UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
| (Mark One) |
||
| ý | QUARTERLY REPORT
UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
|
| For the quarterly period ended June 30, 2003 OR |
||
| o | TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT For the transition period from __________ to _________ |
|
Commission file number 33-24728C
CAPITOL BANCORP LTD.
(Exact
name of registrant as specified in its charter)
| Michigan (State or other jurisdiction of incorporation or organization) |
38-2761672 (I.R.S. Employer Identification Number) |
Capitol Bancorp Center
200 Washington Square
North, Lansing, Michigan
(Address of principal
executive offices)
48933
(Zip Code)
(517) 487-6555
(Registrant’s
telephone number)
Not Applicable
(Former
name, former address and former fiscal year, if changed since last report)
Indicate by check mark whether the registrant (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No
Indicate by a check mark whether the registrant is an accelerated filer (as defined in Rule 12b of the Act). Yes X No
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:
Common stock, No par value: 13,612,729 shares outstanding as of August 1, 2003.
Page 1 of 24
Certain of the statements contained in this document, including Capitol’s consolidated financial statements, Management’s Discussion and Analysis of Financial Condition and Results of Operations and in documents incorporated into this document by reference that are not historical facts, including, without limitation, statements of future expectations, projections of results of operations and financial condition, statements of future economic performance and other forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, are subject to known and unknown risks, uncertainties and other factors which may cause the actual future results, performance or achievements of Capitol and/or its subsidiaries and other operating units to differ materially from those contemplated in such forward-looking statements. The words “intend”, “expect”, “project”, “estimate”, “predict”, “anticipate”, “should”, “believe”, and similar expressions also are intended to identify forward-looking statements. Important factors which may cause actual results to differ from those contemplated in such forward-looking statements include, but are not limited to: (i) the results of Capitol’s efforts to implement its business strategy, (ii) changes in interest rates, (iii) legislation or regulatory requirements adversely impacting Capitol’s banking business and/or expansion strategy, (iv) adverse changes in business conditions or inflation, (v) general economic conditions, either nationally or regionally, which are less favorable than expected and that result in, among other things, a deterioration in credit quality and/or loan performance and collectability, (vi) competitive pressures among financial institutions, (vii) changes in securities markets, (viii) actions of competitors of Capitol’s banks and Capitol’s ability to respond to such actions, (ix) the cost of capital, which may depend in part on Capitol’s asset quality, prospects and outlook, (x) changes in governmental regulation, tax rates and similar matters, and (xi) other risks detailed in Capitol’s other filings with the Securities and Exchange Commission. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual outcomes may vary materially from those indicated. All subsequent written or oral forward-looking statements attributable to Capitol or persons acting on its behalf are expressly qualified in their entirety by the foregoing factors. Investors and other interested parties are cautioned not to place undue reliance on such statements, which speak as of the date of such statements. Capitol undertakes no obligation to release publicly any revisions to these forward-looking statements to reflect events or circumstances after the date of such statements or to reflect the occurrence of unanticipated events.
| Page |
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| Item 1. |
Financial Statements (unaudited): Consolidated balance sheets - June 30, 2003 and December 31, 2002. Consolidated statements of income - Three months and six months ended June 30, 2003 and 2002. Consolidated statements of changes in stockholders' equity - Six months ended June 30, 2003 and 2002. Consolidated statements of cash flows - Six months ended June 30, 2003 and 2002. Notes to consolidated financial statements. |
3 4 5 6 7 |
| Item 2. |
Management's Discussion and Analysis of Financial Condition and Results of Operations. |
11 |
| Item 3. | Quantitative and Qualitative Disclosures About Market Risk. | 21 |
| Item 4. | Controls and Procedures. |
21 |
| PART II. |
OTHER INFORMATION |
|
|
Item 1. Item 2. Item 3. Item 4. Item 5. Item 6. |
Legal Proceedings. Changes in Securities and Use of Proceeds. Defaults Upon Senior Securities. Submission of Matters to a Vote of Security Holders. Other Information. Exhibits and Reports on Form 8-K. |
22 22 22 22 22 22 |
| SIGNATURES |
23 |
|
| EXHIBIT INDEX |
24 |
|
Page 2 of 24
PART I, ITEM I
CAPITOL BANCORP LTD.
Consolidated Balance
Sheets
As of June 30, 2003 and
December 31, 2002
(Unaudited)
June 30 December 31
2003 2002
-------------- --------------
(in thousands)
ASSETS
- ------
Cash and due from banks $ 154,066 $ 125,146
Money market, mutual funds and interest-bearing deposits 67,923 42,301
Federal funds sold 119,987 83,737
-------------- --------------
Cash and cash equivalents 341,976 251,184
Loans held for resale 90,077 75,420
Investment securities:
Available for sale, carried at market value 28,646 25,355
Held for long-term investment, carried at
amortized cost which approximates market value 9,470 8,784
-------------- --------------
Total investment securities 38,116 34,139
Portfolio loans:
Commercial 1,880,545 1,789,036
Real estate mortgage 129,622 127,855
Installment 73,818 74,481
-------------- --------------
Total portfolio loans 2,083,985 1,991,372
Less allowance for loan losses (29,489) (28,953)
-------------- --------------
Net portfolio loans 2,054,496 1,962,419
Premises and equipment 21,311 21,737
Accrued interest income 9,527 9,286
Goodwill and other intangibles 24,473 24,739
Other assets 34,400 30,364
-------------- --------------
TOTAL ASSETS $ 2,614,376 $ 2,409,288
============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Deposits:
Noninterest-bearing $ 387,272 $ 360,669
Interest-bearing 1,855,867 1,701,403
-------------- --------------
Total deposits 2,243,139 2,062,072
Debt obligations 82,698 93,398
Accrued interest on deposits and other liabilities 14,647 14,182
-------------- --------------
Total liabilities 2,340,484 2,169,652
GUARANTEED PREFERRED BENEFICIAL INTERESTS
IN THE CORPORATION'S SUBORDINATED DEBENTURES 61,318 51,583
MINORITY INTERESTS IN CONSOLIDATED SUBSIDIARIES 32,718 28,016
STOCKHOLDERS' EQUITY
Common stock, no par value, 25,000,000 shares authorized;
issued and outstanding: 2003 - 12,566,951 shares
2002 - 11,663,412 shares 149,789 135,234
Retained earnings 34,447 26,318
Market value adjustment (net of tax effect) for
investment securities available for sale (accumulated
other comprehensive income) 187 191
-------------- --------------
184,423 161,743
Less unearned compensation regarding restricted stock, note receivable
from exercise of stock options and unallocated ESOP shares (4,567) (1,706)
-------------- --------------
Total stockholders' equity 179,856 160,037
-------------- --------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 2,614,376 $ 2,409,288
============== ==============
Page 3 of 24
CAPITOL BANCORP LTD.
Consolidated Statements
of Income (Unaudited)
For the Three Months
and Six Months Ended June 30, 2003 and 2002
(in thousands, except
per share data)
Three Months Ended Six Months Ended
June 30 June 30
-------------------------------- -------------------------------
2003 2002 2003 2002
-------------- ------------- ------------ -------------
Interest income:
Portfolio loans (including fees) $ 39,049 $ 37,082 $ 77,434 $ 72,701
Loans held for resale 900 500 1,662 1,234
Taxable investment securities 211 388 410 785
Federal funds sold 407 336 691 600
Other 520 255 876 496
-------------- ------------- ------------ -------------
Total interest income 41,087 38,561 81,073 75,816
Interest expense:
Deposits 11,007 11,815 22,009 24,008
Debt obligations and other 2,114 2,325 4,111 4,564
-------------- ------------- ------------ -------------
Total interest expense 13,121 14,140 26,120 28,572
-------------- ------------- ------------ -------------
Net interest income 27,966 24,421 54,953 47,244
Provision for loan losses 1,826 2,684 3,716 4,774
-------------- ------------- ------------ -------------
Net interest income after
provision for loan losses 26,140 21,737 51,237 42,470
Noninterest income:
Service charges on deposit accounts 1,045 981 2,116 1,939
Trust fee income 641 639 1,163 1,170
Fees from origination of non-portfolio residential
mortgage loans 2,590 1,478 4,827 2,371
Realized gains (losses) on sales of investment
securities available for sale (3) 46 (18)
Other 944 280 1,640 760
-------------- ------------- ------------ -------------
Total noninterest income 5,217 3,424 9,746 6,222
Noninterest expense:
Salaries and employee benefits 14,144 11,776 27,571 22,803
Occupancy 1,788 1,622 3,661 3,142
Equipment rent, depreciation and maintenance 1,190 1,289 2,355 2,344
Other 4,831 4,353 9,522 9,544
-------------- ------------- ------------ -------------
Total noninterest expense 21,953 19,040 43,109 37,833
-------------- ------------- ------------ -------------
Income before federal income taxes and
minority interest 9,404 6,121 17,874 10,859
Federal income taxes 3,211 2,151 6,155 3,694
-------------- ------------- ------------ -------------
Income before minority interest 6,193 3,970 11,719 7,165
Minority interest in net income of
consolidated subsidiaries (499) (57) (712) (208)
-------------- ------------- ------------ -------------
NET INCOME $ 5,694 $ 3,913 $ 11,007 $ 6,957
============== ============= ============= =============
NET INCOME PER SHARE -- Note D
Basic $ 0.46 $ 0.37 $ 0.92 $ 0.75
============== ============= ============= =============
Diluted $ 0.45 $ 0.35 $ 0.89 $ 0.73
============== ============= ============= =============
Page 4 of 24
CAPITOL BANCORP LIMITED
Consolidated Statements
of Changes in Stockholders’ Equity (Unaudited)
For the Six Months
Ended June 30, 2003 and 2002
(in thousands except
share data)
Unearned Compensation
Regarding Restricted
Stock, Note Receivable
Accumulated from Exercise of
Other Stock Options
Common Retained Comprehensive and Unallocated
Stock Earnings Income ESOP Shares Total
---------- ----------- ---------- ------------- ----------
Six Months Ended June 30, 2002
- -----------------------------------------
Balances at January 1, 2002 $ 67,692 $ 14,173 $ 158 $ (1,851) $ 80,172
Issuance of 2,721,749 shares of common stock to
acquire shares of Sun Community Bancorp held
by shareholders other than Capitol 43,160 43,160
Issuance of 86,136 shares of common stock
upon exercise of stock options 963 963
Issuance of 52,717 shares of common stock
upon exercise of warrants 583 583
Issuance of 15,598 shares of common stock
in exchange for investment security 250 250
Cash dividends paid ($0.20 per share) (1,857) (1,857)
Components of comprehensive income:
Net income for the period 6,957 6,957
Market value adjustment for investment
securities available for sale (net of
income tax effect) (5) (5)
----------
Comprehensive income for the period 6,952
---------- ----------- ---------- ------------- ----------
BALANCES AT JUNE 30, 2002 $ 112,648 $ 19,273 $ 153 $ (1,851) $ 130,223
========== =========== ========== ============= ==========
Six Months Ended June 30, 2003
- -----------------------------------------
Balances at January 1, 2003 $ 135,234 $ 26,318 $ 191 $ (1,706) $ 160,037
Issuance of 176,118 shares of common stock
upon exercise of stock options, net of
common stock surrendered to
facilitate exercise 1,209 1,209
Issuance of 22,512 shares of common stock
upon exercise of warrants 259 259
Private placement of 549,000 shares
of common stock to institutional investors 10,226 10,226
Surrender and cancellation of 74,179 shares
of common stock in repayment
of note receivable from exercise
of stock options (1,561) 1,561 0
Issuance of 214,169 shares of restricted
common stock 4,422 (4,422) 0
Cash dividends paid ($0.24 per share) (2,878) (2,878)
Components of comprehensive income:
Net income for the period 11,007 11,007
Market value adjustment for investment
securities available for sale (net of
income tax effect) (4) (4)
----------
Comprehensive income for the period 11,003
---------- ----------- ---------- ------------- ----------
BALANCES AT JUNE 30, 2003 $ 149,789 $ 34,447 $ 187 $ (4,567) $ 179,856
========== =========== ========== ============= ==========
Page 5 of 24
CAPITOL BANCORP LTD.
Consolidated Statements
of Cash Flows (Unaudited)
For the Six Months
Ended June 30, 2003 and 2002
2003 2002
---------------- -----------------
(in thousands)
OPERATING ACTIVITIES
Net income $ 11,007 $ 6,957
Adjustments to reconcile net income to net
cash provided (used) by operating activities:
Provision for loan losses 3,716 4,774
Depreciation of premises and equipment 1,907 1,655
Amortization of intangibles 266 133
Net amortization of investment security
premiums 20 20
Gain on sale of premises and equipment (85) (1)
Minority interest in net income of consolidated subsidiaries 712 208
Originations and purchases of loans held for resale (629,962) (373,681)
Proceeds from sales of loans held for resale 615,305 410,295
Increase in accrued interest income and other assets (4,241) (4,590)
Increase in accrued interest on deposits and other liabilities 465 764
---------------- -----------------
NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES (890) 46,534
INVESTING ACTIVITIES
Proceeds from sale of investment securities available for sale 14,163 2,327
Proceeds from calls, prepayments & maturities of investment securities 12,495 26,462
Purchases of investment securities (30,659) (29,370)
Net increase in portfolio loans (95,793) (164,889)
Proceeds from sales of premises and equipment 1,514 51
Purchases of premises and equipment (2,910) (2,423)
---------------- -----------------
NET CASH USED BY INVESTING ACTIVITIES (101,190) (167,842)
FINANCING ACTIVITIES
Net increase in demand deposits, NOW accounts and
savings accounts 127,758 138,349
Net increase in certificates of deposit 53,308 29,625
Net payments on debt obligations (10,700) (1,663)
Net proceeds from issuance of trust-preferred securities 9,700 2,899
Resources provided by minority interests 3,990 8,383
Net proceeds from issuance of common stock 11,694 1,541
Cash dividends paid (2,878) (1,857)
---------------- -----------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 192,872 177,277
---------------- -----------------
INCREASE IN CASH AND CASH EQUIVALENTS 90,792 55,969
Cash and cash equivalents at beginning of period 251,184 163,691
---------------- -----------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 341,976 $ 219,660
================ =================
Page 6 of 24
Note A – Basis of Presentation
The accompanying unaudited condensed consolidated financial statements of Capitol Bancorp Ltd. (“Capitol”) have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions for Form 10-Q. Accordingly, they do not include all information and footnotes necessary for a fair presentation of consolidated financial position, results of operations and cash flows in conformity with generally accepted accounting principles.
The statements do, however, include all adjustments of a normal recurring nature (in accordance with Rule 10-01(b)(8) of Regulation S-X) which Capitol considers necessary for a fair presentation of the interim periods.
The results of operations for the period ended June 30, 2003 are not necessarily indicative of the results to be expected for the year ending December 31, 2003.
The consolidated balance sheet as of December 31, 2002 was derived from audited consolidated financial statements as of that date. Certain 2002 amounts have been reclassified to conform to the 2003 presentation.
Note B – Bank Development Activities
Bank development efforts are currently under consideration at June 30, 2003 in several states including pre-development exploratory discussions, lease and employment negotiations and preparation of preliminary regulatory applications for formation and/or acquisition of community banks.
Note C – Pending Share Exchange Transactions
At June 30, 2003, share exchange proposals were pending regarding Black Mountain Community Bank, Desert Community Bank, Elkhart Community Bank and Red Rock Community Bank, which are majority-owned subsidiaries of Capitol. Such share exchange proposals were subject to the approval of the minority shareholders of those banks at shareholder meetings held in late July 2003. The share exchange proposals were subsequently approved and Capitol will issue approximately 982,000 shares of previously unissued shares of its common stock to acquire the minority interests of those banks. Upon completion of the share exchange transactions, effective July 31, 2003, those banks will be wholly-owned by Capitol.
Page 7 of 24
Note D – Net Income Per Share
The computations of basic and diluted earnings per share were as follows:
Three Months Ended June 30 Six Months Ended June 30
----------------------------------- ------------------------------------
2003 2002 2003 2002
--------------- --------------- ---------------- ----------------
Numerator--net income for the period $ 5,694,000 $ 3,913,000 $11,007,000 $ 6,957,000
============ ============ =========== ============
Denominator:
Weighted average number of common shares
outstanding (denominator for basic earnings
per share) 12,347,032 10,685,203 12,024,188 9,300,756
Effect of dilutive securities--stock options
and warrants 424,439 501,910 385,295 240,472
------------ ------------ ----------- ------------
Denominator for dilutive net income per share--
Weighted average number of common shares
and potential dilution 12,771,471 11,187,113 12,409,483 9,541,228
============ ============ =========== ============
Number of antidilutive stock options excluded
from diluted earnings per share computation 100,626 107,752 100,626 126,577
============ ============ =========== ============
Note E – Stock Options
Stock option activity for the interim 2003 period is summarized as follows:
Weighted
Number of Exercise Average
Stock Options Price Exercise
Outstanding Range Price
------------------- --------------------- ---------------
Outstanding at January 1 2,548,536 $ 4.92 to $25.10 $ 15.23
Exercised (656,097) 4.92 to 17.42 15.68
Granted 231,798 20.36 to 23.37 21.26
Cancelled or expired (25,153) --
----------- --------------------- ------------
Outstanding at June 30 2,099,084 $ 4.92 to $25.10 $ 16.09
Page 8 of 24
Note E – Stock Options – Continued
As of June 30, 2003, stock options outstanding had a weighted average remaining contractual life of 4.5 years. The following table summarizes stock options outstanding segregated by exercise price range:
Weighted Average
----------------------------------------
Remaining
Exercise Price Number Exercise Contractual
Range Outstanding Price Life
-------------------------- --------------------- ----------------- -------------------
Less than $10.00 68,124 $ 9.60 3.7 years
$10.00 to 14.99 627,173 11.52 3.8 years
$15.00 to 19.99 953,689 16.62 4.9 years
$20.00 to 24.99 349,472 21.54 5.9 years
$25.00 or more 100,626 $ 25.10 1.5 years
----------
2,099,084
Statement of Financial Accounting Standards No. 123, Accounting for Stock-Based Compensation, establishes an alternative fair value method of accounting for stock options whereby compensation expense would be recognized based on the computed fair value of the options on the grant date. By not electing this alternative, certain pro forma disclosures of the expense recognition provisions of Statement No. 123 are required, which are as follows:
Six Months Ended June 30
---------------------------------------
2003 2002
----------------- -----------------
Fair value assumptions:
Risk-free interest rate 3.4% 4.5%
Dividend yield 2.1% 2.5%
Stock price volatility .48 .46
Expected option life 7 years 7 years
Aggregate estimated fair value of
options granted (in thousands) $ 2,237 $ 4,907
Net income (in thousands):
As reported 11,007 6,957
Less pro forma compensation
expense regarding fair value
of stock option awards, net
of related income tax effect (1,476) (3,190)
-------- --------
Pro forma 9,531 3,767
Net income per share:
Basic:
As reported 0.92 0.75
Pro forma 0.79 0.41
Diluted:
As reported 0.89 0.73
Pro forma $ 0.77 $ 0.39
Page 9 of 24
Note F – Impact of New Accounting Standards
The Financial Accounting Standards Board (FASB) recently issued Statements No. 146 (Accounting for Costs Associated With Exit or Disposal Activities) and No. 149 (Amendment of Statement 133 on Derivative Instruments and Hedging Activities). These new standards have varying effective dates in 2003 and had no material effect on Capitol’s financial statements, upon implementation.
Statement No. 148, Accounting for Stock-Based Compensation – Transition and Disclosure, provides alternative methods of transition for a voluntary change to the fair-value based method of accounting for stock-based employee compensation and it amends the prior disclosure requirements of Statement No. 123 to require more prominent and frequent disclosures about the effects of stock-based compensation, including interim disclosures (such interim disclosures appear in Note E). As permitted, Capitol has retained its prior method of accounting for stock-based employee compensation.
FASB Interpretation No. 45, Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees and Indebtedness of Others, expands disclosures about obligations under certain guarantees and, in addition, requires recording a liability for the fair value of the obligations undertaken in issuing the guarantee, applicable to guarantees issued or modified after December 31, 2002. This new guidance had no material effect on Capitol’s consolidated financial position or results of operations upon implementation.
FASB Interpretation No. 46, Consolidation of Variable Interest Entities, clarifies when some entities previously not consolidated under prior accounting guidance, should be. This new guidance, which was effective upon issuance in January 2003, had no material effect upon Capitol’s consolidated financial statements upon implementation.
Statement No. 150, Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity, clarifies how some instruments or securities should be classified on an issuer’s balance sheet and their related impact on income and results of operations. It is effective for financial instruments entered into or modified after May 31, 2003 and is otherwise effective for Capitol’s consolidated financial statements beginning July 1, 2003. Implementation of this new standard will result in reclassification of Capitol’s trust-preferred securities from their current mezzanine classification to debt obligations on Capitol’s consolidated balance sheet. This new standard is expected to have no material impact on Capitol’s results of operations upon implementation. It is Capitol’s understanding that the issuance of Statement No. 150 and FASB Interpretation No. 46 has resulted in the Federal Reserve Board announcing potential future reconsideration of trust-preferred securities as elements of regulatory capital.
A variety of proposed or otherwise potential accounting standards are currently under study by standard-setting organizations and various regulatory agencies. Because of the tentative and preliminary nature of these proposed standards, management has not determined whether implementation of such proposed standards would be material to Capitol’s consolidated financial statements.
Page 10 of 24
Financial Condition
Total assets approximated $2.6 billion at June 30, 2003, an increase of $205 million from the December 31, 2002 level of $2.4 billion. The balance sheet includes Capitol and its consolidated subsidiaries:
Total Assets
(in $1,000's)
-------------------------------
June 30 Dec 31
2003 2002
------------- -------------
Great Lakes Region:
Ann Arbor Commerce Bank $ 329,110 $ 309,152
Brighton Commerce Bank 85,855 78,382
Capitol National Bank 205,810 206,130
Detroit Commerce Bank 41,783 30,589
Grand Haven Bank 131,446 123,505
Kent Commerce Bank 81,423 73,801
Macomb Community Bank 95,405 87,050
Muskegon Commerce Bank 84,843 86,465
Oakland Commerce Bank 130,110 115,916
Paragon Bank & Trust 107,501 103,044
Portage Commerce Bank 147,954 139,068
Elkhart Community Bank 48,978 53,210
Goshen Community Bank 44,077 38,115
---------- ----------
Great Lakes Region Total 1,534,295 1,444,427
Southwest Region:
Arrowhead Community Bank 52,394 47,427
Bank of Tucson 145,500 132,094
Camelback Community Bank 94,244 82,387
East Valley Community Bank 41,145 37,640
Mesa Bank 67,276 66,312
Southern Arizona Community Bank 85,866 75,253
Valley First Community Bank 43,157 42,127
Yuma Community Bank 44,887 38,214
Bank of Las Vegas 31,965 26,880
Black Mountain Community Bank 65,070 63,202
Desert Community Bank 57,718 55,170
Red Rock Community Bank 108,425 96,906
Sunrise Bank of Albuquerque 59,618 46,898
Sunrise Bank of Arizona 94,300 82,126
---------- ----------
Southwest Region Total 991,565 892,636
California Region:
Sunrise Bank of San Diego 58,019 50,450
First California Northern Bancorp:
Napa Community Bank 48,224 36,042
---------- ----------
California Region Total 106,243 86,492
Other, net (17,727) (14,267)
---------- ----------
Consolidated $2,614,376 $2,409,288
========== ==========
Portfolio loans increased during the six-month 2003 period by approximately $93 million. The majority of portfolio loan growth occurred in commercial loans, consistent with the banks’ emphasis on commercial lending activities. Portfolio loan growth in 2003 is net of about $38 million of commercial loans sold to other financial institutions.
Page 11 of 24
The allowance for loan losses at June 30, 2003 approximated $29.5 million or 1.42% of total portfolio loans, a decrease from the year-end 2002 ratio of 1.45%.
The allowance for loan losses is maintained at a level believed adequate by management to absorb potential losses inherent in the loan portfolio at the balance sheet date. Management’s determination of the adequacy of the allowance is based on evaluation of the portfolio (including potential impairment of individual loans and concentrations of credit), past loss experience, current economic conditions, volume, amount and composition of the loan portfolio, loan commitments outstanding and other factors. The allowance is increased by provisions charged to operations and reduced by net charge-offs.
The table below summarizes portfolio loan balances and activity in the allowance for loan losses for the interim periods (in thousands):
2003 2002
------------------ ------------------
Allowance for loan losses at January 1 $ 28,953 $ 23,238
Loans charged-off:
Commercial (3,396) (1,714)
Real estate mortgage (21) (146)
Installment (241) (154)
------------------ ------------------
Total charge-offs (3,658) (2,014)
Recoveries:
Commercial 411 192
Real estate mortgage -- 61
Installment 67 59
------------------ ------------------
Total recoveries 478 312
------------------ ------------------
Net charge-offs (3,180) (1,702)
Additions to allowance charged to expense 3,716 4,774
------------------ ------------------
Allowance for loan losses at June 30 $ 29,489 $ 26,310
================== ==================
Average total portfolio loans for period ended June 30 $ 2,050,204 $ 1,804,451
================== ==================
Ratio of net charge-offs (annualized) to average portfolio
loans outstanding 0.31% 0.19%
================== ==================
Net charge-offs of loans increased approximately $1.5 million in 2003, compared to the six-month period in 2002. The increase was mainly due to losses associated with loans secured by business equipment and accounts receivable.
Page 12 of 24
The amounts of the allowance for loan losses allocated in the following table (in thousands) include all loans for which, based on Capitol’s loan rating system, management has concerns, and should not be interpreted as an indication of future charge-offs.
June 30, 2003 December 31, 2002
------------------------------- --------------------------------
Percentage Percentage
of Total of Total
Portfolio Portfolio
Amount Loans Amount Loans
-------------- -------------- -------------- ---------------
Commercial $ 27,131 1.30% $ 27,226 1.37%
Real estate mortgage 1,368 0.07 1,009 0.05
Installment 990 0.05 718 0.03
-------------- -------------- -------------- ---------------
Total allowance for loan losses $ 29,489 1.42% $ 28,953 1.45%
============== ============== ============== ===============
Total portfolio loans outstanding $ 2,083,985 $ 1,991,372
============== ==============
Nonperforming loans (i.e., loans which are 90 days or more past due and loans on nonaccrual status) are summarized below (in thousands):
June 30 Dec 31
2003 2002
--------------- ----------------
Nonaccrual loans:
Commercial $ 19,022 $ 15,444
Real estate 506 560
Installment 697 613
--------------- ----------------
Total nonaccrual loans 20,225 16,617
Past due (>90 days) loans:
Commercial 5,045 5,728
Real estate 1,373 323
Installment 108 222
--------------- ----------------
Total past due loans 6,526 6,273
--------------- ----------------
Total nonperforming loans $ 26,751 $ 22,890
=============== ================
Page 13 of 24
Nonperforming loans increased approximately $4 million during the six-month period ended June 30, 2003. Of the nonperforming loans at June 30, 2003, about 65% are real estate secured. Those loans, when originated, had appropriate loan-to-value ratios and, accordingly, have loss exposure which is expected to be minimal; however, underlying real estate values depend upon current economic conditions and liquidation strategies. Most other nonperforming loans are generally secured by other business assets. Nonperforming loans at June 30, 2003 are in various stages of resolution for which management believes such loans are adequately collateralized or otherwise appropriately considered in its determination of the adequacy of the allowance for loan losses.
In addition to the identification of nonperforming loans involving borrowers with payment performance difficulties (i.e., nonaccrual loans and loans past-due 90 days or more), management utilizes an internal loan review process to identify other potential problem loans which may warrant additional monitoring or other attention. This loan review process is a continuous activity which periodically updates internal loan ratings. At inception, all loans are individually assigned a rating which grades the credits on a risk basis, based on the type and discounted value of collateral, financial strength of the borrower and guarantors and other factors such as nature of the borrower’s business climate, local economic conditions and other subjective factors. The loan rating process is fluid and subjective.
Potential problem loans include loans which are generally performing as agreed; however, because of loan review’s and/or lending staff’s risk assessment, increased monitoring is deemed appropriate. In addition, some loans are assigned a more adverse classification, with specific performance issues or other risk factors requiring close management and development of specific remedial action plans.
At June 30, 2003, potential problem loans (including the previously mentioned nonperforming loans) approximated $110 million, or about 5% of total consolidated portfolio loans. These potential problem loans do not necessarily have significant loss exposure (nor are they necessarily deemed ‘impaired’), but rather are classified by management in this manner to aid in loan administration and risk management. Management believes such loans to be adequately considered in its evaluation of the adequacy of the allowance for loan losses. Management believes, however, that current general economic conditions may result in higher levels of future loan losses, in comparison to previous years, as evidenced by higher loan losses in the interim 2003 period.
Page 14 of 24
The following comparative analysis summarizes each bank’s total portfolio loans, allowance for loan losses, nonperforming loans and ratio of the allowance as a percentage of portfolio loans (dollars in thousands):
Total Allowance for Nonperforming Allowance as a Percentage
Portfolio Loans Loan Losses Loans of Total Portfolio Loans
---------------------- ---------------------- ---------------------- ----------------------
June 30 Dec 31 June 30 Dec 31 June 30 Dec 31 June 30 Dec 31
2003 2002 2003 2002 2003 2002 2003 2002
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Great Lakes Region:
Ann Arbor Commerce Bank $ 278,954 $ 272,604 $ 3,800 $ 3,840 $ 1,828 $ 2,624 1.36% 1.41%
Brighton Commerce Bank 74,599 68,239 746 851 170 170 1.00 1.25
Capitol National Bank 162,645 158,651 2,293 2,322 1,997 1,753 1.41 1.46
Detroit Commerce Bank 31,091 26,799 485 627 1,358 751 1.56 2.34
Grand Haven Bank 120,734 114,616 1,790 1,626 1,982 1,605 1.48 1.42
Kent Commerce Bank 71,794 68,848 835 830 633 293 1.16 1.21
Macomb Community Bank 81,740 73,915 1,137 1,136 2,643 3,012 1.39 1.54
Muskegon Commerce Bank 78,323 77,247 1,018 966 2,760 1,806 1.30 1.25
Oakland Commerce Bank 89,901 86,049 1,169 1,119 2,911 1,805 1.30 1.30
Paragon Bank & Trust 87,338 86,571 1,451 1,291 2,875 2,628 1.66 1.49
Portage Commerce Bank 134,151 129,710 1,920 1,815 2,881 3,135 1.43 1.40
Elkhart Community Bank 43,039 43,277 664 658 363 245 1.54 1.52
Goshen Community Bank 39,135 35,408 589 532 -- -- 1.51 1.50
---------- ---------- -------- -------- -------- --------
Great Lakes Region Total 1,293,444 1,241,934 17,897 17,613 22,401 19,827
Southwest Region:
Arrowhead Community Bank 36,736 36,185 534 543 -- -- 1.45 1.50
Bank of Tucson 88,951 90,176 1,077 1,461 420 187 1.21 1.62
Camelback Community Bank 61,926 63,516 816 960 235 232 1.32 1.51
East Valley Community Bank 27,781 25,932 407 389 78 17 1.47 1.50
Mesa Bank 58,754 55,588 724 834 -- 242 1.23 1.50
Southern Arizona Community Bank 62,208 60,913 789 914 -- -- 1.27 1.50
Valley First Community Bank 26,747 29,075 457 620 170 261 1.71 2.13
Yuma Community Bank 26,595 25,485 414 383 -- -- 1.56 1.50
Bank of Las Vegas 25,526 19,404 321 292 -- -- 1.26 1.50
Black Mountain Community Bank 54,073 52,240 786 784 327 324 1.45 1.50
Desert Community Bank 43,368 43,351 691 675 1,122 734 1.59 1.56
Red Rock Community Bank 82,809 80,152 1,952 1,203 1,838 861 2.36 1.50
Sunrise Bank of Albuquerque 46,229 38,577 585 521 -- -- 1.27 1.35
Sunrise Bank of Arizona 80,219 65,195 931 881 160 205 1.16 1.35
---------- ---------- -------- -------- -------- --------
Southwest Region Total 721,922 685,789 10,484 10,460 4,350 3,063
California Region:
Sunrise Bank of San Diego 42,038 39,116 577 577 -- -- 1.37 1.48
First California Northern Bancorp
Napa Community Bank 25,128 20,177 392 303 -- -- 1.56 1.50
---------- ---------- -------- -------- -------- --------
California Region Total 67,166 59,293 969 880 -- -- -- --
Other, net 1,453 4,356 139 -- -- -- -- --
---------- ---------- -------- -------- -------- -------- ------- -------
Consolidated $2,083,985 $1,991,372 $ 29,489 $ 28,953 $ 26,751 $ 22,890 1.42% 1.45%
========== ========== ======== ======== ======== ======== ======= =======
Page 15 of 24
Results of Operations
Net income for the six months ended June 30, 2003, was $11 million, an increase of $4 million or 58% over the same period in 2002. Diluted earnings per share for the six-month 2003 period were $0.89 compared to $0.73 for the prior year period. Second quarter 2003 earnings were a new record level, $5.7 million, an increase of $1.8 million over the same period in 2002; diluted earnings per share were $0.45 compared to $0.35 in 2002. The percentage increase in net income per share was less than the percentage increase in the amount of net income in 2003 because of the larger share base resulting from Capitol’s 2002 share exchanges regarding Sun Community Bancorp, Sunrise Capital Corporation, Indiana Community Bancorp and Nevada Community Bancorp.
Net interest income for the first six months of 2003 totaled $55 million, a 16% increase compared to $47.2 million in 2002. Net interest income for the second quarter of 2003 totaled $28 million, a 15% increase as compared to $24.4 million for the comparable period in 2002. This increase is attributable to the banks’ growth in size and a somewhat stable interest rate environment.
Noninterest income for the six months ended June 30, 2003 was $9.7 million, an increase of $3.5 million, or 57%, over the same period in 2002. Noninterest income for the quarter ended June 30, 2003 was $5.2 million, an increase of $1.8 million, or 52%, over the same period in 2002. Fees from origination of nonportfolio residential mortgage loans totaled $2.6 million for the second quarter of 2003, and were $4.8 million for the six-month period, as compared to $1.5 million and $2.4 million for the comparable periods in 2002, respectively, due to continuing high volume of loan fees derived from residential mortgage loan refinance activity resulting from sustained low interest rates. Service charges on deposit accounts increased in the six-month 2003 period by 9%, compared to 2002, due to growth in the size of banks.
The provision for loan losses for the six-month period in 2003 was $3.7 million, as compared to $4.8 million for the same period in 2002. The provision for loan losses for the quarter ended June 30, 2003 was $1.8 million as compared to $2.7 million during the corresponding 2002 period. The provisions for loan losses are based upon management’s analysis of the adequacy of the allowance for loan losses, as previously discussed.
Noninterest expense totaled $43.1 million for the six-month period and $22 million for the second quarter in 2003, as compared to $37.8 million and $19 million, respectively, for the comparable periods in 2002. The increase in noninterest expense is associated with growth in the size of the banks and increases in general operating costs. Increases in both occupancy and salaries and employee benefits relate primarily to the growth in the size of banks within the consolidated group. Other noninterest expense in the 2002 period included the preopening costs of two start-up banks which commenced operations in the first quarter of the year (none in the interim 2003 period).
Page 16 of 24
Operating results (dollars in thousands) were as follows:
Six months ended June 30
---------------------------------------------------------------------------------------
Return on Return on
Total Revenues Net Income Average Equity Average Assets
-------------------- -------------------- -------------------- ------------------
2003 2002 2003 2002 2003 2002 2003 2002
--------- --------- --------- --------- --------- -------- -------- --------
Great Lakes Region:
Ann Arbor Commerce Bank $ 11,669 $ 11,097 $ 2,587 $ 2,339 21.29% 21.64% 1.65% 1.67%
Brighton Commerce Bank 2,868 2,774 602 428 17.48 13.84 1.47 1.17
Capitol National Bank 6,686 6,335 1,682 1,482 22.10 21.74 1.62 1.67
Detroit Commerce Bank 1,069 1,188 (296) (29) n/a n/a n/a n/a
Grand Haven Bank 5,084 4,350 1,205 883 22.78 20.15 1.87 1.61
Kent Commerce Bank 2,622 2,946 316 466 13.95 13.57 1.34 1.25
Macomb Community Bank 2,849 2,982 (144) 437 n/a 8.94 n/a .98
Muskegon Commerce Bank 3,221 3,138 769 631 18.00 16.50 1.83 1.65
Oakland Commerce Bank 3,990 3,638 822 632 17.68 14.57 1.33 1.23
Paragon Bank & Trust 4,264 3,979 407 515 7.82 11.51 .76 1.07
Portage Commerce Bank 5,355 5,029 1,125 926 20.12 17.58 1.58 1.50
Elkhart Community Bank 1,618 1,306 234 93 9.43 4.01 .61 .49
Goshen Community Bank 1,457 1,046 186 34 8.06 1.53 .91 .21
-------- -------- -------- --------
Great Lakes Region Total 52,752 49,808 9,495 8,837
Southwest Region:
Arrowhead Community Bank 1,951 1,549 193 3 8.77 .14 .79 .01
Bank of Tucson 4,622 4,869 1,376 1,153 25.48 22.54 1.99 1.92
Camelback Community Bank 2,916 2,906 462 292 11.12 8.55 1.05 .78
East Valley Community Bank 1,385 1,348 (138) (185) n/a n/a n/a n/a
Mesa Bank 2,761 2,462 738 381 22.11 13.55 2.18 1.36
Southern Arizona Community Bank 2,618 2,353 554 288 15.62 9.80 1.35 .86
Valley First Community Bank 1,430 1,940 148 65 5.15 2.31 .70 .24
Yuma Community Bank 1,543 1,159 169 8 8.84 .42 .83 .05
Bank of Las Vegas 880 375 (82) (478) n/a n/a n/a n/a
Black Mountain Community Bank 2,283 1,782 378 131 14.06 5.69 1.17 .53
Desert Community Bank 1,928 2,200 214 131 8.14 5.25 .75 .43
Red Rock Community Bank 3,626 3,141 (9) 407 n/a 9.24 n/a .93
Sunrise Bank of Albuquerque 2,021 1,334 234 (16) 11.84 n/a .90 n/a
Sunrise Bank of Arizona 4,653 2,751 292 243 8.99 7.88 .65 .77
-------- -------- -------- --------
Southwest Region Total 34,617 30,169 4,529 2,423
California Region:
Sunrise Bank of San Diego 2,223 1,990 249 165 6.49 4.51 .88 .76
First California Northern Bancorp :
Napa Community Bank 1,171 341 67 (549) 1.69 n/a .33 n/a
-------- -------- -------- --------
California Region Total 3,394 2,331 316 (384)
Other, net 56 (270) (3,333) (3,919) n/a n/a n/a n/a
-------- -------- -------- -------- ------- ------- ------ ------
Consolidated $ 90,819 $ 82,038 $ 11,007 $ 6,957 13.07% 13.23% .88% .65%
======== ======== ======== ======== ======= ======= ====== ======
n/a Not applicable
Page 17 of 24
Liquidity and Capital Resources
The principal funding source for asset growth and loan origination activities is deposits. Total deposits increased $181 million for the six months ended June 30, 2003, slightly more than the $168 million increase in the corresponding period of 2002. Growth occurred in most interest-bearing deposit categories, with the majority coming from time deposits. The banks generally do not rely on brokered deposits as a key funding source; brokered deposits approximated $206 million as of June 30, 2003, or about 9% of total deposits, an increase of $5.7 million during the interim 2003 period. Brokered deposits, as a funding source, have increased in recent periods due to competitive environments and selective opportunities to grow deposits at a faster pace and/or lower cost than traditional sources, and may similarly increase in future periods.
Noninterest-bearing deposits approximated 17.3% of total deposits at June 30, 2003 and 17.5% at December 31, 2002. Levels of noninterest-bearing deposits can, however, fluctuate based on customers’ transaction activity.
Interim 2003 deposit growth was deployed primarily into commercial loans, consistent with the banks’ emphasis on commercial lending activities.
Cash and cash equivalents amounted to $342 million or 13% of total assets at June 30, 2003, compared with $251 million or 10% of total assets at December 31, 2002. As liquidity levels vary continuously based on customer activities, amounts of cash and cash equivalents can vary widely at any given point in time. Management believes the banks’ liquidity position at June 30, 2003 is adequate to fund loan demand and meet depositor needs.
In addition to cash and cash equivalents, a source of long-term liquidity is the banks’ marketable investment securities. Liquidity needs have not historically necessitated the sale of investments in order to meet funding requirements. The banks have not engaged in active trading of their investments. At June 30, 2003, the banks had approximately $28.6 million of investment securities classified as available for sale which can be utilized to meet various liquidity needs as they arise.
Some of the banks have secured lines of credit with a Federal Home Loan Bank. Borrowings thereunder approximated $81.2 million and additional borrowing capacity approximated $27.6 million at June 30, 2003. These borrowings increased slightly ($2 million in the interim period of 2003) as a lower-cost funding source versus various rates and maturities of time deposits. At June 30, 2003, Capitol had unused lines of credit from an unrelated financial institution aggregating $25 million.
In March 2003, Capitol participated in a pooled trust-preferred securities offering, structured with a 30-year maturity and a variable interest rate, with net proceeds of approximately $9.7 million. These securities augment Capitol’s existing capital base and the proceeds have been used to reduce borrowings from an unaffiliated bank.
Page 18 of 24
Capitol and its banks are subject to complex regulatory capital requirements, which require maintaining certain minimum capital ratios. These ratio measurements, in addition to certain other requirements, are used by regulatory agencies to determine the level of regulatory intervention and enforcement applied to financial institutions. Management believes Capitol and each of its banks are in compliance with regulatory requirements and are expected to maintain such compliance.
Stockholders’ equity, as a percentage of total assets, approximated 6.9% at June 30, 2003 a slight increase from 6.6% at the beginning of the year. Total capital funds (Capitol’s stockholders’ equity, plus minority interests in consolidated subsidiaries, plus guaranteed preferred beneficial interests in the Corporation’s subordinated debentures) aggregated $273.9 million or 10.5% of total assets at June 30, 2003.
In April 2003, Capitol announced the completion of an $11 million private placement of its common stock to select institutional investors and the issuance of approximately 550,000 shares of previously unissued common stock. Proceeds from the offering have been used to reduce borrowings from an unaffiliated bank and deployed into short–term investments.
Effective June 24, 2003, Capitol’s common stock began trading on the New York Stock Exchange under the trading symbol “CBC”. Upon becoming NYSE-listed, Capitol terminated its prior Nasdaq listing.
At June 30, 2003, share exchange proposals were pending regarding Black Mountain Community Bank, Desert Community Bank, Elkhart Community Bank and Red Rock Community Bank, which are majority-owned subsidiaries of Capitol. Such share exchange proposals were subject to the approval of the minority shareholders of those banks at shareholder meetings held in late July 2003. The share exchange proposals were subsequently approved and Capitol will issue approximately 982,000 shares of previously unissued shares of its common stock to acquire the minority interests of those banks. Upon completion of the share exchange transactions, effective July 31, 2003, those banks will be wholly-owned by Capitol.
Capitol’s operating strategy continues to be focused on the ongoing growth and maturity of its existing banks, coupled with new bank expansion in selected markets as opportunities arise. Accordingly, Capitol may invest in, acquire or otherwise develop additional banks in future periods, subject to economic conditions and other factors, although the timing of such additional banking units, if any, is uncertain. Such future new banks and/or additions of other operating units could be either wholly-owned, majority-owned or otherwise controlled by Capitol.
Page 19 of 24
Trends Affecting Operations
One of the most significant trends which can impact the financial condition and results of operations of financial institutions are changes in market rates of interest.
Changes in interest rates, either up or down, have an impact on net interest income (plus or minus), depending on the direction and timing of such changes. At any point in time, there is a difference between interest rate-sensitive assets and interest rate-sensitive liabilities. This means that when interest rates change, the timing and magnitude of the effect of such interest rate changes can alter the relationship between asset yields and the cost of funds.
In the first six months of 2003, interest rates have remained relatively stable. The future outlook on interest rates and their impact on Capitol’s interest income, interest expense and net interest income is uncertain.
Start-up banks generally incur operating losses during their early periods of operations. Recently-formed start-up banks are expected to detract from consolidated earnings performance and start-up banks formed in 2003 and beyond will similarly negatively impact short-term profitability.
General economic conditions also have a significant impact on both the results of operations and the financial condition of financial institutions.
Media reports raising questions about the health of the domestic economy have continued in 2003. During the second quarter of 2003, nonperforming loans have increased and it is anticipated that levels of nonperforming loans and related loan losses may increase as economic conditions, locally and nationally, evolve.
Impact of New Accounting Standards
There are several new accounting standards either becoming effective or being issued in 2003. They are listed and discussed in Note F of the accompanying condensed consolidated financial statements.
Critical Accounting Policies
Capitol’s critical accounting policies are described on page 10 of the financial section of its 2002 Annual Report. In the circumstances of Capitol, management believes its “critical accounting policies” are those which encompass the use of estimates (because of inherent subjectivity), allowance for loan losses (due to the inherent subjectivity in estimating loan losses), accounting for income taxes (due to the significant U.S. corporate income tax rate and realization of deferred tax assets) and accounting for goodwill (due to new accounting standards effective at the beginning of 2002).
Page 20 of 24
Not applicable.
Capitol maintains disclosure controls and procedures designed to ensure that the information Capitol must disclose in its filings with the Securities and Exchange Commission is recorded, processed, summarized and reported on a timely basis. Capitol’s Chief Executive Officer and Chief Financial Officer have reviewed and evaluated Capitol’s disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) as of the end of the period covered by this report (the “Evaluation Date”). Based on such evaluation, such officers have concluded that, as of the Evaluation Date, Capitol’s disclosure controls and procedures are effective in bringing to their attention on a timely basis material information relating to Capitol required to be included in Capitol’s periodic filings under the Exchange Act.
[The remainder of this page intentionally left blank]
Page 21 of 24
| Item 1. | Legal Proceedings. Capitol and its subsidiaries are parties to certain ordinary, routine litigation incidental to their business. In the opinion of management, liabilities arising from such litigation would not have a material effect on Capitol's consolidated financial position or results of operations. |
||
| Item 2. | Changes in Securities and Use of Proceeds. None. |
||
| Item 3. | Defaults Upon Senior Securities. None. |
||
| Item 4. | Submission of Matters to a Vote of Security Holders. None. |
||
| Item 5. | Other Information. None. |
||
| Item 6. | Exhibits and Reports on Form 8-K.
|
||
| (a) Exhibits: | |||
| Exhibit No. | Description of Exhibit | ||
| 31.1 | Certification of Chief Executive Officer, Joseph D. Reid,
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
||
| 31.2 | Certification of Chief Financial Officer, Lee W.
Hendrickson, pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002. |
||
| 32.1 | Certification of Chief Executive Officer, Joseph D. Reid,
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
||
| 32.2 | Certification of Chief Financial Officer, Lee W.
Hendrickson, pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002. |
||
| (b) Reports on Form 8-K: | |||
| On April 21, 2003, a report on Form 8-K was filed which contained a copy of Capitol's announcement of financial results for the quarter ended March 31, 2003. | |||
Page 22 of 24
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| CAPITOL BANCORP LTD. (Registrant) /s/ Joseph D. Reid Joseph D. Reid Chairman and CEO (duly authorized to sign on behalf of the registrant) /s/ Lee W. Hendrickson Lee W. Hendrickson Chief Financial Officer |
Date: August 8, 2003
Page 23 of 24
INDEX TO EXHIBITS
| Exhibit No. | Description of Exhibit |
| 31.1 | Certification of Chief Executive Officer, Joseph D. Reid,
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
| 31.2 | Certification of Chief Financial Officer, Lee W.
Hendrickson, pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002. |
| 32.1 | Certification of Chief Executive Officer, Joseph D. Reid,
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
| 32.2 | Certification of Chief Financial Officer, Lee W.
Hendrickson, pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002. |
Page 24 of 24
EXHIBIT 31.1
Chief Executive Officer
Certification
Pursuant
to 18 U.S.C. Section 1350,
as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of
2002
I, Joseph D. Reid, certify that:
| 1. | I have reviewed this quarterly report on Form 10-Q of Capitol Bancorp Ltd.; |
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
| 4. | The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: |
| a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
| b) | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
| c) | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
| 5. | The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
| a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
| b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
| Date: August 8, 2003 | /s/ Joseph D. Reid Joseph D. Reid Chief Executive Officer |
E-1
EXHIBIT 31.2
Chief Financial Officer
Certification
Pursuant
to 18 U.S.C. Section 1350,
as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of
2002
I, Lee W. Hendrickson, certify that:
| 1. | I have reviewed this quarterly report on Form 10-Q of Capitol Bancorp Ltd.; |
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
| 4. | The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: |
| a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
| b) | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
| c) | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
| 5. | The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
| a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
| b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
| Date: August 8, 2003 | /s/ Lee W. Hendrickson Lee W. Hendrickson Chief Financial Officer |
E-2
EXHIBIT 32.1
Chief Executive Officer
Certification
Pursuant
to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the
Sarbanes-Oxley Act of 2002
In connection with the quarterly report of Capitol Bancorp Ltd. (the “Company”) on Form 10-Q (the “Form 10-Q”) for the period ended June 30, 2003 as filed with the Securities and Exchange Commission on the date hereof, I, Joseph D. Reid, the Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge:
| 1. | The Form 10-Q fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)); and |
| 2. | The information contained in the Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of the Company. |
| Date: August 8, 2003 | /s/ Joseph D. Reid Joseph D. Reid Chief Executive Officer |
This certification accompanies the Periodic Report pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by the Sarbanes-Oxley Act of 2002, be deemed filed by the Company for the purposes of Section 18 of the Securities Exchange Act of 1934, as amended.
A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to Capitol Bancorp Ltd. and will be retained by Capitol Bancorp Ltd. and furnished to the Securities and Exchange Commission or its staff upon request.
E-3
EXHIBIT 32.2
Chief Financial Officer
Certification
Pursuant
to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the
Sarbanes-Oxley Act of 2002
In connection with the quarterly report of Capitol Bancorp Ltd. (the “Company”) on Form 10-Q (the “Form 10-Q”) for the period ended June 30, 2003 as filed with the Securities and Exchange Commission on the date hereof, I, Lee W. Hendrickson, the Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge:
| 1. | The Form 10-Q fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)); and |
| 2. | The information contained in the Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of the Company. |
| Date: August 8, 2003 | /s/ Lee W. Hendrickson Lee W. Hendrickson Chief Financial Officer |
This certification accompanies the Periodic Report pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by the Sarbanes-Oxley Act of 2002, be deemed filed by the Company for the purposes of Section 18 of the Securities Exchange Act of 1934, as amended.
A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to Capitol Bancorp Ltd. and will be retained by Capitol Bancorp Ltd. and furnished to the Securities and Exchange Commission or its staff upon request.
E-4