UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K (X) ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 for the fiscal year ended December 31, 2001 or ( ) TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission File Number: 33-24728C CAPITOL BANCORP LTD. (Exact name of registrant as specified in its Charter) MICHIGAN 38-2761672 (State or other jurisdiction of (IRS Employer incorporation or organization) Identification Number) ONE BUSINESS & TRADE CENTER 200 WASHINGTON SQUARE NORTH LANSING, MICHIGAN 48933 (Address of principal executive offices) Registrant's telephone number, including area code: (517) 487-6555 Securities registered pursuant to Section 12(b) of the Act: NONE Securities registered pursuant to Section 12(g) of the Act: COMMON STOCK, NO PAR VALUE (Title of class) 8.50% CUMULATIVE TRUST PREFERRED SECURITIES, $10 LIQUIDATION AMOUNT (Title of class) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports); and (2) has been subject to such filing requirements for the past 90 days. YES [X] NO[ ] Indicate by check mark if disclosure of delinquent filers in response to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] State the aggregate market value of the voting stock held by non-affiliates of the registrant. The aggregate market value shall be computed by reference to the price at which the stock was sold, or the average bid and asked price of stock, as of a specified date within 60 days prior to the date of filing: $80,865,249 as of February 15, 2002. Indicate the number of shares outstanding of each of the registrant's classes of common stock as of the latest practicable date: 7,903,135 as of February 15, 2002. DOCUMENTS INCORPORATED BY REFERENCE See Cross-Reference Sheet CAPITOL BANCORP LTD. Form 10-K Fiscal Year Ended: December 31, 2001 CROSS REFERENCE SHEET ITEM OF FORM 10-K INCORPORATION BY REFERENCE FROM: - ----------------- -------------------------------- PART I Item 1, Business Pages 6-10, 17-20, 20-23, 30-31 and 40, Financial Information Section of Annual Report Item 2, Properties Pages 38-39, Financial Information Section of Annual Report; Page 11, Proxy Statement; and certain individual pages, Marketing Section of Annual Report PART II Item 5, Market for Registrant's Pages 2-4, 39-40, 41-42 and 47-48, Financial Information Common Equity and Related Section of Annual Report Stockholder Matters Item 6, Selected Financial Data Page 2, Financial Information Section of Annual Report Item 7, Management's Discussion Pages 5-24, Financial Information Section of Annual Report and Analysis of Financial Condition and Results of Operations Item 7a, Quantitative and Qualitative Pages 5 and 20-23, Financial Information Section of Annual Disclosures About Market Risk Report; Pages 15-19, Registration Statement Item 8, Financial Statements and Pages 2 and 25-51, Financial Information Section of Annual Supplementary Data Report PART III Item 10, Directors and Executive Officers Pages 2-3, Proxy Statement of the Registrant Item 11, Executive Compensation Pages 5-10, Proxy Statement Item 12, Security Ownership of Certain Beneficial Pages 2-4, Proxy Statement Owners and Management Item 13, Certain Relationships and Related Page 11, Proxy Statement Transactions PART IV Item 14, Exhibits, Financial Statement Schedules Pages 25-51, Financial Information Section of Annual Report and Reports on Form 8-K KEY: "Annual Report" means the 2001 Annual Report of the Registrant provided to Stockholders and the Commission pursuant to Rule 14a-3(b). Capitol's 2001 Annual Report consists of two documents: a Financial Information Section and a Marketing Section. "Proxy Statement" means the Proxy Statement of the Registrant on Schedule 14A filed pursuant to Rule 14a-101. "Registration Statement" means Registrant's Registration Statement on Form S-4 (Amendment No. 4) dated February 12, 2002. Note: The page number references herein are based on the paper version of the referenced documents. Accordingly, those page number references may differ from the electronically filed versions of those documents. -2- CAPITOL BANCORP LTD. 2001 FORM 10-K ANNUAL REPORT TABLE OF CONTENTS Page ---- PART I ITEM 1. Business.............................................................4 ITEM 2. Properties..........................................................14 ITEM 3. Legal Proceedings...................................................15 ITEM 4. Submission of Matters to a Vote of Security Holders.................15 PART II ITEM 5. Market for Registrant's Common Equity and Related Stockholder Matters...............................................16 ITEM 6. Selected Financial Data.............................................16 ITEM 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.........................................16 ITEM 7A. Quantitative and Qualitative Disclosures About Market Risk..........16 ITEM 8. Financial Statements and Supplementary Data.........................17 ITEM 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure..........................................17 PART III ITEM 10. Directors and Executive Officers of the Registrant..................18 ITEM 11. Executive Compensation..............................................18 ITEM 12. Security Ownership of Certain Beneficial Owners and Management......18 ITEM 13. Certain Relationships and Related Transactions......................18 PART IV ITEM 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.....19 -3- PART I ITEM 1, BUSINESS. a. General development of business: Incorporated by reference from Pages 6-10 under the captions "The Business of Capitol and its Banks", and "Capitol's Structure", and Pages 30-31, Financial Information Section of Annual Report, under the caption "Note A--Nature of Operations, Basis of Presentation and Principles of Consolidation". b. Financial information about industry segments: Incorporated by reference from Pages 30-31, Financial Information Section of Annual Report, under the caption "Note A--Nature of Operations, Basis of Presentation and Principles of Consolidation". c. Narrative description of business: Incorporated by reference from Pages 6-10 under the captions "The Business of Capitol and its Banks", and "Capitol's Structure", Pages 30-31, Financial Information Section of Annual Report, under the caption "Note A--Nature of Operations, Basis of Presentation and Principles of Consolidation", and Pages 20-23, Financial Information Section of Annual Report, under the caption "Trends Affecting Operations" and Pages 17-20, Financial Information Section of Annual Report, under the caption "Liquidity, Capital Resources and Capital Adequacy". At December 31, 2001, Capitol and its subsidiaries employed 634 full time equivalent employees. In 1997, the Registrant formed Capitol Trust I, a Delaware statutory business trust. Capitol Trust I's business and affairs are conducted by its property trustee, a Delaware trustee, and three individual administrative trustees who are employees and officers of the Registrant. Capitol Trust I exists for the sole purpose of issuing and selling its preferred securities and common securities, using the proceeds from the sale of those securities to acquire subordinated debentures issued by the Registrant and certain related services. During 2001, the Registrant formed Capitol Trust II and Capitol Statutory Trust III, in conjunction with private placements of trust-preferred securities, which are structured similar to Capitol Trust I. Additional information regarding trust-preferred securities is incorporated by reference from Page 40, Financial Information Section of Annual Report, under the caption "Note I--Trust-Preferred Securities". The following tables (Tables A to G, inclusive), present certain statistical information regarding Capitol's business. -4- DISTRIBUTION OF ASSETS, LIABILITIES AND STOCKHOLDERS' EQUITY (TABLE A) CAPITOL BANCORP LIMITED Net interest income, the primary component of earnings, represents the difference between interest income on interest-earning assets and interest expense on interest-bearing liabilities. Net interest income depends upon the volume of interest-earning assets and interest-bearing liabilities and the rates earned or paid on them. This table shows the daily average balances for the major asset and liability categories and the actual related interest income and expense (in $1,000s) and average yield/cost for the years ended December 31, 2001, 2000 and 1999. 2001 2000 ----------------------------------- -------------------------------- Interest (1) Interest (1) Average Income/ Average Average Income/ Average Balance Expense Yield/Cost Balance Expense Yield/Cost ------- ------- ---------- ------- ------- ---------- ASSETS Federal funds sold $ 82,237 $ 3,186 3.87% $ 63,664 $ 3,985 6.26% Interest-bearing deposits with banks 16,335 322 1.97% 13,681 820 5.99% Investment securities: U.S. Treasury, government agencies and other 46,962 2,804 5.97% 79,092 4,645 5.87% States and political subdivisions 1,572 66 4.20% 1,605 80 4.98% Loans held for resale 42,894 3,002 7.00% 11,081 1,044 9.42% Portfolio loans (2) 1,560,337 144,417 9.26% 1,213,192 121,737 10.03% ----------- --------- ------ ---------- -------- ------ Total interest-earning assets/interest income 1,750,337 153,797 8.79% 1,382,315 132,311 9.57% Allowance for loan losses (deduct) (20,337) (14,866) Cash and due from banks 73,573 54,581 Premises and equipment, net 16,910 14,490 Other assets 40,434 36,096 ----------- ----------- Total assets $ 1,860,917 $ 1,472,616 =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY Interest-bearing deposits: Savings deposits $ 51,801 1,558 3.01% $ 45,251 1,758 3.88% Time deposits under $100,000 356,338 20,533 5.76% 328,605 21,162 6.44% Time deposits of $100,000 or more 478,497 27,388 5.72% 367,751 21,657 5.89% Other interest-bearing deposits 479,314 16,176 3.37% 353,956 15,679 4.43% Debt obligations 68,510 4,422 6.45% 45,249 3,506 7.75% ----------- --------- ------ ---------- -------- ------ Total interest-bearing liabilities/interest expense 1,434,460 70,077 4.89% 1,140,812 63,762 5.59% Trust-preferred securities 34,112 3,215 9.42% 24,244 2,150 8.87% ----------- --------- ------ ---------- -------- ------ 1,468,572 73,292 4.99% 1,165,056 65,912 5.66% Noninterest-bearing demand deposits 236,048 176,804 Accrued interest on deposits and other liabilities 47,009 25,512 Minority interests in consolidated subsidiaries 38,886 46,956 Stockholders' equity 70,402 58,288 ----------- ----------- Total liabilities and stockholders' equity $ 1,860,917 $ 1,472,616 =========== --------- =========== -------- Net interest income $ 80,505 $ 66,399 ========= ======== Interest Rate Spread (3) 3.80% 3.91% ====== ====== Net Yield on Interest-Earning Assets (4) 4.60% 4.80% ====== ====== Ratio of Average Interest-Earning Assets to Interest-Bearing Liabilities 1.19 X 1.19 X ============= ============= 1999 ------------------------------------- Interest (1) Average Income/ Average Balance Expense Yield/Cost ---------- ------- ----- ASSETS Federal funds sold $ 87,002 $ 4,272 4.91% Interest-bearing deposits with banks 9,295 544 5.85% Investment securities: U.S. Treasury, government agencies and other 83,065 4,779 5.75% States and political subdivisions 1,607 73 4.54% Loans held for resale 17,781 1,364 7.67% Portfolio loans (2) 872,481 82,570 9.46% ----------- ------- ----- Total interest-earning assets/interest income 1,071,231 93,602 8.74% Allowance for loan losses (deduct) (10,391) Cash and due from banks 43,815 Premises and equipment, net 12,725 Other assets 26,332 ----------- Total assets $ 1,143,712 =========== LIABILITIES AND STOCKHOLDERS' EQUITY Interest-bearing deposits: Savings deposits $ 42,828 1,547 3.61% Time deposits under $100,000 285,683 15,744 5.51% Time deposits of $100,000 or more 252,713 13,434 5.32% Other interest-bearing deposits 277,309 11,290 4.07% Debt obligations 29,959 2,072 6.92% ---------- ------- ----- Total interest-bearing liabilities/interest expense 888,492 44,087 4.96% Trust-preferred securities 24,274 2,150 8.86% ---------- ------- ----- 912,766 46,237 5.07% Noninterest-bearing demand deposits 130,457 Accrued interest on deposits and other liabilities 9,483 Minority interests in consolidated subsidiaries 40,276 Stockholders' equity 50,730 ----------- Total liabilities and stockholders' equity $ 1,143,712 =========== ------- Net interest income $47,365 ======= Interest Rate Spread (3) 3.67% ===== Net Yield on Interest-Earning Assets (4) 4.42% ===== Ratio of Average Interest-Earning Assets to Interest-Bearing Liabilities 1.17 X ========= (1) Average yield/cost is determined by dividing the actual interest income/expense by the daily average balance of the asset or liability category. (2) Average balance of loans includes non-accrual loans. (3) Interest rate spread represents the average yield on interest-earning assets less the average cost of interest-bearing liabilities. (4) Net yield is based on net interest income as a percentage of average total interest-earning assets. -5- CHANGES IN NET INTEREST INCOME (TABLE B) CAPITOL BANCORP LIMITED The table below summarizes the extent to which changes in interest rates and changes in the volume of interest-earning assets and interest-bearing liabilities have affected Capitol's net interest income (in $1,000s). The change in interest attributable to volume is calculated by multiplying the annual change in volume by the prior year's rate. The change in interest attributable to rate is calculated by multiplying the annual change in rate by the prior year's average balance. Any variance attributable jointly to volume and rate changes has been allocated to each category based on the percentage of each to the total change in both categories. 2001 compared to 2000 2000 compared to 1999 ---------------------------------- -------------------------------- Volume Rate Net Total Volume Rate Net Total ------ ---- --------- ------ ---- --------- Increase (decrease) in interest income: Federal funds sold $ 970 $ (1,769) $ (799) $ (1,301) $ 1,014 $ (287) Interest-bearing deposits with banks 135 (633) (498) 263 13 276 Investment securities: U.S. Treasury, government agencies and other (1,917) 76 (1,841) (232) 98 (134) States and political subdivisions (2) (12) (14) -- 7 7 Loans held for resale 2,290 (332) 1,958 (587) 267 (320) Portfolio loans 32,707 (10,027) 22,680 33,928 5,239 39,167 -------- -------- -------- -------- ------- -------- Total 34,183 (12,697) 21,486 32,071 6,638 38,709 Increase (decrease) in interest expense deposits: Savings deposits 232 (432) (200) 90 121 211 Time deposits under $100,000 1,702 (2,331) (629) 2,553 2,865 5,418 Time deposits of $100,000 or more 6,354 (623) 5,731 6,648 1,575 8,223 Other interest-bearing deposits 4,762 (4,265) 497 3,329 1,060 4,389 Debt obligations 1,575 (659) 916 1,160 274 1,434 Trust-preferred securities 923 142 1,065 (3) 3 -- -------- -------- -------- -------- ------- -------- Total 15,548 (8,168) 7,380 13,777 5,898 19,675 -------- -------- -------- -------- ------- -------- Increase (decrease) in net interest income $ 18,635 $ (4,529) $ 14,106 $ 18,294 $ 740 $ 19,034 ======== ======== ======== ======== ======= ======== -6- INVESTMENT PORTFOLIO (TABLE C) CAPITOL BANCORP LIMITED The table below shows amortized cost and estimated market value of investment securities as of December 31, 2001, 2000 and 1999 (in $1,000s): 2001 2000 1999 -------------------- -------------------- -------------------- Amortized Market Amortized Market Amortized Market Cost Value Cost Value Cost Value -------- -------- -------- -------- -------- -------- U.S. Treasury $ 3,704 $ 3,757 $ 5,086 $ 5,101 $100,211 $ 98,860 Government agencies 30,253 30,429 55,514 55,334 States and political subdivisions 1,402 1,412 1,604 1,606 2,537 2,515 Corporate bonds 251 251 602 600 Other investments 539 539 -------- -------- -------- -------- -------- -------- 35,359 35,598 62,455 62,292 103,889 102,514 Other securities: Federal Reserve Bank stock 394 394 394 394 266 266 Federal Home Loan Bank stock 4,716 4,716 3,583 3,583 2,862 2,862 Corporate stock 895 895 907 907 1,003 1,003 Other investments 2,084 2,084 1,750 1,750 500 500 -------- -------- -------- -------- -------- -------- Total other securities 8,089 8,089 6,634 6,634 4,631 4,631 -------- -------- -------- -------- -------- -------- Total investment securities $ 43,448 $ 43,687 $ 69,089 $ 68,926 $108,520 $107,145 ======== ======== ======== ======== ======== ======== The table below shows the amortized cost, relative maturities and weighted average yields of investment securities at December 31, 2001 (in $1,000s): U.S. Treasury and States and Political Government Agencies Subdivisions --------------------------------- -------------------------------- Estimated Weighted Estimated Weighted Total Total Amortized Market Average Amortized Market Average Amortized Estimated Cost Value Yield Cost Value Yield Cost Market Value ---- ----- ----- ---- ----- ----- ---- ------------ Maturity: Due in one year or less $ 6,204 $ 6,320 5.76% $ 1,001 $ 1,008 4.30% $ 7,205 $ 7,328 Due after one year but within five years 21,935 22,074 4.97% 21,935 22,074 Due after five years but within ten years 2,970 2,954 5.64% 101 104 5.40% 3,071 3,058 Due after ten years 2,848 2,838 6.83% 300 300 2.45% 3,148 3,138 Without stated maturities 8,089 8,089 ------- ------- ------- ------- ------- ------- Total $33,957 $34,186 $ 1,402 $ 1,412 $43,448 $43,687 ======= ======= ======= ======= ======= ======= * Investment securities which do not have stated maturities (corporate stock, Federal Reserve Bank and Federal Home Loan Bank stock) do not have stated yields or rates of return and such rates of return vary from time to time. Following is a summary of the weighted average maturities of investment securities (exclusive of securities without stated maturities) at December 31, 2001: U.S. Treasury securities 1 year U.S. Agencies 5 years 4 months States and political subdivisions 3 years 1 month -7- LOAN PORTFOLIO AND SUMMARY OF OTHER REAL ESTATE OWNED (TABLE D) CAPITOL BANCORP LIMITED Portfolio loans outstanding as of December 31 are shown below (in $1,000s): 2001 2000 1999 ------------------- ------------------- ------------------- Commercial - real estate $1,154,757 66.57% $ 865,382 63.83% $ 627,029 59.76% Commercial - other 380,694 21.95% 308,354 22.74% 247,531 23.59% ---------- ------ ---------- ------ ---------- ------ Total commercial loans 1,535,451 88.52% 1,173,736 86.57% 874,560 83.35% Real estate mortgage 121,676 7.01% 113,324 8.36% 96,000 9.15% Installment 77,462 4.47% 68,738 5.07% 78,644 7.50% ---------- ------ ---------- ------ ---------- ------ Total portfolio loans $1,734,589 100.00% $1,355,798 100.00% $1,049,204 100.00% ========== ====== ========== ====== ========== ====== 1998 1997 ------------------- ------------------- Commercial - real estate $ 417,296 57.62% $ 262,157 52.14% Commercial - other 173,055 23.89% 133,781 26.61% ---------- ------ ---------- ------ Total commercial loans 590,351 81.51% 395,938 78.75% Real estate mortgage 80,808 11.16% 66,630 13.25% Installment 53,121 7.33% 40,187 7.99% ---------- ------ ---------- ------ Total portfolio loans $ 724,280 100.00% $ 502,755 100.00% ========== ====== ========== ====== The table below summarizes (in $1,000s) the remaining maturity of portfolio loans outstanding at December 31, 2001 according to scheduled repayments of principal. Fixed Variable Rate Rate Total ---------- ---------- ---------- Aggregate maturities of portfolio loan balances which are due in one year or less: $ 326,619 $ 360,830 $ 687,449 After one year but within five years 700,424 206,674 907,098 After five years 32,668 95,332 128,000 Nonaccrual loans 12,042 12,042 ---------- ---------- ---------- Total $1,071,753 $ 662,836 $1,734,589 ========== ========== ========== The following summarizes, in general, Capitol's various loan classifications: Commercial - real estate Comprised of a broad mix of business use and multi-family housing properties, including office, retail, warehouse and light industrial uses. A typical loan size approximates $500,000 and, at December 31, 2001, approximately 31% of such properties were owner-occupied and approximately 11% of the commercial real estate total consisted of a combination of multi-family and residential rental income properties. Commercial - other Includes a range of business credit products, current asset lines of credit and equipment term loans. These products bear higher inherent economic risk than other types of lending activities. A typical loan size approximates $250,000, and multiple account relationships serve to reduce such risks. Real Estate Mortgage Includes single family residential loans held for permanent portfolio, and home equity lines of credit. Risks are nominal, borne out by loss experience, housing economic data and loan-to-value percentages. Installment Includes a broad range of consumer credit products, secured by automobiles, boats, etc., with typical consumer credit risks. All loans are subject to underwriting procedures commensurate with the loan size, nature of collateral, industry trends, risks and experience factors. Appropriate collateral is required for most loans, as is documented evidence of debt repayment sources. -8- TABLE D, CONTINUED CAPITOL BANCORP LIMITED The aggregate amount of nonperforming portfolio loans is summarized below as of December 31 (in $1,000's). Nonperforming loans comprise of (a) loans accounted for on a nonaccrual basis, and (b) loans contractually past due 90 days or more as to principal and interest payments (but not included in nonaccrual loans in (a) above) and consist primarily of commercial real estate loans. See Note D of the Notes to Consolidated Financial Statements for additional information regarding nonperforming loans. 2001 2000 1999 1998 1997 ------- ------- ------- ------- ------- Nonperforming loans: Nonaccrual loans: Commercial $11,220 $ 4,082 $ 2,709 $ 2,608 $ 2,570 Real estate 356 163 103 199 59 Installment 466 171 100 185 59 ------- ------- ------- ------- ------- Total nonaccrual loans 12,042 4,416 2,912 2,992 2,688 Past due loans: Commercial 4,290 1,656 834 3,963 897 Real estate 787 534 196 183 401 Installment 119 151 182 104 25 ------- ------- ------- ------- ------- Total past due loans 5,196 2,341 1,212 4,250 1,323 ------- ------- ------- ------- ------- Total nonperforming loans $17,238 $ 6,757 $ 4,124 $ 7,242 $ 4,011 ======= ======= ======= ======= ======= Nonperforming loans as a percentage of total portfolio loans 0.99% 0.50% 0.39% 1.00% 0.80% ======= ======= ======= ======= ======= Nonperforming loans as a percentage of total assets 0.84% 0.41% 0.32% 0.71% 0.58% ======= ======= ======= ======= ======= Allowance for loan losses as a percentage of nonperforming loans 134.81% 258.24% 306.47% 121.75% 155.30% ======= ======= ======= ======= ======= The table below summarizes activity in other real estate owned (in $1,000s) for the year ended December 31: 2001 2000 1999 1998 1997 ------- ------- ------- ------- ------- Other real estate owned at January 1 $ 3,094 $ 3,614 $ 541 $ 165 $ 313 Properties acquired in restructure of loans or in lieu of foreclosure 860 324 3,426 612 Properties sold (233) (717) (376) (161) (128) Payments received from borrowers or tenants, credited to carrying amount (3) (75) (10) Other changes, net (674) (127) 23 (10) ------- ------- ------- ------- ------- Other real estate owned at December 31 $ 3,044 $ 3,094 $ 3,614 $ 541 $ 165 ======= ======= ======= ======= ======= Of the other real estate owned at December 31, 2001, one property, with a carrying value of $1.9 million is partially guaranteed by an agency of the federal government. Other real estate owned is valued at the lower of cost or fair value (net of estimated selling cost) at the date of transfer/acquisition. Management performs a periodic analysis of estimated fair values to determine potential impairment of other real estate owned. -9- SUMMARY OF LOAN LOSS EXPERIENCE (TABLE E) CAPITOL BANCORP LIMITED The table below summarizes changes in the allowance for loan losses and related portfolio data and ratios for the year ended December 31 (in $1,000's): 2001 2000 1999 1998 1997 ---------- ---------- ---------- ---------- ---------- Allowance for loan losses at January 1 $ 17,449 $ 12,639 $ 8,817 $ 6,229 $ 4,578 Loans charged-off: Commercial 2,280 2,850 1,201 1,165 551 Real estate 143 204 9 117 Installment 506 117 97 131 49 ---------- ---------- ---------- ---------- ---------- Total charge-offs 2,929 3,171 1,298 1,305 717 Recoveries: Commercial 485 734 391 336 288 Real estate 37 13 6 4 18 Installment 29 18 13 30 13 ---------- ---------- ---------- ---------- ---------- Total recoveries 551 765 410 370 319 ---------- ---------- ---------- ---------- ---------- Net charge-offs 2,378 2,406 888 935 398 Additions to allowance charged to expense 8,167 7,216 4,710 3,523 2,049 ---------- ---------- ---------- ---------- ---------- Allowance for loan losses at December 31 $ 23,238 $ 17,449 $ 12,639 $ 8,817 $ 6,229 ========== ========== ========== ========== ========== Total portfolio loans outstanding at December 31 $1,734,589 $1,355,798 $1,049,204 $ 724,280 $ 502,755 ========== ========== ========== ========== ========== Ratio of allowance for loan losses to portfolio loans outstanding 1.34% 1.29% 1.20% 1.22% 1.24% ========== ========== ========== ========== ========== Average total portfolio loans for the year $1,560,337 $1,213,192 $ 872,481 $ 605,923 $ 425,664 ========== ========== ========== ========== ========== Ratio of net charge-offs to average portfolio loans outstanding 0.15% 0.20% 0.10% 0.15% 0.09% ========== ========== ========== ========== ========== See Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations, for additional information regarding the allowance for loan losses and description of factors which influence management's judgement in determining the amounts of additions to the allowance. -10- TABLE E, CONTINUED CAPITOL BANCORP LIMITED The amount of the allowance for loan losses allocated in the following table (in $1,000's) as of December 31, 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: 2001 2000 1999 -------------------- ------------------- ------------------ Percentage Percentage Percentage Amount of Loans Amount of Loans Amount of Loans ------ -------- ------ -------- ------ -------- Commercial $ 20,570 1.19% $ 16,096 1.19% $ 5,965 0.57% Real estate mortgage 1,630 0.09% 285 0.02% 165 0.02% Installment 1,038 0.06% 1,068 0.08% 385 0.04% Unallocated -- -- 6,124 0.58% ---------- ---------- ---------- Total allowance for loan losses $ 23,238 1.34% $ 17,449 1.29% $ 12,639 1.20% ========== ====== ========== ===== ========== ===== Total portfolio loans outstanding $1,734,589 $1,355,798 $1,049,204 ========== =========== ========== 1998 1997 ------------------ ------------------- Percentage Percentage Amount of Loans Amount of Loans ------ -------- ------ -------- Commercial $ 4,501 0.62% $ 2,875 0.57% Real estate mortgage 127 0.02% 103 0.02% Installment 262 0.04% 185 0.04% Unallocated 3,927 0.54% 3,066 0.61% ---------- ---------- Total allowance for loan losses $ 8,817 1.22% $ 6,229 1.24% ========== ===== ========== ===== Total portfolio loans outstanding $ 724,280 $ 502,755 ========== ========== -11- AVERAGE DEPOSITS (TABLE F) CAPITOL BANCORP LIMITED The table below summarizes the average balances of deposits (in $1,000s) and the average rates of interest for the years ended December 31, 2001, 2000 and 1999: 2001 2000 1999 ----------------- ------------------ ------------------ Average Average Average Amount Rate Amount Rate Amount Rate ------ ---- ------ ---- ------ ---- Noninterest-bearing demand deposits $ 236,048 $ 176,804 $ 130,457 Savings deposits 51,801 3.01% 45,251 3.88% 42,828 3.61% Time deposits under $100,000 356,338 5.76% 328,605 6.44% 285,683 5.51% Time deposits of $100,000 or more 478,497 5.72% 367,751 5.89% 252,713 5.32% Other interest-bearing deposits 479,314 3.37% 353,956 4.43% 277,309 4.07% ---------- ---------- ---------- Total deposits $1,601,998 $1,272,367 $ 988,990 ========== ========== ========== The table below shows the amount of time certificates of deposit issued in amounts of $100,000 or more, by time remaining until maturity, which were outstanding at December 31, 2001 (in $1,000s): Three months or less $158,093 Three months to six months 121,079 Six months to twelve months 134,398 Over 12 months 96,700 -------- Total $510,270 ======== -12- FINANCIAL RATIOS (TABLE G) CAPITOL BANCORP LIMITED Year Ended December 31 ---------------------- 2001 2000 1999 ---- ---- ---- Net income as a percentage of: Average stockholders' equity 15.22% 13.78% 10.66% Average total assets 0.58% 0.55% 0.47% Capital ratios: Average stockholders' equity as a percentage of average total assets 3.78% 3.96% 4.44% Average total equity (stockholders' equity and minority interests in consolidated subsidiaries) as a percentage of average total assets 5.87% 7.15% 7.96% Average total capital funds (stockholders' equity, minority interests in consolidated subsidiaries and trust-preferred securities) as a percentage of average total assets 7.71% 8.79% 10.08% Dividend payout ratio (cash dividends per share as a percentage of net income per share): Basic 28.99% 31.58% 42.86% Diluted 29.63% 31.86% 43.37% -13- ITEM 2, PROPERTIES. Substantially all of the office locations are leased. Each of Capitol's banks operates from a single location, except Capitol National Bank (which has one branch location in Okemos, Michigan) and Red Rock Community Bank (which has two locations in Las Vegas, Nevada). The addresses of each bank's main office are shown in the Marketing Section of Annual Report, which are incorporated herein by reference, from the following captioned pages therein: Ann Arbor Commerce Bank Macomb Community Bank Arrowhead Community Bank Mesa Bank Bank of Tucson Muskegon Commerce Bank Black Mountain Community Bank Oakland Commerce Bank Brighton Commerce Bank Paragon Bank & Trust Camelback Community Bank Portage Commerce Bank Capitol National Bank Red Rock Community Bank Desert Community Bank Southern Arizona Community Bank Detroit Commerce Bank Sunrise Bank of Albuquerque East Valley Community Bank Sunrise Bank of Arizona Elkhart Community Bank Sunrise Bank of San Diego Goshen Community Bank Valley First Community Bank Grand Haven Bank Yuma Community Bank Kent Commerce Bank Ann Arbor Commerce Bank, in 1998, and Portage Commerce Bank, in 1997, relocated their main offices to substantially larger leased facilities (approximately 18,000 and 10,000 square feet, respectively) in response to asset growth and to better serve customers. Most of the other bank subsidiaries' facilities are generally small (i.e., less than 10,000 square feet), first floor offices with convenient access to parking. Some of the banks have drive-up customer service. The banks are typically located in or near high traffic centers of commerce in their respective communities. Customer service is enhanced through utilization of ATMs to process some customer-initiated transactions and some of the banks also make available a courier service to pick up transactions at customers' locations. The principal offices of Capitol are located within the same building as Capitol National Bank in Lansing, Michigan. Those headquarters include administrative, operations, accounting, and executive staff. Data processing centers are located in Lansing, Michigan and Tempe, Arizona. Sun Community Bancorp Limited's principal offices are within the same building as Camelback Community Bank in Phoenix, Arizona. Certain of the office locations are leased from related parties. Incorporated by reference from Pages 38-39, Financial Information Section of Annual Report, under the caption "Note F--Premises and Equipment" and Page 11, Proxy Statement, third paragraph thereunder under the caption "Certain Relationships and Related Transactions". Management believes Capitol's and its subsidiaries' offices to be in good and adequate condition and adequately covered by insurance. -14- ITEM 3, LEGAL PROCEEDINGS. As of December 31, 2001, there were no material pending legal proceedings to which Capitol or its subsidiaries is a party or to which any of its property was subject, except for proceedings which arise in the ordinary course of business. In the opinion of management, pending legal proceedings will not have a material effect on the consolidated financial position or results of operations of Capitol. ITEM 4, SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. During the fourth quarter of 2001, no matters were submitted to a vote by security holders. At December 31, 2001 a proposed share exchange transaction was pending. In November 2001, the boards of directors of Capitol and Sun Community Bancorp Limited entered into a proposed plan of share exchange. The proposed plan of share exchange is subject to the approval of the shareholders of both Capitol and Sun. The proposed share exchange, if consummated, would result in Capitol issuing .734 shares of its previously unissued common stock for each common share of Sun's common stock held by shareholders other than Capitol. Capitol estimates that it would issue approximately 2.7 million shares of its common stock and 850,000 stock options if the share exchange is completed as proposed. Special shareholders' meetings for Capitol and Sun are scheduled to be held in late March 2002. If approved by shareholders, the proposed share exchange is anticipated to be completed effective March 31, 2002. -15- PART II ITEM 5, MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS. A. Market Information: Incorporated by reference from Page 3, Financial Information Section of Annual Report, under the caption "Information Regarding Capitol's Common Stock", Pages 41-42 under the caption "Note J--Common Stock, Warrants and Stock Options" and Page 4, under the caption "Shareholder Information". B. Holders: Incorporated by reference from first sentence of third paragraph on Page 3, Financial Information Section of Annual Report, under the caption "Information Regarding Capitol's Common Stock". C. Dividends: Incorporated by reference from Page 2, Financial Information Section of Annual Report, under the caption "Quarterly Results of Operations" and subcaption "Cash dividends paid per share", Pages 47-48, Financial Information Section of Annual Report, under the caption "Note P--Dividend Limitations of Subsidiaries and Other Capital Requirements" and the first paragraph commencing on Page 40, Financial Information Section of Annual Report, under the caption "Note H--Debt Obligations". ITEM 6, SELECTED FINANCIAL DATA. Incorporated by reference from Page 2, Financial Information Section of Annual Report, under the caption "Selected Consolidated Financial Data" under the column heading "As of and for the Year Ended December 31, 2001, 2000, 1999, 1998 and 1997". ITEM 7, MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. Incorporated by reference from Pages 6-24, Financial Information Section of Annual Report, under the caption "Management's Discussion and Analysis of Financial Condition and Results of Operations" and Page 5, Financial Information Section of Annual Report, under the caption "Forward Looking Statements". ITEM 7A, QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. Incorporated by reference from Pages 20-23, Financial Information Section of Annual Report, under the caption "Trends Affecting Operations" and Page 5, Financial Information Section of Annual Report, under the caption "Forward Looking Statements". Incorporated by reference from Pages 15-19, from Registrant's Registration Statement on Form S-4 (Amendment No. 4) under the caption "Risk Factors". -16- ITEM 8, FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. See Item 14 (under subcaption "A. Exhibits") of this Form 10-K for specific description of financial statements incorporated by reference from Financial Information Section of Annual Report. Incorporated by reference from Page 2, Financial Information Section of Annual Report, under the caption "Quarterly Results of Operations". ITEM 9, CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. None. -17- PART III ITEM 10, DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT. Incorporated by reference from Pages 2-3, Proxy Statement, under the caption "Election of Directors". Executive officers of Capitol are as follows: Name and Year First Became Principal Positions Age An Officer ------------------- --- ---------- Joseph D. Reid 59 1988 Chairman, President and Chief Executive Officer* David O'Leary 71 1988 Secretary Paul R. Ballard 52 1990 Executive Vice President** Robert C. Carr 62 1988 Executive Vice President and Treasurer** David J. Dutton 51 2000 Executive Vice President and Chief Information Officer*** Cristin Reid English 33 1997 Executive Vice President* Lee W. Hendrickson 46 1991 Executive Vice President and Chief Financial Officer* Michael M. Moran 42 2000 Executive Vice President David K. Powers 56 1990 Executive Vice President William E. Rheaume 60 1998 Executive Vice President and Senior Counsel Bruce A. Thomas 44 1998 Executive Vice President Brian K. English 36 2001 General Counsel Carl C. Farrar 52 1998 Senior Vice President John C. Smythe 55 1983 Senior Vice President Marie D. Walker 42 1990 Senior Vice President and Controller Linda D. Pavona 50 1991 Senior Vice President * Also serves in similar capacity at Sun Community Bancorp Limited, Indiana Community Bancorp Limited, Nevada Community Bancorp Limited, Sunrise Capital Corporation and First California Northern Bancorp (consolidated subsidiaries of Capitol). ** Also serves as an executive officer of Indiana Community Bancorp Limited (a consolidated subsidiary of Capitol). *** Also serves in similar capacity at Sun Community Bancorp Limited (a consolidated subsidiary of Capitol). ITEM 11, EXECUTIVE COMPENSATION. Incorporated by reference from Pages 5-7, under the caption "Compensation Committee Report on Executive Compensation", and Pages 8-10, Proxy Statement. ITEM 12, SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. Incorporated by reference from Page 1, Proxy Statement, under the caption "Voting Securities and Principal Holders Thereof", Pages 2-4, Proxy Statement, under the caption "Election of Directors" and Page 4, Proxy Statement, second paragraph under the caption "Meetings of the Board of Directors". ITEM 13, CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. Incorporated by reference from Page 11, Proxy Statement, under the caption "Certain Relationships and Related Transactions". -18- PART IV ITEM 14, EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K. A. Exhibits: The following consolidated financial statements of Capitol Bancorp Limited and subsidiaries and report of independent auditors included on Pages 25-51 of the Financial Information Section of Annual Report of the Registrant to its stockholders for the year ended December 31, 2001, are incorporated by reference in Item 8: Report of Independent Auditors. Consolidated balance sheets--December 31, 2001 and 2000. Consolidated statements of income--Years ended December 31, 2001, 2000 and 1999. Consolidated statements of changes in stockholders' equity--Years ended December 31, 2001, 2000 and 1999. Consolidated statements of cash flows--Years ended December 31, 2001, 2000 and 1999. Notes to consolidated financial statements. All financial statements and schedules have been incorporated by reference from the Annual Report or are included in Management's Discussion and Analysis of Financial Condition and Results of Operations. No schedules are included here because they are either not required, not applicable or the required information is contained elsewhere. B. Reports on Form 8-K: During the fourth quarter of 2001, one report on Form 8-K was filed on November 19, 2001 by the Registrant, reporting the proposed share exchange between Registrant and Sun Community Bancorp Limited. -19- SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. CAPITOL BANCORP LTD. Registrant By: /s/ Joseph D. Reid By: /s/ Lee W. Hendrickson ------------------------------ ----------------------------------- Joseph D. Reid Lee W. Hendrickson Chairman, President and Executive Vice President and Chief Executive Officer Chief Financial Officer (Principal Financial and Accounting Officer) Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant as Directors of the Corporation on March 15, 2002. /s/ Joseph D. Reid /s/ Robert C. Carr - ------------------------------------- ----------------------------------------- Joseph D. Reid, Chairman, President, Robert C. Carr, Executive Vice President, Chief Executive Officer and Director Treasurer and Director /s/ David O'Leary /s/ Michael L. Kasten - ------------------------------------ ----------------------------------------- David O'Leary, Secretary and Director Michael L. Kasten, Vice Chairman and Director /s/ Paul R. Ballard /s/ Louis G. Allen - ------------------------------------- ----------------------------------------- Paul R. Ballard, Executive Louis G. Allen, Director Vice President and Director /s/ David L. Becker /s/ Douglas E. Crist - ------------------------------------- ----------------------------------------- David L. Becker, Director Douglas E. Crist, Director /s/ Gary A. Falkenberg - ------------------------------------- ----------------------------------------- James C. Epolito, Director Gary A. Falkenberg, Director /s/ Joel I. Ferguson /s/ Kathleen A. Gaskin - ------------------------------------- ----------------------------------------- Joel I. Ferguson, Director Kathleen A. Gaskin, Director /s/ H. Nicholas Genova /s/ L. Douglas Johns - ------------------------------------- ----------------------------------------- H. Nicholas Genova, Director L. Douglas Johns, Director /s/ John S. Lewis /s/ Leonard Maas - ------------------------------------ ----------------------------------------- John S. Lewis, Director Leonard Maas, Director /s/ Lyle W. Miller /s/ Cristin Reid English - ------------------------------------- ----------------------------------------- Lyle W. Miller, Director Cristin Reid English, Executive Vice President and Director -20- EXHIBIT INDEX PAGE NUMBER OR INCORPORATED BY EXHIBIT NO. DESCRIPTION REFERENCE FROM: - ----------- ----------- --------------- 3 Articles of Incorporation and Bylaws (1) 4 Instruments Defining the Rights of Security Holders: (a) Common Stock Certificate (1) (b) Indenture dated December 18, 1997 (14) (c) Subordinated Debenture (14) (d) Amended and Restated Trust Agreement dated December 18, 1997 (14) (e) Preferred Security Certificate dated December 18, 1997 (14) (f) Preferred Securities Guarantee Agreement of Capitol Trust I dated December 18, 1997 (14) (g) Agreement as to Expenses and Liabilities of Capitol Trust I (14) (h) Capitol Bancorp Ltd. 2000 Incentive Stock Plan 10 Material Contracts: (a) Joseph D. Reid Employment Agreement (as amended effective January 1, 1989) (2) (b) Profit Sharing/401(k) Plan (as amended and restated April 1, 1995) (13) (b1) First and Second Amendments to Profit Sharing/ 401(k) Plan (15) (b2) Third, Fourth and Fifth Amendments to Profit Sharing/401(k) Plan (17) (b3) Sixth, Seventh, Eighth and Ninth Amendments to Profit Sharing/401(k) Plan (b4) Tenth, Eleventh, Twelfth, Thirteenth, Fourteenth and Fifteenth Amendments to Profit Sharing/401(K) Plan (18) (c) Lease Agreement with Business & Trade Center, Ltd. (11) (d) Employee Stock Ownership Plan (as amended and restated February 10, 1994) (12) (d1) Second and Third Amendments to Employee Stock Ownership Plan (15) (d2) Fourth Amendment to Employee Stock Ownership Plan (17) (d3) Fifth Amendment to Employee Stock Ownership Plan (18) (e) Employment Agreements with Robert C. Carr, John C. Smythe, and Charles J. McDonald (2) -21- PAGE NUMBER OR INCORPORATED BY EXHIBIT NO. DESCRIPTION REFERENCE FROM: - ----------- ----------- --------------- 10 Material Contracts--continued: (f) Executive Supplemental Income Agreements with Robert C. Carr, Paul R. Ballard, Richard G. Dorner, James R. Kaye, Scott G. Kling, John D. Groothuis, David K. Powers, John C. Smythe and Charles J. McDonald (13) (g) Amendment to Employment Agreement of Joseph D. Reid, dated October 2, 1989 (3) (h) Consolidation Agreement between the Corporation and Portage Commerce Bank (4) (i) Amendment to Employment Agreement of Joseph D. Reid, dated January 30, 1990 (5) (j) Employment Agreements with Paul R. Ballard and Richard G. Dorner (6) (k) Employment Agreement with David K. Powers (7) (l) Definitive Exchange Agreement and Closing Memorandum between the Registrant and United Savings Bank, FSB (8) (m) Employment Agreement with James R. Kaye (9) (n) Definitive Exchange Agreement between the Registrant and Financial Center Corporation (10) (o) Employment Agreement by and between Sun Community Bancorp Limited and Joseph D. Reid. (Exhibit 10.1 of Sun Community Bancorp Limited) (16) (p) Employment Agreement by and between Sun Community Bancorp Limited and John S. Lewis. (Exhibit 10.7 of Sun Community Bancorp Limited) (16) (q) Anti-dilution Agreement by and between Sun Community Bancorp Limited and Capitol Bancorp Ltd. (Exhibit 10.10 of Sun Community Bancorp Limited) (16) (r) Plan of Share Exchange dated November 16, 2001 between and among Capitol Bancorp Ltd and Sun Community Bancorp Limited (19) 13 Annual Report to Security Holders -22- PAGE NUMBER OR INCORPORATED BY EXHIBIT NO. DESCRIPTION REFERENCE FROM: - ----------- ----------- --------------- 21 Subsidiaries of the Registrant 23 Consent of BDO Seidman, LLP KEY: (1) Form S-18, Reg. No. 33-24728C, filed September 15, 1988. (2) Form S-1, Reg. No. 33-30492, filed August 14, 1989. (3) Amendment No. 1 to Form S-1, Reg. No. 33-31323, filed November 20, 1989. (4) Form S-1, Reg. No. 33-31323, filed September 29, 1989. (5) Originally filed as exhibit to Form 10-K for year ended December 31, 1989, filed March 30, 1990; refiled as exhibit to Form 10-KSB for year ended December 31, 1995, filed March 14, 1996, due to time limit for incorporation by reference pursuant to Regulation SB Item 10(f). (6) Originally filed as exhibit to Form 10-K for year ended December 31, 1990, filed March 6, 1991; refiled as exhibit to Form 10-KSB for year ended December 31, 1995, filed March 14, 1996, due to time limit for incorporation by reference pursuant to Regulation SB Item 10(f). (7) Form 10-K for year ended December 31, 1991, filed February 28, 1992. (8) Form 8-K dated July 15, 1992, as amended under Form 8 on September 14, 1992. (9) Form 10-KSB for year ended December 31, 1992, filed February 25, 1993. (10) Form S-4, Reg. No. 33-73474, filed December 27, 1993. (11) Form 10-KSB for year ended December 31, 1993, filed March 14, 1994. (12) Form 10-KSB for year ended December 31, 1994, filed March 15, 1995. (13) Form 10-KSB for the year ended December 31, 1995, filed March 14, 1996. (14) Post Effective Amendment No.1 to Form S-3, Reg. No. 333-41215 and 333-41215-01 filed February 9, 1998. (15) Form 10-K for year ended December 31, 1998, filed March 17, 1999. (16) Amendment No. 2 to the Registration Statement on Form S-1 of Sun Community Bancorp Limited (Registration No. 333-76719) dated June 15, 1999. (17) Form 10-K for year ended December 31, 1999, filed March 27, 2000. (18) Form 10-K for year ended December 31, 2000, filed March 23, 2001. (19) Amendment No. 4 to the Registration Statement on Form S-4 Reg. No. 333-73624 filed February 12, 2002. -23- [LOGO] CAPITOL BANCORP LIMITED FINANCIAL INFORMATION SECTION OF 2001 ANNUAL REPORT TO SHAREHOLDERS One Business & Trade Center 200 Washington Square North Lansing, MI 48933 (517) 487-6555 TABLE OF CONTENTS Selected Consolidated Financial Data...........................................2 Information Regarding Capitol's Common Stock...................................3 Availability of Form 10-K and Certain Other Reports............................3 Other Corporate and Shareholder Information....................................4 Responsibility For Financial Statements........................................5 Cautionary Statement Regarding Forward-Looking Statements......................5 Management's Discussion and Analysis of Financial Condition and Results of Operations: The Business of Capitol and Its Banks.....................................6 Capitol's Structure.......................................................7 Recent Developments.......................................................9 Banking Technology at Capitol............................................10 2001 Financial Overview..................................................10 Changes in Consolidated Financial Position...............................10 Consolidated Results of Operations.......................................15 Liquidity, Capital Resources and Capital Adequacy........................17 Trends Affecting Operations..............................................20 New Accounting Standards.................................................23 Report of Independent Auditors................................................25 Consolidated Financial Statements: Consolidated Balance Sheets..............................................26 Consolidated Statements of Income........................................27 Consolidated Statements of Changes in Stockholders' Equity...............28 Consolidated Statements of Cash Flows....................................29 Notes to Consolidated Financial Statements...............................30 1 SELECTED CONSOLIDATED FINANCIAL DATA (in $1,000s, except per share data) As of and for the Year Ended December 31 ----------------------------------------------------------------- 2001(1) 2000(2) 1999(3) 1998(4) 1997(5) ---------- ---------- ---------- ---------- ---------- For the year: Interest income $ 153,797 $ 132,311 $ 93,602 $ 69,668 $ 49,549 Interest expense 73,292 65,912 46,237 36,670 24,852 Net interest income 80,505 66,399 47,365 32,998 24,697 Provision for loan losses 8,167 7,216 4,710 3,523 2,049 Noninterest income 9,585 6,137 4,714 3,558 2,157 Noninterest expense 64,136 52,846 40,257 26,325 16,721 Income before cumulative effect of change in accounting principle 10,718 8,035 5,606(6) 4,628 5,557 Net income 10,718 8,035 5,409 4,628 5,557 Net income per share: Basic 1.38 1.14 .84 .74 .91 Diluted 1.35 1.13 .83 .72 .88 Cash dividends paid per share .40 .36 .36 .33 .30 At end of year: Total assets $2,044,006 $1,630,076 $1,305,987 $1,024,444 $ 690,556 Total earning assets 1,920,621 1,517,350 1,227,976 953,315 641,561 Portfolio loans 1,734,589 1,355,798 1,049,204 724,280 502,755 Deposits 1,740,385 1,400,899 1,112,793 890,890 604,407 Debt obligations 89,911 58,150 47,400 23,600 Trust-preferred securities 48,621 24,327 24,291 24,255 24,126 Minority interests in consolidated subsidiaries 70,673 62,575 54,593 27,576 11,020 Stockholders' equity 80,172 70,404 54,668 49,292 45,032 Quarterly Results of Operations ---------------------------------------------------- Total for Fourth Third Second First the Year Quarter Quarter Quarter Quarter ---------- ---------- ---------- ---------- ---------- Year ended December 31, 2001:(1) Interest income $ 153,797 $ 38,031 $ 39,058 $ 38,894 $ 37,814 Interest expense 73,292 16,398 18,350 19,181 19,363 Net interest income 80,505 21,633 20,708 19,713 18,451 Provision for loan losses 8,167 2,530 2,316 1,697 1,624 Net income 10,718 2,963 2,772 2,600 2,383 Net income per share: Basic 1.38 .38 .35 .33 .31 Diluted 1.35 .37 .35 .33 .31 Cash dividends paid per share .40 .10 .10 .10 .10 Year ended December 31, 2000:(2) Interest income $ 132,311 $ 36,830 $ 34,651 $ 32,041 $ 28,789 Interest expense 65,912 18,743 17,461 15,684 14,024 Net interest income 66,399 18,087 17,190 16,357 14,765 Provision for loan losses 7,216 2,220 1,630 2,004 1,362 Net income 8,035 2,307 2,080 1,930 1,718 Net income per share: Basic 1.14 .32 .29 .27 .25 Diluted 1.13 .32 .29 .27 .25 Cash dividends paid per share .36 .09 .09 .09 .09 (1) Includes Sunrise Bank of San Diego (located in San Diego, California), effective January 2001, majority-owned by Sunrise Capital Corporation (a majority-owned subsidiary of Sun Community Bancorp Limited). (2) Includes Black Mountain Community Bank effective March 2000 (located in Henderson, Nevada and majority-owned by Nevada Community Bancorp Limited), Sunrise Bank of Albuquerque effective April 2000 (located in Albuquerque, New Mexico and majority-owned by Sunrise Capital Corporation), Arrowhead Community Bank effective September 2000 (located in Glendale, Arizona and majority-owned by Sun Community Bancorp Limited), Goshen Community Bank effective September 2000 (located in Goshen, Indiana and majority-owned by Indiana Community Bancorp Limited) and Yuma Community Bank effective December 2000 (located in Yuma, Arizona and majority-owned by Sun Community Bancorp Limited). (3) Includes East Valley Community Bank effective June 1999 (located in Chandler, Arizona and majority-owned by Sun Community Bancorp Limited); Desert Community Bank (August 1999) and Red Rock Community Bank (November 1999), both located in Las Vegas, Nevada and majority-owned by Nevada Community Bancorp Limited (formed in 1999 and majority-owned by Sun); and Elkhart Community Bank effective September 1999 (located in Elkhart, Indiana) and majority-owned by Indiana Community Bancorp Limited (formed in 1999 and majority-owned by Capitol). (4) Includes Kent Commerce Bank effective January 1998 and Detroit Commerce Bank effective December 1998, both located in Michigan and majority-owned by Capitol and, in Arizona, Camelback Community Bank (effective May 1998), Southern Arizona Community Bank (effective August 1998), Mesa Bank (effective October 1998) and Sunrise Bank of Arizona (effective December 1998), majority-owned DE NOVO bank subsidiaries of Sun Community Bancorp Limited. (5) Includes Brighton Commerce Bank, effective January 1997, and Muskegon Commerce Bank, effective December 1997, which are majority-owned by Capitol. Also includes Valley First Community Bank, effective June 1997. (6) Implementation of a new accounting standard requiring the write-off of previously capitalized start-up costs resulted in a one-time charge of $197,000 (net of income tax effect) or $.03 per share effective January 1, 1999. 2 INFORMATION REGARDING CAPITOL'S COMMON STOCK Capitol's common stock is traded on the National Market Tier of The Nasdaq Stock Market(SM) under the symbol "CBCL". Market quotations regarding the range of high and low sales prices of Capitol's common stock, which reflect inter-dealer prices without retail mark-up, mark-down or commissions, were as follows: 2001 2000 ------------------ -------------------- Low High Low High ------ ------- ------- ------- Quarter Ended: March 31 $ 9.688 $14.250 $ 8.063 $16.938 June 30 12.000 15.660 10.750 13.875 September 30 12.250 17.500 9.625 12.375 December 31 12.800 15.200 8.750 13.375 During 2001 and 2000, Capitol paid quarterly cash dividends of $0.10 per share and $0.09 per share, respectively. As of February 15, 2002, there were 3,258 beneficial holders of Capitol's common stock, based on information supplied to Capitol from its stock transfer agent and other sources. At that date, 7,903,135 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). Capitol has a Shareholder Investment Program which offers a variety of convenient features including dividend reinvestment, certain fee-free transactions, certificate safekeeping and other benefits. For a copy of the program prospectus, informational brochure and enrollment materials, contact UMB Bank, n.a. at 800/884-4225 or Capitol at 517/487-6555. In addition to Capitol's common stock, trust-preferred securities of Capitol Trust I (a subsidiary of Capitol) are also traded on the National Market Tier of The Nasdaq Stock Market(SM) under the symbol "CBCLP". Those trust-preferred securities consist of 2,530,000, 8.5% cumulative preferred securities, with a liquidation amount of $10 per preferred security. The trust-preferred securities are guaranteed by Capitol and mature in 2027, are callable after 2002 and may be extended to 2036 if certain conditions are met. AVAILABILITY OF FORM 10-K AND CERTAIN OTHER REPORTS A copy of Capitol's 2001 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, One Business & Trade Center, 200 Washington Square North, Lansing, Michigan 48933. Form 10-K, and certain other periodic reports, are filed with the Securities and Exchange Commission (SEC). The SEC maintains an internet web site that contains reports, proxy and information statements and other information regarding companies which file electronically (which includes Capitol). The SEC's web site address is HTTP:\\WWW.SEC.GOV. Capitol's filings with the SEC can also be accessed through Capitol's web site, HTTP:\\WWW.CAPITOLBANCORP.COM. 3 OTHER CORPORATE INFORMATION CORPORATE OFFICE One Business and Trade Center 200 Washington Square North Lansing, Michigan 48933 517/487-6555 www.capitolbancorp.com INDEPENDENT AUDITORS BDO Seidman, LLP, Grand Rapids, Michigan SHAREHOLDER INFORMATION ANNUAL MEETING Capitol's Annual Meeting will be held on Thursday, May 2, 2002 at 4:00 p.m. at the Lansing Center, located at 333 E. Michigan Avenue, Lansing, Michigan. COMMON STOCK TRADING INFORMATION Capitol's common stock trades on the National Market Tier of the Nasdaq Stock Market(SM) under the trading symbol CBCL. The following brokerage firms make a market in the common stock of Capitol: Robert W. Baird & Co., Inc. - Milwaukee, Wisconsin First Union Securities - Richmond, Virginia Keefe, Bruyette & Woods, Inc. - New York, New York NDB Capital Markets - New York, New York Raymond James & Associates, Inc. - St. Petersburg, Florida Spear Leeds & Kellogg - New York, New York Stifel Nicolaus & Company, Inc. - St. Louis, Missouri U.S. Bancorp Piper Jaffray - Minneapolis, Minnesota COMMON STOCK TRANSFER AGENT UMB Bank, n.a. 928 Grand Avenue P.O. Box 410064 Kansas City, Missouri 64141-0064 800/884-4225 SHAREHOLDER INVESTMENT PROGRAM Capitol offers an easy and affordable way to invest in Capitol's common stock through the Shareholder Investment Program. The program's benefits include reinvestment of dividends in additional common stock, direct deposit of dividends, ability to purchase as little as $50 in common stock as frequently as once a month, and the option to make transfers or gifts of Capitol's common stock to another person. Participation in the program is voluntary and all shareholders are eligible. Purchases under the program are not currently subject to any brokerage fees or commissions. For further information regarding Capitol's Shareholder Investment Program or a copy of its prospectus, informational brochure and enrollment materials, contact UMB Bank, n.a. at 800/884-4225 or Capitol at 517/487-6555. TRUST-PREFERRED SECURITIES TRADING INFORMATION Preferred securities of Capitol Trust I (a subsidiary of Capitol) trade on the Nasdaq Stock Market(SM) under the trading symbol "CBCLP". TRUST-PREFERRED SECURITIES TRUSTEE Bank One Investment Management Group - Chicago, Illinois 4 RESPONSIBILITY FOR FINANCIAL STATEMENTS Capitol's management is responsible for the preparation of the consolidated financial statements and all other information appearing in this annual report. The financial statements have been prepared in accordance with generally accepted accounting principles and prevailing practices within the financial institution industry. Capitol's management is also responsible for establishing and maintaining the internal control structure of Capitol, its banks and its bank development subsidiaries. The general objectives of the internal control structure are to provide management with reasonable assurance that assets are safeguarded against loss from unauthorized use or disposition, and that transactions are completed in accordance with generally accepted accounting principles. In fulfilling this objective, management has various control procedures in place which include review and approval of transactions, a code of ethical conduct for employees, internal auditing and an annual audit of Capitol's consolidated financial statements performed by a qualified independent audit firm. Management believes the internal control structure of Capitol to be adequate and that there are no material weaknesses in internal control. FORWARD-LOOKING STATEMENTS Some of the statements contained in this annual report that are not historical facts are forward-looking statements. Those forward-looking statements, within the meaning of the Private Securities Litigation Reform Act of 1995, are subject to known and unknown risks, uncertainties and other factors which may cause the actual future results, performance or achievements of Capitol and/or its subsidiaries and other operating units to differ materially from those contemplated in such forward-looking statements. The words "intend", "expect", "project", "estimate", "predict", "anticipate", "should", "will", "may", "believe", and similar expressions also identify forward-looking statements. Important factors which may cause actual results to differ from those contemplated in such forward-looking statements include, but are not limited to: (i) the results of Capitol's efforts to implement its business strategy, (ii) changes in interest rates, (iii) legislation or regulatory requirements adversely impacting Capitol's banking business and/or expansion strategy, (iv) adverse changes in business conditions or inflation, (v) general economic conditions, either nationally or regionally, which are less favorable than expected and that result in, among other things, a deterioration in credit quality and/or loan performance and collectability, (vi) competitive pressures among financial institutions, (vii) changes in securities markets, (viii) actions of competitors of Capitol's banks and Capitol's ability to respond to such actions, (ix) the cost of capital, which may depend in part on Capitol's asset quality, prospects and outlook, (x) changes in governmental regulation, tax rates and similar matters, (xi) changes in management, and (xii) other risks detailed in Capitol's other filings with the Securities and Exchange Commission. If one or more of these risks or uncertainties materialize, or if underlying assumptions prove incorrect, actual outcomes may vary materially from those indicated. All subsequent written or oral forward-looking statements attributable to Capitol or persons acting on its behalf are expressly qualified in their entirety by the foregoing factors. Investors and other interested parties are cautioned not to place undue reliance on such statements, which speak as of the date of such statements. Capitol undertakes no obligation to release publicly any revisions to these forward-looking statements to reflect events or circumstances after the date of such statements or to reflect the occurrence of unanticipated events. 5 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Most of this section discusses items of importance regarding Capitol's financial statements which appear elsewhere in this report. In order to obtain a full understanding of this discussion, it is important to read it with those financial statements. However, before discussing the financial statements and related highlights, an introductory section includes some important background information about the business of Capitol and its banks, Capitol's structure and recent developments. THE BUSINESS OF CAPITOL AND ITS BANKS Capitol defines itself as a BANK DEVELOPMENT COMPANY. In the highly regulated business of banking, it is viewed by governmental agencies as a bank holding company. Capitol views bank DEVELOPMENT as a much more dynamic activity than the seemingly passive regulatory label for bank HOLDING companies. Bank development at Capitol is the business of mentoring, monitoring and managing its investments in community banks. Bank development is also the activity of adding new banks through start-up, or DE NOVO, formation or through other affiliation efforts, such as exploring acquisitions of existing banks. Capitol's banks have similar characteristics: * Each bank has an on-site president and management team, as local decision makers. * Each bank has a local board of directors which has actual authority over the bank. * Each bank generally operates from only one office location. * Each bank can fully meet customers' needs anywhere, anytime through bankers-on-call, courier services, Internet and telephone banking and other delivery methods. * Each bank has access to an efficient back-room processing facility and leading-edge technology through shared financial and operating resources. Capitol's banks seek the profitable customer relationships which are often displaced through mergers, mass marketing and megabanks with an impersonal approach to handling customers. Capitol's banks are focused on commercial banking activities, emphasizing business customers, although they also offer a complete array of financial products and services. Each bank has a separate charter. A bank charter is similar to articles of incorporation and enables each bank to exist as a distinct legal entity. Most of these banks are state-chartered, which means they are organized under a particular state's banking laws. All of the banks are FDIC-insured, and some are members of the Federal Reserve System. Banks are highly regulated by state and federal agencies. Because each bank has its own charter, each bank is examined by both state and federal agencies as a separate and distinct legal entity for safety, soundness and compliance with banking laws and regulations. At December 31, 2001, Capitol consisted of 27 community banks, operating in 6 states. 6 Capitol's bank development philosophy is one of "SHARED VISION", which encompasses a commitment to community banking emphasizing local leadership and investment, with the shared resources of efficient management. Capitol provides these shared resources to its banks, including common data processing systems, centralized item processing, loan review, internal audit, credit administration, accounting and risk management. CAPITOL'S STRUCTURE The organizational structure of Capitol is complex. It is a mixture of banks which Capitol owns directly and others which are owned indirectly through subsidiary bank development companies. Additionally, Capitol's direct and indirect ownership percentages of these entities differ. To simplify the overall organizational structure, Capitol's bank development activity may be viewed on these levels: Capitol Bancorp Limited (Bank Development Company) | | +-----------+------------+ | | | | Great Lakes Region Southwestern Region Bank Development Bank Development Great Lakes regional bank development currently consists of activity in the states of Michigan and Indiana. Capitol's 11 Michigan banks range in age from three years to 19 years. Their size varies from $34 million in assets to $271 million. These banks are all located in dynamic markets across the lower peninsula of Michigan in a band about 180 miles wide and 75 miles north and south from that line, in Michigan's most populous and active economic region. Of these banks, 9 were begun as start-up operations and 2 were added via acquisitions: Michigan Bank Development | | +---------------------------+---------------------------+ | | | | East Michigan Banks West Michigan Banks | | | | Capitol National Bank | Macomb Community Bank Portage Commerce Bank | Muskegon Commerce Bank (Lansing -- 1982) --+-- (Clinton Township -- 1996) (Portage -- 1988) --+-- (Muskegon -- 1997) 100% owned | 100% owned 100% owned | 100% owned | | Ann Arbor Commerce Bank | Brighton Commerce Bank Paragon Bank & Trust | Kent Commerce Bank (Ann Arbor -- 1990) --+-- (Brighton -- 1997) (Holland -- 1994) --+--(Grand Rapids -- 1998) 100% owned | 100% owned 100% owned | 100% owned | | Oakland Commerce Bank | Detroit Commerce Bank Grand Haven Bank | (Farmington Hills -- 1992) | (Detroit -- 1998) (Grand Haven -- 1995) | 100% owned) --+-- 93% owned 100% owned --+ Indiana Community Bancorp is 52% owned by Capitol and was formed in 1999 to focus on developing banks in Indiana. Total assets of Indiana Community Bancorp were about $65 million at year-end 2001 ($33 million at year-end 2000): Indiana Community Bancorp Limited 52% owned by Capitol | | +-----------+------------+ | | | | Elkhart Community Bank Goshen Community Bank (Elkhart -- 1999) (Goshen -- 2000) 51% ownership by ICBL 51% ownership by ICBL Sun Community Bancorp has become a particularly significant part of Capitol's overall bank development strategy. Headquartered in Phoenix, Arizona, it is a public company which is carrying out all of its current bank development activities in the southwestern region of the United States. 7 At year-end 2001, its consolidated assets were $780 million ($527 million at year-end 2000). It is also comprised of a combination of directly-owned banks and bank development subsidiaries: Sun Community Bancorp Limited (Southwestern Region Bank Development) 50% owned by Capitol Bancorp | | +----------------------------------+---------------------------------------+ | | | | | | Arizona bank development Nevada bank development through Sunrise Capital Corporation, multi- through 8 majority- Nevada Community Bancorp state bank development emphasizing owned community banks Limited and its 3 majority- specialized lending (SBA) through 3 owned community banks majority-owned community banks In November 2001, Capitol and Sun entered into a plan of share exchange whereby, if approved by Capitol's and Sun's shareholders (at meetings scheduled for March 2002), Capitol would acquire all of Sun's shares of common stock not currently owned by Capitol. If approved, it is anticipated to be consummated on or about March 31, 2002 (see Note S of the Notes to Consolidated Financial Statements). The current group of Sun's banks comprising bank development in Arizona follows: Arizona Bank Development (direct subsidiaries of Sun Community Bancorp Limited) | | Bank of Tucson | Valley First (Tucson -- 1996) --------+-------- Community Bank 100% ownership by Sun | (Scottsdale -- 1997) | 100% ownership by Sun | Mesa Bank | Camelback (Mesa -- 1998) --------+-------- Community Bank 100% ownership by Sun | (Phoenix -- 1998) | 100% ownership by Sun | Southern Arizona | East Valley Community Bank --------+-------- Community Bank (Tucson -- 1998) | (Chandler -- 1999) 100% ownership by Sun | 85% ownership by Sun | Arrowhead | Yuma Community Bank --------+-------- Community Bank (Glendale -- 2000) | (Yuma -- 2000) 87% ownership by Sun | 51% ownership by Sun These banks are young. The most mature bank of the group, Bank of Tucson, completed its 60th month of operation in June 2001. The youngest bank, Yuma Community Bank, opened in December 2000. These banks range in size from about $23 million in assets to $121 million at year-end 2001. Five of the banks are located in or near greater Phoenix and two are located in Tucson. Bank development activities in Nevada are carried out through Nevada Community Bancorp Limited, which is 54% owned by Sun, and was formed in 1999: Nevada Community Bancorp Limited 54% owned by Sun | | +---------------------------+------------------------------+ | | | | | | Black Mountain Desert Community Bank Red Rock Community Bank Community Bank (Las Vegas -- 1999) (Las Vegas -- 1999) (Henderson -- 2000) 51% ownership by NCBL 51% ownership by NCBL 51% ownership by NCBL 8 Nevada's consolidated total assets approximated $193 million at year-end 2001 ($106 million at year-end 2000). A fourth Las Vegas area bank was added in February 2002. Sunrise Capital Corporation was formed in 1999, is approximately 71% owned by Sun and had consolidated total assets of $137 million at year-end 2001. It is focused on developing banks in several states with a slightly different emphasis on commercial lending than the other bank affiliates of Capitol and Sun. Its three banks focus on offering loan products structured through and partially guaranteed by the U.S. Small Business Administration (SBA), in addition to the full array of typical bank products and services: Sunrise Capital Corporation SBA Bank Development (Approx. 71% owned by Sun) | | +-----------------------------+------------------------------+ | | | | | | Sunrise Bank of Arizona Sunrise Bank of Albuquerque Sunrise Bank of San Diego Phoenix, Arizona Albuquerque, New Mexico San Diego, California (1998) (2000) (2001) 100% ownership by SCC 87% ownership by SCC 64% ownership by SCC All of the banks and subsidiary bank development companies are combined, or consolidated, for financial reporting purposes because Capitol has ownership control of them either directly or indirectly. Current accounting rules require consolidated reporting when one entity has majority voting control of another. The reporting entity is the parent organization and entities which are majority-owned by the parent are subsidiaries. In the circumstances of Capitol, this parent and subsidiary relationship applies also to second and third tier subsidiaries which have consolidated subsidiaries of their own. The accounting rules in this area inhibit an understanding of the consolidated financial statements. For example, consolidated balance sheets include all of the combined entities' assets and liabilities. On the other hand, the consolidated income statement includes all of the combined entities, but net income only to the extent of the parent's ownership percentage. RECENT DEVELOPMENTS Because of the number of banks and bank development companies added in recent periods, comparing financial results for those and prior periods is difficult. In 2001, one new bank was added. In 2000, a total of five new banks were added to the consolidated group. In 1999, four new banks were added. In 1998, there were six new banks added to the group. In early 2001, Capitol's board of directors decided to reduce the annual number of new bank start-ups in contrast to the preceding three years. This decision was based, in part, on the objective of reducing the impact of start-up costs and early-period operating losses which tend to negatively impact consolidated earnings. At December 31, 2001, applications were pending for permission to form two new banks in early 2002, one in California and one in Nevada. Both of these new banks (Napa Community Bank and Bank of Las Vegas) opened in early 2002. 9 As previously noted, a share exchange proposal was pending as of December 31, 2001 which, if approved by Capitol's and Sun's shareholders, would result in Sun becoming a wholly-owned subsidiary of Capitol. If the share exchange is completed, then Capitol will fully include Sun's results of operations in its operating results for periods after the effective date of the share exchange. Capitol's rate of earnings per share will be diluted temporarily following the proposed share exchange; however, this effect is not expected to be material in 2003. BANKING TECHNOLOGY AT CAPITOL The use of high technology banking systems is key to the delivery of accurate and timely customer service. Capitol currently operates two data processing sites, located in Lansing, Michigan and Tempe, Arizona. The Lansing site handles item processing for the banks located in the Great Lakes region, while the Tempe data center processes all activity for the banks located in the Southwest. Both sites use mainframe computers and software which are nearly identical. While physically separate, both sites function under common management. 2001 FINANCIAL OVERVIEW Capitol completed 2001 with total assets exceeding $2 billion, an increase of 25% over year-end 2000's level of $1.6 billion. Net income for 2001 exceeded $10.7 million, about 33% more than 2000's net income of $8.0 million. CHANGES IN CONSOLIDATED FINANCIAL POSITION Total assets have grown significantly to $2 billion near the end of 2001 from $1 billion at the end of 1998. This rapid asset growth is the result of adding new banks and the ongoing growth and evolution of Capitol's more mature banks. TOTAL ASSETS ($ millions) 1997 1998 1999 2000 2001 ---- ----- ----- ----- ----- 691 1,024 1,306 1,630 2,044 At year-end 2001, total assets of the five banks formed in 2000 approximated $172 million ($67 million at December 31, 2000). Banks formed in 1999 reported total assets of $217 million at the end of 2001, an increase of $79 million during the year. Total assets of the six banks which became three years old in 2001 grew 27% during the past year to $339 million. The three banks formed in 1997 continued strong asset growth of 15% in 2001, achieving total assets of $203 million. The most mature group of banks, those formed before 1997, reported total assets of $1.1 billion at year-end 2001, an increase of about 13% for the year. 10 The total assets and revenues of each bank, the consolidated totals and ownership percentages are summarized below as of year-end 2001 and 2000 (in $1,000s): Percentage Ownership By Total Assets Total Revenues ----------------------------- -------------------------- -------------------------- Capitol 2nd Tier 3rd Tier 2001 2000 2001 2000 ------- -------- -------- ----------- ----------- ----------- ----------- Ann Arbor Commerce Bank 100% $ 271,116 $ 242,180 $ 23,372 $ 21,434 Brighton Commerce Bank 100% 70,530 62,431 5,608 5,327 Capitol National Bank 100% 173,177 148,385 13,196 13,110 Detroit Commerce Bank 93% 33,768 30,269 2,620 2,410 Grand Haven Bank 100% 98,740 76,644 7,822 7,039 Kent Commerce Bank 100% 66,873 45,288 4,763 3,927 Macomb Community Bank 100% 97,113 100,597 8,364 9,298 Muskegon Commerce Bank 100% 74,284 61,867 6,305 5,411 Oakland Commerce Bank 100% 115,249 97,099 8,681 8,737 Paragon Bank & Trust 100% 93,667 79,504 8,270 8,099 Portage Commerce Bank 100% 127,884 128,802 11,134 11,969 Indiana Community Bancorp Limited (ICBL): 52% Elkhart Community Bank 51% 35,939 24,259 2,481 1,533 Goshen Community Bank 51% 28,681 8,402 1,215 99 ----------- ----------- ----------- ----------- Consolidated ICBL 65,205 33,231 3,713 1,679 Sun Community Bancorp Limited (SCBL): 50% Arrowhead Community Bank 87% 33,658 8,091 1,804 154 Bank of Tucson 100% 121,075 98,285 10,516 9,479 Camelback Community Bank 100% 67,210 49,364 5,161 3,853 East Valley Community Bank 85% 39,591 34,392 3,261 1,776 Mesa Bank 100% 52,308 36,529 4,277 3,230 Southern Arizona Community Bank 100% 55,423 40,156 4,107 3,340 Valley First Community Bank 100% 58,625 53,081 4,694 4,707 Yuma Community Bank 51% 23,202 5,064 1,244 22 Nevada Community Bancorp Limited (NCBL): 54% Black Mountain Community Bank 51% 50,909 26,060 3,259 1,095 Desert Community Bank 51% 56,844 35,511 4,341 2,905 Red Rock Community Bank 51% 84,971 44,193 5,659 3,171 ----------- ----------- ----------- ----------- Consolidated NCBL 193,212 106,155 13,258 7,180 Sunrise Capital Corporation (SCC): 71% Sunrise Bank of Albuquerque 87% 35,984 19,762 2,851 944 Sunrise Bank of Arizona 100% 63,141 63,930 6,466 5,451 Sunrise Bank of San Diego 64% 37,912 2,658 ----------- ----------- ----------- ----------- Consolidated SCC 137,232 84,908 11,975 6,429 ----------- ----------- ----------- ----------- Consolidated SCBL 780,161 526,833 60,091 41,016 Other, net (23,868) 9,931 (747) (72) ----------- ----------- ----------- ----------- Consolidated totals $ 2,044,006 $ 1,630,076 $ 163,382 $ 138,448 =========== =========== =========== =========== Most of the consolidated assets consist of loans. Portfolio loans approximated $1.7 billion at year-end 2001, or about 85% of total consolidated assets, an increase from 83% at year-end 2000. TOTAL LOANS ($ millions) 1997 1998 1999 2000 2001 ---- ---- ----- ----- ----- 503 724 1,049 1,356 1,735 11 The banks emphasize commercial loans, consistent with their focus on serving small to mid-sized business customers. The majority of commercial loans are secured by real estate. Commercial loans comprise $1.5 billion or about 89% of total portfolio loans at year-end 2001, a slight increase from the 87% ratio at the end of 2000. Loan growth in 2001 was significant--$379 million, or a growth rate of 28%--and closely paralleled the growth rate experienced in 2000. The banks maintain an allowance for loan losses to absorb estimated losses in the loan portfolio at the balance sheet date. At December 31, 2001, the allowance for loan losses approximated $23.2 million or 1.34% of portfolio loans, compared to $17.4 million or 1.29% at the end of 2000. The allowance ratio was increased in 2001 in response to higher levels of nonperforming loans and potential problem loans. The following table summarizes portfolio loans, the allowance for loan losses and its ratio, and nonperforming loans (in $1,000s): Allowance as a Allowance for Nonperforming % of Total Total Portfolio Loans Loan Losses Loans Portfolio Loans ----------------------- ------------------ ---------------- --------------- 2001 2000 2001 2000 2001 2000 2001 2000 ---------- ---------- ------- ------- ------- ------ ----- ----- Ann Arbor Commerce Bank $ 233,920 $ 208,114 $ 3,219 $ 2,810 $ 1,960 $ 799 1.38% 1.35% Brighton Commerce Bank 60,984 53,886 732 602 227 1.20% 1.12% Capitol National Bank 144,485 130,384 1,983 1,757 465 805 1.37% 1.35% Detroit Commerce Bank 29,243 21,081 351 245 539 1 1.20% 1.16% Grand Haven Bank 89,989 67,419 1,212 861 1,234 474 1.35% 1.28% Kent Commerce Bank 63,782 40,346 766 444 55 73 1.20% 1.10% Macomb Community Bank 79,844 86,886 1,088 964 1,431 1.36% 1.11% Muskegon Commerce Bank 70,151 55,431 842 617 123 125 1.20% 1.11% Oakland Commerce Bank 81,711 79,598 1,063 971 406 515 1.30% 1.22% Paragon Bank & Trust 81,430 64,820 1,018 807 586 507 1.25% 1.24% Portage Commerce Bank 109,393 112,674 1,550 1,496 2,845 1,651 1.42% 1.33% Indiana Community Bancorp Limited (ICBL): Elkhart Community Bank 31,492 17,968 473 270 222 1.50% 1.50% Goshen Community Bank 22,966 2,383 345 36 1.50% 1.51% ---------- ---------- ------- ------- ------- ------ Consolidated ICBL 54,458 20,351 818 306 222 -0- Sun Community Bancorp Limited (SCBL): Arrowhead Community Bank 30,430 4,724 457 71 1.50% 1.50% Bank of Tucson 88,218 75,359 1,224 1,023 407 1.39% 1.36% Camelback Community Bank 56,555 37,822 743 483 334 1.31% 1.28% East Valley Community Bank 27,402 25,937 423 357 432 1.54% 1.38% Mesa Bank 45,672 28,930 594 374 542 27 1.30% 1.29% Southern Arizona Community Bank 50,879 36,135 662 434 298 1.30% 1.20% Valley First Community Bank 41,851 42,759 670 663 1,018 306 1.60% 1.55% Yuma Community Bank 18,539 800 285 13 1.54% 1.62% Nevada Community Bancorp Limited (NCBL): Black Mountain Community Bank 40,111 17,052 602 257 240 241 1.50% 1.51% Desert Community Bank 50,361 29,426 806 441 989 1,089 1.60% 1.50% Red Rock Community Bank 67,117 38,666 1,008 586 942 1.50% 1.52% ---------- ---------- ------- ------- ------- ------ Consolidated NCBL 157,589 85,144 2,416 1,284 2,171 1,330 Sunrise Capital Corporation (SCC): Sunrise Bank of Albuquerque 28,061 16,259 379 238 614 1.35% 1.46% Sunrise Bank of Arizona 55,730 59,465 753 650 1,329 35 1.35% 1.09% Sunrise Bank of San Diego 32,910 455 1.38% ---------- ---------- ------- ------- ------- ------ Consolidated SCC 116,701 75,833 1,587 888 1,943 144 ---------- ---------- ------- ------- ------- ------ Consolidated SCBL 638,736 422,344 8,660 5,440 7,145 1,807 Other, net 1,363 1,474 (465) (21) 109 ---------- ---------- ------- ------- ------- ------ ---- ---- Consolidated totals $1,734,589 $1,355,798 $23,238 $17,449 $17,238 $6,757 1.34% 1.29% ========== ========== ======= ======= ======= ====== ==== ==== 12 Nonperforming loans, which consist of loans more than 90 days past due and loans on nonaccrual status, approximated $17.2 million at year-end 2001, compared to $6.8 million at the end of 2000, an increase of approximately $10.4 million. Most of these loans at December 31, 2001 are a small number of loans in various stages of resolution which management believes to be adequately collateralized or otherwise appropriately considered in its determination of the adequacy of the allowance for loan losses. In addition to the identification of nonperforming loans involving borrowers with payment performance difficulties (i.e., nonaccrual loans and loans past-due 90 days or more), management utilizes an internal loan review process to identify other potential problem loans which may warrant additional monitoring or other attention. This loan review process is a continuous activity which periodically updates internal loan classifications. At inception, all loans are individually assigned a classification which grade the credits on a risk basis, based on the type and discounted value of collateral, financial strength of the borrower and guarantors and other factors such as nature of the borrowers' business climate, local economic conditions and other subjective factors. The loan classification process is fluid and subjective. Potential problem loans include loans which are generally performing as agreed, however, because of loan review's and/or lending staff's risk assessment, increased monitoring is deemed appropriate. In addition, some loans are identified for monitoring because of specific performance issues or other risk factors requiring closer management and development of specific remedial action plans. Loan review activities were augmented in September 2001 in response to continued and worsening general conditions of the United States economy, in part due to the terrorist attacks in New York, Pennsylvania and the Nation's Capitol. With deterioration of general economic conditions prior to September 11, 2001--the events on that date and subsequently--management undertook an even more thorough and critical review of all loans and related loan classifications. At December 31, 2001, potential problem loans (including nonperforming loans) approximated $75.4 million or about 4% of total consolidated portfolio loans. Such totals doubled in 2001, in part, as a result of management's ongoing and augmented loan review activities. It is important to note that these potential problem loans do not necessarily have significant loss exposure (nor are they necessarily deemed `impaired'), but rather are identified by management in this manner to aid in loan administration and risk management. Management believes these loans to be adequately considered in its evaluation of the adequacy of the allowance for loan losses. Management believes, however, that current general economic conditions may result in higher levels of future loan losses, in comparison to previous years. Although nonperforming and other potential problem loans have increased, loan loss experience through December 31, 2001 has been less than industry statistics and at low percentage based on average loans outstanding. Management's assessment of these loans as of December 31, 2001 suggests future loss experience will parallel past experience. 13 How financial institutions establish their allowance for loan losses is an important and critical accounting policy and process. The allowance for loan losses is maintained at a level believed adequate by management to absorb potential losses inherent in the loan portfolio at the balance sheet date. It is analyzed quarterly by each bank. The adequacy of the allowance is an estimate based on management's evaluation of the loan portfolio (including volume, amount and composition, potential impairment of individual loans and concentration of credit), past loss experience, current economic conditions, loan commitments outstanding, regulatory requirements and other factors. Standard-setting bodies, regulatory agencies and the SEC (Securities and Exchange Commission) have, on an industry-wide basis, separately issued proposals and other guidance in 2001 and 2000 on how the allowance for loan losses should be estimated and documented. Estimation of requirements for the allowance for loan losses is an inherently subjective process which involves significant judgement by management of many variables potentially impacting borrowers' ability to repay loans and the estimated values of underlying loan collateral. New banks, as a condition of charter approval, are required to maintain an allowance ratio of not less than 1% for their first three years of operations. Because they are new banks with new and unseasoned loans and no prior loss history, 1% is often used as a starting point for the allowance, particularly in the earliest years of operation. As some of the younger banks now have more seasoned loan portfolios and the 1% regulatory requirement represents only an absolute minimum, loan loss allowance ratios were increased in 2001 based on management's estimates of loss potential inherent in the loan portfolios at the balance sheet date. In addition to the recorded allowance, some Michigan and Indiana bank subsidiaries have loans which are enrolled in state-sponsored programs which provide supplemental loss protection through earmarked deposits kept at the participating banks by the applicable state agency. Loans in this program totaled $35 million in 2001 and $34 million in 2000 and the amount of the loss reserves available for those loans approximated $1.4 million in 2001 and $1.6 million in 2000. The state agency administering the Michigan program has announced plans to terminate the program in 2002. Upon termination of the program, loans previously enrolled in the program and related reserves would continue until the underlying loans are repaid, but no new loans would be enrolled in the program. While this program has been important to Capitol's Michigan banks, termination of the program is not expected to have a material adverse affect on those banks' lending activities in the future. The termination of the program may adversely affect the future availability of credit for those borrowers who otherwise would have been eligible for enrollment in the program. 14 CONSOLIDATED RESULTS OF OPERATIONS Revenue growth has been significant. In 2001, total revenues approximated $163.4 million, an 18% increase over the 2000 revenue level of $138.4 million. The primary revenue source is interest income from loans. Net interest income is the difference between total interest income on loans and other earning assets and interest expense on deposits and borrowings. The following graphs summarize growth in total revenue (which includes noninterest income revenues like some fees and service charges) and net interest income: TOTAL REVENUES ($ millions) 1997 1998 1999 2000 2001 ---- ---- ----- ----- ----- 51.7 73.2 98.3 138.4 163.4 NET INTEREST INCOME ($ millions) 1997 1998 1999 2000 2001 ---- ---- ----- ----- ----- 24.7 33.0 47.4 66.4 80.5 Most of the 2001 revenues, $90 million or about 55%, came from the most mature banks--those formed prior to 1997. Banks formed in 1999, 1998 and 1997 reported 2001 revenues of $60 million or 37% of the consolidated total. The youngest banks, those formed in 2001 and 2000, generated 2001 revenues totaling $13 million or about 8% of total consolidated revenues. Noninterest income increased about 56% in 2001 and 30% in 2000. These increases resulted from higher levels of service-charge revenue associated with growth in the number of accounts and banks. Revenues from origination of non-portfolio residential mortgages increased significantly in both 2001 and 2000 due to higher loan volume in periods of low interest rates. Growth in the categories of interest income and interest expense as well as noninterest income and noninterest expense, is the result of the addition of new banks during the periods presented and the ongoing growth of Capitol's more mature banks. Growth in interest expense is mainly due to higher levels of interest-bearing funds which fund growth at each of the banks. Net interest margin, however, decreased in 2001, mainly due to interest rate decreases impacting interest income at a rate faster than decreases in interest rates paid on deposits. The largest component of noninterest expense is salaries and employee benefits, which has increased significantly due to the larger number of banks and bank development subsidiaries. 15 The following table summarizes net income for each of the banks, and on a consolidated basis, the related rates of return on average equity and assets, where applicable (in $1,000s): Net Income Return on Average Equity Return on Average Assets ---------------------------- -------------------------- ------------------------- 2001 2000 1999 2001 2000 1999 2001 2000 1999 ---- ---- ---- ---- ---- ---- ---- ---- ---- Ann Arbor Commerce Bank $ 4,200 $ 3,508 $ 2,730 22.02% 21.43% 19.15% 1.64% 1.55% 1.35% Brighton Commerce Bank 597 534 455 10.55% 10.22% 10.33% 0.90% 0.90% 0.91% Capitol National Bank 2,647 2,319 2,162 22.04% 22.08% 21.76% 1.66% 1.63% 1.66% Detroit Commerce Bank (187) 10 (341) 0.37% 0.03% Grand Haven Bank 1,060 1,084 955 15.39% 19.20% 18.99% 1.21% 1.46% 1.34% Kent Commerce Bank 113 130 (61) 2.03% 3.21% 0.20% 0.30% Macomb Community Bank 1,145 1,212 712 12.33% 14.41% 10.25% 1.08% 1.14% 0.83% Muskegon Commerce Bank 816 689 189 12.73% 15.14% 5.97% 1.17% 1.23% 0.49% Oakland Commerce Bank 1,328 1,027 1,010 16.62% 13.78% 14.58% 1.27% 1.08% 1.03% Paragon Bank & Trust 231 431 352 3.23% 6.72% 5.47% 0.26% 0.50% 0.42% Portage Commerce Bank 1,556 1,552 1,775 15.62% 16.76% 21.40% 1.21% 1.21% 1.54% Indiana Community Bancorp Limited (ICBL): Elkhart Community Bank 14 (229) (223) 0.30% 0.04% Goshen Community Bank (413) (216) ------- ------- ------- Consolidated ICBL (265) (299) (131) Sun Community Bancorp Limited (SCBL): Arrowhead Community Bank (386) (419) Bank of Tucson 2,095 2,149 1,086 22.64% 27.69% 16.63% 1.89% 2.33% 1.48% Camelback Community Bank 534 297 (520) 10.80% 8.22% 0.93% 0.74% East Valley Community Bank 18 (532) (673) 0.58% 0.05% Mesa Bank 386 268 (207) 8.53% 6.77% 0.87% 0.85% Southern Arizona Community Bank 320 169 (546) 7.42% 4.44% 0.67% 0.47% Valley First Community Bank 328 88 36 5.94% 1.82% 0.87% 0.61% 0.18% 0.10% Yuma Community Bank (438) (176) Nevada Community Bancorp Limited (NCBL): Black Mountain Community Bank 12 (468) 0.27% 0.03% Desert Community Bank 35 (180) (358) 0.76% 0.07% Red Rock Community Bank 635 190 (269) 7.64% 2.45% 0.96% 0.62% ------- ------- ------- Consolidated NCBL 181 (483) (469) Sunrise Capital Corporation (SCC): Sunrise Bank of Albuquerque 28 (386) 0.77% 0.09% Sunrise Bank of Arizona 830 206 (634) 15.24% 4.64% 1.27% 0.43% Sunrise Bank of San Diego (806) ------- ------- ------- Consolidated SCC (88) (243) (634) ------- ------- ------- Consolidated SCBL 2,290 807 (1,593) Other, net (5,980) (5,222) (2,221) ------- ------- ------- ----- ----- ----- ----- ----- ----- Consolidated totals $10,718 $ 8,035 $ 5,409 15.22% 13.78% 10.66% 0.58% 0.55% 0.47% ======= ======= ======= ===== ===== ===== ===== ===== ===== Provisions for loan losses also increased significantly during recent years, commensurate with the growth in both the number of banks and loans and trends in asset quality and loan charge-offs. During 1999, a new accounting standard required the write-off of previously capitalized start-up costs, which is discussed in a later section of this narrative. It was reflected as a cumulative effect of a change in accounting principle in the consolidated statement of income, and amounted to $.03 per share. NET INCOME ($ Millions) 1997 1998 1999 2000 2001 ---- ---- ---- ---- ---- 5.6 4.6 5.4 8.0 10.7 16 LIQUIDITY, CAPITAL RESOURCES AND CAPITAL ADEQUACY Asset liquidity for financial institutions typically consists of cash and cash equivalents, investment securities available for sale and loans held for resale. These categories totaled $262 million at year-end 2001, or about 13% of total assets. This compares to $226 million or 14% of total assets at year-end 2000. 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. The change in the liquidity ratio, from 14% in 2000 to 13% in 2001, is the result of more assets being deployed into loans, consistent with the strategy of maximizing interest income. Rates of interest income on liquid assets are typically less than rates the banks achieve from commercial loans. Most of the investment securities portfolio is classified as available for sale, although the banks generally have not sold investments to meet liquidity needs. Also, to the extent warranted, the banks may sell loans from time to time. 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 16% of total deposits at year-end 2001 (about 15% at year-end 2000) and increased $64 million, or 30%, during the year. TOTAL DEPOSITS ($ millions) 1997 1998 1999 2000 2001 ---- ---- ---- ---- ---- 604 891 1,113 1,401 1,740 In recent periods, many banks have experienced some competitive challenges in obtaining additional deposits to fuel growth. Capitol's banks have had similar experiences in their individual markets. As depositors have wider access to the Internet and other real-time interest rate monitoring resources, deposit pricing has become more competitive. Deposit growth is achievable, but at a higher price, shrinking net interest margins. The banks do not generally rely on brokered deposits as a key funding source (approximately $143 million at year-end 2001). To supplement their funding sources, some of the banks have lines of credit from the Federal Home Loan Bank system. At year-end 2001, a total of $63 million ($40 million at year-end 2000) was borrowed under those facilities and additional borrowing availability approximated $15 million. Some of the banks also have smaller lines of credit with their correspondent banks. Borrowings under these facilities are generally at short-term market rates of interest and, although the repayment dates can be extended, are generally outstanding for brief periods of time. 17 Capitol has credit facilities aggregating $35 million from an unaffiliated bank. At year-end 2001, a total of $14.1 million ($18.2 million at year-end 2000) was borrowed under this facility. Borrowings under this credit facility were reduced in 2001 and 2000 through use of available corporate funds within the consolidated group. A significant source of capital has been investments provided by minority shareholders in the subsidiaries which are consolidated for financial reporting purposes. Total minority interests in consolidated subsidiaries amounted to $70.7 million at year-end 2001, an increase of $8.1 million from the $62.6 million level at year-end 2000. The increases in minority interests in 2001 resulted mainly from Sun's consolidating the ownership of three of its majority-owned banks, by issuing new shares of Sun's common stock at a premium over the underlying book value of the minority interests' shares of the bank. Three of the majority-owned banks became 100% owned in 2000. When these banks neared their 36th month of operation, Capitol offered the minority owners an opportunity to exchange their bank shares for shares of Capitol. The exchange ratio was based on 150% of the banks' adjusted book value. Brighton Commerce Bank's share exchange transaction was completed effective January 31, 2000. Share exchange transactions for Kent Commerce Bank and Muskegon Commerce Bank were completed effective December 31, 2000. As a result of the share exchanges, the minority owners of those three banks became shareholders of Capitol. About 626,000 shares of Capitol's common stock were issued in these transactions. In 2001, three of Sun's majority-owned banks (Camelback Community Bank, Southern Arizona Community Bank and Mesa Bank) became wholly-owned by Sun, resulting from share exchange transactions with those banks' minority shareholders. Those share exchange transactions were structured similarly to Capitol's prior share exchange transactions. While it is likely that similar share exchange transactions, as a harvest strategy to gain full ownership of some bank subsidiaries, may occur in the future, any such transactions depend upon whether Capitol (or one of its subsidiary bank holding companies) offers such an exchange and whether minority shareholders vote in favor of it on a transaction-by-transaction basis. Total stockholders' equity approximated $80.2 million at year-end 2001, an increase of $9.8 million for the year. The 2001 increase in stockholders' equity includes earnings (less dividends paid) and proceeds from the issuance of common stock. The book value per share of common stock was $10.24 at year-end 2001, compared with $9.18 at year-end 2000. Cash dividends of $0.40 were paid in 2001, compared to $.36 in 2000 and 1999. Future payment of dividends is subject to approval by Capitol's board of directors, future operating performance and management's assessment of the consolidated organization's capital adequacy. Capitol's capital structure consists of these primary elements: * Trust-preferred securities, * Minority interests in consolidated subsidiaries, and * Stockholders' equity. 18 TOTAL CAPITALIZATION ($ millions) 1997 1998 1999 2000 2001 ---- ---- ---- ---- ---- 80.2 101.1 133.6 157.3 199.5 In March 2001, Capitol completed a private placement of 130,000 shares of common stock at $11.50 per share and 32,500 warrants (each such warrant permitting the holder to purchase one share of common stock at $11.50 per share prior to the expiration date of the warrant, March 2003). Proceeds from the offering approximated $1.5 million and were used for debt retirement and additional investment in bank development activities. In July 2001, Capitol participated in two private placements of pooled trust-preferred securities. One is a variable rate security totaling $15 million and the second is a fixed-rate security of $10 million. Both have similar terms (due in 2031) and, subject to certain provisions, may be repaid early. Net proceeds from these transactions approximated $24 million and were used for debt repayment, bank development and other corporate purposes. These securities, along with Capitol Trust I (a $25 million public offering of trust-preferred securities in 1997), are treated as elements of capital for regulatory purposes. Total capitalization at year-end 2001 amounted to $199.5 million or 9.8% of total assets. This compares to $157.3 million or 9.7% at year-end 2000. Capitol and each of its banks and bank development subsidiaries are subject to a complex series of regulatory rules and requirements which require specific levels of capital adequacy at both the bank level and on a consolidated basis. Under those rules and regulations, banks are categorized as WELL CAPITALIZED, ADEQUATELY CAPITALIZED or INADEQUATELY CAPITALIZED using several ratio measurements, including a risk-weighting approach to assets and financial commitments. Banks falling into the INADEQUATELY CAPITALIZED category are subject to the prompt corrective action provisions of the FDIC Improvement Act, which can result in significant regulatory agency intervention and other adverse action. Although it is permissible to maintain capital adequacy at the ADEQUATELY CAPITALIZED level, Capitol operates with the objective of its banks meeting the WELL CAPITALIZED standard. The well capitalized banks benefit from lower FDIC deposit insurance costs and less restrictive limitations on some banking activities. New banks, as a condition of regulatory charter approval, are required to maintain higher ratios of capital adequacy. Generally, they are required to keep a ratio of capital-to-total-assets of not less than 8% during their first three years of operation. In the opinion of management, all of the affiliated banks met the criteria to be classified as WELL CAPITALIZED at year-end 2001. 19 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, 2001 (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 $ 68,859 $ 68,859 Interest-bearing bank deposits 10,999 10,999 Loans held for resale 62,487 62,487 Investment securities 2,598 $ 4,607 $ 21,935 $ 14,547 43,687 Portfolio loans: Commercial 720,649 166,944 626,090 21,768 1,535,451 Real estate mortgage 57,992 12,530 40,380 10,774 121,676 Installment 14,206 16,108 46,555 593 77,462 Non-earning assets 123,385 ---------- ---------- ---------- ---------- ---------- Total assets $ 937,790 $ 200,189 $ 734,960 $ 47,682 $2,044,006 ========== ========== ========== ========== ========== LIABILITIES AND STOCKHOLDERS' EQUITY Interest-bearing deposits: Time deposits over $100,000 $ 158,093 $ 255,477 $ 96,700 $ 510,270 Time deposits under $100,000 86,146 185,249 65,277 $ 8 336,680 All other interest-bearing deposits 494,101 124,107 2,634 620,842 ---------- ---------- ---------- ---------- ---------- Total interest-bearing deposits 738,340 564,833 164,611 8 1,467,792 Debt obligations 20,587 14,500 17,824 37,000 89,911 Noninterest-bearing liabilities 286,837 Trust-preferred securities 14,555 34,066 48,621 Minority interests in consolidated subsidiaries 70,673 Stockholders' equity 80,172 ---------- ---------- ---------- ---------- ---------- Total liabilities and stockholders' equity $ 773,482 $ 579,333 $ 182,435 $ 71,074 $2,044,006 ========== ========== ========== ========== ========== Interest rate sensitive period gap $ 164,308 $ (379,144) $ 552,525 $ (23,392) ========== ========== ========== ========== Interest rate sensitive cumulative gap $ 164,308 $ (214,836) $ 337,689 $ 314,297 ========== ========== ========== ========== Period rate sensitive assets/period rate sensitive liabilities 1.21 .35 4.03 .67 Cumulative rate sensitive assets/cumulative rate sensitive liabilities 1.21 .84 1.22 1.20 Cumulative gap to total assets 8.04% (10.51)% 16.52% 15.38% 20 The "gap" changes daily based upon changes in the underlying assets and liabilities at the banks. Analyzing exposure to interest rate risk is prone to imprecision because the "gap" is constantly changing, the "gap" differs at each of the banks, and it is difficult to predict the timing, amount and direction of future changes in market interest rates and the potential corresponding effect on customer behavior. The banks endeavor to manage and monitor interest rate risk in concert with market conditions and risk parameters. Management strives to maintain a reasonably balanced position of interest rate-sensitive assets and liabilities. The banks have not engaged in speculative positions, for example, through the use of derivatives, in anticipation of interest rate movements. In periods of relatively lower interest rates, the banks emphasize variable rate loans and time deposits to the extent possible in a competitive environment; however, competitive influences often result in making fixed rate loans, although the banks seek to limit the duration of such loans. 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 Pro Forma Effect of Pro Forma Effect of Assuming No Interest Rate Increases Interest Rate Decreases Change in ----------------------- ----------------------- Interest Rates +100 bp +200 bp -100 bp -200 bp -------------- -------- -------- -------- -------- Interest income $131,442 $140,789 $150,135 $122,096 $112,825 Interest expense 42,410 46,826 51,242 37,998 33,702 -------- -------- -------- -------- -------- Net interest income $ 89,032 $ 93,963 $ 98,893 $ 84,098 $ 79,123 ======== ======== ======== ======== ======== 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. During 2001, the Open Market Committee of the Federal Reserve Board decreased interbank interest rates 11 times, which was an unprecedented action to reduce rates 475 basis points within a year. While the pro forma analysis above is intended to estimate the impact of an immediate 100 and 200 basis point change in rates, actual results will be different. Those results will differ 21 (and may be materially different) because a sudden rate change in market rates does not result in an instantaneous parallel shift in rates on loans and deposits at banks. Further, any financial model intended to estimate the impact of interest rate changes will not necessarily incorporate other variables, including management's efforts to manage its asset and liability interest rate sensitivity, nor customer behavior. General economic conditions also have a significant impact on both the results of operations and the financial condition of financial institutions. Local economic conditions, and to some extent national economic conditions, have a significant impact on levels of loan demand as well as the ability of borrowers to repay loans and the availability of funds for customers to make deposits. In 2000 and 1999, economic conditions continued to be favorable. 2001 marked the end of the longest peacetime economic expansion in U.S. history. The terrorist acts of September 11, 2001, our Nation's subsequent war on terrorism, the diagnosis of economic recession in the U.S., worldwide economic and political instability, recent major business bankruptcies and their related high-profile questionable accounting and financial reporting practices, raise significant concerns over the near-term and longer-horizons for economic and political uncertainty. The number of variables which have the potential for having a dramatic impact, individually or collectively, is an environment not heretofore witnessed by the United States or the world. Capitol's management remains cautiously optimistic about the future of our economy, the business of its banks and their customers and the health and strength of its service providers. However, management is resolute in its view that, even though there are some positive indications of an improving economy, the environment will NOT be BUSINESS AS USUAL anytime soon. While the events of September 11th were clearly horrific to the thousands of people with a direct loss of family members and business colleagues, we consider our company to be minimally impacted at this time. However, we note the loss of business colleagues we worked with in 2001 and are deeply saddened by their families' losses. Our loss of those colleagues, some of whom were very key to the banking industry, creates a void which cannot be easily filled. Nonetheless, Capitol's management looks forward to the rebuilding of those businesses and working with the professionals subsequently taking on the key commerce activities which is the hallmark of this Nation's freedoms and free enterprise system. 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, coupled with the closure of branch locations by larger institutions and the conversion of customer relationships into perceived `commodities' by the larger banks, many customer relationships have been displaced, generating opportunities for development by Capitol's banks. For many retail customers, banking services have become a commodity in an environment that is dominated by larger mega-bank or mass-merchandising institutions. For the professional, entrepreneur and other customers seeking a more service-oriented, customized banking relationship, Capitol's banks fill that need through their focus on single-location banks with full, local decision-making authority. As the banks focus on service delivery and keeping their size at a manageable level, only a modest market share of deposits and loan activity is necessary to achieve profitability and investor-oriented earnings performance. 22 Start-up banks generally incur operating losses during their early periods of operations. Recently-formed start-up banks will detract from consolidated earnings performance and additional start-up banks formed in 2002 and beyond will similarly negatively impact short-term profitability. On a consolidated basis, such operating losses reduce net income by the pro rata share of Capitol's ownership percentage in those banks. When those banks become profitable, their operating results will contribute to consolidated earnings to the extent of Capitol's ownership percentage. Commercial banks continue to be subject to significant regulatory requirements which impact current and future operations. In addition to the extent of regulatory interaction with financial institutions, extensive rules and regulations governing lending activities, deposit gathering and capital adequacy (to name a few), translate into a significant cost burden of financial institution regulation. Such costs include the significant amount of management time and expense which is incurred in maintaining compliance and developing systems for compliance with those rules and regulations as well as the cost of examinations, audits and other compliance activities. The future of financial institution regulation, and its costs, is uncertain and difficult to predict. Premiums for FDIC insurance have historically been a significant cost of doing business as financial institutions, but in the most recent years, deposit insurance premiums have been maintained at a stable and modest level. Future deposit insurance premium levels are difficult to predict inasmuch as deposit insurance premiums will be determined based on general economic conditions, the relative health of the banking and financial institution industry and other unpredictable factors. It is reasonable to expect that deposit insurance premiums may increase at some point in the future. NEW ACCOUNTING STANDARDS Financial Accounting Standards Board (FASB) Statement No. 133, ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES, requires all derivatives to be recognized in financial statements and to be measured at fair value. Gains and losses resulting from changes in fair value are included in income, or in comprehensive income, depending on whether the instrument qualifies for hedge accounting and the type of hedging instrument involved. This new standard became effective January 1, 2001 and had no effect on Capitol's consolidated financial statements. In 2001, the Securities and Exchange Commission, American Institute of Certified Public Accountants and Federal Financial Institutions Examination Council each issued new guidance (some of which remains to be finalized) on accounting for allowances for loan losses. While the new guidance does not change prior accounting rules in this area, it provides additional clarification and guidance on how the calculation, adequacy and approval of the allowances should be documented by management. In July 2001, the FASB issued Statement No. 141, BUSINESS COMBINATIONS, and No. 142, GOODWILL AND OTHER INTANGIBLE ASSETS. Statement No. 141 requires that all business combinations be accounted for under a prior standard of purchase accounting, eliminating the so-called pooling-method which was used to account for some business combinations. Statement No. 141 requires that the purchase method be used for business combinations initiated after June 30, 2001. This new standard is not expected to have a material effect on Capitol's consolidated financial statements. 23 Statement No. 142 requires that goodwill no longer be amortized and charged against earnings, but instead be reviewed for impairment. Amortization of goodwill ceases upon adoption of the Statement which, for most companies, will be January 1, 2002. This new standard requires that goodwill be reviewed periodically for impairment and, accordingly, impairment adjustments of goodwill be charged against earnings, when determined. Capitol's previous business combinations (generally, acquisitions of minority interests) have been accounted for using the purchase method. As of December 31, 2001, the net carrying amount of goodwill (excess of cost over net assets of acquired subsidiaries) approximated $8.5 million and other intangible assets were insignificant. Upon implementation, this new standard is not expected to have a material effect on Capitol's consolidated financial statements, other than the elimination of goodwill amortization ($979,000 in 2001) in future periods. The FASB has also recently issued Statement No. 143, ACCOUNTING FOR ASSET RETIREMENT OBLIGATIONS, and No. 144, ACCOUNTING FOR THE IMPAIRMENT OR DISPOSAL OF LONG-LIVED ASSETS. Management has not completed its review of these new standards; however, implementation of the new guidance is not expected to have a material effect on Capitol's consolidated financial statements. Statement of Position 98-5, REPORTING ON THE COSTS OF START-UP ACTIVITIES, requires start-up costs and organizational costs to be charged to expense when incurred. The initial application of the statement required a cumulative effect adjustment for those companies that had previously capitalized start-up and organizational costs and became effective in 1999. Implementation of this standard has been reflected as a cumulative effect of an accounting change as of January 1, 1999, resulting in a one-time charge of $.03 per share in the consolidated statement of income. 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 financial statements in future periods. 24 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, 2001 and 2000, 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, 2001. These financial statements are the responsibility of the Corporation's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Capitol Bancorp Ltd. and subsidiaries as of December 31, 2001 and 2000, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2001, in conformity with accounting principles generally accepted in the United States of America. /s/ BDO Seidman, LLP Grand Rapids, Michigan January 31, 2002 25 CONSOLIDATED BALANCE SHEETS - December 31 - 2001 2000 ----------- ----------- (in $1,000s) ASSETS Cash and due from banks $ 83,833 $ 71,480 Interest-bearing deposits with banks 10,999 17,027 Federal funds sold 68,859 54,277 ----------- ----------- Cash and cash equivalents 163,691 142,784 Loans held for resale 62,487 21,322 Investment securities--Note C: Available for sale 35,598 62,292 Held for long-term investment, including restricted securities (at amortized cost which approximates market value) 8,089 6,634 ----------- ----------- Total investment securities 43,687 68,926 Portfolio loans, less allowance for loan losses of $23,238 in 2001 and $17,449 in 2000--Note D 1,711,351 1,338,349 Premises and equipment--Note F 16,441 14,651 Accrued interest income 9,471 9,778 Excess of cost over net assets of acquired subsidiaries 8,527 6,348 Other assets 28,351 27,918 ----------- ----------- TOTAL ASSETS $ 2,044,006 $ 1,630,076 =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY Deposits: Noninterest-bearing $ 272,593 $ 209,023 Interest-bearing--Note G 1,467,792 1,191,876 ----------- ----------- Total deposits 1,740,385 1,400,899 Debt obligations--Note H 89,911 58,150 Accrued interest expense and other liabilities 14,244 13,721 ----------- ----------- Total liabilities 1,844,540 1,472,770 GUARANTEED PREFERRED BENEFICIAL INTERESTS IN THE CORPORATION'S SUBORDINATED DEBENTURES (Trust-Preferred Securities)--Note I 48,621 24,327 MINORITY INTERESTS IN CONSOLIDATED SUBSIDIARIES--Note A 70,673 62,575 STOCKHOLDERS' EQUITY--Notes H, J and P: Common stock, no par value, 25,000,000 shares authorized; issued and outstanding: 2001--7,829,178 shares 2000--7,673,363 shares 67,692 65,939 Retained earnings 14,173 6,569 Market value adjustment (net of tax effect) for investment securities available for sale (accumulated other comprehensive income) 158 (108) ----------- ----------- 82,023 72,400 Less note receivable from exercise of stock options and unallocated ESOP shares--Notes J and K (1,851) (1,996) ----------- ----------- Total stockholders' equity 80,172 70,404 ----------- ----------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 2,044,006 $ 1,630,076 =========== =========== See notes to consolidated financial statements. 26 CONSOLIDATED STATEMENTS OF INCOME - Year Ended December 31 - 2001 2000 1999 --------- --------- --------- (in $1,000s, except per share data) Interest income: Portfolio loans (including fees) $ 144,417 $ 121,737 $ 82,570 Loans held for resale 3,002 1,044 1,364 Taxable investment securities 2,201 4,353 4,589 Federal funds sold 3,186 3,985 4,272 Other 991 1,192 807 --------- --------- --------- Total interest income 153,797 132,311 93,602 Interest expense: Deposits 65,655 60,256 41,928 Debt obligations and other 7,637 5,656 4,309 --------- --------- --------- Total interest expense 73,292 65,912 46,237 --------- --------- --------- Net interest income 80,505 66,399 47,365 Provision for loan losses--Note D 8,167 7,216 4,710 --------- --------- --------- Net interest income after provision for loan losses 72,338 59,183 42,655 Noninterest income: Service charges on deposit accounts 3,251 2,070 1,574 Trust fee income 1,839 1,077 760 Fees from origination of non-portfolio residential mortgage loans 3,165 1,543 1,373 Other 1,330 1,447 1,007 --------- --------- --------- Total noninterest income 9,585 6,137 4,714 Noninterest expense: Salaries and employee benefits 37,970 28,995 21,212 Occupancy 5,772 4,681 3,561 Equipment rent, depreciation and maintenance 4,646 4,113 3,988 Other 15,748 15,057 11,496 --------- --------- --------- Total noninterest expense 64,136 52,846 40,257 --------- --------- --------- Income before minority interest, federal income taxes and cumulative effect of change in accounting principle 17,787 12,474 7,112 Federal income taxes--Note L 5,824 4,289 3,213 --------- --------- --------- Income before minority interest and cumulative effect of change in accounting principle 11,963 8,185 3,899 Minority interest in net losses (income) of consolidated subsidiaries (1,245) (150) 1,707 --------- --------- --------- Income before cumulative effect of change in accounting principle 10,718 8,035 5,606 Cumulative effect of change in accounting principle ($.03 per share)--Note B (197) --------- --------- --------- NET INCOME $ 10,718 $ 8,035 $ 5,409 ========= ========= ========= NET INCOME PER SHARE--Note M: Basic $ 1.38 $ 1.14 $ 0.84 ========= ========= ========= Diluted $ 1.35 $ 1.13 $ 0.83 ========= ========= ========= See notes to consolidated financial statements 27 CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (IN $1,000S) Note Receivable from Exercise Accumulated of Stock Other Options and Common Retained Comprehensive Unallocated Stock Earnings Income ESOP Shares Total -------- -------- -------- ----------- -------- Balances at January 1, 1999 $ 51,868 $ (2,019) $ 168 $ (725) $ 49,292 Issuance of 199,865 shares of common stock upon exercise of stock options 1,786 (1,561) 225 Issuance of 224,770 shares of common stock to acquire minority interest in bank subsidiary 2,994 2,994 Allocation of shares to ESOP participants' accounts 145 145 Cash dividends paid ($.36 per share) (2,322) (2,322) Components of comprehensive income: Net income for 1999 5,409 5,409 Market value adjustment for investment securities available for sale (net of tax effect) (1,075) (1,075) -------- Total comprehensive income for 1999 4,334 -------- -------- -------- -------- -------- BALANCES AT DECEMBER 31, 1999 56,648 1,068 (907) (2,141) 54,668 Issuance of 10,734 shares of common stock upon exercise of stock options 83 83 Issuance of 626,325 shares of common stock to acquire minority interest in bank subsidiaries 6,278 6,278 Proceeds from issuance of 266,783 shares of common stock and 53,352 warrants 2,930 2,930 Allocation of shares to ESOP participants' accounts 145 145 Cash dividends paid ($.36 per share) (2,534) (2,534) Components of comprehensive income: Net income for 2000 8,035 8,035 Market value adjustment for investment securities available for sale (net of tax effect) 799 799 -------- Total comprehensive income for 2000 8,834 -------- -------- -------- -------- -------- BALANCES AT DECEMBER 31, 2000 65,939 6,569 (108) (1,996) 70,404 Proceeds from the sale of 130,000 shares of common stock and 32,500 warrants to purchase common stock 1,495 1,495 Issuance of 7,465 shares of common stock upon exercise of warrants 82 82 Issuance of 18,350 shares of common stock upon exercise of stock options 176 176 Allocation of shares to ESOP participants' accounts 145 145 Cash dividends paid ($.40 per share) (3,114) (3,114) Components of comprehensive income: Net income for 2001 10,718 10,718 Market value adjustment for investment securities available for sale (net of tax effect) 266 266 -------- Total comprehensive income for 2001 10,984 -------- -------- -------- -------- -------- BALANCES AT DECEMBER 31, 2001 $ 67,692 $ 14,173 $ 158 $ (1,851) $ 80,172 ======== ======== ======== ======== ======== See notes to consolidated financial statements 28 CONSOLIDATED STATEMENTS OF CASH FLOWS - Year Ended December 31 - 2001 2000 1999 --------- --------- --------- (in $1,000s) OPERATING ACTIVITIES Net income $ 10,718 $ 8,035 $ 5,409 Adjustments to reconcile net income to net cash provided (used) by operating activities: Provision for loan losses 8,167 7,216 4,710 Depreciation of premises and equipment 3,340 3,178 2,913 Amortization of goodwill 979 561 318 Net accretion of investment security discounts (94) (104) (107) Loss (gain) on sales of premises and equipment 100 11 (25) Minority interest in net income (losses) of consolidated subsidiaries 1,245 150 (1,707) Deferred income taxes (1,345) (1,312) (2,070) Cumulative effect of change in accounting principle 197 Originations and purchases of loans held for resale (651,149) (251,157) (306,292) Proceeds from sales of loans held for resale 609,984 238,913 334,003 Increase in accrued interest income and other assets (1,883) (9,178) (8,950) Increase in accrued interest expense and other liabilities 523 1,479 3,411 --------- --------- --------- NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES (19,415) (2,208) 31,810 INVESTING ACTIVITIES Proceeds from sales of investment securities available for sale 500 3,156 3,000 Proceeds from calls and maturities of investment securities available for sale 67,393 71,882 82,020 Purchases of investment securities available for sale (42,159) (35,503) (107,224) Net increase in portfolio loans (381,169) (309,000) (325,812) Proceeds from sales of premises and equipment 306 22 665 Purchases of premises and equipment (5,536) (3,466) (6,303) --------- --------- --------- NET CASH USED BY INVESTING ACTIVITIES (360,665) (272,909) (353,654) FINANCING ACTIVITIES Net increase in demand deposits, NOW accounts and savings accounts 542,864 125,178 119,437 Net increase (decrease) in certificates of deposit (203,378) 162,928 102,466 Net proceeds from debt obligations 31,761 10,750 23,800 Net proceeds from issuance of trust-preferred securities 24,248 Resources provided by minority interests 6,853 14,262 31,718 Net proceeds from issuance of common stock 1,753 3,011 6 Cash dividends paid (3,114) (2,534) (2,322) --------- --------- --------- NET CASH PROVIDED BY FINANCING ACTIVITIES 400,987 313,595 275,105 --------- --------- --------- INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 20,907 38,478 (46,739) Cash and cash equivalents at beginning of year 142,784 104,306 151,045 --------- --------- --------- CASH AND CASH EQUIVALENTS AT END OF YEAR $ 163,691 $ 142,784 $ 104,306 ========= ========= ========= See notes to consolidated financial statements 29 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CAPITOL BANCORP LIMITED NOTE A--NATURE OF OPERATIONS, BASIS OF PRESENTATION AND PRINCIPLES OF CONSOLIDATION Capitol Bancorp Ltd. (Capitol or the "Corporation") is a multibank holding company. Consolidated subsidiaries consist of the following: Percentage Owned at December 31, Year Formed Affiliate Location 2001 or Acquired - ------------------------------------- -------------------------- ------------ ----------- Ann Arbor Commerce Bank Ann Arbor, Michigan 100% 1990 Brighton Commerce Bank Brighton, Michigan 100% 1997 Capitol National Bank Lansing, Michigan 100% 1982 Detroit Commerce Bank Detroit, Michigan 93% 1998 Grand Haven Bank Grand Haven, Michigan 100% 1995 Kent Commerce Bank Grand Rapids, Michigan 100% 1998 Macomb Community Bank Clinton Township, Michigan 100% 1996 Muskegon Commerce Bank Muskegon, Michigan 100% 1997 Oakland Commerce Bank Farmington Hills, Michigan 100% 1992 Paragon Bank & Trust Holland, Michigan 100% 1994 Portage Commerce Bank Portage, Michigan 100% 1988 Indiana Community Bancorp Limited: 52% 1999 Elkhart Community Bank Elkhart, Indiana 1999 Goshen Community Bank Goshen, Indiana 2000 Sun Community Bancorp Limited: 50% 1997 Arrowhead Community Bank Glendale, Arizona 2000 Bank of Tucson Tucson, Arizona 1996 Camelback Community Bank Phoenix, Arizona 1998 East Valley Community Bank Chandler, Arizona 1999 Mesa Bank Mesa, Arizona 1998 Southern Arizona Community Bank Tucson, Arizona 1998 Valley First Community Bank Scottsdale, Arizona 1997 Yuma Community Bank Yuma, Arizona 2000 Nevada Community Bancorp Limited: 1999 Black Mountain Community Bank Henderson, Nevada 2000 Desert Community Bank Las Vegas, Nevada 1999 Red Rock Community Bank Las Vegas, Nevada 1999 Sunrise Capital Corporation: 1999 Sunrise Bank of Albuquerque Albuquerque, New Mexico 2000 Sunrise Bank of Arizona Phoenix, Arizona 1998 Sunrise Bank of San Diego San Diego, California 2001 First California Northern Bancorp Napa, California 2001 Consolidated subsidiaries of Sun are majority-owned by Sun (ranging from 51% to 100%). Sun is the majority owner of Nevada Community Bancorp and Sunrise Capital Corporation which each have majority-owned bank subsidiaries. Sun became a public company in 1999 through an initial public offering of common stock approximating $25 million, of which Capitol invested $13 million. At December 31, 2001, a proposed share exchange was pending whereby, if approved by shareholders, Capitol would acquire the shares of Sun it does not currently own (see Note S). 30 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CAPITOL BANCORP LIMITED NOTE A--NATURE OF OPERATIONS, BASIS OF PRESENTATION AND PRINCIPLES OF CONSOLIDATION--CONTINUED Capitol and its subsidiaries are engaged in a single business activity--banking. The bank affiliates provide a full range of banking services to individuals, businesses and other customers located in their respective communities. Each of the banks generally operate from a single location and focus their activities on meeting the various credit and other banking needs of entrepreneurs, professionals and other high net worth individuals. A variety of deposit products are offered, including checking, savings, money market, individual retirement accounts and certificates of deposit. In addition, trust and investment services are offered through Paragon Bank & Trust. The principal markets for the banks' financial services are the communities in which they are located and the areas immediately surrounding those communities. In addition to commercial banking units, mortgage banking activities are offered through Amera Mortgage Corporation, a 49% owned affiliate. Each bank is viewed by management as being a separately identifiable business or segment from the perspective of monitoring performance and allocation of financial resources. Although the banks operate independently and are managed and monitored separately, each bank is substantially similar in terms of business focus, type of customers, products and services. Further, each of the banks and the Corporation are subject to substantially similar laws and regulations unique to the banking industry. Accordingly, the Corporation's consolidated financial statements reflect the presentation of segment information on an aggregated basis. The consolidated financial statements include the accounts of the Corporation and its majority-owned subsidiaries, after elimination of intercompany accounts and transactions, and after giving effect to applicable minority interests. Banks formed during 1999, 2000 and 2001 are included in the consolidated financial statements for periods after joining the consolidated group. Certain 2000 and 1999 amounts have been reclassified to conform to the 2001 presentation. NOTE B--SIGNIFICANT ACCOUNTING POLICIES ESTIMATES: The preparation of consolidated financial statements in conformity with generally accepted accounting principles requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. CASH AND CASH EQUIVALENTS: Cash and cash equivalents include cash on hand, amounts due from banks (interest-bearing and noninterest-bearing) and federal funds sold. Generally, federal funds transactions are entered into for a one-day period. 31 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CAPITOL BANCORP LIMITED NOTE B--SIGNIFICANT ACCOUNTING POLICIES--CONTINUED LOANS HELD FOR RESALE: Loans held for resale represent residential real estate mortgage loans held for sale into the secondary market. Loans held for resale are stated at the aggregate lower of cost or market. Fees from the origination of loans held for resale are recognized in the period the loans are originated. INVESTMENT SECURITIES: Investment securities available for sale (generally most debt investment securities of Capitol's banks) are carried at market value with unrealized gains and losses reported as a separate component of stockholders' equity, net of tax effect (accumulated other comprehensive income). All other investment securities are classified as held for long-term investment and are carried at amortized cost which approximates market value (see Note C). Investments are classified at the date of purchase based on management's analysis of liquidity and other factors. The adjusted cost of the specific securities sold is used to compute realized gains or losses. Premiums and discounts are recognized in interest income using the interest method over the period to maturity. LOANS, CREDIT RISK AND ALLOWANCE FOR LOAN LOSSES: Portfolio loans are carried at their principal balance based on management's intent and ability to hold such loans for the foreseeable future until maturity or repayment. Credit risk arises from making loans and loan commitments in the ordinary course of business. Substantially all portfolio loans are made to borrowers in the banks' geographic areas. Consistent with the banks' emphasis on business lending, there are concentrations of credit in loans secured by commercial real estate, equipment and other business assets. The maximum potential credit risk to Capitol, without regard to underlying collateral and guarantees, is the total of loans and loan commitments outstanding. Management reduces Capitol's exposure to losses from credit risk by requiring collateral and/or guarantees for loans granted and by monitoring concentrations of credit, in addition to recording provisions for loan losses and maintaining an allowance for loan losses. The allowance for loan losses is maintained at a level believed adequate by management to absorb estimated losses inherent in the portfolio at the balance sheet date. Management's determination of the adequacy of the allowance is an estimate based on evaluation of the portfolio (including potential impairment of individual loans and concentrations of credit), past loss experience, current economic conditions, volume, amount and composition of the loan portfolio, loan commitments outstanding and other factors. The allowance is increased by provisions charged to operations and reduced by net charge-offs. INTEREST AND FEES ON LOANS: Interest income on loans is recognized based upon the principal balance of loans outstanding. Fees from origination of portfolio loans generally approximate the direct costs of successful loan originations. 32 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CAPITOL BANCORP LIMITED NOTE B--SIGNIFICANT ACCOUNTING POLICIES--CONTINUED 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 five years, is computed principally by the straight-line method. Buildings are generally depreciated on a straight-line basis with estimated useful lives of approximately 40 years. Leasehold improvements are generally depreciated over the respective lease term. EXCESS OF COST OVER NET ASSETS OF ACQUIRED SUBSIDIARIES: Goodwill is amortized on a straight-line basis over various periods not to exceed 15 years. Management periodically reviews long-lived assets, including associated goodwill, for potential impairment based upon projected undiscounted net cash flows, when applicable, and the related amortization periods. Amortization of goodwill will cease January 1, 2002 (see "New Accounting Standards" below). OTHER REAL ESTATE: Other real estate (included as a component of other assets, and at December 31, 2001 and 2000 approximated $3,044,000 and $3,094,000, respectively) comprises properties acquired through a foreclosure proceeding or acceptance of a deed in lieu of foreclosure. These properties held for sale are carried at the lower of cost or estimated fair value (net of estimated selling cost) at the date acquired and are periodically reviewed for subsequent impairment. STOCK-BASED COMPENSATION: No stock-based compensation expense is recorded upon granting of stock options because such stock options are accounted for under the provisions of Accounting Principles Board (APB) Opinion 25 (and related interpretations) and are granted at an exercise price equal to the market price of common stock at grant date. Pro forma disclosure of alternative accounting recognition is made in Note J. TRUST ASSETS AND RELATED INCOME: Customer property, other than funds on deposit, held in a fiduciary or agency capacity by Capitol's banks is not included in the consolidated balance sheet because it is not an asset of the banks or Capitol. Trust fee income is recorded on the accrual method. FEDERAL INCOME TAXES: Capitol and subsidiaries owned 80% or more by Capitol file a consolidated federal income tax return. Deferred income taxes are recognized for the tax consequences of temporary differences by applying enacted tax rates applicable to future years to differences between the financial statement carrying amounts and the tax bases of existing assets and liabilities. The effect on deferred income taxes of a change in tax laws or rates is recognized in income in the period that includes the enactment date. 33 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CAPITOL BANCORP LIMITED NOTE B--SIGNIFICANT ACCOUNTING POLICIES--CONTINUED 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. COSTS OF START-UP ACTIVITIES: In 1998, the American Institute of CPAs issued Statement of Position 98-5, "Reporting on the Costs of Start-Up Activities," which requires start-up costs and organizational costs to be charged to expense when incurred. In the circumstances of Capitol and its banks, this new accounting standard applied to previously capitalized preopening and other start-up costs of its bank subsidiaries which, net of amortization, approximated $1,149,000 at December 31, 1998. Implementation of this standard was reflected as a cumulative effect of an accounting change at January 1, 1999 (net of impact of minority interests and income tax effect), approximating $197,000 ($.03 per share). NEW ACCOUNTING STANDARDS: Financial Accounting Standards Board (FASB) Statement No. 133, ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES, requires all derivatives to be recognized in financial statements and to be measured at fair value. Gains and losses resulting from changes in fair value are included in income, or in comprehensive income, depending on whether the instrument qualifies for hedge accounting and the type of hedging instrument involved. This new standard became effective January 1, 2001 and had no effect on Capitol's consolidated financial statements. In 2001, the Securities and Exchange Commission, American Institute of Certified Public Accountants and Federal Financial Institutions Examination Council each issued new guidance (some of which remains to be finalized) on accounting for allowances for loan losses. While the new guidance does not change prior accounting rules in this area, it provides additional clarification and guidance on how the calculation, adequacy and approval of the allowances should be documented by management. In July 2001, the FASB issued Statement No. 141, BUSINESS COMBINATIONS, and No. 142, GOODWILL AND OTHER INTANGIBLE ASSETS. Statement No. 141 requires that all business combinations be accounted for under a prior standard of purchase accounting, eliminating the so-called pooling-method which was used to account for some business combinations. Statement No. 141 requires that the purchase method be used for business combinations initiated after June 30, 2001. This new standard is not expected to have a material effect on Capitol's consolidated financial statements. 34 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CAPITOL BANCORP LIMITED NOTE B--SIGNIFICANT ACCOUNTING POLICIES--CONTINUED Statement No. 142 requires that goodwill no longer be amortized and charged against earnings, but instead be reviewed for impairment. Amortization of goodwill ceases upon adoption of the Statement which, for most companies, will be January 1, 2002. This new standard requires that goodwill be reviewed periodically for impairment and, accordingly, impairment adjustments of goodwill be charged against earnings, when determined. Capitol's previous business combinations (generally, acquisitions of minority interests) have been accounted for using the purchase method. As of December 31, 2001, the net carrying amount of goodwill (excess of cost over net assets of acquired subsidiaries) approximated $8.5 million and other intangible assets were insignificant. Upon implementation, this new standard is not expected to have a material effect on Capitol's consolidated financial statements, other than the elimination of goodwill amortization ($979,000 in 2001) in future periods. The FASB has also recently issued Statement No. 143, ACCOUNTING FOR ASSET RETIREMENT OBLIGATIONS, and No. 144, ACCOUNTING FOR THE IMPAIRMENT OR DISPOSAL OF LONG-LIVED ASSETS. Management has not completed its review of these new standards; however, implementation of the new guidance is not expected to have a material effect on Capitol's consolidated financial statements. NOTE C--INVESTMENT SECURITIES Investment securities consisted of the following at December 31 (in $1,000s): 2001 2000 --------------------- ---------------------- Estimated Estimated Amortized Market Amortized Market Cost Value Cost Value ------- ------- ------- ------- Available for sale: United States Treasury securities $ 3,704 $ 3,757 $ 5,086 $ 5,101 United States government agency securities 30,253 30,429 55,514 55,334 States and political subdivisions 1,402 1,412 1,604 1,606 Other -- -- 251 251 ------- ------- ------- ------- 35,359 35,598 62,455 62,292 Held for long-term investment: Federal Reserve Bank stock 394 394 394 394 Federal Home Loan Bank stock 4,716 4,716 3,583 3,583 Corporate stock 895 895 907 907 Other 2,084 2,084 1,750 1,750 ------- ------- ------- ------- 8,089 8,089 6,634 6,634 ------- ------- ------- ------- $43,448 $43,687 $69,089 $68,926 ======= ======= ======= ======= At December 31, 2001, securities with a market value approximating $14.1 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. 35 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CAPITOL BANCORP LIMITED NOTE C--INVESTMENT SECURITIES--CONTINUED Gross unrealized gains and losses on investment securities available for sale were as follows at December 31 (in $1,000s): 2001 2000 --------------- --------------- Gains Losses Gains Losses ---- ---- ---- ---- United States Treasury securities $ 53 $ -- $ 21 $ 6 United States government agency securities 252 76 40 220 States and political subdivisions 10 -- 2 ---- ---- ---- ---- $315 $ 76 $ 63 $226 ==== ==== ==== ==== Gross realized gains and losses from sales and maturities of investment securities were insignificant for each of the periods presented. Scheduled maturities of investment securities held as of December 31, 2001 were as follows (in $1,000s): Estimated Amortized Market Cost Value ------- ------- Due in one year or less $ 7,205 $ 7,328 After one year, through five years 21,935 22,074 After five years, through ten years 3,071 3,058 After ten years 3,148 3,138 Securities held for long-term investment, without stated maturities 8,089 8,089 ------- ------- $43,448 $43,687 ======= ======= NOTE D--LOANS Portfolio loans consisted of the following at December 31 (in $1,000s): 2001 2000 ----------- ----------- Commercial $ 1,535,451 $ 1,173,736 Real estate mortgage 121,676 113,324 Installment 77,462 68,738 ----------- ----------- Total portfolio loans 1,734,589 1,355,798 Less allowance for loan losses (23,238) (17,449) ----------- ----------- Net portfolio loans $ 1,711,351 $ 1,338,349 =========== =========== Transactions in the allowance for loan losses are summarized below (in $1,000s): 2001 2000 1999 -------- -------- -------- Balance at January 1 $ 17,449 $ 12,639 $ 8,817 Provision charged to operations 8,167 7,216 4,710 Loans charged off (deduction) (2,929) (3,171) (1,298) Recoveries 551 765 410 -------- -------- -------- Balance at December 31 $ 23,238 $ 17,449 $ 12,639 ======== ======== ======== 36 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CAPITOL BANCORP LIMITED NOTE D--LOANS--CONTINUED Impaired loans (i.e., loans for which there is a reasonable probability that borrowers would be unable to repay all principal and interest due under the contractual terms of the loan documents) were not material. Nonperforming loans (i.e., loans which are 90 days or more past due and loans on nonaccrual status) are summarized below (in $1,000s): December 31 ------------------- 2001 2000 ------- ------- Nonaccrual loans: Commercial $11,220 $ 4,082 Real estate 356 163 Installment 466 171 ------- ------- Total nonaccrual loans 12,042 4,416 Past due (>90 days) loans: Commercial 4,290 1,656 Real estate 787 534 Installment 119 151 ------- ------- Total past due loans 5,196 2,341 ------- ------- Total nonperforming loans $17,238 $ 6,757 ======= ======= If nonperforming loans had performed in accordance with their contractual terms during the year, additional interest income of $694,000, $315,000 and $635,000 would have been recorded in 2001, 2000 and 1999, respectively. Interest income recognized on loans in nonaccrual status in 2001, 2000 and 1999 operations approximated $513,000, $205,000 and $33,000, respectively. At December 31, 2001, 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, 2001 December 31, 2000 ------------------ ------------------ Percentage Percentage of Total of Total Portfolio Portfolio Amount Loans Amount Loans ------ ----- ------ ----- Commercial $20,570 1.19% $16,096 1.19% Real estate mortgage 1,630 0.09 285 0.02 Installment 1,038 0.06 1,068 0.08 ------- ---- ------- ---- Total allowance for loan losses $23,238 1.34% $17,449 1.29% ======= ==== ======= ==== 37 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CAPITOL BANCORP LIMITED NOTE D--LOANS--CONTINUED Certain commercial loans in Michigan and Indiana are enrolled in state-sponsored loan programs. Under those programs, the governmental unit shares loss exposure on such loans by funding reserves, which are placed as deposits at the banks. Loans participating in these programs and related reserves approximated $35,414,000 and $1,355,000, respectively, at December 31, 2001 ($33,513,000 and $1,609,000, respectively, at December 31, 2000). Such reserve amounts are separate and excluded from the allowance for loan losses. The Michigan agency has announced its plans to terminate the loan program in 2002. When the Michigan program is terminated, loans previously enrolled in the program and related reserves will continue until those loans are repaid. 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, 2001 and 2000, total loans to these persons were $80.9 million and $66.1 million, respectively. During 2001, $66.8 million of new loans were made to these persons and repayments totaled $52 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): 2001 2000 -------- -------- Land, buildings and improvements $ 6,274 $ 3,965 Leasehold improvements 6,659 5,962 Equipment and furniture 15,014 13,649 -------- -------- 27,947 23,576 Less accumulated depreciation (11,506) (8,925) -------- -------- $ 16,441 $ 14,651 ======== ======== Capitol and certain subsidiaries rent office space under operating leases. Rent expense (net of sublease income) under these lease agreements approximated $3,652,000, $3,064,000 and $2,402,000 (including rent expense of $1,138,000, $1,034,000 and $900,000 under leases with related parties) in 2001, 2000 and 1999, respectively. 38 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CAPITOL BANCORP LIMITED NOTE F--PREMISES AND EQUIPMENT--CONTINUED At December 31, 2001, 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): $ 3,639 2002 3,431 2003 3,266 2004 3,094 2005 2,943 2006 5,242 2007 and thereafter ------- $21,615 ======= NOTE G--DEPOSITS The aggregate amount of time deposits of $100,000 or more approximated $510.3 million and $405.2 million as of December 31, 2001 and 2000, respectively. At December 31, 2001, the scheduled maturities of such time deposits were as follows (in $1,000s): $413,570 2002 67,926 2003 11,726 2004 10,755 2005 6,293 2006 and thereafter -------- $510,270 ======== Interest paid approximates amounts charged to operations on an accrual basis for the periods presented. NOTE H--DEBT OBLIGATIONS Debt obligations consisted of the following at December 31 (in $1,000s): 2001 2000 ------- ------- Borrowings from Federal Home Loan Bank $63,211 $40,000 Notes payable to unaffiliated bank 14,100 18,150 Federal funds purchased 12,600 ------- ------- $89,911 $58,150 ======= ======= Borrowings from Federal Home Loan Bank (FHLB) represent advances secured by certain portfolio residential real estate mortgage loans and other eligible collateral. Such advances become due at varying dates and bear interest at market short-term rates (approximately 4.58% at December 31, 2001). At December 31, 2001, unused lines of credit under these facilities approximated $15.1 million. 39 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CAPITOL BANCORP LIMITED NOTE H--DEBT OBLIGATIONS--CONTINUED Notes payable to unaffiliated bank represents borrowings under a fixed rate (8.97%) term loan and a line of credit. Up to $20 million can be borrowed pursuant to a one-year revolving credit agreement which bears interest at a variable rate (4.75% at December 31, 2001), payable monthly. No amounts were drawn on the line of credit at December 31, 2001. The credit facility is reviewed annually for continuance and requires Capitol, among other things, to maintain certain minimum levels of capital, rates of return on assets and other ratios or requirements and is secured by the common stock of certain bank subsidiaries. For the periods presented, interest paid on all debt obligations approximate amounts charged to expense. At December 31, 2001, scheduled debt maturities were as follows (in $1,000s): 2002 $35,087 2003 16,824 2004 1,000 2007 and thereafter 37,000 ------- $89,911 ======= In addition to the foregoing, Capitol has guaranteed some obligations of its subsidiaries (see Note O). NOTE I--TRUST-PREFERRED SECURITIES Trust-preferred securities represent interests in subordinated debentures of Capitol which are summarized as follows: Net Carrying Amount at December 31 Current Aggregate -------------------- Interest Scheduled Liquidation (in $1,000s) Description Rate Maturity Amount 2001 2000 - ----------- ---- -------- ------ ---- ---- Capitol Trust I 8.50% fixed 2027 $25,300 $24,363 $24,327 Capitol Trust II 10.25% fixed 2031 10,000 9,703 Capitol Statutory Trust III 5.85% variable 2031 15,000 14,555 ------- ------- ------- $50,300 $48,621 $24,327 ======= ======= ======= Securities of Capitol Trust I were issued in a 1997 public offering. Capitol Trust II and Capitol Statutory Trust III were formed in 2001 in conjunction with private placements of pooled trust-preferred securities. Each of these securities have similar terms and, subject to certain provisions, may be called by the issuer five years after issuance. The liquidation amount of these securities is guaranteed by Capitol. Interest paid to the Trusts by Capitol (which is recorded as interest expense in its consolidated financial statements) is distributed by the Trusts to the holders of the trust-preferred securities. Under certain conditions, Capitol may defer payment of interest on the subordinated debentures for periods of up to five years. 40 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CAPITOL BANCORP LIMITED NOTE I--TRUST-PREFERRED SECURITIES--CONTINUED Because these Trusts are subsidiaries (due to Capitol's ownership of the common interests of the Trusts), they are consolidated for financial reporting purposes. The amount of outstanding trust-preferred securities (net of issuance costs which are being amortized over the life of the securities) is classified between liabilities and equity in Capitol's consolidated balance sheet. Under current regulatory guidelines, such trust-preferred securities are included as capital for purposes of meeting certain ratio requirements. NOTE J--COMMON STOCK, WARRANTS AND STOCK OPTIONS At December 31, 2001, approximately 78,000 warrants for the purchase of common stock were outstanding. Each warrant permits the holder to purchase a share of Capitol's common stock at exercise prices ranging from $11.00 to $11.50 and expire in 2003. Stock options have been granted to certain officers and directors which provide for the purchase of shares of common stock. Generally, stock options are granted at an exercise price equal to the fair value of common stock on the grant date. Of the stock options granted in 2000, 563,435 vest over a three-year period; the remainder are fully vested and currently exercisable. All such stock options expire seven years after the date granted. Under the terms of an employment agreement with a certain director and executive officer of Capitol, options granted thereunder shall be increased when the Corporation issues additional shares so that such options granted equal 15% of outstanding shares prior to exercise. In 1999, Capitol negotiated a reduction of the executive officer's benefit from 15% to 10%. In exchange for the reduced benefit to the executive officer, Capitol agreed to a one-time exercise of previously granted stock options with an aggregate exercise price of $1.6 million funded by a note receivable of $1.9 million from the executive officer. The note bears interest at a fixed rate over its ten-year term. As part of the terms of this agreement, the executive officer's compensation will be increased in an amount equal to the interest due on the note receivable. Under certain circumstances, such as death of the executive officer, the note will be forgiven. The death benefit is covered by company-owned life insurance. 41 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CAPITOL BANCORP LIMITED NOTE J--COMMON STOCK, WARRANTS AND STOCK OPTIONS--CONTINUED Stock option activity is summarized as follows: Weighted Number Average of Stock Options Exercise Exercise Outstanding Price Range Price --------- ---------------- ------- Outstanding at January 1, 1999 617,714 $ 4.92 to $25.10 $12.48 Granted in 1999 74,113 12.63 to 13.48 13.07 Exercised in 1999 (199,865) 4.92 to 8.75 7.80 --------- ---------------- ------ Outstanding at December 31, 1999 491,962 4.92 to 25.10 14.51 Granted in 2000 722,934 9.88 to 12.50 10.86 Exercised in 2000 (10,734) 4.92 to 7.72 6.48 --------- ---------------- ------ Outstanding at December 31, 2000 1,204,162 4.92 to 25.10 12.39 Granted in 2001 17,311 11.50 to 14.48 11.95 Exercised in 2001 (18,350) 4.92 to 11.00 7.18 --------- ---------------- ------ Outstanding at December 31, 2001 1,203,123 $ 4.92 to $25.10 $12.46 As of December 31, 2001, stock options outstanding had a weighted average remaining contractual life of 4.4 years. As of that date, 1,083,787 stock options with an exercise price of $15.00 or less had a weighted average exercise price of $11.13 and a weighted average remaining contractual life of 4.6 years; 119,336 stock options with an exercise price of more than $15.00 had a weighted average exercise price of $24.53 and a weighted average remaining contractual life of 3 years. Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation", establishes a fair value method of accounting for stock options whereby compensation expense is recognized based on the computed fair value of the options on the grant date. However, as permitted by Statement No. 123, Capitol accounts for its stock options under APB 25 and, therefore, does not recognize compensation expense. By electing this alternative, certain pro forma disclosures of the expense recognition provisions of Statement No. 123 are required, which are as follows: 2001 2000 1999 -------- -------- -------- Fair value assumptions: Risk-free interest rate 5.0% 7.0% 6.5% Dividend yield 2.8% 3.0% 2.0% Stock price volatility .39 .83 .53 Expected option life 7 years 7 years 7 years Aggregate estimated fair value of options granted (in thousands) $95 $4,932 $764 Pro forma net income (in thousands) $9,809 $6,471 $4,905 Pro forma net income per diluted share $1.24 $.91 $.76 42 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CAPITOL BANCORP LIMITED NOTE K--EMPLOYEE RETIREMENT PLANS Capitol has a contributory employee retirement savings 401(k) plan which covers substantially all full-time employees of Capitol and certain subsidiaries over age 21. The Plan provides for employer contributions in amounts determined annually by Capitol's board of directors. Eligible employees make voluntary contributions to the Plan. Contributions to the Plan, which are an employer match (50%, subject to certain limitations) for employee contributions, charged to expense for the years ended December 31, 2001, 2000 and 1999 were $691,000, $475,000 and $310,000, respectively. Capitol also has a defined contribution employee stock ownership plan (ESOP) which covers substantially all employees of Capitol and certain subsidiaries. Certain common stock purchases by the ESOP were financed by long-term debt. ESOP contributions charged to expense in 2001, 2000 and 1999 approximated $525,000, $180,000 and $217,000 (including ESOP note payable interest of $37,000, $49,000 and $62,000), respectively. Shares of common stock held by the ESOP which have not yet been allocated to participants' accounts are shown as a reduction of stockholders' equity. As of December 31, 2001, the ESOP held approximately 200,000 shares of Capitol's common stock which have been allocated to participants' accounts and 26,000 shares of common stock with an approximate fair value of $350,000 which have not yet been allocated to participants' accounts. NOTE L--INCOME TAXES Federal income taxes consist of the following components (in $1,000s): 2001 2000 1999 ------- ------- ------- Current $ 7,169 $ 5,601 $ 4,813 Deferred credit (1,345) (1,312) (2,070) ------- ------- ------- $ 5,824 $ 4,289 $ 2,743 ======= ======= ======= Federal income taxes paid in 2001, 2000 and 1999 approximated $8.4 million, $5.1 million and $5.1 million, respectively. Differences between federal income tax expense recorded and amounts computed using the statutory tax rate are reconciled below (in $1,000s): 2001 2000 1999 ------- ------- ------- Federal income tax computed at statutory rate of 34% $ 6,048 $ 4,241 $ 2,419 Tax effect of: Amortization of goodwill 333 180 117 Minority interest (641) (77) 879 Cumulative effect of change in accounting principle (470) Other 84 (55) (202) ------- ------- ------- $ 5,824 $ 4,289 $ 2,743 ======= ======= ======= 43 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CAPITOL BANCORP LIMITED NOTE L--INCOME TAXES--CONTINUED Net deferred income tax assets consisted of the following at December 31 (in $1,000s): 2001 2000 ------- ------- Allowance for loan losses $ 6,540 $ 5,056 Net operating losses of subsidiaries 1,154 1,598 Deferred compensation 1,190 1,068 Market value adjustment for investment securities available for sale (81) 56 Other, net 562 379 ------- ------- $ 9,365 $ 8,157 ======= ======= Certain consolidated subsidiaries have net operating loss carryforwards which may reduce income taxes payable in future periods. Such carryforwards approximate $3.4 million at December 31, 2001, have been recognized for financial reporting purposes and expire at the following dates and amounts (in $1,000s): 2019 $ 448 2020 1,201 2021 1,745 ------ $3,394 ====== NOTE M--NET INCOME PER SHARE The computations of basic and diluted net income per share were as follows (in 1,000s, except per share amounts): 2001 2000 1999 ------- ------- ------- Numerator--net income $10,718 $ 8,035 $ 5,409 ======= ======= ======= Denominator: Weighted average number of shares outstanding (denominator for basic earnings per share) 7,784 7,065 6,455 Effect of dilutive securities: Warrants 15 2 Stock options 136 45 35 ------- ------- ------- Potential dilution 151 47 35 ------- ------- ------- Denominator for diluted earnings per share--weighted average number of shares and potential dilution 7,935 7,112 6,490 ======= ======= ======= Number of antidilutive stock options excluded from diluted earnings per share computation 159 347 119 ======= ======= ======= Additional disclosures regarding stock options are set forth in Note J. 44 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): 2001 2000 -------------------------- -------------------------- Estimated Estimated Carrying Fair Carrying Fair Value Value Value Value ----------- ----------- ----------- ----------- Financial Assets: Cash and cash equivalents $ 163,691 $ 163,691 $ 142,784 $ 142,784 Loans held for resale 62,487 62,487 21,322 21,322 Investment securities: Available for sale 35,598 35,598 62,292 62,292 Held for long-term investment 8,089 8,089 6,634 6,634 ----------- ----------- ----------- ----------- 43,687 43,687 68,926 68,926 Portfolio loans: Fixed rate 1,071,753 1,070,097 1,020,234 1,021,378 Variable rate 662,836 661,154 335,564 336,499 ----------- ----------- ----------- ----------- Total portfolio loans 1,734,589 1,731,251 1,355,798 1,357,877 Less allowance for loan losses (23,238) (23,238) (17,449) (17,449) ----------- ----------- ----------- ----------- Net portfolio loans 1,711,351 1,708,013 1,338,349 1,340,428 Financial Liabilities: Deposits: Noninterest-bearing 272,593 272,593 209,023 209,023 Interest-bearing: Demand accounts 620,842 620,468 428,648 430,126 Time certificates of less than $100,000 336,680 336,729 358,010 358,175 Time certificates of $100,000 or more 510,270 511,350 405,218 405,753 ----------- ----------- ----------- ----------- Total interest-bearing 1,467,792 1,468,547 1,191,876 1,194,054 ----------- ----------- ----------- ----------- Total deposits 1,740,385 1,741,140 1,400,899 1,403,077 Debt obligations 89,911 89,892 58,150 57,342 Trust-preferred securities 48,621 50,300 24,327 25,300 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. 45 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CAPITOL BANCORP LIMITED NOTE O--COMMITMENTS AND 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 ($19.2 million and $12.0 million outstanding at December 31, 2001 and 2000, respectively). Other loan commitments outstanding consist of unused lines of credit and approved, but unfunded, specific loan commitments ($398.9 million and $283.8 million at December 31, 2001 and 2000, 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. Such loan commitments are also included in management's evaluation of the adequacy of the allowance for loan losses. 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, 2001 and 2000 were $2.4 million and $5.1 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 ($41 million at December 31, 2001). Capitol has guaranteed up to $7.5 million of secured borrowings by Amera Mortgage Corporation, a 49%-owned affiliate. 46 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CAPITOL BANCORP LIMITED NOTE P--DIVIDEND LIMITATIONS OF SUBSIDIARIES AND OTHER CAPITAL REQUIREMENTS Current banking regulations restrict the ability to transfer funds from subsidiaries to their parent in the form of cash dividends, loans or advances. Subject to various regulatory capital requirements, bank subsidiaries' current and retained earnings are available for distribution as dividends to Capitol (and other bank shareholders, as applicable) without prior approval from regulatory authorities. Substantially all of the remaining net assets of the subsidiaries are restricted as to payments to Capitol. Each bank and Capitol are subject to certain other capital requirements. Federal financial institution regulatory agencies have established certain risk-based capital guidelines for banks and bank holding companies. Those guidelines require all banks and bank holding companies to maintain certain minimum ratios and related amounts based on `Tier 1' and `Tier 2' capital and `risk-weighted assets' as defined and periodically prescribed by the respective regulatory agencies. Failure to meet these capital requirements can result in severe regulatory enforcement action or other adverse consequences for a depository institution and, accordingly, could have a material impact on Capitol's consolidated financial statements. Under the regulatory capital adequacy guidelines and related framework for prompt corrective action, the specific capital requirements involve quantitative measures of assets, liabilities and certain off-balance-sheet items calculated under regulatory accounting practices. The capital amounts and classifications are also subject to qualitative judgements by regulatory agencies with regard to components, risk weighting and other factors. As a condition of their charter approval, DE NOVO banks are generally required to maintain a core capital (Tier 1) to assets ratio of not less than 8% and an allowance for loan losses of not less than 1% for the first three years of operations. As of December 31, 2001, 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, 2001, that Capitol and the banks meet all capital adequacy requirements to which the entities are subject. 47 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 $130 million or more) and consolidated regulatory capital position as of December 31, 2001 and 2000: Sun Ann Arbor Capitol Community Commerce National Bancorp Bank Bank Limited Consolidated ---- ---- ------- ------------ December 31, 2001 - ----------------- Tier 1 capital to average total assets: Minimum required amount =>$10,860 =>$ 6,723 =>$ 26,701 =>$ 74,096 Actual amount $20,970 $13,155 $ 94,271 $189,555 Ratio 7.72% 7.83% 14.12% 10.23% Tier 1 capital to risk-weighted assets: Minimum required amount(1) =>$ 9,165 =>$ 5,848 =>$ 27,586 =>$ 71,970 Actual amount $20,970 $13,155 $ 94,271 $189,555 Ratio 9.15% 9.00% 13.67% 10.54% Combined Tier 1 and Tier 2 capital to risk-weighted assets: Minimum required amount(2) =>$18,329 =>$11,696 =>$ 55,171 =>$143,941 Amount required to meet `Well-Capitalized' category(3) $22,912 $14,620 $ 68,964 $179,926 Actual amount $23,838 $14,984 $102,892 $213,263 Ratio 10.40% 10.25% 14.92% 11.85% December 31, 2000 - ----------------- Tier 1 capital to average total assets: Minimum required amount =>$ 9,409 =>$ 5,691 =>$ 16,606 =>$ 58,651 Actual amount $17,453 $11,130 $ 78,566 $151,036 Ratio 7.42% 7.82% 18.92% 10.30% Tier 1 capital to risk-weighted assets: Minimum required amount(1) =>$ 7,789 =>$ 4,975 =>$ 17,719 =>$ 54,508 Actual amount $17,453 $11,130 $ 78,566 $151,036 Ratio 8.96% 8.95% 17.74% 11.10% Combined Tier 1 and Tier 2 capital to risk-weighted assets: Minimum required amount(2) =>$15,577 =>$ 9,950 =>$ 35,439 =>$109,016 Amount required to meet `Well-Capitalized' category(3) $19,471 $12,438 $ 44,299 $136,271 Actual amount $19,892 $12,687 $ 84,006 $168,051 Ratio 10.22% 10.20% 18.96% 12.35% (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. 48 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CAPITOL BANCORP LIMITED NOTE Q--PARENT COMPANY FINANCIAL INFORMATION CONDENSED BALANCE SHEETS - December 31 - -------- -------- 2001 2000 -------- -------- (in $1,000s) Assets Cash on deposit with subsidiary banks $ 330 $ 213 Money market funds on deposit with subsidiary banks 571 220 Time deposits with unaffiliated bank 107 100 Investment securities held for long-term investment 269 603 Investments in subsidiaries 140,447 115,466 Notes receivable 1,130 1,363 Investment in and advances to Amera Mortgage Corporation 1,459 1,246 Equipment and furniture, net 662 624 Excess of cost over net assets of acquired subsidiaries 1,818 2,202 Other assets 5,514 3,650 -------- -------- Total assets $152,307 $125,687 ======== ======== Liabilities and Stockholders' Equity Accounts payable, accrued expenses and other liabilities $ 3,732 $ 3,124 Debt obligations payable to affiliates 4,900 8,900 Debt obligations payable to unaffiliated entities 14,100 18,150 Subordinated debentures 49,403 25,109 -------- -------- Total liabilities 72,135 55,283 Stockholders' equity 80,172 70,404 -------- -------- Total liabilities and stockholders' equity $152,307 $125,687 ======== ======== CONDENSED STATEMENTS OF INCOME - Year Ended December 31 - -------- -------- -------- 2001 2000 1999 -------- -------- -------- Income: Dividends from subsidiaries $ 7,896 $ 7,018 $ 5,650 Intercompany fees 6,130 6,362 5,424 Interest 200 182 290 Other 69 139 34 -------- -------- -------- Total income 14,295 13,701 11,398 Expenses: Interest 5,102 4,568 3,770 Salaries and employee benefits 4,997 4,154 3,310 Occupancy 399 333 260 Amortization, equipment rent and depreciation 1,086 1,212 1,520 Other 908 2,942 1,295 -------- -------- -------- Total expenses 12,492 13,209 10,155 -------- -------- -------- 1,803 492 1,243 Equity in undistributed net earnings of consolidated subsidiaries 6,496 5,232 2,880 Federal income taxes (credit) (2,419) (2,311) (1,286) -------- -------- -------- Net income $ 10,718 $ 8,035 $ 5,409 ======== ======== ======== 49 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CAPITOL BANCORP LIMITED NOTE Q--PARENT COMPANY FINANCIAL INFORMATION--CONTINUED CONDENSED STATEMENTS OF CASH FLOWS - Year Ended December 31 - 2001 2000 1999 -------- -------- -------- (in $1,000s) OPERATING ACTIVITIES Net income $ 10,718 $ 8,035 $ 5,409 Adjustments to reconcile net income to net cash provided by operating activities: Equity in undistributed net earnings of subsidiaries (6,496) (5,232) (2,880) Equity in net loss from Amera Mortgage Corporation 1,277 593 Depreciation and amortization 613 622 535 Decrease (increase) in amounts due from subsidiaries and other assets (1,061) 6,182 2,157 Increase (decrease) in accounts payable, accrued expenses and other liabilities 608 161 (29) -------- -------- -------- NET CASH PROVIDED BY OPERATING ACTIVITIES 4,382 11,045 5,785 INVESTING ACTIVITIES Net cash investments in subsidiaries (18,598) (8,107) (23,397) Net payments from (advances to) Amera Mortgage Corporation (213) (180) 101 Purchases of investment securities (181) Proceeds from sales and maturities of securities 334 215 Proceeds from sales of equipment and furniture 1 5 114 Purchases of equipment and furniture (268) (300) (183) -------- -------- -------- NET CASH USED BY INVESTING ACTIVITIES (18,744) (8,367) (23,546) FINANCING ACTIVITIES Net borrowings (payments) on debt obligations (8,050) (2,850) 20,300 Net proceeds from issuance of common stock 1,753 3,011 6 Net proceeds from issuance of subordinated debentures 24,248 Cash dividends paid (3,114) (2,534) (2,322) -------- -------- -------- NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES 14,837 (2,373) 17,984 -------- -------- -------- INCREASE IN CASH AND CASH EQUIVALENTS 475 305 223 Cash and cash equivalents at beginning of year 533 228 5 -------- -------- -------- CASH AND CASH EQUIVALENTS AT END OF YEAR $ 1,008 $ 533 $ 228 ======== ======== ======== NOTE R--ACQUISITION OF MINORITY INTERESTS During 2000, three banks which were previously majority-owned by Capitol (Brighton Commerce Bank, Kent Commerce Bank and Muskegon Commerce Bank) became wholly-owned, resulting from share exchange transactions with the banks' minority shareholders. Had these acquisitions of minority interests occurred at the beginning of 2000, consolidated net income would have approximated $7.9 million and diluted earnings per share would have been $1.04. 50 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CAPITOL BANCORP LIMITED NOTE R--ACQUISITION OF MINORITY INTERESTS--CONTINUED During 1999, Macomb Community Bank also became wholly-owned through a similar share exchange transaction with its minority shareholders. Each of these acquisitions have been accounted for under the purchase method of accounting. Goodwill arising from these transactions is generally amortized through December 31, 2001, on a straight-line basis over a period of 15 years after the acquisition date. Sun has also entered into similar share exchange transactions with minority shareholders of its banks (three in 2001 and one in 2000), which have been accounted for similar to Capitol's share exchange transactions. Sun's share exchange transactions did not have a material effect on Capitol's consolidated financial position or results of operations. NOTE S--PROPOSED ACQUISITION REGARDING SUN COMMUNITY BANCORP In November 2001, the boards of directors of Capitol and Sun Community Bancorp Limited entered into a proposed plan of share exchange. The proposed plan of share exchange is subject to the approval of the shareholders of both Capitol and Sun. The proposed share exchange, if consummated, would result in Capitol issuing .734 shares of its previously unissued common stock for each common share of Sun's common stock held by shareholders other than Capitol. Capitol estimates that it would issue approximately 2.7 million shares of its common stock and 850,000 stock options if the share exchange is completed as proposed. NOTE T--PENDING APPLICATIONS FOR NEW BANKS At December 31, 2001, applications were pending for the formation of two new banks, Bank of Las Vegas (to become a majority-owned subsidiary of Nevada Community Bancorp Limited) and Napa Community Bank (to become a majority-owned subsidiary of First California Northern Bancorp). Both of these banks are expected to open in 2002. 51 This page intentionally left blank. [LOGO] 2001 ANNUAL REPORT ------------------ CAPITOL Bancorp Limited SUN COMMUNITY Bancorp Limited NEVADA COMMUNITY Bancorp Limited SUNRISE CAPITAL Corporation INDIANA COMMUNITY Bancorp Limited FIRST CALIFORNIA NORTHERN Bancorp TO OUR SHAREHOLDERS In 1988, at the commencement of operations of Capitol Bancorp Limited, total consolidated assets approximated $44 million. Today, current consolidated assets exceed $2 billion. For our first year of operation, total consolidated income was reported at $520,000. Income for 2001 exceeded $10 million. In 1988 we operated a single bank. Today, our affiliated community bank network includes 29 separate institutions operating in six states. Since 1988, we have successfully sought community-based capital on more than 50 separate occasions, encouraging the localization of ownership of our affiliate community banks and rewarding those investors who have chosen to participate with us in this effort. In 1988 we believed that a profitable affiliate community banking network could be built and that each banking institution could serve as a good citizen within its community. Today this belief has been realized and serves as the cornerstone of our company. Community banks serve as an important catalyst for dynamic communities seeking growth and economic stability. Our boards of directors are composed of successful individuals who serve as major contributors to their community. They are an integral part of the fabric of the community in which they reside. Under their direction, each of our community banks exercises local authority over the important banking decisions which are necessary to ensure a profitable banking operation. I invite you to review the comments of our bank presidents enclosed in this report. We are not only pleased with the financial success of our company, but are also very proud of the efforts toward community responsibility initiated by each of our bank presidents and their boards of directors. The earnings, events and expectations of our company are set forth in the remainder of this report. As you read, you will not glean a sense of complacency. Both management and your Board of Directors are committed to continued refinement of our earnings objectives and continued commitment to our community bank model which supports both growth and stability. EARNINGS We continue to achieve record earnings. Over the past three years, consolidated earnings have nearly doubled from $5.4 million in 1999 to $10.7 million in 2001. During the same period, earnings per share have risen from $0.83 per share in 1999 to $1.35 per share in 2001. Net operating revenue, a key banking sector metric, advanced from $52 million in 1999 to over $90 million in 2001. Earnings growth continues to be the primary objective of the Corporation. During the past 5 1/2 years we opened 23 start-up community banks. Each bank, at the outset, is dilutive to the consolidated earnings stream of the Corporation. However, these efforts are beginning to bear fruit. Both the geographic diversity, particularly in higher-growth Southwest U.S. markets, and ongoing maturation of our bank operations serve to encourage developing earnings potential. CAPITOL BANCORP LIMITED ----------------------- CONSOLIDATED EARNINGS ($ in millions) 1999 2000 2001 ---- ---- ---- 5.409 8.03 10.72 1 TO OUR SHAREHOLDERS -- CONTINUED CAPITOL BANCORP LIMITED ----------------------- EARNINGS PER SHARE FY 1999 FY 2000 FY 2001 ------- ------- ------- $0.83 $1.13 $1.35 CAPITOL BANCORP LIMITED ----------------------- NET OPERATING REVENUE ($ in millions) FY 1999 FY 2000 FY 2001 ------- ------- ------- 52.1 72.51 90.10 EVENTS DE NOVO DEVELOPMENT Unlike calendar years 1998, 1999 and 2000, when we opened six, four and five banks respectively, the year 2001 produced a single DE NOVO bank within our affiliated group, Sunrise Bank of San Diego. Opened only since January 2001, this bank exceeded all of our expectations, reporting operating profits for the fourth quarter of the year. Early 2002 has witnessed the launching of two new affiliates within our family: Napa Community Bank, in northern California and Bank of Las Vegas, in Nevada. ACQUISITIONS Following our traditional shared ownership practice when launching new affiliates, 2001 witnessed three of our Southwest-based community banks approaching their third anniversary date, which is the time that internal ownership consolidation is considered by the shareholders of the bank. Having maintained a majority ownership position in these banks, Sun Community Bancorp Limited entered into separate share exchange agreements with Camelback Community Bank, Southern Arizona Community Bank and Mesa Bank. Each transaction was approved by the shareholders of the respective bank, and these three affiliates are now wholly-owned subsidiaries of Sun. As is true with each of our "bank development partnerships", the bank name, board composition, individual strategic plan, and local decision-making has been preserved following the exchange transaction. ---------- "WE ARE NOT ONLY PLEASED WITH THE FINANCIAL SUCCESS OF OUR COMPANY, BUT ALSO VERY PROUD OF THE EFFORTS TOWARD COMMUNITY RESPONSIBILITY INITIATED BY EACH OF OUR BANK PRESIDENTS AND THEIR BOARDS OF DIRECTORS." ---------- PROPOSED SHARE EXCHANGE BETWEEN SUN AND CAPITOL In November 2001, the Boards of Directors of Sun Community Bancorp Limited and Capitol Bancorp Limited approved a plan of share exchange which will result in the delivery of Sun shares to Capitol in exchange for Capitol shares, subject to approval of both shareholder groups. Separate fairness opinions and shareholder approval requirements were carefully followed by the Boards of both Sun and Capitol. Consolidation of the Capitol-Sun public ownership will serve to increase the "float" of public stock at Capitol Bancorp, while decreasing the perceived complexity of our operations from a public investor perspective. Because each of our affiliates operate on a common platform, share technological systems, cultivate organic growth and access identical strategic support systems at the holding company level, this proposed transaction, along with our other internal "acquisitions", is free from the typical cultural issues which can serve as potential obstacles to successful integration. 2 ASSET GROWTH During 2001, our affiliate operations added more than $400 million in organic asset growth. Consolidated assets increased from $1.6 billion to $2 billion. Putting this into historical perspective, our Corporation operated for ten years before we reached $1 billion in consolidated assets in December of 1998. This second billion dollars of balance sheet growth has been achieved in less than three years. OTHER EVENTS In the course of 2001, numerous other operational matters were addressed by the corporate team including a system conversion, enhancement of our Internet banking product and the expansion of investment advisory and wealth management services. At the time of this writing, auditor independence is a topic receiving significant media attention in the wake of at least one major company's debacle. One clear indicator of a serious problem is an audit firm's potential conflict of interest, either real or perceived, when the companies they audit engage them for significant consulting work, especially when consulting fees they receive exceed the fees paid for auditing. As a public company, we endeavor to ensure the independence of our auditors, BDO Seidman LLP, by avoiding the potential conflict which could arise from receiving services unrelated to auditing, accounting or tax compliance. ---------- "OUR COMMITMENT TO COMMUNITY BANKING IS THE FOUNDATION OF OUR CORE OPERATION." ---------- EXPECTATIONS DURING CALENDAR YEAR 2002 Over the course of the current calendar year we expect continued material growth in our balance sheet. We are focused on continued earnings refinement at a number of our affiliate banks. This is a major undertaking involving all of us at Capitol Bancorp Limited. Less significant this year, but still present as an important part of our mission, is the exploration of additional DE NOVO bank opportunities. We will continue to be both prudent and opportunistic in the selection of DE NOVO initiatives. Further enhancement of services and fully exploiting and capturing noninterest income opportunities at our existing banks has become a greater near-term priority. The effect of the proposed share exchange with Sun Community Bancorp will serve to enhance our consolidated earnings growth rate over the course of the current calendar year. Our rate of growth on an earnings-per-share basis will be diluted temporarily following the share exchange; however, this effect is not expected to be material in 2003. CAPITOL BANCORP LIMITED - ----------------------- Lansing, MI 29 affiliate banks Banks located in Michigan, Arizona, Nevada, Indiana, New Mexico, and California AS OF DECEMBER 31 - ----------------- Closing Stock Price $13.30 52-Week High $17.50 52-Week Low $ 9.69 2001 Price Change +36.4% Total Assets over $2 billion 3 TO OUR SHAREHOLDERS-- CONTINUED ---------- "BOTH THE GEOGRAPHIC DIVERSITY, PARTICULARLY IN HIGHER-GROWTH SOUTHWEST U.S. MARKETS, AND ONGOING MATURATION OF OUR BANK OPERATIONS SERVE TO ENCOURAGE DEVELOPING EARNINGS POTENTIAL." ---------- LONGER RANGE PROBABILITY (5 YEARS) Acknowledging that long-range corporate forecasts are typically even less reliable than long-range weather forecasts, nevertheless, our current corporate momentum suggests that we will double the size of our balance sheet over this five year time period. Organic growth is the product of our maturing banks and is feasible without additional DE NOVO banks. However, during this same period we do expect to participate in a number of DE NOVO bank development opportunities. 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 will continue to encourage and foster hometown customer loyalty, a financially and socially rewarding byproduct of relationship banking, local identity, local decision-making and local ownership. We invite you to be with us in this effort. /s/ Joseph D. Reid JOSEPH D. REID CHAIRMAN & CHIEF EXECUTIVE OFFICER 4 CAPITOL BANCORP SUN COMMUNITY SUNRISE CAPITAL LIMITED BANCORP LIMITED CORPORATION ------- --------------- ----------- BOARD OF DIRECTORS BOARD OF DIRECTORS BOARD OF DIRECTORS LOUIS G. ALLEN MICHAEL J. DEVINE STEVEN K. BLACK PRIVATE BANKER, RETIRED ATTORNEY AT LAW PRESIDENT, CALIFORNIA REGION Sunrise Capital Corporation PAUL R. BALLARD RICHARD N. FLYNN EXECUTIVE VICE PRESIDENT PRESIDENT MICHAEL J. DEVINE Capitol Bancorp Limited Flynn & Associates ATTORNEY AT LAW DAVID L. BECKER MICHAEL F. HANNLEY CRISTIN REID ENGLISH DIRECTOR PRESIDENT & CHIEF EXECUTIVE OFFICER EXECUTIVE VICE PRESIDENT Becker Insurance Agency, P.C. Bank of Tucson Capitol Bancorp Limited ROBERT C. CARR RICHARD IMWALLE WILLIAM D. HINZ, II EXECUTIVE VICE PRESIDENT & TREASURER PRESIDENT PRESIDENT Capitol Bancorp Limited University of Arizona Foundation Sunrise Bank of Arizona DOUGLAS E. CRIST MICHAEL L. KASTEN MICHAEL L. KASTEN PRESIDENT MANAGING PARTNER MANAGING PARTNER Developers of SW Florida, Inc. Kasten Investments, L.L.C. Kasten Investments, L.L.C. JAMES C. EPOLITO JOHN S. LEWIS JOSEPH D. REID PRESIDENT & CHIEF EXECUTIVE OFFICER PRESIDENT CHAIRMAN & CHIEF EXECUTIVE OFFICER The Accident Fund Company Sun Community Bancorp Limited Capitol Bancorp Limited Sun Community Bancorp Limited CRISTIN REID ENGLISH HUMBERTO S. LOPEZ EXECUTIVE VICE PRESIDENT PRESIDENT DOUGLAS N. REYNOLDS Capitol Bancorp Limited HSL Properties, Inc. CHIEF CREDIT OFFICER Sunrise Bank of Arizona GARY A. FALKENBERG, D.O. KATHRYN L. MUNRO PHYSICIAN CHAIRMAN & CHIEF EXECUTIVE OFFICER INDIANA COMMUNITY Bridge West, L.L.C. BANCORP LIMITED JOEL I. FERGUSON --------------- CHAIRMAN JOSEPH D. REID Ferguson Development, L.L.C. CHAIRMAN & CHIEF EXECUTIVE OFFICER BOARD OF DIRECTORS Capitol Bancorp Limited KATHLEEN A. GASKIN Sun Community Bancorp Limited PAUL R. BALLARD ASSOCIATE BROKER AND STATE APPRAISER EXECUTIVE VICE PRESIDENT Tomie Raines, Inc. Realtors RONALD K. SABLE Capitol Bancorp Limited CHIEF EXECUTIVE OFFICER H. NICHOLAS GENOVA Concord Solutions, L.L.C. ROBERT C. CARR CHAIRMAN & CHIEF EXECUTIVE OFFICER EXECUTIVE VICE PRESIDENT & TREASURER Washtenaw News Company, Inc. NEVADA COMMUNITY Capitol Bancorp Limited BANCORP LIMITED LEWIS D. JOHNS --------------- J. CHRISTOPHER CHOCOLA PRESIDENT CHAIRMAN OF THE BOARD Mid-Michigan Investment Company BOARD OF DIRECTORS CTB, Inc. MICHAEL L. KASTEN GLENN C. CHRISTENSON MYRL D. NOFZIGER MANAGING PARTNER EVP, CHIEF FINANCIAL OFFICER AND CAO PRESIDENT Kasten Investments, L.L.C. Station Casinos, Inc. Hoogenboom Nofziger JOHN S. LEWIS MICHAEL J. DEVINE JOSEPH D. REID PRESIDENT ATTORNEY AT LAW CHAIRMAN & CHIEF EXECUTIVE OFFICER Sun Community Bancorp Limited Capitol Bancorp Limited CRISTIN REID ENGLISH Sun Community Bancorp Limited LEONARD MAAS EXECUTIVE VICE PRESIDENT PRESIDENT Capitol Bancorp Limited LARRY SCHROCK Gillisse Construction Company PRESIDENT JOEL I. FERGUSON Deutsch Kase Haus, Inc. LYLE W. MILLER CHAIRMAN PRESIDENT Ferguson Development, L.L.C. FIRST CALIFORNIA Servco, Inc. NORTHERN BANCORP MICHAEL F. HANNLEY ---------------- DAVID O'LEARY PRESIDENT & CHIEF EXECUTIVE OFFICER CHAIRMAN Bank of Tucson BOARD OF DIRECTORS O'Leary Paint Company MARK A. JAMES CRISTIN REID ENGLISH JOSEPH D. REID ATTORNEY AT LAW/STATE SENATOR EXECUTIVE VICE PRESIDENT CHAIRMAN & CHIEF EXECUTIVE OFFICER James, Driggs, Walch, Santoro, Capitol Bancorp Limited Capitol Bancorp Limited Kearney, Johnson & Thompson Sun Community Bancorp Limited C. PAUL JOHNSON LEWIS D. JOHNS PRESIDENT PRESIDENT Astrale e Terra Winery Mid-Michigan Investment Company PAUL J. KRSEK MICHAEL L. KASTEN PRESIDENT MANAGING PARTNER Krsek & Andreae Kasten Investments, L.L.C. DAVID L. MCSHERRY LARRY W. KIFER INVESTOR CHAIRMAN & CHIEF EXECUTIVE OFFICER Northwest Investment Company, L.L.C. Algiers Hotel DAVID O'LEARY HUMBERTO S. LOPEZ CHAIRMAN PRESIDENT O'Leary Paint Company HSL Properties, Inc. JOSEPH D. REID THOMAS C. MANGIONE CHAIRMAN & CHIEF EXECUTIVE OFFICER PRESIDENT & CHIEF OPERATING OFFICER Capitol Bancorp Limited Nevada Community Bancorp Limited Sun Community Bancorp Limited JOSEPH D. REID CHAIRMAN & CHIEF EXECUTIVE OFFICER Capitol Bancorp Limited Sun Community Bancorp Limited EDWARD D. SMITH PRESIDENT Smith-Christensen Enterprises CAPITOL BANCORP LIMITED ------- OFFICERS JOSEPH D. REID CHAIRMAN & CHIEF EXECUTIVE OFFICER DAVID O'LEARY SECRETARY PAUL R. BALLARD EXECUTIVE VICE PRESIDENT ROBERT C. CARR EXECUTIVE VICE PRESIDENT & TREASURER DAVID J. DUTTON EXECUTIVE VICE PRESIDENT & CHIEF INFORMATION OFFICER CRISTIN REID ENGLISH EXECUTIVE VICE PRESIDENT LEE W. HENDRICKSON EXECUTIVE VICE PRESIDENT & CHIEF FINANCIAL OFFICER CHARLES J. MCDONALD EXECUTIVE VICE PRESIDENT & CASHIER MICHAEL M. MORAN EXECUTIVE VICE PRESIDENT DAVID K. POWERS EXECUTIVE VICE PRESIDENT WILLIAM E. RHEAUME EXECUTIVE VICE PRESIDENT & SENIOR COUNSEL BRUCE A. THOMAS EXECUTIVE VICE PRESIDENT BRIAN K. ENGLISH GENERAL COUNSEL CARL C. FARRAR SENIOR VICE PRESIDENT LINDA D. PAVONA SENIOR VICE PRESIDENT JOHN C. SMYTHE SENIOR VICE PRESIDENT MARIE D. WALKER SENIOR VICE PRESIDENT & CONTROLLER MARC A. DEUR VICE PRESIDENT JANET L. HARDIN VICE PRESIDENT STEPHANIE A. MAAT VICE PRESIDENT 5 BOARD OF DIRECTORS [PHOTO OF ANN ARBOR COMMERCE BANK] DONALD E. BUTCHER ANN ARBOR COMMERCE BANK COMMERCIAL REAL ESTATE DEVELOPER 2950 State Street South ROBERT C. CARR Ann Arbor, MI 48104 EXECUTIVE VICE PRESIDENT & TREASURER 734.887.3100 Capitol Bancorp Limited www.annarborcommerce.com RICHARD G. DORNER PRESIDENT & CHIEF EXECUTIVE OFFICER Ann Arbor Commerce Bank Ann Arbor - innovative, academic, entrepreneurial, caring. Ann Arbor was the perfect location for a DE NOVO bank in 1990. Reflecting the pulse and composition JAMES A. FAJEN of the city has been our road map, as Ann Arbor Commerce Bank has become an ATTORNEY AT LAW integral and respected partner in the community. Fajen & Miller, P.L.L.C. * Nonprofit organizations play a vital role in our community. In addition to JAMES W. FINN supporting them and serving on boards, we developed our Community+Plus CHAIRMAN & CHIEF EXECUTIVE OFFICER checking account designed specifically for 501(c) 3 organizations. This Finn's-JM&J Insurance Agency, Inc. account provides special features, including interest on balances of $501 or higher. H. NICHOLAS GENOVA CHAIRMAN & CHIEF EXECUTIVE OFFICER * We created an innovative banking package to assist a new jazz program at Washtenaw News Company, Inc. Community High School. This program is now a model nationally, and the music teacher was recognized as Teacher of the Year in 1996. Ann Arbor RICHARD M. GREENE Commerce Bank was recognized on the school's musical CD in recognition of Richard Green Point Training our support. MARILYN D. KATZ-PEK * We received a Special Tribute signed by Governor John Engler and other GENERAL MANAGING PARTNER state officials after we received our fourth consecutive Fast Track Award Biotechnology Business Consultants from the Washtenaw Development Council. JAMES C. KEEN * We recognize the importance of teaching children to be wise consumers and CHIEF EXECUTIVE OFFICER understand credit. In addition to our Simply Savings Account, future plans Cliff Keen Athletic include methods to help young people learn to save, invest, and handle credit prudently. DAVID W. LUTTON PRESIDENT Charles Reinhart Company BUILDING LASTING RELATIONSHIPS . . . CREATING LIFETIME VALUE. FRITZ SEYFERTH MANAGEMENT CONSULTANT /s/ RICHARD G. DORNER Fritz Seyferth & Associates RICHARD G. DORNER [LOGO] PRESIDENT & CHIEF EXECUTIVE OFFICER CARL VAN APPLEDORN VICE PRESIDENT Urological Surgery Assoc., P.C. WARREN E. WRIGHT CHAIRMAN & PARTNER Renosol Corporation OFFICERS JAMES A. FAJEN CHAIRMAN OF THE BOARD ROBERT C. CARR VICE CHAIRMAN WARREN E. WRIGHT SECRETARY RICHARD G. DORNER PRESIDENT & CHIEF EXECUTIVE OFFICER CLIFFORD G. SHELDON EXECUTIVE VICE PRESIDENT BRIAN F. PICKNELL SENIOR VICE PRESIDENT MARY HAYS VICE PRESIDENT RICK H. JAMES VICE PRESIDENT LOUISE A. MORSE VICE PRESIDENT & CASHIER JOHN NIXON III VICE PRESIDENT RICHARD G. TICE VICE PRESIDENT JOHN J. WILKINS VICE PRESIDENT 6 [PHOTO OF ARROWHEAD COMMUNITY BANK] BOARD OF DIRECTORS ARROWHEAD COMMUNITY BANK PATRICK DAGGETT CERTIFIED PUBLIC ACCOUNTANT 17235 North 75th Avenue, Suite B100 Daggett & Daggett, LLP Glendale, AZ 85308 623.776.0800 MICHAEL J. DEVINE www.arrowheadcommunitybank.com ATTORNEY AT LAW THOMAS E. GYDER At Arrowhead Community Bank, we believe "community" is more than just a part of PRESIDENT & GENERAL MANAGER our name, it is a philosophy we embrace in everything we do. Whether tailoring Wilhelm Automotive Service Centers bank products to fit specific community needs, or contributing many hours to local service projects, Arrowhead's commitment to, and participation in, the RICHARD J. HILDE Glendale-Peoria community has made a significant impact during its short tenure CHIEF EXECUTIVE OFFICER in the marketplace. EPW, Inc. * A member of our management team participates on the executive board of New MICHAEL L. KASTEN Life Center (NLC), a local domestic violence shelter. The staff supports MANAGING PARTNER NLC's Bowl-A-Thon; collects reusable items from friends and family for Kasten Investments, L.L.C. donation to the shelter's thrift store; and in December, the Bank served as a collection point for gifts donated for distribution to the residents of ARLENE KULZER the shelter. PRESIDENT Arrowhead Community Bank * Staff members serve on boards, participate in small business fairs, speak to local service organizations and schools, and serve as judges in DENNIS E. LANDAUER allocating funds donated to the Peoria School District for use in MANAGING DIRECTOR extracurricular projects. American Express Tax & Business Services * Our community involvement doesn't end with donating time. Arrowhead offers ELAINE P. MAIMON a service-charge free, interest-bearing checking account to nonprofit CAMPUS CHIEF EXECUTIVE OFFICER AND PROVOST organizations; and, as in the case of Theater Works, a nonprofit community Arizona State University West theater group. In addition to the checking account, the Bank reinvested loan fees charged back into theater programs. JAMES J. MCCUE AVIATION CONSULTANT Sherwin Industries COMMUNITY IS MORE THAN JUST A PART OF OUR NAME . . . TERRANCE C. MEAD IT IS A PHILOSOPHY WE EMBRACE IN EVERYTHING WE DO. ATTORNEY AT LAW/OWNER Mead & Associates /s/ ARLENE KULZER ARLENE KULZER JOHN C. OGDEN PRESIDENT [LOGO] PRESIDENT & CHIEF EXECUTIVE OFFICER SunCor Development Company CAROL A. POORE DIRECTOR OF COMMUNICATION New West Energy RICHARD A. SHELTON EXECUTIVE DIRECTOR Symphony of the West Valley OFFICERS MICHAEL L. KASTEN CHAIRMAN OF THE BOARD JOHN C. OGDEN VICE CHAIRMAN JOSEPH D. REID CHIEF EXECUTIVE OFFICER JAMES J. MCCUE SECRETARY ARLENE KULZER PRESIDENT ARLENE KULZER PRESIDENT DENNIS E. LANDAUER CHAIRMAN DIRECTORS' LOAN COMMITTEE WILLIAM H. SMITH SENIOR VICE PRESIDENT URSULA L. JACKSON VICE PRESIDENT DEBORAH M. CHARLESWORTH VICE PRESIDENT BARRY S. EDWARDS VICE PRESIDENT 7 BOARD OF DIRECTORS [PHOTO OF BANK OF TUCSON] BRUCE I. ASH BANK OF TUCSON VICE PRESIDENT Paul Ash Management, L.L.C. 4400 East Broadway Tucson, AZ 85711 SLIVY EDMONDS COTTON 520.321.4500 CHAIRMAN & CHIEF EXECUTIVE OFFICER www.bankoftucson.com Perpetua, Inc. MICHAEL J. DEVINE Bank of Tucson employees are making their mark in the Tucson community through ATTORNEY AT LAW volunteerism, leadership roles, lobbying legislation and fundraising for local charities. We recognize the importance of our civic responsibilites in running a BRIAN K. ENGLISH successful community bank. Our strategic vision as a substantial resource for GENERAL COUNSEL small businesses and nonprofit agencies has received a heart-warming response. Capitol Bancorp Limited * The men and women of Bank of Tucson are well respected and influential in WILLIAM A. ESTES, JR. many civic, government and nonprofit organizations, for their efforts to PRESIDENT understand both local issues and offer assistance to those in need. They Tem Corp. also contribute their personal time and resources to community efforts. Officers represent the Bank proudly on prestigious boards such as the YMCA, RICHARD N. FLYNN Salvation Army, The Business Development Finance Corporation, the Beacon PRESIDENT Foundation, and several local hospitals. One employee distinguished herself Flynn & Associates by personally lobbying for legislation to change laws that would further enable adults with disabilities to purchase a home of their own. MICHAEL F. HANNLEY PRESIDENT & CHIEF EXECUTIVE OFFICER * The Bank also assists the community through unique products like fee Bank of Tucson rebates and interest-bearing accounts for nonprofits. In addition, the Bank participates in sponsoring local charitable events. For the fifth MICHAEL J. HARRIS consecutive year, Bank of Tucson was the title sponsor of the Wildcat Dream ASSOCIATE BROKER Invitational hosted by NBA star, Steve Kerr. The event, which took place in Long Realty Company September, raised over $21,000 for youth basketball through a golf tournament, dinner and auction. RICHARD F. IMWALLE PRESIDENT University of Arizona Foundation IN THE SPIRIT OF GIVING, WE RECEIVE. MICHAEL L. KASTEN /s/ MICHAEL F. HANNLEY MANAGING PARTNER MICHAEL F. HANNLEY Kasten Investments, L.L.C. [LOGO] PRESIDENT & CHIEF EXECUTIVE OFFICER BURTON J. KINERK ATTORNEY AT LAW Kinerk, Beal, Schmidt & Dyer, P.C. LYN M. PAPANIKOLAS REALTOR Long Realty Company OFFICERS RICHARD F. IMWALLE CHAIRMAN OF THE BOARD MICHAEL J. DEVINE VICE CHAIRMAN RICHARD N. FLYNN SECRETARY MICHAEL F. HANNLEY PRESIDENT & CHIEF EXECUTIVE OFFICER C. DAVID FOUST EXECUTIVE VICE PRESIDENT & CHIEF CREDIT OFFICER BARBARA A. SADLER SENIOR VICE PRESIDENT SANDI L. SMITHE SENIOR VICE PRESIDENT CHARLENE F. SHUMAKER VICE PRESIDENT 8 [PHOTO OF BLACK MOUNTAIN COMMUNITY BANK] BOARD OF DIRECTORS BLACK MOUNTAIN COMMUNITY BANK PETER M. ATKINSON PRESIDENT 1700 West Horizon Ridge Parkway, Suite 101 Black Mountain Community Bank Henderson, NV 89012 702.990.5900 MICHAEL J. DEVINE www.blackmountaincommunitybank.com ATTORNEY AT LAW Black Mountain Community Bank has only recently begun operating in the Henderson BETTY A. KINCAID community, and we are already having a positive impact. We strongly believe in PRESIDENT giving back to our community while setting a good example for other businesses Southwest Exchange Corp. to emulate. All of our employees have a strong community spirit, as evidenced by the following commitments: CHARLES L. LASKY PRESIDENT * We are assisting the City of Henderson Redevelopment Agency in creating Lasky Fifarek & Hogan P.C. loan documents for their new Business Revolving Loan Program, which assists financially disadvantaged businesses. CLAIRE MACDONALD VICE PRESIDENT * Our employees are very involved in the community. As a result of their MacDonald Properties efforts, seventy-two children have benefited from the generosity of staff members that have offered their homes as foster parents. Bank employees THOMAS C. MANGIONE also volunteer time at a nonprofit organization that assists patients as PRESIDENT & CHIEF OPERATING OFFICER they recover from drug addiction. Nevada Community Bancorp Limited * For the second consecutive year, our employees and customers funded MICHAEL J. MIXER Thanksgiving dinners for needy families. At Christmas, through the Angel CORPORATE BROKER Tree Program, we provided gifts to seniors who are without families. In Colliers International addition, the Bank delivered gifts to local foster children. M. COLLEEN O'CALLAGHAN-MIELE * The Bank was proud to have developed a program to assist a local doctor in VP ASSISTANT PUBLISHER opening his first office in Las Vegas. The doctor is a pediatric oncologist H.B.C. Publications who donates office space to the Candlelighters, a nonprofit support organization for parents of children with cancer. He also donates PHILIP N. RALSTON significant time at a local medical center treating children who cannot CHIEF FINANCIAL OFFICER AND TREASURER afford specialized care. ANC. Inc. and Silver Springs, Inc. JOSEPH D. REID III IMAGINE . . . BANKING THE WAY YOU REMEMBER. CORPORATE COUNSEL Capitol Bancorp Limited /s/ PETER M. ATKINSON PETER M. ATKINSON CHRISTOPHER G. SAMSON PRESIDENT [LOGO] PRESIDENT & OWNER FN Investments Inc OFFICERS THOMAS C. MANGIONE CHAIRMAN OF THE BOARD & CHIEF EXECUTIVE OFFICER MICHAEL J. DEVINE VICE CHAIRMAN CHARLES L. LASKY SECRETARY PETER M. ATKINSON PRESIDENT DAVID S. RENNICK EXECUTIVE VICE PRESIDENT & CHIEF CREDIT OFFICER KATHY M. LUCERO VICE PRESIDENT RAMON MCBRIDE VICE PRESIDENT SHARI A. SMITH VICE PRESIDENT 9 BOARD OF DIRECTORS [PHOTO OF BRIGHTON COMMERCE BANK] ROBERT C. CARR BRIGHTON COMMERCE BANK EXECUTIVE VICE PRESIDENT & TREASURER Capitol Bancorp Limited 8700 North Second Street Brighton, MI 48116 JOHN CODERE 810.220.1199 PRESIDENT www.brightoncommerce.com Brighton Block & Concrete, Inc. MICHAEL B. CORRIGAN Brighton Commerce Bank, the ONLY local community bank in Brighton, strives to PRESIDENT assist many local community groups and agencies. This can involve an employee's Corrigan Oil Company, Inc. time and expertise as well as financial contributions. Some of the local groups and agencies that have been supported by Brighton Commerce Bank include: SCOTT C. GRIFFITH PRESIDENT * The Lions Club - we have provided financial support for their new facility, Era Griffith Realty the "Lions Den," and for their community efforts to assist all residents of our county. WILLIAM LAMARRA CHAIRMAN & CHIEF EXECUTIVE OFFICER * Community Center of Brighton - the Bank provided assistance with financing Excelda Manufacturing the construction of the new Center which will be used by the Boy Scouts, Rotary and other community service groups. MARK A. LATTERMAN PRESIDENT * Brighton Center for Performing Arts - a Bank representative has served on Latterman & Associates, P.C. the Board of Directors for a number of years and was Chairman for the past two years. The Center provides educational programs as well as PIET W. LINDHOUT entertainment for the local community. CHIEF EXECUTIVE OFFICER Lindhout Associates * Women's Resource Center of Livingston County - annually we provide a holiday tree in our lobby which provides examples of opportunities to GARY T. NICKERSON, SR. purchase gifts for local families. Employees also participate in the PRESIDENT & CHIEF EXECUTIVE OFFICER purchase of these gifts. Brighton Commerce Bank * The United Way - since our Bank's inception, 100% of our employees have CANDICE G. RANDOLPH annually donated time and resources to the United Way campaign in addition SENIOR VICE PRESIDENT, CASHIER, & SECRETARY to the bank's substantial annual gift. Brighton Commerce Bank We are proud of the significant contributions which we have made for the benefit MITCHELL J. STANLEY of all residents of our community. PRESIDENT Mickey Stanley & Associates PERSONALIZED SERVICE BY LOCAL EXPERIENCED PERSONNEL. JAMES A. WINCHEL PRESIDENT /s/ GARY T. NICKERSON, SR. Colt Park Insurance Agency, Inc. GARY T. NICKERSON, SR. [LOGO] PRESIDENT & CHIEF EXECUTIVE OFFICER OFFICERS ROBERT C. CARR CHAIRMAN OF THE BOARD MICHAEL B. CORRIGAN VICE CHAIRMAN GARY T. NICKERSON, SR. PRESIDENT & CHIEF EXECUTIVE OFFICER CANDICE G. RANDOLPH SENIOR VICE PRESIDENT, CASHIER & SECRETARY JOSEPH M. PETRUCCI SENIOR VICE PRESIDENT WILLIAM R. ANDERSON VICE PRESIDENT John P. Szydzik VICE PRESIDENT 10 [PHOTO OF CAMELBACK COMMUNITY BANK] BOARD OF DIRECTORS CAMELBACK COMMUNITY BANK SHIRLEY A. AGNOS PRESIDENT 2777 East Camelback Road, Suite 100 Arizona Town Hall Phoenix, AZ 85016 602.224.5800 CORD ARMSTRONG www.camelbackbank.com CERTIFIED PUBLIC ACCOUNTANT & MANAGER Miller Wagner Business Services, Inc. At Camelback Community Bank we know it takes the efforts of many individuals and MICHAEL J. DEVINE companies to provide the services necessary to meet the needs of a diverse ATTORNEY AT LAW community. The Bank's contribution to assuring that the Phoenix area is able to provide these programs and services include: WINFIELD HOLDEN PUBLISHER * Funding loans for nonprofit organizations, specifically: Arizona Highways Magazine - construction of the Fresh Start Women's Foundation Women's Resource MICHAEL L. KASTEN Center, designed to meet the needs of women seeking self-sufficiency; MANAGING PARTNER Kasten Investments, L.L.C. - construction of the Junior League headquarters office; GREGORY M. KRUZEL - rehabilitation of the local Girl Scout council's campsites; and, ATTORNEY AT LAW & PARTNER Bruan, Becker, Kruzel, P.C. - construction of a cancer center at a nonprofit, inner-city hospital. ROBERT LESTER * Creating a series of classroom presentations for a local grammar school PRESIDENT called "Banking on the Future." Lesson plans focus on financial literacy Progressive Financial Concepts and the creation of a classroom account at the Bank. JOHN S. LEWIS * Offering the use of our Board room for meetings of nonprofit boards and PRESIDENT committees. Sun Community Bancorp Limited * Originating "Investing Heart in our Community," a recognition program for TAMMY A. LINN teens that rewards their volunteer activities and community service. DIRECTOR/GOVERNOR'S COMMUNITY POLICY OFFICER * Financing the acquisition and development of numerous single-family and multi-family residential properties intended for rehabilitation within the SUSAN C. MULLIGAN City of Phoenix. CERTIFIED PUBLIC ACCOUNTANT * Encouraging our employees' involvement in local canned-food drives for the EARL A. PETZNICK food banks, trimming a holiday tree for the benefit of the Burns and Trauma PRESIDENT & CHIEF EXECUTIVE OFFICER Association, collecting toys for the Police Department's annual drive and Northside Hay Company many other activities resulting from involvement on nonprofit boards. BARBARA J. RALSTON THE BANK WHERE YOU BELONG. PRESIDENT & CHIEF EXECUTIVE OFFICER Camelback Community Bank /s/ BARBARA J. RALSTON BARBARA J. RALSTON DAN A. ROBLEDO PRESIDENT & CHIEF EXECUTIVE OFFICER [LOGO] PRESIDENT & CHIEF EXECUTIVE OFFICER Lawyer's Title of Arizona, Inc. JACQUELINE J. STEINER COMMUNITY VOLUNTEER OFFICERS DAN A. ROBLEDO CHAIRMAN OF THE BOARD MICHAEL L. KASTEN VICE CHAIRMAN SHIRLEY A. AGNOS SECRETARY BARBARA J. RALSTON PRESIDENT & CHIEF EXECUTIVE OFFICER JOHN ROBERT BOOSMAN EXECUTIVE VICE PRESIDENT & CHIEF CREDIT OFFICER BETTY L. CORNISH SENIOR VICE PRESIDENT PATRICK B. WESTMAN SENIOR VICE PRESIDENT STEVEN J. BOATRIGHT VICE PRESIDENT SONDRA K. KOSKELA VICE PRESIDENT WILLIAM F. VONHATTEN VICE PRESIDENT 11 BOARD OF DIRECTORS [PHOTO OF CAPITOL NATIONAL BANK] ROBERT C. CARR CAPITOL NATIONAL BANK EXECUTIVE VICE PRESIDENT & TREASURER Capitol Bancorp Limited 200 Washington Square North Lansing, MI 48933 NAN ELIZABETH CASEY 517.484.5080 ATTORNEY AT LAW www.capitolnational.com Fraser Law Firm CHARLES J. CLARK Capitol National Bank takes great pride in its many financial and human resource PRESIDENT contributions that have helped make the Lansing area a great place to live, work Clark Construction Company and do business. BRIAN K. ENGLISH Capitol National is a bank with an entrepreneurial spirit led by a local GENERAL COUNSEL management team and a board of directors comprised of Lansing business leaders Capitol Bancorp Limited that truly care about service to the community. At Capitol National, we encourage our management and staff to participate in and, when asked, take on DAVID FERGUSON leadership roles in local community activities. PRESIDENT Ferguson Development * We were the first major contributor to the H.O.P. E. (Helping Other People Excel) Scholarship Program. The goal is to provide Lansing Community PATRICK F. HAYES College scholarships to 500 at-risk seventh graders in the Lansing schools PRESIDENT each year. H.O.P. E. is a crime-prevention and education initiative F.D. Hayes Electric involving the Lansing Police Department, Lansing School District, Lansing Community College and Michigan State University. RICHARD A. HENDERSON PRESIDENT * Capitol National has been an active participant in a local Home Ownership Henderson & Associates Program which promotes neighborhood stabilization by assisting renters in the purchase and reconstruction of the homes they are occupying. CHRISTOPHER HOLMAN PUBLISHER * We have been a sponsor of the annual Ingham Regional Healthcare Foundation Greater Lansing Business Monthly "Festival of Trees" fundraising event benefitting one of our community's premiere healthcare facilities known for its Thoracic Cardiovascular L. DOUGLAS JOHNS, JR. Programs. VICE PRESIDENT Mid Michigan Investment Company * We have utilized a Small Business Administration program to help finance the expansion and construction of a new facility for a pre-school business, KEVIN A. KELLY enabling it to double its enrollment to 200 children while also meeting a MANAGING DIRECTOR true community need. This school has been a customer of the Bank since Michigan State Medical Society opening 17 years ago. MARK A. LATTERMAN It is most gratifying to help develop a stronger community while mutually benefitting PRESIDENT our customers, and their Bank. Latterman & Associates, P.C. CHARLES J. MCDONALD SMALLER BANK. BIGGER SERVICE.(TM) EXECUTIVE VICE PRESIDENT & CASHIER Capitol Bancorp Limited /s/ JOHN C. SMYTHE JOHN C. SMYTHE JOHN O'LEARY [LOGO] PRESIDENT & CHIEF EXECUTIVE OFFICER CO-PRESIDENT O'Leary Paint Company PATRICIA A. REYNOLDS PRESIDENT Capital Region Community Foundation JOHN C. SMYTHE PRESIDENT & CHIEF EXECUTIVE OFFICER Capitol National Bank OFFICERS Robert C. Carr CHAIRMAN OF THE BOARD MARK A. LATTERMAN VICE CHAIRMAN PATRICK F. HAYES SECRETARY JOHN C. SMYTHE PRESIDENT & CHIEF EXECUTIVE OFFICER JOHN R. FARQUHAR SENIOR VICE PRESIDENT DAVID E. FELDPAUSCH VICE PRESIDENT LORI M. GARCIA VICE PRESIDENT 12 [PHOTO OF DESERT COMMUNITY BANK] BOARD OF DIRECTORS DESERT COMMUNITY BANK ROBERT J. ANDREWS DIRECTOR OF FINANCE 3740 South Pecos-McLeod Anchor Gaming Las Vegas, NV 89121 702.938.0500 MICHAEL J. DEVINE www.desertcommunity.com ATTORNEY AT LAW ROSE M. K. DOMINQUEZ Desert Community Bank is an urban Las Vegas bank. We pride ourselves on being an PRESIDENT essential part of the community by serving all facets of our economically Discovery Travel diverse city. We serve area small-businesses and professionals. Our contributions include: TOM GRIMMETT OWNER * Construction/permanent financing to the Women's Development Center, a Grimmett & Company nonprofit organization that provides affordable housing and other support services for low-to-moderate income families. GARRY L. HAYES PRESIDENT * Construction financing for a 20,000 square-foot industrial warehouse park Law Office of Garry L. Hayes located in a low-to-moderate income area identified as a redevelopment zone by the City of Las Vegas. This is the first new construction in our area of JAMES W. HOWARD town in years. In addition to providing a new look for the neighborhood, PRESIDENT the industrial park will provide new jobs, services, and ideally, spur Desert Community Bank economic development in an economically-challenged area. CHARLES L. LASKY * Permanent financing for a restaurant, which has provided food and services PRESIDENT to its constituents in a low-to-moderate income area for over 20 years. The Lasky Fifarek & Hogan P.C. restaurant is one of only a few full-service restaurants in the area. THOMAS C. MANGIONE * Coordinated and directed two one-hour seminars on banking and finance to PRESIDENT & CHIEF OPERATING OFFICER inner-city youths at the 4th Annual African American Student Achievement Nevada Community Bancorp Limited Conference held at the University of Nevada, Las Vegas. GREGORY J. MCKINLEY * Hands-on mentoring as a financial consultant for the African American VICE PRESIDENT Student Ambassadors, a group of inner-city youth who excel in academics and Cragin & Pike, Inc. extracurricular activities. LELAND D. PACE * Two seminars on personal finance and banking at the 3rd Annual Community MANAGING PARTNER Economic Seminar, held at the Community College of Southern Nevada. Stewart, Archibald & Barney, LLP SMALLER BANK. BIGGER SERVICE(TM) JOSEPH D. REID III CORPORATE COUNSEL /s/ JAMES W. HOWARD Capitol Bancorp Limited JAMES W. HOWARD PRESIDENT [LOGO] JOSEPH D. SODERBERG PHYSICIAN Summit Anesthesiology STEPHEN D. STIVER PRESIDENT Stiver Car Care OFFICERS THOMAS C. MANGIONE CHAIRMAN OF THE BOARD MICHAEL J. DEVINE VICE CHAIRMAN CHARLES L. LASKY SECRETARY JAMES W. HOWARD PRESIDENT AL G. GOURRIER II EXECUTIVE VICE PRESIDENT & CHIEF CREDIT OFFICER RODNEY K. CHANEY SENIOR VICE PRESIDENT CHERYL A. FRICKER VICE PRESIDENT EILEEN S. HAGLER VICE PRESIDENT 13 BOARD OF DIRECTORS [PHOTO OF DETROIT COMMERCE BANK] Ralph J. Burrell DETROIT COMMERCE BANK PRESIDENT Symcon 645 Griswold, Suite 70 Detroit, MI 48226 ROBERT C. CARR 313.967.9700 EXECUTIVE VICE PRESIDENT & TREASURER www.detroitcommerce.com Capitol Bancorp Limited VIVIAN L. CARPENTER We view community service as a responsibility and the hallmark of our community PRESIDENT outreach efforts at Detroit Commerce Bank. Our location, in the heart of a large Atwater Entertainment Associates urban industrial city, provides numerous opportunities to participate in projects that have a significant impact on its citizens. A partial list includes DONALD M. DAVIS, JR. participation with the following organizations: VP HUMAN RESOURCES/SUPPORT SERVICES Health Alliance Plan * The One Stop Capital Shop (OSCS), a center developed by the Small Business Administration to provide assistance to small businesses located within BARBARA B. GATTORN low-to-moderate income areas of the city. The OSCS assists with the SENIOR ADVISOR TO THE PRESIDENT development of business plans, securing small business loans and counseling Detroit Regional Chamber by retired business executives. The program evolved from the City of Detroit's Empowerment Zone designation. DOUGLAS H. GRAHAM CHAIRMAN & CHIEF EXECUTIVE OFFICER * We offer a Senior Citizen Checking Account for individuals 62 years of age Detroit Technology Ventures, L.L.C. or older. JOHN HIRZEL * Partnership with the Detroit Area Council of Boy Scouts. CERTIFIED PUBLIC ACCOUNTANT Hirzel, Jackson and Swaine, P.C. * Staff participation through board affiliation with the Wayne Center, a nonprofit agency that assists the developmentally-disabled secure medical MARTHA K. RICHARDSON care and housing. PRESIDENT Services Marketing Specialists, Inc. * Participation in the Zoo Walk for the Michigan Humane Society. BEN SCHWEGMAN * Participation with Northeast Guidance Center, a mental health agency's PRESIDENT Adopt a Family Program. Schwegman & Associates, Inc. * Women's Caring Program, sponsor to provide medical care for children JAMES F. STAPLETON without health insurance. PRESIDENT B & R Consultants SMALLER BANK . . BETTER SERVICE . . . EXPERIENCE THE DIFFERENCE. LINDA A. WATTERS /s/ LINDA A. WATTERS PRESIDENT & CHIEF EXECUTIVE OFFICER LINDA A. WATTERS Detroit Commerce Bank [LOGO] PRESIDENT & CHIEF EXECUTIVE OFFICER NEAL ZALENKO CERTIFIED PUBLIC ACCOUNTANT & PRESIDENT Zalenko & Associates, P.C. OFFICERS ROBERT C. CARR CHAIRMAN OF THE BOARD DONALD M. DAVIS SECRETARY LINDA A. WATTERS PRESIDENT & CHIEF EXECUTIVE OFFICER BRADLEY C. BERRYMAN VICE PRESIDENT VALORA L. JACKSON VICE PRESIDENT 14 [PHOTO OF EAST VALLEY COMMUNITY BANK] BOARD OF DIRECTORS EAST VALLEY COMMUNITY BANK MICHAEL J. DEVINE ATTORNEY AT LAW 1940 North Alma School Road Chandler, AZ 85224 DAVID L. HEUERMANN 480.726.6500 PRESIDENT www.eastvalleybank.com Axis Mortgage & Investments, L.L.C. MICHAEL L. KASTEN Community bankers have a long history of providing community service. The MANAGING PARTNER officers and staff that make up the team at East Valley Community Bank are proud Kasten Investments, L.L.C. of their efforts to carry on this tradition. Our location offers us the unique opportunity to get involved with projects in several communities. Following is a DARRA L. RAYNDON recap of some of the programs we are currently involved in through board service PRESIDENT & PRINCIPAL and other volunteer efforts: Rayndon & Longfellow, P.C. * ICAN (Improving Chandler Area Neighborhoods) is a nonprofit organization GERRY J. SMITH founded to empower Chandler youth to become productive, self-confident, and PRESIDENT community-oriented citizens. Bank team members were able to enhance the East Valley Community Bank ICAN message by providing specialized on site financial classes geared toward individual age groups. JAMES C. STRATTON PRESIDENT & CHIEF EXECUTIVE OFFICER * East Valley Boys and Girls Club that serves several communities, including Boys & Girls Clubs of Scottsdale Gilbert, through a variety of innovative programs designed to assist youths struggling to find a place in society. JOSEPH A. TAMERON CERTIFIED PUBLIC ACCOUNTANT & PARTNER * Junior Achievement program in Chandler. In addition to the business aspects Skinner, Tameron & Company, LLP that are taught, the importance of becoming a good corporate citizen are emphasized. STEPHEN D. TODD EXECUTIVE VICE PRESIDENT * Tempe YMCA, which offers numerous activities for local area families. Sun Community Bancorp Limited The Bank is committed to staying involved in these projects, as well as looking for additional opportunities to make a difference in the communities we serve. OFFICERS IN A WORD . . . QUALITY MICHAEL L. KASTEN CHAIRMAN OF THE BOARD /s/ GERRY J. SMITH GERRY J. SMITH MICHAEL J. DEVINE PRESIDENT [LOGO] VICE CHAIRMAN JAMES C. STRATTON SECRETARY JOSEPH D. REID CHIEF EXECUTIVE OFFICER GERRY J. SMITH PRESIDENT DAVID D. FORTUNE EXECUTIVE VICE PRESIDENT & CHIEF CREDIT OFFICER J. DENNIS KENNEDY EXECUTIVE VICE PRESIDENT DAVID M. ANDERSON VICE PRESIDENT LAWRENCE NUSBAUM VICE PRESIDENT 15 BOARD OF DIRECTORS [PHOTO OF ELKHART COMMUNITY BANK] PAUL R. BALLARD ELKHART COMMUNITY BANK EXECUTIVE VICE PRESIDENT Capitol Bancorp Limited 303 South Third Street Elkhart, IN 46516 NANCY BANKS 574.295.9600 COMMUNITY VOLUNTEER www.elkhartbank.com R. STEVEN BENNETT Elkhart Community Bank focuses its business on developing relationships with its PRESIDENT clients and with the community as a whole. We are strong believers in giving Voyager Products, Inc. back to the City of Elkhart because we realize that ultimately, what is good for Elkhart is also good for the Bank. We have helped with the following: KENNETH W. BRINK TREASURER * Appointed a representative to participate on the board of Aurora Capital Hart Housing Group, Inc. Group which provides financing for small businesses. STEVEN L. BROWN * Supported the Elkhart Housing Partnership which benefits low and moderate PRESIDENT income families by promoting livable and stable neighborhoods and provides Elkhart Community Bank assistance for affordable housing. ROBERT C. CARR * Designated two representatives to participate in the 2010 Coalition which EXECUTIVE VICE PRESIDENT & TREASURER is a group of local business people and government officials acting as a Capitol Bancorp Limited steering committee toward the betterment and redevelopment of downtown Elkhart. ANDREW W. FRECH CHAIRMAN & CHIEF EXECUTIVE OFFICER * Provided free checking accounts to not-for-profit organizations. Ancon Construction Company, Inc. * Supported a representative of the Bank who is First Vice President and CURTIS T. HILL, JR. President Elect of the Mayor's Commission on the Elco Performing Arts ATTORNEY AT LAW Center. The Center operates Elkhart's theatre and is a major piece of the Elkhart County Prosecuting Attorney redevelopment of downtown Elkhart. RICHARD J. JENSEN * We were honored to be listed on the website of the Indiana Development REAL ESTATE/RETIRED Finance Authority as a contact bank for their Capital Access Program. RICHARD L. MAX, SR. PRESIDENT & GENERAL MANAGER ELKHART'S BANK. Heart City Enterprises House of Herbs /s/ STEVEN L. BROWN MYRL D. NOFZIGER STEVEN L. BROWN PRESIDENT [LOGO] PRESIDENT Hoogenboom Nofziger BRIAN J. SMITH PRESIDENT The Heritage Group OFFICERS ROBERT C. CARR CHAIRMAN OF THE BOARD & CHIEF EXECUTIVE OFFICER MYRL D. NOFZIGER VICE CHAIRMAN & SECRETARY STEVEN L. BROWN PRESIDENT 16 [PHOTO OF GOSHEN COMMUNITY BANK] BOARD OF DIRECTORS GOSHEN COMMUNITY BANK ROBERT C. CARR EXECUTIVE VICE PRESIDENT & TREASURER 511 West Lincoln Avenue Capitol Bancorp Limited Goshen, IN 46526 574.533.2006 DAVID L. CRIPE www.goshenbank.com DOCTOR OF OPTOMETRY/SENIOR PARTNER Drs. Cripe & Stephens Having the word "Community" in our name creates a responsibility to the citizens of our community. At Goshen Community Bank, we tell our clients and their CAROL M. EBERSOLE neighbors that we are investing in their future and their community. Our VP OF CORPORATE DEVELOPMENT employees and directors perform many services to further our relationships: Goshen Health System * The local United Way agency provides support to our community serving close STEPHEN L. FIDLER to 18,000 citizens a year from Goshen. Bank representatives serve on PRESIDENT fundraising, budget, and allocation committees. Kuert Concrete, Inc. * Employees teach classes for Junior Achievement to elementary children in CHRISTOPHER J. GRAFF Goshen. These classes introduce children to economics and the importance of PRESIDENT & CHAIRMAN business in our community. Marque, Inc. * LaCasa serves low-to-middle income individuals in our community. An RICHARD A. HETLER, JR. employee of the Bank is a member of the company's board of directors and a VP & GENERAL MANAGER loan committee that originates loans for first-home buyers. Indiana Wood Products, Inc. * The Bank supports events for the Goshen Interfaith Hospitality Network, GREGORY A. HOOGENBOOM Goshen Boys & Girls Club, American Cancer Society, and Riley's Children PRESIDENT Hospital. For a second year, the Bank helped sponsor the Women's Health Hoogenboom Masonry, Inc. Fair & Seminar (health screenings and information) and the YWCA's Salute to Women (gives awards to outstanding women in our community). DOUGLAS A. JOHNSTON PRESIDENT * Bank employees "adopted" a family designated by Child Abuse Prevention Goshen Community Bank Services. LARRY W. NEWSWANGER ENTREPRENEUR WE MAKE PEOPLE SMILE! MATTHEW J. PLETCHER /s/ DOUGLAS A. JOHNSTON PARTNER DOUGLAS A. JOHNSTON Whitcraft & Pletcher, LLP PRESIDENT [LOGO] FRED M. RAMSER ENTREPRENEUR DENNIS L. SORG PRESIDENT Sorg Dodge, Inc. DOUGLAS A. STANLEY DENTIST & OWNER Douglas A. Stanley, DDS OFFICERS ROBERT C. CARR CHAIRMAN & CHIEF EXECUTIVE OFFICER GREGORY A. HOOGENBOOM SECRETARY DOUGLAS A. JOHNSTON PRESIDENT CONNIE O. HORVATH VICE PRESIDENT LEAH L. STEVENS VICE PRESIDENT 17 BOARD OF DIRECTORS [PHOTO OF GRAND HAVEN BANK] PAUL R. BALLARD GRAND HAVEN BANK EXECUTIVE VICE PRESIDENT Capitol Bancorp Limited 333 Washington Avenue Grand Haven, MI 49417 STANLEY L. BOELKINS 616.846.1930 OWNER/APPRAISER www.grandhavenbank.com Boelkins & Associates At Grand Haven Bank, we take our responsibility as a community leader seriously. PETER E. BOLLINE We are proud of our ability to be flexible and extremely responsive in meeting OWNER the needs of our customers. Our commitment to building a strong, caring place to Wood Specialties Company live and work takes several forms: JOHN D. GROOTHUIS * Several Bank employees volunteer their time for the annual United Way "Day PRESIDENT & CHIEF EXECUTIVE OFFICER of Caring." Working in conjunction with the Prosecutor's office, the Grand Haven Bank employees assembled victim's packets for distribution throughout the county. MARK A. KLEIST ESQUIRE/TREASURER * Two Bank employees assisted at local elementary schools. Through Junior Scholten and Fant, P.C. Achievement, time volunteered was spent with 4th and 5th graders teaching various business concepts by way of discussion, role playing and game time. STEVEN L. MAAS VICE PRESIDENT * Assisted First Reformed Church in their purchase of adjacent real estate. Gillisse Construction Company Acquisition of the property allowed the church to expand its youth ministry outreach program. MICHAEL MCKEOUGH PRESIDENT * Construction of our new banking facility in Grand Haven represented the McKeough Land Company, Inc. most significant investment in our downtown in several years. The award winning design has promoted further development within our central business CALVIN D. MEEUSEN district. MANAGING PARTNER Calvin D. Meeusen, * Provided financing for the acquisition of a historical landmark building Certified Public Accountant near our downtown waterfront. Plans are in process to restore this 100+ year old building to its former glory. ROBERT J. TRAMERI CHAIRMAN EMERITUS * The Grand Haven Area Arts Council and The Salvation Army have been Paragon Bank & Trust recipients of the caring, personal involvement in key local events supported by the employees of the Bank. JOHN P. VAN EENENAAM ATTORNEY AT LAW Scholten and Fant, P.C. CARING THROUGH INVOLVEMENT. BERNARD J. WADE /s/ JOHN D. GROOTHUIS PRESIDENT JOHN D. GROOTHUIS Advanced Signs, Inc. [LOGO] PRESIDENT & CHIEF EXECUTIVE OFFICER GERALD A. WITHERELL PRESIDENT Oakes Agency, Inc. OFFICERS JOHN P. VAN EENENAAM CHAIRMAN OF THE BOARD PETER E. BOLLINE VICE CHAIRMAN CALVIN D. MEEUSEN SECRETARY JOHN D. GROOTHUIS PRESIDENT & CHIEF EXECUTIVE OFFICER SHERRY J. PATTERSON VICE PRESIDENT 18 [PHOTO OF KENT COMMERCE BANK] BOARD OF DIRECTORS KENT COMMERCE BANK JAMES M. BADALUCO VICE PRESIDENT 4050 Lake Drive SE S.J. Wisinski & Company Grand Rapids, MI 49546 616.974.0200 PAUL R. BALLARD www.kentcommerce.com EXECUTIVE VICE PRESIDENT Capitol Bancorp Limited At Kent Commerce Bank, we are constantly looking for ways to enhance our service to the community through products and services designed specifically to meet MICHAEL L. BRAUGHTON our customers' needs. We have: RETIRED VICE PRESIDENT/CHIEF FINANCIAL OFFICER Davenport Educational System * Produced the largest increase in SBA loans of ANY bank in West Michigan in order to assist local companies in starting or expanding their businesses. SHARON M. BUURSMA EXECUTIVE VICE PRESIDENT * Introduced an interest-bearing checking account for local nonprofit Spectrum Health organizations. KEVIN J. EINFELD * Partnered with the City of Kentwood, Michigan to jointly provide low-equity PRESIDENT financing to companies purchasing real estate, equipment or other major BDR, Inc. fixed assets. This enables businesses to obtain major project financing when they would otherwise be ineligible. GRANT J. GRUEL PARTNER * Developed a tuition assistance program for families with children in local Gruel, Mills, Nims, & Pylman private schools, whereby school tuition costs can be reduced by maintaining deposit and loan accounts at our Bank. GARY D. HENSCH CERTIFIED PUBLIC ACCOUNTANT Some of our Bank's promotional material contains the phrase, "Kent Commerce Bank Hensch & Bailey, - -paying a higher rate of attention." That's more than just a slogan, it's how we Certified Public Accountant, P.C. serve the needs of our community. TED HUDSON KENT COMMERCE BANK - PAYING A HIGHER RATE OF ATTENTION. OWNER Prestige Property, Inc. /s/ DAVID E. VEEN DAVID E. VEEN HAROLD A. MARKS PRESIDENT & CHIEF EXECUTIVE OFFICER [LOGO] PARTNER Prangley Marks LLP CALVIN D. MEEUSEN MANAGING PARTNER Calvin D. Meeusen, Certified Public Accountant VALERIE R. OVERHEUL PRESIDENT AND CHIEF EXECUTIVE OFFICER Summit Training Source, Inc. MARY L. URSUL VICE PRESIDENT Professionals Direct, Inc. DAVID E. VEEN PRESIDENT & CHIEF EXECUTIVE OFFICER Kent Commerce Bank MICHAEL C. WALTON ATTORNEY AT LAW Rhoades, McKee, Boer, Goodrich & Titta OFFICERS MICHAEL C. WALTON CHAIRMAN OF THE BOARD PAUL R. BALLARD VICE CHAIRMAN KEVIN J. EINFELD SECRETARY DAVID E. VEEN PRESIDENT & CHIEF EXECUTIVE OFFICER WILLIAM H. YOUNG SENIOR VICE PRESIDENT SANDRA L. BLOEM VICE PRESIDENT MICHAEL P. BOELENS VICE PRESIDENT JOHN J. CODER VICE PRESIDENT THOMAS J. KIM VICE PRESIDENT 19 BOARD OF DIRECTORS [PHOTO OF MACOMB COMMUNITY BANK] ROBERT C. CARR MACOMB COMMUNITY BANK EXECUTIVE VICE PRESIDENT & TREASURER Capitol Bancorp Limited 16000 Hall Road, Suite 102 Clinton Township, MI 48038 TIMOTHY J. CUTTLE 586.228.1600 PRESIDENT & CHIEF EXECUTIVE OFFICER www.macombcommunity.com Macomb Community Bank Every bank has the responsibility to support the community it serves. As a CHRISTINA D'ALESSANDRO community bank, Macomb Community Bank takes this responsibility very seriously. VICE PRESIDENT We support several community-based organizations and individuals in a variety Villa Custom Homes of ways. It's important that we help others, help those in need. Our Directors and employees are committed to this vision. We would like to share some examples RONALD G. FORSTER of our more recent efforts: TREASURER Arkay Manufacturing, Inc. * Provided financial support to the Mt. Clemens General Hospital Foundation and the Macomb County Osteopathic Society. The Foundation and the JAMES R. KAYE Osteopathic Society help support the financial needs of Mount Clemens PRESIDENT & CHIEF EXECUTIVE OFFICER General Hospital, a primary care hospital here in Macomb County. Oakland Commerce Bank * Our staff supported the March of Dimes by accepting contributions from many DAVID F. KEOWN of our customers on their behalf during the holiday season. BUILDING OFFICIAL Washington Township * Participated in the "Toys for Tots" program sponsored by the United States Marine Corps. DELIA RENDON MARTIN CO-OWNER * Provided financial support for the second annual "Clinton Township Martin Enterprises Community Blood Drive." These funds were used to support the various local activities of the American Red Cross in our community. VITO MUNACO OWNER/OPERATOR * Turning Point, which supports programs to assist abused women and children WEMCO in Macomb County, benefitted from the sales of raffle tickets offering prizes donated by our Bank. OFFICERS * An area physician donates services to patients in need of reconstructive ROBERT C. CARR surgery. The Bank served as a resource and accepted public donations to CHAIRMAN OF THE BOARD underwrite the costs associated with medical procedures for individuals without insurance. RONALD G. FORSTER VICE CHAIRMAN WE PUT THE COMMUNITY BACK IN BANKING. CHRISTINA D'ALESSANDRO /s/ TIMOTHY J. CUTTLE SECRETARY TIMOTHY J. CUTTLE [LOGO] PRESIDENT & CHIEF EXECUTIVE OFFICER TIMOTHY J. CUTTLE PRESIDENT & CHIEF EXECUTIVE OFFICER KENNETH E. BRYANT VICE PRESIDENT KENNETH O. FLYNN VICE PRESIDENT 20 [PHOTO OF MESA BANK] BOARD OF DIRECTORS MESA BANK NEIL R. BARNA PRESIDENT & CHIEF EXECUTIVE OFFICER 63 East Main, Suite 100 Mesa Bank Mesa, AZ 85201 480.649.5100 MICHAEL J. DEVINE www.mesabankers.com ATTORNEY AT LAW DEBRA L. DUVALL Mesa Bank has grown and prospered because the community has recognized the value SUPERINTENDENT of a financial institution with local management, local decision making and a Mesa Public Schools strong board of directors. It is important that we give back to our community, accepting the challenge through participation in many local civic activities BRIAN K. ENGLISH such as Rotary, United Way and Junior Achievement. Mesa Bank also provides GENERAL COUNSEL support for other programs, by: Capitol Bancorp Limited * Sponsoring the City of Mesa "Business Speaks", a program hosted by the ROBERT R. EVANS, SR. Chamber of Commerce, which focuses on the long-term economic development of PARTNER our community. Evans Management Company * Serving on the citizen's committee to update Mesa Public Schools' long-term STEWART A. HOGUE strategic plan. PRINCIPAL Salk Management L.L.C. * Funding nearly 150 residential loans throughout the county, including a unique modular-home construction program targeting moderate-income MICHAEL L. KASTEN families. MANAGING PARTNER Kasten Investments, L.L.C. * Serving as an instructor in the local Junior Achievement chapter, supporting concepts and skills that encourage continued education. PHILIP S. KELLIS PARTNER * Participating in the organization of the Dwight Patterson Sports Academy Dobson Ranch Inn which supports the development of youth sports programs. RUTH L. NESBITT * Serving on the Mesa Family YMCA Capital Campaign Committee, which raised MESA COMMUNITY VOLUNTEER funds for the renovation of a fifty year-old facility; also, WAYNE C. POMEROY * Mesa Bank provides no-service-fee checking accounts to all registered OWNER nonprofit agencies in addition to contributing to the Mesa United Way, Pomeroy's Men's Stores United Food Bank and the Mesa Safety Foundation through charitable giving programs. JAMES A. SCHMIDT EXECUTIVE DIRECTOR We recognize the value in service to our community. Nelson Lambson & Company, PLC BANKING - WITH A HUMAN TOUCH. DANIEL P. SKINNER OWNER & MANAGER /s/ NEIL R. BARNA Lebaron & Carroll LSI, Inc. NEIL R. BARNA PRESIDENT & CHIEF EXECUTIVE OFFICER [LOGO] TERRY D. TURK PRESIDENT Sun American Mortgage Company JAMES K. ZAHARIS PRINCIPAL The Zaharis Group OFFICERS ROBERT R. EVANS, SR. CHAIRMAN OF THE BOARD MICHAEL L. KASTEN VICE CHAIRMAN NEIL R. BARNA PRESIDENT & CHIEF EXECUTIVE OFFICER DAVID D. FORTUNE EXECUTIVE VICE PRESIDENT, CHIEF CREDIT OFFICER & SECRETARY STEPHEN P. HAGGARD VICE PRESIDENT DANIEL R. LAUX VICE PRESIDENT STEVEN R. MITCHELL VICE PRESIDENT SANDRA S. ZAZULA VICE PRESIDENT 21 BOARD OF DIRECTORS [PHOTO OF MUSKEGON COMMERCE BANK] RICK E. AMIDON MUSKEGON COMMERCE BANK PRESIDENT Baker College of Muskegon 255 Seminole Road Muskegon, MI 49444 PHILIP J. ANDRIE 231.737.4431 PRESIDENT www.muskegoncommerce.com Andrie, Inc. In an era when banks are considered to be too big and too impersonal to be PAUL R. BALLARD customer friendly, Muskegon Commerce Bank consistently finds new ways to EXECUTIVE VICE PRESIDENT distinguish itself in the community. In addition to serving on numerous Capitol Bancorp Limited nonprofit boards and volunteering hundreds of hours of employees' time, we have earned our reputation as a community-oriented bank by: WILLIAM C. COOPER PRESIDENT * Establishing an "in-school bank" for a local inner-city elementary school Omni Fitness Club where children learn the basics of banking and the discipline of saving money. For the past four years we have trained sixth grade students to be THOMS F. DEVOURSNEY "tellers" and assisted them as they processed deposits from their fellow PRESIDENT students. Collectively we've helped over 500 students learn how to save Shape Corporation money. EDGAR W. HUNT * Originating over $10 million in SBA 504 loans that assisted the financial RETIRED - FORMER PRESIDENT needs of several "non-conforming" customers and resulted in having Senior First of America Bank- Muskegon Vice President, David Seppala, named as West Michigan SBA Lender of the Year for 2001. These loans helped create over 200 new jobs in our CHRISTOPHER L. KELLY community. SHAREHOLDER Parmenter O'Toole, P.C. * Having several of our directors actively involved in major fundraisers that raise approximately $300,000 annually for Muskegon Catholic Central DANIEL KUZNAR Schools. OWNER Quality Tool & Stamping Company, Inc. Together our employees, officers, and directors are proud to serve our customers and we're gratified to know that our hard work benefits so many people in our ROBERT J. MCCARTHY community. PRESIDENT & CHIEF EXECUTIVE OFFICER Muskegon Commerce Bank BANKING ON OUR COMMUNITY... CHRIS ANN MCGUIGAN /s/ ROBERT J. MCCARTHY PRESIDENT & CHIEF EXECUTIVE OFFICER ROBERT J. MCCARTHY Community Foundation for Muskegon County [LOGO] PRESIDENT & CHIEF EXECUTIVE OFFICER DAVID W. SEPPALA SENIOR VICE PRESIDENT Muskegon Commerce Bank JAMES STANFORD TYLER PRESIDENT Tyler Sales Company, Inc. OFFICERS EDGAR W. HUNT CHAIRMAN OF THE BOARD JAMES S. TYLER VICE CHAIRMAN ROBERT J. MCCARTHY PRESIDENT, CHIEF EXECUTIVE OFFICER & SECRETARY DAVID W. SEPPALA SENIOR VICE PRESIDENT DAVID A. CHRISTOPHER VICE PRESIDENT TERRI K. SWARTS VICE PRESIDENT 22 [PHOTO OF OAKLAND COMMERCE BANK] BOARD OF DIRECTORS OAKLAND COMMERCE BANK MARK A. AIELLO ATTORNEY AT LAW 31731 Northwestern Highway Foley & Lardner Farmington Hills, MI 48334 248.855.0550 DONALD A. BOSCO www.oaklandcommerce.com PRESIDENT Donald A. Bosco Building, Inc. At Oakland Commerce Bank, our commitment to serve customers goes beyond the walls of our bank and extends into the community where we live. We feel that our ROBERT C. CARR involvement with the people and businesses of Farmington Hills and its EXECUTIVE VICE PRESIDENT & TREASURER surrounding neighborhoods strengthens not only the economic framework of our Capitol Bancorp Limited community, but offers an opportunity to strengthen our overall quality of life. MARK B. CHURELLA A few of the programs we have supported are: PRESIDENT & CHIEF EXECUTIVE OFFICER FDI Group * Construction/permanent financing for a new pediatric care center. LEON S. COHAN * Seminars for the employees of some of our local business customers. These COUNSEL TO THE FIRM classes outlined special financing programs that encourage home ownership. Barris, Scott, Denn & Driker * A mentoring program with the local high school which provided students a MICHAEL J. DEVINE look at how a bank works, the ultimate goal providing insight into banking ATTORNEY AT LAW as a career. JEFFREY L. HAUSWIRTH * Constructing loans which would ultimately refurbish and remodel some small CERTIFIED PUBLIC ACCOUNTANT, CVA & PRINCIPAL businesses in Detroit targeted primarily as job opportunities for Jenkins, Magnus, Volk & Carroll, P.C. low-to-moderate income families. JAMES R. KAYE * The Judson Center. This facility provides food, clothing and residential PRESIDENT & CHIEF EXECUTIVE OFFICER facilities to area families in need. Oakland Commerce Bank * International business support programs. Oakland Commerce sponsored IHOR J. KUCZER representatives of foreign businesses visiting the region who are actively SENIOR VICE PRESIDENT & SECRETARY looking to invest in our community. The new businesses are interested in a Oakland Commerce Bank competitive job market with a stable workforce. Additional lending opportunities and new job offerings in this area will offer the best DAVID F. LAU solution for helping people help themselves. CHARTERED FINANCIAL CONSULTANT & OWNER Lau & Lau Associates, L.L.C. OAKLAND COMMERCE BANK . . . JEFFREY M. LEIB OFFERING DIVERSE LENDING SOLUTIONS FOR OUR COMMUNITY. ATTORNEY AT LAW & PRESIDENT Leib, Leib & Kramer /s/ JAMES R. KAYE JAMES R. KAYE AKRAM NAMOU PRESIDENT & CHIEF EXECUTIVE OFFICER [LOGO] CERTIFIED PUBLIC ACCOUNTANT JULIUS L. PALLONE PRESIDENT J.L. Pallone Associates FRANCINE PEGUES REGIONAL SALES DIRECTOR Blue Cross Blue Shield of Mich, SE Regio OFFICERS MICHAEL J. DEVINE CHAIRMAN OF THE BOARD ROBERT C. CARR VICE CHAIRMAN JAMES R. KAYE PRESIDENT & CHIEF EXECUTIVE OFFICER IHOR J. KUCZER SENIOR VICE PRESIDENT & SECRETARY NICOLET B. CASSIDY VICE PRESIDENT JAMES F. MILLER VICE PRESIDENT THOMAS K. PERKINS VICE PRESIDENT 23 BOARD OF DIRECTORS [PHOTO OF PARAGON BANK & TRUST] PAUL R. BALLARD PARAGON BANK & TRUST EXECUTIVE VICE PRESIDENT Capitol Bancorp Limited 301 Hoover Boulevard Holland, MI 49423 ROBERT J. BATES 616.394.9600 PHYSICIAN www.paragonbank.com Western Michigan Urological Assoc. P.C. At Paragon Bank & Trust, it is not enough to meet the banking needs of our CHARLES A. BROWER customers. We also are dedicated to meeting the needs of our community through CERTIFIED PUBLIC ACCOUNTANT & PARTNER providing financial services, advice and time to people in need: DeLong & Brower, P.C. * Two of our employees prepare tax returns free-of-charge for those who are SCOTT DIEPENHORST unable to complete the appropriate yearly filings. PRINCIPAL SD & Associates, Inc. * All of the officers of the Bank are serving the community through many nonprofit causes such as Community Action House, Latin Americans United for PAUL ELZINGA Progress, United Way and The Holland Rescue Mission. We also organized a CHAIRMAN & DIRECTOR OF BUSINESS DEVELOPMENT team of Bank employees to take part in a Walk-a-Thon to benefit the Elzinga & Volkers, Inc. Juvenile Diabetes Foundation. JOHN D. GROOTHUIS * The Bank has also supported charitable organizations like the Good PRESIDENT & CHIEF EXECUTIVE OFFICER Samaritan Center to provide temporary housing to the homeless, and provided Grand Haven Bank counseling to those in the program that seek employment in the Holland Area. JEFFREY K. HELDER ATTORNEY AT LAW * We provided loans, financial support and expertise to the Children's Cunningham Dalman, P.C. Assessment Center, a nonprofit corporation that facilitates a multidisciplinary approach when treating patients who have experienced LAWRENCE D. KERKSTRA abusive situations. PRESIDENT & CHIEF EXECUTIVE OFFICER Kerkstra Precast, Inc. Loans and deposits are important to the Bank, but giving back to the community a full measure of personal commitment solidifies Paragon Bank & Trust as your full SCOTT G. KLING service community bank. PRESIDENT & CHIEF EXECUTIVE OFFICER Paragon Bank & Trust PROVIDING EXCELLENCE IN RELATIONSHIP BANKING. LEONARD MAAS /s/ SCOTT R. KLING /s/ RANDALL R. SMITH PRESIDENT SCOTT R. KLING RANDALL R. SMITH Gillisse Construction Company PRESIDENT & CHIEF EXECUTIVE OFFICER CHIEF OPERATING OFFICER [LOGO] MITCHELL W. PADNOS EXECUTIVE VICE PRESIDENT Louis Padnos Iron & Metal Company HENRI PATERSON ASSOCIATE BROKER/PARTNER Woodland Realty, Inc. RICHARD H. RUCH DIRECTOR EMERITUS RICHARD G. SWANEY ATTORNEY AT LAW Swaney & Thomas, P.C. ROBERT J. TRAMERI CHAIRMAN EMERITUS Paragon Bank & Trust OFFICERS RICHARD G. SWANEY CHAIRMAN OF THE BOARD ROBERT J. BATES VICE CHAIRMAN AND SECRETARY SCOTT G. KLING PRESIDENT & CHIEF EXECUTIVE OFFICER RANDALL R. SMITH CHIEF OPERATING OFFICER ERIC J. HOOGSTRA SENIOR VICE PRESIDENT MARK D. HOFMEYER SENIOR VICE PRESIDENT JANE RIEMERSMA VICE PRESIDENT DEAN R. WEERSTRA VICE PRESIDENT 24 [PHOTO OF PORTAGE COMMERCE BANK] BOARD OF DIRECTORS PORTAGE COMMERCE BANK PAUL R. BALLARD EXECUTIVE VICE PRESIDENT 800 East Milham Road Capitol Bancorp Limited Portage, MI 49002 616.323.2200 DAVID L. BECKER www.portagecommerce.com DIRECTOR Becker Insurance Agency, P.C. Portage Commerce Bank and its employees meet the needs of the community we call THOMAS R. BERGLUND "home." Our commitment goes far beyond the daily activities conducted at the PHYSICIAN Bank, to searching for ways in which we can contribute to the well-being of our Portage Physicians community as a whole. Examples of our efforts include: ROBERT B. BORSOS * A specially designed lease-to-purchase program to encourage investor ATTORNEY & SHAREHOLDER acquisition of 15 homes throughout Kalamazoo County. The goal is to enable Kreis, Enderle, Callander & Hudgins,P.C. tenants to acquire properties through conventional financing and realize the dream of home ownership. JOHN M. BRINK CERTIFIED PUBLIC ACCOUNTANT * Providing service charge-free accounts to nonprofit organizations so that Brink, Key & Chludzinski, P.C. the funds they raise may be exclusively dedicated to their missions. PATRICIA E. DOLAN * Loaning significant funds to four local churches who have used the money to COMMUNITY VOLUNTEER either expand their worship facilities or create additional space for area youth group activities. ALAN A. HALPERN PHYSICIAN * Actively participating and contributing to events that help others and Michigan Orthopedic Surgery & enrich the lives of those in our community. These include record support Rehabilitation, P.C. from our employees for the United Way, and sponsorships such as our City's Summer Shakespeare Festival, an international keyboard festival, and a ROBERT L. JOHNSON Challenger Little League team for mentally and physically disabled RETIRED SECRETARY & TREASURER children. Medallion Porperities, Inc. WE APPRECIATE THE OPPORTUNITY TO SERVE OUR COMMUNITY. MICHAEL L. KASTEN MANAGING PARTNER /s/ DENNIS J. KUHN Kasten Investments, L.L.C. DENNIS J. KUHN PRESIDENT & CHIEF EXECUTIVE OFFICER [LOGO] DENNIS J. KUHN PRESIDENT & CHIEF EXECUTIVE OFFICER Portage Commerce Bank PAUL M. LANE PROFESSOR OF MARKETING Seidman School of Business Grand Valley State University WILLIAM J. LONGJOHN RETIRED VICE PRESIDENT Midwest Business Exchange JOHN W. MARTENS CERTIFIED PUBLIC ACCOUNTANT RUSSELL M. RATHBURN PRESIDENT & OWNER Rathco Safety Supply, Inc. OFFICERS MICHAEL L. KASTEN CHAIRMAN OF THE BOARD WILLIAM J. LONGJOHN VICE CHAIRMAN & SECRETARY DENNIS J. KUHN PRESIDENT & CHIEF EXECUTIVE OFFICER ALLAN T. REIFF SENIOR VICE PRESIDENT KENNETH R. BLOUGH VICE PRESIDENT ROY L. DANGEL, JR. VICE PRESIDENT KIMBERLEE M. FERRIS VICE PRESIDENT CHERYL M. GERMAIN VICE PRESIDENT AND CASHIER ALBERT C. GRANT VICE PRESIDENT JAMES V. LUNARDE VICE PRESIDENT BETH A. WRIGHT VICE PRESIDENT 25 BOARD OF DIRECTORS [PHOTO OF RED ROCK COMMUNITY BANK] ERIC L. COLVIN RED ROCK COMMUNITY BANK SECRETARY & TREASURER Marnell Corrao Association, Inc. 10000 West Charleston, Suite 100 Las Vegas, NV 89135 MICHAEL J. DEVINE 702.948.7500 ATTORNEY AT LAW www.redrockcommunity.com MOLLY K. HAMRICK As a corporate partner of the Summerlin community and the Las Vegas Valley as a VICE PRESIDENT & CHIEF FINANCIAL OFFICER whole, it has become part of our mission to touch people's lives in many ways. Coldwell Banker Premier Realty Part of our success is measured by our response to our customers, which includes creating new ways to interact with them. PHILIP G. HARDY, JR. VICE PRESIDENT Our commitment to community service is one of the best ways for us to Hardy Painting & Drywall communicate our core values. Time honored values of personal service, honesty, trustworthiness and treating others with respect and integrity are inherent in JAMES A. HARRIS our banking philosophy. It's this commitment that has Red Rock Community Bank VICE PRESIDENT active in the affairs of the following events and organizations: Brown & Brown Insurance * Annual Red Rock National Recreation Area Clean-up. Our involvement in this KATHRYN D. JUSTYN effort helps preserve the natural setting of the RRNRA so that it can be CHIEF EXECUTIVE OFFICER enjoyed by future generations. Summerlin Hospital * Summerlin Turkey Trot. For the past two years, we've sponsored this KEITH W. LANGLANDS Thanksgiving time event to help raise funds for The Ronald McDonald House PARTNER charities. Langlands and Anaya Limited * Financial contributions. This past year, in conjunction with our Board of CHARLES L. LASKY Directors, the Bank made financial contributions to some of Southern PRESIDENT Nevada's worthiest causes like American Red Cross, Women's Development Lasky Fifarek & Hogan P.C. Center, Boy Scouts of America, Big Brothers Big Sisters, and Candlelighters for Childhood Cancer. STEVEN E. MALLORY PRESIDENT Now more than ever, we need to foster personal connections and relationships Red Rock Community Bank with our customers outside the traditional roles of banking. It's this focus, and our service to the Summerlin community, that sets us apart as a bank that THOMAS C. MANGIONE lives its mission and builds its brand - one relationship at a time. PRESIDENT & CHIEF OPERATING OFFICER Nevada Community Bancorp Limited PART OF THE SUMMERLIN LANDSCAPE. JIM MOORE /s/ STEVEN E. MALLORY CHIEF EXECUTIVE OFFICER STEVEN E. MALLORY The Developers of Nevada [LOGO] PRESIDENT JOSEPH D. REID III CORPORATE COUNSEL Capitol Bancorp Limited JOHN STUART PRESIDENT Tartan Consultants, Ltd. JOHN CHRISTOPHER STUHMER CHIEF EXECUTIVE OFFICER Christopher Homes FREDERICK P. WAID PRINCIPAL SBG Group L.L.C. OFFICERS THOMAS C. MAGIONE CHAIRMAN OF THE BOARD CHARLES L. LASKY SECRETARY STEVEN E. MALLORY PRESIDENT JAMES F. WOJEWODKA EXECUTIVE VICE PRESIDENT & CHIEF CREDIT OFFICER MARY E. DAVIS SENIOR VICE PRESIDENT SHAHZAD ALI SENIOR VICE PRESIDENT MICHAEL R. BEAL VICE PRESIDENT SUSAN E. DALEIDEN VICE PRESIDENT SARAH S. GUINDY VICE PRESIDENT JOEY E. JOHNSON VICE PRESIDENT BRENT D. KAMERATH VICE PRESIDENT 26 [PHOTO OF SOUTHERN ARIZONA COMMUNITY BANK] BOARD OF DIRECTORS SOUTHERN ARIZONA COMMUNITY BANK WILLIAM R. ASSENMACHER PRESIDENT 6400 North Oracle Road T.A. Caid Industries, Inc. Tucson, AZ 85704 520.219.5000 JODY A. COMSTOCK, M.D. www.southernarizonabank.com PHYSICIAN & OWNER Skin Spectrum Community banking is a tried and true concept. Why return to banking the "old" way? Because our customers want a connection to their bank's president, officers MICHAEL J. DEVINE and staff. We at Southern Arizona Community Bank partner with our customers. We ATTORNEY AT LAW help them grow their businesses. Ultimately, they employ more people and use local suppliers and contractors as they expand. We make our resources available ROBERT A. ELLIOTT to nonprofits, minority businesses and individuals. Examples of Southern Arizona PRESIDENT & OWNER Community Bank's commitment to community are varied. We: The Elliott Accounting Group * Provided the financial resources necessary for a local company to assist in BRIAN K. ENGLISH the renovation of the Pentagon following the September 11, 2001 terrorist GENERAL COUNSEL attack. Capitol Bancorp Limited * Participated in a 90+ unit residential development in Tucson's inner city. MICHAEL L. KASTEN We collaborated with a local developer and a utility company to fund MANAGING PARTNER energy-efficient housing and help revitalize downtown Tucson. Kasten Investments, L.L.C. * Allocated financial resources necessary for a minority-owned engineering YORAM LEVY firm to assist in its continued growth and expansion into Yuma and Phoenix. PROJECT MANAGER Diamond Ventures, Inc. * Developed and delivered a financial education program for new medical residents enrolling in the University of Arizona internship program. JOHN P. LEWIS PRESIDENT Additionally, our bank officers contribute their time and expertise to several Southern Arizona Community Bank worthwhile nonprofits. Those organizations benefiting from their personal time include: the Tucson YMCA Youth Foundation; One-on-One Partners, a nonprofit JIM LIVENGOOD organization whose mission includes mentoring youth; and, The Pima Community DIRECTOR OF ATHLETICS College Entrepreneur Program, an intensive 12-week training for owners of small University of Arizona to medium-sized businesses. Southern Arizona Community Bank continues to operate the old-fashioned way--with genuine, in-person banking. JAMES A. MATHER C.P.A. & ATTORNEY AT LAW EVERYTHING OLD IS NEW AGAIN. MORGAN NORTH /s/ JOHN P. LEWIS PRESIDENT & OWNER JOHN P. LEWIS Borderland Construction Company, Inc. PRESIDENT [LOGO] JAMES SAKRISON PRINCIPAL Slutes, Sakrison, & Hill, P.C. PAUL A. ZUCARELLI PRESIDENT Gordon, Zucarelli & Handley Insurance OFFICERS PAUL A. ZUCARELLI CHAIRMAN OF THE BOARD MICHAEL L. KASTEN VICE CHAIRMAN ROBERT A. ELLIOT SECRETARY JOSEPH D. REID CHIEF EXECUTIVE OFFICER JOHN P. LEWIS PRESIDENT MICHAEL J. TRUEBA EXECUTIVE VICE PRESIDENT & CHIEF CREDIT OFFICER TERESA R. GOMEZ VICE PRESIDENT JEAN M. GRIFFIN-GETEK VICE PRESIDENT MINDY C. WEBB VICE PRESIDENT 27 BOARD OF DIRECTORS [PHOTO OF SUNRISE BANK OF ALBUQUERQUE] FREDERICK D. BERNSON SUNRISE BANK OF ALBUQUERQUE PRESIDENT Sunrise Bank of Albuquerque 225 Gold SW Albuquerque, NM 87102 STEVE BLACK 505.243.3388 PRESIDENT, CALIFORNIA REGION www.sunrisebankofalbuquerque.com Sunrise Capital Corporation At Sunrise Bank of Albuquerque, becoming part of the community and working to TURNER W. BRANCH improve banking services to small businesses and working professionals, was part Branch Law Firm, P.A. of our mission when we were formed two years ago. This dedication to community involvement and superior service continues today. We: DAVID J. DANIEL EXECUTIVE VICE PRESIDENT * Selected a downtown Albuquerque location in 1999 and invested in Sunrise Bank of Albuquerque improvements at a time when a major revitalization of historic downtown Albuquerque was just beginning. As the only Bank located in the downtown HELEN ELLIOTT redevelopment district, we have become part of a significant renovation CERTIFIED PUBLIC ACCOUNTANT process that now includes a new 14-screen theater and a major new Helen Elliott & Associates P.C. transportation center within a two-block radius. E. GARY FICHTNER * Actively participate in the development of the arts scene in downtown Esthetic Dental Arts, Inc. Albuquerque through Magnifico!, Albuquerque's designated arts organization. DONALD E. FRY * At the request of our physically-challenged customers, provided a loan to UNM-School of Medicine the only technician in Albuquerque who provides equipment to, and services, their special equipment needs when Medicare payments are delayed. WILLIAM D. HINZ, II PRESIDENT * Have an employee that spends her winter weekends in the Adaptive Ski Sunrise Bank of Arizona Program to provide free skiing instruction for disabled adults and children. JOHN R. LEWINGER CHIEF EXECUTIVE OFFICER * Operate as a resource to individuals and couples through the Credit Women's Grubb & Ellis/Lewinger Hamilton Professionals organization. At an individual's request, we instruct them in how to obtain loans and further understand loan transactions. We often RANDY E. WHITEHEAD attend their closings. PRESIDENT New Mexico Coffee Company SMALLER BANK. BIGGER SERVICE.(TM) /s/ FREDERICK D. BERNSON OFFICERS FREDERICK D. BERNSON [LOGO] PRESIDENT JOSEPH D. REID CHAIRMAN WILLIAM D. HINZ, II CHIEF EXECUTIVE OFFICER FREDERICK D. BERNSON PRESIDENT DAVID J. DANIEL EXECUTIVE VICE PRESIDENT, SECRETARY & CHIEF CREDIT OFFICER CONNI L. JONES VICE PRESIDENT & OPERATIONS MANAGER JOAN ARCHIBEQUE VICE PRESIDENT 28 [PHOTO OF SUNRISE BANK OF ARIZONA] BOARD OF DIRECTORS SUNRISE BANK OF ARIZONA SANDY A. ABALOS PRESIDENT 4350 East Camelback Road, Suite 100A Abalos & Associates, P.C. Phoenix, AZ 85018 602.956.6250 MICHAEL R. ALLEN www.sunrisebankofarizona.com PRESIDENT Sureway Properties At Sunrise Bank of Arizona, giving back to the community is important to us; thus we make active involvement our priority. We are proud to be an integral JAMES P. DEW part of our community. We have committed to it in the following ways: PRESIDENT Dew Wealth Management * The Bank is proud to have been the number one SBA 504 lender in Arizona. Twenty 504 loans totaling more than $16 million were made, which created or MICHAEL J. DEVINE retained 295 jobs. ATTORNEY AT LAW * We adopted the Arcadia neighborhood and sponsored numerous events for the BRIAN K. ENGLISH families who live there. Three Bank employees participated in the Arcadia GENERAL COUNSEL Pride Golf Tournament and one employee became treasurer of the Arcadia Capitol Bancorp Limited Little League. HOWARD J. HICKEY III * We donated Arizona Diamondback tickets to charities including Kivel Care, EXECUTIVE VICE PRESIDENT Esperanca, and Golden Gate Community Center. These organizations raffled Sunrise Bank of Arizona them off at their annual charity events to raise money to support their causes. WILLIAM D. HINZ, II PRESIDENT * Several Bank employees were active supporters of the Metropolitan Phoenix Sunrise Bank of Arizona Boys and Girls Club programs. In addition to serving on their Executive Council, Bank employees participated in the Shopping for Kids program, a MICHAEL L. KASTEN golf tournament, and a wine tasting fundraising event. MANAGING PARTNER Kasten Investments, L.L.C. * Ten Bank employees competed as a team in "Brokers for Kids," an annual Olympiad competition organized by the local real estate community. Events KEVIN B. KINERK included volleyball, basketball, horseshoes, and bocci ball. All of the EXECUTIVE VICE PRESIDENT money raised went to support numerous children's charities in the valley. Sunrise Bank of Arizona * The bank was recognized "SBA Lender of the Year" and "Bank of the Year" by GERALD D. PAQUETTE Ranking Arizona. Recipients of this prestigious award are chosen by local PARTNER/LABORER citizens based upon their contributions to the community. Caliber Construction, Inc. BRINGING THE RELATIONSHIP BACK TO BANKING JOSEPH D. REID CHAIRMAN & CHIEF EXECUTIVE OFFICER /s/ WILLIAM D. HINZ, II Capitol Bancorp Limited WILLIAM D. HINZ, II Sun Community Bancorp PRESIDENT [LOGO] MARK STEIG ORTHODONTIST Mark Steig, DDS, MS MEYER TURKEN PRESIDENT Turken Industrial Properties OFFICERS JOSEPH D. REID CHAIRMAN & CHIEF EXECUTIVE OFFICER MICHAEL L. KASTEN VICE CHAIRMAN WILLIAM D. HINZ, II PRESIDENT HOWARD J. HICKEY, III EXECUTIVE VICE PRESIDENT & SECRETARY KEVIN B. KINERK EXECUTIVE VICE PRESIDENT DOUGLAS N. REYNOLDS VICE PRESIDENT & CHIEF CREDIT OFFICER MARIAN B. CREEL VICE PRESIDENT JAMES A. SELLICK VICE PRESIDENT 29 BOARD OF DIRECTORS [PHOTO OF SUNRISE BANK OF SAN DIEGO] RICHARD A. BYER SUNRISE BANK OF SAN DIEGO PRESIDENT Bycor General Contractor 4570 Executive Drive, Suite 110 San Diego, CA 92121 CRAIG V. CASTANOS 858.625.9050 OWNER www.sunrisebanksandiego.com Craig V. Castanos, Certified Public Accountant At Sunrise Bank there is a well recognized slogan that is promoted throughout the Bank - "STAY THE COURSE." The "course" is our day-to-day attitude and RANDALL S. CUNDIFF actions that contribute to the primary goal of providing unparalleled service to PRESIDENT our community. Sunrise Bank of San Diego In 2001 we: LESLIE JANE HAHN PARTNER * Were honored as the year's "EMERGING SMALL BUSINESS 504 LENDER(TM)," San Hahn & Burnett, AP.C. Diego District Office for our exemplary service in Small Business Lending and Community Development. WILLIAM D. HINZ, II PRESIDENT * Provided SBA financing for a minority, female dentist to expand her Sunrise Bank of Arizona practice and provide services into a low-income area. JOHN S. LEWIS * Provided financing for a local plastic surgeon, who donates substantial PRESIDENT time and money performing cleft pallet and burn reconstruction surgery in Sun Community Bancorp Limited Tijuana, Mexico. TOBY T. MACFARLANE Officers and employees of the Bank participated in: SENIOR VICE PRESIDENT United Title Company * Boys and Girls Club of San Dieguito's annual "Bucks for Boys and Girls" and helped raise over $140,000 to sponsor youth activities. ROBERT J. MATKOVICH Robert J. Matkovich, DDS, Inc. * "Light the Night" annual walkathon fund-raiser to fight leukemia and lymphoma cancers. JOHN F. MCCOLL MANAGING DIRECTOR * The After School Tennis program as part of Volunteer San Diego, providing a Sentre Partners safe haven for kids. JAMES L. MCCULLOUGH Our strength and purpose are enhanced by the synergy of our staff and community. ENTREPRENEUR Our purpose remains, building partnerships with San Diego's business community and leaders. We remain committed to our community and we will... RONALD D. MCMAHON PRESIDENT STAY THE COURSE. McMahon Development Group, L.L.C. JOHN M. ROONEY /s/ RANDALL S. CUNDIFF PRESIDENT RANDALL S. CUNDIFF Torrey Financial Group [LOGO] PRESIDENT STEVE SATO ENTREPRENEUR RANDE H. TURNER PRESIDENT T2 Ventures OFFICERS JOHN S. LEWIS CHAIRMAN & CHIEF EXECUTIVE OFFICER WILLIAM D. HINZ, II VICE CHAIRMAN RANDALL S. CUNDIFF PRESIDENT & SECRETARY SUZANNE K. GREGORY EXECUTIVE VICE PRESIDENT & CHIEF CREDIT OFFICER BETTY B. BARK VICE PRESIDENT TIMOTHY M. HIMSTREET VICE PRESIDENT JOSEPH L. KENNEDY VICE PRESIDENT 30 [PHOTO OF VALLEY FIRST COMMUNITY BANK] BOARD OF DIRECTORS VALLEY FIRST COMMUNITY BANK W. CRAIG BERGER CLU & CHFC 7501 East McCormick Parkway, North Court, Suite 105 N Spence, Driscoll & Company Scottsdale, AZ 85258 480.596.0883 KATHRYN H. CAMPANA www.valleyfirstbank.com FORMER MAYOR City of Scottsdale Community Service is an integral part of Valley First Community Bank's mission statement. We believe in supporting the communities we serve, as evidenced by MARILYN D. CUMMINGS the following programs: REALTOR Russ Lyon Realty Company * A unique Holiday Doll and Toy program - bank customers, friends, and staff take unclothed dolls and wooden toy kits purchased by the Bank, clothe the MICHAEL J. DEVINE dolls, and assemble and paint the trains and planes, so Santa can ATTORNEY AT LAW distribute them to local charities sponsored by the Bank; JUDITH R. EGAN * Mother's Day at the Chrysalis Shelter (a domestic violence program) - Bank CHIEF OPERATING OFFICER sponsored career day counselors help the women with their appearance and Valley First Community Bank job search activities; WILLIAM R. FITZPATRICK * YMCA Youth Camp fundraiser - the Bank is a member of the prestigious CERTIFIED PUBLIC ACCOUNTANT President's Club due to the amount of money raised; Fitzpatrick, Hopkins, Kelly & Leonhard, PLC * Bank promotion of education training in Scottsdale schools on saving, budgeting, and using credit carefully; STEVEN M. GOLDSTEIN ATTORNEY AT LAW * Entrepreneur's Business Council - we established this group of 12 local Sacks Tierney, P.A. Lawyers business owners to provide feedback and suggestions on how we may better serve our customers and our community; ROSS HALLIDAY, M.D. Institute for Bone & Joint Disorders * Quarterly Business Forums - in partnership with our Entrepreneur's Business Council, we host a quarterly business forum for small business owners in GARY W. HICKEL our community, where we provide educational seminars on banking and PRESIDENT finance-related topics. Valley First Community Bank Community service is something we believe in and practice every day at Valley MICHAEL L. KASTEN First Community Bank. MANAGING PARTNER Kasten Investments, L.L.C. OUR BUSINESS IS HELPING YOUR BUSINESS TO GROW! DONALD J. MAHONEY /s/ GARY W. HICKEL /s/ JUDITH R. EGAN MANAGING DIRECTOR GARY W. HICKEL JUDITH R. EGAN Trammell Crow Company PRESIDENT CHIEF OPERATIING OFFICER [LOGO] GORDON D. MURPHY CHAIRMAN EMERITUS Esperanca, Inc. HARRY ROSENZWEIG, JR. CO-OWNER Harry's Fine Jewelry PATRICIA B. TERNES, CFP VICE PRESIDENT Dain Rauscher Incorporated OFFICERS GORDON D. MURPHY CHAIRMAN OF THE BOARD MICHAEL J. DEVINE VICE CHAIRMAN HARRY ROSENZWEIG, JR. SECRETARY JOSEPH D. REID CHIEF EXECUTIVE OFFICER GARY W. HICKEL PRESIDENT JUDITH R. EGAN CHIEF OPERATING OFFICER DAVID D. FORTUNE EXECUTIVE VICE PRESIDENT & CHIEF CREDIT OFFICER JEFFREY S. BIRKELO VICE PRESIDENT JEFFREY L. LE BAR VICE PRESIDENT LANCE K. WISE VICE PRESIDENT 31 BOARD OF DIRECTORS [PHOTO OF YUMA COMMUNITY BANK] BRUCE I. ASH YUMA COMMUNITY BANK VICE PRESIDENT Paul Ash Management, L.L.C. 454 West Catalina Drive Yuma, AZ 85365 STEVEN M. BINKLEY, JR. 928.782.7000 SW DIVISION MANAGER www.yumabank.com Arizona Public Service Company During the formation of Yuma Community Bank, selecting the Bank name was of KATHERINE M. BRANDON primary importance. Communities are structurally and functionally oriented PRESIDENT around the social institutions which characterize human society: family, health, Yuma Community Bank church, education, economic activities, recreation, government, and welfare. A simple community need not have all institutions common to the society, but most RAYMOND R. CORONA of them must be present and functioning adequately enough to satisfy the OPTOMETRIST AND PRESIDENT community's needs, or it will disintegrate. Hence, our name tells the story. Corona Optique Yuma Community Bank embraces the philosophy of meeting and serving the community's needs. JULI JESSEN CHIEF OPERATING OFFICER * Members of our board of directors not only fully support this philosophy, Gowan Company they also live it by serving in leadership positions on the boards of Yuma Regional Medical Center, Arizona Western College Foundation, the Greater RAM R. KRISHNA Yuma Economic Development Corporation, Yuma Elementary School District, PHYSICIAN AND PRESIDENT Boys and Girls Club of Yuma and many, many more. Ram R. Krishna, M.D., P.C. * We were pleased to be the lender which allowed Yuma Community Food Bank to JOHN T. OSTERMAN renovate an 81,000 square-foot facility gifted to them, for their new PRESIDENT office and warehousing facility. Osterman Financial Group * Assisted a long time farming company in financing living facilities for DAVID SELLERS their seasonal farm laborers. PRESIDENT Sellers Petroleum Products, Inc. Our expectations are to build on our first year with continuing community service. Yuma Community Bank is honored to share the same name as our community. CARYL L. STANLEY PARTNER Costen-Stanley Company JOHN R. STERNITZKE PUTTING YUMA FIRST. PRESIDENT Sternco Engineers, Inc. /s/ KATHERINE M. BRANDON KATHERINE M. BRANDON PAMELA K. WALSMA [LOGO] PRESIDENT ATTORNEY AT LAW Westover, Shadle, Carter & Walsma, PLC RONALD S. WATSON BROKER/OWNER Era Matt Fischer Realtor LENN ZAZULA EXECUTIVE VICE PRESIDENT Sun Community Bancorp Limited OFFICERS RONALD S. WATSON CHAIRMAN OF THE BOARD RAM R. KRISHNA, M.D. VICE CHAIRMAN JOSEPH D. REID CHIEF EXECUTIVE OFFICER PAMELA K. WALSMA SECRETARY KATHERINE M. BRANDON PRESIDENT GEORGE E. WHITMER EXECUTIVE VICE PRESIDENT & CHIEF CREDIT OFFICER SANDRA K. DUNCAN VICE PRESIDENT KARI M. REILY VICE PRESIDENT THERESA N. WINE VICE PRESIDENT 32 CAPITOL BANCORP LIMITED 200 Washington Square North Lansing, MI 48933 517.487.6555 www.capitolbancorp.com