10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

T	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
	SECURITIES EXCHANGE ACT OF 1934
	For the quarterly period ended March 31, 2011
	OR
£	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
	SECURITIES EXCHANGE ACT OF 1934
	For the transition period from ________________ to ________________

Commission file number:  001-31708

CAPITOL BANCORP LTD.

(Exact name of registrant as specified in its charter)

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

517-487-6555

(Registrant's telephone number, including area code)

Not applicable

(Former name, former address and former fiscal year, if changed since last report)

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

Yes   T No   £

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

Yes   £ No   £

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

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

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

Yes   £ No   T

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

Class	Outstanding at April 30, 2011
Common Stock, No par value	41,122,057 shares

Page 1 of 57

INDEX

PART I.                      FINANCIAL INFORMATION

Forward-Looking Statements

Some statements contained in this document, including consolidated financial statements of Capitol Bancorp Limited (Capitol or the Corporation), 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 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 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 bank 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 (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;

·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;

Page 2 of 57

INDEX – Continued

PART I.                      FINANCIAL INFORMATION – Continued

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 each of Capitol's subsidiary banks' 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;

·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;

Page 3 of 57

INDEX – Continued

PART I.                      FINANCIAL INFORMATION – Continued

Forward-Looking Statements – Continued

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

·The possibility of the Federal Deposit Insurance Corporation (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 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 may 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;

·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.

Page 4 of 57

INDEX – Continued

PART I.                      FINANCIAL INFORMATION – Continued

Forward-Looking Statements – Continued

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 Form 10-Q and Capitol's other periodic filings, including its 2010 Annual Report on Form 10-K, 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.

Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual outcomes may vary materially from those indicated.  All subsequent written or oral forward-looking statements attributable to Capitol or persons acting on its behalf are expressly qualified in their entirety by the foregoing factors.  Investors and other interested parties are cautioned not to place undue reliance on such statements, which speak as of the date of such statements.  Capitol undertakes no obligation to release publicly any revisions to these forward-looking statements to reflect events or circumstances after the date of such statements or to reflect the occurrence of unanticipated events.

Item 1.	Financial Statements (unaudited):	Page
	Condensed consolidated balance sheets – March 31, 2011 and December 31, 2010.	6
	Condensed consolidated statements of operations – Three months ended March 31, 2011 and 2010.	7
	Condensed consolidated statements of changes in equity – Three months ended March 31, 2011 and 2010.	8
	Condensed consolidated statements of cash flows – Three months ended March 31, 2011 and 2010.	9
	Notes to condensed consolidated financial statements.	10
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations.	30
Item 3.	Quantitative and Qualitative Disclosures About Market Risk.	49
Item 4.	Controls and Procedures.	49
PART II.	OTHER INFORMATION
Item 1.	Legal Proceedings.	50
Item 1A.	Risk Factors.	50
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds.	50
Item 3.	Defaults Upon Senior Securities.	50
Item 4.	[Removed and Reserved.]	50
Item 5.	Other Information.	50
Item 6.	Exhibits.	55
SIGNATURES		56
EXHIBIT INDEX		57

[The remainder of this page intentionally left blank]

Page 5 of 57

PART I, ITEM 1
CAPITOL BANCORP LIMITED
Condensed Consolidated Balance Sheets
As of March 31, 2011 and December 31, 2010
(in $1,000s, except share and per-share data)
		(Unaudited)
		March 31,			December 31,
		2011			2010
ASSETS
Cash and due from banks		$	77,008		$	56,709
Money market and interest-bearing deposits			459,002			477,639
Federal funds sold			484			413
	Cash and cash equivalents		536,494			534,761
Loans held for sale			1,710			6,900
Investment securities -- Note C:
Available for sale, carried at fair value			20,954			17,482
Held for long-term investment, carried at
amortized cost which approximates fair value			2,330			2,893
	Total investment securities		23,284			20,375
Federal Home Loan Bank and Federal Reserve
Bank stock (carried on the basis of cost) -- Note C			17,811			17,001
Portfolio loans -- Note D:
Loans secured by real estate:
Commercial			1,346,584			1,374,791
Residential (including multi-family)			497,315			518,943
Construction, land development and other land			216,993			230,788
	Total loans secured by real estate		2,060,892			2,124,522
Commercial and other business-purpose loans			350,873			375,968
Consumer			22,066			23,375
Other			16,890			15,133
	Total portfolio loans		2,450,721			2,538,998
Less allowance for loan losses			(136,681	)		(144,985	)
	Net portfolio loans		2,314,040			2,394,013
Premises and equipment			34,212			35,203
Accrued interest income			8,526			8,628
Other real estate owned			110,829			106,835
Other assets			15,555			17,965
Assets of discontinued operations -- Note E			134,501			398,533
TOTAL ASSETS		$	3,196,962		$	3,540,214
LIABILITIES AND EQUITY
LIABILITIES:
Deposits:
Noninterest-bearing		$	531,455		$	500,809
Interest-bearing			2,276,515			2,373,492
	Total deposits		2,807,970			2,874,301
Debt obligations:
Notes payable and other borrowings			106,052			117,377
Subordinated debentures -- Note I			149,080			167,586
	Total debt obligations		255,132			284,963
Accrued interest on deposits and other liabilities			48,049			50,271
Liabilities of discontinued operations -- Note E			124,799			369,360
	Total liabilities		3,235,950			3,578,895
EQUITY:
Capitol Bancorp Limited stockholders' equity -- Notes G and L:
Preferred stock (Series A), 700,000 shares authorized
($100 per-share liquidation preference); 50,980 shares
issued and outstanding			5,098
Preferred stock (for potential future issuance),
19,300,000 shares authorized (none issued and outstanding)			--			--
Common stock, no par value, 1,500,000,000 shares authorized;
issued and outstanding:   2011 - 41,122,757 shares
2010 - 21,614,856 shares			292,354			287,190
Retained-earnings deficit			(353,468	)		(353,757	)
Undistributed common stock held by employee-benefit trust			(541	)		(541	)
Fair value adjustment (net of tax effect) for investment securities
available for sale (accumulated other comprehensive income)			132			156
Total Capitol Bancorp Limited stockholders' equity deficit			(56,425	)		(61,854	)
Noncontrolling interests in consolidated subsidiaries			17,437			23,173
	Total equity deficit		(38,988	)		(38,681	)
TOTAL LIABILITIES AND EQUITY		$	3,196,962		$	3,540,214
See notes to condensed consolidated financial statements.

Page 6 of 57

CAPITOL BANCORP LIMITED
Condensed Consolidated Statements of Operations (Unaudited)
For the Three Months Ended March 31, 2011 and 2010
(in $1,000s, except per share data)
	2011				2010
Interest income:
Portfolio loans (including fees)		$	34,792		$	41,796
Loans held for sale			29			60
Taxable investment securities			54			222
Federal funds sold			2			5
Other			454			485
Total interest income			35,331			42,568
Interest expense:
Deposits			8,027			13,300
Debt obligations and other			3,113			4,428
Total interest expense			11,140			17,728
Net interest income			24,191			24,840
Provision for loan losses -- Note D			13,467			47,364
Net interest income (deficiency) after
provision for loan losses			10,724			(22,524	)
Noninterest income:
Service charges on deposit accounts			905			978
Trust and wealth-management revenue			944			1,152
Fees from origination of non-portfolio residential
mortgage loans			268			382
Gain on sale of government-guaranteed loans			527			113
Gain on exchange of trust-preferred securities for
common stock -- Note I			16,861			--
Gain on exchange of promissory notes for common
stock			--			1,255
Realized gain on sale of investment securities available
for sale			--			14
Other			1,887			2,330
Total noninterest income			21,392			6,224
Noninterest expense:
Salaries and employee benefits			15,529			18,223
Occupancy			3,612			3,751
Equipment rent, depreciation and maintenance			2,187			2,669
Costs associated with foreclosed properties and other
real estate owned			7,497			11,593
FDIC insurance premiums and other regulatory fees			3,296			4,134
Other			7,800			6,691
Total noninterest expense			39,921			47,061
Loss before income tax benefit			(7,805	)		(63,361	)
Income tax benefit			(2,135	)		(482	)
Loss from continuing operations			(5,670	)		(62,879	)
Discontinued operations -- Note E:
Income from operations of bank subsidiaries sold			16			1,533
Gain on sale of bank subsidiaries			4,368			--
Less income tax expense			1,488			594
Income from discontinued operations			2,896			939
NET LOSS			(2,774	)		(61,940	)
Net losses attributable to noncontrolling interests in
consolidated subsidiaries			3,063			14,058
NET INCOME (LOSS) ATTRIBUTABLE TO CAPITOL
BANCORP LIMITED		$	289		$	(47,882	)
NET INCOME (LOSS) PER COMMON SHARE ATTRIBUTABLE
TO CAPITOL BANCORP LIMITED -- Note H		$	0.01		$	(2.75	)
See notes to condensed consolidated financial statements.

Page 7 of 57

Page 8 of 57

CAPITOL BANCORP LTD.
Condensed Consolidated Statements of Cash Flows (Unaudited)
For the Three Months Ended March 31, 2011 and 2010
(in $1,000s)
	2011			2010
OPERATING ACTIVITIES
Net loss	$	(2,774	)	$	(61,940	)
Adjustments to reconcile net loss to net cash provided
by operating activities (including discontinued operations):
Provision for loan losses		13,961			50,100
Depreciation of premises and equipment		1,597			2,199
Amortization of intangibles		--			61
Net amortization of investment security premiums		3			266
Loss on sale of premises and equipment		4			1
Gain on sale of government-guaranteed loans		(786	)		(462	)
Gain on sale of bank subsidiaries		(4,368	)		--
Gain on debt extinguishment		(16,861	)		(1,255	)
Realized gain on sale of investment securities available for sale		--			(14	)
Loss on sale of other real estate owned		134			1,774
Write-down of other real estate owned		4,223			8,620
Amortization of issuance costs of subordinated debentures		25			37
Share-based compensation expense		99			223
Deferred income tax credit		(230	)		(267	)
Valuation allowance for deferred income tax assets		--			283
Originations and purchases of loans held for sale		(9,516	)		(29,344	)
Proceeds from sales of loans held for sale		14,847			38,598
Decrease in accrued interest income and other assets		17,262			8,720
Increase (decrease) in accrued interest expense on deposits and
other liabilities		1,187			(2,264	)
NET CASH PROVIDED BY OPERATING ACTIVITIES		18,807			15,336
INVESTING ACTIVITIES
Proceeds from sales of investment securities available for sale		488			23,664
Proceeds from calls, prepayments and maturities of investment
securities		6,766			7,164
Purchases of investment securities		(10,265	)		(2,307	)
Redemption of Federal Home Loan Bank stock by issuer		42			225
Purchase of Federal Home Loan Bank stock		(849	)		(87	)
Net decrease in portfolio loans		40,531			66,679
Proceeds from sales of government-guaranteed loans		11,628			10,570
Proceeds from sales of premises and equipment		50			112
Purchases of premises and equipment		(592	)		(254	)
Proceeds from sale of bank subsidiaries		8,869			--
Payments received on other real estate owned		14			--
Proceeds from sales of other real estate owned		7,988			11,605
NET CASH PROVIDED BY INVESTING ACTIVITIES		64,670			117,371
FINANCING ACTIVITIES
Net increase in demand deposits, NOW accounts and savings accounts		42,353			37,607
Net increase (decrease) in certificates of deposit		(112,350	)		6,121
Net borrowings from debt obligations		425			56
Proceeds from Federal Home Loan Bank borrowings		91,350			271,380
Payments on Federal Home Loan Bank borrowings		(103,250	)		(317,135	)
Net proceeds from issuance of common stock		--			20
Tax effect of share-based payments		(17	)		(22	)
NET CASH USED BY FINANCING ACTIVITIES		(81,489	)		(1,973	)
INCREASE IN CASH AND CASH EQUIVALENTS		1,988			130,734
Change in cash and cash equivalents of discontinued operations		(255	)		(28,947	)
Cash and cash equivalents at beginning of period		534,761			667,881
CASH AND CASH EQUIVALENTS AT END OF PERIOD	$	536,494		$	769,668
Supplemental disclosures:
Cash paid during the period for interest on deposits and debt obligations	$	11,914		$	21,387
Transfers of loans to other real estate owned		17,671			20,194
Surrender of common stock to facilitate vesting of restricted stock		--			2
Exchange of common stock for redemption of debt		5,082			3,325
See notes to condensed consolidated financial statements.

Page 9 of 57

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

CAPITOL BANCORP LIMITED

Note A – Basis of Presentation

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

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

The results of operations for the period ended March 31, 2011 are not necessarily indicative of the results to be expected for the year ending December 31, 2011.

The consolidated balance sheet as of December 31, 2010 was derived from audited consolidated financial statements as of that date.  Certain 2010 amounts have been reclassified to conform to the 2011 presentation.

Capitol's ability to continue to operate as a going concern is contingent upon a number of factors which are discussed on page 41 of this document, as well as a variety of risk factors discussed elsewhere in this document and Capitol's other filings with the SEC.  Capitol's auditors included a going concern qualification in the most recent report on the Corporation's audited consolidated financial statements as of December 31, 2010.

Note B – Accounting Standards Updates

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 rollforward of activity in Level 3 fair-value measurements which became effective beginning January 1, 2011.  These new disclosures did not have a material effect on the Corporation's consolidated financial statements upon implementation.

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.

The majority of the disclosures under this new guidance, which are required as of the end of a reporting period, were first implemented in 2010 and are set forth in Note D.  The disclosures about activity that occurs during a reporting period, except for the disclosures related to troubled debt restructurings which were further delayed as noted below, became effective January 1, 2011 and did not have an effect on the Corporation's consolidated financial statements upon implementation except for expanded disclosures therein as set forth in Note D.

Page 10 of 57

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

CAPITOL BANCORP LIMITED – Continued

Note B – Accounting Standards Updates – Continued

In April 2011, an accounting standards update was issued clarifying what constitutes a troubled debt restructuring.  When performing the evaluation of whether a loan modification or restructuring constitutes a troubled debt restructuring, a creditor must separately conclude that both of the following exist: (1) the modification constitutes a concession and (2) the debtor is experiencing financial difficulties as defined by the guidance.  This guidance also clarifies that a creditor is precluded from using the borrower's effective interest rate test when performing this evaluation.  For identification and disclosure purposes, this new guidance is effective beginning in the third quarter of 2011 and is to be applied retrospectively to modifications occurring on or after January 1, 2011 that remain outstanding at September 30, 2011.  The guidance requires disclosure of the total recorded investment and allowance for loan losses for newly-identified troubled debt restructurings, based on the new guidance, as of September 30, 2011.  The previously-deferred troubled debt restructuring activity related disclosures will be concurrently required.  Management has not completed its analysis of this new guidance, however, does not expect the new guidance will have a material effect on the Corporation's consolidated financial statements upon implementation beginning in the third quarter of 2011.

In April 2011, an accounting standards update was issued to improve financial reporting of repurchase agreements and other agreements that both entitle and obligate a transferor to repurchase or redeem financial assets on substantially the agreed upon terms.  This standard eliminates consideration of the transferor's ability to fulfill its contractual rights and obligations from the criteria, as well as related implementation guidance (i.e., that it possesses adequate collateral to fund substantially all the cost of purchasing replacement financial assets), in determining effective control, even in the event of default by the transferee.  Other criteria applicable to the assessment of effective control are not changed by this new guidance.  This new guidance will become effective January 1, 2012 and management does not expect it to have a material effect on the Corporation's results of operations or financial position upon implementation.

Note C – Investment Securities

Investments in Federal Home Loan Bank and Federal Reserve Bank stock are combined and classified separately from investment securities in the condensed consolidated balance sheet, are restricted and may only be resold to, or redeemed by, the issuer.

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

	March 31, 2011				December 31, 2010(1)
	Amortized Cost		Estimated Fair Value		Amortized Cost		Estimated Fair Value
Available for sale:
United States treasury	$	4,041	$	4,045	$	503	$	506
United States government agency		12,847		12,856		12,664		12,680
Mortgage-backed		3,518		3,676		3,758		3,918
Municipalities		370		377		371		378
		20,776		20,954		17,296		17,482
Held for long-term investment:
Capitol Development Bancorp Limited III		457		457		463		463
Corporate		1,873		1,873		2,430		2,430
		2,330		2,330		2,893		2,893
	$	23,106	$	23,284	$	20,189	$	20,375

(1)      Excludes amounts related to discontinued operations.

Page 11 of 57

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

CAPITOL BANCORP LIMITED – Continued

Note C – Investment Securities – Continued

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 the scope of such accounting rules, they are included in Capitol's investment securities for financial reporting purposes to summarize all such investment securities together for reporting purposes.

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

	March 31, 2011				December 31, 2010
	Gains		Losses		Gains		Losses
United States treasury	$	4			$	3
United States government agency		15	$	6		17	$	1
Mortgage-backed		158				160
Municipalities		7				7
	$	184	$	6	$	187	$	1

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

	March 31, 2011				December 31, 2010
	Unrealized Loss		Carrying Value		Unrealized Loss		Carrying Value
One year or less:
United States government agency	$	6	$	5,002	$	1	$	4,794

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

Scheduled maturities of investment securities held as of March 31, 2011 were as follows (in $1,000s):

	Amortized Cost		Estimated Fair Value
Due in one year or less	$	4,561	$	4,567
After one year, through five years		8,286		8,307
After five years, through ten years		690		717
After ten years		7,239		7,363
Securities held for long-term investment
without stated maturities		2,330		2,330
	$	23,106	$	23,284

Page 12 of 57

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

CAPITOL BANCORP LIMITED – Continued

Note D – Loans

The following tables present the allowance for loan losses and the carrying amount of loans based on management's overall impairment evaluation methodology (in $1,000s), and should not be interpreted as an indication of future charge-offs:

	March 31, 2011
	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	$	10,946	$	5,767	$	5,792	$	6,831					$	29,336
Collectively evaluated
for impairment		44,751		23,441		14,890		23,056	$	1,031	$	176		107,345
Total allowance for
loan losses	$	55,697	$	29,208	$	20,682	$	29,887	$	1,031	$	176	$	136,681
Portfolio loans:
Individually evaluated
for impairment	$	171,224	$	59,005	$	56,493	$	24,780	$	22			$	311,524
Collectively evaluated
for impairment		1,175,360		438,310		160,500		326,093		22,044	$	16,890		2,139,197
Total portfolio loans	$	1,346,584	$	497,315	$	216,993	$	350,873	$	22,066	$	16,890	$	2,450,721

	December 31, 2010
	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	$	10,101	$	5,828	$	6,914	$	6,108					$	28,951
Collectively evaluated
for impairment		44,322		33,200		14,201		23,278	$	858	$	175		116,034
Total allowance for
loan losses	$	54,423	$	39,028	$	21,115	$	29,386	$	858	$	175	$	144,985
Portfolio loans:
Individually evaluated
for impairment	$	178,576	$	57,923	$	64,345	$	26,914	$	22			$	327,780
Collectively evaluated
for impairment		1,196,215		461,020		166,443		349,054		23,353	$	15,133		2,211,218
Total portfolio loans	$	1,374,791	$	518,943	$	230,788	$	375,968	$	23,375	$	15,133	$	2,538,998

Page 13 of 57

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

CAPITOL BANCORP LIMITED – Continued

Note D – Loans – Continued

The allowance for loan losses is maintained at a level believed adequate by management to absorb potential losses inherent in the loan portfolio at the balance-sheet date.  Management's determination of the adequacy of the allowance is 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 and other factors.  The allowance is increased by provisions for loan losses charged to operations and reduced by net charge-offs.  The table below summarizes activity in the allowance for loan losses for the three months ended March 31, 2011 (in $1,000s) by loan type:

	Secured by Real Estate
	Commercial			Residential (including multi- family)			Construction, Land Development and Other Land			Commercial and Other Business- Purpose Loans			Consumer			Other			Total
Beginning balance	$	54,423		$	39,028		$	21,115		$	29,386		$	858		$	175		$	144,985
Acquired loan loss reserve		1,043			117			651			500			68			1			2,380
Charge-offs		(8,753	)		(7,341	)		(8,434	)		(5,325	)		(223	)					(30,076	)
Recoveries		995			982			3,023			886			38			1			5,925
Net charge-offs		(7,758	)		(6,359	)		(5,411	)		(4,439	)		(185	)		1			(24,151	)
Provision for loan losses		7,989			(3,578	)		4,327			4,440			290			(1	)		13,467
Ending balance	$	55,697		$	29,208		$	20,682		$	29,887		$	1,031		$	176		$	136,681

[The remainder of this page intentionally left blank]

Page 14 of 57

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

CAPITOL BANCORP LIMITED – Continued

Note D – Loans – Continued

The table below summarizes activity in the allowance for loan losses (in $1,000s) and the ratio of net charge-offs to average portfolio loans outstanding:

	Three Months Ended March 31
	2011			2010(1)
Allowance for loan losses at beginning of period	$	144,985		$	129,310
Allowance for loan losses of previously-discontinued bank subsidiary		2,380			--
Loans charged-off:
Loans secured by real estate:
Commercial		(8,753	)		(10,588	)
Residential (including multi-family)		(7,341	)		(12,126	)
Construction, land development and other land		(8,434	)		(13,777	)
Total loans secured by real estate		(24,528	)		(36,491	)
Commercial and other business-purpose loans		(5,325	)		(7,457	)
Consumer		(223	)		(157	)
Total charge-offs		(30,076	)		(44,105	)
Recoveries:
Loans secured by real estate:
Commercial		995			358
Residential (including multi-family)		982			108
Construction, land development and other land		3,023			1,301
Total loans secured by real estate		5,000			1,767
Commercial and other business-purpose loans		886			688
Consumer		38			19
Other		1			--
Total recoveries		5,925			2,474
Net charge-offs		(24,151	)		(41,631	)
Additions to allowance charged to expense (provision
for loan losses)		13,467			47,364
Allowance for loan losses at end of period	$	136,681		$	135,043
Average total portfolio loans for the period	$	2,558,053		$	3,215,054
Ratio of net charge-offs (annualized) to average portfolio loans outstanding		3.78	%		5.18	%

(1)      Excludes amounts related to operations discontinued in 2010 and 2011.

Page 15 of 57

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

CAPITOL BANCORP LIMITED – Continued

Note D – Loans – Continued

Nonperforming loans (i.e., loans which are 90 days or more past due and still accruing interest and loans on nonaccrual status) and other nonperforming assets are summarized below (in $1,000s):

	March 31, 2011		December 31, 2010(1)
Nonaccrual loans:
Loans secured by real estate:
Commercial	$	146,095	$	153,956
Residential (including multi-family)		53,502		60,422
Construction, land development and other land		51,877		59,718
Total loans secured by real estate		251,474		274,096
Commercial and other business-purpose loans		30,141		30,660
Consumer		538		162
Total nonaccrual loans		282,153		304,918
Past due (>90 days) loans and accruing interest:
Loans secured by real estate:
Commercial		5,049		2,875
Residential (including multi-family)		688		1,484
Construction, land development and other land		2,374		2,380
Total loans secured by real estate		8,111		6,739
Commercial and other business-purpose loans		410		2,073
Consumer		19		279
Total past due loans		8,540		9,091
Total nonperforming loans	$	290,693	$	314,009
Real estate owned and other repossessed assets		111,428		107,095
Total nonperforming assets	$	402,121	$	421,104

(1)     Excludes amounts related to operations discontinued in 2010 and 2011.

[The remainder of this page intentionally left blank]

Page 16 of 57

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

CAPITOL BANCORP LIMITED – Continued

Note D – Loans – Continued

Impaired loans which do not have an allowance requirement include collateral-dependent loans for which direct write-downs have been made to the carrying amount of such loans and, accordingly, no additional allowance requirement or allocation is currently necessary.

Impaired loans are 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 March 31, 2011:

	Carrying Value		Unpaid Principal Balance		Related Allowance for Loan Losses
With an allowance recorded:
Loans secured by real estate:
Commercial	$	74,883	$	84,957	$	13,091
Residential (including multi-family)		28,796		30,529		7,870
Construction, land development and other land		25,170		25,766		6,530
Total loans secured by real estate		128,849		141,252		27,491
Commercial and other business-purpose loans		19,720		21,607		10,364
Consumer		520		550		121
		149,089		163,409		37,976
With no related allowance recorded:
Loans secured by real estate:
Commercial		114,794		150,893
Residential (including multi-family)		35,056		53,372
Construction, land development and other land		35,234		58,358
Total loans secured by real estate		185,084		262,623
Commercial and other business-purpose loans		13,944		21,701
Consumer		18		43
		199,046		284,367
Total	$	348,135	$	447,776	$	37,976

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 principal.  For the three months ended March 31, 2011, the average recorded investment in impaired loans and interest income recorded on impaired loans were as follows (in $1,000s):

	Average		Interest
	Recorded		Income
	Investment		Recorded
Commercial	$	189,504	$	558
Residential (including multi-family)		67,160		150
Construction, land development and other land		63,893		52
Total loans secured by real estate		320,557		760
Commercial and other business-purpose loans		34,883		100
Consumer		371
Total	$	355,811	$	860

Page 17 of 57

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

CAPITOL BANCORP LIMITED – Continued

Note D – Loans – Continued

Impaired loans are 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	$	81,800	$	131,352	$	12,977
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		148,693		230,187		32,530
Commercial and other business-purpose loans		21,926		35,307		9,189
Consumer		185		211		104
		170,804		265,705		41,823
With no related allowance recorded:
Loans secured by real estate:
Commercial		107,531		173,018
Residential (including multi-family)		30,724		51,005
Construction, land development and other land		40,232		64,807
Total loans secured by real estate		178,487		288,830
Commercial and other business-purpose loans		14,176		23,209
Consumer		18		42
		192,681		312,081
Total	$	363,485	$	577,786	$	41,823

The following tables summarize the aging and amounts of past due loans (in $1,000s):

	March 31, 2011
	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	$	23,853	$	5,049	$	146,095	$	174,997	$	1,171,587	$	1,346,584
Residential (including multi-
family)		8,551		688		53,502		62,741		434,574		497,315
Construction, land development
and other land		8,758		2,374		51,877		63,009		153,984		216,993
Total loans secured by real estate		41,162		8,111		251,474		300,747		1,760,145		2,060,892
Commercial and other business-
purpose loans		5,936		410		30,141		36,487		314,386		350,873
Consumer		555		19		538		1,112		20,954		22,066
Other										16,890		16,890
Total	$	47,653	$	8,540	$	282,153	$	338,346	$	2,112,375	$	2,450,721

Page 18 of 57

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

CAPITOL BANCORP LIMITED – Continued

Note D – Loans – Continued

	December 31, 2010
	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	$	29,819	$	2,875	$	153,956	$	186,650	$	1,188,141	$	1,374,791
Residential (including multi-
family)		12,470		1,484		60,422		74,376		444,567		518,943
Construction, land development
and other land		6,467		2,380		59,718		68,565		162,223		230,788
Total loans secured by real estate		48,756		6,739		274,096		329,591		1,794,931		2,124,522
Commercial and other business-
purpose loans		9,689		2,073		30,660		42,422		333,546		375,968
Consumer		560		279		162		1,001		22,374		23,375
Other										15,133		15,133
Total	$	59,005	$	9,091	$	304,918	$	373,014	$	2,165,984	$	2,538,998

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.

[The remainder of this page intentionally left blank]

Page 19 of 57

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

CAPITOL BANCORP LIMITED – Continued

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.  Based on management's most recent analysis, the risk categories of loans are summarized as follows (in $1,000s):

	March 31, 2011
	Loans Not Adversely Classified		Adversely Classified Loans				Total Portfolio Loans
			Watch		Substandard
Loans secured by real estate:
Commercial	$	969,754	$	114,442	$	262,388	$	1,346,584
Residential (including multi-family)		356,893		41,155		99,267		497,315
Construction, land development and
other land		112,691		25,146		79,156		216,993
Total loans secured by real estate		1,439,338		180,743		440,811		2,060,892
Commercial and other business-purpose
loans		267,633		27,348		55,892		350,873
Consumer		20,320		378		1,368		22,066
Other		15,764		1,126				16,890
Total	$	1,743,055	$	209,595	$	498,071	$	2,450,721

	December 31, 2010
	Loans Not Adversely Classified		Adversely Classified Loans				Total Portfolio Loans
			Watch		Substandard
Loans secured by real estate:
Commercial	$	990,225	$	118,619	$	265,947	$	1,374,791
Residential (including multi-family)		377,046		42,157		99,740		518,943
Construction, land development and
other land		115,042		30,707		85,039		230,788
Total loans secured by real estate		1,482,313		191,483		450,726		2,124,522
Commercial and other business-purpose
loans		278,739		32,220		65,009		375,968
Consumer		21,602		1,028		745		23,375
Other		13,565		1,568				15,133
Total	$	1,796,219	$	226,299	$	516,480	$	2,538,998

Page 20 of 57

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

CAPITOL BANCORP LIMITED – Continued

Note E – Discontinued Operations

Through March 31, 2011, Capitol completed the following sales of bank subsidiaries (in $1,000s):

		Sale
	Date Sold	Proceeds		Gain
Bank of Tucson – main office(1)	January 24, 2011	$	4,567	$	4,186
Bank of Fort Bend(2)	March 30, 2011		4,302		1,432
		$	8,869	$	5,618

(1) Previously a wholly-owned subsidiary of Capitol.  Sale proceeds represent the net premium received from the assumption of liabilities and acquisition of assets transaction. 

(2) Previously a majority-owned subsidiary of a bank-development subsidiary controlled by Capitol.

On April 19, 2011, the sale of Community Bank of Rowan was completed with aggregate proceeds of $4.8 million and an estimated loss of approximately $1.25 million, which has been reflected in Capitol's first quarter 2011 financial statements against the gain on sale of the above-mentioned bank subsidiaries.

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 periods presented; however, such sales are reflected on that basis in the pro forma condensed consolidated financial statements on page 46 of this document.

The results of operations of Bank of Fort Bend, Bank of Tucson – main office and Community Bank of Rowan, together with the results of operations of 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 which were sold in 2010, are classified as discontinued operations for the periods presented and include the following components (in $1,000s):

	Three Months Ended March 31
	2011			2010
Interest income	$	1,830		$	14,927
Interest expense		427			3,305
Net interest income		1,403			11,622
Provision for loan losses		494			2,736
Net interest income after provision for
loan losses		909			8,886
Noninterest income		441			1,163
Gain on sale of bank subsidiaries		4,368
Noninterest expense		1,334			8,516
Income before income taxes		4,384			1,533
Less income tax expense		1,488			594
Net income from discontinued operations		2,896			939
Net income attributable to noncontrolling
interests in consolidated subsidiaries		(60	)		(126	)
Net income from discontinued operations
attributable to Capitol Bancorp Limited	$	2,836		$	813
Net income from discontinued operations
per common share attributable to
Capitol Bancorp Limited	$	0.09		$	0.05

Page 21 of 57

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

CAPITOL BANCORP LIMITED – Continued

Note E – Discontinued Operations – Continued

Assets and liabilities of discontinued operations are summarized below (in $1,000s):

	March 31, 2011			Dec 31, 2010				March 31, 2011		Dec 31, 2010
Assets:							Liabilities:
Cash and cash equivalents	$	19,719		$	86,747		Noninterest-bearing
Investment securities		6,682			10,664		deposits	$	9,212	$	84,840
Federal Home Loan Bank							Interest-bearing deposits		111,468		277,677
stock		1,065			1,912		Total deposits		120,680		362,517
Portfolio loans		101,219			292,047		Other liabilities		4,119		6,843
Less allowance for loan
losses		(1,628	)		(4,816	)		$	124,799	$	369,360
Net portfolio loans		99,591			287,231
Premises and equipment		2,667			4,169
Other real estate owned		2,099			2,226
Other assets		2,678			5,584
	$	134,501		$	398,533

Note F – 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.  There were no mortgage loans held for sale written down to fair value at March 31, 2011.  Fair value is based on independent quoted market prices, where applicable, or the prices for other whole mortgage loans with similar characteristics.

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

Other real estate owned:  At the time of foreclosure, foreclosed properties are adjusted to 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 estimated fair value of 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-lived 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.

There were no liabilities measured at fair value on a recurring or nonrecurring basis as of March 31, 2011 and December 31, 2010.

Page 22 of 57

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

CAPITOL BANCORP LIMITED – Continued

Note F – Fair Value – Continued

Assets measured at fair value on a recurring basis were as follows (in $1,000s):

	March 31, 2011				December 31, 2010
	Total		Significant Other Observable Inputs (Level 2)		Total(2)		Significant Other Observable Inputs (Level 2)(2)
Investment securities available for sale:
United States treasury	$	4,045	$	4,045	$	506	$	506
United States government agency		12,856		12,856		12,680		12,680
Mortgage-backed		3,676		3,676		3,918		3,918
Municipalities		377		377		378		378
	$	20,954	$	20,954	$	17,482	$	17,482

Assets measured at fair value on a nonrecurring basis were as follows (in $1,000s):

	March 31, 2011				December 31, 2010
	Total		Significant Unobservable Inputs (Level 3)		Total(2)		Significant Unobservable Inputs (Level 3)(2)
Impaired loans(1)	$	313,665	$	313,665	$	321,196	$	321,196
Other real estate owned(1)	$	110,829	$	110,829	$	106,835	$	106,835

(1)   Represents carrying value based on the appraised value of the applicable collateral or foreclosed property or other estimates of fair value.  For other real estate owned, such fair value is reduced by estimated costs to sell the properties.

(2)   Excludes amounts related to discontinued operations.

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.

Page 23 of 57

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

CAPITOL BANCORP LIMITED – Continued

Note F – Fair Value – Continued

Comparative 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 (in $1,000s):

	March 31, 2011						December 31, 2010(2)
	Carrying Value			Estimated Fair Value			Carrying Value			Estimated Fair Value
Financial assets:
Cash and cash equivalents	$	536,494		$	536,494		$	534,761		$	534,761
Loans held for sale		1,710			1,710			6,900			6,900
Investment securities:
Available for sale		20,954			20,954			17,482			17,482
Held for long-term investment		2,330			2,330			2,893			2,893
		23,284			23,284			20,375			20,375
Federal Home Loan Bank and Federal Reserve Bank stock		17,811			17,811			17,001			17,001
Portfolio loans:
Loans secured by real estate:
Commercial		1,346,584			1,347,647			1,374,791			1,379,583
Residential (including multi-family)		497,315			497,524			518,943			518,493
Construction, land development and other land		216,993			217,305			230,788			230,886
Total loans secured by real estate		2,060,892			2,062,476			2,124,522			2,128,962
Commercial and other business-purpose loans		350,873			351,369			375,968			376,338
Consumer		22,066			22,358			23,375			23,613
Other		16,890			17,002			15,133			15,055
Total portfolio loans		2,450,721			2,453,205			2,538,998			2,543,968
Less allowance for loan losses		(136,681	)		(136,681	)		(144,985	)		(144,985	)
Net portfolio loans		2,314,040			2,316,524			2,394,013			2,398,983
Financial liabilities:
Deposits:
Noninterest-bearing		531,455			531,455			500,809			500,809
Interest-bearing:
Demand accounts		757,271			757,271			787,042			787,042
Time certificates of less than $100,000		689,866			693,625			711,609			715,720
Time certificates of $100,000 or more		829,378			832,952			874,841			878,653
Total interest-bearing		2,276,515			2,283,848			2,373,492			2,381,415
Total deposits		2,807,970			2,815,303			2,874,301			2,882,224
Notes payable and other borrowings		106,052			99,126			117,377			110,204
Subordinated debentures		149,080			151,296	(1)		167,586			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.

Estimated fair values of financial assets and liabilities in the table above 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 above, 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 values 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.

Page 24 of 57

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

CAPITOL BANCORP LIMITED – Continued

Note F – Fair Value – Continued

Given current economic conditions, the majority 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 G – Stock Options

Stock option activity is summarized as follows:

	Number Outstanding			Exercise Price Range		Weighted Average Exercise Price
Outstanding at January 1, 2011		1,745,602		$	1.78 to $ 46.20	$	21.53
Cancelled or expired		(29,307	)		28.75 to    30.21		29.29
Outstanding at March 31, 2011		1,716,295		$	1.78 to $ 46.20	$	21.40

Stock options were granted during the three months ended March 31, 2010 with an aggregate fair value approximating $237,000 (none were granted in 2011).  Share-based compensation expense relating to stock options for the three months ended March 31, 2011 and 2010 approximated $2,000 and $83,000, respectively.

As of March 31, 2011, stock options outstanding had a weighted average remaining contractual life of 2.48 years and, due to the exercise price being greater than the fair value of Capitol's common stock, had no intrinsic value at that date.  The following table summarizes stock options outstanding segregated by exercise price range as of March 31, 2011:

				Weighted Average
Exercise Price Range		Number Outstanding		Exercise Price		Remaining Contractual Life
$	1.00 to 14.99		566,105	$	2.49	4.50 years
$	15.00 to 19.99		66,883		16.40	0.53 years
$	20.00 to 24.99		205,953		22.02	3.29 years
$	25.00 to 29.99		90,001		25.47	0.22 years
$	30.00 to 34.99		457,357		31.78	0.91 years
$	35.00 or more		339,996		37.91	1.79 years
Total outstanding			1,716,295	$	21.40

Page 25 of 57

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

CAPITOL BANCORP LIMITED – Continued

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

Computations of income (loss) per common share were based on the following (in 1,000s) for the three months ended March 31:

	Three Months Ended March 31
	2011		2010
Numerator—net income (loss) attributable to Capitol    Bancorp Limited for the period	$	289	$	(47,882	)
Denominator:
Weighted average number of common shares        outstanding, excluding unvested restricted shares        of common stock (denominator for basic earnings        per share)		32,164		17,402
Effect of dilutive securities:
Unvested restricted shares of common stock		711		--
Denominator for diluted earnings per share— Weighted average number of shares and potential dilution		32,875		17,402
Number of antidilutive stock options excluded from diluted earnings per share computation		1,716		2,355
Number of antidilutive unvested restricted shares excluded from basic and diluted earnings per share computation		30		140
Number of antidilutive warrants excluded from diluted earnings per share computation		1,325		76

Note I – Trust-Preferred Securities

In 2009, the Corporation 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.  The payment of interest on those securities may be deferred for periods up to five years.  During such deferral periods, Capitol is prohibited from paying dividends on its common stock (subject to certain exceptions) and is further restricted by Capitol's written agreement with the Federal Reserve Bank of Chicago which prohibits both payment of interest on the trust-preferred securities and cash dividends without prior written approval by that agency.  Accrued interest payable on such securities approximated $19.8 million and $20.8 million at March 31, 2011 and December 31, 2010, respectively.  Holders of the trust-preferred securities will recognize current taxable income relating to the deferred interest payments.

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, including a gain on the transaction of approximately $16.9 million.

Page 26 of 57

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

CAPITOL BANCORP LIMITED – Continued

Note J – Pending Sale of Subsidiary Banks

In addition to completed sales of certain bank subsidiaries (see Note E), 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 at March 31, 2011:  1st Commerce Bank, Bank of Feather River, Bank of Las Colinas, Bank of Michigan, Evansville Commerce Bank and High Desert Bank.  The financial statement impact of the potential divestiture of these institutions is set forth in the accompanying pro forma condensed consolidated financial statements on pages 46 and 47 of this document.

On April 19, 2011, the sale of Community Bank of Rowan was completed with aggregate proceeds of $4.8 million and an estimated loss of approximately $1.25 million, which has been reflected in Capitol's first quarter 2011 financial statements against the gain on sale of bank subsidiaries.

The remaining pending bank sales are subject to regulatory approval and other significant contingencies.

Note K – Regulatory and Operating 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 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 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 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 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.

Page 27 of 57

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

CAPITOL BANCORP LIMITED – Continued

Note K – Regulatory and Operating Matters – Continued

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.

Regulatory capital matters are set forth in Note L.

On July 21, 2010, the Dodd-Frank Wall Street Reform and Consumer Protection Act (the Dodd-Frank Act) was signed into law and significantly changes future regulation of financial institutions and the financial services industry.  The Dodd-Frank Act 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 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 Dodd-Frank Act 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 Dodd-Frank Act 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 Dodd-Frank Act and assessing its probable impact on the Corporation's business, financial condition and results of operations.  However, the ultimate effect of the Dodd-Frank Act on the financial services industry in general, and on the Corporation in particular, is currently uncertain.

One particularly important aspect of the Dodd-Frank Act (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.

Page 28 of 57

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

CAPITOL BANCORP LIMITED – Continued

Note L –Regulatory Capital Matters

The following table summarizes the amounts (in $1,000s) and related ratios of Capitol's consolidated regulatory capital position:

		March 31,				December 31,
		2011				2010
Tier 1 capital to average adjusted total assets:
Minimum required amount(1)	≥	$	133,648		≥	$	155,224
Actual amount		$	(39,618	)		$	(39,980	)
Ratio			(1.19	)%			(1.03	)%
Tier 1 capital to risk-weighted assets:
Minimum required amount(2)	≥	$	100,366		≥	$	110,909
Actual amount		$	(39,618	)		$	(39,980	)
Ratio			(1.58	)%			(1.44	)%
Combined Tier 1 and Tier 2 capital to risk-    weighted assets:
Minimum required amount(3)	≥	$	200,732		≥	$	221,818
Actual amount		$	(39,618	)		$	(39,980	)
Ratio			(1.58	)%			(1.44	)%

(1)	The minimum required ratio of Tier 1 capital to average adjusted total assets is 4%.
(2)	The minimum required ratio of Tier 1 capital to risk-weighted assets to be considered "adequately-capitalized" is 4%.
(3)	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 March 31, 2011 and December 31, 2010 was materially and adversely impacted by the exclusion of approximately $181.8 million and $203.7 million, respectively, 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 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 March 31, 2011 for regulatory purposes.  In addition, several of its bank subsidiaries had capital levels resulting in classification as "undercapitalized" or "significantly-undercapitalized" at that date.  Banks and bank holding companies which are less than "adequately-capitalized" are subject to increased regulatory oversight, requirements and limitations.  Regarding banks classified as "undercapitalized" or "significantly-undercapitalized," or otherwise noncompliant with formal regulatory agreements, management is taking appropriate action to improve such capital classifications and related compliance in the future.

Regulatory capital ratios of the banks are set forth on page 40 on this document.

Page 29 of 57

PART I, ITEM 2

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS

The following discussion and analysis is intended as a review of significant factors affecting the financial condition and results of operations of Capitol for the periods indicated.  The discussion should be read in conjunction with the condensed consolidated financial statements and the notes thereto presented elsewhere herein.  In addition to historical information, the following Management's Discussion and Analysis of Financial Condition and Results of Operations contains forward-looking statements that involve risks and uncertainties, some of which are material to Capitol and its subsidiaries.  Capitol's actual results could differ significantly from those anticipated in these forward-looking statements as a result of certain factors discussed in this report.  Please refer to the commentary regarding forward-looking statements appearing on page 2 of this document.

Financial Condition

Total assets approximated $3.2 billion at March 31, 2011 and $3.5 billion at December 31, 2010.  The balance sheet includes total assets of Capitol and its consolidated subsidiaries (in $1,000s) as follows:

	March 31, 2011		December 31, 2010
Arizona Region:
Bank of Tucson(1)			$	222,882
Central Arizona Bank	$	70,769		75,590
Sunrise Bank of Albuquerque		64,623		73,539
Sunrise Bank of Arizona		391,375		353,154
Arizona Region Total		526,767		725,165
California Region:
Bank of Feather River		41,245		38,930
Sunrise Bank		232,003		231,836
California Region Total		273,248		270,766
Colorado Region:
Mountain View Bank of Commerce		60,424		60,303
Great Lakes Region:
Bank of Maumee		38,820		40,300
Bank of Michigan		79,916		81,873
Capitol National Bank		158,116		157,606
Evansville Commerce Bank		48,436		52,506
Indiana Community Bank		129,078		128,728
Michigan Commerce Bank		884,477		933,698
Great Lakes Region Total		1,338,843		1,394,711
Nevada Region:
1st Commerce Bank		34,513		39,555
Bank of Las Vegas		351,889		375,084
Nevada Region Total		386,402		414,639
Northwest Region:
Bank of the Northwest		146,388		145,540
High Desert Bank		35,608		37,967
Northwest Region Total		181,996		183,507
Southeast Region:
Community Bank of Rowan(1)		134,501		140,276
First Carolina State Bank		99,176		103,254
Pisgah Community Bank		37,254		43,125
Sunrise Bank		106,007		112,718
Southeast Region Total		376,938		399,373

Page 30 of 57

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS – Continued

Financial Condition – Continued

Summary of total assets – continued:

	March 31, 2011			December 31, 2010
Texas Region:
Bank of Fort Bend(1)				$	35,375
Bank of Las Colinas	$	49,949			44,767
Texas Region Total		49,949			80,142
Parent company and other, net		2,395			11,608
Consolidated totals		3,196,962			3,540,214
Less discontinued operations		(134,501	)		(398,533	)
Consolidated totals—continuing operations	$	3,062,461		$	3,141,681

(1) Capitol sold its ownership in Community Bank of Rowan effective April 19, 2011; Bank of Fort Bend effective March 30, 2011 and Bank of Tucson effective January 24, 2011.  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.

Total assets decreased $343 million during the three months ended March 31, 2011, of which $258 million related to bank subsidiaries sold during the period.

Portfolio loans, the single largest asset category (77% of total assets at March 31, 2011), decreased during the three months ended March 31, 2011 by approximately $88 million, compared to a decrease of about $139 million during the corresponding period of 2010.  The portfolio decrease is in response to the need to preserve liquidity and capital in the current economic climate and the general economic slowdown occurring nationally.  Because portfolio loans compose the largest portion of assets, most of this section of the narrative is devoted to loans and asset quality.

Geographic diversification of Capitol's balance sheet is important.  Prior to 1996, all of Capitol's banking operations were located in Michigan.  As of March 31, 2011, 46% of the consolidated loan portfolio relates to banks located within the Great Lakes Region (43% at December 31, 2010) and 54% of the consolidated loan portfolio relates to banks located in other regions of the country (57% at December 31, 2010).  This is important because Capitol's diversification efforts lessen disproportionate geographic concentration within a specific region.

The consolidated allowance for loan losses at March 31, 2011 approximated $136.7 million or 5.58% of total portfolio loans, a decrease from the 5.71% ratio at the beginning of the year (excluding discontinued operations), resulting from some improvement in economic conditions and changes in asset quality.

Loan charge-offs for the interim 2011 period, which decreased significantly compared to 2010, are not necessarily indicative of future charge-off levels because of the variability in asset quality and resolution of nonperforming loans.  The significant increase in the provision for loan losses in the 2010 period related primarily to Michigan, Arizona and Nevada banks, due to growth in nonperforming loans and a sustained difficult and uncertain economic climate.  The interim 2011 provision for loan losses is discussed in further detail in the 'Results of Operations' section of this narrative.

Nonperforming loans decreased $23.3 million or 7.4% during the three months ended March 31, 2011, compared to a large increase of $36.5 million or 11.9% in the corresponding period of 2010.  Nonperforming loans have decreased for three consecutive quarters.  Management believes the overall decrease may demonstrate some stabilization in several of Capitol's key markets; however, no assurance can be given that future operating results will continue to reflect these recent trends.

Nonperforming assets decreased $19.0 million for the three months ended March 31, 2011, compared to an $8.4 million decrease in the immediately preceding quarterly period.

Page 31 of 57

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS – Continued

Financial Condition – Continued

The allowance for loan losses as a percentage of nonperforming loans approximated 47.02% at March 31, 2011, compared to 46.17% at the beginning of the year (excluding operations discontinued in 2010).  As previously-discussed, the allowance for loan losses is an estimate determined by management at the balance-sheet date.  Levels of nonperforming loans may fluctuate at balance-sheet dates by amounts which are not commensurate with the ratio of the allowance for loan losses or the so-called allowance coverage ratio of nonperforming loans (i.e., the allowance for loan losses as a percentage of nonperforming loans).  Several factors may contribute to this occurrence.  For example, estimated losses relating to impaired collateral-dependent loans are generally reflected as direct write-downs to those loans and, accordingly, there is no related allowance for loan losses allocation necessary.  Further, some collateral-dependent loans may have minimal or no loss potential which would negate a computational comparison between the allowance for loan losses and such nonperforming loans.

While recent reductions in nonperforming loans and other nonperforming assets are encouraging, future changes in asset quality remain uncertain.  Because bank subsidiaries which have been sold during 2010 and the interim 2011 period had relatively better asset quality than the remaining banks, nonperforming assets increased as a percentage of consolidated portfolio loans and total assets, despite the most recent decreases in the amount of nonperforming assets.

Nonperforming loans at March 31, 2011 approximated 11.86% of total portfolio loans, a decrease from the December 31, 2010 ratio of 12.4% (excluding discontinued operations).  Of the nonperforming loans at March 31, 2011, about 89% were real estate secured.  Those loans, when originated, had appropriate loan-to-value ratios based upon real estate market conditions at that time and, accordingly, had loss exposure which would have been expected to be minimal; however, underlying real estate values depend upon current economic conditions and liquidation strategies.  Most other nonperforming loans were generally secured by other business assets.  Nonperforming loans at March 31, 2011 were in various stages of resolution which management believes are adequately collateralized or otherwise appropriately considered in its determination of the adequacy of the allowance for loan losses.

Due to local, regional and national economic conditions, there is uncertainty in future real estate values, appraisal data and the resulting potential impact on 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 upon appraisals of the underlying property value and cautious review of current appraisal data.  Management cautiously and diligently monitors real estate values and related appraisal data when evaluating appraisals or its internal evaluations of property values.

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

Page 32 of 57

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS – Continued

Financial Condition – Continued

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.

Total nonperforming loans approximated $291 million at March 31, 2011.  Of that total, $132.8 million or 45.7% (including some loans carried at the parent level) were originated by banks located within the Great Lakes Region, primarily in Michigan.  Nonperforming loans have decreased significantly during the three months ended March 31, 2011 by $11.9 million within the Great Lakes Region and $4.9 million within the Nevada Region.

In response to the elevated level of nonperforming loans, higher levels of allowances for loan losses have been established for the Great Lakes Region (including some loans carried at the parent level), Arizona Region and the Nevada Region, approximating 5.86%, 5.55% and 7.51% of portfolio loans for the respective region on a combined basis as of March 31, 2011.  The allowance for loan losses levels range as high as 12.69% at Pisgah Community Bank, 7.56% at Bank of Las Vegas and 6.76% at Michigan Commerce Bank.  Those ratios can be contrasted with some other banks and geographic regions within the Corporation with lower levels of nonperforming loans.

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 intervention.  This loan review process is a continuous activity which periodically updates internal loan ratings.  At inception, all loans are individually assigned a rating which grades the credits on a risk basis, based on the financial strength of the borrower and guarantors and other factors such as the nature of the borrower's business climate, local economic conditions and other subjective factors.  The loan rating process is fluid and subjective.

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

At March 31, 2011, problem and potential-problem loans (including the previously-discussed nonperforming loans) approximated $707.7 million or about 29% of total consolidated portfolio loans, compared to approximately $742.8 million or about 29% at December 31, 2010.  These potential problem loans (exclusive of nonperforming loans) do not necessarily have significant loss exposure (nor are they necessarily deemed "impaired"), but rather are identified by management as potential problem loans to aid in loan administration and risk management.  Management has considered these loans in its evaluation of the adequacy of the allowance for loan losses.  Nonperforming loans, as previously-discussed, are primarily secured by real estate which is subject to fair value estimates and related loss recognition.  Management believes, however, that current general economic conditions in some markets may result in higher levels of future loan losses in comparison to previous years, as experienced in the first three months of 2011.

Regarding other real estate owned and collateral-dependent loans in Michigan (about 32% of consolidated totals), foreclosure laws in that state 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 in many other states.  Further, once a property is available to the bank for sale or liquidation, current market conditions (particularly in Michigan, Arizona and Nevada) may not be conducive to rapid marketing or near-term sale of the properties.

Page 33 of 57

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS – Continued

Financial Condition – Continued

The following comparative analysis summarizes each bank's total portfolio loans, allowance for loan losses, nonperforming loans and ratio of the allowance as a percentage of portfolio loans (in $1,000s):

							Allowance for												Allowance as a Percentage
	Total Portfolio Loans						Loan Losses						Nonperforming Loans						of Total Portfolio Loans
	March 31, 2011			Dec 31, 2010			March 31, 2011			Dec 31, 2010			March 31, 2011			Dec 31, 2010			March 31, 2011			Dec 31, 2010
Arizona Region:
Bank of Tucson(1)				$	159,334					$	2,380					$	7,711						1.49	%
Central Arizona Bank	$	48,442			52,844		$	2,031			2,552		$	3,986			5,092			4.19	%		4.83	%
Sunrise Bank of Albuquerque		50,051			52,502			2,692			2,499			3,986			4,731			5.38	%		4.76	%
Sunrise Bank of Arizona		288,155			264,181			16,740			16,700			29,507			29,936			5.81	%		6.32	%
Arizona Region Total		386,648			528,861			21,463			24,131			37,479			47,470			5.55	%		4.56	%
California Region:
Bank of Feather River		33,167			31,297			501			479									1.51	%		1.53	%
Sunrise Bank		182,870			183,641			7,554			7,815			6,920			8,529			4.13	%		4.26	%
California Region Total		216,037			214,938			8,055			8,294			6,920			8,529			3.73	%		3.86	%
Colorado Region:
Mountain View Bank of Commerce		42,882			41,087			803			789			879			883			1.87	%		1.92	%
Great Lakes Region:
Bank of Maumee		32,299			33,558			1,422			1,427			715			442			4.40	%		4.25	%
Bank of Michigan		63,133			64,278			1,501			1,368			2,094			2,312			2.38	%		2.13	%
Capitol National Bank		133,598			138,251			5,063			5,976			12,782			13,616			3.79	%		4.32	%
Evansville Commerce Bank		36,074			38,609			1,029			1,103			1,551			1,801			2.85	%		2.86	%
Indiana Community Bank		108,062			112,986			3,758			3,703			7,758			8,358			3.48	%		3.28	%
Michigan Commerce Bank		754,839			812,088			51,012			57,381			105,020			114,937			6.76	%		7.07	%
Great Lakes Region Total		1,128,005			1,199,770			63,785			70,958			129,920			141,466			5.65	%		5.91	%
Nevada Region:
1st Commerce Bank		24,229			25,521			1,658			624			4,886			5,611			6.84	%		2.45	%
Bank of Las Vegas		286,145			306,802			21,641			25,235			77,836			82,042			7.56	%		8.23	%
Nevada Region Total		310,374			332,323			23,299			25,859			82,722			87,653			7.51	%		7.78	%
Northwest Region:
Bank of the Northwest		118,188			118,755			4,002			4,000			5,610			6,609			3.39	%		3.37	%
High Desert Bank		28,935			29,872			1,450			1,350			933			1,053			5.01	%		4.52	%
Northwest Region Total		147,123			148,627			5,452			5,350			6,543			7,662			3.71	%		3.60	%
Southeast Region:
Community Bank of Rowan(1)		101,219			102,926			1,628			1,736			4,411			3,441			1.61	%		1.69	%
First Carolina State Bank		73,248			77,797			3,308			2,389			5,775			6,560			4.52	%		3.07	%
Pisgah Community Bank		26,493			28,071			3,362			1,511			7,289			6,968			12.69	%		5.38	%
Sunrise Bank		74,147			79,558			3,785			4,374			9,441			10,452			5.40	%		5.50	%
Southeast Region Total		275,107			288,352			12,083			10,010			26,916			27,421			4.39	%		3.47	%
Texas Region:
Bank of Fort Bend(1)					29,788						700						419						2.35	%
Bank of Las Colinas		40,772			41,434			737			737			891			907			1.81	%		1.78	%
Texas Region Total		40,772			71,222			737			1,437			891			1,326			1.81	%		2.02	%
Parent company and other, net		4,992			5,866			2,632			2,973			2,834			3,170			52.72	%	n.m.
Consolidated totals		2,551,940			2,831,046			138,309			149,801			295,104			325,580			5.42	%		5.29	%
Less discontinued operations		(101,219	)		(292,048	)		(1,628	)		(4,816	)		(4,411	)		(11,571	)					(1.49	)%
Consolidated totals relating to continuing operations	$	2,450,721		$	2,538,998		$	136,681		$	144,985		$	290,693		$	314,009			5.58	%		5.71	%

(1)	Capitol sold its ownership in Community Bank of Rowan effective April 19, 2011; Bank of Fort Bend effective March 30, 2011 and Bank of Tucson effective January 24, 2011.  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.
n.m.	Not meaningful.

Page 34 of 57

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS – Continued

Financial Condition – Continued

Accounting for income taxes requires significant estimates and management judgments.  At March 31, 2011, Capitol had a deferred tax asset approximating $198.6 million ($192.1 million at December 31, 2010), subject to a related valuation allowance.  When realization of the deferred tax asset is in doubt, a valuation reserve is required to reduce the deferred tax asset to the amount which is more-likely-than-not realizable.  Although there was a small gain recognized in the interim 2011 period, management reviewed the potential realization of net deferred tax assets as of March 31, 2011 and increased the related valuation allowance to $197.5 million, reducing the net deferred tax asset to approximately $1.1 million.  The net deferred tax asset ($1.1 million and $1.8 million at March 31, 2011 and December 31, 2010, respectively) represents the amount which is more-likely-than-not realizable at the balance-sheet date for a small group of less than 80%-owned consolidated bank subsidiaries.

Results of Operations

Summary

Net income attributable to Capitol for the three months ended March 31, 2011 approximated $289,000 compared to a net loss of $47.9 million in the corresponding period of 2010.  Net income per common share attributable to Capitol was $0.01 for the three months ended March 31, 2011 compared to a net loss per share of $2.75 in the corresponding 2010 period.  Net income relating to discontinued operations was not material to the periods presented except for the gain on sale of bank subsidiaries which approximated $4.4 million for the three months ended March 31, 2011.

The primary reasons for the interim 2011 net income were a significant reduction in the provision for loan losses of $33.9 million to $13.5 million for the three months ended March 31, 2011 compared to a provision of $47.4 million for the corresponding period of 2010 (excluding discontinued operations), as well as a gain on exchange of trust-preferred securities for common stock of approximately $16.9 million.

Analytical Review

The provision for loan losses decreased significantly for the three months ended March 31, 2011 due to lower levels of loan charge-offs, declining levels of nonperforming loans and stable valuations of collateral-dependent loans, primarily secured by real estate.  Provisions for loan losses are estimates based upon management's analysis of the adequacy of the allowance for loan losses, as previously-discussed.  The significant increase in the provision for loan losses in the preceding year had a material adverse effect on interim 2010 operating results.

The net interest margin approximated 3.15% for the three months ended March 31, 2011, a 21 basis-point increase compared to 2.94% for the three months ended December 31, 2010, and a 12 basis-point increase compared to 3.03% for the three months ended March 31, 2010.  It is difficult to speculate on future changes in net interest margin.  Net interest income for the three-month 2011 period totaled $24.2 million, a small decrease compared to $24.8 million in 2010.

While net interest income was relatively stable during the interim 2011 period in spite of a significantly reduced asset base compared to 2010, provisions for loan losses did not exceed net interest income for the interim period of 2011 as it did in the interim 2010 period.

Noninterest income for the three months ended March 31, 2011 approximated $21.4 million, a significant increase compared to $6.2 million for the same period in 2010. The interim 2011 period included a gain on exchange of trust-preferred securities of $16.9 million (see Note I to the accompanying condensed consolidated financial statements) and the interim 2010 period included a gain on exchange of promissory notes for common stock of $1.3 million.  When excluding each of these gains, noninterest income showed a 9% decline in 2011 compared to 2010.

Page 35 of 57

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS – Continued

Results of Operations – Continued

Noninterest expense totaled $39.9 million for the three-month 2011 period compared to $47.1 million for the comparable period of 2010.  The decrease resulted from significantly lower costs associated with foreclosed properties and other real estate owned, which decreased $4.1 million (35%) to $7.5 million in the three-month 2011 period ($11.6 million in the corresponding 2010 period), due to stable valuations and holding costs of other real estate owned.  The cost of FDIC insurance and other regulatory fees also decreased for the first quarter in over a year to $3.3 million compared to $4.1 million in the 2010 period due to the decline in deposits which is used for the assessment base.

The largest element of noninterest expense is salaries and employee benefits, which approximated $15.5 million for the three months ended March 31, 2011, a decrease of 14.8% from $18.2 million in the corresponding period of 2010, as a result of Capitol's efforts to reduce and streamline staffing at its banks and corporate offices.

The more significant elements of other noninterest expense consisted of the following for the period ended March 31 (in $1,000s):

	Three Months Ended March 31
	2011		2010(1)
Impairment loss	$	1,600
Legal fees		896	$	941
Insurance		790		275
Loan and collection expense		508		898
Professional fees		465		2,042
Bank services (ATMs, telephone     banking and Internet banking)		366		306
Directors' fees		300		392
Paper, printing and supplies		293		349
Communications		282		299
Advertising		278		366
Travel, lodging and meals		247		246
Other		1,775		577
Total	$	7,800	$	6,691

(1)Excludes amounts related to operations discontinued in 2010.

[The remainder of this page intentionally left blank]

Page 36 of 57

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS – Continued

Results of Operations – Continued

Operating results for the three months ended March 31 were as follows (in $1,000s):

	Total Revenues				Net Income (Loss)(1)						Return on Average Equity(2)						Return on Average Assets(2)
	2011		2010		2011			2010			2011			2010			2011			2010
Arizona Region:
Bank of Tucson(3)			$	3,189				$	633						13.12	%					1.21	%
Central Arizona Bank	$	729		631	$	(663	)		(1,011	)
Southern Arizona Community Bank(3)				1,230					203						8.45	%					0.86	%
Sunrise Bank of Albuquerque		805		957		(734	)		(677	)
Sunrise Bank of Arizona		5,397		3,787		(2,506	)		(16,180	)
Arizona Region Total		6,931		9,794		(3,903	)		(17,032	)
California Region:
Bank of Feather River		636		566		14			30			0.90	%		1.98	%		0.14	%		0.36	%
Bank of San Francisco(3)				1,356					160						7.54	%					0.71	%
Napa Community Bank(3)				2,224					(219	)
Sunrise Bank		2,899		3,431		542			(1,480	)		10.99	%					0.96	%
California Region Total		3,535		7,577		556			(1,509	)
Colorado Region:
Fort Collins Commerce Bank(3)				1,434					86						3.63	%					0.37	%
Larimer Bank of Commerce(3)				1,330					55						2.77	%					0.25	%
Loveland Bank of Commerce(3)				573					34						2.17	%					0.34	%
Mountain View Bank of Commerce		690		677		33			41			1.82	%		2.31	%		0.22	%		0.33	%
Colorado Region Total		690		4,014		33			216
Great Lakes Region:
Bank of Maumee		535		633		(26	)		(138	)
Bank of Michigan		1,223		1,155		37			(175	)		2.15	%					0.19	%
Capitol National Bank		2,192		2,604		27			(642	)		1.02	%					0.07	%
Evansville Commerce Bank		613		706		(45	)		(150	)
Indiana Community Bank		1,690		1,999		(268	)		(424	)
Michigan Commerce Bank		14,311		15,673		(7,123	)		(27,308	)
Ohio Commerce Bank(3)				1,011					128						5.42	%					0.75	%
Great Lakes Region Total		20,564		23,781		(7,398	)		(28,709	)
Midwest Region
Adams Dairy Bank(3)				626					(110	)
Bank of Belleville(3)				785					12						0.68	%					0.07	%
Community Bank of Lincoln(3)				658					(202	)
Midwest Region Total				2,069					(300	)
Nevada Region:
1st Commerce Bank		335		483		(1,778	)		(725	)
Bank of Las Vegas		3,743		4,973		(695	)		(9,381	)
Nevada Region Total		4,078		5,456		(2,473	)		(10,106	)
Northeast Region:
USNY Bank(3)				1,004					203						15.63	%					1.27	%
Northwest Region:
Bank of the Northwest		1,853		2,079		81			(731	)		2.17	%					0.23	%
High Desert Bank		492		563		(320	)		(291	)
Northwest Region Total		2,345		2,642		(239	)		(1,022	)
Southeast Region:
Community Bank of Rowan(3)(4)		1,550				(71	)														0.47	%
First Carolina State Bank		1,018		1,133		(2,120	)		(782	)
Pisgah Community Bank		353		541		(2,385	)		(6,542	)
Sunrise Bank		1,261		1,703		(1,002	)		(1,528	)
Southeast Region Total		4,182		3,377		(5,578	)		(8,852	)

Page 37 of 57

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS – Continued

Results of Operations – Continued

Operating results – continued:

	Total Revenues						Net Income (Loss)(1)						Return on Average Equity(2)					Return on Average Assets(2)
	2011			2010			2011			2010			2011			2010		2011			2010
Texas Region:
Bank of Fort Bend(3)	$	720		$	494		$	128		$	(50	)		14.82	%				2.27	%
Bank of Las Colinas		613			513			38			(43	)		2.78	%				0.34	%
Texas Region Total		1,333			1,007			166			(93	)
Parent company and other, net		19,704			4,161			16,062			5,264
Consolidated totals		63,359			64,882			(2,774	)		(61,940	)
Less discontinued operations		(6,639	)		(15,914	)		2,896			939
Consolidated totals for    continuing operations	$	56,723		$	48,968		$	(5,670	)	$	(62,879	)		--			--		--			--

(1)	Excludes net losses attributable to noncontrolling interests.
(2)	Annualized for periods presented.
(3)	Capitol sold its ownership in Community Bank of Rowan effective April 19, 2011; Bank of Fort Bend effective March 30, 2011; Bank of Tucson effective January 24, 2011; 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.
(4)	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.

Liquidity and Capital Resources

The principal funding source for banks is deposits.  Total deposits (excluding discontinued operations) decreased $66 million during the three months ended March 31, 2011 compared to a $44 million increase in the corresponding period of 2010.  Brokered deposits approximated $190 million as of March 31, 2011, or about 6.5% of total deposits, a decrease of $89 million during the three-month 2011 period, as the banks have sought to reduce use of that funding source based on maturity and interest-rate opportunities, regulatory constraints and to aid in matching the repricing of funding sources and assets.  Brokered deposits at March 31, 2011 include about $147 million of relationship-based structured time accounts.  Banks that are classified as less than "well-capitalized" are required to obtain approval from the FDIC to renew or obtain new brokered deposits and, for banks classified as less than "adequately-capitalized," renewal of brokered deposits is generally prohibited.

Noninterest-bearing deposits approximated 18.9% of total deposits at March 31, 2011, an increase from 17.4% at December 31, 2010, and an increase of $30.6 million in the 2011 interim period compared to an increase of $5.4 million during the 2010 period (excluding discontinued operations).  Levels of noninterest-bearing deposits can fluctuate based on customers' transaction activity.  During the 2011 period, however, interest-bearing deposits decreased about $97.0 million, mostly related to the previously-mentioned reduction in brokered deposits.

Cash and cash equivalents amounted to $536.5 million or 16.8% of total assets at March 31, 2011, compared to $534.8 million or 15.1% of total assets at December 31, 2010 as reductions in portfolio loans (principally from repayments) and proceeds from sales and maturities of investment securities, government-guaranteed loans and other real estate owned were used to reduce debt obligations or deployed into liquid assets.  As liquidity levels vary continuously based on customer activities, amounts of cash and cash equivalents can vary widely at any given point in time.  Liquidity levels have been increased by management in response to regulatory guidance, coupled with limited opportunities to deploy funds into investment securities during a low interest-rate environment and a cautious approach to making new loans in an uncertain economy.  Management believes the banks' liquidity position at March 31, 2011 is adequate to fund loan demand and meet depositor needs.

Page 38 of 57

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS – Continued

Liquidity and Capital Resources – Continued

In addition to cash and cash equivalents, an additional source of long-term liquidity is the banks' marketable investment securities.  Liquidity needs have not historically necessitated the sale of investments in order to meet funding requirements and the banks have not engaged in active trading of their investments.  At March 31, 2011, Capitol's banks had approximately $21.0 million of investment securities classified as available for sale which may be utilized to meet various liquidity needs as they arise.

Several of Capitol's banks have secured lines of credit with regional Federal Home Loan Banks.  Borrowings thereunder approximated $100.1 million at March 31, 2011 and additional borrowing capacity approximated $125.8 million.  These facilities are used from time to time as a lower-cost funding source versus various rates and maturities of time deposits available within banks' individual communities.  Future availability of such borrowing capacity may be contingent upon the creditworthiness of Capitol's banks and related matters.  Total notes payable and other borrowings were $6 million at March 31, 2011.

In 2009, the Corporation 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.  The payment of interest on those securities may be deferred for periods up to five years.  During such deferral periods, Capitol is prohibited from paying dividends on its common stock (subject to certain exceptions) and is further restricted by Capitol's written agreement with the Federal Reserve Bank of Chicago which prohibits both payment of interest on the trust-preferred securities and cash dividends without prior written approval by that agency.  Accrued interest payable on such securities approximated $19.8 million and $20.8 million at March 31, 2011 and December 31, 2010, respectively.  Holders of the trust-preferred securities will recognize current taxable income relating to the deferred interest payments.

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, including a gain on the transaction of approximately $16.9 million.

Capitol Bancorp Limited stockholders' equity, as a percentage of total assets, approximated (1.77)% at March 31, 2011 and (1.75)% at December 31, 2010.  As of March 31, 2011, total capital funds (i.e., the sum of Capitol Bancorp Limited stockholders' equity, noncontrolling interests in consolidated subsidiaries and subordinated debentures) approximated $110.1 million or 3.44% of total assets.  Capitol's equity deficit improved slightly in the interim 2011 period due to a small income incurred from operations as compared to significant losses from operations in 2010.

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

[The remainder of this page intentionally left blank]

Page 39 of 57

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS – Continued

Liquidity and Capital Resources – Continued

The following comparative analysis summarizes each bank's regulatory capital position as of the dates indicated based on the Corporation and its consolidated banks as of March 31, 2011 (excludes banks sold thus far in 2010):

	Tier 1 Leverage						Tier 1 Risk-Based						Total Risk-Based
	Ratio(1)(5)						Capital Ratio(1)(5)						Capital Ratio(2)(5)						Regulatory Classification(3)
	Mar 31, 2011			Dec 31, 2010			Mar 31, 2011			Dec 31, 2010			Mar 31, 2011			Dec 31, 2010			Mar 31, 2011	Dec 31, 2010
Arizona Region:
Central Arizona Bank		2.10	%		2.24	%		3.10	%		3.20	%		4.38	%		4.49	%	significantly-undercapitalized	significantly-undercapitalized
Sunrise Bank of Albuquerque		2.73	%		2.43	%		3.63	%		3.39	%		4.93	%		4.68	%	significantly-undercapitalized	significantly-undercapitalized
Sunrise Bank of Arizona		2.11	%		0.69	%		2.65	%		0.92	%		3.95	%		1.84	%	significantly-undercapitalized	critically-undercapitalized(7)
California Region:
Bank of Feather River		15.81	%		16.08	%		21.34	%		21.16	%		22.60	%		22.42	%	well-capitalized	well-capitalized
Sunrise Bank		8.19	%		7.04	%		10.42	%		9.93	%		11.71	%		11.22	%	adequately-capitalized(6)	adequately-capitalized(6)
Colorado Region:
Mountain View Bank of    Commerce		11.92	%		12.02	%		17.36	%		17.99	%		18.61	%		19.25	%	well-capitalized	well-capitalized
Great Lakes Region:
Bank of Maumee		7.47	%		7.00	%		9.68	%		9.43	%		10.98	%		10.72	%	well-capitalized	well-capitalized
Bank of Michigan		8.44	%		7.67	%		10.73	%		10.33	%		12.00	%		11.59	%	well-capitalized	well-capitalized
Capitol National Bank		6.45	%		6.10	%		7.96	%		7.74	%		9.24	%		9.03	%	adequately-capitalized	adequately-capitalized
Evansville Commerce Bank		8.59	%		8.47	%		12.91	%		12.25	%		14.19	%		13.52	%	well-capitalized	well-capitalized
Indiana Community Bank		6.50	%		6.34	%		8.32	%		8.19	%		9.60	%		9.47	%	adequately-capitalized	adequately-capitalized
Michigan Commerce Bank		2.05	%		1.15	%		2.56	%		1.46	%		3.88	%		2.78	%	significantly-undercapitalized	critically-undercapitalized(7)
Nevada Region:
1st Commerce Bank		2.34	%		2.48	%		3.56	%		3.94	%		4.88	%		5.20	%	significantly-undercapitalized	significantly-undercapitalized
Bank of Las Vegas		2.20	%		2.06	%		2.85	%		2.93	%		4.18	%		4.27	%	significantly-undercapitalized	significantly-undercapitalized
Northwest Region:
Bank of the Northwest		10.49	%		10.05	%		13.41	%		13.25	%		14.69	%		14.52	%	adequately-capitalized(6)	adequately-capitalized(6)
High Desert Bank		6.78	%		7.83	%		9.46	%		10.07	%		10.76	%		11.36	%	adequately-capitalized(6)	adequately-capitalized(6)
Southeast Region:
Community Bank of Rowan		6.84	%		6.83	%		9.55	%		10.05	%		10.81	%		11.30	%	well-capitalized	well-capitalized
First Carolina State Bank		2.19	%		3.11	%		3.24	%		4.75	%		4.53	%		6.02	%	significantly-undercapitalized	undercapitalized
Pisgah Community Bank(4)		2.48	%		2.03	%		3.62	%		3.52	%		5.00	%		4.82	%	significantly-undercapitalized	significantly-undercapitalized
Sunrise Bank		2.02	%		2.14	%		3.03	%		3.29	%		4.33	%		4.59	%	significantly-undercapitalized	significantly-undercapitalized
Texas Region:
Bank of Las Colinas		12.17	%		11.58	%		14.71	%		14.46	%		15.97	%		15.72	%	well-capitalized	well-capitalized
Consolidated totals		(1.19	)%		(1.03	)%		(1.58	)%		(1.44	)%		(1.58	)%		(1.44	)%	less than adequately-capitalized	less than adequately-capitalized

Page 40 of 57

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS – Continued

Liquidity and Capital Resources – Continued

Notes to the preceding table:

(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 up to the first three years of operations.
(5)	Ratios are based on the banks' regulatory reports filed on or before April 30, 2011.
(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)	Subsequent capital contributions in January 2011 eliminated the banks' classification as "critically-undercapitalized" in 2011.

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.  The preceding summary indicates that Capitol, on a consolidated basis, was classified as less than "adequately-capitalized" at March 31, 2011.

Capitol's total risk-based capital ratio at March 31, 2011 was adversely impacted by the exclusion of approximately $181.8 million of previously-qualifying Tier 2 capital, inasmuch as Tier 2 capital is limited to 100% of Tier 1 capital.  The Tier 1 capital deficit at March 31, 2011 resulted from operating losses in the prior year; however, the Tier 2 limitation did not apply to Capitol's regulatory capital computations at earlier measurement dates prior to 2010.

In addition to Capitol's consolidated regulatory capital classification at March 31, 2011, several of its bank subsidiaries had capital levels resulting in classification as "undercapitalized" or "significantly-undercapitalized" at that date.  Regarding banks classified as "undercapitalized" or "significantly-undercapitalized," and otherwise noncompliant with formal regulatory agreements, management is taking appropriate action to improve such capital classifications and related compliance in the future.

Proceeds from the sale of banks through March 31, 2011 have been deployed as additional capital in the remaining affiliated banks, irrespective of minority ownership, pursuant to requirements imposed by the FDIC.  Capitol anticipates augmenting the capital levels of its less than "adequately-capitalized" bank subsidiaries further through the allocation of proceeds from the pending divestiture of certain bank subsidiaries.  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.

Going-Concern Considerations

As of March 31, 2011, 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 $39 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" or "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;

Page 41 of 57

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS – Continued

Liquidity and Capital Resources – Continued

·   In 2010 and early 2011, Capitol sold several of its banking subsidiaries and has other divestiture transactions pending (see Note J to the accompanying condensed 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 continuing operations in 2011, 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.

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.

Page 42 of 57

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS – Continued

Trends Affecting Operations

As noted elsewhere in this narrative, Capitol has experienced adverse trends in its results of operations, asset quality, valuation of collateral-dependent loans and other real estate owned and capital adequacy.  Capitol continues to focus on its efforts to mitigate those adverse trends through a multifaceted approach to raise and redeploy capital funds, merge bank subsidiaries on a regional basis to achieve operational efficiencies, reduce operating expenses, reduce staffing levels, implement hiring and compensation freezes, sell banks and suspension of employer contributions to retirement plans, among other things.  Capitol continues to explore other ideas to improve operating results and capital adequacy.

Capitol has made significant progress in its efforts to reduce staffing and operating costs as well as redeployment of proceeds from the sale of banks completed thus far.  In addition, in the most recent quarterly period, a notable reduction in the amount of nonperforming assets was achieved following a slowing trend in the prior growth rate of such assets, beginning in the fourth quarter of 2009.

While Capitol's management believes its plans to improve operating results and capital adequacy will help mitigate recent adverse trends, Capitol's loan portfolio is dominated by loans secured by real estate.  Future valuation of collateral-dependent loans and other real estate owned and future loan repayments by borrowers are largely dependent upon economic conditions on a local, regional and national basis.  Uncertainty in those economic conditions, particularly relating to real estate values and the ability of borrowers to repay loans, is outside of the control of Capitol and its banks.  Accordingly, the extent to which those matters may further adversely affect Capitol in the future remains highly unpredictable.

In addition to volatility which arises from changes in asset quality, changes in market rates of interest can have a material impact on the financial condition and results of operations of financial institutions.

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

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

General economic conditions also have a significant impact on both the results of operations and the financial condition of financial institutions.  As mentioned previously, general economic conditions within the states of Michigan, Arizona and Nevada and the national economic recession are uncertain and are likely to continue to have an adverse impact on Capitol, its banks and bank customers.  It is likely that economic recovery may take an extended period of time.

Media reports raising questions about the health of the domestic economy and the sustained national recession have continued in 2010 and 2011.  Although nonperforming assets have decreased during the interim 2011 period, it is likely levels of nonperforming assets and related loan losses may increase further as economic conditions, locally and nationally, evolve.

Page 43 of 57

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS – Continued

Trends Affecting Operations – Continued

Through March 31, 2011, mergers of some of Capitol's banking subsidiaries have been completed in Arizona, southern California, Georgia, Indiana, Michigan, Nevada and the Pacific Northwest.  The resulting merged institutions have been combined on a regional basis to gain efficiencies in loan portfolio and problem asset management and general operating efficiencies in daily processing.  Additional mergers and combinations of bank charters in other markets are under consideration as management evaluates potential synergies and cost savings.

Divestiture of Banks

Through March 31, 2011, Capitol completed the following sales of bank subsidiaries (in $1,000s):

		Sale
	Date Sold	Proceeds		Gain
Bank of Tucson – main office(1)	January 24, 2011	$	4,567	$	4,186
Bank of Fort Bend(2)	March 30, 2011		4,302		1,432
		$	8,869	$	5,618

(1) Previously a wholly-owned subsidiary of Capitol.  Sale proceeds represent the net premium received from the assumption of liabilities and acquisition of assets transaction.

(2) Previously a majority-owned subsidiary of a bank-development subsidiary controlled by Capitol.

On April 19, 2011, the sale of Community Bank of Rowan was completed with aggregate proceeds of $4.8 million and an estimated loss of approximately $1.25 million, which has been reflected in Capitol's first quarter 2011 financial statements against the gain on sale of the above-mentioned bank subsidiaries.

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 March 31, 2011:  1st Commerce Bank, Bank of Feather River, Bank of Las Colinas, Bank of Michigan, Community Bank of Rowan, Evansville Commerce Bank and High Desert Bank.  The projected financial impact of the potential divestiture of these institutions is set forth in the accompanying pro forma condensed consolidated financial statements on pages 46 and 47 of this document.  Total proceeds from those pending sales (excluding Community Bank of Rowan as noted above) are expected to approximate $13.5 million, resulting in a gain of $1.2 million ($0.04 per common share) and are expected to be consummated throughout the remainder of 2011, subject to regulatory approval and other significant contingencies.

Regulatory Matters

In September 2009, Capitol and its second-tier bank holding companies entered into an agreement with 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.

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

Page 44 of 57

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS – Continued

Regulatory Matters—Continued

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 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 detail appearing on page 40 of this document.

Regulatory capital matters are set forth in Note L of the accompanying condensed consolidated financial statements.

On July 21, 2010, the Dodd-Frank Act was signed into law and significantly changes future regulation of financial institutions and the financial services industry.  The Dodd-Frank Act 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 Dodd-Frank Act 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 Dodd-Frank Act 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 Dodd-Frank Act and assessing its probable impact on the Corporation's business, financial condition and results of operations.  However, the ultimate effect of the Dodd-Frank Act on the financial services industry in general, and on the Corporation in particular, is currently uncertain.

[The remainder of this page intentionally left blank]

Page 45 of 57

Page 46 of 57

Page 47 of 57

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS – Continued

Impact of Accounting Standards Updates

There are certain accounting standards updates issued or becoming effective in 2011.  They are discussed in Note B of the accompanying condensed consolidated financial statements.

Critical Accounting Policies

Capitol's critical accounting policies are described on pages F-46 – F-48 of the financial section of its 2010 Annual Report.  In the circumstances of Capitol, management believes its "critical accounting policies" are those which encompass the use of estimates in determining the allowance for loan losses (because of inherent subjectivity), accounting for goodwill (Capitol's annual review of goodwill for potential impairment is performed in the fourth quarter of the year), accounting for income taxes and its consolidation policy.

[The remainder of this page intentionally left blank]

Page 48 of 57

PART I, ITEM 3

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT

MARKET RISK

Information about Capitol's quantitative and qualitative disclosures about market risk were included in Capitol's Annual Report on Form 10-K for the year ended December 31, 2010.  Capitol does not believe that there has been a material change in the nature or categories of market risk exposure, except as noted in the "Management's Discussion and Analysis of Financial Condition and Results of Operations" section herein (Part I, Item 2), under the caption, "Trends Affecting Operations."

PART I, ITEM 4

CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

As of the end of the period covered by this report, an evaluation was performed under the supervision and with the participation of Capitol's Chief Executive Officer and Principal Accounting Officer of the effectiveness of Capitol's disclosure controls and procedures (as defined in Exchange Act Rule 240.13a-15(e)).  Based on that evaluation, the Chief Executive Officer and the Principal Accounting Officer have concluded that Capitol's disclosure controls and procedures were effective as of March 31, 2011 to ensure that information required to be disclosed by Capitol in the reports that it files or submits under the Securities Exchange Act of 1934 is accumulated and communicated to Capitol's management, including its Chief Executive Officer and Principal Accounting Officer, to allow timely decisions regarding required disclosures and is recorded, processed, summarized and reported, within the time periods specified in the SEC's rules and forms.

Changes in Internal Controls Over Financial Reporting

As of December 31, 2010, Capitol identified a material weakness in internal control over financial reporting as a result of a restatement of its September 30, 2010 Form 10-Q.  All aspects of that restatement are in the process of being remediated in 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.

There were no changes in Capitol's internal control over financial reporting that occurred during the period covered by this report that have materially affected, or are reasonably likely to materially affect, Capitol's internal control over financial reporting.

[The remainder of this page intentionally left blank]

Page 49 of 57

PART II.  OTHER INFORMATION

Item 1.	Legal Proceedings. Capitol and its subsidiaries are parties to certain ordinary, routine litigation incidental to their business.  In the opinion of management, liabilities arising from such litigation would not have a material effect on Capitol's consolidated financial position or results of operations.
Item 1A.	Risk Factors. There were no material changes from the risk factors set forth in Part I, Item 1A, "Risk Factors," of Capitol's Form 10-K for the year ended December 31, 2010 during the three months ended March 31, 2011.  Refer to that section of Capitol's Form 10-K for disclosures regarding the risks and uncertainties related to Capitol's business. In addition to the foregoing, additional risk factors in the current operating environment exist: If Capitol continues to experience significant net losses, it may be difficult to continue to operate as a going concern. During 2010 and the interim period of 2011, Capitol has incurred significant net losses from continuing operations, primarily resulting from additional loan losses associated with a continuing uncertain economy and operating environment.  Those operating losses have resulted in a significant erosion of capital and regulatory matters which are discussed elsewhere in this document. Capitol's ability to continue to operate as a going concern is contingent upon a number of factors which include, but are not limited to, the following:                                             ·Significant proceeds from pending future bank sales to enable timely deployment to improve capital adequacy at remaining bank                                                     subsidiaries, in addition to raising additional capital from other sources at the parent-company level; ·Future abatement of loan losses and losses associated with other nonperforming assets; ·Future reduction in operating expenses; ·Future improvement in net interest margin and sources of noninterest income; and ·Future conversion of nonperforming assets into earning assets.
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds.
	(a)          None. (b)          Not applicable. (c)          None.
Item 3.	Defaults Upon Senior Securities. None.
Item 4.	[Removed and Reserved.]
Item 5.	Other Information. Adoption of the 2011 Equity Incentive Plan On May 9, 2011, the board of directors of Capitol adopted and approved the Capitol Bancorp Ltd. 2011 Equity Incentive Plan (the 2011 Plan), a copy of which is attached as Exhibit 10.1 to this Form 10-Q.

Page 50 of 57

PART II.  OTHER INFORMATION – Continued

Item 5. Other Information. – Continued   Description of the 2011 Equity Incentive Plan   The material features of the 2011 Plan are outlined below.  This summary is qualified in its entirety by reference to the complete text of the 2011 Plan.  You are urged to read the actual text of the 2011 Plan in its entirety.   Background and Purpose   The terms of the 2011 Plan provide for the grant of stock options, stock appreciation rights, restricted stock, restricted stock units, other stock-related awards, and performance awards that may be settled in cash, stock, or other property.   The 2011 Plan was adopted to provide a means by which employees, directors, and consultants may be given an opportunity to purchase Capitol's common stock to assist Capitol in retaining the services of such persons, to secure and retain the services of persons capable of filling such positions, and to provide incentives for such persons to exert maximum efforts for Capitol's success.   Shares Available for Awards   The total number of shares of Capitol's common stock reserved for issuance under the 2011 Plan will consist of:   ·five million (5,000,000) shares, plus   ·the number of shares of Capitol's common stock available for issuance under the 2011 Plan shall automatically increase on January 1st of each year for a period of nine years commencing on January 1, 2012 and ending on (and including) January 1, 2020, in an amount equal to five percent (5%) of the total number of shares of Capitol's common stock outstanding on December 31st of the preceding year.  Notwithstanding the foregoing, the Board may act prior to January 1st of any fiscal year, to provide that there shall be no increase in the share reserve for such fiscal year or that the increase in the share reserve for such fiscal year shall be a lesser number of shares of Capitol's common stock than would otherwise occur pursuant to the preceding sentence.   Eligibility   The persons eligible to receive awards under the 2011 Plan consist of Capitol's employees, directors and consultants.  However, incentive stock options (ISOs) may be granted under the 2011 Plan only to Capitol's employees, including Capitol's officers who are employees and only if Capitol elects to submit the 2011 Plan to its shareholders for approval.   Shareholder Approval   Capitol does not currently intend to submit the 2011 Plan to its shareholders.  Notwithstanding the foregoing, Capitol does intend to submit the 2011 Plan for shareholder approval if Capitol desires to issue awards that are intended to satisfy the requirements of (A) Section 162(m) of the Internal Revenue Code of 1986, as amended regarding the exclusion of performance-based compensation from the limit on corporate deductibility of compensation paid to covered employees, (B) Section 422 of the Code regarding "incentive stock options", (C) Rule 16b-3 of the Securities Exchange Act of 1934, as amended or (D) the listing standards of any applicable stock exchange rules on which Capitol seeks to list its securities.    

Page 51 of 57

PART II.  OTHER INFORMATION – Continued

Item 5. Other Information. – Continued   Administration   The 2011 Plan is administered by the board of directors, which may in turn delegate authority to administer the plan to a committee.  The board of directors has delegated administration of the 2011 Plan to the Compensation Committee.  Subject to the terms of the 2011 Plan, the Compensation Committee determines recipients, the numbers and types of stock awards to be granted and the terms and conditions of the stock awards, including the period of their exercisability and vesting.  Subject to the limitations set forth below, the Compensation Committee also determines the exercise price of options granted under the 2011 Plan.  Subject to the terms of the 2011 Plan, the Compensation Committee may delegate to one or more of Capitol's officers the authority to grant stock awards to Capitol's other officers and employees.  Such officer would be able to grant only the total number of stock awards specified by the Compensation Committee and such officer would not be allowed to grant a stock award to himself or herself.   Stock Options   Stock options are granted pursuant to stock option agreements and the exercise price for an option cannot be less than 100% of the fair market value of the common stock subject to the option on the date of grant.  Options granted under the 2011 Plan vest at the rate specified in the option agreement.   In general, the term of stock options granted under the 2011 Plan may not exceed ten years.  Unless the terms of an optionholder's stock option agreement provide for earlier or later termination, if an optionholder's service relationship with Capitol, or any affiliate of Capitol, ceases due to disability or death, the optionholder, or his or her beneficiary, may exercise any vested options for up to 12 months after the date the service relationship ends.  If an optionholder's service relationship with Capitol, or any affiliate of Capitol, ceases for any reason other than disability or death, the optionholder may exercise any vested options for up to three months after the date the service relationship ends, unless the terms of the stock option agreement provide for a longer or shorter period to exercise the option.  In no event may an option be exercised after its expiration date.   Acceptable forms of consideration for the purchase of Capitol's common stock issued under the 2011 Plan are determined by the Compensation Committee and may include cash, common stock previously owned by the optionholder, payment through a broker assisted exercise or a net exercise feature, or other legal consideration approved by the Compensation Committee.   Generally, an optionholder may not transfer a stock option other than by will or the laws of descent and distribution or a domestic relations order.  However, an optionholder may designate a beneficiary who may exercise the option following the optionholder's death.   Limitations   The aggregate fair market value, determined at the time of grant, of shares of Capitol's common stock with respect to ISOs that are exercisable for the first time by an optionholder during any calendar year under all of Capitol's stock plans may not exceed $100,000.  The options or portions of options that exceed this limit are treated as nonqualified stock options (NSOs).  No ISO may be granted to any person who, at the time of the grant, owns or is deemed to own stock possessing more than 10% of Capitol's total combined voting power or that of any affiliate unless the following conditions are satisfied:   ·the option exercise price must be at least 110% of the fair market value of the stock subject to the option on the date of grant; and   ·the term of any ISO award must not exceed five years from the date of grant.

Page 52 of 57

PART II.  OTHER INFORMATION – Continued

Item 5. Other Information. – Continued   Restricted Stock Awards   Restricted stock awards are granted pursuant to restricted stock award agreements.  A restricted stock award may be granted in consideration for the recipient's past or future services performed for Capitol or an affiliate of Capitol.  Shares of Capitol's common stock acquired under a restricted stock award may be subject to forfeiture to Capitol in accordance with a vesting schedule to be determined by the Compensation Committee.  Rights to acquire shares of Capitol's common stock under a restricted stock award may be transferred only upon such terms and conditions as are set forth in the restricted stock award agreement.   Restricted Stock Unit Awards   Restricted stock unit awards are granted pursuant to restricted stock unit award agreements.  Payment of any purchase price may be made in any form permitted under applicable law; however, Capitol settles payments due to a recipient of a restricted stock unit award by delivery of shares of Capitol's common stock, by cash, by a combination of cash and stock as deemed appropriate by the Compensation Committee, or in any other form of consideration determined by the Compensation Committee and set forth in the restricted stock unit award agreement.  Dividend equivalents may be credited in respect of shares of Capitol's common stock covered by a restricted stock unit award.  Restricted stock unit awards may be subject to vesting in accordance with a vesting schedule to be determined by the Compensation Committee.  Except as otherwise provided in the applicable restricted stock unit award agreement, restricted stock units that have not vested will be forfeited upon the participant's termination of continuous service for any reason.   Stock Appreciation Rights   Stock appreciation rights are granted through a stock appreciation rights agreement.  Each stock appreciation right is denominated in common stock share equivalents.  The strike price of each stock appreciation right is determined by the Compensation Committee or its authorized committee, but shall in no event be less than 100% of the fair market value of the stock subject to the stock appreciation right at the time of grant.  The Compensation Committee may also impose any restrictions or conditions upon the vesting of stock appreciation rights that it deems appropriate.  Stock appreciation rights may be paid in Capitol's common stock or in cash or any combination of the two, or any other form of legal consideration approved by the Compensation Committee.  In general, the term of stock appreciation rights granted under the 2011 Plan may not exceed ten years.  Unless the terms of a recipient's stock appreciation right agreement provide for earlier or later termination, if a stock appreciation right recipient's relationship with Capitol, or any of Capitol's affiliates, ceases for any reason, the recipient may exercise any vested stock appreciation right up to three months from cessation of service.   Performance Awards   The 2011 Plan provides for the grant of two types of performance awards: performance stock awards and performance cash awards.  Performance awards may be granted, vest or be exercised based upon the attainment during a certain period of time of certain performance goals.  All of Capitol's employees, directors and consultants are eligible to receive performance awards under the 2011 Plan.  The length of any performance period, the performance goals to be achieved during the performance period, and the measure of whether and to what degree such performance goals have been attained shall be determined by the Compensation Committee.  In granting a performance award, the Compensation Committee sets a period of time, or a performance period, over which the attainment of one or more performance goals is measured for the purpose of determining whether the award recipient has a vested right in or to such performance award.  Within the time period prescribed by Section 162(m) of the Code (typically before the 90th day of a performance period), the  

Page 53 of 57

PART II.  OTHER INFORMATION – Continued

Item 5. Other Information. – Continued   Compensation Committee establishes the performance goals, based upon one or more pre-established performance criteria enumerated in the 2011 Plan and described below.  As soon as administratively practicable following the end of the performance period, the Compensation Committee certifies (in writing) whether the performance goals have been satisfied.   Performance awards may be granted under the 2011 Plan only to Capitol's employees, including Capitol's officers who are employees, and only if Capitol elects to submit the 2011 Plan to its shareholders for approval.   Other Stock Awards   Other forms of stock awards valued in whole or in part with reference to Capitol's common stock may be granted either alone or in addition to other stock awards under the 2011 Plan.  The Compensation Committee and, pursuant to limited authority granted to it, the Non-Officer Stock Award Committee, has the authority to determine the persons to whom and the time or times at which such other stock awards are granted, the number of shares of Capitol's common stock to be granted and all other conditions of such other stock awards.  Other forms of stock awards may be subject to vesting in accordance with a vesting schedule to be determined by the Compensation Committee.   Changes to Capital Structure   In the event that there is a specified type of change in Capitol's capital structure not involving the receipt of consideration by Capitol, such as a stock split or stock dividend, the number of shares reserved under the 2011 Plan and the number of shares and exercise price or strike price, if applicable, of all outstanding stock awards will be appropriately adjusted.   Corporate Transactions   In the event of certain corporate transactions, all outstanding stock awards under the 2011 Plan may be assumed, continued or substituted for by any surviving entity.  If the surviving entity elects not to assume, continue or substitute for such awards, the vesting of such stock awards held by persons whose service with Capitol has not terminated generally will be accelerated in full and such stock awards will terminate if and to the extent not exercised at or prior to the effective time of the corporate transaction and Capitol's repurchase rights will generally lapse.   Plan Amendments   The Compensation Committee has the authority to amend or terminate the 2011 Plan.  However, no amendment or termination of the plan will adversely affect any rights under awards already granted to a participant unless agreed to by the affected participant.  

Page 54 of 57

PART II.  OTHER INFORMATION – Continued

Item 6. Exhibits:

(a)	(b)
Exhibit No.	Description of Exhibit
10.1	Capitol Bancorp Ltd. 2011 Equity Incentive Plan
10.2	Stock Option Grant Notice Pursuant to the Capitol Bancorp Ltd. 2011 Equity Incentive Plan
10.3	Stock Option Grant Notice for Senior Management Pursuant to the Capitol Bancorp Ltd. 2011 Equity Incentive Plan
10.4	Restricted Stock Agreement Pursuant to the Capitol Bancorp Ltd. 2011 Equity Incentive Plan
10.5	Restricted Stock Unit Agreement Pursuant to the Capitol Bancorp Ltd. 2011 Equity Incentive Plan
10.6	Stock Appreciation Rights Agreement Pursuant to the Capitol Bancorp Ltd. 2011 Equity Incentive Plan
31.1	Certification of Chief Executive Officer, Joseph D. Reid, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2	Certification of Principal Accounting Officer, Marie D. Walker, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1	Certification of Chief Executive Officer, Joseph D. Reid, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2	Certification of Principal Accounting Officer, Marie D. Walker, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

Page 55 of 57

SIGNATURES

Pursuant to the requirements 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)
Date:  May 12, 2011	/s/ Joseph D. Reid                                                                                               Joseph D. Reid Chairman and CEO (principal executive officer)
Date:  May 12, 2011	/s/ Marie D. Walker                                                                                                         Marie D. Walker (principal accounting officer)

Page 56 of 57

INDEX TO EXHIBITS

Exhibit No.	Description of Exhibit
10.1	Capitol Bancorp Ltd. 2011 Equity Incentive Plan
10.2	Stock Option Grant Notice Pursuant to the Capitol Bancorp Ltd. 2011 Equity Incentive Plan
10.3	Stock Option Grant Notice for Senior Management Pursuant to the Capitol Bancorp Ltd. 2011 Equity Incentive Plan
10.4	Restricted Stock Agreement Pursuant to the Capitol Bancorp Ltd. 2011 Equity Incentive Plan
10.5	Restricted Stock Unit Agreement Pursuant to the Capitol Bancorp Ltd. 2011 Equity Incentive Plan
10.6	Stock Appreciation Rights Agreement Pursuant to the Capitol Bancorp Ltd. 2011 Equity Incentive Plan
31.1	Certification of Chief Executive Officer, Joseph D. Reid, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2	Certification of Principal Accounting Officer, Marie D. Walker, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1	Certification of Chief Executive Officer, Joseph D. Reid, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2	Certification of Principal Accounting Officer, Marie D. Walker, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

Page 57 of 57

EX-10.1

    exhibit10_1.htm
    
    
    

EX-10.2

Exhibit 10.2

STOCK OPTION GRANT NOTICE

PURSUANT TO THE

CAPITOL BANCORP LTD. 2011 EQUITY INCENTIVE PLAN

Capitol Bancorp Ltd. (the “Company”), pursuant to its 2011 Equity Incentive Plan (the “Plan”), hereby grants to Optionholder an option to purchase the number of shares of the Company’s Common Stock set forth below. This option is subject to all of the terms and conditions as set forth herein and in the Option Agreement, the Plan, and the Notice of Exercise, all of which are attached hereto and incorporated herein in their entirety.

Optionholder:

Date of Grant:

Vesting Commencement Date:

Number of Shares Subject to Option:

Exercise Price (Per Share):

Total Exercise Price:

Expiration Date:

Type of Grant:                     o Incentive Stock Option1                                     o Nonstatutory Stock Option

Exercise Schedule:             Same as Vesting Schedule

Vesting Schedule: [__of the shares vest one year after the Vesting Commencement Date; the balance of the shares vest in a series of __  successive equal monthly installments measured from the first anniversary of the Vesting Commencement Date.]

Payment: By one or a combination of the following items (described in the Option Agreement):

o By cash or check

o By bank draft or money order payable to the Company

o Pursuant to a Regulation T Program if the Shares are publicly traded

o By delivery of already-owned shares if the Shares are publicly traded

o If and only to the extent this option is a Nonstatutory Stock Option, and subject to the Company’s consent at the time of exercise, by a “net exercise” arrangement2

Additional Terms/Acknowledgements: The undersigned Optionholder acknowledges receipt of, and understands and agrees to, this Stock Option Grant Notice, the Option Agreement and the Plan. Optionholder further acknowledges that as of the Date of Grant, this Stock Option Grant Notice, the Option Agreement, and the Plan set forth the entire understanding between Optionholder and the Company regarding the acquisition of stock in the Company and supersede all prior oral and written agreements on that subject with the exception of (i) options previously granted and delivered to Optionholder by the Company, and (ii) the following agreements only:

1 If this is an Incentive Stock Option, it (plus other outstanding Incentive Stock Options) cannot be first exercisable for more than $100,000 in value (measured by exercise price) in any calendar year. Any excess over $100,000 is a Nonstatutory Stock Option.

2 Any portion of this option intended to qualify as an Incentive Stock Option may not be exercised by net exercise.

1

OTHER AGREEMENTS:                                        _________________________________________________

                                                                                    _________________________________________________                        

CAPITOL BANCORP LTD.                                                                OPTIONHOLDER:

By:           _________________________________                      ___________________________________

Signature                                                                                             Signature

Title:       _________________________________                      Date:     _____________________________      

Date:

ATTACHMENTS: Option Agreement, 2011 Equity Incentive Plan and Notice of Exercise

2

ATTACHMENT I

OPTION AGREEMENT

3

CAPITOL BANCORP LTD.

2011 EQUITY INCENTIVE PLAN

OPTION AGREEMENT

(INCENTIVE STOCK OPTION OR NONSTATUTORY STOCK OPTION)

Pursuant to your Stock Option Grant Notice (“Grant Notice”) and this Option Agreement, Capitol Bancorp Ltd. (the “Company”) has granted you an option under its 2011 Equity Incentive Plan (the “Plan”) to purchase the number of shares of the Company’s Common Stock indicated in your Grant Notice at the exercise price indicated in your Grant Notice. Defined terms not explicitly defined in this Option Agreement but defined in the Plan shall have the same definitions as in the Plan.

The details of your option are as follows:

1.VESTING.  Subject to the limitations contained herein, your option will vest as provided in your Grant Notice, provided that vesting will cease upon the termination of your Continuous Service.

2.NUMBER OF SHARES AND EXERCISE PRICE. The number of shares of Common Stock subject to your option and your exercise price per share referenced in your Grant Notice may be adjusted from time to time for Capitalization Adjustments.

3.EXERCISE RESTRICTION FOR NON-EXEMPT EMPLOYEES. In the event that you are an Employee eligible for overtime compensation under the Fair Labor Standards Act of 1938, as amended ( i.e. , a “Non-Exempt Employee”), and except as otherwise provided in the Plan, you may not exercise your option until you have completed at least six (6) months of Continuous Service measured from the Date of Grant specified in your Grant Notice, notwithstanding any other provision of your option.

4.METHOD OF PAYMENT. Payment of the exercise price is due in full upon exercise of all or any part of your option. You may elect to make payment of the exercise price in cash or by check or in any one or more of the following manners unless otherwise provided in your Grant Notice:

(a)Provided that at the time of exercise the Common Stock is publicly traded, pursuant to a program developed under Regulation T as promulgated by the Federal Reserve Board that, prior to the issuance of Common Stock, results in either the receipt of cash (or check) by the Company or the receipt of irrevocable instructions to pay the aggregate exercise price to the Company from the sales proceeds.

(b)Provided that at the time of exercise the Common Stock is publicly traded, by delivery to the Company (either by actual delivery or attestation) of already-owned shares of Common Stock that are owned free and clear of any liens, claims, encumbrances or security interests, and that are valued at Fair Market Value on the date of exercise. “Delivery” for these purposes, in the sole discretion of the Company at the time you exercise your option, shall include delivery to the Company of your attestation of ownership of such shares of Common Stock in a form approved by the Company. Notwithstanding the foregoing, you may not exercise your option by tender to the Company of Common Stock to the extent such tender would violate the provisions of any law, regulation or agreement restricting the redemption of the Company’s stock.

(c)If the Option is a Nonstatutory Stock Option,subject to the consent of the Company at the time of exercise, by a “net exercise” arrangement pursuant to which the Company will reduce the number of shares of Common Stock issued upon exercise of your option by the largest whole number of shares with a Fair Market Value that does not exceed the aggregate exercise price; provided, however, that the Company shall accept a cash or other payment from you to the extent of any remaining balance of the aggregate exercise price not satisfied by such reduction in the number of whole shares to be issued; provided further, however, that shares of Common Stock will no longer be outstanding under your option and will not be exercisable thereafter to the extent that (1) shares are used to pay the exercise price pursuant to the “net exercise,” (2) shares are delivered to you as a result of such exercise, and (3) shares are withheld to satisfy tax withholding obligations.

4

5.WHOLE SHARES. You may exercise your option only for whole shares of Common Stock.

6.SECURITIES LAW COMPLIANCE. Notwithstanding anything to the contrary contained herein, you may not exercise your option unless the shares of Common Stock issuable upon such exercise are then registered under the Securities Act or, if such shares of Common Stock are not then so registered, the Company has determined that such exercise and issuance would be exempt from the registration requirements of the Securities Act. The exercise of your option also must comply with other applicable laws and regulations governing your option, and you may not exercise your option if the Company determines that such exercise would not be in material compliance with such laws and regulations.

7.TERM. You may not exercise your option before the commencement or after the expiration of its term. The term of your option commences on the Date of Grant and expires, subject to the provisions of Section 5(h) of the Plan, upon the earliest of the following:

(a)immediately upon the termination of your Continuous Service for Cause;

(b)three (3) months after the termination of your Continuous Service for any reason other than Cause, Disability or death, provided  however,  that if during any part of such three (3) month period your option is not exercisable solely because of the condition set forth in the section above relating to “Securities Law Compliance,” your option shall not expire until the earlier of the Expiration Date or until it shall have been exercisable for an aggregate period of three (3) months after the termination of your Continuous Service; and if (i) you are a Non-Exempt Employee, (ii) your Continuous Service terminates within six (6) months after the Date of Grant specified in your Grant Notice, and (iii) you have vested in a portion of your option at the time of your termination of Continuous Service, your option shall not expire until the earlier of (x) the later of (A) the date that is seven (7) months after the Date of Grant specified in your Grant Notice or (B) the date that is three (3) months after the termination of your Continuous Service, or (y) the Expiration Date;

(c)twelve (12) months after the termination of your Continuous Service due to your Disability;

(d)eighteen (18) months after your death if you die either during your Continuous Service or within three (3) months after your Continuous Service terminates for any reason other than Cause;

(e)the Expiration Date indicated in your Grant Notice; or

(f)the day before the tenth (10th) anniversary of the Date of Grant.

If your option is an Incentive Stock Option, note that to obtain the federal income tax advantages associated with an Incentive Stock Option, the Code requires that at all times beginning on the date of grant of your option and ending on the day three (3) months before the date of your option’s exercise, you must be an employee of the Company or an Affiliate, except in the event of your death or Disability. The Company has provided for extended exercisability of your option under certain circumstances for your benefit but cannot guarantee that your option will necessarily be treated as an Incentive Stock Option if you continue to provide services to the Company or an Affiliate as a Consultant or Director after your employment terminates or if you otherwise exercise your option more than three (3) months after the date your employment with the Company or an Affiliate terminates.

8.EXERCISE.

(a)You may exercise the vested portion of your option during its term by delivering a Notice of Exercise (in a form designated by the Company) together with the exercise price to the Secretary of the Company, or to such other person as the Company may designate, during regular business hours, together with such additional documents as the Company may then require.

(b)By exercising your option you agree that, as a condition to any exercise of your option, the Company may require you to enter into an arrangement providing for the payment by you to the Company of

5

any tax withholding obligation of the Company arising by reason of (i) the exercise of your option, (ii) the lapse of any substantial risk of forfeiture to which the shares of Common Stock are subject at the time of exercise, or (iii) the disposition of shares of Common Stock acquired upon such exercise.

(c)If your option is an Incentive Stock Option, by exercising your option you agree that you will notify the Company in writing within fifteen (15) days after the date of any disposition of any of the shares of the Common Stock issued upon exercise of your option that occurs within two (2) years after the date of your option grant or within one (1) year after such shares of Common Stock are transferred upon exercise of your option.

9.TRANSFERABILITY.

(a)If your option is an Incentive Stock Option, your option is generally not transferable, except (1) by will or by the laws of descent and distribution or (2) pursuant to a domestic relations order (provided that such Incentive Stock Option may be deemed to be a Nonstatutory Stock Option as a result of such transfer), and is exercisable during your life only by you. Notwithstanding the foregoing, by delivering written notice to the Company, in a form satisfactory to the Company, you may designate a third party who, in the event of your death, shall thereafter be entitled to exercise your option. In addition, you may transfer your option to a trust if you are considered to be the sole beneficial owner (determined under Section 671 of the Code and applicable state law) while the option is held in the trust, provided that you and the trustee enter into transfer and other agreements required by the Company.

(b)If your option is a Nonstatutory Stock Option, your option is not transferable, except (1) by will or by the laws of descent and distribution, (2) pursuant to a domestic relations order, (3) with the prior written approval of the Company, by instrument to an inter vivos or testamentary trust, in a form accepted by the Company, in which the option is to be passed to beneficiaries upon the death of the trustor (settlor) and (4) with the prior written approval of the Company, by gift, in a form accepted by the Company, to a permitted transferee under Rule 701 of the Securities Act.

10.OPTION NOT A SERVICE CONTRACT. Your option is not an employment or service contract, and nothing in your option shall be deemed to create in any way whatsoever any obligation on your part to continue in the employ of the Company or an Affiliate, or of the Company or an Affiliate to continue your employment. In addition, nothing in your option shall obligate the Company or an Affiliate, their respective stockholders, Boards of Directors, Officers or Employees to continue any relationship that you might have as a Director or Consultant for the Company or an Affiliate.

11.WITHHOLDING OBLIGATIONS.

(a)At the time you exercise your option, in whole or in part, or at any time thereafter as requested by the Company, you hereby authorize withholding from payroll and any other amounts payable to you, and otherwise agree to make adequate provision for (including by means of a “cashless exercise” pursuant to a program developed under Regulation T as promulgated by the Federal Reserve Board to the extent permitted by the Company), any sums required to satisfy the federal, state, local and foreign tax withholding obligations of the Company or an Affiliate, if any, which arise in connection with your option.

(b)Upon your request and subject to approval by the Company, in its sole discretion, and in compliance with any applicable conditions or restrictions of law, the Company may withhold from fully vested shares of Common Stock otherwise issuable to you upon the exercise of your option a number of whole shares of Common Stock having a Fair Market Value, determined by the Company as of the date of exercise, not in excess of the minimum amount of tax required to be withheld by law (or such lower amount as may be necessary to avoid classification of your option as a liability for financial accounting purposes). If the date of determination of any tax withholding obligation is deferred to a date later than the date of exercise of your option, share withholding pursuant to the preceding sentence shall not be permitted unless you make a proper and timely election under Section 83(b) of the Code, covering the aggregate number of shares of Common Stock acquired upon such exercise with respect to which such determination is otherwise deferred, to accelerate the determination of such tax withholding obligation to the date of exercise of your option. Notwithstanding the filing of such election, shares of Common Stock shall be withheld solely from fully vested shares of Common Stock determined as of the date of exercise of your option that

6

are otherwise issuable to you upon such exercise. Any adverse consequences to you arising in connection with such share withholding procedure shall be your sole responsibility.

(c)You may not exercise your option unless the tax withholding obligations of the Company and/or any Affiliate are satisfied. Accordingly, you may not be able to exercise your option when desired even though your option is vested, and the Company shall have no obligation to issue a certificate for such shares of Common Stock unless such obligations are satisfied.

12.TAX CONSEQUENCES. You hereby agree that the Company does not have a duty to design or administer the Plan or its other compensation programs in a manner that minimizes your tax liabilities. You shall not make any claim against the Company, or any of its Officers, Directors, Employees or Affiliates related to tax liabilities arising from your option or your other compensation. In particular, you acknowledge that this option is exempt from Section 409A of the Code only if the exercise price per share specified in the Grant Notice is at least equal to the “fair market value” per share of the Common Stock on the Date of Grant and there is no other impermissible deferral of compensation associated with the option.

13.NOTICES. Any notices provided for in your option or the Plan shall be given in writing and shall be deemed effectively given upon receipt or, in the case of notices delivered by mail by the Company to you, five (5) days after deposit in the United States mail, postage prepaid, addressed to you at the last address you provided to the Company.

14.GOVERNING PLAN DOCUMENT. Your option is subject to all the provisions of the Plan, the provisions of which are hereby made a part of your option, and is further subject to all interpretations, amendments, rules and regulations, which may from time to time be promulgated and adopted pursuant to the Plan. In the event of any conflict between the provisions of your option and those of the Plan, the provisions of the Plan shall control.

7

ATTACHMENT II

2011 EQUITY INCENTIVE PLAN

8

ATTACHMENT III

NOTICE OF EXERCISE

9

10

By this exercise, I agree (i) to provide such additional documents as you may require pursuant to the terms of the 2011 Equity Incentive Plan (ii) to provide for the payment by me to you (in the manner designated by you) of your withholding obligation, if any, relating to the exercise of this option, and (iii) if this exercise relates to an incentive stock option, to notify you in writing within fifteen (15) days after the date of any disposition of any of the shares of Common Stock issued upon exercise of this option that occurs within two (2) years after the date of grant of this option or within one (1) year after such shares of Common Stock are issued upon exercise of this option.

Very truly yours,

11

EX-10.3

    exhibit10_3.htm
    
    
    

EX-10.4

Exhibit 10.4

RESTRICTED STOCK AGREEMENT

PURSUANT TO THE

CAPITOL BANCORP LTD. 2011 EQUITY INCENTIVE PLAN

* * * * *

Participant:   ________________________                                                   

Grant Date:   ________________________ 

Number of Shares of

Restricted Stock Granted:   ______________________________                                                                        

* * * * *

THIS RESTRICTED STOCK AWARD AGREEMENT (this “Agreement”), dated as of the Grant Date specified above, is entered into by and between Capitol Bancorp Ltd., a corporation organized in the State of Michigan (the “Company”), and the Participant specified above, pursuant to the Capitol Bancorp Ltd. 2011 Equity Incentive Plan, as in effect and as amended from time to time (the “Plan”), which is administered by the Committee; and

WHEREAS, it has been determined under the Plan that it would be in the best interests of the Company to grant the shares of Restricted Stock provided herein to the Participant.

NOW, THEREFORE, in consideration of the mutual covenants and promises hereinafter set forth and for other good and valuable consideration, the parties hereto hereby mutually covenant and agree as follows:

1.Incorporation By Reference; Plan Document Receipt.  This Agreement is subject in all respects to the terms and provisions of the Plan (including, without limitation, any amendments thereto adopted at any time and from time to time unless such amendments are expressly intended not to apply to the Award provided hereunder), all of which terms and provisions are made a part of and incorporated in this Agreement as if they were each expressly set forth herein. Any capitalized term not defined in this Agreement shall have the same meaning as is ascribed thereto in the Plan. The Participant hereby acknowledges receipt of a true copy of the Plan and that the Participant has read the Plan carefully and fully understands its content. In the event of any conflict between the terms of this Agreement and the terms of the Plan, the terms of the Plan shall control.

2.Grant of Restricted Stock Award.  The Company hereby grants to the Participant, as of the Grant Date specified above, the number of shares of Restricted Stock specified above. Except as otherwise provided by the Plan, the Participant agrees and understands that nothing contained in this Agreement provides, or is intended to provide, the Participant with any protection against potential future dilution of the Participant’s interest in the Company for any reason, and no adjustments shall be made for dividends in cash or other property, distributions or other rights in respect of any such shares, except as otherwise specifically provided for in the Plan or this Agreement. Subject to Section 5 hereof, the Participant shall not have the rights of a shareholder in respect of the shares underlying this Award until such shares are delivered to the Participant in accordance with Section 4 hereof.

3.Vesting.

(a)The Restricted Stock subject to this grant shall become unrestricted and vested as follows, provided that the Participant has not incurred a Termination prior to each such vesting date:

Vesting Date                                Number of Shares                                

           [   ]                                                                                    [   ]

1

There shall be no proportionate or partial vesting in the periods prior to each vesting date and all vesting shall occur only on the appropriate vesting date, subject to the Participant’s continued service with the Company or any of its Subsidiaries on each applicable vesting date.

(b)Committee Discretion to Accelerate Vesting.  Notwithstanding the foregoing, the Committee may, in its sole discretion, provide for accelerated vesting of the Restricted Stock at any time and for any reason.

(c)Forfeiture. Subject to the Committee’s discretion to accelerate vesting hereunder, all unvested shares of Restricted Stock shall be immediately forfeited upon the Participant’s Termination for any reason.

4.Period of Restriction; Delivery of Unrestricted Shares. During the Period of Restriction, the Restricted Stock shall bear a legend as described in Section 8.2(c) of the Plan. When shares of Restricted Stock awarded by this Agreement become vested, the Participant shall be entitled to receive unrestricted shares and if the Participant’s stock certificates contain legends restricting the transfer of such shares, the Participant shall be entitled to receive new stock certificates free of such legends (except any legends requiring compliance with securities laws).

5.Dividends and Other Distributions; Voting. Participants holding Restricted Stock shall be entitled to receive all dividends and other distributions paid with respect to such shares, provided that any such dividends or other distributions will be subject to the same vesting requirements as the underlying Restricted Stock and shall be paid at the time the Restricted Stock becomes vested pursuant to Section 3 hereof. If any dividends or distributions are paid in shares, the shares shall be deposited with the Company and shall be subject to the same restrictions on transferability and forfeitability as the Restricted Stock with respect to which they were paid. The Participant may exercise full voting rights with respect to the Restricted Stock granted hereunder.

6.Non-Transferability.  The shares of Restricted Stock, and any rights and interests with respect thereto, issued under this Agreement and the Plan shall not, prior to vesting, be sold, exchanged, transferred, assigned or otherwise disposed of in any way by the Participant (or any beneficiary of the Participant), other than by testamentary disposition by the Participant or the laws of descent and distribution. Any attempt to sell, exchange, transfer, assign, pledge, encumber or otherwise dispose of or hypothecate in any way any of the Restricted Stock, or the levy of any execution, attachment or similar legal process upon the Restricted Stock, contrary to the terms and provisions of this Agreement and/or the Plan shall be null and void and without legal force or effect.

7.Governing Law.  All questions concerning the construction, validity and interpretation of this Agreement shall be governed by, and construed in accordance with, the laws of the State of Michigan, without regard to the choice of law principles thereof.

8.Withholding of Tax.  The Company shall have the power and the right to deduct or withhold, or require the Participant to remit to the Company, an amount sufficient to satisfy any federal, state, local and foreign taxes of any kind (including, but not limited to, the Participant’s FICA and SDI obligations) which the Company, in its sole discretion, deems necessary to be withheld or remitted to comply with the Code and/or any other applicable law, rule or regulation with respect to the Restricted Stock and, if the Participant fails to do so, the Company may otherwise refuse to issue or transfer any shares of Common Stock otherwise required to be issued pursuant to this Agreement. Any statutorily required withholding obligation with regard to the Participant may be satisfied by reducing the amount of cash or shares of Common Stock otherwise deliverable to the Participant hereunder.

9.Section 83(b).  If the Participant properly elects (as required by Section 83(b) of the Code) within 30 days after the issuance of the Restricted Stock to include in gross income for federal income tax purposes in the year of issuance the Fair Market Value of such shares of Restricted Stock, the Participant shall pay to the Company or make arrangements satisfactory to the Company to pay to the Company upon such election, any federal, state or local taxes required to be withheld with respect to the Restricted Stock. If the Participant shall fail to make such payment, the Company shall, to the extent permitted by law, have the right to deduct from any payment

2

of any kind otherwise due to the Participant any federal, state or local taxes of any kind required by law to be withheld with respect to the Restricted Stock, as well as the rights set forth in Section 8 hereof. The Participant acknowledges that it is the Participant’s sole responsibility, and not the Company’s, to file timely and properly the election under Section 83(b) of the Code and any corresponding provisions of state tax laws if the Participant elects to make such election, and the Participant agrees to timely provide the Company with a copy of any such election.

10.Legend.  All certificates representing the Restricted Stock shall have endorsed thereon the legend set forth in Section 8.2(c) of the Plan. Notwithstanding the foregoing, in no event shall the Company be obligated to deliver to the Participant a certificate representing the Restricted Stock prior to the vesting dates set forth above.

11.Securities Representations. The shares of Restricted Stock are being issued to the Participant and this Agreement is being made by the Company in reliance upon the following express representations and warranties of the Participant. The Participant acknowledges, represents and warrants that:

(a)The Participant has been advised that the Participant may be an “affiliate” within the meaning of Rule 144 under the Securities Act and in this connection the Company is relying in part on the Participant’s representations set forth in this Section 11.

(b)If the Participant is deemed an affiliate within the meaning of Rule 144 of the Securities Act, the shares of Restricted Stock must be held indefinitely unless an exemption from any applicable resale restrictions is available or the Company files an additional registration statement (or a “re-offer prospectus”) with regard to the shares of Restricted Stock and the Company is under no obligation to register the shares of Restricted Stock (or to file a “re-offer prospectus”).

(c)If the Participant is deemed an affiliate within the meaning of Rule 144 of the Securities Act, the Participant understands that (i) the exemption from registration under Rule 144 will not be available unless (A) a public trading market then exists for the Common Stock of the Company, (B) adequate information concerning the Company is then available to the public, and (C) other terms and conditions of Rule 144 or any exemption therefrom are complied with, and (ii) any sale of the shares of vested Restricted Stock hereunder may be made only in limited amounts in accordance with the terms and conditions of Rule 144 or any exemption therefrom.

12.Entire Agreement; Amendment. This Agreement, together with the Plan, contains the entire agreement between the parties hereto with respect to the subject matter contained herein, and supersedes all prior agreements or prior understandings, whether written or oral, between the parties relating to such subject matter. The Committee shall have the right, in its sole discretion, to modify or amend this Agreement from time to time in accordance with and as provided in the Plan. This Agreement may also be modified or amended by a writing signed by both the Company and the Participant. The Company shall give written notice to the Participant of any such modification or amendment of this Agreement as soon as practicable after the adoption thereof.

13.Notices.  Any notice hereunder by the Participant shall be given to the Company in writing and such notice shall be deemed duly given only upon receipt thereof by the General Counsel of the Company. Any notice hereunder by the Company shall be given to the Participant in writing and such notice shall be deemed duly given only upon receipt thereof at such address as the Participant may have on file with the Company.

14.Acceptance.  The Participant shall forfeit the Restricted Stock if the Participant does not execute this Agreement within a period of 60 days from the date that the Participant receives this Agreement (or such other period as the Committee shall provide).

15.No Right to Employment.  Any questions as to whether and when there has been a Termination and the cause of such Termination shall be determined in the sole discretion of the Committee. Nothing in this Agreement shall interfere with or limit in any way the right of the Company, its Subsidiaries or Affiliates to terminate the Participant’s employment or service at any time, for any reason and with or without Cause.

16.Transfer of Personal Data.  The Participant authorizes, agrees and unambiguously consents to the transmission by the Company (or any Subsidiary) of any personal data information related to the Restricted

3

Stock awarded under this Agreement for legitimate business purposes (including, without limitation, the administration of the Plan). This authorization and consent is freely given by the Participant.

17.Compliance with Laws.  The issuance of the Restricted Stock or unrestricted shares pursuant to this Agreement shall be subject to, and shall comply with, any applicable requirements of any foreign and U.S. federal and state securities laws, rules and regulations (including, without limitation, the provisions of the Securities Act, the Exchange Act and in each case any respective rules and regulations promulgated thereunder) and any other law or regulation applicable thereto. The Company shall not be obligated to issue the Restricted Stock or any of the shares pursuant to this Agreement if any such issuance would violate any such requirements.

18.Section 409A.  Notwithstanding anything herein or in the Plan to the contrary, the shares of Restricted Stock are intended to be exempt from the applicable requirements of Section 409A of the Code and shall be limited, construed and interpreted in accordance with such intent.

19.Binding Agreement; Assignment.  This Agreement shall inure to the benefit of, be binding upon, and be enforceable by the Company and its successors and assigns. The Participant shall not assign (except in accordance with Section 6 hereof) any part of this Agreement without the prior express written consent of the Company.

20.Headings. The titles and headings of the various sections of this Agreement have been inserted for convenience of reference only and shall not be deemed to be a part of this Agreement.

21.Counterparts.  This Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original, but all of which shall constitute one and the same instrument.

22.Further Assurances.  Each party hereto shall do and perform (or shall cause to be done and performed) all such further acts and shall execute and deliver all such other agreements, certificates, instruments and documents as either party hereto reasonably may request in order to carry out the intent and accomplish the purposes of this Agreement and the Plan and the consummation of the transactions contemplated thereunder.

23.Severability.  The invalidity or unenforceability of any provisions of this Agreement in any jurisdiction shall not affect the validity, legality or enforceability of the remainder of this Agreement in such jurisdiction or the validity, legality or enforceability of any provision of this Agreement in any other jurisdiction, it being intended that all rights and obligations of the parties hereunder shall be enforceable to the fullest extent permitted by law.

24.Acquired Rights.  The Participant acknowledges and agrees that: (a) the Company may terminate or amend the Plan at any time; (b) the award of Restricted Stock made under this Agreement is completely independent of any other award or grant and is made at the sole discretion of the Company; (c) no past grants or awards (including, without limitation, the Restricted Stock awarded hereunder) give the Participant any right to any grants or awards in the future whatsoever; and (d) any benefits granted under this Agreement are not part of the Participant’s ordinary salary, and shall not be considered as part of such salary in the event of severance, redundancy or resignation.

IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first written above.

CAPITOL BANCORP LTD.

By:   _____________________________                                                             

Name:   ___________________________                                                             

Title:   ____________________________                                                             

4

PARTICIPANT

_________________________________________

Name:____________________________________      

Social Security Number:   ______________                                                             

5

EX-10.5

Exhibit 10.5

RESTRICTED STOCK UNIT AGREEMENT

PURSUANT TO THE

CAPITOL BANCORP LTD. 2011 EQUITY INCENTIVE PLAN

* * * * *

Participant:   ___________________________                                                   

Grant Date:   ___________________________                                                   

Number of Restricted Stock Units Granted:  _______________________                                                                                   

* * * * *

THIS RESTRICTED STOCK UNIT AWARD AGREEMENT (this “Agreement”), dated as of the Grant Date specified above, is entered into by and between Capitol Bancorp Ltd., a corporation organized in the State of Michigan (the “Company”), and the Participant specified above, pursuant to the Capitol Bancorp Ltd. 2011 Equity Incentive Plan, as in effect and as amended from time to time (the “Plan”), which is administered by the Committee; and

WHEREAS, it has been determined under the Plan that it would be in the best interests of the Company to grant the Restricted Stock Units (“RSUs”) provided herein to the Participant.

NOW, THEREFORE, in consideration of the mutual covenants and promises hereinafter set forth and for other good and valuable consideration, the parties hereto hereby mutually covenant and agree as follows:

1.Incorporation By Reference; Plan Document Receipt.  This Agreement is subject in all respects to the terms and provisions of the Plan (including, without limitation, any amendments thereto adopted at any time and from time to time unless such amendments are expressly intended not to apply to the Award provided hereunder), all of which terms and provisions are made a part of and incorporated in this Agreement as if they were each expressly set forth herein. Any capitalized term not defined in this Agreement shall have the same meaning as is ascribed thereto in the Plan. The Participant hereby acknowledges receipt of a true copy of the Plan and that the Participant has read the Plan carefully and fully understands its content. In the event of any conflict between the terms of this Agreement and the terms of the Plan, the terms of the Plan shall control.

2.Grant of Restricted Stock Unit Award.  The Company hereby grants to the Participant, as of the Grant Date specified above, the number of RSUs specified above. Except as otherwise provided by the Plan, the Participant agrees and understands that nothing contained in this Agreement provides, or is intended to provide, the Participant with any protection against potential future dilution of the Participant’s interest in the Company for any reason, and no adjustments shall be made for dividends in cash or other property, distributions or other rights in respect of the shares of Common Stock underlying the RSUs, except as otherwise specifically provided for in the Plan or this Agreement.

3.Vesting.

(a)The RSUs subject to this Award shall become vested as follows, provided that the Participant has not incurred a Termination prior to each such vesting date:

Vesting Date                                Number of Shares                   

                          [   ]                                                                                     [   ]

1

There shall be no proportionate or partial vesting in the periods prior to each vesting date and all vesting shall occur only on the appropriate vesting date, subject to the Participant’s continued service with the Company or any of its Subsidiaries on each applicable vesting date.

(b)Committee Discretion to Accelerate Vesting. Notwithstanding the foregoing, the Committee may, in its sole discretion, provide for accelerated vesting of the RSUs at any time and for any reason.

(c)Forfeiture. Subject to the Committee’s discretion to accelerate vesting hereunder, all unvested RSUs shall be immediately forfeited upon the Participant’s Termination for any reason.

4.Delivery of Shares.

(a)General. Subject to the provisions of Sections 4(b) and 4(c) hereof, within thirty (30) days following the vesting of the RSUs, the Participant shall receive the number of shares of Common Stock that correspond to the number of RSUs that have become vested on the applicable vesting date;  provided that the Participant shall be obligated to pay to the Company the aggregate par value of the shares of Common Stock to be issued within ten (10) days following the issuance of such shares unless such shares have been issued by the Company from the Company’s treasury.

(b)Blackout Periods.  If the Participant is subject to any Company “blackout” policy or other trading restriction imposed by the Company on the date such distribution would otherwise be made pursuant to Section 4(a) hereof, such distribution shall be instead made on the earlier of (i) the date that the Participant is not subject to any such policy or restriction and (ii) the later of (A) the end of the calendar year in which such distribution would otherwise have been made and (B) a date that is immediately prior to the expiration of two and one-half months following the date such distribution would otherwise have been made hereunder.

(c)Deferrals. If permitted by the Company, the Participant may elect, subject to the terms and conditions of the Plan and any other applicable written plan or procedure adopted by the Company from time to time for purposes of such election, to defer the distribution of all or any portion of the shares of Common Stock that would otherwise be distributed to the Participant hereunder (the “Deferred Shares”), consistent with the requirements of Section 409A of the Code. Upon the vesting of RSUs that have been so deferred, the applicable number of Deferred Shares shall be credited to a bookkeeping account established on the Participant’s behalf (the “Account”). Subject to Section 5 hereof, the number of shares of Common Stock equal to the number of Deferred Shares credited to the Participant’s Account shall be distributed to the Participant in accordance with the terms and conditions of the Plan and the other applicable written plans or procedures of the Company, consistent with the requirements of Section 409A of the Code.

5.Dividends; Rights as Shareholder.  Cash dividends on shares of Common Stock issuable hereunder shall be credited to a dividend book entry account on behalf of the Participant with respect to each RSU granted to the Participant, provided  that such cash dividends shall not be deemed to be reinvested in shares of Common Stock and shall be held uninvested and without interest and paid in cash at the same time that the shares of Common Stock underlying the RSUs are delivered to the Participant in accordance with the provisions hereof. Stock dividends on shares of Common Stock shall be credited to a dividend book entry account on behalf of the Participant with respect to each RSU granted to the Participant, provided  that such stock dividends shall be paid in shares of Common Stock at the same time that the shares of Common Stock underlying the RSUs are delivered to the Participant in accordance with the provisions hereof. Except as otherwise provided herein, the Participant shall have no rights as a shareholder with respect to any shares of Common Stock covered by any RSU unless and until the Participant has become the holder of record of such shares.

6.Non-Transferability.  No portion of the RSUs may be sold, assigned, transferred, encumbered, hypothecated or pledged by the Participant, other than to the Company as a result of forfeiture of the RSUs as provided herein, unless and until payment is made in respect of vested RSUs in accordance with the provisions hereof and the Participant has become the holder of record of the vested shares of Common Stock issuable hereunder.

2

7.Governing Law.  All questions concerning the construction, validity and interpretation of this Agreement shall be governed by, and construed in accordance with, the laws of the State of Michigan, without regard to the choice of law principles thereof.

8.Withholding of Tax. The Company shall have the power and the right to deduct or withhold, or require the Participant to remit to the Company, an amount sufficient to satisfy any federal, state, local and foreign taxes of any kind (including, but not limited to, the Participant’s FICA and SDI obligations) which the Company, in its sole discretion, deems necessary to be withheld or remitted to comply with the Code and/or any other applicable law, rule or regulation with respect to the RSUs and, if the Participant fails to do so, the Company may otherwise refuse to issue or transfer any shares of Common Stock otherwise required to be issued pursuant to this Agreement. Any statutorily required withholding obligation with regard to the Participant may be satisfied by reducing the amount of cash or shares of Common Stock otherwise deliverable to the Participant hereunder.

9.Legend.  The Company may at any time place legends referencing any applicable federal, state or foreign securities law restrictions on all certificates representing shares of Common Stock issued pursuant to this Agreement. The Participant shall, at the request of the Company, promptly present to the Company any and all certificates representing shares of Common Stock acquired pursuant to this Agreement in the possession of the Participant in order to carry out the provisions of this Section 9.

10.Securities Representations.  This Agreement is being entered into by the Company in reliance upon the following express representations and warranties of the Participant. The Participant hereby acknowledges, represents and warrants that:

(a)The Participant has been advised that the Participant may be an “affiliate” within the meaning of Rule 144 under the Securities Act and in this connection the Company is relying in part on the Participant’s representations set forth in this Section 10.

(b)If the Participant is deemed an affiliate within the meaning of Rule 144 of the Securities Act, the shares of Common Stock issuable hereunder must be held indefinitely unless an exemption from any applicable resale restrictions is available or the Company files an additional registration statement (or a “re-offer prospectus”) with regard to such shares of Common Stock and the Company is under no obligation to register such shares of Common Stock (or to file a “re-offer prospectus”).

(c)If the Participant is deemed an affiliate within the meaning of Rule 144 of the Securities Act, the Participant understands that (i) the exemption from registration under Rule 144 will not be available unless (A) a public trading market then exists for the Common Stock of the Company, (B) adequate information concerning the Company is then available to the public, and (C) other terms and conditions of Rule 144 or any exemption therefrom are complied with, and (ii) any sale of the shares of Common Stock issuable hereunder may be made only in limited amounts in accordance with the terms and conditions of Rule 144 or any exemption therefrom.

11.Entire Agreement; Amendment.  This Agreement, together with the Plan, contains the entire agreement between the parties hereto with respect to the subject matter contained herein, and supersedes all prior agreements or prior understandings, whether written or oral, between the parties relating to such subject matter. The Committee shall have the right, in its sole discretion, to modify or amend this Agreement from time to time in accordance with and as provided in the Plan. This Agreement may also be modified or amended by a writing signed by both the Company and the Participant. The Company shall give written notice to the Participant of any such modification or amendment of this Agreement as soon as practicable after the adoption thereof.

12.Notices. Any notice hereunder by the Participant shall be given to the Company in writing and such notice shall be deemed duly given only upon receipt thereof by the General Counsel of the Company. Any notice hereunder by the Company shall be given to the Participant in writing and such notice shall be deemed duly given only upon receipt thereof at such address as the Participant may have on file with the Company.

13.No Right to Employment.  Any questions as to whether and when there has been a Termination and the cause of such Termination shall be determined in the sole discretion of the Committee. Nothing

3

in this Agreement shall interfere with or limit in any way the right of the Company, its Subsidiaries or its Affiliates to terminate the Participant’s employment or service at any time, for any reason and with or without Cause.

14.Transfer of Personal Data.  The Participant authorizes, agrees and unambiguously consents to the transmission by the Company (or any Subsidiary) of any personal data information related to the RSUs awarded under this Agreement for legitimate business purposes (including, without limitation, the administration of the Plan). This authorization and consent is freely given by the Participant.

15.Compliance with Laws.  The grant of RSUs and the issuance of shares of Common Stock hereunder shall be subject to, and shall comply with, any applicable requirements of any foreign and U.S. federal and state securities laws, rules and regulations (including, without limitation, the provisions of the Securities Act, the Exchange Act and in each case any respective rules and regulations promulgated thereunder) and any other law, rule regulation or exchange requirement applicable thereto. The Company shall not be obligated to issue the RSUs or any shares of Common Stock pursuant to this Agreement if any such issuance would violate any such requirements. As a condition to the settlement of the RSUs, the Company may require the Participant to satisfy any qualifications that may be necessary or appropriate to evidence compliance with any applicable law or regulation.

16.Binding Agreement; Assignment.  This Agreement shall inure to the benefit of, be binding upon, and be enforceable by the Company and its successors and assigns. The Participant shall not assign (except in accordance with Section 6 hereof) any part of this Agreement without the prior express written consent of the Company.

17.Headings.  The titles and headings of the various sections of this Agreement have been inserted for convenience of reference only and shall not be deemed to be a part of this Agreement.

18.Counterparts.  This Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original, but all of which shall constitute one and the same instrument.

19.Further Assurances. Each party hereto shall do and perform (or shall cause to be done and performed) all such further acts and shall execute and deliver all such other agreements, certificates, instruments and documents as either party hereto reasonably may request in order to carry out the intent and accomplish the purposes of this Agreement and the Plan and the consummation of the transactions contemplated thereunder.

20.Severability.  The invalidity or unenforceability of any provisions of this Agreement in any jurisdiction shall not affect the validity, legality or enforceability of the remainder of this Agreement in such jurisdiction or the validity, legality or enforceability of any provision of this Agreement in any other jurisdiction, it being intended that all rights and obligations of the parties hereunder shall be enforceable to the fullest extent permitted by law.

21.Acquired Rights.  The Participant acknowledges and agrees that: (a) the Company may terminate or amend the Plan at any time; (b) the Award of RSUs made under this Agreement is completely independent of any other award or grant and is made at the sole discretion of the Company; (c) no past grants or awards (including, without limitation, the RSUs awarded hereunder) give the Participant any right to any grants or awards in the future whatsoever; and (d) any benefits granted under this Agreement are not part of the Participant’s ordinary salary, and shall not be considered as part of such salary in the event of severance, redundancy or resignation.

* * * * *

4

IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first written above.

CAPITOL BANCORP LTD.

By:   __________________________                                                   

Name:  ________________________                                                      

Title:  _________________________                                                     

PARTICIPANT

______________________________

Name:  ________________________                                                    

Social Security Number:  _________                                                   

5

EX-10.6

Exhibit 10.6

STOCK APPRECIATION RIGHTS AGREEMENT

PURSUANT TO THE

CAPITOL BANCORP LTD. 2011 EQUITY INCENTIVE PLAN

* * * * *

Participant: ______________________                                                     

Grant Date: ______________________                                                     

Per Share Exercise Price: $________                                                      

Number of Shares subject to this Option:  ___________________                                                                                              

* * * * *

THIS STOCK APPRECIATION RIGHTS AGREEMENT (this “Agreement”), dated as of the Grant Date specified above, is entered into by and between Capitol Bancorp Ltd., a corporation organized in the State of Michigan (the “Company”), and the Participant specified above, pursuant to the Capitol Bancorp Ltd. 2011 Equity Incentive Plan, as in effect and as amended from time to time (the “Plan”), which is administered by the Committee; and

WHEREAS, it has been determined under the Plan that it would be in the best interests of the Company to grant the Stock Appreciation Rights (“SAR”) provided for herein to the Participant.

NOW, THEREFORE, in consideration of the mutual covenants and promises hereinafter set forth and for other good and valuable consideration, the parties hereto hereby mutually covenant and agree as follows:

1.Incorporation By Reference; Plan Document Receipt.  This Agreement is subject in all respects to the terms and provisions of the Plan (including, without limitation, any amendments thereto adopted at any time and from time to time unless such amendments are expressly intended not to apply to the Award provided hereunder), all of which terms and provisions are made a part of and incorporated in this Agreement as if they were each expressly set forth herein. Any capitalized term not defined in this Agreement shall have the same meaning as is ascribed thereto in the Plan. The Participant hereby acknowledges receipt of a true copy of the Plan and that the Participant has read the Plan carefully and fully understands its content. In the event of any conflict between the terms of this Agreement and the terms of the Plan, the terms of the Plan shall control.

2.Grant of SAR.  The Company hereby grants to the Participant, as of the Grant Date, a SAR on the number of shares specified above. The SAR represents the right, upon exercise, to receive either cash or a number of shares of Common Stock, or a combination of cash and shares of Common Stock, with a Fair Market Value on the date of exercise equal, in each case, to the product of (i) the aggregate number of shares with respect to which this SAR is exercised and (ii) the excess of (A) the Fair Market Value of a share of Common Stock as of the date of exercise over (B) the SAR Base Price specified above. Except as otherwise provided by the Plan, the Participant agrees and understands that nothing contained in this Agreement provides, or is intended to provide, the Participant with any protection against potential future dilution of the Participant’s interest in the Company for any reason. The Participant shall have no rights as a shareholder with respect to any shares of Common Stock covered by the SAR unless and until the Participant has become the holder of record of such shares, and no adjustments shall be made for dividends in cash or other property, distributions or other rights in respect of any such shares, except as otherwise specifically provided for in the Plan or this Agreement.

3.Vesting and Exercise.

(a)Vesting. Subject to the provisions of Section 3(b) hereof, the SAR shall vest and become exercisable as follows, provided that the Participant has not incurred a Termination prior to each such vesting date:

1

Vesting Date                                Number of Shares

                                       [   ]                                                                                       [   ]

There shall be no proportionate or partial vesting in the periods prior to each vesting date and all vesting shall occur only on the appropriate vesting date, subject to the Participant’s continued service with the Company or any of its Subsidiaries on each applicable vesting date. Upon expiration of the SAR, the SAR shall be cancelled and no longer exercisable.

(b)Committee Discretion to Accelerate Vesting.    Notwithstanding the foregoing, the Committee may, in its sole discretion, provide for accelerated vesting of the SAR at any time and for any reason.

(c)Expiration. Unless earlier terminated in accordance with the terms and provisions of the Plan and/or this Agreement, all portions of the SAR (whether vested or not vested) shall expire and shall no longer be exercisable after the expiration of ten (10) years from the Grant Date.

4.Termination. Subject to the terms of the Plan and this Agreement, the SAR, to the extent vested at the time of the Participant’s Termination, shall remain exercisable as follows:

(a)Termination due to Death or Disability. In the event of the Participant’s Termination by reason of death or Disability, the vested portion of the SAR shall remain exercisable until the earlier of (i) one (1) year from the date of such Termination, and (ii) the expiration of the stated term of the SAR pursuant to Section 3(c) hereof; provided, however, that in the case of a Termination due to Disability, if the Participant dies within such one (1) year exercise period, any unexercised SAR held by the Participant shall thereafter be exercisable by the legal representative of the Participant’s estate, to the extent to which it was exercisable at the time of death, for a period of one (1) year from the date of death, but in no event beyond the expiration of the stated term of the SAR pursuant to Section 3(c) hereof.

(b)Involuntary Termination Without Cause. In the event of the Participant’s involuntary Termination by the Company without Cause, the vested portion of the SAR shall remain exercisable until the earlier of (i) ninety (90) days from the date of such Termination, and (ii) the expiration of the stated term of the SAR pursuant to Section 3(c) hereof.

(c)Voluntary Termination. In the event of the Participant’s voluntary Termination (other than a voluntary Termination described in Section 4(d) hereof), the vested portion of the SAR shall remain exercisable until the earlier of (i) thirty (30) days from the date of such Termination, and (ii) the expiration of the stated term of the SAR pursuant to Section 3(c) hereof.

(d)Termination for Cause.  In the event of the Participant’s Termination for Cause or in the event of the Participant’s voluntary Termination (as provided in Section 4(c) hereof) after an event that would be grounds for a Termination for Cause, the Participant’s entire SAR (whether or not vested) shall terminate and expire upon such Termination.

(e)Treatment of Unvested SAR upon Termination.  Any portion of the SAR that is not vested as of the date of the Participant’s Termination for any reason shall terminate and expire as of the date of such Termination.

5.Method of Exercise. Subject to Section 8, to the extent that all or a portion of the SAR has become vested and exercisable, such portion of the SAR may thereafter be exercised by the Participant, in whole or in part, at any time or from time to time prior to the expiration of the SAR as provided herein and in accordance with Sections 7.4(c) and 7.4(d) of the Plan, including, without limitation, by the filing of any written form of exercise notice as may be required by the Committee.

6.Non-Transferability. The SAR, and any rights and interests with respect thereto, issued under this Agreement and the Plan shall not be sold, exchanged, transferred, assigned or otherwise disposed of in any way by the Participant (or any beneficiary(ies) of the Participant), other than by testamentary disposition by the

2

Participant or the laws of descent and distribution. Any attempt to sell, exchange, transfer, assign, pledge, encumber or otherwise dispose of or hypothecate in any way the SAR, or the levy of any execution, attachment or similar legal process upon the SAR, contrary to the terms and provisions of this Agreement and/or the Plan shall be null and void and without legal force or effect.

7.Governing Law.  All questions concerning the construction, validity and interpretation of this Agreement shall be governed by, and construed in accordance with, the laws of the State of Michigan, without regard to the choice of law principles thereof.

8.Withholding of Tax.  The Company shall have the power and the right to deduct or withhold, or require the Participant to remit to the Company, an amount sufficient to satisfy any federal, state, local and foreign taxes of any kind (including, but not limited to, the Participant’s FICA and SDI obligations) which the Company, in its sole discretion, deems necessary to be withheld or remitted to comply with the Code and/or any other applicable law, rule or regulation with respect to the SAR and, if the Participant fails to do so, the Company may otherwise refuse to issue or transfer any shares of Common Stock otherwise required to be issued pursuant to this Agreement. Any statutorily required withholding obligation with regard to the Participant may be satisfied by reducing the amount of cash or shares of Common Stock otherwise deliverable upon exercise of the SAR.

9.Entire Agreement; Amendment.  This Agreement, together with the Plan, contains the entire agreement between the parties hereto with respect to the subject matter contained herein, and supersedes all prior agreements or prior understandings, whether written or oral, between the parties relating to such subject matter. The Committee shall have the right, in its sole discretion, to modify or amend this Agreement from time to time in accordance with and as provided in the Plan. This Agreement may also be modified or amended by a writing signed by both the Company and the Participant. The Company shall give written notice to the Participant of any such modification or amendment of this Agreement as soon as practicable after the adoption thereof.

10.Notices.  Any notice hereunder by the Participant shall be given to the Company in writing and such notice shall be deemed duly given only upon receipt thereof by the General Counsel of the Company. Any notice hereunder by the Company shall be given to the Participant in writing and such notice shall be deemed duly given only upon receipt thereof at such address as the Participant may have on file with the Company.

11.No Right to Employment.  Any questions as to whether and when there has been a Termination and the cause of such Termination shall be determined in the sole discretion of the Committee. Nothing in this Agreement shall interfere with or limit in any way the right of the Company, its Subsidiaries or its Affiliates to terminate the Participant’s employment or service at any time, for any reason and with or without Cause.

12.Transfer of Personal Data.  The Participant authorizes, agrees and unambiguously consents to the transmission by the Company (or any Subsidiary) of any personal data information related to the SAR awarded under this Agreement for legitimate business purposes (including, without limitation, the administration of the Plan). This authorization and consent is freely given by the Participant.

13.Compliance with Laws.  The issuance of this SAR (and the shares of Common Stock upon exercise of this SAR) pursuant to this Agreement shall be subject to, and shall comply with, any applicable requirements of any foreign and U.S. federal and state securities laws, rules and regulations (including, without limitation, the provisions of the Securities Act, the Exchange Act and in each case any respective rules and regulations promulgated thereunder) and any other law or regulation applicable thereto. The Company shall not be obligated to issue the SAR or any of the shares pursuant to this Agreement if any such issuance would violate any such requirements.

14.Section 409A. Notwithstanding anything herein or in the Plan to the contrary, this SAR award is intended to be exempt from the applicable requirements of Section 409A of the Code and shall be limited, construed and interpreted in accordance with such intent.

15.Binding Agreement; Assignment.  This Agreement shall inure to the benefit of, be binding upon, and be enforceable by the Company and its successors and assigns. The Participant shall not assign (except in

3

accordance with Section 6 hereof) any part of this Agreement without the prior express written consent of the Company.

16.Headings. The titles and headings of the various sections of this Agreement have been inserted for convenience of reference only and shall not be deemed to be a part of this Agreement.

17.Counterparts.  This Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original, but all of which shall constitute one and the same instrument.

18.Further Assurances. Each party hereto shall do and perform (or shall cause to be done and performed) all such further acts and shall execute and deliver all such other agreements, certificates, instruments and documents as either party hereto reasonably may request in order to carry out the intent and accomplish the purposes of this Agreement and the Plan and the consummation of the transactions contemplated thereunder.

19.Severability.  The invalidity or unenforceability of any provisions of this Agreement in any jurisdiction shall not affect the validity, legality or enforceability of the remainder of this Agreement in such jurisdiction or the validity, legality or enforceability of any provision of this Agreement in any other jurisdiction, it being intended that all rights and obligations of the parties hereunder shall be enforceable to the fullest extent permitted by law.

20.Acquired Rights.  The Participant acknowledges and agrees that: (a) the Company may terminate or amend the Plan at any time; (b) the award of the SAR made under this Agreement is completely independent of any other award or grant and is made at the sole discretion of the Company; (c) no past grants or awards (including, without limitation, the SAR awarded hereunder) give the Participant any right to any grants or awards in the future whatsoever; and (d) any benefits granted under this Agreement are not part of the Participant’s ordinary salary, and shall not be considered as part of such salary in the event of severance, redundancy or resignation.

[Remainder of Page Intentionally Left Blank]

4

IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first written above.

CAPITOL BANCORP LTD.

By:  ____________________________                                                    

Name:  __________________________                   

Title: ___________________________                                                     

PARTICIPANT

_______________________________
Name: __________________________                                                     

Social Security Number:  __________                                                     

5

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 quarterly report on Form 10-Q 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:  May 12, 2011 /s/ Joseph D. Reid                                                                                  Joseph D. Reid Chief Executive Officer

EX-31.2

EXHIBIT 31.2

Principal Accounting Officer Certification

Pursuant to Rule 13a-14(a) and 15d-14(a)

of the Securities and Exchange Act of 1934, as amended.

I, Marie D. Walker, certify that:

1.   I have reviewed this quarterly report on Form 10-Q 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:  May 12, 2011 /s/ Marie D. Walker                                                                                          Marie D. Walker Director of Corporate Accounting

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 quarterly report of Capitol Bancorp Ltd. (the "Company") on Form 10-Q (the "Form 10-Q") for the period ended March 31, 2011 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-Q 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-Q fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date:  May 12, 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

Principal Accounting 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 quarterly report of Capitol Bancorp Ltd. (the "Company") on Form 10-Q (the "Form 10-Q") for the period ended March 31, 2011 as filed with the Securities and Exchange Commission on the date hereof, I, Marie D. Walker, the Chief Accounting 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-Q 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-Q fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date:  May 12, 2011 /s/ Marie D. Walker                                                                                             Marie D. Walker Director of Corporate Accounting

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.