Central Arizona Bank Fails – Third Bank Failure In A Week For Capitol Bancorp, Ltd

central arizona bankIn an unusual weekday action, state regulators closed Central Arizona Bank, Scottsdale, AZ, and appointed the FDIC as receiver.  To protect depositors, the FDIC sold the failed bank to Western State Bank, Devils Lake, North Dakota, which will assume all deposits of Central Arizona Bank.

With only $31.6 million in assets, the failure of Central Arizona Bank would be insignificant except for the fact that it is owned by troubled bank holding company Capitol Bancorp Ltd.  As predicted last week when two other banks held by Capitol Bancorp were closed, it was reasonable to expect most of the other related banks to fail also.

After the closing of Pisgah Community Bank and Sunrise Bank last Friday, Capitol Bancorp still held 9 other banks with total assets of approximately $1.4 billion.  All of the banks controlled by Capitol Bancorp are on the unofficial Problem Bank List and most of them are operating under Prompt Corrective Action Notices.

As discussed last week, Capitol Bancorp’s future as an ongoing banking enterprise appears to be extremely bleak.

Capitol Bancorp is a uniquely structured affiliation of community banks. Local banks controlled by Capitol Bancorp have local authority to make loans.  The parent company provides administrative and operational support services which, in the view of the parent company, allows each banking unit to perform more efficiently.

Unfortunately, Capitol’s theories on running banks did not work in the really world and many of its banks faced huge losses as loan defaults soared during the financial collapse and ensuing recession.

Capitol Bancorp has been attempting to either recapitalize or sell the various banks it controls without success.  Given the seriously undercapitalized condition of the banks owned by Capitol Bancorp, buyers are hard to find.  Serious buyers are more likely to wait until the banks are closed by regulators when FDIC assisted financing on favorable terms would be available.  On August 9, 2012, Capitol Bancorp filed for reorganization under Chapter 11.  Investors seem to be taking a dim view on a potential recovery by Capitol Bancorp and the stock has fallen from the $50 range in 2008 to a mere nine cents per share at today’s closing price.

courtesy: yahoo finance

courtesy: yahoo finance


In December, Capitol announced the planned sale  and subsequent recapitalization of Sunrise Bank of Albuquerque but the transaction has been delayed due to the lack of regulatory approval.  If regulators had closed the insolvent Sunrise Bank, it could have triggered a $10 million cross guaranty liability against the other banks owned by Capitol which could have lead to a complete collapse of the company.  The FDIC has allowed Capitol Bancorp to stay in business by issuing 16 different waivers on cross guarantee liabilities on previous sales of banks controlled by Capitol.

The FDIC seems to have given Capitol Bancorp an extreme amount of latitude considering the dire financial condition that the company is in and the lack of success in disposing of its banking units.  Unless Capitol Bancorp can pull off a miracle, it seems likely that regulators will eventually be forced to close the other banks owned by Capitol Bancorp.

The banks controlled by Capitol Bancorp Ltd, including the three that have failed in the past week are listed below.


  • Central Arizona Bank
  • Sunrise Bank of Arizona
    • Arrowhead
    • Camelback
    • Falcon Field
    • Mesa
    • Nogales
    • Scottsdale
  • Scottsdale


  • Sunrise Bank
    • Atlanta
    • Jeffersonville
    • Valdosta


  • Indiana Community Bank
    • Elkhart
    • Goshen


  • Capitol National Bank
    • Lansing
    • Okemos
  • Michigan Commerce Bank
    • Ann Arbor
    • Auburn Hills
    • Brighton
    • Downtown Detroit
    • Farmington Hills
    • Grand Haven
    • Grand Rapids
    • Holland
    • Muskegon
    • Portage


  • Summit Bank of Kansas City
  • Lee’s Summit


  • 1st Commerce Bank
  • Bank of Las Vegas
    • Black Mountain Office
    • Decatur Office
    • Desert Office
    • Red Rock Office
  • North Las Vegas

New Mexico

  • Sunrise Bank of Albuquerque
  • Albuquerque

North Carolina

  • Pisgah Community Bank
  • Asheville


  • Bank of Maumee
  • Maumee

The sole branch of Central Arizona Bank will reopen tomorrow as a branch of Western State Bank and all depositors will continue to have uninterrupted FDIC deposit insurance up to the applicable limits.

At March 31, 2012 Central Arizona Bank had total asset of $31.6 million and total deposits of $30.8 million.  In addition to assuming all of the failed bank’s assets, Western State Bank also agreed to purchase all of Central Arizona Bank’s assets.

The loss to the FDIC Deposit Insurance Fund for the failure of Central Arizona Bank is $8.6 million.  Central Arizona Bank becomes the 13th banking failure of the year and the second in Arizona.

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