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<SEC-DOCUMENT>0000950147-03-000422.txt : 20030328
<SEC-HEADER>0000950147-03-000422.hdr.sgml : 20030328
<ACCEPTANCE-DATETIME>20030328164852
ACCESSION NUMBER: 0000950147-03-000422
CONFORMED SUBMISSION TYPE: 10-K
PUBLIC DOCUMENT COUNT: 9
CONFORMED PERIOD OF REPORT: 20021231
FILED AS OF DATE: 20030328
FILER:
COMPANY DATA:
COMPANY CONFORMED NAME: CAPITOL BANCORP LTD
CENTRAL INDEX KEY: 0000840264
STANDARD INDUSTRIAL CLASSIFICATION: NATIONAL COMMERCIAL BANKS [6021]
IRS NUMBER: 382761672
STATE OF INCORPORATION: MI
FISCAL YEAR END: 1231
FILING VALUES:
FORM TYPE: 10-K
SEC ACT: 1934 Act
SEC FILE NUMBER: 000-18461
FILM NUMBER: 03625870
BUSINESS ADDRESS:
STREET 1: ONE BUSINESS & TRADE CNTR
STREET 2: 200 WASHINGTON SQ N
CITY: LANSING
STATE: MI
ZIP: 48933
BUSINESS PHONE: 5174876555
MAIL ADDRESS:
STREET 1: ONE BUSINESS & TRADE CENTER
STREET 2: 200 WASHINGTON SQUARE NORTH
CITY: LANSING
STATE: MI
ZIP: 48933
</SEC-HEADER>
<DOCUMENT>
<TYPE>10-K
<SEQUENCE>1
<FILENAME>e-9766.txt
<DESCRIPTION>ANNUAL REPORT FOR YEAR ENDED 12/31/2002
<TEXT>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(X) ANNUAL REPORT UNDER SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
for the fiscal year ended December 31, 2002 or
( ) TRANSITION REPORT UNDER SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number: 33-24728C
CAPITOL BANCORP LTD.
(Exact name of registrant as specified in its Charter)
MICHIGAN 38-2761672
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification Number)
CAPITOL BANCORP CENTER
200 WASHINGTON SQUARE NORTH
LANSING, MICHIGAN 48933
(Address of principal executive offices)
Registrant's telephone number, including area code: (517) 487-6555
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, NO PAR VALUE
(Title of class)
8.50% CUMULATIVE TRUST PREFERRED SECURITIES, $10 LIQUIDATION AMOUNT
(Title of class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports); and (2) has been subject to such
filing requirements for the past 90 days.
YES [X] NO [ ]
Indicate by check mark if disclosure of delinquent filers in response to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act).
YES [X] NO [ ]
State the aggregate market value of the voting and non-voting common equity
held by non-affiliates computed by reference to the price at which the common
equity was last sold, or the average bid and asked price of such common
security, as of the last business day of the registrant's most recently
completed second fiscal quarter: $225,733,593. (Such amount was computed based
on shares held by non-affiliates as of March 17, 2003 and the common stock
closing price reported by Nasdaq on June 28, 2002. For purposes of this
computation, all executive officers, directors and 5% shareholders of registrant
have been assumed to be affiliates. Certain of such persons may disclaim that
they are affiliates of registrant.)
Indicate the number of shares outstanding of each of the registrant's
classes of common stock as of the latest practicable date: 11,717,709 as of
March 17, 2003.
DOCUMENTS INCORPORATED BY REFERENCE
See Cross-Reference Sheet
<PAGE>
CAPITOL BANCORP LTD.
Form 10-K
Fiscal Year Ended: December 31, 2002
CROSS REFERENCE SHEET
<TABLE>
<CAPTION>
<S> <C>
ITEM OF FORM 10-K INCORPORATION BY REFERENCE FROM:
- ----------------- --------------------------------
PART I
Item 1, Business Pages 7-10, 18-20, 21-24, 30-31 and 42, Financial
Information Section of Annual Report
Item 2, Properties Page 40, Financial Information Section of Annual Report;
Proxy Statement; and certain individual pages,
Marketing Section of Annual Report
PART II
Item 5, Market for Registrant's Pages 2-3, 41, 43 and 50-51, Financial Information
Common Equity and Related Section of Annual Report
Stockholder Matters
Item 6, Selected Financial Data Page 2, Financial Information Section of Annual Report
Item 7, Management's Discussion Pages 5 and 7-24, Financial Information Section of
and Analysis of Financial Condition Annual Report
and Results of Operations
Item 7a, Quantitative and Qualitative Pages 5 and 21-24, Financial Information Section of
Disclosures About Market Risk Annual Report
Item 8, Financial Statements and Pages 2 and 26-54, Financial Information Section of
Supplementary Data Annual Report
PART III
Item 10, Directors and Executive Officers Proxy Statement
of the Registrant
Item 11, Executive Compensation Proxy Statement
Item 12, Security Ownership of Certain Beneficial Proxy Statement
Owners and Management and
Related Stockholder Matters
Item 13, Certain Relationships and Related Proxy Statement
Transactions
PART IV
Item 15, Exhibits, Financial Statement Schedules Pages 26-54, Financial Information Section of Annual Report
and Reports on Form 8-K
KEY:
"Annual Report" means the 2002 Annual Report of the Registrant provided to Stockholders and the Commission pursuant
to Rule 14a-3(b). Capitol's 2002 Annual Report consists of two documents: a Financial Information
Section and a Marketing Section.
"Proxy Statement" means the Proxy Statement of the Registrant on Schedule 14A to be filed pursuant to Rule 14a-101,
within 120 days after December 31, 2002.
Note: The page number references herein are based on the paper version of the
referenced documents. Accordingly, those page number references may
differ from the electronically filed versions of those documents.
</TABLE>
-2-
<PAGE>
CAPITOL BANCORP LTD.
2002 FORM 10-K ANNUAL REPORT
TABLE OF CONTENTS
Page
----
PART I
ITEM 1. Business........................................................ 5
ITEM 2. Properties...................................................... 15
ITEM 3. Legal Proceedings............................................... 16
ITEM 4. Submission of Matters to a Vote of Security Holders............. 16
PART II
ITEM 5. Market for Registrant's Common Equity and Related
Stockholder Matters .......................................... 17
ITEM 6. Selected Financial Data......................................... 17
ITEM 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations .................................... 17
ITEM 7A. Quantitative and Qualitative Disclosures About Market Risk...... 18
ITEM 8. Financial Statements and Supplementary Data..................... 18
ITEM 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure ..................................... 18
PART III
ITEM 10. Directors and Executive Officers of the Registrant............... 19
ITEM 11. Executive Compensation........................................... 19
ITEM 12. Security Ownership of Certain Beneficial Owners and Management
and Related Stockholder Matters................................ 19
ITEM 13. Certain Relationships and Related Transactions................... 19
ITEM 14. Controls and Procedures.......................................... 20
PART IV
ITEM 15. Exhibits, Financial Statement Schedules and Reports on Form 8-K.. 20
-3-
<PAGE>
FORWARD-LOOKING STATEMENTS
Some of the statements contained in this annual report that are not historical
facts are forward-looking statements. Those forward-looking statements, within
the meaning of the Private Securities Litigation Reform Act of 1995, are subject
to known and unknown risks, uncertainties and other factors which may cause the
actual future results, performance or achievements of Capitol and/or its
subsidiaries and other operating units to differ materially from those
contemplated in such forward-looking statements. The words "intend", "expect",
"project", "estimate", "predict", "anticipate", "should", "will", "may",
"believe", and similar expressions also identify forward-looking statements.
Important factors which may cause actual results to differ from those
contemplated in such forward-looking statements include, but are not limited to:
(i) the results of Capitol's efforts to implement its business strategy, (ii)
changes in interest rates, (iii) legislation or regulatory requirements
adversely impacting Capitol's banking business and/or expansion strategy, (iv)
adverse changes in business conditions or inflation, (v) general economic
conditions, either nationally or regionally, which are less favorable than
expected and that result in, among other things, a deterioration in credit
quality and/or loan performance and collectability, (vi) competitive pressures
among financial institutions, (vii) changes in securities markets, (viii)
actions of competitors of Capitol's banks and Capitol's ability to respond to
such actions, (ix) the cost of capital, which may depend in part on Capitol's
asset quality, prospects and outlook, (x) changes in governmental regulation,
tax rates and similar matters, (xi) changes in management, and (xii) other risks
detailed in Capitol's other filings with the Securities and Exchange Commission.
If one or more of these risks or uncertainties materialize, or if underlying
assumptions prove incorrect, actual outcomes may vary materially from those
indicated. All subsequent written or oral forward-looking statements
attributable to Capitol or persons acting on its behalf are expressly qualified
in their entirety by the foregoing factors. Investors and other interested
parties are cautioned not to place undue reliance on such statements, which
speak as of the date of such statements. Capitol undertakes no obligation to
release publicly any revisions to these forward-looking statements to reflect
events or circumstances after the date of such statements or to reflect the
occurrence of unanticipated events.
[The remainder of this page intentionally left blank]
-4-
<PAGE>
PART I
ITEM 1, BUSINESS.
a. General development of business:
Incorporated by reference from Pages 7-9 under the captions "The Business
of Capitol and its Banks", and "Capitol's Structure", and Pages 31-32, Financial
Information Section of Annual Report, under the caption "Note A--Nature of
Operations, Basis of Presentation and Principles of Consolidation".
b. Financial information about segments:
Incorporated by reference from Pages 31-32, Financial Information Section
of Annual Report, under the caption "Note A--Nature of Operations, Basis of
Presentation and Principles of Consolidation".
c. Narrative description of business:
Incorporated by reference from Pages 7-9 under the captions "The Business
of Capitol and its Banks", and "Capitol's Structure", Pages 31-32, Financial
Information Section of Annual Report, under the caption "Note A--Nature of
Operations, Basis of Presentation and Principles of Consolidation", Page 10,
Financial Information Section of Annual Report, under the caption "Critical
Accounting Policies", Pages 22-25, Financial Information Section of Annual
Report, under the caption "Trends Affecting Operations" and Pages 18-21,
Financial Information Section of Annual Report, under the caption "Liquidity,
Capital Resources and Capital Adequacy".
At December 31, 2002, Capitol and its subsidiaries employed 801 full time
equivalent employees.
In 1997, the Registrant formed Capitol Trust I, a Delaware statutory
business trust. Capitol Trust I's business and affairs are conducted by its
property trustee, a Delaware trustee, and three individual administrative
trustees who are employees and officers of the Registrant. Capitol Trust I
exists for the sole purpose of issuing and selling its preferred securities and
common securities, using the proceeds from the sale of those securities to
acquire subordinated debentures issued by the Registrant and certain related
services. During 2001, the Registrant formed Capitol Trust II and Capitol
Statutory Trust III, in conjunction with private placements of trust-preferred
securities, which are structured similar to Capitol Trust I. Capitol Trust IV
was similarly formed in 2002. Additional information regarding trust-preferred
securities is incorporated by reference from Page 43, Financial Information
Section of Annual Report, under the caption "Note I--Trust-Preferred
Securities".
The following tables (Tables A to G, inclusive), present certain
statistical information regarding Capitol's business.
-5-
<PAGE>
DISTRIBUTION OF ASSETS, LIABILITIES AND STOCKHOLDERS' EQUITY (TABLE A)
CAPITOL BANCORP LIMITED
Net interest income, the primary component of earnings, represents the
difference between interest income on interest-earning assets and interest
expense on interest-bearing liabilities. Net interest income depends upon the
volume of interest-earning assets and interest-bearing liabilities and the rates
earned or paid on them. This table shows the daily average balances for the
major asset and liability categories and the actual related interest income and
expense (in $1,000s) and average yield/cost for the years ended December 31,
2002, 2001 and 2000.
<TABLE>
<CAPTION>
2002 2001
-------------------------------------- --------------------------------------
Interest (1) Interest (1)
Average Income/ Average Average Income/ Average
Balance Expense Yield/Cost Balance Expense Yield/Cost
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Federal funds sold $ 87,460 $ 1,376 1.57% $ 82,237 $ 3,186 3.87%
Interest-bearing deposits with banks 29,592 807 2.73% 16,335 322 1.97%
Investment securities:
U.S. Treasury, government agencies and other 43,447 1,792 4.12% 46,962 2,804 5.97%
States and political subdivisions 470 20 4.26% 1,572 66 4.20%
Loans held for resale 51,042 2,674 5.24% 42,894 3,002 7.00%
Portfolio loans (2) 1,884,646 149,785 7.95% 1,560,337 144,417 9.26%
---------- ---------- ----- ---------- ---------- -----
Total interest-earning
assets/interest income 2,096,657 156,454 7.46% 1,750,337 153,797 8.79%
Allowance for loan losses (deduct) (26,010) (20,337)
Cash and due from banks 99,604 73,573
Premises and equipment, net 18,184 16,910
Other assets 46,699 40,434
---------- ----------
Total assets $2,235,134 $1,860,917
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Interest-bearing deposits:
Savings deposits $ 65,124 1,036 1.59% $ 51,801 1,558 3.01%
Time deposits under $100,000 335,332 12,910 3.85% 356,338 20,533 5.76%
Time deposits of $100,000 or more 550,381 20,546 3.73% 478,497 27,388 5.72%
Other interest-bearing deposits 654,853 13,356 2.04% 479,314 16,176 3.37%
Debt obligations 89,992 3,981 4.42% 68,510 4,422 6.45%
---------- ---------- ---------- ----------
Total interest-bearing
liabilities/interest expense 1,695,682 51,829 3.06% 1,434,460 70,077 4.89%
Trust - preferred securities 50,213 4,031 8.03% 34,112 3,215 9.42%
---------- ---------- ----- ---------- ---------- -----
1,745,895 55,860 3.20% 1,468,572 73,292 4.99%
Noninterest-bearing demand deposits 303,227 236,048
Accrued interest on deposits and
other liabilities 15,738 47,009
Minority interests in consolidated subsidiaries 45,324 38,886
Stockholders' equity 124,950 70,402
---------- ----------
Total liabilities and
stockholders' equity $2,235,134 $1,860,917
========== ---------- ========== ----------
Net interest income $ 100,594 $ 80,505
========== ==========
Interest Rate Spread (3) 4.26% 3.80%
===== =====
Net Yield on Interest-Earning Assets (4) 4.80% 4.60%
===== =====
Ratio of Average Interest-Earning
Assets to Interest-Bearing Liabilities 1.20 1.19
========== ==========
2000
--------------------------------------
Interest (1)
Average Income/ Average
Balance Expense Yield/Cost
ASSETS ---------- ---------- ----------
Federal funds sold $ 63,664 $ 3,985 6.26%
Interest-bearing deposits with banks 13,681 820 5.99%
Investment securities:
U.S. Treasury, government agencies and other 79,092 4,645 5.87%
States and political subdivisions 1,605 80 4.98%
Loans held for resale 11,081 1,044 9.42%
Portfolio loans (2) 1,213,192 121,737 10.03%
---------- ---------- -----
Total interest-earning
assets/interest income 1,382,315 132,311 9.57%
Allowance for loan losses (deduct) (14,866)
Cash and due from banks 54,581
Premises and equipment, net 14,490
Other assets 36,096
----------
Total assets $1,472,616
==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Interest-bearing deposits:
Savings deposits $ 45,251 1,758 3.88%
Time deposits under $100,000 328,605 21,162 6.44%
Time deposits of $100,000 or more 367,751 21,657 5.89%
Other interest-bearing deposits 353,956 15,679 4.43%
Debt obligations 45,249 3,506 7.75%
---------- ----------
Total interest-bearing
liabilities/interest expense 1,140,812 63,762 5.59%
Trust - preferred securities 24,244 2,150 8.87%
---------- ---------- -----
1,165,056 65,912 5.66%
Noninterest-bearing demand deposits 176,804
Accrued interest on deposits and
other liabilities 25,512
Minority interests in consolidated subsidiaries 46,956
Stockholders' equity 58,288
----------
Total liabilities and
stockholders' equity $1,472,616
========== ----------
Net interest income $ 66,399
==========
Interest Rate Spread (3) 3.91%
=====
Net Yield on Interest-Earning Assets (4) 4.80%
=====
Ratio of Average Interest-Earning
Assets to Interest-Bearing Liabilities 1.19
==========
</TABLE>
(1) Average yield/cost is determined by dividing the actual interest
income/expense by the daily average balance of the asset or liability
category.
(2) Average balance of loans includes non-accrual loans.
(3) Interest rate spread represents the average yield on interest-earning
assets less the average cost of interest-bearing liabilities.
(4) Net yield is based on net interest income as a percentage of average total
interest-earning assets.
-6-
<PAGE>
CHANGES IN NET INTEREST INCOME (TABLE B)
CAPITOL BANCORP LIMITED
The table below summarizes the extent to which changes in interest rates and
changes in the volume of interest-earning assets and interest-bearing
liabilities have affected Capitol's net interest income (in $1,000s). The change
in interest attributable to volume is calculated by multiplying the annual
change in volume by the prior year's rate. The change in interest attributable
to rate is calculated by multiplying the annual change in rate by the prior
year's average balance. Any variance attributable jointly to volume and rate
changes has been allocated to each category based on the percentage of each to
the total change in both categories.
<TABLE>
<CAPTION>
2002 compared to 2001 2001 compared to 2000
-------------------------------- --------------------------------
Volume Rate Net Total Volume Rate Net Total
-------- -------- --------- -------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
Increase (decrease) in interest income:
Federal funds sold $ 191 $ (2,001) $ (1,810) $ 970 $ (1,769) $ (799)
Interest-bearing deposits with banks 329 156 485 135 (633) (498)
Investment securities:
U.S. Treasury, government agencies and other (197) (815) (1,012) (1,917) 76 (1,841)
States and political subdivisions (47) 1 (46) (2) (12) (14)
Loans held for resale 509 (837) (328) 2,290 (332) 1,958
Portfolio loans 27,492 (22,124) 5,368 32,707 (10,027) 22,680
-------- -------- -------- -------- -------- --------
Total 28,277 (25,620) 2,657 34,183 (12,697) 21,486
Increase (decrease) in interest expense deposits:
Savings deposits 334 (856) (522) 232 (432) (200)
Time deposits under $100,000 (1,150) (6,473) (7,623) 1,702 (2,331) (629)
Time deposits of $100,000 or more 3,683 (10,525) (6,842) 6,354 (623) 5,731
Other interest-bearing deposits 4,797 (7,617) (2,820) 4,762 (4,265) 497
Debt obligations 1,169 (1,610) (441) 1,575 (659) 916
Trust preferred securities 1,346 (530) 816 923 142 1,065
-------- -------- -------- -------- -------- --------
Total 10,179 (27,611) (17,432) 15,548 (8,168) 7,380
-------- -------- -------- -------- -------- --------
Increase (decrease) in net
interest income $ 18,098 $ 1,991 $ 20,089 $ 18,635 $ (4,529) $ 14,106
======== ======== ======== ======== ======== ========
</TABLE>
-7-
<PAGE>
INVESTMENT PORTFOLIO (TABLE C)
CAPITOL BANCORP LIMITED
The table below shows amortized cost and estimated market value of investment
securities as of December 31, 2002, 2001 and 2000 (in $1,000s):
<TABLE>
<CAPTION>
2002 2001 2000
--------------------- --------------------- ---------------------
Estimated Estimated Estimated
Amortized Market Amortized Market Amortized Market
Cost Value Cost Value Cost Value
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
U.S. Treasury $ 2,505 $ 2,586 $ 3,704 $ 3,757 $ 5,086 $ 5,101
Government agencies 22,460 22,668 30,253 30,429 55,514 55,334
States and political subdivisions 101 101 1,402 1,412 1,604 1,606
Corporate bonds 251 251
--------- --------- --------- --------- --------- ---------
25,066 25,355 35,359 35,598 62,455 62,292
Other securities:
Federal Reserve Bank stock 424 424 394 394 394 394
Federal Home Loan Bank stock 5,950 5,950 4,716 4,716 3,583 3,583
Corporate stock 1,075 1,075 895 895 907 907
Other investments 1,335 1,335 2,084 2,084 1,750 1,750
--------- --------- --------- --------- --------- ---------
Total other securities 8,784 8,784 8,089 8,089 6,634 6,634
--------- --------- --------- --------- --------- ---------
Total investment securities $ 33,850 $ 34,139 $ 43,448 $ 43,687 $ 69,089 $ 68,926
========= ========= ========= ========= ========= =========
</TABLE>
The table below shows the amortized cost, relative maturities and weighted
average yields of investment securities at December 31, 2002 (in $1,000s):
<TABLE>
<CAPTION>
U.S. Treasury and States and Political
Government Agencies Subdivisions
--------------------------------- --------------------------------- Total
Estimated Weighted Estimated Weighted Total Estimated
Amortized Market Average Amortized Market Average Amortized Market
Cost Value Yield Cost Value Yield Cost Value
--------- --------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Maturity:
Due in one year or less $ 3,411 $ 3,445 4.38% $ 3,411 $ 3,445
Due after one year but within
five years 17,375 17,551 3.68% 17,375 17,551
Due after five years but within
ten years 1,664 1,682 5.69% $ 101 $ 101 5.40% 1,765 1,783
Due after ten years 2,515 2,576 6.65% 2,515 2,576
Without stated maturities 8,784 8,784
--------- --------- --------- --------- --------- ---------
Total $ 24,965 $ 25,254 $ 101 $ 101 $ 33,850 $ 34,139
========= ========= ========= ========= ========= =========
</TABLE>
Investment securities which do not have stated maturities (corporate stock,
Federal Reserve Bank and Federal Home Loan Bank stock) do not have stated
yields or rates of return and such rates of return vary from time to time.
Following is a summary of the weighted average maturities of investment
securities (exclusive of securities without stated maturities) at December 31,
2002:
U.S. Treasury securities 1 year 7 months
U.S. Agencies 5 years 7 months
States and political subdivisions 6 years
-8-
<PAGE>
LOAN PORTFOLIO AND SUMMARY OF OTHER REAL ESTATE OWNED (TABLE D)
CAPITOL BANCORP LIMITED
Portfolio loans outstanding as of December 31 are shown below (in $1,000s):
<TABLE>
<CAPTION>
2002 2001 2000 1999 1998
------------------- ------------------- ------------------- ------------------- -------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Commercial - real estate $1,531,637 76.91% $1,154,757 66.57% $ 865,382 63.83% $ 627,029 59.76% $ 417,296 57.62%
Commercial - other 257,399 12.93% 380,694 21.95% 308,354 22.74% 247,531 23.59% 173,055 23.89%
---------- ------ ---------- ------ ---------- ------ ---------- ------ ---------- ------
Total commercial loans 1,789,036 89.84% 1,535,451 88.52% 1,173,736 86.57% 874,560 83.35% 590,351 81.51%
Real estate mortgage 127,855 6.42% 121,676 7.01% 113,324 8.36% 96,000 9.15% 80,808 11.16%
Installment 74,481 3.74% 77,462 4.47% 68,738 5.07% 78,644 7.50% 53,121 7.33%
---------- ------ ---------- ------ ---------- ------ ---------- ------ ---------- ------
Total portfolio loans $1,991,372 100.00% $1,734,589 100.00% $1,355,798 100.00% $1,049,204 100.00% $ 724,280 100.00%
========== ====== ========== ====== ========== ====== ========== ====== ========== ======
</TABLE>
The table below summarizes (in $1,000s) the remaining maturity of portfolio
loans outstanding at December 31, 2002 according to scheduled repayments of
principal.
<TABLE>
<CAPTION>
Fixed Variable
Rate Rate Total
---------- ---------- ----------
<S> <C> <C> <C>
Aggregate maturities of portfolio loan balances
which are due in one year or less: $ 339,821 $ 735,247 $1,075,068
After one year but within five years 547,397 263,338 810,735
After five years 28,363 60,589 88,952
Nonaccrual loans 16,617 16,617
---------- ---------- ----------
Total $ 932,198 $1,059,174 $1,991,372
========== ========== ==========
</TABLE>
The following summarizes, in general, Capitol's various loan classifications:
Commercial - real estate
Comprised of a broad mix of business use and multi-family housing
properties, including office, retail, warehouse and light industrial uses.
A typical loan size approximates $500,000 and, at December 31, 2002,
approximately 25% of such properties were owner-occupied and approximately
11% of the commercial real estate total consisted of a combination of
multi-family and residential rental income properties.
Commercial - other
Includes a range of business credit products, current asset lines of credit
and equipment term loans. These products bear higher inherent economic risk
than other types of lending activities. A typical loan size approximates
$250,000, and multiple account relationships serve to reduce such risks.
Real Estate Mortgage
Includes single family residential loans held for permanent portfolio, and
home equity lines of credit. Risks are nominal, borne out by loss
experience, housing economic data and loan-to-value percentages.
Installment
Includes a broad range of consumer credit products, secured by automobiles,
boats, etc., with typical consumer credit risks.
All loans are subject to underwriting procedures commensurate with the loan
size, nature of collateral, industry trends, risks and experience factors.
Appropriate collateral is required for most loans, as is documented evidence of
debt repayment sources.
-9-
<PAGE>
TABLE D, CONTINUED
CAPITOL BANCORP LIMITED
The aggregate amount of nonperforming portfolio loans is summarized below as of
December 31 (in $1,000's). Nonperforming loans are comprised of (a) loans
accounted for on a nonaccrual basis and (b) loans contractually past due 90 days
or more as to principal and interest payments (but not included in nonaccrual
loans in (a) above) and consist primarily of commercial real estate loans. See
Note D of the Notes to Consolidated Financial Statements for additional
information regarding nonperforming loans.
<TABLE>
<CAPTION>
2002 2001 2000 1999 1998
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Nonperforming loans:
Nonaccrual loans: Commercial $ 15,444 $ 11,220 $ 4,082 $ 2,709 $ 2,608
Real estate 560 356 163 103 199
Installment 613 466 171 100 185
-------- -------- -------- -------- --------
Total nonaccrual loans 16,617 12,042 4,416 2,912 2,992
Past due loans: Commercial 5,728 4,290 1,656 834 3,963
Real estate 323 787 534 196 183
Installment 222 119 151 182 104
-------- -------- -------- -------- --------
Total past due loans 6,273 5,196 2,341 1,212 4,250
-------- -------- -------- -------- --------
Total nonperforming loans $ 22,890 $ 17,238 $ 6,757 $ 4,124 $ 7,242
======== ======== ======== ======== ========
Nonperforming loans as a percentage
of total portfolio loans 1.15% 0.99% 0.50% 0.39% 1.00%
======== ======== ======== ======== ========
Nonperforming loans as a percentage
of total assets 0.95% 0.84% 0.41% 0.32% 0.71%
======== ======== ======== ======== ========
Allowance for loan losses as a
percentage of nonperforming loans 126.49% 134.81% 258.24% 306.47% 121.75%
======== ======== ======== ======== ========
</TABLE>
In addition to the identification of nonperforming loans involving borrowers
with payment performance difficulties (i.e., nonaccrual loans and loans past-due
90 days or more), management utilizes an internal loan review process to
identify other potential problem loans which may warrant additional monitoring
or other attention. This loan review process is a continuous activity which
periodically updates internal loan classifications. At inception, all loans are
individually assigned a classification which grade the credits on a risk basis,
based on the type and discounted value of collateral, financial strength of the
borrower and guarantors and other factors such as nature of the borrowers'
business climate, local economic conditions and other subjective factors. The
loan classification process is fluid and subjective.
Potential problem loans include loans which are generally performing as agreed;
however, because of loan review's and/or lending staff's risk assessment,
increased monitoring is deemed appropriate. In addition, some loans are
identified for monitoring because of specific performance issues or other risk
factors requiring closer management and development of specific remedial action
plans.
At December 31, 2002, potential problem loans (including nonperforming loans)
approximated $98.5 million or about 5% of total consolidated portfolio loans.
Such totals typically approximate 4% to 5% of loans outstanding as an important
part of management's ongoing and augmented loan review activities which are
designed to early-identify loans which warrant close monitoring at the bank and
corporate credit-administration levels. It is important to note that these
potential problem loans do not necessarily have significant loss exposure (nor
are they necessarily deemed 'impaired'), but rather are identified by management
in this manner to aid in loan administration and risk management. Management
believes these loans to be adequately considered in its evaluation of the
adequacy of the allowance for loan losses. Management believes, however, that
current general economic conditions may result in higher levels of future loan
losses, in comparison to previous years.
The table below summarizes activity in other real estate owned (in $1,000s) for
the year ended December 31:
<TABLE>
<CAPTION>
2002 2001 2000 1999 1998
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Other real estate owned at January 1 $ 3,044 $ 3,094 $ 3,614 $ 541 $ 165
Properties acquired in restructure
of loans or in lieu of foreclosure 4,578 860 324 3,426 612
Properties sold (2,998) (233) (717) (376) (161)
Payments received from borrowers or
tenants, credited to carrying amount -- (3) -- -- (75)
Other changes, net (19) (674) (127) 23 --
-------- -------- -------- -------- --------
Other real estate owned at December 31 $ 4,605 $ 3,044 $ 3,094 $ 3,614 $ 541
======== ======== ======== ======== ========
</TABLE>
Of the other real estate owned at December 31, 2002, one property, with a
carrying value of $1.7 million is partially guaranteed by an agency of the
federal government. Other real estate owned is valued at the lower of cost or
fair value (net of estimated selling cost) at the date of transfer/acquisition.
Management performs a periodic analysis of estimated fair values to determine
potential impairment of other real estate owned.
-10-
<PAGE>
SUMMARY OF LOAN LOSS EXPERIENCE (TABLE E)
CAPITOL BANCORP LIMITED
The table below summarizes changes in the allowance for loan losses and related
portfolio data and ratios for the year ended December 31 (in $1,000's):
<TABLE>
<CAPTION>
2002 2001 2000 1999 1998
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Allowance for loan losses at January 1 $ 23,238 $ 17,449 $ 12,639 $ 8,817 $ 6,229
Loans charged-off:
Commercial 6,824 2,280 2,850 1,201 1,165
Real estate 352 143 204 9
Installment 527 506 117 97 131
---------- ---------- ---------- ---------- ----------
Total charge-offs 7,703 2,929 3,171 1,298 1,305
Recoveries:
Commercial 588 485 734 391 336
Real estate 61 37 13 6 4
Installment 93 29 18 13 30
---------- ---------- ---------- ---------- ----------
Total recoveries 742 551 765 410 370
---------- ---------- ---------- ---------- ----------
Net charge-offs 6,961 2,378 2,406 888 935
Additions to allowance charged to expense 12,676 8,167 7,216 4,710 3,523
---------- ---------- ---------- ---------- ----------
Allowance for loan losses at December 31 $ 28,953 $ 23,238 $ 17,449 $ 12,639 $ 8,817
========== ========== ========== ========== ==========
Total portfolio loans outstanding at December 31 $1,991,372 $1,734,589 $1,355,798 $1,049,204 $ 724,280
========== ========== ========== ========== ==========
Ratio of allowance for loan losses to
portfolio loans outstanding 1.45% 1.34% 1.29% 1.20% 1.22%
========== ========== ========== ========== ==========
Average total portfolio loans for the year $1,884,646 $1,560,337 $1,213,192 $ 872,481 $ 605,923
========== ========== ========== ========== ==========
Ratio of net charge-offs to average
portfolio loans outstanding 0.37% 0.15% 0.20% 0.10% 0.15%
========== ========== ========== ========== ==========
</TABLE>
See Item 7, Management's Discussion and Analysis of Financial Condition and
Results of Operations, for additional information regarding the allowance for
loan losses and description of factors which influence management's judgment in
determining the amounts of additions to the allowance.
-11-
<PAGE>
SUMMARY OF LOAN LOSS EXPERIENCE (TABLE E CONTINUED)
CAPITOL BANCORP LIMITED
The amount of the allowance for loan losses allocated in the following table (in
$1,000's) as of December 31, is based on management's estimate of losses
inherent in the portfolio at the balance sheet date, and should not be
interpreted as an indication of future charge-offs:
<TABLE>
<CAPTION>
2002 2001 2000
------------------------ ------------------------ ------------------------
Percentage Percentage Percentage
Amount of Loans Amount of Loans Amount of Loans
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Commercial $ 27,226 1.37% $ 20,570 1.19% $ 16,096 1.19%
Real estate mortgage 1,009 0.05% 1,630 0.09% 285 0.02%
Installment 718 0.03% 1,038 0.06% 1,068 0.08%
Unallocated -- -- --
---------- ---------- ----------
Total allowance for loan losses $ 28,953 1.45% $ 23,238 1.34% $ 17,449 1.29%
========== ===== ========== ===== ========== =====
Total portfolio loans outstanding $1,991,372 $1,734,589 $1,355,798
========== ========== ==========
1999 1998
------------------------ ------------------------
Percentage Percentage
Amount of Loans Amount of Loans
---------- ---------- ---------- ----------
Commercial $ 5,965 0.57% $ 4,501 0.62%
Real estate mortgage 165 0.02% 127 0.02%
Installment 385 0.04% 262 0.04%
Unallocated 6,124 0.58% 3,927 0.54%
---------- ----------
Total allowance for loan losses $ 12,639 1.20% $ 8,817 1.22%
========== ===== ========== =====
Total portfolio loans outstanding $1,049,204 $ 724,280
========== ==========
</TABLE>
-12-
<PAGE>
AVERAGE DEPOSITS (TABLE F)
CAPITOL BANCORP LIMITED
The table below summarizes the average balances of deposits (in $1,000s) and the
average rates of interest for the years ended December 31, 2002, 2001 and 2000:
<TABLE>
<CAPTION>
2002 2001 2000
------------------------ ------------------------ ------------------------
Average Average Average
Amount Rate Amount Rate Amount Rate
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Noninterest-bearing demand deposits $ 303,227 $ 236,048 $ 176,804
Savings deposits 65,124 1.59% 51,801 3.01% 45,251 3.88%
Time deposits under $100,000 335,332 3.85% 356,338 5.76% 328,605 6.44%
Time deposits of $100,000 or more 550,381 3.73% 478,497 5.72% 367,751 5.89%
Other interest-bearing deposits 654,853 2.04% 479,314 3.37% 353,956 4.43%
---------- ---------- ----------
Total deposits $1,908,917 $1,601,998 $1,272,367
========== ========== ==========
</TABLE>
The table below shows the amount of time certificates of deposit issued in
amounts of $100,000 or more, by time remaining until maturity, which were
outstanding at December 31, 2002 (in $1,000s):
Three months or less $ 140,408
Three months to six months 103,259
Six months to twelve months 154,125
Over 12 months 166,768
----------
Total $ 564,560
==========
-13-
<PAGE>
FINANCIAL RATIOS (TABLE G)
CAPITOL BANCORP LIMITED
Year Ended December 31
------------------------
2002 2001 2000
------ ------ ------
Net income as a percentage of:
Average stockholders' equity 13.33% 15.22% 13.78%
Average total assets 0.75% 0.58% 0.55%
Capital ratios:
Average stockholders' equity as a
percentage of average total assets 5.59% 3.78% 3.96%
Average total equity (stockholders' equity and
minority interests in consolidated subsidiaries)
as a percentage of average total assets 7.62% 5.87% 7.15%
Average total capital funds (stockholders'
equity, minority interests in consolidated
subsidiaries and trust-preferred securities)
as a percentage of average total assets 9.86% 7.71% 8.79%
Dividend payout ratio (cash dividends per share
as a percentage of net income per share):
Basic 26.83% 28.99% 31.58%
Diluted 28.03% 29.63% 31.86%
-14-
<PAGE>
ITEM 2, PROPERTIES.
Substantially all of the office locations are leased. Each of Capitol's
banks operates from a single location, except Capitol National Bank (which has
two branch locations, one in Okemos and one in Lansing, Michigan), Red Rock
Community Bank (which has two locations in Las Vegas, Nevada), Mesa Bank (which
has two locations in Mesa, Arizona) and Sunrise Bank of Arizona (which has
multiple office locations). The addresses of each bank's main office are shown
in the Marketing Section of Annual Report, which are incorporated herein by
reference, from the following captioned pages therein:
Ann Arbor Commerce Bank Macomb Community Bank
Arrowhead Community Bank Mesa Bank
Bank of Tucson Muskegon Commerce Bank
Bank of Las Vegas Napa Community Bank
Black Mountain Community Bank Oakland Commerce Bank
Brighton Commerce Bank Paragon Bank & Trust
Camelback Community Bank Portage Commerce Bank
Capitol National Bank Red Rock Community Bank
Desert Community Bank Southern Arizona Community Bank
Detroit Commerce Bank Sunrise Bank of Albuquerque
East Valley Community Bank Sunrise Bank of Arizona
Elkhart Community Bank Sunrise Bank of San Diego
Goshen Community Bank Valley First Community Bank
Grand Haven Bank Yuma Community Bank
Kent Commerce Bank
Ann Arbor Commerce Bank, in 1998, and Portage Commerce Bank, in 1997,
relocated their main offices to substantially larger leased facilities
(approximately 18,000 and 10,000 square feet, respectively) in response to asset
growth and to better serve customers. Grand Haven Bank owns its stand-alone bank
facility.
Most of the other bank subsidiaries' facilities are generally small (i.e.,
less than 10,000 square feet), first floor offices with convenient access to
parking.
Some of the banks have drive-up customer service. The banks are typically
located in or near high traffic centers of commerce in their respective
communities. Customer service is enhanced through utilization of ATMs to process
some customer-initiated transactions and some of the banks also make available a
courier service to pick up transactions at customers' locations.
Capitol's Great Lakes headquarters are located within the same building as
Capitol National Bank in Lansing, Michigan. Those headquarters include
administrative, operations, accounting, and executive staff. Data processing
centers are located in Lansing, Michigan and Tempe, Arizona.
Capitol's Western Regions headquarters are located within the same building
as Camelback Community Bank in Phoenix, Arizona.
Certain of the office locations are leased from related parties.
Incorporated by reference from Page 41, Financial Information Section of Annual
Report, under the caption "Note F--Premises and Equipment". Additional
disclosures regarding leases with related parties are incorporated by reference
from the Corporation's definitive proxy statement to be filed within 120 days
after December 31, 2002.
Management believes Capitol's and its subsidiaries' offices to be in good
and adequate condition and adequately covered by insurance.
-15-
<PAGE>
ITEM 3, LEGAL PROCEEDINGS.
As of December 31, 2002, there were no material pending legal proceedings
to which Capitol or its subsidiaries is a party or to which any of its property
was subject, except for proceedings which arise in the ordinary course of
business. In the opinion of management, pending legal proceedings will not have
a material effect on the consolidated financial position or results of
operations of Capitol.
ITEM 4, SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
During the fourth quarter of 2002, no matters were submitted to a vote by
security holders.
[The remainder of this page intentionally left blank]
-16-
<PAGE>
PART II
ITEM 5, MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
A. Market Information:
Incorporated by reference from Page 3, Financial Information Section
of Annual Report, under the caption "Information Regarding Capitol's Common
Stock", Pages 44-45 under the caption "Note J--Common Stock, Warrants and
Stock Options" and Page 4, under the caption "Shareholder Information".
B. Holders:
Incorporated by reference from first sentence of third paragraph on
Page 3, Financial Information Section of Annual Report, under the caption
"Information Regarding Capitol's Common Stock".
C. Dividends:
Incorporated by reference from Page 2, Financial Information Section
of Annual Report, under the caption "Quarterly Results of Operations" and
subcaption "Cash dividends paid per share", Pages 50-51, Financial
Information Section of Annual Report, under the caption "Note P--Dividend
Limitations of Subsidiaries and Other Capital Requirements" and the last
paragraph on Page 42, Financial Information Section of Annual Report, under
the caption "Note H--Debt Obligations".
D. Securities Authorized for Issuance Under Equity Compensation Plan:
Summary of equity compensation plans as of December 31, 2002:
<TABLE>
<CAPTION>
Weighted Average Number Available
Number Exercise for Future
Outstanding Price Issuance
--------- ------ ---------
<S> <C> <C> <C>
Equity compensation plans:
Approved by shareholders 450,394 $11.87 114,501
Not approved by shareholders 446,511 15.63 --
Resulting from share exchanges 1,651,631 16.20 --
--------- ------ ---------
Total 2,548,536 $15.23 114,501
========= ====== =========
</TABLE>
ITEM 6, SELECTED FINANCIAL DATA.
Incorporated by reference from Page 2, Financial Information Section of
Annual Report, under the caption "Selected Consolidated Financial Data" under
the column heading "As of and for the Year Ended December 31, 2002, 2001, 2000,
1999 and 1998".
ITEM 7, MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
Incorporated by reference from Pages 7-25, Financial Information Section of
Annual Report, under the caption "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and Page 5, Financial Information
Section of Annual Report, under the caption "Forward Looking Statements".
-17-
<PAGE>
ITEM 7A, QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Incorporated by reference from Pages 21-24, Financial Information Section
of Annual Report, under the caption "Trends Affecting Operations" and Page 5,
Financial Information Section of Annual Report, under the caption "Forward
Looking Statements".
ITEM 8, FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
See Item 14 (under subcaption "A. Exhibits") of this Form 10-K for specific
description of financial statements incorporated by reference from Financial
Information Section of Annual Report.
Incorporated by reference from Page 2, Financial Information Section of
Annual Report, under the caption "Quarterly Results of Operations".
ITEM 9, CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
-18-
<PAGE>
PART III
ITEM 10, DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Incorporated by reference from Corporation's definitive proxy statement to
be filed within 120 days after December 31, 2002.
Executive officers of Capitol are as follows:
<TABLE>
<CAPTION>
Name and Year First Became
Principal Positions Age An Officer
------------------------------------------------- ----- -----------------
<S> <C> <C>
Joseph D. Reid 60 1988
Chairman, President and Chief Executive Officer
David O'Leary 72 1988
Secretary
Robert C. Carr 63 1988
Executive Vice President and Treasurer
David J. Dutton 52 2000
Chief Information Officer
Cristin Reid English 34 1997
Chief Administrative Officer
Lee W. Hendrickson 47 1991
Chief Financial Officer
Michael L. Kasten 57 2002
Vice Chairman
Lyle W. Miller 59 2002
Vice Chairman
John S. Lewis 49 2002
President - Western Regions
Michael M. Moran 43 2000
Chief of Capital Markets
David K. Powers 57 1990
Director of Loan Administration
William E. Rheaume 61 1998
Senior Counsel
Bruce A. Thomas 45 1998
Chief of Bank Performance, Great Lakes Region
Brian K. English 37 2001
General Counsel
Carl C. Farrar 53 1998
Senior Vice President
John C. Smythe 56 1983
Senior Vice President
Marie D. Walker 43 1990
Senior Vice President, Accounting
Linda D. Pavona 51 1991
Senior Vice President
</TABLE>
ITEM 11, EXECUTIVE COMPENSATION.
Incorporated by reference from Corporation's definitive proxy statement to
be filed within 120 days after December 31, 2002.
ITEM 12, SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
Incorporated by reference from Corporation's definitive proxy statement to
be filed within 120 days after December 31, 2002.
ITEM 13, CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Incorporated by reference from Corporation's definitive proxy statement to
be filed within 120 days after December 31, 2002.
-19-
<PAGE>
PART III, CONTINUED
ITEM 14, CONTROLS AND PROCEDURES.
(a) EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES.
Disclosure controls and procedures (as defined in Rules 13a-14 and 15d-14
of the Securities Exchange Act of 1934) were evaluated as of December 31,
2002 ("Evaluation Date"). Such evaluation concluded that Capitol's
disclosure controls and procedures are effective to ensure that material
information relating to Capitol, including its consolidated subsidiaries,
is made known to Capitol's senior management, particularly during the
period for which this annual report has been prepared.
(b) CHANGES IN INTERNAL CONTROL.
As of the signature date of this report, there have been no significant
changes in Capitol's internal controls or in other factors that could
significantly affect internal controls subsequent to the Evaluation Date
referred to in (a) above.
(c) ASSET-BACKED ISSUERS.
Not applicable.
PART IV
ITEM 15, EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
A. Exhibits:
The following consolidated financial statements of Capitol Bancorp
Limited and subsidiaries and report of independent auditors included on
Pages 26-54 of the Financial Information Section of Annual Report of the
Registrant to its stockholders for the year ended December 31, 2002, are
incorporated by reference in Item 8:
Report of Independent Auditors.
Consolidated balance sheets--December 31, 2002 and 2001.
Consolidated statements of income--Years ended December 31, 2002, 2001
and 2000.
Consolidated statements of changes in stockholders' equity--Years
ended December 31, 2002, 2001 and 2000.
Consolidated statements of cash flows--Years ended December 31, 2002,
2001 and 2000.
Notes to consolidated financial statements.
All financial statements and schedules have been incorporated by
reference from the Annual Report or are included in Management's Discussion
and Analysis of Financial Condition and Results of Operations. No schedules
are included here because they are either not required, not applicable or
the required information is contained elsewhere.
B. Reports on Form 8-K:
During the fourth quarter of 2002, no reports on Form 8-K were filed by the
Registrant.
-20-
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
CAPITOL BANCORP LTD.
Registrant
By: /s/ Joseph D. Reid By: /s/ Lee W. Hendrickson
--------------------------------- ----------------------------------
Joseph D. Reid Lee W. Hendrickson
Chairman and Chief Financial Officer
Chief Executive Officer (Principal Financial and
Accounting Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant as
Directors of the Corporation on March 28, 2003.
/s/ Joseph D. Reid /s/ Robert C. Carr
- ------------------------------------- ----------------------------------
Joseph D. Reid, Chairman, Robert C. Carr, Executive Vice
Chief Executive Officer and Director President, Treasurer and Director
/s/ David O'Leary /s/ Michael L. Kasten
- ------------------------------------ ----------------------------------
David O'Leary, Secretary and Director Michael L. Kasten, Vice Chairman
and Director
/s/ Lyle W. Miller
- ------------------------------------- ----------------------------------
Lyle W. Miller, Vice Chairman and Louis G. Allen, Director
Director
/s/ Paul R. Ballard /s/ David L. Becker
- ------------------------------------- ----------------------------------
Paul R. Ballard, Director David L. Becker, Director
/s/ Douglas E. Crist /s/ Michael J. Devine
- ------------------------------------- ----------------------------------
Douglas E. Crist, Director Michael J. Devine, Director
/s/ James C. Epolito /s/ Gary A. Falkenberg
- ------------------------------------- ----------------------------------
James C. Epolito, Director Gary A. Falkenberg, Director
/s/ Kathleen A. Gaskin
- ------------------------------------- ----------------------------------
Joel I. Ferguson, Director Kathleen A. Gaskin, Director
/s/ H. Nicholas Genova /s/ Michael F. Hannley
- ------------------------------------- ----------------------------------
H. Nicholas Genova, Director Michael F. Hannley, Director
/s/ Lewis D. Johns /s/ John S. Lewis
- ------------------------------------- ----------------------------------
Lewis D. Johns, Director John S. Lewis, President, Western
Regions and Director
/s/ Humberto S. Lopez /s/ Leonard Maas
- ------------------------------------- ----------------------------------
Humberto S. Lopez, Director Leonard Maas, Director
/s/ Kathryn L. Munro /s/ Cristin Reid English
- ------------------------------------- ----------------------------------
Kathryn L. Munro, Director Cristin Reid English, Chief
Administrative Officer and
Director
/s/ Ronald K. Sable
- -------------------------------------
Ronald K. Sable, Director
-21-
<PAGE>
CERTIFICATIONS
I, Joseph D. Reid, Chairman and CEO, certify that:
1. I have reviewed this annual report on Form 10-K of Capitol Bancorp Ltd.;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the
period in which this annual report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this annual
report (the "Evaluation Date"); and
c) presented in this annual report our conclusions about the effectiveness of
the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent function):
a) all significant deficiencies in the design or operation of internal controls
which could adversely affect the registrant's ability to record, process,
summarize and report financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this
annual report whether or not there were significant changes in internal controls
or in other factors that could significantly affect internal controls subsequent
to the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
Date: March 28, 2003
/s/ Joseph D. Reid
-----------------------------
Joseph D. Reid
Chairman and CEO
-22-
<PAGE>
CERTIFICATIONS--CONTINUED
I, Lee W. Hendrickson, Chief Financial Officer, certify that:
1. I have reviewed this annual report on Form 10-K of Capitol Bancorp Ltd.;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the
period in which this annual report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this annual
report (the "Evaluation Date"); and
c) presented in this annual report our conclusions about the effectiveness of
the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent function):
a) all significant deficiencies in the design or operation of internal controls
which could adversely affect the registrant's ability to record, process,
summarize and report financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this
annual report whether or not there were significant changes in internal controls
or in other factors that could significantly affect internal controls subsequent
to the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
Date: March 28, 2003
/s/ Lee W. Hendrickson
--------------------------
Lee W. Hendrickson
Chief Financial Officer
-23-
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
PAGE NUMBER OR
INCORPORATED BY
EXHIBIT NO. DESCRIPTION REFERENCE FROM:
- ----------- ----------- ---------------
<S> <C> <C> <C>
3 Articles of Incorporation and
Bylaws (1)
4 Instruments Defining the Rights
of Security Holders:
(a) Common Stock Certificate (1)
(b) Indenture dated December 18, 1997 (14)
(c) Subordinated Debenture (14)
(d) Amended and Restated Trust Agreement
dated December 18, 1997 (14)
(e) Preferred Security Certificate dated
December 18, 1997 (14)
(f) Preferred Securities Guarantee Agreement
of Capitol Trust I dated December 18, 1997 (14)
(g) Agreement as to Expenses and Liabilities
of Capitol Trust I (14)
(h) Capitol Bancorp Ltd. 2000 Incentive
Stock Plan
10 Material Contracts:
(a) Joseph D. Reid Employment
Agreement (as amended effective
January 1, 1989) (2)
(b) Profit Sharing/401(k) Plan
(as amended and restated April 1, 1995) (13)
(b1) First and Second Amendments to Profit Sharing/
401(k) Plan (15)
(b2) Third, Fourth and Fifth Amendments to Profit
Sharing/401(k) Plan (17)
(b3) Sixth, Seventh, Eighth and Ninth Amendments
to Profit Sharing/401(k) Plan (18)
(b4) Tenth, Eleventh, Twelfth, Thirteenth,
Fourteenth and Fifteenth Amendments to
Profit Sharing/401(k) Plan (20)
(b5) Sixteenth and Seventeenth Amendments to
Profit Sharing 401(k) Plan
(c) Lease Agreement with Business &
Trade Center, Ltd. (11)
(d) Employee Stock Ownership Plan
(as amended and restated February 10, 1994) (12)
(d1) Second and Third Amendments to Employee
Stock Ownership Plan (15)
(d2) Fourth Amendment to Employee Stock
Ownership Plan (17)
(d3) Fifth Amendment to Employee Stock
Ownership Plan (18)
(e) Employment Agreements with
Robert C. Carr, John C. Smythe,
and Charles J. McDonald (2)
</TABLE>
-24-
<PAGE>
<TABLE>
<CAPTION>
PAGE NUMBER OR
INCORPORATED BY
EXHIBIT NO. DESCRIPTION REFERENCE FROM:
- ----------- ----------- ---------------
<S> <C> <C> <C>
10 Material Contracts--continued:
(f) Executive Supplemental Income Agreements with Robert
C. Carr, Paul R. Ballard, Richard G. Dorner, James R.
Kaye, Scott G. Kling, John D. Groothuis, David K.
Powers, John C. Smythe and Charles J. McDonald (13)
(g) Amendment to Employment Agreement
of Joseph D. Reid, dated October 2, 1989 (3)
(h) Consolidation Agreement between
the Corporation and Portage
Commerce Bank (4)
(i) Amendment to Employment Agreement
of Joseph D. Reid, dated
January 30, 1990 (5)
(j) Employment Agreements with
Paul R. Ballard and Richard G.
Dorner (6)
(k) Employment Agreement with
David K. Powers (7)
(l) Definitive Exchange Agreement and
Closing Memorandum between the
Registrant and United Savings
Bank, FSB (8)
(m) Employment Agreement with James R. Kaye (9)
(n) Definitive Exchange Agreement between the
Registrant and Financial Center Corporation (10)
(o) Employment Agreement by and between Sun
Community Bancorp Limited and Joseph D.
Reid. (Exhibit 10.1 of Sun Community
Bancorp Limited) (16)
(p) Employment Agreement by and between Sun
Community Bancorp Limited and John S.
Lewis. (Exhibit 10.7 of Sun Community
Bancorp Limited) (16)
(q) Anti-dilution Agreement by and between Sun
Community Bancorp Limited and Capitol
Bancorp Ltd. (Exhibit 10.10 of Sun
Community Bancorp Limited) (16)
(r) Plan of Share Exchange dated November
16, 2001 between and among Capitol
Bancorp Ltd, and Sun Community Bancorp
Limited (19)
13 Annual Report to Security Holders
A. Marketing Section of 2002 Annual Report
B. Financial Information Section of 2002
Annual Report
</TABLE>
-25-
<PAGE>
<TABLE>
<CAPTION>
PAGE NUMBER OR
INCORPORATED BY
EXHIBIT NO. DESCRIPTION REFERENCE FROM:
- ----------- ----------- ---------------
<S> <C> <C> <C>
21 Subsidiaries of the Registrant
23 Consent of BDO Seidman, LLP
99.1 Certification of Chief Executive Officer,
Joseph D. Reid, pursuant to Section 906
of the Sarbanes-Oxley Act of 2002.
99.2 Certification of Chief Financial Officer,
Lee W. Hendrickson, pursuant to Section 906
of the Sarbanes-Oxley Act of 2002.
</TABLE>
KEY:
- ----
(1) Form S-18, Reg. No. 33-24728C, filed September 15, 1988.
(2) Form S-1, Reg. No. 33-30492, filed August 14, 1989.
(3) Amendment No. 1 to Form S-1, Reg. No. 33-31323, filed November 20, 1989.
(4) Form S-1, Reg. No. 33-31323, filed September 29, 1989.
(5) Originally filed as exhibit to Form 10-K for year ended December 31, 1989,
filed March 30, 1990; refiled as exhibit to Form 10-KSB for year ended
December 31, 1995, filed March 14, 1996, due to time limit for
incorporation by reference pursuant to Regulation SB Item 10(f).
(6) Originally filed as exhibit to Form 10-K for year ended December 31, 1990,
filed March 6, 1991; refiled as exhibit to Form 10-KSB for year ended
December 31, 1995, filed March 14, 1996, due to time limit for
incorporation by reference pursuant to Regulation SB Item 10(f).
(7) Form 10-K for year ended December 31, 1991, filed February 28, 1992.
(8) Form 8-K dated July 15, 1992, as amended under Form 8 on September 14,
1992.
(9) Form 10-KSB for year ended December 31, 1992, filed February 25, 1993.
(10) Form S-4, Reg. No. 33-73474, filed December 27, 1993.
(11) Form 10-KSB for year ended December 31, 1993, filed March 14, 1994.
(12) Form 10-KSB for year ended December 31, 1994, filed March 15, 1995.
(13) Form 10-KSB for the year ended December 31, 1995, filed March 14, 1996.
(14) Post Effective Amendment No.1 to Form S-3, Reg. No. 333-41215 and
333-41215-01 filed February 9, 1998.
(15) Form 10-K for year ended December 31, 1998, filed March 17, 1999.
(16) Amendment No. 2 to the Registration Statement on Form S-1 of Sun Community
Bancorp Limited (Registration No. 333-76719) dated June 15, 1999.
(17) Form 10-K for year ended December 31, 1999, filed March 27, 2000.
(18) Form 10-K for year ended December 31, 2000, filed March 23, 2001.
(19) Amendment No. 4 to the Registration Statement on Form S-4 Reg. No.
333-73624 filed February 12, 2002.
(20) Form 10-K for year ended December 31, 2001, filed March 15, 2002.
-26-
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.B5-1
<SEQUENCE>3
<FILENAME>ex10-b5.txt
<DESCRIPTION>AMENDMENT NO. 16 TO ESSOP
<TEXT>
Exhibit (b5-1)
AMENDMENT TO THE
CAPITOL BANCORP, LTD.
EMPLOYEE SAVINGS AND STOCK OWNERSHIP PLAN
AMENDMENT NUMBER 16
The Capitol Bancorp, Ltd. Employee Savings and Stock Ownership Plan is
hereby amended effective February 22, 2002 adding the following participating
employer at the end of the list contained:
Name of Type of State of Date of
Employer Entity Organization Participation
-------- ------ ------------ -------------
Bank of Bank Nevada 2/14/2002
Las Vegas
CAPITOL BANCORP LIMITED
Dated: February 14, 2002 By: \s\ Joseph D. Reid
---------------------------------------
Joseph D. Reid
Chairman and CEO
BANK OF LAS VEGAS
Dated: February 14, 2002 By: \s\ Vincent Ciminise
---------------------------------------
Vincent Ciminise
President
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.B5-2
<SEQUENCE>4
<FILENAME>ex10b52.txt
<DESCRIPTION>AMENDMENT NO. 17 TO ESSOP
<TEXT>
Exhibit (b5-2)
AMENDMENT TO THE
CAPITOL BANCORP, LTD.
EMPLOYEE SAVINGS AND STOCK OWNERSHIP PLAN
AMENDMENT NUMBER 17
The Capitol Bancorp, Ltd. Employee Savings and Stock Ownership Plan is
hereby amended effective February 15, 2002 adding the following participating
employer at the end of the list contained:
Name of Type of State of Date of
Employer Entity Organization Participation
-------- ------ ------------ -------------
Napa Community Bank California 2/15/2002
Bank
CAPITOL BANCORP LIMITED
Dated: February 15, 2002 By: \s\ Joseph D. Reid
------------------------------------
Joseph D. Reid
Chairman and CEO
NAPA COMMUNITY BANK
Dated: February 15, 2002 By: \s\ Dennis Pedisich
------------------------------------
Dennis Pedisich
President and CEO
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-13.A
<SEQUENCE>5
<FILENAME>ex13a.txt
<DESCRIPTION>MARKETING SECTION OF 2002 ANNUAL REPORT
<TEXT>
Exhibit 13(a)
OUR CORE VALUES
[PHOTO]
ITEM PROCESSING
GREAT LAKES REGION
ENTREPRENEURSHIP
Entrepreneurship is the essence of our company spirit.
LOYALTY
The way we treat our customers begins with the way we treat each other. Respect
and reliability encourage loyalty in all of us.
COMMUNITY COMMITMENT
Our success depends upon the success of our community.
INTEGRITY
It is our standard of behavior, which always seeks to do the right thing.
MAXIMIZING POTENTIAL
We are committed to maximizing potential as a company and as individuals.
<PAGE>
TO OUR SHAREHOLDERS
Dear Shareholders:
In the year 2002 we achieved another plateau in our long-term journey toward
lasting success as a public company. Earnings grew 55%; earnings per share grew
16%; net operating revenues increased 28% and assets increased 18%. We had a
good year. We were rewarded by the stock market with a 74% price increase.
As we build for the future, we are challenged by the reckless indifference many
public companies have demonstrated regarding their own credibility as leaders
and as fiduciaries.
CREDIBILITY
Our ability to succeed as bankers in a competitive environment has been built on
our credibility as service providers. We deliver a higher level of service by
interfacing our customers with human beings. The customers are not left to fend
for themselves when interacting with our banking system. We treat our customers'
concerns with confidentiality and care. We will continue to operate in this
manner at each of our affiliate banks.
The credibility we have established is enhanced by the continuity of our banking
operations. It is a comfort to our customers to know that our banks are
committed to long-term success, thereby avoiding the disruption other
competitors have demonstrated through mergers with out-of-town companies.
However, the responsibility of demonstrating our credibility does not end with
our customer. Recent events regarding the activities of CEOs and boards of
directors throughout corporate America have called into question the conduct of
all public corporations.
We do not wish to risk our credibility with our shareholders. We will do all
that is necessary to protect this important trust. For these reasons the board
of directors, during the first quarter of last year, initiated a review of our
corporate governance practices and executive compensation arrangements.
This effort resulted in the revision of our Corporate Code of Ethics and the
development of Corporate Governance Guidelines. Moreover, the board adopted a
charter for each standing committee. These important accomplishments are
published on our website.
In addition, the Compensation, Audit and Nomination and Governance Committees
are made up exclusively of independent directors consistent with the new
guidelines published by the New York Stock Exchange and the NASDAQ Stock Market.
-------------------------
WE DO NOT WISH TO RISK
OUR CREDIBILITY WITH OUR
SHAREHOLDERS.
WE WILL DO ALL THAT IS
NECESSARY TO PROTECT THIS
IMPORTANT TRUST.
-------------------------
Finally, a review and revision of the employment contracts of senior officers
was completed to ensure that management is incented toward long-term objectives.
As we continue to develop our long-range strategic plan, we know that ongoing
credibility with our customers and our shareholders remains vital to our
success.
CORE VALUES
Our credibility is driven by our core values. We currently have 29 banks and
operate in 8 states. Each of our banks is benefited by a board of directors who
are residents of their banking community. Our bank directors are the most
significant off-balance-sheet assets of the Corporation. Their impartial
oversight of banking operations is matched by significant individual business
development efforts. Unlike most other banking models, ours is built around our
bank directorships.
2
<PAGE>
During the past year we initiated an effort to identify our core values as a
company. This undertaking recognized both the geographic and cultural diversity
of our bank boards and our employees. At the conclusion of the process we were
able to construct a definition of our core values:
ENTREPRENEURSHIP
ENTREPRENEURSHIP IS THE ESSENCE OF OUR COMPANY SPIRIT.
LOYALTY
THE WAY WE TREAT OUR CUSTOMERS BEGINS WITH THE WAY WE TREAT EACH OTHER. RESPECT
AND RELIABILITY ENCOURAGE LOYALTY IN ALL OF US.
COMMUNITY COMMITMENT
OUR SUCCESS DEPENDS UPON THE SUCCESS OF OUR COMMUNITY.
INTEGRITY
IT IS OUR STANDARD OF BEHAVIOR, WHICH ALWAYS SEEKS TO DO THE RIGHT THING.
MAXIMIZING POTENTIAL
WE ARE COMMITTED TO MAXIMIZING POTENTIAL AS A COMPANY AND AS INDIVIDUALS.
[PHOTO]
These values are not objectives we would like to attain -- they represent who we
are as a company. They serve as an instrument of measurement in all that we
undertake. I invite you to view the various letters each bank president has
submitted in this report which demonstrate our core values.
PERFORMANCE
For the year 2002, record net operating revenues of $115.6 million increased
approximately 28% when compared to the $90.1 million figure recorded in 2001.
Record earnings of approximately $16.7 million for 2002 reflect 55% growth when
compared to $10.7 million in 2001. On an earnings per share (EPS) basis, Capitol
reported basic ($1.64) and diluted ($1.57) figures for 2002 that were 19% and
16%, respectively, ahead of 2001's comparable period levels of $1.38 and $1.35.
The 28% growth in net operating revenues for 2002 was aided by an approximate
56% increase in noninterest income, offsetting the 20% expansion in operating
expense that reflects both the opening of two new affiliate banks in California
and Nevada and new loan production offices in Texas, California and Georgia. In
addition, the consolidation of minority interests at several of Capitol's
affiliate development holding companies during 2002 served to dramatically
expand the share base from approximately 7.8 million shares at the end of 2001
to roughly 11.3 million shares at year end.
INVESTOR SIMPLIFICATION
On March 31, 2002, the public ownership profile of our primary southwest-based
development holding company, Sun Community Bancorp Limited, was consolidated in
a share exchange with Capitol Bancorp. Subsequently, the shared investments in
our Indiana, Nevada, and SBA-specialist, Sunrise Capital, holding companies were
3
<PAGE>
exchanged for stock in Capitol Bancorp. These four second-tier holding companies
are now 100% owned by Capitol Bancorp. The share base of Capitol Bancorp was
increased by nearly 50% and our corporate structure was simplified. These
actions were received positively within the investor community.
At the end of 2000, the market capitalization, or the total value the investor
community had assigned to the Corporation, equaled approximately $75 million.
Closing out 2001, the market capitalization of the Corporation measured just shy
of $105 million. Following the share exchanges, Capitol Bancorp's market
capitalization increased more than 2.5 times to over $270 million in 2002.
BUILDING A TRACK RECORD
Our message, supported by our performance, is connecting with the investor
community to produce operating results in line with investor expectations, while
not sacrificing potential growth opportunities which serve to enhance the future
earnings stream. The performance of the past few years reflects this operating
dynamic. Since the end of 1998, assets have more than doubled from just over $1
billion to more than $2.4 billion. In the same time frame, shareholder equity
has nearly quadrupled from approximately $49 million to over $160 million, while
earnings ($4.6 million to approximately $16.7 million) and operating revenues
($37 million to more than $115 million) have both more than tripled. At the end
of 1998, we had 17 community banks in our family. Today, the affiliate system
totals 29, with new opportunities being explored every day. In 1998, EPS
measured $0.72, while total shares outstanding equaled 6.3 million. In 2002, our
EPS exceeded "street" expectations reaching $1.57, and we entered 2003 with more
than 11.3 million shares outstanding.
We are often perceived as a company running contrarian to the banking industry's
trend of "bigger means better" by remaining committed to our most critical
operating constituency -- the customer relationship. We continue to believe that
this strategy will promote long-term success.
EMERGING PROFITABILITY
As we enter 2003, only 11 of our 29 affiliate banks are more than 5 years old.
The earnings potential of our other 18 maturing, but youthful, banks will serve
to expand our revenue and earnings stream over the next few years.
-------------------------------
THESE VALUES ARE NOT OBJECTIVES
WE WOULD LIKE TO ATTAIN --
THEY REPRESENT WHO WE ARE
AS A COMPANY.
-------------------------------
A FOOTNOTE REGARDING ACQUISITIONS
Capitol Bancorp has successfully completed numerous "acquisitions" of the
internally-generated variety as we consolidated the minority interests of our
affiliates. These transactions were transparent to the customer, effectively
resulting in an accounting formality for what had been operating reality.
However, as we survey the landscape, we recognize that there may be
possibilities to augment our traditional de novo development efforts with
selective acquisitions. As we have successfully done in the past, we will
continue to look at potential transactions, searching for both a cultural fit
and an accretive earnings opportunity.
We invite you to share our optimism for the coming years.
/s/ Joseph D. Reid
Joseph D. Reid
Chairman & CEO
4
<PAGE>
CAPITOL BANCORP LIMITED
BOARD OF DIRECTORS
<TABLE>
<S> <C> <C>
Louis G. Allen Michael F. Hannley Myrl D. Nofziger
Retired Banker President & CEO President
Bank of Tucson Hoogenboom Nofziger
Paul R. Ballard
Retired President & CEO Lewis D. Johns Kathryn L. Munro
Portage Commerce Bank President Chairman & CEO
Mid-Michigan Investment Co. Bridge West, LLC
David L. Becker
Retired Insurance Agent Michael L. Kasten David O'Leary
Managing Partner Chairman
Robert C. Carr Kasten Investments, LLC O'Leary Paint Company
Executive Vice President
Capitol Bancorp Limited John S. Lewis Joseph D. Reid
President-Western Regions Chairman & CEO
[PHOTO] Capitol Bancorp Limited Capitol Bancorp Limited
JOHN S. LEWIS,
PRESIDENT-WESTERN REGIONS [PHOTO] Ronald K. Sable
CRISTIN REID ENGLISH, Vice President Public Sector
Douglas E. Crist CHIEF ADMINISTRATIVE OFFICER Guardent, Inc.
President
Developers of SW Florida, Inc. [PHOTO] FIRST CALIFORNIA NORTHERN
ROBERT C. CARR, BANCORP
Michael J. Devine EXECUTIVE VICE PRESIDENT & TREASURER
Attorney at Law BOARD OF DIRECTORS
Humberto S. Lopez
Cristin Reid English President Geni A. Bennetts, MD
Chief Administrative Officer HSL Properties, Inc. Medical Consulting
Capitol Bancorp Limited
Leonard Maas Cristin Reid English
James C. Epolito President Chief Administrative Officer
President & CEO Gillisse Construction Company Capitol Bancorp Limited
The Accident Fund Company
Lyle W. Miller Jeffrey L. Epps
Gary A. Falkenberg President President
Gary A. Falkenberg, D.O., P.C. Servco, Inc. Epps Chevrolet
Joel I. Ferguson Paul J. Krsek
Chairman Managing Partner
Ferguson Development K&A Asset Management, LLC
Kathleen A. Gaskin David L. McSherry
Associate Broker/State Appraiser Investor
Tomie Raines, Inc. Realtors Northwind Investment Co., L.L.C.
H. Nicholas Genova David O'Leary
Chairman & CEO Chairman
Washtenaw News Co. Inc. O'Leary Paint Company
H.N. Genova Development
Joseph D. Reid
Chairman & CEO
Capitol Bancorp Limited
</TABLE>
5
<PAGE>
CAPITOL BANCORP LIMITED
OFFICERS
<TABLE>
<S> <C> <C>
Joseph D. Reid David J. Meninga Nancy A. Schoolman
Chairman & CEO Assistant Corporate Counsel Vice President
Michael L. Kasten John R. Myers Patricia L. Stone
Vice Chairman Vice President Senior Vice President
Lyle W. Miller Michael M. Moran Patrick R. Sturm
Vice Chairman Chief of Capital Markets Corporate Counsel
David O'Leary Phillip Kyle Oesterle Stephanie M. Swan
Secretary Vice President Corporate Governance Officer
Robert C. Carr Gregory E. Patten Darryl S. Tenenbaum
Executive Vice President & Treasurer Vice President Vice President/Auditor
Art R. Aguirre Linda D. Pavona Bruce A. Thomas
Vice President Senior Vice President Chief of Bank Performance
Carol A. Blaine [PHOTO] [PHOTO]
Vice President BRUCE A. THOMAS, LEE W. HENDRICKSON,
CHIEF OF BANK PERFORMANCE CHIEF FINANCIAL OFFICER
Katherine P. Bowden
Vice President [PHOTO] [PHOTO]
DAVID J. DUTTON, MICHAEL M. MORAN,
Brent R. Branch CHIEF INFORMATION OFFICER CHIEF OF CAPITAL MAKETS
Assistant Vice President
David K. Powers Stephen D. Todd
Margarete L. Chalker Director of Loan Administration Director of Bank Performance-Western Regions
Assistant Vice President
Amy L. Pramov Marie D. Walker
Staci L. Charles Assistant Vice President Senior Vice President-Accounting
Marketing Director-Western Regions
Joseph D. Reid, III Leonard C. Zazula
James F. Crawford Corporate Counsel Cashier-Western Regions
Director of Strategic Products & Services
William E. Rheaume
David J. Dutton Senior Counsel
Chief Information Officer
Brian K. English
General Counsel
Cristin Reid English
Chief Administrative Officer
Carl C. Farrar
Senior Vice President
David D. Fortune
Chief Credit Officer - Western Regions
Reginald A. Hansom, Jr.
Assistant Vice President
Janet L. Hardin
Vice President
Lee W. Hendrickson
Chief Financial Officer
John S. Lewis
President - Western Regions
Tina M. Luha
Assistant Vice President
Stephanie A. Maat
Vice President
Charles J. McDonald
Cashier-Great Lakes Region
</TABLE>
6
<PAGE>
[PHOTO]
NETWORK SERVICES
GREAT LAKES REGION
E N T R E P R E N U E R S H I P [GRAPHIC]
[PHOTO]
NETWORK SERVICES
WESTERN REGIONS
<PAGE>
<TABLE>
<S> <C>
BOARD OF DIRECTORS BANK OF LAS VEGAS
Vincent J. Ciminise Bank of Las Vegas opened in February of 2002 to opportunity, excitement,
President anticipation, and challenge. Throughout its first year the Bank realized the
Bank of Las Vegas successful completion of many goals. These accomplishments were achieved through
an unprecedented level of entrepreneurship exhibited by our employees. Following
Darlene Copsey are a few examples of the spirit demonstrated by our team:
Secretary/Treasurer
The Alpha Group Ltd. We developed a marketing plan for the Bank utilizing landmarks that are
synonymous with our namesake -- Las Vegas. This unique advertising is used
Michael J. Devine on our courier van, and it was also used to give our temporary facility
Attorney at Law some needed character. The van carries replicas of landmarks in the city
including the head of the Egyptian from the Luxor Hotel and the distinctive
Leo N. Durant "Welcome to Fabulous Las Vegas" marker located at the entrance to the city.
Owner We covered the front of the bank with a large billboard that depicted the
LND Construction skyline of downtown Las Vegas. The comments from the local community have
been very positive. I can assure you that people remember our courier van
Scott R. Gragson and eye-catching signage, which is entrepreneurial advertising at its best.
Managing Partner
GKT Acquisitions During our first year we benefited from the unification efforts of our
affiliated banks and implemented procedures consistent with the new
Donald K. Hamrick consolidated systems. The staff embraced the opportunity to learn new
General Manager skills and apply them to meet the bank's specific needs, as would any
Signature Lincoln Mercury entrepreneur.
Darryl J. Hardy Whether adjusting to an incredibly small temporary working facility, or
Vice President helping a customer find a way to start their own business, our employees
Hardy Painting & Drywall exemplify those traits associated with a true entrepreneur. Their positive
attitudes, and the consistent encouragement they provide to new customers,
Alan R. Houldsworth stems from the pleasure that comes from running an autonomous operation.
Partner Entrepreneurs enjoy their creative freedom, working hard and the
Houldsworth & Company, CPAs satisfaction of ultimate success.
Charles L. Lasky As the Bank continues to grow and mature, we must never lose sight of how we
President reached this point. That strength will ensure our future.
Lasky, Fifarek & Hogan, P.C.
Thomas C. Mangione BANKING LAS VEGAS!
Chairman, President & CEO
Red Rock Community Bank /s/ Vincent J. Ciminise
Joseph D. Reid Vincent J. Ciminise
Chairman & CEO President
Capitol Bancorp Limited
6001 S. Decatur, Suite P
Joseph D. Reid III Las Vegas, NV 89118
Corporate Counsel 702-939-2400
Capitol Bancorp Limited www.bankoflasvegas.com
Philip P. Saunders
Retired Executive
General Motors Corporation
OFFICERS
Joseph D. Reid
Chairman
Thomas C. Mangione
Vice Chairman
Charles L. Lasky
Secretary
Vincent J. Ciminise
President
Roger S. Mellies
Executive Vice President/CCO
Carol A. Clemens
Senior Vice President
William C. Russell
Senior Vice President
Debbie V. Clarke
Vice President
</TABLE>
E N T R E P R E N U E R S H I P
8
<PAGE>
<TABLE>
<S> <C>
CAMELBACK COMMUNITY BANK BOARD OF DIRECTORS
Our team at Camelback Community Bank takes great pride in our commitment to all Shirley A. Agnos
of our shared core values. We display these values every day in our work, our President
volunteer activities and our personal behavior. Arizona Town Hall
The past several years have proven that a bank must create a reputation for Cord D. Armstrong
customer service outside of the traditional scope if it is going to provide CPA/Manager
financial services that are truly unique and tailored to meet the needs of its Miller Wagner Business Services, Inc.
customers. Customers have many choices today and have more access to information
than ever before. This new banking environment requires our bank to be ever more Michael J. Devine
entrepreneurial and cutting edge. Attorney at Law
We have concluded that Camelback's new checking account that rewards our Winfield L. Holden III
customers for increasing their account balance, while offering both convenience Publisher
and a competitive interest rate, provides an attractive investment opportunity. Arizona Highways Magazine
In today's low interest-rate environment, many individuals are investing in cash
vehicles that earn very little interest. In an effort to meet our customers' Michael L. Kasten
needs, and at the same time add growth to the Bank, we created an Managing Partner
interest-bearing checking account that pays a premium interest rate for deposits Kasten Investments, LLC
in excess of $25,000. Additionally, the account is tiered, and at each of the
higher levels, the interest rate increases substantially. Gregory M. Kruzel
Attorney at Law & Partner
In our continued effort to support the nonprofit agencies in our community, we Braun, Becker, Kruzel, P.C.
offered this account to them as well. They are extremely grateful to increase
the return on their deposits, especially now when fundraising is more difficult Robert V. Lester
than ever and every penny counts. President
Progressive Financial Concepts
This checking account has delivered all that we expected and more. It increased
our total deposits by 20% in 90 days and is a great opportunity for introducing John S. Lewis
new customers to Camelback Community Bank. President - Western Regions
Capitol Bancorp Limited
THE BANK WHERE YOU BELONG. Tammy A. Linn
Director
/s/ Barbara J. Ralston Governor's Community Policy Officer
Barbara J. Ralston Susan C. Mulligan
President & CEO CPA
Earl A. Petznick
2777 East Camelback Road, Suite 100 President & CEO
Phoenix, AZ 85016 Northside Hay Company
602-224-5800
www.camelbackbank.com Barbara J. Ralston
President & CEO
Camelback Community Bank
Dan A. Robledo
President & CEO
Lawyer's Title of Arizona, Inc.
Jacqueline J. Steiner
Retired State Senator
& Community Volunteer
OFFICERS
Dan A. Robledo
Chairman
Michael L. Kasten
Vice Chairman
Shirley A. Agnos
Secretary
Barbara J. Ralston
President & CEO
John Robert Boosman
Executive Vice President & CCO
James J. Brandes
Senior Vice President
Betty L. Cornish
Senior Vice President
Patrick B. Westman
Senior Vice President
Dorsey J. Tisdale
Vice President
William Von Hatten
Vice President
</TABLE>
E N T R E P R E N U E R S H I P
9
<PAGE>
<TABLE>
<S> <C>
BOARD OF DIRECTORS DESERT COMMUNITY BANK
Robert J. Andrews Desert Community Bank has carved out a niche in the greater Las Vegas
CFO & Director of Operations marketplace, which has distinguished us from our peers. Although Las Vegas is
IGT Lottery Division often touted as the fastest growing city in America, with some 5,000 new
residents every month, many of our directors have extensive community roots.
Tracy R. Bouchard Many are from local, established families who have conducted business in Las
President Vegas for generations. They, and their family members, have held noteworthy
National Title Company public offices, successfully operated family businesses for over 50 years, and
remain well connected with county and municipal government, as well as the
Michael J. Devine varied industries that fuel this town's economy. The contacts they share, as
Attorney at Law well as the history that accompanies their experience in the marketplace, gives
us an opportunity to enrich the opportunities not normally offered to newcomers
Rose M.K. Dominguez to this city.
President
Discovery Travel Las Vegas is known for entertainment and gaming. Manufacturing, education, and
trades that facilitate the town's tourism are the less known side of Las Vegas.
Tom R. Grimmett Desert Community Bank is constantly working on innovative ways to assist our
Owner customers, and our community in achieving their dreams.
Grimmett & Company
For example, we have a customer with a continual need for new technicians to
Garry L. Hayes work in his specialty of selling and installing automated HVAC systems and
President controls in large facilities. It is a difficult field in which to find qualified
Law Office of Garry L. Hayes employees. The owner decided to solve that problem by starting a school within
his business to train technicians at all levels of HVAC installation,
James W. Howard maintenance and repair. Tuition financing is not generally offered to students
President attending trade schools. At the suggestion of one of our directors, Desert
Desert Community Bank Community Bank was able to acquaint our customer with another contact who
provides student loan assistance for trade schools who do not yet qualify for
Charles L. Lasky the Title IV assistance offered by the government guaranteed student loan
President programs. This helped our customer succeed in uniquely achieving their growth
Lasky, Fifarek & Hogan, P.C. objectives.
Thomas C. Mangione Our directors, our employees, and our customers all benefit when we work to
Chairman, President & CEO solve problems together. It makes us unique from other community banks in Las
Red Rock Community Bank Vegas. We have one location -- with many solutions for our customers.
Leland D. Pace
Managing Partner SMALLER BANK. BIGGER SERVICE.(TM)
Stewart, Archibald & Barney, LLP
/s/ James W. Howard
Joseph D. Reid III
Corporate Counsel James W. Howard
Capitol Bancorp Limited President
Stephen D. Stiver
Retired 3740 South Pecos-McLeod
Las Vegas, NV 89121
702-938-0500
OFFICERS www.desertcommunity.com
Thomas C. Mangione
Chairman
Michael J. Devine
Vice Chairman
James W. Howard
President
Charles L. Lasky
Secretary
Al G. Gourrier II
Executive Vice President
& Chief Credit Officer
Rodney K. Chaney
Senior Vice President
Private Banking Manager
Eileen S. Hagler
Vice President
Troy I. Morris
Vice President
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KENT COMMERCE BANK BOARD OF DIRECTORS
Entrepreneurship is a word rarely associated with banking. One dictionary James M. Badaluco
defines an entrepreneur as "one who organizes and assumes the risk of a business Vice President
or enterprise." Bankers are in the business of minimizing and managing risk. S.J. Wisinski & Company
They are generally not willing to step out and assume risk. That willingness --
even eagerness, at times -- is the root source of Capitol Bancorp's success. Paul R. Ballard
Retired President & CEO
Three years ago, Kent Commerce Bank had no U.S. Small Business Administration Portage Commerce Bank
(SBA) loans in its commercial portfolio. SBA loans can be complex, require
significant training and expertise, and have rigorous servicing requirements. Sharon M. Buursma
Yet in 2002, Kent was the primary contributor to the program that resulted in Executive Vice President
Capitol Bancorp being named SBA "Community Lender of the Year" in Michigan -- Spectrum Health
the highest SBA award given to a community bank. Why? We recognized the
opportunity for SBA lending in the market and we felt it was an essential Kevin J. Einfeld
service that we needed to provide to our customers. We then looked for, and President
committed the people and resources necessary, to be successful. Was it a risk? BDR, Inc.
Absolutely. SBA lending is highly specialized and mistakes can be costly. The
financial rewards from our success, however, have been great, both for our Bank Grant J. Gruel
and the company's reputation as a whole. Partner/Trial Attorney
Gruel, Mills, Nims & Pylman
As a bank focused on small business, we find that the majority of our clients
are entrepreneurs themselves, having built their businesses from the ground up. Gary D. Hensch
Very few bankers truly understand what that means. We do, because we built our CPA
bank the same way. Without taking a few risks, success comes very slowly, if Redstone Group
ever. Our clients understand how we built our bank and, accordingly, they know
we're able to relate to them like no one else can. R. Ted Hudson
Owner
Bankers are typically not interested in trying something new, particularly if an Prestige Property, Inc.
element of risk exists. At Kent Commerce Bank, however, our entrepreneurial
spirit is foundational. It is a much-cherished value all our banking Harold A. Marks
professionals embrace and exemplify. CPA/Partner
Prangley Marks LLP
KENT COMMERCE BANK -- PAYING A HIGHER RATE OF ATTENTION. Calvin D. Meeusen
Managing Partner
/s/ David E. Veen Calvin D. Meeusen, CPA
David E. Veen
President & CEO Valerie R. Overheul
President & CEO
Summit Training Source, Inc.
4050 Lake Drive SE
Grand Rapids, MI 49546 Mary L. Ursul
616-974-0200 Vice President
www.kentcommerce.com Professionals Direct, Inc.
David E. Veen
President & CEO
Kent Commerce Bank
Michael C. Walton
Attorney at Law
Rhoades, McKee, Boer, Goodrich & Titta
OFFICERS
Michael C. Walton
Chairman
Paul R. Ballard
Vice Chairman
Kevin J. Einfeld
Secretary
David E. Veen
President & CEO
William H. Young
Senior Vice President
Michael P. Boelens
Vice President
John J. Coder
Vice President
Linda S. Crawford
Vice President
Thomas J. Kim
Vice President
Sandra L. Bloem
Vice President
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BOARD OF DIRECTORS MACOMB COMMUNITY BANK
Robert C. Carr Macomb Community Bank (MCB) believes that entrepreneurs provide a significant
Executive Vice President economic contribution to any community. Supporting entrepreneurs in a timely
Capitol Bancorp Limited manner, with financial products designed to meet their needs, is what we do.
Although many banks have changed their focus in the last several years, MCB
Timothy J. Cuttle remains committed to its vision of supporting small business by providing a high
President & CEO level of communication and quality products. As a smaller bank, we think of
Macomb Community Bank ourselves more like the entrepreneurs we serve. At MCB, customers can meet with
a senior officer, or even the President, at any time. We think it's an important
Christina C. D'Alessandro part of our overall responsibility. I would like to share with you some recent
Vice President examples of MCB supporting small business in our community:
Villa Custom Homes
In 2002, MCB assumed a major leadership role in hosting and sponsoring a
Ronald G. Forster series of five economic luncheons that focused on areas of interest to
Retired small business. Topics such as economics, technology, global competition,
real estate and the automotive industry were discussed at length during
James R. Kaye these meetings. The program was so successful that we have committed to
President & CEO continue this event on an annual basis.
Oakland Commerce Bank
MCB is a major sponsor of the 100th anniversary of the Central Macomb
David F. Keown County Chamber of Commerce, one of the oldest chambers in the state of
Building Official Michigan and the country. The Chamber, with its 1,000 members, exists to
Washington Township support entrepreneurs and MCB supports its vision.
Dr. Albert L. Lorenzo Entrepreneurship can begin at any stage in life. MCB believes we can help
President develop entrepreneurs of the future. In 2003, the Bank will provide a
Macomb Community College business scholarship for tuition at Macomb Community College. The college,
one of the largest junior colleges in the country, has a student enrollment
Delia Rendon Martin of nearly 50,000. We support its efforts in providing a quality educational
Co-Owner opportunity for future entrepreneurs.
Martin Enterprises
A visionary bank does much more than simply manage money. It is a source of
Robert Pelachyk leadership that promotes economic prosperity and the welfare of the community.
EVP & General Manager As entrepreneurs, Macomb Community Bank is committed to providing this
Cross Huller-North America leadership.
OFFICERS SMALLER BANK. BIGGER SERVICE(TM)
Robert C. Carr /s/ Timothy J. Cuttle
Chairman Timothy J. Cuttle
President & CEO
Ronald G. Forster
Vice Chairman
16000 Hall Road, Suite 102
Christina C. D'Alessandro Clinton Township, MI 48038
Secretary 586-228-1600
www.macombcommunity.com
Timothy J. Cuttle
President & CEO
Kenneth E. Bryant
Vice President
Frank J. Buscemi
Vice President
Kenneth O. Flynn
Vice President
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MESA BANK BOARD OF DIRECTORS
Entrepreneurship is the essence of our success at Mesa Bank. We define Neil R. Barna
entrepreneurship as the recognition and pursuit of opportunity, the confidence President & CEO
that we can be successful, and the flexibility to adjust our course in response Mesa Bank
to changes in our marketplace and community.
Richard D. Crandall, CPA
Entrepreneurship is about vision, persistence and innovation. We believe that we President/Partner
have the vision to expand, improve or change our products and services to meet C N Resource, LLC
the needs of our community. Working personally with businessmen and women of our
community is our practice. Meeting their banking needs and wants is our goal. Michael J. Devine
Attorney at Law
We also recognize the value of giving back to our community. We have staff
members on local boards of educational foundations and boards of chambers of Debra L. Duvall
commerce. We have a bank officer that has dedicated her time to Junior Superintendent
Achievement and teaches classes sponsored by JA. Susan Haverstrom teaches Mesa Public Schools
elementary school children the value of learning and staying in school,
community involvement and various aspects of business. Her persistence in Brian K. English
teaching local children these aspects of life will serve them well as they General Counsel
become active members of our community. Capitol Bancorp Limited
To maintain market leadership, we must meet our customers' changing needs. At Robert R. Evans
Mesa Bank we attempt to bring out the "inner innovator" that resides in each of President
us. By doing so we find the right solutions for our customers. Mesa Bank opened Evans Management Company
a loan production office in the Falcon Field area of Mesa in December 2002. What
makes this entrepreneurial endeavor unique is that the person spearheading this Stewart A. Hogue
effort was not in the banking business before joining Mesa Bank in 2002. Jim Principal
LeCheminant, a thirty-year resident of Mesa, has adapted well to the banking SALK Management, LLC
environment by introducing innovative methods of developing new customers and
meeting their needs. Michael L. Kasten
Managing Partner
At Mesa Bank, we realize entrepreneurship is not static, but fluid. We must Kasten Investments, LLC
continue to seek opportunities and methods to assist our customers and our
community. Philip S. Kellis
Partner
Dobson Ranch Inn
BANKING -- WITH A HUMAN TOUCH.
Ruth L. Nesbitt
/s/ Neil R. Barna Community Volunteer
Neil R. Barna
President & CEO Wayne C. Pomeroy
Owner
Pomeroy's Men's Stores
63 East Main, Suite 100
Mesa, AZ 85201 Daniel P. Skinner
480-649-5100 Owner & Manager
www.mesabankers.com LeBaron & Carroll LSI, Inc.
Terry D. Turk
President
Sun American Mortgage Company
James K. Zaharis
President
The Zaharis Group
OFFICERS
Robert R. Evans
Chairman
Michael L. Kasten
Vice Chairman
Neil R. Barna
President & CEO
David D. Fortune
Executive Vice President,
Secretary & CCO
Daniel R. Laux
Vice President
James G. LeCheminant
Vice President
Steven R. Mitchell
Vice President
Sandra S. Zazula
Vice President
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BOARD OF DIRECTORS SUNRISE BANK OF ARIZONA
Sandra A. Abalos "If opportunity doesn't knock, build a door."
President ... And so we did.
Abalos & Associates, PC
Since Sunrise Bank of Arizona opened in December of 1998; the Sunrise team has
Michael R. Allen built a lot of doors and taken the worlds of SBA lending and banking by storm.
President Sunrise married owner-user real estate lending with banking services for small
Sureway Properties businesses. Before the Sunrise Bank model was invented, SBA lending and banking
were different worlds. The Sunrise team shared a vision with Capitol Bancorp, a
James P. Dew vision that brought two entrepreneurs together to create a bank built on this
Dew Wealth Management very unique model. Our model is quite simple -- concentrate on the needs of
dynamic small business owners and entrepreneurs, provide them with extraordinary
Michael J. Devine service, with an emphasis on SBA loans for equipment, working capital and
Attorney at Law facilities, and turn them into loyal, long-term customers. The customer
relationships begin with SBA lending. While many traditional banks consider SBA
Brian K. English lending the last resort for their customers, Sunrise believes it presents an
General Counsel incredible opportunity to differentiate itself from the competition. Since 94%
Capitol Bancorp Limited of businesses in the United States are classified as "small," Sunrise has tapped
into a remarkable customer base. As a result, the Sunrise model is a successful
Patrick C. Hayes and innovative business model that seeks out these growing markets.
Patrick Hayes
Architecture After we built the doors, we opened them to industrious professionals who share
the same vision of providing unparalleled financial services for the underserved
William D. Hinz II small business market. Sunrise is committed to recruiting the best -- smart,
CEO motivated, and entrepreneurial people who care about others... those who will
Sunrise Bank of Arizona take a personal interest in small business owners, get to know their businesses,
and help them reach their goals... people who know that by helping their
J. Garth Jax customers prosper, they will succeed as well.
Entrepreneur
SBA lending is an innovative vehicle for building a community bank. It requires
Michael L. Kasten a collective team effort to help finance people's dreams, and their
Managing Partner entrepreneurial ventures. Sunrise Bank of Arizona is composed of an
Kasten Investments, LLC entrepreneurial team whose personalities create and innovate to build more banks
of recognized value around real opportunities. The energy that emanates from
Kevin B. Kinerk this team is powerful, and this influence makes a difference in the community,
Executive Vice President in the Bank, and in the spirit exemplified by the employees.
Sunrise Bank of Arizona
John S. Lewis BRINGING THE RELATIONSHIP BACK INTO BANKING.
President, Western Regions
Capitol Bancorp Limited /s/ William D. Hinz, II
William D. Hinz, II
Gerald D. Paquette CEO
President
Caliber Construction, Inc.
4350 East Camelback Road, Suite 100A
Michael L. Smith Phoenix, AZ 85018
Jokake Construction 602-956-6250
www.sunrisebankofarizona.com
OFFICERS
John S. Lewis
Chairman
Michael L. Kasten
Vice Chairman
William D. Hinz II
CEO
Kevin B. Kinerk
Executive Vice President & Secretary
Ross L. Shannon
Executive Vice President, Scottsdale
Marian B. Creel
Senior Vice President
Mary D. Hurley
Senior Vice President & CCO
Joan M. Lessner
Senior Vice President, Scottsdale
Douglas M. Reynolds
Senior Vice President & CCO
Debra L. Ingle
Vice President
Bryan J. Kort
Vice President
Tyrone D. Couch
Vice President
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EXECUTIVE OFFICES
GREAT LAKES REGION
L O Y A L T Y [GRAPHIC]
[PHOTO]
EXECUTIVE OFFICES
WESTERN REGIONS
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BOARD OF DIRECTORS BLACK MOUNTAIN COMMUNITY BANK
Peter M. Atkinson Before Black Mountain Community Bank was organized three years ago, several
President members of our original team of eight worked together for banks that have since
Black Mountain Community Bank been lost in mergers. We often spoke of having our own bank where banking was
done the way we remembered. Some of us mentioned going to the bank with our
Michael D. Ballard parents when we were kids. Besides the lollipops, what we recalled was how the
President tellers cheerfully greeted our parents by name, and took a few moments to catch
Ballard Communications, Inc. up on what the family was up to. At our dream bank each member of the team would
be upbeat like that, because each member of the team would be working at a job
Michael J. Devine he or she genuinely enjoyed and one where he or she knew his or her contribution
Attorney at Law was valued. Our customers would want to do business with us, rather than the
next bank down the street, because they would know that we could, and would,
Betty A. Kincaid serve them better than any other bank.
President
Southwest Exchange Corporation Once our bank was capitalized, creating was relatively easy. Three years later,
our team now numbers twelve, and we collectively have 296 years of banking
Charles L. Lasky experience. Our shareholders expect a strong return on their investment. In
President order to accomplish that, we have recruited and retained satisfied customers
Lasky, Fifarek & Hogan, P.C. like those we envisioned in our planning sessions. We have earned the respect of
our customers, who are engaged as extended members of the Team. We trust each
Claire M. MacDonald other to do our respective jobs with excellence and our clients trust us to
MacDonald Properties effectively handle their banking business.
Thomas C. Mangione Because of the mutual respect among bank team and customers, we are able to
Chairman, President & CEO provide superior service in extraordinary circumstances. Recently, a customer
Red Rock Community Bank and his wife were vacationing in Mexico when she became critically ill. It
became necessary that she be quickly airlifted to Las Vegas at great expense.
Michael J. Mixer When the Bank received a telephone call requesting that a large sum be wire
Corporate Broker transferred to Mexico, we had all of the normal concerns. We worried for her
Colliers International health, as she was personally known by all of us. As professionals, we had to be
sure our customer was in fact, making the request. We also needed to confirm
Colleen C. O'Callaghan-Miele that our customers weren't being forced, under duress, to transfer the amount out
VP/Circulations Manager of their accounts. Our bank manager was able to talk to our customers by phone at
H.B.C. Publications the hospital and confirm to her satisfaction that the request was real so the
funds could be wired to Mexico. Two months later, to our great pleasure, the
Phillip N. Ralston recovered customer walked into the bank to personally thank us.
Chief Financial Officer/Treasurer
American Nevada Company The original team is proud that Black Mountain Community Bank has developed the
way we designed it. Our customers are glad we live our bank motto... banking the
Joseph D. Reid III way you remember.
Corporate Counsel
Capitol Bancorp Limited
/s/ Peter M. Atkinson
Christopher G. Samson Peter M. Atkinson
President & Owner President
FN Investments Inc.
1700 West Horizon Ridge Parkway, Suite 101
OFFICERS Henderson, NV 89102
702-990-5900
Thomas C. Mangione www.blackmountaincommunitybank.com
Chairman & CEO
Michael J. Devine
Vice Chairman
Charles L. Lasky
Secretary
Peter M. Atkinson
President
David S. Rennick
Executive Vice President & CCO
Dennis L. Monson
Senior Vice President
Kathy M. Lucero
Vice President
RaMon McBride
Vice President
Shari A. Smith
Vice President & Manager
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CAPITOL NATIONAL BANK BOARD OF DIRECTORS
Capitol National Bank recognized a little more than twenty years ago, the Robert C. Carr
importance of developing a strong spirit of loyalty to our employees. They, in Executive Vice President
turn, have shown the same concern and dedication, not only to the Bank, but also Capitol Bancorp Limited
to our customers. We have always encouraged a working atmosphere that is
respectful and caring of one another, knowing those same traits are key to Nan Elizabeth Casey
providing successful customer relationship management. Attorney at Law
Fraser Law Firm
To that end, CNB encourages a free flow of employee ideas on how to improve our
product and service delivery. We encourage and expect our management and staff Charles J. Clark
to continually enhance their job knowledge and skills by participating in President
banking courses and seminars. Several years ago we began monthly "Lunch & Learn" Clark Construction Company
programs conducted by our senior management team. This format has been an
excellent tool to continually reinforce a strong sense of camaraderie, as well Brian K. English
as showing our commitment to making our employees the best they can be. By General Counsel
regularly providing training and information about the Bank, its products and Capitol Bancorp Limited
banking in general, members of our team increase their value to the Bank, and to
each other. David E. Ferguson
President
This work environment, which enhances employee value and reliability, has been Ferguson Development
nurtured and is a key ingredient in the development of our long-lasting customer
relationships. Unlike the behavior of many of today's larger financial Patrick F. Hayes
institutions, we always try to work with our customers both in good times and President
during periods when running a profitable business is more challenging. We do not F.D. Hayes Electric
run hot or cold based on the economy or a customer's short-term performance. We
value loyalty, character, integrity and working together to create an Richard A. Henderson
environment that has been critical to the long-term success of our customers and President
the Bank. Henderson & Associates, PC
The fact that the average tenure of members of our management team is 14 years J. Christopher Holman
gives our staff and customers the comfort of knowing we will continue to be here Publisher
to meet their needs. That level of continuity has no price tag as we build and Greater Lansing Business Monthly
expand a solid business base, which in turn becomes a wonderful referral source,
continually assisting Capitol National's development plan and success. L. Douglas Johns, Jr.
Vice President
Mid Michigan Investment Company
SMALLER BANK. BIGGER SERVICE.(TM)
Kevin A. Kelly
/s/ John C. Smythe Managing Director
John C. Smythe Michigan State Medical Society
President & CEO
Mark A. Latterman
President
200 Washington Square North Latterman & Associates, PC
Lansing, MI 48933
517-484-5080 Charles J. McDonald
www.capitolnational.com Cashier-Great Lakes Region
Capitol Bancorp Limited
John D. O'Leary
Co-President
O'Leary Paint Company
Patricia A. Reynolds
Development Consultant
Kolt & Serkaian Communications, Inc.
John C. Smythe
President & CEO
Capitol National Bank
OFFICERS
Robert C. Carr
Chairman
Mark A. Latterman
Vice Chairman
Patrick F. Hayes
Secretary
John C. Smythe
President & CEO
John R. Farquhar
Senior Vice President
David E. Feldpausch
Vice President
Lori M. Garcia
Vice President
Theodore M. Terzian
Vice President
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L O Y A L T Y
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BOARD OF DIRECTORS ELKHART COMMUNITY BANK
Nancy B. Banks Loyalty to our shareholders, clients, and employees is demonstrated daily at
Community Volunteer Elkhart Community Bank. Extraordinary customer anecdotes evidencing the loyalty
of our banking professionals stand side-by-side with day-to-day procedures,
R. Steven Bennett which reinforce the importance of loyalty.
President
Voyager Products, Inc. When one of our clients was purchasing a condominium in Florida, an opportunity
arose to demonstrate our core values. We had discussed a real estate loan and
Kenneth W. Brink planned on closing it the following Tuesday morning so the customer could take
Treasurer the check with him when he flew to Florida that afternoon. On the Saturday prior
Hart Housing Group, Inc. to the scheduled closing, we received a call at home from the client saying he
needed the check on Monday afternoon instead of Tuesday. Because that Monday was
Steven L. Brown a holiday, the Bank was not scheduled to be open. We were able to come into the
President bank on a Sunday afternoon and prepare the appropriate loan information, to
Elkhart Community Bank accommodate this emergency request for our client.
Robert C. Carr Our procurement policy reminds us routinely of our loyalty to community vendors.
Executive Vice President We believe that giving business back to our clients and community first is an
Capitol Bancorp Limited important part of relationship banking and a true advantage over our big bank
competitors. During 2002, we needed to replace the heating and air conditioning
Andrew W. Frech units for our bank building. Both of the firms from which the Bank solicited
Chairman & CEO bids on the job have borrowing and depository relationships with the bank. Even
Ancon Construction Company, Inc. when the Bank is planning a small lunch for our board meetings, we hire local
eateries that bank here to cater the meals.
Curtis T. Hill, Jr.
Attorney at Law Elkhart Community Bank exhibits loyalty every day. We understand that we are in
Elkhart Co. Pros. Attorney Office business because of our directors, employees, shareholders, and our clients, and
we treat them with the respect that they deserve.
Richard J. Jensen
Retired
ELKHART'S BANK.
Richard L. Max, Sr.
President & General Manager /s/ Steven L. Brown
Heart City Enterprises House of Herbs Steven L. Brown
President
Myrl D. Nofziger
President
Hoogenboom Nofziger 303 South Third Street
Elkhart, IN 46516
Brian J. Smith, CPA 574-295-9600
President www.elkhartbank.com
The Heritage Group
Jack E. Welter
President
Elkhart Plastics, Inc.
OFFICERS
Robert C. Carr
Chairman & CEO
Myrl D. Nofziger
Vice Chairman & Secretary
Steven L. Brown
President
Lori A. Faltynski
Vice President
Kenneth L. Kasamis
Vice President
Vincent J. VonDerVellen
Vice President
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GRAND HAVEN BANK BOARD OF DIRECTORS
In May of 1995, Grand Haven was ready for a community bank. Small banks offer a Stanley L. Boelkins
high level of personal customer service and attention. The concept of meeting Appraiser
face-to-face across the desk with customers is reminiscent of days gone by. Boelkins & Associates
Grand Haven Bank takes a common sense approach toward banking to meet the needs John D. Groothuis
of its customers. The Bank began with word-of-mouth referrals, knocking on doors President & CEO
and building trust and relationships. As the customers' needs have grown, so has Grand Haven Bank
the Bank. We opened with 4 employees; Grand Haven Bank now has over 30
professionals on its team. Mark A. Kleist
Attorney at Law
Needs have changed, but our focus remains on customer service and relationship Scholten and Fant, P.C.
building. The Bank has continually added products, services and people to meet
the needs of our customer. This includes both personal and business banking, Steven L. Maas
commercial, consumer and mortgage lending, investment services, on-line, Vice President
telephone and drive-through banking. Gillisse Construction Company
All of Grand Haven Bank's employees are respected and encouraged to be creative, Michael A. McKeough
develop solutions, and make solid decisions, which fosters high morale, team President
support, loyalty and improved customer service. A note recently received from a McKeough Land Company Inc.
customer reads, "Besides being an efficient and competent bank for my banking
needs, you are all so very nice when I come to see you." Calvin D. Meeusen
Managing Partner
Loan Committee meetings have an essence of a forgotten era in banking where Calvin D. Meeusen, CPA
Directors consider not only the financial merit of a loan request, but the
people behind the project and their families. This approach demonstrates Grand Robert J. Trameri
Haven Bank's willingness to think holistically to accomplish the financing goal, Retired
rather than trying to make the customer's project fit into an inflexible,
standardized formula. Bruce A. Thomas
Chief of Bank Performance
Grand Haven Bank consistently endeavors to meet the needs of its customers and Capitol Bancorp Limited
its employees. In doing so, we build lasting relationships that promote
satisfaction in a job well done, continued loyalty, numerous referrals, and John P. Van Eenenaam
satisfied customers that want to be known by name and not just by an account Attorney at Law
number or address. Scholten and Fant, P.C.
The key to this success has been maintaining the high level of service that Bernard J. Wade
customers have come to expect and demand. President
Advanced Signs, Inc.
CARING THROUGH INVOLVEMENT. Gerald A. Witherell
President
/s/ John D. Groothuis Oakes Agency, Inc.
John D. Groothuis
President & CEO
OFFICERS
333 Washington Avenue John P. Van Eenenaam
Grand Haven, MI 49417 Chairman
616-846-1930
www.grandhavenbank.com Calvin D. Meeusen
Vice Chairman
Steven L. Maas
Secretary
John D. Groothuis
President & CEO
Karen K. Benson
Vice President
Sherry J. Patterson
Vice President
Todd M. Sellon
Vice President
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BOARD OF DIRECTORS OAKLAND COMMERCE BANK
Mark A. Aiello Oakland Commerce Bank has always believed that for a bank, or any business for
Foley & Lardner that matter, loyalty is a reciprocal process. It is unrealistic to believe that
a customer will be loyal to the bank when the bank's actions do not demonstrate
Donald A. Bosco loyalty to the customer.
President
Donald A. Bosco Building, Inc. As an example, a long time customer approached us on behalf of his wife who
wanted to start a computer hardware/software business. She had been unable to
Robert C. Carr obtain financing at other banks in the Farmington Hills area. The usual declines
Executive Vice President were received.... start-up business, no experience, no money.... no loan.
Capitol Bancorp Limited
Because of the long-term bank relationship with our customer, we responded to
Mark B. Churella his request to meet with his wife and explore her business needs. We eventually
President & CEO determined that with her technical background and professional contacts, her
FDI Group request had merit. We were also convinced that her business plan was sound and
that all she needed was a small working capital line of credit to get the
Leon S. Cohan business up and running. We provided the initial loan in 1993, and have provided
Counsel to the Firm several increases through the years. Today, the company is very profitable and
Barris, Scott, Denn & Driker is poised to generate several million dollars in revenue.
Michael J. Devine Other banks now approach this customer on a regular basis, but the customer
Attorney at Law informs them that there is only one bank that she deals with... Oakland Commerce
Bank.
Jeffrey L. Hauswirth
CPA, CVA, Principal We are also loyal to our employees. We have a solid history of, first and
Jenkins, Magnus, Volk & Carroll, PC foremost, promoting from within. One of the key members of the Oakland Commerce
Bank management team began her career as a teller sixteen years ago. She then
James R. Kaye moved to various departments within the Bank and developed her position to the
President & CEO level of Vice President. She is also a key member of the senior management staff
Oakland Commerce Bank who relies on her sense of history, overall knowledge of the customers and the
mechanics of banking operations.
Ihor J. Kuczer
Senior Vice President Our customers, directors, and employees all enjoy the success of Oakland
Oakland Commerce Bank Commerce Bank that, by design, requires that we rely on one another.
David F. Lau
Lau & Lau Associates, L.L.C. OAKLAND COMMERCE BANK...
OFFERING DIVERSE LENDING SOLUTIONS FOR OUR COMMUNITY.
Jeffrey M. Leib
President /S/ James R. Kaye
Leib, Leib & Kramer James R. Kaye
President & CEO
Akram G. Namou
CPA
31731 Northwestern Highway
Julius L. Pallone Farmington Hills, MI 48334
President 248-855-0550
J.L. Pallone Associates www.oaklandcommerce.com
Francine Pegues
Regional Sales Director
Blue Cross Blue Shield of Michigan
Southeast Region
OFFICERS
Michael J. Devine
Chairman
Robert C. Carr
Vice Chairman
James R. Kaye
President & CEO
Ihor J. Kuczer
Senior Vice President & Secretary
Thomas K. Perkins
Vice President
Nicolet B. Cassidy
Vice President
James F. Miller
Vice President
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PORTAGE COMMERCE BANK BOARD OF DIRECTORS
During 2002, Portage Commerce Bank entered its fifteenth year of exceeding the Paul R. Ballard
financial service needs of small businesses and individuals. No greater measure Retired President & CEO
can be found of the loyalty and dedication established among the Bank, its Portage Commerce Bank
employees, and its customers than the long-standing relationships that have
developed. We are proud that two of the six employees that opened the Bank David L. Becker
reached retirement serving our customers. Five of our employees have over ten Retired Insurance Agent
years of service and nine have more than five years of service. Their dedication
is appreciated. Thomas R. Berglund, MD
Portage Physicians
At the same time, we have built a loyal following among the people we serve,
including over 300 accounts established during our inaugural year that continue Robert B. Borsos
to do business with us today. Our most effective resource in the development of Attorney & Shareholder
new business opportunities continues to be testimonials of the customers who Kreis, Enderle, Callander & Hudgins, PC
helped launch their bank, in addition to newer faithful customers.
John M. Brink, CPA
In 1988 a group of local businesspeople who helped form Portage Commerce Bank Partner
accepted the responsibility of participating on its board of directors. Nine of Brink, Key & Chludzinski, P.C.
those original directors remain on the board today! It is their steadfast,
focused attention on broadening the customer base that supports and sustains the Patricia E. Dolan
Bank. In 1999, a number of them formed a partnership that built the current Community Volunteer
banking facility, providing a more substantial presence in the Portage market.
Their continued investment in our community reflects the entrepreneurial spirit Alan A. Halpern, MD
that launched Portage Commerce Bank. Michigan Orthopedic Surgery &
Rehabilitation, PC
We renew our commitment to provide quality bank products and service to our
community and to offer our employees an opportunity to work in an environment Robert L. Johnson
that treats them with respect. We look forward to the future, continuing to give Retired Secretary & Treasurer
back to the community that has offered us so much. Medallion Properties, Inc.
Michael L. Kasten
WE APPRECIATE THE OPPORTUNITY TO SERVE OUR COMMUNITY. Managing Partner
Kasten Investments, LLC
/s/ Dennis J. Kuhn
Dennis J. Kuhn Dennis J. Kuhn
President & CEO President & CEO
Portage Commerce Bank
800 East Milham Road Paul M. Lane, PhD
Portage, MI 49002 Seidman School of Business
269-323-2200 Grand Valley State University
www.portagecommerce.com
William J. Longjohn
Retired Vice President
Midwest Business Exchange
John W. Martens, CPA
Retired
Russell M. Rathburn
President
Rathco Safety Supply, Inc.
OFFICERS
Michael L. Kasten
Chairman
William J. Longjohn
Vice Chairman & Secretary
Dennis J. Kuhn
President & CEO
James V. Lunarde
Senior Vice President
Roy L. Dangel, Jr.
First Vice President
Kenneth R. Blough
Vice President
John M. Crandle
Vice President
Kimberlee M. Ferris
Vice President
Cheryl M. Germain
Vice President and Cashier
Beth A. Wright
Vice President
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BOARD OF DIRECTORS SOUTHERN ARIZONA COMMUNITY BANK
William R. Assenmacher Loyalty is a quality that's becoming increasingly harder to find, whether it's
President employee loyalty to a company or consumer loyalty to a product.
T.A. Caid Industries, Inc.
The way we treat our bank customers begins with the way we treat each other. The
Jody A. Comstock importance of workplace loyalty resonates throughout the corporate world. There
Physician/Owner are systemic links between employee loyalty and organizational performance. At
Skin Spectrum Southern Arizona Community Bank, employee loyalty deserves a place on the
balance sheet, right next to other key assets.
Michael J. Devine
Attorney at Law Building loyalty is not an easy task, but one we focus on every day. The
pendulum of employer-employee loyalty has swung from one extreme to the other in
Robert A. Elliott the past 50 years. What constitutes the key responsibilities of a loyal
President & Owner employer? Collecting employee feedback. Assessing and rewarding performance, and
The Elliott Accounting Group offering the right jobs to the right people. Giving employees a stake in the
business.
Brian K. English
General Counsel Employees must take charge of their own careers, but a good company will offer
Capitol Bancorp Limited the tools to succeed. It is the employee's responsibility to pick up those tools
and use them effectively. Take training seriously. Responsible employees
Michael W. Franks understand that promotions are not gifts -- they are corporate acknowledgement
Principal for the job done well. In the best of worlds, strong performance and loyalty are
Seaver Franks Architects connected and reinforced through a web of recognition and reward.
Michael L. Kasten Although loyalty's impact on the financial statement of a company is difficult
Managing Partner to measure, at Southern Arizona Community Bank, loyalty is the driving force of
Kasten Investments, LLC our continued success. Seeing the same faces in our bank on a day-to-day basis
promotes a sense of security in our customers. Employee loyalty evolves into
Yoram S. Levy customer loyalty.
President
Yoram Levy Development, Inc. Employee loyalty is the crowning achievement in any business. At Southern
Arizona Community Bank employee and customer loyalty are priceless.
John P. Lewis
President
Southern Arizona Community Bank BANKING THE WAY IT SHOULD BE.
Jim Livengood, Jr. /s/ John P. Lewis
Director of Athletics John P. Lewis
The University of Arizona President
James A. Mather
Attorney at Law & CPA 6400 North Oracle Road
Tucson, AZ 85704
Morgan E. North 520-219-5000
President & Owner www.southernarizonabank.com
Borderland Construction Company, Inc.
James M. Sakrison
Principal
Slutes Sakrison & Hill, P.C.
Jean M. Tkachyk
CFO
University Physicians, Inc.
Paul A. Zucarelli
Principal
CBIZ, Gordon, Zucarelli
& Handley Insurance
OFFICERS
Paul A. Zucarelli
Chairman
Michael L. Kasten
Vice Chairman
Joseph D. Reid
CEO
Robert A. Elliott
Secretary
John P. Lewis
President
Michael J. Trueba
Executive Vice President/CCO
Terri R. Gomez
Senior Vice President
Sue Mullery Hansen
Vice President
Craig A. Larson
Vice President
Mindy C. Webb
Vice President
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L O Y A L T Y
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[PHOTO]
ACCOUNTING DEPARTMENT
C O M M U N I T Y
C O M M I T M E N T [GRAPHIC]
[PHOTO]
OPERATING SERVICES
WESTERN REGIONS
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BOARD OF DIRECTORS NAPA COMMUNITY BANK
Kevin S. Alfaro Good stewardship makes its own rewards. The opportunity to demonstrate our
Partner commitment to the community that gives us our name, and our livelihood,
G & J Seiberlich & Co., LLP sometimes arises out of misfortune. Sometimes it involves an act of superior
customer service. Sometimes both.
Geni A. Bennetts, MD
Medical Consulting A new commercial real estate loan was scheduled to be completed in mid-December,
2002. The borrower, a prominent architect in California, has devoted the last 2
Charles H. Dickenson years to renovating a 2-story retail-office building in historic downtown Napa.
Dickenson, Peatman & Fogarty The building is home to a popular restaurant and several retailers on its ground
floor, with several other businesses on the 2nd floor.
William H. Dodd
General Manager, Culligan Water During the preceding 5 days, Northern California had been deluged with rain, and
Napa County Supervisor area lakes, rivers, and streams were at maximum capacity. The Napa River was
nearing flood stage in its course through downtown Napa. At 3 a.m. on the day
Jeffrey L. Epps before our loan transaction, a tributary that flows from the valley's western
President hills to the Napa River unexpectedly overflowed its banks and flooded several
Epps Chevrolet blocks in downtown Napa. Our borrower's property was among the first to be hit
with floodwater, and roads began to close in the area. Later that day,
Douglas W. Hill floodwaters subsided and clean up began. Our borrower was among the first on the
Vineyard Manager scene with crews and equipment to help ground level tenants clean up their shops
Jaeger Vineyards, Inc. in order to hasten the resumption of business.
Andrew L. Hoxsey We were able to make contact with the borrower to determine whether he still
Managing Partner planned to sign loan documents as planned. Upon learning of his harrowing
Napa Wine Company experience with the flood, we agreed to amend his loan to provide additional
funds in support of clean up and repair expenses. Flood insurance eventually
Carlee S. Leftwich covered most expenses, but the borrower was astonished to hear of such an offer.
Former Mayor He was particularly surprised that we were able to amend our loan and keep the
Yountville, California scheduled appointment to sign loan documents.
Harold D. Morrison The borrower expressed appreciation for our responsiveness and took steps to
President notify his tenants of the Bank's proactive service and support. As a result of
Bridgeford Flying Service our service, we have become his primary bank and doors opened to establishing
bank relationships with his tenants. Helping not only our customers, but also
Betty L. O'Shaughnessy the greater community, get back to business with a minimum of lost revenue is
Owner good for Napa and that is good for Napa Community Bank.
O'Shaughnessy Estate Winery
John R. Pappas, DDS, MD /s/ Dennis J. Pedisich
Oral & Maxillo-Facial Surgeon Dennis J. Pedisich
President & CEO
Dennis J. Pedisich
President & CEO
Napa Community Bank 600 Trancas Street
Napa, CA 94558
General Charles E. Yeager 707-227-9300
Retired-Military www.napacommunitybank.com
Advisory Directors
Paul J. Krsek
Managing Partner
K & A Asset Management, LLC
Joseph D. Reid
Chairman & CEO
Capitol Bancorp Limited
OFFICERS
Betty L. O'Shaughnessy
Chairman
Geni A. Bennetts, MD
Vice Chairman
Charles H. Dickenson
Secretary
Dennis J. Pedisich
President & CEO
Richard W. Hemming
Executive Vice President/CCO
Arlette A. Roddy
Vice President
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PARAGON BANK & TRUST BOARD OF DIRECTORS
Paragon Bank & Trust is proud of its community commitment. A part of the Bank's Dr. Robert J. Bates
involvement in our community's success comes in the form of lending decisions Physician
that fulfill the intent of such governmental initiatives as the Community Western Michigan Urological Assoc. P.C.
Reinvestment Act. It is our people, however, who carry that commitment outside
of the Bank's doors, outside of business hours and into the community, one Charles A. Brower
project at a time. During 2002, Paragon Bank & Trust's staff committed many CPA/Partner
hours of time and energy when: DeLong & Brower, P.C.
The Bank as a whole split into four "work groups" to work on local projects. One Scott Diepenhorst
of our work groups constructed a retaining wall and installed siding on a house Principal
for Habitat for Humanity. Representatives from our local United Way featured a SD & Associates, Inc.
photo of the group in their annual publication. A second group took on the task
of doing odd jobs at the Community Action House. A third group labored at the Paul Elzinga
Holland Rescue Mission and a fourth group of employees put on their painter's Co-Chairman & Director of Business Development
caps and assisted Wildlife Unlimited in sprucing up their facilities. Not only Elzinga & Volkers, Inc.
did these activities benefit the community, but we also gained a positive
feeling from helping others in need. John D. Groothuis
President & CEO
We have acted as a community sponsor in a local "adopt-a-park" project. We Grand Haven Bank
"adopted" a local skate park, which is very close to our new location in
Holland. It is our job to keep the park clean and the equipment safe for those Jeffrey K. Helder
who enjoy this facility. Attorney at Law
Cunningham Dalman, PC
The local United Way recognized the Bank's 100% employee participation during
the recent annual campaign. Lawrence D. Kerkstra
Chairman of the Board
A group from our bank raised over $1,000 by walking in a local Juvenile Diabetes Kerkstra Precast, Inc.
Foundation fundraiser.
Scott G. Kling
We know that our success depends on the success of the community in which we President/Trust & Investments Division
live and work. Paragon Bank & Trust is proud of the spirit exhibited by our Great Lakes Region
dedicated team of employees and their commitment to the Holland community.
Leonard Maas
President
PROVIDING EXCELLENCE IN RELATIONSHIP BANKING. Gillisse Construction Company
/s/ Randall R. Smith Mitchell W. Padnos
Randall R. Smith Executive Vice President
President & CEO Louis Padnos Iron & Metal Company
Henri P. Paterson
240 E. 8th Street Associate Broker/Partner
Holland, MI 49423 Woodland Realty, Inc.
616-394-9600
www.paragonbank.com Randall R. Smith
President & CEO
Paragon Bank & Trust
Richard G. Swaney
Attorney at Law
Swaney & Thomas, P.C.
Bruce A. Thomas
Chief of Bank Performance
Capitol Bancorp Limited
Robert J. Trameri
Retired
Paragon Bank & Trust
DIRECTOR EMERITUS
Richard H. Ruch
OFFICERS
Richard G. Swaney
Chairman
Robert J. Bates
Vice Chairman
Randall R. Smith
President & CEO
Eric J. Hoogstra
Senior Vice President/Trust Officer
G. Robert Mohr
Senior Vice President
M. Jane Reimersma
Vice President
Dean R. Weerstra
Vice President/Trust Officer
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BOARD OF DIRECTORS SUNRISE BANK OF ALBUQUERQUE
Frederick D. Bernson At Sunrise Bank of Albuquerque, we embrace our state's multicultural composition
President through active participation in local organizations formed to promote a sense of
Sunrise Bank of Albuquerque community, as well as our diversity. We pride ourselves in being active
participants in many organizations and projects, which exemplify this
Turner W. Branch commitment:
Branch Law Firm, P.A.
* Sunrise Bank of Albuquerque is an active member of The Albuquerque Chamber
David J. Daniel of Commerce, Albuquerque Economic Development, the Greater Hispano Chamber
Executive Vice President of Commerce, the American Indian Chamber of Commerce of New Mexico, and the
Sunrise Bank of Albuquerque Downtown Action Team.
Helen A. Elliott * Sunrise Bank of Albuquerque was a significant sponsor of the Hispano
CPA Chamber of Commerce fundraiser for the new Hispanic Cultural Center in
Helen Elliott & Associates, PC Albuquerque. Sunrise Bank was also the Title Sponsor for the American
Indian Chamber fundraiser for scholarships for Native American youth.
E. Gary Fichtner
Esthetic Dental Arts, Inc. * Sunrise Bank of Albuquerque aggressively participates in Small Business
Administration Loan programs, which create jobs and help with community
Donald E. Fry, MD redevelopment. Sunrise Bank of Albuquerque is located in the heart of the
UNM-School of Medicine Downtown Revitalization District and has been instrumental in assisting the
development of new businesses in the Revitalization Zone.
William D. Hinz II
President * Sunrise Bank of Albuquerque has originated numerous credit facilities for
Sunrise Bank of Arizona the building of low-income apartment projects, and has provided funding for
low and moderate-income housing developments.
John R. Lewinger
CEO * Several of our employees are active participants in the Credit
Grubb & Ellis/Lewinger Hamilton Professionals International as well as the National Association of Women
Business Owners. These organizations are directly involved in community
Jason A. Shaffer causes, including scholarships for lower income disabled children,
CEO counseling, and many other charitable endeavors.
Sunrise Bank of Albuquerque
It is through the considerable efforts of the directors, officers and employees
Randy E. Whitehead of Sunrise Bank of Albuquerque that our institution has been a significant
President contributor to the success of our community.
New Mexico Coffee Company
SMALLER BANK. BIGGER SERVICE.(TM)
OFFICERS
/s/ Jason A. Shaffer
William D. Hinz II Jason A. Shaffer
Chairman CEO
Jason A. Shaffer
CEO 225 Gold SW
Albuquerque, NM 87102
Frederick D. Bernson 505-244-8000
President www.sunrisebankofalbuquerque.com
David J. Daniel
Executive Vice President, Secretary & CCO
Conni L. Nunez-Jones
Vice President
J. Rodney Tafoya
Vice President
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VALLEY FIRST COMMUNITY BANK BOARD OF DIRECTORS
Valley First Community Bank is committed to supporting our community through W. Craig Berger
involvement in civic and non-profit organizations. Our commitment extends beyond CLU, ChFC
fiscal support. Spence, Driscoll & Company
We are a community partner with Camp CEO, an alliance of public and private Marilyn D. Cummings
organizations that sponsors and runs a one-week summer camp for young women ages Realtor
13-17. The Camp introduces them to the possibilities of becoming business owners Russ Lyon Realty Company
or executive professionals through a series of talks and group activities,
including a Ropes course and a Business-in-a-Box project. All counselors and Michael J. Devine
presenters at the camp are female business owners and executives who interact Attorney at Law
with and mentor the young women throughout the week. I plan to represent Valley
First by chairing the sponsorship committee and serving as a camp counselor Judith R. Egan
during the 2003 camp. President
Valley First Community Bank
In December 2002, a group of Valley First employees orchestrated a support
campaign for the Chrysalis Shelter for Victims of Domestic Violence, a local William R. Fitzpatrick
organization that provides safe housing, counseling and domestic support for CPA
victims of domestic violence. Our team obtained a wish list from Chrysalis and Hein & Associates, LLP
then developed a holiday campaign that involved a lobby display and a direct
solicitation of employees, directors and customers. By the end of the 3-week Steven M. Goldstein
campaign, we had filled to overflowing an entire section of our lobby with Attorney at Law
diapers, bedding, toys, clothing, baby and toddler accessories, food, and cash, Sacks, Tierney, P.A. Lawyers
which we delivered with great joy to the very appreciative executive director of
Chrysalis. In 2003, our employees plan to conduct at least two more similar Dr. Ross Halliday
campaigns for Chrysalis. General Orthopedics
Institute for Bone & Joint Disorders
We have developed a special banking program for Scottsdale-based nonprofit
organizations that includes a package of free basic banking services. We also Michael L. Kasten
offer our conference room free of charge to local non-profit groups for their Managing Partner
monthly meetings. Kasten Investments, LLC
At Valley First Community Bank we believe in the power of partnership. We are Donald J. Mahoney
very proud to actively partner with the nonprofit and civic organizations in our Managing Director
community. Together we can help our community grow and improve our collective Trammell Crow Company
quality of life.
Gordon D. Murphy
Retired EVP
OUR BUSINESS IS HELPING YOUR BUSINESS TO GROW! Arizona Bankers Association
/s/ Judith R. Egan Harry Rosenzweig, Jr.
Judith R. Egan Co-Owner
President Harry's Fine Jewelry
Patricia B. Ternes
7501 East McCormick Parkway, Vice President
North Court, Suite 105N Dain Rauscher Incorporated
Scottsdale, AZ 85258
480-596-0883
www.valleyfirstbank.com OFFICERS
Gordon D. Murphy
Chairman
Michael J. Devine
Vice Chairman
Harry Rosenzweig, Jr.
Secretary
Joseph D. Reid
CEO
Judith R. Egan
President
David D. Fortune
Executive Vice President/CCO
J. Patrick Blaine
Vice President
Victoria L. Bushnell
Vice President
David F. Forwood
Vice President
Daniel R. Klenske
Vice President
Nancy E. Selby
Vice President
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BOARD OF DIRECTORS YUMA COMMUNITY BANK
Bruce I. Ash Yuma Community Bank has built on its motto of "Putting Yuma First," not only by
Vice President continuing to focus on exceptional customer service, but also by giving the
Paul Ash Management, LLC staff the opportunity to live that motto every day.
Steven M. Binkley, Jr. Yuma Dentist Craig Barrows was pleasantly surprised by his experience with Yuma
SW Division Manager Community Bank's new chief credit officer. "I called and Keith's response was,
Arizona Public Service Company `What can we do for you? When is a good time for me to come to your office?'
I've had other banks tell me to come in and fill out the paperwork. This bank
Katherine M. Brandon was able to deliver what I needed a lot faster than what I was expecting.
President Customer service is going away all over the country. I know how important it is,
Yuma Community Bank and so does Yuma Community Bank. They just do everything for you."
Raymond R. Corona Jane Kiley, who owns Hunter Employment Services with her husband, Tom, said they
Optometrist and President have found Yuma Community Bank to be very responsive. "When we have had
Corona Optique processes we needed to do differently, they were able to accommodate us
cheerfully - we were able to use the Internet very effectively" she said. "The
Juli Jessen staff at the bank has a can-do attitude. You tell them your needs and they find
Director a way to do it."
Gowan Company
In addition to "Putting Yuma First" in the Bank, our employees have taken their
Ram R. Krishna commitment to the community beyond the Bank. By joining organizations like the
Ram R. Krishna, MD, P.C. board of the Yuma Community Food Bank, they are able to use their contacts to
connect with farmers and get their products donated to the Yuma Food Bank.
John T. Osterman
Owner Yuma Community Bank's pledge to put Yuma first is the essence of a solid
Osterman Financial Group commitment to serve the community.
David S. Sellers
President PUTTING YUMA FIRST.
Sellers Petroleum Products, Inc.
/s/ Katherine M. Brandon
Caryl L. Stanley Katherine M. Brandon
Partner President
Costen-Stanley Partnership
John R. Sternitzke 454 West Catalina Drive
President Yuma, AZ 85365
Sternco Engineers, Inc. 928-782-7000
www.yumabank.com
Pamela K. Walsma
Attorney at Law
Westover, Shadle, Carter & Walsma, PLC
Ronald S. Watson
Broker/Owner
Era Matt Fischer Realtor
Leonard C. Zazula
Cashier-Western Regions
Capitol Bancorp Limited
OFFICERS
Ronald S. Watson
Chairman
Ram R. Krishna
Vice Chairman
Joseph D. Reid
CEO
Pamela K. Walsma
Secretary
Katherine M. Brandon
President
Keith L. Simmonds
Executive Vice President & CCO
Theresa N. Wine
Senior Vice President
Kari M. Reily
Vice President
Roy E. Brown
Vice President
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[PHOTO]
RISK MANAGEMENT
WESTERN REGION
I N T E G R I T Y [GRAPHIC]
[PHOTO]
RISK MANAGEMENT
GREAT LAKES REGION
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BOARD OF DIRECTORS ANN ARBOR COMMERCE BANK
Robert C. Carr Customers -- staff -- shareholders -- community. When each supports the other,
Executive Vice President respect, reliability, and fidelity create trust and confidence.
Capitol Bancorp Limited
`Take care of the customers and the numbers will take care of themselves' has
Richard G. Dorner been the basis of our decision-making. When this is the emphasis, staff,
President & CEO shareholders and the community all benefit. Since our inception in 1990, we have
Ann Arbor Commerce Bank experienced a variety of economic conditions. `Taking care of the customer'
cannot be a generic phrase -- the individual and the situation must define it.
James A. Fajen During the 13 years since we opened our doors, we have prospered by learning
Attorney at Law what options to offer during various economic climates. The most recent trend in
Fajen & Miller, P.L.L.C. the economy has benefited the borrower. The Federal Reserve System's pattern of
lowering interest rates has been beneficial to the business community.
James W. Finn Start-ups, spin-offs and expansions flourish during periods of low interest
Chairman & CEO rates. Certainly, individuals have enjoyed the low mortgage rates. Refinancing
Finn's-JM&J Insurance Agency, Inc. and investing in home remodeling or a house upgrade have balanced the consumer's
lack of gains in other markets.
H. Nicholas Genova
Chairman & CEO But what about those who save? Current lower interest rate trends have not
Washtenaw News Co. Inc. provided a benefit to them. This comes at the time when the largest segment of
H.N. Genova Development consumers, the `Boomers', has experienced a diminished need to borrow with a
greater emphasis on saving and investing. We wanted to create a benefit for
Richard M. Greene those consumers. To that end we offered a CD Upgrade Voucher Promotion in
President February 2002, anticipating CD rates would increase within the next few months.
Point Training As that was not the case, we decided to extend the offer and provide options
that will benefit the customer and are fair to the Bank. We have been able to
Marilyn D. Katz-Pek realize our full potential by applying fairness to all involved. We have a loyal
General Managing Partner customer base because we always seek to do the right thing.
Biotechnology Business Consultants
James C. Keen BUILDING LASTING RELATIONSHIPS...CREATING LIFETIME VALUE.
President
Cliff Keen Athletic /s/ Richard G. Dorner
Richard G. Dorner
David W. Lutton President & CEO
President
Charles Reinhart Company
2950 State Street South
Fritz Seyferth Ann Arbor, MI 48104
Consultant 734-887-3100
Fritz Seyferth & Associates www.annarborcommerce.com
Dr. Carl Van Appledorn
Vice President
Urological Surgery Associates, P.C.
Warren E. Wright
Chairman & Partner
Renosol Corporation
OFFICERS
James A. Fajen
Chairman
Robert C. Carr
Vice Chairman
Warren E. Wright
Secretary
Richard G. Dorner
President & CEO
Clifford G. Sheldon
Executive Vice President
John J. Wilkins
Senior Vice President
Mary Hayes
Vice President
Rick H. James
Vice President
Louise A. Morse
Vice President & Cashier
John Nixon III
Vice President
James J. Plummer
Vice President
Bryan T. Singer
Vice President
Richard G. Tice
Vice President
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ARROWHEAD COMMUNITY BANK BOARD OF DIRECTORS
As we organized Arrowhead Community Bank, the staff and founding board members Shelley L. Bade
developed new relationships within the local business community: trades people, RPA, President
community leaders, prospective investors and local media. We learned that these Bade Commercial Services, Inc.
people were excited about the prospect of a bank focusing on building
relationships. From "Day One", we shared the concept of a true community bank; David Brnilovich
developing relationships based on honesty and trust; and establishing a Jennings, Strouss & Salmon, P.L.C.
reputation for business integrity.
W. Patrick Daggett
Integrity is our standard. Board members and staff instinctively act with CPA
integrity in all aspects of business. In selecting key personnel, we look for Daggett & Daggett, LLP
that same kind of values match. Integrity within our organization is assumed --
it is the standard, not the exception. Michael J. Devine
Attorney at Law
We, at Arrowhead, have a "golden rule" to do what we say we are going to do,
when we say we are going to do it. It is our practice to fully disclose all Richard J. Hilde
costs related to doing business with Arrowhead at our first meeting with a Owner & CEO
prospective client. This practice, at times, initially results in the loss of EPW, Inc.
business to the competitors who appear to offer lower pricing. However, many
times, these prospects return to our Bank once our competitors fully disclose Michael L. Kasten
their pricing and fees. The Bank's straight-forward approach during the initial Managing Partner
meeting transforms prospects into clients. We firmly believe if we are Kasten Investments, LLC
forthright and act with integrity, we save the client time and money, which
gains and preserves valuable relationships. Arlene Kulzer
President
A recent residential real estate loan applicant would agree. She was concerned Arrowhead Community Bank
about the fees and time involved in the refinance of her home. Rather than
attempt to persuade her to refinance with us, we suggested she speak with her Dennis E. Landauer, CPA
current mortgage company about a streamline refinance. She did, was very pleased American Express Tax
with our guidance and has since referred several clients to the Bank. & Business Services
While the American media is full of examples of questionable business practices, Dr. Elaine P. Maimon, CEO
we are encouraged by the response to our philosophy "integrity goes hand in hand Arizona State University West
with good business".
James J. McCue
Aviation Consultant
ARROWHEAD COMMUNITY BANK ...A RELATIONSHIP YOU CAN BANK ON. Sherwin Industries
/s/ Arlene Kulzer Terrance C. Mead
Arlene Kulzer Attorney at Law
President Mead & Associates
John C. Ogden
17235 North 75th Avenue, Suite B100 President & CEO
Glendale, AZ 85308 SunCor Development Company
623-776-0800
www.arrowheadcommunitybank.com Carol A. Poore
Vice Provost
Arizona State University West
Richard A. Shelton
Executive Director
Symphony of the West Valley
OFFICERS
Michael L. Kasten
Chairman
John C. Ogden
Vice Chairman
Joseph D. Reid
CEO
James J. McCue
Secretary
Arlene Kulzer
President
Dennis E. Landauer
Chair, Directors Loan Committee
Gary L. Weitner
Executive Vice President/CCO
William H. Smith
Senior Vice President
Deborah M. Charlesworth
Vice President
Barry S. Edwards
Vice President
Ursula L. Jackson
Vice President
</TABLE>
I N T E G R I T Y
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BOARD OF DIRECTORS DETROIT COMMERCE BANK
Ralph J. Burrell Acts of kindness and commitment to the community are a standard of behavior we
President practice each and every day at Detroit Commerce Bank. Our customers learn to
SymCon expect a high level of integrity from us. We earn their trust. All of our
customers, from high profile professionals to those with modest bank activity,
Robert C. Carr know we will always do what we can, morally and ethically, to protect their good
Executive Vice President name and financial reputation. Offering valued customers the benefits of on-line
Capitol Bancorp Limited banking increases confidentiality and benefits both the bank, in goodwill, and
the customers, in increased accessibility. The customers who benefit from such
Vivian L. Carpenter an act of consideration tells friends how well the bankers at Detroit Commerce
President Bank treat them.
Atwater Entertainment Associates
In some cases we generate additional business for the bank simply by
Donald M. Davis, Jr. exemplifying honorable behavior. When one of our customers was ill, we were
Vice President asked to provide some financial oversight to ensure that his money was safe from
Health Alliance Plan unauthorized transactions until he was well enough to resume responsibility for
his own finances. Later, that same customer found himself in need of greater
Barbara B. Gattorn fiduciary assistance than we, as his bank, were prepared to provide. We did,
Senior Advisor to the President however, assist him with securing a guardian appointed by the probate court,
Detroit Regional Chamber thus saving his retirement funds. The guardian was so impressed with the
honorable handling this man's finances received from Detroit Commerce Bank, the
John R. Hirzel guardian became a customer who now brings his probate accounts to us on a
CPA regular basis.
Hirzel, Jackson and Swaine, PC
Civic agencies and governmental units have to be particularly prudent in
Martha K. Richardson selecting the professionals who take care of their finances. Detroit Commerce
President Bank considers it a significant endorsement that city leaders and governmental
Service Marketing Specialists, Inc. agencies have found us worthy of being invested with the public trust.
Ben L. Schwegman
President SMALLER BANK... BETTER SERVICE...
Schwegman & Associates, Inc. EXPERIENCE THE DIFFERENCE.
James F. Stapleton /s/ Linda A. Watters
President Linda A. Watters
B & R Consultants President & CEO
Bruce A. Thomas
Chief of Bank Performance 645 Griswold, Suite 70
Capitol Bancorp Limited Detroit, MI 48226
313-967-9700
Linda A. Watters www.detroitcommerce.com
President & CEO
Detroit Commerce Bank
Neal F. Zalenko
President & CPA
Zalenko & Associates, Inc.
OFFICERS
Robert C. Carr
Chairman
Donald M. Davis, Jr.
Secretary
Linda A. Watters
President & CEO
Valora L. Jackson
Vice President
</TABLE>
I N T E G R I T Y
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EAST VALLEY COMMUNITY BANK BOARD OF DIRECTORS
Taking the time to notice that a customer's behavior is out of the ordinary and Mark R. Allen
strained, is good service. Having a relationship that makes that customer feel President & Attorney
comfortable enough to confide in you is just the way we do business at East Mark R. Allen, P.C.
Valley Community Bank. When a charter client asked to view the endorsement on a
cashier's check she had sent through our Bank, an East Valley teammate inquired Blake L. Bottle
further into her request. Partner
Innovative Financial Solutions
In our training as banking professionals, we have all learned that intelligent
people with good common sense are favorite targets of con artists. Those Michael J. Devine
criminals are very practiced and have a ready answer for every objection a Attorney at Law
person is likely to make to their schemes. We believe it is our professional
responsibility to help our customers identify situations that could put their Richard D. Frazier
assets at risk. Executive Director
Chandler Regional Hospital Foundation
At East Valley Community Bank we accomplish this by knowing our customers well.
Because of her prior experiences with the East Valley team and our relationships David L. Heuermann
with her, she was receptive to inquiries about her transaction. President
Axis Mortgage & Investments, LLC
The customer believed she had won the Canadian Lottery. To claim her $250,000
prize, she was told she would need to send the taxes due in the form of a Michael L. Kasten
cashier's check made payable to her husband. The cashier's check was to be held Managing Partner
and returned to her when she received her lottery winnings. She waited four long Kasten Investments, LLC
weeks for the armored car to deliver her winnings, speaking often with
fictitious Canadian lottery officials who assured her that customs was holding Don B. Lindner
up her delivery, and that she must have patience to reap this great reward. Senior Consultant
Meanwhile, she learned that the check had cleared the Bank. Charon ECA
By the time she asked East Valley Community Bank to view the endorsement, our Darra L. Rayndon
client was certain that she had lost $10,000, with no hope of recovery. The bank Principal & President
operations officer intervened with good news. The endorsement on the cashier's Rayndon & Longfellow, PC
check was obviously a forgery, and instead of a few days, as she had been lead
to believe, our client had plenty of time to dispute the transaction. Happily, Gerry J. Smith
her $10,000 has been returned to her. President
East Valley Community Bank
This customer's experience demonstrates how East Valley Community Bank operates.
We take the time, every time, to do the right thing. Our customers call this James C. Stratton
integrity. We are proud to be a Bank that identifies integrity as a core value. President & CEO
Boys & Girls Clubs of Scottsdale
IN A WORD... QUALITY. Joseph A. Tameron
CPA/Partner
/s/ Gerry J. Smith Skinner, Tameron & Company, LLP
Gerry J. Smith
President Deborah A. Waitkus
Owner
Golf for Cause
1940 North Alma School Road
Chandler, AZ 85224
480-726-6500 OFFICERS
www.eastvalleybank.com
Michael L. Kasten
Chairman
Michael J. Devine
Vice Chairman
James C. Stratton
Secretary
Joseph D. Reid
CEO
Gerry J. Smith
President
David D. Fortune
Executive Vice President & CCO
James D. Kennedy
Senior Vice President
Kevin L. Sellers
Senior Vice President
David M. Anderson
Vice President
James C. Laine
Vice President
</TABLE>
I N T E G R I T Y
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BOARD OF DIRECTORS GOSHEN COMMUNITY BANK
Robert C. Carr Goshen Community Bank was formed with four main goals -- provide the best
Executive Vice President service of any Bank in Goshen, provide assistance to the community, establish a
Capitol Bancorp Limited great place for employees to work, and provide an excellent return to
shareholders. Bank employees have opportunities to go above and beyond to assist
David L. Cripe members of our community.
Doctor of Optometry/Senior Partner
Drs. Cripe & Stephens In October 2002 two customers entered Goshen Community Bank and requested a
$7,000 advance on their joint credit card. While this activity seems harmless
Carol M. Ebersole enough, it was when the couple returned and told the customer service
VP Corporate Development representative they needed additional funds that the employees of Goshen
Goshen Health System Community Bank exhibited integrity and an exceptional standard of behavior.
While in conversation to complete the transaction, employees discovered that the
Stephen L. Fidler couple had received a letter offering the chance to win $500,000 if they sent
President money to Israel. The couple attempted to send the money to Israel but did not
Kuert Concrete, Inc. have funds sufficient to cover the wire transfer transaction, so they returned
to the Bank.
Christopher J. Graff
President & Chairman Employees asked the couple if a Bank employee could contact the police to
Marque, Inc. confirm their suspicions about the request. Ultimately, the police and Goshen
Community Bank employees convinced the couple that the situation was a scam. The
Richard A. Hetler, Jr. customers then stated they had already wired $6,000 and were very thankful they
Vice President & General Manager did not send another $7,000. They were very complimentary to everyone involved.
Indiana Wood Products, Inc. Their relationship with Goshen Community Bank saved them from being defrauded
further. Goshen police commended Bank staff for intervening in the situation and
Gregory A. Hoogenboom providing personal financial safety to these citizens.
President
Hoogenboom Masonry, Inc. In this one customer encounter, Goshen Community Bank accomplished all four of
its goals. Most important of all, Goshen Community Bank acted with the highest
Douglas A. Johnston degree of integrity and made a lasting impact on our customers' lives.
President
Goshen Community Bank
WE MAKE PEOPLE SMILE!
Larry W. Newswanger
Self-Employed /s/ Douglas A. Johnston
Douglas A. Johnston
Matthew J. Pletcher President
Partner
Whitcraft & Pletcher
511 W. Lincoln Avenue
Fred M. Ramser Goshen, IN 46526
Retired 574-533-2006
www.goshenbank.com
Dennis L. Sorg
President
Sorg Dodge, Inc.
Douglas A. Stanley
Owner
Douglas A. Stanley, DDS
OFFICERS
Robert C. Carr
Chairman & CEO
Gregory A. Hoogenboom
Secretary
Douglas A. Johnston
President
Connie O. Horvath
Vice President
Leah L. Stevens
Vice President
</TABLE>
I N T E G R I T Y
34
<PAGE>
[PHOTO]
ITEM PROCESSING
GREAT LAKES REGION
MAXIMIZING
POTENTIAL [GRAPHIC]
[PHOTO]
OPERATING SYSTEMS
WESTERN REGIONS
<PAGE>
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BOARD OF DIRECTORS BANK OF TUCSON
Bruce I. Ash This year marks the 100th anniversary of flight when the Wright brothers changed
Vice President the world of transportation. Their example of maximizing potential is a great
Paul Ash Management, LLC one. They succeeded where others failed by commitment to their goal. They
focused on refining the details related to the balance and control required to
Slivy Edmonds Cotton launch a successful flight. Their goal was to fly an airplane, but their focus
Chairman & CEO was on the many steps required to get there.
Perpetua, Inc.
The Bank of Tucson has not been around for 100 years, but it looks to the
Michael J. Devine example set by the Wrights as a lesson for success. Bank of Tucson focuses on
Attorney at Law the details. Like the Wrights, Bank of Tucson identifies the steps necessary to
achieve success. Our goal is to be the bank of choice for the Tucson community.
Brian K. English
General Counsel Bank of Tucson will celebrate its 7th anniversary this year. Each year we have
Capitol Bancorp Limited endeavored to take full advantage of the potential and opportunity that we face
as a company and as individuals. We enjoy our affiliation with the other
Richard N. Flynn financial institutions in the Capitol Bancorp family because it helps us to
President maximize our potential. We are able to focus on the details of servicing our
Flynn & Associates customers and developing our unique bank, while relying on the support from
Capitol. We are also able to serve a greater range of customers in the Tucson
Michael F. Hannley community through our relationship with our affiliated banks.
President & CEO
Bank of Tucson As the first Capitol affiliate in the Western regions, we liken ourselves to the
Wright brothers. We are the Bank that completed the inaugural flight. Our
Michael J. Harris commitment to success is both an example for our affiliates, and a continued
Associate Broker challenge for our company and our employees.
Long Realty Company
Richard F. Imwalle IN THE SPIRIT OF GIVING, WE RECEIVE.
President
University of Arizona Foundation /s/ Michael F. Hannley
Michael F. Hannley
Michael L. Kasten President & CEO
Managing Partner
Kasten Investments, LLC
4400 East Broadway
Burton J. Kinerk Tucson, AZ 85711
Attorney at Law 520-321-4500
Kinerk, Beal, Schmidt & Dyer, PC www.bankoftucson.com
Humberto S. Lopez
President
HSL Properties, Inc.
Lyn M. Papanikolas
Realtor
Long Realty Company
OFFICERS
Richard F. Imwalle
Chairman
Michael J. Devine
Vice Chairman
Richard N. Flynn
Secretary
Michael F. Hannley
President & CEO
C. David Foust
Executive Vice President & CCO
Barbara A. Sadler
Senior Vice President
Sandi L. Smithe
Senior Vice President
Julie E. Souverielle
First Vice President
Michael G. Rombold
Vice President
</TABLE>
M A X I M I Z I N G P O T E N T I A L
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BRIGHTON COMMERCE BANK BOARD OF DIRECTORS
Capitol Bancorp's core values encompass numerous critical aspects of banking. At Robert C. Carr
Brighton Commerce Bank we have appropriately addressed these values within our Executive Vice President
strategic plan as outlined in our core strategies. These core strategies are Capitol Bancorp Limited
Brighton Commerce Bank's long-term principles that we follow consistently.
John C. Codere
Our strategies focus on the core value of "Maximizing Potential". These President
strategies are: Brighton Block & Concrete
* To establish and maintain a presence in the greater Brighton area as THE Michael B. Corrigan
local community bank that provides superior customer service. We feel President
confident our local community bank philosophy and image will help attract Corrigan Oil Company, Inc.
and retain customers, whether businesses or consumers;
Scott C. Griffith
* To set the highest standards for hiring and maintaining the most qualified, President
customer service oriented associates in the industry. We believe our Era Griffith Realty
representatives are the most important asset we have and are essential to
our success; William A. LaMarra
Chairman & CEO
* To establish and implement the most effective communication systems and Excelda Manufacturing
networks for, and with, our customers and associates. These are essential
to provide superior customer service; Mark A. Latterman
President
* To build diverse deposit and loan portfolios of the highest quality with a Latterman & Associates, PC
primary focus on the local community. This helps substantiate that we are a
local community bank, which in turn helps maximize the Bank's potential Piet W. Lindhout
with our community; CEO
Lindhout Associates Architects AIA
* To create a professional and enjoyable environment so that customers and
associates will find great pleasure in working with Brighton Commerce Bank. Gary T. Nickerson
This strategy is instrumental in the growth and retention of customers and President & CEO
associates. Brighton Commerce Bank
With the proper execution of these strategies, we are provided with the Candice G. Randolph
opportunity to fulfill our mission of exceeding the expectations of our Executive Vice President
customers, associates and shareholders while "Maximizing Potential." Randolph Custom Homes
Mitchell J. Stanley
PERSONALIZED SERVICE BY LOCAL EXPERIENCED PERSONNEL. President
Mickey Stanley & Associates
/s/ Gary T. Nickerson, Sr.
Gary T. Nickerson, Sr. James A. Winchel
President & CEO President
Colt Park Agency, Inc.
8700 North Second Street
Brighton, MI 48116 OFFICERS
810-220-1199
www.brightoncommerce.com Robert C. Carr
Chairman
Michael B. Corrigan
Vice Chairman
Gary T. Nickerson, Sr.
President & CEO
Joseph M. Petrucci
Senior Vice President
John P. Szydzik
Vice President & Cashier
William R. Anderson
Vice President
Mark R. DuShane
Vice President
Linda K. Lavely
Vice President
J. Todd Potter
Vice President
</TABLE>
M A X I M I Z I N G P O T E N T I A L
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BOARD OF DIRECTORS MUSKEGON COMMERCE BANK
Dr. Rick E. Amidon I've been asked many times by people outside of our organization, "What makes
President your bank successful compared to your competition in Muskegon?" Muskegon
Baker College of Muskegon Commerce Bank's success can be partially attributed to many factors including:
timing, luck, excellent employees and a dedicated Board of Directors. Still, the
Philip J. Andrie primary reason that we've grown profitably has been our ability to Maximize our
President Potential.
Andrie, Inc.
While all of the Capitol Bancorp banks share similar core values, it is up to
William C. Cooper each individual bank's management team to develop its own niche and to exploit
President it to the bank's full advantage. I was often reminded during our organizational
Omni Fitness Club period that the bank would not come with a playbook, and that all of Capitol's
banks are successful for different reasons. What works in another community
Thomas F. DeVoursney might not necessarily work in Muskegon and vice versa. Our challenge would be to
President assess the market and to develop a strategy to showcase our strengths.
Shape Corporation
When we opened our bank in late 1997, it had been over 100 years since a bank
Edgar W. Hunt had been chartered in Muskegon. That, combined with the fact that we initially
President had only six employees and only one location, made customers understandably
United Way of Muskegon County skeptical. We overcame the limitations of a single location by utilizing our
courier service to greatly expand our service area. Although this practice had
Christopher L. Kelly been widely used by the existing Capitol Bancorp banks, it was a new and welcome
Attorney at Law service in Muskegon. Our courier now serves approximately 75 business customers
Parmenter O'Toole within a 15 mile radius of the Bank that would likely not be customers without
the service. We were also able to convince our customers that being small was an
Daniel J. Kuznar advantage since the customers and staff could easily get acquainted and that all
Owner decisions would be made by the six employees on site.
Quality Tool & Stamping Company, Inc.
The most notable area in which we have maximized our potential is residential
Donald Martines mortgage lending. While we're not among the top ten affiliate banks in terms of
President asset size, we are consistently among the top two or three residential mortgage
West Michigan Grinding & Machine Co. producers. Muskegon Commerce Bank has been able to develop strong relationships
Ace Tooling with homeowners, realtors, builders and developers in Muskegon that should pay
dividends for years to come.
Robert J. McCarthy
President & CEO
Muskegon Commerce Bank BANKING ON OUR COMMUNITY...
Chris Ann McGuigan /s/ Robert J. McCarthy
President & CEO Robert J. McCarthy
Community Foundation for President & CEO
Muskegon County
Bruce A. Thomas 255 Seminole Road
Chief of Bank Performance Muskegon, MI 49444
Capitol Bancorp Limited 231-737-4431
www.muskegoncommerce.com
James Stanford Tyler
President
Tyler Sales Company, Inc.
OFFICERS
James Stanford Tyler
Chairman
Christopher L. Kelly
Vice Chairman
Robert J. McCarthy
President & CEO
Eric B. Seifert
Senior Vice President
Terri K. Swarts
Vice President
David C. Christopher
Vice President
Brent A. McCarthy
Vice President
</TABLE>
M A X I M I Z I N G P O T E N T I A L
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RED ROCK COMMUNITY BANK BOARD OF DIRECTORS
By helping an employee realize a personal community service goal, Red Rock Eric L. Colvin
Community Bank has made steps toward maximizing its potential as well. In August Secretary/Treasurer
of 2002, Red Rock Community Bank joined with several other sponsors of a Marnell Corrao Assoc., Inc.
nonprofit Hospice fundraiser to benefit terminally ill children and their
families. Michael J. Devine
Attorney at Law
A Red Rock employee who has taken an active interest in the local Hospice
organization, and sits on the sponsoring Golden Monarch Council, brought this Molly K. Hamrick
opportunity to the Bank. Our employee became interested in Nathan Adelson Vice President & CFO
Hospice while serving as a United Way campaign representative. The group was Coldwell Banker Premier Realty
given a tour after one of the leadership meetings was held at the Hospice
facility. After that one tour, our employee knew in her heart that it was a goal Philip G. Hardy, Jr.
of hers to become a volunteer and to make a difference in the community. Vice President & Project Manager
Hardy Painting & Drywall
She has recently reduced her role to a part-time basis at the Bank in order to
work in an expanded capacity as a hospice volunteer. Volunteering in this James A. Harris
capacity required training classes that were held on Saturdays as well as an Vice President
in-house job-shadowing program so that she could be effective with her patients Brown and Brown Insurance
and families at this very difficult stage of life.
Keith W. Langlands
Preparations are already in motion for this year's annual event and our employee Partner & CPA
is actively soliciting sponsorships throughout the community for the function. Langlands and Anaya Limited
She continues to have interaction with several bank clients who have had
exposure to, or experience with, this same organization. Several banking Charles L. Lasky
relationships have been strengthened and maintained due to her personal interest President
in her clients and their mutual experiences involving hospice care. Lasky, Fifarek & Hogan, P.C.
Red Rock will continue to develop with the community by responding to Thomas C. Mangione
needs-personal and financial. Chairman, President & CEO
Red Rock Community Bank
PART OF THE SUMMERLIN LANDSCAPE. Joseph D. Reid III
Corporate Counsel
/s/ Thomas C. Mangione Capitol Bancorp Limited
Thomas C. Mangione
Chairman, President & CEO John A. Stuart
President
Tartan Consultants, Ltd.
10000 West Charleston, Suite 100
Las Vegas, NV 89135 John Christopher Stuhmer
702-948-7500 CEO
www.redrockcommunity.com Christopher Homes
Fredrick P. Waid
COO
Peccole Nevada Corp.
OFFICERS
Thomas C. Mangione
Chairman, President & CEO
Charles L. Lasky
Secretary
James F. Wojewodka
Executive Vice President &
Senior Lending Officer
Brian W. Astle
Senior Vice President & CCO
</TABLE>
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BOARD OF DIRECTORS SUNRISE BANK OF SAN DIEGO
Steven K. Black Sunrise Bank of San Diego is passionate in our mission to provide unparalled
Director service to our team members, clients, community, and shareholders, through
Sunrise Bank of San Diego embracing our belief in respect, integrity and an appreciation for the combined
benefits of maximizing potential.
Richard A. Byer
President Our all-star team of bankers created this mission statement to represent a focus
Bycor General Contractor of continued growth as a premier community bank in San Diego and to compliment
the core values of our bank development partner, Capitol Bancorp. Utilizing the
Craig V. Castanos talent and ability of our local team of professionals, while leveraging the
CPA/Owner support of our partner, we share a vision embodied in the core value of
Craig V. Castanos, CPA maximizing potential as a company and as individuals.
Randall S. Cundiff Maximizing potential starts with promoting a culture where excellence is the
President standard and everyone has the opportunity to grow -- both personally and
Sunrise Bank of San Diego professionally. In our effort to continually exceed client expectations,
attracting and retaining individuals of the highest caliber is paramount. The
William D. Hinz II essence of this core value has helped us attain recognition as the 2002 #1
CEO Community Bank SBA 504 Lender for San Diego County. The Small Business
Sunrise Bank of Arizona Administration honored Sunrise Bank as the number two overall bank lender in San
Diego County, out of 25 lenders who participated in the small business loan
John S. Lewis program. Our 14 varsity players outperformed expectations. The synergy of our
President-Western Regions efforts helped us close 15 SBA 504 loan transactions totaling over $18 million
Capitol Bancorp Limited in loan volume for the year.
Toby T. Macfarlane Through our network of secondary market funding sources and participations from
Senior Vice President our family of sister banks, we are meeting the financing needs of clients that
United Title Company would traditionally be out of the lending scope for a bank of our size. In
September 2002, through the use of the SBA 504 loan program and participating
Robert J. Matkovich lenders, Sunrise Bank structured a financing package for a small business owner
Robert J. Matkovich, DDS, Inc. to purchase a commercial property. The total project, which exceeded $3.5
million, is an example of our ability to maximize alternative financing sources
John F. McColl for the benefit of our clients. The knowledge, expertise, and experience of our
Owner/Treasurer team combine to represent the potential of our organization. Attitude, drive,
Trinity Housing Group and dedication maximize return on our abilities.
James L. McCullough
Entrepreneur WE WILL STAY THE COURSE.
Ronald D. McMahon /s/ Randall S. Cundiff
President Randall S. Cundiff
McMahon Development Group, LLC President
John M. Rooney
President 4570 Executive Drive, Suite 110
Torrey Financial Group San Diego, CA 92121
858-625-9050
Rande H. Turner www.sunrisebanksandiego.com
President
T2 Ventures
OFFICERS
John S. Lewis
Chairman & CEO
William D. Hinz, II
Vice Chairman
Randall S. Cundiff
President
Suzanne K. Gregory
Executive Vice President,
CCO & Secretary
Timothy M. Himstreet
Senior Vice President
Joseph L. Kennedy
Vice President
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</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-13.B
<SEQUENCE>6
<FILENAME>ex13b.txt
<DESCRIPTION>FINANCIAL INFO. SECTION OF 2002 ANNUAL REPORT
<TEXT>
Exhibit 13(b)
[LOGO] CAPITOL BANCORP LIMITED
Financial Information Section
of
2002 Annual Report to Shareholders
Capitol Bancorp Center 2777 East Camelback Road
200 Washington Square North Suite 375
Lansing, MI 48933 Phoenix, AZ 85016
(517) 487-6555 (602) 955-6100
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
Selected Consolidated Financial Data..........................................................................2
Information Regarding Capitol's Common Stock..................................................................3
Availability of Form 10-K and Certain Other Reports...........................................................3
Other Corporate and Shareholder Information...................................................................4
Responsibility For Financial Statements.......................................................................5
Cautionary Statement Regarding Forward-Looking Statements.....................................................5
Management's Report on Internal Controls......................................................................6
Management's Discussion and Analysis of Financial Condition and Results of Operations:
The Business of Capitol and Its Banks.....................................................................7
Capitol's Structure.......................................................................................8
Banking Technology at Capitol.............................................................................9
Critical Accounting Policies.............................................................................10
Changes in Consolidated Financial Position...............................................................11
Consolidated Results of Operations.......................................................................15
Liquidity, Capital Resources and Capital Adequacy........................................................18
Trends Affecting Operations..............................................................................22
New Accounting Standards.................................................................................25
Consolidated Financial Statements:
Report of Independent Auditors...........................................................................26
Consolidated Balance Sheets..............................................................................27
Consolidated Statements of Income........................................................................28
Consolidated Statements of Changes in Stockholders' Equity...............................................29
Consolidated Statements of Cash Flows....................................................................30
Notes to Consolidated Financial Statements...............................................................31
</TABLE>
1
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
(in $1,000s, except per share data)
<TABLE>
<CAPTION>
As of and for the Year Ended December 31
--------------------------------------------------------------------
2002(1) 2001(3) 2000(4) 1999(5) 1998(6)
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
For the year:
Interest income $ 156,454 $ 153,797 $ 132,311 $ 93,602 $ 69,668
Interest expense 55,860 73,292 65,912 46,237 36,670
Net interest income 100,594 80,505 66,399 47,365 32,998
Provision for loan losses 12,676 8,167 7,216 4,710 3,523
Noninterest income 14,982 9,585 6,137 4,714 3,558
Noninterest expense 77,151 64,136 52,846 40,257 26,325
Income before cumulative effect of change
in accounting principle 16,653 10,718 8,035 5,606(7) 4,628
Net income 16,653 10,718 8,035 5,409 4,628
Net income per share:
Basic 1.64 1.38 1.14 .84 .74
Diluted 1.57 1.35 1.13 .83 .72
Cash dividends paid per share .44 .40 .36 .36 .33
At end of year:
Total assets $2,409,288 $2,044,006 $1,630,076 $1,305,987 $1,024,444
Total earning assets 2,226,969 1,920,621 1,517,350 1,227,976 953,315
Portfolio loans 1,991,372 1,734,589 1,355,798 1,049,204 724,280
Deposits 2,062,072 1,740,385 1,400,899 1,112,793 890,890
Debt obligations 93,398 89,911 58,150 47,400 23,600
Trust-preferred securities 51,583 48,621 24,327 24,291 24,255
Minority interests in consolidated subsidiaries 28,016(2) 70,673 62,575 54,593 27,576
Stockholders' equity 160,037(2) 80,172 70,404 54,668 49,292
Quarterly Results of Operations (unaudited)
----------------------------------------------------
Total for Fourth Third Second First
the Year Quarter Quarter Quarter Quarter
---------- ---------- ---------- ---------- ----------
Year ended December 31, 2002:(1)
Interest income $ 156,454 $ 40,176 $ 40,462 $ 38,561 $ 37,255
Interest expense 55,860 13,019 14,269 14,140 14,432
Net interest income 100,594 27,157 26,193 24,421 22,823
Provision for loan losses 12,676 3,984 3,918 2,684 2,090
Net income 16,653 5,249 4,447 3,913 3,044
Net income per share:
Basic 1.64 .47 .42 .37 .39
Diluted 1.57 .45 .40 .35 .38
Cash dividends paid per share .44 .12 .12 .10 .10
Year ended December 31, 2001:(3)
Interest income $ 153,797 $ 38,031 $ 39,058 $ 38,894 $ 37,814
Interest expense 73,292 16,398 18,350 19,181 19,363
Net interest income 80,505 21,633 20,708 19,713 18,451
Provision for loan losses 8,167 2,530 2,316 1,697 1,624
Net income 10,718 2,963 2,772 2,600 2,383
Net income per share:
Basic 1.38 .38 .35 .33 .31
Diluted 1.35 .37 .35 .33 .31
Cash dividends paid per share .40 .10 .10 .10 .10
</TABLE>
(1) Includes Bank of Las Vegas (located in Las Vegas, Nevada), effective
February 2002 and Napa Community Bank (located in Napa, California),
effective March 2002.
(2) Reflects the January 2003 share exchange regarding the minority interest of
Nevada Community Bancorp Limited as if it had occurred on December 31,
2002.
(3) Includes Sunrise Bank of San Diego (located in San Diego, California),
effective January 2001.
(4) Includes Black Mountain Community Bank effective March 2000 (located in
Henderson, Nevada), Sunrise Bank of Albuquerque effective April 2000
(located in Albuquerque, New Mexico), Arrowhead Community Bank effective
September 2000 (located in Glendale, Arizona), Goshen Community Bank
effective September 2000 (located in Goshen, Indiana) and Yuma Community
Bank effective December 2000 (located in Yuma, Arizona).
(5) Includes East Valley Community Bank effective June 1999 (located in
Chandler, Arizona); Desert Community Bank (effective August 1999) and Red
Rock Community Bank (effective November 1999), both located in Las Vegas,
Nevada; and Elkhart Community Bank effective September 1999 (located in
Elkhart, Indiana).
(6) Includes Kent Commerce Bank effective January 1998 and Detroit Commerce
Bank effective December 1998, both located in Michigan and, in Arizona,
Camelback Community Bank (effective May 1998), Southern Arizona Community
Bank (effective August 1998), Mesa Bank (effective October 1998) and
Sunrise Bank of Arizona (effective December 1998).
(7) Implementation of a new accounting standard requiring the write-off of
previously capitalized start-up costs resulted in a one-time charge of
$197,000 (net of income tax effect) or $.03 per share effective January 1,
1999.
2
<PAGE>
INFORMATION REGARDING CAPITOL'S COMMON STOCK
Capitol's common stock is traded on the National Market System of The Nasdaq
Stock MarketSM under the symbol "CBCL". Market quotations regarding the range of
high and low sales prices of Capitol's common stock, which reflect inter-dealer
prices without retail mark-up, mark-down or commissions, were as follows:
2002 2001
----------------- -----------------
Low High Low High
------- ------- ------- -------
Quarter Ended:
March 31 $13.300 $16.820 $ 9.688 $14.250
June 30 16.450 23.860 12.000 15.660
September 30 15.810 24.250 12.250 17.500
December 31 15.130 23.780 12.800 15.200
During 2002, Capitol paid cash dividends of $0.10 per share in the first and
second quarters and $0.12 per share in the third and fourth quarters. In 2001,
Capitol paid quarterly cash dividends of $0.10 per share.
As of March 17, 2003, there were 5,228 beneficial holders of Capitol's common
stock, based on information supplied to Capitol from its stock transfer agent
and other sources. At that date, 11,803,521 shares of common stock were
outstanding. Capitol's stock transfer agent is UMB Bank, n.a., 928 Grand Ave.,
P.O. Box 410064, Kansas City, Missouri 64141-0064 (telephone 800/884-4225). The
web site for UMB Bank, n.a. is HTTP:\\WWW.UMB.COM.
Capitol has a Shareholder Investment Program which offers a variety of
convenient features including dividend reinvestment, certain fee-free
transactions, certificate safekeeping and other benefits. For a copy of the
program prospectus, informational brochure and enrollment materials, contact UMB
Bank, n.a. at 800/884-4225 or Capitol at 517/487-6555.
In addition to Capitol's common stock, trust-preferred securities of Capitol
Trust I (a subsidiary of Capitol) are also traded on the National Market System
of The Nasdaq Stock MarketSM under the symbol "CBCLP". Those trust-preferred
securities consist of 2,530,000, 8.5% cumulative preferred securities, with a
liquidation amount of $10 per preferred security. The trust-preferred securities
are guaranteed by Capitol and mature in 2027, are callable after 2002 and may be
extended to 2036 if certain conditions are met.
AVAILABILITY OF FORM 10-K AND CERTAIN OTHER REPORTS
A copy of Capitol's 2002 report on Form 10-K, without exhibits, is available to
holders of its common stock or trust-preferred securities without charge, upon
written request. Form 10-K includes certain statistical and other information
regarding Capitol and its business. Requests to obtain Form 10-K should be
addressed to Investor Relations, Capitol Bancorp Limited, Capitol Bancorp
Center, 200 Washington Square North, Lansing, Michigan 48933.
Form 10-K, and certain other periodic reports, are filed with the Securities and
Exchange Commission (SEC). The SEC maintains an internet web site that contains
reports, proxy and information statements and other information regarding
companies which file electronically (which includes Capitol). The SEC's web site
address is HTTP:\\WWW.SEC.GOV. Capitol's filings with the SEC are also available
at Capitol's web site, HTTP:\\WWW.CAPITOLBANCORP.COM.
3
<PAGE>
OTHER CORPORATE INFORMATION
CORPORATE OFFICES
Capitol Bancorp Center 2777 East Camelback Road
200 Washington Square North Suite 375
Lansing, Michigan 48933 Phoenix, Arizona 85016
517/487-6555 602/955-6100
www.capitolbancorp.com www.capitolbancorp.com
INDEPENDENT AUDITORS
BDO Seidman, LLP, Grand Rapids, Michigan
SHAREHOLDER INFORMATION
ANNUAL MEETING
Capitol's Annual Meeting will be held on Thursday, May 8, 2003 at 4:00 p.m. at
the Lansing Center, located at 333 E. Michigan Avenue, Lansing, Michigan.
COMMON STOCK TRADING INFORMATION
Capitol's common stock trades on the National Market System of the Nasdaq Stock
MarketSM under the trading symbol CBCL.
The following brokerage firms make a market in the common stock of Capitol:
<TABLE>
<S> <C>
AnPac Securities Group, Inc. - Atlanta, Georgia Knight Securities L.P. - Jersey City, New Jersey
Cincinnati Stock Exchange - Cincinnati, Ohio Merrill Lynch, Pierce, Fenner - New York, New York
Fahnestock & Co., Inc. - New York, New York Morgan Stanley & Co., Inc. - San Francisco, California
First Tennessee Securities - Memphis, Tennessee Robert W. Baird & Co., Inc. - Milwaukee, Wisconsin
Friedman Billings Ramsey & Co. - Arlington, Virginia Sandler O'Neill & Partners - New York, New York
Goldman, Sachs & Co. - New York, New York Schwab Capital Markets - San Francisco, California
Howe Barnes Investments, Inc. - Chicago, Illinois Stifel Nicolaus & Company, Inc. - St. Louis, Missouri
Keefe, Bruyette & Woods, Inc. - New York, New York Susquehanna Capital Group - Bala Cynwyd, Pennsylvania
</TABLE>
COMMON STOCK TRANSFER AGENT
UMB Bank, n.a.
928 Grand Avenue
P.O. Box 410064
Kansas City, Missouri 64141-0064
800/884-4225
SHAREHOLDER INVESTMENT PROGRAM
Capitol offers an easy and affordable way to invest in Capitol's common stock
through its Shareholder Investment Program. The program's benefits include
reinvestment of dividends in additional common stock, direct deposit of
dividends, ability to purchase as little as $50 in common stock as frequently as
once a month, and the option to make transfers or gifts of Capitol's common
stock to another person. Participation in the program is voluntary and all
shareholders are eligible. Purchases under the program are not currently subject
to any brokerage fees or commissions. For further information regarding
Capitol's Shareholder Investment Program or a copy of the program's prospectus,
informational brochure and enrollment materials, contact UMB Bank, n.a. at
800/884-4225 or Capitol at 517/487-6555.
TRUST-PREFERRED SECURITIES TRADING INFORMATION
Preferred securities of Capitol Trust I (a subsidiary of Capitol) trade on the
Nasdaq Stock MarketSM under the trading symbol CBCLP.
TRUST-PREFERRED SECURITIES TRUSTEE
Bank One Investment Management Group - Chicago, Illinois
4
<PAGE>
RESPONSIBILITY FOR FINANCIAL STATEMENTS
Capitol's management is responsible for the preparation of the consolidated
financial statements and all other information appearing in this annual report.
The financial statements have been prepared in accordance with generally
accepted accounting principles and prevailing practices of the financial
institution industry in the United States of America.
Capitol's management is also responsible for establishing and maintaining the
internal control structure of Capitol, its banks and its bank development
affiliates. The general objectives of the internal control structure are to
provide management with reasonable assurance that assets are safeguarded against
loss from unauthorized use or disposition, and that transactions are completed
in accordance with generally accepted accounting principles in the United States
of America. In fulfilling this objective, management has various control
procedures in place which include review and approval of transactions, a code of
ethical conduct for employees, internal auditing and an annual audit of
Capitol's consolidated financial statements performed by a qualified independent
audit firm.
FORWARD-LOOKING STATEMENTS
Some of the statements contained in this annual report that are not historical
facts are forward-looking statements. Those forward-looking statements, within
the meaning of the Private Securities Litigation Reform Act of 1995, are subject
to known and unknown risks, uncertainties and other factors which may cause the
actual future results, performance or achievements of Capitol and/or its
subsidiaries and other operating units to differ materially from those
contemplated in such forward-looking statements. The words "intend", "expect",
"project", "estimate", "predict", "anticipate", "should", "will", "may",
"believe", and similar expressions also identify forward-looking statements.
Important factors which may cause actual results to differ from those
contemplated in such forward-looking statements include, but are not limited to:
(i) the results of Capitol's efforts to implement its business strategy, (ii)
changes in interest rates, (iii) legislation or regulatory requirements
adversely impacting Capitol's banking business and/or expansion strategy, (iv)
adverse changes in business conditions or inflation, (v) general economic
conditions, either nationally or regionally, which are less favorable than
expected and that result in, among other things, a deterioration in credit
quality and/or loan performance and collectability, (vi) competitive pressures
among financial institutions, (vii) changes in securities markets, (viii)
actions of competitors of Capitol's banks and Capitol's ability to respond to
such actions, (ix) the cost of capital, which may depend in part on Capitol's
asset quality, prospects and outlook, (x) changes in governmental regulation,
tax rates and similar matters, (xi) changes in management, and (xii) other risks
detailed in Capitol's other filings with the Securities and Exchange Commission.
If one or more of these risks or uncertainties materialize, or if underlying
assumptions prove incorrect, actual outcomes may vary materially from those
indicated. All subsequent written or oral forward-looking statements
attributable to Capitol or persons acting on its behalf are expressly qualified
in their entirety by the foregoing factors. Investors and other interested
parties are cautioned not to place undue reliance on such statements, which
speak as of the date of such statements. Capitol undertakes no obligation to
release publicly any revisions to these forward-looking statements to reflect
events or circumstances after the date of such statements or to reflect the
occurrence of unanticipated events.
5
<PAGE>
MANAGEMENT'S REPORT ON INTERNAL CONTROLS
Capitol Bancorp's management is responsible for the preparation, integrity, and
fair presentation of the consolidated financial statements included in this
annual report. The consolidated financial statements and notes included in this
annual report have been prepared in conformity with accounting principles
generally accepted in the United States of America and necessarily include some
amounts that are based on management's best estimates and judgments.
We, as executive management of Capitol Bancorp, are responsible for establishing
and maintaining effective internal controls over financial reporting that are
designed to produce reliable financial statements in conformity with accounting
principles generally accepted in the United States of America. The systems of
internal controls over financial reporting as they relate to the financial
statements contain self-monitoring mechanisms, and compliance is tested and
evaluated through a program of internal audits and other checks and test
procedures. Actions are taken to correct potential deficiencies when identified.
Any system of internal controls, no matter how well designed, has inherent
limitations, including the possibility that controls can be circumvented or
overridden and misstatements due to error or fraud may occur and not be
detected. Also, because of changes in conditions, internal control effectiveness
may vary over time. Accordingly, any effective system of internal controls will
provide only reasonable assurance with respect to financial statement
preparation.
Capitol's Audit Committee, consisting entirely of outside directors, meets
regularly with management, internal auditors and Capitol's independent auditors,
and reviews audit plans and results, as well as management's actions taken in
discharging responsibilities for accounting, financial reporting, and internal
controls. BDO Seidman, LLP, independent auditors, and our internal auditors have
direct and confidential access to Capitol's Audit Committee at all times to
discuss the results of their examinations.
Management assessed the Corporation's system of internal control over financial
reporting as of December 31, 2002. Based on this assessment, management believes
that, as of December 31, 2002, its systems of internal controls over financial
reporting were adequate to meet those stated objectives of internal controls
over financial reporting.
/s/ Joseph D. Reid /s/ Lee W. Hendrickson
- ---------------------------- ----------------------------
Joseph D. Reid Lee W. Hendrickson
Chairman and CEO Chief Financial Officer
January 31, 2003
6
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Most of this section discusses items of importance regarding Capitol's financial
statements which appear elsewhere in this report. In order to obtain a full
understanding of this discussion, it is important to read it with those
financial statements. However, before discussing the financial statements and
related highlights, an introductory section includes some important background
information about the business of Capitol and its banks, Capitol's structure and
recent developments.
THE BUSINESS OF CAPITOL AND ITS BANKS
Capitol defines itself as a BANK DEVELOPMENT COMPANY. In the highly regulated
business of banking, it is viewed by governmental agencies as a "bank holding
company". Capitol views bank DEVELOPMENT as a much more dynamic activity than
the seemingly passive regulatory label for bank HOLDING companies.
Bank development at Capitol is the business of mentoring, monitoring and
managing its investments in community banks. Bank development is also the
activity of adding new banks through start-up, or DE NOVO, formation or through
other affiliation efforts, such as exploring acquisitions of existing banks.
Capitol's banks have similar characteristics:
* Each bank has an on-site president and management team, as local decision
makers.
* Each bank has a local board of directors which has actual authority over
the bank.
* Each bank predominately operates from a single office location.
* Each bank can fully meet customers' needs anywhere, anytime through
bankers-on-call, courier services, Internet and telephone banking and
other delivery methods.
* Each bank has access to an efficient back-room processing facility and
leading-edge technology through shared financial and operating
resources.
Capitol's banks seek the profitable customer relationships which are often
displaced through mergers, mass marketing and megabanks. Capitol's banks are
focused on commercial banking activities, emphasizing business customers,
although they also offer a complete array of financial products and services.
Each bank has a separate charter. A bank charter is similar to articles of
incorporation and enables each bank to exist as a distinct legal entity. Most of
these banks are state-chartered, which means they are organized under a
particular state's banking laws. All of the banks are FDIC-insured. Banks are
highly regulated by state and federal agencies. Because each bank has its own
charter, each bank is examined by both state and federal agencies as a separate
and distinct legal entity for safety, soundness and compliance with banking laws
and regulations.
At December 31, 2002, Capitol consisted of 29 community banks, operating in 8
states.
7
<PAGE>
Capitol's bank development philosophy is one of "SHARED VISION", which
encompasses a commitment to community banking emphasizing local leadership and
investment, with the shared resources of efficient management. Capitol provides
these shared resources to its banks, including common data processing systems,
centralized item processing, loan review, internal audit, credit administration,
accounting, legal and risk management.
CAPITOL'S STRUCTURE
Capitol's structure is unique. Based on management's recent research, Capitol is
the second largest banking company in the United States, based on the number of
bank charters within its consolidated group. Of Capitol's twenty-nine banks,
most are directly owned by Capitol, and most of them are wholly-owned, as of
December 31, 2002.
At the beginning of 2002, Capitol's structure was much more complex. At that
time it had several second and third-tier subsidiary bank-development
subsidiaries (majority-owned by Capitol or by an affiliate) which, in turn, had
majority-owned bank subsidiaries. This complex structure was the result of
Capitol's significant bank-development expansion activities in the years of
1998-2001, which involved the formation of partially-owned bank-development
subsidiaries to form majority-owned DE NOVO banks.
That complex structure made it difficult to understand the component parts of
Capitol and how the multiple ownership tiers impacted consolidated operating
results. In response to that perceived difficulty and improved performance of
its maturing banks, Capitol's management embarked on a significant initiative in
2002 to simplify its structure by 'consolidating' the minority ownership of its
largest second and third-tier bank-development subsidiaries:
* Sun Community Bancorp Limited ...COMPLETED MARCH 31, 2002
* Sunrise Capital Corporation ...COMPLETED SEPTEMBER 30, 2002
* Indiana Community Bancorp Limited ...COMPLETED SEPTEMBER 30, 2002
* Nevada Community Bancorp Limited ...COMPLETED JANUARY 17, 2003
Each of these 'consolidations' involved Capitol issuing shares of its common
stock (previously unissued) in exchange for the minority interests of those
bank-development subsidiaries held by shareholders other than Capitol. Because
the Nevada share exchange was substantially complete at year end 2002, and
awaiting only the vote of its shareholders on January 17, 2003 (at which time it
was overwhelmingly approved, without any dissenting votes), it has been
reflected in Capitol's consolidated balance sheet as if it occurred on December
31, 2002.
With those bank-development subsidiaries becoming wholly-owned by Capitol, they
have subsequently been merged into Capitol and, accordingly, their direct bank
subsidiaries are now direct bank subsidiaries of Capitol.
The largest of these 'consolidation' transactions was the one involving Sun
Community Bancorp. Sun was formed by Capitol in 1997 and became a public company
in 1998, majority-owned by Capitol. Sun was the bank-development company focused
on Capitol's expansion in the Southwestern Region of the United States. Upon
completion of the 2002 share-consolidation with Capitol, Sun's executive offices
became Capitol's Western Regions' headquarters.
8
<PAGE>
At year-end 2002, Capitol has one additional bank-development subsidiary which
is not discussed above. It is First California Northern Bancorp (majority-owned
by Capitol), which commenced operations in early 2002 and has one majority-owned
bank subsidiary. This bank-development company and its current subsidiary are in
their early stages of operation.
All of the banks and subsidiary bank-development companies are combined, or
consolidated, for financial reporting purposes because Capitol has ownership
control of them either directly or indirectly. Current accounting rules require
consolidated reporting when one entity has majority voting control of another.
The reporting entity is the parent organization and entities which are
majority-owned by the parent are subsidiaries. In the circumstances of Capitol,
this parent and subsidiary relationship applies also to second and third tier
subsidiaries which have consolidated subsidiaries of their own.
The accounting rules in this area inhibit an understanding of the consolidated
financial statements. For example, consolidated balance sheets include all of
the combined entities' assets and liabilities. On the other hand, the
consolidated income statement includes all of the combined entities, but
includes net income only to the extent of the parent's ownership percentage.
Because of the number of banks and bank development companies added in recent
periods, comparing financial results for those and prior periods is difficult.
In 2002, two new banks were added. In 2001, one new bank was added. In 2000, a
total of five new banks were added to the consolidated group. In 1999, four new
banks were added. In 1998, there were six new banks added to the group.
BANKING TECHNOLOGY AT CAPITOL
The use of high technology banking systems is key to the delivery of accurate
and timely customer service. Capitol currently operates two data processing
sites, located in Lansing, Michigan and Tempe, Arizona. The Lansing site handles
item processing for the banks located in the Great Lakes Region, while the Tempe
data center processes all activity for the banks located in the Western Regions.
Both sites use mainframe computers and software which are nearly identical.
While physically separate, both sites function under common management.
9
<PAGE>
CRITICAL ACCOUNTING POLICIES
Capitol's most significant accounting policies are described in Note B of the
consolidated financial statements, beginning on page 33. Within those
significant polices are some which are particularly critical or crucial to a
reader's understanding of Capitol's financial position and results of
operations. Management believes Capitol's CRITICAL ACCOUNTING POLICIES to be the
following:
* USE OF ESTIMATES--Some very significant items (allowances for loan
losses, tax accruals and determinations of fair values or impairment,
for example) can have a pervasive impact on the reported financial
position and results of operations.
* CREDIT RISK AND ALLOWANCE FOR LOAN LOSSES--Again, because of the
inherent subjectivity in estimating losses, actual variances from
estimates or subsequent changes to estimates can be significant. In
addition, many of Capitol's banks are quite young and do not have
seasoned loan portfolios or significant past loss experience upon
which to base current estimates of losses inherent in the loan
portfolio at a particular balance-sheet date. Despite regulatory
guidance and other standard-setting encouragement to reduce such loss
estimation techniques to a mathematical formula, the fact remains that
loss estimates require significant judgment on the part of management
and cannot be reduced to be a succinct standard or actuarial formula
in the context of Capitol's banks.
* ACCOUNTING FOR INCOME TAXES--Because of the level of taxation imposed
upon corporate entities, including banks, at the federal level (up to
35%, currently), measurement of income tax expense and related
liabilities and deferred tax assets have a material effect on
Capitol's financial statements. Further, some states in which
Capitol's banks are domiciled have income tax rates which exceed 10%.
* ACCOUNTING FOR GOODWILL--A new accounting standard was issued in 2002,
which changed the way companies account for goodwill. Capitol has
goodwill on its balance sheet, which represents the 'premium' it has
paid in conjunction with acquisition of minority interests in some of
its subsidiaries and some other prior acquisitions. In the
circumstances of Capitol, the new standard requires that goodwill will
no longer be amortized. Instead, goodwill will be reviewed at least
annually by management for impairment and impairment losses, if any,
will be charged against operations when known.
10
<PAGE>
CHANGES IN CONSOLIDATED FINANCIAL POSITION
Total assets have grown significantly to $2.4 billion at year-end 2002 from $1
billion at the end of 1998. This sustained pace of asset growth is the result of
adding new banks and the ongoing growth and evolution of Capitol's more mature
banks.
[GRAPH]
TOTAL ASSETS
($ millions)
1998 1999 2000 2001 2002
---- ---- ---- ---- ----
1,024 1,306 1,630 2,044 2,409
At year-end 2002, total combined assets of the three banks formed within the
last two years approximated $113 million ($38 million at December 31, 2001).
Banks formed in 2000 reported total assets of $234 million at the end of 2002,
an increase of $61 million during the year. Total assets of the four banks which
became three years old in 2002 grew 12% during the past year to $243 million.
The six banks formed in 1998 continued strong asset growth of 21% in 2002,
achieving total assets of $410 million. The most mature group of banks, those
formed before 1998, reported total assets of $1.4 billion at year-end 2002, an
increase of about 9% for the year.
[The remainder of this page intentionally left blank]
11
<PAGE>
The total assets and revenues of each bank, the consolidated totals and
ownership percentages are summarized below as of year-end 2002 and 2001 (in
$1,000s):
<TABLE>
<CAPTION>
December 31, 2002
Percentage Ownership By Total Assets Total Revenues
------------------------- -------------------------- --------------------------
Capitol 2nd Tier 2002 2001 2002 2001
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Great Lakes Region:
Ann Arbor Commerce Bank 100% $ 309,152 $ 271,116 $ 22,890 $ 23,372
Brighton Commerce Bank 100% 78,382 70,530 5,689 5,608
Capitol National Bank 100% 206,130 173,177 13,032 13,196
Detroit Commerce Bank 100% 30,589 33,768 2,288 2,620
Grand Haven Bank 100% 123,505 98,740 9,226 7,822
Kent Commerce Bank 100% 73,801 66,873 5,797 4,763
Macomb Community Bank 100% 87,050 97,113 5,812 8,364
Muskegon Commerce Bank 100% 86,465 74,284 6,538 6,305
Oakland Commerce Bank 100% 115,916 115,249 7,568 8,681
Paragon Bank & Trust 100% 103,044 93,667 8,292 8,270
Portage Commerce Bank 100% 139,068 127,884 10,499 11,134
Elkhart Community Bank 51% 53,210 35,939 2,934 2,481
Goshen Community Bank 51% 38,115 28,681 2,305 1,215
----------- ----------- ----------- -----------
Great Lakes Region Total 1,444,427 1,287,021 102,870 103,831
Southwest Region:
Arrowhead Community Bank 87% 47,427 33,658 3,500 1,804
Bank of Tucson 100% 132,094 121,075 9,907 10,516
Camelback Community Bank 100% 82,387 67,210 6,052 5,161
East Valley Community Bank 100% 37,640 39,591 2,765 3,261
Mesa Bank 100% 66,312 52,308 5,036 4,277
Southern Arizona Community Bank 100% 75,253 55,423 5,011 4,107
Valley First Community Bank 100% 42,127 58,625 3,573 4,694
Yuma Community Bank 51% 38,214 23,202 2,623 1,244
Bank of Las Vegas 51%(1) 26,880 1,157
Black Mountain Community Bank 51%(1) 63,202 50,909 4,004 3,259
Desert Community Bank 51%(1) 55,170 56,844 4,183 4,341
Red Rock Community Bank 51%(1) 96,906 84,971 6,829 5,659
Sunrise Bank of Albuquerque 87% 46,898 35,984 2,840 2,851
Sunrise Bank of Arizona 100% 82,126 63,141 6,526 6,466
----------- ----------- ----------- -----------
Southwest Region Total 892,636 742,941 64,006 57,640
California Region:
Sunrise Bank of San Diego 64% 50,450 37,912 3,977 2,658
First California Northern Bancorp: 51%
Napa Community Bank 51% 36,042 1,241
----------- ----------- ----------- -----------
California Region Total 86,492 37,912 5,218 2,658
Other, net (14,267) (23,868) (658) (747)
----------- ----------- ----------- -----------
Consolidated totals $ 2,409,288 $ 2,044,006 $ 171,436 $ 163,382
=========== =========== =========== ===========
</TABLE>
(1) Reflects the January 2003 share exchange regarding the minority interest of
Nevada Community Bancorp Limited as if it had occurred on December 31,
2002.
Most of the consolidated assets consist of loans. Portfolio loans approximated
$2 billion at year-end 2002, and net portfolio loans approximated 81.5% of total
consolidated assets, a slight decrease from 83.7% at year-end 2001.
[GRAPH]
TOTAL PORTFOLIO LOANS
($ millions)
1998 1999 2000 2001 2002
---- ---- ---- ---- ----
724 1,049 1,356 1,735 1,991
12
<PAGE>
The banks emphasize commercial loans, consistent with their focus on serving
small to mid-sized business customers. The majority of commercial loans are
secured by real estate. Commercial loans approximated $1.8 billion or about
89.8% of total portfolio loans at year-end 2002, a slight increase from 88.5% at
the end of 2001. Loan growth in 2002 was $257 million, or a growth rate of
14.8%--somewhat less than the growth rate experienced in preceding years due, in
part, to softer economic conditions.
The banks maintain an allowance for loan losses to absorb estimated losses in
the loan portfolio at the balance sheet date. At December 31, 2002, the
allowance for loan losses approximated $29 million or 1.45% of portfolio loans,
compared to $23.2 million or 1.34% at the end of 2001. The allowance ratio was
increased in 2002 in response to higher levels of nonperforming loans and
potential problem loans. The following table summarizes portfolio loans, the
allowance for loan losses and its ratio, and nonperforming loans (in $1,000s):
<TABLE>
<CAPTION>
Allowance as a
Allowance for Nonperforming % of Total
Total Portfolio Loans Loan Losses Loans Portfolio Loans
----------------------- ----------------------- ------------------------ ---------------
2002 2001 2002 2001 2002 2001 2002 2001
---------- ---------- ---------- ---------- ---------- ---------- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Great Lakes Region:
Ann Arbor Commerce Bank $ 272,604 $ 233,920 $ 3,840 $ 3,219 $ 2,624 $ 1,960 1.41% 1.38%
Brighton Commerce Bank 68,239 60,984 851 732 170 227 1.25% 1.20%
Capitol National Bank 158,651 144,485 2,322 1,983 1,753 465 1.46% 1.37%
Detroit Commerce Bank 26,799 29,243 627 351 751 539 2.34% 1.20%
Grand Haven Bank 114,616 89,989 1,626 1,212 1,605 1,234 1.42% 1.35%
Kent Commerce Bank 68,848 63,782 830 766 293 55 1.21% 1.20%
Macomb Community Bank 73,915 79,844 1,136 1,088 3,012 1,431 1.54% 1.36%
Muskegon Commerce Bank 77,247 70,151 966 842 1,806 123 1.25% 1.20%
Oakland Commerce Bank 86,049 81,711 1,119 1,063 1,805 406 1.30% 1.30%
Paragon Bank & Trust 86,571 81,430 1,291 1,018 2,628 586 1.49% 1.25%
Portage Commerce Bank 129,710 109,393 1,815 1,550 3,135 2,845 1.40% 1.42%
Elkhart Community Bank 43,277 31,492 658 473 245 222 1.52% 1.50%
Goshen Community Bank 35,408 22,966 532 345 1.50% 1.50%
---------- ---------- ---------- ---------- ---------- ----------
Great Lakes Region Total 1,241,934 1,099,390 17,613 14,642 19,827 10,093
Southwest Region:
Arrowhead Community Bank 36,185 30,430 543 457 1.50% 1.50%
Bank of Tucson 90,176 88,218 1,461 1,224 187 407 1.62% 1.39%
Camelback Community Bank 63,516 56,555 960 743 232 334 1.51% 1.31%
East Valley Community Bank 25,932 27,402 389 423 17 432 1.50% 1.54%
Mesa Bank 55,588 45,672 834 594 242 542 1.50% 1.30%
Southern Arizona Community Bank 60,913 50,879 914 662 298 1.50% 1.30%
Valley First Community Bank 29,075 41,851 620 670 261 1,018 2.13% 1.60%
Yuma Community Bank 25,485 18,539 383 285 1.50% 1.54%
Bank of Las Vegas 19,404 292 1.50%
Black Mountain Community Bank 52,240 40,111 784 602 324 240 1.50% 1.50%
Desert Community Bank 43,351 50,361 675 806 734 989 1.56% 1.60%
Red Rock Community Bank 80,152 67,117 1,203 1,008 861 942 1.50% 1.50%
Sunrise Bank of Albuquerque 38,577 28,061 521 379 614 1.35% 1.35%
Sunrise Bank of Arizona 65,195 55,730 881 753 205 1,329 1.35% 1.35%
---------- ---------- ---------- ---------- ---------- ----------
Southwest Region Total 685,789 600,926 10,460 8,606 3,063 7,145
California Region:
Sunrise Bank of San Diego 39,116 32,910 577 455 1.48% 1.38%
First California Northern Bancorp:
Napa Community Bank 20,177 303 1.50%
---------- ---------- ---------- ---------- ---------- ----------
California Region Total 59,293 32,910 880 455 -0- -0-
Other, net 4,356 1,363 (465)
---------- ---------- ---------- ---------- ---------- ---------- ----- -----
Consolidated totals $1,991,372 $1,734,589 $ 28,953 $ 23,238 $ 22,890 $ 17,238 1.45% 1.34%
========== ========== ========== ========== ========== ========== ===== =====
</TABLE>
13
<PAGE>
Nonperforming loans, which consist of loans more than 90 days past due and loans
on nonaccrual status, approximated $22.9 million at year-end 2002, compared to
$17.2 million at the end of 2001, an increase of approximately $5.7 million.
Most of these are a small number of loans in various stages of resolution which
management believes to be adequately collateralized or otherwise appropriately
considered in its determination of the adequacy of the allowance for loan
losses.
In addition to the identification of nonperforming loans involving borrowers
with payment performance difficulties (i.e., nonaccrual loans and loans past-due
90 days or more), management utilizes an internal loan review process to
identify other potential problem loans which may warrant additional monitoring
or other attention. This loan review process is a continuous activity which
periodically updates internal loan classifications. At inception, all loans are
individually assigned a classification which grade the credits on a risk basis,
based on the type and discounted value of collateral, financial strength of the
borrower and guarantors and other factors such as nature of the borrowers'
business climate, local economic conditions and other subjective factors. The
loan classification process is fluid and subjective.
Potential problem loans include loans which are generally performing as agreed;
however, because of loan review's and/or lending staff's risk assessment,
increased monitoring is deemed appropriate. In addition, some loans are
identified for monitoring because of specific performance issues or other risk
factors requiring closer management and development of specific remedial action
plans.
At December 31, 2002, potential problem loans (including nonperforming loans)
approximated $98.5 million or about 5% of total consolidated portfolio loans.
Such totals typically approximate 4% to 5% of loans outstanding as an important
part of management's ongoing and augmented loan review activities which are
designed to early-identify loans which warrant close monitoring at the bank and
corporate credit-administration levels. It is important to note that these
potential problem loans do not necessarily have significant loss exposure (nor
are they necessarily deemed `impaired'), but rather are identified by management
in this manner to aid in loan administration and risk management. Management
believes these loans to be adequately considered in its evaluation of the
adequacy of the allowance for loan losses. Management believes, however, that
current general economic conditions may result in higher levels of future loan
losses, in comparison to previous years.
Loan loss experience through December 31, 2002 remained below industry
statistics, although nonperforming and other potential problem loans have
increased. Loan charge-offs in 2002 at Capitol increased significantly, from
approximately $3 million in 2001 and 2000 to $7.7 million. Management's
assessment of loans as of December 31, 2002 suggests future loss experience will
return to levels more closely approximating past experience.
14
<PAGE>
How financial institutions establish their allowance for loan losses is an
important and critical accounting policy and process. The allowance for loan
losses is maintained at a level believed adequate by management to absorb
potential losses inherent in the loan portfolio at the balance-sheet date. It is
analyzed quarterly by each bank. The adequacy of the allowance is an estimate
based on management's evaluation of the loan portfolio (including volume, amount
and composition, potential impairment of individual loans and concentration of
credit), past loss experience, current economic conditions, loan commitments
outstanding, regulatory requirements and other factors.
Standard-setting bodies, regulatory agencies and the SEC (Securities and
Exchange Commission) have, on an industry-wide basis, separately issued
proposals and other guidance in recent years on how the allowance for loan
losses should be estimated and documented. Estimation of requirements for the
allowance for loan losses is an inherently subjective process which involves
significant judgement by management of many variables potentially impacting
borrowers' ability to repay loans and the estimated values of underlying loan
collateral.
New banks, as a condition of charter approval, are required to maintain an
allowance ratio of not less than 1% for their first three years of operations.
Because they are new banks with new and unseasoned loans and no prior loss
history, 1% is often used as a starting point for the allowance, particularly in
the earliest years of operation. As some of the younger banks now have more
seasoned loan portfolios and the 1% regulatory requirement represents only an
absolute minimum, loan loss allowance ratios have been increased at Capitol's
banks based on management's estimates of loss potential inherent in the loan
portfolios at the balance sheet date.
CONSOLIDATED RESULTS OF OPERATIONS
Revenue growth has been significant. Total revenues grew to $171.4 million in
2002 from $73.2 million in 1998. The primary revenue source is interest income
from loans. Net interest income is the difference between total interest income
on loans and other earning assets and interest expense on deposits and
borrowings. The following graphs summarize growth in total revenue (which
includes noninterest income revenues such as fees and service charges) and net
interest income:
[GRAPH]
TOTAL REVENUES
($ millions)
1998 1999 2000 2001 2002
---- ---- ---- ---- ----
73.2 98.3 138.4 163.4 171.4
15
<PAGE>
[GRAPH]
NET INTEREST INCOME
($ millions)
1998 1999 2000 2001 2002
---- ---- ---- ---- ----
33.0 47.4 66.4 80.5 100.6
Most of the 2002 revenues, $103 million or about 60%, came from the most mature
banks--those formed prior to 1998. Banks formed in 2000, 1999 and 1998 reported
2002 revenues of $62.7 million or 36% of the consolidated total. The youngest
banks, those formed in 2002 and 2001, generated 2002 revenues totaling $6.4
million or about 4% of total consolidated revenues.
Noninterest income increased about 56% in both 2002 and 2001. These increases
resulted from higher levels of service-charge revenue associated with growth in
the number of accounts and banks. A significant increase in noninterest income
was also due to revenues from origination of non-portfolio mortgage loans. These
revenues increased about 116% to $6.8 million in 2002 as homeowners took
advantage of interest rates that decreased to their lowest levels in more than
thirty years. Additional discussion about mortgage loan origination activity
appears in the next section of this narrative.
Growth in net interest income, noninterest income and noninterest expense, is
the result of the addition of new banks during the periods presented and the
ongoing growth of Capitol's more mature banks. Growth in net interest income,
however, was tempered by a decrease in yields on assets and a decrease in the
cost of interest-bearing funds which fund the growth at each of the banks. Net
interest margin decreased in 2001 mainly due to interest rate decreases
impacting interest income at a rate faster than decreases in interest rates paid
on deposits. In 2002, however, a more stable interest rate environment has
favorably impacted net interest margins at Capitol's banks from interest-bearing
deposits repricing at lower rates.
The largest component of noninterest expense is salaries and employee benefits,
which has increased significantly due to the larger number of banks and bank
development subsidiaries.
16
<PAGE>
The following table summarizes net income for each of the banks, and on a
consolidated basis, the related rates of return on average equity and assets,
where applicable (in $1,000s):
<TABLE>
<CAPTION>
Net Income Return on Average Equity Return on Average Assets
-------------------------------- -------------------------- --------------------------
2002 2001 2000 2002 2001 2000 2002 2001 2000
-------- -------- -------- ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Great Lakes Region:
Ann Arbor Commerce Bank $ 5,022 $ 4,200 $ 3,508 22.40% 22.02% 21.43% 1.72% 1.64% 1.55%
Brighton Commerce Bank 973 597 534 15.26% 10.55% 10.22% 1.28% 0.90% 0.90%
Capitol National Bank 3,176 2,647 2,319 22.68% 22.04% 22.08% 1.69% 1.66% 1.63%
Detroit Commerce Bank (517) (187) 10 0.37% 0.03%
Grand Haven Bank 1,924 1,060 1,084 20.51% 15.39% 19.20% 1.67% 1.21% 1.46%
Kent Commerce Bank 992 113 130 13.72% 2.03% 3.21% 1.33% 0.20% 0.30%
Macomb Community Bank 530 1,145 1,212 5.47% 12.33% 14.41% 0.60% 1.08% 1.14%
Muskegon Commerce Bank 1,472 816 689 18.68% 12.73% 15.14% 1.83% 1.17% 1.23%
Oakland Commerce Bank 1,414 1,328 1,027 16.01% 16.62% 13.78% 1.32% 1.27% 1.08%
Paragon Bank & Trust 771 231 431 8.04% 3.23% 6.72% 0.77% 0.26% 0.50%
Portage Commerce Bank 2,005 1,556 1,552 18.69% 15.62% 16.76% 1.49% 1.21% 1.21%
Elkhart Community Bank 257 14 (229) 5.48% 0.30% 0.61% 0.04%
Goshen Community Bank 125 (413) (216) 2.83% 0.36%
-------- -------- --------
Great Lakes Region Total 18,144 13,107 12,051
Southwest Region:
Arrowhead Community Bank 117 (386) (419) 2.70% 0.27%
Bank of Tucson 2,312 2,095 2,149 21.87% 22.64% 27.69% 1.99% 1.89% 2.33%
Camelback Community Bank 714 534 297 9.74% 10.80% 8.22% 0.90% 0.93% 0.74%
East Valley Community Bank (336) 18 (532) 0.58% 0.05%
Mesa Bank 848 386 268 14.51% 8.53% 6.77% 1.44% 0.87% 0.85%
Southern Arizona Community Bank 668 320 169 10.67% 7.42% 4.44% 0.94% 0.67% 0.47%
Valley First Community Bank 113 328 88 1.99% 5.94% 1.82% 0.23% 0.61% 0.18%
Yuma Community Bank 147 (438) (176) 4.05% 0.43%
Bank of Las Vegas (611)
Black Mountain Community Bank 439 12 (468) 9.26% 0.27% 0.81% 0.03%
Desert Community Bank 209 35 (180) 4.16% 0.76% 0.35% 0.07%
Red Rock Community Bank 243 635 190 2.71% 7.64% 2.45% 0.26% 0.96% 0.62%
Sunrise Bank of Albuquerque (40) 28 (386) 0.77% 0.09%
Sunrise Bank of Arizona (194) 830 206 15.24% 4.64% 1.27% 0.43%
-------- -------- --------
Southwest Region Total 4,629 4,397 1,206
California Region:
Sunrise Bank of San Diego 342 (806) 4.53% 0.68%
First California Northern Bancorp:
Napa Community Bank (609)
-------- -------- --------
California Region Total (267) (806) -0-
Other, net (5,853) (5,980) (5,222)
-------- -------- -------- ------ ------ ------ ------ ------ ------
Consolidated totals $ 16,653 $ 10,718 $ 8,035 13.33% 15.22% 13.78% 0.75% 0.58% 0.55%
======== ======== ======== ====== ====== ====== ====== ====== ======
</TABLE>
Provisions for loan losses also increased significantly during recent years,
commensurate with the growth in both the number of banks and loans, and trends
in asset quality and loan charge-offs.
[GRAPH]
NET INCOME
($ millions)
1998 1999 2000 2001 2002
---- ---- ---- ---- ----
4.6 5.4 8.0 10.7 16.7
17
<PAGE>
LIQUIDITY, CAPITAL RESOURCES AND CAPITAL ADEQUACY
Asset liquidity for financial institutions typically consists of cash and cash
equivalents, investment securities available for sale and loans held for resale.
These categories totaled $352 million at year-end 2002, or about 15% of total
assets. This compares to $262 million or 13% of total assets at year-end 2001.
Liquidity is important for financial institutions because of their need to meet
loan funding commitments, depositor withdrawal requests and various other
commitments discussed in the accompanying notes to consolidated financial
statements. Liquidity varies significantly daily, based on customer activity.
Most of the investment securities portfolio is classified as available for sale,
although the banks generally have not sold investments to meet liquidity needs.
Also, to the extent warranted, the banks may sell loans from time to time.
Loans held for resale approximated $75.4 million at December 31, 2002, an
increase of about 21% over year end 2001 levels. These loans are residential
real estate mortgages originated by the banks, primarily through Capitol's
mortgage affiliate, Amera Mortgage Corporation. These loans are subsequently
sold into the secondary market, rather than being held in the banks' portfolio,
to reduce interest rate risk. Loan origination volume in 2002 increased nearly
37%, to $891.5 million compared to $651.1 million in 2001 and $251 million in
2000. Most of this volume was achieved through record low interest rates and
Amera's working with Capitol's Great Lakes Region banks. Future volume will
depend on whether interest rates remain low and the strength of residential real
estate market conditions. In early 2003, Amera's activities have expanded to
include all of Capitol's affiliate banks.
The primary source of funds for the banks is deposits. The banks emphasize
interest-bearing time deposits as part of their funding strategy. The banks also
seek noninterest-bearing deposits, or checking accounts, which reduce the banks'
cost of funds. Noninterest-bearing deposits were about 17% of total deposits at
year-end 2002 (about 16% at year-end 2001) and increased $88 million, or 32%,
during the year.
[GRAPH]
TOTAL DEPOSITS
($ millions)
1998 1999 2000 2001 2002
---- ---- ---- ---- ----
891 1,113 1,401 1,740 2,062
18
<PAGE>
In recent periods, many banks have experienced some competitive challenges in
obtaining additional deposits to fuel growth. Capitol's banks have had similar
experiences in their individual markets. As depositors have wider access to the
Internet and other real-time interest rate monitoring resources, deposit pricing
has become more competitive. Deposit growth is achievable, but at a competitive
price, with tight net interest margins, especially during these most recent
periods of low interest rates. The banks do not generally rely on brokered
deposits as a key funding source (approximately $200 million at year-end 2002 or
11.7% of interest-bearing deposits compared to 9.7% in 2001); however, brokered
deposits are a ready resource to help meet urgent funding needs, such as loan
commitments (which are discussed in greater detail in Note O of the consolidated
financial statements).
To supplement their funding sources, some of the banks have lines of credit from
the Federal Home Loan Bank system. At year-end 2002, a total of $79 million ($63
million at year-end 2001) was borrowed under those facilities and additional
borrowing availability approximated $15 million. Some of the banks also have
smaller lines of credit with their correspondent banks. Borrowings under these
facilities are generally at short-term market rates of interest and, although
the repayment dates can be extended, are generally outstanding for brief periods
of time.
Capitol has credit facilities aggregating $25 million from an unaffiliated bank.
At year-end 2002, a total of $12.5 million ($14.1 million at year-end 2001) was
borrowed under this facility. Borrowings under this credit facility were reduced
in 2002 and 2001 through use of available corporate funds within the
consolidated group.
Capitol's longer-term contractual obligations are disclosed in the notes to the
consolidated financial statements. Excluding time deposits of the banks, such
obligations consist principally of debt and lease obligations and
trust-preferred securities, summarized as follows (in $1,000s):
<TABLE>
<CAPTION>
Payments Due by Period
--------------------------------
Within Within After
Total 1 Year 2-5 Years 5 Years
-------- -------- --------- --------
<S> <C> <C> <C> <C>
Debt obligations $ 93,398 $ 36,824 $ 20,074 $ 36,500
Rent commitments under noncancelable
leases 19,515 3,773 12,131 3,611
Trust-preferred securities 53,300 -- -- 53,300
-------- -------- -------- --------
Total $166,213 $ 40,597 $ 32,205 $ 93,411
======== ======== ======== ========
</TABLE>
Loan commitments of Capitol's banks (stand-by letters of credit and unfunded
loans) generally expire within one year.
A significant source of capital has been investments provided by minority
shareholders in the subsidiaries which are consolidated for financial reporting
purposes. Total minority interests in consolidated subsidiaries amounted to
$28.0 million at year-end 2002, a decrease of $42.7 million from the $70.7
million level at year-end 2001. The decreases in minority interests in 2002
resulted mainly from Capitol consolidating the ownership of some of its
subsidiaries.
19
<PAGE>
Three majority-owned bank-development subsidiaries became 100% owned in 2002. In
each of these transactions, the shares acquired from the minority shareholders
were exchanged for Capitol's common stock according to fixed, but differing,
exchange ratios. The exchange with Sun Community Bancorp (Sun) was completed
effective March 31, 2002 and resulted in the issuance of approximately 2.7
million Capitol shares. Share exchanges regarding Sunrise Capital Corporation
and Indiana Community Bancorp Limited were completed effective September 30,
2002 and resulted in the issuance of about 450,000 shares of Capitol.
Additionally, 383,000 Capitol shares were issued from the share exchange with
Nevada Community Bancorp Limited which was completed in January 2003; this
transaction has been reflected for balance-sheet purposes as if it occurred on
December 31, 2002.
Two majority-owned banks also became wholly-owned in 2002. Share exchange
transactions for Detroit Commerce Bank and East Valley Community Bank were
completed effective December 31, 2002. About 54,000 shares of Capitol's common
stock were issued in those transactions.
While it is likely that similar share exchange transactions, as a harvest
strategy to gain full ownership of some bank subsidiaries, may occur in the
future, any such transactions depend upon whether Capitol (or one of its
subsidiary bank holding companies) offers such an exchange and whether minority
shareholders vote in favor of it on a transaction-by-transaction basis.
Total stockholders' equity approximated $160.0 million at year-end 2002, an
increase of $79.9 million for the year. The 2002 increase in stockholders'
equity includes earnings (less dividends paid) and proceeds from the issuance of
common stock. A substantial portion of the increase in stockholders' equity was
the result of the previously-mentioned share-exchange transactions which reduced
minority interests in consolidated subsidiaries. The book value per share of
common stock was $13.72 at year-end 2002, compared with $10.24 at year-end 2001.
Cash dividends of $0.44 were paid in 2002, compared to $0.40 in 2001 and $0.36
in 2000. Future payment of dividends is subject to approval by Capitol's board
of directors, future operating performance and management's assessment of the
consolidated organization's capital adequacy.
[The remainder of this page intentionally left blank]
20
<PAGE>
Capitol's capital structure consists of these primary elements:
* Trust-preferred securities,
* Minority interests in consolidated subsidiaries, and
* Stockholders' equity.
[GRAPH]
TOTAL CAPITALIZATION
($ millions)
1998 1999 2000 2001 2002
---- ---- ---- ---- ----
101.1 133.6 157.3 199.5 239.6
In June 2002, Capitol participated in the private placement of a pooled
trust-preferred security totaling $3 million. This is a variable rate security
with a thirty year term and, subject to certain provisions, may be repaid early.
In 2001, Capitol participated in two private placements of pooled
trust-preferred securities totaling $25 million. These securities, along with
Capitol Trust I (a $25 million public offering of trust-preferred securities in
1997), are treated as elements of capital for regulatory purposes.
Total capitalization at year-end 2002 amounted to $239.6 million or 9.9% of
total assets. This compares to $199.5 million or 9.8% at year-end 2001.
Capitol and each of its banks and bank development subsidiaries are subject to a
complex series of regulatory rules and requirements which require specific
levels of capital adequacy at both the bank level and on a consolidated basis.
Under those rules and regulations, banks are categorized as WELL CAPITALIZED,
ADEQUATELY CAPITALIZED or INADEQUATELY CAPITALIZED using several ratio
measurements, including a risk-weighting approach to assets and financial
commitments. Banks falling into the INADEQUATELY CAPITALIZED category are
subject to the prompt corrective action provisions of the FDIC Improvement Act,
which can result in significant regulatory agency intervention and other adverse
action. Although it is permissible to maintain capital adequacy at the
ADEQUATELY CAPITALIZED level, Capitol operates with the objective of its banks
meeting the WELL CAPITALIZED standard. The well capitalized banks benefit from
lower FDIC deposit insurance costs and less restrictive limitations on some
banking activities.
New banks, as a condition of regulatory charter approval, are required to
maintain higher ratios of capital adequacy. Generally, they are required to keep
a specific ratio of capital-to-average-total-assets of not less than 8% during
their first three years of operation.
In the opinion of management, all of the affiliated banks met the criteria to be
classified as WELL CAPITALIZED at year-end 2002.
21
<PAGE>
TRENDS AFFECTING OPERATIONS
The most significant trends which can impact the financial condition and results
of operations of financial institutions are changes in market rates of interest
and changes in general economic conditions.
Changes in interest rates, either up or down, have an impact on net interest
income (plus or minus), depending on the direction and timing of such changes.
At any point in time, there is an imbalance between interest rate-sensitive
assets and interest rate-sensitive liabilities. This means that when interest
rates change, the timing and magnitude of the effect of such interest rate
changes can alter the relationship between asset yields and the cost of funds.
This timing difference between interest rate-sensitive assets and interest
rate-sensitive liabilities is characterized as a "gap" which is quantified by
the distribution of rate-sensitive amounts within various time periods in which
they reprice or mature. The following table summarizes the consolidated
financial position in relation to "gap" at December 31, 2002 (in $1,000s):
<TABLE>
<CAPTION>
Interest Rate Sensitivity
---------------------------------------------------------
0 to 3 4 to 12 2 to 5 Over 5
Months Months Years Years Total
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
ASSETS
Federal funds sold $ 83,737 $ 83,737
Interest-bearing bank deposits 42,301 42,301
Investment securities 500 $ 2,910 $ 17,524 $ 13,205 34,139
Portfolio loans:
Commercial 870,775 175,411 721,126 21,724 1,789,036
Real estate mortgage 64,469 15,170 42,354 5,862 127,855
Installment 10,494 14,765 47,645 1,577 74,481
Loans held for resale 75,420 75,420
Non-earning assets 182,319
----------- ----------- ----------- ----------- -----------
Total assets $ 1,147,696 $ 208,256 $ 828,649 $ 42,368 $ 2,409,288
=========== =========== =========== =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Interest-bearing deposits:
Time deposits under $100,000 $ 59,245 $ 137,045 $ 134,670 $ $ 330,960
Time deposits over $100,000 140,408 257,384 166,768 564,560
All other interest-bearing deposits 661,031 142,094 2,758 805,883
----------- ----------- ----------- ----------- -----------
Total interest-bearing deposits 860,684 536,523 304,196 1,701,403
Debt obligations 24,750 12,074 20,074 36,500 93,398
Noninterest-bearing liabilities 374,851
Trust-preferred securities 17,471 34,112 51,583
Minority interests in consolidated subsidiaries 28,016
Stockholders' equity 160,037
----------- ----------- ----------- ----------- -----------
Total liabilities and stockholders' equity $ 902,905 $ 548,597 $ 324,270 $ 70,612 $ 2,409,288
=========== =========== =========== =========== ===========
Interest rate sensitive period gap $ 244,791 $ (340,341) $ 504,379 $ (28,244)
=========== =========== =========== ===========
Interest rate sensitive cumulative gap $ 244,791 $ (95,550) $ 408,829 $ 380,585
=========== =========== =========== ===========
Period rate sensitive assets/period rate
sensitive liabilities 1.27 0.38 2.56 0.60
Cumulative rate sensitive assets/cumulative
rate sensitive liabilities 1.27 0.93 1.23 1.21
Cumulative gap to total assets 10.16% (3.97)% 16.97% 15.80%
</TABLE>
22
<PAGE>
The "gap" changes daily based upon changes in the underlying assets and
liabilities at the banks. Analyzing exposure to interest rate risk is prone to
imprecision because the "gap" is constantly changing, the "gap" differs at each
of the banks, and it is difficult to predict the timing, amount and direction of
future changes in market interest rates and the potential corresponding effect
on customer behavior.
The banks endeavor to manage and monitor interest rate risk in concert with
market conditions and risk parameters. Management strives to maintain a
reasonably balanced position of interest rate-sensitive assets and liabilities.
The banks have not engaged in speculative positions, for example, through the
use of derivatives, in anticipation of interest rate movements. In periods of
relatively lower interest rates, the banks emphasize variable rate loans and
time deposits to the extent possible in a competitive environment; however,
competitive influences often result in making fixed rate loans, although the
banks seek to limit the duration of such loans. These most recent periods of
record low interest rates have created a huge volume of fixed-rate mortgage
refinancing activity; those loans are sold to the secondary market and are not
retained for the banks' loan portfolios. Similarly, low interest rates generally
make competition more intense for deposits, since loan demand will typically
increase during periods of lower rates and, accordingly, result in higher
interest costs on deposits as competitors bid-up rates, adversely impacting
interest margins. Future interest rates and the impact on earnings are difficult
to predict. In addition to interest rate risk relating to interest-bearing
assets and liabilities, changes in interest rates also can impact future
transaction volume of loans and deposits at the banks. For activities which are
influenced by levels of interest rates for transaction volume (for example,
origination of residential mortgage loans), pricing margins and demand can
become impacted significantly by changes in interest rates.
As a means of monitoring and managing exposure to interest rate risk, management
uses a computerized simulation model which is intended to estimate pro forma
effects of changes in interest rates. Using the simulation model, the following
table illustrates, on a consolidated basis, changes which would occur in annual
levels of interest income, interest expense and net interest income (in $1,000s)
assuming both one hundred and two hundred basis point ("bp") parallel increases
and decreases in interest rates:
<TABLE>
<CAPTION>
Pro Forma Pro Forma Effect of Pro Forma Effect of
Assuming No Interest Rate Increases Interest Rate Decreases
Change in ----------------------- -----------------------
Interest Rates +100 bp +200 bp -100 bp -200 bp
-------------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Interest income $116,576 $127,323 $138,186 $105,908 $ 95,821
Interest expense 51,087 54,752 58,417 47,422 44,229
-------- -------- -------- -------- --------
Net interest income $ 65,489 $ 72,571 $ 79,769 $ 58,486 $ 51,592
======== ======== ======== ======== ========
</TABLE>
The pro forma analysis above is intended to quantify theoretical changes in
interest income based on stated assumptions. The pro forma analysis excludes the
effect of numerous other variables such as borrowers' ability to repay loans,
the ability of banks to obtain deposits in a radically changed interest-rate
environment and how management would revise its asset and liability management
priorities in concert with rate changes.
23
<PAGE>
In November 2002, the Open Market Committee of the Federal Reserve Board
decreased interbank interest rates by 50 basis points. During 2001, the Federal
Reserve decreased interbank interest rates 11 times, which was an unprecedented
action to reduce rates 475 basis points within a year. While the pro forma
analysis above is intended to estimate the impact of an immediate 100 and 200
basis point change in rates, actual results will be different. Those results
will differ (and may be materially different) because a sudden rate change in
market rates does not result in an instantaneous parallel shift in rates on
loans and deposits at banks. Further, any financial model intended to estimate
the impact of interest rate changes will not necessarily incorporate other
variables, including management's efforts to manage its asset and liability
interest rate sensitivity, nor customer behavior.
General economic conditions also have a significant impact on both the results
of operations and the financial condition of financial institutions. Local
economic conditions, and to some extent national economic conditions, have a
significant impact on levels of loan demand as well as the ability of borrowers
to repay loans and the availability of funds for customers to make deposits.
2001 marked the end of the longest peacetime economic expansion in U.S. history.
The terrorist acts of September 11, 2001, our Nation's subsequent war on
terrorism, the diagnosis of economic recession in the U.S., worldwide economic
and political instability, recent major business bankruptcies and their related
high-profile questionable accounting and financial reporting practices, raised
significant concerns over the near-term and longer-horizons for economic and
political uncertainty. 2002 ended with the United States' economy still mired in
recession and the threat of war looming. While there are some indications of an
improving economy, 2003 and beyond are very uncertain. At the time this
narrative was written, uncertainties of domestic economic health and global
stability preclude prediction of near-term trends and their potential effects.
Continuing consolidation of the banking industry on a national basis, and in the
markets of Capitol's banks, has presented opportunities for growth. As a result
of consolidation of the banking industry and the conversion of customer
relationships into perceived `commodities' by the larger banks, many customer
relationships have been displaced, generating opportunities for development by
Capitol's banks. For many retail customers, banking services have become a
commodity in an environment that is dominated by larger mega-bank or
mass-merchandising institutions. For the professional, entrepreneur and other
customers seeking a more service-oriented, customized banking relationship,
Capitol's banks fill that need through their focus on single-location banks with
full, local decision-making authority. As the banks focus on service delivery
and keeping their size at a manageable level, only a modest market share of
deposits and loan activity is necessary to achieve profitability and
investor-oriented earnings performance.
Start-up banks generally incur operating losses during their early periods of
operations. Recently-formed start-up banks will detract from consolidated
earnings performance and additional start-up banks formed in 2002 and beyond
will similarly negatively impact short-term profitability. On a consolidated
basis, such operating losses reduce net income by the pro rata share of
Capitol's ownership percentage in those banks. When those banks become
profitable, their operating results will contribute to consolidated earnings to
the extent of Capitol's ownership percentage.
24
<PAGE>
Commercial banks continue to be subject to significant regulatory requirements
which impact current and future operations. In addition to the extent of
regulatory interaction with financial institutions, extensive rules and
regulations governing lending activities, deposit gathering and capital adequacy
(to name a few), translate into a significant cost burden of financial
institution regulation. Such costs include the significant amount of management
time and expense which is incurred in maintaining compliance and developing
systems for compliance with those rules and regulations as well as the cost of
examinations, audits and other compliance activities. The future of financial
institution regulation, and its costs, is uncertain and difficult to predict.
Premiums for FDIC insurance have historically been a significant cost of doing
business as financial institutions, but in the most recent years, deposit
insurance premiums have been maintained at a stable and modest level. Future
deposit insurance premium levels are difficult to predict inasmuch as deposit
insurance premiums will be determined based on general economic conditions, the
relative health of the banking and financial institution industry and other
unpredictable factors. It is reasonable to expect that deposit insurance
premiums may increase at some point in the future.
NEW ACCOUNTING STANDARDS
There were several new accounting standards which were issued or became
effective in 2002, in addition to some which have later effective dates. They
are listed and discussed in Note B of the consolidated financial statements,
beginning on page 36.
[The remainder of this page intentionally left blank]
25
<PAGE>
Board of Directors and Stockholders
Capitol Bancorp Ltd.
We have audited the accompanying consolidated balance sheets of Capitol Bancorp
Ltd. and subsidiaries as of December 31, 2002 and 2001, and the related
consolidated statements of income, changes in stockholders' equity and cash
flows for each of the three years in the period ended December 31, 2002. These
financial statements are the responsibility of the Corporation's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Capitol Bancorp Ltd.
and subsidiaries as of December 31, 2002 and 2001, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 2002, in conformity with accounting principles generally accepted
in the United States of America.
As discussed in Note B to the consolidated financial statements, the Corporation
adopted Statement of Financial Accounting Standards No. 142, "Goodwill and Other
Intangible Assets", effective January 1, 2002.
/s/ BDO Seidman, LLP
Grand Rapids, Michigan
January 31, 2003
26
<PAGE>
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
- December 31 -
2002 2001
----------- -----------
(in $1,000s)
<S> <C> <C>
ASSETS
Cash and due from banks $ 125,146 $ 83,833
Money market, mutual funds and interest-bearing deposits 42,301 10,999
Federal funds sold 83,737 68,859
----------- -----------
Cash and cash equivalents 251,184 163,691
Loans held for resale 75,420 62,487
Investment securities--Note C:
Available for sale, carried at market value 25,355 35,598
Held for long-term investment, carried at amortized
cost which approximates market value 8,784 8,089
----------- -----------
Total investment securities 34,139 43,687
Portfolio loans, less allowance for loan losses of $28,953 in
2002 and $23,238 in 2001--Note D 1,962,419 1,711,351
Premises and equipment--Note F 21,737 16,441
Accrued interest income 9,286 9,471
Goodwill and other intangibles 24,739 8,527
Other assets 30,364 28,351
----------- -----------
TOTAL ASSETS $ 2,409,288 $ 2,044,006
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Noninterest-bearing $ 360,669 $ 272,593
Interest-bearing--Note G 1,701,403 1,467,792
----------- -----------
Total deposits 2,062,072 1,740,385
Debt obligations--Note H 93,398 89,911
Accrued interest on deposits and other liabilities 14,182 14,244
----------- -----------
Total liabilities 2,169,652 1,844,540
GUARANTEED PREFERRED BENEFICIAL INTERESTS IN
THE CORPORATION'S SUBORDINATED DEBENTURES
(Trust-Preferred Securities)--Note I 51,583 48,621
MINORITY INTERESTS IN CONSOLIDATED
SUBSIDIARIES--Note A 28,016 70,673
STOCKHOLDERS' EQUITY--Notes H, J and P:
Common stock, no par value, 25,000,000 shares authorized;
issued and outstanding:
2002--11,663,412 shares--Notes J and S
2001--7,829,178 shares 135,234 67,692
Retained earnings 26,318 14,173
Market value adjustment (net of tax effect) for investment securities
available for sale (accumulated other comprehensive income) 191 158
----------- -----------
161,743 82,023
Less note receivable from exercise of stock options and unallocated
ESOP shares--Notes J and K (1,706) (1,851)
----------- -----------
Total stockholders' equity 160,037 80,172
----------- -----------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 2,409,288 $ 2,044,006
=========== ===========
</TABLE>
See notes to consolidated financial statements.
27
<PAGE>
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
- Year Ended December 31 -
2002 2001 2000
--------- --------- ---------
(in $1,000s, except per share data)
<S> <C> <C> <C>
Interest income:
Portfolio loans (including fees) $ 149,785 $ 144,417 $ 121,737
Loans held for resale 2,674 3,002 1,044
Taxable investment securities 1,422 2,201 4,353
Federal funds sold 1,376 3,186 3,985
Other 1,197 991 1,192
--------- --------- ---------
Total interest income 156,454 153,797 132,311
Interest expense:
Deposits 47,848 65,655 60,256
Debt obligations and other 8,012 7,637 5,656
--------- --------- ---------
Total interest expense 55,860 73,292 65,912
--------- --------- ---------
Net interest income 100,594 80,505 66,399
Provision for loan losses--Note D 12,676 8,167 7,216
--------- --------- ---------
Net interest income after provision
for loan losses 87,918 72,338 59,183
Noninterest income:
Service charges on deposit accounts 4,020 3,251 2,070
Trust fee income 2,434 1,839 1,077
Fees from origination of non-portfolio residential
mortgage loans 6,837 3,165 1,543
Other 1,691 1,330 1,447
--------- --------- ---------
Total noninterest income 14,982 9,585 6,137
Noninterest expense:
Salaries and employee benefits 47,454 37,970 28,995
Occupancy 6,528 5,772 4,681
Equipment rent, depreciation and maintenance 4,544 4,646 4,113
Other 18,625 15,748 15,057
--------- --------- ---------
Total noninterest expense 77,151 64,136 52,846
--------- --------- ---------
Income before federal income taxes and minority interest 25,749 17,787 12,474
Federal income taxes--Note L 8,701 5,824 4,289
--------- --------- ---------
Income before minority interest 17,048 11,963 8,185
Minority interest in net income of consolidated subsidiaries (395) (1,245) (150)
--------- --------- ---------
NET INCOME $ 16,653 $ 10,718 $ 8,035
========= ========= =========
NET INCOME PER SHARE--Note M:
Basic $ 1.64 $ 1.38 $ 1.14
========= ========= =========
Diluted $ 1.57 $ 1.35 $ 1.13
========= ========= =========
</TABLE>
See notes to consolidated financial statements.
28
<PAGE>
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (IN $1,000S)
<TABLE>
<CAPTION>
Unallocated
Accumulated ESOP Shares and
Other Note Receivable
Common Retained Comprehensive From Sale of
Stock Earnings Income Common Stock Total
--------- --------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C>
Balances at January 1, 2000 $ 56,648 $ 1,068 $ (907) $ (2,141) $ 54,668
Issuance of 10,734 shares of common stock upon
exercise of stock options 83 83
Issuance of 626,325 shares of common stock to
acquire minority interests in bank subsidiaries 6,278 6,278
Proceeds from issuance of 266,783 shares of
common stock and 53,352 warrants 2,930 2,930
Allocation of shares to ESOP participants' accounts 145 145
Cash dividends paid ($.36 per share) (2,534) (2,534)
Components of comprehensive income:
Net income for 2000 8,035 8,035
Market value adjustment for investment securities
available for sale (net of income tax effect) 799 799
---------
Comprehensive income for 2000 8,834
--------- --------- --------- --------- ---------
BALANCES AT DECEMBER 31, 2000 65,939 6,569 (108) (1,996) 70,404
Proceeds from the sale of 130,000 shares of
common stock and 32,500 warrants to
purchase common stock 1,495 1,495
Issuance of 7,465 shares of common stock
upon exercise of warrants 82 82
Issuance of 18,350 shares of common stock
upon exercise of stock options 176 176
Allocation of shares to ESOP participants' accounts 145 145
Cash dividends paid ($.40 per share) (3,114) (3,114)
Components of comprehensive income:
Net income for 2001 10,718 10,718
Market value adjustment for investment securities
available for sale (net of income tax effect) 266 266
---------
Comprehensive income for 2001 10,984
--------- --------- --------- --------- ---------
BALANCES AT DECEMBER 31, 2001 67,692 14,173 158 (1,851) 80,172
Issuance of 3,606,306 shares of common stock to
acquire minority interests in bank and bank
holding-company subsidiaries 64,801 64,801
Issuance of 138,447 shares of common stock upon
exercise of stock options 1,693 1,693
Issuance of 54,859 shares of common stock upon
exercise of warrants 608 608
Issuance of 34,622 shares of common stock
in exchange for investment security 440 440
Allocation of shares to ESOP participants' accounts 145 145
Cash dividends paid ($.44 per share) (4,508) (4,508)
Components of comprehensive income:
Net income for 2002 16,653 16,653
Market value adjustment for investment securities
available for sale (net of income tax effect) 33 33
---------
Comprehensive income for 2002 16,686
--------- --------- --------- --------- ---------
BALANCES AT DECEMBER 31, 2002 $ 135,234 $ 26,318 $ 191 $ (1,706) $ 160,037
========= ========= ========= ========= =========
</TABLE>
See notes to consolidated financial statements.
29
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
- Year Ended December 31 -
2002 2001 2000
--------- --------- ---------
(in $1,000s)
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income $ 16,653 $ 10,718 $ 8,035
Adjustments to reconcile net income to net
cash provided (used) by operating activities:
Provision for loan losses 12,676 8,167 7,216
Depreciation of premises and equipment 3,451 3,340 3,178
Amortization of goodwill and other intangibles 399 979 561
Net accretion of investment security discounts (22) (94) (104)
Loss on sales of premises and equipment 64 100 11
Minority interest in net income of consolidated
subsidiaries 395 1,245 150
Deferred income taxes (2,224) (1,345) (1,312)
Originations and purchases of loans held for resale (891,498) (651,149) (251,157)
Proceeds from sales of loans held for resale 878,565 609,984 238,913
Increase in accrued interest income and other assets (2,187) (1,883) (9,178)
Increase (decrease) in accrued interest expense and
other liabilities (62) 523 1,479
--------- --------- ---------
NET CASH PROVIDED (USED) BY OPERATING
ACTIVITIES 16,210 (19,415) (2,208)
INVESTING ACTIVITIES
Proceeds from sales of investment securities available
for sale 8,672 500 3,156
Proceeds from calls and maturities of investment
securities available for sale 67,938 67,393 71,882
Purchases of investment securities available for sale (66,989) (42,159) (35,503)
Net increase in portfolio loans (263,744) (381,169) (309,000)
Proceeds from sales of premises and equipment 60 306 22
Purchases of premises and equipment (8,871) (5,536) (3,466)
--------- --------- ---------
NET CASH USED BY INVESTING ACTIVITIES (262,934) (360,665) (272,909)
FINANCING ACTIVITIES
Net increase in demand deposits, NOW accounts
and savings accounts 271,571 268,677 125,178
Net increase in certificates of deposit 50,116 70,809 162,928
Net proceeds from debt obligations 3,487 31,761 10,750
Net proceeds from issuance of trust-preferred securities 2,899 24,248
Resources provided by minority interests 8,351 6,853 14,262
Net proceeds from issuance of common stock 2,301 1,753 3,011
Cash dividends paid (4,508) (3,114) (2,534)
--------- --------- ---------
NET CASH PROVIDED BY FINANCING ACTIVITIES 334,217 400,987 313,595
--------- --------- ---------
INCREASE IN CASH AND CASH EQUIVALENTS 87,493 20,907 38,478
Cash and cash equivalents at beginning of year 163,691 142,784 104,306
--------- --------- ---------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 251,184 $ 163,691 $ 142,784
========= ========= =========
</TABLE>
See notes to consolidated financial statements.
30
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CAPITOL BANCORP LIMITED
NOTE A--NATURE OF OPERATIONS, BASIS OF PRESENTATION AND PRINCIPLES OF
CONSOLIDATION
Capitol Bancorp Limited ("Capitol" or the "Corporation") is a multibank holding
company. Consolidated subsidiaries consist of the following:
<TABLE>
<CAPTION>
Percentage
Owned at
December 31, Year Formed
Affiliate Location 2002 or Acquired
- ---------------------------------- -------------------------- ------------ -----------
<S> <C> <C> <C>
Michigan Banks:
Ann Arbor Commerce Bank Ann Arbor, Michigan 100% 1990
Brighton Commerce Bank Brighton, Michigan 100% 1997
Capitol National Bank Lansing, Michigan 100% 1982
Detroit Commerce Bank Detroit, Michigan 100% 1998
Grand Haven Bank Grand Haven, Michigan 100% 1995
Kent Commerce Bank Grand Rapids, Michigan 100% 1998
Macomb Community Bank Clinton Township, Michigan 100% 1996
Muskegon Commerce Bank Muskegon, Michigan 100% 1997
Oakland Commerce Bank Farmington Hills, Michigan 100% 1992
Paragon Bank & Trust Holland, Michigan 100% 1994
Portage Commerce Bank Portage, Michigan 100% 1988
Indiana Banks:
Elkhart Community Bank Elkhart, Indiana 51% 1999
Goshen Community Bank Goshen, Indiana 51% 2000
Arizona Banks:
Arrowhead Community Bank Glendale, Arizona 87% 2000
Bank of Tucson Tucson, Arizona 100% 1996
Camelback Community Bank Phoenix, Arizona 100% 1998
East Valley Community Bank Chandler, Arizona 100% 1999
Mesa Bank Mesa, Arizona 100% 1998
Southern Arizona Community Bank Tucson, Arizona 100% 1998
Valley First Community Bank Scottsdale, Arizona 100% 1997
Yuma Community Bank Yuma, Arizona 51% 2000
Nevada Banks:
Bank of Las Vegas Las Vegas, Nevada 51%(1) 2002
Black Mountain Community Bank Henderson, Nevada 51%(1) 2000
Desert Community Bank Las Vegas, Nevada 51%(1) 1999
Red Rock Community Bank Las Vegas, Nevada 51%(1) 1999
Sunrise Bank Group:
Sunrise Bank of Albuquerque Albuquerque, New Mexico 87% 2000
Sunrise Bank of Arizona Phoenix, Arizona 100% 1998
Sunrise Bank of San Diego San Diego, California 64% 2001
First California Northern Bancorp: Napa, California 51% 2001
Napa Community Bank Napa, California 2002
</TABLE>
(1) Reflects the January 2003 share exchange regarding the minority interest of
Nevada Community Bancorp Limited as if it had occurred on December 31,
2002.
31
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CAPITOL BANCORP LIMITED
NOTE A--NATURE OF OPERATIONS, BASIS OF PRESENTATION AND PRINCIPLES OF
CONSOLIDATION--CONTINUED
Capitol views itself as a bank-development company. In recent years it has
engaged in the formation of DE NOVO banks through majority ownership made
directly by Capitol, or through a subsidiary bank-development company, with the
remainder of the banks' start-up capital provided by local investors in the
bank's community. When the DE NOVO bank reaches a point of development near its
third year of operation, Capitol may offer the bank's minority shareholders an
opportunity to exchange their bank shares for shares of Capitol. Capitol has
made similar exchange proposals regarding the minority interests of some of its
bank-development-company subsidiaries. In each instance, however, Capitol is
under no obligation to offer such a share exchange and such share exchange
proposals are generally subject to approval by the minority shareholders in each
proposed transaction.
Capitol and its subsidiaries are engaged in a single business activity--banking.
The bank affiliates provide a full range of banking services to individuals,
businesses and other customers located in their respective communities. Each of
the banks generally operate from a single location and focus their activities on
meeting the various credit and other banking needs of entrepreneurs,
professionals and other businesses and individuals. A variety of deposit
products are offered, including checking, savings, money market, individual
retirement accounts and certificates of deposit. In addition, trust and
investment services are offered through Paragon Bank & Trust. The principal
markets for the banks' financial services are the communities in which they are
located and the areas immediately surrounding those communities. In addition to
commercial banking units, mortgage banking activities are offered through Amera
Mortgage Corporation, a less than 50%-owned affiliate.
Each bank is viewed by management as being a separately identifiable business or
segment from the perspective of monitoring performance and allocation of
financial resources. Although the banks operate independently and are managed
and monitored separately, each bank is substantially similar in terms of
business focus, type of customers, products and services. Further, each of the
banks and the Corporation are subject to substantially similar laws and
regulations unique to the banking industry. Accordingly, the Corporation's
consolidated financial statements reflect the presentation of segment
information on an aggregated basis.
The consolidated financial statements include the accounts of the Corporation
and its majority-owned subsidiaries, after elimination of intercompany accounts
and transactions, and after giving effect to applicable minority interests.
Banks formed during 2000, 2001 and 2002 are included in the consolidated
financial statements for periods after joining the consolidated group. Certain
2001 and 2000 amounts have been reclassified to conform to the 2002
presentation.
32
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CAPITOL BANCORP LIMITED
NOTE B--SIGNIFICANT ACCOUNTING POLICIES
ESTIMATES: The preparation of consolidated financial statements in conformity
with generally accepted accounting principles requires management to make
certain estimates and assumptions that affect the reported amounts of assets and
liabilities at the date of the consolidated financial statements and the
reported amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
CASH AND CASH EQUIVALENTS: Cash and cash equivalents include cash on hand,
amounts due from banks (interest-bearing and noninterest-bearing), money-market
funds and federal funds sold. Generally, federal funds transactions are entered
into for a one-day period.
LOANS HELD FOR RESALE: Loans held for resale represent residential real estate
mortgage loans held for sale into the secondary market. Loans held for resale
are stated at the aggregate lower of cost or market. Fees from the origination
of loans held for resale are recognized in the period the loans are originated.
INVESTMENT SECURITIES: Investment securities available for sale (generally most
debt investment securities of Capitol's banks) are carried at market value with
unrealized gains and losses reported as a separate component of stockholders'
equity, net of tax effect (accumulated other comprehensive income). All other
investment securities are classified as held for long-term investment and are
carried at amortized cost which approximates market value (see Note C).
Investments are classified at the date of purchase based on management's
analysis of liquidity and other factors. The adjusted cost of the specific
securities sold is used to compute realized gains or losses. Premiums and
discounts are recognized in interest income using the interest method over the
period to maturity.
LOANS, CREDIT RISK AND ALLOWANCE FOR LOAN LOSSES: Portfolio loans are carried at
their principal balance based on management's intent and ability to hold such
loans for the foreseeable future until maturity or repayment.
Credit risk arises from making loans and loan commitments in the ordinary course
of business. Substantially all portfolio loans are made to borrowers in the
banks' geographic areas. Consistent with the banks' emphasis on business
lending, there are concentrations of credit in loans secured by commercial real
estate, equipment and other business assets. The maximum potential credit risk
to Capitol, without regard to underlying collateral and guarantees, is the total
of loans and loan commitments outstanding. Management reduces Capitol's exposure
to losses from credit risk by requiring collateral and/or guarantees for loans
granted and by monitoring concentrations of credit, in addition to recording
provisions for loan losses and maintaining an allowance for loan losses.
33
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CAPITOL BANCORP LIMITED
NOTE B--SIGNIFICANT ACCOUNTING POLICIES--CONTINUED
The allowance for loan losses is maintained at a level believed adequate by
management to absorb estimated losses inherent in the portfolio at the balance
sheet date. Management's determination of the adequacy of the allowance is an
estimate based on evaluation of the portfolio (including potential impairment of
individual loans and concentrations of credit), past loss experience, current
economic conditions, volume, amount and composition of the loan portfolio, loan
commitments outstanding and other factors. The allowance is increased by
provisions charged to operations and reduced by net charge-offs.
INTEREST AND FEES ON LOANS: Interest income on loans is recognized based upon
the principal balance of loans outstanding. Fees from origination of portfolio
loans generally approximate the direct costs of successful loan originations.
The accrual of interest is generally discontinued when a loan becomes 90 days
past due as to interest. When interest accruals are discontinued, interest
previously accrued (but unpaid) is reversed. Management may elect to continue
the accrual of interest when the estimated net realizable value of collateral is
sufficient to cover the principal balance and accrued interest and the loan is
in process of collection.
PREMISES AND EQUIPMENT: Premises and equipment are stated on the basis of cost.
Depreciation, which relates primarily to equipment and furniture with estimated
useful lives of approximately three to seven years, is computed principally by
the straight-line method. Buildings are generally depreciated on a straight-line
basis with estimated useful lives of approximately 40 years. Leasehold
improvements are generally depreciated over the respective lease term.
GOODWILL AND OTHER INTANGIBLES: Amortization of goodwill ceased, as required,
January 1, 2002, upon implementation of a new accounting standard (see "New
Accounting Standards" below). Goodwill is reviewed periodically by management
for impairment and, accordingly, impairment adjustments of goodwill are charged
against earnings, when determined. Other intangibles, which generally consist of
core deposit intangibles, are amortized over varying periods of less than 10
years and are not material.
OTHER REAL ESTATE: Other real estate (included as a component of other assets,
and at December 31, 2002 and 2001 approximated $4,605,000 and $3,044,000,
respectively) comprises properties acquired through a foreclosure proceeding or
acceptance of a deed in lieu of foreclosure. These properties held for sale are
carried at the lower of cost or estimated fair value (net of estimated selling
cost) at the date acquired and are periodically reviewed for subsequent
impairment.
STOCK-BASED COMPENSATION: No stock-based compensation expense is recorded upon
granting of stock options because such stock options are accounted for under the
provisions of Accounting Principles Board (APB) Opinion 25 (and related
interpretations) and are granted at an exercise price equal to the market price
of common stock at grant date.
34
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CAPITOL BANCORP LIMITED
NOTE B--SIGNIFICANT ACCOUNTING POLICIES--CONTINUED
Statement of Financial Accounting Standards No. 123, ACCOUNTING FOR STOCK-BASED
COMPENSATION, establishes an alternative fair value method of accounting for
stock options whereby compensation expense would be recognized based on the
computed fair value of the options on the grant date. By not electing this
alternative, certain pro forma disclosures of the expense recognition provisions
of Statement No. 123 are required, which are as follows:
2002 2001 2000
---- ---- ----
Fair value assumptions:
Risk-free interest rate 4.5% 5.0% 7.0%
Dividend yield 2.5% 2.8% 3.0%
Stock price volatility .46 .39 .83
Expected option life 7 years 7 years 7 years
Aggregate estimated fair value of
options granted (in thousands) $ 11,548 $ 95 $ 4,932
Net income (in thousands):
As reported 16,653 10,718 8,035
Pro forma 8,078 9,809 6,471
Net income per share:
Basic:
As reported 1.64 1.38 1.14
Pro forma 0.80 1.26 .92
Diluted:
As reported 1.57 1.35 1.13
Pro forma $ 0.76 $ 1.24 $ .91
TRUST ASSETS AND RELATED INCOME: Customer property, other than funds on deposit,
held in a fiduciary or agency capacity by Capitol's banks is not included in the
consolidated balance sheet because it is not an asset of the banks or Capitol.
Trust fee income is recorded on the accrual method.
FEDERAL INCOME TAXES: Capitol and subsidiaries owned 80% or more by Capitol file
a consolidated federal income tax return. Deferred income taxes are recognized
for the tax consequences of temporary differences by applying enacted tax rates
applicable to future years to differences between the financial statement
carrying amounts and the tax bases of existing assets and liabilities. The
effect on deferred income taxes of a change in tax laws or rates is recognized
in income in the period that includes the enactment date.
COMPREHENSIVE INCOME: Comprehensive income is the sum of net income and certain
other items which are charged or credited to stockholders' equity. For the
periods presented, Capitol's only element of comprehensive income other than net
income was the net change in the market value adjustment for investment
securities available for sale. Accordingly, the elements and total of
comprehensive income are shown within the statement of changes in stockholders'
equity presented herein.
35
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CAPITOL BANCORP LIMITED
NOTE B--SIGNIFICANT ACCOUNTING POLICIES--CONTINUED
NEW ACCOUNTING STANDARDS: Financial Accounting Standards Board (FASB) Statement
No. 142, GOODWILL AND OTHER INTANGIBLE ASSETS, requires that goodwill no longer
be amortized and charged against earnings, but instead be reviewed for
impairment. Amortization of goodwill ceased upon adoption of the Statement.
Capitol's previous business combinations (generally, acquisitions of minority
interests) have been accounted for using the purchase method. Upon
implementation, this new standard did not have a material effect on Capitol's
consolidated financial statements, other than the elimination of goodwill
amortization ($979,000 in 2001 and $561,000 in 2000) in future periods.
When goodwill is reviewed for potential impairment, impairment losses must be
charged against earnings if and when determined. Substantially all of Capitol's
recorded reporting-unit goodwill relates to acquisitions of minority interests
in consolidated subsidiaries. Such acquisitions have been made at modest
premiums in relation to the underlying fair value of net assets when acquired.
Based on management's review of recorded reporting-unit goodwill at the
transition date for Statement No. 142, January 1, 2002, and in the fourth
quarter of 2002, no impairment losses were identified as of those dates.
Statement No. 142 requires supplemental disclosure of historical information, as
adjusted to exclude amortization of goodwill no longer being amortized, which is
summarized below (in $1,000s except per share amounts):
Year Ended December 31
----------------------
2001 2000
--------- ---------
Net income, as reported $ 10,718 $ 8,035
Add back -- goodwill
amortization 979 561
--------- ---------
Net income, as adjusted $ 11,697 $ 8,596
========= =========
Net income per share,
as reported:
Basic $ 1.38 $ 1.14
========= =========
Diluted $ 1.35 $ 1.13
========= =========
Add back -- goodwill
amortization per share:
Basic $ 0.12 $ 0.08
========= =========
Diluted $ 0.12 $ 0.08
========= =========
Net income per share,
as adjusted:
Basic $ 1.50 $ 1.22
========= =========
Diluted $ 1.47 $ 1.21
========= =========
36
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CAPITOL BANCORP LIMITED
NOTE B--SIGNIFICANT ACCOUNTING POLICIES--CONTINUED
The FASB has also recently issued Statements No. 143 (ACCOUNTING FOR ASSET
RETIREMENT OBLIGATIONS), No. 144 (ACCOUNTING FOR THE IMPAIRMENT OR DISPOSAL OF
LONG-LIVED ASSETS), No. 145 (which updates, clarifies and simplifies certain
existing accounting pronouncements--rescission of Statements No. 4, 44 and 64,
amendment of Statement No. 13 and technical corrections) and No. 146 (ACCOUNTING
FOR COSTS ASSOCIATED WITH EXIT OR DISPOSAL ACTIVITIES). These new standards have
varying effective dates in 2002 and 2003 and, based on management's analysis,
are not expected to have a material effect on Capitol's consolidated financial
statements, upon implementation.
Statement No. 147, ACQUISITIONS OF CERTAIN FINANCIAL INSTITUTIONS, amends prior
standards relating to some acquisitions of financial institutions, requiring
such transactions to be accounted for in accordance with Statements No. 141 and
142. It had no material effect on Capitol's consolidated financial statements,
upon implementation.
Statement No. 148, ACCOUNTING FOR STOCK-BASED COMPENSATION - TRANSITION AND
DISCLOSURE, provides alternative methods of transition for a voluntary change to
the fair-value based method of accounting for stock-based employee compensation
and it amends the prior disclosure requirements of Statement No. 123 to require
more prominent and frequent disclosures about the effects of stock-based
compensation. As permitted, Capitol has retained its prior method of accounting
for stock-based employee compensation.
FASB Interpretation No. 45, GUARANTOR'S ACCOUNTING AND DISCLOSURE REQUIREMENTS
FOR GUARANTEES, INCLUDING INDIRECT GUARANTEES AND INDEBTEDNESS OF OTHERS,
expands disclosures about obligations under certain guarantees and, in addition,
requires recording a liability for the fair value of the obligations undertaken
in issuing the guarantee, applicable to guarantees issued or modified after
December 31, 2002. Capitol's disclosure of guarantees is made in Note O. This
new guidance had no impact on Capitol's consolidated financial position or
results of operations, upon implementation.
FASB Interpretation No. 46, CONSOLIDATION OF VARIABLE INTEREST ENTITIES,
clarifies when some entities previously not consolidated under prior accounting
guidance, should be. This new guidance, which was effective upon issuance in
January 2003, is not expected to have a material effect upon Capitol's
consolidated financial statements.
In 2001, the Securities and Exchange Commission, American Institute of Certified
Public Accountants and Federal Financial Institutions Examination Council each
issued new guidance (some of which remains to be finalized) on accounting for
allowances for loan losses. While the new guidance does not change prior
accounting rules in this area, it provides additional clarification and guidance
on how the calculation, adequacy and approval of the allowances should be
documented by management.
37
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CAPITOL BANCORP LIMITED
NOTE B--SIGNIFICANT ACCOUNTING POLICIES--CONTINUED
A variety of proposed or otherwise potential accounting standards are currently
under study by standard-setting organizations and various regulatory agencies.
Because of the tentative and preliminary nature of these proposed standards,
management has not determined whether implementation of such proposed standards
would be material to Capitol's consolidated financial statements.
NOTE C--INVESTMENT SECURITIES
Investment securities consisted of the following at December 31 (in $1,000s):
2002 2001
-------------------- --------------------
Estimated Estimated
Amortized Market Amortized Market
Cost Value Cost Value
------- ------- ------- -------
Available for sale:
United States Treasury securities $ 2,505 $ 2,586 $ 3,704 $ 3,757
United States government agency
securities 22,460 22,668 30,253 30,429
States and political subdivisions 101 101 1,402 1,412
------- ------- ------- -------
25,066 25,355 35,359 35,598
Held for long-term investment:
Federal Reserve Bank stock 424 424 394 394
Federal Home Loan Bank stock 5,950 5,950 4,716 4,716
Corporate stock 1,075 1,075 895 895
Other 1,335 1,335 2,084 2,084
------- ------- ------- -------
8,784 8,784 8,089 8,089
------- ------- ------- -------
$33,850 $34,139 $43,448 $43,687
======= ======= ======= =======
At December 31, 2002, securities with a market value approximating $8.9 million
were pledged to secure public and trust deposits and for other purposes as
required by law. Investments in Federal Reserve Bank stock and Federal Home Loan
Bank stock are restricted and may only be resold to or redeemed by the issuer.
Gross unrealized gains and losses on investment securities available for sale
were as follows at December 31 (in $1,000s):
2002 2001
------------------ ------------------
Gains Losses Gains Losses
------- ------- ------- -------
United States Treasury securities $ 81 $ -- $ 53 $ --
United States government agency
securities 217 9 252 76
States and political subdivisions -- -- 10 --
------- ------- ------- -------
$ 298 $ 9 $ 315 $ 76
======= ======= ======= =======
38
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CAPITOL BANCORP LIMITED
NOTE C--INVESTMENT SECURITIES--CONTINUED
Gross realized gains and losses from sales and maturities of investment
securities were insignificant for each of the periods presented.
Scheduled maturities of investment securities held as of December 31, 2002 were
as follows (in $1,000s):
Estimated
Amortized Market
Cost Value
---------- ----------
Due in one year or less $ 3,411 $ 3,445
After one year, through five years 17,375 17,551
After five years, through ten years 1,765 1,783
After ten years 2,515 2,576
Securities held for long-term
investment, without stated maturities 8,784 8,784
---------- ----------
$ 33,850 $ 34,139
========== ==========
NOTE D--LOANS
Portfolio loans consisted of the following at December 31 (in $1,000s):
2002 2001
---------- ----------
Commercial $1,789,036 $1,535,451
Real estate mortgage 127,855 121,676
Installment 74,481 77,462
---------- ----------
Total portfolio loans 1,991,372 1,734,589
Less allowance for loan losses (28,953) (23,238)
---------- ----------
Net portfolio loans $1,962,419 $1,711,351
========== ==========
Transactions in the allowance for loan losses are summarized below (in $1,000s):
2002 2001 2000
---------- ---------- ----------
Balance at January 1 $ 23,238 $ 17,449 $ 12,639
Provision charged to operations 12,676 8,167 7,216
Loans charged off (deduction) (7,703) (2,929) (3,171)
Recoveries 742 551 765
---------- ---------- ----------
Balance at December 31 $ 28,953 $ 23,238 $ 17,449
========== ========== ==========
39
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CAPITOL BANCORP LIMITED
NOTE D--LOANS--CONTINUED
Impaired loans (i.e., loans for which there is a reasonable probability that
borrowers would be unable to repay all principal and interest due under the
contractual terms of the loan documents) were not material. Nonperforming loans
(i.e., loans which are 90 days or more past due and loans on nonaccrual status)
are summarized below (in $1,000s):
December 31
-------------------
2002 2001
------- -------
Nonaccrual loans:
Commercial $15,444 $11,220
Real estate 560 356
Installment 613 466
------- -------
Total nonaccrual loans 16,617 12,042
Past due (>90 days) loans:
Commercial 5,728 4,290
Real estate 323 787
Installment 222 119
------- -------
Total past due loans 6,273 5,196
------- -------
Total nonperforming loans $22,890 $17,238
======= =======
If nonperforming loans had performed in accordance with their contractual terms
during the year, additional interest income of $1,514,000, $694,000 and $315,000
would have been recorded in 2002, 2001 and 2000, respectively. Interest income
recognized on loans in nonaccrual status in 2002, 2001 and 2000 operations
approximated $385,000, $513,000 and $205,000, respectively. At December 31,
2002, there were no material amounts of loans which were restructured or
otherwise renegotiated as a concession to troubled borrowers.
The amounts of the allowance for loan losses allocated in the following table
(in $1,000s) are based on management's estimate of losses inherent in the
portfolio at the balance sheet date, and should not be interpreted as an
indication of future charge-offs:
<TABLE>
<CAPTION>
December 31, 2002 December 31, 2001
--------------------- ---------------------
Percentage Percentage
of Total of Total
Portfolio Portfolio
Amount Loans Amount Loans
------- ------- ------- -------
<S> <C> <C> <C> <C>
Commercial $27,226 1.37% $20,570 1.19%
Real estate mortgage 1,009 0.05 1,630 0.09
Installment 718 0.03 1,038 0.06
------- ------- ------- -------
Total allowance for loan losses $28,953 1.45% $23,238 1.34%
======= ======= ======= =======
</TABLE>
40
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CAPITOL BANCORP LIMITED
NOTE E--RELATED PARTIES TRANSACTIONS
In the ordinary course of business, Capitol's banking subsidiaries make loans to
officers and directors of Capitol and its subsidiaries including their immediate
families and companies in which they are principal owners. At December 31, 2002
and 2001, total loans to these persons were $94.3 million and $80.9 million,
respectively. During 2002, $69.7 million of new loans were made to these persons
and repayments totaled $56.3 million. Such loans are made at the banking
subsidiaries' normal credit terms.
Officers and directors of Capitol (and their associates, family and/or
affiliates) are also depositors of the banking subsidiaries. Such deposits are
similarly made at the banks' normal terms as to interest rate, term and deposit
insurance.
NOTE F--PREMISES AND EQUIPMENT
Major classes of premises and equipment consisted of the following at December
31 (in $1,000s):
2002 2001
-------- --------
Land, buildings and improvements $ 7,344 $ 6,274
Leasehold improvements 7,965 6,659
Equipment and furniture 20,120 15,014
-------- --------
35,429 27,947
Less accumulated depreciation (13,692) (11,506)
-------- --------
$ 21,737 $ 16,441
======== ========
Capitol and certain subsidiaries rent office space under operating leases. Rent
expense (net of sublease income) under these lease agreements approximated
$4,394,000, $3,652,000 and $3,064,000 (including rent expense of $1,457,000,
$1,138,000 and $1,034,000 under leases with related parties) in 2002, 2001 and
2000, respectively.
At December 31, 2002, future minimum rental payments under operating leases that
have initial or remaining noncancelable lease terms in excess of one year were
as follows (in $1,000s):
2003 $ 3,773
2004 3,414
2005 3,210
2006 3,055
2007 2,452
2008 and thereafter 3,611
--------
$ 19,515
========
41
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CAPITOL BANCORP LIMITED
NOTE G--DEPOSITS
The aggregate amount of time deposits of $100,000 or more approximated $564.6
million and $510.3 million as of December 31, 2002 and 2001, respectively.
At December 31, 2002, the scheduled maturities of such time deposits were as
follows (in $1,000s):
2003 $ 397,792
2004 99,219
2005 45,538
2006 8,463
2007 and thereafter 13,548
---------
$ 564,560
=========
Interest paid approximates amounts charged to operations on an accrual basis for
the periods presented.
NOTE H--DEBT OBLIGATIONS
Debt obligations consisted of the following at December 31 (in $1,000s):
2002 2001
------- -------
Borrowings from Federal Home
Loan Bank $79,198 $63,211
Notes payable to unaffiliated bank 12,500 14,100
Federal funds purchased 1,700 12,600
------- -------
$93,398 $89,911
======= =======
Borrowings from Federal Home Loan Bank (FHLB) represent advances secured by
certain portfolio residential real estate mortgage loans and other eligible
collateral. Such advances become due at varying dates and bear interest at
market short-term rates (approximately 3.94% at December 31, 2002). At December
31, 2002, unused lines of credit under these facilities approximated $15
million.
Notes payable to unaffiliated bank represents borrowings under a line of credit.
Up to $25 million can be borrowed pursuant to a one-year revolving credit
agreement which bears interest at a variable rate (4% at December 31, 2002),
payable monthly. $12.5 million was drawn on the line of credit at December 31,
2002. The credit facility is reviewed annually for continuance and requires
Capitol, among other things, to maintain certain minimum levels of capital,
rates of return on assets and other ratios or requirements and is secured by the
common stock of certain bank subsidiaries. For the periods presented, interest
paid on all debt obligations approximates amounts charged to expense.
42
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CAPITOL BANCORP LIMITED
NOTE H--DEBT OBLIGATIONS--CONTINUED
At December 31, 2002, scheduled debt maturities were as follows (in $1,000s):
2003 $ 36,824
2004 9,600
2005 7,474
2006 1,000
2007 and thereafter 38,500
--------
$ 93,398
========
In addition to the foregoing, Capitol has guaranteed some obligations of its
subsidiaries (see Note O).
NOTE I--TRUST-PREFERRED SECURITIES
Trust-preferred securities represent interests in subordinated debentures of
Capitol which are summarized as follows:
<TABLE>
<CAPTION>
Net Carrying Amount
Aggregate at December 31
Current Liquidation -------------------
Interest Scheduled Amount (in $1,000s)
Description Rate Maturity (in $1,000s) 2002 2001
- ----------- ---- -------- ------------ ---- ----
<S> <C> <C> <C> <C> <C>
Capitol Trust I 8.50% fixed 2027 $25,300 $24,399 $24,363
Capitol Trust II 10.25% fixed 2031 10,000 9,713 9,703
Capitol Statutory Trust III 5.34% variable 2031 15,000 14,570 14,555
Capitol Trust IV 5.43% variable 2032 3,000 2,901
------- ------- -------
$53,300 $51,583 $48,621
======= ======= =======
</TABLE>
Securities of Capitol Trust I were issued in a 1997 public offering. Capitol
Trust II and Capitol Statutory Trust III were formed in 2001 in conjunction with
private placements of pooled trust-preferred securities. Capitol Trust IV was
similarly formed in 2002. Each of these securities have similar terms and,
subject to certain provisions, may be called by the issuer five years after
issuance. The liquidation amount of these securities is guaranteed by Capitol.
Interest paid to the Trusts by Capitol (which is recorded as interest expense in
its consolidated financial statements) is distributed by the Trusts to the
holders of the trust-preferred securities. Under certain conditions, Capitol may
defer payment of interest on the subordinated debentures for periods of up to
five years.
Because these Trusts are subsidiaries (due to Capitol's ownership of the common
interests of the Trusts), they are consolidated for financial reporting
purposes. The amount of outstanding trust-preferred securities (net of issuance
costs which are being amortized over the life of the securities) is classified
between liabilities and equity in Capitol's consolidated balance sheet. Under
current regulatory guidelines, such trust-preferred securities are included as
capital for purposes of meeting certain ratio requirements.
43
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CAPITOL BANCORP LIMITED
NOTE J--COMMON STOCK, WARRANTS AND STOCK OPTIONS
At December 31, 2002, a share exchange proposal was pending regarding the
minority interests of Nevada Community Bancorp Limited. This share exchange
proposal was subject to approval by Nevada's shareholders (other than Capitol)
at a meeting held on January 17, 2003, at which time the share exchange was
approved. Capitol has reflected the Nevada share exchange, for purposes of its
consolidated balance sheet, as if the share exchange occurred on December 31,
2002. Such share exchange resulted in Capitol issuing approximately 383,000
shares of its previously unissued common stock.
At December 31, 2002, approximately 30,000 warrants for the purchase of common
stock were outstanding. Each warrant permits the holder to purchase a share of
Capitol's common stock at an exercise price of $11.50 and expires in 2003.
Stock options have been granted to certain officers and directors which provide
for the purchase of shares of common stock. Generally, stock options are granted
at an exercise price equal to the fair value of common stock on the grant date.
Of the stock options granted in 2000, pursuant to the Corporation's 2000 Stock
Option Plan, 563,435 vest over a three-year period; the remainder are fully
vested and currently exercisable. All such stock options expire seven years
after the date granted.
Under the terms of an employment agreement with a certain director and executive
officer of Capitol, options granted thereunder shall be increased when the
Corporation issues additional shares so that such options granted equal 15% of
outstanding shares prior to exercise. In 1999, Capitol negotiated a reduction of
the executive officer's benefit from 15% to 10%. In exchange for the reduced
benefit to the executive officer, Capitol agreed to a one-time exercise of
previously granted stock options with an aggregate exercise price of $1.6
million funded by a note receivable of $1.9 million from the executive officer.
The note bears interest at a fixed rate over its ten-year term. As part of the
terms of this agreement, the executive officer's compensation will be increased
in an amount equal to the interest due on the note receivable. Under certain
circumstances, such as death of the executive officer, the note will be
forgiven. The death benefit is covered by company-owned life insurance. The note
receivable was repaid subsequent to December 31, 2002.
44
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CAPITOL BANCORP LIMITED
NOTE J--COMMON STOCK, WARRANTS AND STOCK OPTIONS--CONTINUED
Stock option activity is summarized as follows:
<TABLE>
<CAPTION>
Number Weighted
of Stock Average
Options Exercise Exercise
Outstanding Price Range Price
----------- ------------------ ------
<S> <C> <C> <C>
Outstanding at January 1, 2000 491,962 $ 4.92 to $25.10 $14.51
Granted in 2000 722,934 9.88 to 12.50 10.86
Exercised in 2000 (10,734) 4.92 to 7.72 6.48
--------- ------------------ ------
Outstanding at December 31, 2000 1,204,162 4.92 to 25.10 12.39
Granted in 2001 17,311 11.50 to 14.48 11.95
Exercised in 2001 (18,350) 4.92 to 11.00 7.18
--------- ------------------ ------
Outstanding at December 31, 2001 1,203,123 4.92 to 25.10 12.46
Granted in 2002 1,669,004 13.50 to 23.24 16.39
Exercised in 2002 (138,447) 8.17 to 16.17 9.68
Cancelled or expired in 2002 (185,144)
--------- ------------------ ------
Outstanding at December 31, 2002 2,548,536 $ 4.92 to $25.10 $15.23
</TABLE>
As of December 31, 2002, stock options outstanding had a weighted average
remaining contractual life of 4.9 years. The following table summarizes stock
options outstanding segregated by exercise price range:
Weighted Average
-------------------------
Remaining
Exercise Price Number Exercise Contractual
Range Outstanding Price Life
----- ----------- ----- ----
Less than $10.00 104,793 $ 9.10 3.0 years
$10.00 to 14.99 1,031,269 12.57 4.6 years
$15.00 to 19.99 1,204,076 16.60 5.0 years
$20.00 to 24.99 107,772 22.11 6.6 years
$25.00 or more 100,626 $ 25.10 2.0 years
---------
2,548,536
45
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CAPITOL BANCORP LIMITED
NOTE K--EMPLOYEE RETIREMENT PLANS
Capitol has a contributory employee retirement savings 401(k) plan which covers
substantially all full-time employees of Capitol and certain subsidiaries over
age 21. The Plan provides for employer contributions in amounts determined
annually by Capitol's board of directors. Eligible employees make voluntary
contributions to the Plan. Contributions to the Plan, which are an employer
match (50%, subject to certain limitations) for employee contributions, charged
to expense for the years ended December 31, 2002, 2001 and 2000 were $717,000,
$691,000 and $475,000, respectively.
Capitol also has a defined contribution employee stock ownership plan (ESOP)
which covers substantially all employees of Capitol and certain subsidiaries.
Certain common stock purchases by the ESOP were financed by long-term debt. ESOP
contributions charged to expense in 2002, 2001 and 2000 approximated $405,000,
$525,000 and $180,000 (including ESOP note payable interest of $24,000, $37,000
and $49,000), respectively. Shares of common stock held by the ESOP which have
not yet been allocated to participants' accounts are shown as a reduction of
stockholders' equity. As of December 31, 2002, the ESOP held approximately
218,000 shares of Capitol's common stock which have been allocated to
participants' accounts and 18,000 shares of common stock with an approximate
fair value of $418,000 which have not yet been allocated to participants'
accounts.
NOTE L--INCOME TAXES
Federal income taxes consist of the following components (in $1,000s):
2002 2001 2000
-------- -------- --------
Current $ 10,925 $ 7,169 $ 5,601
Deferred credit (2,224) (1,345) (1,312)
-------- -------- --------
$ 8,701 $ 5,824 $ 4,289
======== ======== ========
Federal income taxes paid in 2002, 2001 and 2000 approximated $11.9 million,
$8.4 million and $5.1 million, respectively.
Differences between federal income tax expense recorded and amounts computed
using the statutory tax rate are reconciled below (in $1,000s):
2002 2001 2000
-------- -------- --------
Federal income tax computed at
statutory rate(1) $ 9,012 $ 6,048 $ 4,241
Tax effect of:
Amortization of goodwill and
other intangibles 139 333 180
Minority interest (213) (641) (77)
Adjustment of deferred income taxes
to effective tax rate of 35% (221)
Other (16) 84 (55)
-------- -------- --------
$ 8,701 $ 5,824 $ 4,289
======== ======== ========
(1) 35% in 2002 and 34% in 2001 and 2000.
46
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CAPITOL BANCORP LIMITED
NOTE L--INCOME TAXES--CONTINUED
Net deferred income tax assets consisted of the following at December 31 (in
$1,000s):
2002 2001
-------- --------
Allowance for loan losses $ 8,541 $ 6,540
Net operating losses of subsidiaries 1,116 1,154
Deferred compensation 1,370 1,190
Market value adjustment for investment
securities available for sale (98) (81)
Other, net 643 562
-------- --------
$ 11,572 $ 9,365
======== ========
Certain consolidated subsidiaries have net operating loss carryforwards which
may reduce income taxes payable in future periods. Such carryforwards
approximate $3.2 million at December 31, 2002, have been recognized for
financial reporting purposes and expire at the following dates and amounts (in
$1,000s):
2019 $ 185
2020 364
2021 1,201
2022 1,438
-------
$ 3,188
=======
NOTE M--NET INCOME PER SHARE
The computations of basic and diluted net income per share were as follows (in
1,000s):
<TABLE>
<CAPTION>
2002 2001 2000
------- ------- -------
<S> <C> <C> <C>
Numerator--net income $16,653 $10,718 $ 8,035
======= ======= =======
Denominator:
Weighted average number of shares outstanding
(denominator for basic earnings per share) 10,139 7,784 7,065
Effect of dilutive securities:
Warrants 12 15 2
Stock options 449 136 45
------- ------- -------
Potential dilution 461 151 47
------- ------- -------
Denominator for diluted earnings per share--weighted
average number of shares and potential dilution 10,600 7,935 7,112
======= ======= =======
Number of antidilutive stock options excluded from
diluted earnings per share computation 243 159 347
======= ======= =======
</TABLE>
Additional disclosures regarding stock options are set forth in Note J.
47
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CAPITOL BANCORP LIMITED
NOTE N--ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS
Carrying values and estimated fair values of financial instruments were as
follows at December 31 (in $1,000s):
<TABLE>
<CAPTION>
2002 2001
---------------------------- ----------------------------
Estimated Estimated
Carrying Fair Carrying Fair
Value Value Value Value
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Financial Assets:
Cash and cash equivalents $ 251,184 $ 251,184 $ 163,691 $ 163,691
Loans held for resale 75,420 75,420 62,487 62,487
Investment securities:
Available for sale 25,355 25,355 35,598 35,598
Held for long-term investment 8,784 8,784 8,089 8,089
----------- ----------- ----------- -----------
34,139 34,139 43,687 43,687
Portfolio loans:
Fixed rate 932,198 932,209 1,071,753 1,070,097
Variable rate 1,059,174 1,059,753 662,836 661,154
----------- ----------- ----------- -----------
Total portfolio loans 1,991,372 1,991,962 1,734,589 1,731,251
Less allowance for loan losses (28,953) (28,953) (23,238) (23,238)
----------- ----------- ----------- -----------
Net portfolio loans 1,962,419 1,963,009 1,711,351 1,708,013
Financial Liabilities:
Deposits:
Noninterest-bearing 360,669 360,669 272,593 272,593
Interest-bearing:
Demand accounts 805,883 807,182 620,842 620,468
Time certificates of less
than $100,000 330,960 331,852 336,680 336,729
Time certificates of
$100,000 or more 564,560 567,319 510,270 511,350
----------- ----------- ----------- -----------
Total interest-bearing 1,701,403 1,706,353 1,467,792 1,468,547
----------- ----------- ----------- -----------
Total deposits 2,062,072 2,067,022 1,740,385 1,741,140
Debt obligations 93,398 93,385 89,911 89,892
Trust-preferred securities 51,583 53,300 48,621 50,300
</TABLE>
Estimated fair values of financial assets and liabilities are based upon a
comparison of current interest rates on financial instruments and the timing of
related scheduled cash flows to the estimated present value of such cash flows
using current estimated market rates of interest (unless quoted market values or
other fair value information is more readily available). Such estimates of fair
value are not intended to represent market value or portfolio liquidation value,
and only represent an estimate of fair values based on current financial
reporting requirements.
48
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CAPITOL BANCORP LIMITED
NOTE O--COMMITMENTS, GUARANTEES AND OTHER CONTINGENCIES
In the ordinary course of business, loan commitments are made to accommodate the
financial needs of bank customers. Loan commitments include stand-by letters of
credit, lines of credit, and other commitments for commercial, installment and
mortgage loans. Stand-by letters of credit, when issued, commit the bank to make
payments on behalf of customers if certain specified future events occur and are
used infrequently by the banks ($17.3 million and $19.2 million outstanding at
December 31, 2002 and 2001, respectively). Other loan commitments outstanding
consist of unused lines of credit and approved, but unfunded, specific loan
commitments ($455.6 million and $398.9 million at December 31, 2002 and 2001,
respectively). These loan commitments (stand-by letters of credit and unfunded
loans) generally expire within one year and are reviewed periodically for
continuance or renewal.
All loan commitments have credit risk essentially the same as that involved in
routinely making loans to customers and are made subject to the banks' normal
credit policies. In making these loan commitments, collateral and/or personal
guarantees of the borrowers are generally obtained based on management's credit
assessment.
The banking subsidiaries are required to maintain average reserve balances in
the form of cash on hand and balances due from the Federal Reserve Bank and
correspondent banks. The amount of reserve balances required as of December 31,
2002 and 2001 were $3.5 million and $2.4 million, respectively.
Deposits at each of the banks are insured up to the maximum amount covered by
FDIC insurance. Some of the banks have municipal government deposits which are
guaranteed by Capitol ($16 million at December 31, 2002).
Capitol has guaranteed up to $7.5 million of secured borrowings by Amera
Mortgage Corporation, a less than 50%-owned affiliate.
49
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CAPITOL BANCORP LIMITED
NOTE P--DIVIDEND LIMITATIONS OF SUBSIDIARIES AND OTHER CAPITAL REQUIREMENTS
Current banking regulations restrict the ability to transfer funds from
subsidiaries to their parent in the form of cash dividends, loans or advances.
Subject to various regulatory capital requirements, bank subsidiaries' current
and retained earnings are available for distribution as dividends to Capitol
(and other bank shareholders, as applicable) without prior approval from
regulatory authorities. Substantially all of the remaining net assets of the
subsidiaries are restricted as to payments to Capitol.
Each bank and Capitol are subject to certain other capital requirements. Federal
financial institution regulatory agencies have established certain risk-based
capital guidelines for banks and bank holding companies. Those guidelines
require all banks and bank holding companies to maintain certain minimum ratios
and related amounts based on `Tier 1' and `Tier 2' capital and `risk-weighted
assets' as defined and periodically prescribed by the respective regulatory
agencies. Failure to meet these capital requirements can result in severe
regulatory enforcement action or other adverse consequences for a depository
institution and, accordingly, could have a material impact on Capitol's
consolidated financial statements.
Under the regulatory capital adequacy guidelines and related framework for
prompt corrective action, the specific capital requirements involve quantitative
measures of assets, liabilities and certain off-balance-sheet items calculated
under regulatory accounting practices. The capital amounts and classifications
are also subject to qualitative judgements by regulatory agencies with regard to
components, risk weighting and other factors.
As a condition of their charter approval, DE NOVO banks are generally required
to maintain a core capital (Tier 1) to average assets ratio of not less than 8%
and an allowance for loan losses of not less than 1% for the first three years
of operations.
As of December 31, 2002, the most recent notifications received by the banks
from regulatory agencies have advised that the banks are classified as `well
capitalized' as defined by the applicable agencies. There are no conditions or
events since those notifications that management believes would change the
regulatory classification of the banks.
Management believes, as of December 31, 2002, that Capitol and the banks meet
all capital adequacy requirements to which the entities are subject.
50
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CAPITOL BANCORP LIMITED
NOTE P--DIVIDEND LIMITATIONS OF SUBSIDIARIES AND OTHER CAPITAL
REQUIREMENTS--CONTINUED
The following table summarizes the amounts (in $1,000s) and related ratios of
the individually significant subsidiaries (assets of $200 million or more) and
consolidated regulatory capital position as of December 31, 2002 and 2001:
<TABLE>
<CAPTION>
Ann Arbor Capitol
Commerce National
Bank Bank Consolidated
---- ---- ------------
<S> <C> <C> <C>
December 31, 2002
Tier 1 capital to average total assets:
Minimum required amount >=$ 12,445 >=$ 8,092 >=$ 89,405
Actual amount $ 23,512 $ 14,631 $ 216,965
Ratio 7.56% 7.23% 9.71%
Tier 1 capital to risk-weighted assets:
Minimum required amount(1) >=$ 10,707 >=$ 6,628 >=$ 82,506
Actual amount $ 23,512 $ 14,631 $ 216,965
Ratio 8.78% 8.83% 10.52%
Combined Tier 1 and Tier 2 capital to risk-
weighted assets:
Minimum required amount(2) >=$ 21,413 >=$ 13,256 >=$ 165,011
Amount required to meet 'Well-Capitalized'
category(3) $ 26,767 $ 16,569 $ 206,264
Actual amount $ 26,864 $ 16,705 $ 242,787
Ratio 10.04% 10.08% 11.77%
December 31, 2001
Tier 1 capital to average total assets:
Minimum required amount >=$ 10,860 >=$ 6,723 >=$ 74,096
Actual amount $ 20,970 $ 13,155 $ 189,555
Ratio 7.72% 7.83% 10.23%
Tier 1 capital to risk-weighted assets:
Minimum required amount(1) >=$ 9,165 >=$ 5,848 >=$ 71,970
Actual amount $ 20,970 $ 13,155 $ 189,555
Ratio 9.15% 9.00% 10.54%
Combined Tier 1 and Tier 2 capital to risk-
weighted assets:
Minimum required amount(2) >=$ 18,329 >=$ 11,696 >=$ 143,941
Amount required to meet 'Well-Capitalized'
category(3) $ 22,912 $ 14,620 $ 179,926
Actual amount $ 23,838 $ 14,984 $ 213,263
Ratio 10.40% 10.25% 11.85%
</TABLE>
(1) The minimum required ratio of Tier 1 capital to risk-weighted assets is 4%.
(2) The minimum required ratio of Tier 1 and Tier 2 capital to risk-weighted
assets is 8%.
(3) In order to be classified as a 'well-capitalized' institution, the ratio of
Tier 1 and Tier 2 capital to risk-weighted assets must be 10% or more.
51
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CAPITOL BANCORP LIMITED
NOTE Q--PARENT COMPANY FINANCIAL INFORMATION
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
- December 31 -
2002 2001
-------- --------
(in $1,000s)
<S> <C> <C>
Assets
Cash on deposit with subsidiary banks $ 1,642 $ 330
Money market funds on deposit with subsidiary banks 5,272 571
Time deposits with unaffiliated bank 110 107
Investment securities held for long-term investment 269
Investments in subsidiaries 197,851 140,447
Notes receivable 1,130 1,130
Investment in and advances to Amera Mortgage Corporation 889 1,459
Equipment and furniture, net 1,340 662
Goodwill and other intangibles 16,235 1,818
Other assets 7,073 5,514
-------- --------
Total assets $231,542 $152,307
======== ========
Liabilities and Stockholders' Equity
Accounts payable, accrued expenses and other liabilities $ 6,640 $ 3,732
Debt obligations payable to affiliates 4,900
Debt obligations payable to unaffiliated entities 12,500 14,100
Subordinated debentures 52,365 49,403
-------- --------
Total liabilities 71,505 72,135
Stockholders' equity 160,037 80,172
-------- --------
Total liabilities and stockholders' equity $231,542 $152,307
======== ========
</TABLE>
CONDENSED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
- Year Ended December 31 -
2002 2001 2000
-------- -------- --------
(in $1,000s)
<S> <C> <C> <C>
Income:
Dividends from subsidiaries $ 10,755 $ 7,896 $ 7,018
Intercompany fees 9,722 6,130 6,362
Interest 253 200 182
Other 51 69 139
-------- -------- --------
Total income 20,781 14,295 13,701
Expenses:
Interest 5,016 5,102 4,568
Salaries and employee benefits 7,662 4,997 4,154
Occupancy 590 399 333
Amortization, equipment rent and depreciation 963 1,086 1,212
Other 2,224 908 2,942
-------- -------- --------
Total expenses 16,455 12,492 13,209
-------- -------- --------
4,326 1,803 492
Equity in undistributed net earnings of
consolidated subsidiaries 9,861 6,496 5,232
Federal income taxes (credit) (2,466) (2,419) (2,311)
-------- -------- --------
Net income $ 16,653 $ 10,718 $ 8,035
======== ======== ========
</TABLE>
52
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CAPITOL BANCORP LIMITED
NOTE Q--PARENT COMPANY FINANCIAL INFORMATION--CONTINUED
CONDENSED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
- Year Ended December 31 -
2002 2001 2000
-------- -------- --------
(in $1,000s)
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income $ 16,653 $ 10,718 $ 8,035
Adjustments to reconcile net income to net cash provided
by operating activities:
Equity in undistributed net earnings of subsidiaries (9,861) (6,496) (5,232)
Equity in net loss from Amera Mortgage Corporation 1,277
Depreciation and amortization 889 613 622
Loss on sale of premises and equipment 50
Decrease (increase) in amounts due from subsidiaries and
other assets 48,978 (1,061) 6,182
Increase in accounts payable, accrued expenses and other
liabilities 2,908 608 161
-------- -------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES 59,617 4,382 11,045
INVESTING ACTIVITIES
Net cash investments in subsidiaries (47,543) (18,598) (8,107)
Net payments from (advances to) Amera Mortgage Corporation 570 (213) (180)
Purchases of investment securities (440)
Proceeds from sales and maturities of securities 838 334 215
Proceeds from sales of equipment and furniture 100 1 5
Purchases of equipment and furniture (1,318) (268) (300)
-------- -------- --------
NET CASH USED BY INVESTING ACTIVITIES (47,793) (18,744) (8,367)
FINANCING ACTIVITIES
Net payments on debt obligations (6,500) (8,050) (2,850)
Net proceeds from issuance of common stock 2,301 1,753 3,011
Net proceeds from issuance of subordinated debentures 2,899 24,248
Cash dividends paid (4,508) (3,114) (2,534)
-------- -------- --------
NET CASH PROVIDED (USED) BY FINANCING
ACTIVITIES (5,808) 14,837 (2,373)
-------- -------- --------
INCREASE IN CASH AND CASH EQUIVALENTS 6,016 475 305
Cash and cash equivalents at beginning of year 1,008 533 228
-------- -------- --------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 7,024 $ 1,008 $ 533
======== ======== ========
</TABLE>
53
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CAPITOL BANCORP LIMITED
NOTE R--ACQUISITION OF MINORITY INTERESTS
During 2002, several share-exchange transactions were completed, whereby certain
previously majority-owned consolidated subsidiaries became wholly-owned. These
share exchange transactions involved the issuance of previously unissued shares
of Capitol's common stock for the minority interests of the following
subsidiaries:
Number of Common
Entity Effective Date Shares Issued
------ -------------- -------------
Sun Community Bancorp Limited March 31, 2002 2,721,749
Sunrise Capital Corporation September 30, 2002 266,406
Indiana Community Bancorp Limited September 30, 2002 181,235
East Valley Community Bank December 31, 2002 37,827
Detroit Commerce Bank December 31, 2002 16,371
Had these acquisitions occurred at the beginning of 2002, consolidated net
income would have approximated $17 million and diluted earnings per share would
have been $1.20. Each of these acquisitions have been accounted for under the
purchase method of accounting.
During 2000, three banks which were previously majority-owned by Capitol
(Brighton Commerce Bank, Kent Commerce Bank and Muskegon Commerce Bank) became
wholly-owned, resulting from share exchange transactions with the banks'
minority shareholders. Had those acquisitions of minority interests occurred at
the beginning of 2000, consolidated net income would have approximated $7.9
million and diluted earnings per share would have been $1.04.
NOTE S--PENDING AND PROPOSED SHARE EXCHANGE TRANSACTIONS
As stated previously (see Note J), a share exchange proposal was pending at
December 31, 2002 regarding Nevada Community Bancorp Limited which was approved
by its shareholders in January 2003. For purposes of its consolidated balance
sheet, Capitol has reflected the Nevada share exchange as if it occurred on
December 31, 2002.
In early 2003, Capitol and the boards of directors of Red Rock Community Bank,
Desert Community Bank and Elkhart Community Bank (such banks being
majority-owned by Capitol) approved separately a plan of share exchange for each
bank. The share exchange proposals are subject to approval by the banks'
respective shareholders (other than Capitol). If the share exchange proposals
are approved, Capitol estimates it would issue approximately 623,000 shares of
its common stock.
54
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-21
<SEQUENCE>7
<FILENAME>ex21.txt
<DESCRIPTION>SUBSIDIARIES OF THE REGISTRANT
<TEXT>
EXHIBIT 21
SUBSIDIARIES OF THE REGISTRANT
CAPITOL BANCORP LTD.
DECEMBER 31, 2002
PAGE 1 OF 2
<TABLE>
<CAPTION>
STATE OR OTHER
JURISDICTION
NAME OF SUBSIDIARY OF INCORPORATION
- ------------------ ----------------
<S> <C>
CONSOLIDATED SUBSIDIARIES:
Ann Arbor Commerce Bank Michigan
Brighton Commerce Bank Michigan
Capitol National Bank United States (national bank)
Detroit Commerce Bank Michigan
Grand Haven Bank Michigan
Kent Commerce Bank Michigan
Macomb Community Bank Michigan
Muskegon Commerce Bank Michigan
Oakland Commerce Bank Michigan
Paragon Bank & Trust Michigan
Portage Commerce Bank Michigan
Elkhart Community Bank (51% owned) Indiana
Goshen Community Bank (51% owned) Indiana
Bank of Tucson Arizona
Valley First Community Bank Arizona
Camelback Community Bank Arizona
East Valley Community Bank Arizona
Southern Arizona Community Bank Arizona
Mesa Bank Arizona
Arrowhead Community Bank (87% owned) Arizona
Yuma Community Bank (51% owned) Arizona
First California Northern Bancorp (51% owned): California
Napa Community Bank
(51% owned by First California Northern Bancorp) California
Nevada Community Bancorp Limited (100% owned,
after giving effect to January 2003 share exchange transaction): Nevada
Black Mountain Community Bank
(51% owned by Nevada Community Bancorp Limited) Nevada
Desert Community Bank
(51% owned by Nevada Community Bancorp Limited) Nevada
Red Rock Community Bank
(51% owned by Nevada Community Bancorp Limited) Nevada
Bank of Las Vegas
(51% owned by Nevada Community Bancorp Limited) Nevada
Sunrise Bank of Arizona Arizona
Sunrise Bank of Albuquerque (87% owned) New Mexico
Sunrise Bank of San Diego (64% owned) California
</TABLE>
<PAGE>
EXHIBIT 21
SUBSIDIARIES OF THE REGISTRANT - CONTINUED:
CAPITOL BANCORP LTD.
DECEMBER 31, 2002
PAGE 2 OF 2
<TABLE>
<CAPTION>
STATE OR OTHER
JURISDICTION
NAME OF SUBSIDIARY OF INCORPORATION
- ------------------ ----------------
<S> <C>
CONSOLIDATED SUBSIDIARIES - CONTINUED:
Capitol Trust I Delaware
Capitol Trust II Delaware
Capitol Statutory Trust III Connecticut
Capitol Trust IV Delaware
UNCONSOLIDATED SUBSIDIARY:
Amera Mortgage Corporation, Inc. Michigan
(less than 50% owned equity method investee)
INACTIVE SUBSIDIARIES:
MOI, Inc. Michigan
(wholly-owned subsidiary of
Oakland Commerce Bank)
Financial Center Corporation Michigan
C.B. Services, Inc. Michigan
</TABLE>
The following summarizes regulatory agencies of the registrant and its
subsidiaries:
The Corporation's state-chartered banks located in Michigan are regulated by the
Office of Financial and Insurance Services, Department of Consumer & Industry
Services of the State of Michigan. Capitol National Bank, as a national bank, is
regulated by the Office of the Comptroller of the Currency. Bank subsidiaries
located in the states of Arizona, Nevada, New Mexico, Indiana and California are
state-chartered and are regulated by banking agencies of each of those states.
Each of the banking subsidiaries which are not members of the Federal Reserve
System, as federally-insured depository institutions, are also regulated by the
Federal Deposit Insurance Corporation. Elkhart Community Bank and Goshen
Community Bank are members of the Federal Reserve System and, accordingly, are
regulated by the Federal Reserve Board. As a bank holding company, Capitol
Bancorp Ltd. is regulated by the Federal Reserve Board, which also regulates its
nonbanking subsidiaries. Nevada Community Bancorp Limited and First California
Northern Bancorp are also regulated by the Federal Reserve Board. In addition to
the bank regulatory agencies, the registrant and its subsidiaries are subject to
regulation by other state and federal agencies.
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-23
<SEQUENCE>8
<FILENAME>ex23.txt
<DESCRIPTION>CONSENT OF BDO SEIDMAN, LLP
<TEXT>
EXHIBIT 23
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Capitol Bancorp Ltd.
Lansing, Michigan
We hereby consent to the incorporation by reference in the Registration
Statement on Form S-3 (No. 33-71774 for its Shareholder Investment Program) of
Capitol Bancorp Ltd. of our report dated January 31, 2003, relating to the
consolidated financial statements, which appears on page 26 in the Annual Report
to shareholders (Financial Information Section), which is incorporated in the
Annual Report on Form 10-K. We also consent to the incorporation by reference of
our report dated January 31, 2003 relating to the financial statement schedules,
which appear in this Form 10-K.
BDO SEIDMAN, LLP
/s/ BDO Seidman, LLP
March 28, 2003
Grand Rapids, Michigan
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-99.1
<SEQUENCE>9
<FILENAME>ex99-1.txt
<DESCRIPTION>CERTIFICATION OF CHIEF EXECUTIVE OFFICER
<TEXT>
EXHIBIT 99.1
CHIEF EXECUTIVE OFFICER CERTIFICATION
Pursuant to Section 906 of the Corporate Fraud Accountability Act of 2002
(18 U.S.C.ss.1350, as adopted), Joseph D. Reid, the Chief Executive Officer of
Capitol Bancorp Ltd. (the "Company") hereby certifies that, to the best of his
knowledge:
1. The Company's Annual Report on Form 10-K for the period ended December
31, 2002, and to which this Certification is attached as Exhibit 99.1 (the
"Periodic Report"), fully complies with the requirements of Section 13(a) or
15(d) of the Securities Exchange Act of 1934; and
2. The information contained in the Periodic Report fairly presents, in all
material respects, the financial condition and results of operations of the
Company.
Date: March 28, 2003
/s/ Joseph D. Reid
----------------------------
Joseph D. Reid
Chief Executive Officer
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-99.2
<SEQUENCE>10
<FILENAME>ex99-2.txt
<DESCRIPTION>CERTIFICATION OF CHIEF FINANCIAL OFFICER
<TEXT>
EXHIBIT 99.2
CHIEF FINANCIAL OFFICER CERTIFICATION
Pursuant to Section 906 of the Corporate Fraud Accountability Act of 2002
(18 U.S.C.ss. 1350, as adopted), Lee W. Hendrickson, the Chief Financial Officer
of Capitol Bancorp Ltd. (the "Company") hereby certifies that, to the best of
his knowledge:
1. The Company's Annual Report on Form 10-K for the period ended December
31, 2002, and to which this Certification is attached as Exhibit 99.2 (the
"Periodic Report"), fully complies with the requirements of Section 13(a) or
15(d) of the Securities Exchange Act of 1934; and
2. The information contained in the Periodic Report fairly presents, in all
material respects, the financial condition and results of operations of the
Company.
Date: March 28, 2003
/s/ Lee W. Hendrickson
----------------------------
Lee W. Hendrickson
Chief Financial Officer
</TEXT>
</DOCUMENT>
</SEC-DOCUMENT>
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