After years of opening banks, Capitol Bancorp Ltd. is now busy combining them.

The $5.7 billion-asset company is merging four of its Arizona banks into one and nine of its Michigan banks into one as it looks to strengthen its operations in these states, where problem loans are on the rise.

"Bringing the banks together is all about harnessing our resources to better position us to more efficiently allocate capital," said Michael Moran, Capitol's chief of capital markets.

Once it completes the mergers, Capitol would have 53 banks in 17 states.

The 11-charter shrinkage of its total would match the number of banks it opened in 2007, its busiest year.

Capitol began to depart from its high-growth strategy several months ago as it became increasingly focused on preserving capital, cutting costs, and dealing with troubled loans.

The company, which has dual headquarters in Lansing, Mich., and Phoenix, announced in October that it would consolidate seven of its Michigan banks into three. But it decided last month that the problems in that state required it to go further.

"This is a company whose focus for some time was to get to 100 bank charters," said Terry McEvoy, an analyst at Oppenheimer & Co. "But the number of charters is not as important as growing revenue and managing credit costs, and they are adjusting their business strategy to deal with the challenging times they are facing today."

Mr. Moran said Capitol's experience in Michigan also prompted it to become more proactive — and more efficient — elsewhere.

"Not that Arizona and Michigan are exactly comparable, but Michigan has given us a blueprint about how we might respond to a challenging environment," Mr. Moran said.

The four Arizona banks Capitol is consolidating "are all facing comparable challenges, although some more severe than others," he said, but he declined to discuss any bank more specifically.

Mesa Bank, however, appears to be the one struggling the most; its nonperforming assets were $21.5 million at the end of the third quarter, or 13.68% of total assets. A year earlier, its nonperforming assets were 1.44% of the total. Fourth-quarter results for the individual banks have not been released.

Phoenix, once one of the fastest-growing cities in the country, was the first market outside Michigan that Capitol entered to offset the sluggish growth on its home turf.

Mr. Moran said that roughly one-fifth of the company's assets are in Arizona. And as the real estate market remains in a tailspin, that state accounts for 15% to 20% of its problem loans.

Michigan accounts for 40% of the company's assets — and more than half its problem loans, he said.

The bigger consolidation there was decided on after a realization that a rebound is unlikely in that state any time soon, he said.

Applications for both the Arizona and Michigan charter consolidations are pending, and Mr. Moran said he did not know when they might be approved.

Capitol's fourth-quarter earnings fell 67%, to $1.1 million. For the year, it swung to a $28.6 million loss, from a $21.9 million profit in 2007.

Oppenheimer's Mr. McEvoy said the fourth-quarter and full-year results make him expect Capitol to lose money this year. This estimate does not take into account any savings from the consolidation.

Mr. Moran did not rule out the possibility of Capitol's merging more banks. "Given the slowdown in the economy, we are continuing to assess opportunities to strengthen our operations and enhance the underlying profitability metrics at all of our affiliates," he said.

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