COMMERCIAL CAPITAL BANCORP INC - 10-Q Quarterly Report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

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

FOR THE QUARTERLY PERIOD ENDED: SEPTEMBER 30, 2004

¨	TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File No.: 000-50126

COMMERCIAL CAPITAL BANCORP, INC.

(Name of Registrant as Specified in its charter)

Nevada

33-0865080

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification Number)


8105 Irvine Center Drive, 15th Floor, Irvine, California		92618
(Address of Principal Executive Offices)		(Zip Code)

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

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨

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

Number of shares of common stock outstanding as of October 29, 2004: 54,317,718

TABLE OF CONTENTS


		Page

PART I

ITEM 1.	FINANCIAL STATEMENTS	1

	Unaudited Consolidated Statements of Financial Condition as of September 30, 2004 and December 31, 2003	1

	Unaudited Consolidated Statements of Income for the Three and Nine Months ended September 30, 2004 and 2003	2

	Unaudited Consolidated Statements of Stockholders’ Equity and Comprehensive Income for the Nine Months ended September 30, 2004	3

	Unaudited Consolidated Statements of Cash Flows for the Nine Months ended September 30, 2004 and 2003	4

	Notes to Unaudited Consolidated Financial Statements	6

ITEM 2.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	11

ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	24

ITEM 4.	CONTROLS AND PROCEDURES	26

PART II

ITEM 1.	LEGAL PROCEEDINGS	26

ITEM 2.	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	27

ITEM 3.	DEFAULTS UPON SENIOR SECURITIES	27

ITEM 4.	SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS	27

ITEM 5.	OTHER INFORMATION	27

ITEM 6.	EXHIBITS	28

SIGNATURES		31

PART I

Item 1. Financial Statements

COMMERCIAL CAPITAL BANCORP, INC. AND SUBSIDIARIES

Unaudited Consolidated Statements of Financial Condition

(Dollars in thousands, except per share data)


	September 30, 2004			December 31, 2003
Assets
Cash and due from banks	$	20,445		$	4,066
Securities available-for-sale		486,220			560,729
Federal Home Loan Bank stock, at cost		86,147			41,517
Loans, net of allowance for loan losses of $36,846 and $3,942		3,862,582			1,047,632
Loans held-for-sale		17,620			14,893
Premises and equipment, net		9,989			1,534
Accrued interest receivable		16,819			6,827
Goodwill		357,367			13,035
Core deposit intangible		6,105			—
Bank-owned life insurance		46,270			17,925
Other assets		57,212			14,981

	$	4,966,776		$	1,723,139

Liabilities and Stockholders’ Equity
Deposits:
Noninterest-bearing demand	$	92,950		$	12,125
Interest-bearing:
Demand		80,267			942
Money market checking		419,760			372,273
Money market savings		298,165			—
Savings		293,905			2,700
Certificates of deposit		1,113,595			257,556

Total deposits		2,298,642			645,596
Securities sold under agreements to repurchase		—			74,475
Advances from Federal Home Loan Bank		1,888,798			822,519
Warehouse line of credit		—			13,794
Junior subordinated debentures		135,225			—
Trust preferred securities		—			52,500
Accrued interest payable and other liabilities		35,403			12,213

Total liabilities		4,358,068			1,621,097

Commitments and contingencies
Stockholders’ equity:
Preferred stock, $0.001 par value. Authorized 100,000,000 shares; none issued and outstanding		—			—
Common stock, $0.001 par value. Authorized 200,000,000 shares; issued 55,019,162 and 29,956,372 shares		55			30
Additional paid-in capital		558,241			72,960
Deferred compensation		(263	)		—
Retained earnings		64,293			30,413
Accumulated other comprehensive loss		(1,528	)		(1,361	)
Less: Treasury stock, at cost – 657,400 and 0 shares		(12,090	)		—

Total stockholders’ equity		608,708			102,042

	$	4,966,776		$	1,723,139

See accompanying notes to unaudited consolidated financial statements.

COMMERCIAL CAPITAL BANCORP, INC. AND SUBSIDIARIES

Unaudited Consolidated Statements of Income

(Dollars in thousands, except per share data)


	Three Months ended September 30,				Nine Months ended September 30,
	2004		2003		2004		2003
Interest income on:
Loans	$	50,777	$	11,425	$	92,464	$	30,285
Securities		5,301		5,273		17,773		15,570
Federal Home Loan Bank stock		891		345		1,951		858
Federal funds sold and interest-bearing deposits in other banks		18		17		55		36

Total interest income		56,987		17,060		112,243		46,749

Interest expense on:
Deposits		9,060		2,676		16,963		7,219
Advances from Federal Home Loan Bank		8,437		2,941		17,106		7,613
Securities sold under agreements to repurchase / Federal funds purchased		2		76		297		929
Warehouse line of credit		—		121		88		775
Junior subordinated debentures		1,611		—		3,235		—
Trust preferred securities		—		438		—		1,342

Total interest expense		19,110		6,252		37,689		17,878

Net interest income		37,877		10,808		74,554		28,871
Provision for loan losses		—		—		—		1,286

Net interest income after provision for loan losses		37,877		10,808		74,554		27,585

Noninterest income:
Gain on sale of loans		72		198		214		1,744
Mortgage banking fees		137		244		444		604
Loan related fees		2,217		312		3,603		861
Retail banking fees		588		23		801		52
Other income		601		314		1,183		915
Gain on sale of securities		—		395		2,152		3,559

		3,615		1,486		8,397		7,735

Noninterest expenses:
Compensation and benefits		6,148		2,019		11,810		5,650
Severance		—		—		—		671
Non-cash stock compensation		29		—		87		353
Occupancy and equipment		2,131		344		3,205		844
Professional and consulting		369		149		779		663
Marketing		422		216		1,104		570
Technology		496		87		837		276
Insurance premiums and assessment costs		582		134		1,117		329
Merger-related		494		—		914		—
Amortization of core deposit intangible		203		—		261		—
Loss on early extinguishment of debt		—		320		1,204		1,243
Other		2,023		438		3,426		1,227

		12,897		3,707		24,744		11,826

Income before income tax expense		28,595		8,587		58,207		23,494
Income tax expense		10,591		3,230		22,178		9,223

Net income	$	18,004	$	5,357	$	36,029	$	14,271

Basic earnings per share	$	0.34	$	0.18	$	0.90	$	0.49
Diluted earnings per share		0.32		0.17		0.84		0.46

See accompanying notes to unaudited consolidated financial statements.

COMMERCIAL CAPITAL BANCORP, INC. AND SUBSIDIARIES

Unaudited Consolidated Statements of Stockholders’ Equity and Comprehensive Income

For the Nine Months ended September 30, 2004

(Dollars and number of shares in thousands)


	Outstanding shares of common stock		Common stock		Additional paid-in capital			Deferred compensation			Retained earnings			Accumulated other comprehensive loss			Common stock in treasury			Total
Balance, December 31, 2003	29,956		$	30	$	72,960		$	—		$	30,413		$	(1,361	)		—		$	102,042
Comprehensive income:
Net income	—			—		—			—			36,029			—			—			36,029
Other comprehensive loss, net of tax:
Net unrealized losses on securities arising during the period, net of reclassification adjustments	—			—		—			—			—			(167	)		—			(167	)

Total comprehensive income																					35,862
Common stock issued for acquisition of Hawthorne Financial Corporation (“Hawthorne”)	23,485			24		441,493			—			—			—			—			441,517
Fair value of Hawthorne stock options	—			—		13,605			—			—			—			—			13,605
Fair value of Hawthorne warrants	—			—		17,153			—			—			—			—			17,153
Cash dividends paid on common stock	—			—		—			—			(2,149	)		—			—			(2,149	)
Common stock repurchased	(657	)		—		—			—			—			—			(12,090	)		(12,090	)
Acquisition of fractional shares due to stock split	(2	)		—		(30	)		—			—			—			—			(30	)
Exercise of stock options	980			1		4,212			—			—			—			—			4,213
Tax benefit from stock options	—			—		6,602			—			—			—			—			6,602
Exercise of warrants	578			—		428			—			—			—			—			428
Restricted stock awards	22			—		350			(350	)		—			—			—			—
Amortization of deferred compensation restricted stock awards	—			—		—			87			—			—			—			87
Tax benefit from restricted stock awards	—			—		1,468			—			—			—			—			1,468

Balance, September 30, 2004	54,362		$	55	$	558,241		$	(263	)	$	64,293		$	(1,528	)	$	(12,090	)	$	608,708

See accompanying notes to unaudited consolidated financial statements.

COMMERCIAL CAPITAL BANCORP, INC. AND SUBSIDIARIES

Unaudited Consolidated Statements of Cash Flows

(Dollars in thousands)


	Nine Months ended September 30,
	2004			2003
Cash flows from operating activities:
Net income	$	36,029		$	14,271
Adjustments to reconcile net income to net cash used in operating activities:
Core deposit intangible amortization		261			—
Hawthorne purchase accounting adjustments		(3,955	)		—
Depreciation and other amortization		3,125			2,622
Stock compensation expense		87			353
Stock dividend from Federal Home Loan Bank		(1,951	)		(858	)
Bank-owned life insurance income		(917	)		(465	)
Deferred taxes		4,044			2,883
Provision for loan losses		—			1,286
Gain on sale of securities		(2,152	)		(3,559	)
Gain on sale of loans		(214	)		(1,744	)
Loss on early extinguishment of debt		1,204			1,243
Origination of loans held-for-sale, net of principal payments		956			(134,479	)
Proceeds from sales of loans held-for-sale		13,095			128,051
Decrease (increase) in accrued interest receivable and other assets		14,499			(10,284	)
Decrease in accrued interest payable and other liabilities		(12,961	)		(1,021	)
Other, net		2,757			(127	)

Net cash provided by (used in) operating activities		53,907			(1,828	)

Cash flows from investing activities:
Purchases of securities available-for-sale		(153,483	)		(510,179	)
Proceeds from sales of securities available-for-sale		512,873			260,054
Proceeds from maturities and repayments of securities		72,140			128,596
Proceeds from sales of securities held to maturity		—			2,304
Purchases of Federal Home Loan Bank stock		(7,432	)		(19,028	)
Redemption of Federal Home Loan Bank stock		1,225			—
Origination and purchase of loans, net of principal payments		(629,665	)		(389,868	)
Proceeds from sales of loans		3,106			—
Purchase of leasehold improvements and equipment		(3,484	)		(704	)
Purchase of Bank-owned life insurance		(653	)		(8,851	)
Cash acquired from Hawthorne, net		20,091			—

Net cash used in investing activities		(185,282	)		(537,676	)

Cash flows from financing activities:
Net increase (decrease) in deposits		(101,691	)		254,131
Net decrease in securities sold under agreements to repurchase		(74,475	)		(110,993	)
Proceeds from Federal Home Loan Bank advances		1,125,593			522,679
Repayment of Federal Home Loan Bank advances		(806,204	)		(125,256	)
(Decrease) increase in warehouse line of credit		(13,794	)		9,646
Issuance of junior subordinated debentures		25,774			—
Issuance of trust preferred securities		—			7,500
Common stock issued		—			2,790
Exercise of stock options		4,213			4,446
Exercise of warrants		428			—
Purchase of treasury stock		(12,090	)		—

Net cash provided by financing activities		147,754			564,943

Net increase in cash and cash equivalents		16,379			25,439
Cash and cash equivalents:
Beginning of period		4,066			3,408

End of period	$	20,445		$	28,847

Supplemental disclosures of cash flow information:
Cash payments for:
Interest	$	42,698		$	17,788
Income taxes		8,730			6,998
Noncash activity:
Securities purchase commitment		—			24,934
Securitization of loans		26,978			—
Transfer of loans to loans held-for-sale		16,701			—

COMMERCIAL CAPITAL BANCORP, INC. AND SUBSIDIARIES

Unaudited Consolidated Statements of Cash Flows (Continued)

(Dollars in thousands)


	Nine Months ended September 30,
	2004			2003
Supplemental disclosure for acquisition of Hawthorne:
Cash and cash equivalents		20,098			—
Securities available-for-sale		331,135			—
Federal Home Loan Bank stock		36,627			—
Loans, net of allowance		2,228,032			—
Premises and equipment, net		5,910			—
Accrued interest receivable		9,013			—
Goodwill		344,332			—
Core deposit intangibles		6,366			—
Bank-owned life insurance		26,776			—
Other assets		57,709			—
Deposits		(1,756,279	)		—
Advances from Federal Home Loan Bank		(745,773	)		—
Junior subordinated debentures		(55,513	)		—
Accrued interest payable and other liabilities		(36,151	)		—

Net assets acquired	$	472,282		$

Cash paid for fractional shares		7			—
Fair value of common stock, options and warrants issued		472,275			—

Total consideration paid	$	472,282		$

See accompanying notes to unaudited consolidated financial statements.

COMMERCIAL CAPITAL BANCORP, INC. AND SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements

(1)

Basis of Presentation

The consolidated financial statements reflect the historical results of operations of Commercial Capital Bancorp, Inc. (the “Company”), Commercial Capital Bank, FSB (the “Bank”), Commercial Capital Mortgage, Inc. (“CCM”), ComCap Financial Services, Inc. (“ComCap”) and, for periods after July 26, 2004, Clearinghouse NMTC (SUB 2), LLC (“Clearinghouse NMTC”). The Company acquired a $10 million equity investment in Clearinghouse NMTC on July 26, 2004 for the purpose of making qualified low-income community investments under the new markets tax credit provisions of the Internal Revenue Code of 1986, as amended. Prior period financial information has been restated to reflect reclassification adjustments.

(2)

Acquisition of Hawthorne Financial Corporation and Balance Sheet Restructuring

The Company’s acquisition of Hawthorne Financial Corporation (“Hawthorne”) and the merger of Hawthorne Savings into the Bank were completed after the close of business on June 4, 2004. The Company used the purchase method of accounting, and accordingly, Hawthorne’s operating results have been included in the consolidated financial statements from June 4, 2004. The Company issued 23,484,930 shares of its common stock for Hawthorne’s outstanding shares, issued 1,009,850 options for Hawthorne’s outstanding options and issued 949,319 warrants for Hawthorne’s outstanding warrants in connection with the acquisition transaction. The valuation of common stock issued was based upon the average of the per share closing prices of the Company’s common stock on the NASDAQ from two days prior to the announcement of the signing of the merger agreement to two days thereafter, or $18.80. The fair value of the options assumed was $13.47 at the close of the acquisition transaction. The fair value was determined by using the Black-Scholes option pricing model with the following assumptions: expected life of 3 years, risk-free interest rate of 3.25%, volatility of 40.26% and no dividend yield. The fair value of the warrants assumed was $18.07 at the close of the acquisition transaction. The fair value was determined by the Black-Scholes option pricing model with the following assumptions: expected life of one year, risk-free interest rate of 1.97%, volatility of 40.26% and no dividend yield. At the date of the acquisition, management determined the estimated fair values of assets acquired and liabilities assumed. The allocation of the purchase price to arrive at the estimated fair value of assets acquired and liabilities assumed relating to the Hawthorne acquisition is summarized below:


	(Dollars in thousands)
Cash and cash equivalents	$	20,098
Securities available-for-sale		331,135
Federal Home Loan Bank stock		36,627
Loans, net of allowance		2,228,032
Premises and equipment, net		5,910
Accrued interest receivable		9,013
Goodwill		344,332
Core deposit intangibles		6,366
Bank-owned life insurance		26,776
Other assets		57,709
Deposits		(1,756,279	)
Advances from Federal Home Loan Bank		(745,773	)
Junior subordinated debentures		(55,513	)
Accrued interest payable and other liabilities		(36,151	)

Total purchase price	$	472,282

The purchase accounting adjustments recorded as part of the acquisition of Hawthorne resulted in a fair value adjustment of a net discount of $15.1 million to the carrying value of loans. This discount is being amortized over the estimated remaining life of the loans and is expected to be accreted through interest income over the next 20 months. The core deposit intangible of $6.4 million is being amortized over 10 years. The value of Hawthorne’s owned land and building improvements was increased by $1.1 million and $831,000, respectively, with the building improvements being amortized over an estimated life of 20 years. The fair value adjustment to the carrying value of certificates of deposit resulted in a net premium of $4.3 million, which will be amortized over the life of the fixed-rate deposits with a weighted average maturity approximating six months. The fair value adjustment to the carrying value of Federal Home Loan Bank of San Francisco (“FHLB”) advances resulted in a net premium of $15.5 million. In connection with the closing of the Hawthorne acquisition transaction, the Company prepaid $331.0 million of Hawthorne’s FHLB advances. There was approximately $15.8 million of fair value premium associated with these advances. As a result, there remained a net discount of approximately $273,000, which is being accreted through interest expense over the life of the fixed-term advances which approximates 27 months. The fair value adjustment to the carrying value of the junior subordinated debentures is a $2.9 million premium which is being amortized over 45 months.

COMMERCIAL CAPITAL BANCORP, INC. AND SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements (Continued)

Professional and legal fees of $6.8 million related to the Hawthorne acquisition have been capitalized as part of the purchase price. In addition, total severance and related costs of $8.7 million and lease termination costs of $1.0 million were recorded as part of the acquisition transaction. Through September 30, 2004, approximately $14.7 million of these costs have been incurred and paid. During the second and third quarter of 2004, the Company recorded $914,000 in merger-related noninterest expense due to the cancellation of its data and item processing contracts and to record retention bonuses for certain Hawthorne employees during the transition.

There were no branch closures in connection with the acquisition transaction and the conversion of core data processing systems occurred in October 2004.

In connection with the closing of the acquisition of Hawthorne, the Company sold $331.1 million of mortgage-backed securities that were carried on Hawthorne’s books and prepaid $331.0 million of Hawthorne’s FHLB advances, unwinding a wholesale leverage position that was on Hawthorne’s books at a negative spread. Additionally, the Company securitized approximately $27.0 million of Hawthorne’s single family residential loans and subsequently sold them, resulting in a gain on sale of securities of $1.2 million.

Unaudited pro forma consolidated results of income for the three and nine months ended September 30, 2004 and three and nine months ended September 30, 2003 as though Hawthorne had been acquired as of January 1, 2003 are as follows:


	Three Months ended September 30,				Nine Months ended September 30,
	2004		2003		2004		2003
	(Dollars in thousands, except per share amounts)
Net interest income	$	37,877	$	30,454	$	109,218	$	89,770
Net income		18,004		12,533		30,428		35,087
Basic earnings per share		0.34		0.24		0.57		0.68
Diluted earnings per share		0.32		0.22		0.54		0.64

The pro forma consolidated net income for the nine months ended September 30, 2004 includes merger-related costs recorded on the books of Hawthorne that reduced net income by $14.2 million.

(3)

Earnings Per Share

Information used to calculate earnings per share for the three and nine months ended September 30, 2004 and 2003 was as follows:


	Three Months ended September 30,				Nine Months ended September 30,
	2004		2003		2004		2003
	(Dollars in thousands, except share and per share amounts)
Net income	$	18,004	$	5,357	$	36,029	$	14,271
Weighted average shares:
Basic weighted average number of common shares outstanding		53,625,568		29,609,168		40,173,889		29,131,036
Dilutive effect of common stock equivalents		3,199,027		1,960,801		2,620,209		1,679,393

Diluted weighted average number of common shares outstanding		56,824,595		31,569,969		42,794,098		30,810,429

Net income per common share:
Basic	$	0.34	$	0.18	$	0.90	$	0.49
Diluted		0.32		0.17		0.84		0.46

A three-for-two stock split was paid on September 29, 2003 and a four-for-three stock split was paid on February 20, 2004. Prior period financial information has been adjusted to reflect these stock splits.

(4)

Stock Compensation

As permitted by SFAS 123, Accounting for Stock-Based Compensation, the Company has elected to continue applying the intrinsic value method of APB 25, Accounting for Stock Issued to Employees, in accounting for its stock plans. As required by

COMMERCIAL CAPITAL BANCORP, INC. AND SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements (Continued)

SFAS 148, Accounting for Stock-Based Compensation—Transition and Disclosure, pro forma net income and earnings per share information is provided below, as if the Company accounted for its stock option plans under the fair value method of SFAS 123:


	Three Months ended September 30,						Nine Months ended September 30,
	2004			2003			2004			2003
	(Dollars in thousands, except per share amounts)
Net income, as reported	$	18,004		$	5,357		$	36,029		$	14,271
Add: Stock-based compensation expense included in reported net income, net of tax		17			—			51			205
Less: Total stock-based compensation expense under the fair value method, net of tax		(161	)		(135	)		(447	)		(508	)

Net income, pro forma	$	17,860		$	5,222		$	35,633		$	13,968

Basic earnings per share:
As reported	$	0.34		$	0.18		$	0.90		$	0.49
Pro forma		0.33			0.18			0.89			0.48
Diluted earnings per share:
As reported		0.32			0.17			0.84			0.46
Pro forma		0.31			0.17			0.83			0.45

(5)

Operating Segments

The Company’s primary operating segments consist of the Bank and CCM, which are separate operating subsidiaries. The “all other” category reflects the results of operations and total assets of the parent company only and ComCap. The “consolidation adjustments” category reflects the elimination of intercompany transactions upon consolidation. Accounting policies followed by the operating segments are consistent with those followed on a consolidated basis. The Bank has purchased loans from CCM on an arm’s-length basis and the gain on sale of loans recorded by CCM is eliminated upon consolidation. The Bank and the parent company have entered into a master services agreement whereby expenses paid by one party are reimbursed by the other in accordance with the agreement. Financial highlights by line of business were as follows:


	Three Months ended September 30, 2004
	Bank		CCM			All Other Categories			Consolidation Adjustments			Total
	(Dollars in thousands)
Net interest income after provision for loan losses	$	38,775	$	33		$	(1,581	)	$	650		$	37,877
Noninterest income—external		3,561		—			54			—			3,615
Noninterest income—intercompany		—		—			—			—			—
Noninterest expense		12,071		77			749			—			12,897
Income taxes		11,267		(18	)		(931	)		273			10,591

Net income	$	18,998	$	(26	)	$	(1,345	)	$	377		$	18,004

Total assets	$	4,956,681	$	4,790		$	760,015		$	(754,710	)	$	4,966,776


	Three Months ended September 30, 2003
	Bank		CCM			All Other Categories			Consolidation Adjustments			Total
	(Dollars in thousands)
Net interest income after provision for loan losses	$	10,046	$	440		$	(403	)	$	725		$	10,808
Noninterest income—external		1,278		195			13			—			1,486
Noninterest income—intercompany		124		152			—			(276	)		—
Noninterest expense		2,906		145			777			(121	)		3,707
Income taxes		3,202		277			(489	)		240			3,230

Net income	$	5,340	$	365		$	(678	)	$	330		$	5,357

Total assets	$	1,422,929	$	32,384		$	140,818		$	(146,543	)	$	1,449,588

COMMERCIAL CAPITAL BANCORP, INC. AND SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements (Continued)


	Nine Months ended September 30, 2004
	Bank		CCM		All Other Categories			Consolidation Adjustments			Total
	(Dollars in thousands)
Net interest income after provision for loan losses	$	75,564	$	185	$	(3,122	)	$	1,927		$	74,554
Noninterest income—external		8,140		193		102			(38	)		8,397
Noninterest income—intercompany		32		133		—			(165	)		—
Noninterest expense		22,371		287		2,133			(47	)		24,744
Income taxes		23,498		95		(2,159	)		744			22,178

Net income	$	37,867	$	129	$	(2,994	)	$	1,027		$	36,029

Total assets	$	4,956,681	$	4,790	$	760,015		$	(754,710	)	$	4,966,776


	Nine Months ended September 30, 2003
	Bank		CCM		All Other Categories			Consolidation Adjustments			Total
	(Dollars in thousands)
Net interest income after provision for loan losses	$	24,807	$	2,396	$	(1,223	)	$	1,605		$	27,585
Noninterest income—external		4,740		2,719		276			—			7,735
Noninterest income—intercompany		245		2,571		—			(2,816	)		—
Noninterest expense		8,049		1,789		2,363			(375	)		11,826
Income taxes		8,459		2,503		(1,388	)		(351	)		9,223

Net income	$	13,284	$	3,394	$	(1,922	)	$	(485	)	$	14,271

Total assets	$	1,422,929	$	32,384	$	140,818		$	(146,543	)	$	1,449,588

(6)

Recently Issued Accounting Standards

In December 2003, the Accounting Standards Executive Committee of the AICPA issued Statement of Position No. 03-3 (“SOP 03-3”), Accounting for Certain Loans or Debt Securities Acquired in a Transfer. SOP 03-3 addresses the accounting for differences between the contractual cash flows and the cash flows expected to be collected from purchased loans or debt securities if those differences are attributable, in part, to credit quality. SOP 03-3 requires purchased loans and debt securities to be recorded initially at fair value based on the present value of the cash flows expected to be collected with no carryover of any valuation allowance previously recognized by the seller. Interest income should be recognized based on the effective yield from the cash flows expected to be collected. To the extent that the purchased or debt securities experience subsequent deterioration in credit quality, a valuation allowance would be established for any additional cash flows that are not expected to be received. However, if more cash flows subsequently are expected to be received than originally estimated, the effective yield would be adjusted on a prospective basis. SOP 03-3 will be effective for loans and debt securities acquired after December 31, 2004. The adoption of this statement is not expected to have a material impact on the Company’s consolidated financial statements.

On March 9, 2004, the Securities and Exchange Commission (“SEC”) issued Staff Accounting Bulletin No. 105, Application of Accounting Principles to Loan Commitments, which provides guidance regarding loan commitments on loans to be classified as held-for-sale that are accounted for as derivative instruments. In this Bulletin, the SEC determined that an interest rate lock commitment should generally be valued at zero at inception. The rate locks will continue to be adjusted for changes in value resulting from changes in market interest rates. The Company adopted this new standard prospectively as of April 1, 2004 and it did not have a material impact on the Company’s consolidated financial statements.

In March 2004, the Emerging Issue Task Force reached a consensus opinion on Issue No. 03-1, The Meaning of Other-Than-Temporary Impairment and its Application to Certain Investments, regarding the determination of whether an investment is considered impaired, whether the identified impairment is considered other-than-temporary, how to measure other-than-temporary impairment, and how to disclose unrealized losses on investments that are not other-than-temporarily impaired. Adoption of the new measurement requirements has been delayed by the FASB pending reconsideration of implementation guidance relating to debt securities that are impaired solely due to market interest rate fluctuations. The contractual cashflows of the Company’s mortgage-backed securities are guaranteed by Fannie Mae, Freddie Mac or Ginnie Mae. Because a decline in fair value is attributable to changes in interest rates and not credit quality, and because the Company has the ability and intent to hold these investments until a market price recovery or maturity, these investments are not considered other-than-temporarily impaired.

COMMERCIAL CAPITAL BANCORP, INC. AND SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements (Continued)

(7)

Stock Repurchase Plan

In May 2004, the Company announced that its Board of Directors had authorized the repurchase of up to 2.5% of the Company’s proforma shares outstanding, giving effect to the Hawthorne acquisition, not to exceed $20 million in value. At September 30, 2004, the Company had repurchased 657,400 shares, at an average price of $18.39. The Company’s share repurchase authorization remains in effect. At September 30, 2004, the Company had $7.9 million that may yet be used for the repurchase of the Company’s outstanding shares.

(8)

Issuance of Junior Subordinated Debentures

On March 31, 2004, the Company issued $10.3 million of junior subordinated debentures to an unconsolidated trust subsidiary, CCB Capital Trust VI (“Trust VI”) with an interest rate of three month LIBOR plus 265 basis points. The initial interest rate was established at 3.76%. Trust VI was able to purchase the junior subordinated debentures through the issuance of trust preferred securities which had substantially identical terms as the junior subordinated debentures. The net proceeds from the offering of $10.0 million were contributed as capital to the Bank to support further growth.

On May 27, 2004, the Company issued $7.7 million of junior subordinated debentures to an unconsolidated trust subsidiary, CCB Capital Trust VII (“Trust VII”) with an interest rate of three month LIBOR plus 250 basis points. The initial interest rate was established at 3.79%. Trust VII was able to purchase the junior subordinated debentures through the issuance of trust preferred securities which had substantially identical terms as the junior subordinated debentures. The net proceeds from the offering of $7.5 million are being used by the Company for general corporate purposes, including the repurchase of outstanding shares of the Company’s common stock.

On June 22, 2004, the Company issued $7.7 million of junior subordinated debentures to an unconsolidated trust subsidiary, CCB Capital Trust VIII (“Trust VIII”) with an interest rate of six month LIBOR plus 250 basis points. The initial interest rate was established at 4.05%. Trust VIII was able to purchase the junior subordinated debentures through the issuance of trust preferred securities which had substantially identical terms as the junior subordinated debentures. The net proceeds from the offering of $7.5 million are being used by the Company for general corporate purposes, including the repurchase of outstanding shares of the Company’s common stock.

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

Cautionary Statement Regarding Forward-Looking Statements

A number of the presentations and disclosures in this Form 10-Q, 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:

•

the strength of the United States economy in general and the strength of the regional and local economies within California;

•

geopolitical conditions, including acts or threats of terrorism, actions taken by the United States or other governments in response to act or threats of terrorism and/or military conflicts which could impact business and economic conditions in the United States and abroad;

•

adverse changes in the local real estate market, as most of our loans are concentrated in California and the substantial majority of these loans have real estate as collateral;

•

the effects of, and changes in, trade, monetary and fiscal policies and laws, including interest rate policies of the Board of Governors of the Federal Reserve System;

•

inflation, interest rate, market and monetary fluctuations;

•

our timely development of new products and services in a changing environment, including the features, pricing and quality of our products and services compared to the products and services of our competitors;

•

the willingness of users to substitute competitors’ products and services for our products and services;

•

the impact of changes in financial services policies, laws and regulations, including laws, regulations and policies concerning taxes, banking, securities and insurance, and the application thereof by regulatory bodies;

•

technological changes;

•

changes in consumer spending and savings habits; and

•

regulatory or judicial proceedings.

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-Q. 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 changes. All forward-looking statements attributable to us are expressly qualified by these cautionary statements.

General

We are Commercial Capital Bancorp, Inc. (the “Company”), a diversified financial institution holding company which conducts operations through our subsidiaries, Commercial Capital Bank, FSB (the “Bank”), Commercial Capital Mortgage, Inc. (“CCM”) and ComCap Financial Services, Inc. (“ComCap”).

Following the formation of CCM in 1998, our revenue primarily consisted of transaction driven, noninterest sources of income, including cash gains on the sale of loans to third parties and mortgage banking fees, which consist of fees received on CCM’s loan originations, less direct origination costs, including salaries, commissions paid to loan brokers and other third party loan expenses. To a lesser extent, CCM also earned net interest income with respect to its loans for the brief period of time that CCM warehoused the loans pending their sale. The funding for CCM’s mortgage banking activities was provided through warehouse lines of credit.

The acquisition of the Bank in December 2000 permitted us to broaden our sources and types of revenue, while at the same time provided us with access to additional sources of funds. The acquisition of the Bank also provided us with the opportunity to acquire a portion of the loans originated by CCM and increase our purchases of mortgage-backed securities, retaining such loans and investments in the Bank’s portfolio and increasing our net interest income. Consequently, the acquisition of the Bank provided us with an ongoing source of recurring spread income to supplement the transaction-driven, noninterest income we were earning with respect to our mortgage banking activities conducted by CCM. The acquisition of the Bank also provided us with alternative product sources for funding our operations, including deposits, securities sold under reverse repurchase agreements and Federal Home Loan Bank of San Francisco (“FHLB”) advances. Our access to transaction deposits is particularly valuable to our business strategy, because such deposits are generally more relationship-driven and less interest rate sensitive. During 2001, we emphasized growth of the Bank’s balance sheet and during 2002, we increased our emphasis on growing our retail franchise and opened a banking office in south Orange County.

To further support our growth strategy, in December 2002, we completed the initial public offering of our common stock and raised net proceeds of $35.8 million. In January 2003, we issued additional common stock pursuant to the exercise of an over-allotment option granted to our underwriters which raised additional proceeds of $2.8 million. During 2003, we issued an additional $17.5 million of trust preferred securities, in two transactions, with the net proceeds contributed to the Bank to support additional growth. In January 2004, we adopted FIN 46R which deconsolidated the trust subsidiaries and changed the classification of the related debt from trust preferred securities to junior subordinated debentures. During 2004, we issued an additional $25.8 million of junior subordinated debentures in three transactions and contributed $10.0 million of net proceeds to the Bank. The remaining net proceeds of $15.0 million are to be used for general corporate purposes, including the repurchase of the Company’s stock.

In April 2003, we realigned our lending operations by moving the loan origination, underwriting and processing functions, as well as the related personnel, from CCM to the Bank. The realignment, which resulted in the Bank becoming the originator of most of our loans, immediately enabled the Bank to hold a significantly increased percentage of our loan originations, while further streamlining the lending process. Prior to the realignment, the Bank was limited to acquiring less than 50% of CCM’s loan production by affiliate transaction regulations governing purchases of loans from non-bank affiliates. The original structure also created redundant processes and operations that have now been eliminated. CCM will continue to actively maintain and utilize its independent third party warehouse line of credit to fund and sell those loans which the Bank elects to assign to CCM for various reasons, including the Bank’s loans-to-one borrower limits, capital constraints and geographic concentrations of loans.

In September 2003, the Bank opened a banking office in La Jolla, California. The new banking office serves our existing client relationships in San Diego County, the third most populous county in California, behind Los Angeles and Orange counties. In June 2004, the Bank opened a banking office in Malibu, California and in October 2004 the Bank opened a banking office in Beverly Hills, California. We also announced plans to open branches in San Mateo, California and Newport Coast, California in early 2005. The San Mateo branch will complement the Bank’s four Northern California lending offices, which are located in Burlingame, Oakland, Corte Madera, and Sacramento. It is our intention to continue to opportunistically expand our deposit franchise through our successful de novo branch strategy. During the fourth quarter of 2003, the Bank also formed the Financial Services Group, a new business deposit division within Relationship Banking, which has attracted approximately $70.2 million of deposits, predominately transaction accounts, during its first year of operations.

Acquisition of Hawthorne Financial and Balance Sheet Restructuring

Our acquisition of Hawthorne Financial Corporation (“Hawthorne”) and the merger of Hawthorne Savings into the Bank were completed after the close of business on June 4, 2004. We issued 23,484,930 shares of our common stock for Hawthorne’s outstanding shares, issued 1,009,850 options for Hawthorne’s outstanding options and issued 949,319 warrants for Hawthorne’s outstanding warrants in connection with the acquisition transaction. At the time of the acquisition, Hawthorne had $2.75 billion in assets, $2.26 billion in loans and $1.75 billion in deposits and operated through 15 branches. The acquisition of Hawthorne created $344.3 million of goodwill and core deposit intangible of $6.4 million. There were no branch closures in connection with the acquisition transaction and the conversion of core data processing systems occurred in October 2004.

In connection with the closing of the acquisition of Hawthorne, we sold $331.1 million of mortgage-backed securities that were carried on Hawthorne’s books and prepaid $331.0 million of Hawthorne’s FHLB advances, thereby unwinding a wholesale leverage position that was on Hawthorne’s books at a negative spread. Additionally, we securitized approximately $27.0 million of Hawthorne’s single family residential loans and subsequently sold them, resulting in a gain on sale of securities of $1.2 million.

Strategic Alliances

In February 2004, the Company entered into a strategic partnership with TIMCOR Financial Corporation (“TIMCOR”), one of California’s leading qualified intermediaries which facilitates tax-deferred real estate exchanges pursuant to Section 1031 of the Internal Revenue Code of 1986. Under the agreement, TIMCOR is to promote and refer the Bank as a strategic provider of banking, deposit, and lending products and services to the significant number of income property real estate investors who utilize TIMCOR’s services. Additionally, TIMCOR has agreed to maintain a minimum of $50 million in business deposits with the Bank, as well as any funds held from referred transactions.

In March 2004, the Company entered into a partnership arrangement with Sperry Van Ness International (“SVN”), one of the largest and fastest growing commercial real estate sales brokerage firms in the nation, with over 400 commercial real estate sales brokers located in 90 regions and over $3.4 billion of completed commercial real estate transactions during 2003. Under the arrangement, SVN is to promote and refer the Bank as its strategic provider of financing, banking, and deposit products and services to the income property real estate investors who utilize SVN’s commercial real estate brokerage and property management services.

Critical Accounting Policies

The following discussion and analysis of financial condition and results of operations is based upon our consolidated financial statements, and the notes thereto, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these consolidated financial statements requires us to make a number of estimates and assumptions that affect the reported amounts and disclosures in our consolidated financial statements. On an ongoing basis, we evaluate our estimates and assumptions based upon historical experience and various other factors and circumstances. We believe that our estimates and assumptions are reasonable in the circumstances; however, actual results may differ significantly from these estimates and assumptions which could have a material impact on the carrying value of assets and liabilities at the balance sheet dates and our results of operations for the reporting periods.

Our allowance for loan losses is established through a provision for loan losses charged to expense. Loans are charged against the allowance for loan losses when management believes that collectibility of the principal is unlikely. The allowance is an amount that management believes will be adequate to absorb estimated losses on existing loans that may become uncollectible based on evaluation of the collectibility of loans and prior loan loss experience. This evaluation also takes into consideration such factors as changes in the nature and volume of the loan portfolio, overall portfolio quality, review of specific problem loans and current economic conditions that may affect the borrower’s ability to pay. While management uses the best information available to make its evaluation, future adjustments to the allowance may be necessary if there are significant changes in economic or other conditions.

As a result of our acquisition activity, goodwill and a core deposit intangible asset have been added to our balance sheet. While the core deposit intangible arising from our Hawthorne acquisition will be amortized over its estimated useful life of 10 years, the amortization of goodwill was discontinued for periods after December 31, 2001 in accordance with generally accepted accounting principles. Instead, goodwill, a long-lived asset, is required to be evaluated for impairment at least annually. The process of evaluating goodwill for impairment requires us to make several assumptions and estimates including forecasts of future earnings, market trends and market multiples of companies engaged in similar lines of business. If any of the assumptions used in the valuation of our goodwill change over time, the estimated value assigned to our goodwill could differ significantly, including a decrease in the value of goodwill, which would result in a charge to our operations. The calculation and subsequent amortization of a core deposit intangible also requires several assumptions including, among other things, the estimated cost to service deposits acquired, discount rates, estimated attrition rates of the acquired deposits and its estimated useful life. If the value of the core deposit intangible is determined to be less than the carrying value in future periods, a writedown would be taken of the core deposit intangible through a charge to earnings.

Operating Segments

Our primary operating segments consist of the Bank and CCM, which are separate operating subsidiaries. For total assets and statement of income information on our primary operating segments as of and for the three and nine months ended September 30, 2004 and 2003, see Note 5 of our unaudited consolidated financial statements included in Item 1 hereof.

Changes in Financial Condition

General. The acquisition of Hawthorne significantly increased our total assets, loans, deposits and equity. At the time of the acquisition, Hawthorne had $2.75 billion in total assets, $2.26 billion in loans and $1.75 billion in deposits. Total assets increased $3.24 billion, or 188%, from $1.72 billion at December 31, 2003 to $4.97 billion at September 30, 2004. The growth in total assets is also due to the increase in loans held-for-investment, as we retained virtually all of our originated loans during the first nine months of 2004. Total deposits have grown by $1.65 billion, or 256%, from $645.6 million at December 31, 2003 to $2.30 billion at September 30, 2004, with transaction accounts comprising 52% of total deposits.

Cash and Cash Equivalents. Cash and cash equivalents amounted to $4.1 million at December 31, 2003 and $20.4 million at September 30, 2004. We believe that we have sufficient sources of liquidity to fund our operations and future balance sheet growth. See “—Liquidity and Capital Resources.”

Securities. Our securities portfolio primarily consists of mortgage-backed securities, which are insured or guaranteed by U.S. government agencies or government-sponsored enterprises such as Ginnie Mae, Freddie Mac and Fannie Mae. Such securities generally increase the overall credit quality of our assets because they are triple-A (AAA) rated, have underlying insurance or guarantees, require less capital under risk-based regulatory capital requirements than non-insured or non-guaranteed mortgage loans, are more liquid than individual mortgage loans and may be used to more efficiently collateralize our borrowings or other obligations. During the nine months ended September 30, 2004, we permitted our securities portfolio to decline by $74.5 million, as we anticipate significant loan growth in the future. We invest in these securities as a means to enhance our returns as well as to manage our liquidity and capital. Our securities portfolio amounted to $560.7 million, or 32.5%, of our total assets at December 31, 2003, compared to $486.2 million, or 9.8%, of our total assets at September 30, 2004. As discussed above, we sold the entire $331.1 million securities portfolio that was acquired from Hawthorne as part of a balance sheet restructuring initiative in connection with the closing of the Hawthorne acquisition. At September 30, 2004, all of our securities were classified as available-for-sale and reported at fair value, with unrealized gains and losses excluded from earnings and reported as a separate component of stockholders’ equity. At September 30, 2004, our securities portfolio had an aggregate of $2.6 million of unrealized losses.

Net Loans Held-for-Investment and Loan Originations. Net loans held-for-investment increased 269% from $1.05 billion at December 31, 2003 to $3.86 billion at September 30, 2004. At the time of the acquisition, Hawthorne had $2.26 billion in loans. The following are the loans held-for-investment balances by product type:


	September 30, 2004			December 31, 2003
	(Dollars in thousands)
Single family	$	957,825		$	3,193
Multi-family		2,235,427			935,063
Commercial real estate		435,075			108,560
Construction		213,656			—
Land		55,786			—

Total real estate loans		3,897,769			1,046,816
Business and other loans		13,399			5,711

Total loans		3,911,168			1,052,527
Net deferred fees, premiums and discounts		(11,740	)		(953	)
Allowance for loan losses		(36,846	)		(3,942	)

Total loans held-for-investment, net	$	3,862,582		$	1,047,632

We retained for investment a record $1.19 billion, or 100%, of our core loan originations for the first nine months of 2004, compared to $510.7 million, or 75%, for the first nine months of 2003. Our core loan originations during the first nine months of 2004 totaled $1.19 billion compared to $684.3 million during the first nine months of 2003. We define core loan originations as total loan originations net of loans that are funded through our strategic alliance with Greystone Servicing Corporation, a Fannie Mae Delegated Underwriting and Servicing (“DUS”) lender, and our other broker and conduit channels. Our total loan originations during the first nine months of 2004 equaled $1.31 billion, primarily consisting of multi-family and commercial real estate loans, compared to $805.5 million for the first nine months of 2003. Our total and core loan originations pipeline was $353 million and $322 million at September 30, 2004, respectively. We project significant loan growth during the fourth quarter of 2004 driven by strong volumes of adjustable-rate core loan originations, with the loan origination pipeline floating with market interest rates. Our regulatory loan-to-one borrower limit was $58.2 million at September 30, 2004.

Deposits. Total deposits increased from $645.6 million at December 31, 2003 to $2.30 billion at September 30, 2004. At the time of the acquisition, Hawthorne had $1.75 billion of deposits in 15 branches. Hawthorne’s deposit base had a greater percentage of term deposits and reduced our percentage of transaction accounts (which consist of savings accounts, money market accounts and demand deposits) to total deposits to 51.6% at September 30, 2004 from 60.1% at December 31, 2003. Of our transaction account deposits at September 30, 2004, the majority was from Los Angeles, Orange, Riverside, San Diego, and Ventura counties, with business deposits accounting for $266.5 million of the total. The deposit franchise consisted of approximately 68,000 accounts at September 30, 2004, served by 20 banking offices with an average of $115 million in deposits per branch. At September 30, 2004, we had approximately 51,000 transaction accounts with an average balance of approximately $23,000, and approximately 17,000 time deposit accounts with an average balance of approximately $64,000. Our emphasis continues to be attracting transaction accounts by developing relationships in the communities we serve with our borrower base and related small businesses. On October 4, 2004, we opened our Beverly Hills banking office. The Bank’s Financial Services Group accounted for $70.2 million of transaction deposits at September 30, 2004. The remaining amount of our deposits are comprised of certificates of deposit.

Borrowings. Another primary source of funds are borrowings, primarily FHLB advances, securities sold under agreements to repurchase, a warehouse line of credit and junior subordinated debentures. Total borrowings amounted to $963.3 million at December 31, 2003 compared to $2.02 billion at September 30, 2004.

Advances from the FHLB amounted to $822.5 million at December 31, 2003 and $1.89 billion at September 30, 2004. At the time of the acquisition, Hawthorne had $729.7 million of advances from the FHLB. As part of the balance sheet restructuring in connection with the acquisition of Hawthorne, we prepaid $331.0 million of Hawthorne’s FHLB advances that had a weighted average interest cost of 4.53%. Advances from the FHLB are made pursuant to several different credit programs, each of which has its own interest rate and range of maturities. We utilize FHLB advances as a funding source for our banking operations due to the attractive interest rates currently offered by the FHLB and to manage our interest rate risk by extending duration with this low cost funding source.

Reverse repurchase agreements amounted to $74.5 million at December 31, 2003 compared to a balance of zero at September 30, 2004. The decline in reverse repurchase agreements reflects our desire to replace these short-term liabilities with longer-term deposits and advances from the FHLB. Trust preferred securities amounted to $52.5 million at December 31, 2003 compared to $135.2 million of junior subordinated debentures at September 30, 2004. At the time of the acquisition, Hawthorne had $52.6 million of junior subordinated debentures. On January 1, 2004, we adopted FIN 46R which deconsolidated the trust subsidiaries and changed the classification of the related debt from trust preferred securities to junior subordinated debentures. During 2004, we issued an additional $25.8 million of junior subordinated debentures in three transactions to unconsolidated trust subsidiaries. The trusts were able to purchase the junior subordinated debentures primarily through the issuance of $25.0 million of trust preferred securities which had substantially identical terms as the junior subordinated debentures. Net proceeds of $10.0 million from these transactions were contributed as capital to the Bank to support further growth and the remaining $15.0 million are being used for general corporate purposes, including the repurchase of the Company’s stock.

Stockholders’ Equity. Stockholders’ equity increased from $102.0 million at December 31, 2003 to $608.7 million at September 30, 2004. We issued 23,484,930 shares of our common stock to holders of Hawthorne common stock in connection with our acquisition of Hawthorne. The acquisition of Hawthorne created $344.3 million of goodwill and a core deposit intangible of $6.4 million. The core deposit intangible will be amortized over ten years. We also issued 1,009,850 options and 949,319 warrants to purchase our common stock for Hawthorne’s stock options and warrants consistent with the exchange ratio provided to Hawthorne’s shareholders in the Hawthorne acquisition. The increase in stockholders’ equity also reflects the $36.0 million in net income for the nine months ended September 30, 2004, partially offset by a $167,000 increase in net unrealized losses on securities, net of taxes. In addition, stockholders’ equity increased by $12.7 million due to the exercise of stock options, warrants and the delivery of restricted stock awards. In May 2004, we announced that our Board of Directors had authorized the repurchase of up to 2.5% of the Company’s proforma shares outstanding, giving effect to the Hawthorne acquisition, not to exceed $20 million in value. At September 30, 2004, we had repurchased 657,400 shares, at an average price of $18.39 for a total reduction in stockholders’ equity of $12.1 million. Our share repurchase authorization remains in effect. In July 2004, we announced that our Board of Directors had initiated a cash dividend policy and declared an initial cash dividend of $0.04 per share, or an aggregate of $2.1 million, which was paid on August 30, 2004. In October 2004, we declared a cash dividend of $0.05 per share to be paid on November 29, 2004. Our book value and tangible book value per share increased from $3.41 and $2.97 at December 31, 2003, respectively, to $11.20 and $4.51 at September 30, 2004, respectively.

Results of Operations

General. Our results of operations have historically been derived primarily from the results of two of our wholly owned subsidiaries, the Bank and CCM. Our results of operations are driven by our net interest income, which is the difference between interest income on interest-earning assets, consisting primarily of loans receivable, securities and other short-term investments, and interest expense on interest-bearing liabilities, consisting primarily of deposits and borrowings. Our results of operations are also driven, to a much smaller extent, by our generation of noninterest income, consisting of income from our mortgage banking operations (i.e., gains on sales of loans and mortgage banking fees), as well as retail banking, loan servicing and other fees. Other factors contributing to our results of operations include our provisions for loan losses, gains on sales of securities and income taxes, as well as the level of our noninterest expenses, such as compensation and benefits, occupancy and equipment and miscellaneous other operating expenses.

We reported net income of $18.0 million and $36.0 million for the three and nine months ended September 30, 2004, respectively, compared to $5.4 million and $14.3 million for the three and nine months ended September 30, 2003, respectively. Our results for the nine month period ended September 30, 2004 include the acquisition of Hawthorne for 118 days, as the transaction closed on June 4, 2004. This increase in net income also reflects a significant increase in net interest income resulting from an increase in interest-earning assets. During the three months ended September 30, 2004, we reported a return on average assets of 1.50% as compared to a return on average assets of 1.58% for the three months ended September 30, 2003. Our return on average equity and return on average tangible equity was 12.02% and 30.55% for the third quarter of 2004, respectively, compared to 23.84% and 27.89% for the third quarter of 2003, respectively. During the nine months ended September 30, 2004, we reported a return on average assets of 1.53% as compared to a return on average assets of 1.58% for the nine months ended September 30, 2003. Our return on average equity and return on average tangible equity was 15.05% and 30.95% for the nine months ended September 30, 2004, respectively, compared to 21.88% and 25.74% for the nine months ended September 30, 2003, respectively. The decline in our return on average equity for both the three and nine month periods of 2004 compared to the 2003 periods is due to the significantly higher equity we obtained as a result of the Hawthorne acquisition.

Net Interest Income. Net interest income is determined by our interest rate spread (i.e., the difference between the yields earned on our interest-earning assets and the rates paid on our interest-bearing liabilities) and the relative amounts of our interest-earning assets and interest-bearing liabilities. Net interest income totaled $37.9 million and $74.6 million during the three and nine months ended September 30, 2004, respectively, compared to $10.8 million and $28.9 million during the three and nine months ended September 30, 2003, respectively. The significant increase in net interest income in the 2004 periods reflects the substantial increase in interest-earning assets, primarily loans, which reflects both the impact of the Hawthorne acquisition as well as our strategy of growing our loan portfolio through our retention of our core loan originations. We believe that our loan portfolio will continue to grow, which will contribute to higher net interest income.

Our net interest margin was 3.49% and 3.42% during the three and nine months ended September 30, 2004, respectively, compared to 3.33% and 3.34% during the three and nine months ended September 30, 2003, respectively. Our net interest spread was 3.39% and 3.31% during the three and nine months ended September 30, 2004, respectively, compared to 3.27% and 3.24% during the three and nine months ended September 30, 2003, respectively. Excluding the net effect of the amortization or accretion of premiums or discounts resulting from the purchase accounting adjustments due to the Hawthorne acquisition, our net interest margin would have been 3.23% during both the three and nine months ended September 30, 2004, and our net interest spread would have been 3.11% and 3.12% during the three and nine months ended September 30, 2004, respectively.

Average Balances, Net Interest Income, Yields Earned and Rates Paid

The following tables set forth, for the periods indicated, information regarding (i) the total dollar amount of interest income from interest-earning assets and the resultant average yields; (ii) the total dollar amount of interest expense on interest-bearing liabilities and the resultant average rate; (iii) net interest income; (iv) interest rate spread; and (v) net interest margin. Information with respect to the Bank is based on average daily balances while certain information with respect to the Company and CCM is based on average month-end balances during the indicated periods. Footnote 5 presents certain information excluding the net effect of the amortization or accretion of premiums or discounts resulting from the purchase accounting adjustments due to the Hawthorne acquisition.


	Three Months ended September 30,
	2004(5)						2003
	Average Balance		Interest		Average Yield/ Cost		Average Balance		Interest		Average Yield/ Cost
	(Dollars in thousands)
Interest-earning assets:
Total loans(1)	$	3,755,796	$	50,777	5.41	%	$	780,855	$	11,425	5.85	%
Securities(2)		494,957		5,301	4.28			478,124		5,273	4.41
FHLB stock		85,241		891	4.18			32,749		345	4.21
Cash and cash equivalents(3)		3,750		18	1.92			7,970		17	0.85

Total interest-earning assets		4,339,744		56,987	5.25			1,299,698		17,060	5.25
Noninterest-earning assets		474,926						55,570

Total assets	$	4,814,670					$	1,355,268

Interest-bearing liabilities:
Deposits:
Transaction accounts(4)	$	1,122,315		4,559	1.62		$	300,680		1,569	2.07
Certificates of deposit		1,176,655		4,501	1.52			244,216		1,107	1.80

Total deposits		2,298,970		9,060	1.57			544,896		2,676	1.95
Securities sold under agreements to repurchase / Federal funds purchased		446		2	1.78			26,911		76	1.12
FHLB advances		1,644,687		8,437	2.04			623,385		2,941	1.87
Warehouse line of credit		—		—	—			22,421		121	2.14
Trust preferred/Junior subordinated debentures		135,321		1,611	4.74			35,500		438	4.89

Total interest-bearing liabilities		4,079,424		19,110	1.86			1,253,113		6,252	1.98

Noninterest-bearing deposits		101,268						8,756
Other noninterest-bearing liabilities		34,630						3,527

Total liabilities		4,215,322						1,265,396
Stockholders’ equity		599,348						89,872

Total liabilities and stockholders’ equity	$	4,814,670					$	1,355,268

Net interest-earning assets	$	260,320					$	46,585

Net interest income/interest rate spread			$	37,877	3.39	%			$	10,808	3.27	%



Net interest margin					3.49	%					3.33	%

(1)	The average balance of loans receivable includes loans for sale and is presented without reduction for the allowance for loan losses.

(2)	Consists of mortgage-backed securities and U.S. government securities which are classified available-for-sale, excluding gains or losses on these securities.

(3)	Consists of cash in interest-earning accounts and federal funds sold.

(4)	Consists of savings, money market accounts and other interest-bearing deposits.

(5)	The following table excludes the net effect of the amortization or accretion of premiums or discounts resulting from the purchase accounting adjustments due to the Hawthorne acquisition:


	Three Months Ended September 30, 2004 as Reported Above						Excluding Premium/ Discount Effect						Three Months Ended September 30, 2004 as Adjusted
	Average Balance		Interest		Average Yield/Cost		Average Balance			Interest			Average Balance		Interest		Average Yield/Cost
Total loans	$	3,755,796	$	50,777	5.41	%	$	13,660		$	(1,434	)	$	3,769,456	$	49,343	5.24	%
Total interest-earning assets		4,339,744		56,987	5.25			13,660			(1,434	)		4,353,404		55,553	5.10
Certificates of deposits		1,176,655		4,501	1.52			(3,535	)		1,182			1,173,120		5,683	1.93
Total deposits		2,298,970		9,060	1.57			(3,535	)		1,182			2,295,435		10,242	1.78
FHLB advances		1,644,687		8,437	2.04			254			(32	)		1,644,941		8,405	2.03
Junior subordinated debentures		135,321		1,611	4.74			(2,822	)		145			132,499		1,756	5.27
Total borrowings		1,780,454		10,050	2.25			(2,568	)		113			1,777,886		10,163	2.27
Total interest-bearing liabilities		4,079,424		19,110	1.86			(6,103	)		1,295			4,073,321		20,405	1.99
Cost of funds					1.82												1.94
Net interest income/interest rate spread			$	37,877	3.39	%				$	(2,729	)			$	35,148	3.11	%

Net interest margin					3.49	%											3.23	%


	Nine Months ended September 30,
	2004(5)						2003
	Average Balance		Interest		Average Yield/ Cost		Average Balance		Interest		Average Yield/ Cost
	(Dollars in thousands)
Interest-earning assets:
Total loans(1)	$	2,284,326	$	92,464	5.40	%	$	674,318	$	30,285	5.99	%
Securities(2)		552,685		17,773	4.29			448,365		15,570	4.63
FHLB stock		63,203		1,951	4.12			25,415		858	4.50
Cash and cash equivalents(3)		5,979		55	1.23			4,676		36	1.03

Total interest-earning assets		2,906,193		112,243	5.15			1,152,774		46,749	5.41
Noninterest-earning assets		241,273						51,128

Total assets	$	3,147,466					$	1,203,902

Interest-bearing liabilities:
Deposits:
Transaction accounts(4)	$	729,263		9,330	1.71		$	254,133		4,281	2.25
Certificates of deposit		659,634		7,633	1.55			194,622		2,938	2.02

Total deposits		1,388,897		16,963	1.63			448,755		7,219	2.15
Securities sold under agreements to repurchase / Federal funds purchased		35,356		297	1.12			95,153		929	1.31
FHLB advances		1,222,213		17,106	1.87			481,973		7,613	2.11
Warehouse line of credit		5,462		88	2.15			40,767		775	2.54
Trust preferred/Junior subordinated debentures		91,359		3,235	4.73			35,167		1,342	5.10

Total interest-bearing liabilities		2,743,287		37,689	1.84			1,101,815		17,878	2.17

Noninterest-bearing deposits		62,837						7,916
Other noninterest-bearing liabilities		22,095						7,203

Total liabilities		2,828,219						1,116,934
Stockholders’ equity		319,247						86,968

Total liabilities and stockholders’ equity	$	3,147,466					$	1,203,902

Net interest-earning assets	$	162,906					$	50,959

Net interest income/interest rate spread			$	74,554	3.31	%			$	28,871	3.24	%

Net interest margin					3.42	%					3.34	%

(1)	The average balance of loans receivable includes loans for sale and is presented without reduction for the allowance for loan losses.

(2)	Consists of mortgage-backed securities and U.S. government securities which are classified available-for-sale, excluding gains or losses on these securities.

(3)	Consists of cash in interest-earning accounts and federal funds sold.

(4)	Consists of savings, money market accounts and other interest-bearing deposits.

(5)	The following table excludes the net effect of the amortization or accretion of premiums or discounts resulting from the purchase accounting adjustments due to the Hawthorne acquisition:


	Nine Months Ended September 30, 2004 as Reported Above						Excluding Premium/ Discount Effect						Nine Months Ended September 30, 2004 as Adjusted
	Average Balance		Interest		Average Yield/Cost		Average Balance			Interest			Average Balance		Interest		Average Yield/Cost
Total loans	$	2,284,326	$	92,464	5.40	%	$	6,016		$	(2,266	)	$	2,290,342	$	90,198	5.25	%
Total interest-earning assets		2,906,193		112,243	5.15			6,016			(2,266	)		2,912,209		109,977	5.04
Certificates of deposits		659,634		7,633	1.55			(1,595	)		1,542			658,039		9,175	1.86
Total deposits		1,388,897		16,963	1.63			(1,595	)		1,542			1,387,302		18,505	1.78
FHLB advances		1,222,213		17,106	1.87			(72	)		(40	)		1,222,141		17,066	1.87
Junior subordinated debentures		91,359		3,235	4.73			(1,224	)		187			90,135		3,422	5.07
Total borrowings		1,354,390		20,726	2.04			(1,296	)		147			1,353,094		20,873	2.06
Total interest-bearing liabilities		2,743,287		37,689	1.84			(2,891	)		1,689			2,740,396		39,378	1.92
Cost of funds					1.79												1.88
Net interest income/interest rate spread			$	74,554	3.31	%				$	(3,955	)			$	70,599	3.12	%

Net interest margin					3.42	%											3.23	%

Rate/Volume Analysis

The following table sets forth the effects of changing rates and volumes on our net interest income. Information is provided with respect to (i) effects on interest income attributable to changes in rate (changes in rate multiplied by prior volume); (ii) effects on interest income attributable to changes in volume (changes in volume multiplied by prior rate); and (iii) changes in rate/volume (change in rate multiplied by change in volume).


	Nine Months ended September 30, 2004 Compared to Nine Months ended September 30, 2003
	Increase (decrease) due to
	Rate			Volume			Rate/ Volume			Total Net Increase (Decrease)
	(Dollars in thousands)
Interest-earning assets:
Total loans	$	(2,984	)	$	72,330		$	(7,167	)	$	62,179
Securities		(1,143	)		3,623			(277	)		2,203
FHLB stock		(72	)		1,275			(110	)		1,093
Cash and cash equivalents		7			10			2			19

Total net change in income on interest-earning assets		(4,192	)		77,238			(7,552	)		65,494

Interest-bearing liabilities:
Deposits:
Transaction accounts		(1,027	)		8,003			(1,927	)		5,049
Certificates of deposit		(685	)		7,032			(1,652	)		4,695

Total deposits		(1,712	)		15,035			(3,579	)		9,744
Securities sold under agreements to repurchase / Federal funds purchased		(135	)		(586	)		89			(632	)
FHLB advances		(866	)		11,693			(1,334	)		9,493
Warehouse line of credit		(119	)		(671	)		103			(687	)
Trust preferred securities/Junior subordinated debentures		(97	)		2,145			(155	)		1,893

Total net change in expense on interest-bearing liabilities		(2,929	)		27,616			(4,876	)		19,811

Change in net interest income	$	(1,263	)	$	49,622		$	(2,676	)	$	45,683

Interest Income. Total interest income amounted to $57.0 million and $112.2 million for the three and nine months ended September 30, 2004, respectively, compared to $17.1 million and $46.7 million for the three and nine months ended September 30, 2003, respectively. The increase in interest income reflects the substantial increases in interest-earning assets, primarily loans from the acquisition of Hawthorne and the greater retention of higher core loan originations.

Interest income on loans totaled $50.8 million and $92.5 million for the three and nine months ended September 30, 2004, respectively, compared to $11.4 million and $30.3 million for the three and nine months ended September 30, 2003, respectively. The

higher interest income for the 2004 periods reflects the increase in our average balance of loans receivable, resulting from the acquisition of Hawthorne and our ability to retain a larger amount of loan originations during the 2004 periods compared to the 2003 periods. We retained $542.4 million and $1.19 billion of core loan originations during the three and nine months ended September 30, 2004, respectively, compared to $221.8 million and $510.7 million during the three and nine months ended September 30, 2003, respectively, consisting primarily of loans secured by multi-family residential and commercial real estate properties. The average yield earned on our loans receivable amounted to 5.41% and 5.40% during the three and nine months ended September 30, 2004, respectively, compared to 5.85% and 5.99% for the three and nine months ended September 30, 2003, respectively. Excluding the effect of the discount accretion on loans resulting from the purchase accounting adjustments due to the Hawthorne acquisition, the average yield on our loans would have been 5.24% and 5.25% for the three and nine months ended September 30, 2004, respectively. The decline in the average yield reflected the overall decrease in market interest rates during such period.

Interest income on securities and other interest-earning assets, which consist of federal funds sold and FHLB stock, totaled $6.2 million and $19.8 million for the three and nine months ended September 30, 2004, respectively, compared to $5.6 million and $16.5 million for the three and nine months ended September 30, 2003, respectively. The effect on interest income of the increase in the average balance of securities during the 2004 periods compared to the 2003 periods was partially offset by a decrease in the average yield earned on such assets during these periods due to a general decline in market rates of interest. As a result, the average yield earned on securities and other interest-earning assets declined from 4.34% and 4.59% during the three and nine months ended September 30, 2003, respectively, compared to 4.25% and 4.24% for the three and nine months ended September 30, 2004, respectively.

Interest Expense. Total interest expense was $19.1 million and $37.7 million for the three and nine months ended September 30, 2004, respectively, compared to $6.3 million and $17.9 million for the three and nine months ended September 30, 2003, respectively. While our interest expense increased significantly due to the funding requirements for our balance sheet growth, the total cost of interest-bearing liabilities declined from 1.98% and 2.17% for the three and nine months ended September 30, 2003, respectively, to 1.86% and 1.84% for the three and nine months ended September 30, 2004, respectively. Our cost of funds, which includes the effect of noninterest-bearing deposits, decreased from 1.97% and 2.15% for the three and nine months ended September 30, 2003, respectively, to 1.82% and 1.79% for the three and nine months ended September 30, 2004, respectively. Excluding the net effect of the amortization or accretion of premiums or discounts resulting from the purchase accounting adjustments due to the Hawthorne acquisition, our rate on interest-bearing liabilities would have been 1.99% and 1.92% during the three and nine months ended September 30, 2004, respectively, and our cost of funds would have been 1.94% and 1.88% during the three and nine months ended September 30, 2004, respectively.

Interest expense on deposits totaled $9.1 million and $17.0 million during the three and nine months ended September 30, 2004, respectively, compared to $2.7 million and $7.2 million for the three and nine months ended September 30, 2003, respectively. The effect on interest expense of the increase in the average balance of deposits was partially offset by a decline in the average rate paid on deposits due to the general decline in market interest rates during such periods and the effect of the purchase accounting adjustments from the Hawthorne acquisition. The average rate on interest-bearing deposits declined to 1.57% and 1.63% for the three and nine months ended September 30, 2004, respectively, compared to 1.95% and 2.15% for the three and nine months ended September 30, 2003, respectively. Excluding the effect of the amortization of the premium on certificates of deposit from the purchase accounting adjustment due to the Hawthorne acquisition, our average rate on interest-bearing deposits would have been 1.78% during both the three and nine months ended September 30, 2004, respectively.

Interest expense on borrowings, consisting of FHLB advances, reverse repurchase agreements, the warehouse line of credit and trust preferred securities/junior subordinated debentures, amounted to $10.1 million and $20.7 million for the three and nine months ended September 30, 2004, respectively, compared to $3.6 million and $10.7 million for the three and nine months ended September 30, 2003, respectively. The average rate paid on borrowings was 2.25% and 2.04% for the three and nine months ended September 30, 2004, respectively, compared to 2.00% and 2.18% for the three and nine months ended September 30, 2003, respectively. Excluding the net effect of the amortization or accretion of premiums or discounts resulting from the purchase accounting adjustments due to the Hawthorne acquisition, our rate on borrowings would have been 2.27% and 2.06% for the three and nine months ended September 30, 2004, respectively. The higher average rate paid on borrowings during the three months ended September 30, 2004 compared to the three months ended September 30, 2003 reflects higher short and intermediate term interest rates during the current period. Since the increase in these rates largely occurred during the third quarter of 2004, the average rate paid on borrowings during the nine months ended September 30, 2004 is lower than the average rate paid during the nine months ended September 30, 2003.

Asset Quality and the Provision for Loan Losses. Our total loans increased 272% to $3.91 billion at September 30, 2004, from $1.05 billion at December 31, 2003. Our total loan portfolio is more diversified as a result of the Hawthorne acquisition. The most significant changes in the credit concentration levels of our total loan portfolio were in the multi-family and single family residential loan portfolios. The multi-family loan portfolio increased $1.30 billion to $2.24 billion at September 30, 2004, from $935.1 million at December 31, 2003; however, the credit concentration level decreased to 57% of the total loan portfolio at September 30, 2004, from 89% at December 31, 2003. This was primarily the result of the $954.6 million increase in the single family residential portfolio to

$957.8 million at September 30, 2004, from $3.2 million at December 31, 2003. The single family residential portfolio represents 24% of the total loan portfolio at September 30, 2004. The commercial real estate loan portfolio increased $326.5 million to $435.1 million at September 30, 2004, from $108.6 million at December 31, 2003, and the credit concentration level slightly increased from 10% to 11% of the total loan portfolio. Other additions to the total loan portfolio include construction and land loans, which total $269.4 million and represent 7% of the total loan portfolio at September 30, 2004.

Prior to the acquisition of Hawthorne, we had one nonaccrual loan, a commercial business line of credit, which had a $39,000 outstanding balance at September 30, 2004 and is currently performing in accordance with its restructuring agreement. The loan’s outstanding balance has declined from $129,000 at December 31, 2003, which was the only nonaccrual loan and troubled debt restructure at that date. Nonperforming loans had an outstanding principal balance of $5.1 million, or 0.10% of total assets, at September 30, 2004, with the increase in nonperforming loans resulting from our acquisition of Hawthorne. At September 30, 2004, our nonaccrual loans consist of seven single family residential loans with an outstanding balance of $5.1 million, one commercial business line of credit for $39,000 and 14 consumer loans for $22,000. We had no foreclosed assets at September 30, 2004 or December 31, 2003. At September 30, 2004, we had $2.2 million of outstanding principal balance of troubled debt restructured loans with $39,000 on nonaccrual status. The table below summarizes the activity in our allowance for loan losses for the periods shown:


	Three Months ended September 30,						Nine Months ended September 30,
	2004			2003			2004			2003
	(Dollars in thousands)
Balance, beginning of period	$	36,831		$	4,002		$	3,942		$	2,716
Provision for loan losses		—			—			—			1,286
Allowance acquired through purchase of Hawthorne		—			—			32,885			—
Amounts charged off		(23	)		(64	)		(24	)		(64	)
Recoveries on loans previously charged off		38			—			43			—

Balance, end of period	$	36,846		$	3,938		$	36,846		$	3,938

Our asset quality review, performed during the third quarter of 2004, was based on our asset classification process along with the prior classification process of Hawthorne, which we applied to the acquired loan portfolio. We used this current information, along with other qualitative and quantitative factors, updated industry and peer comparison data to calculate the allowance for loan losses. This review indicated that a provision for loan losses for the three and nine months ended September 30, 2004 was not required and that the allowance for loan losses is adequate to cover potential losses inherent in the loan portfolio. During the three months ended September 30, 2003, we recorded no provision for loan losses while we recorded a provision for loan losses of $1.3 million during the nine months ended September 30, 2003. Future additions to the allowance for loan losses may be required as a result of the factors described below.

Management establishes the allowance for loan losses commencing with the credit quality and historical performance of our multi-family, commercial real estate, single family residential, construction, and land loan portfolios, which accounts for virtually all of the loan portfolio. Our overall asset quality remains sound, as supported by its internal risk rating process of a more seasoned multi-family, commercial real estate and single family residential loan portfolio.

The allowance for loan losses is derived by analyzing the historical loss experience and asset quality within each loan portfolio segment, along with assessing qualitative environmental factors, and correlating it with the delinquency and classification status for each portfolio segment. We utilize a loan grading system with five classification categories, including assets classified as Pass, based upon credit risk characteristics which categorizes each loan asset by risk grade allowing for a more consistent review of similar loan assets. Management has also evaluated the loss exposure of classified loans, which are reviewed individually based on the evaluation of the cash flow, collateral, other sources of repayment, guarantors and any other relevant factors to determine the inherent loss potential in the credit.

Management considers the following qualitative environmental factors in determining the allocated loss factors when analyzing the allowance for loan losses: the levels of and trends in past due, nonaccrual and impaired loans; levels of and trends in charge-offs and recoveries; the trend in volume and terms of loans; the effects of changes in credit concentrations; the effects of changes in risk selection and underwriting standards, and other changes in lending policies, procedures and practices; the experience, ability and depth of management and other relevant staff; national and local economic trends and conditions; and industry conditions.

The overall adequacy of the allowance for loan losses is reviewed by the Bank’s Internal Asset Review Committee on a quarterly basis and submitted to the Board of Directors for approval. The Internal Asset Review Committee’s responsibilities consist of risk management, as well as problem loan management, which include ensuring proper risk grading of all loans and analysis of specific allocations for all classified loans.

Management believes that its allowance for loan losses at September 30, 2004 was adequate. Nevertheless, there can be no assurance that additions to such allowance will not be necessary in future periods, particularly as we continue to grow our loan portfolio. In addition, various regulatory agencies, as an integral part of their examination process, periodically review our valuation allowance. These agencies may require increases to the allowance based on their judgments of the information available to them at the time of their examination.

As of September 30, 2004, we have a reserve for undisbursed loan principal balances of $2.0 million recorded in other liabilities, predominantly in connection with construction loans that we acquired from Hawthorne. We have a total of $161.4 million of undisbursed loan principal balances at September 30, 2004.

Noninterest Income. The following table sets forth information regarding our noninterest income for the periods shown.


	Three Months ended September 30,				Nine Months ended September 30,
	2004		2003		2004		2003
	(Dollars in thousands)
Noninterest income:
Gain on sale of loans	$	72	$	198	$	214	$	1,744
Mortgage banking fees, net		137		244		444		604
Loan related fees		2,217		312		3,603		861
Retail banking fees		588		23		801		52
Other income		601		314		1,183		915
Gain on sale of securities		—		395		2,152		3,559

Total noninterest income	$	3,615	$	1,486	$	8,397	$	7,735

Noninterest income was $3.6 million and $8.4 million for the three and nine months ended September 30, 2004, respectively, compared to $1.5 million and $7.7 million for the three and nine months ended September 30, 2003, respectively. Our noninterest income amounted to 6.0% and 7.0% of total revenues (which is comprised of total interest income and total noninterest income) during the three and nine months ended September 30, 2004, respectively, compared to 8.0% and 14.2% for the three and nine months ended September 30, 2003, respectively. This ratio declined as we continued to benefit from a significantly higher percentage of our core loan originations, which results in interest income becoming a significantly larger component of our revenues, and the decrease in revenue from the gain on sale of loans. The nine months ended September 30, 2004 only includes the activities of Hawthorne following the close of the acquisition on June 4, 2004. The increase in loan related fees and retail banking fees during the 2004 periods compared to the 2003 periods is largely due to the Hawthorne acquisition. Loan related fees includes loan prepayment fees of $2.0 million and $3.3 million for the three and nine month periods ended September 30, 2004, respectively, compared to $286,000 and $753,000 for the three and nine month periods ended September 30, 2003, respectively. The increase in loan prepayment fees reflects higher loan prepayments largely due to the loans acquired in the Hawthorne acquisition. Our noninterest income included gains on sales of loans and securities of $72,000 and $2.4 million for the three and nine month periods ended September 30, 2004, respectively, compared to $593,000 and $5.3 million for the three and nine month periods ended September 30, 2003, respectively.

Noninterest Expenses. The following table sets forth information regarding our noninterest expenses for the periods shown.


	Three Months ended September 30,				Nine Months ended September 30,
	2004		2003		2004		2003
	(Dollars in thousands)
Noninterest expenses:
Compensation and benefits	$	6,148	$	2,019	$	11,810	$	5,650
Severance		—		—		—		671
Non-cash stock compensation		29		—		87		353
Occupancy and equipment		2,131		344		3,205		844
Professional and consulting		369		149		779		663
Marketing		422		216		1,104		570
Technology		496		87		837		276
Insurance premiums and assessment costs		582		134		1,117		329
Merger-related		494		—		914		—
Amortization of core deposit intangible		203		—		261		—
Loss on early extinguishment of debt		—		320		1,204		1,243
Other		2,023		438		3,426		1,227

Total noninterest expenses	$	12,897	$	3,707	$	24,744	$	11,826

Our noninterest expenses totaled $12.9 million and $24.7 million for the three and nine month periods ended September 30, 2004, respectively, compared to $3.7 million and $11.8 million for the three and nine month periods ended September 30, 2003, respectively. Our noninterest expenses for the nine months ended September 30, 2004 only include the activities of Hawthorne following the close of the acquisition on June 4, 2004. The increase during the 2004 periods compared to the 2003 periods is primarily due to higher personnel and operational costs, including occupancy, technology, marketing and insurance costs largely related to the additional operations from the acquisition of Hawthorne and due to our internal growth in operations. We recorded $1.2 million in costs associated with the early extinguishment of FHLB advances for both the nine month periods ended September 30, 2004, and 2003. We recorded $203,000 and $261,000 of amortization of the core deposit intangible for the three months and nine months ended September 30, 2004, respectively, as a result of the acquisition of Hawthorne. We incurred $494,000 and $914,000 of merger-related costs during the three months and nine months ended September 30, 2004, respectively, due to the cancellation of our data and item processing contracts and to record retention bonuses for certain Hawthorne employees during the transition.

Income Taxes. We recognized $10.6 million and $22.2 million of income tax expense during the three and nine months ended September 30, 2004, respectively compared to $3.2 million and $9.2 million for the three and nine months ended September 30, 2003, respectively. Our effective tax rate was 37.0% and 38.1% for the three and nine month periods ended September 30, 2004, respectively, compared to 37.6% and 39.3% for the three and nine month periods ended September 30, 2003, respectively. The reduction of the Company’s effective tax rate during the periods ended September 30, 2004 compared to the year ago periods reflects the realization of low income housing and other tax credits, and the origination of income property loans in enterprise zones that generate certain state tax benefits.

Liquidity and Capital Resources

Liquidity. The objective of liquidity management is to ensure that we have the continuing ability to maintain cash flows that are adequate to fund our operations and meet our debt obligations and other commitments on a timely and cost-effective basis. Our liquidity management is both a daily and long-term function of funds management. Liquid assets are generally invested in short-term investments such as federal funds sold. If we require funds beyond our ability to generate them internally, various forms of both short-and long-term borrowings provide an additional source of funds.

Liquidity management at the Bank focuses on its ability to generate sufficient cash to meet the funding needs of current loan demand, deposit withdrawals, principal and interest payments with respect to outstanding borrowings and to pay operating expenses. It is the Bank’s policy to maintain greater liquidity than required in order to be in a position to fund loan originations and investments. The Bank monitors its liquidity in accordance with guidelines established by its Board of Directors and applicable regulatory requirements. The Bank’s need for liquidity is affected by its loan activity, net changes in deposit levels and the scheduled maturities of its borrowings. Liquidity demand resulting from net reductions in deposits is usually caused by factors over which the Bank has limited control. The principal sources of the Bank’s liquidity consist of deposits, interest and principal payments and prepayments, its ability to sell assets at market prices and its ability to pledge its unencumbered assets as collateral for borrowings, advances from the FHLB of San Francisco and reverse repurchase agreements. At September 30, 2004, the Bank had $397.0 million in available FHLB borrowing capacity, and $27.0 million of unencumbered securities available to either be borrowed against or sold. Furthermore, we have historically been able to sell loans in excess of their carrying values during varying interest rate cycles. Consequently, based on our past experience, management believes that the Bank’s loans can generally be sold for more than their carrying values. We also have the ability to securitize a portion of our loans. In connection with the Hawthorne acquisition, we securitized approximately $27.0 million of Hawthorne’s single family residential loans and subsequently sold them, resulting in a gain on sale of securities of $1.2 million during June 2004. At September 30, 2004, the Bank had outstanding commitments (including undisbursed loan principal balances) to originate loans of $221.9 million. Certificates of deposit which are scheduled to mature within one year totaled $981.2 million, excluding purchase accounting adjustments, at September 30, 2004, and borrowings that are scheduled to mature within the same period amounted to $1.04 billion, excluding purchase accounting adjustments, at such date.

Liquidity management at the holding company level focuses on the Company’s ability to generate sufficient cash to fund its operating expenses. At September 30, 2004, our annual interest payments with respect to our outstanding junior subordinated debentures amounted to $6.9 million in the aggregate, based on the applicable interest rate at that date. Such interest payments are currently expected to be funded by cash and liquid investments at the Company, which amounted to $17.7 million at September 30, 2004, including $2.0 million of an unencumbered mortgage-backed security. The Company also has the ability to receive dividends from the Bank. The availability of dividends from the Bank is limited by various statutes and regulations. It is possible, depending upon the financial condition of the Bank, and other factors, that the Office of Thrift Supervision (“OTS”) could assert that payments of dividends or other payments by the Bank are an unsafe or unsound practice. At September 30, 2004, the Bank could dividend up to $64.1 million to us without having to file an application with the OTS, provided the OTS received prior notice of such distribution under applicable OTS regulations.

The Company has issued $77.5 million of trust preferred securities through its eight unconsolidated trust subsidiaries and acquired $51.0 million of trust preferred securities that Hawthorne had previously issued. In connection with the issuance or acquisition of these trust preferred securities, the Company has committed to irrevocably and unconditionally guarantee the following payments or distributions with respect to the trust preferred securities to the holders thereof to the extent that the Company’s unconsolidated trust subsidiaries have not made such payments or distributions: (i) accrued and unpaid distributions, (ii) the redemption price, and (iii) upon a dissolution or termination of a trust, the lesser of the liquidation amount and all accrued and unpaid distributions and the amount of the assets of the trust remaining available for distribution. The proceeds received in connection with the issuance of such trust preferred securities were utilized by such trusts to purchase an aggregate of $132.5 million of junior subordinated debentures issued by the Company. On January 1, 2004, we adopted FIN 46R which deconsolidated the trust subsidiaries and changed the classification of the related debt from trust preferred securities to junior subordinated debentures.

We do not have material financial guarantees or other contractual commitments that are reasonably likely to adversely affect liquidity. As of September 30, 2004, the FHLB issued three letters of credit for a total of $82.5 million. The purpose of these letters of credit is to fulfill the collateral requirements for three deposits totaling $70.0 million placed by the State of California with the Bank. These letters of credit are issued in favor of the State Treasurer of the State of California and mature over the next two months. The maturities coincide with the maturities of the State’s deposits. There are no issuance fees associated with these letters of credit; however, the Bank pays a monthly maintenance fee of 15 basis points per annum.

Capital Resources. The following table reflects the Bank’s actual levels of regulatory capital as of September 30, 2004 and the applicable minimum regulatory capital requirements as well as the regulatory capital requirements that apply to be deemed “well capitalized” pursuant to the OTS’ prompt corrective action requirements.


	Actual				For capital adequacy purposes				To be well capitalized under prompt corrective action provisions
	Amount		Ratio		Amount		Ratio		Amount		Ratio
	(Dollars in thousands)
Total risk-based capital (to risk-weighted assets)(1)	$	387,953	11.6	%	$	267,707	8.0	%	$	334,634	10.0	%
Tier I (core) capital (to risk-weighted assets)(1)		351,107	10.5			133,853	4.0			200,780	6.0
Tier I (core) capital (to adjusted assets)(1)		351,107	7.6			184,036	4.0			230,045	5.0
Tangible capital (to tangible assets)(1)		351,107	7.6			69,014	1.5			N/A	N/A

(1)	Tangible and Tier 1 leverage (or core) capital are computed as a percentage of adjusted total assets of $4.60 billion. Risk-based capital is computed as a percentage of adjusted risk-weighted assets of $3.35 billion.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Our primary market risk continues to be market interest rate volatility and its potential impact on net interest income and net interest margin resulting from changes in interest rates. We monitor our interest rate risk on at least a quarterly basis. Our operations do not subject us to foreign exchange or commodity price risk and we do not own any trading assets. Our real estate loan portfolio is concentrated primarily within California making us subject to the risk associated with the local economy. For a complete discussion of our asset and liability management process and our interest rate sensitivity, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the year ended December 31, 2003.

The Bank uses a dynamic, internally generated, interest sensitivity analysis that incorporates detailed information on the Bank’s loans, investments, deposits and borrowings into an asset/liability management model designed for financial institutions. This analysis measures interest rate risk by computing changes in the Bank’s projected net interest income (taking into account the Bank’s budget, index lags, rate floors, lifetime and periodic caps, scheduled and unscheduled repayment of principal, redirection of cash flows and lags of deposit rates) in the event of assumed changes in interest rates. This analysis assesses the effect on projected net interest income in the event of a parallel increase or decrease in the yield curve, assuming such increase/decrease occurs ratably over the next twelve months and remains constant over the subsequent twelve months. Based on the sensitivity analysis performed by the Bank, the projected net interest income is higher in all interest rate scenarios (flat, rising and declining) than its historical net interest income due to the projected growth in the Bank’s balance sheet. A gradual parallel increase in interest rates of 200 basis points during the twelve months following September 30, 2004 would increase the projected higher net interest income by 3.0%, while a parallel decline in interest rates of 100 basis points would increase the projected higher net interest income by 1.2% reflecting a more asset-sensitive balance sheet than at December 31, 2003.

Management believes that all of the assumptions used in the foregoing analysis to evaluate the vulnerability of its projected net interest income to changes in interest rates approximate actual experiences and considers them to be reasonable. However, the interest

rate sensitivity of the Bank’s assets and liabilities and the estimated effects of changes in interest rates on the Bank’s projected net interest income as indicated above could vary substantially if different assumptions were used or if actual experience differs from the projections on which they are based.

Though the Company relies on a net interest income sensitivity/simulation model to manage its interest rate risk, the Company does monitor the interest rate sensitivity gap of the Bank’s interest-earning assets and interest-bearing liabilities. At September 30, 2004, the Bank’s interest-earning assets, which mature or reprice within one year, exceeded its interest-bearing liabilities with similar characteristics by $585.1 million, or 11.80% of total assets.

The following table summarizes the anticipated maturities or repricing of the Bank’s assets and liabilities as of September 30, 2004, based on the information and assumptions set forth in the notes below.


	Within Twelve Months			More Than One Year to Three Years			More Than Three Years to Five Years			Over Five Years			Total
	(Dollars in thousands)
Assets:
Cash and due from banks	$	—		$	—		$	—		$	20,074		$	20,074
Securities(1)(2)		177,398			135,544			91,415			166,034			570,391
Single family residential loans(3)		796,506			147,369			27,255			3,397			974,527
Multi-family residential loans(3)		1,618,143			472,401			136,557			8,326			2,235,427
Commercial real estate loans(3)		277,413			82,152			65,686			9,824			435,075
Construction loans (3)		213,656			—			—			—			213,656
Land loans (3)		55,786			—			—			—			55,786
Commercial business and consumer loans(3)		13,399			—			—			—			13,399
Other assets(4)		—			—			—			438,346			438,346

Total		3,152,301			837,466			320,913			646,001			4,956,681

Liabilities:
Certificates of deposit	$	983,444		$	127,695		$	2,456		$	—		$	1,113,595
Noninterest-bearing demand deposit accounts		—			—			—			107,081			107,081
Interest-bearing demand deposit accounts(5)		40,133			28,094			12,040			—			80,267
Money market accounts(5)		361,519			253,064			108,456			—			723,039
Savings accounts(5)		146,953			102,866			44,086			—			293,905
FHLB advances(6)		1,035,193			826,222			340			27,043			1,888,798
Other liabilities(7)		—			—			—			41,770			41,770

Total		2,567,242			1,337,941			167,378			175,894			4,248,455

Excess (deficiency) of total assets over total liabilities	$	585,059		$	(500,475	)	$	153,535		$	470,107

Cumulative excess (deficiency) of total assets over total liabilities	$	585,059		$	84,584		$	238,119		$	708,226

Cumulative excess (deficiency) of total assets over total liabilities as a percentage of total assets		11.80	%		1.71	%		4.80	%		14.29	%

(1)	Comprised of U.S. government securities and mortgage-backed securities which are classified as available-for-sale as adjusted to take into account estimated prepayments.

(2)	Includes FHLB stock.

(3)

Includes loans held-for-sale. Adjustable-rate loans are included in the period in which interest rates are next scheduled to adjust rather than in the period in which they are due, and fixed-rate loans are included in the periods in which they are scheduled to be repaid, based on scheduled amortization, in each case as adjusted to take into account estimated prepayments.

(4)	Includes loan premiums, deferred fees, goodwill, the allowance for loan losses, Bank-owned life insurance, accrued interest receivable and other assets.

(5)

Although the Bank’s interest-bearing demand deposit accounts, money market accounts and savings accounts are subject to immediate potential repricing, management considers a certain amount of such accounts to be core deposits having longer effective durations. The above table assumes the following allocation of principal balances for interest-bearing demand deposit accounts, money market accounts and savings accounts: 50% during the first twelve months, 35% during 1-3 years and 15%

during 3-5 years. If the principal balance for interest-bearing demand deposit accounts, money market accounts and savings accounts were allocated entirely to the first twelve months, the Bank’s interest-earning assets which mature or reprice within one year would have exceeded its interest-bearing liabilities with similar characteristics by $36.5 million, or 0.74% of total assets.

(6)	Fixed-rate advances are included in the periods in which they are scheduled to mature.

(7)	Includes accrued interest payable and other liabilities.

At September 30, 2004, 52% of the Bank’s loans held-for-investment are tied to an index that adjusts each month or mature within one month. In addition, 66% of the Bank’s loans held-for-investment have interest rates scheduled to reset within six months or mature within six months and 68% reset or mature within one year from September 30, 2004. The Bank’s total loan portfolio had a weighted average duration to reset or maturity of approximately 13 months at September 30, 2004.

Item 4. Controls and Procedures

As of the end of the period covered by this report, the Company carried out an evaluation, under the supervision and with the participation of the Company’s management, including the Company’s Chief Executive Officer along with the Company’s Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures pursuant to the Securities Exchange Act of 1934 (“Exchange Act”) Rule 13a-15(b). Based upon that evaluation, the Company’s Chief Executive Officer along with the Company’s Chief Financial Officer concluded that the Company’s disclosure controls and procedures are effective in timely alerting them to material information relating to the Company (including its consolidated subsidiaries) required to be included in the Company’s periodic SEC filings. There have been no changes in the Company’s internal controls over financial reporting that have materially affected, or are reasonably likely to materially affect, the Company’s internal controls over financial reporting.

Disclosure controls and procedures are the Company’s controls and other procedures which are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

PART II

Item 1. Legal Proceedings

We are involved in a variety of litigation matters in the ordinary course of our business and anticipate that we will become involved in new litigation matters from time to time in the future. Based on our current assessment of these matters, we do not presently believe that these existing matters, either individually or in the aggregate, are likely to have a material adverse impact on our financial condition, results of operations, cash flows or prospects. However, we will incur legal and related costs concerning litigation and may, from time to time, determine to settle some or all of the cases, regardless of our assessment of our legal position. The amount of legal defense costs and settlements in any period will depend on many factors, including the status of cases, the number of cases that are in trial or about to be brought to trial, and the opposing parties’ aggressiveness in pursuing their cases and their perception of their legal position.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

The following table sets forth the repurchases of the Company’s common stock by month during the three months ended September 30, 2004.

Issuer Purchases of Equity Securities


Period	Total Number of Shares Purchased(1)	Average Price Paid Per Share		Total Number of Shares Purchased as Part of Publicly Announced Program	Approximate Dollar Value of Shares that May Yet be Purchased Under the Plans or Programs
July 1, 2004 - July 31, 2004	22,900	$	17.37	22,900	$	11,048,000
August 1, 2004 – August 31, 2004	124,000	$	20.91	124,000	$	8,455,000
September 1, 2004 – September 30, 2004	26,000	$	20.95	26,000	$	7,910,000
Total	172,900	$	20.45	172,900	$	7,910,000

(1)

All of the shares repurchased during the three months ended September 30, 2004 were repurchased under the Company’s first stock repurchase plan, approved by our Board of Directors on May 17, 2004 and announced on May 26, 2004, which authorizes the purchase, at management’s discretion, of up to 2.5% of the Company’s proforma outstanding shares of common stock, giving effect to the acquisition of Hawthorne Financial Corporation, not to exceed $20.0 million in value. We did not impose a time period for the repurchase activity under the repurchase plan.

Item 3. Defaults Upon Senior Securities

None

Item 4. Submission of Matters to a Vote of Security Holders

None

Item 5. Other Information.

Not Applicable

Item 6. Exhibits


EXHIBIT NO		DESCRIPTION
3.1		Articles of Incorporation of Commercial Capital Bancorp, Inc., as amended. (1)

3.1.1		Amendment to the Articles of Incorporation of Commercial Capital Bancorp, Inc., as amended. (12)

3.2		Bylaws of Commercial Capital Bancorp, Inc., as amended. (2)

4.0		Specimen stock certificate of Commercial Capital Bancorp, Inc. (1)

4.1		Indenture dated November 28, 2001 between Commercial Capital Bancorp, Inc. and Wilmington Trust Company. (1)

4.2		Indenture dated March 15, 2003 between Commercial Capital Bancorp, Inc. and Wells Fargo Bank, National Association. (1)

4.3		Indenture dated March 26, 2003 between Commercial Capital Bancorp, Inc. and State Street Bank & Trust Company. (1)

4.4		Indenture dated September 25, 2003 between Commercial Capital Bancorp, Inc. and Wilmington Trust Company. (5)

4.5		Indenture dated December 19, 2003 between Commercial Capital Bancorp, Inc. and Wilmington Trust Company. (6)

4.6		Indenture dated March 31, 2004 between Commercial Capital Bancorp, Inc. and Deutsche Bank Trust Company Americas. (7)

4.7		Indenture dated May 27, 2004 between Commercial Capital Bancorp, Inc. and Wilmington Trust Company. (8)

4.8		Indenture dated June 22, 2004 between Commercial Capital Bancorp, Inc. and Wilmington Trust Company. (8)

4.9		Form of Hawthorne Financial Corporation Warrants. (9)

4.10		Registration Rights Agreement dated December 12, 1995 by and among Hawthorne Financial Corporation and each of the Investors named therein. (9)

4.11		First Supplemental Indenture dated June 4, 2004 between Commercial Capital Bancorp, Inc. and Wilmington Trust Company. (12)

4.12		First Supplemental Indenture dated June 4, 2004 between Commercial Capital Bancorp, Inc. and Wilmington Trust Company. (12)

4.13		First Supplemental Indenture dated June 4, 2004 between Commercial Capital Bancorp, Inc. and Wilmington Trust Company. (12)

4.14		First Supplemental Indenture dated June 4, 2004 between Commercial Capital Bancorp, Inc. and The Bank of New York. (12)

10.1		Commercial Capital Bancorp, Inc. 2000 Stock Plan. (1)

10.2		Third Amended and Restated Warehousing Credit and Security Agreement between Commercial Capital Mortgage, Inc. and Residential Funding Corporation dated as of June 30, 2003. (5)

10.3		Employment Agreement dated September 13, 2001 between Commercial Capital Bancorp, Inc. and Stephen H. Gordon. (1) (3)

10.4		Employment Agreement dated September 13, 2001 between Commercial Capital Bank, FSB and Stephen H. Gordon. (1) (3)

10.5		Form of Employment Agreement between Commercial Capital Bancorp, Inc. and certain executive officers. (4)(13)

10.6		Form of Employment Agreement between Commercial Capital Bank, FSB and certain executive officers. (4)(14)

10.7		Amended and Restated Declaration of Trust among Commercial Capital Bancorp, Inc., Wilmington Trust Company and the Administrative Trustees of CCB Capital Trust I dated November 28, 2001. (1)

10.8		Amended and Restated Declaration of Trust among Commercial Capital Bancorp, Inc., Wells Fargo Bank, National Association, First Union Trust Company and the Administrative Trustees of CCB Capital Trust III dated March 15, 2003. (1)

10.9		Amended and Restated Declaration of Trust among Commercial Capital Bancorp, Inc., State Street Bank & Trust Company of Connecticut, N.A. and the Administrative Trustees of CCB Statutory Trust II dated March 26, 2003. (1)


10.10		Guarantee Agreement between Commercial Capital Bancorp, Inc. and Wilmington Trust Company dated November 28, 2001. (1)

10.11		Guarantee Agreement between Commercial Capital Bancorp, Inc. and Wells Fargo Bank, National Association dated March 15, 2003. (1)

10.12		Guarantee Agreement between Commercial Capital Bancorp, Inc. and State Street Bank & Trust Company of Connecticut, N.A. dated March 26, 2003. (1)

10.13		Membership Interest Purchase Agreement dated as of July 1, 2003, among Stephen H. Gordon, David S. DePillo, Scott F. Kavanaugh and Kerry C. Kavanaugh of the Kavanaugh Family Trust, dated November 20, 1995, and Commercial Capital Bancorp, Inc. (1)

10.14		Split Dollar Agreement dated July 23, 2003 between Commercial Capital Bank, FSB and Stephen H. Gordon. (1) (15)

10.15		Salary Continuation Agreement dated July 23, 2003 between Commercial Capital Bank, FSB and Stephen H. Gordon. (1) (15)

10.15.1		Second Amendment to the Commercial Capital Bank Salary Continuation Agreement dated July 23, 2003 for Stephen H. Gordon. (15)

10.16		Executive Bonus Agreement dated July 23, 2003 between Commercial Capital Bank, FSB and Stephen H. Gordon. (1) (15)

10.16.1		First Amendment to the Commercial Capital Bank Executive Bonus Agreement dated July 23, 2003 for Stephen H. Gordon. (15)

10.17		Form of Indemnification Agreement entered into between Commercial Capital Bancorp, Inc. and Stephen H. Gordon. (1) (16)

10.18		Form of Indemnification Agreement entered into between Commercial Capital Bank, FSB and Stephen H. Gordon. (1) (17)

10.19		Amended and Restated Declaration of Trust among Commercial Capital Bancorp, Inc., Wilmington Trust Company and the Administrative Trustees of CCB Capital Trust IV dated September 25, 2003. (5)

10.20		Guarantee Agreement between Commercial Capital Bancorp, Inc. and Wilmington Trust Company dated September 25, 2003. (5)

10.21		Amended and Restated Declaration of Trust among Commercial Capital Bancorp, Inc., Wilmington Trust Company and the Administrative Trustees of CCB Capital Trust V dated December 19, 2003. (6)

10.22		Guarantee Agreement between Commercial Capital Bancorp, Inc. and Wilmington Trust Company dated December 19, 2003. (6)

10.23		Amended and Restated Trust Agreement among Commercial Capital Bancorp, Inc., Deutsche Bank Trust Company Americas, Deutsche Bank Trust Company Delaware and the Administrative Trustees of CCB Capital Trust VI dated March 31, 2004. (7)

10.24		Guarantee Agreement between Commercial Capital Bancorp, Inc. and Deutsche Bank Trust Company Americas dated March 31, 2004. (7)

10.25		Amended and Restated Declaration of Trust among Commercial Capital Bancorp, Inc., Wilmington Trust Company and the Administrative Trustees of CCB Capital Trust VII dated May 27, 2004. (12)

10.26		Guarantee Agreement between Commercial Capital Bancorp, Inc. and Wilmington Trust Company dated May 27, 2004. (12)

10.27		Amended and Restated Declaration of Trust among Commercial Capital Bancorp, Inc., Wilmington Trust Company and the Administrative Trustees of CCB Capital Trust VIII dated June 22, 2004. (12)

10.28		Guarantee Agreement between Commercial Capital Bancorp, Inc. and Wilmington Trust Company dated June 22, 2004. (12)

10.29		Executive Performance-Based Compensation Policy. (10)

10.30		Commercial Capital Bancorp, Inc. 2004 Long –Term Incentive Plan. (10)

10.32		Hawthorne Financial Corporation 2001 Stock Option Plan. (11)


11		Statement regarding computation of per share earnings. (See Note 3 to the Unaudited Consolidated Financial Statements included in Item 1 hereof.)

14		Standards of Conduct (Ethics Policy). (6)

31.1		Section 302 Certification by the Chief Executive Officer filed herewith.

31.2		Section 302 Certification by the Chief Financial Officer filed herewith.

32		Section 906 Certification by the Chief Executive Officer and Chief Financial Officer furnished herewith.

(1)	Incorporated by reference from the Registration Statement on Form S-1 (No. 333-99631) filed with the SEC on September 16, 2002, as amended.

(2)	Incorporated by reference from the Annual Report on Form 10-K for the year ended December 31, 2002 (No. 000-50126) filed with the SEC on March 27, 2003.

(3)	The Company and the Bank have entered into substantially identical agreements with Mr. DePillo.

(4)	Incorporated by reference from the Form 10-Q for the quarter ended March 31, 2003 filed with the SEC on May 14, 2003.

(5)	Incorporated by reference from the Form 10-Q for the quarter ended September 30, 2003 filed with the SEC on November 14, 2003.

(6)	Incorporated by reference from the Annual Report on Form 10-K for the year ended December 31, 2003 filed with the SEC on March 12, 2004.

(7)	Incorporated by reference from the Form 10-Q for the quarter ended March 31, 2004 filed with the SEC on May 10, 2004.

(8)	Incorporated by reference from the Registration Statement on Form S-3 (No. 333-117583) filed with the SEC on July 26, 2004.

(9)	Incorporated by reference from Hawthorne Financial Corporation’s current Report on Form 8-K filed with the SEC on February 7, 1996. The Company assumed the Hawthorne Financial Corporation Warrants following the Company’s acquisition of Hawthorne on June 4, 2004.

(10)	Incorporated by reference from the Registration Statement on Form S-4 (No. 333-113869) filed with the SEC on March 23, 2004.

(11)	Incorporated by reference from the Registration Statement on Form S-8 (No. 333-116643) filed with the SEC on June 18, 2004. The Company assumed the Hawthorne Financial Corporation 2001 Stock Option Plan following the Company’s acquisition of Hawthorne on June 4, 2004.

(12)	Incorporated by reference from the Form 10-Q for the quarter ended June 30, 2004 filed with the SEC on August 9, 2004.

(13)	We have entered into substantially identical agreements with Messrs. Hagerty, Williams, Sanchez, Walsh and Noble with the only differences being with respect to titles and salary.

(14)	The Bank has entered into substantially identical agreements with Messrs. Hagerty, Sanchez, Walsh, Williams and Noble with the only differences being with respect to titles and salary.

(15)	The Bank has entered into substantially identical agreements with Messrs. DePillo, Hagerty, Sanchez, Walsh, Williams and Noble with the only difference being the amounts paid under the agreement.

(16)

We have entered into substantially identical agreements with each of our directors. The former directors of Hawthorne Financial Corporation who have become directors of the Company in connection with the consummation of the merger of the Company and Hawthorne on June 4, 2004 will enter into similar agreements.

(17)

The Bank has entered into substantially identical agreements with each of its directors. The former directors of Hawthorne Financial Corporation who have become directors of the Bank in connection with the consummation of the merger of the Company and Hawthorne on June 4, 2004 will enter into similar agreements.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


COMMERCIAL CAPITAL BANCORP, INC.

By:		/s/ STEPHEN H. GORDON
		Stephen H. Gordon Chairman of the Board and Chief Executive Officer

November 9, 2004

By:

/s/ CHRISTOPHER G. HAGERTY

Christopher G. Hagerty

Executive Vice President, Chief Financial

Officer and Director

November 9, 2004

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Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents