DOUBLE-DOWN
Commercial Capital Uses New-Found Heft to Make Real Estate Bet
By ANDREW SIMONS
Irvine-based thrift Commercial Capital Bancorp Inc. is at the top of its game, thanks to the surging real estate market of the past few years.
Commercial Capital’s stock has been one of Orange County’s top performers, climbing some 365% in the past year at recent check.
The stock gains have given Commercial Capital a market value of about $570 million.
Last week, Commercial Capital took its market clout for a spin, offering to buy El Segundo-based Hawthorne Financial Corp. for about $493 million in a stock deal.
The combined company would have $4.4 billion in assets,more than doubling Com-mercial Capital’s size.
Commercial Capital has about $1.7 billion in assets, while Haw-thorne has about $2.7 billion.
Together, the bank would have $2.4 billion in deposits.
The deal, which must be approved by regulators and shareholders, is expected to close in the summer.
“Hawthorne is known for being a premier deposit franchise with a tremendous retail presence all around the South Bay-coastal region of Los Angeles County that also has a leading income property, residential and construction lending franchise,” said Stephen Gordon, Commercial Capital’s chief executive, in a statement. “This strategic acquisition creates one of the largest and most profitable savings institutions headquartered in Southern California and one of the few franchises with a statewide presence.”
In its buy of Hawthorne, Commercial Capital is betting that there are more good times ahead for real estate,particularly in Southern California.
Hawthorne, which has 15 bank branches to Commercial Capital’s four, draws much of its income from lending money to homeowners, apartment and commercial real estate investors and developers.
Thanks to the heady real estate market, Commercial Capital, which lends money to real estate investment companies and wealthy individuals primarily to buy apartment complexes, is the fastest-growing California thrift or bank by assets in the past three years, according to the Federal Deposit Insurance Corp.
A few days before the Hawthorne buy was announced, Commercial Capital said its assets at the end of the fourth quarter had more than doubled to $1.7 billion, versus a year earlier.
Net income in the December quarter increased 92% to $6.2 million from a year earlier.
“The fourth-quarter results showed strong growth in loans, deposits, revenues and net income, and the company’s performance metrics continued to improve,” Gordon said.
Hawthorne, with branches stretching from Westlake Village to San Diego, also reported earnings last week. The savings and loan said low interest rates contributed to a 7.9% decline in net interest income to $19.7 million. Net income still grew 30% to $7.7 million.
The possibility of higher interest rates could be a mixed bag for banks such as Commercial Capital and Hawthorne, which rely on business from a healthy real estate market to turn profits.
The increasing federal debt, the weak dollar, inflation concerns with the rebounding economy and other factors have sources predicting rates will rise a point or two this year.
Mortgage Gains
Since Commercial Capital’s founding in 1998 by Gordon, the bank has grown fast by generating loans through its mortgage lending arm,which has been able to take advantage of its branch system coupled with low interest rates,while raising equity capital and deposits through its bank to make the loans.
Commercial Capital Bancorp is the holding company of savings and loan Commercial Capital Bank and its mortgage lending arm, Commercial Capital Mortgage Co.
Once loans are made by Commercial Capital’s mortgage arm, they are sold back to the thrift. That gives Commercial Capital Bank an income stream, which boosts equity.
The result is a company with big growth but one that also is vulnerable to a rise in loan delinquencies and a rise in interest rates, which most industry observers expect to see this year,a notion confirmed last week by Federal Reserve Chairman Alan Greenspan.
Rising interest rates threaten to halt the hot real estate market by dampening demand for home loans and making it more expensive to build residential and commercial properties.
But some see Commercial Capital and Hawthorne as having some immunity from a flattening home real estate market because they draw a big part of income from apartment loans.
“The rental market is growing,I don’t see that changing anytime soon,” said Richard Eckert, an analyst with Newport Beach’s Roth Capital Partners LLC.
