
Item 1A. Risk Factors –
continued.
To date,
none of Capitol's subsidiary banks have received any notice of assessment of
cross-guaranty liability. Capitol's banks have, however, received
notice from the FDIC that the FDIC may assess a cross-guaranty liability
relating to a failed community bank in Florida which ceased operations in
November 2009. The FDIC alleges that the Florida bank was an
affiliated institution of Capitol, although Capitol owned no securities of that
bank or otherwise controlled the failed institution. The aggregate
loss to the FDIC of that failed bank approximated $23.6 million. The
FDIC has two years to determine whether to assess that potential cross-guaranty
liability, if any.
Capitol
is subject to a written agreement with the Federal Reserve Bank of Chicago which
restricts Capitol's ability to take certain actions. Noncompliance
with the written agreement could have a material impact on Capitol.
In
September 2009, Capitol and its second-tier bank holding companies entered into
a written agreement with the Federal Reserve Bank of Chicago (the Reserve Bank)
under which Capitol agreed to refrain from the following actions without the
prior written consent of the Reserve Bank (i) declare or pay dividends; (ii)
receive dividends or any other form of payment representing a reduction in
capital from Michigan Commerce Bank or from any of Capitol's subsidiary
institutions that is subject to any restriction by the institution's federal or
state regulator that limits the payment of dividends or other intercorporate
payments; (iii) make any distributions of interest, principal, or other sums of
subordinated debentures or trust-preferred securities; (iv) incur, increase or
guarantee any debt; or (v) purchase or redeem any shares of its own stock, the
second-tier bank holding companies, nonbank subsidiaries or any of the
subsidiary banks that are held by shareholders other than Capitol.
Capitol
has also agreed to (i) submit to the Reserve Bank, a written plan to maintain
sufficient capital at Capitol on a consolidated basis and at Michigan Commerce
Bank (as a separate legal entity on a stand-alone basis); (ii) notify the
Reserve Bank no more than 30 days after the end of any quarter in which
Capitol's consolidated or Michigan Commerce Bank's capital ratios fall below the
approved capital plan's minimum ratios as well as if any subsidiary
institution's ratios fall below the minimum ratios required by the institution's
federal or state regulator; (iii) review and revise its allowance for loan
losses (ALLL) methodology for loans held by Capitol and submit to the Reserve
Bank a written program for maintenance of an adequate ALLL for loans held by
Capitol; (iv) take all necessary actions to ensure each of its subsidiary
institutions comply with Federal Reserve regulations; (v) refrain from
increasing any fees or charging new fees to any subsidiary institution without
the prior written consent of the Reserve Bank; (vi) submit to the Reserve Bank a
written plan to enhance the consolidated organization's risk management
practices, a strategic plan to improve the consolidated organization's operating
results and a cash flow projection; (vii) comply with laws and regulations
regarding senior executive officer positions and severance payments; and (viii)
provide quarterly reports to the Reserve Bank regarding these
undertakings.
Certain
of Capitol's bank subsidiaries have entered into formal agreements with their
primary regulatory agencies. Noncompliance with the agreements could
have a material impact on Capitol.
Certain
of Capitol's bank subsidiaries have entered into formal agreements with their
applicable federal and state bank regulatory agencies in response to elevated
levels of nonperforming assets, loan losses and adverse operating
results. Those agreements provide for certain restrictions and other
guidelines and/or limitations to be followed by those
banks. Generally, those agreements require the banks to maintain an
adequate ALLL, reduce levels of nonperforming and other classified assets and
implement revised budgets and liquidity and capital adequacy projections to
improve financial performance. When a bank enters into a formal
regulatory agreement, it is generally precluded from meeting the criteria as a
"well-capitalized" institution although it may meet or exceed such threshold on
a computational basis. In addition, the banks' capital classification
places limitations on some of their activities, such as the permissibility of
accepting or renewing brokered deposits, among other
things. Additionally, such banks are subject to higher levels of FDIC
insurance assessments, although they may receive some relief from up-front
payment of the FDIC's advance insurance assessments relating to future years
after December 31, 2009.
Item 1A. Risk Factors –
continued.
In
addition to the above, the FDIC gave notice to many of Capitol's banking
subsidiaries in December 2009 that, to mitigate the effects of any possible
assessment arising from potential cross-guaranty liability, they should be
encouraged to arrange a sale, merger or recapitalization such that Capitol no
longer controls the bank. The FDIC's encouragement is consistent with
Capitol's previously-announced plans to selectively divest of some of its bank
subsidiaries in conjunction with reallocating capital resources to the remaining
banks.
Capitol
has currently entered agreements to sell several affiliate banks, and is
pursuing additional divestiture opportunities in an effort to enhance its
capital position.
During
2009, Capitol announced plans to pursue divestiture of some of its bank
subsidiaries (or those which are subsidiaries of Capitol's bank-development
subsidiaries) on a selective basis for the purpose of reallocating capital to
enhance the capital of its retained bank subsidiaries, to the extent such sales
may be completed with an attractive gain upon sale. Capitol and/or
its bank-development subsidiaries have entered into definitive agreements to
sell its interests (or controlling interest held by bank-development
subsidiaries) in the following banks in 2010: Adams Dairy Bank, Bank of
Belleville, Bank of Las Colinas, Community Bank of Lincoln, Community Bank of
Rowan, Mountain View Bank of Commerce, Napa Community Bank and Ohio Commerce
Bank.
In
September 2009, Capitol completed the sale of Yuma Community Bank, previously a
wholly-owned subsidiary. In November 2009, the sale of Bank of Santa
Barbara, a subsidiary of one of Capitol's bank-development subsidiaries, was
completed. The remaining pending bank sales are subject to regulatory
approval and other contingencies and the risk that the timing of such sales are
extended beyond what is currently anticipated or some could fail to obtain
regulatory approval. In addition, some of the pending sales are
subject to capital-raising activities to facilitate the sale and, accordingly,
are subject to the risk that the requisite funds may not be successfully
raised.
Item 1B.
Unresolved Staff Comments.
Not
applicable.
Item 2.
Properties.
The names
and locations of Capitol's banks are listed on Pages F-57 – F-58, Financial
Information Section of Annual Report, under the caption "Note A—Nature of
Operations, Basis of Presentation and Principles of Consolidation," which is
incorporated herein by reference.
Most of
the banks' locations are leased and many operate from a single location. Most of
Capitol's banks' facilities are generally small (i.e., less than 10,000 square
feet), first floor offices with convenient access to parking. The Ann
Arbor location of Michigan Commerce Bank, Capitol's largest bank, occupies the
largest leased facility, approximately 18,000 square feet.
Elkhart
Community Bank, First Carolina State Bank, Goshen Community Bank, Paragon Bank
& Trust, Peoples State Bank and the Grand Haven, Muskegon and Portage office
locations of Michigan Commerce Bank own their office facilities.
Some of
Capitol's banks have drive-up customer service capability. Capitol's
banks are typically located in or near high traffic centers of commerce in their
respective communities. Customer service is enhanced through Internet
banking, remote deposit capture and utilization of ATMs to process some
customer-initiated transactions and some of the banks also make available a
courier service to pick up transactions at customers' locations.
Item 2. Properties –
continued.
Capitol's
Lansing, Michigan executive offices are located within the same building as
Capitol National Bank. Those offices include administrative,
operations, legal, accounting, human resources, credit administration, risk
management and executive staff.
Data
processing centers are located in both Lansing, Michigan and Phoenix,
Arizona.
Capitol's
Phoenix, Arizona executive offices are located within the same building as
Sunrise Bank of Arizona's Camelback office. Those offices include
administrative, operations, credit administration, risk management and executive
staff.
Certain
office locations are leased from related parties. Rent expense,
including rent expense under leases with related parties, is incorporated by
reference from Pages F-72 – F-73, Financial Information Section of Annual
Report, under the caption "Note F—Premises and Equipment" and the second
paragraph of Page 49, Proxy Statement, under the caption "CERTAIN RELATIONSHIPS
AND RELATED TRANSACTIONS."
Management
believes Capitol's and its banks' offices to be in good and adequate condition
and adequately covered by insurance.
Item 3. Legal
Proceedings.
As of
December 31, 2009, there were no material pending legal proceedings to which
Capitol or its subsidiaries was a party or to which any of its property was
subject, except for proceedings which arise in the ordinary course of
business. In the opinion of management, pending legal proceedings
will not have a material effect on the consolidated financial position or
results of operations of Capitol.
Item 4.
(Removed and Reserved).
[The
remainder of this page intentionally left blank]
Item 5. Market
for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases
of Equity Securities.
Incorporated
by reference from Pages F-3 – F-4, Financial Information Section of Annual
Report, under the caption "Information Regarding Capitol's Common Stock," Pages
F-5 – F-6, under the caption "Shareholder Information" and Pages F-75 – F-77
under the caption "Note J—Restricted Common Stock and Stock
Options."
B.
Holders:
Incorporated
by reference from the second paragraph on Page F-4, Financial Information
Section of Annual Report, under the caption "Information Regarding Capitol's
Common Stock."
C.
Dividends:
Incorporated
by reference from Page F-2, Financial Information Section of Annual Report,
under the caption "Quarterly Results of Operations (unaudited)" and subcaption
"Cash dividends paid per share," the first paragraph on Page F-4, Financial
Information Section of Annual Report under the caption "Information Regarding
Capitol's Common Stock" and Pages F-88 – F-90, Financial Information Section of
Annual Report, under the caption "Note P—Capital Requirements and Related
Regulatory Matters."
D.
Securities Authorized for Issuance Under Equity Compensation Plan:
Summary of Equity
Compensation Plans as of December 31, 2009
|
|
|
(a)
|
|
|
(b)
|
|
|
(c)
|
|
Plan
category
|
|
Number
of securities to
be
issued upon exercise
of
outstanding options,
warrants
and rights (1)
|
|
|
Weighted-average
exercise
price of
outstanding options,
warrants
and rights (1)
|
|
|
Number
of securities
remaining
available for
future
issuance under equity
compensation
plans
(excluding
securities reflected
in
column (a))
|
|
|
|
|
|
|
|
|
|
|
|
Equity
compensation plans approved by security holders*
|
|
|
2,165,079
|
|
|
$
|
25.13
|
|
|
|
44,988
|
|
Equity
compensation plans not approved by security holders
(1)
|
|
|
38,784
|
|
|
|
21.11
|
|
|
|
--
|
|
Equity
compensation plans resulting from share exchanges
|
|
|
300,620
|
|
|
|
21.35
|
|
|
|
--
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
2,504,483
|
|
|
$
|
24.61
|
|
|
|
44,988
|
|
(1)
|
Options
issued pursuant to employment agreements with various officers of Capitol
and its subsidiaries.
|
|
*
|
Does
not include shares that may be issued if Capitol elects to pay awards made
under the Capitol Bancorp Ltd. Management Incentive Plan in the form of
shares of Capitol's common stock. Also does not include shares
that were approved to be issued under the 2007 Incentive Plan, which
includes a provision increasing the shares available for the plan in an
amount equal to 2% of the outstanding shares of common stock as of
December 31 of each year.
|
Incorporated
by reference from Page F-3, Financial Information Section of Annual Report,
under the caption "Information Regarding Capitol's Common Stock."
F.
There were no purchases of equity securities by the issuer or affiliated
purchasers in the fourth quarter of 2009.
G.
2,452 and
3,370 shares of Capitol's common stock subject to a restricted stock award made
to Joseph D. Reid, Capitol's Chairman and CEO, pursuant to the terms of the
Capitol Bancorp Ltd. Management Incentive Plan vested on February 6, 2009 and
August 7, 2009, respectively, resulting from the satisfaction of certain
performance targets. The shares were not registered under the Securities Act of
1933.
Item 6.
Selected Financial Data.
Incorporated
by reference from Page F-2, Financial Information Section of Annual Report,
under the caption "Selected Consolidated Financial Data" under the column
heading "As of and for the Year Ended December 31, 2009, 2008, 2007, 2006 and
2005."
Item 7.
Management's Discussion and Analysis of Financial Condition and Results of
Operations.
Incorporated
by reference from Pages F-11 – F-47, Financial Information Section of Annual
Report, under the caption "Management's Discussion and Analysis of Capitol's
Business, Financial Condition and Results of Operations"
and Pages
F-6 – F-10, Financial Information Section of Annual Report, under the caption
"Cautions Regarding Forward-Looking Statements."
Item 7A.
Quantitative and Qualitative Disclosures About Market
Risk.
Incorporated
by reference from Pages F-37 – F-41, Financial Information Section of Annual
Report, under the caption "Trends Affecting Operations" and Pages F-6 – F-10,
Financial Information Section of Annual Report, under the caption "Cautions
Regarding Forward-Looking Statements."
Item 8.
Financial Statements and Supplementary Data.
See Item
15 (under subcaption "(a) 1 and 2. Financial Statements/Schedules") of this Form
10-K for specific description of financial statements incorporated by reference
from Financial Information Section of Annual Report.
Incorporated
by reference from Page F-2, Financial Information Section of Annual Report,
under the caption "Quarterly Results of Operations (unaudited)."
Capitol adjusted its
previously-reported interim quarterly results of operations for 2009 relating to
revised interpretation of fair-value accounting guidance (FSP FAS 157-4) which
was implemented in error in the first quarter of 2009, to properly base
fair-value estimates of collateral-dependent loans and other real estate owned
upon appraisal data rather than use of alternate methods. When
Capitol initially implemented FSP FAS 157-4 in the first quarter of 2009,
management made significant adjustments to appraisal data and used some
alternative valuation methods, reducing estimated losses relating to fair value
by $8 million. As 2009 progressed, additional regulatory guidance
suggested that substantially all such fair value estimates should be based
solely upon appraisal data rather than use of alternative valuation
methods. As of December 31, 2009, substantially all fair value
estimates for collateral-dependent loans and other real estate owned were based
solely on appraisal data. Capitol intends to promptly amend its
previously-filed Reports on Form 10-Q for the periods ended March 31, 2009, June
30, 2009 and September 30, 2009 to correct such error and Capitol's revised
interpretation of FSP FAS 157-4.
Item 9.
Changes In and Disagreements With Accountants on Accounting and Financial
Disclosure.
None.
Item 9A.
Controls and Procedures.
Disclosure
Controls and Procedures:
Capitol
maintains disclosure controls and procedures designed to ensure that the
information Capitol must disclose in its filings with the Securities and
Exchange Commission is recorded, processed, summarized and reported on a timely
basis. Capitol's Chief Executive Officer and Chief Financial Officer
have reviewed and evaluated Capitol's disclosure controls and procedures as
defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of
1934, as amended (Exchange Act) as of the end of the period covered by this
report (Evaluation Date). Based on such evaluation, such officers
have concluded that, as of the Evaluation Date, Capitol's disclosure controls
and procedures are effective.
Management's
Annual Report on Internal Control Over Financial Reporting:
Incorporated
by reference from Page F-48, Financial Information Section of Annual
Report.
Attestation
Report of Independent Registered Public Accounting Firm:
Incorporated
by reference from Pages F-49 – F-50, Financial Information Section of Annual
Report.
Changes
in Internal Control Over Financial Reporting:
No change
in Capitol's internal control over financial reporting occurred during Capitol's
most recent fiscal quarter that has materially affected, or is reasonably likely
to materially affect, Capitol's internal control over financial
reporting.
Item 9B.
Other Information.
See
information disclosed in response to Item 8 of this Annual Report on Form
10-K.
[The
remainder of this page intentionally left blank]
PART III
Item 10.
Directors, Executive Officers and Corporate Governance.
The
information required by this item is hereby incorporated by reference from the
material appearing on Pages 6 – 20 of the Proxy Statement under the captions
"PROPOSAL ONE: ELECTION OF DIRECTORS," "INFORMATION REGARDING
CAPITOL'S DIRECTORS NOT CURRENTLY UP FOR ELECTION," "Role of the Board of
Directors," "CORPORATE GOVERNANCE" and "COMMITTEE STRUCTURE" and on Page 48 of
the Proxy Statement under the captions "SECTION 16(a) BENEFICIAL OWNERSHIP
REPORTING COMPLIANCE" and "EXECUTIVE OFFICERS."
Item 11.
Executive Compensation.
The
information required by this item is hereby incorporated by reference from the
material appearing on Pages 22 – 46 of the Proxy Statement under the captions
"COMPENSATION DISCUSSION & ANALYSIS," "COMPENSATION COMMITTEE REPORT,"
"SUMMARY COMPENSATION," "Employment Agreements," "GRANTS OF PLAN-BASED AWARDS,"
"2009 and 2010 Grants," "Outstanding Equity Awards at Fiscal Year-End 2009,"
"Option Exercises and Stock Vested 2009," "Pension Benefits 2009," "Executive
Supplemental Income Agreements," "COMPENSATION COMMITTEE INTERLOCKS AND INSIDER
PARTICIPATION," "Director Compensation," "Non-Employee Director Compensation in
2009," "POTENTIAL PAYMENTS UPON TERMINATION OR CHANGE IN CONTROL" and "Executive
Benefits and Payments Upon Termination."
Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters.
The
information required by this item is hereby incorporated by reference from the
material appearing on
Page 47
of the Proxy Statement under the caption "STOCK OWNERSHIP" and on Page 35 of the
Proxy Statement under the caption "Equity Compensation Plan
Information."
Item 13.
Certain Relationships and Related Transactions and Director
Independence.
The
information required by this item is hereby incorporated by reference from the
material appearing on Pages 49 – 51 of the Proxy Statement under the caption
"CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS" and on Pages 9 – 20 of the
Proxy Statement under the captions "Role of the Board of Directors,"
"Independence of Directors," "Independent Directors," "Non-Independent
Directors," "CORPORATE GOVERNANCE" and "COMMITTEE STRUCTURE."
Item 14.
Principal Accountant Fees and Services.
The
information required by this item is hereby incorporated by reference from the
material appearing on Pages 51 – 52 of the Proxy Statement under the caption
"RELATIONSHIP WITH INDEPENDENT REGISTERED PUBLIC ACCOUNTING
FIRM."
PART IV
Item 15.
Exhibits and Financial Statement Schedules.
(a) 1 and
2. Financial Statements/Schedules:
The
following consolidated financial statements of Capitol Bancorp Limited and
subsidiaries and reports of independent registered public accounting firm
included on Pages F-48 – F-95 of the Financial Information Section of Annual
Report of the Registrant to its stockholders for the year ended December 31,
2009, are incorporated by reference in Item 8:
Reports
of Independent Registered Public Accounting Firm.
Consolidated
balance sheets--December 31, 2009 and 2008.
Consolidated
statements of operations--Years ended December 31, 2009, 2008 and
2007.
Consolidated
statements of changes in stockholders' equity--Years ended December 31, 2009,
2008 and 2007.
Consolidated
statements of cash flows--Years ended December 31, 2009, 2008 and
2007.
Notes to
consolidated financial statements.
All
financial statements have been incorporated by reference from the Annual
Report. No schedules are included here because they are either not
required, not applicable or the required information is contained
elsewhere.
(b)
Exhibits:
A list of
exhibits required to be filed as part of this report is set forth in the Exhibit
Index (pages 45-46) which immediately precedes such exhibits and is incorporated
herein by reference.
[The
remainder of this page intentionally left blank]
SIGNATURES
Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
|
CAPITOL
BANCORP LTD.
Registrant
By:
/s/ Joseph D.
Reid
Joseph D. Reid
Chairman and
Chief Executive
Officer
|
By:
/s/ Lee W.
Hendrickson
Lee W. Hendrickson
Chief Financial
Officer
(Principal Financial
and
Accounting
Officer)
|
Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the registrant on March 31,
2010, in the capacities indicated below.
|
/s/
Joseph D.
Reid
Joseph
D. Reid, Chairman,
Chief
Executive Officer and Director
|
/s/ H. Nicholas
Genova
H.
Nicholas Genova, Director
|
|
/s/ David
O'Leary
David
O'Leary, Secretary and Director
|
/s/ Richard A.
Henderson
Richard
A. Henderson, Director
|
|
/s/ Paul
R.
Ballard
Paul
R. Ballard, Director
|
/s/ Lewis D.
Johns
Lewis
D. Johns, Director
|
|
/s/ David L.
Becker
David
L. Becker, Director
|
/s/ Michael L.
Kasten
Michael
L. Kasten, Vice Chairman and
Director
|
|
/s/ Michael J.
Devine
Michael
J. Devine, Director
|
/s/ Steven L.
Maas
Steven
L. Maas, Director
|
|
/s/ James C.
Epolito
James
C. Epolito, Director
|
/s/ Lyle W.
Miller
Lyle
W. Miller, Vice Chairman and
Director
|
|
/s/ Gary A.
Falkenberg
Gary
A. Falkenberg, Director
|
/s/ Myrl D.
Nofziger
Myrl
D. Nofziger, Director
|
|
/s/ Joel I.
Ferguson
Joel
I. Ferguson, Director
|
/s/ Cristin K.
Reid
Cristin
K. Reid, Corporate President and
Director
|
|
/s/ Kathleen A.
Gaskin
Kathleen
A. Gaskin, Director
|
/s/ Ronald K.
Sable
Ronald
K. Sable, Director
|
|
|
|
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