When you're competing against companies that generate more revenue in a week than you do in a year, it pays to keep a sharp focus.

That's the strategy at Commercial Capital Bancorp.

It's one of California's top lenders to apartment owners, despite the fact that its two main rivals are banking behemoths Citigroup and Washington Mutual

Commercial Capital succeeds by staying true to its core business, analysts say. At the end of the first quarter, 87% of its loans were in multifamily housing.

"They're really actively taking market share," said James Abbott of Friedman, Billings, Ramsey & Co., which helped take Commercial Capital public. "They're focusing on it while the others are playing defense."

Commercial Capital currently controls 4% of the California multifamily lending market, up from 3% a year ago. That's still a pretty small slice of a growing market.

"There's plenty of room for upside," said Stephen Gordon, Commercial Capital's chief executive.

California is the nation's largest multifamily housing market, he says. The market will only get bigger, thanks to population growth in the Golden State and the increasingly high cost of owning a home there.

One strength Commercial Capital brings to the table is a talented management team, analysts say.

One of the firm's top lenders is David DePillo, who doubles as company president. He previously headed multifamily lending at Home Savings and helped start Commercial Capital six years ago.

"People view him as a rainmaker," said analyst Abbott. "If he were to leave, the stock would crater."

That's not likely to happen. DePillo has lots of net worth tied to the stock and hasn't shown any desire to leave, Abbott says.

"It's hard to find a hungry management team in bank land," he said. "But this management team is maybe in the top 10% for how hungry they are."

Commercial Capital will need to expand its team to manage its growth pace, Abbott says. The company's assets have more than tripled in the past year. Abbott sees them doubling again to reach $10 billion by the end of 2006.

It grew its operation substantially on June 4, when Commercial Capital made its first major acquisition by picking up Hawthorne Financial.

Hawthorne added 15 branches to Commercial Capital's tiny, four-branch system. That greatly boosted its deposits.

"It's a critical acquisition for them because it improved the quality of their funding base dramatically," Abbott said. "The Street was becoming increasingly concerned about their funding base."

Commercial Capital probably won't stop with that buy, says analyst Mike McMahon of Sandler O'Neill & Partners, which also helped take Commercial Capital public. He expects the company to do similar deals down the road.

Even before the Hawthorne buy, Commercial Capital was posting huge growth numbers. Its second-quarter revenue almost doubled from the prior year to $25.8 million. Profit shot up 87% to 28 cents a share.

Analysts polled by First Call expect full-year earnings to rise 83% to $1.21 a share, then move up 47% next year to $1.78.

Commercial Capital's strong bottom line is partly the result of an efficient operation.

It spent only 25% of its revenue on noninterest expenses in the second quarter. That's much more efficient than the average bank's ratio of 60%, according to the Federal Deposit Insurance Corp.

Most of Commercial's systems have been in place since the day the company started, CEO Gordon says. Revenue grew much faster than the costs needed to support that growth. And its branch network is small, which also saves money.

Efficiency helps Commercial Capital add deposits, too. Its costs are so low it can pay higher rates than rivals, Gordon says. It's paying nearly 2% on savings and money market accounts.

Branching Out

The company is growing its branch network. It'll have three new Southern California branches by early next year. It also will put its first branch in Northern California by year-end when it opens a site in San Mateo.

"The next phase will be to add more branches in Northern California," Gordon said.

Commercial Capital does a good job of maintaining high-quality assets. It's had no bad loans to speak of. Its focus on apartment buildings, which rarely go into default, helps.

Still, credit quality poses a risk. It can only get worse for Commercial Capital, McMahon says.

A spike in interest rates could also hurt, he adds. But if rates rise at a steady pace, that's good.

Commercial Capital set up its balance sheet a year ago so it gains from rising rates, Gordon says. Its interest margin rose 21 basis points from the first quarter to the second.

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