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Rule 424 (b)1
Registration Statement No. 333-69017
PROSPECTUS
[FLAGSTAR LOGO]
1,100,000 SHARES
COMMON STOCK
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Flagstar Bancorp, Inc.
2600 Telegraph Road
Bloomfield Hills, Michigan 48302
(248) 338-7700
<TABLE>
<CAPTION>
PER SHARE TOTAL
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<S> <C> <C>
Public Price......... $26.00 $28,600,000
Underwriting
Discounts and
Commissions........ 1.30 1,430,000
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Proceeds to Selling
Stockholder........ $24.70 $27,170,000
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</TABLE>
- - We are the largest independent thrift based in Michigan and one of the largest
home mortgage lenders in the United States. Through our wholly owned
subsidiary, Flagstar Bank, FSB, we attract deposits from the general public
and make loans that are secured by residential and commercial real estate.
- - We have prepared this Prospectus for use by Mr. Thomas J. Hammond, Chairman of
the Board and Chief Executive Officer of the Company, to offer for sale
1,100,000 shares of our Common Stock. Mr. Hammond owns all of the shares
offered by this Prospectus and accordingly will receive all of the proceeds
from any sale of our Common Stock in this offering. After these shares are
sold, Mr. Hammond will still own 4,170,245 shares of our Common Stock, which
represents 30.5% of the total Common Stock outstanding.
- - This offering is for 1,100,000 shares; however, the Underwriters have a 30-day
option to purchase up to 165,000 additional shares from Mr. Hammond.
- - Our Common Stock trades on the Nasdaq Stock Market under the trading symbol
"FLGS." On January 14, 1999, the closing price of our Common Stock on the
Nasdaq Stock Market was $26 5/16.
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BEFORE MAKING AN INVESTMENT IN OUR COMPANY, YOU SHOULD CONSIDER CAREFULLY THE
"RISK FACTORS" BEGINNING ON PAGE 8.
THE COMMON STOCK IS NOT A DEPOSIT OR AN ACCOUNT AND IS NOT INSURED BY THE
FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENT AGENCY.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION, ANY STATE SECURITIES COMMISSION
OR ANY BANK REGULATORY AUTHORITY NOR ANY OTHER GOVERNMENT AGENCY HAS APPROVED OR
DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE ADEQUACY OR ACCURACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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MCDONALD INVESTMENTS INC.
RONEY CAPITAL MARKETS
A DIVISION OF FIRST CHICAGO
CAPITAL MARKETS, INC.
FRIEDMAN, BILLINGS, RAMSEY & CO., INC.
THE DATE OF THIS PROSPECTUS IS JANUARY 15, 1999
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[FLAGSTAR BANCORP LOGO]
[MAP OF MARKET AREA]
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WHERE YOU CAN FIND MORE INFORMATION;
INCORPORATION BY REFERENCE
We file annual, quarterly and current reports, proxy statements and other
information with the Securities and Exchange Commission (the "SEC"). You may
read and copy, upon payment of a fee set by the SEC, any document that we file
with the SEC at its public reference rooms in Washington, D.C. (450 Fifth
Street, N.W., 20549), New York, New York (Seven World Trade Center, 13th Floor,
Suite 1300, 10048) and Chicago, Illinois (Citicorp Center, 500 West Madison
Street, 14th Floor, Suite 1400, 60661). You may also call the SEC at
1-800-432-0330 for more information on the public reference rooms. Our filings
are also available to the public on the internet, through the SEC's EDGAR
database. You may access the EDGAR database at the SEC's web site at
http://www.sec.gov.
The SEC allows us to "incorporate by reference" into this Prospectus the
information we file with them. This means that we can disclose important
business, financial and other information in our SEC filings by referring you to
the documents containing this information. All information incorporated by
reference is part of this Prospectus, unless that information is updated and
superseded by the information contained in this Prospectus or by any information
filed subsequently that is incorporated by reference or by any prospectus
supplement. Any prospectus supplement or any information that we subsequently
file with the SEC that is incorporated by reference will automatically supersede
any prior information that is part of this Prospectus or any prior prospectus
supplement. We incorporate by reference the documents listed below and any
future filings made with the SEC under Sections 13(a), 13(c), 14 or 15(d) of the
Securities Exchange Act of 1934 (the "Exchange Act") until the termination of
this offering:
- Annual Report on Form 10-K for the year ended December 31, 1997.
- Quarterly Reports on Form 10-Q for the quarters ended March 31, 1998,
June 30, 1998 and September 30, 1998.
- The description of our Common Stock contained in our Registration
Statement on Form 8-A, dated April 7, 1997, which registers the Common
Stock under Section 12(b) of the Exchange Act.
This Prospectus is part of a registration statement (on Form S-3) we have
filed with the SEC relating to our Common Stock registered under this
Prospectus. As permitted by SEC rules, this Prospectus does not contain all of
the information contained in the registration statement and accompanying
exhibits and schedules we file with the SEC. You may refer to the registration
statement, the exhibits and schedules for more information about us and our
Common Stock. The registration statement, exhibits and schedules are also
available at the SEC's public reference rooms or through its EDGAR database on
the internet.
You may obtain a copy of these filings at no cost by writing to us at
Flagstar Bancorp, Inc., 2600 Telegraph Road, Bloomfield Hills, Michigan,
48302-0953, Attention: Mary Kay McGuire, or by telephoning us at (248) 338-7700.
In order to obtain timely delivery, you must request the information no later
than five business days prior to the date you decide to invest in our Common
Stock.
SPECIAL NOTE OF CAUTION REGARDING
FORWARD-LOOKING STATEMENTS
Certain statements contained in (i) this Prospectus, (ii) any applicable
prospectus supplement and (iii) the documents incorporated by reference into
this Prospectus, may constitute "forward-looking statements within the meaning
of the federal securities laws. Forward-looking statements are based on our
management's beliefs, assumptions and expectations of our future economic
performance, taking into account the information currently available to them.
These
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statements are not statements of historical fact. Forward-looking statements
involve risks and uncertainties that may cause our actual results, performance
or financial condition to be materially different from the expectations of
future results, performance or financial condition we express or imply in any
forward-looking statements. Some of the important factors that could cause our
actual results, performance or financial condition to differ materially from our
expectations are:
- The effect that changes in interest rates have on our earnings and
assets.
- Our cost of funds.
- Our ability to resell mortgages.
- Our level of loan defaults and delinquencies.
- Concentrations of our loans in one geographic area or with a few mortgage
companies.
- The seasonal variations in the mortgage banking business.
- Our ability to manage our retail banking expansion.
- Our ability to retain key personnel.
- The degree and nature of our competition.
- Changes in government regulation of our business.
- The threat of litigation in the mortgage banking business.
- Environmental liability associated with foreclosures.
- Year 2000 problem.
When used in our documents or oral presentations, the words "anticipate,"
"estimate," "expect," "objective," "projection," "forecast," "goal," or similar
words are intended to identify forward-looking statements. We qualify any such
forward-looking statements entirely by these cautionary factors.
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PROSPECTUS SUMMARY
This summary highlights information contained elsewhere in this Prospectus.
The summary is not complete and does not contain all of the information that you
should consider before investing in the Common Stock. You should read the entire
Prospectus carefully.
We use the term "we" or "the Company" to refer to Flagstar Bancorp, Inc., a
business corporation organized under Michigan law. We use the term "the Bank" to
refer to Flagstar Bank, FSB, a federal savings bank, organized under federal
laws of the United States. In some cases, a reference to "we" or "the Company"
will include the Bank, since the Bank is our wholly-owned subsidiary.
We are one of the largest home mortgage lenders in the United States. Our
business is the origination of single-family mortgage loans. Through our Bank,
we attract deposits from the general public and originate or acquire residential
mortgage loans. The Bank is the largest independent thrift in Michigan based on
asset size. We also acquire funds on a wholesale basis from a variety of
sources, service a significant volume of mortgage loans for others, and to a
lesser extent, make consumer loans, commercial real estate loans, and non-real
estate commercial loans. For the nine months ended September 30, 1998, we ranked
13th in the United States in residential mortgage loan originations.
At September 30, 1998, we had consolidated total assets of $3.1 billion,
net loans of $2.7 billion, total deposits of $1.6 billion and total
stockholders' equity of $152.1 million. For the year ended December 31, 1997,
our net earnings were $21.8 million ($1.68 per share -- diluted), our return on
average assets was 1.29% and our return on average equity was 20.69%. For the
nine months ended September 30, 1998, our net earnings were $28.2 million ($2.00
per share -- diluted), our annualized return on average assets was 1.42% and our
return on average equity was 27.28%.
We report our business operations and results in two segments: mortgage
banking and retail banking. A majority of our revenue (net interest income and
non-interest income) and earnings before income taxes is attributable to the
mortgage banking segment. We believe that our retail banking business provides
us with access to attractive and relatively stable funding sources for our
mortgage origination business. Our funding sources include retail deposits,
Federal Home Loan Bank ("FHLB") advances and escrowed funds. We believe we have
a strategic advantage compared to other mortgage originators with no retail
banking operations due to our stable, lower cost of funds. See "Business."
Retail Banking. We provide a full range of retail banking services to
consumers and small businesses in southern and western Michigan. We currently
operate a network of 28 bank branches (including nine opened in 1998) located in
southern and western Michigan counties. Since 1994, we have focused on expanding
our branch network in these markets in order to increase our access to retail
deposit funding sources. We believe that this also provides a greater
opportunity for cross-marketing of consumer banking services to our large base
of mortgage customers in Michigan. We believe we can benefit from the customer
displacement in our markets caused by the substantial consolidation of the
banking industry in Michigan. See "Business."
Mortgage Banking. Our mortgage banking operations originate residential
mortgages through 33 retail loan origination offices located in Michigan (29),
Florida (3) and Ohio (1). In addition, we originate mortgage loans on a
wholesale basis through a nationwide network of independent mortgage brokers.
These independent mortgage brokers originate such loans using our underwriting
standards and close such loans using our advanced funds. We service this network
through over 60 account executives, who are organized among 10 regional
wholesale/correspondent lending offices and five wholesale/correspondent
satellite offices. We also purchase mortgage loans on a regular basis from
independent mortgage lenders, commercial banks, savings and loan associations
and other financial institutions with whom we are familiar. See "Business."
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For the nine months ended September 30, 1998, we produced $13.1 billion in
mortgage loans. These included $12.1 billion in mortgage loans produced through
the wholesale and correspondent network and $970.3 million originated through
the retail network. We produced mortgage loans of $7.9 billion during 1997 which
included $7.1 billion produced through the wholesale and correspondent network
and $745.2 million originated through the retail network. For the year ended
December 31, 1996, the wholesale and correspondent network produced $6.1 billion
and the retail network originated $685.3 million for a total production of $6.8
billion.
We sell a substantial portion of our loan production into the secondary
market. These sales are principally completed by securitizing pools of loans
through programs offered by government-sponsored enterprises such as Fannie Mae
and Freddie Mac and through sales to private investors. In addition, we
originate and sell loans conforming to the underwriting criteria of the Federal
Housing Administration ("FHA") and the Department of Veterans Affairs ("VA"). We
generally retain the servicing rights to many of the loans that we sell. We also
realize additional income by selling servicing rights on an individual and a
bulk basis to other mortgage servicers. Our loan servicing portfolio totaled
$11.3 billion at September 30, 1998, $6.4 billion at December 31, 1997 and $4.8
billion at December 31, 1996 (net of loans subserviced for others).
Substantially all of our servicing portfolio is comprised of conventional loans.
We make extensive use of advanced technology and automated processes which
we believe enhance our competitiveness and reduce the cost of our mortgage
origination operations. We were one of the first major mortgage lenders to
utilize video conferencing for loan production. In 1996, we began full-scale
operational use of automated underwriting system technologies, including Fannie
Mae's Desktop Underwriter(TM) and Freddie Mac's Loan Prospector.(TM) In fact, we
are currently one of the largest users of the Loan Prospector(TM) system. We
have also combined these two technologies into a customized video conferencing
and underwriting system. We underwrite substantially all of our mortgage loans
using automated systems. We believe that our use of these systems reduces
overhead, enhances customer service and better ensures that appropriate mortgage
loans conform to Freddie Mac and Fannie Mae guidelines.
Business Strategy. Our strategy consists of the following key elements:
- continue to expand our branch network into demographically desirable
communities in Michigan in order to gain access to additional retail
funding sources;
- as market conditions permit, retain a portion of our mortgage loan
production volume or mortgage servicing rights or both (thereby
benefitting from economies of scale);
- continue to utilize advanced technology and automated processes
throughout our business to improve customer service, reduce costs of loan
production and servicing and increase efficiencies; and
- cross-sell retail banking services to our large Michigan base of existing
mortgage customers.
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THE OFFERING
Common Stock offered by the
Selling Stockholder........... 1,100,000 shares(1)
Common Stock to be outstanding
immediately after the
Offering...................... 13,670,000 shares(2)
Nasdaq Symbol................. "FLGS"
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(1) Does not include up to 165,000 shares of Common Stock that may be sold by
the Selling Stockholder upon exercise of the Underwriters' option. This
option is referred to as an "over-allotment option."
(2) Represents the amount outstanding immediately prior to the Offering because
the Common Stock offered by the Selling Stockholder is already outstanding.
The Company will not receive any proceeds from the shares being sold in the
Offering. The Company expects to incur approximately $170,000 of expenses in
connection with the Offering.
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RISK FACTORS
In addition to the other information in this Prospectus, you should
carefully consider the following factors before investing in our Common Stock.
CHANGES IN INTEREST RATES MAY ADVERSELY AFFECT OUR EARNINGS AND FINANCIAL
CONDITION
Changes in interest rates affect our operating performance and financial
condition in diverse ways. Our profitability depends in substantial part on our
"net interest spread," which is the difference between the rates we receive on
loans and investments and the rates we pay for deposits and other sources of
funds. Our net interest spread will depend on many factors that are partly or
entirely outside our control, including competition, federal economic, monetary
and fiscal policies, and economic conditions generally. Historically, net
interest spreads for other financial institutions have widened and narrowed in
response to these and other factors, which are often collectively referred to as
"interest rate risk." We intend to try to minimize our exposure to interest rate
risk, but we will be unable to eliminate it.
In our retail banking operations, we are subject to interest rate risk on
loans held in our portfolio arising from mismatches (i.e., the interest rate
sensitivity gap) between the dollar amount of repricing or maturing assets and
liabilities, which is measured in terms of the ratio of the interest rate
sensitivity gap to total assets. A higher level of assets repricing or maturing
than liabilities over a given time frame is considered asset-sensitive and is
reflected as a positive gap. In contrast, a higher level of liabilities
repricing or maturing than assets over a given time frame is considered
liability-sensitive and is reflected as a negative gap. An asset-sensitive
position (i.e., a positive gap) will generally enhance earnings in a rising
interest rate environment and will negatively impact earnings in a falling
interest rate environment. A liability-sensitive position (i.e., a negative gap)
will generally enhance earnings in a falling interest rate environment and
negatively impact earnings in a rising interest rate environment. Fluctuations
in interest rates are not predictable or controllable. Although we have
attempted to structure our asset and liability management strategies to mitigate
the impact on net interest income of changes in market interest rates, we can
not give any assurance that a sudden or significant change in prevailing
interest rates will not have a material adverse effect on our operating results.
In our mortgage banking operations, we are exposed to interest rate risk
from the time the interest rate on a mortgage loan application is committed to
by us through the time we sell or commit to sell the mortgage loan. On a daily
basis, we analyze various economic and market factors and, based upon these
analyses, project the amount of mortgage loans we expect to sell for delivery at
a future date. The actual amount of loans we sell will be a percentage computed
as (i) the number of mortgage loans on which we have issued binding commitments
(and thereby locked in the interest rate) but have not yet closed ("pipeline
loans") divided by (ii) 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 resulting mismatch 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, we may not
have made commitments to sell these additional pipeline loans and may incur
significant losses upon their sale as the market rate of interest will be higher
than the mortgage interest rate we committed to on such additional pipeline
loans. Our profitability may be adversely affected to the extent our hedging
strategy is not successful.
The market value of, and earnings from, our mortgage loan servicing
portfolio may be adversely affected by declines in interest rates. When mortgage
interest rates decline, mortgage loan prepayments usually increase as customers
refinance their loans. When this happens, the income stream from our current
mortgage loan servicing portfolio may decline. In that case, we may be required
to amortize the portfolio over a shorter period of time or reduce the carrying
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value of our mortgage loan servicing portfolio. This would adversely affect our
operating results and financial condition.
LOSS OF OR INCREASED COST OF OUR OPERATING FUNDS MAY REDUCE OUR EARNINGS
The principal sources of funding for our operations have been our retail
bank customers' deposits and, to a lesser extent, borrowings from the FHLB and
funds held in escrow for mortgage loan servicing purposes. Historically, our
cost of funds associated with deposits has generally been lower than our cost to
borrow from the FHLB. If we are unable to fund our asset growth through the
maintenance and growth of our deposit base, we may have to rely to a greater
extent on borrowings from the FHLB or other sources. If this causes our net cost
of funds to increase, our net interest margin would be adversely affected. At
September 30, 1998, we had a $1.3 billion line of credit with the FHLB, of which
$910.5 million had been drawn and was outstanding.
We cannot assume that we will be successful in retaining our access to
funds at the level or cost necessary to continue originations of single-family
mortgage loans at their current volume and level of profitability. We may have
to curtail our origination of single-family mortgage loans if we cannot maintain
our low cost of funds. If we have to reduce our single family mortgage loan
originations, we may suffer a material adverse effect on our operating results
and financial condition.
WE MAY NOT BE ABLE TO RESELL MORTGAGES
Currently, we sell substantially all the mortgage loans we originate. Our
ability to sell mortgage loans readily is dependent upon the availability of an
active secondary market for single-family mortgage loans, which in turn depends
in part upon the continuation of programs currently offered by Fannie Mae,
Freddie Mac and other institutional and non-institutional investors. These
entities account for a substantial portion of the secondary market in
residential mortgage loans. Some of the largest participants in the secondary
market, including Freddie Mac and Fannie Mae, are government-sponsored
enterprises whose activities are governed by federal law. Any future changes in
laws that limit the activity of such government sponsored enterprises could, in
turn, adversely affect our operations.
In addition, our ability to sell mortgage loans readily is dependent upon
our ability to remain eligible for the programs offered by Fannie Mae, Freddie
Mac and other institutional and non-institutional investors. We expect to remain
eligible to participate in such programs but any significant impairment of such
eligibility could materially and adversely affect our operations. Further, the
criteria for loans to be accepted under such programs may be changed from time
to time by the sponsoring entity. The profitability of participating in specific
programs may vary depending on a number of factors, including our administrative
costs of originating and purchasing qualifying loans.
SOME OF OUR LOANS MAY HAVE DEFAULTS OR DELINQUENCIES
We are generally at risk for any loan defaults from the time we fund a loan
until the time we sell the loan. This time period is generally 10 to 40 days.
Once we sell the mortgage loans, the risk of loss from loan defaults and
foreclosure generally passes to the purchaser or insurer of the loans. In
connection with the sale, we typically make certain representations and
warranties to the purchasers and insurers of such loans. Such representations
and warranties generally relate to the origination and servicing of loans in
substantial conformance with the laws of the state of origination and applicable
investor guidelines and program eligibility standards. We rely upon our
underwriting department to ascertain compliance with individual investor
standards prior to sale of the loans in the secondary market, and we rely upon
our quality control department to test sold loans on a sample basis for
compliance. The purchasers of such loans will typically conduct a more detailed
review of such loans following acquisition to determine whether such loans were
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originated in compliance with the purchaser's underwriting guidelines and
program eligibility standards. We become liable for the unpaid principal and
interest on any defaulted mortgage loan if there has been a breach of our
representations and warranties. In such instances, we may be required to
repurchase the loan.
We are also affected by loan delinquencies and defaults on mortgage loans
that we service. At September 30, 1998, approximately 1.76% of the loans we
serviced for others were 30 days or more delinquent (including foreclosures).
Under certain types of servicing contracts, the servicer must advance all or
part of the scheduled payments to the owner of the loan, even when loan payments
are delinquent. Also, to protect their liens on mortgaged properties, owners of
loans usually require the servicer to advance the cost of mortgage and hazard
insurance and tax payments on schedule even if sufficient escrow funds are not
available. The servicer will be reimbursed by the mortgage owner or from
liquidation proceeds for payments advanced that the servicer is unable to
recover from the mortgagor, although the timing of such reimbursement is
typically uncertain. In the interim, the servicer must absorb the cost of funds
advanced. Further, the servicer must bear the costs of attempting to collect on
delinquent and defaulted loans. We do not collect servicing income from the time
a loan becomes delinquent until foreclosure, at which time such amounts, if any,
may be recovered.
ADVERSE CONDITIONS IN ONE GEOGRAPHIC AREA OR WITH A FEW CUSTOMERS MAY HAVE A
DISPROPORTIONATELY LARGE EFFECT ON US
Historically, our single-family mortgage loan portfolio has been
concentrated in certain geographic regions, particularly Michigan, based upon
the location of the property collateralizing the mortgage loan. Because
borrowers of single-family mortgage loans usually reside on the collateral
property, changes in economic and business conditions in the area in which the
property is located can affect the borrower and thus have an effect on the
performance of the loan. For instance, the mortgage loans we serviced (as
measured by unpaid principal balance), including loans held for investment, that
were collateralized by property located in Michigan comprised 25.7% of total
mortgage loans at December 31, 1997. As a result, unfavorable or worsened
economic conditions in Michigan could have a material adverse effect on our
financial condition and results of operations.
In addition to risks associated with a geographic concentration of our loan
portfolio, our results of operations can be affected by concentration of credit
to just a few borrowers. We currently provide warehouse lines of credit ranging
up to $21.5 million to certain mortgage companies. We have also originated
commercial real estate loans in amounts up to $6.5 million. Repayment of such
loans is primarily dependent upon the successful operation of the business
involved and therefore could be subject to a greater extent to adverse
conditions in the economy. If any single large loan customer defaults on their
loan from us, it could adversely affect our operating results.
THE MORTGAGE BANKING BUSINESS IS SEASONAL
We earn a significant amount of income in the mortgage banking industry,
which is generally subject to seasonal variations. These variations reflect the
general national pattern of sales and resales of homes, although refinancings
tend to be less seasonal and more closely related to changes in interest rates.
Sales and resales of homes typically peak during the spring and summer seasons
and decline to lower levels from mid-November through February. In addition,
delinquency rates typically rise in the winter months, which results in higher
servicing costs. The magnitude of these variations, which is beyond our control,
could adversely affect our operating results.
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EXPANSION OF OUR RETAIL BANKING BUSINESS WILL BE EXPENSIVE
We intend to expand our retail banking operations through the acquisition
or establishment of additional bank branches. This expansion is expected to
occur in communities across southern and western Michigan. If we are unable to
generate a customer base within these communities because of consumer loyalty to
other financial institutions or for other reasons, we will have incurred
construction or building acquisition costs and liabilities under lease
agreements as well as related branch overhead expenses without an appropriate
return on our investment.
WE ARE DEPENDENT ON OUR KEY PERSONNEL
Our growth and development to date have been largely dependent on certain
key employees, the loss of whom could have a material adverse effect. Our key
employees are Thomas J. Hammond, Chief Executive Officer; Mark T. Hammond,
President; Michael W. Carrie, Executive Vice President and Chief Financial
Officer; and Joan H. Anderson, Executive Vice President. Each of these persons
are officers of the Company and the Bank. Our key employees also include Kirstin
A. Hammond, Executive Vice President; and Robert O. Rondeau, Jr., Executive Vice
President, who are officers of the Bank. We do not carry "key person" life
insurance on the lives of any officers.
WE ARE IMPACTED BY COMPETITION FROM MANY OTHERS
Both our retail banking business and mortgage banking business are
extremely competitive. In the retail banking segment, we will have to overcome
historical relationships to attract customers away from our competition. In the
mortgage banking segment, many of our competitors are, or are affiliates of,
enterprises that have greater resources than we do.
Through our various businesses, we compete with different institutions,
including:
- - mortgage companies;
- - other banks and thrift institutions;
- - credit unions;
- - full service and discount broker dealers;
- - investment companies, mutual funds and money market funds; and
- - insurance companies.
Some of our competitors are not regulated as extensively as we are and,
therefore, may have greater flexibility in competing for business. Some of these
competitors are subject to similar regulation but have the advantages of
established customer bases, higher lending limits, extensive branch networks,
numerous automated teller machines or other factors. We compete by offering
market rates on our products and prompt service to our customers.
OUR ABILITY TO PAY DIVIDENDS IS UNCERTAIN
Our ability to pay dividends on the Common Stock and to meet our other
obligations is dependent upon our receipt of dividends from the Bank. The
declaration of dividends by the Bank on all classes of its capital stock is
subject to the discretion of the Board of Directors of the Bank and to
applicable federal regulatory limitations. At September 30, 1998, federal
regulations permit the Bank to pay up to $33.8 million in dividends without
obtaining advance regulatory approval.
GOVERNMENT REGULATION HAS A SIGNIFICANT IMPACT ON OUR BUSINESS
We are subject to extensive regulation by state and federal banking
authorities that govern our general operations as well as mortgage origination,
processing, underwriting, selling and servicing. Many of these regulations are
intended to protect depositors, the public or the FDIC and not our shareholders.
Regulatory requirements will affect our lending practices, capital structure,
investment practices, dividend policy and growth. Any change in these regulatory
requirements could adversely affect us. In some instances, regulatory changes
are applied
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retroactively. Our mortgage banking operations are also affected by the rules
and regulations of quasi-governmental agencies that purchase, guarantee or
insure mortgage loans. Further, federal economic and monetary policies, which
are entirely out of our control, will affect various aspects of our operations.
In addition, certain states require that interest be paid to mortgagors on
funds deposited by them in escrow to cover mortgage-related payments such as
property taxes and insurance premiums. Federal legislation has been introduced
in the past that would, if enacted, revise current escrow regulations and
establish a uniform escrow calculation methodology in all states. If such
federal legislation were enacted or if other states enact legislation relating
to payment of, or increases in the rate of, interest on escrow balances, or if
such legislation were retroactively applied to loans in our servicing portfolio,
our earnings would be adversely affected.
IN THE FUTURE, WE MAY BE AFFECTED BY LITIGATION
In recent years, mortgage originators have been subject to class action
lawsuits that allege violations of federal and state laws and regulations,
including the propriety of collecting and paying various fees and charges and
the calculation of escrow amounts. Class action lawsuits may continue to be
filed in the future against mortgage originators generally. The results of our
operations could be adversely affected if we suffer an unfavorable court
judgment in any such lawsuit.
OWNERSHIP OF OUR STOCK BY AN INDIVIDUAL OR GROUP IS LIMITED BY REGULATIONS
Federal regulations generally limit the amount of our stock that you may
purchase or own. Except in certain limited exceptions, federal regulations
prohibit an investor from acquiring, either directly, indirectly or through a
holding company, more than 10% of any class of voting stock of a savings
institution such as the Bank or its holding company, the Company. If an investor
desires to acquire more than 10% of a savings institution or its holding
company, such investor must first apply to and be approved by the OTS. Under
these same federal regulations, an "investor" is defined as a person or company
or a group of persons deemed to be "acting in concert" to acquire any class of
voting stock. The federal regulations also apply to investors who obtain the
ability to control the election of a majority of the directors or could
otherwise direct the management or policies of a savings institution or its
holding company.
OUR STOCK IS CONCENTRATED IN THE HAMMOND FAMILY
Immediately following the Offering, the Selling Stockholder beneficially
will own 30.5% of the outstanding shares of Common Stock, or approximately 29.3%
if the Underwriters exercise the over-allotment option in full. Such ownership
percentage is based upon the anticipated sale of 1,100,000 shares of Common
Stock by the Selling Stockholder in the Offering (1,265,000 shares assuming full
exercise of the over-allotment option). See "Selling Stockholder." Following
completion of the Offering, the combined ownership of the Selling Stockholder
and other members of the Hammond family will still represent a majority interest
in our Common Stock. They will therefore still be able to control the election
of the Board of Directors and thus direct our affairs, including decisions
regarding acquisitions and other business opportunities, the declaration of
dividends and the issuance of additional shares of our Common Stock and other
securities.
ANTI-TAKEOVER PROVISIONS OF OUR CHARTER MAY REDUCE THE LIKELIHOOD THAT WE ARE
ACQUIRED BY A THIRD PARTY
Our Restated Articles of Incorporation and Bylaws and applicable provisions
of the Michigan Business Corporation Act ("MBCA") contain several provisions
that may make it more difficult to acquire control of us without the approval of
the Board of Directors. Certain provisions of our Restated Articles of
Incorporation, among other things, (i) authorize the issuance of additional
shares of Common Stock and serial preferred stock; (ii) classify the Board of
Directors into three
12
<PAGE> 13
classes, each of which serves for staggered three year periods; (iii) provide
that our directors may be removed by the stockholders only for cause; (iv)
provide that only our Board of Directors or Chairman of the Board may call
special meetings of the stockholders; (v) provide that the stockholders may take
action only at a meeting of the stockholders; (vi) provide that the stockholders
must comply with certain advance notice procedures in order to nominate
candidates for director to our Board of Directors or to place stockholders'
proposals on the agenda for communication at stockholders meetings; and (vii)
provide that the stockholders may amend or repeal any of the foregoing
provisions of the Restated Articles of Incorporation or Bylaws only by a vote of
80% of the stock entitled to vote generally in the election of directors. In
addition, the MBCA contains various other anti-takeover provisions that apply to
us even though those provisions are not in our Restated Articles.
WE MAY OWN ENVIRONMENTALLY CONTAMINATED REAL ESTATE AFTER A FORECLOSURE
If we foreclose on a defaulted mortgage loan to recover our investment in
such mortgage loan, we may be subject to environmental liabilities in connection
with the underlying real property which could exceed the fair value of the real
property. It is possible that hazardous substances or wastes, contaminants,
pollutants or their sources (as defined by state and federal laws and
regulations) may be discovered on properties during our ownership or after they
are sold to a third party. If they are discovered on a property that we have
acquired through foreclosure or otherwise, we may be required to remove those
substances and clean up the property. We may have to pay for the entire cost of
any removal and clean-up without the contribution of any other third parties.
These costs may also exceed the fair value of the property. We may also be
liable to tenants and other users of neighboring properties. In addition, we may
find it difficult or impossible to sell the property prior to or following any
such clean-up.
THE YEAR 2000 PROBLEM MAY HAVE AN ADVERSE IMPACT ON US OR ON OTHERS UPON WHOM WE
DEPEND
Much of today's information technology (i.e., computer systems) and
embedded technology (e.g., microcontrollers) identifies a particular year on the
basis of the last two digits of that year. For example, the year "1998" is
recognized by the digits "98." The inability of information technology and
embedded technology to properly recognize a year that begins with "20" instead
of "19," if not corrected, may result in the production of erroneous results or
the failure of systems which rely on information technology and embedded
technology. This failure of systems, production of erroneous results and the
resulting damages is commonly known as the "Year 2000 Problem" or the "Y2K
Problem."
We are dependent, to a substantial degree, upon the proper functioning of
our computer systems as well as those of our vendors, suppliers and customers.
Most of our products and services rely on information and data provided by
others. Most of this information and data is provided electronically and is
dependent on information systems and telecommunications. The inability of our
vendors and suppliers to provide accurate information in a timely manner, our
inability to accurately and timely process such information, the inability of
our customers to receive and use our products and services, and a general
disruption of telecommunications and utilities as a result of the Year 2000
Problem would most likely result in business interruption or shutdown, financial
loss, potential regulatory action, harm to our reputation and potential legal
liability.
We have conducted internal development and testing of our computer systems
to insure millennium compliance. However, we can give no assurance that our
internal systems will be completely free of errors. In addition, we can give no
assurance that all of our vendors will deliver Year 2000 compliant certificates
or that the vendors will in fact be Year 2000 compliant despite their
certification of compliance. If either our computer systems or those of our
vendors fail to function properly because of the Year 2000 problem, the results
of our operations may materially suffer.
13
<PAGE> 14
SELECTED CONSOLIDATED FINANCIAL DATA (UNAUDITED)
The following table presents the Company's selected consolidated financial
data as of and for the nine months ended September 30, 1998 and 1997, and as of
and for each of the five years in the period ended December 31, 1997. The
information has been derived from the consolidated financial statements of the
Company, including the unaudited consolidated financial statements of the
Company incorporated in this Prospectus by reference to the Company's September
30, 1998 Form 10-Q, and the audited consolidated financial statements of the
Company incorporated in this Prospectus by reference to the Company's 1997 Form
10-K, and should be read in conjunction therewith and with the notes thereto.
See "WHERE YOU CAN FIND MORE INFORMATION; INCORPORATION BY REFERENCE."
Historical results are not necessarily indicative of results to be expected
for any future period. Results for the nine-month period ended September 30,
1998 are not necessarily indicative of results which may be expected for any
other interim period or for the year as a whole.
<TABLE>
<CAPTION>
AT OR FOR THE NINE
MONTHS
ENDED SEPTEMBER 30, AT OR FOR THE YEAR ENDED DECEMBER 31,
------------------------ --------------------------------------------------------------
1998 1997 1997 1996(1) 1995 1994 1993
---- ---- ---- ------- ---- ---- ----
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
SUMMARY OF STATEMENTS OF EARNINGS:
Interest income....................... $ 134,004 $ 84,789 $ 122,752 $ 76,179 $ 71,304 $ 35,112 $ 29,760
Interest expense...................... 97,400 54,597 80,033 45,967 41,443 14,486 12,052
----------- ---------- ---------- ---------- ---------- ---------- ----------
Net interest income................... 36,604 30,192 42,719 30,212 29,861 20,626 17,708
Provisions for losses................. 12,838 3,730 5,015 2,604 238 290 644
----------- ---------- ---------- ---------- ---------- ---------- ----------
Net interest income after provisions
for losses.......................... 23,766 26,462 37,704 27,608 29,623 20,336 17,064
Other income.......................... 80,063 43,728 59,836 58,534 36,988 42,732 33,654
Operating and administrative
expenses............................ 53,088 45,244 62,503 58,820 41,716 37,619 21,292
----------- ---------- ---------- ---------- ---------- ---------- ----------
Earnings before federal income tax
provision........................... 50,741 24,946 35,037 27,322 24,895 25,449 29,426
Provision for federal income taxes.... 22,500 9,090 13,265 10,299 9,419 9,318 10,405
----------- ---------- ---------- ---------- ---------- ---------- ----------
Net earnings.......................... $ 28,241 $ 15,856 $ 21,772 $ 17,023 $ 15,476 $ 16,131 $ 19,021
=========== ========== ========== ========== ========== ========== ==========
Basic earnings per share:............. $ 2.07 $ 1.25 $ 1.70 $ 1.51 $ 1.37 $ 1.42 $ 1.65
Diluted earnings per share:........... $ 2.00 $ 1.24 $ 1.68 $ 1.51 $ 1.37 $ 1.42 $ 1.65
Dividends per common share............ $ 0.20 $ -- $ 0.06 $ 0.09 $ 0.18 $ 0.04 $ 0.07
SUMMARY OF CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION:
Total assets.......................... $ 3,092,515 $2,033,260 $1,901,084 $1,297,226 $1,045,094 $ 723,150 $ 467,629
Loans receivable...................... 2,661,922 1,803,424 1,655,259 1,110,836 923,933 633,409 415,078
Mortgage servicing rights............. 149,367 51,713 83,845 30,064 27,957 18,179 17,563
Deposits.............................. 1,596,003 1,011,594 1,109,933 624,485 526,974 307,624 190,761
FHLB advances......................... 910,500 718,879 482,378 389,801 191,156 200,750 55,000
Stockholders' equity.................. 152,123 121,549 126,617 78,468 62,445 49,419 35,114
OTHER FINANCIAL AND STATISTICAL DATA:
Tangible capital ratio................ 5.99% 5.49% 5.40% 5.58% 5.19% 5.54% 7.41%
Core capital ratio.................... 6.10% 5.71% 5.62% 6.01% 5.84% 6.63% 7.41%
Total risk-based capital ratio........ 12.28% 10.83% 11.74% 10.91% 10.12% 12.08% 13.84%
Equity-to-assets ratio (end of the
period)............................. 4.92% 5.98% 6.66% 6.05% 5.98% 6.83% 7.51%
Equity-to-assets ratio (average)...... 5.22% 6.27% 6.22% 6.19% 5.54% 8.91% 6.32%
Book value per share.................. $ 11.13 $ 8.89 $ 9.26 $ 6.97 $ 5.55 $ 4.37 $ 3.05
Average shares outstanding............ 13,670 12,685 12,837 11,250 11,274 11,389 11,527
Mortgage loans originated or
purchased........................... $13,105,795 $5,287,711 $7,873,099 $6,791,665 $5,195,605 $3,720,173 $6,220,415
Mortgage loans sold................... $12,016,950 $4,518,451 $7,222,394 $6,581,897 $4,760,806 $3,551,319 $6,034,828
Mortgage loans serviced for others.... $11,250,121 $4,143,352 $6,412,797 $4,801,581 $6,788,530 $5,691,421 $6,198,311
Capitalized mortgage servicing
rights.............................. 1.33% 1.25% 1.31% 0.63% 0.41% 0.32% 0.28%
Interest rate spread.................. 1.69% 2.27% 2.10% 2.13% 2.36% 3.37% 3.39%
Net interest margin................... 2.06% 2.83% 2.74% 3.07% 3.46% 4.63% 4.55%
Return on average assets.............. 1.42% 1.34% 1.29% 1.53% 1.63% 3.19% 4.39%
Return on average equity.............. 27.28% 21.32% 20.69% 24.68% 29.42% 35.78% 69.56%
Efficiency ratio...................... 44.7% 59.9% 59.7% 64.8% 60.4% 58.3% 41.5%
Ratio of allowance to non-performing
loans............................... 43.2% 11.2% 12.4% 11.4% 19.7% 107.6% 58.2%
Ratio of allowance to total loans..... 0.57% 0.27% 0.33% 0.31% 0.23% 0.29% 0.22%
Ratio of non-performing assets to
total assets........................ 1.90% 3.04% 3.29% 3.16% 1.25% 0.42% 0.60%
Ratio of net charge-offs to average
loans............................... 0.18% 0.22% 0.20% 0.13% 0.00% 0.08% 0.08%
Number of bank branches............... 26(2) 19 19 15 13 9 1
</TABLE>
- -------------------------
(1) Included in the 1996 operating and administrative expenses is a one-time
assessment to recapitalize the SAIF, which totaled $3.4 million ($.20 per
share on an after-tax basis). Without this assessment, return on average
assets would have been 1.73%, return on average equity would have been
27.87%, and the efficiency ratio would have been 61.0%.
(2) Two more branches were added through December 15, 1998.
14
<PAGE> 15
BUSINESS
Flagstar Bancorp, Inc., a Michigan-based thrift holding company, is one of
the largest originators of conforming single-family mortgage loans in the United
States. The Company is engaged, through its principal subsidiary, the Bank, in
the business of attracting deposits from the general public and originating or
acquiring residential mortgage loans. The Bank is the largest independent thrift
in Michigan based on asset size. 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. For the nine months ended September
30, 1998, the Company ranked thirteenth in the United States in residential
mortgage loan originations.
At September 30, 1998, the Company had consolidated total assets of $3.1
billion, net loans of $2.7 billion, total deposits of $1.6 billion and total
stockholders' equity of $152.1 million. For the year ended December 31, 1997,
the Company's net earnings were $21.8 million ($1.68 per share -- diluted) and
its return on average assets and return on average equity were 1.29% and 20.69%,
respectively. For the nine months ended September 30, 1998, the Company's net
earnings were $28.2 million ($2.00 per share -- diluted), and its annualized
return on average assets and return on average equity were 1.42% and 27.28%,
respectively.
The Company's operations are segregated into two segments, mortgage banking
and retail banking, with a majority of the Company's revenue (net interest
income and non-interest income) and earnings before income taxes attributable to
the mortgage banking segment. The Company believes that its retail banking
business provides it with access to attractive and relatively stable funding
sources for its mortgage origination business. These funding sources include
retail deposits, FHLB advances and escrowed funds. The Company believes it has a
strategic advantage compared to other mortgage originators with no retail
banking operations due to its stable, lower cost of funds.
Retail Banking. The Company provides a full range of retail banking
services to consumers and small businesses in southern and western Michigan. The
Company currently operates a network of 28 bank branches (including nine opened
in 1998) located in southern and western Michigan counties. Since 1994, the
Company has focused on expanding its branch network in these markets in order to
increase its access to retail deposit funding sources. The Company believes that
this also provides a greater opportunity for cross-marketing of consumer banking
services to the Company's large base of mortgage customers in Michigan. The
Company believes that it can benefit from the customer displacement in its
markets caused by the substantial consolidation of the banking industry in
Michigan.
Mortgage Banking. The Company's mortgage banking operations, which have
historically generated a majority of the Company's earnings, originate
residential mortgages through 33 retail loan origination offices located in
Michigan (29), Florida (3) and Ohio (1). In addition, the Company originates
mortgage loans on a wholesale basis through a nationwide network of independent
mortgage brokers (who originate such loans using the Company's underwriting
standards and close such loans using funds advanced by the Company). This
network is serviced by the Company through over 60 account executives, who are
organized among 10 regional wholesale/ correspondent lending offices and five
wholesale/correspondent satellite offices. The Company also purchases mortgage
loans on a regular basis from independent mortgage lenders, commercial banks,
savings and loan associations and other financial institutions with whom the
Company has established a correspondent relationship.
For the nine months ended September 30, 1998 the Company produced $13.1
billion in mortgage loans. These included $12.1 billion in mortgage loans
produced through the wholesale and correspondent network and $970.3 million
originated through the Company's retail network. During the years ended December
31, 1997 and 1996, the Company's mortgage loan production totaled $7.9 billion
and $6.8 billion, respectively. Of these amounts, $7.1 billion was produced
15
<PAGE> 16
during the year ended December 31, 1997 through the Company's wholesale and
correspondent loan production network and $745.2 million was originated through
the Company's retail network ($6.1 billion and $685.3 million, respectively,
during 1996).
The Company sells a substantial portion of its loan production into the
secondary market, principally by securitizing pools of loans through programs
offered by government-sponsored enterprises such as Fannie Mae and Freddie Mac
and through sales to private investors. In addition, the Company originates and
sells loans conforming to the underwriting criteria of the FHA and the VA.
Generally, the Company retains the servicing rights to many of the loans that it
sells, but also realizes additional income by selling servicing rights on an
individual and a bulk basis to other mortgage servicers. At September 30, 1998
and at December 31, 1997 and 1996, the Company's loan servicing portfolio
totaled $11.3 billion, $6.4 billion and $4.8 billion, respectively (net of loans
subserviced for others), substantially all of which related to conventional
loans.
The Company makes extensive use of advanced technology and automated
processes in order to enhance the competitiveness and reduce the cost of its
mortgage origination operations. The Company was one of the first mortgage
lenders to utilize video conferencing for loan production. In 1996, the Company
began full-scale operational use of automated underwriting system technologies,
including Fannie Mae's Desktop Underwriter(TM) and Freddie Mac's Loan
Prospector(TM) (of which the Company is currently one of the largest users), and
has combined the two technologies into a customized video conferencing and
underwriting system. Substantially all of the Company's mortgage loan production
is underwritten using automated systems, which the Company believes reduces
overhead, enhances customer service and facilitates conformity of the Company's
loan production with Freddie Mac and Fannie Mae underwriting guidelines.
Business Strategy. The Company's strategy consists of the following key
elements:
- continue to expand the Company's branch network into demographically
desirable communities in Michigan in order to gain access to additional
retail funding sources;
- as market conditions permit, retain a portion of its mortgage loan
production volume or mortgage servicing rights (thereby benefitting from
economies of scale), or both;
- continue to utilize advanced technology and automated processes
throughout the Company's business to improve customer service, reduce
costs of loan production and servicing and increase efficiencies; and
- cross-sell retail banking services to the Company's large Michigan base
of existing mortgage customers.
YEAR 2000 UPDATE
The Company has substantially completed its efforts to identify the systems
affected by the Year 2000 Problem issue and is currently in the process of
determining each system's readiness. Testing of the Company's significant
systems is complete. All of the Company's system vendors have provided the
Company with a certificate of compliance or have committed to doing so by the
end of the first quarter of 1999.
Although the Company believes that it is taking appropriate actions to
become Year 2000 compliant, there can be no assurance that such preparation will
be adequate.
16
<PAGE> 17
MARKET PRICE AND DIVIDEND INFORMATION
The following table sets forth, for the periods indicated, the high and low
closing sales prices of the Common Stock as reported on Nasdaq since the
Company's initial public offering on April 30, 1997 and cash dividends per share
declared. These prices reflect inter-dealer prices, without retail mark-up,
mark-down or commission and may not necessarily represent actual transactions.
<TABLE>
<CAPTION>
PRICE RANGE
----------------------- CASH DIVIDENDS
HIGH LOW PER SHARE
---- --- --------------
<S> <C> <C> <C>
Year Ended December 31, 1997
2nd Quarter (from April 30, 1997).................. $16.625 $13.000 $ --
3rd Quarter........................................ 21.500 16.000 --
4th Quarter........................................ 21.750 17.875 .06
Year Ended December 31, 1998
1st Quarter........................................ 26.500 17.750 .06
2nd Quarter........................................ 28.375 23.500 .07
3rd Quarter........................................ 28.125 21.000 .07
4th Quarter........................................ 29.813 20.250 .08
</TABLE>
SELLING STOCKHOLDER
The following table sets forth certain information regarding the beneficial
ownership of the Common Stock by the Selling Stockholder on the date of this
Prospectus and as adjusted to reflect the sale of the shares offered hereby. The
Selling Stockholder has sole voting and investment power with respect to all
shares of Common Stock shown as beneficially owned by him except as otherwise
indicated.
<TABLE>
<CAPTION>
BEFORE THE OFFERING AFTER THE OFFERING
-------------------------- -----------------------------
NUMBER OF PERCENTAGE SHARES BEING NUMBER PERCENTAGE
SHARES(1) OF CLASS(2) OFFERED(3) OF SHARES(1) OF CLASS(2)
--------- ----------- ------------ ------------ -----------
<S> <C> <C> <C> <C> <C>
Thomas J. Hammond.............. 5,270,245 38.6% 1,100,000 4,170,245 30.5%
</TABLE>
- -------------------------
(1) For purposes of the above table, a person is considered to "beneficially
own" any shares with respect to which he/she exercises sole or shared voting
or investment power or of which he/she has the right to acquire the
beneficial ownership within 60 days of the date of this Prospectus. Includes
962,913 shares of Common Stock held by Mr. Hammond's wife, Janet G. Hammond,
as to which Mr. Hammond disclaims beneficial ownership. Also does not
include any shares held by Mark Hammond, Catherine Rondeau or Carrie
Langdon, each of whom are adult children of Mr. and Mrs. Hammond and each of
whom currently hold 7.1% of the outstanding shares of Common Stock.
(2) "Percentage of Class" is calculated by dividing the total number of
outstanding shares beneficially owned by the Selling Stockholder as of the
date of this Prospectus plus the number of shares such person has the right
to acquire within 60 days of the date of this Prospectus into the total
number of outstanding shares of the Company as of the date of this
Prospectus plus the total number of shares that any person has the right to
acquire within 60 days of the date of this Prospectus.
(3) This table assumes no exercise of the Underwriters' over-allotment option
granted by the Selling Stockholder. If the over-allotment option is
exercised in full, (i) the number of shares being offered by the Selling
Stockholder would be 1,265,000 shares, (ii) the number of shares owned by
the Selling Stockholder after the Offering would be 4,005,245 and (iii) the
percentage of class owned by the Selling Stockholder after the Offering
would be 29.3%.
17
<PAGE> 18
Thomas J. Hammond has served as Chairman of the Board of Directors and
Chief Executive Officer of the Company since its formation in 1993 and served as
its President from 1993 to January 1997. He has served as Chairman of the Board
of Directors and Chief Executive Officer of the Bank since the Bank's formation
in 1987 and served as President of the Bank from 1987 to September 1995. Mr.
Hammond has over 29 years of experience in the mortgage lending industry.
18
<PAGE> 19
UNDERWRITING
Upon the terms and subject to the conditions stated in the Underwriting
Agreement dated the date hereof, each of the underwriters (the "Underwriters")
named below has severally agreed to purchase, and the Selling Stockholder has
agreed to sell to such Underwriter, the number of shares of Common Stock set
forth opposite the name of such Underwriter.
<TABLE>
<CAPTION>
NUMBER
NAME OF UNDERWRITER OF SHARES
------------------- ---------
<S> <C>
McDonald Investments Inc. .................................. 440,000
Roney Capital Markets, a division of First Chicago Capital
Markets, Inc. ............................................ 440,000
Friedman, Billings, Ramsey & Co., Inc. ..................... 220,000
---------
1,100,000
=========
</TABLE>
The Underwriting Agreement provides that the obligations of the
Underwriters to pay for and accept delivery of the shares are subject to
approval of certain legal matters by counsel and to certain other conditions.
The Underwriters are obligated to take and pay for all shares of Common Stock
offered hereby if any such shares are taken.
The Underwriters propose to offer part of the shares directly to the public
at the public offering price set forth on the cover page of this Prospectus and
part of the shares to certain dealers at a price which represents a concession
not in excess of $0.78 per share under the public offering price. The
Underwriters may allow, and such dealers may reallow, a concession not in excess
of $0.10 per share to certain other dealers. After the initial offering of
shares to the public, the public offering price and such concessions may be
changed by the Underwriters.
The Selling Stockholder has granted to the Underwriters an option,
exercisable at any time during the 30-day period from the date of this
Prospectus, to purchase up to an aggregate of 165,000 additional shares of
Common Stock at the public offering price set forth on the cover page hereof
less underwriting discounts and commissions. The Underwriters may exercise such
option to purchase additional shares solely for the purpose of covering
over-allotments, if any, incurred in connection with the sale of the Common
Stock offered hereby. To the extent such option is exercised, each Underwriter
will become obligated, subject to certain conditions, to purchase a number of
additional shares proportionate to such Underwriter's initial amount reflected
in the preceding table.
The Selling Stockholder as well as Janet G. Hammond and Mark T. Hammond
have each agreed that they will not, without the prior written consent of
McDonald Investments Inc., for a period of 180 days after the date of this
Prospectus, offer, sell or contract to sell, or otherwise dispose of (or enter
into any transaction which is designed to, or might reasonably be expected to,
result in the disposition (whether by actual disposition or effective economic
disposition due to cash settlement or otherwise) by the Selling Stockholder or
any affiliate of the Selling Stockholder or any person in privity with the
Selling Stockholder or any affiliate of the Selling Stockholder), directly or
indirectly, or announce the offering of, any other shares of Common Stock or any
securities convertible into, or exchangeable for, shares of Common Stock, or
sell or grant options, rights or warrants with respect to any shares of Common
Stock, otherwise than in accordance with the Underwriting Agreement or as
contemplated in this Prospectus.
The Company, the Selling Stockholder and the Underwriters have agreed to
indemnify each other against certain liabilities, including liabilities under
the Securities Act.
The Underwriters may engage in over-allotment, stabilizing transactions,
syndicate covering transactions and penalty bids in accordance with Regulation M
under the Exchange Act. Over-allotment involves syndicate sales in excess of the
offering size, which creates a syndicate short position. Stabilizing
transactions permit bids for and purchase of the Common Stock so long as
19
<PAGE> 20
the stabilizing bids do not exceed a specified maximum. Syndicate covering
transactions involve purchases of the Common Stock in the open market in order
to cover syndicate short positions. Penalty bids permit the Underwriters to
reclaim a selling concession from a syndicate member when the Common Stock
originally sold by such syndicate member is purchased in a stabilizing
transaction or syndicate covering transaction to cover syndicate short
positions. Such stabilizing transactions, syndicate covering transactions and
penalty bids may cause the price of the Common Stock to be higher than it would
otherwise be in the absence of such transactions. These transactions may be
effected on the Nasdaq or otherwise and, if commenced, may be discontinued at
any time.
TRANSFER AGENT
The Company's transfer agent is Registrar and Transfer Company, Cranford,
New Jersey.
LEGAL MATTERS
The validity of the Common Stock offered hereby will be passed upon for the
Company by Kutak Rock, 1101 Connecticut Avenue, N.W., Washington, D.C.
20036-4374. Certain legal matters relating to Michigan law will be passed upon
for the Company by Albert J. Gladner, Esq., Senior Vice President and General
Counsel of the Bank. Certain legal matters will be passed upon for the
Underwriters by Honigman Miller Schwartz and Cohn, 2290 First National Building,
660 Woodward Avenue, Detroit, Michigan 48226-3583.
EXPERTS
The consolidated financial statements incorporated in this Prospectus by
reference to the Company's Annual Report on Form 10-K for the year ended
December 31, 1997 have been so incorporated in reliance on the report of Grant
Thornton LLP, independent certified public accountants, given on the authority
of said firm as experts in auditing and accounting.
20
<PAGE> 21
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<PAGE> 22
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<PAGE> 23
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- - WE HAVE NOT AUTHORIZED ANYONE TO GIVE YOU ANY INFORMATION THAT DIFFERS FROM
THE INFORMATION IN THIS PROSPECTUS. IF YOU RECEIVE ANY DIFFERENT INFORMATION,
YOU SHOULD NOT RELY ON IT.
- - THE DELIVERY OF THIS PROSPECTUS SHALL NOT, UNDER ANY CIRCUMSTANCES, CREATE AN
IMPLICATION THAT FLAGSTAR BANCORP, INC. IS OPERATING UNDER THE SAME CONDITIONS
THAT IT WAS OPERATING UNDER WHEN THIS PROSPECTUS WAS WRITTEN. DO NOT ASSUME
THAT THE INFORMATION CONTAINED IN THIS PROSPECTUS IS CORRECT AT ANY TIME PAST
THE DATE INDICATED.
- - THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR THE SOLICITATION OF
AN OFFER TO BUY, ANY SECURITIES OTHER THAN THE SECURITIES TO WHICH IT RELATES.
- - THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR THE SOLICITATION OF
AN OFFER TO BUY, THE SECURITIES TO WHICH IT RELATES IN ANY CIRCUMSTANCES IN
WHICH SUCH OFFER OR SOLICITATION IS UNLAWFUL.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Where You Can Find More Information;
Incorporation by Reference......... 3
Special Note of Caution Regarding
Forward-Looking Statements......... 3
Prospectus Summary................... 5
The Offering......................... 7
Risk Factors......................... 8
Selected Consolidated Financial Data
(Unaudited)........................ 14
Business............................. 15
Market Price and Dividend
Information........................ 17
Selling Stockholder.................. 17
Underwriting......................... 19
Transfer Agent....................... 20
Legal Matters........................ 20
Experts.............................. 20
</TABLE>
- -------------------------------------------------------------------------------
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1,100,000 SHARES
[FLAGSTAR BANCORP LOGO]
COMMON STOCK
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PROSPECTUS
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MCDONALD INVESTMENTS INC.
RONEY CAPITAL MARKETS
A DIVISION OF FIRST CHICAGO CAPITAL MARKETS, INC.
FRIEDMAN, BILLINGS,
RAMSEY & CO., INC.
January 15, 1999
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