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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

OR

Commission File No.: 000-50126

COMMERCIAL CAPITAL BANCORP, INC.

(Name of Registrant as Specified in its charter)

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

Indicate by check 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 April 30, 2004: 30,113,938

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PART I

COMMERCIAL CAPITAL BANCORP, INC. AND SUBSIDIARIES

Unaudited Consolidated Statements of Financial Condition

(Dollars in thousands, except per share data)

See accompanying notes to consolidated financial statements.

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COMMERCIAL CAPITAL BANCORP, INC. AND SUBSIDIARIES

Unaudited Consolidated Statements of Income

(Dollars in thousands, except per share data)

See accompanying notes to consolidated financial statements.

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COMMERCIAL CAPITAL BANCORP, INC. AND SUBSIDIARIES

Unaudited Consolidated Statements of Stockholders’ Equity and Comprehensive Income

For the Three Months ended March 31, 2004

(Dollars and number of shares in thousands)

See accompanying notes to consolidated financial statements.

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COMMERCIAL CAPITAL BANCORP, INC. AND SUBSIDIARIES

Unaudited Consolidated Statements of Cash Flows

(Dollars in thousands)

See accompanying notes to consolidated financial statements.

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COMMERCIAL CAPITAL BANCORP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

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”) and ComCap Financial Services, Inc. (“ComCap”).

Information used to calculate earnings per share for the three months ended March 31, 2004 and 2003 was as follows:

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.

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 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.

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COMMERCIAL CAPITAL BANCORP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)

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:

In May 2003, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 150, Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity (“SFAS 150”). SFAS 150 requires issuers to classify as liabilities (or assets in some circumstances) three classes of freestanding financial instruments that embody obligations for the issuer. Generally, SFAS 150 is effective for financial instruments entered into or modified after May 31, 2003, and otherwise will be effective as of January 1, 2004, except for mandatorily redeemable instruments. For certain mandatorily redeemable financial instruments, SFAS 150 will be effective for the Company on January 1, 2005. The effective date has been deferred indefinitely for certain other types of mandatorily redeemable financial instruments. SFAS 150 is to be implemented by reporting the cumulative effect of a change in an accounting principle for financial instruments created before May 15, 2003 and still existing at the beginning of the interim period of adoption. The adoption of SFAS 150 did not have a material effect on the Company’s financial statements, as the trust preferred securities of the Company’s subsidiary trusts continued to be reported as a liability on the consolidated statements of financial condition.

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COMMERCIAL CAPITAL BANCORP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)

In December 2003, the FASB issued FASB Interpretation No. 46 (revised December 2003)(“FIN 46R”), Consolidation of Variable Interest Entities, which addresses how a business enterprise should evaluate whether it has a controlling financial interest in an entity through means other than voting rights and accordingly should consolidate the entity. FIN 46R replaces FASB Interpretation No. 46, Consolidation of Variable Interest Entities, which was issued in January 2003. FIN 46R applies to all variable interests in Variable Interest Entities (“VIEs”) beginning on January 1, 2004. For VIEs that must be consolidated under FIN 46R, the assets, liabilities and noncontrolling interests of the VIE initially would be measured at their carrying amounts with any difference between the net amount added to the balance sheet and any previously recognized interest being recognized as the cumulative effect of an accounting change. If determining the carrying amounts is not practicable, fair value at the date FIN 46R first applies may be used to measure the assets, liabilities and noncontrolling interest of the VIE. The Company adopted FIN 46R on January 1, 2004 to existing VIEs in which it has variable interests and the effect on the Company’s consolidated statement of financial condition was an increase of approximately $1.6 million to both assets and liabilities due to the deconsolidation of subsidiary trusts.

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 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 will adopt this new standard prospectively as of April 1, 2004 and it is not expected to have a material impact on the Company’s financial statements.

On January 27, 2004, the Company entered into an agreement and plan of merger pursuant to which it would acquire Hawthorne Financial Corporation (“Hawthorne Financial”), the parent of Hawthorne Savings. In connection with the transaction, the Company would issue 1.9333 shares of its common stock for each share of Hawthorne Financial. The proposed acquisition is subject to shareholder and regulatory approval. Hawthorne Savings, the wholly owned federal savings bank subsidiary of Hawthorne Financial, is headquartered in El Segundo, California, operates 15 branches in Southern California and as of March 31, 2004 had $2.74 billion in assets, $2.23 billion in net loans, $1.76 billion in deposits and $191.5 million in stockholders’ equity. Based on the closing price of the Company’s stock on January 27, 2004, the transaction is valued at approximately $440 million, excluding the value of any unexercised options and warrants.

On March 31, 2004, the Company issued $10.3 million of junior subordinated debentures to an unconsolidated trust subsidiary, CCB Capital Trust VI (the “Trust”) with an interest rate of three month LIBOR plus 265 basis points. The initial interest rate was established at 3.76%. The Trust 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.

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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:

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 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”). During the third quarter of 2003, we formed Commercial Capital Asset Management, Inc., which will provide asset management services to alternative investment funds to be made available to accredited investors.

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

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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, or 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, $7.5 million in September 2003 and $10.0 million in December 2003, with the net proceeds contributed to the Bank to support additional growth. 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. On March 31, 2004, we issued an additional $10.3 million of junior subordinated debentures through an unconsolidated trust subsidiary and contributed the net proceeds to the Bank.

Effective April 1, 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, geographic concentrations of loans and other reasons as determined by management.

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 December 2003, the Bank announced its plans to open a banking office in Beverly Hills, California which is expected to open during the middle of 2004 and which will serve the most populous county in California. We have recently announced our intentions to open a banking office in Malibu, California scheduled for June 2004 and our Newport Coast, California banking office in 2005. 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 $34.2 million of deposits, predominately transaction accounts, during its first six months of operations.

Announced Acquisition of Hawthorne Financial

On January 27, 2004, the Company entered into an agreement and plan of merger pursuant to which it would acquire Hawthorne Financial, the parent of Hawthorne Savings. In connection with the transaction, the Company would issue 1.9333 shares of CCBI common stock for each share of Hawthorne Financial. The proposed acquisition is subject to shareholder and regulatory approval. Hawthorne Savings, the wholly owned federal savings bank subsidiary of Hawthorne Financial, is headquartered in El Segundo, California, operates 15 branches in Southern California and as of March 31, 2004 had $2.74 billion in assets, $2.23 billion in net loans, $1.76 billion in deposits and $191.5 million in stockholders’ equity. Based on the closing price of the Company’s stock on January 27, 2004, the transaction is valued at approximately $440 million, excluding the value of any unexercised options and warrants.

Strategic Alliances

In February 2004, the Company entered into a strategic partnership with TIMCOR Financial Corporation (“TIMCOR”), one of California’s leading qualified intermediaries facilitating tax-deferred real estate exchanges pursuant to Section 1031 of the Internal Revenue Code of 1986. TIMCOR will 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.

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In March 2004, the Company entered into a partnership 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. SVN will 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.

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 months ended March 31, 2004 and 2003, see Note 4 of our unaudited consolidated financial statements included in Item 1 hereof.

Changes in Financial Condition

General. Total assets increased $236.5 million, or 14%, from $1.72 billion at December 31, 2003 to $1.96 billion at March 31, 2004. The growth in total assets is primarily due to the increase in loans held for investment which increased by $149.3 million, or 14%, as we retained a record 99% of originated loans during the first three months of 2004. Total deposits have grown by $90.7 million, or 14%, from $645.6 million at December 31, 2003 to $736.3 million at March 31, 2004, with transaction accounts comprising 65% of total deposits and 33% of these transaction accounts consisting of business relationships.

Our balance sheet management strategies during the first quarter of 2004 included a reduction of our mortgage-backed securities portfolio, which decreased by $53.9 million during the three months ended March 31, 2004 from sales and cash flows received on these securities, in anticipation of significant loan growth during the second quarter of 2004. We also continued to fund our balance sheet growth with FHLB borrowings that have extended durations at a low cost.

Cash and Cash Equivalents. Cash and cash equivalents (consisting of cash and due from banks, restricted cash and federal funds sold) amounted to $4.1 million at December 31, 2003 and $71.9 million at March 31, 2004. We had $64.0 million of federal funds sold at March 31, 2004 which will be a source of liquidity for the origination of loans during the second quarter of 2004. 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 three months ended March 31, 2004, our securities portfolio declined by $53.9 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 $506.8 million, or 25.9%, of our total assets at March 31, 2004. At March 31, 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 March 31, 2004, our securities had an aggregate of $3.6 million of unrealized gains.

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Net Loans Held for Investment and Loan Originations. Net loans held for investment increased 14% from $1.05 billion at December 31, 2003 to $1.20 billion at March 31, 2004. The realignment of our lending operations in April 2003 resulted in the Bank becoming the originator of most of our loans and enabled the Bank to hold a significantly increased percentage of our core loan originations. We retained for investment $227.8 million, or a record 99%, of our core loan originations for the first quarter of 2004, compared to $131.1 million, or 51%, for the first quarter of 2003. Our core loan originations during the first quarter of 2004 totaled $230.1 million compared to $257.2 million during the first quarter 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 DUS lender, and our other broker and conduit channels. As a result of the previously discussed realignment of our lending operations, we anticipate retaining a greater percentage of our core loan originations than we were able to retain prior to the realignment since the Bank was limited by federal regulations to purchasing less than 50% of CCM’s loan production. Our total loan originations during the first quarter of 2004 equaled $259.4 million, primarily consisting of multi-family and commercial real estate loans, compared to $267.0 million for the first quarter of 2003. Our total and core loan originations pipeline was $297 million and $243 million at March 31, 2004, respectively.

Our average loan size for both the multi-family and commercial real estate loans held for investment portfolios at March 31, 2004 was $1.4 million and $1.6 million, respectively.

Deposits. Total deposits increased from $645.6 million at December 31, 2003 to $736.3 million at March 31, 2004. Our emphasis continues to be gathering transaction accounts (which consist of savings accounts, money market accounts, negotiable order of withdrawal, or NOW, accounts and demand deposits). At March 31, 2004, transaction accounts amounted to $481.7 million, or 65.4% of total deposits, as compared to $388.0 million, or 60.1% of total deposits, at December 31, 2003. Deposits from business clients increased as a percentage of transaction accounts from 20% at December 31, 2003 to 33% at March 31, 2004. The Bank’s Financial Services Group accounted for $34.2 million of transaction deposits at March 31, 2004, less than six months after its formation. 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, warehouse line of credit and junior subordinated debentures. Total borrowings amounted to $963.3 million at December 31, 2003 compared to $1.10 billion at March 31, 2004.

Advances from the FHLB of San Francisco amounted to $822.5 million at December 31, 2003 and $970.5 million at March 31, 2004. Advances from the FHLB of San Francisco are made pursuant to several different credit programs, each of which has its own interest rate and range of maturities. We utilize FHLB of San Francisco advances as a funding source for our banking operations due to the attractive interest rates currently offered by the FHLB of San Francisco 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 $58.5 million at March 31, 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 of San Francisco. CCM’s mortgage banking operations are funded by a warehouse line of credit with an interest rate of one month LIBOR plus 100 basis points. The warehouse line of credit amounted to $13.8 million at December 31, 2003 and $2.1 million at March 31, 2004. Trust preferred securities amounted to $52.5 million at December 31, 2003 compared to $64.4 million of junior subordinated debentures at March 31, 2004. 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. In March 2004, we issued an additional $10.3 million of junior subordinated debentures to an unconsolidated trust subsidiary with an interest rate of three month LIBOR plus 265 basis points. The initial interest rate was established at 3.76%. The trust was able to purchase the junior subordinated debentures primarily through the issuance of $10.0 million of trust preferred securities which had substantially identical terms as the junior subordinated debentures. The net proceeds from the offering were contributed as capital to the Bank to support further growth.

Stockholders’ Equity. Stockholders’ equity increased from $102.0 million at December 31, 2003 to $113.8 million at March 31, 2004. The increase in stockholders’ equity reflected the $7.1 million in net income. In addition, stockholders’ equity increased by $1.1 million due to the exercise of stock options and a $3.5 million increase in net unrealized gains on securities, net of taxes. Our book value and tangible book value per share increased from $3.41 and $2.97 at December 31, 2003, respectively, to $3.78 and $3.35 at March 31, 2004, respectively.

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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 by our generation of noninterest income, consisting of income from our mortgage banking operations (i.e., cash gains on sales of loans and mortgage banking fees), as well as banking, servicing and trust 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 $4.2 million and $7.1 million for the three months ended March 31, 2003 and 2004, respectively. This increase in net income reflects a significant increase in net interest income resulting from an increase in interest-earning assets. During the three months ended March 31, 2004, we reported a return on average assets of 1.56% as compared to a return on average assets of 1.70% for the three months ended March 31, 2003. Our return on average equity and return on average tangible equity was 26.30% and 29.91% for the first quarter of 2004, respectively, compared to 20.60% and 24.48% for the first quarter of 2003, respectively.

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 $13.8 million and $8.1 million during the three months ended March 31, 2004 and 2003, respectively. The significant increase in net interest income in the first quarter of 2004 reflects the substantial increase in interest-earning assets, primarily loans and securities. The increase in our interest-earning assets reflects our strategy of growing our loan portfolio through our retention of multi-family and commercial real estate loans and believe that our loan portfolio will continue to grow which will contribute to higher net interest income.

Our net interest margin was 3.13% and 3.39% during the three months ended March 31, 2004 and 2003, respectively. We believe that the decline in the net interest margin (i.e., net interest income divided by average interest-earning assets) is due to our origination of adjustable-rate multi-family and commercial real estate loans, while prudently managing the duration of our interest-bearing liabilities, which positions the balance sheet to be more asset sensitive in anticipation of rates rising off of historic lows.

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

The following table sets 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.