UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

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, 2003 or

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

Commission File Number: 001-31708

CAPITOL BANCORP LTD.

Capitol Bancorp 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 o

     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. o

YES x          NO o

     Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act).

YES x          NO o

     State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold, or the average bid and asked price of such common security, as of the last business day of the registrant’s most recently completed second fiscal quarter: $306,741,334. (Such amount was computed based on shares held by non-affiliates as of February 25, 2004 and the common stock closing price reported by the New York Stock Exchange on June 30, 2003. For purposes of this computation, all executive officers, directors and 5% shareholders of registrant have been assumed to be affiliates. Certain of such persons may disclaim that they are affiliates of registrant.)

     Indicate the number of shares outstanding of each of the registrant’s classes of common stock as of the latest practicable date: 14,076,346 as of February 25, 2004.

DOCUMENTS INCORPORATED BY REFERENCE

See Cross-Reference Sheet

CAPITOL BANCORP LTD.
Form 10-K
Fiscal Year Ended: December 31, 2003
Cross Reference Sheet

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CAPITOL BANCORP LTD.

2003 FORM 10-K ANNUAL REPORT

TABLE OF CONTENTS

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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.

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PART I

Item 1, Business.

a. General development of business:

     Incorporated by reference from Page 7, Financial Information Section of Annual Report, under the caption “Capitol Bancorp and its Banking Business”, and Pages 30-32, 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 segments:

     Incorporated by reference from Pages 30-32, 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 Page 7, Financial Information Section of Annual Report, under the caption “Capitol Bancorp and its Banking Business”, Pages 30-32, Financial Information Section of Annual Report, under the caption “Note A—Nature of Operations, Basis of Presentation and Principles of Consolidation”, Pages 8-9, Financial Information Section of Annual Report, under the caption “Critical Accounting Policies Affecting Capitol’s Financial Statements”, Pages 21-24, 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, 2003, Capitol and its subsidiaries employed 858 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. Capitol Trust IV was similarly formed in 2002 and Capitol Trust VI, Capitol Trust VII and Capitol Statutory Trust VIII were formed in 2003. Additional information regarding trust-preferred securities is incorporated by reference from Page 43, 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.

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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, 2003, 2002 and 2001.

(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.

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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.

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INVESTMENT PORTFOLIO (TABLE C)
CAPITOL BANCORP LIMITED

The table below shows amortized cost and estimated market value of investment securities as of December 31, 2003, 2002 and 2001 (in $1,000s):

The table below shows the amortized cost, relative maturities and weighted average yields of investment securities at December 31, 2003 (in $1,000s):

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, 2003:

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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):

The table below summarizes (in $1,000s) the remaining maturity of portfolio loans outstanding at December 31, 2003 according to scheduled repayments of principal.

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 is generally less than $1,000,000 and, at December 31, 2003, 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 $500,000, 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.

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LOAN PORTFOLIO AND SUMMARY OF OTHER REAL ESTATE OWNED (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 are comprised 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.

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.

At December 31, 2003, potential problem loans (including nonperforming loans) approximated $113 million or about 5% of total consolidated portfolio loans. Such totals typically approximate 4% to 5% of loans outstanding and are an important part of management’s ongoing and augmented loan review activities which are designed to early-identify loans which warrant close monitoring at the bank and corporate credit-administration levels. It is important to note that these potential problem loans do not necessarily have significant loss exposure (nor are they necessarily deemed ‘impaired’), but rather are identified by management in this manner to aid in loan administration and risk management. Management believes these loans to be adequately considered in its evaluation of the adequacy of the allowance for loan losses.

The table below summarizes activity in other real estate owned (in $1,000s) for the year ended December 31:

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.

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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):

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 amount of the allowance for loan losses at the balance-sheet date.

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SUMMARY OF LOAN LOSS EXPERIENCE (TABLE E, CONTINUED)
CAPITOL BANCORP LIMITED

The amounts of the allowance for loan losses allocated in the following table (in $1,000’s) as of December 31, are based on management’s estimates of losses inherent in the portfolio at the balance sheet date, and should not be interpreted as an indication of future charge-offs:

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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, 2003, 2002 and 2001:

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, 2003 (in $1,000s):

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FINANCIAL RATIOS (TABLE G)
CAPITOL BANCORP LIMITED

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Item 2, Properties.

     The names and locations of Capitol’s banks are listed on Page 30, Financial Information Section of Annual Report, under the Caption “Note A—Nature of Operations, Basis of Presentation and Principles of Consolidation”, which is incorporated herein by reference.

     Most of the banks’ locations are leased. Each of Capitol’s banks operates from a single location, except Capitol National Bank (which has two branch locations), Bank of Tucson (which has one branch office), Red Rock Community Bank (which has one branch office), Mesa Bank (which has one branch office) and Sunrise Bank of Arizona (which has multiple office locations). Most of the banks’ facilities are generally small (i.e., less than 10,000 square feet), first floor offices with convenient access to parking. Ann Arbor Commerce Bank, Capitol’s largest bank, occupies the largest leased facility, approximately 18,000 square feet.

     Elkhart Community Bank, Goshen Community Bank, Grand Haven Bank, Muskegon Commerce Bank and Paragon Bank & Trust own their stand-alone bank facilities.

     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.

     Capitol’s Great Lakes headquarters is located within the same building as Capitol National Bank in Lansing, Michigan. The headquarters include administrative, operations, accounting, human resources, credit administration and executive staff. Data processing centers are located in both Lansing, Michigan and Tempe, Arizona.

     Capitol’s Western Regions headquarters is located within the same building as Camelback Community Bank in Phoenix, Arizona.

     Certain of the office locations are leased from related parties. Rent expense including rent expense under leases with related parties is incorporated by reference from Pages 40-41, Financial Information Section of Annual Report, under the caption “Note F—Premises and Equipment”. Additional disclosures regarding leases with related parties are incorporated by reference from the Corporation’s definitive proxy statement to be filed within 120 days after December 31, 2003.

     Management believes Capitol’s and its banks’ offices to be in good and adequate condition and adequately covered by insurance.

Item 3, Legal Proceedings.

     As of December 31, 2003, 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 2003, no matters were submitted to a vote by security holders.

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PART II

Item 5, Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.

A.		Market Information:
		Incorporated by reference from Page 3, Financial Information Section of Annual Report, under the caption “Information Regarding Capitol’s Common Stock”, Page 44 under the caption “Note J—Restricted Common Stock 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 49-50, Financial Information Section of Annual Report, under the caption “Note P—Dividend Limitations of Subsidiaries and Other Capital Requirements” and the second paragraph on Page 42, Financial Information Section of Annual Report, under the caption “Note H—Notes Payable”.
D.		Securities Authorized for Issuance Under Equity Compensation Plan:

Summary of equity compensation plans as of December 31, 2003:

E.

There were no purchases of equity securities by the issuer.

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, 2003, 2002, 2001, 2000 and 1999”.

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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 “Cautions Regarding Forward-Looking Statements”.

Item 7A, Quantitative and Qualitative Disclosures About Market Risk.

     Incorporated by reference from Pages 21-24, Financial Information Section of Annual Report, under the caption “Trends Affecting Operations” and Page 5, Financial Information Section of Annual Report, under the caption “Cautions Regarding Forward-Looking Statements”.

Item 8, Financial Statements and Supplementary Data.

     See Item 15 (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.

Item 9A, Controls and Procedures.

     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.

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

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PART III

Item 10, Directors and Executive Officers of the Registrant.

     Incorporated by reference from Capitol’s definitive proxy statement to be filed within 120 days after December 31, 2003.

     Executive officers of Capitol are as follows: