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


Mark One




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




		For the quarterly period ended March 31, 2001




OR




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

For the quarterly period ended September 30, 2000

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


Commission File No.:		000-23821


	FLAGSTAR CAPITAL CORPORATION

	(Exact name of registrant as specified in its charter)

Michigan (State or other jurisdiction of incorporation or organization) 38-3386801 (I.R.S. Employer Identification No.)


Michigan		38-3386801

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




5151 Corporate Drive, Troy, Michigan		48098-2639

(Address of principal executive offices)		(Zip Code)

5151 Corporate Drive, Troy Michigan (Address of principal executive offices) 48098-2639 (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 ninety days. Yes No .

As of ~~November~~May 10, ~~2000,~~2001 1,000,000 shares of the registrant’s Common Stock, $1.00 par value, were issued and outstanding and 2,300,000 shares of the registrant’s Series A Preferred Shares, $25.00 par value, were issued and outstanding.

TABLE OF CONTENTS

~~FORM~~Statement 10of Financial Condition -Q ~~PART~~March I.31, ~~FINANCIAL~~2001 ~~INFORMATION~~(unaudited) ~~Statement~~and ofDecember ~~Financial~~31, ~~Condition~~2000 Unaudited Statement of Earnings - For the three months ended March 31, 2001 and March 31, 2000 Unaudited Statements of Cash Flows ~~Notes~~- toFor ~~Consolidated~~the ~~Financial~~three ~~Statements~~months ~~PART~~ended IIMarch —31, ~~OTHER~~2001 ~~INFORMATION~~and ~~SIGNATURES~~March ~~Exhibit~~31, ~~Index~~2000 Condensed Notes to Financial Statements-unaudited Computation of Net Earnings Per Share ~~Financial Data Schedule~~

PARTTable I.of FINANCIAL INFORMATION Contents

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

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

Statement of Financial Condition — ~~September~~March 3031, ~~2000~~2001 (unaudited) and December 31, ~~1999~~2000 Unaudited Statement of Earnings — For the three ~~and nine~~ months ended ~~September~~March 3031, ~~2000~~2001 and ~~September~~March 3031, ~~1999~~2000 Unaudited Statement of Cash Flows — For the three ~~and nine~~ months ended ~~September~~March 3031, ~~2000~~2001 and ~~September~~March 3031, ~~1999~~2000 Condensed Notes to Financial Statements.-unaudited

Flagstar Capital Corporation
Statement of Financial Condition
(in thousands)

Flagstar Capital Corporation


					March 31,			December 31,
					2001			2000

					(unaudited)
Assets




Cash and cash equivalents					$	8,286		$	3,736




	Mortgage loans					115,697			123,262




	Less: allowance for loan losses					(250	)		(250	)

Net mortgage loans						115,447			123,012




Accrued interest receivable						1,571			1,534




Other assets						4,479			1,464

			Total assets		$	129,783		$	129,746

Liabilities and Stockholders’ Equity




Liabilities




Due to parent					$	670		$	630




Other liabilities						36			39

				Total liabilities		706			669




Stockholders’ Equity




Series A Preferred Stock — $25.00 liquidation value,




		2,300,000 shares authorized and issued at March 31,




		2001 and December 31, 2000				57,500			57,500




Common stock — $1.00 par value, 1,000,000 shares




		authorized and issued at March 31, 2001 and




		December 31, 2000				1,000			1,000




Additional paid in capital						70,577			70,577




Retained earnings						—			—

				Total stockholders’ equity		129,077			129,077

			Total liabilities and stockholders’ equity		$	129,783		$	129,746

				September 30,			December 31,
Assets				2000			1999
Cash and cash equivalents				$	9,849		$	7,456
	Mortgage loans				117,608			118,505
	Less: allowance for loan losses				(250	)		(250	)
Net mortgage loans					117,358			118,255
Accrued interest receivable					1,492			1,400
Other assets					1,106			2,611
		Total assets		$	129,805		$	129,722
Liabilities and Stockholders’ Equity
Liabilities
Due to parent				$	692		$	610
Other liabilities					36			35
			Total liabilities		728			645
Stockholders’ Equity
Series A Preferred Stock — $25.00 liquidation value, 2,300,000 shares authorized and issued at December 31, 1999 and September 30, 2000					57,500			57,500
Common stock — $1.00 par value, 1,000,000 shares authorized and issued at December 31, 1999 and September 30, 2000					1,000			1,000
Additional paid in capital					70,577			70,577
Retained earnings					—			—
			Total stockholders’ equity		129,077			129,077
		Total liabilities and stockholders’ equity		$	129,805		$	129,722

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

The accompanying notes are an integral part of these statements.

Flagstar Capital Corporation
Unaudited Statement of Earnings
(in thousands, except per share data)

Flagstar Capital Corporation


		For the quarter		For the quarter
		ended March 31,		ended March 31,
		2001		2000

Income




	Interest on loans	$	2,037	$	1,764




Expenses




	Advisory fee expense – paid to parent		63		63




	General and administrative expenses		82		41

	Total expenses		145		104





Net earnings		$	1,892	$	1,660

Preferred stock dividends		$	1,222	$	1,222

Net earnings available to common shares		$	670	$	438

Earnings per common share – basic		$	0.67	$	0.44

Earnings per common share – diluted		$	0.67	$	0.44

		For the		For the		For the		For the
		quarter		quarter		nine months		nine months
		ended		ended		ended		ended
		September 30,		September 30,		September 30,		September 30,
		2000		1999		2000		1999
Income
	Interest on loans	$	2,007	$	1,974	$	5,628	$	5,585
Expenses
	Advisory fee expense — paid to parent		63		63		188		187
	General and administrative expenses		30		31		109		114
	Total expenses		93		94		297		301
Net earnings		$	1,914	$	1,880	$	5,331	$	5,284
Preferred stock dividends		$	1,222	$	1,222	$	3,666	$	3,666
Net earnings available to common shares		$	692	$	658	$	1,665	$	1,618
Earnings per common share		$	0.69	$	0.66	$	1.66	$	1.62

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

The accompanying notes are an integral part of these statements.

Flagstar Capital Corporation
Unaudited Statements of Cash Flows
(in thousands)

Flagstar Capital Corporation


					For the quarter			For the quarter
					ended March 31,			ended March 31,
					2001			2000

Operating Activities




	Net earnings				$	1,892		$	1,660




	Adjustments to reconcile net earnings to net cash provided by




			operating activities




		(Increase) decrease in accrued interest receivable				(37	)		(12	)




		Decrease in liabilities				(3	)		(5	)

				Net cash provided by operating activities		1,852			1,643




Investing Activities




		Principal repayments received on mortgage loans				4,550			4,762

				Net cash provided by investing activities		4,550			4,762




Financing Activities




		Dividends paid to common stockholders				(630	)		(609	)




		Dividends paid to preferred stockholders				(1,222	)		(1,222	)

				Net cash used in financing activities		(1,852	)		(1,831	)

Net increase in cash and cash equivalents						4,550			4,574




Beginning cash and cash equivalents						3,736			7,456

Ending cash and cash equivalents					$	8,286		$	12,030

				For the nine	For the nine
				months ended	months ended
				September 30,	September 30,
				2000	1999
Operating Activities
	Net earnings			$5,331	$	5,284
	Adjustments to reconcile net earnings to net cash provided by Operating activities (Increase) in accrued interest receivable			(92)		(26	)
	Decrease in liabilities			2		7
			Net cash provided by operating activities	5,241		5,265
Investing Activities
		Purchase of mortgage loans		(12,215)		(25,009	)
		Principal repayments received on mortgage loans		14,616		30,699
			Net cash provided by investing activities	2,401		5,690
Financing Activities
		Dividends paid to common stockholders		(1,583)		(1,682	)
		Dividends paid to preferred stockholders		(3,666)		(3,666	)
			Net cash used in financing activities	(5,249)		(5,348	)
Net increase in cash and cash equivalents				2,393		5,607
Beginning cash and cash equivalents				7,456		6,989
Ending cash and cash equivalents				9,849	$	12,596

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

The accompanying notes are an integral part of these statements.

Flagstar Capital Corporation
Notes to Consolidated Financial Statements- unaudited

Flagstar Capital Corporation

Note 1 — Nature of Business

Flagstar Capital Corporation (the “Company”) is an operating subsidiary of Flagstar Bank, FSB (the “Bank”), a federally chartered stock savings bank founded in 1987. The primary business of the Company is to acquire, hold, and manage residential mortgage loans that will generate net earnings that can be distributed to stockholders. ~~The Company has elected to be treated as a Real~~ ~~Estate Investment Trust (“REIT”) for federal tax purposes and must satisfy~~ ~~various requirements as discussed herein.~~

Note 3.2 — Basis of Presentation

The accompanying consolidated unaudited financial statements of 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, ~~2000~~2001.

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

The principal business of the Company is to acquire, hold, and manage residential mortgage loans that will generate net earnings that can be distributed to stockholders. The Company intends to acquire all its mortgage loans from the Bank.

Results of Operation

The Company reported net earnings for the quarter ended ~~September~~March 3031, ~~2000~~2001 of $1.9 million. Interest income from loans was $2.0 million, which was offset by $3082,000 in administrative expenses, and $63,000 in advisory fees. The reported net earnings for the quarter ended ~~September~~March 3031, ~~1999~~2000 were $1.97 million. ~~Interest~~ Interest income from loans was $21.08 million, which was offset by $3141,000 in administrative expenses, and $63,000 in advisory fees during the ~~1999~~2000 period.

The Company reported net earnings per common share of $5 0.~~3 million~~67 for the ~~nine months ended~~quarter ~~September 30,~~ended ~~2000. Interest income from loans was $5.6~~March ~~million~~31, ~~which~~2001 ~~was offset by $109,000 in administrative expenses~~ and $~~188,000 in advisory fees~~0. ~~For~~44 for the ~~nine~~quarter ~~months~~ ended ~~September~~March 3031, ~~1999, the Company also reported $5~~2000.~~3 in~~ ~~net earnings. Interest income from loans was $5.6 million, which was offset by~~ ~~$114,000 in administrative expenses and $187,000 in advisory fees.~~

~~The~~During ~~Company reported net earnings per common share of $ 0.69 for~~ the ~~quarter ended~~quarters ~~September 30, 2000 and $0.66 for the quarter~~ ended ~~September~~March 3031, ~~1999. For~~2001 ~~the nine months ended September 30, 2000~~ and ~~1999~~2000, the Company ~~reported~~declared ~~net~~and ~~earnings~~paid ~~per common share of~~ $1~~.66~~,222,000 ~~and~~in ~~$1.62,~~preferred ~~respectively~~stock dividends.

6The Company declared and paid or accrued common stock distributions of $670,000 and $438,000 for the three months ended March 31, 2001 and 2000, respectively.

Mortgage Loans

The Company’s residential mortgage loans (“Mortgage Loans”) consist of adjustable rate mortgages (“ARMs”), and fixed rate mortgages (“FRM’s”). Reinvestments made in Mortgage Loans will be initiated in a manner to maintain the original composition of approximately 70% ARMs and 30% FRMs. All Mortgage Loans are expected to be purchased from the Bank.

The following table gives a breakdown of the Mortgage Loans at March 31, 2001.


			Principal		Average		Interest
Product Type	Loans		Balance		Balance		Rate			WAM		WARM		% of Total

3 year ARM		109	$	28,285,000	$	259,492		7.527	%		360		330		24.7




5 year ARM		102		27,289,000		267,544		7.112			360		331		23.8




7 year ARM		94		22,843,000		243,007		7.014			360		330		19.9




15 year Fixed		151		12,974,000		85,921		6.524			180		151		11.3




30 year Fixed		179		23,248,000		129,879		6.971			360		326		20.3

Total		635	$	114,639,000	$	180,534		7.100	%		340		309		100.0	%

Results of Operation con’t

During the quarters ended September 30, 2000 and 1999, the Company declared and paid $1,222,000 in preferred stock dividends. For the nine months ended September 30, 2000 and 1999, the Company declared and paid $3,666,000 in preferred stock dividends.

The Company declared and paid or accrued common stock distributions of $692,000 and $658,000 for the quarters ended September 30, 2000 and 1999, respectively. For the nine months ended September 30, 2000 and 1999, the Company declared and paid or accrued common stock distributions of $1,665,000 and $1,618,000, respectively.

Mortgage Loans

The following table gives a breakdown of the Mortgage Loans at September 30, 2000.

					Principal		Average		Interest
Product Type			Loans		Balance		Balance		Rate			WAM		WARM		% of Total
	3 year ARM			128	$	32,848,000	$	256,629		7.339	%		360		332		28.2
	5 year ARM			99		24,506,000		247,535		6.865			360		332		21.0
	7 year ARM			99		23,250,000		234,842		6.924			360		333		19.9
15 year Fixed				134		11,374,000		84,881		6.501			180		150		9.8
30 year Fixed				188		24,529,000		130,475		6.977			360		333		21.1
		Total		648	$	116,507,000	$	179,795		6.998	%		342		315		100.0	%

Allowance for Loan Losses

The Company’s ~~had a $250,000~~ allowance for loan losses atremained ~~December 31, 1999 and did not record any additional allowance for~~ the ~~nine~~same ~~months~~at ~~ended September 30~~$250, ~~2000.~~000 ~~The allowance for losses as a percentage non-performing loans was 46.5%~~ at ~~September 30~~March 31, ~~2000~~2001. Management has based the allowance on assessments of relevant factors including the types and amount of delinquent loans, historical and anticipated loss experience on such types of loans experienced by the Bank, and current and projected economic conditions. Management is of the opinion that the allowance for loan losses is adequate to meet potential losses in the portfolio. The Company’s ~~had~~non-performing ~~certain~~assets ~~representations~~consisted ~~and~~of ~~warranties~~three ~~from~~mortgage ~~the~~loans ~~Bank~~totaling ~~that~~$904,732, ~~were~~or ~~related~~0.79% toof the ~~performance~~portfolio, ofat ~~the~~March 31, ~~Mortgage Loans~~2001. The Company’s, in ~~delinquent~~accordance ~~loans~~with ~~were~~applicable ~~limited~~disclosure torequirements, ~~one~~defines ~~mortgage~~an ~~loan~~asset ~~for~~as non-performing ~~$256,689,~~if orit ~~0.21%~~meets any of the ~~portfolio,~~following ~~which~~criteria: ~~was~~1) ~~30 days~~a ~~delinquent~~loan atmore ~~December~~than 90 ~~31,~~days ~~1999.~~past Atdue; ~~September 30,~~2) ~~2000~~real ~~the~~estate ~~Company~~acquired ~~had~~in ~~three~~a ~~non-performing~~settlement ~~loans~~of ~~which~~a ~~totaled~~loan; ~~$537,474~~ or 3) a ~~0.46%~~restructured ofloan ~~the~~whose ~~total~~terms ~~loan~~have ~~portfolio~~been ~~and~~modified ~~one~~due ~~loan~~to ~~for~~the ~~$243,707,~~borrower’s inability orto ~~0.21%~~pay ofas contractually specified including loans the Company has ~~portfolio,~~classified ~~which~~as ~~was~~impaired. 30Loans are generally placed into non-accrual status when they become 90 days delinquent.

The ~~Bank,~~Company inhad ~~its~~a ~~role~~$250,000 asallowance ~~Advisor,~~for ~~has~~loan ~~implemented~~losses ~~internal~~at ~~asset~~December 31, ~~review~~2000. ~~systems~~The toCompany’s ~~provide~~non-performing ~~for~~loans ~~early~~were ~~detection~~limited ofto ~~problem~~two ~~assets.~~mortgage ~~Although~~loans ~~this system will not~~totaling ~~eliminate~~$602,145, ~~future~~or ~~losses~~0.49% ~~due~~of tothe ~~unanticipated~~portfolio, ~~declines~~at inDecember 31, ~~the~~2000. ~~real~~The ~~estate~~Company ~~market~~has orcertain ~~economic~~representations ~~downturns,~~and itwarranties ~~should~~from ~~provide~~the ~~for~~Bank, ~~timely~~which ~~identification~~are ofrelated ~~any~~to the ~~losses~~performance ~~created~~of ~~from~~the Mortgage Loans.

Activity within the Allowance for Loan Losses
Balance, January 1, 2000		$	250,000
	Provision for loan losses		—
	Charge-offs, net of recoveries		—
Balance, September 30, 2000		$	250,000

The Bank, in its role as Advisor, has implemented comprehensive internal asset review systems to provide for early detection of problem assets. Although this system will not eliminate future losses due to unanticipated declines in the real estate market or economic downturns, it should provide for timely identification of any losses created from problem loans.


Activity within the Allowance for Loan Losses

Balance, January 1, 2001		$	250,000




	Provision for loan losses		—




	Charge-offs, net of recoveries		—

Balance, March 31, 2001		$	250,000

Liquidity

The objective of maintaining liquidity within the Company is to ensure the availability of sufficient cash flows to meet all of the Company’s financial commitments. In managing liquidity, the Company takes into account various legal limitations placed on a REIT as discussed below in Other Matters.

The Company’s principal liquidity needs are to maintain the current portfolio size through the acquisition of additional Mortgage Loans as Mortgage Loans currently in the portfolio mature, or prepay, and to pay dividends on the Series A Preferred Shares and common stock. The acquisition of additional Mortgage Loans is intended to be funded with the proceeds obtained from the repayment of principal balances by individual borrowers.

~~During~~For ~~May~~the quarters ended March ~~2000~~31, ~~the~~2001 ~~Company~~and ~~purchased~~2000, ~~from~~ the ~~Bank~~Company ~~$12.2 million~~received ~~in principal~~repayments ~~balance~~ of ~~residential~~principal from mortgage loans attotaling aapproximately ~~purchase~~$4.6 million ~~price~~and of $124.3 8 million, ~~their~~ ~~estimated fair value~~respectively.

~~For~~The ~~the quarters ended September 30, 2000 and 1999, the~~ Company ~~received repayments~~does ofnot ~~principal~~anticipate ~~from~~any ~~mortgage~~material ~~loans~~capital ~~totaling~~expenditures ~~approximately~~other ~~$8.0 million~~than ~~and~~for ~~$7.6 million, respectively. For~~ the ~~nine~~acquisition ~~months~~of ~~ended~~additional ~~September 30,~~residential ~~2000 and 1999, the Company received principal repayments from~~ mortgage loans ~~totaling approximately $14~~.~~6 million and $30.7 million, respectively.~~

The Company does not anticipate any material capital expenditures other than for the acquisition of additional Mortgage Loans.

~~OTHER~~REIT ~~MATTERS~~Qualification

As of ~~September~~March 3031, ~~2000~~2001, the Company believed that it was in compliance with ~~the~~ the REIT tax rules and that it will continue to qualify as a REIT under the provision of the Internal Revenue Code (the “Code”). The Company calculates that:

•		its Qualified REIT Assets, as defined in the Code, are approximately 100% of its total assets, as compared to the federal tax requirements that at least 75% of its total assets must be Qualified REIT Assets.

•		100% of its revenues qualify for the 75% source of income test and 100% of its revenues qualify for the 95% source of income test under the REIT rules.

•		none of the revenue was subject to the 30% income limitation under the REIT rules.

The Company also met all REIT requirements regarding the ownership of its common and preferred stocks and anticipates meeting the 2000 annual distribution and administrative requirements.

Item 3. Market Risk

The Company considers that its primary business objective is to ensure the availability of sufficient cash flows to meet the obligations mandated by the Series A Preferred Shares. In managing its investments, the Company accepts a certain credit risk posture and assumes some interest rate risk.

Interest rate risk generally refers to the potential volatility in net interest income resulting from changes in interest rates. The Company’s risk occurs when it must replace amortized principal balances with new Mortgage Loans. These new Mortgage Loans are chosen in a manner to maintain an interest rate risk posture similar to the initial portfolio of Mortgage Loans. The Company must monitor the ratio of fixed costs (the Series A Preferred Shares’ dividends, advisory fees, and servicing costs) to the interest income potential of the Mortgage Loans. When, in management’s opinion, the coverage ratio is at risk of being depleted, the Company must look to its parent company, the Bank, for support or utilize the investment powers of the Company.

The Company will record higher levels of interest income in a rising interest rate environment and will experience declining interest income during periods of falling interest rates. This happens because the Company’s assets reprice while the Series A Preferred Shares have a fixed cost of 8.5%.

At ~~September~~March 3031, ~~2000~~2001 the Company had a liquidity coverage ratio (Projected interest income divided by REIT dividends plus Advisory Fees plus Servicing Fees) of 1.5558 versus 1.5469 at December 31, ~~1999~~2000 and 1.6751 at ~~inception (February 28~~March 31, ~~1998)~~2000.

PART II — OTHER INFORMATION

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




	None.




Item 5.	Other Information




	None.




Item 6.	Exhibits and Reports on Form 8-K




	(a)	Exhibits




		Exhibit 11




	(b)	Reports on Form 8-K




		None

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

None.

Item 5. Other Information

None.

Item 6. Exhibits and Reports on Form 8-K

(a) Exhibits

Exhibit 11 Exhibit 27 (SEC Use only)

(b) Reports on Form 8-K

None

SIGNATURES

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 CAPITAL CORPORATION
Date: November 10, 2000		/S/ Thomas J. Hammond Thomas J. Hammond Chairman of the Board and Chief Executive Officer (Duly Authorized Officer)
Date:	May 10, 2001	/S/ Thomas J. Hammond
		/S/ Michael W. Carrie Michael W. Carrie Executive Vice President (Principal Accounting Officer)
		Thomas J. Hammond
		Chairman of the Board and
		Chief Executive Officer
		(Duly Authorized Officer)
		/S/ Michael W. Carrie
		Michael W. Carrie
		Executive Vice President and
		Chief Financial Officer
		(Principal Financial and Accounting Officer)

Exhibit Index

Exhibit Index


Exhibit No.		Description

11		Computation of Net Earnings per Share

Exhibit No.										Description
11 27										Computation of Net Earnings per Share Financial Data Schedule

Table of Contents

PARTTable I.of FINANCIAL INFORMATION Contents

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Filing Compare · FLAGSTAR CAPITAL CORP