**UNITED      STATES**

**SECURITIES      AND EXCHANGE COMMISSION**

**WASHINGTON,      D.C. 20549**

**FORM      10-Q**

| X      | QUARTERLY                REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE                            |
|--------|---------------------------------------------------------------------------------------------------|
|   | SECURITIES                EXCHANGE ACT OF 1934                                                    |
|   | **For                the quarterly period ended June 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          |   | (IRS                Employer Identification No.) |
| incorporation                or organization)           |   |                                             |
| **Capitol                Bancorp Center**               |   |                                             |
| **200                Washington Square North**          |   |                                             |
| **Lansing,                Michigan**                    |   | **48933**                                        |
| (Address                of principal executive offices) |   | (Zip                Code)                        |

**(517)      487-6555**

**Not      applicable**

| Large                  accelerated filer                         |  Accelerated                  filer  X   |  Non-accelerated                  filer                         |
|------------------------------------------------------------------------------------------------|---------------------------------------------------------|----------------------------------------------------------------------------------------------------|

| Class                                     |   | Outstanding                at July 15, 2006 |
|-------------------------------------------|--------|---------------------------------------------|
| Common                Stock, No par value |   | 15,959,076                shares            |

----

**INDEX**

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

**Forward-Looking      Statements**

|  Item                1.           |  Financial                Statements (unaudited):                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |  Page             |
|----------------------------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------------------|
|                                   | Condensed                consolidated balance sheets - June 30, 2006 and December 31,                2005.                                                                                                                                                                                                                                                                                                                                                                                                                                                    | 3                      |
|                                   | Condensed                consolidated statements of income - Three months and six months                ended                June 30,2006                and 2005.Condensed                consolidated statements of changes in stockholders’ equity - Six                months                ended June30,                2006 and 2005.Condensed                consolidated statements of cash flows - Six months ended June 30,                2006                and 2005.Notes                to condensed consolidated financial statements. |  4 5 67 |
| Item                2.                 | Management’s                Discussion and Analysis of Financial Condition and Results of Operations.                                                                                                                                                                                                                                                                                                                                                                                                                                                   | 12                     |
| Item                3.                 | Quantitative                and Qualitative Disclosures About Market Risk.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    | 24                     |
| Item                4.                 | Controls                and Procedures.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       | 24                     |
|  **PART                II**       |  **OTHER                INFORMATION**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |                   |
|  Item                1.           |  Legal                Proceedings.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |  25               |
| Item                1.A.               | Risk                Factors.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  | 25                     |
| Item                2.                 | Unregistered                Sales of Equity Securities and Use of Proceeds.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   | 25                     |
| Item                3.                 | Defaults                Upon Senior Securities.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               | 25                     |
| Item                4.                 | Submission                of Matters to a Vote of Security Holders.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           | 25                     |
| 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 June 30, 2006 and December 31, 2005                                                                                                                           |
| (in                thousands, except share data)                                                                                                                                   |
|                                                                                                                                                                               |                                    |   |   | (Unaudited)             |   |                        |    |
|                                                                                                                                                                               |                                    |   |   | June                30, |   | December                31, |    |
|                                                                                                                                                                               |                                    |   |   | 2006                    |   | 2005                        |    |
| ASSETS                                                                                                                                                                             |                                    |   |   |                    |   |                        |    |   |   |   |
| Cash                and due from banks                                                                                                                                             |                                    |   |   |                    | $      | 158,995                     |    | $ | 157,963 |   |
| Money                market and interest-bearing deposits                                                                                                                          |                                    |   |   |                    |   | 30,294                      |    |   | 19,846 |   |
| Federal                funds sold                                                                                                                                                  |                                    |   |   |                    |   | 160,970                     |    |   | 128,299 |   |
| Cash                and cash equivalents                                                                                                                                           |                                    |   |   |                    |   | 350,259                     |    |   | 306,108 |   |
| Loans                held for resale                                                                                                                                               |                                    |   |   |                    |   | 18,027                      |    |   | 21,638 |   |
| Investment                securities:                                                                                                                                              |                                    |   |   |                    |   |                        |    |   |   |   |
| Available                for sale, carried at market value                                                                                                                         |                                    |   |   |                    |   | 20,949                      |    |   | 25,929 |   |
| Held                for long-term investment, carried at amortized cost which                                                                                                      |                                    |   |   |                    |   |                        |    |   |   |   |
| approximates                market value                                                                                                                                           |                                    |   |   |                    |   | 21,600                      |    |   | 17,745 |   |
| Total                investment securities                                                                                                                                         |                                    |   |   |                    |   | 42,549                      |    |   | 43,674 |   |
| Portfolio                loans:                                                                                                                                                    |                                    |   |   |                    |   |                        |    |   |   |   |
| Commercial                                                                                                                                                                         |                                    |   |   |                    |   | 2,868,350                   |    |   | 2,688,361 |   |
| Real                estate mortgage                                                                                                                                                |                                    |   |   |                    |   | 218,032                     |    |   | 212,142 |   |
| Installment                                                                                                                                                                        |                                    |   |   |                    |   | 109,827                     |    |   | 90,686 |   |
| Total                portfolio loans                                                                                                                                               |                                    |   |   |                    |   | 3,196,209                   |    |   | 2,991,189 |   |
| Less                allowance for loan losses                                                                                                                                      |                                    |   |   |                    |   | (43,311                     | )       |   | (40,559 | ) |
| Net                portfolio loans                                                                                                                                                 |                                    |   |   |                    |   | 3,152,898                   |    |   | 2,950,630 |   |
| Premises                and equipment                                                                                                                                              |                                    |   |   |                    |   | 50,595                      |    |   | 41,629 |   |
| Accrued                interest income                                                                                                                                             |                                    |   |   |                    |   | 14,331                      |    |   | 13,719 |   |
| Goodwill                and other intangibles                                                                                                                                      |                                    |   |   |                    |   | 50,086                      |    |   | 50,378 |   |
| Other                assets                                                                                                                                                        |                                    |   |   |                    |   | 43,897                      |    |   | 47,945 |   |
|                                                                                                                                                                               |                                    |   |   |                    |   |                        |    |   |   |   |
| TOTAL                ASSETS                                                                                                                                                        |                                    |   |   |                    | $      | 3,722,642                   |    | $ | 3,475,721 |   |
|                                                                                                                                                                               |                                    |   |   |                    |   |                        |    |   |   |   |
| LIABILITIES                AND STOCKHOLDERS' EQUITY                                                                                                                                |                                    |   |   |                    |   |                        |    |   |   |   |
| *LIABILITIES:*                                                                                                                                                                     |                                    |   |   |                    |   |                        |    |   |   |   |
| Deposits:                                                                                                                                                                          |                                    |   |   |                    |   |                        |    |   |   |   |
| Noninterest-bearing                                                                                                                                                                |                                    |   |   |                    | $      | 625,461                     |    | $ | 591,229 |   |
| Interest-bearing                                                                                                                                                                   |                                    |   |   |                    |   | 2,362,145                   |    |   | 2,194,030 |   |
| Total                deposits                                                                                                                                                      |                                    |   |   |                    |   | 2,987,606                   |    |   | 2,785,259 |   |
| Debt                obligations:                                                                                                                                                   |                                    |   |   |                    |   |                        |    |   |   |   |
| Notes                payable and short-term borrowings                                                                                                                             |                                    |   |   |                    |   | 177,076                     |    |   | 175,729 |   |
| Subordinated                debentures                                                                                                                                             |                                    |   |   |                    |   | 100,988                     |    |   | 100,940 |   |
| Total                debt obligations                                                                                                                                              |                                    |   |   |                    |   | 278,064                     |    |   | 276,669 |   |
| Accrued                interest on deposits and other liabilities                                                                                                                  |                                    |   |   |                    |   | 22,062                      |    |   | 28,089 |   |
| Total                liabilities                                                                                                                                                   |                                    |   |   |                    |   | 3,287,732                   |    |   | 3,090,017 |   |
|                                                                                                                                                                               |                                    |   |   |                    |   |                        |    |   |   |   |
| MINORITY                INTERESTS IN CONSOLIDATED SUBSIDIARIES                                                                                                                     |                                    |   |   |                    |   | 116,602                     |    |   | 83,838 |   |
|                                                                                                                                                                               |                                    |   |   |                    |   |                        |    |   |   |   |
| *STOCKHOLDERS'                EQUITY:*                                                                                                                                             |                                    |   |   |                    |   |                        |    |   |   |   |
| Common                stock, no par value, 50,000,000 shares authorized;                                                                                                           |                                    |   |   |                    |   |                        |    |   |   |   |
| issued                and outstanding:                                                                                                                                             | 2006              - 15,958,076 shares   |   |   |                    |   |                        |    |   |   |   |   |
|                                                                                                                                                                               | 2005                - 15,776,192 shares |   |   |                    |   |                        | 220,016 |   |   | 216,539 |   |
| Retained                earnings                                                                                                                                                   |                                    |   |   |                    |   | 98,617                      |    |   | 85,553 |   |
|                                                                                                                                                                                    |                                    |   |   |                    |   |                        |    |   |   |   |
| Market                value adjustment (net of tax effect) for investmentsecurities                available for sale (accumulated other comprehensive                income) |                                    |   |   |                    |   | (325                        | )  |   |  (226 | )  |
| Total                stockholders' equity                                                                                                                                          |                                    |   |   |                    |   | 318,308                     |    |   | 301,866 |   |
|                                                                                                                                                                               |                                    |   |   |                    |   |                        |    |   |   |   |
| TOTAL                LIABILITIES AND STOCKHOLDERS' EQUITY                                                                                                                          |                                    |   |   |                    | $      | 3,722,642                   |    | $ | 3,475,721 |   |
|                                                                                                                                                                               |                                    |   |   |                    |   |                        |    |   |   |   |
| See                notes to condensed consolidated financial statements.                                                                                                           |                                    |   |   |                    |   |                        |    |   |   |   |

----

| CAPITOL                BANCORP LIMITED                                                                |   |
|-------------------------------------------------------------------------------------------------------|--------|
| **Condensed                Consolidated Statements of Income (Unaudited)**                            |   |
| For                the Three Months and Six Months Ended June 30, 2006 and                2005        |   |
| (in                thousands, except per share data)                                                  |   |
|                                                                                                  |   |    |   |    |   |    |   |    |
|                                                                                                  |   |   Three-Month                Period |   |  Six-Month                Period |
|                                                                                                  |   |  2006 |   |  2005 |   |  2006 |   |  2005 |
| Interest                income:                                                                       |   |   |   |   |   |   |   |   |   |   |   |   |
| Portfolio                loans (including fees)                                                       |   | $ | 64,577 |   | $ | 52,347 |   | $ | 124,720 |   | $ | 100,584 |
| Loans                held for resale                                                                  |   |   | 739 |   |   | 636 |   |   | 1,262 |   |   | 1,273 |
| Taxable                investment securities                                                          |   |   | 244 |   |   | 284 |   |   | 507 |   |   | 519 |
| Federal                funds sold                                                                     |   |   | 2,010 |   |   | 932 |   |   | 3,828 |   |   | 1,553 |
| Other                                                                                                 |   |   | 626 |   |   | 292 |   |   | 976 |   |   | 483 |
| Total                interest income                                                                  |   |   | 68,196 |   |   | 54,491 |   |   | 131,293 |   |   | 104,412 |
| Interest                expense:                                                                      |   |   |   |   |   |   |   |   |   |   |   |   |
| Deposits                                                                                              |   |   | 20,397 |   |   | 12,472 |   |   | 38,179 |   |   | 23,043 |
| Debt                obligations and other                                                             |   |   | 4,162 |   |   | 3,427 |   |   | 8,124 |   |   | 6,974 |
| Total                interest expense                                                                 |   |   | 24,559 |   |   | 15,899 |   |   | 46,303 |   |   | 30,017 |
| Net                interest income                                                                    |   |   | 43,637 |   |   | 38,592 |   |   | 84,990 |   |   | 74,395 |
| Provision                for loan losses                                                              |   |   | 2,815 |   |   | 3,039 |   |   | 5,271 |   |   | 5,062 |
| Net                  interest income after provision for loan losses                                  |   |   | 40,822 |   |   | 35,553 |   |   | 79,719 |   |   | 69,333 |
| Noninterest                income:                                                                    |   |   |   |   |   |   |   |   |   |   |   |   |
| Service                charges on deposit accounts                                                    |   |   | 1,103 |   |   | 1,042 |   |   | 2,134 |   |   | 2,053 |
| Trust                fee income                                                                       |   |   | 768 |   |   | 523 |   |   | 1,635 |   |   | 1,128 |
| Fees                from origination of non-portfolio residential mortgage                loans       |   |   | 1,440 |   |   | 1,505 |   |   | 2,729 |   |   | 2,770 |
| Realized                  gains on sales of investment securities                  available for sale |   |   |   |   |   | 1 |   |   |   |   |   | 2 |
| Other                                                                                                 |   |   | 2,145 |   |   | 2,553 |   |   | 4,068 |   |   | 4,244 |
| Total                noninterest income                                                               |   |   | 5,456 |   |   | 5,624 |   |   | 10,566 |   |   | 10,197 |
| Noninterest                expense:                                                                   |   |   |   |   |   |   |   |   |   |   |   |   |
| Salaries                and employee benefits                                                         |   |   | 21,675 |   |   | 18,135 |   |   | 43,225 |   |   | 35,352 |
| Occupancy                                                                                             |   |   | 2,918 |   |   | 2,387 |   |   | 5,596 |   |   | 4,687 |
| Equipment                rent, depreciation and maintenance                                           |   |   | 2,047 |   |   | 1,583 |   |   | 4,013 |   |   | 3,022 |
| Other                                                                                                 |   |   | 9,974 |   |   | 6,590 |   |   | 15,612 |   |   | 12,108 |
| Total                noninterest expense                                                              |   |   | 36,614 |   |   | 28,695 |   |   | 68,446 |   |   | 55,169 |
| Income                before income taxes and minority interest                                       |   |   | 9,664 |   |   | 12,482 |   |   | 21,839 |   |   | 24,361 |
| Income                taxes                                                                           |   |   | 3,564 |   |   | 4,763 |   |   | 7,945 |   |   | 9,323 |
| Income                before minority interest                                                        |   |   | 6,100 |   |   | 7,719 |   |   | 13,894 |   |   | 15,038 |
| Minority                interest in net losses of consolidated subsidiaries                           |   |   | 4,167 |   |   | 578 |   |   | 6,326 |   |   | 1,274 |
|                                                                                                  |   |   |   |   |   |   |   |   |   |   |   |   |
| NET                INCOME                                                                             |   | $ | 10,267 |   | $ | 8,297 |   | $ | 20,220 |   | $ | 16,312 |
|                                                                                                  |   |   |   |   |   |   |   |   |   |   |   |   |
| NET                INCOME PER SHARE -- Note D:                                                        |   |   |   |   |   |   |   |   |   |   |   |   |
| Basic                                                                                                 |   | $ | 0.65 |   | $ | 0.56 |   | $ | 1.29 |   | $ | 1.11 |
|                                                                                                  |   |   |   |   |   |   |   |   |   |   |   |   |
| Diluted                                                                                               |   | $ | 0.63 |   | $ | 0.54 |   | $ | 1.24 |   | $ | 1.06 |

----

| CAPITOL                BANCORP LIMITED                                                                               |
|--------------------------------------------------------------------------------------------------------------------------------|
| **Condensed                Consolidated Statements of Changes in Stockholders' Equity                (Unaudited)**   |
| For                the Six Months Ended June 30, 2006 and 2005                                                       |
| (in                thousands except share data)                                                                                |
|                                                                                                                           |   |   |   |   |   |   |   |    |   |
|                                                                                                                           |   |   |   |   |   | Accumulated |   |    |   |
|                                                                                                                           |   |   |   |   |   | Other |   |    |   |
|                                                                                                                           |   | Common |   | Retained |   | Comprehensive |   |    |   |
|                                                                                                                           |   | Stock |   | Earnings |   | Income |   |  Total |   |
| Six                Months Ended June 30, 2005                                                                                  |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                                                                                           |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Balances                at January 1, 2005                                                                                     |   | $ | 191,719 |   | $ | 60,476 |   | $ | (36 | ) | $ | 252,159 |   |
|                                                                                                                           |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Issuance                of 165,835 shares of common stock upon                                                                 |   |   |   |   |   |   |   |   |   |   |   |   |   |
| exercise                of stock options, net of common stock                                                                  |   |   |   |   |   |   |   |   |   |   |   |   |   |
| surrendered                to facilitate exercise                                                                              |   |   | 2,342 |   |   |   |   |   |   |   |   | 2,342 |   |
|                                                                                                                           |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Recognition                of compensation expense relating to                                                                 |   |   |   |   |   |   |   |   |   |   |   |   |   |
| restricted                common stock                                                                                         |   |   | 610 |   |   |   |   |   |   |   |   | 610 |   |
|                                                                                                                           |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Cash                dividends paid ($0.35 per share)                                                                           |   |   |   |   |   | (5,217 | ) |   |   |   |   | (5,217 | ) |
|                                                                                                                           |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Components                of comprehensive income:                                                                             |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net                income for the period                                                                                       |   |   |   |   |   | 16,312 |   |   |   |   |   | 16,312 |   |
| Market                  value adjustment for investment securities                                                             |   |   |   |   |   |   |   |   |   |   |   |   |   |
| available                  for sale (net of income tax effect)                                                                 |   |   |   |   |   |   |   |   | (123 | ) |   | (123 | ) |
| Comprehensive                income for the period                                                                             |   |   |   |   |   |   |   |   |   |   |   | 16,189 |   |
|                                                                                                                           |   |   |   |   |   |   |   |   |   |   |   |  |   |
| BALANCES                AT JUNE 30, 2005                                                                                       |   | $ | 194,671 |   | $ | 71,571 |   | $ | (159 | ) | $ | 266,083 |   |
|                                                                                                                           |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Six                Months Ended June 30, 2006                                                                                  |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                                                                                           |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Balances                at January 1, 2006                                                                                     |   | $ | 216,539 |   | $ | 85,553 |   | $ | (226 | ) | $ | 301,866 |   |
|                                                                                                                           |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Issuance                of 102,134 shares of common stock upon                                                                 |   |   |   |   |   |   |   |   |   |   |   |   |   |
| exercise                of stock options, net of common stock                                                                  |   |   |   |   |   |   |   |   |   |   |   |   |   |
| surrendered                to facilitate exercise                                                                              |   |   | 2,656 |   |   |   |   |   |   |   |   | 2,656 |   |
|                                                                                                                           |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Issuance                of 79,750 unvested shares of restricted                                                                |   |   |   |   |   |   |   |   |   |   |   |   |   |
| common                stock, net of related unearned employee                                                                  |   |   | -- |   |   |   |   |   |   |   |   | -- |   |
| compensation                                                                                                                   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                                                                                           |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Recognition                of compensation expense relating to                                                                 |   |   |   |   |   |   |   |   |   |   |   |   |   |
| restricted                common stock                                                                                         |   |   | 821 |   |   |   |   |   |   |   |   | 821 |   |
|                                                                                                                           |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Cash                dividends paid ($0.45 per share)                                                                           |   |   |   |   |   | (7,156 | ) |   |   |   |   | (7,156 | ) |
|                                                                                                                           |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Components                of comprehensive income:                                                                             |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net                income for the period                                                                                       |   |   |   |   |   | 20,220 |   |   |   |   |   | 20,220 |   |
| Market                  value adjustment for investment securities                                                             |   |   |   |   |   |   |   |   |   |   |   |   |   |
| available                  for sale (net of income tax effect)                                                                 |   |   |   |   |   |   |   |   | (99 | ) |   | (99 | ) |
| Comprehensive                income for the period                                                                             |   |   |   |   |   |   |   |   |   |   |   | 20,121 |   |
|                                                                                                                           |   |   |   |   |   |   |   |   |   |   |   |  |   |
| BALANCES                AT JUNE 30, 2006                                                                                       |   | $ | 220,016 |   | $ | 98,617 |   | $ | (325 | ) | $ | 318,308 |   |
|                                                                                                                           |   |   |   |   |   |   |   |   |   |   |   |   |   |
| See                notes to condensed consolidated financial statements.                                                       |   |   |   |   |   |   |   |   |   |   |   |   |   |

----

| CAPITOL                BANCORP LIMITED                                                               |
|------------------------------------------------------------------------------------------------------|
| **Condensed                Consolidated Statements of Cash Flows                (Unaudited)**        |
| For                the Six Months Ended June 30, 2006 and 2005                                       |
|                                                                                                 |   |   |   |   |   |
|                                                                                                 |   | 2006 |   | 2005 |   |
|                                                                                                 |   |  (in                thousands) |   |
| OPERATING                ACTIVITIES                                                                  |   |   |   |   |   |   |   |
| Net                income                                                                            |   | $ | 20,220 |   | $ | 16,312 |   |
| Adjustments                  to reconcile net income to net cash provided by operating activities:   |   |   |   |   |   |   |   |
| Provision                for loan losses                                                             |   |   | 5,271 |   |   | 5,062 |   |
| Depreciation                of premises and equipment                                                |   |   | 3,426 |   |   | 2,720 |   |
| Amortization                of intangibles                                                           |   |   | 292 |   |   | 285 |   |
| Net                amortization of investment security premiums                                      |   |   | 1 |   |   | 17 |   |
| Loss                on sale of premises and equipment                                                |   |   | 16 |   |   | 15 |   |
| Minority                interest in net losses of consolidated subsidiaries                          |   |   | (6,326 | ) |   | (1,274 | ) |
| Compensation                expense relating to restricted common stock                              |   |   | 821 |   |   | 610 |   |
| Originations                and purchases of loans held for resale                                   |   |   | (242,153 | ) |   | (318,319 | ) |
| Proceeds                from sales of loans held for resale                                          |   |   | 245,764 |   |   | 327,313 |   |
| Decrease                (increase) in accrued interest income and other assets                       |   |   | 3,536 |   |   | (13,787 | ) |
| Increase                  (decrease) in accrued interest on deposits and other liabilities           |   |   | (6,027 | ) |   | 3,893 |   |
|                                                                                                 |   |   |   |   |   |   |   |
| NET                CASH PROVIDED BY OPERATING ACTIVITIES                                             |   |   | 24,841 |   |   | 22,847 |   |
|                                                                                                 |   |   |   |   |   |   |   |
| INVESTING                ACTIVITIES                                                                  |   |   |   |   |   |   |   |
| Cash                and cash equivalents of acquired subsidiary                                      |   |   |   |   |   | 1,357 |   |
| Proceeds                from sales of investment securities available for sale                       |   |   | 443 |   |   | 122 |   |
| Proceeds                  from calls, prepayments and maturities of investment securities            |   |   | 6,220 |   |   | 3,981 |   |
| Purchases                of investment securities                                                    |   |   | (5,691 | ) |   | (9,493 | ) |
| Net                increase in portfolio loans                                                       |   |   | (207,539 | ) |   | (154,368 | ) |
| Proceeds                from sales of premises and equipment                                         |   |   | 721 |   |   | 30 |   |
| Purchases                of premises and equipment                                                   |   |   | (13,129 | ) |   | (2,918 | ) |
|                                                                                                 |   |   |   |   |   |   |   |
| NET                CASH USED BY INVESTING ACTIVITIES                                                 |   |   | (218,975 | ) |   | (161,289 | ) |
|                                                                                                 |   |   |   |   |   |   |   |
| FINANCING                ACTIVITIES                                                                  |   |   |   |   |   |   |   |
| Net                  increase in demand deposits, NOW accounts and savings                  accounts |   |   | 56,458 |   |   | 103,800 |   |
| Net                increase in certificates of deposit                                               |   |   | 145,889 |   |   | 107,385 |   |
| Net                borrowings from (payments on) debt obligations                                    |   |   | 1,347 |   |   | (6,536 | ) |
| Resources                provided by minority interests                                              |   |   | 39,091 |   |   | 28,342 |   |
| Net                proceeds from issuance of common stock                                            |   |   | 2,656 |   |   | 2,342 |   |
| Cash                dividends paid                                                                   |   |   | (7,156 | ) |   | (5,217 | ) |
|                                                                                                 |   |   |   |   |   |   |   |
| NET                CASH PROVIDED BY FINANCING ACTIVITIES                                             |   |   | 238,285 |   |   | 230,116 |   |
|                                                                                                 |   |   |   |   |   |   |   |
| INCREASE                IN CASH AND CASH EQUIVALENTS                                                 |   |   | 44,151 |   |   | 91,674 |   |
|                                                                                                 |   |   |   |   |   |   |   |
| Cash                and cash equivalents at beginning of period                                      |   |   | 306,108 |   |   | 231,104 |   |
|                                                                                                 |   |   |   |   |   |   |   |
| CASH                AND CASH EQUIVALENTS AT END OF PERIOD                                            |   | $ | 350,259 |   | $ | 322,778 |   |
|                                                                                                 |   |   |   |   |   |   |   |
| See                notes to condensed consolidated financial statements.                             |   |   |   |   |   |   |   |

----

**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                                                                         |   | $      | 16,312                 |   |
| Less                  pro forma compensation expense regarding fair value                          |   |   |                   |   |
| of                stock option awards, net                of related income tax effect             |   |   | (3,108                 | )      |
| Pro                forma                                                                           |   | $      | 13,204                 |   |
| Net                income per share:                                                               |   |   |                   |   |
| Basic:                                                                                             |   |   |                   |   |
| As                reported                                                                         |   | $      | 1.11                   |   |
| Pro                forma                                                                           |   |   | 0.90                   |   |
| Diluted:                                                                                           |   |   |                   |   |
| As                reported                                                                         |   |   | 1.06                   |   |
| Pro                forma                                                                           |   | $      | 0.86                   |   |

|                                          |   |   NumberOutstanding |      |  ExercisePriceRange |   | WeightedAverageExercisePrice        |
|-----------------------------------------------|--------|-------------------------------|-----------|--------------------------|--------|-------------------------------------|
| Outstanding                at January 1, 2006 |   |                          | 2,882,283 |                     | $      | 10.81                to $37.48      |   | $ | 26.07 |
| Exercised                                     |   |                          | (140,683  | )                        |   | 10.85                to  34.84 |   |   | 20.73 |
| Granted                                       |   |                          | --        |                     |   |                                |   |   |  |
| Cancelled                or expired           |   |                          | --        |                     |   |                                |   |   |   |
|                                          |   |                          |      |                     |   |                                |   |   |   |
| Outstanding                at June 30, 2006   |   |                          | 2,741,600 |                     | $      | 10.81                to $37.48      |   | $ | 26.35 |

----

**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           |   |                    |                   221,096 |                            | $      | 11.17                    |   |   | 0.9                years |   | $ |                   6,142,047 |
| $15.00                to 19.99           |   |                    |                   294,504 |                            |   | 16.61                    |   |   | 1.6                years |   |   |                   6,579,219 |
| $20.00                to 24.99           |   |                    |                   470,423 |                            |   | 21.68                    |   |   | 4.3                years |   |   |                   8,124,205 |
| $25.00                to 29.99           |   |                    |                   695,530 |                            |   | 26.99                    |   |   | 3.9                years |   |   |                   8,318,539 |
| $30.00                to 34.99           |   |                    |                   709,949 |                            |   | 32.08                    |   |   | 5.2                years |   |   |                   4,877,350 |
| $35.00                or more            |   |                    |                   350,098 |                            |   | 37.48                    |   |   | 6.4                years |   |   |                      514,644 |
|                                     |   |                    |                                |                            |   |                     |   |   |   |   |   |   |
| Total                outstanding         |   |                    | 2,741,600                           |                            |   |                     |   |   |   |   | $ |  34,556,004 |

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

|                                                                                                                                                                                                                                          |   | Three-Month                Period |   | Six-Month                Period |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-----------------------------------|--------|---------------------------------|
|                                                                                                                                                                                                                                          |   | 2006                              |   | 2005                            |   | 2006 |   | 2005 |
|                                                                                                                                                                                                                                          |   |                              |   |                            |   |   |   |   |
| Numerator—net                income for the period                                                                                                                                                                                      |   | $                                 | 10,267 |                            | $ | 8,297 |   | $ | 20,220 |   | $ | 16,312 |
|                                                                                                                                                                                                                                          |   |                              |   |                            |   |   |   |   |   |   |   |   |
| Denominator:                                                                                                                                                                                                                                  |   |                              |   |                            |   |   |   |   |   |   |   |   |
| Weighted                average number of common shares                outstanding, excludingunvested                shares                of restricted common stock (denominator                for basicearnings                per share) |   |                              | 15,706 |                            |   | 14,739 |   |   | 15,674 |   |   | 14,694 |
| Weighted                average number of unvested shares of                restricted commonstock                outstanding                                                                                                                 |   |                              | 56     |                            |   | 208 |   |   | 56 |   |   | 212 |
| Effect                of other dilutive securities—stock                options                                                                                                                                                         |   |                              | 649    |                            |   | 463 |   |   | 625 |   |   | 476 |
| Denominator                for diluted net income per share—                                                                                                                                                                            |   |                              |   |                            |   |   |   |   |   |   |   |   |
| Weighted                average number of common shares                and potential dilution                                                                                                                                                 |   |                              | 16,411 |                            |   | 15,410 |   |   | 16,355 |   |   | 15,382 |
|                                                                                                                                                                                                                                          |   |                              |   |                            |   |   |   |   |   |   |   |   |
| Number                of antidilutive stock options excluded from                diluted earnings per share                computation                                                                                                   |   |                              | --     |                            |   | 693 |   |   | -- |   |   | 693 |

***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*

| ·   | Proposed                amendment to Statement No. 128, *Earnings                per Share;* |
|--------------------|----------------------------------------------------------------------------------------------|

| ·   | Proposed                amendments to guidance regarding postemployment obligations, including                pensions; |
|--------------------|-------------------------------------------------------------------------------------------------------------------------|

| ·   | 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*. |
|--------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

**NOTES      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**

**CAPITOL      BANCORP LTD. - Continued**

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

| ·   | 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 theamount                that could be realized in accordance with FASB Technical Bulletin                84-4. |
|--------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

**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*

----

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

**AND      RESULTS OF OPERATIONS - Continued**

***Financial      Condition***

|                                                                    |   | Total                Assets (in $1,000’s) |
|-------------------------------------------------------------------------|--------|-------------------------------------------------|
|                                                                    |   | June                30, 2006                    |   | December                31, 2005 |
| *Eastern                Regions:*                                       |   |                                            |   |   |
| Great                Lakes Region:                                      |   |                                            |   |   |
| Ann                Arbor Commerce Bank                                  |   | $                                               | 308,684 |   | $ | 320,075 |
| Bank                of Auburn Hills                                     |   |                                            | 21,937 |   |   | 10,848 |
| Bank                of Belleville                                       |   |                                            | 21,173 |   |   | 14,641 |
| Bank                of Michigan                                         |   |                                            | 39,081 |   |   | 31,119 |
| Brighton                Commerce Bank                                   |   |                                            | 104,950 |   |   | 105,694 |
| Capitol                National Bank                                    |   |                                            | 237,348 |   |   | 246,132 |
| Detroit                Commerce Bank                                    |   |                                            | 92,025 |   |   | 84,979 |
| Elkhart                Community Bank                                   |   |                                            | 81,941 |   |   | 75,648 |
| Evansville                Commerce Bank(2)                              |   |                                            | 10,205 |   |   |   |
| Goshen                Community Bank                                    |   |                                            | 74,250 |   |   | 74,545 |
| Grand                Haven Bank                                         |   |                                            | 125,620 |   |   | 122,757 |
| Kent                Commerce Bank                                       |   |                                            | 83,157 |   |   | 78,939 |
| Macomb                Community Bank                                    |   |                                            | 95,541 |   |   | 93,497 |
| Muskegon                Commerce Bank                                   |   |                                            | 97,969 |   |   | 96,649 |
| Oakland                Commerce Bank                                    |   |                                            | 128,604 |   |   | 115,720 |
| Paragon                Bank & Trust                                 |   |                                            | 99,008 |   |   | 106,535 |
| Portage                Commerce Bank                                    |   |                                            | 185,805 |   |   | 183,018 |
| Great                Lakes Region Total                                 |   |                                            | 1,807,298 |   |   | 1,760,796 |
| Southeast                Region:                                        |   |                                            |   |   |   |   |
| Bank                of Valdosta(3)                                      |   |                                            | 6,382 |   |   |   |
| Community                Bank of Rowan(1)                               |   |                                            | 23,690 |   |   |   |
| First                Carolina State Bank                                |   |                                            | 81,695 |   |   | 83,345 |
| Peoples                State Bank                                       |   |                                            | 35,541 |   |   | 31,620 |
| Sunrise                Bank of Atlanta(4)                               |   |                                            | 8,868 |   |   |  |
| Southeast                Region Total                                   |   |                                            | 156,176 |   |   | 114,965 |
| Midwest                Region-Summit Bank of Kansas                City |   |                                            | 10,472 |   |   | 9,152 |
| Eastern                Regions Total                                    |   | $                                               | 1,973,946 |   | $ | 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) |      |
|------------------------------------------------|--------|-------------------------------------------------|-----------|
|                                           |   | June                30, 2006                    |      | December                31, 2005 |   |
| *Western                Regions:*              |   |                                            |      |   |   |
| Southwest                Region:               |   |                                            |      |   |   |
| Arrowhead                Community Bank        |   | $                                               | 87,236    |   | $ | 83,639 |   |
| Asian                Bank of Arizona(5)        |   |                                            | 8,586     |   |   |   |   |
| Bank                of Las Vegas               |   |                                            | 64,833    |   |   | 58,315 |   |
| Bank                of Tucson                  |   |                                            | 176,527   |   |   | 167,638 |   |
| Black                Mountain Community Bank   |   |                                            | 124,672   |   |   | 128,958 |   |
| Camelback                Community Bank        |   |                                            | 80,729    |   |   | 82,309 |   |
| Desert                Community Bank           |   |                                            | 87,154    |   |   | 78,907 |   |
| East                Valley Community Bank      |   |                                            | 41,501    |   |   | 43,352 |   |
| Fort                Collins Commerce Bank      |   |                                            | 39,793    |   |   | 27,427 |   |
| Mesa                Bank                       |   |                                            | 156,629   |   |   | 132,775 |   |
| Red                Rock Community Bank         |   |                                            | 104,396   |   |   | 102,618 |   |
| Southern                Arizona Community Bank |   |                                            | 87,299    |   |   | 98,849 |   |
| Sunrise                Bank of Albuquerque     |   |                                            | 54,088    |   |   | 61,812 |   |
| Sunrise                Bank of Arizona         |   |                                            | 124,580   |   |   | 111,204 |   |
| Valley                First Community Bank     |   |                                            | 72,087    |   |   | 72,759 |   |
| Yuma                Community Bank             |   |                                            | 75,928    |   |   | 61,523 |   |
| Southwest                Region Total          |   |                                            | 1,386,038 |   |   | 1,312,085 |   |
| California                Region:              |   |                                            |      |   |   |   |   |
| Bank                of Escondido               |   |                                            | 76,052    |   |   | 70,807 |   |
| Bank                of San Francisco           |   |                                            | 21,945    |   |   | 13,685 |   |
| Bank                of Santa Barbara           |   |                                            | 23,843    |   |   | 14,386 |   |
| Napa                Community Bank             |   |                                            | 81,326    |   |   | 84,512 |   |
| Point                Loma Community Bank       |   |                                            | 42,452    |   |   | 34,213 |   |
| Sunrise                Bank of San Diego       |   |                                            | 68,818    |   |   | 66,809 |   |
| California                Region Total         |   |                                            | 314,436   |   |   | 284,412 |   |
| Northwest                Region:               |   |                                            |           |   |   |   |   |
| Bank                of Bellevue                |   |                                            | 28,939    |   |   | 19,726 |   |
| Bank                of Everett(6)              |   |                                            | 9,336     |   |   |  |   |
| Northwest                Region Total          |   |                                            | 38,275    |   |   | 19,726 |   |
| Western                Regions Total           |   |                                            | 1,738,749 |   |   | 1,616,223 |   |
| Other,                net                      |   |                                            | 9,947     |   |   | (25,415 | ) |
|                                           |   |                                            |      |   |   |   |   |
| Consolidated                                   |   | $                                               | 3,722,642 |   | $ | 3,475,721 |   |

----

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

**AND      RESULTS OF OPERATIONS - Continued**

***Financial      Condition - Continued***

|                                                                                                      |   | Periods                Ended June 30 |      |
|-----------------------------------------------------------------------------------------------------------|--------|--------------------------------------|-----------|
|                                                                                                      |   | Three-Month                Period    |      | Six-Month                Period |   |
|                                                                                                      |   | 2006                                 |      | 2005 |   | 2006 |   | 2005 |   |
| Allowance                for loan losses at beginning of period                                           |   | $                                    | 41,600    |   | $ | 37,725 |   | $ | 40,559 |   | $ | 37,572 |   |
| Loans                charged-off:                                                                         |   |                                 |      |   |   |   |   |   |   |   |   |   |   |
| Commercial                                                                                                |   |                                 | (1,402    | ) |   | (2,166 | ) |   | (3,120 | ) |   | (4,237 | ) |
| Real                estate mortgage                                                                       |   |                                 | (23       | ) |   | -- |   |   | (48 | ) |   | -- |   |
| Installment                                                                                               |   |                                 | (121      | ) |   | (59 | ) |   | (233 | ) |   | (311 | ) |
| Total                charge-offs                                                                          |   |                                 | (1,546    | ) |   | (2,225 | ) |   | (3,401 | ) |   | (4,548 | ) |
| Recoveries:                                                                                               |   |                                 |      |   |   |   |   |   |   |   |   |   |   |
| Commercial                                                                                                |   |                                 | 342       |   |   | 307 |   |   | 695 |   |   | 717 |   |
| Real                estate mortgage                                                                       |   |                                 | --        |   |   | 1 |   |   | 1 |   |   | 1 |   |
| Installment                                                                                               |   |                                 | 100       |   |   | 23 |   |   | 186 |   |   | 66 |   |
| Total                recoveries                                                                           |   |                                 | 442       |   |   | 331 |   |   | 882 |   |   | 784 |   |
| Net                charge-offs                                                                            |   |                                 | (1,104    | ) |   | (1,894 | ) |   | (2,519 | ) |   | (3,764 | ) |
| Additions                to allowance charged to expense                                                  |   |                                 | 2,815     |   |   | 3,039 |   |   | 5,271 |   |   | 5,062 |   |
|                                                                                                      |   |                                 |      |   |   |   |   |   |   |   |   |   |   |
| Allowance                for loan losses at June 30                                                       |   | $                                    | 43,311    |   | $ | 38,870 |   | $ | 43,311 |   | $ | 38,870 |   |
| Average                total portfolio loans for period ended June                30                      |   | $                                    | 3,121,206 |   | $ | 2,815,983 |   | $ | 3,066,333 |   | $ | 2,771,720 |   |
| Ratio                of net charge-offs (annualized) to average portfolio                loansoutstanding |   |                                 | 0.14      | % |   | 0.27 | % |   | 0.16 | % |   | 0.27 | % |

----

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

**AND      RESULTS OF OPERATIONS - Continued**

***Financial      Condition - Continued***

|                                             |   | June                30, 2006 |      | December                31, 2005 |   |
|--------------------------------------------------|--------|------------------------------|-----------|----------------------------------|--------|
|                                             |   |                         |      | Percentage                       |   |   |   | Percentage |   |
|                                             |   |                         |      | of                Total          |   |   |   | of                Total |   |
|                                             |   |                         |      | Portfolio                        |   |   |   | Portfolio |   |
|                                             |   | Amount                       |      | Loans                            |   | Amount |   | Loans |   |
|                                             |   |                         |      |                             |   |   |   |   |   |
| Commercial                                       |   | $                            | 39,905    |                             |   | 1.25 | % | $ | 37,498 |   |   | 1.25 | % |
| Real                estate mortgage              |   |                         | 2,058     |                             |   | .07 |   |   | 1,866 |   |   | .07 |   |
| Installment                                      |   |                         | 1,348     |                             |   | .04 |   |   | 1,195 |   |   | .04 |   |
|                                             |   |                         |      |                             |   |   |   |   |   |   |   |   |   |
| Total                allowance for loan losses   |   | $                            | 43,311    |                             |   | 1.36 | % | $ | 40,559 |   |   | 1.36 | % |
|                                             |   |                         |      |                             |   |   |   |   |   |   |   |   |   |
| Total                portfolio loans outstanding |   | $                            | 3,196,209 |                             |   |   |   | $ | 2,991,189 |   |   |   |   |

|                                                          |   | June                30, |   | December                31, |
|---------------------------------------------------------------|--------|-------------------------|--------|-----------------------------|
|                                                          |   | 2006                    |   | 2005                        |
| Nonaccrual                loans:                              |   |                    |   |                        |
| Commercial                                                    |   | $                       | 19,652 |                        | $ | 19,734 |
| Real                estate mortgage                           |   |                    | 2,278  |                        |   | 1,734 |
| Installment                                                   |   |                    | 789    |                        |   | 1,154 |
| Total                nonaccrual loans                         |   |                    | 22,719 |                        |   | 22,622 |
|                                                          |   |                    |   |                        |   |   |
| Past                due (>90                days) loans:   |   |                    |   |                        |   |   |
| Commercial                                                    |   |                    | 4,403  |                        |   | 3,235 |
| Real                estate mortgage                           |   |                    | 218    |                        |   | 592 |
| Installment                                                   |   |                    | 403    |                        |   | 283 |
| Total                past due loans                           |   |                    | 5,024  |                        |   | 4,110 |
|                                                          |   |                    |   |                        |   |   |
| Total                nonperforming loans                      |   | $                       | 27,743 |                        | $ | 26,732 |
|                                                          |   |                    |   |                        |   |   |
| Real                estate owned and other repossessed assets |   |                    | 6,064  |                        |   | 3,745 |
|                                                          |   |                    |   |                        |   |   |
| Total                nonperforming assets                     |   | $                       | 33,807 |                        | $ | 30,477 |

----

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

**AND      RESULTS OF OPERATIONS - Continued**

***Financial      Condition - Continued***

|                                                                   |   | TotalPortfolio                Loans |      | Allowance                forLoan                Losses |   | NonperformingLoans      |   | Allowance                as aPercentage                ofTotal                Portfolio Loans |   |
|------------------------------------------------------------------------|--------|-------------------------------------|-----------|--------------------------------------------------------|--------|-------------------------|--------|-----------------------------------------------------------------------------------------------|--------|
|                                                                   |   | June                30,             |      | Dec                31,                                 |   | June                30, |   | Dec                31,                                                                        |   | June                30, |   | Dec                31, |   | June                30, |   | Dec                31, |   |
|                                                                   |   | 2006                                |      | 2005                                                   |   | 2006                    |   | 2005                                                                                          |   | 2006 |   | 2005 |   | 2006 |   | 2005 |   |
| *Eastern                Regions:*                                      |   |                                |      |                                                   |   |                    |   |                                                                                          |   |   |   |   |   |   |   |   |   |
| Great                Lakes Region:                                     |   |                                |      |                                                   |   |                    |   |                                                                                          |   |   |   |   |   |   |   |   |   |
| Ann                Arbor Commerce Bank                                 |   | $                                   | 280,158   |                                                   | $      | 286,146                 |   | $                                                                                             | 4,768  |   | $ | 4,712 |   | $ | 2,757 |   | $ | 3,103 |   |   | 1.70 | % |   | 1.65 | % |
| Bank                of Auburn Hills                                    |   |                                | 19,159    |                                                   |   | 6,058                   |   |                                                                                          | 285    |   |   | 90 |   |   |   |   |   |   |   |   | 1.49 | % |   | 1.49 | % |
| Bank                of Belleville                                      |   |                                | 9,059     |                                                   |   | 1,534                   |   |                                                                                          | 142    |   |   | 23 |   |   |   |   |   |   |   |   | 1.57 | % |   | 1.50 | % |
| Bank                of Michigan                                        |   |                                | 35,532    |                                                   |   | 28,062                  |   |                                                                                          | 532    |   |   | 421 |   |   |  |   |   |   |   |   | 1.50 | % |   | 1.50 | % |
| Brighton                Commerce Bank                                  |   |                                | 97,764    |                                                   |   | 93,553                  |   |                                                                                          | 994    |   |   | 978 |   |   | 1,964 |   |   | 1,412 |   |   | 1.02 | % |   | 1.05 | % |
| Capitol                National Bank                                   |   |                                | 203,553   |                                                   |   | 197,062                 |   |                                                                                          | 3,144  |   |   | 3,233 |   |   | 5,608 |   |   | 4,938 |   |   | 1.54 | % |   | 1.64 | % |
| Detroit                Commerce Bank                                   |   |                                | 89,868    |                                                   |   | 81,533                  |   |                                                                                          | 1,172  |   |   | 1,104 |   |   | 628 |   |   | 110 |   |   | 1.30 | % |   | 1.35 | % |
| Elkhart                Community Bank                                  |   |                                | 77,141    |                                                   |   | 70,671                  |   |                                                                                          | 924    |   |   | 919 |   |   | 443 |   |   | 908 |   |   | 1.20 | % |   | 1.30 | % |
| Evansville                Commerce Bank(2)                             |   |                                | 2,434     |                                                   |   |                    |   |                                                                                          | 38     |   |   |   |   |   |   |   |   |   |   |   | 1.56 | % |   |   |   |
| Goshen                Community Bank                                   |   |                                | 56,978    |                                                   |   | 53,497                  |   |                                                                                          | 729    |   |   | 648 |   |   | 589 |   |   | 443 |   |   | 1.28 | % |   | 1.21 | % |
| Grand                Haven Bank                                        |   |                                | 119,104   |                                                   |   | 117,241                 |   |                                                                                          | 2,687  |   |   | 2,575 |   |   | 2,515 |   |   | 3,342 |   |   | 2.26 | % |   | 2.20 | % |
| Kent                Commerce Bank                                      |   |                                | 79,125    |                                                   |   | 74,385                  |   |                                                                                          | 1,120  |   |   | 1,277 |   |   | 819 |   |   | 1,751 |   |   | 1.42 | % |   | 1.72 | % |
| Macomb                Community Bank                                   |   |                                | 90,418    |                                                   |   | 90,448                  |   |                                                                                          | 1,525  |   |   | 1,422 |   |   | 1,704 |   |   | 2,142 |   |   | 1.69 | % |   | 1.57 | % |
| Muskegon                Commerce Bank                                  |   |                                | 87,862    |                                                   |   | 88,007                  |   |                                                                                          | 1,085  |   |   | 1,021 |   |   | 1,896 |   |   | 1,430 |   |   | 1.23 | % |   | 1.16 | % |
| Oakland                Commerce Bank                                   |   |                                | 115,196   |                                                   |   | 101,859                 |   |                                                                                          | 1,521  |   |   | 1,424 |   |   | 2,437 |   |   | 948 |   |   | 1.32 | % |   | 1.40 | % |
| Paragon                Bank & Trust                                |   |                                | 83,520    |                                                   |   | 92,427                  |   |                                                                                          | 1,214  |   |   | 1,375 |   |   | 1,211 |   |   | 2,216 |   |   | 1.45 | % |   | 1.49 | % |
| Portage                Commerce Bank                                   |   |                                | 165,362   |                                                   |   | 171,679                 |   |                                                                                          | 1,930  |   |   | 2,057 |   |   | 1,747 |   |   | 2,119 |   |   | 1.17 | % |   | 1.20 | % |
| Great                Lakes Region Total                                |   |                                | 1,612,233 |                                                   |   | 1,554,162               |   |                                                                                          | 23,810 |   |   | 23,279 |   |   | 24,318 |   |   | 24,862 |   |   |   |   |   |   |   |
| Southeast                Region:                                       |   |                                |      |                                                   |   |                    |   |                                                                                          |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Bank                of Valdosta(3)                                     |   |                                | 476       |                                                   |   |                    |   |                                                                                          | 7      |   |   |   |   |   |   |   |   |   |   |   | 1.47 | % |   |   |   |
| Community                Bank of Rowan(1)                              |   |                                | 15,418    |                                                   |   |                    |   |                                                                                          | 225    |   |   |   |   |   |   |   |   |   |   |   | 1.46 | % |   |   |   |
| First                Carolina State Bank                               |   |                                | 67,928    |                                                   |   | 68,235                  |   |                                                                                          | 723    |   |   | 690 |   |   | 750 |   |   | 173 |   |   | 1.06 | % |   | 1.01 | % |
| Peoples                State Bank                                      |   |                                | 23,042    |                                                   |   | 19,909                  |   |                                                                                          | 223    |   |   | 140 |   |   |   |   |   | 16 |   |   | 0.97 | % |   | 0.70 | % |
| Sunrise                Bank of Atlanta(4)                              |   |                                | 1,920     |                                                   |   |                    |   |                                                                                          | 36     |   |   |   |   |   |   |   |   |   |   |   | 1.88 | % |   |   |   |
| Southeast                Region Total                                  |   |                                | 108,784   |                                                   |   | 88,144                  |   |                                                                                          | 1,214  |   |   | 830 |   |   | 750 |   |   | 189 |   |   |   |   |   |   |   |
| Midwest                Region-Summit Bank ofKansas                City |   |                                | 7,031     |                                                   |   | 644                     |   |                                                                                          | 106    |   |   | 10 |   |   |   |   |   |   |   |   | 1.51 | % |   | 1.55 | % |
| Eastern                Regions Total                                   |   | $                                   | 1,728,048 |                                                   | $      | 1,642,950               |   | $                                                                                             | 25,130 |   | $ | 24,119 |   | $ | 25,068 |   | $ | 25,051 |   |   |   |   |   |   |   |

----

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

**AND      RESULTS OF OPERATIONS - Continued**

***Financial      Condition - Continued***

|                                           |   | TotalPortfolio                Loans |         | Allowance                forLoan                Losses |   | NonperformingLoans      |   | Allowance                as aPercentage                ofTotal                Portfolio Loans |   |
|------------------------------------------------|--------|-------------------------------------|--------------|--------------------------------------------------------|--------|-------------------------|--------|-----------------------------------------------------------------------------------------------|--------|
|                                           |   | June                30,             |         | Dec                31,                                 |   | June                30, |   | Dec                31,                                                                        |   | June                30 |   | Dec                31, |   | June                30 |   | Dec                31, |   |
|                                           |   | 2006                                |         | 2005                                                   |   | 2006                    |   | 2005                                                                                          |   | 2006 |   | 2005 |   | 2006 |   | 2005 |   |
| *Western                Regions:*              |   |                                |         |                                                   |   |                    |   |                                                                                          |   |   |   |   |   |   |   |   |   |
| Southwest                Region:               |   |                                |         |                                                   |   |                    |   |                                                                                          |   |   |   |   |   |   |   |   |   |
| Arrowhead                Community Bank        |   | $                                   |  76,354 |                                                   | $      | 73,800                  |   | $                                                                                        | 763    |   | $ | 654 |   | $ | 109 |   | $  | 140 |   |   | 1.00 | % |   | 0.89 | % |
| Asian                Bank of Arizona(5)        |   |                                | 2,939        |                                                   |   |                    |   |                                                                                          | 40     |   |   |   |   |   |   |   |   |   |   |   | 1.36 | % |   |   |   |
| Bank                of Las Vegas               |   |                                | 55,423       |                                                   |   | 50,899                  |   |                                                                                          | 560    |   |   | 495 |   |   |  |   |   |   |   |   | 1.01 | % |   | 0.97 | % |
| Bank                of Tucson                  |   |                                | 143,540      |                                                   |   | 143,900                 |   |                                                                                          | 1,322  |   |   | 1,405 |   |   |  |   |   | 200 |   |   | 0.92 | % |   | 0.98 | % |
| Black                Mountain Community Bank   |   |                                | 110,361      |                                                   |   | 103,627                 |   |                                                                                          | 1,318  |   |   | 1,277 |   |   | 1,139 |   |   | 131 |   |   | 1.19 | % |   | 1.23 | % |
| Camelback                Community Bank        |   |                                | 72,746       |                                                   |   | 73,813                  |   |                                                                                          | 872    |   |   | 852 |   |   | 4 |   |   | 41 |   |   | 1.20 | % |   | 1.15 | % |
| Desert                Community Bank           |   |                                | 79,790       |                                                   |   | 71,050                  |   |                                                                                          | 801    |   |   | 830 |   |   | 139 |   |   | 273 |   |   | 1.00 | % |   | 1.17 | % |
| East                Valley Community Bank      |   |                                | 35,204       |                                                   |   | 38,716                  |   |                                                                                          | 401    |   |   | 497 |   |   |  |   |   |   |   |   | 1.14 | % |   | 1.28 | % |
| Fort                Collins Commerce Bank      |   |                                | 36,743       |                                                   |   | 22,619                  |   |                                                                                          | 515    |   |   | 306 |   |   |   |   |   |   |   |   | 1.40 | % |   | 1.35 | % |
| Mesa                Bank                       |   |                                | 146,250      |                                                   |   | 125,513                 |   |                                                                                          | 1,386  |   |   | 1,215 |   |   |  |   |   |   |   |   | 0.95 | % |   | 0.97 | % |
| Red                Rock Community Bank         |   |                                | 95,436       |                                                   |   | 83,259                  |   |                                                                                          | 1,275  |   |   | 1,300 |   |   | 202 |   |   | 198 |   |   | 1.34 | % |   | 1.56 | % |
| Southern                Arizona Community Bank |   |                                | 75,531       |                                                   |   | 76,953                  |   |                                                                                          | 745    |   |   | 720 |   |   | 18 |   |   | 59 |   |   | 0.99 | % |   | 0.94 | % |
| Sunrise                Bank of Albuquerque     |   |                                | 48,392       |                                                   |   | 53,669                  |   |                                                                                          | 829    |   |   | 693 |   |   |  |   |   | 300 |   |   | 1.71 | % |   | 1.29 | % |
| Sunrise                Bank of Arizona         |   |                                | 110,340      |                                                   |   | 101,846                 |   |                                                                                          | 1,100  |   |   | 1,253 |   |   | 315 |   |   | 70 |   |   | 1.00 | % |   | 1.23 | % |
| Valley                First Community Bank     |   |                                | 61,609       |                                                   |   | 57,794                  |   |                                                                                          | 561    |   |   | 526 |   |   |  |   |   |   |   |   | 0.91 | % |   | 0.91 | % |
| Yuma                Community Bank             |   |                                | 60,448       |                                                   |   | 50,474                  |   |                                                                                          | 550    |   |   | 485 |   |   | 222 |   |   | 27 |   |   | 0.91 | % |   | 0.96 | % |
| Southwest                Region Total          |   |                                | 1,211,106    |                                                   |   | 1,127,932               |   |                                                                                          | 13,038 |   |   | 12,508 |   |   | 2,148 |   |   | 1,439 |   |   |   |   |   |   |   |
| California                Region:              |   |                                |         |                                                   |   |                    |   |                                                                                          |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Bank                of Escondido               |   |                                | 30,651       |                                                   |   | 38,228                  |   |                                                                                          | 435    |   |   | 460 |   |   | 21 |   |   | 23 |   |   | 1.42 | % |   | 1.20 | % |
| Bank                of San Francisco           |   |                                | 18,174       |                                                   |   | 7,291                   |   |                                                                                          | 270    |   |   | 102 |   |   |   |   |   |   |   |   | 1.49 | % |   | 1.40 | % |
| Bank                of Santa Barbara           |   |                                | 20,668       |                                                   |   | 3,546                   |   |                                                                                          | 278    |   |   | 54 |   |   |   |   |   |   |   |   | 1.35 | % |   | 1.52 | % |
| Napa                Community Bank             |   |                                | 73,283       |                                                   |   | 70,359                  |   |                                                                                          | 1,237  |   |   | 1,237 |   |   | 68 |   |   | 19 |   |   | 1.69 | % |   | 1.76 | % |
| Point                Loma Community Bank       |   |                                | 32,754       |                                                   |   | 29,759                  |   |                                                                                          | 453    |   |   | 423 |   |   |  |   |   |   |   |   | 1.38 | % |   | 1.42 | % |
| Sunrise                Bank of San Diego       |   |                                | 56,933       |                                                   |   | 58,983                  |   |                                                                                          | 478    |   |   | 588 |   |   |   |   |   | 200 |   |   | 0.84 | % |   | 1.00 | % |
| California                Region Total         |   |                                | 232,463      |                                                   |   | 208,166                 |   |                                                                                          | 3,151  |   |   | 2,864 |   |   | 89 |   |   | 242 |   |   |   |   |   |   |   |
| Northwest                Region:               |   |                                |              |                                                   |   |                    |   |                                                                                          |        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Bank                of Bellevue                |   |                                | 17,760       |                                                   |   | 8,327                   |   |                                                                                          | 260    |   |   | 120 |   |   |   |   |   |   |   |   | 1.46 | % |   | 1.44 | % |
| Bank                of Everett(6)              |   |                                |         |                                                   |   |                    |   |                                                                                          |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Northwest                Region Total          |   |                                | 17,760       |                                                   |   | 8,327                   |   |                                                                                          | 260    |   |   | 120 |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Western                Regions Total           |   |                                | 1,461,329    |                                                   |   | 1,344,425               |   |                                                                                          | 16,449 |   |   | 15,492 |   |   | 2,237 |   |   | 1,681 |   |   |   |   |   |   |   |
| Other,                net                      |   |                                | 6,832        |                                                   |   | 3,814                   |   |                                                                                          | 1,732  |   |   | 948 |   |   | 438 |   |   |   |   |   |  |   |   |  |   |
|                                           |   |                                |         |                                                   |   |                    |   |                                                                                          |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Consolidated                                   |   | $                                   | 3,196,209    |                                                   | $      | 2,991,189               |   | $                                                                                             | 43,311 |   | $ | 40,559 |   | $ | 27,743 |   | $ | 26,732 |   |   | 1.36 | % |   | 1.36 | % |

***Results      of Operations***

----

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

**AND      RESULTS OF OPERATIONS - Continued**

***Results      of Operations - Continued***

*de      novo*

|                                                                                                                                                                       |   | Three-Month                Period |   | Six-Month                Period |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-----------------------------------|--------|---------------------------------|
|                                                                                                                                                                       |   | 2006                              |   | 2005                            |   | 2006 |   | 2005 |
| Preopening                and start-up costs of *de                novo*                banks, bank-development                subsidiaries                and other units |   | $                                 | 2,843  |                            | $ | 541 |   | $ | 3,439 |   | $ | 702 |
| Advertising                                                                                                                                                                |   |                              | 748    |                            |   | 603 |   |   | 1,381 |   |   | 1,067 |
| Paper,                printing and supplies                                                                                                                                |   |                              | 615    |                            |   | 504 |   |   | 1,161 |   |   | 986 |
| Professional                fees                                                                                                                                           |   |                              | 516    |                            |   | 474 |   |   | 1,152 |   |   | 927 |
| Directors’                fees                                                                                                                                       |   |                              | 565    |                            |   | 289 |   |   | 1,146 |   |   | 615 |
| Taxes                other than income taxes                                                                                                                               |   |                              | 340    |                            |   | 351 |   |   | 718 |   |   | 715 |
| Bank                services (ATMs, telephone banking                and Internet banking)                                                                                 |   |                              | 349    |                            |   | 280 |   |   | 683 |   |   | 596 |
| Communications                                                                                                                                                             |   |                              | 339    |                            |   | 289 |   |   | 649 |   |   | 597 |
| Other                                                                                                                                                                      |   |                              | 3,659  |                            |   | 3,259 |   |   | 5,283 |   |   | 5.903 |
| Total                                                                                                                                                                      |   | $                                 | 9,974  |                            | $ | 6,590 |   | $ | 15,612 |   | $ | 12,108 |

----

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

**AND      RESULTS OF OPERATIONS - Continued**

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

|                                                                   |   | Six                months ended June 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                                 |   | $                                       | 11,671 |   | $ | 11,637 |   | $ | 1,936 |   | $ | 2,097 |   |   | 14.57 | % |   | 15.72 | % |   | 1.27 | % |   | 1.28 | % |
| Bank                of Auburn Hills                                    |   |                                    | 602    |   |   | n/a |   |   | (287 | ) |   | n/a |   |   | n/a |   |   | n/a |   |   | n/a |   |   | n/a |   |
| Bank                of Belleville                                      |   |                                    | 467    |   |   | n/a |   |   | (359 | ) |   | n/a |   |   | n/a |   |   | n/a |   |   | n/a |   |   | n/a |   |
| Bank                of Michigan                                        |   |                                    | 1,365  |   |   | 150 |   |   | (227 | ) |   | (496 | ) |   | n/a |   |   | n/a |   |   | n/a |   |   | n/a |   |
| Brighton                Commerce Bank                                  |   |                                    | 3,817  |   |   | 3,532 |   |   | 433 |   |   | 559 |   |   | 9.23 |   |   | 12.37 |   |   | 0.83 |   |   | 1.04 |   |
| Capitol                National Bank                                   |   |                                    | 8,711  |   |   | 7,788 |   |   | 1,566 |   |   | 1,861 |   |   | 16.35 |   |   | 20.32 |   |   | 1.27 |   |   | 1.59 |   |
| Detroit                Commerce Bank                                   |   |                                    | 4,315  |   |   | 3,000 |   |   | 539 |   |   | 256 |   |   | 13.50 |   |   | 7.81 |   |   | 1.21 |   |   | 0.68 |   |
| Elkhart                Community Bank                                  |   |                                    | 3,047  |   |   | 2,443 |   |   | 516 |   |   | 310 |   |   | 12.49 |   |   | 8.06 |   |   | 1.32 |   |   | 0.88 |   |
| Evansville                Commerce Bank(3)                             |   |                                    | 53     |   |   | n/a |   |   | (451 | ) |   | n/a |   |   | n/a |   |   | n/a |   |   | n/a |   |   | n/a |   |
| Goshen                Community Bank                                   |   |                                    | 2,471  |   |   | 1,825 |   |   | 200 |   |   | (38 | ) |   | 5.98 |   |   | n/a |   |   | 0.59 |   |   | n/a |   |
| Grand                Haven Bank                                        |   |                                    | 4,740  |   |   | 4,228 |   |   | 646 |   |   | 559 |   |   | 12.14 |   |   | 11.08 |   |   | 1.03 |   |   | 0.92 |   |
| Kent                Commerce Bank                                      |   |                                    | 3,248  |   |   | 3,108 |   |   | 239 |   |   | 222 |   |   | 5.68 |   |   | 5.38 |   |   | 0.60 |   |   | 0.50 |   |
| Macomb                Community Bank                                   |   |                                    | 3,774  |   |   | 3,183 |   |   | 152 |   |   | 255 |   |   | 3.58 |   |   | 5.80 |   |   | 0.32 |   |   | 0.53 |   |
| Muskegon                Commerce Bank                                  |   |                                    | 3,753  |   |   | 3,559 |   |   | 245 |   |   | 765 |   |   | 5.70 |   |   | 15.72 |   |   | 0.51 |   |   | 1.63 |   |
| Oakland                Commerce Bank                                   |   |                                    | 4,633  |   |   | 4,285 |   |   | 691 |   |   | 959 |   |   | 14.43 |   |   | 18.59 |   |   | 1.17 |   |   | 1.50 |   |
| Paragon                Bank & Trust                                |   |                                    | 3,944  |   |   | 4,168 |   |   | 575 |   |   | 613 |   |   | 10.39 |   |   | 10.65 |   |   | 1.13 |   |   | 1.12 |   |
| Portage                Commerce Bank                                   |   |                                    | 7,205  |   |   | 6,776 |   |   | 1,281 |   |   | 1,532 |   |   | 15.99 |   |   | 19.63 |   |   | 1.42 |   |   | 1.65 |   |
| Great                Lakes Region Total                                |   |                                    | 67,816 |   |   | 59,682 |   |   | 7,695 |   |   | 9,454 |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Southeast                Region:                                       |   |                                    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Bank                of Valdosta(4)                                     |   |                                    | 8      |   |   | n/a |   |   | (446 | ) |   | n/a |   |   | n/a |   |   | n/a |   |   | n/a |   |   | n/a |   |
| Community                Bank of Rowan(2)                              |   |                                    | 484    |   |   | n/a |   |   | (735 | ) |   | n/a |   |   | n/a |   |   | n/a |   |   | n/a |   |   | n/a |   |
| First                Carolina State Bank                               |   |                                    | 3,041  |   |   | 2,052 |   |   | 457 |   |   | 238 |   |   | 8.29 |   |   | 4.58 |   |   | 1.11 |   |   | 0.68 |   |
| Peoples                State Bank                                      |   |                                    | 1,216  |   |   | 424 |   |   | 39 |   |   | 36 |   |   | 2.24 |   |   | 4.46 |   |   | 0.23 |   |   | 0.61 |   |
| Sunrise                Bank of Atlanta(5)                              |   |                                    | 56     |   |   | n/a |   |   | (699 | ) |   | n/a |   |   | n/a |   |   | n/a |   |   | n/a |   |   | n/a |   |
| Southeast                Region Total                                  |   |                                    | 4,805  |   |   | 2,476 |   |   | (1,384 | ) |   | 274 |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Midwest                Region-Summit Bank ofKansas                City |   |                                    | 254    |   |   | n/a |   |   | (358 | ) |   | n/a |   |   | n/a |   |   | n/a |   |   | n/a |   |   | n/a |   |
| Eastern                Regions Total                                   |   | $                                       | 72,875 |   | $ | 62,158 |   | $ | 5,953 |   | $ | 9,728 |   |   |   |   |   |   |   |   |   |   |   |   |   |

----

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

**AND      RESULTS OF OPERATIONS - Continued**

***Financial      Condition - Continued***

|                                           |   | Six                months ended June 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        |   | $                                       | 3,871   |   | $ | 3,170 |   | $ | 544 |   | $ | 458 |   |   | 13.69 | % |   | 13.38 | % |   | 1.26 | % |   | 1.20 | % |
| Asian                Bank of Arizona(6)        |   |                                    | 97      |   |   | n/a |   |   | (351 | ) |   | n/a |   |   | n/a |   |   | n/a |   |   | n/a |   |   | n/a |   |
| Bank                of Las Vegas               |   |                                    | 2,495   |   |   | 1,837 |   |   | 368 |   |   | 257 |   |   | 7.72 |   |   | 8.03 |   |   | 1.19 |   |   | 0.99 |   |
| Bank                of Tucson                  |   |                                    | 7,197   |   |   | 6,029 |   |   | 2,192 |   |   | 1,811 |   |   | 29.65 |   |   | 27.87 |   |   | 2.55 |   |   | 2.13 |   |
| Black                Mountain Community Bank   |   |                                    | 5,032   |   |   | 4,051 |   |   | 1,294 |   |   | 992 |   |   | 21.70 |   |   | 20.00 |   |   | 2.05 |   |   | 1.74 |   |
| Camelback                Community Bank        |   |                                    | 3,048   |   |   | 2,865 |   |   | 451 |   |   | 613 |   |   | 11.11 |   |   | 14.36 |   |   | 1.12 |   |   | 1.53 |   |
| Desert                Community Bank           |   |                                    | 3,382   |   |   | 2,706 |   |   | 610 |   |   | 505 |   |   | 15.00 |   |   | 13.10 |   |   | 1.51 |   |   | 1.43 |   |
| East                Valley Bank                |   |                                    | 1,731   |   |   | 1,905 |   |   | 318 |   |   | 104 |   |   | 12.12 |   |   | 4.36 |   |   | 1.51 |   |   | 0.43 |   |
| Fort                Collins Commerce Bank      |   |                                    | 1,385   |   |   | 99 |   |   | (72 | ) |   | (125 | ) |   | n/a |   |   | n/a |   |   | n/a |   |   | n/a |   |
| Mesa                Bank                       |   |                                    | 7,301   |   |   | 4,536 |   |   | 1,782 |   |   | 1,026 |   |   | 31.28 |   |   | 24.97 |   |   | 2.43 |   |   | 2.01 |   |
| Red                Rock Community Bank         |   |                                    | 4,115   |   |   | 3,281 |   |   | 1,058 |   |   | 715 |   |   | 17.62 |   |   | 11.41 |   |   | 2.09 |   |   | 1.43 |   |
| Southern                Arizona Community Bank |   |                                    | 3,238   |   |   | 2,901 |   |   | 556 |   |   | 615 |   |   | 12.75 |   |   | 14.04 |   |   | 1.30 |   |   | 1.42 |   |
| Sunrise                Bank of Albuquerque     |   |                                    | 2,267   |   |   | 2,591 |   |   | 201 |   |   | 527 |   |   | 6.02 |   |   | 15.57 |   |   | 0.71 |   |   | 1.54 |   |
| Sunrise                Bank of Arizona         |   |                                    | 5,176   |   |   | 5,072 |   |   | 853 |   |   | 1,121 |   |   | 13.43 |   |   | 18.12 |   |   | 1.49 |   |   | 1.78 |   |
| Valley                First Community Bank     |   |                                    | 2,807   |   |   | 2,118 |   |   | 365 |   |   | 338 |   |   | 10.25 |   |   | 10.54 |   |   | 0.99 |   |   | 1.06 |   |
| Yuma                Community Bank             |   |                                    | 2,807   |   |   | 2,169 |   |   | 509 |   |   | 486 |   |   | 15.22 |   |   | 15.02 |   |   | 1.58 |   |   | 1.65 |   |
| Southwest                Region Total          |   |                                    | 55,949  |   |   | 45,330 |   |   | 10,678 |   |   | 9,443 |   |   |   |   |   |   |   |   |   |   |   |   |   |
| California                Region:              |   |                                    |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Bank                of Escondido               |   |                                    | 2,548   |   |   | 1,725 |   |   | 441 |   |   | 207 |   |   | 8.96 |   |   | 4.48 |   |   | 1.19 |   |   | 0.74 |   |
| Bank                of San Francisco           |   |                                    | 651     |   |   | n/a |   |   | (419 | ) |   | n/a |   |   | n/a |   |   | n/a |   |   | n/a |   |   | n/a |   |
| Bank                of Santa Barbara           |   |                                    | 760     |   |   | n/a |   |   | (414 | ) |   | n/a |   |   | n/a |   |   | n/a |   |   | n/a |   |   | n/a |   |
| Napa                Community Bank             |   |                                    | 3,307   |   |   | 2,698 |   |   | 594 |   |   | 615 |   |   | 10.79 |   |   | 12.96 |   |   | 1.45 |   |   | 1.70 |   |
| Point                Loma Community Bank       |   |                                    | 1,519   |   |   | 783 |   |   | 48 |   |   | (337 | ) |   | 1.38 |   |   | n/a |   |   | 0.25 |   |   | n/a |   |
| Sunrise                Bank of San Diego       |   |                                    | 2,819   |   |   | 2,666 |   |   | 498 |   |   | 481 |   |   | 9.25 |   |   | 8.97 |   |   | 1.45 |   |   | 1.56 |   |
| California                Region Total         |   |                                    | 11,604  |   |   | 7,872 |   |   | 748 |   |   | 966 |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Northwest                Region                |   |                                    |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Bank                of Bellevue                |   |                                    | 848     |   |   | 13 |   |   | (237 | ) |   | (188 | ) |   | n/a |   |   | n/a |   |   | n/a |   |   | n/a |   |
| Bank                of Everett(7)              |   |                                    | n/a     |   |   | n/a |   |   | (212 | ) |   | n/a |   |   | n/a |   |   | n/a |   |   | n/a |   |   | n/a |   |
| Northwest                Region Total          |   |                                    | 848     |   |   | 13 |   |   | (449 | ) |   | (188 | ) |   |   |   |   |   |   |   |   |   |   |   |   |
| Western                Regions Total           |   |                                    | 68,401  |   |   | 53,215 |   |   | 10,977 |   |   | 10,221 |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Other,                net                      |   |                                    | 583     |   |   | (764 | ) |   | 3,290 |   |   | (3,637 | ) |   | n/a |   |   | n/a |   |   | n/a |   |   | n/a |   |
|                                           |   |                                    |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Consolidated                                   |   | $                                       | 141,859 |   | $ | 114,609 |   | $ | 20,220 |   | $ | 16,312 |   |   | 13.01 | % |   | 12.68 | % |   | 1.13 | % |   | 1.02 | % |
|                                           |   |                                    |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |

----

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

**AND      RESULTS OF OPERATIONS - Continued**

***Liquidity      and Capital Resources***

***Trends      Affecting Operations***

----

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

**AND      RESULTS OF OPERATIONS - Continued**

***Trends      Affecting Operations - Continued***

***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 six months ended June 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 Matters to a Vote of Security Holders. (a) Capitol’s                annual meeting of shareholders was held on April 26, 2006. (b) The                following matter was voted upon at the annual meeting of                shareholders: The                election of the nominees for the board of directors who will serve                for a                term to expire                at the 2007annual                meeting was voted on by the shareholders. The nominees, all of                whom were elected, are listed below. The                following votes were tabulated: |

|                                    | For              |   | Withheld        |
|-----------------------------------------|------------------|--------|-----------------|
|  Louis              G. Allen       |  13,014,128 |   |  374,455   |
|  Paul              R. Ballard      |  11,829,937 |   |  1,558,645 |
|  David              L. Becker      |  13,015,159 |   |  373,424   |
|  Robert              C. Carr       |  11,350,644 |   |  2,037,938 |
|  Douglas              E. Crist     |  12,778,508 |   |  610,074   |
|  Michael              J. Devine    |  11,785,801 |   |  1,602,781 |
|  Cristin              Reid English |  11,817,741 |   |  1,570,841 |
|  James              C. Epolito     |  12,576,336 |   |  812,246   |
|  Gary              A. Falkenberg   |  12,939,968 |   |  448,615   |
|  Joel              I. Ferguson     |  13,058,658 |   |  329,924   |
|  Kathleen              A. Gaskin   |  12,776,956 |   |  311,626   |
|  H.              Nicholas Genova   |  12,777,573 |   |  611,009   |
|  Michael              F. Hannley   |  11,854,601 |   |  1,533,981 |
|  Lewis              D. Johns       |  10,685,910 |   |  2,702,672 |
|  Michael              L. Kasten    |  11,265,402 |   |  2,123,180 |
|  John              S. Lewis        |  11,786,331 |   |  1,602,251 |
|  Leonard              Maas         |  12,773,393 |   |  615,190   |
|  Lyle              W. Miller       |  10,972,689 |   |  2,415,893 |
|  Myrl              D. Nofziger     |  12,862,548 |   |  526,034   |
|  David              O'Leary        |  11,991,298 |   |  1,397,284 |
|  Joseph              D. Reid       |  11,631,987 |   |  1,756,595 |
|  Ronald              K. Sable      |  11,978,833 |   |  1,409,749 |
|  There were no broker non-votes.   |             |   |            |

----

**PART      II. OTHER INFORMATION - Continued**

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

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

----

**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                                                                                                                                       |
|----------------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 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.  |

----