Capitol Bancorp 10K 2005 Annual report | CBCRQ Filing

Capitol Bancorp (CBCRQ) Inactive 10-K2005 FY Annual report

Content analysis

Exhibit 13

Table of Contents


3		Chairman’s Letter

COMMUNITY BANKS

6		Ann Arbor Commerce Bank
7		Arrowhead Community Bank
8		Bank of Auburn Hills
9		Bank of Belleville
10		Bank of Bellevue
11		Bank of Escondido
12		Bank of Las Vegas
13		Bank of Michigan
14		Bank of San Francisco
15		Bank of Santa Barbara
16		Bank of Tucson
17		Black Mountain Community Bank
18		Brighton Commerce Bank
19		Camelback Community Bank
20		Capitol National Bank
21		Desert Community Bank
22		Detroit Commerce Bank
23		East Valley Bank
24		Elkhart Community Bank
25		First Carolina State Bank
26		Fort Collins Commerce Bank
27		Goshen Community Bank
28		Grand Haven Bank
29		Kent Commerce Bank
30		Macomb Community Bank
31		Mesa Bank
32		Muskegon Commerce Bank
33		Napa Community Bank
34		Oakland Commerce Bank
35		Paragon Bank & Trust
36		Peoples State Bank
37		Point Loma Community Bank
38		Portage Commerce Bank
39		Red Rock Community Bank
40		Southern Arizona Community Bank
41		Summit Bank of Kansas City
42		Sunrise Bank of Albuquerque
43		Sunrise Bank of Arizona
44		Sunrise Bank of San Diego
45		Valley First Community Bank
46		Yuma Community Bank

NON-BANK AFFILIATES

47		Amera Mortgage Corporation
48		Capitol Wealth Advisors

FINANCIAL INFORMATION

COMMUNITY BANKS

EASTERN REGIONS–Bruce A. Thomas,President

GREAT LAKES REGION

Illinois – Bank of Belleville

Indiana – Elkhart Community Bank, Goshen Community Bank

Michigan – Ann Arbor Commerce Bank, Bank of Auburn Hills, Bank of Michigan, Brighton Commerce Bank, Capitol National Bank, Detroit Commerce Bank, Grand Haven Bank, Kent Commerce Bank, Macomb Community Bank, Muskegon Commerce Bank, Oakland Commerce Bank, Paragon Bank & Trust, Portage Commerce Bank

MIDWEST REGION–Stanley E. Ricketts,President

Missouri – Summit Bank of Kansas City

NORTHEAST REGION–In Development

SOUTHEAST REGION–Bruce D. Jones,President

Georgia – Peoples State Bank, Sunrise Bank of Atlanta(loan production office)

North Carolina – First Carolina State Bank

WESTERN REGIONS–John S. Lewis,President

Arizona – Arrowhead Community Bank, Bank of Tucson, Camelback Community Bank, East Valley Bank, Mesa Bank, Southern Arizona Community Bank, Sunrise Bank of Arizona, Valley First Community Bank, Yuma Community Bank

CALIFORNIA REGION – Scott R. Andrews,President

Bank of Escondido, Bank of San Francisco, Bank of Santa Barbara, Napa Community Bank, Point Loma Community Bank, Sunrise Bank of San Diego

NORTHWEST REGION–Thomas S. Giovanelli,President

Washington – Bank of Bellevue

SOUTHWEST REGION–Stephen D. Todd,President

Colorado – Fort Collins Commerce Bank

Nevada – Bank of Las Vegas, Black Mountain Community Bank, Desert Community Bank, Red Rock Community Bank

New Mexico – Sunrise Bank of Albuquerque

The Value of Relationships

TO OUR SHAREHOLDERS


*From the Chairman*

Dear shareholder:

Growth

I am pleased to report to you that with the addition of nine affiliate banks in 2005, Capitol Bancorp became the only banking company in America with as many as 41 separately chartered financial institutions. Additions to our affiliated bank group included:


Bank	State	Bank	State
Bank of Michigan	Michigan	Peoples State Bank	Georgia
Bank of Bellevue	Washington	Fort Collins Commerce Bank	Colorado
Bank of Auburn Hills	Michigan	Bank of San Francisco	California
Bank of Belleville	Illinois	Summit Bank of Kansas City	Missouri
Bank of Santa Barbara	California

Our determination to grow our affiliated bank group is limited only by our ability to identify and partner with exceptional banking professionals. This past year represents a new benchmark of success in this effort. In February of 2006 we opened our 42nd bank, Community Bank of Rowan in North Carolina. Looking forward, we have seven additional charter applications pending:


• Atlanta, Georgia	• Evansville, Indiana	• Everett, Washington	• Las Vegas, Nevada
• Maumee, Ohio	• Phoenix, Arizona	• Valdosta, Georgia

There is a reasonable probability that the number of new affiliates added in 2006 will exceed the affiliation total accomplished in 2005.

Strategy

Each bank in our affiliated group is small when measured against industry standards. This is no accident. Our strategy continues to be focused on the development of “single store” community banks which are independently operated by a local board and a local officer team.

These banks are built upon customer relationships. The customer has access to the primary decision maker, the bank president. Size can operate to dilute true relationship banking. Strategizing to remain small allows each bank to provide service on a level denied to larger multi-branch institutions.

2005ANNUAL REPORT |3

FROM THE CHAIRMAN -continued-

Bank Support

We have consolidated bank support services such as accounting, information technology and risk management in order to pass on to our banks the obvious economies of scale. We have accomplished this goal without stripping the banks of the independent operational control that each board of directors and officer group exercises. Authority and responsibility for the general operation of the bank business remains local, including credit decisions, pricing, staffing and strategic planning. Retention of this authority provides the customer an unparalleled level of responsiveness and a strong commitment to community citizenship.

Growth Management

The task of providing effective and responsible oversight of Capitol Bancorp operations and management has increased with our growing number of affiliated banks. Nevertheless, we have not lost sight of the importance of maintaining practices of safety and soundness.

Our operational integrity rests in the hands of three senior officers who are featured on this page. Each individual brings an area of expertise and experience which serves to manage our continued growth. The contributions of John S. Lewis, President of our Western Regions, Cristin Reid English, Chief Operating Officer and Bruce Thomas, President of our Eastern Regions, are an integral part of our success. They are supported by 53 officers of the corporation, each with a mission to maintain our management standards as we grow.

Vertical Growth

Over the past year we have planned the development of a wealth management affiliate to be based in Charlotte, North Carolina. We have recruited Bob Hogan, a former chief operations officer for one of the largest securities companies in the United States, to head up this operation. During the course of this year we will roll out these added services to our affiliated banks. We expect that this effort will produce a significant increase in our noninterest income over the course of the next several years.

Building to Last

At the end of calendar year 2001, I reported to you that we expected to double the size of our balance sheet over the coming five years. 2006 is the fifth year of that plan. We are on track to achieve this objective. Moreover, we expect that during the next five years the balance sheet will once again double. We closed our report to you five years ago with the following comment which is as relevant today as it was then:

“Our commitment to community banking is the foundation of our core operation. Decentralization of management, while often presenting corporate challenges, serves to decentralize risk and risk concentration. We continue to work toward local branding, initiated by each of our banks individually, in contrast to a universal standard typical of large financial institutions focused on transactional, as opposed to relationship banking. We continue to encourage and foster hometown customer loyalty, a financially and socially rewarding by-product of relationship banking, local identity, local decision making and local ownership.”

We invite you to share the optimism for the future success of our banking model — a new structure for an old-fashioned idea.

Joseph D. Reid,Chairman & CEO

CAPITOL BANCORP LIMITED
BOARD OF DIRECTORS

Louis G. Allen
Retired Banker

Paul R. Ballard
Retired President & CEO
Portage Commerce Bank

David L. Becker
Retired Founder
Becker Insurance Agency, P.C.

Robert C. Carr
Vice Chairman
Capitol Bancorp Limited

Douglas E. Crist
President
Developers of SW Florida, Inc.

Michael J. Devine
Attorney at Law

Cristin Reid English
Chief Operating Officer
Capitol Bancorp Limited

James C. Epolito
President & CEO
Michigan Economic
Development Corporation

Gary A. Falkenberg
Gary A. Falkenberg, D.O., P.C.

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.
& H. N. Genova Development

Michael F. Hannley
President & CEO
Bank of Tucson

Lewis D. Johns
President
Mid-Michigan Investment Co.

Michael L. Kasten, Vice Chairman
Managing Partner
Kasten Investments, LLC

John S. Lewis
President, Western Regions
Capitol Bancorp Limited

Leonard Maas
President
L&M Maas Investments, LLC

Lyle W. Miller, Vice Chairman
President
LW. Miller Holding Co.

Kathryn L. Munro
Chairman & CEO
Bridge West, LLC

Myrl D. Nofziger
President
Hoogenboom Nofziger

David J. O’Leary, Secretary
Chairman
O’Leary Paint Company

Joseph D. Reid
Chairman & CEO
Capitol Bancorp Limited

Ronald K. Sable
President
Concord Solutions Ltd.

4 | 2005ANNUAL REPORT

The Value of Relationships

FINANCIAL HIGHLIGHTS

2005ANNUAL REPORT |5

The Value of Relationships

ANN ARBOR COMMERCE BANK

GREAT LAKES REGION

Building lasting relationships ...
creating lifetime value ... for each generation

After more than 15 years of business, the team at Ann Arbor Commerce Bank is now proudly serving the children and grandchildren of some of our very first customers.

We have adapted to better serve each new generation by identifying customer needs and requests. For instance, after an in-depth analysis of customer banking habits, we implemented an improved ATM service that greatly expanded the number of ATMs available to our customers. Based on the feedback we have received since we made the transition, the international ATM service has been well received and has resulted in the added benefit of cost efficiencies for the bank. Early last year we completed the first total revamp of our web site that makes it more educational and user friendly. Also during 2005, our bank was one of the first Capitol Bancorp affiliate banks to implement our new core operating system.

Our 15th anniversary tailgate party last September prior to the University of Michigan/Michigan State University football rivalry was a huge success. More than 700 customers proudly showed their colors and helped us celebrate our annual event.

Over the years we have matured and maintained a high profile in our community by always opting to take the competitive high road and providing outstanding service in our state-of-the-art facility.

Like our community, which is continually ranked among the best places to live and work in the United States, our bank is a place where our customers feel at home. Our fireplace room, for example, is designed to be homey and comfortable. Young and old can always stop by and read the news, munch on cookies or M&Ms^® and enjoy a cup of fresh-brewed coffee or hot chocolate.

As pleasant as our banking facilities are, it is our experienced and caring staff that makes our bank special. We are here to serve our current and future customers, their children and grandchildren. As part of Capitol Bancorp, we are building to last.

Richard G. Dorner,President & CEO

Ann Arbor Commerce Bank| 2950 State Street South | Ann Arbor, MI 48104
734-887-3100 | www.annarborcommerce.com



Richard G. Dorner\|President & CEO		Founded: October 1, 1990

BOARD OF DIRECTORS

Henry E. Alvarez, CPA
President & Managing Principal
Curtis, Bailey, Exelby & Sposito, P.C.
Certified Public Accountants

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, P.L.L.C.

James W. Finn
Chairman & CEO
Finn’s — JM&J insurance agency, Inc.

H. Nicholas Genova
Chairman & CEO
Washtenaw News Co. Inc.
& H. N. Genova Development

Richard M. Greene
Consultant
Richard Greene Point Training

Marilyn D. Katz-Pek
Managing Partner
Biotechnology Business Consultants

James C. Keen Sr.
CEO
Cliff Keen Athletic

David W. Lutton
President
Charles Reinhart Company Realtors

Fritz Seyferth
Principal
Fritz Seyferth & Associates

Carl Van Appledorn, M.D.
President & COO
Urological Surgery Associates, P.C.

Warren E. Wright
Chairman & Partner
Renosol Corporation

OFFICERS

James A. Fajen
Chairman

Richard G. Dorner
President & CEO

Warren E. Wright
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

John Nixon III
First Vice President

Noelle C. Grigg
Vice President

Mary Gyorke
Vice President

Patrick J. McKeon
Vice President

Bryan T. Singer
Vice President

6 | 2005ANNUAL REPORT

The Value of Relationships

ARROWHEAD COMMUNITY BANK

SOUTHWEST REGION

Bank Note$: A winning strategy

2005 marked another milestone for Arrowhead Community Bank (ACB) as we celebrated our fifth anniversary. Long before we opened the bank doors in September of 2000 we made it a goal to focus on developing relationships and establishing ourselves as “financial solutions providers,” rather than simply processing financial transactions. In addition, we made the strategic decision to brand the bank by establishing a culture of community service and volunteerism. I am pleased to report this approach to banking and marketing is proving to be successful.

Early on we introduced BANK NOTE$, a monthly newsletter that enables us to provide a value-added service to clients by offering them an avenue to promote their businesses and unique projects. It also provides a platform for us to share information about board members and staff; bank products and services; the events and needs of local nonprofit agencies; and ACB’s charitable contributions and volunteer efforts within the local community. Each month we produce a printed version of BANK NOTE$ that is used as a statement stuffer, published in two local newspapers and featured on the ACB web site. The online version offers additional opportunity to highlight our customers with expanded web space and archived issues for quick reference.

Response to BANK NOTE$ was immediate and continues to be compelling. We are proud that BANK NOTE$ is one of the most frequently visited sites among the Capitol Bancorp family of banks’ web sites. Through the online and printed versions, it is read by more than 50,000 clients and prospects each month. The feedback we receive from the community continues to be very positive — clients continue to ask to be featured in future editions.

BANK NOTE$, along with the dedication of a professional, experienced staff and an active board of directors, has contributed to the success of Arrowhead Community Bank. We are pleased to be a part of the extraordinary growth in the West Valley and are confident the next five years will prove to be as rewarding as the first five — for Arrowhead Community Bank, our clients and the local West Valley community.

Arlene Kulzer,President & CEO

Arrowhead Community Bank | 17235 North 75th Avenue, Suite B100 | Glendale, AZ 85308
623-776-0800 | www. arrowheadcommunitybank. com



Founded: September 21, 2000		Arlene Kulzer\|President & CEO

BOARD OF DIRECTORS

Shelley L. Bade
RPA, Principal
The Bade Companies

Janet G. Betts
Attorney at Law
Jennings, Strouss & Salmon

W. Patrick Daggett
CPA
Daggett McConachie & Moore,
CPAs, LLP

Michael J. Devine
Attorney at Law

Richard J. Hilde
Owner & CEO
EPW, Inc.

Michael L. Kasten
Managing Partner
Kasten Investments, LLC

Arlene Kulzer
President & CEO
Arrowhead Community Bank

Dennis E. Landauer
CPA Managing Director
RSM McGladrey

James J. McCue
Aviation Consultant
Sherwin industries

Terrance C. Mead
Attorney at Law
Mead & Associates

Gloria M. Munoz
Director of Housing Programs
NFWSC

John C. Ogden
Retired, CEO
SunCor Development Company

Carol A. Poore
Vice Provost
ASU at the West Campus

Richard A. Shelton
Executive Director
West Valley Symphony

OFFICERS

John C. Ogden
Chairman

Michael L. Kasten
Vice Chairman

Dennis E. Landauer
Chair, Directors Loan Committee

Arlene Kulzer
President & CEO

James J. McCue
Secretary

Amy Lou Blunt
Executive Vice President & CCO

Deborah M. Charlesworth
Senior Vice President

William H. Smith
Senior Vice President

Mary Catherine Mireles
Senior Vice President, COO

2005ANNUAL REPORT |7

The Value of Relationships

BANK OF AUBURN HILLS

GREAT LAKES REGION

One with the communities we serve

Bank of Auburn Hills debuted in mid-July with a team of experienced bankers dedicated to our success in our community. We depend on teamwork to achieve success, with each employee and board member contributing significantly.

We have a solid board of directors that consists of community leaders. Their referrals, contacts and oversight are key to achieving our growth objectives and crucial to our marketing strategy.

In September, our bank was featured in a story in theDetroit Free Pressthat highlighted a relationship we have with a local business owner. We know the entrepreneur well and that gave us the advantage over other banks. Our personal touch and extra effort earned us the opportunity to finance the complete remodeling of his restaurant.

We focus on building strong relationships with our customers. For example, we successfully structured a lending relationship for a well-known company in the area. Subsequently, the company has opened multiple accounts and became our first cash-management client. The company’s managers have opened personal accounts as well and referred three other business opportunities to us. These valued customers recognize the benefits of a close relationship with our bank and we are proud to have them as customers.

As we look forward, we plan to build our permanent office this year at a strategic location from which we can grow. We plan to achieve significant performance results this year and will be adding to our commercial lending, residential mortgage and investment teams.

Through our customers, employees and board members, we are connected to the communities we serve. In turn, we aim to be the one bank they look to for financial solutions.

Neal J. Searle,President

Bank of Auburn Hills| 1988 N. Opdyke Rd. | Auburn Hills, MI 48326
248-370-8200 | www.bankofauburnhills.com



Neal J. Searle\|President		Founded: July 13, 2005

BOARD OF DIRECTORS

Erwin H. Billig
Chairman
MSX International

Kenneth D. Currie
Business Consultant
Currie and Associates

Frederick Gordon
Attorney

Jason M. Horton
EVP/Independent Consultant
REDICO

Brian G. McGinnity
Director & EVP Finance
Tesco Engineering, Inc.

Neal J. Searle
President
Bank of Auburn Hills

Joseph D. Reid
Chairman & CEO
Capitol Bancorp Limited

ADVISORY DIRECTORS

Richard L. Horvath
Vice President Finance
& Administration
Atlas Copco Tools and
Assembly Systems Inc.

Michael M. Moran
Chief of Capital Markets
Capitol Bancorp Limited

David L. Polk, C.P.A.
Principal, Polk & Associates PLC

Gary M. Wetstein, CPA
Retired Chairman
BDO Seidman, LLP

William N. Widmyer
Business Consultant
& Real Estate Investor

Marc I. Wittenberg, M.D.
South Oakland Anesthesia
Associates, P.C.

OFFICERS

Joseph D. Reid
Chairman

Brian G. McGinnity
Secretary

Neal J. Searle
President

Brian R. Inglis
Senior Vice President & CCO

8|2005ANNUAL REPORT

The Value of Relationships

BANK OF BELLEVILLE

GREAT LAKES REGION

Belleville embraces our new bank

The swift capital-raising for Bank of Belleville, which opened for business in early November, bodes well for the future success of our bank. The bank’s stock offering was completed in just 30 days and the local capital-raising exceeded our goal by $1 million. We have nearly 300 investors and are the first new bank in Belleville in 15 years.

The eight employees opening the bank each average 20 years of banking experience. They are all investors in the bank, so we have a financial stake in the success of our enterprise.

Several small business owners, entrepreneurs and professionals in the Belleville area have expressed eagerness and excitement about our business plan, which focuses primarily on serving them and their associates. Clearly, they feel an entrepreneurial bond to us. After all, we are launching a new business just like they have done.

We feel the Belleville community wants a locally-controlled bank that focuses on relationship banking. Since our opening, the buzz in Belleville is about the Bank of Belleville. We want to live up to our community’s high expectations for our bank and earn respect by serving the needs of businesses and consumers.

We want our bank and staff to be actively involved in our community. Between Thanksgiving and Christmas, we sponsored the popular horse-drawn trolley for holiday shoppers in downtown Belleville. Also, at Christmas time we “adopted” a family through Big Brothers Big Sisters of Belleville.

This is a good start, but only that, a start. We look forward to expanding our relationships throughout the Belleville area as we become the bank of choice for our community.

Kevin M. Pesko,President

Bank of Belleville | 720 W. Main Street, Suite 100 | Belleville, IL 62220
618-233-6400 | www.bankofbelleville.com



Founded: November 4, 2005		Kevin M. Pesko\|President

BOARD OF DIRECTORS

Dennis E. Bielke
Retired Banker
Community Volunteer

Michael G. Guignon, M.D.
President & Physician
Michael Guignon, M.D., P.C.

Gary R. Hoelscher
President
Hoelscher Engineering, P.C.

Edward A. Hoering III
Principal, CPA
Ganim, Meder, Childers
& Hoering, P.C.

Kevin M. Pesko
President
Bank of Belleville

Wyatt Rawlings III
Owner
Wyatt Rawlings III CPA, LLC

Joseph D. Reid
Chairman & CEO
Capitol Bancorp Limited

George J. Renner III
Funeral Director

George Renner & Sons
Funeral Homes Inc.

Stanley E. Ricketts
President, Midwest Region
Capitol Bancorp Limited

Douglas D. Sitton
SVP/Manager
Woolpert Inc.

OFFICERS

Joseph D. Reid
Chairman

Kevin M. Pesko
President

Ronald R. Stephens
Executive Vice President & CCO

Jean L. Waeltz
Vice President & COO

Ramona A. Friederich
Vice President & CLO

2005ANNUAL REPORT |9

The Value of Relationships

BANK OF BELLEVUE

NORTHWEST REGION

Relationship banking returns to the pacific northwest

Bank of Bellevue’s staff, directors and shareholders celebrated the opening of our bank in June 2005. We are very excited to be part of a bank whose goal is to bring local decision-making and personalized service back into the banking equation.

Our bank is staffed by ten veteran bankers with nearly 200 combined years of experience in financial services. We are guided by a board of directors composed of local business leaders. Our products and services are tailored to the customer’s individual needs and, most importantly, we make our credit and business decisions right here in Bellevue.

“Money, frankly, is a commodity. All banks have it. Relationships and insightful bankers, on the other hand, are rare. Andy Barlass and the entire team at Bank of Bellevue (affectionately known as “BOB”) have the desire to understand our business, and provide the working capital for us to achieve our goals. We’re at home with “BOB” and we plan to stay.”

Spencer Krenke,CEO, Truescents

We are off to a very good start and exceeded our goals for 2005. We will continue to provide relationship-based banking services to small and mid-sized businesses and entrepreneurs. We will also expand our commercial real estate business, mortgage lending and deposit generating activities.

This year, we will continue to be more involved with our community. During 2005, we joined the Bellevue Chamber of Commerce, and the entire staff participated in a community “Adopt a Family” program during the holidays.

We are excited about the New Year and the opportunity to continue to develop long-term banking relationships. We are grateful for the continued support of our clients and investors and looking forward to making some of their financial dreams come true.

Andrew P. Barlass,President & CEO

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Bank of Bellevue| 155 - 108th Ave., NE, Suite 100 | Bellevue, WA 98004
425-467-5900 | www.bankofbellevue.com



Andrew P. Barlass\|President & CEO		Founded: June 15, 2005

BOARD OF DIRECTORS

Andrew P. Barlass
President & CEO
Bank of Bellevue

Richard J. DePosit, CPA
Principal
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 of Land Development
Lakeville Homes

Louie J. Micheli
President
Phillips Real Estate Services, LLC

H. Cyrus Oskoui
President
Columbia Athletic Clubs

Peter W. Powell
President
Powell Development Company

Joseph D. Reid
Chairman & CEO
Capitol Bancorp Limited

OFFICERS

Joseph D. Reid
Chairman

Thomas S. Giovanelli
Vice Chairman

Andrew P. Barlass
President & CEO

Catherine Greene
Chief Credit Officer

Annetta Mirabella
Senior Vice President & Secretary

Rita E. Dillon
Senior Vice President

Peter J.Barnes
Vice President

Belinda M. Blades-Keckler
Vice President

10 | 2005ANNUAL REPORT

The Value of Relationships

BANK OF ESCONDIDO

CALIFORNIA REGION

A rewarding year

“What a privilege to serve on the board of a bank that continues to exceed the expectations of all concerned, whether they be staff, clients or investors. In 2006, Bank of Escondido will certainly enhance its leadership role in the community.”

L. Richard Greenstein, M. D.,Bank Director

Bank of Escondido experienced a rewarding second full year of business in 2005. We exceeded budget and have grown our bank to more than 1,500 accounts. Our growth has provided many new opportunities for jobs and promotions within the bank. Our staff doubled last year to 20 employees.

We believe our success is related largely to having the best employees who have built strong relationships with customers and the community, as well as good professional relationships with each other. We’re proud of our bank’s family atmosphere.

Great relationships take time. Collectively, we’ve been developing them in the business, nonprofit, public and financial services arenas for more than 25 years. These relationships have been our best sources for referrals since our launch in 2003.

Bank of Escondido and our employees continue to give time and resources to community activities and charitable organizations. We are involved with more than 25 organizations in our market. We are active with the Downtown Business Association (DBA) of Escondido, which promotes economic development for the 68-square-block downtown area. We also sponsored a DBA meeting for downtown businesses and the weekly “Cruisin’ Grand” classic car shows from April through September.

In 2006, we are staying heavily involved in construction lending, as we further develop our relationships in Escondido and northern San Diego County, and maintain our reputation of being a respected bank that is devoted to our community.

Michael R. Peters,President & CEO

Bank of Escondido | 200 West Grand Avenue | Escondido, CA 92025
760-520-0400 | www.bankescondido.com



Founded:October 14, 2003		Michael R. Peters\|President & CEO

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, M.D.
Medical Director
Escondido Surgery Center

Ronald G. Guiles
Senior Partner
GEM Educational Consultants

Mark E. Hayes
Owner
Mark E. Hayes, CPA

John S. Lewis
President, Western Regions
Capitol Bancorp Limited

Joan M. Meyer, D.P.M.
Podiatric Medicine & Surgery

Michael F. Murphy
President
Computer Protection Technology, Inc.

Michael R. Peters
President & CEO
Bank of Escondido

OFFICERS

John S. Lewis
Chairman

Michael R. Peters
President & CEO

Christopher S. Burt
Secretary & Senior Vice President

Michael C. Churchwell
Senior Vice President & CCO

Linda I. Blakley
Senior Vice President

Rhonda L. Mulvany
Vice President

Kirsten J. Younkin
Vice President

2005ANNUAL REPORT |11

The Value of Relationships

BANK OF LAS VEGAS

SOUTHWEST REGION

Core values guide our bank

Bank of Las Vegas completed its third year of operation and our shareholders recently approved their share exchange with Capitol Bancorp. This share exchange was an excellent opportunity for the original investors in our business bank.

The growth of the bank has allowed us to expand our management team and we have offered key employees growth opportunities at Bank of Las Vegas so they can maximize their potential.

One of the keys to our success is the loyalty of our employees. They have been committed to serving our bank since its debut in 2002, and this same team remains dedicated to the bank’s success today.

Our referral network is becoming more effective as well. Several of our directors had a major impact on our growth during 2005, referring prospective clients to the bank. These prospects have developed into meaningful relationships and our customer base is growing with both loan and deposit relationships.

We continue to listen to our customers’ ideas and suggestions. For example, we now offer a product that provides FDIC insurance on structured time deposits up to $25 million.

We are committed to helping our neighbors. We assisted hurricane victims last year with a donation to the American Red Cross. We contributed to the Salvation Army with a Thanksgiving food drive and a financial gift from the bank. We also purchased new clothing items for students at a local elementary school.

We are proud to be an integral member of our community, supporting both business and civic initiatives to preserve and improve the quality of life we enjoy in Las Vegas.

Vincent J. Ciminise,President & CEO

Bank of Las Vegas | 6001 S. Decatur Boulevard, Suite P | Las Vegas, NV 89118
702-939-2400 | www.bankoflasvegas.com



Vincent J. Ciminise\|President & CEO		Founded:February 11, 2002

BOARD OF DIRECTORS

Ernest A. Becker V
President
Becker V Development

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

Charles L. Lasky
President
Lasky, Fifarek & Hogan, P. C.

Philip T. Saunders
Retired Executive
General Motors Corporation

Herman A. Vander Veldt
Vice President & General Manager
Realty Mortgage Corporation

OFFICERS

Charles L. Lasky
Chairman & Secretary

Michael J. Devine
Vice Chairman

Vincent J. Ciminise
President & CEO

Roger S. Mellies
Executive Vice President & CCO

Carol A. Clemens
Senior Vice President

William C. Russell
Senior Vice President

Randall S. Daugherty
Vice President

Stephen C. Herman
Vice President

Debbie V. Clark
Vice President

Jerry R. Morgan
Vice President

12|2005ANNUAL REPORT

The Value of Relationships

BANK OF MICHIGAN

GREAT LAKES REGION

Our success depends on the success of our community

“Bank of Michigan has filled a major void in community banking in this area. Its opening could not be more timely or important. This bank is reintroducing the value of relationships to its customer base and will reap the benefits of an extremely loyal and successful community.”

Michael J. George,Community Leader and CEO of George Enterprises, LLC

In December, I joined the experienced team of local bankers at Bank of Michigan who set the pace for this bank, which debuted in January 2005.

Our bank opened with an outstanding number of investors as a result of the efforts of an entrepreneurial group of organizers. We were pleased with operating results in the first year and look forward to growing our business and expanding our product offerings.

Our bank is uniquely positioned to increase its visibility in the coming years. The members of our board of directors reach far into the business community of southeastern Oakland County where our banking relationships are formed. These relationships will flourish as our reputation for prompt, courteous and personal service spreads.

Board member Burt Kassab, for example, owns a law firm, title company and mortgage brokerage firm. He is widely respected, has extensive relationships and is a tremendous asset to the bank in terms of his business and market knowledge.

Bank of Michigan is committed to the community and our staff is dedicated to growing our bank. We are eager to help our business clients meet the financial challenges they face and to be partners in their success. After all, our bank’s success depends on it.

Michael G. Sarafa,Executive Chairman

Bank of Michigan | 30095 Northwestern Highway | Farmington Hills, MI 48334
248-865-1300 | www.bankofmi.com



Founded:January 10, 2005		George F. Mochmar\|President & CEO

BOARD OF DIRECTORS

Ronald G. Acho
Senior Partner
Cummings, McClorey, Davis & Acho

Anthony G. Antone
Vice President of Development
Kojaian Management Corporation

Patrick J. Gregory
CPA, Managing Director
UHY Advisors, Inc.

Burt S. Kassab
Vice President
Kullen & Kassab, P.C.

Martin F. Manna
Managing Partner
Interlink Media

Charles J. McDonald
Cashier, Eastern Regions
Capitol Bancorp Limited

George F. Mochmar
President & CEO
Bank of Michigan

Joseph D. Reid
Chairman & CEO
Capitol Bancorp Limited

Nick M. Sandiha
Managing Member
Sandiha Holdings

Michael G. Sarafa
Executive Chairman
Bank of Michigan

OFFICERS

Joseph D. Reid
Chairman

Michael G. Sarafa
Executive Chairman

George F. Mochmar
President & CEO

Thomas Michael Linden
Executive Vice President & CCO

Cindy L. Jensen
Senior Vice President

Thomas R. Thompson
Vice President

2005ANNUAL REPORT |13

The Value of Relationships

BANK OF SAN FRANCISCO

CALIFORNIA REGION

Community banking returns to San Francisco

When Bank of San Francisco opened in August 2005, we were proud to be the first new community bank to emerge in “The City” in almost 20 years.

The bank’s mission is to provide exceptional business and personal banking services to clients throughout the Bay area. We’re a team of veteran San Francisco bankers. In fact, many of us have worked together for nearly 25 years. Reflecting the confidence we have in our capabilities and the belief we have in the bank’s core values and mission, each founding employee is a shareholder.

We have spent our first months converting past professional relationships into Bank of San Francisco clients and in developing new business and personal banking prospects. In line with this, we are pleased to announce that an internationally-renowned consulting firm, with offices in four countries, clients on six continents and billings in foreign currencies, recently became our client. That firm’s decision to move its business to our bank was based on critical factors, particularly its having access to the bank’s decision-makers. Its executives work with our team of highly experienced bankers who have the depth of knowledge to understand the complexities of the firm’s business. Our bank has the broad product capabilities to handle the global needs of the company, as well as the personal banking and real estate financing needs of its San Francisco partners. The firm represents an excellent example of the profile of our target client base.

Our board members, investors, clients and referral network have been instrumental in helping us lay a strong foundation for solid growth in 2006 and for years to come. We are excited by the challenges and confident in the results.

Edward C. Obuchowski,President

Bank of San Francisco | 575 Market Street, Suite 2400 | San Francisco, CA 94105
415-744-6700 | www.bankofsf.com



Edward C. Obuchowski\|President		Founded:August 1, 2005

BOARD OF DIRECTORS

Scott R. Andrews
President, California Region
Capitol Bancorp Limited

Joseph P. Cristiano
Chairman
The MCM Group

James R. Dobberstein
Managing Director & Principal
Shea Labagh Dobberstein CPAs

Arthur F. Evans
Chairman
A. F. Evans Company, Inc.

Herbert C. Foster
Former Chairman and CEO
CivicBank of Commerce

Susan S. Morse, CFA, CFP
Client Advisor
Mosaic Financial Partners, Inc.

Joseph D. Reid
Chairman & CEO
Capitol Bancorp Limited

George J. Vukasin, Jr.
Executive Vice President
Peerless Coffee & Tea

Edward C. Obuchowski
President
Bank of San Francisco

ADVISORY DIRECTOR

Dennis J. Pedisich
President & CEO
Napa Community Bank

OFFICERS

Joseph D. Reid
Chairman & CEO

Herbert C. Foster
Vice Chairman

Scott R. Andrews
Vice Chairman

Edward C. Obuchowski
President

Raymond C. Brown
Executive Vice President,
CCO & Secretary

Macie L. Caldwell
Senior Vice President

Edward G. Damgen
Senior Vice President

Ikuo Ogata
Senior Vice President

Wendy A. Ross
Senior Vice President

Z. Faye Burns
Vice President

Lisa W. Lau
Vice President

Timothy R. Rosenthal
Vice President

14|2005ANNUAL REPORT

The Value of Relationships

BANK OF SANTA BARBARA

CALIFORNIA REGION

Veteran staff focuses on central California market

Our bank opened for business in December 2005 and we are excited to be serving the commercial banking needs of small and mid-sized business and professional firms located throughout the Santa Barbara area.

Our greatest strength is the experience of our core team members. With more than 90 years of combined banking know-how, we have a good, diversified understanding of all the various aspects of business banking as well as a solid understanding of the business community and economic climate.

In January, more than 250 investors, clients and prospects attended our grand opening celebration. Our clients and guests alike were clearly impressed with our staff and offices, which are professional, yet warm, inviting and interesting.

Located in the heart of Santa Barbara, our 6,800-square-foot office features large-scale paintings of Santa Barbara landmarks and familiar local vistas by prominent local artist, Ed Lister. Our strategy is to align the bank with our community by showcasing the beauty around us.

Service and convenience are key aspects of the successful execution of our business plan. In addition to Internet banking and business cash management for our clients who want to do their banking from home or the workplace, we have implemented a courier service for our commercial clients.

As a new bank, we’re now in the process of building a sound commercial loan portfolio and developing lucrative lines of business. We are committed to delivering the highest level of professional service to our clients as we become the premier business-oriented community bank for our clients in the Santa Barbara area.

Andy L. Clark,President

Bank of Santa Barbara | 12 East Figueroa Street | Santa Barbara, CA 93101
805-730-7860 | www.bankofsantabarbara.com



Founded:December 19, 2005		Andy L. Clark\|President

BOARD OF DIRECTORS

Scott R. Andrews
President, California Region
Capitol Bancorp Limited

Greggory M. Bigger
President
Santa Barbara Bancorp

Ronald M. Blitzer
President
Nations Food Packaging

Andy L. Clark
President
Bank of Santa Barbara

Michael F. Hannley
President & CEO
Bank of Tucson

John L. Kavanagh
President
Kavanagh Corporation

Frank E. McGinty, CPA
Frank McGinty
Accountancy Corp.

Dr. Timothy O’Connor
President
Ventura Radiation Oncology Group

Robert M. Ornstein, Esq.
Senior Consultant
Vision Works Associates

Joseph D. Reid
Chairman & CEO
Capitol Bancorp Limited

Michael D. White
President
MDW & Companies

OFFICERS

Joseph D. Reid
Chairman

Andy L. Clark
President

Scott R. Andrews
Chief Executive Officer

Robert H. Rothenberg
Executive Vice President, Secretary

Greggory M. Bigger
Senior Vice President

Andrew Chung
Vice President

Paveena Luangprasert
Vice President

2005ANNUAL REPORT |15

The Value of Relationships

BANK OF TUCSON

SOUTHWEST REGION

Past successes, future possibilities

Bank of Tucson will celebrate its 10th anniversary in 2006. At this time, it is natural to look back at the achievements that helped build a great bank over such a short period of time.

The bank is on its fourth expansion of the original facility we opened in June 1996. This expansion will bring the entire team together on the main floor and allow us to provide all financial services in a professional environment.

We have expanded services for our clients to include cash management and receivables payment processing through our lock box service, and we are beginning electronic deposit capture so business clients can electronically transmit an image of their daily deposits rather than make a trip to the bank.

Our loan production office in Nogales, Arizona, strategically markets to produce growers and shippers in Mexico that supply produce to many areas of the United States. Following two years of tremendous growth, the Nogales operation will soon become a full-service office.

After many years of successfully meeting our business customers’ needs, the bank has become a leader in small business lending in Pima County. We were recently named the small Business administration “Lender of the year” for the state of Arizona. Also, we are now fully operational as an export-import bank with government guaranteed loan placements for U.S. businesses selling products internationally.

We maximize the potential of our directors, officers and employees by being leaders in developing products and relationships that will enhance our customers’ businesses.

Without our talented banking professionals and the outstanding customers we serve on a daily basis, our success would not be possible. Thanks to all of you for making 2005 another great year for Bank of Tucson.

Michael F. Hannley,President & CEO



Michael F. Hannley\|President & CEO		Founded:June 27, 1996

BOARD OF DIRECTORS

Bruce I. Ash
Vice President
Paul Ash Management Company, LLC

Slivy Edmonds Cotton
Senior Managing Director
Portico & The Edmonds Group

Michael J. Devine
Attorney at Law

Richard N. Flynn
President
Flynn & Associates

Michael F. Hannley
President & CEO
Bank of Tucson

Michael J. Harris
Associate Broker
Long Realty Company

Richard F. Imwalle
President
University of Arizona Foundation

David Jeong
CPA
Jeong, Suarez & Lizardi, P.C.

Michael L. Kasten
Managing Partner
Kasten Investments, LLC

Burton J. Kinerk
Attorney at Law
Kinerk, Beal, Schmidt,
Dyer & Sethi, P.C.

Harold H. Kitay
Commercial Developer |Owner
Whirlygig Properties, LLC

Humberto S. Lopez
President
HL Properties, inc.

Lyn M. Papanikolas
Realtor
Long Realty Company

OFFICERS

Richard F. Imwalle
Chairman

Michael J. Devine
Vice Chairman

Michael F. Hannley
President & CEO

Richard N. Flynn
Secretary

C. David Foust
Executive Vice President & CCO

Sandi L. Smithe
Executive Vice President & COO

David A. Esquivel
Senior Vice President

A. Mark Farr
Senior Vice President

Catherine C. Garcia
Vice President

Richard A. Garcia
Vice President

Richard K. Mullen
Vice President

Robert D. Placzek
Vice President

Patricia A. Taylor
Vice President

16|2005ANNUAL REPORT

The Value of Relationships

BLACK MOUNTAIN COMMUNITY BANK

SOUTHWEST REGION

Growing with our community

The past year was a solid one for Black Mountain Community Bank. We celebrated the bank’s fifth anniversary and our visibility was enhanced significantly when our office building was officially named for the bank. By year-end 2005, our bank again achieved record earnings performance.

Entrepreneurship is at the core of what we do and likewise the entrepreneurial spirit is strong in southern Nevada. In five years, we have funded a number of new businesses and many of them are now setting records of their own.

A construction company, founded in 2000 like our bank, was the recipient of one of our first commercial lines of credit. Last year, its sales exceeded $200 million. A new landscaping business, started in 2003 as a husband and wife team with a small line of credit, now has revenues of $6 million per year. Their business relationships with our bank continue to grow.

We are also actively engaged with our City government. Most of downtown Henderson is more than 40 years old and, until recently, looked its age. The City has been purchasing land around City Hall for several years, creating a redevelopment district. We have funded several construction and term loans for new office and retail buildings in the redevelopment district as well as a 52-unit condominium project adjacent to City Hall. Additionally, we sponsored the preparation of a generic set of loan documents for the City to use for one of its loan programs.

We started the bank five years ago with eight employees and seven of those founding employees are still here. That’s loyalty.

While 2005 was a milestone year for us, we believe the best years are yet to come.

Peter M. Atkinson,President & CEO

Black Mountain Community Bank | 1700 W. Horizon Ridge Parkway, Ste. 101 | Henderson, NV 89102
702-990-5900 | www.blackmountaincommunitybank.com



Founded: March 27, 2000		Peter M. Atkinson\|President & CEO

BOARD OF DIRECTORS

Kristine E. Anaya, CPA
CPA
Anaya & Company, Ltd.

Peter M. Atkinson
President & CEO
Black Mountain Community Bank

Michael J. Devine
Attorney at Law

Betty A. Kincaid
Chairman
Southwest Exchange Corporation

Charles L. Lasky
President
Lasky, Fifarek &Hogan, P.C.

Michael J. Mixer
Corporate Broker
Colliers International

Mary Colleen O’ Callaghan-Miele
Vice President & Circulations Manager
H.B.C. Publications

Phillip N. Ralston
Chief Financial Officer & Treasurer
American Nevada Company

Christopher G. Samson
President & Owner
FN Investments Inc.

OFFICERS

Charles L. Lasky
Chairman & Secretary

Michael J. Devine
Vice Chairman & Treasurer

Peter M. Atkinson
President & CEO

David S. Rennick
Executive Vice President & CCO

Dennis L. Monson
Senior Vice President

Shari A. Smith
Senior Vice President

Kathy M. Lucero
Vice President

Grenell Martin
Vice President

RaMon McBride
Vice President

Stephen E. Norris
Vice President

2005ANNUAL REPORT |17

The Value of Relationships

BRIGHTON COMMERCE BANK

GREAT LAKES REGION

Commerce and community

Our bank has excellent business relationships with the municipalities throughout Livingston County. We also sponsor, support and volunteer with numerous community agencies and nonprofits.

For example, a record $18,000 was donated to the local Gleaners Food Bank in the Birdie Day fundraiser we sponsored in November. We were honored to again be a United Way Pacesetter, as we kicked off the annual campaign with 100 percent employee participation for the ninth year in a row. The bank also joined the Hurricane Katrina relief effort when we helped support an employee’s trip to the Gulf Coast to help family and neighbors.

Our officers are actively engaged in the community, supporting and serving on several volunteer boards and organizations, such as the local school board, the United Way, community education, Rotary Club, Home Builders Association of Livingston County, Chamber of Commerce and Brighton Center for the Performing Arts.

We have significant banking relationships with the area fire department, district library, Rotary Club, County Treasurer, and township and city governments. We also have a deposit relationship with every school in the Brighton area.

We deepen these relationships by hosting customer advisory and appreciation breakfasts where we receive input from these groups and other customers on products and services we provide. We have also hosted seminars and presentations on IRA-account benefits and identity theft awareness for local homebuilder, attorney and real estate associations.

Our community involvement enhances commercial banking relationships, creating added value for all — customers, employees, board members, shareholders and the community at large.

Gary T. Nickerson Sr.,President & CEO

Brighton Commerce Bank | 8700 North Second Street | Brighton, MI 48116
810-220-1199 | www.brightoncommerce.com



Gary T. Nickerson Sr.\|President & CEO		Founded: January 8, 1997

BOARD OF DIRECTORS

Robert C. Carr
Vice Chairman
Capitol Bancorp Limited

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

Gary T. Nickerson Sr.
President & CEO
Brighton Commerce Bank

Candice G. Randolph
Executive Vice President
Randolph Custom Homes

Mitchell J. Stanley
President
Mickey Stanley & Associates

James A. Winchel
President
Colt Park Agency, Inc.

OFFICERS

Robert C. Carr
Chairman

Michael B. Corrigan
Vice Chairman

Gary T. Nickerson Sr.
President & CEO

Candice G. Randolph
Secretary

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

Sandra T. Radtke-Gerkin
Vice President

18|2005ANNUAL REPORT

The Value of Relationships

CAMELBACK COMMUNITY BANK

SOUTHWEST REGION

Relationships that last a lifetime

As we enter 2006, much attention in the financial industry has been based on the word “value.” Value can be perceived as a monetary element as well as the worthiness of an object, product or something meaningful to the end user.

“Camelback Community Bank understands the nature of my business and my needs. That understanding has evolved into a banking relationship most business owners only dream of. When I need additional services they know why, because they took the time to understand my business from the very beginning.”

Christopher M. Jennings,President, Ramsey Welding Supply, Inc.

In 2005, Camelback Community Bank created its vision statement, “relationships that last a lifetime.” The bank’s strategic planning process has been a team effort and the focus has been to stay engaged with our community and neighborhood. Camelback Community Bank supported many charitable events throughout the year, including those for some of our nonprofit clients, and others as a result of our employees’ involvement in the community. In 2005, we supported, among others:

	•		Breast Cancer Research

	•		Governor’s Office school supply drive

	•		Muscular Dystrophy Association Bowl-a-thon

	•		United Blood Services blood drive

Other highlights in 2005 included celebrating our seventh anniversary, being voted #1 inRanking Arizonafor the second year in a row, and achieving record earnings.

The addition of four new board members brings tremendous value to our loyal customers and our ongoing commitment to the community.

As our bank continues to grow, we have been given opportunities to share our vision of “relationships that last a lifetime.” We place significant value on the relationships we build, and extend our thanks to our customers and community for their continued support.

Gail E. Grace,President & CEO

Camelback Community Bank | 2777 East Camelback Road, Suite 100 | Phoenix, AZ 85016
602-224-5800 | www.camelbackbank.com



Founded: May 20, 1998		Gail E. Grace \|President & CEO

BOARD OF DIRECTORS

Shirley A. Agnos
President
Arizona Town Hall

Cord D. Armstrong, CPA
Senior Tax Manager
CBIZ Miller Wagner, LLC

Michael J. Devine
Attorney at Law

Gail E. Grace
President & CEO
Camelback Community Bank

S. Jill Hastings, J.D.
Principal
Pension Strategies, LLC

Michael L. Kasten
Managing Partner
Kasten Investments, LLC

Robert V. Lester
President
Progressive Financial Concepts

Daniel M. Lieberman, M.D.
Arizona Center for Neurosurgery

John S. Lewis
President, Western Regions
Capitol Bancorp Limited

Tammy A. Linn
Deputy Associate Superintendent
Arizona Character
Education Initiative

Susan C. Mulligan
Community Volunteer

Barbara J. Ralston
Chair
Camelback Community Bank

Dan A. Robledo
Senior Vice President &
Arizona Operations Manager
Land America Financial Group, Inc.

Kenneth Van Winkle, Jr.
Attorney at Law & Managing Partner
Lewis and Roca, LLP

OFFICERS

Barbara J. Ralston
Chair

Michael L. Kasten
Co-Vice Chairman

Dan A. Robledo
Co-Vice Chairman

Gail E. Grace
President & CEO

Shirley A. Agnos
Secretary

James A. Klussman
Executive Vice President & CCO

Timothy J. Hoekstra
Senior Vice President

Todd W. Grady
Vice President

Jennifer S. Higgins
Vice President

William F. Von Hatten
Vice President

Kelly J. Whallon
Vice President

2005ANNUAL REPORT |19

The Value of Relationships

CAPITOL NATIONAL BANK

GREAT LAKES REGION

A win-win year for the bank, employees and customers

These are challenging and exciting times for Capitol National Bank as we continue to focus on deposit growth and expanding our product and services offerings. We believe our successful implementation of enhanced banking technology will keep us on the leading edge of financial services so that we meet and exceed our customer demands well into the future.

The ongoing effort to position our bank as a community leader generated excellent exposure for the bank and our employees, as well as for many of our board members and customers. For example, our “Local Business First” marketing campaign encourages Lansing-area residents to reinvest in our community by patronizing local companies and assisting the mid-Michigan economy. Our sponsorship ofThe Greater Lansing Business MonthlyQuarterly Economic Luncheons and Annual Entrepreneurial Awards Banquet exemplifies our commitment to small and mid-sized businesses by providing useful economic information and recognition for new job creation.

We were pleased to receive the Ballentine Award from St. Vincent Catholic Charities for 2005. The award recognizes the local businesses that have helped raise awareness and funds for the St. Vincent Catholic Charities. Also, as the first major contributor to the HOPE scholarship program, we were delighted to see the successful completion of their $2.5 million campaign to help at-risk students in the Lansing School System. This program will provide two-year Lansing Community College scholarships for 500 students each year.

Our commitment to our employees, providing exemplary service for our customers, and supporting our community are the key components of the long-term strategy to keep Capitol National Bank at the forefront of the mid-Michigan financial services industry.

John C. Smythe,President & CEO



John C. Smythe\|President & CEO		Founded: November 22, 1982

BOARD OF DIRECTORS

Robert C. Carr
Vice Chairman
Capitol Bancorp Limited

Nan Elizabeth Casey
Attorney at Law
Fraser Law Firm

Charles J. Clark
President
Clark Construction Company

Paula D. Cunningham
Former President
Lansing Community College

David E. Ferguson
President
Ferguson Development, LLC

Patrick F. Hayes
President
F. D. Hayes Electric Company

Richard A. Henderson
President
Henderson & Associates, P.C.

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
Cashier — Eastern Regions
Capitol Bancorp Limited

Kelly D. Miller
Vice President — Bank
Performance Eastern Regions
Capitol Bancorp Limited

John D. O’Leary
Co-President
O’Leary Paint Company

Cristin Reid English
Chief Operating Officer
Capitol Bancorp Limited

Patricia A. Reynolds
Development Consultant
Kolt Communications, Inc.

John C. Smythe
President & CEO
Capitol National Bank

OFFICERS

Robert C. Carr
Chairman

John C. Smythe
President & CEO

Patrick F. Hayes
Secretary

John R. Farquhar
Senior Vice President

David E. Feldpausch
Vice President

Nancy J. Fox
Vice President

Lori M. Garcia
Vice President

Theodore M. Terzian
Vice President

Ronda M. Thompson
Vice President

20|2005ANNUAL REPORT

The Value of Relationships

DESERT COMMUNITY BANK

SOUTHWEST REGION

Partnering with small businesses

Desert Community Bank reported record achievements in 2005. Assets, loans, deposits and earnings all increased over the previous year through our veteran banking staff taking advantage of the opportunities available in the vibrant Las Vegas market.

One area of opportunity that we identified is the under-served Hispanic community, which is the fastest growing segment of our rapidly expanding population. Our bank’s location is convenient for serving this community.

During 2005, we hired Enrique Trevino, an experienced Spanish-speaking mortgage loan officer to serve our Hispanic clients and prospects. In addition to home loans, we feel there is also great potential in this community for business loans, construction loans and new deposits. By taking the time to understand each client’s credit needs, we are able to prudently create new opportunities for our bank.

In late 2004, Bob McKee, a former business client who had relocated to Texas, called the bank to discuss a company that uses a revolutionary carpet cleaning formula. He indicated that he intended to bring this franchise to the Las Vegas market and needed start-up financing for a truck and some other initial operating expenses. We proceeded down the path for a Small Business Administration loan and in short order the truck was ready and the new carpet-cleaning company became a reality in Las Vegas. After one year in business, his start-up operation now has three trucks that are running every day, averaging five jobs a day. The financing for the three trucks was provided by our bank.

This is how we partner with small business entrepreneurs in Las Vegas. Bob McKee is proud to tell us and others that Desert Community is his only financial institution in Las Vegas.

James W. Howard,President & CEO

Desert Community Bank | 3740 South Pecos-McLeod | Las Vegas, NV 89121-4260
702-938-0500 | www.desertcommunity.com



Founded: August 6, 1999		James W. Howard\|President & CEO

BOARD OF DIRECTORS

Robert A. Albano
President
Rinker Materials Corporation

Robert J. Andrews
Restauranteur

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

Charles L. Lasky
President
Lasky, Fifarek & Hogan, P.C.

Leland D. Pace
Managing Partner
Stewart, Archibald & Barney, LLP

Thomas A. Smith
President & CEO
Group Two, Inc.

Stephen D. Stiver
Retired President
Stiver Car Care

OFFICERS

Michael J. Devine
Chairman

Garry L. Hayes
Vice Chairman

James W. Howard
President & CEO

Charles L. Lasky
Secretary

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

Marcel M. Baker
Vice President

John J. Gentile
Vice President

Larry A. Moulton
Vice President

Michelle Scalzo
Vice President

2005ANNUAL REPORT |21

The Value of Relationships

DETROIT COMMERCE BANK

GREAT LAKES REGION

A record performance for our bank

With strong loan and deposit growth, Detroit Commerce Bank marked its seventh anniversary in 2005 with our best performance ever. Additionally, we are proud that our bank received an “Outstanding” rating from the Federal Deposit Insurance Corporation in its Community Reinvestment Act review. This achievement means that our bank is meeting and exceeding the regulatory requirements to serve a large cross section of consumers, organizations and small businesses in our market.

We have increased our staff by adding five full-time employees. It is with the dedication of our existing and new banking professionals that we are able to meet and exceed our goals. More importantly, we are exceeding the expectations of our clients.

“The expansion and success of our business would not have been possible without the assistance of Detroit Commerce Bank. With this bank, I feel as though I have my own personal banker.”

Charlie J. Grant Jr., President,ABC Transportation Inc., Detroit

We are involved in many community events and volunteer activities. In 2005, we sponsored seminars and other programs to benefit residents and organizations throughout the community. In June, for instance, we presented financial seminars to more than 80 adults and children at a local church that is a client of the bank.

We welcomed three new directors in 2005, which further strengthens our board of directors and represents the diversity of our primary market and community.

We are extremely excited about our business prospects for the future, as we grow our business with a full complement of competitively priced products and services. We will continue to build upon our success by providing the highest level of personalized customer service.

Harold G. Curry,President & CEO

Detroit Commerce Bank | 645 Griswold Street, Suite 70 | Detroit, MI 48226-4011
313-967-9700 | www.detroitcommerce.com



Harold G. Curry\|President & CEO		Founded: December 14, 1998

BOARD OF DIRECTORS

James P. Allen, Sr. Esq.
Attorney at Law
Allen Brothers, PLLC

Ralph J. Burrell
President
SymCon

Dr. Vivian L. Carpenter
President
Atwater Entertainment Associates

Harold G. Curry
President & CEO
Detroit Commerce Bank

Donald M. Davis Jr.
Vice President & Chief Officer
Human Resources Support
Health Alliance Plan

Edward Deeb
President
Michigan Business &
Professional Association

Dr. Curtis L. Ivery
Chancellor
Wayne County Community
College District

Gregory Kelser
Broadcast Analyst
ESPN, Fox Sports Net

Carmen Munoz
Chief Operating Officer
Focus Hope Enterprises, LLC

Martha K. Richardson
President
Service Marketing Specialists, Inc.

James F. Stapleton
President
B & R Consultants

Edward Tinsley
Vice President
The Bing Group

Bruce A. Thomas
President, Eastern Regions
Capitol Bancorp Limited

Neal F. Zalenko
President & CPA
VIrchowkrause & Company

OFFICERS

Bruce A. Thomas
Chairman

Harold G. Curry
President & CEO

Donald M. Davis Jr.
Secretary

Mark V. McCulloch
Senior Vice President

Joyce A. Sutton
First Vice President

Valora L. Jackson
Vice President

Mary Seaberg King
Vice President

Ryan R. Vinco
Vice President

22|2005ANNUAL REPORT

The Value of Relationships

EAST VALLEY BANK

SOUTHWEST REGION

Our bank is built on relationships

East Valley Bank has built its strong reputation on relationships. Clients are recognized by name. Vendors are encouraged to become bank customers. Community boards and networking groups are encouraged to utilize the conference room at the bank. Relationship banking truly defines our daily effort as bankers, relying on our valued clients and strategic business partners to build a bank that embodies the dynamics of our community.

“In the world of business, Multi-Graphic Arts is a small company and most of the larger banks these days really don’t give the time of day in the way of personalized service. It is very important to us to have someone at our bank to go to personally with financial requests or issues that we need resolved and East Valley Bank is the kind of bank where we can get the personalized service we need. We can call or e-mail and get in touch directly with our banker, not some “press 1 for customer service” phone system. The entire staff at East Valley Bank is very helpful and friendly.”

Stephen Seleske,Owner/President of Multi-Graphic Arts Inc.

A genuine banking relationship is built on trust. Our bankers understand our clients’ business and have adopted a proprietorial “can do” attitude when handling their business.

Despite technological advances in the industry, banking remains a people business, and the successful, committed interaction of people is the foundation of true relationship banking at East Valley Bank.

Neil R. Barna,President & CEO

East Valley Bank| 1940 North Alma School Road | Chandler, AZ 85224
480-726-6500 | www.eastvalleybank.com



Founded: June 30, 1999		Neil R. Barna\|President & CEO

BOARD OF DIRECTORS

Michael J. Devine
Attorney at Law

Michael L. Kasten
Managing Partner
Kasten Investments, LLC

John S. Lewis
President, Western Regions
Capitol Bancorp Limited

Neil R. Barna
President & CEO
East Valley Bank

OFFICERS

John S. Lewis
Chairman

Michael J. Devine
Vice Chairman

Michael L. Kasten
Vice Chairman

Neil R. Barna
President & CEO

Rita E. Leaf
Executive Vice President & CCO

Staci L. Charles
Senior Vice President

Sandra S. Zazula
Senior Vice President

Cliff L. Bartholomew
Vice President

James A. McCann
Vice President

2005ANNUAL REPORT |23

The Value of Relationships

ELKHART COMMUNITY BANK

GREAT LAKES REGION

Driven to serve Elkhart

Elkhart Community Bank completed its sixth year in business in 2005 with record earnings and substantial growth again in loans and deposits. We also finished the year with another remarkable achievement — zero employee turnover.

That achievement is even more rewarding as our clients constantly praise our employees for their friendliness and helpfulness. Not only are our employees dedicated, they are good at what they do!

We have been providing a courier service to pick up and deliver transactions for our clients since we opened in 1999, but this past year we purchased a convertible Mini Cooper automobile, featuring the bank’s logo in a modern exterior design. Our couriers enjoy driving our snazzy new car and our business clients get a kick out of seeing it cruising around the community as well.

Our staff members are committed to serving our community and our country. For example, we support student programs at Elkhart Schools, and contributed to hurricane relief efforts on the Gulf Coast. We have one employee who was a decorated fighter pilot during World War II and another who has a 25-year-old son serving in the military in Iraq.

These employees are excellent examples of the caliber of people we have working for us at Elkhart Community Bank. We take the time to greet our customers when they enter the bank. We stop what we’re doing and talk awhile and we make certain they are satisfied with the service they received.

We are driven to serve Elkhart.

Steven L. Brown,President

Elkhart Community Bank | 303 South Third Street | Elkhart, IN 46516
574-295-9600 | www.elkhartbank.com



Steven L. Brown\|President		Founded: September 9, 1999

BOARD OF DIRECTORS

Nancy B. Banks
Community Volunteer

R. Steven Bennett
President
Pilgrim International

Kenneth W. Brink
Retired

Steven L. Brown
President
Elkhart Community Bank

Robert C. Carr
Vice Chairman
Capitol Bancorp Limited

Curtis T. Hill Jr.
Attorney at Law
Elkhart County Prosecuting
Attorney Office

Richard L. Max Sr.
President & General Manager
Heart City Enterprises -
House of Herbs

Myrl D. Nofziger
President
Hoogenboom Nofziger

Brian J. Smith, CPA
President
The Heritage Group

Jack E. Welter
President
Elkhart Plastics, Inc.

OFFICERS

Robert C. Carr
Chairman & CEO

Myrl D. Nofziger
Vice Chairman & Secretary

Steven L. Brown
President

Lori A. Faltynski
Vice President

Duane S. Klein
Vice President

Vincent J. VonDerVellen
Vice President

IN REMEMBRANCE

Richard J. Jensen
Founding Director
Elkhart Community Bank

24 | 2005 ANNUAL REPORT

The Value of Relationships

FIRST CAROLINA STATE BANK

SOUTHEAST REGION

Expansion, Growth and Change

“We have grown financially and I am extremely pleased to see that this focus will be further strengthened with the appointment of Tim Taylor to the leadership position.”

David A. Parker,Founding President, Board Member and Vice Chairman

The past year has been eventful for our bank. We opened our second full-service office in Tarboro and celebrated our fifth anniversary. Loans and deposits continued a steady upward pace and I was honored to be appointed to succeed the bank’s founder, David A. Parker, who retired as president and CEO in January 2006.

I’m a career banker in Rocky Mount with more than 22 years of financial services experience. My background is in retail banking, mortgage and commercial lending. I am pleased to be part of the management team at First Carolina serving the communities in Nash and Edgecombe counties.

Rocky Mount has warmly embraced First Carolina as its hometown bank since the bank was founded in 2000. Likewise, the Tarboro community has done the same with our new office there. More than 200 people attended the grand opening in Tarboro last April and deposits grew by more than $583,000 on that one day alone. Steve Cobb has been the manager of the loan production office we opened in Tarboro in 2003, so he was the natural choice to be the manager of the full-service office. He has hired a staff of veteran Tarboro bankers and formed an advisory board composed of seven business leaders from the Tarboro community.

Our fifth anniversary celebration in November was well received by our loyal customers in Rocky Mount. We are happy and proud to be serving our local communities and we look forward to helping small and mid-sized businesses thrive. It is good to be with a bank that cares about its customers and its community.

Timothy N. Taylor,President & CEO



Founded: November 27, 2000		Timothy N. Taylor\|President & CEO

BOARD OF DIRECTORS

Samuel E. Anderson
Co-Owner
Fountain Roberson
& Anderson Insurance Agency

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

David A. Parker
Retired President
First Carolina State Bank

James E. Rabil
President
Chambliss & Rabil Contractors, Inc.

Joseph D. Reid III
Director of Bank Development
Capitol Bancorp Limited

Charles D. Smith
President & CEO
First Carolina Communications, Inc.

Dr. Randall C. Stewart
President & Physical Therapist
Carolina Physical Therapy Contractors

Timothy N. Taylor
President & CEO
First Carolina State Bank

OFFICERS

Dr. Randall C. Stewart
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

Steven M. Cobb
Vice President

John R. Johnson
Vice President

Edward G. Taylor
Vice President

2005ANNUAL REPORT |25

The Value of Relationships

FORT COLLINS COMMERCE BANK

SOUTHWEST REGION

Doing right by Fort Collins

We had a great year in 2005. Our local investors and client base have been excited since we announced plans for the bank early in the year. Interest in a new community bank was validated by our successful capital-raising effort. We raised $4 million from some 80 local investors in just two weeks.

Fort Collins Commerce Bank opened in June. We are creating relationships with business owners, professionals and entrepreneurs in Fort Collins and the surrounding area. Together we have close to 30 years in banking, including more than 20 years in bank management in Fort Collins.

Our grand opening in August was attended by more than 200 clients and prospects. We carefully planned the event so that not only would our clientele be able to tour our bank and meet our staff, but they could also enjoy great food and help a great cause. Our guests were treated to a delicious barbecue from Chimney Park Bistro, whose owners are both clients and investors in our bank. At the same time, we raised more than $1,000 with a free-will offering for the Hospice of Larimer County.

Our bank had its first profitable month in December 2005. We are growing our bank with products and services that are the right fit for our business clients, while cognizant of our responsibility to be a good business partner with our community. In the end, it is a win-win strategy for our all.

Our four pillars of success are as follows: 1) Do right by our customers; 2) Do right by our employees; 3) Do right by our shareholders; and 4) Do right by our community.

C. Gerard Nalezny,CEO

Mark A. Kross,President

Fort Collins Commerce Bank | 3700 S. College, Unit 102 | Fort Collins, CO 80525
970-204-1010 | www.fortcollinscommercebank.com



C. Gerard Nalezny \| CEO \|Mark A. Kross \|President		Founded:June 27, 2005

BOARD OF DIRECTORS

Margaret Ann Brown
Attorney
Fisher, Brown & Gunn

Rhys P. Christensen, CCIM
Broker Associate
Realtec

Thomas W. Hoogendyk
CPA
Hoogendyk & Associates

Danielle C. Korkegi
President
Cellular Junction

Mark A. Kross
President
Fort Collins Commerce Bank

C. Gerard Nalezny
Chief Executive Officer
Fort Collins Commerce Bank

Spiro Palmer
CEO
Palmer Properties/Palmer Flowers

Joseph D. Reid
Chairman & CEO
Capitol Bancorp Limited

Richard F. Spillman
CPA
Hunt, Spillman & Associates

Stephen D. Todd
President, Southwest Region
Capitol Bancorp Limited

Jack D. Vahrenwald
Attorney
Allen, Vahrenwald & Johnson

OFFICERS

Joseph D. Reid
Chairman

C. Gerard Nalezny
Chief Executive Officer
of Secretary

Mark A. Kross
President

Patricia L. McLaren
Vice President

26|2005ANNUAL REPORT

The Value of Relationships

GOSHEN COMMUNITY BANK

GREAT LAKES REGION

Service — and candy — with A smile

Relationships are the keys to Goshen Community Bank’s success. They come in all shapes and sizes. They begin and end with a smile — and perhaps a piece of homemade candy from Goshen’s Olympia Candy Kitchen.

“We recently constructed a new building and Goshen Community Bank took the time to understand the project, make suggestions and develop a financing plan that satisfied our needs.”

Rick Finnigan, CEO, Seating Technology Inc.

Customer satisfaction is a major component of a great relationship. Our employees have a passion for resolving customer needs.

“Due to our payroll being on a federal holiday, we needed to move our payroll distribution for over 600 employees forward one day. Goshen Community Bank did a great job of moving the payroll at the last minute and followed up the next day to make sure it was correct.”

Dr. Bruce Stahly, School Superintendent, Goshen School Corp.

We also have many relationships with nonprofit organizations. In 2005, the bank and our employees made contributions of time or money to 85 organizations. Being involved with nonprofits is essential if we are to be solid citizens.

“The Boys & Girls Club is appreciative of the support we receive from Goshen Community Bank. The bank gives its time, talent and treasures to help support our mission, which is unselfishly serving children, our greatest natural resource.”

Kevin Deary, CEO, Boys & Girls Club of Greater Goshen Inc.

We are partners with consumers, businesses and nonprofits. We specialize in personalized service with the fastest turnaround time of any bank in town, and, of course, the candy’s on us. We Make People Smile!

Douglas A. Johnston,President

Goshen Community Bank | 511 West Lincoln Avenue | Goshen, IN 46526
574-533-2006 | www.goshenbank.com



Founded:September 29, 2000		Douglas A. Johnston\|President

BOARD OF DIRECTORS

Robert C. Carr
Vice Chairman
Capitol Bancorp Limited

David L. Cripe
Doctor of Optometry & Senior Partner
Drs. Cripe & Stephens

Carol M. Ebersole
Retired Vice President
Corporate Development
Goshen Health Systems

Stephen L. Fidler
President
Kuert Concrete, Inc.

Christopher J. Graff
President & Chairman
Marque, Inc.

Richard A. Hetler Jr.
Vice President & General Manager
Indiana Wood Products, inc.

Gregory A. Hoogenboom
President of Development
Hoogenboom Nofziger Real Estate
Mgmt. Co., LLC

Douglas A. Johnston
President
Goshen Community Bank

Matthew J. Pletcher, CPA
Partner
Insight Business Solutions

Fred M. Ramser
Retired President
Alter-Mar Electronics

Dennis L. Sorg
President
Sorg Dodge Inc.

Douglas A. Stanley
Owner
Douglas A. Stanley, D.D.S.

Alan L. Weldy
Attorney & Partner
Yoder, Ainlay, Ulmer
& Buckingham, LLP

OFFICERS

Robert C. Carr
Chairman & CEO

Douglas A. Johnston
President

Gregory A. Hoogenboom
Secretary

Chris R. Wolfe
Senior Vice President

Lori J. Cline
Vice President

Connie O. Horvath
Vice President

Leah L. Stevens
Vice President

2005ANNUAL REPORT |27

The Value of Relationships

GRAND HAVEN BANK

GREAT LAKES REGION

Leadership begins with our board

Grand Haven Bank celebrated its 10th anniversary in 2005. Over the past decade we have earned the designation asthecommunity bank in Grand Haven.

It is with outstanding customer service, great products and committed professionals that our bank has achieved a reputation for excellence, and last year we experienced growth on both the commercial and retail sides of the bank.

Our flexibility and interest in long-term relationships allowed us to add one of the area’s premier real estate development companies as a customer in 2005. Personnel changes at the company’s previous bank caused the company to consider a change. Our banking philosophy, flexibility and long-term outlook nicely complemented the company’s goals.

Our staff is heavily involved with the community as well. After Hurricane Katrina last August, Grand Haven Bank offered to match up to $5,000 in local contributions to the relief efforts. Due to the generosity of our board members, staff and customers, we were able to raise nearly $30,000 for hurricane relief.

In 2006, Grand Haven Bank’s experienced staff is poised to build on the growth achieved in our first 10 years. Our goal is to continue the growth in earnings, assets and market share while retaining our position asthecommunity bank in Grand Haven.

Over the past two years, Grand Haven Bank has added several talented professionals to an already outstanding staff. These new employees are enabling us to focus on business development while maintaining our commitment to our existing customers. Our success has been made possible through the outstanding leadership of our Board of Directors.

Thomas A. Creswell,President & CEO

Grand Haven Bank | 333 Washington Avenue | Grand Haven, MI 49417
616-846-1930 | www.grandhavenbank.com



Thomas A. Creswell\|President & CEO		Founded:May 1, 1995

BOARD OF DIRECTORS

Jeffrey W. Beswick
Attorney at Law
Varnum, Riddering,
Schmidt & Howlett, LLP

Stanley L. Boelkins
Appraiser
Boelkins & Associates

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, P.C.

Steven L. Maas
President
Maas Asset Management, Inc.

Michael A. McKeough
President
McKeough Land Company Inc.

Calvin D. Meeusen
Certified Public Accountant
Calvin D. Meeusen, C.P.A., 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
Associate Broker
RE/MAX of Grand Haven

OFFICERS

Gerald A. Witherell
Chairman

Calvin D. Meeusen
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

28|2005ANNUAL REPORT

The Value of Relationships

KENT COMMERCE BANK

GREAT LAKES REGION

Growing personally and pprofessionally

One of our bank’s finest attributes is our employees. Their experience, professionalism and commitment to teamwork and customer service are the added value our clients demand in their banking relationship. Our employees work hard and truly care about our clients, their fellow employees and the community in which we live and work.

The foundation of our bank is built on long-term associations. Not only have our employees worked together for many years, but they have continued to nurture customer relationships developed over the last 20 years — many of which existed prior to the bank’s formation — that Kent Commerce is proud to recognize today.

We give abundantly of our time and resources to several community activities and charitable organizations, such as the Grand Rapids Youth Commonwealth, a youth outreach partnership with the City Police Department. Our commercial lender, Linda Crawford, serves on its board.

Our staff and bank always give generously to the local United Way. We supported the American Red Cross Hurricane Katrina relief effort. We sponsored a local family at Christmas through the D.A. Blodgett Home for Children, participated in a food drive for the South End Community Outreach Ministries and accepted community donations for the Toys for Tots program.

In 2005, we held two customer appreciation barbecues. On these occasions, our “family” grew as clients brought friends and associates to meet their business partners at the bank.

Through hard work and a focus on serving our clients, our bank experienced growth last year. This year, we want to accelerate that growth.

We want to grow our product delivery and client base, while enhancing the quality of service we offer clients. We are going to build on the relationships we have in the community, while we grow as individuals and as an organization.

Mark J. DeWitt,President & CEO

Kent Commerce Bank | 4050 Lake Drive SE | Grand Rapids, MI 49546
616-974-0200 | www.kentcommerce.com



Founded:January 12, 1998		Mark J. DeWitt\|President & CEO

BOARD OF DIRECTORS

James M. Badaluco, SIOR
Executive Vice President
S. J. Wisinski & Company

Paul R. Ballard
Retired President & CEO
Portage Commerce Bank

John T. Barbour
President
Central Michigan Paper Company

Robert E. Bruggink, PE
President
Moore & Bruggink, Inc.

Sharon M. Buursma
Senior Consultant
Varnum Consulting

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
Managing Partner
Calvin Meeusen Company,
CPA, PLLC

Valerie R. Overheul
President & CEO
Summit Training Source, Inc.

Bruce A. Thomas
President, Eastern Regions
Capitol Bancorp Limited

Mary L. Ursul
Senior Director of
Business Development
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

Linda S. Crawford
Vice President

2005ANNUAL REPORT |29

The Value of Relationships

MACOMB COMMUNITY BANK

GREAT LAKES REGION

Banking the way it should be...your way!

The past year was one of transition for Macomb Community Bank. Existing client relationships were tested with a complete makeover of senior management, including my transfer from Oakland Commerce Bank.

Serving on Macomb’s board since the bank’s inception allowed me the opportunity to utilize the familiarity between the board, senior management and employees already in place to ensure a smooth transition for both the bank and our customers.

The strength of Macomb Community Bank is the relationship between our customers and employees. I am pleased to announce that in spite of the many changes and with the dedication and cooperation of all involved, Macomb Community Bank successfully completed a seamless transition that maintained and emphasized the Capitol Bancorp philosophy of business which is a teamwork approach to building long-lasting beneficial relationships in the community.

Our Board of Directors is composed of prominent and award-winning members of our community who are instrumental in helping us meet the economic challenges of this market. Their experience in the business world is a source of information we draw upon to benefit our clients. Their success allows us the opportunity to help our neighbors affected most in these difficult economic times through the numerous charitable organizations we not only support financially but are actively involved in personally.

Macomb Community Bank is resolved to improving our relationship with the business community as well as the residents of Macomb County.

Community involvement, personal service and attention to detail are our priorities. We do banking the way it should be — your way — and we eagerly welcome the opportunity to work with you, your businesses and our community organizations to ensure the economic health of Clinton Township and Macomb County.

James R. Kaye,President and CEO

Macomb Community Bank | 16000 Hall Rd., Suite 102 | Clinton Township, MI 48038
586-228-1600 | www.macombcommunity.com



James R. Kaye\|President & CEO		Founded:September 18, 1996

BOARD OF DIRECTORS

Robert C. Carr
Vice Chairman
Capitol Bancorp Limited

Christina C. D’Alessandro
Vice President
Villa Custom Homes

James R. Kaye
President & CEO
Macomb Commerce Bank

David F. Keown
Certified Building Official
Washington Township

Peter J. Lucido
Attorney & Counselor at Law
Law Offices of Peter J. Lucido

Robert Pelachyk
Executive Vice President
& General Manager
Cross Huller — North America

Delia Rendon Martin
Co-Owner
Martin Enterprises

Barbara W. Rossmann
President & CEO
St. Joseph’s Mercy of Macomb

Bruce A. Thomas
President, Eastern Regions
Capitol Bancorp Limited

OFFICERS

Robert C. Carr
Chairman

James R. Kaye
President & CEO

Christina C. D’Alessandro
Secretary

Michael S. Ufford
Senior Vice President & CCO

Frank J. Buscemi
Vice President

Nicolet B. Cassidy
Vice President

Andrew G. Harper
Vice President

Deborah S. Moser
Vice President

30|2005ANNUAL REPORT

The Value of Relationships

MESA BANK

SOUTHWEST REGION

We embody the dynamics of our community through relationships

How does one define a ‘financial relationship’ between client and bank? Is it defined by longevity? Is it defined by number of accounts? What is the value proposition of a relationship? Is it set by the bank? By the client?

“Our relationship with our friends at Mesa Bank is much larger and more far-reaching than just a business arrangement. Mesa Bank epitomizes our motto — ‘Neighbors Helping Neighbors.’ They are truly partners in and supporters of our mission and scope of work through their sponsorships, financial commitment, professional expertise and financial advice.”

Bob Evans,CEO of United Food Bank in Mesa, is a client of Mesa Bank.

Mesa Bank was founded in 1998 with a premise that relationships will define who we are — as a bank, as a community leader and as individuals.Relationship Bankingis defined by our daily effort as bankers, relying on our valued clients and strategic business partners to build a bank that embodies the dynamics of our community.

Our founders recognized that true individual service creates loyalty to the bank ... that price is not the most important commodity in a banking relationship and thatRelationship Bankingis built upon the success of our clients. Employees of the bank truly believe that we make a difference in the lives of our clients. We are a resource for our clients, not only in providing financial options, but in connecting them to a vast network of other clients with expertise in many diverse industries.

Our clientele is our sales force. At Mesa Bank, our success is built on this simple statement that was created by our employees.

Neil R. Barna,President & CEO



Founded: October 20, 1998		Neil R. Barna\|President & CEO

BOARD OF DIRECTORS

Neil R. Barna
President & CEO
Mesa Bank

Michael J. Devine
Attorney At Law

Debra L. Duvall
Superintendent
Mesa Public Schools

Robert R. Evans
President
Baron Resources, Inc.

Stewart A. Hogue
Principal
SALK Management, LLC

Michael L. Kasten
Managing Partner
Kasten Investments, 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
Owner & Manager
LeBaron & Carroll LSI, Inc.

Joseph A. Tameron
CPA & Partner
Skinner, Tameron & Company, LLP

Terry D. Turk
President
Sun American Mortgage Company

James K. Zaharis
President
The Zaharis Group

OFFICERS

Stewart A. Hogue
Chairman

Robert R. Evans
Chairman Emeritus

Michael L. Kasten
Vice Chairman

Neil R. Barna
President & CEO

Rita E. Leaf
Executive Vice President & CCO

Staci L. Charles
Senior Vice President

Kevin R. Hutchings
Senior Vice President

Sandra S. Zazula
Senior Vice President & Secretary

Daniel R. Laux
Vice President

James G. LeCheminant
Vice President

Conrad B. Morin
Vice President

Richard O. Wright
Vice President

2005ANNUAL REPORT |31

The Value of Relationships

MUSKEGON COMMERCE BANK

GREAT LAKES REGION

Our new building represents success

The management and staff at Muskegon Commerce Bank look forward to moving soon into our new 12,000-square-foot, two-story headquarters building, which is on a site next to our existing office. This will gives us room to grow, while also enhancing our image as a trusted financial institution serving the Muskegon area.

In preparing to construct the new building, we applied for and received a $250,000 small business tax credit under the Michigan Brownfield Redevelopment Act of 1996.

Our bank’s depth of relationships with the local business community is illustrated in our involvement with the Muskegon Area Chamber of Commerce. Christopher L. Kelly, our chairman of the board, last year wrapped up his term as Chamber president and I joined the Chamber board as treasurer. Additionally, I serve as treasurer of the Chamber’s Investment Authority, chairman of the Chamber’s Business Hall of Fame Selection Committee and co-chair of the Chamber Building Capital Campaign.

We are supportive of nonprofit organizations in our community. Our employees contribute generously to the United Way and are active with the annual United Day of Caring. We also have representation on the Mayfest Board at Muskegon Community College.

Last summer, we capitalized on an excellent opportunity to sponsor the U.S. Navy Blue Angels’ aerial performance at the Muskegon Air Fair, which is a client of the bank. This sponsorship boosted our bank’s visibility with prospects throughout the community as the bank’s name and logo were attached to all Air Fair advertising throughout West Michigan.

So it’s up, up and away. We are in our new office and we’re really ready to fly!

Robert J. McCarthy,President & CEO

Muskegon Commerce Bank| 281 Seminole Road | Muskegon, MI 49444
231-737-4431 | www.muskegoncommerce.com



Robert J. McCarthy\|President & CEO		Founded:December 3, 1997

BOARD OF DIRECTORS

Philip J. Andrie
President
Andrie, Inc.

William C. Cooper
President
Great Lakes Jet

Ronald A. Franklin
President
Northshore Construction

Edgar W. Hunt
Retired Bank President
First of America Bank

Christopher L. Kelly
Attorney at Law
Parmenter O’Toole

Daniel J. Kuznar
Owner
Quality Tool & Stamping
Company, Inc.

Donald Martines
President
West Michigan Grinding &
Machine Co. — Ace Tooling

Robert J. McCarthy
President & CEO
Muskegon Commerce Bank

Bruce A. Thomas
President, Eastern Regions
Capitol Bancorp Limited

James Stanford Tyler
President
Tyler Sales Company, Inc.

William Vanderweele Jr.
President
Weber Lumber

OFFICERS

Christopher L. Kelly
Chairman

Daniel J. Kuznar
Vice Chairman

Robert J. McCarthy
President, CEO & Secretary

Jerry L. Bayak
Chief Credit Officer

Terri K. Swarts
Chief Operating Officer

David C. Christopher
Vice President

Brent A. McCarthy
Vice President

32|2005ANNUAL REPORT

The Value of Relationships

NAPA COMMUNITY BANK

CALIFORNIA REGION

Putting community back in banking

When stories on client accomplishments appear in the local newspaper, we like to recognize those clients by posting the news clippings in a prominent location in our bank lobby.

Recent client accomplishments included a vineyard honored as producing a “Wine of the Year”;our local bakery was featured on the cable Food Channel; and former Chicago White Sox player, Jim Landis, who is a client and shareholder, was flown to the Windy City last fall when the Sox played in the World Series for the first time since Landis’ 1959 team. Our clients are part of the Napa Community Bank family and we are genuinely proud of their achievements.

Located in the famed Napa Valley, we have many connections to the wine industry. These connections are evident in the wine case in our bank that currently displays 51 different bottles from the vineyards and wineries represented by our board members, shareholders and clients.

Our bank is the most family and business friendly financial institution in Napa. We have a great team and we take care of our clients.

A major payroll company in Napa was so impressed with our business client services and cash management product that the company convinced five other payroll companies in northern California to do business with our bank. These relationships are deep as the companies also have their general accounts with us and we process all of their direct deposits and tax payments.

We allow nonprofit organizations use of our boardroom for their monthly meetings, as well as offer them free checking. At the same time, our board members and officers serve on 23 different local nonprofit boards.

At Napa Community Bank, we value loyalty and stand by our clients. We consider them family.

Dennis J. Pedisich,President & CEO

Napa Community Bank| 700 Trancas Street | Napa, CA 94558
707-227-9300 | www.napacommunitybank.com



Founded:March 1, 2002		Dennis J. Pedisich\|President & CEO

BOARD OF DIRECTORS

Kevin S. Alfaro
Partner
G&J Seiberlich & Co., LLP

Thomas M. Andrews
Owner & CFO
Andrews & Thornley
Construction, Inc.

Geni A. Bennetts, M.D.
Medical Consulting

Charles H. Dickenson
Partner
Dickenson, Peatman & Fogarty

Jeffrey L. Epps
President
Epps Chevrolet

Betty L. O’Shaughnessy
Owner
O’Shaughnessy Estate Winery

John R. Pappas D.D.S., M.D.
Oral & Maxillo-Facial Surgery

ADVISORY DIRECTORS

Scott R. Andrews
President, California Region
Capitol Bancorp Limited

Joseph P. Cristiano
Chairman
The MCM Group

William H. Dodd
Napa County Supervisor

Douglas W. Hill
Vineyard Manager
Oak Knoll Farming, Inc.

Paul J. Krsek
Managing Partner
K & A Asset Management

Harold D. Morrison
President
Bridgeford Flying Service

Dennis J. Pedisich
President & CEO
Napa Community Bank

Salvador S. Ramos
Vineyard Supervisor
Jaeger Vineyards

OFFICERS

Betty L. O’Shaughnessy
Chair

Geni A. Bennetts, MD
Vice-Chair

Dennis J. Pedisich
President & CEO

Charles H. Dickenson
Secretary

Richard W. Hemming
Executive Vice President & CCO

James A. Barrett
Vice President

Vincent R. Goetz
Vice President

Joen M. McDaniel
Vice President

Perry I. Teaff
Vice President

2005ANNUAL REPORT |33

The Value of Relationships

OAKLAND COMMERCE BANK

GREAT LAKES REGION

Providing banking solutions

Oakland Commerce Bank has been helping entrepreneurs, businesses and consumers in Oakland County grow and prosper since 1992. Our experienced and dedicated staff offers swift and personalized service which, combined with local decision-making, have been the hallmarks of our bank for nearly 14 years.

We continue to expand our products and services to better serve our clientele. For example, our bank last year earned the prestigious Preferred Lender Program status with the U.S. Small Business Administration (SBA) and closed our first SBA loans, helping several small business entrepreneurs succeed in reaching their growth goals.

Our bank reported strong earnings in 2005. At the same time, we strengthened our staff with the addition of several experienced professionals to better prepare us to meet all challenges for years to come.

In recent years, our management team has made a commitment to rededicate the bank to the community by sponsoring meaningful, high-profile charitable events that benefit deserving children and families throughout southeastern Michigan. Our community involvement was evident last year with our support of two such fund-raisers on popular contemporary radio stations. These sponsorships are introducing our bank to a whole new audience as we increase our bank’s visibility in the community.

I am one of several staff members to join the bank in 2005 as Jim Kaye transitioned to Macomb Community Bank. My career spans more than 30 years in Farmington and Oakland County. I look forward to working with our staff and board as we build on our tradition of providing outstanding service. New ideas and new team members will allow our bank to build on our existing relationships and add new ones.

Robin C. Naudi,President & CEO

Oakland Commerce Bank | 31731 Northwestern Highway | Farmington Hills, MI 48334
248-855-0550 | www.oaklandcommerce.com



Robin C. Naudi\|President & CEO		Founded:July 7, 1992

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
Tony Angelo Cement Construction Co.

Jeffrey L. Hauswirth
CPA, CVA, President
Jenkins, Magnus, Volk & Carroll, P.C.

James R. Kaye
President & CEO
Macomb Community Bank

David F. Lau
Lau & Lau Associates, LLC

Jeffrey M. Leib
President
Law Offices of Jeffrey M. Leib

Robin C. Naudi
President & CEO
Oakland Commerce Bank

Julius L. Pallone
President
J. L. Pallone Associates

Francine Pegues
Regional Sales Director
Blue Cross Blue Shield of Michigan
Southeast Region

OFFICERS

Michael J. Devine
Chairman

Robin C. Naudi
President & CEO

James F. Miller
Vice President & Secretary

Thomas K. Perkins
Senior Vice President, CLO

Stephen M. Henry
First Vice President, CCO

Michael W. Nolan
Vice President

34|2005ANNUAL REPORT

The Value of Relationships

PARAGON BANK & TRUST

GREAT LAKES REGION

Promoting camaraderie, providing creative solutions

Our bank’s 15th anniversary in September featured a week long celebration for clients and guests. In addition to daily prize drawings and an open house, we ran a successful Certificate of Deposit special that generated $9 million in deposits from mostly new clients. We are proud of those relationships that have been built over time and we paid tribute to our long-time clients and investors during the anniversary celebration.

As an established community bank, we strive to be creative in customizing our product delivery and providing effective solutions to the financial needs of our clients. We are proud to be full partners with our community. Each spring, for example, we participate in and support the Holland Tulip Festival, which is one of the most popular community events in Michigan.

Employee camaraderie is also strong. During the first quarter, a group of employees formed teams to see who could lose the most weight over a 13-week period. This focus on fitness benefited each individual and the teamwork further enhanced employee morale.

We support the ministries at the Holland Rescue Mission by cooking and serving meals. Last summer, a group of 15 employees volunteered to help build five homes for Habitat for Humanity. In August, we also took part in America’s Night Out Against Crime, which was an excellent opportunity to market our bank while standing tall in support of a strong community. In total, we provided financial support to 36 different organizations in our community.

Once again, our bank proudly reported 100 percent employee participation in the annual Greater Ottawa County United Way campaign. We helped kick off the campaign by fielding a team for the United Way Day of Caring in September.

We have bolstered our team with dedicated professionals and we now aim to capitalize on our good community image by focusing on growth.

Randall R. Smith,President & CEO

Paragon Bank & Trust | 240 East 8th Street | Holland, MI 49423
616-394-9600 | www.paragonbank.com

Trust & Investment Division 616-394-9055



Founded:September 24, 1990		Randall R. Smith\|President & CEO

BOARD OF DIRECTORS

Dr. Robert J. Bates
Director Emeritus | Physician
Western Michigan
Urological Assoc., P.C.

Charles A. Brower
CPA & Partner
DeLong & Brower, P.C.

Scott Diepenhorst
Principal
SD & Associates, Inc.

Paul Elzinga
Chairman & Director
of Business Development
Elzinga & Volkers, Inc.

Michael P. Haverdink
President
Ottawa Kent Insurance Agency, Inc.

Jeffery K. Helder
Attorney at Law
Cunningham Dalman, P.C.

Lee W. Hendrickson
Chief Financial Officer
Capitol Bancorp Limited

Grant M. Kasten
President
Kasten Insulation Services, Inc.

Lawrence D. Kerkstra
Chairman of the Board
Kerkstra Precast, Inc.

Scott G. Kling
President, Trust & Investments Division
Paragon Bank & Trust

Leonard Maas
President
L & M Maas Investments, LLC

Mitchell W. Padnos
Executive Vice President
Louis Padnos Iron & Metal Company

Henri P. Paterson
Associate Broker & Partner
Woodland Realty, Inc.

Richard H. Ruch
Director Emeritus

Randall R. Smith
President & CEO
Paragon Bank & Trust

Richard G. Swaney
Attorney at Law
Swaney & Thomas, P.C.

Ned B. Timmer
President
T2 Communications

Robert J. Trameri
Director Emeritus | Retired Chairman
Paragon Bank & Trust

Barry L. Werkman
Vice President of Finance
Hope College

OFFICERS

Richard G. Swaney
Chairman

Charles A. Brower
Vice Chairman & Secretary

Randall R. Smith
President & CEO

Scott G. Kling
President, Trust & Investments Division

C. Steven DeLoof
Vice President

M. Jane Riemersma
Vice President

Alan K. Yamaoka
Vice President

2005ANNUAL REPORT |35

The Value of Relationships

PEOPLES STATE BANK

SOUTHEAST REGION

In the heart of Georgia

Peoples State Bank proudly joined the Capitol Bancorp family of community banks last April when Capitol acquired a majority interest in our established bank, which is located near the geographical center of Georgia in the City of Jeffersonville in Twiggs County. This investment provides a platform for additional growth opportunities for Capitol in our state, while providing our customers with a broader menu of banking products and services.

Our affiliation with Capitol is a natural fit as we have the same goals and a shared vision that include a strict attention to service and building lasting relationships with our customers. One such relationship is with Wetherington Farms, a father-and-son partnership with approximately 1,500 acres under cultivation. Wetherington Farms is among the largest and most technologically innovative farming operations in the country. It has been an agribusiness pioneer for more than 35 years, and we are proud to be servicing the banking needs of this exemplary organization.

The farm produces tobacco, peanuts, wheat, and other grain crops in rotation throughout the year. Moreover, the farm maintains a commercial greenhouse business that grows and supplies seedlings of various varieties to local farmers and producers. Wetherington Farms was founded in 1969 by Bobby Wetherington who recently joined Peoples State Bank’s board of directors. In addition to being a farmer, he is also a retired bank president and FDIC examiner. His expertise is proving to be a valuable resource for our board.

Like our sister banks, Peoples State Bank is truly a community bank. We enjoy a friendly, courteous and businesslike relationship with our customers. And we’re glad to be a part of the growing Capitol Bancorp family.

Steven D. Watts Jr.,President

Peoples State Bank | 207 Main St. | Jeffersonville, GA 31044
478-945-3262 | www.psbjeffersonville.com



Steven D. Watts Jr.\|President		Founded: January 1, 1934

BOARD OF DIRECTORS

B. Rabun Faulk
Attorney At Law

Charles R. Greene
Owner
Allentown Chip Company, Inc.

Charles B. Hill
President
Hill Logging, Inc.

A.T. Land Jr.
President & CEO
Four County Bancshares, Inc.

James Lantz Rogers
Retired

Steven D. Watts Jr.
President
Peoples State Bank

Bobby G. Wetherington
Owner
B G Wetherington Farms LLP

OFFICERS

A. T. Land Jr.
Chairman

B. Rabum Faulk
Vice Chairman

Steven D. Watts Jr.
President

Ruth F. Arnold
Chief Operations Officer
& Secretary

Richard V. Everly
Executive Vice President

36|2005ANNUAL REPORT

The Value of Relationships

POINT LOMA COMMUNITY BANK

CALIFORNIA REGION

The Community Bank in Point Loma

We celebrated our first anniversary in August and exceeded all loan and deposit goals for the year. We added an experienced mortgage loan officer in July and are seeing positive results in our relationship with Amera Mortgage. After our first full year in business, we can truly say that we have brought community banking back to Point Loma.

Among the community events we sponsored in 2005 were: Point Loma Summer Concert Series, Point Loma Cultural Fair, Day at The Docks, Point Loma Little League, The Injured Marine Semper Fi Fund Benefit Comedy Night, The Portuguese Festival and Crab Feast.

Our employees serve in volunteer positions with Point Loma Association, the Peninsula Chamber of Commerce, the Point Loma Rotary Club, Coastal Tritons Pop Warner Football Team, STARZ Lacrosse League, Saint Augustine High School, High Tech High, Peninsula YMCA, Combined Health Agencies and the Parkinson’s Disease Association.

In our community partnership with Point Loma High School, we provided on-the-job training for two high school seniors who worked at the bank as interns. Upon completion of the program, one student was hired by the bank as a part-time customer service representative.

We’re extremely proud of our staff for having 100 percent participation in the recent United Way campaign in San Diego.

The management and staff of Point Loma Community Bank view 2006 as a year of great opportunity and growth. We are confident that we will exceed all our goals. We will continue to provide a working environment and customer service that is quite simply “the best” in community banking.

We are the “community bank” in Point Loma.

Anthony D. Calabrese Sr.,President

Point Loma Community Bank | 1350 Rosecrans Street | San Diego, CA 92106
619-243-7900 | www.pointlomacommunitybank.com



Founded: August 2, 2004		Anthony D. Calabrese Sr.\|President

BOARD OF DIRECTORS

Scott R. Andrews
President, California Region
Capitol Bancorp Limited

Gregg W. Beaty
D.M.D.

Anthony D. Calabrese Sr.
President
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
Real Estate Broker & President
Professional Property Management

John S. Lewis
President, Western Regions
Capitol Bancorp Limited

Julius S. Paeske Jr.
President
Commercial Facilities, Inc.

Mark A. Winkler
Broker Associate
Prudential Realty

OFFICERS

John S. Lewis
Chairman

Anthony D. Calabrese Sr.
President

Gary A. Housman
Executive Vice President & Secretary

Hector Zatarain
Executive Vice President

Millie M. McKibbin
Vice President

Leticia Trujillo
Vice President

Anthony D. Calabrese Jr.
Vice President

2005ANNUAL REPORT |37

The Value of Relationships

PORTAGE COMMERCE BANK

GREAT LAKES REGION

Victories amid a challenging year

In the face of significant challenges throughout 2005, we are proud to report another successful year with many new milestones. We achieved record highs in total assets, total loans and earnings.

We also fortified our staff with a number of key additions. The quality and commitment of our team has never been more evident than when we successfully implemented enhanced banking technology in September 2005. We thank our employees who made significant efforts to ensure a smooth transition.

“We’ll go the extra mile for our customers — first-class service, a kind word and a smile every day, guaranteed!”

Gena Hovious,Head Teller

Our Small Business Administration (SBA) lending activities continued to gain momentum, providing new and current customers with access to enhanced programs and terms that would not otherwise have been available. Within our market area, we were among the leaders in terms of SBA loan originations and total dollar amount.

We generated favorable results in our trust and investment services, which we introduced in 2004. Our customers appreciate the opportunity to expand their relationship with a trusted financial advisor. We anticipate continued growth in our bank’s overall performance from the contribution of wealth management services.

The commitment of our staff and board members to the community has been a mainstay of our organization since its founding in 1988. We actively pursue new opportunities to help our community maintain its standing as a great place to live and work.

We look forward to the challenges of providing our community with the best in financial services as we continue to set new records.

Dennis J. Kuhn,President & CEO

Portage Commerce Bank | 800 East Milham Road | Portage, MI 49002
269-323-2200 | www.portagecommerce.com



Dennis J. Kuhn\|President & CEO		Founded: May 2, 1988

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, M.D.
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, M.D.
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, Ph.D.
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
Senior Vice President & CCO

John M. Crandle
Senior Vice President

James V. Lunarde
Senior Vice President

Kenneth R. Blough
First Vice President

Roy L. Dangel, Jr.
First Vice President

Kimberlee M. Ferris
First Vice President

Cheryl M. Germain
First Vice President

Carol L. Ludlow
Vice President

Beth A. Wright
Vice President

Susan M. Wright
Vice President

38|2005ANNUAL REPORT

The Value of Relationships

RED ROCK COMMUNITY BANK

SOUTHWEST REGION

Accelerating efforts to give back

As a way of expressing our appreciation for five years of business support from the community, the Red Rock Community Bank team dedicated a good part of 2005 to returning the favors.

In January, the employees donated $1,000 that was matched by the bank to the tsunami relief effort in Sri Lanka organized by bank client Dawn McClellan, DDS. She is the president of Children’s Dental Care Clinic international, a nonprofit organization that operates a dental clinic in Sri Lanka. Later in the year, after Hurricane Katrina battered the Gulf Coast, Red Rock contributed to the American Red Cross disaster relief fund.

In May, the bank donated $25 savings bonds to more than 20 students, teachers and volunteers for their scholastic achievements and contributions to schools and the community at the Summerlin Children’s Forum Evening of Excellence.

In a year-long project, the bank adopted the Gene Ward Elementary school, a pre-K-2 school in a distressed section of central Las Vegas. Beginning last spring, the bank raised money and requested donations from clients and employees to buy supplies and equipment for the school. Additionally, the bank funded a storage shed for gardening tools, a canopy for an outside lunch area, and a teachers’ appreciation event. A Thanksgiving food drive generated $1,200 for the Women’s Development Center where I serve as a member of the board of directors.

Finally, in December we donated phone cards to the Family support unit at Nellis air Force Base for distribution to troops in Iraq and Afghanistan so that the soldiers might be able to call home during the holiday season.

We hope that our gifts will show the community just how grateful we are for its business support.

Thomas C. Mangione,President & CEO

Red Rock Community Bank | 10000 W. Charleston, Suite 100 | Las Vegas, NV 89135
702-948-7500 | www.redrockcommunity.com



Founded: November 29, 1999		Thomas C. Mangione\|President & CEO

BOARD OF DIRECTORS

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

James A. Harris
Vice President
Brown & Brown Insurance

Richard Hollander
President
Hollander Capital Management, Inc.

Charles L. Lasky
President
Lasky Fifarek & Hogan, P.C.

Thomas C. Mangione
President & CEO
Red Rock Community Bank

Lori A. Marrs
Owner
Hansen Marrs Financial Group, LLC

Fredrick P. Waid
Of Counsel
Hutchison & Steffen

J. Bruce Wiggins
President
Strategic Medical Management

OFFICERS

Michael J. Devine
Chairman

Thomas C. Mangione
President & CEO
Vice-Chairman

Charles L. Lasky
Secretary

Brian W. Astle
Executive Vice President & CCO

2005ANNUAL REPORT |39

The Value of Relationships

SOUTHERN ARIZONA COMMUNITY BANK

SOUTHWEST REGION

Involved in our community

At Southern Arizona Community Bank, relationships can begin with an act of kindness, a firm handshake or getting involved in our community through local organizations that enhance the quality of life. Our customers have told us repeatedly that one of the main reasons they bank with us is because of the meaningful role we hold in our community.

In building relationships, we believe people can accomplish more by working together than by working separately. Building long-term, meaningful relationships requires hard work. Loyalty, sincerity, enthusiasm and cooperation are required. We strive to have our customers know as many of our employees as possible to further enhance the relationship.

Here are five successful relationships from the past year:

•		Our bank is financing a new 7,000-square-foot addition for Goodwill Industries, a long-term client of ours.

•		We are assisting the Last Alarm Foundation, which represents more than 300 retired firefighters, in the restoration of a 1954 antique fire truck to be used as a hearse for firefighter funerals.

•		Our bank was featured in a new non-fiction book entitled “Forged By Fire: The Devastation and Renewal of a Mountain Community.” The book details our bank’s continuing involvement in the rebuilding of Mt. Lemmon communities after the devastating wildfire during the summer of 2003.

•		We sponsored more than $1 million in down-payment assistance for low-income housing through the Federal Home Loan Bank.

•		We made contributions to over 30 separate nonprofit organizations with a focus on helping children, the handicapped and impoverished citizens, so they might have a more meaningful and productive life.

At Southern Arizona, we know community banking. We know our customers and our customers know us. This is our successful formula for building lasting relationships.

John P. Lewis,President & CEO

Southern Arizona Community Bank | 6400 North Oracle Road | Tucson, AZ 85704
520-219-5000 | www.southernarizonabank.com



John P. Lewis\|President & CEO		Founded: August 17, 1998

BOARD OF DIRECTORS

William R. Assenmacher
President
T. A. Caid Industries, Inc.

Jody A. Comstock, M.D.
Physician & Owner
Skin Spectrum

Michael J. Devine
Attorney At Law

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
Levy Development, Inc.

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.

James M. Sakrison
Principal & Attorney At Law
Slutes, Sakrison & Hill, P.C.

Jean M. Tkachyk
CFO
University Physicians Healthcare

Paul A. Zucarelli
Principal
CBIZ, Gordon, Zucarelli & Handley Insurance, Ltd.

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

James G. Loane
Vice President

Mindy C. Webb
Vice President

40|2005ANNUAL REPORT

The Value of Relationships

SUMMIT BANK OF KANSAS CITY

MIDWEST REGION

Welcome to the lost art of relationship banking

In November 2005, with customer and shareholder support, Summit Bank of Kansas City launched eastern Jackson County’s newest, and what we think is the best, community bank! With the best local bankers in the market on our new team, we look forward to re-introducing our community to the lost art of true relationship banking.

Our shareholder base includes approximately 150 local investors, each with a vested interest in the success of their bank. We are also fortunate to be strategically located in the epicenter of a thriving market experiencing significant commercial and residential growth.

“I continue to be excited about the unlimited potential of Summit Bank of Kansas City. The local board of directors and staff are a virtual who’s-who in eastern Jackson County. Their well-established relationships in the community are a magnetic force in serving the needs of our customers.”

Carson Ross,Bank Director

Each associate certainly understands that the most important thing we can earn from our customers is their ongoing trust as we continue to build solid, mutually beneficial financial relationships. Consequently, we have embracedRelationship Focusas one of three primary local core values.

Involvement in our community is not enough. Our bankers believe our civic responsibility is to provideCommunity Leadershipwherever appropriate. Because of this high-level visibility, our bank enjoys additional credibility envied by other financial professionals in our market.

Collegial Integrityprovides the rare and vibrant chemistry that is clearly the result of embracing a shared vision. Summit Bank of Kansas City is perfectly positioned to become a high performing member of the Capitol Bancorp family.

Richard L. Viar,President

Summit Bank of Kansas City | 1650 N.E. Grand, Suite 100 | Lees Summit, Missouri 64086
816-251-9000 | www.summitbankofkc.com



Founded:November 18, 2005		Richard L.Viar\|President

BOARD OF DIRECTORS

Jack A. Accurso
Chairman
American Foodservice Co.

Carl L. Chinnery
Attorney
Chinnery Evans & Nail

William W. Coates
President
Billy Goat Industries Inc.

Roger L. Fender, DDs
President
Fender Family Dentistry

Robert F. Glaser
General Manager
Residences of Kirkwood

Harlan L. Limpus
President
Winterstone Golf Course

Kurt D. Pycior
President
Froehlich Pycior Companies

Stanley E. Ricketts
President, Midwest Region
Capitol Bancorp Limited

Joseph D. Reid
Chairman & CEO
Capitol Bancorp Limited

Carson Ross
Former Representative
State of Missouri

Diane J. Seif
President
DVA Enterprises, Inc.

Steven M. Silverstein, MD
President
Silverstein Eye Centers

Richard L. Viar
President
Summit Bank of Kansas City

OFFICERS

Joseph D. Reid
Chairman

Richard L.Viar
President

Phillip W. McElhaney
Executive Vice President
CCO & Secretary

Vicki L. Henderson
Senior Vice President & COO

41 | 2005ANNUAL REPORT

The Value of Relationships

SUNRISE BANK OF ALBUQUERQUE

SOUTHWEST REGION

New leadership, renewed emphasis on community

I am happy and proud to join the Sunrise Bank of Albuquerque team of seasoned bankers as president and CEO. As a 25-year banker, I have spent the past 15 years of my career in Albuquerque. I am looking forward to working with the employees and the board of directors to build on the success of our bank. We have also recently added two new board members. Annette Arrigoni is an account executive with Berger Briggs Real Estate and Insurance and W. E. “Bud” Davis is a former president of the University of New Mexico.

In May, we opened a new office on Albuquerque’s fast-growing northeast side. A grand opening at the new office was attended by 150 customers, prospects and local businesses. Cecil Irvin is the manager of this new location, which we believe will contribute significantly to our bottom line in the years to come.

Our employees are committed to being involved in our community. Last year, we participated in the Walk to Cure Diabetes in support of the Juvenile Diabetes Research Foundation. We also are involved in supporting two elementary schools that the bank “adopted” in 2005. We helped out at a Halloween costume contest, spelling bees and literacy projects. Board member Todd Sandoval partnered with the bank in buying calculators for each student in grades 3-5. At Christmas, employees and customers donated funds to buy an entire truckload of gifts for deserving families at the schools.

Our first United Way campaign took place in 2005, resulting in 100 percent participation by our employees.

We believe our dedication to providing excellent customer service, coupled with our enhanced emphasis on community involvement, will benefit our bank.

Steven A. Marcum,President & CEO

Sunrise Bank of Albuquerque | 225 Gold SW | Albuquerque, NM 87102
505-244-8000 | www.sunrisebankabq.com

Alameda Office | 4904 Alameda Blvd., NE, Bldg. B | Albuquerque, NM 87113
505-797-0527



Steven A. Marcum\|President & CEO		Founded: April 6, 2000

BOARD OF DIRECTORS

Annette Arrigoni
Account Executive
Berger Briggs Real Estate
& Insurance, Inc.

Turner W. Branch
President
Turner W. Branch, P.A.

William E. Davis
Retired Former President
University of New Mexico

Helen A. Elliott
CPA
Elliott, Pohlman & Co., CPA’s, PC

E. Gary Fichtner
President
Esthetic Dental Arts, Inc.

Steven A. Marcum
President & CEO
Sunrise Bank of Albuquerque

Ronald K. Sable
President
Concord Solutions Ltd.

Todd A. Sandoval
President
Sandia Office Supply, Inc.

Stephen D. Todd
President, Southwest Region
Capitol Bancorp Limited

Janis K. Wainright
Executive Vice President
Sunrise Bank of Albuquerque

OFFICERS

Stephen D. Todd
Chairman

Ronald K. Sable
Vice Chairman

Steven A. Marcum
President & CEO

Janis K. Wainright
Executive Vice President & COO

Conni L. Jones
Senior Vice President & Secretary

Antoinette E. Creel
Vice President

Ronald B. Garcia-Smith
Vice President

Cecil R. Irvin
Vice President

42|2005ANNUAL REPORT

The Value of Relationships

SUNRISE BANK OF ARIZONA

SOUTHWEST REGION

Commitment to our community

The hard work of the staff at sunrise Bank of Arizona resulted in increased earnings for our bank in 2005. We have created a professional and enjoyable environment so that employees are empowered to make prompt decisions and customers find pleasure in working with Sunrise Bank of Arizona.

We continue to strongly emphasize community involvement in both Phoenix and Scottsdale. During the summer, four members of our loan staff were involved in a Valley of the Sun Habitat for Humanity home-building project in South Phoenix. Habitat volunteers and members of low-income families were working side by side building 93 affordable homes in the new housing development.

The bank also participated in the Arthritis Foundation’s Salute to Summer fundraiser in Scottsdale that netted $107,000 to send children with juvenile arthritis to summer camp near Prescott.

Four employees volunteered at the Scottsdale Library for the summer reading program. The bank supported the program by supplying each student in the program with a book bag and a pizza and sub party at the end of the program.

In December, the bank helped a Boy scout in his quest to become an Eagle scout. The teen, who is the nephew of one of our employees, held a car wash to raise a total of $300 to buy four 40-pound turkeys and side dishes to feed the more than 250 homeless people who were staying at a shelter in downtown Phoenix. He also set up a box in our Scottsdale office to collect donations.

At Sunrise Bank of Arizona we emphasize our community service, while at the same time financing local economic development that benefits all of us.

Michael S. Morano,President & CEO

Sunrise Bank of Arizona | 4350 E. Camelback Rd., Suite 100A | Phoenix, AZ 85018
602-956-6250 | www.sunrisebankofarizona.com

Scottsdale Office | 6263 North Scottsdale Rd., Suite 100 | Scottsdale, AZ 85250
480-624-2600



Founded: December 16, 1998		Michael S. Morano\|President & CEO

BOARD OF DIRECTORS

Michael R. Allen
President
Sureway Properties

Thomas W. Beal
Principal & Owner
Beal Insurance Inc.

Michael J. Devine
Attorney At Law

Richard E. Garcia
President & Designated Broker
Garcia Realty Advisors, Inc.

Michael L. Kasten
Managing Partner
Kasten Investments, LLC

John S. Lewis
President, Western Regions
Capitol Bancorp Limited

Glen M. Lineberry
Director
Bentley Gallery

Richard Lustiger
General Counsel
Harkins Theaters

Michael S. Morano
President & CEO
Sunrise Bank Of Arizona

Debbie Tracy
President
Tracy’s Automotive, Inc.

OFFICERS

John S. Lewis
Chairman

Michael J. Devine
Vice Chairman

Michael S. Morano
President & CEO

Kathleen M. King
Secretary

Joseph F. Pinter
Executive Vice President

Tyrone D. Couch
Vice President

Mark C. Handgis
Vice President

Cynthia J. Heaps
Vice President

Mary S. Madison
Vice President

Kevin L. Sellers
Vice President

Rickard A. Strom
Vice President

David W. Tracy
Vice President

2005ANNUAL REPORT |43

The Value of Relationships

SUNRISE BANK OF SAN DIEGO

CALIFORNIA REGION

Taking care of business

“Take care of our clients, do the right thing, and the numbers will take care of themselves.” Our mission statement proved true in 2005 as Sunrise Bank of San Diego continues to provide aBrighter Way of Banking.The Bank had another record earnings year, while increasing our loan portfolio by 26 percent.

This success is a direct outcome of our efforts to build relationships with each of our customers and by reaching out to the community.

In 2005, senior officers at the bank served on boards for Home Start and the San Diego Autism Society. Several other nonprofits were also supported including San Diego Scottish Rite, Polinsky Foundation and Lymphoma and Leukemia Foundation. In particular, we are extremely proud of our direct involvement with the relocation to San Diego of a Gulf Coast family uprooted by Hurricane Katrina.

Recognition through the CORE Award process was awarded by peers to bank employees Kimberly McDougal and Suzanne Gregory. The respect and trust we show each other as employees translates to our client relationships.

“The senior management team at Sunrise Bank of San Diego was extremely persistent and creative in helping me structure and close a very complicated business and property transaction. Our relationship has continued forward as they help me grow my business through handling my deposits and merchant services.”

Mathew Gordon, Owner,Aztec Appliance

We will continue to direct our energy and enthusiasm to adding value to our customers and to building solid relationships in our community.

Randall S. Cundiff,President & CEO

Sunrise Bank of San Diego | 4570 Executive Drive, Suite 110 | San Diego, CA 92121
858-625-9050 | www.sunrisebanksd.com



Randall S. Cundiff\|President & CEO		Founded: January 11, 2001

BOARD OF DIRECTORS

Scott R. Andrews
President, California Region
Capitol Bancorp Limited

Richard A. Byer
President
Bycor General Contractor

Craig V. Castanos
Owner
Craig S. Castanos, Cpa

Randall S. Cundiff
President & CEO
Sunrise Bank of San Diego

John D. Frager
President & CEO
Grubb & Ellis | BRE Commercial

Michael R. Labelle
Senior Director
Cushman & Wakefield

John S. Lewis
President, Western Regions
Capitol Bancorp Limited

John F. Mccoll
Co-Owner & Treasurer
Trinity Housing Group

Ronald D. McMahon
President
McMahon Development Group, LLC

John M. Rooney
CEO
Torrey Financial Group

Elizabeth K. Strom
Leasing Director
Equity Office Properties Trust

OFFICERS

John S. Lewis
Chairman

Randall S. Cundiff
President & CEO

Suzanne K. Gregory
Executive Vice President
CCO & Secretary

Gregory S. Fletcher
Vice President

Joseph L. Kennedy
Vice President

Michael H. Markie
Vice President

44|2005ANNUAL REPORT

The Value of Relationships

VALLEY FIRST COMMUNITY BANK

SOUTHWEST REGION

The power of partnership

At Valley First Community Bank 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.

Coupled with that operating philosophy, we are also always looking for creative ways to give back to our community. That focus led us to develop ourSpecial Program for Not-For-Profit Organizations,which is a unique package of free products and services that is tailored to meet the specific needs of our community’s not-for-profit groups.

We also support our community by serving on boards and committees of various organizations and volunteering our time at events. In 2005, our team members invested over 1,000 volunteer hours in various organizations within our community.

“Our relationship with Valley First is amazing. Their special program for not-for-profits has saved us thousands of dollars in service charges. My staff loves to go to the bank because everyone there warmly greets them and genuinely gives them outstanding service. The bank also supports all of our events and activities with both dollars and volunteers. It’s the best banking relationship we’ve ever had!”

Jeffrey Battle, President & CEO,Scottsdale Training and Rehabilitation Services

Being able to assist the many not-for-profit organizations in our community with creative products and personal support is relationship banking at its finest and enhances the quality of life in our community.

The spirit that drives our team to find creative solutions for all of our customers propelled our bank to record growth and earnings in 2005. We look forward to continuing to be a positive force in our community in 2006.

Judith R. Egan,President & CEO

Valley First Community Bank | 7501 E. McCormick Parkway, North Court | Scottsdale, AZ 85258
480-596-0883 | www.valleyfirstbank.com



Founded: June 30, 1997		Judith R. Egan\|President & CEO

BOARD OF DIRECTORS

Sam Kathryn Campana
Vice President & Executive Director
National Audubon Society, Inc.

Marilyn D. Cummings
Realtor
Russ Lyon Realty Company

Michael J. Devine
Attorney At Law

Judith R. Egan
President & CEO
Valley First Community Bank

William R. Fitzpatrick
CPA
Hein & Associates, LLP

Steven M. Goldstein
Attorney At Law
Sacks, Tierney, P.A. Lawyers

Michael L. Kasten
Managing Partner
Kasten Investments, LLC

Stewart Larsen
Broker & Managing Partner
Holmes-Larsen Auction Marketing

Gordon D. Murphy
Retired Executive Vice President
Arizona Bankers Association

Eileen S. Rogers
President
Allegra Print & Imaging

Harry J. Spieker
Owner
The Spieker Group

Patricia B. Ternes
First Vice President
RBC Dain Rauscher Incorporated

OFFICERS

Gordon D. Murphy
Chairman

Michael J. Devine
Vice Chairman

Marilyn D. Cummings
Secretary

Judith R. Egan
President & CEO

Roni M. Grodnick
Executive Vice President & CCO

Nancy E. Selby
Executive Vice President

Cheryl L. Degroot
Vice President

Gail L. Hitt
Vice President

Daniel R. Klenske
Vice President

Michele J. Yates
Vice President

2005ANNUAL REPORT |45

The Value of Relationships

YUMA COMMUNITY BANK

SOUTHWEST REGION

Unexpected generosity

The staff and customers at Yuma Community Bank celebrated the bank’s fifth anniversary this past December. The joy of achieving this milestone was especially satisfying as we relocated to our new bank facility, which at 9,000 square feet more than doubled our office space. As requested by customers, we accommodated them with drive-though banking at our new location.

Yuma Community Bank was founded with the promise of providing outstanding customer service in the most convenient, professional, friendly and caring manner possible. Our dedication to hospitality and efficient service has been the hallmark of our bank since inception and will become even more apparent in our new building.

During this past year, we took the opportunity to differentiate our bank with a new advertising campaign using our bank board members and staff. We showcase our new bank building, as well as our new courier car, a red convertible PT Cruiser. The new slogan — “YCB — Unexpected Generosity” — differentiates us from other banks in Yuma, but most importantly, the advertising campaign fits perfectly with our mission of being a family of community banking professionals who are accessible to our customers.

From the beginning, the door is always open so our customers are welcome to come in to visit with our staff so we can help make their commercial, residential and family financial dreams come true.

Financially, the bank exceeded our net income goals for 2005. Our focus for 2006 is to accelerate our growth in both loans and deposits. Additionally, we will continue to weave our way deeper into the fabric of our community with the help of our bank board members and the diligent efforts of our dedicated staff.

Katherine M. Brandon,President & CEO

Yuma Community Bank | 2285 S. 4th Ave. | Yuma, AZ 85364
928-782-7000 | www.yumabank.com



Katherine M. Brandon\|President & CEO		Founded: December 15, 2000

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.

Ram R. Krishna, M.D.
President
Ram R. Krishna, M.D., P.C.

John T. Osterman
President
Osterman Financial Group

Ronald K. Sable
President
Concord Solutions Ltd.

David S. Sellers
Retired

John R. Sternitzke
President
Sternco Engineers, Inc.

Pamela K Walsma
Attorney At Law
Westover, Shadle, & Walsma, PLC

Ronald S. Watson
Real Estate Broker & Owner
ERA Matt Fischer Realtor

Robert R. Woodman
Owner
Woodman Realty

Leonard C. Zazula
Cashier — Western Regions
Capitol Bancorp Limited

OFFICERS

Ronald S. Watson
Chairman

Ram R. Krishna
Vice Chairman

Katherine M. Brandon
President & CEO

Pamela K Walsma
Secretary

Keith L. Simmonds
Executive Vice President & CCO

Theresa N. Wine
Senior Vice President

Kari M. Reily
Vice President

46|2005ANNUAL REPORT

The Value of Relationships

AMERA MORTGAGE CORPORATION

Developing and strengthening relationships

Amera’s focus is to develop and strengthen relationships through the Capitol Bancorp Limited (CBC) family of banks and our retail offices. This successful strategy provided a basis for mortgage fee income growth in 2005, as it will for years to come.

Early in the year, Amera launched its Client Service Department with an emphasis on serving the needs of members of the residential mortgage departments at CBC banks. The department’s objective is to keep mortgage lenders and departments informed about new products, services and other relevant developments at Amera.

The CBC marketing department and Amera also jointly created the Employee Mortgage Benefits Program designed for CBC banks’ business clients to offer to their employees. The program is designed as a tool for banks to use to help build and expand their relationships with business clients.

Late in the year, mortgage lenders from nine banks in Michigan and Indiana attended our first Amera Day. This was a forum designed to personalize working relationships, to help lenders learn more about Amera processes, how to increase sales and maximize profitability and about the future direction of Amera and the mortgage industry.

“Spending time with other mortgage originators within CBC and Amera, who face the same daily challenges that I do, was both educational and motivational. Being able to interact with the people who service, underwrite and close our loans is so important. Great working relationships don’t just happen because we are all in one big family, and Amera Day was the perfect opportunity to put names and faces together. Finding out what’s important to them only helps me get my loan closed faster!”

Matt Clauss, Mortgage Loan Officer,Goshen Community Bank

Mark A. Janssen,CEO

Amera Mortgage Corporation | 1050 Corporate Office Dr., Ste. 200 | Milford, MI 48381-3155
248-685-1700 | www.ameramortgage.com



Founded: June 9, 1983		Mark A. Janssen \|CEO

BOARD OF DIRECTORS

Susan L. Bowen
Executive Vice President
Amera Mortgage Corporation

James F. Crawford
Director of Strategic Products
Capitol Bancorp Limited

Mark A. Janssen
CEO
Amera Mortgage Corporation

Jerald H. Rock
President
Amera Mortgage Corporation

Melinda F. Cain
Executive Vice President
Amera Mortgage Corporation

Lee W. Hendrickson
Chief Financial Officer
Capitol Bancorp Limited

Lyle W. Miller
President
L. W. Miller Holding Company

John C. Smythe
President & CEO
Capitol National Bank

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

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 A. Sellick
Vice President

James M. Shaffer
Vice President

Susan L. Shaffer
Vice President

2005ANNUAL REPORT |47

The Value of Relationships

CAPITOL WEALTH ADVISORS

VALUE, GUIDE, DELIVER — IT’S THAT SIMPLE!

New financial solutions

“Just as with Capitol Bancorp... Capitol Wealth will leverage the entrepreneurial spirit and strong customer relationships within each community bank, while providing a common foundation on which to operate. This will be a balancing act that we believe will pay significant dividends to our clients, the banks, and the Capitol Bancorp Limited shareholders.”

David M. Paventi, COO,Capitol Wealth Advisors

We are excited about establishing Capitol Wealth Advisors to grow noninterest income for our banks by building a comprehensive wealth management business that leverages the strong client relationships associated with Capitol Bancorp’s individual banks. Through Capitol Wealth, customers will be provided a complete array of wealth management advice, service and products to help them grow, manage and preserve their wealth.

Capitol Wealth has a unique potential to be hugely successful in today’s marketplace. Specifically, the wealth management industry represents a $30 trillion opportunity, of which no one financial institution maintains a significant market share. This lack of industry dominance stems from the ‘product silo’ approach created by large financial institutions that emphasize pushing product sales through multiple delivery channels.

At Capitol Wealth, we’re all about leveraging our banks’ strong one-on-one relationships so we can better understand our clients’ needs. The industry primarily thinks about products and sales instead of focusing on providing advice to help people reach their life goals. We believe this approach is a natural progression of our community banking strategy that focuses us on:

	•		Valuingsingle, unique client relationships;

	•		Guidingclients with trusted, experienced advisors; and,

	•		Deliveringthe right premium products in order to fulfill their financial goals.

Simply put...we’ll make wealth management a rewarding experience for our clients.

Robert R. Hogan,President & CEO

Capitol Wealth Advisors | 9300 Harris Corners Parkway Suite 210 | Charlotte, NC 28269
704-599-1055

Robert R. Hogan|President & CEO

BOARD OF DIRECTORS

Jay J. Butler
Retired Bank Executive

James F. Crawford
Director of Strategic Products
Capitol Bancorp Limited

Robert R. Hogan
President & CEO
Capitol Wealth Advisors

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

Pamela E. West
Retired Bank Executive

Ben E. Yeakley
Retired Trust Executive
Real Estate Developer

OFFICERS

Joseph D. Reid
Chairman

Robert R. Hogan
President & CEO

David M. Paventi
Secretary & COO

48|2005ANNUAL REPORT

Capitol Bancorp Limited

Officers

Joseph D. Reid
Chairman & CEO

Art R. Aguirre
Vice President
Senior Risk Analyst

Scott R. Andrews
President
California Region

Carol A. Blaine
Vice President
Senior Loan Review Officer

Missy P. Bowden
Vice President
Bank Performance, Western Regions

Brent R. Branch
Assistant Vice President
Manager of Network Services

Jeremy J. Burchman
Corporate Counsel

Robert C. Carr
Vice Chairman

Margarete L. Chalker
Assistant Vice President
Tax Manager

James F. Crawford
Director of Strategic Products

David J. Dutton
Chief Information Officer

Brian K. English
General Counsel

Cristin Reid English
Chief Operating Officer

Carl C. Farrar
Senior Vice President
Credit Administration

David D. Fortune
Chief Credit Officer

Thomas S. Giovanelli
President
Northwest Region

David S. Groenewoud
Corporate Finance Manager

Reginald A. Hansom, Jr.
Assistant Vice President
Computer Operations Manager

Janet L. Hardin
Vice President
Business Support Services

Lee W. Hendrickson
Chief Financial Officer

Jocelyn S. Hunt
Assistant Vice President
Senior Compliance Risk Analyst

Rick H. James
Vice President
Bank Performance, Eastern Regions

Bruce D. Jones
President
Southeast Region

Marsha L. Jones
Vice President
Item Processing

Joseph A. King
Corporate Counsel

Sondra K. Koskela
Loan Quality Control Specialist

John S. Lewis
President
Western Regions

Tina M. Luha
Assistant Vice President
Bank Accounting Manager

Stephanie A. Maat
Director of Training

Charles J. McDonald
Cashier
Eastern Regions

David J. Meninga
Corporate Counsel

Kelly D. Miller
Vice President
Bank Performance, Eastern Regions

Michael M. Moran
Chief of Capital Markets

John R. Myers
Vice President
Senior Loan Review Officer

Kenneth I. Myers
Director of Risk Management

Phillip Kyle Oesterle
Vice President
Operating Services

Gregory E. Patten
Vice President
Technology Services

Linda D. Pavona
Director of Corporate Relations

David K. Powers
Director of Credit Administration
Great Lakes Region

Amy L. Pramov
Director of Human Resources Services

Steven J. Pricco
Regional Government Lending Manager

Joal R. Redmond
Director of Communications

Joseph D. Reid III
Director of Bank Development

William E. Rheaume
Senior Counsel

Stanley E. Ricketts
President
Midwest Region

James R. Rose Jr.
Senior Vice President
Credit Administration

Nancy A. Schoolman
Vice President
Corporate Compliance Officer

Patricia L. Stone
Senior Vice President
Credit Administration

Patrick R. Sturm
Senior Counsel

Stephanie M. Swan
Assistant Vice President
Shareholder Relations

Darryl S. Tenenbaum
Vice President
Corporate Auditor

Bruce A. Thomas
President
Eastern Regions

Stephen D. Todd
President
Southwest Region

Marie D. Walker
Director of Accounting

Gerald L. Weitner
Senior Vice President
Credit Administration

Thomas C. Wisehart
Corporate Counsel

Leonard C. Zazula
Cashier
Western Regions

F i n a n c i a l I n f o r m a t i o n

Table of Contents


Selected Consolidated Financial Data			F-2
Information Regarding Capitol’s Common Stock			F-3
Availability of Form 10-K and Certain Other Reports			F-3
Other Corporate and Shareholder Information			F-4
Cautions Regarding Forward-Looking Statements			F-5
Management’s Discussion and Analysis of Capitol’s Business, Financial Condition and Results of Operations:
Summary and Overview			F-6
2005 Highlights			F-7
Record Achievements			F-7
New Banks, New Markets			F-7
Earnings Dynamics			F-7
The Largest Bank Affiliation Network in the United States			F-7
New Technologies Supporting Capitol’s Banks — Present and Future			F-7
Formation of Wealth Management Unit			F-8
Capitol’s Bank Development Strategy			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
Capitol’s Results of Operations			F-11
Capitol’s Financial Position			F-13
Liquidity, Capital Resources and Capital Adequacy			F-17
Trends Affecting Operations			F-21
Critical Accounting Policies Affecting Capitol’s Financial Statements			F-24
Use of Estimates in Determining the Allowance for Loan Losses			F-24
Accounting for Goodwill and Other Intangibles			F-25
Accounting for Stock Options			F-25
Consolidation Policy			F-26
New Accounting Standards			F-26
Risk Factors Affecting Capitol and its Banks			F-26
Recent Developments			F-27
Report on Management’s Assessment of Internal Control Over Financial Reporting			F-28
Report of Independent Registered Public Accounting Firm on Management’s Assessment of Internal Control Over Financial Reporting			F-29
Consolidated Financial Statements:
Report of Independent Registered Public Accounting Firm			F-31
Consolidated Balance Sheets			F-32
Consolidated Statements of Income			F-33
Consolidated Statements of Changes in Stockholders’ Equity			F-34
Consolidated Statements of Cash Flows			F-35
Notes to Consolidated Financial Statements			F-36

F-1

Selected Consolidated Financial Data
(in $1,000s, except per share data)


	As of and for the Year Ended December 31
	2005⁽¹⁾		2004⁽²⁾		2003⁽³⁾		2002⁽⁴⁾		2001⁽⁵⁾

For the year:
Interest income	$	224,439	$	179,089	$	164,416	$	156,454	$	153,797
Interest expense		67,579		47,496		49,490		55,860		73,292
Net interest income		156,860		131,593		114,926		100,594		80,505
Provision for loan losses		10,960		12,708		9,861		12,676		8,167
Noninterest income		21,048		19,252		20,087		14,982		9,585
Noninterest expense		117,289		97,787		86,952		76,538		63,944
Net income		35,925		26,716		23,380		16,653		10,718
Net income per share:
Basic		2.42		1.88		1.86		1.64		1.38
Diluted		2.34		1.79		1.77		1.57		1.35
Cash dividends paid per share		.72		.65		.51		.44		.40

At end of year:
Total assets	$	3,475,721	$	3,091,418	$	2,737,062	$	2,409,288	$	2,044,006
Total earning assets		3,204,646		2,885,545		2,521,375		2,226,969		1,920,621
Portfolio loans		2,991,189		2,692,904		2,247,440		1,991,372		1,734,589
Deposits		2,785,259		2,510,072		2,288,664		2,062,072		1,740,385
Notes payable		175,729		172,534		92,774		93,398		89,911
Subordinated debentures		100,940		100,845		90,816		51,583		48,621
Minority interests in consolidated subsidiaries		83,838		39,520		30,946		28,016		70,673
Stockholders’ equity		301,866		252,159		218,897		160,037		80,172


			Quarterly Results of Operations (unaudited)
	Total for		Fourth		Third		Second		First
	the Year		Quarter		Quarter		Quarter		Quarter

Year ended December 31, 2005:⁽¹⁾
Interest income	$	224,439	$	61,372	$	58,655	$	54,491	$	49,921
Interest expense		67,579		19,748		17,814		15,899		14,118
Net interest income		156,860		41,624		40,841		38,592		35,803
Provision for loan losses		10,960		3,791		2,107		3,039		2,023
Net income		35,925		10,019		9,594		8,297		8,015
Net income per share:
Basic		2.42		.66		.64		.56		.55
Diluted		2.34		.64		.61		.54		.52
Cash dividends paid per share		.72		.19		.18		.18		.17

Year ended December 31, 2004:⁽²⁾
Interest income	$	179,089	$	48,329	$	45,877	$	43,434	$	41,449
Interest expense		47,496		12,848		11,943		11,486		11,219
Net interest income		131,593		35,481		33,934		31,948		30,230
Provision for loan losses		12,708		3,111		3,553		2,536		3,508
Net income		26,716		7,950		7,439		6,911		4,416
Net income per share:
Basic		1.88		.55		.52		.49		.32
Diluted		1.79		.52		.50		.47		.30
Cash dividends paid per share		.65		.17		.17		.16		.15


(1)		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).

(2)		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.

(3)		Includes Bank of Escondido (located in Escondido, California), effective October 2003.

(4)		Includes Bank of Las Vegas (located in Las Vegas, Nevada), effective February 2002 and Napa Community Bank (located in Napa, California), effective March 2002.

(5)		Includes Sunrise Bank of San Diego (located in San Diego, California), effective January 2001.

F-2

INFORMATION REGARDING CAPITOL’S COMMON STOCK

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:


	2005				2004
	Low		High		Low		High
Quarter Ended:
March 31	$	29.30	$	35.82	$	26.47	$	29.70
June 30		28.75		34.00		24.05		28.00
September 30		31.25		36.96		24.15		29.80
December 31		29.10		38.93		28.51		36.00

During 2005, Capitol paid cash dividends of $0.17 per share in the first quarter, $0.18 per share in the second and third quarters and $0.19 per share in the fourth quarter. In 2004, Capitol paid cash dividends of $0.15 per share in the first quarter, $0.16 per share in the second quarter and $0.17 per share in the third and fourth quarters.

As of January 31, 2006, there were 8,886 beneficial holders of Capitol’s common stock, based on information supplied to Capitol from its stock transfer agent and other sources.

At January 31, 2006, 15,844,233 shares of common stock were outstanding. Capitol’s stock transfer agent is UMB Bank, n.a., 928 Grand Ave., P.O. Box 410064, Kansas City, Missouri 64141-0064 (telephone 800/884-4225). The web site for UMB Bank, n.a. ishttp:\\www.umb.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 Plan prospectus, informational brochure and enrollment materials, contact UMB Bank, n.a. at 800/884-4225 or Capitol at 517/487-6555.

In addition to Capitol’s common stock, trust-preferred securities of Capitol Trust I (a subsidiary of Capitol) are listed on 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.

AVAILABILITY OF FORM 10-K AND CERTAIN OTHER REPORTS

A copy of Capitol’s 2005 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-3

Form 10-K and certain other periodic reports are filed with the Securities and Exchange Commission (“SEC”). The SEC maintains an Internet web site that contains reports, proxy and information statements and other information regarding companies which file electronically (which includes Capitol). The SEC’s web site address ishttp://www.sec.gov. Capitol’s filings with the SEC are also available at Capitol’s web site,http://www.capitolbancorp.com.

OTHER CORPORATE INFORMATION

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 Annual Meeting will be held on Wednesday, April 26, 2006 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
UMB Bank, n.a.
928 Grand Avenue
P.O. Box 410064
Kansas City, Missouri 64141-0064
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. The Plan’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 the Plan is voluntary and shareholders and prospective investors are eligible. Purchases under the Plan are not currently subject to any brokerage fees or commissions. For further information regarding

F-4

Capitol Bancorp Direct or a copy of the Plan’s prospectus, informational brochure and enrollment materials, contact UMB Bank, n.a. at 800/884-4225 or Capitol at 517/487-6555.

TRUST-PREFERRED SECURITIES TRADING INFORMATION

Preferred securities of Capitol Trust I (a subsidiary of Capitol) trade on NYSE under the trading symbol “CBCPrA.”

TRUST-PREFERRED SECURITIES TRUSTEE

JP Morgan Institutional Trust Services — Tempe, Arizona

CAUTIONS REGARDING FORWARD-LOOKING STATEMENTS

Some of the statements contained in this annual report that are not historical facts are forward-looking statements. Those forward-looking statements, within the meaning of the Private Securities Litigation Reform Act of 1995, are subject to known and unknown risks, uncertainties and other factors which may cause the actual future results, performance or achievements of Capitol and/or its subsidiaries and other operating units to differ materially from those contemplated in such forward-looking statements. The words “intend,” “expect,” “project,” “estimate,” “predict,” “anticipate,” “should,” “will,�� “may,” “believe” and similar expressions also identify forward-looking statements. Important factors which may cause actual results to differ from those contemplated in such forward-looking statements include, but are not limited to: (i) the results of Capitol’s efforts to implement its business strategy, (ii) changes in interest rates, (iii) legislation or regulatory requirements adversely impacting Capitol’s banking business and/or expansion strategy, (iv) adverse changes in business conditions or inflation, (v) general economic conditions, either nationally or regionally, which are less favorable than expected and that result in, among other things, a deterioration in credit quality and/or loan performance and collectability, (vi) competitive pressures among financial institutions, (vii) changes in securities markets, (viii) actions of competitors of Capitol’s banks and Capitol’s ability to respond to such actions, (ix) the cost of capital, which may depend in part on Capitol’s asset quality, prospects and outlook, (x) changes in governmental regulation, tax rates and similar matters, (xi) changes in management and (xii) other risks detailed in Capitol’s other filings with the Securities and Exchange Commission. If one or more of these risks or uncertainties materialize, or if underlying assumptions prove incorrect, actual outcomes may vary materially from those indicated. 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-5

Management’s Discussion and Analysis of Capitol’s Business,
Financial Condition and Results of Operations

Summary and Overview

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-5 of this Annual Report.

2005 was, by all important measures, a significant year in Capitol’s history:

	•		Record earnings of $35.9 million for the year ($2.34 per diluted share), an increase of 34% over 2004 earnings of $26.7 million ($1.79 per diluted share).

	•		Substantial growth in the number of banks within Capitol’s affiliation network, from 32 at the beginning of the year to 41 at year-end 2005, resulting in the largest network of affiliated banks in the United States.

	•		Entry into 5 states where Capitol did not previously have a banking presence.

	•		Significant asset growth for the year and solid asset quality at year end.

	•		Applications pending at year-end 2005 for at least 6 new banks which are anticipated to commence operation in 2006.

Capitol has always been and continues to be focused on community banking. As the only banking company in the United States denominated as abank development company, Capitol enjoys the unique position of forming new community banks in a wide variety of markets during an era of industry consolidation. With Capitol’s 41 affiliate banks, Capitol operates in one business segment, community banking through commercial banks. Capitol’s banks are staffed with banking professionals, serving customers who desire professional banking services delivered personally.

In addition to the tangible achievements summarized above, Capitol’s management has added to its resources in 2005 in the areas of bank development, risk management, credit administration, technology, and other centralized back-office functions to meet the needs of its growing banks while also preparing for more banks in the future.

F-6

2005 Highlights

Record Achievements

As a growing company, Capitol has reported an ongoing series of records. Each quarterly period in 2005 reported record earnings and record asset levels.

New Banks, New Markets

The addition of 9 banks to Capitol’s affiliation network is another growth record. Capitol completed the year with 41 banks operating in 12 states. Of the 9 banks added in 2005, 8 were start-up, orde novo, state-chartered community banks and one addition involved the purchase of a small existing bank. At year-end 2005, regulatory applications were pending for an additional 6 banks which are anticipated to begin operations in 2006.

Earnings Dynamics

Net income for 2005 approximated $36 million, a 34% increase over the $26.7 million for 2004. Net income for 2003 was $23.4 million. Diluted earnings per share for 2005 amounted to $2.34 compared to $1.79 in 2004 and $1.77 in 2003. The earnings contribution of Capitol’s western region banks reached a milestone in 2005, with net income exceeding more than half of Capitol’s combined bank earnings performance. With the western regions comprising the youngest component of Capitol’s affiliation network (the oldest bank in the group was formed in 1996), earnings momentum from these banks gained further maturity, resulting in 2005 as a ‘crossover’ year in terms of regional earnings contribution.

The Largest Bank Affiliation Network in the United States

No other bank holding company in the U.S. is believed to have as many bank ‘charters’ (i.e., individually capitalized, licensed and managed, community banks). With 41 banks at year-end 2005, and future banks in various stages of development, management expects Capitol to achieve the 50-bank mark in the coming year. Capitol’sde novobank management model has been fine-tuned to create a scalable, low overhead structure which is focused on delivering return-on-equity results to the parent company, while enabling the individual banks operating autonomy in all areas which impact the customer relationship. Capitol’s ‘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.

New Technologies Supporting Capitol’s Banks — Present and Future

A comprehensive data processing study was performed in 2004 with the objective of reviewing several alternatives to the platform technology which has evolved from implementation at Capitol’s first bank. Enhanced banking technology is being implemented at all affiliates, as a result of the 2004 study, over a two-year period. This is the most sophisticated and complex technology migration in Capitol’s history and will provide all of Capitol’s affiliates with dynamic tools to better meet customer needs, in loans, deposits and wealth management.

This technology initiative will be completed by the end of the current calendar year.

F-7

Formation of Wealth Management Unit

Near the close of 2005, a wealth management unit was formed, Capitol Wealth, Inc., which will commence operations in 2006 with 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 will be located at various banks to work in tandem with their traditional banking colleagues. This new initiative is intended to expand the availability of financial services to the banks’ clientele while enhancing noninterest revenues. This activity will commence at selected banks beginning in early 2006 and will be fully implemented by year-end 2007.

Capitol’s Bank Development Strategy

Bank Development as a Defined Focus

In recent years, Capitol has fine-tuned its community banking model and emphasis on bank development. In 2005, Capitol developed 8 new community banks and acquired one existing bank.

Each new bank typically starts as a single location office. Each is led by a bank president and other banking professionals with significant local experience and overseen by a board of directors composed of business leaders drawn from that local community. Each bank has full authority, on site, to make all decisions which affect the customer, such as credit approval and pricing and structure of both loans and deposits. The notion of banking as aprofessionis key to Capitol’s model where customers seek a relationship withbanking professionalsto meet their needs as opposed to transaction-oriented financial institutions pushing financial products.

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 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, well located in that business community

	•		A strong group of potential board members, drawn from the 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

“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 operations, Capitol’s management works closely with thede novobank’s president in providing guidance and assistance to help achieve the bank’s goals and objectives as it heads toward future profitability. Near ade novobank’s 36^th month of operation, Capitol typically offers 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, generally at 150% of the bank’s shares’ book value. The exchange

F-8

offer (which is truly an offer and not a contractual obligation of Capitol) is generally subject to the banks’ shareholder approval. When the offer is made, the bank is usually ‘turning the corner’ on cumulative profitability and the share-exchange enables the bank’s shareholders to achieve both a return on their patient 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 2005, Capitol completed three share-exchange transactions; two share-exchange transactions were completed in 2004.

Monitoring and Managing Capitol’s Investments in Community Banks

Capitol monitors and manages its investments in community banks through its bank performance group. Lead by regional presidents, Capitol’s bank performance group assists the banks in the development of detailed budgets, monitors progress on the banks’ business plans and reviews monthly operating results for each bank. Capitol’s bank performance group executives also assist in the identification of bank development opportunities within their respective regions. In addition to the monitoring of operating results, Capitol assists the banks in managing capital, including infusing additional capital to support bank growth, and implementing asset/liability management strategies.

Capitol’s role with its banks is as an investor, mentor and service provider. As investor, Capitol closely monitors the financial performance of its bank subsidiaries, providing assistance and guidance when and where necessary to help enhance bank performance. Capitol’s mentoring role is most active in its youngest affiliates where guidance is needed through the banks’ early formative stages. Capitol provides efficient back-office services to all of its banks which can be done centrally and 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.

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F-9

The total assets and revenues of each bank and the consolidated totals are summarized below as of and for the years ended December 31, 2005 and 2004 (in $1,000s):


	Total Assets						Total Revenues⁽³⁾
	2005			2004			2005			2004
Eastern Regions:
Great Lakes Region:
Ann Arbor Commerce Bank	$	320,075		$	330,488		$	24,035		$	21,663
Bank of Auburn Hills⁽¹⁾		10,848						348
Bank of Belleville⁽¹⁾		14,641						70
Bank of Michigan⁽¹⁾		31,119						773
Brighton Commerce Bank		105,694			105,890			7,268			6,259
Capitol National Bank		246,132			228,656			16,118			13,861
Detroit Commerce Bank		84,979			70,036			6,466			4,030
Elkhart Community Bank		75,648			67,099			5,329			3,996
Goshen Community Bank		74,545			54,571			4,076			3,218
Grand Haven Bank		122,757			119,254			8,629			6,974
Kent Commerce Bank		78,939			89,393			6,304			5,439
Macomb Community Bank		93,497			94,847			6,498			5,786
Muskegon Commerce Bank		96,649			94,162			7,236			6,301
Oakland Commerce Bank		115,720			130,779			8,711			7,731
Paragon Bank & Trust		106,535			110,128			8,499			7,105
Portage Commerce Bank		183,018			180,817			14,122			11,703

Great Lakes Region Total		1,760,796			1,676,120			124,482			104,066
Southeast Region:
First Carolina State Bank⁽²⁾		83,345			68,598			4,669			2,455
Peoples State Bank⁽¹⁾		31,620						1,415

Southeast Region Total		114,965			68,598			6,084			2,455
Midwest Region—Summit Bank of Kansas City⁽¹⁾		9,152						40

Eastern Regions Total		1,884,913			1,744,718			130,610			106,521
Western Regions:
Southwest Region:
Arrowhead Community Bank		83,639			70,989			7,043			5,180
Bank of Las Vegas		58,315			47,538			4,130			2,963
Bank of Tucson		167,638			168,469			12,758			10,250
Black Mountain Community Bank		128,958			100,415			8,746			6,232
Camelback Community Bank		82,309			83,414			5,937			5,548
Desert Community Bank		78,907			63,276			5,749			4,218
East Valley Community Bank		43,352			46,549			3,606			3,261
Fort Collins Commerce Bank⁽¹⁾		27,427			n/a			943			n/a
Mesa Bank		132,775			96,158			10,890			7,025
Red Rock Community Bank		102,618			102,832			7,410			6,017
Southern Arizona Community Bank		98,849			83,140			6,032			5,507
Sunrise Bank of Albuquerque		61,812			69,055			5,169			5,182
Sunrise Bank of Arizona		111,204			128,192			10,630			11,676
Valley First Community Bank		72,759			54,857			4,694			3,263
Yuma Community Bank		61,523			59,355			4,629			4,015

Southwest Region Total		1,312,085			1,174,239			98,366			80,337
California Region:
Bank of Escondido		70,807			50,956			3,790			2,054
Bank of San Francisco⁽¹⁾		13,685						286
Bank of Santa Barbara⁽¹⁾		14,386						16
Napa Community Bank		84,512			79,396			5,788			4,101
Point Loma Community Bank⁽²⁾		34,213			20,857			2,061			208
Sunrise Bank of San Diego		66,809			62,672			5,616			5,232

California Region Total		284,412			213,881			17,557			11,595
Northwest Region—Bank of Bellevue⁽¹⁾		19,726						408

Western Regions Total		1,616,223			1,388,120			116,331			91,932
Other, net		(25,415	)		(41,420	)		(1,454	)		(112	)


Consolidated totals	$	3,475,721		$	3,091,418		$	245,487		$	198,341


(1)		Became a Capitol affiliate in 2005 and is included for periods after such addition to the Capitol banking network.

(2)		Became a Capitol affiliate in 2004 and is included for periods after such addition to the Capitol banking network.

(3)		Total revenues is the sum of interest income and noninterest income.

F-10

Capitol’s Results of Operations

The following table summarizes for each of Capitol’s banks, and on a consolidated basis, 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
	2005			2004			2003			2005			2004			2003			2005			2004			2003
Eastern Regions:
Great Lakes Region:
Ann Arbor Commerce Bank	$	4,007		$	4,234		$	4,800			14.80	%		16.24	%		19.45	%		1.22	%		1.30	%		1.52	%
Bank of Auburn Hills⁽¹⁾		(437	)
Bank of Belleville⁽¹⁾		(405	)
Bank of Michigan⁽¹⁾		(1,017	)
Brighton Commerce Bank		1,097			1,091			1,104			11.86	%		13.09	%		15.28	%		1.02	%		1.11	%		1.29	%
Capitol National Bank		3,510			3,602			3,575			18.62	%		20.77	%		22.84	%		1.46	%		1.59	%		1.71	%
Detroit Commerce Bank		633			163			(440	)		9.15	%		2.91	%					0.80	%		0.27	%
Elkhart Community Bank		726			703			422			9.21	%		9.76	%		7.33	%		0.97	%		1.17	%		0.61	%
Goshen Community Bank		47			405			386			0.71	%		6.34	%		8.18	%		0.08	%		0.83	%		0.91	%
Grand Haven Bank		999			(412	)		1,670			9.75	%					15.43	%		0.82	%					1.29	%
Kent Commerce Bank		678			578			821			8.14	%		7.01	%		10.28	%		0.79	%		0.70	%		1.06	%
Macomb Community Bank		442			867			262			5.03	%		9.83	%		2.91	%		0.47	%		0.93	%		0.29	%
Muskegon Commerce Bank		1,184			1,516			1,427			12.52	%		16.25	%		16.38	%		1.23	%		1.70	%		1.68	%
Oakland Commerce Bank		1,835			1,014			1,439			17.75	%		10.14	%		15.14	%		1.46	%		0.77	%		1.16	%
Paragon Bank & Trust		819			1,073			891			7.18	%		9.53	%		8.36	%		0.74	%		1.00	%		0.84	%
Portage Commerce Bank		2,940			2,862			2,393			18.31	%		20.54	%		20.78	%		1.56	%		1.66	%		1.63	%

Great Lakes Region Total		17,058			17,696			18,750
Southeast Region:
First Carolina State Bank⁽²⁾		478			445						4.42	%		4.31	%					0.64	%		0.66	%
Peoples State Bank⁽¹⁾		77									2.90	%								0.36	%

Southeast Region Total		555			445
Midwest Region—Summit Bank of Kansas City⁽¹⁾		(319	)

Eastern Regions Total		17,294			18,141			18,750
Western Regions:
Southwest Region:
Arrowhead Community Bank		1,255			758			442			17.47	%		12.53	%		9.77	%		1.56	%		1.14	%		0.85	%
Bank of Las Vegas		670			224			(8	)		9.70	%		3.65	%					1.16	%		0.41	%
Bank of Tucson		3,732			2,962			2,776			27.61	%		24.69	%		25.27	%		2.12	%		1.86	%		1.93	%
Black Mountain Community Bank		2,204			1,428			914			20.95	%		16.20	%		14.23	%		1.84	%		1.50	%		1.32	%
Camelback Community Bank		1,167			554			567			13.90	%		6.24	%		6.73	%		1.42	%		0.68	%		0.65	%
Desert Community Bank		1,061			634			389			13.65	%		8.18	%		6.39	%		1.42	%		1.05	%		0.68	%
East Valley Community Bank		313			219			(279	)		6.38	%		5.12	%					0.67	%		0.49	%
Fort Collins Commerce Bank⁽¹⁾		(396	)
Mesa Bank		2,808			1,659			1,366			31.37	%		22.83	%		19.48	%		2.45	%		1.91	%		1.98	%
Red Rock Community Bank		1,856			806			(69	)		15.32	%		6.47	%					1.73	%		0.75	%
Southern Arizona Community Bank		1,290			1,291			1,152			14.74	%		15.47	%		15.60	%		1.46	%		1.54	%		1.35	%
Sunrise Bank of Albuquerque		929			770			664			13.58	%		12.53	%		15.45	%		1.36	%		1.09	%		1.14	%
Sunrise Bank of Arizona		2,215			2,674			1,138			18.12	%		23.27	%		15.61	%		1.82	%		2.03	%		1.15	%
Valley First Community Bank		604			310			282			9.06	%		5.11	%		4.85	%		0.86	%		0.60	%		0.64	%
Yuma Community Bank		992			915			473			14.88	%		15.59	%		11.96	%		1.66	%		1.74	%		1.11	%

Southwest Region Total		20,700			15,204			9,807
California Region:
Bank of Escondido⁽³⁾		452			(186	)		(491	)		4.78	%								0.72	%
Bank of San Francisco⁽¹⁾		(726	)
Bank of Santa Barbara⁽¹⁾		(514	)
Napa Community Bank		965			579			290			9.47	%		6.80	%		3.64	%		1.27	%		0.87	%		0.64	%
Point Loma Community Bank⁽²⁾		(467	)		(703	)
Sunrise Bank of San Diego		1,095			1,104			498			10.18	%		11.26	%		6.40	%		1.69	%		1.58	%		0.85	%

California Region Total		805			794			297
Northwest Region—Bank of Bellevue⁽¹⁾		(551	)

Western Regions Total		20,954			15,998			10,104
Other, net		(2,323	)		(7,423	)		(5,474	)


Consolidated totals	$	35,925		$	26,716		$	23,380			13.34	%		11.25	%		12.97	%		1.08	%		0.91	%		0.91	%


(1)		Became a Capitol affiliate in 2005 and is included for periods after such addition to the Capitol banking network.

(2)		Became a Capitol affiliate in 2004 and is included for periods after such addition to the Capitol banking network.

(3)		Became a Capitol affiliate in 2003 and is included for periods after such addition to the Capitol banking network.

F-11

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 $156.9 million in 2005, a 19.2% increase over the $131.6 million reported in 2004. This increase is a combination of several factors. In total, net interest income increased $25.3 million which was comprised of an increase in interest income of about $45 million, partially offset by an increase in interest expense of about $20 million. These variances can be analyzed further in terms of their association with changes in interest rates versus changes in volume of the interest-bearing asset or liability. For example, the increase in interest income is the result of approximately $25 million of additional interest income from higher levels of loans outstanding in 2005 (i.e., volume), plus an increase of $20 million due to higher rates as loans repriced or were refinanced at rising rates in 2005. Similarly, the $20 million increase in interest expense is comprised of two components: $7 million from larger liability balances and $13 million from higher interest rates.

Net interest income increased about $16.7 million in 2004. Most of that net increase came from an increase in interest income of $14.7 million due to loan growth in 2004 and from a decrease in interest expense of $2 million primarily associated with lower interest rates on deposits.

With the addition of noninterest income, total net operating revenue approximated $177.9 million in 2005, $150.8 million in 2004 and $135.0 million in 2003. Noninterest income for these periods was $21 million, $19.3 million and $20.1 million, respectively.

Noninterest income increased in 2005, but decreased in 2004 compared to 2003. In 2005, 2004 and 2003, revenue from mortgage loans originated for resale amounted to $6.1 million, $5.6 million and $8.7 million, respectively. A very substantial portion of this mortgage fee revenue in 2003 was derived from mortgage refinancing activity, during periods of record-low interest rates. Loan origination volume decreased in 2004 (and somewhat in 2005) due to higher interest rates. Other noninterest income increased significantly in 2005, primarily from fees from origination of non-portfolio commercial loans. 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.

The provision for loan losses approximated $11 million, $12.7 million and $9.9 million in 2005, 2004 and 2003, respectively. 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 theFinancial Positionsection of this narrative.

F-12

Noninterest expense totaled $117.3 million, $97.8 million and $87.0 million in 2005, 2004 and 2003, respectively. In total, these expenses increased 19.9% in 2005, 12.5% in 2004 and 13.6% in 2003. Increases in the components of noninterest expense in 2005 were primarily associated with added staffing and other costs associated with growing young banks and adding new banks. The lower rate of increase in 2004 and 2003 is the result of a slower pace of adding new banks (two banks were added during 2004 and one in 2003). The more significant elements of other noninterest expense consisted of the following:


	2005		2004		2003
			(In $1,000s)
Preopening and start-up costs ofde novobanks and bank- development subsidiaries	$	2,971	$	448	$	536
Advertising		2,266		1,981		1,756
Professional fees		2,124		2,046		1,549
Paper, printing and supplies		2,135		1,697		1,728
Directors’ fees		1,577		914		796
Taxes other than income taxes		1,401		1,010		909
Bank services (ATMs, telephone banking and Internet banking)		1,229		1,123		1,094
Communications		1,229		996		944
Other		13,866		10,006		9,806

Total	$	28,798	$	20,221	$	19,118

Capitol’s effective tax rate was 38.7% in 2005, 36.4% in 2004 and 36.7% in 2003. 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).

Capitol’s Financial Position

Capitol completed 2005 with a strong financial position. Total assets grew to $3.5 billion from $3.1 billion at the end of 2004 and just over $2.7 billion at the beginning of 2004. Key to the balance-sheet strength of Capitol is its liquidity (cash and cash equivalents of $306.1 million or 8.8% of total assets) and its total capital position (subordinated debentures, minority interests in consolidated subsidiaries and stockholders’ equity totaling approximately $486.6 million or 14% of total assets) at December 31, 2005. Both of those key elements are discussed in the next section,Liquidity, Capital Resources and Capital Adequacy.

When looking at 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 minus the allowance for loan losses) approximated $3 billion at December 31, 2005 and $2.7 billion at December 31, 2004. These amounts approximated 85% of total consolidated assets at December 31, 2005 and 86% at December 31, 2004.

F-13

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 consistent 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 individual bank 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 frequently sought as the primary source of collateral for commercial loans. 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 and inventory.

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 is longer because the real estate security will inevitably take an extended period to liquidate. In contrast, a commercial loan secured by receivables and inventory which becomes nonperforming tends to have a higher loss potential due to the probable dissipation of collateral value prior to reaching nonaccrual status.

Asset quality improved in 2005. Nonperforming loans approximated $26.7 million and $28.5 million at December 31, 2005 and 2004, respectively. Such amounts approximated 0.89% and 1.06% of portfolio loans and 0.77% and 0.92% of total assets, respectively. Of the nonperforming loans at December 31, 2005, about 77% were real-estate secured. At December 31, 2005, the coverage ratio of the allowance for loan losses to nonperforming loans (i.e., the allowance as a percentage of nonperforming loans) was 151.7%, compared to 132% at the beginning of the year. Management believes that nonperforming loans have been properly considered in its evaluation of the adequacy of the allowance for loan losses.

In addition to the identification of nonperforming loans involving borrowers with payment performance difficulties (i.e., nonaccrual loans and loans past-due 90 days or more), management utilizes an internal loan review process to identify other potential problem loans which may warrant additional monitoring or other attention. This loan review process is a continuous activity which periodically updates internal loan classifications. At inception, all loans are individually assigned a classification which grade the credits on a risk basis, based on the type and discounted value of collateral, financial strength of the borrower and

F-14

guarantors and other factors such as the nature of the borrowers’ business climate, local economic conditions and other subjective factors. The loan classification process is fluid and subjective.

Potential problem loans include loans which are generally performing as agreed; however, because of loan review’s and/or lending staff’s risk assessment, increased monitoring is deemed appropriate. In addition, some loans are identified for monitoring because of specific performance issues or other risk factors requiring closer management and development of specific remedial action plans.

At December 31, 2005, potential problem loans (including nonperforming loans) approximated $117 million or about 3.9% 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 augmented loan review activities which are designed to early-identify loans which warrant close monitoring at the bank and corporate credit-administration levels. It is important to note that these potential problem loans do not necessarily have significant loss exposure (nor are they necessarily deemed ‘impaired’), but rather are identified by management in this manner to aid in loan administration and risk management. Management believes these loans to be adequately considered in its evaluation of the adequacy of the allowance for loan losses.

As noted in theCritical Accounting Policiessection which appears later in this narrative, the use of estimates in determining the allowance for loan losses is very important to 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, arguably, there is no one ‘right’ way. Management’s experience is that its estimation techniques have accurately determined historical losses.

Capitol had 41 separately chartered banks at year-end 2005. 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 for all of Capitol’s banks. The template factors in allowance elements for all portfolio loan categories for performing loans, nonperforming loans, watch credits and environmental factors. While a standardized template is utilized, no computational methodology relieves management from applying judgment in determining the amount of 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 used to evaluate and determine the adequacy of the allowance for loan losses is labor intensive and requires significant judgment.

F-15

The following table summarizes portfolio loans, the allowance for loan losses and nonperforming loans for each of the banks, and on a consolidated basis (in $1,000s):


					Allowance for				Nonperforming				Allowance as a % of Total
	Total Portfolio Loans				Loan Losses				Loans				Portfolio Loans
	2005		2004		2005		2004		2005		2004		2005			2004
Eastern Regions:
Great Lakes Region:
Ann Arbor Commerce Bank	$	286,146	$	297,936	$	4,712	$	3,907	$	3,103	$	2,460		1.65	%		1.31	%
Bank of Auburn Hills⁽¹⁾		6,058				90								1.49	%
Bank of Belleville⁽¹⁾		1,534				23								1.50	%
Bank of Michigan⁽¹⁾		28,062				421								1.50	%
Brighton Commerce Bank		93,553		95,408		978		969		1,412		1,035		1.05	%		1.02	%
Capitol National Bank		197,062		196,519		3,233		2,723		4,938		2,053		1.64	%		1.39	%
Detroit Commerce Bank		81,533		66,280		1,104		806		110		338		1.35	%		1.22	%
Elkhart Community Bank		70,671		63,987		919		712		908		277		1.30	%		1.11	%
Goshen Community Bank		53,497		48,059		648		644		443		703		1.21	%		1.34	%
Grand Haven Bank		117,241		109,612		2,575		2,522		3,342		7,264		2.20	%		2.30	%
Kent Commerce Bank		74,385		86,090		1,277		1,269		1,751		2,445		1.72	%		1.47	%
Macomb Community Bank		90,448		91,173		1,422		1,327		2,142		1,768		1.57	%		1.46	%
Muskegon Commerce Bank		88,007		88,692		1,021		904		1,430		1,524		1.16	%		1.02	%
Oakland Commerce Bank		101,859		107,037		1,424		1,850		948		2,402		1.40	%		1.73	%
Paragon Bank & Trust		92,427		96,428		1,375		1,350		2,216		783		1.49	%		1.40	%
Portage Commerce Bank		171,679		170,479		2,057		1,977		2,119		2,820		1.20	%		1.16	%

Great Lakes Region Total		1,554,162		1,517,700		23,279		20,960		24,862		25,872
Southeast Region:
First Carolina State Bank⁽²⁾		68,235		51,867		690		525		173		11		1.01	%		1.01	%
Peoples State Bank⁽¹⁾		19,909				140				16				0.70	%

Southeast Region Total		88,144		51,867		830		525		189		11
Midwest Region—Summit Bank of Kansas City⁽¹⁾		644				10								1.55	%

Eastern Regions Total		1,642,950		1,569,567		24,119		21,485		25,051		25,883
Western Regions:
Southwest Region:
Arrowhead Community Bank		73,800		62,737		654		620		140		29		0.89	%		0.99	%
Bank of Las Vegas		50,899		41,134		495		425						0.97	%		1.03	%
Bank of Tucson		143,900		115,694		1,405		1,170		200		455		0.98	%		1.01	%
Black Mountain Community Bank		103,627		84,163		1,277		1,014		131		368		1.23	%		1.20	%
Camelback Community Bank		73,813		75,146		852		1,186		41				1.15	%		1.58	%
Desert Community Bank		71,050		58,751		830		722		273		107		1.17	%		1.23	%
East Valley Community Bank		38,716		42,614		497		520						1.28	%		1.22	%
Fort Collins Commerce Bank⁽¹⁾		22,619				306								1.35	%
Mesa Bank		125,513		85,561		1,215		800						0.97	%		0.94	%
Red Rock Community Bank		83,259		72,938		1,300		1,714		198		762		1.56	%		2.35	%
Southern Arizona Community Bank		76,953		72,226		720		736		59				0.94	%		1.02	%
Sunrise Bank of Albuquerque		53,669		59,766		693		895		300		459		1.29	%		1.50	%
Sunrise Bank of Arizona		101,846		118,617		1,253		1,400		70		111		1.23	%		1.18	%
Valley First Community Bank		57,794		49,518		526		469						0.91	%		0.95	%
Yuma Community Bank		50,474		41,460		485		465		27				0.96	%		1.12	%

Southwest Region Total		1,127,932		980,325		12,508		12,136		1,439		2,291
California Region:
Bank of Escondido		38,228		33,166		460		350		23				1.20	%		1.06	%
Bank of San Francisco⁽¹⁾		7,291				102								1.40	%
Bank of Santa Barbara⁽¹⁾		3,546				54								1.52	%
Napa Community Bank		70,359		53,033		1,237		720		19				1.76	%		1.36	%
Point Loma Community Bank⁽²⁾		29,759		8,590		423		88						1.42	%		1.02	%
Sunrise Bank of San Diego		58,983		46,945		588		415		200		297		1.00	%		0.88	%

California Region Total		208,166		141,734		2,864		1,573		242		297
Northwest Region — Bank of Bellevue⁽¹⁾		8,327				120								1.44	%

Western Regions Total		1,344,425		1,122,059		15,492		13,709		1,681		2,588
Other, net		3,814		1,278		948		2,378


Consolidated totals	$	2,991,189	$	2,692,904	$	40,559	$	37,572	$	26,732	$	28,471		1.36	%		1.40	%


(1)		Became a Capitol affiliate in 2005 and is included for periods after such addition to the Capitol banking network.

(2)		Became a Capitol affiliate in 2004 and is included for periods after such addition to the Capitol banking network.

F-16

At December 31, 2005, the consolidated allowance for loan losses approximated $40.6 million or 1.36% of total portfolio loans outstanding, compared with $37.6 million or 1.40% at December 31, 2004 and $31.4 million or 1.40% at the beginning of 2004. In 2005, this ratio decreased in concert with improved asset quality, as nonperforming loans decreased. As stated earlier, the allowance is based on management’s analysis of inherent losses in the portfolio at the balance sheet date.

There are other asset categories, such as loans held for resale ($21.6 million and $43.1 million at December 31, 2005 and 2004, respectively). These are home mortgages which are presold to the secondary market that generally are collected in 30-60 days and are discussed in more detail in the following section of this narrative. There is also a modest amount of investment securities on the balance sheet ($43.7 million and $42.4 million at December 31, 2005 and 2004, respectively). Goodwill and other intangibles increased to $50.4 million at year-end 2005, an increase of $8.4 million primarily resulting from share-exchange transactions; accounting for goodwill is described in theCritical Accounting Policiessection of this narrative. All other asset categories are individually less than $50 million at December 31, 2005 and 2004.

The primary source of funding of loans is deposits, which is discussed in the next section of this narrative.

Liquidity, Capital Resources and Capital Adequacy

Asset liquidity for financial institutions typically consists of cash and cash equivalents, loans held for resale and investment securities available for sale. These categories totaled $353.7 million at year-end 2005, or about 10.2% of total assets. This compares to $302 million or about 10% of total assets at year-end 2004. Liquidity is important for financial institutions because of their need to meet loan funding commitments, depositor withdrawal requests and various other commitments discussed in the accompanying notes to consolidated financial statements. Liquidity varies significantly daily, based on customer activity.

About two-thirds of the investment securities portfolio is classified as available for sale, although the banks generally have not sold investments to meet liquidity needs. Also, to the extent warranted, the banks may sell loans from time to time. During 2005, sales of investment securities available for sale approximated $1.8 million, compared with $59.6 million in 2004 and $25.5 million in 2003. Sales of investment securities available for sale in 2004 and 2003 were primarily related to changes in risk-management strategies.

Loans held for resale, as previously mentioned, approximated $21.6 million at December 31, 2005, compared to $43.1 million at year-end 2004. 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. Mortgage loan origination volume in 2005 decreased 11.3%, to approximately $634.4 million compared to $715.2 million in 2004 and $1.3 billion in 2003. The decrease in volume was primarily due to increased interest rates in 2005 after record low interest rates in 2003. Future volume will depend on whether interest rates remain low and the strength of residential real estate market conditions. Revenues from mortgage loan originations increased, however, in 2005, as some loans were funded directly by Capitol’s mortgage affiliate, Amera Mortgage Corporation.

F-17

The primary source of funds for the banks is deposits. The banks emphasize interest-bearing time deposits as part of their funding strategy. The banks also seek noninterest-bearing deposits, or checking accounts, which reduce the banks’ cost of funds. Noninterest-bearing deposits were about 21.2% of total deposits at year-end 2005 (about 20% at year-end 2004) and increased $87.3 million, or 17.3%, during the year.

In recent periods, many banks within the industry have experienced some competitive challenges in obtaining additional deposits to fuel growth. Capitol’s banks have had similar experiences in their individual markets. As depositors have wider access to the Internet and other real-time interest rate monitoring resources, deposit sourcing and pricing has become more competitive. Deposit growth is achievable, but at a competitive price, with tight net interest margins, especially during these most recent periods of low interest rates. The banks do not generally rely on brokered deposits as a key funding source (approximately $238 million at year-end 2005 or 10.8% of interest-bearing deposits compared to 9% in 2004); 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 balance 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 2005, a total of approximately $173 million ($154 million at year-end 2004) was borrowed under those facilities and additional borrowing availability approximated $163 million. Some of the banks also have smaller lines of credit with their correspondent banks. Borrowings under these facilities are generally at short-term market rates of interest and, although the repayment dates can be extended, are generally outstanding for brief periods of time.

Capitol has a credit facility aggregating $25 million from an unaffiliated bank. At year-end 2005 and 2004, 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
			Within		Within		Within		After
	Total		1 Year		1-3 Years		3-5 Years		5 Years
Time deposits	$	1,081,257	$	823,384	$	200,104	$	52,360	$	5,409
Debt obligations		175,729		96,916		44,184		30,500		4,129
Rent commitments under noncancelable leases		40,097		6,962		11,585		8,579		12,971
Trust-preferred securities		103,300		—		—		—		103,300

Total	$	1,400,383	$	927,262	$	255,873	$	91,439	$	125,809

F-18

Loan commitments of Capitol’s banks (stand-by letters of credit and unfunded loans) generally expire within one year. Deposit balances other than time accounts and interest payable on deposits are excluded from the table set forth on the preceding page; please refer to the later interest-rate sensitivity table regarding all deposit maturities. Other than the items set forth on the preceding page, there are no individually material contractual obligations, such as purchase obligations.

A significant source of capital has been investments made by minority shareholders in the subsidiaries which are consolidated for financial reporting purposes. Total minority interests in consolidated subsidiaries amounted to $83.8 million at year-end 2005, a net increase of $44.3 million from the $39.5 million level at year-end 2004. The net increase in minority interests in 2005 resulted mainly from Capitol’s formation of new banks and bank-development subsidiaries.

Three subsidiaries were involved in share-exchange transactions in 2005 which resulted in the issuance of about 610,000 shares of Capitol’s common stock. In each of these transactions, the shares acquired from the minority shareholders were exchanged for Capitol’s common stock according to fixed, but differing, exchange ratios. In 2004, Capitol similarly completed two separate share-exchange transactions which resulted in the issuance of approximately 347,000 shares of Capitol’s common stock.

While it is likely that similar share exchange transactions, as a strategy to gain full ownership of some majority-owned affiliates, may occur in the future, 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 ade novoor 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. In April 2005, Capitol acquired a majority interest in Peoples State Bank located in Jeffersonville, Georgia. In April 2004, Capitol acquired First Carolina State Bank, which is located in Rocky Mount, North Carolina. The pro forma effects of these acquisitions were not significant.

Capitol’s capital structure consists of these primary elements:

	•		Stockholders’ equity,

	•		Minority interests in consolidated subsidiaries, and

	•		Trust-preferred securities and related subordinated debentures.

Total stockholders’ equity approximated $301.8 million at year-end 2005, an increase of $49.7 million for the year. The 2005 increase in stockholders’ equity includes earnings (less dividends paid), the previously-mentioned share-exchange transactions and proceeds from the issuance of common stock from 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 $19.13 at year-end 2005, compared with $17.00 at year-end 2004. Cash dividends of $0.72 were paid in 2005, compared to $0.65 in 2004 and $0.51 in 2003. 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-19

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 raised a total of $103.3 million of capital through offerings of trust-preferred securities. 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.

Total capitalization at year-end 2005 amounted to $486.6 million or 14% of total assets. This compares to $392.5 million or 12.7% at year-end 2004.

At December 31, 2005, Capitol and its bank development subsidiaries had $47.3 million of funds on hand 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 aswell capitalized,adequately capitalizedorinadequately capitalizedusing several ratio measurements, including a risk-weighting approach to assets and financial commitments. Banks falling into theinadequately capitalizedcategory 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 theadequately capitalizedlevel, Capitol operates with the objective of its banks meeting thewell capitalized standard. Thewell capitalizedbanks benefit from lower FDIC deposit insurance costs and less restrictive limitations on some banking activities.

New banks, as a condition of regulatory charter approval, are required to maintain higher ratios of capital adequacy. Generally, they are required to keep a specific ratio of capital-to-average-total-assets of not less than 8% during their first three years of operation.

In the opinion of management, Capitol and its banks met the criteria to be classified aswell capitalized at year-end 2005.

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F-20

Trends Affecting Operations

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

Changes in interest rates, either up or down, have an impact on net interest income (plus or minus), depending on the direction and timing of such changes. At any point in time, there is an imbalance between interest rate-sensitive assets and interest rate-sensitive liabilities. This means that when interest rates change, the timing and magnitude of the effect of such interest rate changes can alter the relationship between asset yields and the cost of funds. This timing difference between interest rate-sensitive assets and interest rate-sensitive liabilities is characterized as a “gap” which is quantified by the distribution of rate-sensitive amounts within various time periods in which they reprice or mature. The following table summarizes the consolidated financial position in relation to “gap” at December 31, 2005 (in $1,000s):


	Interest Rate Sensitivity
	0 to 3			4 to 12			1 to 5			Over 5
	Months			Months			Years			Years			Total
ASSETS
Federal funds sold	$	128,299											$	128,299
Money market and interest-bearing deposits		14,677		$	4,573		$	596						19,846
Loans held for resale		21,638												21,638
Investment securities		1,100			10,438			7,102		$	25,034			43,674
Portfolio loans:
Commercial		1,283,058			229,286			1,112,298			63,719			2,688,361
Real estate mortgage		162,775			13,217			33,361			2,789			212,142
Installment		12,468			26,481			45,541			6,196			90,686
Non-earning assets														271,075


Total assets	$	1,624,015		$	283,995		$	1,198,898		$	97,738		$	3,475,721

LIABILITIES AND STOCKHOLDERS’ EQUITY
Interest-bearing deposits:
Time deposits under $100,000	$	81,078		$	182,691		$	110,570		$	4,025		$	378,364
Time deposits $100,000 and over		238,281			321,334			141,894			1,384			702,893
All other interest-bearing deposits		840,844			174,039			97,890						1,112,773

Total interest-bearing deposits		1,160,203			678,064			350,354			5,409			2,194,030
Notes payable and short-term borrowings		47,817			49,099			74,684			4,129			175,729
Trust preferred securities		48,000									55,300			103,300
Noninterest-bearing liabilities														616,958
Minority interests in consolidated subsidiaries														83,838
Stockholders’ equity														301,866


Total liabilities and stockholders’ equity	$	1,256,020		$	727,163		$	425,038		$	64,838		$	3,475,721


Interest rate sensitive period gap	$	367,995		$	(443,168	)	$	773,860		$	32,900


Interest rate sensitive cumulative gap	$	367,995		$	(75,173	)	$	698,687		$	731,587


Period rate sensitive assets/period rate sensitive liabilities		1.29			0.39			2.82			1.51
Cumulative rate sensitive assets/cumulative rate sensitive liabilities		1.29			0.96			1.29			1.30
Cumulative gap to total assets		10.59	%		(2.16	)%		20.10	%		21.05	%

F-21

The “gap” changes daily based upon changes in the underlying assets and liabilities at the banks. Analyzing exposure to interest rate risk is prone to imprecision because the “gap” is constantly changing, the “gap” differs at each of the banks and it is difficult to predict the timing, amount and direction of future changes in market interest rates and the potential corresponding effect on customer behavior.

The banks endeavor to manage and monitor interest rate risk in concert with market conditions and risk parameters. Management strives to maintain a reasonably balanced position of interest rate-sensitive assets and liabilities. 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. These most recent years of record low interest rates have created a huge volume of fixed-rate mortgage refinancing activity; those loans are sold to the secondary market and are not retained for the banks’ loan portfolios. Similarly, low interest rates generally make competition more intense for deposits, since loan demand will typically increase during periods of lower rates and, accordingly, result in higher interest costs on deposits as competitors bid-up rates, adversely impacting interest margins. Future interest rates and the impact on earnings are difficult to predict. In addition to interest rate risk relating to interest-bearing assets and liabilities, changes in interest rates also can impact future transaction volume of loans and deposits at the banks. For activities which are influenced by levels of interest rates for transaction volume (for example, origination of residential mortgage loans), pricing margins and demand can become impacted significantly by changes in interest rates.

As a means of monitoring and managing exposure to interest rate risk, management uses a computerized simulation model which is intended to estimate pro forma effects of changes in interest rates. Using the simulation model, the following table illustrates, on a consolidated basis, changes which would occur in annual levels of interest income, interest expense and net interest income (in $1,000s) assuming both one hundred and two hundred basis point (“bp”) parallel increases and decreases in interest rates:


	Pro Forma
	Assuming No		Pro Forma Effect of				Pro Forma Effect of
	Change in		Interest Rate Increases				Interest Rate Decreases
	Interest Rates		+100 bp		+200 bp		-100 bp		-200 bp
Interest income	$	243,573	$	262,611	$	281,634	$	227,014	$	210,943
Interest expense		101,433		118,286		135,094		84,906		69,752


Net interest income	$	142,140	$	144,325	$	146,540	$	142,108	$	141,191

The pro forma analysis above is intended to quantify theoretical changes in interest income based on stated assumptions. The pro forma analysis excludes the effect of numerous other variables such as borrowers’ ability to repay loans, the ability of banks to obtain deposits in a radically changed interest-rate environment and how management would revise its asset and liability management priorities in concert with rate changes.

F-22

While the pro forma analysis above is intended to estimate the impact of an immediate 100 and 200 basis point change in rates, actual results will be different. Those results will differ (and may be materially different) because a sudden rate change in market rates does not result in an instantaneous parallel shift in rates on loans and deposits at banks. Further, any financial model intended to estimate the impact of interest rate changes will not necessarily incorporate other variables, including management’s efforts to manage its asset and liability interest rate sensitivity, or customer behavior.

General economic conditions also have a significant impact on both the results of operations and the financial condition of financial institutions. Local economic conditions, and to some extent national economic conditions, have a significant impact on levels of loan demand as well as the ability of borrowers to repay loans and the availability of funds for customers to make deposits. Capitol has a significant portion of its assets in banks located in the Great Lakes region; although those banks have minimal amounts of loans to auto industry related businesses, the stress of the U.S. auto industry is likely to have some adverse impact on the communities in which the banks are located.

At the time this narrative was written, uncertainties of domestic economic health and global stability preclude prediction of near-term trends and their potential effects.

Continuing consolidation of the banking industry on a national basis, and in the markets of Capitol’s banks, has presented opportunities for growth. As a result of consolidation of the banking industry and the conversion of customer relationships into perceived ‘commodities’ by the larger banks, many customer relationships have been displaced, generating opportunities for development by Capitol’s banks. For many retail customers, banking services have become a commodity in an environment that is dominated by larger mega-bank or mass-merchandising institutions. For the professional, entrepreneur and other customers seeking a more service-oriented, customized 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 size at a manageable level, only a modest market share of deposits and loan activity is necessary to achieve profitability and investor-oriented earnings performance.

Start-up banks generally incur operating losses during their early periods of operations. Recently-formed start-up banks will detract from consolidated earnings performance and additional start-up banks formed in 2006 and beyond will similarly negatively impact short-term profitability. On a consolidated basis, such operating losses reduce net income by the pro rata share of Capitol’s ownership percentage in those banks. 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

F-23

gathering and capital adequacy (to name a few), translate into a significant cost burden of financial institution regulation. Such costs include the significant amount of management time and expense which is incurred in maintaining compliance and developing systems for compliance with those rules and regulations as well as the cost of examinations, audits and other compliance activities. The future of financial institution regulation, and its costs, is uncertain and difficult to predict.

Premiums for FDIC insurance have historically been a significant cost of doing business as financial institutions, but in the last several years, deposit insurance premiums have been maintained at a stable and modest level. Future deposit insurance premium levels are difficult to predict inasmuch as deposit insurance premiums will be determined based on general economic conditions, the relative health of the banking and financial institution industry and other unpredictable factors. It is reasonable to expect that deposit insurance premiums may increase at some point in the future.

International bank regulatory agencies are currently contemplating revisions to the existing risk-based capital adequacy framework through the Basel l-A proposals. As currently proposed, management does not expect those proposals to have a material impact on Capitol and its banks.

Critical Accounting Policies Affecting Capitol’s Financial Statements

Note B of the notes to the consolidated financial statements is captionedSignificant Accounting Policies. That footnote 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 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. 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 company 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 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. At December 31, 2005, Capitol’s allowance for loan losses approximated 1.36% 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 $300,000 impact on the allowance for loan losses and income before income taxes.

F-24

Accounting for Goodwill and Other Intangibles.At December 31, 2005, Capitol had $50 million of goodwill and other 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 premium which relates to the share exchange transactions when Capitol has issued its shares of common stock at a modest 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 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, 2005.

Accounting for Stock Options.A new accounting standard becomes effective for Capitol January 1, 2006, which will change its method of accounting for stock options, requiring expense recognition for share-based payments.

Like many companies, Capitol has granted stock options to its officers and directors and, as permitted under accounting rules in effect through December 31, 2005, has not treated stock options as an element of compensation expense. This is because Capitol has used the so-called intrinsic-value method for accounting for stock options, which ascribes zero value and expense to stock options at the date granted or over the life of the stock option, because Capitol’s stock options have been granted with an exercise price equal to the fair value of Capitol’s common stock at the grant date. When using that method, Capitol has been required to disclose what the fair value of the stock options would be, using a valuation model and a pro forma presentation of what compensation expense would have been recognized if Capitol used that fair value method and expensing alternative.

In 2005, Capitol granted stock options with an aggregate estimated fair value of $9.4 million. If the stock options granted had been recorded as compensation expense, net income for 2005 would have been $29.8 million or $1.94 per diluted share.

It is important to point out, however, that the pro-forma effect of expensing 2005 stock option grants doesnot give effect to whether the accounting rule change would have had any impact on the level or structure of stock option grant activity. The pro forma amounts should not be viewed as an estimate of future expense levels because it is based on stock options granted through December 31, 2005, which may differ significantly from future grant activity, assumptions used to estimate fair value and the structure of share-based payments. It is difficult to estimate what future impact the accounting rule change may have on incentive awards, but it may result in extended vesting periods for future stock option grants, use of restricted stock awards or stock appreciation rights as a replacement of stock options in future periods or a combination of these or other long-term incentives.

While the new rules apply prospectively to stock options granted after the 2006 effective date mentioned previously, it also applies to any previously granted but unvested stock options at that effective date. Capitol has accelerated the vesting of any previously unvested stock

F-25

options in anticipation of implementation of the new accounting rules. The accelerated vesting of stock options was done for the purpose of avoiding expense recognition relating to those stock options in anticipation of the new accounting standard.

Consolidation Policy. Current accounting rules require consolidation of entities which are majority-owned or controlled by Capitol. This means that some banks and bank-development subsidiaries are combined with Capitol for financial reporting purposes even though Capitol has partial ownership of the entity. The consolidated balance sheet includes all assets and liabilities of those entities. Capitol’s net income, however, only includes the entities’ net income or loss to the extent of Capitol’s ownership. Reported results would be different if Capitol completely owned those entities. Capitol has typically gained full ownership at a later date through share-exchange transactions.

New Accounting Standards

There were several new accounting standards which were issued or became effective in 2005, in addition to some which have later effective dates. They are listed and discussed in Note B of the consolidated financial statements, beginning on page F-42.

Risk Factors Affecting Capitol and its Banks

New 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:

	•		The favorable 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 favorable 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-26

Recent Developments

Regulatory applications were pending at December 31, 2005 for a total of six additionalde novo banks to be formed in the states of Arizona, Georgia, Indiana, Ohio and North Carolina. In addition to pending regulatory applications for new banks, as of December 31, 2005, Capitol had engaged three seasoned banking professionals to become presidents of future new banks for which regulatory applications had not been filed. Bank development activities in early 2006 in other regions of the country were also in various stages of progress.

Capitol Development Bancorp Limited III, a controlled subsidiary of Capitol, acquired a controlling interest in ade novobank subsidiary in February 2006; Community Bank of Rowan, located in North Carolina, opened on February 21, 2006.

[The remainder of this page intentionally left blank]

F-27

Report on Management’s Assessment of
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, 2005, in relation to criteria for effective internal control over financial reporting as described inInternal 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, 2005, its system of internal control over financial reporting was effective and met the criteria of theInternal Control – Integrated Framework. BDO Seidman, LLP, independent registered public accounting firm, has issued an attestation report on management’s assessment of Capitol’s internal control over financial reporting.



Joseph D. Reid		Lee W. Hendrickson
Chairman and CEO		Chief Financial Officer

Lansing, Michigan
February 24, 2006

F-28


		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

Report of Independent Registered Public Accounting Firm

Board of Directors and Stockholders
Capitol Bancorp Ltd.

We have audited management’s assessment, included in the accompanying Report on Management’s Assessment of Internal Control Over Financial Reporting, that Capitol Bancorp Ltd. and subsidiaries maintained effective internal control over financial reporting as of December 31, 2005, based on criteria established inInternal Control-Integrated Frameworkissued 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. Our responsibility is to express an opinion on management’s assessment and an opinion on the effectiveness of 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, evaluating management’s assessment, testing and evaluating the design and operating effectiveness of internal control, and 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.

F-29

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.

In our opinion, management’s assessment that Capitol Bancorp Ltd. and subsidiaries maintained effective internal control over financial reporting as of December 31, 2005, is fairly stated, in all material respects, based on the COSO criteria. Also in our opinion, Capitol Bancorp Ltd. and subsidiaries maintained, in all material respects, effective internal control over financial reporting as of December 31, 2005, 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 as of December 31, 2005 and 2004, 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, 2005 of Capitol Bancorp Ltd. and subsidiaries and our report dated February 24, 2006 expressed an unqualified opinion thereon.

Grand Rapids, Michigan
February 24, 2006

F-30


		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

Report of Independent Registered Public Accounting Firm

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, 2005 and 2004, 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, 2005. 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. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Capitol Bancorp Ltd. and subsidiaries as of December 31, 2005 and 2004, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2005, 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), the effectiveness of Capitol Bancorp Ltd. and subsidiaries’ internal control over financial reporting as of December 31, 2005, based on criteria established inInternal Control — Integrated Frameworkissued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) and our report dated February 24, 2006 expressed an unqualified opinion thereon.

Grand Rapids, Michigan
February 24, 2006

F-31

Consolidated Balance Sheets


	- December 31 -
	2005			2004
	(in $1,000s)
ASSETS
Cash and due from banks	$	157,963		$	123,969
Money market and interest-bearing deposits		19,846			10,745
Federal funds sold		128,299			96,390

Cash and cash equivalents		306,108			231,104
Loans held for resale		21,638			43,143
Investment securities—Note C:
Available for sale, carried at market value		25,929			28,172
Held for long-term investment, carried at amortized cost which approximates market value		17,745			14,191

Total investment securities		43,674			42,363
Portfolio loans, less allowance for loan losses of $40,559 in 2005 and $37,572 in 2004—Note D		2,950,630			2,655,332
Premises and equipment—Note F		41,629			32,661
Accrued interest income		13,719			10,447
Goodwill and other intangibles—Notes B and R		50,378			41,943
Other assets		47,945			34,425


TOTAL ASSETS	$	3,475,721		$	3,091,418


LIABILITIES AND STOCKHOLDERS’ EQUITY
Deposits:
Noninterest-bearing	$	591,229		$	503,902
Interest-bearing—Note G		2,194,030			2,006,170

Total deposits		2,785,259			2,510,072
Debt obligations:
Notes payable and short-term borrowings—Note H		175,729			172,534
Subordinated debentures—Note I		100,940			100,845

Total debt obligations		276,669			273,379
Accrued interest on deposits and other liabilities		28,089			16,288

Total liabilities		3,090,017			2,799,739

MINORITY INTERESTS IN CONSOLIDATED SUBSIDIARIES—Note A		83,838			39,520

STOCKHOLDERS’ EQUITY—Notes B, J and P
Common stock, no par value, 50,000,000 shares authorized; issued and outstanding:
2005—15,776,192 shares
2004—14,828,750 shares		219,501			196,271
Retained earnings		85,553			60,476
Market value adjustment (net of tax effect) for investment securities available for sale (accumulated other comprehensive income/loss)		(226	)		(36	)

		304,828			256,711
Less unearned compensation regarding restricted stock and other		(2,962	)		(4,552	)

Total stockholders’ equity		301,866			252,159


TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	3,475,721		$	3,091,418

See notes to consolidated financial statements.

F-32

Consolidated Statements of Income


	- Year Ended December 31 -
	2005		2004			2003
	(in $1,000s, except per share data)
Interest income:
Portfolio loans (including fees)	$	214,882	$	173,376		$	157,114
Loans held for resale		2,627		2,150			3,299
Taxable investment securities		1,008		1,331			749
Federal funds sold		4,734		1,620			1,344
Other		1,188		612			1,910

Total interest income		224,439		179,089			164,416
Interest expense:
Deposits		53,213		36,695			41,260
Debt obligations and other		14,366		10,801			8,230

Total interest expense		67,579		47,496			49,490

Net interest income		156,860		131,593			114,926
Provision for loan losses—Note D		10,960		12,708			9,861

Net interest income after provision for loan losses		145,900		118,885			105,065
Noninterest income:
Service charges on deposit accounts		4,120		4,381			4,319
Trust fee income		2,069		3,456			2,614
Fees from origination of non-portfolio residential mortgage loans		6,146		5,581			8,710
Gains on sale of government-guaranteed loans		2,291		3,778			3,635
Realized gains (losses) on sale of investment securities available for sale		8		(603	)		4
Other		6,414		2,659			805

Total noninterest income		21,048		19,252			20,087
Noninterest expense:
Salaries and employee benefits		72,387		63,281			55,264
Occupancy		9,735		8,791			7,723
Equipment rent, depreciation and maintenance		6,369		5,494			4,847
Other		28,798		20,221			19,118

Total noninterest expense		117,289		97,787			86,952

Income before income taxes and minority interest		49,659		40,350			38,200
Income taxes—Note L		19,232		14,699			14,035

Income before minority interest		30,427		25,651			24,165
Minority interest in net losses (income) of consolidated subsidiaries		5,498		1,065			(785	)


NET INCOME	$	35,925	$	26,716		$	23,380


NET INCOME PER SHARE—Note M:
Basic	$	2.42	$	1.88		$	1.86

Diluted	$	2.34	$	1.79		$	1.77

See notes to consolidated financial statements.

F-33

Consolidated Statements of Changes in Stockholders’ Equity (in $1,000s, except share and per-share data)


										Unearned
							Accumulated			Compensation
							Other			Regarding
	Common			Retained			Comprehensive			Restricted Stock
	Stock			Earnings			Income (Loss)			and Other			Total
Balances at January 1, 2003	$	135,234		$	26,318		$	191		$	(1,706	)	$	160,037
Issuance of 1,327,378 shares of common stock to acquire minority interests in bank subsidiaries		29,134												29,134
Issuance of 280,842 shares of common stock upon exercise of stock options, net of common stock surrendered to facilitate exercise, and exercise of 22,512 warrants		2,287												2,287
Private placement of 549,000 shares of common stock		10,226												10,226
Surrender and cancellation of 74,179 shares of common stock in repayment of note receivable from exercise of stock options		(1,561	)								1,561			—
Issuance of 259,017 shares of restricted common stock		5,637									(5,637	)		—
Recognition of compensation expense relating to restricted common stock											642			642
Allocation of shares to ESOP participants’ accounts											145			145
Cash dividends paid ($.51 per share)					(6,563	)								(6,563	)
Components of comprehensive income:
Net income for 2003					23,380									23,380
Market value adjustment for investment securities available for sale (net of income tax effect)								(391	)					(391	)

Comprehensive income for 2003														22,989


BALANCES AT DECEMBER 31, 2003		180,957			43,135			(200	)		(4,995	)		218,897

Issuance of 183,349 shares of common stock in conjunction with acquisition of First Carolina State Bank		4,970												4,970
Issuance of 346,947 shares of common stock to acquire minority interests in subsidiaries		8,665												8,665
Issuance of 257,409 shares of common stock upon exercise of stock options, net of common stock surrendered to facilitate exercise		1,302												1,302
Issuance of 13,063 shares of restricted common stock		377									(377	)		—
Recognition of compensation expense relating to restricted common stock of $1,168 and other											820			820
Cash dividends paid ($.65 per share)					(9,375	)								(9,375	)
Components of comprehensive income:
Net income for 2004					26,716									26,716
Market value adjustment for investment securities available for sale (net of income tax effect)								164						164

Comprehensive income for 2004														26,880


BALANCES AT DECEMBER 31, 2004		196,271			60,476			(36	)		(4,552	)		252,159

Issuance of 610,383 shares of common stock to acquire minority interests 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 $1,242 and other											1,590			1,590
Issuance of shares to ESOP		584												584
Cash dividends paid ($.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	$	219,501		$	85,553		$	(226	)	$	(2,962	)	$	301,866


See notes to consolidated financial statements.

F-34

Consolidated Statements of Cash Flows


	- Year Ended December 31 -
	2005			2004			2003
	(in $1,000s)
OPERATING ACTIVITIES
Net income	$	35,925		$	26,716		$	23,380
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses		10,960			12,708			9,861
Depreciation of premises and equipment		5,661			4,881			4,102
Amortization of intangibles		577			549			532
Net amortization of investment security premiums		63			87			74
Loss (gain) on sales of premises and equipment		157			111			(83	)
Minority interest in net income (losses) of consolidated subsidiaries		(5,498	)		(1,065	)		785
Compensation expense relating to restricted common stock		1,242			1,168			642
Deferred income taxes		(5,263	)		(2,282	)		325
Originations and purchases of loans held for resale		(634,362	)		(715,238	)		(1,261,078	)
Proceeds from sales of loans held for resale		655,867			715,096			1,293,497
Increase in accrued interest income and other assets		(15,815	)		(5,475	)		(232	)
Increase in accrued interest expense on deposits and other liabilities		11,801			347			783

NET CASH PROVIDED BY OPERATING ACTIVITIES		61,315			37,603			72,588

INVESTING ACTIVITIES
Cash and cash equivalents of acquired subsidiary		3,557			4,202
Proceeds from sales of investment securities available for sale		1,756			59,574			25,451
Proceeds from calls, prepayments and maturities of investment securities		11,249			18,254			16,786
Purchases of investment securities		(14,667	)		(19,736	)		(101,971	)
Net increase in portfolio loans		(306,258	)		(403,358	)		(263,478	)
Proceeds from sales of premises and equipment		93			23			1,733
Purchases of premises and equipment		(14,879	)		(11,139	)		(8,808	)

NET CASH USED BY INVESTING ACTIVITIES		(319,149	)		(352,180	)		(330,287	)

FINANCING ACTIVITIES
Net increase in demand deposits, NOW accounts and savings accounts		85,385			151,512			223,164
Net increase in certificates of deposit		189,802			16,354			3,428
Net borrowings from (payments on) debt obligations		3,195			77,900			(624	)
Net proceeds from issuance of subordinated debentures					9,935			39,160
Resources provided by minority interests		62,794			14,778			19,559
Net proceeds from issuance of common stock		2,510			954			12,014
Cash dividends paid		(10,848	)		(9,375	)		(6,563	)

NET CASH PROVIDED BY FINANCING ACTIVITIES		332,838			262,058			290,138

INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS		75,004			(52,519	)		32,439
Cash and cash equivalents at beginning of year		231,104			283,623			251,184


CASH AND CASH EQUIVALENTS AT END OF YEAR	$	306,108		$	231,104		$	283,623

See notes to consolidated financial statements.

F-35

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Capitol Bancorp Limited

NOTE A—NATURE OF OPERATIONS, BASIS OF PRESENTATION AND PRINCIPLES OF CONSOLIDATION

Capitol Bancorp Limited (“Capitol” or the “Corporation”) is a multibank holding company. Consolidated bank subsidiaries consist of the following:


		Percentage Owned at	Year Formed or
Affiliate	Location	December 31, 2005	Acquired
Eastern Regions
Great Lakes Region:
Ann Arbor Commerce Bank	Ann Arbor, Michigan	100%	1990
Bank of Auburn Hills	Auburn Hills, Michigan	(1)	2005
Bank of Belleville	Belleville, Illinois	(1)	2005
Bank of Michigan	Farmington Hills, Michigan	(1)	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
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
Paragon Bank & Trust	Holland, Michigan	100%	1994
Portage Commerce Bank	Portage, Michigan	100%	1988
Midwest Region — Summit Bank of Kansas City	Lee’s Summit, Missouri	(1)	2005
Southeast Region:
First Carolina State Bank	Rocky Mount, North Carolina	100%	2004
Peoples State Bank	Jeffersonville, Georgia	62%	2005

Western Regions
Southwest Region:
Arrowhead Community Bank	Glendale, Arizona	100%	2000
Bank of Las Vegas	Las Vegas, Nevada	100%	2002
Bank of Tucson	Tucson, Arizona	100%	1996
Black Mountain Community Bank	Henderson, Nevada	100%	2000
Camelback Community Bank	Phoenix, Arizona	100%	1998
Desert Community Bank	Las Vegas, Nevada	100%	1999
East Valley Community Bank	Chandler, Arizona	100%	1999
Fort Collins Commerce Bank	Fort Collins, Colorado	51%	2005
Mesa Bank	Mesa, Arizona	100%	1998
Red Rock Community Bank	Las Vegas, Nevada	100%	1999
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	51%	2003
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
Northwest Region — Bank of Bellevue	Bellevue, Washington	(1)	2005

(1)

Majority-owned by a bank development subsidiary in which Capitol has a controlling interest.

F-36

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Capitol Bancorp Limited

NOTE A—NATURE OF OPERATIONS, BASIS OF PRESENTATION AND PRINCIPLES OF CONSOLIDATION—Continued

In 2003, Capitol formed a bank-development subsidiary, Capitol Development Bancorp Limited I (“CDBL-I”). In 2004, a second bank-development subsidiary was formed, Capitol Development Bancorp Limited II (“CDBL-II”), followed by the subsequent similar formation of CDBL-III and CDBL-IV in 2005. Each of these bank-development entities were capitalized with two classes of common stock, voting and nonvoting. All of the voting common stock (an aggregate investment of $1 million for each entity) is owned by Capitol. All of the nonvoting common stock, ranging from $9.9 million to $14.9 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 ade novobasis or through acquisition opportunities.

Capitol views itself as a bank-development company. It is engaged in the formation ofde 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 ade novobank reaches a point of development 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. 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 banks’ domicile. Many of the banks operate from a single location and all are 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. In addition to commercial 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-37

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 banking industry. Accordingly, the Corporation’s consolidated financial statements reflect the presentation of segment information on an aggregated basis.

The consolidated financial statements include the accounts of the Corporation and its majority-owned and/or controlled subsidiaries, after elimination of intercompany accounts and transactions, and after giving effect to applicable minority interests. Banks formed or acquired during 2003, 2004 and 2005 are included in the consolidated financial statements for periods after joining the consolidated group. Certain 2004 and 2003 amounts have been reclassified to conform to the 2005 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 Resale:Loans held for resale represent residential real estate mortgage loans held for sale into the secondary market. Loans held for resale are stated at the aggregate lower of cost or market. Fees from the origination of loans held for resale are recognized in the period the loans are originated.

F-38

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Capitol Bancorp Limited

NOTE B—SIGNIFICANT ACCOUNTING POLICIES—Continued

Investment Securities:Investment securities available for sale (generally most debt investment securities of Capitol’s banks) are carried at market value with unrealized gains and losses reported as a separate component of stockholders’ equity, net of tax effect (accumulated other comprehensive income). All other investment securities are classified as held for long-term investment and are carried at amortized cost which approximates market value (see Note C).

Investments are classified at the date of purchase based on management’s analysis of liquidity and other factors. The adjusted cost of the specific securities sold is used to compute realized gains or losses. Premiums and discounts are recognized in interest income using the interest method over the period to maturity.

Loans, Credit Risk and Allowance for Loan Losses:Portfolio loans are carried at their principal balance based on management’s intent and ability to hold such loans for the foreseeable future until maturity or repayment.

Credit risk arises from making loans and loan commitments in the ordinary course of business. Substantially all portfolio loans are made to borrowers in the banks’ geographic areas. Consistent with the banks’ emphasis on business lending, there are concentrations of credit in loans secured by commercial real estate 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

F-39

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Capitol Bancorp Limited

NOTE B—SIGNIFICANT ACCOUNTING POLICIES—Continued

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.

Interest and Fees on Loans:Interest income on loans is recognized based upon the principal balance of loans outstanding. Fees from origination of portfolio loans generally approximate the direct costs of successful loan originations.

The accrual of interest is generally discontinued when a loan becomes 90 days past due as to interest. When interest accruals are discontinued, interest previously accrued (but unpaid) is reversed. Management may elect to continue the accrual of interest when the estimated net realizable value of collateral is sufficient to cover the principal balance and accrued interest and the loan is in process of collection.

Premises and Equipment:Premises and equipment are stated on the basis of cost. Depreciation, which relates primarily to equipment and furniture with estimated useful lives of approximately three to seven years, is computed principally by the straight-line method. Buildings are generally depreciated on a straight-line basis with estimated useful lives of approximately 40 years. Leasehold improvements are generally depreciated over the 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 have recorded goodwill resulting from specific share-exchange transactions (see Note R) or acquisitions. Impairment adjustments of goodwill (none through December 31, 2005) are charged against earnings, when determined. Other intangibles, which generally consist of core deposit intangibles, are amortized over varying periods 5 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, 2005 and 2004, approximated $3.7 million and $3.9 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 the lower of cost or estimated

F-40

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Capitol Bancorp Limited

NOTE B—SIGNIFICANT ACCOUNTING POLICIES—Continued

fair value (net of estimated selling cost) at the date acquired and is periodically reviewed for subsequent changes in fair value.

Stock-Based Compensation:No stock-based compensation expense has been recorded upon granting of stock options through December 31, 2005, because such stock options have been accounted for under the provisions of Accounting Principles Board (APB) Opinion 25 (and related interpretations) and were granted at an exercise price equal to the market price of common stock at grant date. Compensation expense for awards of restricted stock is recognized ratably over the vesting periods of such awards (generally four years), based on the fair value of the common stock on the date of grant.

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:


	2005			2004			2003
Fair value assumptions:
Risk-free interest rate		4.2	%		3.9	%		3.6	%
Dividend yield		2.0	%		2.3	%		2.1	%
Stock price volatility		.30			.25			.44
Expected option life	6.8 years			6.7 years			7 years
Aggregate estimated fair value of options granted (in thousands)	$	9,373		$	6,581		$	6,117
Net income (in thousands):
As reported		35,925			26,716			23,380
Pro forma		29,833			21,450			19,206
Net income per share:
Basic:
As reported		2.42			1.88			1.86
Pro forma		2.01			1.51			1.52
Diluted:
As reported		2.34			1.79			1.77
Pro forma	$	1.94		$	1.44		$	1.46

Accounting for stock options will change in 2006, upon implementation of new accounting guidance which will require compensation expense recognition for stock options and other share-based payments (see subsequent disclosures in this Note B under the caption, “New Accounting Standards”).

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

F-41

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Capitol Bancorp Limited

NOTE B—SIGNIFICANT ACCOUNTING POLICIES—Continued

sheet because it is not an asset of the banks or Capitol. Trust fee income is recorded on the accrual method.

Federal Income Taxes:Capitol and subsidiaries owned 80% or more by Capitol file a consolidated federal income tax return. Deferred 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.

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 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 is effective at the beginning of 2006 for calendar-year public companies and will be applied prospectively to stock options granted after the effective date and any unvested stock options at that date.

The primary effect of the revised standard’s implementation on Capitol 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. Capitol accelerated the vesting of all of its outstanding stock options in anticipation of implementation of Statement No. 123(R), effective December 31, 2004. Such acceleration of vesting 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 (which had an earlier effective date) and its

F-42

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Capitol Bancorp Limited

NOTE B—SIGNIFICANT ACCOUNTING POLICIES—Continued

subsequent revision, Statement No.123(R). As mentioned above, the current accounting standard in effect prior to the effective date of Statement No. 123(R) requires disclosure of what pro forma compensation expense would have been if stock options granted had been recorded at fair value using measurement techniques which are similar to those prescribed in Statement No. 123(R); such disclosures appear earlier in this Note B. The pro forma effect of accelerated vesting of stock options was not material. That presentation should not be viewed as an estimate of future expense levels inasmuch as it is based on stock options granted in the periods presented which may differ significantly from future granting activity, assumptions used and the structure of share-based payment awards. An additional change in accounting resulting from the implementation of Statement No. 123(R) will be the reclassification of unvested restricted stock to the common stock account on Capitol’s balance sheet at January 1, 2006.

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. The effect of this new guidance on Capitol’s consolidated financial statements was not material.

In late 2005, the FASB’s staff issued Staff Position (FSP) 115-1,The Meaning of Other-Than-Temporary Impairment and its Application to Certain Investments. This FSP provides additional guidance on when an investment in a debt or equity security should be considered impaired and when that impairment should be considered other-than-temporary and recognized as a loss. Additionally, the FSP requires certain disclosures about unrealized losses which have not been recognized as other-than-temporary. Capitol’s management believes this guidance will not have a material effect on Capitol’s consolidated financial statements upon implementation on January 1, 2006.

Most 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.

	•		Proposed amendments to Statement No. 140,Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities.

	•		Proposed interpretation regardingUncertain Tax Positions.

F-43

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Capitol Bancorp Limited

NOTE B—SIGNIFICANT ACCOUNTING POLICIES—Continued

	•		Proposed replacement of Statement No. 141 regardingBusiness Combinations.

	•		Proposed replacement of Accounting Research Bulletin No. 51 regardingConsolidated Financial Statements, Including Accounting and Reporting for Noncontrolling Interests.

Due to the uncertain future status of these proposals, Capitol’s management is unable to estimate their potential impact 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.

NOTE C—INVESTMENT SECURITIES

Investment securities consisted of the following at December 31 (in $1,000s):


	2005				2004
			Estimated				Estimated
	Amortized		Market		Amortized		Market
	Cost		Value		Cost		Value
Available for sale:
United States Treasury securities	$	—	$	—	$	330	$	329
United States government agency securities		23,276		23,022		27,897		27,843
Mortgage backed securities		2,430		2,348		—		—
Municipals		568		559		—		—

		26,274		25,929		28,227		28,172
Held for long-term investment:
Federal Reserve Bank stock		536		536		535		535
Federal Home Loan Bank stock		12,960		12,960		10,878		10,878
Mortgage backed securities		7		7		—		—
Municipals		1,072		1,072		—		—
Corporate stock		1,835		1,835		1,443		1,443
Other		1,335		1,335		1,335		1,335

		17,745		17,745		14,191		14,191

	$	44,019	$	43,674	$	42,418	$	42,363

F-44

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Capitol Bancorp Limited

NOTE C—INVESTMENT SECURITIES—Continued

At December 31, 2005, securities with a market value approximating $16 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):


	2005				2004
	Gains		Losses		Gains		Losses
United States Treasury securities	$	—	$	—	$	—	$	1
United States government agency securities		35		289		110		164
Mortgage backed securities		—		82		—		—
Municipals		4		13		—		—

	$	39	$	384	$	110	$	165

The age of gross unrealized losses and carrying value (at estimated market value) of securities available for sale are summarized below (in $1,000s):


	2005				2004
	Unrealized		Carrying		Unrealized		Carrying
	Loss		Value		Loss		Value
One year or less:
United States Treasury securities	$	—	$	—	$	1	$	329
United States government agency securities		129		8,744		126		17,303
Mortgage backed securities		82		2,340
Municipals		13		242		—		—

	$	224	$	11,326	$	127	$	17,632


In excess of one year:
United States Treasury securities	$	—	$	—	$	—	$	—
United States government agency securities		160		12,595		38		3,064

		160		12,595		38		3,064

	$	384	$	23,921	$	165	$	20,696

Management does not believe any individual unrealized loss as of December 31, 2005 represents other-than-temporary losses (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.

F-45

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Capitol Bancorp Limited

NOTE C—INVESTMENT SECURITIES—Continued

Scheduled maturities of investment securities held as of December 31, 2005 were as follows (in $1,000s):


			Estimated
	Amortized		Market
	Cost		Value
Due in one year or less	$	11,612	$	11,538
After one year, through five years		7,251		7,102
After five years, through ten years		3,841		3,791
After ten years		3,570		3,498
Securities held for long-term investment, without stated maturities		17,745		17,745

	$	44,019	$	43,674

NOTE D—LOANS

Portfolio loans consisted of the following at December 31 (in $1,000s):


	2005			2004
Commercial	$	2,688,361		$	2,444,492
Real estate mortgage		212,142			177,204
Installment		90,686			71,208

Total portfolio loans		2,991,189			2,692,904
Less allowance for loan losses		(40,559	)		(37,572	)

Net portfolio loans	$	2,950,630		$	2,655,332

Loans serviced for the benefit of others, which are not recorded on the consolidated balance sheet, approximated $77 million and $67 million at December 31, 2005 and 2004, respectively.

Transactions in the allowance for loan losses are summarized below (in $1,000s):


	2005			2004			2003
Balance at January 1	$	37,572		$	31,404		$	28,953
Allowance for loan losses of acquired bank subsidiary		—			724			—
Provision charged to operations		10,960			12,708			9,861
Loans charged off (deduction)		(9,643	)		(8,388	)		(8,791	)
Recoveries		1,670			1,124			1,381

Net charge-offs		(7,973	)		(7,264	)		(7,410	)

Balance at December 31	$	40,559		$	37,572		$	31,404

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.

F-46

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
	2005		2004
Nonaccrual loans:
Commercial	$	19,734	$	20,618
Real estate mortgage		1,734		2,396
Installment		1,154		195

Total nonaccrual loans		22,622		23,209

Past due (>90 days) loans:
Commercial		3,235		3,529
Real estate mortgage		592		1,382
Installment		283		351

Total past due loans		4,110		5,262


Total nonperforming loans	$	26,732	$	28,471

If nonperforming loans had performed in accordance with their contractual terms during the year, additional interest income of $1.9 million, $1.6 million and $2.0 million would have been recorded in 2005, 2004 and 2003, respectively. Interest income recognized on loans in nonaccrual status in 2005, 2004 and 2003 operations approximated $845,000, $714,000 and $866,000, respectively. At December 31, 2005, there were no material amounts of loans which were restructured or otherwise renegotiated as a concession to troubled borrowers.

The amounts of the allowance for loan losses allocated in the following table (in $1,000s) are based on management’s estimate of losses inherent in the portfolio at the balance sheet date, and should not be interpreted as an indication of future charge-offs:


	December 31, 2005					December 31, 2004
			Percentage					Percentage
			of Total					of Total
			Portfolio					Portfolio
	Amount		Loans			Amount		Loans
Commercial	$	37,498		1.25	%	$	34,753		1.29	%
Real estate mortgage		1,866		0.06			1,808		0.07
Installment		1,195		0.04			1,011		0.04


Total allowance for loan losses	$	40,559		1.36	%	$	37,572		1.40	%

F-47

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Capitol Bancorp Limited

NOTE E—RELATED PARTIES TRANSACTIONS

In the ordinary course of business, Capitol’s banking subsidiaries make loans to officers and directors of Capitol and its subsidiaries including their immediate families and companies in which they are principal owners. At December 31, 2005 and 2004, total loans to these persons were $123 million and $110 million, respectively. During 2005, $97 million of new loans were made to these persons and repayments totaled $84 million. Such loans are made at the banking subsidiaries’ normal credit terms.

Officers and directors of Capitol (and their associates, family and/or affiliates) are also depositors of the banking subsidiaries. Such deposits are similarly made at the banks’ normal terms as to interest rate, term and deposit insurance.

NOTE F—PREMISES AND EQUIPMENT

Major classes of premises and equipment consisted of the following at December 31 (in $1,000s):


	2005			2004
Land, buildings and improvements	$	16,551		$	14,464
Leasehold improvements		14,631			11,944
Equipment, furniture and software		35,875			26,918

		67,057			53,326
Less accumulated depreciation		(25,428	)		(20,665	)

	$	41,629		$	32,661

Capitol and certain subsidiaries rent office space under operating leases. Rent expense (net of sublease income) under these lease agreements approximated $6.2 million, $5.9 million and $5.3 million, respectively (including rent expense approximating $1.7 million in 2005 and 2004 and $1.6 million in 2003 under leases with related parties).

At December 31, 2005, 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):


2006	$	6,962
2007		6,189
2008		5,396
2009		4,561
2010		4,018
2011 and thereafter		12,971

	$	40,097

F-48

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Capitol Bancorp Limited

NOTE G—DEPOSITS

The aggregate amount of time deposits of $100,000 or more approximated $702.9 million and $664.8 million as of December 31, 2005 and 2004, respectively.

At December 31, 2005, the scheduled maturities of time deposits were as follows (in $1,000s):


2006	$	823,384
2007		151,399
2008		48,705
2009		25,418
2010		26,942
2011 and thereafter		5,409

	$	1,081,257

Interest paid approximates amounts charged to operations on an accrual basis for the periods presented.

NOTE H—NOTES PAYABLE AND SHORT-TERM BORROWINGS

Notes payable and short-term borrowings consisted of the following at December 31 (in $1,000s):


	2005		2004
Borrowings from Federal Home Loan Banks	$	172,736	$	154,135
Repurchase agreements		1,133		399
Federal funds purchased		1,860		18,000

	$	175,729	$	172,534

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 2.6% at December 31, 2005). At December 31, 2005, unused lines of credit under these facilities approximated $163 million. Assets pledged to secure these credit facilities approximated $350 million at December 31, 2005.

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, 2005), payable monthly, and a quarterly facility fee on the unused portion. There were no amounts drawn on the line of credit at December 31, 2005 or 2004. 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.

F-49

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Capitol Bancorp Limited

NOTE H—NOTES PAYABLE AND SHORT-TERM BORROWINGS—Continued

For the periods presented, interest paid on debt obligations approximated amounts charged to expense.

At December 31, 2005, scheduled debt maturities of notes payable and short-term borrowings were as follows (in $1,000s):


2006	$	96,916
2007		32,184
2008		12,000
2009		1,500
2010		29,000
2011 and thereafter		4,129

	$	175,729

In addition to the foregoing, Capitol has guaranteed some obligations of its subsidiaries (see Note O).

NOTE I—SUBORDINATED DEBT

Subordinated debt relates to trust-preferred securities issued by Capitol which are summarized as follows:


				Aggregate		Net Carrying Amount
	Interest Rate at			Liquidation		at December 31
	December 31,	Scheduled		Amount		(in $1,000s)
Description	2005	Maturity		(in $1,000s)		2005		2004
Capitol Trust I	8.50% fixed		2027	$	25,300	$	24,507	$	24,471
Capitol Trust II	10.25% fixed		2031		10,000		9,743		9,733
Capitol Statutory Trust III	7.82% variable		2031		15,000		14,615		14,600
Capitol Trust IV	7.80% variable		2032		3,000		2,911		2,908
Capitol Trust VI	7.45% variable		2033		10,000		9,727		9,717
Capitol Trust VII	7.78% fixed		2033		10,000		9,861		9,856
Capitol Statutory Trust VIII	7.45% variable		2033		20,000		19,637		19,624
Capitol Trust IX	7.69% fixed		2034		10,000		9,939		9,936

				$	103,300	$	100,940	$	100,845

Securities of Capitol Trust I were issued in a 1997 public offering. All of the 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.

F-50

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Capitol Bancorp Limited

NOTE I—SUBORDINATED DEBT—Continued

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

Restricted common stock has been granted to certain officers. The weighted-average grant-date fair value of restricted stock awards in 2004 was $28.86 per share (no awards in 2005). Compensation expense relating to the award of restricted stock is recognized ratably over the vesting periods of such awards (generally four years). Compensation expense related to restricted stock approximated $1.2 million in 2005 and 2004 and $642,000 in 2003.

Stock options have been granted to certain officers and directors which provide for the purchase of shares of common stock. Generally, stock options are granted at an exercise price equal to the fair value of common stock on the grant date. 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					Weighted
	Stock Options			Exercise		Average
	Outstanding			Price Range		Exercise Price
Outstanding at January 1, 2003		2,548,536		$	4.92 to $25.10	$	15.23
Granted in 2003		577,200			20.36 to 27.23		24.45
Exercised in 2003		(801,448	)		4.92 to 25.92		14.41
Cancelled or expired in 2003		(26,221	)

Outstanding at December 31, 2003		2,298,067			9.88 to 27.23		16.95

Granted in 2004		834,647			22.43 to 33.01		27.77
Exercised in 2004		(515,836	)		9.88 to 25.92		15.93
Cancelled or expired in 2004		(32,739	)

Outstanding at December 31, 2004		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

F-51

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Capitol Bancorp Limited

NOTE J—RESTRICTED COMMON STOCK AND STOCK OPTIONS—Continued

At December 31, 2005, all outstanding stock options were vested, currently exercisable and had a weighted average remaining contractual life of 4.6 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

265,702

11.20

1.5 years

$15.00 to 19.99

313,024

16.60

3.7 years

$20.00 to 24.99

492,100

21.66

4.1 years

$25.00 to 29.99

726,345

27.00

4.3 years

$30.00 or more

1,085,112

33.83

6.1 years

2,882,283

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, which are a match for employee contributions (50%, subject to certain limitations), charged to expense for the years ended December 31, 2005, 2004 and 2003 were $1.1 million, $1.0 million and $918,000, 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 2005, 2004 and 2003 approximated $949,000, $961,000 and $642,000, respectively. As of December 31, 2005, the ESOP held approximately 290,000 shares of Capitol’s common stock which have been allocated to participants’ accounts; there were no unallocated shares as of that date.

NOTE L—INCOME TAXES

Income taxes include the following components (in $1,000s):


	2005			2004			2003
Federal:
Currently payable	$	22,326		$	15,401		$	12,549
Deferred (credit)		(5,263	)		(2,282	)		325

		17,063			13,119			12,874
State income taxes		2,169			1,580			1,161

	$	19,232		$	14,699		$	14,035

F-52

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Capitol Bancorp Limited

NOTE L—INCOME TAXES—Continued

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 $1.1 million, $1.0 million and $909,000 in 2005, 2004 and 2003, respectively, and are excluded from income tax expense and included in other noninterest expense. Deferred state income taxes were insignificant for the periods presented.

Federal income taxes paid in 2005, 2004 and 2003 approximated $19.3 million, $17.1 million and $9.7 million, respectively. State income taxes approximating $1.9 million were paid in 2005 ($1.6 million in 2004 and $867,000 in 2003). Federal income taxes payable at December 31, 2005 and 2004 were reduced by tax benefits approximating $1.8 million and $900,000, 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):


	2005			2004			2003
Federal income tax computed at statutory rate of 35%	$	17,381		$	14,122		$	13,370
State income taxes		2,169			1,580			1,161
Federal tax effect of:
Amortization of intangibles		202			192			186
State income taxes		(759	)		(553	)		(406	)
Other		239			(642	)		(276	)

	$	19,232		$	14,699		$	14,035

Net deferred income tax assets, which are a component of other assets, consisted of the following at December 31 (in $1,000s):


	2005			2004
Allowance for loan losses	$	13,186		$	11,596
Net operating losses of subsidiaries		3,774			1,683
Deferred compensation		2,395			2,224
Depreciation		(1,944	)		(2,470	)
Start-up costs forde novo banks		1,301			505
Market value adjustment for investment securities available for sale		87			3
Other, net		696			607

	$	19,495		$	14,148

F-53

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Capitol Bancorp Limited

NOTE L—INCOME TAXES—Continued

Certain subsidiaries 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, 2005, expire at the following dates and amounts (in $1,000s):


2023	$	194
2024		3,181
2025		7,407

	$	10,782

NOTE M—NET INCOME PER SHARE

The computations of basic and diluted net income per share were as follows (in 1,000s):


	2005		2004		2003
Numerator—net income	$	35,925	$	26,716	$	23,380


Denominator:
Weighted average number of shares outstanding, excluding unvested restricted shares (denominator for basic earnings per share)		14,867		14,183		12,602

Effect of dilutive securities:
Unvested restricted shares		86		263		157
Stock options		412		445		416

Potential dilution		498		708		573


Denominator for diluted earnings per share—weighted average number of shares and potential dilution		15,365		14,891		13,175


Number of antidilutive stock options excluded from diluted earnings per share computation		1,085		160		337

Additional disclosures regarding restricted shares and stock options are set forth in Note J.

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F-54

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):


	2005						2004
				Estimated						Estimated
	Carrying			Fair			Carrying			Fair
	Value			Value			Value			Value
Financial Assets:
Cash and cash equivalents	$	306,108		$	306,108		$	231,104		$	231,104
Loans held for resale		21,638			21,638			43,143			43,143
Investment securities:
Available for sale		25,929			25,929			28,172			28,172
Held for long-term investment		17,745			17,745			14,191			14,191

		43,674			43,674			42,363			42,363
Portfolio loans:
Commercial		2,688,361			2,680,149			2,444,492			2,444,379
Real estate mortgage		212,142			213,324			177,204			177,697
Installment		90,686			90,091			71,208			71,833

Total portfolio loans		2,991,189			2,983,564			2,692,904			2,693,909
Less allowance for loan losses		(40,559	)		(40,559	)		(37,572	)		(37,572	)

Net portfolio loans		2,950,630			2,943,005			2,655,332			2,656,337

Financial Liabilities:
Deposits:
Noninterest-bearing		591,229			591,229			503,902			503,902
Interest-bearing:
Demand accounts		1,112,773			1,111,669			1,041,796			1,027,417
Time certificates of less than $100,000		378,364			378,002			299,528			301,347
Time certificates of $100,000 or more		702,893			702,085			664,846			668,310

Total interest-bearing		2,194,030			2,191,756			2,006,170			1,997,074

Total deposits		2,785,259			2,782,985			2,510,072			2,500,976
Notes payable and short-term borrowings		175,729			175,059			172,534			173,305
Subordinated debentures		100,940			103,300			100,845			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-55

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 ($20.6 million and $23.3 million outstanding at December 31, 2005 and 2004, respectively). Other loan commitments outstanding consist of unused lines of credit and approved, but unfunded, specific loan commitments ($714.8 million and $637.1 million at December 31, 2005 and 2004, 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, 2005 and 2004 were $6.7 million and $6.1 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 ($18.4 million at December 31, 2005).

Capitol has guaranteed up to $7.5 million of secured borrowings by Amera Mortgage Corporation, a less than 50%-owned affiliate.

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F-56

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 novobanks 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, 2005, 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, 2005, that Capitol and the banks meet all capital adequacy requirements to which the entities are subject.

F-57

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Capitol Bancorp Limited

NOTE P—DIVIDEND LIMITATIONS OF SUBSIDIARIES AND OTHER CAPITAL REQUIREMENTS—Continued

The following table summarizes the amounts (in $1,000s) and related ratios of the individually significant subsidiaries (assets of $200 million or more) and consolidated regulatory capital position as of December 31, 2005 and 2004:


	Ann Arbor			Capitol
	Commerce			National
	Bank			Bank			Consolidated
December 31, 2005
Tier 1 capital to average adjusted total assets:
Minimum required amount	³$	12,807		³$	9,666		³$	135,864
Actual amount	$	26,603		$	19,117		$	438,458
Ratio		8.31	%		7.91	%		12.91	%

Tier 1 capital to risk-weighted assets:
Minimum required amount⁽¹⁾	³$	11,362		³$	8,121		³$	123,072
Actual amount	$	26,603		$	19,117		$	438,458
Ratio		9.37	%		9.42	%		14.25	%

Combined Tier 1 and Tier 2 capital to risk- weighted assets:
Minimum required amount⁽²⁾	³$	22,725		³$	16,242		³$	246,144
Amount required to meet ‘Well-Capitalized’ category⁽³⁾	$	28,406		$	20,302		$	307,680
Actual amount	$	30,168		$	21,663		$	476,944
Ratio		10.62	%		10.67	%		15.50	%

December 31, 2004
Tier 1 capital to average adjusted total assets:
Minimum required amount	³$	13,190		³$	9,165		³$	121,911
Actual amount	$	26,496		$	18,007		$	333,049
Ratio		8.03	%		7.86	%		10.93	%

Tier 1 capital to risk-weighted assets:
Minimum required amount⁽¹⁾	³$	11,894		³$	7,924		³$	110,778
Actual amount	$	26,496		$	18,007		$	333,049
Ratio		8.91	%		9.09	%		12.03	%

Combined Tier 1 and Tier 2 capital to risk- weighted assets:
Minimum required amount⁽²⁾	³$	23,788		³$	15,847		³$	221,555
Amount required to meet ‘Well-Capitalized’ category⁽³⁾	$	29,735		$	19,809		$	276,944
Actual amount	$	30,215		$	20,486		$	385,273
Ratio		10.16	%		10.34	%		13.91	%


⁽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.

F-58

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Capitol Bancorp Limited

NOTE Q—PARENT COMPANY FINANCIAL INFORMATION

Condensed Balance Sheets


	- December 31 -
	2005		2004
	(in $1,000s)
Assets
Cash on deposit principally with subsidiary banks	$	5,129	$	1,618
Money market funds on deposit principally with subsidiary banks		6,554		8,907
Time deposits principally with subsidiary banks		14,747		21,277

Cash and cash equivalents		26,430		31,802
Loans, net of allowance for loan losses		2,865		1,230
Investments in and amounts due from subsidiaries		362,843		319,837
Investment in and advances to Amera Mortgage Corporation		482		797
Equipment, software and furniture, net		5,164		1,850
Other assets		19,776		10,471


Total assets	$	417,560	$	365,987


Liabilities and Stockholders’ Equity
Accounts payable, accrued expenses and other liabilities	$	11,556	$	9,784
Subordinated debentures		104,138		104,044

Total liabilities		115,694		113,828
Stockholders’ equity		301,866		252,159


Total liabilities and stockholders’ equity	$	417,560	$	365,987

Condensed Statements Of Income


	- Year Ended December 31 -
	2005			2004			2003
				(in $1,000s)
Income:
Dividends from subsidiaries	$	34,350		$	16,075		$	13,675
Intercompany fees		19,458			16,561			14,752
Interest		816			468			118
Other		1,413			99			2,047

Total income		56,037			33,203			30,592
Expenses:
Interest		7,976			6,931			4,874
Salaries and employee benefits		13,325			13,370			11,950
Occupancy		1,249			1,138			963
Amortization, equipment rent and depreciation		1,839			1,757			1,483
Other		3,153			4,720			3,131

Total expenses		27,542			27,916			22,401

Income before equity in undistributed net earnings of consolidated subsidiaries and income tax credit		28,495			5,287			8,191
Equity in undistributed net earnings of consolidated subsidiaries		6,171			17,665			13,494

Income before income tax credit		34,666			22,952			21,685
Income tax credit		(1,259	)		(3,764	)		(1,695	)


Net income	$	35,925		$	26,716		$	23,380

F-59

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Capitol Bancorp Limited

NOTE Q—PARENT COMPANY FINANCIAL INFORMATION—Continued

Condensed Statements of Cash Flows


	- Year Ended December 31 -
	2005			2004			2003
				(in $1,000s)
OPERATING ACTIVITIES
Net income	$	35,925		$	26,716		$	23,380
Adjustments to reconcile net income to net cash provided by operating activities:
Equity in undistributed net earnings of subsidiaries		(6,171	)		(17,665	)		(13,494	)
Depreciation and amortization of intangibles		1,245			1,197			996
Loss on sale of equipment and furniture		3
Decrease in amounts due from subsidiaries and other assets		7,265			10,597			31,888
Increase in accounts payable, accrued expenses and other liabilities		1,772			718			2,426

NET CASH PROVIDED BY OPERATING ACTIVITIES		40,039			21,563			45,196

INVESTING ACTIVITIES
Net cash investments in subsidiaries		(31,723	)		(27,887	)		(45,396	)
Net payments from Amera Mortgage Corporation		315			62			30
Net increase in loans		(1,635	)		(326	)		(450	)
Proceeds from sales of equipment and furniture		4
Purchases of equipment and furniture		(4,034	)		(662	)		(977	)

NET CASH USED BY INVESTING ACTIVITIES		(37,073	)		(28,813	)		(46,793	)

FINANCING ACTIVITIES
Net payments on debt obligations								(12,500	)
Net proceeds from issuance of common stock		2,510			954			12,014
Net proceeds from issuance of subordinated debentures					9,935			39,160
Cash dividends paid		(10,848	)		(9,375	)		(6,563	)

NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES		(8,338	)		1,514			32,111

INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS		(5,372	)		(5,736	)		30,514
Cash and cash equivalents at beginning of year		31,802			37,538			7,024


CASH AND CASH EQUIVALENTS AT END OF YEAR	$	26,430		$	31,802		$	37,538

F-60

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Capitol Bancorp Limited

NOTE R— ACQUISITION OF MINORITY INTERESTS AND ACQUISITION OF BANK

During 2005 three 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:


		Number of Common
Entity	Effective Date	Shares Issued
Napa Community Bank	August 31, 2005		202,000
Bank of Las Vegas	November 30, 2005		179,000
First California Southern Bancorp	December 31, 2005		229,000

Had these acquisitions occurred at the beginning of 2004, consolidated net income would have approximated $36.2 million in 2005 and $26.7 million in 2004 and diluted earnings per share would have been $2.28 in 2005 and $1.72 in 2004. 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 $20 million which resulted in the recording of goodwill of approximately $7 million and acquisition of minority interests approximating $13 million.

In April 2005, Capitol acquired a majority interest in Peoples State Bank (“Peoples”) located in Jeffersonville, Georgia, in a purchase transaction with total consideration approximating $2.2 million. Peoples’ total assets approximated $22.9 million at the acquisition date, including $1.2 million of goodwill relating to the purchase of the controlling interest in the bank by Capitol. Capitol’s acquisition of Peoples was accounted for under the purchase method of accounting and its results of operations are included in Capitol’s consolidated financial statements for periods after the effective date of the acquisition. The pro forma effect of this acquisition was not significant.

During 2004, two share-exchange transactions were also completed, whereby certain previously majority-owned consolidated subsidiaries became wholly-owned:

Had these acquisitions occurred at the beginning of 2004, consolidated net income would have approximated $26.9 million and diluted earnings per share would have been $1.79.

F-61

Positive
Negative
Uncertain
Constraining
Legalese
Litigous
Readability	6th grade Avg

Number of Common

Effective Date

Shares Issued

Sunrise Bank of San Diego

May 31, 2004

First California Northern Bancorp

August 31, 2004