BRUCE A. THOMAS
President - Eastern Regions

CREATING VALUE FOR INVESTORS

One of the principal ways that we generate value for shareholders is through our unique development model, which allows us to drive growth while spreading risk between shareholders and local investors.   

To offset the losses customarily experienced by de novo banks in their first two years, Capitol Bancorp culls development funds from multiple sources.  We start by raising money from local entrepreneurs, who serve as initial customers and engage the potential customer base in the target market.  These funds absorb 49 percent of the bank’s initial
losses.  We draw the other 51 percent of the necessary funding from our company-wide development incubators, which we control in the form of stock that carries 100 percent voting rights but constitutes only a small amount of the entities’ economic interests.  In this way, Capitol Bancorp is able to limit its losses on every invested dollar in its de novo banks to between five and ten cents.

After three years, when the bank begins to earn money, Capitol Bancorp traditionally offers the opportunity of a share exchange to the local investors in which their privately-held shares may be exchanged for shares of Capitol’s publicly-traded shares.  As a result, the company is able to tap the emerging revenue streams that its affiliates provide as they are hitting their stride.

Our ability to enable Capitol’s independent community banks to enjoy the economies of scale of a large organization remains another of the keys to our model’s success.  At the corporate level, this means providing consolidated back office support across our entire network as efficiently as possible.  With this in mind, and in anticipation of the growth that we planned to achieve, Capitol Bancorp began in 2004 the process of upgrading its core operating system.  This initiative remains the largest technology project Capitol has ever undertaken.  Thanks to more than two years of intensive work on the part of all of our employees, we were able to complete the project in December of 2006.  More robust and scalable than its predecessor, the new system will enable us to
continue to support our banks, expand our network, and add new products in an efficient and cost-effective fashion.  

Simultaneously we organized and launched Capitol Wealth Advisors, a new wealth management unit that provides our bank customers with investment services and online trading functionality.  Capitol Wealth was conceived in part to create increased value for shareholders by deepening our relationships with our strong customer base and
expanding our opportunities for fee income.  We expect this additional, fee-driven revenue stream to help offset the pressure that market conditions continue to exert on our more traditional margin revenue streams.