BP Blettner Presentation Rev0(AQ)

Site Development PlanSite Development Plan

Madison Corporate Center ExpansionMadison Corporate Center Expansion

Arif Qureshi - Wintford Thornton - LaTasha McDavid - John Lee - Leslie ScherrerArif Qureshi - Wintford Thornton - LaTasha McDavid - John Lee - Leslie Scherrer

2

OverviewOverview Site (John)Site (John)

• Site MapSite Map• Development Selection ProcessDevelopment Selection Process

Risks/Opportunities (Wintford)Risks/Opportunities (Wintford)• RisksRisks• OpportunitiesOpportunities

Marketing (Leslie)Marketing (Leslie)

Financials (Arif)Financials (Arif)• Front door – Back doorFront door – Back door

Conclusions (Arif)Conclusions (Arif)

3

BackgroundBackground

Capitol Bank established in 1995Capitol Bank established in 1995• Independent, locally owned, full service, state Independent, locally owned, full service, state

chartered commercial bankchartered commercial bank

• Ranks favorably for asset growth (81st percentile) Ranks favorably for asset growth (81st percentile) and earning growth (71st percentile)and earning growth (71st percentile)

Site Risks Marketing Financials Conclusions

-400

-200

0

200

400

600

800

1,000

1,200

Assets (10 x thousands) 87 348 559 687 825 867 937 976 1044

Net Income (thousands) -306 -378 329 452 536 361 550 692 774

1995 1996 1997 1998 1999 2000 2001 2002 2003 (est)

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BackgroundBackground Comparison to Peer CompetitorsComparison to Peer Competitors

• Current ROE as 13.29% (73rd percentile ranking)Current ROE as 13.29% (73rd percentile ranking)

• ~0.94% below the select peer group (14.23%)~0.94% below the select peer group (14.23%)


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Capital BaseCapital Base

Capital Base for ExpansionCapital Base for Expansion• The original plan for west side start-up: $5MThe original plan for west side start-up: $5M

• Building new east side branch needs no extra Building new east side branch needs no extra capital required by DFI regulationscapital required by DFI regulations

• ROE for the consolidated bank will increase after ROE for the consolidated bank will increase after the second branch establishedthe second branch established

StockholdersStockholders• 250 stockholders: 35% have banking relations 250 stockholders: 35% have banking relations

with Capitol Bankwith Capitol Bank

• No stock offerings for the new branch set-upNo stock offerings for the new branch set-up


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Organization ChartOrganization Chart

Leverage the Infrastructure of Capitol BankLeverage the Infrastructure of Capitol Bank• Reengineered org. structure will enhance the Reengineered org. structure will enhance the

performance to compete with peer groupperformance to compete with peer group

Site Risk Marketing Financials Conclusions

Jim Dolister - President & CEO

Ann HlavinAsst VP/Retail

Marilyn FahrneyAsst VP/ Lending/Corp. Admin./HR

Ken ThompsonExec. VP/Lending/Loan Policy & Admin.

Lori PondAsst VP/

Loan Admin.

Mary NordingAsst VP/Cashier/Security/

Finance/Facility Mgt/Deposit Ops/ Compliance/Tech

William ConybearBranch Manager

(1) Head Teller/Personal banker

(2) Part TimeTeller

(1) Full TimeTeller

West BranchTeam

Executive Team

East Branch Team

Kevin MahaneyChief Lending Officer

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Management ExpertiseManagement Expertise

Profiles of CEO, Branch Manager and Profiles of CEO, Branch Manager and Chief Lender:Chief Lender:• CEO - 38 yrs banking experience in MadisonCEO - 38 yrs banking experience in Madison

• Branch Manager - Current Op./Security Officer; 10 Branch Manager - Current Op./Security Officer; 10 yrs in Madison area banking, experience in various yrs in Madison area banking, experience in various levels of managementlevels of management

• Chief Lending Officer - Current Business Banker; Chief Lending Officer - Current Business Banker; expertise in SBD and loan programsexpertise in SBD and loan programs

• Executive Team - VPs & Asst. VPs from HQ will Executive Team - VPs & Asst. VPs from HQ will coordinate and support the setup and proceedings coordinate and support the setup and proceedings of new branch serviceof new branch service


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Policies and Control SystemsPolicies and Control Systems

Set up policies and procedures for sound Set up policies and procedures for sound banking practices:banking practices:• Loan CommitteeLoan Committee

• Document ManagementDocument Management

• Investment & Asset/Liability CommitteesInvestment & Asset/Liability Committees

• Audit Policy and Risk ManagementAudit Policy and Risk Management

• Human ResourcesHuman Resources

• Operation ManagerOperation Manager

• Role of President & CEORole of President & CEO


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Bank ProductsBank Products Deposit accountsDeposit accounts Travelers checks, foreign exchange, wire Travelers checks, foreign exchange, wire

transferstransfers Investment servicesInvestment services Cash managementCash management Credit servicesCredit services

• Consumer, residential mortgage, business term, Consumer, residential mortgage, business term, working capital, SBA, commercial real estate and working capital, SBA, commercial real estate and investment loansinvestment loans


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Target LocationTarget Location 3-mile radius of Capitol Bank’s present location 3-mile radius of Capitol Bank’s present location

and prospective locationand prospective location


Present location West 3-mile

Prospective location East 3-mile

Traffic CountsTraffic Counts (vehicles/day) (vehicles/day)Beltline – 39,350Beltline – 39,350 E. Washington – 41,000E. Washington – 41,000High Point+Old Sauk – 18,000High Point+Old Sauk – 18,000 High Crossing – 9,500High Crossing – 9,500

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Target MarketTarget Market

Small/medium commercial and industrial Small/medium commercial and industrial business market with sales of $500K to business market with sales of $500K to $20M$20M

Household/commercial Construction Household/commercial Construction industryindustry

Agricultural product industryAgricultural product industry Wholesale/Retail tradersWholesale/Retail traders Executives/professionalsExecutives/professionals


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Market GrowthMarket Growth Potential Growth: 5.4% (~$52M new Potential Growth: 5.4% (~$52M new

deposits/year), total market ~$1.02Bdeposits/year), total market ~$1.02B Madison’s historical construction growthMadison’s historical construction growth


$0

$100

$200

$300

$400

$500

$600

Single Family $90 $100 $73 $87 $85 $99 $120 $165 $220 $241

Condos and 2-7 units $26 $30 $34 $36 $32 $33 $44 $46 $64 $109

Commercial $86 $129 $110 $151 $136 $151 $184 $238 $201 $168

Total $202 $259 $217 $274 $253 $283 $348 $449 $485 $518

1993 1994 1995 1996 1997 1998 1999 2000 2001 2002

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CompetitionCompetition


East side 3-mile radius

Rank Bank Name Total Deposits Market Share

1 Summit $ 442,742 45.83%

2 Johnson Bank $ 106,675 11.04%

3 Heritage $ 104,897 10.86%

4 First FSB La Crosse - Madison $ 54,262 5.62%

5 Anchorbank $ 51,744 5.36%

6 M&I Bank $ 31,745 3.29%

7 Bank One (East Towne Blvd.) $ 30,245 3.13%

8 Bank One (Milwaukee St.) $ 24,883 2.58%

9 Post Office $ 20,606 2.13%

10 Park Bank $ 20,181 2.09%

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StrategyStrategy Initial focus on commercial businessesInitial focus on commercial businesses

• Commercial construction 50% greater on eastCommercial construction 50% greater on east• Residential construction 66% less on eastResidential construction 66% less on east

Competitive AdvantageCompetitive Advantage• Quality of Service, Competent Personnel, Quality of Service, Competent Personnel,

Competitive pricing, Service Innovation/FlexibilityCompetitive pricing, Service Innovation/Flexibility


$0

$50

$100

$150

$200

$250

Single Family $167 $17 $57 $241

Condos + 2-7 Units $41 $30 $38 $109

Commercial $58 $20 $90 $168

West Central East Total

West

Central

East

Total

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AdvertisingAdvertising Emphasis on direct calls to potential Emphasis on direct calls to potential

commercial customerscommercial customers

Promotional plans in new housing Promotional plans in new housing developments targeting affluent residential developments targeting affluent residential neighborhoodsneighborhoods

Interest rate promotion on loans & depositsInterest rate promotion on loans & deposits

Community networking via participation in Community networking via participation in service activitiesservice activities


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Financial AssumptionsFinancial Assumptions Deposit GrowthDeposit Growth

• Compared demographics of east vs. west; $45K vs. 65KCompared demographics of east vs. west; $45K vs. 65K

• Banc-Intelligence reportBanc-Intelligence report

Loan GrowthLoan Growth• Capped at bank’s max ability to lendCapped at bank’s max ability to lend

ExpensesExpenses• Estimated using west side branch’s start-up and current Estimated using west side branch’s start-up and current

income statement income statement

Interest RatesInterest Rates• Interest rate spreads were utilized ~ constantInterest rate spreads were utilized ~ constant


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Pro-forma StatementPro-forma Statement


3 months 15 months 27 months 39 months

Total Loans 874,200$ 12,596,400$ 24,040,200$ 31,576,800$ Total Deposits 1,441,200$ 11,930,400$ 18,005,200$ 22,909,600$

Interest Income 5,464$ 361,186$ 939,756$ 1,406,126$ PLUS Loan/Deposit Fees 1,612$ 28,166$ 36,825$ 41,478$ LESS Interest Expense 2,552$ 79,347$ 267,671$ 436,579$

Total Income 4,524$ 310,006$ 708,910$ 1,011,026$

General Expenses 155,319$ 469,529$ 478,357$ 451,362$ Depreciation Expense 5,426$ 21,703$ 19,703$ 17,703$

Total Expenses 160,745$ 491,232$ 498,061$ 469,065$

Taxable Income (156,220)$ (181,227)$ 210,849$ 541,961$

LESS Taxes (53,115) (61,617) 71,689 184,267 Net Income (103,105) (119,610) 139,161 357,694

Cash In 7,076$ 389,352$ 976,581$ 1,447,605$ Cash Out 317,056$ 487,259$ 817,717$ 1,072,207$

Net Cash Flow (309,980)$ (97,906)$ 158,864$ 375,397$

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Profitability ProjectionsProfitability Projections Net Income turns positive after 14 monthsNet Income turns positive after 14 months

• West side branch took 20 months to turn positiveWest side branch took 20 months to turn positive


$(300,000)

$(200,000)

$(100,000)

$-

$100,000

$200,000

$300,000

$400,000

1 3 5 7 9 11 13 15 17 19 21 23 25 27 29 31 33 35 37 39

Month

Monthly Net IncomeCumulative Net Income

Net IncomeTurns Positive

Cumulative Net Income Turns Positive

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Cash Flow ProjectionsCash Flow Projections

Cash Flow turns positive after 14 monthsCash Flow turns positive after 14 months• Maximum cash required $425K, current balance $3.3MMaximum cash required $425K, current balance $3.3M


$(500,000)

$(400,000)

$(300,000)

$(200,000)

$(100,000)

$-

$

1 3 5 7 9 11 13 15 17 19 21 23 25 27 29 31 33 35 37 39

Month

Monthly Cash Flow

Cumulative Cash Flow

Cash FlowTurns Positive

Cumulative Cash Flow Turns Positive

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Consolidated ProjectionsConsolidated Projections Consolidated DepositsConsolidated Deposits

• 22% greater after 3 years of operations22% greater after 3 years of operations

Consolidated Net IncomeConsolidated Net Income• 24% greater after 3 years of operations24% greater after 3 years of operations


$(200,000)

$-

$200,000

$400,000

$600,000

$800,000

$1,000,000

$1,200,000

$1,400,000

$1,600,000

$1,800,000

$2,000,000

East Side Net Income $(103,105) $(119,610) $139,161 $357,694

West Side Net Income $260,793 $1,076,427 $1,275,747 $1,474,978

Consolidated Net Income $157,688 $956,818 $1,414,908 $1,832,672

3 months 15 months 27 months 39 months$-

$20,000,000

$40,000,000

$60,000,000

$80,000,000

$100,000,000

$120,000,000

$140,000,000

East Side Deposits $1,441,200 $11,930,400 $18,005,200 $22,909,600

West Side Deposits $85,500,000 $90,630,000 $96,067,800 $101,831,868

Consolidated Deposits $86,941,200 $102,560,400 $114,073,000 $124,741,468

3 months 15 months 27 months 39 months

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Consolidated ProjectionsConsolidated Projections Return on Equity Jumps 400 basis pointsReturn on Equity Jumps 400 basis points

• Main branch capital ~5.0M; east branch ~0.5MMain branch capital ~5.0M; east branch ~0.5M

• Shareholder equity increase by $2.0M (20% increase)Shareholder equity increase by $2.0M (20% increase)

Bank expansion is well capitalizedBank expansion is well capitalized


Location Category 3 months 15 months 27 months 39 months

East Branch ROE No equity offering required

Main Branch ROE 13.0 % 13.3 % 13.8 % 14.8 %

Consolidated ROE 8.2 % 13.4 % 15.7 % 18.8 %

Location 3 months 15 months

27 months

39 months

Well Capitalized Requirement

Tier 1 Risk Based Capital Ratio 9.2 % 8.9 % 8.8 % 9.0 % Above 6 %

Total Risk Based Capital Ratio 10.2 % 10.1 % 10.0 % 10.1 % Above 10 %

Tier 1 Capital to Total Assets 7.6 % 7.5 % 7.5 % 7.6 % Above 4 %

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ConclusionsConclusions Why expand to east sideWhy expand to east side

• Provide convenient coverage to entire MadisonProvide convenient coverage to entire Madison• Leverage existing infrastructure; $0.5M investment Leverage existing infrastructure; $0.5M investment

vs. $5.0M investmentvs. $5.0M investment• Diversify the bank’s operating exposureDiversify the bank’s operating exposure

Financial benefits of expansion (after 3 years)Financial benefits of expansion (after 3 years)• Increase shareholder equity by $2.0M(20% increase)Increase shareholder equity by $2.0M(20% increase)• Return on equity by 400 bp (28% increase)Return on equity by 400 bp (28% increase)• Bank deposits by $20M (22% increase)Bank deposits by $20M (22% increase)• Bank’s net income $350K (24% increase)Bank’s net income $350K (24% increase)


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Questions? Ask!Questions? Ask!

BP Blettner Presentation Rev0(AQ)

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