##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D.C. 20549
 FORM 10-K
 þ
    
    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the fiscal year ended December 31, 2005
 OR
 o
    
    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.
  MICHIGAN
    
    38-2761672(State or other jurisdiction of
    
    (IRS Employerincorporation or organization)
    
    Identification Number)Capitol Bancorp Center200 Washington Square NorthLansing, Michigan
    
    48933(Address of principal executive offices)
    
    (Zip Code)
 (517) 487-6555
 None
  Title of each class
    
    Name of each exchange on which registeredCommon Stock, no par value per share
    
    New York Stock Exchange8.50% Cumulative Trust
PreferredSecurities, $10 Liquidation Amount
    
    New York Stock Exchange
 None
  o þ
 o þ
  þ o




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##### Table of Contents



o
  Large accelerated filer  o
    
    Accelerated filer  þ
    
    Non-accelerated filer  o
  o þ
   Class
    
    Outstanding at January 31, 2006Common Stock, no par value per share
    
    15,844,233 shares
 DOCUMENTS INCORPORATED BY REFERENCE
 Document
    
    Parts Into Which IncorporatedAnnual Report to Shareholders for
the Fiscal Year Ended December 31,
2005 (Annual Report)
    
    Parts I, II, and IVProxy Statement for the Annual
Meeting of Shareholders to be held
April 26, 2006 (Proxy Statement)
    
    Part III
   - 2 -




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##### Table of Contents



Cross Reference Sheet
 Item of Form 10-K
    
    Incorporation by Reference From:Part IItem 1. Business
    
    Pages F-6  F-9, F-17  F-24, F-36  F-38 and F-50  F-51,
Financial Information Section of Annual ReportItem 1A. Risk Factors
    
    Page F-26, Financial Information Section of Annual ReportItem 2. Properties
    
    Pages F-36 and F-48, Financial Information Section of
Annual ReportPart IIItem 5. Market for Registrants Common Equity,
Related Stockholder Matters and Issuer
Purchases of Equity Securities
    
    Pages F-2  F-4, F-51-52 and F-57-58 , Financial
Information Section of Annual ReportItem 6. Selected Financial Data
    
    Pages F-2, Financial Information Section of Annual ReportItem 7. Managements Discussion and Analysis of
Financial Condition and Results of
Operations
    
    Pages F-5  F-27, Financial
Information Section of
Annual ReportItem 7A. Quantitative and Qualitative Disclosures
About Market Risk
    
    Pages F-5 and F-21  F-24, Financial Information Section of
Annual ReportItem 8. Financial Statements and Supplementary
Data
    

Pages F-2 and F-28  F-61, Financial Information Section of
Annual ReportItem 9A. Controls and Procedures
    
    Pages F-28  F-30, Financial Information Section of Annual
ReportPart IIIItem 10. Directors and Executive Officers of the
Registrant
    
    Proxy StatementItem 11. Executive Compensation.
    
    Proxy StatementItem 12. Security Ownership of Certain Beneficial
Owners and Management and Related
Stockholder Matters
    
    Proxy StatementItem 13. Certain Relationships and Related
Transactions
    
    Proxy StatementItem 14. Principal Accountant Fees and Services
    
    Proxy StatementPart IVItem 15. Exhibits and Financial Statement Schedules
    
    Pages F-28  F-61, Financial Information Section of Annual
Report
 Key:
 Annual Report
    
    means the 2005 Annual Report of Capitol provided to Shareholders and the Commission pursuant to Rule 14a-3(b).
Capitols 2005 Annual Report is divided into two sections: a Financial Information Section and a Marketing Section and is filed as
Exhibit 13 with this Form 10-K report.
 Proxy Statement
    
    means the Proxy Statement of Capitol for the Annual Meeting of Shareholders to be held April 26, 2006.
 Note:
    
    The page number references herein are based on the paper
version of the referenced documents. Accordingly, those
page number references may differ from the electronically
filed versions of those documents.
 - 3 -




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PagePART IITEM 1. Business
    
    
    6ITEM 1A. Risk Factors
    
    
    17ITEM 1B. Unresolved Staff Comments
    
    
    17ITEM 2. Properties
    
    
    17ITEM 3. Legal Proceedings
    
    
    18ITEM 4. Submission of Matters to a Vote of Security Holders
    
    
    18PART IIITEM 5. Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
    
    
    19ITEM 6. Selected Financial Data
    
    
    20ITEM 7. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    20ITEM 7A. Quantitative and Qualitative Disclosures About Market Risk
    
    
    20ITEM 8. Financial Statements and Supplementary Data
    
    
    20ITEM 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
    
    
    20ITEM 9A. Controls and Procedures
    
    
    20ITEM 9B. Other Information
    
    
    21PART IIIITEM 10. Directors and Executive Officers of the Registrant
    
    
    22ITEM 11. Executive Compensation
    
    
    22ITEM 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
    
    
    22ITEM 13. Certain Relationships and Related Transactions
    
    
    22ITEM 14. Principal Accountant Fees and Services
    
    
    22PART IVITEM 15. Exhibits and Financial Statement Schedules
    
    
    2321st, 22nd, 23rd, 24th, 25th,and 26th Amendments to Profit/Sharing 401(k) PlanEleventh Amendment to Employee Stock Ownership PlanTwelfth Amendment to Employee Stock Ownership PlanThirteenth Amendment to Employee Stock Ownership PlanRestricked Stock Agreement bet. Capitol Bancorp Ltd. and Joseph D. ReidForm of Employment Agreement with Cristin Reid English and Bruce ThomasAnnual Report to Security HoldersSubsidiaries of the RegistrantConsent of BDO Seidman, LLPCertification of Chief Executive Officer, Joseph D. Reid, pursuant to Section 302Certification of Chief Financial Officer, Lee W. Hendrickson, pursuant to Section 302Certification of Chief Executive Officer, Joseph D. Reid, pursuant to Section 906Certification of Chief Financial Officer, Lee W. Hendrickson, pursuant to Section 906
 - 4 -




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FORWARD-LOOKING STATEMENTS
   - 5 -




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PART I
 
 Item 1. Business.
         Supervision and Regulation:
   
    
    adequate capital and financial condition;
    
    permissible types and amounts of extensions of credit and investments;
    
    permissible nonbanking activities; and
    
    restrictions on dividend payments.
 
 - 6 -




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##### Table of Contents



Item 1. Business  continued.
   www.capitolbancorp.com
   - 7 -




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##### Table of Contents



2005
    
    2004
    
    2003Interest
    
    
    (1)
    
    
    
    
    
    
    Interest
    
    
    (1)
    
    
    
    
    
    
    Interest
    
    
    (1)Average
    
    
    Income/
    
    
    Average
    
    
    Average
    
    
    Income/
    
    
    Average
    
    
    Average
    
    
    Income/
    
    
    AverageBalance
    
    
    Expense
    
    
    Yield/Cost
    
    
    Balance
    
    
    Expense
    
    
    Yield/Cost
    
    
    Balance
    
    
    Expense
    
    
    Yield/CostASSETSFederal funds sold
    
    $
    144,536
    
    
    $
    4,734
    
    
    
    3.28
    %
    
    $
    132,518
    
    
    $
    1,620
    
    
    
    1.22
    %
    
    $
    127,599
    
    
    $
    1,344
    
    
    
    1.05
    %Money market and
interest-bearing deposits
    
    
    20,673
    
    
    
    635
    
    
    
    3.07
    %
    
    
    9,082
    
    
    
    194
    
    
    
    2.14
    %
    
    
    6,301
    
    
    
    78
    
    
    
    1.24
    %Investment securities:U.S.
Treasury, government agencies, mutual funds and other
    
    
    45,948
    
    
    
    1,561
    
    
    
    3.40
    %
    
    
    56,126
    
    
    
    1,749
    
    
    
    3.12
    %
    
    
    87,498
    
    
    
    2,581
    
    
    
    2.95
    %Loans held for resale
    
    
    33,710
    
    
    
    2,627
    
    
    
    7.79
    %
    
    
    43,383
    
    
    
    2,150
    
    
    
    4.96
    %
    
    
    68,888
    
    
    
    3,299
    
    
    
    4.79
    %Portfolio loans (2)
    
    
    2,834,973
    
    
    
    214,882
    
    
    
    7.58
    %
    
    
    2,492,379
    
    
    
    173,376
    
    
    
    6.96
    %
    
    
    2,101,617
    
    
    
    157,114
    
    
    
    7.48
    %Total interest-earning
assets/interest income
    
    
    3,079,840
    
    
    
    224,439
    
    
    
    7.29
    %
    
    
    2,733,488
    
    
    
    179,089
    
    
    
    6.55
    %
    
    
    2,391,903
    
    
    
    164,416
    
    
    
    6.87
    %Allowance for loan losses
(deduct)
    
    
    (38,628
    )
    
    
    
    
    
    
    
    
    
    
    (34,815
    )
    
    
    
    
    
    
    
    
    
    
    (30,018
    )Cash and due from banks
    
    
    141,271
    
    
    
    
    
    
    
    
    
    
    
    135,261
    
    
    
    
    
    
    
    
    
    
    
    123,781Premises and
equipment, net
    
    
    33,063
    
    
    
    
    
    
    
    
    
    
    
    29,099
    
    
    
    
    
    
    
    
    
    
    
    22,696Other assets
    
    
    97,893
    
    
    
    
    
    
    
    
    
    
    
    82,719
    
    
    
    
    
    
    
    
    
    
    
    62,827Total assets
    
    $
    3,313,439
    
    
    
    
    
    
    
    
    
    
    $
    2,945,752
    
    
    
    
    
    
    
    
    
    
    $
    2,571,189LIABILITIES AND STOCKHOLDERS
EQUITYInterest-bearing deposits:Savings deposits
    
    $
    71,890
    
    
    
    844
    
    
    
    1.17
    %
    
    $
    74,026
    
    
    
    732
    
    
    
    0.99
    %
    
    $
    65,664
    
    
    
    757
    
    
    
    1.15
    %Time
deposits under $100,000
    
    
    338,920
    
    
    
    10,790
    
    
    
    3.18
    %
    
    
    303,660
    
    
    
    7,919
    
    
    
    2.61
    %
    
    
    324,858
    
    
    
    10,052
    
    
    
    3.09
    %Time deposits $100,000 and over
    
    
    717,851
    
    
    
    21,701
    
    
    
    3.02
    %
    
    
    596,658
    
    
    
    14,578
    
    
    
    2.44
    %
    
    
    571,549
    
    
    
    17,169
    
    
    
    3.00
    %Other interest-bearing deposits
    
    
    998,165
    
    
    
    19,878
    
    
    
    1.99
    %
    
    
    998,544
    
    
    
    13,466
    
    
    
    1.35
    %
    
    
    864,400
    
    
    
    13,282
    
    
    
    1.54
    %Notes payable and short-term
borrowings
    
    
    170,853
    
    
    
    6,485
    
    
    
    3.80
    %
    
    
    119,559
    
    
    
    3,964
    
    
    
    3.32
    %
    
    
    89,822
    
    
    
    3,608
    
    
    
    4.02
    %Subordinated debentures
    
    
    100,892
    
    
    
    7,881
    
    
    
    7.81
    %
    
    
    98,411
    
    
    
    6,837
    
    
    
    6.95
    %
    
    
    59,901
    
    
    
    4,622
    
    
    
    7.72
    %Total
interest-bearingliabilities/interest expense
    
    
    2,398,571
    
    
    
    67,579
    
    
    
    2.82
    %
    
    
    2,190,858
    
    
    
    47,496
    
    
    
    2.17
    %
    
    
    1,976,194
    
    
    
    49,490
    
    
    
    2.50
    %Noninterest-bearing demand
deposits
    
    
    564,823
    
    
    
    
    
    
    
    
    
    
    
    464,530
    
    
    
    
    
    
    
    
    
    
    
    370,726Accrued interest on deposits
and other liabilities
    
    
    20,912
    
    
    
    
    
    
    
    
    
    
    
    17,177
    
    
    
    
    
    
    
    
    
    
    
    16,075Minority interests in
consolidated subsidiaries
    
    
    59,927
    
    
    
    
    
    
    
    
    
    
    
    35,740
    
    
    
    
    
    
    
    
    
    
    
    27,931Stockholders equity
    
    
    269,206
    
    
    
    
    
    
    
    
    
    
    
    237,447
    
    
    
    
    
    
    
    
    
    
    
    180,263Total liabilities and
stockholders equity
    
    $
    3,313,439
    
    
    
    
    
    
    
    
    
    
    $
    2,945,752
    
    
    
    
    
    
    
    
    
    
    $
    2,571,189Net interest income
    
    
    
    
    
    $
    156,860
    
    
    
    
    
    
    
    
    
    
    $
    131,593
    
    
    
    
    
    
    
    
    
    
    $
    114,926Interest Rate Spread (3)

    
    
    
    
    
    
    
    
    
    4.47
    %
    
    
    
    
    
    
    
    
    
    4.38
    %
    
    
    
    
    
    
    
    
    
    4.37
    %Net Yield on
Interest-Earning
Assets (4)
    
    
    
    
    
    
    
    
    

5.09
    %
    
    
    
    
    
    
    
    
    

    4.81
    %
    
    
    
    
    
    
    
    
    
    

4.80
    %Ratio of Average
Interest-Earning
Assets to Interest-Bearing
Liabilities
    
    
    1.28
    
    
    
    
    
    
    
    
    
    
    
    1.25
    
    
    
    
    
    
    
    
    
    
    
    1.21
 
 (1)
    
    Average yield/cost is determined by dividing the actual interest income/expense by the daily
average balance of the asset or liability category.(2)
    
    Average balance of loans includes nonaccrual loans.(3)
    
    Interest rate spread represents the average yield on interest-earning assets less the average cost of interest-bearing liabilities.(4)
    
    Net yield is based on net interest income as a percentage of average total interest-earning assets. -8-




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##### Table of Contents



2005 compared to 2004
    
    
    2004 compared to 2003Volume
    
    
    Rate
    
    
    Net Total
    
    
    Volume
    
    
    Rate
    
    
    Net TotalIncrease (decrease) in
interest income:Federal funds sold
    
    $
    160
    
    
    $
    2,954
    
    
    $
    3,114
    
    
    $
    53
    
    
    $
    223
    
    
    $
    276Money market and
interest-bearing deposits
    
    
    328
    
    
    
    113
    
    
    
    441
    
    
    
    44
    
    
    
    72
    
    
    
    116Investment securities:U.S. Treasury, government
agencies, mutual funds
and other
    
    
    (336
    )
    
    
    148
    
    
    
    (188
    )
    
    
    (971
    )
    
    
    139
    
    
    
    (832
    )Loans held for resale
    
    
    (556
    )
    
    
    1,033
    
    
    
    477
    
    
    
    (1,260
    )
    
    
    111
    
    
    
    (1,149
    )Portfolio loans
    
    
    25,125
    
    
    
    16,381
    
    
    
    41,506
    
    
    
    27,735
    
    
    
    (11,473
    )
    
    
    16,262Total
    
    
    24,721
    
    
    
    20,629
    
    
    
    45,350
    
    
    
    25,601
    
    
    
    (10,928
    )
    
    
    14,673Increase (decrease) in
interest expense:Deposits:Savings deposits
    
    
    (22
    )
    
    
    134
    
    
    
    112
    
    
    
    90
    
    
    
    (115
    )
    
    
    (25
    )Time deposits under $100,000
    
    
    990
    
    
    
    1,881
    
    
    
    2,871
    
    
    
    (626
    )
    
    
    (1,507
    )
    
    
    (2,133
    )Time deposits $100,000 and over
    
    
    3,285
    
    
    
    3,838
    
    
    
    7,123
    
    
    
    727
    
    
    
    (3,318
    )
    
    
    (2,591
    )Other interest-bearing deposits
    
    
    (5
    )
    
    
    6,417
    
    
    
    6,412
    
    
    
    1,920
    
    
    
    (1,736
    )
    
    
    184Notes payable and short-term
borrowings
    
    
    1,885
    
    
    
    636
    
    
    
    2,521
    
    
    
    1,058
    
    
    
    (702
    )
    
    
    356Subordinated debentures
    
    
    176
    
    
    
    868
    
    
    
    1,044
    
    
    
    2,715
    
    
    
    (500
    )
    
    
    2,215Total
    
    
    6,309
    
    
    
    13,774
    
    
    
    20,083
    
    
    
    5,884
    
    
    
    (7,878
    )
    
    
    (1,994
    )Increase (decrease) in net
interest income
    
    $
    18,412
    
    
    $
    6,855
    
    
    $
    25,267
    
    
    $
    19,717
    
    
    $
    (3,050
    )
    
    $
    16,667
  -9-




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2005
    
    
    2004
    
    
    2003Estimated
    
    
    
    
    
    
    Estimated
    
    
    
    
    
    
    EstimatedAmortized
    
    
    Market
    
    
    Amortized
    
    
    Market
    
    
    Amortized
    
    
    MarketCost
    
    
    Value
    
    
    Cost
    
    
    Value
    
    
    Cost
    
    
    ValueU.S. Treasury
    
    
    
    
    
    
    
    
    
    $
    330
    
    
    $
    329
    
    
    $
    832
    
    
    $
    835Government agencies
    
    $
    23,276
    
    
    $
    23,022
    
    
    
    27,897
    
    
    
    27,843
    
    
    
    25,431
    
    
    
    25,597Mutual Funds
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    57,424
    
    
    
    56,954Mortgage-backed securities
    
    
    2,437
    
    
    
    2,355Municipals
    
    
    1,640
    
    
    
    1,63127,353
    
    
    
    27,008
    
    
    
    28,227
    
    
    
    28,172
    
    
    
    83,687
    
    
    
    83,386Other securities:Federal
Reserve Bank stock
    
    
    536
    
    
    
    536
    
    
    
    535
    
    
    
    535
    
    
    
    483
    
    
    
    483Federal Home
Loan Bank stock
    
    
    12,960
    
    
    
    12,960
    
    
    
    10,878
    
    
    
    10,878
    
    
    
    6,732
    
    
    
    6,732Corporate stock
    
    
    1,835
    
    
    
    1,835
    
    
    
    1,443
    
    
    
    1,443
    
    
    
    1,271
    
    
    
    1,271Other investments
    
    
    1,335
    
    
    
    1,335
    
    
    
    1,335
    
    
    
    1,335
    
    
    
    1,335
    
    
    
    1,335Total other securities
    
    
    16,666
    
    
    
    16,666
    
    
    
    14,191
    
    
    
    14,191
    
    
    
    9,821
    
    
    
    9,821Total
investment
securities
    
    $
    44,019
    
    
    $
    43,674
    
    
    $
    42,418
    
    
    $
    42,363
    
    
    $
    93,508
    
    
    $
    93,207
 
 Estimated
    
    
    WeightedAmortized
    
    
    Market
    
    
    AverageCost
    
    
    Value
    
    
    YieldMaturity:Due in one year or less
    
    $
    11,612
    
    
    $
    11,538
    
    
    
    3.14
    %Due after one year but within
five years
    
    
    7,251
    
    
    
    7,102
    
    
    
    3.59
    %Due after
five years but within
ten years
    
    
    3,841
    
    
    
    3,791
    
    
    
    9.87
    %Due after ten years
    
    
    3,570
    
    
    
    3,498
    
    
    
    5.77
    %Without stated maturities
    
    
    17,745
    
    
    
    17,745Total
    
    $
    44,019
    
    
    $
    43,674
   U.S. Agencies
    
    4 years
    
    and
    
    5 monthsMortgage-backed securities
    
    2 years
    
    and
    
    8 monthsMunicipals
    
    6 years
    
    and
    
    11 months
 -10-




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##### Table of Contents



2005
    
    
    2004
    
    
    2003
    
    
    2002
    
    
    2001Commercial  real
estate
    
    $
    2,176,343
    
    
    
    72.76
    %
    
    $
    1,969,746
    
    
    
    73.15
    %
    
    $
    1,600,334
    
    
    
    71.21
    %
    
    $
    1,531,637
    
    
    
    76.91
    %
    
    $
    1,154,757
    
    
    
    66.57
    %Commercial  other
    
    
    512,018
    
    
    
    17.12
    %
    
    
    474,746
    
    
    
    17.63
    %
    
    
    432,763
    
    
    
    19.26
    %
    
    
    257,399
    
    
    
    12.93
    %
    
    
    380,694
    
    
    
    21.95
    %Total
commercial
loans
    
    
    2,688,361
    
    
    
    89.88
    %
    
    
    2,444,492
    
    
    
    90.78
    %
    
    
    2,033,097
    
    
    
    90.46
    %
    
    
    1,789,036
    
    
    
    89.84
    %
    
    
    1,535,451
    
    
    
    88.52
    %Real estate mortgage
    
    
    212,142
    
    
    
    7.09
    %
    
    
    177,204
    
    
    
    6.58
    %
    
    
    143,343
    
    
    
    6.38
    %
    
    
    127,855
    
    
    
    6.42
    %)
    
    
    121,676
    
    
    
    7.01
    %Installment
    
    
    90,686
    
    
    
    3.03
    %
    
    
    71,208
    
    
    
    2.64
    %
    
    
    71,000
    
    
    
    3.16
    %
    
    
    74,481
    
    
    
    3.74
    %
    
    
    77,462
    
    
    
    4.47
    %Total
portfolio
loans
    
    $
    2,991,189
    
    
    
    100.00
    %
    
    $
    2,692,904
    
    
    
    100.00
    %
    
    $
    2,247,440
    
    
    
    100.00
    %
    
    $
    1,991,372
    
    
    
    100.00
    %
    
    $
    1,734,589
    
    
    
    100.00
    %
  Fixed
    
    
    VariableRate
    
    
    Rate
    
    
    TotalAggregate
maturities of portfolio
loan balances which are due
in one year or less:
    
    $
    305,598
    
    
    $
    864,027
    
    
    
    $1,169,625After one year but within five years
    
    
    787,372
    
    
    
    472,738
    
    
    
    1,260,110After five years
    
    
    49,462
    
    
    
    489,370
    
    
    
    538,832Nonaccrual loans
    
    
    10,574
    
    
    
    12,048
    
    
    
    22,622Total
    
    $
    1,153,006
    
    
    $
    1,838,183
    
    
    $
    2,991,189
             -11-




---



##### Table of Contents



2005
    
    
    2004
    
    
    2003
    
    
    2002
    
    
    2001Nonperforming loans:Nonaccrual loans:Commercial
    
    $
    19,734
    
    
    $
    20,618
    
    
    $
    19,852
    
    
    $
    15,444
    
    
    $
    11,220Real estate mortgage
    
    
    1,734
    
    
    
    2,396
    
    
    
    632
    
    
    
    560
    
    
    
    356Installment
    
    
    1,154
    
    
    
    195
    
    
    
    376
    
    
    
    613
    
    
    
    466Total nonaccrual loans
    
    
    22,622
    
    
    
    23,209
    
    
    
    20,860
    
    
    
    16,617
    
    
    
    12,042Past due loans:Commercial
    
    
    3,235
    
    
    
    3,529
    
    
    
    4,544
    
    
    
    5,728
    
    
    
    4,290Real estate mortgage
    
    
    592
    
    
    
    1,382
    
    
    
    1,083
    
    
    
    323
    
    
    
    787Installment
    
    
    283
    
    
    
    351
    
    
    
    385
    
    
    
    222
    
    
    
    119Total past due loans
    
    
    4,110
    
    
    
    5,262
    
    
    
    6,012
    
    
    
    6,273
    
    
    
    5,196Total
nonperforming loans
    
    $
    26,732
    
    
    $
    28,471
    
    
    $
    26,872
    
    
    $
    22,890
    
    
    $
    17,238Nonperforming loans as a percentage
of total portfolio loans
    
    
    0.89
    %
    
    
    1.06
    %
    
    
    1.20
    %
    
    
    1.15
    %
    
    
    0.99
    %Nonperforming loans as a percentage
of total assets
    
    
    0.77
    %
    
    
    0.92
    %
    
    
    0.98
    %
    
    
    0.95
    %
    
    
    0.84
    %Allowance for loan losses as a
percentage of nonperforming loans
    
    
    151.72
    %
    
    
    131.97
    %
    
    
    116.87
    %
    
    
    126.49
    %
    
    
    134.81
    %
     2005
    
    
    2004
    
    
    2003
    
    
    2002
    
    
    2001Other real estate owned at January 1
    
    $
    3,855
    
    
    $
    4,248
    
    
    $
    4,605
    
    
    $
    3,044
    
    
    $
    3,094Properties acquired in restructure
of loans or in lieu of foreclosure
    
    
    5,718
    
    
    
    4,233
    
    
    
    3,898
    
    
    
    4,578
    
    
    
    860Properties sold
    
    
    (4,440
    )
    
    
    (3,833
    )
    
    
    (3,704
    )
    
    
    (2,998
    )
    
    
    (233
    )Payments received from borrowers or
tenants, credited to carrying amount
    
    
    
    
    
    
    (552
    )
    
    
    (121
    )
    
    
    
    
    
    
    (3
    )Other changes, net
    
    
    ( 1 ,400
    )
    
    
    (241
    )
    
    
    (430
    )
    
    
    (19
    )
    
    
    (674
    )Other real estate owned at December 31
    
    $
    3,733
    
    
    $
    3,855
    
    
    $
    4,248
    
    
    $
    4,605
    
    
    $
    3,044
  -12-




---



##### Table of Contents



2005
    
    
    2004
    
    
    2003
    
    
    2002
    
    
    2001Allowance for loan losses at January 1
    
    $
    37,572
    
    
    $
    31,404
    
    
    $
    28,953
    
    
    $
    23,238
    
    
    $
    17,449Allowance for loan losses of acquired
bank subsidiary
    
    
    
    
    
    
    724Loans charged off:Commercial
    
    
    (9,099
    )
    
    
    (7,960
    )
    
    
    (8,068
    )
    
    
    (6,824
    )
    
    
    (2,280
    )Real estate mortgage
    
    
    
    
    
    
    (96
    )
    
    
    (115
    )
    
    
    (352
    )
    
    
    (143
    )Installment
    
    
    (544
    )
    
    
    (332
    )
    
    
    (608
    )
    
    
    (527
    )
    
    
    (506
    )Total charge-offs
    
    
    (9,643
    )
    
    
    (8,388
    )
    
    
    (8,791
    )
    
    
    (7,703
    )
    
    
    (2,929
    )Recoveries:Commercial
    
    
    1,522
    
    
    
    1,007
    
    
    
    1,277
    
    
    
    588
    
    
    
    485Real estate mortgage
    
    
    3
    
    
    
    
    
    
    
    13
    
    
    
    61
    
    
    
    37Installment
    
    
    145
    
    
    
    117
    
    
    
    91
    
    
    
    93
    
    
    
    29Total recoveries
    
    
    1,670
    
    
    
    1,124
    
    
    
    1,381
    
    
    
    742
    
    
    
    551Net charge-offs
    
    
    (7,973
    )
    
    
    (7,264
    )
    
    
    (7,410
    )
    
    
    (6,961
    )
    
    
    (2,378
    )Additions to allowance charged to expense
    
    
    10,960
    
    
    
    12,708
    
    
    
    9,861
    
    
    
    12,676
    
    
    
    8,167Allowance for loan losses at December 31
    
    $
    40,559
    
    
    $
    37,572
    
    
    $
    31,404
    
    
    $
    28,953
    
    
    $
    23,238Total portfolio loans outstanding at December 31
    
    $
    2,991,189
    
    
    $
    2,692,904
    
    
    $
    2,247,440
    
    
    $
    1,991,372
    
    
    $
    1,734,589Ratio of allowance for loan losses to
portfolio loans outstanding
    
    
    1.36
    %
    
    
    1.40
    %
    
    
    1.40
    %
    
    
    1.45
    %
    
    
    1.34
    %Average total portfolio loans for the year
    
    $
    2,834,973
    
    
    $
    2,492,379
    
    
    $
    2,101,617
    
    
    $
    1,884,646
    
    
    $
    1,560,337Ratio of net charge-offs to average
portfolio loans outstanding
    
    
    0.28
    %
    
    
    0.29
    %
    
    
    0.35
    %
    
    
    0.35
    %
    
    
    0.15
    %
   -13-




---



##### Table of Contents



2005
    
    
    2004
    
    
    2003
    
    
    2002
    
    
    2001Percentage
    
    
    
    
    
    
    Percentage
    
    
    
    
    
    
    Percentage
    
    
    
    
    
    
    Percentage
    
    
    
    
    
    
    PercentageAmount
    
    
    of Loans
    
    
    Amount
    
    

of Loans
    
    
    Amount
    
    
    of Loans
    
    
    Amount
    
    
    of Loans
    
    
    Amount
    
    
    of LoansCommercial
    
    $
    37,498
    
    
    
    1.25
    %
    
    $
    34,753
    
    
    
    1.29
    %
    
    $
    29,001
    
    
    
    1.29
    %
    
    $
    27,226
    
    
    
    1.37
    %
    
    $
    20,570
    
    
    
    1.19
    %Real estate mortgage
    
    
    1,866
    
    
    
    0.06
    %
    
    
    1,808
    
    
    
    0.07
    %
    
    
    1,408
    
    
    
    0.06
    %
    
    
    1,009
    
    
    
    0.05
    %
    
    
    1,630
    
    
    
    0.09
    %Installment
    
    
    1,195
    
    
    
    0.04
    %
    
    
    1,011
    
    
    
    0.04
    %
    
    
    995
    
    
    
    0.05
    %
    
    
    718
    
    
    
    0.03
    %
    
    
    1,038
    
    
    
    0.06
    %Total allowance for loan losses
    
    $
    40,559
    
    
    
    1.36
    %
    
    $
    37,572
    
    
    
    1.40
    %
    
    $
    31,404
    
    
    
    1.40
    %
    
    $
    28,953
    
    
    
    1.45
    %
    
    $
    23,238
    
    
    
    1.34
    %Total portfolio loans
outstanding
    
    $
    2,991,189
    
    
    
    
    
    
    $
    2,692,904
    
    
    
    
    
    
    $
    2,247,440
    
    
    
    
    
    
    $
    1,991,372
    
    
    
    
    
    
    $
    1,734,589
  -14-




---



##### Table of Contents



2005
    
    
    2004
    
    
    2003Average
    
    
    
    
    
    
    Average
    
    
    
    
    
    
    AverageAmount
    
    
    Rate
    
    
    Amount
    
    
    Rate
    
    
    Amount
    
    
    RateNoninterest-bearing demand deposits
    
    $
    564,823
    
    
    
    
    
    
    $
    464,530
    
    
    
    
    
    
    $
    370,726Savings deposits
    
    
    71,890
    
    
    
    1.17
    %
    
    
    74,026
    
    
    
    0.99
    %
    
    
    65,664
    
    
    
    1.15
    %Time deposits under $100,000
    
    
    338,920
    
    
    
    3.18
    %
    
    
    303,660
    
    
    
    2.61
    %
    
    
    324,858
    
    
    
    3.09
    %Time deposits $100,000 and over
    
    
    717,851
    
    
    
    3.02
    %
    
    
    596,658
    
    
    
    2.44
    %
    
    
    571,549
    
    
    
    3.00
    %Other interest-bearing deposits
    
    
    998,165
    
    
    
    1.99
    %
    
    
    998,544
    
    
    
    1.35
    %
    
    
    864,400
    
    
    
    1.54
    %Total deposits
    
    $
    2,691,649
    
    
    
    
    
    
    $
    2,437,418
    
    
    
    
    
    
    $
    2,197,197
  Three months or less
    
    $
    238,281Three months to six months
    
    
    128,512Six months to twelve months
    
    
    192,822Over 12 months
    
    
    143,278Total
    
    $
    702,893
  -15-




---



##### Table of Contents



Year Ended December 312005
    
    2004
    
    2003Net income as a percentage of:Average stockholders equity
    
    
    13.34
    %
    
    
    11.25
    %
    
    
    12.97
    %Average total assets
    
    
    1.08
    %
    
    
    0.91
    %
    
    
    0.91
    %Capital ratios:Average stockholders equity as a
percentage of average total assets
    
    
    8.12
    %
    
    
    8.06
    %
    
    
    7.01
    %Average total equity (stockholders equity and
minority interests in consolidated subsidiaries)
as a percentage of average total assets
    
    
    9.93
    %
    
    
    9.27
    %
    
    
    8.10
    %Average total capital funds (stockholders
equity, minority interests in consolidated
subsidiaries and trust-preferred securities)
as a percentage of average total assets
    
    
    12.98
    %
    
    
    12.61
    %
    
    
    10.43
    %Dividend payout ratio (cash dividends per share
as a percentage of net income per share):Basic
    
    
    29.75
    %
    
    
    34.57
    %
    
    
    27.42
    %Diluted
    
    
    30.77
    %
    
    
    36.31
    %
    
    
    28.81
    %
  -16-




---



##### Table of Contents



Item 1A. Risk Factors.
  
 Item 1B. Unresolved Staff Comments.
  
 Item 2. Properties.
          - 17 -




---



##### Table of Contents



Item 2. Properties  continued.
   
 Item 3. Legal Proceedings.
  
 Item 4. Submission of Matters to a Vote of Security Holders.
   - 18 -




---



##### Table of Contents



PART II
 
 Item 5. Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases
of Equity Securities.
          (a)
    
    (b)
    
    (c)Number of securitiesremaining available forfuture issuance under equityNumber of securities to
    
    Weighted-average
    
    compensation plansbe issued upon exercise
    
    exercise price of
    
    (excluding securitiesof outstanding options,
    
    outstanding options
    
    reflectedPlan category
    
    warrants and rights (1)
    
    warrants and rights (1)
    
    in column (a))Equity compensation plans approved by security holders
    
    
    2,228,395
    
    
    $
    28.09
    
    
    
    122,042Equity compensation plans not approved by security
holders(1)
    
    
    104,921
    
    
    
    15.31
    
    
    
    Equity compensation plans resulting from share exchanges
    
    
    548,967
    
    
    
    19.89
    
    
    
    Total
    
    
    2,882,283
    
    
    $
    26.07
    
    
    
    122,042
 
 (1)
    
    Stock options issued pursuant to employment agreements with various officers of Capitol
and its subsidiaries. E.
    
    There were no purchases of equity securities by the issuer or affiliated purchasers in the
fourth quarter of 2005.
 F.
    
    42,833.80 shares of Capitols common stock subject to a restricted stock award made to Joseph
D. Reid, Capitols Chairman and CEO, pursuant to the terms of the Capitol Bancorp Limited
Management Incentive Plan vested on January 1, 2005, resulting from the satisfaction of
certain performance targets. The shares were not registered under the Securities Act of 1933.
 - 19 -




---



##### Table of Contents



Item 6. Selected Financial Data.
  
 Item 7. Managements Discussion and Analysis of Financial Condition and Results of
Operations.
  
 Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
  
 Item 8. Financial Statements and Supplementary Data.
   
 Item 9. Changes In and Disagreements With Accountants on Accounting and Financial
Disclosure.
  
 Item 9A. Controls and Procedures.
   - 20 -




---



##### Table of Contents



Item 9A. Controls and Procedures  continued.
       
 Item 9B. Other Information.
   - 21 -




---



##### Table of Contents



PART III
 
 Item 10. Directors and Executive Officers of the Registrant.
   
 Item 11. Executive Compensation.
  
 Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters.
  
 Item 13. Certain Relationships and Related Transactions.
  
 Item 14. Principal Accountant Fees and Services.
  - 22 -




---



##### Table of Contents



PART IV
 
 Item 15. Exhibits and Financial Statement Schedules.
             - 23 -




---



##### Table of Contents



SIGNATURES
  CAPITOL BANCORP LTD.RegistrantBy:
    
    /s/ Joseph D. Reid

Joseph D. Reid
    
    
    
    By:
    
    /s/ Lee W. Hendrickson

Lee W. HendricksonChairman and
    
    
    
    
    
    Chief Financial OfficerChief Executive Officer
    
    
    
    
    
    (Principal Financial andAccounting Officer
  /s/ Joseph D. Reid

Joseph D. Reid, Chairman,
Chief Executive Officer and Director
    
    /s/ Robert C. Carr

Robert C. Carr, Vice Chairman and
Director/s/ David OLeary

David OLeary, Secretary and Director
    
    /s/ Michael L. Kasten

Michael L. Kasten, Vice Chairman and
Director/s/ Lyle W. Miller

Lyle W. Miller, Vice Chairman and
Director
    
    /s/ Louis G. Allen

Louis G. Allen, Director/s/ Paul R. Ballard

Paul R. Ballard, Director
    
    /s/ David L. Becker

David L. Becker, Director/s/ Michael J. DevineDouglas E. Crist, Director
    
    Michael J. Devine, Director/s/ Gary A. FalkenbergJames C. Epolito, Director
    
    Gary A. Falkenberg, Director/s/ Joel I. Ferguson

Joel I. Ferguson, Director
    
    /s/ Kathleen A. Gaskin

Kathleen A. Gaskin, Director/s/ H. Nicholas Genova

H. Nicholas Genova, Director
    
    /s/ Michael F. Hannley

Michael F. Hannley, Director/s/ John S. LewisLewis D. Johns, Director
    
    John S. Lewis, President, Western
Regions and Director/s/ Leonard Maas
    
    /s/ Kathryn L. MunroLeonard Maas, Director
    
    Kathryn L. Munro, Director/s/ Myrl D. Nofziger

Myrl D. Nofziger, Director
    
    /s/ Cristin Reid English

Cristin Reid English, Chief Operating
Officer and Director/s/ Ronald K. Sable

Ronald K. Sable, Director
 - 24 -




---



##### Table of Contents



EXHIBIT INDEX
 Page Number orIncorporated byExhibit No.
    
    
    
    Description
    
    Reference from:3
    
    
    
    Articles of Incorporation and
Bylaws
    
    
    (1)
    (24)4
    
    
    
    Instruments Defining the Rights
of Security Holders:(a)
    
    Common Stock Certificate
    
    
    (1
    )(b)
    
    Indenture dated December 18, 1997
    
    
    (12
    )(c)
    
    Subordinated Debenture
    
    
    (12
    )(d)
    
    Amended and Restated Trust Agreement
dated December 18, 1997
    
    
    (12
    )(e)
    
    Preferred Security Certificate dated
December 18, 1997
    
    
    (12
    )(f)
    
    Preferred Securities Guarantee Agreement
of Capitol Trust I dated December 18, 1997
    
    
    (12
    )(g)
    
    Agreement as to Expenses and Liabilities
of Capitol Trust I
    
    
    (12
    )(h)
    
    Capitol Bancorp Ltd. 2000 Incentive
Stock Plan
    
    
    (19
    )10
    
    
    
    Material Contracts:Capitol Bancorp Limited 2003 Stock Plan*
    
    
    (22)
    (24)Form of Stock Option Agreement for Awards pursuant
to Capitol Bancorp Limited 2003 Stock Plan*
    
    
    (22
    )(a)
    
    Amended and Restated Employment Agreement
of Joseph D. Reid (dated March 17, 2003 and
amendment dated April 17, 2003)*
    
    
    (20
    )(b)
    
    Profit Sharing/401(k) Plan
(as amended and restated April 1, 1995)*
    
    
    (11
    )(b1)
    
    First and Second Amendments to
Profit Sharing/401(k) Plan*
    
    
    (13
    )(b2)
    
    Third, Fourth and Fifth Amendments to Profit
Sharing/401(k) Plan*
    
    
    (15
    )(b3)
    
    Sixth, Seventh, Eighth and Ninth Amendments
to Profit Sharing/401(k) Plan*
    
    
    (16
    )(b4)
    
    Tenth, Eleventh, Twelfth, Thirteenth,
Fourteenth and Fifteenth Amendments to
Profit Sharing/401(k) Plan*
    
    
    (18
    )(b5)
    
    Sixteenth and Seventeenth Amendments to
Profit Sharing/401(k) Plan*
    
    
    (19
    )(b6)
    
    Eighteenth, Nineteenth and Twentieth
Amendments to Profit Sharing/401(k) Plan*
    
    
    (23
    )(b7)
    
    Twenty-First, Twenty-Second, Twenty-Third,
Twenty-Fourth, Twenty-Fifth and Twenty-Sixth
Amendments to Profit/Sharing/401(k) Plan*(c)
    
    Lease Agreement with Business &
Trade Center, Ltd.
    
    
    (9
    )(d)
    
    Employee Stock Ownership Plan
(as amended and restated February 10, 1994)*
    
    
    (10
    )(d1)
    
    Second and Third Amendments to Employee
Stock Ownership Plan*
    
    
    (13
    )
 - 25 -




---



##### Table of Contents



Page Number orIncorporated byExhibit No.
    
    
    
    Description
    
    Reference from:10
    
    
    
    Material Contractscontinued:(d2)
    
    Fourth Amendment to Employee Stock
Ownership Plan*
    
    
    (15
    )(d3)
    
    Fifth Amendment to Employee Stock
Ownership Plan*
    
    
    (16
    )(d4)
    
    Sixth Amendment to Employee Stock
Ownership Plan*
    
    
    (21
    )(d5)
    
    Seventh Amendment to Employee Stock
Ownership Plan*
    
    
    (21
    )(d6)
    
    Eighth Amendment to Employee Stock
Ownership Plan*
    
    
    (23
    )(d7)
    
    Ninth Amendment to Employee Stock
Ownership Plan*
    
    
    (23
    )(d8)
    
    Tenth Amendment to Employee Stock
Ownership Plan*
    
    
    (23
    )(d9)
    
    Eleventh Amendment to Employee Stock
Ownership Plan*(d10)
    
    Twelfth Amendment to Employee Stock
Ownership Plan*(d11)
    
    Thirteenth Amendment to Employee Stock
Ownership Plan*(e)
    
    Employment Agreements with
Robert C. Carr, John C. Smythe,
and Charles J. McDonald*
    
    
    (2
    )(f)
    
    Executive Supplemental Income
Agreements with Robert C. Carr,
Paul R. Ballard, Richard G. Dorner,
James R. Kaye, Scott G. Kling,
David K. Powers, John C. Smythe and
Charles J. McDonald*
    
    
    (11
    )(g)
    
    Consolidation Agreement between the
Corporation and Portage Commerce Bank
    
    
    (4
    )(h)
    
    Employment Agreement with
Richard G. Dorner*
    
    
    (4
    )(i)
    
    Employment Agreement with
David K. Powers*
    
    
    (5
    )(j)
    
    Definitive Exchange Agreement and
Closing Memorandum between the Registrant
and United Savings Bank, FSB
    
    
    (6
    )(k)
    
    Employment Agreement with James R. Kaye*
    
    
    (7
    )(l)
    
    Definitive Exchange Agreement
between the Registrant and
Financial Center Corporation
    
    
    (8
    )(m)
    
    Capitol Bancorp Ltd. Management Incentive
Plan*
    
    
    (24
    )(n)
    
    Employment Agreement by and between Sun
Community Bancorp Limited and John S.
Lewis. (Exhibit 10.7 of Sun Community
Bancorp Limited)
    
    
    (14
    )
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##### Table of Contents



Page Number orIncorporated byExhibit No.
    
    
    
    Description
    
    Reference from:10
    
    
    
    Material Contractscontinued:(o)
    
    Anti-dilution Agreement by and between Sun
Community Bancorp Limited and Capitol
Bancorp Ltd. (Exhibit 10.10 of Sun
Community Bancorp Limited)
    
    
    (14
    )(p)
    
    Plan of Share Exchange dated November
16, 2001 between and among Capitol Bancorp
Ltd, and Sun Community Bancorp Limited
    
    
    (17
    )(q)
    
    Restricted Stock Agreement between Capitol Bancorp
Ltd. and Joseph D. Reid*(r)
    
    Form of  Employment Agreement with
Cristin Reid English and Bruce Thomas*13
    
    
    
    Annual Report to Security HoldersA. Marketing Section of 2005 Annual ReportB. Financial Information Section of 2005
Annual Report21
    
    
    
    Subsidiaries of the Registrant23
    
    
    
    Consent of BDO Seidman, LLP31.1
    
    
    
    Certification of Chief Executive Officer,
Joseph D. Reid, pursuant to Section 302
of the Sarbanes-Oxley Act of 2002.31.2
    
    
    
    Certification of Chief Financial Officer,
Lee W. Hendrickson, pursuant to Section 302
of the Sarbanes-Oxley Act of 2002.32.1
    
    
    
    Certification of Chief Executive Officer,
Joseph D. Reid, pursuant to Section 906
of the Sarbanes-Oxley Act of 2002.32.2
    
    
    
    Certification of Chief Financial Officer,
Lee W. Hendrickson, pursuant to Section 906
of the Sarbanes-Oxley Act of 2002.
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##### Table of Contents



Key:
 (1)
    
    Form S-18, Reg. No. 33-24728C, filed September 15, 1988.(2)
    
    Form S-1, Reg. No. 33-30492, filed August 14, 1989.(3)
    
    Form S-1, Reg. No. 33-31323, filed September 29, 1989.(4)
    
    Originally filed as exhibit to Form 10-K for year ended December 31, 1990, filed March 6, 1991; refiled as exhibit to Form 10-KSB for year ended
December 31, 1995, filed March 14, 1996, due to time limit for incorporation by reference pursuant to Regulation SB Item 10(f).(5)
    
    Form 10-K for year ended December 31, 1991, filed February 28, 1992.(6)
    
    Form 8-K dated July 15, 1992, as amended under Form 8 on September 14, 1992.(7)
    
    Form 10-KSB for year ended December 31, 1992, filed February 25, 1993.(8)
    
    Form S-4, Reg. No. 33-73474, filed December 27, 1993.(9)
    
    Form 10-KSB for year ended December 31, 1993, filed March 14, 1994.(10)
    
    Form 10-KSB for year ended December 31, 1994, filed March 15, 1995.(11)
    
    Form 10-KSB for the year ended December 31, 1995, filed March 14, 1996.(12)
    
    Post Effective Amendment No.1 to Form S-3, Reg. No. 333-41215 and 333-41215-01
filed February 9, 1998.(13)
    
    Form 10-K for year ended December 31, 1998, filed March 17, 1999.(14)
    
    Amendment No. 2 to the Registration Statement on Form S-1 of Sun Community Bancorp
Limited (Registration No. 333-76719) dated June 15, 1999.(15)
    
    Form 10-K for year ended December 31, 1999, filed March 27, 2000.(16)
    
    Form 10-K for year ended December 31, 2000, filed March 23, 2001.(17)
    
    Amendment No. 4 to the Registration Statement on Form S-4 Reg. No. 333-73624 filed
February 12, 2002.(18)
    
    Form 10-K for year ended December 31, 2001, filed March 15, 2002.(19)
    
    Form 10-K for year ended December 31, 2002, filed March 28, 2003.(20)
    
    Form 10-Q for the period ended March 31, 2003, filed May 14, 2003.(21)
    
    Form 10-K for year ended December 31, 2003, filed March 12, 2004.(22)
    
    Form 10-Q for the period ended September 30, 2004, filed October 29, 2004.(23)
    
    Form 10-K for the year ended December 31, 2004, filed March 16, 2005.(24)
    
    Form 10-Q for the period ended June 30, 2005, filed July 29, 2005.
 *
    
    A management contract or compensatory plan required to be filed with this report.  - 28 -