By Melissa Domsic
Lansing State Journal
LANSING (AP) -- Two years ago, Capitol Bancorp Ltd. was the one of the nation's largest bank development companies, holding more bank charters than any other company.
But now, the Lansing- and Phoenix-based company is in survival mode as it sheds banks and merges others in an effort to raise capital.
Capitol Bancorp is struggling with mounting losses, nonperforming loans and a plunging stock price that has the New York Stock Exchange threatening to drop it.
It's an example of the national financial crisis and recession hitting home - hard. It also marks a rapid slide for a bank development company embodied for many in CEO Joe Reid, who finds himself struggling to regroup and keep his company viable.
"We're busting our tail here," Reid said. "We have worked harder in the last three years than probably any time in my life."
Capitol Bancorp was riding high two years ago, topping out at 64 chartered banks in 17 states.
Now, it has 24 banks in 14 states with plans to sell seven more, which would bring the count down to 17 affiliates in 12 states. The survivors include Lansing's Capitol National Bank and its two branches, which employ about 37 people.
Reid, whose banking company took no federal bailout money, said Capitol Bancorp started bracing for the impact of the financial crisis earlier than others but had no indication just how severe the downturn would be.
The company and its affiliates were weighed down by all types of real estate loans, particularly commercial real estate. It continues to be the major issue as property values keep falling and bank customers struggle with foreclosures.
And while Reid wouldn't rule out things getting worse for his company - "we're not out of the woods yet" - he isn't ready to cash in.
"We haven't given up by any stretch. We're not sitting in a corner sucking our thumb complaining about it," Reid said. "You've got to really resurrect yourself each morning and come in powered up to take on what's there."
At a meeting set for Jan. 31, the company will ask shareholders to increase the number of authorized shares from 50 million to 1.5 billion.
Reid said additional shares will allow the company to improve its balance sheet.
Capital Bancorp recently released details of a plan to change some of its debt and debt instruments into shares of common stock. This, along with other measures, will increase the company's equity and simplify its now very complex balance sheet.
Also, the company wants shareholder approval for a reverse stock split - one new share for between 5 to 75 old shares. This would boost the price of Capital Bancorp shares and prevent delisting by the New York Stock Exchange.
Reid, 67, founded Capitol Bancorp in 1988, helping investors and others raise capital to start banks, while providing back-office functions and taking stakes in some of them.
He led the company through nearly two decades of growth, starting in Michigan and expanding throughout the country. By 2003, the company's growth was strong enough for its stock to move from the Nasdaq to the New York Stock Exchange. Reid even rang the NYSE opening bell March 24, 2003.
That same year, Capitol Bancorp landed on Fortune magazine's list of the nation's 100 fastest-growing small public companies. And its profit soared more than fivefold from 2000 to 2006, when it earned a record $42.4 million.
Capitol Bancorp's work force also grew, hitting a high of 1,735 employees in 2007. A year later, it opened its 64th bank.
But then things disintegrated as the housing foreclosure crisis grew, a national financial meltdown ensued and a recession settled in.
Reid said he began to cut back on Capitol Bancorp's bank development activity in late 2007 and started restructuring and merging banks by the third quarter of 2008, when the company slipped into the red, losing $32.5 million.
By then, though, the financial crisis was full-blown. Michigan's economy, plagued by a nation-leading jobless rate that hovered around 14 to 15 percent in the latter half of 2009, wasn't helping.
Ballooning profits turned into mounting losses. Capitol Bancorp lost $168.3 million in 2009.
"Ten years ago, we were in a growth mode and today we're regressing as we battle with the condition of the economy in Michigan particularly," Reid said.
Capitol Bancorp and its affiliates have slashed their work force by about 35 percent since 2007 to 1,125 workers, either through cuts or attrition.
Of the 24 Capitol Bancorp charters left, seven of them account for 36 banks that have been merged in the past couple of years. And two North Carolina banks operate under separate names but one charter.
Capitol Bancorp remains entrenched in Michigan. Along with Capitol National Bank in Lansing, its operations include Bank of Michigan in Farmington Hills. It also operates Michigan Commerce Bank, the result of a merger of 11 community banks, though federal regulators have said the bank must be sold or merged with an institution not controlled by Capitol Bancorp.
Reid did not comment on the status of Michigan Commerce, but said Michigan banks are a top priority for the company.
Reid wouldn't speculate on just how much his company will shrink before its operations stabilize.
Capitol Bancorp's contraction is not unique.
The number of commercial banks nationwide has shrunk by almost half since 1990, when there were 12,343, according to the American Bankers Association. That dropped to 6,676 as of the second quarter of 2010.
There were just 25 new bank charters nationwide in 2009, compared with 178 in 2006. Capitol Bancorp accounted for 5 percent of those with nine new banks in 2006.
Capitol Bancorp's stock has suffered, as well.
The company has less than six months to reach a 30 trading-day average share price of at least $1 or face removal from the NYSE.
Its stock hit $47.49 a share at one point in 2006, the highest this decade, according to Chicago-based researcher Morningstar Inc. The price sank to a low point during trading Dec. 21, hitting 37 cents a share at one point.
The same situation has been playing out throughout the state, said Don Mann, a banking consultant and regulatory liaison for East Lansing-based Community Bankers of Michigan.
"Until real estate prices stabilize and start going back up and the economy picks up, we're still going to see this trend," he said.
Published: Mon, Jan 3, 2011
