Capitol Bancorp (CBCRQ) 10-Q 2005 Q1 Quarterly report

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

þQUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2005

OR

oTRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT

For the transition period from          to          

Commission file number001-31708

CAPITOL BANCORP LTD.

(Exact name of registrant as specified in its charter)

Michigan
(State or other jurisdiction
of incorporation or
organization) 38-2761672
(I.R.S. Employer
Identification
Number)

Capitol Bancorp Center
200 Washington Square North, Lansing, Michigan
(Address of principal executive offices)
48933
(Zip Code)
(517) 487-6555
(Registrant’s telephone number)

Not Applicable
(Former name, former address and former fiscal year, if changed since last report)

     Indicate by check mark whether the registrant (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yesþ Noo

     Indicate by a check mark whether the registrant is an accelerated filer (as defined in Rule 12b of the Act). Yesþ Noo

APPLICABLE ONLY TO CORPORATE ISSUERS:

     Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:

     Common stock, No par value: 14,922,284 shares outstanding as of April 15, 2005.

Page 1 of 25

INDEX

PART I. FINANCIAL INFORMATION

Forward-Looking Statements

Certain of the statements contained in this document, including Capitol’s consolidated financial statements, Management’s Discussion and Analysis of Financial Condition and Results of Operations and in documents incorporated into this document by reference that are not historical facts, including, without limitation, statements of future expectations, projections of results of operations and financial condition, statements of future economic performance and other 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”, “believe”, and similar expressions also are intended to 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, and (xi) other risks detailed in Capitol’s other filings with the Securities and Exchange Commission. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual outcomes may vary materially from those indicated. All subsequent written or oral forward-looking statements attributable to Capitol or persons acting on its behalf are expressly qualified in their entirety by the foregoing factors. Investors and other interested parties are cautioned not to place undue reliance on such statements, which speak as of the date of such statements. Capitol undertakes no obligation to release publicly any revisions to these forward-looking statements to reflect events or circumstances after the date of such statements or to reflect the occurrence of unanticipated events.

	Page
Item 1. Financial Statements (unaudited):
Condensed consolidated balance sheets – March 31, 2005 and December 31, 2004.		3
Condensed consolidated statements of income – Three months ended March 31, 2005 and 2004.		4
Condensed consolidated statements of changes in stockholders’ equity – Three months ended March 31, 2005 and 2004.		5
Condensed consolidated statements of cash flows – Three months ended March 31, 2005 and 2004.		6
Notes to condensed consolidated financial statements.		7
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.		12
Item 3. Quantitative and Qualitative Disclosures About Market Risk.		22
Item 4. Controls and Procedures.		22
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.		23
Item 2. Unregistered Sales of Securities and Use of Proceeds.		23
Item 3. Defaults Upon Senior Securities.		23
Item 4. Submission of Matters to a Vote of Security Holders.		23
Item 5. Other Information.		23
Item 6. Exhibits.		23
SIGNATURES		24
EXHIBIT INDEX		25
Certification of Chief Executive Officer, Joseph D. Reid, Pursuant to Section 302
Certification of Chief Financial Officer, Lee W. Hendrickson, Pursuant to Section 302
Certification of Chief Financial Officer, Joseph D. Reid, Pursuant to Section 906
Certification of Chief Financial Officer, Lee W. Hendrickson, Pursuant to Section 906

Page 2 of 25

PART I. ITEM I

CAPITOL BANCORP LIMITED

Condensed Consolidated Balance Sheets

As of March 31, 2005 and December 31, 2004

(in thousands, except share data)

	(Unaudited)
	March 31			December 31
	2005			2004
ASSETS
Cash and due from banks	$	161,052		$	123,969
Money market and interest-bearing deposits		13,273			10,745
Federal funds sold		115,114			96,390
Cash and cash equivalents		289,439			231,104
Loans held for resale		34,846			43,143
Investment securities:
Available for sale, carried at market value		28,807			28,172
Held for long-term investment, carried at amortized cost which approximates market value		15,327			14,191
Total investment securities		44,134			42,363
Portfolio loans:
Commercial		2,516,999			2,444,492
Real estate mortgage		171,728			177,204
Installment		70,717			71,208
Total portfolio loans		2,759,444			2,692,904
Less allowance for loan losses		(37,725	)		(37,572	)
Net portfolio loans		2,721,719			2,655,332
Premises and equipment		32,600			32,661
Accrued interest income		11,229			10,447
Goodwill and other intangibles		41,804			41,943
Other assets		39,422			34,425
TOTAL ASSETS	$	3,215,193		$	3,091,418
LIABILITIES AND STOCKHOLDERS’ EQUITY
LIABILITIES:
Deposits:
Noninterest-bearing	$	529,673		$	503,902
Interest-bearing		2,075,191			2,006,170
Total deposits		2,604,864			2,510,072
Debt obligations:
Notes payable and short-term borrowings		187,142			172,534
Subordinated debentures		100,869			100,845
Total debt obligations		288,011			273,379
Accrued interest on deposits and other liabilities		20,381			16,288
Total liabilities		2,913,256			2,799,739
MINORITY INTERESTS IN CONSOLIDATED SUBSIDIARIES		43,299			39,520
STOCKHOLDERS’ EQUITY:
Common stock, no par value, 25,000,000 shares authorized; issued and outstanding: 2005 - 14,921,183 shares 2004 - 14,828,750 shares		197,113			196,271
Retained earnings		65,960			60,476
Market value adjustment (net of tax effect) for investment securities available for sale (accumulated other comprehensive income)		(188	)		(36	)
		262,885			256,711
Less unearned compensation regarding restricted stock and other		(4,247	)		(4,552	)
Total stockholders’ equity		258,638			252,159
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	3,215,193		$	3,091,418

See notes to condensed consolidated financial statements.

Page 3 of 25

CAPITOL BANCORP LIMITED

Condensed Consolidated Statements of Income (Unaudited)

For the Three Months Ended March 31, 2005 and 2004

(in thousands, except per share data)

	Three Months Ended March 31
	2005		2004
Interest income:
Portfolio loans (including fees)	$	48,237	$	40,030
Loans held for resale		637		423
Taxable investment securities		235		530
Federal funds sold		621		292
Other		191		174
Total interest income		49,921		41,449
Interest expense:
Deposits		10,571		8,790
Debt obligations and other		3,547		2,429
Total interest expense		14,118		11,219
Net interest income		35,803		30,230
Provision for loan losses		2,023		3,508
Net interest income after provision for loan losses		33,780		26,722
Noninterest income:
Service charges on deposit accounts		1,011		1,083
Trust fee income		605		881
Fees from origination of non-portfolio residential mortgage loans		1,265		1,272
Gain (loss) on sale of investment securities available for sale		1		(444	)
Other		1,691		1,346
Total noninterest income		4,573		4,138
Noninterest expense:
Salaries and employee benefits		17,217		15,387
Occupancy		2,300		2,133
Equipment rent, depreciation and maintenance		1,439		1,367
Other		5,518		4,677
Total noninterest expense		26,474		23,564
Income before income taxes and minority interest		11,879		7,296
Income taxes		4,560		2,890
Income before minority interest		7,319		4,406
Minority interest in net losses of consolidated subsidiaries		696		10
NET INCOME	$	8,015	$	4,416
NET INCOME PER SHARE—Note D:
Basic	$	0.55	$	0.32
Diluted	$	0.52	$	0.30

See notes to condensed consolidated financial statements.

Page 4 of 25

CAPITOL BANCORP LTD.

Condensed Consolidated Statements of Changes in Stockholders’ Equity (Unaudited)

For the Three Months Ended March 31, 2005 and 2004

(in thousands except share data)

									Unearned
						Accumulated			Compensation
						Other			Regarding
	Common		Retained			Comprehensive			Restricted Stock
	Stock		Earnings			Income			and Other			Total
Three Months Ended March 31, 2004
Balances at January 1, 2004	$	180,957	$	43,135		$	(200	)	$	(4,995	)	$	218,897
Issuance of 53,812 shares of common stock upon exercise of stock options, net of common stock surrendered to facilitate exercise		1,081											1,081
Issuance of 11,681 shares of restricted common stock		337								(337	)		0
Recognition of compensation expense relating to restricted common stock										319			319
Cash dividends paid ($.15 per share)				(2,109	)								(2,109	)
Components of comprehensive income:
Net income for the period				4,416									4,416
Market value adjustment for investment securities available for sale (net of income tax effect)							312						312
Comprehensive income for the period													4,728
BALANCES AT MARCH 31, 2005	$	182,375	$	45,442		$	112		$	(5,013	)	$	222,916
Three Months Ended March 31, 2005
Balances at January 1, 2005	$	196,271	$	60,476		$	(36	)	$	(4,552	)	$	252,159
Issuance of 92,433 shares of common stock upon exercise of stock options, net of common stock surrendered to facilitate exercise		842											842
Recognition of compensation expense relating to restricted common stock										305			305
Cash dividends paid ($.17 per share)				(2,531	)								(2,531	)
Components of comprehensive income:
Net income for the period				8,015									8,015
Market value adjustment for investment securities available for sale (net of income tax effect)							(152	)					(152	)
Comprehensive income for the period													7,863
BALANCES AT MARCH 31, 2005	$	197,113	$	65,960		$	(188	)	$	(4,247	)	$	258,638

See notes to condensed consolidated financial statements.

Page 5 of 25

CAPITOL BANCORP LTD.

Condensed Consolidated Statements of Cash Flows (Unaudited)

For the Three Months Ended March 31, 2005 and 2004

	Three Months Ended March 31
	2005			2004
	(in thousands)
OPERATING ACTIVITIES
Net income	$	8,015		$	4,416
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses		2,023			3,508
Depreciation of premises and equipment		1,363			1,096
Amortization of intangibles		139			133
Net amortization (accretion) of investment security premiums (discounts)		11			(20	)
Loss on sale of premises and equipment		1			9
Minority interest in net losses of consolidated subsidiaries		(696	)		(10	)
Compensation expense relating to restricted common stock		305			319
Originations and purchases of loans held for resale		(152,231	)		(178,877	)
Proceeds from sales of loans held for resale		160,528			171,150
Increase in accrued interest income and other assets		(5,677	)		(1,176	)
Increase (decrease) in accrued interest expense on deposits and other liabilities		4,093			(6	)
NET CASH PROVIDED BY OPERATING ACTIVITIES		17,874			542
INVESTING ACTIVITIES
Proceeds from sales of investment securities available for sale		—			18,950
Proceeds from calls, prepayments and maturities of investment securities		961			1,662
Purchases of investment securities		(2,972	)		(4,406	)
Net increase in portfolio loans		(68,410	)		(101,331	)
Proceeds from sales of premises and equipment		4			2
Purchases of premises and equipment		(1,308	)		(601	)
NET CASH USED BY INVESTING ACTIVITIES		(71,725	)		(85,724	)
FINANCING ACTIVITIES
Net increase in demand deposits, NOW accounts and savings accounts		42,948			87,779
Net increase (decrease) in certificates of deposit		51,844			(592	)
Net borrowings from debt obligations		14,608			18,900
Net proceeds from issuance of subordinated debentures		—			9,935
Resources provided by minority interest		4,475			10,690
Net proceeds from issuance of common stock		842			1,400
Cash dividends paid		(2,531	)		(2,109	)
NET CASH PROVIDED BY FINANCING ACTIVITIES		112,186			126,003
INCREASE IN CASH AND CASH EQUIVALENTS		58,335			40,821
Cash and cash equivalents at beginning of period		231,104			283,623
CASH AND CASH EQUIVALENTS AT END OF PERIOD	$	289,439		$	324,444

See notes to condensed consolidated financial statements.

Page 6 of 25

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
CAPITOL BANCORP LTD.

Note A – Basis of Presentation

     The accompanying unaudited condensed consolidated financial statements of Capitol Bancorp Ltd. (“Capitol”) have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions for Form 10-Q. Accordingly, they do not include all information and footnotes necessary for a fair presentation of consolidated financial position, results of operations and cash flows in conformity with generally accepted accounting principles.

     The statements do, however, include all adjustments of a normal recurring nature (in accordance with Rule 10-01(b)(8) of Regulation S-X) which Capitol considers necessary for a fair presentation of the interim periods.

     The results of operations for the period ended March 31, 2005 are not necessarily indicative of the results to be expected for the year ending December 31, 2005.

     The consolidated balance sheet as of December 31, 2004 was derived from audited consolidated financial statements as of that date. Certain 2004 amounts have been reclassified to conform to the 2005 presentation.

Note B – Implementation of New Accounting Standard

     AICPA Statement of Position 03-3,Accounting for Certain Loans or Debt Securities Acquired in a Transfer(SOP 03-3), addresses the accounting for differences between contractual cash flows and cash flows expected to be collected from the initial investment in loans acquired in a transfer if those differences are attributable, at least in part, to credit quality. It includes such loans acquired in purchase business combinations and does not apply to loans originated by the entity. The SOP prohibits carrying over or creation of valuation allowances in the initial accounting for loans acquired in a transfer. It is effective for loans acquired in fiscal years beginning after December 15, 2004. This new guidance had no effect on Capitol’s consolidated financial statements upon implementation.

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Page 7 of 25

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
CAPITOL BANCORP LTD. - Continued

Note C – Stock Options

     Statement of Financial Accounting Standards No. 123,Accounting for Stock-Based Compensation, establishes an alternative fair value method of accounting for stock options whereby compensation expense would be recognized based on the computed fair value of the options on the grant date. By not electing this alternative, certain pro forma disclosures of the expense recognition provisions of Statement No. 123 are required, which are as follows:

	Three Months Ended
	March 31
	2005			2004
Fair value assumptions:
Risk-free interest rate		4.1	%		3.5	%
Dividend yield		2.1	%		2.1	%
Stock price volatility		.25			.29
Expected option life	7 years			6 years
Aggregate estimated fair value of options granted (in thousands)	$	362		$	2,346
Net income (in thousands):
As reported	$	8,015		$	4,416
Less pro forma compensation expense regarding fair value of stock option awards, net of related income tax effect		(223	)		(1,525	)
Pro forma	$	7,792		$	2,891
Net income per share:
Basic:
As reported	$	0.55		$	0.32
Pro forma		0.53			0.21
Diluted:
As reported		0.52			0.30
Pro forma	$	0.51		$	0.20

     Stock option activity for the interim 2005 period is summarized as follows:

					Weighted
	Number of			Exercise	Average
	Stock Options			Price	Exercise
	Outstanding			Range	Price
Outstanding at January 1		2,584,139		$10.81 to $33.01	$	21.06
Exercised		(194,462	)	11.00 to   27.05		16.09
Granted		46,470		34.31 to   34.84		34.50
Cancelled or expired		(2,362	)	29.10
Outstanding at March 31		2,433,785		$10.81 to $34.84	$	21.73

Page 8 of 25

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
CAPITOL BANCORP LTD. - Continued

Note C – Stock Options – Continued

     As of March 31, 2005, stock options outstanding had a weighted average remaining contractual life of 4.3 years. The following table summarizes stock options outstanding segregated by exercise price range:

			Weighted Average
					Remaining
Exercise Price	Number		Exercise		Contractual
Range	Outstanding		Price		Life
$10.00 to 14.99		327,813	$	11.31	2.3 years
$15.00 to 19.99		598,840		16.64	3.5 years
$20.00 to 24.99		550,964		21.93	5.0 years
$25.00 to 29.99		750,126		27.01	5.0 years
$30.00 or more		206,042	$	33.32	5.8 years
Total outstanding		2,433,785

Note D – Net Income Per Share

     The computations of basic and diluted earnings per share were as follows:

	Three Months Ended
	March 31
	2005		2004
Numerator—net income for the period	$	8,015,000	$	4,416,000
Denominator:
Weighted average number of common shares outstanding, excluding unvested shares of restricted common stock (denominator for basic earnings per share)		14,648,473		13,795,195
Weighted average number of unvested shares of restricted common stock outstanding		215,489		267,226
Effect of other dilutive securities (stock options)		549,430		569,121
Denominator for diluted net income per share—Weighted average number of common shares and potential dilution		15,413,392		14,631,542
Number of antidilutive stock options excluded from diluted earnings per share computation		206,042		—

Page 9 of 25

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
CAPITOL BANCORP LTD. - Continued

Note E – New Bank and Bank Development Activities

     Bank of Michigan, located in Farmington Hills, Michigan, opened in January 2005. It is majority-owned by Capitol Development Bancorp Limited I, which is a controlled subsidiary of Capitol.

     Bank development efforts are currently under consideration at March 31, 2005 in several states including pre-development exploratory discussions, lease and employment negotiations and preparation of preliminary regulatory applications for formation and/or acquisition of community banks. Currently, Capitol Bancorp has applications pending for additionalde novocommunity banks in California, Colorado, Michigan and Washington.

Note F – Pending Share Exchange Proposal

     As of March 31, 2005, a potential share exchange transaction was in the proposal stage regarding Napa Community Bank which, if completed, would result in Capitol issuing approximately 280,000 additional shares of common stock and the bank becoming wholly-owned if all of the bank’s shareholders, other than Capitol, elect to exchange their shares of the bank’s common stock for shares of Capitol. Capitol anticipates concluding the proposed share exchange mid-year, 2005.

Note G – Subsequent Acquisition of Bank

     In early April 2005, Capitol acquired a 51% interest in Peoples State Bank (“Peoples”) located in Jeffersonville, Georgia, in a purchase transaction with total consideration approximating $2.2 million. At March 31, 2005, Peoples’ total assets approximated $21.2 million. Capitol’s acquisition of Peoples will be accounted for under the purchase method of accounting and its results of operations will be included in Capitol’s consolidated financial statements for periods after the effective date of the acquisition.

Note H – Impact of New Accounting Standards

     In December 2004, the Financial Accounting Standards Board (“FASB”) issued a revision of Statement No. 123. Statement No. 123(R),Share-Based Payment, is broader in scope than the original statement, which was more narrowly focused on stock-based compensation, and makes significant changes to accounting for “payments” involving employee compensation and “shares” or securities, in the form of stock options, restricted stock or other arrangements settled in the reporting entity’s securities. Most significant in the standard is the requirement that all stock options be measured at estimated fair value at the grant date and recorded as compensation expense over the requisite service period associated with the option, usually the vesting period. The revised standard was to become effective for interim periods beginning after June 30, 2005 and be applied prospectively to stock options granted after the effective date and any unvested stock options at that date; however, the SEC superseded the FASB’s implementation timetable in April 2005, changing the effective date to the beginning of 2006 for calendar-year public companies.

Page 10 of 25

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
CAPITOL BANCORP LTD. - Continued

Note H – Impact of New Accounting Standards – Continued

     Although Capitol’s management has not completed its analysis of the revised standard, the effect of the revised standard’s implementation will be recognition of compensation expense associated with stock options. Previously, Capitol has used the intrinsic-value method which did not result in expense recognition but, instead, required pro forma presentation of what compensation expense would have been recorded if the fair-value measurement and expense recognition provisions had been applied. Effective December 31, 2004, Capitol accelerated the vesting of all of its outstanding stock options in anticipation of implementation of Statement No. 123(R). Such acceleration of vesting, to make all such stock options vested as of December 31, 2004, was done for the purpose of avoiding future expense associated with any unvested stock options granted prior to the effective date of Statement No. 123(R).

     FASB’s Emerging Issues Task Force (“EITF”), reached consensus on “The Meaning of Other-Than-Temporary and Its Application to Certain Investments” in EITF Issue No. 03-1. The guidance included in the EITF largely consists of expanded disclosures and the guidance was intended to be fully effective in 2003, except for loss-recognition guidance which had a delayed effective date into 2004. In 2004, the FASB has further delayed the loss recognition provisions of Issue No. 03-1, pending additional deliberation in the future. Because of the inconclusive status of the EITF’s current position on the loss recognition aspects of Issue No. 03-1, Capitol’s management is unable to speculate on the potential impact of this matter on 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.

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Page 11 of 25

PART I. ITEM 2

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS

Financial Condition

     Total assets approximated $3.2 billion at March 31, 2005, an increase of $124 million from the December 31, 2004 level of $3.1 billion. The balance sheet includes Capitol and its consolidated subsidiaries:

	Total Assets
	(in $1,000’s)
	March 31			Dec 31
	2005			2004
Eastern Regions:
Great Lakes Region:
Ann Arbor Commerce Bank	$	332,697		$	330,488
Bank of Michigan(1)		10,373			n/a
Brighton Commerce Bank		105,417			105,890
Capitol National Bank		234,996			228,656
Detroit Commerce Bank		77,326			70,036
Elkhart Community Bank		71,226			67,099
Goshen Community Bank		55,321			54,571
Grand Haven Bank		121,042			119,254
Kent Commerce Bank		89,768			89,393
Macomb Community Bank		97,753			94,847
Muskegon Commerce Bank		93,856			94,162
Oakland Commerce Bank		129,576			130,779
Paragon Bank & Trust		109,885			110,128
Portage Commerce Bank		184,304			180,817
Great Lakes Region Total		1,713,540			1,676,120
First Carolina State Bank		69,941			68,598
Eastern Regions Total		1,783,481			1,744,718
Western Regions:
Southwest Region:
Arrowhead Community Bank		75,871			70,989
Bank of Las Vegas		50,927			47,538
Bank of Tucson		170,429			168,469
Black Mountain Community Bank		109,483			100,415
Camelback Community Bank		81,406			83,414
Desert Community Bank		70,890			63,276
East Valley Community Bank		48,656			46,549
Mesa Bank		102,406			96,158
Red Rock Community Bank		102,962			102,832
Southern Arizona Community Bank		90,456			83,140
Sunrise Bank of Albuquerque		71,934			69,055
Sunrise Bank of Arizona		129,816			128,192
Valley First Community Bank		62,609			54,857
Yuma Community Bank		59,577			59,355
Southwest Region Total		1,227,422			1,174,239
California Region:
Bank of Escondido		58,169			50,956
Napa Community Bank		73,014			79,396
Point Loma Community Bank		32,018			20,857
Sunrise Bank of San Diego		65,975			62,672
California Region Total		229,176			213,881
Western Regions Total		1,456,598			1,388,120
Other, net		(24,886	)		(41,420	)
Consolidated	$	3,215,193		$	3,091,418

(1) Commenced operations in January 2005 and is 51%-owned by Capitol Development Bancorp Limited I, a controlled subsidiary of Capitol.

Page 12 of 25

     Portfolio loans increased during the three-month 2005 period by approximately $67 million, compared to net loan growth of about $100 million during the corresponding period of 2004. 2005 loan growth represented a continuation of prior-period demand and growth at many of Capitol’s younger banks. The majority of portfolio loan growth occurred in commercial loans, consistent with the banks’ emphasis on commercial lending activities.

     The allowance for loan losses at March 31, 2005 approximated $38 million or 1.37% of total portfolio loans, which was slightly less than the year-end 2004 ratio of 1.40%. The allowance ratio at March 31, 2005 is lower than the beginning of the year, consistent with asset quality improvements discussed later in this narrative.

     The allowance for loan losses is maintained at a level believed adequate by management to absorb potential losses inherent in the loan portfolio at the balance sheet date. Management’s determination of the adequacy of the allowance is 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 and other factors. The allowance is increased by provisions charged to operations and reduced by net charge-offs. The table below summarizes portfolio loan balances and activity in the allowance for loan losses for the interim periods (in thousands):

	2005			2004
Allowance for loan losses at January 1	$	37,572		$	31,404
Loans charged-off:
Commercial		(2,071	)		(1,942	)
Real estate mortgage		—			(2	)
Installment		(252	)		(55	)
Total charge-offs		(2,323	)		(1,999	)
Recoveries:
Commercial		410			191
Real estate mortgage		—			—
Installment		43			15
Total recoveries		453			206
Net charge-offs		(1,870	)		(1,793	)
Additions to allowance charged to expense		2,023			3,508
Allowance for loan losses at March 31	$	37,725		$	33,119
Average total portfolio loans for period ended March 31	$	2,726,965		$	2,302,115
Ratio of net charge-offs (annualized) to average portfolio loans outstanding		0.27	%		0.31	%

     The interim 2004 provision for loan losses was at a higher level due to unexpectedly strong loan growth in the first quarter of 2004 and a special provision of $1 million recorded for estimated losses on one lending relationship.

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     Net charge-offs of loans in the interim 2005 period increased marginally in amount compared to the corresponding 2004 period, however, the ratio of net charge-offs as a percentage of average loans decreased to .27% in 2005, compared to .31% in the 2004 period.

     The amounts of the allowance for loan losses allocated in the following table (in thousands) are based on management’s estimate of losses inherent in the portfolio at the balance-sheet date, include all loans for which, based on Capitol’s loan rating system, management has concerns, and should not be interpreted as an indication of future charge-offs.

	March 31, 2005					December 31, 2004
			Percentage					Percentage
			of Total					of Total
			Portfolio					Portfolio
	Amount		Loans			Amount		Loans
Commercial	$	35,078		1.27	%	$	34,753		1.29	%
Real estate mortgage		1,683		0.06			1,808		0.07
Installment		964		0.04			1,011		0.04
Total allowance for loan losses	$	37,725		1.37	%	$	37,572		1.40	%
Total portfolio loans outstanding	$	2,759,444				$	2,692,904

     Nonperforming loans (i.e., loans which are 90 days or more past due and loans on nonaccrual status) and other nonperforming assets are summarized below (in thousands):

	March 31		Dec 31
	2005		2004
Nonaccrual loans:
Commercial	$	16,886	$	20,618
Real estate mortgage		1,149		2,396
Installment		749		195
Total nonaccrual loans		18,784		23,209
Past due (³90 days) loans:
Commercial		4,372		3,529
Real estate mortgage		692		1,382
Installment		557		351
Total past due loans		5,621		5,262
Total nonperforming loans	$	24,405	$	28,471
Real estate owned and other repossessed assets		5,626		3,907
Total nonperforming assets	$	30,031	$	32,378

Page 14 of 25

     Nonperforming loans decreased 14% or $4 million during the three-month period ended March 31, 2005. Nonperforming loans as a percentage of portfolio loans outstanding at March 31, 2005 were 0.88%, a reduction from the beginning of year level of 1.06%. The significant early 2005 reduction in nonperforming loans came as a result of collection efforts and other resolution activities, such as charge-offs. Of the nonperforming loans at March 31, 2005, about 59% were real estate secured. Those loans, when originated, had appropriate loan-to-value ratios and, accordingly, have loss exposure which is expected to be minimal; however, underlying real estate values depend upon current economic conditions and liquidation strategies. Most other nonperforming loans were generally secured by other business assets. Nonperforming loans at March 31, 2005 were in various stages of resolution and management believes such loans are adequately collateralized or otherwise appropriately considered in its determination of the adequacy of the allowance for loan losses.

     In addition to the identification of nonperforming loans involving borrowers with payment performance difficulties (i.e., nonaccrual loans and loans past-due 90 days or more), management utilizes an internal loan review process to identify other potential problem loans which may warrant additional monitoring or other attention. This loan review process is a continuous activity which periodically updates internal loan ratings. At inception, all loans are individually assigned a rating which grades the credits on a risk basis, based on the type and discounted value of collateral, financial strength of the borrower and guarantors and other factors such as nature of the borrower’s business climate, local economic conditions and other subjective factors. The loan rating process is fluid and subjective.

     Potential problem loans include loans which are generally performing as agreed; however, because of internal loan reviews and/or lending staff’s risk assessment, increased monitoring is deemed appropriate. In addition, some loans are assigned a more adverse classification, with specific performance issues or other risk factors requiring close management and development of specific remedial action plans.

     At March 31, 2005, potential problem loans (including the previously mentioned nonperforming loans) approximated $108 million, or about 4% of total consolidated portfolio loans. These potential problem loans do not necessarily have significant loss exposure (nor are they necessarily deemed ‘impaired’), but rather are identified by management in this manner to aid in loan administration and risk management. Management believes such loans to be adequately considered in its evaluation of the adequacy of the allowance for loan losses. Management believes, however, that current general economic conditions may result in higher levels of future loan losses, in comparison to previous years, as evidenced by higher provisions for loan losses in recent periods.

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     The following comparative analysis summarizes each bank’s total portfolio loans, allowance for loan losses, nonperforming loans and ratio of the allowance as a percentage of portfolio loans (dollars in thousands):

	Total				Allowance for				Nonperforming				Allowance as a Percentage
	Portfolio Loans				Loan Losses				Loans				of Total Portfolio Loans
	March 31		Dec 31		March 31		Dec 31		March 31		Dec 31		March 31			Dec 31
	2005		2004		2005		2004		2005		2004		2005			2004
Eastern Regions:
Great Lakes Region:
Ann Arbor Commerce Bank	$	301,836	$	297,936	$	4,043	$	3,907	$	2,877	$	2,460		1.34	%		1.31	%
Bank of Michigan(1)		965		n/a		15		n/a		—		n/a		1.55			n/a
Brighton Commerce Bank		96,094		95,408		989		969		28		1,035		1.03			1.02
Capitol National Bank		196,765		196,519		2,599		2,723		1,549		2,053		1.32			1.39
Detroit Commerce Bank		71,719		66,280		851		806		329		338		1.19			1.22
Elkhart Community Bank		66,286		63,987		777		712		342		277		1.17			1.11
Goshen Community Bank		50,836		48,059		673		644		809		703		1.32			1.34
Grand Haven Bank		111,093		109,612		2,484		2,522		4,556		7,264		2.24			2.30
Kent Commerce Bank		86,184		86,090		1,392		1,269		2,900		2,445		1.62			1.47
Macomb Community Bank		93,275		91,173		1,178		1,327		2,420		1,768		1.26			1.46
Muskegon Commerce Bank		88,317		88,692		885		904		1,432		1,524		1.00			1.02
Oakland Commerce Bank		102,901		107,037		1,474		1,850		330		2,402		1.43			1.73
Paragon Bank & Trust		95,638		96,428		1,439		1,350		611		783		1.50			1.40
Portage Commerce Bank		173,225		170,479		2,089		1,977		3,792		2,820		1.21			1.16
Great Lakes Region Total		1,535,134		1,517,700		20,888		20,960		21,975		25,872
First Carolina State Bank		54,417		51,867		554		525		4		11		1.02			1.01
Eastern Regions Total		1,589,551		1,569,567		21,442		21,485		21,979		25,883
Western Regions:
Southwest Region:
Arrowhead Community Bank		66,714		62,737		650		620		29		29		0.97			0.99
Bank of Las Vegas		43,871		41,134		374		425		—		—		0.85			1.03
Bank of Tucson		120,046		115,694		1,195		1,170		—		455		1.00			1.01
Black Mountain Community Bank		86,485		84,163		1,101		1,014		439		368		1.27			1.20
Camelback Community Bank		72,633		75,146		1,100		1,186		—		—		1.51			1.58
Desert Community Bank		64,921		58,751		783		722		107		107		1.21			1.23
East Valley Community Bank		43,030		42,614		545		520		—		—		1.27			1.22
Mesa Bank		93,713		85,561		873		800		—		—		0.93			0.94
Red Rock Community Bank		76,063		72,938		1,600		1,714		439		762		2.10			2.35
Southern Arizona Community Bank		74,360		72,226		725		736		—		—		0.97			1.02
Sunrise Bank of Albuquerque		60,339		59,766		943		895		265		459		1.56			1.50
Sunrise Bank of Arizona		114,906		118,617		1,401		1,400		11		111		1.22			1.18
Valley First Community Bank		50,199		49,518		475		469		—		—		0.95			0.95
Yuma Community Bank		42,840		41,460		430		465		—		—		1.00			1.12
Southwest Region Total		1,010,120		980,325		12,195		12,136		1,290		2,291
California Region:
Bank of Escondido		35,220		33,166		375		350		—		—		1.06			1.06
Napa Community Bank		55,584		53,033		720		720		—		—		1.30			1.36
Point Loma Community Bank		14,321		8,590		150		88		—		—		1.05			1.02
Sunrise Bank of San Diego		52,450		46,945		465		415		316		297		0.89			0.88
California Region Total		157,575		141,734		1,710		1,573		316		297
Western Regions Total		1,167,695		1,122,059		13,905		13,709		1,606		2,588
Other, net		2,198		1,278		2,378		2,378		820		—		—			—
Consolidated	$	2,759,444	$	2,692,904	$	37,725	$	37,572	$	24,405	$	28,471		1.37	%		1.40	%

(1)	Commenced operations in January 2005 and is 51%-owned by Capitol Development
	Bancorp Limited I, a controlled subsidiary of Capitol.

Page 16 of 25

Results of Operations

     Net income for the three months ended March 31, 2005 was $8 million, an increase of $3.6 million or 81% over the same period in 2004. Diluted earnings per share for the three-month 2005 period were $0.52 compared to $0.30 for the prior year period.

     Net interest income for the first three months of 2005 totaled $35.8 million, an 18% increase compared to $30.2 million in 2004. This increase is attributable to the banks’ growth in size and a continued strong net interest margin despite an increasing interest rate environment.

     Noninterest income for the three months ended March 31, 2005 was $4.6 million, an increase of $435,000, or 11%, over the same period in 2004. The increase is due primarily to a nonrecurring loss on sale of investment securities available for sale accrued in the 2004 period as a result of management’s decision to exit mutual fund investments on an enterprise-wide basis. Other noninterest income in the 2005 period includes $456,000 of gains on sale of government guaranteed loans.

     The provision for loan losses for the three-month period in 2005 was $2 million, as compared to $3.5 million for the same period in 2004. Provisions for loan losses were lower than in the prior year due to a decrease in nonperforming loans in the first quarter of 2005. The interim 2004 provision for loan losses was at a higher level due to unexpectedly strong loan growth in the first quarter of 2004 and a special provision of $1 million recorded for estimated losses on one lending relationship. The provisions for loan losses are based upon management’s analysis of the adequacy of the allowance for loan losses, as previously discussed.

     Noninterest expense totaled $26.5 million for the first quarter in 2005, as compared to $23.6 million for the comparable period in 2004. The increase in noninterest expense is associated with growth in the size of the banks and increases in general operating costs. Increases in both occupancy and salaries and employee benefits relate primarily to the growth in the size of banks within the consolidated group, the addition of a bank in the first quarter of 2005 (none in the first quarter of 2004), and added regional bank development executives as part of Capitol’s 2005 expansion campaign.

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Page 17 of 25

     Operating results (dollars in thousands) were as follows:

	Three months ended March 31
													Return on						Return on
	Total Revenues						Net Income						Average Equity(1)						Average Assets(1)
	2005			2004			2005			2004			2005			2004			2005			2004
Eastern Regions:
Great Lakes Region:
Ann Arbor Commerce Bank	$	5,767		$	5,403		$	910		$	1,194			14.22	%		18.65	%		1.15			1.49	%
Bank of Michigan(2)		54			n/a			(276	)		n/a			n/a			n/a			n/a			n/a
Brighton Commerce Bank		1,700			1,454			275			222			12.39			11.15			1.04			.95
Capitol National Bank		3,735			3,381			888			866			19.88			20.68			1.58			1.56
Detroit Commerce Bank		1,413			767			145			9			9.38			.79			.81			.07
Elkhart Community Bank		1,163			921			171			186			9.28			10.66			1.03			.61
Goshen Community Bank		865			695			87			151			5.31			9.59			.66			1.30
Grand Haven Bank		2,051			1,752			270			(276	)		11.08			n/a			.94			n/a
Kent Commerce Bank		1,444			1,275			104			57			5.29			2.76			.49			.28
Macomb Community Bank		1,625			1,428			271			204			12.60			9.23			1.15			.90
Muskegon Commerce Bank		1,644			1,432			295			303			12.38			13.37			1.27			1.44
Oakland Commerce Bank		2,111			1,822			468			(317	)		18.62			n/a			1.47			n/a
Paragon Bank & Trust		2,087			1,735			372			265			13.01			9.51			1.39			1.00
Portage Commerce Bank		3,280			2,679			746			575			19.74			17.92			1.66			1.41
Great Lakes Region Total		28,939			24,744			4,726			3,439
First Carolina State Bank		948			n/a			119			n/a			4.63			n/a			.72			n/a
Eastern Regions Total		29,887			24,744			4,845			3,439
Western Regions:
Southwest Region:
Arrowhead Community Bank		1,506			1,113			204			120			12.35			8.91			1.14			.78
Bank of Las Vegas		872			595			142			(28	)		9.25			n/a			1.13			n/a
Bank of Tucson		2,774			2,499			792			789			25.25			27.27			1.93			2.04
Black Mountain Community Bank		1,882			1,358			445			295			18.51			14.34			1.73			1.39
Camelback Community Bank		1,395			1,380			307			20			14.42			.94			1.55			.10
Desert Community Bank		1,289			943			215			157			10.86			8.40			1.28			1.05
East Valley Community Bank		895			750			37			40			3.13			4.04			.32			.38
Mesa Bank		2,049			1,522			448			307			22.46			17.65			1.87			1.66
Red Rock Community Bank		1,544			1,478			337			(60	)		10.50			n/a			1.33			n/a
Southern Arizona Community Bank		1,431			1,367			316			350			14.73			17.38			1.52			1.67
Sunrise Bank of Albuquerque		1,275			1,312			260			226			15.73			15.53			1.54			1.33
Sunrise Bank of Arizona		2,529			2,766			519			412			16.21			15.88			1.64			1.31
Valley First Community Bank		971			729			180			101			11.49			6.76			1.34			.84
Yuma Community Bank		1,048			854			228			129			14.45			9.41			1.59			1.10
Southwest Region Total		21,460			18,666			4,430			2,858
California Region:
Bank of Escondido		805			276			71			(172	)		3.10			n/a			.51			n/a
Napa Community Bank		1,167			858			228			68			10.11			3.30			1.31			.48
Point Loma Community Bank		297			n/a			(206	)		n/a			n/a			n/a			n/a			n/a
Sunrise Bank of San Diego		1,131			1,219			134			213			4.81			10.35			.89			1.24
California Region Total		3,400			2,353			227			109
Western Regions Total		24,860			21,019			4,657			2,967
Other, net		(253	)		(176	)		(1,487	)		(1,990	)		n/a			n/a			n/a			n/a
Consolidated	$	54,494		$	45,587		$	8,015		$	4,416			12.55	%		7.97	%		1.02	%		.64	%

n/a Not applicable
(1)	Annualized for period presented.
(2)	Commenced operations in January 2005 and is 51%-owned by Capitol Development
	Bancorp Limited I, a controlled subsidiary of Capitol.

Liquidity and Capital Resources

     The principal funding source for asset growth and loan origination activities is deposits. Total deposits increased $94.8 million for the three months ended March 31, 2005, slightly more than the $87.2 million increase in the corresponding period of 2004. Growth occurred in most interest-bearing deposit categories, with the majority coming from certificate of deposit accounts.

Page 18 of 25

The banks generally do not significantly rely on brokered deposits as a key funding source. Brokered deposits approximated $216 million as of March 31, 2005, or about 8% of total deposits, an increase of $35 million during the interim 2005 period, as the banks have sought to add these funds selectively based on maturity and interest-rate opportunities, to aid in matching repricing of funding sources and assets.

     Noninterest-bearing deposits approximated 20% of total deposits at March 31, 2005 and at December 31, 2004. Levels of noninterest-bearing deposits can, however, fluctuate based on customers’ transaction activity.

     Interim 2005 deposit growth was deployed primarily into commercial loans, consistent with the banks’ emphasis on commercial lending activities.

     Cash and cash equivalents amounted to $289 million or 9% of total assets at March 31, 2005, compared with $231 million or 7% of total assets at December 31, 2004. As liquidity levels vary continuously based on customer activities, amounts of cash and cash equivalents can vary widely at any given point in time. Management believes the banks’ liquidity position at March 31, 2005 is adequate to fund loan demand and meet depositor needs.

     In addition to cash and cash equivalents, a source of long-term liquidity is the banks’ marketable investment securities. Liquidity needs have not historically necessitated the sale of investments in order to meet funding requirements. The banks have not engaged in active trading of their investments. At March 31, 2005, the banks had approximately $29 million of investment securities classified as available for sale, which can be utilized to meet various liquidity needs as they arise.

     Several of the banks have secured lines of credit with regional Federal Home Loan Banks. Borrowings thereunder approximated $169 million and additional borrowing capacity approximated $103 million at March 31, 2005. They are used from time to time as a lower-cost funding source versus various rates and maturities of time deposits. Total notes payable borrowings increased $14.6 million in the interim period of 2005. At March 31, 2005, Capitol had unused lines of credit from an unrelated financial institution aggregating $25 million.

     Trust-preferred securities, approximating $100.9 million ($103.3 million principal amount), augment Capitol’s existing capital base, which totaled $402.8 million (subordinated debentures—formerly ‘trust-preferred securities’, minority interests in consolidated subsidiaries and stockholders’ equity) or 12.53% of total assets at March 31, 2005.

     Stockholders’ equity, as a percentage of total assets, approximated 8.04% at March 31, 2005 and 8.16% at December 31, 2004.

     Bank of Michigan, located in Farmington Hills, Michigan, opened in January 2005. It is majority-owned by Capitol Development Bancorp Limited I, which is a controlled subsidiary of Capitol.

     Bank development efforts are under consideration at March 31, 2005 in several states including pre-development exploratory discussions, lease and employment negotiations and preparation of preliminary regulatory applications for formation and/or acquisition of community

Page 19 of 25

banks. Capitol Bancorp has applications pending for additionalde novocommunity banks in California, Colorado, Michigan and Washington.

     As of March 31, 2005, a potential share exchange transaction was in the proposal stage regarding Napa Community Bank which, if completed, would result in Capitol issuing approximately 280,000 additional shares of common stock and the bank becoming wholly-owned if all of the bank’s shareholders, other than Capitol, elect to exchange their shares of the bank’s common stock for shares of Capitol. Capitol anticipates concluding the proposed share exchange mid-year 2005.

     Capitol’s operating strategy continues to be focused on the ongoing growth and maturity of its existing banks, coupled with new bank expansion in selected markets as opportunities arise. Accordingly, Capitol may invest in, acquire or otherwise develop additional banks in future periods, subject to economic conditions and other factors, although the timing of such additional banking units, if any, is uncertain. Such future new banks and/or additions of other operating units could be either wholly-owned, majority-owned or otherwise controlled by Capitol. Most recently, Capitol has recruited several regional bank development executives to pursuede novoand other bank development opportunities in certain regions of the United States where it seeks to expand in future periods.

     Capitol and its banks are subject to complex regulatory capital requirements, which require maintaining certain minimum capital ratios. These ratio measurements, in addition to certain other requirements, are used by regulatory agencies to determine the level of regulatory intervention and enforcement applied to financial institutions. Management believes Capitol and each of its banks are in compliance with regulatory requirements and are expected to maintain such compliance.

Trends Affecting Operations

     One of the most significant trends which can impact the financial condition and results of operations of financial institutions are changes in market rates of interest.

     Changes in interest rates, either up or down, have an impact on net interest income (plus or minus), depending on the direction and timing of such changes. At any point in time, there is a difference 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.

     The Board of Governors of the Federal Reserve, which influences interest rates, has increased interbank borrowing rates in early 2005 and expressed several concerns about economic conditions. Home mortgage rates have recently increased, which has adversely impacted fee income from the origination of residential mortgages, particularly from refinancing activities. Many of Capitol’s loans are variable-rate and, accordingly, such rate increases should result in higher interest income to Capitol in the near term; however, depositors will similarly expect higher rates of interest on their accounts, potentially offsetting much of the benefit of rising interest rates. The future outlook on interest rates and their impact on Capitol’s interest income, interest expense and net interest income is uncertain.

Page 20 of 25

     Start-up banks generally incur operating losses during their early periods of operations. Recently-formed start-up banks are expected to detract from consolidated earnings performance and start-up banks formed in 2005 and beyond will similarly negatively impact short-term profitability.

     General economic conditions also have a significant impact on both the results of operations and the financial condition of financial institutions.

     Media reports raising questions about the health of the domestic economy have continued in 2005. During this early interim period of 2005, the amount of nonperforming loans has decreased, however, it is difficult to predict future movements in levels of nonperforming loans and related loan losses may increase as economic conditions, locally and nationally, evolve.

Impact of New Accounting Standards

     There are several new accounting standards either becoming effective or being issued in 2005. They are listed and discussed in Notes B and H of the accompanying condensed consolidated financial statements.

Critical Accounting Policies

     Capitol’s critical accounting policies are described on pages F-9, F-10 and F-11 of the financial information section of its 2004 Annual Report. In the circumstances of Capitol, management believes its “critical accounting policies” are those which encompass the use of estimates in determining the allowance for loan losses (because of inherent subjectivity), accounting for stock options, goodwill and other intangibles (due to inherent subjectivity in evaluating potential impairment) and classification of trust-preferred securities.

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PART I. ITEM 3

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK

Information about Capitol’s quantitative and qualitative disclosures about market risk were included in Capitol’s annual report on Form 10-K for the year ended December 31, 2004. Capitol does not believe that there has been a material change in the nature or categories of market risk exposure, except as noted in the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section herein (Part I, Item 2), under the caption, “Trends Affecting Operations”.

PART I. ITEM 4

CONTROLS AND PROCEDURES

Capitol maintains disclosure controls and procedures designed to provide reasonable assurance that the information Capitol must disclose in its filings with the Securities and Exchange Commission is recorded, processed, summarized and reported on a timely basis. Capitol’s Chief Executive Officer and Chief Financial Officer have reviewed and evaluated Capitol’s disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) as of the end of the period covered by this report (the “Evaluation Date”). Based on such evaluation, such officers have concluded that, as of the Evaluation Date, Capitol’s disclosure controls and procedures, in all material respects, are effective in bringing to their attention on a timely basis material information relating to Capitol required to be included in Capitol’s periodic filings under the Exchange Act.

No change in Capitol’s internal control over financial reporting occurred during Capitol’s most recent fiscal quarter that has materially affected or is reasonably likely to materially affect Capitol’s internal control over financial reporting.

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Page 22 of 25

PART II. OTHER INFORMATION

Item 1.	Legal Proceedings.
	Capitol and its subsidiaries are parties to certain ordinary, routine litigation incidental to their business. In the opinion of management, liabilities arising from such litigation would not have a material effect on Capitol’s consolidated financial position or results of operations.

Item 2.    Unregistered Sales of Securities and Use of Proceeds.

(a)	None.
(b)	Not applicable.
(c)	None.

Item 3.	Defaults Upon Senior Securities.
	None.

Item 4.	Submission of Matters to a Vote of Security Holders.
	None.

Item 5.	Other Information.
	None.

Item 6.    Exhibits.

(a)   Exhibits:

Exhibit No.	Description of Exhibit
31.1	Certification of Chief Executive Officer, Joseph D. Reid, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2	Certification of Chief Financial Officer, Lee W. Hendrickson, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1	Certification of Chief Executive Officer, Joseph D. Reid, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2	Certification of Chief Financial Officer, Lee W. Hendrickson, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

CAPITOL BANCORP LTD.

(Registrant)

/s/ Joseph D. Reid

Joseph D. Reid

Chairman and CEO

(duly authorized to sign on behalf of the registrant)

/s/ Lee W. Hendrickson

Lee W. Hendrickson

Chief Financial Officer

Date: April 29, 2005

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INDEX TO EXHIBITS

Exhibit No.	Description of Exhibit
31.1	Certification of Chief Executive Officer, Joseph D. Reid, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2	Certification of Chief Financial Officer, Lee W. Hendrickson, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1	Certification of Chief Executive Officer, Joseph D. Reid, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2	Certification of Chief Financial Officer, Lee W. Hendrickson, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

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