EXHIBIT 13
TABLE OF CONTENTS
Arrowhead Community Bank
Asian Bank of Arizona
Bank of Tucson
Camelback Community Bank
Mesa Bank
Southern Arizona Community Bank
Sunrise Bank of Albuquerque
Sunrise Bank of Arizona
Valley First Community Bank
Yuma Community Bank
Bank of Escondido
Bank of Feather River
Bank of San Francisco
Bank of Santa Barbara
Napa Community Bank
Point Loma Community Bank
Sunrise Bank of San Diego
Sunrise Community Bank
Fort Collins Commerce Bank
Larimer Bank of Commerce
Loveland Bank of Commerce
Ann Arbor Commerce Bank
Bank of Auburn Hills
Bank of Maumee
Bank of Michigan
Brighton Commerce Bank
Capitol National Bank
Detroit Commerce Bank
Elkhart Community Bank
Evansville Commerce Bank
Goshen Community Bank
Grand Haven Bank
Kent Commerce Bank
Macomb Community Bank
Muskegon Commerce Bank
Oakland Commerce Bank
Ohio Commerce Bank
Paragon Bank & Trust
Portage Commerce Bank
Bank of Belleville
Community Bank of Lincoln
Summit Bank of Kansas City
1st Commerce Bank
Bank of Las Vegas
Black Mountain Community Bank
Desert Community Bank
Red Rock Community Bank
USNY Bank
Bank of Bellevue
Bank of Everett
Bank of Tacoma
High Desert Bank
Issaquah Community Bank
Bank of Valdosta
Community Bank of Rowan
First Carolina State Bank
Peoples State Bank
Sunrise Bank of Atlanta
Bank of Fort Bend
Bank of Las Colinas
Amera Mortgage Corporation
Capitol Wealth
Dear Shareholder:
During the course of 2007, the American banking industry was bombarded with negative events leading to declines in earnings and, of course, market value reductions. The housing and mortgage industry fallout, margin compression and credit quality deterioration produced an economic tsunami affecting most every financial institution in the United States.
For Capitol Bancorp, earnings for the year were cut in half from $42.4 million ($2.57 per diluted share) to $21.9 million ($1.27 per diluted share). Capitol Bancorp’s stock price was reduced from $46.20 per share to $20.12 per share. Talk of recession shared the front page of our newspapers with the Iraq War and presidential politics.
Although the business of Capitol Bancorp banks is not based on subprime residential lending, we, like all financial institutions, are affected by it. It is during these times that it is important to stay focused on our objective as a community bank company — to develop a national affiliation of community banks which represents all major regions of the United States.
REGIONAL BALANCE
One of the risks of a small community bank is geographical concentration. It is a risk which is difficult to offset. If the community suffers economically, then there is a high probability that the community bank will suffer with it. When a series of affiliated community banks are clustered within the same region, then all are affected by the economic fortunes of that region. We have witnessed regional economic downturns throughout our history.
If a community bank company can be established with a material presence in every major region of the United States, then a regional weakness will not serve to derail the performance of the whole company. It is this point which reveals the underlying objective of Capitol Bancorp. Ironically, it is the weakened performance of the Great Lakes Region which vividly makes this point.
We have identified and are operating in 10 separate regions of the United States today. The Great Lakes Region has undergone a most difficult economic adjustment largely as a result of its auto industry concentration. Because we began in the Great Lakes Region years ago, we remain overly concentrated in this region today. Specifically, 41.7% of our total assets rest in the Great Lakes. Although this is down from 46.7% in 2006, it remains disproportionate to the other regions of the United States.
BANK DEVELOPMENT
The cover of this report suggests the feverish pace with which we have operated over the
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past year, moving Capitol Bancorp a step closer to regional balance. In 2007 we added 11 new community banks, more than any other previous year in our history. This included two banks in Texas; two in California; two in Colorado; two in Washington; one in Oregon; one in New York; and one in Nebraska. New bank development promotes growth.Our asset growth rate for 2007 was 20.6%, moving from $4.1 billion to more than $4.9 billion over the course of the year. During that period portfolio loans increased from $3.5 billion to more than $4.3 billion representing an increase of 23.7%.
Unlike a new branch of an existing bank, the development of a new bank is a challenging undertaking. It requires a high level of direct, personal involvement by the officer group of Capitol Bancorp. Selection of the president and a board of directors is both crucial and time consuming. Location, staffing and the development of a marketing strategy each require large concentrations of time and energy. The regulatory process is cumbersome at best. Finally, raising the necessary local capital provides its own obstacles. This is why we are particularly pleased with the 11 successful development efforts of 2007.
IN 2008
As the cover of this report also portrays, we continue to follow our strategic highway to develop a regionally-balanced national affiliation of community banks. Over the course of the current year, we will continue to pursue our objective with the addition of several new bank affiliates. We will continue our intensified effort to promote an exemplary risk management program. We will continue to strengthen our core information technology, providing enhancements to the product offerings at our bank affiliates. In this regard, we expect to have completed our remote deposit project which began in 2007.
LOUIS ALLEN AND ROBERT CARR
The past year proved to be particularly difficult for all of us here at Capitol Bancorp with the passing of our dear friends and colleagues, Louis Allen and Robert Carr. Lou joined our Board of Directors in 1994 and served with distinction. He was particularly helpful to us over these years drawing on a lifetime of experience as a banker.
Bob was president of our first bank, Capitol National Bank, which opened in 1982. He served as a valuable mentor to many of the bank presidents who followed as we developed additional banks across the country. Bob ultimately served as vice chairman of Capitol Bancorp. He, along with a small handful of others, was truly a founder of Capitol Bancorp. We all learned a great deal about banking from Bob. He challenged every step taken by Capitol Bancorp as it grew; constantly reminding us that banking is a “people business.” We will continue to build on the legacy of Lou Allen and Bob Carr.
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CONCLUSION
At year end Capitol Bancorp banks represented 60 bank presidents; 636 board of director seats; 60 different bank names; and operations in 17 states. There are today more than 1,700 employees. Our customers expect a high level of service from people without being forwarded to an 800 number.
As the “largest small bank company in America” we need to remain constantly vigilant to the importance of service and to the importance of the fact that “CBC banking” is, has been and will continue to be a “people business.”
Thank you for your support of our efforts.
JOSEPH D. REID
Chairman & CEO
Capitol Bancorp Limited
We have identified and are operating in 10 separate regions of the United States today.
We will continue to pursue our objective of a regionally-balanced national affiliation of community-based banks.
THE QUINTESSENTIAL
COMMUNITY BANKER
“Banking always has
been, and always will be,
a people business.”
Robert C. Carr
1939 - 2007
BOARD OF DIRECTORS
Joseph D. Reid
Chairman & CEO
Capitol Bancorp Limited
Michael L. Kasten
Vice Chairman, Capitol Bancorp Limited
Managing Partner
Kasten Investments, LLC
Lyle W. Miller
Vice Chairman, Capitol Bancorp Limited
President
L.W. Miller Holding Co.
David J. O’Leary
Secretary, Capitol Bancorp Limited
Chairman
O’Leary Paint Company
Paul R. Ballard
Retired President & CEO
Portage Commerce Bank
David L. Becker
Retired Founder
Becker Insurance Agency, PC
Douglas E. Crist
President
Developers of SW Florida, Inc.
Michael J. Devine
Attorney at Law
James C. Epolito
President & CEO
Michigan Economic Development
Corporation
Gary A. Falkenberg, DO
Gary A. Falkenberg, PC
Joel I. Ferguson
Chairman
Ferguson Development, LLC
Kathleen A. Gaskin
Associate Broker/State Appraiser
Tomie Raines, Inc. Realtors
H. Nicholas Genova
Chairman & CEO
Washtenaw News Co. Inc.
and H. N. Genova Development
Michael F. Hannley
President & CEO
Bank of Tucson
Richard A. Henderson
President
Henderson & Associates, PC
Lewis D. Johns
President
Mid-Michigan Investment Co.
John S. Lewis
President of Bank Performance
Capitol Bancorp Limited
Leonard Maas
President
L&M Maas Investments, LLC
Myrl D. Nofziger
President
Hoogenboom Nofziger
Cristin K. Reid
Corporate President
Capitol Bancorp Limited
Ronald K. Sable
President
Concord Solutions Ltd.
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In millions, except per share amounts
5
John S. Lewis, Region President
7 Arrowhead Community Bank
8 Asian Bank of Arizona
9 Bank of Tucson
10 Camelback Community Bank
11 Mesa Bank
12 Southern Arizona Community Bank
13 Sunrise Bank of Albuquerque
14 Sunrise Bank of Arizona
15 Valley First Community Bank
16 Yuma Community Bank
6
ARROWHEAD COMMUNITY BANK
Arlene Kulzer, President & CEO
Individual success stories have been among the highlights of 2007. Arrowhead Community Bank has continued its steady growth trend and our associated financial institutions, including Capitol Wealth Advisors and Equipment Leasing Services, have both spurred and shared in that forward movement. Like all accomplished entrepreneurs, we understand success does not just come to those who want it — success is reserved for those who focus and pursue it.
Over the past year, Linda Reynolds, owner of Care from the Heart, a non-medical in-home care provider, realized her dream of owning her own building in the Sun City market. Reynolds shared her dream with West USA Realty agent Audrey Hickman and through their combined efforts they found a perfectly located — albeit a larger building than Reynolds required. Focusing on the desired end result, Reynolds and Hickman soon secured letters of interest and signed contracts from prospective tenants. At this point they sought the assistance of Arrowhead’s Deb Charlesworth, who assembled an attractive financing package.
When Dr. Amol Rakkar and his wife, Dr. Navjot Rakkar, mentioned their desire to prepare for their children’s education, Charlesworth introduced the Rakkars to our Capitol Wealth Advisors investment executive, Richard Oliver. After several Saturday sessions with the Rakkars, Oliver was able to establish a tax exempt account for their children’s future education and assist the doctors in investing in other products designed to provide them with peace of mind and financial security. The Rakkars were so impressed with the service they received they referred Dr. Sra to the bank.
After interviewing Dr. Sra, Charlesworth introduced him to an account executive at Equipment Leasing Services. The account executive was able to rewrite Dr. Sra’s equipment leases, saving him more than $25,000 per month in lease payments.
At Arrowhead Community Bank, our team members are committed to working with our strategic partners for the benefit of our loyal clients. This cooperative approach to business has been the key to our success in the past and it will continue to be the key to our future.
— Arlene Kulzer, President & CEO
Success is reserved for those who focus and pursue it.
17235 North 75th Avenue, Suite B100 | Glendale, AZ 85308
623.776.0800 | www.arrowheadcommunitybank.com
BOARD OF DIRECTORS
Shelley L. Bade
RPA, Principal
SL Bade & Associates LLC
Janet G. Betts
Attorney at Law
Jennings, Strouss & Salmon
W. Patrick Daggett, CPA
Daggett, McConachie & Moore,
CPAs, LLP
Michael J. Devine
Attorney at Law
Hon. Thomas R. Eggleston Sr.
Retired
Vice Mayor of Glendale
George L. Evans, PE, RLS
President & Co-Founder
Evans, Kuhn & Associates, Inc.
Richard J. Hilde
Retired CEO
EPW Inc.
David R. Hunter, DDS
Orthodontist
David R. Hunter DDS, PC
Arlene Kulzer
President & CEO
Arrowhead Community Bank
James J. McCue
Aviation Consultant
Sherwin Industries
Terrance C. Mead
Attorney at Law
Mead & Associates, PC
John C. Ogden
Retired CEO
SunCor Development Company
Richard A. Shelton
Agent
RE/MAX Desert Showcase
OFFICERS
John C. Ogden
Chairman
Michael J. Devine
Vice Chairman
Arlene Kulzer
President & CEO
James J. McCue
Secretary
W. Patrick Daggett
Chair, Directors Loan
Committee
Amy Lou Blunt
Executive Vice President & CCO
Deborah M. Charlesworth
Senior Vice President
Mary Catherine Mireles
Senior Vice President
Richard L. Oliver
Senior Vice President
William H. Smith
Senior Vice President
Michael T. Ganahl
Vice President
Stacey J. Morrison
Vice President
Ann L. Nestler
Vice President
Nancy M. Seid
Vice President
7
ASIAN BANK OF ARIZONA
Leslie M. Gin, President
Asian Bank of Arizona has been successful over the past year in establishing name recognition in our market area. Our multi-faceted marketing strategy is beginning to produce results.
Starting with our location in the COFCO Chinese Cultural Center, the bank is a part of the most identifiable Asian landmark in Arizona. The Community Art Wall inside the bank is a popular attraction for our diverse clientele. Art representing China, India, Japan and the Philippines was displayed in 2007.
Last year we were invited by the Arizona Chinese News to write a financial education article in the weekly Chinese-language newspaper with statewide readership. This has resulted in numerous inquiries, several new account openings and further name recognition for the bank. Due to the popularity of these articles, the Las Vegas Chinese Daily News, which recently expanded to the Phoenix area, also started publishing our articles for its two-city readership.
Asian Bank last year hosted the Greater Phoenix Chamber of Commerce monthly mixer for about 80 business members, many of whom had never been to the Chinese Cultural Center. Featuring food, entertainment and a free drawing, the two-hour event took place in the Chinese gardens next to the bank. Our guests were amazed by our beautiful and vibrant business center.
Asian Bank continues to host the monthly meetings for the Philippine Chamber of Commerce, the National Association of Asian American Professionals and the Chinese American Citizens Alliance. This “open door” strategy is yet another way to increase exposure for the bank while providing a worthwhile service for non-profit organizations.
In May 2007, I was recognized as a Friend of the Pan Asian Community Alliance in Tucson for championing cultural diversity and for philanthropic services and achievements. Last summer, I was also elected to the Maricopa County Community College Foundation Board.
In 2007 the bank added five new board members; four based in Phoenix and one in Tucson. All five have been active in providing lucrative business referrals.
Our multi-faceted marketing strategy is designed to build a bank that lasts, serving the diverse cultures that make up the American Southwest.
— Leslie M. Gin, President
Serving the diverse cultures that make up the American Southwest.
668 North 44th Street, Suite 123 | Phoenix, AZ 85008
602.263.8888 | www.asianbankaz.com
BOARD OF DIRECTORS
Jay A. Bansal
Attorney at Law
Law Offices of Jay A. Bansal
David M. Chei, DMD
Doctor of Dentistry
Somer Dental PLLC
Jae M. Chin
Business Owner
JC Prince LLC
Michael J. Devine
Attorney at Law
Leslie M. Gin
President
Asian Bank of Arizona
Robert E. Hite
President
Securitech, Inc.
John S. Lewis
President of Bank Performance
Capitol Bancorp Limited
Rano K. Singh-Sidhu
Business Owner
DPS Biotech SW
OFFICERS
John S. Lewis
Chairman
Michael J. Devine
Secretary
Leslie M. Gin
President
James A. Klussman
Executive Vice President & CCO
Bruce A. Kottwitz
Vice President
Ryan J. Mulligan
Vice President
Beverly F. Santiago
Vice President
Steven C. Soong
Vice President
8
BANK OF TUCSON
Michael F. Hannley, President & CEO
Bank of Tucson exceeded every financial goal we set for 2007. At the same time that we enjoyed our success we knew that providing “banking as usual” would not assure our continued prosperity. As a result, 2007 was a year of change. The change was driven primarily by an all-out effort to improve on the bank’s stellar performance while also delivering the type of cutting-edge financial products and services we needed in our arsenal to remain ahead of the competition.
Following an in-depth assessment of the bank’s first 11 years and extensive discussions with our board of directors, we adjusted our business plan to take advantage of the changing banking landscape. Our plans for “The Next 10” started with the bank doubling its physical size. We established an “e-banking” department. We provided remote capture of deposits and integrated Capitol Wealth Advisors and brokerage services into our main office in Tucson. At the same time, we are diligently attending to the needs of our customers. After all, it was this type of excellent customer service that was so successful for us during the first 11 years.
Our extraordinary customer service and financial success in Tucson is being replicated in Nogales, Arizona. The dramatic growth of the small loan office we launched four years ago led to the October 2007 opening of our signature building named “Bank of Tucson Business Center” in Nogales. This office, which concentrates on serving companies involved in cross-border commerce and industry, is already making significant contributions to our bottom line and giving our bank a growing presence in Mexico.
Our board of directors has also established an advisory board of entrepreneurs in the community. These new leaders are being trained in the business of banking and are being prepared for potential future openings on the board of directors. This is a crucial investment in our bank’s development.
With the enthusiastic participation of every member of the bank team, we will continue to capitalize on business opportunities made available by the changing economy as we set a new standard for community banking.
— Michael F. Hannley, President & CEO
Bank of Tucson exceeded every financial goal we set for 2007.
4400 East Broadway | Tucson, AZ 85711
520.321.4500 | www.bankoftucson.com
825 North Grand Avenue | Nogales, AZ 85621
520.397.9220 | Nogales Office
BOARD OF DIRECTORS
Bruce I. Ash
President & CEO
Paul Ash Management
Company, LLC
Slivy Edmonds Cotton
Chairman & CEO
Portico LLM Enterprises, LLC
Bradley H. Feder
Managing Partner
Simply Bits, LLC
Michael F. Hannley
President & CEO
Bank of Tucson
Michael J. Harris
Vice President
Long Realty Company
Richard F. Imwalle
President
Richard F. Imwalle & Associates
David Jeong, CPA
President
Jeong Lizardi, PC
Michael L. Kasten
Managing Partner
Kasten Investments, LLC
Burton J. Kinerk
Attorney at Law
Kinerk, Beal, Schmidt, Dyer &
Sethi, PC
Harold H. Kitay
Commercial Developer & Owner
Whirlygig Properties, LLC
Humberto S. Lopez
President
HSL Properties, Inc.
OFFICERS
Richard F. Imwalle
Chairman
Michael L. Kasten
Vice Chairman
Michael F. Hannley
President & CEO
Harold H. Kitay
Secretary
C. David Foust
Executive Vice President & CCO
Sandra L. Smithe
Executive Vice President & COO
David A. Esquivel
Senior Vice President
Catherine C. Garcia
Senior Vice President
Richard K. Mullen
Senior Vice President
Richard A. Garcia
Vice President
Lucian V. Moga
Vice President
Clay A. Naff
Vice President
Robert D. Placzek
Vice President
Patricia A. Taylor
Vice President
9
CAMELBACK COMMUNITY BANK
Gail E. Grace, President & CEO
For Camelback Community Bank, 2007 was a good, yet challenging year. We were fortunate to welcome new staff members who not only generated new customer relationships for the bank but who also benefited from our seasoned employees’ experience and expertise. Old and new alike, everyone was instrumental in Camelback Community Bank being named the #1 bank in its asset category in Ranking Arizona for the fourth consecutive year. We are very proud of this recognition and could not have achieved this without the loyalty of our customers.
Our focus continues to be on forming partnership relationships with our customers, being trusted advisors and helping them achieve their financial goals. We also recognize the importance of giving back to our community. Through various contributions and our staff’s involvement in a number of local organizations, we are helping meet the needs of our diverse community while also gaining positive publicity and exposure for our bank.
In 2008, Camelback Community Bank will celebrate its 10th year in business. Each year, we have continued to improve performance through the growth of our customer base, providing the very best customer service and offering a wide array of products to meet all of their financial needs. As part of recognizing our 10 years in business, we also underwent some renovations, creating a more pleasant environment for both our customers and staff.
The bank is expanding its reach within the Phoenix market. With the many ways in which we can deliver our products and services, we are not limited to serving only customers in our immediate area. Our customers are located throughout the Valley of the Sun and appreciate the ways we make banking as convenient as they need it — whether it’s through the various online options or the extensive ATM network available to them. We strive to keep pace with current technology so we always have the big bank offerings with the community bank delivery.
Camelback Community Bank is fortunate to have the very best staff with a high level of expertise. With our excellent staff and highly engaged board of directors, we have the team necessary to grow the bank profitably for the next 10 years.
— Gail E. Grace, President & CEO
Named the #1 bank in its asset category in Ranking Arizona for the fourth consecutive year.
2777 East Camelback Road, Suite 100 | Phoenix, AZ 85016
602.224.5800 | www.camelbackbank.com
BOARD OF DIRECTORS
Shirley A. Agnos
President Emerita
Arizona Town Hall
Cord D. Armstrong, CPA
Senior Tax Manager
CBIZ Accounting,
Tax & Advisory Services, LLC
Michael J. Devine
Attorney at Law
James L. Essert
Vice President
Portfolio Manager
ING Investment Management Co.
Gail E. Grace
President & CEO
Camelback Community Bank
S. Jill Hastings, JD
Principal
Pension Strategies, LLC
Robert V. Lester
President
Progressive Financial Concepts
Tammy A. Linn
President, Arizona Character
Education Foundation
Executive Director, United Way
Executive Director, United Way
of Yavapai County
Susan C. Mulligan
Community Volunteer
Barbara J. Ralston
Chairman
Camelback Community Bank
Robert S. Roda, DDS, MS
Roda & Sluyk Ltd.
Daniel A. Robledo
Senior Vice President
Land America Financial
Group, Inc.
Kenneth Van Winkle Jr.
Attorney at Law
Lewis & Roca, LLP
OFFICERS
Barbara J. Ralston
Chairman
Dan A. Robledo
Vice Chairman
Gail E. Grace
President & CEO
Shirley A. Agnos
Secretary
Timothy J. Hoekstra
Executive Vice President & CCO
Tricia A. Blaylock
Vice President
Darrin R. Davidson
Vice President
Todd W. Grady
Vice President
Jennifer S. Higgins
Vice President
William F. Von Hatten
Vice President
10
MESA BANK
Neil R. Barna, President & CEO
The success of our customers remains the focus of the Mesa Bank team. This will never change. “Our Clientele is our Sales Force” is the motto that guides our daily tasks. Along the way, dramatic events occur that pave the way and smooth our path so we retain the edge required to manage a successful financial entity.
In January, Mesa Bank began operations in our neighboring community of Chandler, Arizona, with East Valley Bank. Client demand required such a move in order to maintain the convenience and attention to service that customers have grown to expect. Newly appointed in 2007 as executive vice presidents, Sandra Zazula and Staci Charles oversee client needs at this location, complementing the fine service provided by our two other existing locations.
Our team of professional bankers set us apart from the rest. “Golden Honors for Golden Service” recognizes the best of the best employees in client relationship building each quarter. Nominations limited to fellow employees make this award even more special. The annual Mesa Bank client appreciation day at the Chicago Cubs’ spring training facility, organized by vice president Conrad Morin, has created a literal waiting list of excited customers. Portfolio manager Rick Sweetnam came up with the idea to spend an evening with employees and their families at an Arizona Diamondbacks baseball game. In only its second year, the turnout for this event doubled from the first year. Finally, the employee Team PICKLE (Professionalism, Integrity, Communication, Knowledge, Loyalty, Exemplified) customer appreciation event draws the attention of everyone that comes into the bank and is the brainchild of Sandra Zazula and her team of bank operations specialists.
Along the way, we celebrated our ninth year of operation by being named the 2007 Business of the Year by the Mesa Chamber of Commerce. We were recognized for our community involvement with the Crystal Award from A.T. Still University in Mesa. Both achievements resulted from our focus on the success of our customers.
It’s all about the client. It’s all about the team. Our success depends on it.
— Neil R. Barna, President & CEO
Named the 2007 Business of the Year by the Mesa Chamber of Commerce.
63 East Main Street, Suite 100 | Mesa, AZ 85201
480.649.5100 | www.mesabankers.com
1733 North Greenfield Road, Suite 101 | Mesa, AZ 85205
480.324.3500 | Mesa Falcon Field Office
1940 North Alma School Road | Chandler, AZ 85224
480.726.6500 | www.eastvalleybank.com | East Valley Bank
BOARD OF DIRECTORS
Neil R. Barna
President & CEO
Mesa Bank
Steve Chader
Operating Principal
Keller Williams Integrity First
Michael J. Devine
Attorney at Law
Debra L. Duvall, EdD
Superintendent
Mesa Public Schools
Robert R. Evans Sr.
President
Baron Resources, Inc.
Stewart A. Hogue
Principal
SALK Management, LLC
Philip S. Kellis
Partner
Dobson Ranch Inn
Ruth L. Nesbitt
Community Volunteer
Wayne C. Pomeroy
Owner
Pomeroy’s Men’s Stores
Daniel P. Skinner
Managing Member
LeBaron & Carroll LLC
Joseph A. Tameron
CPA & Partner
Skinner, Tameron &
Company, LLP
James K. Zaharis, EdD
President
The Zaharis Group
OFFICERS
Stewart A. Hogue
Chairman
Michael J. Devine
Vice Chairman
Neil R. Barna
President & CEO
Staci L. Charles
Executive Vice President
Rita E. Leaf
Executive Vice President & CCO
Sandra S. Zazula
Executive Vice President &
Secretary
Daniel R. Laux
Senior Vice President
Christine Bond
Vice President
Susan E. Haverstrom
Vice President
James G. LeCheminant
Vice President
Conrad B. Morin
Vice President
11
SOUTHERN ARIZONA COMMUNITY BANK
John P. Lewis, President & CEO
Southern Arizona Community Bank received its highest honor yet when it was presented with the Pinnacle Award by the Northern Pima County Chamber of Commerce in 2007. The award is given to the small business that has done the best job in improving the quality of life in Pima County. We believe this recognition reflects our strong commitment to community involvement and personal service.
One of our most important ongoing areas of community service is to help the businesses, property owners and public facilities on Mount Lemmon recover from devastating wildfires. The bank has provided construction and permanent financing for a number of homes and the rebuilding of the mountain community’s vital general store, which re-opened for business less than a year after it was destroyed. More recently, the bank earned applause for the dedication of the 2,300-square-foot Mount Lemmon community center. As a property owner and business leader, I am honored to serve as an elected member of the community center’s board of directors.
Last year, Southern Arizona Community Bank supported more than 30 nonprofit groups, helping to provide a brighter future for at-risk children, the disabled and the poor. This support has included providing internships for people at the Arizona School for the Deaf and Blind, participation in the American Cancer Society’s Relay for Life, and donations to Big Brothers & Big Sisters of Arizona. In the fall, we presented a minority middle school with a check for $110,000 made possible through the Arizona State Income Tax Credit Initiative. This bequest ultimately resulted in the Institute for Better Education, which administers this tax credit program for more than 140 schools, bringing its banking business to our bank.
The team at Southern Arizona Community Bank celebrated the bank’s ninth anniversary in August 2007. We are proud of the many achievements we have made as a bank and as individuals. Our goal is to build on these achievements so that we can look forward to experiencing even greater satisfaction in the years to come.
— John P. Lewis, President & CEO
Southern Arizona Community Bank was presented with the Pinnacle Award by the Northern Pima County Chamber of Commerce.
6400 North Oracle Road | Tucson, AZ 85704
520.219.5000 | www.southernarizonabank.com
BOARD OF DIRECTORS
William R. Assenmacher
President
TA Caid Industries, Inc.
Jody A. Comstock, MD
Physician & Owner
Skin Spectrum
Amram Dahukey, DPM
Physician & Owner
Premier Foot & Ankle Surgeons
Robert A. Elliott
President & Owner
The Elliott Accounting Group
Michael W. Franks
Principal
Seaver Franks Architects
Michael L. Kasten
Managing Partner
Kasten Investments, LLC
Yoram S. Levy
Partner
Triangle Ventures, LLC
John P. Lewis
President & CEO
Southern Arizona
Community Bank
Jim Livengood
Director of Athletics
University of Arizona
James A. Mather
Attorney at Law & CPA
Morgan E. North
President & Owner
Borderland Construction
Company, Inc.
Susan C. Ong
Broker/Owner
Broadstone, Ltd.
James M. Sakrison
Principal & Attorney at Law
Slutes, Sakrison & Rogers, PC
Jean M. Tkachyk
CFO
University Physicians Healthcare
Paul A. Zucarelli
Principal
CBIZ Benefits & Insurance
Services, Inc.
OFFICERS
Paul A. Zucarelli
Chairman
Michael L. Kasten
Vice Chairman
John P. Lewis
President & CEO
Robert A. Elliott
Secretary
Michael J. Trueba
Executive Vice
President & CCO
Terri R. Gomez
Senior Vice President
Minette Goldsmith
Vice President
Mindy C. Webb
Vice President & COO
12
SUNRISE BANK OF ALBUQUERQUE
Steven A. Marcum, President & CEO
The past year was a memorable one primarily because we completed the consolidation and relocation of our business into a historic building we believe is the premier banking facility in the heart of downtown Albuquerque. Located on legendary Route 66, the building’s construction coincided with the birth of the “Mother Road.” Starting in Chicago and ending in Los Angeles, Route 66 symbolized the “road to opportunity” and our building has stood as the landmark for banking in Albuquerque for many years.
We believe the relocation of Sunrise Bank of Albuquerque increases our visibility, enhances our image and provides the foundation for future growth based on relationship banking.
Relationship banking is the essential ingredient for any successful community bank and a fundamental component for our continued success. We will continue to recruit bank board members and seasoned bankers who understand this philosophy and can bring quality relationships to our bank. This strategy paid dividends last year as we saw significant growth and increased quality in our loan portfolio. Our challenge going forward will be to build a larger deposit base. To that end, we have attracted bankers with the experience and energy to replicate the success we enjoyed last year in lending.
We remain committed to giving back to the community we serve with both time and money and that commitment increased last year. For the third consecutive year, we reported 100 percent employee participation in the United Way of Central New Mexico campaign, with a healthy increase in total contributions. We also provided support to many other worthy organizations, including Big Brothers Big Sisters of Central New Mexico, the Juvenile Diabetes Research Foundation, The Food Pantry and Bernalillo County 4-H.
Moving to a historically significant landmark is not about looking back. It is about looking forward because we understand we are creating history each day. Our goal is to be the best community bank in Albuquerque. This is history in the making.
— Steven A. Marcum, President & CEO
Located on legendary Route 66, our building has stood as the landmark for banking in Albuquerque for many years.
219 Central Avenue NW, Suite 100 | Albuquerque, NM 87102
505.244.8000 | www.sunrisebankabq.com
BOARD OF DIRECTORS
Annette Arrigoni
Account Executive
Berger Briggs Real Estate and
Insurance, Inc.
Turner W. Branch
President
Branch Law Firm, PA
Helen A. Elliott, CPA
Elliott, Pohlman & Co., CPAs, PC
Steven A. Marcum
President & CEO
Sunrise Bank of Albuquerque
James Rogers
Chief Manager
Sunland Development Group LLC
Ronald K. Sable
President
Concord Solutions Ltd.
Todd A. Sandoval
President
Sandia Office Supply, Inc.
J. Brad Steward, CPA
Shareholder/Partner
Pulakos & Alongi, Ltd.
Stephen D. Todd
Chief of Bank Financial Analysis
Capitol Bancorp Limited
OFFICERS
Stephen D. Todd
Chairman
Ronald K. Sable
Vice Chairman
Steven A. Marcum
President & CEO
Robert J. Valdiviez
Executive Vice President & CCO
Benjamin R. Raskob
Senior Vice President
Michael J. Sanchez
Senior Vice President
Antoinette E. Creel
Vice President
Brad L. Sackett
Vice President
13
SUNRISE BANK OF ARIZONA
Douglas E. White, President & CEO
Sunrise Bank of Arizona’s outlook for the future is full of ambition, energy and optimism. Our team has a primary goal of being one of Arizona’s greatest community banks. To achieve this lofty goal we must execute our strategic roadmap to perfection.
We knew it would take a very talented group of skilled team members to grow our bank. In 2007, we added knowledgeable, experienced bankers to our retail, underwriting, client services, business development and commercial lending teams. All of these team members are exceptional banking professionals with tremendous skills. Combining our existing core team with our new additions makes Sunrise Bank of Arizona a formidable competitor within the state of Arizona.
Our board members are an integral part of our team and vital to our future. Their value to our bank has been proven many times in 2007. Our bank’s success in 2008 will be significantly enhanced by the number of referrals and opportunities presented to our team by our directors.
In 2008, we are reintroducing our bank to our community. We are the co-developer and presenter of a financial literacy program for charter schools. We also act as the title sponsor of the 5th Avenue Farmers Market in Scottsdale, Arizona. Our team is active and will increase our efforts with the Hispanic Chamber, United States Hispanic Chamber, Italian Chamber and the Scottsdale Chamber of Commerce. We are a sponsor of the Arcadia Pride 5K run and a contributor to Free Arts of Arizona, Mission of Mercy and the Boys & Girls Club. Every community contribution we make is specifically targeted to benefit children, cultural events, education and/or the arts.
Lastly, we have created two very important teams. The Creative Solutions team takes on our marketing and community challenges. Our Raving Fans team ensures that the recognition of our team members is always the most important thing we do. As we continue to grow our community bank, these two teams will be essential to our success.
— Douglas E. White, President & CEO
Our board members are an integral part of our team and vital to our future.
4350 East Camelback Road, Suite 100A | Phoenix, AZ 85018
480.624.2600 | www.sunrisebankofarizona.com
6263 North Scottsdale Road, Suite 100 | Scottsdale, AZ 85250
480.624.2600
BOARD OF DIRECTORS
Thomas W. Beal
President
Beal Benefit Solutions
Patrick M. Devine
Vice President
CB Richard Ellis Brokerage
Services
Richard E. Garcia
President &
Designated Broker
Garcia Realty
Advisors, Inc.
George B. Jackson
Financial Consultant
A. G. Edwards & Sons
Michael L. Kasten
Managing Partner
Kasten Investments, LLC
John S. Lewis
President of Bank
Performance
Capitol Bancorp Limited
Glen M. Lineberry
Principal
Lineberry Associates
Richard Lustiger
General Counsel
Harkins Theaters
Gregory G. McGill
Attorney at Law
Gregory G. McGill, P.C.
Andrew C. Pacheco
Attorney at Law
Sanders & Parks
Joe W. Panter
Partner
Wildflower Bread Co.
Whitestone Financial
Douglas E. White
President & CEO
Sunrise Bank of Arizona
OFFICERS
Michael L. Kasten
Chairman
Richard E. Garcia
Vice Chairman
Douglas E. White
President & CEO
Shari A. White
Secretary
David W. Tracy
Executive Vice President
& CCO
Tyrone D. Couch
Senior Vice President
Gary M. Gibbs
Senior Vice President
Mary S. Madison
Senior Vice President
Richard M. Manning
Senior Vice President
Cindy L. Batten
Vice President
Robert J. Cantazaro
Vice President
Jon M. Chase
Vice President
Byron E. Gaylord
Vice President
Cynthia J. Heaps
Vice President
Joseph M. Koller
Vice President
Jill J. Lowell
Vice President
Kristi M. Richards
Vice President
Alex Solis
Vice President
Eric A. Stellhorn
Vice President
14
VALLEY FIRST COMMUNITY BANK
Judith R. Egan, President & CEO
At Valley First Community Bank we achieved two milestones in 2007. We celebrated the bank’s 10th anniversary and relocated the bank to a larger and more visible location that will accommodate our growth for many years to come.
We also rededicated ourselves to delivering exceptional and unexpected service to our customers. That service delivery starts with our customer guarantee:
“We guarantee every customer that they will personally know at least three of our highly experienced bankers and one of them will always be available when they are needed.”
In addition to our guarantee, we execute several “points of light” that impress and delight our customers, setting us apart from our competition.
Each morning we post the names of scheduled visitors to our bank on the welcome board in our lobby. Every team member also records a new voice message every day so that all callers know whether that team member is present and when they can expect a return call.
Our loan officers are present at loan closings held at title or escrow companies to assist our customers in understanding the voluminous documents they are asked to sign.
Every new customer receives a personal letter from me thanking them for their business and offering them an opportunity to provide feedback on the service they received from our team members.
All of these “points of light” and many other things we do both surprise and delight our customers because they are unexpected and make our customers feel valued and recognized.
O. Robin Sweet, executive director, Gateway Academy: “This is the best banking experience to date. You define what personal banking is all about.”
Henry Scheinerman, president, Today’s Pool and Patio: “You are at the top in customer service. I model my business the same way — customer service is key.”
We look forward to continuing to “wow” our customers in 2008 and for years to come.
— Judith R. Egan, President & CEO
We guarantee every customer that they will personally know at least three of our highly experienced bankers…
7001 North Scottsdale Road, Suite 1000 | Scottsdale, AZ 85253
480.596.0883 | www.valleyfirstbank.com
BOARD OF DIRECTORS
Sam Kathryn Campana
Vice President & Executive Director
National Audubon Society, Inc.
Scott B. Cohen
Attorney at Law
Sacks Tierney PA
Judith R. Egan
President & CEO
Valley First Community Bank
William R. Fitzpatrick, CPA
Eide Bailly
Michael L. Kasten
Managing Partner
Kasten Investments, LLC
Frederick L. Kidder
Chief Executive Officer
Scottsdale Area Chamber of Commerce
Stewart Larsen
President & Broker
Holmes-Larsen Auction Marketing
Gordon D. Murphy
Retired Executive Vice President
Arizona Bankers Association
Eileen S. Rogers
President
Allegra Print & Imaging
Pamela L. Sparks
Historical Researcher & Archivist
Sparks, Tehan, & Ryley, PC Law Firm
OFFICERS
Gordon D. Murphy
Chairman
Michael L. Kasten
Vice Chairman
Sam Kathryn Campana
Secretary
Judith R. Egan
President & CEO
Roni M. Grodnick
Executive Vice President & CCO
Nancy E. Selby
Executive Vice President
Cheryl L. DeGroot
Vice President
Daniel R. Klenske
Vice President
Michele J. Yates
Vice President
15
YUMA COMMUNITY BANK
Katherine M. Brandon, President & CEO
Over the past seven years, the team at Yuma Community Bank has worked diligently to build our bank, yet each new challenging opportunity shows us that we are only getting started. There are more relationships to build, more contracts to be won and more deals to be done. At the same time, we are committed to supporting our community.
The Yuma marketplace has changed profoundly in the past 10 years and continues to grow. The opening of our new bank building on South 4th Avenue in 2005 led to numerous new business opportunities. Just two years later, we are expanding again with a new office in the high-growth area of the Foothills section of Yuma, which is about 15 miles east of our main office. The new office opened its doors in January of 2008.
A new opportunity presented itself when General Motors (GM) recently announced a partnership between the U.S. Army and GM to build a $120 million joint-use hot weather test track for GM. We were proud to support the community in its economic growth as a host sponsor at a GM welcome dinner event. The economic impact on Yuma County as a result of the project promises to be considerable.
Yuma Community Bank presented a financial education program to a group of seventh and eighth grade students at Centennial School. We plan to offer presentations to the same students as they move up in grades through high school graduation. The program is funded by a government grant to reduce the drop-out rate among at-risk teenagers. Offering these students the opportunity to learn banking basics may be the best way to help them develop good financial habits. Over the long-term, it can improve the economic outlook for an entire community and can create new business development opportunities for our bank.
As can be seen, Yuma Community Bank continues to grow along with Yuma County. As we grow, we will maintain our commitment to supporting our community as well.
— Katherine M. Brandon, President & CEO
We are expanding again with a new office in the high-growth area of the Foothills section of Yuma.
2285 South 4th Avenue | Yuma, AZ 85364
928.782.7000 | www.yumabank.com
11242 South Foothills Boulevard | Yuma, AZ 85367
928.945.3888
BOARD OF DIRECTORS
Katherine M. Brandon
President & CEO
Yuma Community Bank
Clarence B. Cheatham
Vice President
DPE Construction
Raymond R. Corona
Optometrist & President
Corona Optique
Lawrence L. Deason
Attorney at Law
Lawrence L. Deason, Ltd.
Michael Didier
Treasurer
Select Seed of Arizona, Inc.
Ram R. Krishna, MD
President
Ram R. Krishna, MD, PC
John T. Osterman
President
Osterman Financial Group
Ronald K. Sable
President
Concord Solutions Ltd.
David S. Sellers
President
Sellers Petroleum
John R. Sternitzke
Owner
Sternco Engineers, Inc.
Pamela K. Walsma
Attorney at Law
Westover, Shadle &
Walsma, PLC
Ronald S. Watson
Real Estate Associate
ERA Matt Fischer Realtor
Robert R. Woodman
Owner
Woodman Realty
Leonard C. Zazula
Corporate Cashier
Capitol Bancorp Limited
OFFICERS
Ronald S. Watson
Chairman
Ram R. Krishna, MD
Vice Chairman
Katherine M. Brandon
President & CEO
Pamela K. Walsma
Secretary
Keith L. Simmonds
Executive Vice President & CCO
Michael G. Barker
Senior Vice President
Theresa N. Wine
Senior Vice President
Terry R. Gadberry
Vice President
Kari M. Reily
Vice President
16
Scott R. Andrews, Region President
18 Bank of Escondido
19 Bank of Feather River
20 Bank of San Francisco
21 Bank of Santa Barbara
22 Napa Community Bank
23 Point Loma Community Bank
24 Sunrise Bank of San Diego
25 Sunrise Community Bank
17
BANK OF ESCONDIDO
Michael R. Peters, President & CEO
Bank of Escondido’s fourth full year of business in 2007 was very rewarding. Our success is related largely to our employees who have built strong professional relationships with customers, the community and with each other. We are proud of our bank’s family atmosphere.
We have benefited from our knowledgeable and influential local board of directors. Their advice and referrals enhance the bank’s performance and their community involvement reflects well on us all.
During 2007, the bank expanded two services that have been very successful. One was the Certificate of Deposit Account Registry Service (CDARS), which has provided individuals, nonprofits, local governments and businesses with FDIC insurance on deposits of up to $50 million. We were recognized as a leader with this product, placing more than $250 million with CDARS in 2007. The other service was wealth management with the addition of a Capitol Wealth Advisors investment executive at our bank.
Bank of Escondido and our employees are committed to improving the quality of life in our community. We are involved with local nonprofit organizations, such as the Escondido Children’s Museum. The bank and employees were also active in the area’s Breast Cancer 3-Day® benefiting Susan G. Komen for the Cure, raising more than $10,000 for the fight against the disease.
We are active with the Downtown Business Association of Escondido (DBA), which promotes economic development in the bank’s area of downtown. The DBA’s weekly Cruisin’ Grand Classic Car Show is a family friendly event, bringing more than 5,000 people to downtown every Friday night from April to October. Community bands perform on our patio during the show, enhancing the hometown feeling and bringing recognition to our bank.
Last June, I was privileged to be named the 2007 Business Leader of the Year by the Escondido Chamber of Commerce. This was a tremendous honor as previous recipients have been pillars of the community.
We market the bank through our quality service, referral network, sponsorships and community involvement rather than advertising. Our success comes primarily from satisfied clients who happily refer friends and associates to the bank. It’s a winning formula.
— Michael R. Peters, President & CEO
I was privileged to be named 2007 Business Leader of the Year by the Escondido Chamber of Commerce.
200 West Grand Avenue | Escondido, CA 92025
760.520.0400 | www.bankescondido.com
BOARD OF DIRECTORS
Scott R. Andrews
President, California Region
Capitol Bancorp Limited
Robert M. Cahan
President
Cahan Properties
Richard J. Fleck
President
Southland Paving, Inc.
Marvin L. Gilbert
President
North County Insurance
L. Richard Greenstein, MD
Anesthesiologist
Anesthesiologist Consultants
of California
Ronald G. Guiles
Senior Partner
GEM Educational Consultants
Mark E. Hayes
Owner
Mark E. Hayes, CPA
Joan M. Meyer, DPM
Podiatric Medicine
And Surgery
Michael F. Murphy
President
Computer Protection
Technology, Inc.
Michael R. Peters
President & CEO
Bank of Escondido
OFFICERS
Michael F. Murphy
Chairman
Christopher S. Burt
Secretary & Executive Vice President
Michael R. Peters
President & CEO
Michael C. Churchwell
Executive Vice President & CCO
Linda I. Blakley
Senior Vice President
Marty Estrada
Vice President
Helen M. Johnson
Vice President
David G. Mitchell
Vice President
Kirsten J. Younkin
Vice President
18
BANK OF FEATHER RIVER
Scott R. Andrews, Chairman
Bank of Feather River opened for business November 6, 2007. Ten days later, more than 200 business and community leaders joined our founding team members for the bank’s grand opening celebration.
The alliance with a Capitol Bancorp affiliate bank as a loan production office during the bank’s organizational phase allowed us to maintain and renew associations with long-time customers.
We have a veteran team of local community bankers in a market that is semi-rural and heavily agricultural. Some of us have been financing the local agricultural industry for 20 years. All of our team members have at least 10 years of experience and have worked together previously. We feel this local experience provides an exceptional advantage for our new bank.
We expect big things in 2008 and for years and decades to come. Our market is solid and growing. Bank of Feather River soon will be moving into a new building at a new location. This move will give us an opportunity to hold an open house and communicate our story to an ever-growing group of clients and prospects. This event will have special importance to both our team and the community since our new office will be located in a new, landmark building for the community. It is located in the heart of the commercially developing area of Yuba City. We will have good signage, high visibility and great traffic flow.
At this time our team, many of which have been involved in community events and service projects for many years, are now doing so under the banner of Bank of Feather River. So while we know our extracurricular work is benefiting deserving families and organizations, the publicity is also benefiting the bank and our shareholders.
The entire staff is extremely enthusiastic about the future of the Bank of Feather River. By serving the agricultural industry and the innovative entrepreneurs who are launching new businesses to serve our expanding community, we anticipate strong and steady growth for the distant future.
— Scott R. Andrews, Chairman
We have a veteran team of local community bankers…some of us have been financing the local agricultural industry for 20 years.
1227 Bridge Street, Suite D | Yuba City, CA 95991
530.755.3700 | www.bankoffeatherriver.com
BOARD OF DIRECTORS
Scott R. Andrews
President, California Region
Capitol Bancorp Limited
Dinesh Bajaj
President
Natural Fashions Inc.
dba Natural Nut
Brent W. Hastey
Owner
Hastey Consulting
Thomas A. Iverson, DDS, MS
Orthodontist – President
Iverson-Vota Dental Corp.
Murry D. Lewis
General Manager
Dow Lewis Motors, Inc.
Sean M. O’Neill
President
Genesis Engineering Inc.
Dennis J. Pedisich
President & CEO
Napa Community Bank
OFFICERS
Scott R. Andrews
Chairman
Adam Fasani
Senior Vice President
& CCO
Jeffrey W. Cryer
President
Feather River Bancorp
Liz Gates
Senior Vice President
& COO
Harman S. Gosal
Vice President
Mary Goss
Vice President
Barbara VanGilder
Vice President
19
BANK OF SAN FRANCISCO
Edward C. Obuchowski, President & CEO
Bank of San Francisco focuses on providing exceptional banking services to business, nonprofit and private banking clients throughout the Bay Area. Our experienced and talented staff is making heads turn our way.
During 2007, we were honored to have the civil and structural engineering firm, T.Y. Lin International, move its banking relationship to us. With more than 1,300 employees in offices throughout the U.S. and Asia, the firm serves clients around the world. In making the decision to change to Bank of San Francisco, T.Y. Lin International valued the experience and knowledge of our team as well as our local decision-making capability and our ability “to deliver” the credit, depository and cash management services needed to support its business.
Serving the banking needs of dental practices is a new market niche for us. This often entails financing the acquisition of practices, providing merchant account and depository services to practices and handling the personal banking needs of dentists. It has been a great way to combine our business and private banking capabilities. Our loan structures, quick credit decisions, team approach and relationship orientation are what our dental clients tell us differentiate us from the competition.
We are committed to serving the nonprofit sector. We were proud to have Lick-Wilmerding, a highly-regarded private high school, become a client. Our ability to design products that suited the school’s unique needs was a driving force in its decision to join Bank of San Francisco.
Our staff continues to be active in the community by serving on various boards and taking part in nonprofit events. For example, last year our employees taught a five-week Junior Achievement program at a local elementary school. We were able to assign an employee to each of the nine grades in the school, something Junior Achievement could not accomplish previously.
The bank’s clients, advisory board, board of directors, investors and referral network are key to helping us “spread the word” about Bank of San Francisco to the Bay Area’s business and nonprofit communities. It is through our “ambassadors” that we are building our bank.
— Edward C. Obuchowski, President & CEO
Serving the banking needs of dental practices…has been a great way to combine our business and private banking capabilities.
575 Market Street, Suite 2400 | San Francisco, CA 94105
415.744.6700 | www.bankofsf.com
BOARD OF DIRECTORS
Roberta Achtenberg
Chair, Board of Trustees
The California State University
Scott R. Andrews
President, California Region
Capitol Bancorp Limited
Joseph P. Cristiano
Chairman, The MCM Group
Former President & CEO
Kelly-Moore Paint Company
James R. Dobberstein
Managing Director & Principal
Shea Labagh Dobberstein CPAs
Arthur F. Evans
Chairman
AF Evans Company, Inc.
Susan E. Lowenberg
Vice President
Lowenberg Corporation
Kelly McCown
Co-Founder/Partner
McCown & Evans LLP
Susan S. Morse, CFA, CFP
Senior Advisor &
Chief Compliance Officer
Mosaic Financial Partners, Inc.
Edward C. Obuchowski
President & CEO
Bank of San Francisco
David J. O’Leary
Chairman
O’Leary Paint Company
George J. Vukasin Jr.
Executive Vice President
Peerless Coffee & Tea
OFFICERS
Joseph P. Cristiano
Chairman
Scott R. Andrews
Vice Chairman
Edward C. Obuchowski
President & CEO
Raymond C. Brown
Executive Vice President
& CCO
Wendy A. Ross
Executive Vice President
Joan T. Bolduc
Senior Vice President
Edward G. Damgen
Senior Vice President
Ikuo Ogata
Senior Vice President
Katherine J. Zinsser
Senior Vice President
Jollin H. Gonzales
Vice President
Lisa Lau
Vice President
& Secretary
Timothy R. Rosenthal
Vice President
20
BANK OF SANTA BARBARA
Andy L. Clark, President
Bank of Santa Barbara is an innovative hometown bank. We have a dynamic staff of seasoned banking professionals and an active board of directors composed of area business leaders who take their roles seriously. Their referrals and advice about business and marketing opportunities make them true partners in every sense of the word.
Over the past year, Bank of Santa Barbara was involved in several successful projects with our strategic partners that generated positive publicity for the bank. Working closely with our partners, our creative team of local bankers is positioning the bank for continued growth and high performance.
Early in the year, we organized, sponsored and moderated a seminar on buying and selling businesses that was attended by 83 local entrepreneurs, including 30 business clients. This seminar helped us co-brand with our strategic partners and solidify our image as a bank that is nimble, cutting-edge and entrepreneurial.
In May, we partnered with legal, accounting and investment firms to host a client appreciation event for more than 250 people at the Arroyo Hondo Preserve. This was an excellent example of hosting an event with co-sponsors whose reputation and client reach in the community are significant and positive.
When the Santa Barbara Breakers debuted last March, Bank of Santa Barbara signed on as a sponsor of the professional basketball team. It was a marketing bonanza for the bank. The paid sponsorship made Bank of Santa Barbara “The Official Bank of the Breakers,” a designation that appeared in all Breakers’ ads and promotional material. We received publicity at the games, throughout the community and on the Web.
Reaffirming our community commitment, the bank began collaborating with the University of California, Santa Barbara to offer a series of for-credit educational seminars for first-year college students. Most of the students are from the Chumash Indian Nation, which is located just north of Santa Barbara.
During 2007, our team made contributions of time and money to 47 local nonprofit organizations, including the Santa Barbara Museum of Natural History where we sponsored the ever popular Butterflies Alive exhibit.
Bank of Santa Barbara — we are more than a bank, we are Santa Barbara.
— Andy L. Clark, President
Signing on as a sponsor of the Santa Barbara Breakers was a marketing bonanza…
12 East Figueroa Street | Santa Barbara, CA 93101
805.730.7860 | www.bankofsantabarbara.com
BOARD OF DIRECTORS
Scott R. Andrews
President, California Region
Capitol Bancorp Limited
Greggory M. Bigger
President
Santa Barbara Bancorp
Ronald M. Blitzer
Co-founder
Be Green Packaging, LLC
Thomas E. Caesar
Senior Vice President
Hub International Insurance
Andy L. Clark
President
Bank of Santa Barbara
David W. Grotenhuis
Partner
Santa Barbara Capital
Michael F. Hannley
President & CEO
Bank of Tucson
John L. Kavanagh
President
Kavanagh Corporation
Craig A. Makela
President
Santa Barbara Olive Company
Frank E. McGinity, CPA
Partner
McGinity Nodar & Daley, LLP
Timothy O’Connor, MD
President
Ventura Radiation
Oncology Group
Robert M. Ornstein, Esq.
Senior Consultant
Visionworks Associates, LLC
Michael D. White
President
MDW Companies
OFFICERS
Scott R. Andrews
Chairman & CEO
Andy L. Clark
President
Robert H. Rothenberg
Executive Vice President,
Secretary
Greggory M. Bigger
Senior Vice President
Andrew E. Chung
Vice President
Michael D. Duhamel
Vice President
Lisa M. Howard
Vice President
Paveena Luangprasert
Vice President
Darla R. Mahon
Vice President
21
NAPA COMMUNITY BANK
Dennis J. Pedisich, President & CEO
At the start of 2007, Napa Community Bank was poised to capitalize on business opportunities — and capitalize we did! The city of Napa is experiencing a renaissance with unprecedented development in the downtown area, which sits at the southern end of the world-renowned Napa Valley. Among the most exciting projects in the downtown “Oxbow” district are two new luxury hotels — the Ritz-Carlton and the Westin Verasa. Another exciting project is the Oxbow Public Market.
We first met with the principals behind the Oxbow Public Market project in November 2005. From our first meeting we were determined to be part of this exciting retail project, which brings together purveyors of artisan foods, fine wines, locally-grown fresh produce, teas and other goods in a marketplace setting. In spite of hefty competition, we were able to secure the lead financing for the project and to help make it a reality this year. The principals have become great ambassadors for Napa Community Bank and have agreed to appear in one of our client testimonial ads in the local newspaper in early 2008.
Oxbow principal Bart Rhoades had this to say about our bank: “Napa Community Bank has been an indispensable partner in the Oxbow Market project, providing not only financing but also timely advice and insights. We couldn’t be happier with our relationship.”
This is one of many examples of how Napa Community Bank is living up to the company’s core value of entrepreneurship. We are proud to contribute to the economic vitality of the community. We not only create jobs as an employer, but we create jobs by providing financial services, which help local businesses grow and prosper.
As happy as we are with our growth and success in 2007, the management, staff and board of directors at Napa Community Bank are excited to build our bank with the support of Capitol Bancorp and play a growing role in the emergence of our corner of the country.
— Dennis J. Pedisich, President & CEO
The city of Napa is experiencing a renaissance with unprecedented development in the downtown area…
700 Trancas Street | Napa, CA 94558
707.227.9300 | www.napacommunitybank.com
BOARD OF DIRECTORS
Kevin S. Alfaro
Partner
G & J Seiberlich & Co., LLP
Thomas M. Andrews
Owner & CFO
Andrews & Thornley
Construction, Inc.
Geni A. Bennetts, MD
Medical Consulting
Charles H. Dickenson
Partner
Dickenson, Peatman & Fogarty
Jeffrey L. Epps
President
Epps Chevrolet
Betty L. O’Shaughnessy-Woolls
Owner
O’Shaughnessy Estate Winery
John R. Pappas, DDS, MD
Oral & Maxillo-Facial Surgery
ADVISORY DIRECTORS
Scott R. Andrews
President, California Region
Capitol Bancorp Limited
Richard A. Bennett
Retired
Superior Court Judge
Joseph P. Cristiano
Chairman, The MCM Group
Former President & CEO
Kelly-Moore Paint Company
William H. Dodd
Napa County Board
of Supervisors
Doug W. Hill
Vineyard Manager
Oak Knoll Farming, Inc.
Paul J. Krsek
Managing Partner
K & A Asset Management
Harold D. Morrison
President
Bridgeford Flying Service
David J. O’Leary
Chairman
O’Leary Paint Company
Dennis J. Pedisich
President & CEO
Napa Community Bank
Salvador S. Ramos
Vineyard Supervisor
Jaeger Vineyards
OFFICERS
Geni A. Bennetts, MD
Chairman
Jeffrey L. Epps
Vice Chairman
Dennis J. Pedisich
President & CEO
Charles H. Dickenson
Secretary
Douglas C. Haigh
Executive Vice President & CCO
James A. Barrett
Senior Vice President
Mark C. Richmond
Senior Vice President
Joen M. McDaniel
Senior Vice President
James K. Fehring
Vice President
Shiloh M. Fehring
Vice President
Patrick J. McArdle
Vice President
Sandra J. Re
Vice President
Sheila G. Rogers
Vice President
22
POINT LOMA COMMUNITY BANK
Anthony D. Calabrese Sr., President & CEO
Point Loma Community Bank has been very well received by the local community since opening in August 2004. Since inception, we have grown our deposits significantly each year and look forward to further growth opportunities in 2008.
We are proud to provide exceptional service to our nearly 2,000 customers, many of whom live in Point Loma. Our clientele receives a warm welcome every time they interact with our employees. We go above and beyond to ensure that our customers feel personally supported and we have often delivered meals during an illness when they are in need of a friend.
Community outreach efforts continue to be our primary focus. We are proud to sponsor the annual Point Loma Summer Concert Series and enjoy hosting these concerts where I act as their Master of Ceremonies. We also contribute significantly to local schools by providing volunteers and sponsorship funds to support educational development of the children in our community. In 2007, we launched a program to sponsor a Meals-on-Wheels route focused on bringing daily meals to the elderly in Point Loma. We also introduced a new college internship program at our office, providing our employees the opportunity to train and develop students from the University of California at San Diego. It should also be noted that our employees share the bank’s desire to give to others, shown by their 100 percent participation in the 2007–08 United Way Campaign.
With multiple years under our belt, we have implemented a strategic marketing plan developed to continue our growth momentum over the next several years. Our new plan focuses on print, radio and public television ads in local media reaching our specific target markets. We also coordinated a direct mail campaign resulting in healthy growth in our Home Equity Line commitments.
As a local business bank, we take pride in supporting our local economy by serving local businesses. We consider ourselves an extension of their staff and enjoy guiding them through their financial decisions.
Now that we are solidly positioned within our community, we are confident that 2008 will show continued market share and financial growth for Point Loma Community Bank!
— Anthony D. Calabrese Sr., President & CEO
We are proud to sponsor the annual Point Loma Summer Concert Series…
1350 Rosecrans Street | San Diego, CA 92106
619.243.7900 | www.pointlomabank.com
BOARD OF DIRECTORS
Scott R. Andrews
President, California Region
Capitol Bancorp Limited
Gregg W. Beaty, DMD
Center for Oral, Maxillofacial &
Implant Reconstructive Surgery
Anthony D. Calabrese Sr.
President & CEO
Point Loma Community Bank
Maurice P. Correia, CPA
Correia & Associates
Arthur DeFever
President
DeFever Marine Enterprises
William T. Fiedler
President
Fiedler Construction Company
Harold O. Grafton
President
Cement Cutting, Inc.
Theodore Griffith
President
Pacific Tugboat Service
& Pearson Marine Fuel
Marcia Haas
Owner/Managing Partner
Aristocrat Apartments
John S. Lewis
President of Bank Performance
Capitol Bancorp Limited
Julius S. Paeske Jr.
President
Commercial Facilities, Inc.
Richard D. Thorn
Attorney at Law & Owner
Ward & Thorn, A Professional
Law Corporation
Mark A. Winkler
Broker Associate
Prudential Realty
OFFICERS
John S. Lewis
Chairman
Anthony D. Calabrese Sr.
President & CEO
Donald H. Gruhl
Senior Vice President
Millicent M. McKibbin
Senior Vice President
Jill M. Faucher
Vice President
Leticia C. Trujillo
Vice President
23
SUNRISE BANK OF SAN DIEGO
Randall S. Cundiff, President & CEO
Our road to continued success is paved with a focus on the “blocking and tackling” of banking, sound fundamentals that have made us successful. Supporting our team with enhanced product knowledge and training are key components in this goal. Our solid foundation is inherent in the synergy of our team and is complimented by the enthusiasm we share for each other. The bank will continue to empower team members with tools to take ownership in developing and maintaining client relationships. Individual efforts that add value to our clients and contribute to the bottom line are the essence of our strategy.
This was present in two new relationships developed in 2007. We helped Bill Luther Property Management create efficiencies through the implementation and personal training for our cash management product. We saved the company time, money and energy by helping it convert to an energized, more efficient operation. In switching the company’s prior 25-year banking relationship to Sunrise Bank, owner Bill Luther said, “We have been absolutely amazed at the level and quality of service we have consistently received from the Sunrise team members. They have delivered everything promised and more. The service level has been excellent.”
Richard Simis, owner of Simac Construction was attracted to Sunrise Bank by his direct access to senior management. We earned his trust and confidence by developing a complete relationship to help him attain long-term growth for his company. “The knowledge, experience and attitude they brought forth just felt right,” he said. “Sunrise Bank reinstilled the relationship bank feel that we were looking for in a partner for the future.”
Product diversification was a reoccurring theme throughout the year. The success of our bank is reliant on strengthening our referral pipeline, utilizing all of the loan products available to us and boosting fee income from the use of our wide array of financial products and services. We continued to build on this plan in 2007 as it will be a key to our future success.
Implementing strategies for strengthening our client relationships was successful for us in 2007 and will continue to be the “blocking and tackling” for years to come.
— Randall S. Cundiff, President & CEO
Sunrise Bank reinstilled the relationship bank feel that we were looking for in a partner for the future.
4570 Executive Drive, Suite 110 | San Diego, CA 92121
858.625.9050 | www.sunrisebanksd.com
BOARD OF DIRECTORS
Scott R. Andrews
President, California Region
Capitol Bancorp Limited
Craig V. Castanos
Owner
Craig V. Castanos, CPA
Randall S. Cundiff
President & CEO
Sunrise Bank of San Diego
Michael R. Labelle
Senior Director
Studley
Jack J. Landers
Commercial Broker
Westland Insurance Brokers
John S. Lewis
President of Bank Performance
Capitol Bancorp Limited
John F. McColl
President
Trinity Capital Group
John M. Rooney
President
Torrey Financial Group
Elizabeth K. Strom
Leasing Director
The Irvine Company Office Properties
OFFICERS
John S. Lewis
Chairman
Randall S. Cundiff
President & CEO
Suzanne K. Gregory
Executive Vice President,
CCO & Secretary
John L. Brackett
Senior Vice President
Gregory S. Fletcher
Vice President
Mary Jane Gertino
Vice President
Robin Hill
Vice President
Miranda E. Klassen
Vice President
Carla M. Kraft
Vice President
Michael H. Markie
Vice President
Bert T. Woods
Vice President
24
SUNRISE COMMUNITY BANK
Stuart E. Bailey, President
Sunrise Community Bank joined the Capitol Bancorp family on February 27, 2007, opening our bank in temporary facilities. We moved to our new permanent 8,000 square foot building on April 1st and got down to the business of becoming the most unique community business bank in the Coachella Valley.
Our goal is to provide business customers with what we call our “Chamber of Commerce” philosophy. We are passionate about becoming our customers’ lifelong business partner, networking our customers through bank-sponsored functions, including our “Breakfast Club” where we invite small groups of related businesses to join our senior officers and board members for breakfast and collectively brainstorm solutions to local business challenges.
We are consistent leaders in providing an array of cash management products for our business customers including online banking, a lockbox product targeted to capture the homeowner association market, and an effective use of account analysis to attract new, profitable deposit relationships.
This year the bank’s mortgage department entered into a strategic partnership with the largest residential real estate company in our market, Keller Williams, to be their mortgage company of choice for over 300 Valley agents. This has led to a significant number of residential mortgage referrals and the expansion of our mortgage department.
Sunrise Community Bank is equally proud of being the first affiliate bank to embrace Capitol Bancorp’s vision of being in the insurance business. In August we joined with Capitol Wealth Advisors in the acquisition of BAIA Insurance Agency, LLC, a local group health and benefits insurance agency, now integrated within our bank’s family of business financial products.
What is our goal for our second full year in business? To add traditional wealth management and financial planning specialists, trust services and property and casualty insurance products. Our ultimate goal is to be the provider of choice in our market for a complete array of complementary financial services. And we’re well on our way!
— Stuart E. Bailey, President
We are proud of being the first affiliate bank to embrace Capitol Bancorp’s vision of being in the insurance business.
41990 Cook Street, Suite 701 | Palm Desert, CA 92211
760.346.6139 | www.sunrisecommunitybank.com
BOARD OF DIRECTORS
Scott R. Andrews
President, California Region
Capitol Bancorp Limited
Stuart E. Bailey
President
Sunrise Community Bank
Debra L. Clark
Partner
Godecke Clark
George L. Gonzalez
President
Sierra Landscape Co., Inc.
Ronald B. Gregory
President
RGA Landscape Architects, Inc.
Brian S. Harnik
Attorney at Law
Roemer & Harnik LLP
Michael C. Hilgenberg
Owner/Operating Principal
Keller Williams Realty
William G. Kleindienst
Architect
WWCOT Mills Architects
Bruce J. Legawiec, CPA
Partner
Baltes, Legawiec & Associates,
CPAs, LLP
Robert S. Smith
President & Principal Engineer
MSA Consulting, Inc.
Richard E. Warfield
Owner
Personalized Property
Management
OFFICERS
Scott R. Andrews
Chairman
Stuart E. Bailey
President
Fereshteh (Tay) Fried
Executive Vice President
Daniel T. Grenci
Executive Vice President
Joann B. Dangwillo
Vice President
William E. Johnston
Vice President
Allison I. Kent
Vice President
Deborah O. McGarrey
Vice President
Jerod R. Pannell
Vice President
25
John S. Lewis, Region President
27 Fort Collins Commerce Bank
28 Larimer Bank of Commerce
29 Loveland Bank of Commerce
26
FORT COLLINS COMMERCE BANK
C. Gerard Nalezny, President & CEO
Well-rounded relationships are the cornerstone of Fort Collins Commerce Bank. The early success of our bank, I am proud to point out, has helped launch additional Capitol Bancorp affiliate banks in Colorado.
The past year was just our second complete year in business. While the banking competition is fierce, our bank has successfully faced the challenges because the types of business we seek are the relationships that make sense. This steady and consistent approach of serving our clients and earning their business has resulted in many profitable transactions for our bank.
For example, last year we had a client who wanted to sell his restaurant business. We helped him structure the deal and then introduced him to the party that eventually bought the business. Our bank made a loan to the buyer, establishing a full banking relationship. We then worked with the seller to reinvest the proceeds from the sale. Similarly, we have a long-time client who decided to sell his manufacturing business. We helped him position his company to maximize its sales potential and introduced him to the advisors he ultimately selected to facilitate the sale. The Capitol Wealth Advisors investment executive at our bank is working with this client to invest the proceeds.
In the community, our officers are active with organizations that benefit youth and education. I am currently a board member and chairman-elect of the Larimer County Partners Mentoring Youth. I am a speaker and guest lecturer at Colorado State University and a volunteer with the Court Appointed Special Advocates of Larimer County and a local elementary school. We also have officers who volunteer with a parent-teacher organization at another local elementary school and Junior Achievement.
Our business goal is to add value, take care of clients and pursue relationships that make sense. This simple approach has resulted in another successful year for our bank and the anticipation of many more to come. We are proud to be the Capitol Bancorp trailblazer in Colorado, paving the way for other successful affiliates in our state.
— C. Gerard Nalezny, President & CEO
We are proud to be the Capitol Bancorp trailblazer in Colorado, paving the way for other successful affiliates in our state.
3700 South College, Unit 102 | Fort Collins, CO 80525
970.204.1010 | www.fortcollinscommercebank.com
BOARD OF DIRECTORS
Margaret A. Brown
Attorney at Law
Fischer, Brown & Gunn, PC
Rhys P. Christensen
Broker & Partner
Realtec
Thomas W. Hoogendyk
Chief Financial Officer
Hoogendyk and Associates
Danielle C. Korkegi
President
Cellular Junction, Inc.
Mark A. Kross
President & CEO
Larimer Bank of Commerce
C. Gerard Nalezny
President & CEO
Fort Collins Commerce Bank
Joseph D. Reid
Chairman & CEO
Capitol Bancorp Limited
Richard F. Spillman, CPA
Hunt, Spillman & Associates, PC
Jack D. Vahrenwald
Attorney at Law
Allen, Vahrenwald & Johnson, LLC
ADVISORY DIRECTOR
Spiro Palmer
Owner & President
Palmer Flowers
OFFICERS
Joseph D. Reid
Chairman
C. Gerard Nalezny
President, CEO & Secretary
Steven R. Luttmann
Vice President
Patricia L. McLaren
Vice President
27
LARIMER BANK OF COMMERCE
Mark A. Kross, President & CEO
In its first seven months of business, Larimer Bank of Commerce has distinguished itself in this small, manufacturing community in Larimer County as a solid, accessible financial institution as evidenced by the support we are receiving from our customers:
“Doing business with Larimer Bank of Commerce is a breath of fresh air. They understand business, add a high degree of intellectual prowess, and are sincere and genuine in the process. Your business will be better by banking with them.”
— Steve Hitz, President
US-Reports, Inc.
When the bank opened a simple philosophy was established that we call “Do The Right Thing.” The four pillars of our organization are:
● Do right by our clients
● Do right by our employees
● Do right by our shareholders
● Do right by our community
Implementation of these values has been successful because our strongest assets — our employees — make it happen. Together we bring a dynamic, seasoned team of professionals who ensure we provide each customer with a positive and individualized experience. A case in point is senior vice president and commercial loan officer, Jeff Schoonover. Jeff has over 20 years of banking experience serving this community. In addition, I was privileged to assist in the formation of Fort Collins Commerce Bank, another Capitol Bancorp affiliated bank in Colorado, in 2005. Experience with the Capitol Bancorp model, in conjunction with our bank professionals and committed board of directors, differentiates us from the competition.
We look forward to further supporting our community by volunteering our time to Habitat for Humanity, the Sertoma (SERvice TO MAnkind) Club and a youth mentoring program, Larimer County Partners. We embrace the opportunity to further develop banking relationships while building a profitable future.
— Mark A. Kross, President & CEO
Larimer Bank of Commerce has distinguished itself in this small, manufacturing community in Larimer County as a solid, approachable financial institution.
1432 East Mulberry Street, Unit B | Fort Collins, CO 80524
970.224.7200 | www.larimerbank.com
BOARD OF DIRECTORS
Michael L. Allen
President
Allen Plumbing & Heating, Inc.
Robin Bachelet
Owner & Broker
Maxiiimo Development
Venture Pro LLLP
Jason Ells
Partner & Broker
Realtec Commercial Real Estate
Steven A. Hitz
President
US-Reports, Inc.
Peter Kelly
Partner & Real Estate Broker
Everitt Commercial Partners
Mark A. Kross
President & CEO
Larimer Bank of Commerce
Charles L. Lasky
President
Lasky, Fifarek & Hogan, PC
C. Gerard Nalezny
President & CEO
Fort Collins Commerce Bank
Wynne Odell
President
Odell Brewing Company
Joseph D. Reid
Chairman & CEO
Capitol Bancorp Limited
OFFICERS
Joseph D. Reid
Chairman
Charles L. Lasky
Vice Chairman
Mark A. Kross
President & CEO
Leonard Lovin
Executive Vice President & CCO
Jeff Schoonover
Senior Vice President
Ruth T. Johnson
Vice President
28
LOVELAND BANK OF COMMERCE
John A. Busby, President & CEO
Loveland Bank of Commerce opened in October 2007, becoming Capitol Bancorp’s third community bank based in northern Colorado. Located just 50 miles north of Denver, our community is strategically positioned at the intersection of Interstate 25 and US 34. Loveland is often called the “Gateway to the Rocky Mountains” with Rocky Mountain National Park located 35 miles west. Loveland is a thriving community with big-city amenities and a small-town atmosphere.
With more than 125 local shareholders, an active community-based board of directors and a seasoned team of professional bankers, Loveland Bank of Commerce is poised to take advantage of our community’s favorable business climate and vibrant economy. Capitol Bancorp’s community banking model is well suited for Loveland.
Our bank has experienced outstanding growth during the first months of operation and we believe 2008 will be a banner year as we continue to expand our customer base, growing both loans and deposits. Our focus is on relationship banking with products and services directed toward small to medium-sized business owners, real estate professionals, professional practices and local consumers. With attractive product and service offerings, we can address the needs of an individual as well as those of a business.
Loveland Bank of Commerce will remain true to a simple philosophy of “do the right thing” by our clients, employees, shareholders and community. We recognize our continued success is closely tied to relationships built upon this philosophy and Capitol Bancorp’s core values.
We believe it is our responsibility to volunteer and support organizations that improve the overall well-being of our community. For instance, our employees hold leadership roles at the United Way of Larimer County and other organizations that are committed to improving the quality of life for all people in our community.
Our competitive advantage, a dedicated team of bank professionals, an active board of directors and engaged shareholders make for a formidable community bank. We are ready to embrace the challenges, opportunities and excitement associated with operating our new bank in beautiful Loveland, Colorado!
— John A. Busby, President & CEO
Loveland Bank of Commerce is poised to take advantage of our community’s favorable business climate and vibrant economy.
102 East 29th Street | Loveland, CO 80538
970.679.7150 | www.lovelandbankofcommerce.com
BOARD OF DIRECTORS
John A. Busby
President & CEO
Loveland Bank of Commerce
Ryan J. Ferrero
Owner & Manager
Ferrero Chrysler Jeep Dodge
Nanci J. Garnand
Real Estate Agent
RE/MAX Alliance
Eric L. Holsapple, PhD
Partner
Loveland Commercial LLC
Mark A. Kross
President & CEO
Larimer Bank of Commerce
Kenneth G. Larson
President & Treasurer
River Stone Management Co.
Charles L. Lasky
President
Lasky, Fifarek & Hogan, PC
Leon J. McCauley Jr.
President & Founder
McCauley Constructors, Inc.
C. Gerard Nalezny
President & CEO
Fort Collins Commerce Bank
Jon C. Patterson
Partner
Patterson - -Talbert Law Offices
Joseph D. Reid
Chairman & CEO
Capitol Bancorp Limited
OFFICERS
Joseph D. Reid
Chairman
Charles L. Lasky
Vice Chairman
John A. Busby
President, CEO & Secretary
Troy A. Meissner
Senior Vice President & CCO
Stephanie L. Rankin
Vice President & Operations Manager
29
John C. Smythe, Region President
31 Ann Arbor Commerce Bank
32 Bank of Auburn Hills
33 Bank of Maumee
34 Bank of Michigan
35 Brighton Commerce Bank
36 Capitol National Bank
37 Detroit Commerce Bank
38 Elkhart Community Bank
39 Evansville Commerce Bank
40 Goshen Community Bank
41 Grand Haven Bank
42 Kent Commerce Bank
43 Macomb Community Bank
44 Muskegon Commerce Bank
45 Oakland Commerce Bank
46 Ohio Commerce Bank
47 Paragon Bank & Trust
48 Portage Commerce Bank
30
ANN ARBOR COMMERCE BANK
Richard G. Dorner, President & CEO
Ann Arbor Commerce Bank was established 17 years ago as the third bank in the Capitol Bancorp network of community banks. From the outset, we knew the bank would need to be as diverse as the college community we serve, to stand the test of time. As a strong community bank, we reflect the people and businesses we serve, continuing to meet their ever-changing financial needs. As many of our customers have holdings throughout the United States, we have developed community banking on a national landscape.
We embrace the ability to talk with and know our customers. Typically, we serve thousands of walk-in or drive-through transactions during any week. However, many times our customers are in another geographic area. We are able to serve their financial needs through our distinctive international ATM and wire transfer services and through Internet banking and telephone banking. Additionally, upon many occasions, our affiliate banks across the country have been able to help us serve our customers’ unique transcontinental needs.
We have grown during our 17 years and so have our customers. For example, one of our property management clients merged with another local management group. We now work with this new company, which manages about 50 percent of the student properties in our area. Another customer took his start-up business to become one of the leading title companies in the area. Many of our original customers are now multi-generational companies serving a broad customer base. A very successful local real estate investor became our customer in 1990. Ann Arbor Commerce Bank continues to serve his personal and business financial needs and we also work with many of his investors and partners. As we travel our “road to the future,” our affiliation with Capitol Bancorp will continue to help us serve our customers’ increasing financial needs.
Community, customers, staff, board of directors, affiliate banks and shareholders — we strive to create a symbiotic relationship that benefits all.
— Richard G. Dorner, President & CEO
We knew the bank would need to be as diverse as the college community we serve.
2950 State Street South | Ann Arbor, MI 48104
734.887.3100 | www.annarborcommerce.com
BOARD OF DIRECTORS
Henry E. Alvarez, CPA
President & Managing Principal
Curtis, Bailey, Exelby &
Sposito, PC
Richard G. Dorner
President & CEO
Ann Arbor Commerce Bank
Brian K. English
General Counsel
Capitol Bancorp Limited
James A. Fajen
Attorney at Law
Fajen & Miller, PLLC
James W. Finn
Chairman & CEO
Finn’s – JM&J Insurance
Agency, Inc.
H. Nicholas Genova
Chairman & CEO
Washtenaw News Co., Inc
Richard M. Greene
Consultant
Richard Greene Point Training
Marilyn D. Katz-Pek
Partner Emerita
Biotechnology Business
Consultants LLC
James C. Keen Sr.
CEO
Cliff Keen Athletic
David W. Lutton
President
Charles Reinhart Company
Realtors
David M. O’Leary
Co-President
O’Leary Paint Company
Fritz Seyferth
Principal
Fritz Seyferth & Associates
Carl Van Appledorn, MD
President & COO
Urological Surgery
Associates, PC
Warren E. Wright
Chairman & Partner
Renosol Corporation
OFFICERS
James A. Fajen
Chairman
Richard G. Dorner
President & CEO
Henry E. Alvarez
Secretary
Clifford G. Sheldon
Executive Vice President &
Cashier
John J. Wilkins
Executive Vice President & CCO
Mary Hays
Senior Vice President
James L. Jeszke
Senior Vice President
Mary D. Gyorke
First Vice President
John Nixon III
First Vice President
Mark S. Aben
Vice President
Noelle C. Grigg
Vice President
Patrick J. McKeon
Vice President
Bryan T. Singer
Vice President
Kathleen Slocum
Vice President
31
BANK OF AUBURN HILLS
Neal J. Searle, President
Located in northern Oakland County, Bank of Auburn Hills is within the shadows of the home of NBA greatness, the Palace, home to the Detroit Pistons. Fittingly, while the past year had its challenges, the bank’s team rose to the occasion.
With the Pistons just down the street fighting for another championship, Bank of Auburn Hills was competing for new deposits in 2007. Using a “Keep Your Money in Michigan” theme, the bank ran a deposit special called “Maximize Michigan Certificate of Deposit.” The CD special was extremely successful.
In addition to Bank of Auburn Hills’ team members focusing on serving the Oakland County business community with their active involvement in five area chambers of commerce, they also helped many local organizations. For example, the bank proudly delivered 100 percent employee participation in the United Way campaign, with total contributions up 15 percent; bank staff and customers contributed generously to the Gloves for Good campaign sponsored by the Lake Orion Sunrise Rotary Club for the benefit of children in Auburn Hills, Pontiac and Lake Orion (via the local Boys & Girls Club); and bank employees donated more than 50 pounds of nonperishable food items to Lighthouse of Oakland County, which provides services to the county’s low-income residents.
The year 2007 brought about recognition, promotion and additions to our staff: Julie Guigar was promoted to operations manager, Jodie Back joined as a credit analyst and Karen Schneider joined as the business development officer. Elena Houlihan, an Auburn Hills entrepreneur, also joined our board of directors.
Innovation and a willingness to challenge the routine is a formula for success that Bank of Auburn Hills will pursue — today and tomorrow. Not unlike that championship-caliber NBA squad down the road.
— Neal J. Searle, President
Innovation and a willingness to challenge the routine is a formula for success...
1988 North Opdyke Road | Auburn Hills, MI 48326
248.370.8200 | www.bankofauburnhills.com
BOARD OF DIRECTORS
Kenneth D. Currie
Business Consultant
Currie and Associates
Frederick Gordon
Attorney at Law
Jason M. Horton
Executive Vice President
REDICO
Richard L. Horvath
VP Finance & Administration
Atlas Copco Tools & Assembly
Systems, Inc.
Elena H. Houlihan
President & Owner
Elena’s
Brian G. McGinnity
Director & EVP Finance
Hirotec America
Michael M. Moran
Chief of Capital Markets
Capitol Bancorp Limited
Frank Salucci, CPA
Capital Resources of Michigan, Inc.
Neal J. Searle
President
Bank of Auburn Hills
John C. Smythe
President, Great Lakes Region
Capitol Bancorp Limited
ADVISORY DIRECTORS
Erwin H. Billig
Chairman
MSX International
David L. Polk, CPA
Principal, Polk & Associates PLC
Gary M. Wetstein, CPA
Retired Chairman of BDO Seidman, LLP
CFO, Non-Invasive Monitoring
Systems, Inc.
William N. Widmyer
Business Consultant and Real Estate
Investor
Marc I. Wittenberg, MD
South Oakland Anesthesia
Associates, PC
OFFICERS
John C. Smythe
Chairman
Brian G. McGinnity
Secretary
Neal J. Searle
President
Brian R. Inglis
Senior Vice President & CCO
Cheryl L. Gault
Vice President
32
BANK OF MAUMEE
H. Lee Dunn Jr., President
At Bank of Maumee, we pride ourselves on offering high-touch, responsive customer service. Our doors opened for business in October of 2006 with a focus on providing small business banking for the greater Toledo area.
Our passion for customer satisfaction was clearly demonstrated in early 2007. It was late on a Monday afternoon when I received a call from a business acquaintance. He and his partners had been working on a deal that had been two years in the making. Final financing was in place but there was a need for short-term funding and the money had to be disbursed by the end of the week or the project would go elsewhere. Two years of effort would be lost. I told the prospective customer the documentation the bank would need to assist him. We had the information the next day and closed the transaction Wednesday morning. One of the partners, Rob Robinson, is a retired senior officer at a midwestern regional bank. He sat down, chuckled and said, “My bank could never have approved and closed this loan as fast as you did.”
Rob asked to attend our May shareholders meeting. He stood up and said, “Without the Bank of Maumee, the Columbus Sports Network would not be in business today.”
Customers really appreciate our responsive local decision-making, in addition to the wide range of Internet banking and cash management services available at Bank of Maumee.
Our officers are active with professional business organizations, such as the Women’s Entrepreneurial Network (WEN), where they meet with peers and develop new business for the bank. Last year, the bank hosted a WEN luncheon that focused on the importance of obtaining Woman Business Enterprise certification for companies owned by women doing business with corporations and government.
At Bank of Maumee we are setting the standard for excellence that will bring us customers for life.
— H. Lee Dunn Jr., President
Customers really appreciate our responsive local decision-making.
3425 Briarfield Boulevard, Suite 100 | Maumee, OH 43537
419.868.1750 | www.bankofmaumee.com
BOARD OF DIRECTORS
Robert E. Alexander
President & CEO
YMCA of Greater Toledo
Thomas J. Beutler
CPA, CVA
Tebay, Mosley Associates, LLC
Value Defined, LLC
Thomas P. Cox, MD
ProMedica Physicians
Peter A. Dewhirst
Attorney at Law
Shindler, Neff, Holmes,
Schlageter & Mohler, LLP
H. Lee Dunn Jr.
President
Bank of Maumee
Brian K. English
General Counsel
Capitol Bancorp Limited
C. Edward Harmon
President
Spartan Logistics
Brian J. Pribis CPA, MT, CVA
Partner
Sobb Roberts & Pribis, Inc.
James L. Regan
President
Regan Insurance Agency
Peter S. Shawaker, CCIM, SIOR
Commercial Realtor
CB Richard Ellis/Reichle Klein
Olivia K. Summons
Director of Public Relations
Toledo Refinery
Sunoco, Inc.
ADVISORY DIRECTOR
Juan A. Hinojosa
Owner
Mondo Mechanical
OFFICERS
Brian K. English
Chairman
H. Lee Dunn Jr.
President
Richard D. Heltzel
Executive Vice President,
CCO & Secretary
Kevin T. Rahe
Executive Vice President
& SLO
Veronica Fish
Vice President
Roxie A. Hill
Vice President
Susan C. Martin
Vice President
33
BANK OF MICHIGAN
Michael G. Sarafa, President & CEO
In 2007, Bank of Michigan established itself as a major presence in southeast Michigan and was named by Crain’s Detroit Business as the fastest growing bank in the region. We put the proper staffing and safeguards in place to serve our growing niche of money service businesses. This has made Bank of Michigan a place where entrepreneurs want to take their business.
Further activity and interest in the bank was generated by hosting quarterly networking sessions on various topics. For example, attorney and bank board member Randall Denha shared his professional knowledge on living trusts with a group of the bank’s high net-worth customers. These “roundtable” events were well attended and very popular.
Board members Burt Kassab and Neil Desai helped host a group of their respective clients from the medical field at a local country club to network and introduce them to Bank of Michigan and some of our team members. This event has resulted in several large relationships.
In the fall, Bank of Michigan sponsored a reception for CPAs where a legal expert presented the topic “LLCs vs. S Corporations on Formation.” Three board members who are CPAs — Desai, Pat Gregory and Al Yaldo — were instrumental to the success of the event.
This past year, we added two customer service representatives to continue our emphasis on personal banking. We also significantly expanded our free courier program to take our friendly service directly to the customer.
Bank of Michigan continued its proud tradition of community involvement. We participated in the American Cancer Society’s Relay for Life by raising money and sponsoring a booth. I had the privilege of co-hosting Covenant House of Michigan’s 10th anniversary celebration, which raised more than $150,000 to help take care of homeless youth.
In September, Bank of Michigan and three other Capitol Bancorp affiliate banks co-sponsored a real estate conference with more than 200 attendees. Capitol Bancorp Chairman & CEO Joseph D. Reid was the keynote speaker.
We look forward to doing much more business at the bank and work in the community as we further improve the bank’s performance.
— Michael G. Sarafa, President & CEO
Named by Crain’s Detroit Business as the fastest growing bank in the region…
30095 Northwestern Highway | Farmington Hills, MI 48334
248.865.1300 | www.bankofmi.com
BOARD OF DIRECTORS
Ronald G. Acho
Senior Partner
Cummings, McClorey,
Davis & Acho
Anthony G. Antone
Vice President of Development
Kojaian Management Corporation
Randy A. Denha
Attorney at Law
Cox, Hodgman & Giamarco PC
Nitin P. Desai, CPA
Director of Assurance & Tax Services
Martin Arrington Desai & Meyers PL
Patrick J. Gregory, CPA
Managing Director
UHY Advisors
Burt S. Kassab
Vice President
Kullen & Kassab, PC
Martin F. Manna
Managing Partner
Interlink Media
Nick M. Sandiha
Manager
Sandiha Holdings, LLC
Michael G. Sarafa
President & CEO
Bank of Michigan
Bruce A. Thomas
President of Bank Operations
Capitol Bancorp Limited
Al S. Yaldo, CPA
Vice President
Shimoun, Yaldo & Associates, PC
OFFICERS
Bruce A. Thomas
Chairman
Michael G. Sarafa
President & CEO
Thomas M. Linden
Executive Vice President & CCO
Cindy L. Jensen
Executive Vice President
Jack Abbo
Vice President
Barry J. Boozan
Vice President
Roxanne C. Wiemer
Vice President
34
BRIGHTON COMMERCE BANK
Gary T. Nickerson Sr., President & CEO
Brighton Commerce Bank’s employees, board members and customers celebrated the bank’s 10th anniversary in 2007. We marked the milestone in June with a giveaway of 10 Michigan vacation packages to help support our state’s challenged economy.
Being known as the only local community bank in Brighton, we have earned the respect and trust that comes from honest business dealings and providing excellent service. Therefore, we have business opportunities communicated to us by numerous spheres of influence. For instance, we provided the financing to rebuild the Spirit Center, a Veterans Affairs building that was renovated to accommodate the local American Legion. The building now has an enhanced banquet hall to accommodate social functions for veterans as well as the community.
In 2007, we marked the 10th consecutive year that we have reported 100 percent employee participation in the United Way of Livingston County campaign. Our leadership as an early campaign Pacesetter makes us a role model in United Way giving for other businesses in the county. Our board members and officers were active with the United Way throughout the campaign. The bank and employees also volunteer time or money to support 55 local organizations.
The holiday season kicks off in Brighton with our annual customer appreciation open house. Held eight days before Thanksgiving, this event each year attracts more than 200 people, including local VIPs, politicians and customers. The event is beautifully catered by our customer, C&C Catering.
The Birdie Day and Golf Ball Drop in November has become our signature event. Last year was our third year as the major sponsor with proceeds going to the Gleaners Community Food Bank. It grossed more than $17,000 and hundreds of turkeys were donated in exchange for a round of golf at one of our area’s finest golf courses.
As we focus on our second decade in business, the team at Brighton Commerce Bank is committed to earning business by serving our community with honesty and integrity.
— Gary T. Nickerson Sr., President & CEO
Earning business by serving our community with honesty and integrity.
8700 North Second Street |Brighton, MI 48116
810.220.1199 | www.brightoncommerce.com
BOARD OF DIRECTORS
John C. Codere
President
Brighton Block & Concrete
Michael B. Corrigan
President
Corrigan Oil Company, Inc.
Scott C. Griffith
President
ERA Griffith Realty
William LaMarra
Chairman & CEO
Excelda Manufacturing
Piet W. Lindhout
CEO
Lindhout Associates Architects, AIA
Lyle W. Miller
President
L. W. Miller Holding Company
Gary T. Nickerson Sr.
President & CEO
Brighton Commerce Bank
Kacee M. Reid
Attorney at Law
Kacee M. Reid PLC
Mitchell J. Stanley
President
Mickey Stanley Associates
James A. Winchel
President
Colt Park Agency, Inc.
OFFICERS
Lyle W. Miller
Chairman
Michael B. Corrigan
Vice Chairman
Gary T. Nickerson Sr.
President & CEO
Linda K. Lavely
Senior Vice President
Joseph M. Petrucci
Senior Vice President & CCO
John Szydzik
Senior Vice President & Cashier
William R. Anderson
Vice President
Mark R. DuShane
Vice President
John M. Hulyk
Vice President
Sandra T. Radtke-Gerkin
Vice President
Corey M. Ruthig
Vice President
35
CAPITOL NATIONAL BANK
Paula D. Cunningham, President & CEO
The Capitol National Bank family will forever embrace the bank’s proud heritage. In 2007, we celebrated the bank’s silver anniversary with more than 200 customers, board members, colleagues and community members, many of whom were here when the bank first opened its doors in 1982.
Our employees with the longest tenure — John Smythe, Toni Raleigh, David Feldpausch, Lori Garcia, Ronda Thompson and Pam Crossley — prove that this really is “a people business.” Lucile Belen, who cut the ribbon for the bank opening 25 years ago, gave the invocation for our silver anniversary celebration.
In 1982, there were eight banks in the Lansing area. Capitol National Bank is the only one remaining with the same name and the same location. Our staff has multiplied tenfold and total assets have increased more than 16 times. We have made local charitable contributions of more than $1 million. The economic development we have funded in greater Lansing is immeasurable.
Our original office was 1,500 square feet. Now we have more than 10,000 square feet with two additional offices in Okemos and Delta Township. We added 11 employees in 2007 and three new board members. We continuously add new products and services to better serve our customers.
However, the most important lesson we learned during the past 25 years was taught by our founding president, the late great Robert C. Carr, who passed away in 2007. The quintessential community banker, Bob taught us that “banking always has been, and always will be, a people business.”
As it was 25 years ago, our goal is to establish and nourish relationships. Rather than transactions, our success is dependent on robust relationships built on trust. Launching a new Health Care Division and working with our Young Entrepreneurs Council, our talented staff, our board of directors and the community will help ensure that we have a compelling story to share 25 years from now.
Our success will always be dependent on the value that we embraced 25 years ago. This is, and always will be, a people business. Happy Birthday to Capitol National Bank!
— Paula D. Cunningham, President & CEO
In 1982, there were eight banks in the Lansing area. Capitol National Bank is the only one remaining with the same name and location.
200 Washington Square North | Lansing, MI 48933
517.484.5080 | www.capitolnational.com
4792 Marsh Road | Okemos, MI 48864
517.347.1006 | Meridian Office
644 Migaldi Lane | Lansing, MI 48917
517.627.8881 | Delta Office
BOARD OF DIRECTORS
Christopher J. Abood, MD
President & CEO
CentisHealth
Nan Elizabeth Casey
Attorney at Law
Fraser Law Firm
Charles J. Clark
President
Clark Construction
Company
Paula D. Cunningham
President & CEO
Capitol National Bank
Frank Garrison
Past President
AFL-CIO of Michigan
Patrick F. Hayes
President
F. D. Hayes Electric
Company
Richard A. Henderson
President
Henderson &
Associates, PC
J. Christopher Holman
Publisher
The Greater Lansing
Business Monthly
Lewis D. Johns II
Vice President
Mid-Michigan Investment
Company
Kevin A. Kelly
Executive Director
Michigan State Medical
Society
Charles J. McDonald
Director of Product
Development &
Management
Capitol Bancorp Limited
Kelly D. Miller
Director of
Specialty Finance
Capitol Bancorp Limited
John D. O’Leary
Co-President
O’Leary Paint Company
Cristin K. Reid
Corporate President
Capitol Bancorp Limited
Robert L. Reid
Owner
Reid Real Estate, LLC
Patricia A. Reynolds
Retired
John C. Smythe
President
Great Lakes Region
Capitol Bancorp Limited
ADVISORY DIRECTOR
Lupe Izzo
Community Volunteer
OFFICERS
John C. Smythe
Chairman
Cristin K. Reid
Vice Chairman
Paula D. Cunningham
President & CEO
Patrick F. Hayes
Secretary
Patricia Lloyd-Barnas
Senior Vice President
John R. Farquhar
Senior Vice President
David E. Feldpausch
Senior Vice President
Nancy J. Fox
Vice President
Lori M. Garcia
Vice President
Michael S. Heath
Vice President
Capitol Wealth Advisors
Deborah R. Keyes
Vice President
Kathryn H. Korpi
Vice President
Jennifer S. Marsh
Vice President
Theodore M. Terzian
Vice President
Capitol Wealth Advisors
Ronda M. Thompson
Vice President
36
DETROIT COMMERCE BANK
Harold G. Curry, President & CEO
Each year, the professionals at Detroit Commerce Bank expand on the bank’s business plan as we pursue our goal of creating the bank of choice in Detroit and southeastern Michigan. Our pledge is to continually improve the bank’s performance by providing the products and services that sustain strong and extensive relationships with business clients. Like the historic Penobscot Building in which our bank is located, we are building a financial institution that will stand tall for generations.
Our team is committed to providing a level of service that makes us a trusted advisor to our clientele. Along the way, we have enhanced our team with seasoned bankers and support staff, expanded our bank facility by 30 percent to accommodate additional employees and added new products and services to ensure that we are serving our clients’ needs now and well into the future.
We continue to increase our community outreach and support by participating on local boards, being involved in and supporting community events and programs, and providing financial training to all members of our diverse community. For example, last year we partnered with Wayne County Community College to present a series of workshops for first-time homebuyers. We also conducted financial education seminars for youth in the state’s foster care program. Our training has helped many young people open their first bank account.
Detroit is truly the renaissance city with a growing downtown area that is generating new business and residential development. We believe that by providing a level of service that sets us apart from the competition, our team is making loyal customers out of our current clients. At the same time, we are positioning the bank to meet the financial needs of prospective clients coming to the downtown area for business or to live.
Detroit Commerce Bank’s sound reputation is developed through our dedication to excellence and community service. Profitably growing our successful bank demands hard work and persistence. Our entire team is up to the challenge.
— Harold G. Curry, President & CEO
We are building a financial institution that will stand tall for generations.
645 Griswold Street, Suite 70 | Detroit, MI 48226
313.967.9700 | www.detroitcommerce.com
BOARD OF DIRECTORS
James P. Allen Sr., Esq.
Attorney at Law
Allen Brothers, PLLC
Ralph J. Burrell
President
SymCon
Harold G. Curry
President & CEO
Detroit Commerce Bank
Donald M. Davis Jr.
Vice President
Human Resources and
Customer Relations
Health Alliance Plan
Edward Deeb
President
Michigan Business &
Professional Association
Curtis L. Ivery, PhD
Chancellor
Wayne County Community
College District
Gregory Kelser
Broadcaster, FSN Detroit
Detroit Pistons
Kelly D. Miller
Director of
Specialty Finance
Capitol Bancorp Limited
Martha K. Richardson
President
Services Marketing
Specialists, Inc.
James F. Stapleton
President
B & R Consultants
Edward Tinsley
Principal
Longfellow Group
Neal F. Zalenko
CPA & Retired Partner
VIrchow, Krause &
Company LLP
OFFICERS
Edward Tinsley
Chairman
Harold G. Curry
President & CEO
Donald M. Davis Jr.
Secretary
Mark V. McCulloch
Senior Vice President
Joyce A. Sutton
First Vice President
James R. Blanks
Vice President
Richmond J. Hawkins
Vice President
Valora L. Jackson-Cook
Vice President
Mary Seaberg King
Vice President
Ryan R. Vinco
Vice President
37
ELKHART COMMUNITY BANK
Steven L. Brown, President & CEO
Elkhart Community Bank experienced another year of growth in 2007 and added staff to serve our ever-growing client base.
We are also growing physically as the bank has started renovations on an adjacent building that it purchased. The facility will include a modern kitchen and break room, boardroom and offices for Capitol Wealth Advisors. The building also has a large room that will be available to community groups for special events.
Employee achievements and community involvement in 2007 reflected well on the bank. As the year began, I was honored to be named to a “40 Under 40” list of area business and professional leaders to achieve success before age 40. In December, our supporters cheered as our courier, Paul Randall, competed in the European International Rowing Competition in the 90 and over age group. In between, our employees came to the aid of our neighbors in a nearby community as they cleaned up their property following a devastating tornado. We proudly reported 100 percent employee participation in the United Way campaign.
We remain actively involved with professional and philanthropic organizations while always seeking new client relationships. For instance, Sports-O-Zone USA, a local company, needed financing on their patented machine that kills potentially dangerous bacteria on athletic equipment. Their problem was getting a bank to take the time to learn their business and understand their financing needs. Because little was known of this emerging market, the company was deemed too high a risk by other institutions. Last September, our lending staff analyzed the company’s business plan. Our loan officer researched the company’s market and niche. With this research and our knowledge of the partners and their abilities, the bank was able to assemble an extensive financing package. With the aid of our relationship, the company has leaped into the national spotlight in the battle against infectious organisms that threaten the health of athletes.
Knowing our community and making prudent, yet swift decisions in all questions of credit are what separates Elkhart Community Bank from the competition. We are growing our bank with meaningful relationships.
— Steven L. Brown, President & CEO
Employee achievements and community involvement in 2007 reflected well on the bank.
303 South Third Street | Elkhart, IN 46516
574.295.9600 | www.elkhartbank.com
BOARD OF DIRECTORS
R. Steven Bennett
President
Pilgrim International
Daniel L. Brekke
President
Gateway Builders & Properties
Kenneth W. Brink
President
Elkhart Cattle and Land, LLC
Steven L. Brown
President & CEO
Elkhart Community Bank
Lain R. Downs
Executive Director
The Centre, PC
Curtis T. Hill Jr.
Attorney at Law
Elkhart County Prosecuting
Attorney Office
Michael L. Kasten
Managing Partner
Kasten Investments, LLC
Richard L. Max Sr.
President & General Manager
Heart City Enterprises - House of Herbs
Myrl D. Nofziger
President
Hoogenboom Nofziger Corp.
Brian J. Smith, CPA
President
The Heritage Group
OFFICERS
Michael L. Kasten
Chairman
Myrl D. Nofziger
Vice Chairman & Secretary
Steven L. Brown
President & CEO
Lori A. Faltynski
Vice President
Duane S. Klein
Vice President & CCO
Vincent J. VonDerVellen
Vice President
38
EVANSVILLE COMMERCE BANK
Thomas L. Austerman, President
At Evansville Commerce Bank, we believe we must earn the right to use the words “Excellence and Superior Service.” We have set high standards:
| ● | Our bank must be a reliable source of useful financial products with terms customized to the individual. |
| ● | We expect our employees to exhibit sophisticated professionalism that assures the customer that we will handle their needs in an empathetic and expeditious manner and that we can and will deliver the results they have a right to anticipate. |
| ● | Our employees are required to naturally and routinely go out of their way to express an enthusiastic willingness to help in a way that causes the customer to believe beyond a shadow of a doubt that we want and appreciate their business. |
| ● | We ask our employees to remember that rather than being processors of papers and policies, we are people “Helping people live their Dreams!” |
| ● | We support our employees’ service efforts with tangibles such as world class products, tools and materials and a historic banking facility second to none. |
Are we succeeding? Well, maybe our customers express it best. Here is a testimonial from CPA Robert S. Foncannon, one of many we received from customers this past year:
“After much consideration, I made the decision to move my firm’s accounts to your bank and I couldn’t be more satisfied. I was looking for a bank where we weren’t just a number and we would receive the kind of ‘above and beyond’ customer service that we pride ourselves on at my firm. We have found your staff to be extremely helpful, genuinely concerned and willing to be flexible to meet our needs. Evansville Commerce Bank and its employees care about me and my business. I feel as though I have a partner I can grow with and that will understand and anticipate our future needs and concerns.”
Service excellence shapes the bottom line. We expect to reap the dividends in the years to come.
— Thomas L. Austerman, President
Service excellence shapes the bottom line.
20 NW 4th Street | Evansville, IN 47708
812.492.1800 | www.evansvillecommercebank.com
BOARD OF DIRECTORS
Thomas L. Austerman
President
Evansville Commerce Bank
John W. Beman, MD
Retired
Marie A. Bussing-Burks
Professor
University of Southern Indiana
College of Business
Gail A. Dunn
Community Affairs Director
Dunn Hospitality
Katherine L. Kleindorfer
Consultant
Drew F. Peyronnin
Executive Vice President
Peyronnin Construction Company
Reed S. Schmitt
Partner
Frick Powell Whinrey
Cravens & Schmitt, LLP
Frank J. Schultheis
Chairman & Partner
Evansville Holding Inc.
Insuremax Insurance Co.
John C. Smythe
President, Great Lakes Region
Capitol Bancorp Limited
Andrew T. Spurling
Property Manager
Spurling Management, LLC
Laurence R. Steenberg
President
BST Corporation
Kristen K. Tucker
Vice President
Tucker Publishing Group
Robert B. Wright
President
Wright Motors Inc.
OFFICERS
John C. Smythe
Chairman
Nina K. Fink
Recording Secretary
Thomas L. Austerman
President
Christopher M. Pfister
Executive Vice President
R. Jeanne Kelly
Vice President
Sonya G. Kincaid
Vice President
Karen J. Sosh
Vice President
39
GOSHEN COMMUNITY BANK
Douglas A. Johnston, President & CEO
Goshen Community Bank touches every one of our customers in a unique way that extends far beyond a general loan or deposit relationship. When our bank opened in 2000, Denny Sorg was one of the bank’s founding board members. Denny, along with his two sons, Randy and Toby, ran Sorg Dodge Inc. in Goshen. Sorg Dodge is a car dealership that has been a staple in the community since the early 1950s. When Denny died suddenly in late 2006, it was a shock to his family, the bank and the community. We worked closely with Randy and Toby to ensure changes in the banking relationship with the dealership were seamless and done in a professional manner. Don Riegsecker from Capitol Wealth Advisors assisted as well in helping Denny’s wife, Judy, with investment transactions.
In the middle of 2007, Randy, Toby and their sister Stephanie approached the bank about buying a dealership in Warsaw, Indiana, just south of Goshen. Denny had looked at expanding in the past but the right opportunity hadn’t developed. The bank was able to put together an SBA 504 loan to purchase the real estate and other loans for the purchase of the business. In a matter of months, Randy and Toby have been able to increase sales significantly and are making important contributions to their new community.
Last November, while hosting our quarterly Women, Wisdom and Wine network and marketing event for women entrepreneurs, the bank attracted the largest turnout yet with more than 70 people attending. Judy Sorg was there, sharing with me her appreciation for the event as well as her joy in spending time with her friends. This signature event has allowed us to strengthen our customer relationships and start new ones.
Denny left his mark on Goshen Community Bank so it is fitting that we help his family achieve their business goals. At Goshen Community Bank, it is more than helping people open accounts. It is about making a positive difference for families and the community.
— Douglas A. Johnston, President & CEO
Making a positive difference for families and the community.
511 West Lincoln Avenue | Goshen, IN 46526
574.533.2006 | www.goshenbank.com
BOARD OF DIRECTORS
David L. Cripe
Doctor of Optometry & Senior Partner
Cripe, Stephens & Stickel
Kevin Deary
President & CEO
Boys & Girls Club of Greater Goshen
Stephen L. Fidler
President
Kuert Concrete, Inc.
Christopher J. Graff
CEO & Chairman
SJC Industries Corp.
Wes Herschberger
CEO
Maple Tronics Computers
Gregory A. Hoogenboom
President
Hoogenboom Nofziger Real Estate
Mgmt. Co., LLC
Douglas A. Johnston
President & CEO
Goshen Community Bank
Michael L. Kasten
Managing Partner
Kasten Investments, LLC
Laura Morris, MD, MBA, FACS
Center for Cancer Care
The Retreat Women’s Health Center
Matthew J. Pletcher, CPA
President
Insight Accounting Group
Fred M. Ramser
Managing Partner
LMA Development
Douglas A. Stanley, DDS
Owner
Douglas A. Stanley, DDS
Alan L. Weldy
VP of Human Resources and
Legal Compliance
Goshen Health System
OFFICERS
Michael L. Kasten
Chairman
Douglas A. Johnston
President & CEO
Gregory A. Hoogenboom
Secretary
Chris R. Wolfe
Senior Vice President
Lori J. Cline
Vice President
Robert J. Eichorst
Vice President
Deborah K. Wilson
Vice President
40
GRAND HAVEN BANK
Thomas A. Creswell, President & CEO
Consistently putting the needs of our customers first has served Grand Haven Bank well in the past, and will guide us well into the future.
As we have expanded the products we offer, we have kept our focus on providing the highest level of service as we build and develop customer relationships. This high level of service may be the only thing that separates us from other financial institutions and it is something we value highly.
We are proud of the fact that our employees and customers have been with Grand Haven Bank for many years – in some cases, since the bank opened in 1995. One customer, Hortech, has been with our bank for more than 12 years. During this time, the company’s annual sales have grown 250 percent and it recently launched a second company, LiveRoof, which has quickly gained national attention.
Every three months, our bank staff meets with a team of Hortech employees to review the company’s financial performance, go over its business plan and discuss plans for the future. Hortech president Dave MacKenzie characterizes his company’s long association with Grand Haven Bank as “truly an organizational relationship.” He says: “It extends from the tellers that service our employees…to the bank president and board members, and involves many members of the Hortech staff as well. I feel that our associates at Grand Haven Bank understand the Hortech culture, organizational structure, risks and potential. Grand Haven Bank partners with us to our mutual benefit.”
At Grand Haven Bank, the emphasis on relationships and service enables us to help our many valued customers such as Hortech. Taking the time to get to know our customers helps us to provide them with superior service. This approach to business — along with our extensive community involvement and volunteer activities — has given our team members the reputation as bankers who care. We know our customers’ names and are making a positive difference in the community — during regular working hours as well as evenings and weekends!
— Thomas A. Creswell, President & CEO
Taking the time to get to know our customers helps us to provide them with superior service.
333 Washington Avenue | Grand Haven, MI 49417
616.846.1930 | www.grandhavenbank.com
BOARD OF DIRECTORS
Jeffrey W. Beswick
Attorney at Law
Varnum, Riddering, Schmidt
& Howlett, LLP
Stanley L. Boelkins
Broker
Capstone Real Estate
Thomas A. Creswell
President & CEO
Grand Haven Bank
Lee W. Hendrickson
Chief Financial Officer
Capitol Bancorp Limited
Mark A. Kleist
Attorney at Law
Scholten Fant, PC
Steven L. Maas
President
Maas Asset Management, Inc.
Michael A. McKeough
President
McKeough Land
Company, Inc.
Calvin D. Meeusen, CPA
Calvin D. Meeusen, CPA, PLLC
Timothy S. Parker
Vice President of Operations
Harbor Industries, Inc.
James M. Van Dyke
President
The Abbit Management Corp.
Bernard J. Wade
President
Advanced Signs, Inc.
Gerald A. Witherell
Retired
OFFICERS
Calvin D. Meeusen
Chairman
Gerald A. Witherell
Vice Chairman
Thomas A. Creswell
President & CEO
Steven L. Maas
Secretary
Karen K. Benson
Vice President
Christopher P. Cassleman
Vice President
Douglas F. Jones
Vice President & CCO
Thomas R. Ladd
Vice President
Betsy S. Lobdell
Vice President
Sherry J. Patterson
Vice President
41
KENT COMMERCE BANK
Mark J. DeWitt, President & CEO
Our Kent Commerce Bank team worked diligently in 2007 to develop new customer relationships. Adding value through service, teamwork and a commitment to working hard for the benefit of our clients and community remain the foundation for our future. We strive to develop new business opportunities from prospects and clients that share our core values. These relationships grow our bank.
In 2007, Kent Commerce Bank’s team became even more enterprising, focusing our efforts on forming new relationships through changes in local businesses that expanded, acquired new entities or changed ownership. We have actively sought out prospective clients seeking new investments so that we could cultivate new relationships that require the broad range of financial services that we offer.
To facilitate our efforts to reach new clients, the bank welcomed three business development officers to the Kent Commerce team. These professionals have significant experience in the West Michigan market. We have initiated marketing efforts with community newspapers and business journals to support our aggressive business development activities. This has generated more product and brand awareness as we prepare for the bank’s 10th anniversary celebration in 2008.
At the same time, our community commitment grew with the bank’s participation in the ‘Financial Community Build’ for Habitat for Humanity of Kent County. We increased our annual commitment with Healing the Children through the encouragement of board member Bob Bruggink. We enhanced our continuing support of United Way of Kent County with 100 percent employee participation in the 2007-08 campaign. Acknowledging that the young people of West Michigan hold the keys to our future, we maintained our vigorous support of the Grand Rapids Youth Commonwealth, Toys for Tots and the D.A. Blodgett Home for Children. In addition, we have had a bank officer appointed to the Forest Hills Educational Foundation board and another appointed president of the Rotary Club of Grand Rapids — East.
Our team at Kent Commerce Bank is proud of the bank’s upcoming milestone anniversary. Ten years of service is an achievement to champion. We embrace the challenges the future holds and we are as determined as ever to grow this bank safely, soundly and profitably.
— Mark J. DeWitt, President & CEO
Adding value through customer service, teamwork and a commitment to working hard.
4050 Lake Drive SE | Grand Rapids, MI 49546
616.974.0200 | www.kentcommerce.com
BOARD OF DIRECTORS
James M. Badaluco, SIOR
Executive Vice President
S. J. Wisinski & Company
Paul R. Ballard
Retired President & CEO
Portage Commerce Bank
Robert E. Bruggink, PE
President
Moore & Bruggink, Inc.
Sharon M. Buursma
Consultant
Mark J. DeWitt
President & CEO
Kent Commerce Bank
Kevin J. Einfeld
President
BDR Executive Custom
Homes, Inc.
Gary D. Hensch, CPA
President
Redstone Group, Inc.
R. Ted Hudson
Owner
Prestige Property, Inc.
Harold A. Marks, CPA
Partner
Prangley Marks, LLP
Calvin D. Meeusen, CPA
Calvin D. Meeusen, CPA, PLLC
Kelly D. Miller
Director of
Specialty Finance
Capitol Bancorp Limited
Valerie R. Overheul
President & CEO
Summit Training Source, Inc
Mary L. Ursul
Vice President
MHA Insurance Company
Michael C. Walton
Attorney at Law
Rhoades, McKee, Boer,
Goodrich & Titta
OFFICERS
Michael C. Walton
Chairman
Paul R. Ballard
Vice Chairman
Mark J. DeWitt
President & CEO
Kevin J. Einfeld
Secretary
Michael P. Boelens
Vice President
John J. Coder
Vice President & CCO
Linda S. Crawford
Vice President
Patricia K. Julien
Vice President
Daniel E. McLean
Vice President
David H. Moored
Vice President
Ryan L. Wolthuis
Vice President
42
MACOMB COMMUNITY BANK
James R. Kaye, President & CEO
Macomb Community Bank, like so many other Michigan businesses, faces the challenge of navigating a road to the future fraught with economic speed bumps affecting progress and growth.
Year 2007 was one of statewide economic strife. Macomb Community Bank, its employees and clients constantly faced financial adversity in one form or another. Together we are working to turn these challenges into opportunities, and these opportunities into a mutually beneficial environment where all roads lead to prosperity for both Macomb Community Bank and our neighbors.
Now, more than ever, our customers are depending on us to develop products and services they will need to meet the demands of today’s business world and to prepare for the future.
At Macomb Community Bank we welcome these challenges and realize that our success relies on the success and well-being of our community. By helping our neighbors we will in turn be helping ourselves.
Macomb Community Bank is fortunate to call on the dedication of our employees and their community involvement with local charities as well as their professional experience in banking. We also have an active board of directors dedicated to numerous philanthropic endeavors and community service that keeps our name prominent in the public’s eye.
The future, though unpredictable, holds many possibilities for Macomb Community Bank. Plans are being developed for a stand alone facility that will become the focal point of a new financial center in Macomb County.
We don’t know what lies ahead as we travel this road to the future, but we do know that we now have the proper vehicles to successfully navigate our journey.
You cannot know where you are going if you do not remember where you have been. We remember.
Macomb Community Bank…where all roads lead to banking done the right way…your way.
— James R. Kaye, President & CEO
Our success relies on the success and well-being of our community.
16000 Hall Road, Suite 102 | Clinton Township, MI 48038
586.228.1600 | www.macombcommunity.com
BOARD OF DIRECTORS
Christina C. D’Alessandro
Vice President
Villa Custom Homes
Tony J. Gallo
CEO
Gallo Companies
James R. Kaye
President & CEO
Macomb Community Bank
David F. Keown
Certified Building Official
Washington Township
Peter J. Lucido
Attorney & Counselor at Law
Law Offices of Peter J. Lucido
Robert Pelachyk
President & CEO
Heller Machine Tools
Delia Rendon Martin
Co-Owner
Martin Enterprises
Barbara W. Rossmann
President & CEO
Henry Ford - Macomb
John C. Smythe
President, Great Lakes Region
Capitol Bancorp Limited
OFFICERS
John C. Smythe
Chairman
James R. Kaye
President & CEO
Christina C. D’Alessandro
Secretary
Frank J. Buscemi
Vice President
Nicolet B. Cassidy
Vice President
Andrew G. Harper
Vice President
Bradley A. Nicholson
Vice President
Julie B. Pellerito
Vice President & CCO
43
MUSKEGON COMMERCE BANK
Robert J. McCarthy, President & CEO
Muskegon Commerce Bank’s founding principles are to be competitive, flexible and creative. We have a track record of producing customized banking solutions for consumers, businesses, municipalities and high net-worth individuals. Our founding principles have led to our success.
We celebrated the bank’s 10th anniversary in 2007. The bank’s growth has been rapid yet controlled which, considering the tumultuous economy, is a monumental accomplishment.
Amid challenges during 2007 we established a significant relationship with the Muskegon County Treasurers’ Association. After the City of Norton Shores became a customer in 2006, the Muskegon County government and other municipalities have either opened significant accounts with our bank or given us the opportunity to make a proposal for their business. Last June, we made a presentation to 29 local treasurers that led to the opening of several new accounts. We have since followed-up with additional presentations and plan to open several new accounts with the local governments in the coming years.
In addition to meeting the financial needs of the Muskegon community, we take pride in our pledge of service to the special needs of this community. We are proud supporters of the Chamber of Commerce, United Way, American Red Cross and Animal Control. Our employees are active with the Rotary Club and various civic, religious and service-based groups. We’ve been a major sponsor of the Parade of Homes, Michigan Irish Music Festival, Muskegon Summer Celebration, Muskegon Air Fair and the Miss Michigan Scholarship Pageant.
As we reflect on our bank’s first 10 years in business, we recall our humble beginnings. We began operations in a 1,500-square-foot office, moved to a 5,500-square-foot former restaurant, and built our new 12,000-square-foot building last year. Meanwhile, we grew our staff from six to 25 employees.
Muskegon Commerce Bank has always adapted well to change because we know that with change come new opportunities. Change has been an ingredient for our success. It will be a part of our destiny as well.
— Robert J. McCarthy, President & CEO
Change has been an ingredient for our success.
281 Seminole Road | Muskegon, MI 49444
231.737.4431 | www.muskegoncommerce.com
BOARD OF DIRECTORS
Philip J. Andrie
President
Andrie, Inc.
William C. Cooper
President & Owner
AMG Business Center
Mark Hoofman
President
ProFab – Production Fabricators
Edgar W. Hunt
Retired Bank President
First of America Bank
Christopher L. Kelly
Attorney at Law
Parmenter O’Toole
Donald Martines
President
Ace Acquisition Company
Robert J. McCarthy
President & CEO
Muskegon Commerce Bank
Kelly D. Miller
Director of Specialty Finance
Capitol Bancorp Limited
James Stanford Tyler
President
Tyler Sales Company, Inc.
William Vanderweele Jr.
President
Weber Lumber
OFFICERS
Christopher L. Kelly
Chairman
Robert J. McCarthy
President, CEO & Secretary
Jerry L. Bayak
Chief Credit Officer
Terri K. Swarts
Chief Operating Officer
David C. Christopher
Vice President
James A. Mikesell
Vice President
44
OAKLAND COMMERCE BANK
Larry R. Nichols, President & CEO
Oakland Commerce Bank’s team of veteran bankers is pursuing new business opportunities that fully utilize the cutting-edge financial products and services that we have available for small and mid-size companies and professionals.
Business development activities were at the forefront in 2007 and will remain so going forward. For instance, we are displaying our entrepreneurial energy in courting business from area dental practices. During the fourth quarter, we sponsored a continuing education program for the Oakland County Dental Society at a public library in Farmington Hills. We devoted a team of six bank officers to this event. I spoke to the assembly of 120 dentists and presented the Oakland Commerce Bank story. While a couple of my colleagues represented the bank at an information table handing out brochures detailing the financial products and services that can benefit the dentists, other officers introduced themselves to potential customers. We are generating new business and vigorously pursuing leads from this event.
In developing new relationships, we take the time to understand a prospective customer’s business so that we can fully service the potential client’s short and long-term financial needs. We want to help our clients maximize their earning potential as we save them money with lower operating costs. We do this by customizing financial solutions for each client.
At the same time, we are becoming more active with service and business organizations to raise the bank’s brand awareness with our target audience — businesses and professionals. In June, we were a court sponsor for the popular Gus Macker 3-on-3 basketball tournament organized by the Optimist Club of West Bloomfield. In September, we joined Capitol Bancorp and four affiliate banks in sponsoring the annual Real Estate Franchise Conference organized by the Chaldean Chamber of Commerce. That same month, the bank was an exhibitor at the Farmington Hills Chamber of Commerce Business Expo.
The veteran staff at our full-service bank has much to offer clients and prospects. We are determined to deliver quality financial services while adhering to safe and sound banking practices.
— Larry R. Nichols, President & CEO
We take the time to understand a prospective customer’s business.
31731 Northwestern Highway, Suite 100 | Farmington Hills, MI 48334
248.855.0550 | www.oaklandcommerce.com
BOARD OF DIRECTORS
Mark A. Aiello
Attorney at Law
Foley & Lardner LLP
Donald A. Bosco
President
Donald A. Bosco Building, Inc.
Mark B. Churella
President & CEO
FDI Group
Leon S. Cohan
Counsel to the Firm
Barris, Scott, Denn & Driker
Michael J. Devine
Attorney at Law
Michael Evangelista
Owner, Secretary & Treasurer
Tony Angelo Cement Construction
Company
Jeffrey L. Hauswirth
CPA, CVA, President
Hauswirth + Moncrief
David F. Lau
President
Lau & Lau Associates, LLC
Jeffrey M. Leib
President
Law Offices of Jeffrey M. Leib
Larry R. Nichols
President & CEO
Oakland Commerce Bank
Julius L. Pallone
President
J. L. Pallone Associates
Francine Pegues
President
Dan Teak, LLC
OFFICERS
Michael J. Devine
Chairman
Larry R. Nichols
President & CEO
Robert. J. Malek
Executive Vice President & CCO
Thomas K. Perkins
Senior Vice President
James F. Miller
Vice President & Secretary
Paula K. Boegner
Vice President
William R. Hartley
Vice President
45
OHIO COMMERCE BANK
Dell R. Duncan, President & CEO
The year 2007 will always hold a special place in the hearts of those associated with the early history of Ohio Commerce Bank.
First, it will be remembered for the special relationship built with Capitol Bancorp when we became the 50th affiliate to open and operate under the Capitol banner. Also, it will be remembered for the commitment of a most dedicated, professional staff, implementing the many new systems associated with the modern products and services offered to businesses, professionals and retail customers of the bank.
On November 2, 2007 our team and supporters celebrated the bank’s first anniversary with many reasons to be proud. Ohio Commerce Bank became the first new bank to be chartered in Cuyahoga County in the past 16 years.
Ohio Commerce Bank opened in temporary offices with a team of nine experienced bankers. In April, we moved into sparkling new offices and on May 9, 2007, hosted a formal grand opening event, which was attended by 250 guests. As we celebrated our anniversary, we were grateful for the many contributions received throughout this journey. Playing key roles were the Capitol Bancorp team, our board of directors, and most importantly, our enthusiastic staff.
Our achievements were considerable. We exceeded our noninterest deposit to total deposit ratio. A state-of-the-art Internet cash management product was made available to our customers and they responded positively by opening the highest number of new accounts in the eastern region. We received the 2007 Emerging Bank of the Year Award, from the Growth Capital Corporation, our area’s SBA 504 certified development company. And last but not least, we were featured in the business section of The Cleveland Plain Dealer on November 23, 2007.
Looking forward, Ohio Commerce Bank will continue to build on its brand and tagline, “It’s All About Attention,” focus on meeting aggressive business goals, develop and diversify the board, and maintain our commitment to excellence in all we do.
— Dell R. Duncan, President & CEO
We became the 50th affiliate to open and operate under the Capitol banner.
24400 Chagrin Boulevard, Suite 100 | Beachwood, OH 44122
216.910.0550 | www.ohiocommercebank.com
BOARD OF DIRECTORS
L. Louis Amoroso
Retired Bank Executive
Commerce Exchange Bank
John P. Andrews
President
Industrial Security Services, Inc.
Dell R. Duncan
President & CEO
Ohio Commerce Bank
Lawrence D. Katz
Owner
L. Katz Coaching & Consulting
Stuart F. Kline
President
Chase Properties, Ltd.
Mark A. Mintz, Secretary
Director & Founder
SageQuest
Cary M. Root
President
American Logistics Group, Inc.
Christopher J. Smerglia
EVP/Chief Credit Officer
Ohio Commerce Bank
John C. Smythe
President, Great Lakes Region
Capitol Bancorp Limited
Gary A. Vaccaro
Retired President & CEO
Ohio Commerce Bank
James R. Wymer
President
WXZ Development, Inc.
Gregory S. Zenczak
President
Orttech Inc.
Stephen J. Zenczak
President
Triad Investments, Inc.
OFFICERS
L. Louis Amoroso
Chairman
Gary A. Vaccaro
Vice Chairman
Mark A. Mintz
Secretary
Dell R. Duncan
President & CEO
Christopher J. Smerglia
Executive Vice President & CCO
Jamie A. Brotherton
Senior Vice President
Richard J. Miller
Vice President
46
PARAGON BANK & TRUST
Randall R. Smith, President & CEO
At Paragon Bank & Trust, we have spent a considerable amount of time and energy on business development with our board of directors and staff. Our team is focused on high-touch client service, high-profile community involvement and leveraging these activities to develop new business for the bank.
Paragon Bank & Trust maintains a high-profile in the community. We are active with the Holland Chamber of Commerce, dozens of local nonprofit organizations and the United Way of Ottawa County, which funds hundreds of local organizations that assist deserving neighbors and keep our community attractive for business.
We have reported 100 percent employee participation in the United Way campaign for the past several years, remaining active in the campaign from start to finish. We always field a team of employee volunteers for the Day of Caring at the start of the campaign. During the campaign, there are weekly events and fundraisers to maintain the campaign excitement. Then we treat our staff to a luncheon at the end of the campaign to thank them for their dedication.
Our employees are engaged in every aspect of our bank. Employee involvement, we believe, is the most effective way for them to remain committed to our shared goals. In addition to promoting and providing a high level of client service, all employees are encouraged to serve on one or more bank committees devoted to business development, marketing, client appreciation, charitable contributions and community involvement. We also have a sign committee that determines the type of timely messages that will be displayed on the electronic sign in front of the bank. Our social committee plans employee events that promote camaraderie and team building.
In the community, the bank maintains an active presence. In 2007, our employees staffed an exhibition table and handed out brochures at such events as the Business to Business Showcase, Senior Expo and the Holland Tulip Time festival.
This steady employee involvement in business and the community is our strategy for building on our past achievements and ensuring a profitable future for Paragon Bank & Trust.
— Randall R. Smith, President & CEO
Our team is focused on high-touch client service.
240 East 8th Street | Holland, MI 49423
616.394.9600 | www.paragonbank.com
Trust & Investments Division
616.394.9055
BOARD OF DIRECTORS
Robert J. Bates, MD
Physician
Western Michigan Urological
Assoc., PC
Charles A. Brower
CPA & Partner
DeLong & Brower, PC
Scott Diepenhorst
Principal
SD & Associates, Inc.
Paul Elzinga
President
Paul Elzinga
Consulting, Inc., PC
Chairman Emeritus
Elzinga & Volkers, Inc.
Michael P. Haverdink
President
Ottawa Kent Insurance
Agency, Inc.
Lee W. Hendrickson
Chief Financial Officer
Capitol Bancorp Limited
Grant M. Kasten
President
Kasten Insulation Services, Inc
Lawrence D. Kerkstra
Chairman
Kerkstra Precast, Inc.
Scott G. Kling
President
Trust Operations
Paragon Bank & Trust
Leonard Maas
President
L & M Maas Investments, LLC
Mitchell W. Padnos
Executive Vice President
Louis Padnos Iron & Metal
Company
Richard H. Ruch
Director Emeritus
Randall R. Smith
President & CEO
Paragon Bank & Trust
Richard G. Swaney
Attorney at Law
Swaney & Thomas, PC
Ned B. Timmer
President
T2 Communications
Barry L. Werkman
Retired Vice
President of Finance
Hope College
ADVISORY DIRECTOR
Robert J. Trameri
Director Emeritus
Retired Chairman
Paragon Bank & Trust
OFFICERS
Richard G. Swaney
Chairman
Charles A. Brower
Vice Chairman & Secretary
Randall R. Smith
President & CEO
Scott G. Kling
President
Trust Operations
C. Steven DeLoof
Senior Vice President & CCO
M. Jane Riemersma
Vice President
Alan K. Yamaoka
Vice President
47
PORTAGE COMMERCE BANK
Dennis J. Kuhn, President & CEO
As we celebrate Portage Commerce Bank’s 20th anniversary in 2008, we thank our long-time customers, board members and employees. Ten of our 14 board members have been with the bank since the beginning.
We are proud of our achievements. The bank reached profitability after only nine months in business. Our addition to Capitol Bancorp in 1990 signaled the beginning of Capitol’s growth and transition into becoming the premiere bank development company in America.
Portage Commerce Bank has been a provider of meaningful jobs in our community. We have funded economic development and small business growth in the Portage area.
From our start, navigating the economic challenges in the late 1980s, we have grown into a respected and successful community bank. Almost 20 years later, the state’s economy has come full circle and we are positioned to handle the current economic challenges.
In 2007, for example, we expanded our business, growing loans, deposits and revenues while achieving strong asset quality measures. Much of the credit can be attributed to our veteran staff. Our officers average more than 18 years of experience in financial services. They have expanded relationships with existing customers and cultivated business with new customers.
Our relationships in the small business community continue to grow. In 2007, we nearly doubled the bank’s U.S. Small Business Administration loan volume. Our commercial lenders devote their time to tailoring solutions for clients.
Capitol Wealth Advisors is helping us develop new opportunities. The wealth management business more than doubled in 2007, necessitating the addition of a second investment representative.
We approach the future with a clear vision and firm determination to uphold the ideals upon which we were founded — to meet the financial services needs of our community through superior service.
Despite the economic fluctuations, there will always be a small business market that we are very adept at serving. It is the many growing small businesses in southwestern Michigan that provide the real financial stability for our community. As long as we stay true to our mission and build relationships, that market will stay true to us.
— Dennis J. Kuhn, President & CEO
Our officers average more than 18 years of experience in financial services.
800 East Milham Road | Portage, MI 49002
269.323.2200 | www.portagecommerce.com
BOARD OF DIRECTORS
Paul R. Ballard
Retired President & CEO
Portage Commerce Bank
David L. Becker
Retired Founder
Becker Insurance Agency, P.C.
Thomas R. Berglund, MD
Retired
Portage Physicians
Robert B. Borsos
Attorney at Law & Shareholder
Kreis, Enderle, Callander
& Hudgins, P.C.
John M. Brink
CPA & Partner
Brink, Key & Chludzinski, P.C.
Patricia E. Dolan
Community Volunteer
Alan A. Halpern, MD
Michigan Orthopedic Surgery &
Rehabilitation, P.C.
Robert L. Johnson, Retired
Secretary & Treasurer
Medallion Properties, Inc.
Michael L. Kasten
Managing Partner
Kasten Investments, LLC
Dennis J. Kuhn
President & CEO
Portage Commerce Bank
Paul M. Lane, PhD
Seidman School of Business
Grand Valley State University
William J. Longjohn
Retired Vice President
Midwest Business Exchange
John W. Martens, CPA
Retired
Russell M. Rathburn
President & Owner
Rathco Safety Supply, Inc.
OFFICERS
Michael L. Kasten
Chairman
William J. Longjohn
Vice Chairman & Secretary
Dennis J. Kuhn
President & CEO
Steven K. Piper
Executive Vice President
& CCO
John M. Crandle
Senior Vice President
Cheryl M. Germain
Senior Vice President
James V. Lunarde
Senior Vice President
Kenneth R. Blough
First Vice President
Roy L. Dangel Jr.
First Vice President
James E. Higgins
First Vice President
Carol L. Ludlow
First Vice President
Susan M. Wright
First Vice President
James S. Burkett
Vice President
Steven J. Todd
Vice President
48
Stanley E. Ricketts, Region President
50 Bank of Belleville
51 Community Bank of Lincoln
52 Summit Bank of Kansas City
49
BANK OF BELLEVILLE
Kevin M. Pesko, President
Unique marketing and networking efforts in 2007 underscored Bank of Belleville’s successful business development. The result was a solid year of growth and an optimistic outlook for 2008. In addition to the bank adding three new board members, we added key banking professionals to our staff to increase business referrals.
We are branding the bank through our extensive community involvement. In November, the bank once again sponsored two meetings of The Alternative Board (TAB). TAB is composed of local CEOs and business owners that meet monthly to exchange business strategy ideas, advice and solutions.
Involvement with the business community is emphasized at our local Rotary clubs. We were proud last July when one of our officers became president of the St. Clair County East Rotary Club.
Shortly after the bank’s debut, we became the annual sponsor of the popular horse-drawn trolley for downtown holiday shoppers. This past holiday season marked our third year of involvement with this signature event.
Bank of Belleville earned recognition last year for its sponsorship of an electronic message sign at the region’s leading parochial high school. The sponsorship was announced at the school’s Vision & Values dinner, which many business and community leaders also attended.
Our staff stayed late in November creating a gingerbread likeness of the bank building to be displayed in a local merchant’s front window during the annual Gingerbread Walk. This tradition recalls Belleville’s heritage. In the 1850s, the city had a large population of German immigrants and many of the buildings feature gingerbread architecture.
We have seen the loan portfolio grow and diversify through the addition last year of two experienced commercial lenders and a talented mortgage lender. The addition of an investment executive with Capitol Wealth Advisors will further diversify our revenue stream while providing us with many excellent opportunities to expand our existing customer relationships and develop new ones.
The past year was a period of growth for Bank of Belleville. The future remains bright as we heighten our community presence and more fully service our customers.
— Kevin M. Pesko, President
We are branding the bank through our extensive community involvement.
720 West Main Street, Suite 100 | Belleville, IL 62220
618.233.6400 | www.bankofbelleville.com
BOARD OF DIRECTORS
Dennis E. Bielke
Retired Banker
Community Volunteer
Michael G. Guignon, MD
Michael Guignon, MD, PC
President & Physician
Gary R. Hoelscher
President
Hoelscher Engineering, PC
Edward A. Hoering III
Principal, CPA
Ganim, Meder, Childers
& Hoering, PC
Claire S. Leopold
President
Nester Realty Inc.
Carl J. Miller
President
W. A. Schickedanz Agency, Inc.
Kevin M. Pesko
President
Bank of Belleville
Pramual P. Pongpitoon
President
Medical Diagnostic
Laboratory Inc.
Wyatt Rawlings III
Owner
Wyatt Rawlings III CPA, LLC
George J. Renner III
Funeral Director
George Renner & Sons
Funeral Homes Inc.
Stanley E. Ricketts
President, Midwest Region
Capitol Bancorp Limited
James E. Shay
President
Shay Roofing, Inc.
Douglas D. Sitton
President
Sitton Consulting Group
OFFICERS
Stanley E. Ricketts
Chairman
Kevin M. Pesko
President
Ronald R. Stephens
Executive Vice President
& CCO
Jean L. Waeltz
Vice President & COO
Mary E. Blackard
Vice President
Jo Ann Bohnenstiehl
Vice President
Ramona A. Friederich
Vice President
Pamela S. Herbeck
Vice President
Jacqueline Lemmon
Vice President
50
COMMUNITY BANK OF LINCOLN
Mary C. Gerdes, President
With the launch of Community Bank of Lincoln as the first affiliate in Nebraska, we are privileged to officially link the east and west nationally as we join the Capitol Bancorp family of banks. We are positioned in the center of Capitol’s geographic footprint, in a state that enjoys a stable economy and immense potential for growth.
Lincoln is Nebraska’s capital city as well as home to the University of Nebraska. Lincoln also has an extensive medical community that we are developing as part of the foundation of our customer base.
This bank was organized with guidance provided by our local board of directors whose members have pledged that our bank will provide premier financial services to the businesses and individuals in and around Lincoln. As you can see from the names on this page and the professions represented, the directors will develop a unique approach to assisting local investors and the community at large. Many of our directors are entrepreneurs who understand the needs of business people in our market. We strive to know each of our customers so that we may provide them with relationship-based banking and offer customized, individual solutions to address their financial needs.
I am proud to say that we personally selected a team of professional bankers with years of experience in the Lincoln market. We recruited each employee because of their excellent professional background in Nebraska banking. By doing this, we have formed a team with the entrepreneurial spirit and commitment that will partner with our investors to ensure a successful community bank.
With the bank’s opening in December 2007, we are positioned to deliver our customized financial solutions with a team that is excited about our future and the possibilities to establish Community Bank of Lincoln as the premier bank in the city of Lincoln.
— Mary C. Gerdes, President
We are positioned in the center of Capitol’s geographic footprint, in a state that enjoys a stable economy and immense potential for growth.
3801 Union Drive, Suite 200 | Lincoln, NE 68516
402.423.2111 | www.bankoflincoln.com
BOARD OF DIRECTORS
Mary C. Gerdes
President
Community Bank of Lincoln
Kaylyn R. Jackman, OD
Optometrist
Eye Surgical Associates
Gordon V. Karels
Chair, Dept. of Finance
College of Business Administration
University of Nebraska-Lincoln
Alan C. Linderman, MD
Nebraska Internal Medicine, PC
Paula J. Metcalf
Attorney at Law
Metcalf Law
Gary L. Novotny
Owner & President
Gary Michaels’ Clothiers
Donald W. Pederson
Attorney at Law
Retired State Senator
Laura E. Pederson
Student
Steve B. Rexroth
Owner
Miracle Workers Auto Collision
Robert B. Rhodes, MD
Southwest Family Health
Stanley E. Ricketts
President, Midwest Region
Capitol Bancorp Limited
Kurtis A. Suhr
Architect
Architecture One
Mark L. Vanicek, DDS
Dentist
Mark Vanicek, DDS, PC
OFFICERS
Stanley E. Ricketts
Chairman
Kaylyn R. Jackman
Secretary
Mary C. Gerdes
President
Brian V. Wolford
Executive Vice President & CCO
Steve L. Schmidt
Executive Vice President
Patrick A. Dettmer
Vice President
Angie R. Schwartz
Vice President
51
SUMMIT BANK OF KANSAS CITY
Richard L. Viar, President
There has been extraordinary excitement and many challenges for the team at Summit Bank of Kansas City during the bank’s second full year of business.
In keeping with Capitol Bancorp’s unique business model and the latitude given to achieve our strategic objectives, we were able to enjoy several meaningful accomplishments in 2007:
| ● | Our bank was the sixth highest volume lender in the U.S. Small Business Administration’s Region VII and one of the top SBA loan producers for Capitol Bancorp. |
| ● | The Kansas City Business Journal recognized our bank as one of the top 10 “Best Places to Work in Kansas City.” |
| ● | We hosted our first annual “Fan Appreciation Day.” The baseball-themed event highlighted wealth management, residential mortgage, Internet banking and SBA lending, attracting more than 110 guests. |
| ● | In keeping with our core value of Community Leadership, we formed strategic partnerships with a local middle school, area chambers of commerce and economic development councils to enhance business development. |
| ● | We participated in a community-wide “Support our Troops” event honoring active and retired military personnel. |
As we look to future opportunities, Summit Bank of Kansas City is solidly positioned to attract deposits, make loans and provide other products and services that maximize value for all of our customers. Our board members continue to take an exceptionally strong role in strengthening the bank’s business development program, each opening doors to new relationships that would otherwise be closed.
Our staff enjoys a competitive advantage that is rare in our community and industry — the advantage that results from being fully empowered to promptly meet the credit needs of our customers. More and more, Summit Bank of Kansas City is becoming the community bank of choice in the Kansas City metroplex.
Summit Bank of Kansas City is “Where Relationship and Opportunity Meet!”
— Richard L. Viar, President
Our staff enjoys a competitive advantage that is rare in our community and industry.
1650 NE Grand, Suite 100 | Lee’s Summit, MO 64086
816.251.9000 | www.summitbankofkc.com
BOARD OF DIRECTORS
Jack A. Accurso
Chairman
American Foodservice Company
Carl L. Chinnery
Attorney at Law
Chinnery, Evans & Nail, P.C.
William W. Coates IV
President
Billy Goat Industries
Roger L. Fender, DDS
Fender Family Dentistry
Robert F. Glaser
Vice President-Business
Development
Summit Bank of Kansas City
Harlan L. Limpus
Executive Member
Winterstone Golf Course
Kurt D. Pycior
President
Froehlich Pycior Companies
Stanley E. Ricketts
President, Midwest Region
Capitol Bancorp Limited
Carson Ross
Owner
Carson Ross Consulting
Diane J. Seif
President
DVA Enterprises Inc.
Steven M. Silverstein, MD, FACS
President
Silverstein Eye Centers, PC
Richard L. Viar
President
Summit Bank of Kansas City
OFFICERS
Stanley E. Ricketts
Chairman
Richard L. Viar
President
Phillip W. McElhaney
Executive Vice President, CCO &
Secretary
Vicki L. Henderson
Senior Vice President & COO
Robert K. Dempski
Senior Vice President
Capitol Wealth Advisors
Patricia E. Case
Vice President
Robert F. Glaser
Vice President
Gregory L. Singleton
Vice President
52
Thomas C. Mangione, Region President
54 1st Commerce Bank
55 Bank of Las Vegas
56 Black Mountain Community Bank
57 Desert Community Bank
58 Red Rock Community Bank
53
1st COMMERCE BANK
Al G. Gourrier, President
1st Commerce Bank’s staff and clients celebrated the bank’s first anniversary in October 2007. With our dedication to building long-term client relationships, we are establishing a reputation as the premier community bank in North Las Vegas. Along with the staff’s community involvement, we are personifying our motto, “1st Class Service, 1st Class Commitment.”
Through the expertise and dedication of our highly skilled staff, the bank’s products and services were expanded in 2007 to better serve our clients. Simultaneously, we diversified our staff with the addition of an investment executive and mortgage loan officer.
Client satisfaction is generating new business referrals. A prime example is Madison Grace Construction Services, a new client that was referred to the bank last year. In addition to establishing a loan relationship, we were able to help with the company’s ownership transition and improve its operations by providing products and services essential to its continued success. Now that the company is poised for growth and further success, this valued client has become a terrific referral source for the bank.
In 2007, I was honored to be recognized as one of the “40 under 40” named by In Business Las Vegas magazine and also named a “Mover and Shaker” by Vegas Young Professionals. While these honors are flattering, they have, more importantly, generated essential publicity for our young bank.
Likewise, our top officers are active in more than two dozen organizations that provide professional development as well as numerous networking opportunities. Our involvement with various community organizations puts us in touch with small and mid-size businesses that belong to our niche market.
As a committed community bank, we support local schools that are developing southern Nevada’s future leaders. We also took part in food, clothing and toy drives to help our less fortunate neighbors.
1st Commerce Bank is becoming well known in the business communities of North Las Vegas and southern Nevada. We believe our 1st class service and commitment to our community helps us reach our goal of becoming a high performing bank.
— Al G. Gourrier, President
Our involvement with various community organizations puts us in touch with small and mid-size businesses…
5135 Camino Al Norte, Suite 100 | North Las Vegas, NV 89031
702.942.2050 | www.1stcommercebank.com
BOARD OF DIRECTORS
Russell S. Bono
Realtor
Award Realty
Michael J. Devine
Attorney at Law
Al G. Gourrier
President
1st Commerce Bank
Xavier D. Peterson
President & CEO
Quality Investigations Inc.
Rian M. Ross
Owner
Southwest Commercial
Real Estate
Harry H. Shull
Owner
Celebrate Homes
Henry B. Soloway, MD
Retired Physician
John J. Zanoni
President
Zanoni & Company LLP
OFFICERS
Michael J. Devine
Chairman & Secretary
Al G. Gourrier
President
John R. Kley
Executive Vice President & CCO
Marcel M. Baker
Vice President
David G. Smith
Vice President
Biagio J. Vultaggio
Vice President
54
BANK OF LAS VEGAS
Vincent J. Ciminise, President & CEO
Staff and board members joined customers in celebrating the bank’s fifth anniversary last year. In name and deed, we aim to be the Bank of Las Vegas.
Perhaps indicative of the bank’s success during the first five years was the need for additional work space. We expanded our offices last year to make room for additional lenders and our new Capitol Wealth Advisors investment executive. This additional staffing will benefit our growth plans for 2008 and beyond.
The success of any business can be judged by its customers. Our customers tell us that we are the best bank and, as a result, they are our best source of referrals. We strive to make every customer feel like they are our only customer.
Convenience is something we know our busy business customers appreciate. In 2007, we offered more depository products that allowed our customers more ease and flexibility in transferring funds. Additionally, the bank’s online banking system saw several upgrades and enhancements last year.
Our board members are another excellent referral source. The addition last year of a board member from the title insurance industry provided the board with additional insight in the local commercial and residential real estate markets. In the second half of 2007, we also added a new residential lending team, which has several years of local market experience.
Our ability to handle several larger loan transactions last year benefited the bank from a growth standpoint, while also enhancing our credibility in the dynamic Las Vegas market as a financial institution that can facilitate these types of transactions.
Involvement with community organizations reaffirms all we do as a business. In 2007, our team was active with many organizations that help improve the quality of life for our area’s less fortunate individuals. Our leadership was evident in coordinating the breast cancer research fundraiser for the Capitol Bancorp affiliate banks in southern Nevada in October. We are also involved with the Nevada chapter of the Society for the Prevention of Cruelty to Animals.
The first five years were a rousing success. We are excited by the possibilities for the next five years when we plan to solidify our status in name and deed as the Bank of Las Vegas.
— Vincent J. Ciminise, President & CEO
Our customers tell us that we are the best bank and are our best source of referrals.
6001 South Decatur Boulevard, Suite P | Las Vegas, NV 89118
702.939.2400 | www.bankoflasvegas.com
BOARD OF DIRECTORS
Vincent J. Ciminise
President & CEO
Bank of Las Vegas
Darlene Copsey
Secretary & Treasurer
The Alpha Group Ltd.
Michael J. Devine
Attorney at Law
Leo N. Durant
Owner
LND Construction
Scott R. Gragson
Managing Partner
GKT Acquisitions
Donald K. Hamrick
General Manager
Chapman Dodge
Darryl J. Hardy
Vice President
Hardy Painting & Drywall
Alan R. Houldsworth
Partner
Houldsworth & Company, CPAs
Ronald H. Reynolds
Senior Partner
Callister & Reynolds
Philip T. Saunders
Retired Executive
General Motors Corporation
Michael H. Singer
Owner & President
Michael H. Singer, Ltd.
Herman A. Vander Veldt
Branch Manager
PrimeLending
Eleanor N. Wilcox
President
Stewart Title Company
OFFICERS
Michael J. Devine
Vice Chairman
Vincent J. Ciminise
President & CEO
Roger S. Mellies
Executive Vice President & CCO
Carol A. Clemens
Senior Vice President
Louis Gonzalez III
Senior Vice President
William C. Russell
Senior Vice President
Lynne S. Adams
Vice President
Debbie V. Clarke
Vice President
Randall S. Daugherty
Vice President
Ann Fox
Vice President
Tina M. O’Malley
Vice President
Michael Rodriguez
Vice President
55
BLACK MOUNTAIN COMMUNITY BANK
Peter M. Atkinson, President & CEO
The past year has been the most interesting and perhaps the most challenging since Black Mountain Community Bank opened seven years ago.
Las Vegas has 40,000 new rooms under construction on the Las Vegas strip alone which will create some 200,000 new jobs in the next three years. We have had more than 6,000 people move into Las Vegas on a monthly basis for almost two decades. So, in spite of some current weakness in our residential market, there is certainly no easing up in the demand for affordable housing.
This growth also creates a need for office, retail and industrial space. The commercial real estate sector is still strong, albeit more expensive. Quality banking opportunities are still plentiful but pricing as always is very competitive. Our local economy looks good for the next several years. Obtaining full banking relationships, including loans, deposits and services are the keys to a bright future — and that is our aim.
Last June I was elected chairman of the Nevada Bankers Association and re-elected to the board of the Henderson Development Association, which works with the Henderson Economic Development Division and the Chamber of Commerce. I was also appointed to the President’s Advisory Board for Nevada State College. These are opportunities both to serve and gain recognition for our bank.
We began funding two four-year memorial scholarships to Nevada State College: one in nursing named after Mike and Carolyn O’Callaghan, the former governor and parents of our director Colleen O’Callaghan-Miele, and one in teaching named for two local Little League® ball players coached by customer DJ Allen.
As the bank’s business lines diversify and grow, we are expanding our office space. Last year, we needed more room for the residential mortgage division and to handle the addition of Capitol Wealth Advisors personnel. This expansion of employees, products and services makes us more competitive than ever. These improvements position Black Mountain Community Bank for another successful year and continued growth for many years to come.
— Peter M. Atkinson, President & CEO
I was elected chairman of the Nevada Bankers Association and re-elected to the board of the Henderson Development Association.
1700 West Horizon Ridge Parkway, Suite 101 | Henderson, NV 89012
702.990.5900 | www.bmcb.com
BOARD OF DIRECTORS
Kristine E. Anaya, CPA
Anaya & Company, Ltd.
Peter M. Atkinson
President & CEO
Black Mountain Community Bank
Amador Bengochea
President
Bentar Development Inc
Michael J. Devine
Attorney at Law
Betty A. Kincaid
Investor
Michael J. Mixer
Corporate Broker
Colliers International
Colleen C. O’Callaghan-Miele
President & Owner
H.B.C. Publications
Phillip N. Ralston
Executive Vice President & CFO
American Nevada Company
Christopher G. Samson
President & Owner
FN Investments Inc.
OFFICERS
Michael J. Devine
Chairman & Secretary
Peter M. Atkinson
President & CEO
David S. Rennick
Executive Vice President & CCO
Victor T. Caron
Senior Vice President
Kathy M. Lucero
Senior Vice President
Dennis L. Monson
Senior Vice President
Shari A. Smith
Senior Vice President
Grenell Martin
First Vice President
RaMon McBride
Vice President
Stephen E. Norris
Vice President
Claude D. Rosenthal
Vice President
56
DESERT COMMUNITY BANK
James W. Howard, President & CEO
The old adage, “It takes money to make money,” may have never been more true. The proliferation of banks and small business lenders is a testament to the business climate in the Las Vegas market. Our economy has been robust for many decades and we feel confident that it will remain healthy for many years to come.
Despite concerns in the housing market, there are reasons for optimism at Desert Community Bank. In 2007, our bank became a U.S. Small Business Administration Preferred Lender. This prestigious designation allows our bank to originate and authorize SBA loans immediately and meet the demand for SBA loans in our marketplace which remains relatively strong.
Also, in an effort to react more quickly to these market shifts, the bank last year created the position of marketing director. Larry Moulton, a vice president and business development veteran, has been given the job of studying the market, plotting strategy and acting proactively to combat external forces that may affect us in the short and long term. Thus far, Larry has been successful in managing our advertising, marketing and public appearances in a consistent and more productive manner. We appreciate his efforts and look forward to his continuing contributions in building the Desert Community Bank brand.
Our team celebrated Desert Community Bank’s eighth anniversary in 2007. We have faithfully served the Las Vegas community since 1999. We continue to offer a high level of personal banking and consulting services to help businesses maximize their potential and weather any economic storm that may come our way.
We stand ready to assist small businesses in Las Vegas with a full platter of financial services and decades of banking experience. We are very proud of our past business achievements and we are optimistic about the economic future of Las Vegas.
Desert Community Bank is bullish on business and the business community is just as bullish on Desert Community Bank!
— James W. Howard, President & CEO
In 2007, our bank became a U.S. Small Business Administration Preferred Lender.
3740 South Pecos-McLeod | Las Vegas, NV 89121
702.938.0500 | www.desertcommunity.com
BOARD OF DIRECTORS
Robert A. Albano
President & CEO
American Asphalt & Grading
Robert J. Andrews
Chief Operating Officer
Ryan’s Express
Michael J. Devine
Attorney at Law
Rose M. K. Dominguez
Realtor
AC Sales Real Estate Services
Garry L. Hayes
President
Law Office of Garry L. Hayes
James W. Howard
President & CEO
Desert Community Bank
Larry W. Kifer
Chairman & CEO
Lilack, Inc.
Leland D. Pace
Partner
Stewart, Archibald & Barney, LLP
Vicki Paulbick
Private Property Manager
Thomas A. Smith
President & CEO
Group Two, Inc.
OFFICERS
Michael J. Devine
Chairman & Acting Secretary
Garry L. Hayes
Vice Chairman
James W. Howard
President & CEO
Gerald T. Buttaccio
Executive Vice President & CCO
Robert J. Beck
Senior Vice President
Rodney K. Chaney
Senior Vice President
Eileen S. Hagler
Senior Vice President
Michelle Scalzo
Senior Vice President
John J. Gentile
Vice President
Larry A. Moulton
Vice President
57
RED ROCK COMMUNITY BANK
J. Randall Boesch, President & CEO
Red Rock Community Bank experienced a rock-solid year in 2007. Building on a terrific foundation we added five new officers; took on new community commitments to broaden our presence; and are growing the bank safely, soundly and profitably. We believe we are one of southern Nevada’s best kept secrets, but we aim to change that as rapidly as possible.
In addition to my arrival in 2006, the bank welcomed Steve Borgna, Lee Steinhauer, Winona Houk and Margaret Kruglov during 2007. The five of us together have more than 120 years of banking experience.
But the real success is our ability to motivate the entire staff to grow the bank in the areas of commercial banking, wealth management and residential mortgages. For the convenience of our employees and clients, we developed a one-page information sheet. If a customer wants to borrow money, our employees refer to the list of credit, loan and leasing products that are available. If a customer wants to deposit or invest money, the employees refer to the product list of deposit, checking and investment services.
Use of this reference tool is helping our team to expand existing relationships and build new ones. Our strategy is to establish a relationship with one product and build from there. Improving our product knowledge and engaging customers resulted in many new deposit, loan and investment accounts, including more than a dozen new million-dollar accounts. There is also added emphasis on obtaining business referrals from our board members.
Red Rock Community Bank is located in the heart of Summerlin, one of the largest master plan communities in the country. In order to brand the bank, we are active with more than 35 local community organizations. We are involved in the Nevada Development Authority, Latin Chamber of Commerce and Faith Lutheran School Business Advisory Council, to name a few. This aggressive publicity campaign will level out in the years to come but we will always make community contributions where they are needed the most.
Tom Mangione, now our Nevada Region president, along with our longtime employees and board members, have laid a rock-solid foundation. On that strength we are growing a high-performing Red Rock Community Bank.
— J. Randall Boesch, President & CEO
The real success is our ability to grow in the areas of commercial banking, wealth management and residential mortgages.
10000 West Charleston, Suite 100 | Las Vegas, NV 89135
702.948.7500 | www.redrockcommunity.com
BOARD OF DIRECTORS
J. Randall Boesch
President & CEO
Red Rock Community Bank
Richard H. Bowler
Principal
Piercy Bowler Taylor & Kern
Eric L. Colvin
President
Apex of Nevada
Michael J. Devine
Attorney at Law
James L. Dunn
Owner & Broker
Dunn Properties, Ltd.
Molly K. Hamrick
Vice President & CFO
Coldwell Banker Premier Realty
Philip G. Hardy Jr.
President
Hardy Companies Inc.
James A. Harris
Vice President
The Harris Agency, LLC
Richard Hollander
President
Hollander Capital
Management, Inc.
Lori A. Marrs
Owner
Marrs Bergquist, CPAs
Fredrick P. Waid
Perth Consulting &
Services, LLC
J. Bruce Wiggins
President
Strategic Medical Management
OFFICERS
Michael J. Devine
Chairman
J. Randall Boesch
President & CEO
Steven B. Borgna
Executive Vice President & CCO
Shahzad B. Ali
Senior Vice President
Susan E. Daleiden
Senior Vice President
Brent D. Kamerath
Senior Vice President
Armando C. Rodriguez
Senior Vice President
Michael R. Beal
Vice President
Eloise Dominguez
Vice President
Joel C. Everitt
Vice President
Margaret Kruglov
Vice President
R. Mitch Taylor
Vice President
58
John S. Lewis, Region President
60 USNY Bank
59
USNY BANK
R. Michael Briggs, President & CEO
USNY Bank debuted in July 2007 as Capitol Bancorp’s first bank established in New York state and the Northeast Region. We have banking operations in two distinct markets about 150 miles apart in upstate New York. We operate in Geneva on beautiful Seneca Lake as Bank of the Finger Lakes and in Cooperstown, home to the National Baseball Hall of Fame, as Bank of Cooperstown.
The Finger Lakes region of New York is known for majestic, glacier-formed lakes and a rapidly developing winery business. Our main focus at Bank of the Finger Lakes is to provide financing to small and mid-size businesses, agribusinesses, diversified agricultural operations, commercial real estate owners and developers, professional practices and individuals throughout the central Finger Lakes.
We have developed strong relationships with some area wineries since we have been open. Red Tail Ridge Winery is one example of these relationships. Nancy Irelan and Mike Schnelle relocated from California with plans to establish a high-quality vineyard and winery operation. They were looking for financing to help complete their vineyard development project and construct a new tasting room. Working closely with our clients, we put together a financing package that helped them complete the first phase of their long-term plans.
Cooperstown is well-known as the community where the game of baseball was invented and the Hall of Fame is located. It is also home to many other museums. Our main focus at Bank of Cooperstown is to provide locally-delivered banking solutions to businesses, tourism-related enterprises, professional practices and individuals throughout this beautiful region.
We have been fortunate to assemble an exceptional team of experienced bankers and an active board of directors. Each location has also established their own boards with members specifically from the Finger Lakes and Cooperstown markets to help us grow USNY Bank through referrals from their business contacts within these respective communities.
We are most grateful for the positive market reception and strong support we have received in 2007. We are positioned to move forward and continue our growth as we become further established in our communities.
— R. Michael Briggs, President & CEO
We are positioned to move forward and continue our growth.
73 Chestnut Street | Cooperstown, NY 13326
607.547.2210 | www.bankofcooperstown.com
389 Hamilton Street | Geneva, NY 14456
315.789.1500 | www.bankofthefingerlakes.com
BOARD OF DIRECTORS
R. Michael Briggs
President & CEO
USNY Bank
H. Taylor Fitch III
Retired
Murray P. Heaton
Partner
Heaton & Venuti, LLP
J. Michael Moffat
President
Black Ash Holding Company, Inc.
Robert F. O’Neill
Retired
Robert Ranger
Owner
RWR Funding
Joseph D. Reid
Chairman & CEO
Capitol Bancorp Limited
Bruce A. Thomas
President of Bank Operations
Capitol Bancorp Limited
OFFICERS
Joseph D. Reid
Chairman
R. Michael Briggs
President & CEO
Jeffrey E. Franklin
President
Bank of the Finger Lakes
Scott D. White
President
Bank of Cooperstown
James E. Willson
Chief Credit Officer
Michelle D. Catan
Vice President
Michael A. Fratto
Vice President
Dawn E. Maltman
Operations Officer
60
Thomas S. Giovanelli, Region President
62 Bank of Bellevue
63 Bank of Everett
64 Bank of Tacoma
65 High Desert Bank
66 Issaquah Community Bank
61
BANK OF BELLEVUE
Andrew P. Barlass, President & CEO
For Bank of Bellevue, 2007 was a year for partnering with spheres of influence to generate new business opportunities and with nonprofit organizations to offer hope to local families in need.
On the business development front, the bank partnered with accountants and consultants to host seminars for business clients and prospects. One seminar for medical practitioners, held jointly with a local CPA firm, covered growth strategies and succession planning. We also hosted two seminars with a local consultant who detailed the principles for sustaining profitable growth for small businesses.
During 2007, we successfully rolled out our new remote deposit product that allows us to offer convenient deposit services to business clients, regardless of their location. This has enabled us to serve clients who need to be closer to the bank and has resulted in significant new demand deposits.
Economic indicators in our area remain strong, maintaining Bellevue’s stature as an idyllic place to live and work. Commercial development activity continues to fuel the growth of quality jobs. In the meantime, residential real estate is holding its value because of state and local growth management policies that protect our natural resources.
Illustrating our community commitment, the bank partnered with Hopelink, a local nonprofit organization serving families in need, for a “Creating Hope Campaign” during the holiday season. The bank was a collection point for donations of food, baby items and hygiene products. The campaign ended with a “Day of Hope” at the bank as our staff served refreshments to thank customers, board members and supporters for their generous contributions.
We are creating brand awareness through our participation in prominent community projects and business organizations. One of the many ways our team is dedicated to the betterment of our community is reflected in the high percentage of our employees who made generous contributions during the annual United Way campaign. In 2007, I was honored to represent our bank as a newly-elected member of the Bellevue Chamber of Commerce board of directors.
The past year was productive for Bank of Bellevue as it launched our transition from a de novo financial institution into a high–performing business bank.
— Andrew P. Barlass, President & CEO
We launched our transition from a de novo financial institution into a high performing business bank.
155-108th Avenue NE, Suite 100 | Bellevue, WA 98004
425.467.5900 | www.bankofbellevue.com
BOARD OF DIRECTORS
Andrew P. Barlass
President & CEO
Bank of Bellevue
Richard J. DePosit, CPA
DePosit & Associates
Alvin L. Eerkes
Retired Senior Commercial Banker
Bank of America
Thomas S. Giovanelli
President, Northwest Region
Capitol Bancorp Limited
William M. Hill
President
Western Integrated Technologies
Susan C. Ho
Director
Lakeville Construction Inc.
Louie J. Micheli
President
Phillips Real Estate Services
H. Cyrus Oskoui
President
Columbia Athletic Clubs
Peter W. Powell
President
Powell Development Company
OFFICERS
Thomas S. Giovanelli
Chairman
Richard J. DePosit
Vice Chairman
Andrew P. Barlass
President & CEO
Rita E. Dillon
Senior Vice President
John S. Williams
Senior Vice President
Peter J. Barnes
Vice President
Patrick G. Cleary
Vice President
Sheryl D. Knowlton
Vice President
W. Scott Simmons
Vice President
62
BANK OF EVERETT
Michael R. Deller, President & CEO
Bank of Everett completed its first full year of operation in 2007. We experienced many successes and our veteran staff is embracing the opportunities as we grow our business into a high-performing bank.
We are building our customer base through our service model of community banking. Our theme at Bank of Everett is “Exceeding Your Expectations.” Our average of 22 years of experience per employee helps us build our client base and truly serve as a financial partner with our customers. The word is spreading.
“Our office manager can’t stop raving about Bank of Everett,” says James Courrier, DDS. “She loves the courier service and not having to leave the office to make deposits. Bank of Everett reflects the service standard that we have established at our dental practice. The knowledge, service, and personal touch that my bankers offer exceed our expectations, every day.”
Product and operational expertise was clearly demonstrated in 2007 as we implemented a convenient and sophisticated cash management suite of products and remote deposit capability for our business customers. The Certificate of Deposit Account Registry Service® (CDARS) which insures deposits of up to $50 million for high net worth customers and nonprofits, attracts deposits, broadens relationships and has proven to be a successful product.
Our staff’s product knowledge was recognized as employees served on task forces and strategic teams for Capitol Bancorp. At the same time, we have found that the CBC model is a very effective one, providing true community banking with sophisticated support and services.
Bank of Everett’s board of directors and staff are very involved with the community. We actively participate with organizations such as the Everett Chamber of Commerce, Providence Everett Health Clinic, Everett Rotary Club, Everett Community College Foundation and the EverTrust Foundation. Additionally, the United Way recognized our bank’s team for its generosity.
“Exceeding Your Expectations” is ringing true in Everett where the community bank of choice is becoming Bank of Everett.
— Michael R. Deller, President & CEO
The Capitol Bancorp model is a very effective one, providing true community banking with sophisticated support and services.
2722 Colby Avenue, Suite 100 | Everett, WA 98201
425.740.2888 | www.bankofeverett.com
BOARD OF DIRECTORS
Robert W. Bauer, CPA
BauerEvans, Inc., P.S.
Thomas R. Collins
Attorney at Law
Anderson Hunter Law Firm
Richard H. Cooper
CEO
The Everett Clinic
Michael R. Deller
President & CEO
Bank of Everett
Thomas S. Giovanelli
President, Northwest Region
Capitol Bancorp Limited
Randy K. Hansen
President
PSG Washington, Inc.
Thomas P. Hoban Jr.
CEO
Coast Real Estate Services
Wallace S. Rodland
Owner
Rodland Toyota, Inc.
Mary B. Sievers
Executive Director
EverTrust Foundation
Brenda D. Stonecipher
City Council Member
City of Everett
OFFICERS
Thomas S. Giovanelli
Chairman
Wallace S. Rodland
Vice Chairman
Shannan L. Ramey
Secretary
Michael R. Deller
President & CEO
Raymond O. Corwin
Senior Vice President
Malcolm R. Harding
Senior Vice President & CCO
Jeffrey R. Mitchell
Senior Vice President & COO
Kenneth V. Pascoe
Senior Vice President
Michele L. Sayed
Vice President
63
BANK OF TACOMA
Michael W. Hansch, President & CEO
Bank of Tacoma debuted at the start of 2007. Our goal is to stand tall among the financial institutions in Tacoma. Our experienced team has embraced the tagline, “Customized Banking Your Way.”
Our team members have been heavily involved in the community this past year as we began to build the Bank of Tacoma brand. Taking part in our first United Way campaign, we proudly reported 100 percent participation. Bank of Tacoma was also involved with The American Heart Walk, Tacoma Pierce County Chamber of Commerce, Tacoma Art Museum, Tacoma Goodwill Industries, Franciscan Health System, Tacoma YMCA, Downtown Tacoma Rotary Club, Emergency Food Network, Geneva Foundation, Mary Bridge Children’s Hospital and Catholic Community Services.
In 2007, I challenged our team to bring in $2 million in deposits in one week. They brought in $2.4 million by calling our investors, offering our competitive money market account and rising to the challenge with persistence and a winning attitude. We also adopted a blitz calling program where just about every team member got out of the office and called on prospects and customers on a given day and then met back at the bank to report the results and feedback. This program has been very effective in building new relationships.
In our first year, we had solid loan, deposit and fee income growth by focusing on building strong and lasting relationships with our customers. Our board members have been very helpful in referring business to the bank from their friends, colleagues and associates. At the suggestion of John Xitco, one of our board members, we recently presented all of our directors with dual-sided business cards with their name on one side and my name on the other side in order to make it easier for them to provide the bank with referrals.
We look forward to many more successful campaigns as we expand on the strong foundation we laid in 2007. We customize our expanding menu of financial services the way our customers want it — or simply put, "Customized Banking Your Way."
— Michael W. Hansch, President & CEO
In 2007, I challenged our team to bring in $2 million in deposits in one week. They brought in $2.4 million.
1015 A Street, Suite 100 | Tacoma, WA 98402
253.722.2900 | www.bankoftacoma.com
BOARD OF DIRECTORS
Fred Brown
Financial Consultant
Thomas S. Giovanelli
President, Northwest Region
Capitol Bancorp Limited
Michael W. Hansch
President & CEO
Bank of Tacoma
Theodore M. Johnson Jr.
Principal & Owner
Simon Johnson LLC
Sophia M. Korum
Executive Director
Korum for Kids Foundation
Eugene S. Lapin, MD
Cardiologist
Cardiac Study Center
John R. Long
President
Good Samaritan Hospital
John S. Wiborg
President & Co-Founder
Stellar Industrial Supply, Inc.
John M. Xitco
Partner
Associated Petroleum Products
ASADO and MASA Restaurants
OFFICERS
Thomas S. Giovanelli
Chairman
Michael W. Hansch
President & CEO
Perry R. Colombini
Senior Vice President
Ronald H. Goodwin
Senior Vice President
Steven M. Harlow
Senior Vice President
Andrea B. Hogan
Vice President
64
HIGH DESERT BANK
Larry R. Snyder, President
High Desert Bank opened its doors for business on September 26, 2007, as Capitol Bancorp’s 55th affiliate bank and the first in the state of Oregon.
Our slogan is “Local Service — Local Knowledge.” We started the bank with 160 investors and a board of directors whose members have longevity and success in the community. Our staff averages more than 16 years in banking.
The bank derives its name from the elevated arid region of central Oregon where our community is established. The panoramic Oregon Mountains give us a gorgeous backdrop to the west. Bend, a thriving city of more than 80,000 residents, is developed at the bend in the Deschutes River. It is the hub of Deschutes County, the fastest growing county in Oregon and the sixth fastest in growth in the country. Founded as a lumber town in 1905, Bend has transformed itself into a summer and winter recreational area, a great place to live, work and raise a family. It has a solid core of local and regional businesses, and the lowest unemployment rate in the state. The quality of life is enhanced further by excellent medical facilities, great weather, quality education and a relatively moderate cost of living.
Our staff members know the importance and value of community involvement. We volunteer and serve on the board of directors with the United Way, Rotary Club, Boys & Girls Club of Bend, Volunteers in Medicine, Economic Development for Central Oregon, Risk Management Associates, Habitat for Humanity, March of Dimes, Chamber of Commerce and Mountain Star Nursery.
High Desert Bank will be a vital part of this vibrant community by epitomizing the Capitol Bancorp model — seizing the plentiful opportunities to provide for the financial services needs of small and mid-size businesses and professionals. Since our debut, we have experienced solid loan and deposit growth which has provided a strong and fundamental basis to achieve our aggressive bank goals for rapid profitability.
We are looking forward to maximizing our potential in the coming years as High Desert Bank becomes an ever-expanding presence in our marketplace. We will achieve success with dedication, diligence and building relationships that last.
— Larry R. Snyder, President
Since our debut, we have experienced solid loan and deposit growth and rapid profitability.
1000 SW Disk Drive | Bend, OR 97702
541.848.4444 | www.highdesertbank.com
BOARD OF DIRECTORS
Gwil T. Evans
Owner
PV Power Inc.
Professional Air
Gary D. Fish
Owner
Deschutes Brewery Inc.
Thomas S. Giovanelli
President, Northwest Region
Capitol Bancorp Limited
Cynthia L. Kane, PhD
Vice President
Clear Choice Health Plans Inc.
John P. Lietz
President
Arrowood Development LLC
Bruce A. McLellan, MD
President
Heart Center Cardiology
Romy E. Mortensen
Vice President, Sales & Marketing
Brooks Resources Corp.
Larry R. Snyder
President
High Desert Bank
Tim D. Van Horn
Real Estate Developer
OFFICERS
Thomas S. Giovanelli
Chairman
Tim D. Van Horn
Vice Chairman
Larry R. Snyder
President
Bruce D. Stephenson
Senior Vice President
Karyn I. Simonton
Vice President
65
ISSAQUAH COMMUNITY BANK
Robert M. Ittes, President
Issaquah Community Bank opened its doors for business in July 2007 as the 53rd member of the Capitol Bancorp family. Our bank’s debut represented the culmination of efforts on the part of the bank’s board members and staff to create an enduring community bank to support the businesses in the greater Issaquah market.
It is the goal of Issaquah Community Bank to become a significant part of the fabric of our community. With that in mind, we recruited board members who are well established in the community, yet represent a diversity of business and social allegiances. Each of our board members is a valuable resource in developing new constituents for the bank and strengthening the community we serve.
Our staff personifies the bank’s motto each and every day. “Relationship banking with a personal touch” characterizes the value we place on each customer we are honored to serve. Our experienced bank professionals provide the leadership and creative resources that help to differentiate Issaquah Community Bank from other financial institutions in our marketplace. Their knowledge and expertise provide a valuable resource in marshalling the growth of the bank.
It is our goal to establish Issaquah Community Bank as a cornerstone of our community. We want the bank to be viewed as an organization that cares and a valuable resource in supporting local business. Since the bank was launched last summer, we have already been active in supporting various civic activities, including our local Chamber of Commerce’s major festival. We acknowledge the value of building these relationships, not only because they help publicize our bank and lead to new business opportunities, but also because we are fulfilling a genuine need for businesses to become involved in our community.
With the valuable resources made available to us through our affiliation with Capitol Bancorp, Issaquah Community Bank is poised to be the agent of positive influence within our community. This is an exciting opportunity which we all embrace.
— Robert M. Ittes, President
Each of our board members is a valuable resource…
1375 NW Mall Street, Suite 1 | Issaquah, WA 98027
425.395.1199 | www.issaquahcommunitybank.com
BOARD OF DIRECTORS
Brett Backues, CPA
Backues & Company LLC
William J. Baker
President
WJB Enterprises Inc.
Charles E. Burget
President
Pacific Plants, Inc.
Carl D. Cangie
President
Concept Engineering, Inc.
Thomas S. Giovanelli
President, Northwest Region
Capitol Bancorp Limited
Robert M. Ittes
President
Issaquah Community Bank
Carolyn J. Pierce-Dyer
President
Refined Design Interiors, LLC
Brett D. Smith
Owner
Mt. Si Mobile Home Park, LLC
Rosemary Warren, DDS
Dentist
Rosemary Warren, DDS
OFFICERS
Thomas S. Giovanelli
Chairman
Charles E. Burget
Vice Chairman
Robert M. Ittes
President
Carmen L. Malsbury
Senior Vice President & CCO
Charlotte U. Jacobs
Vice President
Naomi R. Kennamer
Vice President
Philip A. Milne
Vice President
John P. Snorsky
Vice President
66
Bruce D. Jones, Region President
68 Bank of Valdosta
69 Community Bank of Rowan
70 First Carolina State Bank
71 Peoples State Bank
72 Sunrise Bank of Atlanta
67
BANK OF VALDOSTA
Matthew D. Stanaland, President
Founded in June 2006, the team at Bank of Valdosta enjoyed the bank’s first full year of business in 2007. In order to handle our growing customer base, we expanded our team to 12 employees, who have more than 100 years of combined banking experience.
Over the past year, the bank has embraced the community much like the community welcomed us when we opened our doors. In 2007, we supported our local farmers and the agricultural industry at the annual Lowndes County Ham and Egg Show. Employees gave several tours of the bank to school children. Two employees are officers with the Rotary Club. We are active with the Lowndes Valdosta Chamber of Commerce, South Georgia Regional Library, Hospice, United Way, LAMP (Lowndes Associated Ministries to People), and the Homebuilders Association. We also supported Special Olympics and have helped out with local youth sports.
In 2007, we began publicizing the bank throughout Valdosta and Lowndes County with an aggressive advertising campaign on the local NBC affiliate television station. This advertising package included 60 commercials a month. The 30-second spots ran Monday through Friday during the Today Show and the local news at noon, 5 pm and 11 pm. The commercials featured bank employees and board members as we introduced our full-service community bank to the viewing public. The first commercial took place inside the bank as we highlighted our commitment to excellent customer service and our products and services. The subsequent commercials were designed as cross marketing vehicles as they showed our team members at some of our customers’ businesses. This is the type of win-win approach that we believe will make our hometown bank successful for many years.
We know the success of our bank will be determined in good part by the success of our community, so our plan is for Bank of Valdosta to grow and prosper with Valdosta and Lowndes County. The future is as bright as a sunny day in our pleasant Southern climate.
— Matthew D. Stanaland, President
In 2007, we supported our local farmers and the agricultural industry at the annual Lowndes County Ham and Egg Show.
301 Woodrow Wilson Drive | Valdosta, GA 31602
229.242.3522 | www.bankofvaldosta.com
BOARD OF DIRECTORS
William A. Culbreth
President
Culbreth, Minick & Associates, PC
Thomas W. Hobby, MD
Internal Medicine
Valdosta Medical Clinic
Bruce D. Jones
President
Southeast Region
Capitol Bancorp Limited
Patrick T. Reid
Attorney at Law
Reid & Reid
J. Daniel Schert
Attorney at Law & Partner
Langdale, Vallotton, LLP
Matthew D. Stanaland
President
Bank of Valdosta
Thomas R. Warren
Retired
Private Investor
Teddy W. Welch Sr.
Owner
Strategic Wealth Group, LLC
Sherry C. Wetherington
President
Only Options, Inc.
OFFICERS
Patrick T. Reid
Chairman
Bruce D. Jones
Vice Chairman
William A. Culbreth
Secretary
Matthew D. Stanaland
President
Penny L. Brogdon
Vice President
Beverly G. Edwards
Vice President
Lisa Harrington
Vice President
R. Jeremy Ragan
Vice President
Stephen P. Sainz
Vice President
68
COMMUNITY BANK OF ROWAN
Bruce D. Jones, President & CEO
During the past year, Community Bank of Rowan established itself as one of the premier community banks in Rowan County. Our two locations have experienced significant growth since opening in February 2006. Our goal is to continue to grow profitably and become the bank of choice in Rowan County.
As we look toward the future, we recognize that our success is dependent upon our customers. We truly believe that delivering outstanding service is critical to our continued success. We have expanded our “Customer Always First” campaign, which includes staff initiatives, as well as a customer service measurement program that provides our valued clients a way to give feedback on the services they receive. We are also continuing our employee rewards program, which recognizes outstanding customer service.
Other initiatives include an increased focus on our mortgage services. We are actively working with local real estate agents on a variety of marketing programs designed to enhance our relationship and improve the home-buying process for our customers.
We are also focusing our marketing efforts, going from start-up awareness to product marketing. New initiatives in the coming year include emphasis on commercial deposit accounts, mortgage loans and a new generation of profit-generating checking accounts.
Our community is where we live and work and our officers continue to play a vital role in area organizations. We are actively involved in various local organizations, including the Economic Development Commission, Rowan Regional Medical Center, Habitat for Humanity, Alliance for Tomorrow, Rowan Jobs Initiative and the Rowan County Chamber of Commerce. We also support numerous area groups and schools, including local Civitan Clubs, Rotary Club, several school-based initiatives and other community-based nonprofit organizations.
One exciting community initiative this year was the campaign to construct a brick-and-iron fence for Livingstone College’s Salisbury campus. We led the campaign in raising funds and gaining community support for this project.
We look forward to continued growth and becoming the high-performance bank of choice in Rowan County.
— Bruce D. Jones, President & CEO
Our community is where we live and work and our officers play a vital role in area organizations.
322 East Innes Street | Salisbury, NC 28144
704.639.0730 | www.communitybankofrowan.com
313 East Centerview Street | China Grove, NC 28023
704.857.3300 | China Grove Office
BOARD OF DIRECTORS
Gregory M. Alcorn
Owner & CEO
Global Contact Services
John T. Bost
Developer
Jim L. Bost Construction Co., Inc.
Bost Development Co., Inc.
B & R Realty
James L. Comadoll, MD
Orthopedic Surgeon/President
RoMedical Care PA
John W. Ellis II
Area Manager
Baxter Bio Surgery
William M. Graham
Attorney at Law
Wallace and Graham, PA
Dianne Y. Greene
Broker & Owner
Century 21 Towne & Country
Bruce D. Jones
President
Southeast Region
Capitol Bancorp Limited
Bobby Clay Lindsay Jr.
President
Summit Developers, Inc.
Patrick T. Reid
Attorney at Law
Reid & Reid
Eric C. Troyer, MD
Physician
Troyer Family Practice
OFFICERS
Bruce D. Jones
Chairman, President & CEO
John W. Ellis II
Secretary
Seamus M. Donaldson
Senior Vice President & CCO
Robert C. Sieg
Senior Vice President
Judy K. Haire
Vice President
Nancy C. Hildreth
Vice President
Crystal L. Hodges
Vice President
Brad R. Martin
Vice President
Jeff S. Wetmore
Vice President
Heidi W. Whitesell
Vice President
69
FIRST CAROLINA STATE BANK
Timothy N. Taylor, President & CEO
By expanding our market and growing our loan portfolio, First Carolina State Bank reached record asset levels in 2007. In addition to our existing service area of Nash and Edgecombe counties, we opened a loan production office in Greenville and added staff familiar with the Greenville/Pitt County market.
Greenville is a growth market in eastern North Carolina. It is the home of East Carolina University and a large regional hospital and medical school that was recently approved for a dental school.
Total loans increased by more than a third in 2007 and the Greenville office contributed significantly to that growth.
Our staff continues to maintain a high level of involvement in our communities. Our employees are active with the chambers of commerce and United Way in both Rocky Mount and Tarboro. They are volunteer tutors with the Communites in Schools of the Rocky Mount Region, Inc. program and are members of local civic clubs.
In December, we became the title sponsor of the First Carolina State Bank Half Marathon Road Race. A new race for the Rocky Mount area, the half marathon attracted more than 600 runners. The activities also included a family 5K, one-mile fun run and 100-yard dash for younger children. The proceeds from the events were donated to local charities.
In 2007, we provided sales training for our associates and implemented a sales incentive program that increased product sales and referrals within the bank. We also added a Capitol Wealth Advisors investment executive to enhance the product offerings for clients and prospects in our expanded market.
Our bank’s board of directors has been very involved in the bank’s growth this year as they continue to be a great referral source for new business and personal relationships. They promote our bank in the community and are supportive of our efforts to make First Carolina the premier community bank in our markets.
In the coming year our plans include building on the strength of our experienced staff and support of our board to continue to grow our bank profitably while providing the quality of service our loyal customers deserve.
— Timothy N. Taylor, President & CEO
We implemented a sales incentive program that increased product sales and referrals.
171 North Winstead Avenue | Rocky Mount, NC 27804
252.937.2152 | www.firstcarolinastatebank.com
2100 North Main Street | Tarboro, NC 27886
252.823.8230 | Tarboro Office
323 Clifton Street, Suite 5 | Greenville, NC 27858
252.756.4073 | Greenville Office
BOARD OF DIRECTORS
Samuel E. Anderson
Commercial Agent
Fountain Roberson & Anderson
Peggy M. Braswell
Retired
Richard C. Davenport
President
Calvin Davenport, Inc.
Kathe M. Henke
Retired
Bruce D. Jones
President
Southeast Region
Capitol Bancorp Limited
W. H. Kimball
Retired
Vice President of Sales
Kenan Transport
Thomas W. King
Attorney at Law
T. W. King
David A. Parker
Retired
James E. Rabil
President
Chambliss & Rabil
Contractors, Inc.
James R. Rose Jr.
Executive Vice President
First Carolina State Bank
Charles D. Smith
President
First Carolina
Communications, Inc.
Randall C. Stewart, DPT
President & Physical Therapist
Carolina Physical Therapy
Contractors, Inc.
Timothy N. Taylor
President & CEO
First Carolina State Bank
OFFICERS
Randall C. Stewart, DPT
Chairman
David A. Parker
Vice Chairman
Timothy N. Taylor
President & CEO
Kathe M. Henke
Secretary
James R. Rose Jr.
Executive Vice President
Reuben M. Harris
Senior Vice President
Samuel W. Johnson
Senior Vice President
Albert E. Boone
Vice President
William D. Edgar Jr.
Vice President
John R. Johnson
Vice President
Beverley Riley
Vice President
Edward G. Taylor
Vice President
70
PEOPLES STATE BANK
Bruce D. Jones, Interim President
Peoples State Bank is a driving force in the community of Jeffersonville in Twiggs County, helping fund economic development and furnishing the financial services for area businesses and families.
The past year was filled with strong growth and continued community support for the bank. Customers and community members alike frequently comment about the beautiful new appearance of our facility, which underwent a major renovation.
The successful implementation of a new bank operations system allows our staff to offer additional products and services to our valued customers. We have grown customer participation in Internet banking, cash management products, home equity lines of credit and mortgage lending. While our bank now has the state-of-the-art products and services available at many modern financial institutions, we retain the personalized customer service that people in Twiggs County appreciate from their hometown bank.
Our focus remains on our most important asset: our customers. To show our appreciation for their continued support, and to raise awareness of the bank in Twiggs County, we launched a monthly customer appreciation day. This ranged from preparing refreshments for customers and holding drawings for boxes of chocolate and Easter baskets, to delivering a fruit and chocolate basket to residents of a local senior care facility.
We also welcomed a new officer to our team, B. Kay Howell, who became the bank’s executive vice president and chief operating officer. Kay brings 21 years of banking experience, which includes her previous position as a regional retail manager at another bank prior to joining our team.
We continue to serve our wonderful community by supporting several local organizations, including the Twiggs County Booster Club, the Twiggs County Department of Children’s Services and Twiggs Academy. Our officers are dedicated to being involved in community affairs. For example, Mae Starley, a senior officer, was appointed to the Twiggs County Economic Development Board.
Growth, customer satisfaction and teamwork will be our focus as we tackle future challenges. We will continue to serve the local community while expanding our reach into the adjoining counties that make up our market area.
With hard work and community support, the staff of Peoples State Bank anticipates a bright future.
— Bruce D. Jones, Interim President
The year was filled with strong growth and community support.
207 Main Street | Jeffersonville, GA 31044
478.945.3262 | www.psbjeffersonville.com
BOARD OF DIRECTORS
Alan D. Curtis
President & CEO
Cochran Air Service, Inc.
Charles R. Greene
President & CEO
Allentown Chip Company, Inc.
Bruce D. Jones
President
Southeast Region
Capitol Bancorp Limited
Patrick T. Reid
Attorney at Law
Reid & Reid
Matthew D. Stanaland
President
Bank of Valdosta
Bobby G. Wetherington
Partner
Wetherington Farms, LP
OFFICERS
Bruce D. Jones
Chairman & Interim President
B. Kay Howell
Executive Vice President & COO
Brenda Best-Youmans
Senior Vice President
Mae C. Starley
Vice President
71
SUNRISE BANK OF ATLANTA
Charles H. Green, President
As Sunrise Bank of Atlanta’s first full year of operation, 2007 will be remembered as a time when we gained momentum and took advantage of several business and marketing opportunities.
SPOTLIGHT ON THE ARTS
As the volunteer chairman of the Fulton County Arts Council, our region’s largest arts funding organization, I know that Atlanta’s nonprofit enterprises are viable small businesses with specialized banking needs. Because of this, more than 25 nonprofit organizations have accounts at our bank representing significant deposits and loans.
Our slogan — The Art of Banking — is a registered trademark, communicating our personalized approach to community banking as well as the value we place on the arts. The term is incorporated in all of our marketing efforts and we continue to host art exhibits showcasing local artists and their latest creations.
FOCUS ON INTERNATIONALS
Through involvement in many international chambers of commerce, we have penetrated another niche market – becoming the bank of choice for many international executives moving to Atlanta. By building strong relationships with these executives we can make their transitions smooth by fulfilling all of their banking needs.
As our regional governments make business with China a priority, we are helping several Chinese executives acclimate to Atlanta. Last year, Fulton County initiated an impressive business and cultural exchange with Chengdu, China. Hundreds of people visited Sunrise Bank when we hosted a reception honoring the Chinese delegation.
STAFF KEEPS GETTING STRONGER
Several savvy banking professionals joined Sunrise in 2007. Adding international citizens to our staff with multiple language skills opened valuable introductions to Atlanta’s burgeoning international communities. The results are a diversified base of deposits and loans that are growing the bank. We also added a seasoned wealth advisor to our bank as part of Capitol Wealth Advisors. Wealth management is another specialty that enhances our ability to provide personalized service and custom financial solutions.
As one of only 16 Georgia banks certified to offer the SBA’s new Patriot Express loans for veterans, we hosted two free seminars as another way to reach out to prospective customers in our community.
— Charles H. Green, President
The bank of choice for many international executives.
600 West Peachtree Street NW, Suite 300 | Atlanta, GA 30308
404.249.6500 | www.sunrisebankofatlanta.com
BOARD OF DIRECTORS
Kim E. Anderson
Director
Boardwalk Consulting LLC
Lawrence E. Cooper MD
Principal
Bentley Investments, Inc.
Herbert M. Dangerfield
President & Owner
Carey Executive Limousine
Peter G. Davis
President & CEO
Vesdia Corporation
Karen Burkhart Dick
Executive Vice President
Ackerman & Co.
Randal A. Enterkin
President & CEO
PrecisionJet, LLC
Charles H. Green
President
Sunrise Bank of Atlanta
Angela Hsu
Senior Corporate Attorney
Duke Realty Corporation
Bruce D. Jones
President
Southeast Region
Capitol Bancorp Limited
Bari R. Love
Principal
Jackson Spalding
Communications
M. Kasim Reed
Partner
Holland & Knight LLP
Patrick T. Reid
Attorney at Law
Reid and Reid
R. Kirk Rich
President
Rich Real Estate Services, Inc.
Grace M. Lopez-Williams
President
Grace Williams CPA, PC
OFFICERS
Patrick T. Reid
Chairman
Bruce D. Jones
Vice Chairman
Charles H. Green
President
June F. Kossow
Senior Vice President & CCO
Tareasa P. Sexton
First Vice President &
Senior Loan Officer
Melanie L. Brown
First Vice President
Rick S. Darlington
Vice President & Mortgage
Lending Manager
Lori J. Roberts
Vice President
Miroslava Torres-Young
Vice President
72
Clinton D. Dunn, Region President
74 Bank of Fort Bend
75 Bank of Las Colinas
73
BANK OF FORT BEND
R. Bruce Mercer, President
I am gratified and honored that Bank of Fort Bend, located near Houston, is now a part of the Capitol Bancorp family and the first affiliate bank in Texas. We are very excited about this business model which we believe combines the best advantages of local, community bank customer service with the product and technological support that is similar to those offered at the larger regional and national banks operating in our Fort Bend County market.
We have been very fortunate to have built a veteran, experienced staff of friendly faces. These individuals are well known in our community and have a loyal following of business and consumer customers who are also joining us. Our staff members are actively involved in our community as volunteers for churches, youth sports organizations and as directors on the boards of local nonprofits.
Fort Bend County has been one of the fastest growing marketplaces in the U.S. in recent years. Fort Bend’s population growth from 1990 to 2000 was an astounding 57 percent compared to the national average of 13 percent. Household income in 2000 for the area was also very strong, averaging $77,861 compared to $50,248 nationally.
We found an opportune location on one of the main entryways to the 900-acre Sugar Land Business Park, which is home to approximately 100 distribution, light manufacturing and service companies. We are the only banking facility in the business park so we offer convenience plus personalized community bank service with customized financial solutions that can be as sophisticated or as simple as our customers need.
Our contacts in this market and the advantages in our business model have allowed us to attract a first-class, highly visible and active board of directors. They have all expressed a strong desire to help us grow in this marketplace through their personal businesses, with a continued stream of referrals and by acting as “cheerleaders” for our bank whenever possible.
We are truly blessed with this opportunity and we are tremendously excited about our future. We look forward to working with folks from our previous relationships and with the new friends we are meeting!
— R. Bruce Mercer, President
I am gratified and honored that Bank of Fort Bend is the first Capitol Bancorp bank in Texas.
12946 Dairy Ashford Road, Suite 100 | Sugar Land, TX 77478
281.276.1800 | www.bankoffortbend.com
BOARD OF DIRECTORS
Ronald W. Bickers
President
Southwest Calibration
Service, Inc.
Robert P. Brooks
Owner
Robert P. Brooks Investments
Clinton D. Dunn
President, Texas Region
Capitol Bancorp Limited
George V. Head
Vice President
Stratos Global Corporation
Douglas A. Heath
Executive Director
Butler Waddell Interests
Rajni Jain, CPA
Partner
Jain & Jain, P.C.
Mark I. Kaufman
Investor
R. Bruce Mercer
President
Bank of Fort Bend
Rajesh Naran
President
ALS/ e-Lab Analytical, Inc.
John M. Null, CPA
Managing Partner
Null-Lairson, P.C.
Mehran Rafizadeh
Dealer Principal
Republic Harley-Davidson/
Buell Inc.
Mark A. Simmons
Managing Director
The Avalon Group
William J. Swinbank
President
The Sprint Companies
OFFICERS
Clinton D. Dunn
Chairman
R. Bruce Mercer
President
James Q. Dearing
Executive Vice President
Sandi S. Otero
Executive Vice President & CCO
Gil R. Edmundson
Senior Vice President
Claudia S. Riggins
Senior Vice President
Jean C. Goff
Vice President & COO
Amy C. Marsters
Vice President
J. Keith Miller
Vice President
74
BANK OF LAS COLINAS
Gerold L. Hooker, President
Bank of Las Colinas opened for business in December 2007 as Capitol Bancorp Limited’s 60th affiliate bank. Our goal is to establish meaningful and long-lasting relationships with our clients, who we believe are our most valuable assets.
Our staff of 11 veteran bankers understand that true relationship banking is growing increasingly rare. As a result, Bank of Las Colinas was founded on the principle that most commercial and consumer customers want a skillful and insightful banker with the ability to assist with all facets of their financial needs in a timely manner.
In addition to our team of experienced banking professionals, we have also assembled an excellent board of directors which consists of customers and business leaders. Their referrals, contacts and experience are key to achieving our growth objectives and crucial to our marketing strategy. With their assistance, Bank of Las Colinas is poised to become a high-performance bank for businesses, professionals and consumers in our vibrant community.
From the early organizational stage through the capitalization process and the bank’s opening, our previous customers and the residents of our community have enthusiastically welcomed our new bank. This was evident during the stock subscription process when the demand exceeded the amount of stock available.
Our bank is located in the Las Colinas district of Irving, situated in close proximity to Dallas and Dallas/Fort Worth International Airport. Since the conception of Las Colinas in 1972, the area has become home to many corporate headquarters, luxury hotels and upscale residential communities. In addition to being one of the first master-planned communities in the United States, Las Colinas is also one of the largest mixed-use developments in the Southwest. This blend of commercial and consumer activity is a perfect match for our business model, which seeks to provide a superior alternative to the common banking experience.
Our team of bankers and directors are approaching 2008 with enthusiasm. We intend to deliver exceptional customer service to our existing customer base and to many new friends.
— Gerold L. Hooker, President
Las Colinas is also one of the largest mixed-use developments in the Southwest…a perfect match for our business model.
300 East John Carpenter Freeway, Suite 100 | Irving, TX 75062
214.574.4900 | www.bankoflascolinas.com
BOARD OF DIRECTORS
Gary L. Cain
President & CEO
Cain Foods Industries, Inc.
Clinton D. Dunn
President, Texas Region
Capitol Bancorp Limited
Gerold L. Hooker
President
Bank of Las Colinas
Nicholas F. Leber, DDS
All Seasons Dental Associates
Paul L. Moore
Chairman of the Board
Southwestern Wholesale Co., Inc.
Robert B. Neely
President & CEO
TCP Realty Services
Kelly G. Saxton
President
Saxton Pierce Restaurant Corporation
John D. Settle Jr.
Founder
SettlePou Attorneys & Counselors
Darrell W. Wilson
President
The Slalom Shop Boats & Yachts
OFFICERS
Clinton D. Dunn
Chairman
Gerold L. Hooker
President
Brad D. Tidwell
Executive Vice President & CCO
D. Wes Griffin
Senior Vice President & COO
Cody D. Edge
Vice President
Ginny E. Guerra
Vice President
Ann N. Glockzin
Vice President
75
77 Amera Mortgage Corporation
78 Capitol Wealth
76
AMERA MORTGAGE CORPORATION
Mark A. Janssen, CEO
For Amera Mortgage, 2007 was a period of expansion to meet the demands of a growing number of affiliate banks and one of change in adapting to the evolving landscape of the residential mortgage industry. Amera held two multi-state sales conferences for Capitol Bancorp, which brought mortgage originators together to address the needs of the national sales force. These were forums where mortgage loan officers could establish relationships, network and allow Amera’s management to discuss plans for future technology enhancements to aid in the origination of mortgage loans.
In the West, the sales meeting focused on bringing fresh ideas to the table. We shared best practices to spread the success experienced in markets throughout the expanding footprint of Capitol Bancorp. Mortgage lenders shared business plans and successful strategies while Capitol’s marketing department presented a variety of marketing tools created in conjunction with Amera and individual banks that are now available for use by mortgage lenders nationally.
In the East, additional focus was placed on sales success in the mortgage business. In particular, we looked at methods for setting and achieving sales and income goals through the utilization of specific sales and marketing strategies. Additionally, Amera focused on the changing mortgage landscape and the tools it is providing through its client service and product placement groups to ensure that Capitol Bancorp’s affiliate banks can continue to provide a wide array of mortgage products and services to their clients.
From a technology standpoint, we have begun a process to consolidate mortgage origination technology under a single umbrella while expanding our automated pricing and guideline engine. The pricing engine serves as a single point of reference for all investor products offered by Amera. We will also be evaluating a front-end origination tool that will complete this migration and further streamline the origination process.
As we move forward, we have positioned Amera Mortgage to meet the needs of a growing number of affiliate bank clients as well as the clients served by our retail originators. We vow to adapt responsibly to changes in our industry.
— Mark A. Janssen, CEO
2007 was a period of expansion to meet the demands of a growing number of affiliate banks…
1050 Corporate Office Drive, Suite 200 | Milford, MI 48381
248.685.1700 | www.ameramortgage.com
BOARD OF DIRECTORS
Susan L. Bowen
Executive Vice President
Amera Mortgage Corporation
Melinda F. Cain
Executive Vice President
Amera Mortgage Corporation
Lee W. Hendrickson
Chief Financial Officer
Capitol Bancorp Limited
Mark A. Janssen
CEO
Amera Mortgage Corporation
Lyle W. Miller
President
L. W. Miller Holding Company
Jerald H. Rock
President
Amera Mortgage Corporation
John C. Smythe
President, Great Lakes Region
Capitol Bancorp Limited
OFFICERS
John C. Smythe
Chairman
Mark A. Janssen
CEO
Jerald H. Rock
President
Lee W. Hendrickson
Secretary & Treasurer
Susan L. Bowen
Executive Vice President
Melinda F. Cain
Executive Vice President
Kathleen M. DeFrances
Executive Vice President
John A. Korch
Senior Vice President
Sharon A. Pastori
Senior Vice President & CFO
James A. Sellick
Senior Vice President
Nancy J. Caruso
Vice President
Susan Good
Vice President
Melodie A. Haverkate
Vice President
Kathleen E. S. Lawrence
Vice President
Paul G. Richer
Vice President
Robert A. Risher
Vice President
James M. Shaffer
Vice President
Susan L. Shaffer
Vice President
77
CAPITOL WEALTH
Robert R. Hogan, President & CEO
At Capitol Wealth, we provide our customers wealth advisory solutions through a trusted advisor at many of our Capitol Bancorp banks. Besides growing noninterest income for the Corporation, our efforts are directed at assisting customers in preparing today, so they can be financially secure tomorrow.
Throughout 2007, I have had the opportunity to visit most of our affiliate banks, receiving a warm welcome and enthusiastic support from both bank presidents and their boards of directors. These personal visits have provided tremendous feedback that has enabled us to improve our customer service. Furthermore, board members have provided many introductions to qualified candidates who have joined our team as the wealth advisor expert, providing positive financial results to the customers of our local banks as well as the Corporation overall.
With that said, I am proud to report that we more than doubled our business in 2007. Here are our other achievements:
| ● | Launched an acquisition strategy, purchasing an investment advisory firm and a commercial insurance agency, which added substantial assets under management with a healthy boost to our projected revenue; |
| ● | Grew total assets under management considerably; |
| ● | Added 15 new bank wealth programs, bringing the total number of financial advisors on our platform to 40; |
| ● | Deployed tools to our advisors assisting them in delivering financial planning advice to our customers; and, |
| ● | Implemented a branding strategy (“Prepare Today, Secure Tomorrow”) that can be found in our brochures, web site and electronic kiosks. |
In 2008, we will continue to accelerate our growth, broaden our financial network, and improve our services to our clients through the following, multi-faceted plan:
| ● | Expanding our acquisition pipeline; |
| ● | Obtaining a national trust charter; and, |
| ● | Recruiting additional talented financial advisors. |
Finally, I would like to thank our employees for their contribution, our customers for their confidence and each of our bank presidents and their board members for their support. We look forward to serving your needs and exceeding your expectations.
— Robert R. Hogan, President & CEO
We provide our customers wealth advisory solutions.
9300 Harris Corners Parkway, Suite 410 | Charlotte, NC 28269
704.599.1055 | www.capitolwealth.com
BOARD OF DIRECTORS
Jay J. Butler
Retired Bank Executive
Robert R. Hogan
Vice Chairman, President & CEO
Capitol Wealth, Inc.
Michael M. Moran
Chief of Capital Markets
Capitol Bancorp Limited
Enrico S. Piraino
Business Entrepreneur
Joseph D. Reid
Chairman & CEO
Capitol Bancorp Limited
Patrick T. Reid
Attorney at Law
Reid and Reid
Pamela E. West
Retired Bank Executive
Ben E. Yeakley
Retired Trust Executive
Real Estate Developer
OFFICERS
Joseph D. Reid
Chairman
Robert R. Hogan
Vice Chairman, President & CEO
David M. Paventi
Secretary, Treasurer & COO
78
________________________________________________________
Table of Contents
| F-2 | |
| F-3 | |
| F-4 | |
| F-4 | |
| F-5 | |
| F-6 | |
| F-7 | |
| F-8 | |
| Bank Development as a Defined Focus | F-8 |
| "Incubation" of Young Community Banks | F-8 |
| Monitoring and Managing Capitol's Investments in Community Banks | F-9 |
| F-12 | |
| F-15 | |
| F-21 | |
| F-25 | |
| F-29 | |
| Use of Estimates in Determining the Allowance for Loan Losses | F-29 |
| Accounting for Goodwill and Other Intangibles | F-29 |
| Consolidation Policy | F-30 |
| F-30 | |
| F-30 | |
| F-31 | |
F-32 | |
| Consolidated Financial Statements: | |
| F-34 | |
| F-35 | |
| F-36 | |
| F-37 | |
| F-38 | |
| F-39 |
F - 1
(in $1,000s, except per share data)
| As of and for the Year Ended December 31 | |||||||||||||||||||
2007(1) | 2006(2) | 2005(3) | 2004(4) | 2003(5) | |||||||||||||||
| For the year: | |||||||||||||||||||
| Interest income | $ | 330,439 | $ | 279,353 | $ | 224,439 | $ | 179,089 | $ | 164,416 | |||||||||
| Interest expense | 147,162 | 105,586 | 67,579 | 47,496 | 49,490 | ||||||||||||||
| Net interest income | 183,277 | 173,767 | 156,860 | 131,593 | 114,926 | ||||||||||||||
| Provision for loan losses | 25,340 | 12,156 | 10,960 | 12,708 | 9,861 | ||||||||||||||
| Noninterest income | 24,381 | 21,532 | 21,048 | 19,252 | 20,087 | ||||||||||||||
| Noninterest expense | 176,160 | 137,804 | 117,289 | 97,787 | 86,952 | ||||||||||||||
| Net income | 21,937 | 42,391 | 35,925 | 26,716 | 23,380 | ||||||||||||||
| Net income per share: | |||||||||||||||||||
| Basic | 1.29 | 2.69 | 2.42 | 1.88 | 1.86 | ||||||||||||||
| Diluted | 1.27 | 2.57 | 2.34 | 1.79 | 1.77 | ||||||||||||||
| Cash dividends paid per share | 1.00 | .95 | .72 | .65 | .51 | ||||||||||||||
| At end of year: | |||||||||||||||||||
| Total assets | $ | 4,901,763 | $ | 4,065,816 | $ | 3,475,721 | $ | 3,091,418 | $ | 2,737,062 | |||||||||
| Total earning assets | 4,527,006 | 3,743,041 | 3,204,646 | 2,885,545 | 2,521,375 | ||||||||||||||
| Portfolio loans | 4,314,701 | 3,488,678 | 2,991,189 | 2,692,904 | 2,247,440 | ||||||||||||||
| Deposits | 3,844,745 | 3,258,485 | 2,785,259 | 2,510,072 | 2,288,664 | ||||||||||||||
Notes payable and short-term borrowings | 320,384 | 191,154 | 175,729 | 172,534 | 92,774 | ||||||||||||||
| Subordinated debentures | 156,130 | 101,035 | 100,940 | 100,845 | 90,816 | ||||||||||||||
Minority interests in consolidated subsidiaries | 156,198 | 126,512 | 83,838 | 39,520 | 30,946 | ||||||||||||||
| Stockholders' equity | 389,145 | 361,879 | 301,866 | 252,159 | 218,897 | ||||||||||||||
| Quarterly Results of Operations (unaudited) | |||||||||||||||||||
Total for the Year | Fourth Quarter | Third Quarter | Second Quarter | First Quarter | |||||||||||||||
Year ended December 31, 2007:(1) | |||||||||||||||||||
| Interest income | $ | 330,439 | $ | 86,310 | $ | 85,036 | $ | 81,254 | $ | 77,839 | |||||||||
| Interest expense | 147,162 | 39,924 | 38,368 | 35,712 | 33,158 | ||||||||||||||
| Net interest income | 183,277 | 46,386 | 46,668 | 45,542 | 44,681 | ||||||||||||||
| Provision for loan losses | 25,340 | 9,528 | 7,890 | 3,990 | 3,932 | ||||||||||||||
| Net income | 21,937 | 3,394 | 5,974 | 6,298 | 6,271 | ||||||||||||||
Net income per share:(7) | |||||||||||||||||||
| Basic | 1.29 | .20 | .35 | .37 | .38 | ||||||||||||||
| Diluted | 1.27 | .20 | .35 | .37 | .36 | ||||||||||||||
| Cash dividends paid per share | 1.00 | .25 | .25 | .25 | .25 | ||||||||||||||
Year ended December 31, 2006:(2) | |||||||||||||||||||
| Interest income | $ | 279,353 | $ | 74,978 | $ | 73,082 | $ | 68,196 | $ | 63,097 | |||||||||
| Interest expense | 105,586 | 30,896 | 28,387 | 24,559 | �� | 21,744 | |||||||||||||
| Net interest income | 173,767 | 44,082 | 44,695 | 43,637 | 41,353 | ||||||||||||||
| Provision for loan losses | 12,156 | 3,444 | 3,441 | 2,815 | 2,456 | ||||||||||||||
| Net income | 42,391 | 11,382 | (6) | 10,789 | 10,267 | 9,953 | |||||||||||||
Net income per share:(7) | |||||||||||||||||||
| Basic | 2.69 | .71 | .68 | .65 | .64 | ||||||||||||||
| Diluted | 2.57 | .68 | (6) | .66 | .63 | .61 | |||||||||||||
| Cash dividends paid per share | .95 | .25 | .25 | .25 | .20 | ||||||||||||||
| (1) | Includes Bank of Tacoma, effective January 2007 (located in Tacoma, Washington), Sunrise Community Bank, effective February 2007 (located in Palm Desert, California), Larimer Bank of Commerce, effective May 2007 (located in Fort Collins, Colorado), Issaquah Community Bank (located in Issaquah, Washington) and USNY Bank (located in Geneva, New York), both effective July 2007, High Desert Bank, effective September 2007 (located in Bend, Oregon), Loveland Bank of Commerce, effective October 2007 (located in Loveland, Colorado), Bank of Feather River, effective November 2007 (located in Yuba City, California) and Community Bank of Lincoln (located in Lincoln, Nebraska), Bank of Fort Bend (located in Sugar Land, Texas) and Bank of Las Colinas (located in Irving, Texas), each effective December 2007. |
| (2) | Includes Community Bank of Rowan, effective February 2006 (located in Salisbury, North Carolina), Asian Bank of Arizona, effective April 2006 (located in Phoenix, Arizona), Evansville Commerce Bank, effective May 2006 (located in Evansville, Indiana), Bank of Valdosta (located in Valdosta, Georgia), Sunrise Bank of Atlanta (located in Atlanta, Georgia) and Bank of Everett (located in Everett, Washington), all effective June 2006, Bank of Maumee (located in Maumee, Ohio) and 1st Commerce Bank (located in North Las Vegas, Nevada), both effective October 2006, and Ohio Commerce Bank (located in Beachwood, Ohio), effective November 2006. |
| (3) | Includes Bank of Michigan, effective January 2005 (located in Farmington Hills, Michigan), Peoples State Bank, acquired April 7, 2005 (located in Jeffersonville, Georgia), Bank of Bellevue (located in Bellevue, Washington) and Fort Collins Commerce Bank (located in Fort Collins, Colorado), both effective June 2005, Bank of Auburn Hills, effective July 2005 (located in Auburn Hills, Michigan), Bank of San Francisco, effective August 2005 (located in San Francisco, California), Bank of Belleville (located in Belleville, Illinois) and Summit Bank of Kansas City (located in Lee's Summit, Missouri), both effective November 2005, and Bank of Santa Barbara, effective December 2005 (located in Santa Barbara, California). |
| (4) | Includes First Carolina State Bank (located in Rocky Mount, North Carolina), acquired April 1, 2004 and Point Loma Community Bank (located in San Diego, California), effective August 2004. |
| (5) | Includes Bank of Escondido (located in Escondido, California), effective October 2003. |
| (6) | Fourth quarter 2006 net income was favorably impacted by year-end adjustments, primarily driven by loan fees, approximating $1.3 million ($0.07 per diluted share) net of income taxes. |
| (7) | Each period’s computation of net income per share is performed independently and, accordingly, net income per share for the year (basic and diluted) may not equal the sum of the amounts shown for the quarterly periods. |
F - 2
Capitol's common stock is traded on the New York Stock Exchange (NYSE) under the symbol "CBC." Market quotations regarding the range of high and low sales prices of Capitol's common stock, as reported by the NYSE, were as follows:
| 2007 | 2006 | ||||||||||||||
| Low | High | Low | High | ||||||||||||
| Quarter Ended: | |||||||||||||||
| March 31 | $ | 36.81 | $ | 47.06 | $ | 36.74 | $ | 47.22 | |||||||
| June 30 | 27.06 | 37.60 | 37.84 | 47.16 | |||||||||||
| September 30 | 20.00 | 27.86 | 36.89 | 46.00 | |||||||||||
| December 31 | 18.15 | 27.24 | 44.12 | 47.49 | |||||||||||
Below is a graph which summarizes the cumulative return earned by Capitol's shareholders over the last five years compared with the SNL (SNL Financial LC) $1B-$5B Asset-Size Index (SNL) and the cumulative total return on the Russell 2000 Index (R-2000). This presentation assumes the value of an investment in Capitol's common stock and each index was $100 on December 31, 2002 and that subsequent cash dividends were reinvested.
| Period Ended | ||||||||||||
| Index | 12/31/02 | 12/31/03 | 12/31/04 | 12/31/05 | 12/31/06 | 12/31/07 | ||||||
| CBC | 100.00 | 125.08 | 158.81 | 172.55 | 217.72 | 98.54 | ||||||
| R-2000 | 100.00 | 147.25 | 174.24 | 182.18 | 215.64 | 212.26 | ||||||
| SNL | 100.00 | 135.99 | 167.83 | 164.97 | 190.90 | 139.06 | ||||||
F - 3
INFORMATION REGARDING CAPITOL'S COMMON STOCK--Continued
During 2007, Capitol paid quarterly cash dividends of $0.25 per share. In 2006, Capitol paid cash dividends of $0.20 per share in the first quarter and $0.25 per share in the second, third and fourth quarters. 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.
As of January 31, 2008, there were 6,998 beneficial holders of Capitol's common stock, based on information supplied to Capitol from its stock transfer agent and other sources.
At February 25, 2008, 17,319,178 shares of common stock were outstanding. Capitol's stock transfer agent is Computershare Trust Company, N.A., 250 Royall Street, Canton, MA 02021 (telephone 800/884-4225). The web site for Computershare Trust Company, N.A. is http://www.computershare.com.
Capitol has a direct purchase and dividend reinvestment plan, the Capitol Bancorp Limited Direct Purchase and Dividend Reinvestment Plan ("Capitol Bancorp Direct"), which offers a variety of convenient features including dividend reinvestment, certain fee-free transactions, certificate safekeeping and other benefits. For a copy of the Capitol Bancorp Direct prospectus, informational brochure and enrollment materials, contact Computershare Trust Company, 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 listed on the NYSE under the symbol "CBCPrA." 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 currently callable and may be extended to 2036 if certain conditions are met.
Capitol has filed with the U.S. Securities and Exchange Commission (SEC) all required certifications of its Chief Executive Officer (CEO) and Chief Financial Officer regarding the quality of Capitol’s public disclosures. In addition, Capitol’s CEO submitted to the NYSE an annual CEO certification stating that he is not aware of any violation by Capitol of the NYSE’s corporate governance listing standards. Further, Capitol filed certifications by its CEO and CFO with the SEC in accordance with the Sarbanes-Oxley Act of 2002 as exhibits to Capitol’s Form 10-K for the year ended December 31, 2007.
A copy of Capitol's 2007 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.
F - 4
AVAILABILITY OF FORM 10-K AND CERTAIN OTHER REPORTS--Continued
Form 10-K and certain other periodic reports are filed with the 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.
EXECUTIVE 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 | |
INDEPENDENT AUDITORS
BDO Seidman, LLP
Grand Rapids, Michigan
SHAREHOLDER INFORMATION
ANNUAL MEETING
Capitol's 2008 Annual Meeting of Shareholders will be held on Wednesday, April 23, 2008 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 New York Stock Exchange (NYSE) under the trading symbol "CBC."
COMMON STOCK TRANSFER AGENT
Computershare Trust Company, N.A.
250 Royall Street
Canton, MA 02021
800/884-4225
DIRECT PURCHASE AND DIVIDEND REINVESTMENT PLAN
Capitol offers an easy and affordable way to invest in Capitol's common stock through its direct purchase and dividend reinvestment plan, Capitol Bancorp Direct. Capitol Bancorp Direct’s benefits include the ability to make an initial investment in common stock with as little as $50, reinvestment of dividends in additional common stock, direct deposit of dividends, ability to purchase 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 Capitol Bancorp Direct is voluntary and shareholders and prospective investors are eligible. Purchases under Capitol Bancorp Direct are not currently subject to any brokerage fees or commissions. For further information regarding Capitol Bancorp Direct or a copy of Capitol Bancorp Direct’s prospectus, informational brochure and enrollment materials, contact Computershare Trust Company, N.A. at 800/884-4225 or Capitol at 517/487-6555.
F - 5
SHAREHOLDER INFORMATION--Continued
TRUST-PREFERRED SECURITIES TRADING INFORMATION
Preferred securities of Capitol Trust I (a subsidiary of Capitol) trade on the NYSE under the trading symbol "CBCPrA."
TRUST-PREFERRED SECURITIES TRUSTEE
JP Morgan Institutional Trust Services – Tempe, Arizona
Some of the statements contained in this annual report that are not historical facts may constitute 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. The preparation of consolidated financial statements in conformity with generally accepted accounting principles in the United States of America requires management to make certain estimates and assumptions, many of which are based on assumptions relating to the above-stated forward-looking statements, 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 will differ from those estimates because of the inherent subjectivity and inaccuracy of any estimation. 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.
F - 6
Financial Condition and Results of Operations
This section of the Annual Report is intended to discuss, from management's perspective, matters of importance and relevance to readers regarding Capitol's operations, financial position and other things which have a significant effect on Capitol, its business and its banks. This narrative includes some comments about future events and other forward-looking statements and readers are advised to carefully read the cautionary statement about forward-looking statements which is on page F-6 of this Annual Report.
Capitol is unique in the community banking industry. As a bank-development company, Capitol forms new community banks in a wide variety of markets during an era of industry consolidation. Capitol operates in one business segment, community banking. Capitol's banks are staffed with banking professionals, serving customers who desire professional banking services delivered personally.
No other bank holding company in the U.S. is believed to hold as many bank 'charters' (i.e., individually capitalized, licensed and managed, community banks) as distinct operating subsidiaries. Capitol had 60 banks operating in 17 states as of December 31, 2007. Capitol previously announced plans to expand to 100 banks within the next five years.
Capitol's de novo bank model is intended to create a scalable, low overhead structure which is focused on delivering return-on-equity results, while empowering its individual banks with operating autonomy in all areas which impact the customer relationship. Capitol's centralized 'back-office' functions, which support the banks, are capable of expanding coverage in concert with growth in both the number and size of affiliate banks.
2007 was another significant year of expansion:
· | The addition of 11 new banks, the largest number in any year in Capitol’s history, bringing the affiliation network total to 60 financial institutions at year-end 2007. |
· | Total assets surpassing $4.9 billion at year end, marking a growth rate of 20.6% for the year. |
Earnings decreased from $42.4 million ($2.57 per diluted share) in 2006 to $21.9 million ($1.27 per diluted share) in 2007, primarily due to weakened bank earnings performance in the Great Lakes Region.
F - 7
Bank Development as a Defined Focus
Each new bank typically starts as a single-location office. Each is led by a bank president and a team of banking professionals with significant local experience, overseen by an independent board of directors composed of business leaders drawn from that local community. Each bank has complete on-site authority to make all decisions which directly affect the customer, such as credit approval and the pricing and structure of both loans and deposits. The notion of banking as a profession is key to Capitol's model where its banks' customers seek a relationship with banking professionals to meet their needs as opposed to transaction-oriented financial institutions pushing financial products at customers and emphasizing market share.
With Capitol's focused banking model, bank development on a national scale is a natural extension of this business philosophy. Capitol's bank development philosophy is based on just a few key ingredients necessary to start a new bank:
· | A bank president candidate with a significant background in the future bank's business community, capable of attracting customer relationships and other banking professionals |
· | An office address from which to operate a bank, optimally located in that business community |
· | A strong group of potential board members, drawn from the local business community, to oversee the future bank's activities and assist in business development |
· | Availability of capital from community investors seeking to invest up to 49% in the required start-up equity of the future bank |
Notably, 'market size' is not a big factor in Capitol's approach to bank-development. Rather, the key is people. Capitol has recognized from its beginning that its banking focus always has been, and always will be, a people business. Capitol's banks are small in market stature, emphasizing personalized banking relationships.
"Incubation" of Young Community Banks
New banks, just like most start-up businesses, are not profitable from the outset. Each new bank is started with sufficient capital to absorb early period losses and to support balance-sheet growth. During these early periods of operation, Capitol's management works closely with the de novo bank's president in providing guidance and assistance to help achieve the bank's goals and objectives as it navigates toward future profitability. When a de novo bank achieves certain developmental milestones (age, cumulative profitability, return on equity or other measures), Capitol may offer the bank's community investors (up to 49% of the bank's start-up capital) an opportunity to exchange their bank investment for shares of Capitol's common stock, at a multiple of the bank's then current book value (typically 150%). The exchange offer (which is not a contractual obligation of Capitol) is generally subject to
F - 8
approval by the bank's shareholders. When the offer is made, the bank is often 'turning the corner' on cumulative profitability and the share-exchange enables the bank's shareholders to achieve both a return on their original investment in the bank and liquidity in the form of marketable shares of Capitol's common stock, if the shareholders elect to enter into the share-exchange transaction. In 2007, Capitol completed one share-exchange transaction; two share-exchange transactions were completed in 2006.
Monitoring and Managing Capitol's Investments in Community Banks
The concept of bank development is not limited to starting and nurturing new banks. At Capitol, it also means nurturing middle-stage and mature bank affiliates to help them maximize their potential. Capitol monitors and manages its investments in community banks working through regional presidents, supported by Capitol’s bank financial analysis group. Capitol's bank financial analysis group assists the banks in the development of detailed budgets, assisting with asset/liability management strategies, monitoring progress on the banks' business plans and reviewing monthly operating results for each bank. Capitol's regional presidents also assist in the identification of new bank development opportunities within their respective regions. In addition to the monitoring of operating results, Capitol assists the banks in managing capital, including funding supplemental capital when needed to support bank growth.
Capitol's unique relationship with its banks is multidimensional, as an investor, mentor and service provider. As investor, Capitol closely monitors the financial performance of its bank subsidiaries. Capitol's mentoring role of providing assistance and guidance when and where necessary to help enhance bank performance is most important for its youngest affiliates where guidance is needed during their early formative stages. Capitol provides efficient back-office support services which can be done centrally for all of its banks and which do not involve a direct interface with the bank customer, such as:
· | Accounting |
· | Capital management |
· | Credit administration |
· | Data processing |
· | Human resources administration |
· | Internal audit |
· | Legal support |
· | Risk management |
Some of these functions are performed nationally from a single location, while others are performed regionally, where it is more efficient to have personnel located geographically based on their respective responsibilities in relation to the physical location of the banks.
F - 9
Total assets and revenues of each bank within Capitol's regions are summarized below as of and for the years ended December 31, 2007 and 2006 (in $1,000s):
| Total Assets | Total Revenues(3) | ||||||||||||||
| 2007 | 2006 | 2007 | 2006 | ||||||||||||
| Arizona Region: | |||||||||||||||
| Arrowhead Community Bank | $ | 89,060 | $ | 79,152 | $ | 8,161 | $ | 8,076 | |||||||
Asian Bank of Arizona(2) | 25,017 | 20,248 | 1,760 | 781 | |||||||||||
| Bank of Tucson | 187,468 | 187,683 | 16,000 | 15,358 | |||||||||||
| Camelback Community Bank | 84,671 | 83,003 | 6,780 | 6,355 | |||||||||||
| Mesa Bank | 217,861 | 201,776 | 19,685 | 19,000 | |||||||||||
| Southern Arizona Community Bank | 85,158 | 85,912 | 6,872 | 6,629 | |||||||||||
| Sunrise Bank of Albuquerque | 71,726 | 59,798 | 6,168 | 4,796 | |||||||||||
| Sunrise Bank of Arizona | 116,245 | 119,785 | 9,336 | 10,347 | |||||||||||
| Valley First Community Bank | 77,306 | 72,333 | 5,544 | 5,629 | |||||||||||
| Yuma Community Bank | 78,489 | 74,477 | 6,078 | 6,049 | |||||||||||
| Arizona Region Total | 1,033,001 | 984,167 | 86,384 | 83,020 | |||||||||||
| California Region: | |||||||||||||||
| Bank of Escondido | 89,557 | 82,412 | 5,914 | 5,115 | |||||||||||
Bank of Feather River(1) | 17,283 | 171 | |||||||||||||
| Bank of San Francisco | 68,902 | 28,122 | 3,250 | 1,649 | |||||||||||
| Bank of Santa Barbara | 58,738 | 42,559 | 4,282 | 2,138 | |||||||||||
| Napa Community Bank | 131,457 | 99,009 | 9,483 | 7,212 | |||||||||||
| Point Loma Community Bank | 56,428 | 43,715 | 4,161 | 3,185 | |||||||||||
| Sunrise Bank of San Diego | 81,905 | 71,170 | 7,092 | 5,800 | |||||||||||
Sunrise Community Bank(1) | 21,113 | 1,099 | |||||||||||||
| California Region Total | 525,383 | 366,987 | 35,452 | 25,099 | |||||||||||
| Colorado Region: | |||||||||||||||
| Fort Collins Commerce Bank | 61,083 | 54,410 | 4,696 | 3,641 | |||||||||||
Larimer Bank of Commerce(1) | 51,906 | 2,199 | |||||||||||||
Loveland Bank of Commerce(1) | 15,941 | 234 | |||||||||||||
| Colorado Region Total | 128,930 | 54,410 | 7,129 | 3,641 | |||||||||||
| Great Lakes Region: | |||||||||||||||
| Ann Arbor Commerce Bank | 362,429 | 310,407 | 25,800 | 23,598 | |||||||||||
| Bank of Auburn Hills | 44,767 | 31,559 | 3,298 | 1,849 | |||||||||||
Bank of Maumee(2) | 35,576 | 9,915 | 1,552 | 133 | |||||||||||
| Bank of Michigan | 69,909 | 51,287 | 4,945 | 3,073 | |||||||||||
| Brighton Commerce Bank | 108,664 | 103,909 | 8,308 | 7,889 | |||||||||||
| Capitol National Bank | 228,556 | 256,741 | 17,794 | 17,531 | |||||||||||
| Detroit Commerce Bank | 113,243 | 106,233 | 9,083 | 8,634 | |||||||||||
| Elkhart Community Bank | 89,064 | 86,883 | 6,876 | 6,476 | |||||||||||
Evansville Commerce Bank(2) | 50,819 | 20,772 | 2,789 | 591 | |||||||||||
| Goshen Community Bank | 93,173 | 80,137 | 6,128 | 5,216 | |||||||||||
| Grand Haven Bank | 130,492 | 129,033 | 9,575 | 9,702 | |||||||||||
| Kent Commerce Bank | 87,060 | 86,916 | 6,545 | 6,800 | |||||||||||
| Macomb Community Bank | 93,045 | 101,353 | 6,666 | 7,713 | |||||||||||
| Muskegon Commerce Bank | 98,975 | 95,551 | 7,117 | 7,494 | |||||||||||
| Oakland Commerce Bank | 109,370 | 134,437 | 9,288 | 9,660 | |||||||||||
Ohio Commerce Bank(2) | 35,690 | 14,466 | 1,533 | 199 | |||||||||||
| Paragon Bank & Trust | 103,711 | 98,804 | 7,034 | 7,816 | |||||||||||
| Portage Commerce Bank | 189,944 | 179,413 | 15,479 | 14,813 | |||||||||||
| Great Lakes Region Total | 2,044,487 | 1,897,816 | 149,810 | 139,187 | |||||||||||
| Midwest Region: | |||||||||||||||
| Bank of Belleville | 50,485 | 24,948 | 2,389 | 1,188 | |||||||||||
Community Bank of Lincoln(1) | 12,960 | 65 | |||||||||||||
| Summit Bank of Kansas City | 50,142 | 19,529 | 3,452 | 841 | |||||||||||
| Midwest Region Total | 113,587 | 44,477 | 5,906 | 2,029 | |||||||||||
F - 10
Summary of total assets and revenues – continued:
| Total Assets | Total Revenues(3) | ||||||||||||||
| 2007 | 2006 | 2007 | 2006 | ||||||||||||
| Nevada Region: | |||||||||||||||
1st Commerce Bank(2) | $ | 32,091 | $ | 14,829 | $ | 1,762 | $ | 202 | |||||||
| Bank of Las Vegas | 72,768 | 67,478 | 5,966 | 5,331 | |||||||||||
| Black Mountain Community Bank | 147,433 | 138,961 | 12,282 | 10,984 | |||||||||||
| Desert Community Bank | 101,840 | 93,914 | 8,216 | 7,464 | |||||||||||
| Red Rock Community Bank | 120,750 | 108,362 | 9,319 | 8,515 | |||||||||||
| Nevada Region Total | 474,882 | 423,544 | 37,545 | 32,496 | |||||||||||
| Northeast Region: | |||||||||||||||
USNY Bank(1) | 17,171 | 438 | |||||||||||||
| Northwest Region: | |||||||||||||||
| Bank of Bellevue | 45,122 | 33,155 | 3,152 | 2,061 | |||||||||||
Bank of Everett(2) | 28,946 | 20,061 | 1,907 | 489 | |||||||||||
Bank of Tacoma(1) | 24,325 | 1,304 | |||||||||||||
High Desert Bank(1) | 11,501 | 221 | |||||||||||||
Issaquah Community Bank(1) | 13,696 | 330 | |||||||||||||
| Northwest Region Total | 123,590 | 53,216 | 6,914 | 2,550 | |||||||||||
| Southeast Region: | |||||||||||||||
Bank of Valdosta(2) | 43,842 | 21,626 | 2,574 | 561 | |||||||||||
Community Bank of Rowan(2) | 117,495 | 45,503 | 6,195 | 1,870 | |||||||||||
| First Carolina State Bank | 115,243 | 93,819 | 7,556 | 6,341 | |||||||||||
| Peoples State Bank | 26,159 | 32,714 | 2,226 | 2,629 | |||||||||||
Sunrise Bank of Atlanta(2) | 48,664 | 16,990 | 3,922 | 912 | |||||||||||
| Southeast Region Total | 351,403 | 210,652 | 22,473 | 12,313 | |||||||||||
| Texas Region: | |||||||||||||||
Bank of Ford Bend(1) | 9,551 | 27 | |||||||||||||
Bank of Las Colinas(1) | 11,383 | 37 | |||||||||||||
| Texas Region Total | 20,934 | 64 | |||||||||||||
Other, net(4) | 68,395 | 30,547 | 2,705 | 550 | |||||||||||
| Consolidated Totals | $ | 4,901,763 | $ | 4,065,816 | $ | 354,820 | $ | 300,885 | |||||||
| (1) | Became a Capitol affiliate in 2007 and is included for periods after addition to the Capitol banking network. |
| (2) | Became a Capitol affiliate in 2006 and is included for periods after addition to the Capitol banking network. |
| (3) | Total revenues is the sum of interest income and noninterest income. |
| (4) | Includes corporate and other nonbank entities. |
[The remainder of this page is intentionally left blank]
F - 11
Net income for 2007 approximated $21.9 million, a 48% decrease from the $42.4 million earned in 2006. Net income for 2005 was $35.9 million. Diluted earnings per share for 2007 was $1.27 compared to $2.57 in 2006 and $2.34 in 2005.
The table below summarizes, for Capitol's banks individually and regionally, net income and the related rates of return on average equity and assets, where applicable (in $1,000s):
| Net Income | Return on Average Equity | Return on Average Assets | ||||||||||||||||||||||||||||||||||
| 2007 | 2006 | 2005 | 2007 | 2006 | 2005 | 2007 | 2006 | 2005 | ||||||||||||||||||||||||||||
| Arizona Region: | ||||||||||||||||||||||||||||||||||||
| Arrowhead Community Bank | $ | 762 | $ | 1,293 | $ | 1,255 | 9.24 | % | 15.68 | % | 17.47 | % | 0.89 | % | 1.49 | % | 1.56 | % | ||||||||||||||||||
Asian Bank of Arizona(2) | (507 | ) | (567 | ) | ||||||||||||||||||||||||||||||||
| Bank of Tucson | 4,527 | 4,656 | 3,732 | 26.48 | % | 29.93 | % | 27.61 | % | 2.52 | % | 2.62 | % | 2.12 | % | |||||||||||||||||||||
| Camelback Community Bank | 992 | 1,119 | 1,167 | 11.14 | % | 13.64 | % | 13.90 | % | 1.13 | % | 1.36 | % | 1.42 | % | |||||||||||||||||||||
| Mesa Bank | 3,983 | 4,509 | 3,121 | 21.46 | % | 25.51 | % | 22.53 | % | 1.89 | % | 2.32 | % | 1.93 | % | |||||||||||||||||||||
| Southern Arizona Community Bank | 1,082 | 1,189 | 1,290 | 12.04 | % | 13.51 | % | 14.74 | % | 1.22 | % | 1.39 | % | 1.46 | % | |||||||||||||||||||||
| Sunrise Bank of Albuquerque | 601 | 494 | 929 | 8.95 | % | 7.50 | % | 13.58 | % | 0.86 | % | 0.86 | % | 1.36 | % | |||||||||||||||||||||
| Sunrise Bank of Arizona | 409 | 1,372 | 2,215 | 3.51 | % | 10.82 | % | 18.12 | % | 0.35 | % | 1.17 | % | 1.82 | % | |||||||||||||||||||||
| Valley First Community Bank | 327 | 716 | 604 | 4.10 | % | 9.67 | % | 9.06 | % | 0.46 | % | 0.97 | % | 0.86 | % | |||||||||||||||||||||
| Yuma Community Bank | 936 | 1,199 | 992 | 12.09 | % | 16.95 | % | 14.88 | % | 1.28 | % | 1.70 | % | 1.66 | % | |||||||||||||||||||||
| Arizona Region Total | 13,112 | 15,980 | 15,305 | |||||||||||||||||||||||||||||||||
| California Region: | ||||||||||||||||||||||||||||||||||||
| Bank of Escondido | 505 | 787 | 452 | 3.54 | % | 7.70 | % | 4.78 | % | 0.58 | % | 1.04 | % | 0.72 | % | |||||||||||||||||||||
Bank of Feather River(1) | (576 | ) | ||||||||||||||||||||||||||||||||||
Bank of San Francisco(3) | (397 | ) | (484 | ) | (726 | ) | ||||||||||||||||||||||||||||||
Bank of Santa Barbara(3) | (191 | ) | (630 | ) | (514 | ) | ||||||||||||||||||||||||||||||
| Napa Community Bank | 1,542 | 1,572 | 965 | 11.73 | % | 13.65 | % | 9.47 | % | 1.29 | % | 1.86 | % | 1.27 | % | |||||||||||||||||||||
| Point Loma Community Bank | 168 | 196 | (467 | ) | 2.37 | % | 2.84 | % | 0.31 | % | 0.48 | % | ||||||||||||||||||||||||
| Sunrise Bank of San Diego | 432 | 885 | 1,095 | 4.06 | % | 8.18 | % | 10.18 | % | 0.50 | % | 1.27 | % | 1.69 | % | |||||||||||||||||||||
Sunrise Community Bank(1) | (998 | ) | ||||||||||||||||||||||||||||||||||
| California Region Total | 485 | 2,326 | 805 | |||||||||||||||||||||||||||||||||
| Colorado Region: | ||||||||||||||||||||||||||||||||||||
Fort Collins Commerce Bank(3) | 588 | 170 | (396 | ) | 6.81 | % | 2.10 | % | 1.07 | % | 0.42 | % | ||||||||||||||||||||||||
Larimer Bank of Commerce(1) | (586 | ) | ||||||||||||||||||||||||||||||||||
Loveland Bank of Commerce(1) | (426 | ) | ||||||||||||||||||||||||||||||||||
| Colorado Region Total | (424 | ) | 170 | (396 | ) | |||||||||||||||||||||||||||||||
| Great Lakes Region: | ||||||||||||||||||||||||||||||||||||
| Ann Arbor Commerce Bank | 3,635 | 3,739 | 4,007 | 13.56 | % | 14.19 | % | 14.80 | % | 1.08 | % | 1.21 | % | 1.22 | % | |||||||||||||||||||||
Bank of Auburn Hills(3) | (335 | ) | (332 | ) | (437 | ) | ||||||||||||||||||||||||||||||
Bank of Maumee(2) | (1,063 | ) | (619 | ) | ||||||||||||||||||||||||||||||||
Bank of Michigan(3) | (136 | ) | (343 | ) | (1,017 | ) | ||||||||||||||||||||||||||||||
| Brighton Commerce Bank | 621 | 845 | 1,097 | 6.63 | % | 8.93 | % | 11.86 | % | 0.58 | % | 0.80 | % | 1.02 | % | |||||||||||||||||||||
| Capitol National Bank | 1,977 | 2,879 | 3,510 | 10.45 | % | 14.97 | % | 18.62 | % | 0.84 | % | 1.20 | % | 1.46 | % | |||||||||||||||||||||
| Detroit Commerce Bank | 241 | 942 | 633 | 2.57 | % | 11.23 | % | 9.15 | % | 0.22 | % | 0.99 | % | 0.80 | % | |||||||||||||||||||||
| Elkhart Community Bank | 766 | 948 | 726 | 8.67 | % | 11.18 | % | 9.21 | % | 0.90 | % | 1.16 | % | 0.97 | % | |||||||||||||||||||||
Evansville Commerce Bank(2) | (689 | ) | (851 | ) | ||||||||||||||||||||||||||||||||
| Goshen Community Bank | 431 | 383 | 47 | 5.72 | % | 5.58 | % | 0.71 | % | 0.54 | % | 0.55 | % | 0.08 | % | |||||||||||||||||||||
| Grand Haven Bank | 483 | 1,284 | 999 | 4.43 | % | 11.75 | % | 9.75 | % | 0.37 | % | 1.01 | % | 0.82 | % | |||||||||||||||||||||
| Kent Commerce Bank | (161 | ) | 365 | 678 | 4.72 | % | 8.14 | % | 0.44 | % | 0.79 | % | ||||||||||||||||||||||||
| Macomb Community Bank | (1,118 | ) | 58 | 442 | 0.66 | % | 5.03 | % | 0.06 | % | 0.47 | % | ||||||||||||||||||||||||
| Muskegon Commerce Bank | (1,145 | ) | 158 | 1,184 | 1.87 | % | 12.52 | % | 0.16 | % | 1.23 | % | ||||||||||||||||||||||||
| Oakland Commerce Bank | (461 | ) | 1,143 | 1,835 | 11.50 | % | 17.75 | % | 0.94 | % | 1.46 | % | ||||||||||||||||||||||||
Ohio Commerce Bank(2) | (770 | ) | (383 | ) | ||||||||||||||||||||||||||||||||
| Paragon Bank & Trust | (187 | ) | 858 | 819 | 7.71 | % | 7.18 | % | 0.85 | % | 0.74 | % | ||||||||||||||||||||||||
| Portage Commerce Bank | 2,252 | 2,706 | 2,940 | 13.82 | % | 16.72 | % | 18.31 | % | 1.21 | % | 1.51 | % | 1.56 | % | |||||||||||||||||||||
| Great Lakes Region Total | 4,341 | 13,780 | 17,463 | |||||||||||||||||||||||||||||||||
F - 12
Net income and the related rates of return on average equity and assets – continued:
| Net Income | Return on Average Equity | Return on Average Assets | ||||||||||||||||||||||||||||||||||
| 2007 | 2006 | 2005 | 2007 | 2006 | 2005 | 2007 | 2006 | 2005 | ||||||||||||||||||||||||||||
| Midwest Region | ||||||||||||||||||||||||||||||||||||
Bank of Belleville(3) | $ | (572 | ) | $ | (548 | ) | $ | (405 | ) | |||||||||||||||||||||||||||
Community Bank of Lincoln(1) | (500 | ) | ||||||||||||||||||||||||||||||||||
Summit Bank of Kansas City(3) | (404 | ) | (593 | ) | (319 | ) | ||||||||||||||||||||||||||||||
| Midwest Region Total | (1,476 | ) | (1,141 | ) | (724 | ) | ||||||||||||||||||||||||||||||
| Nevada Region: | ||||||||||||||||||||||||||||||||||||
1st Commerce Bank(2) | (578 | ) | (432 | ) | ||||||||||||||||||||||||||||||||
| Bank of Las Vegas | 608 | 707 | 670 | 6.77 | % | 7.24 | % | 9.70 | % | 0.83 | % | 1.09 | % | 1.16 | % | |||||||||||||||||||||
| Black Mountain Community Bank | 2,612 | 2,556 | 2,204 | 18.40 | % | 20.40 | % | 20.95 | % | 1.81 | % | 1.96 | % | 1.84 | % | |||||||||||||||||||||
| Desert Community Bank | 1,296 | 1,302 | 1,061 | 13.54 | % | 15.29 | % | 13.65 | % | 1.35 | % | 1.51 | % | 1.42 | % | |||||||||||||||||||||
| Red Rock Community Bank | 1,652 | 2,162 | 1,856 | 12.34 | % | 17.38 | % | 15.32 | % | 1.44 | % | 2.09 | % | 1.73 | % | |||||||||||||||||||||
| Nevada Region Total | 5,590 | 6,295 | 5,791 | |||||||||||||||||||||||||||||||||
| Northeast Region: | ||||||||||||||||||||||||||||||||||||
USNY Bank(1) | (908 | ) | ||||||||||||||||||||||||||||||||||
| Northwest Region: | ||||||||||||||||||||||||||||||||||||
Bank of Bellevue(3) | (154 | ) | (384 | ) | (551 | ) | ||||||||||||||||||||||||||||||
Bank of Everett(2) | (636 | ) | (733 | ) | ||||||||||||||||||||||||||||||||
Bank of Tacoma(1) | (1,067 | ) | ||||||||||||||||||||||||||||||||||
High Desert Bank(1) | (514 | ) | ||||||||||||||||||||||||||||||||||
Issaquah Community Bank(1) | (574 | ) | ||||||||||||||||||||||||||||||||||
| Northwest Region Total | (2,945 | ) | (1,117 | ) | (551 | ) | ||||||||||||||||||||||||||||||
| Southeast Region: | ||||||||||||||||||||||||||||||||||||
Bank of Valdosta(2) | (423 | ) | (822 | ) | ||||||||||||||||||||||||||||||||
Community Bank of Rowan(2) | (183 | ) | (1,095 | ) | ||||||||||||||||||||||||||||||||
| First Carolina State Bank | 539 | 637 | 478 | 4.52 | % | 5.59 | % | 4.42 | % | 0.53 | % | 0.75 | % | 0.64 | % | |||||||||||||||||||||
Peoples State Bank(3) | 254 | 282 | 77 | 5.14 | % | 6.57 | % | 2.90 | % | 0.93 | % | 0.55 | % | 0.36 | % | |||||||||||||||||||||
Sunrise Bank of Atlanta(2) | (338 | ) | (820 | ) | ||||||||||||||||||||||||||||||||
| Southeast Region Total | (151 | ) | (1,818 | ) | 555 | |||||||||||||||||||||||||||||||
| Texas Region: | ||||||||||||||||||||||||||||||||||||
Bank of Fort Bend(1) | (461 | ) | ||||||||||||||||||||||||||||||||||
Bank of Las Colinas(1) | (658 | ) | ||||||||||||||||||||||||||||||||||
| Texas Region Total | (1,119 | ) | ||||||||||||||||||||||||||||||||||
| Other, net | 5,432 | 7,916 | (2,323 | ) | ||||||||||||||||||||||||||||||||
| Consolidated totals | $ | 21,937 | $ | 42,391 | $ | 35,925 | 5.72 | % | 12.94 | % | 13.34 | % | 0.49 | % | 1.12 | % | 1.08 | % | ||||||||||||||||||
| (1) | Became a Capitol affiliate in 2007 and is included for periods after addition to the Capitol banking network. |
| (2) | Became a Capitol affiliate in 2006 and is included for periods after addition to the Capitol banking network. |
| (3) | Became a Capitol affiliate in 2005 and is included for periods after addition to the Capitol banking network. |
The preceding table presents net income (or loss) of each bank without regard to Capitol’s direct or indirect ownership percentage. Young de novo banks are expected to incur operating losses in their early periods of operations and, due to Capitol’s ownership percentage, individual start-up losses at banks typically do not have a material effect on consolidated earnings.
Earnings at mature wholly-owned banks have a more significant and direct impact on consolidated earnings. The preceding table indicates a significant decrease in combined net income of banks within the Great Lakes Region. Dominating the Great Lakes Region are Capitol’s eleven mature, wholly-owned banks located in Michigan. Total earnings of this group of banks amounted to $6.1 million in 2007, compared to $15 million in 2006 and $18.1 million in 2005. The material decrease in earnings in this group of banks is attributable
F - 13
to loan losses stemming from a sustained difficult economic environment, significant increases in nonearning assets and elevated collection costs. These are the largest items adversely impacting Capitol’s 2007 consolidated earnings results, followed by compression in margins and related net interest income.
The principal revenue source for Capitol’s banks is interest income from loans. Net interest income is the total of all interest income minus all interest expense. This is an important measure that is used to help determine the amount of net operating revenues for financial institutions. Net operating revenue is the sum of net interest income and noninterest income.
Net interest income totaled $183.3 million in 2007, a 5% increase over the $173.8 million reported in 2006, compared to an 11% increase in 2006 versus 19% in 2005. The 2007 increase in net interest income is substantially less than the growth rate in loans, other earning assets and deposits due to a challenging interest rate environment which reduced the spread between interest earned on loans and rates paid on deposits. In 2006 and 2005, double-digit asset growth generally correlated with somewhat similar double-digit growth in net interest income, although margin compression reduced the growth rate of net interest income in the second half of 2006. The modest 2007 increase in net interest income is due to the compression in margins caused by lower rates earned on loans and elevated levels of nonperforming loans coupled with the slower repricing of rates paid on deposits.
Combined with noninterest income, total consolidated net operating revenues approximated $207.7 million in 2007, $195.3 million in 2006 and $177.9 million in 2005. Noninterest income for these periods was $24.4 million, $21.5 million and $21 million, respectively. Noninterest income increased 13% in 2007.
Service charges, which approximated $4.8 million in 2007, increased 9% from the 2006 level of $4.3 million ($4.1 million in 2005). Revenue from trust and wealth management activities increased more than 54% in 2007 and 61% in 2006, following the late-2005 launch of Capitol Wealth, Inc., an initiative to expand Capitol’s banks’ scope of services in meeting the needs of their clients beyond loans and deposits. Full-time Capitol Wealth advisors are located at a majority of Capitol's banks to work in tandem with their traditional banking colleagues to expand the availability of financial services to the banks' clientele, while increasing noninterest revenues.
In 2007, 2006 and 2005, revenue from mortgage loans originated for sale amounted to $4.5 million, $5.4 million and $6.1 million, respectively. Loan origination volume decreased in 2006 and 2005 and increased slightly in 2007. Increased interest rates on mortgage loans in 2006 and 2007 substantially reduced origination volume from refinancings. Further, reduction in home sales volume in many communities has also negatively impacted origination volume. Other noninterest income increased 20% in 2007 and 5% in 2006. Due to the nature of these revenues, as well as gains on the sale of government-guaranteed loans, the amount of the revenue can vary significantly from year to year depending on interest rates and business opportunities.
F - 14
The provision for loan losses approximated $25.3 million, $12.2 million and $11 million in 2007, 2006 and 2005, respectively. The very significant increase in the provision for loan losses in 2007 is primarily associated with loan losses incurred in the Great Lakes Region’s mature wholly-owned Michigan banks and related elevated levels of nonperforming loans. The amount of the provision for loan losses is determined based on management’s analysis of amounts necessary for the allowance for loan losses; this is discussed in greater detail later in the Financial Position section of this narrative.
Noninterest expense totaled $176.2 million, $137.8 million and $117.3 million in 2007, 2006 and 2005, respectively. In total, these expenses increased 27.8% in 2007, 17.5% in 2006 and 19.9% in 2005. Increases in the components of noninterest expense in 2007 were primarily associated with added staffing and other costs associated with growing young banks and adding new banks (eleven in 2007 and nine in each of 2006 and 2005). The more significant elements of other noninterest expense consisted of the following (in $1,000s):
| 2007 | 2006 | 2005 | |||||||||
| Advertising | $ | 3,315 | $ | 2,921 | $ | 2,266 | |||||
| Travel, lodging and meals | 3,080 | 2,322 | 1,623 | ||||||||
| Paper, printing and supplies | 2,870 | 2,409 | 2,135 | ||||||||
| Directors’ fees | 2,819 | 2,196 | 1,577 | ||||||||
FDIC insurance premiums and other regulatory fees | 2,723 | 879 | 837 | ||||||||
| Professional fees | 2,468 | 2,547 | 2,124 | ||||||||
Bank services (ATMs, telephone banking and Internet banking) | 2,115 | 1,564 | 1,229 | ||||||||
| Loan and collection expense | 1,952 | 1,116 | 1,059 | ||||||||
| Taxes other than income taxes | 1,786 | 1,372 | 1,401 | ||||||||
| Communications | 1,728 | 1,380 | 1,229 | ||||||||
| Postage | 1,113 | 1,009 | 864 | ||||||||
| Courier service | 997 | 872 | 803 | ||||||||
Costs associated with foreclosed properties and other real estate owned | 989 | 417 | 8 | ||||||||
| Dues and memberships | 928 | 810 | 592 | ||||||||
| Contracted labor | 496 | 549 | 370 | ||||||||
| Insurance expense | 473 | 398 | 386 | ||||||||
| Other | 8,951 | 4,880 | 7,324 | ||||||||
| Total | $ | 38,803 | $ | 27,641 | $ | 25,827 | |||||
Capitol’s effective tax rate was 45.9% in 2007, 34.1% in 2006 and 38.7% in 2005. The statutory federal income tax rate applicable to Capitol is currently 35%. The effective tax rate includes state income taxes, but excludes taxes incurred in states which are based on measures other than income (which are shown in the table above). The higher effective tax rate in 2007 resulted primarily from lower taxable income while nondeductible items were relatively consistent with prior years.
Consolidated total assets increased significantly in 2007 to $4.9 billion from $4.1 billion at the end of 2006 and $3.5 billion at the beginning of 2006.
F - 15
Key to the balance-sheet strength of Capitol is its total capital position (subordinated debentures, minority interests in consolidated subsidiaries and stockholders’ equity totaling approximately $701.5 million or 14.3% of total assets) and liquidity (cash and cash equivalents of $352.4 million or 7.2% of total assets) at December 31, 2007. Both of those key elements are discussed in the next section, Liquidity, Capital Resources and Capital Adequacy.
When considering Capitol’s financial position, as shown in its consolidated balance sheet, it is clear that the single largest asset category is portfolio loans. Accordingly, the narrative in this section is devoted primarily to loans.
Net portfolio loans (total portfolio loans after subtracting the allowance for loan losses) approximated $4.3 billion at December 31, 2007 and $3.4 billion at December 31, 2006. These amounts approximated 87% of total consolidated assets at December 31, 2007 and 85% at December 31, 2006. Loan growth in 2007 approximated $826 million ($497.5 million in 2006). On a consolidated basis, portfolio loan growth at banks less than three years of age as of year-end 2007 approximated 66% of all banks’ portfolio loan growth, which is the expected result of Capitol’s growing number of banks.
Capitol’s banks emphasize commercial loans, consistent with their focus on lending to local entrepreneurs, professional service firms and other businesses. All of Capitol’s banks use a common credit policy; however, as emphasized earlier, all credit decisions are made at the local level at each community bank. The utilization of an enterprise-wide credit policy has several key benefits to Capitol and its banks, such as procedural guidance for:
· | Loan underwriting and documentation |
· | Credit granting authorities within the bank |
· | Acceptable collateral and loan structuring |
· | Loan participations amongst other affiliates or other funding sources, when proposals exceed an individual bank’s limitations |
· | Collections and workouts |
· | Documenting and evaluating the adequacy of the allowance for loan losses |
· | Establishing corporate credit administration resources to aid the banks when needed |
As part of the banks’ emphasis on commercial lending, commercial real estate is sought as the primary source of collateral for commercial loans when possible. This emphasis on use of commercial real estate as collateral has been a consistent practice of Capitol and its banks from their earliest days of operation, based on the use of appropriate loan-to-value ratios, avoidance of large real estate development projects and the belief that, even in soft economies, commercial real estate tends to have substantially less loss potential than other types of business-asset collateral, such as receivables, inventory and equipment.
F - 16
A potentially negative aspect of real estate as a primary source of collateral for commercial loans is that when some commercial loans develop performance difficulties and reach nonperforming status (i.e., becoming 90 days past due or being placed on nonaccrual status), the resolution period can be long due to the foreclosure process and may be further extended if the real estate sales environment is weak in particular markets. In contrast, a commercial loan secured by receivables, inventory or equipment which becomes nonperforming tends to have a higher loss potential due to the probable dissipation of collateral value.
At December 31, 2007, the consolidated allowance for loan losses approximated $58.1 million or 1.35% of total portfolio loans outstanding, compared with $45.4 million or 1.30% at December 31, 2006. As stated earlier, the allowance is based on management’s analysis of inherent losses in the portfolio at the balance sheet date.
Nonperforming loans approximated $72.6 million and $34.3 million at December 31, 2007 and 2006, and approximated 1.68% and 0.98% of portfolio loans and 1.48% and 0.84% of total assets, respectively. Of the nonperforming loans at December 31, 2007, about 86% were real-estate secured. At December 31, 2007, the coverage ratio of the allowance for loan losses to nonperforming loans (i.e., the allowance as a percentage of nonperforming loans) was 80%, compared to 132.5% at the beginning of the year.
At December 31, 2007, about 71% of Capitol’s total nonperforming loans were Michigan-based (including nonperforming loans held at the parent level) where nonperforming loans increased $20 million or 63% in 2007. In concert with elevated levels of nonperforming loans at Michigan banks, their combined allowance ratio of about 1.58% and 1.48% of portfolio loans at year-end 2007 and 2006, respectively, has been maintained at a higher level than the consolidated ratio, and some banks have allowance ratios exceeding 2%. Although the majority of nonperforming loans at December 31, 2007 were Michigan-based, it should be noted that other regions (Arizona and California, for example) experienced increases in this category in 2007. Increases in other regions’ nonperforming loans were expected due to softened economic conditions and the historically low levels of such loans in prior periods.
Due to a combination of commercial real estate collateral and a weak economic climate, resolution of nonperforming loans and other nonperforming assets may take extended periods, levels of nonperforming loans could increase further and general economic conditions may not improve in the near term. Management believes that nonperforming loans have been properly considered in its evaluation of the adequacy of the allowance for loan losses as of December 31, 2007.
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 grades the credits on a risk basis, assessing the financial strength of the borrower and guarantors and other factors such as the borrowers’ historical and projected financial performance, local economic conditions and other subjective factors. The loan classification process is fluid and subjective.
F - 17
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 attention and the development of specific remedial action plans.
At December 31, 2007, potential problem loans (which include nonperforming loans) approximated $219 million or about 5% of total consolidated portfolio loans. Such totals typically approximate 4% to 5% of loans outstanding and are an important part of management’s ongoing and proactive 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. These loans are considered in management’s evaluation of the adequacy of the allowance for loan losses.
As noted in the Critical Accounting Policies section, which appears later in this narrative, the use of estimates in determining the allowance for loan losses is very important for an understanding of Capitol’s consolidated financial statements. Simply stated, the allowance for loan losses is management’s estimate of loan losses inherent in the loan portfolio at the balance-sheet date. The allowance for loan losses is increased by provisions for loan losses, which are charged against operations, and reduced by net loan write-offs which are charged against the allowance. There are many ways to estimate losses or ‘loss reserves’ and there is no one ‘right’ way. Management’s experience is that its estimation techniques have accurately determined historical losses.
Capitol had 60 separately chartered banks at year-end 2007. Each bank separately documents the adequacy of its respective allowance for loan losses. As mentioned previously, Capitol has a uniform, enterprise-wide credit policy which, among other things, provides the banks guidance on evaluating and documenting the adequacy of the allowance for loan losses. Essentially, a standardized computational template is used consistently by all of Capitol’s banks. The template includes elements for all portfolio loan categories for performing loans, nonperforming loans, watch credits and environmental factors. While a standardized template is utilized, management is required to apply subjective judgment in determining risk factors specific to their banks and other matters in determining the allowance needed at the bank level. Further, the combined results of the banks’ separate analyses are evaluated at the Capitol, or parent, level on a judgmental basis. The process to evaluate and determine the adequacy of the allowance for loan losses at each individual bank and on a consolidated basis is labor intensive and requires a high degree of judgment. It is possible that others, given the same information, may at any point in time reach different reasonable conclusions.
F - 18
The following table summarizes portfolio loans, the allowance for loan losses and nonperforming loans for each of the banks, regionally, and on a consolidated basis (in $1,000s):
Total Portfolio Loans | Allowance for Loan Losses | Nonperforming Loans | Allowance as a % of Total Portfolio Loans | |||||||||||||||||||||||||||||
| 2007 | 2006 | 2007 | 2006 | 2007 | 2006 | 2007 | 2006 | |||||||||||||||||||||||||
| Arizona Region: | ||||||||||||||||||||||||||||||||
| Arrowhead Community Bank | $ | 81,836 | $ | 71,252 | $ | 818 | $ | 720 | $ | 361 | $ | 855 | 1.00 | % | 1.01 | % | ||||||||||||||||
Asian Bank of Arizona(2) | 21,514 | 14,499 | 405 | 200 | 314 | 1.88 | % | 1.38 | % | |||||||||||||||||||||||
| Bank of Tucson | 168,427 | 160,009 | 1,385 | 1,472 | 752 | 199 | 0.82 | % | 0.92 | % | ||||||||||||||||||||||
| Camelback Community Bank | 79,869 | 78,922 | 800 | 733 | 451 | 46 | 1.00 | % | 0.93 | % | ||||||||||||||||||||||
| Mesa Bank | 202,511 | 189,863 | 1,760 | 1,794 | 3,699 | 0.87 | % | 0.94 | % | |||||||||||||||||||||||
| Southern Arizona Community Bank | 78,467 | 77,845 | 792 | 775 | 600 | 16 | 1.01 | % | 1.00 | % | ||||||||||||||||||||||
| Sunrise Bank of Albuquerque | 67,192 | 53,027 | 866 | 778 | 183 | 1.29 | % | 1.47 | % | |||||||||||||||||||||||
| Sunrise Bank of Arizona | 112,211 | 112,720 | 1,125 | 1,126 | 4,250 | 246 | 1.00 | % | 1.00 | % | ||||||||||||||||||||||
| Valley First Community Bank | 71,689 | 66,256 | 653 | 611 | 0.91 | % | 0.92 | % | ||||||||||||||||||||||||
| Yuma Community Bank | 66,092 | 58,577 | 525 | 500 | 600 | 0.79 | % | 0.85 | % | |||||||||||||||||||||||
| Arizona Region Total | 949,808 | 882,970 | 9,129 | 8,709 | 11,210 | 1,362 | 0.96 | % | 0.99 | % | ||||||||||||||||||||||
| California Region: | ||||||||||||||||||||||||||||||||
| Bank of Escondido | 54,707 | 37,398 | 560 | 370 | 311 | 19 | 1.02 | % | 0.99 | % | ||||||||||||||||||||||
Bank of Feather River(1) | 13,345 | 187 | 1.40 | % | ||||||||||||||||||||||||||||
| Bank of San Francisco | 44,989 | 26,415 | 695 | 375 | 392 | 1.54 | % | 1.42 | % | |||||||||||||||||||||||
| Bank of Santa Barbara | 52,340 | 40,198 | 741 | 533 | 1.42 | % | 1.33 | % | ||||||||||||||||||||||||
| Napa Community Bank | 100,253 | 78,467 | 1,069 | 1,020 | 1,459 | 1.07 | % | 1.30 | % | |||||||||||||||||||||||
| Point Loma Community Bank | 49,607 | 38,018 | 695 | 510 | 1.40 | % | 1.34 | % | ||||||||||||||||||||||||
| Sunrise Bank of San Diego | 74,526 | 65,250 | 908 | 540 | 2,386 | 1.22 | % | 0.83 | % | |||||||||||||||||||||||
Sunrise Community Bank(1) | 17,624 | 255 | 1.45 | % | ||||||||||||||||||||||||||||
| California Region Total | 407,391 | 285,746 | 5,110 | 3,348 | 4,548 | 19 | 1.25 | % | 1.17 | % | ||||||||||||||||||||||
| Colorado Region: | ||||||||||||||||||||||||||||||||
| Fort Collins Commerce Bank | 59,388 | 52,147 | 889 | 695 | 1.50 | % | 1.33 | % | ||||||||||||||||||||||||
Larimer Bank of Commerce(1) | 50,927 | 765 | 1.50 | % | �� | |||||||||||||||||||||||||||
Loveland Bank of Commerce(1) | 15,253 | 229 | 1.50 | % | ||||||||||||||||||||||||||||
| Colorado Region Total | 125,568 | 52,147 | 1,883 | 695 | 1.50 | % | 1.33 | % | ||||||||||||||||||||||||
| Great Lakes Region: | ||||||||||||||||||||||||||||||||
| Ann Arbor Commerce Bank | 332,624 | 288,408 | 4,504 | 4,393 | 5,161 | 4,441 | 1.35 | % | 1.52 | % | ||||||||||||||||||||||
| Bank of Auburn Hills | 36,586 | 26,432 | 820 | 410 | 1,293 | 629 | 2.24 | % | 1.55 | % | ||||||||||||||||||||||
Bank of Maumee(2) | 32,102 | 3,327 | 482 | 50 | 1.50 | % | 1.50 | % | ||||||||||||||||||||||||
| Bank of Michigan | 63,448 | 44,630 | 952 | 669 | 370 | 1.50 | % | 1.50 | % | |||||||||||||||||||||||
| Brighton Commerce Bank | 99,627 | 94,987 | 1,018 | 995 | 18 | 522 | 1.02 | % | 1.05 | % | ||||||||||||||||||||||
| Capitol National Bank | 206,449 | 196,074 | 3,421 | 2,833 | 3,449 | 3,365 | 1.66 | % | 1.44 | % | ||||||||||||||||||||||
| Detroit Commerce Bank | 108,992 | 103,153 | 1,355 | 1,335 | 3,948 | 1,328 | 1.24 | % | 1.29 | % | ||||||||||||||||||||||
| Elkhart Community Bank | 83,754 | 77,515 | 1,282 | 1,010 | 2,677 | 676 | 1.53 | % | 1.30 | % | ||||||||||||||||||||||
Evansville Commerce Bank(2) | 48,113 | 14,711 | 720 | 232 | 80 | 1.50 | % | 1.58 | % | |||||||||||||||||||||||
| Goshen Community Bank | 70,799 | 63,653 | 874 | 862 | 491 | 233 | 1.23 | % | 1.35 | % | ||||||||||||||||||||||
| Grand Haven Bank | 122,208 | 120,025 | 2,644 | 2,643 | 6,970 | 2,682 | 2.16 | % | 2.20 | % | ||||||||||||||||||||||
| Kent Commerce Bank | 83,357 | 83,065 | 1,527 | 1,237 | 2,456 | 2,256 | 1.83 | % | 1.49 | % | ||||||||||||||||||||||
| Macomb Community Bank | 87,670 | 87,737 | 2,283 | 1,670 | 11,846 | 3,738 | 2.60 | % | 1.90 | % | ||||||||||||||||||||||
| Muskegon Commerce Bank | 90,031 | 81,799 | 1,762 | 1,231 | 2,362 | 3,906 | 1.96 | % | 1.50 | % | ||||||||||||||||||||||
| Oakland Commerce Bank | 99,770 | 114,876 | 1,816 | 1,636 | 3,803 | 2,862 | 1.82 | % | 1.42 | % | ||||||||||||||||||||||
Ohio Commerce Bank(2) | 29,110 | 739 | 437 | 11 | 1.50 | % | 1.49 | % | ||||||||||||||||||||||||
| Paragon Bank & Trust | 91,481 | 82,259 | 1,431 | 1,298 | 2,220 | 2,132 | 1.56 | % | 1.58 | % | ||||||||||||||||||||||
| Portage Commerce Bank | 179,219 | 167,005 | 1,812 | 1,729 | 1,127 | 1,380 | 1.01 | % | 1.04 | % | ||||||||||||||||||||||
| Great Lakes Region Total | 1,865,340 | 1,650,395 | 29,140 | 24,244 | 48,271 | 30,150 | 1.56 | % | 1.47 | % | ||||||||||||||||||||||
| Midwest Region: | ||||||||||||||||||||||||||||||||
| Bank of Belleville | 46,951 | 17,410 | 700 | 260 | 1.49 | % | 1.49 | % | ||||||||||||||||||||||||
Community Bank of Lincoln(1) | 10,501 | 168 | 1.60 | % | ||||||||||||||||||||||||||||
| Summit Bank of Kansas City | 45,165 | 15,645 | 641 | 235 | 1.42 | % | 1.50 | % | ||||||||||||||||||||||||
| Midwest Region Total | 102,617 | 33,055 | 1,509 | 495 | 1.47 | % | 1.50 | % | ||||||||||||||||||||||||
F - 19
Summary of loan information – continued:
Total Portfolio Loans | Allowance for Loan Losses | Nonperforming Loans | Allowance as a % of Total Portfolio Loans | |||||||||||||||||||||||||||||
| 2007 | 2006 | 2007 | 2006 | 2007 | 2006 | 2007 | 2006 | |||||||||||||||||||||||||
| Nevada Region: | ||||||||||||||||||||||||||||||||
1st Commerce Bank(2) | $ | 27,030 | $ | 9,588 | $ | 393 | $ | 125 | 1.45 | % | 1.30 | % | ||||||||||||||||||||
| Bank of Las Vegas | 61,662 | 62,818 | 751 | 705 | 1.22 | % | 1.12 | % | ||||||||||||||||||||||||
| Black Mountain Community Bank | 137,308 | 127,844 | 1,415 | 1,529 | $ | 659 | 1.03 | % | 1.20 | % | ||||||||||||||||||||||
| Desert Community Bank | 90,050 | 83,284 | 837 | 830 | 356 | $ | 137 | 0.93 | % | 1.00 | % | |||||||||||||||||||||
| Red Rock Community Bank | 106,559 | 100,010 | 977 | 1,084 | 64 | 151 | 0.92 | % | 1.08 | % | ||||||||||||||||||||||
| Nevada Region Total | 422,609 | 383,544 | 4,373 | 4,273 | 1,079 | 288 | 1.03 | % | 1.11 | % | ||||||||||||||||||||||
| Northeast Region: | ||||||||||||||||||||||||||||||||
USNY Bank(1) | 12,421 | 187 | 1.51 | % | ||||||||||||||||||||||||||||
| Northwest Region: | ||||||||||||||||||||||||||||||||
| Bank of Bellevue | 37,364 | 28,037 | 665 | 370 | 222 | 1.78 | % | 1.32 | % | |||||||||||||||||||||||
Bank of Everett(2) | 24,170 | 8,269 | 418 | 122 | 1.73 | % | 1.48 | % | ||||||||||||||||||||||||
Bank of Tacoma(1) | 19,639 | 285 | 1.45 | % | ||||||||||||||||||||||||||||
High Desert Bank(1) | 9,080 | 126 | 1.39 | % | ||||||||||||||||||||||||||||
Issaquah Community Bank(1) | 6,598 | 93 | 1.41 | % | ||||||||||||||||||||||||||||
| Northwest Region Total | 96,851 | 36,306 | 1,587 | 492 | 222 | 1.64 | % | 1.36 | % | |||||||||||||||||||||||
| Southeast Region: | ||||||||||||||||||||||||||||||||
Bank of Valdosta(2) | 41,629 | 18,870 | 619 | 283 | 1.49 | % | 1.50 | % | ||||||||||||||||||||||||
Community Bank of Rowan(2) | 96,271 | 36,534 | 1,444 | 534 | 1.50 | % | 1.46 | % | ||||||||||||||||||||||||
| First Carolina State Bank | 94,047 | 73,884 | 1,157 | 800 | 829 | 150 | 1.23 | % | 1.08 | % | ||||||||||||||||||||||
| Peoples State Bank | 13,609 | 15,154 | 247 | 263 | 86 | 1.81 | % | 1.74 | % | |||||||||||||||||||||||
Sunrise Bank of Atlanta(2) | 45,024 | 14,553 | 760 | 215 | 1.69 | % | 1.48 | % | ||||||||||||||||||||||||
| Southeast Region Total | 290,580 | 158,995 | 4,227 | 2,095 | 915 | 150 | 1.45 | % | 1.32 | % | ||||||||||||||||||||||
| Texas Region: | ||||||||||||||||||||||||||||||||
Bank of Fort Bend(1) | 3,140 | 46 | 1.47 | % | ||||||||||||||||||||||||||||
Bank of Las Colinas(1) | 9,830 | 144 | 1.46 | % | ||||||||||||||||||||||||||||
| Texas Region Total | 12,970 | 190 | 1.46 | % | ||||||||||||||||||||||||||||
| Other, net | 28,546 | 5,520 | 789 | 1,063 | 6,385 | 2,305 | 2.76 | % | 19.26 | % | ||||||||||||||||||||||
| Consolidated totals | $ | 4,314,701 | $ | 3,488,678 | $ | 58,124 | $ | 45,414 | $ | 72,630 | $ | 34,274 | 1.35 | % | 1.30 | % | ||||||||||||||||
| (1) | Became a Capitol affiliate in 2007 and is included for periods after addition to the Capitol banking network. |
| (2) | Became a Capitol affiliate in 2006 and is included for periods after addition to the Capitol banking network. |
There are several other asset categories. Loans held for sale ($16.4 million and $34.6 million at December 31, 2007 and 2006, respectively) are home mortgages which are sold into the secondary market generally within 30-60 days of closing (discussed in more detail in the following section of this narrative). There is also a modest amount of investment securities on the balance sheet ($39.6 million and $40.7 million at December 31, 2007 and 2006, respectively). Goodwill and other intangibles increased to $72.7 million at year-end 2007, an increase of $10.5 million primarily resulting from a share-exchange transaction; accounting for goodwill is described in the Critical Accounting Policies section of this narrative. All other asset categories are individually less than $85 million at December 31, 2007 and 2006.
The primary source of funding of loans is deposits, which is discussed in the next section of this narrative.
F - 20
Asset liquidity for financial institutions typically consists of cash and cash equivalents, loans held for sale and investment securities available for sale. These categories totaled $382.9 million at year-end 2007, or about 7.8% of total assets. This compares to $402.4 million or about 9.9% of total assets at year-end 2006. 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 can vary significantly on a daily basis, based on customer activity.
About a third of the investment securities portfolio is classified as available for sale, although the banks generally have not sold investments to meet liquidity needs. During 2007 and 2006, there were no significant sales of investment securities available for sale ($1.8 million in 2005). Sales of investment securities available for sale are typically made to facilitate changes in risk-management strategies.
Loans held for sale, as previously mentioned, approximated $16.4 million at December 31, 2007, compared to $34.6 million at year-end 2006. 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' portfolios, to reduce interest rate risk. In 2007, reports of turmoil relating to subprime mortgage activity dominated the media; Capitol’s banks’ mortgage lending activity is an extension of its relationship-based operating model. Mortgage loan origination volume in 2007 increased slightly, to approximately $500 million compared to $483.9 million in 2006 and $634.4 million in 2005. The increase in volume was primarily due to lower interest rates in the second half of 2007 versus the higher rates in 2005 and 2006 after record low interest rates, which generated refinancing volume and home sale activity as discussed previously. Future volume will depend in large part on interest rates and the relative strength of residential real estate market conditions. Also, to the extent warranted, the banks may sell other loans from time to time.
The primary source of funds for the banks is deposits. The banks rely upon interest-bearing time deposits as part of their funding strategy. The banks also emphasize 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 2007 (about 20% at year-end 2006). The decrease in this ratio is significant inasmuch as a lower percentage of noninterest-bearing deposits has the effect of increasing a bank’s funding costs and, accordingly, reducing net interest income.
In recent periods, many banks within the industry have experienced 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 sourcing and pricing has become more competitive. Deposit growth requires competitive pricing, resulting in tight net interest margins, especially during periods of relatively low interest rates. As interest rates have recently decreased, customers are more attracted to aggressively-priced time deposits, and
F - 21
growth in noninterest-bearing balances is very difficult to achieve. The banks do not generally rely on brokered deposits as a key funding source (approximately $533 million at year-end 2007 or 13.9% of interest-bearing deposits compared to 13.6% in 2006); however, brokered deposits are a ready resource to help meet funding needs, such as loan commitments (which are discussed in greater detail in Note O of the consolidated financial statements), and manage interest rate risk.
To supplement their funding sources, some of the banks have lines of credit from the Federal Home Loan Bank system. At year-end 2007, a total of approximately $299 million ($184 million at year-end 2006) was borrowed under those facilities and additional borrowing availability approximated $490 million. Some of the banks also have smaller lines of credit with their correspondent banks. Borrowings under those 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 a credit facility aggregating $25 million from an unaffiliated bank. At year-end 2007 and 2006, no amounts were borrowed under this facility.
Capitol's longer-term contractual obligations are disclosed in the notes to the consolidated financial statements. Such obligations consist principally of time deposits of the banks, debt and lease obligations and trust-preferred securities, the principal amounts of which are summarized as follows (in $1,000s):
| Payments Due by Period | |||||||||||||||||||
Total(1) | Within 1 Year | Within 1-3 Years | Within 3-5 Years | After 5 Years | |||||||||||||||
Deposits without a stated maturity | $ | 2,023,628 | $ | 2,023,628 | |||||||||||||||
| Time deposits | 1,821,117 | 1,524,347 | $ | 241,596 | $ | 53,604 | $ | 1,570 | |||||||||||
| Debt obligations | 320,384 | 176,234 | 128,700 | 15,344 | 106 | ||||||||||||||
Rent commitments under noncancelable leases | 56,238 | 9,098 | 15,935 | 13,447 | 17,758 | ||||||||||||||
| Trust-preferred securities | 158,300 | 158,300 | |||||||||||||||||
| Total | $ | 4,379,667 | $ | 3,733,307 | $ | 386,231 | $ | 82,395 | $ | 177,734 | |||||||||
| (1) | Excludes interest. |
Loan commitments of Capitol's banks (stand-by letters of credit and unfunded loans) generally expire within one year. Other than the items set forth above, there are no individually material contractual obligations, such as purchase obligations.
A significant source of capital has been investments made by community investors, or minority shareholders, in the subsidiaries which are consolidated for financial reporting purposes. Total minority interests in consolidated subsidiaries amounted to $156.2 million at year-end 2007, a net increase of $29.7 million from the $126.5 million level at year-end 2006. The net increase in minority interests in 2007 resulted from Capitol's formation of new banks and bank-development subsidiaries.
F - 22
Capitol has formed several bank-development subsidiaries, each capitalized with two classes of common stock, voting and nonvoting. All of the voting common stock (an investment of $1 million for each bank-development entity) is owned by Capitol. All of the nonvoting common stock, ranging from $12.7 million to $15.8 million for each of the bank-development companies, was sold in private offerings to accredited investors, some of whom are related parties of Capitol. These entities are engaged in bank-development activities, through Capitol, either on a de novo basis or through acquisition opportunities. Each of these entities bear a similar name, Capitol Development Bancorp Limited ("CDBL"), numbered in their sequential formation, CDBL-I through CDBL-VII. CDBL-I became wholly-owned via a share-exchange with Capitol effective November 30, 2006. CDBL-II became wholly-owned via a share exchange with Capitol completed in February 2007 through the issuance of approximately 371,000 shares of previously unissued common stock.
Two subsidiaries became wholly-owned from share-exchange transactions completed in 2006 which resulted in the issuance of about 555,000 shares of Capitol's common stock. In these transactions, the shares acquired from the minority shareholders were exchanged for Capitol's common stock according to fixed, but differing, exchange ratios. In 2005, Capitol similarly completed three separate share-exchange transactions which resulted in the issuance of approximately 610,000 shares of Capitol's common stock.
While, in the future, it is likely that share exchange transactions may occur, as a strategy to gain full ownership of some majority-owned affiliates, any such transactions depend upon whether Capitol offers such an exchange and whether minority shareholders vote in favor of it on a transaction-by-transaction basis.
Capitol generally adds banks on a de novo or start-up basis. Capitol does, however, consider bank acquisition opportunities, particularly when such opportunities facilitate entry into a state where Capitol did not previously have a presence. For example, in April 2005, Capitol acquired Peoples State Bank located in Jeffersonville, Georgia, which subsequently enabled Capitol to form and/or acquire banks in that state.
Capitol's capital structure consists of these primary elements:
· | Stockholders' equity |
· | Minority interests in consolidated subsidiaries |
· | Trust-preferred securities and related subordinated debentures |
Total stockholders' equity approximated $389.1 million at year-end 2007, an increase of $27.3 million for the year. The 2007 increase in stockholders' equity includes earnings (less dividends paid), the previously-mentioned share-exchange transactions and proceeds from the issuance of common stock from the exercise of stock options. The book value per share of common stock (i.e., stockholders' equity divided by the number of common shares outstanding) was $22.47 at year-end 2007, compared with $21.73 at year-end 2006. Cash dividends per share of $1.00 were paid in 2007, compared to $0.95 in 2006 and $0.72 in 2005. In early 2008, Capitol's board of directors approved a first-quarter cash dividend of $0.25 per share. 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.
F - 23
Minority interests in consolidated subsidiaries represent the underlying noncontrolling interests in the equity of banks and bank-development subsidiaries owned by others. Those shareholders include some shareholders of Capitol; however, these equity interests are separate from their ownership of Capitol's common stock. These minority interests increase as new banks are added with investors other than Capitol, decrease when minority interests are exchanged for Capitol's common stock (and those interests then "migrate" to Capitol's stockholders' equity) and increase or decrease for the minority interests' share of their entity's income or losses.
Capitol has previously raised a total of $158 million of capital through issuance of trust-preferred securities, including $55 million in March 2007. Most of these funds have been obtained through private placements of pooled trust-preferred securities. Trust-preferred securities are long-term debt obligations which are treated as elements of capital for regulatory purposes. As noted in the accompanying financial statements, the trusts relating to Capitol's trust-preferred securities are classified as debt obligations on the consolidated balance sheet. Future availability of trust-preferred securities as a near-term capital resource diminished in late 2007 as U.S. capital markets became unstable, which precludes this as a capital resource until capital market conditions improve.
Total capitalization at year-end 2007 amounted to $701.5 million, or 14.3% of total assets. This compares to $589.4 million, or 14.5% at year-end 2006.
At December 31, 2007, Capitol and its bank-development subsidiaries had $27.7 million of funds available for deployment into formation of new banks and/or other corporate purposes.
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 have previously benefitted from lower FDIC deposit insurance costs and less restrictive limitations on some banking activities which are attributable to that classification. Increases in FDIC insurance premiums experienced by Capitol’s banks in 2007 were attributable to general increases in FDIC assessments, not due to their capital classification.
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, Capitol and its banks met the criteria to be classified as well capitalized at year-end 2007.
F - 24
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 upon 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 the "gap" at December 31, 2007 (in $1,000s):
| Interest Rate Sensitivity | |||||||||||||||||||
0 to 3 Months | 4 to 12 Months | 1 to 5 Years | Over 5 Years | Total | |||||||||||||||
| ASSETS | |||||||||||||||||||
| Money market and interest-bearing deposits | $ | 22,541 | $ | 3,091 | $ | 198 | $ | 1,094 | $ | 26,924 | |||||||||
| Federal funds sold | 129,365 | 129,365 | |||||||||||||||||
| Loans held for sale | 16,419 | 16,419 | |||||||||||||||||
| Investment securities | 20,271 | 777 | 6,645 | 11,904 | 39,597 | ||||||||||||||
| Portfolio loans | 1,698,824 | 488,514 | 1,878,942 | 248,421 | 4,314,701 | ||||||||||||||
| Nonearning assets | 374,757 | ||||||||||||||||||
| Total assets | $ | 1,887,420 | $ | 492,382 | $ | 1,885,785 | $ | 261,419 | $ | 4,901,763 | |||||||||
| LIABILITIES AND STOCKHOLDERS' EQUITY | |||||||||||||||||||
| Interest-bearing deposits: | |||||||||||||||||||
| Time deposits under $100,000 | $ | 275,273 | $ | 363,048 | $ | 114,697 | $ | 894 | $ | 753,912 | |||||||||
| Time deposits $100,000 and over | 407,957 | 478,069 | 180,503 | 676 | 1,067,205 | ||||||||||||||
| All other interest-bearing deposits | 926,304 | 177,348 | 240,157 | 8,131 | 1,351,940 | ||||||||||||||
| Total interest-bearing deposits | 1,609,534 | 1,018,465 | 535,357 | 9,701 | 3,173,057 | ||||||||||||||
| Notes payable and short-term borrowings | 90,535 | 85,699 | 144,044 | 106 | 320,384 | ||||||||||||||
| Trust preferred securities | 68,000 | 35,000 | 55,300 | 158,300 | |||||||||||||||
| Noninterest-bearing liabilities | 704,679 | ||||||||||||||||||
| Minority interests in consolidated subsidiaries | 156,198 | ||||||||||||||||||
| Stockholders' equity | 389,145 | ||||||||||||||||||
| Total liabilities and stockholders' equity | $ | 1,768,069 | $ | 1,104,164 | $ | 714,401 | $ | 65,107 | $ | 4,901,763 | |||||||||
| Interest rate sensitive period gap | $ | 119,351 | $ | (611,782 | ) | $ | 1,171,384 | $ | 196,312 | ||||||||||
| Interest rate sensitive cumulative gap | $ | 119,351 | $ | (492,431 | ) | $ | 678,953 | $ | 875,265 | ||||||||||
Period rate sensitive assets/period rate sensitive liabilities | 1.07 | 0.45 | 2.64 | 4.02 | |||||||||||||||
Cumulative rate sensitive assets/cumulative rate sensitive liabilities | 1.07 | 0.83 | 1.19 | 1.24 | |||||||||||||||
| Cumulative gap to total assets | 2.43 | % | (10.05 | )% | 13.85 | % | 17.86 | % | |||||||||||
F - 25
The table on the preceding page indicates that, in the immediate short-term, Capitol is slightly “asset sensitive” (i.e., interest-rate sensitive assets exceed interest-rate sensitive liabilities) and, accordingly, if interest rates increase it would favorably impact net interest income. Early 2008 reality, however, was a falling rate environment with unprecedented large rate cuts made by the Federal Reserve in January. 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 customers' balances and transactions.
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. Capitol and its 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. 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 100 and 200 basis point ("bp") parallel increases and decreases in interest rates:
Pro Forma Assuming No Change in Interest Rates | Pro Forma Effect of Interest Rate Increases | Pro Forma Effect of Interest Rate Decreases | |||||||||||||
| +100 bp | +200 bp | -100 bp | -200 bp | ||||||||||||
| Interest income | $ | 358,877 | $ | 383,200 | $ | 407,570 | $ | 334,553 | $ | 310,505 | |||||
| Interest expense | 189,394 | 213,826 | 238,258 | 164,295 | 139,195 | ||||||||||
| Net interest income | $ | 169,483 | $ | 169,374 | $ | 169,312 | $ | 170,258 | $ | 171,310 | |||||
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
F - 26
radically changed interest-rate environment and how management would revise its asset and liability management priorities in concert with rate changes.
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 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, or customer behavior.
As mentioned previously, the Federal Reserve took unprecedented action in January 2008 to reduce market interest rates by a total of 125 basis points. Because of Capitol’s consolidated asset-sensitive gap position such action is expected to have an adverse impact on net interest margin (and profitability) as interest rates on loans reprice quickly while rates paid on deposits will reprice over an extended period of time. At the time this narrative was written, there appeared to be consensus within the financial media that the Federal Reserve may reduce interest rates by another 100 basis points by mid-2008. If that occurs, Capitol’s net interest margins could become further compressed. It is impossible to speculate further on the timing, size and direction of future interest rate changes.
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 timely and the availability of funds for customers to make deposits. As discussed earlier, Michigan's economic climate has been weak and is uncertain. Capitol's Michigan-based banks have minimal amounts of loans made directly to auto industry-related businesses; however, the stress of the U.S. auto industry and weaknesses in other commerce in Michigan is likely to have a continuing adverse impact on the communities in which the banks are located. At the time this narrative was written, stresses of the domestic economic and global instability preclude prediction of near-term trends and their potential effects.
Bank regulatory agencies have recently issued commentary regarding asset concentrations, with particular emphasis on commercial real estate when used as collateral for loans. As discussed elsewhere, Capitol's banks intentionally seek commercial real estate as collateral when making loans because its experience suggests lower loss potential on those loans than ones merely secured by accounts receivable, inventory or equipment. Further, many of these loans at Capitol's banks are made to borrowers with owner-occupied businesses, where the real estate collateral is obtained as part of a broader collateral package for business loans, with less emphasis on loans solely dependent on speculative real estate development projects.
Capitol continues to expand geographically to minimize or avoid a concentration of assets in a particular region. The Great Lakes Region comprised 41.7% of consolidated assets at December 31, 2007, compared to 46.7% at December 31, 2006, and is disproportionate to other denominated regions of Capitol. Future asset growth and bank development is expected to emphasize other regions, improving the balance of Capitol’s geographic presence and to reduce the exposure to adverse economic conditions of any particular region.
F - 27
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 handling of customer relationships as perceived 'commodities' by the larger banks, many customer relationships have been displaced, generating opportunities for cultivation by Capitol's banks, as well as opportunities for development of new banks where Capitol has not previously had banks. For many 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 and professional banking relationship, Capitol's banks fill that need through their focus on single-location banks with full, local decision-making authority. As Capitol's banks focus on service delivery and keeping their relative operational 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 operation. Recently formed start-up banks will detract from consolidated earnings performance and additional start-up banks formed in 2007 and beyond will similarly negatively impact short-term consolidated profitability. On a consolidated basis, such operating losses reduce net income by the pro rata share of Capitol's ownership percentage in those banks. Capitol reduces the net income impact of early-period losses of start-up banks through its unique ownership structure of substantially less than 100% of those banks either directly or indirectly through bank-development subsidiaries. When those banks become profitable, their operating results will contribute to consolidated earnings to the extent of Capitol's ownership percentage.
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 been maintained at a stable and modest level for the last several years, until mid-2007 ($362,000 in 2006 and $375,000 in 2005). FDIC deposit insurance premium levels became a much more significant expense in 2007 ($2.0 million) and will increase in future periods as a result of the FDIC imposing a risk-based matrix approach for assessment of premiums for deposit insurance.
International bank regulatory agencies are currently contemplating revisions to the existing risk-based capital adequacy framework through the Basel l-A and other proposals. As currently proposed, management does not expect those proposals to have a material impact on Capitol and its banks.
F - 28
Note B of the notes to the consolidated financial statements is captioned Significant Accounting Policies. That disclosure spans numerous pages, all of which are deemed "significant" and are required disclosures under generally accepted accounting principles (GAAP). For purposes of this narrative, current SEC guidance requires the selection of a few of those, for discussion, as "critical accounting policies." The selection of which few will differ from company to company, even within a common industry, such as within the business of banking. Capitol considers its critical accounting policies to include the following:
Use of Estimates in Determining the Allowance for Loan Losses. Bank regulatory agencies, accounting standard setters and the SEC have all issued commentary, guidance and a variety of rule-making releases on how financial institutions are to determine the amount of their allowance for loan losses. Some of this guidance is recent. Determining the allowance is really a process and methodology which is inherently subjective in how and when to recognize and record a loss allowance or 'reserve' for loans. It is not a process or methodology which can be merely reduced to a strict absolute computation, like a mathematical formula to compute taxes. The process and methodology will differ from one financial institution to another and there is no 'one size fits all' format or approach to loss reserving. All of Capitol's banks use a consistent computational template, combined with judgmental factors unique to the loan portfolio at each bank, to determine their respective allowances for loan losses. Management believes its process and methodology for determining the allowance for loan losses is appropriate and adequate to properly estimate losses inherent in the loan portfolio at the balance-sheet date; however, actual future losses will differ from amounts considered in the allowance methodology. Further, bank regulatory agencies may have differing perspectives on the process, methodology and adequacy of the allowance for loan losses when examining the banks. The process of determining the level of the allowance for loan losses at each individual bank and on a consolidated basis requires a high degree of subjective judgment. It is possible that others, given the same information, may at any point in time reach different reasonable conclusions. At December 31, 2007, Capitol's allowance for loan losses approximated 1.35% of portfolio loans outstanding. Based on portfolio loans outstanding at that date, any 1 basis-point (.01%) change in the allowance would have an approximate $430,000 impact on both the allowance for loan losses and income before income taxes.
Accounting for Goodwill and Other Intangibles. At December 31, 2007, Capitol had $72.7 million of intangibles on its balance sheet, which consisted principally of goodwill. Goodwill arises in acquisition accounting. In Capitol's transactions, most of this goodwill is the result of share-exchange transactions when Capitol has issued its shares of common stock at a premium (usually around 50%) over the book value of the minority interest of a subsidiary bank's shares. Current accounting rules require an annual review of goodwill for potential impairment. Goodwill is reviewed for impairment by management by comparing estimated entity fair value (using bank sale transaction multiples) to net assets of the entity. If any amount of the goodwill is deemed to be impaired, such amount is to be written off in the period the determination is made. This is an area involving significant judgment. Based on management's review, no amount of goodwill was deemed to be impaired at December 31, 2007.
F - 29
Consolidation Policy. Current accounting rules require consolidation of entities which are majority-owned or controlled by Capitol. This means that partially-owned banks and bank-development subsidiaries are combined with Capitol for financial reporting purposes along with banks and other subsidiaries which are wholly-owned. The consolidated balance sheet includes all assets and liabilities of those entities. However, after giving effect to the minority interest in net income or losses of consolidated subsidiaries, Capitol's net income only includes the entities' net income or loss to the extent of Capitol's ownership. Reported results would be materially different if Capitol had 100% ownership of those entities. Capitol has typically gained full ownership at a later date through share-exchange transactions.
There were several new accounting standards which were issued or became effective in 2007, in addition to some which have later effective dates. Those are listed and discussed in Note B of the consolidated financial statements, beginning on page F-46.
Current SEC reporting guidance suggests this narrative identify risk factors of the reporting entity in summary form. The summary below is not a complete list of all risk factors identified by management and readers are encouraged to review Capitol's other SEC filings, particularly registration statements, for a more comprehensive review of risk factors, which include the following:
· | The environment for formation of new banks could change adversely |
· | New banks, which include Capitol's younger affiliates, incur operating losses and may not contribute to consolidated earnings for a period of time |
· | The environment which has made both capital and management talent readily available for formation of new banks could change adversely |
· | Changes in regulations, or regulatory action regarding Capitol or its banks could limit future expansion plans |
· | The consolidated allowance for loan losses is based on estimates |
· | Concentrations in loans secured by commercial real estate could limit or delay future expansion plans and loss estimates could change significantly if real estate market conditions deteriorate |
· | The complexity of Capitol's structure (a mixture of partially-owned and wholly-owned banks and related entities) complicates financial analysis |
In addition to the items listed above, of course, changes in interest rates can have a pervasive impact on Capitol and its banks.
Capitol has a risk management program in place which endeavors to manage these and other risks.
F - 30
Internal Control Over Financial Reporting
Capitol Bancorp Ltd. 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 United States generally accepted accounting principles and necessarily include some amounts that are based on management’s best estimates and judgments.
We, as management of Capitol Bancorp Ltd., are responsible for establishing and maintaining effective internal control over financial reporting that is designed to produce reliable financial statements in conformity with United States generally accepted accounting principles. The system of internal control over financial reporting as it relates to the financial statements is evaluated for effectiveness by management and tested for reliability through a program of internal audits. Actions are taken to correct potential deficiencies as they are identified. Any system of internal control, no matter how well designed, has inherent limitations, including the possibility that a control 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, even an effective system of internal control will provide only reasonable assurance with respect to financial statement preparation.
Capitol’s Audit Committee, consisting entirely of independent directors, meets regularly with management, internal auditors and the independent registered public accounting firm, and reviews audit plans and results, as well as management’s actions taken in discharging responsibilities for accounting, financial reporting, and internal control. BDO Seidman, LLP, independent registered public accounting firm, and the internal auditors have direct and confidential access to Capitol’s Audit Committee at all times to discuss the results of their examinations.
Management assessed Capitol’s system of internal control over financial reporting as of December 31, 2007, in relation to criteria for effective internal control over financial reporting as described in Internal Control – Integrated Framework, issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this assessment, management concluded that, as of December 31, 2007, its system of internal control over financial reporting was effective and met the criteria of the Internal Control – Integrated Framework. BDO Seidman, LLP, independent registered public accounting firm, has issued an attestation report on Capitol's internal control over financial reporting.
 Joseph D. Reid Chairman and CEO Lansing, Michigan March 10, 2008 |  Lee W. Hendrickson Chief Financial Officer |
F - 31
 | BDO Seidman, LLP Accountants and Consultants | 99 Monroe Avenue N.W., Suite 800 Grand Rapids, Michigan 49503-2654 Telephone: (616) 774-7000 Fax: (616) 776-3680 |
Board of Directors and Stockholders
Capitol Bancorp Ltd.
We have audited Capitol Bancorp Ltd. and subsidiaries’ internal control over financial reporting as of December 31, 2007, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (the COSO criteria). Capitol Bancorp Ltd.’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Corporation’s internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
F - 32
In our opinion, Capitol Bancorp Ltd. and subsidiaries maintained, in all material respects, effective internal control over financial reporting as of December 31, 2007, based on the COSO criteria.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the accompanying consolidated balance sheets of Capitol Bancorp Ltd. and subsidiaries as of December 31, 2007 and 2006, 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, 2007, and our report dated March 10, 2008 expressed an unqualified opinion thereon.
 Grand Rapids, Michigan March 10, 2008 |
F - 33
| | BDO Seidman, LLP Accountants and Consultants | 99 Monroe Avenue N.W., Suite 800 Grand Rapids, Michigan 49503-2654 Telephone: (616) 774-7000 Fax: (616) 776-3680 |
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, 2007 and 2006, 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, 2007. 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 the standards of the Public Company Accounting Oversight Board (United States). 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, 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, 2007 and 2006, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2007, in conformity with accounting principles generally accepted in the United States of America.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Capitol Bancorp Ltd. and subsidiaries’ internal control over financial reporting as of December 31, 2007, based on criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) and our report dated March 10, 2008 expressed an unqualified opinion thereon.
Grand Rapids, Michigan March 10, 2008 |
F - 34
| -December 31- | ||||||||
| 2007 | 2006 | |||||||
| (in $1,000s) | ||||||||
| ASSETS | ||||||||
| Cash and due from banks | $ | 196,083 | $ | 169,753 | ||||
| Money market and interest-bearing deposits | 26,924 | 37,204 | ||||||
| Federal funds sold | 129,365 | 141,913 | ||||||
| Cash and cash equivalents | 352,372 | 348,870 | ||||||
| Loans held for sale | 16,419 | 34,593 | ||||||
| Investment securities—Note C: | ||||||||
| Available for sale, carried at market value | 14,119 | 18,904 | ||||||
Held for long-term investment, carried at amortized cost which approximates market value | 25,478 | 21,749 | ||||||
| Total investment securities | 39,597 | 40,653 | ||||||
Portfolio loans, less allowance for loan losses of $58,124 in 2007 and $45,414 in 2006—Note D | 4,256,577 | 3,443,264 | ||||||
| Premises and equipment—Note F | 60,031 | 54,295 | ||||||
| Accrued interest income | 19,417 | 17,524 | ||||||
| Goodwill and other intangibles—Notes B and R | 72,722 | 62,215 | ||||||
| Other assets | 84,628 | 64,402 | ||||||
| TOTAL ASSETS | $ | 4,901,763 | $ | 4,065,816 | ||||
| LIABILITIES AND STOCKHOLDERS' EQUITY | ||||||||
| Deposits: | ||||||||
| Noninterest bearing | $ | 671,688 | $ | 651,253 | ||||
| Interest-bearing—Note G | 3,173,057 | 2,607,232 | ||||||
| Total deposits | 3,844,745 | 3,258,485 | ||||||
| Debt obligations: | ||||||||
| Notes payable and short-term borrowings—Note H | 320,384 | 191,154 | ||||||
| Subordinated debentures—Note I | 156,130 | 101,035 | ||||||
| Total debt obligations | 476,514 | 292,189 | ||||||
| Accrued interest on deposits and other liabilities | 35,161 | 26,751 | ||||||
| Total liabilities | 4,356,420 | 3,577,425 | ||||||
| MINORITY INTERESTS IN CONSOLIDATED SUBSIDIARIES—Note A | 156,198 | 126,512 | ||||||
| STOCKHOLDERS' EQUITY—Notes B, J and P | ||||||||
Common stock, no par value, 50,000,000 shares authorized; issued and outstanding: 2007 – 17,316,568 shares 2006 – 16,656,481 shares | 272,208 | 249,244 | ||||||
| Retained earnings | 117,520 | 112,779 | ||||||
| Undistributed common stock held by employee-benefit trust | (586 | ) | ||||||
Market value adjustment (net of tax effect) for investment securities available for sale (accumulated other comprehensive income/loss) | 3 | (144 | ) | |||||
| Total stockholders' equity | 389,145 | 361,879 | ||||||
| TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY | $ | 4,901,763 | $ | 4,065,816 | ||||
| See notes to consolidated financial statements. |
F - 35
| -Year Ended December 31- | |||||||||||
| 2007 | 2006 | 2005 | |||||||||
| (in $1,000s except per share data) | |||||||||||
| Interest income: | |||||||||||
| Portfolio loans (including fees) | $ | 314,800 | $ | 264,701 | $ | 214,882 | |||||
| Loans held for sale | 2,133 | 2,740 | 2,627 | ||||||||
| Taxable investment securities | 773 | 956 | 1,008 | ||||||||
| Federal funds sold | 10,687 | 8,703 | 4,734 | ||||||||
| Other | 2,046 | 2,253 | 1,188 | ||||||||
| Total interest income | 330,439 | 279,353 | 224,439 | ||||||||
| Interest expense: | |||||||||||
| Deposits | 124,160 | 88,629 | 53,213 | ||||||||
| Debt obligations and other | 23,002 | 16,957 | 14,366 | ||||||||
| Total interest expense | 147,162 | 105,586 | 67,579 | ||||||||
| Net interest income | 183,277 | 173,767 | 156,860 | ||||||||
| Provision for loan losses—Note D | 25,340 | 12,156 | 10,960 | ||||||||
Net interest income after provision for loan losses | 157,937 | 161,611 | 145,900 | ||||||||
| Noninterest income: | |||||||||||
| Service charges on deposit accounts | 4,787 | 4,318 | 4,120 | ||||||||
| Trust and wealth-management revenue | 5,149 | 3,336 | 2,069 | ||||||||
Fees from origination of non-portfolio residential mortgage loans | 4,482 | 5,439 | 6,146 | ||||||||
| Gains on sale of government-guaranteed loans | 2,733 | 2,434 | 2,980 | ||||||||
Realized gains (losses) on sales of investment securities available for sale | (2 | ) | 8 | ||||||||
| Other | 7,232 | 6,005 | 5,725 | ||||||||
| Total noninterest income | 24,381 | 21,532 | 21,048 | ||||||||
| Noninterest expense: | |||||||||||
| Salaries and employee benefits | 106,563 | 85,196 | 72,387 | ||||||||
| Occupancy | 15,079 | 12,116 | 9,735 | ||||||||
| Equipment rent, depreciation and maintenance | 10,022 | 8,389 | 6,369 | ||||||||
Preopening and start-up costs of de novo banks and bank-development subsidiaries | 5,693 | 4,462 | 2,971 | ||||||||
| Other | 38,803 | 27,641 | 25,827 | ||||||||
| Total noninterest expense | 176,160 | 137,804 | 117,289 | ||||||||
| Income before income taxes and minority interest | 6,158 | 45,339 | 49,659 | ||||||||
| Income taxes—Note L | 2,824 | 15,463 | 19,232 | ||||||||
| Income before minority interest | 3,334 | 29,876 | 30,427 | ||||||||
| Minority interest in net losses of consolidated subsidiaries | 18,603 | 12,515 | 5,498 | ||||||||
| NET INCOME | $ | 21,937 | $ | 42,391 | $ | 35,925 | |||||
| NET INCOME PER SHARE—Note M: | |||||||||||
| Basic | $ | 1.29 | $ | 2.69 | $ | 2.42 | |||||
| Diluted | $ | 1.27 | $ | 2.57 | $ | 2.34 | |||||
| See notes to consolidated financial statements. |
F - 36
Common Stock | Retained Earnings | Undistributed Common Stock Held by Employee- Benefit Trust | Accumulated Other Comprehensive Income (Loss) | Total | ||||||||||||||||
| Balances at January 1, 2005 | $ | 191,719 | $ | 60,476 | $ | (36 | ) | $ | 252,159 | |||||||||||
Issuance of 610,383 shares of common stock to acquire minority interest in subsidiaries | 20,136 | 20,136 | ||||||||||||||||||
Issuance of 337,059 shares of common stock upon exercise of stock options, net of common stock surrendered to facilitate exercise | 2,510 | 2,510 | ||||||||||||||||||
Recognition of compensation expense relating to restricted common stock of $1,242 and other | 1,590 | 1,590 | ||||||||||||||||||
| Issuance of shares to ESOP | 584 | 584 | ||||||||||||||||||
| Cash dividends paid ($0.72 per share) | (10,848 | ) | (10,848 | ) | ||||||||||||||||
| Components of comprehensive income: | ||||||||||||||||||||
| Net income for 2005 | 35,925 | 35,925 | ||||||||||||||||||
Market value adjustment for investment securities available for sale (net of income tax effect) | (190 | ) | (190 | ) | ||||||||||||||||
| Comprehensive income for 2005 | 35,735 | |||||||||||||||||||
| BALANCES AT DECEMBER 31, 2005 | 216,539 | 85,553 | (226 | ) | 301,866 | |||||||||||||||
Issuance of 555,280 shares of common stock to acquire minority interest in subsidiaries | 24,962 | 24,962 | ||||||||||||||||||
Issuance of 244,259 shares of common stock upon exercise of stock options, net of common stock surrendered to facilitate exercise | 3,573 | 3,573 | ||||||||||||||||||
Issuance of 80,750 unvested shares of restricted common stock, net of related unearned employee compensation | -- | -- | ||||||||||||||||||
Recognition of compensation expense relating to restricted common stock | 1,689 | 1,689 | ||||||||||||||||||
| Tax benefit from share-based payments | 2,481 | 2,481 | ||||||||||||||||||
| Cash dividends paid ($0.95 per share) | (15,165 | ) | (15,165 | ) | ||||||||||||||||
| Components of comprehensive income: | ||||||||||||||||||||
| Net income for 2006 | 42,391 | 42,391 | ||||||||||||||||||
Market value adjustment for investment securities available for sale (net of income tax effect) | 82 | 82 | ||||||||||||||||||
| Comprehensive income for 2006 | 42,473 | |||||||||||||||||||
| BALANCES AT DECEMBER 31, 2006 | 249,244 | 112,779 | (144 | ) | 361,879 | |||||||||||||||
Issuance of 371,314 shares of common stock to acquire minority interest in subsidiary | 15,927 | 15,927 | ||||||||||||||||||
Issuance of 222,295 shares of common stock upon exercise of stock options, net of common stock surrendered to facilitate exercise | 2,836 | 2,836 | ||||||||||||||||||
Recognition of compensation expense relating to restricted common stock ($1,562) and stock options | 1,972 | 1,972 | ||||||||||||||||||
Issuance of 41,972 unvested shares of restricted common stock, net of related unearned employee compensation and 2,000 forfeited shares | -- | -- | ||||||||||||||||||
| Tax benefit from share-based payments | 1,688 | 1,688 | ||||||||||||||||||
| Issuance of 24,506 shares to ESOP | 1,132 | 1,132 | ||||||||||||||||||
Acquisition of 85,543 shares for employee benefit trust | $ | (2,482 | ) | (2,482 | ) | |||||||||||||||
Transfer of 64,430 shares to ESOP and distribution of 435 shares to employees upon anniversary of employment | (591 | ) | 1,896 | 1,305 | ||||||||||||||||
| Cash dividends paid ($1.00 per share) | (17,196 | ) | (17,196 | ) | ||||||||||||||||
| Components of comprehensive income: | ||||||||||||||||||||
| Net income for 2007 | 21,937 | 21,937 | ||||||||||||||||||
Market value adjustment for investment securities available for sale (net of income tax effect) | 147 | 147 | ||||||||||||||||||
| Comprehensive income for 2007 | 22,084 | |||||||||||||||||||
| BALANCES AT DECEMBER 31, 2007 | $ | 272,208 | $ | 117,520 | $ | (586 | ) | $ | 3 | $ | 389,145 | |||||||||
See notes to consolidated financial statements.
F - 37
| -Year Ended December 31- | ||||||||||||
| 2007 | 2006 | 2005 | ||||||||||
| (in $1,000s) | ||||||||||||
| OPERATING ACTIVITIES | ||||||||||||
| Net income | $ | 21,937 | $ | 42,391 | $ | 35,925 | ||||||
Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||||||
| Provision for loan losses | 25,340 | 12,156 | 10,960 | |||||||||
| Depreciation of premises and equipment | 8,980 | 7,219 | 5,661 | |||||||||
| Amortization of intangibles | 315 | 585 | 577 | |||||||||
Net amortization (accretion) of investment security premiums (discounts) | 11 | (8 | ) | 63 | ||||||||
| Loss (gain) on sales of premises and equipment | (57 | ) | 18 | 157 | ||||||||
Minority interest in net losses of consolidated subsidiaries | (18,603 | ) | (12,515 | ) | (5,498 | ) | ||||||
| Share-based compensation expense | 1,972 | 1,689 | 1,242 | |||||||||
| Deferred federal income tax credit | (10,397 | ) | (5,493 | ) | (5,263 | ) | ||||||
| Originations and purchases of loans held for sale | (499,787 | ) | (483,850 | ) | (634,362 | ) | ||||||
| Proceeds from sales of loans held for sale | 517,961 | 470,895 | 655,867 | |||||||||
| Increase in accrued interest income and other assets | (11,292 | ) | (17,504 | ) | (15,815 | ) | ||||||
Increase (decrease) in accrued interest expense on deposits and other liabilities | 8,410 | (1,338 | ) | 11,801 | ||||||||
| NET CASH PROVIDED BY OPERATING ACTIVITIES | 44,790 | 14,245 | 61,315 | |||||||||
| INVESTING ACTIVITIES | ||||||||||||
| Cash and cash equivalents of acquired subsidiary | 3,557 | |||||||||||
Proceeds from sales of investment securities available for sale | 301 | 1,756 | ||||||||||
Proceeds from calls, prepayments and maturities of investment securities | 11,303 | 14,266 | 11,249 | |||||||||
| Purchases of investment securities | (10,629 | ) | (9,347 | ) | (14,667 | ) | ||||||
| Net increase in portfolio loans | (838,653 | ) | (504,790 | ) | (306,258 | ) | ||||||
| Proceeds from sales of premises and equipment | 407 | 708 | 93 | |||||||||
| Purchases of premises and equipment | (15,066 | ) | (20,611 | ) | (14,879 | ) | ||||||
| NET CASH USED BY INVESTING ACTIVITIES | (852,337 | ) | (519,774 | ) | (319,149 | ) | ||||||
| FINANCING ACTIVITIES | ||||||||||||
Net increase in demand deposits, NOW accounts and savings accounts | 185,376 | 134,250 | 85,385 | |||||||||
| Net increase in certificates of deposit | 400,884 | 338,976 | 189,802 | |||||||||
| Net borrowings from debt obligations | 129,230 | 15,425 | 3,195 | |||||||||
| Net proceeds from issuance of subordinated debentures | 55,000 | |||||||||||
| Resources provided by minority interests | 55,713 | 68,751 | 62,794 | |||||||||
| Net proceeds from issuance of common stock | 2,836 | 3,573 | 2,510 | |||||||||
| Tax benefit from share-based payments | 1,688 | 2,481 | ||||||||||
| Acquisition of shares for employee benefit trust | (2,482 | ) | ||||||||||
| Cash dividends paid | (17,196 | ) | (15,165 | ) | (10,848 | ) | ||||||
NET CASH PROVIDED BY FINANCING ACTIVITIES | 811,049 | 548,291 | 332,838 | |||||||||
| INCREASE IN CASH AND CASH EQUIVALENTS | 3,502 | 42,762 | 75,004 | |||||||||
| Cash and cash equivalents at beginning of year | 348,870 | 306,108 | 231,104 | |||||||||
CASH AND CASH EQUIVALENTS AT END OF YEAR | $ | 352,372 | $ | 348,870 | $ | 306,108 | ||||||
| See notes to consolidated financial statements. |
F - 38
Capitol Bancorp Limited
| NOTE A—NATURE OF OPERATIONS, BASIS OF PRESENTATION AND |
Capitol Bancorp Limited ("Capitol" or the "Corporation") is a multibank holding company. Consolidated bank subsidiaries consist of the following:
Affiliate | Location | Percentage Owned at December 31, 2007 | Year Formed or Acquired | |||
| Arizona Region: | ||||||
| Arrowhead Community Bank | Glendale, Arizona | 100% | 2000 | |||
| Asian Bank of Arizona | Phoenix, Arizona | (1) | 2006 | |||
| Bank of Tucson | Tucson, Arizona | 100% | 1996 | |||
| Camelback Community Bank | Phoenix, Arizona | 100% | 1998 | |||
| Mesa Bank | Mesa, Arizona | 100% | 1998 | |||
| Southern Arizona Community Bank | Tucson, Arizona | 100% | 1998 | |||
| Sunrise Bank of Albuquerque | Albuquerque, New Mexico | 100% | 2000 | |||
| Sunrise Bank of Arizona | Phoenix, Arizona | 100% | 1998 | |||
| Valley First Community Bank | Scottsdale, Arizona | 100% | 1997 | |||
| Yuma Community Bank | Yuma, Arizona | 100% | 2000 | |||
| California Region: | ||||||
| Bank of Escondido | Escondido, California | 100% | 2003 | |||
| Bank of Feather River | Yuba City, California | (1) | 2007 | |||
| Bank of San Francisco | San Francisco, California | 51% | 2005 | |||
| Bank of Santa Barbara | Santa Barbara, California | (1) | 2005 | |||
| Napa Community Bank | Napa, California | 87% | 2002 | |||
| Point Loma Community Bank | Point Loma, California | 51% | 2004 | |||
| Sunrise Bank of San Diego | San Diego, California | 100% | 2001 | |||
| Sunrise Community Bank | Palm Desert, California | (1) | 2007 | |||
| Colorado Region: | ||||||
| Fort Collins Commerce Bank | Fort Collins, Colorado | 51% | 2005 | |||
| Larimer Bank of Commerce | Fort Collins, Colorado | 51% | 2007 | |||
| Loveland Bank of Commerce | Loveland, Colorado | 51% | 2007 | |||
| Great Lakes Region: | ||||||
| Ann Arbor Commerce Bank | Ann Arbor, Michigan | 100% | 1990 | |||
| Bank of Auburn Hills | Auburn Hills, Michigan | 51% | 2005 | |||
| Bank of Maumee | Maumee, Ohio | (1) | 2006 | |||
| Bank of Michigan | Farmington Hills, Michigan | 51% | 2005 | |||
| Brighton Commerce Bank | Brighton, Michigan | 100% | 1997 | |||
| Capitol National Bank | Lansing, Michigan | 100% | 1982 | |||
| Detroit Commerce Bank | Detroit, Michigan | 100% | 1998 | |||
| Elkhart Community Bank | Elkhart, Indiana | 100% | 1999 | |||
| Evansville Commerce Bank | Evansville, Indiana | (1) | 2006 | |||
| Goshen Community Bank | Goshen, Indiana | 100% | 2000 | |||
| 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 | |||
| Ohio Commerce Bank | Beachwood, Ohio | (1) | 2006 | |||
| Paragon Bank & Trust | Holland, Michigan | 100% | 1994 | |||
| Portage Commerce Bank | Portage, Michigan | 100% | 1988 |
| (1) Majority-owned by a bank development subsidiary in which Capitol holds a controlling interest. |
F - 39
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Capitol Bancorp Limited
| NOTE A—NATURE OF OPERATIONS, BASIS OF PRESENTATION AND |
PRINCIPLES OF CONSOLIDATION—Continued
Consolidated bank subsidiaries – continued:
Affiliate | Location | Percentage Owned at December 31, 2007 | Year Formed or Acquired | |||
| Midwest Region: | ||||||
| Bank of Belleville | Belleville, Illinois | 51% | 2005 | |||
| Community Bank of Lincoln | Lincoln, Nebraska | (1) | 2007 | |||
| Summit Bank of Kansas City | Lee’s Summit, Missouri | (1) | 2005 | |||
| Nevada Region: | ||||||
1st Commerce Bank | North Las Vegas, Nevada | (1) | 2006 | |||
| Bank of Las Vegas | Las Vegas, Nevada | 100% | 2002 | |||
| Black Mountain Community Bank | Henderson, Nevada | 100% | 2000 | |||
| Desert Community Bank | Las Vegas, Nevada | 100% | 1999 | |||
| Red Rock Community Bank | Las Vegas, Nevada | 100% | 1999 | |||
| Northeast Region: | ||||||
| USNY Bank | Geneva, New York | (1) | 2007 | |||
| Northwest Region: | ||||||
| Bank of Bellevue | Bellevue, Washington | 51% | 2005 | |||
| Bank of Everett | Everett, Washington | (1) | 2006 | |||
| Bank of Tacoma | Tacoma, Washington | (1) | 2007 | |||
| High Desert Bank | Bend, Oregon | (1) | 2007 | |||
| Issaquah Community Bank | Issaquah, Washington | (1) | 2007 | |||
| Southeast Region: | ||||||
| Bank of Valdosta | Valdosta, Georgia | (1) | 2006 | |||
| Community Bank of Rowan | Salisbury, North Carolina | (1) | 2006 | |||
| First Carolina State Bank | Rocky Mount, North Carolina | 100% | 2004 | |||
| Peoples State Bank | Jeffersonville, Georgia | 100% | 2005 | |||
| Sunrise Bank of Atlanta | Atlanta, Georgia | (1) | 2006 | |||
| Texas Region: | ||||||
| Bank of Fort Bend | Sugar Land, Texas | (1) | 2007 | |||
| Bank of Las Colinas | Irving, Texas | (1) | 2007 |
| (1) Majority-owned by a bank development subsidiary in which Capitol holds a controlling interest. |
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F - 40
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Capitol Bancorp Limited
| NOTE A—NATURE OF OPERATIONS, BASIS OF PRESENTATION AND |
PRINCIPLES OF CONSOLIDATION—Continued
Capitol has formed several bank-development subsidiaries, each capitalized with two classes of common stock, voting and nonvoting. All of the voting common stock (an investment of $1 million for each bank-development entity) is owned by Capitol. All of the nonvoting common stock, ranging from $12.7 million to $15.8 million for each of the bank-development companies, was sold in private offerings to accredited investors, some of whom are related parties of Capitol. These entities are engaged in bank development activities, through Capitol, either on a de novo basis or through acquisition opportunities. Each of these entities bear a similar name, Capitol Development Bancorp Limited ("CDBL"), numbered in their sequential formation, CDBL-I through CDBL-VII. CDBL-I and CDBL-II became wholly-owned by Capitol effective November 30, 2006 and February 9, 2007, respectively (see Note R), and were merged with and into Capitol effective December 31, 2007.
Capitol views itself as a bank-development company. It is 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 a bank's start-up capital provided by local investors in the community of that bank. When a de novo bank reaches a point of development (historically, often near its third year of operation), Capitol has typically offered the bank's minority shareholders an opportunity to exchange their bank shares for shares of Capitol's common stock. Capitol has made similar exchange proposals regarding the minority interests of some of its prior bank-development company subsidiaries which, after the share exchange, were merged with and into Capitol. 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 also pursues bank-development activities through exploring acquisition opportunities.
Capitol and its subsidiaries are engaged in a single business activity--banking. Capitol's bank affiliates provide a full range of banking services to individuals, businesses and other customers located in the respective communities of the bank. Many of the banks operate from a single location and all are primarily commercially-focused (as contrasted to retail or transaction-oriented banks) on meeting the various credit and other financial needs of entrepreneurs, professionals and other businesses and individuals. A variety of deposit products are offered, including checking, savings, money market, certificates of deposit and individual retirement accounts. In addition, trust and investment services are offered through Paragon Bank & Trust. In late 2005, a wealth management subsidiary was established to pursue and deliver wealth management services to Capitol's banks. The principal markets for the banks' financial services are the communities in which the banks are located and the areas immediately surrounding those communities. The majority of Capitol’s banks are state-chartered institutions and, commencing in 2007, some have been chartered as federal savings banks. In addition to banking units, mortgage banking activities are offered through Amera Mortgage Corporation, a less than 50%-owned affiliate, which is accounted for under the equity method.
F - 41
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Capitol Bancorp Limited
| NOTE A—NATURE OF OPERATIONS, BASIS OF PRESENTATION AND |
PRINCIPLES OF CONSOLIDATION—Continued
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, services and economic characteristics. Further, each of the banks and the Corporation are subject to substantially similar laws and regulations unique to the financial institution 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 and/or controlled subsidiaries, after elimination of intercompany accounts and transactions, and after giving effect to applicable minority interests. Banks formed or acquired during 2005, 2006 and 2007 are included in the consolidated financial statements for periods after joining the consolidated group. Certain 2006 and 2005 amounts have been reclassified to conform to the 2007 presentation.
NOTE B—SIGNIFICANT ACCOUNTING POLICIES
Estimates: The preparation of consolidated financial statements in conformity with generally accepted accounting principles in the United States of America 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 will differ from those estimates because of the inherent subjectivity and inaccuracy of any estimation.
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 Sale: Loans held for sale represent residential real estate mortgage loans held for sale into the secondary market. Loans held for sale are stated at the aggregate lower of cost or market. Fees from the origination of loans held for sale 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).
F - 42
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Capitol Bancorp Limited
NOTE B—SIGNIFICANT ACCOUNTING POLICIES—Continued
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 and less significant concentrations exist in loans secured by 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.
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.
Capitol has stand-by letters of credit outstanding that, when issued, commit the banks to make payments on behalf of customers if certain specified future events occur, generally being non-payment by the customer. These obligations generally expire within one year and require collateral and/or personal guarantees based on management's credit assessment. The maximum credit risk associated with these instruments equals their contractual amounts, assuming that the counterparty defaults and the collateral proves to be worthless. The total contractual amounts do not necessarily represent future cash requirements since many of these guarantees may expire without being drawn upon. Capitol records a liability, generally equal to the fees received, for these stand-by letters of credit.
Credit risk also arises from amounts of funds on deposit at other financial institutions (i.e., due from banks) to the extent balances exceed the limits of federal deposit insurance. Capitol monitors the financial position of such financial institutions to evaluate credit risk periodically.
F - 43
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Capitol Bancorp Limited
NOTE B—SIGNIFICANT ACCOUNTING POLICIES—Continued
Interest and Fees on Loans: Interest income on loans is recognized based upon the principal balance of loans outstanding. Direct costs of successful origination of portfolio loans generally exceed fees from loan originations (approximately $13.9 million and $8.1 million of net deferred costs as of December 31, 2007 and 2006, respectively).
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, furniture and software 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 shorter of the respective lease term or estimated useful life.
Goodwill and Other Intangibles: Goodwill is reviewed annually by management for impairment by comparing estimated entity fair value to net assets of the entity. This review is performed at the applicable subsidiary reporting-unit level which has recorded goodwill resulting from specific share-exchange transactions (see Note R) or acquisitions. Impairment adjustments of goodwill (none through December 31, 2007) are charged against earnings, when determined. Other intangibles, which generally consist of acquired customer lists and core deposit intangibles, are amortized over varying periods of 7 years or less and are not material.
Other Real Estate: Other real estate (included as a component of other assets and which, at December 31, 2007 and 2006, approximated $16.4 million and $9.5 million, 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 estimated fair value (net of estimated selling cost) at the date acquired and are periodically reviewed for subsequent changes in fair value.
Stock-Based Compensation: No stock-based compensation expense has been recorded upon granting of options to acquire common stock through December 31, 2006, because such stock options were accounted for under the provisions of Accounting Principles Board (APB) Opinion 25 (and related interpretations), when applicable, and were granted at an exercise price equal to the market price of common stock at grant date (such stock options were granted prior to 2006 and became fully vested at December 31, 2005 in advance of a new accounting standard applicable to stock options). Stock options state a specific exercise price
F - 44
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Capitol Bancorp Limited
NOTE B—SIGNIFICANT ACCOUNTING POLICIES—Continued
and expiration date and may be exercised by the optionee upon payment of the exercise price and related taxes due from the optionee; the Corporation, in its discretion, may permit cashless exercises of stock options. Generally, previously unissued shares of common stock are issued upon exercise of stock options. Compensation expense for awards of stock options after January 1, 2006 is recognized ratably over the vesting period of the award based on the fair value of the option, computed using the Black-Scholes valuation model. Compensation expense for awards of restricted stock is recognized ratably over the vesting periods of such awards (generally ranging from four years to fifteen years), based on the fair value of the common stock on the date of grant.
Stock price volatility used in the valuation model is based on historical volatility. The risk-free interest rate was based on the yield of U.S. government securities with a maturity date that coincides with the expected option life. The expected option life was estimated based on past exercise behavior of optionees and the related option term.
Statement of Financial Accounting Standards No. 123(R), Share-Based Payment, requires the fair value method of accounting for stock options whereby compensation expense will be recognized based on the computed fair value of the options on the grant date for stock options granted on or after the effective date of the standard, January 1, 2006. Certain pro forma disclosures of the expense recognition provisions of Statement No. 123(R) are required for periods prior to implementation of the standard for companies, such as Capitol, which used the intrinsic-value method for accounting for stock options, and were as follows for the year ended December 31, 2005:
| Fair value assumptions: | ||||
| Risk-free interest rate | 4.2 | % | ||
| Dividend yield | 2.0 | % | ||
| Stock price volatility | .30 | |||
| Expected option life | 6.8 years | |||
Aggregate estimated fair value of options granted (in thousands) | $ | 9,373 | ||
| Net income (in thousands): | ||||
| As reported | 35,925 | |||
| Pro forma | 29,833 | |||
| Net income per share: | ||||
| Basic: | ||||
| As reported | 2.42 | |||
| Pro forma | 2.01 | |||
| Diluted: | ||||
| As reported | 2.34 | |||
| Pro forma | $ | 1.94 | ||
F - 45
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Capitol Bancorp Limited
NOTE B—SIGNIFICANT ACCOUNTING POLICIES—Continued
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 and wealth management revenue are 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 federal 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.
Net Income Per Share: Basic net income per share is computed by dividing net income by the weighted-average number of common shares outstanding. Diluted net income per share is based on the weighted-average number of common shares outstanding, plus common share equivalents calculated for stock options and restricted common stock outstanding using the treasury stock method.
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.
New Accounting Standards: In March 2006, the Financial Accounting Standards Board (FASB) issued Statement No. 156, Accounting for Servicing of Financial Assets, which is an amendment of Statement No. 140, intended to simplify the accounting for servicing assets and liabilities, such as those common with mortgage securitization activities. Statement No. 156 is effective for years beginning after September 15, 2006. The standard's adoption effective January 1, 2007 did not have a material effect on Capitol's consolidated financial statements.
In July 2006, the FASB issued Interpretation No. 48 (FIN 48), Accounting for Uncertainty in Income Taxes, which clarifies the accounting for uncertainty in income taxes recognized in financial statements in accordance with Statement No. 109, Accounting for Income Taxes. FIN 48 prescribes a comprehensive model for how companies should recognize, measure, present and disclose in their financial statements uncertain tax positions taken or expected to be taken in a tax return. Under FIN 48, tax positions are recognized in the financial statements when it is more-likely-than-not the position will be sustained upon examination by the tax authorities. Such tax positions will be measured initially and thereafter as the largest amount of tax benefit that is greater than 50% likely of being realized upon ultimate settlement,
F - 46
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Capitol Bancorp Limited
NOTE B—SIGNIFICANT ACCOUNTING POLICIES—Continued
presuming the tax authority has full knowledge of the position and all relevant facts. FIN 48 also revises disclosure requirements to include disclosure of unrecognized tax benefits. FIN 48 did not have a material effect on Capitol's consolidated financial statements upon implementation effective January 1, 2007.
In September 2006, the FASB issued Statement No. 157, Fair Value Measurements, which provides a definition of fair value for accounting purposes, establishes a framework for measuring fair value and expands related financial statement disclosures. In February 2007, the FASB issued Statement No. 159, The Fair Value Option for Financial Assets and Financial Liabilities, which permits entities to choose to measure, on an item-by-item basis, specified financial instruments and certain other items at fair value. Unrealized gains and losses on items for which the fair value option has been elected are required to be reported in earnings at each reporting date. Statement No. 159 will be applied prospectively and implemented by Capitol effective January 1, 2008. The effect of these new standards’ adoption is not expected to be material. Statement No. 157 does not require any new fair value measurements and was initially effective for the Corporation beginning January 1, 2008. In February 2008, the FASB issued FASB Staff Position (FSP) FAS 157-2. FSP FAS 157-2 defers the effective date of SFAS No. 157 until January 1, 2009 for nonfinancial assets and nonfinancial liabilities except those items recognized or disclosed at fair value on an annual or more frequently recurring basis. Management has not completed its review of the new guidance; however, the effect of the Statement’s implementation is not expected to be material to the Corporation’s results of operations or financial position.
In June 2007, the FASB ratified an Emerging Issues Task Force (EITF) consensus regarding Accounting for Income Tax Benefits of Dividends on Share-Based Payment Awards, which becomes effective for Capitol January 1, 2008. Management expects the effect of this new guidance upon implementation will not be material to Capitol’s consolidated financial statements.
In December 2007, the FASB issued Statement No. 141(R), Business Combinations, to further enhance the accounting and financial reporting related to business combinations. Statement No. 141(R) establishes principles and requirements for how the acquirer in a business combination (1) recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed and any noncontrolling interest in the acquiree, (2) recognizes and measures goodwill acquired in the business combination or a gain from a bargain purchase, (3) requires that acquisition-related and restructuring costs to be recognized separately from the acquisition, generally charged to expense when incurred and (4) determines information to disclose to enable users of the financial statements to evaluate the nature and financial effects of the business combination. Statement No. 141(R) applies prospectively to business combinations for which the acquisition date is on or after January 1, 2009. The effects of the Corporation’s adoption of Statement No. 141(R) will depend upon the extent and magnitude of acquisitions after December 31, 2008.
F - 47
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Capitol Bancorp Limited
NOTE B—SIGNIFICANT ACCOUNTING POLICIES—Continued
Also in December 2007, the FASB issued Statement No. 160, Noncontrolling Interests in Consolidated Financial Statements – an amendment of ARB No. 51, to create accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. Statement No. 160 establishes accounting and reporting standards that require (1) the ownership interest in subsidiaries held by parties other than the parent to be clearly identified and presented in the consolidated balance sheet within equity, but separate from the parent’s equity, (2) the amount of consolidated net income attributable to the parent and the noncontrolling interest to be clearly identified and presented on the face of the consolidated statement of income, (3) changes in a parent’s ownership interest while the parent retains its controlling financial interest in its subsidiary to be accounted for consistently, (4) when a subsidiary is deconsolidated, any retained noncontrolling equity investment in the former subsidiary to be initially measured at fair value and (5) entities provide sufficient disclosures that clearly identify and distinguish between the interests of the parent and the interests of the noncontrolling owners. Statement No. 160 applies to fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2008, and early adoption is prohibited. Management has not completed its review of this new guidance.
Also recently, the FASB has issued several proposals to amend, supersede or interpret existing accounting standards which may impact Capitol's financial statements at a later date:
· | Proposed amendment to Statement No. 128, Earnings per Share; |
· | FASB FSP to require recalculation of leveraged leases if the timing of tax benefits affect cash flows; and |
· | EITF Issue No. 06-4 which addresses accounting for deferred compensation and post retirement benefits of endorsement split-dollar life insurance. |
Capitol's management has not completed its analysis of this new guidance (as proposed, where applicable) although it anticipates the potential impact (if finalized, where applicable) would not be material to Capitol's consolidated financial statements.
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.
F - 48
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Capitol Bancorp Limited
NOTE C—INVESTMENT SECURITIES
Investment securities consisted of the following at December 31 (in $1,000s):
| 2007 | 2006 | ||||||||||||||
Amortized Cost | Estimated Market Value | Amortized Cost | Estimated Market Value | ||||||||||||
| Available for sale: | |||||||||||||||
| United States treasury securities | $ | 499 | $ | 499 | |||||||||||
United States government agency securities | 8,991 | 9,025 | $ | 13,403 | $ | 13,285 | |||||||||
| Mortgage backed securities | 3,402 | 3,368 | 4,089 | 3,991 | |||||||||||
| Municipals | 1,222 | 1,227 | 1,630 | 1,628 | |||||||||||
| 14,114 | 14,119 | 19,122 | 18,904 | ||||||||||||
| Held for long-term investment: | |||||||||||||||
| Federal Reserve Bank stock | 563 | 563 | 864 | 864 | |||||||||||
| Federal Home Loan Bank stock | 18,765 | 18,765 | 14,148 | 14,148 | |||||||||||
| Corporate | 4,204 | 4,204 | 4,419 | 4,419 | |||||||||||
| Other | 1,946 | 1,946 | 2,318 | 2,318 | |||||||||||
| 25,478 | 25,478 | 21,749 | 21,749 | ||||||||||||
| $ | 39,592 | $ | 39,597 | $ | 40,871 | $ | 40,653 | ||||||||
At December 31, 2007, securities with a market value approximating $10 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):
| 2007 | 2006 | ||||||||||||||
| �� | Gains | Losses | Gains | Losses | |||||||||||
United States government agency securities | $ | 38 | $ | 4 | $ | -- | $ | 118 | |||||||
| Mortgage backed securities | 23 | 57 | 13 | 111 | |||||||||||
| Municipals | 14 | 9 | 11 | 13 | |||||||||||
| $ | 75 | $ | 70 | $ | 24 | $ | 242 | ||||||||
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F - 49
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Capitol Bancorp Limited
NOTE C—INVESTMENT SECURITIES—Continued
The age of gross unrealized losses and carrying value (at estimated market value) of securities available for sale are summarized below (in $1,000s):
| 2007 | 2006 | ||||||||||||||
Unrealized Loss | Carrying Value | Unrealized Loss | Carrying Value | ||||||||||||
| One year or less: | |||||||||||||||
United States government agency securities | $ | -- | $ | -- | $ | 7 | $ | 3,488 | |||||||
| Mortgage backed securities | -- | -- | -- | -- | |||||||||||
| Municipals | -- | -- | -- | -- | |||||||||||
| $ | -- | $ | -- | $ | 7 | $ | 3,488 | ||||||||
| In excess of one year: | |||||||||||||||
United States government agency securities | $ | 4 | $ | 1,552 | $ | 111 | $ | 9,297 | |||||||
| Mortgage backed securities | 57 | 2,823 | 111 | 3,444 | |||||||||||
| Municipals | 9 | 235 | 13 | 231 | |||||||||||
| 70 | 4,610 | 235 | 12,972 | ||||||||||||
| $ | 70 | $ | 4,610 | $ | 242 | $ | 16,460 | ||||||||
Management does not believe any individual unrealized loss as of December 31, 2007 represents an other-than-temporary loss (primarily due to such amounts being attributable to changes in interest rates) and has both the intent and ability to hold these securities for a time period necessary to recover the amortized cost.
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, 2007 were as follows (in $1,000s):
Amortized Cost | Estimated Market Value | ||||||
| Due in one year or less | $ | 2,220 | $ | 2,218 | |||
| After one year, through five years | 6,145 | 6,175 | |||||
| After five years, through ten years | 2,974 | 2,975 | |||||
| After ten years | 2,775 | 2,751 | |||||
Securities held for long-term investment, without standard maturities | 25,478 | 25,478 | |||||
| $ | 39,592 | $ | 39,597 | ||||
F - 50
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Capitol Bancorp Limited
NOTE D—LOANS
Portfolio loans consisted of the following at December 31 (in $1,000s):
| 2007 | 2006 | |||||||
| Loans secured by real estate: | ||||||||
| Commercial | $ | 1,917,113 | $ | 1,602,743 | ||||
| Residential (including multi-family) | 698,960 | 529,357 | ||||||
Construction, land development and other land | 852,595 | 705,255 | ||||||
| Total loans secured by real estate | 3,468,668 | 2,837,355 | ||||||
| Commercial and other business-purpose loans | 768,473 | 602,294 | ||||||
| Consumer | 48,041 | 39,957 | ||||||
| Other | 29,519 | 9,072 | ||||||
| Total portfolio loans | 4,314,701 | 3,488,678 | ||||||
| Less allowance for loan losses | (58,124 | ) | (45,414 | ) | ||||
| Net portfolio loans | $ | 4,256,577 | $ | 3,443,264 | ||||
Loans serviced for the benefit of others, which are not recorded on the consolidated balance sheet, approximated $90 million and $92 million at December 31, 2007 and 2006, respectively.
Transactions in the allowance for loan losses are summarized below (in $1,000s):
| 2007 | 2006 | 2005 | ||||||||||
| Balance at January 1 | $ | 45,414 | $ | 40,559 | $ | 37,572 | ||||||
| Provision charged to operations | 25,340 | 12,156 | 10,960 | |||||||||
| Net charge-offs: | ||||||||||||
| Loans charged off (deduction) | (14,219 | ) | (8,699 | ) | (9,643 | ) | ||||||
| Recoveries | 1,589 | 1,398 | 1,670 | |||||||||
| Net charge-offs | (12,630 | ) | (7,301 | ) | (7,973 | ) | ||||||
| Balance at December 31 | $ | 58,124 | $ | 45,414 | $ | 40,559 | ||||||
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), which are a subset of nonperforming loans, were not material.
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F - 51
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Capitol Bancorp Limited
NOTE D—LOANS—Continued
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 | ||||||||
| 2007 | 2006 | |||||||
| Nonaccrual loans: | ||||||||
| Loans secured by real estate: | ||||||||
| Commercial | $ | 19,016 | $ | 8,771 | ||||
| Residential (including multi-family) | 13,381 | 6,808 | ||||||
| Construction, land development and other land | 29,756 | 8,583 | ||||||
| Total loans secured by real estate | 62,153 | 24,162 | ||||||
| Commercial and other business-purpose loans | 5,782 | 5,349 | ||||||
| Consumer | 66 | 215 | ||||||
| Other | 84 | -- | ||||||
| Total nonaccrual loans | 68,085 | 29,726 | ||||||
Past due (>90 days) loans: | ||||||||
| Loans secured by real estate: | ||||||||
| Commercial | 113 | 1,380 | ||||||
| Residential (including multi-family) | 1,116 | 526 | ||||||
| Construction, land development and other land | 2,531 | 1,116 | ||||||
| Total loans secured by real estate | 3,760 | 3,022 | ||||||
| Commercial and other business-purpose loans | 714 | 1,375 | ||||||
| Consumer | 66 | 151 | ||||||
| Other | 5 | -- | ||||||
| Total past due loans | 4,545 | 4,548 | ||||||
| Total nonperforming loans | $ | 72,630 | $ | 34,274 | ||||
If nonperforming loans had performed in accordance with their contractual terms during the year, additional interest income of $4.8 million, $2.3 million and $1.9 million would have been recorded in 2007, 2006 and 2005, respectively. Interest income recognized on loans in nonaccrual status in 2007, 2006 and 2005 operations approximated $1,876,000, $888,000 and $845,000, respectively. At December 31, 2007, there were no material amounts of loans which were restructured or otherwise renegotiated as a concession to troubled borrowers.
F - 52
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Capitol Bancorp Limited
NOTE D—LOANS—Continued
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:
| December 31, 2007 | December 31, 2006 | |||||||||||||||
Amount | Percentage of Total Portfolio Loans | Amount | Percentage of Total Portfolio Loans | |||||||||||||
| Loans secured by real estate: | ||||||||||||||||
| Commercial | $ | 21,918 | 0.51 | % | $ | 17,886 | 0.51 | % | ||||||||
| Residential (including multi-family) | 10,235 | 0.24 | 7,234 | 0.21 | ||||||||||||
Construction, land development and other land | 11,278 | 0.26 | 8,471 | 0.24 | ||||||||||||
| Total loans secured by real estate | 43,431 | 1.01 | 33,591 | 0.96 | ||||||||||||
Commercial and other business-purpose loans | 13,727 | 0.32 | 11,112 | 0.32 | ||||||||||||
| Consumer | 667 | 0.01 | 558 | 0.02 | ||||||||||||
| Other | 299 | 0.01 | 153 | 0.00 | ||||||||||||
| Total allowance for loan losses | $ | 58,124 | 1.35 | % | $ | 45,414 | 1.30 | % | ||||||||
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, 2007 and 2006, total loans to these persons were $184 million and $131 million, respectively. During 2007, $146 million of new loans were made to these persons and repayments totaled $93 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, which approximated $210 million and $171 million at December 31, 2007 and 2006, respectively, are accepted based upon the banks' normal terms as to interest rate, term and deposit insurance.
F - 53
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Capitol Bancorp Limited
NOTE F—PREMISES AND EQUIPMENT
Major classes of premises and equipment consisted of the following at December 31 (in $1,000s):
| 2007 | 2006 | |||||||
| Land, buildings and improvements | $ | 20,064 | $ | 19,891 | ||||
| Leasehold improvements | 25,257 | 19,483 | ||||||
| Equipment, furniture and software | 52,639 | 45,734 | ||||||
| 97,960 | 85,108 | |||||||
| Less accumulated depreciation | (37,929 | ) | (30,813 | ) | ||||
| $ | 60,031 | $ | 54,295 | |||||
Capitol and certain subsidiaries rent office space under operating leases. Rent expense (net of sublease income) under these lease agreements approximated $9.2 million, $7.6 million and $6.2 million in 2007, 2006 and 2005, respectively (including rent expense approximating $1.6 million, $1.5 million and $1.7 million, respectively, under leases with related parties).
At December 31, 2007, 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):
| 2008 | $ | 9,098 | |
| 2009 | 8,486 | ||
| 2010 | 7,449 | ||
| 2011 | 7,164 | ||
| 2012 | 6,283 | ||
| 2013 and thereafter | 17,758 | ||
| $ | 56,238 |
NOTE G—DEPOSITS
The aggregate amount of time deposits of $100,000 or more approximated $1.1 billion and $960 million as of December 31, 2007 and 2006, respectively.
At December 31, 2007, the scheduled maturities of time deposits were as follows (in $1,000s):
| 2008 | $ | 1,524,347 | |
| 2009 | 183,633 | ||
| 2010 | 57,963 | ||
| 2011 | 34,858 | ||
| 2012 | 18,746 | ||
| 2013 and thereafter | 1,570 | ||
| $ | 1,821,117 |
Interest paid approximates amounts charged to operations on an accrual basis for the periods presented.
F - 54
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Capitol Bancorp Limited
NOTE H—NOTES PAYABLE AND SHORT-TERM BORROWINGS
Notes payable and short-term borrowings consisted of the following at December 31 (in $1,000s):
| 2007 | 2006 | ||||||
Borrowings from Federal Home Loan Banks | $ | 298,744 | $ | 183,598 | |||
| Federal funds purchased | 20,850 | 6,997 | |||||
| Repurchase agreements | 790 | 559 | |||||
| $ | 320,384 | $ | 191,154 | ||||
Borrowings from Federal Home Loan Banks (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 5% at December 31, 2007). At December 31, 2007, unused lines of credit under these facilities approximated $490 million. Assets pledged to secure these credit facilities approximated $579 million at December 31, 2007.
Capitol has a credit facility with an unaffiliated bank. Up to $25 million can be borrowed pursuant to a one-year revolving credit agreement which bears interest at a variable rate (7% at December 31, 2007), payable monthly, and a quarterly facility fee on the unused portion. There were no amounts drawn on the line of credit at December 31, 2007 or 2006. 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 debt obligations approximated amounts charged to expense.
At December 31, 2007, scheduled debt maturities of notes payable and short-term borrowings were as follows (in $1,000s):
| 2008 | $ | 176,234 | |
| 2009 | 80,950 | ||
| 2010 | 47,750 | ||
| 2011 | 10,844 | ||
| 2012 | 4,500 | ||
| 2013 and thereafter | 106 | ||
| $ | 320,384 |
In addition to the foregoing, Capitol has guaranteed some obligations of its subsidiaries (see Note O).
F - 55
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Capitol Bancorp Limited
NOTE I—SUBORDINATED DEBT
Subordinated debt relates to trust-preferred securities issued by Capitol which are summarized as follows:
Interest Rate at December 31, 2007 | Scheduled Maturity | Aggregate Liquidation Amount (in $1,000s) | Net Carrying Amount at December 31 | |||||||
| (in $1,000s) | ||||||||||
| 2007 | 2006 | |||||||||
| Capitol Trust I | 8.50% fixed | 2027 | $ 25,300 | $ 24,579 | $ 24,543 | |||||
| Capitol Trust II | 10.25% fixed | 2031 | 10,000 | 9,763 | 9,753 | |||||
| Capitol Statutory Trust III | 8.54% variable | 2031 | 15,000 | 14,645 | 14,630 | |||||
| Capitol Trust IV | 7.91% variable | 2032 | 3,000 | 2,918 | 2,914 | |||||
| Capitol Trust VI | 8.54% variable | 2033 | 10,000 | 9,748 | 9,738 | |||||
| Capitol Trust VII | 7.78% fixed | 2033 | 10,000 | 9,871 | 9,866 | |||||
| Capitol Statutory Trust VIII | 7.94% variable | 2033 | 20,000 | 19,663 | �� 19,650 | |||||
| Capitol Trust IX | 7.69% fixed | 2034 | 10,000 | 9,943 | 9,941 | |||||
| Capitol Trust X | 6.55% fixed | 2037 | 35,000 | 35,000 | ||||||
| Capitol Trust XI | 6.64% variable | 2037 | 20,000 | 20,000 | ||||||
| $ 158,300 | $ 156,130 | $ 101,035 | ||||||||
Securities of Capitol Trust I were issued in a 1997 public offering. All other Capitol Trust securities were subsequently formed in conjunction with private placements of trust-preferred securities. 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. Under current regulatory guidelines, such trust-preferred securities are included as capital for purposes of meeting certain ratio requirements.
NOTE J—RESTRICTED COMMON STOCK AND STOCK OPTIONS
Shares of restricted common stock have been granted to certain officers. Compensation expense related to restricted stock approximated $1.6 million in 2007, $1.7 million in 2006 and $1.2 million in 2005. Tax benefits associated with such compensation expense approximated $436,000 in 2007, $351,000 in 2006 and $229,000 in 2005. Future compensation expense related to unvested restricted common stock as of December 31, 2007 approximates $3.7 million (based on grants through December 31, 2007), to be recorded ratably over a period of approximately 3.5 years, based on the weighted-average remaining vesting period at that date.
F - 56
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Capitol Bancorp Limited
NOTE J—RESTRICTED COMMON STOCK AND STOCK OPTIONS—Continued
Restricted share activity is summarized below:
| 2007 | 2006 | 2005 | |||||||||||||||||||||
Shares | Weighted- Average Grant Date Fair Value | Shares | Weighted- Average Grant Date Fair Value | Shares | Weighted- Average Grant Date Fair Value | ||||||||||||||||||
| Unvested at January 1 | 224,416 | $ | 27.72 | 200,631 | $ | 21.76 | 258,978 | $ | 21.91 | ||||||||||||||
| Granted | 43,972 | 21.55 | 80,750 | 38.69 | -- | -- | |||||||||||||||||
| Vested | (58,966 | ) | 22.28 | (56,965 | ) | 22.27 | (58,347 | ) | 22.43 | ||||||||||||||
| Forfeited | (2,000 | ) | 44.56 | -- | -- | -- | -- | ||||||||||||||||
| Unvested at December 31 | 207,422 | $ | 27.80 | 224,416 | $ | 27.72 | 200,631 | $ | 21.76 | ||||||||||||||
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. All such stock options expire at varying periods up to seven years after the date granted. Stock option activity is summarized as follows:
Number of Stock Options Outstanding | Exercise Price Range | Weighted Average Exercise Price | ||||||||||||||
| Outstanding at January 1, 2005 | 2,584,139 | $ | 10.81 | to | $ | 33.01 | $ | 21.06 | ||||||||
| Granted in 2005 | 929,425 | 30.21 | to | 37.48 | 33.96 | |||||||||||
| Exercised in 2005 | (589,943 | ) | 11.00 | to | 30.21 | 15.94 | ||||||||||
| Cancelled or expired in 2005 | (41,338 | ) | ||||||||||||||
| Outstanding at December 31, 2005 | 2,882,283 | 10.81 | to | 37.48 | 26.07 | |||||||||||
| Granted in 2006 | -- | |||||||||||||||
| Exercised in 2006 | (312,192 | ) | 10.81 | to | 37.48 | 19.59 | ||||||||||
| Cancelled or expired in 2006 | -- | |||||||||||||||
| Outstanding at December 31, 2006 | 2,570,091 | 10.81 | to | 37.48 | 26.86 | |||||||||||
| Granted in 2007 | 168,720 | 22.46 | 46.20 | 25.09 | ||||||||||||
| Exercised in 2007 | (277,149 | ) | 10.81 | to | 33.01 | 16.98 | ||||||||||
| Cancelled or expired in 2007 | (1,580 | ) | ||||||||||||||
| Outstanding at December 31, 2007 | 2,460,082 | $ | 13.50 | to | $ | 46.20 | $ | 27.85 | ||||||||
The aggregate intrinsic value of exercised options approximated $4.7 million, $8.3 million and $12.7 million in 2007, 2006 and 2005, respectively.
Stock options with an aggregate fair value of $1,102,000 were granted in 2007. Fair value was computed using the Black-Scholes valuation model. Fair value assumptions included a risk-free interest rate of 4.6%, stock price volatility of .37, dividend yield of 4.5% and an expected option life of 7 years. Compensation expense related to such stock options
F - 57
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Capitol Bancorp Limited
NOTE J—RESTRICTED COMMON STOCK AND STOCK OPTIONS—Continued
approximated $410,000 in 2007 and associated tax benefits approximated $144,000. Future compensation expense relating to stock options as of December 31, 2007 approximates $692,000 (based on grants subject to FASB Statement 123(R) through December 31, 2007) and will be recorded ratably over a period of 2.6 years, based on the weighted-average remaining vesting period at that date.
As of December 31, 2007, substantially all outstanding stock options were vested, currently exercisable and had a weighted average remaining contractual life of 3.4 years (excluding certain stock options granted in 2007 which are not vested and are not currently exercisable). The following table summarizes stock options outstanding segregated by exercise price range:
| Weighted Average | ||||||||||||||
Exercise Price Range | Number Outstanding | Exercise Price | Remaining Contractual Life | Aggregate Intrinsic Value | ||||||||||
| $ | 10.00 to 14.99 | 7,587 | $ | 12.12 | 0.07 years | $ | 60,696 | |||||||
| $ | 15.00 to 19.99 | 232,688 | 16.59 | 2.10 years | 821,389 | |||||||||
| $ | 20.00 to 24.99 | 570,198 | 21.78 | 3.33 years | 0 | |||||||||
| $ | 25.00 to 29.99 | 586,987 | 27.09 | 2.64 years | 0 | |||||||||
| $ | 30.00 to 34.99 | 695,115 | 32.10 | 3.69 years | 0 | |||||||||
| $ | 35.00 or more | 367,507 | 37.92 | 4.92 years | 0 | |||||||||
| 2,460,082 | $ | 882,085 | ||||||||||||
Cash received upon exercise of stock options approximated $3.7 million, $5.1 million and $4.2 million and tax benefits realized approximated $1.3 million, $2.1 million and $1.8 million in 2007, 2006 and 2005, respectively.
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. Employer contributions to the Plan, a partial match based on employee contributions (50%, subject to certain limitations), charged to expense for the years ended December 31, 2007, 2006 and 2005 were $2.2 million, $1.5 million and $1.1 million, respectively.
Capitol also has a defined contribution employee stock ownership plan (ESOP) which covers substantially all employees of Capitol and certain subsidiaries. ESOP contributions charged to expense in 2007, 2006 and 2005 approximated $1,324,000, $1,134,000 and $949,000, respectively. As of December 31, 2007, the ESOP held approximately 350,000 shares of Capitol's common stock which have been allocated to participants' accounts; there were no unallocated shares as of that date.
F - 58
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Capitol Bancorp Limited
NOTE L—INCOME TAXES
Income taxes include the following components (in $1,000s):
| 2007 | 2006 | 2005 | ||||||||||
| Federal: | ||||||||||||
| Currently payable | $ | 13,003 | $ | 21,367 | $ | 22,326 | ||||||
| Deferred (credit) | (10,397 | ) | (5,493 | ) | (5,263 | ) | ||||||
| 2,606 | 15,874 | 17,063 | ||||||||||
| State income taxes (credit) | 218 | (411 | ) | 2,169 | ||||||||
| $ | 2,824 | $ | 15,463 | $ | 19,232 | |||||||
In addition to state income taxes, certain states in which the banks operate impose taxes based on measures other than income. Tax expense incurred associated with those jurisdictions approximated $1.5 million in 2007 ($1.2 million in 2006 and $1.3 million in 2005), and is excluded from income tax expense (included as a component of other noninterest expense).
Federal income taxes paid in 2007, 2006 and 2005 approximated $10.1 million, $20.9 million and $19.3 million, respectively. State income taxes approximating $735,000 were paid in 2007, $928,000 was received in refunds for a net refund of $193,000 ($1.8 million was paid in 2006 and $1.9 million in 2005). Federal income taxes payable at December 31, 2007 and 2006 were reduced by tax benefits approximating $1.9 million and $2.1 million, respectively, arising from the exercise of stock options.
Differences between income tax expense recorded and amounts computed using the statutory tax rate are reconciled below (in $1,000s):
| 2007 | 2006 | 2005 | ||||||||||
| Federal income tax computed at statutory | ||||||||||||
| rate of 35% | $ | 2,155 | $ | 15,869 | $ | 17,381 | ||||||
| State income taxes (credit) | 218 | (411 | ) | 2,169 | ||||||||
| Federal tax effect of: | ||||||||||||
| Amortization of intangibles | 54 | 205 | 202 | |||||||||
| State income taxes | (76 | ) | 144 | (759 | ) | |||||||
| Other | 473 | (344 | ) | 239 | ||||||||
| $ | 2,824 | $ | 15,463 | $ | 19,232 | |||||||
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F - 59
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Capitol Bancorp Limited
NOTE L—INCOME TAXES—Continued
Net deferred income tax assets, which are a component of other assets, consisted of the following at December 31 (in $1,000s):
| 2007 | 2006 | |||||||
| Allowance for loan losses | $ | 20,134 | $ | 15,099 | ||||
| Net operating losses of subsidiaries | 14,247 | 8,202 | ||||||
| Deferred compensation | 2,890 | 2,635 | ||||||
| Depreciation | (2,843 | ) | (2,136 | ) | ||||
Start-up costs for de novo banks | 4,463 | 2,730 | ||||||
Market value adjustment for investment securities available for sale | 14 | 74 | ||||||
| Other, net | (3,593 | ) | (1,629 | ) | ||||
| $ | 35,312 | $ | 24,975 | |||||
Certain subsidiaries (generally less than 80%-owned entities) have net operating loss carryforwards which may reduce income taxes payable in future periods, which have been recognized for financial reporting purposes and, as of December 31, 2007, expire at the following dates and amounts (in $1,000s):
| 2024 | $ | 526 | |
| 2025 | 5,977 | ||
| 2026 | 13,177 | ||
| 2027 | 21,027 | ||
| $ | 40,707 |
In conjunction with implementation of FIN 48 effective January 1, 2007 (see Note B), management concluded that there were no significant uncertain tax positions requiring recognition in the consolidated financial statements. The evaluation was performed for the tax years ended 2003, 2004, 2005 and 2006, the tax years which remain subject to examination by major tax jurisdictions and was updated as of December 31, 2007.
The Internal Revenue Service commenced and completed an examination of the Corporation’s consolidated federal income tax return for the year ended December 31, 2005 during 2007. No significant adjustments to taxable income or taxes due arose from that examination.
Capitol may from time to time be assessed interest or penalties associated with tax liabilities by major tax jurisdictions, although any such assessments are estimated to be minimal and immaterial. To the extent Capitol has received an assessment for interest and/or penalties, it has been classified in the consolidated statements of income as a component of other noninterest expense.
F - 60
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Capitol Bancorp Limited
NOTE M—NET INCOME PER SHARE
The computations of basic and diluted net income per share were as follows (in 1,000s):
| 2007 | 2006 | 2005 | |||||||||
| Numerator—net income | $ | 21,937 | $ | 42,391 | $ | 35,925 | |||||
| Denominator: | |||||||||||
Weighted average number of shares outstanding, excluding unvested restricted shares (denominator for basic earnings per share) | 16,967 | 15,772 | 14,867 | ||||||||
| Effect of dilutive securities: | |||||||||||
| Unvested restricted shares | 70 | 86 | 86 | ||||||||
| Stock options | 179 | 623 | 412 | ||||||||
| Potential dilution | 249 | 709 | 498 | ||||||||
Denominator for diluted earnings per share—weighted average number of shares and potential dilution | 17,216 | 16,481 | 15,365 | ||||||||
Number of antidilutive stock options excluded from diluted earnings per share computation | 1,063 | -- | 1,085 | ||||||||
Additional disclosures regarding restricted shares and stock options are set forth in Note J.
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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):
| 2007 | 2006 | ||||||||||||||
Carrying Value | Estimated Fair Value | Carrying Value | Estimated Fair Value | ||||||||||||
| Financial Assets: | |||||||||||||||
| Cash and cash equivalents | $ | 352,372 | $ | 352,372 | $ | 348,870 | $ | 348,870 | |||||||
| Loans held for sale | 16,419 | 16,419 | 34,593 | 34,593 | |||||||||||
| Investment securities: | |||||||||||||||
| Available for sale | 14,119 | 14,119 | 18,904 | 18,904 | |||||||||||
| Held for long-term investment | 25,478 | 25,478 | 21,749 | 21,749 | |||||||||||
| 39,597 | 39,597 | 40,653 | 40,653 | ||||||||||||
| Portfolio loans: | |||||||||||||||
| Loans secured by real estate: | |||||||||||||||
| Commercial | 1,917,113 | 1,923,373 | 1,602,743 | 1,598,643 | |||||||||||
| Residential (including multi-family) | 698,960 | 699,216 | 529,357 | 527,563 | |||||||||||
Construction, land development and other land | 852,595 | 854,965 | 705,255 | 702,873 | |||||||||||
| Total loans secured by real estate | 3,468,668 | 3,477,554 | 2,837,355 | 2,829,079 | |||||||||||
Commercial and other business-purpose loans | 768,473 | 774,043 | 602,294 | 598,684 | |||||||||||
| Consumer | 48,041 | 48,983 | 39,957 | 38,116 | |||||||||||
| Other | 29,519 | 30,421 | 9,072 | 8,978 | |||||||||||
| Total portfolio loans | 4,314,701 | 4,331,001 | 3,488,678 | 3,474,857 | |||||||||||
| Less allowance for loan losses | (58,124 | ) | (58,124 | ) | (45,414 | ) | (45,414 | ||||||||
| Net portfolio loans | 4,256,577 | 4,272,877 | 3,443,264 | 3,429,443 | |||||||||||
| Financial Liabilities: | |||||||||||||||
| Deposits: | |||||||||||||||
| Noninterest-bearing | 671,688 | 671,688 | 651,253 | 651,253 | |||||||||||
| Interest-bearing: | |||||||||||||||
| Demand accounts | 1,351,940 | 1,351,939 | 1,186,999 | 1,187,320 | |||||||||||
| Time certificates of less than $100,000 | 753,912 | 753,817 | 460,203 | 461,145 | |||||||||||
| Time certificates of $100,000 or more | 1,067,205 | 1,069,111 | 960,030 | 961,649 | |||||||||||
| Total interest-bearing | 3,173,057 | 3,174,867 | 2,607,232 | 2,610,114 | |||||||||||
| Total deposits | 3,844,745 | 3,846,555 | 3,258,485 | 3,261,367 | |||||||||||
| Notes payable and short-term borrowings | 320,384 | 320,038 | 191,154 | 191,713 | |||||||||||
| Subordinated debentures | 156,130 | 158,300 | 101,035 | 103,300 | |||||||||||
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.
F - 62
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 ($28.8 million and $32.3 million outstanding at December 31, 2007 and 2006, respectively). Other loan commitments outstanding consist of unused lines of credit and approved, but unfunded, specific loan commitments ($1 billion and $794 million at December 31, 2007 and 2006, 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, 2007 and 2006 was $6.3 million and $6.7 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 ($20 million at December 31, 2007).
Capitol has guaranteed up to $2.5 million of secured borrowings by Amera Mortgage Corporation, a less than 50%-owned affiliate.
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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 judgments 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% (4% for other banks) and an allowance for loan losses of not less than 1% for the first three years of operations.
As of December 31, 2007, 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, 2007, that Capitol and its banks meet all capital adequacy requirements to which the entities are subject.
F - 64
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 Capitol's consolidated regulatory capital position:
| December 31 | ||||||||||
| 2007 | 2006 | |||||||||
| Tier 1 capital to average adjusted total assets: | ||||||||||
| Minimum required amount | ≥ | $ | 188,551 | ≥ | $ | 155,110 | ||||
| Actual amount | $ | 628,747 | $ | 527,355 | ||||||
| Ratio | 13.34 | % | 13.60 | % | ||||||
| Tier 1 capital to risk-weighted assets: | ||||||||||
Minimum required amount(1) | ≥ | $ | 177,353 | ≥ | $ | 145,475 | ||||
| Actual amount | $ | 628,747 | $ | 527,355 | ||||||
| Ratio | 14.18 | % | 14.50 | % | ||||||
Combined Tier 1 and Tier 2 capital to risk- weighted assets: | ||||||||||
Minimum required amount(2) | ≥ | $ | 354,706 | ≥ | $ | 290,949 | ||||
Amount required to meet 'Well-Capitalized' category(3) | ≥ | $ | 443,382 | ≥ | $ | 363,687 | ||||
| Actual amount | $ | 684,204 | $ | 572,816 | ||||||
| Ratio | 15.43 | % | 15.75 | % | ||||||
| (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. |
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Capitol Bancorp Limited
NOTE Q—PARENT COMPANY FINANCIAL INFORMATION
Condensed Balance Sheets
| -December 31- | ||||||||
| 2007 | 2006 | |||||||
| (in $1,000s) | ||||||||
| Assets | ||||||||
| Cash on deposit principally with subsidiary banks | $ | 2,460 | $ | 3,314 | ||||
Money market funds on deposit principally with subsidiary banks | 7,347 | 4,113 | ||||||
| Time deposits principally with subsidiary banks | 9,377 | 10,406 | ||||||
| Cash and cash equivalents | 19,184 | 17,833 | ||||||
| Investment securities | 3,321 | 4,048 | ||||||
| Loans, net | 28,242 | 11,314 | ||||||
| Investments in and advances to subsidiaries | 474,436 | 418,239 | ||||||
| Investment in and advances to Amera Mortgage Corporation | 482 | 482 | ||||||
| Equipment, software and furniture, net | 10,320 | 9,332 | ||||||
| Other assets | 23,960 | 13,206 | ||||||
| Total assets | $ | 559,945 | $ | 474,454 | ||||
| Liabilities and Stockholders' Equity | ||||||||
| Accounts payable, accrued expenses and other liabilities | $ | 9,770 | $ | 8,342 | ||||
| Subordinated debentures | 161,030 | 104,233 | ||||||
| Total liabilities | 170,800 | 112,575 | ||||||
| Stockholders' equity | 389,145 | 361,879 | ||||||
| Total liabilities and stockholders' equity | $ | 559,945 | $ | 474,454 | ||||
Condensed Statements of Income
| -Year Ended December 31- | ||||||||||||
| 2007 | 2006 | 2005 | ||||||||||
| (in $1,000s) | ||||||||||||
| Income: | ||||||||||||
| Dividends from subsidiaries | $ | 32,750 | $ | 30,475 | $ | 34,350 | ||||||
| Intercompany fees | 24,854 | 23,039 | 19,458 | |||||||||
| Interest | 610 | 199 | 816 | |||||||||
| Other | 2,021 | 943 | 1,413 | |||||||||
| Total income | 60,235 | 54,656 | 56,037 | |||||||||
| Expenses: | ||||||||||||
| Interest | 12,174 | 8,896 | 7,976 | |||||||||
| Salaries and employee benefits | 11,756 | 10,482 | 13,325 | |||||||||
| Occupancy | 2,049 | 1,584 | 1,249 | |||||||||
| Amortization, equipment rent and depreciation | 3,499 | 2,146 | 1,839 | |||||||||
| Other | 8,800 | 1,606 | 3,153 | |||||||||
| Total expenses | 38,278 | 24,714 | 27,542 | |||||||||
Income before equity in undistributed net earnings (losses) of consolidated subsidiaries and income tax credit | 21,957 | 29,942 | 28,495 | |||||||||
Equity in undistributed net earnings (losses) of consolidated subsidiaries | (4,469 | ) | 11,773 | 6,171 | ||||||||
| Income before income tax credit | 17,488 | 41,715 | 34,666 | |||||||||
| Income tax credit | (4,449 | ) | (676 | ) | (1,259 | ) | ||||||
| Net income | $ | 21,937 | $ | 42,391 | $ | 35,925 | ||||||
F - 66
| NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
| Capitol Bancorp Limited |
| NOTE Q—PARENT COMPANY FINANCIAL INFORMATION—Continued |
| Condensed Statements of Cash Flows |
| -Year Ended December 31- | ||||||||||||
| 2007 | 2006 | 2005 | ||||||||||
| (in $1,000s) | ||||||||||||
| OPERATING ACTIVITIES | ||||||||||||
| Net income | $ | 21,937 | $ | 42,391 | $ | 35,925 | ||||||
Adjustments to reconcile net income to net cash provided (used) by operating activities: | ||||||||||||
Equity in undistributed net earnings (losses) of subsidiaries | 4,469 | (11,773 | ) | (6,171 | ) | |||||||
| Depreciation and amortization of intangibles | 2,189 | 1,459 | 1,245 | |||||||||
| Loss on sale of equipment and furniture | 3 | 3 | ||||||||||
Decrease (increase) in amounts due from subsidiaries and other assets | (31,716 | ) | 23,388 | 7,938 | ||||||||
Increase (decrease) in accounts payable, accrued expenses and other liabilities | 1,428 | (3,214 | ) | 1,772 | ||||||||
NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES | (1,693 | ) | 52,254 | 40,712 | ||||||||
| INVESTING ACTIVITIES | ||||||||||||
| Net cash investments in subsidiaries | (16,830 | ) | (36,193 | ) | (31,723 | ) | ||||||
| Net payments from Amera Mortgage Corporation | 315 | |||||||||||
| Purchases of investment securities | (2,000 | ) | (673 | ) | ||||||||
| Net increase in loans | (16,928 | ) | (8,449 | ) | (1,635 | ) | ||||||
| Proceeds from sales of equipment and furniture | 126 | 4 | ||||||||||
| Purchases of equipment and furniture | (3,170 | ) | (5,098 | ) | (4,034 | ) | ||||||
| NET CASH USED BY INVESTING ACTIVITIES | (36,802 | ) | (51,740 | ) | (37,746 | ) | ||||||
| FINANCING ACTIVITIES | ||||||||||||
| Net proceeds from issuance of common stock | 2,836 | 3,573 | 2,510 | |||||||||
| Net proceeds from issuance of subordinated debentures | 55,000 | |||||||||||
| Tax benefit from share-based payments | 1,688 | 2,481 | ||||||||||
| Acquisition of shares for employee benefit trust | (2,482 | ) | ||||||||||
| Cash dividends paid | (17,196 | ) | (15,165 | ) | (10,848 | ) | ||||||
NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES | 39,846 | (9,111 | ) | (8,338 | ) | |||||||
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS | 1,351 | (8,597 | ) | (5,372 | ) | |||||||
| Cash and cash equivalents at beginning of year | 17,833 | 26,430 | 31,802 | |||||||||
| CASH AND CASH EQUIVALENTS AT END OF YEAR | $ | 19,184 | $ | 17,833 | $ | 26,430 | ||||||
F - 67
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Capitol Bancorp Limited
NOTE R—ACQUISITION OF MINORITY INTERESTS
During February of 2007, a share-exchange transaction was completed, whereby approximately 371,000 shares of Capitol common stock were exchanged for minority interests in Capitol Development Bancorp Limited II.
Had these acquisitions occurred at the beginning of 2006, unaudited pro forma consolidated net income would have approximated $21.7 million in 2007 and $41.4 million in 2006 and diluted earnings per share would have been $1.24 in 2007 and $2.46 in 2006.
During 2006, two share-exchange transactions were completed which involved the issuance of previously unissued shares of Capitol's common stock in exchange for the minority interests of the following subsidiaries:
Entity | Effective Date | Number of Common Shares Issued | ||
| Bank of Escondido | December 31, 2006 | 189,000 | ||
| Capitol Development Bancorp Limited I | November 30, 2006 | 366,000 |
Had these acquisitions occurred at the beginning of 2005, unaudited pro forma consolidated net income would have approximated $42.3 million in 2006 and $34.3 million in 2005 and diluted earnings per share would have been $2.49 in 2006 and $2.16 in 2005. Each of these acquisitions has been accounted for under the purchase method of accounting. The carrying value of assets and liabilities of the entities closely approximated fair value at the date of the share exchanges. Total consideration for these transactions approximated $25 million which resulted in the recording of goodwill of approximately $11 million and acquisition of minority interests approximating $14 million.
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F - 68