The selling spree at Capitol Bancorp Ltd. continues.

The $5.4 billion-asset company announced Thursday that it has a definitive agreement to sell the $46.2 million-asset Mountain View Bank of Commerce in Colorado to Cherry Hills Founders Group, a Colorado-based investor group. The price was not disclosed.

This is the second deal the multibank holding company, based in Lansing, Mich., and Phoenix, has announced this week. On Tuesday it said it would sell a 51% stake in Ohio Commerce Bank, through a stock redemption agreement valued at 1.4 times tangible book value.

Since May, Capitol has announced seven such deals as it attempts to build capital to support its bank units, particularly the $1.2 billion-asset Michigan Commerce Bank.

The company, which once had its sights set on 100 charters by 2011 but is now focused on shrinking, is likely to continue shedding what it can next year, analysts said.

"While it has yet to show up in the numbers, I think the strategy is working. We wouldn't be seeing more deals announced if it wasn't," said Terry McEvoy, an analyst with Oppenheimer & Co. "I think we will likely see a similar number of deals announced in 2010."

Capitol did not return a call for comment by press time.

The company said in July that it would spin off its Michigan Commerce Bancorp Ltd. subsidiary, which holds the consolidated bank that until earlier this year was 10 separate charters. Capitol hopes this strategy will dramatically reduce its exposure to Michigan's poor economic conditions, cut its nonperforming assets by nearly a third and boost its value to investors. Michigan Commerce, on the other hand, would start its life as an independent company with 11.07% of its loans noncurrent.

Meanwhile, regulatory experts have said Michigan Commerce's high level of problem loans and dwindling capital could be roadblocks to winning approval of this plan. These concerns were exacerbated in September. At that time Capitol disclosed a formal agreement with the Federal Reserve giving it 60 days to submit a plan for keeping sufficient capital at the company, as well as its banks. Michigan Commerce was specifically mentioned in the agreement.

At the end of the third quarter Michigan Commerce was undercapitalized, with a total risk-based capital ratio of 7.15%. However, Capitol said in its quarterly filing with the Securities and Exchange Commission that this bank was deemed adequately capitalized as of Nov. 9, after it got an $8.3 million infusion from the company.

McEvoy said Capitol likely must significantly pump up Michigan Commerce's capital ratios before regulators will bless the deal. "My view is that Michigan Commerce will need to be well capitalized, if not 'well, well capitalized,' before it is spun out," McEvoy said.

Working in Capitol's favor is the appetite for small community banks by outsider investors, as well as by existing local investors who are approaching or past the time when they expected to be bought out by Capitol.

Not all of the sales have gone smoothly. In November, Capitol announced that a deal to sell 1st Commerce Bank in North Las Vegas had been called off after the buyer, Western Liberty Bancorp, a blank-check company, decided to pursue another acquisition instead.

In addition to selling banks, Capitol is looking to raise capital by consolidating operations of its one-branch banks. This week it announced it had finished consolidating six of its banks in Arizona into one, which has been branded Sunrise Bank of Arizona. McEvoy said he expected the company to consider further consolidation in Southern California and the Pacific Northwest where it operates multiple charters.

Earlier this year Capitol withdrew its application to participate in the Troubled Asset Relief Program after months of waiting. And its attempt to exchange its trust-preferred securities for convertible preferred shares was terminated in October.

Still, McEvoy said private equity will likely become part of the plan to improve Capitol's condition.

Eliot R. Stark, a Michigan-based managing director for the investment bank Capital Insight Partners Inc., said the deals Capitol has to sell some of its banks are encouraging signs, but the real proof of improvement will be in its ability to close the sales.

"I think they are selling them to groups that want to do these deals, but may not have the resources on hand and are instead using the purchase agreements as sale vehicles to raise the money they need," Stark said. "It will be interesting to see which ones get done."

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