**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 September 30, 2006**                              |
|   | OR                                                                                                |
| £ | TRANSITION                REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE                           |
|   | SECURITIES                EXCHANGE ACT OF 1934                                                    |
|   |                                                                                              |
|   | For                the transition period from ________________ to                ________________ |

**001-31708**

**CAPITOL      BANCORP LTD.**

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

**(517)      487-6555**

**Not      applicable**

| Yes                T | No                £ |
|----------------------|--------------------------|

| Large                accelerated filer £ | Accelerated                filer T | Non-accelerated                filer £ |
|-----------------------------------------------|------------------------------------|---------------------------------------------|

| Yes                £ | No                T |
|---------------------------|---------------------|

| Class                                     |   | Outstanding                at October 15, 2006 |
|-------------------------------------------|--------|------------------------------------------------|
| Common                Stock, No par value |   | 16,067,331                shares               |

----

**INDEX**

**PART      I.**
**FINANCIAL      INFORMATION**

**Forward-Looking      Statements**

|  Item                1.           |  Financial                Statements (unaudited):                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        | Page     |
|----------------------------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|----------|
|                                   | Condensed                consolidated balance sheets - September 30, 2006 and December 31,                2005.                                                                                                                                                                                                                                                                                                                                                                                                                               | 3        |
|                                   | Condensed                consolidated statements of income - Three months and nine months                ended                September 30, 2006 and 2005.Condensed                consolidated statements of changes in stockholders' equity - Nine                months                ended September 30, 2006 and 2005.Condensed                consolidated statements of cash flows - Nine months ended September                30,                2006 and 2005.Notes                to condensed consolidated financial statements. | 4567     |
| Item                2.                 | Management's                Discussion and Analysis of Financial Condition and Results of Operations.                                                                                                                                                                                                                                                                                                                                                                                                                                         | 12       |
| Item                3.                 | Quantitative                and Qualitative Disclosures About Market Risk.                                                                                                                                                                                                                                                                                                                                                                                                                                                                    | 25       |
| Item                4.                 | Controls                and Procedures.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       | 25       |
|  **PART                II**       |  **OTHER                INFORMATION**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |     |
|  Item                1.           |  Legal                Proceedings.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |  26 |
| Item                1.A.               | Risk                Factors.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  | 26       |
| Item                2.                 | Unregistered                Sales of Equity Securities and Use of Proceeds.                                                                                                                                                                                                                                                                                                                                                                                                                                                                   | 26       |
| Item                3.                 | Defaults                Upon Senior Securities.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               | 26       |
| Item                4.                 | Submission                of Matters to a Vote of Security Holders.                                                                                                                                                                                                                                                                                                                                                                                                                                                                           | 26       |
| Item                5.                 | Other                Information.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             | 26       |
| Item                6.                 | Exhibits.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     | 26       |
|  **SIGNATURES**                   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |  27 |
|  **EXHIBIT                INDEX** |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |  28 |

----

| PART                I, ITEM I                                                                                                                                                                  |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                                                                                                                                                                           |
| CAPITOL                BANCORP LIMITED                                                                                                                                                         |
| Condensed                Consolidated Balance Sheets                                                                                                                                           |
| As                of September 30, 2006 and December 31, 2005                                                                                                                                  |
| (in                thousands, except share data)                                                                                                                                               |
|                                                                                                                                                                                           |   | (Unaudited) |   |   |   |
|                                                                                                                                                                                           |   | September                30, |   | December                31, |   |
|                                                                                                                                                                                           |   | 2006 |   | 2005 |   |
| ASSETS                                                                                                                                                                                         |   |   |   |   |   |
| Cash              and due from banks                                                                                                                                                           |   |  $ | 144,296 |   |  $ | 157,963 |   |
| Money                market and interest-bearing deposits                                                                                                                                      |   |   | 40,303 |   |   | 19,846 |   |
| Federal                funds sold                                                                                                                                                              |   |   | 181,603 |   |   | 128,299 |   |
|  Cash                and cash equivalents                                                                                                                                                 |   |   | 366,202 |   |   | 306,108 |   |
| Loans                held for resale                                                                                                                                                           |   |   | 18,261 |   |   | 21,638 |   |
| Investment                securities:                                                                                                                                                          |   |   |   |   |   |   |   |
| Available                for sale, carried at market value                                                                                                                                     |   |   | 19,014 |   |   | 25,929 |   |
| Held                for long-term investment, carried at amortized cost which                approximatesmarket                value                                                           |   |   |  22,161 |   |   | 17,745 |   |
|  Total                investment securities                                                                                                                                               |   |   | 41,175 |   |   | 43,674 |   |
| Portfolio                loans:                                                                                                                                                                |   |   |   |   |   |   |   |
| Commercial                                                                                                                                                                                     |   |   | 2,965,317 |   |   | 2,688,361 |   |
| Real                estate mortgage                                                                                                                                                            |   |   | 226,944 |   |   | 212,142 |   |
| Installment                                                                                                                                                                                    |   |   | 114,961 |   |   | 90,686 |   |
|  Total                portfolio loans                                                                                                                                                     |   |   | 3,307,222 |   |   | 2,991,189 |   |
| Less                allowance for loan losses                                                                                                                                                  |   |   | (45,174 | ) |   | (40,559 | ) |
|  Net                portfolio loans                                                                                                                                                       |   |   | 3,262,048 |   |   | 2,950,630 |   |
| Premises                and equipment                                                                                                                                                          |   |   | 51,471 |   |   | 41,629 |   |
| Accrued                interest income                                                                                                                                                         |   |   | 16,018 |   |   | 13,719 |   |
| Goodwill                and other intangibles                                                                                                                                                  |   |   | 50,402 |   |   | 50,378 |   |
| Other                assets                                                                                                                                                                    |   |   | 50,056 |   |   | 47,945 |   |
|                                                                                                                                                                                           |   |   |   |   |   |   |   |
| TOTAL                ASSETS                                                                                                                                                                    |   | $ | 3,855,633 |   | $ | 3,475,721 |   |
|                                                                                                                                                                                           |   |   |   |   |   |   |   |
| LIABILITIES                AND STOCKHOLDERS' EQUITY                                                                                                                                            |   |   |   |   |   |   |   |
| *LIABILITIES:*                                                                                                                                                                                 |   |   |   |   |   |   |   |
| Deposits:                                                                                                                                                                                      |   |   |   |   |   |   |   |
| Noninterest-bearing                                                                                                                                                                            |   | $ | 601,086 |   | $ | 591,229 |   |
| Interest-bearing                                                                                                                                                                               |   |   | 2,513,120 |   |   | 2,194,030 |   |
|  Total                deposits                                                                                                                                                            |   |   | 3,114,206 |   |   | 2,785,259 |   |
| Debt                obligations:                                                                                                                                                               |   |   |   |   |   |   |   |
| Notes                payable and short-term borrowings                                                                                                                                         |   |   | 175,370 |   |   | 175,729 |   |
| Subordinated                debentures                                                                                                                                                         |   |   | 101,011 |   |   | 100,940 |   |
|  Total                debt obligations                                                                                                                                                    |   |   | 276,381 |   |   | 276,669 |   |
| Accrued                interest on deposits and other liabilities                                                                                                                              |   |   | 23,323 |   |   | 28,089 |   |
|  Total                liabilities                                                                                                                                                         |   |   | 3,413,910 |   |   | 3,090,017 |   |
|                                                                                                                                                                                           |   |   |   |   |   |   |   |
| MINORITY                INTERESTS IN CONSOLIDATED SUBSIDIARIES                                                                                                                                 |   |   | 113,932 |   |   | 83,838 |   |
|                                                                                                                                                                                           |   |   |   |   |   |   |   |
| *STOCKHOLDERS'                EQUITY:*                                                                                                                                                         |   |   |   |   |   |   |   |
| Common                stock, no par value, 50,000,000 shares authorized; issued and                outstanding:2006                - 16,064,901 shares 2005                - 15,776,192 shares |   |   |  222,547 |   |   | 216,539 |   |
| Retained                earnings                                                                                                                                                               |   |   | 105,414 |   |   | 85,553 |   |
| Market                value adjustment (net of tax effect) for investment securities                availablefor                sale (accumulated other comprehensive                income)   |   |   | (170  | ) |   | (226 | ) |
|  Total                stockholders' equity                                                                                                                                                |   |   | 327,791 |   |   | 301,866 |   |
|                                                                                                                                                                                           |   |   |   |   |   |   |   |
| TOTAL                LIABILITIES AND STOCKHOLDERS' EQUITY                                                                                                                                      |   | $ | 3,855,633 |   | $ | 3,475,721 |   |

----

| CAPITOL                BANCORP LIMITED                                                               |
|------------------------------------------------------------------------------------------------------|
| Condensed                Consolidated Statements of Income (Unaudited)                               |
| For                the Three Months and Nine Months Ended September 30, 2006 and                2005 |
| (in                thousands, except per share data)                                                 |
|                                                                                                 |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                                                                 |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                                                                 |   |   | Periods                  Ended September 30 |
|                                                                                                 |   |   | Three                Month Period |   |   | Nine                Month Period |
|                                                                                                 |   |   | 2006 |   |   | 2005 |   |  | 2006 |   |   | 2005 |
| Interest                income:                                                                      |   |   |   |   |   |   |   |   |   |   |   |   |
| Portfolio                loans (including fees)                                                      |   | $ | 69,159 |   | $ | 55,886 |   | $ | 193,879 |   | $ | 156,470 |
| Loans                held for resale                                                                 |   |   | 748 |   |   | 741 |   |   | 2,010 |   |   | 2,014 |
| Taxable                investment securities                                                         |   |   | 223 |   |   | 222 |   |   | 730 |   |   | 741 |
| Federal                funds sold                                                                    |   |   | 2,341 |   |   | 1,506 |   |   | 6,169 |   |   | 3,059 |
| Other                                                                                                |   |   | 611 |   |   | 300 |   |   | 1,587 |   |   | 783 |
| Total                interest income                                                                 |   |   | 73,082 |   |   | 58,655 |   |   | 204,375 |   |   | 163,067 |
| Interest                expense:                                                                     |   |   |   |   |   |   |   |   |   |   |   |   |
| Deposits                                                                                             |   |   | 23,946 |   |   | 14,188 |   |   | 62,125 |   |   | 37,231 |
| Debt                obligations and other                                                            |   |   | 4,441 |   |   | 3,626 |   |   | 12,565 |   |   | 10,600 |
| Total                interest expense                                                                |   |   | 28,387 |   |   | 17,814 |   |   | 74,690 |   |   | 47,831 |
| Net                interest income                                                                   |   |   | 44,695 |   |   | 40,841 |   |   | 129,685 |   |   | 115,236 |
| Provision                for loan losses                                                             |   |   | 3,441 |   |   | 2,107 |   |   | 8,712 |   |   | 7,169 |
|                                                                                                 |   |   |   |   |   |   |   |   |   |   |   |   |
| Net                  interest income after provisionfor                  loan losses                 |   |   |  41,254 |   |   |  38,734 |   |   |  120,973 |   |   |  108,067 |
| Noninterest                income:                                                                   |   |   |   |   |   |   |   |   |   |   |   |   |
| Service                charges on deposit accounts                                                   |   |   | 1,083 |   |   | 1,062 |   |   | 3,217 |   |   | 3,115 |
| Trust                fee income                                                                      |   |   | 689 |   |   | 526 |   |   | 2,324 |   |   | 1,654 |
| Fees                from origination of non-portfolio residential mortgage                loans      |   |   | 1,362 |   |   | 1,820 |   |   | 4,091 |   |   | 4,590 |
| Realized                  gains on sale of investment securities available for                  sale |   |   | -- |   |   | 6 |   |   | -- |   |   | 8 |
| Other                                                                                                |   |   | 1,772 |   |   | 1,524 |   |   | 5,840 |   |   | 5,768 |
| Total                noninterest income                                                              |   |   | 4,906 |   |   | 4,938 |   |   | 15,472 |   |   | 15,135 |
| Noninterest                expense:                                                                  |   |   |   |   |   |   |   |   |   |   |   |   |
| Salaries                and employee benefits                                                        |   |   | 21,615 |   |   | 19,416 |   |   | 64,840 |   |   | 54,768 |
| Occupancy                                                                                            |   |   | 3,172 |   |   | 2,483 |   |   | 8,768 |   |   | 7,170 |
| Equipment                rent, depreciation and maintenance                                          |   |   | 2,143 |   |   | 1,571 |   |   | 6,156 |   |   | 4,593 |
| Other                                                                                                |   |   | 7,180 |   |   | 6,844 |   |   | 22,792 |   |   | 18,952 |
| Total                noninterest expense                                                             |   |   | 34,110 |   |   | 30,314 |   |   | 102,556 |   |   | 85,483 |
| Income                  before income taxes and minority interest                                    |   |   | 12,050 |   |   | 13,358 |   |   | 33,889 |   |   | 37,719 |
| Income                taxes                                                                          |   |   | 4,184 |   |   | 5,195 |   |   | 12,129 |   |   | 14,518 |
| Income                before minority interest                                                       |   |   | 7,866 |   |   | 8,163 |   |   | 21,760 |   |   | 23,201 |
| Minority                  interest in net losses of consolidated subsidiaries                        |   |   | 2,923 |   |   | 1,431 |   |   | 9,249 |   |   | 2,705 |
|                                                                                                 |   |   |   |   |   |   |   |   |   |   |   |   |
| NET                INCOME                                                                            |   | $ | 10,789 |   | $ | 9,594 |   | $ | 31,009 |   | $ | 25,906 |
|                                                                                                 |   |   |   |   |   |   |   |   |   |   |   |   |
| NET                INCOME PER SHARE–Note                D:                                     |   |   |   |   |   |   |   |   |   |   |   |   |
| Basic                                                                                                |   | $ | 0.68 |   | $ | 0.64 |   | $ | 1.97 |   | $ | 1.75 |
|                                                                                                 |   |   |   |   |   |   |   |   |   |   |   |   |
| Diluted                                                                                              |   | $ | 0.66 |   | $ | 0.61 |   | $ | 1.89 |   | $ | 1.67 |

----

| CAPITOL                BANCORP LIMITED                                                                                                                                           |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| Condensed                Consolidated Statements of Changes in Stockholders' Equity                (Unaudited)                                                                   |
| For                the Nine Months Ended September 30, 2006 and 2005                                                                                                             |
| (in                thousands except share data)                                                                                                                                  |
|                                                                                                                                                                             |   |   |   |   |   |   |   |   |   |
|                                                                                                                                                                             |   | CommonStock |   | RetainedEarnings |   | AccumulatedOtherComprehensiveIncome |   | Total |   |
| Nine                Months Ended September 30, 2005                                                                                                                              |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                                                                                                                                             |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Balances                at January 1, 2005                                                                                                                                       |   | $ | 191,719 |   | $ | 60,476 |   | $ | (36 | ) | $ | 252,159 |   |
|                                                                                                                                                                             |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Issuance                of 201,731 shares of common stock to acquire portion ofminority                interest in subsidiary                                                    |   |   |  6,377 |   |   |   |   |   |   |   |   |  6,377 |   |
|                                                                                                                                                                             |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Issuance                of 193,294 shares of common stock upon exercise of stock options,                net of common stock surrendered to facilitate exercise                  |   |   | 2,980 |   |   |   |   |   |   |   |   | 2,980 |   |
|                                                                                                                                                                             |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Recognition                  of compensation expense relating to restricted common stock                                                                                         |   |   | 915 |   |   |   |   |   |   |   |   | 915 |   |
|                                                                                                                                                                             |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Cash                dividends paid ($0.53 per share)                                                                                                                             |   |   |   |   |   | (7,954 | ) |   |   |   |   | (7,954 | ) |
|                                                                                                                                                                             |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Components                of comprehensive income:                                                                                                                               |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net                income for the period                                                                                                                                         |   |   |   |   |   | 25,906 |   |   |   |   |   | 25,906 |   |
| Market                    value adjustment for investment securities available for sale(net                    of income tax effect)                                             |   |   |   |   |   |   |   |   | (149 | ) |   | (149 | ) |
| Comprehensive                income for the period                                                                                                                               |   |   |   |   |   |  |   |   |   |   |   | 25,757 |   |
|                                                                                                                                                                             |   |   |   |   |   |   |   |   |   |   |   |   |   |
| BALANCES                AT SEPTEMBER 30, 2005                                                                                                                                    |   | $ | 201,991 |   | $ | 78,428 |   | $ | (185 | ) | $ | 280,234 |   |
|                                                                                                                                                                             |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Nine                months ended September 30, 2006                                                                                                                              |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                                                                                                                                             |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Balances                at January 1, 2006                                                                                                                                       |   | $ | 216,539 |   | $ | 85,553 |   | $ | (226 | ) | $ | 301,866 |   |
|                                                                                                                                                                             |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Issuance                    of 207,959 shares of common stock upon exercise of stockoptions,                    net of common stock surrendered to facilitate exercise |   |   | 4,753 |   |   |   |   |   |   |   |   | 4,753 |   |
|                                                                                                                                                                             |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Issuance                    of 80,750 unvested shares of restricted common stock, net                    of related unearned employee compensation                               |   |   | -- |   |   |   |   |   |   |   |   | -- |   |
|                                                                                                                                                                             |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Recognition                of compensation expense relating to restricted common                stock                                                                            |   |   | 1,255 |   |   |   |   |   |   |   |   | 1,255 |   |
|                                                                                                                                                                             |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Cash                dividends paid ($0.70 per share)                                                                                                                             |   |   |   |   |   | (11,148 | ) |   |   |   |   | (11,148 | ) |
|                                                                                                                                                                             |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Components                of comprehensive income:                                                                                                                               |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net                income for the period                                                                                                                                         |   |   |   |   |   | 31,009 |   |   |   |   |   | 31,009 |   |
| Market                    value adjustment for investment securities available for sale                    (net                    of income tax effect)                         |   |   |   |   |   |   |   |   | 56 |   |   | 56 |   |
| Comprehensive                income for the period                                                                                                                               |   |   |   |   |   |   |   |   |   |   |   | 31,065 |   |
|                                                                                                                                                                             |   |   |   |   |   |   |   |   |   |   |   |  |   |
| BALANCES                AT SEPTEMBER 30, 2006                                                                                                                                    |   | $ | 222,547 |   | $ | 105,414 |   | $ | (170 | ) | $ | 327,791 |   |

----

| CAPITOL                  BANCORP LIMITED                                                                                |
|-------------------------------------------------------------------------------------------------------------------------|
| Condensed                  Consolidated Statements of Cash Flows (Unaudited)                                            |
| For                  the Nine Months Ended September 30, 2006 and 2005                                                  |
|                                                                                                                    |   |   |   |   |   |   |
|                                                                                                                    |   | 2006 |   |   | 2005 |   |
|                                                                                                                    |   |  (in                  thousands) |
| OPERATING                  ACTIVITIES                                                                                   |   |   |   |   |   |   |
| Net                  income                                                                                             |   |  $ |  31,009 |   |   |  $ |  25,906 |   |
| Adjustments                  to reconcile net income to net cash provided by operatingactivities:                       |   |   |   |   |   |   |   |   |
| Provision                  for loan losses                                                                              |   |   | 8,712 |   |   |   | 7,169 |   |
| Depreciation                  of premises and equipment                                                                 |   |   | 5,273 |   |   |   | 4,179 |   |
| Amortization                  of intangibles                                                                            |   |   | 439 |   |   |   | 431 |   |
| Net                  amortization (accretion) of investment security premiums                  (discounts)              |   |   | (9 | ) |   |   | 63 |   |
| Loss                  on sale of premises and equipment                                                                 |   |   | 10 |   |   |   | 14 |   |
| Minority                  interest in net losses of consolidated subsidiaries                                           |   |   | (9,249 | ) |   |   | (2,705 | ) |
| Compensation                  expense relating to restricted common stock                                               |   |   | 1,255 |   |   |   | 915 |   |
| Originations                  and purchases of loans held for resale                                                    |   |   | (363,704 | ) |   |   | (500,957 | ) |
| Proceeds                  from sales of loans held for resale                                                           |   |   | 367,081 |   |   |   | 510,468 |   |
| Increase                  in accrued interest income and other assets                                                   |   |   | (4,830 | ) |   |   | (19,768 | ) |
| Increase                    (decrease) in accrued interest expense on deposits and other                    liabilities |   |   | (4,766 | ) |   |   | 5,490 |   |
|                                                                                                                    |   |   |   |   |   |   |   |   |
| NET                  CASH PROVIDED BY OPERATING ACTIVITIES                                                              |   |   | 31,221 |   |   |   | 31,205 |   |
|                                                                                                                    |   |   |   |   |   |   |   |   |
|                                                                                                                    |   |   |   |   |   |   |   |   |
| INVESTING                  ACTIVITIES                                                                                   |   |   |   |   |   |   |   |   |
| Cash                  and cash equivalents of acquired subsidiary                                                       |   |   |   |   |   |   | 3,557 |   |
| Proceeds                  from sale of investment securities available for sale                                         |   |   |   |   |   |   | 1,757 |   |
| Proceeds                  from calls, prepayments and maturities of investment securities                               |   |   | 10,893 |   |   |   | 6,279 |   |
| Purchases                  of investment securities                                                                     |   |   | (8,301 | ) |   |   | (11,561 | ) |
| Net                  increase in portfolio loans                                                                        |   |   | (320,130 | ) |   |   | (201,119 | ) |
| Proceeds                  from sales of premises and equipment                                                          |   |   | 723 |   |   |   | 83 |   |
| Purchases                  of premises and equipment                                                                    |   |   | (15,848 | ) |   |   | (4,872 | ) |
|                                                                                                                    |   |   |   |   |   |   |   |   |
| NET                  CASH USED BY INVESTING ACTIVITIES                                                                  |   |   | (332,663 | ) |   |   | (205,876 | ) |
|                                                                                                                    |   |   |   |   |   |   |   |   |
| FINANCING                  ACTIVITIES                                                                                   |   |   |   |   |   |   |   |   |
| Net                    increase in demand deposits, NOW accounts and savings accounts                                   |   |   | 53,169 |   |   |   | 146,955 |   |
| Net                  increase in certificates of deposit                                                                |   |   | 275,778 |   |   |   | 142,416 |   |
| Net                  borrowings from (payments on) debt obligations                                                     |   |   | (359 | ) |   |   | 1,289 |   |
| Resources                  provided by minority interests                                                               |   |   | 39,343 |   |   |   | 37,705 |   |
| Net                  proceeds from issuance of common stock                                                             |   |   | 4,753 |   |   |   | 2,980 |   |
| Cash                  dividends paid                                                                                    |   |   | (11,148 | ) |   |   | (7,954 | ) |
|                                                                                                                    |   |   |   |   |   |   |   |   |
| NET                  CASH PROVIDED BY FINANCING ACTIVITIES                                                              |   |   | 361,536 |   |   |   | 323,391 |   |
|                                                                                                                    |   |   |   |   |   |   |   |   |
| INCREASE                  IN CASH AND CASH EQUIVALENTS                                                                  |   |   | 60,094 |   |   |   | 148,720 |   |
|                                                                                                                    |   |   |   |   |   |   |   |   |
| Cash                  and cash equivalents at beginning of period                                                       |   |   | 306,108 |   |   |   | 231,104 |   |
|                                                                                                                    |   |   |   |   |   |   |   |   |
| CASH                  AND CASH EQUIVALENTS AT END OF PERIOD                                                             |   | $ | 366,202 |   |   | $ | 379,824 |   |

----

**NOTES      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**

**CAPITOL      BANCORP LTD.**

***Note      A - Basis of Presentation***

***Note      B - Implementation of New Accounting Standards***

*Share-Based      Payment*

*The      Meaning of Other-Than-Temporary Impairment and its Application to Certain      Investments*

----

**NOTES      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**

**CAPITOL      BANCORP LTD. - Continued**

***Note      C - Stock Options***

*Share-Based      Payment*

| Fair                value assumptions:                                                                                                                        |   |   |                   |   |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|------------------------|--------|
| Risk-free                interest rate                                                                                                                        |   |   | 4.1%                   |   |
| Dividend                yield                                                                                                                                 |   |   | 2.2%                   |   |
| Stock                price volatility                                                                                                                         |   |   | .27                    |   |
| Expected                option life                                                                                                                           |   |   | 7                years |   |
| Aggregate                  estimated fair value of options                  granted (in thousands)                                                            |   | $      | 4,781                  |   |
| Net                income (in thousands):                                                                                                                     |   |   |                   |   |
| As                reported                                                                                                                                    |   | $      | 25,906                 |   |
| Less                pro forma compensation expense regarding fair valueof                stock option awards, net of related income tax                effect |   |   |  (3,108           | )      |
| Pro                forma                                                                                                                                      |   | $      | 22,798                 |   |
| Net                income per share:                                                                                                                          |   |   |                   |   |
| Basic:                                                                                                                                                        |   |   |                   |   |
| As                reported                                                                                                                                    |   | $      | 1.75                   |   |
| Pro                forma                                                                                                                                      |   |   | 1.54                   |   |
| Diluted:                                                                                                                                                      |   |   |                   |   |
| As                reported                                                                                                                                    |   |   | 1.67                   |   |
| Pro                forma                                                                                                                                      |   | $      | 1.47                   |   |

|                                       |   |   NumberOutstanding |      |  ExercisePriceRange |   | WeightedAverageExercisePrice                                                   |
|--------------------------------------------|--------|-------------------------------|-----------|--------------------------|--------|--------------------------------------------------------------------------------|
| Outstanding                at January 1    |   |                          | 2,882,283 |                     | $      |                      10.81 to $ 37.48                 |   | $ | 26.07 |
| Exercised                                  |   |                          | (276,551  | )                        |   |                      10.81 to    37.48 |  |   | 19.93 |
| Granted                                    |   |                          | --        |                     |   |                                                                           |   |   |  |
| Cancelled                or expired        |   |                          | --        |                     |   |                                                                           |   |   |   |
|                                       |   |                          |      |                     |   |                                                                           |   |   |   |
| Outstanding                at September 30 |   |                          | 2,605,732 |                     | $      |                      10.81 to $ 37.48                 |   | $ | 26.73 |

----

**NOTES      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**

**CAPITOL      BANCORP LTD. - Continued**

***Note      C - Stock Options - Continued***

|                                     |   |                    |      | Weighted                Average |   |                     |
|------------------------------------------|--------|-------------------------|-----------|---------------------------------|--------|--------------------------|
|  Exercise                PriceRange |   |  NumberOutstanding |      |  ExercisePrice             |   | RemainingContractualLife |   | AggregateIntrinsicValue |
| $10.00                to 14.99           |   |                    | 155,019   |                            | $      | 11.26                    |   |   | 0.9                years |   | $ | 5,152,832 |
| $15.00                to 19.99           |   |                    | 292,387   |                            |   | 16.61                    |   |   | 3.0                years |   |   | 8,154,673 |
| $20.00                to 24.99           |   |                    | 461,594   |                            |   | 21.69                    |   |   | 4.1                years |   |   | 10,528,959 |
| $25.00                to 29.99           |   |                    | 649,632   |                            |   | 26.99                    |   |   | 3.6                years |   |   | 11,375,056 |
| $30.00                to 34.99           |   |                    | 698,313   |                            |   | 32.11                    |   |   | 4.9                years |   |   | 8,652,098 |
| $35.00                or more            |   |                    | 348,787   |                            |   | 37.48                    |   |   | 6.1                years |   |   | 2,448,485 |
|                                     |   |                    |      |                            |   |                     |   |   |   |   |   |   |
| Total                outstanding         |   |                    | 2,605,732 |                            |   |                     |   |   |   |   | $ | 46,312,103 |

***Note      D - Net Income Per Share***

|                                                                                                                                                                                             |   | Three-Month                Period |   | Nine-Month                Period |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-----------------------------------|--------|----------------------------------|
|                                                                                                                                                                                             |   | 2006                              |   | 2005                             |   | 2006 |   | 2005 |
|                                                                                                                                                                                             |   |                              |   |                             |   |   |   |   |
| Numerator—net                income for the period                                                                                                                                         |   | $                                 | 10,789 |                             | $ | 9,594 |   | $ | 31,009 |   | $ | 25,906 |
|                                                                                                                                                                                             |   |                              |   |                             |   |   |   |   |   |   |   |   |
| Denominator:                                                                                                                                                                                     |   |                              |   |                             |   |   |   |   |   |   |   |   |
| Weighted                average number of common shares outstanding, excludingunvested                shares of restricted common stock (denominator for basicearnings                per share) |   |                              | 15,757 |                             |   | 14,940 |   |   | 15,702 |   |   | 14,777 |
| Weighted                average number of unvested shares of restricted commonstock                outstanding                                                                                   |   |                              | 68     |                             |   | 202 |   |   | 68 |   |   | 208 |
| Effect                of other dilutive securities—stock                options                                                                                                            |   |                              | 606    |                             |   | 537 |   |   | 611 |   |   | 486 |
| Denominator                for diluted net income per share—                                                                                                                               |   |                              |   |                             |   |   |   |   |   |   |   |   |
| Weighted                average number of common shares and potential dilution                                                                                                                   |   |                              | 16,431 |                             |   | 15,679 |   |   | 16,381 |   |   | 15,471 |
| Number                of antidilutive stock options excluded from diluted earnings per                share                computation                                                           |   |                              | --     |                             |   | -- |   |   | -- |   |   | -- |

***Note      E - New Banks and Other Development Activities***

*de      novo*

----

**NOTES      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**

**CAPITOL      BANCORP LTD. - Continued**

***Note      E - New Banks and Other Development Activities -      Continued***

*de      novo*

| ·   |     Community                Bank                of Rowan, located in Salisbury, North Carolina                (February). |
|--------------------|------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   |     Asian                Bank of Arizona, located in Phoenix, Arizona                (April). |
|--------------------|-------------------------------------------------------------------------------------------------------------------|

| ·   |     Evansville                Commerce Bank, located in Evansville, Indiana                (May). |
|--------------------|-----------------------------------------------------------------------------------------------------------------------|

| ·   |     Sunrise                Bank of Atlanta, located in Atlanta, Georgia                (June). |
|--------------------|--------------------------------------------------------------------------------------------------------------------|

| ·   |     Bank                of                Valdosta, located in Valdosta, Georgia                (June). |
|--------------------|-----------------------------------------------------------------------------------------------------------------------------|

| ·   |     Bank                of                Everett, located in Everett, Washington                (June). |
|--------------------|------------------------------------------------------------------------------------------------------------------------------|

*de      novo*

***Note      F - Impact of New Accounting Standards***

*Accounting      for Servicing of Financial Assets*

*Accounting      for Uncertainty in Income Taxes,*
*Accounting      for Income Taxes*

*Fair      Value Measurements*
*Employers'      Accounting for Defined Benefit Pension and Other Postretirement Plans—an      amendment to FASB Statements No. 87, 88, 106 and 132(R)*

----

**NOTES      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**

**CAPITOL      BANCORP LTD. - Continued**

***Note      F - Impact of New Accounting Standards --      Continued***

| ·   | Proposed                amendment to Statement No. 128, *Earnings                per Share;*                                                                                                                        |
|--------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ·   | Proposed                replacement of Statement No. 141 regarding *Business                Combinations*;                and                                                                                       |
| ·   | Proposed                replacement of Accounting Research Bulletin No. 51 regarding *Consolidated                Financial Statements, Including Accounting and Reporting for                Noncontrolling Interests*. |

| ·   | FASB                FSP to require recalculation of leveraged leases if the timing of                tax                benefits affect cash flows;                                                                                                             |
|--------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ·   | EITF                Issue No. 06-4 which addresses accounting for deferred compensation                and                post retirement benefits of endorsement split-dollar life insurance;                and                                               |
| ·   | EITF                Issue No. 06-5 which encompasses accounting for purchases of life                insurance and the ramifications of determining the amount that could                be                realized in accordance with FASB Technical Bulletin 84-4. |

***Note      G - Proposed Share Exchange Transactions***

----

**PART      I, ITEM 2**

**MANAGEMENT'S      DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION**

**AND      RESULTS OF OPERATIONS**

***New      Banks and Other Development Activities***

*de      novo*

*de      novo*

| ·   |     Community                Bank                of Rowan, located in Salisbury, North Carolina                (February). |
|--------------------|------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   |     Asian                Bank of Arizona, located in Phoenix, Arizona                (April). |
|--------------------|-------------------------------------------------------------------------------------------------------------------|

| ·   |     Evansville                Commerce Bank, located in Evansville, Indiana                (May). |
|--------------------|-----------------------------------------------------------------------------------------------------------------------|

| ·   |     Sunrise                Bank of Atlanta, located in Atlanta, Georgia                (June). |
|--------------------|--------------------------------------------------------------------------------------------------------------------|

| ·   |     Bank                of                Valdosta, located in Valdosta, Georgia                (June). |
|--------------------|-----------------------------------------------------------------------------------------------------------------------------|

| ·   |     Bank                of                Everett, located in Everett, Washington                (June). |
|--------------------|------------------------------------------------------------------------------------------------------------------------------|

*de      novo*

*de      novo*

----

**MANAGEMENT'S      DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION**

**AND      RESULTS OF OPERATIONS - Continued**

***Financial      Condition***

|                                                                    |   | Total                Assets (in $1,000's) |
|-------------------------------------------------------------------------|--------|-------------------------------------------|
|                                                                    |   | September                30,2006          |   | December                31,2005 |
| *Eastern                Regions:*                                       |   |                                      |   |   |
| Great                Lakes Region:                                      |   |                                      |   |   |
| Ann                Arbor Commerce Bank                                  |   | $                                         | 320,668 |   | $ | 320,075 |
| Bank                of Auburn Hills                                     |   |                                      | 28,099 |   |   | 10,848 |
| Bank                of Belleville                                       |   |                                      | 21,677 |   |   | 14,641 |
| Bank                of Michigan                                         |   |                                      | 42,266 |   |   | 31,119 |
| Brighton                Commerce Bank                                   |   |                                      | 106,144 |   |   | 105,694 |
| Capitol                National Bank                                    |   |                                      | 233,676 |   |   | 246,132 |
| Detroit                Commerce Bank                                    |   |                                      | 102,821 |   |   | 84,979 |
| Elkhart                Community Bank                                   |   |                                      | 83,455 |   |   | 75,648 |
| Evansville                Commerce Bank(2)                              |   |                                      | 12,750 |   |   |   |
| Goshen                Community Bank                                    |   |                                      | 69,661 |   |   | 74,545 |
| Grand                Haven Bank                                         |   |                                      | 128,278 |   |   | 122,757 |
| Kent                Commerce Bank                                       |   |                                      | 87,222 |   |   | 78,939 |
| Macomb                Community Bank                                    |   |                                      | 104,544 |   |   | 93,497 |
| Muskegon                Commerce Bank                                   |   |                                      | 104,320 |   |   | 96,649 |
| Oakland                Commerce Bank                                    |   |                                      | 131,197 |   |   | 115,720 |
| Paragon                Bank & Trust                                 |   |                                      | 94,413 |   |   | 106,535 |
| Portage                Commerce Bank                                    |   |                                      | 173,703 |   |   | 183,018 |
| Great                Lakes Region Total                                 |   |                                      | 1,844,894 |   |   | 1,760,796 |
| Southeast                Region:                                        |   |                                      |   |   |   |   |
| Bank                of Valdosta(3)                                      |   |                                      | 17,497 |   |   |   |
| Community                Bank of Rowan(1)                               |   |                                      | 34,526 |   |   |   |
| First                Carolina State Bank                                |   |                                      | 86,921 |   |   | 83,345 |
| Peoples                State Bank                                       |   |                                      | 28,618 |   |   | 31,620 |
| Sunrise                Bank of Atlanta(4)                               |   |                                      | 13,940 |   |   |   |
| Southeast                Region Total                                   |   |                                      | 181,502 |   |   | 114,965 |
| Midwest                Region:Summit                Bank of Kansas City |   |                                      | 17,078 |   |   | 9,152 |
| Eastern                Regions Total                                    |   | $                                         | 2,043,474 |   | $ | 1,884,913 |

----

**MANAGEMENT'S      DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION**

**AND      RESULTS OF OPERATIONS - Continued**

***Financial      Condition - Continued***

|                                           |   | Total                Assets (in $1,000's) |                                         |
|------------------------------------------------|--------|-------------------------------------------|----------------------------------------------|
|                                                |   |                                      | September                30,2006   |   |   | December                31,2005 |   |
| *Western                Regions:*              |   |                                      |                                         |   |   |   |   |
| Southwest                Region:               |   |                                      |                                         |   |   |   |   |
| Arrowhead                Community Bank        |   | $                                         | 90,000                                       |   | $ | 83,639 |   |
| Asian                Bank of Arizona(5)        |   |                                      | 14,487                                       |   |   |   |   |
| Bank                of Las Vegas               |   |                                      | 65,440                                       |   |   | 58,315 |   |
| Bank                of Tucson                  |   |                                      | 176,903                                      |   |   | 167,638 |   |
| Black                Mountain Community Bank   |   |                                      | 131,571                                      |   |   | 128,958 |   |
| Camelback                Community Bank        |   |                                      | 83,362                                       |   |   | 82,309 |   |
| Desert                Community Bank           |   |                                      | 93,073                                       |   |   | 78,907 |   |
| East                Valley Community Bank      |   |                                      | 40,379                                       |   |   | 43,352 |   |
| Fort                Collins Commerce Bank      |   |                                      | 48,656                                       |   |   | 27,427 |   |
| Mesa                Bank                       |   |                                      | 162,655                                      |   |   | 132,775 |   |
| Red                Rock Community Bank         |   |                                      | 101,781                                      |   |   | 102,618 |   |
| Southern                Arizona Community Bank |   |                                      | 84,338                                       |   |   | 98,849 |   |
| Sunrise                Bank of Albuquerque     |   |                                      | 61,910                                       |   |   | 61,812 |   |
| Sunrise                Bank of Arizona         |   |                                      | 122,202                                      |   |   | 111,204 |   |
| Valley                First Community Bank     |   |                                      | 71,695                                       |   |   | 72,759 |   |
| Yuma                Community Bank             |   |                                      | 78,591                                       |   |   | 61,523 |   |
| Southwest                Region Total          |   |                                      | 1,427,043                                    |   |   | 1,312,085 |   |
| California                Region:              |   |                                      |                                         |   |   |   |   |
| Bank                of Escondido               |   |                                      | 78,568                                       |   |   | 70,807 |   |
| Bank                of San Francisco           |   |                                      | 24,730                                       |   |   | 13,685 |   |
| Bank                of Santa Barbara           |   |                                      | 31,311                                       |   |   | 14,386 |   |
| Napa                Community Bank             |   |                                      | 87,239                                       |   |   | 84,512 |   |
| Point                Loma Community Bank       |   |                                      | 44,488                                       |   |   | 34,213 |   |
| Sunrise                Bank of San Diego       |   |                                      | 68,500                                       |   |   | 66,809 |   |
| California                Region Total         |   |                                      | 334,836                                      |   |   | 284,412 |   |
| Northwest                Region:               |   |                                      |                                              |   |   |   |   |
| Bank                of Bellevue                |   |                                      | 32,292                                       |   |   | 19,726 |   |
| Bank                of Everett(6)              |   |                                      | 17,046                                       |   |   |  |   |
| Northwest                Region Total          |   |                                      | 49,338                                       |   |   | 19,726 |   |
| Western                Regions Total           |   |                                      | 1,811,217                                    |   |   | 1,616,223 |   |
| Other,                net                      |   |                                      | 942                                          |   |   | (25,415 | ) |
|                                           |   |                                      |                                         |   |   |   |   |
| Consolidated                                   |   | $                                         | 3,855,633                                    |   | $ | 3,475,721 |   |

| (1) | Commenced                operations in February 2006 and is 51%-owned by Capitol Development                Bancorp                Limited III, acontrolled                subsidiary of Capitol.                                                                     |
|-----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (2) | Commenced                operations in May 2006 and is 51%-owned by Capitol Development                Bancorp                Limited IV, a controlledsubsidiary                of Capitol.                                                                           |
| (3) | Commenced                operations in June 2006 and is 56%-owned by Capitol Development                Bancorp                Limited IV, a controlledsubsidiary                of Capitol.                                                                          |
| (4) | Commenced                operations in June 2006 and is 51%-owned by Capitol Development                Bancorp                Limited IV, a controlledsubsidiary                of Capitol.                                                                          |
| (5) | Commenced                operations in April 2006 and is 51%-owned by Capitol Development                Bancorp                Limited IV, a controlledsubsidiary                of Capitol.                                                                         |
| (6) | Commenced                operations in June 2006 and is 51%-owned by Capitol Development Bancorp                Limited V, a controlledsubsidiary                of Capitol. Capitol Development Bancorp Limited V was formed and                capitalized in 2006. |

----

**MANAGEMENT'S      DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION**

**AND      RESULTS OF OPERATIONS - Continued**

***Financial      Condition - Continued***

|                                                                                                      |   | Periods                Ended September 30 |      |
|-----------------------------------------------------------------------------------------------------------|--------|-------------------------------------------|-----------|
|                                                                                                      |   | Three-Month                Period         |      | Nine-Month                Period |   |
|                                                                                                      |   | 2006                                      |      | 2005 |   | 2006 |   | 2005 |   |
| Allowance                for loan losses at beginning of period                                           |   | $                                         | 43,311    |   | $ | 38,870 |   | $ | 40,559 |   | $ | 37,572 |   |
| Loans                charged-off:                                                                         |   |                                      |      |   |   |   |   |   |   |   |   |   |   |
| Commercial                                                                                                |   |                                      | (1,766    | ) |   | (2,304 | ) |   | (4,886 | ) |   | (6,541 | ) |
| Real                estate mortgage                                                                       |   |                                      | (11       | ) |   | -- |   |   | (59 | ) |   | -- |   |
| Installment                                                                                               |   |                                      | (90       | ) |   | (129 | ) |   | (323 | ) |   | (440 | ) |
| Total                charge-offs                                                                          |   |                                      | (1,867    | ) |   | (2,433 | ) |   | (5,268 | ) |   | (6,981 | ) |
| Recoveries:                                                                                               |   |                                      |      |   |   |   |   |   |   |   |   |   |   |
| Commercial                                                                                                |   |                                      | 192       |   |   | 709 |   |   | 887 |   |   | 1,426 |   |
| Real                estate mortgage                                                                       |   |                                      | 2         |   |   | 1 |   |   | 3 |   |   | 2 |   |
| Installment                                                                                               |   |                                      | 95        |   |   | 30 |   |   | 281 |   |   | 96 |   |
| Total                recoveries                                                                           |   |                                      | 289       |   |   | 740 |   |   | 1,171 |   |   | 1,524 |   |
| Net                charge-offs                                                                            |   |                                      | (1,578    | ) |   | (1,693 | ) |   | (4,097 | ) |   | (5,457 | ) |
| Additions                to allowance charged to expense                                                  |   |                                      | 3,441     |   |   | 2,107 |   |   | 8,712 |   |   | 7,169 |   |
|                                                                                                      |   |                                      |      |   |   |   |   |   |   |   |   |   |   |
| Allowance                for loan losses at September 30                                                  |   | $                                         | 45,174    |   | $ | 39,284 |   | $ | 45,174 |   | $ | 39,284 |   |
| Average                total portfolio loans for period endedSeptember                30                  |   | $                                         | 3,244,387 |   | $ | 2,868,354 |   | $ | 3,131,358 |   | $ | 2,804,285 |   |
| Ratio                of net charge-offs (annualized) to averageportfolio                loans outstanding |   |                                      | 0.19      | % |   | 0.24 | % |   | 0.17 | % |   | 0.26 | % |

----

**MANAGEMENT'S      DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION**

**AND      RESULTS OF OPERATIONS - Continued**

***Financial      Condition - Continued***

|                                               |   | September                  30, 2006 |      | December                  31, 2005 |   |
|----------------------------------------------------|--------|-------------------------------------|-----------|------------------------------------|--------|
|                                               |   |                                | Amount    |                               |   | Percentageof                  TotalPortfolioLoans |   |   | Amount |   |   | Percentageof                  TotalPortfolioLoans |   |
|                                               |   |                                |      |                               |   |   |   |   |   |   |   |   |   |
| Commercial                                         |   | $                                   | 41,456    |                               |   | 1.26 | % | $ | 37,498 |   |   | 1.25 | % |
| Real                  estate mortgage              |   |                                | 2,233     |                               |   | .07 |   |   | 1,866 |   |   | .07 |   |
| Installment                                        |   |                                | 1,485     |                               |   | .04 |   |   | 1,195 |   |   | .04 |   |
|                                               |   |                                |      |                               |   |   |   |   |   |   |   |   |   |
| Total                  allowance for loan losses   |   | $                                   | 45,174    |                               |   | 1.37 | % | $ | 40,559 |   |   | 1.36 | % |
|                                               |   |                                |      |                               |   |   |   |   |   |   |   |   |   |
| Total                  portfolio loans outstanding |   | $                                   | 3,307,222 |                               |   |   |   | $ | 2,991,189 |   |   |   |   |

|                                                          |   | September                30, |   | December                31, |
|---------------------------------------------------------------|--------|------------------------------|--------|-----------------------------|
|                                                          |   | 2006                         |   | 2005                        |
| Nonaccrual                loans:                              |   |                         |   |                        |
| Commercial                                                    |   | $                            | 20,867 |                        | $ | 19,734 |
| Real                estate mortgage                           |   |                         | 1,494  |                        |   | 1,734 |
| Installment                                                   |   |                         | 1,091  |                        |   | 1,154 |
| Total                nonaccrual loans                         |   |                         | 23,452 |                        |   | 22,622 |
|                                                          |   |                         |   |                        |   |   |
| Past                due (>90                days) loans:   |   |                         |   |                        |   |   |
| Commercial                                                    |   |                         | 5,634  |                        |   | 3,235 |
| Real                estate mortgage                           |   |                         | 546    |                        |   | 592 |
| Installment                                                   |   |                         | 275    |                        |   | 283 |
| Total                past due loans                           |   |                         | 6,455  |                        |   | 4,110 |
|                                                          |   |                         |   |                        |   |   |
| Total                nonperforming loans                      |   | $                            | 29,907 |                        | $ | 26,732 |
|                                                          |   |                         |   |                        |   |   |
| Real                estate owned and other repossessed assets |   |                         | 8,324  |                        |   | 3,745 |
|                                                          |   |                         |   |                        |   |   |
| Total                nonperforming assets                     |   | $                            | 38,231 |                        | $ | 30,477 |

----

**MANAGEMENT'S      DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION**

**AND      RESULTS OF OPERATIONS - Continued**

***Financial      Condition - Continued***

|                                                                    |   | Total                          |      | Allowance                for |   | Nonperforming           |   | Allowance                as a Percentage |   |
|-------------------------------------------------------------------------|--------|--------------------------------|-----------|------------------------------|--------|-------------------------|--------|------------------------------------------|--------|
|                                                                    |   | Portfolio                Loans |      | Loan                Losses   |   | Loans                   |   | of                Total Portfolio Loans  |   |
|                                                                    |   | Sept                30,        |      | Dec                31,       |   | Sept                30, |   | Dec                31,                   |   | Sept                30, |   | Dec                31, |   | Sept                30, |   | Dec                31, |   |
|                                                                    |   | 2006                           |      | 2005                         |   | 2006                    |   | 2005                                     |   | 2006 |   | 2005 |   | 2006 |   | 2005 |   |
| *Eastern                Regions:*                                       |   |                           |      |                         |   |                    |   |                                     |   |   |   |   |   |   |   |   |   |
| Great                Lakes Region:                                      |   |                           |      |                         |   |                    |   |                                     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Ann                Arbor Commerce Bank                                  |   | $                              | 286,644   |                         | $      | 286,146                 |   | $                                        | 4,755  |   | $ | 4,712 |   | $ | 3,389 |   | $ | 3,103 |   |   | 1.66 | % |   | 1.65 | % |
| Bank                of Auburn Hills                                     |   |                           | 24,323    |                         |   | 6,058                   |   |                                     | 395    |   |   | 90 |   |   | 610 |   |   |   |   |   | 1.62 | % |   | 1.49 | % |
| Bank                of Belleville                                       |   |                           | 11,912    |                         |   | 1,534                   |   |                                     | 179    |   |   | 23 |   |   |  |   |   |   |   |   | 1.50 | % |   | 1.50 | % |
| Bank                of Michigan                                         |   |                           | 37,712    |                         |   | 28,062                  |   |                                     | 566    |   |   | 421 |   |   |  |   |   |   |   |   | 1.50 | % |   | 1.50 | % |
| Brighton                Commerce Bank                                   |   |                           | 94,446    |                         |   | 93,553                  |   |                                     | 995    |   |   | 978 |   |   | 1,986 |   |   | 1,412 |   |   | 1.05 | % |   | 1.05 | % |
| Capitol                National Bank                                    |   |                           | 197,503   |                         |   | 197,062                 |   |                                     | 3,274  |   |   | 3,233 |   |   | 5,539 |   |   | 4,938 |   |   | 1.66 | % |   | 1.64 | % |
| Detroit                Commerce Bank                                    |   |                           | 98,836    |                         |   | 81,533                  |   |                                     | 1,215  |   |   | 1,104 |   |   | 920 |   |   | 110 |   |   | 1.23 | % |   | 1.35 | % |
| Elkhart                Community Bank                                   |   |                           | 78,196    |                         |   | 70,671                  |   |                                     | 942    |   |   | 919 |   |   | 838 |   |   | 908 |   |   | 1.20 | % |   | 1.30 | % |
| Evansville                Commerce Bank(2)                              |   |                           | 9,396     |                         |   |                    |   |                                     | 142    |   |   |   |   |   |   |   |   |   |   |   | 1.51 | % |   |   |   |
| Goshen                Community Bank                                    |   |                           | 58,913    |                         |   | 53,497                  |   |                                     | 731    |   |   | 648 |   |   | 230 |   |   | 443 |   |   | 1.24 | % |   | 1.21 | % |
| Grand                Haven Bank                                         |   |                           | 116,543   |                         |   | 117,241                 |   |                                     | 2,748  |   |   | 2,575 |   |   | 3,564 |   |   | 3,342 |   |   | 2.36 | % |   | 2.20 | % |
| Kent                Commerce Bank                                       |   |                           | 81,931    |                         |   | 74,385                  |   |                                     | 1,140  |   |   | 1,277 |   |   | 1,525 |   |   | 1,751 |   |   | 1.39 | % |   | 1.72 | % |
| Macomb                Community Bank                                    |   |                           | 89,206    |                         |   | 90,448                  |   |                                     | 1,348  |   |   | 1,422 |   |   | 365 |   |   | 2,142 |   |   | 1.51 | % |   | 1.57 | % |
| Muskegon                Commerce Bank                                   |   |                           | 86,070    |                         |   | 88,007                  |   |                                     | 1,235  |   |   | 1,021 |   |   | 2,603 |   |   | 1,430 |   |   | 1.43 | % |   | 1.16 | % |
| Oakland                Commerce Bank                                    |   |                           | 116,326   |                         |   | 101,859                 |   |                                     | 1,660  |   |   | 1,424 |   |   | 2,341 |   |   | 948 |   |   | 1.43 | % |   | 1.40 | % |
| Paragon                Bank & Trust                                 |   |                           | 82,374    |                         |   | 92,427                  |   |                                     | 1,317  |   |   | 1,375 |   |   | 2,491 |   |   | 2,216 |   |   | 1.60 | % |   | 1.49 | % |
| Portage                Commerce Bank                                    |   |                           | 161,880   |                         |   | 171,679                 |   |                                     | 1,864  |   |   | 2,057 |   |   | 1,735 |   |   | 2,119 |   |   | 1.15 | % |   | 1.20 | % |
| Great                Lakes Region Total                                 |   |                           | 1,632,211 |                         |   | 1,554,162               |   |                                     | 24,506 |   |   | 23,279 |   |   | 28,136 |   |   | 24,862 |   |   |   |   |   |   |   |
| Southeast                Region:                                        |   |                           |      |                         |   |                    |   |                                     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Bank                of Valdosta(3)                                      |   |                           | 10,207    |                         |   |                    |   |                                     | 131    |   |   |   |   |   |   |   |   |   |   |   | 1.28 | % |   |   |   |
| Community                Bank of Rowan(1)                               |   |                           | 24,007    |                         |   |                    |   |                                     | 351    |   |   |   |   |   |   |   |   |   |   |   | 1.46 | % |   |   |   |
| First                Carolina State Bank                                |   |                           | 70,027    |                         |   | 68,235                  |   |                                     | 793    |   |   | 690 |   |   | 493 |   |   | 173 |   |   | 1.13 | % |   | 1.01 | % |
| Peoples                State Bank                                       |   |                           | 16,986    |                         |   | 19,909                  |   |                                     | 199    |   |   | 140 |   |   | 28 |   |   | 16 |   |   | 1.17 | % |   | 0.70 | % |
| Sunrise                Bank of Atlanta(4)                               |   |                           | 8,577     |                         |   |                    |   |                                     | 126    |   |   |   |   |   |   |   |   |   |   |   | 1.47 | % |   |   |   |
| Southeast                Region Total                                   |   |                           | 129,804   |                         |   | 88,144                  |   |                                     | 1,600  |   |   | 830 |   |   | 521 |   |   | 189 |   |   |   |   |   |   |   |
| Midwest                Region:Summit                Bank of Kansas City |   |                           | 11,961    |                         |   | 644                     |   |                                     | 173    |   |   | 10 |   |   |   |   |   |   |   |   | 1.45 | % |   | 1.55 | % |
| Eastern                Regions Total                                    |   | $                              | 1,773,976 |                         | $      | 1,642,950               |   | $                                        | 26,279 |   | $ | 24,119 |   | $ | 28,657 |   | $ | 25,051 |   |   |   |   |   |   |   |

----

**MANAGEMENT'S      DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION**

**AND      RESULTS OF OPERATIONS - Continued**

***Financial      Condition - Continued***

|                                           |   | Total                          |      | Allowance                for |   | Nonperforming           |   | Allowance                as a Percentage |   |
|------------------------------------------------|--------|--------------------------------|-----------|------------------------------|--------|-------------------------|--------|------------------------------------------|--------|
|                                           |   | Portfolio                Loans |      | Loan                Losses   |   | Loans                   |   | of                Total Portfolio Loans  |   |
|                                           |   | Sept                30,        |      | Dec                31,       |   | Sept                30, |   | Dec                31,                   |   | Sept                30, |   | Dec                31, |   | Sept                30, |   | Dec                31, |   |
|                                           |   | 2006                           |      | 2005                         |   | 2006                    |   | 2005                                     |   | 2006 |   | 2005 |   | 2006 |   | 2005 |   |
| *Western                Regions:*              |   |                           |      |                         |   |                    |   |                                     |   |   |   |   |   |   |   |   |   |
| Southwest                Region:               |   |                           |      |                         |   |                    |   |                                     |   |   |   |   |   |   |   |   |   |
| Arrowhead                Community Bank        |   | $                              | 75,087    |                         | $      | 73,800                  |   | $                                        | 752    |   | $ | 654 |   | $ | 124 |   | $ | 140 |   |   | 1.00 | % |   | 0.89 | % |
| Asian                Bank of Arizona(5)        |   |                           | 11,026    |                         |   |                    |   |                                     | 150    |   |   |   |   |   |   |   |   |   |   |   | 1.36 | % |   |   |   |
| Bank                of Las Vegas               |   |                           | 60,811    |                         |   | 50,899                  |   |                                     | 695    |   |   | 495 |   |   |  |   |   |   |   |   | 1.14 | % |   | 0.97 | % |
| Bank                of Tucson                  |   |                           | 145,652   |                         |   | 143,900                 |   |                                     | 1,379  |   |   | 1,405 |   |   |  |   |   | 200 |   |   | 0.95 | % |   | 0.98 | % |
| Black                Mountain Community Bank   |   |                           | 114,780   |                         |   | 103,627                 |   |                                     | 1,403  |   |   | 1,277 |   |   | 111 |   |   | 131 |   |   | 1.22 | % |   | 1.23 | % |
| Camelback                Community Bank        |   |                           | 77,482    |                         |   | 73,813                  |   |                                     | 788    |   |   | 852 |   |   | 55 |   |   | 41 |   |   | 1.02 | % |   | 1.15 | % |
| Desert                Community Bank           |   |                           | 84,355    |                         |   | 71,050                  |   |                                     | 820    |   |   | 830 |   |   | 137 |   |   | 273 |   |   | 0.97 | % |   | 1.17 | % |
| East                Valley Community Bank      |   |                           | 34,993    |                         |   | 38,716                  |   |                                     | 358    |   |   | 497 |   |   |  |   |   |   |   |   | 1.02 | % |   | 1.28 | % |
| Fort                Collins Commerce Bank      |   |                           | 46,698    |                         |   | 22,619                  |   |                                     | 625    |   |   | 306 |   |   |   |   |   |   |   |   | 1.34 | % |   | 1.35 | % |
| Mesa                Bank                       |   |                           | 152,757   |                         |   | 125,513                 |   |                                     | 1,414  |   |   | 1,215 |   |   |  |   |   |   |   |   | 0.93 | % |   | 0.97 | % |
| Red                Rock Community Bank         |   |                           | 94,475    |                         |   | 83,259                  |   |                                     | 1,225  |   |   | 1,300 |   |   | 195 |   |   | 198 |   |   | 1.30 | % |   | 1.56 | % |
| Southern                Arizona Community Bank |   |                           | 74,704    |                         |   | 76,953                  |   |                                     | 750    |   |   | 720 |   |   | 17 |   |   | 59 |   |   | 1.00 | % |   | 0.94 | % |
| Sunrise                Bank of Albuquerque     |   |                           | 48,662    |                         |   | 53,669                  |   |                                     | 776    |   |   | 693 |   |   |  |   |   | 300 |   |   | 1.59 | % |   | 1.29 | % |
| Sunrise                Bank of Arizona         |   |                           | 108,744   |                         |   | 101,846                 |   |                                     | 1,100  |   |   | 1,253 |   |   | 314 |   |   | 70 |   |   | 1.01 | % |   | 1.23 | % |
| Valley                First Community Bank     |   |                           | 63,726    |                         |   | 57,794                  |   |                                     | 582    |   |   | 526 |   |   |  |   |   |   |   |   | 0.91 | % |   | 0.91 | % |
| Yuma                Community Bank             |   |                           | 57,624    |                         |   | 50,474                  |   |                                     | 540    |   |   | 485 |   |   | 277 |   |   | 27 |   |   | 0.94 | % |   | 0.96 | % |
| Southwest                Region Total          |   |                           | 1,251,576 |                         |   | 1,127,932               |   |                                     | 13,357 |   |   | 12,508 |   |   | 1,230 |   |   | 1,439 |   |   |   |   |   |   |   |
| California                Region:              |   |                           |      |                         |   |                    |   |                                     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Bank                of Escondido               |   |                           | 32,712    |                         |   | 38,228                  |   |                                     | 435    |   |   | 460 |   |   | 20 |   |   | 23 |   |   | 1.33 | % |   | 1.20 | % |
| Bank                of San Francisco           |   |                           | 22,669    |                         |   | 7,291                   |   |                                     | 336    |   |   | 102 |   |   |   |   |   |   |   |   | 1.48 | % |   | 1.40 | % |
| Bank                of Santa Barbara           |   |                           | 26,227    |                         |   | 3,546                   |   |                                     | 367    |   |   | 54 |   |   |   |   |   |   |   |   | 1.40 | % |   | 1.52 | % |
| Napa                Community Bank             |   |                           | 74,546    |                         |   | 70,359                  |   |                                     | 1,035  |   |   | 1,237 |   |   |  |   |   | 19 |   |   | 1.39 | % |   | 1.76 | % |
| Point                Loma Community Bank       |   |                           | 34,608    |                         |   | 29,759                  |   |                                     | 464    |   |   | 423 |   |   |  |   |   |   |   |   | 1.34 | % |   | 1.42 | % |
| Sunrise                Bank of San Diego       |   |                           | 58,373    |                         |   | 58,983                  |   |                                     | 478    |   |   | 588 |   |   |   |   |   | 200 |   |   | 0.82 | % |   | 1.00 | % |
| California                Region Total         |   |                           | 249,135   |                         |   | 208,166                 |   |                                     | 3,115  |   |   | 2,864 |   |   | 20 |   |   | 242 |   |   |   |   |   |   |   |
| Northwest                Region:               |   |                           |      |                         |   |                    |   |                                     |        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Bank                of Bellevue                |   |                           | 22,153    |                         |   | 8,327                   |   |                                     | 320    |   |   | 120 |   |   |   |   |   |   |   |   | 1.44 | % |   | 1.44 | % |
| Bank                of Everett(6)              |   |                           | 2,748     |                         |   |                    |   |                                     | 40     |   |   |   |   |   |   |   |   |   |   |   | 1.46 | % |   |   |   |
| Northwest                Region Total          |   |                           | 24,901    |                         |   | 8,327                   |   |                                     | 360    |   |   | 120 |   |   | -- |   |   | -- |   |   |   |   |   |   |   |
| Western                Regions Total           |   |                           | 1,525,612 |                         |   | 1,344,425               |   |                                     | 16,832 |   |   | 15,492 |   |   | 1,250 |   |   | 1,681 |   |   |   |   |   |   |   |
| Other,                net                      |   |                           | 7,634     |                         |   | 3,814                   |   |                                     | 2,063  |   |   | 948 |   |   |   |   |   |   |   |   |  |   |   |  |   |
|                                           |   |                           |      |                         |   |                    |   |                                     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Consolidated                                   |   | $                              | 3,307,222 |                         | $      | 2,991,189               |   | $                                        | 45,174 |   | $ | 40,559 |   | $ | 29,907 |   | $ | 26,732 |   |   | 1.37 | % |   | 1.36 | % |

| (1) | Commenced                operations in February 2006 and is 51%-owned by Capitol Development                Bancorp Limited III, a controlled subsidiary of                Capitol.                                                                                   |
|-----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (2) | Commenced                operations in May 2006 and is 51%-owned by Capitol Development Bancorp                Limited IV, a controlled subsidiary of Capitol.                                                                                                        |
| (3) | Commenced                operations in June 2006 and is 56%-owned by Capitol Development Bancorp                Limited IV, a controlled subsidiary of Capitol.                                                                                                       |
| (4) | Commenced                operations in June 2006 and is 51%-owned by Capitol Development Bancorp                Limited IV, a controlled subsidiary of Capitol.                                                                                                       |
| (5) | Commenced                operations in April 2006 and is 51%-owned by Capitol Development                Bancorp                Limited IV, a controlled subsidiary of Capitol.                                                                                       |
| (6) | Commenced                operations in June 2006 and is 51%-owned by Capitol Development Bancorp                Limited V, a controlled subsidiary of Capitol. Capitol Development                Bancorp Limited Vwas                formed and capitalized in 2006. |

***Results      of Operations***

----

**MANAGEMENT'S      DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION**

**AND      RESULTS OF OPERATIONS - Continued**

***Results      of Operations - Continued***

----

**MANAGEMENT'S      DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION**

**AND      RESULTS OF OPERATIONS - Continued**

***Results      of Operations - Continued***

*de      novo*

|                                                                                                                                                       |   | Three-Month                Period |   | Nine-Month                Period |
|------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-----------------------------------|--------|----------------------------------|
|                                                                                                                                                       |   | 2006                              |   | 2005                             |   | 2006 |   | 2005 |
| Preopening                and start-up costs of *de novo* banks,                bank-developmentsubsidiaries                and other                units |   | $                                 | --     |                             | $ | 737 |   | $ | 3,063 |   | $ | 1,439 |
| Advertising                                                                                                                                                |   |                              | 752    |                             |   | 547 |   |   | 2,133 |   |   | 1,614 |
| Professional                fees                                                                                                                           |   |                              | 572    |                             |   | 599 |   |   | 1,724 |   |   | 1,526 |
| Paper,                printing and supplies                                                                                                                |   |                              | 560    |                             |   | 543 |   |   | 1,721 |   |   | 1,529 |
| Directors'                fees                                                                                                                             |   |                              | 515    |                             |   | 429 |   |   | 1,661 |   |   | 1,044 |
| Taxes                other than income taxes                                                                                                               |   |                              | 385    |                             |   | 301 |   |   | 1,103 |   |   | 1,016 |
| Bank                services (ATMs, telephone banking and Internet banking)                                                                                |   |                              | 406    |                             |   | 310 |   |   | 1,089 |   |   | 906 |
| Communications                                                                                                                                             |   |                              | 354    |                             |   | 310 |   |   | 1,003 |   |   | 907 |
| Other                                                                                                                                                      |   |                              | 3,636  |                             |   | 3,068 |   |   | 9,295 |   |   | 8,971 |
| Total                                                                                                                                                      |   | $                                 | 7,180  |                             | $ | 6,844 |   | $ | 22,792 |   | $ | 18,952 |

----

**MANAGEMENT'S      DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION**

**AND      RESULTS OF OPERATIONS - Continued**

***Results      of Operations***
***-***
***Continued***

|                                                                    |   | Nine                months ended September 30 |    |
|-------------------------------------------------------------------------|--------|-----------------------------------------------|---------|
|                                                                    |   |                                          |    |   |   | Return                on |   | Return                on |   |
|                                                                    |   | Total                Revenues                 |    | Net                Income |   | Average                Equity(1) |   | Average                Assets(1) |   |
|                                                                    |   | 2006                                          |    | 2005 |   | 2006 |   | 2005 |   | 2006 |   | 2005 |   | 2006 |   | 2005 |   |
| *Eastern                Regions:*                                       |   |                                          |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Great                Lakes Region:                                      |   |                                          |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Ann                Arbor Commerce Bank                                  |   | $                                             | 17,675  |   | $ | 17,894 |   | $ | 2,947 |   | $ | 3,423 |   |   | 14.82 | % |   | 16.91 | % |   | 1.28 | % |   | 1.39 | % |
| Bank                of Auburn Hills                                     |   |                                          | 1,194   |   |   | 196 |   |   | (348 | ) |   | (278 | ) |   | n/a |   |   | n/a |   |   | n/a |   |   | n/a |   |
| Bank                of Belleville                                       |   |                                          | 816     |   |   | n/a |   |   | (477 | ) |   | n/a |   |   | n/a |   |   | n/a |   |   | n/a |   |   | n/a |   |
| Bank                of Michigan                                         |   |                                          | 2,160   |   |   | 367 |   |   | (277 | ) |   | (745 | ) |   | n/a |   |   | n/a |   |   | n/a |   |   | n/a |   |
| Brighton                Commerce Bank                                   |   |                                          | 5,848   |   |   | 5,423 |   |   | 643 |   |   | 836 |   |   | 9.08 |   |   | 12.17 |   |   | 0.82 |   |   | 1.03 |   |
| Capitol                National Bank                                    |   |                                          | 13,127  |   |   | 11,958 |   |   | 2,103 |   |   | 2,853 |   |   | 14.57 |   |   | 20.44 |   |   | 1.16 |   |   | 1.59 |   |
| Detroit                Commerce Bank                                    |   |                                          | 6,453   |   |   | 4,666 |   |   | 795 |   |   | 437 |   |   | 12.90 |   |   | 8.68 |   |   | 1.16 |   |   | 0.75 |   |
| Elkhart                Community Bank                                   |   |                                          | 4,744   |   |   | 3,858 |   |   | 774 |   |   | 506 |   |   | 12.29 |   |   | 8.65 |   |   | 1.28 |   |   | 0.93 |   |
| Evansville                Commerce Bank(3)                              |   |                                          | 276     |   |   | n/a |   |   | (708 | ) |   | n/a |   |   | n/a |   |   | n/a |   |   | n/a |   |   | n/a |   |
| Goshen                Community Bank                                    |   |                                          | 3,846   |   |   | 2,907 |   |   | 319 |   |   | 24 |   |   | 6.25 |   |   | 0.49 |   |   | 0.62 |   |   | 0.06 |   |
| Grand                Haven Bank                                         |   |                                          | 7,251   |   |   | 6,357 |   |   | 987 |   |   | 803 |   |   | 12.17 |   |   | 10.49 |   |   | 1.04 |   |   | 0.88 |   |
| Kent                Commerce Bank                                       |   |                                          | 5,033   |   |   | 4,643 |   |   | 355 |   |   | 477 |   |   | 5.55 |   |   | 7.68 |   |   | 0.58 |   |   | 0.73 |   |
| Macomb                Community Bank                                    |   |                                          | 5,779   |   |   | 4,878 |   |   | 252 |   |   | 567 |   |   | 3.86 |   |   | 8.58 |   |   | 0.35 |   |   | 0.80 |   |
| Muskegon                Commerce Bank                                   |   |                                          | 5,652   |   |   | 5,361 |   |   | 175 |   |   | 991 |   |   | 2.75 |   |   | 13.72 |   |   | 0.24 |   |   | 1.39 |   |
| Oakland                Commerce Bank                                    |   |                                          | 7,154   |   |   | 6,588 |   |   | 883 |   |   | 1,504 |   |   | 11.98 |   |   | 19.18 |   |   | 0.98 |   |   | 1.58 |   |
| Paragon                Bank & Trust                                 |   |                                          | 5,945   |   |   | 6,347 |   |   | 687 |   |   | 599 |   |   | 8.24 |   |   | 7.00 |   |   | 0.91 |   |   | 0.72 |   |
| Portage                Commerce Bank                                    |   |                                          | 11,022  |   |   | 10,308 |   |   | 2,021 |   |   | 2,263 |   |   | 16.69 |   |   | 18.95 |   |   | 1.50 |   |   | 1.61 |   |
| Great                Lakes Region Total                                 |   |                                          | 103,975 |   |   | 91,751 |   |   | 11,131 |   |   | 14,260 |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Southeast                Region:                                        |   |                                          |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Bank                of Valdosta(4)                                      |   |                                          | 206     |   |   | n/a |   |   | (649 | ) |   | n/a |   |   | n/a |   |   | n/a |   |   | n/a |   |   | n/a |   |
| Community                Bank of Rowan(2)                               |   |                                          | 1,052   |   |   | n/a |   |   | (950 | ) |   | n/a |   |   | n/a |   |   | n/a |   |   | n/a |   |   | n/a |   |
| First                Carolina State Bank                                |   |                                          | 4,621   |   |   | 3,294 |   |   | 621 |   |   | 454 |   |   | 7.36 |   |   | 5.65 |   |   | 1.00 |   |   | 0.83 |   |
| Peoples                State Bank                                       |   |                                          | 1,808   |   |   | 902 |   |   | 84 |   |   | 71 |   |   | 5.68 |   |   | 4.06 |   |   | 0.43 |   |   | 0.54 |   |
| Sunrise                Bank of Atlanta(5)                               |   |                                          | 335     |   |   | n/a |   |   | (733 | ) |   | n/a |   |   | n/a |   |   | n/a |   |   | n/a |   |   | n/a |   |
| Southeast                Region Total                                   |   |                                          | 8,022   |   |   | 4,196 |   |   | (1,627 | ) |   | 525 |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Midwest                Region:Summit                Bank of Kansas City |   |                                          | 488     |   |   | n/a |   |   | (553 | ) |   | n/a |   |   | n/a |   |   | n/a |   |   | n/a |   |   | n/a |   |
| Eastern                Regions Total                                    |   | $                                             | 112,485 |   | $ | 95,947 |   | $ | 8,951 |   | $ | 14,785 |   |   |   |   |   |   |   |   |   |   |   |   |   |

----

**MANAGEMENT'S      DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION**

**AND      RESULTS OF OPERATIONS - Continued**

***Financial      Condition - Continued***

|                                           |   | Nine                months ended September 30 |    |
|------------------------------------------------|--------|-----------------------------------------------|---------|
|                                           |   |                                          |    |   |   | Return                on |   | Return                on |   |
|                                           |   | Total                Revenues                 |    | Net                Income |   | Average                Equity(1) |   | Average                Assets(1) |   |
|                                           |   | 2006                                          |    | 2005 |   | 2006 |   | 2005 |   | 2006 |   | 2005 |   | 2006 |   | 2005 |   |
| *Western                Regions:*              |   |                                          |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Southwest                Region:               |   |                                          |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Arrowhead                Community Bank        |   | $                                             | 6,057   |   | $ | 5,158 |   | $ | 917 |   | $ | 857 |   |   | 15.10 | % |   | 16.28 | % |   | 1.39 | % |   | 1.44 | % |
| Asian                Bank of Arizona(6)        |   |                                          | 374     |   |   | n/a |   |   | (519 | ) |   | n/a |   |   | n/a |   |   | n/a |   |   | n/a |   |   | n/a |   |
| Bank                of Las Vegas               |   |                                          | 3,920   |   |   | 2,953 |   |   | 517 |   |   | 443 |   |   | 7.12 |   |   | 8.98 |   |   | 1.09 |   |   | 1.06 |   |
| Bank                of Tucson                  |   |                                          | 11,220  |   |   | 9,230 |   |   | 3,386 |   |   | 2,790 |   |   | 29.68 |   |   | 28.03 |   |   | 2.59 |   |   | 2.13 |   |
| Black                Mountain Community Bank   |   |                                          | 7,920   |   |   | 6,361 |   |   | 1,989 |   |   | 1,589 |   |   | 21.67 |   |   | 20.70 |   |   | 2.08 |   |   | 1.80 |   |
| Camelback                Community Bank        |   |                                          | 4,686   |   |   | 4,405 |   |   | 819 |   |   | 892 |   |   | 13.42 |   |   | 14.06 |   |   | 1.33 |   |   | 1.46 |   |
| Desert                Community Bank           |   |                                          | 5,375   |   |   | 4,179 |   |   | 946 |   |   | 763 |   |   | 15.16 |   |   | 13.17 |   |   | 1.50 |   |   | 1.38 |   |
| East                Valley Bank                |   |                                          | 2,493   |   |   | 2,786 |   |   | 425 |   |   | 209 |   |   | 10.63 |   |   | 5.76 |   |   | 1.38 |   |   | 0.58 |   |
| Fort                Collins Commerce Bank      |   |                                          | 2,386   |   |   | 361 |   |   | (37 | ) |   | (344 | ) |   | n/a |   |   | n/a |   |   | n/a |   |   | n/a |   |
| Mesa                Bank                       |   |                                          | 11,521  |   |   | 7,536 |   |   | 2,897 |   |   | 1,843 |   |   | 32.62 |   |   | 28.77 |   |   | 2.57 |   |   | 2.27 |   |
| Red                Rock Community Bank         |   |                                          | 6,310   |   |   | 5,202 |   |   | 1,630 |   |   | 1,200 |   |   | 17.76 |   |   | 13.02 |   |   | 2.12 |   |   | 1.53 |   |
| Southern                Arizona Community Bank |   |                                          | 4,928   |   |   | 4,467 |   |   | 833 |   |   | 938 |   |   | 12.65 |   |   | 14.24 |   |   | 1.29 |   |   | 1.42 |   |
| Sunrise                Bank of Albuquerque     |   |                                          | 3,481   |   |   | 3,952 |   |   | 337 |   |   | 732 |   |   | 6.79 |   |   | 14.25 |   |   | 0.80 |   |   | 1.42 |   |
| Sunrise                Bank of Arizona         |   |                                          | 7,781   |   |   | 7,718 |   |   | 1,076 |   |   | 1,515 |   |   | 11.26 |   |   | 16.57 |   |   | 1.23 |   |   | 1.63 |   |
| Valley                First Community Bank     |   |                                          | 4,247   |   |   | 3,390 |   |   | 542 |   |   | 517 |   |   | 9.93 |   |   | 10.53 |   |   | 0.97 |   |   | 1.02 |   |
| Yuma                Community Bank             |   |                                          | 4,389   |   |   | 3,372 |   |   | 830 |   |   | 743 |   |   | 16.03 |   |   | 15.01 |   |   | 1.63 |   |   | 1.68 |   |
| Southwest                Region Total          |   |                                          | 87,088  |   |   | 71,070 |   |   | 16,588 |   |   | 14,687 |   |   |   |   |   |   |   |   |   |   |   |   |   |
| California                Region:              |   |                                          |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Bank                of Escondido               |   |                                          | 3,791   |   |   | 2,708 |   |   | 606 |   |   | 311 |   |   | 8.09 |   |   | 4.44 |   |   | 1.08 |   |   | 0.70 |   |
| Bank                of San Francisco           |   |                                          | 1,108   |   |   | 95 |   |   | (552 | ) |   | (451 | ) |   | n/a |   |   | n/a |   |   | n/a |   |   | n/a |   |
| Bank                of Santa Barbara           |   |                                          | 1,333   |   |   | n/a |   |   | (616 | ) |   | n/a |   |   | n/a |   |   | n/a |   |   | n/a |   |   | n/a |   |
| Napa                Community Bank             |   |                                          | 5,127   |   |   | 4,135 |   |   | 1,054 |   |   | 892 |   |   | 12.48 |   |   | 12.01 |   |   | 1.70 |   |   | 1.61 |   |
| Point                Loma Community Bank       |   |                                          | 2,315   |   |   | 1,401 |   |   | 63 |   |   | (378 | ) |   | 1.21 |   |   | n/a |   |   | 0.21 |   |   | n/a |   |
| Sunrise                Bank of San Diego       |   |                                          | 4,187   |   |   | 4,164 |   |   | 676 |   |   | 821 |   |   | 8.33 |   |   | 10.23 |   |   | 1.31 |   |   | 1.73 |   |
| California                Region Total         |   |                                          | 17,861  |   |   | 12,503 |   |   | 1,231 |   |   | 1,195 |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Northwest                Region                |   |                                          |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Bank                of Bellevue                |   |                                          | 1,418   |   |   | 142 |   |   | (320 | ) |   | (362 | ) |   | n/a |   |   | n/a |   |   | n/a |   |   | n/a |   |
| Bank                of Everett(7)              |   |                                          | 188     |   |   | n/a |   |   | (481 | ) |   | n/a |   |   | n/a |   |   | n/a |   |   | n/a |   |   | n/a |   |
| Northwest                Region Total          |   |                                          | 1,606   |   |   | 142 |   |   | (801 | ) |   | (362 | ) |   |   |   |   |   |   |   |   |   |   |   |   |
| Western                Regions Total           |   |                                          | 106,555 |   |   | 83,715 |   |   | 17,018 |   |   | 15,520 |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Other,                net                      |   |                                          | 807     |   |   | (1,460 | ) |   | 5,040 |   |   | (4,399 | ) |   | n/a |   |   | n/a |   |   | n/a |   |   | n/a |   |
|                                           |   |                                          |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Consolidated                                   |   | $                                             | 219,847 |   | $ | 178,202 |   | $ | 31,009 |   | $ | 25,906 |   |   | 13.13 | % |   | 13.19 | % |   | 1.13 | % |   | 1.06 | % |

| (1) | Annualized                for period presented.                                                                                                                                                                                                                                       |
|-----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (2) | Commenced                operations in February 2006 and is 51%-owned by Capitol Development                Bancorp Limited III, a controlled subsidiary of                Capitol.                                                                                                   |
| (3) | Commenced                operations in May 2006 and is 51%-owned by Capitol Development Bancorp                Limited IV, a controlled subsidiary of Capitol.                                                                                                                        |
| (4) | Commenced                operations in June 2006 and is 56%-owned by Capitol Development Bancorp                Limited IV, a controlled subsidiary of Capitol.                                                                                                                       |
| (5) | Commenced                operations in June 2006 and is 51%-owned by Capitol Development Bancorp                Limited IV, a controlled subsidiary of Capitol.                                                                                                                       |
| (6) | Commenced                operations in April 2006 and is 51%-owned by Capitol Development                Bancorp                Limited IV, a controlled subsidiary of Capitol.                                                                                                       |
| (7) | Commenced                operations in June 2006 and is 51%-owned by Capitol Development Bancorp                Limited V, a controlled subsidiary of Capitol. Capitol Development                Bancorp                Limited V was                formed and capitalized in 2006. |

----

**MANAGEMENT'S      DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION**

**AND      RESULTS OF OPERATIONS - Continued**

***Liquidity      and Capital Resources***

----

**MANAGEMENT'S      DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION**

**AND      RESULTS OF OPERATIONS - Continued**

***Trends      Affecting Operations***

***Impact      of New Accounting Standards***

***Critical      Accounting Policies***

----

**PART      I, ITEM 3**

**QUANTITATIVE      AND QUALITATIVE DISCLOSURES ABOUT**

**MARKET      RISK**

**PART      I, ITEM 4**

**CONTROLS      AND PROCEDURES**

----

**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                1.A.     | 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, 2005, during the nine months ended September 30, 2006.                Refer                to that section of Capitol's Form 10-K for disclosures regarding                the risks                and uncertainties related to Capitol's business.   |
| Item                2.       | Unregistered                Sales of Equity Securities and Use of Proceeds.                                                                                                                                                                                                                                                                                                                                                                                             |
|                         | (a) None.(b) Not                applicable.(c) None.                                                                                                                                                                                                                                                                                                                                                                                                     |
| Item                3.       | Defaults                Upon Senior Securities. None.                                                                                                                                                                                                                                                                                                                                                                                                              |
| Item                4.       | Submission                of Maters to a Vote of Security Holders. None.                                                                                                                                                                                                                                                                                                                                                                                           |
| Item                5.       | Other                Information. None.                                                                                                                                                                                                                                                                                                                                                                                                                            |
| Item                6.       | Exhibits:                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |

| (a)                        |   | (b)                                                                                                                                                                                                                                                                                                                                               |
|----------------------------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| Exhibit                No. |   | Description                of Exhibit                                                                                                                                                                                                                                                                                                             |
| 10.1                       |   | Capitol                Bancorp Limited Employee Stock Ownership Plan and all amendments                thereto                (filed as Exhibit 99.1 to Registration Statement on Form S-8 Reg.                No.                333-137092 filed by Registrant on September 1, 2006 and incorporated                herein by reference).  |
| 31.1                       |   | Certification                of Chief Executive Officer, Joseph D. Reid, pursuant to Section 302                of the                Sarbanes-Oxley Act of 2002.                                                                                                                                                                            |
| 31.2                       |   | Certification                of Chief Financial Officer, Lee W. Hendrickson, pursuant to Section                302 of                the Sarbanes-Oxley Act of 2002.                                                                                                                                                                        |
| 32.1                       |   | Certification                of Chief Executive Officer, Joseph D. Reid, pursuant to Section 906                of the                Sarbanes-Oxley Act of 2002.                                                                                                                                                                            |
| 32.2                       |   | Certification                of Chief Financial Officer, Lee W. Hendrickson, pursuant to Section                906 of                the Sarbanes-Oxley Act of 2002.                                                                                                                                                                        |

----

**SIGNATURES**

| CAPITOL                BANCORP LTD.(Registrant)  /s/                Joseph D. Reid               Joseph                D. ReidChairman                and CEO(duly                authorized to sign on behalf of theregistrant)  /s/                Lee W. Hendrickson                  Lee                W. HendricksonChief                Financial Officer |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

| Exhibit                  No. |   | Description                  of Exhibit                                                                                                                                                                                                                                                                                                                                                         |
|------------------------------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 10.1                         |   | Capitol                  Bancorp Limited Employee Stock Ownership Plan and all amendments                  thereto                  (filed as Exhibit 99.1 to Registration Statement on Form S-8 Reg.                  No.                  333-137092                  filed by Registrant on September 1, 2006 and incorporated herein                  by                  reference).  |
| 31.1                         |   | Certification                  of Chief Executive Officer, Joseph D. Reid, pursuant to Section                  302 of the                  Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                    |
| 31.2                         |   | Certification                  of Chief Financial Officer, Lee W. Hendrickson, pursuant to Section                  302 of                  the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                |
| 32.1                         |   | Certification                  of Chief Executive Officer, Joseph D. Reid, pursuant to Section                  906 of the                  Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                    |
| 32.2                         |   | Certification                  of Chief Financial Officer, Lee W. Hendrickson, pursuant to Section                  906 of                  the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                |

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