10-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K

T	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
	SECURITIES EXCHANGE ACT OF 1934
	For the fiscal year ended December 31, 2010
	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
incorporation or organization)	Identification Number)
Capitol Bancorp Center
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)

Securities registered pursuant to Section 12(b) of the Act:  None

Securities registered pursuant to Section 12(g) of the Act:  None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

Yes     o                           No     x

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act.

Yes     o                           No     x

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

Yes     x                           No     o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.   o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company (as defined in Rule 12b-2 of the Exchange Act).

Large accelerated filer   o Accelerated filer   o Non-accelerated filer   o Smaller Reporting Company   x

(Do not check if a smaller reporting company)

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

Yes     o                           No     x

As of June 30, 2010, the aggregate market value of the registrant's common stock held by non-affiliates of the registrant was:  $16,993,884.  (Such amount was computed based on shares held by non-affiliates as of January 31, 2010 and the common stock closing price reported by the New York Stock Exchange on June 30, 2010.  For purposes of this computation, all executive officers, directors and 5% shareholders have been assumed to be affiliates.  Certain of such persons may disclaim that they are affiliates of registrant.)

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

Class	Outstanding at March 15, 2011
Common Stock, no par value per share	41,116,757 shares

DOCUMENTS INCORPORATED BY REFERENCE

Document	Parts Into Which Incorporated
Annual Report to Shareholders for the Year Ended December 31, 2010 (Annual Report)	Parts I, II and IV

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CAPITOL BANCORP LTD.

Form 10-K

Fiscal Year Ended: December 31, 2010

Cross Reference Sheet

Item of Form 10-K Part I	Incorporation by Reference From:
Item 1.  Business	Pages F-11 – F-17, F-30 – F-45, F-59 – F-61, F-81 – F-82 and F-97 – F-100, Financial Information Section of Annual Report
Item 1A.  Risk Factors	Page F-49, Financial Information Section of Annual Report
Item 2.  Properties	Pages F-59 – F-60 and F-78, Financial Information Section of Annual     Report
Part II
Item 5.  Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	Pages F-2 – F-6, F-82 – F-84 and F-97 – F-100, Financial Information     Section of Annual Report
Item 6.  Selected Financial Data	Page F-2, Financial Information Section of Annual Report
Item 7.  Management's Discussion and Analysis of Financial Condition and Results of Operations	Pages F-6 – F-49, Financial Information Section of Annual Report
Item 7A. Quantitative and Qualitative Disclosures About Market Risk	Pages F-6 – F-10 and F-41 – F-44, Financial Information Section of Annual Report
Item 8.  Financial Statements and Supplementary Data	Pages F-2 and F-54 – F-105, Financial Information Section of Annual Report
Item 9A. Controls and Procedures	Pages F-50 – F-51, Financial Information Section of Annual Report
Part IV
Item 15. Exhibits and Financial Statement Schedules	Pages F-53 – F-105, Financial Information Section of Annual Report

Key:

"Annual Report" means the 2010 Annual Report of Capitol Bancorp Limited (Capitol) provided to the Commission pursuant to Rule 14a-3(b).  Capitol's 2010 Annual Report has a Financial Information Section and is filed as Exhibit 13 with this Form 10-K report.

Note: The page number references herein are based on the paper version of the referenced documents.  Accordingly, those page number references may differ from the electronically filed versions of those documents.

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CAPITOL BANCORP LTD.

2010 FORM 10-K ANNUAL REPORT

TABLE OF CONTENTS

PART I	Page
ITEM  1.      Business	8
ITEM 1A.    Risk Factors	26
ITEM 1B.    Unresolved Staff Comments	40
ITEM  2.      Properties	40
ITEM  3.      Legal Proceedings	41
ITEM  4.      (Removed and Reserved)	41
PART II
ITEM  5.      Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	42
ITEM 6.       Selected Financial Data	43
ITEM  7.      Management's Discussion and Analysis of Financial Condition and Results of Operations	43
ITEM 7A.    Quantitative and Qualitative Disclosures About Market Risk	43
ITEM  8.      Financial Statements and Supplementary Data	43
ITEM  9.      Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	43
ITEM 9A.    Controls and Procedures	44
ITEM 9B.    Other Information	44
PART III
ITEM 10.     Directors, Executive Officers and Corporate Governance	45
ITEM 11.     Executive Compensation	55
ITEM 12.     Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	75
ITEM 13.     Certain Relationships and Related Transactions and Director Independence	76
ITEM 14.     Principal Accountant Fees and Services	79
PART IV
ITEM 15.     Exhibits and Financial Statement Schedules	80

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FORWARD-LOOKING STATEMENTS

Some of the statements contained in this document, including Capitol's consolidated financial statements, Management's Discussion and Analysis of Financial Condition and Results of Operations and in documents incorporated into this document by reference that are not historical facts, including, without limitation, statements of future expectations, projections of results of operations and financial condition, statements of future economic performance and other forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, are subject to known and unknown risks, uncertainties and other factors which may cause the actual future results, performance or achievements of Capitol and/or its subsidiaries and other operating units to differ materially from those contemplated in such forward-looking statements.  The words "intend," "expect," "project," "estimate," "predict," "anticipate," "should," "could," "believe," "may," "might" and similar expressions also are intended to identify forward-looking statements.  Important factors which may cause actual results to differ from those contemplated in such forward-looking statements include, but are not limited to: (i) the results of Capitol's efforts to implement its business strategy, (ii) changes in interest rates, (iii) legislation or regulatory requirements adversely impacting Capitol's banking business and/or operating 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 banking subsidiaries 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) changes in management, (xii) consummation of pending sales of certain banking subsidiaries, (xiii) completion of Capitol's selective bank divestiture activities, (xiv) other risks detailed in Capitol's other filings with the Securities and Exchange Commission and (xv) the following, among others:

·Capitol's ability to continue as a going concern;

·The impact on Capitol's financial results, reputation and business if it is unable to comply with all applicable federal and state regulations and applicable formal agreements, consent orders, other regulatory actions and any related capital requirements;

·The risk that, if economic conditions worsen or regulatory capital requirements are modified, Capitol may be required to seek additional liquidity and/or capital from external sources, if available;

·Management's ability to effectively manage interest rate risk and the impact of interest rates in general on the volatility of Capitol's net interest income;

·The effect of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, Emergency Economic Stabilization Act of 2008, the American Recovery and Reinvestment Act of 2009, the implementation by the Department of the U.S. Treasury and federal banking regulators of a number of programs to address capital and liquidity issues within the banking system and additional programs that may apply to Capitol in the future, all of which may have significant effects on Capitol and the financial services industry;

·The decline in commercial and residential real estate values and sales volume and the likely potential for continuing illiquidity in the real estate market;

·The risks associated with the high concentration of commercial real estate loans within Capitol's portfolio;

·The uncertainties in estimating the fair value of developed real estate and undeveloped land relating to collateral-dependent loans and other real estate owned in light of declining demand for such assets, falling prices and continuing illiquidity in the real estate market;

·Negative developments and disruptions in the credit and lending markets, including the impact of the ongoing credit crisis on Capitol's business and on the businesses of its customers as well as other banks and lending institutions with which Capitol has commercial relationships;

·A  continuation of unprecedented volatility in the capital markets;

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FORWARD-LOOKING STATEMENTS—Continued

·The risks associated with implementing Capitol's business strategy, including its ability to preserve and access sufficient capital to execute its strategy;

·Continued unemployment and its impact on Capitol's customers' savings rates and their ability to service debt obligations;

·Fluctuations in the value of Capitol's investment securities;

·The ability to attract and retain senior management experienced in banking and financial services;

·The sufficiency of the allowance for loan losses to absorb the amount of actual losses inherent within the loan portfolio;

·Capitol's ability to adapt successfully to technological changes to compete effectively in the marketplace;

·Credit risks and risks from concentrations (by geographic area and by industry) within Capitol's consolidated loan portfolio and individual large loans;

·The effects of competition from other commercial banks, thrifts, mortgage banking firms, consumer finance companies, credit unions, securities brokerage firms, insurance companies, money market and other mutual funds, and other financial institutions operating in Capitol's market or elsewhere or providing similar services;

·The failure of assumptions underlying estimates for the allowance for loan losses and estimation of values of collateral or cash flow projections related to collateral-dependent loans;

● Volatility of rate sensitive deposits;

·Operational risks, including data processing system failures or fraud;

·Liquidity risks;

·The ability to successfully acquire deposits for funding and the pricing thereof;

·The ability to successfully execute strategies to increase noninterest income;

·Changes in the economic environment, competition or other factors that may influence loan demand and repayment, deposit inflows and outflows, and the quality of the loan portfolio and loan and deposit pricing;

·The impact from liabilities arising from legal or administrative proceedings on the financial condition of Capitol;

·The current prohibition of Capitol's banking subsidiaries to pay dividends to Capitol without prior written authorization from regulatory agencies;

·The current prohibition of Capitol's payment of cash dividends on its common stock without prior written regulatory authorization;

·Administrative or enforcement actions of banking regulators in connection with any material failure of Capitol or its banking subsidiaries to comply with banking laws, rules or regulations or formal agreements with regulatory agencies;

·Capitol's compliance with the terms of its written agreement with the Federal Reserve Bank, amendments thereto or subsequent regulatory agreements;

·The continued availability of credit facilities provided by Federal Home Loan Banks to Capitol's banking subsidiaries;

·The uncertainties of future depositor activity regarding potentially uninsured deposits;

·The possibility of the FDIC assessing Capitol's banking subsidiaries for any cross-guaranty liability;

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FORWARD-LOOKING STATEMENTS—Continued

·Governmental monetary and fiscal policies, as well as legislative and regulatory changes, that may result in the imposition of costs and constraints on Capitol through higher FDIC insurance premiums, significant fluctuations in market interest rates, increases in capital requirements and operational limitations;

·Changes in general economic or industry conditions, nationally or in the communities in which Capitol conducts business;

·Changes in legislation or regulatory and accounting principles, policies, or guidelines affecting the business conducted by Capitol;

·The impact of possible future material impairment charges;

·Acts of war or terrorism;

·Capitol's ability to manage fluctuations in the value of its assets and liabilities and maintain sufficient capital and liquidity to support its operations;

·The concentration of Capitol's nonperforming assets by loan type in certain geographic regions and with affiliated borrowing groups;

·The risk of additional future losses if the proceeds Capitol receives upon the liquidation of assets are less than the carrying value of such assets;

·Restrictions or limitations on access to funds from subsidiaries and potential obligations to contribute additional capital to Capitol's subsidiaries, which may restrict its ability to make payments on its obligations;

·The availability and cost of capital and liquidity on favorable terms, if at all;

·The risk that the realization of deferred tax assets may not occur;

·The risk that Capitol will not be able to complete its various proposed divestitures, mergers and consolidations of certain of its banking subsidiaries or, if completed, realize the anticipated benefits of the proposed mergers and/or consolidations;

·The costs and effects of litigation, investigations, inquiries or similar matters, or adverse facts and developments related thereto;

·The risk that Capitol could have an "ownership change" under Section 382 of the Internal Revenue Code, which could impair its ability to timely and fully utilize its net operating losses for tax purposes and so-called built-in losses that may exist if such an "ownership change" occurs;

·Other factors and other information contained in this document and in other reports and filings that Capitol makes with the SEC under the Exchange Act, including, without limitation, under the caption "Risk Factors"; and

·Other economic, competitive, governmental, regulatory and technical factors affecting Capitol's operations, products, services and prices.

For a discussion of these and other risks that may cause actual results to differ from expectations, you should refer to the risk factors and other information in this Annual Report on Form 10-K and Capitol's other periodic filings, including quarterly reports on Form 10-Q and current reports on Form 8-K, that Capitol files from time to time with the SEC.  All written or oral forward-looking statements that are made by or are attributable to Capitol are expressly qualified by this cautionary notice.  You should not place undue reliance on any forward-looking statements, since those statements speak only as of the date on which the statements are made.  Capitol undertakes no obligation to update any forward-looking statement to reflect events or circumstances after the date on which the statement is made to reflect the occurrence of new information or unanticipated events, except as may otherwise be required by law.

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PART I

Item 1. Business.

a.            General development of business:

Incorporated by reference from Pages F-11 – F-14 Financial Information Section of Annual Report, under the captions "Summary and Overview" and "Capitol's Approach to Community Banking," Pages F-36 – F-39, Financial Information Section of Annual Report, under the caption "Certain Regulatory Matters," Pages F-39 – F-41, Financial Information Section of Annual Report, under the caption "Going-Concern Considerations," Pages F-45, Financial Information Section of Annual Report, under the caption "Divestitures of Banks" and Pages F-59 – F-61, Financial Information Section of Annual Report, under the caption "Note A—Nature of Operations, Basis of Presentation and Principles of Consolidation."

Capitol was incorporated in 1988.

Capitol Trust I and Capitol Trust XII were formed in 1997 and 2008, respectively; each is a Delaware statutory business trust.  The business and affairs of Capitol Trust I and Capitol Trust XII are conducted by their respective property trustee, a Delaware trustee, and administrative trustees who are employees and officers of Capitol.  Capitol Trust I and Capitol Trust XII exist for the sole purpose of issuing and selling its preferred securities and common securities, using the proceeds from the sale of those securities to acquire subordinated debentures issued by Capitol and certain related services.  During 2001, Capitol formed Capitol Trust II and Capitol Statutory Trust III, in conjunction with private placements of trust-preferred securities.  Capitol Trust IV was similarly formed in 2002, Capitol Trust VI, Capitol Trust VII and Capitol Statutory Trust VIII were formed in 2003, Capitol Trust IX was formed in 2004 and Capitol Trust X and Capitol Trust XI were formed in 2007.  Each of these securities has similar terms.  Additional information regarding trust-preferred securities is incorporated by reference from Pages F-81 – F-82, Financial Information Section of Annual Report, under the caption "Note J—Subordinated Debt."

b.            Financial information about segments:

Incorporated by reference from Pages F-13 – F-17, Financial Information Section of Annual Report (excerpt from Management's Discussion and Analysis of Capitol's Business, Financial Condition and Results of Operations) and Pages F-59 – F-61, Financial Information Section of Annual Report, under the caption "Note A—Nature of Operations, Basis of Presentation and Principles of Consolidation."

c.            Narrative description of business:

Incorporated by reference from Pages F-11 – F-14, Financial Information Section of Annual Report, under the captions "Summary and Overview" and "Capitol's Approach to Community Banking," Pages F-30 – F-36, Financial Information Section of Annual Report, under the caption "Liquidity, Capital Resources and Capital Adequacy," Pages

F-35 – F-36, Financial Information Section of Annual Report, comparative analysis of each banking subsidiaries' regulatory capital position, Pages F-36 – F-39, Financial Information Section of Annual Report, under the caption "Certain Regulatory Matters," Pages F-41 – F-44, Financial Information Section of Annual Report, under the caption "Trends Affecting Operations," Pages F-45, Financial Information Section of Annual Report, under the caption "Divestitures of Banks" and Pages F-59 – F-61, Financial Information Section of Annual Report, under the caption "Note A—Nature of Operations, Basis of Presentation and Principles of Consolidation."

At December 31, 2010, Capitol and its subsidiaries employed approximately 1,002 full time equivalent employees.

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Item 1. Business – continued.

Supervision and Regulation:

Incorporated herein by reference from Pages F-36 – F-39 and F-97 – F-100, Financial Information Section of Annual Report, under the caption "Certain Regulatory Matters" and "Capitol Requirements and Related Regulatory Matters."

General:

The banking industry is subject to extensive state and federal regulation and continues to undergo significant change, particularly during the current severe economic recession.  Proposals to change the laws and regulations governing the banking industry are currently being discussed in Congress, in state legislatures and before the various

bank regulatory agencies, in addition to direct investment in some financial institutions by the U.S. government.  The likelihood and timing of any changes and the impact such changes might have on Capitol are impossible to determine with any certainty.  A change in applicable laws or regulations, or a change in the way such laws or regulations are interpreted by regulatory agencies or courts, may have a material impact on Capitol's business, financial position and results of operations.  Capitol expects that the financial services industry will remain heavily regulated and that additional laws or regulations may be adopted.  The following discussion summarizes certain aspects of the banking laws and regulations that affect Capitol.  To the extent that the following information describes statutory or regulatory provisions, it is qualified entirely by reference to the particular statutory or regulatory provision.

Capitol has not received any so-called "bailout" funds from any governmental sources and is not currently expecting to participate in the various capital programs offered by the U.S. government as an economic stimulus during the current severe recession.

Capitol is a bank holding company registered with the Board of Governors of the Federal Reserve and is subject to regulation under the Bank Holding Company Act of 1956, as amended (Bank Holding Company Act).  The Bank Holding Company Act requires the Federal Reserve Board's prior approval of an acquisition of assets or of ownership or control of voting shares of any bank or bank holding company, if the acquisition would give the acquiring institution more than 5% of the voting shares of such bank or bank holding company.  It also imposes restrictions, summarized below, on the assets or voting shares of nonbanking companies that Capitol may acquire.

Consistent with the requirements of the Bank Holding Company Act, Capitol's community banking subsidiaries provide their customers with banking, trust and other financial services and products.  These services include commercial banking through 23 banking subsidiaries (as of December 31, 2010), as well as trust services, mortgage origination and servicing, equipment leasing, brokerage and investment advisory services, property and casualty insurance, life insurance and annuity products, and portfolio management services through banking subsidiaries and other subsidiaries.

Under Federal Reserve Board policy, a bank holding company is expected to serve as a source of financial strength to its banking subsidiaries and to stand prepared to commit resources to support each of them.  There are no specific quantitative rules on a holding company's potential liability to its banking subsidiaries.  In its sole judgment, the Federal Reserve Board could invoke the source-of-strength doctrine and require capital contributions from Capitol to its banking subsidiaries.  In addition, and as a separate legal matter, a holding company is required to guarantee the capital plan of an undercapitalized banking subsidiary.  See "Capital Adequacy and Prompt Corrective Action" below.

Capitol's banking subsidiaries are subject to the provisions of the banking laws of their respective states of organization, the National Bank Act or national thrift regulations.  They are under the supervision of, and are subject to periodic examination by, their respective state banking departments (in the case of state-chartered banks), the Office of the Comptroller of the Currency (OCC) (in the case of national banks) or the Office of Thrift Supervision (OTS) (in the case of federal savings banks) and are subject to the rules and regulations of the OCC, the OTS, the Federal Reserve Board and the Federal Deposit Insurance Corporation (FDIC).  As of December 31, 2010, 18 of Capitol's banking subsidiaries were state-chartered banks and, therefore, subject to supervision, regulation and examination by state banking regulators and the FDIC.  Four of Capitol's depository institution subsidiaries, as of December 31, 2010, were

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Item 1. Business – continued.

chartered as federal savings banks and, accordingly, are subject to regulation and examination by the OTS and FDIC; and one banking subsidiary was a national bank, subject to regulation by the OCC and FDIC.  Additionally, nonbank subsidiaries of Capitol are supervised and examined by the Federal Reserve Board and various other federal and state agencies.  As part of the financial and regulatory overhaul for the U.S. financial institutions, via certain provision of the Dodd-Frank Act, the OCC must acquire the operations and some employees from the OTS by July 21, 2011.

Capitol's insured depository institution subsidiaries are also subject to cross-guaranty liability under federal law.  This means that if one FDIC-insured depository institution subsidiary of a multi-institution bank holding company fails or requires FDIC assistance, the FDIC may assess "commonly controlled" depository institutions for the estimated losses suffered by the FDIC.  Such liability could have a material adverse effect on the financial condition of any assessed subsidiary institution and on Capitol as the common parent.  While the FDIC's cross-guaranty claim is generally junior to the claims of depositors, holders of secured liabilities, general creditors and subordinated creditors, it is generally superior to the claims of shareholders and affiliates.

Payment of Dividends:

There are various statutory restrictions on the ability of Capitol's banking subsidiaries to pay dividends or make other payments to Capitol.  Each of the state-chartered banking subsidiaries is subject to dividend limits under the laws of the state in which it is chartered.  Federal Reserve Board policy provides that, as a matter of prudent banking, a bank holding company generally should not maintain a rate of cash dividends unless its net income available to common shareholders has been sufficient to fully fund the dividends and the prospective rate of earnings retention appears to be consistent with the holding company's capital needs, asset quality and overall financial condition; due to operating losses and a written agreement between the Federal Reserve and Capitol, Capitol is currently prohibited from payment of dividends.

As of December 31, 2010, Capitol's banking subsidiaries were prohibited from making dividend payments to Capitol without prior regulatory approval.  Capitol is similarly prohibited from making dividend payments without prior regulatory approval.

Capitol has several series of trust-preferred securities outstanding which are interest bearing.  Under certain conditions, Capitol may defer payment of interest on the related subordinated debentures for periods of up to five years.  In April 2009, Capitol commenced deferral of interest payments on such subordinated debentures and, pursuant to the written agreement between the Federal Reserve and Capitol, may not make interest payments thereon without prior written approval from the Federal Reserve.  The documents governing the trusts restrict Capitol's right to pay a dividend on its common stock under certain circumstances and give holders of the securities preference on liquidation over the holders of Capitol's common stock.

Capital Adequacy and Prompt Corrective Action:

The FDIC Improvement Act of 1991 (FDICIA) requires federal regulators to take prompt corrective action against any undercapitalized institution.  FDICIA establishes five capital categories: well-capitalized, adequately-capitalized, undercapitalized, significantly-undercapitalized and critically-undercapitalized.  "Well-capitalized" institutions significantly exceed the required minimum level for each capital measure (currently, risk-based and leverage). "Adequately-capitalized" institutions include depository institutions that meet the required minimum level for each capital measure.  "Undercapitalized" institutions consist of those that fail to meet the required minimum level for one or more relevant capital measures.  "Significantly-undercapitalized" characterizes depository institutions with capital levels significantly below the minimum requirements.  "Critically-undercapitalized" refers to depository institutions with minimal capital and at serious risk for government seizure.

Under certain circumstances, a well-capitalized, adequately-capitalized or undercapitalized institution may be treated as if the institution were in the next lower capital category.  A depository institution is generally prohibited from making capital distributions, including paying dividends or fees to a holding company, if the institution would thereafter

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Item 1. Business – continued.

be undercapitalized.  Institutions that are adequately but not well-capitalized cannot accept, renew or roll over brokered deposits except with a waiver from the FDIC, and are subject to restrictions on the interest rates that can be paid on such deposits.  Undercapitalized institutions may not accept, renew or roll over brokered deposits.

Most of Capitol's banking subsidiaries are subject to regulatory agreements which, among other things, preclude classification of the bank at a level higher than adequately-capitalized.

The banking regulatory agencies are permitted or, in certain cases, required to take certain actions with respect to institutions falling within one of the three undercapitalized categories.  Depending on the level of an institution's capital, the agencies' corrective powers include, among other things:

· prohibiting the payment of principal and interest on subordinated debt;  

· prohibiting the holding company from obtaining distributions from the institution without prior regulatory approval;  

· placing limits on asset growth and restrictions on activities;  

· placing additional restrictions on transactions with affiliates;  

· restricting the interest rates the institution may pay on deposits;  

· prohibiting the institution from accepting deposits from correspondent banks; and  

· in the most severe cases, appointing a conservator or receiver for the institution.

A banking institution that is undercapitalized is required to submit a capital restoration plan, and such a plan will not be accepted unless, among other things, the banking institution's holding company guarantees the plan up to a certain specified amount.  Any such guarantee from a depository institution's holding company is entitled to a priority of payment in bankruptcy.

Several of Capitol's banking subsidiaries have recently received Prompt Corrective Action Notifications (PCAN) and four banking subsidiaries have received Prompt Corrective Action Directives (PCAD) from the FDIC.  For each banking subsidiary which has received a PCAN, capital restoration plans have been requested by the FDIC, prepared and resubmitted for regulatory review and approval.  For banks in receipt of a PCAD, those institutions are striving to develop and implement capital restoration plans which may be subsequently acceptable to the FDIC.

FDICIA also contains a variety of other provisions that may affect Capitol's operations, including reporting requirements, regulatory standards for real estate lending, "truth in savings" provisions, and the requirement that a depository institution give 90 days' prior notice to customers and regulatory authorities before closing any branch.

Information concerning capital adequacy guidelines for Capitol and its banking subsidiaries, including their regulatory capital position at December 31, 2010, is incorporated by reference from Pages F-30 – F-39, Financial Information Section of Annual Report, under the captions "Liquidity, Capital Resources and Capital Adequacy" and "Certain Regulatory Matters" and Pages F-97 – F-100, Financial Information Section of Annual Report, under the caption "Note Q—Capital Requirements and Related Regulatory Matters."

FDIC Insurance Assessments:

FDIC deposit insurance premium levels remained a significant expense in 2010 ($14.8 million) compared to 2009 ($12.1 million) and 2008 ($2.6 million).  FDIC insurance premiums currently range from .07% to .78% of average domestic deposits, depending on an institutions' risk classification and other factors.  Effective April 1, 2011, banks will be charged FDIC insurance premiums based on net assets (defined by the FDIC for assessment purposes as quarter-to-date average

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Item 1. Business – continued.

daily total assets less the corresponding amount of Tier 1 capital) rather than based on average deposits.  Initial base assessment rates range from .05% to .35% of "net assets" and may be adjusted for certain factors.  Assuming that Capitol's banking subsidiaries remain in their current risk category, this new FDIC assessment methodology may result in a decrease in this expense item in the future.  Future assessment rates and methodology are difficult to predict.

As of June 30, 2008, the designated reserve ratio was 1.01% of estimated insured deposits at March 31, 2008.  As a result of this reduced reserve ratio, in December 2008, the FDIC issued a ruling raising assessment rates uniformly by seven basis points for the first quarter of 2009.  During 2009 and 2010, bank failures, coupled with deteriorating economic conditions, significantly reduced the FDIC's insurance fund reserve ratio.  The FDIC also modified the way its assessment system differentiates for risk beginning April 1, 2009, resulting in corresponding changes in assessment rates beginning with the second quarter of 2009.

In conjunction with the October 2008 enactment of the Emergency Economic Stabilization Act of 2008 (EESA), the limit on FDIC insurance coverage was increased to $250,000 for all accounts.  From December 31, 2010 through December 31, 2012, all noninterest-bearing transaction deposit accounts are fully insured regardless of the amount and account ownership, separate from and in addition to the FDIC insurance coverage provided from the depositors' other accounts.

On June 30, 2009, the FDIC charged a special assessment equal to 10 basis points on assets as of December 31, 2008, payable September 30, 2009.  Future special assessments by the FDIC to bolster its insurance fund are possible.  As a means to help improve the reserve ratio of the FDIC's insurance fund, it charged many banks, in December 2009, including some of Capitol's banking subsidiaries, an amount approximating three-years' of annual assessments.

In 2006, the FDIC merged the Bank Insurance Fund (BIF) and the Savings Association Insurance Fund (SAIF) into a single fund called the Deposit Insurance Fund.  As a result of the merger, the BIF and the SAIF were abolished.  The merger of the BIF and the SAIF into the Deposit Insurance Fund does not affect the authority of the Financing Corporation (FICO) to impose and collect, with the approval of the FDIC, assessments for anticipated payments, issuance costs and custodial fees on bonds issued by the FICO in the 1980s to recapitalize the Federal Savings and Loan Insurance Corporation.  The bonds issued by the FICO are due to mature in 2017 through 2019.  For the quarter ended December 31, 2010, the annualized FICO assessment was equal to 1.04 basis points for each $100 in domestic deposits maintained at an institution.

Temporary Liquidity Guarantee Program:

In November 2008, the FDIC adopted a final rule relating to the Temporary Liquidity Guarantee Program (TLG Program).  The TLG Program was an initiative to counter the system-wide crisis in the nation's financial sector in 2008.  Under the TLG Program, the FDIC will (i) guarantee, through the earlier of maturity or June 30, 2012, certain newly-issued senior unsecured debt issued by participating institutions and (ii) provide full FDIC deposit insurance coverage for noninterest-bearing transaction deposit accounts, Negotiable Order of Withdrawal Accounts (commonly known as NOW accounts) paying less than 0.5% interest per annum and Interest on Lawyers Trust Accounts (commonly known as IOLTA) held at participating FDIC-insured institutions through December 31, 2009.  Coverage under the TLG Program was available for the first 30 days without charge.  The fee assessment for coverage of senior unsecured debt ranges from 50 basis points to 100 basis points per annum, depending on the initial maturity of the debt.  The fee assessment for deposit insurance coverage is 10 basis points per quarter (changing to 15-25 basis points per annum in 2011) on amounts in covered accounts exceeding $250,000.  Capitol elected to participate in both guarantee programs.

The FDIC's TLG Program provides an unlimited guarantee of certain demand deposits and ended effective June 30, 2010.  The Dodd-Frank Act was subsequently enacted, which provides a substantially similar unlimited guarantee of all noninterest-bearing deposits through December 31, 2012.  Capitol estimates $516.9 million of deposits at its banking subsidiaries would become uninsured, based on balances as of December 31, 2010.  The effect of depositor activity upon termination of such unlimited deposit insurance is not determinable.

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Item 1. Business – continued.

American Recovery and Reinvestment Act of 2009:

In February 2009, the American Recovery and Reinvestment Act of 2009 (ARRA) was enacted.  The ARRA, commonly known as the economic stimulus or economic recovery package, includes a wide variety of programs intended to stimulate the economy and provide for extensive infrastructure, energy, health and education programs.  In addition, ARRA imposes certain new executive compensation and corporate expenditure limits on all current and future Troubled Asset Relief Program (TARP) recipients, until the institution has repaid the U.S. Treasury, which is now permitted under ARRA without penalty and without the need to raise new capital, subject to the U.S. Treasury's consultation with the recipient's appropriate regulatory agency.  The executive compensation standards are more stringent than those previously proposed by the U.S. Treasury, but it is not yet clear how these executive compensation standards will relate to the similar standards announced by the U.S. Treasury in its guidelines on February 4, 2009, or when the standards will be considered effective or only after implementing regulations are issued by the U.S. Treasury.  The new standards include (but are not limited to) (i) prohibitions on bonuses, retention awards and other incentive compensation, other than restricted stock grants which do not fully vest during the TARP period up to one-third of an employee's total annual compensation, (ii) prohibitions on so-called golden parachute payments upon departure from a company, (iii) an expanded claw-back of bonuses, retention awards and incentive compensation if payment is based on materially inaccurate statements of earnings, revenues, gains or other criteria, (iv) prohibitions on compensation plans that encourage manipulation of reported earnings, (v) retroactive review of bonuses, retention awards and other compensation previously provided by TARP recipients if found by the U.S. Treasury to be inconsistent with the purposes of TARP or otherwise contrary to public interest, (vi) required establishment of a company-wide policy regarding "excessive or luxury expenditures" and (vii) inclusion in a participant's proxy statements for annual shareholder meetings of a nonbinding "say on pay" shareholder vote on the compensation of executives.

On July 21, 2010, the Dodd-Frank Act (DFA) was signed into law, which significantly changes future regulation of financial institutions and the financial services industry.  The DFA includes provisions affecting large and small financial institutions, including several provisions that will profoundly affect how community banks, thrifts and smaller bank holding companies will be regulated in the future.  Among other things, these provisions abolish the Office of Thrift Supervision and transfer its functions to the other federal banking agencies, relax rules regarding interstate branching, allow financial institutions to pay interest on business checking accounts, change the scope of FDIC insurance coverage and impose new capital requirements on bank holding companies, including removing trust-preferred securities as a permitted component of a holding company's Tier 1 capital after a three-year phase-in period beginning January 1, 2013.  The DFA also establishes the Bureau of Consumer Financial Protection as an independent entity within the Federal Reserve, which will be given the authority to promulgate consumer protection regulations applicable to all entities offering consumer financial services or products, including banks.  Additionally, the DFA includes a series of provisions covering mortgage loan origination standards affecting, among other things, originator compensation, minimum repayment standards and prepayments.  Management is reviewing the provisions of the DFA and assessing its probable impact on the Corporation's business, financial condition and results of operations.  However, the ultimate effect of the DFA on the financial services industry in general, and on the Corporation in particular, is currently uncertain.

Future Legislation:

Various legislation affecting financial institutions and the financial industry is, from time to time, introduced in Congress.  Such legislation may change banking statutes and the operating environment of Capitol and its subsidiaries in substantial and unpredictable ways and could increase or decrease the cost of doing business, limit or expand permissible activities or affect the competitive balance, depending upon whether any of this potential legislation will be enacted and, if enacted, the effect that it or any implementing regulations would have on the financial condition or results of operations of Capitol or any of its subsidiaries.  With the enactments of EESA, ARRA and DFA, the nature and extent of future legislative and regulatory changes affecting financial institutions is very unpredictable.

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Item 1. Business – continued.

Interstate Banking:

Under the Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 (Riegle-Neal Act), as amended, a bank holding company may acquire banks in states other than its home state, subject to any state requirement that the bank has been organized and operating for a minimum period of time (not to exceed five years) and the requirement that the bank holding company not control, prior to or following the proposed acquisition, more than 10% of the total amount of deposits of insured depository institutions nationwide or, unless the acquisition is the bank holding company's initial entry into the state, more than 30% of such deposits in the state, or such lesser or greater amount set by the state.  The Riegle-Neal Act also authorizes banks to merge across state lines, thereby creating interstate branches.  Banks are also permitted to acquire and to establish de novo branches in other states where authorized under the laws of those states.

Transactions with Affiliates:

Transactions between Capitol's banking subsidiaries and their affiliates are governed by Regulation W of the Federal Reserve Act and substantially similar regulations of the FDIC.  The affiliates of the banks include Capitol and any entity controlled by Capitol.  Generally, Regulation W (i) limits the extent to which the banking subsidiaries may engage in "covered transactions" with any one affiliate to an amount equal to 10% of such institution's capital stock and surplus, and maintain an aggregate limit on all such transactions with affiliates to an amount equal to 20% of the bank's capital stock and surplus, (ii) require that a bank's extensions of credit to such affiliates be fully collateralized (with 100% to 130% collateral coverage, depending on the type of collateral), (iii) prohibit the bank from purchasing or accepting as collateral from an affiliate any "low quality assets" (including nonperforming loans) and (iv) require that all "covered transactions" be on terms substantially the same, or at least as favorable, to the bank or its subsidiary as those provided to a nonaffiliate.  The term "covered transaction" includes the making of loans, purchase of assets, issuance of a guarantee and other types of similar transactions.

Loans to Insiders:

The Federal Reserve Act and related regulations impose specific restrictions on loans to directors, executive officers and principal stockholders of banks.  Under Section 22(h) of the Federal Reserve Act and its implementing regulations, loans to a director, an executive officer and to a principal shareholder of a bank, and some affiliated entities of any of the foregoing, may not exceed, together with all other outstanding loans to such person and affiliated entities, the bank's loan-to-one-borrower limit.  Loans in the aggregate to insiders and their related interests as a class may not exceed the bank's unimpaired capital and unimpaired surplus.  Section 22(h) and its implementing regulations also prohibit loans, above amounts prescribed by the appropriate federal banking agency, to directors, executive officers and principal shareholders of a bank or bank holding company, and their respective affiliates, unless such loan is approved in advance by a majority of the board of directors of the bank with any "interested" director not participating in the voting.  Section 22(h) generally requires that loans to directors, executive officers and principal shareholders be made on terms and underwriting standards substantially the same as offered in comparable transactions to other persons.

Community Reinvestment Act:

Under the Community Reinvestment Act (CRA) and related regulations, depository institutions have an affirmative obligation to assist in meeting the credit needs of their market areas, including low and moderate income areas, consistent with safe and sound banking practices.  The CRA requires the adoption by each institution of a CRA statement for each of its market areas describing the depository institution's efforts to assist in its community's credit needs.  Depository institutions are periodically examined for compliance with CRA and are periodically assigned ratings in this regard.  Banking regulators consider a depository institution's CRA rating when reviewing applications to establish new branches, undertake new lines of business, and/or acquire part or all of another depository institution.  An unsatisfactory rating can significantly delay or even prohibit regulatory approval of a proposed transaction by a bank holding company or its depository institution subsidiary.

Fair Lending and Consumer Laws:

In addition to the CRA, other federal and state laws regulate various lending and consumer aspects of the banking business.  Governmental agencies, including the Department of Housing and Urban Development, the Federal Trade

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Item 1. Business – continued.

Commission and the Department of Justice, have become concerned that, in some cases, prospective borrowers experience unlawful discrimination in their efforts to obtain loans from depository and other lending institutions.  These agencies have brought litigation against some depository institutions alleging discrimination against borrowers.  Many of these suits have been settled, in some cases for material sums, short of a full trial.

Those governmental agencies have clarified what they consider to be lending discrimination and have specified various factors that they will use to determine the existence of lending discrimination under the Equal Credit Opportunity Act and the Fair Housing Act.  These factors include evidence that a lender discriminated on a prohibited basis, evidence that a lender treated applicants differently based on prohibited factors in the absence of evidence that the treatment was the result of prejudice or a conscious intention to discriminate, and evidence that a lender applied an otherwise neutral nondiscriminatory policy uniformly to all applicants, but the practice had a discriminatory effect, unless the practice could be justified as a business necessity.

Banks and other depository institutions also are subject to numerous consumer-oriented laws and regulations.  These laws, which include the Truth in Lending Act, the Truth in Savings Act, the Real Estate Settlement Procedures Act, the Electronic Funds Transfer Act, the Equal Credit Opportunity Act, and the Fair Housing Act, require compliance by depository institutions with various disclosure requirements and requirements regulating the availability of funds after deposit or the making of certain loans to customers.

Gramm-Leach Bliley Act of 1999:

The Gramm-Leach-Bliley Act of 1999 (GLBA) covers a broad range of issues, including a repeal of most of the restrictions on affiliations among depository institutions, securities firms and insurance companies.  The following description summarizes some of its significant provisions.

The GLBA repeals sections 20 and 32 of the Glass-Steagall Act, thus permitting unrestricted affiliations between banks and securities firms.  It also permits bank holding companies to elect to become financial holding companies.  A financial holding company may engage in or acquire companies that engage in a broad range of financial services, including securities activities such as underwriting, dealing, investment, merchant banking, insurance underwriting, sales and brokerage activities.  In order to become a financial holding company, the bank holding company and all of its affiliated depository institutions must be well-capitalized, well-managed and have at least a satisfactory CRA rating.  Capitol has determined not to become certified as a financial holding company at this time, but may reconsider this determination in the future.

The GLBA provides that the states continue to have the authority to regulate insurance activities, but prohibits the states in most instances from preventing or significantly interfering with the ability of a bank, directly or through an affiliate, to engage in insurance sales, solicitations or cross-marketing activities.  Although the states generally must regulate bank insurance activities in a nondiscriminatory manner, the states may continue to adopt and enforce rules that specifically regulate bank insurance activities in specific areas identified under the law.  The federal bank regulatory agencies adopted insurance consumer protection regulations that apply to sales practices, solicitations, advertising and disclosures.

The GLBA repeals the broad exemption of banks from the definitions of "broker" and "dealer" for purposes of the Securities Exchange Act of 1934, as amended.  It also identifies a set of specific activities, including traditional bank trust and fiduciary activities, in which a bank may engage without being deemed a "broker," and a set of activities in which a bank may engage without being deemed a "dealer."  Additionally, the law makes conforming changes in the definitions of "broker" and "dealer" for purposes of the Investment Company Act of 1940, as amended, and the Investment Advisers Act of 1940, as amended.

The GLBA also contains extensive customer privacy protection provisions.  Under these provisions, a financial institution must provide to its customers, both at the inception of the customer relationship and on an annual basis, the

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Item 1. Business – continued.

institution's policies and procedures regarding the handling of customers' nonpublic personal financial information.  The law provides that, except for specific limited exceptions, an institution may not provide such personal information to unaffiliated third parties unless the institution discloses to the customer that such information may be so provided and the customer is given the opportunity to "opt out" of such disclosure.  An institution may not disclose to a non-affiliated third party, other than to a consumer reporting agency, customer account numbers or other similar account identifiers for marketing purposes.  The GLBA also provides that the states may adopt customer privacy protections that are more strict than those contained in the GLBA.

Anti-Money Laundering and the USA Patriot Act of 2001:

In 2001, Congress enacted the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001 (Patriot Act).  The Patriot Act is designed to deny terrorists and criminals the ability to obtain access to the United States' financial system and has significant implications for depository institutions, brokers, dealers and other businesses involved in the transfer of money.  The Patriot Act mandates that financial services companies implement policies and procedures with respect to additional measures designed to address the following matters: money laundering, terrorist financing, identifying and reporting suspicious activities and currency transactions and currency crimes.  The Patriot Act also substantially broadened existing anti-money laundering legislation, imposed new compliance and due diligence obligations, created new crimes and penalties and compelled the production of documents located both inside and outside the United States.  The U.S. Treasury Department has issued a number of regulations that apply some of these requirements to financial institutions such as Capitol's banking subsidiaries.  The regulations impose new obligations on financial institutions to maintain appropriate policies, procedures and controls to detect, prevent and report money laundering and terrorist financing.  Pursuant to the Patriot Act and the related regulations, Capitol and its banking subsidiaries have established anti-money laundering compliance and due diligence programs that include, among other things, the designation of a compliance officer, employee training programs and an independent audit function to review and test the program.

Evolving Legislation and Regulatory Action:

Legislators and regulators in the United States are currently considering a wide range of proposals that, if enacted, could result in major changes to the way banking operations are regulated.  Some of these major changes may take effect as early as 2011, and could materially impact the profitability of Capitol's banking business, the value of assets Capitol holds or the collateral available for Capitol's banking subsidiaries' loans, require changes to business practices or force Capitol to discontinue businesses and expose Capitol to additional costs, taxes, liabilities, enforcement actions and reputational risk.

Capitol maintains an Internet website at http://www.capitolbancorp.com that includes links to Capitol's Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and any amendments to those reports (SEC Reports).  The SEC Reports are available without charge as soon as reasonably practicable following the time they are filed with or furnished to the SEC.  Information on Capitol's website is not incorporated into this Form 10-K or Capitol's other securities filings and is not a part of those filings.  The public may read and copy any materials Capitol files with the SEC at the SEC's Public Reference Room at 100 F. Street, NE, Washington, DC.  The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330.  The SEC also maintains an Internet site that contains information regarding issuers that file electronically with the SEC.  That address is http://www.sec.gov.  In addition, Capitol makes available on its website at http://www.capitolbancorp.com, under the heading "Governance," its:  (i) Code of Ethics; (ii) Governance Guidelines; and (iii) the charters of Capitol's board committees, and also intends to disclose any amendments to its Code of Ethics, or waivers of the Code of Ethics on behalf of its Chief Executive Officer and other senior financial officers, on its website.  These corporate governance materials are also available free of charge in print to shareholders who request them in writing to:  Capitol Bancorp Ltd., Attention: Secretary, Capitol Bancorp Center, 200 N. Washington Square, Lansing, Michigan 48933.

The following tables (Tables A to G, inclusive), present certain statistical information regarding Capitol's business and excludes discontinued operations.

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Item 1A. Risk Factors.

An investment in Capitol's common stock, Series A preferred stock and/or its trust-preferred securities are subject to the risks inherent to Capitol's business.  The material risks and uncertainties that Capitol believes affect it are described below.  The risks and uncertainties described below are not the only ones Capitol faces.  Additional risks and uncertainties that Capitol is not aware of or focused on, or risks currently deemed immaterial, may also impair business operations.  This Annual Report on Form 10-K is qualified in its entirety by these risk factors.  If any of the following risks actually occur, Capitol's financial condition and results of operations could be materially and adversely affected.  If this were to happen, the value of Capitol's common stock could decline significantly, and shareholders could lose all or a portion of their investment.

Capitol's ability to continue as a going concern is uncertain.

Capitol has experienced a significant deterioration in asset quality and incurred significant operating losses resulting in an equity deficit and a regulatory capital classification as "less than adequately capitalized."  As a result, Capitol and most of its banking subsidiaries have become subject to increased regulatory oversight and compliance requirements.  Those factors, among others, raise some level of doubt (potentially "substantial doubt") as to Capitol's ability to continue as a going concern.  If Capitol becomes unable to operate as a going concern, it is likely that its common shareholders could lose all or substantially all of their investment in Capitol.  Such substantial doubt is discussed in the Report of Independent Registered Public Accounting Firm set forth on page F-53 of the Financial Information Section of Capitol's 2010 Annual Report.

Capitol has commenced several initiatives and other actions to mitigate these going-concern considerations and to improve the Corporation's financial condition, equity, regulatory capital and regulatory compliance.  Capitol's ability to continue as a going concern is contingent on the successful achievement of those initiatives.  There can be no assurance that the exploration of those capital strategies will result in any transaction, or that any transaction will allow any of Capitol's shareholders to avert a loss of all or substantially all of their investment in Capitol.  The pursuit of strategic alternatives may also involve significant expenses and management's time and attention.

Capitol needs to raise additional capital that may not be available to it.

Regulatory authorities require Capitol and its banking subsidiaries to maintain adequate levels of capital to support their operations.  As reported by Capitol, many of Capitol's banking subsidiaries are "significantly-undercapitalized" or otherwise classified as less than adequately-capitalized as of December 31, 2010 and have an immediate need to raise capital.  Two of Capitol's banking subsidiaries had capital levels resulting in regulatory classification as "critically-undercapitalized" at December 31, 2010; however, each of these subsidiaries received additional capital from Capitol in January 2011 to improve their classifications to "significantly-undercapitalized."  In addition, even if Capitol succeeds in raising capital, it may need to raise additional capital in the future due to additional losses from operations or regulatory requirements.  The ability to raise additional capital, if needed, will depend in part on conditions in the capital markets at that time, which are outside Capitol's control, and on Capitol's financial performance.  Accordingly, any such additional capital may not be raised, if and when needed, on terms acceptable to Capitol, or at all.  If Capitol cannot raise additional capital when needed, Capitol's ability to increase its capital ratios could be materially impaired and Capitol could face additional adverse regulatory challenges.  In addition, if Capitol issues additional equity capital, it may be at a lower price and Capitol's existing shareholders' interest may be diluted.

If Capitol's banking subsidiaries continue to suffer significant loan losses, it may be difficult to continue to operate as a going concern.

Capitol has incurred net losses of $225.2 million and $195.2 million during the years ended December 31, 2010 and 2009, respectively.  Future significant losses may make it difficult for Capitol and its banking subsidiaries to continue in operation.

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Item 1A. Risk Factors – continued.

Capitol's losses have largely resulted from provisions for loan losses and impairment losses related to other real estate owned.  Since January 1, 2008, Capitol has recorded total provisions for loan losses of $407.9 million (excluding discontinued operations).  While such losses exclude charges to establish and maintain a valuation allowance against the realization of Capitol's deferred tax assets of $190.3 million, which are not deemed more-likely-than-not realizable, these latter charges would not have been required had Capitol not incurred the losses on loans.

However, substantial risks remain in Capitol's and its banking subsidiaries' loan portfolios.  As of December 31, 2010, approximately 98.4% of Capitol's bank loan portfolio consisted of loans secured by real estate and commercial loans secured by business assets other than real estate.  Those consolidated subsidiaries' types of loans are typically larger than other loans which made up the remaining portion of Capitol's and its banking subsidiaries' portfolio loans.  Further, deterioration of any or a few of those loans may lead to a significant increase in nonperforming loans and potential loan losses.  Any additional increases in nonperforming loans could result in a decrease in interest income from those loans, an increase in the provision for loan losses and an increase in loan charge-offs, all of which could have a material adverse effect on Capitol's financial condition and results of operations.

The market price of Capitol's common stock has been and continues to be volatile.

Stock price volatility may make it more difficult for stockholders to sell their shares of Capitol's common stock when desired and at an attractive market value.  Capitol's common stock price fluctuates significantly in response to a variety of factors including, but not limited to:

·   Actual or anticipated variations in quarterly results of operations;

·   Recommendations by securities analysts, if any;

·   Operating and stock price performance of other companies that investors deem comparable to Capitol's common stock interest;

·   News reports relating to trends, concerns and other issues in the financial services industry;

·   Perceptions in the marketplace regarding Capitol, its banking subsidiaries and/or its competitors;

·   New technology used or services offered by competitors;

·   Significant acquisitions or business combinations, strategic partnerships, joint venture or capital commitments by or involving Capitol or Capitol's competitors;

·   Changes in government regulations; or

·   Geopolitical conditions such as acts or threats of terrorism or military conflicts.

General market fluctuations, industry factors and general economic and political conditions and events, such as economic slowdowns or recessions and interest rate changes or credit loss trends, could also cause Capitol's stock price to decrease regardless of operating results.

Stock markets in general and Capitol's common stock in particular have experienced significant volatility over the past couple of years (or more), and continue to experience significant price and volume volatility.  As a result, the market price of Capitol's common stock may continue to be subject to similar market fluctuations that may be unrelated to Capitol's operating performance or prospects.  Increased volatility could result in a decline in the market price of Capitol's common stock.  On January 19, 2011, NYSE Regulation, Inc. notified Capitol of its intent to delist all of Capitol's securities.  No assurance can be made that Capitol will meet the listing standards of the NYSE or another exchange in the near future.

Capitol's business has been adversely affected by conditions in the financial markets and economic conditions.

Since December 2007, the United States has been in a deep recession.  Business activity across a wide range of industries and regions is greatly reduced, and local governments and many businesses are experiencing serious difficulty due to the lack of consumer spending and the lack of liquidity in the credit markets.  Unemployment has increased significantly.

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Item 1A. Risk Factors – continued.

Since mid-2007, the financial services industry and securities markets generally have been materially and adversely affected by significant declines in the values of nearly all asset classes and by a serious lack of liquidity.  This was initially triggered by declines in home prices and the values of subprime mortgages, but spread to all mortgage and real estate asset classes, to leveraged bank loans and to nearly all asset classes, including equity securities.  Global markets have been characterized by substantially increased volatility, short-selling and an overall loss of investor confidence, initially in financial institutions, but more recently in companies in a number of other industries and in the broader markets.

Market conditions have also led to the failure or merger of a number of prominent financial institutions.  Financial institution failures or near-failures have resulted in further losses as a consequence of defaults on securities issued by them, and defaults under contracts entered into with such entities as counterparties.  Furthermore, declining asset values, defaults on mortgages and consumer loans, and the lack of market and investor confidence, as well as other factors, have all combined to increase credit-default swap spreads, to cause rating agencies to lower credit ratings, and to otherwise increase the cost and decrease the availability of liquidity, despite very significant declines in Federal Reserve borrowing rates and other government actions.  Some banks and other lenders, including Capitol, have suffered significant losses and many institutions have become reluctant to lend, even on a secured basis, due to the increased risk of default and the impact of declining asset values on the value of collateral.  The foregoing has significantly weakened the strength and liquidity of some financial institutions worldwide.  The U.S. government, the Federal Reserve Board and other regulatory agencies have taken numerous steps to increase liquidity and to restore investor confidence, including investing billions in the equity of other banking organizations, but asset values have continued to decline and access to liquidity continues to be very limited.

In response to the adverse economic conditions affecting the banking system and financial markets, and going concern threats to investment banks and other financial institutions, the Emergency Economic Stabilization Act of 2008 (EESA) was signed into law in October 2008.  Among other things, EESA authorizes the U.S. Treasury (Treasury) to spend up to $700 billion to inject capital into financial institutions by purchasing non-voting preferred shares directly from such institutions and to purchase mortgage-backed and other non-performing assets from financial institutions for the purpose of stabilizing the financial markets.

Capitol's financial performance generally, and in particular the ability of its banks' borrowers to pay interest on and repay the principal of outstanding loans and the value of collateral securing those loans, is highly dependent on the business environment in the markets where Capitol operates and in the United States as a whole.  The current severe recession is characterized by declines in economic growth, business activity or investor or business confidence; limitations on the availability of, or increases in the cost of, credit and capital; falling commercial and residential real estate values; inactive or nonexistent markets for the sale of real estate; or a combination of these or other factors.

It is expected that the business environment in the United States will continue to be weak and may deteriorate further for the foreseeable future.  There can be no assurance that these conditions will improve in the near term.  Such conditions have and could continue to adversely affect the credit quality of Capitol's loans, results of operations and financial condition.

Capitol's ability to achieve and maintain required capital levels and adequate sources of funding and liquidity may be adversely affected by market conditions.

Capitol is required to maintain certain capital levels in accordance with banking regulations with which it is currently less than adequately-capitalized.  Many of Capitol's banking subsidiaries are also less than adequately-capitalized.  Capitol and its banking subsidiaries must also maintain adequate funding sources in the normal course of business to support their lending and investment operations and repay outstanding liabilities as they become due.  Capitol's ability to maintain capital levels, as well as sources of funding and liquidity could be impacted by future adverse operating results and deteriorating economic and market conditions.

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Item 1A. Risk Factors – continued.

Failure by Capitol or its banking subsidiaries to meet any applicable guideline or capital requirement otherwise imposed upon them or to satisfy certain other regulatory requirements could subject them to certain activity restrictions or to a variety of enforcement remedies available to the regulatory authorities that include prohibitions on their ability to pay future dividends, the issuance by regulatory authorities of a capital directive to increase capital and the termination of deposit insurance by the FDIC.

Noncompliance with capital requirements could have a material adverse effect on Capitol's operations and financial position.

Capitol and many of its banking subsidiaries are less than adequately-capitalized and regulatory agencies may require Capitol and/or its individual banking subsidiaries to maintain a higher level of capital than Capitol currently anticipates, which could adversely affect Capitol's liquidity at the parent company level and require it to raise additional capital.

While Capitol must meet certain regulatory requirements on a consolidated basis, regulatory agencies having authority over each of Capitol's banking subsidiaries may require that those subsidiaries maintain a higher level of capital than Capitol currently anticipates, which would require that Capitol maintain a consolidated capital position that is well beyond what Capitol presently anticipates and could be in excess of the levels of capital used in the assumptions underlying Capitol's management and estimation of its capital needs.  Several of Capitol's banking subsidiaries are currently required to maintain regulatory capital levels in excess of minimum requirements.  Further, as a holding company with obligations and expenses separate from Capitol's banking subsidiaries, and because many of Capitol's banking subsidiaries are currently prohibited from making dividend payments to Capitol, Capitol must maintain a level of liquidity that is sufficient to address those obligations and expenses.  The maintenance of adequate liquidity at Capitol may limit its ability to make further capital investments in banking subsidiaries, which could adversely impact Capitol and require it to raise additional capital.  Even if Capitol is successful in implementing its current divestiture and charter consolidation initiatives, there can be no assurance that Capitol and its banking subsidiaries would not be required by the regulatory agencies to have a higher level of capital than Capitol may anticipate.

At December 31, 2010, Capitol and certain banking subsidiaries were classified as less than adequately-capitalized based on their respective regulatory capital ratios.  Banks less than adequately-capitalized may become subject to increased regulatory enforcement pursuant to the prompt-corrective-action or other provisions of the FDIC and other bank regulatory agencies.  Capitol intends to augment the capital levels of those institutions through allocation of proceeds from the further divestiture of some of its banking subsidiaries, although there is no assurance that amounts contributed to banking subsidiaries' capital will become sufficient to achieve regulatory compliance.

Capitol's and its banking subsidiaries' allowances for loan losses may prove inadequate to absorb actual loan losses, which may adversely impact results of operations.

Capitol believes that its consolidated allowance for loan losses is maintained at a level adequate to absorb inherent losses in the loan portfolio at the balance-sheet date.  Management's determination of the allowance is based on evaluation of the portfolio (including potential impairment of individual loans and concentrations of credit), past loss experience, current economic conditions, the volume, amount and composition of the portfolio and other factors.  These estimates are subjective and their accuracy depends on the outcome of future events.  Actual future losses may differ from current estimates. Depending on changes in economic, operating and other conditions, including changes in fair value of collateral that are generally beyond Capitol's control, actual loan losses could increase significantly.  As a result, such losses could exceed current allowance estimates.  No assurance can be provided that the allowance will be sufficient to cover actual future loan losses should such losses be realized.

Loan loss experience, which is helpful in estimating the requirements for the allowance for loan losses at any given balance sheet date, has been minimal at some of Capitol's younger banking subsidiaries.  Conversely, some of Capitol's mature banking subsidiaries, particularly those located in Michigan, Arizona and Nevada, have recently experienced significantly elevated levels of loan losses due to adverse economic conditions.  Because many of Capitol's

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Item 1A. Risk Factors – continued.

banking subsidiaries are young, they do not have seasoned loan portfolios and it is likely that the ratio of the allowance for loan losses to total loans may need to be further increased in future periods as the loan portfolios become more mature and loss experience evolves.  If it becomes necessary to increase the ratio of the allowance for loan losses to total loans, such increases would be accomplished through higher provisions for loan losses, which may adversely impact results of operations and could result in larger net losses on a consolidated basis.

The domestic economy in the markets in which Capitol's banking subsidiaries operate is in a severe recession and Capitol's levels of nonperforming loans and related loan losses and levels of foreclosed assets and other real estate owned (OREO) have increased significantly.  It is anticipated that levels of nonperforming loans and related loan losses will continue to increase as economic conditions, locally and nationally, continue to deteriorate for the foreseeable future.  Capitol's level of OREO increased dramatically in 2009 and remained elevated, causing a corresponding increase in carrying costs and other operating expenses.  Continued elevation of OREO could have a negative material impact on Capitol.

In addition, regulatory agencies, as an integral part of their supervisory functions, periodically review the adequacy of the allowance for loan losses.  Regulatory agencies may require Capitol or its banking subsidiaries to increase their provision for loan losses or to recognize further loan charge-offs based upon judgments different from those of management.  Any increase in the allowance required by regulatory agencies could have a negative impact on Capitol's operating results, capital adequacy and financial position.

Capitol and/or its affiliates are or may become involved from time to time in information-gathering requests, investigations and proceedings by government agencies which may lead to adverse consequences.

Capitol and/or its affiliates are or may become involved from time to time in information-gathering requests, reviews, investigations and proceedings (both formal and informal) by government agencies, including the SEC, regarding their respective businesses.  Such matters may result in material adverse consequences, including without limitation, adverse judgments, settlements, fines, penalties, injunctions or other actions, amendments and/or restatements of Capitol's SEC filings and/or financial statements, as applicable, and/or determinations of material weaknesses in its disclosure controls and procedures.  The SEC is investigating and has made several requests for information, including by subpoena, concerning issues which Capitol understands relate to accounting and reporting matters involving certain of its loans and the related allowance for loan losses.  This could lead to an enforcement proceeding by the SEC which, in turn, may result in one or more such material adverse consequences.

Capitol and its banking subsidiaries operate in an environment highly regulated by state and federal government agencies; changes in federal and state banking laws and regulations could have a negative impact on its business.

As a bank holding company, Capitol is regulated primarily by the Federal Reserve Board.  Many of Capitol's current bank affiliates are regulated primarily by state banking agencies, the FDIC, the OCC (in the case of one national bank) and the OTS (in the case of Capitol's federal savings bank subsidiaries).

Various federal and state laws and regulations govern numerous aspects of the banks' operations, including:

·   adequate capital and financial condition;

·   permissible types and amounts of extensions of credit and investments;

·   permissible nonbanking activities; and

·   restrictions on dividend payments.

Federal and state regulatory agencies have broad discretion and power to prevent or remedy unsafe or unsound practices or violations of law by banks and bank holding companies.  Capitol and its banking subsidiaries undergo periodic examinations by one or more regulatory agencies.  Following such examinations, Capitol may be required,

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Item 1A. Risk Factors – continued.

among other things, to change its asset valuations or the amounts of required loan loss allowances or to restrict bank operations.  Those actions would result from the regulators' judgments based on information available to them at the time of their examination, and their estimate of future economic conditions.  Judgments of various regulatory agencies vary, and regulatory agencies may change their position and require application of their judgment retroactively, causing institutions to change methodologies for the allowance for loan losses, resulting in restatement of their regulatory financial statements, including their capital position.

Capitol's banking subsidiaries are required to follow a wide variety of state and federal consumer protection and similar statutes and regulations.  Federal and state regulatory restrictions limit the manner in which Capitol and its banking subsidiaries may conduct business and obtain financing.  Those laws and regulations can and do change significantly from time to time and any such change could adversely affect Capitol and its banking subsidiaries.

Several of Capitol's banking subsidiaries have entered into formal agreements with their respective regulatory agencies which impose various additional requirements on those institutions which may further restrict their operations.

There is a risk of potential cross-guaranty liability relating to Capitol's banking subsidiaries.

In accordance with Federal Reserve Board policy, Capitol is expected to act as a source of financial strength to its banking subsidiaries and to commit resources to support its banking subsidiaries in circumstances in which Capitol might not otherwise do so.  Under the Bank Holding Company Act of 1956, as amended, the Federal Reserve Board may require a bank holding company to terminate any activity or relinquish control of a nonbank subsidiary, other than a nonbank subsidiary of a bank, upon the Federal Reserve Board's determination that such activity or control constitutes a serious risk to the financial soundness or stability of any depository institution subsidiary of the bank holding company.  Further, federal bank regulatory authorities have additional discretion to require a bank holding company to divest itself of any bank or nonbank subsidiaries if the agency determines that divestiture may aid the depository institution's financial condition.

As FDIC-insured depository institutions, Capitol's banking subsidiaries may be held liable for any loss incurred or expected to be incurred by the FDIC in connection with another FDIC-insured institution under common control with the institution in "default" or "in danger of default."  This liability is commonly referred to as "cross-guaranty" liability.  A "default" is generally defined as the appointment of a conservator or receiver and "in danger of default" is defined as certain conditions indicating that a default is likely to occur absent regulatory assistance.  An FDIC cross-guaranty claim against a depository institution is generally senior in right of payment to claims of the holding company and its affiliates against the depository institution.

If the FDIC is appointed the conservator or receiver of an insured depository institution, upon its insolvency or in certain other events, the FDIC has the power: (1) to transfer any of the depository institution's assets and liabilities to a new obligor without the approval of the depository institution's creditors; (2) to enforce the terms of the depository institution's contracts pursuant to their terms; or (3) to repudiate or disaffirm any contract or lease to which the depository institution is a party, the performance of which is determined by the FDIC to be burdensome and the disaffirmance or repudiation of which is determined by the FDIC to promote the orderly administration of the depository institution.

To date, none of Capitol's banking subsidiaries have received any notice of assessment of cross-guaranty liability. Capitol's banking subsidiaries have, however, received notice from the FDIC that the FDIC may assess a cross-guaranty liability relating to a failed community bank in Florida which ceased operations in November 2009.  The FDIC alleges that the Florida bank was an affiliated institution of Capitol, although Capitol owned no securities of that bank or otherwise controlled the failed institution.  The aggregate loss to the FDIC of that failed bank approximated $23.6 million.  The FDIC has until November 2011, two years from the date of such notice, to determine whether to assess that potential cross-guaranty liability, if any.

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Item 1A. Risk Factors – continued.

Capitol is subject to a written agreement with the Federal Reserve Bank of Chicago which restricts Capitol's ability to take certain actions.  Noncompliance with the written agreement could have a material impact on Capitol.

In September 2009, Capitol and its second-tier bank holding companies entered into a written agreement with the Federal Reserve Bank of Chicago (the Reserve Bank) under which Capitol agreed to refrain from the following actions without the prior written consent of the Reserve Bank (i) declare or pay dividends; (ii) receive dividends or any other form of payment representing a reduction in capital from Michigan Commerce Bank or from any of Capitol's subsidiary institutions that is subject to any restriction by the institution's federal or state regulator that limits the payment of dividends or other intercorporate payments; (iii) make any distributions of interest, principal, or other sums of subordinated debentures or trust-preferred securities; (iv) incur, increase or guarantee any debt; or (v) purchase or redeem any shares of its own stock, the second-tier bank holding companies, nonbank subsidiaries or any of the banking subsidiaries that are held by shareholders other than Capitol.

Capitol has also agreed to (i) submit to the Reserve Bank, a written plan to maintain sufficient capital at Capitol on a consolidated basis and at Michigan Commerce Bank (as a separate legal entity on a stand-alone basis); (ii) notify the Reserve Bank no more than 30 days after the end of any quarter in which Capitol's consolidated or Michigan Commerce Bank's capital ratios fall below the approved capital plan's minimum ratios as well as if any subsidiary institution's ratios fall below the minimum ratios required by the institution's federal or state regulator; (iii) review and revise its allowance for loan losses (ALLL) methodology for loans held by Capitol and submit to the Reserve Bank a written program for maintenance of an adequate ALLL for loans held by Capitol; (iv) take all necessary actions to ensure each of its subsidiary institutions comply with Federal Reserve regulations; (v) refrain from increasing any fees or charging new fees to any subsidiary institution without the prior written consent of the Reserve Bank; (vi) submit to the Reserve Bank a written plan to enhance the consolidated organization's risk management practices, a strategic plan to improve the consolidated organization's operating results and a cash flow projection; (vii) comply with laws and regulations regarding senior executive officer positions and severance payments; and (viii) provide quarterly reports to the Reserve Bank regarding these undertakings.  While Capitol is working to achieve compliance with that regulatory agreement, there is no assurance that it will achieve such compliance.

Certain of Capitol's banking subsidiaries have entered into formal agreements with their primary regulatory agencies.  Noncompliance with the agreements could have a material impact on Capitol.

Certain of Capitol's banking subsidiaries have entered into formal agreements with their applicable federal and state bank regulatory agencies in response to elevated levels of nonperforming assets, loan losses and adverse operating results.  Those agreements provide for certain restrictions and other guidelines and/or limitations to be followed by those banking subsidiaries.  Generally, those agreements require the banks to maintain an adequate ALLL, reduce levels of nonperforming and other classified assets and implement revised budgets and liquidity and capital adequacy projections to improve financial performance.  When a bank enters into a formal regulatory agreement, it is generally precluded from meeting the criteria as a "well-capitalized" institution although it may meet or exceed such threshold on a computational basis.  In addition, the banks' capital classification places limitations on some of their activities, such as the permissibility of accepting or renewing brokered deposits, among other things.  Additionally, such banks are subject to higher levels of FDIC insurance assessments.

In addition to the above, the FDIC gave notice to many of Capitol's banking subsidiaries in December 2009 that, to mitigate the effects of any possible assessment arising from potential cross-guaranty liability, they should be encouraged to arrange a sale, merger or recapitalization such that Capitol no longer controls the banking subsidiary.  The FDIC's encouragement is consistent with Capitol's previously-announced plans to selectively divest of some of its banking subsidiaries in conjunction with reallocating capital resources to the remaining banking subsidiaries.

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Item 1A. Risk Factors – continued.

Capitol may not be able to raise additional capital without its existing shareholders suffering substantial dilution.

Capitol believes that it will likely need to raise additional capital in order to achieve sufficient regulatory capital levels.  Capitol's ability to raise additional capital will depend on conditions in its private and public capital markets, as well as economic conditions and a number of other factors, most of which are outside Capitol's control and on Capitol's financial performance.  Accordingly, there can be no assurance that Capitol or its banking subsidiaries can raise additional capital or do so on acceptable terms.  If Capitol cannot raise additional capital when and/or as needed, it may have a material adverse effect on its financial condition, results of operations and prospects.

The recent dramatic decline in the market price of Capitol's common stock means that any future issuance of previously-unissued common stock could significantly dilute the ownership of existing holders of Capitol's common stock, because Capitol would have to issue many more shares than if it had raised the same amount of capital when its share price was higher.  Absent a substantial improvement in Capitol's financial performance and stock price, it is unlikely that Capitol would be able to raise additional capital without further diluting the ownership of existing holders of its common outstanding stock.

Capitol's common stock is subordinate to Capitol's existing and future indebtedness and Capitol's outstanding Series A preferred stock, and effectively subordinated to all the indebtedness and other claims against Capitol's banking subsidiaries.

Shares of Capitol's common stock will rank junior to all of Capitol's existing and future indebtedness and to other non-equity claims with respect to assets available to satisfy its claims.  Further, holders of Capitol's common stock are subject to prior dividend and liquidation rights of the holders of its outstanding shares of Series A preferred stock.  The Series A preferred stock of Capitol has an aggregate liquidation preference of $9.5 million.  The terms of Capitol's Series A preferred stock prohibit Capitol from paying dividends with respect to its common stock unless all accrued and unpaid dividends for any completed dividend periods with respect to the Series A Preferred Stock have been paid, subject to declaration of such dividends by Capitol's board of directors, if any.

In addition, Capitol's right to participate in any distribution of assets of any of Capitol's banking subsidiaries upon any such bank's liquidation or otherwise, and the ability of holders of Capitol's common stock to benefit indirectly from such distribution, will be subject to the prior claims of creditors of such bank, as well as any prior claims of holders of Capitol's preferred securities.  As a result, holders of Capitol's common stock are structurally subordinated to all existing and future liabilities and obligations of each of Capitol's banking subsidiaries, as well as any prior claims of holders of Capitol's preferred securities.

Capitol may not successfully accomplish its efforts to return to profitability.

Capitol is executing a plan to return to profitability by restructuring its operations and balance sheet.  In addition, Capitol has sold several banking subsidiaries and related bank locations and has definitive agreements for additional sales of such banking subsidiaries and/or locations to help Capitol achieve its priorities.  However, it is unlikely that these transactions may result in a return to profitability or permit Capitol to reach its regulatory capital targets.

Capitol is deferring payments on all of its outstanding trust-preferred securities and the accrued but unpaid amounts are being accumulated as a liability on Capitol's consolidated balance sheet.  That liability is expected to increase as Capitol has no current plans to resume any such interest payments at any time in the near future and is currently prohibited from doing so without prior regulatory approval.

Capitol has exercised its right to defer interest payments on the subordinated debentures relating to Capitol's trust-preferred securities.  As a result, periodic interest payments (generally on a quarterly basis) on the related trust-preferred securities are being deferred.  Capitol may defer such interest payments for a total of 20 consecutive calendar quarters without causing an event of default under the documents governing these securities.  After such period, Capitol

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Item 1A. Risk Factors – continued.

must pay any previously deferred interest payments and resume periodic interest payments thereon or Capitol will be deemed to be in default under the related trust-preferred indentures and the pertinent documents.  Such payments have been deferred for seven quarterly periods, as of December 31, 2010.

Capitol does not have current plans to resume interest payments on the subordinated debentures in the near future and is currently prohibited from any such payments without prior regulatory approval.  Before resuming these payments, however, Capitol would have to pay the accrued amounts in full, if approved, prior to commencing any future payments of interest on those securities.  As of December 31, 2010, those accrued but unpaid amounts approximated $20.8 million.

Compliance with the recently enacted Dodd-Frank Act may adversely impact Capitol's operating results.

In July 2010, Congress enacted regulatory reform legislation known as the Dodd-Frank Act (DFA).  Many aspects of the DFA are subject to further rulemaking and will take effect over several future years, making it difficult to anticipate the overall financial impact to Capitol, its banking subsidiaries or the banking industry.  This new law broadly affects the financial services industry by implementing changes to the financial regulatory landscape aimed at strengthening the sound operation of the financial services sector, including provisions that, among other things, will:

·   Create a new agency, the Consumer Financial Protection Bureau, responsible for implementing, examining and enforcing compliance with federal consumer financial laws;

·   Apply the same leverage and risk-based capital requirements that apply to insured depository institutions to most bank holding companies, which, among other things, will require Capitol to deduct all trust-preferred securities issued on or after May 19, 2010 from Tier 1 capital.  Existing trust-preferred securities issued prior to May 19, 2010 for all bank holding companies with less than $15 billion in total consolidated assets as of December 31, 2009 are exempt from this requirement and as a result, Capitol is exempt from this provision subject to certain other limitations;

·   Require bank holding companies to be well-capitalized and well-managed in order to engage in expanded financial activities permissible for financial holding companies and to acquire banks located outside their home state;

·   Broaden the base for FDIC insurance assessments from the amount of insured deposits to average total consolidated assets less average tangible equity during the assessment period, which generally is expected to result in an increase in the level of assessments;

·   Permanently increase FDIC deposit insurance to $250,000 and provide unlimited FDIC deposit insurance until December 31, 2012 for noninterest-bearing deposits at all insured depository institutions;

·   Permit national banks and insured state banks to engage in de novo interstate branching if the laws of the state where the new branch is to be established would permit the establishment of the branch if the national bank or insured state bank were chartered by such state;

·   Implement corporate governance revisions, including with regard to executive compensation and proxy access by shareholders, that apply to all public companies, not just financial institutions; and

·   Repeal the federal prohibitions on the payment of interest on demand deposits, thereby permitting depository institutions to pay interest on business transaction and other accounts.

Capitol's management is reviewing the provisions of the DFA and assessing its probable impact on the business, financial condition and results of operations of Capitol and its banking subsidiaries.  Provisions in the legislation that affect deposit insurance assessments and payment of interest on demand deposits could increase the costs associated with deposits as well as place limitations on certain revenues those deposits may generate.  Provisions in the legislation that revoke the Tier 1 capital treatment of newly issued trust preferred securities could require Capitol to seek other sources of capital in the future.

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Item 1A. Risk Factors – continued.

An investment in Capitol's common stock is not an insured deposit and is subordinate to any outstanding preferred securities of Capitol.

An investment in Capitol's common stock is not a bank deposit and, therefore, is not insured against loss by the FDIC, its deposit insurance fund or by any other public or private entity.  Investment in Capitol's common stock is inherently risky for the reasons previously described in this "Risk Factors" section, or elsewhere in this Form 10-K or the documents incorporated by reference herein, and is subject to the same market forces that affect the price of common stock in any company.  As a result, stockholders holding Capitol's common stock could lose some or all of their investment.

In addition, Capitol's common stock is subordinate to the claims of Capitol's creditors, trust-preferred securities and its preferred stock currently outstanding as well as any of which may be issued by Capitol in the future.

All of Capitol's debt obligations, and its obligations under its debentures and preferred securities of certain related subsidiaries that Capitol has guaranteed, will likely have priority over Capitol's common stock with respect to payment in the event of liquidation, dissolution or winding-up and with respect to the payment of dividends, subject to regulatory requirements for any such distributions.

Capitol has issued debentures to certain of its subsidiaries which are Delaware business trusts which, in turn, issued publicly-placed preferred securities to purchase those debentures in conjunction with offerings of trust-preferred securities.  Capitol also has additional trust-preferred securities which were privately placed.  Capitol has guaranteed the preferred securities.  The documents governing these securities, including the indenture under which the debentures were issued, restrict Capitol's ability and/or right to pay a dividend on its common stock under certain circumstances and give the holders of the preferred securities preference on liquidation over the holders of Capitol's common stock.  In April 2009, Capitol announced that it had elected to defer interest payments on its subordinated debentures.  Pursuant to the terms of a written agreement with the Federal Reserve Bank of Chicago, Capitol is currently prohibited from making any cash payments, including interest, on the debentures and preferred securities without prior regulatory approval.  The total estimated annual interest that would be payable on the debentures and the underlying debt securities, if not deferred, is approximately $13.6 million.  While Capitol defers the payment of interest, it will continue to accrue the future interest obligation at the applicable interest rate.  Capitol is prohibited from declaring or paying cash dividends on its common stock during such deferral and is restricted from redeeming or purchasing any shares of its common stock except under very limited circumstances.  Capitol's obligation under the debentures, the preferred securities and the guarantee approximates $170.8 million at an average interest rate currently approximating 6.17% per annum, generally payable quarterly.

In any liquidation, dissolution or winding-up of Capitol, its common stock would rank after all debt and creditor claims against Capitol, the claims with respect to the debentures and the guarantee of the preferred securities of certain related subsidiaries, and other senior equity securities, if any.  As a result, holders of Capitol's common stock will not be entitled to receive any payment or other distribution of assets upon the liquidation, dissolution or winding-up of Capitol until all of its obligations to its debt holders have been satisfied and holders of senior equity securities have received any payment or distribution due to them.

Offerings of debt, which could be senior to Capitol's common stock upon liquidation, and/or preferred equity securities which may be senior to Capitol's common stock for purposes of dividend distributions or upon liquidation, may adversely affect the market price of Capitol's common stock.

In the future, Capitol may attempt to increase Capitol's capital resources by entering into debt or debt-like obligations that may be unsecured or secured by all or up to all of Capitol's assets, or by issuing debt or equity securities, which could include issuances of secured or unsecured commercial paper, medium-term notes, senior notes, subordinated notes, common stock or securities convertible into common stock.  Upon an occurrence of Capitol's liquidation, which is not currently expected, Capitol's lenders and holders of Capitol's debt obligations would receive a distribution of Capitol's available assets ahead of any distributions to the holders of Capitol's common stock.  Because Capitol's decision to incur

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Item 1A. Risk Factors – continued.

debt and issue securities in any future offerings will depend on market conditions and other factors beyond Capitol's control, Capitol cannot predict or estimate the amount, timing or nature of any of its future offerings and/or debt transactions which may be senior to its common stock.  Further, market conditions could require Capitol to accept less favorable terms for the issuance of its securities in the future.

Capitol's board of directors is authorized to issue one or more classes or series of preferred stock from time to time without any action on the part of the shareholders.  Capitol's board of directors also has the power, without shareholder approval, to set the terms of any such classes or series of preferred stock that may be issued, including voting rights, dividend rights and preferences over Capitol's common stock with respect to dividends or upon Capitol's dissolution, winding up and liquidation and other terms.  If Capitol issues preferred shares in the future that have a preference over its common stock with respect to the payment of dividends or upon liquidation, or if Capitol issues preferred shares with voting rights that dilute the voting power of its common stock, the rights of holders of its common stock or the market price of Capitol's common stock could be adversely affected.

Issuance or sales of common stock or other equity securities could result in an "ownership change" as defined for U.S. federal income tax purposes.  In the event an "ownership change" would occur, Capitol's ability to fully utilize a significant portion of its U.S. federal and state tax net operating losses could be impaired and Capitol could lose certain built-in losses that have not been recognized for tax purposes as a result of the operation of Section 382 of the Internal Revenue Code of 1986, as amended.

Capitol's ability to use certain realized net operating losses and unrealized built-in losses to offset future taxable income may be significantly limited if it experiences an "ownership change" as defined by Section 382 of the Internal Revenue Code of 1986, as amended (theCode).  An ownership change under Section 382 generally occurs when a change in the aggregate percentage ownership of the stock of the corporation held by "five percent shareholders" increases by more than fifty percentage points over a rolling three-year period ending on the transaction date.  A corporation experiencing an ownership change generally is subject to an annual limitation on its utilization of pre-change losses and certain recognized built-in losses equal to the value of the stock of the corporation immediately before the "ownership change," multiplied by the long-term tax-exempt rate (subject to certain adjustments).  The annual limitation is increased each year to the extent that there is an unused limitation in a prior year.  Since U.S. federal net operating losses generally may be carried forward for up to 20 years, the annual limitation also effectively provides a cap on the cumulative amount of pre-ownership-change losses and certain post-change recognized built-in losses that may be utilized.  Pre-ownership-change losses and certain recognized built in losses in excess of the cap are effectively unable to be used to reduce future taxable income.  In certain circumstances, issuances or sales of common stock (including any common stock issuances or debt-for-equity exchanges and certain transactions involving common stock that are outside of Capitol's control) could result in an "ownership change" under Section 382.

While Capitol may, under certain circumstances, be able to utilize certain tax strategies (including a "tax preservation" rights plan) to protect against an "ownership change", if an "ownership change" under Section 382 were to occur, the value of Capitol's net operating losses and a portion of the net unrealized built-in losses will be impaired.  Because a valuation allowance currently exists for substantially the full amount of Capitol's deferred tax assets, no additional charge to earnings would result.  However, an "ownership change", as defined above, could adversely impact Capitol's ability to recognize Tier 1 capital from the potential future release of Capitol's valuation allowance.  Currently, there are no material amounts of deferred tax assets includable in Capitol's regulatory capital measurements.

Problems encountered by financial institutions larger than or similar to Capitol could adversely affect financial markets generally and have indirect adverse effects on Capitol.

The commercial soundness of many financial institutions may be closely interrelated as a result of credit, trading, clearing or other relationships between the institutions.  As a result, concerns about, or a default or threatened default by, one institution could lead to significant market-wide liquidity and credit problems, losses or defaults by other institutions. This is sometimes referred to as "systemic risk" and may adversely affect financial intermediaries, such as clearing

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Item 1A. Risk Factors – continued.

agencies, clearing houses, banks, securities firms and exchanges, with which Capitol interacts on a daily basis, and therefore could adversely affect Capitol.

Capitol's banking subsidiaries' small size may make it difficult to compete with larger institutions because Capitol is not able to compete with large banks in the offering of significantly larger loans.

Legal lending limits of banks constrain the size of loans that those banks can make.  Many of Capitol's banks' competitors have significantly larger capitalization and, hence, an ability to make significantly larger loans.  The inability to offer larger loans limits the revenues that can be earned from interest amounts charged on larger loan balances.

Capitol's commercial loan concentration in small businesses and loans collateralized by commercial real estate increases the risk of defaults by borrowers and substantial credit losses could result, causing shareholders to lose their investment.

Capitol's banking subsidiaries make various types of loans, including commercial, consumer, residential mortgage and construction loans.  Capitol's strategy emphasizes lending to small businesses and other commercial enterprises. Capitol typically relies upon commercial real estate as a source of collateral for many of its banking subsidiaries' loans.  Recently, regulatory agencies have expressed concern with banks with large concentrations in commercial real estate due to the recent downturn in the real estate markets in certain areas of the country, leading to increased risk of credit loss, incurred losses and extended sale periods.  Loans to small and medium-sized businesses are generally riskier than single-family mortgage loans.  Typically, the success of a small or medium-sized business depends on the management talents and efforts of one or two persons or a small group of persons, and the death, disability or resignation of one or more of these persons could have a material adverse impact on the business.  In addition, small and medium-sized businesses frequently have smaller market-share than their competition, may be more vulnerable to economic downturns, often need substantial additional capital to expand or compete and may experience substantial variations in operating results, any of which may impair a borrower's ability to repay a loan.  Recently, due to borrower performance difficulties and adverse real estate market conditions, levels of nonperforming loans, foreclosures and loan losses increased significantly at Capitol, resulting from the current severe recessionary environment. Substantial further credit losses could result, causing shareholders to lose their investment in Capitol's securities.

Actions by the Open Market Committee of the Federal Reserve Board (FRBOMC) may adversely affect Capitol's net interest income.

Changes in Market Interest Rates.    Capitol's results of operations are significantly dependent on net interest income.  Net interest income is the difference between interest income on interest-earning assets, such as loans, and interest expense on interest-bearing liabilities, such as deposits.  Therefore, any change in general market interest rates, whether as a result of changes in monetary policies of the Federal Reserve Board or otherwise, can have a significant effect on net interest income.  Capitol's assets and liabilities may react differently to changes in overall market rates or conditions because there may be mismatches between the repricing or maturity characteristic of assets and liabilities.  As a result, changes in interest rates can affect net interest income in either a positive or negative way.

In 2008, the FRBOMC decreased interest rates to near zero and such interest rates have continued throughout 2009 and 2010.  Future stability of interest rates and FRBOMC policy, which impact such rates, are uncertain.

Changes in the Yield Curve.    Changes in the difference between short and long-term interest rates, commonly known as the yield curve, may also harm Capitol's business. For example, short-term deposits may be used to fund longer-term loans.  When differences between short-term and long-term interest rates shrink or disappear, the spread between rates paid on deposits and received on loans could narrow significantly, decreasing net interest income.

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Item 1A. Risk Factors – continued.

Loan origination activities, for both commercial and residential mortgages, involve collateral valuation risks and the risk of subsequent identification of origination fraud or other losses which could exceed Capitol's allowance for loan losses.

Capitol's banking subsidiaries use an enterprise-wide loan policy which provides for conservative loan-to-value guidelines when loans are originated.  In today's difficult real estate economy in many parts of the country, falling property values and significant foreclosure activity of both residential and commercial real estate property are resulting in significant loan losses at many financial institutions.  Further, although most residential mortgage loans have been originated and sold to third parties, if it is subsequently determined that such loans were originated with any element of alleged fraud, such as exaggerated borrower income or assets, for example, the originating institution may be liable for any losses relating to such loans and may have to repurchase those loans.  The potential for additional loan losses from valuation issues or fraud is unknown.  Fraud risks are particularly difficult to identify and quantify, especially when the duration of the risk is the same as the term of the loan, often as long as 30 years or more.  Occurrences of fraud are often more prevalent during an economic downturn or recession.  Potential losses from valuation issues or occurrences of fraud could significantly exceed allowances for loan losses, adversely affecting Capitol's results of operations.

If Capitol cannot recruit and retain highly qualified personnel, its banking subsidiaries' customer service could suffer, causing its customer base to decline.

Capitol's strategy is also dependent upon its continuing ability to attract and retain highly qualified personnel.  Availability of personnel with appropriate community banking experience varies.  If Capitol does not succeed in attracting new employees or retaining and motivating current and future employees, its business could suffer significantly, increasing the possibility of a loss of value in its common stock.

Capitol's banking subsidiaries have decentralized management which could have a negative impact on the rate of growth and profitability of Capitol and its banking subsidiaries.

Capitol's banking subsidiaries have independent boards of directors and management teams.  This decentralized structure gives the banks control over the day-to-day management of their institution, including credit decisions, the selection of personnel, the pricing of loans and deposits, marketing decisions and the strategy in handling problem loans.  This decentralized structure may impact Capitol's ability to uniformly implement corporate or enterprise-wide strategy at the bank level.  It may slow Capitol's ability to react to changes in strategic direction due to outside factors such as rate changes and changing economic conditions.  This decentralized structure may cause additional management time to be spent on internal issues and could negatively impact the growth and profitability of the banks individually as well as the holding company.

New accounting or tax pronouncements may be issued by the accounting standard-setters, regulatory agencies or other government bodies which could change existing accounting methods.  Changes in accounting methods could negatively impact Capitol's results of operations and financial condition.

Current accounting and tax rules, standards and policies influence the methods by which financial institutions conduct business, implement strategic initiatives and tax compliance, and govern financial reporting and disclosures.  These laws, regulations, rules, standards and policies are constantly evolving and may change significantly over time.  Events that may not have a direct impact on Capitol, such as the bankruptcy of major U.S. companies, have resulted in legislators, regulators, and authoritative bodies, such as the Financial Accounting Standards Board (FASB), the SEC, the Public Company Accounting Oversight Board, and various taxing authorities responding by adopting and/or proposing substantive revisions to laws, regulations, rules, standards and policies.  New accounting pronouncements under the FASB Accounting Standards Codification have occurred and may occur in the future.  A change in accounting standards may adversely affect Capitol's reported financial condition and results of operations.

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Item 1A. Risk Factors – continued.

Capitol's business continuity plans or data security systems could prove to be inadequate, resulting in a material interruption in, or disruption to, Capitol's business and a negative impact on its results of operations.

Capitol relies heavily on communications and information systems to conduct its business.  Any failure, interruption or breach in security of these systems, whether due to severe weather, natural disasters, acts of war or terrorism, criminal activity or other factors, could result in failures or disruptions in general ledger, deposit, loan, customer relationship management and other systems.  While Capitol has disaster recovery and other policies and procedures designed to prevent or limit the effect of the failure, interruption or security breach of its information systems, there can be no assurance that any such failures, interruptions or security breaches will not occur or, if they do occur, that they will be adequately addressed.  The occurrence of any failures, interruptions or security breaches of Capitol's information systems could damage the reputation of Capitol and its banking subsidiaries, result in a loss of customer business, subject Capitol and its banking subsidiaries to additional regulatory scrutiny, or expose Capitol to civil litigation and possible financial liability, any of which could have a material adverse effect on its results of operations.

Capitol could face unanticipated environmental liabilities or costs related to real property owned or acquired through foreclosure.  Compliance with federal, state and local environmental laws and regulations, including those related to investigation and clean-up of contaminated sites, could have a negative effect on expenses and results of operations.

A significant portion of Capitol's banking subsidiaries' loan portfolios are secured by real property.  During the ordinary course of business, Capitol's banking subsidiaries may foreclose on and take title to properties securing certain loans.  In doing so, there is a risk that hazardous or toxic substances could be found on these properties.  If hazardous or toxic substances are found, Capitol's banking subsidiaries may be liable for remediation costs, as well as for personal injury and property damage.  Environmental laws may require Capitol's banking subsidiaries to incur substantial expenses and may materially reduce the affected property's value or limit its banking subsidiaries' ability to use or sell the affected property.  In addition, future laws or more stringent interpretations or enforcement policies with respect to existing laws may increase Capitol's banking subsidiaries' exposure to environmental liability.  Although Capitol's banking subsidiaries have policies and procedures to require an environmental review before initiating any foreclosure action on real property, those reviews may not be sufficient to detect all potential environmental hazards.  The remediation costs and any other financial liabilities associated with an environmental hazard could have a material adverse effect on results of operations.

Capitol's controls and procedures may fail or be circumvented, which could have a material adverse effect on Capitol's business, results of operations and financial condition.

Capitol periodically reviews and updates its internal controls, disclosure controls and procedures, and corporate governance policies and procedures.  Any system of controls, however well designed and operated, is based in part on certain assumptions and can provide only reasonable, not absolute, assurance that the objectives of the system are met.  Any failure or circumvention of controls and procedures, or failure to comply with regulations related to controls and procedures could have a material adverse effect on Capitol's business, results of operations and financial condition.

Capitol's banking subsidiaries have restricted investments in Federal Home Loan Banks which may be subject to future impairment.

As of December 31, 2010, Capitol's banking subsidiaries had investments in several Federal Home Loan Banks approximating $18 million.  Such investments are restricted securities which may be redeemed only by the issuer. Future redemption of the securities is subject to the issuers' liquidity and capital adequacy which are, in part, dependent upon valuation of the issuers' significant mortgage-backed securities portfolios.

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Item 1A. Risk Factors – continued.

Capitol's bylaws and its rights plan, as well as certain banking laws, may have an antitakeover effect.

Provisions of Capitol's bylaws, rights plan and certain federal banking laws, including regulatory approval requirements, could make it more difficult for a third party to acquire Capitol, even if doing so might be perceived to be beneficial to shareholders.  The combination of these provisions effectively inhibits a non-negotiated merger or other business combination which, in turn, could adversely affect the market price of the common stock.

Capitol has currently entered into agreements to sell several banking subsidiaries, and is pursuing additional divestiture opportunities in an effort to improve the capital position of its remaining banks.

During 2009, Capitol announced plans to pursue divestiture of some of its banking subsidiaries (or those which are banking subsidiaries of Capitol's bank-development subsidiaries) on a selective basis for the purpose of reallocating capital to enhance the capital position of its retained banking subsidiaries.  Capitol and/or its bank-development subsidiaries have entered into definitive agreements to sell its interests (or controlling interests held by bank-development subsidiaries) in the following banking subsidiaries in 2011:  1st Commerce Bank, Bank of Feather River, Bank of Fort Bend, Bank of Las Colinas, Bank of Tucson – main office, Community Bank of Rowan, Evansville Commerce Bank and High Desert Bank.

In 2010, Capitol sold its ownership in Adams Dairy Bank, Bank of Belleville, Bank of San Francisco, Community Bank of Lincoln, Fort Collins Commerce Bank, Larimer Bank of Commerce, Loveland Bank of Commerce, Napa Community Bank, Ohio Commerce Bank, Southern Arizona Community Bank and USNY Bank.  The remaining pending bank sales are subject to regulatory approval and other contingencies and the risk that the timing of such sales are extended beyond what is currently anticipated or that some could fail to obtain regulatory approval.  In addition, some of the pending sales are subject to capital-raising activities to facilitate the sale and, accordingly, are subject to the risk that the requisite funds may not be successfully raised.

Item 1B. Unresolved Staff Comments.

Not applicable.

Item 2. Properties.

The names and locations of Capitol's banking subsidiaries are listed on Pages F-59 – F-60, Financial Information Section of Annual Report, under the caption "Note A—Nature of Operations, Basis of Presentation and Principles of Consolidation," which is incorporated herein by reference.

Most of the banking subsidiaries' locations are leased and many operate from a single location.  Most of Capitol's banking subsidiaries' facilities are generally small (i.e., less than 10,000 square feet), first floor offices with convenient access to parking.  The Ann Arbor location of Michigan Commerce Bank, Capitol's largest banking subsidiary, occupies the largest leased facility, approximately 18,000 square feet.

Community Bank of Rowan, First Carolina State Bank, Indiana Community Bank, Sunrise Bank (Jeffersonville, Georgia location) and the Grand Haven, Holland, Muskegon and Portage office locations of Michigan Commerce Bank own their office facilities.

Some of Capitol's banking subsidiaries have drive-up customer service capability.  Capitol's banking subsidiaries are typically located in or near high traffic centers of commerce in their respective communities.  Customer service is enhanced through Internet banking, remote deposit capture and utilization of ATMs to process some customer-initiated transactions and some of the banks also make available a courier service to pick up transactions at customers' locations.

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Item 2. Properties. – continued.

Capitol's Lansing, Michigan executive offices are located within the same building as Capitol National Bank.  Those offices include administrative, operations, legal, accounting, human resources, credit administration, risk management and executive staff.

Data processing centers are located in both Lansing, Michigan and Phoenix, Arizona.

Capitol's Phoenix, Arizona executive offices are located within the same building as Sunrise Bank of Arizona's Camelback office.  Those offices include administrative, operations, credit administration, risk management and executive staff.

Certain office locations are leased from related parties.  Rent expense, including rent expense under leases with related parties, is incorporated by reference from Pages F-78, Financial Information Section of Annual Report, under the caption "Note F—Premises and Equipment" and under the caption "CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS" of Item 13 of this Form 10-K.

Management believes Capitol's and its banking subsidiaries' offices to be in good and adequate condition and adequately covered by insurance.

Item 3. Legal Proceedings.

As of December 31, 2010, there were no material pending legal proceedings to which Capitol or its subsidiaries was a party or to which any of its property was subject, except for proceedings which arise in the ordinary course of business.  In the opinion of management, pending legal proceedings will not have a material effect on the consolidated financial position or results of operations of Capitol.

In November 2010, Capitol received a subpoena from the Chicago office of the SEC.  The subpoena requests information regarding Capitol's allowance for loan losses and related allowance estimation process and computational methodology, Capitol's methodology for grading loans and the process for making provisions for loan losses and Capitol's provision for loan losses prior to March 31, 2009.  In addition, on March 30, 2011, Capitol was informed that it would be receiving an additional subpoena from the Chicago office of the SEC concerning Capitol's recently amended and restated Form 10-Q for the period ended September 30, 2010.  The subpoena and the SEC's corresponding investigation are nonpublic, which means that the information Capitol provides to the SEC will not be made available publicly, however, could result in Capitol amending its prior SEC filings in the future, depending on the outcome of such investigation.

Capitol understands that the issuance of subpoenas by the Commission, in itself, does not mean that the SEC has concluded that Capitol has broken the law or that the SEC has a negative opinion of Capitol.  Capitol is fully complying with the SEC's requests, and looks forward to a timely resolution.

Item 4. (Removed and Reserved).

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PART II

Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.

A.           Market Information:

Incorporated by reference from Pages F-3 – F-4, Financial Information Section of Annual Report, under the caption "Information Regarding Capitol's Common Stock," Page F-6 under the caption "Shareholder Information" and Pages F-82 – F-84 under the caption "Note K—Stockholders' Equity and Stock-Based Compensation."

B.           Holders:

Incorporated by reference from the second paragraph on Page F-4 Financial Information Section of Annual Report, under the caption "Information Regarding Capitol's Common Stock."

C.           Dividends:

Incorporated by reference from Page F-2, Financial Information Section of Annual Report, under the caption "Quarterly Results of Operations (unaudited)" and subcaption "Cash dividends paid per share," the first paragraph on Page F-4, Financial Information Section of Annual Report under the caption "Information Regarding Capitol's Common Stock" and Pages F-97 – F-100, Financial Information Section of Annual Report, under the caption "Note R—Capital Requirements and Related Regulatory Matters."

D.           Securities Authorized for Issuance Under Equity Compensation Plan:

Summary of Equity Compensation Plans as of December 31, 2010

	(a)		(b)		(c)
Plan category	Number of securities to be issued upon exercise of outstanding options, warrants and rights (1)		Weighted-average exercise price of outstanding options, warrants and rights (1)		Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a))
Equity compensation plans approved by security holders*		1,628,723	$	21.73		876,947
Equity compensation plans not approved by security holders(1)		--		--		--
Equity compensation plans resulting from share exchanges		66,879		16.40		--
Total		1,745,602	$	21.53		876,947

(1)

Options issued pursuant to employment agreements with various officers of Capitol and its subsidiaries.

*

Does not include shares that may be issued if Capitol elects to pay awards made under the Capitol Bancorp Ltd. Management Incentive Plan in the form of shares of Capitol's common stock.  Also does not include shares that were approved to be issued under the 2007 Incentive Plan, which includes a provision increasing the shares available for the plan in an amount equal to 2% of the outstanding shares of common stock as of December 31 of each year.

E. Performance Graph:

Incorporated by reference from Page F-3, Financial Information Section of Annual Report, under the caption "Information Regarding Capitol's Common Stock."

F.           There were no purchases of equity securities by the issuer or affiliated purchasers in the fourth quarter of 2010.

G. Prior grants of 2,452 and 3,370 restricted shares of Capitol's common stock to Joseph D. Reid, Capitol's Chairman and CEO, pursuant to the terms of the Capitol Bancorp Ltd. Management Incentive Plan, became vested on February 6, 2010 and August 7, 2010, respectively.  The shares were not registered under the Securities Act of 1933.

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Item 6. Selected Financial Data.

Incorporated by reference from Page F-2, Financial Information Section of Annual Report, under the caption "Selected Consolidated Financial Data" under the column heading "As of and for the Year Ended December 31, 2010, 2009, 2008, 2007 and 2006."

Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.

Incorporated by reference from Pages F-11 – F-49, Financial Information Section of Annual Report, under the caption "Management's Discussion and Analysis of Capitol's Business, Financial Condition and Results of Operations"

and Pages F-6 – F-10, Financial Information Section of Annual Report, under the caption "Cautions Regarding Forward-Looking Statements."

Item 7A. Quantitative and Qualitative Disclosures About Market Risk.

Incorporated by reference from Pages F-41 – F-44, Financial Information Section of Annual Report, under the caption "Trends Affecting Operations" and Pages F-6 – F-10, Financial Information Section of Annual Report, under the caption "Cautions Regarding Forward-Looking Statements."

Item 8. Financial Statements and Supplementary Data.

See Item 15 (under subcaption "(a) 1 and 2. Financial Statements/Schedules") of this Form 10-K for specific description of financial statements incorporated by reference from Financial Information Section of Annual Report.

Incorporated by reference from Page F-2, Financial Information Section of Annual Report, under the caption "Quarterly Results of Operations (unaudited)."

Capitol revised its previously-reported unaudited condensed consolidated financial statements as of and for the three months and nine months ended September 30, 2010 to reflect an additional provision for loan losses of $11.7 million, resulting from Michigan Commerce Bank's amended regulatory financial statements filed on February 22, 2011 as of and for the period ended September 30, 2010.  Michigan Commerce Bank is a significant subsidiary of Capitol.  Prior to Michigan Commerce Bank's filing of such amended regulatory financial statements, its allowance for loan losses was believed by management to be appropriate based on information known at the time of the bank's original filing of its regulatory financial statements as of September 30, 2010.  On March 3, 2011, Capitol filed Amendment No. 1 to Form 10-Q for the periods ended September 30, 2010 to reflect this adjustment.

Item 9. Changes In and Disagreements With Accountants on Accounting and Financial Disclosure.

None.

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Item 9A. Controls and Procedures.

Disclosure Controls and Procedures:

Capitol maintains disclosure controls and procedures designed to ensure that the information Capitol must disclose in its filings with the Securities and Exchange Commission is recorded, processed, summarized and reported on a timely basis.  Capitol's Chief Executive Officer and Chief Financial Officer have reviewed and evaluated Capitol's disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (Exchange Act) as of the end of the period covered by this report (Evaluation Date).  Based on such evaluation, such officers have concluded that, as of the Evaluation Date, Capitol's disclosure controls and procedures are effective.

Management's Annual Report on Internal Control Over Financial Reporting:

Incorporated by reference from Pages F-50 – F-51, Financial Information Section of Annual Report.

Changes in Internal Control Over Financial Reporting:

No change in Capitol's internal control over financial reporting occurred during Capitol's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, Capitol's internal control over financial reporting.

Item 9B. Other Information.

See information disclosed in response to Item 8 of this Annual Report on Form 10-K.

Effective January 1, 2011, Capitol merged the Employee Stock Ownership Plan with its 401(k) plan into an amended and restated plan that was renamed the Capitol Bancorp Limited Retirement Plan.  A copy of the plan is attached as Exhibit 10.15 to this Annual Report on Form 10-K.

Effective March 31, 2011, Joseph D. Reid elected to reduce his compensation by an additional 25%, to $487,500.

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PART III

Item 10. Directors, Executive Officers and Corporate Governance.

Pursuant to Michigan law and Capitol's bylaws, Capitol's business, property and affairs are managed under the direction of its board of directors.  Capitol's board of directors has responsibility for establishing broad corporate policies and for Capitol's overall performance and direction, but is not involved in Capitol's day-to-day operations.  Members of the board of directors are kept informed of the issues facing Capitol by participating in board and committee meetings and by reviewing information provided to them on a periodic basis.  Board members also have ongoing discussions with Capitol's executive officers to update them on matters relating to Capitol.

Capitol's amended and restated bylaws establish that the number of directors shall not be less than five nor more than twenty-five.  Currently, Capitol's board of directors has set the number of directors at nineteen.  The bylaws provide that its board of directors be split into three classes, Class I, Class II and Class III.  Class I currently has six directors, Class II has seven directors and Class III has six directors.

The following table sets forth the members of each class of the board of directors of Capitol and information furnished by them regarding their age and principal occupation for at least the past five years, as of March 1, 2011.  Except as otherwise disclosed in the biographical information, no director or executive officer is related to any other director or executive officer by blood, marriage or adoption.

Class I Directors with Terms Expiring in 2011*

Lyle W. Miller	Mr. Miller is a vice chairman of Capitol's board of directors.  He is president of L.W. Miller Holding Company. Mr. Miller is 67 years of age and has served as a founding director of Capitol and/or its first bank affiliate since 1982.  Mr. Miller also serves as a member of the board of directors of Amera Mortgage Corporation.
Paul R. Ballard	Mr. Ballard is a retired executive vice president of Capitol and retired president and chief executive officer of Portage Commerce Bank, Capitol's second bank affiliate.  Mr. Ballard has been a director of Capitol since 1990.  Mr. Ballard is 61 years of age.
Lawrence Connell	Mr. Connell is a vice chairman of Capitol's board of directors and also serves as vice chairman and a principal officer of Capitol's affiliate Michigan Commerce Bank. He most recently served as a consultant to Promontory Financial Group, L.L.C., and has also served as a senior consultant for the U.S. Treasury Department, Office of Technical Assistance, as chairman of the National Credit Union Administration and as bank commissioner for the State of Connecticut.  Mr. Connell is 74 years of age and has served on Capitol's board since April 2010.
Lewis D. Johns	Mr. Johns is the president of Mid-Michigan Investment Company.  Mr. Johns formerly served as a member of the board of directors of Capitol's affiliate, Nevada Community Bancorp Limited, which was merged with and into Capitol.  He has served on the board of directors of Capitol and/or Capitol's first bank affiliate since 1982 as a founding director and is 67 years of age.
Calvin D. Meeusen, CPA	Mr. Meeusen is a certified public accountant.  He served as a member of the board of directors of Grand Haven Bank and Kent Commerce Bank, which merged with certain other affiliates of Capitol in 2009.  Mr. Meeusen currently serves as a member of the board of directors of the merged entity, which was renamed Michigan Commerce Bank following the merger.  He has served as a member of the board of directors of Capitol since January 2011 and is 67 years of age.

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Cristin K. Reid   Ms. Reid is the corporate president of Capitol.  She was previously chief operating officer, chief administrative officer, executive vice president, general counsel and has served in other various executive capacities at Capitol since 1997.  Ms. Reid was appointed to Capitol's board of directors in 2001.  She formerly served on the boards of the following affiliates of Capitol: Nevada Community Bancorp Limited, which was merged with and into Capitol; Camelback Community Bank, which was merged with and into Sunrise Bank of Arizona; and Portage Commerce Bank and Ann Arbor Commerce Bank, which were both affiliates of Capitol until they were merged with and into Michigan Commerce Bank in 2009.  She is currently chairman of Capitol's affiliate Capitol National Bank, and the chairman and chief executive officer of Capitol Development Bancorp Limited III, IV, V, VI, VII and VIII.  Ms. Reid is 42 years of age, a daughter of Joseph D. Reid and wife of Brian K. English, Capitol's general counsel.  

* Richard Henderson previously served as a director until his resignation in May 2010.  Lawrence Connell was subsequently nominated to

serve the remainder of Mr. Henderson's term.

Class II Directors with Terms Expiring in 2012

Michael J. Devine	Mr. Devine is an attorney and was previously a member of the board of directors of Sun Community Bancorp Limited, which was merged with and into Capitol.  Mr. Devine is 69 years of age, has served as a director of Capitol since 2002 and has served as a director and/or chairman of several of Capitol's bank affiliates.   Additionally, he currently serves as chief of the Special Assets Group of Michigan Commerce Bank, an affiliate of Capitol.
Gary A. Falkenberg, D.O.	Dr. Falkenberg is a retired doctor of osteopathic medicine.  Dr. Falkenberg was a founding director of Capitol and has served as a director of Capitol and/or its first bank affiliate since 1982.  Dr. Falkenberg is 72 years of age.
Joel I. Ferguson	Mr. Ferguson is chairman of Ferguson Development, L.L.C. and a director of Maxco, Inc.  Mr. Ferguson formerly served as a member of the board of directors of Capitol's affiliate, Nevada Community Bancorp Limited, which was merged with and into Capitol.  Mr. Ferguson joined the board of directors of Capitol and/or its first bank affiliate in 1982 as a founding director.  Mr. Ferguson is 72 years of age.
H. Nicholas Genova	Mr. Genova is chairman and chief executive officer of Washtenaw News Company, Inc. and president of H. N. Genova Development Company and Delivery Unlimited.  Mr. Genova previously served on the board of directors of Ann Arbor Commerce Bank, an affiliate of Capitol, until it was merged with certain other affiliates of Capitol and was renamed Michigan Commerce Bank in 2009.  Mr. Genova was elected to Capitol's board in 1992 and is 71 years of age.
Steven L. Maas	Mr. Maas is co-owner of River Valley Title, L.L.C. and an attorney.  He is also president and treasurer of Maas Asset Management, Inc. and a member of T & S Maas Investment Group, L.L.C.  He formerly served as a member of the board of directors of Grand Haven Bank and Portage Commerce Bank, which were affiliates of Capitol that were merged with and into Michigan Commerce Bank in 2009.  Mr. Maas also serves on the board of directors of Access BIDCO, L.L.C., of which some of Capitol's banking subsidiaries own a membership interest.  Mr. Maas was elected to the board of Capitol in 2009 and is 52 years of age.
Myrl D. Nofziger	Mr. Nofziger is president of Hoogenboom Nofziger and previously served as a member of the board of directors of Capitol's affiliate, Indiana Community Bancorp Limited, which was merged with and into Capitol.  Mr. Nofziger was elected to the board of Capitol in 2003 and is 71 years of age.

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David O'Leary Mr. O'Leary is the secretary of Capitol.  He is chairman of O'Leary Paint Company.  Mr. O'Leary was a founding director of Capitol and has served as a director of Capitol and/or its first bank affiliate since 1982 and is 80 years of age.  He formerly served on the board of directors of Capitol's affiliate, First California Northern Bancorp, which was merged with and into Capitol.

Class III Directors with Terms Expiring in 2013

Joseph D. Reid	Mr. Reid is the chairman, chief executive officer and founder of Capitol. He served as chairman and chief executive officer of Sun Community Bancorp Limited, which was merged with and into Capitol.  Mr. Reid also serves as the chairman of Michigan Commerce Bank, an affiliate of Capitol.  He has served as a director of Capitol and/or its first bank affiliate since inception in 1982.  Mr. Reid is 68 years of age.
David L. Becker	Mr. Becker is the retired founder of Becker Insurance Agency, P.C.  Mr. Becker was elected to the board of Capitol in 1990 and served as a charter member of the board of directors of Portage Commerce Bank, an affiliate of Capitol, until it merged with and into Michigan Commerce Bank in 2009.  Mr. Becker is 75 years of age.
James C. Epolito	Mr. Epolito currently serves as managing director of Health Management Associates.  He previously served as president of Delta Dental of Michigan from April 2009 until January 2010, and as president and chief executive officer of the Michigan Economic Development Corporation from 2005 to 2009.  Prior to 2005, he served as president and chief executive officer of the Accident Fund Company.  Mr. Epolito was elected to Capitol's board in 1999 and is 56 years of age.
Kathleen A. Gaskin	Ms. Gaskin is a retired real estate associate broker.  She was with the firm of Tomie Raines, Inc. from 1992 to 2009, and was a realtor and associate broker from 1968 to 2009.  Ms. Gaskin has been a member of the board of directors of Capitol and/or its first bank affiliate since 1982 as a founding director.  Ms. Gaskin is 69 years of age.
Michael L. Kasten	Mr. Kasten is a vice chairman of Capitol's board of directors.  He is managing partner of Kasten Investments, L.L.C.  He was formerly vice chairman and director of Sun Community Bancorp Limited, which was merged with and into Capitol, and currently serves as director, chairman and/or vice chairman of several of Capitol's affiliates.  Mr. Kasten is 65 years of age and has served as a director since 1990.
Ronald K. Sable	Mr. Sable is president of Concord Solutions Ltd.  Mr. Sable previously served on the board of several of Capitol's affiliate banks.  He also serves as a member of the board of directors of Paragon Space Development Corp.  Mr. Sable was elected to the board of directors of Capitol in 2002 and is 69 years of age.

There are no arrangements or understandings between any of Capitol's directors or executive officers and any other person pursuant to which that director or executive officer was nominated or elected as a director or an executive officer of Capitol or any of its subsidiaries.

No director or executive officer of Capitol is a party to any material legal proceedings or has a material interest in any such legal proceedings that is or may be adverse to Capitol or any of its subsidiaries.

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Audit Committee

Capitol's bylaws, as amended and restated, provide that its board of directors may delegate responsibility to committees.  During 2010, Capitol's board of directors had a separately designated standing Audit Committee.  Following is a list of the membership of the Audit Committee, as well as its primary functions:

Audit Committee 1		Primary Functions
Steven L. Maas2 David L. Becker Gary A. Falkenberg, D.O. Richard A. Henderson,    CPA2 Calvin D. Meeusen, CPA3	·	review the qualifications, independence and performance of Capitol's independent registered public accounting firm (its independent auditors) and appoint the independent auditors
	·	review general policies and procedures with respect to accounting and financial matters and internal controls
	·	review and approve the cost and types of audit and non-audit services performed by the independent auditors
	·	meet with independent auditors not less than once a year without Capitol's personnel to discuss internal controls, accuracy and completeness of the financial statements and other related matters
	·	review the scope and budget of the audits of Capitol's consolidated financial statements
	·	notify the board of major problems or deficiencies discovered
	·	review and reassess the adequacy of its charter annually and recommend any proposed changes to the board for approval

1.	The members of the Audit Committee meet the standards of independence for audit committee members required by the Securities and Exchange Commission ("SEC") rules and as defined by New York Stock Exchange ("NYSE") governance standards, which Capitol continues to use to determine the independence of members of its board of directors although Capitol's securities are no longer listed on the NYSE.  All members of the Audit Committee must be financially literate and at least one member of the Audit Committee must have accounting or related financial management expertise.
2.	Mr. Henderson resigned from Capitol's board of directors in May 2010.  Following Mr. Henderson's resignation, Mr. Maas was appointed acting chairman of the Audit Committee.
3.	Calvin D. Meeusen became a member of the Audit Committee in January 2011 upon his appointment as a director of Capitol.  Mr. Meeusen is Capitol's "audit committee financial expert" for purposes of compliance with Item 407(d)(5) of Regulation S-K promulgated by the SEC.  The identification of a person as an audit committee financial expert does not impose any duties, obligations or liabilities that are greater than those imposed on such person as a member of either the Audit Committee or the board in the absence of such identification.  Moreover, the identification of a person as an audit committee financial expert, for purposes of the regulations of the SEC, does not affect the duties, obligations or liability of any other member of the Audit Committee or the board.  Finally, a person who is determined to be an audit committee financial expert will not be deemed an "expert" for any purpose, including without limitation for purposes of Section 11 of the Securities Act of 1933.

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Corporate Governance

Nominations for Directors

Capitol's Nominating and Governance Committee will consider nominees for director that are recommended by shareholders.  A shareholder wishing to recommend a director candidate for consideration by the Nominating and Governance Committee should send such recommendation to the Secretary of Capitol at Capitol Bancorp Limited, Capitol Bancorp Center, 200 N. Washington Square, Lansing, MI 48933, who will then forward it to the Nominating and Governance Committee.  Any such recommendation should include a description of the candidate's qualifications for board service, the candidate's written consent to be considered for nomination and to serve if nominated and elected, addresses and telephone numbers for contacting the shareholder and the candidate for more information and any other information concerning such candidate that must be disclosed as to nominees in proxy solicitations pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended.  A shareholder who wishes to nominate an individual as a director candidate at the annual meeting of shareholders rather than recommend the individual to the Nominating and Governance Committee as a nominee must comply with the advance notice requirements set forth in Capitol's bylaws, as amended.  The Nominating and Governance Committee will evaluate shareholder-recommended director candidates in the same manner it evaluates director candidates identified by other means.

The board of directors and the Nominating and Governance Committee periodically review the size of the board of directors.  In considering candidates for the board of directors, the Nominating and Governance Committee first considers the evolving needs of the board and searches for candidates that fill any current or anticipated future need.  The Nominating and Governance Committee then considers the entirety of each candidate's credentials and does not have any specific minimum qualifications that must be met by a nominee recommended by the Nominating and Governance Committee.  Each individual is evaluated in the context of the board as a whole, with the objective of recommending a group that can best serve Capitol's business and represent shareholder interests through the exercise of sound judgment using its diversity of experience.

The Nominating and Governance Committee considers the specific qualities and skills of each candidate and is guided by the following basic selection criteria for all nominees: independence; highest character and integrity; experience and understanding of strategy and policy-setting; financial acumen or other professional, educational or business experience relevant to an understanding of Capitol's business; technical expertise, experience or specialized skills relevant to Capitol's business that will add specific value as a board member; reputation for working constructively with others; ability to represent the interests of Capitol's shareholders, the communities it serves and its employees; and sufficient time to devote to board matters.  The Nominating and Governance Committee also gives consideration to diversity, experience and specialized expertise in the context of the needs of the board of directors as a whole, including leadership positions in public companies, nonpublic business enterprises, or not-for-profit, professional or educational organizations.  The Nominating and Governance Committee does not have a formal policy with respect to diversity; however, the board and the Nominating and Governance Committee believe that it is essential that the board members represent diverse viewpoints.  The Nominating and Governance Committee's nomination process is designed to ensure that the Committee fulfills its responsibility to recommend candidates that are properly qualified to serve Capitol for the benefit of all of its shareholders.

Director Qualifications

In addition to independence, leadership and a high standard of integrity, the board believes that its members should encompass the right diversity, mix of characteristics and skills for the optimal functioning of the board in its oversight of Capitol.  The board believes it should be comprised of individuals with skills in areas such as organizational leadership and strategic planning, finance and insurance, banking, entrepreneurship, compliance and audit, legal, real estate, accounting, government and governmental relationships and information technology.

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When considering whether directors and nominees have the experience, qualifications and skills to enable the board to satisfy its oversight responsibilities effectively and provide the board with experience in a wide variety of areas, the Nominating and Governance Committee focused primarily on the information discussed in each director's individual biographies set forth on pages 45 through 47 of this Form 10-K.  Set forth below are the conclusions reached by the board with regard to its directors.

All of the members of the board possess management expertise through their leadership positions.  With regard to Mr. Reid, the board considered the many years of leadership experience that he has with Capitol, which the board believes provides him with unique insights into Capitol's challenges, as well as intimate knowledge of its operations, and best positions him to lead Capitol in its day-to-day operations as well as in its strategic planning.  As corporate president of Capitol, Ms. Reid is best positioned to provide knowledge of the day-to-day administration of Capitol.

Experience in the financial industry is exhibited by Messrs. Ballard, Becker, Epolito, Ferguson, Kasten, Miller and Reid, and Ms. Reid.  Mr. Ballard served as president, chief executive officer and as a member of the board of directors of Portage Commerce Bank from its inception in 1988 until 2009 when it merged with and into Michigan Commerce Bank and this experience provides him with insight into Capitol's affiliate bank operations.  With regard to Mr. Becker, the board considered Mr. Becker's experience as founder of Becker Insurance Agency and 24 years of experience managing that insurance agency.  Mr. Devine has over 20 years of service on the boards of directors of various affiliates of Capitol, several from the formation stages and in the capacity of chairman.  Mr. Epolito has significant business experience in the insurance industry, and Mr. Ferguson formerly served on the board of directors of Freddie Mac.  Mr. Kasten has over 20 years experience on the boards of directors of various affiliate banks of Capitol, several of which he served as chairman.  Mr. Miller has experience in the financial services industry, with 10 years experience in various areas of banking.  Mr. Reid served as a member of the board of directors of Fincor Holdings, Inc. and Access BIDCO, L.L.C., and Ms. Reid previously served as an officer and director of Access BIDCO, L.L.C., in which some of Capitol's banking subsidiaries have an ownership interest.

Mr. Connell has significant regulatory experience which is instrumental in providing guidance to Capitol's board of directors.  Additionally, he has extensive experience in financial and asset management matters.

Capitol's board of directors also considered the service on various bank affiliates' boards and committees with regard to Messrs. Ballard, Becker, Devine, Ferguson, Genova, Johns, Kasten, Maas, Meeusen, Nofziger, O'Leary, Reid and Sable and Ms. Reid, many of whom served as founding members and chairmen.  Their extensive knowledge of banking matters is integral to an understanding of the role of community banks.

The board of directors considered the strong entrepreneurial background brought by Messrs. Becker, Epolito, Genova, Kasten, Maas, Meeusen, Miller, Nofziger and O'Leary from the operation of their respective business enterprises as such expertise is valuable to Capitol's structure and operations.  Mr. Epolito has experience in the areas of employee compensation and management processes and evaluation.  The board considered Mr. Genova's operation of a news company as chairman and chief executive officer, as well as the management experience that Mr. Maas has through the operation of his asset management firm and several other enterprises.  The board considered the business leadership experience of Mr. O'Leary, who has spent over 47 years as a corporate officer of a successful paint company, in addition to his years of service as corporate secretary and a director of Capitol.

With regard to Dr. Falkenberg, the board considered his experience in the establishment and operation of a medical professional corporation for 37 years, the founding and operation of a medical imaging company and establishment of a medical residency teaching program, in addition to extensive compliance and audit responsibilities in those roles.

The board considered the extensive legal background of Messrs. Devine and Maas and Ms. Reid.  Additionally, Mr. Reid has significant legal expertise, with over 20 years served as a trial attorney prior to forming Capitol.

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Messrs. Ferguson and Johns both have substantial experience in the field of real estate development, and Mr. Ferguson also has significant community involvement and leadership, especially due to his past appointment with the Lansing City Council and current role as chair of the board of trustees of Michigan State University.  Ms. Gaskin brings her expertise of the real estate industry and extensive community involvement, including prior service as president of the Rotary Club of Lansing.

With regard to Mr. Meeusen, the board considered his significant experience, expertise and background with regard to accounting matters as a certified public accountant, which includes his status as Capitol's audit committee financial expert under SEC guidelines.

The board considered the strategic planning experience, as well as the expertise of government and government relationships of Mr. Sable through his service with the U.S. government and extensive financial and business education.  Mr. Ferguson also provides experience on government relationships.

Both Mr. Epolito and Mr. Sable have experience in the area of information technology.

Section 16(a) Beneficial Ownership Reporting Compliance

Rules and regulations promulgated by the SEC require periodic reporting of the beneficial ownership of and transactions involving Capitol's securities relating to directors, officers and beneficial owners of 10% or more of Capitol's securities.  Under those rules and regulations, it is required that certain acquisitions and divestitures of Capitol's securities be disclosed via reports filed within prescribed time limits.  Based on Capitol's review of filings made during the year ended December 31, 2010, there were no transactions completed which were not reported timely pursuant to the filing requirements.

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Director Compensation

The following table sets forth compensation paid to Capitol's nonemployee directors in 2010.  Directors who are employees receive no additional compensation for serving on the board or its committees and are omitted from this table.

Nonemployee Director Compensation in 2010

Name	Fees Earned or Paid in Cash ($)		Stock Awards ($)(1)	Option Awards ($)(1)			All Other Compensation ($)(2)			Total ($)
Paul R. Ballard(3)	$	74,464	--	$	15,000	(8)	$	238,500	(9)	$	327,964
David L. Becker		14,000	--		15,000	(10)		3,000			32,000
Michael J. Devine		14,500	--		15,000	(11)		3,500			33,000
James C. Epolito		7,500	--		15,000	(12)		2,500			25,000
Gary A. Falkenberg		11,500	--		15,000	(13)		3,500			30,000
Joel I. Ferguson		17,000	--		15,000	(14)		3,000			35,000
Kathleen A. Gaskin		11,000	--		15,000	(15)		10,500			36,500
H. Nicholas Genova		9,000	--		15,000	(16)		3,500			27,500
Richard A. Henderson(4)		8,000	--		15,000			500			23,500
Lewis D. Johns		20,500	--		15,000	(17)		3,500			39,000
Michael L. Kasten(5)		153,000	--		15,000	(18)		14,000			182,000
Steven L. Maas		17,500	--		15,000	(19)		3,500			36,000
Calvin D. Meeusen(3)		31,750	--		-0-			500			32,250
Lyle W. Miller(6)		71,500	--		15,000	(20)		3,500			90,000
Myrl D. Nofziger(3)		19,150	--		15,000	(21)		10,500			44,650
David O'Leary(7)		45,500	--		15,000	(22)		3,000			63,500
Ronald K. Sable(3)		15,530	--		15,000	(23)		9,000			39,530

(1)	Capitol's nonemployee directors received a $15,000 retainer in the form of stock options for service in 2010.   All stock options issued to directors in 2010 were issued under the 2007 Incentive Plan.  The amounts in this column reflect the aggregate grant date fair value of restricted stock and option awards reported in these columns computed in accordance with Accounting Standards Codification Topic 718.  For a discussion of the assumptions made in the calculation of the option awards reported in this column, see Note K of the Notes to Consolidated Financial Statements in the Financial Information section of Capitol's 2010 Annual Report, which is incorporated herein by reference.
(2)	All nonemployee directors receive a travel allowance per board meeting attended.  Nonemployee directors are responsible for payment of their own travel accommodations and do not receive reimbursement for such costs.
(3)	Compensation in 2010 included board fees for service on the board of directors of affiliate(s) of Capitol in 2010.
(4)	Mr. Henderson resigned from the board of directors in May 2010.
(5)	Mr. Kasten's compensation in 2010 included fees for service on various boards of directors of affiliates of Capitol in 2010 as well as a fee of $80,000 for his service as vice chairman of Capitol.
(6)	Mr. Miller's compensation included a fee of $50,000 for his service as vice chairman of Capitol in 2010.
(7)	Mr. O'Leary's compensation included a fee of $25,000 for his service as secretary of Capitol.
(8)	As of December 31, 2010, Mr. Ballard had 23,661 stock options outstanding, all of which are vested.
(9)	Mr. Ballard received $235,000 in payment for a retirement benefit established under an Executive Supplemental Income agreement entered into in January 1991.  He formerly served as president for an affiliate of Capitol.
(10)	As of December 31, 2010, Mr. Becker had 22,229 stock options outstanding, all of which are vested.
(11)	As of December 31, 2010, Mr. Devine had 23,662 stock options outstanding, all of which are vested.
(12)	As of December 31, 2010, Mr. Epolito had 22,962 stock options outstanding, all of which are vested.
(13)	As of December 31, 2010, Dr. Falkenberg had 22,962 stock options outstanding, all of which are vested.
(14)	As of December 31, 2010, Mr. Ferguson had 21,314 stock options outstanding, all of which are vested.
(15)	As of December 31, 2010, Ms. Gaskin had 22,962 stock options outstanding, all of which are vested.
(16)	As of December 31, 2010, Mr. Genova had 22,229 stock options outstanding, all of which are vested.
(17)	As of December 31, 2010, Mr. Johns had 23,056 stock options outstanding, all of which are vested.
(18)	As of December 31, 2010, Mr. Kasten had 23,769 stock options outstanding, all of which are vested.
(19)	As of December 31, 2010, Mr. Maas had 15,883 stock options outstanding, all of which are vested.
(20)	As of December 31, 2010, Mr. Miller had 23,056 stock options outstanding, all of which are vested.
(21)	As of December 31, 2010, Mr. Nofziger had 22,229 stock options outstanding, all of which are vested.
(22)	As of December 31, 2010, Mr. O'Leary had 23,097 stock options outstanding, all of which are vested.
(23)	As of December 31, 2010, Mr. Sable had 22,229 stock options outstanding, all of which are vested.

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Cash Compensation

Capitol provides nonemployee directors the following cash compensation:

· $1,000 for each board meeting attended in person;

· $1,000 per committee meeting;

· $500 per board or committee meeting if participating by phone or electronic means;

· Chairperson for each committee receives $2,000 per meeting; and

· Travel allowance of $500 for in-state board meetings and $1,500 for out-of-state board meetings, based on the director's residency.

Stock Compensation

· Stock options with a value of $15,000 are granted annually as a board fee retainer using a Black-Scholes valuation model.

Corporate Governance Guidelines and Code of Ethics

Capitol's board of directors is committed to good corporate governance and believes that an attentive, performing board is most appropriate for Capitol.  With that commitment, during the past year the board has reviewed Capitol's corporate governance policies and practices and has assured itself Capitol is adhering to the rules of the SEC. In addition, the board has implemented other corporate governance practices and procedures on a best-practices basis.

Capitol has adopted a Code of Ethics that applies to its senior financial officers, including its principal executive officer and its principal financial officer.  Capitol's other corporate governance documents, including its Code of Ethics, corporate governance guidelines, charters of committees of the board and other important policies, are available on its website at www.capitolbancorp.com.  Each of these is also available in print to any shareholder, without charge, upon request to the Secretary of Capitol at Capitol Bancorp Center, 200 N. Washington Square, Lansing, MI 48933.  As permitted by SEC rules, Capitol intends to post on its website any amendment to, or waiver from, any provision in the Code of Ethics that applies to its chief executive officer, chief financial officer, controller or persons performing similar functions, and that relates to any element of the standards enumerated in the rules of the SEC.

Executive Officers

Capitol's current executive officers are as follows:

Name	Age	Position with Capitol	Officer Since
Joseph D. Reid	68	Chairman of the Board and CEO	1988
Gregory R. Bixby	45	Chief Information Officer	2007
Lawrence Connell	74	Vice Chairman	2010
Brian K. English	45	General Counsel	2001
David D. Fortune	51	Chief Credit Officer	2004
Lee W. Hendrickson	55	Chief Financial Officer	1991
Michael M. Moran	51	Chief of Capital Markets	2000
Cristin K. Reid	42	Corporate President	1997
Todd C. Surline	52	Chief Administrative Officer	2007
Bruce A. Thomas	53	President of Bank Operations	1998
Stephen D. Todd	60	Chief of Bank Performance	2000

For more information with respect to Mr. Connell, Ms. Reid and Mr. Reid, see Class I Directors with Terms Expiring in 2011 and Class III Directors with Terms Expiring in 2013.

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Gregory R. Bixby – Mr. Bixby became Capitol's Chief Information Officer in January 2007.  Prior to that time, he was Chief Information Officer for Republic Bancorp, Inc.

Brian K. English – Mr. English has served in his current capacity as General Counsel since 2001.

David D. Fortune – Mr. Fortune has served as Chief Credit Officer for Capitol since 2004.  Prior to that time, he was a Senior Vice President/Credit Administration for Capitol.

Lee W. Hendrickson – Mr. Hendrickson has served as the Chief Financial Officer for Capitol since 1991.

Michael M. Moran – Mr. Moran joined Capitol in 2000 as the Executive Vice President of Corporate Development and currently serves as Chief of Capital Markets.

Todd C. Surline – Mr. Surline joined Capitol in 2007 as Chief of Human Capital Management.  He previously served as Vice President of Human Resources of Michigan State University Federal Credit Union.  He currently serves as Chief Administrative Officer.

Bruce A. Thomas – Mr. Thomas joined Capitol in 1998 as Senior Vice President of Risk Management.  He has also served as Chief Operating Officer and President of the Eastern Regions, and currently serves as President of Bank Operations.  Effective December 2010, Mr. Thomas also began serving as acting interim president of Capitol's largest banking subsidiary, Michigan Commerce Bank.

Stephen D. Todd – Mr. Todd joined Capitol in 2000 as Director of Bank Performance, and has also served as President of the Southwest Region and Chief of Bank Financial Analysis of Capitol.  He currently serves as Chief of Bank Performance.

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Item 11.  Executive Compensation.

Compensation Discussion and Analysis

In the paragraphs that follow, Capitol provides an overview and analysis of its compensation programs and policies, material compensation decisions Capitol has made under those programs and policies with respect to Capitol's named executive officers (the "Named Executive Officers"), and the material factors that Capitol considered in making those decisions will be provided. Under the heading, "Executive Compensation," is a series of tables containing specific information about the compensation earned by or paid in 2010 to the following individuals:

·Joseph D. Reid, Chairman and CEO;

·Lee W. Hendrickson, Chief Financial Officer;

·Lawrence Connell, Vice Chairman, Vice Chairman and a Principal Officer of Michigan Commerce Bank;

·Cristin K. Reid, Corporate President; and

·Bruce A. Thomas, President of Bank Operations.

Overview

Like many companies, especially in the financial services sector, the adverse economic conditions over the last few years resulted in significant losses from operations for Capitol and a significant decline in Capitol's financial position and value of its publicly-traded securities.  These factors are reflected in the decreased compensation of Capitol's Named Executive Officers because Capitol's compensation program is designed to align a significant portion of compensation with the performance of Capitol and the interests of Capitol's shareholders.  Changes that have resulted include:

·   In 2009, a new design for Capitol's annual cash incentive plan was approved, with emphasis on an expanded list of performance metrics.

·   No bonuses under Capitol's Management Incentive Plan were paid to any Named Executive Officers in 2010 or 2009 because in late 2008 Capitol's Compensation Committee made a determination that none of the Named Executive Officers would be eligible to participate in the Management Incentive Plan based on results of operations.

·   No salary increases for Named Executive Officers were approved for 2010 or 2009.

·   Effective March 31, 2011, Joseph D. Reid elected to reduce his base salary compensation by 25%, which followed reductions of 20% on October 1, 2009 and 10% effective January 1, 2009.

·   On January 1, 2009, all Named Executive Officers requested a voluntary 10% salary reduction.

·   The value of unexercised stock options held by the Named Executive Officers decreased dramatically. As of December 31, 2010, 2009 and 2008, there were no in-the-money outstanding vested or unvested stock options held by the Named Executive Officers, compared to aggregate value of $636,786 for the Named Executive Officers at year-end 2007.

Objectives of the Compensation Program

Capitol's compensation program is administered by Capitol's Compensation Committee (the "Compensation Committee").  The objectives of the program are to:

·   Reward current performance;

·   Motivate future performance;

·   Encourage teamwork;

·   Remain competitive as compared to the external marketplace;

·   Maintain a position of internal equity;

·   Effectively retain Capitol's executive management team;

·   Increase shareholder value by strategically aligning executive management and shareholder interests; and

·   Reward effective risk mitigation.

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Elements of the Compensation Program

To ensure achievement of the program objectives, compensation is provided to the Named Executive Officers in the following elements:

·Base Pay;

·Annual Incentive Pay;

·Long-Term Incentive Pay; and

·Perquisites and Other Personal Benefits.

The purpose, design and determination of amounts and 2010 pay decisions are described below. 

Design of the Total Compensation Program

Prior to changes made to the design of the program in late 2009, Capitol did not attempt to set each compensation element for each executive within a particular range related to levels provided by industry peers.  Instead, the Compensation Committee used market comparisons as one factor in making compensation decisions.  The principal factors considered when making individual executive compensation decisions included:

·Individual contribution and performance;

·Reporting structure;

·Internal pay relationship;

·Complexity and importance of role and responsibilities;

·Leadership and growth potential;

·Experience;

·Strategic importance; and

·Technical implications such as tax, accounting and shareholder dilution.

The Compensation Committee does not assign a specific weighting to these factors and may exercise its discretion when making compensation decisions for the Named Executive Officers.

When reviewing the components of the compensation program, the Compensation Committee, together with Capitol's internal director of its human resources department, works to ensure the total compensation package is competitive with the external marketplace and remains balanced from an internal equity standpoint.  However, it is the total compensation package that should be competitive, and not necessarily on the basis of individual elements.

The Compensation Committee does not maintain a stated policy with regard to cash versus noncash compensation.  However, the allocation of cash and noncash compensation for each of the Named Executive Officers is reviewed annually.

In general, the Compensation Committee does not take into account amounts realizable from prior compensation when making future pay decisions.  However, grant date amounts and values are considered, particularly when establishing long-term incentive award grants.  The Compensation Committee reviews a total compensation tally sheet for Mr. Reid annually.  The tally sheet is used to inform the Compensation Committee of Mr. Reid's total compensation and accumulated value from Capitol's equity plan.

In light of the extreme volatility in the U.S. financial markets in 2010 and general public concern over executive compensation among financial institutions, Capitol took the additional measure of meeting with certain senior officers of Capitol to discuss the risk profile of its total executive compensation program for the Named Executive Officers.  The Compensation Committee concluded that the total compensation program, which balances fixed compensation (base pay and retirement benefits) and various forms of shorter and longer term incentive pay (annual cash bonus and equity compensation) is appropriate and does not encourage the Named Executive Officers to take excessive or unnecessary risks.

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Benchmarking and Peer Companies

Under the direction of the Compensation Committee, beginning in late 2009, Capitol began benchmarking base pay, annual incentive pay and long-term incentive pay for the purposes of compensation to be paid to Capitol's executive officers in future periods as an additional factor to be considered in the determination of compensation.  Prior to 2009, the Compensation Committee did not attempt to set each compensation element for each executive within a particular range related to levels provided by industry peers.

The Compensation Committee believes that the external market should be defined as peer companies in the banking industry of a similar asset size, geographic diversity and complexity similar to Capitol.  Notwithstanding the external market factors, the Compensation Committee recognizes that because of Capitol's unique structure (numerous individual financial institutions within Capitol's organization), operating philosophy and national geographic footprint, finding a comparable peer group is difficult, as the Compensation Committee has not been able to identify any financial institution or group of financial institutions whose structure is as complex as Capitol's.  For example, institutions of a similar asset size to Capitol's may have an executive handle certain duties that would be impossible for one officer to handle within Capitol's more complex structure.

For 2011, the Compensation Committee identified two reference groups of peer financial companies that it will use for purposes of benchmarking its compensation practices. These include a group of 15 similarly-sized regional banks and a group of 15 institutions that have operations in more than five states or institutions with multiple banking affiliates.  The reference group of similarly-sized banks included banks with total assets between $1 billion and $12.5 billion at December 31, 2010, compared to $3.5 billion of assets for Capitol as of such date.

Select Bank Peer Group With Assets Between $1 Billion - $12.5 Billion Reference Group (state)	Institutions With Operations in More Than Five States or Multiple Affiliates Reference Group (state)
Citizens Republic Bancorp, Inc. (MI)	Synovus Financial Corp. (GA)
National Penn Bancshares (PA)	BOK Financial Corporation (OK)
Umpqua Holdings Corp. (OR)	Commerce Bancshares, Inc. (MO)
Sterling Bancshares, Inc. (TX)	TCF Financial Corporation (MN)
S&T Bancorp, Inc. (PA)	Fulton Financial Corporation (PA)
First Busey Corporation (IL)	East West Bancorp, Inc. (CA)
Wilshire Bancorp, Inc. (CA)	Wintrust Financial Corporation (IL)
First State Bancorporation (NM)	PrivateBancorp, Inc. (IL)
Old Second Bancorp, Inc. (IL)	Cathay General Bancorp (CA)
West Coast Bancorp (OR)	Whitney Holding Corporation (LA)
CoBiz Inc. (CO)	UMB Financial Corporation (MO)
Enterprise Financial Services Corp (MO)	United Bankshares, Inc. (WV)
Guaranty Bancorp (CO)	First Financial Bancorp. (OH)
Mercantile Bank Corporation (MI)	IBERIABANK Corporation (LA)
Macatawa Bank Corporation (MI)	Cadence Financial Corporation (MS)

Additionally, market data was collected from multiple published survey sources representing national financial institutions of an asset size, geographic diversity and complexity similar to Capitol. The Compensation Committee believes that the combination of peer company data and survey data reflects Capitol's external market for business and executive talent. Accordingly, in 2009, the Compensation Committee began to use both of these sources when comparing Capitol's executive compensation to the external market. The Compensation Committee does not utilize any stated weighting of external market data with which to benchmark compensation levels of the Named Executive Officers. Instead, the Compensation Committee evaluates the market data along with the other factors listed previously to determine the appropriate compensation levels of the Named Executive Officers on an individual basis.  The Compensation Committee uses these sources of market data to ensure that the compensation being paid by Capitol is competitive with those of its peer companies.

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The Compensation Committee maintains flexibility to deviate from market-median practices for individual circumstances, including qualifications, experience and responsibilities. The Compensation Committee also considers an internal review of the executive's compensation relative to other executive officers and the individual performance of the executive in establishing the base salary as well as the increased duties taken on by Capitol's executive officers during these difficult economic times.

Base Pay

Base pay is an important element of executive compensation because it provides executives with a stable level of monthly income. Internal and external equity, performance, experience and other factors are considered when establishing base salaries.  Base pay is not directly related to Capitol's operating performance.

Capitol pays its executive officers a base salary as fixed compensation for their time, efforts and commitments throughout the year.  To aid in attracting and retaining qualified executive officers, the Compensation Committee seeks to keep base salaries competitive. In determining the appropriate base pay, the Compensation Committee also considers, among other factors, the nature and responsibility of the position.  Additionally, executives are evaluated on certain core competencies that are used to evaluate all of Capitol's staff members, such as championing change and improvement, delivering high quality client service, listening and communication abilities and participating as a team player.

The Compensation Committee does not utilize a mathematical formula in which these factors or their interrelationships are quantified and weighted (either in general, or with respect to any individual executive).  During a particular year, one factor or group of factors may play (but does not necessarily play) a more significant role in the determination of an executive's base salary than in other years, based on the Compensation Committee's judgment and discretion.  An executive's individual performance may be assessed based upon any of his or her demonstrated leadership skills, accomplishment of objectives, business unit or functional accountabilities and personal contributions.  A broad range of factors relevant to each of these areas, generally qualitative in nature, may be considered in this assessment.  The Compensation Committee's judgments regarding base salaries are also strongly influenced by the judgments and recommendations of the chief executive officer with respect to the Named Executive Officers other than himself and Cristin K. Reid for which base salary is determined by the Compensation Committee.

The Compensation Committee does not assign a specific weighting to these factors when making compensation decisions.  Base salary changes are generally approved in November of each year and are effective January 1st of the following year.  No specific weighting is targeted for base salaries as a percentage of total compensation.  The Compensation Committee reviews base salaries annually and, beginning in 2010, targets salary compensation at or near the 50th – 75th percentile of the peer group, but maintains flexibility to deviate from market-median practices for individual circumstances, including qualifications, experience and responsibilities.  The Compensation Committee also considers an internal review of the executive's compensation relative to other executive officers and the individual performance of the executive in establishing the base salary.

Effective March 31, 2011, Joseph D. Reid elected to reduce his base salary compensation by 25%, which followed reductions of 20% on October 1, 2009 and 10% effective January 1, 2009.  During their Fall 2010 meeting, the Compensation Committee approved base pay for Mr. Reid and the other Named Executive Officers. No increases were made to any of the Named Executive Officers' base pay in 2010.  The Compensation Committee observed that the base pay levels for all of the Named Executive Officers approximated the 50th percentile of external market data.

Due to the continuing adverse economic conditions and the challenges facing the financial services industry, no base pay increases were approved for 2009, 2010 or 2011, and most of Capitol's senior management group agreed to a voluntary 10% salary reduction effective January 2009, including the Named Executive Officers.  The 2008, 2009 and 2010 years were extremely challenging for Capitol and the financial services industry, as reflected in the adverse operating performance of Capitol and many other banks across the country, and the extraordinary measures being taken by the federal government to aid companies in the banking industry.

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Base pay levels as approved by the Compensation Committee remained effective January 1, 2011. Base pay levels are set forth in the Summary Compensation Table.  Mr. Reid makes recommendations on the pay levels of his direct reports for the Compensation Committee's review and approval (with the exception of Brian K. English and Cristin K. Reid, which are set by the Compensation Committee in its sole discretion).  Mr. Reid does not make recommendations to the Compensation Committee on his own compensation level (other than the previously-discussed voluntary base pay reductions requested by Mr. Reid).  The Compensation Committee, in executive session and without members of Capitol's management present, determines the pay levels for Mr. Reid, to be subsequently ratified by its board of directors.

Annual Incentive Pay

Annual incentive pay is provided to the Named Executive Officers to recognize achievement of financial targets, both on the overall corporate level and the individual level, and is paid in accordance with the quantitative and qualitative terms of the Capitol Bancorp Ltd. Management Incentive Plan (the "MIP") which was approved by Capitol's shareholders at the 2003 Annual Meeting of Shareholders.  In establishing the performance goals under the MIP, the Compensation Committee may utilize the following quantitative and qualitative factors:

·   earnings per share;

·   return  measures (including, but not limited to, return on assets, equity or sales);

·   net income (before or after taxes), cash flow (including, but not limited to, operating cash flow and free cash flow);

·   cash flow return on investments, which equals net cash flow divided by stockholders' equity;

·   earnings before or after taxes, interest, depreciation and/or amortization;

·   internal rate of return or increase in net present value;

·   gross revenues;

·   gross margins;

·   share price (including, but not limited to, growth measures and total shareholder return).

The MIP provides the Compensation Committee the latitude to establish primarily cash-based incentive compensation programs to promote high performance and achievement of corporate goals by officers, encourage shareholder value and allow officers to participate in the long-term prospects of Capitol.  Under the MIP, the Compensation Committee may elect to approve awards in the form of shares of Capitol's common stock.  In issuing such shares as payment of awards under the MIP, the Compensation Committee may establish any conditions or restrictions it deems appropriate.  No awards were granted or approved under the MIP in 2010.

Annual Bonus of Mr. Reid

Pursuant to the terms and conditions of Mr. Reid's employment agreement, Mr. Reid is eligible to receive an annual cash bonus in an amount equal to 2% of Capitol's net income for the immediately preceding fiscal year upon Capitol's achievement of (i) growth of Capitol's earnings per share equal to or greater than 10% for the immediately preceding fiscal year and (ii) growth of Capitol's total assets, as reflected on Capitol's year-end audited financial statements, equal to or greater than 10% for the immediately preceding fiscal year.

Due to the adverse financial performance and the weakened capital position of Capitol during 2010, the Compensation Committee determined not to pay any Named Executive Officer, including Mr. Reid, any annual bonus.

These decisions were made due to the continuing adverse economic conditions, the challenges facing the financial services industry and Capitol's adverse financial results and are consistent with Capitol's compensation philosophy.  The 2008, 2009 and 2010 years were extremely challenging for Capitol and the financial services industry, as reflected in the adverse operating performance and financial condition of Capitol and many other banks across the country and the extraordinary measures being taken by the federal government to aid companies in the banking industry.

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The Compensation Committee approved a target of 2% of 2011 net income (if any) as Mr. Reid's bonus.  To determine the bonus payment amount, if any, the Compensation Committee will base it upon the following qualitative measures approved by the Compensation Committee:

Performance Measure	Description
Operating Results	Provides direction to ensure that Capitol meets its financial goals, both in terms of achieving budgetary results and in its commitment to performance compared to its peers.
Leadership	Leads Capitol, setting a philosophy based on the corporate culture that is well understood, widely supported, consistently applied and effectively implemented.
Strategic Planning	Establishes clear objectives and develops strategic policies to help ensure stability in Capitol's core business and improvement in its financial condition and results of operations. Committed to the utilization of advanced technology applications to support these goals and maintains the long-term interest of Capitol in all actions.
Human Capital Management and Development	Ensures the effective recruitment of a diverse workforce, consistent retention of key employees and the ongoing motivation of staff. Offers personal involvement in the recruiting process and provides feedback.
Communications	Serves as chief spokesperson for Capitol, communicating effectively with all of its constituent stakeholders.
External Relations	Establishes and maintains relationships with the investment community to keep them informed on Capitol's status. Serves in a leadership role in civic, professional and community organizations. Reinforces key customer relationships through market visits and customer contacts, when appropriate.
Board Relations	Works closely with the board of directors to keep them fully informed on all important aspects of the status and future prospects of Capitol. Helps facilitate the board of directors' composition and committee structure, as well as its governance and any regulatory agency relations.

Bonus Plan for the Other Named Executive Officers

The remaining Named Executive Officers are eligible to participate in the MIP and the Capitol Bancorp Limited 2007 Equity Incentive Plan (the "Stock Incentive Plan").  No bonuses under the MIP were paid to any Named Executive Officers due to the performance and capital position of Capitol in 2010.

For 2011, Capitol established the following individual targets as a percentage of 2010 base salary earnings for the Named Executive Officers in the MIP:

Lee W. Hendrickson	20	%
Lawrence Connell	0	%
Cristin K. Reid	20	%
Bruce A. Thomas	20	%

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The individual targets are not formula driven. For all of the Named Executive Officers in the MIP, the targets are set at the discretion of the chief executive officer and must be approved by the Compensation Committee.  The bonus targets are based on external market data, internal equity considerations and strategic objectives for corporate performance such as Capitol's operational performance, asset growth, asset quality, operating results, return on assets, return on equity, total shareholder return and the effective execution of Capitol's strategic plan.  The targets for a calendar year are reviewed annually at the preceding Fall meeting of the Compensation Committee and altered as deemed appropriate. Payment amounts for the Named Executive Officers, with the exception of the chief executive officer and Ms. Reid, are made based on recommendations of the chief executive officer and approval of the Compensation Committee.  Bonus amounts in excess of or below target may be paid at the discretion of the chief executive officer with the approval of the Compensation Committee. Before the chief executive officer makes recommendations to the Compensation Committee regarding annual bonus payments for the other Named Executive Officers, the chief executive officer discusses these issues with the Compensation Committee.  The Compensation Committee has the discretion to approve, disapprove or alter the recommendations.

Long-Term Incentive Pay

Long-term incentives are awarded to the Named Executive Officers in an effort to align management and shareholder interests, ensure future performance of Capitol, enhance ownership opportunities and to increase shareholder value. Capitol maintains the MIP and the Stock Incentive Plan which was approved by shareholders and authorizes the granting of the following types of awards for executives:

·Stock Options;

·Stock Appreciation Rights;

·Restricted Stock and Restricted Stock Units;

·Performance Unit and Performance Share Awards;

·Cash-Based Awards; and

·Other Stock-Based Awards.

As set forth in the Summary Compensation Table, long-term incentives have been awarded to the Named Executive Officers in the form of stock options and restricted stock. The provisions of such grants are determined by the Compensation Committee taking into account a variety of factors, including grants from prior years, external market data, internal equity considerations, performance, overall share usage, shareholder dilution and cost.

Stock Options

The Company periodically grants stock options to executives.  No stock option grants were made to Named Executive Officers in 2010.  Stock option grants are designed to assist Capitol to:

·   Enhance the focus of executives on the creation of long-term shareholder value as reflected in Capitol's stock price performance;

·   Provide an opportunity for increased ownership by executives; and

·   Maintain competitive levels of total compensation.

Such grants are discretionary by the Compensation Committee, reflecting the position of each executive officer within Capitol and that person's proportionate responsibility for overall corporate performance. The allocation of stock options among executive officers is not based on any measure of Capitol's performance, but is based on a subjective evaluation of individual performance and the scope of the individual's responsibilities.

Option exercise prices are set at the closing price of Capitol's common stock on the date of grant. The Compensation Committee has never granted options with an exercise price that is less than the closing price of Capitol's common stock on the grant date, nor has it granted options that are priced on a date other than the grant date.

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Restricted Stock

Shares of restricted stock are granted to the Named Executive Officers to create an immediate link to shareholder interests and enhance ownership opportunities. A restricted stock award of 224,720 shares was granted to Mr. Connell in July 2010.

No other restricted stock awards were granted to Named Executive Officers in 2010.

Stock Ownership Guidelines

Capitol does not currently maintain a formal policy for executive stock ownership requirements. The Compensation Committee believes that the use of restricted stock for the Named Executive Officers serves to reinforce stock ownership and aligns executive and shareholder interests.

While the Compensation Committee believes a significant portion of the Named Executive Officers' total compensation should be linked to Capitol's stock price, no specific weighting is targeted for long-term incentive pay as a percentage of total compensation.

In its review in late 2010, the Compensation Committee observed that long-term incentive awards to Mr. Reid were at approximately the 50th and the 75th percentile of external market data. Long-term incentive awards to the remaining Named Executive Officers were also between the 50th and the 75th percentile of external market data.  The Compensation Committee determined that it was critical to continue to place a strong emphasis on future financial performance and increasing shareholder value, while offering a competitive total rewards package. No long-term awards were granted in 2010 to the Named Executive Officers.

Historically, the Compensation Committee has generally approved and granted long-term incentive awards to the Named Executive Officers and any other designated employees at the Fall meeting or at the hire date of newly designated employees, as applicable.  Capitol maintains no policy, whether official or unofficial, for timing the granting of stock options or other equity-based awards in advance of the release of material nonpublic information.  In 2010, Capitol followed its historical equity grant practice by reviewing whether any grants should be made at its Fall 2010 Compensation Committee meeting.  No long-term incentive awards were made to Named Executive Officers following the review.

Perquisites and Other Personal Benefits

Capitol does not provide significant perquisites or personal benefits to its executive officers.  The Named Executive Officers are provided with an automobile allowance and, in the case of Mr. Reid, the use of an automobile leased by the Corporation.  Additionally, Capitol provided living expenses of $5,000 per month for one year to Mr. Connell, expiring in May 2011.

Long-term incentives to align the interests of Capitol's employees with the shareholders have been implemented through the development of an Employee Stock Ownership Plan (the"ESOP").  The ESOP typically provides annual awards of Capitol's common stock subject to vesting requirements.  All of Capitol's employees, with the exception of the chief executive officer, are eligible to participate in the program after meeting certain length of service and age qualifications.  In response to the financial performance of Capitol, employer contributions to the ESOP were suspended for the third consecutive year in 2010.

Capitol has a 401(k) plan which includes an employer match as a percentage of employees' contributions to the plan.  In response to the financial performance of Capitol, employer matching contributions were suspended for the second consecutive year in 2010.  In January 2011, the ESOP and 401(k) plan were merged to create the Capitol Bancorp Limited Retirement Plan.

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In an effort to retain the long-term services of certain of its executives, Capitol has an executive supplemental income program for some of its executives.  Individual agreements call for the payment to the subject employee or designated beneficiary of an annual benefit, or lump sum payment at the employee's or beneficiary's election, which is approximately equal to a percentage of the annual base salary of each employee, when entered into, for a period up to fifteen years in the event of either the employee's retirement or the death of the employee before attaining retirement age.  In the event of a change of control of Capitol (as defined in the agreements), which is not approved by Capitol's board of directors, each employee can retire with full benefits at any time after attaining the age of 55 without approval of the board of directors.  The benefit liabilities under the agreements are covered by insurance contracts funded by Capitol and/or its subsidiaries.  Capitol has entered into executive supplemental income agreements with two individuals listed in the Summary Compensation table, Messrs. Hendrickson and Thomas.

Additionally, Capitol has health insurance and other programs that are usual and customary to encourage retention of Capitol's employees.  Capitol does not maintain a defined-benefit pension plan and does not have any active nonqualified deferred compensation plans.

Role of the Compensation Committee

Consistent with public-company corporate governance standards and as defined by the NYSE, which Capitol uses to determine "independence" among members of its board, its Compensation Committee is composed entirely of independent directors.  No Compensation Committee member participates in any of Capitol's employee compensation programs.  Each year, the Nominating and Governance Committee reviews all direct and indirect relationships that each director has with Capitol and its board of directors subsequently reviews its findings.  The board of directors has determined that none of the Compensation Committee members have any material business relationships with Capitol.

The Compensation Committee has responsibility for establishing, implementing and continually monitoring adherence with Capitol's compensation philosophy.  The Compensation Committee ensures that the total compensation paid to senior management is fair, reasonable and competitive.  Generally, the types of compensation and benefits provided to the Named Executive Officers are similar to other executive officers of Capitol.  The Compensation Committee believes that the most effective executive compensation program is one that is designed to reward the achievement of annual, long-term and strategic goals by Capitol, and which aligns executives' interests with those of the shareholders by rewarding performance above established goals, with the ultimate goal of improving shareholder value.  Specifically, the Compensation Committee seeks to reward performance as measured by financial metrics and successful execution of Capitol's strategic plan.

The Compensation Committee periodically reviews the compensation levels of the board of directors.  In its review, the Compensation Committee looks to ensure that the compensation is fair and reasonably commensurate to the amount of work required both from the individual directors as well as from the board in the aggregate.

The Compensation Committee is responsible for the review and approval of corporate goals and objectives, relevant to the compensation of Capitol's chief executive officer, to evaluate the performance of the chief executive officer in light of the goals and objectives, and determine and approve the chief executive officer's compensation levels based on this evaluation.  Additionally, the Compensation Committee reviews compensation levels for members of Capitol's executive management group.  To achieve these goals and objectives, the Compensation Committee expects to maintain compensation plans that create an executive compensation program that is set at competitive levels of comparable public financial services institutions (to the extent comparable entities may be identified) with comparable performance.  The Compensation Committee makes recommendations to the board of directors with respect to compensation plans and equity-based plans and oversees the administration of the compensation, incentive and equity-based benefit plans of Capitol.  The Compensation Committee periodically reviews director and board committee compensation levels and practices and recommends to the board changes in such compensation levels and practices.

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Policy on Internal Revenue Code Section 162(m) Compliance

Section 162(m) of the Internal Revenue Code generally limits the corporate tax deduction to $1,000,000 in a taxable year for compensation paid to each "covered employee" of Capitol, which under Section 162(m) and guidance issued under the section, includes all of the Named Executive Officers unless the compensation is "performance based."

In order to preserve Capitol's tax deduction, the Compensation Committee approved the MIP for "covered employees."  In the event that a "covered employee's" total compensation would exceed the amount deductible under Section 162(m), the MIP allows the Compensation Committee, in its sole discretion, to defer cash components of the "covered employee's" compensation until the plan year after he or she ceases to be a "covered employee" or upon his or her death or disability.

For 2010, no payments were made to the Named Executive Officers under the MIP and no amounts paid to Named Executive Officers were subject to the tax-deduction limitation described above.

Policy on Recovery of Awards

On November 15, 2010, following prior approval by the Compensation Committee of Capitol's board of directors, Capitol's employment agreements with Lee W. Hendrickson, Cristin K. Reid and Bruce A. Thomas were amended and restated in their entirety (the "Amended and Restated Employment Agreements").  The Amended and Restated Employment Agreements, among other things, contain a provision providing for the recoupment of unearned incentive compensation if Capitol's board of directors, or an appropriate committee thereof, determines that any fraud, negligence or intentional misconduct by the Named Executive Officer is a significant contributing factor to Capitol having to restate all or a portion of its consolidated financial statements.  Capitol's board of directors or Compensation Committee may require reimbursement of any bonus or incentive compensation previously paid to the Named Executive Officer.  Except as set forth in the Amended and Restated Employment Agreements, Capitol currently has no written policy with respect to recovery of awards when financial statements are restated.  However, in the event of a restatement, Capitol would recover any awards as required by applicable law.

Economic Uncertainty

The recent economic downturn and its effects on Capitol and the financial system make it difficult for the Compensation Committee to set appropriate enterprise-wide and individual performance criteria for compensation purposes.  Additionally, continued economic volatility, and its effects on Capitol's common stock price, may cause the value of stock options and restricted stock shares or units that Capitol has awarded to its Named Executive Officers to fall below levels that the Compensation Committee deems necessary to provide appropriate performance and retention incentives for such officers.  Accordingly, the Compensation Committee will continue to exercise discretion in determining compensation for Capitol's Named Executive Officers to ensure that Capitol continues to meet its compensation philosophies and objectives.

2010 Compensation Decisions

As described above, due to the continuing adverse economic conditions and the challenges facing the financial services industry, no base pay increases were approved for 2010 or 2011, and most of Capitol's senior management group agreed to a voluntary 10% salary reduction effective January 2009.  The Compensation Committee reviewed and approved the 2009 salary reduction request.  The 2008, 2009 and 2010 calendar years were extremely challenging for Capitol and the financial services industry, as reflected in the adverse operating performance of Capitol and many other banks across the country, and the extraordinary measures being taken by the federal government to aid companies in the banking industry.  The base pay as approved by the Compensation Committee remained effective as of January 1, 2011.

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CompensationCommittee Report

The Compensation Committee of Capitol has reviewed and discussed the Compensation Discussion and Analysis required by Item 402(b) of Regulation S-K with management and, based on such review and discussions, the Compensation Committee recommended to the board that it be included in Capitol's Annual Report on Form 10-K for the year ended December 31, 2010.

Compensation Committee

Kathleen A. Gaskin, Chairman

James C. Epolito

Lewis D. Johns

Equity Compensation Plan Information

The following table summarizes information regarding Capitol's equity compensation plans in effect as of December 31, 2010:

	(a)		(b)		(c)
Plan category	Number of securities to be issued upon exercise of outstanding options, warrants and rights (1)		Weighted-average exercise price of outstanding options, warrants and rights (1)		Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a))
Equity compensation plans approved by security holders*		1,678,723	$	21.73		876,947
Equity compensation plans not approved by security holders(1)		- -		- -		- -
Equity compensation plans resulting from share exchanges		66,879		16.40		- -
Total		1,745,602	$	21.53		876,947

  (1) Options issued pursuant to employment agreements with various officers of Capitol and its subsidiaries.

* Does not include shares that may be issued if Capitol elects to pay awards made under the Capitol Bancorp Ltd. Management

   Incentive Plan in the form of shares of Capitol's common stock.  Also does not include shares that were approved to be issued

   under the 2007 Incentive Plan, which includes a provision increasing the shares available for the plan in an amount equal to

   2% of the outstanding shares of common stock as of December 31 of each year.

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Summary Compensation

The following table sets forth all compensation paid to the Named Executive Officers:

Summary Compensation Table
Name and Principal Position	Year	Salary($)			Bonus ($)(1)		Stock Awards ($)(2)			Option Awards ($)(2)		Non-Equity Incentive Plan Compensation ($)			Change in Pension Value ($)		All Other Compensation ($)			Total ($)
Joseph D. Reid	2010	$	668,125			—	$	9,561	(4)		—		—			N/A	$	25,222	(6)	$	702,908
Chief Executive Officer and	2009		776,154	(3)		—		28,379	(4)	$	143,570		—			N/A		22,293	(7)		970,396
Chairman	2008		900,000			—		99,996	(4)		—	$	100,000	(5)		N/A		55,114	(8)		1,155,110
Lee W. Hendrickson	2010		402,948	(9)		—		17,824	(10)		—		—		$	31,571		11,799	(11)		464,142
Chief Financial Officer	2009		383,760			—		17,824	(10)		68,020		—			29,232		11,920	(12)		510,756
	2008		426,400			—		17,824	(10)		—		—			27,067		18,400	(13)		489,691
Lawrence Connell	2010		461,539			—		400,002	(14)		—		—			N/A		40,000	(15)		901,541
Vice Chairman	2009		—			—		—			—		—			N/A		—			—
Michigan Commerce Bank	2008		—			—		—			—		—			N/A		—			—
Cristin K. Reid	2010		387,450	(9)		—		17,824	(10)		—		—			N/A		11,786	(16)		417,060
Corporate President	2009		369,000			—		17,824	(10)		65,403		—			N/A		11,677	(17)		463,904
	2008		410,000			—		17,824	(10)		—		—			N/A		18,400	(18)		446,224
Bruce A. Thomas	2010		329,332	(9)		—		17,824	(10)		—		—			27,712		11,736	(19)		386,604
President of Bank Operations	2009		313,650			—		17,824	(10)		55,593		—			25,659		12,591	(20)		425,317
	2008		348,500			—		17,824	(10)		—		—			23,758		18,400	(21)		408,482

N/A	Not applicable.
(1)	The Named Executive Officers elected to forgo receiving a bonus in 2008, 2009 and 2010 due to the adverse financial performance of Capitol.
(2)	The amounts in these columns reflect the aggregate grant date fair value of stock and option awards during the last three fiscal years computed in accordance with Accounting Standards Codification Topic 718. For a discussion of the assumptions made in the valuation of the restricted stock and option awards reported in these columns, please see Note K of the Notes to Consolidated Financial Statements in the Financial Information section of Capitol's 2010 Annual Report, which is incorporated herein by reference.
(3)	Does not fully reflect an additional 20% salary reduction effective October 1, 2009.
(4)	Mr. Reid received two restricted stock grants on February 6, 2008 totaling 9,812 shares, and two grants on August 7, 2008 totaling 13,478 shares.  Such restricted shares vest on a graded basis on the anniversary of the grant date each year.  Mr. Reid will receive 25% of the grant amount at that time.  The amount reported represents 25% of the grant date fair value reflecting one year's service of the four-year vesting period.
(5)	In 2008, Mr. Reid elected to forgo $100,000 in non-equity incentive compensation due to him under his employment agreement.
(6)	Includes $1,166 in lease payments and insurance for an automobile provided by the company that was used for personal use, $23,250 for the economic value of a split-dollar life insurance policy paid on his behalf and $806 for life/disability premiums paid on his behalf.
(7)	Includes $1,192 in lease payments and insurance for an automobile provided by the company that was used for personal use, $19,650 for the economic value of a split-dollar life insurance policy paid on his behalf, $1,042 received from dividends received on unvested restricted stock and $409 for life/disability premiums paid on his behalf.
(8)	Includes $6,600 contributed to Capitol's 401(k) plan, $1,192 in lease payments and insurance for an automobile provided by the company that was used for personal use, $19,650 for the economic value of a split-dollar life insurance policy paid on his behalf and $27,672 received from dividends received on unvested restricted stock.
(9)	The larger amount is solely attributable to 27 payroll periods in the 2010 calendar year, compared to 26 in 2009 and 2008.  Such occurrence occurs approximately every 7 years.
(10)	Mr. Hendrickson, Ms. Reid and Mr. Thomas each received a restricted stock grant of 2,000 shares on April 21, 2006.  Such restricted shares vest on a cliff basis on April 21, 2011 at which time the award becomes 100% vested.  The amount reported is 20% of the grant date fair value reflecting one year's service of the five-year vesting period.   Amount shown represents 2007 amortization of total intrinsic value of the restricted stock award as of the grant date.
(11)	Includes an $11,216 automobile allowance and $583 for life/disability premiums paid on his behalf.
(12)	Includes $589 contributed to Capitol's 401(k) plan, a $10,800 automobile allowance, $100 from dividends received on unvested restricted stock and $431 for life/disability premiums paid on his behalf.
(13)	Includes $6,600 contributed to Capitol's 401(k) plan, a $10,800 automobile allowance and $1,000 from dividends received on unvested restricted stock.
(14)	Mr. Connell received a restricted stock grant of 224,720 shares on July 13, 2010.  Such restricted shares vest on a cliff basis on May 11, 2011 at which time the award becomes 100% vested.
(15)	Mr. Connell received a living allowance of $5,000 per month, beginning in May 2010.
(16)	Includes an $11,216 automobile allowance and $570 for life/disability premiums paid on her behalf.
(17)	Includes $346 contributed to Capitol's 401(k) plan, a $10,800 automobile allowance, $100 from dividends received on unvested restricted stock and $431 for life/disability premiums paid on her behalf.
(18)	Includes $6,600 contributed to Capitol's 401(k) plan, a $10,800 automobile allowance and $1,000 from dividends received on unvested restricted stock.
(19)	Includes an $11,216 automobile allowance and $520 for life/disability premiums paid on his behalf.
(20)	Includes $1,260 contributed to Capitol's 401(k) plan, a $10,800 automobile allowance, $100 from dividends received on unvested restricted stock and $431 for life/disability premiums paid on his behalf.
(21)	Includes $6,600 contributed to Capitol's 401(k) plan, a $10,800 automobile allowance and $1,000 from dividends received on unvested restricted stock.

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Employment Agreements

Joseph D. Reid

In March 2003, Capitol entered into an employment agreement with Mr. Reid.  The agreement had an initial term of three years, which was set to expire in March 2006.  Pursuant to the terms of the agreement, its employment period is automatically extended for a three-year term on each annual anniversary of the agreement, unless Capitol provides Mr. Reid with notice sixty days prior to such anniversary.  The agreement permits Capitol to give Mr. Reid notice of its intention to stop the automatic renewal, in which case the agreement will expire two years and sixty days from the date of Capitol's notice to him.  Capitol has not provided notice of its intention to stop the automatic renewal in 2010.  Accordingly, the agreement will not expire until at least March 13, 2014.

Capitol is not permitted to reduce Mr. Reid's annual salary at any time during the term of the agreement.  However, Mr. Reid asked for a voluntary reduction in his 2009 compensation totaling 30%, 10% in January 2009 and an additional 20% in October 2009.  Additionally, effective March 31, 2011, Joseph D. Reid asked for a voluntary reduction of his base salary of 25%.

During the term of his employment, Mr. Reid will be entitled to an annual cash bonus based on achieving targets for both growth rates for earnings per share and consolidated assets.  Mr. Reid is also entitled to certain long-term incentive compensation consisting of common stock and cash.  Capitol will grant Mr. Reid options to purchase shares of Capitol's common stock at an exercise price equal to the fair market value of Capitol's common stock on the date of such grant based on specific corporate development objectives during the term of the agreement.

In 2006, both Mr. Reid and the Compensation Committee began a review of Mr. Reid's current compensation under the terms of his employment agreement.  At the time the agreement was entered into in 2003, neither Mr. Reid nor the Compensation Committee anticipated the rate of growth of affiliate banks that Capitol had been able to achieve.  Under the terms of the agreement, Mr. Reid was, in part, incentivized to develop new banks, being awarded stock options based on the number of banks developed.

In August 2007, Mr. Reid and Capitol entered into an amendment to his employment agreement which reduced his total cash compensation and limited the equity incentives paid to him based on the future development of Capitol.  The amendment amended the original agreement as follows:

· reduce Mr. Reid's salary to $900,000;

· delete references to Mr. Reid's right to defer his compensation;

· change the date on which certain amounts are paid to Mr. Reid to avoid any potential issues arising under Section 409A of the Code;

· revise Mr. Reid's long-term stock award for each new bank or holding company opened or acquired by Capitol ("New Affiliate") from an option for 30,000 shares of Capitol's common stock to $50,000 in cash and a restricted stock award for shares of Capitol's common stock having a fair market value of $100,000; and

· Mr. Reid is not entitled to receive any compensation for more than ten New Affiliates in each fiscal year.

Lee W. Hendrickson, Lawrence Connell, Cristin K. Reid and Bruce A. Thomas

Capitol has employment agreements with each of the Named Executive Officers, with the exception of Lawrence Connell.  On November 15, 2010, following prior approval by the Compensation Committee of Capitol's board of directors, employment agreements with the following Named Executive Officers were amended and restated in their entirety: Cristin K. Reid, Lee W. Hendrickson and Bruce A. Thomas.

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The Named Executive Officers entered into the Amended and Restated Employment Agreements at the request of Capitol to provide for greater uniformity concerning the employment agreements for Capitol's executive officers and to update the prior employment agreements to reflect changes in the law.  The Amended and Restated Employment Agreements incorporate the current salary level of each Named Executive Officer, acknowledge the 10% voluntary salary reductions discussed previously herein and include several additional provisions considered beneficial to Capitol when compared to the earlier employment agreements including:

· a 36 month term rather than the 60 month term as set forth in the current employment agreements;

· a double trigger provision for any payments made in connection with a change of control (the earlier employment agreements with the Named Executive Officers could be terminated by the Named Executive Officer upon a change of control for which the Named Executive Officer would also be entitled to receive a severance payment);

· a provision providing for the recoupment of incentive compensation if Capitol's board of directors, or an appropriate committee thereof, determines that any fraud, negligence, or intentional misconduct by the Named Executive Officer is a significant contributing factor to Capitol having to restate all or a portion of its consolidated financial statements, pursuant to which Capitol's board of directors or applicable committee may require reimbursement of any bonus or incentive compensation previously paid to the Named Executive Officer; and

· a requirement that the Named Executive Officer sign a general release of Capitol prior to the payment of any severance amount upon termination of employment.

Pursuant to the Amended and Restated Employment Agreements, Capitol agreed to employ the Named Executive Officers for a term of 36 months beginning on November 15, 2010, each in their current respective positions with Capitol.  Under the Amended and Restated Employment Agreements for each of the Named Executive Officers, on each anniversary date of the agreement, the employment period will be automatically extended for an additional year, unless Capitol has provided prior notice to the Named Executive Officer that the term will not be extended further.

Ms. Reid and Messrs. Hendrickson and Thomas asked for a voluntary salary reduction of 10% effective January 1, 2009.

Grants of Plan-Based Awards

The following table shows all plan-based awards granted to the Named Executive Officers during 2010:

Grants of Plan-Based Awards
Estimated Future Payouts Under Equity Incentive Plan Awards
Name	Grant Date	Threshold ($)	Target ($)	Maximum ($)	All Other Stock Awards: Number of Shares of Stock or Units (#)	Grant Date Fair Value of Stock and Option Awards ($)	All Other Option Awards: Number of Securities Underlying Options (#)	Exercise or Base Price of Option Awards ($/Sh)
Joseph D. Reid (1)	N/A	N/A	N/A	N/A	--	N/A	--	N/A
Lee W. Hendrickson	N/A	N/A	N/A	N/A	--	N/A	--	N/A
Lawrence Connell (2)	7/13/2010	N/A	N/A	$  400,002	224,720	$  400,002	--	N/A
Cristin K. Reid	N/A	N/A	N/A	N/A	--	N/A	--	N/A
Bruce A. Thomas	N/A	N/A	N/A	N/A	--	N/A	--	N/A

N/A	Not applicable.
(1)	Pursuant to his amended Employment Agreement, Mr. Reid is eligible for a cash bonus of 2% of Capitol's net income upon certification of the Compensation Committee that the growth of both Capitol's earnings per share and total assets equals or exceeds 10% of the immediately preceding fiscal year.  No bonus award was earned for 2010.
(2)	Mr. Connell received a restricted stock grant of 224,720 shares on July 13, 2010.  Such restricted shares vest on a cliff basis on May 11, 2011 at which time the award becomes 100% vested.

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Capitol Bancorp Limited 2007 Equity Incentive Plan

The 2007 Incentive Plan provides for the grant of the following types of incentive awards: (i) stock options, (ii) stock appreciation rights, (iii) restricted stock, (iv) restricted stock units, (v) performance shares and performance units, and (vi) other stock awards. Each of these is referred to individually as an"Award."Those who are eligible for Awards under the 2007 Incentive Plan include employees, directors and consultants who provide services to Capitol and its affiliates.  All employees, officers and directors are eligible to be selected by the Administrator of the 2007 Incentive Plan to receive Awards.  Capitol's shareholders have approved up to 350,000 shares of Capitol's common stock for issuance under the 2007 Incentive Plan.  The number of shares available for issuance under the 2007 Incentive Plan will be increased on January 1 of each year, beginning with January 1, 2008, in an amount up to a maximum of two percent (2%) of the outstanding shares on December 31 of the immediately preceding year.

Capitol Bancorp Ltd. Management Incentive Plan

Capitol's MIP was approved by its shareholders in 2003.  The MIP provides the Compensation Committee the latitude to establish primarily cash-based incentive compensation programs to promote high performance and achievement of corporate goals by officers, encourage the growth of shareholder value and allow officers to participate in the long-term growth and profitability of Capitol.

Under the MIP, the Compensation Committee may elect to issue awards in the form of shares of Capitol's common stock, restricted stock units or cash.  In issuing such shares as awards under the MIP, the Compensation Committee may establish any conditions or restrictions it deems appropriate.  In 2010, Capitol did not issue any awards to the Named Executive Officers from the MIP.

2010 and 2011 Grants

The Compensation Committee did not award any option grants in 2010 and has not established guidelines for the grant of plan-based awards for 2011.

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The following table sets forth all outstanding equity awards at year-end 2010 for the Named Executive Officers.  Prior to entering into Mr. Reid's employment agreement in 2003, Mr. Reid and Capitol were operating under a prior employment agreement which provided for automatic grants of stock options based on the number of outstanding shares of Capitol.  Such provision of Mr. Reid's original employment agreement was eliminated by the 2003 employment agreement executed by Mr. Reid and Capitol.  Many grants listed below relate to grants made under Mr. Reid's prior employment agreement.

Outstanding Equity Awards at Fiscal Year-End 2010
	Option Awards(1)			Stock Awards
Name	Number of Securities Underlying Unexercised Options (#) Exercisable	Option Exercise Price ($)	Option Expiration Date	Number of Shares or Units of Stock That Have Not Vested (#)	Market Value of Shares or Units of Stock That Have Not Vested ($)(4)
Joseph D. Reid	60,000	$         25.27	5/25/11	11,646 (2)	$                6,056
	10,875	16.40	7/9/11	—	—
	30,000	25.86	8/5/11	—	—
	55,927	16.40	9/30/11	—	—
	30,000	34.31	1/10/12	—	—
	77	16.40	3/15/12	—	—
	30,000	31.86	5/5/12	—	—
	270,000	32.03	6/29/12	—	—
	258,000	37.48	12/30/12	—	—
	150,000	22.46	8/1/14	—	—
	71,428	2.01	11/16/14	—	—

Lee W. Hendrickson	20,000	30.21	5/16/11	2,000 (3)	1,040
	33,841	2.01	11/16/14	—	—
Lawrence Connell	—	—	—	224,720	116,854
Cristin K. Reid	20,000	30.21	5/16/11	2,000 (3)	1,040
	32,539	2.01	11/16/14	—	—
Bruce A. Thomas	20,000	30.21	5/16/11	2,000 (3)	1,040
	27,658	2.01	11/16/14	—	—

(1)	All stock option awards were vested as of December 31, 2010.
(2)	Mr. Reid received two restricted stock grants on February 6, 2008 totaling 9,812 shares, and two grants on August 7, 2008 totaling 13,478 shares.  Such restricted shares vest over a four-year period on a graded basis on the anniversary of the grant date each year.  Mr. Reid receives 25% of the grant amount at each vesting date.
(3)	Mr. Hendrickson, Ms. Reid and Mr. Thomas each received a restricted stock grant of 2,000 shares on April 21, 2006.  Such restricted shares vest on a cliff basis on April 21, 2011 at which time the award becomes 100% vested.
(4)	Based upon Capitol's common stock closing price as of December 31, 2010 of $0.52 per share as reported by the NYSE.

Option Exercises and Stock Vested 2010
	Option Awards		Stock Awards
Name	Number of Shares Acquired on Exercise (#)	Value Realized on Exercise ($)	Number of Shares Acquired on Vesting (#)	Value Realized on Vesting ($)
Joseph D. Reid	—	—	2,452	$                         4,978 (1)
	—	—	3,370	4,583 (2)
Lee W. Hendrickson	—	—	—	—
Lawrence Connell	—	—	—	—
Cristin K. Reid	—	—	—	—
Bruce A. Thomas	—	—	—	—

(1)	Value based upon Capitol's common stock price per share as reported by the NYSE on February 5, 2010 ($2.03), the vesting date.
(2)	Value based upon Capitol's common stock price per share as reported by the NYSE on August 6, 2010 ($1.36), the vesting date.

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Pension Benefits 2010
Name	Plan Name	Number of Years of Credited Service (#)(1)	Present Value of Accumulated Benefit ($)	Payments During Last Fiscal Year ($)
Joseph D. Reid	N/A	N/A	N/A	N/A
Lee W. Hendrickson	Executive Supplemental Income Agreement	15	$                           250,448	—
Lawrence Connell	N/A	N/A	N/A	N/A
Cristin K. Reid	N/A	N/A	N/A	N/A
Bruce A. Thomas	Executive Supplemental Income Agreement	11	N/A	—

N/A	Not applicable.
(1)	Executives become eligible for benefit payments once they have reached 15 years of service and age 65.  The benefit does not increase with additional years of service. Accordingly, if an executive has more than 15 years of service, the table reflects 15 years.

Other Potential Post-Employment Payments

Capitol has entered into certain plans and agreements that require it to provide compensation to the Named Executive Officers in the event of a termination of employment.  These are described below.

Executive Supplemental Income Agreements

In an effort to retain the long-term services of certain of its executives, Capitol has entered into executive supplemental income agreements.  The individual agreements provide for payment of an annual benefit or lump sum payment to the subject employee or designated beneficiary, which is approximately equal to a percentage of the annual base salary of each employee, when entered into, for a period up to 15 years in the event of either the employee's retirement or death before attaining retirement age.  Normal retirement age is 65 years of age.  An employee may retire at age 55 with 15 years of service and receive a partial benefit.  The benefit is fixed at the execution of the agreement.  In the event of a change of control of Capitol (as defined in the agreements), which is not approved by Capitol's board of directors, each employee can retire with full benefits at any time after attaining the age of 55 without approval of the board of directors.  The benefit liabilities under the agreements are covered by life insurance contracts funded by Capitol and/or its subsidiaries.

In calculating the present value of accumulated benefits, Capitol has assumed that each employee would successfully meet the eligibility requirements (i.e., 15 years of continuous service and attainment of age 65).  Capitol has also assumed for such calculation that each employee would retire upon attainment of age 65.  Capitol took the lump sum amount needed to satisfy the benefits for each executive and reduced it to present value using a discount rate of 8%.  Capitol then calculated the number of years remaining until the employee reached age 65.  Finally, Capitol then accrued the cost accordingly to accumulate the amount needed to fund the annual benefit.

Potential Payments Upon Termination or Change in Control

Capitol has entered into certain agreements and maintains various plans that will require Capitol to provide compensation to the Named Executive Officers, with the exception of Lawrence Connell, in the event of a termination of employment or a termination following a change of control of Capitol.

Joseph D. Reid

As discussed previously, in 2003, Capitol entered into an employment agreement with Mr. Reid that provided for automatic renewal absent notification to the contrary.  Capitol is permitted to terminate Mr. Reid's employment for two reasons: (1) Death or Disability or (2) Cause.  "Disability" is defined as "the absence of the executive from the executive's duties with Capitol on a full-time basis for 180 consecutive business days as a result of incapacity due to mental or

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physical illness which is determined to be total and permanent by a physician selected by Capitol or its insurers and acceptable to the executive or the executive's legal representative."  "Cause" is defined as "(i) the willful and continued failure of the executive to perform substantially the executive's duties with Capitol or one of its affiliated companies (other than any such failure resulting from incapacity due to physical or mental illness), after a written demand for substantial performance is delivered to the executive by the board which specifically identifies the manner in which the board believes that the executive has not substantially performed the executive's duties or (ii) the willful engaging by the executive in illegal conduct or gross misconduct which is materially and demonstrably injurious to Capitol."

Mr. Reid is permitted to terminate employment under the agreement for "Good Reason."  "Good Reason" is defined under the agreement as:

·   The assignment to Mr. Reid of any duties inconsistent in any material respect with Mr. Reid's position, authority, duties or responsibilities as contemplated by Section 2(a) of the agreement, excluding for this purpose an isolated, insubstantial and inadvertent action not taken in bad faith and which is remedied by Capitol promptly after receipt of notice thereof given by Mr. Reid;

·   Failure by Capitol to pay Mr. Reid his compensation under the terms of the agreement, other than an isolated, insubstantial and inadvertent action not taken in bad faith, and which is remedied by Capitol promptly after receipt of notice thereof given by Mr. Reid;

·   Capitol's requiring Mr. Reid to reside at any specific location, it being understood that Mr. Reid maintains multiple residences and offices, or Capitol's requiring the executive to travel on Company business to a greater extent than required immediately prior to the effective date of the agreement or in the event of a change in control, the Company's requiring Mr. Reid to travel in a manner inconsistent with current practice in effect immediately preceding the date of Capitol's change of control;

·   Failure by Capitol to cause a successor to perform Capitol's obligations arising under the agreement; or

·   Upon a change of control of Capitol.

Generally, pursuant to Mr. Reid's amended employment agreement, a change of control is deemed to occur:

(i)           if any person acquires 20% or more of Capitol's voting securities (other than securities acquired directly from Capitol or its affiliates);

(ii)          if a majority of the directors as of the date of the agreement are replaced other than in specific circumstances;

(iii)         upon the consummation of a merger of Capitol or any subsidiary of Capitol other than (a) a merger which would result in the voting securities of Capitol outstanding immediately prior to the merger continuing to represent at least 50% of the voting power of the securities of Capitol outstanding immediately after such merger, or (b) a merger effected to implement a recapitalization of Capitol in which no person is or becomes the beneficial owner of securities of Capitol representing 20% or more of the combined voting power of Capitol's then-outstanding securities; or

(iv)         upon the liquidation or sale of Capitol's assets, other than a sale or disposition by Capitol of its assets to an entity of which at least 50% of the voting power is owned by shareholders of Capitol.

If Capitol terminates Mr. Reid's employment for a reason other than Cause or Disability, Capitol must pay Mr. Reid a lump sum within 75 days after termination equal to: (A) the sum of (i) Mr. Reid's annual base salary through the date of termination; and (ii) the product of (x) the higher of the most recent annual bonus and the annual bonus paid or payable for the most recently completed fiscal year and (y) a fraction, the numerator of which is the number of days in the current fiscal year through the date of termination and the denominator of which is 365 (the "Accrued Obligations"); and (B) three times both Mr. Reid's annual base salary and Mr. Reid's highest annual bonus.  In addition, Capitol will maintain Mr. Reid's existing welfare benefits at the time of termination for three years.

If Capitol terminates Mr. Reid's employment for Cause or if Mr. Reid voluntarily terminates employment during the Employment Period, except for Good Reason, the agreement shall terminate and Capitol must pay Mr. Reid in a lump sum within 30 days of the date of termination: (A) his annual base salary through the date of termination, and (B) other benefits, in each case to the extent theretofore unpaid.  If termination occurs as a result of Disability or Death, Capitol is

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not responsible for any termination payments other than for payment of Accrued Obligations, the timely payment or provision of Other Benefits and Capitol's obligations under the Securities Repurchase Agreement.

If Capitol terminates Mr. Reid's employment within two years of a Change of Control for a reason other than Cause or Disability, or Mr. Reid terminates the agreement for Good Reason, Capitol must pay Mr. Reid in a lump sum within 30 days after termination: (A) the Accrued Obligations; and (B) three times the sum of Mr. Reid's annual base salary, the highest annual bonus and the aggregate amount of employer contributions to any qualified defined contribution plans for the most recently completed plan year.  In addition, Capitol will maintain Mr. Reid's existing welfare benefits at the time of termination for three years.

Lee W. Hendrickson, Cristin K. Reid and Bruce A. Thomas

On November 15, 2010, following prior approval by the Compensation Committee of Capitol’s board of directors, the employment agreements with the following Named Executive Officers were amended and restated in their entirety: Cristin K. Reid, Lee W. Hendrickson and Bruce A. Thomas.

The Named Executive Officers signed the Amended and Restated Employment Agreements at the request of Capitol to provide for greater uniformity concerning the employment agreements for Capitol's executive officers and to update the prior employment agreements to reflect changes in the law.  The Amended and Restated Employment Agreements incorporate the current salary level of each Named Executive Officer, acknowledge the 10% voluntary salary reductions discussed previously herein and include several additional provisions considered beneficial to Capitol when compared to the earlier employment agreements.

Under the new agreements, Capitol agreed to employ the Named Executive Officers for a term of 36 months beginning on November 15, 2010, each in their current respective positions.  Under the Amended and Restated Employment Agreements for the Named Executive Officers, on each anniversary date of the Amended and Restated Employment Agreement, the employment period will be automatically extended for an additional year provided that Capitol has not provided notice to the Named Executive Officer that the term will not be extended further.

Each of the employment agreements is terminable with or without cause by Capitol. The Named Executive Officers have no right to compensation, severance payments or other benefits (except as set forth below) pursuant to the employment agreements for any period (i) after termination of employment by the Named Executive Officer without good reason or termination by Capitol for cause or disability, as those terms are defined in the employment agreements, (ii) following the expiration of the term of the agreement if Capitol determines not to further extend the agreement, or (iii) following the Named Executive Officer's retirement or death.

In the event that (i) Capitol terminates the employment of a Named Executive Officer without cause or (ii) the Amended and Restated Employment Agreement is terminated by the Named Executive Officer for good reason, the Named Executive Officer will be entitled to a cash severance amount (assuming such Named Executive Officer executes and delivers to Capitol a general release of claims in favor of Capitol) and continued participation in Capitol's group life, health, accident and disability insurance and other welfare benefit plans for a limited time following termination of employment, at the Named Executive Officer's cost.  The cash severance amounts payable to each Named Executive Officer would equal the aggregate annual base salary which would have been earned by such Named Executive Officer under the employment agreement (including any scheduled increase therein) for the period commencing on the day after the termination date and ending on the date of the end of the then applicable employment period.

Under the terms of the Amended and Restated Employment Agreements, if the employment of a Named Executive Officer is terminated without cause or if the Named Executive Officer separates from Capitol for good reason within 24 months of a "Change in Control" (each as defined in the Amended and Restated Employment Agreements), the Named Executive Officer will receive: (i) all salary earned through the date of termination, as well as a pro rata bonus and any compensation previously deferred; and (ii) an amount equal to three times the Named Executive Officer's highest annual base salary and three times the executive's highest annual bonus at Capitol during the three-year period prior to the Change in Control.  In addition, upon the occurrence of a Change in Control, all of the executive's stock options shall

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become fully vested, whether or not the executive is terminated. All payments under the agreement are to be made in a lump sum, in cash, six months following the date of termination of employment, unless earlier payment, in whole or in part, following the date of termination of employment is permitted under Section 409A of the Internal Revenue Code of 1986, as amended.

Capitol has not entered into an employment agreement with Mr. Connell

Potential Post-Employment Payments Table

The table below summarizes maximum lump sum amounts each Named Executive Officer would have been eligible to receive upon a change in control of Capitol or if their employment would have been terminated under the described scenarios as of December 31, 2010.  The table excludes (i) amounts accrued through December 31, 2010 that would be paid in the normal course of continued employment, such as accrued but unpaid salary and bonus amounts and (ii) vested account balances under Capitol's 401(k) plan.  For as long as Capitol is subject to a written agreement with the Federal Reserve Bank of Chicago, it is not permitted to pay amounts to Named Executive Officers for departure from Capitol for any reason other than death or disability, other than payments for services performed or benefits accrued and payments pursuant to qualified retirement plans or that are otherwise required by applicable law.

Named Executive Officer	Quit/ Termination For Cause ($)	Involuntary Termination Not For Cause ($)	Change In Control(1) ($)	Change In Control With Termination ($)	Death(2) ($)	Disability(2) ($)
Joseph D. Reid	0	$1,500,406	$1,500,406	$1,500,406	$164,106	0
Lee W. Hendrickson	0	1,076,400	0	1,347,840	0	0
Lawrence Connell	N/A	N/A	N/A	N/A	N/A	N/A
Cristin K. Reid	0	1,060,875	0	1,328,400	0	0
Bruce A. Thomas	0	901,744	0	1,129,140	0	0

N/A	Not applicable.
(1)	The amounts shown in this column reflect the value of restricted shares of common stock previously awarded to the Named Executive Officers with respect to which transferability restrictions lapse if a change in control of Capitol would have occurred on December 31, 2010.
(2)	The amounts in this column reflect the pro-rata value of the restricted shares of common stock previously awarded to the Named Executive Officers with respect to which transferability restrictions would have lapsed had the Named Executive Officers terminated employment because of death or disability on December 31, 2010.

Compensation Committee Interlocks and Insider Participation

During the last completed fiscal year, the voting members of the Compensation Committee were James C. Epolito, Kathleen A. Gaskin and Lewis D. Johns.  Except for Lewis D. Johns, none of these persons were, during such fiscal year, an officer or employee of Capitol or any of its subsidiaries, or was formerly an officer of Capitol or any of its subsidiaries or had any relationship requiring disclosure by Capitol under any paragraph of Item 404 of Regulation S-K of the SEC.  Please see "Certain Relationships and Related Transactions" on page 75 for information on Lewis D. Johns.

No executive officer of Capitol served as a member of a compensation committee (or other board committee performing equivalent functions or, in the absence of any such committee, the entire board of directors) of another publicly-traded entity, one of whose executive officers served on the Compensation Committee or board of directors of Capitol.  No executive officer of Capitol served as a director of another publicly-traded entity, one of whose executive officers served on the Compensation Committee of Capitol.  No executive officer of Capitol served as a member of the compensation committee (or other board committee performing equivalent functions or, in the absence of any such committee, the entire board of directors) of another publicly-traded entity, one of whose executive officers served as a member of the Compensation Committee or as a director of Capitol.

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Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.

Stock Ownership

The following table sets forth information as of March 15, 2011 regarding each person (including any group as that term is defined in Section 13(d)(3) of the Securities Exchange Act of 1934) who was known to be the beneficial owner of more than 5% of Capitol's common stock as of that date, each of the directors (including each nominee for election as a director), the chief executive officer and the four other Named Executive Officers, and all directors and executive officers as a group including the Named Executive Officers:

Name of  Beneficial Owner	Common Stock(1)(2)		Rights to Acquire(3)		Restricted Stock(4)		Percent of Common Stock(5)
Joseph D. Reid      Capitol Bancorp Center 200 N. Washington Square Lansing, MI, 48933		956,135		966,307		9,192		4.59	%
Michael L. Kasten(6)		140,194		23,036		—		*
Lyle W. Miller(7)		97,237		22,323		—		*
David O'Leary (8)		87,690		22,364		—		*
Paul R. Ballard		102,794		22,928		—		*
Lawrence Connell		—		—		224,720		*
David L. Becker		84,854		22,229		—		*
Michael J. Devine		14,202		22,929		—		*
James C. Epolito		4,210		22,229		—		*
Gary A. Falkenberg		64,149		22,229		—		*
Joel I. Ferguson(9)		134,152		21,314		—		*
Kathleen A. Gaskin		39,877		22,229		—		*
H. Nicholas Genova		116,871		22,229		—		*
Lewis D. Johns		250,963		22,323		—		*
Steven L. Maas(10)		821,960		15,883		—		2.04	%
Calvin D. Meeusen(11)		97,626		—		—		*
Myrl D. Nofziger		68,398		22,229		—		*
Cristin K. Reid(12)		100,742		52,539		2,000		*
Ronald K. Sable		37,833		22,229		—		*
Lee W. Hendrickson(13)		22,365		53,841		2,000		*
Michael M. Moran		91,636		41,131		2,000		*
Bruce A. Thomas		35,088		47,658		2,000		*
All directors and executive officers as a group (32 Persons)(14)		3,580,513		1,589,178		253,412		12.70	%

*    Less than 1%

(1)	Represents shares for which the named person (a) has sole voting and investment power or (b) has shared voting and investment power. Excluded are shares that (i) are restricted stock holdings or (ii) may be acquired through stock option or warrant exercises.
(2)	Includes shares held in Capitol's Retirement Plan: 24,730 for Mr. Reid; 42,344 for Ms. Reid, 3,288 for Mr. Hendrickson, 21,088 for Mr. Moran and 3,274 for Mr. Thomas.
(3)	Represents shares of common stock that can be acquired through stock options exercisable within sixty days after March 15, 2011.
(4)	Represents shares of common stock subject to a vesting schedule, achievement of certain performance criteria, forfeiture risk and other restrictions. Although these shares are subject to forfeiture provisions, the holder has the right to vote the shares and receive dividends, if any, until they are forfeited.
(5)	Assumes shares that such person has rights to acquire are outstanding.
(6)	Mr. Kasten reported 80,000 shares pledged as security.
(7)	Mr. Miller reported 35,300 shares pledged as security.
(8)	Mr. O'Leary reported 51,201 shares pledged as security.
(9)	Mr. Ferguson reported 3,000 shares pledged as security.
(10)	Mr. Maas reported 67,498 shares pledged as security.
(11)	Mr. Meeusen reported 9,096 shares pledged as security.
(12)	Ms. Reid reported 1,461 shares pledged as security.  Excludes 39,619 stock options and 2,000 shares of restricted stock held by Brian K. English, Capitol's General Counsel and Ms. Reid's husband.
(13)	Mr. Hendrickson reported 4,394 shares pledged as security.
(14)	Includes 142,657 shares allocated and held in Capitol's Retirement Plan (formerly Capitol's separate 401(k) plan and ESOP), and 111,047 shares allocated and held in Capitol's Directors' Deferred Compensation Plan.  As a group, all directors and executive officers have 248,364 shares pledged as security.

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Item 13. Certain Relationships and Related Transactions, and Director Independence.

Certain Relationships and Related Transactions

Transactions

Capitol's banking subsidiaries have, in the normal course of business, made loans to certain directors and officers of Capitol and its subsidiaries and to organizations in which certain directors and officers have an interest.  In the opinion of management, such loans were made in the ordinary course of business and were made on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with unrelated parties and did not involve more than the normal risk of collectability or present other unfavorable features.

Capitol's subsidiary bank, Michigan Commerce Bank (MCB), leases its Brighton banking facility from Tri-O Development, of which three of David O'Leary's adult children are members.  Rent paid by MCB to the leasing entity amounted to $245,738 in 2010.  Additionally, MCB leases its Ann Arbor banking facility from South State Commerce Center L.L.C. in which Lyle W. Miller's Trust owns a 10% membership interest, H. Nicholas Genova's IRA owns a 10% membership interest and Kathleen A. Gaskin owns a 5% membership interest.  Rent paid by MCB for the Ann Arbor facility amounted to $557,368 in 2010, and maintenance fees amounted to $58,802.  MCB leases its Lansing facility from R & A Development, a Michigan limited partnership of which Joseph D. Reid and Lewis D. Johns are partners.  MCB paid rent of $106,743 in 2010 and $27,075 for leasehold and routine maintenance.  Capitol and its subsidiary bank, Capitol National Bank, paid rent of $622,340 in 2010 for their principal offices at the Capitol Bancorp Center, 200 N. Washington Square, Lansing, Michigan to Business & Trade Center Limited, a Michigan limited partnership of which Joseph D. Reid and Lewis D. Johns are partners; additionally, the cost of leasehold improvements and routine maintenance paid in 2010 was $22,257.  Additionally, Capitol also leases space in the adjacent Phoenix Building from R & A Development and paid rent in the amount of $218,057 in 2010.  The lease rates represent what Capitol believes to be fair market value in the respective markets.  All leasing arrangements which involve insiders have been approved by Capitol's Ethics Committee and reported to bank regulatory agencies prior to their commencement, when appropriate.

Brian K. English, Capitol's general counsel, is licensed to practice law in Arizona, Colorado, Michigan and Ohio.  Mr. English is the son-in-law of Joseph D. Reid and the husband of Cristin K. Reid.  Mr. English was paid $250,809 in 2010.  Capitol also employs Kelly D. Miller, director of specialty finance; however, he is not a policy-making officer of Capitol.  He is the son of Lyle W. Miller and was paid $173,423 in 2010.

Capitol and its subsidiaries, on a consolidated basis, own approximately 16% of the outstanding membership interests of Access BIDCO, L.L.C., with an aggregate carrying value of approximately $488,000 at December 31, 2010. Joseph D. Reid, Capitol's chairman and chief executive officer also serves as chairman and chief executive officer of Access BIDCO, L.L.C.  Joseph D. Reid, III (son of Joseph D. Reid) serves as president and chief operating officer of Access BIDCO, L.L.C. and its subsidiary, and Lee W. Hendrickson, Capitol's chief financial officer also serves as Access BIDCO, L.L.C.'s chief financial officer, secretary and treasurer.  Certain other individuals who serve as directors of Access BIDCO, L.L.C. also serve as officers and/or directors of Capitol.

Review of Related-Person Transactions

Capitol has written procedures for reviewing transactions between Capitol and its directors and executive officers, their immediate family members and entities with which they have a position of responsibility or relationship.  These procedures are intended to determine whether any such related person transaction impairs the independence of a director or presents a conflict of interest on the part of a director or executive officer.

Capitol annually requires each of its directors and executive officers to complete a questionnaire that collects updated information about related-person transactions.  Executive management reviews all transactions and relationships disclosed in the director and officer questionnaires and brings to the attention of the Ethics Committee and Capitol's board of directors any matters warranting their attention as well as the availability of the questionnaires for their review.  The board of directors makes a formal determination regarding each director's independence under Capitol's Corporate Governance Guidelines.

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In addition to the Ethics Committee's review, the board of directors is regularly reminded to discuss any proposed transaction involving a director and Capitol with its general counsel's office prior to engaging in any such transaction. Members of Capitol's legal department are also instructed to inform Capitol's general counsel of any transaction between a director and Capitol that comes to their attention.

Upon receiving any notice of a related-person transaction involving a director, Capitol's general counsel will discuss the transaction with the chair of Capitol's Ethics Committee. If the transaction has not yet occurred and any likelihood exists that the transaction could impair the director's independence or would present a conflict of interest for the director, Capitol's general counsel will discuss the transaction and its ramifications with the director before the transaction occurs.

If the transaction has already occurred, Capitol's general counsel and the chair of Capitol's Ethics Committee will review whether the transaction could affect the director's independence and determine whether a special board meeting should be called to consider the issue.  If a special board meeting is called and the director is determined to no longer be independent, such director, if he/she serves on any of the Audit, Nominating and Governance or Compensation committees, will be removed from such committee prior to (or otherwise will not participate in) any future meeting of the applicable committee.  If the transaction presents a conflict of interest, the board will determine the appropriate response.

Upon receiving notice of any transaction between Capitol and an executive officer that may present a conflict of interest, Capitol's general counsel will discuss the transaction with Capitol's chief executive officer (or, if the transaction involves the chief executive officer, the chair of the Audit Committee) to determine whether the transaction could present a conflict of interest.  If the transaction has already occurred and a determination is made that a conflict of interest exists, the general counsel, chief executive officer and chair of the Ethics Committee will determine the appropriate response.

Capitol's procedures for reviewing related person transactions do not require the approval or ratification of such transactions.  Accordingly, the related person transactions described above were not approved or ratified by Capitol.

Independence of Directors

Capitol's board of directors currently consists of 19 members, over 75 percent of whom are "independent" as defined under the corporate governance standards of the NYSE, which Capitol uses to determine independence among its board members.  The board has adopted categorical standards for determining whether a director is independent and has no material relationships with Capitol.  Under these standards adopted by the board and defined by the NYSE, which Capitol uses to determine independence among the members of its board, absent other material relationships with Capitol that the board of directors believes to jeopardize a director's independence from management, a director will be independent unless the director or any of his or her immediate family members had any of the following relationships with Capitol: employment during any of the past three years (as an executive officer in the case of family members); the receipt of more than $120,000 per year in direct compensation (other than director fees and pension or other forms of deferred compensation for prior service not contingent upon continued service) during any of the past three years; is now, or within the past three years was, a current partner of the internal or external auditor or an employee of such a firm and personally worked on Capitol's audit; employment with another company where any executive officers of Capitol serve or have served on that company's compensation committee during any of the past three years; being an executive officer of a charitable organization to which Capitol contributed the greater of $1 million or 2% of such charitable organization's consolidated gross revenues in any single fiscal year during the preceding three years; or being an executive officer of a company that makes payments to, or receives payments from, Capitol for property or services in a fiscal year in an amount in excess of the greater of $1 million or 2% of such other company's consolidated gross revenues.

In addition, if any business relationship described in the last clause of the preceding paragraph is a lending relationship, deposit relationship, or other banking or commercial relationship between Capitol or its banks, on the one hand, and an entity with which the director or family member is affiliated by reason of being a director, officer or a significant shareholder thereof, on the other hand, such relationships must meet the following criteria: (1) it must be in the ordinary course of business and on substantially the same terms as those prevailing at the time for comparable transactions with non-affiliated persons; and (2) with respect to extensions of credit by an affiliate or subsidiary of Capitol to such

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entity: (a) such extensions of credit have been made in compliance with applicable law, including Regulation O of the Board of Governors of the Federal Reserve and Section 13(k) of the Exchange Act and (b) no event of default has occurred and is continuing beyond any period of cure.

Capitol's board of directors considered all relevant facts and circumstances and the application of the categorical standards and, based on its review of this information, affirmatively determined that the directors identified below as "independent" do not have any material relationships with Capitol.  There were not any transactions, relationships or relationships not disclosed pursuant to Item 404(a) of Regulation S-K of the SEC that were considered by the board of directors under the applicable independence definitions in determining that the director is independent.

The members of the Audit, Compensation, and Nominating and Governance Committees all meet the standards of independence adopted by the board of directors and applicable SEC rules and regulations.  The Compensation Committee members were not at any time during 2010, or at any other time, employed by Capitol and are not eligible to participate in any of Capitol's benefit plans other than Capitol's stock option plans.  The Compensation Committee members receive compensation from Capitol solely for their service as directors and committee members.

Independent Directors

Following are the names of each current member of Capitol's board of directors for whom an affirmative determination of independence has been made:

Paul R. Ballard	David L. Becker	James C. Epolito
Gary A. Falkenberg	Joel I. Ferguson	Kathleen A. Gaskin
H. Nicholas Genova	Lewis D. Johns	Michael L. Kasten
Steven L. Maas	Calvin D. Meeusen	Lyle W. Miller
Myrl D. Nofziger	David O'Leary	Ronald K. Sable

The board of directors has determined that Lewis D. Johns is an independent director as his related-person transactions discussed elsewhere herein do not represent a material portion of his income.  (See "Certain Relationships and Related Transactions").

Non-Independent Directors

In addition, based on such standards, Capitol's board of directors determined that: (a) Lawrence Connell is not independent because he serves as vice chairman of Capitol's largest affiliate bank, Michigan Commerce Bank; (b) Michael J. Devine is not independent because a significant portion of his income is generated from his service to Capitol and its subsidiaries as a consultant; (c) Joseph D. Reid is not independent because he is the chief executive officer and chairman of Capitol and holds more than 5% of the outstanding shares of Capitol's common stock; and (d) Cristin K. Reid is not independent because she is the corporate president of Capitol.

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Item 14.  Principal Accountant Fees and Services.

Relationship with Independent Registered Public Accounting Firm

The following is a summary of BDO USA, LLP's fees for professional services rendered to Capitol during 2010 and 2009, which fees totaled $1,018,311 and $1,133,195, respectively, and are categorized in accordance with the SEC's rules on auditor independence:

Audit Fees

BDO USA, LLP's fees totaled $974,486 and $1,069,071 in connection with the audit of Capitol's consolidated financial statements and reviews of the financial statements included in Capitol's quarterly reports on Form 10-Q for the years ended December 31, 2010 and 2009, respectively, and, in 2009 its audit of Capitol's internal control over financial reporting (which was not required for 2010).  In addition, audit fees incorporate BDO USA, LLP's audits of certain bank and bank-development subsidiaries of Capitol.  Audit fees also include fees for audit services related to registration statements.

Audit Related Fees

Capitol paid BDO USA, LLP, $41,000 and $60,600 during 2010 and 2009, respectively, for audit related services, including audits of employee benefit plans and other attest services.

Tax Fees

BDO USA, LLP, was paid $2,825 and $3,524 during 2010 and 2009, respectively, for federal tax return assistance related to employee benefit plans for Capitol and its subsidiaries.

All Other Fees

BDO USA, LLP, did not perform any other services during 2010 or 2009 for Capitol.

The Audit Committee has considered whether the provision of services described under the headings "Tax Fees" and "All Other Fees" is compatible with maintaining BDO USA, LLP's independence.  Based on its consideration of the nature of work performed and amount of the fees paid to BDO USA, LLP for those services, Capitol's Audit Committee concluded the provision of such services is compatible with maintaining BDO USA, LLP's independence.

Capitol's Audit Committee's current policy requires pre-approval of all audit and nonaudit services provided by the independent registered public accounting firm before such firm begins substantial performance of any engagement.  The Audit Committee may delegate authority to a member of the Audit Committee to pre-approve the engagement of independent registered public accounting firms when the entire committee is unable to do so.  All such pre-approvals must be reported to the entire committee at the next committee meeting.  The Audit Committee's pre-approval policy prohibits BDO USA, LLP from providing any nonaudit services that are prohibited by the SEC or the Public Company Accounting Oversight Board.  All fees paid to BDO USA, LLP for services performed in 2009 and 2010 were pre-approved pursuant to this policy.

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PART IV

Item 15. Exhibits and Financial Statement Schedules.

(a) 1 and 2.  Financial Statements/Schedules:

The following consolidated financial statements of Capitol Bancorp Limited and subsidiaries and reports of independent registered public accounting firm included on Pages F-53 – F-105 of the Financial Information Section of Annual Report of the Registrant for the year ended December 31, 2010, are incorporated by reference in Item 8:

Report of Independent Registered Public Accounting Firm.

Consolidated balance sheets--December 31, 2010 and 2009.

Consolidated statements of operations--Years ended December 31, 2010, 2009 and 2008.

Consolidated statements of changes in stockholders' equity--Years ended December 31, 2010, 2009 and 2008.

Consolidated statements of cash flows--Years ended December 31, 2010, 2009 and 2008.

Notes to consolidated financial statements.

All financial statements have been incorporated by reference from the Annual Report.  No schedules are included here because they are either not required, not applicable or the required information is contained elsewhere.

(b) Exhibits:

A list of exhibits required to be filed as part of this report is set forth in the Exhibit Index (pages 82-83) which immediately precedes such exhibits and is incorporated herein by reference.

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

CAPITOL BANCORP LTD. Registrant By:  /s/ Joseph D. Reid Joseph D. Reid Chairman and Chief Executive Officer     By:   /s/ Lee W. Hendrickson Lee W. Hendrickson Chief Financial Officer (Principal Financial and Accounting Officer)

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant on March 31, 2011, in the capacities indicated below.

/s/ Joseph D. Reid                                                                                                             Joseph D. Reid, Chairman, Chief Executive Officer and Director	/s/ H. Nicholas Genova H. Nicholas Genova, Director
/s/ David O'Leary                                                                                                                  David O'Leary, Secretary and Director	________________________________________ Lewis D. Johns, Director
/s/ Paul R. Ballard                                                                                                                 Paul R. Ballard, Director	/s/ Michael L. Kasten Michael L. Kasten, Vice Chairman and Director
/s/ David L. Becker                                                                                                                David L. Becker, Director	/s/ Steven L. Maas                                                                                                                  Steven L. Maas, Director
/s/ Lawrence Connell Lawrence Connell, Vice Chairman and Director	/s/ Calvin D. Meeusen                                                     Calvin D. Meeusen, Director
/s/ Michael J. Devine Michael J. Devine, Director	/s/ Lyle W. Miller                                                                                                                   Lyle W. Miller, Vice Chairman and Director
/s/ James C. Epolito                                                                                                             James C. Epolito, Director	/s/ Myrl D. Nofziger                                                         Myrl D. Nofziger, Director
/s/ Gary A. Falkenberg                                                   Gary A. Falkenberg, Director	/s/ Cristin K. Reid                                                                                                                    Cristin K. Reid, Corporate President and Director
/s/ Joel I. Ferguson                                                                                                                Joel I. Ferguson, Director	________________________________________ Ronald K. Sable, Director
/s/ Kathleen A. Gaskin                                                   Kathleen A. Gaskin, Director

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EX-10.15

EXHIBIT 10.15

Your plan is an important legal document. This sample plan has been prepared based on our understanding of the desired provisions. It may not fit your situation. You should consult with your lawyer on the plan's legal and tax implications. Neither Principal Life Insurance Company nor its agents can be responsible for the legal or tax aspects of the plan nor its appropriateness for your situation. If you wish to change the provisions of this sample plan, you may ask us to prepare new sample wording for you and your lawyer to review.

CAPITOL BANCORP LIMITED

RETIREMENT PLAN

401(k) Plan CL2009

Restated January 1, 2011

TABLE OF CONTENTS

INTRODUCTION

ARTICLE I                                     FORMAT AND DEFINITIONS

Section  1.01                              -----                 Format

Section  1.02                              -----                 Definitions

ARTICLE II                                     PARTICIPATION

Section  2.01                              -----                 Active Participant

Section  2.02                              -----                 Inactive Participant

Section  2.03                              -----                 Cessation of Participation

Section  2.04                              -----                 Adopting Employers - Multiple Employer Plan

ARTICLE III                                     CONTRIBUTIONS

Section  3.01                              -----                 Employer Contributions

Section  3.01A                           -----                 Rollover Contributions

Section  3.02                              -----                 Forfeitures

Section  3.03                              -----                 Allocation

Section  3.04                              -----                 Contribution Limitation

Section  3.05                              -----                 Excess Amounts

Section  3.06                              -----                 Prohibited Allocations of Qualifying Employer Securities

ARTICLE IV                                     INVESTMENT OF CONTRIBUTIONS

Section  4.01                              -----                 Investment and Timing of Contributions

Section  4.02                              -----                 Investment in Qualifying Employer Securities

ARTICLE V                                     BENEFITS

Section  5.01                              -----                 Retirement Benefits

Section  5.02                              -----                 Death Benefits

Section  5.03                              -----                 Vested Benefits

Section  5.04                              -----                 When Benefits Start

Section  5.05                              -----                 Withdrawal Benefits

Section  5.06                              -----                 Loans to Participants

Section  5.07                              -----                 Distributions Under Qualified Domestic Relations Orders

ARTICLE VI                                     DISTRIBUTION OF BENEFITS

Section  6.01                              -----                 Automatic Forms of Distribution

Section  6.02                              -----                 Optional Forms of Distribution

Section  6.03                              -----                 Election Procedures

Section  6.04                              -----                 Notice Requirements

Section  6.05                              -----                 Forms of Distribution for Qualifying Employer Securities

Section  6.06                              -----                 Put Option

Section  6.07                              -----                 Right of First Refusal

RESTATEMENT JANUARY 1, 2011 i TABLE OF CONTENTS  (7-10182)

ARTICLE VII                                     REQUIRED MINIMUM DISTRIBUTIONS

Section  7.01                              -----                 Application

Section  7.02                              -----                 Definitions

Section  7.03                              -----                 Required Minimum Distributions

Section  7.04                              -----                 Transition Rules

ARTICLE VIII                                     TERMINATION OF THE PLAN

ARTICLE IX                                     ADMINISTRATION OF THE PLAN

Section  9.01                              -----                 Administration

Section  9.02                              -----                 Expenses

Section  9.03                              -----                 Records

Section  9.04                              -----                 Information Available

Section  9.05                              -----                 Claim Procedures

Section  9.06                              -----                 Delegation of Authority

Section  9.07                              -----                 Exercise of Discretionary Authority

Section  9.08                              -----                 Transaction Processing

Section  9.09                              -----                 Voting and Tender of Qualifying Employer Securities

Section  9.10                              -----                 Voting and Tender of Self-Directed Brokerage Accounts

ARTICLE X                                     GENERAL PROVISIONS

Section 10.01                              -----                 Amendments

Section 10.02                              -----                 Direct Rollovers

Section 10.03                              -----                 Mergers and Direct Transfers

Section 10.04                              -----                 Provisions Relating to the Insurer and Other Parties

Section 10.05                              -----                 Employment Status

Section 10.06                              -----                 Rights to Plan Assets

Section 10.07                              -----                 Beneficiary

Section 10.08                              -----                 Nonalienation of Benefits

Section 10.09                              -----                 Construction

Section 10.10                              -----                 Legal Actions

Section 10.11                              -----                 Small Amounts

Section 10.12                              -----                 Word Usage

Section 10.13                              -----                 Change in Service Method

Section 10.14                              -----                 Military Service

ARTICLE XI                                     TOP-HEAVY PLAN REQUIREMENTS

Section 11.01                              -----                 Application

Section 11.02                              -----                 Definitions

Section 11.03                              -----                 Modification of Contributions

PLAN EXECUTION

APPENDIX A

RESTATEMENT JANUARY 1, 2011 ii TABLE OF CONTENTS  (7-10182)

INTRODUCTION

The Primary Employer previously established a 401(k) plan on January 1, 1987. Appendix A shows the date each Adopting Employer adopted the 401(k) plan. The Primary Employer also previously established an employee stock ownership plan (ESOP) on January 1, 1988. The Primary Employer is of the opinion that the Capitol Bancorp Ltd. Employee Stock Ownership Plan should be merged with the Capitol Bancorp Ltd 401(k) Plan. Effective January 1, 2011, the two plans are merging into this surviving plan. The surviving plan is being amended and restated with an effective date of January 1, 2011, and the plan name is being changed to “Capitol Bancorp Limited Retirement Plan.” The restated plan is a multiple employer plan as described in Code Section 413(c). Adopting Employers who are more than 50% owned by Capitol Bancorp Limited may first adopt the ESOP component on or after January 1, 2011. Only the Primary Employer had adopted the ESOP component prior to January 1, 2011.

The Primary Employer is of the opinion that the plans should be changed. It believes that the best means to accomplish these changes is to completely restate the plans’ terms, provisions and conditions. The restatement, effective January 1, 2011, is set forth in this document and is substituted in lieu of the prior documents with the exception of any good faith compliance amendments and any model amendments. Such amendment(s) shall continue to apply to this restated plan until such provisions are integrated into the plan or such amendment(s) are superseded by another amendment.

The restated plan continues to be for the exclusive benefit of employees of the Employer. All persons covered under the plans on December 31, 2010, shall continue to be covered under the restated plan with no loss of benefits.

It is intended that the plan, as restated, shall consist of two components. One component of the plan is intended to qualify as a profit sharing plan under Code Section 401(a) that includes a qualified cash or deferred arrangement under Code Section 401(k) under the Internal Revenue Code of 1986. This component includes contributions that are invested in funds other than company stock. This component of the plan provides for participant-directed investments and is intended to comply with ERISA Section 404(c). This component is to be considered the non-ESOP component of the Plan. The other component is intended to qualify as a qualified stock bonus plan under Code Section 401(a), and as an employee stock ownership plan (ESOP) under Code Section 4975(e)(7) under the Internal Revenue Code of 1986, including any later amendments to the Code. This component includes contributions invested in company stock and shall be considered the ESOP component of the Plan. The ESOP component of the Plan is intended to primarily invest in common stock of the Employer. The underlying Trust for both components of the Plan is intended to be exempt from taxation under Code Section 501.

This plan includes the statutory, regulatory, and guidance changes specified in the 2009 Cumulative List of Changes in Plan Qualification Requirements (2009 Cumulative List) contained in Internal Revenue Service Notice 2009-98 and the qualification requirements and guidance published before the issuance of such list.  The provisions of this plan apply as of the effective date of the restatement unless otherwise specified.

RESTATEMENT JANUARY 1, 2011 1 INTRODUCTION  (7-10182)

ARTICLE I

FORMAT AND DEFINITIONS

SECTION 1.01--FORMAT.

Words and phrases defined in the DEFINITIONS SECTION of Article I shall have that defined meaning when used in this Plan, unless the context clearly indicates otherwise.

These words and phrases have an initial capital letter to aid in identifying them as defined terms.

SECTION 1.02--DEFINITIONS.

Account means, for a Participant, his share of the Plan Fund. Separate accounting records are kept for those parts of his Account that result from:

(a)          Pre-tax Elective Deferral Contributions

(b)         Matching Contributions

(c)         Qualified Nonelective Contributions

(d)         Rollover Contributions

(e)         ESOP Discretionary Contributions

Cash dividends paid on shares of Qualifying Employer Securities credited to the account maintained to reflect Contributions (with a separate dividend source account for each such type of contribution) that are initially reinvested in Qualifying Employer Securities at the election of the Participant.

If the Participant's Vesting Percentage is less than 100% as to any of the Employer Contributions, a separate accounting record will be kept for any part of his Account resulting from such Employer Contributions and, if there has been a prior Forfeiture Date, from such Contributions made before a prior Forfeiture Date.

A Participant's Account shall be reduced by any distribution of his Vested Account and by any Forfeitures. A Participant's Account shall participate in the earnings credited, expenses charged, and any appreciation or depreciation of the Investment Fund. His Account is subject to any minimum guarantees applicable under the Annuity Contract or other investment arrangement and to any expenses associated therewith.

Accrual Computation Period means a consecutive 12-month period ending on the last day of each Plan Year, including corresponding consecutive 12-month periods before January 1, 1987.

ACP Test means the nondiscrimination test described in Code Section 401(m)(2) as provided for in subparagraph (d) of the EXCESS AMOUNTS SECTION of Article III.

Active Participant means an Eligible Employee who is actively participating in the Plan according to the provisions in the ACTIVE PARTICIPANT SECTION of Article II.

RESTATEMENT JANUARY 1, 2011 2 ARTICLE I  (7-10182)

Adopting Employer means an employer listed in the ADOPTING EMPLOYERS - MULTIPLE EMPLOYER PLAN SECTION of Article II.

ADP Test means the nondiscrimination test described in Code Section 401(k)(3) as provided for in subparagraph (c) of the EXCESS AMOUNTS SECTION of Article III.

Affiliated Service Group means any group of corporations, partnerships or other organizations of which the Employer is a part and which is affiliated within the meaning of Code Section 414(m) and the regulations thereunder. Such a group includes at least two organizations one of which is either a service organization (that is, an organization the principal business of which is performing services), or an organization the principal business of which is performing management functions on a regular and continuing basis. Such service is of a type historically performed by employees. In the case of a management organization, the Affiliated Service Group shall include organizations related, within the meaning of Code Section 144(a)(3), to either the management organization or the organization for which it performs management functions.  The term Controlled Group, as it is used in this Plan, shall include the term Affiliated Service Group. Affiliated Service Group members shall be determined separately for the Primary Employer and each Adopting Employer.

Alternate Payee means any spouse, former spouse, child, or other dependent of a Participant who is recognized by a qualified domestic relations order as having a right to receive all, or a portion of, the benefits payable under the Plan with respect to such Participant.

Annual Compensation means, for a Plan Year, the Employee’s Compensation for the Compensation Year ending with or within the consecutive 12-month period ending on the last day of the Plan Year.

Annuity Contract means the annuity contract or contracts into which the Trustee or the Primary Employer enters with the Insurer for guaranteed benefits, for the investment of Contributions in separate accounts, and for the payment of benefits under this Plan.

Annuity Starting Date means, for a Participant, the first day of the first period for which an amount is payable as an annuity or any other form.

Beneficiary means the person or persons named by a Participant to receive any benefits under the Plan when the Participant dies.  See the BENEFICIARY SECTION of Article X.

Catch-up Contributions means Elective Deferral Contributions made to the Plan that are in excess of an otherwise applicable Plan limit and that are made by Participants who are age 50 or older by the end of the taxable year. An otherwise applicable Plan limit is a limit in the Plan that applies to Elective Deferral Contributions without regard to Catch-up Contributions, such as the limits on the Maximum Annual Additions, as defined in the CONTRIBUTION LIMITATION SECTION of Article III, the dollar limitation on Elective Deferral Contributions under Code Section 402(g) (not counting Catch-up Contributions), and the limit imposed by the ADP Test.

Catch-up Contributions are not subject to the limits on the Maximum Annual Additions, as defined in the CONTRIBUTION LIMITATION SECTION of Article III, are not counted in the ADP Test, and are not counted in determining the minimum allocation under Code Section 416 (but Catch-up Contributions made in prior years are counted in determining whether the Plan is top-heavy).

Claimant means any person who makes a claim for benefits under this Plan. See the CLAIM PROCEDURES SECTION of Article IX.

RESTATEMENT JANUARY 1, 2011 3 ARTICLE I  (7-10182)

Code means the Internal Revenue Code of 1986, as amended.

Compensation means, except for purposes of the CONTRIBUTION LIMITATION SECTION of Article III and Article XI, the total earnings, except as modified in this definition, from the Employer during any specified period.

"Earnings" in this definition means wages, within the meaning of Code Section 3401(a), and all other payments of compensation to an Employee by the Employer (in the course of the Employer’s trade or business) for which the Employer is required to furnish the Employee a written statement under Code Sections 6041(d), 6051(a)(3), and 6052. Earnings shall be determined without regard to any rules under Code Section 3401(a) that limit the remuneration included in wages based on the nature or location of the employment or the services performed (such as the exception for agricultural labor in Code Section 3401(a)(2)). The type of compensation that is reported in the "Wages, Tips and Other Compensation" box on Form W-2 satisfies this definition.

For any Self-employed Individual, Compensation means Earned Income.

Except as provided herein, Compensation for a specified period is the Compensation actually paid or made available (or if earlier, includible in gross income) during such period.

For Plan Years beginning on or after July 1, 2007, Compensation for a Plan Year shall also include Compensation paid by the later of 2 1/2 months after an Employee’s Severance from Employment with the Employer maintaining the Plan or the end of the Plan Year that includes the date of the Employee’s Severance from Employment with the Employer maintaining the Plan, if (i) the payment is regular Compensation for services during the Employee’s regular working hours, or Compensation for services outside the Employee’s regular working hours (such as overtime or shift differential), commissions, bonuses, or other similar payments, and, absent a Severance from Employment, the payments would have been paid to the Employee while the Employee continued in employment with the Employer; (ii) the payment is for unused accrued bona fide sick, vacation or other leave that the Employee would have been able to use if employment had continued; or (iii) the payment is received by the Employee pursuant to a nonqualified unfunded deferred compensation plan and would have been paid at the same time if employment had continued, but only to the extent includible in gross income.

Any payments not described above shall not be considered Compensation if paid after Severance from Employment, even if they are paid by the later of 2 1/2 months after the date of Severance from Employment or the end of the Limitation Year that includes the date of Severance from Employment.

Back pay, within the meaning of section 1.415(c)-2(g)(8) of the regulations, shall be treated as Compensation for the Plan Year to which the back pay relates to the extent the back pay represents wages and compensation that would otherwise be included in this definition.

Compensation paid or made available during a specified period shall include amounts that would otherwise be included in Compensation but for an election under Code Section 125(a), 132(f)(4), 402(e)(3), 402(h)(1)(B), 402(k), or 457(b). Compensation shall also include employee contributions “picked up” by a governmental entity and, pursuant to Code Section 414(h)(2), treated as Employer contributions.

Compensation shall include Differential Wage Payments.

RESTATEMENT JANUARY 1, 2011 4 ARTICLE I  (7-10182)

For purposes of the EXCESS AMOUNTS SECTION of Article III, the Employer may elect to use an alternative nondiscriminatory definition of Compensation in accordance with the regulations under Code Section 414(s).

For Plan Years beginning on or after January 1, 2002, the annual Compensation of each Participant taken into account in determining contributions and allocations for any determination period (the period over which Compensation is determined) shall not exceed $200,000, as adjusted for cost-of-living increases in accordance with Code Section 401(a)(17)(B). In modification of the foregoing, Elective Deferral Contributions may be made with respect to Compensation which exceeds the annual compensation limit, provided such Elective Deferral Contributions otherwise satisfy any applicable limitations. The cost-of-living adjustment in effect for a calendar year applies to any determination period beginning with or within such calendar year. The annual compensation limit shall be applied separately with respect to Compensation from each Employer Group.

If a determination period consists of fewer than 12 months, the annual compensation limit is an amount equal to the otherwise applicable annual compensation limit multiplied by a fraction. The numerator of the fraction is the number of months in the short determination period, and the denominator of the fraction is 12.

If Compensation for any prior determination period is taken into account in determining a Participant's contributions or allocations for the current Plan Year, the Compensation for such prior determination period is subject to the applicable annual compensation limit in effect for that determination period. For this purpose, in determining contributions and allocations in Plan Years beginning on or after January 1, 2002, the annual compensation limit in effect for determination periods beginning before that date is $200,000.

Compensation means, for a Leased Employee, Compensation for the services the Leased Employee performs for the Employer, determined in the same manner as the Compensation of Employees who are not Leased Employees, regardless of whether such Compensation is received directly from the Employer or from the leasing organization.

Compensation Year means the consecutive 12-month period ending on the last day of each Plan Year, including corresponding periods before January 1, 1987.

Contributions means Employer Contributions and Rollover Contributions as set out in Article III, unless the context clearly indicates only specific contributions are meant.

Controlled Group means any group of corporations, trades, or businesses of which the Employer is a part that is under common control. A Controlled Group includes any group of corporations, trades, or businesses, whether or not incorporated, which is either a parent-subsidiary group, a brother-sister group, or a combined group within the meaning of Code Section 414(b), Code Section 414(c) and the regulations thereunder and, for purposes of determining contribution limitations under the CONTRIBUTION LIMITATION SECTION of Article III, as modified by Code Section 415(h). The term Controlled Group, as it is used in this Plan, shall include the term Affiliated Service Group and any other employer required to be aggregated with the Employer under Code Section 414(o) and the regulations thereunder. Controlled Group members shall be determined separately for the Primary Employer and each Adopting Employer.

Designated Beneficiary means the individual who is designated by the Participant (or the Participant’s surviving spouse) as the Beneficiary of the Participant’s interest under the Plan and who is the designated beneficiary under Code Section 401(a)(9) and section 1.401(a)(9)-4 of the regulations.

RESTATEMENT JANUARY 1, 2011 5 ARTICLE I  (7-10182)

Differential Wage Payments means any payments which are made by an Employer to an individual with respect to any period during which the individual is performing Qualified Military Service while on active duty for a period of more than 30 days, and represents all or a portion of the wages the individual would have received from the Employer if the individual were performing service for the Employer.

Direct Rollover means a payment by the Plan to the Eligible Retirement Plan specified by the Distributee.

Distributee means an Employee or former Employee. In addition, the Employee's (or former Employee's) surviving spouse and the Employee's (or former Employee's) spouse or former spouse who is the Alternate Payee under a qualified domestic relations order, as defined in Code Section 414(p), are Distributees with regard to the interest of the spouse or former spouse.

Early Retirement Age means a Participant’s age on the date he meets the following requirement(s):

(a) He has attained age 55.

(b) He has completed 6 years of Vesting Service. 

Early Retirement Date means any day before a Participant’s Normal Retirement Date that the Participant selects for the start of his retirement benefits. This day shall be on or after the date he has a Severance from Employment and reaches Early Retirement Age. If a Participant has a Severance from Employment before satisfying any age requirement for Early Retirement Age, but after satisfying any other requirements, the Participant shall be entitled to elect an early retirement benefit upon satisfying such age requirement.

Earned Income means, for a Self-employed Individual, net earnings from self-employment in the trade or business for which this Plan is established if such Self-employed Individual’s personal services are a material income producing factor for that trade or business. Net earnings shall be determined without regard to items not included in gross income and the deductions properly allocable to or chargeable against such items. Net earnings shall be reduced for the employer contributions to the employer’s qualified retirement plan(s) to the extent deductible under Code Section 404.

Net earnings shall be determined with regard to the deduction allowed to the employer by Code Section 164(f) for taxable years beginning after December 31, 1989.

Elective Deferral Contributions means contributions made by the Employer in accordance with elective deferral agreements between Eligible Employees and the Employer.

Elective deferral agreements shall be made, changed, or terminated according to the provisions of the EMPLOYER CONTRIBUTIONS SECTION of Article III.

Elective Deferral Contributions shall be 100% vested and subject to the distribution restrictions of Code Section 401(k) when made. See the WHEN BENEFITS START SECTION of Article V.

Elective Deferral Contributions means Pre-tax Elective Deferral Contributions.

RESTATEMENT JANUARY 1, 2011 6 ARTICLE I  (7-10182)

Eligibility Service means an Employee's Period of Service. Eligibility Service shall be measured from his Employment Commencement Date to his most recent Severance Date. This Period of Service shall be reduced by any Period of Severance that occurred prior to his most recent Severance Date, unless such Period of Severance is included under the service spanning rule below. This period of Eligibility Service shall be expressed as days.

However, Eligibility Service is modified as follows:

Service with a Predecessor Employer that did not maintain this Plan included:

An Employee's service with a Predecessor Employer that did not maintain this Plan shall be included as service with the Employer. An Employee's service with such Predecessor Employer shall be counted only if service continued with the Employer without interruption. This service includes service performed while a proprietor or partner.

Period of Military Duty included:

A Period of Military Duty shall be included as service with the Employer to the extent it has not already been credited.

Period of Severance included (service spanning rule):

A Period of Severance shall be deemed to be a Period of Service under either of the following conditions:

(a) the Period of Severance immediately follows a period during which an Employee is not absent from work and ends within 12 months; or

(b) the Period of Severance immediately follows a period during which an Employee is absent from work for any reason other than quitting, being discharged, or retiring (such as a leave of absence or layoff) and ends within 12 months of the date he was first absent.

Controlled Group service included:

An Employee's service with a member firm of a Controlled Group while both that firm and the Employer were members of the Controlled Group shall be included as service with the Employer.

Eligible Employee means any Employee of the Employer excluding the following:

Bargaining class, unless such bargaining agreement provides for participation in this Plan. Represented for collective bargaining purposes by any collective bargaining agreement between the Employer and employee representatives, if retirement benefits were the subject of good faith bargaining and if two percent or less of the Employees who are covered pursuant to that agreement are professionals as defined in section 1.410(b)-9 of the regulations. For this purpose, the term “employee representatives” does not include any organization more than half of whose members are Employees who are owners, officers, or executives of the Employer.

RESTATEMENT JANUARY 1, 2011 7 ARTICLE I  (7-10182)

Nonresident alien, within the meaning of Code Section 7701(b)(1)(B), who receives no earned income, within the meaning of Code Section 911(d)(2), from the Employer that constitutes income from sources within the United States, within the meaning of Code Section 861(a)(3), or who receives such earned income but it is all exempt from income tax in the United States under the terms of an income tax convention.

An Employee considered by the Employer to be an independent contractor, or the employee of an independent contractor, who is later determined by the Internal Revenue Service to be an Employee.

However, to the extent an Employee becomes an Employee as a result of a Code Section 410(b)(6)(C) transaction, that Employee shall not be an Eligible Employee during the period beginning on the date of the transaction and ending on the last day of the first Plan Year beginning after the date of the transaction. This period is called the transition period. The transition period may end earlier if there is a significant change in the coverage under the Plan or if the Employer chooses to cover all similarly situated Employees as of an earlier date. A Code Section 410(b)(6)(C) transaction is an asset or stock acquisition, merger, or similar transaction involving a change in the employer of the employees of a trade or business.

Eligible Retirement Plan means an eligible plan under Code Section 457(b) which is maintained by a state, political subdivision of a state, or any agency or instrumentality of a state or political subdivision of a state and which agrees to separately account for amounts transferred into such plan from this Plan, an individual retirement account described in Code Section 408(a), an individual retirement annuity described in Code Section 408(b), for taxable years beginning on or after January 1, 2008, an individual retirement plan described in Code Section 408A(b) subject to any limitations described in Code Section 408A(c), an annuity plan described in Code Section 403(a), an annuity contract described in Code Section 403(b), or a qualified plan described in Code Section 401(a), that accepts the Distributee's Eligible Rollover Distribution. The definition of Eligible Retirement Plan shall also apply in the case of a distribution to a surviving spouse, or to a spouse or former spouse who is the Alternate Payee under a qualified domestic relations order, as defined in Code Section 414(p).

For taxable years beginning on or after January 1, 2006, if any portion of an Eligible Rollover Distribution is attributable to payments or distributions from a designated Roth account, an Eligible Retirement Plan with respect to such portion shall include only (i) another designated Roth account of the individual from whose Account the payments or distributions were made under an annuity plan described in Code Section 403(a) or a qualified plan described in Code Section 401(a); (ii) another designated Roth account of such individual under an annuity contract described in Code Section 403(b); or (iii) a Roth IRA described in Code Section 408A of such individual.

Eligible Rollover Distribution means any distribution of all or any portion of the balance to the credit of the Distributee, except that an Eligible Rollover Distribution does not include: (i) any distribution that is one of a series of substantially equal periodic payments (not less frequently than annually) made for the life (or life expectancy) of the Distributee or the joint lives (or joint life expectancies) of the Distributee and the Distributee's Designated Beneficiary, or for a specified period of ten years or more; (ii) any distribution to the extent such distribution is required under Code Section 401(a)(9); (iii) any hardship distribution; (iv) the portion of any other distribution(s) that is not includible in gross income (determined without regard to the exclusion for net unrealized appreciation with respect to employer securities); and (v) any other distribution(s) that is reasonably expected to total less than $200 during a year.

RESTATEMENT JANUARY 1, 2011 8 ARTICLE I  (7-10182)

A portion of a distribution shall not fail to be an Eligible Rollover Distribution merely because the portion consists of after-tax employee contributions that are not includible in gross income. However, such portion may be transferred only to (i) an individual retirement account or individual retirement annuity described in Code Section 408(a) or (b); (ii) for taxable years beginning on or after January 1, 2007, a qualified plan (defined contribution or defined benefit) or an annuity contract described in Code Section 403(b) that agrees to separately account for amounts so transferred, including separately accounting for the portion of such distribution which is includible in gross income and the portion of such distribution which is not so includible; or (iii) for taxable years beginning on or after January 1, 2008, an individual retirement plan described in Code Section 408A(b) subject to any limitations in Code Section 408A(c) that agrees to separately account for amounts so transferred, including separately accounting for the portion of such distribution which is includible in gross income and the portion of such distribution which is not so includible.

A portion of a distribution shall not fail to be an Eligible Rollover Distribution merely because the portion consists of the portion of a designated Roth account that is not includible in a Participant’s gross income. However, for taxable years beginning on or after January 1, 2006, such portion may be transferred only to a Roth IRA described in Code Section 408A or to a designated Roth account under another plan that agrees to separately account for amounts so transferred, including separately accounting for the portion of such distribution which is includible in gross income and the portion of such distribution which is not so includible.

If the distribution includes any portion of a designated Roth account, in determining if (v) above applies: (i) any portion of the distribution from the designated Roth account shall not be treated as an Eligible Rollover Distribution if it is reasonably expected to total less than $200 during a year and (ii) the balance of the distribution, if any, shall not be treated as an Eligible Rollover Distribution if it is reasonably expected to total less than $200 during a year.  In addition, for taxable years beginning on or after January 1, 2006, a designated Roth account and all other accounts under the Plan shall be treated as accounts held under two separate plans and shall not be combined in determining a mandatory distribution of an Eligible Rollover Distribution greater than $1,000 in the DIRECT ROLLOVERS SECTION of Article X.

Employee means an individual who is employed by the Employer or any other employer required to be aggregated with the Employer under Code Sections 414(b), (c), (m), or (o). A Controlled Group member is required to be aggregated with the Employer.

Beginning January 1, 2009, the term Employee shall include any individual receiving Differential Wage Payments.

The term Employee shall include any Self-employed Individual treated as an employee of any employer described in the preceding paragraphs as provided in Code Section 401(c)(1). The term Employee shall also include any Leased Employee deemed to be an employee of any employer described in the preceding paragraphs as provided in Code Section 414(n) or (o).

Employer means, except for purposes of the CONTRIBUTION LIMITATION SECTION of Article III, the Primary Employer and all Adopting Employers. This will also include any successor corporation or firm of the Employer which shall, by written agreement, assume the obligations of this Plan or any Predecessor Employer that maintained this Plan.

RESTATEMENT JANUARY 1, 2011 9 ARTICLE I  (7-10182)

Employer Contributions means

Elective Deferral Contributions

Matching Contributions

Qualified Nonelective Contributions

ESOP Discretionary Contributions

as set out in Article III and contributions made by the Employer in accordance with the provisions of the MODIFICATION OF CONTRIBUTIONS SECTION of Article XI, unless the context clearly indicates only specific contributions are meant.

Employer Group means each separate group of entities which consist of the Primary Employer and all Adopting Employers that are members of the same Controlled Group as the Primary Employer or consist of an Adopting Employer that is not a member of the same Controlled Group as the Primary Employer and all other Adopting Employers who are members of the same Controlled Group as such Adopting Employer.

Employment Commencement Date means the date an Employee first performs an Hour of Service.

Entry Date means the date an Employee first enters the Plan as an Active Participant for purposes of specified Contributions in the ACTIVE PARTICIPANT SECTION of Article II.

ERISA means the Employee Retirement Income Security Act of 1974, as amended.

ESOP Discretionary Contributions means Contributions contributed by the Employer or an Adopting Employer in the form of Qualifying Employer Securities or in cash designated by the Employer to be invested in Qualifying Employer Securities or designated to repay any outstanding Exempt Loan.  See the EMPLOYER CONTRIBUTIONS SECTION of Article III.

Exempt Loan means a loan or other extension of credit to the Plan to enable the Plan to acquire shares of Qualifying Employer Securities, or to refinance a prior Exempt Loan.

Fiscal Year means the Primary Employer's taxable year. The last day of the Fiscal Year is December 31.

Forfeiture means the part, if any, of a Participant's Account that is forfeited. See the FORFEITURES SECTION of Article III.

Forfeiture Date means, as to a Participant, the date the Participant incurs five consecutive Vesting Breaks in Service.

Highly Compensated Employee means any Employee who:

(a) was a 5-percent owner at any time during the year or the preceding year, or

(b) for the preceding year had compensation from the Employer in excess of $80,000 and, if the Employer so elects, was in the top-paid group for the preceding year. The $80,000 amount is adjusted at the same time and in the same manner as under Code Section 415(d), except that the base period is the calendar quarter ending September 30, 1996.

RESTATEMENT JANUARY 1, 2011 10 ARTICLE I  (7-10182)

For this purpose the applicable year of the plan for which a determination is being made is called a determination year and the preceding 12-month period is called a look-back year. If the Employer makes a calendar year data election, the look-back year shall be the calendar year beginning with or within the look-back year. The Plan may not use such election to determine whether Employees are Highly Compensated Employees on account of being a 5-percent owner.

In determining who is a Highly Compensated Employee, an Employer Group may make a top-paid group election. The effect of this election is that an Employee (who is not a 5-percent owner at any time during the determination year or the look-back year) with compensation in excess of $80,000 (as adjusted) for the look-back year is a Highly Compensated Employee only if the Employee was in the top-paid group for the look-back year. In determining who is a Highly Compensated Employee, an Employer Group may make a calendar year data election. The effect of this election is that the look-back year is the calendar year beginning with or within the look-back year. Any such election must be made in writing and by the date prescribed in regulations under Code Section 414(q). Any elections shall remain in effect until changed by a new election.

Calendar year data elections and top-paid group elections, once made, apply for all subsequent years unless changed by the Employer. If the Employer makes one election, the Employer is not required to make the other. If both elections are made, the look-back year in determining the top-paid group must be the calendar year beginning with or within the look-back year. These elections must apply consistently to the determination years of all plans maintained by the Employer which reference the highly compensated employee definition in Code Section 414(q), except as provided in Internal Revenue Service Notice 97-45 (or superseding guidance).

The determination of who is a highly compensated former Employee is based on the rules applicable to determining Highly Compensated Employee status as in effect for that determination year, in accordance with section 1.414(q)-1T, A-4 of the temporary Income Tax Regulations and Internal Revenue Service Notice 97-45.

The determination of who is a Highly Compensated Employee, including the determinations of the number and identity of Employees in the top-paid group, the compensation that is considered, and the identity of the 5-percent owners, shall be made in accordance with Code Section 414(q) and the regulations thereunder.

Hour of Service means, for the elapsed time method of crediting service in this Plan, each hour for which an Employee is paid, or entitled to payment, for performing duties for the Employer. Hour of Service means, for the hours method of crediting service in this Plan, the following:

(a) Each hour for which an Employee is paid, or entitled to payment, for performing duties for the Employer during the applicable computation period.

(b) Each hour for which an Employee is paid, or entitled to payment, by the Employer on account of a period of time in which no duties are performed (irrespective of whether the employment relationship has terminated) due to vacation, holiday, illness, incapacity (including disability), layoff, jury duty, military duty or leave of absence. Notwithstanding the preceding provisions of this subparagraph (b), no credit will be given to the Employee:

(1) for more than 501 Hours of Service under this subparagraph (b) on account of any single continuous period in which the Employee performs no duties (whether or not such period occurs in a single computation period); or

RESTATEMENT JANUARY 1, 2011 11 ARTICLE I  (7-10182)

(2) for an Hour of Service for which the Employee is directly or indirectly paid, or entitled to payment, on account of a period in which no duties are performed if such payment is made or due under a plan maintained solely for the purpose of complying with applicable worker's or workmen's compensation, or unemployment compensation, or disability insurance laws; or

(3) for an Hour of Service for a payment which solely reimburses the Employee for medical or medically related expenses incurred by him.

For purposes of this subparagraph (b), a payment shall be deemed to be made by, or due from the Employer, regardless of whether such payment is made by, or due from the Employer, directly or indirectly through, among others, a trust fund or insurer, to which the Employer contributes or pays premiums and regardless of whether contributions made or due to the trust fund, insurer or other entity are for the benefit of particular employees or are on behalf of a group of employees in the aggregate.

(c) Each hour for which back pay, irrespective of mitigation of damages, is either awarded or agreed to by the Employer. The same Hours of Service shall not be credited both under subparagraph (a) or subparagraph (b) above (as the case may be) and under this subparagraph (c). Crediting of Hours of Service for back pay awarded or agreed to with respect to periods described in subparagraph (b) above will be subject to the limitations set forth in that subparagraph.

The crediting of Hours of Service above shall be applied under the rules of paragraphs (b) and (c) of the Department of Labor Regulation 2530.200b-2 (including any interpretations or opinions implementing such rules); which rules, by this reference, are specifically incorporated in full within this Plan. The reference to paragraph (b) applies to the special rule for determining Hours of Service for reasons other than the performance of duties such as payments calculated (or not calculated) on the basis of units of time and the rule against double credit. The reference to paragraph (c) applies to the crediting of Hours of Service to computation periods.

Hours of Service shall be credited for employment with any other employer required to be aggregated with the Employer under Code Sections 414(b), (c), (m), or (o) and the regulations thereunder for purposes of eligibility and vesting. Hours of Service shall also be credited for any individual who is considered an employee for purposes of this Plan pursuant to Code Section 414(n) or (o) and the regulations thereunder.

Solely for purposes of determining whether a one-year break in service has occurred for eligibility or vesting purposes, during a Parental Absence an Employee shall be credited with the Hours of Service which would otherwise have been credited to the Employee but for such absence, or in any case in which such hours cannot be determined, eight Hours of Service per day of such absence. The Hours of Service credited under this paragraph shall be credited in the computation period in which the absence begins if the crediting is necessary to prevent a break in service in that period; or in all other cases, in the following computation period.

Inactive Participant means a former Active Participant who has an Account. See the INACTIVE PARTICIPANT SECTION of Article II.

Insurer means Principal Life Insurance Company or the insurance company or companies named by (i) the Primary Employer or (ii) the Trustee in its discretion or as directed under the Trust Agreement.

RESTATEMENT JANUARY 1, 2011 12 ARTICLE I  (7-10182)

Investment Fund means the total of Plan assets, excluding the guaranteed benefit policy portion of any Annuity Contract and any Unallocated Reserve. All or a portion of these assets may be held under, or invested pursuant to, the terms of a Trust Agreement.

The Investment Fund shall be valued at current fair market value as of the Valuation Date. The valuation shall take into consideration investment earnings credited, expenses charged, payments made, and changes in the values of the assets held in the Investment Fund.

The Investment Fund shall be allocated at all times to Participants, except as otherwise expressly provided in the Plan. The Account of a Participant shall be credited with its share of the gains and losses of the Investment Fund. That part of a Participant’s Account invested in a funding arrangement that establishes one or more accounts or investment vehicles for such Participant thereunder shall be credited with the gain or loss from such accounts or investment vehicles. The part of a Participant’s Account that is invested in other funding arrangements shall be credited with a proportionate share of the gain or loss of such investments. The share shall be determined by multiplying the gain or loss of the investment by the ratio of the part of the Participant’s Account invested in such funding arrangement to the total of the Investment Fund invested in such funding arrangement.

Investment Manager means any fiduciary (other than a trustee or Named Fiduciary)

(a) who has the power to manage, acquire, or dispose of any assets of the Plan;

(b) who (i) is registered as an investment adviser under the Investment Advisers Act of 1940; (ii) is not registered as an investment adviser under such Act by reason of paragraph (1) of section 203A(a) of such Act, is registered as an investment adviser under the laws of the state (referred to in such paragraph (1)) in which it maintains its principal office and place of business, and, at the time it last filed the registration form most recently filed by it with such state in order to maintain its registration under the laws of such state, also filed a copy of such form with the Secretary of Labor; (iii) is a bank, as defined in that Act; or (iv) is an insurance company qualified to perform services described in subparagraph (a) above under the laws of more than one state; and

(c) who has acknowledged in writing being a fiduciary with respect to the Plan.

Late Retirement Date means any day that is after a Participant's Normal Retirement Date and on which retirement benefits begin. If a Participant continues to work for the Employer after his Normal Retirement Date, his Late Retirement Date shall be the day he has a Severance from Employment. An earlier Retirement Date may apply if the Participant so elects. A later Retirement Date may apply if the Participant so elects.  See the WHEN BENEFITS START SECTION of Article V.

Leased Employee means any person (other than an employee of the recipient) who, pursuant to an agreement between the recipient and any other person ("leasing organization"), has performed services for the recipient (or for the recipient and related persons determined in accordance with Code Section 414(n)(6)) on a substantially full time basis for a period of at least one year, and such services are performed under primary direction or control by the recipient. Contributions or benefits provided by the leasing organization to a Leased Employee, which are attributable to service performed for the recipient employer, shall be treated as provided by the recipient employer.

RESTATEMENT JANUARY 1, 2011 13 ARTICLE I  (7-10182)

A Leased Employee shall not be considered an employee of the recipient if:

(a) such employee is covered by a money purchase pension plan providing (i) a nonintegrated employer contribution rate of at least 10 percent of compensation, as defined in Code Section 415(c)(3), (ii) immediate participation, and (iii) full and immediate vesting, and

(b) Leased Employees do not constitute more than 20 percent of the recipient's nonhighly compensated work force.

Loan Administrator means the person(s) or position(s) authorized to administer the Participant loan program.

The Loan Administrator is a 401(k) committee member.

Matching Contributions means contributions made by the Employer that are contingent on a Participant’s Elective Deferral Contributions. See the EMPLOYER CONTRIBUTIONS SECTION of Article III.

Monthly Date means each Yearly Date and the same day of each following month during the Plan Year beginning on such Yearly Date.

Named Fiduciary means the person or persons who have authority to control and manage the operation and administration of the Plan.

The Named Fiduciary is the Primary Employer.

Nonhighly Compensated Employee means an Employee of the Employer who is not a Highly Compensated Employee.

Nonvested Account means the excess, if any, of a Participant's Account over his Vested Account.

Normal Retirement Age means the age at which the Participant's normal retirement benefit becomes nonforfeitable if he is an Employee. A Participant's Normal Retirement Age is 65.

Normal Retirement Date means the date the Participant reaches his Normal Retirement Age. Unless otherwise provided in this Plan, a Participant's retirement benefits shall begin on his Normal Retirement Date if he has had a Severance from Employment on such date. Even if the Participant is an Employee on his Normal Retirement Date, he may choose to have his retirement benefit begin on such date.

Parental Absence means an Employee's absence from work:

(a) by reason of pregnancy of the Employee,

(b) by reason of birth of a child of the Employee,

(c) by reason of the placement of a child with the Employee in connection with adoption of such child by such Employee, or

(d) for purposes of caring for such child for a period beginning immediately following such birth or placement.

RESTATEMENT JANUARY 1, 2011 14 ARTICLE I  (7-10182)

Participant means either an Active Participant or an Inactive Participant.

Period of Military Duty means, for an Employee

(a) who served as a member of the armed forces of the United States, and

(b) who was reemployed by the Employer at a time when the Employee had a right to reemployment in accordance with seniority rights as protected under Chapter 43 of Title 38 of the U.S. Code,

the period of time from the date the Employee was first absent from active work for the Employer because of such military duty to the date the Employee was reemployed.

Period of Service means a period of time beginning on an Employee's Employment Commencement Date or Reemployment Commencement Date (whichever applies) and ending on his Severance Date.

Period of Severance means a period of time beginning on an Employee's Severance Date and ending on the date he again performs an Hour of Service.

A one-year Period of Severance means a Period of Severance of 12 consecutive months.

Solely for purposes of determining whether a one-year Period of Severance has occurred for eligibility or vesting purposes, the consecutive 12-month period beginning on the first anniversary of the first date of a Parental Absence shall not be a one-year Period of Severance.

Plan means the 401(k) plan and ESOP component (effective January 1, 2011) of the Employer set forth in this document, including any later amendments to it.

Plan Administrator means the person or persons who administer the Plan.

The Plan Administrator is the Primary Employer.

Plan Fund means the total of the Investment Fund, the guaranteed benefit policy portion of any Annuity Contract, and any Unallocated Reserve. The Investment Fund shall be valued as stated in its definition. The guaranteed benefit policy portion of any Annuity Contract shall be determined in accordance with the terms of the Annuity Contract and, to the extent that such Annuity Contract allocates contract values to Participants, allocated to Participants in accordance with its terms. The total value of all amounts held under the Plan Fund shall equal the value of the aggregate Participants’ Accounts under the Plan.

Plan Year means a period beginning on a Yearly Date and ending on the day before the next Yearly Date.

Predecessor Employer means, except for purposes of the CONTRIBUTION LIMITATION SECTION of Article III, a firm of which the Employer was once a part (e.g., due to a spinoff or change of corporate status) or a firm absorbed by the Employer because of a merger or acquisition (stock or asset, including a division or an operation of such company).

Pre-tax Elective Deferral Contributions means a Participant’s Elective Deferral Contributions that are not includible in the Participant’s gross income at the time deferred.

Primary Employer means Capitol Bancorp Limited.

RESTATEMENT JANUARY 1, 2011 15 ARTICLE I  (7-10182)

Qualified Military Service means any service in the uniformed services (as defined in Chapter 43 of Title 38 of the U.S. Code) by any individual if such individual is entitled to reemployment rights under such chapter with respect to such service.

Qualified Nonelective Contributions means contributions made by the Employer (other than Elective Deferral Contributions) that are 100% vested when made to the Plan and that are distributable only in accordance with the distribution provisions (other than for hardships) applicable to Elective Deferral Contributions. See the EMPLOYER CONTRIBUTIONS SECTION of Article III and the WHEN BENEFITS START SECTION of Article V.

Qualified Reservist Distribution means any distribution to an individual if: (i) such distribution is from an individual retirement plan, or from amounts attributable to employer contributions made pursuant to elective deferrals described in Code Section 402(g)(3)(A) or (C) or Code Section 501(c)(18)(D)(iii); (ii) such individual was (by reason of being a member of a reserve component (as defined in Section 101 of Title 37 of the U.S. Code)) ordered or called to active duty after September 11, 2001 for a period in excess of 179 days or for an indefinite period; and (iii) such distribution is made during the period beginning on the date of such order or call and ending at the close of the active duty period.

Qualifying Employer Securities means any security which is issued by the Primary Employer and which meets the requirements of Code Section 409(l) and ERISA Section 407(d)(5). Such fund shall also make up the employee stock ownership plan (ESOP) component of the Plan.

Qualifying Employer Securities Fund means that part of the assets of the Trust Fund that are designated to be held primarily or exclusively in Qualifying Employer Securities for the purpose of providing benefits for Participants.

Reemployment Commencement Date means the date an Employee first performs an Hour of Service following a Period of Severance.

Reentry Date means the date a former Active Participant reenters the Plan. See the ACTIVE PARTICIPANT SECTION of Article II.

Retirement Date means the date a retirement benefit will begin and is a Participant's Early, Normal, or Late Retirement Date, as the case may be.

Rollover Contributions means the Rollover Contributions which are made by an Eligible Employee or an Inactive Participant according to the provisions of the ROLLOVER CONTRIBUTIONS SECTION of Article III.

Self-Directed Brokerage Account means that portion of a Participant’s Account that is invested at the Participant’s direction in the Principal Self-Directed Brokerage AccountSM.

Self-employed Individual means, with respect to any taxable year, an individual who has Earned Income for the taxable year (or who would have Earned Income but for the fact the trade or business for which this Plan is established did not have net profits for such taxable year).

Severance Date means the earlier of:

(a) the date on which an Employee quits, retires, dies, or is discharged, or

RESTATEMENT JANUARY 1, 2011 16 ARTICLE I  (7-10182)

(b) the first anniversary of the date an Employee begins a one-year absence from service (with or without pay). This absence may be the result of any combination of vacation, holiday, sickness, disability, leave of absence, or layoff.

Solely to determine whether a one-year Period of Severance has occurred for eligibility or vesting purposes for an Employee who is absent from service beyond the first anniversary of the first day of a Parental Absence, Severance Date is the second anniversary of the first day of the Parental Absence.  The period between the first and second anniversaries of the first day of the Parental Absence is not a Period of Service and is not a Period of Severance.

Severance from Employment means, except for purposes of the CONTRIBUTION LIMITATION SECTION of Article III, an Employee has ceased to be an Employee. The Plan Administrator shall determine if a Severance from Employment has occurred in accordance with section 1.401(k)-1(d)(2) of the regulations.

Totally and Permanently Disabled means a physical or mental condition arising after an Employee has become a Participant which totally and permanently prevents the Participant from engaging in any occupation for remuneration or profit. The determination as to whether a Participant has suffered a disability will be made by a physician acceptable to the Plan Administrator. If a difference of opinion arises between the Participant and the Plan Administrator as to whether the Participant has suffered a disability, it will be settled by a majority decision of three physicians, one to be appointed by the Plan Administrator, one to be appointed by the Participant and the third to be appointed by the two physicians first appointed herein.

Trust Agreement means an agreement or agreements of trust between the Primary Employer and Trustee established for the purpose of holding and distributing the Trust Fund under the provisions of the Plan. The Trust Agreement may provide for the investment of all or any portion of the Trust Fund in the Annuity Contract or any other investment arrangement.

Trust Fund means the total funds held under an applicable Trust Agreement. The term Trust Fund when used within a Trust Agreement shall mean only the funds held under that Trust Agreement.

Trustee means the party or parties named in the applicable Trust Agreement.

Unallocated Reserve means the portion of the Trust Fund that consists of the proceeds of an Exempt Loan, the shares of Qualifying Employer Securities that were acquired with the proceeds of an Exempt Loan and have not yet been allocated to Participant Accounts, the dividends and other investment earnings on the assets held in the Unallocated Reserve, and the proceeds from any sale of shares of Qualifying Employer Securities held in the Unallocated Reserve.

Valuation Date means the date on which the value of the assets of the Investment Fund is determined.  The value of each Account that is maintained under this Plan shall be determined on the Valuation Date. In each Plan Year, the Valuation Date shall be the last day of the Plan Year.  At the discretion of the Plan Administrator, Trustee, or Insurer (whichever applies) and in a nondiscriminatory manner, assets of the Investment Fund may be valued more frequently. These dates shall also be Valuation Dates.

Vested Account means the vested part of a Participant's Account. The Participant's Vested Account is determined as follows.

If the Participant's Vesting Percentage is 100%, his Vested Account equals his Account.

RESTATEMENT JANUARY 1, 2011 17 ARTICLE I  (7-10182)

If the Participant's Vesting Percentage is not 100%, his Vested Account equals the sum of (a) and (b) below:

(a) The part of the Participant's Account resulting from Employer Contributions made before a prior Forfeiture Date and all other Contributions that were 100% vested when made.

(b) The balance of the Participant's Account in excess of the amount in (a) above multiplied by his Vesting Percentage.

If the Participant has withdrawn any part of his Account resulting from Employer Contributions, other than the vested Employer Contributions included in (a) above, the amount determined under this subparagraph (b) shall be equal to P(AB + D) - D as defined below:

P The Participant's Vesting Percentage.

AB The balance of the Participant's Account in excess of the amount in (a) above.

D The amount of the withdrawal resulting from Employer Contributions, other than the vested Employer Contributions included in (a) above.

Vesting Break in Service means a Vesting Computation Period in which an Employee is credited with 500 or fewer Hours of Service. An Employee incurs a Vesting Break in Service on the last day of a Vesting Computation Period in which he has a Vesting Break in Service.

Vesting Computation Period means a consecutive 12-month period ending on the last day of each Plan Year, including corresponding consecutive 12-month periods before January 1, 1987.

Vesting Percentage means the percentage used to determine the nonforfeitable portion of a Participant's Account attributable to Employer Contributions that were not 100% vested when made.

A Participant's Vesting Percentage is shown in the following schedule opposite the number of whole years of his Vesting Service.

VESTING SERVICE	VESTING
(whole years)	PERCENTAGE
Less than 2	0
2	20
3	40
4	60
5	80
6 or more	100

The Vesting Percentage for a Participant who is an Employee on or after the date he reaches Normal Retirement Age or Early Retirement Age shall be 100%. The Vesting Percentage for a Participant who is an Employee on the date he dies shall be 100%.  Beginning January 1, 2007, the Vesting Percentage for a Participant who dies while performing Qualified Military Service shall be 100%. The Vesting Percentage for a Participant who is an Employee on the date he becomes disabled shall be 100% if such disability is subsequently determined to meet the definition of Totally and Permanently Disabled.  Beginning January 1, 2007, the Vesting Percentage for a Participant who becomes disabled while

RESTATEMENT JANUARY 1, 2011 18 ARTICLE I  (7-10182)

performing Qualified Military Service and such disability is determined to meet the definition of Totally and Permanently Disabled shall be 100%.

If the schedule used to determine a Participant's Vesting Percentage is changed, the new schedule shall not apply to a Participant unless he is credited with an Hour of Service on or after the date of the change and the Participant's nonforfeitable percentage on the day before the date of the change is not reduced under this Plan. The amendment provisions of the AMENDMENTS SECTION of Article X regarding changes in the computation of the Vesting Percentage shall apply.

Vesting Service means one year of service for each Vesting Computation Period in which an Employee is credited with at least 1,000 Hours of Service.

However, Vesting Service is modified as follows:

Service with a Predecessor Employer that did not maintain this Plan included:

An Employee's service with a Predecessor Employer that did not maintain this Plan shall be included as service with the Employer. An Employee's service with such Predecessor Employer shall be counted only if service continued with the Employer without interruption. This service includes service performed while a proprietor or partner.

Period of Military Duty included.

A Period of Military Duty shall be included as service with the Employer to the extent it has not already been credited. For purposes of crediting Hours of Service during the Period of Military Duty, an Hour of Service shall be credited (without regard to the 501 Hour of Service limitation) for each hour an Employee would normally have been scheduled to work for the Employer during such period.

Controlled Group service included:

An Employee's service with a member firm of a Controlled Group while both that firm and the Employer were members of the Controlled Group shall be included as service with the Employer.

Yearly Date means January 1, 1987, and the same day of each following year.

Years of Service means an Employee's Vesting Service disregarding any modifications that exclude service.

RESTATEMENT JANUARY 1, 2011 19 ARTICLE I  (7-10182)

ARTICLE II

PARTICIPATION

SECTION 2.01--ACTIVE PARTICIPANT.

(a) An Employee shall first become an Active Participant (begin active participation in the Plan) on the earliest Monthly Date on which he is an Eligible Employee and has met both of the eligibility requirements set forth below. This date is his Entry Date.

(1) He has completed 30 days of Eligibility Service before his Entry Date.

(2) He is age 21 or older.

A Participant’s earliest Entry Date shall be used to determine if he is an Active Participant for purposes of any minimum contribution or allocation under the MODIFICATION OF CONTRIBUTIONS SECTION of Article XI.

Each Employee who was an active participant under the ESOP component maintained by the Primary Employer shall become an Active Participant as of January 1, 2011. His entry date under the ESOP plan is deemed to be his Entry Date under this Plan.

Each Employee who was an Active Participant for purposes of specified Contributions on December 31, 2010, shall continue to be an Active Participant for purposes of the specified Contributions if he is still an Eligible Employee on January 1, 2011, and his Entry Date shall not change.

If service with a Predecessor Employer is counted for purposes of Eligibility Service, an Employee shall be credited with such service on the date he becomes an Employee and shall become an Active Participant for purposes of specified Contributions which have an Eligibility Service requirement on the earliest Entry Date for such Contributions on which he is an Eligible Employee and has met all of the eligibility requirements for such Contributions above. This date is his Entry Date for purposes of such Contributions.

If a person has been an Eligible Employee who has met all of the eligibility requirements for purposes of specified Contributions above, but is not an Eligible Employee on the date that would have been his Entry Date for purposes of such Contributions, he shall become an Active Participant for purposes of such Contributions on the date he again becomes an Eligible Employee. This date is his Entry Date for purposes of such Contributions.

In the event an Employee who is not an Eligible Employee becomes an Eligible Employee, such Eligible Employee shall become an Active Participant for purposes of specified Contributions immediately if such Eligible Employee has satisfied the eligibility requirements for purposes of such Contributions above and would have otherwise previously become an Active Participant for purpose of such Contributions had he met the definition of Eligible Employee. This date is his Entry Date for purposes of such Contributions.

RESTATEMENT JANUARY 1, 2011 20 ARTICLE II  (7-10182)

(b) An Inactive Participant shall again become an Active Participant (resume active participation in the Plan) for purposes of the Contributions for which he previously had an Entry Date on the date he again performs an Hour of Service as an Eligible Employee. This date is his Reentry Date for such Contributions.

Upon again becoming an Active Participant, he shall cease to be an Inactive Participant.

(c) A former Participant shall again become an Active Participant (resume active participation in the Plan) for purposes of the Contributions for which he previously had an Entry Date on the date he again performs an Hour of Service as an Eligible Employee. This date is his Reentry Date for such Contributions.

There shall be no duplication of benefits for a Participant because of more than one period as an Active Participant.

SECTION 2.02--INACTIVE PARTICIPANT.

An Active Participant shall become an Inactive Participant (stop accruing benefits) on the earlier of the following:

(a) the date the Participant ceases to be an Eligible Employee, or

(b) the effective date of complete termination of the Plan under Article VIII.

Each Employee who was an inactive participant under the ESOP component maintained by the Primary Employer on December 31, 2010, shall become an Inactive Participant under this Plan on January 1, 2011.

An Employee or former Employee who was an Inactive Participant on December 31, 2010, shall continue to be an Inactive Participant on January 1, 2011. Eligibility for any benefits payable to the Participant or on his behalf and the amount of the benefits shall be determined according to the provisions of the prior document, unless otherwise stated in this document or any subsequent documents.

SECTION 2.03--CESSATION OF PARTICIPATION.

A Participant shall cease to be a Participant on the date he is no longer an Eligible Employee and his Account is zero.

SECTION 2.04--ADOPTING EMPLOYERS - MULTIPLE EMPLOYER PLAN.

Each of the entities listed in Appendix A is an Adopting Employer. Each Adopting Employer listed in Appendix A participates with the Primary Employer in this Plan. This Plan is a multiple employer plan as described in Code Section 413(c).  An Adopting Employer's agreement to participate in this Plan shall be in writing.

The Primary Employer has the right to amend the Plan. An Adopting Employer does not have the right to amend the Plan.

If the Adopting Employer did not maintain its plan before its date of adoption specified in Appendix A, its date of adoption shall be the Entry Date for any of its Employees who have met the requirements in the ACTIVE PARTICIPANT SECTION of this article as of that date.

RESTATEMENT JANUARY 1, 2011 21 ARTICLE II  (7-10182)

The Employer is defined in the DEFINITIONS SECTION of Article I as the Primary Employer and all Adopting Employers, therefore service with and Compensation from an Adopting Employer shall be included as service with and Compensation from the Primary Employer. Transfer of employment, without interruption, between an Adopting Employer and another Adopting Employer or the Primary Employer shall not be considered an interruption of service.

The Primary Employer’s Fiscal Year defined in the DEFINITIONS SECTION of Article I shall be the Fiscal Year used in interpreting this Plan for Adopting Employers.

If the amount of an Employer Contribution or a limit on an Employer Contribution is determined by the Employer, such determination shall be made by the Primary Employer. Forfeitures arising from those Contributions shall be used for the benefit of all Participants.

The provisions of the CONTRIBUTION LIMITATION SECTION in Article III shall be applied to each Participant taking into account all Contributions and all Compensation for the Limitation Year from all Employers and Employer Groups covered by the Plan.

For purposes of the ACP Test and ADP Test, each Employer Group shall be treated as maintaining a separate plan.

The provisions of Article XI shall be applied separately to each Employer Group. If the Plan is top-heavy with respect to an Employer Group, the minimum vesting and contribution requirements shall apply with respect to the Employees of such Employer Group. If the Plan is not top-heavy with respect to an Employer Group, the minimum vesting and contribution requirements shall not apply with respect to the Employees of such Employer Group.

If the Plan is amended to delete an Adopting Employer and the Adopting Employer does not continue a retirement plan for the benefit of its Employees, partial termination may result and the provisions of Article VIII shall apply.

RESTATEMENT JANUARY 1, 2011 22 ARTICLE II  (7-10182)

ARTICLE III

CONTRIBUTIONS

SECTION 3.01--EMPLOYER CONTRIBUTIONS.

Employer Contributions shall be made without regard to current or accumulated net income, earnings, or profits of the Employer. Notwithstanding the foregoing, the Plan shall continue to be designed to qualify as a profit sharing plan for purposes of Code Sections 401(a), 402, 412, and 417. Such Contributions shall be equal to the Employer Contributions as described below:

(a) The amount of each Elective Deferral Contribution for a Participant shall be equal to a portion of Compensation as specified in the elective deferral agreement. An Employee who is eligible to participate in the Plan for purposes of Elective Deferral Contributions may file an elective deferral agreement with the Employer. The Participant shall modify or terminate the elective deferral agreement by filing a new elective deferral agreement. The elective deferral agreement may not be made retroactively and shall remain in effect until modified or terminated.

The elective deferral agreement to start or modify Elective Deferral Contributions shall be effective as soon as administratively feasible on or after the Participant’s Entry Date (Reentry Date, if applicable) or any following date. The elective deferral agreement must be entered into on or before the date it is effective.

The elective deferral agreement to stop Elective Deferral Contributions may be entered into on any date.  Such elective deferral agreement shall be effective as soon as administratively feasible following the date on which the elective deferral agreement is entered into.

Elective Deferral Contributions cannot be less than 1% nor more than 80% of Compensation. A Participant who is eligible to make Catch-up Contributions shall be limited to the maximum deferral percentage and the maximum deferral percentage shall apply to his Elective Deferral Contributions, including Catch-up Contributions.

A Participant who is age 50 or older by the end of the taxable year shall be eligible to make Catch-up Contributions.

The Plan provides for an automatic election to have Elective Deferral Contributions made. The automatic Elective Deferral Contribution shall be Pre-tax Elective Deferral Contributions and shall be 6% of Compensation. The Participant may affirmatively elect a different percentage or elect not to make Elective Deferral Contributions.

Such automatic election shall apply when a Participant first becomes eligible to make Elective Deferral Contributions (or again becomes eligible after a period during which he was not an Active Participant). The Participant shall be provided a notice that explains the automatic election and his right to elect a different rate of Elective Deferral Contributions or to elect not to make Elective Deferral Contributions. The notice shall include the procedure for exercising that right and the timing for implementing any such election. The Participant shall be given a reasonable period thereafter to elect a different rate of Elective Deferral Contributions or to elect not to make Elective Deferral Contributions.

RESTATEMENT JANUARY 1, 2011 23 ARTICLE III  (7-10182)

Each Active Participant affected by the automatic election shall be provided an annual notice that explains the automatic election and his right to elect a different rate of Elective Deferral Contributions or to elect not to make Elective Deferral Contributions. The notice shall include the procedure for exercising those rights and the timing for implementing any such elections.

No Participant shall be permitted to have Elective Deferral Contributions, as defined in the EXCESS AMOUNTS SECTION of this article, made under this Plan, or any other plan, contract, or arrangement maintained by the Employer, during any calendar year, in excess of the dollar limitation contained in Code Section 402(g) in effect for the Participant’s taxable year beginning in such calendar year. The dollar limitation in the preceding sentence shall be increased by the dollar limit on Catch-up Contributions under Code Section 414(v)(2)(B)(i) for the taxable year for any Participant who will be age 50 or older by the end of the taxable year.

The dollar limitation contained in Code Section 402(g) is $10,500 for taxable years beginning in 2000 and 2001, increasing to $11,000 for taxable years beginning in 2002, and increasing by $1,000 for each year thereafter up to $15,000 for taxable years beginning in 2006 and later years.  After 2006, the $15,000 limit will be adjusted by the Secretary of the Treasury for cost-of-living increases under Code Section 402(g)(4). Any such adjustments will be in multiples of $500.

Catch-up Contributions for a Participant for a taxable year may not exceed the dollar limit on Catch-up Contributions under Code Section 414(v)(2)(B)(i) for the taxable year. The dollar limit on Catch-up Contributions under Code Section 414(v)(2)(B)(i) is $1,000 for taxable years beginning in 2002, increasing by $1,000 for each year thereafter up to $5,000 for taxable years beginning in 2006 and later years. After 2006, the $5,000 limit will be adjusted by the Secretary of the Treasury for cost-of-living increases under Code Section 414(v)(2)(C). Any such adjustments will be in multiples of $500.

An elective deferral agreement (or change thereto) must be made in such manner and in accordance with such rules as the Employer may prescribe in a nondiscriminatory manner (including by means of voice response or other electronic system under circumstances the Employer permits) and may not be made retroactively.

Elective Deferral Contributions are 100% vested and nonforfeitable.

(b) Matching Contributions.

(1) The Employer or Adopting Employer may make discretionary Matching Contributions, for its respective Employees who are deferring a minimum of 3% of Compensation. The percentage of Elective Deferral Contributions matched, if any, shall be a percentage as determined by the Primary Employer for all Employers. Elective Deferral Contributions that are over a percentage of Compensation won’t be matched. The percentage shall be determined by the Primary Employer for all Employers.

Matching Contributions are calculated based on Elective Deferral Contributions and Compensation for the payroll period.  Matching Contributions shall be made for all persons who were Active Participants at any time during that payroll period.

(2) The Employer or Adopting Employer may make additional Matching Contributions, for its respective Employees who are deferring a minimum of 3% of Compensation, if the total Matching Contributions determined below are greater than the amount of Matching Contributions determined in (1) above for the Plan Year. Additional Matching Contributions,

RESTATEMENT JANUARY 1, 2011 24 ARTICLE III  (7-10182)

if any, shall be made for all persons who meet the allocation requirements of the ALLOCATION SECTION of this article.

Total Matching Contributions for the Plan Year shall be a percentage of Elective Deferral Contributions and shall be calculated based on Elective Deferral Contributions and Compensation for the Plan Year. The percentage shall be determined by the Employer.  The percentage must be equal to or greater than the percentage determined in (1) above.

Elective Deferral Contributions that are over a percentage of Compensation won’t be matched. The percentage is the percentage determined in (1) above or a greater percentage determined by the Employer.

The amount of additional Matching Contributions, if any, shall be determined by subtracting the Matching Contributions determined in (1) above for the Plan Year from total Matching Contributions for the Plan Year.

Elective Deferral Contributions that are Catch-up Contributions shall not be matched.

Any percentage determined by the Employer shall apply to all eligible persons for the entire Plan Year.

Matching Contributions are subject to the Vesting Percentage.

(c) Qualified Nonelective Contributions may be made for each Plan Year in an amount determined by the Employer.

Qualified Nonelective Contributions are 100% vested and are distributable only in accordance with the distribution provisions (other than for hardships) applicable to Elective Deferral Contributions.

(d) ESOP Discretionary Contributions will be made for each Plan Year for which a payment is due on an Exempt Loan, if any. The amount of the ESOP Discretionary Contribution for the Plan Year will be determined at the sole discretion of the Primary Employer, but will not be less than the minimum amount sufficient to enable the Trustee to make the payment due on the Exempt Loan to the extent that such payment cannot be satisfied from cash dividends or S corporation distributions paid on shares of Qualifying Employer Securities held in the Participants’ Accounts (if the Primary Employer directs that such dividends or S corporation distributions be applied to the Exempt Loan), or cash dividends or S corporation distributions paid on shares of Qualifying Employer Securities held in the Unallocated Reserve or other investment earnings of the Unallocated Reserve.

Only Participants who are employed by an Adopting Employer in which the Primary Employer owns at least 50% of the Adopting Employer are eligible for ESOP Discretionary Contributions.

ESOP Discretionary Contributions are subject to the Vesting Percentage.

Employer Contributions are allocated according to the provisions of the ALLOCATION SECTION of this article.

RESTATEMENT JANUARY 1, 2011 25 ARTICLE III  (7-10182)

A portion of the Plan assets resulting from Employer Contributions (but not more than the original amount of those Contributions) may be returned if the Employer Contributions are made because of a mistake of fact or are more than the amount deductible under Code Section 404 (excluding any amount which is not deductible because the Plan is disqualified). The amount involved must be returned to the Employer within one year after the date the Employer Contributions are made by mistake of fact or the date the deduction is disallowed, whichever applies. Except as provided under this paragraph and in Article VIII, the assets of the Plan shall never be used for the benefit of the Employer and are held for the exclusive purpose of providing benefits to Participants and their Beneficiaries and for defraying reasonable expenses of administering the Plan.

SECTION 3.01A--ROLLOVER CONTRIBUTIONS.

A Rollover Contribution may be made by an Eligible Employee or Inactive Participant if the following conditions are met:

(a) The Contribution is a Participant Rollover Contribution or a direct rollover of a distribution made after December 31, 2001 from the types of plans specified below.

Direct Rollovers.  The Plan will accept a direct rollover of an Eligible Rollover Distribution from (i) a qualified plan described in Code Section 401(a) or 403(a), including after-tax employee contributions and excluding any portion of a designated Roth account; (ii) an annuity contract described in Code Section 403(b), including after-tax employee contributions and excluding any portion of a designated Roth account; and (iii) an eligible plan under Code Section 457(b) which is maintained by a state, political subdivision of a state, or any agency or instrumentality of a state or political subdivision of a state.

Participant Rollover Contributions from Other Plans. The Plan will accept a Participant contribution of an Eligible Rollover Distribution from (i) a qualified plan described in Code Section 401(a) or 403(a), excluding distributions of a designated Roth account; (ii) an annuity contract described in Code Section 403(b), excluding distributions of a designated Roth account; and (iii) an eligible plan under Code Section 457(b) which is maintained by a state, political subdivision of a state, or any agency or instrumentality of a state or political subdivision of a state.

Participant Rollover Contributions from IRAs. The Plan will accept a Participant Rollover Contribution of the portion of a distribution from an individual retirement account or individual retirement annuity described in Code Section 408(a) or (b) that is eligible to be rolled over and would otherwise be includible in the Participant’s gross income.

(b) The Contribution is of amounts that the Code permits to be transferred to a plan that meets the requirements of Code Section 401(a).

(c) The Contribution is made in the form of a direct rollover under Code Section 401(a)(31) or is a rollover made under Code Section 402(c) or 408(d)(3)(A) within 60 days after the Eligible Employee or Inactive Participant receives the distribution.

(d) The Eligible Employee or Inactive Participant furnishes evidence satisfactory to the Plan Administrator that the proposed rollover meets conditions (a), (b), and (c) above.

(e) In the case of an Inactive Participant, the Contribution must be of an amount distributed from another plan of the Employer or a plan of a Controlled Group member.

RESTATEMENT JANUARY 1, 2011 26 ARTICLE III  (7-10182)

A Rollover Contribution shall be allowed in cash or in kind and must be made according to procedures set up by the Plan Administrator. The in-kind distribution must be of an allowable security under the Self-Directed Brokerage Account.

If the Eligible Employee is not an Active Participant when the Rollover Contribution is made, he shall be deemed to be an Active Participant only for the purpose of investment and distribution of the Rollover Contribution.  Employer Contributions shall not be made for or allocated to the Eligible Employee until the time he meets all of the requirements to become an Active Participant.

Rollover Contributions made by an Eligible Employee or an Inactive Participant shall be credited to his Account. The part of the Participant's Account resulting from Rollover Contributions is 100% vested and nonforfeitable at all times. Separate accounting records shall be maintained for those parts of his Rollover Contributions consisting of (i) voluntary contributions which were deducted from the Participant's gross income for Federal income tax purposes and (ii) after-tax employee contributions, including the portion that would not have been includible in the Participant’s gross income if the contributions were not rolled over into this Plan.

SECTION 3.02--FORFEITURES.

The Nonvested Account of a Participant shall be forfeited as of the earlier of the following:

(a) the date the record keeper is notified that the Participant died (if prior to such date he has had a Severance from Employment), or

(b) the Participant’s Forfeiture Date.

All or a portion of a Participant’s Nonvested Account shall be forfeited before such earlier date if, after he has a Severance from Employment, he receives, or is deemed to receive, a distribution of his entire Vested Account or a distribution of his Vested Account derived from Employer Contributions under the RETIREMENT BENEFITS SECTION of Article V, the VESTED BENEFITS SECTION of Article V, or the SMALL AMOUNTS SECTION of Article X. The forfeiture shall occur as of the date the Participant receives, or is deemed to receive, the distribution. If a Participant receives, or is deemed to receive, his entire Vested Account, his entire Nonvested Account shall be forfeited. If a Participant receives a distribution of his Vested Account from Employer Contributions, but less than his entire Vested Account, the amount to be forfeited shall be determined by multiplying his Nonvested Account from such Contributions by a fraction. The numerator of the fraction is the amount of the distribution derived from Employer Contributions and the denominator of the fraction is his entire Vested Account derived from such Contributions on the date of the distribution.

A Forfeiture shall also occur as provided in the EXCESS AMOUNTS SECTION of this article.

Forfeitures shall be determined at least once during each Plan Year. Forfeitures may first be used to pay administrative expenses. Forfeitures of Matching Contributions that relate to excess amounts as provided in the EXCESS AMOUNTS SECTION of this article, that have not been used to pay administrative expenses, shall be applied to reduce the earliest Employer Contributions made after the Forfeitures are determined. Any other Forfeitures that have not been used to pay administrative expenses shall be applied to reduce the earliest Employer Contributions made after the Forfeitures are determined. Upon their application to reduce Employer Contributions, Forfeitures shall be deemed to be Employer Contributions.

If a Participant again becomes an Eligible Employee after receiving a distribution which caused all of his Nonvested Account to be forfeited, he shall have the right to repay to the Plan the entire amount of the distribution he received (excluding the portion of the distribution attributable to Rollover Contributions). The repayment must be made in a single sum (repayment in installments is not permitted) before the earlier of the

RESTATEMENT JANUARY 1, 2011 27 ARTICLE III  (7-10182)

date five years after the date he again becomes an Eligible Employee or the end of the first period of five consecutive Vesting Breaks in Service which begin after the date of the distribution of his entire Vested Account.

If the Participant makes the repayment above, the Plan Administrator shall restore to his Account an amount equal to his Nonvested Account that was forfeited on the date of distribution, unadjusted for any investment gains or losses. If no amount is to be repaid because the Participant was deemed to have received a distribution and he again performs an Hour of Service as an Eligible Employee within the repayment period, the Plan Administrator shall restore the Participant’s Account as if he had made a required repayment on the date he performed such Hour of Service. Restoration of the Participant’s Account shall include restoration of all Code Section 411(d)(6) protected benefits with respect to the restored Account, according to applicable Treasury regulations. Provided, however, the Plan Administrator shall not restore the Nonvested Account if (i) a Forfeiture Date has occurred after the date of the distribution and on or before the date of repayment and (ii) that Forfeiture Date would result in a complete forfeiture of the amount the Plan Administrator would otherwise restore.

The Plan Administrator shall restore the Participant’s Account by the close of the Plan Year following the Plan Year in which repayment is made. The permissible sources for restoration of the Participant’s Account are Forfeitures or special Employer Contributions. Such special Employer Contributions shall be made without regard to profits. The repaid and restored amounts are not included in the Participant’s Annual Additions, as defined in the CONTRIBUTION LIMITATION SECTION of this article.

SECTION 3.03--ALLOCATION.

A person meets the allocation requirements of this section if he is an Active Participant on the last day of the Plan Year and has at least 1,000 Hours of Service during the latest Accrual Computation Period ending on or before that date. A person shall also meet the requirements of this section if he was an Active Participant at any time during the Plan Year and reaches his Normal Retirement Date, becomes disabled (and such disability is determined to meet the definition of Totally and Permanently Disabled), or dies. Beginning January 1, 2007, a person who dies or becomes disabled (and such disability is determined to meet the definition of Totally and Permanently Disabled) while performing Qualified Military Service shall also meet the requirements of this section if he is a Participant at any time during the Plan Year.

Elective Deferral Contributions shall be allocated to the Participants for whom such Contributions are made under the EMPLOYER CONTRIBUTIONS SECTION of this article. Such Contributions shall be allocated when made and credited to the Participant’s Account.

Matching Contributions shall be allocated to the persons for whom such Contributions are made under the EMPLOYER CONTRIBUTIONS SECTION of this article. Such Contributions calculated based on Elective Deferral Contributions and Compensation for the payroll period shall be allocated when made and credited to the person’s Account. Such Contributions calculated based on Elective Deferral Contributions and Compensation for the Plan Year shall be allocated as of the last day of the Plan Year and shall be credited to the person’s Account.

Qualified Nonelective Contributions shall be allocated as of the last day of the Plan Year to each person who meets the allocation requirements of this section. Such Qualified Nonelective Contributions shall be allocated only to Nonhighly Compensated Employees. The amount allocated to such person for the Plan Year shall be equal to such Qualified Nonelective Contributions multiplied by the ratio of such person’s Annual Compensation for the Plan Year to the total Annual Compensation of all such persons. This amount shall be credited to the person’s Account.

RESTATEMENT JANUARY 1, 2011 28 ARTICLE III  (7-10182)

The ESOP Discretionary Contribution for the Plan Year (if any), plus any Forfeitures of Qualifying Employer Securities, shall be allocated as of the last day of the Plan Year to each person who meets the allocation requirements of this section, together with the cash dividends or S corporation distributions paid on Qualifying Employer Securities held in the Participants’ Accounts (if the Primary Employer directs that such dividends or S corporation distributions be applied to the Exempt Loan), cash dividends or S corporation distributions paid on Qualifying Employer Securities held in the Unallocated Reserve and other investment earnings of the Unallocated Reserve (if any), shall be applied to make the payment due on any Exempt Loan for the Plan Year. The Qualifying Employer Securities released from t he Unallocated Reserve as a result of that payment shall be allocated as of the last day of the Plan Year as follows:

STEP ONE: This step one shall apply only if the cash dividends or S corporation distributions paid on Qualifying Employer Securities held in the Participants’ Accounts are applied to the Exempt Loan.

The allocation in this step one shall be made to each person who received a cash dividend or S corporation distribution on Qualifying Employer Securities held in his/her Account that was applied to the Exempt Loan.

The number of shares of Qualifying Employer Securities allocated under this step one shall be the number of shares with a value equal to or greater than the total cash dividends or S corporation distributions paid on Qualifying Employer Securities held in the Participants’ Accounts and applied to the Exempt Loan. The number of shares of Qualifying Employer Securities allocated to each such person shall be determined by multiplying the number of shares of Qualifying Employer Securities to be allocated under this step one by a fraction, the numerator of which is the cash dividends or S corporation distributions paid on Qualifying Employer Securities held in the Account of such person and applied to the Exempt Loan, and the denominator of which is t he total cash dividends or S corporation distributions paid on Qualifying Employer Securities held in the Accounts of all such persons and applied to the Exempt Loan.

STEP TWO:  The allocation in this step two shall be made among those persons who meet the allocation requirements of this section, but subject to the PROHIBITED ALLOCATION OF QUALIFYING EMPLOYER SECURITIES SECTION of this article.

The number of shares of Qualifying Employer Securities allocated to each such person shall be determined by multiplying the number of shares of Qualifying Employer Securities released from the Unallocated Reserve (and not allocated under step one) by a fraction, the numerator of which is the Annual Compensation of such person for the Plan Year, and the denominator of which is the aggregate Annual Compensation of all such persons for the Plan Year. However, if the aggregate amount of Qualifying Employer Securities that would be allocated under this paragraph to Highly Compensated Employees exceeds one-third of the total Qualifying Employer Securities allocated, then the amount of Qualifying Employer Securities in excess of one-third shall be reallocated to the Nonhighly Compensated Employees in proportion to each Nonhighly Compensated Employee’s Annual Compensation to the total Annual Compensation of all such Nonhighly Compensated Employees.

If the ESOP Discretionary Contributions exceed the amount needed to make the payment for the Exempt Loan for the Plan Year, or if there is no Exempt Loan for the Plan Year in which the ESOP Discretionary Contribution is made, the ESOP Discretionary Contribution shall be allocated in the same manner as STEP TWO above.

Only Participants who are employed by an Adopting Employer in which the Primary Employer owns at least 50% of the Adopting Employer on the allocation date are eligible for ESOP Discretionary Contributions.

This amount shall be credited to the person’s Account.

RESTATEMENT JANUARY 1, 2011 29 ARTICLE III  (7-10182)

If Leased Employees are Eligible Employees, in determining the amount of Employer Contributions allocated to a person who is a Leased Employee, contributions provided by the leasing organization that are attributable to services such Leased Employee performs for the Employer shall be treated as provided by the Employer. Those contributions shall not be duplicated under this Plan.

SECTION 3.04--CONTRIBUTION LIMITATION.

Contributions to the Plan shall be limited in accordance with Code Section 415 and the regulations thereunder. The limitations of this section shall apply to Limitation Years beginning on or after July 1, 2007, except as otherwise provided herein.

(a) Definitions.  For the purpose of determining the contribution limitation set forth in this section, the following terms are defined.

Annual Additions means the sum of the following amounts credited to a Participant’s account for the Limitation Year:

(1) employer contributions, provided that ESOP Discretionary Contributions under this Plan that are applied to pay interest on an Exempt Loan and/or Forfeitures of Qualifying Employer Securities that were purchased with an Exempt Loan will not be an Annual Addition if no more than one-third (1/3) of the ESOP Discretionary Contribution that is applied to pay principal or interest on an Exempt Loan for the Plan Year is allocated to Highly Compensated Employees. To the extent Qualifying Employer Securities are allocated to Participants’ Accounts, the lesser of fair market value of the Qualifying Employer Security allocated or the employer contribution used to release such share in the case of repayment of an Exempt Loan, shall be used for purposes of measuring Annual Additions;

(2) employee contributions; and

(3) forfeitures.

Annual Additions to a defined contribution plan, as defined in section 1.415(c)-1(a)(2)(i) of the regulations, shall also include the following:

(4) mandatory employee contributions, as defined in Code Section 411(c)(2)(C) and section 1.411(c)-1(c)(4) of the regulations, to a defined benefit plan;

(5) contributions allocated to any individual medical benefit account, as defined in Code Section 415(l)(2), which is part of a pension or annuity plan maintained by the Employer;

(6) amounts attributable to post-retirement medical benefits, allocated to the separate account of a key employee, as defined in Code Section 419A(d)(3), under a welfare benefit fund, as defined in Code Section 419(e), maintained by the Employer; and

(7) annual additions under an annuity contract described in Code Section 403(b).

Compensation means wages, within the meaning of Code Section 3401(a), and all other payments of compensation to an employee by the Employer (in the course of the Employer’s trade or business) for which the Employer is required to furnish the employee a written statement under Code Sections 6041(d), 6051(a)(3), and 6052. Compensation shall be determined without

RESTATEMENT JANUARY 1, 2011 30 ARTICLE III  (7-10182)

regard to any rules under Code Section 3401(a) that limit the remuneration included in wages based on the nature or location of the employment or the services performed (such as the exception for agricultural labor in Code Section 3401(a)(2)). The type of compensation that is reported in the “Wages, Tips and Other Compensation” box on Form W-2 satisfies this definition.

For any Self-employed Individual, Compensation shall mean Earned Income.

Except as provided herein, Compensation for a Limitation Year is the Compensation actually paid or made available (or if earlier, includible in gross income) during such Limitation Year.

For Limitation Years beginning on or after July 1, 2007, Compensation for a Limitation Year shall also include Compensation paid by the later of 2 1/2 months after an employee’s Severance from Employment with the Employer maintaining the plan or the end of the Limitation Year that includes the date of the employee’s Severance from Employment with the Employer maintaining the plan, if (i) the payment is regular Compensation for services during the employee’s regular working hours, or Compensation for services outside the employee’s regular working hours (such as overtime or shift differential), commissions, bonuses, or other similar payments, and, absent a Severance from Employment, the payments would have been paid to the employee while the employee continued in employment with the Employer; (ii) the payment is for unused accrued bona fide sick, vacation or other leave that the employee would have been able to use if employment had continued; or (iii) the payment is received by the employee pursuant to a nonqualified unfunded deferred compensation plan and would have been paid at the same time if employment had continued, but only to the extent includible in gross income.

Any payments not described above shall not be considered Compensation if paid after Severance from Employment, even if they are paid by the later of 2 1/2 months after the date of Severance from Employment or the end of the Limitation Year that includes the date of Severance from Employment.

Beginning January 1, 2009, Compensation shall include Differential Wage Payments.

Back pay, within the meaning of section 1.415(c)-2(g)(8) of the regulations, shall be treated as Compensation for the Limitation Year to which the back pay relates to the extent the back pay represents wages and compensation that would otherwise be included in this definition.

Compensation paid or made available during such Limitation Year shall include amounts that would otherwise be included in Compensation but for an election under Code Section 125(a), 132(f)(4), 402(e)(3), 402(h)(1)(B), 402(k), or 457(b).

Compensation shall not include amounts paid as Compensation to a nonresident alien, as defined in Code Section 7701(b)(1)(B), who is not a Participant in the Plan to the extent the Compensation is excludible from gross income and is not effectively connected with the conduct of a trade or business within the United States.

Defined Contribution Dollar Limitation means, effective for Limitation Years beginning after December 31, 2001, $40,000, automatically adjusted under Code Section 415(d), effective January 1 of each year, as published in the Internal Revenue Bulletin. The new limitation shall apply to Limitation Years ending with or within the calendar year of the date of the adjustment, but a Participant’s Annual Additions for a Limitation Year cannot exceed the currently applicable dollar limitation (as in effect before the January 1 adjustment) prior to January 1. However, after a

RESTATEMENT JANUARY 1, 2011 31 ARTICLE III  (7-10182)

January 1 adjustment is made, Annual Additions for the entire Limitation Year are permitted to reflect the dollar limitation as adjusted on January 1.

Employer means the employer that adopts this Plan, and all members of a controlled group of corporations (as defined in Code Section 414(b) as modified by Code Section 415(h)), all commonly controlled trades or businesses (as defined in Code Section 414(c), as modified, except in the case of a brother-sister group of trades or businesses under common control, by Code Section 415(h)), or affiliated service groups (as defined in Code Section 414(m)) of which the adopting employer is a part, and any other entity required to be aggregated with the employer pursuant to Code Section 414(o).

Limitation Year means the consecutive 12-month period ending on the last day of each Plan Year, including corresponding consecutive 12-month periods before January 1, 1987. If the Limitation Year is other than the calendar year, execution of this Plan (or any amendment to this Plan changing the Limitation Year) constitutes the Employer’s adoption of a written resolution electing the Limitation Year. If the Limitation Year is amended to a different consecutive 12-month period, the new Limitation Year must begin on a date within the Limitation Year in which the amendment is made.

Maximum Annual Addition means, for Limitation Years beginning on or after January 1, 2002, except for catch-up contributions described in Code Section 414(v), the Annual Addition that may be contributed or allocated to a Participant’s Account under the Plan for any Limitation Year.  This amount shall not exceed the lesser of:

(1)          The Defined Contribution Dollar Limitation, or

(2) 100 percent of the Participant’s Compensation for the Limitation Year.

A Participant’s Compensation for a Limitation Year shall not include Compensation in excess of the limitation under Code Section 401(a)(17) that is in effect for the calendar year in which the Limitation Year begins.

The compensation limitation referred to in (2) shall not apply to an individual medical benefit account (as defined in Code Section 415(l); or a post-retirement medical benefits account for a key employee (as defined in Code Section 419A(d)(1)).

If a short Limitation Year is created because of an amendment changing the Limitation Year to a different consecutive 12-month period, the Maximum Annual Addition will not exceed the Defined Contribution Dollar Limitation multiplied by the following fraction:

Number of months (including any fractional parts of a month)

in the short Limitation Year

12

If the Plan is terminated as of a date other than the last day of the Limitation Year, the Plan is treated as if the Plan was amended to change the Limitation Year and create a short Limitation Year ending on the date the Plan is terminated.

If a short Limitation Year is created, the limitation under Code Section 401(a)(17) shall be prorated in the same manner as the Defined Contribution Dollar Limitation.

RESTATEMENT JANUARY 1, 2011 32 ARTICLE III  (7-10182)

Predecessor Employer means, with respect to a Participant, a former employer if the Employer maintains a plan that provides a benefit which the Participant accrued while performing services for the former employer. Predecessor Employer also means, with respect to a Participant, a former entity that antedates the Employer if, under the facts and circumstances, the Employer constitutes a continuation of all or a portion of the trade or business of the former entity.

Severance from Employment means an employee has ceased to be an employee of the Employer maintaining the plan. An employee does not have a Severance from Employment if, in connection with a change of employment, the employee’s new employer maintains the plan with respect to the employee.

(b) If the Participant does not participate in another defined contribution plan, as defined in section 1.415(c)-1(a)(2)(i) of the regulations (without regard to whether the plan(s) have been terminated) maintained by the Employer, the amount of Annual Additions that may be credited to the Participant’s Account for any Limitation Year shall not exceed the lesser of the Maximum Annual Addition or any other limitation contained in this Plan. If the Employer Contribution that would otherwise be contributed or allocated to the Participant’s Account would cause the Annual Additions for the Limitation Year to exceed the Maximum Annual Addition, the amount contributed or allocated shall be reduced so that the Annual Additions for the Limitation Year will equal the Maximum Annual Addition.

(c) If, in addition to this Plan, the Participant is covered under another defined contribution plan, as defined in section 1.415(c)-1(a)(2)(i) of the regulations, (without regard to whether the plan(s) have been terminated) maintained by the Employer that provides an Annual Addition during any Limitation Year, the Annual Additions that may be credited to a Participant’s Account under this Plan for any such Limitation Year will not exceed the Maximum Annual Addition, reduced by the Annual Additions credited to a Participant’s account under the other defined contribution plan(s) for the same Limitation Year. If the Annual Additions with respect to the Participant under the other defined contribution plan(s) maintained by the Employer are less than the Maximum Annual Addition, and the Employer Contribution that would otherwise be contributed or allocated to the Participant’s Account under this Plan would cause the Annual Additions for the Limitation Year to exceed this limitation, the amount contributed or allocated will be reduced so that the Annual Additions under all such plans and funds for the Limitation Year will equal the Maximum Annual Addition. If the Annual Additions with respect to the Participant under the other defined contribution plan(s) in the aggregate are equal to or greater than the Maximum Annual Addition, no amount will be contributed or allocated to the Participant’s Account under this Plan for the Limitation Year.

(d) The limitation of this section shall be determined and applied taking into account the rules in subparagraph (e) below.

(e) Other Rules

(1) Aggregating Plans.  For purposes of applying the limitations of this section for a Limitation Year, all defined contribution plans (as defined in section 1.415(c)-1(a)(2)(i) of the regulations and without regard to whether the plan(s) have been terminated) ever maintained by the Employer and all defined contribution plans of a Predecessor Employer (in the Limitation Year in which such Predecessor Employer is created) under which a Participant receives Annual Additions are treated as one defined contribution plan.

RESTATEMENT JANUARY 1, 2011 33 ARTICLE III  (7-10182)

(2) Break-up of Affiliated Employers.  The Annual Additions under a formerly affiliated plan (as defined in section 1.415(f)-1(b)(2)(ii) of the regulations) of the Employer are taken into account for purposes of applying the limitations of this section for the Limitation Year in which the cessation of affiliation took place.

(3) Previously Unaggregated Plans.  The limitations of this section are not exceeded for the first Limitation Year in which two or more existing plans, which previously were not required to be aggregated pursuant to section 1.415(f) of the regulations, are aggregated, provided that no Annual Additions are credited to a Participant after the date on which the plans are required to be aggregated if the Annual Additions already credited to the Participant in the existing plans equal or exceed the Maximum Annual Addition.

(4) Aggregation with Multiemployer Plan.  If the Employer maintains a multiemployer plan, as defined in Code Section 414(f), and the multiemployer plan so provides, only the Annual Additions under the multiemployer plan that are provided by the Employer shall be treated as Annual Additions provided under a plan maintained by the Employer for purposes of this section.

SECTION 3.05--EXCESS AMOUNTS.

(a) Definitions.  For purposes of this section, the following terms are defined:

ACP means, for a specified group of Participants (either Highly Compensated Employees or Nonhighly Compensated Employees) for a Plan Year, the average (expressed as a percentage) of the Contribution Percentages of the Eligible Participants in the group.

ADP means, for a specified group of Participants (either Highly Compensated Employees or Nonhighly Compensated Employees) for a Plan Year, the average (expressed as a percentage) of the Deferral Percentages of the Eligible Participants in the group.

Catch-up Contributions means Elective Deferral Contributions made to a plan that are in excess of an otherwise applicable plan limit and that are made by participants who are age 50 or older by the end of the taxable year. An otherwise applicable plan limit is a limit in the plan that applies to Elective Deferral Contributions without regard to Catch-up Contributions, such as the limits on the maximum annual additions under Code Section 415, the dollar limitation on Elective Deferral Contributions under Code Section 402(g) (not counting Catch-up Contributions), and the limit imposed by the nondiscrimination test described in Code Section 401(k)(3).

Contribution Percentage means the ratio (expressed as a percentage) of the Eligible Participant’s Contribution Percentage Amounts to the Eligible Participant’s Compensation (excluding Differential Wage Payments paid on or after January 1, 2009) for the Plan Year (whether or not the Eligible Participant was an Eligible Participant for the entire Plan Year).  For an Eligible Participant for whom such Contribution Percentage Amounts for the Plan Year are zero, the percentage is zero.

Contribution Percentage Amounts means the sum of the Participant Contributions (excluding Participant Contributions withheld from Differential Wage Payments paid on or after January 1, 2009) and Matching Contributions (excluding Matching Contributions based on Elective Deferral Contributions and Participant Contributions withheld from Differential Wage Payments paid on or after January 1, 2009) made under the plan on behalf of the Eligible Participant for the plan year.  For plan years beginning on or after January 1, 2006, Matching Contributions cannot be taken

RESTATEMENT JANUARY 1, 2011 34 ARTICLE III  (7-10182)

into account for a plan year for a Nonhighly Compensated Employee to the extent they are disproportionate matching contributions as defined in section 1.401(m)-2(a)(5)(ii) of the regulations. Such Contribution Percentage Amounts shall not include Matching Contributions that are forfeited either to correct Excess Aggregate Contributions or because the contributions to which they relate are Excess Elective Deferrals, Excess Contributions, or Excess Aggregate Contributions. Under such rules as the Secretary of the Treasury shall prescribe, in determining the Contribution Percentage the Employer may elect to include Qualified Nonelective Contributions under this Plan that were not used in computing the Deferral Percentage. For plan years beginning on or after January 1, 2006, Qualified Nonelective Contributions cannot be taken into account for a plan year for a Nonhighly Compensated Employee to the extent they are disproportionate contributions as defined in section 1.401(m)-2(a)(6)(v) of the regulations. The Employer may also elect to use Elective Deferral Contributions in computing the Contribution Percentage so long as the ADP Test is met before the Elective Deferral Contributions are used in the ACP Test and continues to be met following the exclusion of those Elective Deferral Contributions that are used to meet the ACP Test.

Deferral Percentage means the ratio (expressed as a percentage) of Elective Deferral Contributions (other than Catch-up Contributions and Elective Deferral Contributions withheld from Differential Wage Payments paid on or after January 1, 2009) under this Plan on behalf of the Eligible Participant for the Plan Year to the Eligible Participant’s Compensation (excluding Differential Wage Payments paid on or after January 1, 2009) for the Plan Year (whether or not the Eligible Participant was an Eligible Participant for the entire Plan Year). The Elective Deferral Contributions used to determine the Deferral Percentage shall include Excess Elective Deferrals (other than Excess Elective Deferrals of Nonhighly Compensated Employees that arise solely from Elective Deferral Contributions made under this Plan or any other plans of the Employer or a Controlled Group member), but shall exclude Elective Deferral Contributions that are used in computing the Contribution Percentage (provided the ADP Test is satisfied both with and without exclusion of these Elective Deferral Contributions). Under such rules as the Secretary of the Treasury shall prescribe, the Employer may elect to include Qualified Nonelective Contributions and Qualified Matching Contributions under this Plan in computing the Deferral Percentage. For Plan Years beginning on or after January 1, 2006, Qualified Matching Contributions cannot be taken into account for a Plan Year for a Nonhighly Compensated Employee to the extent they are disproportionate matching contributions as defined in section 1.401(m)-2(a)(5)(ii) of the regulations. For Plan Years beginning on or after January 1, 2006, Qualified Nonelective Contributions cannot be taken into account for a Plan Year for a Nonhighly Compensated Employee to the extent they are disproportionate contributions as defined in section 1.401(k)-2(a)(6)(iv) of the regulations. For an Eligible Participant for whom such contributions on his behalf for the Plan Year are zero, the percentage is zero.

Elective Deferral Contributions means any employer contributions made to a plan at the election of a participant in lieu of cash compensation. With respect to any taxable year, a participant’s Elective Deferral Contributions are the sum of all employer contributions made on behalf of such participant pursuant to an election to defer under any qualified cash or deferred arrangement described in Code Section 401(k), any salary reduction simplified employee pension plan described in Code Section 408(k)(6), any SIMPLE IRA plan described in Code Section 408(p), any plan described under Code Section 501(c)(18), and any employer contributions made on behalf of a participant for the purchase of an annuity contract under Code Section 403(b) pursuant to a salary reduction agreement. For taxable years beginning after December 31, 2005, Elective Deferral Contributions include Pre-tax Elective Deferral Contributions and Roth Elective Deferral Contributions. Elective Deferral Contributions shall not include any deferrals properly distributed as excess annual additions.

RESTATEMENT JANUARY 1, 2011 35 ARTICLE III  (7-10182)

Eligible Participant means, for purposes of determining the Deferral Percentage, any Employee who is otherwise entitled to make Elective Deferral Contributions under the terms of the plan for the plan year. Eligible Participant means, for purposes of determining the Contribution Percentage, any Employee who is eligible (i) to make a Participant Contribution or an Elective Deferral Contribution (if the Employer takes such contributions into account in the calculation of the Contribution Percentage), or (ii) to receive a Matching Contribution (including forfeitures) or a Qualified Matching Contribution. If a Participant Contribution is required as a condition of participation in the plan, any Employee who would be a participant in the plan if such Employee made such a contribution shall be treated as an Eligible Participant on behalf of whom no Participant Contributions are made.

Excess Aggregate Contributions means, with respect to any Plan Year, the excess of:

(1) The aggregate Contribution Percentage Amounts taken into account in computing the numerator of the Contribution Percentage actually made on behalf of Highly Compensated Employees for such Plan Year, over

(2) The maximum Contribution Percentage Amounts permitted by the ACP Test (determined by hypothetically reducing contributions made on behalf of Highly Compensated Employees in order of their Contribution Percentages beginning with the highest of such percentages).

Such determination shall be made after first determining Excess Elective Deferrals and then determining Excess Contributions.

Excess Contributions means, with respect to any Plan Year, the excess of:

(1) The aggregate amount of employer contributions actually taken into account in computing the Deferral Percentage of Highly Compensated Employees for such Plan Year, over

(2) The maximum amount of such contributions permitted by the ADP Test (determined by hypothetically reducing contributions made on behalf of Highly Compensated Employees in the order of the Deferral Percentages, beginning with the highest of such percentages).

Such determination shall be made after first determining Excess Elective Deferrals.

Excess Elective Deferrals means those Elective Deferral Contributions of a Participant that either (i) are made during the Participant’s taxable year and exceed the dollar limitation under Code Section 402(g) or (ii) are made during a calendar year and exceed the dollar limitation under Code Section 402(g) for the Participant’s taxable year beginning in such calendar year, counting only Elective Deferral Contributions made under this Plan and any other plan, contract, or arrangement maintained by the Employer. The dollar limitation shall be increased by the dollar limit on Catch-up Contributions under Code Section 414(v), if applicable.

Excess Elective Deferrals shall be treated as Annual Additions, as defined in the CONTRIBUTION LIMITATION SECTION of this article, under the Plan, unless such amounts are distributed no later than the first April 15 following the close of the Participant’s taxable year.

RESTATEMENT JANUARY 1, 2011 36 ARTICLE III  (7-10182)

Matching Contributions means employer contributions made to this or any other defined contribution plan, or to a contract described in Code Section 403(b), on behalf of a participant on account of a Participant Contribution made by such participant, or on account of a participant’s Elective Deferral Contributions, under a plan maintained by the Employer or a Controlled Group member.

Participant Contributions means contributions (other than Roth Elective Deferral Contributions) made to the plan by or on behalf of a participant that are included in the participant’s gross income in the year in which made and that are maintained under a separate account to which the earnings and losses are allocated.

Pre-tax Elective Deferral Contributions means a participant’s Elective Deferral Contributions that are not includible in the participant’s gross income at the time deferred.

Qualified Matching Contributions means Matching Contributions that are nonforfeitable when made to the plan and that are distributable only in accordance with the distribution provisions (other than for hardships) applicable to Elective Deferral Contributions.

Qualified Nonelective Contributions means any employer contributions (other than Matching Contributions) that an Employee may not elect to have paid to him in cash instead of being contributed to the plan and that are nonforfeitable when made to the plan and that are distributable only in accordance with the distribution provisions (other than for hardships) applicable to Elective Deferral Contributions.

Roth Elective Deferral Contributions means a participant’s Elective Deferral Contributions that are not excludible from the participant’s gross income at the time deferred and have been irrevocably designated as Roth Elective Deferral Contributions by the participant in his elective deferral agreement. Whether an Elective Deferral Contribution is not excludible from a participant’s gross income will be determined in accordance with section 1.401(k)-1(f)(2) of the regulations. In the case of a self-employed individual, an Elective Deferral Contribution is not excludible from gross income only if the individual does not claim a deduction for such amount.

(b) Excess Elective Deferrals.  A Participant may assign to this Plan any Excess Elective Deferrals made during a taxable year of the Participant by notifying the Plan Administrator in writing on or before the first following March 1 of the amount of the Excess Elective Deferrals to be assigned to the Plan. A Participant is deemed to notify the Plan Administrator of any Excess Elective Deferrals that arise by taking into account only those Elective Deferral Contributions made to this Plan and any other plan, contract, or arrangement of the Employer or a Controlled Group member. The Participant’s claim for Excess Elective Deferrals shall be accompanied by the Participant’s written statement that if such amounts are not distributed, such Excess Elective Deferrals will exceed the limit imposed on the Participant by Code Section 402(g) (including, if applicable, the dollar limitation on Catch-up Contributions under Code Section 414(v)) for the year in which the deferral occurred. The Excess Elective Deferrals assigned to this Plan cannot exceed the Elective Deferral Contributions allocated under this Plan for such taxable year.

Notwithstanding any other provisions of the Plan, Elective Deferral Contributions in an amount equal to the Excess Elective Deferrals assigned to this Plan, plus any income and minus any loss allocable thereto, shall be distributed no later than April 15 to any Participant to whose Account Excess Elective Deferrals were assigned for the preceding year and who claims Excess Elective Deferrals for such taxable year or calendar year.

RESTATEMENT JANUARY 1, 2011 37 ARTICLE III  (7-10182)

The Excess Elective Deferrals shall be adjusted for any income or loss. The income or loss allocable to such Excess Elective Deferrals shall be equal to the income or loss allocable to the Participant’s Elective Deferral Contributions for the taxable year in which the excess occurred multiplied by a fraction. The numerator of the fraction is the Excess Elective Deferrals. The denominator of the fraction is the closing balance without regard to any income or loss occurring during such taxable year (as of the end of such taxable year) of the Participant’s Account resulting from Elective Deferral Contributions.

For purposes of determining income or loss on Excess Elective Deferrals for taxable years beginning on or after January 1, 2008, no adjustment shall be made for income or loss for the gap period.

Any Matching Contributions that were based on the Elective Deferral Contributions distributed as Excess Elective Deferrals or redesignated as Catch-up Contributions, plus any income and minus any loss allocable thereto, shall be forfeited.

(c) ADP Test. As of the end of each Plan Year after Excess Elective Deferrals have been determined, the Plan must satisfy the ADP Test. The ADP Test shall be satisfied using the prior year testing method or the current year testing method, as elected by the Employer.

(1) Prior Year Testing Method. The ADP for a Plan Year for Eligible Participants who are Highly Compensated Employees for each Plan Year and the prior year’s ADP for Eligible Participants who were Nonhighly Compensated Employees for the prior Plan Year must satisfy one of the following tests:

(i) The ADP for a Plan Year for Eligible Participants who are Highly Compensated Employees for the Plan Year shall not exceed the prior year’s ADP for Eligible Participants who were Nonhighly Compensated Employees for the prior Plan Year multiplied by 1.25; or

(ii) The ADP for a Plan Year for Eligible Participants who are Highly Compensated Employees for the Plan Year:

A. shall not exceed the prior year’s ADP for Eligible Participants who were Nonhighly Compensated Employees for the prior Plan Year multiplied by 2, and

B. the difference between such ADPs is not more than 2.

If this is not a successor plan, for the first Plan Year the Plan permits any Participant to make Elective Deferral Contributions, for purposes of the foregoing tests, the prior year’s Nonhighly Compensated Employees’ ADP shall be 3 percent or the Plan Year’s ADP for these Eligible Participants, as elected by the Employer.

(2) Current Year Testing Method. The ADP for a Plan Year for Eligible Participants who are Highly Compensated Employees for each Plan Year and the ADP for Eligible Participants who are Nonhighly Compensated Employees for the Plan Year must satisfy one of the following tests:

RESTATEMENT JANUARY 1, 2011 38 ARTICLE III  (7-10182)

(i) The ADP for a Plan Year for Eligible Participants who are Highly Compensated Employees for the Plan Year shall not exceed the ADP for Eligible Participants who are Nonhighly Compensated Employees for the Plan Year multiplied by 1.25; or

(ii) The ADP for a Plan Year for Eligible Participants who are Highly Compensated Employees for the Plan Year:

A. shall not exceed the ADP for Eligible Participants who are Nonhighly Compensated Employees for the Plan Year multiplied by 2, and

B. the difference between such ADP’s is not more than 2.

If the Employer has elected to use the current year testing method, that election cannot be changed unless (i) the Plan has been using the current year testing method for the preceding five Plan Years, or if less, the number of Plan Years the Plan has been in existence; or (ii) if as a result of a merger or acquisition described in Code Section 410(b)(6)(C)(i), the Employer maintains both a plan using the prior year testing method and a plan using the current year testing method and the change is made within the transition period described in Code Section 410(b)(6)(C)(ii).

A Participant is a Highly Compensated Employee for a particular Plan Year if he meets the definition of a Highly Compensated Employee in effect for that Plan Year. Similarly, a Participant is a Nonhighly Compensated Employee for a particular Plan Year if he does not meet the definition of a Highly Compensated Employee in effect for that Plan Year.

The Deferral Percentage for any Eligible Participant who is a Highly Compensated Employee for the Plan Year and who is eligible to have Elective Deferral Contributions (and Qualified Nonelective Contributions or Qualified Matching Contributions, or both, if treated as Elective Deferral Contributions for purposes of the ADP Test) allocated to his account under two or more arrangements described in Code Section 401(k) that are maintained by the Employer or a Controlled Group member shall be determined as if such Elective Deferral Contributions (and, if applicable, such Qualified Nonelective Contributions or Qualified Matching Contributions, or both) were made under a single arrangement.  For Plan Years beginning on or after January 1, 2006, if a Highly Compensated Employee participates in two or more cash or deferred arrangements of the Employer or of a Controlled Group member that have different plan years, all Elective Deferral Contributions made during the Plan Year shall be aggregated.  For Plan Years beginning before January 1, 2006, all such cash or deferred arrangements ending with or within the same calendar year shall be treated as a single arrangement. The foregoing notwithstanding, certain plans shall be treated as separate if mandatorily disaggregated under the regulations of Code Section 401(k).

In the event this Plan satisfies the requirements of Code Section 401(k), 401(a)(4), or 410(b) only if aggregated with one or more other plans, or if one or more other plans satisfy the requirements of such Code sections only if aggregated with this Plan, then this section shall be applied by determining the Deferral Percentage of Employees as if all such plans were a single plan. If more than 10 percent of the Employer’s Nonhighly Compensated Employees are involved in a plan coverage change as defined in section 1.401(k)-2(c)(4) of the regulations, then any adjustments to the Nonhighly Compensated Employee ADP for the prior year shall be made in accordance with such regulations if the Employer has elected to use the prior year testing method. Plans may be aggregated in order to satisfy Code Section 401(k) only if they have the same plan year and use the same testing method for the ADP Test.

RESTATEMENT JANUARY 1, 2011 39 ARTICLE III  (7-10182)

For purposes of the ADP Test, Elective Deferral Contributions, Qualified Nonelective Contributions, and Qualified Matching Contributions must be made before the end of the 12-month period immediately following the Plan Year to which the contributions relate.

If the Plan Administrator should determine during the Plan Year that the ADP Test is not being met, the Plan Administrator may limit the amount of future Elective Deferral Contributions of the Highly Compensated Employees.

Notwithstanding any other provisions of this Plan, Excess Contributions, plus any income and minus any loss allocable thereto, shall be distributed no later than 12 months after the last day of a Plan Year to Participants to whose Accounts such Excess Contributions were allocated for such Plan Year, except to the extent such Excess Contributions are classified as Catch-up Contributions. Excess Contributions are allocated to the Highly Compensated Employees with the largest amounts of employer contributions taken into account in calculating the ADP Test for the year in which the excess arose, beginning with the Highly Compensated Employee with the largest amount of such employer contributions and continuing in descending order until all of the Excess Contributions have been allocated. For Plan Years beginning on or after January 1, 2006, if a Highly Compensated Employee participates in two or more cash or deferred arrangements of the Employer or of a Controlled Group member, the amount distributed shall not exceed the amount of the employer contributions taken into account in calculating the ADP test and made to this Plan for the year in which the excess arose. If Catch-up Contributions are allowed for the Plan Year being tested, to the extent a Highly Compensated Employee has not reached his Catch-up Contribution limit under the Plan for such year, Excess Contributions allocated to such Highly Compensated Employee are Catch-up Contributions and will not be treated as Excess Contributions. If such excess amounts (other than Catch-up Contributions) are distributed more than 2 1/2 months after the last day of the Plan Year in which such excess amounts arose, a 10 percent excise tax shall be imposed on the employer maintaining the plan with respect to such amounts.

Excess Contributions shall be treated as Annual Additions, as defined in the CONTRIBUTION LIMITATION SECTION of this article, even if distributed.

The Excess Contributions shall be adjusted for any income or loss. The income or loss allocable to such Excess Contributions allocated to each Participant shall be equal to the income or loss allocable to the Participant’s Elective Deferral Contributions (and, if applicable, Qualified Nonelective Contributions or Qualified Matching Contributions, or both) for the Plan Year in which the excess occurred multiplied by a fraction. The numerator of the fraction is the Excess Contributions. The denominator of the fraction is the closing balance without regard to any income or loss occurring during such Plan Year (as of the end of such Plan Year) of the Participant’s Account resulting from Elective Deferral Contributions (and Qualified Nonelective Contributions or Qualified Matching Contributions, or both, if such contributions are included in the ADP Test).

For purposes of determining income or loss on Excess Contributions for Plan Years beginning on or after January 1, 2008, no adjustment shall be made for income or loss for the gap period.

Excess Contributions allocated to a Participant shall be distributed from the Participant’s Account resulting from Elective Deferral Contributions. If such Excess Contributions exceed the amount of Excess Contributions in the Participant’s Account resulting from Elective Deferral Contributions, the balance shall be distributed from the Participant’s Account resulting from Qualified Matching Contributions (if applicable) and Qualified Nonelective Contributions, respectively.

RESTATEMENT JANUARY 1, 2011 40 ARTICLE III  (7-10182)

Any Matching Contributions that were based on the Elective Deferral Contributions distributed as Excess Contributions or redesignated as Catch-up Contributions, plus any income and minus any loss allocable thereto, shall be forfeited.

(d) ACP Test.  As of the end of each Plan Year, the Plan must satisfy the ACP Test. The ACP Test shall be satisfied using the prior year testing method or the current year testing method, as elected by the Employer.

(1) Prior Year Testing Method. The ACP for a Plan Year for Eligible Participants who are Highly Compensated Employees for each Plan Year and the prior year’s ACP for Eligible Participants who were Nonhighly Compensated Employees for the prior Plan Year must satisfy one of the following tests:

(i) The ACP for a Plan Year for Eligible Participants who are Highly Compensated Employees for the Plan Year shall not exceed the prior year’s ACP for Eligible Participants who were Nonhighly Compensated Employees for the prior Plan Year multiplied by 1.25; or

(ii) The ACP for a Plan Year for Eligible Participants who are Highly Compensated Employees for the Plan Year:

A. shall not exceed the prior year’s ACP for Eligible Participants who were Nonhighly Compensated Employees for the prior Plan Year multiplied by 2, and

B. the difference between such ACPs is not more than 2.

If this is not a successor plan, for the first Plan Year the Plan permits any Participant to make Participant Contributions, provides for Matching Contributions, or both, for purposes of the foregoing tests, the prior year’s Nonhighly Compensated Employees’ ACP shall be 3 percent or the Plan Year’s ACP for these Eligible Participants, as elected by the Employer.

(2) Current Year Testing Method.  The ACP for a Plan Year for Eligible Participants who are Highly Compensated Employees for each Plan Year and the ACP for Eligible Participants who are Nonhighly Compensated Employees for the Plan Year must satisfy one of the following tests:

(i) The ACP for a Plan Year for Eligible Participants who are Highly Compensated Employees for the Plan Year shall not exceed the ACP for Eligible Participants who are Nonhighly Compensated Employees for the Plan Year multiplied by 1.25; or

(ii) The ACP for a Plan Year for Eligible Participants who are Highly Compensated Employees for the Plan Year:

A. shall not exceed the ACP for Eligible Participants who are Nonhighly Compensated Employees for the Plan Year multiplied by 2, and

B. the difference between such ACPs is not more than 2.

RESTATEMENT JANUARY 1, 2011 41 ARTICLE III  (7-10182)

If the Employer has elected to use the current year testing method, that election cannot be changed unless (i) the Plan has been using the current year testing method for the preceding five Plan Years, or if less, the number of Plan Years the Plan has been in existence; or (ii) if as a result of a merger or acquisition described in Code Section 410(b)(6)(C)(i), the Employer maintains both a plan using the prior year testing method and a plan using the current year testing method and the change is made within the transition period described in Code Section 410(b)(6)(C)(ii).

A Participant is a Highly Compensated Employee for a particular Plan Year if he meets the definition of a Highly Compensated Employee in effect for that Plan Year. Similarly, a Participant is a Nonhighly Compensated Employee for a particular Plan Year if he does not meet the definition of a Highly Compensated Employee in effect for that Plan Year.

The Contribution Percentage for any Eligible Participant who is a Highly Compensated Employee for the Plan Year and who is eligible to have Contribution Percentage Amounts allocated to his account under two or more plans described in Code Section 401(a) or arrangements described in Code Section 401(k) that are maintained by the Employer or a Controlled Group member shall be determined as if the total of such Contribution Percentage Amounts was made under each plan and arrangement. For Plan Years beginning on or after January 1, 2006, if a Highly Compensated Employee participates in two or more such plans or arrangements that have different plan years, all Contribution Percentage Amounts made during the Plan Year shall be aggregated. For Plan Years beginning before January 1, 2006, all such plans and arrangements ending with or within the same calendar year shall be treated as a single plan or arrangement.  The foregoing notwithstanding, certain plans shall be treated as separate if mandatorily disaggregated under the regulations of Code Section 401(m).

In the event this Plan satisfies the requirements of Code Section 401(m), 401(a)(4), or 410(b) only if aggregated with one or more other plans, or if one or more other plans satisfy the requirements of such Code sections only if aggregated with this Plan, then this section shall be applied by determining the Contribution Percentage of Employees as if all such plans were a single plan. If more than 10 percent of the Employer’s Nonhighly Compensated Employees are involved in a plan coverage change as defined in section 1.401(m)-2(c)(4) of the regulations, then any adjustments to the Nonhighly Compensated Employee ACP for the prior year shall be made in accordance with such regulations if the Employer has elected to use the prior year testing method. Plans may be aggregated in order to satisfy Code Section 401(m) only if they have the same plan year and use the same testing method for the ACP Test.

For purposes of the ACP Test, Participant Contributions are considered to have been made in the Plan Year in which contributed to the Plan. Matching Contributions and Qualified Nonelective Contributions will be considered to have been made for a Plan Year if made no later than the end of the 12-month period beginning on the day after the close of the Plan Year.

Notwithstanding any other provisions of this Plan, Excess Aggregate Contributions, plus any income and minus any loss allocable thereto, shall be forfeited, if not vested, or distributed, if vested, no later than 12 months after the last day of a Plan Year to Participants to whose Accounts such Excess Aggregate Contributions were allocated for such Plan Year. Excess Aggregate Contributions are allocated to the Highly Compensated Employees with the largest Contribution Percentage Amounts taken into account in calculating the ACP Test for the year in which the excess arose, beginning with the Highly Compensated Employee with the largest amount of such Contribution Percentage Amounts and continuing in descending order until all of the Excess Aggregate Contributions have been allocated. For Plan Years beginning on or after

RESTATEMENT JANUARY 1, 2011 42 ARTICLE III  (7-10182)

January 1, 2006, if a Highly Compensated Employee participates in two or more plans or arrangements of the Employer or of a Controlled Group member that include Contribution Percentage Amounts, the amount distributed shall not exceed the Contribution Percentage Amounts taken into account in calculating the ACP Test and made to this Plan for the year in which the excess arose. If such Excess Aggregate Contributions are distributed more than 2 1/2 months after the last day of the Plan Year in which such excess amounts arose, a 10 percent excise tax shall be imposed on the employer maintaining the plan with respect to such amounts.

Excess Aggregate Contributions shall be treated as Annual Additions, as defined in the CONTRIBUTION LIMITATION SECTION of this article, even if distributed.

The Excess Aggregate Contributions shall be adjusted for any income or loss. The income or loss allocable to such Excess Aggregate Contributions allocated to each Participant shall be equal to the income or loss allocable to the Participant’s Contribution Percentage Amounts for the Plan Year in which the excess occurred multiplied by a fraction. The numerator of the fraction is the Excess Aggregate Contributions. The denominator of the fraction is the closing balance without regard to any income or loss occurring during such Plan Year (as of the end of such Plan Year) of the Participant’s Account resulting from Contribution Percentage Amounts.

For purposes of determining income or loss on Excess Aggregate Contributions for Plan Years beginning on or after January 1, 2008, no adjustment shall be made for income or loss for the gap period.

Excess Aggregate Contributions allocated to a Participant shall be distributed from the Participant’s Account resulting from Participant Contributions that are not required as a condition of employment or participation or for obtaining additional benefits from Employer Contributions. If such Excess Aggregate Contributions exceed the balance in the Participant’s Account resulting from such Participant Contributions, the balance shall be forfeited, if not vested, or distributed, if vested, on a pro rata basis from the Participant’s Account resulting from Contribution Percentage Amounts.

(e) Employer Elections.  An Employer Group may make a separate election under this section. Any elections must be made in writing and in accordance with the regulations under Code Sections 401(k) and 401(m) and shall be included as a permanent part of the plan.

SECTION 3.05--PROHIBITED ALLOCATIONS OF QUALIFYING EMPLOYER SECURITIES.

Notwithstanding any contrary provision of the Plan, Qualifying Employer Securities will not be allocated under the following circumstances.

(a) Sale under Code Section 1042.  Qualifying Employer Securities that have been acquired by the Plan in a sale to which Code Section 1042 applies shall not be allocated during the non-allocation period directly or indirectly under the Plan (or any qualified plan of any Employer) to the Accounts of:

(1) The individual who makes the election under Code Section 1042.

(2) Any individual who is related (within the meaning of Code Section 267(b)) to the individual who makes the election under Code Section 1042. However, this paragraph shall not apply to lineal descendents of the individual who makes the election under Code Section 1042,

RESTATEMENT JANUARY 1, 2011 43 ARTICLE III  (7-10182)

provided that the aggregate amount allocated to the benefit of such lineal descendents during the non-allocation period does not exceed more than five percent (5%) of the Qualifying Employer Securities (or amounts allocated in lieu thereof) held by the Plan which are attributable to a sale to the Plan by any person related to such descendents (within the meaning of Code Section 267(c)(4)) in a transaction subject to Code Section 1042.

The “non-allocation period” is the period for this purpose beginning on the date of the sale of the Qualifying Employer Securities to the Plan and ending on the later of the date which is ten (10) years after the date of sale or the date of the allocation attributable to the final payment of an Exempt Loan incurred in connection with such sale to the Plan.

Further, notwithstanding any contrary provision of the Plan, Qualifying Employer Securities that have been acquired by the Plan in a sale to which Code Section 1042 applies shall not be allocated, during or after the non-allocation period, directly or indirectly under the Plan (or any qualified plan of any Employer) to the Account of any individual who owns (after application of the aggregation rules of Code Section 318(a) applied without regard to the employee trust exception in Code Section 318(a)(2)(B)(i)) more than twenty five percent (25%) of any class of outstanding stock of any Employer, or the total value of any class of outstanding stock of the Employer.

RESTATEMENT JANUARY 1, 2011 44 ARTICLE III  (7-10182)

ARTICLE IV

INVESTMENT OF CONTRIBUTIONS

SECTION 4.01--INVESTMENT AND TIMING OF CONTRIBUTIONS.

The handling of Contributions and Plan assets is governed by the provisions of the Trust Agreement and any other relevant document, such as an Annuity Contract (for the purposes of this paragraph alone, the Trust Agreement and such other documents will each be referred to as a “document” or collectively as the “documents”), duly entered into by or with regard to the Plan that govern such matters. To the extent permitted by the documents, the parties named below shall direct the Contributions for investment in any of the investment options or investment vehicles available to the Plan under or through the documents, and may request the transfer of amounts resulting from those Contributions between such investment options and investment vehicles. A Participant may not direct the investment of all or any portion of his Account in collectibles. Collectibles mean any work of art, rug or antique, metal or gem, stamp or coin, alcoholic beverage, or other tangible personal property specified by the Secretary of the Treasury.  However, for tax years beginning after December 31, 1997, certain coins and bullion as provided in Code Section 408(m)(3) shall not be considered collectibles. To the extent that a Participant who has the ability to provide investment direction fails to give timely investment direction, the amount for which no investment direction is in place shall be invested in such investment options and investment vehicles as provided in the service and expense agreement or such other documents duly entered into by or with regard to the Plan that govern such matters.  If the Primary Employer has investment direction, the Contributions shall be invested ratably in the investment options and investment vehicles available to the Plan under or through the documents. The Primary Employer shall have investment direction for amounts that have not been allocated to Participants. To the extent an investment is no longer available, the Primary Employer may require that amounts currently held in such investment be reinvested in other investments.

At least annually, the Named Fiduciary shall review all pertinent Employee information and Plan data in order to establish the funding policy of the Plan and to determine appropriate methods of carrying out the Plan's objectives. The Named Fiduciary shall inform the Trustee and any Investment Manager of the Plan's short-term and long-term financial needs so the investment policy can be coordinated with the Plan's financial requirements.

(a) Elective Deferral Contributions:  The Participant shall direct the investment of Elective Deferral Contributions and transfer of amounts resulting from those Contributions.

(b) Employer Contributions other than Elective Deferral Contributions or ESOP Discretionary Contributions: The Participant shall direct the investment of such Employer Contributions and transfer of amounts resulting from those Contributions.

(c) Rollover Contributions:  The Participant shall direct the investment of Rollover Contributions and transfer of amounts resulting from those Contributions.

(d) ESOP Discretionary Contributions: The Employer shall direct the investment of ESOP Discretionary Contributions and the Participant shall direct the transfer of amounts resulting from those Contributions.

However, the Named Fiduciary may delegate to the Investment Manager investment direction for Contributions and amounts that are not subject to Participant direction.

RESTATEMENT JANUARY 1, 2011 45 ARTICLE IV  (7-10182)

All Contributions are forwarded by the Employer to (i) the Trustee to be deposited in the Trust Fund or otherwise invested by the Trustee in accordance with the relevant documents; or (ii) the Insurer to be deposited under the Annuity Contract, as applicable.

SECTION 4.02--INVESTMENT IN QUALIFYING EMPLOYER SECURITIES.

(a) ESOP Designation.  The portion of the Plan that consists of Participants’ Accounts holding Qualified Employer Securities and the Unallocated Reserve is an employee stock ownership plan (within the meaning of Code Section 4975(e)(7)) and is designed to invest primarily in Qualified Employer Securities. All shares of Qualified Employer Securities held under the Plan will be held in the Trust Fund in the name of the Trustee or the nominee of the Trustee. The Employer may make contributions in the form of cash and/or Qualified Employer Securities. All or some portion of the Participant’s Account resulting from Elective Deferral Contributions, Matching Contributions and ESOP Discretionary Contributions may be invested in Qualifying Employer Securities and will be considered the ESOP component of the Plan.

(b) Diversification.  Each Participant is permitted to elect to direct any publicly traded qualifying employer securities (as defined in Code Section 401(a)(35(G)(v)) held in his Account under the Plan to be reinvested in other investment options offered under the Plan with respect to the portion of his Account that is subject to Code Section 401(a)(35)(B) or (C). The plan sponsor may permit diversification of amounts invested in qualifying employer securities earlier than required as long as the earlier time period is applied consistently to all employees.

The Plan shall offer at least three investment options, other than Qualifying Employer Securities, to which the applicable individual may direct all or any portion of his Account invested in Qualifying Employer Securities, and each investment option must be diversified and have materially different risk and return characteristics that satisfy the requirements of section 2550.404c-1(b)(3) of the Department of Labor regulations. The Plan may limit the time for divestment and reinvestment to periodic, reasonable opportunities occurring no less frequently than quarterly. The Plan may not impose any restrictions or conditions with respect to the investment of Qualifying Employer Securities that are not imposed on the investment options offered under the Plan.

(c) Dividends.  For purposes of determining dividends, shares of Qualified Employer Securities shall be deemed to be credited to the Account of a Participant, Beneficiary or Alternate Payee as of the record date of a dividend if they are credited to his Account as of the close of the day prior to the ex-date of such dividend (or, if the ex-date is after the record date, as of the close of the day prior to the record date).

(1) Stock Dividend.  In the event of any stock dividend or any stock split, such dividend or split shall be credited to the Accounts based on the number of shares of Qualified Employer Securities credited to each Account as of the record date of such dividend or split.

(2) Cash Dividend. As determined by the Employer, cash dividends paid on shares of Qualified Employer Securities credited to an Account of a Participant, Beneficiary or Alternate Payee as of the record date of such dividend will be either (i) paid in cash directly to Participants, (ii) paid to the Plan and distributed to Participants within 90 days after the end of the Plan Year in which such dividend was paid to the Plan, (iii) applied to repay an Exempt Loan then outstanding (but only if such Qualifying Employer Security is attributable to such Exempt Loan); (iv) made subject to the election procedure described in paragraph (3) below; or (v) retained in the Trust and treated as net income of the Trust. The Employer

RESTATEMENT JANUARY 1, 2011 46 ARTICLE IV  (7-10182)

shall not direct that dividends paid on shares of Qualified Employer Securities held in the Participants’ Accounts be applied to repay an Exempt Loan, unless the shares of Qualified Employer Securities released from the Unallocated Reserve will have a value at least sufficient to allow for the full allocation required in step one under the allocation of Discretionary Contributions provisions of the ALLOCATIONS SECTION of Article 3 (the Employer may make Discretionary Contributions necessary to allow for such full allocation).

In addition, dividends or S corporation distributions attributable to Qualified Employer Securities held in the Unallocated Suspense Account (as a result of an Exempt Loan) shall be allocated to Participants’ Accounts as earnings of the Trust available to repay an Exempt Loan to the extent allowed by ERISA. Such earnings shall be allocated in proportion to the shares of Qualified Employer Securities held in a Participant’s Account as of the record date of the dividend or S corporation distribution.

(3) Cash Dividend Election.  If the Employer elects, cash dividends paid on shares of Qualified Employer Securities credited to an Account of a Participant, Beneficiary or Alternate Payee as of the record date of such dividend will be:

(A) Paid to the Participant, Beneficiary or Alternate Payee if so elected under the procedure outlined below; or

(B) Otherwise, added to the balance of his Account as soon as administratively practicable after such dividends are paid into the Trust Fund.

A Participant, Beneficiary or Alternate Payee may elect to have cash dividends on shares of Qualified Employer Securities credited to his Account either paid to him in cash or added to the balance of his Account and reinvested in Qualified Employer Securities.  Cash dividends that the Participant, Beneficiary or Alternate Payee elects to receive in cash will be paid on or as soon as administratively practicable following the record date of such dividend. Cash dividends that the Participant, Beneficiary or Alternate Payee elects to have reinvested in Qualified Employer Securities will be credited to a separate source account that reflects only such cash dividends, and shall be reinvested in additional shares of Qualified Employer Securities on or as soon as administratively practicable following the record date of such dividend, which may be after the end of the Plan Year once Qualified Employer Securities can be valued for acquisition purposes.

Shares in Qualified Employer Securities shall be deemed to be credited to the Account of a Participant, Beneficiary or Alternate Payee as of the record date of a dividend if they are credited to his Account as of the close of the day prior to the ex-date of such dividend (or, if the ex-date is after the record date, as of the close of the day prior to the record date).

An election hereunder must be made in such manner and in accordance with such rules as may be prescribed for this purpose by the Plan Administrator (including by means of a voice response or other electronic system under circumstances so authorized by the Plan Administrator). In the absence of an affirmative election received by the deadline established for this purpose by the Plan Administrator (which shall be no less than thirty (30) days after notice of the dividend election is provided), a Participant, Beneficiary or Alternate Payee will be deemed to have elected to have cash dividends added to his Account and reinvested in Qualified Employer Securities. To the extent so prescribed by the Plan Administrator, an election hereunder will be “evergreen” - that is, it will continue to

RESTATEMENT JANUARY 1, 2011 47 ARTICLE IV  (7-10182)

apply until changed by the Participant, Beneficiary or Alternate Payee. Under the rules prescribed by the Plan Administrator, a Participant, Beneficiary or Alternate Payee shall be allowed to revise his election no less than once a year, and if there is a change in the terms of the Plan governing the manner in which dividends are paid or distributed, a Participant, Beneficiary or Alternate Payee shall be allowed a reasonable opportunity to make a new election.

The Account of a Participant, Beneficiary or Alternate Payee may be charged with the distribution costs (for example, the actual check-writing fee) of any distribution made at his election under this Section.

(d) Authorization for Exempt Loan.  The Employer may direct that the Plan engage in an Exempt Loan that satisfies the following requirements:

(1) Lender.  The Exempt Loan may be made by the Employer or any lender acceptable to the Employer, and may be made or guaranteed by a party in interest (as defined in ERISA Section 3(14)) or a disqualified person (as defined in Code Section 4975).

(2) Use of Loan Proceeds.  The Exempt Loan must be used within a reasonable time after receipt to acquire shares of Qualifying Employer Securities for the Unallocated Reserve or to repay a prior Exempt Loan (or for any combination of the foregoing purposes).

(3) No Recourse Against Trust Fund.  The Exempt Loan must be without recourse against the Plan except that:

(i) The Qualifying Employer Securities acquired with the proceeds of the Exempt Loan may be pledged or otherwise used to secure repayment of the Exempt Loan, and the Qualifying Employer Securities acquired with the proceeds of a prior Exempt Loan which is repaid with the proceeds of the Exempt Loan may be pledged or otherwise used to secure repayment of the Exempt Loan, and

(ii) Any Discretionary Contributions that are made for the purpose of satisfying the obligations under the Exempt Loan (and earnings thereon) may be pledged or otherwise used to secure repayment of the Exempt Loan, and

(iii) The earnings attributable to shares of Qualifying Employer Securities acquired with the proceeds of an Exempt Loan may be used  to repay that Exempt Loan or any renewal or extension thereof, and

(iv) The earnings attributable to unallocated shares of Qualifying Employer Securities that were acquired with the proceeds of an Exempt Loan may be pledged or otherwise used as security for another Exempt Loan.

(4) Term of Loan.  The Exempt Loan must provide for principal and interest to be paid over a specific term, and not payable upon demand except in the event of default.

(5) Release of Shares from Unallocated Reserve.  The number of shares released each Plan Year shall equal “A” multiplied by “B” where:

“A” = the number of shares held in the Unallocated Reserve immediately before the release;

RESTATEMENT JANUARY 1, 2011 48 ARTICLE IV  (7-10182)

“B” = a fraction, the numerator of which is equal to the principal and interest paid on the Exempt Loan for the Plan Year and the denominator of which is equal to the sum of the numerator and the total principal and interest scheduled to be paid on the Exempt Loan for all future Plan Years (without consideration of possible extensions or renewal periods).

If the interest rate under the Exempt Loan is variable, the amount of interest to be paid in future Plan Years shall be calculated by using the interest rate in effect on the last day of the current Plan Year.

Alternatively, if the conditions of Treasury Regulation 54.4975-7(b)(8)(ii) are met, “B” may be calculated as a fraction, the numerator of which is equal to the principal paid on the Exempt Loan for the Plan Year and the denominator of which is equal to the sum of the numerator and the total principal scheduled to be paid on the Exempt Loan for all future Plan Years (without consideration of possible extensions or renewal periods).

If an Exempt Loan is repaid as a result of a refinancing by another Exempt Loan, such repayment shall not be considered a repayment under this subsection and the release of shares thereafter shall be determined by aggregating principal and interest on the loan and any refinancing of the loan.

(6) Interest Rate.  The Exempt Loan must bear interest at a fixed or variable rate that is not in excess of a reasonable rate of interest considering all relevant factors (including, but not limited to, the amount and duration of the loan, the security given, the guarantees involved, the credit standing of the Plan, the Employer, and the guarantors, and the generally prevailing rates of interest).

(7) Default.  The Exempt Loan must provide that, in the event of default, the fair market value of Qualifying Employer Securities and other assets which can be transferred in satisfaction of the loan must not exceed the amount of the loan. If the lender is a party in interest or disqualified person, the loan must provide for a transfer of Plan assets upon default only upon and to the extent of the failure of the Plan to satisfy the payment schedule of the Exempt Loan.

(8) Restrictions.  Unless required under Code Section 409(h), no options, puts, call, rights of first refusal or other restrictions on alienability will attach to any shares of Qualifying Employer Securities acquired with the proceeds of an Exempt Loan and held in the Trust Fund or distributed from the Plan, whether or not this Plan continues to be an employee stock ownership plan with the meaning of Code Section 4975(e)(7).

(e) Valuation of Qualifying Employer Securities.  For purposes of determining the annual valuation of the Plan, and for reporting to Participants and regulatory authorities, the assets of the Plan shall be valued at least annually on the Valuation Date which corresponds  to the last day of the Plan Year. The fair market value of Qualifying Employer Securities shall be determined on such Valuation Date. The prices of Qualifying Employer Securities as of the date of the transaction shall apply for purposes of valuing distributions and other transactions of the Plan to the extent such value is representative of the fair market value of such securities in the opinion of the Plan Administrator. The value of a Participant’s Account held in the Qualifying Employer Securities Fund may be expressed in shares of Qualifying Employer Securities.

RESTATEMENT JANUARY 1, 2011 49 ARTICLE IV  (7-10182)

If the Qualifying Employer Securities are not publicly traded, or if an extremely thin market exists for such securities so that reasonable valuation may not be obtained from the market place, then such securities must be valued at least annually by an independent appraiser who is not associated with the Employer, the Plan Administrator, the Trustee, or any person related to any fiduciary under the Plan. The independent appraiser may be associated with a person who is merely a contract administrator with respect to the Plan, but who exercises no discretionary authority and is not a plan fiduciary.

If there is a public market for Qualifying Employer Securities of the type held by the Plan, then the Plan Administrator may use as the value of the securities the price at which securities trade in such market. If the Qualifying Employer Securities do not trade on the relevant date, or if the market is very thin on such date, then the Plan Administrator may use for the valuation the next preceding trading day on which the trading prices are representative of the fair market value of such securities in the opinion of the Plan Administrator.

(f) Purchases or Sales of Qualifying Employer Securities. The Plan Administrator may direct the Trustee to sell, resell, or otherwise dispose of Qualifying Employer Securities to any person, including the Employer, provided that any such sales to any disqualified person or party-in-interest, including the Employer, will be made at not less than the fair market value and no commission will be charged.  Any such sale shall be made in conformance with ERISA Section 408(e). If it is necessary to purchase Qualifying Employer Securities for the Trust Fund, such purchase may be on the open market or from the Employer or any member of the Controlled Group. All purchases of Qualifying Employer Securities shall be made at a price, or prices, which, in the judgment of the Plan Administrator, do not exceed the fair market value of such securities.  If shares are purchased from or sold to the Employer or a member of the Controlled Group, the purchase or sale will be made at the price determined under paragraph (e) above.

In the event that the Trustee acquires Qualifying Employer Securities by purchase from a “disqualified person” as defined in Code Section 4975(e)(2) or from a “party-in-interest” as defined in ERISA Section 3(14), t he terms of such purchase shall contain the provision that in the event there is a final determination by the Internal Revenue Service, the Department of Labor, or court of competent jurisdiction that the fair market value of such securities as of the date of purchase was less than the purchase price paid by the Trustee, then the seller shall pay or transfer, as the case may be, to the Trustee an amount of cash or shares of Qualifying Employer Securities equal in value to the difference between the purchase price and such fair market value for all such shares. In the event that cash or shares of Qualifying Employer Securities are paid or transferred to the Trustee under this provision, such securities shall be valued at their fair market value as of the date of such purchase, and interest at a reasonable rate from the date of purchase to the date of repayment or transfer shall be paid by the seller on the amount of cash paid.

(g) Compliance with Securities Laws. The Employer is responsible for compliance with any applicable Federal or state securities law with respect to all aspects of the Plan except for the Trustee’s obligation to report its ownership of Qualifying Employer Securities. If the Qualifying Employer Securities or interest in this Plan are required to be registered in order to permit investment in the Qualifying Employer Securities Fund as provided in this section, then such investment will not be effective until the later of the effective date of the Plan or the date such registration or qualification is effective. The Employer, at its own expense, will take or cause to be taken any and all such actions as may be necessary or appropriate to affect such registration or qualification. Further, if the Trustee is directed to dispose of any Qualifying Employer Securities held under the Plan under circumstances which require registration or qualification of the

RESTATEMENT JANUARY 1, 2011 50 ARTICLE IV  (7-10182)

securities under applicable Federal or state securities laws, then the Employer will, at its own expense, take or cause to be taken any and all such action as may be necessary or appropriate to effect such registration or qualification. The Employer is responsible for all compliance requirements under Section 16 of the Securities Act.

RESTATEMENT JANUARY 1, 2011 51 ARTICLE IV  (7-10182)

ARTICLE V

BENEFITS

SECTION 5.01--RETIREMENT BENEFITS.

On a Participant's Retirement Date, his Vested Account shall be distributed to him according to the distribution of benefits provisions of Article VI and the provisions of the SMALL AMOUNTS SECTION of Article X.

SECTION 5.02--DEATH BENEFITS.

If a Participant dies before his Annuity Starting Date, his Vested Account shall be distributed according to the distribution of benefits provisions of Article VI and the provisions of the SMALL AMOUNTS SECTION of Article X.

SECTION 5.03--VESTED BENEFITS.

If an Inactive Participant’s Vested Account is not payable under the SMALL AMOUNTS SECTION of Article X, he may elect, but is not required, to receive a distribution of any part of his Vested Account after he has a Severance from Employment. A distribution under this paragraph shall be a retirement benefit and shall be distributed to the Participant according to the distribution of benefits provisions of Article VI.

A Participant may not elect to receive a distribution under the provisions of this section after he again becomes an Employee until he subsequently has a Severance from Employment and meets the requirements of this section.

Beginning January 1, 2009, a Participant who has been performing Qualified Military Service for a period of more than 30 days is deemed to have had a Severance from Employment for purposes of requesting a distribution of his Vested Account resulting from Elective Deferral Contributions. The Plan will suspend Elective Deferral Contributions for six months after receipt of the distribution. If the Participant is also eligible to receive a Qualified Reservist Distribution and the distribution could be either type of distribution, the distribution will be treated as a Qualified Reservist Distribution.

If an Inactive Participant does not receive an earlier distribution, upon his Retirement Date or death, his Vested Account shall be distributed according to the provisions of the RETIREMENT BENEFITS SECTION or the DEATH BENEFITS SECTION of this article.

The Nonvested Account of an Inactive Participant who has had a Severance from Employment shall remain a part of his Account until it becomes a Forfeiture. However, if he again becomes an Employee so that his Vesting Percentage can increase, the Nonvested Account may become a part of his Vested Account.

SECTION 5.04--WHEN BENEFITS START.

(a) Unless otherwise elected, benefits shall begin before the 60th day following the close of the Plan Year in which the latest date below occurs:

(1) The date the Participant attains age 65 (or Normal Retirement Age, if earlier).

(2) The 10th anniversary of the Participant’s earliest Entry Date.

RESTATEMENT JANUARY 1, 2011 52 ARTICLE V  (7-10182)

(3) The date the Participant terminates service with the Employer.

Notwithstanding the foregoing, the failure of a Participant to consent to a distribution while a benefit is immediately distributable, within the meaning of the ELECTION PROCEDURES SECTION of Article VI, shall be deemed to be an election to defer the start of benefits sufficient to satisfy this section.

The Participant may elect to have benefits begin after the latest date for beginning benefits described above, subject to the following provisions of this section. The Participant shall make the election in writing. Such election must be made before his Normal Retirement Date or the date he has a Severance from Employment, if later. The Participant shall not elect a date for beginning benefits or a form of distribution that would result in a benefit payable when he dies which would be more than incidental within the meaning of governmental regulations.

Benefits shall begin on an earlier date if otherwise provided in the Plan. For example, the Participant’s Retirement Date or Required Beginning Date, as defined in the DEFINITIONS SECTION of Article VII.

(b) The Participant’s Vested Account resulting from the following Contributions:

  Elective Deferral Contributions

  Qualified Nonelective Contributions

may not be distributed earlier than Severance from Employment (separation from service, for Plan Years beginning before January 1, 2002), death, or disability. Such amount may also be distributed upon:

(1) Termination of the Plan, as permitted in Article VIII.

(2) The attainment of age 59 1/2 as permitted in the WITHDRAWAL BENEFITS SECTION of this article or in the definition of Normal Retirement Date in the DEFINITIONS SECTION of Article I.

Elective Deferral Contributions may also be distributed as a Qualified Reservist Distribution as permitted in the WITHDRAWAL BENEFITS SECTION of this article. Beginning January 1, 2009, Elective Deferral Contributions may be distributed if the Participant is deemed to have a Severance from Employment as described in Code Section 414(u)(12)(B)(i).

All distributions that may be made pursuant to one or more of the foregoing distributable events will be a retirement benefit and shall be distributed to the Participant according to the distribution of benefits provisions of Article VI. In addition, distributions that are triggered by the termination of the Plan must be made in a lump sum. A lump sum shall include a distribution of an annuity contract.

SECTION 5.05--WITHDRAWAL BENEFITS.

A Participant may withdraw any part of his Vested Account resulting from Rollover Contributions. A Participant may make such a withdrawal at any time.

RESTATEMENT JANUARY 1, 2011 53 ARTICLE V  (7-10182)

A Participant who has attained age 59 1/2 may withdraw any part of his Vested Account resulting from the following Contributions:

Elective Deferral Contributions

Matching Contributions

Qualified Nonelective Contributions

ESOP Discretionary Contributions

A Participant may make such a withdrawal at any time.

A Participant may withdraw any part of his Vested Account resulting from Elective Deferral Contributions if such distribution would be a Qualified Reservist Distribution.

The portion of the Participant’s Account held in the Qualifying Employer Securities Fund may be redeemed for purposes of any withdrawal only after the amount held in other investment options has been depleted.

A request for withdrawal shall be made in such manner and in accordance with such rules as the Employer will prescribe for this purpose (including by means of voice response or other electronic means under circumstances the Employer permits). Withdrawals shall be a retirement benefit and shall be distributed to the Participant according to the distribution of benefits provisions of Article VI. A forfeiture shall not occur solely as a result of a withdrawal.

SECTION 5.06--LOANS TO PARTICIPANTS.

Loans shall be made available to all Participants on a reasonably equivalent basis.  For purposes of this section, and unless otherwise specified, Participant means any Participant or Beneficiary who is a party-in-interest as defined in ERISA. Loans shall not be made to Highly Compensated Employees in an amount greater than the amount made available to other Participants.

A loan to a Participant shall be a Participant-directed investment of his Account. The portion of the Participant’s Account held in the Qualifying Employer Securities Fund may be redeemed for purposes of a loan only after the amount held in other investment options has been depleted. The loan is a Trust Fund investment but no Account other than the borrowing Participant’s Account shall share in the interest paid on the loan or bear any expense or loss incurred because of the loan.

The number of outstanding loans shall be limited to one. No more than one loan shall be approved for any Participant in any 12-month period.  The minimum amount of any loan shall be $1,000.

Loans must be adequately secured and bear a reasonable rate of interest.

The amount of the loan shall not exceed the maximum amount that may be treated as a loan under Code Section 72(p) (rather than a distribution) to the Participant and shall be equal to the lesser of (a) or (b) below:

(a) $50,000, reduced by the highest outstanding loan balance of loans during the one-year period ending on the day before the new loan is made.

RESTATEMENT JANUARY 1, 2011 54 ARTICLE V  (7-10182)

(b) The greater of (1) or (2), reduced by (3) below:

(1) One-half of the Participant's Vested Account (without regard to any accumulated deductible employee contributions, as defined in Code Section 72(o)(5)(B)).

(2) $10,000.

(3) Any outstanding loan balance on the date the new loan is made.

For purposes of this maximum, all qualified employer plans, as defined in Code Section 72(p)(4), of the Employer and any Controlled Group member shall be treated as one plan.

The foregoing notwithstanding, the amount of such loan shall not exceed 50 percent of the amount of the Participant’s Vested Account or any other plan maintained by the Employer or a related company during the preceding 12-month period, or 50 percent of the Participant’s Vested Account under all other plans maintained by the Employer or a related company. For purposes of this maximum, a Participant’s Vested Account does not include any accumulated deductible employee contributions, as defined in Code Section 72(o)(5)(B). No collateral other than a portion of the Participant’s Vested Account (as limited above) shall be accepted.

The Participant’s outstanding loan balance shall include any deemed distribution, along with accrued interest, that has not been repaid (offset).

Each loan shall bear a reasonable fixed rate of interest to be determined by the Loan Administrator. In determining the interest rate, the Loan Administrator shall take into consideration fixed interest rates currently being charged by commercial lenders for loans of comparable risk on similar terms and for similar durations, so that the interest will provide for a return commensurate with rates currently charged by commercial lenders for loans made under similar circumstances. The Loan Administrator shall not discriminate among Participants in the matter of interest rates; but loans granted at different times may bear different interest rates in accordance with the current appropriate standards.

The loan shall by its terms require that repayment (principal and interest) be amortized in level payments, not less frequently than quarterly, over a period not extending beyond five years from the date of the loan.

The Participant shall make an application for a loan in such manner and in accordance with such rules as the Employer shall prescribe for this purpose (including by means of voice response or other electronic means under circumstances the Employer permits). The application must specify the amount and duration requested.

Information contained in the application for the loan concerning the income, liabilities, and assets of the Participant will be evaluated to determine whether there is a reasonable expectation that the Participant will be able to satisfy payments on the loan as due.

Each loan shall be fully documented in the form of a promissory note signed by the Participant for the face amount of the loan, together with interest determined as specified above.

There will be an assignment of collateral to the Plan executed at the time the loan is made.

RESTATEMENT JANUARY 1, 2011 55 ARTICLE V  (7-10182)

In those cases where repayment through payroll deduction is available, installments are so payable, and a payroll deduction agreement shall be executed by the Participant at the time the loan is made. If the Participant has previously been treated as having received a deemed distribution and the subsequent loan is being made before the deemed distribution, along with accrued interest, has been repaid (or offset), a payroll deduction agreement shall be required for loans made on or after January 1, 2004. If a payroll deduction agreement is required because of a previous deemed distribution and the Participant later revokes such agreement, the outstanding loan balance at the time of the revocation shall be treated as a deemed distribution.

Where payroll deduction is not available, payments in cash are to be timely made. Any payment that is not by payroll deduction shall be made payable to the Employer or the Trustee, as specified in the promissory note, and delivered to the Loan Administrator, including prepayments, service fees and penalties, if any, and other amounts due under the note.

The promissory note may provide for reasonable late payment penalties and service fees. Any penalties or service fees shall be applied to all Participants in a nondiscriminatory manner. If the promissory note so provides, such amounts may be assessed and collected from the Account of the Participant as part of the loan balance.

Each loan may be paid prior to maturity, in part or in full, without penalty or service fee, except as may be set out in the promissory note.

The Plan shall suspend loan payments for a period not exceeding one year during which an approved unpaid leave of absence occurs other than a military leave of absence. The Loan Administrator shall provide the Participant a written explanation of the effect of the suspension of payments upon his loan.

If a Participant separates from service (or takes a leave of absence) from the Employer because of service in the military and does not receive a distribution of his Vested Account, the Plan shall suspend loan payments until the Participant’s completion of military service or until the Participant’s fifth anniversary of commencement of military service, if earlier, as permitted under Code Section 414(u).  The Loan Administrator shall provide the Participant a written explanation of the effect of his military service upon his loan.

If any payment of principal and interest, or any portion thereof, remains unpaid for more than 90 days after due, the loan shall be in default. For purposes of Code Section 72(p), the Participant shall then be treated as having received a deemed distribution regardless of whether or not a distributable event has occurred.

Upon default, the Plan has the right to pursue any remedy available by law to satisfy the amount due, along with accrued interest, including the right to enforce its claim against the security pledged and execute upon the collateral as allowed by law. The entire principal balance whether or not otherwise then due, along with accrued interest, shall become immediately due and payable without demand or notice, and subject to collection or satisfaction by any lawful means, including specifically, but not limited to, the right to enforce the claim against the security pledged and to execute upon the collateral as allowed by law.

In the event of default, foreclosure on the note and attachment of security or use of amounts pledged to satisfy the amount then due shall not occur until a distributable event occurs in accordance with the Plan, and shall not occur to an extent greater than the amount then available upon any distributable event which has occurred under the Plan.

RESTATEMENT JANUARY 1, 2011 56 ARTICLE V  (7-10182)

All reasonable costs and expenses, including but not limited to attorney's fees, incurred by the Plan in connection with any default or in any proceeding to enforce any provision of a promissory note or instrument by which a promissory note for a Participant loan is secured, shall be assessed and collected from the Account of the Participant as part of the loan balance.

If payroll deduction is being utilized, in the event that a Participant's available payroll deduction amounts in any given month are insufficient to satisfy the total amount due, there will be an increase in the amount taken subsequently, sufficient to make up the amount that is then due. If any amount remains past due more than 90 days, the entire principal amount, whether or not otherwise then due, along with interest then accrued, shall become due and payable, as above.

If no distributable event has occurred under the Plan at the time that the Participant’s Vested Account would otherwise be used under this provision to pay any amount due under the outstanding loan, this will not occur until the time, or in excess of the extent to which, a distributable event occurs under the Plan. An outstanding loan will become due and payable in full 60 days after a Participant has a Severance from Employment and ceases to be a party-in-interest as defined in ERISA or after complete termination of the Plan. The provisions of this paragraph shall not apply to the extent a Participant does a Direct Rollover of an Eligible Rollover Distribution that includes a loan note to another qualified plan. The Direct Rollover of the loan note shall be permitted only if such transferee plan allows for the transfer and the Participant executes an acknowledgement that such transferee plan will be substituted as the obligee of the note.

SECTION 5.07--DISTRIBUTIONS UNDER QUALIFIED DOMESTIC RELATIONS ORDERS.

The Plan specifically permits distributions to an Alternate Payee under a qualified domestic relations order as defined in Code Section 414(p), at any time, irrespective of whether the Participant has attained his earliest retirement age, as defined in Code Section 414(p), under the Plan. A distribution to an Alternate Payee before the Participant has attained his earliest retirement age is available only if the order specifies that distribution shall be made prior to the earliest retirement age or allows the Alternate Payee to elect a distribution prior to the earliest retirement age.

Nothing in this section shall permit a Participant to receive a distribution at a time otherwise not permitted under the Plan nor shall it permit the Alternate Payee to receive a form of payment not permitted under the Plan.

The benefit payable to an Alternate Payee shall be subject to the provisions of the SMALL AMOUNTS SECTION of Article X if the value of the benefit does not exceed $5,000.

The Plan Administrator shall establish reasonable procedures to determine the qualified status of a domestic relations order. Upon receiving a domestic relations order, the Plan Administrator shall promptly notify the Participant and each Alternate Payee named in the order, in writing, of the receipt of the order and the Plan’s procedures for determining the qualified status of the order.  Within a reasonable period of time after receiving the domestic relations order, the Plan Administrator shall determine the qualified status of the order and shall notify the Participant and each Alternate Payee, in writing, of its determination. The Plan Administrator shall provide notice under this paragraph by mailing to the individual’s address specified in the domestic relations order, or in a manner consistent with Department of Labor regulations. The Plan Administrator may treat as qualified any domestic relations order entered before January 1, 1985, irrespective of whether it satisfies all the requirements described in Code Section 414(p).

RESTATEMENT JANUARY 1, 2011 57 ARTICLE V  (7-10182)

If any portion of the Participant’s Vested Account is payable during the period the Plan Administrator is making its determination of the qualified status of the domestic relations order, a separate accounting shall be made of the amount payable. If the Plan Administrator determines the order is a qualified domestic relations order within 18 months of the date amounts are first payable following receipt of the order, the payable amounts shall be distributed in accordance with the order. If the Plan Administrator does not make its determination of the qualified status of the order within the 18-month determination period, the payable amounts shall be distributed in the manner the Plan would distribute if the order did not exist and the order shall apply prospectively if the Plan Administrator later determines the order is a qualified domestic relations order.

The Plan shall make payments or distributions required under this section by separate benefit checks or other separate distribution to the Alternate Payee(s).

RESTATEMENT JANUARY 1, 2011 58 ARTICLE V  (7-10182)

ARTICLE VI

DISTRIBUTION OF BENEFITS

SECTION 6.01--AUTOMATIC FORMS OF DISTRIBUTION.

Unless an optional form of benefit is selected pursuant to a qualified election within the election period (see the ELECTION PROCEDURES SECTION of this article), the automatic form of benefit payable to or on behalf of a Participant is determined as follows:

(a) Retirement Benefits.  The automatic form of retirement benefit for a Participant who does not die before his Annuity Starting Date shall be a single sum payment.

(b) Death Benefits.  The automatic form of death benefit for a Participant who dies before his Annuity Starting Date shall be a single sum payment to the Participant's Beneficiary.

(c) Qualifying Employer Securities.  That portion of a Participant’s Account held in the Qualifying Employer Securities Fund shall be distributed as a single sum payment or as substantially equal annual installments payable over a period of no more than five years. Such five year period may be extended as provided in Code Section 409(o)(1)(C)(ii) up to an additional five years.

SECTION 6.02--OPTIONAL FORMS OF DISTRIBUTION.

(a) Retirement Benefits. The optional forms of retirement benefit shall be the following: a fixed period installment option and a fixed payment installment option. A single sum payment is also available. That portion of a Participant’s Account that is held in the Qualifying Employer Securities Fund and the Self-Directed Brokerage Account may be distributed in kind.

The fixed period installment option is an optional form of benefit under which the Participant elects to receive substantially equal annual payments over a fixed period of whole years. The annual payment may be paid in annual, semi-annual, quarterly, or monthly installments as elected by the Participant. The Participant may elect to receive additional payments.

The fixed payment installment option is an optional form of benefit under which the Participant elects to receive a specified dollar amount each year. The annual payment may be paid in annual, semi-annual, quarterly, or monthly installments as elected by the Participant. The Participant may elect to receive additional payments.

Under the installment options the amount payable in the Participant’s first Distribution Calendar Year, as defined in the DEFINITIONS SECTION of Article VII, must satisfy the minimum distribution requirements of Article VII for such year. Distributions for later Distribution Calendar Years must satisfy the minimum distribution requirements of Article VII for such years. If the Participant’s Annuity Starting Date does not occur until his second Distribution Calendar Year, the amount payable for such year must satisfy the minimum distribution requirements of Article VII for both the first and second Distribution Calendar Years.

Election of an optional form is subject to the qualified election provisions of the ELECTION PROCEDURES SECTION of this article and the distribution requirements of Article VII.

(b) Death Benefits.  The optional form of death benefit is a single sum payment.

RESTATEMENT JANUARY 1, 2011 59 ARTICLE VI (7-10182)

(c) Qualifying Employer Securities.  That portion of a Participant’s Account held in the Qualifying Employer Securities Fund shall be distributed as a single sum payment or as substantially equal annual installments payable over a period of no more than five years. Such five year period may be extended as provided in Code Section 409(o)(1)(C)(ii) up to an additional five years.

SECTION 6.03--ELECTION PROCEDURES.

The Participant or Beneficiary shall make any election under this section in writing. The Plan Administrator may require such individual to complete and sign any necessary documents as to the provisions to be made. Any election permitted under (a) and (b) below shall be subject to the qualified election provisions of (c) below.

(a) Retirement Benefits.  A Participant may elect his Beneficiary and may elect to have retirement benefits distributed under any of the optional forms of retirement benefit available in the OPTIONAL FORMS OF DISTRIBUTION SECTION of this article.

(b) Death Benefits.  A Participant may elect his Beneficiary and may elect to have death benefits distributed under any of the optional forms of death benefit available in the OPTIONAL FORMS OF DISTRIBUTION SECTION of this article.

If the Participant has not elected an optional form of distribution for the death benefit payable to his Beneficiary, the Beneficiary may, for his own benefit, elect the form of distribution, in like manner as a Participant.

(c) Qualified Election.  The Participant or Beneficiary may make an election at any time during the election period. The Participant or Beneficiary may revoke the election made (or make a new election) at any time and any number of times during the election period.  An election is effective only if it meets the consent requirements below.

(1) Election Period for Retirement Benefits. The Participant may make an election as to retirement benefits at any time before the Annuity Starting Date.

(2) Election Period for Death Benefits. A Participant may make an election as to death benefits at any time before he dies.  The Beneficiary's election period begins on the date the Participant dies and ends on the date benefits begin.

(3) Consent to Election.  If the Participant’s Vested Account exceeds $5,000, any benefit that is immediately distributable requires the consent of the Participant.

The consent of the Participant to a benefit that is immediately distributable must not be made before the date the Participant is provided with the notice of the ability to defer the distribution.  Such consent shall be in writing.

The consent shall not be made more than 180 days before the Annuity Starting Date. The consent of the Participant shall not be required to the extent that a distribution is required to satisfy Code Section 401(a)(9) or 415.

RESTATEMENT JANUARY 1, 2011 60 ARTICLE VI (7-10182)

In addition, upon termination of this Plan, if the Plan does not offer an annuity option (purchased from a commercial provider), and if the Employer (or any entity within the same Controlled Group) does not maintain another defined contribution plan (other than an employee stock ownership plan as defined in Code Section 4975(e)(7)), the Participant’s Account balance will, without the Participant’s consent, be distributed to the Participant.  However, if any entity within the same Controlled Group maintains another defined contribution plan (other than an employee stock ownership plan as defined in Code Section 4975(e)(7)) the Participant’s Account will be transferred, without the Participant’s consent, to the other plan if the Participant does not consent to an immediate distribution.

A benefit is immediately distributable if any part of the benefit could be distributed to the Participant before the Participant attains the older of Normal Retirement Age or age 62.

Spousal consent is needed to name a Beneficiary other than the Participant’s spouse. If the Participant names a Beneficiary other than his spouse, the spouse has the right to limit consent only to a specific Beneficiary. The spouse can relinquish such right. Such consent shall be in writing. The spouse's consent shall be witnessed by a plan representative or notary public. The spouse's consent must acknowledge the effect of the election, including that the spouse had the right to limit consent only to a specific Beneficiary and that the relinquishment of such right was voluntary. Unless the consent of the spouse expressly permits designations by the Participant without a requirement of further consent by the spouse, the spouse's consent must be limited to the Beneficiary, class of Beneficiaries, or contingent Beneficiary named in the election.

Spousal consent is not required, however, if the Participant establishes to the satisfaction of the plan representative that the consent of the spouse cannot be obtained because there is no spouse or the spouse cannot be located. A spouse's consent under this paragraph shall not be valid with respect to any other spouse. A Participant may revoke a prior election without the consent of the spouse. Any new election will require a new spousal consent, unless the consent of the spouse expressly permits such election by the Participant without further consent by the spouse. A spouse's consent may be revoked at any time within the Participant's election period.

SECTION 6.04--NOTICE REQUIREMENTS.

Optional Forms of Retirement Benefit and Right to Defer. The Plan Administrator shall furnish to the Participant a written explanation of the right of the Participant to defer distribution until the benefit is no longer immediately distributable, including an explanation of the consequences of not deferring the distribution. Such notice shall include a written explanation of the optional forms of retirement benefit in the OPTIONAL FORMS OF DISTRIBUTION SECTION of this article, including a general description of the material features of these options.

The Plan Administrator shall furnish the written explanation by a method reasonably calculated to reach the attention of the Participant no less than 30 days, and no more than 180 days, before the Annuity Starting Date.

However, distribution may begin less than 30 days after the notice described in this subparagraph is given, provided the Plan Administrator clearly informs the Participant that he has a right to a period of at least 30 days after receiving the notice to consider the decision of whether or not to elect a distribution (and if applicable, a particular distribution option), and the Participant, after receiving the notice, affirmatively elects a distribution.

RESTATEMENT JANUARY 1, 2011 61 ARTICLE VI (7-10182)

SECTION 6.05--FORMS OF DISTRIBUTION FOR QUALIFYING EMPLOYER SECURITIES.

Notwithstanding any provision of this Article VI to the contrary, distributions from the portion of a Participant’s Account holding Qualifying Employer Securities shall be governed by this section.

(a) Distribution in Cash or Qualifying Employer Securities.  At the Plan Administrator’s discretion, the part of a Participant’s Vested Accounts holding Qualifying Employer Securities will be distributed in cash or Qualifying Employer Securities unless the Participant affirmatively elects under paragraph (b) below to receive the distribution in the form of Qualifying Employer Securities with cash in lieu of fractional shares. The cash value of Qualifying Employer Securities shall be equal to the fair market value of such stock determined as of the last Valuation Date prior to the date of distribution.

(b) Distribution in Qualifying Employer Securities.  Unless subsection (c) applies, a Participant may elect to have the Participant’s Vested Accounts holding Qualifying Employer Securities distributed in the form of Qualifying Employer Securities with cash in lieu of fractional shares.  Any cash or other property in the Participant’s Vested Account (“non-company stock assets”) shall not be used to acquire Qualifying Employer Securities for distribution, but shall be distributed in cash.

(c) Distribution in Qualifying Employer Securities Prohibited.  If the Employer’s corporate charter or by-law provisions restrict ownership of substantially all outstanding Qualifying Employer Securities to Employees or to a plan or trust described in Code Section 401(a), then, at the discretion of the Plan Administrator, any distribution of a Participant’s Accounts shall be made in cash, or in shares of Qualifying Employer Securities subject to an immediate put to the Employer pursuant to the PUT OPTION SECTION of this article.

For Plan Years beginning after December 31, 1997, if the Plan holds Qualifying Employer Securities of an S Corporation, at the discretion of the Plan Administrator, distribution of such Participant’s Accounts shall be made in cash, or in shares of Qualifying Employer Securities subject to an immediate put to the Employer pursuant to the PUT OPTION SECTION of this article.

SECTION 6.06--PUT OPTION.

If shares of Qualifying Employer Securities are distributed from the Trust Fund, and if such shares are not publicly traded when distributed or are subject to a trading limitation when distributed, then such shares shall be subject to an initial and second put option as follows:

(a) The put option shall be exercisable by the distributee (whether the Participant or a Beneficiary), any person to whom shares of Qualifying Employer Securities have been passed by gift from the distributee, or any person (including an estate or the distributee from an estate) to whom the shares of Qualifying Employer Securities passed upon the death of the distributee (hereinafter referred to as the “holder”).

(b) The initial put option must be exercised during the 60-day period which begins on the date the shares of Qualifying Employer Securities are distributed from the Trust Fund. If not exercised during that period, the initial put option shall lapse.

RESTATEMENT JANUARY 1, 2011 62 ARTICLE VI (7-10182)

(c) As soon as is reasonably practicable following the last day of the Plan Year in which the initial 60-day period expires, the Employer shall notify all of the non-electing holders of the valuation of such Qualifying Employer Securities as of the most recent Valuation Date. During the 60-day period following the receipt of such valuation notice, any such non-electing holder shall have a second put option.

(d) The period during which the put option is exercisable shall not include any time when a holder is unable to exercise the put option because the Employer is prohibited from honoring the put option by federal or state law. If the shares of Qualifying Employer Securities are publicly traded without restriction when distributed but cease to be traded within either of the 60-day periods described herein after distribution, the Employer must notify each holder in writing on or before the tenth day after the date the shares cease to be so traded that for the remainder of the applicable 60-day period the shares are subject to a put option. The number of days between such tenth day and the date on which notice is actually given, if later than the tenth day, must be added to the duration of the put option. The notice must inform the holders of the terms of the put option.

(e) The put option may be exercised by written notice of exercise to the Employer or its designee made on such form and in accordance with such rules as may be prescribed for this purpose by the Plan Administrator.

(f) Upon receipt of such notice, the Employer shall tender to the holder the fair market value of the Qualifying Employer Securities (as determined under Sections 4.02(e) and (f)) for such shares.

(i) If the Qualifying Employer Securities were distributed in a total distribution then the Employer may pay either in a lump sum or substantially equal installments (bearing a reasonable rate of interest and providing adequate security to the holder) over a period beginning within 30 days following the date the put option is exercised and ending not more than five years after the date the put option is exercised.

(ii) If the Qualifying Employer Securities were not distributed in a total distribution then the Employer must pay the holder in a single lump sum payment.

(iii) If payment is made in installments, the Employer shall, within 30 days of the date the holder exercises the put option, give the holder a promissory note for the full unpaid balance of the option’s price. Such note shall, at a minimum, provide adequate security, state a rate of interest reasonable under the circumstances (but at least equal to the imputed compound rate in effect as of the exercise date pursuant to the regulations promulgated under Code Sections 483 or 1274, whichever shall be applicable) and provide that the full amount of such note shall accelerate and become due immediately in the event that the Employer defaults in the payment of a scheduled payment.

(g) The Plan Trust Fund is not bound to purchase shares of Qualifying Employer Securities pursuant to the put option, but the Employer may direct the Trustee to cause the Plan Trust Fund to assume the Employer’s rights and obligations to acquire shares of Qualifying Employer Securities under the put option.

(h) A “trading limitation” for this purpose means a restriction under any federal or state securities law or under any agreement affecting the shares that would make the shares not as freely tradable as shares not subject to such restriction.

RESTATEMENT JANUARY 1, 2011 63 ARTICLE VI (7-10182)

(i) A “total distribution” for this purpose means a distribution to a Participant or Beneficiary within one taxable year of such recipient to the entire balance to the credit of the Participant.

SECTION 6.07--RIGHT OF FIRST REFUSAL.

(a) If any Participant, his Beneficiary or any other person to whom shares of Qualifying Employer Securities are distributed from the Plan (the “Selling Participant”) shall, at any time, desire to sell some or all of such shares (the “Offered Shares”) to a third party (the “Third Party”), the Selling Participant shall give written notice of such desire to the Employer and the Administrator, which notice shall contain the number of shares offered for sale, the proposed terms of the sale and the names and addresses of both the Selling Participant and the Third Party. Both the Trust Fund and the Employer shall each have the right of first refusal for a period of fourteen (14) days from the date the Selling Participant gives such written notice to the Employer and the Administrator (such fourteen (14) day period to run concurrently against the Trust Fund and the Employer) to acquire the Offered Shares. As between the Trust Fund and the Employer, the Trust Fund shall have priority to acquire the shares pursuant to the right of first refusal. The selling price and terms shall be the same as offered by the Third Party.

(b) If the Trust Fund and the Employer do not exercise their right of first refusal within the required fourteen (14) day period provided above, the Selling Participant shall have the right, at any time following the expiration of such fourteen (14) day period, to dispose of the Offered Shares to the Third Party; provided, however, that (i) no disposition shall be made to the Third Party on terms more favorable to the Third Party than those set forth in the written notice delivered by the Selling Participant above, and (ii) if such disposition shall not be made to a third party on the terms offered to the Employer and the Trust Fund, the Offered Shares shall again be subject to the right of first refusal set forth above.

(c) The closing pursuant to the exercise of the right of first refusal under Section 6.07(a) above shall take place at such place agreed upon between the Administrator and the Selling Participant, but not later than ten (10) days after the Employer or the Trust Fund shall have notified the Selling Participant of the exercise of the right of first refusal. At such closing, the Selling Participant shall deliver certificates representing the Offered Shares duly endorsed in blank for transfer, or with stock powers attached duly executed in blank with all required transfer tax stamps attached or provided for, and the Employer or the Trust Fund shall deliver the purchase price, or an appropriate portion thereof, to the Selling Participant.

The provisions of this Section 6.07 shall apply only to Qualifying Employer Securities which are not publicly traded, regardless of whether they are acquired with the proceeds of an Exempt Loan. The term “publicly traded” refers to a securities exchange registered under Section 6 of the Securities Exchange Act of 1934 (the “1934 Act”) (15 U.S.C. 78f) or that is actively traded on a system sponsored by a national securities association registered under Section 15A(b) of the 1934 Act (15 U.S.C. 780).

RESTATEMENT JANUARY 1, 2011 64 ARTICLE VI  (7-10182)

ARTICLE VII

REQUIRED MINIMUM DISTRIBUTIONS

SECTION 7.01--APPLICATION.

The optional forms of distribution are only those provided in Article VI. An optional form of distribution shall not be permitted unless it meets the requirements of this article. The timing of any distribution must meet the requirements of this article.

SECTION 7.02--DEFINITIONS.

For purposes of this article, the following terms are defined:

Distribution Calendar Year means a calendar year for which a minimum distribution is required. For distributions beginning before the Participant's death, the first Distribution Calendar Year is the calendar year immediately preceding the calendar year that contains the Participant's Required Beginning Date.  For distributions beginning after the Participant's death, the first Distribution Calendar Year is the calendar year in which distributions are required to begin under (b)(2) of the REQUIRED MINIMUM DISTRIBUTIONS SECTION of this article. The required minimum distribution for the Participant’s first Distribution Calendar Year will be made on or before the Participant’s Required Beginning Date. The required minimum distribution for other Distribution Calendar Years, including the required minimum distribution for the Distribution Calendar Year in which the Participant’s Required Beginning Date occurs, will be made on or before December 31 of that Distribution Calendar Year.

5-percent Owner means a Participant who is treated as a 5-percent Owner for purposes of this article.  A Participant is treated as a 5-percent Owner for purposes of this article if such Participant is a 5-percent owner as defined in Code Section 416 at any time during the Plan Year ending with or within the calendar year in which such owner attains age 70 1/2.

Once distributions have begun to a 5-percent Owner under this article, they must continue to be distributed, even if the Participant ceases to be a 5-percent Owner in a subsequent year.

Life Expectancy means life expectancy as computed by use of the Single Life Table in Q&A-1 in section 1.401(a)(9)-9 of the regulations.

Participant's Account Balance means the Account balance as of the last Valuation Date in the calendar year immediately preceding the Distribution Calendar Year (valuation calendar year) increased by the amount of any contributions made and allocated or forfeitures allocated to the Account as of dates in the valuation calendar year after the Valuation Date and decreased by distributions made in the valuation calendar year after the Valuation Date. The Account balance for the valuation calendar year includes any amounts rolled over or transferred to the Plan either in the valuation calendar year or in the Distribution Calendar Year if distributed or transferred in the valuation calendar year.

Required Beginning Date means, for a Participant who is a 5-percent Owner, April 1 of the calendar year following the calendar year in which he attains age 70 1/2.

Required Beginning Date means, for any Participant who is not a 5-percent Owner, April 1 of the calendar year following the later of the calendar year in which he attains age 70 1/2 or the calendar year in which he retires.

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The preretirement age 70 1/2 distribution option is only eliminated with respect to Participants who reach age 70 1/2 in or after a calendar year that begins after the later of December 31, 1998, or the adoption date of the amendment which eliminated such option. The preretirement age 70 1/2 distribution option is an optional form of benefit under which benefits payable in a particular distribution form (including any modifications that may be elected after benefits begin) begin at a time during the period that begins on or after January 1 of the calendar year in which the Participant attains age 70 1/2 and ends April 1 of the immediately following calendar year.

The options available for Participants who are not 5-percent Owners and attained age 70 1/2 in calendar years before the calendar year that begins after the later of December 31, 1998, or the adoption date of the amendment which eliminated the preretirement age 70 1/2 distribution option shall be the following.  Any such Participant attaining age 70 1/2 in years after 1995 may elect by April 1 of the calendar year following the calendar year in which he attained age 70 1/2 (or by December 31, 1997 in the case of a Participant attaining age 70 1/2 in 1996) to defer distributions until April 1 of the calendar year following the calendar year in which he retires. If no such election is made, the Participant shall begin receiving distributions by April 1 of the calendar year following the year in which he attained age 70 1/2 (or by December 31, 1997 in the case of a Participant attaining age 70 1/2 in 1996). Any such Participant attaining age 70 1/2 in years prior to 1997 may elect to stop distributions that are not purchased annuities and recommence by April 1 of the calendar year following the calendar year in which he retires. There shall be a new Annuity Starting Date upon recommencement.

SECTION 7.03--REQUIRED MINIMUM DISTRIBUTIONS.

(a) General Rules.

(1) The requirements of this article shall apply to any distribution of a Participant’s interest and will take precedence over any inconsistent provisions of this Plan. Unless otherwise specified, the provisions of this article apply to calendar years beginning after December 31, 2002.

(2) All distributions required under this article shall be determined and made in accordance with the regulations under Code Section 401(a)(9), including the incidental death benefit requirement in Code Section 401(a)(9)(G), and the regulations thereunder.

(b) Time and Manner of Distribution.

(1) Required Beginning Date.  The Participant’s entire interest will be distributed, or begin to be distributed, to the Participant no later than the Participant’s Required Beginning Date.

(2) Death of Participant Before Distributions Begin.  If the Participant dies before distributions begin, the Participant’s entire interest will be distributed, or begin to be distributed, no later than as follows:

(i) If the Participant’s surviving spouse is the Participant’s sole Designated Beneficiary, then distributions to the surviving spouse will begin by December 31 of the calendar year immediately following the calendar year in which the Participant died, or by December 31 of the calendar year in which the Participant would have attained age 70 1/2, if later, except to the extent that an election is made to receive distributions in accordance with the 5-year rule under (e) below. Under the 5-year rule, the Participant’s entire interest will be distributed to the Designated Beneficiary by

RESTATEMENT JANUARY 1, 2011 66 ARTICLE VII (7-10182)

December 31 of the calendar year containing the fifth anniversary of the Participant’s death.

(ii) If the Participant’s surviving spouse is not the Participant’s sole Designated Beneficiary, then distributions to the Designated Beneficiary will begin by December 31 of the calendar year immediately following the calendar year in which the Participant died, except to the extent that an election is made to receive distributions in accordance with the 5-year rule under (e) below. Under the 5-year rule, the Participant’s entire interest will be distributed to the Designated Beneficiary by December 31 of the calendar year containing the fifth anniversary of the Participant’s death.

(iii) If there is no Designated Beneficiary as of September 30 of the year following the year of the Participant’s death, the Participant’s entire interest will be distributed by December 31 of the calendar year containing the fifth anniversary of the Participant’s death.

(iv) If the Participant’s surviving spouse is the Participant’s sole Designated Beneficiary and the surviving spouse dies after the Participant but before distributions to the surviving spouse are required to begin, this (b)(2), other than (b)(2)(i), will apply as if the surviving spouse were the Participant.

For purposes of this (b)(2) and (d) below, unless (b)(2)(iv) above applies, distributions are considered to begin on the Participant’s Required Beginning Date. If (b)(2)(iv) above applies, distributions are considered to begin on the date distributions are required to begin to the surviving spouse under (b)(2)(i) above. If distributions under an annuity purchased from an insurance company irrevocably commence to the Participant before the Participant’s Required Beginning Date (or to the Participant’s surviving spouse before the date distributions are required to begin to the surviving spouse under (b)(2)(i) above), the date distributions are considered to begin is the date distributions actually commence.

(3) Forms of Distribution.  Unless the Participant’s interest is distributed in the form of an annuity purchased from an insurance company or in a single sum on or before the Required Beginning Date, as of the first Distribution Calendar Year distributions will be made in accordance with (c) and (d) below. If the Participant’s interest is distributed in the form of an annuity purchased from an insurance company, distributions thereunder will be made in accordance with the requirements of Code Section 401(a)(9) and the regulations thereunder.

(c) Required Minimum Distributions During Participant’s Lifetime.

(1) Amount of Required Minimum Distribution For Each Distribution Calendar Year.  During the Participant’s lifetime, the minimum amount that will be distributed for each Distribution Calendar Year is the lesser of:

(i) the quotient obtained by dividing the Participant’s Account Balance by the distribution period in the Uniform Lifetime Table set forth in Q&A-2 in section 1.401(a)(9)-9 of the regulations, using the Participant’s age as of the Participant’s birthday in the Distribution Calendar Year; or

RESTATEMENT JANUARY 1, 2011 67 ARTICLE VII (7-10182)

(ii) if the Participant’s sole Designated Beneficiary for the Distribution Calendar Year is the Participant’s spouse, the quotient obtained by dividing the Participant’s Account Balance by the number in the Joint and Last Survivor Table set forth in Q&A-3 in section 1.401(a)(9)-9 of the regulations, using the Participant’s and spouse’s attained ages as of the Participant’s and spouse’s birthdays in the Distribution Calendar Year.

(2) Lifetime Required Minimum Distributions Continue Through Year of Participant’s Death.  Required minimum distributions will be determined under this (c) beginning with the first Distribution Calendar Year and continuing up to, and including, the Distribution Calendar Year that includes the Participant’s date of death.

(d) Required Minimum Distributions After Participant’s Death.

(1) Death On or After Date Distributions Begin.

(i) Participant Survived by Designated Beneficiary.  If the Participant dies on or after the date distributions begin and there is a Designated Beneficiary, the minimum amount that will be distributed for each Distribution Calendar Year after the year of the Participant’s death is the quotient obtained by dividing the Participant’s Account Balance by the longer of the remaining Life Expectancy of the Participant or the remaining Life Expectancy of the Participant’s Designated Beneficiary, determined as follows:

A. The Participant’s remaining Life Expectancy is calculated using the age of the Participant in the year of death, reduced by one for each subsequent year.

B. If the Participant’s surviving spouse is the Participant’s sole Designated Beneficiary, the remaining Life Expectancy of the surviving spouse is calculated for each Distribution Calendar Year after the year of the Participant’s death using the surviving spouse’s age as of the spouse’s birthday in that year. For Distribution Calendar Years after the year of the surviving spouse’s death, the remaining Life Expectancy of the surviving spouse is calculated using the age of the surviving spouse as of the spouse’s birthday in the calendar year of the spouse’s death, reduced by one for each subsequent calendar year.

C. If the Participant’s surviving spouse is not the Participant’s sole Designated Beneficiary, the Designated Beneficiary’s remaining Life Expectancy is calculated using the age of the Beneficiary in the year following the year of the Participant’s death, reduced by one for each subsequent year.

(ii) No Designated Beneficiary.  If the Participant dies on or after the date distributions begin and there is no Designated Beneficiary as of September 30 of the year after the year of the Participant’s death, the minimum amount that will be distributed for each Distribution Calendar Year after the year of the Participant’s death is the quotient obtained by dividing the Participant’s Account Balance by the Participant’s remaining Life Expectancy calculated using the age of the Participant in the year of death, reduced by one for each subsequent year.

RESTATEMENT JANUARY 1, 2011 68 ARTICLE VII (7-10182)

(2) Death Before Date Distributions Begin.

(i) Participant Survived by Designated Beneficiary. If the Participant dies before the date distributions begin and there is a Designated Beneficiary, the minimum amount that will be distributed for each Distribution Calendar Year after the year of the Participant’s death is the quotient obtained by dividing the Participant’s Account Balance by the remaining Life Expectancy of the Participant’s Designated Beneficiary, determined as provided in (d)(1) above, except to the extent that an election is made to receive distributions in accordance with the 5-year rule under (e) below. Under the 5-year rule, the Participant’s entire interest will be distributed to the Designated Beneficiary by December 31 of the calendar year containing the fifth anniversary of the Participant’s death.

(ii) No Designated Beneficiary.  If the Participant dies before the date distributions begin and there is no Designated Beneficiary as of September 30 of the year following the year of the Participant’s death, distribution of the Participant’s entire interest will be completed by December 31 of the calendar year containing the fifth anniversary of the Participant’s death.

(iii) Death of Surviving Spouse Before Distributions to Surviving Spouse Are Required to Begin.  If the Participant dies before the date distributions begin, the Participant’s surviving spouse is the Participant’s sole Designated Beneficiary, and the surviving spouse dies before distributions are required to begin to the surviving spouse under (b)(2)(i) above, this (d)(2) will apply as if the surviving spouse were the Participant.

(e) Election of 5-year Rule.  Participants or Beneficiaries may elect on an individual basis whether the 5-year rule in (b)(2) and (d)(2) above applies to distributions after the death of a Participant who has a Designated Beneficiary. The election must be made no later than the earlier of September 30 of the calendar year in which the distribution would be required to begin under (b)(2) above if no such election is made, or by September 30 of the calendar year which contains the fifth anniversary of the Participant’s (or, if applicable, surviving spouse’s) death.

SECTION 7.04--TRANSITION RULES.

To the extent the Plan was effective before 2003, required minimum distributions were made pursuant to (a) and (b) below:

(a) 2000 and Before.  Required minimum distributions for calendar years after 1984 and before 2001 were made in accordance with Code Section 401(a)(9) and the proposed regulations thereunder published in the Federal Register on July 27, 1987 (the 1987 Proposed Regulations).

(b) 2001 and 2002.  Required minimum distributions for calendar years 2001 and 2002 were made pursuant to the proposed regulations under Code Section 401(a)(9) published in the Federal Register on January 17, 2001 (the 2001 Proposed Regulations). Distributions were made in 2001 under the 1987 Proposed Regulations prior to June 14, 2001, and the special transition rule in Announcement 2001-82, 2001-2 C.B. 123, applied.

RESTATEMENT JANUARY 1, 2011 69 ARTICLE VII  (7-10182)

ARTICLE VIII

TERMINATION OF THE PLAN

The Employer expects to continue the Plan indefinitely but reserves the right to terminate the Plan in whole or in part at any time upon giving written notice to all parties concerned. Complete discontinuance of Contributions constitutes complete termination of the Plan.

The Account of each Participant shall be 100% vested and nonforfeitable as of the effective date of complete termination of the Plan. The Account of each Participant who is included in the group of Participants deemed to be affected by the partial termination of the Plan shall be 100% vested and nonforfeitable as of the effective date of the partial termination of the Plan. The Participant's Vested Account shall continue to participate in the earnings credited, expenses charged, and any appreciation or depreciation of the Investment Fund until his Vested Account is distributed.

A Participant’s Vested Account that does not result from the Contributions listed below may be distributed to the Participant after the effective date of the complete termination of the Plan:

Elective Deferral Contributions

Qualified Nonelective Contributions

A Participant’s Vested Account resulting from such Contributions may be distributed upon complete termination of the Plan, but only if neither the Employer nor any Controlled Group member maintain another defined contribution plan (other than an employee stock ownership plan as defined in Code Section 4975(e)(7) or 409(a), a simplified employee pension plan as defined in Code Section 408(k), a SIMPLE IRA plan as defined in Code Section 408(p), a plan or contract that satisfies the requirements of Code Section 403(b), or a plan described in Code Section 457(b) or (f)) at any time during the period beginning on the date of complete termination of the Plan and ending 12 months after all assets have been distributed from the Plan. Such distribution is made in a lump sum. A distribution under this article shall be a retirement benefit and shall be distributed to the Participant according to the provisions of Article VI. However, the fixed period and fixed payment installment options shall not be available.

If a Participant or Beneficiary is receiving payments under the fixed period or fixed payment installment option, the Vested Account shall be paid to such person in a single sum.

The Participant’s entire Vested Account shall be paid in a single sum to the Participant as of the effective date of complete termination of the Plan if (i) the requirements for distribution of Elective Deferral Contributions in the above paragraph are met and (ii) consent of the Participant is not required in the ELECTION PROCEDURES SECTION of Article VI to distribute a benefit that is immediately distributable.  This is a small amounts payment. The small amounts payment is in full settlement of all benefits otherwise payable.

Upon complete termination of the Plan, no more Employees shall become Participants and no more Contributions shall be made.

The assets of this Plan shall not be paid to the Employer at any time, except that, after the satisfaction of all liabilities under the Plan, any assets remaining may be paid to the Employer. The payment may not be made if it would contravene any provision of law.

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ARTICLE IX

ADMINISTRATION OF THE PLAN

SECTION 9.01--ADMINISTRATION.

Subject to the provisions of this article, the Plan Administrator has complete control of the administration of the Plan. The Plan Administrator has all the powers necessary for it to properly carry out its administrative duties. Not in limitation, but in amplification of the foregoing, the Plan Administrator has complete discretion to construe or interpret the provisions of the Plan, including ambiguous provisions, if any, and to determine all questions that may arise under the Plan, including all questions relating to the eligibility of Employees to participate in the Plan and the amount of benefit to which any Participant or Beneficiary may become entitled. The Plan Administrator's decisions upon all matters within the scope of its authority shall be final.

Unless otherwise set out in the Plan or Annuity Contract, the Plan Administrator may delegate recordkeeping and other duties which are necessary to assist it with the administration of the Plan to any person or firm which agrees to accept such duties. The Plan Administrator shall be entitled to rely upon all tables, valuations, certificates and reports furnished by the consultant or actuary appointed by the Plan Administrator and upon all opinions given by any counsel selected or approved by the Plan Administrator.

The Plan Administrator shall receive all claims for benefits by Participants, former Participants and Beneficiaries. The Plan Administrator shall determine all facts necessary to establish the right of any Claimant to benefits and the amount of those benefits under the provisions of the Plan. The Plan Administrator may establish rules and procedures to be followed by Claimants in filing claims for benefits, in furnishing and verifying proofs necessary to determine age, and in any other matters required to administer the Plan.

SECTION 9.02--EXPENSES.

Expenses of the Plan, to the extent that the Employer does not pay such expenses, may be paid out of the assets of the Plan provided that such payment is consistent with ERISA. Such expenses include, but are not limited to, expenses for bonding required by ERISA; expenses for recordkeeping and other administrative services; fees and expenses of the Trustee or Annuity Contract; expenses for investment education service; and direct costs that the Employer incurs with respect to the Plan. Expenses that relate solely to a specific Participant or Alternate Payee may be assessed against such Participant or Alternate Payee as provided in the service and expense agreement or such other documents duly entered into by or with regard to the Plan that govern such matters.

SECTION 9.03--RECORDS.

All acts and determinations of the Plan Administrator shall be duly recorded.  All these records, together with other documents necessary for the administration of the Plan, shall be preserved in the Plan Administrator's custody.

Writing (handwriting, typing, printing), photostating, photographing, microfilming, magnetic impulse, mechanical or electrical recording, or other forms of data compilation shall be acceptable means of keeping records.

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SECTION 9.04--INFORMATION AVAILABLE.

Any Participant in the Plan or any Beneficiary may examine copies of the Plan description, latest annual report, any bargaining agreement, this Plan, the Annuity Contract, or any other instrument under which the Plan was established or is operated. The Plan Administrator shall maintain all of the items listed in this section in its office, or in such other place or places as it may designate in order to comply with governmental regulations. These items may be examined during reasonable business hours. Upon the written request of a Participant or Beneficiary receiving benefits under the Plan, the Plan Administrator shall furnish him with a copy of any of these items. The Plan Administrator may make a reasonable charge to the requesting person for the copy.

SECTION 9.05--CLAIM PROCEDURES.

A Claimant must submit any necessary forms and needed information when making a claim for benefits under the Plan.

If a claim for benefits under the Plan is wholly or partially denied, the Plan Administrator shall provide adequate written notice to the Claimant whose claim for benefits under the Plan has been denied. The notice must be furnished within 90 days of the date that the claim is received by the Plan without regard to whether all of the information necessary to make a benefit determination is received. The Claimant shall be notified in writing within this initial 90-day period if special circumstances require an extension of the time needed to process the claim. The notice shall indicate the special circumstances requiring an extension of time and the date by which the Plan Administrator's decision is expected to be rendered. In no event shall such extension exceed a period of 90 days from the end of the initial 90-day period.

The Plan Administrator's notice to the Claimant shall: (i) specify the reason or reasons for the denial; (ii) reference the specific Plan provisions on which the denial is based; (iii) describe any additional material and information needed for the Claimant to perfect his claim for benefits; (iv) explain why the material and information is needed; and (v) inform the Claimant of the Plan’s appeal procedures and the time limits applicable to such procedures, including a statement of the Claimant’s right to bring a civil action under ERISA section 502(a) following an adverse benefit determination on appeal.

Any appeal made by a Claimant must be made in writing to the Plan Administrator within 60 days after receipt of the Plan Administrator’s notice of denial of benefits. If the Claimant appeals to the Plan Administrator, the Claimant may submit written comments, documents, records, and other information relating to the claim for benefits. The Claimant shall be provided, upon request and free of charge, reasonable access to, and copies of, all documents, records, and other information relevant to the Claimant’s claim for benefits.  The Plan Administrator shall review the claim taking into account all comments, documents, records, and other information submitted by the Claimant relating to the claim, without regard to whether such information was submitted or considered in the initial benefit determination.

The Plan Administrator shall provide adequate written notice to the Claimant of the Plan’s benefit determination on review. The notice must be furnished within 60 days of the date that the request for review is received by the Plan without regard to whether all of the information necessary to make a benefit determination on review is received. The Claimant shall be notified in writing within this initial 60-day period if special circumstances require an extension of the time needed to process the claim. The notice shall indicate the special circumstances requiring an extension of time and the date by which the Plan Administrator expects to render the determination on review. In no event shall such extension exceed a period of 60 days from the end of the initial 60-day period.

RESTATEMENT JANUARY 1, 2011 72 ARTICLE IX  (7-10182)

In the event the benefit determination is being made by a committee or board of trustees that hold regularly scheduled meetings at least quarterly, the above paragraph shall not apply. The benefit determination must be made by the date of the meeting of the committee or board that immediately follows the Plan’s receipt of a request for review, unless the request for review is filed within 30 days preceding the date of such meeting. In such case, the benefit determination must be made by the date of the second meeting following the Plan’s receipt of the request for review. The date of the receipt of the request for review shall be determined without regard to whether all of the information necessary to make a benefit determination on review is received. The Claimant shall be notified in writing within this initial period if special circumstances require an extension of the time needed to process the claim. The notice shall indicate the special circumstances requiring an extension of time and the date by which the committee or board expects to render the determination on review.  In no event shall such benefit determination be made later than the third meeting of the committee or board following the Plan’s receipt of the request for review. The Plan Administrator shall provide adequate written notice to the Claimant of the Plan’s benefit determination on review as soon as possible, but not later than five days after the benefit determination is made.

If the claim for benefits is wholly or partially denied on review, the Plan Administrator’s notice to the Claimant shall: (i) specify the reason or reasons for the denial; (ii) reference the specific Plan provisions on which the denial is based; (iii) include a statement that the Claimant is entitled to receive, upon request and free of charge, reasonable access to, and copies of, all documents, records, and other information relevant to the Claimant’s claim for benefits; and (iv) include a statement of the Claimant’s right to bring a civil action under ERISA section 502(a).

A Claimant may authorize a representative to act on the Claimant’s behalf with respect to a benefit claim or appeal of an adverse benefit determination. Such authorization shall be made by completion of a form furnished for that purpose. In the absence of any contrary direction from the Claimant, all information and notifications to which the Claimant is entitled shall be directed to the authorized representative.

The Plan Administrator shall perform periodic examinations, reviews, or audits of benefit claims to determine whether claims determinations are made in accordance with the governing Plan documents and, where appropriate, Plan provisions have been consistently applied with respect to similarly situated Claimants.

Disability Claim Procedures.  In the case of a claim for disability benefits, the above provisions will be modified as provided below.

If a claim for disability benefits under the Plan is wholly or partially denied, the Plan Administrator shall provide adequate written notice to the Claimant whose claim for benefits under the Plan has been denied.  The notice must be furnished within 45 days of the date that the claim is received by the Plan without regard to whether all of the information necessary to make a benefit determination is received. The period for furnishing the notice may be extended for up to 30 days if the Plan Administrator both determines an extension is necessary due to matters beyond the control of the Plan and notifies the Claimant in writing within this initial 45-day period. The notice shall indicate the circumstances requiring the extension of time and the date by which the Plan expects to render a decision. If prior to the end of the first 30-day extension period, the Plan Administrator determines that, due to matters beyond the control of the Plan, a decision cannot be rendered within that extension period, the period may be extended for up to an additional 30 days, provided the Plan Administrator notifies the Claimant in writing, within the first 30-day extension period, of the circumstances requiring the extension and the date by which the Plan expects to render a decision. In the case of any extension, the notice of extension shall specifically explain the standards on which entitlement to a benefit is based, the unresolved issues that prevent a decision on the claim, and the additional information needed to resolve those issues. The Claimant shall be afforded at least 45 days within which to provide the specified information.

RESTATEMENT JANUARY 1, 2011 73 ARTICLE IX  (7-10182)

In the event that a period of time is extended due to a Claimant’s failure to submit information necessary to decide a claim, the period for making the benefit determination shall be tolled from the date on which the notification of the extension is sent to the Claimant until the date on which the Claimant responds to the request for additional information.

The Plan Administrator's notice to the Claimant shall: (i) specify the reason or reasons for the denial; (ii) reference the specific Plan provisions on which the denial is based; (iii) describe any additional material and information needed for the Claimant to perfect his claim for benefits; (iv) explain why the material and information is needed; (v) inform the Claimant of the Plan’s appeal procedures and the time limits applicable to such procedures, including a statement of the Claimant’s right to bring a civil action under ERISA section 502(a) following an adverse benefit determination on appeal; (vi) provide the Claimant with any internal rule, guideline, protocol, or other similar criterion that was relied upon in making the adverse determination or a statement that such rule, guideline, protocol, or other similar criterion was relied upon and a copy will be provided free of charge upon request; and (vii) provide the Claimant with an explanation of any scientific or clinical judgment for the determination if benefit determination is based on a medical necessity or experimental treatment or similar exclusion or limit or a statement that the benefit is based on such an exclusion or limit and such explanation will be provided free of charge.

Any appeal made by a Claimant must be made in writing to the Plan Administrator within 180 days after receipt of the Plan Administrator’s notice of denial of benefits. The Claimant may submit written comments, documents, records, and other information relating to the claim for benefits. The Claimant shall be provided, upon request and free of charge, reasonable access to, and copies of, all documents, records, and other information relevant to the Claimant’s claim for benefits. The Plan Administrator shall review the claim taking into account all comments, documents, records, and other information submitted by the Claimant relating to the claim, without regard to whether such information was submitted or considered in the initial benefit determination. The review shall not afford deference to the initial adverse benefit determination and shall be conducted by an appropriate named fiduciary who is neither the individual who made the adverse benefit determination that is the subject of the appeal, nor the subordinate of such individual. If the adverse benefit determination is based in whole or in part on a medical judgment, the appropriate named fiduciary shall consult with a health care professional who has appropriate training and experience in the field of medicine involved in the medical judgment. Such health care professional shall be an individual who is neither an individual who was consulted in connection with the adverse benefit determination that is the subject of the appeal, nor the subordinate of such individual. The Claimant shall be provided with the identity of medical or vocational experts whose advice was obtained on behalf of the Plan in connection with the adverse benefit determination, without regard to whether the advice was relied on.

The Plan Administrator shall provide adequate written notice to the Claimant of the Plan’s benefit determination on review. The notice must be furnished within 45 days of the date that the request for review is received by the Plan without regard to whether all of the information necessary to make a benefit determination on review is received.  The Claimant shall be notified in writing within this initial 45-day period if special circumstances require an extension of the time needed to process the claim. The notice shall indicate the special circumstances requiring an extension of time and the date by which the Plan Administrator expects to render the determination on review. In no event shall such extension exceed a period of 45 days from the end of the initial 45-day period.

In the event the benefit determination is being made by a committee or board of trustees that hold regularly scheduled meetings at least quarterly, the above paragraph shall not apply. The benefit determination must be made by the date of the meeting of the committee or board that immediately follows the Plan’s receipt of a request for review, unless the request for review is filed within 30 days preceding the date of such meeting. In such case, the benefit determination must be made by the date of the second meeting following the Plan’s receipt of the request for review. The date of the receipt of the request for review shall be

RESTATEMENT JANUARY 1, 2011 74 ARTICLE IX  (7-10182)

determined without regard to whether all of the information necessary to make a benefit determination on review is received. The Claimant shall be notified in writing within this initial period if special circumstances require an extension of the time needed to process the claim. The notice shall indicate the special circumstances requiring an extension of time and the date by which the committee or board expects to render the determination on review.  In no event shall such benefit determination be made later than the third meeting of the committee or board following the Plan’s receipt of the request for review. The Plan Administrator shall provide adequate written notice to the Claimant of the Plan’s benefit determination on review as soon as possible, but not later than five days after the benefit determination is made.

To the extent that a period of time is extended due to a Claimant’s failure to submit information necessary to decide a claim, the period for making the benefit determination on review shall be tolled from the date on which the notification of the extension is sent to the Claimant until the date on which the Claimant responds to the request for additional information.

If the claim for disability benefits is wholly or partially denied on review, the Plan Administrator’s notice to the Claimant shall: (i) specify the reason or reasons for the denial; (ii) reference the specific Plan provisions on which the denial is based; (iii) include a statement that the Claimant is entitled to receive, upon request and free of charge, reasonable access to, and copies of, all documents, records, and other information relevant to the Claimant’s claim for benefits; (iv) include a statement of the Claimant’s right to bring a civil action under ERISA section 502(a); (v) provide the Claimant with any internal rule, guideline, protocol, or other similar criterion that was relied upon in making the adverse determination or a statement that such rule, guideline, protocol, or other similar criterion was relied upon and a copy will be provided free of charge upon request; (vi) provide the Claimant with an explanation of any scientific or clinical judgment for the determination if benefit determination is based on a medical necessity or experimental treatment or similar exclusion or limit or a statement that the benefit is based on such an exclusion or limit and such explanation will be provided free of charge; and (vii) provide the Claimant with the following statement: “You and your plan may have other voluntary alternative dispute resolution options, such as mediation. One way to find out what may be available is to contact your local U.S. Department of Labor Office and your State insurance regulatory agency.”

SECTION 9.06--DELEGATION OF AUTHORITY.

All or any part of the administrative duties and responsibilities under this article may be delegated by the Plan Administrator to a retirement committee. The duties and responsibilities of the retirement committee shall be set out in a separate written agreement.

SECTION 9.07--EXERCISE OF DISCRETIONARY AUTHORITY.

The Employer, Plan Administrator, and any other person or entity who has authority with respect to the management, administration, or investment of the Plan may exercise that authority in its/his full discretion, subject only to the duties imposed under ERISA. This discretionary authority includes, but is not limited to, the authority to make any and all factual determinations and interpret all terms and provisions of the Plan documents relevant to the issue under consideration. The exercise of authority will be binding upon all persons; will be given deference in all courts of law to the greatest extent allowed under law; and will not be overturned or set aside by any court of law unless found to be arbitrary and capricious or made in bad faith.

RESTATEMENT JANUARY 1, 2011 75 ARTICLE IX  (7-10182)

SECTION 9.08--TRANSACTION PROCESSING.

Transactions (including, but not limited to, investment directions, trades, loans, and distributions) shall be processed as soon as administratively practicable after proper directions are received from the Participant or other parties. No guarantee is made by the Plan, Plan Administrator, Trustee, Insurer, or Employer that such transactions will be processed on a daily or other basis, and no guarantee is made in any respect regarding the processing time of such transactions.

Notwithstanding any other provision of the Plan, the Employer, the Plan Administrator, or the Trustee reserves the right to not value an investment option on any given Valuation Date for any reason deemed appropriate by the Employer, the Plan Administrator, or the Trustee.

Administrative practicality will be determined by legitimate business factors (including, but not limited to, failure of systems or computer programs, failure of the means of the transmission of data, force majeure, the failure of a service provider to timely receive values or prices, and correction for errors or omissions or the errors or omissions of any service provider) and in no event will be deemed to be less than 14 days. The processing date of a transaction shall be binding for all purposes of the Plan and considered the applicable Valuation Date for any transaction.

SECTION 9.09--VOTING AND TENDER OF QUALIFYING EMPLOYER SECURITIES.

Voting rights with respect to Qualifying Employer Securities will be passed through to Participants.  Participants will be allowed to direct the voting rights of Qualifying Employer Securities for any matter put to the vote of shareholders. Before each meeting of shareholders, the Employer shall cause to be sent to each person with power to control such voting rights a copy of any notice and any other information provided to shareholders and, if applicable, a form for instructing the Trustee how to vote at such meeting (or any adjournment thereof) the number of full and fractional shares subject to such person’s voting control. The Trustee may establish a deadline in advance of the meeting by which such forms must be received in order to be effective.

Each Participant shall be entitled to one vote for each share credited to his Account.

If some or all of the Participants have not directed or have not timely directed the Trustee on how to vote, then the Trustee shall vote such Qualifying Employer Securities in the same proportion as those shares of Qualifying Employer Securities for which the Trustee has received proper direction for such matter.

Tender rights or exchange offers for Qualifying Employer Securities will be passed through to Participants. As soon as practicable after the commencement of a tender or exchange offer for Qualifying Employer Securities, the Employer shall cause each person with power to control the response to such tender or exchange offer to be advised in writing the terms of the offer and, if applicable, to be provided with a form for instructing the Trustee, or for revoking such instruction, to tender or exchange shares of Qualifying Employer Securities, to the extent permitted under the terms of such offer. In advising such persons of the terms of the offer, the Employer may include statements from the board of directors setting forth its position with respect to the offer.

If some or all of the Participants have not directed or have not timely directed the Trustee on how to tender, then the Trustee shall tender such Qualifying Employer Securities in the same proportion as those shares of Qualifying Employer Securities for which the Trustee has received proper direction for such matter.

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If the tender or exchange offer is limited so that all of the shares that the Trustee has been directed to tender or exchange cannot be sold or exchanged, the shares that each Participant directed to be tendered or exchanged shall be deemed to have been sold or exchanged in the same ratio that the number of shares actually sold or exchanged bears to the total number of shares that the Trustee was directed to tender or exchange.

The Trustee shall hold the Participant’s individual directions with respect to voting rights or tender decisions in confidence and, except as required by law, shall not divulge or release such individual directions to anyone associated with the Employer. The Employer may require verification of the Trustee’s compliance with the directions received from Participants by any independent auditor selected by the Employer, provided that such auditor agrees to maintain the confidentiality of such individual directions.

The Employer may develop procedures to facilitate the exercise of votes or tender rights, such as the use of facsimile transmissions for the Participants located in physically remote areas.

SECTION 9.10--VOTING AND TENDER OF SELF-DIRECTED BROKERAGE ACCOUNTS.

Rights of ownership of securities held in the Self-Directed Brokerage Account, including voting rights, tender rights, and rights to exercise exchange offers, shall be passed through to the Participant with respect to whom the Self-Directed Brokerage Account was established. These rights shall be exercised by the Participant through the mechanism (including the course of dealing and practices and procedures) established by the Trustee under the Trust Agreement for the exercise of such rights and in accordance with the Self-Directed Brokerage Account documents.

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ARTICLE X

GENERAL PROVISIONS

SECTION 10.01--AMENDMENTS.

The Employer may amend this Plan at any time, including any remedial retroactive changes (within the time specified by Internal Revenue Service regulations), to comply with any law or regulation issued by any governmental agency to which the Plan is subject. The Employer may correct obvious and unambiguous typographical errors and cross references that merely correct a reference but that do not in any way change the original intended meaning of the provisions.

An amendment may not allow reversion or diversion of Plan assets to the Employer at any time, except as may be required to comply with any law or regulation issued by any governmental agency to which the Plan is subject.

An amendment may not eliminate or reduce a section 411(d)(6) protected benefit, as defined in Q&A-1 in section 1.411(d)-4 of the regulations, that has already accrued, except as provided in section 1.411(d)-3 or 1.411(d)-4 of the regulations. This is generally the case even if such elimination or reduction is contingent upon the Employee’s consent. However, the Plan may be amended to eliminate or reduce section 411(d)(6) protected benefits with respect to benefits not yet accrued as of the later of the amendment’s adoption date or effective date without violating Code Section 411(d)(6).

If, as a result of an amendment, an Employer Contribution is removed that is not 100% immediately vested when made, the applicable vesting schedule shall remain in effect with respect to that part of his Account resulting from such Contributions after the date of such amendment. The Participant shall not become immediately 100% vested in such Contributions as a result of the elimination of such Contribution except as otherwise specifically provided in the Plan.

An amendment shall not decrease a Participant's vested interest in the Plan. If an amendment to the Plan changes the computation of the percentage used to determine that portion of a Participant's Account attributable to Employer Contributions which is nonforfeitable (whether directly or indirectly), in the case of an Employee who is a Participant as of the later of the date such amendment or change is adopted or the date it becomes effective, the nonforfeitable percentage (determined as of such date) of such Employee’s right to his Account attributable to Employer Contributions shall not be less than the percentage computed under the Plan without regard to such amendment or change. Furthermore, each Participant or former Participant

(a) who has completed at least three Years of Service on the date the election period described below ends (five Years of Service if the Participant does not have at least one Hour of Service in a Plan Year beginning after December 31, 1988) and

(b) whose nonforfeitable percentage will be determined on any date after the date of the change

may elect, during the election period, to have the nonforfeitable percentage of his Account resulting from Employer Contributions determined without regard to the amendment. This election may not be revoked. If after the Plan is changed, the Participant’s nonforfeitable percentage will at all times be as great as it would have been if the change had not been made, no election needs to be provided. The election period shall begin no later than the date the Plan amendment is adopted and end no earlier than the 60th day after the latest of the date the amendment is adopted or becomes effective, or the date the Participant is issued written notice of the amendment by the Employer or the Plan Administrator.

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For an amendment adopted after August 9, 2006, with respect to a Participant’s Account attributable to Employer Contributions accrued as of the later of the adoption or effective date of the amendment and earnings, the vested percentage of each Participant will be the greater of the vested percentage under the old vesting schedule or the vested percentage under the new vesting schedule.

SECTION 10.02--DIRECT ROLLOVERS.

Notwithstanding any provision of the Plan to the contrary that would otherwise limit a Distributee's election under this section, a Distributee may elect, at the time and in the manner prescribed by the Plan Administrator, to have any portion of an Eligible Rollover Distribution paid directly to an Eligible Retirement Plan specified by the Distributee in a Direct Rollover. A Designated Beneficiary of a Participant who is not the surviving spouse of the Participant may elect, at the time and in the manner prescribed by the Plan Administrator, to have any portion of a distribution, that would be an Eligible Rollover Distribution if the Designated Beneficiary were a Distributee, paid in a Direct Rollover to an individual retirement plan described in Code Section 402(c)(8)(B)(i) or (ii) established for the purposes of receiving the distribution on behalf of the Designated Beneficiary.  If such Direct Rollover is made: (i) such Direct Rollover shall be treated as an Eligible Rollover Distribution; (ii) the individual retirement plan shall be treated as an inherited individual retirement account or individual retirement annuity (within the meaning of Code Section 408(d)(3)(C)); and (iii) Code Section 401(a)(9)(B) (other than clause (iv) thereof) shall apply to such plan. For this purpose, certain trusts shall be treated as a Designated Beneficiary as provided in Code Section 402(c)(11)(B).

In the event of a mandatory distribution of an Eligible Rollover Distribution greater than $1,000 in accordance with the SMALL AMOUNTS SECTION of this article (or which is a small amounts payment under Article VIII at complete termination of the Plan), if the Participant does not elect to have such distribution paid directly to an Eligible Retirement Plan specified by the Participant in a Direct Rollover or to receive the distribution directly, the Plan Administrator will pay the distribution in a Direct Rollover to an individual retirement plan designated by the Plan Administrator.

In the event of any other Eligible Rollover Distribution to a Distributee in accordance with the SMALL AMOUNTS SECTION of this article (or which is a small amounts payment under Article VIII at complete termination of the Plan), if the Distributee does not elect to have such distribution paid directly to an Eligible Retirement Plan specified by the Distributee in a Direct Rollover or to receive the distribution directly, the Plan Administrator will pay the distribution to the Distributee.

A mandatory distribution is a distribution to a Participant that is made without the Participant’s consent and is made to the Participant before he attains the older of age 62 or his Normal Retirement Age.

SECTION 10.03--MERGERS AND DIRECT TRANSFERS.

The Plan may not be merged or consolidated with, nor have its assets or liabilities transferred to, any other retirement plan, unless each Participant in this Plan would (if that plan then terminated) receive a benefit immediately after the merger, consolidation, or transfer that is equal to or greater than the benefit the Participant would have been entitled to receive immediately before the merger, consolidation, or transfer (if this Plan had then terminated). The Employer may enter into merger agreements or direct transfer of assets agreements with the employers under other retirement plans which are qualifiable under Code Section 401(a), including an elective transfer, and may accept the direct transfer of plan assets, or may transfer plan assets, as a party to any such agreement. The Employer shall not consent to, or be a party to a merger, consolidation, or transfer of assets with a defined benefit plan if such action would result in a defined benefit feature being maintained under this Plan. The Employer will not transfer any amounts attributable to elective deferral contributions, qualified matching contributions, and qualified nonelective contributions unless the transferee plan provides that the limitations of section 1.401(k)-1(d) of the regulations shall apply to such amounts

RESTATEMENT JANUARY 1, 2011 79 ARTICLE X  (7-10182)

(including post-transfer earnings thereon), unless the amounts could have been distributed at the time of the transfer (other than for hardship), and the transfer is an elective transfer described in Q&A-3(b)(1) in section 1.411(d)-4 of the regulations.

Notwithstanding any provision of the Plan to the contrary, to the extent any optional form of benefit under the Plan permits a distribution prior to the Employee’s retirement, death, disability, or Severance from Employment, and prior to plan termination, the optional form of benefit is not available with respect to benefits attributable to assets (including the post-transfer earnings thereon) and liabilities that are transferred, within the meaning of Code Section 414(l), to this Plan from a money purchase pension plan qualified under Code Section 401(a) (other than any portion of those assets and liabilities attributable to voluntary employee contributions). The limitations of section 1.401(k)-1(d) of the regulations applicable to elective deferral contributions, qualified matching contributions, and qualified nonelective contributions shall continue to apply to any amounts attributable to such contributions (including post-transfer earnings thereon) transferred to this Plan, unless the amounts could have been distributed at the time of the transfer (other than for hardship), and the transfer is an elective transfer described in Q&A-3(b)(1) in section 1.411(d)-4 of the regulations.

The Plan may accept a direct transfer of plan assets on behalf of an Eligible Employee. If the Eligible Employee is not an Active Participant when the transfer is made, the Eligible Employee shall be deemed to be an Active Participant only for the purpose of investment and distribution of the transferred assets. Employer Contributions shall not be made for or allocated to the Eligible Employee, until the time he meets all of the requirements to become an Active Participant.

The Plan shall hold, administer, and distribute the transferred assets as a part of the Plan. The Plan shall maintain a separate account for the benefit of the Employee on whose behalf the Plan accepted the transfer in order to reflect the value of the transferred assets.

A Participant’s section 411(d)(6) protected benefits, as defined in Q&A-1 in section 1.411(d)-4 of the regulations, may not be eliminated by reason of transfer or any transaction amending or having the effect of amending a plan or plans to transfer benefits except as provided below.

A Participant’s section 411(d)(6) protected benefits may be eliminated or reduced upon transfer between qualified defined contribution plans if the conditions in Q&A-3(b)(1) in section 1.411(d)-4 of the regulations are met. The transfer must meet all of the other applicable qualification requirements.

A Participant’s section 411(d)(6) protected benefits may be eliminated or reduced if a transfer is an elective transfer of certain distributable benefits between qualified plans (both defined benefit and defined contribution) and the conditions in Q&A-3(c)(1) in section 1.411(d)-4 of the regulations are met. The rules applicable to distributions under the plan would apply to the transfer, but the transfer would not be treated as a distribution for purposes of the minimum distribution requirements of Code Section 401(a)(9). Beginning January 1, 2002, if the Participant is eligible to receive an immediate distribution of his entire nonforfeitable accrued benefit in a single sum distribution that would consist entirely of an eligible rollover distribution under Code Section 401(a)(31), such transfer will be accomplished as a direct rollover under Code Section 401(a)(31).

SECTION 10.04--PROVISIONS RELATING TO THE INSURER AND OTHER PARTIES.

The obligations of an Insurer shall be governed solely by the provisions of the Annuity Contract. The Insurer shall not be required to perform any act not provided in or contrary to the provisions of the Annuity Contract. Each Annuity Contract when purchased shall comply with the Plan.  See the CONSTRUCTION SECTION of this article.

RESTATEMENT JANUARY 1, 2011 80 ARTICLE X  (7-10182)

Any issuer or distributor of investment contracts or securities is governed solely by the terms of its policies, written investment contract, prospectuses, security instruments, and any other written agreements entered into with the Trustee with regard to such investment contracts or securities.

Such Insurer, issuer or distributor is not a party to the Plan, nor bound in any way by the Plan provisions. Such parties shall not be required to look to the terms of this Plan, nor to determine whether the Employer, the Plan Administrator, the Trustee, or the Named Fiduciary have the authority to act in any particular manner or to make any contract or agreement.

Until notice of any amendment or termination of this Plan or a change in Trustee has been received by the Insurer at its home office or an issuer or distributor at their principal address, they are and shall be fully protected in assuming that the Plan has not been amended or terminated and in dealing with any party acting as Trustee according to the latest information which they have received at their home office or principal address.

SECTION 10.05--EMPLOYMENT STATUS.

Nothing contained in this Plan gives an Employee the right to be retained in the Employer's employ or to interfere with the Employer's right to discharge any Employee.

SECTION 10.06--RIGHTS TO PLAN ASSETS.

An Employee shall not have any right to or interest in any assets of the Plan upon termination of employment or otherwise except as specifically provided under this Plan, and then only to the extent of the benefits payable to such Employee according to the Plan provisions.

Any final payment or distribution to a Participant or his legal representative or to any Beneficiaries of such Participant under the Plan provisions shall be in full satisfaction of all claims against the Plan, the Named Fiduciary, the Plan Administrator, the Insurer, the Trustee, and the Employer arising under or by virtue of the Plan.

SECTION 10.07--BENEFICIARY.

Each Participant may name a Beneficiary to receive any death benefit that may arise out of his participation in the Plan. The Participant may change his Beneficiary from time to time. Unless a qualified election has been made, for purposes of distributing any death benefits before the Participant’s Retirement Date, the Beneficiary of a Participant who has a spouse shall be the Participant's spouse. The Participant's Beneficiary designation and any change of Beneficiary shall be subject to the provisions of the ELECTION PROCEDURES SECTION of Article VI.

It is the responsibility of the Participant to give written notice to the Plan Administrator of the name of the Beneficiary on a form furnished for that purpose. The Plan Administrator shall maintain records of Beneficiary designations for Participants before their Retirement Dates. However, the Plan Administrator may delegate to another party the responsibility of maintaining records of Beneficiary designations. In that event, the written designations made by Participants shall be filed with such other party. If a party other than the Insurer maintains the records of Beneficiary designations and a Participant dies before his Retirement Date, such other party shall certify to the Insurer the Beneficiary designation on its records for the Participant.

If there is no Beneficiary named or surviving when a Participant dies, the Participant’s Beneficiary shall be the Participant’s surviving spouse, or where there is no surviving spouse, the executor or administrator of the Participant’s estate.

RESTATEMENT JANUARY 1, 2011 81 ARTICLE X  (7-10182)

SECTION 10.08--NONALIENATION OF BENEFITS.

Benefits payable under the Plan are not subject to the claims of any creditor of any Participant or Beneficiary. A Participant or Beneficiary does not have any rights to alienate, anticipate, commute, pledge, encumber, or assign such benefits, except in the case of a loan as provided in the LOANS TO PARTICIPANTS SECTION of Article V. The preceding sentences shall also apply to the creation, assignment, or recognition of a right to any benefit payable with respect to a Participant according to a domestic relations order, unless such order is determined by the Plan Administrator to be a qualified domestic relations order, as defined in Code Section 414(p), or any domestic relations order entered before January 1, 1985. The preceding sentences shall not apply to any offset of a Participant’s benefits provided under the Plan against an amount the Participant is required to pay the Plan with respect to a judgment, order, or decree issued, or a settlement entered into, on or after August 5, 1997, which meets the requirements of Code Sections 401(a)(13)(C) or (D).

SECTION 10.09--CONSTRUCTION.

The validity of the Plan or any of its provisions is determined under and construed according to Federal law and, to the extent permissible, according to the laws of the state in which the Employer has its principal office. In case any provision of this Plan is held illegal or invalid for any reason, such determination shall not affect the remaining provisions of this Plan, and the Plan shall be construed and enforced as if the illegal or invalid provision had never been included.

In the event of any conflict between the provisions of the Plan and the terms of any Annuity Contract issued hereunder, the provisions of the Plan control.

SECTION 10.10--LEGAL ACTIONS.

No person employed by the Employer; no Participant, former Participant, or their Beneficiaries; nor any other person having or claiming to have an interest in the Plan is entitled to any notice of process. A final judgment entered in any such action or proceeding shall be binding and conclusive on all persons having or claiming to have an interest in the Plan.

SECTION 10.11--SMALL AMOUNTS.

If consent of the Participant is not required for a benefit that is immediately distributable in the ELECTION PROCEDURES SECTION of Article VI, a Participant’s entire Vested Account shall be paid in a single sum as of the earliest of his Retirement Date, the date he dies, or the date he has a Severance from Employment for any other reason (the date the Employer provides notice to the record keeper of the Plan of such event, if later). For purposes of this section, if the Participant’s Vested Account is zero, the Participant shall be deemed to have received a distribution of such Vested Account. This is a small amounts payment.

If a small amounts payment is made as of the date the Participant dies, the small amounts payment shall be made to the Participant’s Beneficiary. If a small amounts payment is made while the Participant is living, the small amounts payment shall be made to the Participant. The small amounts payment is in full settlement of all benefits otherwise payable.

No other small amounts payments shall be made.

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SECTION 10.12--WORD USAGE.

The masculine gender, where used in this Plan, shall include the feminine gender and the singular words, where used in this Plan, shall include the plural, unless the context indicates otherwise.

The words “in writing” and “written,” where used in this Plan, shall include any other forms, such as voice response or other electronic system, as permitted by any governmental agency to which the Plan is subject.

SECTION 10.13--CHANGE IN SERVICE METHOD.

(a) Change of Service Method Under This Plan.  If this Plan is amended to change the method of crediting service from the elapsed time method to the hours method for any purpose under this Plan, the Employee’s service shall be equal to the sum of (1), (2), and (3) below:

(1) The number of whole years of service credited to the Employee under the Plan as of the date the change is effective.

(2) One year of service for the computation period in which the change is effective if he is credited with the required number of Hours of Service. For that portion of the computation period ending on the date of the change (for the first day of the computation period if the change is made on the first day of the computation period), the Employee will be credited with the greater of (i) his actual Hours of Service or (ii) the number of Hours of Service that is equivalent to the fractional part of a year of elapsed time service credited as of the date of the change, if any. In determining the equivalent Hours of Service, the Employee shall be credited with 190 Hours of Service for each month and any fractional part of a month in such fractional part of a year. The number of months and any fractional part of a month shall be determined by multiplying the fractional part of a year, expressed as a decimal, by 12. For the remaining portion of the computation period (the period beginning on the second day of the computation period and ending on the last day of the computation period if the change is made on the first day of the computation period), the Employee will be credited with his actual Hours of Service.

(3) The Employee’s service determined under this Plan using the hours method after the end of the computation period in which the change in service method was effective.

If this Plan is amended to change the method of crediting service from the hours method to the elapsed time method for any purpose under this Plan, the Employee’s service shall be equal to the sum of (4), (5), and (6) below:

(4) The number of whole years of service credited to the Employee under the Plan as of the beginning of the computation period in which the change in service method is effective.

(5) The greater of (i) the service that would be credited to the Employee for that entire computation period using the elapsed time method or (ii) the service credited to him under the Plan as of the date the change is effective.

(6) The Employee’s service determined under this Plan using the elapsed time method after the end of the applicable computation period in which the change in service method was effective.

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(b) Transfers Between Plans with Different Service Methods.  If an Employee has been a participant in another plan of the Employer that credited service under the elapsed time method for any purpose that under this Plan is determined using the hours method, then the Employee’s service shall be equal to the sum of (1), (2), and (3) below:

(1) The number of whole years of service credited to the Employee under the other plan as of the date he became an Eligible Employee under this Plan.

(2) One year of service for the applicable computation period in which he became an Eligible Employee if he is credited with the required number of Hours of Service. For that portion of such computation period ending on the date he became an Eligible Employee (for the first day of such computation period if he became an Eligible Employee on the first day of such computation period), the Employee will be credited with the greater of (i) his actual Hours of Service or (ii) the number of Hours of Service that is equivalent to the fractional part of a year of elapsed time service credited as of the date he became an Eligible Employee, if any. In determining the equivalent Hours of Service, the Employee shall be credited with 190 Hours of Service for each month and any fractional part of a month in such fractional part of a year. The number of months and any fractional part of a month shall be determined by multiplying the fractional part of a year, expressed as a decimal, by 12.  For the remaining portion of such computation period (the period beginning on the second day of such computation period and ending on the last day of such computation period if he became an Eligible Employee on the first day of such computation period), the Employee will be credited with his actual Hours of Service.

(3) The Employee’s service determined under this Plan using the hours method after the end of the computation period in which he became an Eligible Employee.

If an Employee has been a participant in another plan of the Employer that credited service under the hours method for any purpose that under this Plan is determined using the elapsed time method, then the Employee’s service shall be equal to the sum of (4), (5), and (6) below:

(4) The number of whole years of service credited to the Employee under the other plan as of the beginning of the computation period under that plan in which he became an Eligible Employee under this Plan.

(5) The greater of (i) the service that would be credited to the Employee for that entire computation period using the elapsed time method or (ii) the service credited to him under the other plan as of the date he became an Eligible Employee under this Plan.

(6) The Employee’s service determined under this Plan using the elapsed time method after the end of the applicable computation period under the other plan in which he became an Eligible Employee.

If an Employee has been a participant in a Controlled Group member’s plan that credited service under a different method than is used in this Plan, in order to determine entry and vesting, the provisions in (b) above shall apply as though the Controlled Group member’s plan was a plan of the Employer.

Any modification of service contained in this Plan shall be applicable to the service determined pursuant to this section.

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SECTION 10.14--MILITARY SERVICE.

Notwithstanding any provision of this Plan to the contrary, the Plan shall provide contributions, benefits, and service credit with respect to Qualified Military Service in accordance with Code Section 414(u). Loan repayments shall be suspended under this Plan as permitted under Code Section 414(u).

Beginning January 1, 2007, a Participant who dies on or after January 1, 2007 while performing Qualified Military Service is treated as having resumed and then terminated employment on account of death, in accordance with Code Section 401(a)(37) and any subsequent guidance. The survivors of such Participant are entitled to any additional benefits provided under the Plan on account of death of the Participant.

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ARTICLE XI

TOP-HEAVY PLAN REQUIREMENTS

SECTION 11.01--APPLICATION.

The provisions of this article shall supersede all other provisions in the Plan to the contrary. The provisions of this article shall apply for purposes of determining whether the Plan is a Top-heavy Plan for Plan Years beginning after December 31, 2001, and whether the Plan satisfies the minimum benefit requirements of Code Section 416(c) for such years.

For the purpose of applying the Top-heavy Plan requirements of this article, all members of the Controlled Group shall be treated as one Employer. The term Employer, as used in this article, shall be deemed to include all members of the Controlled Group, unless the term as used clearly indicates only the Employer is meant.

The accrued benefit or account of a participant resulting from deductible employee contributions shall not be included for any purpose under this article.

The contribution provisions of the MODIFICATION OF CONTRIBUTIONS SECTION of this article shall not apply to any Employee who is included in a group of Employees covered by a collective bargaining agreement which the Secretary of Labor finds to be a collective bargaining agreement between employee representatives and one or more employers, including the Employer, if there is evidence that retirement benefits were the subject of good faith bargaining between such representatives. For this purpose, the term "employee representatives" does not include any organization more than half of whose members are employees who are owners, officers, or executives.

SECTION 11.02--DEFINITIONS.

For purposes of this article the following terms are defined:

Aggregation Group means:

(a) each of the Employer's qualified plans in which a Key Employee is a participant during the Plan Year containing the Determination Date or any of the four preceding Plan Years (regardless of whether the plans have terminated),

(b) each of the Employer's other qualified plans which allows the plan(s) described in (a) above to meet the nondiscrimination requirement of Code Section 401(a)(4) or the minimum coverage requirement of Code Section 410, and

(c) any of the Employer's other qualified plans not included in (a) or (b) above which the Employer desires to include as part of the Aggregation Group.  Such a qualified plan shall be included only if the Aggregation Group would continue to satisfy the requirements of Code Sections 401(a)(4) and 410.

The plans in (a) and (b) above constitute the "required" Aggregation Group.  The plans in (a), (b), and (c) above constitute the "permissive" Aggregation Group.

RESTATEMENT JANUARY 1, 2011 86 ARTICLE XI  (7-10182)

Compensation means compensation as defined in the CONTRIBUTION LIMITATION SECTION of Article III.

Determination Date means as to any plan, for any plan year subsequent to the first plan year, the last day of the preceding plan year.  For the first plan year of the plan, the Determination Date is the last day of that year.

Key Employee means any Employee or former Employee (including any deceased Employee) who at any time during the Plan Year that includes the Determination Date is:

(a) an officer of the Employer having Compensation for the Plan Year greater than $130,000 (as adjusted under Code Section 416(i)(1) for Plan Years beginning after December 31, 2002),

(b) a 5-percent owner of the Employer, or

(c) a 1-percent owner of the Employer having Compensation for the Plan Year of more than $150,000.

The determination of who is a Key Employee shall be made according to Code Section 416(i)(1) and the applicable regulations and other guidance of general applicability issued thereunder.

Nonkey Employee means any Employee who is not a Key Employee.

Top-heavy Plan means a plan that is top-heavy for any plan year.  This Plan shall be top-heavy if any of the following conditions exist:

(a) The Top-heavy Ratio for this Plan exceeds 60 percent and this Plan is not part of any required Aggregation Group or permissive Aggregation Group.

(b) This Plan is a part of a required Aggregation Group, but not part of a permissive Aggregation Group, and the Top-heavy Ratio for the required Aggregation Group exceeds 60 percent.

(c) This Plan is a part of a required Aggregation Group and part of a permissive Aggregation Group and the Top-heavy Ratio for the permissive Aggregation Group exceeds 60 percent.

Top-heavy Ratio means:

(a) If the Employer maintains one or more defined contribution plans (including any simplified employee pension plan) and the Employer has not maintained any defined benefit plan which during the five-year period ending on the Determination Date(s) has or has had accrued benefits, the Top-heavy Ratio for this Plan alone or for the required or permissive Aggregation Group, as appropriate, is a fraction, the numerator of which is the sum of the account balances of all Key Employees as of the Determination Date(s) (including any part of any account balance distributed in the one-year period ending on the Determination Date(s) and distributions under a terminated plan which if it had not been terminated would have been required to be included in the Aggregation Group), and the denominator of which is the sum of all account balances (including any part of any account balance distributed in the one-year period ending on the Determination Date(s) and distributions under a terminated plan which if it had not been terminated would have been required to be included in the Aggregation Group), both computed in accordance with Code Section 416 and the regulations thereunder.  In the case of a distribution made for a reason other than Severance from Employment, death, or disability, this provision shall be applied by

RESTATEMENT JANUARY 1, 2011 87 ARTICLE XI  (7-10182)

substituting “five-year period” for “one-year period.” Both the numerator and denominator of the Top-heavy Ratio are increased to reflect any contribution not actually made as of the Determination Date, but which is required to be taken into account on that date under Code Section 416 and the regulations thereunder.

(b) If the Employer maintains one or more defined contribution plans (including any simplified employee pension plan) and the Employer maintains or has maintained one or more defined benefit plans which during the five-year period ending on the Determination Date(s) has or has had accrued benefits, the Top-heavy Ratio for any required or permissive Aggregation Group, as appropriate, is a fraction, the numerator of which is the sum of the account balances under the aggregated defined contribution plan or plans of all Key Employees, determined in accordance with (a) above, and the present value of accrued benefits under the aggregated defined benefit plan or plans for all Key Employees as of the Determination Date(s), and the denominator of which is the sum of the account balances under the aggregated defined contribution plan or plans for all participants, determined in accordance with (a) above, and the present value of accrued benefits under the defined benefit plan or plans for all participants as of the Determination Date(s), all determined in accordance with Code Section 416 and the regulations thereunder.  The accrued benefits under a defined benefit plan in both the numerator and denominator of the Top-heavy Ratio are increased for any distribution of an accrued benefit made in the one-year period ending on the Determination Date (and distributions under a terminated plan which if it had not been terminated would have been required to be included in the Aggregation Group). In the case of a distribution made for a reason other than Severance from Employment, death, or disability, this provision shall be applied by substituting “five-year period” for “one-year period.”

(c) For purposes of (a) and (b) above, the value of account balances and the present value of accrued benefits will be determined as of the most recent Valuation Date that falls within or ends with the 12-month period ending on the Determination Date, except as provided in Code Section 416 and the regulations thereunder for the first and second plan years of a defined benefit plan.  The account balances and accrued benefits of a participant (i) who is not a Key Employee but who was a Key Employee in a prior year or (ii) who has not been credited with at least one hour of service with any employer maintaining the plan at any time during the one-year period ending on the Determination Date will be disregarded. The calculation of the Top-heavy Ratio and the extent to which distributions, rollovers, and transfers are taken into account will be made in accordance with Code Section 416 and the regulations thereunder. Deductible employee contributions will not be taken into account for purposes of computing the Top-heavy Ratio.  When aggregating plans, the value of account balances and accrued benefits will be calculated with reference to the Determination Dates that fall within the same calendar year.

The accrued benefit of a participant other than a Key Employee shall be determined under (i) the method, if any, that uniformly applies for accrual purposes under all defined benefit plans maintained by the Employer, or (ii) if there is no such method, as if such benefit accrued not more rapidly than the slowest accrual rate permitted under the fractional rule of Code Section 411(b)(1)(C).

SECTION 11.03--MODIFICATION OF CONTRIBUTIONS.

During any Plan Year in which this Plan is a Top-heavy Plan, the Employer shall make a minimum contribution as of the last day of the Plan Year for each Nonkey Employee who is an Employee on the last day of the Plan Year and who was an Active Participant at any time during the Plan Year. A Nonkey Employee is not required to have a minimum number of Hours of Service or minimum amount of Compensation in order to be entitled to this minimum. A Nonkey Employee who fails to be an Active Participant merely because his Compensation is less than a stated amount or merely because of a failure to make mandatory participant

RESTATEMENT JANUARY 1, 2011 88 ARTICLE XI  (7-10182)

contributions or, in the case of a cash or deferred arrangement, elective contributions shall be treated as if he were an Active Participant. The minimum is the lesser of (a) or (b) below:

(a) 3 percent of such person's Compensation for such Plan Year.

(b) The "highest percentage" of Compensation for such Plan Year at which the Employer's Contributions are made for or allocated to any Key Employee. The highest percentage shall be determined by dividing the Employer Contributions made for or allocated to each Key Employee during the Plan Year by the amount of his Compensation for such Plan Year, and selecting the greatest quotient (expressed as a percentage). To determine the highest percentage, all of the Employer's defined contribution plans within the Aggregation Group shall be treated as one plan.  The minimum shall be the amount in (a) above if this Plan and a defined benefit plan of the Employer are required to be included in the Aggregation Group and this Plan enables the defined benefit plan to meet the requirements of Code Section 401(a)(4) or 410.

For purposes of (a) and (b) above, Compensation shall be limited by Code Section 401(a)(17).

If the Employer's contributions and allocations otherwise required under the defined contribution plan(s) are at least equal to the minimum above, no additional contribution shall be required. If the Employer's total contributions and allocations are less than the minimum above, the Employer shall contribute the difference for the Plan Year.

The minimum contribution applies to all of the Employer's defined contribution plans in the aggregate which are Top-heavy Plans. A minimum contribution under a profit sharing plan shall be made without regard to whether or not the Employer has profits.

If a person who is otherwise entitled to a minimum contribution above is also covered under another defined contribution plan of the Employer’s which is a Top-heavy Plan during that same Plan Year, any additional contribution required to meet the minimum above shall be provided in this Plan.

If a person who is otherwise entitled to a minimum contribution above is also covered under a defined benefit plan of the Employer's that is a Top-heavy Plan during that same Plan Year, the minimum benefits for him shall not be duplicated. The defined benefit plan shall provide an annual benefit for him on, or adjusted to, a straight life basis equal to the lesser of:

(c) 2 percent of his average compensation multiplied by his years of service, or

(d) 20 percent of his average compensation.

Average compensation and years of service shall have the meaning set forth in such defined benefit plan for this purpose.

For purposes of this section, any employer contribution made according to a salary reduction or similar arrangement shall not apply in determining if the minimum contribution requirement has been met, but shall apply in determining the minimum contribution required. Matching contributions, as defined in Code Section 401(m), shall be taken into account for purposes of satisfying the minimum contribution requirements of Code Section 416(c)(2) and the Plan. Matching contributions that are used to satisfy the minimum contribution requirements shall be treated as matching contributions for purposes of the actual contribution percentage test and other requirements of Code Section 401(m).

The requirements of this section shall be met without regard to any Social Security contribution.

RESTATEMENT JANUARY 1, 2011 89 ARTICLE XI  (7-10182)

By executing this Plan, the Primary Employer acknowledges having counseled to the extent necessary with selected legal and tax advisors regarding the Plan's legal and tax implications.

Executed this __________ day of _______________________________________, _________.

CAPITOL BANCORP LIMITED

By:     _________________________________________

_________________________________________

Title

□ By my signature above, I hereby execute this Plan on behalf of each Adopting Employer identified in Appendix A.

RESTATEMENT JANUARY 1, 2011 90 PLAN EXECUTION  (7-10182) Subtype Cycle

APPENDIX A

ADOPTING EMPLOYERS

NAME                                                                       DATE OF ADOPTION (OF 401(k) PLAN)

Capitol National Bank                                             December 26, 1997

Michigan Commerce Bank                                     December 26, 1997

Bank of Tucson                                                       January 1, 1998

Central Arizona Bank                                              January 1, 1998

Southern Arizona Community Bank                     January 1, 1999

Sunrise Bank of Arizona                                         July 1, 1999

Sunrise Bank of Albuquerque                               January 1, 2001

Bank of Las Vegas                                                   February 14, 2002

First Carolina State Bank                                        July 1, 2004

Bank of Michigan                                                    July 1, 2005

Summit Bank of Kansas City                                 January 1, 2006

Capitol Wealth Inc.                                                 January 1, 2006

Community Bank of Rowan                                   February 21, 2006

Evansville Commerce Bank                                    July 1, 2006

Bank of Maumee                                                      October 2, 2006

1st Commerce Bank                                                  October 18, 2006

BAIA                                                                         August 1, 2007

High Desert Bank                                                    September 26, 2007

Bank of Feather River                                             November 6, 2007

Bank of Fort Bend                                                   December 10, 2007

Bank of Las Colinas                                                December 13, 2007

Mountain View Bank of Commerce                      February 8, 2008

Pisgah Community Bank                                        May 15, 2008

RESTATEMENT JANUARY 1, 2011 91 APPENDIX A  (7-10182)

Capitol Capital                                                          May 18, 2008

Sunrise Bank (CA)                                                   April 8, 2010

Indiana Community Bank                                       April 12, 2010

Bank of the Northwest                                            April 12, 2010

Sunrise Bank (GA)                                                   July 30, 2010

Access Bidco                                                           January 1, 2011

RESTATEMENT JANUARY 1, 2011 92 APPENDIX A  (7-10182)

EX-10.19

EXHIBIT 10.19

EX-13

EXHIBIT 13

F i n a n c i a l  I n f o r m a t i o n

Table of Contents

Selected Consolidated Financial Data	F-2
Information Regarding Capitol's Common Stock	F-3
Executive Officer Certifications	F-5
Availability of Form 10-K and Certain Other Reports	F-5
Other Corporate Information	F-5
Shareholder Information	F-6
Cautions Regarding Forward-Looking Statements	F-6
Management's Discussion and Analysis of Capitol's Business, Financial Condition and      Results of Operations:
Summary and Overview	F-11
Capitol's Approach to Community Banking	F-12
Capitol's Results of Operations	F-15
Capitol's Financial Position	F-21
Liquidity, Capital Resources and Capital Adequacy	F-30
Certain Regulatory Matters	F-36
Going-Concern Considerations	F-39
Trends Affecting Operations	F-41
Quantitative and Qualitative Disclosure About Market Risk	F-41
Divestitures of Banks	F-45
Critical Accounting Policies Affecting Capitol's Financial Statements	F-46
Use of Estimates in Determining the Allowance for Loan Losses	F-46
Accounting for Goodwill and Other Intangibles	F-47
Accounting for Income Taxes	F-48
Consolidation Policy	F-48
New Accounting Standards	F-49
Risk Factors Affecting Capitol and its Banks	F-49
Management's Report on Internal Control Over Financial Reporting	F-50
Consolidated Financial Statements:
Report of Independent Registered Public Accounting Firm	F-53
Consolidated Balance Sheets	F-54
Consolidated Statements of Operations	F-55
Consolidated Statements of Changes in Equity	F-56
Consolidated Statements of Cash Flows	F-58
Notes to Consolidated Financial Statements	F-59

F-1

Selected Consolidated Financial Data

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

	As of and for the Year Ended December 31
	2010(1)			2009(2)			2008(3)			2007(4)			2006(5)
For the year:
Interest income(6)	$	163,691		$	197,785		$	234,458		$	266,934		$	235,704
Interest expense(6)		63,582			91,112			115,634			124,720			94,799
Net interest income(6)		100,109			106,673			118,824			142,214			140,905
Provision for loan losses(6)		156,868			175,234			75,791			20,919			9,853
Noninterest income(6)		24,447			22,451			22,282			20,720			18,407
Noninterest expense(6)		241,811			203,960			156,400			142,214			111,744
Income (loss) from continuing operations before income taxes		(274,123	)		(250,070	)		(91,085	)		(199	)		37,715
Income (loss) from discontinued operations		12,449			(1,222	)		5,068			3,736			5,054
Net income (loss)		(254,364	)		(264,540	)		(52,451	)		3,334			29,876
Net income (loss) attributable to Capitol Bancorp Limited		(225,215	)		(195,169	)		(28,607	)		21,937			42,391
Net income (loss) per share attributable to Capitol Bancorp
Limited:
Basic		(11.16	)		(11.28	)		(1.67	)		1.29			2.69
Diluted		(11.16	)		(11.28	)		(1.67	)		1.27			2.57
Cash dividends paid per share		--			0.05			0.50			1.00			0.95
At end of year:
Total assets	$	3,540,214		$	5,131,940		$	5,654,836		$	4,901,763		$	4,065,816
Total earning assets(6)		3,230,783			3,820,035			4,025,628			3,569,118			3,113,348
Portfolio loans(6)		2,671,712			3,135,298			3,609,298			3,438,146			2,924,692
Deposits(6)		3,028,684			3,518,826			3,477,575			3,008,118			2,694,098
Notes payable and short-term borrowings(6)		123,377			197,653			302,388			273,332			183,404
Subordinated debentures		167,586			167,441			167,293			156,130			101,035
Noncontrolling interests in consolidated subsidiaries		23,173			72,271			159,220			156,198			126,512
Capitol Bancorp Limited stockholders' equity (deficit)		(61,854	)		161,335			353,848			389,145			361,879

				Quarterly Results of Operations (unaudited)
	Total for the Year			Fourth Quarter			Third Quarter			Second Quarter			First Quarter
Year ended December 31, 2010:(1)
Interest income(6)	$	163,691		$	38,625		$	41,185		$	40,883		$	42,998
Interest expense(6)		63,582			13,803			15,603			16,375			17,801
Net interest income(6)		100,109			24,822			25,582			24,508			25,197
Provision for loan losses(6)(8)		156,868			22,420			43,924			43,098			47,426
Net loss(8)		(254,364	)		(91,261	)		(57,244	)		(43,919	)		(61,940	)
Net income (loss) attributable to Capitol Bancorp Limited(8)		(225,215	)		(84,164	)		(52,166	)		(41,003	)		(47,882	)
Net income (loss) per share attributable to Capitol Bancorp Limited – basic and diluted(7)		(11.16	)		(3.95	)		(2.45	)		(1.98	)		(2.75	)
Cash dividends paid per share		--			--			--			--			--
Year ended December 31, 2009:(2)
Interest income(6)	$	197,785		$	46,712		$	49,055		$	51,133		$	50,885
Interest expense(6) (6)		91,112			19,546			22,261			23,656			25,649
Net interest income(6)		106,673			27,166			26,794			27,477			25,236
Provision for loan losses(6)		175,234			69,504			42,960			30,564			32,206
Net loss(10)		(264,540	)		(85,558	)		(128,115	)		(22,960	)		(27,907	)
Net loss attributable to Capitol Bancorp Limited		(195,169	)		(75,502	)		(82,689	)		(16,304	)		(20,674	)
Net loss per share attributable to Capitol Bancorp Limited – basic and diluted(7)		(11.28	)		(4.34	)		(4.75	)		(0.95	)		(1.20	)
Cash dividends paid per share		0.05			--			--			--			0.05

(1)	Capitol sold its ownership in Southern Arizona Community Bank effective December 10, 2010; Fort Collins Commerce Bank, Larimer Bank of Commerce and Loveland Bank of Commerce effective October 29, 2010; Bank of San Francisco effective September 28, 2010; Adams Dairy Bank effective August 31, 2010; USNY Bank effective August 23, 2010; Community Bank of Lincoln effective July 30, 2010; Ohio Commerce Bank effective June 30, 2010; Napa Community Bank effective April 30, 2010 and Bank of Belleville effective April 27, 2010.  The banks' operations have been included in Capitol's consolidated totals up to the date of sale; however, are included in discontinued operations.
(2)	Includes Yuma Community Bank's operations through September 21, 2009 (date at which Capitol sold its ownership of that bank) and Bank of Santa Barbara, Community Bank of Rowan (CBR), Summit Bank of Kansas City and Capitol Development Bancorp Limited III's (CDBL III) operations through September 30, 2009 (the date when these entities ceased to be consolidated with Capitol due to a change in control).  Effective June 30, 2010, CDBL III transferred its controlling interest in CBR to Capitol in exchange for preferred stock of Capitol and, accordingly, CBR became a consolidated subsidiary of Capitol on that date.
(3)	Includes Adams Dairy Bank, effective January 2008 (located in Blue Springs, Missouri), Mountain View Bank of Commerce, effective February 2008 (located in Westminster, Colorado), Colonia Bank, effective April 2008 (located in Phoenix, Arizona) and Pisgah Community Bank, effective May 2008 (located in Asheville, North Carolina).
(4)	Includes Bank of Tacoma, effective January 2007 (located in Tacoma, Washington), Sunrise Community Bank, effective February 2007 (located in Palm Desert, California), Larimer Bank of Commerce, effective May 2007 (located in Fort Collins, Colorado), Issaquah Community Bank (located in Issaquah, Washington) and USNY Bank (located in Geneva, New York), both effective July 2007, High Desert Bank, effective September 2007 (located in Bend, Oregon), Loveland Bank of Commerce, effective October 2007 (located in Loveland, Colorado), Bank of Feather River, effective November 2007 (located in Yuba City, California) and Community Bank of Lincoln (located in Lincoln, Nebraska), Bank of Fort Bend (located in Sugar Land, Texas) and Bank of Las Colinas (located in Irving, Texas), each effective December 2007.
(5)	Includes Community Bank of Rowan, effective February 2006 (located in Salisbury, North Carolina), Asian Bank of Arizona, effective April 2006 (located in Phoenix, Arizona), Evansville Commerce Bank, effective May 2006 (located in Evansville, Indiana), Bank of Valdosta (located in Valdosta, Georgia), Sunrise Bank of Atlanta (located in Atlanta, Georgia) and Bank of Everett (located in Everett, Washington), all effective June 2006, Bank of Maumee (located in Maumee, Ohio) and 1st Commerce Bank (located in North Las Vegas, Nevada), both effective October 2006, and Ohio Commerce Bank (located in Beachwood, Ohio), effective November 2006.
(6)	Excludes amounts related to banks reclassified as discontinued operations.
(7)	Each period's computation of net income (loss) per share is performed independently and, accordingly, net income per share for the year (basic and diluted) may not equal the sum of the amounts shown for the quarterly periods.
(8)	As-revised in early March 2011 to reflect additional provision for loan losses of $11.7 million resulting from Michigan Commerce Bank's amended regulatory financial statements filed on February 22, 2011 as of and for the period ended September 30, 2010.

F-2

INFORMATION REGARDING CAPITOL'S COMMON STOCK

Capitol's common stock was traded on the New York Stock Exchange (NYSE) under the symbol "CBC" prior to late January 2011.  On January 27, 2011, Capitol's common stock began trading on the OTC Markets (OTCQB) under the symbol "CBCR."  Market quotations regarding the range of high and low sales prices of Capitol's common stock, as reported by the NYSE, were as follows:

	2010				2009
	Low		High		Low		High
Quarter Ended:
March 31	$	1.95	$	3.55	$	2.50	$	7.96
June 30		1.23		3.79		2.38		7.08
September 30		0.95		1.58		1.79		6.06
December 31		0.37		1.32		1.55		3.45

Below is a graph which summarizes the cumulative return earned by Capitol's shareholders over the last five years compared with the SNL (SNL Financial LC) Bank Pink >$500M Asset-Size Index (SNL) and the cumulative total return on the Russell 2000 Index (R-2000).  This presentation assumes the initial value of an investment in Capitol's common stock and each index was $100 on December 31, 2005 and that any subsequent cash dividends were reinvested.

	Period Ending
Index	12/31/05	12/31/06	12/31/07	12/31/08	12/31/09	12/31/10
Capitol Bancorp Ltd.	100.00	126.18	57.11	22.90	5.81	1.54
Russell 2000	100.00	118.37	116.51	77.15	98.11	124.46
SNL Bank Pink > $500M	100.00	109.72	101.10	73.36	62.72	66.25

F-3

INFORMATION REGARDING CAPITOL'S COMMON STOCK—Continued

Effective September 2009, payment of dividends is subject to prior approval of the Federal Reserve, Capitol's primary federal regulator (see subsequent discussion of certain regulatory matters in the section captioned "Management's Discussion and Analysis of Capitol's Business, Financial Condition and Results of Operations").  In the first quarter of 2009, Capitol paid a cash dividend of $0.05 per share.  During 2008, Capitol paid quarterly cash dividends of $0.25 per share for the first quarter, $0.15 in the second quarter and $0.05 in the third and fourth quarters.

As of March 15, 2011, there were 6,697 beneficial holders of Capitol's common stock, based on information supplied to Capitol from its stock transfer agent and other sources.

At March 15, 2011, 41,116,757 shares of common stock were outstanding.  Capitol's stock transfer agent is BNY Mellon Shareowner Services, 480 Washington Blvd., Jersey City, NJ 07310 (telephone 866-205-7090).  The website for BNY Mellon Shareowner Services is http://www.bnymellon.com/shareowner/isd.

Capitol has a direct purchase and dividend reinvestment plan, the Capitol Bancorp Limited Direct Purchase and Dividend Reinvestment Plan ("Capitol Bancorp Direct"), which offers a variety of convenient features including dividend reinvestment, certain fee-free transactions, certificate safekeeping and other benefits.  For a copy of the Capitol Bancorp Direct prospectus, informational brochure and enrollment materials, contact BNY Mellon Shareowner Services at 866-205-7090 or Capitol at 517-487-6555.

In addition to Capitol's common stock, trust-preferred securities of Capitol Trust I and Capitol Trust XII (each a subsidiary of Capitol) are listed on the OTCQB under the symbol "CBCRP" and "CBCRO," respectively, commencing in late January 2011.  Those trust-preferred securities have a liquidation amount of $10 per preferred security and are guaranteed by Capitol.  Capitol Trust I consists of 1,349,398, 8.5% cumulative preferred securities scheduled to mature in 2027, which are currently callable and may be extended to 2036 if certain conditions are met.  Capitol Trust XII consists of 3,031,066, 10.5% cumulative preferred securities scheduled to mature in 2038 and become callable in 2013.  In 2009, Capitol commenced 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.  Holders of the trust-preferred securities will continue to recognize current taxable income relating to the deferred interest payments.  Payment of interest on the trust-preferred securities is subject to approval of the Federal Reserve (see subsequent discussion of certain regulatory matters in the section captioned "Management's Discussion and Analysis of Capitol's Business, Financial Condition and Results of Operations").

F-4

EXECUTIVE OFFICER CERTIFICATIONS

Capitol has filed with the U.S. Securities and Exchange Commission (SEC) all required certifications regarding the quality of Capitol's public disclosures upon filing of Capitol's 2010 Report on Form 10-K.  Further, Capitol has filed certifications with the SEC in accordance with the Sarbanes-Oxley Act of 2002 as exhibits to Capitol's 2010 Report on Form 10-K.

AVAILABILITY OF FORM 10-K AND CERTAIN OTHER REPORTS

A copy of Capitol's 2010 Report on Form 10-K, without exhibits, will be available to holders of its common stock or trust-preferred securities without charge, upon written request.  Form 10-K includes certain statistical and other information regarding Capitol and its business.  Requests to obtain a copy of Form 10-K should be addressed to Investor Relations, Capitol Bancorp Limited, Capitol Bancorp Center, 200 N. Washington Square, Lansing, Michigan 48933.

Form 10-K and certain other periodic reports have been or will be filed with the SEC.  The SEC maintains an Internet website that contains reports, proxy and information statements and other information regarding companies which file electronically (which includes Capitol).  The SEC's website address is http://www.sec.gov.  Capitol's filings with the SEC are also available at Capitol's website, http://www.capitolbancorp.com.

OTHER CORPORATE INFORMATION

EXECUTIVE OFFICES

Capitol Bancorp Center	2777 E. Camelback Road
200 N. Washington Square	Suite 375
Lansing, Michigan 48933	Phoenix, Arizona 85016
517-487-6555	602-955-6100
website:  www.capitolbancorp.com

INDEPENDENT AUDITORS

BDO USA, LLP

Grand Rapids, Michigan

F-5

SHAREHOLDER INFORMATION

DIRECT PURCHASE AND DIVIDEND REINVESTMENT PLAN

Capitol offers an easy and affordable way to invest in Capitol's common stock through its direct purchase and dividend reinvestment plan, Capitol Bancorp Direct.  Capitol Bancorp Direct's benefits include the ability to make an initial investment in common stock with as little as $50, reinvestment of dividends in additional common stock (if and when paid), direct deposit of dividends (if and when paid), ability to purchase common stock as frequently as once a month, and the option to make transfers or gifts of Capitol's common stock to another person.  Participation in Capitol Bancorp Direct is voluntary and shareholders and prospective investors are eligible.  Purchases under Capitol Bancorp Direct are not currently subject to any brokerage fees or commissions.  For further information regarding Capitol Bancorp Direct or for a copy of Capitol Bancorp Direct's prospectus, informational brochure and enrollment materials, please contact BNY Mellon Shareowner Services at 866-205-7090 or Capitol at 517-487-6555.

TRUST-PREFERRED SECURITIES TRADING INFORMATION

Preferred securities of Capitol Trust I and Capitol Trust XII (each a subsidiary of Capitol) trade on the OTC market (OTCQB) under the trading symbols "CBCRP" and "CBCRO," respectively.

TRUST-PREFERRED SECURITIES TRUSTEE

Capitol Trust I:  Bank of New York Mellon – Chicago, Illinois

Capitol Trust XII:  M&T Trust Company of Delaware

CAUTIONS REGARDING FORWARD-LOOKING STATEMENTS

Some of the statements contained in this annual report, including Capitol's consolidated financial statements, Management's Discussion and Analysis of Capitol's Business, Financial Condition and Results of Operations and in documents incorporated into this document by reference that are not historical facts, including, without limitation, statements of future expectations, projections of results of operations and financial condition, statements of future economic performance and other forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, are subject to known and unknown risks, uncertainties and other factors which may cause the actual future results, performance or achievements of Capitol and/or its subsidiaries and other operating units to differ materially from those contemplated in such forward-looking statements.  The words "intend," "expect," "project," "estimate," "predict," "anticipate," "should," "could," "believe," "may," "might," and similar expressions also are intended to identify forward-looking statements.  Important factors which may cause actual results to differ from those contemplated in such forward-looking statements include, but are not limited to: (i) the results of Capitol's efforts to implement its business strategy, (ii) changes in interest rates, (iii) legislation or regulatory requirements adversely impacting Capitol's banking business and/or operating 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,

F-6

CAUTIONS REGARDING FORWARD-LOOKING STATEMENTS—Continued

(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) changes in management, (xii) consummation of pending sales of certain banking subsidiaries, (xiii) completion of Capitol's selective bank divestiture activities, (xiv) other risks detailed in Capitol's other filings with the SEC and (xv) the following, among others:

·Capitol's ability to continue as a going concern;

·The impact on Capitol's financial results, reputation and business if it is unable to comply with all applicable federal and state regulations and applicable formal agreements, consent orders, other regulatory actions and any related capital requirements;

·The risk that, if economic conditions worsen or regulatory capital requirements are modified, Capitol may be required to seek additional liquidity and/or capital from external sources, if available;

·Management's ability to effectively manage interest rate risk and the impact of interest rates in general on the volatility of Capitol's net interest income;

·The effect of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, Emergency Economic Stabilization Act of 2008, the American Recovery and Reinvestment Act of 2009, the implementation by the Department of the U.S. Treasury and federal banking regulators of a number of programs to address capital and liquidity issues within the banking system and additional programs that may apply to Capitol in the future, all of which may have significant effects on Capitol and the financial services industry;

·The decline in commercial and residential real estate values and sales volume and the likely potential for continuing illiquidity in the real estate market;

·The risks associated with the high concentration of commercial real estate loans within Capitol's portfolio;

·The uncertainties in estimating the fair value of developed real estate and undeveloped land relating to collateral-dependent loans and other real estate owned in light of declining demand for such assets, falling prices and continuing illiquidity in the real estate market;

·Negative developments and disruptions in the credit and lending markets, including the impact of the ongoing credit crisis on Capitol's business and on the businesses of its customers as well as other banks and lending institutions with which Capitol has commercial relationships;

·A continuation of unprecedented volatility in the capital markets;

·The risks associated with implementing Capitol's business strategy, including its ability to preserve and access sufficient capital to execute its strategy;

F-7

CAUTIONS REGARDING FORWARD-LOOKING STATEMENTS—Continued

·Continued unemployment and its impact on Capitol's customers' savings rates and their ability to service debt obligations;

·Fluctuations in the value of Capitol's investment securities;

·The ability to attract and retain senior management experienced in banking and financial services;

·The sufficiency of the allowance for loan losses to absorb the amount of actual losses inherent within the loan portfolio;

·Capitol's ability to adapt successfully to technological changes to compete effectively in the marketplace;

·Credit risks and risks from concentrations (by geographic area and by industry) within Capitol's consolidated loan portfolio and individual large loans;

·The effects of competition from other commercial banks, thrifts, mortgage banking firms, consumer finance companies, credit unions, securities brokerage firms, insurance companies, money market and other mutual funds, and other financial institutions operating in Capitol's market or elsewhere or providing similar services;

·The failure of assumptions underlying estimates for the allowance for loan losses and estimation of values of collateral or cash flow projections related to collateral-dependent loans;

● Volatility of rate sensitive deposits;

·Operational risks, including data processing system failures or fraud;

·Liquidity risks;

·The ability to successfully acquire deposits for funding and the pricing thereof;

·The ability to successfully execute strategies to increase noninterest income;

·Changes in the economic environment, competition or other factors that may influence loan demand and repayment, deposit inflows and outflows, and the quality of the loan portfolio and loan and deposit pricing;

·The impact from liabilities arising from legal or administrative proceedings on the financial condition of Capitol;

·The current prohibition of Capitol's subsidiary banks to pay dividends to Capitol without prior written authorization from regulatory agencies;

·The current prohibition of Capitol's payment of cash dividends on its common stock and periodic payments on its trust-preferred securities without prior written regulatory authorization;

·Administrative or enforcement actions of banking regulators in connection with any material failure of Capitol or its subsidiary banks to comply with banking laws, rules or regulations or formal agreements with regulatory agencies;

F-8

CAUTIONS REGARDING FORWARD-LOOKING STATEMENTS—Continued

·Capitol's compliance with the terms of its written agreement with the Federal Reserve Bank, amendments thereto or subsequent regulatory agreements;

·The continued availability of credit facilities provided by Federal Home Loan Banks to Capitol's banking subsidiaries;

·The uncertainties of future depositor activity regarding potentially uninsured deposits;

·The possibility of the FDIC assessing Capitol's banking subsidiaries for any cross-guaranty liability;

·Governmental monetary and fiscal policies, as well as legislative and regulatory changes, that may result in the imposition of costs and constraints on Capitol through higher FDIC insurance premiums, significant fluctuations in market interest rates, increases in capital requirements and operational limitations;

·Changes in general economic or industry conditions, nationally or in the communities in which Capitol conducts business;

·Changes in legislation or regulatory and accounting principles, policies, or guidelines affecting the business conducted by Capitol;

·The impact of possible future goodwill and other material impairment charges;

·Acts of war or terrorism;

·Capitol's ability to manage fluctuations in the value of its assets and liabilities and maintain sufficient capital and liquidity to support its operations;

·The concentration of Capitol's nonperforming assets by loan type in certain geographic regions and with affiliated borrowing groups;

·The risk of additional future losses if the proceeds Capitol receives upon the liquidation of assets are less than the carrying value of such assets;

·Restrictions or limitations on access to funds from subsidiaries and potential obligations to contribute additional capital to Capitol's subsidiaries, which may restrict its ability to make payments on its obligations;

·The availability and cost of capital and liquidity on favorable terms, if at all;

·The risk that the realization of deferred tax assets may not occur;

·The risk that Capitol will not be able to complete its various proposed divestitures, mergers and consolidations of certain of its subsidiary banks or, if completed, realize the anticipated benefits of the proposed mergers and/or consolidations;

·The costs, effects and impact of litigation, investigations, inquiries or similar matters, or adverse facts and developments related thereto;

F-9

CAUTIONS REGARDING FORWARD-LOOKING STATEMENTS—Continued

·The risk that Capitol could have an "ownership change" under Section 382 of the Internal Revenue Code, which could impair its ability to timely and fully utilize its net operating losses for tax purposes and so-called built-in losses that may exist if such an "ownership change" occurs;

·Other factors and other information contained in this document and in other reports and filings that Capitol makes with the SEC under the Exchange Act, including, without limitation, under the caption "Risk Factors"; and

·Other economic, competitive, governmental, regulatory and technical factors affecting Capitol's operations, products, services and prices.

For a discussion of these and other risks that may cause actual results to differ from expectations, you should refer to the risk factors and other information in this Annual Report and Capitol's other periodic filings, including quarterly reports on Form 10-Q and current reports on Form 8-K, that Capitol files from time to time with the SEC.  All written or oral forward-looking statements that are made by or are attributable to Capitol are expressly qualified by this cautionary notice.  You should not place undue reliance on any forward-looking statements, since those statements speak only as of the date on which the statements are made.  Capitol undertakes no obligation to update any forward-looking statement to reflect events or circumstances after the date on which the statement is made to reflect the occurrence of new information or unanticipated events, except as may otherwise be required by law.

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F-10

Management's Discussion and Analysis of Capitol's Business,

Financial Condition and Results of Operations

Summary and Overview

This section of the Annual Report is intended to discuss, from management's perspective, matters of importance regarding Capitol's operations, financial position and other things which have a significant effect on Capitol, its business and its banks.  This narrative includes some comments about future events and other forward-looking statements and readers are advised to carefully read the cautionary statement about forward-looking statements which is on page F-6 of this Annual Report.

Capitol operates community banks in a wide variety of markets in 14 states, and operates in one business segment, community banking.  Its banks are staffed with banking professionals, serving customers who desire professional banking services delivered personally.

In 2010, significant reductions in compensation costs were achieved, following efforts begun in 2009 to combine some banking subsidiaries and reduce staffing.  To streamline bank operations and reduce expenses, Capitol consolidated some of its individual bank charters regionally in 2010 and 2009 and has plans for further charter-consolidation activities in 2011.

In mid-2009, as part of its capital strategies and restructuring activities, Capitol announced plans to selectively divest some of its banks as a means to raise additional capital and redeploy capital resources to its remaining banks.  Thirteen bank divestitures were completed as of December 31, 2010 and an additional divestiture was completed in early 2011.  Several divestiture transactions have been announced and are expected to be completed in 2011, subject to regulatory approval and other contingencies.

Capitol's consolidated financial position has been significantly adversely affected by large losses from operations in 2010, 2009 and 2008.  Such operating losses resulted primarily from especially large provisions for loan losses and significantly elevated costs associated with foreclosed properties and other real estate owned.  Those operating losses have resulted in an equity-deficit as of December 31, 2010 and a regulatory-capital classification as less than "adequately-capitalized."  In addition, numerous banking subsidiaries of Capitol have regulatory-capital classification as "undercapitalized," "significantly-undercapitalized" or "critically-undercapitalized" at December 31, 2010, due to significant operating losses and insufficient capital infusions from Capitol to improve their regulatory classification and compliance with the terms of various regulatory agreements between the banks and/or Capitol and their respective regulatory agencies.  There were two banks classified as "critically-undercapitalized" and sufficient capital infusions were made in early 2011 to improve their classification to "significantly-undercapitalized."

These matters are discussed in further detail later in this narrative.

F-11

Capitol's Approach to Community Banking

Each bank began as a single-location office, led by a bank president and a team of banking professionals with significant local experience, overseen by an independent board of directors composed of business leaders drawn from that local community.  Generally, each bank has significant on-site authority to make all decisions which directly affect the customer, such as credit approval and the pricing and structure of both loans and deposits.  The philosophy of banking as a profession is key to Capitol's model where its banks' customers seek a relationship with banking professionals to meet their needs, as opposed to transaction-oriented financial institutions pushing financial products at customers and emphasizing market share.

With Capitol's focused banking model, bank development on a national scale has been a natural extension of this business philosophy.  Bank development consists of management and oversight of banks in which Capitol has a direct or indirect controlling interest and, through mid-2008, included formation of start-up banks.  Some of Capitol's banks were formed with a portion of their start-up capital provided by local investors in the communities of those banks.

Notably, 'market size' is not a big factor in Capitol's approach to community banking and bank-development.  Rather, the key is people.  Capitol has recognized from its beginning that its banking focus always has been, and always will be, a people business.  Capitol's banks are small in market stature in relation to their competitors, emphasizing personalized banking relationships.

Capitol's community bank model, in a stable economic environment, is intended to maintain a scalable, low overhead structure which is focused on delivering return-on-equity results, while empowering its individual banks with operating autonomy in all areas which impact the customer relationship.  Capitol's centralized 'back-office' functions, which support the banks, are capable of expanding coverage in concert with the evolution and further development of its banking subsidiaries.

Capitol's relationship with its banks is multidimensional as an investor, mentor and service provider.  As an investor, Capitol closely monitors the financial performance of its bank subsidiaries.  Capitol's mentoring role of providing assistance and guidance when and where necessary to help enhance bank performance is most important for its youngest affiliates where guidance is needed during their early formative stages.  As a service provider, Capitol provides efficient back-office support services which can be performed centrally for all of its banks and which do not involve a direct interface with the bank customer, such as:

· Accounting

· Capital management

· Credit administration

· Data processing

· Human resources administration

· Internal audit

· Legal support

· Risk management

F-12

Some of these functions are performed nationally from a single location, while others are performed regionally, where it is more efficient to have personnel located geographically based on their respective responsibilities in relation to the physical location of the banks.

Total assets and revenues of each bank within Capitol's regions are summarized below as of and for the years ended December 31, 2010 and 2009 (in $1,000s):

	Total Assets				Total Revenues(14)
	2010		2009		2010		2009
Arizona Region:
Bank of Tucson(16)(17)	$	222,882	$	204,824	$	12,232	$	12,709
Central Arizona Bank(17)		75,590		95,110		3,529		4,089
Southern Arizona Community Bank(1)(16)				94,585		4,841		5,188
Sunrise Bank of Albuquerque(17)		73,539		78,895		3,638		4,110
Sunrise Bank of Arizona(10)		353,154		495,168		18,593		23,712
Yuma Community Bank(12)(16)								3,225
Arizona Region Total		725,165		968,582		42,833		53,033
California Region:
Bank of Feather River		38,930		33,693		2,561		2,111
Bank of San Francisco(1)(16)				87,740		4,119		4,639
Bank of Santa Barbara(11)(16)								2,571
Napa Community Bank(1)(16)				166,873		2,947		9,147
Sunrise Bank(5)(8)		231,836		296,197		12,968		14,835
California Region Total		270,766		584,503		22,595		33,303
Colorado Region:
Fort Collins Commerce Bank(1)(16)				93,908		5,211		5,381
Larimer Bank of Commerce(1)(16)				89,623		4,555		5,333
Loveland Bank of Commerce(1)(16)				40,032		1,979		2,148
Mountain View Bank of Commerce		60,303		50,621		2,896		2,388
Colorado Region Total		60,303		274,184		14,641		15,250
Great Lakes Region:
Bank of Maumee		40,300		46,796		2,402		2,592
Bank of Michigan		81,873		99,344		4,680		4,860
Capitol National Bank(17)		157,606		199,622		9,734		11,605
Evansville Commerce Bank		52,506		56,392		2,783		3,458
Indiana Community Bank(4)(8)		128,728		175,407		7,670		8,916
Michigan Commerce Bank(3)(8)(13)(17)		933,698		1,232,441		60,609		71,484
Ohio Commerce Bank(1)(16)				66,175		1,934		3,263
Great Lakes Region Total		1,394,711		1,876,177		89,812		106,178
Midwest Region:
Adams Dairy Bank(1)(16)				44,309		1,681		2,337
Bank of Belleville(1)(16)				70,502		1,048		3,711
Community Bank of Lincoln(1)(16)				60,356		1,508		3,551
Summit Bank of Kansas City (11)(16)								2,780
Midwest Region Total				175,167		4,237		12,379
Nevada Region:
1st Commerce Bank		39,555		38,811		1,625		2,315
Bank of Las Vegas(7)(8)(17)		375,084		487,355		18,628		25,476
Nevada Region Total		414,639		526,166		20,253		27,791
Northeast Region:
USNY Bank(1)(16)				64,176		2,712		3,265
Northwest Region:
Bank of the Northwest(6)(8)		145,540		174,005		7,880		9,392
High Desert Bank		37,967		41,849		2,272		2,429
Northwest Region Total		183,507		215,854		10,152		11,821
Southeast Region:
Community Bank of Rowan(9)(16)		140,276				3,392		4,962
First Carolina State Bank(17)		103,254		115,674		4,765		5,473
Pisgah Community Bank		43,125		62,773		1,878		2,478
Sunrise Bank(2)(8)(17)		112,718		137,300		6,087		7,811
Southeast Region Total		399,373		315,747		16,122		20,724

F-13

Summary of total assets and revenues – continued:

	Total Assets						Total Revenues(14)
	2010			2009			2010			2009
Texas Region:
Bank of Fort Bend	$	35,375		$	31,548		$	2,037		$	1,640
Bank of Las Colinas		44,767			43,003			2,331			1,979
Texas Region Total		80,142			74,551			4,368			3,619
Parent company and other, net(15)(17)		11,608			56,833			20,964			8,309
Consolidated totals		3,540,214			5,131,940			248,689			295,672
Less discontinued operations		(222,882	)		(1,083,103	)		(60,551	)		(75,436	)
Consolidated totals--continuing
operations	$	3,317,332		$	4,048,837		$	188,138		$	220,236

(1)	Capitol sold its ownership in Southern Arizona community Bank effective December 10, 2010; Fort Collins Commerce Bank, Larimer Bank of Commerce and Loveland Bank of Commerce effective October 29, 2010; Bank of San Francisco effective September 28, 2010; Adams Dairy Bank effective August 31, 2010; USNY Bank effective August 23, 2010; Community Bank of Lincoln effective July 30, 2010; Ohio Commerce Bank effective June 30, 2010; Napa Community Bank effective April 30, 2010 and Bank of Belleville effective April 27, 2010.  The banks' operations have been included in Capitol's consolidated totals up to the date of sale; however, the banks' results are reflected in discontinued operations.
(2)	Effective July 30, 2010, Peoples State Bank and Sunrise Bank of Atlanta merged with and into Bank of Valdosta.  Upon completion of the merger, the surviving bank was renamed Sunrise Bank.  Prior to the merger, each bank was either a majority-owned subsidiary of Capitol or majority-owned by a bank-development subsidiary in which Capitol holds a controlling interest.
(3)	Effective March 31, 2010, Bank of Auburn Hills and Paragon Bank & Trust merged with and into Michigan Commerce Bank.  Prior to the merger, Bank of Auburn Hills and Paragon Bank & Trust were wholly-owned subsidiaries of Capitol.
(4)	Effective March 22, 2010, Elkhart Community Bank merged with and into Goshen Community Bank.  Upon completion of the merger, the surviving bank was renamed Indiana Community Bank.  Prior to the merger, each bank was a wholly-owned subsidiary of Capitol.
(5)	Effective March 5, 2010, Bank of Escondido, Sunrise Bank of San Diego and Sunrise Community Bank merged with and into Point Loma Community Bank.  Upon completion of the merger, the surviving bank was renamed Sunrise Bank.  Prior to the merger, each bank was either a wholly-owned subsidiary of Capitol or majority-owned by a bank-development subsidiary in which Capitol holds a controlling interest.
(6)	Effective February 19, 2010, Bank of Bellevue, Bank of Everett and Bank of Tacoma merged with and into Issaquah Community Bank.  Upon completion of the merger, the surviving bank was renamed Bank of the Northwest.  Prior to the merger, each bank was either a majority-owned subsidiary of Capitol or majority-owned by a bank-development subsidiary in which Capitol holds a controlling interest.
(7)	Effective January 29, 2010, Black Mountain Community Bank, Desert Community Bank and Red Rock Community Bank merged with and into Bank of Las Vegas.  Prior to the merger, each bank was a wholly-owned subsidiary of Capitol.
(8)	For purposes of this presentation, such merger has been reflected as if it occurred December 31, 2009.
(9)	As of December 31, 2009, Community Bank of Rowan (CBR) was a majority-owned subsidiary of Capitol Development Bancorp Limited III (CDBL III) which, due to a change in control effective September 30, 2009, became an unconsolidated affiliate of Capitol.  Effective June 30, 2010, CDBL III transferred its controlling interest in CBR to Capitol in exchange for preferred stock of Capitol and, accordingly, CBR became a consolidated subsidiary of Capitol on that date.
(10)	Effective December 14, 2009, Arrowhead Community Bank, Asian Bank of Arizona, Colonia Bank, Mesa Bank and Sunrise Bank of Arizona merged with and into Camelback Community Bank.  Upon completion of the merger, the surviving bank was renamed Sunrise Bank of Arizona. Prior to the merger, each bank was either a wholly-owned subsidiary of Capitol or majority-owned by a bank development subsidiary in which Capitol holds a controlling interest.
(11)	Bank of Santa Barbara and Summit Bank of Kansas City are majority-owned subsidiaries of CDBL III of which Capitol ceased to have a majority voting control effective September 30, 2009; consequently those banks and CDBL III ceased to be consolidated subsidiaries of Capitol.  CDBL III's ownership interest in Bank of Santa Barbara was sold in November 2009.
(12)	Yuma Community Bank was sold effective September 21, 2009.  The bank's operations are included in Capitol's consolidated totals up to the date of sale.
(13)	Effective March 31, 2009, 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 merged with and into Ann Arbor Commerce Bank.  Upon completion of the merger, the surviving bank was renamed Michigan Commerce Bank.  Prior to the merger, each bank was a wholly-owned subsidiary of Capitol.
(14)	Total revenues is the sum of interest income and noninterest income.
(15)	Includes corporate and other nonbank entities.
(16)	Total revenues of these banks are reflected as discontinued operations.  CBR was included in discontinued operations in 2009 and continuing operations in 2010 (see (9) above).
(17)	Total assets of these banks as of December 31, 2009 have been adjusted to reflect subsequent regulatory financial statement amendments filed on or after March 20, 2010.  Those amendments did not have an impact on total assets on a consolidated basis.

F-14

Capitol's Results of Operations

For 2010, a net loss attributable to Capitol approximating $225.2 million ($11.16 per share) was incurred compared to a net loss of $195.2 million ($11.28 per share) in 2009 and $28.6 million ($1.67 per share) in 2008.  As previously-mentioned, these losses resulted from significant provisions for loan losses and costs associated with foreclosed properties and other real estate owned for each of these periods and, additionally in 2010, a goodwill impairment charge of $64.5 million.  Additionally, income tax expense in 2009 included approximately $104.5 million related to establishing a valuation allowance for deferred tax assets.

The table below presents operating results of each bank without regard to Capitol's direct or indirect ownership percentage (in $1,000s) and, where applicable, the related rates of return on average equity and assets:

	Net Income (Loss)									Return on Average Equity									Return on Average Assets
	2010			2009			2008			2010			2009			2008			2010			2009			2008
Arizona Region:
Bank of Tucson(15)(16)	$	54		$	1,724		$	3,717			0.30	%		10.12	%		20.56	%		0.02	%		0.91	%		2.04	%
Central Arizona Bank(16)		(5,592	)		(6,085	)		(1,004	)
Southern Arizona Community Bank(1)(15)		290			434			639			3.17	%		4.73	%		7.06	%		0.33	%		0.48	%		0.72	%
Sunrise Bank of Albuquerque(16)		(4,189	)		(1,781	)		224									3.05	%								0.29	%
Sunrise Bank of Arizona(10)		(41,500	)		(48,628	)		(13,505	)
Yuma Community Bank(12)(15)					372			565						7.69	%		7.23	%					0.78	%		0.75	%
Arizona Region Total		(50,937	)		(53,964	)		(9,364	)
California Region:
Bank of Feather River		194			(714	)		(487	)		3.09	%								0.51	%
Bank of San Francisco(1)(15)		559			52			43			8.01	%		0.63	%		0.51	%		0.75	%		0.06	%		0.07	%
Bank of Santa Barbara(11)(15)					(1,300	)		(420	)
Napa Community Bank(1)(15)		(77	)		485			1,223						3.01	%		8.39	%					0.32	%		0.93	%
Sunrise Bank(5)(8)		(10,358	)		(8,315	)		309
California Region Total		(9,682	)		(9,792	)		668
Colorado Region:
Fort Collins Commerce Bank(1)(15)		484			15			620			6.65	%		0.15	%		6.71	%		0.66	%		0.02	%		0.89	%
Larimer Bank of Commerce(1)(15)		730			57			465			12.00	%		0.70	%		6.09	%		1.05	%		0.06	%		0.66	%
Loveland Bank of Commerce(1)(15)		253			(872	)		(458	)		5.34	%								0.84	%
Mountain View Bank of Commerce		183			(31	)		(819	)		2.52	%								0.34	%
Colorado Region Total		1,650			(831	)		(192	)
Great Lakes Region:
Bank of Maumee		(1,254	)		(2,834	)		(774	)
Bank of Michigan		(267	)		152			543						2.16	%		7.95	%					0.16	%		0.76	%
Capitol National Bank(16)		(2,753	)		(8,150	)		(766	)
Evansville Commerce Bank		(260	)		(1,644	)		(248	)
Indiana Community Bank(4)(8)		(5,063	)		(3,574	)		217									2.23	%								0.22	%
Michigan Commerce Bank(3)(8)(13)(16)		(73,686	)		(81,910	)		(16,226	)
Ohio Commerce Bank(1)(15)		226			206			(149	)		4.54	%		2.24	%					0.62	%		0.33	%
Great Lakes Region Total		(83,057	)		(97,754	)		(17,403	)
Midwest Region
Adams Dairy Bank(1)(15)		(36	)		(66	)		(669	)
Bank of Belleville(1)(15)		18			122			35			0.68	%		1.79	%		0.49	%		0.07	%		0.17	%		0.06	%
Community Bank of Lincoln(1)(15)		(872	)		(1,516	)		(643	)
Summit Bank of Kansas City(11)(15)					(978	)		(97	)
Midwest Region Total		(890	)		(2,438	)		(1,374	)
Nevada Region:
1st Commerce Bank		(3,299	)		(3,009	)		(1,158	)
Bank of Las Vegas(7)(8)(16)		(51,713	)		(12,688	)		3,301									0.51	%								0.06	%
Nevada Region Total		(55,012	)		(15,697	)		2,143
Northeast Region:
USNY Bank(1)(15)		560			(1,188	)		(748	)		16.70	%								1.35	%

F-15

Operating results and, where applicable, the related rates of return on average equity and assets – continued:

	Net Income (Loss)									Return on Average Equity									Return on Average Assets
	2010			2009			2008			2010			2009			2008			2010			2009			2008
Northwest Region:
Bank of the Northwest(6)(8)	$	(1,446	)	$	(9,889	)	$	(2,553	)
High Desert Bank		(863	)		(2,948	)		(801	)
Northwest Region Total		(2,309	)		(12,837	)		(3,354	)
Southeast Region:
Community Bank of Rowan(9)(15)		(401	)		459			945						5.73	%		9.39	%					0.47	%		0.76	%
First Carolina State Bank(16)		(8,258	)		(1,926	)		(403	)
Pisgah Community Bank		(9,569	)		(1,417	)		(920	)
Sunrise Bank(2)(8)(16)		(8,451	)		(8,222	)		(765	)
Southeast Region Total		(26,679	)		(11,106	)		(1,143	)
Texas Region:
Bank of Fort Bend		(116	)		(1,268	)		(829	)
Bank of Las Colinas		106			(1,259	)		(623	)		1.94	%								0.24	%
Texas Region Total		(10	)		(2,527	)		(1,452	)
Parent company and other, net(14)(16)		(27,998	)		(56,406	)		(20,232	)
Consolidated totals		(254,364	)		(264,540	)		(52,451	)
Less discontinued operations		12,449			(1,222	)		5,068
Consolidated totals--
continuing operations	$	(266,813	)	$	(263,318	)	$	(57,519	)

(1)	Capitol sold its ownership in Southern Arizona Community Bank effective December 10, 2010; Fort Collins Commerce Bank, Larimer Bank of Commerce and Loveland Bank of Commerce effective October 29, 2010; Bank of San Francisco effective September 28, 2010; Adams Dairy Bank effective August 31, 2010; USNY Bank effective August 23, 2010; Community Bank of Lincoln effective July 30, 2010; Ohio Commerce Bank effective June 30, 2010; Napa Community Bank effective April 30, 2010 and Bank of Belleville effective April 27, 2010.  The banks' operations have been included in Capitol's consolidated totals up to the date of sale; however, the banks' results are reflected in discontinued operations.
(2)	Effective July 30, 2010, Peoples State Bank and Sunrise Bank of Atlanta merged with and into Bank of Valdosta.  Upon completion of the merger, the surviving bank was renamed Sunrise Bank.  Prior to the merger, each bank was either a majority-owned subsidiary of Capitol or majority-owned by a bank-development subsidiary in which Capitol holds a controlling interest.
(3)	Effective March 31, 2010, Bank of Auburn Hills and Paragon Bank & Trust merged with and into Michigan Commerce Bank.  Prior to the merger, Bank of Auburn Hills and Paragon Bank & Trust were wholly-owned subsidiaries of Capitol.
(4)	Effective March 22, 2010, Elkhart Community Bank merged with and into Goshen Community Bank.  Upon completion of the merger, the surviving bank was renamed Indiana Community Bank.  Prior to the merger, each bank was a wholly-owned subsidiary of Capitol.
(5)	Effective March 5, 2010, Bank of Escondido, Sunrise Bank of San Diego and Sunrise Community Bank merged with and into Point Loma Community Bank.  Upon completion of the merger, the surviving bank was renamed Sunrise Bank.  Prior to the merger, each bank was either a wholly-owned subsidiary of Capitol or majority-owned by a bank-development subsidiary in which Capitol holds a controlling interest.
(6)	Effective February 19, 2010, Bank of Bellevue, Bank of Everett and Bank of Tacoma merged with and into Issaquah Community Bank.  Upon completion of the merger, the surviving bank was renamed Bank of the Northwest.  Prior to the merger, each bank was either a majority-owned subsidiary of Capitol or majority-owned by a bank-development subsidiary in which Capitol holds a controlling interest.
(7)	Effective January 29, 2010, Black Mountain Community Bank, Desert Community Bank and Red Rock Community Bank merged with and into Bank of Las Vegas.  Prior to the merger, each bank was a wholly-owned subsidiary of Capitol.
(8)	For purposes of this presentation, such merger has been reflected as if it occurred December 31, 2009.
(9)	As of December 31, 2009, Community Bank of Rowan (CBR) was a majority-owned subsidiary of Capitol Development Bancorp Limited III (CDBL III) which, due to a change in control effective September 30, 2009, was an unconsolidated affiliate of Capitol.  Effective June 30, 2010, CDBL III transferred its controlling interest in CBR to Capitol in exchange for preferred stock of Capitol and, accordingly, CBR became a consolidated subsidiary of Capitol on that date.
(10)	Effective December 14, 2009, Arrowhead Community Bank, Asian Bank of Arizona, Colonia Bank, Mesa Bank and Sunrise Bank of Arizona merged with and into Camelback Community Bank.  Upon completion of the merger, the surviving bank was renamed Sunrise Bank of Arizona. Prior to the merger, each bank was either a wholly-owned subsidiary of Capitol or majority-owned by a bank development subsidiary in which Capitol holds a controlling interest.
(11)	Bank of Santa Barbara and Summit Bank of Kansas City are majority-owned subsidiaries of CDBL III of which Capitol ceased to have a majority voting control effective September 30, 2009; consequently those banks and CDBL III ceased to be consolidated subsidiaries of Capitol.  CDBL III's ownership interest in Bank of Santa Barbara was sold in November 2009.
(12)	Yuma Community Bank was sold effective September 21, 2009.  The bank's operations are included in Capitol's consolidated totals up to the date of the sale.
(13)	Effective March 31, 2009, 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 merged with and into Ann Arbor Commerce Bank.  Upon completion of the merger, the surviving bank was renamed Michigan Commerce Bank.  Prior to the merger, each bank was a wholly-owned subsidiary of Capitol.
(14)	Includes corporate and other nonbank entities.

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Footnotes – continued:

(15)	Net income (loss) of these banks is reflected as discontinued operations.  CBR was included in discontinued operations in 2009 and 2008 and included in continuing operations in 2010 (see (9) above).
(16)	Net income (loss) of these banks for the year ended December 31, 2009 has been adjusted to reflect subsequent regulatory financial statement amendments filed on or after March 20, 2010.  These amendments did not have an impact on consolidated net loss.

Significant operating losses were incurred at banks within the Great Lakes, Nevada and Arizona Regions.  Dominating the Great Lakes Region are Capitol's three mature, majority-owned banks located in Michigan.  Operating results of this group of banks amounted to a net loss of $76.7 million in 2010, compared to a net loss of $89.9 million in 2009 and a net loss of $16.4 million in 2008.  The operating losses of this group of banks was attributable to loan losses stemming from a sustained difficult economy, significant increases in nonperforming assets, depressed real estate valuations, a weak or nonexistent real estate sales environment and elevated collection costs.  These, coupled with loan losses incurred at Bank of Las Vegas and Sunrise Bank of Arizona, where the adverse asset quality and nonperforming loans as a percentage of portfolio loans exceed other regions, are the largest items adversely impacting Capitol's 2010 consolidated operating results, followed by a goodwill impairment charge and compression in margins and related net interest income.

Most of the amounts discussed in this narrative are based upon the "continuing operations" of Capitol and its consolidated banking subsidiaries.  Results of operations for 2009 and 2008 have been adjusted to reflect recent sales of banking subsidiaries as "discontinued operations" to present operating results on a comparable basis.

The principal revenue source for Capitol's banks is interest income from loans.  Net interest income is the total of all interest income minus all interest expense.  This is an important measure that is used to help determine the amount of net operating revenue for financial institutions.  Net operating revenue is the sum of net interest income and noninterest income.

Net interest income totaled $100.1 million in 2010, a 6.2% decrease from the $106.7 million reported in 2009, compared to a 10.2% decrease in 2009 versus a 16.4% decrease in 2008.  Decreases in net interest income were due to adverse levels of nonperforming loans, a smaller balance sheet and a challenging interest rate environment which reduced the spread between interest earned on performing loans and rates paid on deposits.

Combined with noninterest income, total consolidated net operating revenue approximated $124.6 million in 2010, $129.1 million in 2009 and $141.1 million in 2008.  Noninterest income for these years was $24.4 million, $22.5 million and $22.3 million, respectively.  Noninterest income increased 8.9% in 2010, was level in 2009 and increased about 7.5% in 2008.

Service charges on deposit accounts approximated $3.8 million in 2010 and $4.7 million in 2009 and 2008.  Revenue from trust and wealth management decreased 15.3% in 2010, following a decrease of 20% in 2009 and an increase of 20% in 2008.  Large decreases in this revenue source in 2010 and 2009 resulted primarily from lower levels of clients' balances in a difficult and uncertain economic environment.  Wealth advisors are located at several of Capitol's banking subsidiaries to work in tandem with their traditional banking colleagues to provide the

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availability of financial services to the banks' clientele, while attempting to increase noninterest revenues which is difficult in the current environment due to market volatility and client activity.

Revenue from mortgage loans held for sale, included in other noninterest income, amounted to $1.9 million in 2010 and $2.8 million in 2009 and 2008.  Loan origination volume decreased significantly in 2010 and 2008 as instability of residential real estate market conditions and the credit worthiness of borrowers have adversely impacted volume.

Due to the nature of other categories of noninterest income, including gain on the sales of government-guaranteed loans and other service fee income, amounts can vary significantly from year to year depending on interest rates, business opportunities and other activities.

Net interest income was insufficient in 2010 and 2009 to offset the provision for loan losses.  The provision for loan losses approximated $156.9 million, $175.2 million and $75.8 million in 2010, 2009 and 2008, respectively.  The dramatic levels of the provision for loan losses in each of those years was primarily associated with loan losses and related materially adverse levels of nonperforming loans within the Great Lakes Region's Michigan banks, Arizona-based Sunrise Bank of Arizona and Nevada-based Bank of Las Vegas.  The amount of the provision for loan losses is determined based on management's analysis of amounts necessary for the allowance for loan losses; this is discussed in greater detail later in the Capitol's Financial Position section of this narrative.

Noninterest expense totaled $177.3 million, $200.5 million and $156.4 million in 2010, 2009 and 2008, respectively, exclusive of a goodwill impairment charge of $64.5 million and $3.4 million in 2010 and 2009, respectively.  Such expenses decreased 11.6% in 2010, while increasing 28.2% in 2009 and 10.0% in 2008.  Changes in components of noninterest expense in 2010 and 2009 (exclusive of the goodwill impairment charge in 2010) were primarily associated with the significant costs of foreclosed properties and other real estate owned, coupled with elevated FDIC insurance premiums and other regulatory fees.

Capitol's annual review for potential goodwill impairment, performed in the fourth quarter of 2010, concluded that all of its recorded goodwill (approximately $64.5 million) was deemed to be impaired.  Accordingly, such amount was written off, effective December 31, 2010.

Management's decision to write-off all goodwill as being impaired at that date was based, in part, upon the following macro-basis considerations:

·   A dramatic decline in Capitol's aggregate market-capitalization, i.e., the computational result of multiplying the number of Capitol's common shares outstanding by the per-share market price of such common stock (estimated fair value).

·   Capitol's tangible-equity deficit (total equity, less goodwill, prior to recording any goodwill impairment for 2010).

·   Pricing information from merger and acquisition transactions within the banking industry in the United States of America during 2010, as a multiple of tangible equity, and application of such multiple to Capitol's tangible-equity deficit prior to recording any goodwill impairment for 2010.

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As to pricing information from merger and acquisition transactions, such information encompassing 2010 transactions became available in early 2011 and indicated that, on average, such transactions approximated 100% of an entity's tangible book value.  As to Capitol, its tangible equity-deficit (prior to recording goodwill impairment at December 31, 2010) clearly suggested fully writing-off goodwill as of December 31, 2010.

Management also evaluated whether events or circumstances earlier in 2010 suggested an interim review for impairment might be necessary.  An interim review for potential impairment was not considered necessary due to the absence of events or changes in Capitol's circumstances (since the preceding annual review in late 2009).  Such conclusion was confirmed by the macro-basis considerations discussed on the preceding page, which did not arise until the fourth quarter of 2010.  While, prior to the fourth quarter of 2010, the market price of Capitol's common stock had decreased significantly, that market price fell to a low of $0.37 per share during that quarterly period and in the early months of 2011, consistently less than $1.00 per share, which resulted in such shares being delisted from the NYSE in January 2011 (also because of Capitol's market capitalization being less than $15 million).

The largest element of routine noninterest expense is salaries and employee benefits which approximated $69.9 million, $84.7 million and $94.0 million in 2010, 2009 and 2008, respectively.  Employee compensation costs decreased about 17.5% in 2010 and 9.9% in 2009 as a result of Capitol's efforts to reduce and streamline staffing at its banks and corporate offices, through the previously-mentioned mergers of banking subsidiaries in Capitol's larger markets, staffing reductions and employee attrition.  Increased employee compensation costs in 2008 ($2.1 million or 2.0%) resulted primarily from the formation of start-up banks.

Occupancy costs fluctuated within a narrow range in 2010 and 2009, after increasing by a more significant 23.7% in 2008 due to recently-formed banks.  Equipment rent, depreciation and maintenance expense decreased $7.8 million (43.8%) in 2010, primarily related to certain lease-related costs incurred in 2009 resulting in an increase of about 67.4% in 2009.  This item increased 23.3% in 2008 due to recently-formed banks.

Costs associated with foreclosed properties and other real estate owned remained elevated in 2010 at $40.4 million compared to $45.0 million in 2009 and $6.7 million in 2008; such levels of costs corresponded with high levels of other real estate owned which increased from $67.2 million at the beginning of 2009 to $107.0 million at year-end 2009, and $107.9 million at December 31, 2010.  Most of the costs associated with foreclosed properties and other real estate owned resulted from adverse valuation adjustments in an adverse real estate market environment, especially as it relates to commercial properties.

FDIC insurance premiums currently range from .07% to .78% of average domestic deposits, depending on an institutions' risk classification and other factors.  Effective April 1, 2011, banks will be charged FDIC insurance premiums based on net assets (defined by the FDIC for assessment purposes as quarter-to-date average daily total assets less the corresponding amount of Tier 1 capital) rather than based on average deposits.  Initial base assessment rates range from .05% to .35% of "net assets" and may be adjusted for certain factors.  Assuming that Capitol's banking subsidiaries remain in their current risk category, this new FDIC assessment

F-19

methodology may result in a decrease in this expense item in the future.  Future assessment rates and methodology are difficult to predict.

The more significant elements of other noninterest expense consisted of the following (in $1,000s):

	2010		2009		2008
Attorney fees	$	4,953	$	2,743	$	1,338
Other professional fees		3,939		2,598		1,445
Loan and collection expense		2,843		2,279		1,602
Insurance		1,977		1,186		502
Directors' fees		1,662		1,904		2,429
Bank services (ATMs, telephone banking     and Internet banking)		1,508		2,010		1,982
Paper, printing and supplies		1,371		1,605		2,119
Travel, lodging and meals		1,279		1,471		2,546
Communications		1,237		1,416		1,849
Advertising		1,168		1,317		2,226
Postage		846		960		1,043
Taxes other than income taxes		791		721		610
Other		2,320		4,517		7,495
Total	$	25,894	$	24,727	$	27,186

In 2010, an income tax benefit from continuing operations of $7.3 million was recognized, related primarily to an intraperiod tax allocation associated with the gain on sale of bank subsidiaries included in discontinued operations.  Income tax expense related to continuing operations approximated $13.2 million in 2009, primarily from the effect of recording a valuation allowance for deferred income tax assets at December 31, 2009 ($104.5 million).  A valuation allowance for most deferred income tax assets has been maintained at December 31, 2010 ($190.3 million), based on management's assessment of the realizability of such assets not meeting the requisite more-likely-than-not criteria.  The valuation allowance for deferred income tax assets may reduce income tax expense accrual requirements to the extent of Capitol's profitability in future periods.  A very limited amount of deferred tax assets is deemed to be more-likely-than-not realizable as of December 31, 2010 ($1.8 million) for a few less than 80% owned bank subsidiaries.

Income from discontinued operations increased significantly in 2010 with the divestiture of 11 bank subsidiaries resulting in an approximate gain on sale of $15.8 million, as compared to the divestiture of 2 bank subsidiaries in 2009 resulting in a gain on sale of approximately $1.2 million.  Pending bank divestiture activity is discussed later in this narrative.

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Capitol's Financial Position

Consolidated total assets decreased in 2010 to $3.5 billion from $5.1 billion at the end of 2009.  Total assets were $5.7 billion at the beginning of 2009.  The 2010 decrease in total assets primarily resulted from Capitol's divestitures of bank subsidiaries and its efforts to 'deleverage' its consolidated balance sheet through reductions in portfolio loans and borrowings.

Most of the amounts discussed in this narrative are based upon the "continuing operations" of Capitol and its consolidated bank subsidiaries.  Asset and liability balances as of December 31, 2009 and 2008 have been adjusted to reflect recent sales of banking subsidiaries as "discontinued operations" to present Capitol's financial position on a comparable basis.

Key to the balance sheet of Capitol is an understanding of its capital position in terms of stated amounts (including any deficit amounts), regulatory capital levels and ratios and the regulatory classification of Capitol and its banking subsidiaries based upon those amounts and ratios, and liquidity (cash and cash equivalents) at December 31, 2010.  Both of those important elements are discussed in a later section of this narrative, Liquidity, Capital Resources and Capital Adequacy.

In the circumstances of Capitol's financial position, as shown on its consolidated balance sheet, clearly the single largest asset category is portfolio loans.  Accordingly, most of the narrative in this section is devoted primarily to loans and related aspects of asset quality.

Net portfolio loans (total portfolio loans after deducting the allowance for loan losses) approximated $2.5 billion at December 31, 2010 and $3.0 billion at December 31, 2009 (excluding discontinued operations).  These amounts approximated 71% of total consolidated assets at December 31, 2010 and 59% at December 31, 2009.  The 2010 decrease is significant and the result of Capitol's efforts to reduce its balance sheet for its continuing operations, as previously-mentioned, and to preserve liquidity and capital to the extent reasonably possible in the current troubled economic climate.

Capitol's banking subsidiaries have emphasized commercial loans, consistent with their focus on lending to local entrepreneurs, professional service firms and other businesses.  All of Capitol's banks use a common credit policy; however, credit decisions are made locally at the banks.  Utilization of an enterprise-wide credit policy has several key benefits, such as providing procedural guidance to the banks in the following areas:

· Loan underwriting and documentation;

· Credit-granting authority;

· Acceptable collateral and loan structuring;

· Loan participations amongst bank affiliates or external funding sources when proposals exceed an individual bank's limitations;

· Collections and workouts;

· Documentation, methodology, process and evaluation of the adequacy of the allowance for loan losses; and

· Establishing corporate credit administration resources to aid the banks when needed.

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Internal underwriting standards to be followed for loans secured by real estate are basic credit granting fundamentals which would be applicable to any extension of credit by a bank.  For construction loans, which have largely been eliminated in the currently adverse economic environment, the banks follow these general underwriting policies enhanced by keen awareness of increased risks of construction loans.  General underwriting policies include analyzing and documenting:

· Borrower and project financial data;

· Contingent liabilities and related cash flows;

· Adequacy of liquidity and the components of borrowers' and guarantors' net worth;

· Historic and projected cash flow data, including debt service and vacancy rates sensitivity analysis;

· Character, credit history of borrowers and guarantors and management ability of the borrowers' enterprise;

· Appraisal market valuation: evaluation of local market conditions and related volatility; and

· Proposed use of loan proceeds and potential future uses of the property (for loans secured by real estate).

Additional lending requirements include regulatory loan-to-value guidelines which are calculated based on current appraised value for loans that finance properties acquired by the borrower.

Variable-rate commercial loans are currently emphasized during today's extremely low interest-rate environment.  Most variable-rate commercial loans have stated minimums and are underwritten with evaluation of the borrower's ability to repay based on fully-indexed rates.  Since substantially all residential mortgage loan origination volume is underwritten to secondary-market standards and the loans are sold into those markets without recourse, Capitol and its banks have no material exposure to hybrid loans such as option-ARMs or subprime credits.

As part of the banks' emphasis on commercial lending, commercial real estate has been sought as the primary source of collateral where possible.  This emphasis on commercial real estate as collateral has been a consistent practice of Capitol and its banks from their earliest days of operation, based on the use of appropriate loan-to-value ratios at the time of loan origination, avoidance of large real estate development projects and the belief that, even in volatile economies, commercial real estate tends to have substantially less loss potential than other types of business-asset collateral, such as receivables, inventory and equipment, which can completely evaporate during periods of severe operational stress for small business enterprises.

In the current troubled economic environment, market conditions and values of real estate as collateral have deteriorated significantly as evidenced by adverse asset quality trends since 2007, resulting in large provisions for loan losses, charge-offs of uncollectible loans and materially negative valuation adjustments of other real estate owned.  Other real estate owned arises from a foreclosure proceeding or acceptance of a deed in lieu of foreclosure.  Those

F-22

properties are held for sale at the lower of cost or fair value, less estimated costs to sell, and are reviewed periodically for subsequent impairment.

Loans may be deemed collateral-dependent when repayment is expected solely from liquidation of the loan's collateral.  Many of the banking subsidiaries' collateral-dependent impaired loans are located in severely depressed real estate markets, such as Michigan, Arizona and Nevada.  In those markets, appraisal data may be of limited usefulness in estimating fair value because "comparable" sale transactions, generally used as important points of reference in such appraisals, are infrequent, may not be "orderly" and may be the result of distressed or forced sale transactions.  Further, such comparable sale transactions may be lower, or substantially less than amounts which could be realized in orderly (and not distressed or forced) sales between the owner/occupant and a future user of the property.  Bank regulatory agencies have encouraged Capitol's banks to base their fair value estimates upon appraisal data in substantially all valuations of real estate.  As of December 31, 2010 and 2009, substantially all estimates of fair value for collateral-dependent loans and other real estate owned were based on appraisal data or other independent estimates, such as broker price opinions.

There is significant uncertainty in current and future real estate values, appraisal results and the resulting potential impact on both the valuation of collateral-dependent loans and other real estate owned.  The fair value measurement of collateral-dependent loans and other real estate owned is dependent primarily upon obtaining appraisals of the underlying property value from independent appraisers in accordance with professional and licensing requirements for the persons performing those appraisals.  Management cautiously monitors real estate and related appraisal data when evaluating the fair value of real estate collateral.

Updated appraisals are generally obtained when it has been determined that a collateral-dependent loan has become impaired or when it is likely a loan secured by real estate will be foreclosed.  Adjustments to the loan's carrying value (or requirements for an allocation of the allowance for loan losses) are made, when appropriate, after review of appraisal data or, in the absence of a recent appraisal, if market conditions significantly decline further.  The timing of when a collateral-dependent loan should be classified as a nonperforming credit is contingent upon several factors, including the performance of the loan, payment history and/or results of the bank's review of updated borrower financial information.

When a borrower's performance has deteriorated (for example, the borrower has become delinquent on required payments, the borrower's updated financial information received indicates adverse financial trends or sales/leasing activity is less than expected in the case of multi-unit properties), the loan will be downgraded and, if appropriate, an updated appraisal will be ordered.  In the period between a loan being recognized as impaired and receipt of an updated appraisal, the loan will be included within loss contingency pools, in conjunction with estimating the bank's requirements for its allowance for loan losses.  Upon receipt and review of updated appraisal data and after any further fair value analysis is completed, the loan will be further evaluated for appropriate write-down.  Generally, negative differences between appraised value, less the estimated cost to sell, and the related carrying value of the loans are charged to the allowance for loan losses, as a partial write-down/charge-off, on a timely basis after the appraisal has been received and reviewed.  Occasionally, additional potential loss

F-23

amounts may be included if circumstances exist which may further adversely impact fair value estimates.  Internally-developed evaluations may be used when the amount of a loan is less than $250,000.  Internally-prepared evaluations may also be used when the most recent appraisal date is within a year to estimate the current effect of economic conditions or deterioration.  Updated fair value information is generally obtained at least annually for collateral-dependent loans and other real estate owned.

A potentially negative aspect of real estate as a primary source of collateral for commercial loans, among other things, is that when some commercial loans develop performance difficulties and reach nonperforming status (i.e., becoming 90 days past due or being placed on nonaccrual status), the resolution period will likely involve an extended period of time due to the foreclosure process and may be further extended if the real estate sales volume is weak or nonexistent as in the current adverse economic environment.  In contrast, a commercial loan secured by receivables, inventory or equipment, which becomes nonperforming, tends to have a higher loss potential due to the probable rapid dissipation of collateral value.

At December 31, 2010, the allowance for loan losses approximated $147.4 million or 5.52% of total portfolio loans outstanding, compared with $129.8 million or 4.14% at December 31, 2009.  As stated earlier, the allowance is based on management's analysis of inherent losses in the loan portfolio at the balance-sheet date.  The level of the allowance for loan losses in recent periods, and the percentage relationship to portfolio loans, exceeds past experience at Capitol, its banks and the banking industry as a result of this unprecedented and volatile economic environment in the United States.

As discussed more extensively in the Critical Accounting Policies section which appears later in this narrative, the use of estimates in determining the adequacy of the allowance for loan losses is extremely important to an understanding of Capitol's consolidated financial statements.  Simply stated, the allowance for loan losses is management's estimate of losses inherent in the loan portfolio at the balance-sheet date.  The allowance for loan losses is increased by provisions for loan losses, which are charged against operations, and reduced by net loan write-offs which are charged against the allowance.  There are many ways to estimate losses or 'loss reserves' and there is no one 'right' way.  Because the allowance for loan losses and fair values of real estate are based on estimates, actual loss experience will differ from those estimates.

In addition, bank regulatory agencies have the authority to review the adequacy of the allowance for loan losses as a part of their periodic examinations at the bank level and to require changes to the recorded allowance for loan losses, superseding management's judgment.  Those changes or adjustments usually involve directing the banks to increase the allowance for loan losses and the bank may be required to reflect those changes or adjustments retroactively, even though such a change in estimate is required to be accounted for as a change in estimate prospectively in accordance with generally accepted accounting principles in the United States.  Those changes or adjustments may be required to be made long after management completed its process for the evaluation and documentation of the adequacy of the allowance for loan losses, based on information which was not previously available to management at the time that process was completed.

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Capitol had 23 separately-chartered banks at year-end 2010.  Each bank separately computes and documents the adequacy of its respective allowance for loan losses.  As mentioned previously, Capitol has a uniform, enterprise-wide credit policy which, among other things, provides the banks guidance on evaluating and documenting the adequacy of the allowance for loan losses.  Essentially, a standardized computational template is used consistently by all of Capitol's banking subsidiaries.  That template includes elements for all loan categories for performing loans, nonperforming loans, watch credits and environmental factors.  While a standardized template is utilized, management is required to apply subjective judgment in determining risk factors specific to their banks and other matters in determining the allowance needed at the bank level.  Further, the combined results of the banks' separate analyses are evaluated at the parent level on a judgmental basis.  The process to evaluate and determine the adequacy of the allowance for loan losses at each individual bank and on a consolidated basis is labor intensive and requires a high degree of judgment.  It is possible that others, given the same information, may at any point in time reach different reasonable conclusions.

The following table summarizes portfolio loans, the allowance for loan losses and nonperforming loans for each of the banks, regionally and on a consolidated basis as of December 31 (in $1,000s):

	Total Portfolio Loans				Allowance for Loan Losses				Nonperforming Loans				Allowance as a % of Total Portfolio Loans
	2010		2009		2010		2009		2010		2009		2010			2009
Arizona Region:
Bank of Tucson(10)(11)	$	159,334	$	168,644	$	2,380	$	1,904	$	7,711	$	5,110		1.49	%		1.13	%
Central Arizona Bank(11)		52,844		65,934		2,552		3,153		5,092		3,132		4.83	%		4.78	%
Southern Arizona Community Bank(1)(10)				79,190				1,150				848					1.45	%
Sunrise Bank of Albuquerque(11)		52,502		61,025		2,499		1,256		4,731		3,436		4.76	%		2.06	%
Sunrise Bank of Arizona		264,181		346,134		16,700		17,382		29,936		32,929		6.32	%		5.02	%
Arizona Region Total		528,861		720,927		24,131		24,845		47,470		45,455		4.56	%		3.45	%
California Region:
Bank of Feather River		31,297		26,941		479		347						1.53	%		1.29	%
Bank of San Francisco(1)(10)				74,782				1,384				243					1.85	%
Napa Community Bank(1)(10)				139,497				2,493				3,746					1.79	%
Sunrise Bank(5)(8)		183,641		214,682		7,815		6,731		8,529		8,692		4.26	%		3.14	%
California Region Total		214,938		455,902		8,294		10,955		8,529		12,681		3.86	%		2.40	%
Colorado Region:
Fort Collins Commerce Bank(1)(10)				83,047				1,308				1,291					1.58	%
Larimer Bank of Commerce(1)(10)				79,239				1,467									1.85	%
Loveland Bank of Commerce(1)(10)				33,582				560				156					1.67	%
Mountain View Bank of Commerce		41,087		40,201		789		621		883				1.92	%		1.54	%
Colorado Region Total		41,087		236,069		789		3,956		883		1,447		1.92	%		1.68	%
Great Lakes Region:
Bank of Maumee		33,558		40,269		1,427		918		442		810		4.25	%		2.28	%
Bank of Michigan		64,278		64,374		1,368		1,172		2,312		844		2.13	%		1.82	%
Capitol National Bank(11)		138,251		172,088		5,976		8,070		13,616		21,346		4.32	%		4.69	%
Evansville Commerce Bank		38,609		44,179		1,103		1,338		1,801		1,244		2.86	%		3.03	%
Indiana Community Bank(4)(8)		112,986		133,051		3,703		4,130		8,358		9,278		3.28	%		3.10	%
Michigan Commerce Bank(3)(8)(11)		812,088		1,044,020		57,381		53,724		114,937		117,806		7.07	%		5.15	%
Ohio Commerce Bank(1)(10)				56,739				910				206					1.60	%
Great Lakes Region Total		1,199,770		1,554,720		70,958		70,262		141,466		151,534		5.91	%		4.52	%
Midwest Region:
Adams Dairy Bank(1)(10)				35,860				655									1.83	%
Bank of Belleville(1)(10)				58,510				938									1.60	%
Community Bank of Lincoln(1)(10)				44,864				1,195				1,661					2.66	%
Midwest Region Total				139,234				2,788				1,661					2.00	%

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Summary of loan information – continued:

	Total Portfolio Loans						Allowance for Loan Losses						Nonperforming Loans						Allowance as a % of Total Portfolio Loans
	2010			2009			2010			2009			2010			2009			2010			2009
Nevada Region:
1st Commerce Bank	$	25,521		$	33,482		$	624		$	1,910		$	5,611		$	7,531			2.45	%		5.71	%
Bank of Las Vegas(7)(8)(11)		306,802			368,739			25,235			11,952			82,042			59,219			8.23	%		3.24	%
Nevada Region Total		332,323			402,221			25,859			13,862			87,653			66,750			7.78	%		3.45	%
Northeast Region:
USNY Bank(1)(10)					57,849						905												1.56	%
Northwest Region:
Bank of the Northwest(6)(8)		118,755			134,669			4,000			4,985			6,609			9,614			3.37	%		3.70	%
High Desert Bank		29,872			34,203			1,350			805			1,053			644			4.52	%		2.35	%
Northwest Region Total		148,627			168,872			5,350			5,790			7,662			10,258			3.60	%		3.43	%
Southeast Region:
Community Bank of Rowan(9)		102,926						1,736						3,441						1.69	%
First Carolina State Bank(11)		77,797			90,855			2,389			1,554			6,560			6,161			3.07	%		1.71	%
Pisgah Community Bank		28,071			45,094			1,511			1,168			6,968			401			5.38	%		2.59	%
Sunrise Bank(2)(8)(11)		79,558			103,895			4,374			4,152			10,452			7,928			5.50	%		4.00	%
Southeast Region Total		288,352			239,844			10,010			6,874			27,421			14,490			3.47	%		2.87	%
Texas Region:
Bank of Fort Bend		29,788			29,215			700			485			419						2.35	%		1.66	%
Bank of Las Colinas		41,434			34,725			737			731			907						1.78	%		2.11	%
Texas Region Total		71,222			63,940			1,437			1,216			1,326						2.02	%		1.90	%
Other, net(11)		5,866			7,523			2,973			3,211			3,170			3,241		N.M.			N.M.
Consolidated totals		2,831,046			4,047,101			149,801			144,664			325,580			307,517			5.29	%		3.57	%
Less discontinued operations		(159,334	)		(911,803	)		(2,380	)		(14,869	)		(7,711	)		(13,261	)		(1.49	)%		(1.63	)%
Consolidated totals relating to
continued operations	$	2,671,712		$	3,135,298		$	147,421		$	129,795		$	317,869		$	294,256			5.52	%		4.14	%

(1)	Capitol sold its ownership in Southern Arizona Community Bank effective December 10, 2010; Fort Collins Commerce Bank, Larimer Bank of Commerce and Loveland Bank of Commerce effective October 29, 2010; Bank of San Francisco effective September 28, 2010; Adams Dairy Bank effective August 31, 2010; USNY Bank effective August 23, 2010; Community Bank of Lincoln effective July 30, 2010; Ohio Commerce Bank effective June 30, 2010; Napa Community Bank effective April 30, 2010 and Bank of Belleville effective April 27, 2010.  The banks' operations have been included in Capitol's consolidated totals up to the date of sale; however, the banks' results are reflected in discontinued operations.
(2)	Effective July 30, 2010, Peoples State Bank and Sunrise Bank of Atlanta merged with and into Bank of Valdosta.  Upon completion of the merger, the surviving bank was renamed Sunrise Bank.  Prior to the merger, each bank was either a majority-owned subsidiary of Capitol or majority-owned by a bank-development subsidiary in which Capitol holds a controlling interest.
(3)	Effective March 31, 2010, Bank of Auburn Hills and Paragon Bank & Trust merged with and into Michigan Commerce Bank.  Prior to the merger, Bank of Auburn Hills and Paragon Bank & Trust were wholly-owned subsidiaries of Capitol.
(4)	Effective March 22, 2010, Elkhart Community Bank merged with and into Goshen Community Bank.  Upon completion of the merger, the surviving bank was renamed Indiana Community Bank.  Prior to the merger, each bank was a wholly-owned subsidiary of Capitol.
(5)	Effective March 5, 2010, Bank of Escondido, Sunrise Bank of San Diego and Sunrise Community Bank merged with and into Point Loma Community Bank.  Upon completion of the merger, the surviving bank was renamed Sunrise Bank.  Prior to the merger, each bank was either a wholly-owned subsidiary of Capitol or majority-owned by a bank-development subsidiary in which Capitol holds a controlling interest.
(6)	Effective February 19, 2010, Bank of Bellevue, Bank of Everett and Bank of Tacoma merged with and into Issaquah Community Bank.  Upon completion of the merger, the surviving bank was renamed Bank of the Northwest.  Prior to the merger, each bank was either a majority-owned subsidiary of Capitol or majority-owned by a bank-development subsidiary in which Capitol holds a controlling interest.
(7)	Effective January 29, 2010, Black Mountain Community Bank, Desert Community Bank and Red Rock Community Bank merged with and into Bank of Las Vegas.  Prior to the merger, each bank was a wholly-owned subsidiary of Capitol.
(8)	For purposes of this presentation, such merger has been reflected as if it occurred December 31, 2009.
(9)	As of December 31, 2009, Community Bank of Rowan (CBR) was a majority-owned subsidiary of Capitol Development Bancorp Limited III (CDBL III) which, due to a change in control effective September 30, 2009, became an unconsolidated affiliate of Capitol.  Effective June 30, 2010, CDBL III transferred its controlling interest in CBR to Capitol in exchange for preferred stock of Capitol and, accordingly, CBR became a consolidated subsidiary of Capitol on that date.
(10)	Assets of these banks are reflected in discontinued operations.
(11)	Total portfolio loans and/or allowance for loan losses of these banks as of December 31, 2009 have been adjusted to reflect subsequent regulatory financial statement amendments filed on or after March 20, 2010.  Those amendments did not have an impact on total portfolio loans and allowance for loan losses on a consolidated basis.
N.M.	Not meaningful

F-26

Nonperforming loans approximated $317.9 million and $294.3 million at December 31, 2010 and 2009 and approximated 11.90% and 9.39% of portfolio loans and 8.98% and 5.73% of total assets, respectively.  Of the nonperforming loans at December 31, 2010, about 90% were real-estate secured, consistent with prior years.  At December 31, 2010, the "coverage" ratio of the allowance for loan losses to nonperforming loans (i.e., the allowance as a percentage of nonperforming loans) was 46.4%, compared to 44.1% at the beginning of the year.  A coverage ratio below 50% is viewed by management as being appropriate, inasmuch as many nonperforming loans reflect partial write-downs based on the estimated fair value of real estate (less estimated costs to sell) for collateral-dependent nonperforming loans.

Comparison of the coverage ratio of the allowance to nonperforming loans is complicated by the accounting rules for loss recognition of impaired loans.  For example, when an impaired collateral-dependent loan is evaluated based on the fair value as of a particular balance-sheet date, any estimated loss is included as an element of the requirements for the allowance for loan losses.  At the subsequent balance-sheet date, that earlier loss estimate is generally charged against the allowance for loan losses via direct write-down of the impaired collateral-dependent loan and, accordingly, no allowance for loan losses component is needed until it is determined that the fair value estimate requires further adverse revision.  As a result, many nonperforming loans are carried at a written-down level and no allowance component may be necessary at the balance-sheet date.

Directional consistency in the allowance for loan losses, loan charge-offs (including partial write-downs resulting from impairment analyses, as discussed above) and asset quality is important.  During 2010, impaired loans increased 14% from $322.3 million at December 31, 2009 to $367.6 million at December 31, 2010 ($165.0 million at the beginning of 2009).  The amount of the allowance for loan losses allocable to impaired loans at December 31, 2010 of $41.9 million increased approximately 115% from the year-end 2009 amount of $19.5 million.  This was because of an increase in troubled debt restructurings from $32 million at year-end 2009 to $124 million at year-end 2010, coupled with an increased level of loan charge-offs (including partial write-downs) in 2010 which increased 24.1% from $125.7 million in 2009 to the level of $156.1 million in 2010.  Estimated losses on loans which are deemed to be troubled debt restructurings are required to be reflected as a component of the allowance for loan losses rather than as a direct write-down of the loan amount, as in the case of collateral-dependent loans discussed earlier.  As mentioned previously, allowance requirements for impaired loans are reduced through charge-offs and partial loan write-downs.

Loans are accounted for as troubled debt restructurings if, for economic or legal reasons related to the borrower's financial condition, banks grant a "concession" to the borrower that they would not otherwise consider.  A troubled debt restructuring may involve a modification of terms such as a reduction of the stated interest rate or loan balance, a reduction of accrued interest, an extension of the maturity date at an interest rate lower than a current market rate for a new loan with similar risk, or some combination thereof involving a concession to the borrower to facilitate repayment.  Troubled debt restructurings generally remain classified as impaired until the borrower has demonstrated timely payment performance for a period of time pursuant to the modified terms of the loan.

F-27

Provisions for loan losses decreased 10.5% in 2010 after sharp increases of 131.2% in 2009 and 262.3% in 2008, as net growth in nonperforming loans decreased to 8.02% in 2010 versus 80.7% in 2009 and 134.4% in 2008.  During 2010, the provision for loan losses was approximately equal to charge-offs, whereas the provision for loan losses exceeded loan charge-offs by 39.4% in 2009 and 56.4% in 2008.  Fluctuations in these ratios is caused by numerous factors, including the timing of loan charge-offs in relation to timing of the provisions for loan losses.  As previously discussed, loss estimation and monitoring of collateral values is an ongoing process.

At December 31, 2010, about 42.2% of total nonperforming loans were Michigan-based (including nonperforming loans held at the parent level), a decrease of $11.3 million or 7.8%.  In concert with high levels of nonperforming loans at Michigan banks, their combined allowance ratio of about 6.38% and 4.91% of portfolio loans at year-end 2010 and 2009, respectively, has been maintained at a higher level than the consolidated ratio, and one bank had an allowance ratio slightly more than 7%.  It should be noted that other regions (Arizona and Nevada, in particular) also had significant increases in their allowance ratio in 2010 due to higher levels of nonperforming loans and other factors affecting their allowance for loans losses.  Increases in other regions' nonperforming loans were expected due to adverse economic conditions and the historically low levels of such loans in prior periods; those factors also resulted in increases to their allowance for loan losses and related ratios.

Due to commercial real estate collateral and a depressed economic climate, resolution of nonperforming loans and other real estate loans may take an extended period of time.  Levels of nonperforming loans may increase further, and general economic conditions may not recover in the foreseeable future.

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.  When originated, 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 the nature of the borrowers' 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 review's and/or lending staff's risk assessment, increased monitoring is deemed appropriate.  In addition, some loans are assigned a more adverse rating, with specific performance issues or other risk factors requiring closer management attention and the development of specific remedial action plans.

At December 31, 2010, problem and potential problem loans (which include nonperforming loans) approximated $763 million or nearly 29% of total consolidated portfolio loans whereas problem and potential problem loans, excluding nonperforming loans, approximated $445 million or nearly 17% of total consolidated loans.  Such totals have historically approximated 4% to 5% of loans outstanding and are an important part of management's ongoing and

F-28

proactive loan review activities, which are designed to early-identify loans which warrant close monitoring at the bank and corporate credit-administration levels.  During 2010, the amount of potential problem loans increased significantly as a result of continued concern about borrower performance, valuation and the continued uncertain economy.  It is important to note that these potential problem loans do not necessarily have significant loss exposure (nor are they necessarily deemed 'impaired'), but rather are identified by management in this manner to aid in loan administration and risk management.  These loans are considered in management's evaluation of the adequacy of the allowance for loan losses.

There are several other asset categories.  Loans held for sale ($7.0 million and $11.0 million at December 31, 2010 and 2009, respectively) are home mortgages which are sold into the secondary market generally within 30-60 days of closing (discussed in more detail in the following section of this narrative).  There is also a modest amount of investment securities on the balance sheet ($27.0 million and $41.6 million at December 31, 2010 and 2009, respectively).

The amount of recoverable income taxes at December 31, 2009 was the result of the Corporation's operating loss and a nonrecurring opportunity to "carryback" such losses to recover taxes paid during the preceding five years.  Loss carryback rules were previously limited to the most recent two-year period, which resumed as the limitation effective January 1, 2010.  Such recoverable income taxes were realized from a tax refund received during the second half of 2010, subject to subsequent audit by the Internal Revenue Service (particularly due to the size of the refund amount).

Other real estate owned approximated $107.6 million at December 31, 2010, a slight increase from the year-end 2009 level of $107.0 million.  Other real estate owned stabilized in 2010 after a dramatic increase of $41.4 million in 2009 due to borrower difficulties, foreclosures and lack of sales activity.  Most of the 2009 increase ($38.6 million) was related to banks located in Michigan and Arizona.  Other real estate owned at December 31, 2010 primarily consists of commercial properties.  Continued deterioration of real estate market conditions for commercial, as well as residential, properties has negative implications on future sales and valuation of other real estate owned as well as collateral-dependent impaired loans secured by real estate.  In 2010, however, Capitol and its banking subsidiaries have observed some level of stabilization of values and sales activity, although economic conditions and improvements remain fragile.

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, Arizona and Nevada), are not conducive to rapid marketing or near-term sale of the properties.

The primary source for the funding of loans is deposits, which is discussed in the next section of this narrative.

F-29

Liquidity, Capital Resources and Capital Adequacy

In a volatile economic environment, financial institution liquidity is very important.  Liquidity for financial institutions typically consists of cash and cash equivalents and assets which may be quickly converted to cash, such as loans held for sale and investment securities available for sale.  These categories totaled $565.2 million at year-end 2010 or about 17.0% of total assets, excluding discontinued operations, and $669,819 or about 16.5% at year-end 2009, both of which were high levels of liquidity.  Liquidity can vary significantly on a daily basis, based on customer activity and funding sources.  The increased liquidity position at year-end 2010 is the result of management's ongoing efforts to respond to regulatory guidance, coupled with limited opportunities to deploy funds into investment securities during a low-interest rate environment and a very cautious approach to making loans in an uncertain and fragile economy.  Liquidity is important for financial institutions because of their need to meet depositor withdrawal requests, loan funding commitments and various other commitments.  Management believes the banks' liquidity position at December 31, 2010 is adequate to meet depositor needs and fund loan demand.

Most of the investment securities portfolio (approximately $24.1 million at December 31, 2010 and $35.8 million at year-end 2009) has been classified as available for sale.  During 2010, there was approximately $26 million in sales of investment securities which were primarily made to facilitate changes in risk-management strategies and liquidity needs.  In 2009 and 2008, there were no significant sales of investment securities available for sale to meet liquidity needs or for other purposes.

Loans held for sale, as previously-mentioned, approximated $7.0 million at December 31, 2010, compared to $11.0 million at year-end 2009.  These are residential real estate mortgages originated by the banks and are subsequently sold into the secondary market, rather than being held in the banks' portfolios, to reduce interest rate and related credit risk.  Mortgage loan origination volume in 2010 decreased to approximately $117 million, compared to $311 million in 2009 ($207 million in 2008).  Future mortgage origination volume will depend in large part on interest rates, real estate valuation and the relative strength of residential real estate market conditions as well as the creditworthiness of borrowers.  Also, to the extent warranted, the banks may sell other loans from time to time.

The primary source of funds for the banks is deposits.  The banks rely upon interest-bearing time deposits as a key part of their funding strategy.  The banks also emphasize noninterest-bearing deposits, or checking accounts, which reduce the banks' cost of funds.  Noninterest-bearing deposits were about 17% of total deposits at year-end 2010 (about 14% at year-end 2009 and 16% at the beginning of 2009).  This ratio is significant inasmuch as a lower percentage of noninterest-bearing deposits has the effect of increasing a bank's funding costs and, accordingly, reducing net interest income.

F-30

In recent periods, many banks within the industry have experienced competitive challenges in obtaining additional deposits for liquidity.  Capitol's banks have had similar experience in their individual markets.  As depositors have wider access to the Internet and other real-time interest rate monitoring resources, deposit sourcing and pricing have become very competitive.  Deposits currently require competitive and often aggressive pricing, adversely impacting net interest margins, especially during these recent periods of very low interest rates.  As interest rates have remained at record low levels, customers are more attracted to aggressively-priced time deposits, and both growth in deposits and retention of deposits is difficult to achieve in a challenging economic environment.  Capitol's banks have decreased the use of brokered deposits as a funding source in response to requirements of regulatory agreements.  Banks under agreements are prohibited from renewing brokered deposits as they mature (approximately $279 million at year-end 2010 or 9.2% of deposits compared to 20.1% in 2009).  Deposits obtained from Internet-based sources (which are not classified as brokered deposits) have increased significantly in recent years.

To supplement their funding sources, some of the banks have lines of credit from the Federal Home Loan Bank (FHLB) system.  At year-end 2010, a total of approximately $114 million ($182 million at year-end 2009) was borrowed under FHLB facilities and additional borrowing availability approximated $164 million.  The $68 million decrease in the amount of FHLB borrowings is from Capitol's efforts to reduce debt obligations of its banking subsidiaries and shrink its balance sheet.  Borrowings under those facilities are generally at short-term market rates of interest and, although the repayment dates can be extended, are generally outstanding for brief periods of time.  The FHLB may accelerate due-dates of these borrowings under certain circumstances, which could have a material adverse effect on liquidity.

Capitol's longer-term contractual obligations are disclosed in the notes to the accompanying consolidated financial statements.  Such obligations consist principally of time deposits, debt and lease obligations and trust-preferred securities, the principal amounts of which are summarized as follows (in $1,000s):

			Payments Due by Period
	Total(1)		Within 1 Year		Within 1-3 Years		Within 3-5 Years		After 5 Years
Deposits without a stated      maturity	$	1,362,458	$	1,362,458
Time deposits		1,666,226		1,211,882	$	396,184	$	57,702	$	458
Debt obligations		123,377		89,655		18,825		1,466		13,431
Rent commitments under      noncancelable leases		53,249		9,453		16,113		12,880		14,803
Subordinated debentures		167,586								167,586
Total	$	3,372,896	$	2,673,448	$	431,122	$	72,048	$	196,278

(1)   Excludes interest.

F-31

During 2008, Capitol completed a private offering of $14 million of promissory notes which were purchased by accredited investors.  The promissory notes became callable in 2010, mature in 2013 and bear interest at 9%.  In 2010, Capitol converted approximately $4.6 million of those notes into approximately 1.4 million shares of common stock in a private-placement transaction.

Loan commitments of Capitol's banks (stand-by letters of credit and unfunded loans) generally expire within one year.  Other than the items set forth in the table on the preceding page, there are no individually material contractual obligations, such as purchase obligations.

A significant source of capital in prior years was investments in start-up banks made by community investors, or noncontrolling interests, in those subsidiaries which are consolidated for financial reporting purposes.  Total noncontrolling interests, included as a component of equity, amounted to $23.2 million at year-end 2010, a net decrease of $49.1 million from the $72.3 million level at year-end 2009.  The net decrease in noncontrolling interests in 2010 resulted from operating losses and bank divestitures.

Capitol has several bank-development subsidiaries, each originally capitalized with two classes of common stock, voting and nonvoting.  Capitol purchased all of the initial voting shares of common stock of these entities while the nonvoting shares were sold in private offerings to accredited investors, some of whom are related parties of Capitol.  Those entities had been engaged in bank-development activities, through Capitol, consisting of formation and investment in start-up banks and management of their investments in young banks.  Bank start-up activities were suspended in mid-2008 when the regulatory and capital-raising environment for new banks became unfavorable.  Each of these entities bear a similar name, Capitol Development Bancorp Limited (each a "CDBL"), numbered in their sequential formation, CDBL-I through CDBL-VIII.

CDBL-I became wholly-owned by Capitol in 2006 and CDBL-II became wholly-owned in February 2007 and both were subsequently merged with and into Capitol.  CDBL III ceased to be a controlled subsidiary in 2009 and, accordingly, its consolidated financial position and results of operations were deconsolidated effective September 30, 2009.  Effective December 31, 2009, Capitol increased its ownership in some of the CDBLs through the conversion of intercompany indebtedness to voting common stock of the CDBLs to maintain a controlling (>50%) interest in anticipation of conversion of those CDBLs' nonvoting shares to voting shares.

Prior to 2009, Capitol raised a total of $167 million of capital through issuance of trust-preferred securities.  Most have been obtained through private placements of pooled trust-preferred securities.  Trust-preferred securities are long-term debt obligations which may be treated as elements of capital for regulatory purposes.  When these securities were issued, all were included as an element of the Corporation's regulatory capital.  Currently, none of those securities are so included due to the Corporation's capital position.  As noted in the accompanying financial statements, the trusts relating to Capitol's trust-preferred securities are classified as debt obligations on the consolidated balance sheet.  Future availability of trust-preferred securities as a near-term capital resource is uncertain due to the instability of U.S. capital markets.

F-32

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 generally prohibited from paying dividends on its common stock 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.  Payment of interest on the trust-preferred securities is also not permitted without prior approval of the Federal Reserve (see subsequent discussion in the Certain Regulatory Matters section of this narrative).

The stockholders' equity deficit attributable to Capitol approximated $61.9 million at year-end 2010.  The significant 2010 decrease of $223.2 million resulted primarily from the net loss from operations attributable to Capitol for the year, including an impairment charge related to goodwill of $64.5 million.  The equity deficit at December 31, 2010, coupled with adverse classification of Capitol and many of its banks on the basis of their regulatory capital levels, among other things, raises some level of doubt as to Capitol's ability to continue as a going concern as discussed in the Going-Concern Considerations section of this narrative.  Additionally, Capitol and many of its banking subsidiaries are operating under various formal and informal regulatory agreements (see subsequent discussion in the Certain Regulatory Matters section of this narrative).

In April 2010, Capitol completed an offering of 2.5 million shares of previously-unissued common stock and warrants for the purchase of 1.25 million additional shares of common stock, resulting in net proceeds approximating $6.8 million with a corresponding increase to Capitol's stockholders' equity.  The warrants have an exercise price of $3.50 per warrant and expire in 2013.

On June 30, 2010, Capitol issued an aggregate 95,000 shares of its Series A Noncumulative Perpetual Preferred Stock.  Of that aggregate issuance, 44,020 shares were issued to a consolidated subsidiary of Capitol and, accordingly, have been eliminated in consolidation.  The remaining 50,980 shares were issued to a bank-development company which is an unconsolidated affiliate of Capitol.  The liquidation preference of the shares issued is $100.00 per share, with an aggregate issuance of $9.5 million of which $4.4 million has been eliminated upon consolidation.  The Series A Preferred Stock is nonvoting and callable at Capitol's option after 36 months from date of issuance at $100.00 per share, plus any accrued dividends.  Dividends on such shares are payable only when and if declared by Capitol's board of directors based on an annual rate of 6%.

Capitol and each of its bank subsidiaries are subject to a complex series of regulatory rules and requirements which require specific levels of capital adequacy at both the bank level and on a consolidated basis.  Under those rules and regulations, banks are categorized as "well-capitalized," "adequately-capitalized" or "under-capitalized" using several ratio measurements, including a risk-weighting approach to assets and financial commitments.  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.

F-33

The following table summarizes the amounts (in $1,000s) and related ratios of Capitol's consolidated regulatory capital position at December 31, 2010, and the amounts of "deficiency" that exist between the Corporation's current deficit position and levels required in order to be considered as "adequately-capitalized":

Tier 1 capital to average adjusted total assets:
Minimum required amount	≥	$	155,224
Actual amount		$	(39,980	)
Ratio			(1.03	)%
Deficiency		$	(195,204	)
Tier 1 capital to risk-weighted assets:
Minimum required amount(1)	≥	$	110,909
Actual amount		$	(39,980	)
Ratio			(1.44	)%
Deficiency		$	(150,889	)
Combined Tier 1 and Tier 2 capital to risk- weighted assets:
Minimum required amount(2)	≥	$	221,818
Actual amount		$	(39,980	)
Ratio			(1.44	)%
Deficiency		$	(261,798	)

(1)	The minimum required ratio of Tier 1 capital to risk-weighted assets to be considered adequately-capitalized is 4%.
(2)	The minimum required ratio of Tier 1 and Tier 2 capital to risk-weighted assets to be considered adequately-capitalized is 8%.

Capitol's total risk-based capital ratio at December 31, 2010 was materially and adversely impacted by the exclusion of approximately $203.7 million of previously-qualifying Tier 2 capital, inasmuch as Tier 2 capital is limited to 100% of Tier 1 capital, primarily trust-preferred securities and a portion of the allowance for loan losses.  The Tier 1 capital deficit at year-end 2010 resulted from operating losses; however, a Tier 2 limitation, primarily due to the exclusion of trust-preferred securities, did not apply to Capitol's regulatory capital computations for measurement dates prior to 2010.

The preceding summary indicates that Capitol, on a consolidated basis, was classified as less than adequately-capitalized at December 31, 2010.  As indicated above, such classification is based upon certain stated ratio minimums at the "adequately-capitalized" level.  There is, however, no assurance that regulatory agencies may not impose a higher threshold for Capitol and/or its banks at any time.

Several of its bank subsidiaries had capital levels resulting in classification as "undercapitalized" or "significantly-undercapitalized" at December 31, 2010.  Additionally, two bank subsidiaries had capital levels resulting in regulatory classification as "critically-undercapitalized" at that date; however, each of those subsidiaries received additional capital from the Corporation in January 2011 to improve their classifications to "significantly-undercapitalized."  Banks and bank holding companies which are less than adequately-capitalized are subject to increased regulatory oversight, intervention, requirements and limitations.  Regarding banks classified as

F-34

less than adequately-capitalized, or otherwise noncompliant with formal regulatory agreements, management is pursuing various strategies to improve such capital classifications and related compliance in the future, subject to the availability of capital and continued cooperation by regulatory agencies.

The following comparative analysis summarizes each bank's regulatory capital position as of December 31:

							Tier 1 Risk-Based						Total Risk-Based
	Tier 1 Leverage Ratio(1)(5)						Capital Ratio(1)(5)						Capital Ratio(2)(5)						Regulatory Classification(3)
	2010			2009			2010			2009			2010			2009			2010	2009
Arizona Region:
Bank of Tucson		7.09	%		9.67	%		9.31	%		10.78	%		10.56	%		11.86	%	well-capitalized	well-capitalized
Central Arizona Bank		2.24	%		5.13	%		3.20	%		7.13	%		4.49	%		8.42	%	significantly- undercapitalized	adequately- capitalized
Sunrise Bank of Albuquerque		2.43	%		6.27	%		3.39	%		8.07	%		4.68	%		9.33	%	significantly- undercapitalized	adequately-capitalized(6)
Sunrise Bank of Arizona		0.69	%		3.62	%		0.92	%		5.01	%		1.84	%		6.30	%	critically- undercapitalized(14)	undercapitalized
California Region:
Bank of Feather River		16.08	%		18.59	%		21.16	%		25.84	%		22.42	%		27.09	%	well-capitalized	well-capitalized
Sunrise Bank(10)(13)		7.04	%		7.97	%		9.93	%		10.57	%		11.22	%		11.83	%	adequately- capitalized(6)	well-capitalized
Colorado Region:
Mountain View Bank of Commerce(4)		12.02	%		14.20	%		17.99	%		17.99	%		19.25	%		19.24	%	well-capitalized	well-capitalized
Great Lakes Region:
Bank of Maumee		7.00	%		8.50	%		9.43	%		10.42	%		10.72	%		11.68	%	well-capitalized	well-capitalized
Bank of Michigan		7.67	%		7.11	%		10.33	%		11.19	%		11.59	%		12.44	%	well-capitalized	well-capitalized
Capitol National Bank		6.10	%		6.45	%		7.74	%		8.15	%		9.03	%		9.44	%	adequately- capitalized	adequately- capitalized(6)
Evansville Commerce Bank		8.47	%		8.01	%		12.25	%		11.28	%		13.52	%		12.55	%	well-capitalized	well-capitalized
Indiana Community Bank(9)(13)		6.34	%		8.11	%		8.19	%		10.81	%		9.47	%		12.08	%	adequately- capitalized	adequately- capitalized(6)
Michigan Commerce Bank(8)(13)		1.15	%		4.03	%		1.46	%		5.00	%		2.78	%		6.30	%	critically- undercapitalized(14)	undercapitalized
Nevada Region:
1st Commerce Bank		2.48	%		7.08	%		3.94	%		8.89	%		5.20	%		10.20	%	significantly- undercapitalized	well-capitalized
Bank of Las Vegas(12)(13)		2.06	%		5.08	%		2.93	%		6.25	%		4.27	%		7.51	%	significantly- undercapitalized	undercapitalized
Northwest Region:
Bank of the Northwest(11)(13)		10.05	%		15.16	%		13.25	%		20.75	%		14.52	%		22.01	%	adequately- capitalized(6)	well-capitalized
High Desert Bank		7.83	%		8.45	%		10.07	%		11.28	%		11.36	%		12.55	%	adequately- capitalized(6)	adequately- capitalized(6)
Southeast Region:
Community Bank of Rowan		6.83	%		8.17	%		10.05	%		10.52	%		11.30	%		11.77	%	well-capitalized	well-capitalized
First Carolina State Bank		3.11	%		7.08	%		4.75	%		9.18	%		6.02	%		10.44	%	undercapitalized	well-capitalized
Pisgah Community Bank(4)		2.03	%		10.17	%		3.52	%		14.39	%		4.82	%		15.66	%	significantly- undercapitalized	well-capitalized
Sunrise Bank(7)(13)		2.14	%		7.12	%		3.29	%		11.19	%		4.59	%		12.46	%	significantly- undercapitalized	adequately- capitalized(6)
Texas Region:
Bank of Fort Bend		14.27	%		16.05	%		19.06	%		19.76	%		20.32	%		21.01	%	well-capitalized	well-capitalized
Bank of Las Colinas		11.58	%		12.56	%		14.46	%		16.54	%		15.72	%		17.81	%	well-capitalized	well-capitalized
Consolidated totals		(1.03	)%		4.61	%		(1.44	)%		5.99	%		(1.44	)%		9.46	%	less than adequately- capitalized	adequately- capitalized

F-35

Footnotes to regulatory capital position:

(1)	The minimum required Tier 1 leverage ratio and Tier 1 risk-based capital ratio is 4% (8% for de novo institutions).
(2)	The minimum required total risk-based capital ratio is 8%.
(3)	In order to be classified as a 'well-capitalized' institution, the total risk-based capital ratio must be 10% or more.  To be classified as an 'adequately-capitalized' institution, the total risk-based capital ratio must be between 8% and 10%.  Institutions are classified as 'undercapitalized' when the total risk-based ratio is between 6% and 8% and 'significantly-undercapitalized' when such ratio falls below 6%.  Institutions with a Tier 1 leverage ratio below 2% are classified as 'critically-undercapitalized'.
(4)	De novo institution which is subject to higher minimum ratio requirements as noted in (1) above for the first three years of operations.
(5)	Ratios are based on the regulatory reports filed at original due date which is generally within 30 days after quarter-end.
(6)	Institution is subject to a regulatory agreement and, accordingly, cannot be classified better than adequately-capitalized even though the risk-based capital ratios would otherwise suggest well-capitalized classification.
(7)	Effective July 30, 2010, Peoples State Bank and Sunrise Bank of Atlanta merged with and into Bank of Valdosta.  Upon completion of the merger, the surviving bank was renamed Sunrise Bank.  Prior to the merger, each bank was either a majority-owned subsidiary of Capitol or majority-owned by a bank-development subsidiary in which Capitol holds a controlling interest.
(8)	Effective March 31, 2010, Bank of Auburn Hills and Paragon Bank & Trust merged with and into Michigan Commerce Bank.  Prior to the merger, Bank of Auburn Hills and Paragon Bank & Trust were wholly-owned subsidiaries of Capitol.
(9)	Effective March 22, 2010, Elkhart Community Bank merged with and into Goshen Community Bank.  Upon completion of the merger, the surviving bank was renamed Indiana Community Bank.  Prior to the merger, each bank was a wholly-owned subsidiary of Capitol.
(10)	Effective March 5, 2010, Bank of Escondido, Sunrise Bank of San Diego and Sunrise Community Bank merged with and into Point Loma Community Bank.  Upon completion of the merger, the surviving bank was renamed Sunrise Bank.  Prior to the merger, each bank was either a wholly-owned subsidiary of Capitol or majority-owned by a bank-development subsidiary in which Capitol holds a controlling interest.
(11)	Effective February 19, 2010, Bank of Bellevue, Bank of Everett and Bank of Tacoma merged with and into Issaquah Community Bank.  Upon completion of the merger, the surviving bank was renamed Bank of the Northwest.  Prior to the merger, each bank was either a majority-owned subsidiary of Capitol or majority-owned by a bank-development subsidiary in which Capitol holds a controlling interest.
(12)	Effective January 29, 2010, Black Mountain Community Bank, Desert Community Bank and Red Rock Community Bank merged with and into Bank of Las Vegas.  Prior to the merger, each bank was a wholly-owned subsidiary of Capitol.
(13)	For purposes of this presentation, such merger has been reflected as if it occurred on December 31, 2009.
(14)	Subsequent capital contributions in January 2011 eliminated the banks' classification as critically-undercapitalized in 2011.

Future regulatory capital compliance, classification and related ratios are difficult to predict and are subject to significant contingencies.  There is also no assurance that regulatory agencies may not impose higher ratio thresholds at any time.

Proceeds from the sale of banks in 2010 have been deployed as additional capital in the remaining banks pursuant to requirements imposed by the FDIC.  Capitol anticipates augmenting the capital levels of its less than adequately-capitalized bank subsidiaries further through allocation of proceeds from additional divestitures of certain bank subsidiaries which were pending at December 31, 2010.  Pending divestitures are discussed later in this narrative.  Management is pursuing various strategies to increase Capitol's Tier 1 capital, including raising capital through potential equity transactions, gains on divestiture of some bank subsidiaries and other initiatives as discussed further on page F-41.

Certain Regulatory Matters

In September 2009, Capitol and its second-tier bank holding companies entered into an agreement with the Federal Reserve Bank of Chicago (the Reserve Bank) under which Capitol agreed to refrain from the following actions without the prior written consent of the Reserve Bank:  (i) declare or pay dividends; (ii) receive dividends or any other form of payment representing a reduction in capital from Michigan Commerce Bank, or from any of its subsidiary institutions that are subject to any restriction by the institution's federal or state regulator that limits the payment of dividends or other intercorporate payments; (iii) make any distributions of interest, principal, or other sums on subordinated debentures or trust-preferred securities; (iv) incur, increase or guarantee any debt; or (v) purchase or redeem any shares of

F-36

the stock of Capitol, the second-tier bank holding companies, nonbank subsidiaries or any of the subsidiary banks that are held by shareholders other than Capitol.

In addition, Capitol agreed to:  (i) submit to the Reserve Bank a written plan to maintain sufficient capital at Capitol on a consolidated basis and at Michigan Commerce Bank (as Capitol's largest bank subsidiary and a separate legal entity on a stand-alone basis); (ii) notify the Reserve Bank no more than 30 days after the end of any quarter in which Capitol's consolidated or Michigan Commerce Bank's capital ratios fall below the approved capital plan's minimum ratios as well as if any subsidiary institution's ratios fall below the minimum ratios required by the institution's federal or state regulator; (iii) review and revise its ALLL methodology for loans held by Capitol and submit to the Reserve Bank a written program for maintenance of an adequate ALLL for loans held by Capitol; (iv) take all necessary actions to ensure each of its subsidiary institutions comply with Federal Reserve regulations; (v) refrain from increasing any fees or charging new fees to any subsidiary institution without the prior written consent of the Reserve Bank; (vi) submit to the Reserve Bank a written plan to enhance the consolidated organization's risk management practices, a strategic plan to improve the consolidated organization's operating results and overall condition and cash flow projections; (vii) comply with laws and regulations regarding senior executive officer positions and severance payments; and (viii) provide quarterly reports to the Reserve Bank regarding these undertakings.

Many of Capitol's bank subsidiaries have entered into formal agreements (as well as informal agreements) with their applicable regulatory agencies.  Those agreements provide for certain restrictions and other guidelines and/or limitations to be followed by the banks.  The banks generally subject to such agreements are noted as such in the regulatory capital summary appearing on page F-35 of this document.  In all instances where Capitol or its banks are subject to formal or informal agreements, corporate and/or bank management, as the case may be, and their boards of directors are fully committed and working proactively to achieve compliance with those agreements and improving their entity's financial condition.

The FDIC may issue Prompt Corrective Action Notifications (PCAN) to banking subsidiaries falling below the "adequately-capitalized" regulatory-capital classification, and subsequently may issue Prompt Correction Action Directives (PCAD).  PCADs may be issued when a bank, which has previously received a PCAN, has submitted two consecutive capital restoration plans which have been rejected by the FDIC.

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F-37

Banking subsidiaries which have recently received a PCAN and/or a PCAD are as follows, as of March 2011 (listed in descending order based on total assets):

PCAN	PCAD
Michigan Commerce Bank	Michigan Commerce Bank
Bank of Las Vegas	Bank of Las Vegas
Sunrise Bank of Arizona	Sunrise Bank of Arizona
Sunrise Bank (GA)
First Carolina State Bank
Central Arizona Bank	Central Arizona Bank
Sunrise Bank of Albuquerque
1st Commerce Bank
Pisgah Community Bank

For each banking subsidiary which has received a PCAN, capital restoration plans have been requested by the FDIC, prepared and resubmitted for regulatory review and approval.  For banks in receipt of a PCAD, those institutions are striving to develop and implement capital restoration plans which may be subsequently acceptable to the FDIC.

Generally, banks are subject to cross-guaranty liability regarding other financial institutions the FDIC determines are controlled by any multibank holding company.  Pursuant to federal regulations, an insured depository institution may be liable for any loss the FDIC has incurred or expects to incur in connection with the failure of a former affiliate institution and, if the FDIC determines that remaining affiliates have a liability to the FDIC, then they would be required to pay that liability to the FDIC.  Payment of a cross-guaranty liability to the FDIC could have a material adverse impact on the results of operations, capital adequacy and financial position of Capitol and its banking subsidiaries.

To date, none of Capitol's subsidiary banks have received any notice of assessment of cross-guaranty liability.  Capitol's banks have, however, received notice from the FDIC that the FDIC may assess a cross-guaranty liability relating to a failed community bank in Florida which ceased operations in November 2009.  The FDIC alleges that the Florida bank was an affiliated institution of Capitol, although Capitol owned no securities of that bank or otherwise controlled the failed institution.  The aggregate loss to the FDIC of that failed bank approximated $23.6 million.  The FDIC has until November 2011, two years from the date of such notice, to determine whether to assess that potential cross-guaranty liability, if any.

In addition to the previously-mentioned potential cross-guaranty liability, some of Capitol's banking subsidiaries were advised in December 2009 that, to mitigate the effects of any possible assessment arising from potential cross-guaranty liability, they should develop a plan to arrange a sale, merger or recapitalization such that Capitol no longer controls the bank.  This guidance was preceded by Capitol's previously-announced plans to selectively divest some of its bank subsidiaries in conjunction with reallocating capital resources to the remaining banks.  Capitol's pending divestitures are subject to regulatory approval which may take an extended period of time to obtain.

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On July 21, 2010, the Dodd-Frank Act (DFA) was signed into law, which significantly changes future regulation of financial institutions and the financial services industry.  The DFA includes provisions affecting large and small financial institutions alike, including several provisions that will profoundly affect how community banks, thrifts and smaller bank holding companies will be regulated in the future.  Among other things, these provisions abolish the Office of Thrift Supervision and transfer its functions to the other federal banking agencies, relax rules regarding interstate branching, allow financial institutions to pay interest on business checking accounts, change the scope of FDIC insurance coverage and impose new capital requirements on bank holding companies, including removing trust-preferred securities as a permitted component of a holding company's Tier 1 capital after a three-year phase-in period beginning January 1, 2013.  The DFA also establishes the Bureau of Consumer Financial Protection as an independent entity within the Federal Reserve, which will be given the authority to promulgate consumer protection regulations applicable to all entities offering consumer financial services or products, including banks.  Additionally, the DFA includes a series of provisions covering mortgage loan origination standards affecting, among other things, originator compensation, minimum repayment standards and prepayments.  Management is reviewing the provisions of the DFA and assessing its probable impact on the Corporation's business, financial condition and results of operations.  However, the ultimate effect of the DFA on the financial services industry in general, and on the Corporation in particular, is currently uncertain.

One particularly important aspect of the DFA (as amended) is that certain trust-preferred securities issued by bank holding companies with total assets less than $10 billion, such as Capitol, will be permitted to be included as an element of qualifying capital for regulatory capital-adequacy purposes.  Accordingly, Capitol's trust preferred securities may be included in regulatory capital measurements in the future, subject to certain limitations, although none of those securities are currently included.

Going-Concern Considerations

As of December 31, 2010, there are several significant adverse aspects of Capitol's consolidated financial position and results of operations which include, but are not limited to, the following:

·   An equity deficit approximating $38.7 million;

·   Regulatory capital classification on a consolidated basis as less than adequately-capitalized and related negative amounts and ratios;

·   Numerous banking subsidiaries with regulatory capital classification as "undercapitalized," "significantly-undercapitalized" or "critically-undercapitalized" (two banks were classified as "critically-undercapitalized" at December 31, 2010 and obtained sufficient additional capital from the Corporation in early 2011 to improve their classification to "significantly-undercapitalized");

F-39

·   Certain banking subsidiaries which are generally subject to formal regulatory agreements have received "prompt corrective action" notifications and/or directives from the FDIC, which require timely action by bank management and the respective boards of directors to resolve regulatory capital ratios which result in classification as less than adequately-capitalized (the basis of a PCAN) or to submit an acceptable capital restoration plan to the FDIC (the basis of a PCAD), and it is likely additional PCANs and/or PCADs may be issued in the future and/or the banking subsidiaries may be unable to satisfactorily resolve such notices and/or directives;

·   In 2010, Capitol sold several of its banking subsidiaries and has other divestiture transactions pending (see Note L to the accompanying consolidated financial statements).  The proceeds from those divestitures have been redeployed at certain remaining banking subsidiaries which have experienced a significant erosion of capital due to operating losses.  While such proceeds have been a significant source of funds for redeployment, the Corporation will need to raise significant other sources of new capital in the future;

·   The Corporation and substantially all of its banking subsidiaries are operating under various regulatory agreements (formal and informal) which place a number of restrictions on them and impose other requirements limiting activities, requiring preservation of capital, improvement in regulatory capital measures, reduction of nonperforming assets and other things for which the entities have not achieved full compliance;

·   Elevated levels of nonperforming loans and other nonperforming assets as a percentage of consolidated loans and total assets, respectively; and

·   Significant losses from operations in 2010, 2009 and 2008, resulting primarily from provisions for loan losses, costs associated with foreclosed properties and other real estate owned and, in 2010, an impairment charge to operations for the write-off of previously-recorded goodwill ($64.5 million).

The foregoing considerations raise some level of doubt (potentially "substantial doubt") as to the Corporation's ability to continue as a going concern.

Capitol has commenced several initiatives and other actions to mitigate these going-concern considerations and to improve the Corporation's financial condition, equity, regulatory capital and regulatory compliance.

In December 2010, Capitol announced a comprehensive capital strategy which includes the following:

·   An offer to exchange all outstanding trust-preferred securities;

·   Amendment to Capitol's articles of incorporation to authorize additional shares of common stock;

·   A potential shareholder rights offering; and

·   A potential reverse stock split.

F-40

In early 2011, a partial exchange of trust-preferred securities was completed and the Corporation's stockholders approved the amendment to the articles of incorporation to increase its authorized common stock and authorize its board of directors to proceed with a rights offering and reverse stock split, in addition to a potential share-exchange regarding second-tier bank-development subsidiaries.

Improvement in Capitol's and its banking subsidiaries' capitalization, financial position, asset quality and results of operations requires multi-faceted efforts, which are currently being pursued aggressively in the following areas, among others:

·   Raising significant amounts of new capital;

·   Completion of divestitures which are currently pending;

·   A shareholder rights offering;

·   Further reductions in nonperforming assets;

·   Stabilization of provisions for loan losses and impairment losses;

·   Resuscitation of Capitol's trust-preferred securities as a qualifying element of regulatory capital and/or equity; and

·   Further reductions in operating expenses through mergers of bank subsidiaries completed in recent years.

Capitol's ability to continue as a going concern is contingent on the successful achievement of the items listed above.  Capitol's board of directors and management are fully engaged and committed to successful completion of those items, with a clear sense of urgency, subject to the availability of capital and continued cooperation by regulatory agencies.

Trends Affecting Operations

The most significant trends which can impact the financial condition and results of operations of financial institutions are changes in market rates of interest and changes in general economic conditions.

Quantitative and Qualitative Disclosure About Market Risk

Changes in interest rates, either up or down, have an impact on net interest income (plus or minus), depending upon the direction and timing of such changes.  At any point in time, there is an imbalance 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.  This timing difference between interest rate-sensitive assets and interest rate-sensitive liabilities is characterized as a "gap" which is quantified by the distribution of rate-sensitive amounts within various time periods in which they reprice or mature.

F-41

The following table summarizes the consolidated financial position in relation to the "gap" at December 31, 2010 (in $1,000s):

	Interest Rate Sensitivity
	0 to 3 Months			4 to 12 Months			1 to 5 Years			Over 5 Years			Total
ASSETS
Money market and interest-bearing deposits	$	465,778		$	24,838		$	15,797					$	506,413
Federal funds sold		418												418
Loans held for sale		7,041												7,041
Investment securities		6,000			1,798			6,983		$	12,251			27,032
Federal Home Loan Bank & Federal Reserve     Bank stock		18,167												18,167
Portfolio loans		826,230			371,777			1,031,995			441,710			2,671,712
Nonearning assets														309,431
Total assets	$	1,323,634		$	398,413		$	1,054,775		$	453,961		$	3,540,214
LIABILITIES AND EQUITY
Interest-bearing deposits:
Time deposits under $100,000	$	174,118		$	358,106		$	222,748		$	355		$	755,327
Time deposits $100,000 and over		258,535			421,059			231,138			103			910,835
All other interest-bearing deposits		579,151			115,425						151,073			845,649
Total interest-bearing deposits		1,011,804			894,590			453,886			151,531			2,511,811
Notes payable and short-term borrowings		45,887			43,768			20,291			13,431			123,377
Subordinated debentures		67,098						42,886			57,602			167,586
Noninterest-bearing liabilities														776,121
Total liabilities														3,578,895
Equity:
Capitol Bancorp stockholders' equity														(61,854	)
Noncontrolling interests in consolidated     subsidiaries														23,173
Total equity deficit														(38,681	)
Total liabilities and equity	$	1,124,789		$	938,358		$	517,063		$	222,564		$	3,540,214
Interest rate sensitive period gap	$	198,845		$	(539,945	)	$	537,712		$	231,397
Interest rate sensitive cumulative gap	$	198,845		$	(341,100	)	$	196,612		$	428,009
Period rate sensitive assets/period rate sensitive liabilities		1.18			0.42			2.04			2.04
Cumulative rate sensitive assets/cumulative rate sensitive liabilities		1.18			0.83			1.08			1.15
Cumulative gap to total assets		5.62	%		(9.64	)%		5.55	%		12.09	%

The preceding table indicates that, in the immediate short-term, Capitol is slightly "asset sensitive" (i.e., interest-rate sensitive assets exceed interest-rate sensitive liabilities) and, accordingly, if interest rates increase, it would favorably impact interest income.  Reality in 2010, however, was an extremely low rate environment following unprecedented large rate cuts made by the Federal Reserve to the point of bringing short-term interbank rates to near zero in 2008.  The "gap" changes daily based upon changes in the underlying assets and liabilities at the banks.  Analyzing exposure to interest rate risk is prone to imprecision because the "gap" is constantly changing, the "gap" differs at each of the banks and it is difficult to predict the timing, amount and direction of future changes in market interest rates and the potential corresponding effect on customers' balances and transactions.

F-42

The banks endeavor to manage and monitor interest rate risk in concert with market conditions and risk parameters.  Management strives to maintain a reasonably balanced position of interest rate-sensitive assets and liabilities.  Capitol and its banks have not engaged in speculative positions, for example, through the use of derivatives, in anticipation of interest rate movements.  In periods of relatively lower interest rates, the banks emphasize variable rate loans and time deposits to the extent possible in a competitive environment; however, competitive influences often result in making fixed rate loans, although the banks seek to limit the duration of such loans.  Similarly, low interest rates generally make competition more intense for deposits since loan demand will typically increase during periods of lower rates and, accordingly, result in higher interest costs on deposits as competitors bid-up rates, adversely impacting interest margins.  Future interest rates and the impact on earnings are difficult to predict.  In addition to interest rate risk relating to interest-bearing assets and liabilities, changes in interest rates also can impact future transaction volume of loans and deposits at the banks.  For activities which are influenced by levels of interest rates for transaction volume (for example, origination of residential mortgage loans), pricing margins and demand can become impacted significantly by changes in interest rates.

As a means of monitoring and managing exposure to interest rate risk, management uses a computerized simulation model which is intended to estimate pro forma effects of changes in interest rates.  Using the simulation model, the following table illustrates, on a consolidated basis, changes which would occur in annual levels of interest income, interest expense and net interest income (in $1,000s) assuming 100, 200 and 300 basis point ("bp") increases and a 100 basis point decrease in interest rates:

									Pro Forma
	Pro Forma								Effect of
	Assuming No		Pro Forma Effect of						Interest Rate
	Change in		Interest Rate Increases						Decreases
	Interest Rates		+100 bp		+200 bp		+300 bp		-100 bp
Interest income	$	148,641	$	161,438	$	174,776	$	189,054	$	139,486
Interest expense		48,012		62,206		76,569		90,931		37,077
Net interest income	$	100,629	$	99,232	$	98,207	$	98,123	$	102,409

The preceding pro forma analysis is intended to quantify theoretical changes in interest income based on stated assumptions.  The pro forma analysis excludes the effect of numerous other variables such as borrowers' ability to repay loans, the ability of banks to obtain deposits in a radically changed interest-rate environment and how management would revise its asset and liability management priorities in concert with rate changes.

While the pro forma analysis is intended to estimate the impact of immediate changes in rates, actual results will be different.  Those results will differ (and may be materially different) because a change in market rates does not result in an instantaneous parallel shift in rates on loans and deposits at banks.  Further, any financial model intended to estimate the impact of interest rate changes will not necessarily incorporate other variables, including management's efforts to manage its asset and liability interest rate sensitivity or customer behavior.

F-43

As mentioned previously, the Federal Reserve took unprecedented action in late 2008 to reduce market interest rates to near zero.  Because of Capitol's consolidated asset-sensitive gap position, such rates have an adverse impact on net interest margin (and results of operations) as interest rates on loans reprice quickly, while rates paid on deposits will reprice over an extended period of time as well as the difficulty in attracting deposits and deploying liquidity in a very low rate environment.  It is impossible to speculate further on the timing, size and direction of future interest rate changes.

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 serious concerns about the future health of the domestic economy, and the sustained deep recession in many of Capitol's markets and their difficult prospects for recovery, have continued.  During 2010 and 2009, nonperforming assets increased significantly; it is likely levels of nonperforming assets and related loan losses and adverse valuation adjustments may increase further as economic conditions, locally and nationally, evolve.

Capitol's geographic footprint serves to minimize or avoid a concentration of assets in a particular region.  The Great Lakes Region comprised 39% and 37% of consolidated assets at December 31, 2010 and 2009, respectively, and continues to be disproportionate to other denominated geographic regions of Capitol.  Future asset growth is expected to emphasize other regions, improving the balance of Capitol's geographic presence and reducing the exposure to adverse economic conditions of any particular region.

Capitol and its banking subsidiaries, along with the entire banking industry, are subject to significant regulatory requirements which impact current and future operations.  In addition to the extent of regulatory interaction with financial institutions, extensive rules and regulations governing lending activities, deposit gathering and capital adequacy (to name a few), translate into a significant cost burden of financial institution regulation.  Such costs include the significant amount of management time and expense which is incurred in maintaining compliance and developing systems for compliance with those rules and regulations as well as the cost of examinations, audits and other compliance activities.  The future of financial institution regulation, and its costs, is uncertain and difficult to predict.

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F-44

Divestitures of Banks

In 2010, Capitol completed the following sales of bank subsidiaries (in $1,000s):

		Sale
	Date Sold	Proceeds		Gain (Loss)
Bank of Belleville(1)	April 27, 2010	$	5,090	$	1,331
Napa Community Bank(1)(3)	April 30, 2010		21,574		7,372
Ohio Commerce Bank(2)	June 30, 2010		6,520		1,478
Community Bank of Lincoln(2)	July 30, 2010		3,750		1,268
USNY Bank(2)	August 23, 2010		2,700		(271	)
Adams Dairy Bank(2)	August 31, 2010		4,335		559
Bank of San Francisco(1)	September 28, 2010		6,604		1,740
Fort Collins Commerce Bank(1)	October 29, 2010		5,822		597
Larimer Bank of Commerce(1)	October 29, 2010		4,332		(163	)
Loveland Bank of Commerce(1)	October 29, 2010		4,346		943
Southern Arizona Community Bank(1)	December 10, 2010		11,028		930
		$	76,101	$	15,784

(1) Previously a majority-owned subsidiary of Capitol.

(2) Previously a majority-owned subsidiary of a bank-development subsidiary controlled by Capitol.

(3) Under the terms of the sale transaction, Capitol could receive additional proceeds of up to $5.3 million in the future, subject to    Napa Community Bank's future financial performance.

In addition to completed transactions summarized above, Capitol has entered into definitive agreements to sell its interests (or controlling interests held by bank-development subsidiaries) in the following institutions, and were pending as of December 31, 2010:  1st Commerce Bank, Bank of Fort Bend, Bank of Tucson's main office, Community Bank of Rowan and Evansville Commerce Bank.

In early 2011, Capitol entered into definitive agreements to sell its controlling interests in Bank of Feather River, Bank of Las Colinas and High Desert Bank held by bank-development subsidiaries and completed the sale of the Bank of Tucson's main office in an assumption of liabilities and acquisition of assets transaction for an approximate gain of $4.4 million.

Pending bank sales transactions are subject to regulatory approval and other contingencies.  If completed, the pending bank divestitures would result in Capitol receiving estimated proceeds approximating $19.7 million and a pre-tax gain on sale of approximately $67,000.

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F-45

Critical Accounting Policies Affecting Capitol's Financial Statements

Note B of the notes to the consolidated financial statements is captioned Significant Accounting Policies.  That disclosure spans numerous pages, all of which are deemed "significant" and are required disclosures under generally accepted accounting principles (GAAP).  For purposes of this narrative, current SEC guidance requires the selection of a few of those for discussion as "critical accounting policies."  The selection of which few will differ from company to company, even within a common industry, such as within the business of banking.  Capitol considers its critical accounting policies to include the following:

Use of Estimates in Determining the Allowance for Loan Losses.  Bank regulatory agencies, accounting standard setters and the SEC have all issued extensive commentary, guidance and a variety of rule-making releases on how financial institutions are to determine the amount of their allowance for loan losses.  Determining the allowance is a comprehensive process and methodology which is inherently subjective in how and when to recognize, estimate losses incurred at the balance-sheet date, and record a loss allowance or 'reserve' for loans.  It is not a process or methodology which can be merely reduced to a strict absolute computation, like a mathematical formula to compute taxes.  The process and methodology will differ from one financial institution to another and there is no 'one size fits all' format or approach to loss reserving.

The consolidated allowance for loan losses is based on the individual allowances for loan losses of each bank and any allowance amount or related adjustments at the parent-company level.

Each bank utilizes a common computational spreadsheet format and related internal guidance through Capitol's enterprise-wide credit policy to estimate potential loan losses at the balance-sheet date, to determine current requirements for the provision for loan losses and to document the adequacy of the allowance.  The common format provides for the estimation of loan losses inherent in the loan portfolio at the balance-sheet date for groups of loans which meet certain risk-rating criteria, past-due loans, individual loans for which a specific allowance allocation is deemed necessary, individual collateral-dependent loans for which estimated losses have not been previously recorded as direct write-downs to such loans and for all other loans not otherwise included in the allowance computation.  Loans are categorized, for purposes of the allowance computations, primarily based on the type of collateral which secures such loans.

Each bank develops historical loss factors based on loan volume, loan quality trends, staffing levels and experience, past loss experience and current economic conditions.  The banks then augment these loss factors based on such banks' actual prior loss experience utilizing migration analyses which encompass the preceding four quarters.  For banks which do not have seasoned loan portfolios, those migration analyses are sometimes deemed insufficient to estimate potential losses at the balance-sheet date and, accordingly, alternate loss factors are applied using loss migration information of affiliates which are geographically situated near the subject bank in those instances.  In addition to the loss migration factors used in each bank's allowance computation, each bank documents local and regional (in addition to consideration of national statistics) environmental considerations which include, but are not limited to, levels of

F-46

unemployment and jobless claims and anecdotal data regarding real estate market conditions, in addition to consideration of loan concentrations and the levels of experience and expertise of credit personnel at the banks.  These allowance computations and related documentation are prepared quarterly.  Historical loss factors have been appropriately adjusted as a result of adverse economic conditions throughout all regions and the industry-wide increase in nonperforming loans.

In addition to the banks' allowance computations, adjustments at the parent level or allowance amounts at the parent level are necessary from time to time.  For example, at December 31, 2010, the parent had an allowance for loan losses of $3.0 million ($3.2 million as of December 31, 2009) related to loans carried on the parent's books which had previously been purchased from Capitol's bank subsidiaries.

Management believes its process and methodology for determining the allowance for loan losses is appropriate and adequate to properly estimate losses inherent in the loan portfolio at the balance-sheet date; however, actual future losses will differ from amounts considered in the allowance methodology.

Bank regulatory agencies may have differing perspectives on the process, methodology and adequacy of the allowance for loan losses when examining the banks and, in addition, such agencies' examination teams may not be consistent in their review and conclusions from one bank to another.  Bank regulatory agencies have the authority to require adjustments or other changes to the recorded allowance for loan losses as a result of their examinations, superseding management's earlier judgment as to the adequacy and amount of the allowance for loan losses.  Bank regulatory agencies may require such changes or adjustments retroactively, even when such a change in an accounting estimate should be accounted for prospectively in accordance with generally accepted accounting principles.  Those changes or adjustments may be required to be made long after management completed its process for the evaluation and documentation of the adequacy of the allowance for loan losses, based on information which was not available to management at the time that process was completed.

The process of determining the level of the allowance for loan losses at each individual bank and on a consolidated basis requires a high degree of subjective judgment.  It is possible that others, given the same information, may at any point in time reach different reasonable conclusions.  At December 31, 2010, Capitol's allowance for loan losses approximated 5.52% of portfolio loans outstanding.  Based on portfolio loans outstanding at that date, any 1 basis-point (.01%) change in the allowance would have an approximate $267,000 impact on both the allowance for loan losses and pre-tax income (loss).

Accounting for Goodwill and Other Intangibles.  At December 31, 2010, Capitol had no remaining goodwill and other intangibles ($65.2 million at December 31, 2009), as a result of an impairment charge on that date.  Goodwill arose from acquisitions occurring in prior years.  In Capitol's history, most of this goodwill resulted from transactions in which Capitol issued shares of its common stock at a premium over the book value of the noncontrolling interest of a subsidiary bank's shares.  Resulting goodwill was recorded at the entity to which the goodwill related.  Current accounting rules require at least an annual review of goodwill for potential

F-47

impairment, which Capitol most recently conducted as of November 30, 2010.  Amounts recorded as goodwill impairment are reflected within noninterest expense as a non-cash charge to operations, when determined.

As discussed earlier in this narrative, all previously-recorded goodwill has been written-off as of December 31, 2010.

Accounting for Income Taxes.  Accounting for income taxes requires significant estimates and management judgment.  At December 31, 2010, Capitol had a net deferred income tax asset approximating $192.2 million before consideration of the related 2010 valuation allowance ($109.9 million at December 31, 2009).  When it is determined that realization of the deferred income 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.

As of December 31, 2010, the consolidated deferred income tax asset excluding the related valuation allowance consisted primarily of components relating to provisions for loan losses and net operating losses of consolidated subsidiaries.

Due to continuing operating losses, management reassessed the potential realization of the deferred tax asset during 2010 and increased the valuation allowance to $190.3 million, to reduce the net deferred income tax asset to approximately $1.8 million, which represents the amount of the asset estimated to be more-likely-than-not realizable.  Such valuation allowance approximated $104.5 million at December 31, 2009.  The assessment of the potential realization of the deferred tax asset will continue to be reviewed for future changes affecting realizability and the valuation allowance may be adjusted in future periods accordingly.  The ultimate realization of these deferred tax assets is dependent on the generation of future taxable income during the periods in which temporary differences become deductible.  Changes in existing tax laws could also affect actual tax results and the valuation of deferred tax assets over time.  The accounting for deferred taxes is based, in part, on an estimate of future results.  Differences between anticipated and actual outcomes of these future tax consequences could have a material impact on Capitol's consolidated results of operations or financial position.

Consolidation Policy.  Current accounting rules require consolidation of entities which are majority-owned or controlled by Capitol.  This means that majority-owned banks and bank-development subsidiaries are combined with Capitol for financial reporting purposes along with banks and other subsidiaries which are wholly-owned.  The consolidated balance sheet includes all assets and liabilities of those entities.  However, after giving effect to the noncontrolling interests in net income or losses of consolidated subsidiaries, net income (loss) attributable to Capitol only includes the entities' net income or loss to the extent of Capitol's ownership.  Reported results would be materially different if Capitol had 100% ownership of those entities.

F-48

New Accounting Standards

There were several new accounting standards which were issued or became effective in 2010, in addition to some which have later effective dates.  Those are listed and discussed in Note B of the consolidated financial statements, beginning on page F-67.

Risk Factors Affecting Capitol and its Banks

The summary below is not a complete list of all risk factors identified by management and readers are encouraged to review Capitol's Form 10-K (Item 1A), Capitol's cautions regarding forward-looking statements appearing on page F-6 of this Annual Report and other SEC filings, particularly registration statements, for a more comprehensive review of risk factors, which include the following, among others:

· Some doubt (potentially significant doubt) exists as to Capitol's ability to continue as a going concern  

· The regulatory environment for the banking industry could change significantly and adversely, and Capitol and its banking subsidiaries are dependent upon continued cooperation by regulatory agencies  

· The adverse economic environment of 2010 may worsen, further resulting in higher levels of nonperforming loans and loan losses  

· The environment for raising capital has become unstable and may limit growth plans and operations  

· Changes in regulations or regulatory action regarding Capitol or its banks could limit future expansion plans and operations  

· The allowance for loan losses is based on estimates and actual losses and regulatory determinations may differ materially from those estimates  

· Concentrations in loans secured by commercial real estate could limit or delay future expansion plans and loss estimates could change significantly if real estate market conditions deteriorate further  

· Loss estimates for real estate collateral-dependent loans are based on independent appraisals which are subject to change  

· Investments in Federal Home Loan Bank stock are carried at cost and are a restricted security which may be redeemed only by the issuer; the issuer's future ability to redeem the security is subject to its liquidity and capital adequacy  

· The complexity of Capitol's structure (a mixture of partially-owned and wholly-owned banks and related entities) complicates financial analysis

In addition to the items listed above, of course, changes in interest rates can have a pervasive impact on Capitol and its banks.

Capitol has a risk management program in place which endeavors to manage these and other risks.

F-49

Management's Report on

Internal Control Over Financial Reporting

Capitol Bancorp Ltd. (Capitol) is responsible for the preparation, integrity and fair presentation of the consolidated financial statements included in this annual report.  The consolidated financial statements and notes included in this annual report have been prepared in conformity with generally accepted accounting principles in the United States of America and necessarily include some amounts that are based on management's best estimates and judgments.

We, as management of Capitol, are responsible for establishing and maintaining effective internal control over financial reporting that is designed to produce reliable financial statements in conformity with generally accepted accounting principles in the United States of America.  The system of internal control over financial reporting, as it relates to the financial statements, is evaluated for effectiveness by management and tested for reliability through a program of internal audits.  Actions are taken to correct potential deficiencies as they are identified.  Any system of internal control, no matter how well designed, has inherent limitations, including the possibility that a control can be circumvented or overridden and misstatements due to error or fraud may occur and not be detected.  Also, because of changes in conditions, internal control effectiveness may vary over time.  Accordingly, even an effective system of internal control will provide only reasonable assurance with respect to financial statement preparation.

Capitol's Audit Committee, consisting entirely of independent directors, meets regularly with management, internal auditors and the independent registered public accounting firm, and reviews audit plans and results, as well as management's actions taken in discharging responsibilities for accounting, financial reporting and internal control.  BDO USA, LLP, independent registered public accounting firm, and the internal auditors have direct and confidential access to Capitol's Audit Committee at all times to discuss the results of their examinations.

Management assessed Capitol's system of internal control over financial reporting as of December 31, 2010, in relation to criteria for effective internal control over financial reporting as described in Internal Control – Integrated Framework, issued by the Committee of Sponsoring Organizations of the Treadway Commission.  Based on this assessment, management concluded that, as of December 31, 2010, its system of internal control over financial reporting was not effective due to a material weakness in internal control, which is discussed in the remainder of this report.

As discussed elsewhere in this annual report, regulatory agencies may require Capitol or its banking subsidiaries to increase their provision for loan losses or to recognize loan charge-offs based upon judgments different from those of management.  Any increase in the allowance for loan losses required by regulatory agencies could adversely impact Capitol's operating results and financial position.

F-50

The process of determining the level of the allowance for loan losses at each individual bank and on a consolidated basis requires a high degree of subjective judgment, is an estimate and is a critical accounting policy of Capitol.  It is possible that others, given the same information, may at any point in time reach different reasonable conclusions.  Further, regulatory agencies examining financial institutions often utilize information available to them long after the balance-sheet date in conjunction with their assessment of the allowance for loan losses.

As previously disclosed, Capitol's unaudited condensed consolidated financial statements as of and for the three months and nine months ended September 30, 2010 were revised on March 3, 2011 to reflect an additional provision for loan losses resulting from Michigan Commerce Bank's amended regulatory financial statements encompassing that period.  Whenever a public company revises its previously-issued financial statements, the facts and circumstances of such a restatement must also be evaluated in the context of internal control over financial reporting.  Generally, a restatement is viewed as a strong indicator of a material weakness in internal control over financial reporting.  Subsequently, Capitol has carefully reevaluated its internal control over financial reporting as it relates to the process and methodology for estimating the requirements for the bank-level, as well as the consolidated allowance for loan losses as of September 30, 2010 and thereafter.

We have determined that the restatement resulted in the identification of a material weakness in internal control at December 31, 2010 and all aspects of that restatement will be remediated in early 2011.  Such remediation will consist of fully incorporating all regulatory-agency imposed requirements in the computations and internal control process for estimation of allowance for loan losses requirements both at the bank level and on a consolidated basis.

Capitol and its banking subsidiaries have extensive policies, processes and procedures in place to appropriately estimate requirements for the allowance for loan losses.  The consolidated allowance for loan losses is believed by Capitol to be adequate and appropriate at December 31, 2010.

      Joseph D. Reid Chairman and CEO   Lansing, Michigan March 31, 2011     Lee W. Hendrickson Chief Financial Officer

F-51

AUDITED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2010, 2009 AND 2008

CAPITOL BANCORP LIMITED

F-52

      Tel:  616 774 7000 Fax:  616 776 3680 www.bdo.com  99 Monroe Avenue NW, Suite 800 Grand Rapids, Michigan 49503-2654

Report of Independent Registered Public Accounting Firm

Board of Directors and Stockholders

Capitol Bancorp Ltd.

We have audited the accompanying consolidated balance sheets of Capitol Bancorp Ltd. and subsidiaries as of December 31, 2010 and 2009, and the related consolidated statements of operations, changes in stockholders' equity and cash flows for each of the three years in the period ended December 31, 2010.  These financial statements are the responsibility of the Corporation's management.  Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States).  Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement.  The Corporation is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.  Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Corporation's internal control over financial reporting.  Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation.  We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Capitol Bancorp Ltd. and subsidiaries as of December 31, 2010 and 2009, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2010, in conformity with accounting principles generally accepted in the United States of America.

The accompanying consolidated financial statements have been prepared assuming that the Corporation will continue as a going concern.  As discussed in Note U to the consolidated financial statements, the Corporation and substantially all of its subsidiary banks have suffered significant losses from operations in 2010, 2009 and 2008 primarily from large provisions for loan losses and costs associated with nonperforming assets, suffered a decline in regulatory capital, and experienced regulatory issues that raise substantial doubt about the Corporation's ability to continue as a going concern.  Management's plans in regard to these matters are also described in Note U.  The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

 

March 31, 2011

BDO USA, LLP, a Delaware limited liability partnership, is the U.S. member of BDO International Limited, a UK company limited by guarantee, and forms part of the international BDO network of independent member firms.

BDO is the brand name for the BDO network and for each of the BDO Member Firms.

F-53

Consolidated Balance Sheets
		-December 31-
		2010			2009
		(in $1,000s)
ASSETS
Cash and due from banks		$	58,347		$	56,231
Money market and interest-bearing deposits			506,413			608,727
Federal funds sold			418			4,861
	Cash and cash equivalents		565,178			669,819
Loans held for sale			7,041			10,966
Investment securities—Note C:
Available for sale, carried at fair value			24,139			35,765
Held for long-term investment, carried at
amortized cost which approximates fair value			2,893			5,790
	Total investment securities		27,032			41,555
Federal Home Loan Bank and Federal Reserve
Bank stock (carried on the basis of cost)—Note C			18,167			18,628
Portfolio loans, less allowance for loan losses of $147,421 in
2010 and $129,795 in 2009—Note D			2,524,291			3,005,503
Premises and equipment—Note F			38,393			42,219
Accrued interest income			9,246			12,239
Goodwill—Note G			--			65,210
Other real estate owned			107,614			107,013
Recoverable income taxes—Note N			--			43,763
Other assets			20,370			31,922
Assets of discontinued operations—Note L			222,882			1,083,103
TOTAL ASSETS		$	3,540,214		$	5,131,940
LIABILITIES AND EQUITY
Deposits:
Noninterest-bearing		$	516,873		$	491,763
Interest-bearing—Note H			2,511,811			3,027,063
	Total deposits		3,028,684			3,518,826
Debt obligations:
Notes payable and short-term borrowings—Note I			123,377			197,653
Subordinated debentures—Notes J and V			167,586			167,441
	Total debt obligations		290,963			365,094
Accrued interest on deposits and other liabilities			50,420			42,099
Liabilities of discontinued operations—Note L			208,828			972,315
	Total liabilities		3,578,895			4,898,334
EQUITY—Notes B, K, R and V
Capitol Bancorp Limited stockholders' equity:
Preferred stock (Series A), 700,000 shares authorized
($100 liquidation preference per share); 50,980 shares
issued and outstanding in 2010 (none in 2009)			5,098			--
Preferred stock (for potential future issuance),
19,300,000 shares authorized (none issued and outstanding)			--			--
Common stock, no par value, 50,000,000 shares authorized;
issued and outstanding:     2010 - 21,614,856 shares
2009 - 17,545,631 shares			287,190			277,707
Retained-earnings deficit			(353,757	)		(115,751	)
Undistributed common stock held by employee-benefit trust			(541	)		(558	)
Fair value adjustment (net of tax effect) for investment securities
available for sale (accumulated other comprehensive income/loss)			156			(63	)
Total Capitol Bancorp Limited stockholders' equity (deficit)			(61,854	)		161,335
Noncontrolling interests in consolidated subsidiaries			23,173			72,271
	Total equity (deficit)		(38,681	)		233,606
TOTAL LIABILITIES AND EQUITY		$	3,540,214		$	5,131,940
See notes to consolidated financial statements.

F-54

Consolidated Statements of Operations
	-Year Ended December 31-
	2010			2009			2008
	(in $1,000s except per share data)
Interest income:
Portfolio loans (including fees)	$	160,645		$	194,951		$	229,144
Loans held for sale		266			618			617
Taxable investment securities		553			488			404
Federal funds sold		10			43			2,787
Other		2,217			1,685			1,506
Total interest income		163,691			197,785			234,458
Interest expense:
Deposits		47,269			70,363			90,550
Debt obligations and other		16,313			20,749			25,084
Total interest expense		63,582			91,112			115,634
Net interest income		100,109			106,673			118,824
Provision for loan losses—Note D		156,868			175,234			75,791
Net interest income (deficiency) after
provision for loan losses		(56,759	)		(68,561	)		43,033
Noninterest income:
Service charges on deposit accounts		3,848			4,694			4,707
Trust and wealth-management revenue		4,200			4,957			6,182
Fees from origination of non-portfolio residential
mortgage loans		1,921			2,846			2,775
Gain on sales of government-guaranteed loans		1,479			1,211			1,397
Gain on exchange of promissory notes for common
stock—Note I		1,255			--			--
Realized gains (losses) on sale of investment securities
available for sale		(351	)		7			50
Other		12,095			8,736			7,171
Total noninterest income		24,447			22,451			22,282
Noninterest expense:
Salaries and employee benefits		69,920			84,729			93,995
Occupancy		15,403			15,422			14,718
Equipment rent, depreciation and maintenance		9,957			17,713			10,581
Costs associated with foreclosed properties and other
real estate owned		40,400			44,965			6,709
FDIC insurance premiums and other regulatory fees		15,732			12,973			3,211
Goodwill impairment—Note G		64,505			3,431			--
Other		25,894			24,727			27,186
Total noninterest expense		241,811			203,960			156,400
Loss before income taxes (benefit)		(274,123	)		(250,070	)		(91,085	)
Income taxes (benefit)—Note N		(7,310	)		13,248			(33,566	)
Loss from continuing operations		(266,813	)		(263,318	)		(57,519	)
Discontinued operations—Note L:
Income from operations of bank subsidiaries sold		6,035			2,761			8,486
Gain on sale of bank subsidiaries		15,784			1,187			--
Less income tax expense—Note N		9,370			5,170			3,418
Income (loss) from discontinued operations		12,449			(1,222	)		5,068
NET LOSS		(254,364	)		(264,540	)		(52,451	)
Net losses attributable to noncontrolling interests in
consolidated subsidiaries		29,149			69,371			23,844
NET LOSS ATTRIBUTABLE TO CAPITOL
BANCORP LIMITED	$	(225,215	)	$	(195,169	)	$	(28,607	)
NET LOSS PER SHARE ATTRIBUTABLE
TO CAPITOL BANCORP LIMITED—Note O:	$	(11.16	)	$	(11.28	)	$	(1.67	)
See notes to consolidated financial statements.

F-55

F-56

F-57

Consolidated Statements of Cash Flows
	-Year Ended December 31-
	2010			2009			2008
	(in $1,000s)
OPERATING ACTIVITIES
Net loss	$	(254,364	)	$	(264,540	)	$	(52,451	)
Adjustments to reconcile net loss to net cash provided
by operating activities (including discontinued operations):
Provision for loan losses		164,352			190,680			82,492
Depreciation of premises and equipment		7,933			10,084			10,547
Amortization and write-down of intangibles		219			838			510
Goodwill impairment		64,505			3,431			--
Net amortization (accretion) of investment security premiums (discounts)		298			(33	)		(32	)
Loss on sales of premises and equipment		393			254			165
Gain on sales of government-guaranteed loans		(2,504	)		(2,811	)		(2,060	)
Gain on sales of bank subsidiaries		(15,784	)		(1,187	)		--
Gain on exchange of promissory notes for common stock		(1,255	)		--			--
Realized loss (gain) on sales of investment securities available for sale		351			(7	)		(50	)
Loss (gain) on sales of other real estate owned		(125	)		4,400			1,191
Write-down of other real estate owned		30,352			32,315			10,679
Amortization of issuance costs of subordinated debentures		145			148			117
Share-based compensation expense (benefit)		(389	)		1,350			2,227
Deferred income tax expense (credit)		(2,123	)		(43,354	)		(27,577	)
Valuation allowance for deferred income tax assets		--			104,498			--
Originations and purchases of loans held for sale		(116,829	)		(311,179	)		(206,544	)
Proceeds from sales of loans held for sale		119,924			305,080			212,489
Decrease (increase) in accrued interest income and other assets		55,742			(30,722	)		(16,809	)
Increase (decrease) in accrued interest expense on deposits and other liabilities		9,337			15,363			(5,223	)
NET CASH PROVIDED BY OPERATING ACTIVITIES		60,178			14,608			9,671
INVESTING ACTIVITIES
Cash equivalents of acquired bank affiliate		18,949			--			--
Proceeds from sales of investment securities available for sale		25,964			798			890
Proceeds from calls, prepayments and maturities of investment
securities		22,175			15,596			11,078
Purchases of investment securities		(34,678	)		(56,225	)		(15,364	)
Purchase of Federal Home Loan Bank stock		(1,527	)		(2,294	)		(15,569	)
Redemption of Federal Home Loan Bank stock by issuer		2,563			1,340			9,314
Net decrease (increase) in portfolio loans		208,376			155,438			(562,032	)
Proceeds from sales of government-guaranteed loans		27,981			39,429			23,850
Proceeds from sales of premises and equipment		416			2,033			1,197
Purchases of premises and equipment		(4,038	)		(5,137	)		(11,127	)
Proceeds from sales of bank subsidiaries		76,101			9,506			--
Payments received on other real estate owned		2,192			6			166
Proceeds from sales of other real estate owned		45,145			17,716			9,288
NET CASH PROVIDED (USED) BY INVESTING ACTIVITIES		389,619			178,206			(548,309	)
FINANCING ACTIVITIES
Net increase (decrease) in demand deposits, NOW accounts and
savings accounts		333,177			157,850			(91,672	)
Net increase (decrease) in certificates of deposit		(718,579	)		12,300			744,539
Net borrowings from (payments on) debt obligations		(1,372	)		1,484			(4,603	)
Proceeds from Federal Home Loan Bank borrowings		613,230			3,146,430			1,838,858
Payments on Federal Home Loan Bank borrowings		(728,417	)		(3,278,820	)		(1,707,714	)
Net proceeds from issuance of subordinated debentures		--			--			11,046
Resources provided by noncontrolling interests		--			3,794			26,866
Net proceeds from issuance of common stock		6,870			--			1,950
Tax effect of share-based payments		(293	)		(169	)		20
Cash dividends paid		--			(864	)		(8,658	)
NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES		(495,384	)		42,005			810,632
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS		(45,587	)		234,819			271,994
Change in cash and cash equivalents of discontinued operations		(59,054	)		(42,980	)		(146,386	)
Cash and cash equivalents at beginning of year		669,819			477,980			352,372
CASH AND CASH EQUIVALENTS AT END OF YEAR	$	565,178		$	669,819		$	477,980
Supplemental disclosures:
Cash paid during the year for interest	$	74,288		$	114,693		$	138,506
Transfers of loans to other real estate owned		73,156			102,487			63,458
Surrender of common stock to facilitate exercise of stock options
and vesting of restricted stock		13			23			2,376
See notes to condensed consolidated financial statements.

F-58

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Capitol Bancorp Limited

NOTE A—NATURE OF OPERATIONS, BASIS OF PRESENTATION AND

PRINCIPLES OF CONSOLIDATION

Capitol Bancorp Limited ("Capitol" or the "Corporation") is a multibank holding company.  Consolidated bank subsidiaries consist of the following as of December 31, 2010:

Affiliate	Location	Percentage Owned by Capitol	Percentage Owned by Subsidiaries Controlled by Capitol	Year Formed or Acquired
Arizona Region:
Bank of Tucson	Tucson, Arizona	100%		1996
Central Arizona Bank	Casa Grande, Arizona	86%	10%	1997
Sunrise Bank of Albuquerque	Albuquerque, New Mexico	100%		2000
Sunrise Bank of Arizona	Phoenix, Arizona	99%	<1%	1998
California Region:
Bank of Feather River	Yuba City, California	(1)	51%	2007
Sunrise Bank(5)	San Diego, California	80%	5%	2007
Colorado Region:
Mountain View Bank of Commerce	Westminster, Colorado	(1)	51%	2008
Great Lakes Region:
Bank of Maumee	Maumee, Ohio	(1)	51%	2006
Bank of Michigan	Farmington Hills, Michigan	51%		2005
Capitol National Bank	Lansing, Michigan	100%		1982
Evansville Commerce Bank	Evansville, Indiana	2%	50%	2006
Indiana Community Bank(4)	Goshen, Indiana	100%		2000
Michigan Commerce Bank(3)	Ann Arbor, Michigan	55%	45%	1990
Nevada Region:
1st Commerce Bank	North Las Vegas, Nevada	(1)	51%	2006
Bank of Las Vegas(7)	Las Vegas, Nevada	91%	9%	2002
Northwest Region:
Bank of the Northwest(6)	Tacoma, Washington	15%	36%	2007
High Desert Bank	Bend, Oregon	(1)	55%	2007
Southeast Region:
Community Bank of Rowan	Salisbury, North Carolina	51%		2006
First Carolina State Bank	Rocky Mount, North Carolina	89%		2004
Pisgah Community Bank	Asheville, North Carolina	79%	15%	2008
Sunrise Bank(2)	Atlanta, Georgia	65%	20%	2006
Texas Region:
Bank of Fort Bend	Sugar Land, Texas	(1)	51%	2007
Bank of Las Colinas	Irving, Texas	(1)	51%	2007

F-59

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Capitol Bancorp Limited

NOTE A—NATURE OF OPERATIONS, BASIS OF PRESENTATION AND

PRINCIPLES OF CONSOLIDATION—Continued

Notes to the preceding table:

(1)	Majority-owned by a bank-development subsidiary (second-tier bank holding company) in which Capitol holds a controlling interest.
(2)	Effective July 30, 2010, Peoples State Bank and Sunrise Bank of Atlanta merged with and into Bank of Valdosta.  Upon completion of the merger, the surviving bank was renamed Sunrise Bank.  Prior to the merger, each bank was either a majority-owned subsidiary of Capitol or majority-owned by a bank-development subsidiary in which Capitol holds a controlling interest.
(3)	Effective March 31, 2010, Bank of Auburn Hills and Paragon Bank & Trust merged with and into Michigan Commerce Bank.  Prior to the merger, Bank of Auburn Hills and Paragon Bank & Trust were wholly-owned subsidiaries of Capitol.
(4)	Effective March 22, 2010, Elkhart Community Bank merged with and into Goshen Community Bank.  Upon completion of the merger, the surviving bank was renamed Indiana Community Bank.  Prior to the merger, each bank was a wholly-owned subsidiary of Capitol.
(5)	Effective March 5, 2010, Bank of Escondido, Sunrise Bank of San Diego and Sunrise Community Bank merged with and into Point Loma Community Bank.  Upon completion of the merger, the surviving bank was renamed Sunrise Bank.  Prior to the merger, each bank was either a wholly-owned subsidiary of Capitol or majority-owned by a bank-development subsidiary in which Capitol holds a controlling interest.
(6)	Effective February 19, 2010, Bank of Bellevue, Bank of Everett and Bank of Tacoma merged with and into Issaquah Community Bank.  Upon completion of the merger, the surviving bank was renamed Bank of the Northwest.  Prior to the merger, each bank was either a majority-owned subsidiary of Capitol or majority-owned by a bank-development subsidiary in which Capitol holds a controlling interest.
(7)	Effective January 29, 2010, Black Mountain Community Bank, Desert Community Bank and Red Rock Community Bank merged with and into Bank of Las Vegas.  Prior to the merger, each bank was a wholly-owned subsidiary of Capitol.

Capitol has several bank-development subsidiaries, each originally capitalized with two classes of common stock, voting and nonvoting.  Capitol purchased all of the initial voting shares of common stock of these entities while the nonvoting shares were sold in private offerings to accredited investors, some of whom are related parties of Capitol.  Those entities have been engaged in bank development activities, through Capitol, consisting of formation and investment in start-up banks and management of their investments in young banks.  Bank start-up activities were suspended in mid-2008 when the regulatory and capital-raising environment for new banks became unfavorable.  Each of these entities bear a similar name, Capitol Development Bancorp Limited (each a "CDBL"), numbered in their sequential formation, CDBL-I through CDBL-VIII.  CDBL-I and CDBL-II became wholly-owned by Capitol effective November 30, 2006 and February 9, 2007, respectively, and were merged with and into Capitol in late 2007.  CDBL III ceased to be a controlled subsidiary of Capitol in 2009.

Capitol views itself as a community-banking company.  Bank development consists of management and oversight of banks in which Capitol has a direct or indirect controlling interest and, through mid-2008, included formation of start-up banks.  Some of Capitol's banks were formed with a portion of their start-up capital provided by local investors in the communities of those banks.  When  de novo banks have achieved certain developmental milestones (age, cumulative profitability, return on equity or other measures), Capitol may offer the bank's noncontrolling shareholders an opportunity to exchange their bank shares for shares of Capitol's common stock.  Capitol has made similar share-exchange proposals regarding the noncontrolling interests of some of its prior bank-development company subsidiaries which, after the share exchange, were merged with and into Capitol.  In each

F-60

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Capitol Bancorp Limited

NOTE A—NATURE OF OPERATIONS, BASIS OF PRESENTATION AND

PRINCIPLES OF CONSOLIDATION—Continued

instance, however, Capitol is under no obligation to offer such proposals and such share-exchange proposals, if and when offered, are generally subject to approval by the subsidiaries' noncontrolling shareholders in each proposed transaction.  In mid-2009, due to a depressed market environment for securities of financial institutions, Capitol suspended share-exchange activities.  Further, as a means to raise and reallocate capital, Capitol commenced an initiative in 2009 to selectively divest some of its community banks (see Note L).

Capitol and its subsidiaries are engaged in a single business activity--banking.  Capitol's bank affiliates provide a full range of banking services to individuals, businesses and other customers located in the respective communities of the bank.  Many operate from a single location and all are primarily commercially-focused (as contrasted to retail or transaction-oriented banks) on meeting the various credit and other financial needs of entrepreneurs, professionals and other businesses and individuals.  A variety of deposit products are offered, including checking, savings, money market, certificates of deposit and individual retirement accounts.  In addition, wealth-management, trust and investment services are offered through a wealth management subsidiary.  The principal markets for the banks' financial services are the communities in which the banks are located and the areas immediately surrounding those communities.  The majority of Capitol's banks are state-chartered institutions and some have been chartered as federal savings banks and one has a national bank charter.

In addition to banking units, mortgage banking activities are offered through Amera Mortgage Corporation, a less than 50%-owned affiliate, which is accounted for under the equity method.  Trust and wealth-management products are offered through Capitol Wealth, Inc., a controlled subsidiary.

Each bank is viewed by management as being a separately identifiable business or segment from the perspective of monitoring performance and allocation of financial resources.  Although the banks operate and are managed and monitored separately, each bank is substantially similar in terms of business focus, type of customers, products, services and economic characteristics.  Further, each of the banks and the Corporation are subject to substantially similar laws and regulations unique to the financial institution industry.  Accordingly, the Corporation's consolidated financial statements reflect the presentation of segment information on an aggregated basis.

The consolidated financial statements include the accounts of the Corporation and its majority-owned and/or otherwise controlled subsidiaries, after elimination of intercompany accounts and transactions and after giving effect to applicable noncontrolling interests.  Banks formed or acquired are included in the consolidated financial statements for periods after joining the consolidated group.

F-61

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Capitol Bancorp Limited

NOTE B—SIGNIFICANT ACCOUNTING POLICIES

Reclassifications:  Certain 2009 and 2008 amounts have been reclassified to conform to the 2010 presentation, primarily related to discontinued operations (see Note L).

Estimates:  The preparation of consolidated financial statements in conformity with generally accepted accounting principles in the United States of America requires management to make significant estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period.  Actual results will differ from those estimates because of the inherent subjectivity and inaccuracy of any estimation.

Cash and Cash Equivalents:  Cash and cash equivalents include cash on hand, amounts due from banks (interest-bearing and noninterest-bearing), money-market funds and federal funds sold.  Generally, federal funds transactions are entered into for a one-day period.

Loans Held For Sale:  Loans held for sale represent residential real estate mortgage loans held for sale into the secondary market.  Loans held for sale are stated at the aggregate lower of cost or market.  Fees from the origination of loans held for sale are recognized in the period the loans are originated.  Government-guaranteed loans which may be sold after origination are not classified as held-for-sale inasmuch as sale of such loans is largely dependent upon the extent to which gains may be realized.

Investment Securities:  Investment securities available for sale (generally most debt investment securities of Capitol's banks) are carried at fair value with unrealized gains and losses reported as a separate component of stockholders' equity, net of tax effect (accumulated other comprehensive income).  All other investment securities are classified as held for long-term investment and are carried at amortized cost which approximates fair value (see Note C).

Investments are classified at the date of purchase based on management's analysis of liquidity and other factors.  The adjusted cost of the specific securities sold is used to compute realized gains or losses.  Premiums and discounts are recognized in interest income using the interest method over the period to maturity.

Loans, Credit Risk and Allowance for Loan Losses:  Portfolio loans are carried at their principal balance based on management's intent and ability to hold such loans for the foreseeable future until maturity or repayment.  Capitol primarily presents its portfolio loan information on a segment basis that is further subdivided into classes on the basis of collateral types.

F-62

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Capitol Bancorp Limited

NOTE B—SIGNIFICANT ACCOUNTING POLICIES—Continued

Credit risk arises from making loans and loan commitments in the ordinary course of business.  Substantially all portfolio loans are made to borrowers in the banks' communities.  Consistent with the banks' emphasis on business lending, there are concentrations of credit risk in loans secured by commercial real estate and less significant levels of concentration risk may exist in loans secured by equipment and other business assets.  The maximum potential credit risk to Capitol, without regard to underlying collateral and guarantees, is the total of loans and loan commitments outstanding.  Management reduces exposure to losses from credit risk by requiring collateral and/or guarantees for loans and by monitoring concentrations of credit, in addition to recording provisions for loan losses and maintaining an allowance for loan losses.

The allowance for loan losses is maintained at a level believed adequate by management to absorb estimated losses inherent in the portfolio at the balance-sheet date.  Management's determination of the adequacy of the allowance for loan losses is an estimate 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, loan commitments outstanding and other factors.  The allowance is increased by provisions for loan losses charged to operations and reduced by net charge-offs.  Delinquent loans are charged-off at 120 days past due for closed-end loans and 180 days past due for revolving lines of credit or at an earlier time if a loss-confirming event has occurred, unless the loan is both well-secured and in process of collection.  Because the allowance for loan losses is based on significant estimates, actual future loan losses will differ from such estimates.

The allowance for loan losses consists of specific and general components.  The specific component relates to loans that are individually classified as impaired and loans which are considered to be troubled debt restructurings.  The general component covers non-classified loans and is based on historical loss experience adjusted for current qualitative environmental factors.  The Corporation maintains a loss history analysis that tracks loan losses and recoveries based on loan class as well as the loan risk grade assignment.

For all classes of loans, a loan is placed into nonaccrual status generally before the loan becomes 90 days past due if it becomes probable that the borrower cannot make all scheduled payments, full repayment of principal and interest is not expected or the loan is identified as having loss elements or when any loan becomes past due 90 days or more.  Loans are returned to accrual status when all of the principal and interest amounts contractually due have been brought current, have demonstrated timely payment performance for a period of time and future payments are reasonably assured.

F-63

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Capitol Bancorp Limited

NOTE B—SIGNIFICANT ACCOUNTING POLICIES—Continued

For all classes of loans, a loan is considered impaired when it is probable that all amounts due according to the contractual terms of a loan agreement will not be collected, including contractually scheduled interest and principal payments.  All impaired loans greater than $500,000 or $250,000 (based on aggregate relationship) are individually evaluated for impairment for banking subsidiaries with total assets of $200 million or more or less than $200 million, respectively.  If an individual loan is considered impaired, a specific allowance allocation may be recorded, generally followed by a subsequent charge-down in the amount of the impairment is recorded to reduce the loan to its net realizable value.  If an individual loan is not considered individually impaired, the loan is included in the specific or general reserve allocation process for like-graded credits, unless such loan has had an impairment analysis performed and no impairment amount exists (in which case no general reserve allocation is considered necessary).  Groups of smaller-balance homogeneous loans are collectively evaluated for impairment and, accordingly, these loans are not generally separately identified for impairment evaluation.

Loans are accounted for as troubled debt restructurings if, for economic or legal reasons related to the borrower's financial condition, banks grant a "concession" to the borrower that they would not otherwise consider.  A troubled debt restructuring may involve a modification of terms such as a reduction of the stated interest rate or loan balance, a reduction of accrued interest, an extension of the maturity date at an interest rate lower than a current market rate for a new loan with similar risk, or some combination thereof involving a concession to the borrower to facilitate repayment.  Troubled debt restructurings generally remain classified as impaired until the borrower has demonstrated timely payment performance for a period of time pursuant to the modified terms of the loan.

Capitol's banks have stand-by letters of credit outstanding that, when issued, commit the banks to make payments on behalf of customers if certain specified future events occur, generally being nonpayment by the customer to a counterparty.  These obligations generally expire within one year and require collateral and/or personal guarantees by the borrower and its principals based on management's assessment of loss exposure.  The maximum credit risk associated with these instruments equals their contractual amounts, assuming that the borrower defaults and related collateral proves to be worthless.  The total contractual amounts do not necessarily represent future cash requirements since many of those guarantees expire without being drawn upon.  Capitol records a liability, generally equal to the fees received, for these stand-by letters of credit.

Credit risk also arises from amounts of funds on deposit at other financial institutions (i.e., due from banks) to the extent balances exceed the limits of deposit insurance.  Capitol monitors the financial position of such financial institutions to evaluate credit risk periodically.

F-64

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Capitol Bancorp Limited

NOTE B—SIGNIFICANT ACCOUNTING POLICIES—Continued

Interest and Fees on Loans:  Interest income on loans is recognized based upon the principal balance of loans outstanding.  Loan origination fees and direct loan origination costs are deferred and amortized over the life of the related loans as an adjustment of yield.  Direct costs of successful origination of portfolio loans generally exceed fees from loan originations (net deferred costs approximated $5.1 million and $8.6 million at December 31, 2010 and 2009, respectively).

For all classes of loans, the accrual of interest is generally discontinued when a loan becomes 90 days past due as to interest (i.e., placed on nonaccrual status).  When interest accruals are discontinued, interest previously accrued (but unpaid) is reversed against interest income.  Interest payments subsequently received on such loans may be accounted for on a cash basis as to interest income, provided that collectability of principal is expected and until the loan qualifies for being returned to accrual status.  If collectability of principal is not expected, subsequent payments of interest are applied to principal.  Management may elect to continue the accrual of interest when the estimated net realizable value of collateral is sufficient to cover the principal balance and accrued interest and the loan is in the process of collection.

Transfers of Financial Assets:  Transfers of financial assets are accounted for as sales when control over the transferred asset has been surrendered.  Control over transferred assets is deemed to be surrendered when (1) the assets have been isolated from the bank and are presumptively beyond the reach of the transferor and its creditors (even in bankruptcy or other receivership), (2) the transferee obtains the right (free of conditions that constrain it from taking advantage of that right) to pledge or exchange the transferred assets and (3) the bank does not maintain effective control over the transferred asset through an agreement to repurchase it before maturity or the ability to unilaterally cause the holder to return specific assets.  Transfers of financial assets are generally limited to participating interests in commercial loans sold as well as sale of government-guaranteed loans and the sale of residential mortgage loans into the secondary market, the extent of which is disclosed in the consolidated statements of cash flows.

Premises and Equipment:  Premises and equipment are stated on the basis of cost.  Depreciation, which relates primarily to equipment, furniture and software with estimated useful lives of approximately three to seven years, is computed principally by the straight-line method.  Buildings are generally depreciated on a straight-line basis with estimated useful lives of approximately 40 years.  Leasehold improvements are generally depreciated over the shorter of the respective lease term or estimated useful life.

Other Real Estate:  Other real estate is comprised of properties acquired through a foreclosure proceeding or acceptance of a deed in lieu of foreclosure.  At the time of foreclosure, the carrying value of such properties is adjusted to estimated fair value (less estimated costs to sell) when transferred from portfolio loans to other real estate owned, establishing a new cost-basis.  These properties held for sale are subsequently carried at the

F-65

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Capitol Bancorp Limited

NOTE B—SIGNIFICANT ACCOUNTING POLICIES—Continued

lower of the new cost-basis or estimated fair value (less estimated costs to sell) and are periodically reviewed for subsequent impairment.

Fair Values of Financial Instruments:  Fair values of financial instruments are estimated using market information and other assumptions and involve uncertainties and matters of significant judgment regarding interest rates, credit risk, prepayments, assumptions and other factors, especially in the absence of broad markets for particular items.  Changes in assumptions or market conditions could significantly affect such estimates.

Share-Based Compensation:  Stock options state a specific exercise price and expiration date and may be exercised by the optionee upon payment of the exercise price and related taxes due from the optionee; the Corporation, in its discretion, may permit cashless exercises of stock options.  Generally, previously unissued shares of common stock are issued upon exercise of stock options.  Compensation expense for stock option awards is recognized ratably over the vesting period of the award based on the fair value of the option, computed using a Black-Scholes valuation model.  Compensation expense for awards of restricted common stock is recognized ratably over the vesting periods of such awards (generally ranging from four to fifteen years), based on the fair value of the common stock on the date of grant.  Stock price volatility used in a Black-Scholes valuation model for stock options is based on historical volatility.  The risk-free interest rate was based on the yield of U.S. government securities with a maturity date consistent with the expected option life.  The expected option life was estimated based on past exercise behavior of optionees and the related option term.

Trust Assets and Related Income:  Customer property, other than funds on deposit, held in a fiduciary or agency capacity by Capitol's banks is not included in the consolidated balance sheet because it is not an asset of the banks or Capitol.  Trust and wealth-management revenue are recorded on the accrual method.

Federal Income Taxes:  Capitol and its subsidiaries which are owned 80% or more file a consolidated federal income tax return.  Deferred federal income taxes are recognized for the tax consequences of temporary differences by applying enacted tax rates applicable to future years to differences between the financial statement carrying amounts and the tax bases of existing assets and liabilities.  When it is determined that realization of deferred tax assets may be in doubt, a valuation allowance is recorded to reduce those assets to the amount which is more-likely-than-not realizable.  The effect on income taxes of a change in tax laws or rates is recognized in operations in the period that includes the enactment date.

F-66

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Capitol Bancorp Limited

NOTE B—SIGNIFICANT ACCOUNTING POLICIES—Continued

Net Loss Per Share Attributable to Capitol:  Basic net loss per share attributable to Capitol is computed by dividing net loss attributable to Capitol by the weighted-average number of common shares outstanding, exclusive of unvested restricted shares outstanding.  Diluted net loss per share attributable to Capitol is based on the weighted-average number of common shares outstanding, plus common share equivalents calculated for stock options, warrants and restricted common stock outstanding using the treasury stock method.  Common stock equivalents are excluded from per-share computations to the extent they are antidilutive.

Comprehensive Loss:  Comprehensive loss is the sum of net loss and items which are charged or credited to stockholders' equity which, for Capitol, is the net change in the fair value adjustment for investment securities available for sale.  Accordingly, the elements and total of comprehensive loss are shown within the statement of changes in stockholders' equity.

New Accounting Standards:  In December 2007, a new accounting standard was issued to create accounting and reporting requirements for noncontrolling interests in a subsidiary (when it is not wholly-owned) and for the deconsolidation of a subsidiary and became effective January 1, 2009.  In January 2010, an accounting standards update was issued clarifying the types of transactions that should be accounted for as a decrease in ownership of a subsidiary, which became effective for the Corporation on January 1, 2010 (with retrospective application to January 1, 2009) and did not materially affect the Corporation's financial position or results of operations upon implementation.

A new standard became effective January 1, 2009 clarifying the accounting for transfers of financial assets and repurchase financing transactions.  Subsequently, further guidance revised requirements for the presentation and disclosure of transfers of financial assets and the effects of a transfer on an entity's financial position, financial performance and cash flows along with placing limitations on portions of financial assets that are eligible for accounting recognition as a sale.  This guidance applies to transfers of financial assets occurring on or after January 1, 2010 and did not materially affect the Corporation's financial position or results of operations upon implementation.

In December 2009, an accounting standards update was issued to improve financial reporting by entities involved with variable interest entities.  This update replaces the quantitative-based risks and rewards calculation for determining which reporting entity, if any, has a controlling financial interest in a variable interest entity with an approach focused on identifying which reporting entity has the power to direct the activities of a variable interest entity that most significantly impact the entity's economic performance and (1) the obligation to absorb losses of the entity or (2) the right to receive benefits from the entity, and it requires additional disclosures about a reporting entity's involvement in variable interest entities.  That guidance became effective for the Corporation on January 1, 2010 and did not

F-67

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Capitol Bancorp Limited

NOTE B—SIGNIFICANT ACCOUNTING POLICIES—Continued

have a material effect on the Corporation's consolidated financial statements upon implementation.

In January 2010, an accounting standards update regarding fair value measurements and disclosures was issued to require more robust disclosures about (1) different classes of assets and liabilities measured at fair value, (2) valuation techniques and inputs used, (3) the activity in Level 3 fair-value measurements and (4) the transfers between Levels 1, 2, and 3 of fair-value estimates.  The new disclosures became effective for the Corporation beginning January 1, 2010, except for the disclosures about purchases, sales, issuances and settlements in the roll forward of activity in Level 3 fair-value measurements which became effective beginning January 1, 2011.  The required disclosures for 2010 are set forth in Note P.  Management does not expect the deferred disclosure requirements will have a material effect on the Corporation's consolidated financial statements upon implementation in 2011.

In April 2010, an accounting standards update was issued clarifying that modifications of acquired loans accounted for within a pool that have evidence of credit deterioration upon acquisition, do not result in the removal of those loans from the pool even if the modification would otherwise be considered a troubled debt restructuring.  An entity will continue to be required to consider whether the pool of assets in which the loan is included is impaired if expected cash flows for the pool change.  Loans not accounted for within pools continue to be subject to the troubled debt restructuring accounting provisions.  This new guidance is effective for modifications of loans accounted for within pools occurring after July 1, 2010 and did not have any effect on the Corporation's consolidated financial statements upon implementation because the Corporation has not acquired any pools of loans which are currently subject to such guidance.

In July 2010, an accounting standards update was issued which requires significant new disclosures on a disaggregated basis about the allowance for loan losses and the credit quality of loans.  Under this standards update, a rollforward of the allowance for loan losses with the ending balance further disaggregated on the basis of the impairment methods used to establish loss estimates, along with the related ending loan balances and significant purchases and sales of loans during the period are to be disclosed by portfolio segment or classification used for reporting purposes.  Additional disclosures are required by class of loan, including credit quality, aging of past-due loans, nonaccrual status and impairment information.  Disclosure of the nature and extent of troubled debt restructurings that occur during the period and their effect on the allowance for loan losses, as well as the effect on the allowance regarding troubled debt restructurings that occur within the prior 12 months that defaulted during the current reporting period, will also be required.  The disclosures are to be presented at the level of disaggregation that management uses when assessing and monitoring the loan portfolio's risk and performance.

F-68

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Capitol Bancorp Limited

NOTE B—SIGNIFICANT ACCOUNTING POLICIES—Continued

The majority of the disclosures under this new guidance, which are required as of the end of a reporting period, are effective for interim and annual periods ending after December 15, 2010 and are set forth in Note D.  The disclosures about activity that occurs during a reporting period are effective for interim and annual reporting periods beginning after December 15, 2010 and will be first disclosed in the Corporation's financial statements for the interim period ending March 31, 2011.  The part of this new guidance which was implemented in 2010 did not have an effect on the Corporation's consolidated financial statements upon implementation except for expanded disclosures therein and management does not expect the implementation of the remaining disclosure requirements will have an effect on the Corporation's consolidated financial statements upon implementation in 2011.  Furthermore, in January 2011, an accounting standards update was issued which temporarily delays the effective date of the disclosures about troubled debt restructurings until further guidance is issued defining what constitutes a troubled debt restructuring.

A variety of proposed or otherwise potential accounting standards are currently under study by standard-setting organizations and various regulatory agencies.  Because of the tentative and preliminary nature of these proposed standards, management has not determined whether implementation of such proposed standards would be material to the Corporation's consolidated financial statements.

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F-69

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Capitol Bancorp Limited

NOTE C—INVESTMENT SECURITIES

Investments in Federal Reserve Bank and Federal Home Loan Bank stock are combined and classified separately from investment securities in the consolidated balance sheets and are restricted and may only be resold to, or redeemed by, the issuer.

Investment securities consisted of the following at December 31 (in $1,000s):

	2010				2009(1)
	Amortized Cost		Estimated Fair Value		Amortized Cost		Estimated Fair Value
Available for sale securities:
United States treasury	$	503	$	506	$	1,500	$	1,500
United States government agencies		18,664		18,688		8,946		8,928
Mortgage-backed		4,365		4,567		24,690		24,598
Municipalities		371		378		727		739
		23,903		24,139		35,863		35,765
Held for long-term investment:
CDBL III		463		463		672		672
Corporate		2,430		2,430		5,118		5,118
		2,893		2,893		5,790		5,790
	$	26,796	$	27,032	$	41,653	$	41,555

(1)       Excludes investment securities related to discontinued operations with an amortized cost and estimated     fair value of approximately $5.1 million.

At December 31, 2010, securities with a fair value approximating $17 million were pledged to secure public and trust deposits and for other purposes as required by law.

Securities held for long-term investment are not subject to the classification and accounting rules relating to most typical investments.  In addition, Capitol's corporate investments consist mostly of equity-method investments in non-public enterprises which, accordingly, are outside of the scope of accounting rules for most typical investments which often require use of estimated fair value.  Those entities, which are primarily involved in making equity investments in or financing small businesses, use the fair value method of accounting in valuing their investment portfolios.  Notwithstanding that those investments are outside of the scope of such accounting rules, they are included in Capitol's investment securities for financial reporting purposes to summarize all such securities together for reporting purposes.

F-70

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Capitol Bancorp Limited

NOTE C—INVESTMENT SECURITIES—Continued

Gross unrealized gains and losses on investment securities available for sale were as follows at December 31 (in $1,000s):

	2010				2009(1)
	Gains		Losses		Gains		Losses
United States treasury	$	3
United States government agencies		25	$	1	$	4	$	22
Mortgage-backed		202				122		214
Municipalities		7				12
	$	237	$	1	$	138	$	236

(1)        Excludes gross unrealized gains related to discontinued operations of approximately $3,000.

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

	2010				2009
	Unrealized Loss		Carrying Value		Unrealized Loss		Carrying Value
One year or less:
United States government agencies	$	1	$	4,794	$	22	$	8,229
Mortgage-backed						214		19,879
	$	1	$	4,794	$	236	$	28,108

Management does not believe any individual unrealized loss as of December 31, 2010 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 a 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 each of the periods presented.

Scheduled maturities of investment securities held as of December 31, 2010 were as follows (in $1,000s):

	Amortized Cost		Estimated Fair Value
Due in one year or less	$	1,599	$	1,603
After one year, through five years		13,182		13,216
After five years, through ten years		728		754
After ten years		8,394		8,566
Securities held for long-term investment, without stated maturities		2,893		2,893
	$	26,796	$	27,032

F-71

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Capitol Bancorp Limited

NOTE D—LOANS

Portfolio loans consisted of the following at December 31 (in $1,000s):

	2010			2009
Loans secured by real estate:
Commercial	$	1,411,551		$	1,560,866
Residential (including multi-family)		570,252			623,368
Construction, land development and other land		257,751			383,071
Total loans secured by real estate		2,239,554			2,567,305
Commercial and other business-purpose loans		390,183			511,102
Consumer		26,824			32,599
Other		15,151			24,292
Total portfolio loans		2,671,712			3,135,298
Less allowance for loan losses		(147,421	)		(129,795	)
Net portfolio loans	$	2,524,291		$	3,005,503

Loans serviced for the benefit of others, which are not recorded on the consolidated balance sheet, approximated $105 million and $93 million at December 31, 2010 and 2009, respectively.  Loan servicing assets are not material.

Activity within the allowance for loan losses is summarized below (in $1,000s):

	2010			2009			2008
Balance at beginning of year	$	129,795		$	77,328		$	47,457
Allowance for loan losses of acquired bank affiliate		1,769
Provision for loan losses charged to operations		156,868			175,234			75,791
Net charge-offs:
Loans charged-off (deduction)		(156,051	)		(125,698	)		(48,469	)
Recoveries		15,040			2,931			2,549
Net charge-offs		(141,011	)		(122,767	)		(45,920	)
Balance at end of year	$	147,421		$	129,795		$	77,328

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Capitol Bancorp Limited

NOTE D—LOANS—Continued

The following table presents the allowance for loan losses and the carrying amount of loans based on management's overall impairment evaluation methodology as of December 31, 2010 (in $1,000s), and should not be interpreted as an indication of future charge-offs:

	Secured by Real Estate
	Commercial		Residential (including multi- family)		Construction, Land Development and Other Land		Commercial and Other Business- Purpose Loans		Consumer		Other		Total
Allowance for loan losses:
Individually evaluated
for impairment	$	10,107	$	5,828	$	6,914	$	6,108					$	28,957
Collectively evaluated
for impairment		44,850		33,898		15,047		23,559	$	935	$	175		118,464
Total allowance for
loan losses	$	54,957	$	39,726	$	21,961	$	29,667	$	935	$	175	$	147,421
Portfolio loans:
Individually evaluated
for impairment	$	180,012	$	59,935	$	66,804	$	26,914	$	22			$	333,687
Collectively evaluated
for impairment		1,231,539		510,317		190,947		363,269		26,802	$	15,151		2,338,025
Total portfolio loans	$	1,411,551	$	570,252	$	257,751	$	390,183	$	26,824	$	15,151	$	2,671,712

The amounts of the allowance for loan losses allocated in the following table are based on management's estimate of losses inherent in the portfolio at December 31, 2009 (in $1,000s):

	Amount		Percentage of Total Portfolio Loans
Loans secured by real estate:
Commercial	$	51,591		1.65	%
Residential (including multi-family)		25,934		0.83
Construction, land development and other land		19,825		0.63
Total loans secured by real estate		97,350		3.11
Commercial and other business-purpose loans		31,132		0.99
Consumer		1,249		0.04
Other		64
Total allowance for loan losses	$	129,795		4.14	%

F-73

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Capitol Bancorp Limited

NOTE D—LOANS—Continued

Nonperforming loans (i.e., loans which are 90 days or more past due and loans on nonaccrual status) at December 31 are summarized as follows (in $1,000s):

	2010		2009
Nonaccrual loans:
Loans secured by real estate:
Commercial	$	154,504	$	126,829
Residential (including multi-family)		60,840		54,710
Construction, land development and other land		62,177		77,247
Total loans secured by real estate		277,521		258,786
Commercial and other business-purpose loans		30,746		22,884
Consumer		211		331
Total nonaccrual loans		308,478		282,001
Past due (>90 days) loans and accruing interest:
Loans secured by real estate:
Commercial		2,875		6,234
Residential (including multi-family)		1,784		228
Construction, land development and other land		2,380		3,713
Total loans secured by real estate		7,039		10,175
Commercial and other business-purpose loans		2,073		1,546
Consumer		279		534
Total past due loans		9,391		12,255
Total nonperforming loans	$	317,869	$	294,256

If nonperforming loans had performed in accordance with their contractual terms during the year, estimated additional interest income of $18.7 million, $17.7 million and $10.8 million would have been recorded in 2010, 2009 and 2008, respectively.  Estimated interest income recognized on loans in nonaccrual status in 2010, 2009 and 2008 operations approximated $419,000, $1.1 million and $479,000, respectively.

At December 31, 2010 and 2009, there were approximately $124 million and $32 million, respectively, of loans for which the terms were modified as a concession to borrowers experiencing financial difficulties, and which the banks would not otherwise have made, which are troubled debt restructurings and are included within impaired loans.

Impaired loans which do not have an allowance requirement include collateral-dependent loans for which direct write-downs have been made and, accordingly, no allowance requirement or allocation is necessary.  During 2010, 2009 and 2008, the average recorded investment in impaired loans approximated $360.7 million, $231.0 million and $89.9 million, respectively.  Interest income is recorded on impaired loans if not on nonaccrual status, or may be recorded on a cash basis in some circumstances, if such payments are not credited to

F-74

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Capitol Bancorp Limited

NOTE D—LOANS—Continued

principal.  In 2010, 2009 and 2008, interest income recorded on impaired loans approximated $4.3 million, $1.0 million and $424,000, respectively.

Impaired loans, some of which are included in nonperforming loans, are summarized below (in $1,000s):

	December 31
	2010		2009
Impaired loans:
Loans which have an allowance requirement	$	171,530	$	111,902
Loans which do not have an allowance requirement		196,106		210,416
Total impaired loans	$	367,636	$	322,318
Allowance for loan losses related to impaired loans	$	41,864	$	19,469

Impaired loans are further summarized in the following table (in $1,000s), based on loans which either have an allowance for loan losses recorded or no such allowance as of December 31, 2010:

	Carrying Value		Unpaid Principal Balance		Related Allowance for Loan Losses
With an allowance recorded:
Loans secured by real estate:
Commercial	$	82,391	$	131,943	$	12,983
Residential (including multi-family)		39,743		47,718		10,999
Construction, land development and other land		27,150		51,117		8,554
Total loans secured by real estate		149,284		230,778		32,536
Commercial and other business-purpose loans		22,012		35,393		9,189
Consumer		234		260		139
		171,530		266,431		41,864
With no related allowance recorded:
Loans secured by real estate:
Commercial		107,815		173,302
Residential (including multi-family)		31,406		53,847
Construction, land development and other land		42,691		69,250
Total loans secured by real estate		181,912		296,399
Commercial and other business-purpose loans		14,176		23,209
Consumer		18		42
		196,106		319,650
Total	$	367,636	$	586,081	$	41,864

F-75

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Capitol Bancorp Limited

NOTE D—LOANS—Continued

The following table summarizes the aging and amounts of past due loans as of December 31, 2010 (in $1,000s):

	Past Due Loans						Total
	(based on payment due dates)						Amount of
					Loans on		Loans More		Loans Either
	More Than				Nonaccrual		Than 29 Days		Current or
	29 Days,		More Than		Status		Past Due or on		Less Than		Total
	and Less Than		89 Days		(Generally, 90		Nonaccrual		30 Days		Portfolio
	90 Days		(Accruing)		Days or More)		Status		Past Due		Loans
Loans secured by real estate:
Commercial	$	30,380	$	2,875	$	154,504	$	187,759	$	1,223,792	$	1,411,551
Residential (including multi-
family)		12,739		1,784		60,840		75,363		494,889		570,252
Construction, land development
and other land		6,467		2,380		62,177		71,024		186,727		257,751
Total loans secured by real estate		49,586		7,039		277,521		334,146		1,905,408		2,239,554
Commercial and other business-
purpose loans		9,698		2,073		30,746		42,517		347,666		390,183
Consumer		560		279		211		1,050		25,774		26,824
Other										15,151		15,151
Total	$	59,844	$	9,391	$	308,478	$	377,713	$	2,293,999	$	2,671,712

Capitol categorizes loans into risk categories based on relevant information about the ability of borrowers to service their debt obligations based on:  current financial information, aging analysis, historical payment experience, credit documentation and public information, among other factors.  Capitol analyzes loans individually by classifying the loans as to credit risk.  This analysis generally includes all loans and is generally performed at least quarterly.  Capitol uses the following definitions for its adversely-classified risk ratings:

Watch.  Loans classified as watch have a potential weakness that deserves management's close attention.  If not improved, those potential weaknesses may result in deterioration of the repayment prospects for the loan in the future.

Substandard.  Loans classified as substandard are inadequately protected by the borrower's current net worth, paying capacity of the borrower or the fair value of collateral.  Loans so classified have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt obligation by the borrower.  These are characterized by the reasonable possibility that some loss will be sustained if the deficiencies are not favorably resolved.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Capitol Bancorp Limited

NOTE D—LOANS—Continued

Loans not meeting the preceding criteria that are analyzed individually as part of management's classification categories described on the preceding page are considered to be loans which are not adversely classified.  As of December 31, 2010, and based on management's most recent analysis, the risk categories of loans are summarized as follows (in $1,000s):

	Loans
	Not						Total
	Adversely		Adversely Classified Loans				Portfolio
	Classified		Watch		Substandard		Loans
Loans secured by real estate:
Commercial	$	1,024,312	$	119,569	$	267,670	$	1,411,551
Residential (including multi-family		422,071		45,966		102,215		570,252
Construction, land development
and other land		132,119		38,134		87,498		257,751
Total loans secured by real estate		1,578,502		203,669		457,383		2,239,554
Commercial and other business-
purpose loans		291,284		33,804		65,095		390,183
Consumer		25,002		1,028		794		26,824
Other		13,583		1,568				15,151
Total	$	1,908,371	$	240,069	$	523,272	$	2,671,712

NOTE E—RELATED PARTY TRANSACTIONS

In the ordinary course of business, Capitol's banking subsidiaries make loans to officers and directors of the Corporation and its subsidiaries, including their immediate families and companies in which they are principal owners.  At December 31, 2010 and 2009, total loans outstanding to these persons were $74.4 million and $109.7 million, respectively.  During 2010, $26.4 million of new loans were made to these persons, and repayments and other reductions (including bank divestitures) totaled $61.7 million.  Such loans were made at the banking subsidiaries' normal credit terms.

Officers and directors of Capitol (and their associates, family and/or affiliates) are also depositors of the banking subsidiaries.  Such deposits, which approximated $54.5 million and $113 million at December 31, 2010 and 2009, respectively, are accepted based upon the banks' normal terms as to interest rate, term and deposit insurance.

During 2009, certain subsidiaries ceased to be controlled by Capitol and, accordingly, were deconsolidated (see Note T) although such subsidiaries continue to be related parties of Capitol.

F-77

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Capitol Bancorp Limited

NOTE F—PREMISES AND EQUIPMENT

Major classes of premises and equipment consisted of the following at December 31 (in $1,000s):

	2010			2009(1)
Land, buildings and improvements	$	22,397		$	19,239
Leasehold improvements		20,459			21,273
Equipment, furniture and software		45,280			46,187
		88,136			86,699
Less accumulated depreciation		(49,743	)		(44,480	)
	$	38,393		$	42,219

(1)       Excludes premises and equipment, net of accumulated depreciation,     related to discontinued operations of approximately $6.2 million.

Capitol and certain subsidiaries rent office space and equipment under operating leases.  Rent expense (net of sublease income) under these lease agreements approximated $10.6 million, $10.1 million and $9.2 million in 2010, 2009 and 2008, respectively (including rent expense approximating $1.8 million in 2010 and $1.7 million in 2009 and 2008, under leases with related parties).

At December 31, 2010, future minimum rental payments under operating leases that have initial or remaining noncancelable lease terms in excess of one year were as follows (in $1,000s):

2011	$	9,453
2012		8,663
2013		7,450
2014		6,923
2015		5,957
2016 and thereafter		14,803
	$	53,249

NOTE G—GOODWILL

Capitol's review for potential goodwill impairment has been performed annually as of November 30th by comparing estimated entity fair value to its net assets.  This review was performed at the applicable subsidiary reporting-unit level which has recorded goodwill resulting from specific share-exchange transactions or acquisitions and on a consolidated basis.  An interim review for potential goodwill impairment becomes necessary when events or changes in circumstances indicate potential for impairment between annual review dates.

Capitol's annual review for potential goodwill impairment in 2010 concluded that all of its recorded goodwill (approximately $64.5 million) was deemed to be impaired.  Accordingly, such amount was written off, effective December 31, 2010.

F-78

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Capitol Bancorp Limited

NOTE G—GOODWILL—Continued

Management's decision to write-off all goodwill as being impaired at that date was based, in part, upon the following macro-basis considerations:

·   A dramatic decline in Capitol's aggregate market-capitalization, i.e., the computational result of multiplying the number of Capitol's common shares outstanding by the per-share market price of such common stock (estimated fair value).

·   Capitol's tangible-equity deficit (total equity, less goodwill, prior to recording any goodwill impairment for 2010).

·   Pricing information from merger and acquisition transactions within the banking industry in the United States of America during 2010, as a multiple of tangible equity, and application of such multiple to Capitol's tangible-equity deficit prior to recording any goodwill impairment for 2010.

Management also evaluated whether events or circumstances earlier in 2010 suggested an interim review for impairment might be necessary.  An interim review for potential impairment was not considered necessary due to the absence of events or changes in Capitol's and its subsidiary reporting units' circumstances (since the preceding annual review in late 2009).  Such conclusion was confirmed by the macro-basis considerations discussed in the preceding paragraph, in addition to reporting unit-level (subsidiaries) analyses, which did not arise until the fourth quarter of 2010.

In 2009, however, events or changes in circumstances warranted an interim review for potential impairment of goodwill, which concluded that an interim write-down of goodwill of $1.5 million was appropriate.  The total amount of goodwill impairment recorded for the year ended December 31, 2009 approximated $3.4 million.

Amounts recorded as goodwill impairment are reflected within noninterest expense as a non-cash charge to operations, when determined.

NOTE H—DEPOSITS

The aggregate amount of time deposits of $100,000 or more approximated $911 million and $1.3 billion as of December 31, 2010 and 2009, respectively.

At December 31, 2010, scheduled maturities of time deposits were as follows (in $1,000s):

2011	$	1,211,818
2012		327,146
2013		69,038
2014		27,596
2015		30,106
2016 and thereafter		458
	$	1,666,162

F-79

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Capitol Bancorp Limited

NOTE I—NOTES PAYABLE AND SHORT-TERM BORROWINGS

Notes payable and short-term borrowings consisted of the following at December 31 (in $1,000s):

	2010		2009(1)
FHLB borrowings	$	113,809	$	182,132
Promissory notes		8,431		14,011
Repurchase agreements		1,137		1,510
	$	123,377	$	197,653

(1)       Excludes net borrowings related to discontinued operations of     approximately $78.5 million.

FHLB borrowings represent advances secured by certain portfolio loans and other eligible collateral.  Such advances become due at varying dates and bear interest at market short-term rates (approximately 1.76% at December 31, 2010).  At December 31, 2010, unused lines of credit under these facilities approximated $164 million.  Assets pledged to secure these credit facilities approximated $630 million at December 31, 2010.  Continued availability of the FHLB credit facilities is subject to the FHLB's review of the banks' credit worthiness.

During 2008, Capitol completed a private offering of 9% promissory notes.  The promissory notes were purchased by accredited investors, including certain related parties of Capitol.  The promissory notes mature in 2013.  Interest is payable quarterly and the promissory notes became callable in 2010.  In 2010, Capitol extinguished approximately $4.6 million in promissory notes in exchange for 1,374,000 shares of common stock resulting in a gain of $1.3 million.

At December 31, 2010, scheduled debt maturities of notes payable and short-term borrowings were as follows (in $1,000s):

2011	$	89,655
2012		15,150
2013		3,675
2014		1,466
2015		--
2016 and thereafter		13,431
	$	123,377

F-80

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Capitol Bancorp Limited

NOTE J—SUBORDINATED DEBT

Subordinated debt relates to trust-preferred securities issued by Capitol which are summarized as follows at December 31 (in $1,000s):

			Aggregate
	Current	Scheduled	Liquidation		Net Carrying Amount
	Interest Rate	Maturity	Amount		2010		2009
Capitol Trust I	8.50% fixed	2027	$	25,300	$	24,687	$	24,651
Capitol Trust II	10.25% fixed	2031		10,000		9,793		9,783
Capitol Statutory Trust III	3.87% variable	2031		15,000		14,691		14,676
Capitol Trust IV	3.94% variable	2032		3,000		2,928		2,924
Capitol Trust VI	3.59% variable	2033		10,000		9,777		9,768
Capitol Trust VII	7.78% fixed	2033		10,000		9,886		9,881
Capitol Statutory Trust VIII	3.25% variable	2033		20,000		19,702		19,689
Capitol Trust IX	7.69% fixed	2034		10,000		9,950		9,947
Capitol Trust X	6.55% fixed	2037		33,000		33,000		33,000
Capitol Trust XI	1.95% variable	2037		20,000		20,000		20,000
Capitol Trust XII	10.50% fixed	2038		14,541		13,172		13,122
			$	170,841	$	167,586	$	167,441

Securities of Capitol Trust I and XII were issued in public offerings in 1997 and 2008, respectively.  All other Capitol Trust securities were formed in conjunction with private placements of trust-preferred securities.  Each of these securities has similar terms and, subject to certain provisions, may be called by Capitol five years after issuance.  The liquidation amount of these securities is guaranteed by Capitol.  A portion of Capitol Trust I and XII securities were discharged upon completion of an exchange for previously-unissued common stock of Capitol in early 2011 (see Note V).

Interest paid to the trusts by Capitol (which is recorded as interest expense in its consolidated financial statements) is distributed by the trusts to the holders of the trust-preferred securities.  Under certain conditions, Capitol may defer payment of interest on the subordinated debentures for periods of up to five years and, in 2009, Capitol elected to defer such interest payments.  During deferral periods, Capitol is prohibited from paying dividends on its common stock (subject to certain exceptions) and continues to accrue interest payable on such securities.  As of December 31, 2010 and 2009, accrued interest on such securities approximated $20.8 million and $11.2 million, respectively.  Holders of the trust-preferred securities will recognize current taxable income relating to the deferred interest payments.  Pursuant to a regulatory agreement, Capitol is currently prohibited from payment of interest on its trust-preferred securities without prior approval (see Note R).

Upon termination of a deferral-period, all prior accrued and unpaid interest becomes immediately due and payable to holders of the securities at that time.

F-81

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Capitol Bancorp Limited

NOTE J—SUBORDINATED DEBT—Continued

Documents governing the trusts give holders of the securities preference on liquidation over the holders of Capitol's common stock.  Under current regulatory guidelines, none of Capitol's trust-preferred securities are included as qualifying regulatory capital as of December 31, 2010.  When the trust-preferred securities were issued, and at December 31, 2009, they were treated as qualifying regulatory capital.

NOTE K—STOCKHOLDERS' EQUITY AND STOCK-BASED COMPENSATION

On June 30, 2010, Capitol issued an aggregate 95,000 shares of its Series A Noncumulative Perpetual Preferred Stock.  Of that aggregate issuance, 44,020 shares were issued to a consolidated subsidiary of Capitol and, accordingly, have been eliminated in consolidation.  The remaining 50,980 shares were issued to a bank-development company which is an unconsolidated affiliate of Capitol.  The liquidation preference of the shares issued is $100.00 per share, with an aggregate issuance of $9.5 million of which $4.4 million has been eliminated upon consolidation.  The Series A Preferred Stock is nonvoting and callable at Capitol's option after 36 months from date of issuance at $100.00 per share plus any accrued dividends.  Dividends on such shares are payable only when and if declared by Capitol's board of directors based on an annual rate of 6%.

In April 2010, Capitol completed an offering of 2.5 million shares of previously-unissued common stock and warrants for the purchase of 1.25 million additional shares of common stock, resulting in net proceeds approximating $6.8 million with a corresponding increase to Capitol's stockholders' equity.  The warrants have an exercise price of $3.50 per warrant and expire in 2013.

Warrants for the purchase of 75,719 shares of Capitol's common stock, which were issued in 2009, were outstanding at December 31, 2010 and expire May 31, 2012.  The exercise price is $20.37 per warrant.

Shares of restricted common stock of the Corporation have been granted to certain officers.  Compensation expense related to such restricted stock approximated $655,000 in 2010, $495,000 in 2009 and $1.5 million in 2008.  There were no tax benefits associated with such compensation expense in 2010, 2009 and 2008.  Future compensation expense related to unvested restricted common stock grants as of December 31, 2010 approximates $801,000 (based on grants through December 31, 2010), to be recorded ratably over a period of approximately 1.4 years, based on the weighted-average remaining vesting period at that date.

F-82

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Capitol Bancorp Limited

NOTE K—STOCKHOLDERS' EQUITY AND STOCK-BASED COMPENSATION

Continued

Activity in unvested restricted common stock is summarized as follows:

	2010					2009					2008
	Restricted Shares			Weighted- Average Grant Date Fair Value		Restricted Shares			Weighted- Average Grant Date Fair Value		Restricted Shares			Weighted- Average Grant Date Fair Value
Unvested at January 1		144,943		$	22.14		136,490		$	29.55		207,422		$	27.80
Granted		224,720			1.38		37,000			1.70		31,790			16.17
Vested		(28,372	)		31.25		(19,847	)		29.53		(47,000	)		21.23
Forfeited		(31,075	)		29.00		(8,700	)		34.69		(55,722	)		22.41
Unvested at December 31		310,216		$	5.58		144,943		$	22.14		136,490		$	29.55

Stock options have been granted to certain officers and directors which provide for the purchase of shares of the Corporation's common stock.  Generally, stock options are granted at an exercise price equal to the fair value of common stock on the grant date.  All such stock options expire at varying periods up to seven years after the grant date.  Stock option activity is summarized as follows:

	Number Outstanding			Exercise Price Range					Weighted Average Exercise Price
Outstanding at January 1, 2008		2,460,082		$	13.50	to	$	46.20	$	27.85
Granted in 2008		52,360			20.12	to		20.12		20.12
Exercised in 2008		(108,935	)		15.52	to		20.90		17.90
Cancelled or expired in 2008		(29,348	)
Outstanding at December 31, 2008		2,374,159			13.50	to		46.20		28.28
Granted in 2009		404,022			2.01	to		6.04		2.70
Cancelled or expired in 2009		(273,698	)		13.50	to		34.52		24.03
Outstanding at December 31, 2009		2,504,483			2.01	to		46.20		24.61
Granted in 2010		206,656			1.78	to		1.96		1.95
Exercised in 2010		(10,000	)		2.01	to		2.01		2.01
Cancelled or expired in 2010		(955,537	)		2.01	to		46.20		25.57
Outstanding at December 31, 2010		1,745,602		$	1.78	to	$	46.20	$	21.53

The aggregate intrinsic value of exercised stock options approximated $1.9 million in 2008 (none in 2010 and 2009).

Stock options with an aggregate fair value of $255,000 and $661,000 were granted in 2010 and 2009, respectively.  Fair value was computed using a Black-Scholes valuation model.

F-83

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Capitol Bancorp Limited

NOTE K—STOCKHOLDERS' EQUITY AND STOCK-BASED COMPENSATION

Continued

Fair value assumptions included the following:

	2010	2009	2008
Risk-free interest rate	2.01% and 2.62%	2.62%	3.8%
Stock price volatility	0.85 and 0.76	0.76	0.36
Dividend yield	--	--	5.0%
Expected option life	4.5 years and 5 years	5 years	7 years

Compensation expense related to stock options approximated $301,000 in 2010, $855,000 in 2009 and $693,000 in 2008, and associated tax benefits approximated $106,000 in 2010 and $299,000 in 2009 (before valuation allowance, see Note N), and $243,000 in 2008.  Future compensation expense relating to stock options outstanding as of December 31, 2010 is insignificant.

As of December 31, 2010, substantially all outstanding stock options were vested, currently exercisable and had a weighted average remaining contractual life of 2.68 years (except for stock options granted in 2010 which become vested and exercisable in 2012).  The following table summarizes stock options outstanding and segregated by exercise price range as of December 31, 2010:

				Weighted Average
Exercise Price Range		Number Outstanding		Exercise Price		Remaining Contractual Life
$	1.00 to 14.99		556,105	$	2.49	4.74 years
$	15.00 to 19.99		66,883		16.40	0.78 years
$	20.00 to 24.99		205,953		22.02	3.53 years
$	25.00 to 29.99		111,699		26.15	0.39 years
$	30.00 to 34.99		464,966		31.76	1.15 years
$  35.00 or more			339,996		37.91	2.03 years
			1,745,602	$	21.53

Cash received from optionees upon exercise of stock options approximated $20,000 in 2010 and $44,000 in 2008 (none in 2009) and tax benefits realized approximated $24,000 in 2008 (none in 2010 and 2009).

F-84

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Capitol Bancorp Limited

NOTE L—DIVESTITURES OF BANKS AND DISCONTINUED OPERATIONS

In 2010, Capitol completed the following sales of bank subsidiaries (in $1,000s):

		Sale
	Date Sold	Proceeds		Gain (Loss)
Bank of Belleville(1)	April 27, 2010	$	5,090	$	1,331
Napa Community Bank(1)(3)	April 30, 2010		21,574		7,372
Ohio Commerce Bank(2)	June 30, 2010		6,520		1,478
Community Bank of Lincoln(2)	July 30, 2010		3,750		1,268
USNY Bank(2)	August 23, 2010		2,700		(271	)
Adams Dairy Bank(2)	August 31, 2010		4,335		559
Bank of San Francisco(1)	September 28, 2010		6,604		1,740
Fort Collins Commerce Bank(1)	October 29, 2010		5,822		597
Larimer Bank of Commerce(1)	October 29, 2010		4,332		(163	)
Loveland Bank of Commerce(1)	October 29, 2010		4,346		943
Southern Arizona Community Bank(1)	December 10, 2010		11,028		930
		$	76,101	$	15,784

(1) Previously a majority-owned subsidiary of Capitol.

(2) Previously a majority-owned subsidiary of a bank-development subsidiary controlled by Capitol.

(3) Under the terms of the sale transaction, Capitol could receive additional proceeds of up to $5.3 million in the future, subject to    Napa Community Bank's future financial performance.

Capitol's consolidated results of operations would not have been materially different if the sales of these banks had occurred at the beginning of the years presented.

In addition to completed sales transactions, Capitol has entered into definitive agreements to sell its interests (or controlling interests held by bank-development subsidiaries) in the following institutions which were pending as of December 31, 2010:  1st Commerce Bank, Bank of Fort Bend, Bank of Tucson – main office, Community Bank of Rowan and Evansville Commerce Bank.  In 2011, Capitol entered into definitive agreements to sell its controlling interests in Bank of Feather River, Bank of Las Colinas and High Desert Bank held by bank-development subsidiaries.

In January 2011, Capitol completed the sale of Bank of Tucson's main office in an assumption of liabilities and acquisition of assets transaction for an approximate gain of $4.4 million, and merged the remaining office of Bank of Tucson with and into Sunrise Bank of Arizona.  Assets, liabilities and results of operations of Bank of Tucson's main office are reflected as part of discontinued operations for the periods presented.

The remaining pending bank sales are subject to regulatory approval and other contingencies.  If completed, those pending bank divestitures would result in Capitol receiving estimated proceeds approximating $19.7 million and a gain on sale of approximately $67,000.

F-85

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Capitol Bancorp Limited

NOTE L—DIVESTITURES OF BANKS AND DISCONTINUED OPERATIONS—

Continued

The results of operations of bank subsidiaries sold in 2010 (and the main office of Bank of Tucson sold in early 2011), summarized in the preceding table, together with the results of operations of Bank of Santa Barbara and Yuma Community Bank which were sold in 2009, and Community Bank of Rowan and Summit Bank of Kansas City which were deconsolidated on September 30, 2009, are classified as discontinued operations, which include the following components on a combined basis (in $1,000s):

	2010			2009			2008
Interest income	$	41,594		$	69,114		$	69,857
Interest expense		8,566			19,405			24,832
Net interest income		33,028			49,709			45,025
Provision for loan losses		7,484			15,446			6,701
Net interest income after provision
for loan losses		25,544			34,263			38,324
Noninterest income, excluding gain
on sale of bank subsidiaries		3,173			5,135			4,150
Gain on sale of bank subsidiaries		15,784			1,187
Noninterest expense		22,682			36,637			33,988
Income before income taxes		21,819			3,948			8,486
Less income tax expense		9,370			5,170			3,418
Net income (loss) from discontinued
operations		12,449			(1,222	)		5,068
Net loss (income) attributable to
noncontrolling interests		(902	)		4,480			1,223
Net income from discontinued
operations attributable to Capitol
Bancorp Limited	$	11,547		$	3,258		$	6,291
Net income from discontinued
operations per common share
attributable to Capitol Bancorp
Limited	$	0.57		$	0.19		$	0.37

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F-86

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Capitol Bancorp Limited

NOTE L—DIVESTITURES OF BANKS AND DISCONTINUED OPERATIONS—

Continued

Assets and liabilities of discontinued operations as of December 31 are summarized below

(in $1,000s):

	2010			2009				2010		2009
Assets:							Liabilities:
Cash and cash equivalents	$	56,329		$	139,102		Noninterest-bearing
Investment securities		4,007			5,113		deposits	$	68,777	$	187,337
Federal Home Loan Bank							Interest-bearing deposits		139,358		704,471
stock		746			6,047		Total deposits		208,135		891,808
Loans held for sale					5,166		Debt obligations				78,506
Portfolio loans		159,334			911,803		Other liabilities		693		2,001
Less allowance for loan
losses		(2,380	)		(14,869	)		$	208,828	$	972,315
Net portfolio loans		156,954			896,934
Premises and equipment		979			6,167
Other real estate owned		1,447			4,807
Other assets		2,420			19,767
	$	222,882		$	1,083,103

NOTE M—EMPLOYEE RETIREMENT PLANS

The Corporation has a contributory employee retirement savings 401(k) plan (the Plan) which covers substantially all full-time employees, over age 21, of Capitol and certain subsidiaries.  The Plan provides for employer contributions in amounts determined annually by Capitol's board of directors.  Eligible employees make voluntary contributions to the Plan.  Employer contributions to the Plan, a partial match based on employee contributions (50%, subject to certain limitations through December 31, 2008; none in 2010 and 2009), charged to expense for the year ended December 31, 2008 approximated $2.4 million (none in 2010 and 2009).

Capitol also has a defined contribution employee stock ownership plan (ESOP) which covers substantially all employees of Capitol and certain subsidiaries.  There were no ESOP contributions charged to expense in 2010, 2009 and 2008.  As of December 31, 2010, the ESOP held approximately 272,000 shares of Capitol's common stock which have been allocated to participants' accounts; there were no unallocated shares as of that date.

Effective January 1, 2011, the ESOP was merged with and into Capitol's 401(k) plan to reduce future administrative and compliance costs.

F-87

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Capitol Bancorp Limited

NOTE N—INCOME TAXES

Income taxes include the following components (in $1,000s):

	2010			2009			2008
Federal:
Current expense (benefit)	$	3,638		$	(43,594	)	$	(823	)
Deferred (benefit)		(1,403	)		(39,173	)		(26,029	)
		2,235			(82,767	)		(26,852	)
State:
Current expense (benefit)		545			868			(1,748	)
Deferred (benefit)		(720	)		(4,181	)		(1,548	)
		(175	)		(3,313	)		(3,296	)
		2,060			(86,080	)		(30,148	)
Establishment of valuation allowance for      deferred tax assets not meeting the more-      likely-than-not criteria for realization					104,498
Income tax expense (benefit)	$	2,060		$	18,418		$	(30,148	)

In addition to state income taxes, certain states in which the banks operate impose taxes based on measures other than income.  Tax expense associated with those jurisdictions approximated $670,000 in 2010 ($646,000 in 2009 and $585,000 in 2008) and is excluded from income tax expense (included as a component of other noninterest expense).

Federal income taxes paid in 2010, 2009 and 2008 approximated $715,000, $1.0 million and $7.3 million, respectively.  Federal income taxes refunded in 2010 approximated $43 million.  State income taxes approximating $62,000 were paid in 2010 and $142,000 was received in refunds for a net refund of $80,000 in 2010 ($85,000 was paid in 2009 and $248,000 was paid in 2008; $521,000 was received in refunds for a net refund of $273,000 in 2008).

Differences between income tax expense recorded and amounts computed using the statutory tax rate (in $1,000s) are reconciled below based on operating results (including discontinued operations):

	2010			2009			2008
Federal income tax expense (benefit)      computed at statutory rate of 35%	$	(88,306	)	$	(86,143	)	$	(28,910	)
State income taxes (benefit)		(10,297	)		(3,313	)		(3,296	)
Valuation allowance on deferred state      income tax assets		10,122			8,622
Federal tax effect of:
Amortization of intangibles					1,213			19
State income taxes		3,604			1,160			1,154
Valuation allowance on state taxes		(3,543	)		(3,018	)
Valuation allowance recorded for   deferred federal income tax assets		78,162			95,876
Other		12,318			4,021			885
Total income tax expense (benefit)	$	2,060		$	18,418		$	(30,148	)

F-88

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Capitol Bancorp Limited

NOTE N—INCOME TAXES—Continued

Capitol had a valuation allowance for deferred income tax assets to reduce such net assets to an amount which was deemed to be realizable on a more-likely-than-not basis as of December 31, 2010 and 2009.  The valuation allowance may reduce income tax expense accrual requirements to the extent of Capitol's profitability in future periods.

Net deferred income tax assets, a component of other assets, consisted of the following at December 31 (in $1,000s):

	2010			2009
Allowance for loan losses	$	57,556		$	54,725
Net operating losses of subsidiaries		97,739			36,018
Deferred compensation		2,519			3,363
Depreciation		(2,827	)		(3,549	)
Start-up costs of de novo banks		2,597			4,450
Fair value adjustment for investment securities available for sale		(81	)		32
Other real estate owned		14,159			11,112
Net deferred costs of loan originations		(1,740	)		(5,978	)
Unaccrued interest income on nonperforming loans		7,466			6,879
Other, net		14,729			2,828
		192,117			109,880
Less valuation allowance		(190,308	)		(104,498	)
	$	1,809		$	5,382

Certain subsidiaries (generally less than 80%-owned entities) have federal and state net operating loss carryforwards which may reduce income taxes payable in future periods, which have been recognized for deferred tax purposes (subject to a valuation allowance) and, as of December 31, 2010, expire as follows (in $1,000s):

	Federal		State
2013-2015			$	69,548
2016-2018				3,660
2019-2021				29,054
2022-2024	$	40		7,953
2025-2027		28,249		21,913
2028-2029		215,020		22,775
	$	243,309	$	154,903

In conjunction with its annual review, management concluded that there were no significant uncertain tax positions requiring recognition in Capitol's consolidated financial statements.  Such evaluation was performed for 2007, 2008, 2009 and 2010, which are the tax years which remain subject to examination by major tax jurisdictions, updated as of December 31, 2010.

F-89

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Capitol Bancorp Limited

NOTE N—INCOME TAXES—Continued

The Internal Revenue Service (IRS) commenced and completed an examination of the Corporation's consolidated federal income tax return for the year ended December 31, 2005 during 2007.  During 2008, the IRS commenced an examination of the Corporation's consolidated federal income tax return for the year ended December 31, 2006; the examination was completed in 2009.  No significant adjustments to taxable income or taxes payable due arose from those examinations.

The IRS commenced an examination of the Corporation's consolidated federal income tax returns for the years ended December 31, 2008 and 2009 in 2010, along with commencing another examination of the Corporation's consolidated federal income tax return for the year ended 2006 which was re-opened due to an excise tax refund request.  No significant adjustments to the taxable income or taxes payable or refundable are currently expected from the pending examinations which are expected to be completed by year-end 2011 or early 2012.

Capitol may from time to time be assessed interest or penalties associated with tax liabilities by major tax jurisdictions, although any such assessments would likely be immaterial.  To the extent Capitol may receive an assessment for interest and/or penalties, it would be classified in the consolidated statements of operations as a component of other noninterest expense; such amounts have been negligible during the periods presented.

NOTE O—NET LOSS PER SHARE ATTRIBUTABLE TO CAPITOL BANCORP LIMITED

The computations of net loss per share were as follows (in 1,000s):

	2010			2009			2008
Numerator—net loss attributable to Capitol Bancorp Limited	$	(225,215	)	$	(195,169	)	$	(28,607	)
Denominator for basic net loss per share—weighted average number of common shares outstanding, excluding unvested restricted shares of common stock		20,186			17,302			17,147
Denominator for diluted net loss per share—weighted average number of shares and potential dilution		20,186			17,302			17,147
Number of antidilutive stock options excluded from diluted net loss per share computation		1,746			2,504			2,374
Number of antidilutive unvested restricted shares of common stock excluded from basic and diluted net loss per share computation		310			145			136
Number of antidilutive warrants to purchase common stock excluded from diluted net loss per share computation		1,326			76

Additional disclosures regarding restricted shares of common stock, warrants to purchase common stock and stock options are set forth in Note K.

F-90

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Capitol Bancorp Limited

NOTE P—FAIR VALUE

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.  If quoted prices are not available, fair values are measured using independent pricing models.

Mortgage loans held for sale:  Mortgage loans held for sale are carried at the lower of aggregate cost or fair value and are measured on a nonrecurring basis.  Mortgage loans held for sale written down to fair value would be included in the table below (none at December 31, 2010 and 2009).  Fair value is based on independent quoted market prices, where applicable, or the prices for other whole mortgage loans with similar characteristics.

Portfolio loans:  The Corporation does not record portfolio 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 or specific reserves based on the observable market price or 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 estimated fair value less estimated costs to sell upon transfer from portfolio loans to other real estate owned, establishing a new carrying value.  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 or current appraisal data.

Long-lived and indefinite lived assets:  The Corporation does not record long-lived or indefinite lived assets at fair value on a recurring basis.  However, from time to time, nonrecurring fair value adjustments to a long-lived or indefinite asset are recorded to reflect partial write-downs based on the observable market price or other estimate of fair value in the event of impairment.

Fair value measurements for assets and liabilities where there exists limited or no observable market data and, therefore, which are based primarily upon estimates, are often calculated based on current pricing policy, the economic and competitive environment, the characteristics of the asset or liability and other such factors.  Therefore, the results cannot be determined with precision and may not be realized in an actual sale or immediate settlement of the asset or liability.  Additionally, there may be inherent weaknesses in any calculation technique and, further, changes in the underlying assumptions used, including discount rates and estimates of future cash flows, could significantly affect the results of current or future values.

As of December 31, 2010 and 2009, there were no liabilities measured at fair value on either a recurring or nonrecurring basis.

F-91

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Capitol Bancorp Limited

NOTE P—FAIR VALUE—Continued

Assets measured at fair value on a recurring basis as of December 31 were as follows (in $1,000s):

	2010				2009(1)
	Total		Significant Other Observable Inputs (Level 2)		Total		Significant Other Observable Inputs (Level 2)
Investment securities available for sale:
United States treasury	$	506	$	506	$	1,500	$	1,500
United States government agencies		18,688		18,688		8,928		8,928
Mortgage-backed		4,567		4,567		24,598		24,598
Municipalities		378		378		739		739
	$	24,139	$	24,139	$	35,765	$	35,765

(1)       Excludes investment securities related to discontinued operations of approximately $5.0 million.

Assets measured at fair value on a nonrecurring basis as of December 31 were as follows (in $1,000s):

	2010				2009(2)
	Total		Significant Unobservable Inputs (Level 3)		Total		Significant Unobservable Inputs (Level 3)
Impaired loans (1)(3)	$	325,212	$	325,212	$	133,199	$	133,199
Other real estate owned (1)	$	107,614	$	107,614	$	107,013	$	107,013

(1)       Represents carrying value based on the appraised value of the applicable collateral or other real estate owned or other estimates of fair value     (less estimated cost to sell).

(2)       Excludes impaired loans approximating $5.8 million and other real estate owned approximating $4.8 million related to discontinued operations.

(3)       In 2010, Capitol classified certain loans which are troubled debt restructurings as impaired loans measured at fair value resulting in a significant     increase in impaired loans measured at fair value.  Amounts for 2009 have not been adjusted except for the exclusion of discontinued operations     noted above.

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.  Further, such comparable sale transactions may be lower, or substantially less than amounts which could be realized in orderly (and not distressed or forced) sales between the owner/occupant and a future user of the property.

F-92

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Capitol Bancorp Limited

NOTE P—FAIR VALUE—Continued

Updated appraisals are generally obtained when it has been determined that a collateral-dependent loan has become impaired or when it is likely a loan secured by real estate will be foreclosed.  Adjustments to the loan's carrying value (or requirements for an allocation of the allowance for loan losses) are made, when appropriate, after review of appraisal data or, in the absence of a recent appraisal, if market conditions significantly decline further.  The timing of when a collateral-dependent loan should be classified as a nonperforming credit is contingent upon several factors, including the performance of the loan, payment history and/or results of the bank's review of updated borrower financial information.

When a borrower's performance has deteriorated (for example, the borrower has become delinquent on required payments, the borrower's updated financial information received indicates adverse financial trends or sales/leasing activity is less than expected in the case of multi-unit properties), the loan will be downgraded and, if appropriate, an updated appraisal will be ordered.  In the period between a loan being recognized as impaired and receipt of an updated appraisal, the loan will be included within loss contingency pools, in conjunction with estimating the bank's requirements for its allowance for loan losses.  Upon receipt and review of updated appraisal data and after any further fair value analysis is completed, the loan will be further evaluated for appropriate write-down.  Generally, negative differences between appraised value, less the estimated cost to sell, and the related carrying value of the loans are charged to the allowance for loan losses, as a partial write-down/charge-off, on a timely basis after the appraisal has been received and reviewed.  Occasionally, additional potential loss amounts may be included if circumstances exist which may further adversely impact fair value estimates.  Internally-developed evaluations may be used when the amount of a loan is less than $250,000.  Internally-prepared evaluations may also be used when the most recent appraisal date is within a year to estimate the current effect of economic conditions or deterioration.  Updated fair value information is generally obtained at least annually for collateral-dependent loans and other real estate owned.

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F-93

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Capitol Bancorp Limited

NOTE P—FAIR VALUE—Continued

Carrying values and estimated fair values of financial instruments based upon the accounting guidance set forth in Accounting Standards Codification 825-10 were as follows at December 31 (in $1,000s):

	2010						2009(2)
	Carrying Value			Estimated Fair Value			Carrying Value			Estimated Fair Value
Financial assets:
Cash and cash equivalents	$	565,178		$	565,178		$	669,819		$	669,819
Loans held for sale		7,041			7,041			10,966			10,966
Investment securities:
Available for sale		24,139			24,139			35,765			35,765
Held for long-term investment		2,893			2,893			5,790			5,790
		27,032			27,032			41,555			41,555
Federal Home Loan Bank and Federal Reserve
Bank stock		18,167			18,167			18,628			18,628
Portfolio loans:
Loans secured by real estate:
Commercial		1,411,551			1,416,332			1,560,866			1,483,447
Residential (including multi-family)		570,252			570,207			623,368			587,905
Construction, land development and other land		257,751			257,875			383,071			313,341
Total loans secured by real estate		2,239,554			2,244,414			2,567,305			2,384,693
Commercial and other business-purpose loans		390,183			390,649			511,102			494,305
Consumer		26,824			27,127			32,599			32,838
Other		15,151			15,073			24,292			22,613
Total portfolio loans		2,671,712			2,677,263			3,135,298			2,934,449
Less allowance for loan losses		(147,421	)		(147,421	)		(129,795	)		(129,795	)
Net portfolio loans		2,524,291			2,529,842			3,005,503			2,804,654
Financial liabilities:
Deposits:
Noninterest-bearing		516,873			516,873			491,763			491,763
Interest-bearing:
Demand accounts		845,649			845,649			977,563			977,563
Time certificates of less than $100,000		755,327			759,538			754,849			756,057
Time certificates of $100,000 or more		910,835			914,596			1,294,651			1,296,448
Total interest-bearing deposits		2,511,811			2,519,783			3,027,063			3,030,068
Total deposits		3,028,684			3,036,656			3,518,826			3,521,831
Notes payable and short-term borrowings		123,377			116,200			197,653			197,715
Subordinated debentures		167,586			170,841	(1)		167,441			170,841	(1)

(1)     Represents liquidation or principal amount outstanding.  The quoted market value of certain trust-preferred securities     (Capitol Trust I and XII) included within subordinated debentures was substantially less than that amount.

(2)     Excludes amounts related to discontinued operations.

F-94

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Capitol Bancorp Limited

NOTE P—FAIR VALUE—Continued

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, except certain subordinated debentures, as indicated in the preceding table, for which the fair value is based on the liquidation or principal amount outstanding).  For example, the estimated fair value of portfolio loans is based on discounted cash flow computations.  Similarly, the estimated fair value of time deposits, notes payable and other borrowings were determined through discounted cash flow computations.  Such estimates of fair value are not intended to represent portfolio liquidation value and, accordingly, only represent an estimate of fair value based on current financial reporting requirements.

Given current market conditions, a portion of the loan portfolio is not readily marketable and, accordingly, market prices may 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.  Since negotiated prices, if any, in illiquid markets depend upon the then-present motivations of the buyer and seller, it is reasonable to assume that potential sales prices could vary widely from any estimate of fair value made without the benefit of negotiations.  Additionally, changes in market interest rates commensurate with risk may dramatically impact the value of financial instruments at any time.  Accordingly, fair value measurements for loans included in the preceding table are unlikely to represent the instruments' liquidation values.

NOTE Q—COMMITMENTS, GUARANTEES AND OTHER CONTINGENCIES

In the ordinary course of business, loan commitments are made to accommodate the financial needs of bank customers.  Loan commitments include stand-by letters of credit, lines of credit, and other commitments for commercial, installment and mortgage loans.  Stand-by letters of credit, when issued, commit the bank to make payments on behalf of customers if certain specified future events occur and are used infrequently by the banks ($5.9 million and $12.3 million outstanding at December 31, 2010 and 2009, respectively).  Other loan commitments outstanding consist of unused lines of credit and approved, but unfunded, specific loan commitments ($233.8 million and $310.5 million at December 31, 2010 and 2009, respectively).  Those loan commitments (stand-by letters of credit and unfunded loans) generally expire within one year and are reviewed periodically for continuance or renewal.

All loan commitments have credit risk essentially the same as that involved in routinely making loans to customers and are made subject to the banks' normal credit policies.  In making these loan commitments, collateral and/or personal guarantees of the borrowers are generally obtained based on management's credit assessment.

F-95

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Capitol Bancorp Limited

NOTE Q—COMMITMENTS, GUARANTEES AND OTHER CONTINGENCIES—

Continued

Capitol's banking subsidiaries are required to maintain average reserve balances in the form of cash on hand and balances due from the Federal Reserve Bank and correspondent banks.  The amount of reserve balances required as of December 31, 2010 and 2009 was $593,000 and $5.8 million, respectively.

Deposits at the banking subsidiaries are insured up to the maximum amount covered by FDIC insurance ($250,000 per relationship at December 31, 2010).  From December 31, 2010 through December 31, 2012, all noninterest-bearing transaction deposit accounts are fully insured regardless of the amount and account ownership, separate from and in addition to the FDIC insurance coverage provided for the depositors' other accounts.

Capitol has guaranteed up to $2.5 million of secured borrowings by Amera Mortgage Corporation, a less than 50%-owned affiliate.

Generally, banks are subject to cross-guaranty liability regarding other financial institutions the FDIC determines are controlled by any multibank holding company.  Pursuant to federal regulations, an insured depository institution may be liable for any loss the FDIC has incurred or expects to incur in connection with the failure of a former affiliate institution and, if the FDIC determines that remaining affiliates have a liability to the FDIC, then they would be required to pay that liability to the FDIC.  Payment of a cross-guaranty liability to the FDIC could have a material adverse impact on the results of operations, capital adequacy and financial position of Capitol and its banking subsidiaries.

To date, none of Capitol's subsidiary banks have received any notice of assessment of cross-guaranty liability.  Capitol's banks have, however, received notice from the FDIC that the FDIC may assess a cross-guaranty liability relating to a failed community bank in Florida which ceased operations in November 2009.  The FDIC alleges that the Florida bank was an affiliated institution of Capitol, although Capitol owned no securities of that bank or otherwise controlled the failed institution.  The aggregate loss to the FDIC of that failed bank approximated $23.6 million.  The FDIC has until November 2011, two years from the date of such notice, to determine whether to assess that potential cross-guaranty liability, if any.

In addition to the above-mentioned potential cross-guaranty liability, some of Capitol's banking subsidiaries were advised in December 2009 that, to mitigate the effects of any possible assessment arising from potential cross-guaranty liability, they should develop a plan to arrange a sale, merger or recapitalization such that Capitol no longer controls the bank.  This guidance was preceded by Capitol's previously-announced plans to selectively divest some of its bank subsidiaries in conjunction with reallocating capital resources to the remaining banks.  Capitol's pending divestitures are subject to regulatory approval which may take an extended period of time to obtain.

F-96

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Capitol Bancorp Limited

NOTE R—CAPITAL REQUIREMENTS AND RELATED REGULATORY MATTERS

Current banking regulations restrict the ability to transfer funds from subsidiaries to their parent in the form of cash dividends, loans or advances.  As of December 31, 2010, Capitol's bank subsidiaries were prohibited from making dividend payments to the Corporation without prior regulatory approval.

Each bank and Capitol are subject to complex capital requirements.  Federal financial institution regulatory agencies impose certain risk-based capital requirements on financial institutions and bank holding companies.  Those guidelines require all banks and bank holding companies to maintain certain minimum ratios and related amounts based on 'Tier 1' and 'Tier 2' capital and 'risk-weighted assets' as defined and periodically prescribed by the respective regulatory agencies.  Failure to meet these capital requirements can result in severe regulatory enforcement action or other adverse consequences for a depository institution and, accordingly, could have a material impact on Capitol's consolidated financial statements and financial position.

Under the regulatory capital adequacy requirements and related framework for prompt corrective action, the specific capital requirements involve quantitative measures of assets, liabilities and certain off-balance-sheet items calculated under regulatory accounting practices.  The capital amounts and classifications are also subject to qualitative judgments by regulatory agencies with regard to components, risk weighting and other factors.

As a condition of their charter approval, de novo banks are generally required to maintain a core capital (Tier 1) to average assets ratio of not less than 8% (4% for other banks) and an allowance for loan losses of not less than 1% for the first seven years of operations.

In September 2009, Capitol and its second-tier bank holding companies entered into an agreement with the Federal Reserve Bank of Chicago (the Reserve Bank) under which Capitol agreed to refrain from the following actions without the prior written consent of the Reserve Bank:  (i) declare or pay dividends; (ii) receive dividends or any other form of payment representing a reduction in capital from Michigan Commerce Bank, or from any of its subsidiary institutions that are subject to any restriction by the institution's federal or state regulator that limits the payment of dividends or other intercorporate payments; (iii) make any distributions of interest, principal, or other sums on subordinated debentures or trust-preferred securities; (iv) incur, increase or guarantee any debt; or (v) purchase or redeem any shares of the stock of Capitol, the second-tier bank holding companies, nonbank subsidiaries or any of the subsidiary banks that are held by shareholders other than Capitol.

F-97

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Capitol Bancorp Limited

NOTE R—CAPITAL REQUIREMENTS AND RELATED REGULATORY MATTERS—

Continued

In addition, Capitol agreed to:  (i) submit to the Reserve Bank a written plan to maintain sufficient capital at Capitol on a consolidated basis and at Michigan Commerce Bank (as Capitol's largest bank subsidiary and a separate legal entity on a stand-alone basis); (ii) notify the Reserve Bank no more than 30 days after the end of any quarter in which Capitol's consolidated or Michigan Commerce Bank's capital ratios fall below the approved capital plan's minimum ratios as well as if any subsidiary institution's ratios fall below the minimum ratios required by the institution's federal or state regulator; (iii) review and revise its ALLL methodology for loans held by Capitol and submit to the Reserve Bank a written program for maintenance of an adequate ALLL for loans held by Capitol; (iv) take all necessary actions to ensure each of its subsidiary institutions comply with Federal Reserve regulations; (v) refrain from increasing any fees or charging new fees to any subsidiary institution without the prior written consent of the Reserve Bank; (vi) submit to the Reserve Bank a written plan to enhance the consolidated organization's risk management practices, a strategic plan to improve the consolidated organization's operating results and overall condition and a cash flow projection; (vii) comply with laws and regulations regarding senior executive officer positions and severance payments; and (viii) provide quarterly reports to the Reserve Bank regarding these undertakings.

Many of Capitol's bank subsidiaries have entered into formal agreements (as well as informal agreements) with their applicable regulatory agencies.  Those agreements provide for certain restrictions and other guidelines and/or limitations to be followed by the banks.  The banks generally subject to such agreements are noted as such in the regulatory capital summary appearing on page F-35 of this document.

The FDIC may issue Prompt Corrective Action Notifications (PCAN) to banking subsidiaries falling below the "adequately-capitalized" regulatory-capital classification, and subsequently may issue Prompt Correction Action Directives (PCAD).  PCADs may be issued when a bank, which has previously received a PCAN, has submitted two consecutive capital restoration plans which have been rejected by the FDIC.

Certain banking subsidiaries have recently received a PCAN and/or a PCAD, which are listed on page F-38 of this document.  For each banking subsidiary which has received a PCAN, capital restoration plans have been requested by the FDIC, prepared and resubmitted for regulatory review and approval.  For banks in receipt of a PCAD, those institutions are striving to develop and implement capital restoration plans which may be subsequently acceptable to the FDIC.

F-98

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Capitol Bancorp Limited

NOTE R—CAPITAL REQUIREMENTS AND RELATED REGULATORY MATTERS—

Continued

The following table summarizes the amounts (in $1,000s) and related ratios of Capitol's consolidated regulatory capital position:

		December 31
		2010				2009
Tier 1 capital to average adjusted total assets:
Minimum required amount	≥	$	155,224		≥	$	210,651
Actual amount		$	(39,980	)		$	242,547
Ratio			(1.03	)%			4.61	%
Tier 1 capital to risk-weighted assets:
Minimum required amount(1)	≥	$	110,909		≥	$	162,089
Actual amount		$	(39,980	)		$	242,547
Ratio			(1.44	)%			5.99	%
Combined Tier 1 and Tier 2 capital to risk-    weighted assets:
Minimum required amount(2)	≥	$	221,818		≥	$	324,177
Actual amount		$	(39,980	)		$	383,449
Ratio			(1.44	)%			9.46	%

(1)	The minimum required ratio of Tier 1 capital to risk-weighted assets to be considered adequately-capitalized is 4%.
(2)	The minimum required ratio of Tier 1 and Tier 2 capital to risk-weighted assets to be considered adequately-capitalized is 8%.

Capitol's total risk-based capital ratio at December 31, 2010 was materially and adversely impacted by the exclusion of approximately $203.7 million of previously-qualifying Tier 2 capital, inasmuch as Tier 2 capital is limited to 100% of Tier 1 capital, primarily trust-preferred securities and a portion of the allowance for loan losses.  The Tier 1 capital deficit at year-end 2010 resulted from operating losses; however, a Tier 2 limitation, primarily due to the exclusion of trust-preferred securities, did not apply to Capitol's regulatory capital computations at earlier measurement dates prior to 2010.

The preceding summary indicates that Capitol, on a consolidated basis, was classified as less than adequately-capitalized at December 31, 2010.  In addition, several of its bank subsidiaries had capital levels resulting in classification as "undercapitalized" or "significantly-undercapitalized" at that date.  Additionally, two bank subsidiaries had capital levels resulting in regulatory classification as "critically-undercapitalized" at that date; however, each of those subsidiaries received additional capital from the Corporation in January 2011 to improve their classifications to "significantly-undercapitalized."

F-99

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Capitol Bancorp Limited

NOTE R—CAPITAL REQUIREMENTS AND RELATED REGULATORY MATTERS—

Continued

Banks and bank holding companies which are less than adequately-capitalized are subject to increased regulatory oversight, intervention, requirements and limitations.  Regarding banks classified as less than adequately-capitalized, or otherwise noncompliant with formal regulatory agreements, management is taking action to improve such capital classifications and related compliance in the future, subject to the availability of capital and continued cooperation by regulatory agencies (see Note U).

NOTE S—PARENT COMPANY FINANCIAL INFORMATION

Condensed Balance Sheets

	-December 31-
	2010			2009
	(in $1,000s)
Assets
Cash on deposit, principally with subsidiary banks	$	1,370		$	2,081
Money market funds on deposit, principally with subsidiary banks		6,535			880
Cash and cash equivalents		7,905			2,961
Investment securities		719			3,151
Loans, net		5,004			9,931
Investments in and advances to subsidiaries		162,639			355,840
Investment in and advances to Amera Mortgage Corporation		478			432
Investment in and advances to CDBL III		1,340			1,495
Equipment, software and furniture, net		1,998			7,159
Other assets		936			19,751
Total assets	$	181,019		$	400,720
Liabilities and Stockholders' Equity
Liabilities:
Accounts payable, accrued expenses and other liabilities	$	35,270		$	26,486
Debt obligations		8,431			14,011
Subordinated debentures		199,172			198,888
Total liabilities		242,873			239,385
Stockholders' equity (deficit)		(61,854	)		161,335
Total liabilities and stockholders' equity	$	181,019		$	400,720

F-100

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Capitol Bancorp Limited

NOTE S—PARENT COMPANY FINANCIAL INFORMATION—Continued

Condensed Statements of Operations

	-Year Ended December 31-
	2010			2009			2008
	(in $1,000s)
Income:
Intercompany fees	$	22,057		$	35,243		$	28,847
Dividends from subsidiaries		5,000			964			19,634
Interest		996			1,596			169
Gain on sales of bank subsidiaries		12,749			1,187
Other		551			2,034			3,318
Total income		41,353			41,024			51,968
Expenses:
Interest		15,427			15,292			14,372
Salaries and employee benefits		14,771			24,032			22,415
Occupancy		2,264			2,297			2,509
Equipment rent and depreciation		3,205			6,236			4,700
Goodwill impairment		38,718
Other		9,236			8,995			5,332
Total expenses		83,621			56,852			49,328
Income (loss) before equity in undistributed net losses of consolidated subsidiaries and income taxes		(42,268	)		(15,828	)		2,640
Equity in net losses of consolidated subsidiaries		(189,553	)		(176,669	)		(39,320	)
Loss before income taxes		(231,821	)		(192,497	)		(36,680	)
Income taxes (credit)		(6,606	)		2,672			(8,073	)
Net loss	$	(225,215	)	$	(195,169	)	$	(28,607	)

[The remainder of this page intentionally left blank]

F-101

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Capitol Bancorp Limited

NOTE S—PARENT COMPANY FINANCIAL INFORMATION—Continued

Condensed Statements of Cash Flows

	-Year Ended December 31-
	2010			2009			2008
	(in $1,000s)
OPERATING ACTIVITIES
Net loss	$	(225,215	)	$	(195,169	)	$	(28,607	)
Adjustments to reconcile net loss to net cash provided (used) by operating activities:
Equity in net losses of consolidated subsidiaries		189,553			176,669			39,320
Depreciation and amortization of intangibles		1,690			2,624			2,583
Goodwill impairment		38,718
Loss on sale of equipment and furniture		4			116
Gain on sales of bank subsidiaries		(12,749	)		(1,187	)
Gain on debt extinguishment		(1,255	)
Realized loss on sale of investment securities		362
Decrease (increase) in amounts due from subsidiaries and other assets		9,367			(7,819	)		(25,179	)
Increase in accounts payable, accrued expenses and other liabilities		8,784			15,784			932
NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES		9,259			(8,982	)		(10,951	)
INVESTING ACTIVITIES
Net cash investments in subsidiaries		(79,084	)		(25,073	)		(35,145	)
Proceeds from sale of investment securities		2,102
Purchases of investment securities		(100	)		(772	)		(1,800	)
Net decrease in loans		4,927			8,760			9,551
Proceeds from sales of equipment and furniture		3,707			35
Purchases of equipment and furniture		(240	)		(575	)		(1,622	)
Proceeds from sales of bank subsidiaries		58,796			9,506
NET CASH USED BY INVESTING ACTIVITIES		(9,892	)		(8,119	)		(29,016	)
FINANCING ACTIVITIES
Net borrowings (payments) from debt obligations		(1,000	)		(6,000	)		20,011
Net proceeds from issuance of subordinated debentures								34,555
Net proceeds from issuance of common stock		6,870						1,950
Tax benefit (effect) from share-based payments		(293	)		(169	)		20
Cash dividends paid					(864	)		(8,658	)
NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES		5,577			(7,033	)		47,878
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS		4,944			(24,134	)		7,911
Cash and cash equivalents at beginning of year		2,961			27,095			19,184
CASH AND CASH EQUIVALENTS AT END OF YEAR	$	7,905		$	2,961		$	27,095

F-102

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Capitol Bancorp Limited

NOTE T—DECONSOLIDATION OF SUBSIDIARIES

As of December 31, 2009, Community Bank of Rowan (CBR) and Summit Bank of Kansas City were majority-owned subsidiaries of CDBL III of which Capitol ceased to have majority voting control effective September 30, 2009 when the previously-nonvoting Class B shares of CDBL III became voting.  Accordingly, those banks and CDBL III ceased to be consolidated subsidiaries of Capitol and assets approximating $257.7 million and related equity amounts were removed from the consolidated balance sheet.  Effective June 30, 2010, CDBL III transferred its controlling interest in CBR to Capitol in exchange for preferred stock of Capitol and, accordingly, CBR became a consolidated subsidiary of Capitol on that date.

NOTE U—GOING-CONCERN CONSIDERATIONS

As of December 31, 2010, there are several significant adverse aspects of Capitol's consolidated financial position and results of operations which include, but are not limited to, the following:

·   An equity deficit approximating $38.7 million;

·   Regulatory capital classification on a consolidated basis as less than adequately-capitalized and related negative amounts and ratios;

·   Numerous banking subsidiaries with regulatory capital classification as "undercapitalized," "significantly-undercapitalized" or "critically-undercapitalized" (two banks were classified as "critically-undercapitalized" at December 31, 2010 and obtained sufficient additional capital from the Corporation in early 2011 to improve their classification to "significantly-undercapitalized");

·   Certain banking subsidiaries which are generally subject to formal regulatory agreements have received "prompt corrective action" notifications and/or directives from the FDIC, which require timely action by bank management and the respective boards of directors to resolve regulatory capital ratios which result in classification as less than adequately-capitalized (the basis of a PCAN) or to submit an acceptable capital restoration plan to the FDIC (the basis of a PCAD), and it is likely additional PCANs and/or PCADs may be issued in the future and/or the banking subsidiaries may be unable to satisfactorily resolve such notices and/or directives;

·   In 2010, Capitol sold several of its banking subsidiaries and has other divestiture transactions pending (see Note L).  The proceeds from those divestitures have been redeployed at certain remaining banking subsidiaries which have experienced a significant erosion of capital due to operating losses.  While such proceeds have been a significant source of funds for redeployment, the Corporation will need to raise significant other sources of new capital in the future;

F-103

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Capitol Bancorp Limited

NOTE U—GOING-CONCERN CONSIDERATIONS—Continued

·   The Corporation and substantially all of its banking subsidiaries are operating under various regulatory agreements (formal and informal) which place a number of restrictions on them and impose other requirements limiting activities, requiring preservation of capital, improvement in regulatory capital measures, reduction of nonperforming assets and other things for which the entities have not achieved full compliance;

·   Elevated levels of nonperforming loans and other nonperforming assets as a percentage of consolidated loans and total assets, respectively; and

·   Significant losses from operations in 2010, 2009 and 2008, resulting primarily from provisions for loan losses, costs associated with foreclosed properties and other real estate owned and, in 2010, an impairment charge to operations for the write-off of previously-recorded goodwill ($64.5 million).

The foregoing considerations raise some level of doubt (potentially "substantial doubt") as to the Corporation's ability to continue as a going concern.  Such substantial doubt is discussed in the Report of Independent Registered Public Accounting Firm set forth on page F-53.

Capitol has commenced several initiatives and other actions to mitigate these going-concern considerations and to improve the Corporation's financial condition, equity, regulatory capital and regulatory compliance.

In December 2010, Capitol announced a comprehensive capital strategy which includes the following:

·   An offer to exchange all outstanding trust-preferred securities;

·   Amendment to Capitol's articles of incorporation to authorize additional shares of common stock;

·   A potential shareholder rights offering; and

·   A potential reverse stock split.

In early 2011, a partial exchange of trust-preferred securities was completed and the Corporation's stockholders approved the amendment to the articles of incorporation to increase its authorized common stock and authorize its board of directors to proceed with a rights offering and reverse stock split, in addition to a potential share-exchange regarding second-tier bank-development subsidiaries (see Note V).

F-104

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Capitol Bancorp Limited

NOTE U—GOING-CONCERN CONSIDERATIONS—Continued

Improvement in Capitol's and its banking subsidiaries' capitalization, financial position, asset quality and results of operations requires multi-faceted efforts, which are currently being pursued aggressively in the following areas, among others:

·   Raising significant amounts of new capital;

·   Completion of divestitures which are currently pending;

·   A shareholder rights offering;

·   Further reductions in nonperforming assets;

·   Stabilization of provisions for loan losses and impairment losses;

·   Enabling Capitol's trust-preferred securities to become a qualifying element of regulatory capital and/or equity, subject to various limitations; and

·   Further reductions in operating expenses through mergers of bank subsidiaries completed in recent years.

Capitol's ability to continue as a going concern is contingent on the successful achievement of the items listed above.  Capitol's board of directors and management are fully engaged and committed to successful completion of those items, with a clear sense of urgency, subject to the availability of capital and continued cooperation by regulatory agencies.

NOTE V—SUBSEQUENT EVENTS

On January 31, 2011, Capitol accepted for exchange 1,180,602 of the 2,530,000 outstanding shares of trust-preferred securities of Capitol Trust I and 773,934 of the 1,454,100 outstanding shares of trust-preferred securities of Capitol Trust XII and, pursuant to the related exchange offer, issued approximately 19.5 million of previously-unissued shares of Capitol's common stock.  Such exchange resulted in the retirement of approximately $19.5 million aggregate liquidation amount of the trust-preferred securities on a combined basis and eliminated approximately $2.4 million of accrued interest payable associated with the retired securities, which collectively increased Capitol's equity and regulatory capital by $21.9 million.

In March 2011, Capitol's articles of incorporation were amended to increase its number of authorized shares from 70 million to 1.52 billion, of which 1.5 billion shares are classified as common stock and 20 million are classified as preferred stock.  Such amendment was approved at a special meeting of holders of the Corporation's common stock.  At that special meeting, a future reverse stock split at a later date was authorized, subject to the discretion of Capitol's board of directors as to the provisions of such reverse stock split, if any.

F-105

EX-21

    exhibit21.htm
    
    
    

EX-23

EXHIBIT 23

Consent of Independent Registered Public Accounting Firm

Capitol Bancorp Ltd.

Lansing, Michigan

We hereby consent to the incorporation by reference in Registration Statements Nos. 333-15111, 333-153121, 333-122278, 333-104665, 333-84009, and 333-41215 on Form S-3, Registration Statements Nos. 333-157263, 333-139235, 333-137910, 333-137367, 333-129778, 333-128850, 333-124417, 333-116571, 333-113931, and 333-115110 on Form S-4 and Registration Statements Nos. 333-122278, 333-144180, 333-137092, 333-126206, 333-105339, 333-105314, 333-99175, 333-97189 and 333-30521 on Form S-8 of Capitol Bancorp Ltd. of our report dated March 31, 2011, relating to the consolidated financial statements, which appears on page F-53 in the Annual Report to shareholders (Financial Information Section), which is incorporated in this Annual Report on Form 10-K for the fiscal year ended December 31, 2010.

The accompanying consolidated financial statements have been prepared assuming that the Corporation will continue as a going concern.  As discussed in Note U to the consolidated financial statements, the Corporation and substantially all of its subsidiary banks have suffered significant losses from operations in 2010, 2009 and 2008 primarily from large provisions for loan losses and costs associated with nonperforming assets, suffered a decline in regulatory capital to support operations, and experienced regulatory issues that raise substantial doubt about the Corporation's ability to continue as a going concern.  Management's plans in regard to these matters are also described in Note U.  The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

/s/ BDO USA, LLP

March 31, 2011

Grand Rapids, Michigan

EX-31.1

EXHIBIT 31.1

Chief Executive Officer Certification

Pursuant to Rule 13a-14(a) and 15d-14(a)

of the Securities and Exchange Act of 1934, as amended.

I, Joseph D. Reid, certify that:

1.	I have reviewed this annual report on Form 10-K of Capitol Bancorp Ltd.;
2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.	The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
	(a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
	(b)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
	(c)	Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

	(d)	Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5.	The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
	(a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
	(b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

    Date:  March 31, 2011       /s/ Joseph D. Reid                                                                                Joseph D. Reid Chief Executive Officer

EX-31.2

EXHIBIT 31.2

Chief Financial Officer Certification

Pursuant to Rule 13a-14(a) and 15d-14(a)

of the Securities and Exchange Act of 1934, as amended.

I, Lee W. Hendrickson, certify that:

1.	I have reviewed this annual report on Form 10-K of Capitol Bancorp Ltd.;
2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.	The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
	(a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
	(b)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
	(c)	Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

	(d)	Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5.	The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
	(a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
	(b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

    Date:  March 31, 2011       /s/ Lee W. Hendrickson                                                                                  Lee W. Hendrickson Chief Financial Officer

EX-32.1

EXHIBIT 32.1

Chief Executive Officer Certification

Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906

of the Sarbanes-Oxley Act of 2002

In connection with the annual report of Capitol Bancorp Ltd. (the "Company") on Form 10-K (the "Form 10-K") for the year ended December 31, 2010 as filed with the Securities and Exchange Commission on the date hereof, I, Joseph D. Reid, the Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge:

1.	The Form 10-K fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)); and
2.	The information contained in the Form 10-K fairly presents, in all material respects, the financial condition and results of operations of the Company.

    Date:  March 31, 2011       /s/ Joseph D. Reid                                                                               Joseph D. Reid Chief Executive Officer

The foregoing certification (i) accompanies the filing and is being furnished solely pursuant to 18 U.S.C. § 1350, (ii) will not be deemed "filed" for purposes of Section 18 of the Securities Exchange Act of 1934, or otherwise subject to the liability of that section, and (iii) will not be deemed to be incorporated by reference into any filing under the Securities Act of 1933 or the Exchange Act, except to the extent that the registrant specifically incorporates it by reference.

A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to Capitol Bancorp Ltd. and will be retained by Capitol Bancorp Ltd. and furnished to the Securities and Exchange Commission or its staff upon request.

EX-32.2

EXHIBIT 32.2

Chief Financial Officer Certification

Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906

of the Sarbanes-Oxley Act of 2002

In connection with the annual report of Capitol Bancorp Ltd. (the "Company") on Form 10-K (the "Form 10-K") for the year ended December 31, 2010 as filed with the Securities and Exchange Commission on the date hereof, I, Lee W. Hendrickson, the Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge:

1.	The Form 10-K fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)); and
2.	The information contained in the Form 10-K fairly presents, in all material respects, the financial condition and results of operations of the Company.

    Date:  March 31, 2011       /s/ Lee W. Hendrickson                                                                           Lee W. Hendrickson Chief Financial Officer

The foregoing certification (i) accompanies the filing and is being furnished solely pursuant to 18 U.S.C. § 1350, (ii) will not be deemed "filed" for purposes of Section 18 of the Securities Exchange Act of 1934, or otherwise subject to the liability of that section, and (iii) will not be deemed to be incorporated by reference into any filing under the Securities Act of 1933 or the Exchange Act, except to the extent that the registrant specifically incorporates it by reference.

A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to Capitol Bancorp Ltd. and will be retained by Capitol Bancorp Ltd. and furnished to the Securities and Exchange Commission or its staff upon request.