Flagstar Bancorp (FBC) 10-Q 2001 Q2 Quarterly report

FORM 10-Q

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

Mark One
	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the quarterly period ended June 30, 2001
	OR
	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

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 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 sixty days.

Yes       No 

      As of August 10, 2001, 18,580,241 shares of the registrant’s Common Stock, $0.01 par value, were issued and outstanding.

TABLE OF CONTENTS

Statement Re: Computation of Earnings Per Share

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 — June 30, 2001 (unaudited) and December 31, 2000.

Unaudited Consolidated Statements of Earnings — For the three and six months ended June 30, 2001 and 2000.

Unaudited Consolidated Statements of Cash Flows — For the six months ended June 30, 2001 and 2000.

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.

2

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

					At June 30,			At December 31,
					2001			2000
					(unaudited)
Assets
Cash and cash equivalents					$	202,334		$	76,679
	Loans receivable
			Mortgage loans available for sale			1,734,071			1,437,799
			Loans held for investment			3,499,258			3,809,692
			Less: allowance for losses			(30,000	)		(25,000	)
Loans receivable, net						5,203,329			5,222,491
Federal Home Loan Bank stock						117,700			98,800
Other investments						5,685			4,133
Total earning assets						5,326,714			5,325,424
Accrued interest receivable						42,566			39,075
Repossessed assets						31,302			22,258
Premises and equipment						125,934			106,325
Mortgage servicing rights						110,683			106,425
Other assets						156,070			87,038
				Total assets	$	5,995,603		$	5,763,224
Liabilities and Stockholders’ Equity
Liabilities
Retail deposit accounts					$	2,184,373		$	1,870,731
Wholesale deposit accounts						1,064,935			1,537,234
Federal Home Loan Bank advances						1,920,000			1,733,345
Long term debt						74,750			74,750
Total interest bearing liabilities						5,244,058			5,216,060
Accrued interest payable						23,308			46,719
Undisbursed payments on loans serviced for others						110,321			67,267
Escrow accounts						108,444			54,852
Liability for checks issued						140,257			48,663
Federal income taxes payable						52,477			62,390
Other liabilities						88,517			70,083
				Total liabilities		5,767,382			5,566,394
Stockholders’ Equity
Common stock — $.01 par value,
		40,000,000 shares authorized; 13,753,491 and 13,400,423 shares issued; and 12,248,021 and 11,894,953 outstanding at June 30, 2001 and December 31, 2000, respectively				123			119
Additional paid in capital						13,099			5,374
Retained earnings						214,999			191,337
				Total stockholders’ equity		228,221			196,830
				Total liabilities and stockholders’ equity	$	5,995,603		$	5,763,224

The accompanying notes are an integral part of these statements.

3

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

		For the quarter ended June 30,					For the six months ended June 30,
		2001			2000		2001			2000
Interest Income
Loans		$	104,750		$	92,947	$	211,277		$	167,192
Other			3,814			2,431		9,362			4,122
	Total		108,564			95,378		220,639			171,314
Interest Expense
Deposits			50,846			41,873		105,557			75,158
FHLB advances			29,207			26,887		57,761			47,065
Other			4,423			3,232		7,919			6,479
	Total		84,476			71,992		171,237			128,702
Net interest income			24,088			23,386		49,402			42,612
Provision for losses			6,011			4,352		11,991			5,918
Net interest income after provision for losses			18,077			19,034		37,411			36,694
Non-Interest Income
Loan administration			(5,776	)		4,476		(5,195	)		8,920
Net gain on loan sales			48,978			3,345		77,006			5,528
Net gain on sales of mortgage servicing rights			(258	)		5,596		1,170			5,916
Other fees and charges			6,663			3,692		11,362			8,499
	Total		49,607			17,109		84,343			28,863
Non-Interest Expense
Compensation and benefits			20,044			8,116		41,067			19,523
Occupancy and equipment			10,316			7,076		18,492			13,472
General and administrative			11,916			7,494		19,382			13,143
	Total		42,276			22,686		78,941			46,138
Earnings before federal income taxes			25,408			13,457		42,813			19,419
Provision for federal income taxes			9,068			4,840		15,455			7,035
Net Earnings		$	16,340		$	8,617	$	27,358		$	12,384
Earnings per share – basic		$	0.89		$	0.47	$	1.51		$	0.67
Earnings per share – diluted		$	0.83		$	0.47	$	1.40		$	0.67

The accompanying notes are an integral part of these statements.

4

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

				For the six months ended June 30,
				2001			2000
Operating Activities
	Net earnings			$	27,358		$	12,384
	Adjustments to reconcile net earnings to net cash used in operating activities
		Provision for losses			11,991			5,918
		Depreciation and amortization			26,962			13,244
		Net gain on the sale of assets			(450	)		(52	)
		Net gain on loan sales			(77,006	)		(5,528	)
		Net gain on sales of mortgage servicing rights			(1,170	)		(5,916	)
		Proceeds from sales of loans available for sale			13,202,675			3,471,568
		Originations and repurchases of loans available for sale, net of principal repayments			(13,597,337	)		(4,369,559	)
		Decrease in accrued interest receivable			(3,491	)		(10,178	)
		(Decrease) increase in other assets			(69,680	)		937
		(Decrease) increase in accrued interest payable			(23,411	)		10,368
		Increase in liability for checks issued			91,594			33,014
		Increase (decrease) in current federal income taxes payable			44			(1,990	)
		Benefit for deferred federal income taxes payable			(9,957	)		(1,973	)
		Increase in other liabilities			18,434			5,768
			Net cash used in operating activities		(403,444	)		(841,995	)
Investing Activities
		Purchase of other investments			(1,552	)		(2,521	)
		Originations of loans held for investment, net of principal repayments			457,528			14,425
		Purchase of Federal Home Loan Bank stock			(18,900	)		(18,950	)
		Proceeds from the disposition of repossessed assets			12,717			11,261
		Acquisitions of premises and equipment			(28,254	)		(43,053	)
		Net proceeds from the disposition of premises and equipment			—			109
		Increase in mortgage servicing rights			(226,291	)		(64,816	)
		Proceeds from the sale of mortgage servicing rights			205,534			69,681
			Net cash provided by (used in) investing activities		400,782			(33,864	)
Financing Activities
		Net increase in retail deposit accounts			313,642			290,671
		Net (decrease) increase in wholesale deposit accounts			(472,299	)		694,940
		Net increase in Federal Home Loan Bank advances			186,655			93,000
		Net receipt of payments of loans serviced for others			42,694			2,597
		Net receipt of escrow payments			53,592			24,432
		Stock repurchase program			—			(11,403	)
		Net proceeds from the exercise of common stock options			7,729			—
		Dividends paid to stockholders			(3,696	)		(2,491	)
			Net cash provided by financing activities		128,317			1,091,746
Net increase in cash and cash equivalents					125,655			215,887
Beginning cash and cash equivalents					76,679			118,636
Ending cash and cash equivalents				$	202,334		$	334,523
Supplemental disclosure of cash flow information:
		Loans receivable transferred to repossessed assets		$	28,323		$	12,948
		Total interest payments made on deposits and other borrowings		$	194,648		$	118,334
		Federal income taxes paid		$	27,000		$	11,000
		Loans available for sale transferred to loans held for investment		$	175,397		$	1,508,391

The accompanying notes are an integral part of these statements.

5

Flagstar Bancorp, Inc.
Notes to Consolidated Financial Statements

Note 1 — Nature of Business

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 1987. Flagstar’s primary business consists of attracting deposits from the general public and originating or acquiring residential mortgage loans. The Company also acquires funds on a wholesale basis from a variety of sources, services a significant volume of loans for others, and to a lesser extent makes consumer loans, commercial real estate loans, and non-real estate commercial loans.

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, 2001.

Note 3. Subsequent Events

1.	On June 26, 2000, the Company announced a 3 for 2 split of its common stock. The split was completed on July 12, 2001.
2.	On July 13, 2001, the Company moved its stock from the Nasdaq Stock Market to the New York Stock Exchange. The stock which formerly traded under the symbol “FLGS”, is now traded under the symbol “FBC”.
3.	Flagstar Trust, a Delaware trust and subsidiary of Flagstar Bancorp, moved its preferred securities from the Nasdaq Stock Market to the New York Stock Exchange. The securities, which formerly traded under the symbol “FLGSO”, now trades under the symbol “FBC-O”.
4.	Flagstar Capital, a real estate investment trust and second tier subsidiary of Flagstar Bancorp, moved its preferred stock from the Nasdaq Stock Market to the New York Stock Exchange. The securities, which formerly traded under the symbol “FLGSP”, now trades under the symbol “FBC-P”.

6

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

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

	For the quarter ended						For the six months ended
	June 30, 2001			June 30, 2000			June 30, 2001			June 30, 2000
Return on average assets		1.05	%		0.67	%		0.88	%		0.52	%
Return on average equity		29.33	%		18.95	%		25.62	%		13.58	%
Efficiency ratio		56.93	%		55.22	%		58.54	%		63.65	%
Equity/assets ratio (average for the period)		3.57	%		3.54	%		3.83	%		3.84	%
Mortgage loans originated or purchased	$	8,192,835		$	2,450,551		$	13,630,382		$	4,413,175
Mortgage loans sold	$	7,632,730		$	2,040,827		$	13,027,731		$	3,422,105
Interest rate spread		1.52	%		1.83	%		1.59	%		1.80	%
Net interest margin		1.69	%		1.96	%		1.73	%		1.95	%
Average common shares outstanding (2)		18,264			18,197			18,140			18,612
Average fully diluted shares outstanding (2)		19,612			18,197			19,562			18,648
Charge-offs to average loans outstanding		0.29	%		0.20	%		0.26	%		0.18	%

	June 30, 2001			March 30, 2001			December 31, 2000			June 30, 2000
Equity-to-assets ratio		3.81	%		3.30	%		3.42	%		3.37	%
Tangible capital ratio (1)		5.60	%		4.95	%		5.31	%		5.37	%
Core capital ratio (1)		5.60	%		4.95	%		5.32	%		5.39	%
Risk-based capital ratio (1)		9.67	%		9.17	%		9.53	%		9.89	%
Total risk-based capital ratio (1)		10.53	%		9.98	%		10.30	%		10.68	%
Book value per share (2)	$	12.42		$	11.64		$	11.03		$	10.21
Number of common shares outstanding (2)		18,372			18,080			17,843			18,041
Mortgage loans serviced for others	$	7,679,952		$	7,637,022		$	6,644,482		$	8,402,411
Value of mortgage servicing rights		1.44	%		1.73	%		1.60	%		1.49	%
Allowance for losses to non performing loans		45.8	%		43.2	%		39.3	%		53.3	%
Allowance for losses to total loans		0.58	%		0.55	%		0.48	%		0.53	%
Non performing assets to total assets		1.61	%		1.40	%		1.49	%		1.21	%
Number of bank branches		63			59			52			40
Number of loan origination centers		55			49			42			38
Number of correspondent offices		15			15			15			15
Number of employees		2,589			2,311			1,894			1,762

(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 3 for 2 stock dividend declared on June 26, 2001 and issued on July 12, 2001.

7

Results of Operations

Net Earnings

During both the three and six month period ended June 30, 2001, the Company recorded record net earnings from operations due to the interest rate environment prevalent in 2001. The lower and falling interest rates experienced in 2001 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 continued to contribute to the Company’s profitability.

     Three months

Net earnings for the three months ended June 30, 2001 were $16.3 million ($0.83 per share-diluted), a $7.7 million increase from the $8.6 million ($0.47 per share-diluted) reported in 2000. The increase resulted from a $32.5 million increase in other income, a $0.7 million increase in net interest income, which was offset by a $4.3 million increase in the provision for federal income taxes, a $1.6 million increase in the provision for losses, and a $19.6 million increase in operating expenses.

     Six months

Net earnings for the six months ended June 30, 2001 were $27.4 million ( $1.40 per share-diluted ), a $15.0 million increase from the $12.4 million ( $0.67 per share-diluted ) reported in 2000. The increase resulted from a $55.4 million increase in other income, a $6.8 million increase in net interest income, which was offset by a $8.5 million increase in the provision for federal income taxes, a $6.1 million increase in the provision for losses, and a $32.8 million increase in net operating expenses.

Net Interest Income

Three months

Net interest income continues to rise and in this quarter increased $0.7 million, or 3.0%, to $24.1 million for the three months ended June 30, 2001. This level of interest income compares positively to the $23.4 million recorded for the 2000 period. Although there was only a small increase in net interest income, there was a $13.2 million increase in interest revenue. This revenue increase was offset by a $12.5 million increase in interest expense. In this period of lower interest rates the Company’s earning assets have prepaid and repriced at a faster pace than the liabilities used to fund these assets have repriced. So in this period that the Company increased the average earning asset base by over $1.0 billion, the Company only registered a small increase in net interest income. This repricing is shown in the decreased spread reported during the current period when compared to the second quarter of 2000. Assets as a whole repriced down 0.48% while its liability counterpart only repriced down 0.17% on a like period comparison. These decreases were reflected in the large decrease in the Company’s net interest margin of 0.27% to 1.69% for the three months ended June 30, 2001 from 1.96% for the comparable 2000 period.

Six months

Net interest income for the six months ended June 30, 2001 had a more dramatic increase of $6.8 million, or 16.0%, to $49.4 million. This level of interest income compares to $42.6 million recorded during the 2000 period. This increase was due to a $1.4 billion increase in average interest-earning assets between the comparable periods, offset by the $1.4 billion increase in interest-bearing liabilities necessary to fund the growth and the decreasing spread discussed above. The Company’s interest rate spread also decreased for the six months ended June 30, 2001 from 1.80% for the 2000 period to 1.59%. These changes resulted in a net decrease in the Company’s net interest margin of 0.22% to 1.73% for the six months ended June 30, 2001 from 1.95% for the comparable 2000 period.

8

AVERAGE YIELDS EARNED AND RATES PAID

Table 1 and Table 2 presents 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.

TABLE 1

		Quarter ended June 30,
		2001							2000
		Average				Yield/			Average				Yield/
		Balance		Interest		Rate			Balance		Interest		Rate
		(in thousands)
Interest-earning assets:
Loans receivable, net		$	5,560,505	$	104,750		7.54	%	$	4,657,465	$	92,947		7.98	%
FHLB stock			113,511		2,299		8.00			98,800		1,971		8.00
Other			122,203		1,515		4.96			32,745		460		5.62
Total interest-earning assets			5,796,219	$	108,564		7.49	%		4,789,010	$	95,378		7.97	%
Other assets			454,752							352,277
Total assets		$	6,250,971						$	5,141,287
Interest-bearing liabilities:
Retail deposits		$	2,262,036	$	32,283		5.72	%	$	1,292,765	$	17,055		5.86	%
Wholesale deposits			1,234,460		18,563		6.03			1,573,258		24,818		6.31
FHLB advances			2,028,154		29,207		5.78			1,686,296		26,887		6.40
Other			217,345		4,423		8.16			149,750		3,232		8.66
Total interest-bearing liabilities			5,741,995	$	84,476		5.97	%		4,702,069	$	71,992		6.14	%
Other liabilities			286,114							257,293
	Stockholders equity		222,862							181,925
Total liabilities and stockholders equity		$	6,250,971						$	5,141,287
Net interest-earning assets		$	54,224						$	86,941
Net interest income				$	24,088						$	23,386
Interest rate spread							1.52	%						1.83	%
Net interest margin							1.69	%						1.96	%
Ratio of average interest-earning assets to interest-bearing liabilities							101	%						102	%

9

TABLE 2

AVERAGE YIELDS EARNED AND RATES PAID

		Six months ended June 30,
		2001							2000
		Average				Yield/			Average				Yield/
		Balance		Interest		Rate			Balance		Interest		Rate
		(in thousands)
Interest-earning assets:
Loans receivable, net		$	5,449,827	$	211,277		7.75	%	$	4,276,730	$	167,192		7.82	%
FHLB stock			109,417		4,377		8.00			89,325		3,563		8.00
Other			194,813		4,985		5.12			20,000		559		5.59
Total interest-earning assets			5,754,057	$	220,639		7.67	%		4,386,055	$	171,314		7.81	%
Other assets			459,716							368,772
Total assets		$	6,213,773						$	4,754,827
Interest-bearing liabilities:
Retail deposits		$	2,132,411	$	62,523		5.91	%	$	1,331,728	$	35,123		5.72	%
Wholesale deposits			1,392,590		43,034		6.23	%		1,305,609		40,035		6.13
FHLB advances			1,971,640		57,761		5.91			1,509,736		47,065		6.25
Other			187,234		7,919		8.53			149,187		6,479		8.71
Total interest-bearing liabilities			5,683,875	$	171,237		6.08	%		4,296,260	$	128,702		6.01	%
Other liabilities			316,332							276,144
	Stockholders equity		213,566							182,423
Total liabilities and Stockholders equity		$	6,213,773						$	4,754,827
Net interest-earning assets		$	70,182						$	89,795
Net interest income				$	49,402						$	42,612
Interest rate spread							1.59	%						1.80	%
Net interest margin							1.73	%						1.95	%
Ratio of average interest-earning assets to interest-bearing liabilities							101	%						102	%

10

RATE/VOLUME ANALYSIS

Table 3 and Table 4 present the dollar amount of changes in interest income and interest expense for the components of earning assets and interest-bearing liabilities which are presented in Tables 1 and 2. Table 3 and 4 distinguishes 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 volume constant).

TABLE 3

	Quarter ended June 30,
	2001 versus 2000
	Increase (Decrease) due to:
	Rate			Volume			Total
	(in thousands)
Interest Income:
Loans receivable, net	$	(6,153	)	$	17,956		$	11,803
FHLB stock		0			328			328
Other		(203	)		1,258			1,055
Total	$	(6,356	)	$	19,542		$	13,186
Interest Expense:
Retail deposits	$	(792	)	$	16,020		$	15,228
Wholesale deposits		(864	)		(5,391	)		(6,255	)
FHLB advances		(3,120	)		5,440			2,320
Other		(270	)		1,461			1,191
Total	$	(5,046	)	$	17,530		$	12,484
Net change in net interest income	$	(1,310	)	$	2,012		$	702

TABLE 4

	Six months ended June 30,
	2001 versus 2000
	Increase (Decrease) due to:
	Rate			Volume		Total
	(in thousands)
Interest Income:
Loans receivable, net	$	(1,872	)	$	45,957	$	44,085
FHLB stock		0			814		814
Other		(462	)		4,888		4,426
Total	$	(2,334	)	$	51,659	$	49,325
Interest Expense:
Retail deposits	$	6,773		$	20,627	$	27,400
Wholesale deposits		677			2,322		2,999
FHLB advances		(3,371	)		14,067		10,696
Other		(168	)		1,608		1,440
Total	$	3,911		$	38,624	$	42,535
Net change in net interest income	$	(6,243	)	$	13,033	$	6,790

11

Provision for Losses

     Three months

The provision for losses was increased to $6.0 million for the three months ended June 30, 2001 from $4.4 million during the same period in 2000. The provision for losses in each period included an increase in the allowance for losses of $2.0 million. Net charge-offs were an annualized 0.29% and 0.20% of average loans outstanding during the three months ended June 30, 2001 and June 30, 2000, respectively.

The allowance was increased in order to set loan loss reserves at a level that would offset the inherent risk associated with the Company’s loan portfolio. The loan portfolio increased 2.6% during the three month period ended June 30, 2001. The Company’s increase in its general reserves constituted an increase of 7.1% and somewhat offset the Company’s increase of 8.4% in non-performing assets during the second quarter. The allowance, which now totals $30.0 million, is 0.58% of loans and 45.79% of non-performing loans.

     Six months

The provision for losses was increased to $12.0 million for the six months ended June 30, 2001 from $5.9 million during the same period in 2000. The provision for losses in the 2001 period included a $5.0 million increase in the allowance for losses of whereas the 2000 period included a $2.0 million increase. Net charge-offs were an annualized 0.26% and 0.18% of average loans outstanding during the six months ended June 30, 2001 and June 30, 2000, respectively.

Non-Interest Income

     Three months

During the three months ended June 30, 2001, non-interest income increased $32.5 million, or 190.1%, to $49.6 million from $17.1 million. This increase was primarily attributable to an increase in net gain on loan sales and other fees and charges, offset by a decrease in the net gain on the sales of mortgage servicing rights and net loan administration fees.

     Six months

During the six months ended June 30, 2001, non-interest income increased $55.4 million, or 191.6%, to $84.3 million from $28.9 million. This increase was primarily attributable to an increase in net gain on loan sales and other fees and charges, offset by a decrease in the net gain on the sales of mortgage servicing rights and net loan administration fees.

     Loan Administration

     Three months

Net loan administration fee income decreased to a negative $5.8 million during the three months ended June 30, 2001, from $4.5 million in the 2000 period. This $10.3 million decrease was the result of the $9.0 million increase in the amortization of the mortgage servicing rights (“MSR”). This amortization increase was recorded to adjust for the increased prepayment on the underlying mortgage loans serviced for others. Fee income before the amortization of servicing rights decreased only $1.3 million for the three months ended June 30, 2001, to $6.8 million compared to the $8.1 million recorded in the 2000 period. This decrease in gross fee income was the result of the smaller portfolio of serviced loans during the 2001 period.

     Six months

Net loan administration fee income for the six months ended June 30, 2001 decreased to a negative $5.2 million from $8.9 million recorded in the 2000 period. This $14.1 million decrease also was the result of the increased amortization of mortgage servicing rights. MSR amortization equaled $17.7 million during the 2001 period versus $7.4 million during the comparable 2000 period. Gross fee income, before the amortization of serving rights, decreased $3.8 million for the six months ended June 30, 2001 to $12.5 million, from $16.3 million for the comparable 2000 period. This decrease in gross fee income was the result of the smaller portfolio of serviced loans during the 2001 period.

12

At June 30, 2001, the unpaid principal balance of loans serviced for others was $7.7 billion versus $7.6 billion serviced at March 31, 2001 and $6.6 billion serviced at December 31, 2000. At June 30, 2000, the unpaid principal balance of loans serviced for others was $8.4 billion versus $9.6 billion serviced at March 31, 2000 and $9.5 billion serviced at December 31, 1999. The weighted average servicing fee on loans serviced for others at June 30, 2001 was 0.285% (i.e., 28.5 basis points). The weighted average age of the loans serviced for others at June 30, 2001 was 16 month old.

     Net Gain on Loan Sales

     Three months

For the three months ended June 30, 2001, net gain on loan sales increased $45.7 million, to $49.0 million, from $3.3 million in the 2000 period. The 2001 period reflects the sale of $7.6 billion in loans versus $2.0 billion sold in the 2000 period. The higher interest rate environment in the 2000 period resulted in a smaller mortgage loan origination volume ($8.2 billion in the 2001 period vs. $2.5 billion in the 2000 period) and a smaller or narrower gain on sale spread (64 basis points in the 2001 period versus 16 basis points in the 2000 period) recorded when the loans were sold.

     Six months

For the six months ended June 30, 2001, net gain on loan sales increased $71.5 million, to $77.0 million, from $5.5 million in the comparable 2000 period. The 2001 period includes the sale of $13.0 billion in loans versus $3.4 billion sold in the 2000 period. For the six month period ended June 30, 2001, the lower interest rate environment also resulted in a larger or wider gain on sale spread recorded (59 basis points in the 2001 period versus 16 basis points in the 2000 period) when the loans were sold.

     Net Gain on the Sale of Mortgage Servicing Rights

     Three months

For the three months ended June 30, 2001, the net gain on the sale of mortgage servicing rights decreased from $5.9 million during the 2000 period to a negative $258,000. The gain on sale of mortgage servicing rights decreased because the Company sold a $1.6 billion seasoned bulk servicing package in the 2000 period and did not have such a sale of seasoned loans in the 2001 period. During 2001, the Company sold $7.2 billion of newly originated servicing rights on a flow basis. The Company recorded a minimal $600,000 gain on these sales. During the 2001 period, prepayments recorded on prior MSR sales required an adjustment of $858,000. During 2000, the Company also sold $1.4 billion of servicing rights on a flow basis for a minimal profit.

     Six months

For the six months ended June 30, 2001, the net gain on the sale of mortgage servicing rights decreased $4.7 million to $1.2 million, from $5.9 million for the same period in 2000. The gain on sale of mortgage servicing rights decreased due to the aforementioned sale of $1.6 billion of seasoned servicing rights in 2000. During 2001, the Company only recorded a minimal gain on a bulk servicing sale of $2.2 billion in mortgage servicing rights. During 2001, the Company sold a total of $9.1 billion in servicing versus the $13.4 billion of mortgage servicing rights originated. In 2000, the Company sold $4.1 billion and originated $3.4 billion in mortgage servicing rights.

     Other Fees and Charges

     Three months

During the three months ended June 30, 2001, the Company recorded $6.7 million in other fees and charges. In the comparable 2000 period, the Company recorded $3.7 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. During the 2001 period, the Company originated $48.3 million of commercial loans versus $12.0 million in the comparable 2000 period.

13

     Six months

During the six months ended June 30, 2001, the Company recorded $11.4 million in other fees and charges. In the comparable 2000 period, the Company recorded $8.5 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. During the 2001 period, the Company originated $96.5 million of commercial loans versus $47.9 million in the comparable 2000 period.

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 ) more clearly reflects the changes in non-interest expense when comparing periods.

	Quarter ended June 30,						Six months ended June 30,
	2001			2000			2001			2000
	(in thousands)
Compensation and benefits	$	28,241		$	14,615		$	52,882		$	29,671
Commissions		19,668			6,800			32,655			11,887
Occupancy and equipment		10,316			7,077			18,492			13,473
Advertising		1,248			975			2,476			1,745
Core deposit amortization		323			323			645			645
Federal insurance premium		169			126			339			249
General and administrative		12,908			7,742			21,135			13,840
Total		72,873			37,658			128,624			71,510
Less: capitalized direct costs of loan closings		(30,597	)		(14,972	)		(49,683	)		(25,372	)
Total, net	$	42,276		$	22,686		$	78,941		$	46,138
Efficiency ratio		56.93	%		55.22	%		58.54	%		63.65	%

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

• The retail banking operation conducted business from 23 more facilities at June 30, 2001 than at June 30, 2000.

• The Company conducted business from 17 more retail loan origination offices at June 30, 2001 than at June 30, 2000.

• The mortgage banking operation originated $8.2 billion in residential mortgage loans during the 2001 quarter versus $2.5 billion in the comparable 2000 quarter.

• The Company moved its national headquarters in October 2000. This move consolidated the operations of three leased facilities into one owned facility.

• The Company employed 2,099 salaried employees at June 30, 2001 versus 1,318 salaried employees at June 30, 2000.

• The Company employed 92 full-time national account executives at June 30, 2001 versus 84 at June 30, 2000.

• The Company employed 398 full-time retail loan originators at June 30, 2001 versus 235 at June 30, 2000.

14

Three months

Non-interest expense, excluding the capitalization of direct loan origination costs, increased $35.2 million, or 93.4%, to $72.9 million during the three months ended June 30, 2001, from $37.7 million for the comparable 2000 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 $13.6 million, or 93.2%, 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 $12.9 million, or 189.7%, is the direct result of the increased mortgage loan originations during the period. During the 2001 period commissions were 24 basis points of loan originations versus 28 basis points during the 2000 period.

The majority of the $3.2 million, or 45.1% increase in occupancy and equipment costs are directly attributable to the extensive facility expansion and the equipment required to accommodate the increased staff.

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

During the three months ended June 30, 2001, the Company capitalized direct loan origination costs of $30.6 million, an increase of $15.6 million, or 104.0%, from $15.0 million for the comparable 2000 period. The 2001 deferral equates to a capitalization of $553 per loan versus $813 per loan in the 2000 period.

Six months

During the six months ended June 30, 2001, non-interest expense, excluding the capitalization of direct loan origination costs, increased by $57.1 million, or 79.9%, to $128.6 million, from $71.5 million for the comparable 2000 period. The increased costs are also attributable to the above mentioned changes. 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 $23.2 million, or 78.1%, 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 $20.8 million, or 174.8%, is the direct result of the increased mortgage loan originations during the period. During the 2001 period commissions were 24 basis points of loan originations versus 27 basis points during the 2000 period.

The majority of the $5.0 million, or 37.0% increase in occupancy and equipment costs are directly attributable to the extensive facility expansion and the equipment required to accommodate the increased staff.

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

During the six months ended June 30, 2001, the Company capitalized direct loan origination costs of $49.7 million, an increase of $24.3 million, or 95.7%, from $25.4 million for the comparable 2000 period. The 2001 deferral equates to a capitalization of $536 per loan versus $755 per loan in the 2000 period.

15

SEGMENT REPORTING

RETAIL BANKING OPERATIONS

The Company provides a full range of banking services to consumers and small businesses in southern Michigan and Indiana. At June 30, 2001, the Bank operated a network of 63 bank branches. The Company has continued to focus on expanding its branch network in order to increase its access to retail deposit funding sources. The retail banking operation allows the Company to cross-market consumer banking services to the Company’s mortgage customers in Michigan.

MORTGAGE BANKING OPERATIONS

Flagstar’s mortgage banking activities involve the origination of mortgage loans or the purchase of mortgage loans from the originating lender. Company personnel originate loans and conduct business from 55 loan origination centers located primarily in Michigan. 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, conform to the underwriting standards of Freddie Mac or Fannie Mae, or both.

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

Table 4

Retail Banking Operations

	At or for the quarter ended June 30,				At or for the six months ended June 30,
	2001		2000			2001		2000
	(In thousands)
Revenues	$	20,717	$	16,908		$	40,601	$	34,165
Earnings before taxes		7,861		8,743			16,311		20,125
Identifiable assets		3,582,872		1,745,115			3,582,872		1,745,115

Table 5

Mortgage Banking Operations

	At or for the quarter ended June 30,				At or for the six months ended June 30,
	2001		2000		2001		2000
	(In thousands)
Revenues	$	52,978	$	23,588	$	93,144	$	37,311
Earnings before taxes		17,547		4,715		26,502		(705	)
Identifiable assets		3,610,695		3,714,240		3,610,695		3,714,240

16

Financial Condition

Assets

The Company’s assets totaled $6.0 billion at June 30, 2001, an increase of $0.2 billion, or 3.4%, as compared to $5.8 billion at December 31, 2000. This increase was primarily due to an increase in cash and cash equivalents at June 30, 2001 but, encompassed small increases in the majority of asset categories.

     Cash and cash equivalents

Cash and cash equivalents increased from $76.7 million at December 31, 2000 to $202.3 million at June 30, 2001. The cash on hand at June 30, 2001 includes $135.0 million of funds held in an overnight time account at the Federal Home Loan Bank. This excess cash was part of the proceeds received on loan sales consummated at the end of June. These funds were utilized in the mortgage banking operation during July.

     Loans receivable, net

Loans receivable, net at June 30, 2001 was down only $19.2 million from December 31, 2000. Despite this almost identical balance, the components of the totals have changed dramatically.

Mortgage loans available for sale increased $296.3 million, or 20.6%, to $1.7 billion at June 30, 2001, from $1.4 billion at December 31, 2000. This increase is primarily attributable to the record amount of loan production originated during the second quarter. At June 30, 2001, the majority of these loans were originated within the two weeks prior to the end of the quarter.

Loans held for investment decreased $310.4 million, or 8.1%, from $3.8 billion at December 31, 2000 to $3.5 billion at June 30, 2001. This decrease is primarily attributable to the increase in mortgage loan refinances. Despite that $310.4 million decrease, there were substantial increases in most of the non residential mortgage balances. These increases included a $40.9 million increase in second mortgage loans, a $61.5 million increase in commercial real estate loans, a $1.4 million increase in commercial loans, and a $1.6 million increase in consumer loans.

Additionally, the Company had issued lines of credit to its warehouse customers through the commercial loan department totaling $244.3 million at June 30, 2001, up 265.7% from $66.8 million of utilized warehouse lines of credit at December 31, 2000. Approved warehouse lines of credit at June 30, 2001 totaled $406.4 million.

Loans held for investment:	June 30, 2001		December 31, 2000
Single Family Mortgage	$	2,668,224	$	3,250,850
Second Mortgage		209,824		168,886
Construction		49,700		60,534
Commercial Real Estate		256,167		194,653
Commercial		10,321		8,881
Warehouse		244,347		66,765
Consumer		60,675		59,123
Total	$	3,499,258	$	3,809,692

17

     Allowance for losses

The allowance for losses totaled $30.0 million at June 30, 2001, an increase of $5.0 million, or 20.0%, from $25.0 million at December 31, 2000. This increase was recorded to offset the $11.7 million increase in delinquent loans in the Company’s loan portfolio and to offset any further losses in the Company’s $31.3 million REO portfolio.

Additionally, the Company increased these reserves to offset the trend occurring within the Company’s held for investment portfolio. During the three and six months ended June 30, 2001, loan charge-offs have increased $1.7 million, or 70.5%, and $3.1 million, or 78.4%, versus the comparative periods in 2000, respectively.

The allowance for losses as a percentage of non-performing loans was 45.8% and 39.3% at June 30, 2001 and December 31, 2000, respectively. The Company’s non-performing loans totaled $65.5 million and $63.6 million at June 30, 2001 and December 31, 2000, respectively. The allowance for losses as a percentage of total loans, was 0.58% and 0.48% at June 30, 2001 and December 31, 2000, respectively. The increase in the dollar amount of the allowance for losses was based upon management’s assessment of relevant factors, including the types and amounts of non-performing loans, historical, and anticipated loss experience on such types of loans, and current and projected economic conditions. During the six months ended June 30, 2001, non-performing loans increased $1.9 million, or 3.0% and management increased the allowance for losses $5.0 million, creating a 8.0% decrease in net non-performing loans.

     FHLB stock

Holdings of FHLB stock increased from $98.8 million at December 31, 2000 to $117.7 million at June 30, 2001. These increases were made to comply with the 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. During the quarter ended June 30, 2001, the FHLB advance total reached $1.9 billion creating the need for the increased stock balance.

     Accrued interest receivable

Accrued interest receivable increased from $39.1 million at December 31, 2000 to $42.6 million at June 30, 2001 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 $22.3 million at December 31, 2000 to $31.3 million at June 30, 2001. This increase was caused by a greater amount of loans in a foreclosed status which are yet to be sold.

 ��   Mortgage servicing rights

Mortgage servicing rights totaled $110.7 million at June 30, 2001, an increase of $4.3 million, or 4.0%, from $106.4 million reported at December 31, 2000. During the six months ended June 30, 2001, the Company capitalized $226.3 million, amortized $17.7 million, and sold $204.3 million in mortgage servicing rights. The principal balance of the loans serviced for others stands at $7.7 billion at June 30, 2001 versus $6.6 billion at December 31, 2000. The capitalized value of the mortgage servicing rights was 1.44% and 1.60% value at June 30, 2001 and December 31, 2000, respectively.

18

     Other assets

Other assets increased $69.1 million, or 79.4%, to $156.1 million at June 30, 2001, from $87.0 million at December 31, 2000. The majority of this increase was attributable to the recording of receivables in conjunction with the sale of residential mortgage loan servicing rights completed during the six months ended June 30, 2001. Upon the sale of the mortgage servicing rights a receivable is recorded for a portion of the sale proceeds. The balance due is paid within 180 days after the sale date.

Liabilities

The Company’s total liabilities increased $0.2 billion, or 3.6%, to $5.8 billion at June 30, 2001, from $5.6 billion at December 31, 2000. This increase was not centered in any individual category but included an increase in most every liability category.

     Retail deposit accounts

Retail deposit accounts increased $0.3 billion, or 15.8%, to $2.2 billion at June 30, 2001, from $1.9 billion at December 31, 2000. This increase reflects the deposit growth strategy being implemented in the Company’s bank branch network. The number of bank branches increased from 52 at December 31, 2000 to 63 at June 30, 2001. At June 30, 2001, the Company’s retail certificates of deposit totaled $1.4 billion, or 63.6% of total retail deposits. These certificates carry an average balance of $20,695 and a weighted average cost of 6.15%. During the third quarter, the Company has $368.0 million of these certificates that carry a rate of 6.35% maturing. The Company expects to renew the majority of these accounts at a rate which is 250 basis points less than the current rate.

     Wholesale deposit accounts

Wholesale deposit accounts decreased $0.4 billion, or 33.3%, to $1.1 billion at June 30, 2001, from $1.5 billion at December 31, 2000. This decrease reflects the Company’s strategy to reduce its reliance on higher costing secondary market certificates of deposit. The Company has emphasized the use of lower costing retail deposits and advances from the FHLB which are more sensitive to the current interest rate environment.

These deposits are made up entirely of certificates of deposit garnered through the secondary market. At June 30, 2001, the portfolio of certificates of deposit had a weighted cost of 5.76%. During the third quarter, the Company has $202.1 million of these certificates which carry a rate of 5.61% maturing. The Company does not expect to renew these accounts.

     FHLB advances

FHLB advances increased $0.2 billion, or 11.8%, to $1.9 billion at June 30, 2001, from $1.7 million at December 31, 2000. The Company 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.

     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. The preferred securities mature in 30 years, pay interest quarterly, and the interest expense is deductible for federal income tax purposes. The net proceeds from the offering were contributed to Flagstar Bank as additional paid in capital and is included as regulatory capital.

19

     Undisbursed payments on loans serviced for others

Undisbursed payments on loans serviced for others increased $43.0 million, or 63.9%, to $110.3 million at June 30, 2001, from $67.3 million at December 31, 2000. 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 June 30, 2001 is reflective of the refinance environment currently being experienced by the Company.

     Escrow accounts

Customer escrow accounts increased $53.5 million, or 97.4%, to $108.4 million at June 30, 2001, from $54.9 million at December 31, 2000. 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 to local school and municipal agencies.

     Liability for checks issued

Liability for checks issued increased $91.6 million, or 188.1%, to $140.3 million at June 30, 2001, from $48.7 million at December 31, 2000. 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 large increase at June 2001 is indicative of the large production volumes recorded by the Company during the period.

     Federal income taxes payable

Federal income taxes payable decreased $9.9 million, or 15.9%, to $52.5 million at June 30, 2001, from $62.4 million at December 31, 2000. This decrease is attributable to the payment of taxes during the six months ended June 30, 2001 offset by an increase in the deferred tax liability created through operations.

     Other liabilities

Other liabilities increased $18.4 million, or 26.2%, to $88.5 million at June 30, 2001, from $70.1 million at December 31, 2000. This increase was caused by an increase in accrued liabilities associated with the increased employee count, the large mortgage production volume, and the recently approved dividend.

20

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 June 30, 2001 totaled $7.6 billion, an increase of $5.6 billion, or 215.4% from $2.0 billion sold during the same period in 2000. This increase in mortgage loan sales was attributable to the 228.0% increase in mortgage loan originations during the quarter. The Company sold 92.7% and 80.0% of its mortgage loan originations during the three month period ended June 30, 2001 and 2000, respectively.

Mortgage loans sold during the six months ended June 30, 2001 totaled $13.0 billion, and increase of $9.6 billion, or 282.4% from $3.4 billion sold during the same period in 2000. This increase in mortgage loan sales was attributable to the 209.1% increase in mortgage loan originations. The Company sold 95.6% and 77.3% of its mortgage loan originations during the six month period ended June 30, 2001 and 2000, 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 $1.9 billion outstanding at June 30, 2001. 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 $2.5 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 June 30, 2001, the Company had outstanding rate-lock commitments to lend $2.8 billion in mortgage loans, along with outstanding commitments to make other types of loans totaling $91.6 million. Because such commitments may expire without being drawn upon, they do not necessarily represent future cash commitments. Also, at June 30, 2001, the Company had outstanding commitments to sell $2.5 billion of mortgage loans. These commitments will be funded within 90 days. Total commercial and consumer unused lines of credit totaled $245.2 million at June 30, 2001. Such commitments include $162.1 million of unused warehouse lines of credit to various mortgage companies. The Company had advanced $244.3 million at June 30, 2001.

     Capital Resources.

At June 30, 2001, the Bank exceeded all applicable bank regulatory minimum capital requirements. The Company is not subject to any such requirements.

21

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, 2000.

22

PART II — OTHER INFORMATION

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)	The 2001 Annual Meeting of Shareholders of the Company was held on May 7, 2001.
	(b)	Not applicable
	(c)

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

	Votes
	For		Withheld
Mark T. Hammond		10,260,907		647,328
James D. Isbister		10,833,814		74,421
John R. Kersten		10,835,614		72,621

                         (2) The 2000 Incentive Stock Plan was presented and approved as follows:

Votes
For	Against		Withheld
10,678,530		213,945		15,760

Item 5.	Other Information
	None.
Item 6.	Exhibits and Reports on Form 8-K
	(a)	Exhibits
		Exhibit 11. Computation of Net Earnings per Share
	(b)	Reports on Form 8-K
		None

23

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:	August 14, 2001	/S/ Thomas J. Hammond
		Thomas J. Hammond
		Chairman of the Board and Chief Executive Officer (Duly Authorized Officer)
		/S/ Michael W. Carrie
		Michael W. Carrie
		Executive Vice President (Principal Accounting Officer)

24

EXHIBIT INDEX

Exhibit No.	Description
Exhibit 11.	Computation of Net Earnings per Share