Capitol Bancorp Ltd. plans to divest itself of the Bank of Santa Barbara to an investor group led by California banker Eloy Ortega in an effort to strengthen Capitol's equity and core capital ratios.

The lender has executive offices in Michigan and Arizona, two regions especially hard hit by the economic downturn. The community banking company has a network of separately chartered banks in 17 states.

Under the agreement, the investor group will pay a cash consideration approximating 1.6 times the tangible common equity of the $62 million Santa Barbara bank. The deal is expected to close in the second half of the year.

Capitol Bancorp in April hired Keefe, Bruyette & Woods to help it evaluate potential divestitures and has reached agreements in recent months to sell affiliates in Illinois and Arizona. The lender had been cutting costs and selling assets before that, consolidating four other banks in Arizona earlier this year while selling and merging operations last year in Michigan.

Its executives in December agreed to a 10% salary reduction and didn't receive a bonus last year.

Shares were down 3.1% at $1.85 in recent trading. The stock has lost more than 93% of its value since September.

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