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, 2002 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)
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 [ ]
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. [ ]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act).
YES [X] NO [ ]
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: $225,733,593. (Such amount was computed based
on shares held by non-affiliates as of March 17, 2003 and the common stock
closing price reported by Nasdaq on June 28, 2002. 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: 11,717,709 as of
March 17, 2003.
DOCUMENTS INCORPORATED BY REFERENCE
See Cross-Reference Sheet
CAPITOL BANCORP LTD.
Form 10-K
Fiscal Year Ended: December 31, 2002
CROSS REFERENCE SHEET
ITEM OF FORM 10-K INCORPORATION BY REFERENCE FROM:
- ----------------- --------------------------------
PART I
Item 1, Business Pages 7-10, 18-20, 21-24, 30-31 and 42, Financial
Information Section of Annual Report
Item 2, Properties Page 40, Financial Information Section of Annual Report;
Proxy Statement; and certain individual pages,
Marketing Section of Annual Report
PART II
Item 5, Market for Registrant's Pages 2-3, 41, 43 and 50-51, 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 and 7-24, Financial Information Section of
and Analysis of Financial Condition Annual Report
and Results of Operations
Item 7a, Quantitative and Qualitative Pages 5 and 21-24, Financial Information Section of
Disclosures About Market Risk Annual Report
Item 8, Financial Statements and Pages 2 and 26-54, Financial Information Section of
Supplementary Data Annual Report
PART III
Item 10, Directors and Executive Officers Proxy Statement
of the Registrant
Item 11, Executive Compensation Proxy Statement
Item 12, Security Ownership of Certain Beneficial Proxy Statement
Owners and Management and
Related Stockholder Matters
Item 13, Certain Relationships and Related Proxy Statement
Transactions
PART IV
Item 15, Exhibits, Financial Statement Schedules Pages 26-54, Financial Information Section of Annual Report
and Reports on Form 8-K
KEY:
"Annual Report" means the 2002 Annual Report of the Registrant provided to Stockholders and the Commission pursuant
to Rule 14a-3(b). Capitol's 2002 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 to be filed pursuant to Rule 14a-101,
within 120 days after December 31, 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.
2002 FORM 10-K ANNUAL REPORT
TABLE OF CONTENTS
Page
----
PART I
ITEM 1. Business........................................................ 5
ITEM 2. Properties...................................................... 15
ITEM 3. Legal Proceedings............................................... 16
ITEM 4. Submission of Matters to a Vote of Security Holders............. 16
PART II
ITEM 5. Market for Registrant's Common Equity and Related
Stockholder Matters .......................................... 17
ITEM 6. Selected Financial Data......................................... 17
ITEM 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations .................................... 17
ITEM 7A. Quantitative and Qualitative Disclosures About Market Risk...... 18
ITEM 8. Financial Statements and Supplementary Data..................... 18
ITEM 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure ..................................... 18
PART III
ITEM 10. Directors and Executive Officers of the Registrant............... 19
ITEM 11. Executive Compensation........................................... 19
ITEM 12. Security Ownership of Certain Beneficial Owners and Management
and Related Stockholder Matters................................ 19
ITEM 13. Certain Relationships and Related Transactions................... 19
ITEM 14. Controls and Procedures.......................................... 20
PART IV
ITEM 15. Exhibits, Financial Statement Schedules and Reports on Form 8-K.. 20
-3-
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.
[The remainder of this page intentionally left blank]
-4-
PART I
ITEM 1, BUSINESS.
a. General development of business:
Incorporated by reference from Pages 7-9 under the captions "The Business
of Capitol and its Banks", and "Capitol's Structure", and Pages 31-32, 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 31-32, 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 Pages 7-9 under the captions "The Business
of Capitol and its Banks", and "Capitol's Structure", Pages 31-32, Financial
Information Section of Annual Report, under the caption "Note A--Nature of
Operations, Basis of Presentation and Principles of Consolidation", Page 10,
Financial Information Section of Annual Report, under the caption "Critical
Accounting Policies", Pages 22-25, Financial Information Section of Annual
Report, under the caption "Trends Affecting Operations" and Pages 18-21,
Financial Information Section of Annual Report, under the caption "Liquidity,
Capital Resources and Capital Adequacy".
At December 31, 2002, Capitol and its subsidiaries employed 801 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. 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.
-5-
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,
2002, 2001 and 2000.
2002 2001
-------------------------------------- --------------------------------------
Interest (1) Interest (1)
Average Income/ Average Average Income/ Average
Balance Expense Yield/Cost Balance Expense Yield/Cost
---------- ---------- ---------- ---------- ---------- ----------
ASSETS
Federal funds sold $ 87,460 $ 1,376 1.57% $ 82,237 $ 3,186 3.87%
Interest-bearing deposits with banks 29,592 807 2.73% 16,335 322 1.97%
Investment securities:
U.S. Treasury, government agencies and other 43,447 1,792 4.12% 46,962 2,804 5.97%
States and political subdivisions 470 20 4.26% 1,572 66 4.20%
Loans held for resale 51,042 2,674 5.24% 42,894 3,002 7.00%
Portfolio loans (2) 1,884,646 149,785 7.95% 1,560,337 144,417 9.26%
---------- ---------- ----- ---------- ---------- -----
Total interest-earning
assets/interest income 2,096,657 156,454 7.46% 1,750,337 153,797 8.79%
Allowance for loan losses (deduct) (26,010) (20,337)
Cash and due from banks 99,604 73,573
Premises and equipment, net 18,184 16,910
Other assets 46,699 40,434
---------- ----------
Total assets $2,235,134 $1,860,917
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Interest-bearing deposits:
Savings deposits $ 65,124 1,036 1.59% $ 51,801 1,558 3.01%
Time deposits under $100,000 335,332 12,910 3.85% 356,338 20,533 5.76%
Time deposits of $100,000 or more 550,381 20,546 3.73% 478,497 27,388 5.72%
Other interest-bearing deposits 654,853 13,356 2.04% 479,314 16,176 3.37%
Debt obligations 89,992 3,981 4.42% 68,510 4,422 6.45%
---------- ---------- ---------- ----------
Total interest-bearing
liabilities/interest expense 1,695,682 51,829 3.06% 1,434,460 70,077 4.89%
Trust - preferred securities 50,213 4,031 8.03% 34,112 3,215 9.42%
---------- ---------- ----- ---------- ---------- -----
1,745,895 55,860 3.20% 1,468,572 73,292 4.99%
Noninterest-bearing demand deposits 303,227 236,048
Accrued interest on deposits and
other liabilities 15,738 47,009
Minority interests in consolidated subsidiaries 45,324 38,886
Stockholders' equity 124,950 70,402
---------- ----------
Total liabilities and
stockholders' equity $2,235,134 $1,860,917
========== ---------- ========== ----------
Net interest income $ 100,594 $ 80,505
========== ==========
Interest Rate Spread (3) 4.26% 3.80%
===== =====
Net Yield on Interest-Earning Assets (4) 4.80% 4.60%
===== =====
Ratio of Average Interest-Earning
Assets to Interest-Bearing Liabilities 1.20 1.19
========== ==========
2000
--------------------------------------
Interest (1)
Average Income/ Average
Balance Expense Yield/Cost
ASSETS ---------- ---------- ----------
Federal funds sold $ 63,664 $ 3,985 6.26%
Interest-bearing deposits with banks 13,681 820 5.99%
Investment securities:
U.S. Treasury, government agencies and other 79,092 4,645 5.87%
States and political subdivisions 1,605 80 4.98%
Loans held for resale 11,081 1,044 9.42%
Portfolio loans (2) 1,213,192 121,737 10.03%
---------- ---------- -----
Total interest-earning
assets/interest income 1,382,315 132,311 9.57%
Allowance for loan losses (deduct) (14,866)
Cash and due from banks 54,581
Premises and equipment, net 14,490
Other assets 36,096
----------
Total assets $1,472,616
==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Interest-bearing deposits:
Savings deposits $ 45,251 1,758 3.88%
Time deposits under $100,000 328,605 21,162 6.44%
Time deposits of $100,000 or more 367,751 21,657 5.89%
Other interest-bearing deposits 353,956 15,679 4.43%
Debt obligations 45,249 3,506 7.75%
---------- ----------
Total interest-bearing
liabilities/interest expense 1,140,812 63,762 5.59%
Trust - preferred securities 24,244 2,150 8.87%
---------- ---------- -----
1,165,056 65,912 5.66%
Noninterest-bearing demand deposits 176,804
Accrued interest on deposits and
other liabilities 25,512
Minority interests in consolidated subsidiaries 46,956
Stockholders' equity 58,288
----------
Total liabilities and
stockholders' equity $1,472,616
========== ----------
Net interest income $ 66,399
==========
Interest Rate Spread (3) 3.91%
=====
Net Yield on Interest-Earning Assets (4) 4.80%
=====
Ratio of Average Interest-Earning
Assets to Interest-Bearing Liabilities 1.19
==========
(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.
-6-
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.
2002 compared to 2001 2001 compared to 2000
-------------------------------- --------------------------------
Volume Rate Net Total Volume Rate Net Total
-------- -------- --------- -------- -------- ---------
Increase (decrease) in interest income:
Federal funds sold $ 191 $ (2,001) $ (1,810) $ 970 $ (1,769) $ (799)
Interest-bearing deposits with banks 329 156 485 135 (633) (498)
Investment securities:
U.S. Treasury, government agencies and other (197) (815) (1,012) (1,917) 76 (1,841)
States and political subdivisions (47) 1 (46) (2) (12) (14)
Loans held for resale 509 (837) (328) 2,290 (332) 1,958
Portfolio loans 27,492 (22,124) 5,368 32,707 (10,027) 22,680
-------- -------- -------- -------- -------- --------
Total 28,277 (25,620) 2,657 34,183 (12,697) 21,486
Increase (decrease) in interest expense deposits:
Savings deposits 334 (856) (522) 232 (432) (200)
Time deposits under $100,000 (1,150) (6,473) (7,623) 1,702 (2,331) (629)
Time deposits of $100,000 or more 3,683 (10,525) (6,842) 6,354 (623) 5,731
Other interest-bearing deposits 4,797 (7,617) (2,820) 4,762 (4,265) 497
Debt obligations 1,169 (1,610) (441) 1,575 (659) 916
Trust preferred securities 1,346 (530) 816 923 142 1,065
-------- -------- -------- -------- -------- --------
Total 10,179 (27,611) (17,432) 15,548 (8,168) 7,380
-------- -------- -------- -------- -------- --------
Increase (decrease) in net
interest income $ 18,098 $ 1,991 $ 20,089 $ 18,635 $ (4,529) $ 14,106
======== ======== ======== ======== ======== ========
-7-
INVESTMENT PORTFOLIO (TABLE C)
CAPITOL BANCORP LIMITED
The table below shows amortized cost and estimated market value of investment
securities as of December 31, 2002, 2001 and 2000 (in $1,000s):
2002 2001 2000
--------------------- --------------------- ---------------------
Estimated Estimated Estimated
Amortized Market Amortized Market Amortized Market
Cost Value Cost Value Cost Value
--------- --------- --------- --------- --------- ---------
U.S. Treasury $ 2,505 $ 2,586 $ 3,704 $ 3,757 $ 5,086 $ 5,101
Government agencies 22,460 22,668 30,253 30,429 55,514 55,334
States and political subdivisions 101 101 1,402 1,412 1,604 1,606
Corporate bonds 251 251
--------- --------- --------- --------- --------- ---------
25,066 25,355 35,359 35,598 62,455 62,292
Other securities:
Federal Reserve Bank stock 424 424 394 394 394 394
Federal Home Loan Bank stock 5,950 5,950 4,716 4,716 3,583 3,583
Corporate stock 1,075 1,075 895 895 907 907
Other investments 1,335 1,335 2,084 2,084 1,750 1,750
--------- --------- --------- --------- --------- ---------
Total other securities 8,784 8,784 8,089 8,089 6,634 6,634
--------- --------- --------- --------- --------- ---------
Total investment securities $ 33,850 $ 34,139 $ 43,448 $ 43,687 $ 69,089 $ 68,926
========= ========= ========= ========= ========= =========
The table below shows the amortized cost, relative maturities and weighted
average yields of investment securities at December 31, 2002 (in $1,000s):
U.S. Treasury and States and Political
Government Agencies Subdivisions
--------------------------------- --------------------------------- Total
Estimated Weighted Estimated Weighted Total Estimated
Amortized Market Average Amortized Market Average Amortized Market
Cost Value Yield Cost Value Yield Cost Value
--------- --------- --------- --------- --------- --------- --------- ---------
Maturity:
Due in one year or less $ 3,411 $ 3,445 4.38% $ 3,411 $ 3,445
Due after one year but within
five years 17,375 17,551 3.68% 17,375 17,551
Due after five years but within
ten years 1,664 1,682 5.69% $ 101 $ 101 5.40% 1,765 1,783
Due after ten years 2,515 2,576 6.65% 2,515 2,576
Without stated maturities 8,784 8,784
--------- --------- --------- --------- --------- ---------
Total $ 24,965 $ 25,254 $ 101 $ 101 $ 33,850 $ 34,139
========= ========= ========= ========= ========= =========
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,
2002:
U.S. Treasury securities 1 year 7 months
U.S. Agencies 5 years 7 months
States and political subdivisions 6 years
-8-
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):
2002 2001 2000 1999 1998
------------------- ------------------- ------------------- ------------------- -------------------
Commercial - real estate $1,531,637 76.91% $1,154,757 66.57% $ 865,382 63.83% $ 627,029 59.76% $ 417,296 57.62%
Commercial - other 257,399 12.93% 380,694 21.95% 308,354 22.74% 247,531 23.59% 173,055 23.89%
---------- ------ ---------- ------ ---------- ------ ---------- ------ ---------- ------
Total commercial loans 1,789,036 89.84% 1,535,451 88.52% 1,173,736 86.57% 874,560 83.35% 590,351 81.51%
Real estate mortgage 127,855 6.42% 121,676 7.01% 113,324 8.36% 96,000 9.15% 80,808 11.16%
Installment 74,481 3.74% 77,462 4.47% 68,738 5.07% 78,644 7.50% 53,121 7.33%
---------- ------ ---------- ------ ---------- ------ ---------- ------ ---------- ------
Total portfolio loans $1,991,372 100.00% $1,734,589 100.00% $1,355,798 100.00% $1,049,204 100.00% $ 724,280 100.00%
========== ====== ========== ====== ========== ====== ========== ====== ========== ======
The table below summarizes (in $1,000s) the remaining maturity of portfolio
loans outstanding at December 31, 2002 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: $ 339,821 $ 735,247 $1,075,068
After one year but within five years 547,397 263,338 810,735
After five years 28,363 60,589 88,952
Nonaccrual loans 16,617 16,617
---------- ---------- ----------
Total $ 932,198 $1,059,174 $1,991,372
========== ========== ==========
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, 2002,
approximately 25% 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.
-9-
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.
2002 2001 2000 1999 1998
-------- -------- -------- -------- --------
Nonperforming loans:
Nonaccrual loans: Commercial $ 15,444 $ 11,220 $ 4,082 $ 2,709 $ 2,608
Real estate 560 356 163 103 199
Installment 613 466 171 100 185
-------- -------- -------- -------- --------
Total nonaccrual loans 16,617 12,042 4,416 2,912 2,992
Past due loans: Commercial 5,728 4,290 1,656 834 3,963
Real estate 323 787 534 196 183
Installment 222 119 151 182 104
-------- -------- -------- -------- --------
Total past due loans 6,273 5,196 2,341 1,212 4,250
-------- -------- -------- -------- --------
Total nonperforming loans $ 22,890 $ 17,238 $ 6,757 $ 4,124 $ 7,242
======== ======== ======== ======== ========
Nonperforming loans as a percentage
of total portfolio loans 1.15% 0.99% 0.50% 0.39% 1.00%
======== ======== ======== ======== ========
Nonperforming loans as a percentage
of total assets 0.95% 0.84% 0.41% 0.32% 0.71%
======== ======== ======== ======== ========
Allowance for loan losses as a
percentage of nonperforming loans 126.49% 134.81% 258.24% 306.47% 121.75%
======== ======== ======== ======== ========
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, 2002, potential problem loans (including nonperforming loans)
approximated $98.5 million or about 5% of total consolidated portfolio loans.
Such totals typically approximate 4% to 5% of loans outstanding as 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. Management believes, however, that
current general economic conditions may result in higher levels of future loan
losses, in comparison to previous years.
The table below summarizes activity in other real estate owned (in $1,000s) for
the year ended December 31:
2002 2001 2000 1999 1998
-------- -------- -------- -------- --------
Other real estate owned at January 1 $ 3,044 $ 3,094 $ 3,614 $ 541 $ 165
Properties acquired in restructure
of loans or in lieu of foreclosure 4,578 860 324 3,426 612
Properties sold (2,998) (233) (717) (376) (161)
Payments received from borrowers or
tenants, credited to carrying amount -- (3) -- -- (75)
Other changes, net (19) (674) (127) 23 --
-------- -------- -------- -------- --------
Other real estate owned at December 31 $ 4,605 $ 3,044 $ 3,094 $ 3,614 $ 541
======== ======== ======== ======== ========
Of the other real estate owned at December 31, 2002, one property, with a
carrying value of $1.7 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.
-10-
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):
2002 2001 2000 1999 1998
---------- ---------- ---------- ---------- ----------
Allowance for loan losses at January 1 $ 23,238 $ 17,449 $ 12,639 $ 8,817 $ 6,229
Loans charged-off:
Commercial 6,824 2,280 2,850 1,201 1,165
Real estate 352 143 204 9
Installment 527 506 117 97 131
---------- ---------- ---------- ---------- ----------
Total charge-offs 7,703 2,929 3,171 1,298 1,305
Recoveries:
Commercial 588 485 734 391 336
Real estate 61 37 13 6 4
Installment 93 29 18 13 30
---------- ---------- ---------- ---------- ----------
Total recoveries 742 551 765 410 370
---------- ---------- ---------- ---------- ----------
Net charge-offs 6,961 2,378 2,406 888 935
Additions to allowance charged to expense 12,676 8,167 7,216 4,710 3,523
---------- ---------- ---------- ---------- ----------
Allowance for loan losses at December 31 $ 28,953 $ 23,238 $ 17,449 $ 12,639 $ 8,817
========== ========== ========== ========== ==========
Total portfolio loans outstanding at December 31 $1,991,372 $1,734,589 $1,355,798 $1,049,204 $ 724,280
========== ========== ========== ========== ==========
Ratio of allowance for loan losses to
portfolio loans outstanding 1.45% 1.34% 1.29% 1.20% 1.22%
========== ========== ========== ========== ==========
Average total portfolio loans for the year $1,884,646 $1,560,337 $1,213,192 $ 872,481 $ 605,923
========== ========== ========== ========== ==========
Ratio of net charge-offs to average
portfolio loans outstanding 0.37% 0.15% 0.20% 0.10% 0.15%
========== ========== ========== ========== ==========
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 judgment in
determining the amounts of additions to the allowance.
-11-
SUMMARY OF LOAN LOSS EXPERIENCE (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, is 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:
2002 2001 2000
------------------------ ------------------------ ------------------------
Percentage Percentage Percentage
Amount of Loans Amount of Loans Amount of Loans
---------- ---------- ---------- ---------- ---------- ----------
Commercial $ 27,226 1.37% $ 20,570 1.19% $ 16,096 1.19%
Real estate mortgage 1,009 0.05% 1,630 0.09% 285 0.02%
Installment 718 0.03% 1,038 0.06% 1,068 0.08%
Unallocated -- -- --
---------- ---------- ----------
Total allowance for loan losses $ 28,953 1.45% $ 23,238 1.34% $ 17,449 1.29%
========== ===== ========== ===== ========== =====
Total portfolio loans outstanding $1,991,372 $1,734,589 $1,355,798
========== ========== ==========
1999 1998
------------------------ ------------------------
Percentage Percentage
Amount of Loans Amount of Loans
---------- ---------- ---------- ----------
Commercial $ 5,965 0.57% $ 4,501 0.62%
Real estate mortgage 165 0.02% 127 0.02%
Installment 385 0.04% 262 0.04%
Unallocated 6,124 0.58% 3,927 0.54%
---------- ----------
Total allowance for loan losses $ 12,639 1.20% $ 8,817 1.22%
========== ===== ========== =====
Total portfolio loans outstanding $1,049,204 $ 724,280
========== ==========
-12-
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, 2002, 2001 and 2000:
2002 2001 2000
------------------------ ------------------------ ------------------------
Average Average Average
Amount Rate Amount Rate Amount Rate
---------- ---------- ---------- ---------- ---------- ----------
Noninterest-bearing demand deposits $ 303,227 $ 236,048 $ 176,804
Savings deposits 65,124 1.59% 51,801 3.01% 45,251 3.88%
Time deposits under $100,000 335,332 3.85% 356,338 5.76% 328,605 6.44%
Time deposits of $100,000 or more 550,381 3.73% 478,497 5.72% 367,751 5.89%
Other interest-bearing deposits 654,853 2.04% 479,314 3.37% 353,956 4.43%
---------- ---------- ----------
Total deposits $1,908,917 $1,601,998 $1,272,367
========== ========== ==========
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, 2002 (in $1,000s):
Three months or less $ 140,408
Three months to six months 103,259
Six months to twelve months 154,125
Over 12 months 166,768
----------
Total $ 564,560
==========
-13-
FINANCIAL RATIOS (TABLE G)
CAPITOL BANCORP LIMITED
Year Ended December 31
------------------------
2002 2001 2000
------ ------ ------
Net income as a percentage of:
Average stockholders' equity 13.33% 15.22% 13.78%
Average total assets 0.75% 0.58% 0.55%
Capital ratios:
Average stockholders' equity as a
percentage of average total assets 5.59% 3.78% 3.96%
Average total equity (stockholders' equity and
minority interests in consolidated subsidiaries)
as a percentage of average total assets 7.62% 5.87% 7.15%
Average total capital funds (stockholders'
equity, minority interests in consolidated
subsidiaries and trust-preferred securities)
as a percentage of average total assets 9.86% 7.71% 8.79%
Dividend payout ratio (cash dividends per share
as a percentage of net income per share):
Basic 26.83% 28.99% 31.58%
Diluted 28.03% 29.63% 31.86%
-14-
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
two branch locations, one in Okemos and one in Lansing, Michigan), Red Rock
Community Bank (which has two locations in Las Vegas, Nevada), Mesa Bank (which
has two locations in Mesa, Arizona) and Sunrise Bank of Arizona (which has
multiple office locations). 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
Bank of Las Vegas Napa Community 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. Grand Haven Bank owns its stand-alone bank
facility.
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.
Capitol's Great Lakes headquarters 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.
Capitol's Western Regions headquarters are located 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 Page 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, 2002.
Management believes Capitol's and its subsidiaries' offices to be in good
and adequate condition and adequately covered by insurance.
-15-
ITEM 3, LEGAL PROCEEDINGS.
As of December 31, 2002, 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 2002, no matters were submitted to a vote by
security holders.
[The remainder of this page intentionally left blank]
-16-
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 44-45 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 50-51, Financial
Information Section of Annual Report, under the caption "Note P--Dividend
Limitations of Subsidiaries and Other Capital Requirements" and the last
paragraph on Page 42, Financial Information Section of Annual Report, under
the caption "Note H--Debt Obligations".
D. Securities Authorized for Issuance Under Equity Compensation Plan:
Summary of equity compensation plans as of December 31, 2002:
Weighted Average Number Available
Number Exercise for Future
Outstanding Price Issuance
--------- ------ ---------
Equity compensation plans:
Approved by shareholders 450,394 $11.87 114,501
Not approved by shareholders 446,511 15.63 --
Resulting from share exchanges 1,651,631 16.20 --
--------- ------ ---------
Total 2,548,536 $15.23 114,501
========= ====== =========
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, 2002, 2001, 2000,
1999 and 1998".
ITEM 7, MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
Incorporated by reference from Pages 7-25, 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".
-17-
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 "Forward
Looking Statements".
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.
-18-
PART III
ITEM 10, DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Incorporated by reference from Corporation's definitive proxy statement to
be filed within 120 days after December 31, 2002.
Executive officers of Capitol are as follows:
Name and Year First Became
Principal Positions Age An Officer
------------------------------------------------- ----- -----------------
Joseph D. Reid 60 1988
Chairman, President and Chief Executive Officer
David O'Leary 72 1988
Secretary
Robert C. Carr 63 1988
Executive Vice President and Treasurer
David J. Dutton 52 2000
Chief Information Officer
Cristin Reid English 34 1997
Chief Administrative Officer
Lee W. Hendrickson 47 1991
Chief Financial Officer
Michael L. Kasten 57 2002
Vice Chairman
Lyle W. Miller 59 2002
Vice Chairman
John S. Lewis 49 2002
President - Western Regions
Michael M. Moran 43 2000
Chief of Capital Markets
David K. Powers 57 1990
Director of Loan Administration
William E. Rheaume 61 1998
Senior Counsel
Bruce A. Thomas 45 1998
Chief of Bank Performance, Great Lakes Region
Brian K. English 37 2001
General Counsel
Carl C. Farrar 53 1998
Senior Vice President
John C. Smythe 56 1983
Senior Vice President
Marie D. Walker 43 1990
Senior Vice President, Accounting
Linda D. Pavona 51 1991
Senior Vice President
ITEM 11, EXECUTIVE COMPENSATION.
Incorporated by reference from Corporation's definitive proxy statement to
be filed within 120 days after December 31, 2002.
ITEM 12, SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
Incorporated by reference from Corporation's definitive proxy statement to
be filed within 120 days after December 31, 2002.
ITEM 13, CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Incorporated by reference from Corporation's definitive proxy statement to
be filed within 120 days after December 31, 2002.
-19-
PART III, CONTINUED
ITEM 14, CONTROLS AND PROCEDURES.
(a) EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES.
Disclosure controls and procedures (as defined in Rules 13a-14 and 15d-14
of the Securities Exchange Act of 1934) were evaluated as of December 31,
2002 ("Evaluation Date"). Such evaluation concluded that Capitol's
disclosure controls and procedures are effective to ensure that material
information relating to Capitol, including its consolidated subsidiaries,
is made known to Capitol's senior management, particularly during the
period for which this annual report has been prepared.
(b) CHANGES IN INTERNAL CONTROL.
As of the signature date of this report, there have been no significant
changes in Capitol's internal controls or in other factors that could
significantly affect internal controls subsequent to the Evaluation Date
referred to in (a) above.
(c) ASSET-BACKED ISSUERS.
Not applicable.
PART IV
ITEM 15, 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 26-54 of the Financial Information Section of Annual Report of the
Registrant to its stockholders for the year ended December 31, 2002, are
incorporated by reference in Item 8:
Report of Independent Auditors.
Consolidated balance sheets--December 31, 2002 and 2001.
Consolidated statements of income--Years ended December 31, 2002, 2001
and 2000.
Consolidated statements of changes in stockholders' equity--Years
ended December 31, 2002, 2001 and 2000.
Consolidated statements of cash flows--Years ended December 31, 2002,
2001 and 2000.
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 2002, no reports on Form 8-K were filed by the
Registrant.
-20-
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 and Chief Financial Officer
Chief Executive 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 28, 2003.
/s/ Joseph D. Reid /s/ Robert C. Carr
- ------------------------------------- ----------------------------------
Joseph D. Reid, Chairman, Robert C. Carr, Executive Vice
Chief Executive Officer and Director President, 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/ Lyle W. Miller
- ------------------------------------- ----------------------------------
Lyle W. Miller, Vice Chairman and Louis G. Allen, Director
Director
/s/ Paul R. Ballard /s/ David L. Becker
- ------------------------------------- ----------------------------------
Paul R. Ballard, Director David L. Becker, Director
/s/ Douglas E. Crist /s/ Michael J. Devine
- ------------------------------------- ----------------------------------
Douglas E. Crist, Director Michael J. Devine, Director
/s/ James C. Epolito /s/ Gary A. Falkenberg
- ------------------------------------- ----------------------------------
James C. Epolito, Director Gary A. Falkenberg, Director
/s/ Kathleen A. Gaskin
- ------------------------------------- ----------------------------------
Joel I. Ferguson, Director Kathleen A. Gaskin, Director
/s/ H. Nicholas Genova /s/ Michael F. Hannley
- ------------------------------------- ----------------------------------
H. Nicholas Genova, Director Michael F. Hannley, Director
/s/ Lewis D. Johns /s/ John S. Lewis
- ------------------------------------- ----------------------------------
Lewis D. Johns, Director John S. Lewis, President, Western
Regions and Director
/s/ Humberto S. Lopez /s/ Leonard Maas
- ------------------------------------- ----------------------------------
Humberto S. Lopez, Director Leonard Maas, Director
/s/ Kathryn L. Munro /s/ Cristin Reid English
- ------------------------------------- ----------------------------------
Kathryn L. Munro, Director Cristin Reid English, Chief
Administrative Officer and
Director
/s/ Ronald K. Sable
- -------------------------------------
Ronald K. Sable, Director
-21-
CERTIFICATIONS
I, Joseph D. Reid, Chairman and CEO, certify that:
1. I have reviewed this annual report on Form 10-K of Capitol Bancorp Ltd.;
2. Based on my knowledge, this annual 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 annual
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual 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 annual report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures 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 annual report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this annual
report (the "Evaluation Date"); and
c) presented in this annual report our conclusions about the effectiveness of
the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent function):
a) all significant deficiencies in the design or operation of internal controls
which could adversely affect the registrant's ability to record, process,
summarize and report financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this
annual report whether or not there were significant changes in internal controls
or in other factors that could significantly affect internal controls subsequent
to the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
Date: March 28, 2003
/s/ Joseph D. Reid
-----------------------------
Joseph D. Reid
Chairman and CEO
-22-
CERTIFICATIONS--CONTINUED
I, Lee W. Hendrickson, Chief Financial Officer, certify that:
1. I have reviewed this annual report on Form 10-K of Capitol Bancorp Ltd.;
2. Based on my knowledge, this annual 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 annual
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual 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 annual report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures 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 annual report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this annual
report (the "Evaluation Date"); and
c) presented in this annual report our conclusions about the effectiveness of
the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent function):
a) all significant deficiencies in the design or operation of internal controls
which could adversely affect the registrant's ability to record, process,
summarize and report financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this
annual report whether or not there were significant changes in internal controls
or in other factors that could significantly affect internal controls subsequent
to the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
Date: March 28, 2003
/s/ Lee W. Hendrickson
--------------------------
Lee W. Hendrickson
Chief Financial Officer
-23-
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 (18)
(b4) Tenth, Eleventh, Twelfth, Thirteenth,
Fourteenth and Fifteenth Amendments to
Profit Sharing/401(k) Plan (20)
(b5) Sixteenth and Seventeenth Amendments to
Profit Sharing 401(k) Plan
(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)
-24-
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
A. Marketing Section of 2002 Annual Report
B. Financial Information Section of 2002
Annual Report
-25-
PAGE NUMBER OR
INCORPORATED BY
EXHIBIT NO. DESCRIPTION REFERENCE FROM:
- ----------- ----------- ---------------
21 Subsidiaries of the Registrant
23 Consent of BDO Seidman, LLP
99.1 Certification of Chief Executive Officer,
Joseph D. Reid, pursuant to Section 906
of the Sarbanes-Oxley Act of 2002.
99.2 Certification of Chief Financial Officer,
Lee W. Hendrickson, pursuant to Section 906
of the Sarbanes-Oxley Act of 2002.
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.
(20) Form 10-K for year ended December 31, 2001, filed March 15, 2002.
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