FORM 10-Q

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

Mark One


~~Mark One~~ x		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

		For the ~~quarter~~quarterly period ended ~~March 31,~~June 30, 2003

		OR

o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

~~Commission File No.:~~ ~~0-22353~~

Commission File No.:	0-22353

FLAGSTAR BANCORP, INC.

(Exact name of registrant as specified in its charter)


Michigan		38-3150651

(State or other jurisdiction of		(I.R.S. Employer
incorporation or organization)		~~(I.R.S. Employer~~ Identification No.)

5151 Corporate Drive, Troy, Michigan		48098

(Address of principal executive offices)		(Zip Code)

Registrant’s telephone number, including area code: (248) 312-2000

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 ~~thirty~~sixty days. Yes X x Noo.

As of ~~April 24,~~August 8, 2003, ~~29,698,640~~60,119,996 shares of the registrant’s Common Stock, $0.01 par value, were issued and outstanding.

TABLE OF CONTENTS


PART I. FINANCIAL INFORMATION
Consolidated Statements of Financial Condition
Unaudited Consolidated Statements of Earnings
Consolidated Statements of Stockholders’ Equity
Unaudited Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
CAUTIONARY NOTE ABOUT FORWARD-LOOKING STATEMENTS
Mortgage banking operation
Liquidity and Capital Resources
PART II — OTHER INFORMATION
SIGNATURES
~~EX-11~~ Computation of Net Earnings per Share
~~Sec~~ 302 Certification of Chief Executive Officer
302 Certification of Chief Financial Officer
906 Certification of Chief Executive Officer
~~Sec~~ 906 Certification of Chief Financial Officer

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

The unaudited condensed consolidated financial statements of the Registrant are as follows:

Consolidated Statements of Financial Condition — ~~March 31,~~June 30, 2003 (unaudited) and December 31, 2002.

Unaudited Consolidated Statements of Earnings — For the three and six months ended ~~March 31,~~June 30, 2003 and 2002.

Consolidated Statements of Stockholders Equity — June 30, 2003 (unaudited) and December 31, 2002.

Unaudited Consolidated Statements of Cash Flows — For the ~~three~~six months ended ~~March 31,~~June 30, 2003 and 2002.

Condensed Notes to Consolidated Financial Statements.

When used in this Form 10-Q or future filings by the Company with the Securities and Exchange Commission, in the Company’s press releases or other public or stockholder communications, or in oral statements made with the approval of an authorized executive officer, the words or phrases “would be”, “will allow”, “intends to”, “will likely result”, “are expected to”, “will continue”, “is anticipated”, “estimate”, “project”, or similar expressions are intended to identify “forward looking statement” within the meaning of the Private Securities Litigation Reform Act of 1995.

The Company wishes to caution readers not to place undue reliance on any such forward-looking statements, which speak only as of the date made, and to advise readers that various factors, including regional and national economic conditions, substantial changes in levels of market interest rates, credit and other risks of lending and investment activities and competitive and regulatory factors, could affect the Company’s financial performance and could cause the Company’s actual results for future periods to differ materially from those anticipated or projected.

The Company does not undertake, and specifically disclaims any obligation, to update any forward-looking statements to reflect occurrences or unanticipated events or circumstances after the date of such statements.

Flagstar Bancorp, Inc.
Consolidated Statements of Financial Condition
(in thousands)


															At June 30,			At December 31,
															2003			2002
					At March 31,			At December 31,
Assets	Assets				2003			2002							(unaudited)

					(unaudited)
Cash and cash equivalents	Cash and cash equivalents				$	119,571		$	126,969		Cash and cash equivalents				$	828,267		$	126,969
Mortgage-backed securities	Mortgage-backed securities					41,210			39,110		Mortgage-backed securities					37,895			39,110
Investment portfolio						13,021			11,766
Investment securities											Investment securities					10,781			11,766
Mortgage loans available for sale	Mortgage loans available for sale					4,357,802			3,302,212		Mortgage loans available for sale					3,731,829			3,302,212
	Loans held for investment					4,274,196			3,998,682		Loans held for investment					4,848,327			3,998,682
	Less: allowance for losses					(50,000	)		(50,000	)	Less: allowance for losses					(50,000	)		(50,000	)

Investment loan portfolio, net						4,224,196			3,948,682
Loans held for investment, net											Loans held for investment, net					4,798,327			3,948,682
Federal Home Loan Bank stock	Federal Home Loan Bank stock					150,000			150,000		Federal Home Loan Bank stock					152,800			150,000

Total earning assets	Total earning assets					8,786,229			7,451,770		Total earning assets					8,731,632			7,451,770
Accrued interest receivable	Accrued interest receivable					48,424			43,279		Accrued interest receivable					45,183			43,279
Repossessed assets	Repossessed assets					46,512			45,094		Repossessed assets					46,447			45,094
Premises and equipment	Premises and equipment					153,815			149,630		Premises and equipment					151,681			149,630
Mortgage servicing rights	Mortgage servicing rights					181,606			230,756		Mortgage servicing rights					210,869			230,756
Other assets	Other assets					170,564			156,204		Other assets					158,903			156,204

				Total assets	$	9,506,721		$	8,203,702					Total assets	$	10,172,982		$	8,203,702

Liabilities and Stockholders’ Equity	Liabilities and Stockholders’ Equity										Liabilities and Stockholders’ Equity
Liabilities	Liabilities										Liabilities
Deposit accounts	Deposit accounts				$	5,178,967		$	4,373,889		Deposit accounts				$	5,269,463		$	4,373,889
Federal Home Loan Bank advances	Federal Home Loan Bank advances					2,364,597			2,222,000		Federal Home Loan Bank advances					2,436,122			2,222,000
Long term debt	Long term debt					149,750			99,750		Long term debt					149,750			99,750

Total interest bearing liabilities	Total interest bearing liabilities					7,693,314			6,695,639		Total interest bearing liabilities					7,855,335			6,695,639
Accrued interest payable	Accrued interest payable					17,002			16,850		Accrued interest payable					18,988			16,850
Undisbursed payments on loans serviced for others						794,037			595,206
Undisbursed payments on Loans serviced for others											Undisbursed payments on Loans serviced for others					1,109,277			595,206
Escrow accounts	Escrow accounts					203,696			148,194		Escrow accounts					267,737			148,194
Liability for checks issued	Liability for checks issued					145,497			124,293		Liability for checks issued					198,213			124,293
Federal income taxes payable	Federal income taxes payable					65,928			73,582		Federal income taxes payable					98,101			73,582
Other liabilities	Other liabilities					129,364			130,992		Other liabilities					90,144			130,992

			Total liabilities			9,048,838			7,784,756				Total liabilities			9,637,795			7,784,756
Stockholders’ Equity	Stockholders’ Equity										Stockholders’ Equity
Common stock — $.01 par value, 80,000,000 shares authorized; 59,332,322 and 59,189,254 shares issued and outstanding at March 31, 2003 and December 31, 2002, respectively						594			592
Common stock — $.01 par value, 80,000,000 shares authorized; 59,498,968 and 59,189,254 shares issued and outstanding at June 30, 2003 and December 31, 2002, respectively											Common stock — $.01 par value, 80,000,000 shares authorized; 59,498,968 and 59,189,254 shares issued and outstanding at June 30, 2003 and December 31, 2002, respectively					595			592
Additional paid in capital	Additional paid in capital					29,721			29,147		Additional paid in capital					27,389			29,147
Retained earnings	Retained earnings					427,568			389,207		Retained earnings					507,203			389,207

			Total stockholders’ equity			457,883			418,946				Total stockholders’ equity			535,187			418,946

		Total liabilities and stockholders’ equity			$	9,506,721		$	8,203,702			Total liabilities and stockholders’ equity			$	10,172,982		$	8,203,702

The accompanying notes are an integral part of these statements.

Flagstar Bancorp, Inc.
Unaudited Consolidated Statements of Earnings
(in thousands, except per share data)


		For the quarter ended March 31,						For the three months					For the six months ended
		2003			2002			ended June 30,					June 30,
								2003			2002		2003			2002
		(unaudited)
Interest Income	Interest Income						Interest Income
Loans	Loans	$	121,235		$	112,426	Loans	$	122,949		$	106,533	$	244,184		$	218,959
Other	Other		3,557			2,395	Other		3,374			2,619		6,931			5,015

	Total		124,792			114,821	Total		126,323			109,152		251,115			223,974
Interest Expense	Interest Expense						Interest Expense
Deposits	Deposits		33,895			33,319	Deposits		34,510			29,839		68,405			63,158
FHLB advances	FHLB advances		28,454			27,882	FHLB advances		29,088			28,581		57,542			56,464
Other	Other		8,889			4,462	Other		11,641			4,202		20,530			8,664

	Total		71,238			65,663	Total		75,239			62,622		146,477			128,286

Net interest income	Net interest income		53,554			49,158	Net interest income		51,084			46,530		104,638			95,688
Provision for losses	Provision for losses		9,541			8,174	Provision for losses		8,426			3,589		17,967			11,763

Net interest income after provision for losses	Net interest income after provision for losses		44,013			40,984	Net interest income after provision for losses		42,658			42,941		86,671			83,925
Non-Interest Income	Non-Interest Income						Non-Interest Income
Loan administration	Loan administration		(25,609	)		780	Loan administration		(13,056	)		5,508		(38,665	)		6,288
Net gain on loan sales	Net gain on loan sales		90,901			50,824	Net gain on loan sales		155,910			25,117		246,811			75,941
Net gain on sales of mortgage servicing rights	Net gain on sales of mortgage servicing rights		1,261			650	Net gain on sales of mortgage servicing rights		320			10,179		1,581			10,830
Other fees and charges	Other fees and charges		10,678			6,457	Other fees and charges		11,387			5,840		22,065			12,297

	Total		77,231			58,711	Total		154,561			46,644		231,792			105,356
Non-Interest Expense	Non-Interest Expense						Non-Interest Expense
Compensation and benefits	Compensation and benefits		24,915			33,487	Compensation and benefits		29,899			26,138		57,255			59,702
Occupancy and equipment	Occupancy and equipment		16,109			12,352	Occupancy and equipment		17,299			13,032		33,408			25,384
General and administrative	General and administrative		16,547			14,429	General and administrative		18,291			9,602		32,397			23,955

	Total		57,571			60,268	Total		65,489			48,772		123,060			109,041

Earnings before federal income taxes	Earnings before federal income taxes		63,673			39,427	Earnings before federal income taxes		131,730			40,813		195,403			80,240
Provision for federal income taxes	Provision for federal income taxes		22,346			13,904	Provision for federal income taxes		46,150			14,395		68,496			28,299

Net Earnings	Net Earnings	$	41,327		$	25,523	Net Earnings	$	85,580		$	26,418	$	126,907		$	51,941

Net earnings per share — basic		$	0.70		$	0.45
Net earnings per share — diluted		$	0.66		$	0.42
Earnings per share — basic							Earnings per share — basic	$	1.44		$	0.45	$	2.14		$	0.90

Earnings per share — diluted							Earnings per share — diluted	$	1.34		$	0.43	$	2.00		$	0.84

The accompanying notes are an integral part of these statements.

Flagstar Bancorp, Inc.
~~Unaudited~~ Consolidated Statements of ~~Cash Flows~~Stockholders’ Equity
(in ~~thousands)~~thousands, except per share data)

For the quarter ended
March 31,
2003 2002

Operating Activities

Net earnings $ 41,327 $ 25,523
Adjustments to reconcile net earnings to net cash used in operating activities
Provision for losses 9,541 8,174
Depreciation and amortization 55,372 18,360
Net gain on the sale of assets (882 ) (545 )
Net gain on loan sales (90,901 ) (50,824 )
Net gain on sales of mortgage servicing rights (1,261 ) (650 )
Proceeds from sales of loans available for sale 13,972,870 9,068,003
Originations and repurchases of loans available for sale, net of principal repayments (15,717,137 ) (9,277,682 )
Increase in accrued interest receivable (5,145 ) (2,339 )
(Increase) decrease in other assets (14,362 ) 16,964
Increase (decrease) in accrued interest payable 152 (2,850 )
Increase in the liability for checks issued 21,204 35,822
Increase (decrease) in current federal income taxes payable 14,129 (64,073 )
(Benefit) provision of deferred federal income taxes payable (21,783 ) 25,977
(Decrease) increase in other liabilities (1,627 ) 1,992

Net cash used in operating activities (1,738,503 ) (198,148 )
Investing Activities

Purchase of other investments (1,255 ) (820 )
Investment in mortgage backed securities (2,099 ) —
Origination of loans held for investment, net of principal repayments 483,808 461,508
Proceeds from the disposition of repossessed assets 10,179 7,548
Acquisitions of premises and equipment (11,746 ) (9,935 )
Proceeds from the disposition of premises and equipment 10 13
Increase in mortgage servicing rights (117,510 ) (107,074 )
Proceeds from the sale of mortgage servicing rights 120,102 108,952

Net cash provided by investing activities 481,489 460,192
Financing Activities

Net increase (decrease) in deposit accounts 805,077 (227,248 )
Issuance of junior subordinated debt 50,000 —
Net increase in Federal Home Loan Bank advances 142,597 4,495
Net disbursement of payments of loans serviced for others 198,831 (57,400 )
Net receipt of escrow payments 55,502 36,391
Proceeds from the exercise of common stock options 576 1,564
Dividends paid to stockholders (2,967 ) (1,343 )

Net cash provided by (used in) financing activities 1,249,616 (243,541 )

Net (decrease) increase in cash and cash equivalents (7,398 ) 18,503
Beginning cash and cash equivalents 126,969 110,447

Ending cash and cash equivalents $ 119,571 $ 128,950

Supplemental disclosure of cash flow information:

Loans receivable transferred to repossessed assets $ 20,257 $ 17,746

Total interest payments made on deposits and other borrowings $ 71,085 $ 62,812

Federal income taxes paid $ 29,970 $ 52,000

Loans held for sale transferred to loans held for investment $ 779,578 $ 322,111


			Additional						Total
	Common		Paid in			Retained			Stockholders'
	Stock		Capital			Earnings			Equity

Balance at December 31, 2001	$	574	$	21,666		$	269,248		$	291,488
Net earnings		—		—			129,343			129,343
Stock options exercised		18		4,872			—			4,890
Tax benefit from stock options exercised		—		2,609			—			2,609
Dividends paid ($0.16 per share)		—		—			(9,384	)		(9,384	)

Balance at December 31, 2002		592		29,147			389,207			418,946
Net earnings		—		—			126,907			126,907
Return of investment from subsidiary		—		(3,127	)		—			(3,127	)
Stock options exercised		3		1,369			—			1,372
Dividends paid ($0.15 per share)		—		—			(8,911	)		(8,911	)

Balance at June 30, 2003	$	595	$	27,389		$	507,203		$	535,187

The accompanying notes are an integral part of these statements.

Flagstar Bancorp, Inc.
Unaudited Consolidated Statements of Cash Flows
(in thousands)


				For the six months ended
				June 30,
				2003			2002

*Operating Activities*
	Net earnings			$	126,907		$	51,941
	Adjustments to reconcile net earnings to net cash used in operating activities
	Provision for losses				17,967			11,763
		Depreciation and amortization			100,950			34,466
		Net gain on the sale of assets			(1,145	)		(1,320	)
		Net gain on loan sales			(246,811	)		(75,941	)
		Net gain on sales of mortgage servicing rights			(1,581	)		(10,830	)
		Proceeds from sales of loans available for sale			32,282,455			16,003,536
		Originations and repurchases of loans available for sale, net of principal repayments			(33,244,839	)		(16,804,934	)
		Increase in accrued interest receivable			(1,904	)		(2,892	)
		(Increase) decrease in other assets			(2,703	)		55,662
		Increase (decrease) in accrued interest payable			2,138			(3,764	)
		Increase (decrease) in the liability for checks issued			73,920			(24,610	)
		Increase (decrease) in current federal income taxes payable			46,302			(49,774	)
		(Benefit) provision of deferred federal income taxes payable			(21,783	)		25,977
		Decrease in other liabilities			(40,847	)		(4,613	)

			Net cash used in operating activities		(910,974	)		(795,333	)
Investing Activities
		Net change in other investments			985			(1,142	)
		Purchase of mortgage backed securities, net of principal repayments			1,216			—
		Origination of loans held for investment, net of principal repayments			(109,684	)		677,016
		Purchase of Federal Home Loan Bank stock			(2,800	)		(2,950	)
		Proceeds from the disposition of repossessed assets			22,141			17,982
		Acquisitions of premises and equipment			(17,387	)		(14,308	)
		Net proceeds in the disposition of premises and equipment			(701	)		(159	)
		Increase in mortgage servicing rights			(271,188	)		(184,019	)
		Proceeds from the sale of mortgage servicing rights			207,046			149,329

			Net cash (used in) provided by investing activities		(170,372	)		641,749
Financing Activities
		Net increase (decrease) in deposit accounts			895,574			(14,488	)
		Issuance of junior subordinated debt			50,000			—
		Net increase in Federal Home Loan Bank advances			214,122			235,495
		Net receipt (disbursement) of payments of loans serviced for others			514,071			(100,921	)
		Net receipt of escrow payments			119,543			49,392
		Proceeds from the exercise of common stock options			1,372			3,319
		Net return on investment in subsidiaries			(3,127	)		—
		Dividends paid to stockholders			(8,911	)		(2,898	)

			Net cash provided by financing activities		1,782,644			169,899

Net increase in cash and cash equivalents					701,298			16,315
Beginning cash and cash equivalents					126,969			110,447

Ending cash and cash equivalents				$	828,267		$	126,762

Supplemental disclosure of cash flow information:
		Loans receivable transferred to repossessed assets		$	21,651		$	30,860

		Total interest payments made on deposits and other borrowings		$	144,339		$	124,522

		Federal income taxes paid		$	44,000		$	52,000

		Loans held for sale transferred to loans held for investment		$	779,578		$	868,857

The accompanying notes are an integral part of these financial statements.

Flagstar Bancorp, Inc.
Notes to Consolidated Financial Statements

Note 1.1 — Nature of Business

Flagstar Bancorp, Inc. (“Flagstar” or the “Company”), is the holding company for Flagstar Bank, ~~fsb~~FSB (the “Bank”), a federally chartered stock savings bank founded in 1987. ~~With $9.5 billion in assets at March 31, 2003, Flagstar is~~Flagstar’s primary business consists of attracting deposits from the ~~largest savings institution~~general public, small businesses, and ~~2nd largest banking institution headquartered in Michigan.~~

~~Flagstar is a consumer-oriented financial services organization.~~local government agencies. The ~~Company’s principal business is obtaining funds in the form of deposits and borrowings and investing~~Company strategically invests those funds in ~~various types of loans. The acquisition or origination of single family mortgage~~duration-matched residential, consumer, and commercial loans isthat are individually underwritten by the ~~Company’s primary lending activity.~~Company. The Company also originates ~~for investment consumer loans, commercial real estate loans, and non-real estate commercial loans.~~

~~The~~or acquires conforming residential mortgage loans on an individual basis that are ~~securitized and sold~~resold on a servicing retained basis to the secondary market in ~~order to generate mortgage servicing rights.~~bulk. The Company also ~~invests~~sells the retained servicing rights in ~~a significant amount of its mortgage loan production~~bulk transactions in ~~order to maximize~~ the ~~Company’s leverage ability and to receive the interest spread between earning assets and paying liabilities.~~secondary market. The Company also acquires funds on a wholesale basis from a variety of sources and services a significant volume of loans for others.

The Bank is a member of the Federal Home Loan Bank System (“FHLB”) and is subject to regulation, examination, and supervision by the Office of Thrift Supervision (“OTS”) and the Federal Deposit Insurance Corporation (“FDIC”). The Bank’s deposits are insured by the FDIC through the Savings Association Insurance Fund (“SAIF”).

Note 2. Basis of Presentation

The accompanying consolidated unaudited financial statements of Flagstar Bancorp, Inc. (the “Company”), have been prepared in accordance with generally accepted accounting principles for interim information and in accordance with the instructions to Form 10-Q and Article 10 of Regulation S-X as promulgated by the Securities and Exchange Commission. Accordingly, they do not include all the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. All interim amounts are subject to year-end audit, the results of operations for the interim period herein are not necessarily indicative of the results that may be expected for the year ending December 31, 2003.

Note 3. Critical Accounting Policies

The Company has established various accounting policies that govern the application of generally accepted accounting principles in the preparation of the financial statements. Application of these accounting policies involves judgments and assumptions by management that has a material impact on the carrying value of certain assets and liabilities. The judgments and assumptions are based on historical experience and other factors that are believed to be reasonable under the circumstances.

The Company believes that the following topics involve critical areas of the Company’s operations and the accounting policies associated with these areas requires the most significant judgments, assumptions and estimates.

Allowance for Loan Losses.The allowance for loan losses represents management’s estimate of credit losses inherent in the Company’s investment loan portfolio at the report date. The estimate is a composite of a variety of factors including past experience, collateral value, and the general economy. The allowance includes a specific portion, a formula driven portion, and a general nonspecific portion. The collection and ultimate recovery of the book value of the collateral, in most cases, is beyond the Company’s control.

Mortgage Servicing Rights.Determining the fair value of mortgage servicing rights involves a calculation of the present value of a set of market driven and MSR specific cash flows. The Company is forced to make assumptions about future market conditions including interest rates in order to complete the analysis. The model calculates a fair value based upon variables, but does not, and can not take into account the actual price the specific MSR could be sold at in a fair exchange. The Company does have the portfolio valued by an outside valuation expert not less than annually, but interim valuations could fail to reflect any valuation changes created by a dynamic interest rate environment.

Derivative Accounting.In its mortgage banking operation, the Company enters into commitments to originate loans at certain prices and rates. The Company also sells forward mortgage-backed securities into the secondary market. In accordance with FASB 133, the Company carries these commitments at market value. The process of recording these commitments at fair value has the effect of recording the eventual gain or loss on the sale of these loans before it actually happens. This estimation process may be prone to error and therefore could misstate the Company’s true position.

Note 3.4. Stock-Based Compensation

~~We have~~The Company has two stock incentive plans, the 1997 Stock Option Plan and the 2000 Stock Incentive Plan (collectively, the “Plans”), which provide for the granting of non-qualified stock options, incentive stock options, restricted stock awards, performance stock awards, stock bonuses and other awards to our employees (including officers and directors). Awards are granted at the average market price of our stock on the grant date, vest over varying periods generally beginning at least one year from the date of grant, and expire ten years from the date of grant.

As permitted by SFAS 123,“Accounting for Stock-Based Compensation”(“SFAS 123”), ~~we continue~~the Company continues to measure and recognize compensation expense using the intrinsic value method specified in Accounting Principles Board Opinion No. 25,“Accounting for Stock Issued to Employees”(“APB 25”). As required under the provisions of SFAS 148,“Accounting for Stock-Based Compensation — Transition and Disclosure,”the following table discloses the pro forma net income and pro forma basic and diluted earnings per share had the fair value method been applied to all stock awards for the three and six months ended ~~March 31,~~June 30, 2003 and 2002:


							For the three months						For the six months
	For the quarter						ended June 30,						ended June 30,
	Ended March 31,						2003			2002			2003			2002
	2003			2002
							( in thousands, except share data )
Net Earnings	$	41,327		$	25,523		$	85,580		$	26,418		$	126,907		$	51,941
Stock-based compensation expense		(1,190	)		(622	)		(1,190	)		(622	)		(2,380	)		(1,244	)
Tax effect		417			218			417			218			833			436

Pro forma net earnings	$	40,544		$	25,119		$	84,807		$	26,014		$	125,360		$	51,133

Average common shares outstanding		59,250			57,634			59,416			58,374			59,333			58,006
Net earnings per share — basic	$	0.70		$	0.45		$	1.44		$	0.45		$	2.14		$	0.90
Pro forma earnings per share — basic	$	0.68		$	0.45		$	1.42		$	0.45		$	2.11		$	0.88
Average common share equivalents outstanding		62,618			61,186			64,107			62,414			63,637			61,792
Net earnings per share — diluted	$	0.66		$	0.42		$	1.34		$	0.43		$	2.00		$	0.84
Pro forma earnings per share — diluted	$	0.65		$	0.41		$	1.32		$	0.42		$	1.97		$	0.83

In addition, during the three and six months ended ~~March 31,~~June 30, 2003, ~~and 2002, we~~the Company recognized compensation expense of $357 thousand ($232 thousand, net of taxes) and $714 thousand ($464 thousand, net of taxes), respectively, related to restricted stock awards. During the three and six months ended June 30, 2002, the Company recognized compensation expense of $154 thousand ($100 thousand, net of taxes) and $309 thousand ($201 thousand, net of taxes), respectively, related to restricted stock awards. These expenses were included in net earnings as reported.

Note 4.5. Significant Events

1. On May 3, 2002, the Company announced a 3 for 2 split of its common stock. The split was completed on May 31, 2002. All share information on the financial statements of the Company has been adjusted accordingly.

2. On ~~March 20, 2003, Flagstar Capital Corporation (“Capital”) announced that on June 30, 2003 it would redeem all of its 8.50% Series A Preferred stock.~~
3. On April 23, 2003, the Company announced a 2 for 1 split of its common stock. The split ~~is to be~~was completed on May 15, 2003. All share information on the financial statements of the Company has been adjusted accordingly.
3. On June 30, 2003, Flagstar Capital Corporation (“Capital”) redeemed all of its 8.50% Series A Preferred stock.

Selected Financial Ratios ( in thousands, except per share data )


	For the three months ended						For the six months ended
	June 30, 2003			June 30, 2002			June 30, 2003			June 30, 2002

Return on average assets		3.48	%		1.53	%		2.71	%		1.54	%
Return on average equity		69.55	%		32.00	%		54.67	%		32.75	%
Efficiency ratio		31.9	%		52.4	%		36.6	%		54.2	%
Equity/assets ratio (average for the period)		5.00	%		4.79	%		4.96	%		4.70	%
Mortgage loans originated or purchased	$	17,488,383		$	7,488,490		$	32,550,482		$	16,750,674
Mortgage loans sold	$	17,287,723		$	6,818,644		$	30,540,969		$	15,762,964
Interest rate spread		2.02	%		2.77	%		2.23	%		2.92	%
Net interest margin		2.26	%		3.05	%		2.47	%		3.13	%
Average common shares outstanding (2)		59,416			58,374			59,333			58,006
Average diluted shares outstanding (2)		64,107			62,414			63,637			61,792
Charge-offs to average investment loans		0.73	%		0.34	%		0.84	%		0.52	%


	June 30, 2003			March 31,			December 31,			June 30, 2002
				2003			2002

Equity-to-assets ratio		5.26	%		4.82	%		5.10	%		5.06	%
Core capital ratio (1)		6.58	%		6.79	%		6.73	%		6.73	%
Total risk-based capital ratio (1)		12.17	%		12.33	%		11.01	%		12.54	%
Book value per share (2)	$	8.99		$	7.72		$	7.08		$	5.88
Number of common shares outstanding (2)		59,499			59,332			59,190			58,478
Mortgage loans serviced for others	$	28,953,871		$	22,336,428		$	21,586,797		$	19,390,204
Value of mortgage servicing rights		0.73	%		0.81	%		1.07	%		0.99	%
Allowance to non performing loans		71.7	%		61.5	%		61.3	%		56.6	%
Allowance to held for investment loans		1.03	%		1.17	%		1.25	%		1.38	%
Non performing assets to total assets		1.14	%		1.34	%		1.54	%		1.86	%
Number of bank branches		95			91			87			76
Number of loan origination centers		108			101			92			83
Number of correspondent offices		15			14			14			15
Number of employees		4,110			3,777			3,588			3,059

(1)		Based on adjusted total assets for purposes of tangible capital and core capital, and risk-weighted assets for purposes of the risk-based capital and the total risk-based capital. These ratios are applicable to Flagstar Bank only.

(2)		All share data has been adjusted to reflect the 2 for 1 stock dividend declared on April 23, 2003 and completed on May 15, 2003.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

~~Selected Financial Ratios (~~Flagstar Bancorp, Inc. (“Flagstar” or the “Company”), is the holding company for Flagstar Bank, FSB (the “Bank”), a federally chartered stock savings bank founded in ~~thousands, except per share data )~~

For the quarter ended
March 31,
2003 March 31,
2002

Return on average assets 1.86 % 1.55 %
Return on average equity 37.82 % 33.58 %
Efficiency ratio 44.02 % 55.87 %
Equity/assets ratio (average for the period) 4.92 % 4.60 %
Mortgage loans originated or purchased $ 15,062,099 $ 9,262,184
Mortgage loans sold $ 13,253,246 $ 8,944,320
Interest rate spread 2.55 % 3.10 %
Net interest margin 2.69 % 3.25 %
Average common shares outstanding (2) 59,250 57,634
Average fully diluted shares outstanding (2) 62,618 61,186
Charge-offs to average investment loans 1.16 % 0.65 %

March 31,
2003 December 31,
2002 March 31,
2002

Equity-to-assets ratio 4.82 % 5.11 % 4.95 %
Tangible capital ratio (1) 6.79 % 6.73 % 6.70 %
Core capital ratio (1) 6.79 % 6.73 % 6.70 %
Risk-based capital ratio (1) 11.44 % 11.01 % 11.47 %
Total risk-based capital ratio (1) 12.33 % 12.01 % 12.45 %
Book value per share (2) $ 7.72 $ 7.08 $ 5.48
Number of common shares outstanding (2) 59,332 59,190 57,936
Mortgage loans serviced for others $ 22,336,428 $ 21,586,797 $ 15,249,763
Value of mortgage servicing rights 0.81 % 1.07 % 1.02 %
Allowance for losses to non performing loans 61.5 % 61.3 % 50.8 %
Allowance for losses to total investment loans 1.17 % 1.25 % 1.49 %
Non performing assets to total assets 1.34 % 1.54 % 2.08 %
Number of bank branches 91 87 74
Number of loan origination centers 101 92 73
Number of correspondent offices 14 14 15
Number of employees 3,777 3,588 3,071
1987. Flagstar’s primary business consists of attracting deposits from the general public, small businesses, and local government agencies. The Company strategically invests those funds in duration-matched residential, consumer, and commercial loans that are individually underwritten by the Company. The Company also originates or acquires conforming residential mortgage loans on an individual basis that are resold on a servicing retained basis to the secondary market in bulk. The Company also sells the retained servicing rights in bulk transactions in the secondary market. The Company also acquires funds on a wholesale basis from a variety of sources and services a significant volume of loans for others.

		⁽¹⁾ Based on adjusted total assets for purposes of tangible capital and core capital, and risk-weighted assets for purposes of the risk-based capital and the total risk-based capital. These ratios are applicable to Flagstar Bank only.

		⁽²⁾ All share data has been adjusted to reflect a 3 for 2 stock dividend declared on May 3, 2002 and issued on May 31, 2002 and a 2 for 1 stock dividend declared on April 23, 2003 and to be issued on May 15, 2003.

Although the Company operates and reports its net earnings as one entity, the Company’s operations have been segregated as two distinct operations for this document. The operations have been classified into a mortgage banking segment and retail banking segment.

8CAUTIONARY NOTE ABOUT FORWARD-LOOKING STATEMENTS

~~Results of Operations~~

Net Earnings

During the three and six month ~~period~~periods ended ~~March 31,~~June 30, 2003, the Company recorded record net earnings from recurring operations due to the interest rate environment prevalent ~~in 2003.~~during the periods. The lower and falling interest rates experienced in the first half of 2003 have positively affected the Company’s mortgage banking operation. Along with the record revenues recorded by the mortgage banking operation, the expanding retail banking operation has ~~benefited from~~continued to provide added earnings for the ~~widening yield curve and the downward repricing of higher cost deposits.~~Company.

Three months

Net earnings ~~from recurring operations~~ for the three months ended ~~March 31,~~June 30, 2003 were ~~$41.3~~$85.6 million ($~~0.66~~1.34 per share-diluted), a ~~$15.8~~$59.2 million increase from the ~~$25.5~~$26.4 million ($~~0.42~~0.43 per share-diluted) reported in 2002. The increase resulted from a ~~$4.4~~$108.0 million increase in non interest income and a $4.6 million increase in net interest income ~~a $18.5 million increase in other income, and a $2.7 million decrease in operating expenses~~ which was offset by a ~~$8.4~~$16.7 million increase in operating expenses, a $31.8 million increase in the provision for federal income taxes, and a ~~$1.4~~$4.8 million increase in the provision for losses.

Six months

Net earnings for the six months ended June 30, 2003 were $126.9 million ($2.00 per share-diluted), a $75.0 million increase from the $51.9 million ($0.84 per share-diluted) reported in 2002. The increase resulted from a $126.4 million increase in non interest income and a $9.0 million increase in net interest income which was offset by a $14.0 million increase in operating expenses, a $40.2 million increase in the provision for federal income taxes, and a $6.2 million increase in the provision for losses.

Segment reporting

Retail banking operation

The Company provides a full range of banking services to consumers and small businesses in southern Michigan and Indiana. At ~~March 31,~~June 30, 2003, the Bank operated a network of 9195 banking centers.

Earnings from the Retail Banking Operation (“RBO”) primarily consist of net interest income generated from loans held for investment funded by deposits and long-term borrowings. Earnings also consist of fees collected from depositors and fees earned on consumer and commercial loan originations. All single-family mortgage origination data is included in the earnings related to the mortgage banking operation. Management believes that because of its duration-matching program, the RBO’s earnings are more stable and less volatile than the earnings contributed from the mortgage banking operation.

This operation is considered the growth portion of the Company. Ten years ago, the Company had only one banking center located in the lobby of its headquarters building. During the six months ended June 30, 2003, the Company opened eight new banking centers. Since June 30, 2003, the Company opened two more banking centers.

Each quarter the RBO contributes a larger amount of revenue and net earnings to the totals recorded by the Company. During the three months ended June 30, 2003, the RBO was responsible for approximately $16.8 million, or 19.6% of net earnings. That compares positively to the $16.4 million reported for the comparable 2002 period and the $16.2 million reported in the first quarter of 2003. During the six months ended June 30, 2003, the RBO was responsible for approximately $33.0 million of net earnings compared to the $29.6 million reported in the comparable 2002 period.

In each period the portion of the total earnings of the Company that the RBO earnings constitutes varies widely. In the three months ended June 30, 2003, RBO earnings constituted 19.6% of total earnings versus 26.0%, 39.3%, 61.8%, and 56.9% reported for the six months ended June 30, 2003, and the three and six months ended June 30, 2002, respectively. The ~~Company has continued to focus on expanding its branch network~~volatility in ~~order to increase its access to retail deposit funding sources.~~the percentage of total income is a product of the fluctuation in the earnings provided by the MBO as discussed below.

In each successive period, the retail banking operation has expanded its deposit portfolio and banking centers. Each new banking center has been opened on a de novo basis. The result has been that each year revenues and expenses related to this operation have increased. During ~~2002, revenues increased 65.7%, while pre-tax~~the three months ended June 30, 2003, attributable earnings increased ~~105.8%. Additionally, identifiable assets associated with~~an annualized 10.4% versus the ~~operation increased 42.4%~~same period in ~~2002. This increase is~~2002 and an annualized 13.5% versus the three months ended March 31, 2003. These increases are tied to the expansion of the banking center network. Further expansion of the deposit branch network is planned. During 2002, the Company opened 16 banking centers. During the remainder of 2003, the Company has plans to open an additional 16four banking centers. ~~During the first quarter 4 banking centers were opened.~~

WeUpon opening these new facilities, we do not expect that we will have an immediate increase in retail ~~deposits by opening these new locations.~~deposits. Nonetheless, we believe that the growth in deposits will occur over time, with FHLB advances and other sources providing sufficient funding in the interim.

At ~~March 31,~~June 30, 2003, the Company operated 3435 banking centers under its in-store program. ~~Thirty-one~~Thirty-two of these banking centers are located in Wal-Mart superstores. While 1314 of the in-store branches were located in Indiana, 21 were located in Michigan communities. The first of the Wal-Mart banking centers was placed in operation in June 2000. The Company expects to open ~~three~~two more Wal-Mart facilities, ~~two~~one more in 2003.

~~Fifty-three~~Fifty-nine of the Company’s retail banking centers were opened within the past three years. ~~The 12~~Fourteen of the banking centers in Indiana were ~~all~~ opened under the Wal-Mart in-store program induring the past three years. The Wal-Mart banking centers had an average deposit portfolio of only ~~$10.5~~$13.0 million compared with the Company average of ~~$31.2~~$33.1 million. Of the 9195 branches, 2826 branches had deposits of less than $10.0 million. Banking centers opened in 2000, 2001, 2002, and 2003 had average balances of $38.3 million, $26.6 million, $11.5 million, and $3.7 million, respectively. Banking centers opened under the in-store program opened in 2000, 2001, 2002, and 2003 had average balances of $16.3 million, $13.1 million, $6.9 million, and $3.0 million, respectively.

Each of the in-store banking centers offer the same products and services to our customers as are available at our free-standing banking centers without any significant difference in operating costs. By relying upon in-store banking centers to expand our retail branch network, we avoid the significant building costs of free-standing banking centers while obtaining marketing exposure in a high customer traffic area. The customers using our in-store banking centers are substantially the same as the customers using our free-standing banking centers.

~~Despite~~It is the Company’s ~~growing retail banking operation and the large number of banking centers that are not mature,~~intent to continue to grow the retail banking ~~operation was responsible for 34.1%~~operation.

The following table presents certain financial information concerning the results of ~~revenues and 39.2% of pre-tax earnings during the three months ended March 31, 2003. During 2002, the~~Flagstar’s retail banking ~~operation produced 50.0% of pre-tax earnings.~~operation.


	At or for the quarter ended				At or for the six months ended
	June 30,				June 30,
	2003		2002		2003		2002

			( In thousands )
Revenues	$	53,440	$	43,281	$	98,025	$	77,655
Earnings before taxes		25,861		25,155		50,781		45,492
Net earnings		16,810		16,350		33,007		29,570
Identifiable assets		5,334,839		3,878,380		5,334,839		3,878,380

913

Mortgage banking operation

Flagstar’s mortgage banking activities involve the origination of mortgage loans orand the purchase of mortgage loans from the originating lender. Company personnel originate loans and conduct business from ~~101~~its 95 banking centers and its 108 loan origination ~~centers in 21 states.~~centers. Flagstar purchases mortgage loans on a wholesale basis through a network of correspondents consisting of other banks, thrifts, mortgage companies, and mortgage brokers. ~~This mortgage banking network conducts mortgage lending operations nationwide.~~ The mortgage loans, the majority of which are subsequently sold in the secondary mortgage market, primarily conform to the underwriting standards of Freddie Mac or Fannie Mae, or both.

Earnings recorded in the Mortgage Banking Operation (“MBO”) is generated by the revenue received from the sale of loans and mortgage servicing rights, the net interest income received on loans held for sale, loan servicing fees received, and certain loan origination fees, offset by the costs required to perform those tasks. The earnings and revenues recorded by the MBO are substantially dependent on the general economy and the interest rate environment, which is outside the Company’s control. Historically, originations are at their peak when interest rates are low and the general outlook for the economy is positive.

The mortgage banking operation is a much more volatile source of earnings. ~~This operation, for the most part, is reliant on the prevailing interest rate environment, which is outside the Company’s control. The Company has continued to expand its operations~~ The earnings volatility inherent in the mortgage banking operation is visually apparent in the revenues and pre-tax earnings of the operation shown below. The results show that during ~~2003~~the three and ~~2002, revenues increased 14.3% and 163.6%, respectively, while~~six months ended 2003, pre-tax earnings ~~decreased 1.8%~~increased 576.5% and ~~increased 1,359.5%,~~316.2% versus the comparable periods in 2002, respectively. The primary cause for these large swings is the mortgage loan production completed during the periods. The future revenue, earnings, and profitability of this operation ~~are fully~~is dependent on production ~~volume~~volumes and the interest rate environment.

During the three months ended June 30, 2003, the MBO was responsible for approximately 80.4% of net earnings. Net earnings for the MBO are up 173.7% on a sequential quarter basis. Loan production in the current quarter is up 13.1% on a sequential quarter basis and up 133.3% on a comparable quarter basis.

During the six months ended June 30, 2003, the MBO was responsible for approximately 74.0% of net earnings. Earnings for the MBO are up 319.8% on a comparable period basis. Loan production for the six months ended June 30, 2003 is up 94.0% on a comparable period basis.

Management believes that the earnings of the MBO will continue to fluctuate with its ability to originate and sell mortgage loans and mortgage servicing rights. The severity of the swings and the effect those swings will have on the net earnings of the Company will be mitigated by the increased earnings provided by the RBO.

The following ~~tables present~~table presents certain financial information concerning the results of ~~operations of~~ Flagstar’s ~~retail banking and~~ mortgage banking operation.


	Retail Banking Operation				Mortgage Banking Operation

	At or for the three months ended				At or for the three months ended				At or for the quarter ended				At or for the six months ended
	March 31,				March 31,				June 30,				June 30,
	2003		2002		2003		2002		2003		2002		2003		2002

	( In thousands )										( In thousands )
Revenues	$	44,585	$	34,375	$	86,200	$	73,494	$	152,205	$	49,893	$	238,405	$	123,387
Earnings before taxes		24,970		20,338		38,703		19,089		105,869		15,658		144,622		34,747
Net earnings										68,815		10,178		93,850		22,586
Identifiable assets		5,560,443		3,106,109		4,958,280		3,984,515		4,838,145		3,360,031		4,838,145		3,360,031

1014

Net Interest Income

Three months

Net interest income ~~continues~~continued to rise and in this quarter increased ~~$4.4~~$4.6 million, or ~~8.9%~~9.9%, to ~~$53.6~~$51.1 million ~~for the three months ended March 31, 2003. This level of interest income compares positively~~compared to the ~~$49.2~~$46.5 million recorded for the 2002 period. ~~This increase in net interest income~~Although there was ~~created by~~ a ~~$10.0~~15.7%, or $17.1 million, increase in interest ~~revenue offset by~~income, there was a ~~$5.6~~$12.6 million, or 20.1%, increase in interest expense.

~~For the first three months of this year, the Company’s paying liabilities have matured and or repriced at a faster pace than the Company’s earning assets.~~ In this ~~same~~ period ~~that~~of lower interest rates, the ~~Company increased~~asset sensitivity of the ~~average earning~~balance sheet was evident. This repricing is shown in the 148 basis point decrease in the asset ~~base by over $773.9 million,~~yield while liability costs only decreased 73 basis points. This decrease caused the ~~Company only registered a small increase~~75 basis point decrease in the interest ~~income. The Company also raised $771.9 million in liabilities to fund these new assets. The liabilities used for these acquisitions~~rate spread during the period and the ~~liabilities that were used to replace maturing liabilities were acquired at a substantially discounted rate compared to the liabilities used~~79 basis point decrease in the ~~2002 period.~~

~~These pricing adjustments are best shown by the decreased spread reported during the current period~~interest margin when compared to the first quarter of 2002. Earning assets as a whole repriced down 130 basis points while the liabilities repriced down 75 basis points on a like period comparison. These decreases were reflected in the decrease in the Company’s net interest margin of 56 basis points to 2.69% for the three months ended March 31, 2003 from 3.25% for the comparable 2002 period.

On a sequential quarter basis, the ~~Company~~ reported spread and margin decreased 53 basis points and 43 basis points, respectively. This decrease was the result of a 2870 basis point ~~increase~~decrease in the yield on the earning asset portfolio, offset by a 17 basis point decrease in the rate paid on liabilities. The interest margin decreased less than the interest spread because of the Company’s reliance on non-interest bearing liabilities during the quarter.

Management believes that there will be further compression in the interest ~~rate spread and 27 basis point increase~~margin in the third quarter of 2003. The loans receivable that were reported as yielding 5.87% during the quarter ended June 30, 2003, will to a certain extent refinance and be replaced with current market mortgage loans. These replacement loans will have yields less than 5.87%.

Management expects to increase the size of the earning asset portfolio in the coming quarters. This growth will be accomplished using duration matched assets and liabilities. Although management will utilize the most cost effective source of funds available, there is no guarantee that management will be able to maintain these spreads and margins.

Six months

In comparing the net interest ~~margin.~~income reported for the six months ended June 30, 2003 to the net interest income reported for the six months ended June 30, 2002, the variance is similar to that seen in the three-month analysis. The Company ~~reported a $9.1~~recorded an increase of $8.9 million ~~or 20.6% increase~~ in net interest income. This increase includes a $27.1 million increase in interest income ~~during~~and an $18.2 million increase in interest expense.

In comparison, despite a 71 basis point reduction in the ~~current period versus~~rates paid on the ~~fourth quarter of 2002.~~Company’s liabilities, there was a 140 basis point reduction in the yield on earning assets that eliminated the savings in interest costs.

1115

AVERAGE YIELDS EARNED AND RATES PAID

The following ~~table presents~~tables present interest income from average earning assets, expressed in dollars and yields, and interest expense on average interest-bearing liabilities, expressed in dollars and rates. Interest income from earning assets includes the amortization of net premiums and the amortization of net deferred loan origination costs. Nonaccruing loans were included in the average loan amounts outstanding.


		Quarter ended March 31,															Quarter ended June 30,

		2003							2002								2003							2002

		Average				Yield/			Average				Yield/				Average				Yield/			Average				Yield/
		Balance		Interest		Rate			Balance		Interest		Rate				Balance		Interest		Rate			Balance		Interest		Rate

Interest-earning assets:	Interest-earning assets:	( in thousands )														Interest-earning assets:	( in thousands )
Loans receivable, net	Loans receivable, net	$	7,640,659	$	121,235		6.43	%	$	5,877,257	$	112,426		7.76	%	Loans receivable, net	$	8,377,789	$	122,949		5.87	%	$	5,928,422	$	106,533		7.19	%
FHLB stock	FHLB stock		150,000		2,219		6.00			128,400		1,900		6.00		FHLB stock		152,800		2,098		5.49			129,875		2,030		6.25
Other	Other		270,312		1,338		2.01			135,211		495		1.48		Other		520,029		1,276		0.98			121,975		589		1.93

Total interest-earning assets	Total interest-earning assets		8,060,971	$	124,792		6.28	%		6,140,868	$	114,821		7.58	%	Total interest-earning assets		9,050,618	$	126,323		5.58			6,180,272	$	109,152		7.06
Other assets	Other assets		813,099							464,353						Other assets		790,224							720,606

Total assets	Total assets	$	8,874,070						$	6,605,221						Total assets	$	9,840,842						$	6,900,878

Interest-bearing liabilities:	Interest-bearing liabilities:															Interest-bearing liabilities:
Deposits	Deposits	$	4,973,298	$	33,895		2.76	%	$	3,748,504	$	33,319		3.60	%	Deposits	$	5,244,464	$	34,510		2.64	%	$	3,586,141	$	29,839		3.34	%
FHLB advances	FHLB advances		2,206,651		28,455		5.23			1,979,673		27,882		5.71		FHLB advances		2,401,081		29,088		4.86			2,127,593		28,581		5.39
Other	Other		571,424		8,888		6.31			219,250		4,462		8.25		Other		843,096		11,641		5.54			211,718		4,202		7.96

Total interest-bearing liabilities	Total interest-bearing liabilities		7,751,373	$	71,238		3.73	%		5,947,427	$	65,663		4.48	%	Total interest-bearing liabilities		8,488,641	$	75,239		3.56	%		5,925,452	$	62,622		4.29	%
Other liabilities	Other liabilities		685,659							353,740						Other liabilities		859,992							645,200
	Stockholders equity		437,038							304,054						Stockholders equity		492,209							330,226

Total liabilities and stockholders equity	Total liabilities and stockholders equity	$	8,874,070						$	6,605,221						Total liabilities and stockholders equity	$	9,840,842						$	6,900,878

Net interest-earning assets	Net interest-earning assets	$	309,598						$	193,441						Net interest-earning assets	$	561,977						$	255,048


Net interest income	Net interest income			$	53,554						$	49,158				Net interest income			$	51,084						$	46,530


Interest rate spread	Interest rate spread						2.55	%						3.10	%	Interest rate spread						2.02	%						2.77	%

Net interest margin	Net interest margin						2.69	%						3.25	%	Net interest margin						2.26	%						3.05	%

Ratio of average interest- Earning assets to Interest-bearing liabilities							104	%						103	%
Ratio of average interest- earning assets to interest-bearing liabilities																Ratio of average interest- earning assets to interest-bearing liabilities						107	%						104	%

1216

AVERAGE YIELDS EARNED AND RATES PAID


		Six months ended June 30,

		2003							2002

		Average				Yield/			Average				Yield/
		Balance		Interest		Rate			Balance		Interest		Rate

Interest-earning assets:		( in thousands )
Loans receivable, net		$	8,009,224	$	244,184		6.10	%	$	5,905,237	$	218,959		7.42	%
FHLB stock			151,400		4,317		5.75			129,243		3,930		6.00
Other			395,171		2,614		1.32			128,707		1,085		1.68

Total interest-earning assets			8,555,795	$	251,115		5.87	%		6,163,187	$	223,974		7.27	%
Other assets			803,269							592,366

Total assets		$	9,359,064						$	6,755,553

Interest-bearing liabilities:
Deposits		$	5,109,935	$	68,405		2.70	%	$	3,667,070	$	63,158		3.47	%
FHLB advances			2,303,802		57,542		5.04			2,057,917		56,464		5.53
Other			707,260		20,530		5.85			215,484		8,664		8.11

Total interest-bearing liabilities			8,120,997	$	146,477		3.64	%		5,940,471	$	128,286		4.35	%
Other liabilities			773,790							497,871
	Stockholders equity		464,277							317,211

Total liabilities and Stockholders equity		$	9,359,064						$	6,755,553

Net interest-earning assets		$	434,798						$	222,716


Net interest income				$	104,638						$	95,688

Interest rate spread							2.23	%						2.92	%

Net interest margin							2.47	%						3.13	%

Ratio of average interest- earning assets to interest-bearing liabilities							105	%						104	%

RATE/VOLUME ANALYSIS

The following ~~table~~tables present the dollar amount of changes in interest income and interest expense for the components of earning assets and interest-bearing liabilities ~~which~~that are presented above. The ~~table distinguishes~~tables distinguish between the changes related to average outstanding balances (changes in volume while holding the initial rate constant) and the changes related to average interest rates (changes in average rates while holding the ~~initial~~ending volume constant).


	Quarter ended March 31,							Three months ended June 30,

	2003 versus 2002							2003 versus 2002
	Increase (Decrease) due to:							Increase (Decrease) due to:
	Rate			Volume		Total		Rate			Volume		Total

Interest Income:				(in thousands)				(in thousands)
Loans receivable, net	$	(25,405	)	$	34,214	$	8,809	$	(27,647	)	$	44,063	$	16,416
FHLB stock		—			319		319		(290	)		358		68
Other		358			485		843		(1,235	)		1,922		687

Total	$	(25,047	)	$	35,018	$	9,971	$	(29,172	)	$	46,343	$	17,171
Interest Expense:
Deposits	$	(10,394	)	$	10,970	$	576	$	(9,178	)	$	13,849	$	4,671
FHLB advances		(2,650	)		3,223		573		(3,181	)		3,688		507
Other		(2,774	)		7,200		4,426		(5,101	)		12,540		7,439

Total	$	(15,818	)	$	21,393	$	5,575	$	(17,460	)	$	30,077	$	12,617

Net change in net interest income	$	(9,229	)	$	13,625	$	4,396	$	(11,712	)	$	16,266	$	4,554


	Six months ended June 30,

	2003 versus 2002
	Increase (Decrease) due to:
	Rate			Volume		Total

Interest Income:	(in thousands)
Loans receivable, net	$	(52,861	)	$	78,086	$	25,225
FHLB stock		(189	)		674		387
Other		(711	)		2,241		1,530

Total	$	(53,859	)	$	81,001	$	27,142
Interest Expense:
Deposits	$	(19,673	)	$	24,920	$	5,247
FHLB advances		(5,644	)		6,722		1,079
Other		(7,992	)		19,858		11,866

Total	$	(33,309	)	$	51,501	$	18,191

Net change in net interest income	$	(20,452	)	$	29,402	$	8,951

Provision for Losses

~~The~~Three months

During the three months ended June 30, 2003, the Company’s provision for losses was ~~increased to $9.5~~$8.4 million. This is a 133.3% increase over the $3.6 million ~~for~~recorded in the comparable 2002 period and a 12.5% decrease from the $9.6 million recorded in the prior quarter.

During the three months ended ~~March 31,~~June 30, 2003, ~~from $8.2~~$1.0 million of the provision was used to write-off accrued interest on severely delinquent loans and $3.0 million was utilized to charge off a group of second mortgages. The second mortgages written off were 90 days delinquent but were making sporadic payments.

Net charge-offs during the ~~same period in 2002. The provision for losses in the~~three months ended June 30, 2003 ~~period included only charge-offs recorded during the respective period. In the 2002 period, the Company increased the allowance for loan losses by $3.0 million. Net~~were an annualized 0.73% of average investment loans outstanding. Comparatively, net charge-offs were an annualized ~~1.16%~~0.34% during the three months ended June 30, 2002 and ~~0.65% of average investment loans outstanding~~an annualized 1.16% during the three months ended March 31, 2003, respectively.

In each period, management believes that the allowance was at a level that would offset the inherent risks associated with the Company’s loan portfolio. The loan portfolio increased 26.8% from June 30, 2002 to June 30, 2003, excluding warehouse loans. The Company’s increase in its general reserves between these two dates constituted an increase of $4.0 million, or 8.7%. Non-performing loans decreased 14.3%, 14.5%, and 14.2% since March 31, 2003, December 31, 2002, and June 30, 2002, respectively.

The current allowance was not increased during the three months ended March 31, 2003. It is management’s belief that the current reserves are adequate to offset the inherent risk associated with the Company’s investment loan portfolio. The investment loan portfolio increased $275.5 million, or 7.0%, during the three month period ended March 31, 2003. The allowance, which now totals $50.0 million, is ~~1.17%~~1.03% of ~~the~~loans held for investment ~~loan portfolio~~ and ~~61.5%~~71.7% of non-performing loans.

13Six months

During the six months ended June 30, 2003, the Company’s provision for losses was $18.0 million. This is a 52.5% increase from the $11.8 million recorded in the comparable 2002 period.

The provision for losses in the 2002 period included a $4.0 million increase in the allowance for losses, whereas in the 2003 period no increase in the allowance was recorded. Net charge-offs were an annualized 0.84% in the 2003 period versus 0.52% in the 2002 period.

Non-Interest Income

Three months

During the three months ended ~~March 31,~~June 30, 2003, non-interest income ~~increased $18.5~~was reported as $154.6 million ~~to $77.2~~versus $46.6 million ~~from $58.7 million. This~~reported in the comparable 2002 period. The significant increase reported for the 2003 quarter was ~~primarily attributable to an~~caused by the large increase in ~~net~~the gain on loan sales ~~and other fees and charges, offset by~~reported during the period.

Six months

During the six months ended June 30, 2003, non-interest income was also dramatically higher than last year because of the increased amount of loan sale gains. The Company reported an increase ~~in the amount~~ of ~~MSR amortization.~~$126.4 million to $231.8 million from $105.4 million.

Loan Administration
Three months

Net loan administration fee income decreased to a negative ~~$25.6~~$13.1 million during the three months ended ~~March 31,~~June 30, 2003, from ~~$0.8~~$5.5 million in the 2002 period. This ~~$26.4~~$18.6 million decrease between the comparable periods was the result of the ~~$35.4~~$28.5 million increase in the amortization of the mortgage servicing rights (“MSR”). offset by the $9.9 million increase in the amount of gross servicing fees received. This amortization increase ~~was recorded to adjust for~~resulted from the ~~increased~~large increase in the amount of prepayment activity on the underlying mortgage loans serviced for others. Loan amortization or prepayment was $2.1 billion during the three months ended March 31, 2003 versus $294.1 million during the three months ended March 31, 2002. Fee income before the amortization of servicing rights actually increased $9.0 million for the three months ended March 31, 2003, to $22.2 million compared to the $13.2 million recorded in the 2002 period. ThisThe increase in the gross fee ~~income~~revenue was the result of a larger portfolio of serviced loans during the 2003 period.

Six months

Net loan administration fee income for the six months ended June 30, 2003 decreased to a negative $38.7 million from $6.3 million recorded in the 2002 period. This $45.0 million decrease similarly was the result of the increase in the amortization of mortgage servicing rights offset by increased servicing revenue. MSR amortization equaled $85.6 million during the 2003 period versus $21.7 million during the comparable 2002 period. Gross fee income, before the amortization of serving rights, was $46.9 million for the six months ended June 30, 2003 and $28.0 million for the comparable 2002 period. This increase in gross fee income was the result of the larger portfolio of serviced loans during the 2003 period.

At ~~March 31,~~June 30, 2003, the unpaid principal balance of loans serviced for others iswas $29.0 billion versus $22.3 billion ~~versus~~serviced at March 31, 2003 and $21.6 billion serviced at December 31, 2002. At June 30, 2002, ~~and~~the unpaid principal balance of loans serviced for others was $19.4 billion versus $15.2 billion serviced at March 31, ~~2002.~~2002 and $14.2 billion serviced at December 31, 2001. The weighted average servicing fee on loans serviced for others at ~~March 31,~~June 30, 2003 was ~~0.343%~~0.346% (i.e., ~~34.3~~34.6 basis points). The weighted average age of the loans serviced for others ~~portfolio~~ at ~~March 31,~~June 30, 2003 was 7 ~~months old.~~months.

20
Net Gain on Loan Sales
As previously stated, one of the Company’s operating strategies involves the origination of mortgage loans on a national basis, the sale of those loans on a servicing retained basis, and then the strategic sale of the created servicing rights.
Typically, as the supply of available loans in the marketplace increases, the Company is able to acquire these loans at a lower price. Inversely, as interest rates rise or are stable but at higher levels, the amount of available loans are less and the competing companies must originate at decreased margins to applicable secondary market resale prices in order to maintain production levels.
Management has historically maintained a profitable spread between the price at which it acquires loans versus the price level at which the loans can be sold in the secondary market. There can be no assurances that the Company will be able to maintain this profitability level in the future.
Three months

For the three months ended ~~March 31,~~June 30, 2003, net gain on loan sales increased ~~$40.1~~$130.8 million, to ~~$90.9~~$155.9 million, from ~~$50.8~~$25.1 million in the 2002 period. The 2003 period reflects the sale of ~~$13.3~~$17.3 billion in loans versus ~~$8.9~~$6.8 billion sold in the 2002 period. ~~The~~A lower interest rate environment in the 2003 period resulted in a ~~higher~~larger mortgage loan origination volume ($~~15.1~~17.5 billion in the 2003 period vs. ~~$9.3~~$7.5 billion in the 2002 period) and a ~~smaller~~larger or ~~narrower~~wider gain on sale spread ~~(63~~(90 basis points in the 2003 period versus 5737 basis points in the 2002 period) recorded when the loans were sold.

Six months
For the six months ended June 30, 2003, net gain on loan sales were $246.8 million versus $75.9 million in the comparable 2002 period. The 2003 period includes the sale of $30.5 billion in loans versus $15.8 billion sold in the 2002 period. For the six month period ended June 30, 2003, the lower interest rate environment also resulted in a larger or wider gain on sale spread recorded (81 basis points in the 2003 period versus 48 basis points in the 2002 period) when the loans were sold.
21
Net Gain on the Sale of Mortgage Servicing Rights
As previously stated, one of the Company’s operating strategies involves the origination of mortgage loans on a national basis, the sale of those loans on a servicing retained basis, and then the strategic sale of the created servicing rights.
Typically, the Company enters into a flow sale agreement to sell a portion of its newly originated MSR. The Company will then sell the remaining portion of its MSR on a strategic basis in a bulk sale transaction as conditions warrant. The Company continually monitors the marketplace for sale opportunities versus the value the Company can create by retaining a larger portfolio of MSR. The Company is limited in the amount of MSR it can hold for regulatory purposes and is also limited on an operational basis to the amount of loans the Company can service.
Management has historically maintained a profitable spread between the price at which it acquires MSR and the price level at which the MSR can be sold in the secondary market. Management also has not been forced to record a valuation adjustment to the MSR for impairment because of its policy of selling substantially all of the MSR it originates. Impairment in a MSR portfolio is typically created by a sudden and unexpected change in the interest rate environment. Since the interest rate environment is beyond the control of management, there can be no assurances made that the Company will be able to avoid an impairment charge in the future.
Three months

For the three months ended ~~March 31,~~June 30, 2003, the net gain on the sale of mortgage servicing rights ~~increased from $650,000~~was $320,000 versus $10.2 million during the 2002 ~~period to $1.3 million.~~period. The gain on sale of mortgage servicing rights ~~increased~~decreased because the Company sold ~~$10.4~~a $1.8 billion ~~of MSR during the 2003 period versus $7.6 billion during the 2002 period. The Company sold a $4.9 billion~~seasoned bulk servicing package in the ~~2003~~2002 period ~~versus~~and a ~~$5.2 billion~~smaller bulk package ~~in the 2002 period. During 2003, the Company sold $5.1 billion~~comprised of newly originated servicing in the 2003 period. Also, during the 2002 period a number of sales from prior quarters completed their final settlement procedure.

Six months

For the six months ended June 30, 2003, the net gain on the sale of mortgage servicing rights decreased $9.2 million to $1.6 million, from $10.8 million for the same period in 2002. The gain on ~~a flow basis and $428.8 million~~sale of ~~loans on a~~mortgage servicing ~~released basis.~~rights decreased due to the sale of $7.0 billion of seasoned servicing rights in 2002 versus the sale of $5.8 billion during 2003. During 2002, the Company sold ~~$2.2~~a total of $9.8 billion in servicing versus the $15.8 billion of ~~newly originated~~mortgage servicing rights ~~on a flow basis~~originated. In 2003, the Company sold $17.2 billion and ~~$234.5 million~~originated $30.5 billion in mortgage servicing rights.

Activity of ~~loans on a servicing released basis.~~Mortgage Loans Serviced for Others ( in thousands):


		Three months ended				Six months ended
		June 30, 2003		June 30, 2002		June 30, 2003		June 30, 2002

Beginning balance		$	22,336,428	$	15,249,763	$	21,586,797	$	14,222,802
Loans sold			17,287,723		6,818,644		30,540,969		15,762,964

	Subtotal		39,624,151		22,068,407		52,127,766		29,985,766
Servicing released sales			609,419		235,387		1,038,194		469,922
Servicing sold (flow basis)			6,173,123		142,651		11,285,243		2,353,363
Servicing sold (bulk basis)			980,683		1,813,247		5,836,608		6,991,308

	Subtotal		7,763,225		2,191,285		17,179,362		9,814,593
Amortization			2,907,055		486,918		5,013,850		780,969

Ending balance		$	28,953,871	$	19,390,204	$	28,953,871	$	19,390,204

22
Other Fees and Charges
Three months

During the three months ended ~~March 31,~~June 30, 2003, the Company recorded ~~$10.7~~$11.4 million in other fees and charges. In the comparable 2002 period, the Company recorded ~~$6.5~~$5.8 million. The collection and recording of these fees are dependent on the amount of deposit accounts, the number of certain types of loans closed ~~the amount of earnings recorded in certain subsidiaries,~~ and the collection of any miscellaneous fees.

14Six months

During the six months ended June 30, 2003, the Company recorded $22.1 million in other fees and charges. In the comparable 2002 period, the Company recorded $12.3 million. The collection and recording of these fees are dependent on the amount of deposit accounts, the number of certain types of loans closed and the collection of any miscellaneous fees.

Non-Interest Expense

The following table sets forth the components of the Company’s non-interest expense, along with the allocation of expenses related to loan originations that are deferred pursuant to SFAS No. 91, “Accounting for Nonrefundable Fees and Costs Associated with Originating or Acquiring Loans and Initial Direct Costs of Leases.” As required by SFAS No. 91, mortgage loan fees and certain direct origination costs (principally compensation and benefits) are capitalized as an adjustment to the basis of the loans originated during a period. Certain other expenses associated with loan production, however, are not required or allowed to be capitalized. These expense amounts are reflected on the Company’s statement of earnings. Management believes that the analysis of non-interest expense on a “gross” basis ( i.e., prior to the deferral of capitalized loan origination ~~costs )~~costs) more clearly reflects the changes in non-interest expense when comparing periods.


	Three months ended March 31,							Quarter ended June 30,						Six months ended June 30,
	2003			2002				2003			2002			2003			2002

	( in thousands )						( in thousands )
Compensation and benefits	$	39,661		$	33,487			$	49,435		$	30,344		$	94,096		$	63,831
Commissions		41,945			21,844				40,827			18,635			77,772			40,480
Occupancy and equipment		16,109			12,352				17,299			13,032			33,408			25,384
Advertising		3,245			1,862				3,446			1,435			6,691			3,297
Federal insurance premium		569			162				605			178			1,174			340
General and administrative		15,717			12,329				21,239			11,989			36,956			24,318

Total		117,246			82,036				132,851			75,613			250,097			157,650
Less: capitalized direct costs of loan closings		(59,675	)		(21,768	)
Less: capitalized loan costs									(67,362	)		(26,841	)		(127,037	)		(48,609	)

Total, net	$	57,571		$	60,268			$	65,489		$	48,772		$	123,060		$	109,041

Efficiency ratio		44.02	%		55.87	%			31.9	%		52.4	%		36.6	%		54.2	%

The following are the major changes affecting the quarterly income ~~statement:~~statement;

•§ The retail banking operation conducted business from 1719 more facilities at ~~March 31,~~June 30, 2003 than at ~~March 31,~~June 30, 2002.

•§ The Company conducted business from 2825 more retail loan origination offices at ~~March 31,~~June 30, 2003 than at ~~March 31,~~June 30, 2002.

•§ The mortgage banking operation originated ~~$15.1~~$17.5 billion in residential mortgage loans during the 2003 quarter versus ~~$9.3~~$7.5 billion in the comparable 2002 quarter.

•§ The Company employed ~~2,865~~3,106 salaried employees at ~~March 31,~~June 30, 2003 versus ~~2,441~~2,393 salaried employees at ~~March 31,~~June 30, 2002.

•§ The Company employed ~~119~~121 full-time national account executives at ~~March 31,~~June 30, 2003 versus ~~100~~101 at ~~March 31,~~June 30, 2002.

•§ The Company employed ~~793~~883 full-time retail loan originators at ~~March 31,~~June 30, 2003 versus ~~530~~565 at ~~March 31,~~June 30, 2002.

~~Non-Interest Expense (continued)~~

Non-interest expense, excluding the capitalization of direct loan origination costs, increased ~~$35.2~~$57.3 million, or 75.8%, to ~~$117.2~~$132.9 million during the three months ended ~~March 31,~~June 30, 2003, from ~~$82.0~~$75.6 million for the comparable 2002 period. This ~~large~~ increase in costs is for the most part explained above, but further explanation follows.

The largest changes occurred in compensation and benefits, commissions, occupancy and equipment, and general and administrative expenses reported.

The increased compensation and benefits expense of ~~$6.2~~$19.1 million, or 63.0%, is the direct result of the 29.8% increase in salaried personnel which were hired to support the additional banking centers and retail loan centers during the period.

The increased commission expense of $22.2 million, or 119.4%, is the direct result of the 133.3% increase in mortgage loan originations during the period. During the 2003 period commissions were 23 basis points of loan originations versus 25 basis points during the 2002 period.

The majority of the $4.3 million, or 33.1% increase in occupancy and equipment costs are directly attributable to the 25.3% increase in facilities operated by the Company and the equipment required to accommodate the 29.8% increase in staff.

The 76.7% increase in general and administrative expense is reflective of the 133.3% increase in mortgage loan originations and the increased number of banking and origination centers in operation during the period.

During the three months ended June 30, 2003, the Company capitalized direct loan origination costs of $67.4 million, an increase of $40.6 million, or 151.5%, from $26.8 million for the comparable 2002 period. The 2003 deferral equates to a capitalization of $635 per loan versus $544 per loan in the 2002 period.

Six months

During the six months ended June 30, 2003, non-interest expense, excluding the capitalization of direct loan origination costs, increased by $92.4 million, or 58.6%, to $250.1 million, from $157.7 million for the comparable 2002 period. The increased costs are primarily attributable to the same items as mentioned above in the “three month” section. The largest increases occurred in the amounts of compensation and benefits, commissions, general and administrative expenses, and occupancy and equipment costs reported.

The increased compensation and benefits expense of $30.3 million, or 47.5%, is the direct result of the increased personnel count which was required to support the additional banking centers and retail loan centers and to accommodate the growth in loan originations during the period.

The increased commission expense of ~~$20.1~~$37.3 million, or 92.1%, is the direct result of the ~~increased~~94.0% increase in mortgage loan originations during the period. During both the 2002 and 2003 ~~period~~periods, commissions were ~~27.8~~24 basis points of loan ~~originations versus 23.6 basis points during the 2002 period.~~originations.

The majority of the ~~$3.7~~$8.0 million, or 31.5% increase in occupancy and equipment costs are directly attributable to the ~~extensive facility expansion~~27.7% increase in operating facilities and the equipment required to accommodate the increased staff.

The $12.7 million, or 52.3% increase in general and administrative expense is reflective of the ~~increased~~94.0% increase in mortgage loan originations and the increased number of banking centers in operation during the period.

During the ~~three~~six months ended ~~March 31,~~June 30, 2003, the Company capitalized direct loan origination costs of ~~$59.7~~$127.0 million, an increase of ~~$37.9~~$78.4 million, or 161.3%, from ~~$21.8~~$48.6 million for the comparable 2002 period. The 2003 deferral equates to a capitalization of ~~$566~~$644 per loan versus ~~$356~~$440 per loan in the 2002 period.

1625

Financial Condition

Assets

The Company’s assets totaled ~~$9.5~~$10.2 billion at ~~March 31,~~June 30, 2003, an increase of ~~$1.3~~$2.0 billion, or ~~15.9%~~24.4%, as compared to $8.2 billion at December 31, 2002. This increase was primarily due to ana $1.2 billion increase in earning assets and a $0.7 billion increase in cash and cash equivalents at ~~March 31, 2003, but encompassed increases in the majority of asset categories.~~June 30, 2003.

Cash and cash equivalents

Cash and cash equivalents ~~decreased~~increased from $127.0 million at December 31, 2002 to ~~$119.6~~$828.3 million at ~~March 31,~~June 30, 2003. This increase in cash is primarily associated with the increases in payments and payoffs received from the mortgage servicing portfolio at June 30, 2003.

~~Mortgage-backed securities~~

Mortgage-backed securities increased from $39.1 million at December 31, 2002 to $41.2 million at March 31, 2003. The slight increase was attributed to the completion of the original delivery scheduledMortgage loans available for ~~December 2002. There were no additions to the portfolio in February or March. This portfolio includes loans originated by the Company and securitized for credit enhancement reasons.~~

~~Investment portfolio~~sale

The Company’s investment portfolio increased from $11.8 million at December 31, 2002 to $13.0 million at March 31, 2003. The investment portfolio is limited to a small portfolio of contractually required collateral, regulatory required collateral, and reinvestments made by non-bank subsidiaries.

~~Loans available for sale~~

Mortgage loans available for sale increased ~~$1.1 billion, or 33.3%,~~ to ~~$4.4~~$3.7 billion at ~~March 31,~~June 30, 2003, from $3.3 billion at December 31, 2002. ~~This increase is primarily attributable to the record amount of loan production originated during the first quarter.~~ At ~~March 31,~~June 30, 2003, the majority of these loans were originated within the two weeks prior to the end of the quarter.

~~Investment loan portfolio,~~Loans held for investment, net

~~The~~Loans held for investment ~~loan portfolio, net~~increased from $4.0 billion at ~~March 31, 2003 increased $0.3 million from~~ December 31, ~~2002. The~~2002 to $4.8 billion at June 30, 2003. This increase ~~included~~is primarily attributable to a ~~$299.7~~$525.2 million increase in ~~mortgage loans,~~single-family mortgages. Additionally there was a ~~$27.7~~$283.1 million increase in ~~consumer~~warehouse loans. There was also a decrease of $44.0 million in second mortgage loans, offset by a ~~$7.0~~$30.4 million increase in commercial real estate loans, ~~and~~ a ~~$1.7~~$0.6 million increase in commercial loans, ~~offset by a $23.1 million decrease in second mortgage loans~~ and a ~~$33.8~~$64.0 million ~~decrease~~increase in ~~warehouse~~consumer loans.

Loans held for investment:


Loans held for investment:		March 31, 2003		December 31, 2002		March 31, 2002
									June 30, 2003		March 31, 2003		December 31, 2002		June 30, 2002

Single family mortgage	Single family mortgage	$	2,892,742	$	2,593,005	$	2,141,996	Single family mortgage	$	3,118,223	$	2,892,742	$	2,593,005	$	2,398,536
Second mortgage	Second mortgage		191,253		214,485		233,050	Second mortgage		170,511		191,253		214,485		245,355
Construction	Construction		51,032		54,650		48,367	Construction		44,877		51,032		54,650		51,981
Commercial real estate	Commercial real estate		452,295		445,270		350,342	Commercial real estate		475,705		452,295		445,270		366,068
Commercial								Commercial		8,343		9,377		7,706		10,644
Warehouse	Warehouse		525,080		558,781		168,561	Warehouse		841,877		525,080		558,781		172,014
Commercial			9,377		7,706		10,833
Consumer	Consumer		152,417		124,785		70,207	Consumer		188,791		152,417		124,785		86,882

	Total	$	4,274,196	$	3,998,682	$	3,013,356	Total	$	4,848,327	$	4,274,196	$	3,998,682	$	3,331,480

1726

Allowance for losses

The allowance for losses totaled $50.0 million at ~~March 31,~~June 30, 2003 and December 31, 2002.

Actual net charge-offs during the three months ended June 30, 2003 were $8.4 million, an annualized 0.73% of average investment loans. Comparatively, actual net charge-offs were $3.6 million, or 0.34% during the three months ended June 30, 2002 and $9.5 million, or 1.16% of average investment loans during the three months ended March 31, 2003, respectively.

The allowance, which now totals $50.0 million, is 1.03% of loans held for ~~losses as a percentage~~investment and 71.7% of non-performing loans.

The Company’s non-performing loans ~~was 61.5%~~totaled $69.7 million and ~~61.3%~~$81.6 million at ~~March 31,~~June 30, 2003 and December 31, 2002, respectively.

The ~~Company’s non-performing loans totaled $81.3 million and $81.6 million at March 31, 2003 and December 31, 2002, respectively. The~~level of the allowance for losses ~~as a percentage of investment loans~~at June 30, 2003 was ~~1.17% and 1.25% at March 31, 2003 and December 31, 2002, respectively. The allowance for losses is considered adequate~~ based upon management’s assessment of relevant factors, including the types and amounts of non-performing loans, the continued increase in the amount of historical charge-offs and ~~current~~anticipated loss experience on such types of loans, and the current economic ~~environment.~~conditions. However, no assurance can be given that the Company will not, in any particular period, sustain loan losses that exceed the allowance, or that subsequent evaluation of the loan portfolio, in light of the factors then-prevailing, including economic conditions, the credit quality of the assets comprising the portfolio and the ongoing examination process, will not require significant increases in the allowance for loan losses.

FHLB stock

Holdings of FHLB stock ~~remained at~~increased from $150.0 million at December 31, 2002 ~~and March 31,~~to $152.8 million at June 30, 2003. These increases were made to comply with member rules as set down by the FHLB. As a member of the FHLB, the Bank is required to hold shares of FHLB stock in an amount at least equal to 1% of the aggregate unpaid principal balance of its home mortgage loans, or 5% of its outstanding FHLB advances, whichever is greater.

Accrued interest receivable

Accrued interest receivable increased from $43.3 million at December 31, 2002 to ~~$48.4~~$45.2 million at ~~March 31,~~June 30, 2003 as the Company’s total loan portfolio increased. The Company typically collects loan interest in the following month after it is earned.

Repossessed assets

Repossessed assets increased from $45.1 million at December 31, 2002 to ~~$46.5~~$46.4 million at ~~March 31,~~June 30, 2003. This increase was caused by a greater amount of loans in a foreclosed status ~~which~~that are yet to be sold.

27
Mortgage servicing rights

Mortgage servicing rights (“MSR”) totaled ~~$181.6~~$210.9 million at ~~March 31,~~June 30, 2003, a decrease of ~~$49.2~~$19.9 million, or 8.6%, from $230.8 million reported at December 31, 2002. During the ~~three~~six months ended ~~March 31,~~June 30, 2003, the Company capitalized ~~$117.5~~$271.2 million, amortized ~~$47.8~~$85.6 million, and sold ~~$118.8~~$205.5 million in mortgage servicing rights. The principal balance of the loans serviced for others stands at ~~$22.3~~$29.0 billion at ~~March 31,~~June 30, 2003 versus $21.6 billion at December 31, 2002. The capitalized value of the mortgage servicing rights was ~~0.81%~~0.73% and 1.07% at ~~March 31,~~June 30, 2003 and December 31, 2002, respectively.

~~Activity of Mortgage Loans Serviced for Others( in thousands):~~

Three months ended Three months ended
March 31, 2003 March 31, 2002

Beginning balance $ 21,586,797 $ 14,222,802
Loans sold 13,253,246 8,944,320

Subtotal 34,840,043 23,167,122
Loans sold servicing released 428,775 234,535
Servicing sold (flow basis) 5,112,120 2,210,712
Servicing sold (bulk basis) 4,855,925 5,178,061

Subtotal 10,396,820 7,623,308
Amortization 2,106,795 294,051

Ending balance $ 22,336,428 $ 15,249,763

At June 30, 2003, the fair value of the MSR was approximately $254.8 million based on an internal valuation model which utilized a discounted cash flow equal to 9%, a cost to service of $55.00, and a weighted prepayment assumption equal to 300% PSA. The portfolio contained 210,045 loans, had a weighted rate of 6.126%, a weighted remaining term of 288 months, and had been seasoned seven months.
18
Other assets
Other assets increased ~~$14.4~~$2.7 million ~~or 9.2%,~~ to ~~$170.6~~$158.9 million at ~~March 31,~~June 30, 2003, from $156.2 million at December 31, 2002. The majority of this increase was attributable to the ~~recording of~~ receivables recorded in conjunction with the sale of residential mortgage loan servicing ~~rights completed during the three months ended March 31, 2003.~~rights. Upon the sale of the mortgage servicing rights a receivable is recorded for a portion of the sale proceeds. The majority of the balance due is paid within 180 days after the sale date.
28
Liabilities
The Company’s total liabilities increased ~~$1.2~~$1.8 billion ~~or 15.4%,~~ to ~~$9.0~~$9.6 billion at ~~March 31,~~June 30, 2003, from $7.8 billion at December 31, 2002. ~~The majority of this~~This increase was ~~found~~primarily centered in ~~the Company’s~~ interest bearing ~~liabilities.~~liabilities and undispersed payments on loans serviced for others, but included an increase in every liability category.
Deposit accounts
~~The Company’s deposit liabilities increased $0.8 billion during the three months ended March 31, 2003.~~
~~Retail deposit~~Deposit accounts increased ~~$0.1~~$0.9 billion ~~or 3.7%,~~ to ~~$2.8 billion~~$5.3 million at ~~March 31,~~June 30, 2003, from ~~$2.7~~$4.4 billion at December 31, 2002. ~~This increase reflects the~~
Demand deposit ~~growth strategy being implemented in the Company’s banking center network. The number of banking centers increased~~accounts decreased $43.3 million to $358.2 million at June 30, 2003, from 87$401.5 million at December 31, ~~2002~~2002.
Savings deposit accounts decreased $21.2 million to 91$331.0 million at ~~March~~June 30, 2003, from $352.2 million at December 31, 2002.
Money market deposits increased $0.5 billion to $1.1 billion at June 30, 2003, from $0.6 billion at December 31, 2002.
The municipal deposit channel now totals $941.6 million. The account totals increased $133.9 million during the six months ended June 30, 2003. ~~At March 31, 2003,~~These deposits have been garnered from local government units within the Company’s retail ~~certificates of~~banking market area.
Wholesale deposit ~~totaled $1.4~~accounts increased $0.3 billion ~~or 50.0% of total retail deposits. These certificates carry an average balance of $21,811 and a weighted average cost of 3.65%.~~
~~National accounts include certificates of deposit relationships garnered through the Company’s national marketing of its rates and terms. The balances in this category of deposits totaled~~to $1.2 billion ~~an increase of $0.3 billion or 33.3%,~~at June 30, 2003, from $0.9 billion at December 31, 2002. This increase reflects the Company’s strategy to ~~increase~~extend the duration of its deposit funding. The Company has continued emphasized the use of ~~these~~lower costing retail deposits and advances from the FHLB, but the longer durations available from wholesale deposits were needed for interest rate risk management.
During the six months ended June 30, 2003, management continued to monitor and reprice the deposit ~~relationships to garner deposit liabilities with a longer duration. This~~ portfolio ~~had a weighted cost of 3.36% and a weighted remaining term of 33 months. These deposits totaled 23.5% of total deposits.~~
~~Public Unit deposits include both savings and certificates of deposit relationships garnered from local municipal or government agencies. The balances~~downward in ~~this category of deposits totaled $1.1 billion, an increase of $0.2 billion or 22.2%, from $0.9 billion at December 31, 2002. This increase reflects the Company’s strategy~~order to increase the ~~use of these deposit relationships~~spreads and margins earned by the Company. As can be seen below, management was able to ~~fund~~decrease the ~~Company’s warehouse of for sale loans. These deposits have a duration which matches the warehouse loans very well. This portfolio had a weighted~~ cost of ~~1.81%~~the retail portfolio by 16 basis points and ~~a weighted remaining term of 2.3 months. These deposits totaled 21.6% of~~the total ~~deposits.~~portfolio by 28 basis points.
29

March 31, 2003 December 31, 2002
Balance Rate % Balance Rate %

Retail demand deposits $ 360,770 1.17 % 6.97 % $ 401,517 1.29 % 9.18 %
Retail savings deposits 342,966 1.72 6.62 352,155 1.72 8.05
Retail money market deposits 761,659 2.52 14.71 575,411 2.71 13.15
Retail certificates of deposits 1,377,960 3.65 26.60 1,324,486 3.81 30.28
National accounts 1,214,930 3.36 23.46 912,655 3.91 20.87
Public unit 1,120,682 1.81 21.64 807,665 2.00 18.47

Total deposits $ 5,178,967 2.72 % 100.00 % $ 4,373,889 2.95 % 100.00 %

June 30, 2003 December 31, 2002
Balance Rate % Balance Rate %

Demand deposits $ 358,184 1.19 % 6.8 % $ 401,517 1.29 % 9.2 %
Savings deposits 330,951 1.71 6.3 352,155 1.72 8.1
Money market deposits 1,075,665 2.51 20.4 575,411 2.71 13.1
Certificates of deposits 1,380,451 3.59 26.2 1,324,486 3.81 30.3

Total retail deposits 3,145,251 2.75 59.7 2,653,569 2.91 60.7
Municipal deposits 941,558 1.58 17.9 807,665 2.00 18.5
Wholesale deposits 1,182,654 3.33 22.4 912,655 3.91 20.9

Total deposits $ 5,269,463 2.67 % 100.0 % $ 4,373,889 2.95 % 100.0 %

FHLB advances
FHLB advances increased $0.2 billion ~~or 9.1%,~~ to $2.4 billion at ~~March 31,~~June 30, 2003, from $2.2 billion at December 31, 2002. The Company ~~has historically relied~~relies upon these advances as a funding source for the origination or purchase of loans, which are later sold into the secondary market. The outstanding balance of FHLB advances fluctuates from time to time depending upon the Company’s current inventory of loans held for sale and the availability of lower cost funding from its deposit base and its escrow accounts. The Company ~~has moved toward renewing all~~also utilizes a portion of ~~its maturing~~these advances ~~into medium~~to fund longer term assets that can not be match-funded within the retail deposit portfolio.
Long term debt ~~which better lines up as funding for the Company’s held for investment portfolio.~~
19
~~Long term debt~~
On April 30, 1999, the Company issued $74.8 million of 9.50% preferred securities to the general public in an initial public offering. The securities were issued by the Company’s subsidiary, Flagstar Trust, a Delaware trust.
On December 19, 2002, the Company issued $25.0 million of preferred securities through a privately issued pooled transaction. These securities have an effective cost for the first five years of 6.88%. The securities were issued by the Company’s subsidiary, Flagstar Statutory Trust II, a Connecticut trust.
On February 19, 2003, the Company issued $25.0 million of preferred securities through a privately issued pooled transaction. These securities have an effective cost for the first five years of 6.55%. The securities were issued by the Company’s subsidiary, Flagstar Statutory Trust III, a Delaware trust.
On March 19, 2003, the Company issued $25.0 million of preferred securities through a privately issued pooled transaction. These securities have an effective cost for the first five years of 6.75%. The securities were issued by the Company’s subsidiary, Flagstar Statutory Trust IV, a Delaware trust.
The preferred securities mature in 30 years from issuance, are callable after five years, pay interest quarterly, and the interest expense is deductible for federal income tax purposes. The net proceeds from these offerings were contributed to Flagstar Bank as additional paid in capital and are included as regulatory capital.
Undisbursed payments on loans serviced for others
Undisbursed payments on loans serviced for others increased ~~$198.8~~$0.5 million ~~or 33.4%,~~ to ~~$794.0 million~~$1.1 billion at ~~March 31,~~June 30, 2003, from ~~$595.2 million~~$0.6 billion at December 31, 2002. These amounts represent payments received from borrowers for interest, principal and related loan charges, which have not been remitted to the respective investors. These balances fluctuate with the size of the servicing portfolio and increase during a time of high payoff or refinance volume. The large ~~increase at March 31, 2003~~balance is reflective of the refinance ~~environment currently being experienced by the Company. During the three months ended March 31, 2003, the Company received $2.1 billion in prepayments and amortizations on serviced loans.~~environment.
30
Escrow accounts
Customer escrow accounts increased ~~$55.5~~$119.5 million ~~or 37.5%,~~ to ~~$203.7~~$267.7 million at ~~March 31,~~June 30, 2003, from $148.2 million at December 31, 2002. These amounts represent payments received from borrowers for taxes and insurance payments, which have not been remitted to the tax authorities or insurance providers. These balances fluctuate with the size of the servicing portfolio and during the year before and after the remittance of scheduled payments. A large amount of escrow payments are made in July ~~and December~~ to local school and municipal agencies.
Liability for checks issued
Liability for checks issued increased ~~$21.2~~$73.9 million ~~or 17.1%,~~ to ~~$145.5~~$198.2 million at ~~March 31,~~June 30, 2003, from $124.3 million at December 31, 2002. These amounts represent checks issued to acquire mortgage loans that have not cleared for payment. These balances fluctuate with the size of the mortgage pipeline. The increase at June 2003 is indicative of the increase in loan production volumes recorded by the Company during the month of June.
Federal income taxes payable
Federal income taxes payable ~~decreased $7.7~~increased $24.5 million ~~or 10.5%,~~ to ~~$65.9~~$98.1 million at ~~March 31,~~June 30, 2003, from $73.6 million at December 31, 2002. This ~~decrease~~increase is attributable to ~~the estimated payment made during the quarter offset by the increase in~~ the deferred tax liability created through operations during the six months ended June 30, 2003 offset by ~~timing differences in~~ the ~~recognition~~payment of ~~revenue from a financial statement basis versus a federal income tax basis.~~taxes.
Other liabilities
Other liabilities decreased ~~$1.6~~$40.9 million ~~or 1.2%,~~ to ~~$129.4~~$90.1 million at ~~March 31,~~June 30, 2003, from $131.0 million at December 31, 2002. This majority of this decrease ~~was caused by changes in~~is the ~~timing~~redemption of the ~~payment~~Series A preferred stock of ~~liabilities associated with~~Flagstar Capital that was recorded as a minority interest or other liability of the ~~employee payroll and the Company’s mortgage production.~~Company.
2031
Liquidity and Capital Resources
Liquidity
Liquidity refers to the ability or the financial flexibility to manage future cash flows in order to meet the needs of depositors and borrowers and fund operations on a timely and cost-effective basis. The Company has no other significant business than that of its wholly owned subsidiary, Flagstar Bank, FSB.
A significant source of cash flow for the Company is the sale of mortgage loans held for sale. Additionally, the Company receives funds from loan principal repayments, advances from the FHLB, deposits from customers and cash generated from operations.
Mortgage loans sold during the three months ended ~~March 31,~~June 30, 2003 totaled ~~$13.3~~$17.3 billion, an increase of ~~$4.4~~$10.5 billion from ~~the $8.9~~$6.8 billion sold during the same period in 2002. This increase in mortgage loan sales was attributable to the ~~$5.8 billion~~ increase in mortgage loan originations during the quarter. The Company sold ~~88.1%~~98.9% and ~~96.6%~~91.1% of its mortgage loan originations during the three month ~~periods~~period ended ~~March 31,~~June 30, 2003 and 2002, respectively.
The Company typically uses FHLB advances to fund its daily operational liquidity needs and to assist in funding loan originations. The Company will continue to use this source of funds until a more cost-effective source of funds becomes available. FHLB advances are used because of their flexibility. The Company had $2.4 billion outstanding at ~~March 31,~~June 30, 2003. Such advances are repaid with the proceeds from the sale of mortgage loans held for sale. The Company currently has an authorized line of credit equal to $3.5 billion. This line is collateralized by non-delinquent mortgage loans. To the extent that the amount of retail deposits or customer escrow accounts can be increased, the Company expects to replace FHLB advances.
At ~~March 31,~~June 30, 2003, the Company had outstanding rate-lock commitments to lend ~~$7.1~~$11.1 billion in mortgage loans, along with outstanding commitments to make other types of loans totaling ~~$25.3~~$120.3 million. Because such commitments may expire without being drawn upon, they do not necessarily represent future cash commitments. Also, at ~~March 31,~~June 30, 2003, the Company had outstanding commitments to sell ~~$7.1~~$9.1 billion of mortgage loans. These commitments will be funded within 90 days. Total commercial and consumer unused lines of credit totaled ~~$1.1 billion~~$247.7 million at ~~March 31,~~June 30, 2003. Such commitments do not include ~~$902.1~~$910.6 million of unused warehouse lines of credit to various mortgage companies. The Company had advanced ~~$525.1~~$841.9 million for warehouse lending customers at ~~March 31,~~June 30, 2003.
Capital Resources.
At ~~March 31,~~June 30, 2003, the Bank exceeded all applicable bank regulatory minimum capital requirements. The Company is not subject to any such requirements.
2132
Item 3. Market Risk
In its mortgage banking operations, the Company is exposed to market risk in the form of interest rate risk from the time the interest rate on a mortgage loan application is committed to by the Company through the time the Company sells or commits to sell the mortgage loan. On a daily basis, the Company analyzes various economic and market factors and, based upon these analyses, projects the amount of mortgage loans it expects to sell for delivery at a future date. The actual amount of loans sold will be a percentage of the number of mortgage loans on which the Company has issued binding commitments (and thereby locked in the interest rate) but has not yet closed (“pipeline loans”) to actual closings. If interest rates change in an unanticipated fashion, the actual percentage of pipeline loans that close may differ from the projected percentage. The resultant mismatching of commitments to fund mortgage loans and commitments to sell mortgage loans may have an adverse effect on the results of operations in any such period. For instance, a sudden increase in interest rates can cause a higher percentage of pipeline loans to close than projected. To the degree that this is not anticipated, the Company will not have made commitments to sell these additional pipeline loans and may incur losses upon their sale as the market rate of interest will be higher than the mortgage interest rate committed to by the Company on such additional pipeline loans. To the extent that the hedging strategies utilized by the Company are not successful, the Company’s profitability may be adversely affected.
Management believes there has been no material change in either interest rate risk or market risk since December 31, 2002.
Item 4. Controls and Procedures
(a) Disclosure Controls and Procedures.A review and evaluation was performed by the Company’s ~~management, including~~principal executive and financial officers regarding the ~~Company’s Chief Executive Officer (the “CEO”) and Chief Financial Officer (the “CFO”), of the~~ effectiveness ~~of the design and operation~~ of the Company’s disclosure controls and procedures as of ~~a date within 90 days prior to the filing of this quarterly report~~June 30, 2003, pursuant to Rule ~~13a-14~~13a-15(b) of the Securities Act of 1934. Based on that review and evaluation, the ~~CEO~~principal executive and ~~CFO~~financial officers have concluded that the Company’s current disclosure controls and procedures, as designed and implemented, ~~were~~are effective. ~~There have~~
(b) Changes in Internal Controls.During the quarter ended June 30, 2003, there has not been ~~no significant changes~~any change in the Company’s internal ~~controls~~control over financial reporting identified in connection with the evaluation required by Rule 13a-15(d) of the Securities Act of 1934 that has materially affected, or ~~in other factors that could significantly~~is reasonably likely to materially affect, the Company’s internal controls subsequent to the date of their evaluation. There were no significant material weaknesses identified in the course of such review and evaluation and, therefore, no corrective measures were taken by the Company.control over financial reporting.
2233
PART II — OTHER INFORMATION
~~Item 1.~~ ~~Legal Proceedings~~
~~None.~~
~~Item 2.~~ ~~Changes in Securities~~
~~None.~~
~~Item 3.~~ ~~Defaults upon Senior Securities~~
~~None.~~
~~Item 4.~~
Item 1. Legal Proceedings
     None.
Item 2. Changes in Securities
     None.
Item 3. Defaults upon Senior Securities
     None.
Item 4. Submission of Matters to a Vote of Security Holders
(a) ~~Not applicable~~The 2003 Annual Meeting of Shareholders of the Company was held on May 10, 2003.

(1)   The following directors were re-elected for a term of two years:

For Withheld

Michael W. Carrie 24,116,347 998,799
Richard S. Elsea 22,075,115 3,040,031
James D. Coleman 24,831,956 283,190
Robert O. Rondeau, Jr. 24,749,335 365,811
Kirstin A. Hammond 24,773,014 342,132
(b) Not applicable
~~Item 5.~~ ~~Other Information~~
~~None.~~
~~Item 6.~~
Item 5. Other Information
     None.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits

Exhibit 11. Computation of Net Earnings per Share

Exhibit ~~99.1~~31.1 Certification ~~pursuant to 18 U.S.C.~~of Chief Executive Officer under Section ~~1350, as adopted pursuant to Section 906~~302 of the Sarbanes-Oxley Act of 2002.

Exhibit ~~99.2~~31.2 Certification ~~pursuant to 18 U.S.C.~~of Chief Financial Officer under Section ~~1350, as adopted pursuant to Section 906~~302 of the Sarbanes-Oxley Act of 2002.

Exhibit 32.1 Certification of Chief Executive Officer relating to Form 10-Q for the period ended June 30, 2003.

Exhibit 32.2 Certification of Chief Financial Officer relating to Form 10-Q for the period ended June 30, 2003.
(b) Reports on Form 8-K
~~None~~ (i)   The Company filed a Form 8-K on April 24, 2003 to furnish its earnings release for the quarter ended March 31, 2003
(ii)  The Company filed a Form 8-K on April 25, 2003 to furnish its press release regarding its declaration of a 2-for-1 stock split.
2334
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

FLAGSTAR BANCORP, INC.
~~Date:    May 9, 2003~~ ~~/S/ Mark T. Hammond~~
~~Mark T. Hammond~~
~~President and~~
~~Chief Executive Officer~~
~~(Duly Authorized Officer)~~
~~/S/ Michael W. Carrie~~
~~Michael W. Carrie~~
~~Executive Director and~~
~~Chief Financial Officer~~
~~(Principal Accounting Officer)~~
24
~~SECTION 302 CERTIFICATION~~
~~I, Mark T. Hammond certify that:~~
1) ~~I have reviewed this quarterly report on Form 10-Q of Flagstar Bancorp, Inc.;~~
2) Based on my knowledge, this quarterly 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 quarterly report;
3) Based on my knowledge, the financial statements, and other financial information included in this quarterly 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 quarterly 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 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 quarterly 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 quarterly report (the “Evaluation Date”); and~~
    c) ~~presented in this quarterly 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 functions):
    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 quarterly report whether 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: ~~May 9,~~August 12, 2003 /s/S/ Mark T. Hammond
~~Signature~~
~~President and Chief Executive Officer~~
~~Title~~
26
~~SECTION 302 CERTIFICATION~~
~~I, Michael W. Carrie certify that:~~
1) ~~I have reviewed this quarterly report on Form 10-Q of Flagstar Bancorp, Inc.;~~
2) Based on my knowledge, this quarterly 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 quarterly 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 quarterly 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 quarterly 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 quarterly report (the “Evaluation Date”); and~~
    c) ~~presented in this quarterly 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 the 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 quarterly 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:~~ ~~May 9, 2003~~ ~~/s/ Michael W. Carrie~~
~~Signature~~
~~Executive Director, Treasurer and Chief~~
~~Financial Officer~~
~~Title~~Mark T. Hammond
27
~~EXHIBIT INDEX~~
President and
~~EXHIBIT~~ ~~DESCRIPTION~~Chief Executive Officer
(Duly Authorized Officer)

/S/ Michael W. Carrie
Michael W. Carrie
Executive Director
Chief Financial Officer
(Principal Accounting Officer)
35
Exhibit Index
(a) Exhibits
Exhibit 11. Computation of Net Earnings per Share

Exhibit ~~99.1~~31.1 Certification ~~pursuant to 18 U.S.C.~~of Chief Executive Officer under Section ~~1350, as adopted pursuant to Section 906~~302 of the Sarbanes-Oxley Act of 2002.

Exhibit ~~99.2~~31.2 Certification ~~pursuant to 18 U.S.C.~~of Chief Financial Officer under Section ~~1350, as adopted pursuant to Section 906~~302 of the Sarbanes-Oxley Act of 2002.

Exhibit 32.1 Certification of Chief Executive Officer relating to Form 10-Q for the period ended June 30, 2003.

Exhibit 32.2 Certification of Chief Financial Officer relating to Form 10-Q for the period ended June 30, 2003.


					For the quarter ended
					March 31,
					2003			2002

*Operating Activities*
	Net earnings				$	41,327		$	25,523
	Adjustments to reconcile net earnings to net cash used in operating activities
		Provision for losses				9,541			8,174
		Depreciation and amortization				55,372			18,360
		Net gain on the sale of assets				(882	)		(545	)
		Net gain on loan sales				(90,901	)		(50,824	)
		Net gain on sales of mortgage servicing rights				(1,261	)		(650	)
		Proceeds from sales of loans available for sale				13,972,870			9,068,003
		Originations and repurchases of loans available for sale, net of principal repayments				(15,717,137	)		(9,277,682	)
		Increase in accrued interest receivable				(5,145	)		(2,339	)
		(Increase) decrease in other assets				(14,362	)		16,964
		Increase (decrease) in accrued interest payable				152			(2,850	)
		Increase in the liability for checks issued				21,204			35,822
		Increase (decrease) in current federal income taxes payable				14,129			(64,073	)
		(Benefit) provision of deferred federal income taxes payable				(21,783	)		25,977
		(Decrease) increase in other liabilities				(1,627	)		1,992

				Net cash used in operating activities		(1,738,503	)		(198,148	)
Investing Activities
		Purchase of other investments				(1,255	)		(820	)
			Investment in mortgage backed securities			(2,099	)		—
		Origination of loans held for investment, net of principal repayments				483,808			461,508
		Proceeds from the disposition of repossessed assets				10,179			7,548
		Acquisitions of premises and equipment				(11,746	)		(9,935	)
		Proceeds from the disposition of premises and equipment				10			13
		Increase in mortgage servicing rights				(117,510	)		(107,074	)
		Proceeds from the sale of mortgage servicing rights				120,102			108,952

				Net cash provided by investing activities		481,489			460,192
Financing Activities
		Net increase (decrease) in deposit accounts				805,077			(227,248	)
		Issuance of junior subordinated debt				50,000			—
		Net increase in Federal Home Loan Bank advances				142,597			4,495
		Net disbursement of payments of loans serviced for others				198,831			(57,400	)
		Net receipt of escrow payments				55,502			36,391
		Proceeds from the exercise of common stock options				576			1,564
		Dividends paid to stockholders				(2,967	)		(1,343	)

				Net cash provided by (used in) financing activities		1,249,616			(243,541	)

Net (decrease) increase in cash and cash equivalents						(7,398	)		18,503
Beginning cash and cash equivalents						126,969			110,447

Ending cash and cash equivalents					$	119,571		$	128,950

Supplemental disclosure of cash flow information:
		Loans receivable transferred to repossessed assets			$	20,257		$	17,746

		Total interest payments made on deposits and other borrowings			$	71,085		$	62,812

		Federal income taxes paid			$	29,970		$	52,000

		Loans held for sale transferred to loans held for investment			$	779,578		$	322,111

1.		On May 3, 2002, the Company announced a 3 for 2 split of its common stock. The split was completed on May 31, 2002. All share information on the financial statements of the Company has been adjusted accordingly.

2.		On ~~March 20, 2003, Flagstar Capital Corporation (“Capital”) announced that on June 30, 2003 it would redeem all of its 8.50% Series A Preferred stock.~~

3.		On April 23, 2003, the Company announced a 2 for 1 split of its common stock. The split ~~is to be~~was completed on May 15, 2003. All share information on the financial statements of the Company has been adjusted accordingly.

3.		On June 30, 2003, Flagstar Capital Corporation (“Capital”) redeemed all of its 8.50% Series A Preferred stock.


	For the quarter ended
	March 31, 2003			March 31, 2002

Return on average assets		1.86	%		1.55	%
Return on average equity		37.82	%		33.58	%
Efficiency ratio		44.02	%		55.87	%
Equity/assets ratio (average for the period)		4.92	%		4.60	%
Mortgage loans originated or purchased	$	15,062,099		$	9,262,184
Mortgage loans sold	$	13,253,246		$	8,944,320
Interest rate spread		2.55	%		3.10	%
Net interest margin		2.69	%		3.25	%
Average common shares outstanding (2)		59,250			57,634
Average fully diluted shares outstanding (2)		62,618			61,186
Charge-offs to average investment loans		1.16	%		0.65	%


	March 31, 2003			December 31, 2002			March 31, 2002

Equity-to-assets ratio		4.82	%		5.11	%		4.95	%
Tangible capital ratio (1)		6.79	%		6.73	%		6.70	%
Core capital ratio (1)		6.79	%		6.73	%		6.70	%
Risk-based capital ratio (1)		11.44	%		11.01	%		11.47	%
Total risk-based capital ratio (1)		12.33	%		12.01	%		12.45	%
Book value per share (2)	$	7.72		$	7.08		$	5.48
Number of common shares outstanding (2)		59,332			59,190			57,936
Mortgage loans serviced for others	$	22,336,428		$	21,586,797		$	15,249,763
Value of mortgage servicing rights		0.81	%		1.07	%		1.02	%
Allowance for losses to non performing loans		61.5	%		61.3	%		50.8	%
Allowance for losses to total investment loans		1.17	%		1.25	%		1.49	%
Non performing assets to total assets		1.34	%		1.54	%		2.08	%
Number of bank branches		91			87			74
Number of loan origination centers		101			92			73
Number of correspondent offices		14			14			15
Number of employees		3,777			3,588			3,071

•§		The retail banking operation conducted business from 1719 more facilities at ~~March 31,~~June 30, 2003 than at ~~March 31,~~June 30, 2002.

•§		The Company conducted business from 2825 more retail loan origination offices at ~~March 31,~~June 30, 2003 than at ~~March 31,~~June 30, 2002.

•§		The mortgage banking operation originated ~~$15.1~~$17.5 billion in residential mortgage loans during the 2003 quarter versus ~~$9.3~~$7.5 billion in the comparable 2002 quarter.

•§		The Company employed ~~2,865~~3,106 salaried employees at ~~March 31,~~June 30, 2003 versus ~~2,441~~2,393 salaried employees at ~~March 31,~~June 30, 2002.

•§		The Company employed ~~119~~121 full-time national account executives at ~~March 31,~~June 30, 2003 versus ~~100~~101 at ~~March 31,~~June 30, 2002.

•§		The Company employed ~~793~~883 full-time retail loan originators at ~~March 31,~~June 30, 2003 versus ~~530~~565 at ~~March 31,~~June 30, 2002.


~~Item 1.~~		~~Legal Proceedings~~

		~~None.~~

~~Item 2.~~		~~Changes in Securities~~

		~~None.~~

~~Item 3.~~		~~Defaults upon Senior Securities~~

		~~None.~~

~~Item 4.~~		Item 1. Legal Proceedings None. Item 2. Changes in Securities None. Item 3. Defaults upon Senior Securities None. Item 4. Submission of Matters to a Vote of Security Holders

	(a)		~~Not applicable~~The 2003 Annual Meeting of Shareholders of the Company was held on May 10, 2003.

			(1) The following directors were re-elected for a term of two years:


	For		Withheld

Michael W. Carrie		24,116,347		998,799
Richard S. Elsea		22,075,115		3,040,031
James D. Coleman		24,831,956		283,190
Robert O. Rondeau, Jr.		24,749,335		365,811
Kirstin A. Hammond		24,773,014		342,132


~~Item 5.~~		~~Other Information~~

		~~None.~~

~~Item 6.~~		Item 5. Other Information None. Item 6. Exhibits and Reports on Form 8-K


	Exhibit 11.	Computation of Net Earnings per Share

	Exhibit ~~99.1~~31.1	Certification ~~pursuant to 18 U.S.C.~~of Chief Executive Officer under Section ~~1350, as adopted pursuant to Section 906~~302 of the Sarbanes-Oxley Act of 2002.

	Exhibit ~~99.2~~31.2	Certification ~~pursuant to 18 U.S.C.~~of Chief Financial Officer under Section ~~1350, as adopted pursuant to Section 906~~302 of the Sarbanes-Oxley Act of 2002.

Exhibit 32.1	Certification of Chief Executive Officer relating to Form 10-Q for the period ended June 30, 2003.

Exhibit 32.2	Certification of Chief Financial Officer relating to Form 10-Q for the period ended June 30, 2003.


	~~None~~		(i) The Company filed a Form 8-K on April 24, 2003 to furnish its earnings release for the quarter ended March 31, 2003

			(ii) The Company filed a Form 8-K on April 25, 2003 to furnish its press release regarding its declaration of a 2-for-1 stock split.



				FLAGSTAR BANCORP, INC.



~~Date: May 9, 2003~~				~~/S/ Mark T. Hammond~~ ~~Mark T. Hammond~~ ~~President and~~ ~~Chief Executive Officer~~ ~~(Duly Authorized Officer)~~




				~~/S/ Michael W. Carrie~~ ~~Michael W. Carrie~~ ~~Executive Director and~~ ~~Chief Financial Officer~~ ~~(Principal Accounting Officer)~~

1)		~~I have reviewed this quarterly report on Form 10-Q of Flagstar Bancorp, Inc.;~~

2)		Based on my knowledge, this quarterly 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 quarterly report;

3)		Based on my knowledge, the financial statements, and other financial information included in this quarterly 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 quarterly 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 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 quarterly 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 quarterly report (the “Evaluation Date”); and~~

	c)		~~presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;~~

	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~~


Date:	~~May 9,~~August 12, 2003	/s/S/ Mark T. Hammond ~~Signature~~

		~~President and Chief Executive Officer~~ ~~Title~~


~~Date:~~	~~May 9, 2003~~	~~/s/ Michael W. Carrie~~ ~~Signature~~

		~~Executive Director, Treasurer and Chief~~ ~~Financial Officer~~ ~~Title~~Mark T. Hammond

				President and
		~~EXHIBIT~~		~~DESCRIPTION~~Chief Executive Officer
				(Duly Authorized Officer)

				/S/ Michael W. Carrie

				Michael W. Carrie
				Executive Director
				Chief Financial Officer
				(Principal Accounting Officer)