LETTER TO SHAREHOLDERS LOOKING AHEAD Banking Home Lending 3 When 2003 came to a close, Flagstar had set new milestones in earnings, return on equity and mortgage production. We also grew deposits substantially and expanded our banking network significantly. Our  shareholders participated in our success, benefiting from a 98.3 percent increase in our stock price, a stock split and two dividend increases.  We posted net earnings of $254.4 million — a 96.8 percent increase over our previous record in 2002 of $129.3 million. We also continued our record of standout performances in return on equity. In 2001 and 2002, Flagstar led publicly traded banking companies in core ROE, and in 2003 we bettered our own record, achieving an astounding 47.6 percent return on equity. Our mortgage production also set a new record — $56.4 billion, easily surpassing the $43.2 billion we originated in 2002. During the year, our assets increased from $8.2 billion at year-end 2002 to $10.6 billion at December 31, 2003. Most of this growth was in residential first mortgages. We also experienced gains in our commercial and consumer loan portfolios. Shareholders benefited as we approved a two-for-one stock split in the form of a stock dividend in April, a 100.0 percent quarterly cash dividend increase to $0.10 in May and a 50.0 percent quarterly cash dividend increase to $0.15 in September. We also continued to offer shareholders the convenience of dividend reinvest- ment and direct deposit of dividends. In the next four years, we plan to more than double our assets, deposits, banking centers and banking market  share. We anticipate that the majority of our asset growth will be in our investment loan portfolio, which will largely consist of residential first mortgages, in addition to commercial real estate loans and consumer loans. As more banking centers come onstream and contribute to earnings, they should provide a relatively stable source of revenue and additional outlets to cross sell our lending products. We’ve recently experienced banner years in residential mortgage originations and are optimistic about the long-term outlook of the mortgage industry. We are a leader in the U.S. mortgage market — a market that is predicted to more than double over the next 10 years. Recent statistics show that the equity consumers have in their homes increased nationally 8.4 percent in 2003 compared to 7.6 percent in 2002. We have had a large presence in the mortgage industry since our founding and have managed successfully through numerous new home purchase and refinancing cycles. We have created a business plan and follow a strategy that anticipates the volatility in interest rates. We believe that our balance sheet and our pipeline are well hedged against future swings in rates.  Should interest rates decline, we have demonstrated the ability to gear up operations with modest increases in staff to take advantage of refinancing opportunities. Should interest rates rise due to an improving economy, we expect to benefit from higher earnings on our servicing portfolio. At the end of 2003, we were planning an important milestone in banking — the opening of our 100 th bank- ing center. In 1996, when the company adopted the Flagstar name, we had just 14 locations. Since then, we’ve expanded throughout our home state and into Indiana, opening both traditional and in-store branches located in select Wal-Mart stores. In 2003, we opened 12 new banking centers in our Michigan/Indiana  markets and identified up to 25 new sites for 2004. We look forward to future contributions to earnings from our new offices.