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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K

FOR THE FISCAL YEAR ENDED: DECEMBER 31, 2002

OR

Commission File No.: 000-50126

COMMERCIAL CAPITAL BANCORP, INC.

(Name of Registrant as Specified in its charter)

Issuer’s telephone number, including area code: (949) 585-7500

Securities registered under Section 12(b) of the Exchange Act:

NOT APPLICABLE

Securities registered under Section 12(g) of the Exchange Act:

COMMON STOCK (PAR VALUE $0.001 PER SHARE)

(Title of Class)

Check whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 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 90 days.  

Yes  x  No  ¨

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  x

Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2).    Yes  ¨  No  x

The aggregate value of the 10,016,870 shares of Common Stock of the registrant issued and outstanding, which excludes 4,337,988 shares held by all directors and executive officers of the registrant as a group, was approximately $96.2 million based on the last closing sales price on a share of Common Stock of $9.60 as of March 14, 2003.

Number of shares of common stock outstanding as of March 24, 2003: 14,354,858

DOCUMENTS INCORPORATED BY REFERENCE

The registrant hereby incorporates portions of its definitive proxy statement for the Annual Meeting of Stockholders for 2003 in Part III.

PART I

Cautionary Statement Regarding Forward-Looking Statements

A number of the presentations and disclosures in this Form 10-K, including any statements preceded by, followed by or which include the words “may,” “could,” “should,” “will,” “would,” “hope,” “might,” “believe,” “expect,” “anticipate,” “estimate,” “intend,” “plan,” “assume” or similar expressions constitute forward-looking statements.

These forward-looking statements, implicitly and explicitly, include the assumptions underlying the statements and other information with respect to our beliefs, plans, objectives, goals, expectations, anticipations, estimates, intentions, financial condition, results of operations, future performance and business, including our expectations and estimates with respect to our revenues, expenses, earnings, return on equity, return on assets, efficiency ratio, asset quality and other financial data and capital and performance ratios.

Although we believe that the expectations reflected in our forward-looking statements are reasonable, these statements involve risks and uncertainties that are subject to change based on various important factors (some of which are beyond our control). The following factors, among others, could cause our financial performance to differ materially from our goals, plans, objectives, intentions, expectations and other forward-looking statements:

If one or more of the factors affecting our forward-looking information and statements proves incorrect, then our actual results, performance or achievements could differ materially from those expressed in, or implied by, forward-looking information and statements contained in this Form 10-K. Therefore, we caution you not to place undue reliance on our forward-looking information and statements.

We do not intend to update our forward-looking information and statements, whether written or oral, to reflect change. All forward-looking statements attributable to us are expressly qualified by these cautionary statements.

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Item 1.    Business.

General

Commercial Capital Bancorp, Inc., a Nevada corporation, is a diversified financial services holding company that provides a variety of lending and deposit products and services to middle market commercial businesses, income property real estate investors, related real estate service companies and high net worth individuals and professionals. We are one of the largest independent banking organizations headquartered in Orange County, California and, based on the percentage growth in our assets on a quarterly basis over the past 24 months, we have been the fastest growing banking organization in Orange County according to Federal Deposit Insurance Corporation (“FDIC”) data. We conduct our operations through Commercial Capital Bank, FSB, a federally chartered savings bank (“Commercial Capital Bank”), Financial Institutional Partners Mortgage Corporation, a commercial mortgage banking company (“FIPMC”), and ComCap Financial Services Inc., a registered broker dealer (“ComCap”). We were formed in June 1999 and did not conduct any significant operations or engage in any activities with either FIPMC or Commercial Capital Bank until we became the holding company for FIPMC and Commercial Capital Bank in December 2000. On December 20, 2002, we completed our initial public offering and sold 5,000,000 shares, raising net proceeds of $35.8 million. An additional 375,000 shares were sold in January 2003 pursuant to an exercise by the underwriters of an over-allotment option granted to them, resulting in additional net proceeds of $2.8 million. At December 31, 2002, we had consolidated total assets of $849.5 million, net loans held for investment of $469.2 million, total deposits of $312.3 million and stockholders’ equity of $77.6 million.

We are recognized as one of the leading originators of multi-family residential real estate loans in California, where the market for multi-family residential loans is highly fragmented. According to DataQuick, which measures originations in California, we ranked fourth in the state in originations of such loans for the year ended December 31, 2002, with an aggregate of 2.69% of total originations. We originate multi-family residential loans and, to a lesser extent, loans secured by commercial real estate, both for our portfolio as well as for sale for cash on a nonrecourse basis to a network of commercial banks and savings institutions located primarily within California. We have generally targeted higher quality, smaller multi-family residential and commercial real estate loans with principal balances ranging between $500,000 and $5.0 million. The characteristics of these loans are very similar to those of one-to-four unit residential loans with monthly payment requirements and a 30-year amortization. Since most multi-family residential lenders have experienced low levels of delinquencies in recent years, the demand and pricing for multi-family residential loans is very competitive, with pricing often at or below pricing for one-to-four family unit residential loans. Notwithstanding the foregoing, multi-family lending entails different risks when compared to single-family residential lending because multi-family loans typically involve large loan balances and payment on such loans is partially dependent on the successful operation of the property. However, the market for multi-family residential loans is less volatile during periods of significant refinancings due to higher loan costs (loan points and fees) and prepayment fees associated with multi-family residential lending.

We also offer our clients commercial business loans, select trust and investment services and a variety of deposit products. We maintain a significant portfolio of securities, consisting primarily of mortgage-backed securities which are insured or guaranteed by U.S. government agencies or government sponsored enterprises, hereinafter referred to as U.S. government agency mortgage-backed securities, both as a means to enhance our returns, as well as to manage our liquidity and capital.

Our rapid growth and expansion is the result of our adherence to a business model that reflects a systematic and gradual approach toward the establishment of an integrated financial services company, first, through the establishment of a loan origination platform and the development of a secondary market for such loan originations, second, through the acquisition and development of a commercial banking platform, and finally, through the integration of our business operations in order to enhance our growth and profitability.

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Our History

Our growth and expansion since the formation of FIPMC are the result of our adherence to a business model which was created by our founding stockholders. This business model reflects a systematic and gradual approach toward the establishment of an integrated financial services company that can be summarized in three phases beginning in 1998:

Phase I: April 1998 to December 1999:    Developed multi-family loan origination and secondary market distribution capabilities.

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Phase II: January 2000 to March 2002:    Acquired and built a commercial banking platform with deposit gathering capability.    Having built a successful multi-family residential and commercial real estate loan origination capability, we then focused on developing the capability to retain a portion of our loans on our balance sheet and providing commercial banking products and services to our target client base, the high net worth, income property real estate investors, property management companies and related real estate service companies with whom we were already conducting business.

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Phase III: March 2002 to December 31, 2002:    Integrated asset origination and commercial banking platform.    We are focused on providing a full range of banking products and services to our target client base and continue to strengthen our internal operations. More recently, we have:

From our beginnings as a multi-family and commercial mortgage banking company in 1998, we have grown to become a broadly diversified financial institution and one of the largest independent financial institutions based in Orange County. We have demonstrated an ability to originate quality multi-family residential and commercial real estate loans in the California market. We have also demonstrated an ability to grow our deposit base. The relationships we have developed in this market since 1998 have led us to focus on a market niche of middle market commercial businesses, income property real estate investors, property management companies, related real estate service companies and high net worth individuals. We believe that by providing a full range of loan, deposit, trust and asset management services to this target market, we will be able to continue to increase our profitability and diversify our sources and types of income.

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Building upon our four year base of operations, we believe we are now well-positioned for future growth and to implement our strategic priorities, which include:

Continuing to build our deposit relationships and commercial banking franchise:    As of December 31, 2002, we had grown to $312.3 million of deposits. We will continue to promote our commercial banking franchise in order to build on established deposit relationships, which we believe over time will lower our cost of funds and increase the franchise value of our institution. We are currently promoting our money market accounts, which totaled $176.2 million, or 56.4% of total deposits, at December 31, 2002, compared to $5.2 million, or 4.4% of total deposits, at December 31, 2001. In addition to our new branch office in south Orange County which opened in September 2002, we will consider opening new branch offices and acquiring branch offices and/or whole institutions in our market area that we believe will enhance our deposit and commercial banking relationships. In March 2003, the Company announced that it had entered into a lease agreement for the purpose of opening its San Diego County branch in LaJolla, California. In addition to the recent hiring of the head of our relationship banking group, we are actively seeking to hire experienced commercial business development officers with strong business relationships in our markets in order to expand and enhance our current deposit and commercial banking operations.

Increasing our loans held for investment and our securities portfolio while maintaining the quality of our assets:    As of December 31, 2002, we had grown to $849.5 million of total assets, $469.2 million of net loans held for investment and $310.1 million of securities. The capital raised in our recent public stock offering will facilitate the continued growth in Commercial Capital Bank’s balance sheet, thereby permitting Commercial Capital Bank to increase the amount of multi-family residential and commercial real estate loans and U.S. government agency mortgage-backed securities which it may purchase and hold in its portfolio. We believe that this growth can be accomplished without sacrificing the quality of our assets. Our lending professionals have a strong, proven track record of performance, and follow policies and procedures that we believe provide for a rigorous underwriting of all loans originated by FIPMC. We had no non-performing assets as of December 31, 2002, nor did we have any non-performing assets at December 31, 2001 or 2000. We believe that an increase in our loans held for investment and our securities portfolio will enhance our net interest income.

Expanding our mortgage banking originations:    Since our inception, we have incurred substantial expenses in hiring our management team and related personnel and building our delivery systems and infrastructure to support our growth. Management believes that as a result of our prior investments, FIPMC’s existing origination platform is capable of processing over $2 billion of annual loan originations and Commercial Capital Bank has the capacity to service the loans expected to be purchased from FIPMC. In addition, we have expanded our secondary market distribution system by developing relationships with over 40 financial institutions primarily based in California to whom we sell our loan originations on a loan-by-loan basis. Consequently, management believes that we are well positioned to continue to grow our multi-family residential and commercial loan originations and that continued incremental growth will not cause our operating expenses to increase by a proportionate amount.

Increasing our profitability and diversifying our sources and types of income:    We generated earnings of $9.7 million for the year ended December 31, 2002 and $1.6 million for the year ended December 31, 2001, which amounted to a return on average assets of 1.50% and 0.66% and a return on average equity of 27.69% and 5.98%, respectively, during these periods. Approximately 10.9% of our total revenues (which is comprised of total interest income and total noninterest income) during the year ended December 31, 2002 and approximately 15.9% of our total revenues during the year ended December 31, 2001 were comprised of non-interest income from our mortgage banking operations. We expect to continue to enhance our net interest income as we increase our loans held for investment and our securities portfolio. We also expect to increase our non-interest income generated by our mortgage banking operations and the investment services offered by ComCap and Commercial Capital Bank’s trust department.

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Risk Factors

We have a limited operating history which makes it difficult to predict our future prospects and financial performance.    We commenced operations in April 1998 and acquired Commercial Capital Bank in December 2000. Our activities during 1998, 1999 and 2000 were focused on starting-up our operations, building our infrastructure, restructuring Commercial Capital Bank’s balance sheet and achieving the necessary scale in our mortgage banking and banking businesses to enhance our profitability. Consequently, we have limited meaningful historical financial data upon which to determine its future prospects. Although we have reported favorable operating results for the year ended December 31, 2002, no assurance can be made that we will be successful in achieving or maintaining our profitability in future periods.

Our multi-family residential and commercial real estate loans held for investment are relatively unseasoned, and defaults on such loans would adversely affect our financial condition and results of operations.    Our multi-family residential and commercial real estate loan portfolios consist primarily of loans originated after January 2000 and are, consequently, unseasoned. The payment on such loans is typically dependent on the successful operation of the project, which is affected by the supply and demand for multi-family residential units and commercial property within the relevant market. If the market for multi-family units and commercial property experiences a decline in demand, multi-family and commercial borrowers may suffer losses on their projects and be unable to repay their loans. Defaults on these loans would negatively affect our financial condition, results of operations and prospects.

We rely, in part, on external financing to fund our operations and the unavailability of such funds in the future could adversely impact our growth strategy and prospects.    Commercial Capital Bank relies on deposits, advances from the Federal Home Loan Bank, or FHLB, of San Francisco and reverse repurchase agreements to fund its operations. Commercial Capital Bank has also historically relied on certificates of deposit, primarily obtained out of our market area. While Commercial Capital Bank has reduced its reliance on certificates of deposit and has been successful in promoting its money market deposit product, jumbo and brokered deposits nevertheless constituted a significant portion of total deposits at December 31, 2002. Jumbo deposits tend to be a more volatile source of funding. Although management has historically been able to replace such deposits on maturity if desired, no assurance can be given that Commercial Capital Bank would be able to replace such funds at any given point in time were its financial condition or market conditions to change.

Commercial Capital Bancorp relies on reverse repurchase agreements to fund its purchase of securities and FIPMC relies on reverse repurchase agreements to fund its purchase of securities as well as a warehouse line of credit to fund its loan originations. The warehouse line of credit agreement is renewable annually.

Although we consider such sources of funds adequate for our current capital needs, we may seek additional debt or equity capital in the future to achieve our long-term business objectives. The sale of equity or convertible debt securities in the future may be dilutive to our stockholders, and debt refinancing arrangements may require us to pledge some of our assets and enter into covenants that would restrict our ability to incur further indebtedness. There can be no assurance that additional financing sources, if sought, would be available to us or, if available, would be on terms favorable to us. If additional financing sources are unavailable or are not available on reasonable terms, our growth strategy and future prospects could be adversely impacted.

Our business is subject to interest rate risk and variations in interest rates may negatively affect our financial performance.    We are unable to predict fluctuations of market interest rates, which are affected by many factors, including:

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Changes in the interest rate environment may reduce our profits. We expect that Commercial Capital Bank will continue to realize income from the differential or “spread” between the interest earned on loans, securities and other interest-earning assets, and interest paid on deposits, borrowings and other interest-bearing liabilities. Net interest spreads are affected by the difference between the maturities and repricing characteristics of interest-earning assets and interest-bearing liabilities. Commercial Capital Bank is vulnerable to an increase in interest rates because its interest-earning assets generally have longer durations than its interest-bearing liabilities. As a result, material and prolonged increases in interest rates would decrease Commercial Capital Bank’s net interest income. In addition, an increase in the general level of interest rates may adversely affect the ability of some borrowers to pay the interest on and principal of their obligations. Accordingly, changes in levels of market interest rates could materially and adversely affect Commercial Capital Bank’s net interest spread, asset quality, levels of prepayments and cash flows as well as the market value of its securities portfolio and overall profitability.

Although our asset and liability management function is primarily focused on Commercial Capital Bank, FIPMC and Commercial Capital Bancorp are also generally exposed to interest rate risk. Changes in interest rates affect the net interest income earned on their securities portfolios, after deducting the rates paid on their reverse repurchase agreements (which are used to fund the purchase of such securities), as the well as the value of their securities portfolios. In addition, changes in interest rates affect the net interest income FIPMC earns on loans held for sale. To the extent FIPMC pools loans in the future, its interest rate risk with respect to its loans held for sale may increase. Consequently, changes in the levels of market interest rates could materially and adversely affect FIPMC’s and Commercial Capital Bancorp’s net interest spread, the market value of their securities portfolios and their overall profitability.

We may have difficulty managing our growth which may divert resources and limit our ability to successfully expand our operations.    We have grown substantially during the last couple of years. We expect to continue to experience significant growth in the amount of our assets, the level of our deposits, the number of our clients and the scale of our operations. Our future profitability will depend in part on our continued ability to grow and we can give no assurance that we will be able to sustain our historical growth rate or even be able to grow at all.

In recent years, we have incurred substantial expenses to build our management team and personnel, develop our delivery systems and establish our infrastructure to support our future loan growth. Our future success will depend on the ability of our officers and key employees to continue to implement and improve our operational, financial and management controls, reporting systems and procedures, and manage a growing number of client relationships. We may not be able to successfully implement improvements to our management information and control systems in an efficient or timely manner and may discover deficiencies in existing systems and controls. Thus, we cannot give assurances that our growth strategy will not place a strain on our administrative and operational infrastructure.

In addition, we intend to grow our deposits and expand our commercial banking franchise and are seeking to hire several experienced commercial business relationship officers. Such expansion will require additional capital expenditures and we may not be successful expanding our franchise or in attracting or retaining the personnel we require. Furthermore, various factors such as economic conditions, regulatory and legislative considerations and competition may impede or limit our growth. If we are unable to expand our business as we anticipate, we may be unable to realize any benefit from the investments we have made to support future growth. Alternatively, if we are unable to manage future expansion in our operations, we may have to incur additional expenditures beyond current projections to support such growth.

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Commercial Capital Bank’s ability to pay dividends is subject to regulatory limitations which, to the extent we require such dividends in the future, may affect our ability to service our debt and pay dividends.    We are a separate legal entity from our subsidiaries and do not have significant operations of our own. We currently depend on our cash and liquidity as well as dividends from FIPMC to pay our operating expenses and interest payments due on our trust preferred securities. No assurance can be made that in the future FIPMC will have the capacity to pay the necessary dividends and that we will not require dividends from Commercial Capital Bank to satisfy our obligations. The availability of dividends from Commercial Capital Bank is limited by various statutes and regulations. It is possible, depending upon the financial condition of Commercial Capital Bank and other factors, that the OTS could assert that payment of dividends or other payments by Commercial Capital Bank are an unsafe or unsound practice. In the event FIPMC is unable to pay dividends sufficient to satisfy our obligations and Commercial Capital Bank is unable to pay dividends to us, we may not be able to service our debt, pay our obligations as they become due, or pay dividends on our common stock. Consequently, the inability to receive dividends from Commercial Capital Bank could adversely affect our financial condition, results of operations and prospects.

Our allowance for loan losses may not be adequate to cover actual losses.    Like all financial institutions, we maintain an allowance for loan losses to provide for loan defaults and non-performance. Our allowance for loan losses may not be adequate to cover actual loan losses, and future provisions for loan losses could materially and adversely affect our operating results. Our allowance for loan losses is based on our prior experience, as well as an evaluation of the risks associated with our loans held for investment. A substantial portion of our loans are unseasoned and lack an established record of performance. To date, we have experienced negligible losses. The amount of future losses is susceptible to changes in economic, operating and other conditions, including changes in interest rates, that may be beyond our control, and these losses may exceed current estimates. Federal regulatory agencies, as an integral part of their examination process, review our loans and allowance for loan losses. While we believe that our allowance for loan losses is adequate to cover current losses, we cannot assure you that we will not need to increase our allowance for loan losses or that regulators will not require we to increase this allowance. Either of these occurrences could materially and adversely affect our earnings and profitability.

Our business is subject to various lending and other economic risks that could adversely impact our results of operations and financial condition.

Changes in economic conditions, particularly an economic slowdown in California, could hurt our business.    Our business is directly affected by political and market conditions, broad trends in industry and finance, legislative and regulatory changes, changes in governmental monetary and fiscal policies and inflation, all of which are beyond our control. A deterioration in economic conditions, in particular an economic slowdown within California, could result in the following consequences, any of which could hurt our business materially:

A downturn in the California real estate market could hurt our business.    Since commencing operations, our business activities and credit exposure have been concentrated in California. A downturn in the California real estate market could hurt our business because the vast majority of our loans are secured by real estate located within California. If there is a significant decline in real estate values, especially in California, the collateral for our loans will provide less security. As a result, our ability to recover on defaulted loans by selling the underlying real estate would be diminished, and we would be more likely to suffer losses on defaulted loans. Real estate values in California could be affected by, among other things, earthquakes and other natural disasters particular to California.

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We may suffer losses in our loan portfolio despite our underwriting practices.    We seek to mitigate the risks inherent in our loan portfolio by adhering to specific underwriting practices. These practices include analysis of a borrower’s prior credit history, financial statements, tax returns and cash flow projections, valuation of collateral based on reports of independent appraisers and verification of liquid assets. Although we believe that our underwriting criteria are appropriate for the various kinds of loans we make, we may incur losses on loans that meet our underwriting criteria, and these losses may exceed the amounts set aside as reserves in our allowance for loan losses.

Our ownership is concentrated in the hands of our executive officers who may not make decisions that are in the best interests of all stockholders.    As of December 31, 2002, two of our senior executive officers, Stephen H. Gordon and David S. DePillo, owned approximately 25.3% of our outstanding common stock. In addition, over the years, these senior executive officers have been granted options to acquire shares of our common stock, which when vested and exercised will increase their ownership of shares of our common stock. Assuming the full exercise of all outstanding options, Messrs. Gordon and DePillo would own in the aggregate approximately 31.9% of our outstanding common stock. As a result, these individuals, acting together, will have the ability to significantly influence the election and removal of our board of directors, as well as the outcome of all other matters to be decided by a vote of stockholders. In addition, this concentration of ownership may delay or prevent a change in control of our company, even when a change in control may be in the best interests of our stockholders.

We are subject to extensive regulation which could adversely affect us.    Our operations are subject to extensive regulation by federal, state and local governmental authorities and are subject to various laws and judicial and administrative decisions imposing requirements and restrictions on part or all of our operations. We believe that we are in substantial compliance in all material respects with applicable federal, state and local laws, rules and regulations. Because our business is highly regulated, the laws, rules and regulations applicable to us are subject to regular modification and change. There are currently proposed various laws, rules and regulations that, if adopted, would impact our operations, including, among other things, matters pertaining to corporate governance, requirements for listing and maintenance on national securities exchanges and over the counter markets, SEC rules pertaining to public reporting disclosures and banking regulations governing the amount of loans that a financial institution, such as Commercial Capital Bank, can acquire for investment from an affiliate, such as FIPMC. Specifically, in October 2002, the Federal Reserve Board proposed a rule that would limit the amount of loans that Commercial Capital Bank could purchase from FIPMC from 50% of the total loans originated by FIPMC to 100% of Commercial Capital Bank’s capital. To the extent such rule is adopted in its current form, Commercial Capital Bank’s ability to purchase loans from FIPMC would be significantly restricted. If the proposed regulation is adopted in a manner that would adversely impact Commercial Capital Bank’s ability to purchase loans originated by FIPMC, management believes that the loan processing, underwriting and funding of loans currently being conducted by FIPMC can be moved to Commercial Capital Bank. Commercial Capital Bank would then be the lender for loans it would acquire from FIPMC and FIPMC would continue to be the lender for loans originated for sale to outside third parties. We believe the transfer of activities conducted by FIPMC into Commercial Capital Bank would not have an adverse impact on our operations. In addition, the Financial Accounting Standards Board, or FASB, is considering changes which may require, among other things, the expensing of the costs relating to the issuance of stock options. There can be no assurance that these proposed laws, rules and regulations, or any other laws, rules or regulations, will not be adopted in the future, which could make compliance more difficult or expensive, restrict our ability to originate, broker or sell loans, further limit or restrict the amount of commissions, interest or other charges earned on loans originated or sold by we or otherwise adversely affect our business, financial condition or prospects.

We face strong competition from other financial institutions, financial service companies and other organizations offering services similar to those offered by we, which could hurt our business.    We conduct our business operations primarily in California. Increased competition within California may

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result in reduced loan originations and deposits. Ultimately, we may not be able to compete successfully against current and future competitors. Many competitors offer the types of loans and banking services that we offer. These competitors include other savings associations, national banks, regional banks and other community banks. We also face competition from many other types of financial institutions, including finance companies, brokerage firms, insurance companies, credit unions, mortgage banks and other financial intermediaries. In particular, our competitors include national banks and major financial companies whose greater resources may afford them a marketplace advantage by enabling them to maintain numerous banking locations and mount extensive promotional and advertising campaigns.

Additionally, banks and other financial institutions with larger capitalization and financial intermediaries not subject to bank regulatory restrictions have larger lending limits and are thereby able to serve the credit needs of larger clients. These institutions, particularly to the extent they are more diversified than we are, may be able to offer the same loan products and services that we offer at more competitive rates and prices. If we are unable to attract and retain banking clients, we may be unable to continue our loan and deposit growth and our business, financial condition and prospects may be negatively affected.

Market Area Overview and Competition

The California multi-family residential lending market has performed extremely well since the recession of the early 1990’s. Consistent occupancy and stable rental rates have both contributed to property appreciation in most markets within California. The majority of the multi-family residential market consists of small-to medium-size multi-family projects, generally below 50 units in size, which are financed with loan amounts at or below $2.0 million. The characteristics of these loans are very similar to those of one-to-four unit residential loans with monthly payment requirements and 30-year amortization. During the prior recession, loans made by members of our management, who were then employed by another financial institution, experienced a lower percentage of multi-family delinquencies and charge-offs as compared to one-to-four family residential loans. In addition, the peak delinquencies occurred at approximately four years from origination, which was consistent with the timing of peak delinquencies on the other institution’s one-to-four family residential loan portfolios. Based on management’s prior experience in the industry prior to the recession of the early 1990’s, there was not a significant level of delinquencies or charge-offs associated with lending on multi-family residential properties in California. Notwithstanding the foregoing, multi-family lending entails different risks when compared to single-family residential lending because multi-family loans typically involve large loan balances and payment on such loans is partially dependent on the successful operation of the property. Specifically, problems with respect to the operation of a multi-family property could adversely affect the value of such property, particularly if the cash flow from such property’s operations are not sufficient to cover the applicable debt service and the underlying property has to be sold in order to satisfy the debt obligation. In such a scenario, the price received in a foreclosure sale could be less than our carrying value of the loan.

According to the National Multi Housing Council, the total market value of multi-family residential real estate in the United States is estimated to be over $1.3 trillion, which consists of 16.1 million apartment units. The total market value of multi-family residential real estate in California is estimated to amount to approximately $311 billion, consisting of 2.44 million apartment units, or 15% of the total U.S. market. As of 2000, six of the top ten U.S. multi-family housing markets were located in California, consisting of the metropolitan areas of Los Angeles, San Francisco, San Diego, San Jose, Oakland and Orange County, which together accounted for nearly $290 billion, or 22%, of the total U.S. market value.

The demand for housing within California, particularly multi-family housing, is very strong. According to the California Department of Housing and Community Development, during 1990, it was estimated that there was a shortage of 660,000 housing units within California and, according to the California Senate Office of Research, during the period of 1990 through 1997, the growth in California’s population outpaced the growth in California housing units by 50%. Research from the California Department of Housing and Community Development, indicates that through 2020, in order to meet housing demand in California, 220,000 housing units

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will need to be built each year. By comparison, according to the California Department of Housing and Community Development, for the period 1990 through 1997, an average of 91,000 housing units, including 27,000 multi-family units, were constructed in California per year. According to the National Multi Housing Council, during 2001, construction commenced on approximately 34,000 multi-family units in California.

Accordingly, we believe that within California, the demand for housing in general, and multi-family housing in particular, will remain strong for the immediate future.

Research from DataQuick indicates that during 2002, over 29,000 multi-family loans secured by properties located within California were originated. These loans had an aggregate principal balance of $18.1 billion and an average loan size of $616,000. This represented a 35% increase from the $13.4 billion of such loans originated during 2001 and a 99% increase from the $9.1 billion of such loans originated during 2000. During the year ended December 31, 2002, the largest two originators of multi-family residential loans within California were responsible for approximately 24.58% of such originations. The remainder of the market was highly fragmented, with approximately 900 institutions responsible for the remaining 75.42% of total originations, with no other institution responsible for more than 3.8% of total originations.

Based upon quarterly thrift financial reports which are required to be submitted by all savings institutions regulated by the Office of Thrift Supervision (“OTS”), multi-family residential loans have out-performed other loan categories in recent periods from an asset quality perspective. As of December 31, 2002 the latest date as of which information is available, the level of non-current (i.e., non-accrual loans and loans 90 days or more overdue but still accruing interest) multi-family residential loans as a percentage of total multi-family residential loans was 0.13%, as compared to 1.60% for construction and land loans, 1.22% for commercial real estate loans, 0.93% for single-family mortgage loans, 2.17% for commercial business loans and 0.64% for consumer loans. Based on an analysis of the geographic regions of the country prepared by the OTS, the ratio of non-current multi-family residential loans to total multi-family residential loans was even lower, amounting to 0.05% for the western region where we conduct our business operations.

Increased competition within California may result in reduced loan originations and deposits. Ultimately, we may not be able to compete successfully against current and future competitors. Many competitors offer the types of loans and banking services that we offer. These competitors include other savings associations, national banks, regional banks and other community banks. We also face competition from many other types of financial institutions, including finance companies, brokerage firms, insurance companies, credit unions, mortgage banks and other financial intermediaries. In particular, our competitors include national banks and major financial companies whose greater resources may afford them a marketplace advantage by enabling them to maintain numerous banking locations and mount extensive promotional and advertising campaigns.

Additionally, banks and other financial institutions with larger capitalization and financial intermediaries not subject to bank regulatory restrictions have larger lending limits and are thereby able to serve the credit needs of larger clients. These institutions, particularly to the extent they are more diversified than we are, may be able to offer the same loan products and services that we offer at more competitive rates and prices. If we are unable to attract and retain banking clients, we may be unable to continue our loan and deposit growth and our business, financial condition and prospects may be negatively affected.

Mortgage Banking Activities

General.    Our mortgage banking activities are conducted through our subsidiary, FIPMC. FIPMC focuses on the origination of adjustable-rate multi-family residential and, to a lesser extent, commercial real estate loans. FIPMC sells all of its loan production on a non-recourse basis with servicing released, to Commercial Capital Bank and to a network of other financial institutions located primarily in California. See “Regulation of Commercial Capital Bank—Affiliate Transactions” for a discussion of a proposed rule which, if adopted, would significantly restrict the amount of loans FIPMC could sell to Commercial Capital Bank.

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Loan Originations.    FIPMC originated loans aggregating $748.6 million during the year ended December 31, 2002 and $483.0 million during the year ended December 31, 2001.

The following table sets forth total loan originations by FIPMC for the periods indicated.

FIPMC concentrates its lending activities on the origination of small- to medium-sized, adjustable-rate multi-family residential loans, which are secured by rental apartment buildings located primarily in California. From FIPMC’s formation through December 31, 2002, 47.5% of FIPMC’s multi-family residential loan originations were secured by properties located in Los Angeles County, 9.4% were secured by properties located in Orange County, 8.8% were secured by properties located in Alameda County, 7.4% were secured by properties located in San Diego County and 4.1% were secured by properties located in Sacramento County. FIPMC emphasizes the origination of multi-family residential loans in the $500,000 to $5.0 million range, typically focusing on buildings with 16 to 100 units. Since inception through December 31, 2002, FIPMC’s historical average loan size was $1.4 million for multi-family residential loans. FIPMC originated $632.1 million

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in multi-family residential loans during the year ended December 31, 2002, which amounted to 84.4% of total originations during such year, compared to $403.3 million in multi-family residential loans during the year ended December 31, 2001, which amounted to 83.5% of total originations during such year, including in-house, conduit and brokered originations.

FIPMC also originates commercial real estate loans which are generally secured by mixed-use, shopping/retail centers, office buildings and multi-tenant industrial properties located primarily in California. From FIPMC’s formation through December 31, 2002, 32.0% of FIPMC’s commercial real estate loan originations were secured by properties located in Los Angeles County, 21.0% were secured by properties located in San Diego County, 15.5% were secured by properties located in Alameda County, 5.6% were secured by properties located in Contra Costa County and 5.2% were secured by properties located in Orange County. FIPMC emphasizes the origination of commercial real estate loans in the $500,000 to $5.0 million range, with a historical average loan size of $1.9 million since inception through December 31, 2002. FIPMC originated $116.5 million in commercial real estate loans during the year ended December 31, 2002, which amounted to 15.6% of total originations during such year, compared to $78.0 million in commercial real estate loans during the year ended December 31, 2001, which amounted to 16.1% of total originations during such year, including in-house, conduit and brokered originations.

FIPMC will originate multi-family residential loans for terms of up to 30 years, which are fully amortizing, and commercial real estate loans for terms of up to 10 years based upon a 25-year loan amortization schedule. Such loans are primarily adjustable-rate loans with an interest rate which adjusts based upon a variety of constant maturity treasury (“CMT”) or London Interbank Offer Rate (“LIBOR”)-based indices, although FIPMC also offers loans that have fixed interest rates for an initial period up to five years and adjust thereafter based on a spread determined at origination over the applicable index for the remaining loan term. FIPMC’s multi-family residential and commercial real estate loans generally have interest rate floors, payment caps and limited prepayment protection. As part of the criteria for underwriting such loans, FIPMC generally establishes a maximum loan-to-value ratio of 75% for multi-family loans and 75% for commercial real estate loans and requires a debt coverage ratio of 1.15 to 1 or more for multi-family loans and 1.25 to 1 or more for commercial real estate loans. For the year ended December 31, 2002, the multi-family residential loans originated by FIPMC had an average loan-to-value ratio of 69.65% and an average debt coverage ratio of 1.31 to 1, while the commercial real estate loans originated by FIPMC for such period had an average loan-to-value ratio of 64.74% and an average debt coverage ratio of 1.38 to 1.

FIPMC also offers, through its conduit program, multi-family residential and commercial real estate loans to borrowers who desire longer term, fixed-rate financing. The product offered by FIPMC consists of a fixed-rate loan that is eventually securitized through a major commercial mortgage-backed securities issuer. FIPMC has a letter of understanding with such commercial mortgage-backed securities issuer which sets forth the terms of how it will be paid for facilitating such loans. However, this commercial mortgage-backed securities issuer is not obligated to originate any specific amount of loans nor is it obligated to securitize any loans which it originates with the assistance of FIPMC. FIPMC also offers, through its brokered program, multi-family residential and commercial real estate loans which, because of size or other factors, are not consistent with FIPMC’s loan program. Conduit loans and brokered loans are not funded in FIPMC’s name and are not reflected on our balance sheet, but rather are funded in the originator’s name pursuant to the originator’s loan documentation. FIPMC does not fund these loans through its existing warehouse line of credit and does not aggregate the product for securitizations. FIPMC is paid a fee by the relevant originator for these transactions. FIPMC originated $72.0 million in conduit and brokered loans during the year ended December 31, 2002, which amounted to 9.6% of total originations during such period, compared to $84.1 million in conduit and brokered loans during the year ended December 31, 2001, which amounted to 17.4% of total originations during such year. During the years ended December 31, 2002 and 2001, FIPMC received $439,000 and $645,000 of fees, respectively, with respect to conduit and brokered loans.

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At December 31, 2002, FIPMC’s loan origination activities were conducted out of seven offices in California. See “Properties” in Item 2 hereof. During 2003, FIPMC opened an office in Sacramento, California. Loan applications are attributable to direct marketing efforts by FIPMC’s loan originators, mortgage brokers, referrals from real estate brokers and developers, existing clients, walk-in clients and, to a lesser extent, advertising. At December 31, 2002, FIPMC employed 13 loan originators who are compensated primarily on a commission basis. During the year December 31, 2002, 74.1% of FIPMC’s loan originations were originated directly, while 25.9% of FIPMC’s loan originations were referred to FIPMC through mortgage brokers, as compared to the year ended December 31, 2001, during which 72.5% of FIPMC’s loans were direct originations and 27.5% of FIPMC’s loans were broker referrals.

Loan Origination Procedures and Underwriting Criteria.    FIPMC’s loan processing guidelines require that the preparation of all letters of interest, completion and processing of loan applications, underwriting and preparation of the necessary loan documentation be performed directly by FIPMC. FIPMC does not accept loan broker packages for processing and relies solely on its own origination process. Loan applications are examined for compliance with FIPMC’s underwriting and processing criteria and, if all requirements are met, FIPMC issues a commitment letter to the prospective borrower.

All loan originations must be underwritten in accordance with FIPMC’s underwriting criteria, which are prepared based on the relevant guidelines set forth by applicable regulatory authorities. FIPMC’s underwriting personnel, who operate primarily out of FIPMC’s main office, make their underwriting decisions independent of FIPMC’s loan origination personnel. Primary property underwriting criteria include the property’s loan-to-value ratio and debt coverage ratio. In originating loans, FIPMC bases its underwriting decisions on qualitative and quantitative evaluations of both the borrower and the property, but relies on the cash flow generated by the property as the primary source of repayment. The property’s underwriting criteria is adjusted based upon the type of transaction, for example, whether the loan is for a purchase or a refinancing, as well as the overall quality of the property. Borrower qualifications include minimum liquidity requirements, the borrower’s recurring cash flow and debt ratios, and background searches such as public record checks and credit history (including Fair, Isaac and Co., or FICO, credit scores). Additionally, FIPMC considers the borrower’s experience in owning or managing similar properties and FIPMC’s lending experience with the borrower. FIPMC also relies on qualitative factors such as the stability of the property and its sub-market, the quality of the property’s physical improvements, the property’s functional utility, the stability of rents and vacancies, and overall operations of the property and market. Other underwriting requirements include obtaining the necessary insurance and conducting an environmental review and a property appraisal. FIPMC maintains an independent third party appraiser panel that is periodically updated adding and excluding appraisers. All appraisers must provide copies of their current licenses and, among other items, sample appraisals, current client lists and references. The appraisers are engaged directly by FIPMC.

The multi-family residential loans originated by FIPMC are generally originated in accordance with the OTS’ standards qualifying such loans for the lowest risk weighting classification (i.e., 50%) for purposes of the OTS’ risk-based capital requirements (except for the requirement that such loans have 12 months of payment experience). A significant portion of the loans originated by FIPMC are sold to unaffiliated FDIC-insured financial institutions, who independently underwrite such loans.

FIPMC incurs costs in originating loans, including overhead and out-of-pocket expenses. Typically, when a loan is originated, the borrower pays an origination and processing fee, as well as various third party report fees. These fees have averaged 1.1% of the principal amount of the loan. To the extent a loan is referred to FIPMC through a loan broker, the broker will receive a portion of the loan origination fee. FIPMC may charge additional fees depending upon market conditions as well as FIPMC’s objectives concerning loan origination volume and pricing. The volume and types of loans made by FIPMC vary with competitive and economic conditions, resulting in fluctuations in revenues from loan originations.

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Loan Sales.    FIPMC sells all of the loans it originates to either Commercial Capital Bank or a network of approximately 40 banks and savings institutions located primarily in California. Commercial Capital Bank will generally have the first opportunity to purchase a loan. Commercial Capital Bank is never a buyer of loans because of difficulty in otherwise completing a loan sale to a third party purchaser. In fact, pursuant to applicable regulatory requirements, Commercial Capital Bank must agree to acquire a particular loan prior to FIPMC’s commitment to originate such loan. Except with respect to loan sales to Commercial Capital Bank, FIPMC originates loans both with and without prior commitments to purchase such loans by specific buyers, but FIPMC’s loan purchasing clients are not otherwise obligated to buy a particular loan in advance. As of December 31, 2002, the top three purchasers of FIPMC’s loans had purchased in the aggregate 26.9%, 26.8% and 6.5% of total loan sales since FIPMC’s formation, excluding broker and conduit sales and sales of loans to Commercial Capital Bank. All of FIPMC’s loan sales are conducted on a non-recourse basis with the servicing obligations assumed by the purchaser. The price at which FIPMC sells its loans is determined based upon market factors. Loans sold to Commercial Capital Bank are sold on an arm’s length basis at a price equal to the average price of loan sales for the prior month. FIPMC’s loan sales are conducted on an individual loan-by-loan basis and FIPMC does not currently pool loans and sell them in bulk. However, FIPMC has entered into a sub-facility with its existing warehouse lender that provides it with the flexibility to aggregate loans and sell such loans in bulk. See “—Sources of Funds—Borrowings.” To the extent FIPMC determines to pool loans, it will be subject to interest rate and price risk between the period of time when it originates the loans and when it sells the loans. To the extent that FIPMC determines to hold its loans for longer periods of time pending their future sale, management of FIPMC may consider additional means of limiting its exposure to these risks. All of FIPMC’s loan sales are made pursuant to the terms of a Mortgage Loan Purchase Agreement.

FIPMC sold a total of $782.5 million of loans during the year ended December 31, 2002 (including conduit and brokered sales), of which 41.7% were sold to Commercial Capital Bank, compared to $452.6 million of loans during the year ended December 31, 2001 (including conduit and brokered sales), of which 29.7% were sold to Commercial Capital Bank. In connection with FIPMC’s loan sale activities, it is exposed to risk to the extent that a purchaser that has committed to purchase a loan from FIPMC defaults with respect to its obligation or to the extent that FIPMC originates a loan without obtaining a prior commitment to purchase such loan. In either case, the risk is that FIPMC cannot sell the loan or cannot sell the loan profitably. In addition, under such circumstances, FIPMC is subject to interest rate risk with respect to adjustable-rate loans that it has originated to the extent the interest rates on such loans do not adjust as rapidly as changes in the rate paid on its warehouse line of credit, as well as the additional cost of carry relating to the interest FIPMC pays on an originated loan pending its sale pursuant to its warehouse line of credit. To date, however, we have been able to profitably sell all loans we originate, even when a committed purchaser has failed to perform.

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The following table sets forth total loan sales by FIPMC for the periods indicated.

(Footnotes on following page)

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Loans Held for Investment and Lending Activities of Commercial Capital Bank

General.    Prior to our acquisition of Commercial Capital Bank, Commercial Capital Bank’s lending activities primarily focused on single-family residential lending. Since our acquisition of Commercial Capital Bank, it has focused on purchasing multi-family residential and, to a lesser extent, commercial real estate loans originated by FIPMC, which are then held for investment, thereby providing us with a steady stream of interest income that we were unable to realize prior to our acquisition of Commercial Capital Bank. To a much lesser extent, Commercial Capital Bank originates commercial business loans. There are no plans for Commercial Capital Bank to originate single-family residential or consumer loans except on a case-by-case basis as an accommodation to its banking clients. At December 31, 2002, net loans held for investment amounted to $469.2 million, which represented 55.2% of our $849.5 million of total assets at that date. Approximately 97.8% of loans held for investment at December 31, 2002 are either secured by properties located in California or made to clients residing in California.

The following table sets forth the composition of our loans held for investment by Commercial Capital Bank by type of loan at the dates indicated. We acquired Commercial Capital Bank on December 22, 2000. Consequently, information which would otherwise be presented in this table as of December 31, 1999 and 1998 has been omitted because it is not meaningful to our results or does not exist.

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The following table sets forth information at December 31, 2002 regarding the dollar amount of loans maturing in our loans held for investment portfolio based on the contractual terms to maturity or scheduled amortization, excluding potential prepayments. Loans with no stated schedule of repayments and no stated maturity are reported as due in one year or less.

Scheduled contractual amortization of loans does not reflect the expected term of our loans held for investment. The average life of our loans is substantially less than their contractual terms because of prepayments and due-on-sale clauses, which give us, as the lender, the right to declare such loan immediately due and payable in the event, among other things, that the borrower sells the real property subject to the mortgage and any portion of the loan is still outstanding. The average life of mortgage loans tends to increase when mortgage loan rates available in the market are higher than rates on existing mortgage loans and, conversely, decrease when rates on existing mortgage loans are higher than mortgage loan rates available in the market due to refinancings of loans at available lower rates. During periods of decreasing mortgage rates, the weighted average yield on loans decreases as higher-yielding loans are repaid or refinanced at lower rates.

The following table sets forth the dollar amount of total loans held for investment due more than one year from December 31, 2002, as shown in the preceding table, which have fixed interest rates or floating or adjustable interest rates.

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Origination, Purchase and Sale of Loans.    Our loans held for investment were primarily acquired by Commercial Capital Bank through loan purchases from FIPMC. Commercial Capital Bank has also begun to originate a small number of commercial business loans. The following table sets forth Commercial Capital Bank’s loan originations, purchases and sales for the periods indicated with respect to its loans held for investment. We acquired Commercial Capital Bank on December 22, 2000.

The lending activities of Commercial Capital Bank are subject to specified non-discriminatory underwriting standards and loan origination and purchase procedures established by Commercial Capital Bank’s board of directors and which are independent of those applied by FIPMC. With respect to loans that Commercial Capital Bank originates directly, such originations are obtained from a variety of sources, including referrals from FIPMC, real estate investors, brokers and other professionals, existing clients and walk-in clients. Commercial Capital Bank’s centralized underwriting department supervises the obtaining of credit reports, appraisals and other documentation involved with a loan. Property valuations are performed by independent certified appraisers approved by Commercial Capital Bank’s board of directors. Commercial Capital Bank requires title, hazard and, to the extent applicable, flood insurance on all property serving as collateral for loans.

Loans purchased by Commercial Capital Bank from FIPMC are also underwritten by Commercial Capital Bank pursuant to the guidelines set forth above for direct originations. Loan purchases are always independently underwritten by Commercial Capital Bank even though FIPMC has previously underwritten each loan proposed to be sold to Commercial Capital Bank. As part of the underwriting process, Commercial Capital Bank loan officers perform additional independent due diligence, including appraisal reviews to confirm valuation and determination of compliance with all applicable regulatory requirements. In addition, pursuant to applicable regulatory requirements, Commercial Capital Bank must agree to acquire a particular loan prior to FIPMC’s commitment to originate such loan. See “Regulation of Commercial Capital Bank—Affiliate Transactions.”

Commercial Capital Bank’s loan officers perform full due diligence and underwrite all loan applications received by Commercial Capital Bank. No single officer has loan approval authority and thus all loan applications must be approved by at least two members of Commercial Capital Bank’s Officers’ Loan Committee, which consists of the president/chief operating officer, executive vice president/chief lending officer,

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executive vice president/chief administrative officer and vice president/lending officer. The Officers’ Loan Committee reviews all unsecured loans above $1.0 million and all real estate secured loans in excess of $2.0 million and has approval authority for unsecured loans up to $2.0 million and real estate secured loans up to $3.0 million. Any loans in excess of such amounts must be approved by Commercial Capital Bank’s Directors’ Loan Committee, which consists of at least three members of Commercial Capital Bank’s board of directors, two of whom must be outside directors. The Directors’ Loan Committee has approval authority up to $5.0 million for either individual loans or total loan relationships, which is considered Commercial Capital Bank’s “house limit.” All loans in excess of such house limit up to Commercial Capital Bank’s legal lending limit must be approved by a majority of Commercial Capital Bank’s full board of directors. In addition, the Directors’ Loan Committee ratifies all non-real estate secured loans originated or purchased by Commercial Capital Bank in excess of $1.0 million and all real estate secured loans in excess of $2.0 million. In January 2003, Commercial Capital Bank’s board of directors approved the following changes to the above lending authorities: the Officer’s Loan Committee reviews all unsecured loans above $2.0 million and all real estate secured loans in excess of $3.0 million and has approval authority for unsecured loans up to $3.0 million and real estate secured loans up to $5.0 million. The Directors’ Loan Committee has approval authority up to $10.0 million for either individual loans or total loan relationships, which is now considered Commercial Capital Bank’s “house limit.” The Directors’ Loan Committee ratifies all unsecured loans originated or purchased by Commercial Capital Bank in excess of $2.0 million and all real-estate secured loans in excess of $3.0 million.

A savings institution generally may not make loans to any one borrower or related entities if such loans would exceed 15% of its unimpaired capital and surplus, although loans in an amount equal to an additional 10% of unimpaired capital and surplus may be made to a borrower if the loans are fully secured by readily marketable securities. At December 31, 2002, Commercial Capital Bank’s regulatory limit on loans-to-one borrower was $14.0 million and its five largest loans or groups of loans to one borrower, including related entities, were $7.3 million, $5.7 million, $5.5 million, $5.5 million and $5.3 million. All of these five largest loans or loan concentrations were secured by multi-family residential properties located in California, were originated during the last three years and were performing in accordance with their terms at December 31, 2002. See “Regulation—Regulation of Commercial Capital Bank—Loans-to-One Borrower Limitations.”

Multi-Family Residential and Commercial Real Estate Loans.    Since our acquisition of Commercial Capital Bank in December 2000, Commercial Capital Bank has focused its lending activities on the purchase of loans from FIPMC secured by multi-family and, to a lesser extent, commercial properties. Commercial Capital Bank has generally targeted higher quality, smaller multi-family residential and commercial real estate loans with principal balances ranging between $500,000 and $5.0 million, with an average balance of $972,000 for multi-family residential loans and $1.1 million for commercial real estate loans, at December 31, 2002. At December 31, 2002, Commercial Capital Bank had an aggregate of $399.9 million in multi-family residential loans, comprising 84.7% of total loans held for investment, and $57.9 million in commercial real estate loans, comprising 12.3% of total loans held for investment.

As a result of the capital raised in our recent stock offering, Commercial Capital Bank intends to increase its loan purchases from FIPMC, particularly multi-family residential and, to a lesser extent, commercial real estate loans. Despite this increase, however, we anticipate that Commercial Capital Bank will purchase less than 50% of the total dollar amount of loans originated by FIPMC due to applicable regulatory limitations. See “Regulation of Commercial Capital Bank—Affiliate Transactions.”

Commercial Business Loans.    Commercial Capital Bank also originates a limited amount of commercial business loans including acquisition lines, working capital lines of credit, inventory and accounts receivable loans, and equipment financing and term loans. Loan terms may vary from one to five years. The interest rates on such loans are generally variable and are indexed to the Wall Street Journal prime rate, plus a margin. At December 31, 2002, Commercial Capital Bank had an aggregate of $9.9 million of commercial business loans outstanding, or 2.1% of total loans held for investment. Total undisbursed commitments amounted to $5.6 million at December 31, 2002.

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Consumer Loans.    Although Commercial Capital Bank is authorized to make loans for a wide variety of personal or consumer purposes, Commercial Capital Bank is not currently originating consumer loans. At December 31, 2002, Commercial Capital Bank had an aggregate of $129,000 of consumer loans. Commercial Capital Bank only intends to originate consumer loans on a case-by-case basis as an accommodation to its clients.

Single-Family Residential Loans.    Prior to our acquisition of Commercial Capital Bank in December 2000, Commercial Capital Bank’s primary lending activity consisted of the origination of single-family residential loans. Since we acquired Commercial Capital Bank, we have sold a significant amount of Commercial Capital Bank’s single-family residential loans. At December 31, 2002, $4.1 million of single-family residential loans, comprising 0.9% of total loans held for investment, continued to remain on Commercial Capital Bank’s balance sheet. Commercial Capital Bank only intends to originate single-family residential loans on a case-by-case basis as an accommodation to its clients.

Asset Quality

General.    Commercial Capital Bank’s Internal Asset Review Committee, consisting of Commercial Capital Bank’s president and chief operating officer, chief financial officer, chief lending officer, director of internal asset review and loan servicing manager, monitors the credit quality of Commercial Capital Bank’s assets, reviews classified and other identified loans and determines the proper level of reserves to allocate against Commercial Capital Bank’s loan portfolio, in each case subject to guidelines approved by Commercial Capital Bank’s board of directors. During 2003, Commercial Capital Bank’s EVP of Corporate Risk Management joined the Internal Asset Review Committee as chairman.

Loan Delinquencies.    When a borrower fails to make a required payment on a loan, Commercial Capital Bank attempts to cure the deficiency by contacting the borrower and seeking payment. Contact is generally made following the fifteenth day after a payment is due, at which time a late payment is assessed. In most cases, deficiencies are cured promptly. If a delinquency extends beyond 15 days, the loan and payment history is reviewed and efforts are made to collect the loan. While Commercial Capital Bank generally prefers to work with borrowers to resolve such problems, if the account becomes 90 days delinquent, Commercial Capital Bank will institute foreclosure or other proceedings, as necessary, to minimize any potential loss. At December 31, 2002, Commercial Capital Bank did not have any loans delinquent 60 days or more.

Non-Performing Assets.    Commercial Capital Bank did not have any non-performing assets or troubled debt restructurings at December 31, 2002, nor did Commercial Capital Bank have any of such assets as of December 31, 2001 or 2000. Non-performing assets are defined as non-performing loans and real estate acquired by foreclosure or deed-in-lieu thereof. Non-performing loans are defined as non-accrual loans and loans 90 days or more overdue but still accruing interest, to the extent applicable. Troubled debt restructurings are defined as loans which a bank has agreed to modify by accepting below market terms either by granting interest rate concessions or by deferring principal and/or interest payments. At such time as Commercial Capital Bank has any non-performing assets, Commercial Capital Bank will place loans on non-accrual status when, in the judgment of management, the probability of collection of interest is deemed to be insufficient to warrant further accrual. When any such loan is placed on non-accrual status, previously accrued but unpaid interest will be deducted from interest income. As a matter of policy, Commercial Capital Bank will not accrue interest on loans past due 90 days or more.

Classified Assets.    Federal regulations require that each insured savings institution classify its assets on a regular basis. In addition, in connection with examinations of insured institutions, federal examiners have authority to identify problem assets and, if appropriate, classify them. Commercial Capital Bank has established three classifications for potential problem assets: “substandard,” “doubtful” and “loss.” Substandard assets have one or more defined weaknesses and are characterized by the distinct possibility that the insured institution will sustain some loss if the deficiencies are not corrected. Doubtful assets have the weaknesses of substandard assets

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with the additional characteristic that the weaknesses make collection or liquidation in full on the basis of currently existing facts, conditions and values questionable, and there is a high possibility of loss. An asset classified loss is considered uncollectible and of such little value that continuance as an asset of the institution is not warranted. Assets classified as special mention, substandard or doubtful result in Commercial Capital Bank establishing higher levels of general allowances for loan losses. If an asset or portion thereof is classified loss, the insured institution must either establish specific allowances for loan losses in the amount of 100% of the portion of the asset classified loss, or charge-off such amount. Commercial Capital Bank has established another category, designated “special mention,” for assets which do not currently expose Commercial Capital Bank to a sufficient degree of risk to warrant classification as substandard, doubtful or loss. At December 31, 2002, Commercial Capital Bank had no classified loans and two loans designated as special mention with a total outstanding principal balance of $271,000.

Allowance for Loan Losses.    Like all financial institutions, we maintain an allowance for estimated loan losses based on a number of quantitative and qualitative factors, including levels and trends of past due and nonaccrual loans, levels and trends in asset classifications, change in volume and mix of loans and collateral values. Quantitative factors used to assess the adequacy of the allowance for loan losses are established based upon management’s assessment of the credit risk in the portfolio, historical loan loss experience and our loan underwriting policies as well as management’s judgment and experience. Provisions for loan losses are provided on both a specific and general basis. Specific and general valuation allowances are increased by provisions charged to expense and decreased by charge-offs of loans, net of recoveries. Specific allowances are provided for impaired loans for which the expected loss is measurable. General valuation allowances are provided based on a formula which incorporates the factors discussed above. Commercial Capital Bank periodically reviews the assumptions and formula by which additions are made to the specific and general valuation allowances for losses in an effort to refine such allowances in light of the current status of the factors described above.

To date, the losses we have experienced have been negligible. In addition, a substantial portion of our loans are unseasoned and lack an established record of performance. Although management believes that it uses the best information available to make such determinations, future adjustments to the allowance may be necessary, and net earnings could be significantly affected, if circumstances differ substantially from the assumptions used in making the initial determinations. Our amount of future losses is susceptible to changes in economic, operating and other conditions, including changes in interest rates, that may be beyond our control and future losses may exceed current estimates. Commercial Capital Bank’s Internal Asset Review Committee undertakes a monthly evaluation of the adequacy of the allowance for loan losses, which is reviewed and approved at least quarterly by the board of directors. We provide an allowance to absorb losses that are both probable and reasonably quantifiable as well as for those that are not specifically identified but can be reasonably estimated.

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The following table sets forth the activity in our allowance for loan losses for the years indicated. We acquired Commercial Capital Bank on December 22, 2000. Consequently, information which would otherwise be presented in this table for the years ended December 31, 1999 and 1998 has been omitted because it is not applicable.

The following table sets forth information concerning the allocation of our allowance for loan losses, which is maintained on Commercial Capital Bank’s loan portfolio, by loan category at the dates indicated. We acquired Commercial Capital Bank on December 22, 2000. Consequently, information which would otherwise be presented in this table for the years ended December 31, 1999 and 1998 has been omitted because it is not applicable.

The allowance for loan losses reflects management’s judgment of the level of allowance adequate to absorb estimated credit losses inherent in Commercial Capital Bank’s loan portfolio. The board of directors of Commercial Capital Bank approved a policy formulated by management for a systematic analysis of the adequacy of the allowance. The major elements of the policy consist of: (1) a quarterly analysis of reserve amounts; (2) approval by the board of directors of the quarterly analysis; and (3) division of the reserve into specific allocation and unspecified reserve portions. The analysis is based on management’s assessment of the historic rate of losses in addition to concentration, segmentation, regional economic conditions, non-performing loan and asset levels, past due status, composition of the portfolio, and other factors.

Specific Allocations

All classified loans are evaluated for loss portions or potential loss exposure. The evaluation occurs at the time the loan is classified and on a regular basis (at least every 90 days) thereafter. This evaluation is documented in the Internal Asset Review Report relating to a specific loan. Specific allocation of reserves considers the value

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of collateral, the financial condition of the borrower, and industry and current economic trends. We complete a real estate liquidation analysis with each Internal Asset Review Report, typically on a quarterly basis, for all classified loans secured by real estate. Any deficiencies outlined by the real estate liquidation analysis are accounted for in the specific allocation reserve for the loan.

General Allowances

Management realizes that an institution’s past loss history should be considered in evaluating the inherent loss potential of the loan portfolio. Consequently, management has deemed it prudent to develop and implement a migration analysis for the determination of inherent loss potential for both its homogeneous and non-homogeneous loan portfolios. Homogeneous loan categories consist of one-to-four family residential mortgages and consumer loans. Multi-family residential loans less than $1.0 million and commercial real estate loans less than $750,000 are also treated as homogeneous loans for asset review purposes. Homogeneous loans are analyzed on a group or pool basis for evaluating credit quality and impairment under FASB’s SFAS No 5. Non-homogeneous loan categories consist of all other multi-family residential and commercial real estate loans and commercial business loans. These assets are reviewed individually for the purpose of evaluating credit quality and impairment under FASB’s SFAS No. 114. The migration loss percentage factors used for each risk class or grade for both homogeneous and non-homogeneous loan categories are based on the results of a migration analysis along with management’s judgment and experience.

General allowances are derived for consumer lending utilizing historical loss factors derived through migration analysis and adjusting for current trends, economic conditions and portfolio behavioral characteristics. Consumer lending poses more inherent risks than one-to-four family residential lending and, consequently, the loss factors are higher. Because of our limited loss history for one-to-four family residential loans, general allowances are derived utilizing historical industry loss factors, also adjusted for management’s assessment of the qualitative factors presented above. Loss factors are applied based upon delinquency status with higher loss factors applied as the number of days past due increases.

The non-homogeneous loan portfolio’s limited seasoning and loss history also necessitated loss factors for loan categories based upon historical industry loss factors adjusted for current trends, economic conditions and portfolio behavioral characteristics. Non-homogeneous loss factors are differentiated by the applicable risk grade for each loan category, rather than by delinquency status.

Investment Activities

We hold securities at Commercial Capital Bancorp, FIPMC and Commercial Capital Bank. At December 31, 2002, our consolidated securities portfolio amounted to $310.1 million, $3.9 million of which was held at Commercial Capital Bancorp, $72.7 million of which was held at FIPMC and $233.5 million of which was held at Commercial Capital Bank. The securities held at Commercial Capital Bancorp and FIPMC are held for liquidity purposes and to further deploy such entities’ equity, and thereby enhance our return on equity. These securities generally provide a high degree of cash flow and are funded by short-duration reverse repurchase agreements.

Commercial Capital Bank’s securities portfolio is managed in accordance with guidelines set by Commercial Capital Bank’s Asset/Liability Committee (“ALCO”). Specific day-to-day transactions affecting the securities portfolio are managed by Commercial Capital Bank’s chief executive officer and treasurer in accordance with its Funds Management Policy. These securities activities are reviewed monthly or more often, as needed, by Commercial Capital Bank’s ALCO and are reported monthly to Commercial Capital Bank’s board of directors.

The Funds Management Policy, which addresses strategies, types and levels of allowable investments and which is reviewed and approved annually by Commercial Capital Bank’s board of directors, authorizes

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Commercial Capital Bank to invest in a variety of highly liquid, investment grade fixed-income, U.S. government and agency securities and other investment securities, subject to various limitations. The Funds Management Policy limits the amount Commercial Capital Bank can invest in various types of securities, places limits on average lives and durations of Commercial Capital Bank’s securities, limits the securities dealers that Commercial Capital Bank can conduct business with, and requires approval from a member of Commercial Capital Bank’s executive committee with respect to any investment other than U.S. government and U.S. government agency securities (including mortgage-backed securities) and municipal obligations. In addition, Commercial Capital Bank’s treasurer is prohibited from buying or selling any one security that is $5.0 million or greater without the approval of a member of Commercial Capital Bank’s executive committee and is prohibited from buying or selling any one security that is $15.0 million or greater without approval from two members of Commercial Capital Bank’s executive committee.

Although our policies permit us to invest in any investment grade securities, as of December 31, 2002, all of our investments have consisted of AAA-rated mortgage-backed securities that are insured or guaranteed by U.S. government agencies or government-sponsored enterprises, U.S. government securities and a mutual fund which was owned by Commercial Capital Bank prior to its acquisition and which has since been sold. At December 31, 2002, our consolidated securities portfolio consisted of $310.0 million of mortgage-backed securities, $307.9 million of which was classified as available-for-sale and $2.1 million of which was classified as held-to-maturity, and a $100,000 U.S. government security which was classified as available-for-sale.

Mortgage-backed securities, which are known as mortgage participation certificates or pass-through certificates, represent a participation interest in a pool of single-family or multi-family mortgages, which are passed from the mortgage originators, through intermediaries (generally U.S. government agencies and government sponsored enterprises) that pool and repackage the participation interests in the form of securities, to investors such as us. Such U.S. government agencies and government sponsored enterprises, which guarantee the payment of principal and interest to investors, primarily include Freddie Mac, Fannie Mae and Ginnie Mae. Of our total consolidated investment in mortgage-backed securities at December 31, 2002, $45.3 million consisted of Ginnie Mae pass-through certificates, $169.1 million consisted of Fannie Mae pass-through certificates and $95.6 million consisted of Freddie Mac pass-through certificates. Of the $310.0 million of mortgage-backed securities at December 31, 2002, $44.0 million, or 14.2%, have original terms to maturity of 30 years with an estimated average life of 1.6 years, $238.4 million, or 76.9%, have original terms to maturity of 15 years with an estimated average life of 3.5 years, $2.1 million, or 0.7%, have original terms to maturity of 10 years with an estimated average life of 8.7 years and $25.5 million or 8.2.% have original terms to maturity of seven years with an estimated average life of 3.9 years. At December 31, 2002, all of our mortgage-backed securities consisted of fixed-rate securities and all of our securities have original terms to maturity of seven or more years.

Mortgage-backed securities typically are issued with stated principal amounts, and are backed by pools of mortgages that have loans with interest rates that are within a range and have varying maturities. The characteristics of the underlying pool of mortgages, such as fixed-rate or adjustable-rate, contractual scheduled amortization, as well as prepayment risk, are passed on to the certificate holder. The average life of a mortgage-backed pass-through security thus approximates the average life of the underlying pool of mortgages.

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The following table sets forth the activity in our consolidated securities portfolio for the years indicated.

Sources of Funds

General.    Commercial Capital Bank’s primary sources of funds for use in its lending and investing activities consist of deposits, reverse repurchase agreements, advances from the Federal Home Loan Bank (“FHLB”) of San Francisco, and sales of, maturities and principal and interest payments on loans and securities. FIPMC’s primary sources of funds for use in its lending and investing activities consist of proceeds from the sale of loans, warehouse lines of credit, reverse repurchase agreements and sales of, maturities and principal repayments on securities. Commercial Capital Bancorp’s primary sources of funds for use in its investing activities consist of reverse repurchase agreements and sales of, maturities and principal repayments on securities. In addition, proceeds raised by us from sales of common stock and the issuance of trust preferred securities have been downstreamed primarily into Commercial Capital Bank and, to a lesser extent, FIPMC, in order to provide additional equity to support their operations. We closely monitor rates and terms of competing sources of funds and utilize those sources we believe to be the most cost effective, consistent with our asset and liability management policies.

Deposits.    Commercial Capital Bank offers a variety of deposit products and services at competitive interest rates. Commercial Capital Bank utilizes traditional marketing methods to attract new clients and deposits, including various forms of advertising. Commercial Capital Bank also utilizes the services of deposit brokers to attract non-retail certificates of deposit, consisting largely of jumbo certificates of deposit and brokered deposits. Some of Commercial Capital Bank’s jumbo certificates of deposit and other deposits are also obtained through the posting of deposit rates on national computerized bulletin boards at no cost to Commercial Capital Bank and through the Internet.

Commercial Capital Bank attempts to price its deposit products in order to promote deposit growth and satisfy Commercial Capital Bank’s liquidity requirements and offers a variety of deposit products in order to satisfy its clients’ needs. Commercial Capital Bank’s current deposit products include regular checking, savings, NOW and money market deposit accounts; fixed-rate, fixed-maturity retail certificates of deposit ranging in terms from 30 days to five years; individual retirement accounts; and non-retail certificates of deposit consisting of jumbo (generally greater than or equal to $100,000) certificates, brokered certificates and public deposits. Commercial Capital Bank has historically relied on certificates of deposit, primarily obtained out of our market area through the Internet. As of December 31, 2002, we had $127.1 million of certificates of deposit, consisting of $65.5 million with balances less than $100,000, $61.5 million of jumbo certificates, including $30.0 million with the State of California, and $18.0 million of brokered certificates. Since December 31, 2001, Commercial Capital Bank has reduced its reliance on certificates of deposit and has been promoting its money market deposit product, which has attracted a significant amount of such deposits. At December 31, 2002, our money market

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accounts totaled $176.2 million, or 56.4% of total deposits, as compared to $5.2 million, or 4.4% of total deposits, at December 31, 2001. At December 31, 2002, Commercial Capital Bank had three deposits from the State of California that amounted to $30.0 million in the aggregate, which exceeded 5% of total deposits. Of these $30.0 million of aggregate deposits, $6.0 million matured on January 8, 2003, $14.0 million matured on February 21, 2003, and $10.0 million will mature on June 18, 2003.

Commercial Capital Bank’s three existing branches are located in Irvine, Rancho Santa Margarita and Riverside, California. Commercial Capital Bank will opportunistically consider further branch expansion if and when management believes that such expansion will enhance our franchise. In March 2003, Commercial Capital Bank entered into a lease agreement for the purpose of opening its San Diego County branch in LaJolla, California.

Since December 31, 2001, Commercial Capital Bank has increased its emphasis on attracting retail deposits from both business and high net worth private client relationships located throughout Orange, Riverside and Los Angeles counties, California. Commercial Capital Bank’s money market deposit accounts are obtained from both businesses and high net worth individuals, families, foundations and trusts, located primarily throughout southern California. Commercial Capital Bank is also focused on gathering deposits from borrower client relationships developed through FIPMC’s and our multi-family and commercial lending activities. Commercial Capital Bank has been successful in attracting deposits from those businesses involved in FIPMC’s lending activities. These businesses include property management companies, community associations, title and escrow companies, law firms and other middle-market businesses. Commercial Capital Bank intends to continue to focus on such clients as well as middle market businesses in and around its market area.

The following table shows the distribution of and other information relating to Commercial Capital Bank’s deposits by type as of the dates indicated. We acquired Commercial Capital Bank on December 22, 2000. Consequently, no information exists prior to such date.