CAPITOL BANCORP LTD - FORM 10-Q/A

Attached files

file	filename
EX-32.2 - CFO CERTIFICATION - CAPITOL BANCORP LTD	exhibit32_2amend.htm
EX-32.1 - CEO CERTIFICATION - CAPITOL BANCORP LTD	exhibit32_1amend.htm
EX-31.1 - CEO CERTIFICATION - CAPITOL BANCORP LTD	exhibit31_1amend.htm
EX-31.2 - CFO CERTIFICATION - CAPITOL BANCORP LTD	exhibit31_2amend.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q/A

Amendment No. 1

T	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
	SECURITIES EXCHANGE ACT OF 1934
	For the quarterly period ended June 30, 2009
	OR
£	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
	SECURITIES EXCHANGE ACT OF 1934

	For the transition period from ________________ to ________________

Commission file number: 001-31708

CAPITOL BANCORP LTD.

(Exact name of registrant as specified in its charter)

Michigan		38-2761672
(State or other jurisdiction of		(IRS Employer Identification No.)
incorporation or organization)
Capitol Bancorp Center
Fourth Floor
200 N. Washington Square
Lansing, Michigan		48933
(Address of principal executive offices)		(Zip Code)

(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)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes T

No £

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes £

No T

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.

Class		Outstanding at July 17, 2009
Common Stock, No par value		17,517,331 shares

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes £

No T

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer £			Accelerated filer T
Non-accelerated filer £ (Do not check if a smaller reporting company)			Smaller reporting company £

Page 1 of 43

Explanatory Note

Capitol is filing this Amendment No. 1 to its Quarterly Report on Form 10-Q to revise its unaudited condensed consolidated financial statements as of and for the three months and six months ended June 30, 2009 that were part of Form 10-Q that Capitol filed with the Securities and Exchange Commission (SEC) on July 31, 2009.

This Amendment No. 1 reflects revised interpretation of fair-value accounting guidance (FSP FAS 157-4) to properly base fair-value estimates of collateral-dependent loans and other real estate owned upon appraisal data rather than use of alternative valuation methods. FAS 157-4 was initially implemented in error for the period ended March 31, 2009, as disclosed in Capitol's 2009 Annual Report on Form 10-K.

When Capitol initially implemented FSP FAS 157-4 for the three months ended March 31, 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.

The information in this Amendment No. 1 not only revises the unaudited condensed consolidated financial statements that were contained in the originally-filed Form 10-Q for the three months and six months ended June 30, 2009, but also amends other information in that Form 10-Q affected by the revision described above. Therefore, this Amendment No. 1 should be read together with the originally-filed Form 10-Q. Furthermore, this Amendment No. 1 does not reflect events occurring after the filing of the originally-filed Form 10-Q or update information or disclosures contained in the originally-filed Form 10-Q that were not affected by the revision described above. Accordingly, this Amendment No. 1 also should be read in conjunction with subsequent filings of financial information by Capitol relating to its financial position and results of operations for the year ended December 31, 2009, as information in such subsequent filings may update or supersede certain information contained in this Amendment No. 1 to Form 10-Q.

The following items of the originally-filed Form 10-Q for the period ended June 30, 2009 have been revised:

Part I – Financial Information:

Item 1 – Financial Statements (unaudited)

Item 2 – Management's Discussion and Analysis of Financial Condition and Results of Operations

In addition, as required by Rule 12b-15 under the Securities and Exchange Act of 1934, as amended, updated certifications by our principal executive officer and principal financial officer are filed herewith as Exhibit 31.1, Exhibit 31.2, Exhibit 32.1 and Exhibit 32.2 to this Amendment No. 1 on Form 10-Q which are currently dated April 27, 2010.

[The remainder of this page intentionally left blank]

Page 2 of 43

INDEX

PART I. FINANCIAL INFORMATION

Forward-Looking Statements

Certain 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," "believe," 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, (xii) changes in management, (xiii) Capitol's proposed spin-off of Michigan Commerce Bancorp Limited; (xiv) consummation of pending sales of certain bank subsidiaries, and (xv) other risks detailed in Capitol's other filings with the Securities and Exchange Commission. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual outcomes may vary materially from those indicated. All subsequent written or oral forward-looking statements attributable to Capitol or persons acting on its behalf are expressly qualified in their entirety by the foregoing factors. Investors and other interested parties are cautioned not to place undue reliance on such statements, which speak as of the date of such statements. Capitol undertakes no obligation to release publicly any revisions to these forward-looking statements to reflect events or circumstances after the date of such statements or to reflect the occurrence of unanticipated events.

Item 1.	Financial Statements (unaudited):	Page
	Condensed consolidated balance sheets – June 30, 2009 and December 31, 2008.	4
	Condensed consolidated statements of operations – Three months and six months ended June 30, 2009 and 2008.	5
	Condensed consolidated statements of changes in equity – Six months ended June 30, 2009 and 2008.	6
	Condensed consolidated statements of cash flows – Six months ended June 30, 2009 and 2008.	7
	Notes to condensed consolidated financial statements.	8
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations.	19
Item 3.	Quantitative and Qualitative Disclosures About Market Risk.	39
Item 4.	Controls and Procedures.	39

PART II.	OTHER INFORMATION

Item 1.	Legal Proceedings.	40
Item 1A.	Risk Factors.	40
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds.	40
Item 3.	Defaults Upon Senior Securities.	40
Item 4.	Submission of Matters to a Vote of Security Holders.	40
Item 5.	Other Information.	41
Item 6.	Exhibits.	41

SIGNATURES		42

EXHIBIT INDEX		43

Page 3 of 43

PART I, ITEM 1

CAPITOL BANCORP LIMITED
Condensed Consolidated Balance Sheets
As of June 30, 2009 and December 31, 2008
(in thousands, except share data)

	(Unaudited)
	June 30, 2009			December 31, 2008
	(As Revised--Note J)
ASSETS
Cash and due from banks	$	119,801		$	136,499
Money market and interest-bearing deposits		652,383			391,836
Federal funds sold		32,397			96,031
Cash and cash equivalents		804,581			624,366
Loans held for sale		30,843			10,474
Investment securities -- Note C:
Available for sale, carried at market value		13,809			15,584
Held for long-term investment, carried at
amortized cost which approximates fair value		33,661			32,856
Total investment securities		47,470			48,440
Portfolio loans:
Loans secured by real estate:
Commercial		2,125,443			2,115,515
Residential (including multi-family)		891,710			879,754
Construction, land development and other land		676,309			797,486
Total loans secured by real estate		3,693,462			3,792,755
Commercial and other business-purpose loans		786,164			845,593
Consumer		55,830			61,340
Other		41,383			35,541
Total portfolio loans		4,576,839			4,735,229
Less allowance for loan losses		(114,215	)		(93,040	)
Net portfolio loans		4,462,624			4,642,189
Premises and equipment		53,669			59,249
Accrued interest income		17,899			18,871
Goodwill		71,592			72,342
Other real estate owned		103,315			67,171
Other assets		131,547			111,734

TOTAL ASSETS	$	5,723,540		$	5,654,836

LIABILITIES AND EQUITY
LIABILITIES:
Deposits:
Noninterest-bearing	$	721,497		$	700,786
Interest-bearing		3,973,522			3,796,826
Total deposits		4,695,019			4,497,612
Debt obligations:
Notes payable and short-term borrowings		362,575			446,925
Subordinated debentures -- Note G		167,366			167,293
Total debt obligations		529,941			614,218
Accrued interest on deposits and other liabilities		36,680			29,938
Total liabilities		5,261,640			5,141,768

EQUITY:
Capitol Bancorp Limited stockholders' equity:
Preferred stock, 20,000,000 shares authorized;
none issued and outstanding		--			--
Common stock, no par value, 50,000,000 shares authorized;
issued and outstanding: 2009 - 17,517,331 shares
2008 - 17,293,908 shares		277,000			274,018
Retained earnings		42,440			80,255
Undistributed common stock held by employee-benefit trust		(569	)		(569	)
Fair value adjustment (net of tax effect) for investment
securities available for sale (accumulated other
comprehensive income)		106			144
Total Capitol Bancorp Limited stockholders' equity		318,977			353,848
Noncontrolling interests in consolidated subsidiaries		142,923			159,220
Total equity		461,900			513,068

TOTAL LIABILITIES AND EQUITY	$	5,723,540		$	5,654,836

See notes to condensed consolidated financial statements.

Page 4 of 43

CAPITOL BANCORP LIMITED
Condensed Consolidated Statements of Operations (Unaudited)
For the Three Months and Six Months Ended June 30, 2009 and 2008
(in thousands, except per share data)

	Three-Month Period						Six-Month Period
	2009			2008			2009			2008
Interest income:	(As Revised-- Note J)						(As Revised-- Note J)
Portfolio loans (including fees)	$	68,359		$	74,238		$	136,435		$	151,569
Loans held for sale		344			236			561			536
Taxable investment securities		152			102			304			235
Federal funds sold		23			1,008			58			2,221
Other		594			553			830			1,079
Total interest income		69,472			76,137			138,188			155,640
Interest expense:
Deposits		22,911			26,989			47,783			57,677
Debt obligations and other		5,979			6,956			12,366			13,836
Total interest expense		28,890			33,945			60,149			71,513
Net interest income		40,582			42,192			78,039			84,127
Provision for loan losses		33,658			9,019			67,574			17,977
Net interest income after provision
for loan losses		6,924			33,173			10,465			66,150
Noninterest income:
Service charges on deposit accounts		1,505			1,457			3,007			2,790
Trust and wealth-management revenue		1,135			1,563			2,523			3,208
Fees from origination of non-portfolio residential mortgage
loans		1,496			1,063			2,398			1,984
Gain on sales of government-guaranteed loans		405			643			645			1,223
Realized gains on sale of investment securities available
for sale					2			1			45
Other		2,453			1,749			3,377			3,792
Total noninterest income		6,994			6,477			11,951			13,042
Noninterest expense:
Salaries and employee benefits		24,442			27,730			53,495			53,278
Occupancy		4,843			4,500			9,734			8,904
Equipment rent, depreciation and maintenance		3,201			3,008			6,634			5,874
Costs associated with foreclosed properties and other
real estate owned		4,202			1,181			8,561			2,092
FDIC insurance premiums and other regulatory fees		5,348			933			7,462			1,870
Other		8,124			10,436			16,221			20,575
Total noninterest expense		50,160			47,788			102,107			92,593
Loss before income tax benefit		(36,242	)		(8,138	)		(79,691	)		(13,401	)
Income tax benefit		(13,282	)		(2,701	)		(28,824	)		(4,696	)
NET LOSS		(22,960	)		(5,437	)		(50,867	)		(8,705	)
Less net losses attributable to noncontrolling interests		6,656			6,060			13,889			11,519

NET INCOME (LOSS) ATTRIBUTABLE TO
CAPITOL BANCORP LIMITED	$	(16,304	)	$	623		$	(36,978	)	$	2,814

NET INCOME (LOSS) PER SHARE ATTRIBUTABLE
TO CAPITOL BANCORP LIMITED -- Note F:
Basic	$	(0.95	)	$	0.04		$	(2.15	)	$	0.16

Diluted	$	(0.95	)	$	0.04		$	(2.15	)	$	0.16

See notes to condensed consolidated financial statements.

Page 5 of 43

CAPITOL BANCORP LIMITED
Condensed Consolidated Statements of Changes in Equity (Unaudited)
For the Six Months Ended June 30, 2009 and 2008
(in thousands, except share and per share data)


	Capitol Bancorp Limited Stockholders' Equity
													Total Capitol
							Undistributed			Accumulated			Bancorp			Noncontrolling
							Common Stock			Other			Limited			Interests in
	Common			Retained			Held by Employee-			Comprehensive			Stockholders'			Consolidated			Total
	Stock			Earnings			Benefit Trust			Income			Equity			Subsidiaries			Equity

Six Months Ended June 30, 2008

Balances at January 1, 2008	$	272,208		$	117,520		$	(586	)	$	3		$	389,145		$	156,198		$	545,343

Investment in consolidated subsidiaries by noncontrolling
interests																	22,411			22,411

Issuance of 3,174 shares of common stock upon exercise
of stock options		54												54						54

Surrender of 14,138 shares of common stock to facilitate
vesting of restricted stock		(285	)											(285	)					(285	)

Issuance of 18,312 unvested shares of restricted common
stock, net of related unearned employee compensation
and 6,822 forfeited shares		--												--						--

Recognition of compensation expense relating to restricted
common stock and stock options		1,172												1,172						1,172

Tax effect of share-based payments		2												2						2

Transfer of 205 shares of common stock to employee stock
ownership plan		(2	)					6						4						4

Cash dividends paid ($0.40 per share)					(6,927	)								(6,927	)					(6,927	)

Components of comprehensive loss:
Net income (loss)					2,814									2,814			(11,519	)		(8,705	)
Fair value adjustment for investment securities
available for sale (net of income tax effect)											(14	)		(14	)					(14	)
Comprehensive loss																				(8,719	)

BALANCES AT JUNE 30, 2008	$	273,149		$	113,407		$	(580	)	$	(11	)	$	385,965		$	167,090		$	553,055

Six Months Ended June 30, 2009 (As Revised--Note J)

Balances at January 1, 2009	$	274,018		$	80,255		$	(569	)	$	144		$	353,848		$	159,220		$	513,068

Investment in consolidated subsidiary by noncontrolling
interests					27									27			134			161

Issuance of 227,357 shares of common stock to acquire
noncontrolling interest in consolidated subsidiary		2,542												2,542			(2,542	)		--

Surrender of 3,934 shares of common stock to facilitate
vesting of restricted stock		(23	)											(23	)					(23	)

Recognition of compensation expense relating to restricted
common stock and stock options		580												580						580

Tax effect of share-based payments		(117	)											(117	)					(117	)

Cash dividends paid ($0.05 per share)					(864	)								(864	)					(864	)

Components of comprehensive loss:
Net loss					(36,978	)								(36,978	)		(13,889	)		(50,867	)
Fair value adjustment for investment securities
available for sale (net of income tax effect)											(38	)		(38	)					(38	)
Comprehensive loss														(37,016	)					(50,905	)

BALANCES AT JUNE 30, 2009	$	277,000		$	42,440		$	(569	)	$	106		$	318,977		$	142,923		$	461,900


See notes to condensed consolidated financial statements.

Page 6 of 43

CAPITOL BANCORP LTD.
Condensed Consolidated Statements of Cash Flows (Unaudited)
For the Six Months Ended June 30, 2009 and 2008
(in thousands)

	2009			2008
	(As Revised--Note J)
OPERATING ACTIVITIES
Net loss	$	(50,867	)	$	(8,705	)
Adjustments to reconcile net loss to net cash provided
(used) by operating activities:
Provision for loan losses		67,574			17,977
Depreciation of premises and equipment		5,419			5,005
Amortization of intangibles		238			241
Net amortization (accretion) of investment security
premiums (discounts)		(43	)		6
Loss on sale of premises and equipment		18			44
Gain on sales of government-guaranteed loans		(645	)		(1,223	)
Realized gains on sales of investment securities available
for sale		(1	)		(45	)
Loss on sales of other real estate owned		722			308
Reduction in other real estate owned		6,785			2,085
Amortization of issuance costs of subordinated debentures		73			47
Share-based compensation expense		580			1,172
Deferred income tax credit		(28,036	)
Originations and purchases of loans held for sale		(204,779	)		(120,855	)
Proceeds from sales of loans held for sale		184,410			125,960
Decrease (increase) in accrued interest income and other assets		9,742			(18,112	)
Increase (decrease) in accrued interest expense on deposits and
other liabilities		6,742			(112	)

NET CASH PROVIDED (USED) BY OPERATING
ACTIVITIES		(2,068	)		3,793

INVESTING ACTIVITIES
Proceeds from sales of investment securities available for sale					885
Proceeds from calls, prepayments and maturities of investment
securities		10,474			10,761
Purchases of investment securities		(9,529	)		(16,004	)
Net decrease (increase) in portfolio loans		61,046			(295,176	)
Proceeds from sales of premises and equipment		1,935			126
Purchases of premises and equipment		(1,792	)		(6,537	)
Proceeds from sale of other real estate owned		7,939			3,529

NET CASH PROVIDED (USED) BY INVESTING
ACTIVITIES		70,073			(302,416	)

FINANCING ACTIVITIES
Net increase in demand deposits, NOW accounts and savings
accounts		117,679			50,514
Net increase in certificates of deposit		79,728			262,375
Net borrowings from debt obligations		6,652			5,538
Proceeds from Federal Home Loan Bank advances		1,842,341			995,755
Payments on Federal Home Loan Bank advances		(1,933,343	)		(883,192	)
Resources provided by noncontrolling interests		134			22,411
Net proceeds from issuance of common stock					54
Tax effect of share-based payments		(117	)		2
Cash dividends paid		(864	)		(6,927	)

NET CASH PROVIDED BY FINANCING ACTIVITIES		112,210			446,530

INCREASE IN CASH AND CASH EQUIVALENTS		180,215			147,907

Cash and cash equivalents at beginning of period		624,366			352,372


CASH AND CASH EQUIVALENTS AT END OF PERIOD	$	804,581		$	500,279

Supplemental disclosure of cash flow information:
Cash paid during the period for interest	$	61,056		$	72,609
Transfers of loans to other real estate owned		51,590			34,381
Surrender of common stock to facilitate exercise of stock
options and vesting of restricted stock		23			285

See notes to condensed consolidated financial statements.

Page 7 of 43

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

CAPITOL BANCORP LIMITED

Note A – Basis of Presentation

The accompanying unaudited condensed consolidated financial statements of Capitol Bancorp Limited (Capitol or the Corporation) have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions for Form 10-Q. Accordingly, they do not include all information and footnotes necessary for a fair presentation of consolidated financial position, results of operations and cash flows in conformity with accounting principles generally accepted in the United States of America.

The condensed consolidated financial statements do, however, include all adjustments of a normal recurring nature (in accordance with Rule 10-01(b)(8) of Regulation S-X) which Capitol considers necessary for a fair presentation of the interim periods.

The results of operations for the periods ended June 30, 2009 are not necessarily indicative of the results to be expected for the year ending December 31, 2009.

The consolidated balance sheet as of December 31, 2008 was derived from audited consolidated financial statements as of that date. Certain 2008 amounts have been reclassified to conform to the 2009 presentation.

Note B – Implementation of New Accounting Standards

In September 2006, the Financial Accounting Standards Board (FASB) issued Statement No. 157, Fair Value Measurements, which provides a definition of fair value for accounting purposes, establishes a framework for measuring fair value and expands related financial statement disclosures. In February 2008, the FASB issued FASB Staff Position (FSP) FAS 157-2 which deferred the effective date of Statement No. 157 until January 1, 2009 for nonfinancial assets and nonfinancial liabilities except those items recognized or disclosed at fair value on an annual or on a more frequently recurring basis. The implementation of previously deferred aspects of Statement No. 157 in 2009 (as permitted by FSP FAS 157-2) did not have a material effect on the Corporation's results of operations or financial position. Fair value disclosures are set forth in Note D to the condensed consolidated financial statements.

The FASB issued Statement No. 160, Noncontrolling Interests in Consolidated Financial Statements – an amendment of ARB No. 51, to create accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. Statement No. 160 establishes accounting and reporting standards that require (1) the ownership interest in subsidiaries held by parties other than the parent to be clearly identified and presented in the consolidated balance sheet within equity, but separate from the parent's equity, (2) the amount of consolidated net income attributable to the parent and the noncontrolling interest to be clearly identified and presented on the face of the consolidated statement of income, (3) changes in a parent's ownership interest while the parent retains its controlling financial interest in its subsidiary to be accounted for consistently, (4) when a subsidiary is deconsolidated, any retained noncontrolling equity investment in the former subsidiary to be initially measured at fair value and (5) entities provide sufficient disclosures that clearly identify and distinguish between the interests of the parent and the interests of the noncontrolling owners. Statement No. 160 became effective for Capitol on January 1, 2009 and the accompanying condensed consolidated financial statements reflect implementation of the new accounting standard.

In December 2007, the FASB issued Statement No. 141(R), Business Combinations, to further enhance the accounting and financial reporting related to business combinations. Statement No. 141(R) establishes principles and requirements for how the acquirer in a business combination (1) recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed and any noncontrolling interest in the acquiree, (2) recognizes and measures goodwill acquired in the business combination or a gain from a bargain purchase, (3) requires that acquisition-related and restructuring costs be recognized separately from the acquisition, generally charged to expense when incurred and (4) determines information to disclose to enable users of the financial statements to evaluate the nature and financial effects of the business combination. Statement No. 141(R) applies prospectively to business combinations for which the acquisition date is on or after January 1, 2009. The effects of the Corporation's adoption of Statement No. 141(R) had no impact upon implementation and its subsequent impact will depend upon the extent and magnitude of acquisitions in the future.

Page 8 of 43

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

CAPITOL BANCORP LIMITED – Continued

Note B – Implementation of New Accounting Standards – Continued

On April 9, 2009, the FASB issued the following FSPs, each of which become effective for second quarter reporting, with earlier implementation permitted for the first calendar quarter of 2009. Capitol elected to implement the new guidance effective January 1, 2009.

FSP FAS 107-1 and APB 28-1 amends FASB Statement No. 107, Disclosures about Fair Value of Financial Instruments, and APB Opinion No. 28, Interim Financial Reporting, to require interim disclosures about fair value of financial instruments in addition to annual reporting. The required disclosures are included in Note D to the condensed consolidated financial statements.

FSP FAS 115-2 and FAS 124-2 amends the other-than-temporary impairment guidance for debt securities to make it more operational and to improve the presentation and disclosure of other-than-temporary impairments on debt and equity securities in financial statements. Implementation of this new guidance did not have a material effect on Capitol's consolidated financial statements. The expanded interim disclosures about investment securities are set forth in Note C to the condensed consolidated financial statements.

FSP FAS 157-4 amends prior fair value guidance to aid in determining fair value when the volume and level of activity for an asset or liability have significantly decreased and identifying transactions that are not orderly. This new guidance is intended to clarify that significant adjustments to quoted prices may be necessary to estimate fair value when there has been a significant decrease in the volume and activity for the asset/liability in relation to normal market activity. Fair value is the price that would be received to sell an asset (or paid to transfer a liability) in an orderly transaction (that is, not a forced liquidation or distressed sale) between willing market participants under current market conditions. Fair-value information is presented in Note D (as revised) and discussed further in Note J.

In March 2008 the FASB issued Statement No. 161, Disclosures about Derivative Instruments and Hedging Activities, an amendment of FASB Statement No. 133. This new guidance revises the presentation and disclosure of derivatives and hedging activities, became effective for Capitol on January 1, 2009 and did not have a material impact on Capitol's condensed consolidated financial statements upon implementation.

In February 2008, the FASB issued FSB FAS 140-3, Accounting for Transfers of Financial Assets and Repurchase Financing Transactions. The new guidance clarifies transfers and certain transactions' accounting subject to the provisions of FAS 140 and became effective January 1, 2009. This new guidance did not have a material impact on Capitol's financial position or results of operations upon implementation.

In May 2009, the FASB issued Statement No. 165, Subsequent Events. This new guidance requires the disclosure of the date through which an entity has evaluated subsequent events and became effective June 30, 2009. This new guidance did not have a material impact on the Corporation's consolidated financial statements and related disclosures are set forth in Note I to the condensed consolidated financial statements.

In June 2009, the FASB issued Statement No. 166, Accounting for Transfers of Financial Assets – an Amendment of FASB Statement No. 140. This new guidance revises the presentation and disclosure of transfers of financial assets and the effects of a transfer on an entity's financial position, operating results and cash flows. Statement No. 166 applies to annual financial statements and interim periods beginning on or after November 15, 2009. Management has not completed its review of this new guidance.

In June 2009, the FASB issued Statement No. 168, The FASB Accounting Standards Codification™ and The Hierarchy of Generally Accepted Accounting Principles – a replacement of FASB Statement No. 162. On the effective date of this statement, the FASB Accounting Standards Codification™ (Codification) will supersede all then-existing non-Securities and Exchange Commission (SEC) accounting and reporting standards. All other non-grandfathered non-SEC accounting literature not included in the Codification will become non-authoritative. This statement is effective for financial statements issued for interim and annual periods ending after September 15, 2009, and will not have a material impact on the Corporation's consolidated financial statements.

Page 9 of 43

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

CAPITOL BANCORP LIMITED – Continued

Note C – Investment Securities

Investment securities consisted of the following (in $1,000s):

	June 30, 2009				December 31, 2008
	Amortized Cost		Estimated Fair Value		Amortized Cost		Estimated Fair Value
Available for sale:
United States government agency securities	$	6,840	$	6,850	$	9,785	$	9,913
Mortgage backed securities		6,041		6,177		4,813		4,890
Municipals		767		782		768		781
		13,648		13,809		15,366		15,584
Held for long-term investment:
Federal Reserve Bank stock		192		192		146		146
Federal Home Loan Bank stock		26,676		26,676		26,053		26,053
Corporate		6,642		6,642		6,591		6,591
Other		151		151		66		66
		33,661		33,661		32,856		32,856

	$	47,309	$	47,470	$	48,222	$	48,440

Investments in Federal Reserve Bank and Federal Home Loan Bank stock are restricted and may only be resold to, or redeemed by, the issuer.

Gross unrealized gains and losses on investment securities available for sale were as follows (in $1,000s):

	June 30, 2009				December 31, 2008
	Gains		Losses		Gains		Losses
United States government agency securities	$	13	$	3	$	128	$	--
Mortgage backed securities		138		2		85		8
Municipals		15		--		13		--

	$	166	$	5	$	226	$	8

The age of gross unrealized losses and carrying value (at estimated fair value) of securities available for sale are summarized below (in $1,000s):

	June 30, 2009				December 31, 2008
	Unrealized Loss		Carrying Value		Unrealized Loss		Carrying Value

One year or less:
United States government agency securities	$	3	$	597	$	--	$	--
Mortgage backed securities		1		29		4		281
		4		626		4		281
In excess of one year:
Mortgage backed securities		1		51		4		501

	$	5	$	677	$	8	$	782

Page 10 of 43

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

CAPITOL BANCORP LIMITED – Continued

Note C – Investment Securities—Continued

Management does not believe any individual unrealized loss as of June 30, 2009 represents an other-than-temporary loss (primarily due to such amounts being attributable to changes in interest rates). Further, it does not intend to sell such securities and believes it is unlikely sale would become required before the amortized cost can be recovered.

Gross realized gains and losses from sales and maturities of investment securities were insignificant for the periods presented.

Scheduled maturities of investment securities held as of June 30, 2009 were as follows:

	Amortized Cost		Estimated Fair Value

Due in one year or less	$	4,937	$	4,942
After one year, through five years		2,504		2,522
After five years, through ten years		593		602
After ten years		5,614		5,743
Securities held for long-term investment
without stated maturities		33,661		33,661

	$	47,309	$	47,470

Note D – Fair Value

FAS No. 157 establishes a hierarchy that prioritizes the use of fair value inputs used in valuation methodologies into the following three levels:

Level 1: Quoted prices (unadjusted) for identical assets or liabilities in active markets that the entity has the ability to access as of the measurement date.

Level 2: Significant observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active; or other inputs that are observable or can be derived from or corroborated by observable market data by correlation or other means.

Level 3: Significant unobservable inputs that reflect the reporting entity's own assumptions about the assumptions that market participants would use in pricing an asset or liability.

The following is a description of Capitol's valuation methodologies used to measure and disclose the fair values of its assets and liabilities on a recurring or nonrecurring basis:

Investment securities available for sale: Securities available for sale are recorded at fair value on a recurring basis. Fair value measurement is based on quoted prices, when available (Level 1). If quoted prices are not available, fair values are measured using independent pricing models (Level 2).

Mortgage loans held for sale: Mortgage loans held for sale are carried at the lower of cost or fair value and are measured on a nonrecurring basis. There were no mortgage loans held for sale written down to fair value at June 30, 2009. Fair value is based on independent quoted market prices, where applicable, or the prices for other mortgage whole loans with similar characteristics.

Page 11 of 43

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

CAPITOL BANCORP LIMITED – Continued

Note D – Fair Value – Continued

Loans: The Corporation does not record loans at fair value on a recurring basis. However, from time to time, nonrecurring fair value adjustments to collateral dependent loans are recorded to reflect partial write-downs based on the observable market price, current appraised value of the collateral or other estimates of fair value.

Other real estate owned: At the time of foreclosure, foreclosed properties are adjusted to fair value less estimated costs to sell upon transfer from portfolio loans to other real estate owned, establishing a new accounting basis. The Corporation subsequently adjusts fair value on other real estate owned on a nonrecurring basis to reflect partial write-downs based on the observable market price, current appraised value of the asset or other estimates of fair value.

The balances of assets and liabilities measured at fair value on a recurring basis as of June 30, 2009 were as follows (in $1,000s):

	Total		Significant Other Observable Inputs (Level 2)

Investment securities available for sale:
United State government agency securities	$	6,850	$	6,850
Mortgage backed securities		6,177		6,177
Municipals		782		782
	$	13,809	$	13,809

The balances of assets and liabilities measured at fair value on a recurring basis as of December 31, 2008 were as follows (in $1,000s):

	Total		Significant Other Observable Inputs (Level 2)

Investment securities available for sale:
United State government agency securities	$	9,913	$	9,913
Mortgage backed securities		4,890		4,890
Municipals		781		781
	$	15,584	$	15,584

The balances of assets and liabilities measured at fair value on a nonrecurring basis as of June 30, 2009 were as follows (in $1,000s):

	As Revised
	Total		Significant Unobservable Inputs (1) (Level 3)

Impaired loans	$	68,938	$	68,938

Other real estate owned	$	103,315	$	103,315

(1)	Represents carrying value based on the appraised value of the applicable collateral or foreclosed property or other estimates of fair value.

Page 12 of 43

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

CAPITOL BANCORP LIMITED – Continued

Note D – Fair Value – Continued

The balances of assets and liabilities measured at fair value on a nonrecurring basis as of December 31, 2008 were as follows (in $1,000s):

	Total		Significant Other Observable Inputs (Level 2)

Impaired loans (1)	$	103,580	$	103,580

(1)	Represents carrying value and related write-downs for which adjustments are based on the appraised value of the collateral.

Many of Capitol's collateral-dependent impaired loans and other real estate owned are located in severely depressed real estate markets. In those markets, appraisal data may be of limited usefulness in estimating fair value because comparable sale transactions are infrequent, not orderly and are often distressed or forced.

Capitol began applying the fair value measurement and disclosure provisions of FAS No. 157 effective January 1, 2009 to nonfinancial assets and liabilities measured on a nonrecurring basis, which did not have a material effect on Capitol's consolidated financial position upon implementation. The Corporation measures the fair value of the following on a nonrecurring basis: (1) long-lived assets, (2) foreclosed assets (other real estate owned), (3) the reporting unit under step one of its goodwill impairment test and (4) indefinite lived intangible assets.

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Page 13 of 43

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

CAPITOL BANCORP LIMITED – Continued

Note D – Fair Value – Continued

Carrying values and estimated fair values of financial instruments for FAS No. 107 disclosure purposes were as follows (in $1,000s):

	June 30, 2009 (As Revised)						December 31, 2008
	Carrying Value			Estimated Fair Value			Carrying Value			Estimated Fair Value
Financial assets:
Cash and cash equivalents	$	804,581		$	804,581		$	624,366		$	624,366
Loans held for sale		30,843			30,843			10,474			10,474
Investment securities:
Available for sale		13,809			13,809			15,584			15,584
Held for long-term investment		33,661			33,661			32,856			32,856
		47,470			47,470			48,440			48,440
Portfolio loans:
Loans secured by real estate:
Commercial		2,125,443			2,106,646			2,115,515			2,105,204
Residential (including multi-family)		891,710			877,000			879,754			865,406
Construction, land development and other land		676,309			622,624			797,486			753,028
Total loans secured by real estate		3,693,462			3,606,270			3,792,755			3,723,638
Commercial and other business-purpose loans		786,164			778,303			845,593			830,283
Consumer		55,830			56,066			61,340			62,313
Other		41,383			39,447			35,541			32,504
Total portfolio loans		4,576,839			4,480,086			4,735,229			4,648,738
Less allowance for loan losses		(114,215	)		(114,215	)		(93,040	)		(93,040	)
Net portfolio loans		4,462,624			4,365,871			4,642,189			4,555,698

Financial liabilities:
Deposits:
Noninterest-bearing		721,497			721,497			700,786			700,786
Interest-bearing:
Demand accounts		1,328,138			1,328,138			1,231,170			1,231,172
Time certificates of less than $100,000		956,677			959,751			1,160,221			1,161,411
Time certificates of $100,000 or more		1,688,707			1,690,283			1,405,435			1,408,431
Total interest-bearing		3,973,522			3,978,172			3,796,826			3,801,014
Total deposits		4,695,019			4,699,669			4,497,612			4,501,800
Notes payable and short-term borrowings		362,575			363,701			446,925			447,490
Subordinated debentures		167,366			170,841			167,293			170,841

Estimated fair values of financial assets and liabilities in the preceding table are based upon a comparison of current interest rates on financial instruments and the timing of related scheduled cash flows to the estimated present value of such cash flows using current estimated market rates of interest (unless quoted market values or other fair value information is more readily available). For example, the estimated fair value of portfolio loans is based on discounted cash flow computations. Similarly, the estimated fair value of time deposits, debt obligations and subordinated debentures were determined through discounted cash flow computations. Such estimates of fair value are not intended to represent market value or portfolio liquidation value, and only represent an estimate of fair value based on current financial reporting requirements.

Page 14 of 43

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

CAPITOL BANCORP LIMITED – Continued

Note D – Fair Value – Continued

Given current market conditions, a portion of the loan portfolio is not readily marketable and market prices do not exist. Capitol has not attempted to market the loan portfolio to potential buyers, if any exist, to determine the fair value of those instruments in accordance with the definition in FAS No. 157. Since negotiated prices in illiquid markets depend upon the then present motivations of the buyer and seller, it is reasonable to assume that actual sales prices could vary widely from any estimate of fair value made without the benefit of negotiations. Additionally, changes in market interest rates can dramatically impact the value of financial instruments in a short period of time. Accordingly, the fair value measurements for loans included in the table on the preceding page are unlikely to represent the instruments' liquidation values.

Note E – Stock Options

Stock option activity for the interim 2009 period is summarized as follows:

	Number of Stock Options Outstanding			Exercise Price Range		Weighted Average Exercise Price

Outstanding at January 1		2,374,159		$	13.50 to $ 46.20	$	28.28
Granted		69,520			6.04		6.04
Exercised		--
Cancelled or expired		(15,814	)

Outstanding at June 30		2,427,865		$	6.04 to $ 46.20	$	27.70

Stock options were granted in the first six months of 2009 and 2008, with an aggregate fair value approximating $240,000 and $255,000, respectively. Stock options granted during the interim 2009 period have a vesting date of December 31, 2009 and stock options granted during the interim 2008 period (52,360) became vested at December 31, 2008. Each stock option expires seven years from date of grant. Share-based compensation expense relating to stock options for the six months ended June 30, 2009 and 2008 approximated $238,000 and $411,000, respectively.

As of June 30, 2009, stock options outstanding had a weighted average remaining contractual life of 2.23 years and had no intrinsic value at that date. The following table summarizes stock options outstanding segregated by exercise price range as of June 30, 2009:

				Weighted Average
Exercise Price Range		Number Outstanding		Exercise Price		Remaining Contractual Life

$	5.00 to 14.99		69,520	$	6.04	6.61 years
$	15.00 to 19.99		135,853		16.67	1.23 years
$	20.00 to 24.99		574,450		21.69	2.30 years
$	25.00 to 29.99		585,415		27.09	1.15 years
$	30.00 to 34.99		695,119		32.10	2.19 years
$	35.00 or more		367,508		37.92	3.42 years

Total outstanding			2,427,865

Page 15 of 43

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

CAPITOL BANCORP LIMITED – Continued

Note F – Net Income (Loss) Per Share Attributable to Capitol Bancorp Limited

The computations of basic and diluted earnings (loss) per share were based on the following (in 1,000s) for the periods ended June 30:

	Three Month Period					Six Month Period
	2009			2008		2009			2008
	(As Revised)					(As Revised)

Numerator—net income (loss) attributable to Capitol Bancorp Limited for the period	$	(16,304	)	$	623	$	(36,978	)	$	2,814

Denominator:
Weighted average number of shares outstanding, excluding unvested restricted shares (denominator for basic earnings per share)		17,244			17,144		17,203			17,143

Effect of dilutive securities:
Unvested restricted shares		--			33		--			27
Stock options		--			--		--			9
Total effect of dilutive securities		--			33		--			36

Denominator for diluted earnings per share—
Weighted average number of shares and potential dilution		17,244			17,177		17,203			17,179

Number of antidilutive stock options excluded from diluted earnings per share computation		2,428			2,494		2,428			2,269

Number of antidilutive unvested restricted shares excluded from diluted earnings per share computation		123			83		123			78

Note G – Trust-Preferred Securities

In April 2009, the Corporation determined that it would commence the deferral of interest payments on its various trust-preferred securities, as is permitted under the terms of the securities, to conserve cash and capital resources. The payment of interest may be deferred for periods up to five years. During such deferral periods, Capitol is prohibited from paying dividends on its common stock (subject to certain exceptions) and will continue to accrue interest payable on such securities. Holders of the trust-preferred securities will continue to recognize current taxable income relating to the deferred interest payments.

Note H – Share-Exchange Transaction

Effective May 31, 2009, Capitol completed a share-exchange transaction with the noncontrolling shareholders of Bank of Auburn Hills, previously a 51% owned subsidiary. In conjunction with the share exchange, Capitol issued 227,000 previously unissued shares of Capitol's common stock and warrants for the purchase of 76,000 shares of Capitol's common stock. The exercise price of the warrants is $20.37 per share of Capitol's common stock, which expire May 31, 2012. As a result of the share exchange transaction, Bank of Auburn Hills became wholly-owned. Capitol's results of operations would not have been materially different if it had occurred at the beginning of 2009 or 2008.

Page 16 of 43

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

CAPITOL BANCORP LIMITED – Continued

Note I – Subsequent Events

Management has evaluated subsequent events through the time of filing this quarterly report on Form 10-Q on July 31, 2009.

On July 21, 2009, Capitol announced its intention to formally and legally separate the operations of Michigan Commerce Bancorp Limited (MCBL) as an independent publicly-traded company, through a spin-off transaction. Upon completion of the proposed spin-off, Capitol will continue to be a bank holding company with national banking operations and MCBL will be a separate publicly-traded bank holding company consisting of the substantial majority of Capitol's prior Michigan-based banks (see accompanying pro forma consolidated financial statements on pages 35 and 36).

In the proposed spin-off, Capitol's shareholders will receive shares of MCBL common stock according to a distribution ratio. The distribution ratio and related record date for the proposed distribution will be determined in the near future. The proposed spin-off is subject to a number of contingencies. The proposed spin-off will enable the two separate publicly-traded companies to focus on maximizing opportunities for the distinct business markets of each, and will allow both Capitol and MCBL to each develop and implement a strategic plan that fits their specific market and operations.

MCBL's consolidated total assets approximated $1.25 billion or about 22% of Capitol's total assets as of June 30, 2009. If the proposed spin-off had been completed on June 30, 2009, consolidated total assets of Capitol would have approximated $4.5 billion, while reflecting a 31% decline in nonperforming assets and a modest increase in the consolidated total capital ratio. If the proposed spin-off would have occurred at the beginning of 2009, the consolidated net loss attributable to stockholders of Capitol would have been reduced 40% to $22.1 million ($1.29 per share) for the six months ended June 30, 2009.

In July 2009, Capitol proposed a share exchange offer regarding the shares of CDBLs III-VI not already owned by Capitol, whereby there may be an opportunity to exchange Class B common stock of the CDBLs for a combination of convertible preferred stock of Capitol and trust-preferred securities. If all of the CDBL III-VI shareholders were to exchange their shares pursuant to the proposed exchange offer, Capitol would issue convertible preferred stock with a preference value of approximately $66.7 million and trust-preferred securities with an aggregate liquidation value approximating $23.5 million. If all CDBL III-VI shareholders were to exchange their CDBL interests, as proposed and if consummated, Capitol's net loss attributable to Capitol Bancorp Limited would have approximated $42.6 million ($2.48 per share) for the six months ended June 30, 2009. The proposed exchange offer is subject to a number of contingencies.

Note J – Revision of Previously-Issued Financial Statements

The unaudited condensed consolidated financial statements for the three months and six months ended June 30, 2009 have been revised to properly base fair-value estimates of collateral-dependent loans and other real estate owned upon appraisal data rather than use of alternative valuation methods under fair value accounting guidance (FSP FAS 157-4). FSP FAS 157-4 was initially implemented in error for the period ended March 31, 2009.

Page 17 of 43

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

CAPITOL BANCORP LIMITED – Continued

Note J – Revision of Previously-Issued Financial Statements – Continued

The following table summarizes the financial statement revision on each affected line item (in $1,000s, except per-share data):

	For the Three Months Ended June 30, 2009									As of and for the Six Months Ended June 30, 2009
	As Previously Reported			Adjustment			As Revised			As Previously Reported			Adjustment			As Revised

Net portfolio loans										$	4,466,213		$	(3,589	)	$	4,462,624
Other real estate owned											103,739			(424	)		103,315
Other assets											130,142			1,405			131,547
Total assets											5,726,148			(2,608	)		5,723,540
Retained earnings											45,048			(2,608	)		42,440
Total Capitol Bancorp Limited stockholders' equity											321,585			(2,608	)		318,977

Provision for loan losses	$	35,813		$	(2,155	)	$	33,658			63,985			3,589			67,574
Noninterest expense		51,688			(1,528	)		50,160			101,683			424			102,107
Loss before income taxes		(39,925	)		3,683			(36,242	)		(75,678	)		(4,013	)		(79,691	)
Income taxes benefit		(14,571	)		1,289			(13,282	)		(27,419	)		(1,405	)		(28,824	)
Net loss		(25,354	)		2,394			(22,960	)		(48,259	)		(2,608	)		(50,867	)
Net loss attributable to Capitol Bancorp Limited		(18,698	)		2,394			(16,304	)		(34,370	)		(2,608	)		(36,978	)
Net loss per share attributable to Capitol Bancorp Limited (basic and diluted)	$	(1.08	)	$	0.13		$	(0.95	)	$	(2.00	)	$	(0.15	)	$	(2.15	)

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Page 18 of 43

PART I, ITEM 2

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS

Financial Condition

Total assets approximated $5.7 billion at June 30, 2009 and December 31, 2008. The balance sheet includes Capitol and its consolidated subsidiaries (in thousands):

	Total Assets
	June 30, 2009		December 31, 2008
	(As Revised)
Arizona Region:
Arrowhead Community Bank	$	83,918	$	80,606
Asian Bank of Arizona		41,911		38,127
Bank of Tucson		205,047		189,869
Camelback Community Bank		90,586		93,754
Central Arizona Bank		84,894		79,775
Colonia Bank		13,740		12,522
Mesa Bank		232,329		248,262
Southern Arizona Community Bank		91,852		88,146
Sunrise Bank of Albuquerque		77,879		81,977
Sunrise Bank of Arizona		139,456		119,395
Yuma Community Bank		71,743		73,028
Arizona Region Total		1,133,355		1,105,461

California Region:
Bank of Escondido		100,215		96,803
Bank of Feather River		33,616		29,218
Bank of San Francisco		81,148		74,670
Bank of Santa Barbara		58,984		72,076
Napa Community Bank		158,232		149,093
Point Loma Community Bank		71,036		61,514
Sunrise Bank of San Diego		94,144		86,322
Sunrise Community Bank		41,191		36,139
California Region Total		638,566		605,835

Colorado Region:
Fort Collins Commerce Bank		86,163		80,247
Larimer Bank of Commerce		89,610		88,725
Loveland Bank of Commerce		36,754		32,034
Mountain View Bank of Commerce		43,321		37,740
Colorado Region Total		255,848		238,746

Great Lakes Region:
Bank of Auburn Hills		41,516		43,856
Bank of Maumee		51,773		56,812
Bank of Michigan		82,422		78,716
Capitol National Bank		242,481		245,354
Elkhart Community Bank		110,171		99,917
Evansville Commerce Bank		62,009		63,228
Goshen Community Bank		82,993		87,419
Michigan Commerce Bank(1)		1,211,634		1,275,125

Page 19 of 43

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS – Continued

Financial Condition – Continued

Summary of total assets – continued:

	Total Assets
	June 30, 2009		December 31, 2008
	(As Revised)
Great Lakes Region: - Continued
Ohio Commerce Bank	$	58,567	$	60,678
Paragon Bank & Trust		114,216		107,491
Great Lakes Region Total		2,057,782		2,118,596

Midwest Region:
Adams Dairy Bank		38,915		33,867
Bank of Belleville		73,815		73,901
Community Bank of Lincoln		55,652		53,222
Summit Bank of Kansas City		61,241		53,429
Midwest Region Total		229,623		214,419

Nevada Region:
1st Commerce Bank		45,075		52,622
Bank of Las Vegas		71,494		73,692
Black Mountain Community Bank		163,766		157,545
Desert Community Bank		94,408		100,312
Red Rock Community Bank		124,120		126,993
Nevada Region Total		498,863		511,164

Northeast Region:
USNY Bank		63,700		49,620

Northwest Region:
Bank of Bellevue		56,346		55,841
Bank of Everett		45,731		44,756
Bank of Tacoma		47,645		44,241
High Desert Bank		50,075		41,904
Issaquah Community Bank		37,857		36,942
Northwest Region Total		237,654		223,684

Southeast Region:
Bank of Valdosta		54,628		58,995
Community Bank of Rowan		141,598		138,341
First Carolina State Bank		119,331		119,774
Peoples State Bank		29,106		29,233
Pisgah Community Bank		51,983		36,897
Sunrise Bank of Atlanta		60,624		62,198
Southeast Region Total		457,270		445,438

Texas Region:
Bank of Fort Bend		33,111		26,424
Bank of Las Colinas		43,694		31,354
Texas Region Total		76,805		57,778

Parent company and other, net		74,074		84,095

Consolidated Totals	$	5,723,540	$	5,654,836

(1)	Michigan Commerce Bank resulted from the merger of Ann Arbor Commerce Bank, Brighton Commerce Bank, Detroit Commerce Bank, Grand Haven Bank, Kent Commerce Bank, Macomb Community Bank, Muskegon Commerce Bank, Oakland Commerce Bank and Portage Commerce Bank effective March 31, 2009.

Page 20 of 43

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS – Continued

Financial Condition – Continued

Portfolio loans, the single largest asset category, decreased during the six months ended June 30, 2009 by approximately $158 million, compared to loan growth of about $250 million during the corresponding period of 2008. Portfolio growth has slowed in response to the need to preserve liquidity and capital in the current economic climate and the general economic slowdown occurring nationally.

Geographic diversification of Capitol's balance sheet has become increasingly important. Prior to 1996, all of Capitol's banking operations were located in Michigan. As of June 30, 2009, 37% of the consolidated loan portfolio relates to banks located within the Great Lakes Region (39% at December 31, 2008) and 63% of the consolidated loan portfolio relates to banks located in other regions of the country (61% at December 31, 2008). The reason why this is important is that Capitol's diversification efforts will add stability to results of operations by further reducing a disproportionate geographic concentration within a specific region. On July 21, 2009, Capitol announced the proposed spin-off of the substantial majority of its Michigan banking operation which, if completed, would minimize Capitol's future exposure to the Michigan economy. The proposed spin-off transaction is discussed elsewhere in this narrative.

The consolidated allowance for loan losses at June 30, 2009 approximated $114 million or 2.50% of total portfolio loans, a significant increase from the 1.96% ratio at the beginning of the year.

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Page 21 of 43

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS – Continued

Financial Condition – Continued

The allowance for loan losses is maintained at a level believed adequate by management to absorb potential losses inherent in the loan portfolio at the balance sheet date. Management's determination of the adequacy of the allowance is based on evaluation of the portfolio (including potential impairment of individual loans and concentrations of credit), past loss experience, current economic conditions, volume, amount and composition of the loan portfolio and other factors. The allowance is increased by provisions charged to operations and reduced by net charge-offs. The table below summarizes portfolio loan balances and activity in the allowance for loan losses (in thousands):

	Periods Ended June 30
	Three Month Period						Six Month Period
	2009			2008			2009			2008
	(As Revised)						(As Revised)
Allowance for loan losses at beginning of period	$	99,629		$	61,666		$	93,040		$	58,124

Loans charged-off:
Loans secured by real estate:
Commercial		(2,052	)		(2,772	)		(5,625	)		(3,444	)
Residential (including multi-family)		(6,994	)		(1,013	)		(14,897	)		(3,163	)
Construction, land development and other land		(5,731	)		(1,761	)		(13,916	)		(3,120	)
Total loans secured by real estate		(14,777	)		(5,546	)		(34,438	)		(9,727	)
Commercial and other business-purpose loans		(4,567	)		(2,496	)		(12,769	)		(4,297	)
Consumer		(252	)		(55	)		(544	)		(189	)
Other		(1	)		(34	)		(1	)		(34	)
Total charge-offs		(19,597	)		(8,131	)		(47,752	)		(14,247	)
Recoveries:
Loans secured by real estate:
Commercial		20			600			122			718
Residential (including multi-family)		154			376			201			460
Construction, land development and other land		2			197			121			223
Total loans secured by real estate		176			1,173			444			1,401
Commercial and other business-purpose loans		335			153			879			583
Consumer		14			24			29			65
Other		--			--			1			1
Total recoveries		525			1,350			1,353			2,050
Net charge-offs		(19,072	)		(6,781	)		(46,399	)		(12,197	)
Additions to allowance charged to expense		33,658			9,019			67,574			17,977

Allowance for loan losses at June 30	$	114,215		$	63,904		$	114,215		$	63,904

Average total portfolio loans for the period	$	4,649,187		$	4,541,327		$	4,684,544		$	4,472,508

Ratio of net charge-offs (annualized) to average portfolio loans outstanding		1.64	%		0.60	%		1.98	%		0.55	%

Page 22 of 43

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS – Continued

Financial Condition – Continued

Interim loan charge-offs for the six-month 2009 period, which increased significantly compared to 2008, are not necessarily indicative of future charge-off levels because of the variability in asset quality and resolution of nonperforming loans. The significant increase in the provision for loan losses in 2009 was associated primarily with Michigan and certain Arizona and Nevada banks, due to growth in nonperforming loans and a sustained difficult and uncertain economic climate. The interim 2009 provision for loan losses is discussed in further detail in the ‘Results of Operations’ section of this narrative.

The amounts of the allowance for loan losses allocated in the following table (dollars in thousands) are based on management's estimate of losses inherent in the portfolio at the balance sheet date and should not be interpreted as an indication of future charge-offs:

	June 30, 2009					December 31, 2008
	Amount		Percentage of Total Portfolio Loans			Amount		Percentage of Total Portfolio Loans




Loans secured by real estate:
Commercial	$	36,999		0.82	%	$	30,007		0.63	%
Residential (including multi-family)		23,594		0.51	%		21,645		0.46	%
Construction, land development and other land		20,957		0.46	%		17,496		0.37	%
Total loans secured by real estate		81,550		1.79	%		69,148		1.46	%
Commercial and other business-purpose loans		31,027		0.68	%		22,547		0.47	%
Consumer		1,373		0.03	%		1,032		0.02	%
Other		265					313		0.01	%

Total allowance for loan losses	$	114,215		2.50	%	$	93,040		1.96	%

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Page 23 of 43

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS – Continued

Financial Condition – Continued

Nonperforming loans (i.e., loans which are 90 days or more past due and still accruing interest and loans on nonaccrual status) and other nonperforming assets are summarized below (in thousands):

	June 30, 2009		March 31, 2009		December 31, 2008
	(As Revised)		(As Revised)
Nonaccrual loans:
Loans secured by real estate:
Commercial	$	84,879	$	67,248	$	39,892
Residential (including multi-family)		54,235		60,246		35,675
Construction, land development and other land		87,006		76,390		72,996
Total loans secured by real estate		226,120		203,884		148,563
Commercial and other business-purpose loans		24,756		16,964		16,283
Consumer		586		356		190
Total nonaccrual loans		251,462		221,204		165,036

Past due (>90 days) loans and accruing interest:
Loans secured by real estate:
Commercial		2,706		2,345		1,623
Residential (including multi-family)		1,318		2,371		365
Construction, land development and other land		4,284		109		2,293
Total loans secured by real estate		8,308		4,825		4,281
Commercial and other business-purpose loans		1,152		636		747
Consumer		42		50		146
Total past due loans		9,502		5,511		5,174

Total nonperforming loans	$	260,964	$	226,715	$	170,210

Real estate owned and other repossessed assets		103,529		85,122		67,449

Total nonperforming assets	$	364,493	$	311,837	$	237,659

Nonperforming loans at June 30, 2009 approximated 5.70% of total portfolio loans, an increase from the December 31, 2008 ratio of 3.59%. Nonperforming loans increased $91 million or 53% during the six-month 2009 period. Notably, the increase in nonperforming loans during the three months ended June 30, 2009 was about half of the corresponding increase during the preceding quarter. Of the nonperforming loans at June 30, 2009, about 90% were real estate secured. Those loans, when originated, had appropriate loan-to-value ratios based upon real estate market conditions at that time and, accordingly, have loss exposure which would be expected to be minimal; however, underlying real estate values depend upon current economic conditions and liquidation strategies. Most other nonperforming loans were generally secured by other business assets. Nonperforming loans at June 30, 2009 were in various stages of resolution for which management believes such loans are adequately collateralized or otherwise appropriately considered in its determination of the adequacy of the allowance for loan losses.

Due to local and regional economic conditions, there is uncertainty in future real estate values, appraisal results and the resulting potential impact on valuation of collateral-dependent loans and real estate owned. The fair value measurement of collateral-dependent loans and other real estate owned is dependent primarily upon appraisal of the underlying property value. Fair value measurement has been defined in a relatively recent accounting standard, Financial Accounting Standards Board Statement No. 157 (see Note B of the notes to the condensed consolidated financial statements). Management cautiously monitors real estate values and related appraisal data when evaluating such valuations.

Page 24 of 43

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS – Continued

Financial Condition – Continued

Many of Capitol's collateral-dependent impaired loans are located in severely depressed real estate markets. In those markets, appraisal data may be of limited usefulness in estimating fair value because comparable sale transactions are infrequent, not orderly and are often distressed or forced.

Total nonperforming loans approximated $261 million at June 30, 2009. Of that total, $135 million or 52% (including some loans carried at the parent level) were originated by banks within the Great Lakes Region, primarily located in Michigan. Within the Great Lakes Region, nonperforming loans approximated 2.95% of total portfolio loans at June 30, 2009. Responsive to the elevated level of nonperforming loans within the Great Lakes Region, higher levels of allowances for loan losses have been established, approximating 3.35% of portfolio loans for the region on a combined basis as of June 30, 2009 and ranging as high as 4.49% at certain banks. Those ratios can be contrasted with other banks and geographic regions within the Corporation with lower levels of nonperforming loans. Nonperforming loans have increased during the six months ended June 30, 2009 in other regions, such as the Arizona Region ($14.7 million increase) and the Nevada Region ($20.1 million increase) to 7.0% and 8.4% of portfolio loans, respectively, as the effects of the recession have had an evolving significant effect on those regions recently.

In addition to the identification of nonperforming loans involving borrowers with payment performance difficulties (i.e., nonaccrual loans and loans past due 90 days or more), management utilizes an internal loan review process to identify other potential problem loans which may warrant additional monitoring or other attention. This loan review process is a continuous activity which periodically updates internal loan ratings. At inception, all loans are individually assigned a rating which grades the credits on a risk basis, based on the financial strength of the borrower and guarantors and other factors such as nature of the borrower's business climate, local economic conditions and other subjective factors. The loan rating process is fluid and subjective.

Potential problem loans include loans which are generally performing as agreed; however, because of loan reviews and/or lending staff's risk assessment, increased monitoring is deemed appropriate. In addition, some loans are assigned a more adverse classification, with specific performance issues or other risk factors requiring close management and development of specific remedial action plans.

At June 30, 2009, potential problem loans (including the previously-mentioned nonperforming loans) approximated $747 million or about 16% of total consolidated portfolio loans, compared to approximately $551 million or about 12% at December 31, 2008. These potential problem loans do not necessarily have significant loss exposure (nor are they necessarily deemed 'impaired'), but rather are identified by management in this manner to aid in loan administration and risk management. Management has considered these loans in its evaluation of the adequacy of the allowance for loan losses. Management believes, however, that current general economic conditions in some markets may result in higher levels of future loan losses in comparison to previous years, as experienced in the first six months of 2009.

Real estate owned and other repossessed assets increased $36 million to $103 million during the six months ended June 30, 2009. Most of this increase ($28 million) was related to banks located in Michigan and the Arizona Region.

Foreclosure laws in Michigan generally favor borrowers rather than lenders and, accordingly, foreclosure and redemption periods (i.e., the number of months it takes for a financial institution to obtain clear title to freely market the real estate) take much longer than many other states. Further, once the property is available to the bank for sale or liquidation, market conditions, as they are currently (particularly in Michigan and some western communities), may not be conducive to rapid marketing or near-term sale of the properties.

Page 25 of 43

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS – Continued

Financial Condition – Continued

The following comparative analysis summarizes each bank's total portfolio loans, allowance for loan losses, nonperforming loans and ratio of the allowance as a percentage of portfolio loans (dollars in thousands):

					Allowance for								Allowance as a Percentage
	Total Portfolio Loans				Loan Losses				Nonperforming Loans				of Total Portfolio Loans
	June 30, 2009		Dec 31, 2008		June 30, 2009		Dec 31, 2008		June 30, 2009		Dec 31, 2008		June 30, 2009			Dec 31, 2008
	(As Revised)								(As Revised)				(As Revised)
Arizona Region:
Arrowhead Community Bank	$	56,664	$	69,487	$	4,321	$	2,375	$	7,135	$	7,430		7.63	%		3.42	%
Asian Bank of Arizona		33,184		33,023		990		694		1,560		1,898		2.98	%		2.10	%
Bank of Tucson		153,309		168,390		1,552		1,550		7,284		2,462		1.01	%		0.92	%
Camelback Community Bank		80,465		84,957		1,550		789		2,938		2,030		1.93	%		0.93	%
Central Arizona Bank		68,231		69,372		1,900		1,339		2,409		1,895		2.78	%		1.93	%
Colonia Bank		9,857		7,483		256		120						2.60	%		1.60	%
Mesa Bank		122,591		147,853		2,381		3,250		18,418		21,423		1.94	%		2.20	%
Southern Arizona Community Bank		74,909		79,434		1,080		875		353				1.44	%		1.10	%
Sunrise Bank of Albuquerque		68,021		74,115		1,550		933		5,486		43		2.28	%		1.26	%
Sunrise Bank of Arizona		93,817		110,131		2,224		1,159		9,410		3,707		2.37	%		1.05	%
Yuma Community Bank		59,137		63,804		675		730		2,096		1,506		1.14	%		1.14	%
Arizona Region Total		820,185		908,049		18,479		13,814		57,089		42,394		2.25	%		1.52	%

California Region:
Bank of Escondido		70,300		62,608		1,573		810		2,811		817		2.24	%		1.29	%
Bank of Feather River		29,139		22,962		360		320						1.24	%		1.39	%
Bank of San Francisco		71,680		60,772		1,125		823		165		299		1.57	%		1.35	%
Bank of Santa Barbara		50,863		60,535		1,347		1,138		2,054		1,841		2.65	%		1.88	%
Napa Community Bank		137,168		130,150		2,091		1,890				1,848		1.52	%		1.45	%
Point Loma Community Bank		54,713		52,497		951		797		2,288		795		1.74	%		1.52	%
Sunrise Bank of San Diego		75,124		76,282		2,041		1,048		2,176		1,444		2.72	%		1.37	%
Sunrise Community Bank		32,982		28,355		535		440		1,585				1.62	%		1.55	%
California Region Total		521,969		494,161		10,023		7,266		11,079		7,044		1.92	%		1.47	%

Colorado Region:
Fort Collins Commerce Bank		78,911		74,280		1,380		1,101		962		48		1.75	%		1.48	%
Larimer Bank of Commerce		80,040		78,638		1,400		1,160						1.75	%		1.48	%
Loveland Bank of Commerce		32,949		27,251		705		652		1,709		1,090		2.14	%		2.39	%
Mountain View Bank of Commerce		37,556		32,180		565		474		598				1.50	%		1.47	%
Colorado Region Total		229,456		212,349		4,050		3,387		3,269		1,138		1.77	%		1.60	%

Great Lakes Region:
Bank of Auburn Hills		33,971		39,914		1,310		988		1,591		2,895		3.86	%		2.48	%
Bank of Maumee		42,245		50,094		729		752		468		37		1.73	%		1.50	%
Bank of Michigan		66,412		67,700		1,025		996		698		306		1.54	%		1.47	%
Capitol National Bank		196,755		213,392		8,719		8,341		21,610		12,828		4.43	%		3.91	%
Elkhart Community Bank		80,449		87,971		3,005		1,702		5,688		3,941		3.74	%		1.93	%
Evansville Commerce Bank		49,150		55,779		1,171		943		1,164		158		2.38	%		1.69	%
Goshen Community Bank		69,168		74,144		1,679		1,501		1,309		876		2.43	%		2.02	%
Michigan Commerce Bank(1)		1,051,935		1,127,348		35,648		30,258		88,332		63,092		3.39	%		2.68	%
Ohio Commerce Bank		50,352		48,207		814		723						1.62	%		1.50	%
Paragon Bank & Trust		73,759		87,651		3,312		2,990		7,783		6,447		4.49	%		3.41	%
Great Lakes Region Total		1,714,196		1,852,200		57,412		49,194		128,643		90,580		3.35	%		2.66	%

Midwest Region:
Adams Dairy Bank		33,681		28,834		505		450						1.50	%		1.56	%
Bank of Belleville		63,319		65,150		938		923						1.48	%		1.42	%
Community Bank of Lincoln		45,427		43,657		1,000		674		590				2.20	%		1.54	%
Summit Bank of Kansas City		46,191		44,068		711		709		1,509		779		1.54	%		1.61	%
Midwest Region Total		188,618		181,709		3,154		2,756		2,099		779		1.67	%		1.52	%

Page 26 of 43

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS – Continued

Financial Condition – Continued

Summary of loan information – continued:

					Allowance for								Allowance as a Percentage
	Total Portfolio Loans				Loan Losses				Nonperforming Loans				of Total Portfolio Loans
	June 30, 2009		Dec 31, 2008		June 30, 2009		Dec 31, 2008		June 30, 2009		Dec 31, 2008		June 30, 2009			Dec 31, 2008
	(As Revised)								(As Revised)				(As Revised)
Nevada Region:
1st Commerce Bank	$	37,065	$	30,663	$	1,192	$	740	$	5,894	$	1,000		3.22	%		2.41	%
Bank of Las Vegas		64,156		64,648		930		901		7,600		4,399		1.45	%		1.39	%
Black Mountain Community Bank		144,865		143,654		1,619		1,765		8,292		1,722		1.12	%		1.23	%
Desert Community Bank		84,943		87,388		1,607		943		4,060		3,671		1.89	%		1.08	%
Red Rock Community Bank		99,653		110,143		1,984		1,200		10,496		5,488		1.99	%		1.09	%
Nevada Region Total		430,682		436,496		7,332		5,549		36,342		16,280		1.70	%		1.27	%

Northeast Region:
USNY Bank		50,884		43,471		772		680						1.52	%		1.56	%

Northwest Region:
Bank of Bellevue		42,053		48,838		1,245		850		1,456		170		2.96	%		1.74	%
Bank of Everett		37,055		32,735		1,550		686		1,582		92		4.18	%		2.10	%
Bank of Tacoma		38,218		40,175		930		770		2,502		1,183		2.43	%		1.92	%
High Desert Bank		36,867		35,407		736		624		1,345				2.00	%		1.76	%
Issaquah Community Bank		27,176		24,238		595		385		339				2.19	%		1.59	%
Northwest Region Total		181,369		181,393		5,056		3,315		7,224		1,445		2.79	%		1.83	%

Southeast Region:
Bank of Valdosta		46,403		51,629		896		835		794				1.93	%		1.62	%
Community Bank of Rowan		113,446		109,290		1,702		1,634		2,357		1,688		1.50	%		1.50	%
First Carolina State Bank		94,290		97,670		1,553		1,312		2,429		2,421		1.65	%		1.34	%
Peoples State Bank		21,223		21,314		400		366		1,591		937		1.88	%		1.72	%
Pisgah Community Bank		43,956		27,746		715		475		116		100		1.63	%		1.71	%
Sunrise Bank of Atlanta		47,589		52,763		1,070		1,063		1,679		269		2.25	%		2.01	%
Southeast Region Total		366,907		360,412		6,336		5,685		8,966		5,415		1.73	%		1.58	%

Texas Region:
Bank of Fort Bend		27,483		19,859		411		305						1.50	%		1.54	%
Bank of Las Colinas		31,779		29,657		508		435						1.60	%		1.47	%
Texas Region Total		59,262		49,516		919		740						1.55	%		1.49	%

Parent company and other, net		13,311		15,473		682		654		6,253		5,135		5.12	%		4.23	%

Consolidated totals	$	4,576,839	$	4,735,229	$	114,215	$	93,040	$	260,964	$	170,210		2.50	%		1.96	%

(1)	Michigan Commerce Bank resulted from the merger of Ann Arbor Commerce Bank, Brighton Commerce Bank, Detroit Commerce Bank, Grand Haven Bank, Kent Commerce Bank, Macomb Community Bank, Muskegon Commerce Bank, Oakland Commerce Bank and Portage Commerce Bank effective March 31, 2009.

Accounting for income taxes requires significant estimates and management judgments. At June 30, 2009, Capitol had a deferred tax asset approximating $89.3 million ($61.3 million at December 31, 2008). The deferred tax asset is composed primarily of temporary differences relating to the allowance for loan losses and net operating loss carryforwards. If it is determined that realization of the deferred tax asset is in doubt, a valuation reserve is required to reduce the deferred tax asset to the amount which is more-likely-than-not realizable. No valuation reserve has been deemed necessary by management, inasmuch as it is believed that it is more-likely-than-not that the deferred tax asset will be realized. Such conclusion is based on the expectation that realization will occur through future operating results and that Capitol's prior experience with de novo banks which incur operating losses and large provisions for loan losses in their most early periods of operation, ultimately becoming profitable. If a valuation allowance against the deferred tax asset may be necessary in the future, it will adversely affect consolidated operating results.

Page 27 of 43

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS – Continued

Results of Operations

Summary

The second quarter 2009 net loss attributable to Capitol Bancorp Limited was approximately $16.3 million compared to net income of $623,000 reported for the second quarter of 2008. The net loss per share attributable to Capitol Bancorp Limited for the three months ended June 30, 2009 was $0.95 compared to diluted earnings per share of $0.04 in the corresponding period of 2008. The net loss attributable to Capitol Bancorp Limited for the six months ended June 30, 2009 approximated $37.0 million, compared to net income of $2.8 million in the corresponding period of 2008. The net loss per share attributable to Capitol Bancorp Limited was $2.15 for the six months ended June 30, 2009, compared to earnings per share of $0.16 in the corresponding 2008 period.

The primary reason for the interim 2009 loss was a very large provision for loan losses recorded during the six months ended June 30, 2009 as the Corporation continued to carefully assess the implications and impact of declining property values and weak bank performance. The provision for loan losses increased $50 million to $68 million for the six months ended June 30, 2009, compared to a provision of $18 million for the corresponding period of 2008.

Analytical Review

The provision for loan losses for the three months ended June 30, 2009 was $33.7 million compared to $9 million during the corresponding 2008 period. The provision for loan losses for the six-month 2009 period was $68 million compared to $18 million for the same period in 2008. The provision for loan losses increased significantly in the 2009 period due to higher levels of loan charge-offs and in response to growth in nonperforming loans. Of the provision for loan losses for the three months ended June 30, 2009, about half was attributable to increasing the allowance for loan losses as a percentage of portfolio loans from 2.12% to 2.50%. Provisions for loan losses are based upon management's analysis of the adequacy of the allowance for loan losses, as previously discussed. The significant increase in the provision for loan losses compared to the preceding year had a material adverse effect on operating results for the interim 2009 periods.

Net interest income for the first six months of 2009 totaled $78 million, a 7.2% decrease compared to $84.1 million in 2008. Net interest income for the three months ended June 30, 2009 totaled $40.6 million, a 3.8% decrease compared to $42.2 million in 2008. The net interest margin approximated 3.02% for the three months ended June 30, 2009, a 4 basis-point increase compared to 2.98% for the three months ended December 31, 2008 and a 0.48% decrease compared to 3.50% for the three months ended June 30, 2008. Notably, the net interest margin for the three months ended June 30, 2009 improved 21 basis-points from the immediately preceding quarterly period. Several causal factors impacted the 2009 margin, including elevated levels of nonperforming loans, higher levels of liquidity, competitive pressures at the bank level in pricing of loans and deposits, migration of noninterest-bearing deposits to interest-bearing accounts, changes in interest rates and higher interest costs related to debt obligations. It is difficult to speculate on future changes in net interest margin.

Noninterest income for the three months ended June 30, 2009 was $7 million, an 8% increase compared to the $6.5 million for the same period in 2008. Noninterest income for the six months ended June 30, 2009 was $12 million, a decrease of $1 million or 8.4%, over the same period in 2008. The reduction in the six-month 2009 period was due to decreases of $415,000 in other fee income and $685,000 in trust and wealth-management revenue. Fees from origination of non-portfolio residential mortgage loans totaled $2.4 million for the first six months of 2009, up slightly from $2.0 million for the comparable period in 2008, due to lower interest rates and increasing loan origination volume. The gain on sales of government-guaranteed loans decreased about 47% in the interim 2009 period compared to 2008, due to the lack of a favorable market for sale of such loans.

Page 28 of 43

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS – Continued

Results of Operations – Continued

Noninterest expense totaled $102.1 million for the six-month 2009 period and $50.2 million for the second quarter of 2009, compared to $92.6 million and $47.8 million, respectively, for the comparable periods of 2008. The increase in noninterest expense is associated with regulatory fees, growth in the size of previously-existing banks, costs of problem loan administration and other real estate write-downs. Costs associated with foreclosed properties and other real estate increased to $8.6 million in the 2009 period ($2.1 million in the 2008 period) while the cost of FDIC insurance and other regulatory fees also increased significantly to $7.5 million ($1.9 million in the 2008 period) primarily attributable to a one-time special FDIC industry-wide assessment effective June 30, 2009 which approximated $2.6 million. The FDIC has announced it is likely that an additional special assessment will be imposed later in 2009, however, the amount has not been determined. Increases in occupancy, equipment rent, depreciation and maintenance in 2009 relate primarily to the addition of four de novo banks in 2008.

The largest element of noninterest expense is salaries and employee benefits, which approximated $53.5 million for the six months ended June 30, 2009, an increase from $53.3 million in the corresponding period of 2008. The increase is partly due to the opening of four new banks in 2008 and the severance payments arising from the consolidation of the nine Michigan banks into Michigan Commerce Bank effective March 31, 2009. For the three months ended June 30, 2009, salaries and employee benefits expense decreased $4.6 million or about 16% from amounts recorded in the immediately preceding quarter, as a result of reductions in staffing and other cost-cutting measures implemented in late 2008 and early 2009.

The more significant elements of other noninterest expense consisted of the following (in thousands) for the periods ended June 30:

	Three Month Period				Six Month Period
	2009		2008		2009		2008

Bank services (ATMs, telephone banking and Internet banking)	$	737	$	626	$	1,453	$	1,181
Loan and collection expense		673		487		1,263		1,033
Directors' fees		578		756		1,261		1,558
Legal fees		581		450		1,040		573
Advertising		513		857		1,020		1,633
Paper, printing and supplies		511		782		1,009		1,552
Communications		423		541		914		1,049
Travel, lodging and meals		494		853		886		1,486
Professional fees		374		334		675		699
Postage		314		348		631		658
Taxes other than income taxes		268		137		493		511
Dues and memberships		220		238		427		459
Courier service		181		232		357		472
Insurance expense		172		146		345		293
Publications		72		45		126		90
Contracted labor		35		124		75		244
Preopening and start-up costs				1,086				2,038
Other		1,978		2,394		4,246		5,046
Total	$	8,124	$	10,436	$	16,221	$	20,575

Page 29 of 43

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS – Continued

Results of Operations – Continued

Operating results (dollars in thousands) were as follows:

	Six Months Ended June 30
	Total Revenues				Net Income (Loss)(1)						Return on Average Equity(2)						Return on Average Assets(2)
	2009		2008		2009			2008			2009			2008			2009			2008
Arizona Region:					(As Revised)												(As Revised)
Arrowhead Community Bank	$	2,029	$	3,303	$	(4,186	)	$	(222	)
Asian Bank of Arizona		1,088		953		(815	)		(535	)
Bank of Tucson		6,428		6,783		1,066			1,978			12.24	%		22.17	%		1.09	%		2.15	%
Camelback Community Bank		2,718		3,012		(226	)		509						11.07	%					1.15	%
Central Arizona Bank		2,010		2,559		(1,475	)		(646	)
Colonia Bank		283		25		(560	)		(376	)
Mesa Bank		3,865		7,985		(3,691	)		744						7.84	%					0.69	%
Southern Arizona Community Bank		2,621		3,041		21			582			0.46	%		12.84	%		0.05	%		1.34	%
Sunrise Bank of Albuquerque		2,124		2,640		(457	)		171						4.69	%					0.46	%
Sunrise Bank of Arizona		3,408		4,177		(2,705	)		(180	)
Yuma Community Bank		2,379		2,745		312			365			8.55	%		9.39	%		0.87	%		0.96	%
Arizona Region Total		28,953		37,223		(12,716	)		2,390

California Region:
Bank of Escondido		2,372		2,564		(733	)		175						2.42	%					0.37	%
Bank of Feather River		957		584		(30	)		(326	)
Bank of San Francisco		2,153		1,880		21			12			0.50	%		0.28	%		0.05	%		0.04	%
Bank of Santa Barbara		1,810		2,080		(638	)		(170	)
Napa Community Bank		4,497		4,240		926			467			11.87	%		6.59	%		1.29	%		0.74	%
Point Loma Community Bank		1,724		1,872		(367	)		114						3.16	%					0.42	%
Sunrise Bank of San Diego		2,441		2,847		(788	)		168						3.17	%					0.38	%
Sunrise Community Bank		905		753		(482	)		(377	)
California Region Total		16,859		16,820		(2,091	)		63

Colorado Region:
Fort Collins Commerce Bank		2,532		2,275		166			364			3.48	%		8.06	%		0.40	%		1.13	%
Larimer Bank of Commerce		2,613		2,055		183			140			4.60	%		3.76	%		0.42	%		0.46	%
Loveland Bank of Commerce		893		646		(177	)		(116	)
Mountain View Bank of Commerce		1,066		358		(113	)		(611	)
Colorado Region Total		7,104		5,334		59			(223	)

Great Lakes Region:
Bank of Auburn Hills		1,138		1,459		(976	)		(459	)
Bank of Maumee		1,318		1,373		(217	)		(507	)
Bank of Michigan		2,342		2,477		12			268			0.53	%		8.05	%		0.04	%		0.78	%
Capitol National Bank		6,248		7,723		(1,147	)		954						9.98	%					0.84	%
Elkhart Community Bank		2,402		2,870		(996	)		272						6.18	%					0.60	%
Evansville Commerce Bank		1,789		1,997		(245	)		(174	)
Goshen Community Bank		2,254		2,675		(148	)		261						6.64	%					0.66	%
Michigan Commerce Bank(3)		33,838		42,436		(10,887	)		(1,305	)
Ohio Commerce Bank		1,403		1,272		(66	)		(111	)
Paragon Bank & Trust		2,844		3,624		(2,008	)		(185	)
Great Lakes Region Total		55,576		67,906		(16,678	)		(986	)

Midwest Region
Adams Dairy Bank		1,097		672		(50	)		(511	)
Bank of Belleville		1,900		1,743		13			4			0.37	%		0.11	%		0.04	%		0.01	%
Community Bank of Lincoln		1,792		816		(268	)		(326	)
Summit Bank of Kansas City		1,866		1,547		24			40			0.70	%		1.14	%		0.08	%		0.18	%
Midwest Region Total		6,655		4,778		(281	)		(793	)

Nevada Region:
1st Commerce Bank		1,252		1,141		(474	)		(291	)
Bank of Las Vegas		2,409		2,437		(9	)		37						0.86	%					0.10	%
Black Mountain Community Bank		4,935		5,433		179			881			2.34	%		11.95	%		0.22	%		1.16	%
Desert Community Bank		3,021		3,765		(864	)		176						3.50	%					0.35	%
Red Rock Community Bank		3,200		3,971		(1,870	)		480						7.06	%					0.82	%
Nevada Region Total		14,817		16,747		(3,038	)		1,283

Page 30 of 43

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS – Continued

Results of Operations – Continued

Operating results – continued:

	Six Months Ended June 30
	Total Revenues					Net Income (Loss)(1)						Return on Average Equity(2)						Return on Average Assets(2)
	2009			2008		2009			2008			2009			2008			2009			2008
Northeast Region:						(As Revised)												(As Revised)
USNY Bank	$	1,394		$	712	$	(243	)	$	(409	)

Northwest Region:
Bank of Bellevue		1,377			1,432		(681	)		(196	)
Bank of Everett		1,192			993		(763	)		(656	)
Bank of Tacoma		1,188			931		(648	)		(399	)
High Desert Bank		1,178			574		(829	)		(380	)
Issaquah Community Bank		1,022			536		(344	)		(326	)
Northwest Region Total		5,957			4,466		(3,265	)		(1,957	)

Southeast Region:
Bank of Valdosta		1,491			1,640		(218	)		(43	)
Community Bank of Rowan		3,222			3,726		298			427			5.64	%		8.75	%		0.46	%		0.72	%
First Carolina State Bank		2,831			3,319		(492	)		208						4.09	%					0.38	%
Peoples State Bank		699			916		(109	)		27						1.06	%					0.21	%
Pisgah Community Bank		1,059			69		(243	)		(560	)
Sunrise Bank of Atlanta		1,964			2,305		(215	)		(200	)
Southeast Region Total		11,266			11,975		(979	)		(141	)

Texas Region:
Bank of Fort Bend		661			353		(309	)		(462	)
Bank of Las Colinas		936			511		(182	)		(339	)
Texas Region Total		1,597			864		(491	)		(801	)

Parent company and other, net		(39	)		1,857		2,745			4,388

Consolidated totals	$	150,139		$	168,682	$	(36,978	)	$	2,814						1.45	%					0.11	%

(1)	Excludes net losses attributable to noncontrolling interests.
(2)	Annualized for periods presented.
(3)	Michigan Commerce Bank resulted from the merger of Ann Arbor Commerce Bank, Brighton Commerce Bank, Detroit Commerce Bank, Grand Haven Bank, Kent Commerce Bank, Macomb Community Bank, Muskegon Commerce Bank, Oakland Commerce Bank and Portage Commerce Bank effective March 31, 2009.

Liquidity and Capital Resources

The principal funding source for asset growth and loan origination activities is deposits. Total deposits increased $198 million for the six months ended June 30, 2009, compared to a $313 million increase in the corresponding period of 2008. Growth occurred in most interest-bearing deposit categories, with the majority coming from time deposit accounts. Brokered deposits approximated $1.1 billion as of June 30, 2009, or about 24% of total deposits, an increase of $24 million during the six-month 2009 period, as the banks have sought to add these funds selectively based on maturity and interest-rate opportunities to aid in matching the repricing of funding sources and assets. Brokered deposits at June 30, 2009 include about $323 million of relationship-based structured time accounts.

Noninterest-bearing deposits approximated 15.4% of total deposits at June 30, 2009, a decrease from 15.6% at December 31, 2008, and an increase of $21 million in the 2009 interim period compared to a decrease of $2 million during the 2008 period. Levels of noninterest-bearing deposits can, however, fluctuate based on customers' transaction activity.

During the 2009 period, interest-bearing accounts increased about $177 million which served as the primary funding source for growth in liquid assets. Because of the growth in interest-bearing deposits, coupled with higher relative rates on those balances (particularly with time deposit accounts) and deployment of funds into liquid assets, net interest margins have generally decreased.

Page 31 of 43

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS – Continued

Liquidity and Capital Resources – Continued

Interim 2009 deposit growth was deployed primarily into cash and cash equivalents to enhance liquidity. Cash and cash equivalents amounted to $804.6 million or 14% of total assets at June 30, 2009, compared to $624.4 million or 11% of total assets at December 31, 2008. As liquidity levels vary continuously based on customer activities, amounts of cash and cash equivalents can vary widely at any given point in time. Management believes the banks' liquidity position at June 30, 2009 is adequate to fund loan demand and meet depositor needs. In the current low interest rate environment, deployment of deposit growth into cash and cash equivalents adversely impacts net interest margin.

In addition to cash and cash equivalents, an additional source of long-term liquidity is the banks' marketable investment securities. Liquidity needs have not historically necessitated the sale of investments in order to meet funding requirements and the banks have not engaged in active trading of their investments. At June 30, 2009, Capitol's banks had approximately $13.8 million of investment securities classified as available for sale which may be utilized to meet various liquidity needs as they arise.

Several of Capitol's banks have secured lines of credit with regional Federal Home Loan Banks. Borrowings thereunder approximated $339 million and additional borrowing capacity approximated $295 million at June 30, 2009. These facilities are used from time to time as a lower-cost funding source versus various rates and maturities of time deposits available within banks' individual communities. Total notes payable and short-term borrowings were $363 million at June 30, 2009, a reduction of $84.4 million from the beginning of the year as deposit growth enabled repayment of select borrowings in addition to enhanced liquidity discussed previously.

Capitol Bancorp Limited stockholders' equity, as a percentage of total assets, approximated 5.57% at June 30, 2009 and 6.26% at December 31, 2008. As of June 30, 2009, Capitol's total capital funds (i.e., the sum of Capitol Bancorp Limited stockholders' equity, noncontrolling interests in consolidated subsidiaries and subordinated debentures) approximated $629.3 million or 10.99% of total assets.

Capitol and its banks are subject to complex regulatory capital requirements, which require maintaining certain minimum capital ratios. These ratio measurements, in addition to certain other requirements, are used by regulatory agencies to determine the level of regulatory intervention and enforcement applied to financial institutions. Management believes Capitol and each of its banks are in compliance with regulatory requirements and are expected to maintain such compliance.

In October 2008, Capitol applied to its primary federal regulator and the FDIC for up to $142 million of preferred stock to be purchased by the U.S. Treasury pursuant to the Capital Purchase Program (CPP) under the Troubled Asset Relief Program (TARP). Capitol has withdrawn its application to participate in this program.

Page 32 of 43

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS – Continued

Liquidity and Capital Resources – Continued

In February 2009, the U.S. Treasury announced its new Capital Assistance Program (CAP) under which U.S. banking organizations may apply for a U.S. Treasury investment in mandatorily convertible preferred stock in an amount of up to 1% or 2% of risk-weighted assets. The purpose of the CAP is to provide eligible banking organizations with capital in the form of a preferred security which is convertible into common equity. Participating banking organizations would also issue warrants to the U.S. Treasury. Eligibility will be consistent with the criteria and deliberative process established under the TARP/CPP. Capitol has recently submitted a CAP application on behalf of Michigan Commerce Bancorp Limited (MCBL, described more fully on page 34) in the amount of $21.7 million. There can be no assurance the CAP application will be approved or, if approved, whether Capitol or MCBL would choose to participate.

Trends Affecting Operations

One of the most significant trends which can impact the financial condition and results of operations of financial institutions is changes in market rates of interest.

Changes in interest rates, either up or down, have an impact on net interest income (plus or minus), depending on the direction and timing of such changes. At any point in time, there is a difference between interest rate-sensitive assets and interest rate-sensitive liabilities. This means that when interest rates change, the timing and magnitude of the effect of such interest rate changes can alter the relationship between asset yields and the cost of funds.

The Board of Governors of the Federal Reserve, which influences interest rates, changed interbank borrowing rates dramatically in 2008 by an aggregate 400 basis-point decrease. The Board of Governors of the Federal Reserve has also expressed concerns about a variety of macro economic issues. Home mortgage rates have recently fluctuated and residential real estate markets have deteriorated in various regions, which adversely impacts fee income from the origination of residential mortgages. There has been widespread media coverage of subprime and other residential mortgage “meltdown” issues; Capitol believes its exposure to the residential real estate crisis to be generally minimal due to its practice of selling residential mortgage loan production to the secondary market. Many of Capitol's banks' commercial loans are variable-rate and, accordingly, rate decreases may result in lower interest income to Capitol in the near term; however, depositors will continue to expect reasonable rates of interest on their accounts, potentially compressing net interest margins further. The future outlook on interest rates and their impact on Capitol's interest income, interest expense and net interest income is uncertain.

General economic conditions also have a significant impact on both the results of operations and the financial condition of financial institutions. As mentioned previously, general economic conditions within the state of Michigan and the national economic recession are uncertain and are likely to continue to have an adverse effect on Capitol's banks and their customers. It is likely that, absent significant catalysts, Michigan's economic recovery in particular may take an extended period of time.

Media reports raising questions about the health of the domestic economy and the sustained national recession have continued in 2009. During the interim 2009 period, nonperforming assets have increased significantly; it is likely levels of nonperforming assets and related loan losses will increase further as economic conditions, locally and nationally, evolve.

Effective March 31, 2009, nine Michigan bank charters were merged into Michigan Commerce Bank. The resulting bank, with nine locations, was combined to gain efficiencies in loan portfolio and problem asset management and general operating efficiencies in daily processing. A similar four-bank merger proposal in the greater Phoenix area of Arizona, is pending and subject to regulatory approval. Additional mergers and combinations of bank charters in other markets are under consideration as management evaluates potential synergies and cost savings. In April 2009, Capitol announced the engagement of a financial advisor to assist management in pursuing divestiture opportunities.

Page 33 of 43

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS – Continued

Proposed Spin-off of Michigan Commerce Bancorp Limited

On July 21, 2009, Capitol announced its intention to formally and legally separate the operations of Michigan Commerce Bancorp Limited (MCBL) as an independent publicly-traded company through a spin-off transaction. Upon completion of the proposed spin-off, Capitol will continue to be a bank holding company with national banking operations and MCBL will be a separate publicly-traded bank holding company consisting of the substantial majority of Capitol's prior Michigan-based banks (see accompanying pro forma consolidated financial statements).

Pending Sale of Five Banks

In July 2009, Capitol entered into definitive agreements to sell the following four affiliate institutions: Bank of Belleville, Bank of Santa Barbara, 1st Commerce Bank and Community Bank of Rowan. The projected financial impact of the divestiture of these four institutions, along with the sale of Yuma Community Bank announced in May 2009, is set forth in the accompanying pro forma condensed consolidated balance sheet (along with the proposed spin-off discussed above) on page 37. Total proceeds from the pending sales are expected to approximate $34.5 million, resulting in a pre-tax gain of $10.2 million ($6.6 million, or $0.38 per share, after federal income tax) and are expected to be consummated in the second half of 2009, subject to regulatory approval and other contingencies.

Proposed Share Exchange Offer

Page 34 of 43

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS – Continued

Unaudited Pro Forma Condensed Consolidated Balance Sheet
Capitol Bancorp Limited and Subsidiaries
June 30, 2009

(in $1,000s, except per share amounts)

	As Revised
				Proposed
				Spin-Off of
				Michigan
	Historical			Commerce
	Amounts			Bancorp Limited			Pro Forma
	As Reported			(Note A)			Consolidated

ASSETS

Cash and cash equivalents	$	804,581		$	(115,020	)	$	689,561
Loans held for resale		30,843			(2,592	)		28,251
Investment securities		47,470			(8,374	)		39,096
Portfolio loans		4,576,839			(1,085,907	)		3,490,932
Less allowance for loan losses		(114,215	)		36,958			(77,257	)
Net portfolio loans		4,462,624			(1,048,949	)		3,413,675
Premises and equipment, net		53,669			(11,932	)		41,737
Goodwill		71,592			(2,875	)		68,717
Other real estate owned		103,315			(25,116	)		78,199
Other assets		149,446			(34,047	)		115,399

TOTAL ASSETS	$	5,723,540		$	(1,248,905	)	$	4,474,635

LIABILITIES AND EQUITY

Liabilities:
Deposits	$	4,695,019		$	(1,086,341	)	$	3,608,678
Debt obligations		529,941			(51,400	)		478,541
Other liabilities		36,680			(6,523	)		30,157
Total liabilities		5,261,640			(1,144,264	)		4,117,376

Equity:
Capitol Bancorp Limited stockholders' equity:
Preferred stock		-			-			-
Common stock		277,000			(118,546	)		158,454
Retained earnings		42,440			13,864			56,304
Other, net		(463	)		41			(422	)
Total Capitol Bancorp Limited stockholders' equity		318,977			(104,641	)		214,336
Noncontrolling interests in consolidated subsidiaries		142,923			-			142,923
Total equity		461,900			(104,641	)		357,259

TOTAL LIABILITIES AND EQUITY	$	5,723,540		$	(1,248,905	)	$	4,474,635

Number of common shares outstanding		17,517,331						17,517,331

Book value per share of Capitol Bancorp Limited
stockholders' equity	$	18.21					$	12.24

Nonperforming loans	$	260,964		$	(89,923	)	$	171,041
Real estate owned and other repossessed assets		103,529			(25,134	)		78,395
Total nonperforming assets	$	364,493		$	(115,057	)	$	249,436

Selected ratios:
Total equity as a percentage of total assets		8.07	%		8.38	%		7.98	%
Total capital as a percentage of total assets--Note B		10.99	%		8.38	%		11.72	%
Allowance for loan losses as a percentage of portfolio loans		2.50	%		3.40	%		2.21	%
Allowance for loan losses coverage ratio of nonperforming loans		43.77	%		41.10	%		45.17	%
Nonperforming loans as a percentage of portfolio loans		5.70	%		8.28	%		4.90	%
Nonperforming assets as a percentage of total assets		6.37	%		9.21	%		5.57	%

Notes to Unaudited Pro Forma Condensed Consolidated Balance Sheet:

A--Pro forma spin-off of Michigan Commerce Bancorp Limited (MCBL), a wholly-owned
subsidiary of Capitol Bancorp Limited (Capitol). MCBL's amounts include its
wholly-owned subsidiaries, Michigan Commerce Bank and Bank of Auburn Hills.

B--Total capital includes trust-preferred securities (subordinated debentures) and total equity.

Page 35 of 43

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS – Continued

Unaudited Pro Forma Condensed Consolidated Statements of Operations
Capitol Bancorp Limited and Subsidiaries


(in $1,000s, except per-share data)
	Six Months Ended June 30, 2009 (As Revised)									Year Ended December 31, 2008
													Pro Forma Adjustments
				Spin-Off of									Spin-Off of
				Michigan									Michigan			Spin-Off of
				Commerce									Commerce			Bank of
				Bancorp									Bancorp			Auburn
	Historical			Limited			Pro Forma			Historical			Limited			Hills			Pro Forma
	Amounts			(Notes A and B)			Consolidated			Amounts			(Note A)			(Note B)			Consolidated

Interest income	$	138,188		$	(32,344	)	$	105,844		$	304,315		$	(75,446	)	$	(2,674	)	$	226,195
Interest expense		60,149			(14,813	)		45,336			140,466			(36,809	)		(1,512	)		102,145
Net interest income		78,039			(17,531	)		60,508			163,849			(38,637	)		(1,162	)		124,050
Provision for loan losses		67,574			(19,669	)		47,905			82,492			(30,040	)		(1,189	)		51,263
Net interest income after provision for loan losses		10,465			2,138			12,603			81,357			(8,597	)		27			72,787
Noninterest income		11,951			(2,104	)		9,847			26,432			(4,491	)		(91	)		21,850
Noninterest expense		102,107			(22,446	)		79,661			190,388			(33,916	)		(1,509	)		154,963
Loss before income tax benefit		(79,691	)		22,480			(57,211	)		(82,599	)		20,828			1,445			(60,326	)
Income tax benefit		(28,824	)		7,648			(21,176	)		(30,148	)		7,060			487			(22,601	)
NET LOSS		(50,867	)		14,832			(36,035	)		(52,451	)		13,768			958			(37,725	)
Less net losses attributable to noncontrolling interests		13,889			-			13,889			23,844			-			-			23,844

NET LOSS ATTRIBUTABLE TO CAPITOL BANCORP LIMITED	$	(36,978	)	$	14,832		$	(22,146	)	$	(28,607	)	$	13,768		$	958		$	(13,881	)

NET LOSS PER SHARE ATTRIBUTABLE TO CAPITOL
BANCORP LIMITED:
Basic	$	(2.15	)				$	(1.29	)	$	(1.67	)							$	(0.81	)
Diluted	$	(2.15	)				$	(1.29	)	$	(1.67	)							$	(0.81	)


Elements of net loss per share computations (in 1,000s):
Average number of common shares outstanding
for purposes of computing basic net loss per
share--denominator for basic net loss per share		17,203						17,203			17,147									17,147
Effect of dilutive securities--stock options and unvested
restricted shares		-						-			-									-
Average number of common shares and dilutive securities
for purposes of computing diluted net loss per share		17,203						17,203			17,147									17,147




Notes to Unaudited Pro Forma Condensed Consolidated Statements of Operations:

A--Pro forma spin-off of Michigan Commerce Bancorp Limited (MCBL), a wholly-owned
subsidiary of Capitol Bancorp Limited (Capitol). On March 31, 2009, Capitol transferred
its interest in Michigan Commerce Bank (MCB, a wholly-owned subsidiary of Capitol) to MCBL,
resulting in MCB becoming a wholly-owned subsidiary of MCBL. The pro forma adjustment
removes the operating results of MCB as if the spin-off occurred at the beginning of the
period presented.

B--Pro forma spin-off of Bank of Auburn Hills (BAH), previously a wholly-owned subsidiary
of Capitol. On June 30, 2009, Capitol transferred its interest in BAH to MCBL, resulting in
BAH becoming a wholly-owned subsidiary of MCBL. The pro forma adjustment removes
the operating results of BAH as if the spin-off occurred at the beginning of the period
presented.

Page 36 of 43

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS – Continued

Unaudited Pro Forma Condensed Consolidated Balance Sheet
Capitol Bancorp Limited and Subsidiaries
June 30, 2009

(in $1,000s)
				Pro Forma Adjustments
				Proposed
				Spin-Off of			Pending
				Michigan			Sale of
	Historical			Commerce			Five Bank
	Amounts			Bancorp Limited			Subsidiaries				Pro Forma
	As Reported			(Note A)			(Note B)				Consolidated
	(As Revised)			(As Revised)							(As Revised)
ASSETS

Cash and cash equivalents	$	804,581		$	(115,020	)	$	(20,178	)		$	669,383
Loans held for resale		30,843			(2,592	)		(2,370	)			25,881
Investment securities		47,470			(8,374	)		(6,970	)			32,126
Portfolio loans		4,576,839			(1,085,907	)		(323,830	)			3,167,102
Less allowance for loan losses		(114,215	)		36,958			5,854				(71,403	)
Net portfolio loans		4,462,624			(1,048,949	)		(317,976	)			3,095,699
Premises and equipment, net		53,669			(11,932	)		(4,439	)			37,298
Goodwill		71,592			(2,875	)		(1,234	)			67,483
Other real estate owned		103,315			(25,116	)		(1,985	)			76,214
Other assets		149,446			(34,047	)		(6,474	)			108,925

TOTAL ASSETS	$	5,723,540		$	(1,248,905	)	$	(361,626	)		$	4,113,009

LIABILITIES AND EQUITY

Liabilities:
Deposits	$	4,695,019		$	(1,086,341	)	$	(319,706	)		$	3,288,972
Debt obligations		529,941			(51,400	)		(34,500	)			444,041
Other liabilities		36,680			(6,523	)		(951	)			29,206
Total liabilities		5,261,640			(1,144,264	)		(355,157	)			3,762,219

Equity:
Capitol Bancorp Limited stockholders' equity:
Preferred stock		-			-							-
Common stock		277,000			(118,546	)						158,454
Retained earnings		42,440			13,864			6,601		C		62,905
Other, net		(463	)		41							(422	)
Total Capitol Bancorp Limited stockholders' equity		318,977			(104,641	)		6,601				220,937
Noncontrolling interests in consolidated subsidiaries		142,923			-			(13,070	)			129,853
Total equity		461,900			(104,641	)		(6,469	)			350,790

TOTAL LIABILITIES AND EQUITY	$	5,723,540		$	(1,248,905	)	$	(361,626	)		$	4,113,009


Nonperforming loans	$	260,964		$	(89,923	)	$	(12,401	)		$	158,640
Real estate owned and other repossessed assets		103,529			(25,134	)		(1,985	)			76,410
Total nonperforming assets	$	364,493		$	(115,057	)	$	(14,386	)		$	235,050

Selected ratios:
Total equity as a percentage of total assets		8.07	%									8.53	%
Total capital as a percentage of total assets--Note D		10.99	%									12.60	%
Allowance for loan losses as a percentage of portfolio loans		2.50	%									2.25	%
Allowance for loan losses coverage ratio of nonperforming loans		43.77	%									45.01	%
Nonperforming loans as a percentage of portfolio loans		5.70	%									5.01	%
Nonperforming assets as a percentage of total assets		6.37	%									5.71	%

Notes to Unaudited Pro Forma Condensed Consolidated Balance Sheet:

A--Pro forma spin-off of Michigan Commerce Bancorp Limited (MCBL), a wholly-owned
subsidiary of Capitol Bancorp Limited (Capitol). MCBL's amounts include its
wholly-owned subsidiaries, Michigan Commerce Bank and Bank of Auburn Hills.

B--Pending sale of Yuma Community Bank, Bank of Santa Barbara, Bank of Belleville, Community
Bank of Rowan and 1st Commerce Bank.

C--Estimated gain on pending sale of banks (see Note B), less transaction expenses and related
federal income tax effect. Sale proceeds are estimated to approximate $34.5 million.

D--Total capital includes trust-preferred securities (subordinated debentures) and total equity.

Page 37 of 43

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS – Continued

Impact of New Accounting Standards

There are several new accounting standards either becoming effective or being issued in 2009. They are listed and discussed in Note B of the accompanying condensed consolidated financial statements.

Critical Accounting Policies

Capitol's critical accounting policies are described on pages F-31 – F-32 of the financial section of its 2008 Annual Report. In the circumstances of Capitol, management believes its "critical accounting policies" are those which encompass the use of estimates in determining the allowance for loan losses (because of inherent subjectivity), accounting for goodwill (Capitol's annual review of goodwill for potential impairment is performed in the fourth quarter of the year) and other intangibles (due to inherent subjectivity in evaluating potential impairment) and its consolidation policy.

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Page 38 of 43

PART I, ITEM 3

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT

MARKET RISK

Information about Capitol's quantitative and qualitative disclosures about market risk were included in Capitol's annual report on Form 10-K for the year ended December 31, 2008. Capitol does not believe that there has been a material change in the nature or categories of market risk exposure, except as noted in the "Management's Discussion and Analysis of Financial Condition and Results of Operations" section herein (Part I, Item 2), under the caption, "Trends Affecting Operations."

PART I, ITEM 4

CONTROLS AND PROCEDURES

Capitol maintains disclosure controls and procedures designed to provide reasonable assurance 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 (the "Exchange Act") as of the end of the period covered by this report (the "Evaluation Date"). Based on such evaluation, such officers have concluded that, as of the Evaluation Date, Capitol's disclosure controls and procedures, in all material respects, are effective in bringing to their attention on a timely basis material information relating to Capitol required to be included in Capitol's periodic filings under the Exchange Act.

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.

[The remainder of this page intentionally left blank]

Page 39 of 43

PART II. OTHER INFORMATION

Item 1.	Legal Proceedings. Capitol and its subsidiaries are parties to certain ordinary, routine litigation incidental to their business. In the opinion of management, liabilities arising from such litigation would not have a material effect on Capitol's consolidated financial position or results of operations.
Item 1A.	Risk Factors. There were no material changes from the risk factors set forth in Part I, Item 1A, "Risk Factors," of Capitol's Form 10-K for the year ended December 31, 2008, during the six months ended June 30, 2009. Refer to that section of Capitol's Form 10-K for disclosures regarding the risks and uncertainties related to Capitol's business.
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds.
	(a) None. (b) Not applicable. (c) None.
Item 3.	Defaults Upon Senior Securities. None.
Item 4.	Submission of Matters to a Vote of Security Holders. (a) Capitol's annual meeting of shareholders was held on April 22, 2009. (b) The following matters were voted upon at the annual meeting of shareholders: (1) The election of the nominees for the board of directors was voted on by the shareholders. The nominees, all of whom were elected, are listed below. The following votes were tabulated:

	For	Withheld

Class II Directors (nominees to serve until 2012 annual meeting)
David O'Leary	13,134,726	385,094
Michael J. Devine	13,084,833	434,987
Gary A. Falkenberg, D.O.	13,153,602	366,218
Joel I. Ferguson	12,990,158	529,662
H. Nicholas Genova	13,151,068	368,752
John S. Lewis	13,181,698	338,122
Steven L. Maas	13,157,933	361,887
Myrl D. Nofziger	13,165,521	354,299

The following individuals, who were not up for election at this Annual Meeting of Shareholders, continue to serve as directors: Joseph D. Reid, Michael L. Kasten, David L. Becker, James C. Epolito, Kathleen A. Gaskin, Ronald K. Sable, Lyle W. Miller, Paul R. Ballard, Michael F. Hannley (who subsequently resigned on June 15, 2009), Richard A. Henderson, Lewis D. Johns and Cristin K. Reid.

Page 40 of 43

PART II. OTHER INFORMATION – Continued

Item 4.

Submission of Matters to a Vote of Security Holders. – Continued

(2) Shareholders voted to ratify the appointment of BDO Seidman, LLP as independent auditors for the year ending December 31, 2009. The following votes were tabulated:

For	Against	Abstain	Broker Non-Votes

13,233,025	119,890	12,871	--

Item 5.	Other Information. None.
Item 6.	Exhibits:

(a)	(b)
Exhibit No.	Description of Exhibit
31.1	Certification of Chief Executive Officer, Joseph D. Reid, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2	Certification of Chief Financial Officer, Lee W. Hendrickson, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1	Certification of Chief Executive Officer, Joseph D. Reid, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2	Certification of Chief Financial Officer, Lee W. Hendrickson, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

Page 41 of 43

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report, Amendment No. 1, to be signed on its behalf by the undersigned thereunto duly authorized.

CAPITOL BANCORP LTD.

(Registrant)

/s/ Joseph D. Reid

Joseph D. Reid

Chairman and CEO

(duly authorized to sign on behalf of the

registrant)

/s/ Lee W. Hendrickson

Lee W. Hendrickson

Chief Financial Officer

Date: April 27, 2010

Page 42 of 43

INDEX TO EXHIBITS

Exhibit No.	Description of Exhibit
31.1	Certification of Chief Executive Officer, Joseph D. Reid, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2	Certification of Chief Financial Officer, Lee W. Hendrickson, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1	Certification of Chief Executive Officer, Joseph D. Reid, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2	Certification of Chief Financial Officer, Lee W. Hendrickson, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

Page 43 of 43

CAPITOL BANCORP LTD - FORM 10-Q/A - April 27, 2010

Attached files

CAPITOL BANCORP LTD Reports